OTHER MODES OF EXTINGUISHMENT: {Art 1231} ➢ adopted from American Law.

*Annulment, Rescission, Fulfillment of a resolutory Requisites for the application of Article 1234.
condition, and prescription.
1. There must be substantial performance. -
Causes of extinguishment of obligations: There is substantial performance when the
important or essential part of the contract
1. DEATH OF A PARTY (required personal service)
has been performed and only a small or
2. MUTUAL DESISTANCE OR WITHDRAWAL
minor part thereof has not been carried out.
3. ARRIVAL OF RESOLUTORY PERIOD
2. The obligor must be in good faith. - Good
4. COMPROMISE
faith is always presumed in the absence of
5. IMPOSSIBILITY OF FULFILLMENT
proof to the contrary.
6. HAPPENING OF FORTUITOUS EVENT

SECTION 1. - Payment or Performance

ART. 1235. When the oblige accepts the performance,
ART. 1232. Payment means not only the delivery of
knowing its Incompleteness or irregularity, and without
money but also the performance, in any other manner, of expressing any protest or objection, the obligation is
an obligation. Meaning of Payment deemed fully complied with.

➢ Ordinary Parlace: delivery of money Recovery allowed when incomplete or irregular

➢ Legal Mode: Payment may consist of not performance is waived.
only in the delivery oí money but also the ➢ If the payment is incomplete or irregular, the
giving of a thing (other than money). the creditor may properly reject it.
doing of an act, or not doing of an act. ➢ In case of acceptance, the law considers that
o When a debtor pays damages or penalty in lieu he waives his right. The whole obligation is
of the fulfillment of an obligation, there is also extinguished.
payment in the sense used in Article 1232. o
In law, payment and (specific) performance are Requisites for the application of Article 1235.
synonymous. ➢ The obligee knows that the performance is
ART. 1233. A debt shall not be understood to have been incomplete or irregular
paid unless the thing or service in which the obligation ➢ He accepts the performance without
consists has been completely delivered or rendered, as expressing any protest or objection.
the case may be.
ART. 1236. The creditor is not bound to accept payment
When debt is considered paid. or performance by a third person who has no interest in
the fulfillment of the obligation, unless there is a
1. INTEGRITY OF PRESTATION. - A debt to stipulation to the contrary.
is considered paid if the thing or service has
been completely delivered or rendered. Whoever pays for another may demand from the debtor
Partial or irregular performance will not what he has paid, except that if he paid without the
produce the extinguishment of an obligation knowledge or against the will of the debtor, he can
as a general rule. recover only insofar as the payment has been beneficial
2. IDENTITY OF THE PRESTATION. - that to the debtor.
the very prestation due must be delivered or Persons from whom the creditor must accept payment.
performed.
1. The debtor
Burden of proving payment. 2. Any person who has an interest in the
o The burden of proving extinguishment by obligation
payment devolves upon the debtor who claims (like a guarantor)
3. A third person who has no interest in the
payment.
obligation when there is stipulation that he
o When the debtor introduces evidence that his
can make payment.
obligation has been paid or extinguished does
the burden shift to the creditor. Creditor may refuse payment by a third person.
ART. 1234. If the obligation has been substantially Effect of payment by a third person.
performed in good faith, the obligor may recover as
though there had been a strict and complete fulfillment, 1. If made WITHOUT THE KNOWLEDGE or
less damages suffered by the obligee. against the will of the DEBTOR. - the
recovery is only up to the extent or amount
Recovery allowed in case of substantial performance in of the debt at the time of payment.
good faith. 2. If made WITH THE KNOWLEDGE of the
➢ first exception to the rule laid down in DEBTOR. - The payer shall have the rights
Article 1233. of reimbursement and subrogation, that is, to
 recover what he has paid (not necessarily Meaning of "free disposal of thing due" and "capacity to
the amount of the debt) and to acquire all alienate."
the rights of the creditor.
➢ Free disposal of the thing due means that the
ART. 1237. Whoever pays on behalf of the debtor thing to be delivered must not be subject to any
without the knowledge or against the will of the latter claim or lien or encumbrance of a third person.
cannot compel the creditor to subrogate him in his ➢ Capacity to alienate means that the person is not
rights, such as those arising from a mortgage, guaranty, incapacitated to enter into contracts and for that
or penalty. matter, to make a disposition of the thing due.
Right of third person to subrogation. Free disposal of thing due and capacity to alienate
➢ Whoever pays on behalf of the debtor is entitled required.
to subrogation if the payment is with the consent ➢ it is not valid and can be recovered.
of the latter.
➢ If the payment is without the knowledge or ART. 1240. Payment shall be made to the person in
against the will of the debtor, the third person whose favor the obligation has been constituted, or his
cannot compel the creditor to subrogate him in successor in interest, or any person authorized to receive
it.
the latter's accessory rights of mortgage,
guaranty, or penalty. Person to whom payment shall be made.
➢ May there be subrogation, if the creditor
willingly permits the payor to be subrogated in 1. The CREDITOR OR OBLIGEE (person in
his rights? No, since it is for the benefit of the whose favor obligation has been constituted);
debtor, the subrogation can only take place with 2. His SUCCESSOR in interest (like an heir or
his consent. Third person is only amply assignee); or
protected by reimbursement. 3. Any person AUTHORIZED to receive it.

Subrogation and reimbursement distinguished. Meaning of "any person authorized to receive it."

➢ SUBROGATION: the person who pays for the means not only a person authorized by the
debtor is put into the shoes of the creditor. The creditor, but also a person authorized by law to
payor acquires not only the right to be receive the payment, such as a guardian,
executor or administrator of the estate of a
reimbursed for he
deceased, and assignee or liquidator of a
has paid but also all other rights which the partnership or corporation as well as any other
creditor could have exercised. person who may be authorized to do so by law.
➢ REIMBURSEMENT: the third person entitled
ART. 1241. Payment to a person who is incapacitated to
by reason of payment has merely the bare right
administer his property shall be valid if he has kept the
to be refunded to the extent provided in the
thing delivered, or insofar as the payment has been
second paragraph of Article 1236 without the
beneficial to him.
right to the guarantees and securities of the
original obligation; mere change of creditor. Payment made to a third person shall also be valid
insofar as it has redounded to the benefit of the creditor.
ART. 1238. Payment made by a third person who does Such benefit to the creditor need not be proved in the
not intend to be reimbursed by the debtor is deemed to following cases:
be a donation, which requires the debtor's consent. But
the payment Is in any case valid as to the creditor who 1. If after the payment, the third person acquires
has accepted it. the creditor's rights;
2. If the creditor ratifies the payment to the third
Payment by a third person who does not intend to be
person
reimbursed.
3. If by the creditor's conduct, the debtor has been
➢ "embodies the idea that no one should be
led to believe that the third person had authority
compelled to accept the generosity of another."
to receive the payment.
➢ If the paying third person does not intend to be
reimbursed, the payment is deemed a donation Effect of payment to an incapacitated person.
which requires the debtor’s consent to be valid.
➢ it is not valid unless such incapacitated person
➢ if the creditor accepts the payment, it shall be
kept the thing paid or delivered (so that it is not
valid as to him despite no consent from debtor.
necessary that it should have been invested in
ART. 1239. In obligations to give, payment made by one some profitable venture), or was benefited by the
who does not have the free disposal of the thing due and payment.
capacity to alienate it shall not be valid, without ➢ In the absence of this benefit, the debtor may be
prejudice to the provisions of Article 1427 under the made to pay again by the creditor's guardian or
Title on "Natural Obligations." by the incapacitated person himself when he
acquires or recovers his capacity.
Effect of payment to a third person. Special forms of payment.
➢ Payment to a third person or wrong party is not 1. DATION IN PAYMENT (Art. 1245.); 2.
valid except insofar as it has redounded to the APPLICATION OF PAYMENTS (Art. 1253.);
benefit of the creditor. 3. PAYMENT BY CESSION (Art. 1255.); and
4. TENDER OF PAYMENT AND
When benefit to creditor need not be proved by debtor.
CONSIGNATION. (Arts. 1256-1261.)
1. SUBROGATION of the payer in the creditor's
Meaning of Dation in payment.
tights;
2. RATIFICATION by the creditor; or ➢ Dation in payment (adjudication or dacion en
3. ESTOPPEL on the part of the creditor pago) is the conveyance of ownership of a thing
as an accepted equivalent of performance.
ART. 1242. Payment made in good faith to any person in
➢ It is a special form of payment because it is not
possession of the credit shall release the debtor.
the ordinary way of extinguishing an obligation.
Payment to third person in possession of credit. ➢ An existing debt in money Is satisfied, not by
payment of money (Art. 1244.) but by the
➢ the payer must act in good faith, that is, in the
alienation of property.
honest belief that he is making a valid payment
and that the payee is the owner of the credit.
Good faith is presumed.
ART. 1243. Payment made to the creditor by the debtor
Governing law.
after the latter has been judicially ordered to retain the
debt shall not be valid. ➢ The law of sales governs because dation in
payment may be considered a specie of sale in
When payment to creditor not valid.
which the amount of the money debt becomes
➢ In an action against the debtor who is the the price of the thing alienated.
creditor of another, the latter (the debtor-
stranger), during the pendency of the case, may ART. 1246. When the obligation consists in the delivery
of an indeterminate or generic thing, whose quality and
be ordered by the court (or by any competent
circumstances have not been stated, the creditor cannot
authority though it be administrative) to retain
demand a thing of superior quality. Neither can the
the debt until the right of the plaintiff, the
debtor deliver a thing of inferior quality. The purpose of
creditor in the main litigation is resolved.
the obligation and other circumstances shall be taken
ART. 1244. The debtor of a thing cannot compel the into consideration.
creditor to receive a different one, although the latter
Rule of the medium quality.
may be of the same value as, or more valuable than that
which is due. ➢ if the obligation is to deliver a generic thing, the
purpose of the obligation and other
In obligations to do or not to do, an act or forbearance
circumstances shall be taken into consideration
cannot be substituted by another act or forbearance
to determine the quality or kind of thing to be
against the obligee's will.
delivered.
Very Prestation due must be complied with. ➢ Article 1246 is a principle of equity in that it
supplies justice in cases where there is lack of
1. The first paragraph refers to a real obligation to
precise declaration in the obligation.
deliver a specific thing. A thing different from
➢ The benefit of this article may be waived by the
that due cannot be offered or demanded against
creditor or by accepting a thing of inferior
the will of the creditor or debtor, as the case may
quality, and by the debtor by delivering a thing
be.
of superior quality
2. The second paragraph refers to personal
(positive and negative) obligations. The act to be
performed or the act prohibited cannot be
ART 1247.
substituted against the obligee's will.
When Prestation may be substituted. ➢ Extrajudicial expenses is paid by debtor unless
otherwise stipulated.
o substitution can be made if the obligee Reason: Obligation is extinguished; debtor is benefitted.
consents. o In facultative obligations, the ➢ Does not apply to expenses incurred by creditor
debtor is given the right to render another in going to debtor's domicile.
prestation in substitution. Meaning: Hindi babayaran ni debtor yung gastos ng
pagpunta ni creditor sa kung saan man si debtor para
ART. 1245. Dation in payment whereby property is maningil ng utang.
alienated to the creditor in satisfaction of a debt in ➢ Losing party generally pays judicial costs.
money, shall be governed by the law of sales. Judicial costs - statutory amounts allowed to a party to
an action for his expenses incurred in the action.
 Exceptions: If there are special reasons, adjudge
(make formal judgement) that either party shall pay the Place of payment:
costs or that the same be divided as may be equitable. There is stipulation:
➢ No cost allowed against the Government.
1. Place designated in the obligation
ART 1248. 2. Specific thing; Place where the thing was, at the
➢ One debtor and one creditor perfection of the contract
➢ Joint and solidary obligations - {ART 1207 - No express stipulation:
ART 1222}
➢ Performance of obligation should be complete; 3. Generic thing; Domicile of the debtor (permanent
Creditor may accept but cannot be compelled to residence or place where the debtor lives); creditor bears
accept partial performance, and Debtor cannot expenses of going to the debtor
be required to make partial payments if he does If debtor changes mind in bad faith:
not wish to do so.
➢ Mora Accipiendi - additional expenses shall be
When partial performance allowed: borne by him.

1. When there is an express stipulation to that effect

2. When the debt is in part liquidated and in part SPECIAL FORMS OF PAYMENT
unliquidated ART 1252.
3. When different prestations are subject to different SUBSECTION 1 - APPLICATION OF PAYMENTS
terms which affect some of them.
➢ designation of the debt to which should be
applied the payment made by a debtor who has
ART 1249. various debts of the same kind in favor of one
and of the same creditor.
Legal Tender - currency; Coins and Bills issued by
Bangko Sentral ng Pilipinas. Bills and xoins over 1.00 is
valid legal tender. Requisites: (5)
➢ Payment is made in the currency stipulated; if 1. There must be 1 debtor and 1 creditor
not possible, in currency which is legal tender in 2. There must be 2 or more debts
the Philippines. 3. The debts must be of the same kind
➢ Promissory notes payable, bills of exchange, 4. The debts to which payment made by the debtor has
other mercantile documents are required to be been applied must be due
cashed or lost through the creditor's fault. 5. The payment made must not be sufficient to cover all
the debts.
Rights of creditor to refuse or accept:
Application as to debts not yet due cannot be made
1. Creditor may accept them without acceptance of unless:
producing the effect of payment; original obligation is 1. There is a stipulation that the debtor may so apply
suspended. 2. It is made by the debtor or creditor for whose benefit
2. Creditor must cash the instrument, it is only when the period has been constituted
it is doshonored that he can bring action for non-
payment of debt. Rules on application of payment:
Effect on obligation: payment by mercantile 1. Debtor has the first choice; must indicate at the time
documents does not extinguish the obligation. of making payment, and not afterwards, once the
a. until they have been cashed payment is applied to a debt, it cannot be claimed that it
b. unless they have been impaired through the fault if should be applied to another debt.
the creditor. 2. Right to make the application once exercised is
irrevocable unless the creditor consents to the change.
3. If debtor does not apply payment, creditor amy make
ART 1250. the designation by specifying in the receipt which the
debt is being paid
➢ When there is an extraordinary inflation and 4. If no one made the application or is not valid, the most
deflation, the purchasing value of the currency at onerous debt among those due shall be deemed to have
the time of the establishment shall be the basis been satisfied.
of payment but it is subject to agreement of the ➢ More burdensome to the debtor.
parties.
Meaning: Kung ano yung value ng utang mo Supreme Court rules to be followed in determining
ngayon, bumaba man yan or tumaas, yan yung what is more burdensome to the other:
babayaran mo unless may iba kayong pinag-usapan 1. Interest-bearing debt than non interest-bearing debt
when this situation arrives. 2. Debt of sole debtor than a solidary debtor
➢ Does not apply to law, quasi-contract, crime, or 3. Debts secured by mortgage or pledge than
tort. unsecured debts
4. 2 interest-bearing debts - one with higher rate
ART 1251.
 5. An obligation with penalty clause than one without ➢ An act of novation XXX Not an act of novation
penalty clause
ART 1256.
5. If the debts due are of the same nature and burden, SUBSECTION 3 - TENDER OF PAYMENT AND
payment shall be applied to all of them proportionately. CONSIGNATION

➢ Debts are 2500 with interest and 3,000 with *About consignation where debtor is released from
mortgage. Payment is 2,000. Then, obligation kapag tinanggohan ni creditor yung tender of
2,000(2500/5,500)=909 then payment without just cause
2,000(3,000/5,500)=1,091
Consignation alone shall produce the same effect in
following cases: (Tender of payment not required)
ART 1253.
1. When creditor is absent or unknown, or does not
➢ Interest earned are paid ahead of the principal appear at the place of payment
debt. 2. When he is incapacitated to receive the payment at the
➢ Debtor cannot choose to credit his payment to time it is due
the principal debt 3. When, without cause, he refuses to give a receipt
➢ Creditor can refuse application of the debtor 4. When 2 or more persons claim the same right to
made contrary to this provision collect
5. When the title of the obligation has been lost
This rule is subject to agreement of the parties or waiver Tender of payment - act on part of debtor of offering the
by the creditor. thing due
Consignation - act of depositing the thing due with
ART 1254. proper court when creditor doesn't receive it after
*about the most oneroues debt - nakalagay na info sa complying with the formalities required.
taas. (ART 1252) (4)
➢ It is always judicial and generally requires a
prior tender of payment which by nature is
extrajudicial.

ART 1255.
SUBSECTION 2 - PAYMENT BY CESSION Requisites of valid consignation:
➢ Assigning debtor's properties to his creditors in
payment of his debts. 1. Existence of a valid debt which is due
➢ Debtor shall only be released when the property 2. Valid prior payment by debtor and refusal without
has the net proceeds which is sufficient for his justifiable reason by the creditpr to accept it
debts. 3. Previous notice of consignation to persons interested
➢ The agreements on the effect of the cession in the fulfillment of the obligation
made between the debtor and his creditors shall 4. Consignation of the thing or sum due
be governed by special laws. 5. Subsequent notice of consignation made to the
interested parties
Meaning: Assignment of property lang not ownership,
kung no ang net proceeds ng property, yun yung amount Requirements for valid tender of payment:
ng ibabawas sa debt nya
1. Tender of payment must comply with the rules on
Requisites: payment {ART 1256-1258} or with the terms required
1. There must be 2 or more creditors by the contract in making such tender. The tender, even
2. The debtor must be (partially) insolvent if valid, does not by itself produce legal payment, unless
3. The assignment must involve all the properties of the it is completed by consignation
debtor 2. It must be unconditional and for the whole amount
4. The cession must be accepted by the creditors due and in legal tender
3. It must be actually made. The manifestation of a mere
Dation in Payment {ART 1245} vs. Payment by desire or intention to pay is not enough. The debtor must
Cession show present ability to perform by an actual offer of the
Dation XXX Cession thing or money due.

➢ Only 1 creditor XXX Several creditors ART 1257.

➢ Does not presuppose the insolvency of debtor
XXX Debtor is insolvent at the time of *The consignation must be announced first to the
assignment persons interested in the fulfillment. It shall be
➢ Not involve all property of debtor XXX Involve ineffectual if it is not made strictly in consonance with
all properties of debtor subject to execution the provisions which regulate payment.
➢ Creditor becomes owner of the thing XXX
Creditors only acquire the right to sell the thing Notice:
and apply proceeds to their credits ➢ Absence of prior notice = void payment
proportionately
 Reason: give cresitor a chance to redlect on refusal under the equivalent of impossibility of performance in
considering the expenses of the consignation charged obligations to do (art. 1266). But “loss of thing due” as
against him and in case of loss, he shall bear the risk used in art 1231, extends to both obligations to give and
thereof. obligations to do.

➢ Before and after consignation, interested persons WHEN LOSS OF THING WILL EXTINGUISH AN
must be notified OBLIGATION TO GIVE.
Reason: Enable creditor to withdraw the thing or
sum deposited in case he accepts the consignation. In order that an obligation may be extinguished by the
loss of the thing, the following requisites must be
➢ For consignation to be valid payment - must present:
comply with provisions which regulate payment.
1. The obligation to deliver a specific or
determinate thing
ART 1258. 2. The loss of the thing occurs without the fault of
the debtor
➢ Consignation must be with proper judicial 3. The debtor is not guilty of delay
authority to effect payment. Tender must be
proved by debtor in proper case. In other cases, 2. WHEN LOSS OF THING WILL NOT
when tender is not required, only prior notice to EXTINGUISH LIABILITY
the interested persons of consignation needs to
be proved. The loss of a specific or determinate thing will not
extinguish the liability of the debtor even in the absence
ART 1259. of fault or delay. They are;

Expenses of consignation, when properly made, shall be 1. When the law so provides (art 1170, par
charged against the creditor 3,1165,1263)
*If not properly made, it is bore by debtor 2. When the stipulation so provides.
3. When the nature of the obligation requires the
Consignation is properly made: assumption of risk (par. 2; art 1174)
4. When the obligation to deliver a specific thing
1. When creditor accepts the thing or sum deposited as
arises from a crime.
payment without objection
2. When creditor questions validity of the comsignation, 3. EFFECT OF LOSS OF A GENERIC THING
and court declares it has been properly made
3. When the creditor neither accepts nor questions the It is based on the principle that a generic thing never
validity of consignation, and court orders the perishes (genus nunquam perit). The debtor can still be
cancellation if the obligation. compelled to deliver a thing of the same kind. The
creditor, however, cannot demand a thing of superior
ART 1260. quality and neither can the debtor deliver a thing of
inferior quality. (art. 1246)
➢ Debtor may ask the judge to order cancellation
of obligation BEFORE creditor accepts the 4. EFFECT OF PARTIAL LOSS OF A SPECIFIC
consignation or before a judicial declaration that THING
the consignation has been properly made. All
expenses are paid by debtor. There is partial loss when only a portion of the thing is
lost or destroyed or when it suffers depreciation or
ART 1261. deterioration. Partial loss is the equivalent of difficulty
or performance in obligations to do. (art. 1267)
➢ When creditor authorized the debtor to withdraw In case of partial loss, the court is given the discretion in
consignation, he shall lose the preference he may
case of disagreement between the parties, to determine
have over the thing (guarantors, co-debtor, and
sureties) whether under the circumstances it is so important in
➢ As for solidary debtors - they are only released relation to the whole as to extinguish the obligation. In
from their solidary liability, but not from their other words, the court will decide whether the partial
shares of obligation since they are also principal loss is such as to be equivalent to a complete or total
debtors. loss.
5. PRESUMPTION OF FAULT IN CASE OF
SECTION 2 – LOSS OF THE THING DUE LOSS OF THING IN POSSESSION OF DEBTOR
The article establishes a disputable presumption of fault
whenever the thing to be delivered is lost in the
WHEN A THING IS CONSIDERED DUE: possession of the debtor. This presumption is reasonable
A thing is lost when it perishes, or goes out of commerce because the debtor who has the custody and care of the
or disappears in such a way that its existence is unknown thing can easily explain the circumstances of the loss.
or cannot be recovered. Loss of a determinate thing is
The creditor has no duty to show that the debtor was at The obligation subsists except when the creditor refused
fault. to accept the thing (e.g property stolen from him)
without justification, after it had been offered to him.
Under the 3rd paragraph of art. 1165, the obligor who is
Consignation is not necessary. The debtor, however,
not at fault is still liable in case he is guilty of delay or
must still exercise due diligence.
has promised to deliver the same thing to two or more
persons who do not have the same interest. 11. RIGHT OF CREDITOR TO PROCEED
AGAINST THIRD PERSONS
6. WHEN PRESUMPTION NOT APPLICABLE
Under Art. 1269, the creditor is given the right to
In case of natural calamities, the presumption of fault
proceed against the third person responsible for the loss.
does not apply. Lack of fault on the part of the debtor is
There is no need for an assignment by the debtor. The
more likely. So it is unjust to presume negligence on his
rights of action of the debtor are transferred to the
part.
creditor from the moment the obligation is extinguished,
7. EFFECT OF IMPOSSIBILITY OF by operation of law to protect the interest of the latter by
PERFORMANCE reason of the loss.

Art. 1266 refers to a case when, without the debtor’s

fault, this obligation becomes legally or physically
SECTION 3 – CONDONATION OR REMISSION OF
impossible. The impossibility of performance will result
DEBT
in the extinction of obligation.
Condonation or remission is the gratuitous abandonment
The impossibility must take place after the constitution
by the creditor of his right against the debtor.
of the obligation. If the obligation is impossible from the
very beginning, the obligation is void. (art. 1183, 1348) It is thus a form of donation.
and it is immaterial whether the possibility was known
12. REQUISITES OF CONDONATION OR
or unknown to the parties. In such cases, there is no
REMISSION
obligation to be extinguished, and the parties would be
entirely discharged. 1. It must be gratuitous
8. KINDS OF IMPOSSIBILITY 2. It must be accepted by the obligor
3. The parties must have capacity
1. In purely personal obligations, when the 4. It must not be inofficious
personal qualifications of the obligor are
5. If made expressly, it must comply with
involved, physical impossibility takes place
when, for example, the obligor dies or becomes the forms of donations. KINDS OF REMISSION
physically incapacitated to perform the They are:
obligation.
2. Legal impossibility occurs when the obligation 1. As to its extent
cannot be performed because it is rendered Complete – when it covers the entire
impossible by provision of law, although obligation
physically it may be possible of performance. In Partial – when it does not cover the
every contract, a condition is implied that the entire obligation
promisor shall be released from his obligation if 2. As to its form
performance is rendered impossibly by law. Express – when it is made either
verbally or in writing Implied – when
9. EFFECT OF DIFFICULTY OF
it can only be inferred from conduct
PERFORMANCE
3. As to its date of effectivity
The general rule is that impossibility of performance Inter vivos – when it will take effect
releases the obligor. during the lifetime of the donor Mortis
causa – when it will become effective
When the performance of the service has become so
upon the death of the donor. It must
difficult as to be manifestly beyond the contemplation of
comply with the formalities of a will.
both parties, the court is authorized to release the obligor
in whole or in part. It would be doing violence to the 13. EFFECT OF INOFFICIOUS REMISSION
intention of the parties to hold the obligor still
responsible. There is an element of the unforeseen or While a person may make donations, no one can give
fortuitous event in the situation covered by Art. 1276. more than that which he can give by will; otherwise, the
excess shall be inofficious and shall be reduced by the
10. EFFECT OF FORTUITOUS EVENT WHEN court accordingly.
OBLIGATION PROCEEDS FROM A CRIMINAL
OFFENSE As a rule, testamentary dispositions which impair the
legitime shall be reduced on petition of the heirs (Art.
Art. 1268 is another instance where a fortuitous event 887) insofar as they are inofficious or excessive.
does not exempt the debtor from liability. (Art.
1174,1262)
Incidentally, legitime is that part of the testator’s payment and only when it is known that indeed there is
property which he cannot dispose of because the law has no payment should there be a presumption of remission.
reserved it for certain heirs(children with respect to their
17. EFFECT OF RENUNCIATION OF THE
parents) who are therefore called compulsory heirs.
PRINCIPAL DEBT OF THE ACCESSORY
14. PRESUMPTION IN CASE OF VOLUNTARY OBLIGATION
DELIVERY OF DOCUMENT OF INDEBTNESS BY
Art. 1273 follows the rule that the accessory follows the
CREDITOR
principal. While the accessory obligations cannot exist
1. Presumption of implied remission – this article without the principal obligation, the latter may exist
gives an example of implied or tacit remission. without the former.
If the debt is not yet paid, the creditor would
18. PRESUMPTION IN CASE THING PLEDGED
need the document to enforce payment. In case
FOUND IN POSSESSION OF DEBTOR
he voluntarily delivers it to the debtor, the only
logical inference is that he is renouncing his In a contract of pledge, it is necessary that the thing
right. pledged be placed in the possession of the creditor, or of
2. Contrary evidence – the presumption is prima a third person by common agreement. A third person
facie or rebuttable by contrary evidence. who is not a party to the principal obligation may secure
Evidence is admissible to show otherwise, as the latter by pledging his own property.
when a receipt signed by the creditor was
If the thing pledged is later found in the hands of the
delivered only for examination by the debtor debtor or the third person only the accessory obligation
client of the amount of attorney’s fees to be paid of pledge is presumed remitted, not the obligation itself.
by the latter. The debtor shall continue to be indebted but he does not
3. Extent of remission – if the obligation is joint, have to return the thing pledged. This presumption
the presumption of remission only pertains only yields to contrary evidence. It does not arise if the third
to the share of the debtor who is in possession of person in possession of the thing pledged does not own
the document; if solidary, to the total obligation. the same.
4. Presumption applicable only to private
document – Art. 1271 speaks of a private SECTION 4. CONFUSION OR MERGER OF
document. The legal presumption of remission RIGHTS
does not apply in the case of a public document Article 1275.
because it is easy to obtain a copy of the same,
being a public record. ➢ Confusion or merger is the meeting in one
person of the characters of creditor and debtor
15. PAYMENT, NOT REMISSION OF DEBT with the respect to the same obligation.
Under the second paragraph of Art. 1271, the ➢ Basis for confusion
renunciation of the action which the creditor had against 1. The law treats confusion or merger as a
the debtor may be nullified or invalidated by a showing mode of extinguishing obligation, obligation
that the waiver is inofficious. In other words the becomes absurd since a person cannot claim
remission becomes null and void upon proof that is any payment.
inofficious. 2. When there is confusion of rights, the
purposes of obligation that may have been
The debtor or his heirs may prove that the delivery of the created are deemed realized.
document was really made in virtue of payment of the ➢ Requisites of confusion.
debt and not of remission. 1. It must take place between the principal debt
and creditor
16. PRESUMPTION IN CASE DOCUMENT
2. It must be complete
FOUND IN POSSESSION OF DEBTOR
Article 1276.
Ordinarily, the document evidencing the debt is in the
possession of the creditor. He has in his favor the legal ➢ Effect of merger on principal debtor or creditor.
presumption that his credit is as yet uncontrolled, unless • Merger in the person of debtor or
the debtor proves satisfactorily, by one of the rules creditor extinguishes the obligation. The
recognized in law, that he has already paid the claim. accessory of the obligation of guaranty
is also extinguished.
If document is later found in the hands of the debtor and
➢ Effect of merger in guarantor.
it is not known how he came into possession of the
• Extinguishment of the accessory of the
same, the presumption is that it was voluntarily
delivered by the creditor. This presumption of voluntary obligation does not carry with it that of
the principal obligation. While it
delivery, in turn, gives rise to the presumption of
extinguishes the guaranty, leaves the
remission.
principal obligation in force.
It is believed, however, that the presumption of
Article 1277.
voluntary delivery should give rise to the presumption of
 ➢ In joint obligation, the confusion will extinguish 1. The parties are principal creditors and principal
only the share corresponding to the creditor or debtors of each other.
debtor to whom the two characters concur. 2. Both debts consist in a sum of money or of
➢ In solidary obligation, a merger in the person of consumable things of the same kind and quality.
one of the solidary debtors shall extinguish the 3. The two debts are due or demandable.
entire obligation because it is also a merger in 4. The two debts are liquidated.
the other solidary debtors. 5. No retention or controversy commenced by a
➢ He who makes payment may claim third person.
reimbursement from his co-debtors.
ART. 1280
SECTION 5: COMPENSATION
Notwithstanding the provisions of the preceding
ART. 1278 article, the guarantor may set up compensation as regards
what the creditor may owe the principle debtor.
Compensation

• Extinguishment to the concurrent amount

of the debts of two persons who, in their Compensation benefits guarantor
own right, are debtors and creditors of
Although the guarantor is only subsidiarily, not
each other.
principally bound, he is given the right to set up
• Simultaneous balancing of two
compensation because the extinguishment of the principal
obligations in order to extinguish them
obligation as a consequence of compensation carries with
which the amount of one is covered by
it the accessory obligations such as guaranty.
that of the other.
• Often called simplified payment because ART. 1281
it provides a more convenient and less
Compensation may be total or partial. When the
effectuation of payments.
two debts are of the same amount, there is total
Object of compensation compensation.
Is the prevention of unnecessary litigations and Total and Partial compensations
payments.
• Applies to all the different kinds of compensation.
Compensation and Confusion distinguished • Total compensations results when the two debts
are of the same amount.
Confusion Compensation
• If they are different amounts, compensation is
Only one person who is a Two persons is a debtor
creditor and debtor of and creditor of the other total as regards the smaller debt, and partial only
himself with respect to larger debt.
One obligation Two obligations ART. 1282
There is impossibility of There is indirect
payment payment The parties may agree upon compensation of
debts which are not yet due.
Kinds of Compensation Voluntary compensation
1. By its effect or extent • Includes any compensation which takes
a. Total- both obligations have the same amount place by agreement of the parties even if
and entirely extinguished. all requisites for legal compensation are
b. Partial- The two obligations have different not present.
amounts, and a balance remains. Extingtive • Has no special requisites.
effect of compensation will be partial only as
regards the larger debt. ART. 1283
2. By its cause or origin If one of the parties to a suit over an obligation
a. Legal- it takes place by operation of law even has a claim for damages against the other, the former may
without knowledge of the parties. set it off by proving his right to said damages and the
b. Voluntary- it takes place by agreement of the amount thereof.
parties.
c. Judicial- It takes place by order from a court Judicial compensation
in litigation.
Compensation may also take place when so
d. Facultative- It can be set up only by one of
declared by a final judgment of a court in suit.
the parties.
ART. 1284
ART. 1279
When one or both debts are rescissible or
Requisites of Legal compensation (further review this sa
voidable, they may be compensated against each other
book kasi may examples per requisites.)
before they are judicially rescinded or avoided.
 Prior to rescission or annulment, the debts may be attendance, education, and transportation, in
compensated against each other. keeping with the financial capacity of the family.
4. Where one of the debts consists in civil liability
ART. 1285
arising from a penal offense- If one of the debts
When compensation has taken place before consist in civil liability arising from criminal
assignment offense, compensation would be improper and
inadvisable because the satisfaction of such
• Compensation takes effect by operation of law, obligation is imperative.
the debts are extinguished to the concurrent
amount. ART. 1289
• The extinguished debt is assigned by the creditor If a person should have against him several debts
to a third person, the debtor can raise the defense which are susceptible of compensation, the rules on the
of compensation with respect to the debt. application of payments shall apply to the order of
Where compensation has taken place after compensation.
assignment. (Guys example based siya huhu d q ma Rules on application of payments apply to order of
sum up but page 257) compensation
1. Assignment with the consent of debtor. • Compensation is similar to payment.
2. Assignment with the knowledge but without the
• If a debtor has various debts which are
consent of debtor.
susceptible of compensation, he must inform the
3. Assignment without the knowledge of the debtor.
creditor which of them shall be the object of
compensation.
➢ Fails to do so, compensation shall be
ART. 1286 applied to the most onerous obligation.
Compensation takes place by operation of law, ART. 1290
even though debts may be payable at different places, but
there shall be an indemnity for expenses of exchange or When all the requisites mentioned in article 1279
transportation to the place of payment. are present, compensation takes effect by operation of
law, and extinguishes both debts to the concurrent
Compensation where debts payable at different places amount, even though the creditors and debtors are not
aware of the compensation.
• Once expenses of monetary exchange or
expenses of transportation have been liquidated, Consent of parties not required in legal compensation.
the debts also become compensable. The
indemnity shall be paid by the person who raises 1. Compensation takes place automatically by mere
the defense of compensation. operation of law.
• Foreign Exchange-conversion of an amount of 2. Full legal capacity of parties not required.
money or currency of one country into an SECTION 6: NOVATION
equivalent amount of money or currency of
another. Art. 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
ART. 1287 (2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the
Compensation shall not be proper when one of the creditor. (1203)
debts arises from a depositum or from the obligations of a
depositary or of a bailee in commodatum. Meaning of novation.

Instances when legal compensation is not allowed by • Novation is the total or partial extinction of an
law obligation through the creation of a new one
that substitutes it.
1. Where one of the debts arises from a depositum- • It is the substitution or change of an obligation
deposit is the moment a person receives a thing by another, which extinguishes or modifies the
belonging to another with the obligation of safely first, either by changing its object or principal
keeping it and of returning the same. conditions, by or substituting another in place
2. Where one of the debts arises from a of the debtor, or by subrogating a third person
commodatum- Commodatum is a gratuitous in the rights of the creditor.
contract whereby one of the parties delivers to Dual function or purpose of novation.
another something not consumable so that the
latter may use the same for a certain time and Novation is a contract containing two stipulations:
return it. one to extinguish or modify an existing obligation, and
3. Where one of the debts arises from a claim for the other to substitute a new one in its place.
support due by gratuitous title- Support It does not operate as an absolute extinction in the
comprises everything that is indispensable for sense that it ends with the extinguishment of an
sustenance, dwelling, clothing, medical obligation but only as a relative extinction because it
creates a new one in place of the old which is thus only a. First, by the express agreement of the parties or
“modified.” (Art. 1291.) acts of equal or equivalent import (Aboitiz vs.
De Silva, 45 Phil. 883 [1923].),
Kinds of novation. b. Second, by the irreconcilable incompatibility of
(1) According to origin: the two obligations with each other in every
(a) Legal. — that which takes place by operation of law material respect.

(b) Conventional. — that which takes place by Burden of showing novation.

agreement of the parties.
• The burden of establishing a novation is on the
(2) According to how it is constituted: party who asserts its existence.
(a) Express. — when it is so declared in unequivocal • The necessity to prove the same by clear and
terms convincing evidence is accentuated where the
obligation of the debtor has already matured.
(b) Implied. — when the old and the new obligations are
essentially incompatible with each other. Incompatibility between two obligations or contracts.
(1) Incompatibility in any of the essential elements of
(3) According to extent or effect:
obligation. — When not expressed, incompatibility is
(a) Total or extinctive. — when the old obligation is
required so as to ensure that the parties have indeed
completely extinguished; or
intended such novation despite their failure to express it
(b) Partial or modificatory. — when the old obligation
in categorical terms.
is merely modified, i.e., the change is merely incidental
to the main obligation. — The incompatibility should take place in any of the
essential elements of the obligation, otherwise, the
change is merely modificatory in nature and insufficient
(4) According to the subject:
to extinguish the original obligation.
(a) Real or objective. — when the object (or cause) or
principal conditions of the obligation are changed (Art. (2) Test of incompatibility. — The test is whether they
1291[1].); can stand together without conflict, each one having its
own independent existence. If they cannot, they are
(b) Personal or subjective. — when the person of the
incompatible, and the subsequent obligation novates the
debtor is substituted and/or when a third person is
first. Upon such novation, the former obligation loses all
subrogated in the rights of the creditor (Ibid., [2, 3].); or
its force and effect and only the new obligation can be
(c) Mixed. — when the object or principal condition of
the basis of an action.
the obligation and the debtor or the creditor or both the
parties, are changed. It is a combination of real and Art. 1293. Novation which consists in substituting a
personal novations. (Ibid.) new debtor in the place of the original one, may be
made even without the knowledge or against the will
Art. 1292. In order that an obligation may be
of the latter, but not without the consent of the
extinguished by another which substitutes the same,
creditor. Payment by the new debtor gives him the
it is imperative that it be so declared in unequivocal
rights mentioned in Articles 1236 and 1237.
terms, or that the old and the new obligations be on
every point incompatible with each other. (1204) Kinds of personal novation.
Personal novation may be in the form of:
(1) Substitution. — when the person of the debtor is
Requisites of novation.
substituted
(1) The existence of a previous valid obligation;
(2) Subrogation. — when a third person is subrogated
(2) The intention or agreement and capacity of the
in the rights of the creditor. (Ibid., [3]; Art. 1300.)
parties to extinguish or modify the obligation;
Kinds of substitution.
(3) The extinguishment or modification of the
Article 1293 speaks of substitution which, in turn, may
obligation; and
be:
(4) The creation or birth of a valid new obligation. (1) Expromision or that which takes place when a third
person of his own initiative and without the knowledge
Novation not presumed. or against the will of the original debtor assumes the
1. While as a general rule, no form of words or latter’s obligation with the consent of the creditor. It
writing is necessary to give effect to a novation logically requires the consent of the third person and the
(Garcia, Jr. vs. Court of Appeals, supra.), it creditor. (
must be clearly and unmistakably established It is essential that the old debtor be released from
by express agreement or by the acts of the his obligation; otherwise, there is no expromision; or
parties, as novation is never presumed.
(2) Delegacion or that which takes place when the
Ways of effecting conventional novation. creditor accepts a third person to take the place of the
debtor at the instance of the latter. The creditor may
There are only two (2) ways that indicate the
withhold approval. (Ibid.; Art. 1295.)
presence of novation and thereby produce the effect of
extinguishing an obligation by another which substitutes In delegacion, all the parties, the old debtor, the
the same. new debtor and the creditor must agree.
Consent of creditor necessary
 In either of the two modes of substitution, the • The above article follows the general rule that
consent of the creditor is an indispensable requirement. the extinguishment of the principal obligation
carries with it that of the accessory obligations.
The reason for the rule is that the substitution (see Arts. 1230, 1273, 1280.)
implies a waiver by the creditor of his credit and it may
• It provides, however, an exception in the case of
be prejudicial to him.
an accessory obligation created in favor of a
Right of new debtor who pays. third person which remains in force unless said
(1) In expromision, payment by the new debtor gives third person gives his consent to the novation.
him the right to beneficial reimbursement under the (see Art. 1311, par. 2.)
second paragraph of Article 1236. • This is so because a person should not be
(2) If the payment was made with the consent of the prejudiced by the act of another without his
original debtor or on his own initiative (delegacion), the consent.
new debtor is entitled to reimbursement and subrogation
under Article 1237. Art. 1297. If the new obligation is void, the original
one shall subsist, unless the parties intended that the
Art. 1294. If the substitution is without the former relation should be extinguished in any event.
knowledge or against the will of the debtor, the new (n)
debtor’s insolvency or non-fulfillment of the
obligation shall not give rise to any liability on the Effect where the new obligation void.
part of the original debtor. (n) • Article 1297 stresses one of the essential
Effect of new debtor’s insolvency or non-fulfillment requirements of a novation, to wit: the new
of obligation. obligation must be valid.
• The general rule is that there is no novation if
(1) In expromision. — Under Article 1294, the new the new obligation is void and, therefore, the
debtor’s insolvency or nonfulfi llment of the obligation original one shall subsist for the reason that the
will not revive the action of the creditor against the old second obligation being inexistent, it cannot
debtor whose obligation is extinguished by the extinguish or modify the first.
assumption of the debt by the new debtor. • To the rule is excepted the case where the parties
— Remember that in expromision, the replacement of intended that the old obligation should be
the old debtor is not made at his own initiative. extinguished in any event.

Art. 1295. The insolvency of the new debtor, who has Effect where the new obligation voidable.
been proposed by the original debtor and accepted by
• If the new obligation is only voidable, novation
the creditor, shall not revive the action of the latter
can take place. But the moment it is annulled,
against the original obligor, except when said
the novation must be considered as not having
insolvency was already existing and of public
taken place, and the original one can be
knowledge, or known to the debtor, when he
enforced, unless the intention of the parties is
delegated his debt. (1206a)
otherwise
— It would seem that even if the substitution is
with the knowledge or consent of the original debtor, he Art. 1298. The novation is void if the original
is no longer liable. Article 1295 applies if the new debtor obligation was void, except when annulment may be
“has been proposed by the original debtor and accepted claimed only by the debtor, or when ratifi cation
by the creditor.’’ validates acts which are voidable. (1208a)
Effect where the old obligation void or voidable.
(2) In delegacion. — Article 1295 refers to
delegacion. It must be noted that the article speaks only This article has its basis also on the requisites of
of insolvency. If the non-fulfillment of the obligation is a valid novation.
due to other causes, the old debtor is not liable. • A void obligation cannot be novated because
— The general rule is that the old debtor is not liable there is nothing to novate. However, if the
to the creditor in case of the insolvency of the new original obligation is only voidable (Art. 1390;
debtor. Note: A voidable obligation is valid until it is
The exceptions are: annulled in court.) or if the voidable obligation
(a) The said insolvency was already existing and of is validated by ratification (see Arts. 1392,
public knowledge (although it was not known to the old 1396.), the novation is valid.
debtor) at the time of the delegacion; or
(b) The insolvency was already existing and known to Art. 1299. If the original obligation was subject to a
the debtor (although it was not of public knowledge) at suspensive or resolutory condition, the new obligation
the time of the delegacion. shall be under the same condition, unless it is
otherwise stipulated. (n)
The exceptions are intended to prevent fraud on the
Presumption where original obligation subject to a
part of the old debtor
condition.
Art. 1296. When the principal obligation is
extinguished in consequence of a novation, accessory • If the first obligation is subject to a suspensive
or resolutory condition, the second obligation is
obligations may subsist only insofar as they may
benefi t third persons who did not give their consent. deemed subject to the same condition unless the
(1207) contrary is stipulated by the parties in their
contract.
Effect of novation on accessory obligations.
 1. The reason for the rule contained in Article (2) When a third person, not interested in the
1299 is that the efficacy of the new obligation obligation, pays with the express or tacit approval of
depends upon whether the condition which the debtor;
affects the old obligation is complied with or (3) When, even without the knowledge of the debtor,
not. (3 Castan 82.) a person interested in the fulfi llment of the
2. If the condition is suspensive, and it is not obligation pays, without prejudice to the effects of
complied with, no obligation arises; and if it is confusion as to the latter’s share. (1210a)
resolutory and it is complied with, the old
obligation is extinguished. In either case, one Cases of legal subrogation.
requisite of novation, i.e., a previous valid In the three cases enumerated, subrogation takes place
obligation, would be wanting. by operation of law even without the consent of the
parties.
Art. 1300. Subrogation of a third person in the rights
* Note that the subrogation is produced from payment
of the creditor is either legal or conventional. The
which may be with or without the debtor’s knowledge or
former is not presumed, except in cases expressly
approval.
mentioned in this Code; the latter must be clearly
(1) When a creditor pays another creditor who is
established in order that it may take effect. (1209a)
preferred (see Arts. 2236, 2251.)
Meaning of subrogation.
(2) When a third person without interest in the
1. Subrogation is the substitution of one person in
obligation pays with the approval of the debtor
the place of another with reference to a lawful
claim or right, so that he who is substituted (3) When a third person with interest in the
succeeds to the right of the other in relation to a obligation pays even without the knowledge of the
debt or claim, including its remedies and debtor
securities. Art. 1303. Subrogation transfers to the person
2. It contemplates full substitution such that it subrogated the credit with all the rights thereto
places the party subrogated in the shoes of the appertaining, either against the debtor or against
creditor, and he may use all means which the third persons, be they guarantors or possessors of
creditor could employ to enforce payment. mortgages, subject to stipulation in a conventional
(Lorenzo Shipping Corp. vs. Chubb and Sons, subrogation. (1212a)
Inc., 431 SCRA 266 [2004].) Effect of legal subrogation.
3. A subrogee cannot succeed to a right not
possessed by the subrogor. • The effect of legal subrogation is to transfer to
the new creditor the credit and all the rights and
Kinds of subrogation. actions that could have been exercised by the
Subrogation may be either: former creditor either against the debtor or
(1) Conventional. — when it takes place by express against third persons, be they guarantors or
agreement of the original parties (the debtor and the mortgagors.
original creditor) and the third person (the new creditor) • Simply stated, except only for the change in the
(Art. 1301.); or person of the creditor, the obligation subsists in
all respects as before the novation.
- Conventional subrogation must be clearly established
• There are distinctions between the right to be
in order that it may take place.
subrogated and the right to reimbursement.

(2) Legal. — when it takes place without agreement but Art. 1304. A creditor, to whom partial payment has
by operation of law. been made, may exercise his right for the remainder,
and he shall be preferred to the person who has been
- Legal subrogation is not presumed except in the cases subrogated in his place in virtue of the partial
expressly provided by law payment of the same credit. (1213)
Effect of partial subrogation.
Art. 1301. Conventional subrogation of a third
person requires the consent of the original parties The creditor to whom partial payment has been
and of the third person. (n) made by the new creditor remains a creditor to the extent
Consent of all parties required in conventional of the balance of the debt. In case of insolvency of the
subrogation. debtor, he is given a preferential right under the above
article to recover the remainder as against the new
In conventional subrogation, the consent of all the creditor.
parties is an essential requirement.
(1) the debtor. — because he becomes liable under the TITLE II: CONTRACTS
new obligation to a new creditor.
CHAPTER 1: GENERAL PROVISIONS
(2) the old or original creditor. — because his right
against the debtor is extinguished. ARTICLE 1305. A contract is the meeting of the
(3) the new creditor. — because he may dislike or minds between two persons whereby one binds
distrust the debtor. himself, with respect to the other give something
Art. 1302. It is presumed that there is legal or to render some service.
subrogation:
(1) When a creditor pays another creditor who is ➢ Is it necessary that the contract must be in
preferred, even without the debtor’s knowledge; writing?
 - No. because from the definition itself, it 3. Gratuitous – one of the
is the meeting of minds. Except sa mga parties proposes to give to
contracts na required ng batas na the other a benefit
nakasulat but generally hindi need na without any equivalent or
written to form a contract. compensation.
➢ Contract is one of the sources of obligation, e.g. commodatum
while obligation on the other hand is the • According to form
legal tie that exists after the contract is a. Formal or solemn –
formed. requires some particular
➢ There can be no contract if there is no form
obligation. But an obligation may exists e.g. donation, mortgage
without a contract • According to obligatory force
➢ All contracts are agreements. NOT all • According to the person obliged
agreements are contracts. 1. Unilateral – one which
➢ Stages of life in a contract gives rise to an obligation
1. Preparation or conception for only 1 of the parties
- Preparatory step e.g. commodatum
- Bargaining point 2. Bilateral – gives rise to
- Negotiation stage reciprocal obligation for
2. Perfection – meeting of minds bot parties.
regarding the subject matter and the e.g. sale, lease
cause of contract. • According to risks
3. Consummation – parties should 1. Commutative
perform their respective obligations, 2. Aleatory
and so the contract is put to an end. • According to liability
➢ Classification of contracts 1. Unilateral
• According to name or designation 2. Bilateral
1. Nominate – has a name • According to status
and is regulated by 1. Executory
special provisions by law 2. Executed
e.g. sale, deposit, agency, • According to dependence to another
lease contract
2. Innominate - no specific 1. Preparatory – one which
name or designation in has for its object the
law establishment of a
• According to perfection condition in law which is
1. Consensual – perfected by necessary as a
mere agreement of the parties preliminary step towards
e.g. sales the celebration of another
2. Real – requires not only the subsequent contract
consent of the parties for their e.g. partnership, agency
perfection, but also the 2. Accessory – one which
delivery of the object by 1 can exist only as a
party to the other. consequence of, or in
e.g. commodatum, deposit, relation with, another
pledge. prior contract
• According to cause e.g. pledge, mortgage
1. Onerous – each of the 3. Principal – contract is one
parties aspires to procure which can subsist
for himself a benefit independently from other
through the giving of an contracts and whose
equivalent of purpose can be fulfilled
compensation by themselves.
e.g sale e.g. sales, lease
2. Remunatory – for service • According to dependence of part of
rendered previously. contract to other parts.
1. Indivisible
 2. Divisible ARTICLE 1307. Innominate contracts shall be
regulated by the stipulations of the parties, by
ARTICLE. 1306. The contracting parties may
the provisions of Titles I & II of this book, by the
establish such stipulations, clauses, and terms &
rules governing the most analogous nominate
conditions as they may deem convenient,
contracts, and by the customs of the place.
provided they are not contrary to law, morals,
good customs, public order, or public policy. ➢ Nominate contract – has a specific name or
designation in law
GENERAL RULE: parties are free to stipulate
e.g. commodatum, lease, agency
anything, however, there are limitations such as
➢ Innominate contract – no specific name or
contracts should be legal.
designation in law
➢ Valid Contracts – meet all the legal ➢ Kinds of innominate contract
requisites for the type of agreement • Do ut des (I give that you may give)
involved. – an agreement in which A will give
*it is possible to have an agreement that one thing to B, so that B will give
meets all the criteria for a valid contract but another thing to A.
is unenforceable in a court of law. • Do ut facias (I give that you may do)
➢ Freedom to contract guaranteed – an agreement under which A will
- Any person has the liberty to enter into a give something to B, so that B may
contract so long as they are not contrary do something for A.
to law, morals, good customs, public • Facto ut des (I do that you may give)
order or policy. – an agreement under which A does
- The legislature, under the constitution, is something for B, so that B ay give
prohibited from enacting laws to something to A.
prescribe the terms of the legal contract. • Facto ut facias (I do that you may
➢ Limitations on contractual stipulations do) – an agreement under which A
- An act or a contract is illegal per se that does something for B, so that B may
by universally recognized standards is render some other service to A.
inherently or by its nature, bad, ➢ Rules governing innominate contracts
improper, immoral, or contrary to good 1. Agreement of the parties
conscience. 2. Provision of the civil code
➢ Contracts must not be contrary to law 3. Rules governing the most analogous
- Freedom of contract is restricted by law contracts
for the good of the public. 4. Custom pf place
➢ Contracts must not be contrary to morals
- It deals with norms of good and right ARTICLE 1308. The contract must bind both
conduct evolved in a community. contracting parties; its validity or compliance
➢ Contracts must not be contrary to good cannot be left to the will of one of them.
customs ➢ A contract is an agreement which gives rise
- Consists of habits and practices that have to obligations.
been followed and enforced by society ➢ A fundamental rule that no party can
or some part of it as a binding rule of renounce or violate the law of the contract
conduct. without the consent of the other.
➢ Contracts must not be contrary to public ➢ “its validity or compliance cannot be left to
order the will of one of them”
- Public order means the public weal. It ➢ Unilateral cancellation
represents the public, social, and legal - Just as nobody can be forced to enter in a
interest in private law which is contract, in the same manner once a
permanent and essential in institutions. contract is entered into, no party can
- A contract is said to be against public renounce it unilaterally or without the
order if the court finds that the contract consent of the other party.
as to the consideration of the thing to be ➢ When stipulated
done. - When the contract so stipulates that one
➢ Contracts must not be contrary to public may terminate the contract upon a
policy reasonable period is valid.
- Is just broader than public order - Judicial rescission of the contract is no
longer necessary when the contract so
stipulates that it may be revoked or
 canceled for the violation of any of its • Third person may still be affected by
terms and condition. This right of a contract when
rescission may be waived. a. In contracts containing a
stipulation in favor of a third
ARTICLE 1309. The determination of the
person.
performance may be left to a third person, whose
b. In contracts creating a real rights
decision shall not be binding until it has been
c. In contracts entered into to
made known to both contracting parties.
defraud creditors
➢ A third person may be called upon to decide d. In contracts which have been
whether or not performance has been done violated at the inducement of a
for the fulfillment of the contract. Such third person.
decision becomes binding when the ➢ Stipulation pour autrui
contracting parties have been informed of it. - Clearly and deliberately conferring a
favor upon a third person who has a right
ARTICLE 1310. the determination shall not be
to demand its fulfillment.
obligatory if it is evidently inequitable. In such
➢ 2 divisions/ classes of Stipulation pour
case, the courts shall decide what Is equitable
autrui
under the circumstance.
1. Those where the stipulation is intended
➢ When the decision cannot be arrived due to for the sole benefit of such third person
inequity, the court shall decide what is 2. Those where an obligation is due from
equitable for the parties involved. the promise to the third person and the
former seeks to discharge it by means of
ARTICLE 1311. Contracts take effect only such stipulation.
between the parties, their assign heirs, except in ➢ Stipulation pour autrui requisites
case where the rights and obligations arising 1. There must be a stipulation in favor of a
from the contract are not transmissible by their third person.
nature, or by stipulation or by provision of law. 2. The contracting parties must have clearly
The heir is not liable beyond the value of the and deliberately conferred a favor to the
property he received from the decedent. third person.
If a contract should contain stipulation in 3. The stipulation should be a part and not
favor of a third person, he may demand its the whole of the contractor ot the
fulfillment provided he communicated his contract itself.
acceptance to the obligor before its revocation. A 4. The third person must have
mere incidental benefit or interest of a person is communicated his acceptance to the
not sufficient. The contracting parties must have obligor before its revocation by the
clearly and deliberately conferred a favor upon a oblige or the original parties
third person. 5. Neither of the contracting parties bears
the legal representation or authorization
➢ General rule of the third party for otherwise the rules
• A party’s rights and obligations on agency will apply.
derived from a contract are
transmissible to the successors. ARTICLE 1312. In contracts creating real
➢ Exceptions rights, third person who come into possession of
• When the rights and obligations the object of the contract are bound thereby,
arising from the contract are not subject to the provisions of the Mortgage Law
transmissible and the Land registration laws.
a. By their nature ➢ A real right directly affects property subject
b. By stipulation to it; hence, whoever is in possession of such
c. By provision of law. property must respect that real right.
➢ Third person is not bound
• It is a general rule that third parties ARTICLE 1313. Creditors are protected in cases
are not bound by the acts of another. of contracts intended to defraud them.
• A contract cannot be binding and ➢ When a debtor enters into a contract in fraud
cannot be enforced against one who of his creditors, such as when he alienated
is not a party to it, even if he has property gratuitously without leaving
knowledge of such contract and has enough fir his creditors, the creditor may ask
acted with knowledge thereof. for rescission.
ARTICLE 1314. Any third person who induces A contract entered into the name
another to violate his contract shall be liable for of other by one who has no authority or legal
damages to the other contracting party. representation, or who has acted beyond his
powers. Shall be unenforceable, by the person on
➢ Interference of a third person
whose behalf it has been executed, before it is
- if a third person induced a party to
revoked by the other contracting parties.
violate his side of the contract, the other
party may sue the third person for ➢ Ratification necessary
damages. • A contract entered into behalf of
➢ Requisites another who is not authorized it is
• The existence of the valid contract not valid or binding on him unless he
• Knowledge by the third person of the ratifies the transaction.
existence of the contract • When ratified, he is estopped to
• Interference by the third person in question the legality of the
the contractual relation without legal transaction.
justification ➢ Requisites for a person to contract in the
name of another
ARTICLE 1315. Contracts are perfected by 1. He must be authorized
mere consent, and from that moment the parties 2. He must have by law, a right to represent
are bound not only to the fulfillment of what has him.
been expressly stipulated but also to all the 3. The contract must be subsequently
consequences which, according to their nature, RATIFIED.
may be in keeping with good faith, usage and 4. He must act within his power.
law. ➢ When not ratified, the person who entered
➢ Principle of consensuality into a contract on behalf of another without
• Perfection of a contract in general, authority becomes liable to the other party, if
the moment from which it excixts; he did not inform the latter that he does not
the juridical tie between the parties have any representation or authority.
arise from that time CHAPTER 2: ESSENTIAL REQUISITES OF
• Perfection of consensual contracts: CONTRACTS
the mere consent which is the
meeting of minds of the parties upon ARTICLE 1318. There is no contract unless the
the terms of contract following requisites concur:
• Consent may not be expressly given 1. Consent of the contracting
➢ Binding effect partners;
• Binding force of such contracts are 2. Object certain which is the
not limited to what is expressly subject matter of the
stipulated, but extends to all contract;
consequences which are the natural 3. Cause of the obligation which
effect of the contract. is established.
ARTICLE 1316. Real contracts, such as deposit, ➢ There must be at least 2 parties to every
pledge or commodatum, are not perfected until contract. The number of parties, however,
the delivery of the object of the obligation. should not be confused with the number of
persons.
➢ Classification of contracts according to ➢ A single person can represent 2 parties, and
perfection one party can be composed of 2 or more
• Consensual contract persons.
• Real contract ➢ There is no effective consent in law without
• Solemn contract the capacity to give such consent.
➢ Real contract is not perfect by mere consent. ➢ Requisites of consent in general/ classes of
The delivery of the thing is required. elements of contract:
➢ Delivery is demanded, neither arbitrary nor 1. Essential Elements – without which
formalistic. there would be no contract;
• Common – present in all contracts
ARTICLE 1317. No one may contract in the
(COC)
name of another without being authorized by the
• Special – present only in certain
latter, or unless he has by law a right to represent
contracts
him.
 e.g. delivery in real contracts ➢ The offer must be certain and seriously
• Formal Contracts – compliance with intended
the formality required by law. 1. The offer must be certain so that the
e.g. donation liability or right of the parties may be
2. Natural Elements – derived from the exactly fixed because the acceptance
nature of the contract, ordinarily must be identical to the offer.
accompany the same, although they 2. An offer made in jest, anger, or other
can be excluded by the contracting ways indicating that the same was not
parties if they desire; presumed to exist seriously intended is not valid.
in certain contracts. ➢ Acceptance – manifestation by the offeree of
3. Accidental Elements – those which only his assent to all the terms of the offer.
exist when the contracting parties ➢ Without acceptance, there can be no meeting
expressly provide for them for the of the minds between the parties.
purpose of limiting or modifying the ➢ Acceptance of the offer must be clear and
normal effects ot the contract. absolute
SECTION 1 Article 1320. An acceptance may be express or
implied.
Article 1319. Consent is manifested by the
meeting of the offer and the acceptance upon the ➢ Implied acceptance may arise from facts
thing and the cause which are to constitute the which reveal the intent to accept, such as the
contract. The offer must be certain and the consumption of the things sent to the
acceptance absolute. A qualified acceptance offeree, or the fact of immediately carrying
constitutes a counter-offer. out the contract offered.
Article 1321. The person making the offer may
Acceptance made by letter or telegram does not
bind the offerer except from the time it came to fix the time, place, and manner of acceptance, all
his knowledge. The contract, in such a case, is of which must be complied with.
presumed to have been entered into in the place ➢ The person making the offer has the right to
where the offer was made. prescribe the time, place, and manner of
acceptance.
➢ Consent (cum sentire): agreement of wills.
➢ The offer with a period lapses upon the
➢ Consent as applied to contracts: concurrence
termination of the period. Thus, to become
of the wills of the contracting parties with
effective, the acceptance must be known to
respect to the object and the cause which
the offeror before the period lapses.
shall constitute the contract.
➢ Requisites: (from vid) Article 1322. An offer made through an agent is
• There must be two or more parties; accepted from the time acceptance is
• The parties must be capable or communicated to him.
capacitated;
➢ There is an offeror, offeree, and the agent.
• There must be no vitiation of
➢ Agent is considered as the extension of the
consent;
personality of his principal.
• There must be no conflict between ➢ An intermediary who has no power to bind
what was expressly declared and either the offeror or the offeree is not an
what was really intended; agent; his situation is similar to that of a
• Intent must be declared properly. letter carrier.
➢ Requisites (from reviewer online)
• Consent must be manifested by the Article 1323. An offer becomes ineffective upon
concurrence of the offer and the the death, civil interdiction, insanity, or
acceptance (art. 1319-1326); insolvency of either party before acceptance is
• Contracting parties possess necessary conveyed.
legal capacity (art. 1327-1329); ➢ Civil interdiction – an accessory penalty in
• Consent must be intelligent, free, criminal law.
spontaneous, and real (art. 1330- ➢ The disappearance of either party or his loss
1346) of capacity before perfection prevents
➢ Offer – a proposal made by one party contractual tie from being formed.
(offerer) to another (offeree). More than an
expression of desire and hope. A promise to Article 1324. When the offerer has allowed the
act or to refrain from acting on condition. offeree a certain period to accept, the offer may
be withdrawn at any time before acceptance by defines who has no capacity, by
communicating such withdrawal, except when which it can be inferred that capacity
the option is founded upon a consideration, as is the general rule.
something paid or promised. ➢ Persons who cannot give consent.
• Unemancipated minors cannot enter
➢ Meaning of contract option; option period;
into valid contracts, and contracts
option money.
entered into by them are not binding
• Option contract – is one giving a
upon them, unless upon reaching
person for consideration a certain
majority they ratify the same.
period within which to accept the
• Insane person: there doesn't need to
offer of the offerer.
be a previous declaration of mental
• Option period – the period given
incapacity for the contract entered
within which the offeree must accept
into by a mentally defective person
the offer.
to be annulled; it is enough that the
• Option money – money paid or insanity existed at the time the
promised to be paid in consideration contract was made.
for the option.
• Being deaf-mute is not by itself
➢ Article 1324 and 1479 compared.
alone a disqualification for giving
• Art. 1324 lays down the general rule consent. The law refers to the deaf-
regarding offer and acceptance. And mute who does not know how to
has been interpreted as modified by write.
the provision of Art. 1479 which
➢ Reason for disqualification
implies specifically to a promise to
• Those persons mentioned can easily
buy or sell.
be victims of fraud as they cannot
Article 1325. Unless it appears otherwise, understand or know the import of
business advertisements of things for sale are not their actions.
definite offers, but mere invitations to make an
Article 1328. Contracts entered into during a
offer.
lucid interval are valid. Contracts agreed to in a
➢ Sales advertisement: a business state of drunkenness or during a hypnotic spell
advertisement of things for sale may or may are voidable.
not constitute a definite offer. It is not a
➢ Contracts entered into Lucid Interval.
definite offer when the subject is not
• a temporary period of insanity.
determinate.
• A contract entered into by an insane
➢ When the advertisement does not have the
person during lucid interval is valid.
necessary specifications of essential
➢ The use of intoxicants does not mean a
elements of the futures contract, it cannot
complete loss of understanding. The same
constitute of an offer. The advertiser is free
may be said on drugs. But a person, under
to reject any offer that may be made.
the influence of superabundance of alcoholic
Article 1326. Advertisements for bidders are drinks or excessive use of drugs, may have
simply invitations to make proposals, and the no capacity to contract.
advertiser is not bound to accept the highest or ➢ In hypnotism and somnambulism, the utter
lowest bidder, unless the contrary appears. want of understanding is a common element.
➢ In judicial sales, however, the highest bid Article 1329. The incapacity declared in Article
must necessarily be accepted. 1327 is subject to the modifications determined
by law, and is understood to be without prejudice
Article 1327. The following cannot give consent to special disqualifications established in the
to a contract: laws.

(1) Unemancipated minors; ➢ Incapacity declared in Article 1327 subject

to modifications.
(2) Insane or demented persons, and deaf- • Persons who entered in a contract
mutes who do not know how to write. that were enumerated in Article 1327
are voidable. However, in certain
➢ Capacity to give consent presumed. cases, it can be modified by law, and
• The civil code does not define who they can also give valid consent.
can give consent to the contract. It
 1. When necessaries such as their property, becoming
food, are sold and deliver thereby an easy prey for
to a minor or other person deceit and exploitation.
without capacity to act 2. A contract entered into by any of
the must pay a reasonable the above is valid except where it
price. is voidable by reason of
2. A minor 18 years old or incapacity under Article 1327 &
above may contract for 1328.
life, health and accident a. Insolvents until
insurance, provided the discharged
insurance is taken on hid b. Married women in cases
life and the beneficiary specified by law
appointed is the minor’s c. Husband and wife with
estate or immediate respect to sale of property
family. to each other
3. A contract is valid if d. Other persons especially
entered into through a disqualified by law.
guardian or legal
Article 1330. A contract where consent is given
representative.
through mistake, violence, intimidation, undue
4. A contract is valid where
influence, or fraud is voidable.
the minor misrepresented
his age and convincingly ➢ Requisites of consent
led the other party to • It should be intelligent or with an
believe in his legal exact notion of the matter to which it
capacity. refers
5. A contract is valid where • It should be free and voluntary
a minor between 18 and • It should be spontaneous
21 years of age ➢ Vices of consent
voluntarily pays a sum of • Error or mistake
money or delivers a • Violence of force
fungible thing in
• Intimidation or threat or duress
fulfillment of his
• Undue influence
obligation thereunder and
• Fraud or deceit
the obligee has spent or
➢ Causes vitiating consent and causes of
consumed it in good faith.
incapacity are distinguished.
➢ Other special disqualifications may be
provided by law. • The former are temporary, while the
latter are more or less permanent.
1. Under the rules of court, the
following are considered • The first refers to the contract itself,
incompetents and may be placed while the second, to the person
under guardianship; entering into the contract.
a. Persons suffering the
Article 1331. In order that mistake may
accessory penal activity
invalidate consent, it should refer to the
interdiction
substance of the thing which is the object of the
b. Hospitalized lepers contract, or to those conditions which have
c. Prodigals principally moved one or both parties to enter
d. Deaf and dumb wor are into the contract.
unable to read and write
e. Those who are of Mistake as to the identity or qualifications of one
unsound mind even of the parties will vitiate consent only when such
though they have lucid identity or qualifications have been the principal
intervals cause of the contract.
f. Those who, by reason of
age, disease, weak mind, A simple mistake of account shall give rise to its
and other similar causes, correction.
cannot without outside
➢ Ignorance and error are 2 different states of
aid, take care if
mind. Ignorance means the complete
themselves and manage
 absence of any notion about a particular ➢ Burden of proof in case of mistake or fraud.
matter. • General rule – when a person signs a
➢ Error or mistake means a wrong or false document, the presumption is that he
notion about such matter. does so with full knowledge and
➢ Nature of mistake. understanding of the contents of the
• Mistake may be of fact or law same. He is bound by all its terms.
• The mistake contemplated by law is • Exception – art. 1332 is an exception
substantial mistake of fact. The party to the general rule. When one of the
would not have given his consent parties is un
had he known of the mistake. Able to read or if the contract is in
• The mistake may be unilateral, when language not understood by him, it is
only one party is mistaken about a the party enforcing the contract who
material fact. Bilateral when both is duty- bound to show that there has
parties are in error. been no fraud or mistake and if the
Generally, a person who makes terms of contract have been fully
mistake cannot avoid liability to the explained to the former.
innocent party unless he shows that • Reason for exception – it is
he was free of fault or negligence. necessary in the Philippines where
➢ Mistake of fact to which law refers. there are still a fairly large amount of
• The substance of the thing which is illiterate, and documents are usually
the object of the contract written in English or Spanish.
• Those conditions which have
Article 1333. There is no mistake if the party
principally moved one or both parties
alleging it knew the doubt, contingency or risk
to enter in a contract
affecting the object of the contract.
• The identity or qualifications of one
of the parties provided the same was ➢ To invalidate consent, the error must be
the principal cause of the contract. excusable. It must be a real error and not one
➢ Mistakes of fact which does not vitiate that could have been avoided by the party
consent. alleging it. The error must arise from facts
• Error as regards the incidents of the unknown to him.
thing or accidental qualities thereof ➢ A mistake that is caused by manifest
• Mistake as to quantity or amount negligence cannot invalidate a juridical act.
• Error as regards to the motive of the Article 1334. Mutual error as to the legal effect
contract of an agreement when the real purpose of the
• Mistake as regard to the identity or parties is frustrated, may vitiate consent.
qualifications of a party
• Errors which could have been ➢ Meaning of mistake of law
avoided - Arises from ignorance of some provision
➢ Mistake as to qualification even when there of law, or from erroneous interpretation
is no error as to person, is a cause vitiating of its meaning.
consent, if such qualifications have been ➢ When a mistake of law vitiates consent.
principal cause of the contract, - It does not invalidate consent because
➢ Effect of mistake of account. ignorance of the law does not excuse
• Where mistake simple – it does not anyone from compliance.
avoid a contract because it does not ➢ Requisites
affect its essential requisites. 1. Error must be mutual
2. It must be as to the legal effect of an
• Where mistake gross – if the mistake
agreement
is gross it was clearly apparent to one
3. It must frustrate the real purpose of the
party, therefore, it would be
parties .
impossible to escape his notice.
Article 1332. When one of the parties is unable to Article 1335. There is violence when in order to
read, or if the contract is in a language not wrest consent, serious or irresistible force is
understood by him, and mistake or fraud is employed.
alleged, the person enforcing the contract must
show that the terms thereof have been fully There is intimidation when one of the
explained to the former. contracting parties is compelled by a reasonable
and well-grounded fear of an imminent and
grave evil upon his person or property, or upon 3. Ignorance
the person or property of his spouse, descendants 4. Financial distress of the person alleged
or ascendants, to give his consent. to have been unduly influenced.

To determine the degree of intimidation, the age, Article 1338. There is fraud when, through
sex and condition of the person shall be borne in insidious words or machinations of one of the
mind. contracting parties, the other is induced to enter
into a contract which, without them, he would
A threat to enforce one's claim through not have agreed to.
competent authority, if the claim is just or legal,
does not vitiate consent. ➢ Fraud is every kind of deception, whether in
the form of insidious machinations,
➢ Violence refers to the physical force or manipulations, concealments, or
compulsion. misrepresentations, to lead another party
➢ Intimidation refers to moral force of into error.
compulsion. ➢ Fraud produces qualified error; it induces in
➢ Requisites of violence the other party an inexact notion of facts, the
1. The physical force employed must be will of another is maliciously misled by
irresistible or of such degree that the means of false appearance of reality.
victim has no other course, under the 1. It must have induced the consent of the
circumstances, but to submit. other contracting party.
2. The force is the determining cause in 2. It must be alleged and proved by clear
giving consent of the contract. and convincing evidence.
➢ Requisites of intimidation. / Natures ➢ Kinds of fraud
1. It must produce a reasonable and well- • Dolo Causante or Causal Fraud
grounded fear of an evil -which determines or is the essential
2. The evil must be imminent and grave cause of the consent.
3. The evil must be upon his person or • Dolo Incidente or Incidental Fraud
property, or that of his spouse, -which does not have a decisive
descendants, or ascendants influence and by itself cannot cause
4. It is the reason why he enters into the thee giving of the consent, but refers
contract. only to some or particular or accident
5. The threat must be of unjust act, an of the obligation.
actionable wrong ➢ The result of fraud is error on the part of the
victim.
Article 1336. Violence or intimidation shall annul
the obligation, although it may have been Article 1339. Failure to disclose facts, when
employed by a third person who did not take there is a duty to reveal them, as when the
part in the contract. parties are bound by confidential relations,
constitutes fraud.
Article 1337. There is undue influence when a
person takes improper advantage of his power ➢ Silence or concealment does not constitute
over the will of another, depriving the latter of a fraud unless the communication should be
reasonable freedom of choice. The following made according to good faith and the usage
circumstances shall be considered: the of commerce.
confidential, family, spiritual and other relations ➢ Thus, the innocent non-disclosure of the fact
between the parties, or the fact that the person does not affect the formation of the contract
alleged to have been unduly influenced was or operate to discharge the parties from their
suffering from mental weakness, or was ignorant agreement.
or in financial distress.
Article 1340. The usual exaggerations in trade,
➢ Undue influence is any means employed when the other party had an opportunity to
upon a party which he could not resist well know the facts, are not in themselves fraudulent
and which controlled his volition and
➢ Tolerated fraud includes minimizing the
induced him to give hos consent to the
defects of the thing, exaggeration of its good
contract.
qualities, and giving it qualities that it does
➢ Circumstances to be considered.
not have. this is lawful misrepresentation
1. Confidential, family, spiritual, and other
known as a dolus bonus. This is also called
relations between the parties
lawful astuteness.
2. Mental weakness
 ➢ This misrepresentation is usually ➢ Dolo Incidente cannot be a ground for
encountered in fairs, markets, and almost all annulment.
commercial transactions. They do not give ➢ Requisites of causal fraud.
rise to an action for damages, either because 3. There must be misrepresentation or
of insignificance or stupidity of the victim is concealment of a material fact with
the cause of his loss. knowledge of its falsity.
➢ Dealer’s Talk or Trader’s Talk are 4. It must be serious.
representations that do not appear on the 5. It must have been employed by only one
face of the contract. of the contracting parties
6. It must be made in bad faith or with
Article 1341. A mere expression of an opinion
intent to deceive the other contracting
does not signify fraud, unless made by an expert
party who had no knowledge of the
and the other party has relied on the former's
fraud.
special knowledge.
Article 1345. Simulation of a contract may be
➢ Expression of opinion.
absolute or relative. The former takes place
• To constitute fraud, the when the parties do not intend to be bound at all;
misrepresentation must refer to facts, the latter, when the parties conceal their true
not opinion. agreement.
• A mere expression of an opinion
does not signify fraud. ➢ Simulation is the declaration of a fictitious
• In order that it may amount to fraud, will, deliberately made by the agreement of
the ff. requisites should be present: the parties. In order to produce, for the
1. It must be made by an expert purpose of deception, the appearance of a
2. The other contracting party has juridical act that does not exist or is different
relied on the expert’s opinion from that which was really executed.
3. The opinion turned out to be Article 1346. An absolutely simulated or
false or erroneous. fictitious contract is void. A relative simulation,
Article 1342. Misrepresentation by a third when it does not prejudice a third person and is
person does not vitiate consent, unless such not intended for any purpose contrary to law,
misrepresentation has created substantial morals, good customs, public order or public
mistake and the same is mutual. policy binds the parties to their real agreement.

➢ the general rule is that the fraud employed ➢ In absolute simulation

by a third person upon one of the parties - there is color of contract, without any
does not vitiate consent and cause the nullity substance thereof, the parties do not have
of the contract. any intention to be bound.
➢ Exception: If one of the parties is in ➢ In relative simulation
collision with the third person or knows of - The parties have an agreement which
the fraud by the third person, and he is they consent under the guise of another
benefited thereby, he may be considered as contract.
an accomplice to the fraud, and the contract e.g. a deed of sale executed to conceal
becomes voidable. donation.
➢ 2 juridical acts under relative simulation
Article 1343. Art. 1343. Misrepresentation made 1. Ostensible act – that which the parties
in good faith is not fraudulent but may constitute pretended to have executed.
error. 2. Hidden act – that which consists the true
agreement between the parties.
Art. 1344. In order that fraud may make a
contract voidable, it should be serious and SECTION 2
should not have been employed by both
contracting parties. Article 1347. All things which are not outside the
commerce of men, including future things, may
Incidental fraud only obliges the person be the object of a contract. All rights which are
employing it to pay damages. not intransmissible may also be the object of
contracts.
➢ Dolo Causante can be a ground for
annulment No contract may be entered into upon future
inheritance except in cases expressly authorized
by law.
All services which are not contrary to law, Article 1349. The object of every contract must
morals, good customs, public order or public be determinate as to its kind. The fact that the
policy may likewise be the object of a contract. quantity is not determinate shall not be an
obstacle to the existence of the contract, provided
➢ The object of the contract is its subject it is possible to determine the same, without the
matter. need of a new contract between the parties.
➢ Requisites of things as object of contract
1. Things or service must be within the ➢ The thing must have definite limits, not
commerce of men uncertain or arbitrary.
2. It must not be impossible, legally or ➢ The quantity of the object may be
physically indeterminate, so long as the right of the
3. It must be in existence or capable of creditor is not rendered illusory.
coming into existence SECTION 3
4. It must be determinate or determinable
without the need of a new contract Article 1350. In onerous contracts the cause is
between the parties. understood to be, for each contracting party, the
➢ Requisites of services as object of contract prestation or promise of a thing or service by the
1. The service must be within the other; in remuneratory ones, the service or
commerce of men benefit which is remunerated; and in contracts of
2. It must not be impossible, physically or pure beneficence, the mere liberality of the
legally benefactor.
3. It must be determinable or capable of
➢ Cause (causa) is the essential reason or
being made determinate.
purpose which the contracting parties have
➢ Right as object of contract.
in view at the time of entering into the
1. Outside the commerce of men
contract.
-clings of public ownership such as side
➢ The cause of contract is the “why of the
walk.
contract”
2. Impossible, physically, or legally
➢ In an onerous contract, the cause need not to
-prohibited drugs and all illicit objects;
be adequate or an exact equivalent in point
to kill a person
of actual value, especially in dealing with
3. Determinable things
objects which have a rapidly fluctuating
4. Future things or rights
price. There are equal considerations.
-things to be manufactured, raised or
➢ A remuneratory contract is one where a
acquired after the perfection of the
party gives something to another because of
contract such as wine.
some service or benefit given or rendered by
5. Intransmissible rights
the latter to the former, where such service
-political rights such as the right to vote.
or benefit was not due as a legal obligation.
➢ Future inheritance
The consideration of one is greater than the
- Any property or right, not in existence or
others.
capable of determination at the time of
➢ A gratuitous contract is essentially the
the contract.
agreement to give donations. The generosity
➢ General rule: it cannot be an object of
or liberality of the benefactor is the cause of
contract.
the contract. There is nothing to equate.
➢ Exception: when expressly allowed by law.
Article 1351. The particular motives of the
Article 1348. Impossible things or services
parties in entering into a contract are
cannot be the object of contracts.
different from the cause thereof.
➢ Kinds of impossibility
➢ Meaning of motive.
1. Physical – when the thing or service in
- Is the purely personal or private reason
the very nature of things cannot exist
which a party has in entering into a
a. Absolute – when the act cannot be
contract.
done in any case so that nobody can
➢ Cause distinguished from motive
perform it.
1. Cause is the immediate or direct
b. Relative – when it arises from the
reason, while motive is the remote or
special circumstances of the case
indirect reason
2. Legal – when the thing or service is
contrary to law, morals, good customs,
public order, or public policy.
 2. Cause is always known to the other • Is meant that the contract states a
contracting party while motive may valid consideration but such
be unknown statement is not true.
3. Cause is an essential element of a
Article 1354. Although the cause is not stated in
contract while motive is not
the contract, it is presumed that it exists and is
4. The illegality of the cause affects the
lawful, unless the debtor proves the contrary.
validity of a contract, while the
illegality of one’s motive does not ➢ Unless the contrary is proved, a contract is
render the contract void. presumed to have a good and sufficient
consideration. This presumption applies no
Article 1352. Contracts without cause, or with cause is stated in the contract.
unlawful cause, produce no effect whatever. The
cause is unlawful if it is contrary to law, morals, Article 1355. Except in cases specified by law,
good customs, public order or public policy. lesion or inadequacy of cause shall not invalidate
a contract, unless there has been fraud, mistake
Art. 1353. The statement of a false cause in or undue influence.
contracts shall render them void, if it should not
be proved that they were founded upon another ➢ The lesion is any damage caused by the fact
cause which is true and lawful. that the price is unjust or inadequate.
➢ In case of a lesion or inadequacy of cause,
➢ Requisites: the general rule is that the contract is not
1. It must exist subject to annulment.
2. It must be true ➢ In cases provided by law, however, such as
3. It must be licit those mentioned in Article 1381, the lesion
➢ Effect of absence of cause. is a ground for rescission of the contract.
• Absence or want of cause means that ➢ Lesion will invalidate a contract if
there is a total lack of any validation. 1. When there has been fraud, mistake, or
• Contract without cause confer no undue influence
right and produce no legal effect 2. In cases specified by law.
whatever. Thus,
1. A contract that is absolutely ➢ Gross inadequacy naturally suggests fraud
simulated or fictitious is and is evidence thereof, so that it may be
inexistent or void. sufficient to show when taken in connection
2. Where there is, in fact, no with other circumstances.
consideration the statement of
one in the contract will not
suffice to bring it. CHAPTER 3: FORM OF CONTRACTS
3. Promise to make a gift, or too
Article 1356.
render some gratuitous service in
the future. ➢ Meaning of form of contract
4. Similarly, promises made in the -refers to how contract is executed or
gratitude for good deeds of others manifested.
cannot be enforced for they
constitute only moral, not legal, ➢ Forms of contract.
consideration. 1. The contract may be oral, or in writing,
➢ Effect of failure of cause. or partly oral and partly in writing
• Absence of cause should be 2. It must be expressed when the parties
distinguished from inadequacy of expressly set forth their intentions, or
cause which, as a general rule, is not implied when their intentions may be
a ground for relief. inferred from their actions or conduct.
➢ Effect of illegality of cause.
• It implies that there is a cause but the ➢ Generally recognized that to be a written
same is illegal or unlawful. contract, all its term must be in writing.
• Contracts with unlawful cause are
also null or void. ➢ Classification of contracts according to
➢ Effect of falsity of cause form.
1. Informal or common or simple contract
or which may be entered into in
 whatever form provided all the essential parties in order that the contract may
requisites for their validity are present be registered in the proper registry to
2. Formal or solemn contract or that which make effective.
is required by law for its efficiency to be • Non-compliance with the required
in a certain specified form. form would not adversely affect the
validity not the enforceability of the
➢ Rules regarding form of contracts. contract between the parties.
1. General Rule – contracts are binding • As between the parties, the form is
and, therefore, enforceable reciprocally not indispensable since they are
by the contracting parties, whatever may allowed by law to compel the other
be form in which the contract has been to observe the proper form.
entered into, provided all the three • It is essential, however, before a
essential requisites for their validity are party may be compelled to execute
present. the required form, that the contract
2. Exceptions – the form, however, is be both valid and enforceable.
required in the ff. cases.
a. When the law requires that a contract Article 1358.
be in some form to be valid ➢ Contracts which must appear in public
b. When the law requires that a contract documents.
be in some form to be enforceable or • The contracts covered by this article
proved in a certain way are valid and enforceable.
c. When the law requires that a contract • The public document is required only
be in some form for the convenience for the convenience and greater
of the parties or for the purpose of protection of the parties and to make
affecting third persons. the contract binding against the third
persons.
➢ Form for validity of contract.
• The law does not require
1. Donation of real property – it must be in
accomplishments of certain contracts
a public instrument
in a public instrument in order to
2. Donation of personal property the value
validate the act or contract but only
of which exceeds php 5,000 – the
to ensure its efficacy, so that after the
donation and acceptance must be in
existence of the contract is admitted,
writing.
the party bound may be ordered by
3. Sale of land through an agent – the
the court.
authority of the agent must be in writing.
4. Stipulation to pay interest – it must be in CHAPTER 4: REFORMATION OF
writing; otherwise, no interest is due. INSTRUMENTS
5. Contract for partnership – if immovables Art. 1359. When, there having been a meeting of
are contributed, it must be in a public the minds of the parties to a contract, their true
instrument to which shall be attached a intention is not expressed in the instrument
signed inventory of the immovable purporting to embody the agreement, by reason
property contributed. of mistake,fraud, inequitable conduct or
accident, one parties may ask for the reformation
➢ Form enforceability of contract. of the instrument to the end that such true
• In the cases of contracts covered by intention may be expressed.
the statue of Frauds, the law require If mistake, fraud, inequitable conduct, or
that they be in writing subscribed by accidents has prevented a meeting of the minds
the party or charged by the agent. of the parties, the proper remedy is not
• If the contract is not in writing, it is reformation of the instrument but annulment of
valid (assuming all requisites are the contract.
present) but cannot be proved then it Reformation is the remedy allowed by law by
cannot be enforced by both parties. means of which a written instrument is amended or
Article 1357. rectified so as to express or conform to the real
agreement or intention of the parties when by
➢ Form for the convenience of the parties reason of mistake, fraud, inequitable conduct, or
• in certain cases, a certain form is accident, the instrument fails to express such
required for the convenience of the agreement or intention.
Reason for reformation. failure of the instrument to express their true
intention.
• Equity order the reformation of an
instrument in order that the intention of the Requisites
parties may be expressed.
3. The mistake must be of fact;
• Courts do not attempt to make another
4. Such mistake must be proved by clear and
contracts for the parties.
convincing evidence;
• The rationale of the doctrine is that it would 5. The mistake must be mutual, that is,
be unjust and inequitable to allow the common to both parties to the instrument;
enforcement of a written instrument which and
does not reflect the real meeting of the 6. The mistake must cause the failure of the
minds of the parties. instrument to express their true intention.
• Legalistic rule, the written instrument should
be the final and inflexible criterion and If the mutual mistake is of law, the remedy is
measure of the of the rights and obligation annulment.
of the parties is thus tempered, to avoid the
effects of mistake, fraud, inequitable Art. 1362. If one party was mistaken and the
conduct, or accident. other acted fraudulently or inequitably in such a
way that the instrument does not show their true
Requisites intention, the former may ask for the
reformation of the instrument.
4. There is a meeting of the minds of the
parties to the contract; Mistake on one side, fraud or inequitable
5. The written instrument does not express the conduct on the other.
true agreement or intention of the parties;
• the right to ask for reformation is only given
6. The failure to express the true intention is
to the party who was mistaken in good faith.
due to mistake, fraud, inequitable conduct,
In this case, the mistake is not mutual.
or accident;
7. The facts upon which relief by way of Art. 1363. When one party was mistaken and the
reformation of the instrument is sought are other knew or believed that the instrument did
put in issue by the pleadings; and not state their real agreement, but concealed that
8. There is clear and convincing evidence ( fact from the former, the instrument may be
which us more than mere preponderance of reformed.
evidence) of the mistake, fraud, inequitable
conduct, or accident. Concealment of mistake by the other party.

Reformation is not a remedy for contracts • The remedy of reformation may be availed
without writing or without defects or consent. It of the party who acted in good faith. The
refers to the written instrument embodying the concealment mistake of the other party
contract. constitutes fraud.
Art. 1364. When through the ignorance, lack of
Reformation vs Annulment
skill, negligence or bad faith on the part of the
In Reformation, a contract exists due to meeting of person drafting the instrument or of the clerk or
minds, but the written instrument may not express typist, the instrument does not express the true
true intentions due to mistake, fraud, or accident. intention of the parties, the courts may order
that the instrument be reformed.
Art. 1360. The principles of the general law on Ignorance, etc. on the part of third person.
the reformation of instruments are hereby
• Neither party is responsible for the mistake.
adopted insofar as they are not in conflict with
Hence, either party may ask for reformation.
the provision of this Code.
• In case of conflict, the former prevails. The Art. 1365. If two parties agree upon the
latter will have only suppletory effect. mortgage or pledge of real or personal property,
but the instrument states that the property is
Art. 1361. When a mutual mistake of the parties sold absolutely or with a right of repurchase,
causes the failure of the instrument to disclose reformation of the instrument is proper.
their real agreement, said instrument may be
Mortgage or pledge as a sale.
reformed.
• The reformation of the instrument is proper;
Mutual mistake as basis for reformation.
otherwise, the true intention of the parties
Mutual mistake is mistake of fact that is common to would be frustrated.
both parties of the instrument which causes the
 • Such true intention must prevail for the Art. 1368. Reformation may be ordered at the
contract must be complied with in good instance of either party or his successors in
faith. interest, if the mistake was mutual; otherwise,
upon petition of the injured party, or his heirs
Art. 1366. There shall be no reformation in the and assigns.
following cases:
Party entitled to reformation
2. Simple donations inter vivos wherein no
condition is imposed; 1. Either of the parties, if the mistake is mutual
3. Wills; under Articles 1361, 1364, 1365;
4. When the real agreement is void. 2. In all other cases, the injured party, under
Articles 1362, 1363, 1364 & 1365; and
Art. 1367. When one of the parties has brought 3. The heirs or successors in interest, in lieu of
an action to enforce the instrument, he cannot the party entitled.
subsequently ask for its reformation.
- The burden of proof is upon the party who insists
Cases when reformation is not allowed. that the contract should be reformed because of its
1.) Simple donations inter vivos wherein no failure to express the true intention of the parties.
condition is imposed. - The presumption is that an instrument sets out the
➢ Donation is a voluntary act where a person true agreement of the parties
gives something or right to another, often - The effect of reformation is retroactive from the
referred to as an inter vivos donation, for time of the execution of the original contract.
their lifetime.
-When it take effects after the death of the Art. 1369. The procedure for the reformation of
donor, it is called donation mortis causa. instruments shall be governed by rules of court
to be promulgated by the Supreme Court.
c. Donation is gratuitous, with no just cause for
complaint. Donors can request reformation Procedure for reformation.
of deeds, but not obligated to correct • The Rules of Court governs procedure.
mistakes or defects. However, the Supreme Court has not yet
d. If the donation is conditional or onerous, the promulgated the procedure for the
deed can be reformed to express the true
reformation of instruments.
conditions imposed by the donor or the real
intentions of the parties involved. Additional details:
2.) Wills.
Ultimate facts to be alleged and proved in action
• it is an act whereby a person is permitted for reformation.
with the formalities prescribed by law to
control a certain degree the disposition of (1) To reform an instrument, the complaint must
his estate, to take effect after his death. clearly state the true agreement or intention of the
• Same with donation, the making of a will is parties, and the remedy should not create a new
a strictly personal and a free act; hence, agreement.
upon the death of the testator, the right to (2) The party seeking contract reform must prove
reformation is lost. the contract does not accurately reflect the parties'
true intentions, as it only allows for reform when
• A will may be revoked by the testator any
the agreement is oppressive.
time before his death.
3.) When the real agreement is void.
Admissibility of parol evidence to show true
• if the real agreement is void, there is nothing intent.
to reform. Reformation would be useless As a general rule, the court may not allow the
because the real agreement being void, it is introduction of parol evidence to show the real
unenforceable. agreement of the parties. Whatever is not found in
the text of the agreement should thus be construed
4.) When one party has brought an action to
as excluded, waived, or abandoned.
enforce the instrument.
The Rules of Court provides:
• Art. 1367 is based on estoppel (Art. 1431) or Written agreements contain all agreed terms, and
the ratification. there can be no other evidence of these terms
• When a party brings an action to enforce the between parties and their successors in interest.
contract, he admits its validity and that it However, a party may present evidence to modify,
expresses the true intention of the parties. explain or add to the terms of the written agreement
• The bringing of the action is thus if he puts in issue in his pleading:
inconsistent with reformation.
 (a) An intrinsic ambiguity, mistake or imperfection If the words appear to be contrary to the
in the written agreement; evident intention of the parties, the latter shall
prevail over the former.(1281)
(b) The failure of the written agreement to express
the true intent and agreement of the parties thereto; Meaning of interpretation of contracts.
(c) The validity of the written agreement; or Interpretation of a contract involves determining the
(d) The existence of other terms agreed to by the meaning of terms used by parties, often determined
parties or their successors in interest after the by courts in specific cases, and is a legal question.
execution of the written agreement. Interpretation of a contract involves a question
of law since a contract is in the nature of law as
What constitutes inequitable conduct. between the parties and their successors in interest.
Inequitable conduct, to warrant relief by way of Literal meaning controls when language clear.
reformation, has been held to consist in doing acts,
or omitting to do acts, which the court finds to be Contracts are private laws of parties, binding them
unconscionable. Examples are: if their terms are clear and unequivocal, based on
their intention expressed in the language used.
(1) Taking advantage by one party of the other
party’s illiteracy; Weight of evidence to justify disregard of
(2) abusing confi dence; contracts.
(3) concealing what of right should have been (1) Terms presumed to embody will of parties. —
disclosed; Contracting parties must be aware of the contract's
(4) drafting or having drafted an instrument contrary contents and its terms, and cannot deny it's
to the previous understanding of the parties and expression, as this could create a precedent and
making the other party to believe the instrument destroy the value of all contracts.
other than it actually is; or
(5) in taking advantage of a mistake of the other (2) Clear and convincing evidence required to
party, known or suspected at the time of the impugn a contract. — Simple, clear contract terms
execution of the instrument. (see 53 C.J. 950-952.) and legal execution require more evidence than a
preponderance of evidence, as seen in Mendozona
Art. 1602. The contract shall be presumed to be vs. Phil. Sugar Estates Dev. Co. and De Garay.
an equitable mortgage, in any of the following
cases:
(1) When the price of a sale with right to repurchase
is unusually inadequate; Application and interpretation of terms of
(2) When the vendor remains in possession as lessee contracts by courts.
or otherwise;
(3) When upon or after the expiration of the right to 1. First duty of court. — It is error on the part
repurchase another instrument extending the period of the court to make room for interpretation
of redemption or granting a new period is executed; or construction of the provisions of a
(4) When the purchaser retains for himself a part of contract when the case plainly calls for
the purchase price; application thereof.
(5) When the vendor binds himself to pay the taxes
on the thing sold; 2. Limits to interpretation. — Courts are not
(6) In any other case, where it may be fairly inferred permitted to make a new contract for the
that the real intention of the parties is that the parties in ascertaining their intention or
transaction shall secure the payment of a debt or the ignore those already made by them simply to
performance of any other obligation. avoid seeming hardships.
The vendee's benefit, such as money or fruits, is 3. (3) Equity as ground for relief against a bad
considered interest and subject to usury laws, as per transaction. — Equity cannot remedy bad
Article 1604 and Article 1602, even in absolute transactions, and a contract cannot be
sales contracts. interpreted differently than its terms. If a
party believes the contract doesn't express
CHAPTER 5: INTERPRETATION OF their true intentions, they can request
CONTRACTS reformation under the Civil Code.

Art. 1370. If the terms of a contract are clear and 4. Submission of disputes to arbitration. — The
leave no doubt upon the intention of the Supreme Court encourages arbitration as an
contracting parties, the literal meaning of its affordable, speedy, and amicable dispute
stipulations shall control. resolution method, and courts should
liberally interpret arbitration clauses in
accordance with this policy.
 Art. 1375. Words which may have different
Evident intention of parties prevails over terms significations shall be understood in that which is
of contract. most in keeping with the nature and object of the
contract.(1286)
In contract interpretation, the intention of the parties
should always prevail over the words and clauses of Interpretation of words with different
the written contract, as their will has legal force. significations.
If a word is susceptible of two or more
Art. 1371. In order to judge the intention of the meanings, it is to be understood in that sense which
contracting parties, their contemporaneous and is most in keeping with the nature and object of the
subsequent acts shall be principally contract in line with the cardinal rule that the
considered.(1282) intention of the parties must prevail.
Contemporaneous and subsequent acts relevant Art. 1376. The usage or custom of the place shall
in the determination of intention. be borne in mind in the interpretation of the
ambiguities of a contract, and shall fill the
Courts can interpret contracts based on omission of stipulations which are ordinarily
contemporaneous and subsequent conduct, as acts in established.(1287)
partial performance, to determine meaning and
intention, and consider antecedent circumstances Resort to usage or custom as aid in
when unclear from contract words. interpretation.
Courts do not consider ambiguous terms due to
Art. 1372. However general the terms of a customs of contract entry, as evidence must be
contract may be, they shall not be understood to proven, and usage cannot alter contract terms.
comprehend things that are distinct and cases
that are different from those upon which the
parties intended to agree.(1283) Allegation and proof of customs and usages.

Special intent prevails over a general intent. 1. Where custom or usage general in character.
— The rule states that if a custom or usage
Contracts with inconsistent general and special is general and presumed to be known by the
provisions prioritize the latter when they cannot parties, it can be proven without specific
stand together, as parties' reference to a particular pleads.
matter indicates their intent. 2. Where custom or usage local in character. —
Local customs or usage should be pleaded in
pleadings, and a special business custom,
Art. 1373. If some stipulation of any contract like discounting notes, cannot be proven to
should admit of several meanings, it shall be explain contract terms unless it exists.
understood as bearing that import which is most
adequate to render it effectual.(1284)
Art. 1377. The interpretation of obscure words
Interpretation of stipulation with several or stipulations in a contract shall not favor the
meanings. party who cause the obscurity. (1288)
Article 1373 states that if an agreement has multiple Interpretation of obscure words.
meanings, one interpretation renders it valid or
effective, and the other makes it illegal or In case of doubt or ambiguity in a written
meaningless, it should be given that interpretation. agreement, it should be interpreted against the
drafting party or given a favorable interpretation for
the other party who incurred an obligation, as the
Art. 1374. The various stipulations of a contract obscurity often stems from ulterior motives.
shall be interpreted together, attributing to the
doubtful ones that sense which may result from ➢ Contracts of adhesion.
all of them taken jointly.(1285) 1. Contracts of insurance. — Article 1377
Interpretation of various stipulations of a applies to insurance contracts that favor the insured
contract. and strongly oppose the insurer, resolving
ambiguities against the latter.
A contract must be interpreted as a whole and 2. Contracts in bills of lading. — The rules
the intention of the parties is to be gathered from the apply to contracts in bills of lading, including plane
entire instrument and not from particular words, tickets, which are considered valid and binding on
phrases or clauses. All provisions should, if passengers, regardless of their knowledge or assent
possible, be so interpreted as to harmonize with to the conditions.
each other. 3. Contracts between a lawyer and his client. —
The rule applies to professional services contracts
between lawyers and clients due to the inequality Art. 1379. The principles of interpretation stated
between attorneys with legal knowledge and clients in Rule 123 of the Rules of Court shall likewise
with limited understanding of the law. be observed in the construction of contracts. (n)
4. Other contracts. — The rule likewise applies
to all other contracts where their provisions have Principles of interpretation in the Rules of Court
been drafted only by one party, usually a applicable.
corporation. (1) The language of a writing shall have the legal
meaning it bears in the place of execution, unless
5.Validity. — Contracts of adhesion, where a the parties intended otherwise.
corporation imposes a contract on another, allowing
only signing and negotiation, are not entirely (2) An instrument with several provisions or
prohibited. particulars shall be construed so as to give effect to
all.
(3) In case of conflict between a general and a
Art. 1378. When it is absolutely impossible to particular provision, the latter shall prevail; so a
settle doubts by the rules established in the particular intent will control a general one that is
preceding articles, and the doubts refer to inconsistent with it.
incidental circumstances of a gratuitous
contract, the least transmission of rights and (4) The circumstances under which the instrument
interest shall prevail. If the contract is onerous, was made, including the situation of the subject
the doubt shall be settled in favor of the greatest thereof and of the parties to it, may be considered in
reciprocity of interests. its interpretation.

If the doubts are cast upon the principal (5) Terms are presumed to have been used in their
object of the contract in such a way that it ordinary and generally accepted meaning unless
cannot be known what may have been the intended to have been used in a different sense.
intention or will of the parties, the contract shall
be null and void. (1289) (6) In case of conflict, the written words prevail
Rules in case doubts are impossible to settle. over the printed form.
(1) Gratuitous contract. — If the doubts refer to (7) Experts and interpreters may be asked to declare
incidental circumstances of a gratuitous contract the characters or the meaning of the language when
(see Art. 1350.), such interpretation should be made such characters are difficult to decipher or the
which would result in the least transmission of language is not understood by the court.
rights and interests.
8) Of two constructions, that sense is to prevail
(2) Onerous contract. — If the contract in question against the party in which he understood it or which
is onerous (see Art. 1350.), the doubts should be is most favorable to the party in whose favor the
resolved in favor of the greatest reciprocity of provision was made.
interests.
(9) Of two constructions, one in favor and the other
(3) Principal object of contract. — If the doubt against natural right, the former is to be adopted.
refers to the principal object of the contract and
such doubt cannot be resolved, thereby leaving the (10) Usage may be the basis to determine the true
intention of the parties unknown, the contract shall character of an instrument.
be null and void. CHAPTER 6: RECISSIBLE CONTRACTS
Rule where doubt involves a contract of sale. Art. 1380. Contracts validly agreed upon may be
(1) Greatest reciprocity of interests. — If there is rescinded in the cases established by law (1290)
doubt for example, in a contract of sale, which is
essentially onerous, the same shall be settled in Meaning of rescissible contracts.
favor of the greatest reciprocity of interests.
Rescissible contracts are those validly agreed
(2) Least transmission of rights. — If the doubt is upon because all the essential elements exist and,
whether the transaction is one of sale or another therefore, legally effective, but in the cases
contract, the one entered into should be deemed that established by law, the remedy of rescission is
which would effect “the least transmission of granted in the interest of equity.
rights".
Binding force of rescissible contracts.
(3) An equitable mortgage. — Article 1603 states
• They are valid and enforceable although
that a contract with a right to repurchase is
subject to rescission by the court when there
considered an equitable mortgage in case of doubt
is damage or prejudice to one of the parties
due to numerous injustices and legal violations.
or to a third person.
 • In a rescissible contract, there is no defect at must be approved by the court.
all but by reason of some external facts, its
enforcement would cause injustice.
(2) Contracts agreed upon in representation of
Meaning of rescission. absentees. — An absentee is someone who
disappears without an agent, and a court can appoint
Rescission is a legal remedy for redressing damages a representative. To be eligible for rescission, the
caused by a valid contract, allowing parties to absentee must suffer lesion by more than one-fourth
restore things to their original condition before the of the property's value, which cannot be done if the
contract's celebration. contract is approved by the court.

Requisites of rescission. (3) Contracts undertaken in fraud of creditors.

(1) The contract must be validly agreed upon Fraud of creditors can be a valid ground for
(2) There must be lesion or pecuniary prejudice or rescission, which can be obtained by a third person
damage to one of the parties or to a third person without the creditors' knowledge.
(a) There must be an existing credit prior to the
(3) The rescission must be based upon a case contract to be rescinded, although it is not yet due or
especially provided by law. demandable later;
(4) There must be no other legal remedy to obtain (b) The subsequent contract made by the debtor
reparation for the damage conveys a patrimonial benefit to a third person
(5) The party asking for rescission must be able to (c) There must be fraud on the part of the debtor
return what he is obliged to restore by reason of the which may be presumed or proved (see Art.
contract
(d) The creditor has no other legal remedy to
(6) The object of the contract must not legally be in satisfy his claim, he cannot recover his credit in any
the possession of third persons who did not act in other manner, it not being required that the debtor
bad faith be insolvent.
7) The period for filing the action for rescission (4) Contracts which refer to things under
must not have prescribed. litigation. The remedy aims to secure credit
payment from a third party against a party seeking
Art. 1381. The following contracts are
rescinded contract, and the plaintiff has the right to
rescissible:
file a rescission action.
(1) Those which are entered into by guardians
whenever the wards whom they represent suffer
5) Other instances. — Some of the specific
lesion by more than onefourth of the value of the
contracts subject to rescission are as follows:
things which are the object thereof;
(2) Those agreed upon in representation of The text discusses legal provisions for rescinding
absentees, if the latter suffer the lesion stated in partitions due to lesion, gross inadequacy of price,
the preceding number; and rescission in non-compliance with obligations,
and allows rescission in certain cases.
(3) Those undertaken in fraud of creditors when
the latter cannot in any other manner collect the
claims due them; (6) Violation of right of first refusal. The Supreme
Court has ruled in several cases that a deed of sale
(4) Those which refer to things under litigation if
violated a right of first refusal, allowing
they have been entered into by the defendant
rescissibility of a contract entered into in violation
without the knowledge and approval of the
of this right under Articles 1380 to 1381(3).
litigants or of competent judicial authority;
(5) All other contracts specially declared by law
to be subject to rescission. (1291a) Art. 1382. Payments made in a state of
insolvency for obligations to whose fulfillment
Cases of rescissible contracts.
the debtor could not be compelled at the time
The subsidiary action for rescission (Art. 1383.)
they were effected, are also rescissible. (1292)
is limited to the rescissible contracts under
Article 1381. Payments made in a state of insolvency.
(1) Contracts entered into in behalf of wards. —
A ward is a person under guardianship by reason of The article discusses payments made by a debtor
some incapacity. who is insolvent if they lack sufficient properties to
meet their obligations. These payments are
As a rule, the powers of the guardian with respect to rescissible and include not only demandable
the property of the ward are limited to mere acts of obligations with a suspensive period, but also
administration. Contracts involving real property natural obligations and prescribed ones.
Art. 1383. The action for rescission is subsidiary; who received the contract has enjoyed its fruits
it cannot be instituted except when the party while the other has used the price.
suffering damage has no other legal means to (2) Abrogation of contract. — When a
obtain reparation for the same. (1294) rescission is granted, it has the effect of abrogating
the contract in all respects. The party seeking
Nature of action for rescission. rescission cannot ask performance as to part and
Both Ong vs. Court of Appeals (1999) ruled that rescission as to remainder
while both contracts require valid, validly entered (3) Obligation of third person to restore. The
contracts and proper mutual institution, they are not clause "he who demands rescission" applies to a
entirely identical. third person, but not if they have nothing to restore.
(1) Rescission under article 1383 is not a If a contract is rescinded due to fraud, the plaintiff-
principal remedy. creditor has no obligation to return anything.
It is only subsidiary and can be availed of only When rescission not allowed.
if the injured party proves that he has no other legal Art. 1386.Rescission referred to in Nos. 1 and 2
means aside from rescinding the contract to obtain of Article 1381 shall not take place with respect
satisfaction for his claim or redress for the damage to contracts approved by the courts. (1296a)
caused even if the contract is covered by Article
1381. Contracts approved by the courts.
(2) If the damage is repaired, as in the case of Court approval of a contract on behalf of a ward or
lesion suffered by the ward or absentee, rescission absentee prevents rescission, as it presumes the
cannot take place. court is acting in the ward's best interests.
(3) A rescissible contract may be assailed directly
only by a proper action in court, and not indirectly Art. 1387. All contracts by virtue of which the
or collaterally by way of defense. An independent debtor alienates property by gratuitous title are
action is necessary to prove that a contract is presumed to have been entered into in fraud of
rescissible. creditors, when the donor did not reserve
sufficient property to pay all debts contracted
Art. 1384. Rescission shall be only to the extent before the donation.
necessary to cover the damages caused. (n)
Alienations by onerous title are also
Extent of rescission. presumed fraudulent when made by persons
The entire contract need not be set aside by against whom some judgment has been rendered
rescission if the damage can be repaired or covered in any instance or some writ of attachment has
by partial rescission. The rescission shall only be to been issued. The decision or attachment need not
the extent of the creditor’s unsatisfi ed credit. The refer to the property alienated, and need not
policy of the law is to preserve or respect the have been obtained by the party seeking the
contract, not to extinguish it. rescission.
In addition to these presumptions, the
Art. 1385. Rescission creates the obligation to design to defraud creditors may be proved in any
return the things which were the object of the other manner recognized by the law of evidence.
contract, together with their fruits, and the price (1297a)
with its interest; consequently, it can be carried When alienation presumed in fraud of creditors.
out only when he who demands rescission can
return whatever he may be obliged to restore. Fraud, a criminal offense, is not presumed and must
be proven through clear and overwhelming
Neither shall rescission take place when the evidence, as stated in Bibis vs. Provincial Sheriff of
things which are the object of the contract are Camarines Norte.
legally in the possession of third persons who did
not act in bad faith.
(1) Instances not exclusive. Article 1387 establishes
In this case, indemnity for damages may be fraud presumptions in debtor alienation cases, but
demanded from the person causing the loss. these are not exclusive and can be proven using
(1295) other evidence methods, and can be rebutted with
Effect of rescission. contrary evidence.

(1) Obligation of mutual restitution. —.

Rescission is a legal process where a contract is (2) Presumption not applicable in the absence of
declared rescinded, requiring parties to return the transfer. Article 1387's presumption applies only
contract's object and its fruits, along with the price when there has been an alienation or transfer,
with legal interest. The purpose is to restore the shifting the burden to the alienator to prove the
parties to their original situation, assuming the party transfer was not fraudulent.
 accentuated by the execution between them in
(3) Only actual creditors can ask for rescission. — addition to the two instruments in question, of two
The Civil Code allows only actual creditors to secret documents known as counter-receipt (contra
request the rescission of their debtors' conveyance recibo).
in favor of strangers.
(12) Where the seller and the buyer are half-
(4) Vendor, an indispensable party in action for brothers and the sale was executed and registered
rescission of sale. — Vendor's presence in court is about one month after a decision was rendered
required for determining rescission of sale under against the seller.
Article 1387, as any decision on the action or claim
for damage affects them. (13) Where it appears, among others, that:
(a) the sale was in English, the alleged vendor being
Circumstances denominated as badges of fraud. illiterate;
Fraud can be proven through circumstantial (b) his wife did not join the sale;
evidence, as direct evidence is rare due to
underhanded and hidden deceit, deception, and (c) the price was inadequate;
cunning. (d) the notarization of the sale was made on the day
following the alleged thumb marking of the
The following are some of the circumstances document;
attending sales which have been denominated by the (e) the boundaries of the lot sold were not stated;
courts as “badges of fraud:’’ and
(f) the sale was registered more than fi ve (5) years
(1) The fact that the consideration of the later.
conveyance is fictitious or inadequate;
Conveyance of property by an insolvent debtor.
(2) A transfer made by a debtor after suit has been (1) When valid. Insolvent debtors can dispose of
begun and while it is pending against him. property in good faith, but cannot alienate it without
(3) A sale upon credit by an insolvent debtor; full and fair consideration, and any transfer
contemplating insolvency is invalid under the same
circumstances as if the debtor is actually insolvent.
(4) The transfer of all or nearly all of his property
by a debtor, especially when he is insolvent or
greatly embarrassed financially; (2) Disparity between consideration and real value.
Gross disparity between consideration and property
value is considered fraud, and equity will subject
(5) Evidence of large indebtedness or complete property to creditors' claims if real value exceeds
insolvency; consideration.

(6) The fact that the transfer is made between father (a) If the disparity in consideration is intentional to
and son, when there are present some or any of the defraud creditors, the transaction is void, and gross
above circumstances; disparity may justify fraud in certain circumstances.

(7) The failure of the vendee to take exclusive (b) Courts do not favor a high-scale valuation of
possession of the property sold goods sold and received, but they ensure a
reasonable and fair proportion between the two in
(8) At the time of the conveyance, the vendee was all circumstances.
living with the vendor and the former knew that
there was a judgment against the latter;
Art. 1388. Whoever acquires in bad faith the
things alienated in fraud of creditors, shall
(9) It was known to the vendee that the vendor had indemnify the latter for damages suffered by
no properties other than that sold to him them on account of the alienation, whenever, due
to any cause, it should be impossible for him to
(10) The certificate of title covering the lands sold return them.
remained in the name of the vendor who declared
them for taxation purposes and paid the taxes, a If there are two or more alienations, the fi
duty assumed by his heirs after his death rst acquirer shall be liable first, and so on
successively. (1298a)
(11) Where the mortgagor-vendor and mortgagee-
vendee are bosom friends with long history of trust Liability of purchaser in bad faith.
and intimacy and the element of trust is further
The purchaser in bad faith who acquired a contract (2) his heirs, assigns, or successors in interest; or
through fraud must return it if rescinded, indemnify
the original purchaser, and be liable for multiple (3) the creditors of the above entitled to
alienations. subrogation (accion subrogatoria). (see Art. 1177.)
Right of ordinary creditors to sue for rescission.

Meaning of bad faith. Ordinary creditors cannot sue for rescission of a real
property sale contract due to lack of material
Bad faith involves dishonest intent, moral obliquity, interest, as their right against the seller is personal.
conscious wrongdoing, and breach of a known duty,
resembling fraud due to motive, interest, or ill-will.
Right of compulsory heir to bring action.
Meaning of purchaser in good faith. Compulsory heirs have the right to rescind
A purchaser in good faith buys another's property fraudulent contracts made by their father, similar to
without prior notice of any other person's rights or a creditor's right, as they inherit the legitime from
interest, paying a fair price at the time of purchase. their father.

When action to rescind or accion pauliana

Art. 1389.The action to claim rescission must be accrues.
commenced within four years. Article 1383 states that an action to rescind or an
accion pauliana must be taken after all other legal
For persons under guardianship and for remedies have been exhausted and proven futile.
absentees, the period of four years shall not
begin until the termination of the former’s
incapacity, or until the domicile of the latter is ➢ Requisites
known. (1299)
Period for filing action for rescission. a) That the plaintiff asking for rescission has a
credit prior to the alienation, although demandable
As a general rule, the action to rescind later;
contracts must be commenced within four (4) years (b) That the debtor has made a subsequent contract
from the date the contract was entered into. The conveying a patrimonial benefit to a third person;
exceptions are: (c) That the creditor has no other legal remedy to
(1) For persons under guardianship, the period shall satisfy his claim, but would benefi t by rescission of
begin from the termination of incapacity; and the conveyance to the third person;
(d) That the act being impugned is fraudulent; and
(2) For absentees, from the time the domicile is
(e) That the third person who received the property
known.Laches bars an action for rescission or
conveyed, if by onerous title, has been an
annulment of a contract. (see Art. 1391.)
accomplice in the fraud.
Computation of the four-year period.
Article 1389 does not specify the date for counting
➢ Action of last resort. — An accion pauliana
the four-year period, whether it's from contract
accrues only when the creditor discovers
celebration, creditor knowledge, or accrual of cause
that he has no other legal remedy for the
of action.
satisfaction of his claim against the debtor
other than an accion pauliana. It is an action
(1) The Code Commission suggests counting the of last resort.
period from the creditor's knowledge of the
contract, as it is a matter of justice and implied from ➢ Exhaustion of debtor’s property. —
paragraph 2, as the absenceee's whereabouts are Indeed, an accion pauliana presupposes a
unknown. judgement and the issuance by the trial court
(2) It is submitted that where the action for of a writ of execution for the satisfaction of
rescission is based on fraud the period must be the judgement and the failure of the sheriff
counted from the time of the celebration of the to enforce and satisfy the judgement of the
contract. court.
(3) The Supreme Court ruled that a buyer must
initiate a rescission action within four years of a ➢ Priority in time of credit. — The date of
judgment's final and executory entry, as the the decision of the trial court against the
prescriptive period begins from the moment the debtor is immaterial. What is important is
cause of action accrues, as per Article 1150. that the credit of the plaintiff antedates that
of the fraudulent alienation by the debtor of
Persons entitled to bring the action for rescission. his property.
The action for rescission may be brought by:
(1) the injured party or the defrauded creditor;
 CHAPTER 7 : VOIDABLE CONTRACTS ➢ Requisites of ratification
1. For implied ratification
Article 1390.
a. There must be knowledge of the
➢ Voidable or annullable contracts are those reason which renders the contract
that possess all essential requisites of the voidable
valid contract but one of the parties is b. Such reason must have ceased
incapable of giving consent or is vitiated by c. The injured party must have
mistake, violence, intimidation, undue executed an act which necessarily
influence, or fraud. implies attention to waive his right
➢ They are valid and binding between the 2. For express ratification
parties unless annulled by a proper action • It is the same as implied
in court by the injured party. Once ratified, ratification except that the
they can longer be annulled. former is effected expressly.
➢ Kinds of voidable contract
Article 1394.
1. Legal incapacity to give consent, where
one of the parties is incapable of giving ➢ Who may ratify:
consent to the contract. 1. A contract entered into by incapacitated
2. Violation of consent, where the person
vitiation is done by mistake, violence, a. The guardian
intimidation, undue influence, or fraud. b. The injured party himself provided
➢ Annulment is a remedy provided by law for he is already incapacitated
the declaration of efficiency of a contract 2. In case the contract is voidable on the
based on a defect or vice in the consent of ground of a mistake, ratification can be
one of the contracting parties in order to made by the party whose consent is
restore their original position. vitiated.
➢ Guardians have the power to contract on
Article 1391.
their behalf. They may also ratify contracts
➢ The 4 year period for bringing an action for entered into by their wards.
annulment of a voidable contract is
Article 1395.
reckoned:
1. In cases of intimidation, violence, or ➢ Ratification is a unilateral act by which a
undue influence from the time of party waives the defect in his consent.
intimidation.
Article 1396.
2. In case of mistake or fraud, from the
time it is discovered. ➢ Ratification cleanses the contract of all its
3. In the case of contracts entered into by defects from the moment it was executed.
minors or incapacitated persons, from The effect of ratification is to make contract
the time the guardianship ceases. valid from its inception subject to the prior
rights of the third person.
Article 1392.
Article1397.
➢ Ratification means that one voluntarily
adopts or approves some defective or ➢ Two different requisites are required to
unauthorized act or contract which, without confer the necessary capacity to bring an
his subsequent approval would not be action for annulment of a contract
binding on him. 1. The plaintiff must have an interest in the
➢ Ratification cleanses the defects from the contract
movement from the moment it was 2. The victim and not the party responsible
constituted. for the defect is the person who must
assert the same.
Article 1393.
➢ Strangers are without the right or
➢ Kinds of ratification personality to bring the action for they are
1. Express – when it is manifested in not obliged by the contract unless they
words or in writing show detriment that would positively result
2. Implied or tacit - it makes it diverse to them that they had no intervention.
forms, such as silence; by acts showing ➢ The guilty party, including his ancestors
adoption of contract; or acceptance of cannot ask for annulment. This is sustained
retention of benefits.
 by the principle that he who comes to court ➢ When a contract is annulled, a reciprocal
must come with clean hands. obligation of restitution is created. The
annulment decree can be seen as a
Article 1398.
prerequisite for the fulfillment of obligations
➢ General Rule by the other party.
• If the contract is annulled the ➢ There will be no annulment if the party
parties must restore to each other cannot restore what he is bound to restore.
a. The subject matter of the
contract with its fruits CHAPTER 8
b. The price thereof with legal
interest. UNENFORCEABLE CONTRACTS
• In personal obligation, when the ART. 1403. The following contracts are unenforceable
service is rendered, the value unless they are ratified:
thereof is the basis for damages
recoverable from the party 1. Those entered into the name of another person
benefited by the service. by one who has been given no authority or
legal representation, or who has acted beyond
Article 1399. his powers;
2. Those that do not comply with the statute of
➢ The provision is an exception to the general Frauds as set forth in this number.
rule of mutual restitution. The incapacitated
person is obliged to make restitution only to
the extent that the thing received by him In the following cases, an agreement hereafter made
benefits him. If he did not benefit, he is not shall be unenforceable by action, unless the same, or some
obliged to restore what he had received but note or memorandum thereof, be in writing, subscribed by
the other party is still bound to return what the party charged, or by his agent; evidence, thereof, of
he had received whether or not he benefited the agreement cannot be received without the writing, or
from it. secondary evidence of its contents:

Article 1400. a. Agreement that by its terms is not to be performed

within a year from the making thereof;
➢ If the thing to be returned is lost without the b. A special promise to answer for the debt, default,
fault of the person obliged to make or miscarriage of oanother;
restitution, there is no more obligation to c. Agreement made in consideration of marriage,
return such thing. other than a mutual promise to marry;
d. Agreement for the sale of goods, chattels, or
➢ If it is lost through his fault, his obligation is
things in action, at a price not less than five
not extinguished but is converted into an
hundred pesos;
indemnity for damages consisting of the e. An agreement for the leasing for a longer period
value of the thing that was lost. than one year, or for the sale of real property of
Article 1401. an interest therein;
f. A representation as to the credit of a third person
➢ If the person who has a right to institute an 3. Those where both parties are incapable of giving
action for annulment, will not be able to consent to a contract.
restore the thing which he may obliged to Unenforceable Contracts
return in case the contract is annulled
because the thing is lost through his fraud or • Cannot be enforced or given effect in a court of
fault, his right to have the contract annulled law or sued upon by reason of certain defects
extinguishes. provided by law until and unless they are ratified
according to law.
➢ The right of action is based upon the
incapacity of any one of the contracting Binding Force of Unenforceable Contract
parties.
• Valid but unenforceable in court unless they are
The action for annulment shall extinguish cured or ratified. Once ratified, these contracts
only if the loss is through the fault or fraud of may then be enforceable.
the plaintiff. Kinds of Unenforceable contracts
Under Article 1403
Article 1402. 1. Those entered into in the name of another by one
without, or acting in excess of, authority;
2. Do not comply with the statute of frauds;
 3. Those where both parties are incapable of giving. 3. Agreement in consideration of marriage other
than mutual promise to marry.
Unauthorized Contracts
4. Agreement for sale of goods, etc. at price not
• Those entered into in the name of another person less than 500 pesos.
by one who has been given no authority, legal 5. Agreement for leasing for a longer period than
representation, or who has acted beyond his 1 year.
powers. 6. Agreement for the sale of real property or of
an interest therein.
Statute of Fraud 7. Representation as of the credit of a third
person.
• Enacted not only to prevent fraud but also to
guard against the mistakes of honest men by ART. 1404
requiring that certain agreements specified in
ART. 1403 No. 2 that are susceptible to fraud Unauthorized contracts are governed by Article
MUST BE IN WRITING; otherwise they are 1317 and the principles of agency in Title X of this book.
unenforceable by action in court. ART. 1405
• The statute does not require that the contract be
contained in a formal written document, as long Contracts infringing the statute of frauds, referred
as it is intelligible and records the intent of the to in No. 2 Article 1403, are ratified by the failure to object
parties. to the presentation of oral evidence to prove the same, or
• Application by the acceptance of benefits under them.
➢ Statute of Frauds is not applicable in Modes of Ratification under the Statute
actions which are neither for damages
because of a violation of a contract, nor 1. By failure to object to the presentation of oral
for the specific performance thereof. evidence to prove the contract
➢ Applicable only to completely executory -Requirement of a written form is for
contracts (where no performance has yet evidential purpose only.
been made by both parties) and not to 2. By acceptance of benefits under the contract
contracts which are totally executed or
-Based upon the familiar principle that
partly executory.
one who has enjoyed the benefits of a transaction should
➢ Not applicable where the contract is
not be allowed to repudiate its burdens.
admitted expressly, or impliedly by the
failure to deny specifically its existence. ART. 1406
➢ Applicable only to the agreements
enumerated therein. When a contract is enforceable under the statute
➢ It is not applicable where a writing does of frauds, and a public document is necessary for its
not express the true agreement of the registration in the registry of deeds, the parties may avail
parties. themselves of right under Art. 1357.
➢ It does not declare that contracts Right of a party where contract is enforceable
infringing it are void but merely
unenforceable. There must be a valid agreement and it must not
➢ Defense of the statute of frauds may be infringe the statute of fraud.
waived.
1. A party to an oral sale of real property cannot
➢ Defense of the statute of fraud is
compel the other to put the contract in a public
personal to the parties and cannot be
document for purposes of registration because it
interposed by strangers to the contract.
is unenforceable, unless ratified.
Agreements within the scope of the statute of Frauds 2. The right of one party to have the other execute a
public document is not available in donation of
-To be enforceable, a contract does not have to be in realty when it is in a private instrument because
writing unless there are agreements which fall within the the donation is void.
scope of the statute of Frauds.
ART. 1407
1. Agreement not to be performed within 1 year
from the making thereof. In a contract where both parties are incapable of
• It must appear that the parties intended giving consent, express or implied ratification by the
when they made the contract that it parent, or guardian, as the case may be, of one of the
should not be performed within a year contracting parties shall give the contract the same effect
from the date the contract is entered into as if only one of them were incapacitated.
by the parties and not from the date it is When unenforceable contract becomes a voidable
to be effective.
contract
2. Promise to answer for the debt, default, or
miscarriage of another.
 • Where both parties to a contract are 1. Contracts whose cause object or purpose is
incapable of giving consent, the contract contrary to law.
is unenforceable. 2. Contracts which are absolutely simulated or
• If the parent or guardian, or one of the fictitious.
parties after attaining capacity, ratifies 3. Contracts without cause or object. – “did not exist
the contract, it becomes voidable. at the time of the transaction” does not apply to a
future thing which may legally be the object of a
When unenforceable contract becomes a valid contract.
contract 4. Contracts whose object is outside the commerce
If the ratification is made by the parents or of men.
guardians of both contracting parties after attaining or 5. Contracts which contemplate an impossible
regaining capacity, the contract is validated and its service.
validity retroacts to the time it was entered into. 6. Contracts where the intention of the parties
relative to the object cannot be ascertained.
ART. 1408 7. Contracts expressly prohibited or declared void
by law:
Unenforceable contracts cannot be assailed by
a. Contracts upon future inheritance except in
third persons.
cases expressly authorized by law.
Right of Third persons to assail an unenforceable b. Sale of property between husband and wife
contract. except when there is a separation of property.
c. Purchase of property by persons who are
• Strangers to a voidable contract cannot specially disqualified by law because of their
bring an action to annul the same neither position or relation with the person or
can they assail or question a contract property under their care.
because of its unenforceability. d. Every donation between the spouses during
• Benefit of the statute can only be claimed the marriage shall be void except moderate
or waived by one who is a party or privy gifts given by each other occasionally of any
to the oral contract, not by a stranger. family rejoicing.
CHAPTER 9 e. A testamentary provision in favor of a
disqualified peron.
VOID OR INEXISTENT CONTRACTS f. Any stipulation that household service is
without compensation.
Void Contracts g. Members of congress are prohibited from
• Those which, because of certain defects, being financially interested, directly or
generally produce no effect at all. indirectly, in any contract with the
• Considered as inexistent from its government or any subdivision or
inception or from the very beginning. instrumentality thereof.

Meaning of inexistent contracts ART. 1410

The action or defense for the declaration of the
• Refer to agreements which lack one, some, or all
inexistence of a contract does not prescribe.
of the elements (i.e., cosent, object, and cause)
• Do not comply with formalities which are Action or defense is imprescriptible.
essential for the existence of a contract
• If a contract is void, a party thereto can always
Illegal Contracts bring a court action to declare it void or
inexistent.
May produce effects under certain circumstances
where the parties are not of equal guilt. • A party whom a void contract is sought to be
enforced, can raised the defense of nullity.
Characteristics of a void or inexistent contract • It is better that a judicial declaration of nullity be
secured not only to give peace of mind to the
1. It produces no force and effect whatsoever;
parties but also to avoid the taking of the law into
2. Cannot be ratified;
their own hands.
3. Right to set up defense of illegality cannot be
waived; ART. 1411
4. The action or defensed for the declaration of its
inexistence does not prescribe. When the nullity proceeds from the illegality of
5. Defense of illegality is not available to third the cause or object, and the act constitutes a criminal
persons whose interests are not directly affected. offense, both parties being in pari delicto, they shall have
6. It cannot give rise to a valid contract. no action against each other and both shall be prosecuted.

Instances of void or inexistent contracts Rules where contract is illegal and the act constitutes
a criminal offense
Are not enforceable from the very beginning,
regardless of the intention of the parties. 1. Where both parties are in pari delicto.
 a. Parties shall have no action against each When money is paid or property delivered for an
other. illegal purpose, the contract may be repudiated by one of
b. Both shall be prosecuted. the parties before the purpose has been accomplished, or
c. The things or the price of the contract, as before any case, the courts may allow the party
the effects or instruments of the crime, repudiating the contract to recover the money or property.
shall be confiscated in favor of the
Recovery where contract entered into for illegal
government.
purpose
2. Where only one party is guilty- the rule of
paragraph 1 of article 1411 applies only to the Requisites:
guilty party.
1. Contract is for an illegal purpose
2. Contract is repudiated before the purpose has been
ART. 1412 accomplished or before any damage has been caused
to a third person
If the act in which the unlawful or forbidden
3. Court considers that public interest will be subserved
cause consists does not constitute a criminal offense,
by allowing recovery
following rules shall be observed.
ART. 1415
1. Fault is on the part of both contracting parties,
neither may recover what he has given by virtue Where one of the parties to an illegal contract is
of the contract, or demand the performance of the incapable of giving consent, the courts may allow
other’s undertaking. recovery of money or property delivered by the
2. Only one of the contracting parties is at fault, he incapacitated person. (exception of pari delicto)
cannot recover what he has given by reason of the
contract or ask the fulfillment of what has been ART. 1416
promised him. Party who is not at fault may When the agreement is not illegal per se but is merely
demand the return of what he has given without prohibited, and the prohibition by the law is designed for
any obligation to comply his promise. the protection of the plaintiff, he may, if public policy is
Rules where contract is illegal but the act does not thereby enhanced, recover what he has paid or delivered.
constitute a criminal offense (exception of pari delicto that they will be left without
remedy)
1. Where both parties are in pari delicto- if the cause
of the contract is unlawful or forbidden but there
is no criminal offense. ART 1417
a. Neither party may recover what he has given
by virtue of the contract. When the price of any article or commodity is
b. Neither party may demand the performance determined by statute, or by authority of law, any person
of the other’s undertaking. paying any amount in excess of the maximum price
2. Where only one part is guilty allowed may recover such excess.
a. Guilty party loses what he has given
Recovery of amound paid in excess of Ceiling price
b. Guilty party cannot ask for the fulfillment of
the other’s undertaking Ceiling law- Statute fixing the maximum price of any
c. Innocent party may demand the return of article or commodity.
what he has given
d. Innocent party cannot be compelled to ART. 1418
comply with his promise. When the law fixes or authorizes the fixing of the
ART. 1411 and 1412 embody the general principle that maximum number of hours of labor, and a contract is
when both parties are in pari delicto, the law refuses them entered into whereby a laborer undertakes to work longer
every remedy and leaves them where they are. than the maximum thus fixed, he may demand additional
compensation for service rendered beyond the limit.
ART. 1413
Presidential Decree No. 442- Labor Code is applicable
Interest paid in excess of the interest allowed by too:
the usury laws may be recovered by the debtor, with
interest thereon from the date of the payment. 1. Government employees
2. Managerial employees
Recovery of Usurious interest 3. Field personnel
4. Members of the family of the employers who are
• If paid, may be recovered together with
dependent upon him for support
interest thereon from the date of payment
5. Domestic helpers
in a proper action for the same
6. Persons in the personal service for another
• Stipulation for the payment of usurious 7. Workers who are paid by results
interest is void.
ART. 1419
ART 1414
 When the law sets, or authorizes the setting of a
minimum wage for laborers and a contract is agreed upon
by which a laborer accepts a lower wage, he shall be
entitled to recover the deficienct.
ART. 1420
In case of a divisible contract, if the illegal terms
can be separated from the legal ones, the latter may be
enforced.
Effect of illegality where contract indivisible/divisible
1. When the contract is entire and single, the
contract is indivisible, if part of consideration is
illegal, whole contract is void.
2. Divisible or severable- when the illegal
considerations can be separated from the legal
portions, the latter may be enforced.
Divisible contract distinguished from divisible
obligation

• Divisible contract test the divisibility of its cause

while the latter, is the susceptibility of partial
fulfillment. Former refers to the cause, latter, to
the prestation or object.
ART. 1421
The defense of illegality of contracts is not
available to third persons whose interests are not directly
affected.
Persons entitled to raise defense of nullity or illegality.
Third person may avail of the set of defense of
illegality or set up its nullity as long as his interest is
directly affected by the contract.

Art. 1422
A contract which is the direct result of a previous
illegal contract, is also void and inexistend.
Void contract cannot be novated

• Illegal contract is void and inexistent and cannot

give rise to a valid contract.