DE LA SALLE UNIVERSITY

COLLEGE OF LAW

OBLIGATIONS AND CONTRACTS

Judge Joeven D. Dellosa

Course Outline
(2nd Sem, 2016 2017)

TITLE I. OBLIGATIONS
Chapter I. General Provisions

I. Obligations
A. Definition (Art. 1156, New Civil Code[NCC])
B. Elements
1. Active Subject
2. Passive Subject
3. Object or Prestation
4. Efficient Cause or Juridical Tie
C. Distinction Between Natural Obligations and Civil Obligations (Art. 1423)

II. Sources of Obligations (Art. 1157, NCC)

A. Law (Art.1158, NCC)
B. Contracts (Art. 1159, 1305, NCC)
1. Quasi-contracts (Art. 1160, 2142, NCC)
a. Negotiorum gestio (Art. 2144, NCC)
b. Solutio indebiti (Art. 2154, NCC)
c. Other Quasi-contracts (Art. 2164 to 2175, NCC)
C. Delicts (Art. 1161, NCC)
D. Quasi-delicts (Art. 1162, 2176, NCC)
Distinction between crimes and quasi-delicts
Vicarious liability (Art. 2180, Art. 218-219, Family Code)
Civil liability arising from crime (Art. 1161; Rule 111, Revised
Rules of Criminal Procedure)

Barredo v. Garcia, 73 Phil. 607 (1942)

Mendoza v. Arrieta, 91 SCRA 113 (1975)
PSBA v. CA, 205 SCRA 729 (1992)
Amadora v. CA, 160 SCRA 315 (1988)
Sagrada Orden v. Nacoco, 91 Phil 503
Metropolitan Bank & Trust Company vs. Absolute Management
Corporation; G.R. No. 170498. January 9, 2013

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III. Classification of Obligations
A. Primary
1. Pure and Conditional Obligations (Art. 1179-1192, NCC)
2. With a Period (Art. 1193-1198, NCC)
3. Alternative and Facultative (Art. 1199-1206, NCC)
4. Joint and Solidary (Art. 1207-1222, NCC)
5. Divisible and Indivisible (Art. 1223-1225, NCC)
6. With a Penal Clause (Art. 1226-1230, NCC)
B. Secondary
1. Unilateral and Bilateral
2. Individual and Collective
3. Positive and Negative
4. Real and Personal
5. Principal and Accessory
6. Possible and Impossible
7. Legal, Conventional, and Penal

Chapter 2. Nature and Effects of Obligations

I. Kinds of Prestation
A. To give
a. Specific thing
i. To preserve the thing (Art. 1163)
ii. to deliver the accessions and accessories (Art. 1166)
iii. to deliver the fruits (Art. 1164, par. 1)
iv. to deliver the thing itself (Art. 1244)
B. generic thing (Art. 1246)
C. To do (Art. 1244)
D. Not to do (Art. 1244)

II. Breach of Obligation

1. Concept
Song Fo v. Hawaiian Philippines, 47 Phil. 821 (1928)
Velarde et. al. v. Court of Appeals, 361 SCRA 56 (2001)
Angeles v. Calasanz, 135 SCRA 323 (1985)
Guanio v. Makati Shangri-Law Hotel, G.R. No. 190601, 7
February 2011
2. Modes of Breach
A. Delay or mora (Art. 1169)
1. Mora solvendi
Cetus Development v. Court of Appeals, 176
SCRA 72 (1989)

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 Vazquez v. Ayala Corporation, 443 SCRA 231 (2004)
General Milling Corp. v. Sps. Ramos, G.R. No. 193723,
20 July 2011
2. Mora accipiendi (cf. Art. 1268)
Vda. De Villaroel v. Manila Motor Co., Inc., 104 Phil.
926 (1958)
3. Compensatio morae
Central Bank v. Court of Appeals, 139 SCRA 46 (1985)
B. Fraud or dolo (Art. 1171)
1. Dolo incidente
2. Dolo causante
Woodhouse v. Halili, 93 Phil. 526 (1953)
Geraldez v. Court of Appeals, 230 SCRA 320 (1994)
C. Negligence or Culpa (Art. 1172, 1173)
1. Culpa v. Dolo
2. Culpa aquiliana
3. Culpa contractual
4. Standard of care required
De Guia v. Manila Electric Corporation, 40 Phil. 706
(1920)
Sarmiento v. Sps. Cabrido, 401 SCRA 122 (2003)
Crisostomo v. CA, 409 SCRA 528 (2003)
D. Contravention of the tenor of obligation
Chavez v. Gonzales, 32 SCRA 547 (1970)
Telefast v. Castro, 158 SCRA 445 (1988)
Arrieta v. NARIC, 10 SCRA 79 (1964)
Magat v. Medialdea, GR L-37120, 20 April 1983
Sps. Guanio v. Makati Shangri-la, G.R. No. 190601,
7 February 2011.
3. Remedies in case of breach
A. Performance
1. Specific performance (Art. 1165; Sec. 10, Rule 39, Rules of Court)
2. Substituted performance
i. In an obligation to give generic thing (Art. 1165)
ii. Undoing of poor work in an obligation to do (Art. 1167)
Chavez v. Gonzalez, 32 SCRA 547 (1970)
Tanguilig v. CA, 266 SCRA 78 (1997)
iii. Undoing in an obligation not to do (Art. 1167)
iv. Rescission (Art. 1191 Art. 1192)
v. Damages (Art. 1170)
4. Subsidiary Remedies of Creditor
A. Accion Subrogatoria (Art. 1177)
B. Accion Pauliana (Art. 1177; Art. 1381, par. 3)

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 Metropolitan Bank and Trust Co. v. International
Exchange Bank, G.R. No. G.R. No. 176008 and
176131, 10 August 2011.
Khe Hong Cheng v. CA, 355 SCRA 701 (2001)
Siguan v. Lim, 318 SCRA 725 (1999)
C. Other Specific Remedies (Art. 1652, 1729, 1608, 1893)
5. Fortuitous Event (Art. 1174)
A. Effect: Extinguishment of Liability
B. Exceptions to Extinguishment (Art. 1174, 1165 par. 3, 552, 1942, 1979, 2001,
2147)
Juan Nakpil & Sons v. CA, 144 SCRA 597 (1986)
Republic v. Luzon Stevedoring Co., 21 SCRA 279 (1967)
Dioquino v. Laureano, 33 SCRA 65 (1970)
Austria v. CA, 39 SCRA 527 (1971)
National Power Corporation v. CA, 161 SCRA 334 (1988)
Yobido v. CA, 281 SCRA 1 (1997)
Philcomsat v. Globe Telecom, 430 SCRA (2004)
6. Usurious Transactions (Art. 1175, 1413, 1961)
A. PD 858; PD 1685;
B. Central Bank Circular 799, series of 2013
Eastern Shipping Lines v. CA, 234 SCRA 781 (1994)
Advocates for Truth in Lending, Inc. v. Bangko Sentral
Monetary Board, G.R. No. 192986, 15 January 2013
Nacar v. Gallery Frames, G.R. No. 189871, 13 August 2013
S.C. Megaworld Construction and Development Corp. v.
Parada, G.R. No. 183804, 11 September 2013
De la Paz v. L & J Development Company, G.R. No.
183360, 8 September 2014.

Chapter 3. Different Kinds of Obligations

I. Kinds of Obligations
A. Pure and Conditional Obligations
1. Pure Obligations (Art. 1179, par. 1)
2. Conditional Obligations (Art. 1181)
a. Concept
b. Condition v. Period or Term
Gaite v. Fonacier, 2 SCRA 830 (1961)
Gonzales v. Heirs of Tomas and Paula Cruz, 314 SCRA 585
(1999)
c. Kinds of Conditions
i. As to the effect on the obligation (Art. 1181)

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 Gonzales v. Heirs of Tomas and Paula Cruz, 314 SCRA 585
(1999)
1. Suspensive Condition or Condition precedent
a. Retroactive effect when condition is fulfilled (Art.
1187)
Coronel v. CA and Alcaraz, 263 SCRA 15 (1996)
b. Rights of the creditor and debtor before fulfillment
of the condition (Art. 1188)
2. Resolutory Condition or Condition subsequent
Parks v. Province of Tarlac, 49 Phil. 142 (1927)
Central Philippine University v. CA, 245 SCRA 511
(1995)
ii. As to the cause or origin (Art. 1182)
1. Potestative
Lao Lim v. Court of Appeals, 191 SCRA 150 (1990)
2. Casual
3. Mixed
Osmena v. Rama, 14 Phil. 99 (1909)
Hermosa v. Longora, 93 Phil. 971 (1953)
Taylor v. Uy Tieng Piao, 43 Phil. 873 (1922)
Smith Bell v. Sotelo Matti, 44 Phil. 875 (1922)
Rustan Pulp and Paper Mills, 214 SCRA 665 (1993)
iii. As to possibility (Art. 1183)
Roman Catholic Archdiocese of Manila v. CA, 198 SCRA
300 (1991)
iv. As to mode:
1. Positive (Art. 1184)
2. Negative (Art. 1185)
3. Rules in case of loss, deterioration, or improvement
pending the happening of the condition (Art. 1189 - 1190)
a. Meaning of loss, deterioration, improvement
b. Effect of loss or deterioration
i. without debtors fault
ii. with debtors fault
c. Effect of improvement
i. by nature or time
ii. at the debtors expense
4. Effect of prevention of the fulfillment of the condition by
the obligor (Art. 1186)
Taylor v. Uy Teng Piao, 43 Phil. 873 (1922)
Herrera v. Leviste, 135 SCRA 129
3. Reciprocal Obligations Art. 1191,1192
A. Concept

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 B. Alternative remedies of injured party in case of breach
a. Action for Fulfillment
i. when fulfillment no longer possible; effect
b. Action for Rescission
ii. Requisites
iii. How made
iv. Effects
Song Fo v. Hawaiian-Philippines, 47 Phil. 821 (1925)
Boysaw v. Interphil Promotions, 148 SCRA 365 (1987)
U.P. v. De Los Angeles, 35 SCRA 365 (1970)
De Erquiaga v. CA, 178 SCRA 1 (1989)
Heirs of Ramon C. Gaite v. The Plaza, Inc., G.R. No.
177685, Jan. 26, 2011 20.
Fil-Estate v. Vertex, 698 SCRA 272 (2013)
Gotesco v. Sps. Fajardo, 692 SCRA 319 (2013)
Sandoval v. PMMA, 695 SCRA 560 (2013)
Eds Manufacturing v. Healthcheck, 702 SCRA 133 (2013)
Planters Development bank v. Lopez, 708 SCRA 481 (2013)
See also Arts. 1484 to 1486; Arts. 1786 to 1788; R.A.
No. 6552

II. Obligation with a Period Art. 1193, 1180

A. Period or Term
1. Concept
2. Period/Term v. Condition
B. Kinds of Period/Term
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 definiteness
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
Art. 1194, 1189
D. Effect of payment in advance Art. 1195
Note: Art. 1197 par. 3

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 E. Benefit of Period
1. For whose benefit
a. creditor
b. debtor
c. both
2. Effect
3. Presumption Art. 1196
CASES:
Ponce de Leon v. Syjuco, 90 Phil. 311 (1951)
Buce v. CA, 332 SCRA 151 (2000)
4. When debtor loses right to make use of period Art. 1198
F. When Court may Fix Period Art. 1197
1. Period is implied
2. Period depends solely on will of debtor (Cf. condition)
CASES:
Araneta v. Philippine Sugar Estate Development Co., 20 SCRA 330
(1967)
Central Philippine University v. CA, supra

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

IV. Joint and Solidary Obligation

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 right of creditor
c. In case of novation, compensation, confusion, remission
B. Solidary Obligations
1. Concept
a. Requisites

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 b. Words used to indicate solidary obligations
2. Kinds
a. As to source Art. 1208
i. Legal Art. 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
-effects
CASES:
Inchausti v. Yulo, 34 Phil. 978 (1916)
Lefarge Cement v. Continental Cement, 443
SCRA 522 (2004)
3. Effects
a. Solidary creditor in relation to:
i. common debtor
-right to demand Arts. 1214 to1217
-in case of novation, compensation, confusion,
remission by a creditor Art. 1215 par. 1
ii. solidary co-creditors
-in case of novation, compensation, confusion,
remission Art. 1215 par. 2
-prejudicial acts prohibited Art. 1212
-assignment of rights not allowed Art. 1213
b. Solidary debtor in relation to
i. common creditor
-obligation to perform Art. 1207
-in case of novation, compensation, confusion,
remission by a creditor Art. 1215 par. 1
ii. solidary co-debtor
-in case of payment by a co-debtor Art. 1217
to 1220
-in case of fortuitous event Art. 1221
CASES:
Jaucian v. Querol, 38 Phil. 718 (1918)
RFC v. CA, O.G. No. 6, p. 2467
Quisumbing v. CA, 189 SCRA 325 (1990)
Inciong v. CA, 257 SCRA 578 (1996)

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 4. Defenses available to a solidary debtor against the creditor Art. 1222
a. Types
i. those derived from the nature of the obligation
ii. personal defenses
iii. defenses pertaining to his share
iv. those personally belonging to the other co-debtors
b. Effects
CASES:
Ynchausti v. Yulo, supra
Alipio v. CA, 341 SCRA 441 (2000)

C. Joint Indivisible Obligations

1. Concept
a. Distinguished from Joint Obligations
b. Distinguished from Solidary Obligations
2. Indivisibility distinguished from solidarity Art. 1210
3. Effects Art. 1209
a. Liability for damages in case of breach Art. 1224

V. Divisible and Indivisible Obligations

A. Divisible Obligations
1. Concept
2. Effects Art. 1222, 1223
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 obligation not to do Art. 1225 par. 3
5. Effects Art. 1223, 1224
-see Joint Indivisible Obligations
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

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 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
CASE:
Continental Cement Corp. v. Asea Brown Boveri, G.R. No.
171660, Oct. 17, 2011
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
a. Exception Art. 1226
CASES:
Makati Development Corp. v. Empire Insurance Co., 20
SCRA 557 (1967)
Antonio Tan v. CA, 367 SCRA 571 (2001)
Country Bankers Insurance v. CA, G.R. No. 851161, Sept. 9,
1991
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
a. 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
F. Nullity of Principal Obligation or Penal Clause
1. Effects Art. 1230
2. Rationale

Chapter 4 Extinguishment of Obligations

I. Modes of Extinguishment Art. 1231

A. Payment on Performance
B. Loss of Impossibility

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 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 par. 3
c. third person who is not an interested party but with consent of
debtor
i. effects Art. 1302 par. 2, 1236 par. 1
d. third person who is not an interested party and without
knowledge or against the will of the debtor
i. effects Art. 1236, 1237
e. third person who does not intend to be reimbursed Art. 1238
f. in obligation to give _ Art. 1239, 1427
i. effect of incapacity
g. in case of active solidarity Art. 1214
2. To whom payment may be made
a. in general Art. 1240
b. incapacitated person Art. 1241 par. 1
i. requisites
c. third person Art. 1241 par. 2
i. requisites
ii. when proof of benefit not required Art. 1241 par. 3,
1242
3. What is to be paid (Identity)
a. in general
b. in obligations to:
i. give a specific thing Art. 1244
ii. give a generic thing Art. 1246
iii. pay money Art. 1249, 1250; R.A. 4100
CASES:
Arrieta v. NARIC, supra
Kalalo v. Luz, 34 SCRA 377 (1970)
Papa v. A.V.Valencia, et.al., 284 SCRA 643 (1998)
PAL v. CA, 181 SCRA 557 (1990)

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 c. payment of interest Art. 1956
4. How is payment 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. presumption in payment of interests and installments Art.
1176
5. When payment is to be made
a. in general Art. 1169
see Chapter 2: Delay
6. Where payment is to be made Art. 1251 par. 1
a. if no place is expressly designated Art. 1251 par. 2 to par. 4
7. Expenses of making payment Art. 1247
C. Application of Payments
1. Concept Art. 1252, 1253, 1254
CASES:
Reparations Commission v. Universal Deep Sea Fishing, 83 SCRA
764 (1978)
Paculdo v. Regalado, 345 SCRA 134 (2000)
2. Requisites
3. Effects
D. Payment by Cession
1. Concept Art. 1255
2. Requisites
3. Effects
E. Dation in Payment
1. Concept Art. 1255
a. distinguished from Payment by Cession

DBP v. CA, G.R. No. 118342, June 5, 1998

2. Requisites
3. Effects
CASE:
Filinvest Credit Corp. v. Phil. Acetylene, G.R. No. 50449, Jan. 30,
1982
F. Tender of Payment and Consignation
1. Tender of Payment
a. Concept
b. Requisites
2. Consignation
a. Concept

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 i. purpose
b. Requisites
i. when tender and refusal not required Art. 1256 par. 2
ii. two notice requirement Art. 1257 par. 1, 1258 par. 2
-effects of noncompliance
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 creditors approval; effects
ii. without creditors approval; effects
f. Expenses of consignation Art. 1259

De Guzman v. CA, 137 SCRA 730 (1985)

Meat Packing Corp. v. Sandiganbayan, G.R. No. 103068,
June 22, 2001
Pabugais v. Sahijwan, G.R. No. 156846. Feb. 23, 2004

III. Loss or Impossibility

A. Loss of Thing Due
1. Concept Art. 1189 par. 2
2. Kinds
a. As to extent
i. Total
ii. Partial
3. Requisites Art. 1262
4. Presumption Art. 1265, 1165
a. when not applicable
5. Effects
a. in obligation to give a specific thing Art. 1262, 1268
b. in obligation to give a generic thing Art. 1263
c. in case of partial loss Art. 1264
d. action against third person Art. 1269
B. Impossibility of Performance
1. Concept Art. 1266, 1267
2. Kinds
a. As to extent
i. total
ii. partial
b. As to source
i. legal
ii. physical
3. Requisites Art. 1266

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 4. Effects
a. in obligation to do Art. 1266, 1267, 1262 par. 2 (by analogy)
i. impossibility distinguished from difficulty
CASES:
Occea v. CA, 73 SCRA 637 (1976)
Naga Telephone Co. v. CA, 230 SCRA 351 (1994)
PNCC v. CA, G.R. No. 116896, May 5, 1997
So v. Food Fest Land, Inc., G.R. No. 183628, April 7, 2010
b. in case of partial impossibility Art. 1264

IV. Condonation or Remission

A. Concept
B. Kinds
1. As to extent
a. Total
b. Partial
2. As to Form Art. 1270 par. 1
a. Express
b. Implied
C. Requisites
a. when formalities required Art. 1270 par. 2
CASE:
Yan v. CA, G.R. No. 104726, Feb. 11, 1999
D. Presumptions Art. 1271, 1272, 1274
E. Effects
1. in general
2. in 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
D. Confusion in Principal or Accessory Obligation Art. 1276

VI. Compensation
A. Concept Art. 1278
1. Distinguished from Confusion

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 B. Kinds
1. As to extent
a. Total
b. Partial
2. As to origin
a. Legal
b. Conventional Art. 1279 inapplicable, 1282
c. Judicial Art. 1283
d. Facultative
C. Legal Compensation
1. Requisites Art. 1279, 1280
a. due distinguished from demandable
BPI v. Reyes, 255 SCRA 571 (1996)
Silahis Mktg. v. IAC, G.R. No. 74027, Dec. 7, 1989
BPI v. CA, G.R. No. 116792. March 29, 1996
Mirasol v. CA, G.R. No. 128448, Feb. 1, 2001
2. Effects Art. 1289, 1290
D. When Compensation is Not Allowed Art. 1287, 1288
E. Compensation of Debts payable in Different Places 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
2. As to origin
a. Conventional
b. Legal
3. As to object
a. objective or Real
b. Subjective or Personal
C. Requisites Art. 1292
Magdalena Estate v. Rodriguez, 18 SCRA 967 (1966)
Reyes v. Secretary of Justice, 264 SCRA 35 (1996)
Cochingyan v. RB Surety, G.R. No. 47369, June 30, 1987
Broadway Centrum v. Tropical Hut, G.R. No. 798642, July 5, 1993
California Bus v. State Investment, G.R. No. 147980, Dec. 11, 2003

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 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. meaningof principal conditions
G. Subjective Novation
1. By change of debtor
a. Expromision
i. requisites Art. 1293
ii. effects Art. 1294
b. Delegacion
i. requisites (v. Art. 1293)
ii. effects Art. 1295
Garcia v. Llamas, 417 SCRA 292 (2203)
Quinto v. People, G.R. No. 126715, April 14, 1999
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
Licaros v. Gatmaitan, G.R. No. 142838, Aug. 9, 2001
Astro Electronics v. FCGU, G.R. No. 136729, Sept. 23, 2003

Title II Contracts
Chapter I General Provisions

I. Definition Art. 1305

II. Elements
A. Essential
1. Consent
2. Object
3. Cause
B. Natural

16
 C. Accidental

III. Characteristics
A. Obligatory force Art. 1308
B. Mutuality Arts. 1308 to 1310 (see also Art. 1473)
GSIS v. CA, 228 SCRA 183 (1993)
Phil. Savings bank v. Castillo, G.R. No. 193178, May 30, 2011
C. Relativity
1. Contracts take effect only between the parties, their assigns and heirs
Art. 1311
CASE:
Manila Railroad Co. v. La Compana Trasatlantica, 83 Phil. 875
(1918)
DKC Holdings Corp. v. CA, 329 SCRA 666 (2000)
2. No one may contract in the name of another Art. 1317
CASE:
Gutierrez Hmnos. V. Orense, 28 Phil. 571 (1914)
D. Consensuality

IV. Parties
A. Auto-contracts
B. Freedom to contract Art. 1306
CASES:
Gabriel v. Monte de Piedad, 71 Phil. 497 (1941)
Pakistan International Airlines v. Ople, 190 SCRA 90 (1990)
1. Special disqualifications
a. Art. 87, FC
b. Arts. 1490 and 1491
c. Art. 1782
C. What may not stipulate Art. 1306
1. Contrary to law Art. 1490, 1491
Prohibited stipulations:
a. pactum commissorium Art. 2088, 2137
b. pactum leonina Art. 1799
c. pactum de non alienando Art. 2130
2. Contrary to morals
3. Contrary to good customs
4. Contrary to public order
5. Contrary to public policy
Cui v. Arellano, 2 SCRA 205 (1961)
Arroyo v. Berwin, 36 Phil. 386 (1917)
Filipinas Compaia de Seguros v. Mandanas, 17 SCRA 391 (1966)
Bustamante v. Roschel, 319 SCRA 413 (1999)

17
V. Classification
A. According to subject-matter
1. Things
2. Services
B. According to name
1. Nominate
2. Innominate Art. 1307
CASE:
Dizon v. Gaborro, 83 SCRA 688 (1978)
a. do ut des
b. do ut facias
c. facio ut facias
d. facio ut des
C. According to perfection
1. By mere consent (consensual) Art. 1315
2. By delivery of the object (real) Art. 1316
3. By compliance of formality of solemnity
D. According to its relation to other contracts
1. Preparatory
2. Principal
3. Accessory
E. According to form
1. Common or informal Art. 1356 to 1358
2. Special of formal
F. According to purpose
1. Transfer of ownership, e.g. sale
2. Conveyance of use, e.g. commodatum
3. Rendition of services, e.g. agency
G. According to the nature of the vinculum produced
1. Unilateral
2. Bilateral or reciprocal
H. According to cause
1. Onerous
2. Gratuitous or lucrative
I. According to remuneratory
1. Commutative
2. Aleatory

VI. Stages
A. Preparation
B. Perfection
C. Consummation or death

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VII. As distinguished from a perfected promise and an imperfect promise
(policitacion)

VIII. With respect to third persons

A. Stipulations in favor of third persons (stipulation pour autrui) Art. 1311 par.
2
Florentino v. Encarnacion, 79 SCRA 192 (1977)
Coquia v. Fieldmens Insurance Co., 26 SCRA 178 (1968)
Constantino v. Espiritu, 39 SCRA 206 (1971)
Integrated Packaging Corp. v. CA, G.R. No. 115117, June 8, 2000
B. Possession of the object of contracts by third persons Art. 1312
C. Creditors of the contracting parties Art. 1313
D. Interference by third persons Art. 1314
CASES:
Daywalt v. La Corporacion de los Padres Agustinos Recoletos, 39 Phil.
587 (1919)
So Ping Bun v. CA, 314 SCRA 751 (1999)

Chapter II Essential Requisites of Contracts

I. Consent
A. Requisites Art. 1319
1. Must be manifested by the concurrence of the offer and acceptance
Rosenstock v. Burke, 46 Phil. 217 (1924)
Malbarosa v. CA, 402 SCRA 168 (2003)
a. Offer
i. must be certain Art 1319
ii. what may be fixed by the offeror Art. 1321
iii. when made through an agent Art. 1322
iv. circumstances when offer becomes ineffective Art.
1323
v. business advertisements of things for sale Art. 1325
vi. advertisements forbidders Art. 1326
b. Acceptance
i. must be absolute Art. 1319
ii. kinds
1) express Art. 1320
2) implied Art. 1320
3) qualified Art. 1319
iii. if made by letter or telegram Art. 1319 par. 2
1) four theories on when the contract is perfected:
a) manifestation theory

19
 b) expedition theory
c) reception theory
d) cognition theory Art. 1319 par. 2
iv. period of acceptance Art. 1324
Sanchez v. Rigos, 45 SCRA 368 (1972)
v. contract of option Art. 1324
Adelfa Properties c. CA, G.R. No. 111238, Jan. 25,
1995
2. Necessary legal capacity of the parties
a. Who cannot give concent Art. 1327
b. When offer and/or acceptance is made
i. during a lucid interval
ii. in a state of drunkenness
iii. during a hypnotic spell
3. The consent must be intelligent, free, spontaneous, and real Arts. 1330
to 1346
a. Effect Art. 1330
b. Vices of consent
i. mistake or error
1) kinds
a) mistake of fact
i) as to substance of the object
ii) as to principal conditions
iii) as to identity or qualifications of
one of the parties
iv) as to quantity, as distinguished
from a simple mistake of account

Theis v. CA, G.R. No. 126013,

Feb. 12, 1997
Heirs of William Sevilla,
et.al. v. Leopoldo Sevilla, 402
SCRA 501 (2003)
b) error of law
i) general rule: Ignorantia legis
neminem excusat Art. 3
ii) exception: mutual error of law-
Art. 1334
2) when one of theparties is unable to read Art.
1332
Hemedes v. CA, 31 6 SCRA (1999)
Katipunan v. Katipunan, G.R. No. 132415,
Jan. 30, 2002

20
 3) inexcusable mistake Art. 1333
ii. violence and intimidation Art. 1335
1) effect Art. 1336
Martinez v. Hong Kong and Shanghai Bank,
15 Phil. 252 (1910)
iii. undue influence Art. 1337
iv. fraud or dolo Art. 1338
CASES:
Woodhouse v. Halili, supra
Geraldez v. CA, 230 SCRA 320 (1994)
1) kinds
a) dolo causante Art. 1338
b) dolo incidente Art. 1344 par. 2
2) failure to disclose facts, duty to reveal them
Art. 1339
CASES:
Rural Bank of Sta.Maria v. CA, 314 SCRA
255 (1999)
3) usual exaggerations in trade; opportunity to
know the facts Art. 1340
CASES:
Laureta Trinidad v. IAC, 204 SCRA 524
(1991)
4) mere expression of an opinion Art. 1341
a) effects Art. 1344
Songco v. Sellner, 37 Phil. 254 (1917)
v. misrepresentation
1) by a third person Art. 1342
2) made in good faith Art. 1343
3) active/passive
Mercado and Mercado v. Espiritu, 37 Phil.
215 (1917)
Braganza v. De Villa Abrille, 105 Phil 456
(1959)
vi. simulation of contracts
Rodriguez v. Rodriguez, 28 SCRA 229 (1914)
Suntay v. CA, 251 SCRA 430 (1995)
Blanco v. Quash, G.R. No. 1331148, Nov. 17, 1999
1) Kinds Art. 1345
a)absolute
b) relative
2) Effects Art. 1346

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II. Object of Contracts
A. What may be the objects of contracts Art. 1347
1. all things not outside the commerce of man
2. all rights not intransmissible
3. all services not contrary to law, morals, good customs, public, or public
policy
B. Requisite must be determinate as to its kind Art. 1349
C. What may not be the objects of contracts
1. Future inheritance, except when authorized by law Art. 1347
CASES:
Blas v. Santos, 1 SCRA 899 (1961)
Taredo v. CA, G.R. No. 104482, Jan. 22, 1996
2. Impossible things or services Art. 1348

III. Cause of Contracts

A. Meaning of cause Art. 1350
1. in onerous contracts
2. In remuneratory contracts
3. In contracts of pure beneficiaries
B. As distinguished from motive Art. 1351
C. Defective causes and their effects
1. Absence of cause and unlawful cause Art. 1352
Liguez v. CA, 102 Phil. 577 (1957)
2. Statement of a false cause in the contract Art. 1353
3. Lesion or inadequacy of cause Art. 1355
Carantes v. CA, 76 SCRA 514 (1977)
Sps. Buenaventura, et.al. v. CA, 416 SCRA 263 (2003)
D. Presumption of the existence and lawfulness of a cause, though it is not stated
in the contract Art. 1354

Chapter III Form of Contracts

I. 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

II. 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
Hernaez v. De los Angeles, 27 SCRA 1276 (1969)

III. Kinds of formalities required by the law

A. Those required for the validity of contracts, such as those referred to in Arts.
748, 749, 1874, 2134, 1771, 1773

22
 B. Those required, not for validity, but to make the contract effective as against
third persons, such as those covered by Arts. 1357 and 1358
C. Those required for the purpose of proving the existence of the contract, such
as those under the Statute of Frauds in Art. 1403

Chapter IV Reformation of Instruments

I. Requisites Art. 1359

A. Meeting of the minds upon the contract
B. The true intention of the parties is not expressed in the instrument
C. The failure of the instrument to express the true agreement is due to mistake,
fraud, inequitable conduct, or accident
CASES:
Garcia v. Bisaya, 97 Phil. 609 (1955)
Bentir v. Leanda, 330 SCRA 591 (2000)

II. Cases where no reformation is allowed Art. 1366

III. Implied Ratification Art. 1367

IV. Who may ask for reformation Art. 1368

V. Procedure of reformation Art. 1369

Atilano v. Atilano, 28 SCRA 2232 (1969)
Carantes v. CA, supra
Sarming, et.al. v. Cresencio Dy, et.al., 383 SCRA 131 (2002)

Chapter V Interpretation of Contracts

I. Primacy of intention Arts. 1370, 1372

Borromeo v. CA, 47 SCRA 65 (1972)
Kasilag v. Rodriguez, 69 Phil. 217 (1939)

II. How to determine intention Art. 1371

III. How to interpret a contract

A. When it contains stipulations that admit several meanings Art. 1373
B. When it contains various stipulations, some of which are doubtful Art. 1374
C. When it contains words that have different significations Art. 1375
D. When it contains ambigous and omission of stipulations Art. 1376
E. With respect to the party who caused the obscurity Art. 1377
F. When it is absolutely impossible to settle doubts by the rules above Art.1378
1. in gratuitous contracts

23
 2. in onerous contracts
G. When the doubts are cast upon the principal object so that the intention
cannot be known Art. 1378

IV. Applicability of Rule 130, Rules of Court

DEFECTIVE CONTRACTS

Chapter VI Rescissible Contracts

I. Kinds Art. 1381

II. Characteristics
A. Their defect consists in injury or damage either to one of the contracting
parties or to third persons
B. They are valid before rescission
C. They can be attacked directly only, and not collaterally
D. They can be attacked only either by a contracting party or by a third person
who is injured or defrauded
E. They can be validated only by prescription, and not by ratification

III. Rescission Art. 1380

A. Definition
B. As distinguished from rescission under Art. 1191
Universal Food Corp. v. CA, 33 SCRA 1 (1970)
C. Requisites
1. The contract is rescissible
2. The party asking for rescission has no other legal means to obtain
reparation Art. 1383
3. He is able to return whatever he may be obliged to restore if rescission
is granted Art. 1385
4. The object of the contract has not passed legally to the possession of a
third person acting in good faith Art. 1385
5. The action for rescission is brought within the prescriptive period of
four (4) years Art. 1389
D. Effect of rescission Art. 1385
1. with respect to third persons who acquired the thing in good faith
Art. 1385 pars. 2 and 3
E. Extent of rescission Art. 1384
F. Presumption of fraud Art. 1387
1. Badges of fraud
Oria v. Mcmicking, 21 Phil. 243 (1912)
Siguan v. Lim, et.al., 318 SCRA 725 (1999)

24
 Suntay v. CA, supra
G. Liability for acquiring in bad faith the things alienated in fraud of creditors
Art. 1388

Chapter VII Voidable or Annullable Contracts

I. Kinds Art. 1390

II. Characteristics
A. Their defect consists in the vitiation of consent of one of the contracting
parties
B. They are binding until they are annulled by a competent court
C. They are susceptible of convalidation by ratification or by prescription

III. Annulment
A. As distinguished from rescission
B. Grounds Art, 1390
C. Who may and may not institute action for annulment Art. 1397
Singson v. Isabela Sawmill, 88 SCRA 623 (1979)
D. Prescription Art. 1391
E. Effect
1. Mutual restitution Arts. 1398 and 1402
CASE:
Cadwallader & Co. v. Smith, Bell & Co., 7 Phil 461 (1907)
Velarde v. CA, supra
a. when one of the parties is incapacitated Art. 1399
b. when the thing is lost through the fault of the party obliged to
return the same Art. 1400
F. Extinguishment of the action
1. By ratification Art. 1392
2. When the thing is lost though the fault of the person whi has the right
to file the action Art. 1401

IV. Ratification
A. Requisites
1. The contract is voidable
2. The ratification is made with knowledge of the cause for nullity
3. At the time of the ratification, the cause of nullity has already ceased to
exist
B. Forms
1. Express or tacit Art. 1393
2. By the parties themselves or by the guardian in behalf of an
incapacitated party Art. 1394

25
 C. Effects
1. Action o annul is extinguished Art. 1392
2. The contract is cleansed retroactively from all its defects Art. 1396

Chapter VIII Unenforceable Contracts

I. Characteristics
A. They cannot be enforced by a proper action in court
B. They are susceptible of ratification
C. They cannot be assailed by third persons

II. Kinds Art. 1403

A. Unauthorized contracts
1. Governing rules Art, 1404
B. Contracts covered by the Statute of Frauds
1. Purpose of Statute
Limketkai Sons Milling Inc. v. CA, G.R. No. 118509, Dec. 1, 1995
Swedish Match v. CA, G.R. No. 128120, Oct. 20, 2004
2. How ratified
Carbonnel v. Poncio, et.al., 103 Phil. 655 (1958)
3. Right of the parties when a contract is enforceable but a public
document is necessary for its registration Art. 1406
C. Contracts executed by parties who are both incapable of giving consent to a
contract
1. Effect of ratification by the parents or guardian of one of the parties
Art. 1407
2. Effect of ratification by the parents or guardian of both parties Art.
1407

Chapter IX Void or Inexistent Contracts

I. Characteristics
A. Void from the beginning
B. Produces no effect whatsoever
C. Cannot be ratified Art. 1409

II. Kinds Art. 1409

A. Contracts that are void
1. Those whose cause, object, or purpose is contrary to law, morals, good
customs, public order or public policy
a. when the act constitutes a criminal offense Art. 1411
i. in pari delicto rule
Urada v. Mapalda, A.M. MTJ 91-622 (1993)

26
 b. when the act is unlawful but oes not constitute a criminal
offense Art. 1412
i. in pari delicto rule
Modina v. CA, G.R. No. 109355, Ocotber 29, 1999
c. when the purpose is illegal, and money is paid or property
delivered therfor Art. 1414
d. when the contract is illegal and one of the parties is incapable of
giving consent Art. 1415
Liguez v. CA, supra
RelloSa v. Gaw Cheen Hm, 93 Phil. 827 (1953)
e. when the agreement is not illegal per se but is prohibited Art.
1416
Philippine Banking Corp. v. Lui She, 21 SCRA 52 (1967)
Frenzel v. Catito, 406 SCRA 55 (2003)

f. when the amount paid exceeds the maximum fixed by law
Art. 1417
g. 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
h. when a laborer agrees to accept a lower wage than that set by
law Art. 1419
i. when the contract is divisible Art. 1420
j. when the contract is the direct result of a previous illegal
contract Art. 1422
2. Those whose object is outside the commerce of man
3. Those which contemplate an impossible service
4. Those where the intention of the parties relative to the principal object
of the contract cannot be ascertained
5. Those expressly prohibited or declared void by law
B. Contracts that are inexistent
1. Those which are absolutely simulated or fictitious (see Arts. 1315 and
1346)
2. Those whose cause or object did not exist at the time o fthe transaction

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

IV. The action or defense for the declaration of the inexistence of a contract
A. Does not prescribe Art. 1410
B. Is not available to third persons whose interest is not directly affected Art.
1421

Title III Natural Obilgations

27
I. Definition Art. 1423

II. As distinguished from civil obligations Art. 1423

III. As distinguished from moral obligations

Villaroel v. Estrada, 71 Phil. 140 (194)
Fisher v. Robb, 69 Phil. 101 (1939)

IV. Conversion to civil obligation

A. By novation
B. By ratification

V. Examples Arts. 1424 to 1430

28