OBLICON Reviewer

Ley La Salle
Based on H. De Leons The Law on Obligations and Contracts and the Civil
Code of the Philippines
Part 1: The Law on Obligations
Chapter 1-General Provisions
- Obligation is derived from the Latin word obligation which means
tying or binding
- An obligation is a bond recognized by law by virtue of which one is
bound in favor of another to render something- giving a thing, doing an
act, or not doing an act. (1156)
-Obligation is a juridical necessity because in case of noncompliance,
the courts of justice may be called upon by the aggrieved party to
enforce its fulfilment or, in thereof, the economic value that it
represents.
-Debtor or obligor may also be made liable for damages, which
represents the sum of money given as a compensation for the injury or
harm suffered by the creditor or oblige for violation of his rights
Nature of Obligations under the Civil Code
-Civil obligations are obligations which give to the creditor or oblige a
right under the law to enforce their performance in courts of justice
-Natural obligations are obligations which do not grant a right of action
to enforce their performance
-Every obligation has 4 essential requisites
1. A debtor or obligor (passive subject)- person who is bound to
fulfill obligation
2. A creditor or oblige (active subject)- person who is entitled to
demand fulfillment of obligation.; he who has a right.
3. Object or prestation (subject matter of the obligation)- The
object or act that the debtor has to render.
4. A juridical or legal tie (cause)- that which bind the parties to
the obligation.
- Form of an obligation refers to the matter in which an obligation is
incurred. It may be oral, in writing, or partly oral and partly in writing.
Terms:
Obligation- the act or performance which the law will enforce

Right- the power which a person has under the law, to demand from another
any prestation
Wrong- an act or omission of one party in violation of the legal right or rights
Injury- wrongful violation of the legal right of another
Kinds of Obligation according to subject matter:
1) Real Obligation (obligation to give)- subject matter is a thing which the
obligor must deliver to the obligee.
2) Personal Obligation- Obligation to do (Positive personal obligation) or
not to do (negative personal obligation)
-Obligations arise from (1157):
Law
Contracts,
Quasi-contract, Acts or omissions punished by law and
Quasi-delicts
Sources of obligations(as enumerated by law): mainly, LAW and CONTRACTS
1) Those emanating from law
2) Those emanating from private acts which may be further subdivided
into (a) those arising from licit acts, in the case of contracts and quasicontracts and (b) those arising from illicit acts, which may either be
punishable in the case of delicts or crimes, or not punishable in the
case of quasi-delicts or torts
-Obligations derived from law are not presumed. (1158)
*Ex: An employer has no obligation to furnish free legal assistance to
his employee because there is no law that requires this.
-Obligations arising from contracts should be complied in good faith.
Compliance in good faith means sincerely complying with the
stipulations of the contract. This is to prevent one party from unfairly
taking advantage of another. (1159)
Contract- meeting od the minds between two persons whereby one
binds himself, with respect to the other, to give something or to render
some service.
Compliance in good faith- compliance or performance in accordance
with the stipulations or terms of the contract or agreement. Sincerity
and honesty must be observed to prevent one party from taking unfair
advantage over the other.
-Obligations arising from quasi-contracts are treated as if the parties
have entered into a real contract, even if they did not intend to. (1160)

Quasi-contract- 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 will be unjustly enriched or benefited at
the expense of another.
Kinds of quasi-contracts
1) Negotiorum gestio- voluntary management of the property or
affairs of another without the knowledge or consent of the latter.
2) Solutio indebiti- juridical relation which is created when
something is received when there is no right to demand it and it
was unduly delivered through mistake.
-A quasi-delict is an act or omission of an act that causes damage to
another persons property or rights, giving rise to an obligation to pay
for damages despite there being no ore-existing contracts between
parties. (1162)
Requisites of quasi-delict:
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 or connection of cause and effect
between the act or omission and the damage
5) There is no pre-existing contractual relation between the parties
-Crime differs from a quasi-delict in that crime has a malicious intent,
while quasi-delict comes from negligence. (accidents)
-Crime differs from a quasi-delict in that crime has the purpose of
punishment, while quasi-delict has indemnification of the offended
party.
- Crime there are two liabilities, civil and criminal, while quasi-delict
there is only civil liability.

Chapter 2: Nature and Effect of Obligations

-A person obliged to give something is obliged to treat that object as
an average person would treat his property (diligence of a good father)
(1163)
Duties of debtor in obligation to give a determinate thing
1) Preserve the thing: (1) Diligence of a good father of a family (2)
Another standard of care (3) Factors to be considered
2) Deliver the fruits of the thing

3) Deliver the accessions and accessories

4) Deliver the thing itself
5) Answer for damages in case of non-fulfillment
Specific Thing and Generic Thing distinguished:
1. A specific or determinate thing is one-of-a-kind. The debtor cannot
substitute it with another even if the latter is the same kind and
quality. (ex. Obligation is to deliver Xs Rolex watch. Xs Rolex watch
cannot be substituted with another Rolex watch, even if the watch is
exactly the same)
2. A generic or indeterminate thing is only identified by its specie. It
can be substituted. (ex. Obligation is to deliver a Rolex watch. Other
Rolex watches can be substituted.)
-The creditor is entitled to the fruits of the thing to be delivered from
the time the obligation to make the delivery arises. (1164)
Kinds of fruits
1) Natural fruits- spontaneous products of the soil, and the young
and other products of animals.
2) Industrial fruits- those produced by lands of any kind through
cultivation or labor
3) Civil fruits- those derived by virtue of juridical relation
-When in an obligation to deliver a specific thing only the debtor can
comply with the obligation. The creditor can also compel the debtor to
make the delivery. This is not the case in a generic obligation, in which
the obligation can be performed by a third person. In both cases
however, the debtor has the right to recover damages if in breach or
violation of the obligation. (1165)
-Delivery of a specific thing includes all fruits and accessories of the
thing, even if they are not mentioned in the obligation. (1166)
Accessions- fruits of a thing or additions to or improvements upon a
thing.
Accessories- things joined to or included with the principal thing for the
latters embellishment, better use, or completion.
-If a debtor fails in an obligation to do, the creditor has the right to
have the obligation done by himself or by another at the debtors
expense, unless it is a personal obligation, and to recover damages.

-If the obligation was a specific performance (ex. To sing in a

nightclub), the only remedy is indemnification of damages, as being
ordered to do a personal obligation may be constituted as involuntary
servitude.
-If the obligation is done poorly or in contravention of the agreement,
the court may order the action to be undone if possible. (1167)
-In an obligation not to do, if the obligor does what is forbidden, it shall
be undone at his expense (1168)
-It is not yet a legal delay when the time actually passes, but when the
creditor actually demands it.
Terms:
Ordinary delay- failure to perform an obligation on time
Legal delay or default or mora- failure to perform an obligation on time
which failure constitutes a breach of the obligation.
Kinds of delay
1) Mora solvendi- delay on the part of the debtor to fulfill his
obligation
2) Mora accipiendi- delay on the part of the creditor to accept the
performance of the obligation
3) Compensatio morae- delay of the obligors in reciprocal
obligations
*Exceptions
1. When the obligation so provides
2. When the law so provides
3. When time is of the essence
4. When demand would be useless
5. When there is performance by a party in reciprocal
obligations. (1169)
-Those who are guilty of fraud, negligence, delay, or contravention of
the agreement of the obligation are liable for damages. (1170)
Fraud (dolo) - the deliberate or intentional evasion of the normal
fulfilment of an obligation (incidental and casual fraud) (dolo
incidente and dolo causante)
Negligence (fault or culpa)- voluntary act or omission, there being
no malice, which prevent the normal fulfilment of an obligation.
-Waiver of any future fraud is void. However, waiver for past action of
fraud is allowed. Future fraud is prohibited because it would encourage

fraud in the future. Past fraud is allowed because it can be seen as an

act of generosity. (1171)
-Damages from negligence may be regulated by courts. This is done
because of the varied circumstances of each case. (1172)
-Waiver for future negligence is allowed unless the nature of the
obligation requires extraordinary diligence. (ex. X and Y may agree for
a future waiver of a shipping container that might be lost in the future,
but a shipping company cannot because it is their job to deliver
something like that.)
-Fault or negligence arises from the omission of the diligence
required.
*The following types of diligence are required:
1. That agreed upon by the parties, orally or in writing.
2. In the absence of stipulation, that required by law.
3. If both are silent, diligence of a good father. (1173)
-A fortuitous event is an event which cannot be foreseen or is
inevitable. If a fortuitous event is responsible for an obligation to be
impossible to complete, the creditor is not liable. (1174)
*Exceptions:
1. When stated specified by law (eg. Debtor is guilty of fraud,
negligence, etc.)
2. When it is stipulated
3. When the nature of the obligation requires the assumption
of risk. (eg. Insurance)
-If the debtor has a receipt from the creditor of a paid debt, there is a
presumption that the obligation has been paid. The same is true on a
receipt of an installment. (1176)
*Exceptions:
1. With reservations as the interest-presumption does not
arise if there is a
reservation that no payment
has been made, verbally or in writing.
2. Receipt without indication of particular installment paid
3. Receipt for a part of the principal.
4. Payment of taxes.
5. Non-payment proven
-All rights acquired in virtue of an obligation are transmissible, unless
stipulated (1178)
Chapter 3: Different Kinds of Obligations

Section 1: Pure and Conditional Obligations

- A pure obligation is one which is not subject to any condition
and no specific date is mentioned for its fulfilment and is,
therefore, immediately demandable.
-A conditional obligation is one whose consequences are subject
in one way or another to the fulfilment of a condition. A condition
is a future and uncertain event. It also may refer to a past
event that is unknown to the parties.
Two kinds of condition:
1. Suspensive- will give rise to an obligation after event
happens.
2. Resolutory- will extinguish obligation.
-An obligation may be demandable at once if it pure, when it is
subject to a resolutory condition, or when it is subject to a
resolutory period. (1179)
- A period is a future and certain event. When the debtor binds
himself to pay when his means permit him to, the obligation shall
be deemed to be one with a period. (1180)
-If the fulfilment of a condition depends on the sole will of the
debtor, the conditional obligation is void. (1182)
-Physically or legally impossible conditions will cause the
obligation to be void if it is an obligation to do. If the condition is
not to do the impossible thing, the obligation is valid.
Additionally, if the obligation is divisible, where a part can be
legally and physically possible and the other part isnt, the
possible part is valid. (1183)
-A suspensive obligation will be extinguished if:
1. The time of the condition expires without the event taking
place, or
2. As soon as it has become certain that the event will not take
place, even if the specified time has not expired. (1184 and
1185)
-The condition shall be deemed fulfilled if the debtor voluntarily
prevents its fulfilment. (1186)

-When a conditional obligation to give has been fulfilled, it shall

retroact to the day of the constitution of the obligation. All fruits
and interests shall be deemed to have been mutually
compensated. If the obligation is unilateral, the fruits shall be
given to the debtor, unless the intention of the person
constituting the same was different.
-In obligation to do or not to do, the courts shall handle it. (1187)
-Before a fulfillment of a condition, the creditor may take
appropriate actions for the preservation of his right.
-The debtor may recover what he paid the creditor by mistake
before the fulfillment of a condition. (1188)
-Rules in case of loss, deterioration or improvement of thing
during pendency of suspensive condition:
1. Loss of thing without debtors fault:
-Obligation is extinguished
2. Loss of thing through debtors fault
-Creditor would be entitled to demand damages plus
incidental damages, if any
3. Deterioration of a thing without debtors fault
-Creditor would suffer the deterioration
4. Deterioration of a thing through debtors fault
-Creditor may choose between cancellation of the
obligation with damages, or fulfillment of the obligation
with damages.
5. Improvement of thing by nature or by time
-Creditor would reap the benefit
6. Improvement of a thing through debtors actions
-Debtor would have a right of usufruct (the right to
enjoy the use and fruits of a thing belonging to another)
to the improvements he made (1189)
-In resolutory obligations to give, when the condition arrives, the
parties shall return to each other what they have received. In
case of loss, deterioration, etc. of the thing, Art. 1189 applies.
-In resolutory obligations to do and not to do, 1187 applies.
(1190)
-In case one of the debtors does not comply, the aggrieved party
may choose between two remedies.
1. Action for specific performance of the obligation with
damages.

2. Action for rescission of the obligation with damages.

-The court shall order the rescission claimed unless there should
be just cause for granting the party in default a period for the
performance of his obligation. (1191)
-If both parties have committed a breach of obligation, the
liability of the first infractor should be equitably reduced. If the
first infractor cannot be determined, the obligation is
extinguished and each shall bear his own damages (1192)
Section 2- Obligations with a Period
-Obligations with a fixed period shall be demandable only when
that day comes.
-Obligations with a resolutory period take effect at once, but
terminate upon the specified date.
-A period may be known as a day that will surely come, although
it may not be known when.
-If it is not certain whether it is a period or condition, conditional
rules apply. (1193)
- A debtor can recover what was mistakenly paid or given before
the fulfilment of a period. However, this does not apply if the
debtor knew that the debt was not yet due. (1195)
-An obligation with a period is generally made for the benefit of
both creditor and debtor. Thus, the debtor may not fulfill the
obligation and neither the creditor may demand its fulfilment
without the consent of the other. However, the creditor and
debtor can make an obligation that benefits either one of them
only, if stipulated. (1196)
-If an obligation does not state a period but a period was
intended, the courts may fix a duration thereof. The courts may
also fix a duration if the fulfilment of an obligation solely requires
the will of the debtor. (1197)
-The obligation with a period becomes a pure, and therefore
immediately demandable, obligation if:
1. Debtor becomes insolvent.
2. Debtor does not furnish guaranties or securities
promised.

3. When guaranties or securities given have been impaired

or have disappeared.
4. When debtor violates an undertaking
5. When debtor attempts to abscond (intention of
escaping from the debt) (1198)
Section 3- Alternative Obligations
Kinds of obligation according to object
1. Simple Obligation One where there is only one prestation
2. Compound Obligation- One where there are two or more
prestations. These may be:
a) Conjunctive one where there are several prestations
and all of them are due
b) Distributive one where one, two or more of the
prestations is due. It may be:
I. Alternative One where several prestations are
due but only one is sufficient
II.
Facultative- One where only one prestation is due
but the debtor may substitute another.
-A person alternatively bound by different prestations shall
perform all of them. The creditor cannot be compelled to receive
part of one and part of the other undertaking. (1199)
- Right of choice belongs to the debtor, unless stipulated.
Debtor cannot choose prestations which are impossible, unlawful,
or which could not have been the object of the obligation. (1200)
-The choice shall produce no effect except from the time it has
been communicated. Choice may be oral or in writing. (1201)
-Debtor shall lose right of choice if only one prestation is
possible. (1202)
-If through a creditors act, the debtor cannot make a choice
according to the terms of the obligation, the latter may rescind
(return the object of the contract with fruits/ price with interest)
the contract with damages. However, the debtor may choose
between the remaining prestations with a right to recover the
damages. He can also choose the impossible prestation to
extinguish the contract with no damages. (1203)
- If, through the debtors fault, all objects become lost or
impossible to do, the creditor has a right to indemnity for
damages. The damages paid shall be the value of the last thing

which disappeared or became impossible, unless stipulated. If

the last object was lost through a fortuitous event, the obligation
is extinguished. (1204)
-If choice is given to debtor, obligation shall cease to be
alternative from when selection has been communicated to the
debtor.
-Rules in case of loss before creditor has made choice:
1. When a thing is lost through fortuitous event.
- Creditor can choose among the remaining
2. When a thing is lost through debtors fault.
- Creditor can choose among the remaining with a
right to damages, or the price of the destroyed item
also with damages.
3. When all the things are lost through debtors fault
- Creditor can demand the price of any one item plus
damages.
4. When all things are lost through fortuitous event
- Obligation is extinguished
(1205)
- In a facultative obligation, loss of the substitute before the
substitution does not make the debtor liable. If the substitute is
lost after substitution, debtor is liable unless fortuitous event.
(1206)
Section 4- Joint and Solidary Obligations
-Meaning of Joint and Solidary Obligations:
1. Joint Obligation is one where the whole obligation is to be paid
proportionately by the different debtors and/or is to be
demanded proportionately by the different creditors.
2. Solidary Obligation is one where each one of the debtors is
bound to render, and/or each one of the creditors has a right
to demand from any of the debtors, entire compliance with
the prestation.
-There is solidary obligation only if expressly stated, otherwise, it is
joint. (1207 and 1208)
-Joint indivisible obligations are obligations are indivisible because
the object cannot be divided into parts. Hence, the debt can be
enforced only by proceeding against all the debtors. If one of the
debtors should be insolvent, the others are not liable for his share.
(1209)

-Solidary may exist even if the debtors and creditors are not bound
in the same manner and by the same periods and conditions. (1211)
-Each one of the solidary creditors may do whatever is useful to the
others, but not what is prejudicial. (1212)
-A solidary creditor cannot assign his rights without the consent of
the others. (1213)
-The debtor may pay any one of the solidary creditors; but if any
demand has been made by one of them, payment should be made
to him. (1214)
-Novation (creation of new obligation), compensation (parties are
debtors and creditors of each other), confusion (meeting in one
person of debtor and creditor), or remission (or condonation) of the
debt (donation), made by any of the solidary creditors or with any of
the solidary debtors, shall extinguish the obligation without
prejudice to Art. 1215
-The creditor who may have executed these acts, as well as whoever
collects the debt, shall be liable to the others for their corresponding
share. (1215)
-In a solidary obligation, any one or some or all of the solidary
debtors simultaneously, may be made to pay the debt as long as it
has not been fully collected. The choice is left to the solidary
creditor to determine against whom he will enforce collection.
(1216)
-Payment made by one of the solidary debtors extinguishes the
obligation. The debtor who made the payment may claim
reimbursement from his co-debtors. When one of the co-debtors
cannot, due to his insolvency, reimburse his share, the share shall
be borne by all his co-debtors, in proportion to the debt of each.
(1217)
-Payment made by a solidary debtor shall not entitle him for
reimbursement if the payment was made after the obligation has
prescribed or made illegal. (1218)
-The remission made by the creditor of the share which affects one
of the solidary debtors does not release the latter from his
responsibility towards the co-debtors, in case the debt had been
totally paid by anyone of them before the remission was effected.
(1219)

-The remission of the whole obligation obtained by one of the

solidary debtors does not entitle him to reimbursement from his codebtors. (1220)
-Rules in case the thing has been lost or prestation has become
impossible.
1. Loss is without fault and before delay
- Obligation shall be extinguished
2. Loss is due to fault on part of a solidary debtor
- All are responsible for damages. Debtors who are not
at fault can recover from debtor who is at fault.
3. Loss is without fault but after delay
- Same as no.2
(1221)
-A solidary debtor may avail himself of the following defenses:
1. Defenses derived from the nature of the obligation.
2. Defenses personal to the debtor sued.
3. Defenses personal to other solidary debtors. (1222)
Section 5- Divisible and Indivisible Obligations
- A divisible obligation is an obligation in which the object or
performance can be split/capable of partial fulfilment. An
indivisible obligation is an obligation in which the object or
performance must be paid/done in one event. (1223)
-If any one of the debtors does not comply with his undertaking
in a joint indivisible obligation, the obligation is converted into
one for damages. See Art. 1209 (1224)
-Obligations deemed indivisible are:
1. Obligations to give definite things.
2. Obligations which cannot have a partial performance.
3. Obligations prescribed by law to be indivisible even if the
service may be physically divisible.
4. Obligations intended by the parties to be indivisible
-Obligations deemed to be divisible are:
1. Obligations which have for their object the execution of a
certain number of days to work.
2. Obligations which have for their object the accomplishment
of work by material units.

3. Obligations which by their nature are susceptible of partial

performance. (1225)
Section 6 Obligations with a Penal Clause
- An obligation with a penal clause is one which contains an
accessory undertaking to pay an indemnity in case of a
breach of contract. The penal clause is to insure performance
of the obligation, or to substitute the penalty in case of breach of
contract. (1226)
-The debtor cannot pay the penal clause to avoid doing the
obligation, unless stipulated. The creditor cannot demand the
fulfilment of the obligation plus the penal clause, unless
stipulated.(1227)
-Proof of actual damages suffered by the creditor is not
necessary in order that the penalty may be demanded. This only
applies to normal penal clause obligations. Any obligations
adhering to Art.1227 must have proof. (1228)
-The judge shall reduce the penalty if the original obligation was
partly completed. The court may also reduce the penalty even if
there is no performance, if the original penalty is deemed unfair.
(1229)
-If the obligation is void, the penal clause is void. If the penal
clause is void, the obligation may still be valid. (1230)
Chapter 4- Extinguishment of Obligations
General Provisions
-Obligations are extinguished:
1. By payment or performance
2. By the loss of the thing due
3. By the condonation or remission of the debt
(donation)
4. By the confusion or (merger of the rights of creditor
and debtor into one person)
5. By compensation (parties are debtors and creditors
of each other)
6. By novation (new obligation)
7. Other causes such as annulment, rescission, etc.
(1231)
Section 1-Payment or Performance

-Payment means delivery of money, doing/ not doing an act,

giving a thing. Payment and performance are synonymous.
(1232)
-A debt is not extinguished until the thing or service is fully
completed. (1233)
-If there is a substantial performance in good faith, then the
obligation may be considered completed, less damages suffered
by the creditor. (1234)
-If the creditor accepts the performance, knowing its
incompleteness, without protest, the obligation is deemed
completed. (1235)
- A person is not bound to accept payment from a third person
with no interest in the obligation, unless stipulated.
-If creditor accepts, third person may demand compensation
from debtor.
If the debtor had no knowledge or was against the
payment of third person, third person can only recover up
to the amount of the debt.
If made with knowledge, payer can get up to what he paid
(even if more than debt) (1236)
-If third person pays without the debtors knowledge or will, he
cannot compel the creditor to give him the debtors rights.
(1237)
-If the third person pays and does not intend to be reimbursed,
the payment is considered as a donation and requires the
debtors consent to be valid.
*However, if the creditor accepts the payment, the
payment shall be deemed valid even if the debtor does not
give consent. (1238)
-In obligations to give, payment by one who does not have full
ownership of the thing due and capacity to alienate (person is
not incapacitated to enter into contracts) is not valid. The thing
paid can be recovered. (1239)
-Payment shall be made to the creditor, his successor in interest
(ex. An heir, an assignee) or any person authorized to receive it.

-Person authorized to receive payment means person is

authorized by both creditor and the law to receive it. (1240)
-Payment made in good faith to any person in possession of
the credit shall release the debtor. (1242)
-Payment made to the creditor by the debtor after the latter has
been judicially ordered to retain the debt shall not be valid.
(1243)
-In an obligation to deliver a specific thing, the debtor cannot
compel the creditor to accept a different thing from the
agreement, even if it was more valuable.
-In a personal obligation, the act to be performed or prohibited
cannot be substituted against the creditors will (1244)
-Dation in payment is satisfying a debt of money by giving a
thing instead. (1245)
-If the obligation is to deliver a generic thing, the creditor cannot
demand a generic thing of superior quality. Neither can the
debtor force the creditor to accept a thing of inferior quality.
(1246)
-Extrajudical expenses payment are for the accounts of the
debtor, unless stipulated. This article does not apply if Art. 1251
is used. (1247)
-The creditor cannot be compelled to accept partial performance,
neither can the debtor be forced to pay partial performance.
*Exceptions
If stipulated
When the debt is in part liquidated and in part unliquidated
Obligations to be paid in installments. (payments may be
demanded per installation if in delay) (1248)
-Payment of debts should be made in the currency stipulated. If
delivery is not possible, then in currency which is legal tender in
the Philippines.
-Delivery of promissory notes payable or the like does not
extinguish the obligation until they have been cashed. The
creditor can also refuse the payment by promissory note. (1249)

-Purchasing value of the currency at the time of the

establishment of the obligation will be the basis of payment,
unless stipulated. (1250)
- Places where obligation shall be paid:
1. If there is a stipulation, the stipulated place.
2. If there is a stipulation and thing is specific, the payment
shall be made where the thing was at the perfection of the
contract.
3. If there is no stipulation and the thing is generic, the place
shall be the domicile (habitual residence) of the debtor.
(1251)
Sub-section 1 Application of Payments
Requisites of application of payments:
1. There must be one debtor and one creditor
2. There must be two or more debts
3. Debts must be of the same kind
4. The debts to which payment made by the debtor has
been applied must be due
5. The payment made must not be sufficient to cover all
the debts
Application as to debts not yet due:
1. Must be stipulated
2. It is made by the debtor or creditor, as the case may
be, for whose benefit of the period has been
constituted.
Rules on application of payments:
1. Debtor has first choice. He must indicate at the time
of the payment, and not afterwards, which debt is
being paid.
2. If debtor did not specify, creditor may make
designation.
3. If both have not specified, payment goes to the most
onerous contract
4. If the debts are the same, Payment shall be applied
proportionately. (1252)
- If the debt produces interest, payment of the principal
shall not be deemed to have been made until the interests
have been covered (1253)
Subsection 2- Payment by Cession

-Payment by cession is the assignment or abandonment

of all the properties of the debtor for the benefit of the
creditors in order that the latter may sell the property
and use the proceeds as payment.
-Requisites of payment by cession
1. There must be two or more creditors
2. Debtor must be (partially) insolvent
3. Cession must be accepted by creditors
-Unless stipulated, cession does not make the creditors
owners of the property. The debtor is still liable if there is
still a debt after cession. (1255)
Subsection 3-Tender of Payment and Consignation
-Tender of Payment is the act of offering the creditor the
thing or amount due. Consignation is the act of depositing
the thing or amount due with the proper court if the
creditor does not desire or cannot receive it.
-Requisites of a valid consignation:
1. Existence of a valid debt that is due
2. Refusal of the tender of payment by the creditor
without justifiable reason.
3. Previous notice of consignation to persons interested
in the fulfillment of the obligation.
4. Consignation of thing due
5. Subsequent notice of consignation to both parties.
-Tender of payment is not required if:
1. Creditor is absent or unknown or does not appear in
place of payment
2. Creditor is incapacitated to receive payment by the
time it is due
3. When, without just cause, creditor refuses to give a
receipt.
4. When two or more persons claim the same right to
collect.
5. When the title of the obligation has been lost. (1256)
-In absence of prior notice to the persons interested in
the fulfilment of the obligation (ex. Mortgagees, solidary
debtors, solidary creditors,) the consignation is void.

-Consignation must also comply with the provisions which

regulate payment. (1257)
-Consignation is necessary to effect payment. Tender of
payment must be provided before consignation, unless
consignation is of the 5 types listed above.
-After consignation is made, interested parties must be
notified. (1258)
-The expenses of consignation, when properly made,
shall be charged to the creditor. (1259)
-Debtor may ask the judge to order the cancellation of
the obligation after consignation.
-Before creditor has accepted consignation or before a
declaration that consignation has been made, debtor can
withdraw the deposited thing, keeping the obligation
going, (1260)
-The creditor can authorize the debtor to withdraw the
consignation. However, creditor will lose every preference
he may have made on the thing, and the solidary debtors,
guarantors, an sureties shall be released. (1261)
Section 2-Loss of the Thing Due
-When loss of thing will extinguish an obligation:
1. The obligation is to deliver a specific and determinate thing
2. The loss of the thing occurs without the fault of the debtor,
and
3. The debtor is not guilty of delay.
-When loss of the thing will NOT extinguish obligation:
1. When the law so provides.
2. When stipulated.
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. (1262)
-The loss of a generic thing does not extinguish an obligation. (1263)
-In case of partial loss, the court shall determine whether the partial
loss is equivalent to a total loss or not. (1264)

-If a thing is lost while in possession of a debtor, it shall be

presumed that the loss was due to his fault. This does not apply in
case of natural calamity. (1265)
-The debtor shall be released from his obligation if the prestation
becomes legally or physically impossible without the fault of the
debtor. (1266)
-When the performance of service has become too difficult to
perform, the court is authorized to release the debtor in whole or in
part. (ex. If an acrobat loses his leg before he is obliged to do an
acrobatic show) (1267)
-If a thing that is stolen is lost through a fortuitous event, the debtor
( in this case, the one who stole it) is not exempted from the liability.
(1268)
-If a loss is due to the fault of a third person, the creditor has every
right to pursue the third person. (1269)
Section 3-Condonation or Remission of Debt
-Condonation or Remission is the gratuitous abandonment by the
creditor of his right against the debtor. It is thus a form of donation.
-Requisites of remission:
1. It must be gratuitous.
2. It must be accepted by the obligor.
3. The parties must have capacity
4. It must not be contrary to law.
5. If made expressly, it must comply with the forms of donations.
-Kinds of remission:
1. As to its extent:
Complete Covers the entire obligation
Partial when it doesnt
2. As to its form:
Express made verbally or in writing.
Implied when it can only be inferred from conduct.
3. As to its date of effectivity
Inter vivos Will take effect during the lifetime of the
donor
Mortis causa When it will become effective upon
the death of the donor. (1270)

-The delivery of a private document, evidencing a credit, made

voluntarily by the creditor to the debtor, is implied as remission.
-In order to nullify, it must be claimed to be inofficious. The
debtor or his heirs may prove this by proving that the delivery of
the document was payment of debt and not remission. (1271)
-When the private document is found with the debtor, it is
presumed that the creditor delivered it voluntarily, unless the
contrary is proved. (1272)
-The renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter shall leave the
former in force. (1273)
-It is presumed that the thing pledged in the obligation is
remitted when, after its delivery to the creditor, it is found in the
possession of the debtor again. (1274)
Section 4- Confusion or Merger of Rights
- Confusion or merger is the meeting in one person of the qualities of
creditor and debtor with respect to the same obligation.
-Requisites of merger:
1. It must take place between the principal debt and the creditor;
and
2. It must be complete.
-The obligation is extinguished in case of merger (1275)
-Merger extinguishes the obligation. Hence, the accessory obligation of
guaranty is also extinguished. However, it does not extinguish the
principal obligation.
*Ex. D is indebted to C with G as a guarantor. The merger means
that D shall free G from his liability as a guarantor.
Suppose, that C assigns his credit to E, who, in turn, assigns his
credit to G, the guarantor. In this case, the guaranty is
extinguished, but D still has the obligation to pay the principal
obligation. Since G has the rights of the credit, G can demand
payment from D. (1276)
-In a joint obligation, merger will only extinguish the share amongst the
debtor and creditor who merged. (1277)

Section 5- Compensation
-Compensation sis the extinguishment of the concurrent amount of the
debts of two persons who are debtors and creditors of each other.
(1278)
-In order that compensation may be proper, it is necessary:
1. The parties are principal creditors and debtors to each other
2. Both debts consist in a sum of money, or of consumable things of
the same kind and quality.
3. The two debts are due or demandable.
4. The two debts are liquidated; and
5. No retention or controversy commenced by a third person.
(1279)
-An exception to the above rule, the guarantor may set up
compensation as regard what the creditor may owe the principal
debtor. (1280)
-Compensation may be total or partial. When the two debts are of the
same amount, there is total compensation. (1281)
-The parties may agree upon the compensation of debts which are not
yet due. (1282)
-A party may set off his claim for damages against his obligation to the
other party by proving his right to said damages and the amount
thereof. (1283)
-When one or both debts are rescissible or voidable, they may be
compensated against each other before they are judicially rescinded or
avoided. (1284)
- Where compensation has taken place after assignment (1285):
Assignment with the consent of debtor- The debtor cannot set up
against the assignee the compensation which would pertain to
him against the assignor
*Unless, the assignor was notified by the debtor that he
reserved his right to compensation, at the time the debtor
gave consent
Assignment with the knowledge but without the consent of the
debtor- Debtor may set up compensation of debts previous to
assignment, but not to subsequent ones

Assignment without the knowledge of the debtor- Debtor may set

up compensation of all credits prior to the assignment and also
later ones until he had knowledge of the assignment

-In compensation, the debts may be payable at different places, but

the indemnity shall be paid by the person who raises the defense of
compensation. (1286)
-Instances when legal compensation is not allowed by law:
1. Where one of the debts arises from a deposit
2. Where one of the debts arises from a commodatum
- A commodatum is a gratuitous contract whereby one of the
parties delivers to another something not consumable so the
latter may use the same for a certain time and return it.
3. Where one of the debts arises from a claim for support due by
gratuitous title
4. Where one of the debts consists in civil liability arising from a
penal offense (12867 and 1288)
-From the moment all requisites in Art. 1279 concur, compensation
takes place automatically, even if there is no agreement between
parties. (1290)
SECTION 6 Novation
-Novation is the extinction of an obligation through a creation of a new
one which substitutes it. A modification of an obligation is novation.
-Obligations may be modified by:
1. Changing their object or principal conditions;
2. Substituting the person of the debtor;
3. Subrogation a third person the rights of the creditor (1291)
-In novation there are four requisites:
1. A previous valid obligation
2. Capacity and intention of parties to modify the obligation
3. The modification of the obligation
4. The creation of the new obligation.
Novation is never presumed. (1292)
-In novation, substituting a new debtor in place of the old one may be
made even without the knowledge or against the will of the original,
but not without the consent of the creditor. (1293)

-In accordance to 1293, the new debtors insolvency or non-fulfilment

of the obligation does not make the old debtor liable.
*Exceptions
1. If insolvency was already existing and of public knowledge
(although it was not known to the old debtor)
2. The insolvency was already existing and known by the old
debtor (although it was not public knowledge) (1294 and
1295)
-Extinguishment of principal obligation extinguishes the accessory
obligations.
*Exception- If accessory obligation was created in favor of a third person,
unless third person also agrees. (1296)
-If the new obligation is void, the old one will still exist. (1297)
-Novation is void if original obligation was void, unless obligation is
voidable valid until annulled by the court) or if the obligation is
validated by ratification. (1298)
-If the original obligation had a condition, the novated one will have the
same, unless stipulated. (1299)
-Subrogation is the substitution of one person in place of the creditor.
Subrogation may be either:
1. Conventional when it takes place by express agreement of the
original parties.
2. Legal when it takes place by operation of law.
*Legal subrogation is not presumed except in situations stated at
Art. 1302. (1300)
-Conventional subrogation of a third person requires the consent of the
original parties and of the third person. (1301)
-There is legal subrogation when:
1. A creditor pays another creditor who is preferred
2. A third person without interest in the obligation pays with the
approval of the debtor.
3. A third person with interest in the obligation pays even without
the knowledge of the debtor. (1302)
-In subrogation, except for the change in creditor, the obligation is
exactly the same. (1303)
-The creditor to whom partial payment has been made by the new
creditor remains a creditor to the extent of the balance of the debt.

-In case of insolvency of the debtor, the old creditor is given

preferential right to recover the remainder. (1304)

Part 2: The Law on Contracts

(With Natural Obligations)
Chapter 1- General Provisions
Contract
-It is a meeting of the minds between 2 or more persons (1305)
-One of the sources of obligations; hence, there is no contract if there
is no obligation.
-All contracts are agreements, but not all agreements are contracts.
-Both parties may establish any stipulation, clause, term or condition,
as long it is not
contrary to law, morals, good customs, public order, or public policy.
(1306)
-Innominate contracts (contracts with no specific name) shall still be
valid, as long as all
the elements of a valid contract are present. (1307)
-Contracts must bind both parties equally, so the law of the contract
cannot be violated
without the consent of the other party, nor can its compliance be left
to just one of them. (1308)
*However, the determination of the performance can be given to a
third person, whose decision shall only be binding upon the knowledge
of both parties (1309). The determination by this third party must be
equitable or fair; otherwise, the courts shall decide what is equitable
for the given circumstances. (1310)
-Generally, a contract is only effective between the parties, and
assigns and heirs, if there are any. The heir is only liable up to the
value of the property he received from the deceased.
*Exceptions
-In cases where the rights and obligations from the contract are
not transmissible
by their nature, or stipulation, or law. (1311)

*Stipulation pour atrui (a third person has a right to demand its

fulfilment)
Both parties have clearly and deliberately indicated a favor
to the third person (mere benefit is not enough).
The third person communicated his acceptance to the
debtor before the revocation of the debtor.
-Creditors are protected in cases of contracts intended to defraud them
(1313)
-Any third person who induces a party to violate the contract is liable
for damages to the other party (1314)
-Types of Contracts
Consensual Contracts (perfected by mere consent)
*Perfection happens when both parties come to a
definite agreement or meeting of the minds (1315)
Real Contracts (perfected by delivery of the object) (1316)
*Such as pledge, deposit, and commodatum
Solemn Contracts (perfected with certain procedures
provided by law)
-Contracts cannot be contracted by someone not authorized to do so,
unless he has the
legal right to represent that person (1317).
*The contract entered into the name of another who has no
authorization or legal representation, or has acted beyond his
powers, is unenforceable, unless ratified by the person on whose
behalf it was executed, before it is revoked by the other party.

Chapter 2- Essential Requisites of Contracts

A contract has 3 requisites:
1. Consent
2. Object
3. Cause
1. Consent
-Concurrence of the wills; manifested by the meeting of the offer and
the acceptance upon the thing and cause (1319)
*Offer
Proposal made by one party to another to enter into
a contract

 Must be certain
Person making the offer may fix the time, place, and
manner of acceptance, which must all be complied
with (1321)
An offer made through an agent is accepted from the
time acceptance is communicated to him (1322)
Offer becomes ineffective upon the death, civil
interdiction, insanity, or insolvency of either party
before acceptance in conveyed (1323)
When a certain period is allowed for acceptance, an
offer can be withdrawn before acceptance through
communicating the withdrawal (1324)
o Exception- when option is founded upon a
consideration (such as option contracts-e.g. the
offeree pays the offeror to give him a 10-day
period to secure the offer)
Business advertisements are not definite offers
(1325)
Advertisements are invitations to make proposal;
advertiser is not bound to accept highest or lowest
bidder, unless the contrary appears (1326)
*Acceptance
Assent to the terms of the offer must be absolute, or
must agree completely with all the aspects of the
offer for the meeting of the minds
It can be express or implied (1320)
-The following

cannot give consent: (1327)

Minors (under 18)
Insane or demented persons
Deaf-mutes who do not know how to write

-Contracts entered into during a lucid interval (temporary period of

sanity) are valid. Those agreed to in a state of drunkenness or during a
hypnotic spell are voidable (1328)
-Contracts where consent is given through the following are voidable
(1330):
Mistake
-False notion of a thing or fact material to the contract
-Should refer to substance of the object, or to those
conditions which moved one or both parties to enter
into the contract (1331)

-The enforcer has the burden of disproving a mistake in

the contract if one of the parties is unable to read, or if
the language of the contract is not understandable to
him (1332)
-There is no mistake if the party alleging it knew the
doubt, contingency, or risk affecting the object of the
contract (1333)

Violence
-Occurs when serious or irresistible force is employed
(1335)

Intimidation
-Occurs when one of the parties is compelled by a
reasonable fear of an imminent and grave evil upon his
person or property, or person or property of his spouse,
descendants or ascendants (1335)

Undue influence
-Occurs when a person takes improper advantage over
another by depriving a reasonable freedom of choice
(1337)

Fraud
-Causal fraud- when one of the parties induces the other
to enter into a contract through insidious words or
machinations, which, without them, he would not have
agreed to (1338)
-Fraud by concealment- when one of the parties fails to
disclose all facts concerning the contract when there is
a duty to reveal them (1339)
-Exaggerations in trade are not fraudulent, when the
other party had the opportunity to know the facts
(1340)
-Expressions of opinion are not fraudulent (1341)
*Exception- those made by experts, and the other
party relied on
the false opinion of the expert

-An absolutely simulated contract (the parties do not intend to be

bound at all) is void. A relative simulated contract (the parties conceal
their true agreement) when it does not prejudice a third person, and
when the purpose is not contrary to law, morals, good customs, public

order or public policy, binds the parties to the real agreement (1345,
1346)
*Simulated contract- act of deliberately deceiving others through
a contract which is either non-existent or concealed
2. Object (1347, 1348, 1349)
-The subject matter of the contract
-All things not outside the commerce of men, including future things,
may be objects
-Rights which are not intransmissible may be objects
*Examples of intransmissible right- right to vote, right to public
office, marital rights
-Future inheritance cannot an object of a contract (unless in cases
expressly stated by law)
-Must not be an impossible thing or service (physically or legally)
-Must be determinate as to its kind, even if quantity is not determinate
3. Cause
-Proximate purpose why the parties entered into the contract
-Contracts according to cause (1350)
Onerous- cause is the promise of a thing or service by the
other; parties reciprocally obligated to each other
Remuneratory- the services or benefit obtained
Gratuitous- cause is the liberality of the benefactor
-Motive and cause are different. Motive is a purely personal reason for
a party whereas the cause is the reason known and accepted by both
parties (1351)
-Contracts without cause, or with an unlawful one, are void (1352)
-False causes render the contracts void, if it is not proved that they
were founded upon a true and lawful cause (1353)
-A cause is presumed to exist, even if it isnt stated in the contract,
unless the debtor proves the contrary (1354)
-Except in cases specified by law, lesion/inadequacy of cause shall not
invalidate a contract, unless there was fraud, mistake or undue
influence
*Lesion- damage caused by unjust/inadequate pricing
Chapter 3- Form of Contracts
-Form of a contract: manner in which a contract is executed
-Contracts are effective and obligatory in whatever form entered into,
as long as all the essential requisites (consent, object, cause), are
present. (1356)
*In case the law requires for a contract to be in some form so
that it will be valid

or enforceable, that right is absolute and indispensable

-Both parties may compel each other to follow the specified form of the
law, in case the contract has one (1357)
-Contracts that must appear in a public document (1358)
Those with objects concerning the creation, transmission,
modification, or extinguishment of real rights over
immovable property
Cession, repudiation, or renunciation of hereditary rights or
those of the conjugal partnership of gains
The power to administer property, or any other power
which has an act which should appear in a public
document, or should prejudice a third person
Cession of actions or rights proceeding from an act
appearing in a public document
*Contracts where amount involved exceeds P5000 must be in
writing
**The contracts above are still valid and enforceable even they
are not in a public document or in writing. This law was created
for the convenience and greater protection of the parties.
Chapter 4-Reformation of Instruments
-Reformation: written instrument is amended to express the real
agreement
-If the true intention is not expressed in the instrument by reason of
mistake, fraud, inequitable conduct or accident, the parties may ask for
the reformation of the contract. (assuming that there was already a
meeting of the minds) (1359)
-If one of the parties was mistaken, and the other acted fraudulently or
inequitably wherein the true intention was now shown in the
instrument, only the mistaken party can ask for the reformation. (1362)
-Cases when reformation is not allowed: (1366)
Simple donations inter vivos (during the lifetime of the
donor) with no condition
Wills
Real agreement is void
-Reformation may be ordered by either party or his successors in
interest if the mistake was mutual; otherwise, upon the petition of the
injured party, or his heirs and assigns (1368)

Chapter 5- Interpretation of Contracts

-Interpretation: determination of the meanings of the terms and words
used in the contract
-The literal meaning of the stipulations shall control, if the terms are
clear and leave no doubt on the true intention; in case the words are
contrary to the intention, intention prevails. (1370)
-The subsequent and contemporaneous (happening at the same time)
acts of the contracting parties shall be considered when judging the
intention of the contract. (1371)
-For general terms in the contract, things that are distinct and cases
different from the intention shall not be considered. (1372)
-In case of the stipulation having several meanings, the one which
would render it effectual shall have that interpretation. (1373)
-The various stipulations of the contract shall be interpreted together.
(1374)
-Interpretation of obscure words or stipulations shall not favor the party
who caused the obscurity. (1377)
-In case it is absolutely impossible to settle doubts by the previous
rules in the chapter: (1378)
For those concerning gratuitous contracts- least transmission of
rights and interest shall prevail
For those concerning onerous contracts- in favor of greatest
reciprocity of rights
For those cast upon the object wherein the intention cannot be
known- contract becomes void
Chapter 6- Rescissible Contracts
-Contracts which are rescissible (1381)
Those entered into by guardians when the wards they
represent suffer lesion by more than one-fourth of the
value of the object
Those agreed upon in representation of absentees, who
suffered lesion by more than one-fourth of the value of
the object
Those undertaken in fraud of creditors

Those which refers to things in litigation if they have

been entered into without the knowledge and approval
of the litigants or competent authority
All other contracts declared by law to be subject to
rescission
*For the first two bullet points, rescission cannot take place
if they were approved by the courts (1386)
-Payments made by insolvent debtors which was made when he
couldnt be compelled to pay at the time they were effected are
rescissible. (1382)
-Rescission can only be instituted when the party suffering damage has
no or legal means to obtain reparation for the same; therefore, it is
subsidiary. (1383)
-Rescission shall be only to the extent necessary to cover the damages
caused.
-Rescission creates the obligation to return the object of the contract,
with its fruits, and price with interest, but can only be carried out if he
who demands rescission can return whatever he is obliged to restore.
(1385)
-Rescission will not take place if the object is legally in the possession
of third persons who did not act in bad faith; in this case, indemnity for
damages may be demanded from the person causing the loss. (1385)
-Contracts which are presumed to have been entered into in fraud of
creditors (1387):
Debtor alienates property by gratuitous title when he
did not reserve enough property to pay the debt
contracted before donation
Debtor alienates property by onerous title when
made by persons against whom some judgement has
been rendered in any instance or some writ of
attachment has been issued
*The decision or attachment need not refer to
the property alienated, and need not have
been obtained by the party seeking rescission
The design to defraud creditors may be proved in
any other manner recognized by the law of evidence

-The third person who acquires the alienated thing in fraud of creditors
in bad faith is liable for damages to the creditors who suffered
alienation, if it is impossible to return the thing. (1388)
*If there are 2 or more alienations, the first acquirer shall be
liable first, and so on successively
-The action to claim rescission must be commenced within 4 years.
(1389)
*For persons under guardianship and for absentees, the period
begins from the termination of the guardians incapacity, or until
the domicile of the absentee is known
Chapter 7- Voidable Contracts
-Voidable contracts-has all the requisites of a valid contract but one of
the parties is incapable of giving consent, or consent is vitiated by
mistake, violence, intimidation, undue influence, or fraud
*Void for contract of marriage
-Contracts which are voidable even if there was no damage to both
parties (1390):
Those where one of the parties is incapable of giving
consent
Those where consent is vitiated by mistake, fraud,
violence, intimidation, undue influence, or fraud
*These contracts are binding, unless annulled in court. They can
be ratified.
-Annulment shall be brought within 4 years. The period shall begin:
(1391)
For intimidation, violence or undue influence, from the time
the defect of consent ceases
For mistake or fraud, from the time of discovery of the
same
For those entered into by minors or other incapacitated
person, from the time the guardianship ceases
*Annulment- remedy for the declaration of the inefficacy of a
contract to restore the parties to their original position before the
contract was executed
-Ratification extinguishes the action to annul a void contract.(1392)
-Ratification may be effected expressly or tacitly/impliedly. (1393)
*There is a tacit ratification if the person who has the right to
invoke it:

 He has knowledge of the reason why the contract is

voidable
The said reason has ceased
He executes an act which necessarily implies an
intention to waive his act
-Ratification may be effected by the guardian of the incapacitated
person. (1394)
-Ratification cleanses the contract from all its defects from the moment
it was constituted. (1396)
-Annulment can be instituted by those obliged principally or
subsidiarily. (1397)
*Persons capable cannot allege the incapacity of those they
contracted. Also,
those who exerted intimidation, violence, undue influence, or
employed fraud, or caused mistake, cannot base their action
upon these flaws of the contract
-When annulment happens, both parties must restore to each other the
things which have been the subject matter of the contract, with their
fruits, and price with its interest, except in cases provided by law.
(1398)
*In obligations to render service, the value of the service shall be
the basis for damages
-When the defect of the contract is due to incapacity of one of the
parties, the incapacitated person isnt obliged to make a restitution
insofar as he has been benefited by the thing or price received by him.
(1399)
-If a party, who is obliged to return a thing due to annulment, cannot,
he shall return the fruits received and the value of the thing at the time
of loss, with interest from the same date. (1400)
-The action for annulment shall be extinguished if the thing, which is
the object of the contract, is lost through the fault or fraud of the
person who has the right to have the contract annulled. (1401)
*The rule is the same for the case of incapacity of one of the
parties
-As long as one of the contracting parties doesnt restore what he is
bound to return because of annulment, the other cannot be compelled
to comply with what is incumbent upon him. (1402)
Chapter 8- Unenforceable Contracts

-Unenforceable contracts: those that cannot be enforced in court or

sued upon by defects provided by law until and unless ratification.
-Contracts which are unenforceable unless ratified: (1403)
Those entered into in the name of another person by one
who has been given no authority, or legal representation,
or has acted beyond his powers
Those that do not comply with the Statute of Frauds
(agreement must be in writing, or note or memorandum
thereof, and be subscribed by the party charged or his
agent)
Those where both parties are incapable of giving consent
to a contract
*Agreements within the scope of the Statute of Frauds
Agreement not to be performed within a year from
the making thereof
A special promise to answer for the debt, default, or
miscarriage of another
Agreement made in consideration of marriage, other
than a mutual promise to marry
Agreement for the sale of goods, chattels, of things
in auction, at a price not less than P500
*Except when the buyer receives part of the
goods/chattels/things in auction, or pay at the
time some part of the purchase money; also,
when the sale is made by auction, and the
auctioneer records the details concerning the
auction and property
Agreement for the leasing for a longer period than
one year, or sale of real property, or interest therein
Representation as to the credit of a third person
-The contracts under the scope of the Statute of frauds are ratified if
there is failure to object to the presentation of oral evidence, or by the
acceptance of benefits under them.(1405)
-In case both parties are incapable of giving consent, express or
implied ratification by the guardian of one of the parties makes the
contract voidable (1407). If ratified by the guardians of both parties,
the contract is valid, and is effective from the time it was entered in to.
Chapter 9- Void or Inexistent Contracts
-These contracts produce no legal effect.

-Void/Inexistent contracts: (1409)

Those with a cause, object or purpose that is contrary to law,
morals, good customs, public order, or public policy
Those which are absolutely simulated or fictitious
Those whose cause or object were inexistent at the time of
transaction
Those whose object is outside the commerce of men
Those which contemplate an impossible service
Those where the intention of the parties relative to the principle
object cannot be ascertained
Those expressly prohibited or declared void by law
*These contracts cannot be ratified, nor can the right to set up the
defense of illegality be waived
-The action or defense for the declaration of the inexistence of a
contract does not prescribe (expire over time).
-When the nullity proceeds from the illegality of the cause or object,
and the act constitutes a criminal offense: (1411)
When both parties are in pari delicto (equally guilty)
-The parties shall have no action against each other, both shall
be prosecuted, and the things or price of the contract, as well as
the effects and instruments of the crime, shall be confiscated by
the government
When only one party is guilty, or in delicto
-Only the guilty party shall have no action against the other,
shall and be prosecuted
-If the act of the unlawful cause is not a criminal offense: (1412)
When both parties are in pari delicto
-Neither may recover what he has given by virtue of contract, or
demand performance of the others undertaking
When only one is guilty
-The guilty party loses whatever he has given, and cannot ask for
the fulfilment of the others undertaking. The innocent party may
demand the return of what he has given and he cannot be
compelled to comply with his promise
*Exceptions to 1411 and 1412
-In case that one of the parties in an illegal contract is
incapable of giving consent, the courts may allow the
recovery of money or property delivered by the
incapacitated person (1415)

-If the agreement is not illegal per se, but is merely

prohibited for the protection of the plaintiff, he may
recover what he has paid or delivered, if public policy is
enhanced (1416)
-Interest paid in excess of the interest allowed by the usury laws may
be recovered by the debtor, with interest thereon from the date of
payment. (1413)
-When money is paid or property is delivered for an illegal purpose, the
contract may be rejected by one of the parties before it has been
accomplished, or before damage is caused to a third person. The
courts may allow the party repudiating to recover the money or
property.
-If the price of any article or commodity is determined by law, any
person paying the excess of the maximum price allowed may recover
the excess. (1417)
-If the law fixes, or authorizes the fixing of the maximum number of
hours of labor, and a contract is entered into whereby a laborer works
longer than the maximum fixed, he may ask for additional
compensation for the service rendered beyond the time limit. (1418)
-When the law sets or authorizes the setting of minimum wage for
laborers, and a contract is agreed upon wherein the laborer accepts a
lower wage than the minimum, he is entitled to recover the deficiency.
(1419)
-If the contract is divisible, the illegal terms can be separated, and the
legal ones enforced. (1420)
-Third persons whose interests are not directly affected cannot avail of
the defense of illegality. (1421)
-A contract which is the direct result of a previous illegal contract is
also void and inexistent (1422)

Natural Obligations
Natural Obligations- Do not grant a right of action to enforce their
performance, but after a voluntary fulfilment by the obligor, they

authorize the retention of what has been delivered or rendered by

reason thereof (1423)
-When a right to sue upon a civil obligation has lapsed, and the
obligor still performs it, he cannot recover what he has delivered,
or the value of the service he has rendered. (1424)
-When a third person pays the debt of the obligor without his
knowledge or against his will which the obligor is not legally
bound to pay because the action to do so has prescribed, and the
obligor reimburses the third person, the obligor cannot recover
what he has paid. (1425)
-When a minor who has entered into a contract without consent
from the parent or guardian voluntarily returns the whole thing or
price after the annulment of the contract, and he has not
benefited from it, there is no right for him to demand the thing or
price returned. (1426)
-When a minor who has entered into a contract without consent
from the parent or guardian voluntarily pays money or delivers a
fungible thing to fulfil an obligation, he shall have no right to
recover it from the obligee if the obligee has spent or consumed
it good faith. (1427)
-When the defendant voluntarily performs the obligation which
was failed to have been enforced, he cannot demand the return
of what he has delivered or the payment of the value of the
service he has rendered. (1428)
-When an heir voluntarily pays for a debt of the decedent
exceeding the value of property he received by will or by law of
intestacy from the deceased, the payment is valid and cannot be
rescinded by the payer. (1429)
-When a will is declared void because it was not executed in
accordance with certain formalities, and the heirs, after settling
the debts of the deceased, pays a legacy in compliance with the
defective will, the payment is effective and irrevocable. (1430)
*Legacy- act of disposition by the testator in separating his
inheritance for definite purposes, such as to reward friends,
give alms, etc.