REPUBLIC OF THE PHILIPPINES

PAMANTASAN NG LUNGSOD NG MARIKINA

COLLEGE OF MANAGEMENT
MARIKINA CITY

Obligations and Contracts

AY 2024-2025; 1st Semester
Atty Patrick John C. Sicat
pjc.sicat@gmail.com

CLASS RULES:
§ Grading System: 40% Class Participation; 30% Midterms; 30% Finals Exam.
§ Study, Participate, Engage, Enjoy.

INTRODUCTION

A. Course Overview
B. Common Law Tradition and the Civil Law Tradition

TITLE I. OBLIGATIONS
Chapter 1 – General Provisions

I. Concept
A. Definition – Art. 1156 NCC
B. Elements.
1. Active Subject
2. Passive Subject
3. Prestation or Object
4. Efficient Cause or Juridical Tie or vinculum juris

C. Distinction between Natural and Civil Obligations – Art 1423

1. Enforceability
2. Basis
3. Distinguished from moral obligations

II. Sources of Obligations – Art. 1157

A. Law – Art. 1558
B. Contracts – Art. 1159, 1305
C. Quasi- Contracts – Arts. 1160, 2142
1. Negotiorum gestio – Arts. 2144-2153
2. Solutio indebti – Arts. 2154-2163
3. Other quasi-contracts – Arts. 2164 to 2175
D. Acts or omissions punished by law – Art. 1161
E. Quasi-Delicts – Arts 1162, 2176
1. Distinction between quasi-delicts and crimes
2. Liability for fault of others – Art. 2180; Arts 218, 219 of Family Code
3. Civil liability arising from crime – Art. 1161; Rules on Criminal Procedure, Rule

III. Classifications of Obligations

A. Pure and Conditional Obligations - Arts. 1179- 1192
B. With a Period or Term - Arts. 1193-1198
C. Alternative and Facultative - Arts. 1199-1206
D. Joint and Solidary - Arts. 1207-1222
E. Divisible and Indivisible - Arts. 1223 – 1225
F. With a Penal Clause - Arts. 1226-1230

Chapter 2 – Nature and Effects of Obligations

I. Kinds of Prestation
A. Obligation to Give
1. A specific thing – Duties of the obligor

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 a. To deliver thing itself – Art. 1244
b. To preserve the thing – Art. 1163
c. To deliver the accessions and accessories – Art. 1166
i. Distinction between accession and accessory
d. To deliver fruits
2. A generic thing
B. Obligation to do – Art. 1244
C. Obligation not to do – Art. 1244

II. Breach of Obligation

A. Concept – Distinction between substantial and casual / slight breach

B. Modes or Breach – Art. 1170

1. Total Breach of Obligations – Absolute Failure or Refusal to Perform

a. Effects – Rule 39, Sec. 10, 1997 Rules on Civil Procedure (“ROC”)
2. Fraud (dolo) – Art. 1171
a. dolo incidente vs dolo causante- Art. 1171
b. Nonwaiver of future fraud – Art. 1171

3. Negligence – Art. 1172

a. Concept – Art. 1173
i. culpa vs dolo
ii. culpa aquiliana vs culpa contractual
b. Standard of Care required – Article 1173, par. 3

4. Delay or Mora – Art. 1169

a. Concept
b. Kinds:
i. mora solvendi – General Rule that Creditor should make demand
before debtor incurs delay, with exceptions
ii. mora accipendi – Art. 1268
iii. compensation morae

5. Contravention of Tenor - Art. 1172

III. Remedies of Creditor in Case of Breach

A. Action for Performance
1. Action for Specific Performance – Art. 1165, par. 1; Rule 39, Sec 10. Rules of Court

2. Action for Substituted Performance in obligation to give a generic thing – Art.

1165, par. 2

3. Action for substituted performance or undoing of poor work in obligation to do – Art.

1167

4. Action for undoing obligation in obligation not to do – Art. 1168

B. Action for Damages – Art. 1170

C. Action for Recission – Arts. 1191, 1192 (more on this later on)

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 IV. Subsidiary Remedies of Creditors
A. Accion Subrogatoria – Art. 1177
1. Concept and Requisites
2. Exceptions – inherent rights of debtor; Art. 772

B. Accion Pauliania – Arts. 1177, 1381, par. 3

1. Concept and Requisites
2. Distinction vs Accion Subrogatoria
C. Other Specific Subsidiary Remedies (Direct Actions) – Arts. 1652, 1729, 1608, 1893

V. Extinguishment of Liability in Case of Breach due to Fortuitous Event

A. Concept of Fortuitous Event – Art. 1174
B. Requisites and Effect of Concurrent Fault
C. Exceptions to Extinguishment - Arts. 1174, 1165, par. 3, 552, 1942, 1979, 2001, 2147

VI. Usurious Transactions – Art. 1175, 1413, 1961

A. Presidential Decree (PD) No. 858; PD 1685
B. Central Bank Circular 416
C. Monetary Board Circular No. 905 ( vs. Art. 2209)

VII. Fulfillment of Obligations – See Chapter 4: Payment

Chapter 3 – Different Kinds of Obligations

I. Pure and Conditional Obligations

A. Pure Obligations – Art. 1179, par. 1

B. Conditional Obligations – Art. 1181

1. Concept; Condition vs Period / Term

2. Kinds of Conditions
a. As to effect on obligation – Art. 1181
i. Suspensive (condition precedent)
(a) retroactive effect when condition is fulfilled – Art. 1187
(b) rights of creditor and debtor before fulfillment of condition
– Art. 1188
ii. Resolutory (condition subsequent)

b. As to cause or origin – Art. 1182

i. Potestative
(a) Effect if fulfillment of condition depends solely on the will
of the debtor
(b) Debtor’s promise to pay when he can is not a conditional
obligation – Art. 1180

ii. Casual
iii. Mixed

c. As to possibility – Art. 1183

i. Possible
ii. Impossible – effect

d. As to mode
i. Positive – Art. 1184
ii. Negative – Art. 1185

3. Rules in case of loss, deterioration or improvement pending the happening of the

condition – Arts. 1189, 1190
a. Definition of Loss, Deterioration and Improvement
b. Effect of loss or deterioration

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i. Without debtor’s fault
ii. With debtor’s fault
c. Effect of improvement
i. By Nature or Time
ii. At the debtor’s expense or effort
4. Effect of prevention of the fulfillment of the condition by the obligor – Art. 1186
C. Reciprocal Obligations – Art. 1191, 1192
1. Concept
2. Alternative remedies of injured party in case of breach
a. Action for specific performance / fulfillment
i. When fulfillment no longer possible; effect
b. Action for Recission
i. Requisites
ii. How made
iii. Effects

II. Obligations with a Period – Arts. 1193, 1180

A. Period or Term
1. Concept
2. Period / Term vs. Condition
B. Kinds of Period
1. As to effect
a. Suspensive (Ex die)- Art. 1193, par. 1
b. Resolutory (In diem) – Art. 1193, par. 2
2. As to expression
a. Express
b. Implied
3. As to definitiveness
a. Definite
b. Indefinite
4. As to Source
a. Voluntary
b. Legal
c. Judicial
C. Rules in case of loss, deterioration or improvement before arrival of period – Arts. 1194,
1189
D. Effect of Payment in Advance – Arts. 1195, 1197, par. 3
E. Benefit of Period
1. For whose benefit
a. Creditor
b. Debtor
c. Both
2. Effects
3. Presumption – Art. 1196
4. When debtor loses right to make use of the period – Art. 1198

F. When Court May Fix Period

1. Period is implied
2. Period depends solely on will of the debtor

III. Alternative Obligations

A. Concept – Art. 1199
B. Right of Choice – Art. 1200
C. Effect of Notice of Choice
D. When Notice Produces Effect – Art. 1201
E. Effect of loss or impossibility of one or all prestations – Arts. 1202 to 1205
F. Facultative Obligation – Art. 1206
1. Concept
2. Distinguished from Alternative Obligation
3. Effect of Substitution

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IV. Joint and Solidary Obligations
A. Joint Obligations
1. Concept
a. Requisites
b. Words used to indicate joint obligations
2. Presumption – Art. 1207, 1208
3. Effects – Art. 1207, 1208
a. Extent of liability of debtor
b. Extent of liability of creditor
c. In case of novation, compensation, confusion (Art. 1277), remission
B. Solidary Obligations
1. Concept
a. Requisites
b. Words used to indicate solidary obligations

2. Kinds
a. As to source – Art. 1208
i. Legal – Arts. 1915, 1945, 2194, Art. 119 of RPC
ii. Conventional
iii. Real
b. As to parties bound
i. Active
ii. Passive
iii. Mixed
c. As to uniformity
i. Uniform
ii. Varied / non-uniform – Art. 1211

3. Effects
a. Solidary Creditor in relation to:
i. common debtor
(a) right to demand – Art. 1214 to 1217
(b) in case of novation, compensation, confusion, remission by a
creditor – Art. 1215, par. 1
ii. solidary co-creditor(s)
(a) in case of novation, compensation, confusion, remission–
Art. 1215, par. 1
(b) prejudicial acts prohibited – Art. 1212
(c) assignment of rights not allowed – Art. 1213
b. Solidary debtor in relation to:
i. common creditor
(a) obligation to perform – Art. 1207
(b) in case of novation, compensation, confusion, remission by a
creditor – Art. 1215, par. 1
ii. solidary co-debtor
(a) in case of payment by a co-debtor – Arts. 1217-1220
(b) In case of fortuitous event – Art. 1221

4. Defenses available to a solidary debtor against the creditor – Art 1222

a. Types
i. derived from the nature of the obligation
ii. personal defenses
iii. defenses pertaining to his share
iv. those personally belonging to other co-debtors
b. Effects
C. Joint Indivisible Obligations
1. Concept
a. Distinguished from Joint Obligations
b. Distinguished from Solidary Obligations
2. Indivisibility vs Solidarity – Art. 1210
3. Effects – Arts. 1209, 1224

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V. Divisible and Indivisible Obligations

A. Divisible Obligations
1. Concept
2. Effects – Arts. 1223, 1233
B. Indivisible Obligations
1. Concept
a. Distinguished from solidary obligations
2. Kinds
a. Natural – Art. 1225, par. 1
b. Legal- Art. 1225, par. 3
c. Conventional – Art. 1225, par. 3
3. Presumptions
a. Of indivisibility – Art. 1225, par.1
b. Of divisibility – Art. 1225, par. 2
4. Divisibility and indivisibility in obligations not to do – Art. 1225, par. 3
5. Effects – Arts. 1223, 1233, 1224
6. Cessation of indivisibility

VI. Obligations with a Penal Clause

A. Concept
1. Principal v. Accessory Obligation
2. Distinguished from Conditional Obligations
3. Distinguished from Alternative Obligations
4. Distinguished from Facultative Obligations
5. Distinguished from Guaranty
B. Kinds of Penal Clause
1. As to effect
a. Subsidiary
b. Complementary
2. As to source
a. Conventional
b. Legal
3. As to purpose
a. Punitive
b. Reparatory
C. Demandability of Penalty - Art. 1226, par. 2
D. Effects of Penal Clause
1. Substitute for indemnity for damages and payment of interest - Art. 1226
2. Not exempt debtor from performance - Art. 1227
a. Exception - Art. 1227
3. Creditor cannot demand both performance and penalty at the same time -
Art. 1227

Exception – Art. 1227

4. Creditor cannot collect other damages in addition to penalty – Art. 1226
a. Exception- Art. 1226
E. When penalty shall be equitably reduced- Art. 1229

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 Exception - Art. 1227
1. Creditor cannot collect other damages in addition to penalty - Art. 1226
a. Exception - Art. 1226
F. When penalty shall be equitably reduced - Art. 1229

G. Nullity of Principal Obligation or Penal Clause

1. Effects - Art. 1230
2. Rationale

Chapter 4 – Extinguishment of Obligations

I. Overview: Modes of Extinguishment – Art. 1231

A. Payment or Performance
B. Loss or Impossibility
C. Condonation or Remission
D. Confusion or Merger
E. Compensation
F. Novation
G. Other Causes

II. Payment or Performance

A. Concept – Art. 1232
B. Requisites
1. Who can pay
a. In general
b. Third person who is an interested party
i. meaning of “interested party”
ii. effects – Art. 1302(3)
c. Third person who is not an interested party but with consent of debtor
i. effects – Arts. 1302(2), Art. 1236, par. 1
d. Third person who is not an interested party and without knowledge or
against the will of the debtor
i. effects – Arts. 1236, par. 2, 1237, 1236, par. 1
e. Third person who does not intend to be reimbursed – Art. 1238
f. In obligation to give – Arts. 1239, 1427
g. In case of active solidarity – Art. 1214
2. To whom payment may be made
a. In general
b. Incapacitated person – Art. 1241, par. 1
i. requisites
b. Third person – Art. 1241, par. 2
i. requisites
ii. When proof of benefit not required – Art. 1241, par. 3, 1242
d. In case of active solidarity – Art. 1214
3. What is to be paid (“Identity”)
a. In general
b. In obligation to:
i. give a specific thing – Art. 1244
ii. give a generic thing – Art. 1246
ii. pay money – Arts. 1249- 1250; R.A. 529, RA. 4100

4. How payment is to be made (“Integrity”)

a. in general – Art. 1233
● General Rule: Partial payment is not allowed – Art. 1248
● Exceptions: Art. 1248
b. substantial performance in good faith – Art. 1234
c. estoppel – Art. 1235
d. presumptions in payment of interests and installments – Art. 1176
5. When payment is to be made
a. in general – Art. 1169

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 b. See Chapter 2: Delay
6. Where payment is to be made – Art. 1251, par. 1
7. Expenses of making payment – Art. 1247
C. Application of Payments
1. Concept – Art. 1252
2. Rules in application of payments – Arts. 1252-1253
D. Payment by Cession
1. Concept – Art. 1255
2. Requisites
3. Effects
E. Dation in Payment
1. Concept – Art. 1245
2. Requisites
3. Effects
F. Tender of Payment and Consignation
1. Tender of Payment
a. Concept
b. Requisites
2. Consignation
a. Concept and Purpose
b. Requisites
i. when tender and refusal not required – Art. 1256, par. 2
ii. two notice requirement – Art. 1257-1258
● effects of non-compliance

c. Effects – Art. 1260, par. 1

d. Withdrawal by debtor before acceptance by creditor or approval by
court; effects – Art. 1260, par. 2
e. Withdrawal by debtor after proper consignation – Art. 1261
i. with creditor’s approval; effects
ii. without creditor’s approval; effects
f. Expenses of Consignation – Art. 1259
III. Loss or Impossibility
A. Loss of Thing Due
1. Concept – Art. 1189(2)
2. Kinds
a. As to extent
i. Total
ii. Partial
3. Requisites – Art. 1262
4. Presumption – Arts. 1265, 1165
a. When not applicable
5. Effects
a. in obligation to give a specific thing - Arts. 1262, 1268
b. in obligation to give a generic thing - Art. 1263
c. in case of partial loss - Art. 1264
d. action against third persons - Art. 1269
B. Impossibility of Performance
1. Concept - Arts. 1266, 1267
2. Kinds

a. As to extent
i. Total
ii. Partial
b. As to source
i. Legal
ii. Physical
3. Requisites - Art. 1266
4. Effects
a. in obligations to do - Arts. 1266, 1267, 1262 par. 2 (by analogy)
i. “impossibility” distinguished from “difficulty”

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 b. in case of partial impossibility – Art. 1264

IV. Condonation or Remission

A. Concept
B. Kinds
1. Total or partial
2. Express or implied - Art. 1270, par.1
C. Requisites – Art. 1270, par.2
Case: Yam v. Court of Appeals, 303 SCRA 1 (1999)

D. Presumptions – Arts. 1271, 1272, 1274

E. Effects
1. In general
2. I case of joint or solidary obligations
F. Governing Rules – Art. 1270
G. Renunciation of Principal or Accessory Obligation
1. Effects – Art. 1273
2. Rationale

V. Confusion or Merger of Rights

A. Concept
B. Requisites
C. Effects
1. In general – Art. 1275
2. In case of joint or solidary obligations – Art. 1277
D. Confusion in Principal or Accesory Obligation – Art. 1276

VI. Compensation
A. Concept – Art. 1278
1. Distinguished from Confusion
B. Kinds
1. As to extent
a. Total
b. Partial
2. As to origin
a. Legal
b. Conventional – Arts. 1279, 1282
c. Judicial – Art. 1283
d. Facultative

C. Legal Compensation
1. Requisites – Arts. 1279-1280
a. “due” vs “demandable”
2. Effects – Art. 1290, 1289

D. When Compensation is Not Allowed – Arts. 1287-1288

E. Compensation of Debts Payable in Different Place – Art. 1286
F. Effect of Nullity of Debts to be Compensated – Art. 1284
G. Effects of Assignment of Credit
1. With consent of debtor – Art. 1285, par. 1
2. With knowledge but without consent of debtor – Art. 1285, par. 2
3. Without knowledge of debtor – Art. 1285, par. 3

VII. Novation
A. Concept – Art. 1291
B. Kinds

1. As to form
a. Express
b. Implied

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 2. As to origin
a. Conventional
b. Subjective or Personal
C. Requisites – Art. 1292
D. Effects
1. In general – Art. 1296
2. When accessory obligation may subsist – Art. 1296

E. Effect of the Status of the Original or New Obligation

1. Nullity or voidability of original obligation – Art. 1298

2. Nullity or voidability of new obligation – Art. 1297
3. Suspensive or resolutory condition of original obligation – Art. 1299

F. Objective Novation
1. Meaning of “principal conditions”

G. Subjective Novation
1. By change of debtor
a. Expromision
i. requisites – Art. 1293
ii. effects – Art. 1294
b. Delegacion
i. requisites – Art. 1293
ii. effects – Art. 1295

2. By change of creditor: Subrogation of a third person in the rights of the creditor –

Art. 1300
a. Conventional subrogation
i. requisites - Art. 1301
ii. distinguished from Assignment of Credit
iii. effects - Art. 1303, 1304
b. Legal subrogation
i. requisites
ii. when presumed - Art. 1302
iii. effects - Art. 1303, 1304

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TITLE II. CONTRACTS
Chapter 1 – General Provisions

A. Definition – Art. 1305

B. Elements
1. Essential elements (see Chapter 2, infra)
a. Consent
b. Object
c. Cause
2. Natural elements
3. Accidental elements (see D., 3., infra)
C. Characteristics
1. Obligatory force – Art. 1308
2. Mutuality – Arts. 1308-1310 (see also Art. 1473)
3. Relativity
a. Contracts take effect only between the parties, their assigns and heirs - Art. 1311
b. No one may contract in the name of another – Art. 1317

4. Consensuality

D. Parties
1. Auto-contracts
2. Freedom to contract – Art. 1306

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 a. Special disqualifications
i. Art. 87, Family Code
ii. Arts. 1490 and 1491
iii. Art. 1782
3. What they may not stipulate – Art. 1306
a. Contrary to law, Article 1490, 1491
Prohibited stipulations:
i. pactum commissorium (Art. 2088; 2137)
ii. pactum leonina (Art. 1799)
iii. pactum de non alienando (Art. 2130)
b. Contrary to morals
c. Contrary to good customs
d. Contrary to public order
e. Contrary to public policy
E. Classification
1. According to subject-matter
a. Things
b. Services
2. According to name
a. Nominate
b. Innominate – Art. 1307
i. do ut des
ii. do ut facias
iii. facio ut facias
iv. facio ut des

3. According to perfection
a. By mere consent (consensual) – Art. 1315
b. By delivery of the object (real) – Art. 1316
c. By compliance of formality of solemnity

4. According to its relation to other contracts

a. Preparatory
b. Principal
c. Accessory
5. According to form
a. Common or informal – Art. 1356-1358
b. Special or formal
6. According to purpose
a. Transfer of ownership, e.g., sale
b. Conveyance of use, e.g., commodatum
c. Rendition of services, e.g., agency
7. According to the nature of the vinculum produced
a. Unilateral
b. Bilateral or reciprocal
8. According to cause
a. Onerous
b. Gratuitous or lucrative
c. Remuneratory
9. According to risk
a. Commutative
b. Aleatory
F. Stages
1. Preparation
2. Perfection
3. Consummation or death
G. As distinguished from a perfected promise and an imperfect promise (policitacion)
H. With respect to third persons
1. Stipulations in favor of third persons (stipulations pour autrui) – Art. 1311, par. 2

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2. Possession of the object of contract by third persons – Art. 1312
3. Creditors of the contracting parties – Art. 1313
4. Interference by third persons – Art. 1314

Chapter 2 – Essential Requisites of Contracts

A. Consent
o Requisites – Art. 1319
§ Must be manifested by the concurrence of the offer and acceptance
i. Offer
o Must be certain – Art. 1319
o What may be fixed by the offeror – Art. 1321
o When made through an agent – Art. 1322
o Circumstances when offer becomes ineffective – Art. 1323
o Business advertisements of things for sale – Art. 1325
o Advertisements for bidders – Art. 1326

ii.Acceptance
o Must be absolute – Art. 1319
o Kinds
§ Express – Art. 1320
§ Implied – Art. 1320
§ Qualified – Art. 1319
o If made by letter or telegram – Art. 1319, 2nd par.
§ Four theories on when the contract is perfected:
i. Manifestation theory
ii. Expedition theory
iii. Reception theory
iv. Cognition theory – Art. 1319, 2nd par.
o Period of acceptance – Art. 1324
o Contract of option – Art. 1324

B. Necessary legal capacity of the parties

i. Who cannot give consent – Art. 1327
ii. When offer and/or acceptance is made
➢ during a lucid interval
➢ in a state of drunkenness
➢ during a hypnotic spell
C. The consent must be intelligent, free, spontaneous, and real – Arts. 1330-1346
i. Effect – Art. 1330
ii. Vices of consent
➢ Mistake or error
● Kinds
o Mistake of fact
- as to substance of the object
- as to principal conditions
- as to identity or qualifications of one of the parties
- as to quantity, as distinguished from a simple
mistake of account
o Error of law
- General rule: Ignorantia legis neminem excusat – Art. 3
- Exception: Mutual error of law – Art. 1334
● When one of the parties is unable to read – Art. 1332
● Inexcusable mistake – Art. 1333
➢ Violence and intimidation – Art. 1335
● Effect – Art. 1336
➢ Undue influence – Art. 1337
➢ Fraud or dolo – Art. 1338

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dolo causante – Art 1338
o dolo incidente – Art. 1344, 2nd par.
• Failure to disclose facts; duty to reveal them – Art. 1339
● Usual exaggerations in trade; opportunity to know the facts –
Art. 1340
● Mere expression of an opinion – Art. 1341 o
Effects – Art. 1344
➢ Misrepresentation
● By a third person – Art. 1342
● Made in good faith – Art. 1343
● Active/passive
➢ Simulation of Contracts
● Kinds – Art. 1345
o absolute
o relative
● Effects – Art. 1346
B. Object of Contracts
1. What may be the objects of contracts – Art. 1347
a) All things not outside the commerce of man
b) All rights not intransmissible
c) All services not contrary to law, morals, good customs, public, or public policy
2. Requisite - must be determinate as to its kind – Art. 1349
3. What may not be the objects of contracts
a) Future inheritance, except when authorized by law – Art. 1347
b) Future Support
c) Impossible things or services – Art. 1348

C. Cause of Contracts
1. Meaning of cause – Art. 1350
a) In onerous
contracts
b) In remuneratory contracts
c) In contracts of pure beneficence

2. As distinguished from motive – Art. 1351

3. Defective causes and their effects:

a) Absence of cause and unlawful cause – Art. 1352
b) Statement of a false cause in the contract – Art. 1353
c) Lesion or inadequacy of cause – Art. 1355

4. Presumption of the existence and lawfulness of a cause, though it is not stated in

the contract – Art. 1354

Chapter 3 – Form of Contracts

A. General rule: Contracts shall be obligatory, in whatever form they may have been entered into, provided
all the essential requisites for their validity are present. (“Spiritual system” of the Spanish Code) - Art. 1356

B. Exception: When the law requires that a contract be in some form in order that it may be valid or
enforceable. (Anglo-American principle) - Art. 1356

C. Kinds of formalities required by law:

1. Those required for the validity of contracts, such as those referred to in Arts. 748, 749,
1874, 2134, 1771, 1773;
2. Those required, not for validity, but to make the contract effective as against third persons,
such as those covered by Arts. 1357 and 1358; and
3. Those required for the purpose of proving the existence of the contract, such as those
under the Statute of Frauds in Art. 1403.

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 Chapter 4 – Reformation of Instruments

A. Requisites (Art. 1359)

1. Meeting of the minds upon the contract;
2. The true intention of the parties is not expressed in the instrument; and
3. The failure of the instrument to express the true agreement is due to mistake, fraud,
inequitable conduct, or accident.

B. Cases where no reformation is allowed - Art. 1366

C. Implied Ratification – Art. 1367
D. Who may ask for reformation –Art. 1368
E. Procedure of reformation – Art. 1369

Chapter 5 – Interpretation of Contracts

A. Primacy of intention – Arts. 1370, 1372

B. How to determine intention – Art. 1371
C. How to interpret a contract
1. When it contains stipulations that admit several meanings – Art. 1373
2. When it contains various stipulations, some of which are doubtful – Art. 1374
3. When it contains words that have different significations – Art. 1375
4. When it contains ambiguities and omission of stipulations – Art. 1376
5. With respect to the party who caused the obscurity – Art. 1377
6. When it is absolutely impossible to settle doubts by the rules above – Art. 1378
a. in gratuitous contracts
b. in onerous contracts
7. When the doubts are cast upon the principal object so that the intention cannot be known –
Art. 1378
D. Applicability of Rule 123, Rules of Court (now Secs. 10-19, Rule 130)

DEFECTIVE CONTRACTS
Chapter 6 – Rescissible Contracts

A. Kinds – Art. 1381

B. Characteristics
1. Their defect consists in injury or damage either to one of the contracting parties or to third
persons.
2. They are valid before rescission.
3. They can be attacked directly only, and not collaterally.
4. They can be attacked only either by a contracting party or by a third person who is injured or
defrauded.
5. They can be convalidated only by prescription, and not by ratification.
C. Rescission – Art.
1380
1. Definition 26
2. As distinguished from rescission under Art. 1191

3. Requisites:
a. The contract is rescissible;
b. The party asking for rescission has no other legal means to obtain reparation – Art. 1383;
c. He is able to return whatever he may be obliged to restore if rescission is granted – Art 1385;
d. The object of the contract has not passed legally to the possession of a third person
acting in good faith – Art. 1385;
e. The action for rescission is brought within the prescriptive period of four (4) years – Art 1389.

4. Effect of rescission – Art. 1385

a. with respect to third persons who acquired the thing in good faith – Art. 1385, par 2 and 3.

5. Extent of rescission – Art. 1384

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6. Presumptions of fraud – Art. 1387
a. Badges of fraud

7. Liability for acquiring in bad faith the things alienated in fraud of creditors – Art. 1388

Chapter 7 – Voidable or Annullable Contracts

A. Kinds – Art. 1390

B. Characteristics
1. Their defect consists in the vitiation of consent of one of the contracting parties.
2. They are binding until they are annulled by a competent court.
3. They are susceptible of convalidation by ratification or by prescription.
C. Annulment
1. As distinguished from rescission
2. Grounds – Art. 1390
3. Who may and may not institute action for annulment – Art. 1397
4. Prescription – Art. 1391
5. Effect
a. Mutual restitution – Arts. 1398 and 1402
i. When one of the parties is incapacitated - Art. 1399
ii. When the thing is lost through the fault of the party obliged to return the same – Art.
1400
6. Extinguishment of the action
a. By ratification – Art. 1392
b. When the thing is lost through the fault of the person who has the right to file
the action – Art. 1401
D. Ratification
1. Requisites
a. The contract is voidable;
b. The ratification is made with knowledge of the cause for nullity;
c. At the time of the ratification, the cause of nullity has already ceased to exist.
2. Forms
a. Express or tacit – Art. 1393
b. By the parties themselves or by the guardian in behalf of an incapacitated party –
Art. 1394
3. Effects:
a. Action to annul is extinguished – Art. 1392
b. The contract is cleansed retroactively from all its defects – Art. 1396

Chapter 8 – Unenforceable Contracts

A. Characteristics
1. They cannot be enforced by a proper action in court.
2. They are susceptible of ratification.
3. They cannot be assailed by third persons.
B. Kinds – Art. 1403
1. Unauthorized contracts
a. Governing rules – Art. 1404
2. Contracts covered by the Statute of Frauds
a. Purpose of Statute
b. How ratified – Art. 1405
c. Right of the parties when a contract is enforceable but a public document is necessary
for its registration – Art. 1406
d. Contracts executed by parties who are both incapable of giving consent to a contract
e. Effect of ratification by the parents or guardian of one of the parties – Art. 1407
f. Effect of ratification by the parents or guardian of both parties – Art. 1407

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 Chapter 9 – Void or Inexistent Contracts

A. Characteristics
1. Void from the beginning
2. Produces no effect whatsoever
3. Cannot be ratified – Art. 1409

B. Kinds –Art. 1409

1. Contracts that are void
a. Those whose cause, object, or purpose is contrary to law, morals, good customs,
public order or public policy
i. When the act constitutes a criminal offense – Art. 1411 - in pari delicto rule
ii. When the act is unlawful but does not constitute a criminal offense – Art. 1412 - in
pari delicto rule
iii. When the purpose is illegal, and money is paid or property delivered therefor –
Art. 1414
iv. When the contract is illegal and one of the parties is incapable of giving consent
– Art. 1415
v. When the agreement is not illegal per se but is prohibited – Art. 1416
vi. When the amount paid exceeds the maximum fixed by law – Art. 1417
vii. When by virtue of a contract a laborer undertakes to work longer than the
maximum number of hours of work fixed by law – Art. 1418
viii. When a laborer agrees to accept a lower wage than that set by law –Art. 1419
ix. When the contract is divisible – Art. 1420
x. When the contract is the direct result of a previous illegal contract – Art. 1422
➢ Those whose object or causa is outside the commerce of man
➢ Those which contemplate an impossible service 29
➢ Those where the intention of the parties relative to the principal object
of the contract cannot be ascertained
➢ Those expressly prohibited or declared void by law

2. Contracts that are inexistent

a. Those which are absolutely simulated or fictitious (see Arts. 1345 and 1346)
b. Those whose cause or object did not exist at the time of the transaction

C. Right to set up defense of illegality cannot be waived – Art. 1409

D. The action or defense for the declaration of the inexistence of a contract

1. does not prescribe – Art. 1410 2. is not available to third persons whose interest is not
directly affected – Art. 1421

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TITLE III. NATURAL OBLIGATIONS

A. Definition – Art. 1423

B. As distinguished from civil obligations – Art. 1423
C. As distinguished from moral obligations
Cases:
Villaroel v. Estrada, 71 Phil. 140 (1940)
Fisher v. Robb, 69 Phil. 101 (1939)

D. Conversion to civil obligation

1. By novation
2. By ratification
E. Examples – Arts. 1424-1430

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TITLE IV. ESTOPPEL

A. Definition – Art. 1431

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 B. Kinds
1. Technical estoppel
a. By record
b. By deed – art. 1433

2. Equitable estoppel or estoppel in pais – Art. 1433

C. Persons bound – Art. 1439
D. Cases where estoppel applies – Arts. 1434-1438

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TITLE V. TRUSTS
Chapter 1. General Provisions

A. Definition
B. Governing rules – Art. 1442
C. Parties – Art. 1440
1. Trustor
2. Trustee
3. Beneficiary or cestui que trust

D. Kinds – Art. 1441

1. Express Trusts
a. Proof required – Art. 1443
b. Form – Art. 1444
c. Want of trustee – Art. 1445
d. Acceptance by the beneficiary – Art. 1441
2. Implied Trusts a. How established – Art. 1441
b. How proved – Art. 1457
c. Examples – Arts. 1448-1456

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