Republic of the Philippines

Isabela State University

Echague, Isabela

COLLEGE OF BUSINESS ACCOUNTANCY AND PUBLIC

ADMINISTRATION

Prepared by:

GILBERT M. EUSTAQUIO, Ph.D.

Professor
 OBLIGATIONS AND CONTRACTS

Objectives:

To know the history of obligation and contracts

To the origin of Philippine law

Law – from latin word lex which derived from the verb ligare meaning to bind.

Defined as a rule of conduct, just obligatory, laid down by legitimate power for
Common observance and benefit.

Ignorantia legis nemenim excusat ( ignorance of the law excuses no one)

Origin of Philippine Law

Ancient laws of the Philippines covered many subjects now found in modern
codes such as Family Relations Property Rights, Inheritance, Adoption, Divorce,
Usury, Loans , Partnerships, Contracts and Crimes.

In the Sumakwel Code, laziness was punishable with slavery.

In the Kalantiao Code, insult, murder, arson, sacrilege and sorcey were
punishable with Death, slavery for Heavy Fines. Singing at night when people
were sleeping, cheating in business transactions and other minor crimes were
punished with exposure to Ants, swimming continuously for hours, flogging or
fine.

Philippines laws are deeply rooted in the past. Along with Christianity, Spain
from sixteenth century implanted her legal institutions in the Philippines. During
American Regime in nineteenth century, they introduce portions of their laws
especially along Constitutional, Commercial and Procedural lines. Thus, through
Spain and the United States, the Philippines is heir to two of the world’s leading
legal systems, the civil Law and the Common Law.

Business Law or Commercial Law

Is that branch of private law which governs and regulates the juridical relations
arising from business acts
Legal Basis of the Obligation and Contracts

No law impairing the obligation of contracts shall be passed( Sec.10 art. III, constitution)

Sources of Business Law:

1. Legislations
2. Maritime Usages
3. Customs
4. Early Maritime Codifications
5. Conventions
6. Treaties
7. Equity
8. Judicial decisions
9. Opinion of jurists and Commentators
Objectives:
To know and identify the sources of Obligations
To define and differentiate the Essential Requisites of Obligations

OBLIGATIONS
(Art. 1156-1162)

CHAPTER I GENERAL PROVISIONS

Obligations is a juridical necessity to give, to do and not to do.
`
Essential Requisites of an Obligations

1. Juridical or Legal Tie: this is the vinculum or the link which binds the parties
to an obligation

2. Prestation or Subject Matter: This may consist in giving, doing or not doing
of something
 3. Active Subject: the person who can demand the performance of the
obligation, otherwise known as the creditor or obligee.

4. Passive Subject: The person from whom the prestation or duty is demandable,
otherwise known as the debtor or obligor.

SOURCES OF AN OBLIGATIONS

1. Law
2. Contracts
3. Quasi-Contracts
4. Delicts or Acts or Omissions punishable by law.
5. Quasi-Delicts

Law
Obligations derived from law are not presumed. Only those expressly determined
in this code or by special laws are demandable and shall be regulate by the precepts of the
law which establishes them and as to what has not been foreseen, by the provisions of
this book.

Contracts

Is the meeting of the minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service.( Details on title II
Contracts)

Quasi-Contracts

Is that juridical relation resulting from lawful, voluntary and unilateral acts by
virtue of which the parties become bound to each other to the end that no one shall be
unjustly enriched or benefited at the expense of another.

Kinds of Quasi-Contracts

1. Negotiorum Gestio the voluntary management of the property or affairs of

another without knowledge or consent of the latter.
2. Solutio Indebiti the juridical relation which is created when something is
received when there is no right to demand it and was unduly delivered through
mistake.
Delicts

Crime is an act or omissions punishable by law.

Basis of the principle is Article 100 Revised Penal Code
“Every person criminally liable for an act or omission is also civilly liable.”
 Laws Governing Civil Obligations Arising From Criminal Offenses.
1. Article 2177 of the Civil Code
2. Chapter II, Preliminary Title on Human Relations
3. Title XVIII of Civil Code regulating DAMAGES.
Scope of Civil Liability Arising from crimes

1. Restitution
2. Reparation for the damage caused
3. Indemnification for consequential damages

Quasi-Delicts

Is an act or omission which causes damage to another there being fault or

negligence but there is no pre-existing contractual relation between the parties.

REQUISITES OF QUASI-DELICTS

1. There must be an act or omission

2. There must be fault or negligence
3. There must be damage caused
4. There must be direct relation of cause and effect between the act or omission
and the damage.
5. There is no pre-existing relation between the parties.

Distinguish Obligation, Right and Wrong:

Obligation is the act or performance which the law will enforce.

Right is the power which a person has to demand from another any prestation.

Wrong according to its legal meaning, is an act or omission of one party in

violation of the right of another.

Elements of a Wrong

1. A right in favor of a person ( creditor )

2. Correlative obligation on the part of another ( debtor )

3. An act or omission in violation of the said right.

 CHAPTER II
NATURE AND EFFECT OF OBLIGATIONS
( Art. 1163-1178 New Civil Code of the Philippines)

Objectives:

To differentiate determinate and indeterminate thing

To know the principle that applies to determinate and indeterminate thing
To identify and understand the differences of natural, industrial and civil fruits
To know the effect of obligations by the presence fraud, negligence, delay and Fortuitous
Event.

Specific or Determinate Thing

When the thing is particularly designated or physically segregated from all others
of the same class.

WHEN LOSS OF THING WILL EXTINGUISH AN OBLIGATION TO GIVE

Requisites:
1. The obligation is to deliver a specific or determinate thing
2. The loss of the thing occurs without the fault of the debtor
4. The debtor is not guilty of delay

Generic or Indeterminate Thing

When it refers only to a class or genus and cannot be pointed out with
particularity.

WHEN LOSS OF THING WILL NOT EXTINGUISH LIABILITY

Requisites
1. When the law so provides
2. When the stipulation so provides
3. When the nature of the obligation requires the assumption of risk
4. When the obligation to deliver a specific thing arises from a crime
5. When the party is guilty of delay or default
PRINCIPLE:
“ GENUS NUNQUAM PERIT” Generic thing never perishes

Duties of the DEBTOR IN AN OBLIGATION TO GIVE A DETERMINATE

THING

1. To preserve the thing. The debtor has the duty to take care of the thing with the
diligence of a good father of a family pending delivery

2. To deliver the thing itself including the fruits

3. To deliver the thing’s accessions and accessories even though they may not
have been mentioned.

Meaning of Diligence of the Good Father of the Family:

Means the care and diligence an ordinary prudent man would have given his own
property.

DIFFERENT STANDARD OF CARE

1. Ordinary Diligence or Care

2. Diligence of a Good Father of the Family

3. Extra- Ordinary Diligence or Care

Difference between ACCESSIONS and ACCESSORIES

1. Accessions are those fruits of a thing or additions to or improvements upon the

thing.
2. Accessories are those things joined to or included with the principal thing for the
latter’s embellishment, better use or completion.

Right of CREDITOR to ACCESSIONS AND ACCESSORIES

The rule is that all accessions and accessories are considered included in the
obligation to deliver a determinate thing although they may not have been
mentioned. This rule is based on the principle of law that the accessory follows
the principal
KINDS OF FRUITS OF A THING

1. Natural Fruits are the spontaneous products of the soil or the young of
animals. Like grasses, trees, and plants without intervention of human labor.

2. Industrial Fruits are those produced through cultivation or labor. Like Sugar
Cane, Vegetables, Rice and all products brought about by reason of human
labor.

3. Civil Fruits are those fruits derived by virtue of juridical relation. Like Rents
of Buildings, Price of Leases of lands and other property or Interests.

In Article 1164, the phrase “ He shall acquire no real right over it until the same has
been delivered to him”

Kinds of DELIVERY;

1. ACTUAL DELIVERY or REAL DELIVERY when it is placed in the

control and possession of the obligee or vendee.

2. CONSTRUCTIVE DELIVERY

Kinds of Constructive Delivery:

1. By execution of public instrument it is one which is acknowledged before

a notary public or any official authorized to administer oath, by the person
who executed the same.

2. Traditio Symbolica is that delivery of the keys of the place or depository

where it is stored or kept.

3. By traditio longa manu delivery by mere consent or agreement of the

contracting parties as when the vendor merely points to the thing sold which
shall be at the control and disposal of the vendee.

4. By traditio brevi manu delivery happens when the vendee has already the
possession of the thing sold by virtue of another title as when the lessor sells
the thing lease to the leasee.

4. By traditio constitutum possessoruim- takes place when the vendor continues

in possessio0n of the property sold as owner but in some capacity, as for
example, when the vendor stays as a tenant on the vendee.
 5. Quasi-deli very or Quasi-Traditio- with respect of incorporeal property , the
placing of the titles of ownership in the possession of the vendee or the use by
the vendee of his rights, with the vendor’s consent, shall be understood as a
delivery.

Remedies in case the Obligor or Debtor Fails to Deliver a Specific Thing.

1. The creditor or Obligee may demand the fulfillment of the obligation.

2. If it cannot be delivered, the obligation is EXTINGUISHED with the creditor

having the right to indemnity for damages if the debtor is guilty of fraud,
negligence, delay or contravene the tenor of the obligations.

Remedies in case the Obligor Fails to Deliver a Generic Thing.

1. If the debtor fails to perform his obligation, the creditor may have the
obligation performed by himself or by another at the debtor’s expense with
right to obtain damages.
2. If the creditor performs his obligation but in a poor manner, the creditor may
have the work undone if possible and may ask another to perform the
obligation at the debtor’s expense.
3. If the debtor performs his obligation but contrary to the terms thereof, the
creditor may have the work undone if possible and then have the obligation
performed by another at the expense of the debtor

When are debtors liable for DAMAGES:

Debtors are liable for damages if they are guilty of fraud, negligence, delay in the
performance of their obligations, or if they contravene the tenor of the obligation.
( Art. 1170 NCC)

KINDS OF DAMAGES
1. M –ental

2. E - xemplary

3. N -ominate

4 T -emperate

5. A -ctual
 6. L -iquidated

FRAUD:

-Is the deliberate or intentional evasion of the normal fulfillment of an obligation.

-When through insidious words or machinations of one of the contracting parties,

the other is induced to enter into a contract which, without them, he would not
have agreed to.

Kinds of Fraud:

1. Incidental Fraud ( Dolo Incidente) committed in the performance of an

obligation already existing because of contract.
2. Causal Fraud ( Dolo Causante) fraud employed in the execution of a
contract.

NEGLIGENCE

-Is the failure of a person to exercise a certain degree of diligence which is

required by the nature of the obligation, taking into account the circumstances of

the persons, time and place.

Test For Negligence:

The test for determining whether a person is negligent in doing an act is this:”

would a prudent man, in the position of the person to whom negligence is

attributed, foresee harm to the person injured as a reasonable consequence of the

course about to be pursued? If so, the law imposes the duty on the actor to refrain

from that course or to do so constitutes negligence.

Is a person guilty of negligence always liable for damages?

No, to be liable for damages the negligence should be the proximate cause of the

damage, but if his negligence was only contributory, the damages he would have

to pay would be mitigated by the court accordingly.

FACTORS TO BE CONSIDERED IN DETERMINING NEGLIGENCE:

Nature of the obligation

circumstances of the person
circumstances of time
circumstances of place

Diligence That May Be Required of the Debtor

1. That agreed upon by the parties ( orally or in writing)

2. In the absence of stipulation, that required by law in the particular case
( Common Carrier , the extra ordinary Diligence is required)
3. If the contract and the law are silent, then the diligence expected of a Good
Father of a Family.

DELAY

TWO CLASSES OF DELAY

1. Ordinary Delay merely failure to perform an obligation on time

2. Legal Delay is the failure to perform an obligation even after the

obligee has made a judicial or extra-judicial demand for its
fulfillment.

KINDS OF DELAY OR MORA

1. Mora Solvendi or the delay on the part of the debtor.

 2. Mora Accipiendi or the delay on the part of the creditor to accept the
performance of the obligation

3. Compensation Morae or the delay of the performance in reciprocal

obligations like Sale.

In what cases is a demand not necessary to put the debtor in legal delay?

1. When the law provides that there be no demand

2. When the parties agree that there be no demand
3. When time is of the essence.
4. When the debtor has made it impossible to comply with his obligation.
5. When there is performance by a party in reciprocal obligation

CONTRAVENTION OF THE TERMS OF THE CONTRACT

- contravention of the tenor of the obligation means violation of the

terms and conditions stipulated in the obligation

FORTUITOUS EVENT

- is any event which cannot be foreseen, or which, though foreseen, is inevitable

Requisites of a Fortuitous Event

1. The event must be independent of the human will or at least the debtor’s
will
2. the event must be unforeseen or foreseen, is inevitable
3. The event must prevent the debtor from normally complying with his
obligation
4. the debtor must be free from any participation in the aggravation of the
injury to the creditor, that is, there is no concurrent negligence on his part.

A PERSON IS LIABLE FOR THE NON-FULFILLMENT OF HIS

OBLIGATION EVENIF IT IS DUE TO A FORTUITOUS EVENT

They are the following:

 1. When it is specified by law

a. When the debtor is guilty of delay, fraud, negligence or

contravention of the tenor of the obligation
b. When the debtor has promised to deliver the same thing to two or
more persons who do not have the same interests.
c. When the thing to be delivered is generic
d. When the obligation to deliver a specific thing arises from crime

2. when declared by stipulation of the parties

3. when the nature of the obligation requires the assumption of risk.

USURY LAW

- is an act by which a person charges excessive interest on money he

lends out.

USURER is a person charging excessive interest.

INTEREST is the remuneration for the use of capital.

KINDS OF INTEREST:

1. simple interest when the rate of interest is stipulated by the parties.

2. com[pound interest when the interest earned is upon the sum of
amount of loan and interest due.
3. lawful interest when the rate of interest is within the maximum
allowed by law
4. Unlawful interest when the rate of interest is beyond the maximum
fixed by law
5. legal interest when the rate of interest intended by the parties is
presumed by law, as when the loan mentions interests but does not
specify the rate thereof.

RULES ON INTEREST:
1. The legal interest rate is 6% per annum
2. Maximum Rate:

a. If the loan is secured in whole or in part by mortgage upon real

estate, if the title to the real estate is duly recorded.
b. If the loan is not provided with security, the maximum rate that can
be applied is 12% per annum.

MUTUUM OR SIMPLE LOAN

A contract whereby one of the parties delivers to another in

money or other consumable thing, upon the condition that the same
amount of the kind and quality shall be paid. Ti may be gratuitous or
with the stipulation to pay interest.

COMMODATUM
`
where the bailor ( lender) delivers to bailee ( borrower) a non-
consumable thing so that the latter may use it for a certain time and return the
identical thing.

COMMODATUM and MUTUUM DISTINGUISHED

1. Commodatum ordinarily involves something not consumable while in

Mutuum, the subject matter is money or other consumable thing.

2. Commodatum is a loan for use while Mutuum is a loan for consumption

3. Commodatum, ownership of the thing loaned is retained by the lender.

While Mutuum, the ownership is transferred to the borrower.

4. Commodatum is essentially gratuitous while Mutuum, maybe gratuitous or

onerous.

5. Commudatum, the borrower must return the same thing loaned, while in
mutuum, the borrower need only pay the same amount of the same kind and
quality.
 6. Commudatum, it may involve real or personal property. While mutuum
refers only to personal property.

THE ANTI-USURY LAW PENALIZES

The Anti- Usury Law penalizes the act of taking or receiving usurious interest in

cases of secured loans. In the case of unsecured loan, the mere demanding or

agreeing to charge excessive interest is also punishable. In either case, it is only

the creditor who is criminally liable.

Requisites for the recovery of interest:

a. the payment of interest must be expressly stipulated;

b. the agreement must be in writing.

c. The interest must be lawful

PRESUMPTION

-is meant that from a given set of facts, a conclusion is deduced to determine a
fact which is unknown.

KINDS OF PRESUMPTION

1. Conclusive presumption- one which cannot be contradicted; once

established, there can be no evidence resented against it.

2. Disputable presumption – one which can be contradicted or overcome by

evidence to the contrary
Presumption according to law, with regards to installment payments:

The receipt of a latter installment of a debt without reservations as to prior

Installments shall give rise to a presumption that such prior installments have

been paid.

REMEDIES OF A CREDITOR IN CASE THE DEBTOR DOES NOT COMPLY

WITH HIS OBLIGATIONS WITH REGARD TO INSTALLMENT
PAYMENT

1. Exact fulfillment of the obligation with right to Damages.

2. Pursue the leviable property of the debtor.

3. Exercise all rights ( like the right to redeem) and bring all the actions( like
the right to collect from the debtors debtor) of the debtor except those
inherent in the person of the latter.

4. Rescind or impugn acts or contracts which the debtor may have done to
defraud him when he cannot in any other manner recover his claim.

RIGHTS
Subject to laws, all rights acquired by virtue of an obligation are transmissible,
if there has been no stipulation to the contrary.

Rights acquired in virtue of an obligation are generally transmissible, except:

1. When it is Prohibited by law

a. Rights in a Partnership
b. Rights in an Agency
c. Rights in Commodatum

2. When it is Prohibited by Stipulation of the Parties.

 CHAPTER III
DIFFERENT KINDS OF OBLIGATIONS

Objectives:
To know obligations that are demandable at once
To differentiate Pure, Conditional and other kinds of obligations

A. PURE and CONDITIONAL OBLIGATIONS

Pure is an obligation which is not subject to any condition and no spefic date is
mentioned for its fulfillment, and is immediately demandable.

Conditional is an obligation which depends upon the happening or non-

happening of a condition.

Condition is a past or future uncertain event which has an influence on an

obligation.

Two Principal Kinds of an Obligations:

a. Suspensive Condition- the happening of which will give rise to the

obligation.

b. Resolutory Condition- the happening of the condition will

extinguished the obligation

THE FOLLOWING ARE DEMANDABLE OBLIGATIONS

1. When it is Pure
2. when it is Subject to Resolutory obligations
3. When it is subject to Resolutory Period

When the debtor binds himself to pay when his means permit him to do so, the
obligation is deemed with a PERIOD.
 PERIOD is a future and uncertain event upon the arrival of which the
obligation subject to it either arises or is extinguished.

Other word with the same meaning:

1. “little by little”

2. “as soon as possible”

3. “From time to time”

4. “At any time I have the money”

5. “ in partial payments”

6. “when I am in a position to Pay”

Classification of Condition as to Cause or Origin:

a. Potestative – the condition depends upon the will of one of the

contracting parties.
Ex. I will pay you if I want

b. Casual Condition – the condition depends upon chance or upon the

will of a third person.
Ex. I will give Mario Php 100,000.00 if I will win a Lotto

c. Mixed – the condition depends partly upon chance and partly upon
the will of a third person.
Ex. I will give Dina Php 1,000,000.00 If Marky will be the winner
of Starstruck Competition.

Classification of Condition as to Numbers:

 a. Conjucntive- there are several conditions and all must be
fulfilled.

b. Disjunctive- ther arer several conditions and only one or

some of them must be fulfilled.

Classification as to Possibility

a. Possible- the condition is capable of fulfillment, legally and

physically.

b. Impossible- the condition is not capable of fulfillment,

legally or physically.

Kinds of Impossible Condition:

1. Physically impossible conditions- when they, in the nature of things, cannot

exist or cannot be done.

2. Legally impossible conditions- when they are contrary to law, morals, good
customs, public order or public policy.

Define LOSS:

When it perishes, goes out of commerce, disappears in such a

way that existence is unknown and cannot be recovered.

EFFECT OF LOSS DURING THE PENDENCY OF THE RESOLUTORY

CONDITION IN CASES OF LOST, DETERIORATION OR
IMPROVEMENT:

1. If the thing is lost without the fault of the debtor, the obligation is
extinguished.

2. If the thing is lost with the fault of the debtor, he shall be obliged to pay
damages
 3. If the thing deteriorates without the fault of the debtor, the impairment is to
be borne by the creditor.

4. If the thing deteriorates through the fault of the debtor, the creditor may
choose between the rescission of the obligation and its fulfillment, with
indemnity for damages in either case.

5. If the thing is improved by nature or by time, the improvement shall inure

to the benefit of the creditor.

6. If it is improved at the expense of the debtor, he shall have no other right

than that granted top the usufractuary.

USUFRUCT is the right to enjoy the use and fruits of the thing belonging to
another.

KINDS OF LOSS IN OUR CIVIL LAW

1. Physical Loss when a thing perishes ex house is burned and reduced to ashes

2. Legal loss when a thing goes out of commerce or when the thing becomes
illegal to do the obligations. Ex when it is expropriated or forbidden to do
during the Japanese occupation.

3. Civil Loss when the thing disappears in such a way that existence is
unknown. Ex. Ring is drooped from a ship at sea.

OBLIGATION WITH A PERIOD

Period is an obligation for whose fulfillment a day certain has been fixed, shall
be demandable only when that day comes.

Day Certain is understood to that which must necessarily come, although it

may not be known when.
BETWEEN PERIOD AND CONDITION

a. As to fulfillment

1. Period is a certain event which must happen at a date known beforehand.

A condition is uncertain event.

b. As to Time

2. A period refers only to the future

A condition may refer to the future or past unknown event.

c. As to influence on the obligation

3. A period merely fixes the effectiveness of the obligation

A condition causes an obligation to arise or to cease.

KINDS OF A PERIOD:
A. According to effect:

1. Ex die –it is period with suspensive effect.

2. In diem- it is a period with a resolutory effect

B. According to Source

1. Legal period- provided for by law

2. Conventional – period agreed to by law

3. judicial period- fixed by the court.

RULES REGARDING THE COMPUTATION OF A PERIOD

 If the law speaks of year, it shall mean 365 days. If the law speaks of month, it
shall mean 30 days. If the law speaks of a night it shall mean from sunset to
sunrise.

If months are designated by its name, the month shall be computed by the
number of days which they respectively have.

In computing a period, the FIRST DAY shall be Excluded and the LAST DAY
included.

If the Last Day is SUNDAY or LEGAL HOLIDAY, the time shall not run until
the end of the next day which neither Sunday nor Holiday.

THE DEBTOR MAY LOSE THE RIGHT TO USE OF THE PERIOD IN THE
FOLLOWING CASES:

1. When the debtor becomes insolvent, unless he gives security or a guaranty

for the debt.

2. When the debtor does not furnish the guaranties or securities promised.

3. When by the debtors own acts he has impaired the guaranties or securities or
when through a fortuitous event they disappear unless he immediately gives
new ones equally satisfactory.

4. When the debtor violates any undertaking, inconsideration of which the

creditor agreed to the period.

5. When the debtor attempts to abscond. ( see Art. 1198 NCC)

ALTERNATIVE AND FACULTATIVE OBLIGATIONS

Alternative it is an obligation wherein various prestations are due, but

fulfillment of one of them is sufficient.

Note: The right of choice belongs to the DEBTOR except when expressly
provided.
 Limitations on the debtor’s right of choice:

They are:

a. the debtor cannot choose those prestations which are:

1. Impossible

2. Unlawful

3. Could not have been the object of obligations

b. The debtor has no more right of choice, when only one prestation is
practicable.

NOTE: The creditor may demand fulfillment even before the arrival of the
period, but the debtor cannot compel him to accept payment before the
expiration of the period.

If there is only one Prestation which is practicable, the obligations become

SIMPLE.

Effect loss if some of the objects of an alternative obligations have been lost or
have become impossible through the fault of the debtor.
The debtor is not liable since he has the right of choice.

Effect loss if all the objects of an alternative obligations have been lost or have
become impossible through the fault of the debtor.
The creditor has a right to indemnity for damages since the obligation no
longer be complied with
.
Effect of loss if the cause is due to Fortuitous Event, the obligation is
extinguished.

Rules Governing losses before the Creditor has made his Choice:

a. If one of the things is lost through Fortuitous Event, the creditor

should choose from among the remainder or that which remain if
only one subsists.
 b. If one of the things is lost through the debtor’s fault, the creditor
may claim any of these subsisting with a right to damages, or the
price of that which was lost, also with a right to damages

c. If all the things are lost through the debtor’s fault, the creditor can
demand the payment of the price of any one of them with right to
indemnity for damages;

d. If all the things are lost through a fortuitous event, The obligation is
extinguished.

FACULTATIVE OBLIGATIONS

-It is an obligation wherein only one prestation has been agreed upon, but
the obligor may render another in substitution.

The effect of the loss of the principal thing before substitution

A. If the principal thing is lost due to fortuitous event ,

the obligation is extinguished.

B. It is lost through the debtor’s fault the debtor is

liable for damages.

Effect of the loss of the thing intended as a substitute, before substitution.

Its loss, with or without the fault of the debtor, does not render him
liable because the thing intended as a substitute is not due.

Effect of the loss of the principal thing after substitution, the loss of the
thing does not render the debtor liable whatever maybe the cause of the
loss, because it is no longer due.

Effect of the loss of the thing intended as a substitute, after substitution:

The following rules apply:
 1. If the thing is lost due to fortuitous event, the obligation is
extinguished.

2. If it is lost through the debtor’s fault, the debtor is liable for damages.

DIFFERENCES BETWEEN ALTERNATIVE AND FACULTATIVE

OBLIGATIONS

1. Alternative- several prestations are due, but compliance with one

is sufficient.

Facultative – only one prestatation is due, although the debtor is

allowed to substitute.

2. Alternative – the choice belongs to the debtor as general rule.

Facultative- the right to make the substitution is given only to the

debtor.

3. Alternative- the loss of one or more of the alternatives through a

fortuitous event does not render him liable.

Facultative- the loss of one of the thing due extinguishes the

obligation.

4. Alternative- the loss of one of the alternatives through the fault

of the debtor.

Facultative- the loss of the thing due makes him liable.

5. Alternative- where the choice belongs to the creditor, the loss of

one alternative through the debtor gives rise to liability.

Facultative- the loss of the substitute before the substitution

through the fault of the debtor does not render him liable.

DIVISIBLE AND INDIVISIBLE OBLIGATIONS

Divisible -Is an obligation capable of partial performance.

 Indivisible – is an obligation not capable of partial performance.

Kinds of Division:

a. Quantitative division – based on quality, not on

quantity

b. Quantitative division- based on quantity, not on

quality

c. Intellectual or Ideal Division- exists only in the

minds of the parties.

Kinds of Indivisibility

Legal Indivisibility- a specific provision of law declares as indivisible,

obligations which, by their nature, are divisible.

Conventional Indivisibility- the will of the parties makes as indivisible,

obligations which, by their nature, are divisible.

Natural indivisibility- the nature of the object or prestations does not

admit division.

OBLIGATIONS DEEMED INDIVISIBLE:

1. Obligations to give definite things;

2. Obligations which are not susceptible of partial performance;

3. Obligations provided by law to be indivisible, even if the thing or

service is physically divisible.

4. Obligations intended by the parties to be indivisible, even if the thing

or service is physically divisible.
OBLIGATIONS DEEMED DIVISIBLE:

Obligations which have for their object, the execution of a certain

number of days of work.

Obligations which for their object, the accomplishment of work by

metrical units

Obligations which by their nature are capable of partial performance.

OBLIGATIONS WITH PENAL CLAUSE

Principal Obligation -is an obligation which can stand by itself, and does not
depend for its validity and existence upon another obligation.

Accessory Obligation- is an obligation which is attached to a principal

obligation and cannot stand alone.

Penal Clause- it is an accessory undertaking to assume greater liability in a case

of breach.

PURPOSE OF ATTACHING A PENAL CLAUSE TO AN

OBLIGATION

1. To insure its performance;

2. To substitute a penalty for the indemnity for damages and the

payment of interests in case of non-compliance;

3. To punish the debtor for non-fulfillment of his obligation.

 KINDS OF PENAL CLAUSE:

a. According to source:

1. Legal Penal Clause- when provided for by law:

2. Conventional Penal Clause- when provided for by stipulation of the

parties:

b. According to its demand ability:

1. Subsidiary Penal Clause- when only the penalty can be demanded;

2. Joint Penal Clause- when both the principal obligation and the penal
clause can be enforced.

The creditor, in addition to the penalty, may recover DAMAGES:

a. If so stipulated by the parties;

b. If the obligor refuses to pay the penalty.

c. If the obligor is guilty of fraud in the fulfillment of the

obligation.

Penalty that is Imposed May be Reduce by the courts on the

following manner

When there is partial or irregular performance by the debtor.

When the penalty agreed upon is iniquitous or unconscionable, even if

there is no performance at all.

JOINT AND SOLIDARY OBLIGATIONS

Kinds of Obligations According to Numbers of Parties

 a. Individual Obligations- there is only one obligor and one
obligee.

a. Collective Obligation- each one of the debtors is bound to

render and or one of the creditors has a right to demand
entire compliance with the prestation.

Rules concerning the debts and credits and the debtors and
Creditors:

There are as many debts as there are debtors

There are as many credits as there are creditors

The debts and or credits are considered distinct and separate from one
another.

Each debtor is liable only for a proportionate part of the debt.

Each creditor is entitled only a proportionate part of the credit.

Note:

In cases of Insolvency of one of the joint debtors, the other solvent

debtors are not liable for his debt because the debts are distinct
and separate from each other.

WORDS USED TO INDICATE JOINT LIABILITY

Mancomunada

Mancomunadamente

Pro rata

Proportionately

Individually

Separately

“We promise to pay” signed by two or more persons

 OBLIGATIONS ARE SOLIDARY ONLY IN THE FOLLOWING
CASES.

when the law requires solidarity

when the nature of the obligation requires solidarity

when the obligation expressly so states.

KINDS OF SOLIDARITY

A. According to Parties Bound

1. Passive Solidarity- solidarity on the part of the debtors, where
anyone of the debtors can be made liable for the performance of
the entire obligations

2. Active solidarity- solidarity on the part of the creditor, that is where

anyone of the creditors may demand the fulfillment of the entire
obligation.

3. Mixed Solidarity- solidarity on the part of the debtors and creditors,

where each of the debtors is liable to render, and each of the
creditors has right to demand, the fulfillment of the entire
obligations.

B. According to Source.

1. Conventional- solidarity that is agreed to by the parties

2. Legal - solidarity that is imposed by law
3. Real – solidarity that is imposed based on the nature of the
obligation.

DIFFERENCES BETWEEN INDIVISIBILITY AND SOLIDARITY

1. Indivisibility- refers to the prestations

Solidarity- refers to the juridical tie or legal tie that binds the parties

2. Indivisibility- only the debtor is guilty of breach is liable of Damages

 Solidarity- all of the debtors are liable for the breach committed by a co-
debtor.

3. Indivisibility- can exist even if there is only one debtor and one creditor.

Solidarity- there must be at least two debtors and or creditors.

Essence of solidarity consists in the right of each creditor to enforce the rights of
all, and the liability of the debtor to answer for the liabilities of all. The
following are the limitations:

1. Each of the solidary creditors may do whatever maybe useful to the others,
but not anything which may be prejudicial.

2. A solidary creditor cannot assign his rights without the consent of the other.

Effect of Novation, Compensation, Confusion or Remission of the debt made by

Solidary Creditors on any of the solidary Debtors, the obligation shal be
extinguished.

Rules to be followed in cases the thing has been Lost, or

Prestation has become impossible:

a. If the loss is without fault and before delay, the obligation is

extinguished.

b. If there was fault on the part of any solidary debtor, all shall
be responsible to the creditor, for the price and payment of
damages and interests, without prejudice to their action
against the guilty or negligent debtor.

c. If loss is without fault, but after one of the solidary debtors

has incurred in delay, all shall be responsible to the creditor,
for the price and payment of damages and interest, without
prejudice to their action against the guilty or negligent to
their action against the guilty or negligent debtor.
 CHAPTER IV
MODE OF EXTINGUISHING AN
OBLIGATIONS

Objectives:

To enumerate the different modes of extinguishing an obligations

To know the different special forms of payment.
To apply the different modes of extinguishing an obligations in our daily lives.

1. By Payment or Performance

2. By loss of the thing due

3. By Condonation or Remission of the Debt

4. By Confusion or Merger

5. By Compensation

6. By Novation

7. By Annulment

8. By Rescission

9. By Fulfillment of a Resolutory Condition

10. By Prescription

A. PAYMENT

Essential Features of Payment:

Note:

1. Payment made in good faith to any person in possession of the credit shall
release the debtor ( Art. 1242)
2. Payment made to the creditor by the debtor after the latter has been
judicially ordered to retain the debt shall not be valid.

3. The debtor of a thing cannot compel the creditor to receive a different one,
although the latter may be the same value as, or more valuable than that
which is due.

In obligation to do or not to do, an act or forbearance cannot be substituted

by another act or forbearance against the obligee’s will. ( Art. 1246)

4. When the obligation consists in the delivery of an indeterminate or generic

thing, whose quality and circumstances have not been stated, the creditor
cannot demand a thing of superior quality.
Neither can the debtor deliver a thing of inferior quality. The purpose of the
obligation and other circumstances shall be taken into consideration.

5. Unless there is an express stipulation to that effect, the creditor cannot be

compelled partially to receive the prestations which the obligation consists.
Neither may the debtor be required to make partial payments.

However, when the debt is in part liquidated and in part unliquidated,

the creditor may demand and the debtor may effect the payment of the
former without waiting for the liquidation of the latter.

Effect of Payment by PERSON WHO IS INCAPACITATED, and to

PERSON WHO IS INCAPACITATED.

1. Payment by Incapacitated Person- not valid

2. Payment to Incapacitated person – not valid

Unless if he kept the thing paid or delivered.

Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest or any person authorized to received
it.

SPECIAL MODE OF PAYMENT;

1. Dation in Payment or Daceon en Pago

 Is the conveyance of ownership of a thing as an accepted equivalent of
performance.
It is also a mode of extinguishing an obligation whereby the debtor
alienates in favor of the creditor property for the satisfaction of monetary
debt.

2 .Payment by Cession an assignment or abandonment of all the properties of

the debtor for the benefit of his creditors in order that the latter may sell the
same and apply the proceeds thereof to the satisfaction of their credits

3. Tender of Payment and Consignation- if the creditor to whom tender of

payment has been made refuses, without just cause, to accept it, the debtor
shall be release from responsibility by the consignation of the thing due.
Consignation alone shall provide the same effect in the following cases.

a. When the creditor is absent or unknown, or does not appear

at the place of payment.

b. When he is incapacitated to rweceive the payment at the time

it is due.

c. When, without just cause, he refuses to give a receipt.

d. When two or more persons claim the same right to collect

e. When the title of the obligation has been lost.

4. Application of Payment

He who has a various debts of the same kind in favor of one and the
same creditor, may declare at the time of making the payment, to which of them
the same must be applied. Unless the parties so stipulate or when the application
of payment is made by the party for whose benefit the term has been
constituted, application shall not be made as to debts which are not yet due.

Four Requirements before Application of Payment may be Exercise:

1. One Debtor and One Creditor

2. Several debts
3. Debts are the same Kind

4. debts are all due

Dation in Payment distinguished from Sale

a. In Dation there is pre-existing debt, while in sale there is none

b. In Dation, the obligation is extinguished while In Sale, it gives rise
to an obligation
c. In Dation, the giving of the object may extinguished completely or
partially the obligation, while in Sale, the giving of the price
generally end the obligation to pay

Tender of payment is the act, on the part of the debtor, of offering to the creditor
the thing due or amount due.

Consignation is the act of depositing the thing or amounts due with the proper
court when the creditor does not desire or cannot receive it , after complying
with the formalities required by law.

Requisites of Valid Consignation:

1. Existence of a valid debt which is due.

2. Tender of payment by the debtor and refusal without justifiable reason by
the creditor to accept it.
3. Previous notice of the consignation to person interested in the fulfillment of
the obligation.
4. Consignation of the thing or sum due
5. Subsequent notice of consignation made to the interested parties

B. LOSS OF THE THING DUE

Loss defined
It is defined as when it perishes, goes out of commerce, when it
disappears , in such a way that its existence is unknown or cannot be recovered.
 C. REMISSION OR CONDONATION

- It is the gratuitous abandonment by the creditor of his right.

Requisites of remission

1. there must be an agreement

2. the parties must be capacitated

3. there must be a subject matter

4. the cause or consideration is generosity

5. obligation is demandable at the time of remission

6. remission must not be in officious

D. CONFUSION OR MERGER
It is the meeting in one person of the qualities of creditor and debtor with
respect to the same obligation.

Requisites of valid Merger

1. it must take place between the principal debtor and creditor.

2. the merger must be clear and definite

3. the obligation shall be the same or identical.

Note:

Merger taking place in the person of the principal debtor or creditor benefits the
guarantors. Merger which takes place in the person of any of the latter does not
extinguished the obligation.
Merger does not extinguish a joint obligation except as regards the share
corresponding to the creditor or debtor in whom the two characters concur.

E. COMPENSATION

the extinguishments to the concurrent amount of the debts of two persons who,
in their own right , are creditors and debtors of each other.

KINDS OF COMPENSATION

1. As to their effects:

a. Total- same amount

b. Partial – unequal amount

2. As to Origin:

a. Legal- compensation by operation of the law

b. Facultative- one party may claim compensation, the other cannot.

c. Conventional- compensation shall be made by agreement of the

parties

d. Judicial- decreed by the court, in a case where there is counter-claim.

Requisites of Compensation

1. that each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other.

2. That both debts consists in a sum money, or if the things due are
consumable, they be of the same kind and also of the same quality if the
latter has been stated;
 3. that the two debts be due.

4. that they be liquidated and demandable

5. that over neither of them, there be any retention or controversy, commenced

by third persons and communicated in due time to the debtor.

Legal compensation a compensation which shall takes place by operation of

the law. It may also takes place automatically even without the consent of the
parties.

Legal Compensation cannot take place in the following Manner.

1.when one debt arises from depositum (not in a bank deposit, for this is really a
loan

2. when one debts arises from obligation of depository

3. when one debt arises from obligation of a bailee in commodatum

4. when one debt arises because of a claim for support

5. when one of the debts consist in civil liability arising from criminal offense.

Note: the relation of a depositor with the bank is considered debtor-

creditor relation, so the bank may set up compensation.

F. NOVATION

- it is an extinction of an obligation through the creation of a new one

which substitute it.

Novation may takes place on the following:

1. Changing their object or principal condition

2. Substituting the person of the debtor

3. Subrogating a third person in the rights of the creditor.

Requisites of Novation

1. Previous valid obligation

2. Capacity and intention of the parties to modify or extinguished the

obligation

3. the modification or extinguishments of the obligation

4. the creation of a new valid obligation

KINDS OF SUBSTITUTION

1. Expromision that which takes place when a third person on his own
initiative and without the knowledge or against the will of the original
debtor assumes the obligation.

2. Delegacion or Delegation one which takes place when the creditor accepts a
third person to take the place of the debtor at the instance of the latter.
 CONTRACTS
CHAPTER I

Objectives:
To differentiate contracts from obligations
To know the characteristics of contracts.

CONTRACT DEFINED

CONTRACT It is a meeting of minds between two persons whereby one binds

himself, with respect of the other, to give something or to render some service.

AND OBLIGATION DISTINGUISH

A contract is one of the sources of obligations. An obligation is the legal tie or

relation itself that exists after a contract has been entered into.

CHARACTERISTICS OF CONTRACT

1. Freedom to Contract- the contracting parties may establish such

stipulations, clauses, terms and conditions as they may deem convenient,
provided thay are not contrary to law, morals, good customs, public order or
public policy.

2. Consensuality- are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature,
may be keeping with good faith, usage and law.
3. Relativity- - contracts take effect only between the parties, their assigns and
heirs except in case where the rights and obligations arising from the
contract are not transmissible by their nature or by stipulation or by
provision of law.
 4. Mutuality- the contract must bind both contracting parties, its validity or
compliance cannot be left to the will of one of them.

5. Obligatory Force of Contract- obligations arising from contracts have the

force of law between the contracting parties and should be complied with in
good faith.

THIRD PERSON- is one who has not taken part in a contracts. As a general rule, he
has no rights and obligations under a contract to which he is a stranger. He has no
standing to demand its enforcement or to challenge its validity.

However, there are cases wherein third persons may be affected by a

contract. They are:

a. in contracts containing a stipulation in favor of a third person

( stipulation pour autrui)
b. in contracts creating real rights
c. In contracts entered into to defraud creditors
d. In contracts which have been violated at the inducement of the third
person.

Pour Autrui is a stipulation in a contract which clearly and deliverately confers a

favor upon a third person who has a right to demand its fulfillment provided he
communicated his acceptance to the obligor before its revocation.
 ESSENTIAL REQUISITES OF CONTRACTS
CHAPTER II

Objectives:
To know the Essential Requisites of Contracts
To know the importance of the Essential Elements of Contracts
To know the effect of contract when the person is incapacitated to give consent

ESSENTIAL REQUISITES OF CONTRACT

1. Consent of the contracting parties

2. Object certain which is the subject matter of the contract

2. Cause of the obligation which is established.

OTHER ELEMENTS

1. Essential Common Elements- those which must be presented only in certain

specific contracts like form in solemn contracts, and delivery.

2. Natural Elements- those that are presumed to exist in certain contracts

unless the contrary is expressly stipulated by the parties, like warranty
against eviction or warranty against hidden defects.

3. Accidental Elements –the particular stipulations, clauses, terms and

conditions, period, interest and penalty.
 CONSENT
SECTION I

Consent Defined

It is an agreement of the will of one contracting party with that of another or

others, upon the object and terms of the contract.

It is the meeting of the minds between the parties on the subject matter and the
cause which are to constitute the contract even if neither has been delivered.

Note: There is consent when there is meeting of the offer and acceptance upon
the thing and the cause which are to constitute the contract.

Offer is a proposal to enter into a contract. It is more than an expression of

desire or hope.

Acceptance is the manifestation by the offeree of his assent to the terms of the
offer.

Acceptance of an offer may be express or implied.

The person making the offer may fix the time, place and the manner of
acceptance, all of which must be complied with.

An offer made through an agent is accepted from the time acceptance is

communicated to him. An agent is considered an extension of the personality of
his principal.( Art.1322 NCC)

An offer becomes ineffective upon the death, civil interdiction, insanity or

insolvency of either party before acceptance is conveyed.

CONTRACT OF OPTION is one giving a person a certain period within which

to accept the offer of the offerer.
It is distinct and separate from the contract which will be perfected upon the
acceptance of the offer.

Option may also refer to the privilege itself given to the offeree to accept an
offer within a certain period.

OPTION PERIOD is the period given within which the offeree must accept the
offer.

OPTION MONEY is the money paid or promised to be paid in consideration for

the option.

EARNEST MONEY it is actually a partial payment of the purchase price and is

considered as proof of the perfection of the contract.

PERSONS INCAPACITATED TO GIVE CONSENT

1. Unemancipated minor
2. Insane
3. Deaf-mute
4. Habitual Alcoholism
5. Hypnotic Spell

Others
6. Civil Interdiction
7. Hospitalized lepers
8. Prodigals( Spendthrifts)
9. Those who, by reason of age, disease, weak mind and other similar cases.

STAGES OF A CONTRACTS

1. Preparation- these includes all the steps taken by the parties leading to the
perfection of the contract. At this stage, the parties have not yet arrived at
any definite agreement.

2. Perfection- this is when the parties have come to a definite agreement or

meeting of the minds regarding the subject matter and cause of the contract.
3. Consummation- this is when the parties have performed their respective
obligations and the contract may be said to have been fully accomplished or
executed, resulting in the extinguishments or termination thereof.

VICES OF CONSENT

1.Error or Mistake- in order that mistake may invalidate consent, it should refer
to the substance of the thing which is the object of the contract, or to those
conditions which have principally moved one or both parties to enter into the
contract.

2.Violence or force-there is violence when in order to wrest consent, serious or

irresistible force is employed.

3.Intimidation or threat or duress- there is intimidation when one of th

contracting parties is compelled by a reasonable and well-grounded fear of an
imminent and grave evil upon his person or property, or upon the person or
property of his spouse, descendants or ascendants, to give his consent.

4. Undue Influence- there is undue influence when a person takes improper

advantage of his power over the will of another, depriving the latter of a
reasonable freedom of choice.

5.Fruad or Deceit- There is fraud when, through insidious words or

machinations of one of the contracting parties, the other is induced to enter into
a contract which, without them, he would no have agreed to.

SECTION II
OBJECTS OF CONTRACTS

Objects may be of the following:

1. Things

2. Rights
3. Services

REQUISITES OF THINGS AS AN OBJECT OF CONTRACT:

1. The thing must be within the commerce of men, that is, it can legally be the
subject of commercial transaction.

2. It must not be impossible, legally or physically.

3. It must be in existence, or capable of coming into existence.

4. It must be determinate or determinable without the need of a new contract

between the parties.

REQUISITES OF SERVICES AS OBJECT OF CONTRACT .

1. The service must be within the commerce of men;

2. It must not be impossible

3. it must be determinate or capable of being made determinate.

All rights may be the object of contracts except when they are intransmissible
by their nature, or by stipulation, or by provision of law.

Future Inheritance is any property or right, not in existence or capable of

determination at the time of the contract that a person may inherit in the future.

SECTION III
CAUSE OF CONTRACTS

Cause is the essential or more proximate purpose which the contracting parties
have in view at the time of entering into the contract.

Classification of Contracts According to Cause:

1. Onerous one the cause of which , for each contracting party is the prestation
or promise of a thing or service by the other. In other words, in this
contract,the parties are reciprocally obligated to each other. Ex. Sale, lease
of thing, partnership.

2. Remuneratory one the cause of which is the service or benefit which is

remunerated.

3. Gratuitous one the cause of which is the liberality of the benefactor or giver.

MOTIVE is the purely personal or private reason which a party has in entering
into a contract.

CAUSE AND MOTIVE DISTINGUISHED

1. Cause is the immediate or direct reason, while Motive is the remote or

indirect reason.

2. Cause is always known to the other contracting party, while motive maybe
unknown

3. Cause is essential element of contract, while motive is not;

4. the illegality of cause affects the validity of a contract, while the illegality of
one’s motive does not render the contract void.

Requisites of Cause

1. It must exist at the time the contract is entered into.

2. It must be lawful

3. It must be true or real.

FORMS OF CONTRACTS
-refers to the manner in which a contract is executed or manifested. They may be either
oral or written. If the contracts is in writing, it maybe public or private.

CLASSIFICATION OF CONTRACTS ACCORDING TO FORM:

1. Informal or common contracts that which may be entered into in whatever form
provided all the essential requisites for their validity are present. Ex. Consensual
contracts like sale, marriage, services and the like.

2. Formal or solemn contracts that which is required by law for its efficacy to be in
a certain specified form. Like:

a. Donation of Real Property – It must be in public instrument

b. Donation of Personal property the value exceeds 5,000. the donation
and acceptance must be in writing.
c. Sale of Land through an agent- the authority of the agent must be in
writing.
d. Stipulation to pay an interest- it must be in writing, otherwise no interest
is due.
e. In contract of Partnership- If immovables are contributed, it must be in a
public instrument to which shall be attached and signed inventory of the
immovable property contributed.
f. Contracts of Antichresis must indicate in writing the amount of principal
and interest.
g. Sale of Large Cattle must be in public document
h. Negotiable Instruments must be in writing
i. Contracts under Statute of Frauds must be in writing to be enforceable
j. Sale or transfer of vessels

THE FOLLOWING MUST APPEAR IN PUBLIC DOCUMENT(Art.1358)

a. Acts and contracts which have for their object the creation transmission,
modification or extinguishment of real rights over immovable property or
sale of real property or interest therein.

b. The cession, repudiation or renunciation of hereditary rights or of those of

the conjugal partnership of gains.

c. The power to administer property or any other power which has for its
object an act appearing or which should appear in a public document or
should prejudice a third person.
The cession of actions or rights proceeding from an act appearing in a public document.
All other contracts where he amount involved exceeds Five Hundred Pesos must
appear in writing.

Public Document defined- in the law of evidence , in all instances where by law or
regulation the document is filed in a public office and it is required to be kept
there, it is of public nature.

REFORMATION OF INSTRUMENTS

Requisites of Reformation

a. there is a valid contract

b. the contract is in writing
c. the written contract fails to express the true intention of the parties and
d. the failure of the written contract to express the true intention is due to mutual
mistake, fraud, inequitable conduct or accident

NO REFORMATION IN THE FOLLOWING CASES

1. Simple donations inter vivos wherein no condition is imposed

2. Wills

3. When the real agreement is void

Inter vivos defined is one which takes effect during the lifetime of the donor.

Mortis Causa is a donation takes effect after the death of the donor.
 DEFECTIVE CONTRACTS

Objectives:

To know the different defective contracts

To differentiate defective contracts from the other
To know the requisites of voidable contracts. Unenforceable contracts, rescissible
contract and void contracts.

KINDS OF DEFECTIVE CONTRACTS

1. RESCISSIBLE CONTRACTS
2. VOIDABLE CONTRACTS
3. UNENFORCEABLE CONTRACTS
4. VOID OR INEXISTENT

RESCISSIBLE it is a relief to protect one of the parties or third person from all
injury and damage which the contract may cause, to protect some preferential
right.

It is a remedy granted by law both to contracting parties and to third persons in

order to secure reparation of damages cause them by contract, even if the
contract be valid, by means of the restoration of things to their condition prior to
the celebration of said contract.

REQUISITERS FOR THE EXERCISE OF THE RIGHT OF RESCISSION

1. there must be at the beginning either a valid or a viodable contracts

2. there must be an economic or financial prejudice to someone.

3. there must be a mutual restitution.

KINDS OF RESCISSION

1.Rescission Proper ( Art. 1380)

2. Resolution ( Art. 1191)

DISTINCTIONS OF RESCISSION PROPER FROM RESOLUTION

1. Rescission Proper is based on lesion or faud upon creditors while Resolution

it is based on non-performance or non-fulfillment of the obligation.

2. Rescission proper the action is instituted by either of the contracting parties

or by a third person while resolution the action may be instituted only by the
injured to the contract.

3. Rescission proper the courts cannot grant a period or term within which to
comply while Resolution , in some cases, the courts may grant a term.

4. Rescission proper, the non performance by the other party is immaterial

while in resolution, the non performance by the other party is important.

THE FOLLOWING ARE RESCISSIBLE CONTRACTS:

1. Those which are entered into by guardians whenever the wards whom they
represent suffer lesion by more than one fourth of the value of the things
which are the object thereof.

2. those agreed upon in representation of absentees, if the latter suffer the

lesion stated the preceding number;

3. those undertaken in fraud of the creditors when the latter cannot in any other
manner collect the claims due them.

4. those which refer to things under litigation if they have been entered into by
the defendant without the knowledge and approval of the litigants or of
competent judicial authority.

5. All other contracts specially declared by law to be subject to rescission.

Note
 Rescission is not principal remedy; it is only subsidiary because it may be
availed of by the injured party only when he has no other legal means of seeking
redress or reparations for the damages caused.

The law allows partial rescission under Art 1384 which states that rescission
shall only to the extent necessary to cover damages caused.

THE AGRIEVED PARTY MAY CLAIM THE FOLLOWING AFTER

RESCISSION IS GRANTED

1. The object of the contract, with its fruits, must be returned

2. the price, with its interest, must be returned.

WHO CAN BRING RESCISSION.

1.The injured party

2. his heirs or his successors in interest

3. Creditors ( Based on 1 and 2 ) Art. 1177

VOIDABLE CONTRACTS

Voidable or Annullable Contract is a contract which possesses all the essential

requisites of a valid contract, namely, consent, object and cause. But has a
defect or vice in that the consent is vitiated either by mistake, violence,
intimidation, undue influence, fraud or that one of the contracting parties is
incapable of giving consent to the contract. A voidable contract is a valid
contract until it is annulled. It becomes an absolutely valid contract once
ratified.
 THE FOLLOWING CONTRACTS ARE VOIDABLE OR ANNULLABLE:

1. Those where one of the parties is incapable of giving consent to a contract.

2. Those where the consent is vitiated by mistake, violence, intimidation, undue

influence or fraud.

VOIDABLE AND RESCISSION DISTINGUISHED

1. Voidable contract declares the inefficacy which the contract already carries;
while rescission produces that inefficacy which was not inherent in the
contract.

2. Voidable is absolute while rescission is relative

3. Voidable presupposes that there is a vice in the contract and needs no

ratification; while rescission, to be valid, needs confirmation.

4. In voidable contract, the public interest is affected while in rescission

private interest predominates.

5. Voidable contracts indicates a vice in the contracts while rescission is

compatible with the perfect validity of the contract.

6. Voidable , annulment is a sanction, while rescission is a remedy.

Note: ANNULMENT SHALL BE BROUGHT WITHIN FOUR YEARS

COUNTED FROM:

a. In case of intimidation, violence or undue influence, from the time

the defect of consent ceases.

b. In cases of mistake, or fraud from the time of the discovery of the

same.
 c. When the action refers to contracts entered into by minors or other
incapacitated persons, from the time the guardianship ceases.

Ratification is the affirmance by person of a prior act which did not bind him,
but which was done or professedly done on his account, whereby the act, as to
some or all persons, is given effect as if originally authorized by him.

Note: EFFECT OF ANNULMENT UPON A CONTRACTING PARTIES.

If the contract is annulled, the parties, as general rule, must restore to each other
the following

the subject matter of the contract with its fruits

the price thereof with its interest, except in cases provided by law.

UNENFORCEABLE CONTRACTS

Unenforceable contract is one that cannot be enforced in court or sued upon by

reason of defects provided by law until they are ratified according to law.

UNENFORCEABLE AND VOIDALE CONTRACT DISTINGUISHED

Voidable contract is valid and enforceable until annulled while Unenforceable

contract, although valid, is unenforceable until ratified.

UNENFORCEABLE AND RESCISSIBLE DISTINGUISHED

A rescissible contract is valid and enforceable until rescinded while an

unenforceable contract although valid is unenforceable until ratified.

THE FOLLOWING CONTRACTS ARE UNENFORCEABLE:

1. Those entered into in the name of another person by one who has not been
given no authority or legal representation, or who has acted beyond his
powers.
2. Those who do not comply with the Statute of Frauds as set forth in this
number. In the following cases, an agreement hereafter made shall be
unenforceable by action, unless the same or some note or memorandum
thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the writing
or a secondary evidence of its contents:

a. An agreement that by its terms is not to be performed within a year

from the making thereof.

b. A special promise to answer for the debt, default or miscarriage of

another.

c. An agreement made in consideration of marriage, other than a

mutual promise to marry.

d. An agreement for the sale of goods, chattels or things in action, at a

price not less than five hundred pesos, unless the buyer accept and
received part of such goods and chattels, or the evidences, or some
of them, of such things in action, or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of sale, of the
amount and kind of property sold, terms of sale, price, names of the
purchasers and persons on whose account the sale is made, it is
sufficient memorandum.

e. An agreement for the leasing for a longer period than one year, or for
the sale of real property or of an interest therein.

f. A representation as to the credit of a third person.

3. Those where both parties are incapable of giving consent to a contract.

VOID OR INEXISTENT CONTRACT

 Void contracts are absolutely null and void. Void have no effect at all and
cannot be ratified.

VOID CONTRACT AND UNENFORCEABLE CONTRACT DISTINGUISHED

Void contract are those contract which cannot be ratified and are considered not
valid from the beginning while unenforceable contracts are those which,
although valid, are still unenforceable unless they are ratified.

VOIDABLE AND VOID CONTRACTS DISTINGUISHED

Void contracts are those which cannot be ratified and cannot give rise to a valid
contract while Viodable contracts are those which are susceptible of ratification,
considered valid and binding unless annulled by proper action in court and once
ratified become absolutely valid and can no longer be annulled.

The following are inexistent from the beginning :

1. Those whose cause, object or purpose is contrary to law, morals, good customs
and public order and public policy.

2. Those which are absolutely simulated and fictitious.

3. Those whose cause or object did not exist at the time of transaction;

4. Those whose object is outside the commerce of man;

5. Those which contemplate an impossible service.

6. Those where the intention of the parties relative to the principal object of the
contract cannot be ascertained;

7. Those expressly prohibited or declared void by law.

CHARACTERISTICS OF A VOID OR INEXISTENT CONTRACT:

1. Generally, it produces no effect whatsoever.

2. It cannot be ratified
 3. The right to set up the defense of illegality cannot be waived

4. The action or defense for the declaration of its inexistent does not prescribed.

5. The defense of illegality is not available to third persons whose interests are not
directly affected.

References:

De Leon , Hector S. Textbook on the Philippine Constitution, 2005 Edition

De Leon, Hector S. The Law on Obligations and Contracts, 2003 Edition

Torres, Justo Jr. Obligations and Contracts, 2000 Edition

Ancheta-Luna, Miguela, The Law on Obligations and Contracts, 1995 Revised Ed.

Albano, Ed Vincent, Civil Law Reviewer, 1997 Revised Edition

Nolledo, Jose N. Handbook on Obligations and Contracts, 1992 Revised Edition

Paras, Edgardo L. Obligations and Contracts Book IV, 1989 Edition

 Republic of the Philippines
Isabela State University
Echague, Isabela

COLLEGE OF BUSINESS ACCOUNTANCY AND PUBLIC

ADMINISTRATION
 Prepared by:

GILBERT M. EUSTAQUIO, Ph.D.

Professor