Lesson 1.

Concept of Obligations (Pineda, 2000)

A. Definition of Obligation
- A juridical necessity to give, to do, or not to do (Civil Code, Art. 1156). A legal relation
established between one party and another whereby the latter is bound to the
fulfillment of a prestation which the former may demand of him.
- An obligation is a legal duty, however created, the violation of which may become the
basis of an action of law. (Aldeguer, 2014)

B. Elements of Obligation:

1. Active Subject – one who can demand the fulfillment of the prestation; he who in
his favor, the obligation is constituted or created. He is called the obligee /creditor.

2. Passive Subject – one bound to perform the prestation. He is called the

obligor/debtor.

3. Juridical Tie or Vinculum Juris – the efficient cause which creates the relation
between the obligor/debtor and obligee/creditor and is established by:

a. Law;
b. Bilateral Acts (Contracts giving rise to the obligations stipulated therein); and
c. Unilateral Acts (Crimes & Quasi-Delicts).

4. Prestation/Object – the particular conduct of the debtor which may consist in

giving, doing, or not doing something which constitutes the object of obligation
(JURADO, Comments and Jurisprudence on Obligations & Contracts (2010), p.2)
{hereinafter JURADO, Obligations and Contracts].

Requisites of Prestation:
a. Physically and juridically possible;
b. Determine or at least determinable according to pre-established elements
or criteria;
c. Must be within the commerce of man;
d. Must be licit; and
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 e. Possible equivalent in money.
f.
C. Primary Classifications under the New Civil Code:

1. Pure and Conditional (Civil Code, Art. 1179-1192)

a. Pure – demandable at once.
b. Conditional – fulfillment or extinguishment depends upon a future and uncertain
event

2. With a Period or Term. Its fulfillment or extinguishment depends upon a future

and certain event (Civil Code, Art. 1193-1198)

3. Alternative and Facultative

a. Alternate – involves multiple prestations but debtor will only perform one or
some but not all, depending whose choice it is.
b. Facultative - multiple prestations with a principal obligation and substitute
prestations, choice is generally given to the obligor (Civil Code, Art. 1199-
1206).

4. Joint and Solidary (Civil Code, Art. 1207-1222).

a. Joint – each can be made to pay only his share in the obligation.
b. Solidary – one can be made to pay for the whole obligation subject to
reimbursement

5. Divisible and Indivisible. Performance of the prestation, not to thing, whether it

can be fulfilled in parts or not (Civil Code, Art. 1223-1225).

6. With a penal clause – accessory undertaking to assume greater liability in case of

a breach (Civil Code, Art. 1226-1230).

7. Individual and collective (Civil Code , Art. 1207, 1223)

a. Individual- Involves only one subject; and
b. Collective – involves several subjects
c. Accessory and principal (Civil Code, Art. 116, 1226)

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 d. Accessory – existence depends upon a principal obligation (e.g., pledge,
mortgage).
e. Principal – exist without depending upon another obligation

D. Secondary Classifications under the New Civil

Code:

1. Legal (Civil Code, Art. 1158) – arises from law;

2. Conventional (Civil Code, Art. 1159) - arises from contracts;
3. Penal (Civil Code, Art. 1161) – arises from commission of crime;
4. Real and personal (Civil Code, Art. 1163-1168);
5. Determinate and generic (Civil Code, Art. 1163-
1166);
6. Positive and negative (Civil Code, Art. 1167-1168); and
7. Unilateral and bilateral (Civil Code, Art. 1169-1191)
a. Unilateral – only one party is bound to perform an obligation (e.g., simple
donation, to give support).
b. Bilateral – also known as synallagmatic contracts where two parties are
reciprocally bound (e.g., purchase and sale).

Lesson 2. Sources of Obligations (Aldeguer, 2014)

1. Law (Ex-Lege), (Civil Code, Art. 1158)

Obligations derived from law are not presumed. Only those expressly determined in the
New Civil Code or in Special Laws are demandable, and shall be regulated by the
precepts of the law which establishes them. In case of conflict between the Civil Code
and a special law, the latter prevails unless the contrary has been stipulated.

2. Contracts (Ex-Contractu) (Civil Code, Art. 1159).

Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith Contract 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 (CIVIL CODE, Art. 1305).
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3. Quasi-contracts (Quasi Ex-Contractual) (Civil Code, Art. 2142)

Juridical relations arising from lawful, voluntary, and unilateral acts by virtue of
which the parties become bound to each other, based on the principle that no one
shall be unjustly enriched or benefited at the expense of another)

Kinds:
a. Negotiorum Gestio (Officious Management)

Whoever voluntarily takes charge of the agency or management of the

business of property of another, without any power from the latter, is obliged to
continue the same until the termination of the affair and its incidents, or to
require the person concerned to substitute him, if the owner is in a position to
do so (Civil Code, Art. 2144).

b. Solutio Indebiti (Payment Not Due)

If something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises (Civil Code, Art.
2154)

c. Other Quasi-contracts (also known as support given by strangers) (Articles

2167, 2174, 2150, 2164, 2168-2175)

4. Delict (Ex-Delictu, Culpa Criminal) (Civil Code, Art. 1161).

Civil obligations arising from criminal offence shall be governed by the penal laws

Every person criminally liable for a felony is also civilly liable (RPC, Art. 100).

5. Quasi-delict (Quasi Ex-Delicto) (Civil Code, Art. 2176)

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 Whoever by act or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done. Such fault or negligence, if
there is no pre-existing contractual relation between the parties, is called a quasi-
delict.

Lesson 3. Different Kinds of Obligation

A. Pure Obligations- Obligations whose performance does not depend upon a

future or uncertain event or upon a past event unknown to the parties is
demandable at once (Civil Code, Art. 1179, par 1).

B. Conditional Obligations
Obligations, in which the acquisition of rights as well as the extinguishment or
loss of those already acquired, shall depend upon the happening of the event
which constitutes the condition (CIVIL CODE, Art. 1181).

3. Classifications of Conditions:

a. As to the Effect of Obligation

1. Suspensive – when the fulfillment of the condition results in the

acquisition of rights arising out of the obligation; or
2. Resolutory – when the fulfillment of the condition results in
extinguishment of rights arising out of the obligation.

b. As to the Origin of Condition

1. Potestative – one which depends upon the will of one of the

contracting parties; it is in the power of one of the parties to realize or
to prevent.
i. Simple Potestative – presupposes not only a manifestation of will

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 but also the realization of an external act of a 3rd party.

Purely Potestative – if it depends solely and exclusively upon the

will of the debtor, it is void for the debtor cannot fulfill an obligation
arising from his own choice. But it is valid if it depends on the will of
the creditor.

2. Casual – depends exclusively upon chance, will of a third person, or

partially by chance and partially by will of a third person, or other
factors and not upon the will of the contracting parties.

3. Mixed – depends upon the will of one of the contracting parties and
other circumstances, including the will of third persons or chance.

As to possibility:

Possible – when the condition is capable of realization according to nature, law, public
policy or good customs; or
4. Impossible – when the condition is not capable of realization
according to nature (physical) law, public policy, morals or good
customs (legal).
General Rule: If the obligation is divisible the impossible conditions
shall annul the obligation which depends upon them (Civil Code, Art.
1183).

3. As to Mode

1. Positive – condition that some event happen

2. Negative – the condition that some event will not happen

4. As to Divisibility

1. Divisible – when the condition is susceptible of partial realization; and

2. Indivisible – when the condition is not susceptible of partial realization.
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F. Effects of Suspensive, Resolutory, Potestative, Mixed Casual Condition (Civil
Code, Art. 1181-1182):
a. Suspensive Condition – obligation shall only be effective upon the
fulfillment of the condition;

1. Before fulfillment – Demandability and the acquisition of the rights arising from
the obligation is suspended.
2. After the fulfillment – The obligation arises or becomes
effective; obligor can be compelled to comply with what is
incumbent upon him.
b. Resolutory Condition – obligation becomes
demandable immediately after its constitution and
rights are immediately vested in the oblige.
1. Before fulfillment – right recognized in Art. 1188, par. 1 of the Civil
Code in case of a suspensive condition should likewise be available in
obligations with a resolutory condition.
c. After fulfillment – Whatever may have been paid or delivered by one
or both of the parties upon the constitution of the obligation shall have
to be returned upon the fulfillment of the condition.
d. Casual Condition – the obligation and condition shall take effect.
e. Mixed Condition – the obligation and condition shall take effect.
f. Casual Condition – the obligation and condition shall take effect.
g. Mixed Condition – the obligation and condition shall take effect.

5. Effects of Impossible Conditions:

6. Effect of Positive and Negative Condition
7. Doctrine of Constructive Fulfillment of Suspensive Condition

Requisites Constructive Fulfillment:

1. Condition is suspensive;
2. Debtor actually prevents the fulfillment of the condition; and
3. He acts voluntarily

8. Principle of Retroactivity in Suspensive Condition (Civil Code, Art.

1187)
9. Rights of the Creditor Before the Fulfillment of the Condition
10. Right of the Debtor Before the Fulfillment of the Condition:
11. Loss, Deterioration or Improvement Pending the Happening of the
Condition

C. Reciprocal Obligations
Those which are created or established at the same time, out of the same cause,
and which result in mutual relationships of creditor and debtor between the parties.

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1. Requisites of Rescission:
a. One of the parties failed to comply with what is incumbent upon him;
b. The injured party chose rescission over fulfillment or performance is no
longer possible; and
c. The breach is substantial so as to defeat the object of the parties in
making the agreement.
2. Right to Rescind Not Absolute
3. Waiver of Rights
4. Art. 1191 of the Civil Code does not apply to the following:
5. Alternative Remedies of Injured Party (Civil Code, Art. 1191, par. 2):
6. Effects of Rescission:
7. Effects of Breach by Both Parties:

D. Obligations with a Period

Obligations, whose fulfillment a day certain has been fixed, shall be demandable
only when that day comes. Obligations with a resolutory period takes effect at
one but terminate upon the arrival of the day certain (Civil Code, Art. 1193).
1. Requisites:
a. Future
b. Certain; and
c. Possible, legally and physically.

2. Kinds of Period/Term:
a. As to Effect
1. Suspensive (Ex Die) – Obligations whose fulfillment a day certain has
been fixed, shall be demandable only when that day comes (Civil Code,
Art. 1193, par. 1). Fortuitous event does not interrupt the running of the
period.
2. Resolutory (In Diem) – obligations with a resolutory period take effect at
once but terminate upon arrival of the day certain (Civil Code, Art. 1193,
par 2).

b. As to Expression
1. Express – when specifically stated.
2. Implied – when it can be deduced that the parties intended a period
such as in the case of Art. 1180 of the Civil Code when one promises

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 to pay when able.

c. As to Definiteness

1. Definite – refers to a fixed known date or time

2. Indefinite – even which will necessarily happen but the date of its
happening is unknown is no uncertainty whether the event will
happen or not.

d. As to Source
1. Conventional- made by agreement of the parties
2. Legal- period fixed by law such Articles 1682 and 1687
3. Judicial- set by courts in case of implied and indefinite period.

G. Joint and Solidary Obligations

1. Joint Obligation (Obligacion Man)

The whole obligation is to be paid or fulfilled proportionately by different
debtors or demanded proportionately by different creditors.

2. Solidary Obligation (Obligacion Solidaria)

Each one of the debtors is bound to render, and/or each one of the creditors
has a right to demand entire compliance with the prestation.

3. Nature of a Joint/Collective Obligation

4. Principals Effects of the Joint Liability:
5. Joint Divisible Obligatio
- Each creditor can demand only for the payment of his proportionate share of the credit;
6. Joint Indivisible Obligation
- Midway between joint and solidarity obligations, preserving the two characteristics of the
joint obligation
7. Breach of Joint Indivisible Obligation (CIVIL CODE, Art. 1224).
- Obligation can be enforced only by proceeding against all of the debtors.
8. Solidarity
- Solidarity may exist although creditors and debtors may not be bound in the same
manner and by the same periods and conditions (CIVIL CODE, Art. 1211).
o Kinds of Solidarity:
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  As to source
 Legal-imposed by law
 Conventional- agreed upon by the parties
 Real- imposed by the nature of the obligation

 As to parties bound
 Active
 Passive
 Mixed
 As to uniformity

H. Divisible and Indivisible Obligations

1. Divisible Obligations
Those which have as their object a prestation which is susceptible of
partial performance without the essence of obligation changed.
2. Indivisible Obligations
Those which have as their object a prestation which is not susceptible of partial
performance, otherwise, the essence of the obligation will be changed.
3. Three Kinds of Division:
a. Quantitative- the thing can be materially divided into parts and such
parts are homogenous to each other.

b. Qualitative-the thing can be materially divided but the parts are not
exactly homogenous (i.e., inheritance)
c. Ideal/Intellectual- the thing cannot be separated into material parts
(i.e., co- ownership)

I. Obligation with a Penal Cause

An obligation to which an accessory undertaking (penal cause/ penalty) is
attached for the purpose of insuring its performance by virtue of which the obligor
is bound to pay a stipulated indemnity or perform a stipulated prestation in case
of breach.
1. Purpose of Penalty:
a. Funcion coercitiva o de garantia- to insure the performance of the
obligation;
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 b. Funcion liquidatoria- to liquidate the amount of damages to be
awarded in case of breach of the principal obligation (compensatory); and
c. Funcion estrictamente penal- in certaion exceptional cases, to punish
the obligor in case of breach of the principal obligation ( punitive). Does
not resolve the question of damages

Lesson 4. Extinguishment of Obligations

A. Extinguishment of Obligations (Civil Code, Art 1231):

4 Novation
5 Compensation
6 Confusion or Merger
7 Rescission
8 Payment/performance
9 Loss of the thing due
10 Prescription
11 Fulfillment of a resolutory condition
12 Annulment
13 Other Forms of Extinguishment Not Under Art. 1231:
a. Death (for personal or intransmissible obligation)
b. Mutual desistance or withdrawal
c. Arrival of resolutory period
d. Compromise
e. Impossibility of fulfillment of condition
f. Fortuitous event (JURADO, Obligations and Contracts, supra at 230).

B. Payment or Performance
Not only the delivery of money but also the performance, in any other manner, of
an obligation (Civil Code, Art. 1232).

4 Burden of Proving Payment

- When the existence of a debt is fully established by the evidence, the settled rule is that
the burden of proving extinguishment by payment devolves upon the debtor who pleads
payment or offers such a defense to the claim of the creditor rather than on the latter to
prove non-payment. The debtor has the burden of showing with legal certainty that the
obligation has been discharged by payment.

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 5 Requisites of Payment:
- Payor or the person who pays;
- Payee or the person to whom payment is made;
- Thing to be paid; and
- Manner, time, and place of payment. (TOLENTINO, Civil Code, supra at 274).

6 Kinds of payment:
 Normal- when the debtor voluntarily performs the prestationas agreed
upon ; or
 Abnormal – when the debtor is forced by means of a judicial proceeding
either to comply with the prestation or pay indemnity

7 Characteristics of Valid Payment

 identity – only the prestationagreed upon aand no other must be complied
with

 Completeness - the thing or service must be completely delivered or

rendered
 Indivisibility - payment or performance must be indivisible

Effects of Payment:
o The obligation is extinguished;
o The debtor is to fully reimburse the third person who is an interested
party; and
o The third person interested is subrogated to the rights of the
creditor.

9. Third person who is an Interested Party. One who has an interest in

the extinguishment of the obligation such as:
a. Co-debtors;
b. Sureties;
c. Guarantors
and
d. Owners of mortgages property or pledge
10. The creditor is not bound to accept payment or performance by a third person
who has no interest in the fulfillment of the obligation (CIVIL CODE, Art. 1236,
par. 1).

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 Effects of Payment:
a. Third person is entitled to full reimbursement; and
b. There is legal subrogation as the third person, i.e. steps into the shoes
of the creditor.
Benefit to the creditor is presumed in the following cases (CIVIL CODE, Art.
1241, par 2):
a. Ratification - If the creditor ratifies the payment to the third person;
b. Estoppel - If by the creditor's conduct, the debtor has been led to
believe that the third person had authority to receive the payment; and
c. Subrogation - If after the payment, the third person acquires the
creditor's rights.
2. Extraordinary Inflation or Deflation (CIVIL CODE, Art. 1250)
Requisites:
a. There must be a decrease or increase in the purchasing power of the
currency which is unusual or beyond the common fluctuation in the value
of the currency, and
b. Such decrease or increase could not have been reasonably foreseen or
which was manifestly beyond the contemplation of the parties at the time
the obligation was established.
3. Place of Payment
a. Place stipulated but the parties;
b. If there is no stipulation and the obligation is to deliver a determinate
thing, payment shall be made at the place where the thing might be at the
time the obligation was constituted; or
c. In any other case, the payment shall be made at the domicile of the
debtor (CIVIL CODE, Art. 1251).
4. Special Forms of Payment
a. Application of Payment (CIVIL CODE, Art. 1252) Designation of the debt
to which the payment must be applied when the debtor has several
obligations of the same kind in favor of the same creditor.

Requisites:
1. There must be only debtor and only one creditor;
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 2. There must be two or more debts of the same kind; All the debts
must be due; and
5. Dation in Payment (Dacion en pago)
Delivery and transmission of ownership of a thing by the debtor to the
creditor as an accepted equivalent of the performance of the obligation.
Requisites:
1. Existence of a money obligation;
2. Alienation to the creditor of a property by the debtor with the
consent of the former; and
3. Satisfaction of the money obligation of the debtor.

Payment by Cession (CIVIL CODE, Art. 1255)

A special form of payment whereby the debtor assigns if abandons all of
his property for the benefit of his creditors in order that from the proceeds
thereof, the latter may obtain payment of their credits.

Requisites:
1. Plurality of debts;
2. Partial or relative insolvency of the debtor; and
3. Acceptance of the cession by the creditors (JURADO, Obligations and
Contracts, supra at 275).
Kinds of payment by Cession:
1. Contractual (CIVIL CODE, Art. 1255);
2. Judicial (Governed by Insolvency Law)
a. Voluntary
b. Involuntary

Consignation (see previous discussion in connection with payment

in general, CIVIL CODE, Art. 1232-1251)
Special Requisites of Consignation (Civil Code, Art 1256-1258);
1. Existence of a valid debt which is due;
2. Tender of payment by the debtor;

Creditor’s refusal to accept payment is without just cause or any of

3. the cases provided in Art. 1256 par. 2 exists.

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 Loss of the Thing Due
- Effect of Loss in Determinate Obligation to Give
Obligation is extinguished (CIVIL CODE, Art.
1262)
Requisites:
a. The thing which is lost must be determinate;
b. The thing is lost without any fault of the debtor; and
c. The thing is lost before the debtor incurred in delay (JURADO,
obligations and Contracts, supra at 288)
General Rule: Loss of a determinate thing through fortuitous event shall extinguish the
obligation.

Condonation or Remission of the Debt

An act of liberality by virtue of which obligee, without receiving any price or
equivalent, renounces the enforcement of the obligation, as a result of which it
is extinguished in its entirety or in that part of aspect of the same to which the
remission refers (Id. At 289).

Requisites of Remission:
1. It must be gratuitous;
2. It must be accepted by the obligor (bilateral act);
3. The obligation must be demandable;
4. Parties must have the capacity;
5. Not inofficious; and
6. Must comply with the forms of donation should it be express (CIVIL
CODE, Art. 748 and 749).
Confusion or Merger
- Concept: It is the merger of the characters of the creditor and the debtor in one
and the same person by virtue of which the obligation is extinguished.

Requisites of Merger:
o Merger of the characters of the creditor and debtor must be in the same person;
o Must take place in the person of either the principal creditor or the principal
debtor; and
o Whether the merger refers to the entire obligation or only part thereof, there
must be complete and definite meeting of all qualities of creditor and debtor in

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 the obligation or in the part thereof affected by the merger (JURADO,
Obligations and Contracts, supra at 307).

Compensation
- Concept: Mode of extinguishing in the concurrent amount of the obligation of those
persons who are reciprocally debtors and creditors of each other (JURADO, Civil
Code, supra at 309 citing Castan).

Kinds of Compensation:
a. As to cause
1. Legal- takes effect by operation of law from the moment all of the
requisites are present.
2. Voluntary – when parties who are mutually creditors and debtors
agree to compensate their respective obligations, even though all of
the requisites for compensation may not be present.
3. Judicial – takes effect by judicial decree
4. Facultative

b. As to effect
1. Total – debts to be compensated are equal in amount.
2. Partial – debts to be compensated are not equal in amount.

Requisites of compensation (CIVIL CODE, Art. 1279)

a. There must be two parties, who, in their own right, are principal creditors
and principal debtors of each other except in case of a guarantor (CIVIL
CODE, Art. 1280);
b. Both debts must consist in sum of money, or if the things due are
fungibles (consumables), they must be of the same kind and quality;

c. Both debts must be due;

Exception: Voluntary compensation or the parties may nevertheless agree
upon the compensation of the obligations (CIVIL CODE, Art. 1282).
d. Both debts must be liquidated and demandable;
Liquidated Debts – those amount of which may be determined by a simple
arithmetical operation (JURADO, Obligations and Contracts, supra at 317).

Novation

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- Concept: It is substitution or change of an obligation by another, resulting in its
extinguishment or modification, either by changing its object or principal
conditions, or by substituting another in place of the debtor, or by subrogating a
third person in the rights of the creditor (JURADO, Obligations and Contracts,
supra at 325).

Requisites of Novation:
1. Previous valid and existing obligation;

2. Capacity of the contracting parties ( to the new contract);

3. Animus novandi or intent to novate (especially for implied novation and

substitution of debtors);
4. Substantial difference between the old obligation and the new obligation
(especially for implied novation), consequently, extinguishment of the
obligation;

and

5. Validity of the new obligation (JURADO, Obligations and Contracts, supra

at 326).
Two-fold Purpose of Novation:
a. Original obligation is extinguished; and
b. A new obligation is created

2. Kinds of novation:
a. As to it essence
1. Objective/Real
2. Subjective/Personal – substitution of debtor or subrogation.
3. Mixed – change in the object or principal condition and change in the
persons of either creditor and debtor of an existing obligation.
b. As to its form/constitution
1. Express- when it is declared in unequivocal terms that the old
obligation is extinguished by a new one which substitutes the same.
2. Implied – when the old and new are incompatible with each other on
every point.

c. As to extent/effect
1. Total

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 2. Partial

Objective Novation (CIVIL CODE, Art. 1291, par. 1) According to Castan,

objective novation is effected by:
d. Changing the cause of the obligation;
e. Changing the object of the obligation; or
f. Changing the principal or essential conditions of the obligation.

Requisites:
a. New obligation expressly declares that the old is extinguished or

Novation by Substitution of Debtors (CIVIL CODE, Art. 1293)

- A subjective/personal novation consists in the substitution of a new debtor in
place of the original debtor.

1. Forms of Novation by Substitution of Debtors:

1. Expromision – effected with the consent of the creditor at the
instance of the new debtor even without the consent or even against
the will of the old debtor (beneficial reimbursement).
Requisites:
a. Initiative for substitution must emanate from the new debtor;
b. Consent of the creditor top the substitution; and
c. Old debtor must be released from obligation (JURADO,
Obligations and Contracts, supra at 339).
Kinds of Substitution by Expromision:
a. Substitution with knowledge and consent of the old debtor; and
b. Substitution without the knowledge or against the will of the old debtor

the concurrence of the new debtor (delegado) (reimbursement and

subrogation).
Requisites:
d. Initiative for substitution must emanate from the old debtor;
e. Consent of the new debtor;
f. Acceptance by the creditor; and
g. Old debtor must be released from his obligation (JURADO,
Obligations and Contracts, supra at 339).

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 Lesson 5. Compromise

A. Concept. A compromise is a contract whereby the parties, by making reciprocal

concessions, avoid litigation or put an end to one already commenced (civil
Code, Art. 2028).

B. Requisites:
1. Uncertainty of juridical relation; and
2. An agreement to eliminate the uncertainty through reciprocal concessions.

C. Kinds:
1. Judicial – end a pending litigation; and
2. Extra-judicial – prevent litigation from arising.
D. Characteristics:
1. Consensual;
2. Reciprocal
3. Onerous
4. Nominate
5. Accessory (in the sense that a prior conflict is presupposed);
6. Once accepted, binding upon the parties except if consent is vitiated; and
7. Principally, settlement of controversy; incidentally, settlement of claim.

Lesson 1. Concept of Contracts

A. Contract
A contract is a meeting of minds between two persons whereby one binds
himself, with respect to other, to give something or to render some service (Civil
Code, Art. 1305).
B. Elements of Contracts:
1. Essential – those without which there can be no contract (Civil CODE, Art.
1318)
a. Common elements – present in all contracts
i. Consent
ii. Object or Subject Matter
iii. Cause or Consideration
b. Special elements – present only in certain contracts (e.g. delivery in real
contracts or form in solemn ones)

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 c. Extraordinary elements – peculiar to specific contract (e.g. price in a
contract sale.)
2. Natural – those which are derived from the nature of the contract and
ordinarily accompany the same; they are presumed by law, although they can
be excluded by the contracting parties if they so desire.
3. Accidental – those which exist only when the parties expressly provide for
them for the purpose of limiting or modifying the normal effects of the contract
(e.g. conditions, terms or modes).

Contract and Obligation Distinguished

- While a contract is one of the sources of obligations, and obligation is the legal tie
or relation itself that exists after a contract has been entered into.

Lesson 2. Essential Requisites of a Contract

A. There is no contract unless the following requisites concur:

1. Consent of the contracting parties;

2. Object Certain which is the subject matter of the contract;

3. Cause of the obligation which is established (CIVIL CODE, Art. 1318).

B. CONSENT
- In its derivative sense, it means agreement of wills. As applied to contracts, consent
refers to the concurrence of wills of contracting parties with respect to the object
and the cause which shall constitute the contract
1. Requisites:
a. Must be manifested by the concurrence of the offer and
acceptance (CIVIL CODE, Art. 1319-1326);
b. Parties must possess the necessary legal capacity (CIVIL
CODE, Art. 1327- 1329); and
c. Must be intelligent, free, spontaneous, and real (CIVIL CODE, Art.
1330-1346).
2. Offer
Unilateral proposition which one party makes to the other for the celebration
of a contract. It exists only if the contract can come into existence by the
mere acceptance by the offeree, without any further act on the offeror.
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 Requisites:
a. It must be definite;
b. It must be intentional;
c. It must be complete; and
It must be directed to person or persons with whom the offeror intends to
enter into a contract except definite offers which are not directed to a
particular person but to the public in general (i.e., public auction).

3. Counter-offer

4. Complex Offers

5.Acceptance
- Must be certain or definite and absolute in character. A qualified acceptance
constitutes a counter-offer (CIVIL CODE, Art. 1319).

Requisites of Acceptance:
1. Absolute (no vitiation);

2. Directed to the offeror;

3. Made with the Intention to be bound;
4. Made within the Proper time; and
5.Communicated to the offeror and learned by him unless the offeror knows of the
acceptance.

Requisites for Silence to be Constructed as Consent:

a. There is a duty or possibility to express oneself;
b. The manifestation of the will cannot be interpreted in any other way; and
c. There is a clear identity in the effect of the silence and the
undisclosed will (CIVIL CODE, Art. 1670, 1870 to 1873).

Option Contract
- A preparatory contract is one in which one party grants to the other, for fixed
period and under specified conditions, to decide whether or not to enter into
a principal contract.
Requisites:
a. It is supported by an independent consideration;
If the option is not supported by a consideration which is distinct from the

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 purchase price, the offer may still be withdrawn even if the offeree has
already accepted it (JURADO, Obligations and Contracts, supra at 413).
b. It is exclusive (TOLENTINO, Civil Code, supra at 466).

Exce
ption
:
1. When minor misrepresents his age. (It must be an active not merely
constructive representation) (JURADO, Obligation and Contracts, supra
at 418);
2. Contracts involving the sale and delivery of necessaries to minors
(CIVIL CODE, Art. 1489, par. 2).
3. Contracts by guardians or legal representatives (JURADO,
Obligations and Contracts, supra at 418).
4. Upon reaching the age of majority, they ratify the same (Ibanez v.
Rodriguez, G.R. No. 23153, March 7, 1925).

State of Drunkenness or Hypnotic Spell

- Take note that contracts agreed to in a state of drunkenness or during a hypnotic
spell are voidable (CIVIL CODE, Art. 1328).

Vices of Consent (CIVIL CODE, Art. 1330)

a. Vices of the will (vicios de la formacion de la voluntad)
 Violence
 Intimidation
 Mistake
 Fraud
 Undue influence

b. Vices of declaration
(vicious de la
declaracion) Simulation
of contracts.
Requisites of Consent as Enumerated in Art. 1330:
a. Intelligent, or with an exact notion of the matter to which it refer;
b. Free;

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 c. Spontaneous; and
d. Real (Id. at 428-429).

3. Mistake
(CIVIL CODE, Art.

1331) Requisites:
1. The error must be substantial regarding:
a. The object of the contract (error in re) which may be:
i. Mistake as to the identity of the thing (error in corpore);
ii. Mistake as to the substance of the thing (error in substantia);
iii. Mistake as to the conditions of the thing provided; or
iv. Mistake as to the quantity of the thing (error in quantitate).
b. The condition which primarily moved or induced one of the parties
c. Identify or qualifications (error in persona), but only if such was the
principal cause of the contract.
2. The error must be excusable.
3. The error must be a mistake of fact, and not of law (JURADO,
Obligation and Contracts, supra at 430-432).

Requisites of Art. 1334 which will Vitiate Consent:

i. It must be of a past or present fact;
ii. Mistake must be with respect to the legal effect of an agreement;
iii. It must be mutual; and
iv. Parties’ real purpose must have been frustrated (Id. at 334).

Violence. When in order to wrest consent, serious or irresistible force is

employed (civil CODE, art. 1335).
Requisites:
a. Must be serious or irresistible (JURADO, Obligations and Contracts,
supra at 436)
b. Must be determining cause of or party upon whom it is employed in
entering into the contract (Id.)
c. It is not justified; and
d. It is sufficient.

Intimidation (CIVIL CODE, Art. 1335)

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 Requisites:
e. One party is compelled to give his consent by a reasonable ad well-
grounded fear of an evil;
f. The evil must be imminent and grave;
g. The evil must be upon his person or property, spouse,
descendants and ascendants;
h. It is the reason why he enters the contract; and
i. The evil must be unjust (JURADO, Obligations and Contracts, supra at 436)

Undue influence. When a person takes improper advantage of his power

over the will of another, depriving the latter of reasonable freedom of choice
(CIVIL CODE, Art. 1337).
Requisites:
j. Improper advantage;
k. Power over the will of another; and
l. Deprivation of the latter’s will of a reasonable freedom of choice
(JURADO, Obligations and Contracts, supra at 443).

Fraud. When, through insidious words or machinations of one of the

contacting parties, the other in induced to enter into a contract which, without
them, he would not have agreed to (CIVIL CODE, Art. 1338).
Kinds of Fraud:
m. Fraud in the perfection of the contract (JURADO, Obligations and
Contracts, supra at 444):
1. Causal Fraud (Dolo Causante ); and
2. Incidental Fraud (Dolo Incidente)
n. Fraud in the performance of an obligation (CIVIL CODE, Art. 1170)

Requisites of Fraud under Art. 1338:

1. One party must have employed fraud or insidious words or machinations

2. It must have been serious;
3. It induced the other party to enter into a contract;

4. It must have been employed by one contracting party upon the other
and not employed by both contracting parties or by third persons’

5. Damage or injury resulted to the other party;

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 6. It must be made in bad faith, i.e., with knowledge of its falsity (Id. At 445-446).

Simulation of Contracts
- It is the process of intentionally deceiving others by producing the appearance of
a contract that really does not exist or which is different from the true agreement
(CIVIL CODE, art. 145-1346).

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 Requisites:
1. A deliberate declaration contrary to the will of the parties;
2. Agreement of the Parties to the apparently valid act; and

3. The purpose is to deceive or to hide from third persons although it is not

necessary that the purpose be illicit or for purposes of fraud.

Kinds of Simulation of Contract:

1. Absolute (simulados) – parties do not intend to be bound by the

contract at all. It is void (JURADO, Obligations and Contracts, supra at
454); and
2. Relative (disimulados) – parties conceal their true agreement. It is binding
as to the real agreement of the parties

Two juridical acts in relatively simulated contracts:

1. Ostensible act (apparent or fictitious) – pretended contract.
2. Hidden act (real) – true agreement.

OBJECT
- The thing, right or service which is the subject matter of the obligation arising from the
contract (JURADO, obligations and Contracts, supra at 456).
Requisites:
a. Must be within the commerce of man (CIVIL CODE, Art. 1347).
b. Should be real or possible (CIVIL CODE, Art. 1348);
c. Should be licit (CIVIL CODE, Art. 1347); and
d. Should be determinate or, at least possible of determination as to its
kind (civil CODE, Art. 1349).

Requisites of Future Inheritance:

a. The succession has not yet been opened;
b. The object of the contract forms part of the inheritance; and
c. The promissor has an expectancy of a right which is purely hereditary in
nature.
Future Thing
A future thing may be object of a contract. Such contract may be interpreted in two
possible ways:
 1. Conditional contract – if its efficacy should depend upon the future
existence of the thing.

Aleatory contract – if one of the contracting parties should bear the risk that the
thing will never come into existence.
CAUSE
- It is the immediate, direct or most proximate reason which explains and justifies the
creation of an obligation through the will of the contracting parties (Id. at 464).
Essential Requisites of Cause:
a. Existing at the time of the celebration of the contract;
b. Licit or lawful; and
c. true
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