OBLIGATIONS
2.) Arising from Contracts
Art. 1156: An obligation is a juridical necessity to give,
to do or not to do.
“Juridical” - if we will remove the word "juridical" it is
just a necessity to give, to do, or not to do. It follows
that in case that there is non-performance of the
obligation, then you cannot go to court and ask for
specific performance.  the obligation to pay damages.
Natural Obligation
- wherein it is no longer a civil obligation and
out of voluntariness on the part of the debtor,
he still performs it. Debtor cannot anymore
demand that it be given back. (Art. 1423)
- The word juridical does not anymore exist in
natural obligations.
Moral Obligations
- Similar to natural obligation, in case there is
non-performance of the obligation, you
cannot go to court and file an action for
specific performance.
- Ex.) hearing mass every Sunday
Elements of an Obligation:
1.) Parties
a) Active subject- creditor
b) Passive subject- debtor
Q: What is the reason why the creditor is considered
as the active subject while the debtor, the one who
will perform the obligation is the passive subject?
A: Because creditor has the right to go to court in case
there is non-performance of the obligation by the
debtor.  and that is the reason why under your rules of
2.) Object- refers to the prestation or the conduct
to be performed by the passive subject or the
debtor.
Note: in Property, “object” refers to the thing
Qualities of an Object: (D-U-L-A-P)
a.) Determinate
b.) Useful
c.) Lawful
d.) Accessible in money
e.) Possible
3.) Juridical Tie- The sanction.
- In case of non-performance, you can go to
court and file an action for specific
performance.
Sources of Obligation:
1.) Arising from Law-
a.) In FamCode: obligation to support
b.) Payment of Taxes
3.) Arising from Quasi-Contracts-
a.) Negotiorum gestio- refers to managing
the property of another person and that
act is without the consent of the owner of
the property. And if by that act, he was
able to save the property, the owner has
b.) Solutio indebiti- unjust enrichment. If you
get something that does noes not lawfully
belong to you, at the expense of another
person.
4.) Arising from Delict
Q: Can you file an independent civil action
without making any reservation?
A: The sources of obligations is the key to the
answer. Going back, in connection to Art. 100
of the RPC as well as Sec. 1 Rule 11 of the
Rules of Court. 
- Articles 29, 30, 31, 35, and, this one you have
to connect it with Art. 100 of the RPC and Sec
1,Rule 111 Rules of Court. If you will go back
to Articles 29, 30, 31, and 35 of the Civil Code,
these provisions refer to an obligation arising
from a delict and delict is one of the sources
of an obligation. 
- “A person who is criminally liable, is also civilly
liable.”
- One single act which is defined as a crime, will
also give rise to damages, Civil obligations,
Court Sec. 1 Rule 111, if you file a criminal
case, the civil case is deemed instituted. 
GR: civil liability arising from a delict
XPN:
1.) if the civil action that was filed ahead of the
criminal action
2.) if there is waiver in filing a civil action
3.) if there is a reservation in filing an independent
civil action.
If the problem does not mention what is the source of
the obligation, you qualify. If the obligation arises
from law, from contract, quasi-contract, quasi-delict,
YES, I can file an independent civil action without
making any reservation. 
But, if the obligation arise from delict, in accordance
with the Sec 1 Rule 111 of the Rules of Court, together
with the art 100 of the RPC, I have to make a
reservation before I can file an independent civil
action.  a contract of simple mutuum, and in simple
Reservation is only a requirement if you are talking
of an obligation arising from a delict.  considered as generic.
Q: When do you have to make the reservation? if
you're talking about a civil liability arising from a
delict?
A: before the prosecution presents evidence in the
criminal case.  -
Q: What happens to the civil liability if the accused
died in the criminal case? Will the civil liability arising
from the delict also be extinguished?  under necessary deposit (Art. 2000) not just
A: In the case of Bayotas and Diego,  and the SC said
that, if the accused died the civil liability arising from
the delict is also extinguished.
Take note that in the RPC, the death of the accused
will extinguish the criminal liability but then, the SC
further said that the victim of the relatives of the
victim may still pursue the civil liability provided that,
it will now be based from the other sources of an
obligation.
5.) Arising from Quasi-delict- one important
element of a quasi-delict is negligence
Q: is there any act or felony wherein there is an
element of negligence?
A: yes, reckless imprudence resulting to homicide or
physical injury.
- If the accused died and the crime charged is
reckless imprudence resulting to homicide or
serious physical injury, the civil liability arising
from  that delict is extinguished but, the
victim or the relatives of the victim may still
file a civil action for damages but this time,
treating the act not as delict but as a quasi-
delict.  - For accession: (A-P-I)
-What is important here is that, even if in one single
act wherein negligence is involved, you can treat it as
a quasi-delict or as a delict, and therefore there is a
civil liability arising from the delict, and the civil
liability arising from the quasi-delict, you have no right
to file two cases for civil damages because that would
be tantamount to unjust enrichment.
Obligations of the Obligor:
I. Obligations in a prestation to give-
- In a prestation to give, it involves money or
other property. Under the provisions
governing obligations, money is coming from
mutuum, what kind of object is involved? it is
a fungible property. A fungible property is
 
A.) To give a specific thing:
i.) To deliver a determinate
thing: It involves an obligation
to deliver a specific thing.
ii.) other accessory obligations:
to preserve the thing- which requires the
diligence of a good father EXCEPT in cases of
common carriers where extra-ordinary
diligence is required. In case of innkeepers,
diligence of a good father.
Q: Can the parties enter into a stipulation, in such a
way that they can change the required degree of
diligence?
A: As a general rule, parties may stipulate when it
come to the kind of diligence to be observed, but
there are exceptions:
a.) in relation to necessary deposit, under
art. 2003;
b.) in relation to common carrier, with
respect to the safety of the passengers
under art. 1757;
- because it is the law that requires that it
should be extra-ordinary or utmost diligence
and parties have no right to change the kind
of diligence that should be observed by the
obligor. 
Delivery of Accessions and Accessories
Distinction between accessions and accessories
in Property
- Anything that is Attached (attach, meaning, if
there is an attempt to remove it, it will cause
injury)
Ex.) Eraser, how many properties are there in the
eraser? 2- the foam and the board. If I detach it now?
what will happen to the eraser? So that means that if I
attempt to remove the foam from the board, it will
cause injury, here there is an accession. 
Because only the foam was intended to be delivered?
Will I also have the obligation to deliver the board
that is now attached to the foam? In property, if there
are two personal properties put together, the identity
of each is retained, what kind of accession is this? This
is adjunction.
In adjunction, two personal properties are attached
together but the identity is retained and since the
identity is retained and the removal will cause injury,
who will now have a better right over this? what is the
principal and what is the accessory? Is it the foam or
the board? What is the first rule in the determination
on what is the principal and what is the accessory?
Rule of Importance
Even if the only obligation is to deliver the accession,
the board is already attached to it, I have the
obligation to deliver to you the entire property. This is
accession involving a personal property.
- Anything that is Produced
- Anything that is Incorporated
Accession involving real property
- (D-F-A) Discreta referring to Fruits Accession
- Accesion Discreta refers to the three fruits:
natural, industrial, and civil fruits.
- Accessories and accessions will be included
provided that, they are attached at the time
the obligation to deliver arises.  DELAY (mora)- failure to perform the obligation in due
- If what will be delivered is a lot wherein there
are fruit-bearing trees, so aside from
delivering the lot, you also have to include the
accessions, the fruit-bearing trees.  upon by the parties.
Accessories have 2 meanings in Property:
1.) Accessory per se refers to an ornament.
Although it is attached, once removed, it will
not cause injury.
2.) In relation to one of the properties that is
attached to the principal that cannot be
detached without causing an injury.  debtor
Art. 1164 is simply a reiteration of what is the
obligation to deliver accessions, because fruits DF-A
refer to one of the kinds of accession involving a real
property. 
B.) To give a generic thing:
- The genus doesn’t perish
- the principal obligation of the obligor if it
involves prestation to give a generic thing, is
to deliver a thing of the same quality
specified.
- Which if you will go back to the classification
of properties, we're talking here of a fungible
property. Same kind, same quality.  done on or before the first Sunday of
Q: Do you have the obligation to deliver the
accessory?
A: No. Because we’re talking here of an indeterminate
thing. Accessions and accessories are not certain.
II. Obligations in a prestation to do-
- just simply perform the act as promised and
not substitute it unless there is a mutual
agreement between obligor-obligee.
- You can ask a third person to substitute at the
expense of the obligor except if the qualities
of the obligor is considered.
III. Obligations in a prestation not to do-
- principal obligation is not to perform the
conduct prohibited.
- if a debtor does what has been forbidden,
then it has undone at the expense of the
debtor.
Note: The diligence of a good father, the delivery of
accessories and accessions, they are only applicable if
what is involved is a prestation to give. But the two
prestations, they are not applicable. 
time.
- If it is an obligation arising from a contract,
that is during the time specified or agreed
- If it is an obligation arising from law, then that
is based on what is provided under the law.
For example, payment of taxes. There is a
specified day of filing the income tax.
Kinds of Delay
a.) Mora solvendi- delay on the part of the
b.) Mora accipiendi- delay on the part of the
creditor
c.) Compensatio morae- delay on the part of
both the creditor and the debtor.
GR: no demand, no delay
XPN:
1.) If the obligation expressly declares it or the
law expressly declares it.
- Ex. Payment of income tax
2.) Time is the controlling motive of the
establishment of contract. Time is of the
essence
- Ex. Bar exam on Sept. all lectures must be
September. 
 3.) Demand will be useless
Delay in reciprocal obligations: There is delay on the
part of one of the parties from the moment that one
of the parties fulfills his obligation.
Ex.) in ordering food, you have the obligation to
deliver payment while the other party has the
obligation to deliver food. If you deliver the payment,
is it necessary for them to wait for you to demand
delivery of food? No.  Art. 1942- refers to the liability of a bailee in a
Fortuitous Events-
GR: In case there is a FE, the obligation is
extinguished. The debtor is released from his liability
whether it involves a prestation to give or to do.
Q: Juan Dela Cruz had the obligation to deliver a
wedding cake. In the delivery of the wedding cake,
time is of the essence however, there was a super
typhoon. In case he failed to deliver the cake, would
he be liable for damages?
A: For as long as there is no fault, no negligence, no
delay on the part of Juan Dela Cruz because of the
happening of a FE, his obligation is extinguished.
2 Kinds:
1.) Act of God
Ex.) typhoon Ondoy
2.) Act of Man
Ex.) rallies conducted by a certain group
Relevance of FE in relation to obligation
- It might affect the performance of the
obligation.
- A debtor is released from liability. However,
this is not absolute.
Requisites for an FE be considered as a basis for
relieving the obligor from any liability: (Lasam v.
Smith)
a.) It is independent of the human will
*human will referring to the will of the
defendant-obligor.
b.) It is impossible to foresee or even if it can be
foreseen, it something that cannot be avoided.
c.) Because of the FE, it is impossible for the
debtor to perform his obligation in a normal way.
d.) The debtor has no concurrent fault
*concurrent fault- he was not in delay, not
negligent.
Exceptions: (debtor still liable)
1.) If there is a law that expressly provides for it.
Ex.
contract of commodatum, and the law is very
clear, that inspite of the happening of the FE,
bailee can be held liable.
Art. 2201- under necessary deposit, if there is
the use of arms, the hotel, the innkeeper is
relieved from liability
Art. 2147- in case of officious manager, even if
there is an FE, he cannot be relieved from
liability.
2.) If it is expressly stipulated by the parties.
- This will only be possible if we’re talking about
an obligation arising from a contract.
3.) Assumption of risk
- Take note of: Arts. 1717 and 1724
4.) Debtor in delay
- Note: remember the rule no demand, no
delay. Because, GR is no demand no delay,
but there are exceptions that inspite of the
fact that there is no demand, he can still be
considered in delay. And if it falls under the
exception, then the happening of the FE
cannot relieve him from his liability.
5.) Debtor guilty of negligence or fault
Remedies given to the creditor in case there is a
breach of the obligation:
1.) If it involves a prestation to deliver a specific
thing
- File an action for specific performance plus
damages
- File an action for rescission plus damages
2.) if it involves a prestation to deliver a generic
thing
- ask a third person to act as a substitute (Art.
1165 par. 2) -substituted performance plus
damages
 3.) If it involves a prestation to do
- Ask a third person to perform the obligation
plus damages EXCEPT if personal qualities are
of the essence.
- If it is performed but improperly done, ask the
debtor to undo it at his own expense.
4.) If it involves a prestation not to do
- File an action for damages
- Ask the debtor to undo the prohibited act
- Note: in Torts and Damages, whatever kind of
damages you will ask, you have the obligation
to prove it. It is a question of evidence.
Other Subsidiary Remedies
1.) Accion subrogatoria- creditor steps into the
shoes of the debtor. In case the debtor fails or
refuses to run after his creditor, the creditor
of the debtor has the right to file an accion
sobbrogatoria.
- Action filed will still be in the name of the
debtor against the debtor’s debtor.
- Contemplates a situation that his debtor does
not like to run after the creditor of the debtor.
2.) Accion Pauliana- A remedy given to the
creditor to question the validity of contracts
entered into by his debtor so that his debtor
can keep his property away from being
attached.
- Contemplates a situation wherein debtor,
before the case is finished, he immediately
disposes his properties with the intention that
he does not like his creditor to attach his
properties.
- Remedy to creditor: If the creditor can prove
that the disposal of his property is made only
to refrain or prevent the creditor from
attaching the debtor's property, then the
creditor has the right to question the validity
the same, or the disposal of the property and
that is accion pauliana. 
Distinction:
- Accion publiciana is the remedy given to the
owner for the recovery of the possession of
his property.  give rise to demandability of the obligation
- Pauliana is questioning the validity of a
contract entered into by his debtor to defraud
the creditor.  demandable. Its demandability will be
3.) Action to declare the nullity of an absolutely
simulated contract
- Declaration of nullity of contract is only
applicable to an absolutely simulated
contract.
- Why? Because in an ASC parties do not really
intend to bind one another. While in a
relatively simulated contract, there is really an
intention to enter into the contract but what
is reflected in the instrument is not the real
intention of the parties.
Kinds of Obligations
I. According to the peculiarity of the
prestation:
Why peculiarity? Because its existence. Its
termination will be dependent upon the
happening or non-happening of an event.
a.) Pure Obligation- demandable at once. It
does not depend upon an event.
b.) Obligation with a Condition
c.) Obligation with a Period
Q: What is a condition and what is a period?
A: A condition and a period is separate and distinct
from an obligation. It is an event.
What distinguishes a condition from a period is that a
condition is a future and uncertain event. Condition
is an event not sure to happen. When you say
uncertain, it may, or it may not happen. 
Connection of Period and Condition to Suspensive
and Resolutory
Suspensive:
Condition event may or may not happen. Period is an
event that is sure to happen. 
 If there is a qualifying term suspensive
condition, since the event is not sure to
happen, the happening of the event will give
rise to the obligation not yet demandability.
The existence of the obligation is dependent
upon the happening of the suspensive
condition.
 The happening of a suspensive period, will
because we are talking about here an event
that is sure to happen. It contemplates an
obligation already existing but not yet
dependent upon the happening of a
suspensive period. 
Example:  - If the loss is without the fault of the debtor,
his obligation is extinguished.
1.) Retirement benefits, when can you get it? Once - If the loss is with the fault of the debtor, he
you reach the retirement age. The enjoyment of a will be liable for damages. 
retirement benefit is subject to a condition or a
period? A suspensive period-- upon reaching the Note: If you will try to analyze it, with or without fault,
retirement age.  it will only boil down to loss referring to physical loss
isn't it? Because going outside of the commerce of
2.) Not a period but a condition in employment: If you men, that will be dependent now on the part of the
will be declared as an outstanding employee you will State to declare it as outside of the commerce of
be given a reward of world tour. Not dependent to men. 
the period but it is a condition. A suspensive
condition not a period.  2.) In case of deterioration: (usually when the
property involved is consumable)
Resolutory: - if it is without the fault of the debtor, creditor
Resolutory- whether it is a condition or a period, the would have to bear the consequences
happening of the resolutory condition or period will - If debtor has no fault but, if debtor has fault
extinguish the obligation.  then creditor has 2 options: 
a.) rescission plus damages
b.) fulfillment plus damages 
Q: What happens when there is loss, deterioration, or
improvement of the thing in the prestation to give 3.) In case of Improvement:
while the condition or period is pending?  - If it is improved by nature, it will benefit the
A: creditor
- If it is at the expense of the debtor, then you
Note: “Loss” insofar as the Civil Code is concerned, is apply the rules governing usufruct. 
not only limited to physical loss but it also means if
the property already goes out of the commerce of Q: What is the right of the usufructuary?
men, therefore it ceases to be a property, it becomes A: Removal of the improvement 
a thing. It is simply a thing not a property, or its
existence is unknown.  Note: “loss”, like in FE, the kind of property involved
in a prestation to give is also important. If what is
Ex.) What property is only a thing? A P10 paper bill. involved is specific,  if there is a FE, obligation is
It's already a thing and not a property anymore. extinguished, the same rule, if it is lost or pending.

A thing become a property in Properties: (U-S-A) If it is generic,  since a genus does not perish, even if
a.) Utility there is a FE, even if there is physical loss, it can still
b.) Substantivity be substituted. 
c.) Capable of being Appropriated
II. According to Prestations:
Q: Why do we say that a P10 bill is not anymore a a.) Individual- involves only one prestation
property although there is utility and substantivity? b.) Multiple-
i. Facultative- only one prestation
A: The last element however, is missing. It cannot agreed upon and that one
anymore be appropriated.  prestation is due.
ii. Alternative- there are several
So insofar as Civil Law is concerned, that 10-peso bill is prestations due.
already considered as loss.
  Common denominator between Facultative and
Q: What happens when there is loss, deterioration, or Alternative Obligation:
improvement of the thing in the prestation to give
while the condition or period is pending?  - There is a choice. Choice to be exercised
A: primarily by the debtor.
- Pro-debtor: if you will look at it, alternative,
1.) In case of loss: (physical loss) facultative, the debtor has the right or may
options, or he has the priority to exercise the
 choice. If he does not exercise the choice, - Classifications of obligations can co-exist
then it can be exercised by the creditor or simultaneously, because it is a classification
even by a third person. But, in facultative, the based on the quality of the obligation when
choice only belongs to him. He cannot be you talk about divisibility or indivisibility. 
compelled by the creditor to make a - But if the obligation is Joint but at the same
substitution.  time Indivisible, what the Civil Code provides
is, if one of the joint debtors would refuse to
Q: If one of the prestation becomes impossible, will it perform his obligation, but indivisible at the
extinguish the obligation? same time, that means for that joint and
A: If it is Alternative, NO. For as long as there are indivisible obligation to be fully fulfilled, there
other prestations that are due. should be a common desire of all the joint
debtors to perform their obligation. 
In Facultative, if the substitute becomes impossible, - If the others did not agree, but the obligation
it becomes simply an individual obligation.  is indivisible, according to the Civil Code, it will
now be converted into indemnity for
damages. So that it can be quantified.
III. According to Plurality of Parties - In case of insolvency, if A, B, and C are joint
A.) Joint- creditor can only demand from him debtors and A became insolvent, others shall
his share, he cannot be compelled to fulfill not be liable for the share of A. 
the entire obligation. - The effect of remission/condonation upon a
Only one debtor can perform his own solidary obligation:
share, he's not obliged to perform the - In Total remission, all debtors are not
entire obligation. anymore liable to anything.
B.) Solidary- only one can be compelled to - In Partial, not all debtors are condoned so
perform the entire obligation.  that means, it will just reduce the amount and
the balance remains a solidary credit. 
Note: If there is no express stipulation as to what kind
of obligation is involved, the presumption of the Code
is, it is a joint obligation not a solidary obligation. This IV. According to Qualities of Object
shows that the Civil Code is pro-debtor.  a.) Positive- performance of the obligation
b.) Negative- you are prohibited
2 exceptions or the 2 cases when there can be c.) Specific- determinate
solidary liability: d.) Generic- indeterminate
a.) Expressly stipulated e.) Divisible/Indivisible- whether it can be
b.) Law or nature requires solidarity performed partially or not. (payment by
installment is a divisible obligation)
Other cases wherein the law requires a solidary f.) Principal/Accessory- with reference to
obligation: the principal contract and the accessory
a.) under the RPC, liability among the co- contract
principals, co-accomplices, co-accessories, all - An example of a principal contract is simple
solidary obligations.  mutuum,  the obligation to pay is the principal
obligation. 
b.) Liability among the bailees, Art. 1945, in - An example of an accessory contract
commodatum, solidary obligation.  that simple mutuum will be supported or
guaranteed by a pledge.  So, the obligation of
Note: the pledgor in the contract of pledge is an
- When the object involved has something to accessory obligation. 
do with an obligation to give, it is INDIVISIBLE.
- The indivisibility of the obligation would be
better connected if the obligation is solidary GR: the law presumes that the obligation is indivisible.
because in solidary, you can compel one Note: Arts. 1233 and 1248, law would always
debtor to fulfill the entire obligation. require to pay in full not by installment.
- There can be plurality of debtors at the same
time, it can be subject to a condition at the XPN: 1248, if partly liquidated, installment contracts,
same time, the performance can be partial, or or if it is partially illegal.
it may not be partial.
Obligation with the Penal Clause
 - This will only take place if we’re talking of an
obligation arising from a contract or law.
- This serves like damages, but it doesn’t mean
that you are prohibited from claiming
additional damages.
Q: What is the reason why this obligation with a penal
clause is allowed?
A: To put some pressure to the debtor, that if you will
not be performing the obligation on time, in addition
to the principal obligation, this will be your penalty.
*First and Second Mode are not in the recordings
- check LR notes for the first two modes
First mode of extinguishment of an obligation: *(notes
from DE LEON book)
PAYMENT OR PERFORMANCE
Art. 1232: Payment means not only the delivery of
money but also the performance, in any other
manner, of an obligation.
“Payment” is not only the delivery of money but also
the giving of a thing. In law, payment and
performance are synonymous.
Elements of Payment
1. Persons- who may pay & who to pay
2. Thing or object- in which payment must
consist
3. The course thereof
4. The mode or form
5. Place and time in which it must be made
6. Imputation of expenses occasioned by it
7. Special parts which may modify the same and
the effects they generally produce
Art. 1233: A debt shall not be understood to have
been paid unless the thing or service in which the
obligations consists has been completely delivered, as
the case may be.
GR: partial or irregular performance will not produce
the extinguishment of an obligation.
Art. 1234: If the obligation has been substantially
performed in good faith, obligor may recover as
though there had been a strict and complete
fulfillment.
- An exception to the rule in Art. 1233
Art. 1235: When the oblige accepts the performance
knowing its incompleteness and without any protest,
obligation is deemed fully completed with.
- Another exception of Art 1233
- In case of acceptance, the law considers that
the creditor waives his right. The whole
obligation is extinguished.
Art. 1236: Creditor is not bound to accept payment or
performance by a third person who has no interest in
the fulfillment of the obligation. Whoever pays for
another may demand from the debtor what he has
paid, except that if he paid without the knowledge or
against the will of the debtor.
- Creditor should not be compelled to accept
payment from a third person whom he may
dislike or distrust.
Art. 1237: Whoever pays on behalf of the debtor
without the knowledge or against the will of the
latter, cannot compel the creditor to subrogate him in
his rights, such as those arising from a mortgage,
guaranty, or penalty.
Art. 1238: Payment made by a third person who does
not intend to be reimbursed by the debtor is deemed
to be a donation, which requires the debtor's consent.
But the payment is in any case valid as to the creditor
who has accepted it.
- Payment is valid
Art 1240: Payment shall be made to the person in
whose favor the obligation has been constituted, or
his successor in interest, or any person authorized to
receive it.
- When payment is made to the wrong party,
the obligation is not extinguished as to the
creditor who is without fault or negligence
even if the debtor acted in outmost good faith
and by mistake.
- “Any person authorized” – not only a person
authorized by the creditor, but also a person
authorized by the law to receive the payment,
such as guardian, executor or administrator of
the estate of the deceased.
Article  1241. Payment to a person who is
incapacitated to administer his property shall be valid
if he has kept the thing delivered, or insofar as the
payment has been beneficial to him.
Payment to a third person shall also be valid insofar as
it has redounded to the benefit of the creditor.
Such benefit need not be proved if:
a. After payment, 3rd person acquires the
creditor’s rights.
b. Creditor ratifies the payment to 3rd person
 c. Debtor has been led to believe that 3 rd person
had the authority to receive.
Art. 1245: Dation in payment, whereby property is
alienated to the creditor in satisfaction of a debt in
money, shall be governed by the law of sales.
Special Forms of Payment
1. Dation in payment
2. Application of payments
3. Payment by cession
4. Tender of payment and consignation
Dation en Pago
- The conveyance of ownership of a thing by
the debtor to creditor as an accepted
equivalent of performance of a monetary
obligation.
- Payment by the transmission of ownership of
a thing by debtor to creditor.
Requisites of dation in payment:
a. There must be performance of the prestation
in lieu of payment
b. There must be some difference between the
prestation due and that is given in
substitution
c. There must be an agreement between the
creditor and the debtor that obligation is
extinguished by the reason if the performance
of a prestation.
Art. 1250: In case an extraordinary inflation or
deflation of the currency stipulated should supervene,
the value of the currency at the time of the
establishment of the obligation shall be the basis of
payment, unless there is an agreement to the
contrary..
Article 1251: Payment shall be made in the place
designated in the obligation.
Application of Payment
Art. 1252: He who has various debts of the same kind
in favor of one and the same creditor, may declare at
the time of making the payment, to which of them the
same must be applied.
- “application of payments” is the designation
of the debt to which should be applied the
payment made by a debtor who had various
debts.
- Application of payments as to debts bit yet
due cannot be made unless:
a) There’s a stipulation that the debtor may
so apply
b) It is made by the debtor or the creditor.
Article 1253. If the debt produces interest, payment of
the principal shall not be deemed to have been made
until the interests have been covered.
Article 1254. When the payment cannot be applied in
accordance with the preceding rules, or if application
can not be inferred from other circumstances, the
debt which is most onerous to the debtor, among
those due, shall be deemed to have been satisfied.
If the debts due are of the same nature and burden,
the payment shall be applied to all of them
proportionately.
- A debt is more onerous than another when it
is more burdensome to the debtor.
Payment by Cession
Article 1255: The debtor may cede or assign his
property to his creditors in payment of his debts. This
cession, unless there is stipulation to the contrary,
shall only release the debtor from responsibility for
the net proceeds of the thing assigned. The
agreements which, on the effect of the cession, are
made between the debtor and his creditors shall be
governed by special laws.
“Payment by Cession” is the assignment or
abandonment of all the properties of the debtor for
the benefit of his creditors in order that the latter may
sell the same and apply the proceeds thereof.
Requisites:
a. there must be 2 or more creditors
b. debtor must be (partially) insolvent
c. assignment must involve all the properties of
the debtor.
d. Cession must be accepted by the creditors.
- Debtor is still liable if there is balance
since it is only from the net proceeds of
the sale of the property.
*Dation en pago vs. Cession is in p. 327-328 of De
Leon book
Tender of Payment and Consignation
Article 1256. If the creditor to whom tender of
payment has been made refuses without just cause to
accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum
due.
Consignation alone shall produce the same effect in
the following cases:
(1) When the creditor is absent or unknown,
or does not appear at the place of payment;
(2) When he is incapacitated to receive the
payment at the time it is due;
(3) When, without just cause, he refuses to
give a receipt;
(4) When two or more persons claim the same
right to collect;
(5) When the title of the obligation has been
lost.
“tender of payment” is an act on the part of the
debtor, of offering to the creditor the thing or amount
due.
“consignation” is an act of depositing the thing or
amount due with the proper court when the creditor
does not desire, or refuses to accept payment, or
cannot receive it, after complying with the formalities
required by law.
Nature and Rationale of Consignation
- A facultative remedy
- Avoidance of greater liability
- Always judicial
Requisites of a Valid Consignation
1. Existence of a valid debt
2. Tender of payment by the debtor and refusal
without justifiable reason by the creditor
3. Previous notice of consignation to persons
interested in the fulfillment of the obligation.
4. Consignation of the thing or sum due
5. Subsequent notice of consignation made to
the interested parties
Requisites for Valid Tender of Payment
1. Tender of payment must comply with the
rules on payment
2. It must be unconditional and for the whole
amount
3. It must be actually made
Article 1257. In order that the consignation of the
thing due may release the obligor, it must first be
announced to the persons interested in the fulfillment
of the obligation.
The consignation shall be ineffectual if it is not made
strictly in consonance with the provisions which
regulate payment
- In the absence of prior notice, the
consignation, when properly made, shall be
charged against the creditor.
Article 1259. The expenses of consignation, when
properly made, shall be charged against the creditor.
- Consignation is made necessary because of
the fault or unjust refusal of the creditor to
accept payment.
- Thus, it is but just that the expenses should be
charged against him.
When Consignation Deemed Properly Made
a. Creditor accepts the thing or sum deposited
without objection.
b. The court after hearing, declares it has been
properly made
c. The court orders the cancellation of the
obligation
Article 1260. Once the consignation has been duly
made, the debtor may ask the judge to order the
cancellation of the obligation.
Before the creditor has accepted the consignation, or
before a judicial declaration that the consignation has
been properly made, the debtor may withdraw the
thing or the sum deposited, allowing the obligation to
remain in force.
- If the withdrawal is with the consent of the
creditor, Art. 1261 applies
the creditor shall lose every preference
which he may have over the thing, and the co-
debtors, guarantors, and sureties shall be
released.
ex.) D is indebted to C of P10k, G (guarantor) on due
date, C refused to accept payment of D.
D made a consignation. Withdrew the deposit with C’s
consent
 C shall lose any preference over the amount and G
is released as guarantor.
Second mode of extinguishing an obligation *from De
Leon book)
LOSS OF THE THING DUE
Article 1262. An obligation which consists in the
delivery of a determinate thing shall be extinguished if
it should be lost or destroyed without the fault of the
debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even
for fortuitous events, the loss of the thing does not
extinguish the obligation, and he shall be responsible
for damages. The same rule applies when the nature
of the obligation requires the assumption of risk.
“thing is lost” is when it perishes or goes out of
commerce or disappears in such a way that its
existence is unknown or cannot be recovered.
Obligation To Give May Be Extinguished By Loss Of
The Thing Due if the ff requisites are present:
a. The obligation is to deliver a
specific/determinate thing
b. Loss of the thing occurs without the fault of
the debtor
c. Debtor is not guilty of delay
When Loss Of The Thing Will Not Extinguish Liability:
a. When the law so provides
b. Stipulation so provides
c. Nature of the obligation requires the
assumption of risk
d. Obligation to deliver a specific thing arises
from a crime
Article 1264. The courts shall determine whether,
under the circumstances, the partial loss of the object
of the obligation is so important as to extinguish the
obligation.
Article 1265. Whenever the thing is lost in the
possession of the debtor, it shall be presumed that
the loss was due to his fault, unless there is proof to
the contrary, and without prejudice to the provisions
of article 1165. This presumption does not apply in
case of earthquake, flood, storm, or other natural
calamity.
Article 1266. The debtor in obligations to do shall also
be released when the prestation becomes legally or
physically impossible without the fault of the obligor.
Article 1267. When the service has become so difficult
as to be manifestly beyond the contemplation of the
parties, the obligor may also be released therefrom, in
whole or in part.  - If all of these requirements are present, then the
GR: impossibility of performance releases the obligor
- Another exception to the obligatory force of a
valid and enforceable contract
- Remedy of the obligor is not annulment but to
be released from his obligation in whole or in
part.
Article 1268.  When the debt of a thing certain and
determinate proceeds from a criminal offense, the
debtor shall not be exempted from the payment of its
price, whatever may be the cause for the loss, unless
the thing having been offered by him to the person
who should receive it, the latter refused without
justification to accept it.
Article 1269. The obligation having been extinguished
by the loss of the thing, the creditor shall have all the
rights of action which the debtor may have against
third persons by reason of the loss. 
Third mode of extinguishing an obligation:
CONDONATION OR REMISSION
- Condonation is gratuitous, it is an act of
liberality. Therefore, it has to comply with the
formalities of a donation.
- What are the formalities? Dependent upon
the kind of object or property being donated.
(necessary for validity not enforceability)
 If it is a personal property, a
movable property, it the value does
not exceed P5000, it need not to be
in writing. Only requires
simultaneous acceptance on the
part of the donee.
 If it exceeds P5000, it has to be in
writing with acknowledgement of
acceptance on the part of the
donee.
 If it is a real property, it has to be in
a public instrument.
Requisites for Condonation or Remission to be Valid:
a. It has to be gratuitous, meaning no
consideration is given
b. It has to be accepted by the obligor. So that
means the obligor is the done.
c. Obligation is due and demandable. Because
you cannot condone an obligation that is not
yet due and demandable. 
condonation or remission will be considered valid and
will extinguish the obligation. 
Condonation may be TOTAL or PARTIAL
  Total- it benefits everybody
 Partial- principal obligation will be reduced
and spread out among the solidary debtors.
Q: What about if it is a joint obligation?
A: if only his share is being condoned, it will not have
any effect to the other co-joint debtors.
Fourth mode of extinguishing an Obligation:
CONFUSION OR MERGER
- In Property, confusion is an accession
involving a personal property.
- In the context of Obligation, confusion is
merger of the personalities of the creditor
and debtor into one person.
Requisites:
1.) The merger of the characters of the creditor and
the debtor in the same person.  2.) Obligation arising from commodatum. Because in
2.) It must take place in the person of the principal
creditor or in the principal debtor
3.) It must be complete and definite.
- There's no such thing as a partial confusion
or partial merger, it has to be definite and
complete for it to be a valid mode of
extinguishing an obligation. 
- In relation to a joint obligation, confusion
does not apply.
Fifth mode of extinguishing an Obligation
LEGAL COMPENSATION
- Compensation simly means “quits” in
layman’s term
Requisites: (PRI-MO-D-L-S)
1.) Both are Principal debtor and principal
creditor of each other
2.) Sum of Money, or if consumable of the same
kind or quality
3.) Both debts are Due
4.) Debts are Liquidated (it is determined and
certain)  A:
5.) Neither Subject to retention nor controversy.
meaning no other third person is interested
over it.
- If all of these requisites are present, even if
the creditor and debtor are not aware of it by
operation of law, the obligations are
extinguished.
- The absence of one of these requisites will not
give rise to a valid legal compensation that
can extinguish the obligation.  
Conventional Compensation- based on the agreement
of the parties. If it is based on the agreement of the
parties, it need not follow these requisites.
Judicial Compensation- it has to be in court. Involves a
case wherein there is another case involving the same
parties and damages are awarded. This kind however
is immaterial whether the parties involved are aware
of it or not. Because it is by operation of law that the
obligation is extinguished. 
Q: Can there be compensation in all cases?
A: No. there are cases wherein compensation is
prohibited
Compensation prohibited: (In extinguishment of
obligation)
1.) If it is an obligation arising from a deposit. 
commodatum, just like in deposit, there is no transfer
of ownership. What is transferred is simply use and
possession over the property and the bailee has the
obligation to deliver or return the same property that
was handed to him for use. 
3.) Support by gratuitous title
4.) If it involves civil liability arising from a criminal
offense or delict. Because it will create an impression
that delict is something that is subject to settlement.
In criminal law, there can be no amicable settlement
in case of a delict. 
5.) Damage caused to a partnership by a partner. This
one is explicitly provided by law. 
6.) Obligations in favor of the government
Q: Is it possible that the creditor can still assign his
interest to a third person and still there can be
compensation?
 
Three cases when it comes to the assignment of
credit by the creditor to a third person:
First, the assignment of a credit to a third person was
with the consent of the debtor
Second, debtor would still insist that you cannot
assign it to a third person
Third, creditor assigned his credit to the third person
without the knowledge of the debtor. 
First case, there was consent on the part of the
debtor allowing creditor to assign his credit. What will
happen to the compensation? The code says, debtor
cannot set a compensation unless he reserves a right
at the time he gave his consent.  obligations are on every point incompatible so
If there is consent, compensation will not anymore be
applicable. For as long as there is reservation on the
part of the debtor, that he can still apply
compensation even if the credit has been assigned to
a third person, compensation will take place.
BUT, if debtor fails to reserve that right to avail of that
compensation, considering that he consented, he
cannot anymore raise the defense of compensation.  2 Kinds of change in debtor
Second case, Even if I am aware, I did not give my
consent. Compensation will be applicable to those
that were due prior to the assignment. Those that are
due after the assignment, compensation will not be
applicable. Debtor can set up compensation previous
to assignment referring to previous debts that are due
PRIOR to the assignment.
Third case, you assigned the credit without the
knowledge of the debtor. As long as, the debtor is not
aware of this assignment, legal compensation would
still apply.  changing of the debtor, it will give rise to the revival of
Sixth mode of extinguishing an Obligation
NOVATION
- Will take place if any of these will change:
1.) it can be the object or the principal
condition
2.) if there is a change in the debtor
3.) Change in the creditor
- Strictly speaking, it does not totally extinguish
an obligation. Because, the moment that
there is a change, one obligation is terminated
but a new obligation is created.
- Novation= one obligation is extinguished but
another is created.
- Novation is not presumed. It should be in
equivocal terms.
Requisites for Novation to be a Valid Mode of
Extinguishing an Obligation:
1. Substantial difference in the old and new
obligation
2. capacity of the parties
3. intention to extinguish
- Any element or requisite that is missing, the
answer should always be, there is no
novation.  himself to another. Both parties have already
- Extinction of old obligation should be declared
in an equivocal terms or old and new
that we can really say that the novation
extinguished the obligation.
Novation can be a Real Novation or Personal
Novation
 Real Novation- there is a change on the
object just like in dacion en pago.
 Personal Novation- change of party
 Expromission- change of the debtor
without the knowledge and consent of
the debtor
 Delegacion- with the consent on the part
of the debtor
Q: Why is it important to identify if it is with the
consent of the debtor or not?
A: Because if the new debtor is insolvent, the creditor
cannot run after to the old debtor. 
Also, if it is with the consent of the debtor, and the
insolvency of the new debtor happens prior to the
the obligation of the old debtor. 
If it is without the knowledge of the debtor, if the new
debtor is insolvent, it is advantageous to the old
debtor because the obligation of the old debtor will
not be revived. So, creditor assumes the risk.
CONTRACTS
-One of the sources of an obligation
Art. 1305- definition of contracts. 3 important things
appear:
1.) contract refers to a meeting of the minds.
2.) whereby one of the parties or both of them
would bind themselves
3.) what does one bind himself to do, it's either
to give or to render service
Note: The third component of the definition of what a
contract is will now connect you to the definition of
an obligation. Juridical necessity to give, to do, or not
to do.
STAGES IN THE FORMATION OF A CONTRACT
*examples in the transcribed file 028*
1.) Preparatory Stage- that is where the offer
comes into play
2.) Stage of Perfection-
3.) Consummation Stage- when one binds
 performed their respective obligations if the
contract gives rise to a reciprocal obligation.  the minds, even if it is
- The mere fact that one binds himself to the
other, there is a corresponding knowledge
that there is a corresponding obligation
attached to it.
- The moment that the contract is perfected,
obligation arises. That's the reason why one of
the sources of an obligation is a contract.  II.)
Note: consummation stage is not applicable to
marriage contracts because consummation has a
different meaning under the FamCode.
KINDS OF CONTRACTS
I.) According to Perfection
i.) Consensual Contract- what they
call an ordinary contract. Ordinary
in the sense that the contract is
perfected just because of the
meeting of the minds of the
parties.
 Meeting has something to do
with the object involved. - if
the object is definite and
certain, and both parties have
agreed on it, the contract is
then deemed perfected.
 *Example in LR notes part 5*
ii.) Real Contract- perfected upon
the delivery of the property.
 Ex.) commodatum- unless and
until the property is actually
delivered, there is no contract
that is perfected.*more
examples of commodatum in
transcribed file 029*
 Ex.) pledge/pawns- it is an
accessory contract. It is a
collateral wherein there is
transfer of possession.
iii.) Solemn/Formal Contract- what
makes it a solemn/formal
contract is because there is a
formal requirement according to
the civil code or a special law.
 Ex.) Deed of donation or a
real property
 Purpose of reducing into a
public instrument: to
protect your interest
because without this
formal requirement, even
if there is the meeting of
verbal, even if you have
witnesses at the time of
the verbal agreement, the
witnesses will not make
the deed of donation
valid.
According to Importance
i.) Principal Contract- a contract that
can exist by itself
ii.) Accessory Contract- a contract
whose existence is dependent
upon a principal contract
Note: That is why, if the principal contract is void, it
follows that the accessory contract will be void. But, if
the accessory contract will be void, it does not follow
that the validity of the principal contract will be
affected. 
Ex.) A contract of mortgage without any other
contract attached to it is not possible because
mortgage is an accessory contract. But a contract of
simple mutuum without any other contract attached
to it is possible because simple mutuum is a principal
contract. 
III.) According to the parties obligated to
perform or to render service
i.) Unilateral- only one of the parties
has the obligation to perform.
 Ex.) contract of commodatum-
because only the borrower or bailee
has the obligation to perform. The
lender has no obligation to lend his
property.
ii.) Bilateral
 Ex.) contract of sale, contract with
the school
IV.) According to Equivalence of Prestation-
i.) Gratuitous- without any
consideration (eg. Commodatum,
donation)
ii.) Onerous- if there is an exchange
of equivalent prestations. (eg.
Sale)
iii.) Remuneratory- outstanding
prestation premised in services or
benefits already received.
ELEMENTS OF A CONTRACT
1.) Natural- it is already presumed existing. It is
already within the contract.
 2.) Essential- these are elements without which
there can be no contract. The absence of an
essential element will make the contract void.
3.) Accidental- it will only exist upon the
stipulation of the parties.
o eg. In sale of a real property, you
allow that you can be paid by
installment.
Elements of a Valid Solemn/Formal Contract
1.) consent
2.) subject matter
3.) cause or consideration
4.) formality required by law
The absence of any of these elements will make the
solemn/formal contract void ab initio. 
Elements of a Real Contract
1.) consent
2.) subject matter
3.) cause/consideration
4.) delivery of the thing
Elements of a Consensual Contract
1.) Consent
2.) Subject Matter
3.) Cause/consideration
Note: That's why the consensual contract is what they
call an ordinary contract because general rule, is that
contracts are perfected by the meeting of the minds
of the parties. The exceptions are the real contract as
well as the formal contracts.  c.) In Usufruct, if there is a stipulation that the
PRINCIPLES APPLICABLE IN CONTRACTS
1.) Principle of Autonomy or Liberty of
Contracts- “autonomous”- they can make
their own legislation.
- In contracts, when you say liberty of
contracts, parties may establish the terms and
conditions of the contracts provided that, the
terms and conditions are not contrary to law,
public morals, good customs, public orders
and policies.  offeree.
- Now this principle is not applicable in contract
of marriage, it is the only exception.
2.) Principle of Consensuality of Contracts-
"consensual" - a principle that refers to
"contracts are perfected by mere consent"  of the offer and acceptance.
3.) Principle of Mutuality- "mutual" it will only be
between the parties.
- Contract must bind both parties. And its
validity or compliance cannot be left to the
will of one of the parties, so both should
agree. 
4.) Principle of Obligatoriness of Contracts- From
Art. 1159, obligations arising from contracts
have the force of law between parties. In case
they want to change something in the
contract, it must be agreed upon by the
parties.
- In case one of the parties cannot perform the
obligation as agreed upon in the contract, the
other party has the right to go to court and
demand for specific performance.
5.) Principle of Relativity of Contracts- the
contracts take effect only between the
parties, their assigns and heirs.
- XPN: Stipulation pour atrui or stipulation is in
favor of a third person who is not an assignee,
not an heir, but only a stranger.
Remember:
a.) In Successions, succession is a mode of
acquiring ownership over property RIGHTS
and OBLIGATIONS upon the death of the
deceased. “rights” referring to real right,
rights that are attached to the property.
b.) In a Lease Contract, if the original lessee dies,
the death will be a ground for termination of
contract if there’s a stipulation to that effect.
death of the usufructuary will terminate the
contract, then it will be terminated. If none, it
will be transferred to the heirs of the
usufructuary.
CONSENT
Q: How is consent manifested?
A: there is a concurrence of the author and
acceptance. Concurrence of the offer and acceptance.
Contracts by correspondence- Art. 1319 (2)- consent
exist as soon as offeror learns of acceptance by
- Through internet or text message
Q: the acceptance, when has it reached the
knowledge of the offeror? Since it is only when the
acceptance reaches the knowledge, or the person
offering it, when we can say that there is concurrence
A: the reckoning point is when the offeror received
the message.
Requisites of an Offer (acceptance of which will
perfect the contract)
1.) Definite- there should be no more question in
mind, the only thing you have to do is accept
the offer.
2.) Complete
3.) There is Intention on the part of the offeror to
be bound.
Example: Flyers are always distributed in the streets,
and if you will look at it, you will see the picture or
other information of what is being offered. In relation
to the topic, can we consider the flyer as a definite
offer? Where the acceptance of which will perfect a
contract?
the distribution of the flyer, there is really the
intention to be bound.  Now is it definite and
complete? It is not yet definite and complete for the
flyers cannot answer all your questions in mind. SO,
for as long as you have many questions in your mind
regarding the offer, then we cannot say that the offer
is complete and definite. Flyers are simply an
invitation for you to make an offer.
Requisites of an  acceptance that will give rise to the
perfection of a contract
1.) Acceptance is unqualified or unconditional- if
there is a condition
- It cannot give rise to a perfected contract
2.) Acceptance is communicated to the offeror
Nature and Effect of advertisement: insofar as the
Civil Code is concerned, if it involves the sale of a real
property or personal property, they cannot be a
definite offer but they are simply an invitation to
make an offer
Counter-offer- a qualified or conditional acceptance.
(eg. Bargaining)
-------------------------
Option Money and Earnest Money
Similarity: Both involves the delivery of money
Distinction: with respect to the effect, if it is an
earnest money, that gives rise to a perfected contract
of sale since it forms part of the contract price.
An option money does not give rise to a perfected
contract of sale but simply a perfected option
contract.
“option contract’- a reasonable period by the vendor
within which to make a final decision as to whether
you will push through with the buying of the property
or not.
Option money- a consideration for the waiting time of
the seller.
Q: How much should be the option money?
A: the code is silent about it but it should be enough
to tie down the seller within the period agreed upon
by both parties.
Seller has no right to offer the same product to a third
person during the waiting time. BUT, if there is no
option money give, seller had the full discretion of
disposing the property to a third person, even without
the knowledge of the buyer.
Earnest Money gives rise to a perfected contract and
it forms part of the contract price.
Remember:
Regardless whether it is termed as deposit or
reservation fee, for as long as that deposit or
reservation fee will be included in the computation
of the contract price, then that means that is an
earnest money. 
But, if it is not included in the computation, if will not
be deducted from the contract price, it would be
deemed forfeited if in case you will not push through
with the buying if the property, that is simply an
option money. 
In option money, what is perfected is the option
contract wherein, you are buying the period to make
a final decision as to whether you will acquire the
property or not. 
VICES OF CONSENT
Vices- are circumstances that affect adversely the
decision of a party in entering the contract.
- In FamCode: Art. 4 states that the the absence
of any of the essential requisites will make the
marriage null and void. The defect will make it
voidable.
Classifications of Vices of Consent
1.) Vices affecting cognition (intellectual faculty)
a) Incapacity (In relation to Art. 37 and 38 of
the Civil Code)
b) Error
c) Fraud
2.) Vices affecting volition (faculty of the will)
a) Violence
b) Intimidation
 c) Undue Influence
Error/Mistake- inadvertent and excusable disregard of
a circumstance material to the contract.
- mistake of fact and not mistake of law
- Example: Justice Gonzales, since he has the
title of a Justice, he celebrated the marriage,
and since according to the FamCode,
members of the judiciary, and thinking that a
person who the title of a Justice is
automatically a member of the judiciary, you
believe in good faith that Justice Gonzales has
the authority, will the marriage be valid? No,
because that is tantamount to a mistake of
law and not a mistake of fact.
- if it is an error or a mistake, no qualification
whether it is a mistake of fact or law, what the
civil code is telling us, is if it will affect a
material, decision on the part of the party in
entering in to the contract because of that
mistake or that error, then that is considered
as a vice of consent and therefore, will be a
ground for the annulment of the contract.
- So, if the consent is there but it is not freely
given, the contract is voidable.  is concerned, it is in-existent. It is void ab
Fraud- insidious words or machinations whereby the
other is induced to execute the contract.
2 Kinds of Fraud
a.) Fraud in the celebration of the contract (dolo
causante)
- The party would not have given his consent if
he is aware that there is fraud
- Ground for annulment
b.) Fraud in the execution of the contract (dolo
incidente)
- Party deceived would have agreed but under
different terms.
- Even if you’re aware of the fraud, you would
still give your consent under a different term
or condition
- Ground for damages
Violence- in order to rest consent, serious or
irresistible force is employed.
- Not limited to physical violence.
Intimidation- what is involved is the kind of
intimidation that would vitiate one’s consent. Threat.
- Ex.) shotgun marriage
Undue Influence- Improper advantage of one’s power.
- Ex.) or if one is a government official and you
have no choice but to say yes, because you're
afraid.
- Your employer, you're afraid that if you will
not agree to what he is telling you, you might
be terminated from employment. 
SIMULATION OF CONTRACT
- Declaration of non-existent will be made
deliberately and by agreement of the parties.
It can be ABSOLUTELY SIMULATED CONTRACT (ASC) or
RELATIVELY SIMULATED CONTRACT (RSC)
ASC- there is really no intention to enter into a
contract.
- Ex.) Agrarian reform- so that their property
will not be covered by carp. They divided it
either by selling or donating to a third person
when in truth, there is really no intention to
dispose the property.
- if the real intention of the parties is not really
to dispose it, only to remove it from the
coverage of carp, then in so far as the contract
initio. 
RSC- parties really intend to be bound to each other
but the real intention is not reflected in the
instrument.
- Ex.) instead of making a deed of absolute sale,
what they execute is a deed of
donation. There is really intention to dispose
the property, but that real intention is not
appearing in the document.
SUBJECT MATTER OR OBJECT
Meaning of object:
1.) object per se refers to the property if it refers
to a prestation to give.
2.) it refers to the prestation. Prestation to give,
to do, or not to do. Prestation must be lawful
and possible.
For one to be a valid object of a contract:
It has to be- (a) property and (b) it has to be within
the commerce of men.
CAUSE OR CONSIDERATION
- the reason why you entered into a contract.
- It is different from motive.
- essential element of a contract
- inadequacy of cause will not invalidate the
contract it is simply a ground for rescission of
contract
“motive”- is something that is incidental. It has
nothing to do with the perfection of a contract.
FORMALITIES OF A CONTRACT
- The formality of a contract is necessary for
validity if it is a formal contract based on
perfection.
- the formality is necessary for enforceability.
- if the contract falls under the statute of fraud,
then failure to comply with the written
requirement will not affect validity but simply
enforceability.
- If it is not on the coverage on the statute of
fraud, check if it's required under the law that
non-compliance will affect its validity, then
that will make the contract a formal or a
solemn contract.  b. Sale of a real property
3.) cause or consideration. 
A. Contracts which must be reduced into a
PUBLIC INSTRUMENT not necessarily for
validity, but for enforceability
- Art. 1358
1. CMET- Contracts for the Creation,
Modification, Transmission, or
Extinguishment of REAL RIGHTS. (in relation
to Property: “right” that is attached to a real
property like usufruct and right to lease)
XPNS:
a. under the statute of fraud (1407), if the lease
contract is for 1 year, it has to be covered by
the statute of fraud "it should be in writing, it
need not be in a public instrument"

Examples of solemn contracts, solemn in the sense Note:

that if you do not comply with the formal A real property is an immovable property, a
requirements, the contract will be considered void ab classification of property based on mobility. That is
initio.  the reason why a contract of sale of a real property
does not fall under number 1. because it is not a real
1.) Donation of a Real Property right. 

2.) Donation of a Personal Property, the value of A real RIGHT is a right that is attached to the property.
which exceeds P5000 (you only have to remember So, regardless if that property is transferred to
this for the purposes of passing the bar exam not another person, the real right is still existing. 
for purposes of applying it.) There is no need to
apply strictly the provision in the Civil Code.  2. WAR- hereditary rights. Waiver, Assignment,
and Repudiation of Hereditary Right
3.) Payment of Interest. Interest cannot be - When it comes to waiver of hereditary right,
imposed upon the debtor especially if it is simple you have to connect it with Art. 6 of the Civil
loan or mutuum unless it is expressly stipulated, Code because for a waiver of a hereditary
and for it to be expressly stipulated, it has to be right to be valid: 
reduced into writing. Otherwise, you cannot a. the right should actually be
impose interest. (Art. 1956, 1874) existing 
4.) Partnership where the partner contributes a b. the holder of the right is
real property. It has to be in writing otherwise, it knowledgeable about his
is void.  right 
c. the one waiving the right is
5.) Sale of a property through an agent voluntarily waiving the right. 

6.) Antichresis - Reason of emphasis: because if the waiver of

hereditary right is made PRIOR to the death of
Note: The formality here is an essential element for the deceased, even if there is compliance with
validity. Non-compliance will make the contract void.  the public instrument requirement, it cannot
be considered valid since the right is not yet
If it is a real contract, aside from consent, subject existing.
matter or object, cause or consideration, the other
essential element will be delivery of the contract.  3. Power to administer the property
- Reference to Special power of authority (SPA)
But if it is only a consensual contract, there are only 3 or General Power of Attorney (GPA) to
essential elements:  administer the property of another person.
1.) consent freely given
2.) subject matter or object
 4. Cession or assignment of action or rights inequitable conduct, or accident, will now be
arising from an act contained in a public appearing in the reformed contract.
instrument. - Also applicable to Relatively Simulated
- ex. accion subbrogatoria- creditor exercising Contract (parties intend to be bound to each
the right of the debtor to file an action against other but the real intention does not appear
the debtor's debtor- it should appear in a in the contract)
public instrument - For the real intention to be written in the
B. Contracts that NEED NOT to be in a PUBLIC contract, it must be reformed.
INSTRUMENT but shall be unenforceable by
action unless the same be in writing 3 Cases wherein reformation is NOT applicable:
- Art. 1366 (D-W-V)
- Group of contracts wherein the formal a. Donations inter vivos
requirement is covered by the Statute of b. Wills
Fraud c. Agreement that is VOID
Art. 1403: “that it should be in writing and that
requirement does not need that the writing RESCISSIBLE CONTRACTS
should be in public instrument” (C-G-L-A-D)
Contracts enumerated under 1403:  a. Guardian
b. Absentee
a. lease contract for more than more than 1 year c. Creditors
b. promise to pay for the obligation of another d. Defendants
person (contract of guarantee or surety) e. Law
c. marriage settlement
Distinguish Rescission in the CivCode under 1380 &
- If you will compare the FamCode with the 1950 1192:
Civil code, the 1950 civil code expressly states that
the marriage settlement or ante nuptial agreement 1.) under 1380- one of the defective contracts is what we
should be covered by the statute of fraud. So, the call as a rescissible contracts
requirement of writing is only necessary for
enforceability not for validity.  2.) under 1191- talks about reciprocal obligations. Remedy
in reciprocal obligations is rescission
Example: Juan married to Maria and before they got
married, they entered into an ante nuptial agreement
wherein both agreed that the property relationship will be
one of absolute separation of property. However, it was
simply a verbal marriage settlement. Is the marriage
marriage settlement valid?  1191 1380
Person who can file:
Option 1: from Tolentino: even if the FamCode does not
anymore have a provision that expressly provides that the Limited to the injured Not only limited to the
marriage settlement shall be governed by the statute of party, the one who has parties in the contract but
fraud, it is still covered by the statute of fraud.  already performed his even a third person
obligation
Option 2: Sta Maria: Since the FC provides that the ante Period of Compliance:
nuptial agreement shall be in writing to affect third
persons, since it uses the word "Shall", it is mandatory, There is a period of No period of compliance
thus, if there is non-compliance of reducing the ante nuptial compliance
agreement in writing, it shall be considered void.  Rescission based on:

Non-fulfillment of the Lesion or fraud of creditors

C. Contracts where the amount involved
EXCEEDS P500.00, it must be IN WRITING
REFORMATION OF AN INSTRUMENT
- The remedy given to the parties so that the
real intention of the parties which is not
expressed because of mistake, fraud,
obligation
Note: 1380 need not to be a reciprocal obligation, it may be
a unilateral obligation
PRESCRIPTIVE PERIOD for filing an action for
rescission referring to rescissible contracts:
GR: 4 years from the celebration of the contract
XPNS: UNENFORCEABLE CONTRACTS
a. If the ground is based on guardianship -the contract is valid but it is only unenforceable.
b. When it comes to absentee  there is failure to comply with the obligations arising
from that contract, you cannot go to court and demand for
- In the case of guardianship, 4 years would be
specific performance.
counted not from the celebration of the contract
but from the termination of the incapacity
Remedy: if there is failure to comply with the Statute of
Fraud, to compel the other party to reduce it into writing.
- In absentee, 4 years will be counted from the time
that the domicile of the absentee is known. 
Classes of Unenforceable Contracts based on 1403:
EFFECT OF RESCISSION
1. The thing must be returned with the fruits and the price  Contracts that are covered under the statute of
with the interest. Accessions and accessories must also be fraud
delivered
2. If the return is not possible, pay indemnity damages.  Contracts that are entered into in an excess of
Such indemnity is in lieu of the fruits and the interests authority (applicable in a contract of agency)
which cannot anymore be returned
3. If there are several alienations, the first acquirer shall be  Contracts entered into where both parties are
liable first. incapacitated (incapacity in connection to arts. 37
and 38 of the civil code. usually incapacity which
DISTINCTION BETWEEN A VOID AND VOIDABLE has something to do with age)
CONTRACTS:
VOID VOIDABLE
Can be assailed by third Only the parties VOID CONTRACTS
person - Under Art. 4 of the FamCode the absence of
Cannot be confirmed or Can be ratified the essential or formal requisites will make
ratified the contract of marriage void. (just a guide)
The action for declaration Prescribes; 4 years - The ABSENCE OF ANY OF THE ELEMNETS OF A
of nullity of a void contract prescriptive period CONTRACT will make the contract VOID.
does not prescribe
Reason:
Violation of public policy Because of the presence of
a vice of consent such as
threat, intimidation, undue
influence and fraud
Void ab initio Valid until annulled
GROUNDS FOR ANNULLMENT: SUMMARY OF DEFECTIVE CONTRACTS
a. Vitiated consent
b. Incapacity Void Voidable Rescissible Unenforceable
Cause:
Reckoning period of prescription: Absence of Vices of Lesion or Lack of
- If about vices of consent: 4 years from cessation of
essential consent damage or formality,
duress, from the discovery of fraud, from the
removal of capacity, and NOT from the perfection
elements suffer authority and
of the contract. capacity, failure
to comply with
EFFECTS OF ANNULMENT OF CONTRACT: the Statute of
 Contract has already been performed- mutual Fraud
restitution (return of the thing with the fruits; if it Prescription
involves prestation to do, restitution in the form of : 4 years in 4 years No prescription
damages) Never general; since it is
5 years in unenforceable
 Contract was not yet performed- the parties are
marriage thus, you can’t
just released from their obligations. the obligations
are not yet performed.
go to court
Ratification:
Cannot be can be It need not Can be ratified
Ratification- retroacts from the time the contract was ratified ratified be ratified
entered into and it purges the contract from any defect. since the
contract is
 valid its
just that
there is
lesion or
damage
Not valid Valid and Binding Valid although
and binding binding unless unenforceable,
until rescinded thus, binding.
annulled