Law

on Obligations and Contracts Payment to the third person or the wrong

party is invalid except if the creditor was
Creditors are not bound to accept payment benefited in that payment. (This benefit is ot
or performance from a third person unless presumed and must be clearly proven by the
there is a stipulation. debtor)

The third person may only collect upto the Proving is unnecessary if:
amount that benefited the debtor. (1) Subrogation of the payer in the
If the third person paid with the consent of creditor’s rights;
the debtor, the third person inherits all the (2) Ratification by the creditor;
rights of the creditor. (3) Estoppel on the part of the creditor.
If the third person paid without the consent
or knowledge of the debtor, the third person Estoppel- the principle which prevents a
is only allowed to collect the amount that person from asserting something contrary to
benefited the debtor from the time of the what is implied by a previous action or
payment. statement of that person or by a previous
pertinent judicial determination.
Payment by the third person which do not
intend to be paid is considered a donation. Payment made in good faith to the creditor
(anyone in possession of the credit and not
DONATION needs the acceptance of the only the document) shall release the debtor.
debtor as it embodies the idea that no one GOOD FAITH IS PRESUMED.
should be compelled to accept the
generosity of another. Payment made by the debtor to the creditor
However, if the creditor accepts the payment when the court ordered to retain the debt
even without the consent of the debtor, it shall be void. Unless payment is made after
shall be valid as to him. the court decisions.

Payments made by one which does not have The debtor cannot compel the creditor to
free disposal of the thing due and capacity receive a different one although it’s of the
to alienate it shall be void. same value or quality (refers to real
obligation to deliver a specific thing)
Free disposal of the thing due- it is when the
payment is not subject to any claim or lien or In obligations to do or not to do the act
encumbrance (mortgage, pledge) of a third cannot be substituted against the obligee’s
person. will (refers to personal obligations)

Capacity to alienate- person is in the capacity SPECIAL FORMS OF PAYMEN
to enter into contracts and to make valid (1) Dation in payment
disposition. (2) Application of payment
(3) Payment by cession
Payment of the thing due shall be made to (4) Tender of payment and consignation
the rightful creditor at the time the payment Dation in payment is the conveyance of
is made. ownership of thing as an acceptance
It could be to the creditor, successor, equivalent of performance. It is debt in
authorized person (authorized by the money paid in nonmonetary. (governed by
creditor or authorized by law) law of sale)

Payment to an incapacitated person is not When delivering a generic or indeterminate
valid unless when the payment was kept by thing without stated value or quality, the
the incapacitated person or if the payment creditor cannot demand inferior or superior
benefited the incapacitated person. In the quality of the thing. The purpose of the
absence of both exemptions, the debtor may obligation and other circumstances shall be
be compelled by the guardian or the taken into consideration.
incapacitated person when he acquires
capacity the payment. Extrajudicial expenses are accounted by the
debtor because the debtor is the main
benefactor, unless stipulations is clearly Payment by means of mercantile
stated otherwise. instrument only extinguishes obligation
when it is cashed or impaired through
Judicial costs refer to the statutory amount the fault of the creditor.
allowed to a party to an action for his
expenses incurred in the action. It is Incase of extraordinary inflation or
accounted to the losing party. Although the deflation of the currency stipulated, the
court for special reasons may adjudged that value of the currency at the time of the
either party shall pay the costs or that the establishment of the obligation shall be
same be divided as may be equitable. the basis of payment unless there is an
agreement to contrary.
Creditors are not complied to receive partial
payments same is true with debtors are not Payment shall be made in the designated
complied to make partial payments. In order place of the obligation. If there is no
for payment to extinguish the obligation, express stipulation to deliver a specific
complete performance shall be made. (The thing, the payment shall be made
creditor may accept but he cannot be wherever the thing is the moment the
compelled to accept partial performance) obligation was constituted. In other
cases, the place of payment shall be the
Partial performance is allowed: residence of the debtor. (If the debtor
(1) There is an express stipulation to that changes his domicile in bad faith or after
effect he has incurred delay, the additional
(2) Debt is part liquidates and in part expenses shall be borne by him)
unliquidated
(3) When different prestations in which Application of Payments is the
the obligation consist are subject to designation of the debt due to which
different terms or conditions which should be applied the payment made by
affect some of them. In obligations, a debtor who has various debts of the
which has several distinct same kind to one creditor.
prestations, it is evident that the
prestations need not be executed Rules
simultaneously but each successive (1) The debtor has the first choice to
execution thereof must be complete. which debt is paid.
(2) The right to make the application
Payment of debts in money shall be once exercised is irrevocable, unless
made in the currency stipulated and if it the creditor agrees.
is not possible, it should be in the (3) If debtor does not appy payment, the
currency which is legal tender in the creditor has the right to choose
Philippines. which debt is paid.
(4) If application is not applied or is
Promissory notes payable or other invalid, the most onerous debt that is
mercantile documents shall produce due shall be deemed to have been
effect of payment only when they have satisfied.
been cashed or when through the fault (Interest-bearing, sole debtor is more
of the creditor they have been impaired. onerous than solidary debtor, debts
For the meantime, action derived from secured by mortgage or by pledge, of
original obligation shall be held in two interest-bearing debts the one
abeyance (suspension). with higher rate, obligation with a
penalty clause)
Legal tender- all coins and notes issued
by the Bangko Sentral ng Pilipinas. (5) If debts due are the same nature and
burden, payment shall be applied to
Creditors are not compelled to accept all proportionately.
promissory notes, checks, bills of
exchange and other commercial If debt has interest, interest should be paid
documents. first before the principal amount.

Payment by cession only releases debtors up When the thing is lost in the possession of
to the net proceeds of the thing assigned. It the debtor, it is presumed that the loss was
is the assignment or abandonment of all the due to his fault unless proved otherwise.
properties of the debtor for the benefit of his (except in natural calamities)
creditors in order that the latter may sell the
same and apply the proceed thereof to the The debtor in obligations to do shall be
satisfaction of their credits. released when the prestations become
illegal of physical impossible without the
If the creditor to whom tender of payment fault of the debtor.
has been refused without just cause to
accept it, the debtor shall be released from When the service has become so difficult or
the responsibility by the consignation of the almost impossible as to manifestly beyond
thing or sum due. the contemplation of the parties, the debtor
is released therefrom in whole or part.
Consignation alone can produce the same
effect if the creditor is absent or unknown or The creditor has the right to proceed against
does not appear at the place of payments; if the third person responsible for the loss.
incapacitated to receive the payment at the
time due; if two persons try to collect; when Condonation or remission is the gratuitous
title of the obligation is lost. abandonment by the creditor of his right
against the debtor. It is a form of donation,
Consignation is the act of depositing the thus requiring acceptance.
thing or amount due with the proper court.
Inter vivos- when it will take effect during the
Consignation is valid if it is announced to the lifetime of the donor
persons interested in the fulfilment of the Mortis causa- when it will become effective
obligation, for the creditor to have a chance upon the death of the donor.
to reflect on his refusal of the payment.
No one can give more that that which he can
Consignation, by depositing the thing or sum give by will, otherwise, the excess shall be
due with the proper juridicial authority, is inofficious.
necessary to effect payment.
Is is presumed, that if a private document is
Expenses of consignation, when properly delivered by the creditor to the debtor, that
made is accounted to the creditor. The he renounces his rights as creditor.
debtor may withdraw the thing or amount
deposited before the creditor accepts This presumption is prima facie or
consignation or before a judicial declaration rebuttable by contrary evidence.
that consignation was made. If after the
acceptance of the creditor, the debtor wants The extinguishment of the principal debt,
to withdraw, the consent of the creditor is extinguishes the accessory debt. The
necessary. accessory follows the principal.

If a specific thing is loss due to a fortuitous Accessory obligation of pledge is placed in
event or without the fault of the debtor and the possession of the creditor or of a third
before incurring a delay, the obligation is person of common agreement. It is
extinguished. presumed, that if it is in the possession of the
debtor, the creditor allowed the principal
If a generic thing is lost, it does not obligation without the necessity for pledge.
extinguish obligation as generic thing never
perishes (genus nunquam perit) Confusion or merger is the meeting in one
person of the qualities of a creditor and
Partial loss may or may not distinguish an debtor.
obligation in delivering a specific thing.
Obligation is extinguished if partial loss is so Obligation is extinguished once the debtor
important in relation to the whole. becomes the creditor of himself.

The extinguishment of the accessory The debts are extinguished to the concurrent
obligation does not extinguish the principal amount.
obligation.
When compensation takes place after
Confusion does not extinguish joint assignment:
obligation. (1) Assignment with consent of the
debtor- the debtor cannot set up
Compensation shall take place when two against the assignee the
persons are creditors and debtors of each compensation which would pertain
other. to the assignor.
(2) Assignment with knowledge but
Compensation is often called simple without the consent of debtor
payment. Can be total, partial payment. (3) Assignment with the knowledge of
debtor- Assignor can set up the
Compensation can be total or partial can be compensation of credits before and
from a legal, voluntary, judicial (order from after the assignment.
court in a litigation), facultative
compensation (set up only by one of the Compensation takes place by operation of
parties). law even though the debts may be payable
at different places but there shall be
Compensation is proper if both creditor and indemnity for expenses of exchange (foreign
debtors are principally bound to each other; exchange) or transportation to the place of
if there debts are of the same kind and of the payment. The indemnity should be paid by
same quality; both debts are due; both are the person who raised defense of
liquidated and demandable; both are free of compensation.
any retention or controversy commenced by
third persons in due time to the debtor. Compensation is not deemed proper when it
arises from depositum, commodatum or
Third persons may set up compensation as from gratuitous titles or if thre is civil
regards what the creditor may owe the liabilities from fro a penal offense.
principal debtor because the extinguishment
of the principal obligation as a consequence If a person has several debts which are
of compensation carries with it the accessory susceptible to compensation, application of
obligation such as guaranty. If the debtor payments should apply.
pays in partial through compensation, the
rest may be carried out to the guarantor. If all requisites of compensation is preset,
compensation shall take effect by operation
The parties have the right to agree upon of law even without the knowledge of the
debts that are not yet due. debtor and creditor.

An aggrieved party may set off or demand Obligations can be modified by”
payment for damages against the other (1) Changing their object or principal
party by proving his right to the said (2) Substituting the person of the debtor
damages and the amount thereof thus (3) Subrogating a third person in the
compensation takes place through rights of the creditor
compensating the amount of damages from Novation is the total or partial extinction of
the original debt. an obligation through the creation of a new
one which substitutes it. Either it
When one or both debts are rescissible or extinguishes the first obligation or modifies
voidable, they may be compensated against it. Its two function is to extinguish an
each other before they are judicially obligation and to create a new one.
rescinded or avoided. The effect of
annulment is retroactive. Real novation- object or principal
obligations are changed
When compensation takes place before Personal or subjective novation- person or
assignment whereby compensation takes debtor is substituted or when third person is
effect by operation of law or automatically. subrogated
Mixed novation- when object and or third person of benefit of the obligation does
principal obligations and the debtor or not provide consent to the novation, the
creditor or both parties are changed accessory obligation made in favor of the
third person will still subsist because a
Novation is never presumed and must person should not be prejudiced by the act of
clearly be stated either by express another without his consent.
agreement/ acts of equivalent import/
incompatibility of the two obligations with If new obligation in novation is invalid, old
each other in every material aspect. obligation shall subsist unless the parties
clearly stated to extinguish the first
Requisites of Novation: obligation in any event.
(1) Previous valid obligation
(2) Capacity and intention of the parties Novation is void if original obligation is void
to modify or extinguish the obligation because there is nothing to novate if original
(3) Modification or extinguishment of obligation does not exist. However if original
obligation obligation is only voidable or if it can be
(4) Creation of new valid obligation ratified, the novation is valid.

Novation can take place without the If old obligation is subject to a suspensive or
knowledge of the debtor but not without the resolutory condition, the new obligation
consent of the creditor. should follow unless clearly stipulated.

Substitution- person of the debtor is Subrogation is the assigning of the rights of
substituted. the creditor to a third person. It can either be
Subrogation- when a third person is legal or provided by law or conventional
subrogated in the rights of the creditor through agreement of orginal parties. It is
not presumed.
Kinds of substitution
Conventional subrogation requires the
Expromision- when a third person takes consent of the original creditor, debtor and
initiative without the knowledge or against third person.
the will of the debtor to assume the debtor’s
obligation. It must be with full knowledge It is presumed that it is legal subrogation if a
and consent of the third person and the creditor pays another creditor who is
creditor. (new debtor has the right to preferred without the knowledge of the
beneficial reimbursement) debtor; if a third person who is not
interested in the obligation, pays with
Delegacion- takes place when the creditor express or tactic approval of the debtor;
accepts the third person to take the place of when a third person, even without the
the original debtor. The creditor may knowledge of the debtor, pays the
withhold approval. All parties involved obligation.
should agree including the debtor. (new
debtor has the right to reimbursement and Subrogation transfers all of the rights of the
subrogation) old creditor to the new creditor including
rights against the debtor or third persons, be
EITHER WAY EXPROMISION OR they guarantors or possessors of mortgages,
DELEGACION, THE CONSENT OF THE subject to stipulation in a conventional
CREDITOR MUST ALWAYS BE THERE. subrogation.

Insolvency of the new debtor does not revive A creditor where partial payment has been
the obligation of the old debtor unless the made, may exercise his right for the
said insolvency was known to the debtor or remainder and he shall be preferred to the
of public knowledge when the debt was person who has been subrogated in his place
delegated. (delegacion) in virtue of the partial payment of the same
credit.
As a general rule, when principal obligations
are extinguished through novation, the Contract is a meeting of the minds between
accessory is also extinguished however if a two persons whereby one binds himself,
with respect to the other, to give something (2) Accessory- dependent upon another
or to render some service. contract which secures or guarantees
for its existence and validity
While obligation is the legal tie that exists (3) Principal- does not depend for its
after a contract has been entered into. existence and validity
Dependence of part of contract to other
An agreement may be broader than a parts
contract because it may not have all the (1) Indivisible- each part of the contract
elements of a contract (moral or social is dependent upon the other parts for
agreements) satisfactory performance
(2) Divisible- one part of the contract
All contracts are agreements, but not all may be satisfactorily performed
agreements are contracts. independently of the other parts.

Classifications of Contracts: Contracting parties may establish
Name or designation stipulations, clauses, terms and conditions to
(1) Nominate what is deemed convenient to them given
(2) Innominate that it’s not contraty to law, morals, good
Perfection custom, public order and public policy.
(1) Consensual
(2) Real Valid Contracts are those that meet all legal
Cause requirements and limitations for the type of
(1) Onerous agreement involved and are, therefor,
(2) Remuneratory or remunerative legally binging and enforceable. (There are
(3) Gratuitous contracts that meet all the legal requirement
Form but are unenforceable)
(1) Informal/common/simple
(2) Formal/solemn Limitations of freedom to contract
Obligatory Force Not against:
(1) Valid Law, Morals, Good Custom, Public Order,
(2) Rescissible Public Policy
(3) Voidable
(4) Unenforciable Innominate Contracts (contracts with no
(5) Void or inexistent name) shall be regulated by the stipulations
Person obliged of the parties. It shall be regulated through
(1) Unilateral considering the stipulations of the parties,
(2) Bilateral the provisions of the Civil Code, the rules
Risks governing the most similar contract,
(1) Commutative- undertaking of one customs of the place.
party is considered equivalent of that
of the other Kinds:
(2) Aleatory- depends upon an uncertain (1) Do ut facias; I give that you may do
event or contingency both as to (2) Facto ut des; I do that you may give
benefit or loss (3) Facto ut facias; I do thay you may do
Liability
(1) Unilateral- it creates an obligation on Contracts must bind both parties and its
the part of only one party validity and compliance cannot be left to the
(2) Bilateral- give rise to reciprocal will of one party. No party can renounce the
obligations for both parties contract without the consent of the other.
Status
(1) Executory- not yet been completely Determination of the performance may be
performed by both parties left to the will of a third person, whose
(2) Executed- fully and satisfactorily decision shall be binding until it has been
carried out made known to both contracting parties.
Dependence to another contract
(1) Preparatory- entered into as a means The determination shall not be obligatory if
to an end it is evidently inequitable, in such case the
court shall determine what is equitable.

Contracts only take effect between parties, Any third person who induces another to
their heirs, assigns except if the rights are violate his contract shall be liable for
not transmissible by stipulation, nature or by damages to the other contracting party.
law. Thus, the heirs &assigns are not liable. It presupposes that the contract is valid
and the third person has knowledge of
If a contract contains stipulations in favor of the contract.
a third person, he may demand its fulfillment
provided he communicated his acceptance Mere consent perfects a contract and
to the obligor before its revocation. from the moment of perfection both
Incidental benefit or interest of a third parties are bound by the stipulations and
person is not enough, clear stipulations consequences thereof
conferring a favor to the third person is
necessary. Real contracts such as deposit, pledge
and commodatum, are not perfected
Stipulation pour autrui- a stipulation in a until the delivery of the object of the
contract clearly and deliberately conferring a obligation.
favor upon third person who has a right to
demand its fulfillment provided he Consensual Contract is perfected by
communicates his acceptance to the obligor mere consent.
before its revocation by the oblige or the
original parties. (stipulation is intended for Real contract is perfected by the delivery
the sole benefit of such person; stipulation is of the thing subject matter of the
due from the promise to the third person contract
which the former seeks to discharge)
Solemn contract requires compliance
Requisites: with certain formalities prescribed by
(1) Clearly and deliberately conferred law.
favor upon third person
(2) Third person must have STAGES IN THE LIFE OF A CONTRACT:
communicated acceptance before (1) Preparation or negotiation- incudes
revocation all steps taken by the parties leading
(3) Stipulation should only be part and to the perfection of contract
not the whole obligation (2) Perfection or birth- parties have
(4) Stipulation should not be come to a definite agreement;
conditioned or compensated by any meeting of the minds regarding the
kind of obligation subject matter and cause of contract
(5) Neither of the contracting parties (3) Consummation or termination-
bear the legal representation or parties have performed their
authorization of the third person respective obligations and the
contract may be said to have been
In contracts creating real rights, the third fully accomplished or executed.
person who comes into possession of the
object is bound by the contract even if No one may contract using the name of
third persons are stranger to the another without authorization or unless the
contract because real rights, follow the law gives him the right to represent him.
property wherever it goes (if properly
registered) A contract entered into using a name of
another without authority is unenforceable
Creditors are protected in cases of unless it is ratified expressly of impliedly
contracts intended to defraud them. This before its revocation.
means that when debtors try to defraud
creditors and sell properties that might Requisited of a contract: COC
be payment of the debts to a third
person, the creditor has the right to (1) Consent is the conformity or
cancel the sale between the third person concurrence of wills (offer &
and the debtor in order for him to be acceptance) and with respect to
paid. contracts; it is the agreement of the
 will of one contracting party with Option money are not earnest money that
that of another or others, upon the are considered partial payment as this is a
object and terms of the contract. payment for the time given to consider the
(2) Object offer.
(3) Cause
A unilateral promise alone without option
Offer is the proposal made by one party to money is not sufficient to disallow
another, indicating a willingness to enter withdrawal even after acceptance has been
into a contract. The offer must be certain conveyed as long as there is no promised
and absolute. The offer must be money given.
communicated and received by the offeree.
Unless it appears otherwise, business
Acceptance is the manifestation by the advertisements are not definite offers but
offeree of his agreement to all the terms of mere invitations to make an offer.
the offer.
Advertisements for bidders are simply
Qualified Acceptance- constitutes a counter- invitations to make proposals and the
offer. This acceptance must in return be advertiser is not bound to accept the highest
accepted in order for contract to exist. or lowest bid, unless the contrary appears.

The person making the offer may fix the The following cannot give consent to a
time, place and the manner of acceptance all contract:
of which must be complied with. (1) Minors
(2) Insane or demented persons and;
An offer made through an agency is accepted (3) deaf-mutes who do not know how to
from the time acceptance is communicated write.
to him. As these persons can easily be victims of
fraud
An agent is an extension of the personality of
the principal. If duly authorized, the act of Contracts entered into during a lucid interval
one is the act of the principal. It is important (temporary period of sanity) is valid.
to note that if offer is communicated by the Contracts entered into during a state of
principal but the acceptance is drunkenness or hypnotic spell are voidable
communicated to the agent unless the agent as it impairs the capacity of a person to give
is authorize to receive the acceptance. intelligent consent as it is equivalent to
temporary insanity.
An offer becomes ineffective upon the
death, civil interdiction (prohibition), These incapacitated person can give consent
insanity, or insolvency of either pary BEFORE only in situations such as:
acceptance is conveyed. (1) when it is necessaries such as food
(2) a minor 18 years old or above may
Destruction of the thing due before contract for life, health and accident
acceptance will also render an offer insurance
ineffective. (3) if has a guardian or legal
representative
When the offerer has allowed the offerree (4) if minor misrepresented his age and
certain time to accept, the offer may be convincingly led the other party to
withdrawn anytime by communicating the believe in his legal capacity
withdrawal unless there was an option (5) minor between 18 to 21 years old
contract. coluntarily pays sum of money or
delivers a fungible thing in fulfillment
Option contract is one giving a person a of his obligation thereunder and the
certain perion for consideration of offer to oblige has spent or consumed it in
accept the offer, wherein an option money is good faith
paid or promised in consideration of the
option period given. Under the Rules of Court the following
are considered incompetents:
 (1) person suffering from the accessory
penalty civil interdiction There is no mistake if the party alleging it
(2) hospitalized lepers knew the doubt, contingency or risk
(3) prodigals (spendthrifts) affecting the object of the contract.
(4) deaf and dumb who are unable to
read and write Mutual error as to the legal effect of an
(5) those of unsound mind even though agreement when the real purpose of the
they have lucid intervals parties is frustrated, may vitiate consent.
(6) those who, by reason of age, disease,
weak mind and other similar causes Mistake of law does not vitiate consent as
cannot with outside aid take care of “ignorance of the law excuses no one from
themselves and manage their compliance therewith” however when there
property is mistake on a doubtful question of law or
Contracts entered by incompetent persons on the construction or application of law,
as mentioned above are valid but voidable this is similar to a mistake of fact. As, when
contracts. even the highest courts are sometimes
divided upon difficult legal questions, why
Contracts entered where consent is given should a layman be held accountable for his
through mistake, intimidation, fraud, undue honest mistake on a doubtful legal issue?
influence and violence is voidable.
Requisites for mutual error to vitiate
Consent should be intelligent, free and consent:
voluntary, conscious or spontaneous. Error must be mutual, it must be as to the
legal effect of an agreement and it must
frustrate the real purpose of the parties.

There is violence when in order to get
consent, serious or irresistible force is
VICES OF CONSENT: MIFUV employed.
Mistake or error There is intimidation when one contracting
Intimidation or threat or duress party is compelled to give his consent by a
Fraud or deceit reasonable and well-grounded fear of an
Undue influence imminent and grave evil upon his person or
Violence or force property. To determine the degree of
intimidation age, sex, and condition should
In order for mistake to invalidate consent, it be taken into account.
should refer to the substance of the thing
which is the object of the contract or If intimidation is a referential fear or the fear
conditions which have principally moved one of displeasing a person to whom respect and
or both parties to enter into the contract. obedience are due, the contract is valid.
A threat to enforce one’s claim through
Mistake as to the identity or qualifications of competent authority does not vitiate
one of the parties will only vitiate consent consent as it is rightful.
when such identity or qualifications have
been the principal cause for entering into the Violence requires employment of physical
contract. force.

A simple mistake of account shall give rise to Violence or intimidation employed by a third
correction. person may annul the obligation

Mistake or error is the false notion of a thing Undue influence is influence of a kind that so
or a fact material to the contract. overpowers the mind of a party as to prevent
him from acting understandingly and
When one party is unable to read or if the voluntarily to do what he would have done if
contract is in the language not understood he had been left to exercise freely his own
by him and mistake or fraud is alleged, the judgment and discretion. The influence mus
person enforcing the contract shall prove be undue or improper. If gained by kindness
that he fully explained to the former.
and affection or argument and persuasion
the influence will not vitiate consent. Simulation of contract is the act of
deliberately deceiving others, by feigning or
There is fraud when through insidious words pretending by agreement, the appearance of
or machinations of one of the contracting contract which is either non-existent or
parties, the other is induced to enter into a concealed.
contract which, without them, he would not Absolute Simulation- contract does not
have agreed to. (Causal fraud) really exist and the parties do not intend to
be bound at all.
Causal fraud is fraud committed by one party Relative Simulation- contract entered into by
to indue the other into a contract, without the parties is different from their true
this fraud, the other party would not have agreement. The parties are bound by their
entered into a contract. (If fraud was real agreement.
incidental or part only of the reason of the
contract, it only gives rise to an action for Objects of a contract can be all things which
damages.) are not outside the commerce of men,
including future things. Also, transmissible
In order for causal fraud to annul consent rights can be object of contracts. No
there should be misrepresentation or contracts may be entered into upon future
concealment, the fraud must be serious, it inheritance except in cases authorized by
must be employed by one contracting party, law. All services which are not contrary to
it must be made in bad faith, it must have law, morals, good customs, public policy and
induced the consent of the other, it must be public order may likewise be object of
alleged and proved by clear and convincing contract. Impossible things cannot be
evidence. objects of contract.

Failure to disclose necessary facts, as when Object of a contract is the subject matter of
parties are bound by confidential relations, a contract. It is the obligation created. A
constitutes fraud. A neglect of failure to contract cannot exist without an obligation,
disclose that which a party to contract knows it may be said that the object of the
or ought to communicate constitutes obligation is also the object of the contract.
concealment.
Object certain is the second essential
The usual exaggeration in trade, when the element of a valid contract. The object may
other party had an opportunity to know the be things, rights, or services.
facts, are not in themselves fraudulent.
Dealer’s talk or trader’s talk are Anything can be objects of contract except
representations which do not appear on the for things outside commerce of men like
face of the contract and these do not bind things of public ownership.
either party.
Contracts concerning future inheritance (any
A mere expression of an opinion does not property or right, not in existence or capable
signify fraud unless it was made by an expert of determination at the time of contract, that
and the other party has relied on the a person may inherit in the future) except in
expert’s special knowledge. cases stipulated by law are void.

Misrepresent made by a third person does Future Inheritance is Valid only when:
not vitiate consent, unless such (1) cases of future spouses who agree in
representation has created substantial their marriage settlements upon a
mistake and the same is mutual regime other than the absolute
community of property, they may
Misrepresentation made in good faith is not donate to each other as much as one-
fraudulent but may constitute error. fifth of their present property, but
with respect to their future property,
Fraud makes a contract voidable if it is such donations shall be governed by
serious and not employed by both parties. the provisions on testamentary
While incidental fraud only obliges the succession and formalities of wills.
person employing to pay damages.
 (2) Partition by act of inter vivos by a the part of the transferor. (bonuses are not
person to take effect upon his death. donations having liberality for consideration)
Partition of property cannot take
effect during the lifetime of the Motive and Cause of Contracts are different.
owner. Motive is purely personal or private reason.
Upon death of the owner, future inheritance It may be unknown to the other property.
no longer becomes future and can now be an The illegality of the motive does not affect
object of contract the validity of the contract. This is not an
essential element of a contract.
Kinds of Impossibility
(1) Physical Cause is the direct reason of a contract. It
(a) Absolute- act cannot be done should be known to both parties. The
in any case so that nobody illegality of the cause affects the validity of
can perform it (nullifies the contract. This is an essential element of
contract) a contract.
(b) Relative- arises from special
circumstances of the case or Under some circumstances, the motive may
special conditions or be considered a cause in a contract when
qualifications of the obligor (if such motive predetermines the cause of the
temporary it does not nullify contract. Thus, the motive, can affect the
contract; if permanent it validity of the contract.
nullifies contract)
(2) Legal Contracts without cause or with unlawful
cause, produce no effect whatever.
The object of every contract should be
specific as to its kind, the quantity which is Absence of cause is different from
not determinate shall not be an obstacle as inadequacy of cause. As inadequacy of cause
long as it can be determined, without the is not a ground for relief.
need to enter into a new contract.
Statement of false cause renders a contract
In onerous contracts the cause of which for void unless proved that the contract is
each contracting party, is the prestation founded by another lawful cause.
promise of a thing or service by the other. In
other words, the party are reciprocally Although the cause is not stated in a
obligatedd to each other. contract, it is presumed that it exists and is
lawful, unless the debtor proves otherwise.
In remuneratory or remunerative or the
once cause of which is the service or benefit Lesion (economic damage caused by the fact
which is remunerated. The purpose is to that the price is unjust or inadequate) or
reward the service that had been previously inadequacy of cause shall not invalidate
rendered by the party renumerated. contract, unless there has been fraud,
mistake or undue influence.
Gratuitous or one where the cause of which
is the mere liberality of the benefactor or Contracts shall be obligatory no matter what
giver, such as commodatum, pure donation; form they may have been entered provided
guaranty or suretyship unless there is a it has all the essential requisites for their
stipulation to the contrary, mortgage given validity.
by third person to secure an obligation of
debtor unless a consideration is paid for such Forms of Contract refers to the manner in
mortgage. which contract is executed or manifested
(1) Informal or common or simple
Liberality as cause in contracts only when contract where it may be entered
they are of pure beneficence. Where it is into in whatever form provided all
designed solely and exclusively to procure the essential requisites (COC) are
the welfare of the beneficiary without intent present
of producing any satisfaction for the donor. (2) Formal or solemn contract where
The idea of self-interest is totally absent on certain specific forms are required by
law for it’s efficacy
 contracting parties may ask for reformation
Contracts need form when the law requires until their true intention will be expressed.
that a contract be in some form to be valid,
to be enforceable, to be of convenience to If mistake, fraud, inequitable conduct or
the parties or for the purpose of affecting accident has prevented the meeting of the
third persons. minds, the proper remedy is not reformation
but annulment of contract.
Donation of real property: Public
instrument Reformation is that remedy allowed by law
Donation of personal property the value of by means of which written instrument is
which exceeds 5,000: Donation and amended or rectified so as to express or
Accepting must be in writing conform to the real agreement of the parties
Sale of land through an agent: authority of when fraud, mistake, inequitable conduct or
agent must be in writing; otherwise void accident prevents the instrument to express
Stipulation to pay interest: must be in such agreement or intention of the
writing; otherwise void contracting parties.
Contract of Partnership: if immovable are
contributed; must be in public instruments to Reformation is allowed in order to allow the
which shall be attached a signed inventory of parties to express their real intention.
the immovable property contributed.
Requisites of reformation: (does not apply
Must appear in Public Document: where there is no writing or if there is,
(1) Acts and contracts with object, requisites are not met)
creation, transmission, modification (1) There is meeting of the minds
or extinguishment of real rights over (2) Written instrument does not express
immovable property; sales of real the true intention of the parties
property or interest thereof (3) Failure to express is due to mistake,
(2) Cession, repudiation or renunciation fraud, inequitable conduct or
of hereditary rigths or of conjugal accident
partnership of gains (4) Relief by way of reformation of the
(3) Power to administer property or any instruments is sought are put in issue
other power which has for its object by the pleadings;
an act appearing or which should (5) Clear and convincing evidence of the
appear in a public document, or mistake, fraud, inequitable conduct
should prejudice a third person or accident
(4) The cession of actions or rights In reformation, the contract itself is not the
proceeding from an act appearing one reformed but the written instrument.
from a public document When mutual mistake is made by both
parties, the said instrument may be
All contracts exceeding the value of 5,000 reformed. (mistake must be of fact; mistake
must appear in writing even private should be clear and convincing; must be
contracts, but sales of goods, chattels or mutual; must cause the failure to express
things in action are governed by article 1403 their true intention)

Contracts required in public documents that If mistake was done by one party in good
are not made in public documents are still faith, he may ask for reformation.
valid and enforceable but not against the
whole world but only to the contracting When one party is mistaken and the other
parties. It only gives personal right not real party knew that the instrument didn’t
right. express their real agreement but concealed
that fact from the other party, constitutes
When there is meeting of the minds fraud.
between both contracting parties, where
their true intention is not expressed in the If neither party is responsible for the mistake
instrument purporting to embody the of the written instrument, but through the
agreement, by reason of mistake, fraud, ignorance, lack of skill, negligence or bad
inequitable conduct or accident, one of the faith of a third person (may be through the
person drafting the instrument or the typist)
the court may ask the instrument to be When an agreement is susceptible of several
reformed. meanings, one which would render it
effectual, it should be given that
If two parties agree upon the mortgage of interpretation. Thus, if one interpretation
real or personal property, but the makes it legal and the other makes it illegal,
instrument states differently like it states the the legal one should be followed.
absolute sale or with right of repurchase,
reformation is deem proper. (Mortgage or Contracts must be interpreted as a whole
pledge stated as sale) and the interpretation of the parties is to be
gathered from the entire instrument and not
Reformation cannot be applied in simple from particular words, phrases, or clauses.
Donations inter vivos wherein no condition All provisions should, if possible, be so
is imposed; wills; when real agreement is interpreted as to harmonize each other.
void
Words which may have different
When one party has brought an action to significations shall be understood in that
enforce the instrument, he cannot which is most in keeping with the nature and
subsequently ask for reformation. This is object of the contract. If words in a contract
based on estoppel or ratification because has two or more meanings, the meaning
when a party brings an action to enforce, he which is in line with the nature and object of
verifies the validity and that it expresses the the contract shall prevail.
true intention of their contract thus bringing
the action of reformation is inconsistent. The usage or the custom of the place shall be
borne in mind in the interpretation of the
If the stipulations of the contract are clear ambiguities (uncertainties) of a contract, and
and leave no doubt to the contracting shall fill the omission of stipulations which
parties, the literal meaning of the are ordinarily established. It is necessary to
stipulations shall control. prove the existence of usage or custom the
burden of proof is to the party alleging it.
If the words appear to be contrary to the
evident intention of the parties, the The interpretations of obscure (doubtful)
intention shall prevail over the words. words or stipulations in a contract shall not
favor the party who caused the obscurity.
Interpretation of the contract is the Because a party that acts with obscurity
determination of the meaning of the terms might have ulterior motives.
or words used by the parties in their written
contract. When it is impossible to settle doubt by
previous articles and the doubts refer to
Evident intention of the parties shall prevail incidental circumstances of a gratuitous
over terms of contract. contrast, the least transmission of rights and
interest shall prevail. If the contract is
In order to judge the intention of the onerous, the debt shall be settled in favor of
contracting parties, their contemporaneous the greatest reciprocity of interests.
(concurrent) and subsequent acts, as by acts
in partial performance, shall be principally KINDS OF DEFECTIVE CONTRACTS:
considered. (1) Rescissible Contracts (due to
economic injury)
No matter how general the terms of contract (2) Voidable Contracts (defect in
may be, it must not be used to comprehend consent)
things that are distinct and different cases (3) Unenforceable Contracts (cannot be
from the contract agreed upon. Just because enforced unless ratified; between
a reference to some general matter, within valid and voidable)
which the particular matter may be included, (4) Void or inexistent Contracts (null and
does not necessarily indicate that that’s the void)
intention or the matter in mind of the
contracting parties. Rescissible Contracts are contracts validly
agreed upon because all essential requisites
(COC) therefor legally binding, but in cases
established by law, the remedy of rescission Rescission shall only be up to the extent
is granted in the interest of equity. necessary to cover the damages caused.

Rescissible Contracts are valid and He who demands rescission should be able
enforceable though can be rescinded by the to return whatever he may be oblige to
court when there is economic damage or restore due to the contract along with its
prejudice to one of the parties or to a third fruits and interest.
person. This is to secure reparation of
damages caused by them by a valid contract. If the object of contract is in possession of a
Requisites of rescission: third person who acquired it in good faith,
(1) Contract must be validly agreed upon indemnity for damages shall be demanded.
(2) Lesion (loss from another's failure to
perform contract) or pecuniary Rescission cannot take place with respect to
prejudice to one parties or to a third contracts approve by the courts.
person
(3) Rescission must be based on case All contracts by virtue of which the debtor
especially provided by law alienates property by gratuitous title are
(4) No other legal remedy to obtain presumed to have been entered into in fraud
reparation of damages of creditors, when after donating, the debtor
(5) Party asking for rescission must be did not reserve sufficient property to pay all
able to return what he is obliged to debts before the donation.
restore by reason of the contract
(6) Object of contract must not be legally Alienation by onerous title are also
in the possession of a third person presumed fraudulent when made by persons
who acquired it in good faith against whom judgment has been rendered
(7) Period for filing rescission must not in any instance or some writ of attachment
have prescribed has been issued. The decision or attachment
need not refer to the property alienated, and
The following are rescissible contracts: need not have been obtained by the party
(1) Entered into by guardians where the seeking the rescission.
wards suffer lesion more than ¼ the
value of the things which are object Badges of Fraud
thereof; (1) The fact that the consideration of the
(2) Agreed by representation of conveyance is fictitious or
absentees, where the absentees inadequate;
suffer lesion of more than ¼; (2) A transfer made by a debtor after suit
(3) Undertaken in fraud of creditors has been begun and while it’s
when the latter cannot in any other pending against him;
manner collect the claims due them; (3) A sale upon a credit by an insolvent
(4) Those which refers to things under debtor;
litigation if they have been entered (4) The transfer of all his property by a
into by the defendant without the debtor, especially when he is
knowledge and approval of the insolvent or greatly embarrassed
litigant or of competent judicial financially;
authority; (5) The fact that the transfer is made
(5) All other contracts specially declared between father and son, when there
by law to be subject to rescission are present some or any of the above
circumstances;
Payments made in a state of insolvency for (6) The failure of the vendee to take
obligations to those whose fulfillment the exclusive possession of all the
debtor could not be compelled at the time property;
they were effected, are also rescissible. (7) It was known to the vendee that the
vendor had no properties other than
Rescission is only subsidiary; it cannot be that sold to him
instituted except when the party suffering
damage has no other legal means to obtain Whoever acquires the object alienated in
reparation for the came. fraud of creditors must return the same if
the sale is rescience and if it is impossible to
return he must indemnify the former. If 2 or (1) Incase of intimidation, violence, or
more alienations the first acquirer is liable undue influence, from the time the
and so on, successively. (One who buys from defect of consent ceases
one who is not registered owner is expected (2) In case of mistake or fraud, from the
to examine not only the certificate of title but time of the discovery of the same
all factual circumstances necessary for him (3) And when the action refers to
to determine if there are any flaws in the title contracts entered into by minors or
of the transferor or in his capacity to transfer other incapacitated persons, from
the land.” the time the guardianship ceases.

The action to claim rescission must be Ratification extinguishes the action to annul
commenced within four years. a voidable contract as ratification cleanses
For persons under guardianship, four years the contract from defect from the moment it
shall commence upon legality or from the was constituted.
termination of incapacity;
For absentees, from the time the domicile Ratification may be effected expressly or
(residence) is known tacitly. It is understood that there is tacit
ratification if with the knowledge of the
Persons entitled to bring action are the reason which renders the contract voidable
injured party or the defrauded creditor; his and such reason having been ceased, the
heirs, assigns or successors in interest; the person who has a right to invoke it should
creditors of the above entitled to execute an act which necessarily implies an
subrogation. intention to wave his rights.

Contracts that are voidable or annullable: A contract entered into by an incapacitated
(1) One of the parties is incapable of person may be ratified by the guardian or
giving consent to a contract; (legal when he is no longer incapacitated.
incapacity) A voidable contract on the ground of mistake
(2) Consent is vitiated by (MIFUV) may be ratified by the party whose consent
mistake, intimidation, force, undue is vitiated.
influence or or violence; (violation of Ratification does not require the consent of
consent) the contracting party who has no right to
These contracts are binding unless they bring the action for annulment.
are annulled by a proper action of court.
Voidable or annullable contracts are those Action for annulment may be brought upon
which has all the essential requisites to the contracting party or an assignee but
validate a contract but one of the parties is never of a person who is not part of the
incapable of giving consent, or consent is contracting party or assignee or person who
vitiated by mistake, intimidation, force, has no legal capacity to challenge the validity
undue influence or violence. of such contract.
If voidable contracts are ratified, they
become absolutely valid and can no longer Strangers therefor are without right or
be annulled. personality to bring the action for they are
not obliged by the contract, principally or
Annulment is a remedy provided by law, for subsidiarily, unless they can show detriment
reason of public interest, for the declaration which would positively result to them from
of the inefficacy of a contract based on a the contract whom they have no
defect or vice in the consent of one of the intervention of.
contracting parties in order to restore them
to their original position in which they were When the defect of the contract consists in
before the contract was executed. the incapacity of one of the parties, the
incapacitated person is not obliged to make
Action for annulment shall be brought within any restitution except insofar as he has been
four years. benefited by the thing or price received by
him.
This period shall begin:
Whenever the person obliged by the decree
of annulment to return the thing cannot do
so because it has been lost through his fault, representation or who has acted beyond his
he shall return the fuits received and the powers.
value of the thing at the time of loss, with
interest at the same date. Status of Fraud:
(1) History- In 1667, the English Parliament
The action for annulment of contracts be enacted a statute to counter the evil practice
extinguished when the thing which is the of giving false testimony in actions founded
object of the contract is lost through the on certain kinds of contracts.
fraud or fault of the party who has a right to (2) Purpose- Enacted not only to prevent
institute the proceedings. fraud but also to guard against the mistakes
of honest men by requiring that certain
If the right of action is based upon the agreements specified that are susceptible to
incapacity of any one of the contracting fraud must be in writing; otherwise, they are
parties; the loss of the thing shall not be an unenforceable by action in court.
obstacle to the success of the action, unless (3) “Writing” under the Statute- does not
said loss took place through the fraud or require the contract to be formally written
fault of the plaintiff. document. It can be through a slip of paper,
a letter, a note or memorandum by means of
If one of the contracting parties cannot pen, pencil or any mechanical device as long
restore what is compelled of him the other as it is intelligible and record the intent of the
cannot be compelled to comply with what is parties.
incumbent upon him, hence there is no (4) Application- some fundamental principles
annulment. relative to the statute of fraud are given
hereunder:
Unenforceable contracts unless ratified: (a) Not applicable to inactions which
(1) Entered into the name of another are neither for damages because of a
person by one who has not been violation of a contract, nor the
given authority or legal specific performance thereof.
representation, or who has acted (b) Applicable only to completely
beyond his powers (abuse of executory contracts (no performance
authority) made yet) and not to totally executed
(2) Those that do not comply with contracts because partial
Statute of Frauds. In the following performance, like the writing,
cases, an agreement hereafter made furnishes reliable evidence of the
shall be unenforceable by action, intention of the parties or the
unless the same or some note or existence of the contract.
memorandum thereof be in writing, (c) Not applicable where the contract
and subscribed by the party charged, is admitted expressly, or impliedly by
or by his agent; evidence, therefore, the failure to deny specifically its
of the agreement cannot be received existence, no further evidence
without the writing, or a secondary thereof being required in such case.
evidence of its contents (d) Applicable only to the agreements
(3) Those where both parties are enumerated therein. Thus, an
incapable of giving consent to a agreement creating an easement of
contract right of way is not covered by Statute
Unenforceable contracts are those that of Fraud since it is not a sale of real
cannot be enforced or given effect in a court property or of an interest therein.
of law or sued upon by reason of certain (e) Not applicable where writing does
defects provided by law until and unless they not express true agreement of the
are ratified according to law. parties. This is so because the statute
cannot be used as shield for fraud or
Unenforceable contract are valid but cannot as a means for the perpetration of it.
be enforces unless they are cured or ratified. (f) Does not declare that contracts
Once ratified they become enforceable. infringing it are void but merely
unenforceable.
Unauthorized Contracts are those entered (g) The defense of the Statute of
into in the name of another person by one Frauds may be waived.
who has been given no authority or legal
 (h) The defense of the Statute of (1) Cause, object or purpose is contrary
Frauds is personal to the parties and to law, morals, good custom, public
cannot be interposed by strangers to order or public policy;
the contract. (2) Which are absolutely simulated or
fictitious;
Agreements within the scope of (3) Cause or object did not exist at the
Statute of Frauds: (should be in time of the transaction;
writing to be enforceable) (4) Those whose object is outside the
commerce of men;
(1) Agreement not to be (5) Those whose contemplate an
performed within one year impossible service;
for the making thereof; (6) Those where the intention of the
(2) Promise to answer for the parties relative to the principal object
debt, default, or miscarriage of the contract cannot be
of another; ascertained;
(3) Agreement in consideration (7) Those expressly prohibited or
of marriage other than declared void by law.
mutual promise to marry; These contracts cannot be ratified.
(4) Agreement for sale of goods, Neither can the right set up the defense
etc. at price not less than of illegality be waived.
P500.00
(5) Agreement for leasing for a Void contracts are contracts with certain
longer period that one year. defects, which produce no effect at all.
(6) Agreement for the sale of real (Often used to refer agreement tainted
property or of an interest with illegality)
therein
(7) Representation as to the Inexistent contracts refer to contracts
credit of a third person which lack one or some or all of the
Modes of Ratification under the Statute of elements or do not comply with the
Frauds: formalities which are essential for the
(1) Failure to object to the presentation of existence of a contract.
oral evidence to prove the contract. The
failure to object amounts to waiver and Characteristics of a void or inexistent
makes the contract binding as if it has been contract:
reduced to writing. The requirement of a (1) Produces no force and effect
written form is for evidential purpose only; whatsoever;
and (2) Cannot be ratified;
(2) By acceptance of benefits under the (3) Right to set up the defense for
contract. In this case, the contract is no the declaration of inexistence
longer executory and, therefor, the Statute does not prescribe;
does not apply. This rule is based upon the (4) Action or defense for the
familiar principle that one who has enjoyed declaration of its inexistence
the benefits of a transactions should not be does not prescribe;
allowed to repudiate (reject) its burdens. (5) Defense of illegality is not
available to third persons whose
Contracts entered into by two incapacitated interests are not directly
persons are unenforceable. However, if one affected;
of the contracting party has a guardian the (6) Cannot give rise to a valid
contract becomes voidable. contract

Unenforceable contracts cannot be assailed If a contract is void , a party thereto can
(attacked) by third persons who is a stranger always bring a court action to declare it void
to the contract. or inexistent

Following contracts are void and inexistent The party against whom a void contract is
from the beginning: sought to be enforced, can always raise the
defense of nullity, despite the passage of
time. Since a void contract has no effect at
all, it is, therefor unnecessary to bring an (2) Contract is repudiated before the
action to declare it void. However it is better purpose has been accomplished or
to have a judicial declaration of nullity to before any damage has been caused
have a peace of mind and to avoid the taking to a third person; and
of the law into their own hands. (3) The court considers that public
interest will be subserved by allowing
Rules where contract is illegal and act recovery.
constitutes a criminal offense
(1) Where both parties are in pari delicto Where one of the parties to an illegal
– The following are the effects of a contract is incapable of giving consent, the
contract whose cause or object courts may, if the interest of justice so
constitutes a criminal offense and demands, allow recovery of money or
both parties are in pari delicto that is, property delivered by the incapacitated
equally guilty: person. It is not necessary that the illegal
a. The parties shall have no purpose has not been accomplished or that
action against each other no damage has been caused to a third
b. Both shall be prosecuted; and person.
c. The things or the price of the
contract, as the effects or When the agreement is not illegal per se but
instruments of the crime, is merely prohibited, and the prohibition by
shall be confiscated in favor law is designed for the protection of the
of the government. plaintiff, he may, if public policy is thereby
(2) When only one party is guilty enhances, recover what he has paid or
a. The guilty party loses what he delivered.
has given by reason of
contract; Requisites where contract is not illegal per
b. The guilty party cannot ask se:
for the fulfillment of the (1) Agreement is not illegal per se but is
other’s undertaking; merely prohibited;
c. The innocent party may (2) Prohibition is design for the
deman the return of what he protection of the plaintiff;
has given; and (3) Public policy would be enhanced by
d. The innocent part cannot be allowing the plaintiff to recover what
compelled with his promise. he has paid or delivered.
Interest paid in excess of the interest
allowed by the usury laws may be recovered When the price of any article or commodity
by the debtor, with interest thereon from is determined by statute, or by authority of
the date of the payment. law, any person paying any amount in excess
of maximum price allowed may recover such
However, usury laws no longer exist, so excess.
there is no longer a limit as to what amount
is the interest except when it is way beyond The statute fixing the maximum price of any
what is moral, in this case the court may article or commodity is known as ceiling law.
determine the rightful amount of the
interest that must be paid. When the law fixes, or authorizes the fixing
of the maximum number of hours of labor,
When money is paid or property delivered and a contract is entered into whereby a
for an illegal purpose, the contract may be laborer undertakes to work longer than the
repudiated (rejected) by one of the parties maximum thus fixed, he may demand
before the purpose has been accomplished, additional compensation for service
or before any damages has been caused to a rendered beyond the limit.
third person. In such case, the courts may, if
the public interest will thus be subserved, When the law sets, or authorizes the setting
allow the party repudiating the contract to of minimum wage for laborers, and a
recover the money or property. contracts is agreed upon by which a laborer
accepts a lower wage, he shall be entitled to
Requisites for this article: recover deficiency.
(1) Contract must be for illegal purposes;
In case of a divisible contract, if the illegal or delivers fungible thing in fulfillment of the
terms can be separated from the legal ones, obligation, there shall be no right to recover
the latter may be enforced. the same from the oblige who has spent or
consumed it in good faith.
The defense of illegality of contracts is not
available to thirds persons whose interests When, after an action to enforce a civil
are not directly affected. obligation has failed, the defendant
In voidable and unenforceable contracts, voluntarily performs the obligation, he
third persons are not allowed to bring an cannot demand the return of what he has
action to annul or to assail, as the case may delivered or the payment of the value of the
be, said contracts. service he has rendered.

A contracts which is the direct result of a When a testate (one with legal will and
previous illegal contract, is also void and testament) or intestate (no legal will and
inexistent. testament) heir voluntarily pays a debt of the
decedent exceeding the value of the
Obligation are civil or natural. property which he received by will or by the
law of intestacy from the estate of the
Civil obligations give right of action to deceased, the payment is valid and cannot
compel their performance. be rescinded by the payer.

Natural Obligations are not based on When a will is declared void because it has
positive law but on equity and justice. This not been executed in accordance with the
do not grant a right of action to enforce their formalities required by law, but one of the
performance but if there is voluntary intestate heirs, after the settlement of the
fulfillment of the obligor, the obligor debts of the deceased, pays a legacy in
authorize the retention of what has been compliance with a clause in the defective will
delivered or rendered by reason thereof. the payment is effective and irrevocable.

When a right to sue upon a civil obligation If there is a will and testament the 50% of the
has lapsed by extinctive prescription, the assets are only compulsory to be given to the
obligor who voluntarily performs the compulsory heirs and the other 50% is
contract cannot recover what he has however the owner wants it.
delivered or the value of the service he has
rendered. If there is no will, the 100% of the assets is
given to the compulsory heirs.
(debts in money have a period of 10 years)
If a civil obligation is therefor converted a
When without the knowledge or against the natural law with a natural obligation ran by
will of the debtor, a third person pays a debt conscience then the action is valid and
which the obligor is not legally bound to pay irrevocable.
because the action thereon is prescribed,
but the debtor later voluntarily reimburses Legacy is the act of disposition by the
the third person, the obligor cannot recover testator in separating from the inheritance
what he has paid. for definite purposes, things, rights or a
definite portion of his property.
When a minor who has entered into a
contract without the consent of the parent
or guardian, after the annulment of the
contract voluntarily returns the whole thing
or price received, notwithstanding the fact
that he has not been benefited thereby,
there is no right to demand the thing or price
thus returned.

When a minor who has entered into a
contract without the consent of the parent
or guardian, voluntarily pays a sum of money