OBLIGATIONS

Obligation (Art. 1156) is a juridical necessity to give, to do, or not to do.

Requisites of Obligations:

1. Vinculum Juris or Juridical Tie the efficient cause established by various sources of obligations,
which may arise either from bilateral or unilateral acts of persons;
2. Active Subject one who can demand the fulfillment of the obligation;
3. Passive Subject from whom the obligation is juridically demandable;
4. Object the prestation or conduct required to be observed by the debtor (to give, to do, or not to do); it
is not a thing.

Requisites of Prestation:

a. It must be licit;
b. It must be physically and juridically possible;
c. It must be determinate or determinable; and
d. It must have a possible equivalent in money.

Sources of Obligation (Art. 1157):

1. Law
Obligations derived from law are not presumed. Only those expressly determined in the Civil
Code or in special laws are determinable and shall be regulated by the precepts of law which
establishes them (Art. 1158).

2. Contracts
Obligations arising from contracts have the force of the law between the contracting parties and
should be complied with in good faith (Art. 1159).

3. Quasi-Contracts
Those juridical relations arising from lawful, voluntary, and unilateral acts, by virtue of which the
parties become bound to each other, based on the principle that no one shall be unjustly
enriched or benefited at the expense of another (Art. 2142).

Kinds of Quasi-Contracts:

a. Negotiorum Gestio voluntary management of the property of affairs of another without the
knowledge or consent of the latter (Art. 2144-2153).
b. Solutio Indebiti juridical relation which is created when something is received when there is no
right to demand it and it was unduly delivered by mistake (Art. 2154-2163).
c. Other Kinds those mentioned in Art. 2164-2175.

4. Acts or Omissions Punished by Law / Delicts

5. Quasi-Delicts

Nature and Effects of Obligation (Art. 1163-1178)

Right of Creditor to the Fruits (Art. 1164)

1. Before Delivery personal right

2. After Delivery real right

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Personal Right distinguished from Real Right

Personal Right Real Right

Jus ad rem, a right enforceable only against
a definite group of person or group of
persons.
Right pertaining to the person to demand
from another, as a definite passive subject,
the fulfillment of a prestation to give, to do, or
not to do.
Jus in re, a right enforceable against the
whole world.
Right pertaining to a person over a specific
thing, without a passive subject individually
determined against whom such right may be
personally enforced.

Obligations of the Debtor:

Determinate:
1. Specific Performance
2. Take care of the thing with the proper diligence of a good father of the family unless another standard
of care is required by law or stipulated by the parties (Art. 1163).
3. Deliver all accessions and accessories of the thing although not mentioned (Art. 1166).
4. To be liable for damages in case of the breach due to delay, fraud, negligence or contravention of tenor
thereof (Art. 1165).

Generic:
1. To deliver the thing of the quality intended by the parties, taking into account the purpose of the
obligation, intent of the parties and other circumstances.
2. To be liable for damages in case of the breach due to delay, fraud, negligence or contravention of tenor
thereof (Art. 1165).

Rights of the Creditor in Real Obligations to Give

Determinate:
1. To compel specific performance with right to be indemnified for damages.
2. To demand rescission of the obligation with right to recover damages.
3. To demand payment of the damages when it is only the feasible remedy.
4. If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have
the interest, he shall be responsible for any fortuitous event until he has effected delivery.

Generic:
1. To ask for performance of the obligation.
2. To ask that the obligation be complied with at the expense of the debtor.
3. To recover damages in case of breach of obligation.

Rights of the Creditor in Personal Obligations (Art. 1167-1168):

Positive Personal Obligation

1. Have the obligation performed or executed at the expense of the obligor (except when the prestation
consists of an act where the personal qualifications of the obligor are the principal motive for the
establishment of the obligation. In such case the remedy is an action for damages under Art. 1170.)
2. As that what has been poorly done be undone.
3. Recover damages because of breach of the obligation.

Negative Personal Obligation

1. Have it undone at the expense of the obligor.
2. To ask for damages.
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Kinds of Breach of Obligations:
1. Involuntary debtor is unable to comply with his obligation because of fortuitous event, thus the
debtor is not liable for damages.
2. Voluntary the debtor, in the performance of the obligation, is guilty of:
A. Default (Mora) delay in the fulfillment of the obligation with respect to time.

Delay in the performance of the obligation, however, must be either malicious or negligent. If the
delay is only due to inadvertence without any malice or negligence, the obligor cannot be liable
under Art. 1170.

a.1. Mora Solvendi delay of the debtor to perform his obligation.

Ex re obligation is to give.
Ex persona obligation is to do.

a.2. Mora Accipiende delay of the creditor in accepting delivery of the thing which is the
object of the obligation.
a.3 Compensatio Morae delay of the parties or obligors in reciprocal obligation.

Rules on Default:

General Rule: Demand is necessary. No demand no delay. Mere expiration of the period
fixed by the parties will not cause delay.

Exceptions:
a. When the obligation or law expressly so declares.
b. When the time for fulfillment of the obligation is of the essence of the contract.
c. When demand would be useless.

B. Fraud (Dolo) conscious and intentional proposition to evade the normal fulfillment of an
obligation.

Implies some kind of malice or dishonesty and cannot cover cases of mistake and errors in
judgment made in good faith. In such case obligor can be held liable for damages.

Dolo Causante distinguished from Dolo Incidente

Dolo Causante Dolo Incidente

Present only during the time of birth or
perfection of the obligation.
Purpose is to secure the consent of the
other to enter into a contract.
Results in the vitiation of consent.
Gives rise to a right of an innocent party
to annul the contract.
Voidable Obligation.
Present only during the performance
of a pre-existing obligation.
Purpose is to evade the normal
fulfillment of an obligation.
Results in the non-fulfillment of
breach of the obligation.
Gives rise to right of the obligee to
recover damages from the debtor
and not a cause for annulment of the
contract.
Valid Obligation.

C. Negligence (Culpa) any voluntary act or omission, there being no malice, which prevents the
normal fulfillment of an obligation.

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 Kinds of Negligence:

1. Culpa Contractual fault or negligence of obligor by virtue of which he is unable to

perform his obligation arising from a pre-existing contract.
2. Culpa Aquiliana/Quasi-Delict fault or negligence of a person, whose failure to
observe the required diligence to the obligation causes damage to another.
3. Culpa Criminal fault or negligence which results in the commission of a crime.

D. Breach through Contravention of the tenor of Obligation includes not only any illicit act which
impairs the strict and faithful fulfillment of the obligation, but also every kind of defective performance.

Different Kinds of Obligation:

1. Pure Obligation
The effectivity or extinguishment does not depend on the fulfillment or non-fulfillment of a condition or
on the expiration of a term or period, and is immediately demandable.
The quality of immediate demandability is not violated when a reasonable period is granted for
performance.

2. Conditional Obligation
Effectivity is subordinated to the fulfillment or non-fulfillment of a future and uncertain fact or event.
When the debtor binds himself to pay when his means permit him to do so, the obligation shall be
deemed to be one with a period (Art. 1180).
Classification of Conditions:
a. Suspensive fulfillment of the condition results in the acquisition of rights arising out of the
obligation.
b. Resolutory fulfillment of condition results in the extinguishment of rights arising out of the
obligation.
c. Potestative fulfillment of the condition depends on the will of a party to the obligation.
d. Casual fulfillment of the condition depends on chance and/or the will of a third person.

e. Mixed fulfillment of condition depends partly on the will of a party to the obligation and partly
on chance and/or the will of a third person.

f. Possible condition is capable of realization according to nature, law, public policy or good
customs.

g. Impossible condition is not capable of realization according to nature, law, public policy or
good customs.
h. Positive involves performance of an act.
i. Negative involves the omission of an act.
j. Divisible susceptible of partial performance or realization.
k. Indivisible not susceptible of partial performance or realization.
l. Conjunctive there are several conditions, which must all be realized.
m. Alternative there are several conditions, but only one must be realized.
n. Express condition is stated expressly.
o. Implied condition is tacit.

Effects of Loss, Deterioration, and Improvement in Real Obligations

a. Loss (when it perishes; goes out of commerce; disappears in such a way that its existence is
unknown or it cannot be recovered.)
1. Without Debtors Fault obligation is extinguished.
2. With Debtors Fault obligation is converted into one of indemnity for damages.

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 b. Deterioration
1. Without Debtors Fault impairment to be borne by the creditor.
2. With Debtors Fault creditor may choose between bringing an action for rescission of the
obligation or bringing an action for specific performance with damages in either case.
c. Improvement
1. By the Things Nature or by Time shall inure to the benefit of the creditor.
2. At the Debtors Expense debtor shall have no other right than that granted to a
usufructuary.

3. Obligation With a Period

Those whose demandability or extinguishment is subject to the expiration of a term or period.
What is suspended by the term is not the acquisition of the right or the effectivity of the obligation
but its demandability.

Classification of Term or Period:

a. Suspensive (Ex Die) obligation becomes demandable only upon arrival of a day certain.
b. Resolutory (In Diem) arrival of a day certain terminates the obligation.
c. Legal granted by law.
d. Conventional stipulated by parties.
e. Judicial fixed by courts.
f. Definite date/time is known beforehand.
g. Indefinite date/time of a day certain is unknown.
h. Express when specifically stated.
i. Tacit as when a person undertakes to do some work which can be done only during a particular
season.

Period for Whose Benefit: For the benefit of both parties.

Exception: If it can be shown that the period has been established in favor of the creditor or of the
debtor.

When the Debtor Loses his Right to Make Use of the Period
a. He becomes insolvent; unless he gives a security or guarantee for the debt (the insolvency
need not be judicially declared).
b. He does not furnish to the creditor the guaranties or securities which he has promised.
c. By his own act he has impaired said guaranties or securities after their establishment and when
through a fortuitous event they disappear, unless he immediately gives new ones equally
satisfactory.
d. He violates any undertaking in consideration of which the creditor agreed to a period.
e. He attempts to abscond.

4. Alternative Obligation
It is one where out of two or more prestations which may be given, only one is due.

Alternative Obligation and Facultative Obligation distinguished

Alternative Obligations Facultative Obligations

Several objects are due.
May be complied with by delivery of one
of the objects or by performance of one of
the prestations which are alternatively
due.
Choice may pertain to debtor, creditor, or
third person.
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Only one object is due.
May be complied with by the delivery of
another object or by the performance of
another prestation in substitution of that
which is due.
Choice pertains only to the debtor.
 Loss or impossibility of all
objects/prestations due to fortuitous event
shall extinguish the obligation.
Culpable loss of any objects alternatively
due before the choice is made may give
rise to liability on the part of the debtor.
Loss or impossibility of the
objects/prestations due to fortuitous
event is sufficient to extinguish the
obligation.
Culpable loss of the object which the
debtor may deliver in substitution before
the substitution is effected does not give
rise to any liability on the part of the
debtor.

5. Facultative Obligation
An obligation wherein only one object or prestation has been agreed upon by the parties to the
obligation, but which may be complied with by the delivery of another or the performance of another
prestation in substitution.

6. Joint Obligation (Obligacion Mancomunada)

The whole obligation is to be paid or fulfilled proportionately by different debtors or demanded
proportionately by different creditors.

7. Solidary Obligation (Obligacion Solidaria)

Each one of the debtors is bound to render, and/or each one of the creditors has a right to demand
entire compliance with the prestation.

General Rule: Obligation is presumed joint if there is concurrence off several creditors or several debtors
or of several creditors and debtors in one and the same obligation.

Exceptions:
a. The obligation expressly stated that there is solidarity.
b. The law requires solidarity (torts, quasi-contracts, liability of principals, accomplices and accessories
of a felony, obligations of devisees and legatees, bailees in commodatum).
c. Nature of obligation requires solidarity.
d. When the charge or condition is imposed upon heirs or legatees, and the testament expressly makes
the charge or condition in solidum.
e. When a solidary responsibility is imputed by a final judgment upon several defendants.

8. Divisible Obligation
Those which have as their object a prestation which is susceptible of partial performance without
the essence of obligation changed.

9. Indivisible Obligation
Those which have as their object a prestation which is not susceptible of partial performance,
otherwise, the essence of the obligation will be changed.

Test of Divisibility:
a. In obligation to give, even though the object may be physically divisible, the obligation is still
indivisible if it is provided by law or it is so intended by the parties.
b. In obligations to do, the obligation shall be considered divisible when it has for its object:
The execution of a certain number of days or work.
The accomplishment of work by metrical units.
The accomplishment of analogous things which by their nature are susceptible of partial
performance.
c. In obligations not to do, it depends upon the character of the prestation in each particular case.

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10. Obligation With a Penal Clause
An accessory undertaking (penal clause) is attached for the purpose of insuring its performance by
virtue of which the obligor is bound to pay a stipulated indemnity or perform a stipulated prestation
in case of breach.

Purpose of Penalty:
a. To insure the performance of an obligation (function coecitiva o de garantia).
b. To liquidate the amount of damages to be awarded in case of breach of the principal obligation
(function liduidatoria). Compensatory in nature.
c. To punish the obligor in case of breach of the principal obligation (function estrictamente penal).
Punitive in nature and does not resolve the question of damages.

Effect of Penalty
General Rule: The penalty shall substitute the indemnity for damages and payment of interest in case
of noncompliance.

Exceptions:
a. When there is a stipulation to the contrary.
b. When the obligor refuses to pay the penalty.
c. When the obligor is guilty of fraud.

Modes of Extinguishing an Obligation

1. Pa-yment
2. Lo-ss
3. Re-mission/Condonation
4. Me-rger/Confusion
5. Co-mpensation/Set-off
6. No-vation
7. A-nnulment
8. R-escission
9. F-ulfillment of Resolutory Condition
10. P-rescription

Other Forms of Extinguishing an Obligation

1. Death (for intransmissible or personal obligation)
2. Mutual desistance or withdrawal
3. Arrival of resolutory period
4. Compromise
5. Impossibility of fulfillment of condition
6. Fortuitous event

Payment or Performance
Means delivery of money and the performance, in any other manner, of an obligation.
Also means non-performance.

Who may pay obligations?

a. Debtor himself or his legal representative.
b. Any third person.

Characteristics of payment:
a. Identity only the prestation agreed upon and no other must be complied with.
b. Completeness the thing or service must be completely delivered or rendered.
c. Indivisibility payment or performance must be indivisible.

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General rule: A debt shall not be understood to have been paid unless the thing or service in which the
obligation consists has been completely delivered or rendered, as the case may be.

Exceptions:
a. When the obligation has been substantially performed in good faith.
b. When the obligee accepts performance knowing its incompleteness or irregularity without expressing
any objection or protest; based on the principle of estoppel.

Special Forms of Payment:

a. Application of Payment Designation of the debt to which the payment must be applied when the
debtor has several obligations of the same kind in favor of the same creditor.

Requisites:
1. There must be only one debtor and only one creditor.
2. There must be two or more debts of the same kind.
3. All the debts must be due except if there is stipulation to the contrary or application of
payment is made by the party for whose benefit the term has been constituted.
4. Amount paid by the debtor is insufficient to cover the total amount of all the debts.

Rules on Application of Payment:

Debtor has a choice; indicated at the time of making payment.
If the debtor does not apply, the creditor may designate which debt is paid by specifying in
the receipt.
If the creditor did not apply or if the application is void, debt which is the most onerous, is
the one satisfied.
Debts due of the same nature, payment shall be applied proportionately.
Must conform to the general rules on payment.

b. Dation in Payment (Dacion en Pago) Delivery and transmission of ownership of a thing by the
debtor to the creditor as an accepted equivalent of the performance of the obligation.

Requisites:
1. Existence of a monetary obligation.
2. Alienation to the creditor of property by the debtor with the consent of the former.
3. Satisfaction of the monetary obligation of the debtor.

c. Payment by Cession Special form of payment whereby the debtor assigns/abandons all his
property for the benefit of his creditors in order that from the proceeds thereof the latter may obtain
payment of their credits.

Requisites:
1. Plurality of debts.
2. Partial or relative insolvency of the debtor.
3. Acceptance of the cession by the creditors.

Dation in Payment distinguished from Payment by Cession

Dation of Payment Payment by Cession
Debtor not necessarily in state of financial Debtor must be partially or relatively
difficulty. insolvent.
One creditor. Plurality of creditors.
This delivered is considered as equivalent of Universality of property of debtor is what is
performance. ceded.

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 Extinguishes obligation to the extent of the
value of the thing delivered as agreed upon,
proved or implied from the conduct of the
creditor.
Does not involve all properties of debtor.
Creditor becomes the owner of the property
of the debtor.
Merely releases debtor for the net proceeds
of things ceded or assigned, unless there is
contrary intention.
Involves all the properties of the debtor.
Creditor does not become the owner.

d. Tender of Payment and Consignation

Tender of Payment Manifestation of the debtor to the creditor of his decision to comply
immediately with his obligation; preparatory act and extrajudicial in character.

Consignation Deposit of the object of the obligation in a competent court in accordance with the
rules prescribed by law after refusal or inability of the creditor to accept the tender of payment;
principal act and judicial in character.

Special Requisites of Consignation:

1. Existence of a valid debt which is due.
2. Tender of payment by the debtor; creditors refusal without just cause to accept it.
3. Previous notice of consignation to person interested in the fulfillment of the obligation, in order
to give the creditor the opportunity to reconsider his unjustified refusal and to accept payment
to avoid consignation and the subsequent litigation.
4. Consignation amount due placed at the disposal of the court.
5. Subsequent notice of consignation to enable the creditor to withdraw the goods or money
deposited.

Loss of the Thing Due

Obligation is extinguished if the thing lost or destroyed without the fault of the debtor and before he has
incurred in delay.

General rule: Loss of a determinate thing through fortuitous event shall extinguish the obligation.

Exceptions:
1. When the law so provides.
2. When the stipulation so provides.
3. When the nature of the obligation requires an assumption of risk.
4. When the obligation to deliver a specific thing arises from a crime.
5. Loss of the thing is partly due to the fault of the debtor.
6. Loss of the thing occurs after the debtor incurred in delay.
7. Debt of a certain and determinate thing proceeds from a criminal offense.

Remission or Condonation
An act of liberality by virtue of which the obligee, without receiving any price or equivalent, renounces
the enforcement of the obligation, as a result of which it is extinguished in its entirety or in that part or
aspect of the same to which the remission refers.
It is the gratuitous abandonment by the creditor of his right; a form of donation.

Requisites:
1. It must be gratuitous.
2. It must be accepted by the obligor.
3. The obligation must be demandable.
4. Parties must have the capacity.
5. Not inofficious.
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 6. Must comply with the forms of donation.

Confusion or Merger
It is the merger of the characters of the creditor and the debtor in one and the same person by virtue
of which the obligation is extinguished.

Requisites:
1. Merger of the characters of the creditor and debtor must be in the same person.
2. Must take place in the person of either the principal creditor or the principal debtor.
3. Whether the merger refers to the entire obligation or only part thereof, there must be complete
and definite meeting of all qualities of creditor and debtor in the obligation or in the part thereof
affected by the merger.
Compensation
Mode of extinguishing in the concurrent amount of the obligation of those persons who are
reciprocally debtors and creditors of each other.

Requisites:
1. There must be two parties, who, in their own right, are principal creditors and principal debtors
of each other except in case of a guarantor.
2. Both debts must consist in sum of money, or if the things due are fungibles, they must be of the
same kind and quality.
3. Both debts must be due except in voluntary compensation.
4. Both debts must be liquidated and demandable.
5. There must be no retention or controversy commenced by third persons over either of the debts
and communicated in due time to the debtor.
6. The compensation must not be prohibited by law.

Effect of Assignment of Rights

If with the consent of debtor debtor cannot set up compensation unless he reserved his right
to compensation.
If with the knowledge but without the consent of debtor debtor may set up compensation prior
to the assignment but not subsequent ones.
If without knowledge of the debtor may set up compensation of all credits which he may set up
against the assignor and which may have become demandable before he was notified of the
assignment.

Debts which cannot be Compensated

a. Debts arising from contracts of depositum.
b. Debts arising from contract of commodatum.
c. Claims for support due by gratuitous title.
d. Obligations arising from criminal offenses.
e. Certain obligations in favor of the government.

Novation
It is the substitution or change of an obligation by another, resulting in its extinguishment or
modification, either by changing its object or principal conditions, or by substituting another in place of
the debtor, or by subrogating a third person in the rights of the creditor.

Requisites:
1. Previous valid obligation.
2. Capacity of the contracting parties to the new contract.
3. Animus novandi or intent to novate.
4. Substantial difference between the old obligation and the new obligation, consequently,
extinguishment of the obligation.

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 Test of Incompatibility: Whether or not the old and new obligations can stand together, each
having its own independent existence. It they can stand together, there is no incompatibility, hence,
no novation. Changes that breed incompatibility must be essential in nature and not merely
incidental.

Novation by Substitution of Debtors:

a. Expromision effected with the consent of the creditor at the instance of the new debtor even
without the consent or even against the will of the old (beneficial reimbursement).

Requisites:
1. Initiative for substitution must emanate from the new debtor.
2. Consent of the creditor to the substitution.
3. Old debtor must be released from the obligation.

Kinds of Substitution by Expromsion

Substitution with the knowledge and consent of the old debtor.
Substitution without the knowledge or against the will of the old debtor.

b. Delegacion effected with the consent of the creditor at the instance of the old debtor
(delegante), with the concurrence of the new debtor (delegado).

Requisites:
1. Initiative for substitution must emanate from the old debtor.
2. Consent of the new debtor.
3. Acceptance by the creditor.
4. Old debtor must be released from his obligation.

CONTRACTS

A contract is a meeting of minds between two persons whereby one binds himself with respect to the other to
give something to render some service.

ELEMENTS OF CONTRACT:

1. Essential- those without which there can be no contract (Art. 1318)

a. Common elements present in all contract
i. Consent
ii. Object of subject matter
iii. Cause of consideration
b. Special elements present only in the certain contracts. e.g., delivery in real contract or from in solemn
ones
c. Extraordinary elements peculiar to specific contract. E.g. price in a contract sale.
2. Natural - those which are derived from the nature of the contract and ordinarily accompany the same; they
are presumed by law; although they can be excluded by the contracting parties if so desire.
3. Accidental those which exits only when the parties expressly provided for them for the purpose of
limiting or modifying the normal effects of the contract.
E.g. conditions, terms or modes

CLASSIFICATION OF CONTRACTS:

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1. According to their relation to other contracts
a. Preparatory preliminary steps to wards the celebration of another subsequent contract.
b. Principal can subsist independently from another contracts.
c. Accessory can exits only as a consequence of, or in relation with, another prior contract.

2. According to their perfection

a. Consensual perfected by mere agreement of the parties.
b. Real requires consent of the parties and delivery of the object for their perfection.

3. According to their form

a. Common or informal requires no particular form.
b. Special or normal requires some particular form.

4. According to their purpose

a. Transfer of ownership e.g. sale
b. Conveyance of use - e.g. commodatum

5. According to their subject matter

a. Things e.g. sale, deposit, pledge
b. Services e.g. agency, lease of service

6. According to the nature of the vinculum which they produce

a. Unilateral e.g commodatum, gratuitous deposit
b. Bilateral e.g. sale, lease

7. According to their cause

a. Onerous e.g. sale
b. Gratuitous e.g commodatum

8. According to the risk involved

a. Commutative e.g lease
b. Aleatory e.g insurance

9. According to their names or norms regulating them

a. Nominate have their own individuality; regulated by special provision law.
b. Innominate lack individuality; not regulated by special provision of law.

KINDS OF INNOMINATE CONTRACTS:

Do ut des I give that you give

Do ut facias I give that you give
Facio ut des I do that you give
Facio ut facias I do that you give

Note: Innominate contracts shall be regulated by:

The stipulations of the parties.

The general provision of the Civil Code on obligations and contract.
The rules governing the most analogous nominate contracts and
The customs of the place (Art 1307)

According to the some authorities, du ut does is no longer an innominate contracts. It has already been given a
name its own, i.e barter or exchange (Art 1638).

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Auto contract
A kind of contract in which one person anted in behalf of the party and himself of another person in another
capacity to establish a contract.

Collective contact
Those were the law authorizes the will of the majority to bind a minority to an agreement notwithstanding the
opposition of the letter when all have a common interest in the juridical act.

Contracts of Adhesion
Contracts in which one of the parties imposed already-made from of contracts, which the another party may
accept or reject, but which the latter cannot modify.

STAGE OF CONTRACTS:

1. Generation comprehensive the preliminary or preparation of conception. It is the period of negotiation and
bargaining
2. Perfection - the moment when the parties come to agree on the terms of contacts
3. Consummation it is fulfillment or performance of the agree upon in the contracts

CHARACTIRISTICS OF CONTRACTS:

1. Obligatory force contacts

2. Mutuality
3. Autonomy
4. Relativity
5. Consensuality

Obligatory Force of Contracts

This principle is explicitly recognize in Art 1159, 1308, 1315, and 1356.
It is a rule that once contracts is perfected; it shall be of obligatory force upon both of the contracting
parties.

Mutuality (Art 1308)

The contracts must bind both parties.

Note: The validity or fulfillment of a contacts cannot be left to the well of once of the contracting parties.

Validity or fulfillment may be left to (1) they will a third person, whose decision shall not be binding until made
known to both contracting parties (Art 1309) or by (2) chance.

Autonomy (Art 1306)

The contracting parties may establish such stipulations, clause, terms and condition as they deem convenient.

Limitation to the principle of autonomy:

Stipulation should not be contrary to law, morals, goods custom, public order, or public policy.

Relativity (Art 1311)

General rule: Contracts take effect only between parties, their assigns and heirs.

HOWEVER with respect to assignees or heirs, the general rule under Art. 1311 is not applicable if the rights of
obligations arising from the contract are not transmissible or purely personal.

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Exceptions:
1. Beneficial Stipulation/ Stipulation pour autrui A stipulation in favor of third a persons.
Requisites:
a. There must be a stipulation in favor in third person;
b. The stipulation must be a part, not the whole of the contract;
c. The contracting parties must have a clearly and deliberately conferred a favor upon a third person,
not a mere incidental benefit or interest;
d. The favorable stipulation should not be conditioned or compensated by any kind of obligation
whatever;
e. The third person must have communicated his acceptance to be obligor before is revocation; and
f. Neither of the contracting parties bears the legal representation of authorization of the third party.

Test of beneficial Stipulation:

1. Must bet he purpose and intent of the parties to benefit to third person. Whether or not the parties
deliberately inserted terms their in their agreement with the avowed purpose of conferring a favor upon such
third person.
2. When third person comes into possession of the object of contract creating real rights (Art 1312)
3. Where the contract is entered into order to defraud a creditor (Art 1313); here, the creditor may ask for its
rescission.
4. Where the third person induces a contracting party to violate his contract (Art 1314). Such third person can
be held for damages.

Requisites:
a. The existence of a contract;
b. Knowledge on the part on the third person of the existence of the contract; and
c. Interference by the third person without legal justification or excuse.

Consensuality of contracts (Art 1315)

General rule: Contracts are perfected by mere consent and from the moment, the parties are bound to
fulfillment of what has been expressly stipulated and to all consequences which, according to their nature
maybe in keeping with good faith, usage and law.

Exception:
Real contract (e.g. deposit, pledge and commodatum) are not perfected until the delivery of the object of the
obligation.

ESSENTIAL REQUISITES OF CONTRACT

CONSENT: Conformity of the parties to the terms of the contract; the acceptance by the offeree of the made
by the other.

Requisites:
1. Must be manifested by the concurrence of the other and acceptance (Art 1319-1326);
2. Parties must possess the necessary legal capacity (Arts 1327,-1329) and;
3. Must be intelligent, free, spontaneous, and real (Arts 1330-1346).

OFFER: Unilateral proposition which one party makes to the other for the celebration of a contract.
Requisites:
1. It must be definite
2. It must be intentional
3. It must be complete
4. It must be directed to person or persons with whom the offeror intends to enter into a contract except
definite offers which are not directed to a particular person but to the public in general

14
Withdrawal or offer: Offer/proposal may be withdrawn so long as the offeror has no knowledge of acceptance
by offeree

Exceptions: Abuse of Right (Art 19) and option contract (Art 1324).
Rule on Complex offers:
1. Offers are interrelated contract is perfected if all the offers are accepted.
2. Offers are not interrelated single acceptance of each offer results in a perfected contract unless the
offeror has made it clear that one is dependent one upon the other and acceptance of both necessary.

ACCEPTANCE: Must be certain or definite and absolute in character. A qualified acceptance constitutes a
counter-off (Art 1319)

It may be express or implied e.g. failure on the part of the heir to reject the inheritance within 30 days from
notice of the order of the court distributing the estate. (Art 1320)

Requisites of acceptance:
1. Absolute (no vitiation)
2. Directed to the offeror
3. Made with the intention to be bound
4. Made within the proper time
5. Communicated to the offeror and learned by him unless the offeror knows of the time acceptance.

Amplified Acceptance
Under certain circumstances, a mere amplification on the offer must be understood as an acceptance of the
original offer, plus a new offer which is contained in the amplification.

Withdrawal of Acceptance
First View (Manresa):Although the offeror is not bound until he learns of the acceptance, the something cannot
be said of the offeree who, from the moment he accepts, loses the power to retract such acceptance since the
right to withdraw between the time of the acceptance and its communication is right which is expressly limited
by law to the offeror. Since the offeree is the first person who knows of the concurrence of will of the parties, as
a consequence, the obligation, as far as he is concerned, must also commence earlier.

Second View (Tolentino): Acceptance may be revoked before it comes to the knowledge of the offeror because
in such case there is still no meeting of the minds, since the revocation has cancelled or nullified the
acceptance which thereby ceased to have any legal effect.

Note: The offeror may fix the time, place, and manner of acceptance, all of which must be complied with (Art
1321).

1. An offer made though an agent is accepted from the time acceptance is communicated to him (Art
1322)
2. An offer becomes infected upon the death, civil interdiction, insanity or insolvency of either party before
acceptance is conveyed (Art 1323)

Theories that determine the exact moment of perfection when acceptance is made by letter or
telegram:

1. Manifestation Theory perfected from the moment the acceptance is declared or made.
adhered to by the Code of Commerce
2. Expedition Theory perfected from the moment the offeree transmits the notification of acceptance to
the offeror.

15
 3. Reception Theory perfected from the moment that the notification is in the hands of the offeror in
such a manner that he can, under ordinary conditions, procure the knowledge of its content, even if he is
not able to actually acquire such knowledge.
4. Cognition Theory perfected from the moment the acceptance comes to the knowledge of the offeror
Adhered to by the Civil Code.

Note: The stipulation of the parties governs the manner and the moment of acceptance as when they
stipulate that it be expressly accepted.

Silence can be construed as consent

Requisites for silence to be construed as consent:

1. There is a duty or possibility to express oneself;
2. The manifestation of the will cannot be interpreted in any other away;
3. There is a clear identity in the effect of the silence and the undisclosed will (Art 1670, 1870, to 1873)

OPTION CONTRACT A preparatory contract in which one party grants to the other, for a fixed period and
under specified condition, to a decided whether or not to enter into a principal contract.

Requisites:
1. It is supported by an independent consideration; and
2. It is exclusive;

Otherwise, the oferor can withdraw his offer anytime .

Business advertisements (Art 1325)

They are mere innovation to make an offer, and NOT definite offers, unless it appears otherwise.

Advertisements for bidders (Art 1326)

It is simply an invitation to make proposal. The advertiser is not bound to accept the highest lr lowest bidder,
unless it appears otherwise.

Note: In judicial sales, highest bid must necessarily be accepted.

Person incapacitated to give consent (Art 1327)

1. Minors
EXCEPTIONS:
a. When minor misrepresent his age. (It must be an active not merely constructive representation);
b. Contracts involving the sale and delivery of necessaries to minors
c. Contracts by guardians of legal representatives
2. Insane or demented persons, unless the contract was entered during a lucid interval (Art1328).
Insanity or mental incapacity must be existing at the celebration of the contract.
3. Deaf-mutes who do not know how to read and write.

Vices of consent (Art 1330); (VIMFU)

1. Violence
2. Intimidation
3. Mistake
4. Fraud
5. Undue influence

A. Mistake It must refers to the substance of the thing which is the object of the contract, or those condition
which have principally moved one or both parties to enter to the contract (Art 1331).

16
Not only wrong conception of the thing but also the lack of knowledge with respected to it (Manresa)

Requisites of Art. 1334 which will vitiate consent:

1. It must be of a past or present fact;
2. It must not be imputable to the party mistaken, i.e. mistake is not inadvertent and excusable;
3. Mistake must be with respect to the legal effect of an agreement;
4. It must be mutual; and
5. Parties real purpose must have been frustrated.

Note: There is no mistake if the party alleging it knew doubt, contingency or risk affecting the object of the
contract (Art 1333)

B. Violence when in order wrest consent, serious or irresistible force is employed (Art 1335).

Requisites of Violence:
1. Must be serious or irresistible.
2. Must be the determining cause for the party upon whom it is employed in entering into the contract.
3. Is not justified.
4. It is sufficient.

C. Intimidation (Art 1335)

Requisites of intimidation:
1. One party is completed to give his consent by a reasonable and well grounded fear an evil;
2. The evil must be imminent and grave;
3. The evil must be upon his person pr property, spouse, descendants or ascendants; and
4. It is the reason why he enters the contract.

D. Undue influence when as person takes improper advantages of his power over the will of another,
depriving the latter of a reasonable freedom of choice (Art 1337)

Test of undue influence:

Whether or not the influence exerted has so overpowered or subjugated the mid of a contracting party as to
destroy his free agency, making him express the will of another rather than his own.

Circumstance considered to determine whether the influence exerted is unreasonable:

1. Confidential relations
2. Family relations
3. Spiritual relations
4. Other relations between the parties

E. Fraud- When, through insidious words or machinations of one party, the other is induced to enter into a
contract which, without them, he would not have agrees to (Art 1338).

Kinds of fraud:
1. Fraud in the PERFECTION of the contract.
a) Causal Fraud
b) Incident Fraud
c) Fraud in the PERFORMANCE of an obligation (Art 1170)

Requisites of Fraud under Art 1338:

1. One party must have employed fraud or insidious words machinations.
2. It must have been serious;

17
 3. It induced the another party to enter into a contract;
4. It must have been employed by one contracting party upon the other an not employed by both
contracting parties or by third persons:
5. Damage or injury resulted to other party;
6. It must the made in bad faith; i.e. with knowledge of its falsity.

Dolo Causante and Dolo Incidente Distinguished:

Dolo Causante (Art. 1338) Dolo Incidente (Art. 1344)

Fraud which is serious in character. Fraud which is not serious in character.

It is the cause which induces the party to enter into a It is not the cause that induced the party to enter
contract. into a contract.

Renders the contract voidable. Renders the party liable damages.

Note: Failure to disclose facts, when there is a duty to reveal them, constitute fraud (Art 1339)

The usual exaggeration in trade, when the other party had an opportunity to know the facts, are not in
themselves fraudulent (Art 1340).

A mere expression of an opinion does not signify fraud unless made by a expert and the other party relied on
the formers special knowledge (Art 1341).

Fraud by third person does not vitiate consent UNLESS:

a. It has created a substantial mistake and the same mutual.
b. Third person makes the misrepresentation with the complicity or at lest with the knowledge but
without the objection, of the favored contracting party.

Misrepresentation made in good faith is not fraudulent but may constitute error (Art 1343).

SIMULATION OF CONTRACTS (Art 1345-1346)

Requisites:
1. A deliberate declaration contract to the will of the parties.
2. Agreement of the parties to the apparently valid contract.
3. The purpose is to deceive or to hide from third person although it is not necessary that the purpose be
illicit or of purpose of fraud.

Kinds of simulation of contract:

1. Absolute parties do not intend to be bound by the contract at all. Status: VOID
2. Relative parties conceal their true agreement. It binds the parties to their real agreement when it
does not prejudice a third person and is not intended for any purpose contrary to law, morals, good,
custom public order or public policy.

Two judicial acts in simulated contracts

1. Ostensible Act (Apparent or Fictitious) pretended contract.
2. Hidden Act (Real) true agreement.

OBJECT: The thing, right or service which is the object matter of the obligation arising from the contract.

Requisites:
1. Must be within the commerce of man;
18
 2. Should be real or possible;
3. Should be licit; and
4. Should be determinate, or at lest possible of determination as to its kinds

The genus or kind of the object must law expressed.

Things which cannot be the object of contract (Art 1347-1349).

General Rule: All things or service or may be the object of contract.

Exception:
1. Things outside the commerce of men;
2. Intransmissible rights;
3. Future inheritance, except in cases expressly authorized by law;

Requisites:
a. The succession has not yet been opened.
b. The object of the contract forms part of the inheritance; and
c. The promissory has an expectancy of right which is purely hereditary in nature.
4. Service contrary to law, morals, good customs, public order or public policy.
5. Impossible things are service.
6. Objects not possible of determination as to their kind.

Note: In order that a thing, right or service may be the object of a contract, should be in existence at the
moment of the celebration of the contract, or at lest, it can exist subsequently or in the future.

A future thing may the object of a contract. Such contract may be interpreted in two possible ways:
1. Conditional contract if its efficacy should depend upon the future existence of the thing
2. Aleatory contract of one of the contracting parties should bear the risk that the thing will never income to
existence.

CAUSE: It is the immediate, direct or most proximate reason with explain and justifies the creation of obligation
through the will of the contracting parties.

Essential requisites of cause:

1. Existing at the time of the celebration of the contract;
2. Licit or lawful; and
3. True

Distinguished from object

Object is the starting point of the agreement.
Object may be the same for both of the parties.
Cause is different with respect to each party.

Cause and Motive Distinguished:

Cause Motive
Direct and most proximate reason of a contract. Indirect or remote reason.

Objective or juridical reason of a contract. Psychological or purely personal reason.

Always the same for each contracting party. Differs for each contracting party.

19
 Its legality affects the existence or validity of the Its legality does not affect the existence or validity
contract. of contract.

Presumption of lawful cause

When the cause is not stated, it shall be presumed to be in existence and lawful unless proof to the country is
shown (Art 1354)

FORM OF CONTRACTS

Art 1356 retained Spiritual System of the Spanish Code by virtue of which the law looks more at the spirit
rather than me form of contract

General Rule: Contract shall be obligatory, in whatever from they me have been entered into, provided all the
essential requisites for their validity are present (Art 1356).

Exceptions:
1. When law requires that the contract be an certain from to be valid (Art 1357-1358);
2. When law requires that the contract be in a certain from to be enforceable (Statute of Frauds);
3. When the law requires that a contract be in some from for the convenience of the parties of for the
purpose of affecting third persons (Art 1356).

CONTRACT WHICH MUST APPEAR IN WRITING:

1. Donation of personal property whose value exceeds five hundred pesos (Art 1847).
2. Sale of a piece of land or any interest therein through an agreement(Art 1847).
3. Agreements regarding payment of interest in contract of loan (Art 1956); and.
4. Antichresis (Art 2134).

CONTRACTS WHICH MUST APPEAR IN THE PUBLIC DOCUMENT:

1. Donation of immovable properties (Art 749);
2. Partnership where immovable property or real rights are contributed to the common fund (Art 1171 and
1773);
3. Acts and contract which have for their object the creation, transmission , modification or extinguished of
real rights over immovable property; sales of real property or of an interest therein is governed by Art
1403, No. 2, and 1405 (Art 1358, No. 1);n
4. The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership of
gains (Art 1358, No. 2)
5. The power to administer property, or any other which ahs for its object an act appearing or which
should appear in a public document, or should prejudice a third person (Art 1358 No. 3);
6. The cession of actions or rights proceeding from an act appearing in a public document (Art 1358, No
4).

CONTRACTS WHICH MUST BE REGISTERED:

1. Chattel mortgages (Art 2140)
2. Sales/Transfer of large cattle (Cattle Registration Act)

Note: Art 1357-1358 do not require the execution of the contract either in a public/private document in order to
validate/enforce it bit only to insure efficacy so that after its existence has been admitted, the party bound may
be compelled to execute the necessary document.

When the contract was not reduced to the required from, it is still and binding as far as the contract parties are
concerned Art. 1357-1358 presupposes the existence of a valid and enforceable contract.

20
When once of the contracting parties invokes Art 1357, the effect is to place the existence of the contract in
issue, which must be resolved by the ordinary rules of evidence.

Actions to compel the execution of the necessary document an action upon the contract may be exercised
simultaneously, unless it appears that the former action must the latter.

R.A 8792 (E-Commerce Act) provides that the formal requirements to make contract effective as against third
person and to establish the existence of a contract are deemed complied with provide that the electronic
document is unaltered and can be authenticated as to be usable for future reference.

REFORMATION OF INSTRUMENTS

Remedy by means of which a written instrument is made or construed so as to express or conform to the real
intention of the parties when some error or mistake has been committed.

Rationale:
It would be unjust and inequitable to allow the enforcement of a written instrument which does not reflect or
disclose the real meeting o the minds of the parties.

Requisites:
1. Meeting of the minds of the parties
2. Their true intention is not expressed in the instrument
3. Failure to express true intention is not is due to mistake, fraud, inequitable conduct or accident and
4. Clear and convincing proof of mistake accident, relative simulation, fraud, or inequitable conduct.

Requisites of Mistake (Art 1361):

1. The mistake is one fact
2. Its is common to both parties
3. The proof of mutual mistake must be clear and convincing

INSTANCES WHEN THERE CAN BE NO REFORMATION (Art 1366):

1. Simple donations inter vivos wherein no condition is imposed
2. Wills
3. When the agreement is void

Note:
If mistake, fraud, inequitable conduct or accident has prevented a meeting of the minds of the parties, the
proper remedy is not reformation of the instrument but annulment of the contract (Art 1359)

When one of the parties has brought an action to enforce the instrument, no subsequent reformation can be
asked (Principle of estoppel).

COMPARATIVE TABLE OF DEFECTIVE CONTRACTS:

Void Voidable Rescissible Unenforceable

Defect is caused by lack Defect is caused by vice Defect is caused by Defect is caused by lack
of essential elements or of consent. injury damage either to of form authority, or
illegality. one of the parties or to a capacity or both parties
3rd person. not cured by prescription.

Do not as a general rule Valid and enforcement Valid and enforceable Cannot be enforced by a
produce any legal effect. until annulled by a until rescinded by a proper action in court.
competent court. competent court.
21
 Action for the declaration Action for annulment or Action for rescission may Corresponding action for
or nullity or inexistence defense of annulability prescribe. recovery, if there was
or defense of nullity or may be presumed to total or partial
inexistence does not prescribe. performance of the
prescribe. unenforceable contract
under No. 1 or 3 of
Article 1403 may
prescribe.

Assailed by a contracting Assailed only by Cured by prescription. Not cured by

party and a third person contracting party. prescription.
whose interest is delivery
affected.

Assailed directly or Assailed directly or Need not be ratified. Can be ratified.

collaterally. collaterally.

RESCISSBLE CONTRACTS

Contracts which are valid but are defective because of injury or damage or either of the contracting parties or
to third person, as a consequence of which it may be rescinded by means of a proper action of rescission.

Rescission shall be only to the extent necessary to cover the damages caused (Art 1384)

REQUISITES OF RESCISSION:
1. Contract must be rescission under Articles 1381 and 1382;
2. Party asking for rescission must have no other legal means to obtain reparation for the damages
suffered by him (Art 1385);
3. Person demanding rescission must be able to return whatever he may be obliged to restore if
rescission is granted (Art 1385);
4. Things which are the object of the contract must no have passed legally to the possession of a third
person acting in good faith (Art 1385); and
5. Action must be though within four years (Art 1389).

CONTRACTING THAT ARE RESCISSIBLE

(Art 1381-1382)
1. Those entered into by guardians where the wars suffers lesion of more that of the value of the things
which are objects thereof;
2. Those agreed upon in representation of the absentees, if the latter suffer lesion by more than of the
value of the things which are subject thereof;
3. Those undertaken in the fraud of creditors when the letter cannot in any manner claim what are due
them;
4. Those which refer to things under litigation if they have been entered into by the defendant without the
knowledge and approval of the litigations and the court;
5. All other contracts especially declared by law to be subject to recession; and
6. Payment made in a sale of insolvency for obligations whose fulfillment the debtor could not be
compelled at the time they were effected.

Examples of contracts declared to the subject to rescission:

1. Partition of inheritance where an their suffers lesion of at lest of the share to which he is entitled (Art
1098);
22
 2. Deterioration of the thing through the fault of the debtor, if the creditor chooses to rescind (Art 1189(4));
3. Deterioration of the object of the sale (Art 1538);
4. The vendee does not accede to the failure to deliver what has been stipulated (Art 1556);
5. When thorough evection, the vendee loses a part of the thing sold of such importance, in relation to the
whole, that the he would not have bought it without said part (Art 1556);
6. Election of the vendee to withdraw from the contract in the cases under Art 1561;
7. Rescission by the aggrieved party in a contract of lease when the other party does not comply with Art
1654 and 1657 (Art 1659).

Requisites before a contract entered into in behalf of wards or absentees may be rescinded on the
ground of LESION:
1. Contract was entered into a guardian in behalf of his award or by a legal representative in behalf of an
absentee;
2. It was entered into without judicial approval;
3. Ward or absentee suffered lesion of more than of the value of the property which is the object of the
contract;
4. There is no other legal means of obtaining reparation for the lesion;
5. Person bringing the action must be able to return whatever he may be obliged t restore; and
6. Object of the contract must no be legally in the possession of a third person who did not act in bad faith

Requisites before a contract entered into in FAUD OF CREDITORS may be rescinded:

1. There is a credit existing prior to the celebration of the contract;
2. There is fraud, or at lest, the intent to commit fraud to the prejudice of the creditor seeking rescission;
3. Creditor cannot in any legal manner collect his credit; and
4. Object of the contract must not be legally in the possession of a third person who did not act in bad
faith.

PRESUMPTION OF FRAUD (Art 1387)

When Alienation of Property Presumed in Fraud of Creditors

1. Alienation by gratuitous title if the debtor has not reserve sufficient property to pay all of his debts
contracted before alienation;
2. Alienation by onerous title made by a debtor against whom some judgment has been rendered in any
instance or some writ of attachment has been issued.

Badges of fraud:
1. The fact of inadequate or fictitious cause or consideration of the conveyance;
2. Transfer by a debtor after suit has been begun and while it is pending against him;
3. Sale on credit by an insolvent debtor;
4. Evidence of large indebtedness or complete insolvency;
5. Transfers of all or nearly all of debtors property by him, especially when insolvent or greatly
embarrassed financially;
6. Transfer between father and son, where others of the above circu9mstance are present;
7. Failure of the vendee to take exclusive possession of all property.

Requisites before Payment Made by Insolvent can be Rescinded:

1. It was made in a state of insolvency; and
2. Obligations must have been one of which the debtor could not be complied to pay at the time such
payment was effected.

Apparent Conflict between Art 1382 and Art 1198 [1] if the obligation is subject to suspensive period:

23
Under article 1382, payment made by an insolvent is rescissible. Under article 1198 [1], a debtor can be
compelled to pay by the creditor even before the expiration of the period since by his insolvency he has
already lost his right to the benefit of such period.

The conflict can easily be resolved by considering the priority of dates between the two debts. If the obligation
with a period became due before the obligation to the creditor seeking the rescission became due, then the
latter cannot rescind the payment even if such payment was effected before the expiration of the period; but if
the obligation with a period became due after the obligation to the creditor seeking rescission became due,
then the latter can rescind the payment.

EFFECT OF RESCISSION (Art 1385)

1. As to the parties mutual restitution together with the fruits and interest.

Note: This is applicable only to rescissory actions on the ground of lesion and not to rescissory actions on the
ground of fraud.

2. As to third person
Bad faith or not legally in possession obliged to return;
Legally in possession and not in bad faith no rescission; however, indemnity for damages may
be demanded from the person causing the loss.

PRESCIRIPTIVE PERIOD: ACTION FOR RESCISSION (Art 1389):

1. Under Art 1381 no. 1 within 4 years from the time of the termination of the incapacity of the ward;
2. Under Art 1381 no. 2 within 4 years from the time the domicile of the absentee is known;
3. Under Art 1381 nos. 3 and 4 as well as Art 1382 within 4 years from the time of the discovery of
fraud;
4. In certain contracts of sale especially declared by law to be rescissible 6 months or even 40 days,
counted from the day of delivery (Art 1542, 1571, 1577).
VOIDABLE CONTRACTS

Those which possess all the essential elements for validity but the consent is vitiated either by lack of legal
capacity of one of the contacting parties or by mistake; violence intimidation, undue influence, or fraud even
though there may have been no damage to the contracting parties.

MODES TO EXTINGUISH AN ACTION FOR ANNULMENT:

1. Prescription;
2. Ratification; and
3. Loss of the thing which is the object of the contract through fraud or fault of the person who is entitled to
institute the action
Prescriptive Period: Action for Annulment (Art 1391)
1. Contract entered into by incapacitated person within 4 years from the time guardianship ceases;
2. Where consent is vitiated by voidance, intimidation or undue influence within 4 years from the time
such violence; intimidation or undue influences ceases;
3. Where consent is vitiated by mistake or fraud within 4 years from the time of the discovery of such
mistake or fraud.

Note: These periods apply only to the parties to the contract and not to third persons;

Discovery of fraud must be reckoned from the time the document was registered in the office of the register of
deeds registration constitutes constructive notice to the whole world.

RATIFICATION (Art 1329-1396)

The act or means by virtue of which efficacy is given to a contract which suffers from a vice of curable nullity.

24
This may extinguished the action for annulment of a viodable contract. It cleanses the contract of its defects
from the moment it was constitute

Requisites of ratification:
1. Contract is tainted with a vice susceptible of being cured;
2. Confirmation is effected by the person who is entitled to do so under the law;
3. It is effected with knowledge of the vice or defect of the contract; and
4. Cause of the nullity or defect have already disappeared

Note: The right to ratify may be transmitted to heirs of the partly entitled to such right. It mat likewise be
exercised by the guardian of the incapacitated person having such right (Art 1349)

WHO MAY INSTITUTE ACTION FOR ANNULMENT (Art 1397)

General rule: Action for annulment may be instituted by all who are thereby obliged principally or subsidiary. A
stranger to the contract cannot institute an action for annulment.

Exception: If a third person is prejudiced in his right with respective to one of the contracting parties; and can
show detriment which would positively result to him from the contract in which he ahs no intervention

EFFECTS OF ANNULMENT IN CASES OF CONSMMATED VOIDABLE CONTRACT (Art 1398-1399)

Obligation of Mutual Restitution:

1. Obligation to give the parties shall restore to each other things which have been the subject matter of
the contract with fruits and the price with interest, except in cases provided by law.
2. Obligation to do or not to do there will be an apportionment of damages based on the value of such
prestation with corresponding interest.
3. When the defect of the contract consists in incapacity of one of the contracting parties- the
incapacitated person is not obliged to make restitution except insofar as he ahs been benefited by the
thing or price received by him.

Note: It is presumed in the absence of proof that no such benefit has accrued to the incapacitated person.

EFFECT OF FAILURE TO MAKE RESTITUTION (Art 1400-1402)

Where the thing is lost

1. Due to fult of defendant he shall return the fruits received and the value of the thing at the time of loss
with interest from the same date
2. Due to fault of plaintiff the action for annulment shall be extinguished
3. Due to fault of the incapacitated whether the loss occurred during the plaintiffs incapacity or after he
had acquires capacity, the action for annulment would still be extinguished in accordance with art 1401,
par 1
4. Due to fortuitous event contract can still be annulled, but the defendant can be held liable only for the
value of the thing at the time of loss without interest thereon.

UNENFO0RCEABLE CONTRACTS

Those which cannot be enforced by proper action in court unless they are ratified, because, either:
1. They are entered into without or in excess of authority;
2. They do not comply with the statute of frauds;
3. Both contracting parties do not possess the required legal capacity.

25
Statute of Frauds (Art 1403, no. 2)
In the fallowing cases, an agreement hereafter made shall be unenforceable by action, UNLESS the same, or
some note or memorandum thereof, be in writing and subscribed by the party charged, or by his agent;
evidence thereof, of the agreement cannot be received without the writing, or a secondary evidence of its
contents: (OMGDLC)
a. An agreement that by its items is not to be performed within one year from the making thereof;
b. A special promise to answer for the debt default or miscarriage of another;
This does not refer to the original or independent promise of the debtor to his own creditor. It
refers to a collateral promise.
c. An agreement made in consideration of marriage, other that a mutual promise to marry;
d. An agreement for the sale of goods chattels or things in action, at a price not less than 500
pesos, unless the buyer accepted and received such goods and chattels or evidence or some of
them, of such things in action or pay at the time some part of the purchase money; but when a
sale is made by auction and entry is made by the auctioneer in his sales book, at the time of
sale, of the amount and kind of property sold, terms, price names of the purchasers and person
to whose account the sale is made, it is a sufficient memorandum;
e. An agreement for the leasing for a longer period that one year, or of the sale of real property or
interest therein; and
f. A representation as to the credit of a third person.

Ratification of Contracts Infringing the Statute of Frauds (Art 1405):

Such contracts may be ratified by:
1. Failure to object to the presentation of oral evidence to prove such contracts; or
2. Acceptance of benefits under these contracts

Note: The unenforceability of a contract can only be assailed by parties thereto (Art 1408).
This defense is personal to the party to the agreement

VOID OR INEXISTENT CONTRACTS

In general, they are those which lack absolutely either in fact or in law one or some of the elements essential
for its validity.

Note: The defense of illegality of contract is not available to the person whose interests are not directly affected
(Art 1421).
A contract which is the direct result of a previous illegal contract is also void and inexistent (Art
1422).

CONTRACT WHICH ARE INEXISTENCE AND VOID AB INITIO (Art 1409)

1. Those whose cause, object or purpose id contrary to law, morals, good customs, public order or public
policy:
2. Those which are absolutely simulated or fictitious;
3. Those whose cause or object did not exits at the time of the transaction;
4. Those whose object is outside the commerce of men;
5. Those which contemplate an impossible service;
6. Those where the intention of the parties relative to the principal object of the contract cannot be
ascertained; and
7. Those expressly prohibited or declared void by law.

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Principle of In Pari Delicto (Art 1411-1419)

General Rule: When the defect of a void contract consists in the illegality of the cause or object of the contract
and both of the parties are at fault or in part delicto, the law refuses them any remedy and leaves them where
they are.

Exceptions:
1. Payment of usurious interest (Art 1413);
2. Payment of money or delivery of property for an illegal purpose, where the party who paid or delivered
repudiates the contracts before the purpose has been accomplished, or before any damages has been
caused to a third person (Art 1415);
3. Payment of money or delivery of property made by an incapacitated person (Art 1415);
4. Agreement or contract not illegal per se but merely prohibited by law, and the prohibition is designed for
the plaintiffs protection (Art 1461);
5. Payment of any amount in excess of the maximum price of any article or commodity fixed by law (Art
1417);
6. Contract whereby a laborer undertakes to work longer than the maximum number of hours fixed by law
(Art 1418)
7. Contract whereby a laborer accepts a wage lower than the minimum wage fixed by law (Art1419);
8. In case of divisible contract6s, the legal terms may be enforced separately from the illegal terms (Art
1420);
9. One who lost in gambling because of fraudulent schemes practiced on him. He is allowed to recover his
losses (Art 315).

Note: The principle of in pari delicto is applicable ONLY TO VOID CONTRACTS and not of inexistent
contracts.

Rules when only one of the parties is at fault:

1. Executed Contracts Guilty party is barred from recovering what he has given to the other party by
reason of the contract. Innocent party may demand for the return of what he has given.
2. Executory Contracts Neither of the contracting parties can demand for the fulfillment of any
obligations from the contract nor may be compelled to comply with such obligation.

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