Obligations and Contracts Memory Aid

COMMERCI AL LAW MEMORY AI D
Obligations and Contracts

PART I - OBLIGATION - An obligation is a juridical necessity to give, to do or not to do
ELEMENTS
1. Active subject ( obligee/creditor ) the one in whose favor the obligation is
constituted
2. assive subject ( obligor/debtor ) the one who has the duty of giving, doing or not
doing
!. "bject #restation$ the conduct which has to be observed by the debtor/obligor
%. &inculu' (uris juridical/legal tie
). *ausa (causa debendi/causa obligationes) - why obligation e+ists
R!"#isit!s o$ Ob%!ct
a. licit - if illicit, it is void
b. #ossible - if i'#ossible, it is void
c. deter'inate or deter'inable - or else, void
d. #ecuniary value
SO&RCES O' OBLIGATION
1. LAW ( OBLIGATION EX LEGE ) - ,ust be e+#ressly or i'#liedly set forth and
cannot be #resu'ed
2. CONTRACT ( OBLIGATION EX CONTRACTU ) - ,ust be co'#lied with in good
faith because it is the -law. between #arties$ neither #arty 'ay unilaterally evade his
obligation in the contract, unless/
a) contract authori0es it
b) other #arty assents
Parties may freely enter into any stipulations, provided they are not contrary to law,
morals, good customs, public order or public policy
!. )&ASI-CONTRACT ( OBLIGATION EX QUASI-CONTRACTU ) - 1hat juridical
relation resulting fro' a lawful, voluntary and unilateral act, and which has for its
#ur#ose, the #ay'ent of inde'nity to the end that no one shall be unjustly enriched
or benefited at the e+#ense of another
2 2inds/
a. N!gotior#* g!stio - unauthori0ed 'anage'ent$ 1his ta2es #lace when a
#erson voluntarily ta2es charge of another3s abandoned business or #ro#erty
without the owner3s authority
b. Sol#tio ind!biti - undue #ay'ent $ 1his ta2es #lace when so'ething is
received when there is no right to de'and it, and it was unduly delivered thru
'ista2e
%. DELICTS ( OBLIGATION EX MALEFICIO OR EX DELICTO )
4overning rules/
1. ertinent #rovisions of the 5* and other #enal laws subject to Art 2166 *ivil
*ode
Art 177, 5* 8very #erson cri'inally liable for a felony is also civilly
liable
2. *ha#ter 2, reli'inary title, on 9u'an 5elations ( *ivil *ode )
!. 1itle 1: of ;oo2 <& of the *ivil *ode on da'ages
What civil liability ai!i"# $%& a ci&' i"cl()'!*
a. restitution
b. re#aration of da'age caused
c. inde'nity for conse=uential da'ages
E$$'ct %$ ac+(ittal i" ci&i"al ca!'*
when ac=uittal is due to reasonable doubt no civil liability
when ac=uittal is due to e+e'#ting circu'stances there is civil liability
"bligations and *ontracts >ernando ,. Alcantara
1
when there is #re#onderance of evidence there is civil liability
). )&ASI-DELICT+TORTS ( OBLIGATION E, )&ASI-DELICTO or E, )&ASI
MALE'ICIO ) - <t is a fault or act of negligence ( or o'ission of care ) which causes
da'age to another, there being no #re-e+isting contractual relations between the
#arties
El!*!nts
a) 1here 'ust be fault or negligence attributable to the #erson charged
b) 1here 'ust be da'age or injury
c) 1here 'ust be a direct relation of cause and effect between the fault or
negligence on the one hand and the da'age or injury on the other hand
( #ro+i'ate cause )
N%t'*
Th' SC i" Sa#a)a v, Nacc%c% i&-li') that th' !%(c'! %$ %bli#ati%" i" At
../0 i! '1cl(!iv', Ma"y c%&&'"tat%! b'li'v'2 h%3'v' that it !h%(l) "%t b',
At -'!'"t2 th'' i! %"' &%' -%!!ibl' !%(c' %$ %bli#ati%"! - 4UBLIC OFFER
(4(blic O$$' i! i" $act a !%(c' %$ %bli#ati%" i" th' G'&a" Civil C%)'5
E''ECTS O' OBLIGATION
1. "bligation to give - obligation to deliver the thing agreed u#on
2. "bligation to do/not to do - obligation to do/not to do the service agreed u#on
ACCESSORY OBLIGATIONS
-. E/!rcis! dilig!nc! + Pr!s!r0! t1! t1ing
standard of care/ that of a good father of a fa'ily unless the law or sti#ulation
re=uires another standard of care
2. D!li0!r3 o$ $r#its
?hen does the right begin to e+ist / fro' the ti'e to deliver arises
a) when there is no ter'/condition fro' the #erfection of the contract
b) when there is a ter'/condition fro' the 'o'ent the ter' or condition arises
!. D!li0!r3 o$ acc!ssori!s 4 acc!ssions ( obligation to deliver deter'inate thing,
even if the sti#ulation does not 'ention delivery of accessories @ accessions)
Accessories - those joined to or included with the #rinci#al for the latter3s better
use, #erfection or enjoy'ent
Accessions additions to or i'#rove'ents u#on a thing
?hen does right to fruits ariseA fro' the ti'e the obligation to deliver arises
a) *onditional fro' the 'o'ent the condition ha##ens
b) ?ith a ter'/#eriod u#on the e+#iration of the ter'/#eriod
c) Bi'#le fro' the #erfection of the contract
'AIL&RE TO COMPLY WIT5 PER'ORMANCE+REMEDIES
6 7inds o$ P!r$or*anc!
-. SPECI'IC PER'ORMANCE - #erfor'ance of the #restation itself
2. S&BSTIT&TE PER'ORMANCE - so'eone else #erfor's or so'ething else is
#erfor'ed at the e+#ense of debtor
6. E)&I8ALENT PER'ORMANCE - da'ages
R!*!di!s
Obligation to gi0!
(R!al Obligation9
Obligations to do
(P!rsonal Obligation9
S:!ci$ic g!n!ric To do Not to do
B8*<><*
85>"5,AC*8 , D D
undo the things
already done
2
8EF<&AG8C1
85>"5,AC*8 D D
*an only be de'anded
if obligation is not very
#ersonal
D
BF;B1<1F18
85>"5,AC*8 D D
Fndo the things
already done at
debtorHs e+#ense
58B*<BB<"C/
*AC*8GGA1<"C D D D
IRREG&LARITY O' PER'ORMANCE+BREAC5
A. CA&SES ATTRIB&TABLE TO DEBTOR
-. Contra0!ntion o$ t!nor
2. D!la3+ Mora - Con #erfor'ance with res#ect to ti'e
Mora sol0!ndi default on the #art of the debtor$ 2 2inds/
(1) ,ora Bolvendi 8+ re default in real obligations
(2) ,ora Bolvendi 8+ #ersona default in #ersonal obligations
El!*!nts
(1) 1he obligation 'ust be due, enforceable and already li=uidated or
deter'inate in a'ount
(2) 1here 'ust be non-#erfor'ance
(!) 1here 'ust be a de'and, unless de'and is not re=uired
W1!n d!*and is not n!c!ssar3
(1) ?hen law declares
(2) ?hen obligation e+#ressly declares
(!) ?hen designation of ti'e of delivery or rendering the service was a
controlling 'otive
(%) ?hen de'and would be useless as when debtor has rendered it
beyond his #owers to #erfor'
E$$!cts
a. if deter'inate thing - debtor bears ris2 of loss (even when there is
fortuitous event)
b. debtor liable for da'ages/interest
c. resolution (art 1167, in #ro#er cases)
!. 'ra#d + Dolo &oluntary e+ecution of a wrongful act or willful o'ission, 2nowing
and intending the effects which naturally and necessarily arise fro' such act or
o'ission
a. *ausante ( causal ) - 'a2es contract voidable
b. incidente ( incidental ) - fraud in #erfor'ance of obligation$ does not
affect validity of obligations
R!*!di!s o$ P!rson in $ra#d #nd!r obligations ar!
a. insist on s#ecific #erfor'ance (art 12!!)
b. resolve contract (art 11I1)
c. clai' da'ages, in either case
%. N!glig!nc! +C#l:a - absence of due diligence
El!*!nts
a) "'ission of diligence re=uired
b) Jiligence re=uired #er nature of obligation, circu'stances of #ersons, ti'e
and #lace
'RA&D DISTING&IS5ED 'ROM NEGLIGENCE
'RA&D NEGLIGENCE
1here is deliberate intention to cause
da'age.
1here is no deliberate intention to cause
da'age.
3
Giability cannot be 'itigated. Giability 'ay be 'itigated.
?aiver for future fraud is void. ?aiver for future negligence 'ay be allowed
in certain cases/
a) gross can never be e+cused in
advance$ against #ublic #olicy
b) si'#le 'ay be e+cused in certain
cases
B. CA&SES NOT ATTRIB&TABLE TO DEBTOR
1. D!la3+ Mora - non fulfill'ent with res#ect to ti'e
Mora acc!:i!ndi default on #art of creditor$ *reditor is guilty of default when
he unjustifiably refuses to acce#t #ay'ent or #erfor'ance at the ti'e
#ay'ent/#erfor'ance can be done
E$$!cts
(1) res#onsibility of debtor is reduced to fraud and gross negligence
(2) debtor is e+e'#ted fro' ris2 of loss of thing / creditor bears ris2 of
loss
(!) e+#enses by debtor for #reservation of thing after delay is chargeable
to creditor
(%) if obligation bears interest, debtor does not have to #ay fro' ti'e of
delay
()) creditor liable for da'ages
(K) debtor 'ay relieve hi'self of obligation by consigning the thing
Co*:!nsatio *ora! both #arties are in default (in reci#rocal obligations)$ the
effect/ is as if there is no default
2. 'ort#ito#s E0!nts - event which could not be foreseen, or which though
foreseen, were inevitable
RE)&IREMENTS (Ca2#il @ Bons vs. *A)/
1. 1he cause of the breach of the obligation 'ust be inde#endent of the will of
the debtor
2. 1he event 'ust be either unforeseeable or unavoidable
!. 1he event 'ust be such as to render it i'#ossible for the debtor to fulfill his
obligation in a nor'al 'anner
%. 1he debtor 'ust be free fro' any #artici#ation in, or aggravation of injury to
the creditor
R#l! on 'ort#ito#s E0!nt
1. 4eneral 5ule no liability for fortuitous event
2. 8+e'#tion
a) when e+#ressly declared by law ( bad faith, subject 'atter is generic,
debtor is in delay )
b) when e+#ressly declared by sti#ulation or contract
c) when nature of obligation re=uires assu'#tion of ris2
REMEDIES O' CREDITORS - generally trans'issible (e+ce#t/ law, sti#ulation,
#ersonal obligation)/
1. 8+act #erfor'ance - s#ecific, substitute, e=uivalent
2. Attach and e+ecute debtorHs #ro#erty which is not e+e'#t (art 22!K)
!. Accion subrogatoria (art 1161)
R!"#isit!s
a. *reditor 'ust have right of return against debtor
b. 1he debt is due and de'andable
c. 1here is a failure of the debtor to collect his own debt fro' !
rd
#ersons
either through 'alice or negligence
d. JebtorHs assets are insufficient
4
e. 1he right of account is not #urely #ersonal
%. Accion directa (arts 162I @ 1K)2)
). Accion #auliana
R!"#isit!s
a. 1here is a credit in favor of #laintiff
b. 1he debtor has #erfor'ed an act subse=uent to the contract, giving
advantage to other #ersons
c. 1he creditor is #rejudiced by the debtorHs act which are in favor of !
rd

#arties and rescission will benefit the creditor
d. 1he creditor has no other legal re'edy
e. 1he debtorHs acts are fraudulent
DI''ERENT ;INDS O' OBLIGATIONS
CATEGORIES
a. Je'andability - #ure, conditional or with a ter'
b. lurality of object - si'#le, alternative or facultative
c. lurality of subject - si'#le, joint or solidary
d. erfor'ance - divisible or indivisible
e. Banctions for breach - with or without a #enal clause
(-9 P#r! de'andable at once, no ter', no condition
(29 Conditional - A condition is a future and an uncertain event or a #ast event
un2nown to the #arties
;inds
i. S#s:!nsi0! ha##ening of condition gives rise to obligation
8ffects/
1. effectivity is retroactive
2. no retroactivity with reference to fruits or interest @ #rescri#tion
!. creditor 'ay #reserve rights
%. debtor recovery of #ay'ent by 'ista2e or even w/o 'ista2e
R#l!s on loss< i*:air*!nt< i*:ro0!*!nt o$ t1! s#b%!ct *att!r :!nding t1!
1a::!ning o$ s#s:!nsi0! condition+ t!r*
Loss+ I*:air*!nt I*:ro0!*!nt
w/ fault or at e+#ense of
obligor/ usufructuary
<nde'nity @ da'ages s#ecific #erfor'ance
rescission @
da'ages
<f it i'#roved at the e+#ense of
the debtor, he shall have no
other right than that granted to
the usufructuary. (art 11:I)
w/o fault or not at
e+#ense of obligor
8+tinguished *reditor to bear da'ages
*reditor gets it
RE)&ISITES 'OR T5E A'OREMENTIONED R&LE
1. 1here is a sus#ensive condition
2. 1here is an obligation to deliver a deter'inate thing
!. 1here is loss, deterioration or i'#rove'ent before the ha##ening of the
condition
%. 1he condition ha##ens
ii. R!sol#tor3 ha##ening of condition e+tinguishes obligation
8ffects/
1. no retroactive effect
2. obligation e+tinguished
!. restore to each other what was received #lus interest/fruits
5
iii. Pot!stati0! de#endent on sole will of 1 #arty$ if on #art of debtor @
sus#ensive - void
i0. Cas#al de#endent on chance or ha0ard
0. Mi/!d chance, or any of #arties
0i. Wit1 t!r* -
a9 Positi0! e+tinguished if ti'e e+#ires or indubitable of condition to
ha##en
b9 N!gati0! effective fro' 'o'ent of ti'e ela#sed or evident it canHt
ha##en
0ii. I*:ossibl! and ill!gal
(1) 1o do - both the condition and the obligation are void
(2) Cot to do disregard the condition, the obligation is still valid
Impossible condition physically not feasible
Illegal condition prohibited by law, good custom, public policy and
morals
(69 Wit1 a :!riod future @ certain, #ast @ uncertain, #ayable when able
?hen sti#ulation says -#ayable when able - it is with a #eriod, re'edy/
a) agree'ent a'ong #arties
b) court shall fi+ #eriod of #ay'ent when #arties unable to agree
;inds
a. R!sol#tor3 ( in die' ) ta2es effect at once but ter'inate u#on arrival of the
day certain$ Day certain that which must necessarily come, although it may
not be known when
b. S#s:!nsi0! ( e+ die ) ta2es effect on the day sti#ulated
W5EN CO&RTS MAY 'I, PERIOD
a) art 11I6
b) art 11I6, 2
nd
#aragra#h
c) art 11I1, !
rd
#aragra#h
d) art 1K:6, 2
nd
, !
rd
, %
th
sentence
e) art 11:7
W5EN DEBTOR LOSES RIG5T TO PERIOD
a. insolvency of debtor, unless security #rovided
b. did not deliver security
c. i'#aired security- thru fault or fortuitous event
d. violate underta2ing in consideration of e+tension of #eriod
e. atte'#ts to abscond
(=9. 'ac#ltati0! only one #restation has been agreed u#on but another 'ay be given
in substitution
E$$!ct o$ loss or d!t!rioration t1r# n!glig!nc!< d!la3 or $ra#d o$ obligor
a) of thing intended as substitute - no liability
b) of the substitute after substitution is 'ade with liability
(>9. Alt!rnati0! bound by different #restations but only one is due
5ight of choice/ 4eneral rule/ right of choice belongs to debtor
a. t1! c1oic! is ?it1 d!btor
(1) <f only 1 is left either because of fortuitous events or due to debtorHs acts,
#erfor' what is left. 1he effect is that the debtor loses the right of choice
(2) if the choice is li'ited because of the creditorHs acts, the debtor has the right
of resolution and da'ages
(!) if all are lost due to debtor, the creditor is entitled to da'ages
(%) if so'e are lost, the debtor can choose fro' the re'aining
6
b. t1! c1oic! is ?it1 cr!ditor
(1) if one or so'e are lost due to fortuitous event, the creditor chooses the
re'ainder
(2) if one or so'e is lost because of the fault of debtor, the creditor 'ay choose
either the re'ainder or the value of any which disa##eared, and da'ages in
either case
(!) if all is lost due to the debtorHs fault, the creditor 'ay choose the value of any
if so'e is lost due to debtorHs fault, the creditor chooses the re'ainder
(%) if all is lost due to fortuitous event, obligation is e+tinguished
()) if all is lost due to creditorHs fault, the obligation is e+tinguished
R!"#isit!s $or *a7ing t1! c1oic!
a) ,ade #ro#erly so that creditor or his agent will actually 2now
b) ,ade with full 2nowledge that a selection is indeed being 'ade
c) ,ade voluntarily and freely
d) ,ade in due ti'e before or u#on 'aturity
e) ,ade to all #ro#er #ersons
f) ,ade w/o conditions unless agreed by the creditor
g) ,ay be waived, e+#ressly or i'#liedly
DISTINCTIONS BETWEEN ALTERNATI8E AND 'AC&LTATI8E OBLIGATIONS
ALTERNATI8E 'AC&LTATI8E
a) &arious things are due but the giving
#rinci#ally of one is sufficient
a) "nly one thing is due but a substitute 'ay be
given to render #ay'ent/fulfill'ent easy
b) <f one of #restations is illegal, others
'ay be valid but obligation re'ains
b) <f #rinci#al obligations is void and there is no
necessity of giving the substitute$ nullity of
carries with it nullity of B
c) <f it is i'#ossible to give all e+ce#t
one, the last one 'ust still be given
c) <f it is i'#ossible to give the #rinci#al, the
substitute does not have to be given$ if it is
i'#ossible to give the substitute, the #rinci#al
'ust still be given
d) 5ight to choose 'ay be given either
to debtor or creditor
d) 1he right of choice is given only to the debtor
(K) @oint #resu'#tion when 2 or 'ore creditors or 2 or 'ore debtors concur in one
and the sa'e obligation
E$$!cts
a. Je'and on one #roduces delay only with res#ect to the debt
b. <nterru#tion in #ay'ent by one does not benefit or #rejudice the other
c. &ices of one debtor to creditor has no effect on the others
d. <nsolvency of one debtor does not affect other debtors
(6) Solidar3 'ust be e+#ressed in sti#ulation or #rovided by law or by nature of
obligation
a. Acti0! on the #art of creditor or obligee
8ffects/
1. Jeath of 1 solidary creditor trans'its share to heirs (but collectively)
2. 8ach creditor re#resents the other in the act of recovery of #ay'ent
!. *redit is divided e=ually between creditors as a'ong the'selves
%. Jebtor 'ay #ay any of the solidary creditors
b. Passi0! on the #art of debtors or obligors
8ffects/
1. 8ach debtor 'ay be re=uested to #ay whole obligation with right to recover
fro' co-debtors
2. <nterru#tion of #rescri#tion to one creditor affects all
!. <nterest fro' delay on 1 debtor is borne by all
7
c. Mi/!d A on the #art of the obligors and obligees, or the #art of the debtors and
the creditors
d. Con0!ntional agreed u#on by the #arties
e. L!gal i'#osed by law
Instanc!s ?1!r! la? i*:os!s solidar3 obligation
1. obligations arising fro' tort
2. obligations arising fro' =uasi-contracts
!. legal #rovisions regrading obligation of devisees and legatees
%. liability of #rinci#als, acco'#lices, and accessories of a felony
). bailees in co''odatu'
8ffects/
a. #ay'ent 'ade before debt is due, no interest can be charged, otherwise
interest can be charged
b. insolvency of one others are liable for share #ro-rata
c. if different ter's @ conditions collect only what is due, later on collect fro' any
d. no rei'burse'ent if #ay'ent is 'ade after #rescri#tion or beca'e illegal
d. re'ission 'ade after #ay'ent is 'ade co-debtor still entitled to rei'burse'ent
e. effect of insolvency or death of co-debtor still liable for whole a'ount
f. fault of any debtor every one is res#onsible #rice, da'age @ interest
g. co'#lete/ #ersonal defense total or #artial ( u# to a'ount of share only ) if not
#ersonal to hi'
8ffect of loss or i'#ossibility of the #restation/
a. if without fault no liability
b. if with fault there is liability (also for da'age and interest)
c. loss due to fortuitous event after default there is liability (because of default)
(:) Di0isibl! A obligation that is ca#able of #artial #erfor'ance
a. e+ecution of certain no of days wor2
b. e+#ressed by 'etrical units
c. nature of obligation susce#tible of #artial fulfill'ent
(I) Indi0isibl! one not ca#able of #artial #erfor'ance
a. to give definite things
b. not susce#tible of #artial #erfor'ance
c. #rovided by law
d. intention of #arties
(17) Wit1 :!nal cla#s! - an accessory underta2ing to assu'e greater liability in
case of breach$
C5ARACTERISTICS O' PENAL CLA&SES
1. Bubsidiary - As a general rule, only #enalty can be de'anded, #rinci#al
cannot be de'anded, e+ce#t/ enalty is joint or cu'ulative
2. 8+clusive - ta2es #lace of da'age, da'age can only be de'anded in the ff.
cases/
a. Bti#ulation granting right
b. refusal to #ay #enalty
c. with dolo ( not of creditor )
Ca#s!s $or r!d#ction o$ :!nalt3
a. #artial/irregular #erfor'ance
b. #enalty #rovided is ini=uitous/unconscionable
E,TING&IS5MENT O' OBLIGATIONS
Mod!s o$ E/ting#is1*!nt o$ Obligation
1. ay'ent or #erfor'ance
2. Goss of the thing due
8
!. *ondonation or re'ission of debt
%. *onfusion or 'erger of rights
). *o'#ensation
K. Covation
6. Annul'ent
:. 5escission
I. >ulfill'ent of resolutory condition
-. PAYMENT OR PER'ORMANCE delivery of 'oney and #erfor'ance, in any other
'anner of the obligation
RE)&ISITES 'OR 8ALID PAYMENT+PER'ORMANCE
A. ?ith res#ect to #restation itself/
(1) identity
(2) integrity or co'#leteness
(!) indivisibility
;. ?ith res#ect to #arties - 'ust be 'ade by #ro#er #arty to #ro#er #arty
(1) ayor
(a) ayor - the one #erfor'ing, he can be the debtor hi'self or his heirs or
assigns or his agent, or anyone interested in the fulfill'ent of the
obligation$ can be anyone as long as it is with the creditorHs consent
(b) !
5J
#erson #ays/#erfor's - only the creditorHs consent$ <f #erfor'ance is
done also with debtorHs consent - he ta2es the #lace of the debtor. 1here
is subrogation e+ce#t if the !
rd
#erson intended it to be a donation
(c) !
rd
#erson #ays/#erfor's with consent of creditor but not with debtorHs
consent, the re#ay'ent is only to the e+tent that the #ay'ent has been
beneficial to debtor
(2) ayee
(a) #ayee - creditor or obligee or successor in interest of transferee, or agent
(b) !
rd
#erson - if any of the ff. concur/
i. it 'ust have redounded to the obligeeHs benefit and only to the e+tent
of such benefit
ii. it falls under art 12%1, #ar 1,2,! - the benefit is total so, #erfor'ance
is total
(c) anyone in #ossession of the credit - but will a##ly only if debt has not
been #reviously garnished
PAYMENT MADE TO AN INCAPACITATED PERSON < 8ALID I'
1. <nca#acitated #erson 2e#t the thing delivered, or
2. <nsofar as the #ay'ent has been beneficial to hi'
PAYMENT TO A 6
RD
PARTY NOT A&T5ORIBED< 8ALID I' PRO8ED 4 ONLY
TO T5E E,TENT O' BENE'ITC PRES&MED I'
1. After #ay'ent, !
rd
#erson ac=uires the creditor3s rights
2. *reditor ratifies #ay'ent to !
rd
#erson
!. ;y creditor3s conduct, debtor has been led to 'a2e the #ay'ent (esto##el)
PAYMENT MADE IN GOOD 'AIT5 TO A PERSON IN POSSESSION
O' CREDIT S5ALL RELEASE DEBTOR< R!"#isit!s
1. ay'ent by debtor 'ust be 'ade in good faith
2. *reditor 'ust be in #ossession of the credit @ not 'erely the evidence of
indebtedness
*. ?ith res#ect to ti'e and #lace of #ay'ent - 'ust be according to the obligation
?here #ay'ent should be 'ade/
1. <n the #lace designated in the obligation
9
2. <f there is no e+#ress sti#ulation and the underta2ing is to deliver a s#ecific
thing at the #lace where the thing 'ight be at the 'o'ent the obligation
was constituted
!. <n other case in the #lace of the do'icile of the debtor
1i'e of #ay'ent - ti'e sti#ulated
Effect of payment extinguish obligation
Except: order to retain debt
S&BSTANTIAL PER'ORMANCE
1. Atte'#t in 4ood >aith to #erfor' without willful or intentional de#arture
2. Jeviation is slight
!. "'ission/Jefect is technical or uni'#ortant
%. ,ust not be so 'aterial that intention of #arties is not attained
E$$!ct o$ S#bstantial :!r$or*anc! in good $ait1
1. "bligor 'ay recover as though there has been strict and co'#lete fulfill'ent,
less da'ages suffered by the obligee
2. 5ight to rescind cannot be used for slight breach
SPECIAL R&LES+'ORMS O' PAYMENT - S:!cial 'or*s
a. A::lication o$ Pa3*!nts the designation of the debt which #ay'ent shall
be 'ade, out of 2 or 'ore debts owing the sa'e creditor/ sti#ulation or
a##lication of #arty given benefit of #eriod "L$ to be valid/ 'ust be debtor3s
choice or w/ consent of debtor
R!"#isit!s $or t1! A::lication o$ :a3*!nt
1. &arious debts of the sa'e 2ind
2. Ba'e debtor
!. Ba'e creditor
%. All debts 'ust be due
8+ce#tion/ there 'ay be a##lication of #ay'ent even if all debts are
not yet due if/
a) #arties so sti#ulate
b) when a##lication of #ay'ent is 'ade by the #arty for whose
benefit the ter' has been constituted
). ay'ent is not enough to e+tinguish all debts
5OW APPLICATION IS MADE
1. Jebtor 'a2es the designation
2. <f not, creditor 'a2es it by so stating in the recei#t that he issues unless
there is cause for invalidating the contract
!. <f neither the debtor nor creditor has 'ade the a##lication or if the
a##lication is not valid, then a##lication, is 'ade by o#eration of law
W5O MA;ES APPLICATION
4eneral 5ule/ Jebtor
8+ce#tion/ *reditor
a) Jebtor without #rotest acce#ts recei#t in which creditor s#ecified
e+#ressly and un'ista2ably the obligation to which such #ay'ent was to
be a##lied debtor in this case renounced the right of choice
b) ?hen 'onthly state'ents were 'ade by the ban2 s#ecifying the
a##lication and the debtor signed said state'ents a##roving the status of
her account as thus sent to her 'onthly by the ban2
IN CASE NO APPLICATION 5AS BEEN MADE
1. A##ly #ay'ent to the 'ost onerous
2. <f debts are of the sa'e nature and burden, a##lication shall be 'ade to
all #ro#ortionately
10
b. Dacion !n Pago 'ode of e+tinguishing an obligation whereby the debtor
alienates in favor of the creditor #ro#erty for the satisfaction of 'onetary debt$
e+tinguish u# to a'ount of #ro#erty unless w/ contrary sti#ulation$ A s#ecial
for' of #ay'ent because 1 ele'ent of #ay'ent is 'issing/ <J8C1<1M
4overned by law on sales
*onditions for a valid dacion/
1) <f creditor consents, for a sale #resu##oses the consent of both
#arties
2) <f dacion will not #rejudice the other creditors
!) <f debtor is not judicially declared insolvent
c. C!ssion+Assign*!nt in 'a0or o$ cr!ditors the #rocess by which debtor
transfer all the #ro#erties not subject to e+ecution in favor of creditors is that
the latter 'ay sell the' and thus, a##ly the #roceeds to their credits$
e+tinguish u# to a'ount of net #roceeds ( unless w/ contrary sti#ulation )
;inds
1. Gegal governed by the insolvency law
2. &oluntary agree'ent of creditors
RE)&ISITES 'OR 8OL&NTARY ASSIGNMENT
a) ,ore than 1 debt
b) ,ore than 1 creditor
c) *o'#lete or #artial insolvency of debtor
d) Abandon'ent of all debtor3s #ro#erty not e+e'#t fro' e+ecution
e) Acce#tance or consent on the #art of the creditors
E''ECTS
a) *reditors do not beco'e the owner$ they are 'erely assignees with
authority to sell
b) Jebtor is released u# to the a'ount of the net #roceeds of the sale,
unless there is a sti#ulation to the contrary
c) *reditors will collect credits in the order of #reference agreed u#on, or
in default of agree'ent, in the order ordinarily established by law
d. Consignation
T'")' -the act of offering the creditor what is due hi' together with a
de'and that the creditor acce#t the sa'e (?hen creditor refuses w/o just
cause to acce#t #ay'ent, he beco'es in 'ora acce#iendi @ debtor is
released fro' res#onsibility if he consigns the thing or su' due)
C%"!i#"ati%" the act of de#ositing the thing due with the court or judicial
authorities whenever the creditor cannot acce#t or refuses to acce#t
#ay'ent$ generally re=uires #rior tender of #ay'ent
RE)&ISITES O' 8ALID CONSIGNATION
(1) 8+istence of valid debt
(2) *onsignation was 'ade because of so'e legal cause - #revious valid
tender was unjustly refused or circu'stances 'a2ing #revious tender
e+e'#t
(!) rior Cotice of *onsignation had been given to the #erson interested in
#erfor'ance of obligation (1
st
notice)
(%) actual de#osit/*onsignation with #ro#er judicial authorities
()) subse=uent notice of *onsignation (2
nd
notice)

E$$!cts E/ting#is1*!nt o$ obligation
(1) Jebtor 'ay as2 judge to order cancellation of obligation
(2) 5unning of interest is sus#ended
(!) ;efore creditor acce#ts or before judge declares consignation has been
#ro#erly 'ade, obligation re'ains ( debtor bears ris2 of loss at the
11
'eanti'e, after acce#tance by creditor or after judge declares that
consignation has been #ro#erly 'ade ris2 of loss is shifted to creditor)
Consignation ?+o :rior t!nd!r A allo?!d in
1. creditor absent or un2nown/ does not a##ear at the #lace of #ay'ent
2. inca#acitated to receive #ay'ent at the ti'e it is due
!. refuses to issue recei#t w/o just cause
%. 2 or 'ore creditor clai'ing the sa'e right to collect
). title of obligation has been lost
2.LOSS O' T5E T5ING D&E #artial or total/ includes i'#ossibility of #erfor'ance
W5EN IS T5ERE A LOSS
1) ?hen the object #erishes (#hysically)
2) ?hen it goes out of co''erce
!) ?hen it disa##ears in such a way that/ its e+istence is un2nown or it cannot be
recovered
W5EN IS T5ERE IMPOSSIBILITY O' PER'ORMANCE
1) hysical i'#ossibility
2) Gegal i'#ossibility /
(a) Jirectly caused as when #rohibited by law
(b) <ndirectly caused as when debtor is re=uired to enter a 'ilitary draft

OBLIGATION TO DELI8ER A SPECI'IC T5ING
4eneral 5ule/ 8+tinguished
8+ce#tions/
a) Jebtor is at fault
b) Jebtor is 'ade liable for fortuitous event because of a #rovision of law,
contractual sti#ulation or the nature of the obligation re=uires assu'#tion of ris2
on #art of debtor
OBLIGATION TO DELI8ER A GENERIC T5ING
4eneral 5ule/ Cot e+tinguished
8+ce#tions/
a) if the generic thing is deli'ited
b) if the generic thing has already been segregated
c) 'onetary obligation
OBLIGATION TO DO
4eneral 5ule/ Jebtor is released when #restation beco'es legally or #hysically
i'#ossible without fault on #art of debtor
E''ECT O' PARTIAL LOSS ( judicial deter'ination of e+tent is necessary)
a) when loss is significant 'ay be enough to e+tinguish obligation
b) when loss insignificant not enough to e+tinguish obligation
W5EN T5ING IS LOST IN T5E POSSESSION O' T5E DEBTOR
resu'#tion/ Goss due to debtor3s fault ( dis#utable )
8+ce#tion/ natural cala'ity, earth=ua2e, flood, stor'
6. REB&S SIC STANTIB&S - agree'ent is valid only if the sa'e conditions #revailing
at ti'e of contracting continue to e+ist at the ti'e of #erfor'ance

E''ECT O' DI''IC&LTY BEYOND PARTIESD CONTEMPLATION
5ule/ "bligor 'ay be released in whole or in #art
12
RE)&ISITES
(a) 1he event or change could not have been forseen at the ti'e of the e+ecution
of the contract
(b) 1he #erfor'ance is e+tre'ely difficult, but not i'#ossible (because if it is
i'#ossible, it is e+tinguished by i'#ossibility)
(c) 1he event was not due to the act of any of the #arties
(d) 1he contract is for a future #restation
=. CONDONATION+REMISSION O' T5E DEBT A gratuitous abandon'ent of debt$ right
to clai'$ donation$ rules of donation a##lies$ e+#ress or i'#lied
RE)&ISITES
a. 1here 'ust be an agree'ent
b. 1here 'ust be a subject 'atter (object of the re'ission, otherwise there would
be nothing to condone)
c. *ause of consideration 'ust be liberality (8ssentially gratuitous, an act of
liberality )
d. arties 'ust be ca#acitated and 'ust consent$ re=uires acce#tance by obligor$
i'#lied in 'ortis causa @ e+#ressed inter vivos
e. >or'alities of a donation are re=uired in the case of an e+#ress re'ission
f. 5evocable subject to rule on inofficious donation ( e+cessive, legiti'e is
i'#aired ) @ ingratitude @ condition not followed
g. "bligation re'itted 'ust have been de'andable at the ti'e of re'ission
h. ?aivers or re'ission are not to be #resu'ed generally
'or*s E/t!nt ;inds
a. 8+#ress for'alities
of donation
a. total a. rinci#al accessory also condoned
b. <'#lied conduct is
sufficient
b. #artial b. accessory #rinci#al still outstanding
c. accessory oblig. "f #ledge condoned$
#resu'#tion only, rebuttable
R!"#isit!s o$ I*:li!d
1. voluntary delivery #resu'#tion$ when evidence of indebtedness is w/ debtor
#resu'ed voluntarily delivery by creditor$ rebuttable
2. effect of delivery of evidence of indebtedness is conclusion that debt is condoned
already conclusion$ voluntary delivery of #rivate docu'ent
a. if in hands of joint debtor only his share is condoned
b. if in hands of solidary debtor - whole debt is condoned
c. 1acit voluntary destruction of instru'ent by creditor$ 'ade to #rescribe
w/o de'anding
>. CON'&SION OR MERGER O' RIG5TSA character of debtor @ creditor is 'erged in
sa'e #erson with res#ect to sa'e obligation
RE)&ISITES
a. <t 'ust ta2e #lace between #rinci#al debtor @ #rinci#al creditor only
b. ,erger 'ust be clear @ definite
c. 1he obligation involved 'ust be sa'e @ identical one obligation only
d. 5evocable, if reason for confusion ceases, the obligation is revived
E. COMPENSATION Bet off$ it is a 'ode of e+tinguish'ent to the concurrent a'ount
the obligation of #ersons who are in their own right reci#rocally debtors or creditors
RE)&ISITES
a. ;oth #arties 'ust be 'utually creditors and debtors - in their own right and as
#rinci#als
b. ;oth debts 'ust consist in su' of 'oney or if consu'able , of the sa'e 2ind
or =uality
c. ;oth debts are due
13
d. ;oth debts are li=uidated @ de'andable (deter'ined)
e. Ceither debt 'ust be retained in a controversy co''enced by !
rd
#erson @
co''unicated w/ debtor (neither debt is garnished)
;inds
a. legal by o#eration of law$ as long as ) re=uisites concur- even if un2nown to
#arties @ if #ayable in diff #laces$ inde'nity for e+#ense of e+changes$ even
if not e=ual debts only u# to concurring a'ount
b. conventional agree'ent of #arties is enough, forget other re=uire'ent as
long as both consented
c. facultative one #arty has choice of clai'ing/o##osing one who has benefit
of #eriod 'ay choose to co'#ensate
- not all re=uisites are #resent
- de#ositu'$ co''odatu'$ cri'inal offense$ clai' for future su##ort$ ta+es
d. judicial set off$ u#on order of the court$ needs #leading @ #roof$ all
re=uire'ents 'ust concur e+ce#t li=uidation
e. total when 2 debts are of the sa'e a'ount
f. #artial when 2 debts are not of the sa'e a'ount
E$$!ct o$ assign*!nt o$ cr!dit to 6
rd
:!rsonC can t1!r! still b! co*:!nsation
a. if 'ade after co'#ensation too2 #lace no effect$ co'#ensation already
#erfected
b. if 'ade before co'#ensation too2 #lace de#ends
1. with consent of debtor debtor is esto##ed unless he reserves his right @
gave notice to assignee
2. with 2nowledge but w/o consent of debtor co'#ensation 'ay be set u#
as to debts 'aturing #rior to assign'ent
!. w/o 2nowledge co'#ensation 'ay be set-u# on all debts #rior to his
2nowledge
F. NO8ATION e+tinguish'ent of obligation by creating/ substituting a new one in its
#lace
a. changing object or #rinci#al conditions
b. substituting #erson of debtor
c. subrogating !
rd
#erson in right of creditor
RE)&ISITES
a. valid obligation
b. intent to e+tinguish old obligation e+#ressed or i'#lied/ co'#letely/substantially
inco'#atible old and new obligation on every #oint
c. ca#acity @ consent of #arties to the new obligation
d. valid new obligation
E''ECT O' NO8ATION
a. e+tinguish'ent of #rinci#al carries accessory, e+ce#t/
- sti#ulation to contrary
- sti#ulation #our autri unless beneficiary consents
- 'odificatory novation only$ obliged to w/c is less onerous
- old obligation is void
b. old obligation subsists if/
- new obligation is void or voidable but annulled already ( e+ce#t/ intention of
#arties )
c. if old obligation has condition
- if 5esolutory @ it occurred old obligation already e+tinguished$ no new
obligation since nothing to novate
- if sus#ensive @ it never occurred as if no obligation$ also nothing to novate
d. if old obligation has condition, 'ust be co'#atible with the new obligation$ if new
is w/o condition dee'ed attached to new
e. if new obligation has condition
- if resolutory/ valid
- if sus#ensive @ did not 'ateriali0e/ old obligation is enforced
14
;INDS
a. REAL+OB@ECTI8E change object, cause/consideration or #rinci#al condition
b. PERSONAL+S&B@ECTI8E
1. substituting #erson of debtor ( #assive )
E,PROMISION$ initiative is fro' !
rd
#erson or new debtor $ new debtor @
creditor to consent$ old debtor released fro' obligation$ subject to full
rei'burse'ent @ subrogation if 'ade w/ consent of old debtor$ if w/o consent
or against will , only beneficial rei'burse'ent$ if new debtor is insolvent, not
res#onsible since w/o his consent
DELEGACION$ initiative of old debtor$ all #arties to consent$ full
rei'burse'ent$ if insolvent new debtor not res#onsible old debtor because
obligation e+tinguished by valid novation unless/ insolvency already e+isting
@ of #ublic 2nowledge or 2now to hi' at ti'e of delegacion
a. Jelegante old debtor
b. Jelegatario - creditor
c. Jelegado new debtor
2. subrogating !
rd
#erson to rights of creditor ( active )
a. conventional- agree'ent @ consent of all #arties$ clearly established
b. legal- ta2es #lace by o#eration of law$ no need for consent$ not #resu'ed
e+ce#t as #rovided for in law/
#resu'ed when-
1. creditor #ays another #referred creditor even w/o debtor3s 2nowledge
2. !
rd
#erson not interested in obligation #ays w/ a##roval of debtor
!. #erson interested in fulfill'ent of obligation #ays debt even w/o
2nowledge of debtor
Jifference fro' #ay'ent by !
rd
#erson *hange of debtor
1. debtor is not nec. 5eleased fro' debt 1. debtor is released
2. can be done w/o consent of creditor 2. needs consent of creditor
e+#ress or i'#lied
!. 1 obligation !. 2 obligations$ 1 is e+tinguished @ new one
created
%. !
rd
#erson has no oblig. to #ay if insolvent %. new debtor is obliged to #ay
PART II - CONTRACTS -'eeting of 'inds bet 2 #arties whereby one binds hi'self with
res#ect to other to give so'ething or render so'e service
PRINCIPAL C5ARACTERISTICS
1. A#tono*3 o$ ?ills #arties 'ay sti#ulate anything as long as not illegal, i''oral,
etc.
2. M#t#alit3 A #erfor'ance or validity binds both #arties$ not left to will of one of #arties
!. Obligator3 'orc! #arties are bound fro' #erfection of contract/
a. fulfill what has been e+#ressly sti#ulated
b. all conse=uences w/c 'ay be in 2ee#ing with good faith, usage @ law
%. R!lati0it3 binding only between the #arties, their assigns, heirs$ strangers cannot
de'and enforce'ent
E,CEPTION TO RELATI8ITY
a. Accion #auliana
b. Accion directa
c. Bti#ulation #our autrui
RE)&ISITES O' STIP&LATION PO&R A&TR&I
(1) arties 'ust have clearly and deliberately conferred a favor u#on a !
rd
#erson
15
(2) 1he sti#ulation in favor of a !
rd
#erson should be a #art of, not the whole
contract
(!) 1hat the favorable sti#ulation should not be conditioned or co'#ensated by
any 2ind of obligation whatsoever
(%) Ceither of the contracting #arties bears the legal re#resentation or
authori0ation of !
rd
#arty
()) 1he third #erson co''unicates his acce#tance before revocation by the
original #arties
d. Art 1!12
e. Art 1!1%
RE)&ISITES O' ART -6-2
(1) 8+istence of a valid contract
(2) Lnowledge of the contract by a !
rd
#erson
(!) <nterference by the !
rd
#erson
;INDS O' CONTRACTS
As to :!r$!ction or $or*ation
1. consensual #erfected by agree'ent of #arties
2. real #erfected by delivery ( co''odatu', #ledge, de#osit )
!. for'al/sole'n #erfected by confor'ity to essential for'alities ( donation )
As to ca#s!
1. "nerous with valuable consideration
2. 4ratuitous founded on liberality
!. 5e'unerative #restation is given for service #reviously rendered not as obligation
As to i*:ortanc! or d!:!nd!nc! o$ on! #:on anot1!r
1. #rinci#al contract 'ay stand alone
2. accessory de#ends on another contract for its e+istence$ 'ay not e+ist on its own
!. re#aratory not an end by itself$ a 'eans through which future contracts 'ay be
'ade
As to :arti!s oblig!d
1. Fnilateral only one of the #arties has an obligation
2. ;ilateral both #arties are re=uired to render reci#rocal #restations
As to na*! or d!signation
1. Co'inate
2. <nno'inate
a) Jo ut des < give that you 'ay give
b) Jo ut facias < give that you 'ay do
c) >acio ut des < do that you 'ay give
d) >acio ut facias < do that you 'ay do
STAGES IN A CONTRACT
1. re#aration - negotiation
2. #erfection/birth
!. consu''ation #erfor'ance
ESSENTIAL ELEMENTS
1. Cons!nt 'eeting of 'inds between #arties on subject 'atter @ cause of contract$
concurrence of offer @ acce#tance
5e=uire'ents/
a. lurality of subject
b. *a#acity
c. <ntelligence and free will
d. ,anifestation of intent of #arties
e. *ognition by the other #arty
f. *onfor'ity of 'anifestation and cognition
16
N%t'* W' $%ll%3 th' th'%y %$ c%#"iti%" a") "%t th' th'%y %$ &a"i$'!tati%",
U")' %( civil la32 th' %$$' a") acc'-ta"c' c%"c( %"ly 3h'" th' %$$'%
c%&'! t% 6"%32 a") "%t 3h'" th' %$$''' &''ly &a"i$'!t! hi! acc'-ta"c'
ELEMENTS O' 8ALID O''ER ELEMENTS O' 8ALID ACCEPTANCE
a. definite a. une=uivocal
b. co'#lete b. unconditional
c. intentional
W5EN O''ER BECOMES INE''ECTI8E
1. death, civil interdiction, insanity or insolvency of either #arty before acce#tance is
conveyed
2. e+#ress or i'#lied revocation of the offer by the offeree
!. =ualified or conditional acce#tance of the offer
%. subject 'atter beco'es illegal or i'#ossible before acce#tance is co''unicated
PERIOD 'OR ACCEPTANCE
1. stated fi+ed #eriod in the offer
2. no stated fi+ed #eriod
a) offer is 'ade to a #erson #resent acce#tance 'ust be 'ade
i''ediately
b) offer is 'ade to a #erson absent acce#tance 'ay be 'ade within such
ti'e that, under nor'al circu'stances, an answer can be received fro'
hi'
OPTION - o#tion 'ay be withdrawn anyti'e before acce#tance is co''unicated but
not when su##orted by a consideration other than #urchase #rice/ o#tion 'oney
N%t'* A"# 7( v, CA (.8895 !tat'! that a ("ilat'al -%&i!' t% b(y % !'ll2 i$ "%t
!(--%t') by a )i!ti"ct c%"!i)'ati%"2 &ay b' 3ith)a3" b(t &ay "%t b' )%"'
3hi&!ically % abitaily: th' i#ht %$ th' #a"t'' h'' i! )a&a#'! a") "%t
!-'ci$ic -'$%&a"c': E+(at%ial v, May$ai(;<9 SCRA 9=>5 h'l) that a" %-ti%"
cla(!' i" %)' t% b' vali) a") '"$%c'abl' &(!t i")icat' th' )'$i"it' -ic' at
3hich th' -'!%" #a"ti"# th' %-ti%" i! 3illi"# t% !'ll2 c%"tact ca" b'
'"$%c') a") "%t %"ly )a&a#'!: 4aa"a+(' ?i"#! @ CA (.8805 !tat'! that i#ht
%$ $i!t '$(!al &ay b' '"$%c') by !-'ci$ic -'$%&a"c',
PERSONS W5O CANNOT GI8E CONSENT TO A CONTRACT
1. ,inors
2. <nsane or de'ented #ersons
!. <lliterates/ deaf-'utes who do not 2now how to write
%. <nto+icated and under hy#notic s#ell
). Art 1!!1 - #erson under 'ista2e$ 'ista2e 'ay de#rive intelligence
K. Art 1!!: - #erson induced by fraud (dolo causante)
N%t'* D%l(! b%"(! ((!(al '1a##'ati%"! i" ta)'5 a' "%t i" th'&!'lv'!
$a()(l'"t
R&LE ON CONTRACTS ENTERED INTO BY MINORS
4eneral 5ule/ &"<JA;G8
8D*81<"CB/
1. F#on reaching age of 'ajority they ratify the sa'e
2. 1hey were entered unto by a guardian and the court having jurisdiction had
a##roved the sa'e
!. 1hey were contracts for necessities such as food, but here the #ersons who
are bound to give the' su##ort should #ay therefor
%. ,inor is esto##ed for having 'isre#resented his age and 'isled the other
#arty (when age is close to age of 'ajority as in the ,ercado v 8s#iritu @ Bia
Buan v Alcantara cases)
17
N%t'* I" th' Sia S(a" v Alca"taa ca!'2 th'' i! a !t%"# )i!!'"t by
A,4a)illa t% th' '$$'ct that th' &i"% ca""%t b' '!t%--') i$ h' i! t%% y%("#
t% #iv' c%"!'"t: %"' that i! t%% y%("# t% #iv' c%"!'"t i! t%% y%("# t% b'
'!t%--'), S(b!'+('"tly2 i" Ba#a"Ba v @illa-Abill'2 th' )i!!'"t b'ca&'
th' (li"#, Mi"%! c%(l) "%t b' '!t%--')
DIS)&ALI'IED TO ENTER INTO CONTRACTS ( contracts !nt!r!d into ar!
0oid 9
1. those under civil interdiction
2. hos#itali0ed le#ers
!. #rodigals
%. deaf and du'b who are unable to read and write
). those who by reason of age, disease, wea2 'ind and other si'ilar causes,
cannot without outside aid, ta2e care of the'selves and 'anage their
#ro#erty, beco'ing an easy #rey for deceit and e+#loitation
CA&SES W5IC5 8ITIATE 'REEDOM
1. violence
58EF<B<18/
a. <rresistable #hysical force
b. Buch force is the deter'ining cause for giving consent
2. <nti'idation
58EF<B<18/
a. Jeter'ining cause for the contract
b. 1hreatened act is unjust and unlawful
c. 5eal and serious
d. roduces a well grounded fear that the #erson 'a2ing it will carry it over
!. undue influence
SIM&LATED CONTRACTS
a. absolute no intention to be bound at all, fictitious only void fro' beginning
b. relative there is intention to be bound but concealed$ concealed contract
binds/
1. no #rejudice to !
rd
#ersons
2. not contrary to law, 'orals, etc.
2. OB@ECT 1he #restation
RE)&ISITES
a) ?ithin the co''erce of 'an - either e+isting or in #otency
b) Gicit or not contrary to law, good custo's
c) ossible
d) Jeter'inate as to its 2ind or deter'inable w/o need to enter into a new contract
e) 1rans'issible
!. CA&SA reason why #arties enter into contract
RE)&ISITES
a) <t 'ust e+ist
b) <t 'ust be true
c) <t 'ust be licit
MOTI8E - #urely #rivate reason$ illegality does not invalidate contract e+ce#t when it
#redeter'ines #ur#ose of contract$ when 'erged into one
A;B8C*8 "> *AFBA &"<J - #roduce no legal effect
<GG84AG<1M "> *AFBA &"<J - #roduce no legal effect
>AGB<1M "> *AFBA &"<JA;G8 #arty 'ust #rove that cause is untruthful$
#resu'#tion of validity but rebuttable
*AFBA C"1 B1A18J <C 58BF,8J 1" 8D<B1 - burden of #roof is on the #erson
18
*"C15A*1 assailing its e+istence
<CAJ8EFA*M "> *AFBA J"8B C"1 <C&AG<JA18 *"C15A*1 85 B8
8+ce#tions/
1. fraud
2. 'ista2e
!. undue influence
%. cases s#ecified by law
- contracts entered when ward suffers
lesion of 'ore than 2)N
%. 'ORM in so'e 2ind of contracts only as contracts are generally consensual$ for'
is a 'anner in which a contract is e+ecuted or 'anifested
a. <nfor'al 'ay be entered into whatever for' as long as there is consent,
object @ cause
b. >or'al re=uired by law to be in certain s#ecified for' such as/ donation of
real #ro#erty, sti#ulation to #ay interest, transfer of large cattle, sale of land
thru agent, contract of antichresis, contract of #artnershi#, registration of
chattel 'ortgage, donation of #ersonal #ro# in e+cess of ),777
c. 5eal creation of real rights over i''ovable #ro# 'ust be written
W5EN 'ORM IS IMPORTANT
1) for validity (for'al/sole'n contracts)
2) for enforceability (statute of frauds)
!) for convenience
G!n!ral R#l!/ contract is valid @ binding in whatever for' #rovided that ! essential
re=uisites concur
E/c!:tion
a. Gaw re=uires contract to be in so'e for' for validity - donation @ acce#tance of
real #ro#erty
b. Gaw re=uires contract to be in so'e for' to be enforceable - Btatute of >rauds$
contract is valid but right to enforce cannot be e+ercised$ need ratification to be
enforceable
c. Gaw re=uires contract to be in so'e for' for convenience - contract is valid @
enforceable, needed only to bind !
rd
#arties
- e+/ #ublic docu'ents needed for the ff/
1. contracts w/c object is creation, trans'ission or refor'ation of real rights
over i''ovables
2. cession, re#udiation, renunciation of hereditary rights/*4
!. #ower to ad'inister #ro#erty for another
%. cession of action of rights #roceeding fro' an act a##earing in a #ublic
inst.
). all other docs where a'ount involved is in e+cess of )77 ( 'ust be written
even #rivate docs )

RE'ORMATION O' CONTRACTS re'edy to confor' to real intention of #arties due
to 'ista2e, fraud, ine=uitable conduct, accident
CA&SES+GRO&NDS
a. 'utual/ instru'ent includes so'ething w/c should not be there or o'it what
should be there
'utual
'ista2e of fact
clear @ convincing #roof
causes failure of instru'ent to e+#ress true intention
b. unilateral
one #arty was 'ista2en
other either acted fraudulently or ine=uitably or 2new but concealed
19
#arty in good faith 'ay as2 for refor'ation
c. 'ista2e by !
rd
#ersons due to ignorance, lac2 of s2ill, negligence , bad faith of
drafter, cler2, ty#ist
d. others s#ecified by law to avoid frustration of true intent
RE)&ISITES
1. there is a written instru'ent
2. there is 'eeting of 'inds
!. true intention not e+#ressed in instru'ent
%. clear @ convincing #roof
). facts #ut in issue in #leadings
N%t'* -'!cib'! i" .C y'a! $%& )at' %$ '1'c(ti%" %$ i"!t(&'"t
W5EN NOT A8AILABLE
a. si'#le donation inter vivos
b. wills
c. when real agree'ent is void
d. esto##el$ when #arty has brought suit to enforce it
;INDS O' DE'ECTI8E CONTRACTS
1. RESCISSIBLE CONTRACTS 1hose which have caused a #articular econo'ic
da'age either to one of the #arties or to a !
rd
#erson and which 'ay be set aside
even if valid. <t 'ay be set aside in whole or in #art, to the e+tent of the da'age
causedH
RE)&ISITES
a. *ontract 'ust be rescissible
(1) Fnder art 1!:1/
i. *ontracts entered into by #ersons e+ercising fiduciary ca#acity
(a) 8ntered into by guardian whenever ward suffers da'age by 'ore
than 1/% of value of object
(b) Agreed u#on in re#resentation of absentees, if absentee suffers lesion
by 'ore than O of value of #ro#erty
(c) *ontracts where rescission is based on fraud co''itted on creditor
(accion #auliana)
(d) "bjects of litigation$ contract entered into by defendant w/o 2nowledge
or a##roval of litigants or judicial authority
(e) ay'ent by an insolvent on debts w/c are not yet due$ #rejudices
clai' of others
(f) rovided for by law - art 1)2K, 1)!%, 1)!:, 1)!I, 1)%2, 1))K, 1)K7,
1)K6 and 1K)I
ii.Fnder art 1!:2 - ay'ents 'ade in a state of insolvency
b. laintiff has no other 'eans to obtain re#aration
b. laintiff 'ust be able to return whatever he 'ay be obliged to return due to
rescission
c. 1he things 'ust not have been #assed to !
rd
#arties who did not act in bad faith
d. <t 'ust be 'ade within the #rescribed #eriod
OBLIGATION CREATED BY T5E RESCISSION O' T5E CONTRACT M#t#al
R!stit#tion
1. 1hings w/c are the objects of the contract @ their fruits
2. rice with interest
N%t'* M(t(al '!tit(ti%" N,A, 3h'"*
., c')it% )i) "%t 'c'iv' a"ythi"# $%& c%"tact
;, thi"# al'a)y i" -%!!'!!i%" %$ -aty i" #%%) $aith: !(bD'ct t% i")'&"ity
%"ly: i$ th'' a' ; % &%' ali'"ati%"! E liability %$ .
!t
i"$act%
20
2. 8OIDABLE CONTRACTS intrinsic defect$ valid until annulled$ defect is due to vice
of consent or legal inca#acity
C5ARACTERISTICS
a. 8ffective until set aside
b. ,ay be assailed or attac2ed only in an action for that #ur#ose
c. *an be confir'ed ( N%t'* CONFIRMATION IS TFE 4RO4ER TERM FOR
CURING TFE DEFECT OF A @OIDABLE CONTRACT)
d. *an be assailed only by the #arty whose consent was defective or his heirs or
assigns
W5AT CONTRACTS ARE 8OIDABLE
a. T5OSE W5ERE ONE O' T5E PARTIES IS INCAPABLE O' GI8ING
CONSENT TO A CONTRACT (l!gal inca:acit39
(1) 'inors ( below 1: )
(2) insane unless acted in lucid interval
(!) deaf 'ute who can3t read or write
(%) #ersons s#ecially dis=ualified/ civil interdiction
()) in state of drun2enness
(K) in state of hy#notic s#ell
b. T5OSE W5ERE T5E CONSENT IS 8ITIATED BY MISTA;E< 8IOLENCE<
INTIMIDATION< &ND&E IN'L&ENCE OR 'RA&D (0ic! o$ cons!nt9
(-9 *ista7! false belief into so'ething
RE)&ISITES
1. 5efers to the subject of the thing which is the object of the contract
2. 5efers to the nature of the contract
!. 5efers to the #rinci#al conditions in an agree'ent
%. 8rror as to #erson - when it is the #rinci#al consideration of the contract
). 8rror as to legal effect - when 'ista2e is 'utual and frustrates the real
#ur#ose of #arties
(29 0iol!nc! serious or irresistible force is e'#loyed to wrest consent
(69 inti*idation one #arty is co'#elled by a reasonable @ well-grounded fear
of an i''inent @ grave danger u#on #erson @ #ro#erty of hi'self, s#ouse,
ascendants or descendants ('oral coercion)
(=9 #nd#! in$l#!nc! #erson ta2es i'#ro#er advantage of his #ower over will of
another de#riving latter of reasonable freedo' of choice
(>9 $ra#d thru insidious words or 'achinations of contracting #arties, other is
induced to enter into contract w/o w/c he will not enter (dolo causante)
PERIOD TO BRING ACTION 'OR ANN&LMENT
<nti'idation, violence, undue influence % years fro' ti'e defect of consent ceases
,ista2e, fraud % years fro' ti'e of discovery
<nca#acity fro' ti'e guardianshi# ceases
E''ECTS O' ANN&LMENT
1. "bligation to give 'utual restitution
2. "bligation to do value of service
PRESCRIPTION IN ACTION 'OR ANN&LMENT O' 8OIDABLE CONTRACTS
<nti'idation/&iolence/undue <nfluence % years fro' ti'e defect of consent ceases
,ista2e/>raud % years fro' ti'e of discovery
*ontracts entered into by
'inors/inca#acitated #ersons
% years fro' ti'e guardianshi# ceases
21
!. &NEN'ORCEABLE CONTRACT valid but cannot co'#el its e+ecution unless
ratified$ e+trinsic defect$ #roduce legal efefcts only after ratified
;INDS+8ARIETIES
1. Fnauthori0ed/Co sufficient authority entered into in the na'e of another when/
a. no authority conferred
b. in e+cess of authority conferred ( ultra vires )
N%t'* C(abl' by RATIFICATION
2. ;oth #arties inca#able of giving consent -2 'inor or 2 insane #ersons
N%t'* C(abl' by AC?NOWLEDGEMENT
!. >ailure to co'#ly with Btatute of >rauds
a. Agree'ent to be #erfor'ed within a year after 'a2ing contract
b. B#ecial #ro'ise to answer for debt, default or 'iscarriage of another
c. Agree'ent 'ade in consideration of #ro'ise to 'arry
d. Agree'ent for sale of goods, chattels or things in action at #rice not less than
)77$ e+ce#tion/ auction when recorded sale in sales boo2
e. Agree'ent for lease of #ro#erty for 'ore than 1 year @ sale of real #ro#erty
regardless of #rice
f. 5e#resentation as to credit of another
2 WAYS O' C&RING &NEN'ORCEABLE CONTRACTS
1. >ailure of defendant to object in ti'e, to the #resentation of #arole evidence in
court, the defect of unenforceability is cured
2. Acce#tance of benefits under the contract. <f there is #erfor'ance in either #art
and there is acce#tance of #erfor'ance, it ta2es it out of unenforceable
contracts$ also esto##el sets in by acce#ting #erfor'ance, the defect is waived
%. 8OID OR INE,ISTENT of no legal effect
C5ARACTERISTICS
a. <t #roduces no effect whatsoever either against or in favor of anyone
b. 1here is no action for annul'ent necessary as such is i#so jure. A judicial
declaration to that effect is 'erely a declaration
c. <t cannot be confir'ed, ratified or cured
d. <f #erfor'ed, restoration is in order, e+ce#t if #ari delicto will a##ly
e. 1he right to set u# the defense of nullity cannot be waived
f. <'#rescri#tible
g. Anyone 'ay invo2e the nullity of the contract whenever its juridical effects are
asserted against hi'
;INDS O' 8OID CONTRACT
1) T1os! lac7ing in !ss!ntial !l!*!nts/ no consent, no object, no cause
(ine+istent ones) essential for'alities are not co'#lied with ( e+/ donation
#ro#ter nu#tias should confor' to for'alities of a donation to be valid )
(a) 1hose w/c are absolutely si'ulated or fictitious no cause
(b) 1hose which cause or object did not e+ist at the ti'e of the transaction no
cause/object
(c) 1hose whose object is outside the co''erce of 'an no object
(d) 1hose w/c conte'#late an i'#ossible service no object
(e) 1hose w/c intention of #arties relative to #rinci#al object of the contract
cannot be ascertained
29 Pro1ibit!d b3 la?
(f) 1hose e+#ressly #rohibited or declared void by law - *ontracts w/c violate any
legal #rovision, whether it a'ounts to a cri'e or not
22
!) Ill!gal+Illicit on!s 1hose whose cause, object or #ur#ose is contrary to law,
'orals, good custo's, #ublic order or #ublic #olicy $ 8+/ *ontract to sell
'arijuana
;INDS O' ILLEGAL CONTRACTS
*"C15A*1 *"CB1<1F18
*5<,<CAG ">>8CB8
*"C15A*1 J"8B C"1
*"CB1<1F18 *5<,<CAG
">>8CB8 ;F1 <B <GG84AG "5
FCGA?>FG 85 B8
arties are in
#ari delicto
Co action for s#ecific
#erfor'ance
Co action for restitution on
either side. 1he law will leave
you where you are
;oth shall be #rosecuted
1hing/#rice to be confiscated
in favor of govern'ent
#erfor'ance
Co action for restitution on
either side. 1he law will leave
you where you are
Co confiscation
"nly one #arty
is guilty
#erfor'ance
<nnocent #arty is entitled to
restitution
4uilty #arty is not entitled to
restitution
4uilty #arty will be #rosecuted
<nstru'ent of cri'e will be
confiscated in favor of govt
#erfor'ance
<nnocent #arty is entitled to
restitution
4uilty #arty is not entitled to
restitution
PARI DELICTO DOCTRINE -both #arties are guilty, no action against each other$
those who co'e in e=uity 'ust co'e with clean hands$ a##lies only to illegal
contracts @ not to ine+istent contracts$ does not a##ly when a su#erior #ublic #olicy
intervenes
E,CEPTION TO PARI DELICTO R&LE
1. <f #ur#ose has not yet been acco'#lished @ <f da'age has not been caused to
any !
rd
#erson
5e=uisites/
a) contract is for an illegal #ur#ose
b) contract 'ust be re#udiated by any of the #arties before #ur#ose is
acco'#lished or da'age is caused to !
rd
#arties
c) court believes that #ublic interest will be served by allowing recovery
(discretionary u#on the court ) based on re'orse$ illegality is acco'#lished
when #arties entered into contract$ before it ta2es effect #arty w/c is
re'orseful #revents it
2. ?here laws are issued to #rotect certain sectors/ consu'er #rotection, labor,
usury law
a) *onsu'er #rotection if #rice of co''odity is deter'ined by statute, any
#erson #aying an a'ount in e+cess of the 'a+i'u' #rice allowed 'ay
recover such e+cess
b) Gabor if law sets the 'ini'u' wage for laborers, any laborer who agreed
to receive less 'ay still be entitled to recover the deficiency$ if law set 'a+
wor2ing hours @ laborer who underta2es to wor2 longer 'ay de'and
additional co'#ensation
c) <nterest #aid in e+cess of the interest allowed by the usury law 'ay be
recovered by debtor with interest fro' date of #ay'ent
!. <f one #arty is inca#acitated, courts 'ay allow recovery of 'oney, #ro#erty
delivered by inca#acitated #erson in the interest of justice$ #ari delicto cannot
a##ly because an inca#acitated #erson does not 2now what he is entering into$
unable to understand the conse=uences of his own action
23
%. <f agree'ent is not illegal #er se but 'erely #rohibited @ #rohibition is designated
for the #rotection of the #laintiff 'ay recover what he has #aid or delivered by
virtue of #ublic #olicy
M&T&AL RESTIT&TION IN 8OID CONTRACTS
G!n!ral R#l!/ #arties should return to each other what they have given by virtue of
the void contract in case where nullity arose fro' defect in essential ele'ents
1. return object of contract @ fruits
2. return #rice #lus interest
E/c!:tion/ Co recovery can be had in cases where nullity of contract arose fro'
illegality of contract where #arties are in #ari delicto$ e+ce#t/
a. inca#acitated not obliged to return what he gave but 'ay recover what
he has given
b. other #arty is less guilty or not guilty
24

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