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OBLIGATIONS & CONTRACTS NOTES (ATTY. CAPILI LECTURES)

Section 2 Example:
LOSS OF THE THING DUE
A rice field in Rizal produces 100 sacks of palay
Loss includes impossibility of performance. annually. A was promised 10 sacks and B was promised 90
sacks. Due to a flood, the rice field produced only 50 sacks.
Causes which render impossible the performance of the
prestation *Remedy: Mag-unahan yung dalawang creditors sa pag-file
ng case against the debtor para sa 50 sacks of palay
1. when the object perishes (depending on the stipulated share).
2. when it goes out of commerce
3. when it disappears in such a way that –
a. its existence is unknown
b. or it cannot be recovered ARTICLE 1264 *case-to-case basis

[NOTE: This applies only to obligations to deliver a
determinate thing. Generic things cannot be lost.]
[NOTE: If the debtor is at fault, what is the remedy of
the creditor? Damages.]
ARTICLE 1262
The thing is always equivalent to the whole obligation.
Q: If there is partial loss, does it mean that extinguishment
is only partial too?
A: It depends on the intention of the parties. It does not
necessarily result to total or partial extinguishment.
The court will decide (what if the thing is not so
important that it may not affect the obligation).

Effect of loss on an obligation to deliver a specific thing

General rule: The obligation is extinguished. ARTICLE 1265

[NOTE: The loss must be after the obligation has been
incurred. If the loss had been prior, there would be no
subject matter, therefore there would be no obligation
at all.]
Exceptions:
1. if the debtor is at fault
2. when the debtor is made liable for a fortuitous
event (because of a provision of law; of a
contractual stipulation; the nature of the obligation
requires assumption of risk on the part of the
debtor)
Presumption that loss was due to debtor’s fault
The thing lost (in the possession of the debtor) must be
determinate. If it is generic, there is no presumption of
fault.
[NOTE: This article may also apply to delimited generic
things. (Atty. Capili)]
[NOTE: The presumption does not apply in case of
earthquake, flood, storm, or other natural calamity.]
Q: What if the debtor is not in possession and the thing is
lost?

A: The creditor should just wait until the obligation is

ARTICLE 1263
Effect of loss on an obligation to deliver a generic thing
General rule: The obligation continues to exist because a
generic thing does not really perish.
demandable and he should demand to put the debtor at
fault. The debtor is not presumed to be at fault. At the
time of delivery, the debtor to present defense, he need
not prove anything.

Exceptions: ARTICLE 1266

1. if the generic thing is delimited Compliance of personal obligations, without the debtor’s
2. if the generic thing has already been segregated fault, become:
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OBLIGATIONS & CONTRACTS NOTES (ATTY. CAPILI LECTURES)

1. a legal impossibility A: If he did not commit the crime in the first place, the
2. a physical impossibility object would not be lost. He cannot use his own
infraction to justify the loss.
[NOTE: Impossible performance is equivalent to loss of
a determinate thing.] Mora Accipiendi – A’s phone was snatched by B. When B
wanted to return it to A, the latter won’t accept because he
[NOTE: The impossibility must AFTER the constitution wants it to be replaced by a different model.
of the obligation, but BEFORE its performance.]
*If the object is damaged, the creditor is not obliged to
accept what has not been contemplated – i.e. something
of lesser value (dapat ibalik kung ano yung ninakaw) =
ARTICLE 1267 ask for damages

Effect of difficulty beyond the parties’ contemplation:

the obligor may be released therefrom, in whole or in part
Principle of Unforeseen Difficulty of Service
- a treaty or agreement remains valid only if the
same conditions prevailing at the time of
contracting continue to exist at the time of
performance (rebus sic stantibus)
ARTICLE 1269
Remedy: The creditor shall have all the rights of action
which the debtor may have against third persons by reason
of loss.
Q: From whom can the creditor ask damages?

Q: Is this equivalent to impossible service that would A: Third-party complaint.

extinguish the obligation?
A: The test is whether or not it was contemplated by the
parties at the very start. If yes, it may almost be
equivalent to impossible service.
Rule: Creditor is not obliged, he is only given the right, to go
after the third person. Creditor must demand or go after his
debtor because it is what is on their contract. The debtor
will be the one to after the third person.

[NOTE: It must have become (1) manifestly difficult

and (2) beyond what was contemplated by the parties.
Otherwise, the debtor may not be released.]

Example:

Two years ago, it was stipulated that A would

repair or renovate B’s house in Marawi. At present,
however, Marawi was totally destructed. Thus, the
obligation has become extremely difficult because total
reconstruction is needed, not mere repairs nor renovations.

ARTICLE 1268

*This is an exception to fortuitous event.

Rule: A criminal is obliged to return the object that is a

product of the crime.

Q: Why do you always make him liable?

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OBLIGATIONS & CONTRACTS NOTES (ATTY. CAPILI LECTURES)

Section 3
CONDONATION OR REMISSION OF THE DEBT
ARTICLE 1272
ARTICLE 1270
Presumptions (when the private document is found in
Condonation or remission: gratuitous abandonment by debtor’s possession) *rebuttable
the creditor of his right
1. Done voluntarily by the creditor
1. essentially gratuitous – it is not condonation if 2. Payment by the debtor
payment or service be required
2. requires the acceptance by the obligor – no Example:
acceptance, no remission (equivalent to donation –
why he should accept) The pre-signed receipt was sent to the debtor to
collect the debt but he did not pay and kept the receipt.
[NOTE: Condonation can be revoked because it is Here, there is no remission.
governed by the law on donation.]
Rule: If the instrument of credit is still in creditor’s hands,
[NOTE: The old obligation is extinguished and a new this is evidence that the debt has not yet been paid, unless
one is created – a ‘contract’ of donation.] the contrary is proved. To rebut the presumption, a receipt
of payment must be presented.
Requisites:

1. the obligation remitted must be demandable at

the time of remission ARTICLE 1273 *self-explanatory
2. the cause or consideration must be liberality
(purely gratuitous) Rule: The accessory follows the principal.
3. acceptance of the offer is required
4. it must not be inofficious – must not impair the
legitime of the creditor
5. the formalities of a donation are required ARTICLE 1274

[NOTE: Waivers are not to be presumed. They must be
clearly and convincingly shown. The debtor has the
burden of proving that there has been condonation.]
ARTICLE 1271
Remission of pledge (real contracts that requires actual
delivery)
- the principal obligation (i.e. loan) remains in force
- presumption is rebuttable (because the debtor or
third person may be in possession of the property
by theft, or because it has been sent for repairs, etc.)

Effect of delivery of private document evidencing credit
- a remission or renunciation is presumed
- example of implied condonation
- “private document” – not notarized; the only copy
(as opposed to a public document wherein several
copies are available, therefore the delivery of one
does not necessarily imply condonation)
[NOTE: The third person in possession of the thing must
actually own it.]
Doctrine of complementary contracts: the accessory
contract must be read (in its entirety) together and
interpreted together with the principal contract.

[NOTE: Voluntary destruction by the creditor of the

instrument is another example of implied
condonation.]

Paragraph 2: HEIRS – burden of proof that the evidence

was of condonation and not of payment because there is no
presumption of condonation, only of payment

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OBLIGATIONS & CONTRACTS NOTES (ATTY. CAPILI LECTURES)
Section 4
CONFUSION OR MERGER OF RIGHTS
ARTICLE 1275
Confusion: the merging or the convergence of the rights of
a creditor and debtor in one and in the same person with
regard to the same obligation
[NOTE: The original debtor becomes the creditor of his
own debt. Here, only one obligation is extinguished. (If
compensation, at least two.)]
[NOTE: If any event that created the merger is revoked,
the merger shall also be revoked; hence, the obligation
is revived but it still depends on the circumstances of
the case.]
Requisites:
1. in the same person of the characters of a creditor
and a debtor
2. must be in the characters of a principal creditor and
a principal debtor (confusion of the creditor with
the person of the guarantor does not extinguish
the principal obligation)
3. must be definite and complete
ARTICLE 1276
Merger on guarantors
- if there is merger with respect to the principal debt,
the guaranty is extinguished
- however, merger takes place in the person of any
of the guarantors does not extinguish the obligation
[NOTE: From the moment C (third person) transferred
the document to A (original debtor), it is merger
because the obligation is already extinguished. If A
encashes his own check, there is still merger since they
is already no obligation. It is not payment.]
ARTICLE 1277
Merger in joint obligations – whole obligation is not
extinguished; there are as many debts as there are debtors
Reason: merger must be complete and definite (separate
and distinct)
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Section 5
COMPENSATION
ARTICLE 1278
Compensation: the extinguishment in the concurrent
amount of the obligations of those persons who, in their
own right, are reciprocally debtors and creditors of each
other
[NOTE: There must be two persons who are mutually
creditor and debtor to each other.]
Q: Why is partial compensation allowed when there is a
rule that payment or performance must be full or complete?
A: Compensation is not payment. Therefore, “partial
extinguishment” should be used instead of “partial
payment.”
ARTICLE 1279
Legal compensation: compensation by operation of law
Requisites:
1. That each one of the obligors be bound principally, and
that he be at the same time a principal creditor of the
other.
- they must generally be bound as principals and
not in their representative capacity
i.e. a situation wherein the creditor owes the
guarantor, legal compensation is not allowed
because the guarantor is not the principal
debtor
2. That both debts consist in a sum of money, or if the
things due are consumable (fungible), they be of the
same kind, and of the same quality if the latter has been
stated.
- two different things cannot be set-off by
compensation
[NOTE: Sale – exchange of a thing for money.
Barter – exchange of one thing for a different
thing.]
- it should be money for money, a car for a car, sacks
of rice for sacks of rice
3. That the two debts be due.
4. That they be liquidated and demandable.
- demandable: neither of the debts has prescribed
or that the obligation is not invalid or illegal
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OBLIGATIONS & CONTRACTS NOTES (ATTY. CAPILI LECTURES)
[NOTE: If one of the debts has already
prescribed, there can be no compensation
because the said debt is no longer demandable.]
- liquidated: the exact amount has already been
determined or fixed
e.g. (not liquidated)
- 1000 kg of white corn and 1000 kg of
yellow corn – the quantity cannot be
determined kasi mas malalaki’t mabibigat
yung mga yellow corn kaya baka mas konti siya
kaysa sa white corn
5. That over neither of the debts must there be any
retention or controversy commenced by third persons
and communicated in due time to the debtor.
- negative requisite
- this can be disregarded by voluntary compensation
but subject to liability later (if there is a court
order, either may be liable)
ARTICLE 1280
*This is an exception to Article 1279, paragraph 1.
- the guarantor may set up compensation with
respect to the principal debt
Reason: Extinguishment of principal obligation
extinguishes the guaranty.
ARTICLE 1281 *self-explanatory
Total compensation – two debts are of the same amount
Partial compensation – two debts are not of the same
amount; operative only up to the concurrent amount
ARTICLE 1282
Voluntary compensation: the parties agree to compensate
their mutual obligations even in the absence of some
requisites (under Article 1279)
[NOTE: It is sufficient that the agreement itself be valid.
Thus, the parties must have legal capacity and must
freely give their consent.]
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ARTICLE 1283
Judicial compensation (‘set-off’)
- counterclaim damages (CivPro)
- pleading and proof of the counterclaim must be
made; otherwise, the court cannot declare the
compensation
[NOTE: The claim for damages need not be a separate
case, under the principle of human relations; i.e. banks
should not result to humiliating acts to collect debt.]
ARTICLE 1284
Compensation in the case of rescissible or voidable
debts: allowed because the debts are valid until rescinded
or annulled
ARTICLE 1285
Assignment of the credit to a third person
- generally, all requisites are there, nothing to assign
anymore
- compensation takes place automatically or ipso
jure
- if after compensation has taken place, one of the
extinguished debts is assigned to a stranger, it
would be a useless act since there is nothing more
to assign
Illustration:
First case: Assignment with the knowledge and consent
of the debtor
- compensation cannot be set up because his consent
constitutes a waiver
- exception: if the right to the compensation that has
already taken place is reserved
- refer to illustration – B must pay third person but go
after A unless he reserves the right to
compensation
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OBLIGATIONS & CONTRACTS NOTES (ATTY. CAPILI LECTURES)
Second case: Assignment with the knowledge but
without the consent or against the will of the debtor
- legal compensation has already taken place
- example:
A assigned the credit due today to a
guarantor. B’s credit from A matures later. If
the guarantor goes after B, there is no
compensation but ordinary payment only.
Upon maturity of B’s credit, there is still no
compensation because the guarantor is not
the principal debtor.
- refer to illustration – all defenses available may
already be used come December 1 (debts that are
there, take note of the dates of assignment); the
defenses available before assignment can be used
when compensation was not really intended
Third case: Assignment made without the knowledge of
the debtor
- debtor can set up compensation as a defense for all
debts maturing prior to his knowledge of the
assignment
- refer to illustration – October 1 (assignment date),
November 5 (date when debtor was informed) – all
debts before and after October 1 but before
November 5 may be set up or used as defense
(actual damage)
Test: assignment of credit must take place before there is
legal compensation or at the time the assignment was
made, legal compensation have not yet taken place
! ARTICLE 1286
Compensation by operation of law
- indemnity for expenses of transportation (of the
goods or the object) and indemnity for expenses of
exchange (monetary, the debts are money debts)
ARTICLE 1287
Instances when legal compensation cannot take place
1. when one debt arises from a depositum (safety deposit
banks); the depositary cannot claim compensation, it is
the depositor who is allowed
Purpose: to prevent breach of trust and confidence
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2. when one debt arises from obligations of a depositary;
it is the depositor who is given the right to claim
3. when one debt arises from obligations of a bailee in
commodatum (the borrower of the property pays
nothing for the loan)
e.g. A owes B 10,000. A then suggested that his
phone that B borrowed would be used to set-off the
debt through commodatum instead.
4. when one debt arises because of a claim for support
due to gratuitous title
5. when one debt is due or owed to the government
(taxes and other fees)
ARTICLE 1288
Debts arising from a crime – no compensation (add to
Article 1287)
Reason: Compensation would be improper and inadvisable
because the satisfaction of such obligation is imperative.
[NOTE: The victim, who is indebted to the accused,
should still be allowed to claim compensation. Non-
compensation should be limited to the accused to
prevent his escaping liability by pleading prior
credits against the offended party.]
ARTICLE 1289
Application of payments shall apply to the order of
compensation when there are several debts susceptible of
compensation.
! ARTICLE 1290
Automatic compensation: takes place when all the
requisites are present unless there has been a valid waiver
[NOTE: If legal compensation takes place, the parties
cannot reverse it.]
[NOTE: The parties need not to consent in order for
legal compensation to take place.]
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OBLIGATIONS & CONTRACTS NOTES (ATTY. CAPILI LECTURES)
Section 6
NOVATION
ARTICLE 1291
Novation: the substitution or change of an obligation by
another, which extinguishes or modifies the first, either by:
1. changing the object (real/objective novation)
2. changing the principal conditions (real/objective
novation)
3. substituting the person of the debtor (passive
subjective novation)
4. subrogating a third person in the right of the
creditor (active novation)
[NOTE: It is a mode of extinguishment with respect to
the old one but also a mode of creating a new one. Its
essence is to enter a new obligation with the intent to
extinguish or end the old one.]
[NOTE: A new contract does not necessarily mean that
novation took place.]
[NOTE: There is no novation if the old and new
obligations are not related nor connected.]
[NOTE: Novation is never presumed. The intention to
novate should be expressly, clearly, and unequivocably
declared.]
Requisites:
1. The existence of a valid old obligation
2. The intent to extinguish or to modify the
obligation by a substantial difference –
agreement to extinguish the old obligation and to
create a new one
3. The validity of the new obligation
Q: What if the second contract is void but the parties intend
to novate?
A: A void contract produces no legal effect. It cannot
novate. The old contract subsists.
Q: What if the second contract is later on or is already
annulled?
A: If the parties intended to extinguish the first
obligation and never be resurrected, the second is still
valid even if annulled.
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Modificatory or imperfect novation
- merely modifies the old obligation; thus, it still
remains in force
- only operates as a relative extinction
- what is being changed is merely incidental
e.g. change of interest rate, change of place of
payment, extension to pay
[NOTE: If there be any doubt as to whether the
novation is total or partial, it shall be presumed to be
merely modificatory.]
Q: If there is a change of place of payment (i.e. instead of the
creditor’s house, MOA nalang), is there novation?
A: Strictly speaking, there is no novation. There is a
change but it does not refer to any of the four instances
enumerated. This is only modificatory novation,
which is not the novation contemplated under this
article.
Test (most important consideration): the intention
of the parties (animus novandi) – the parties will not
enter into a contract without meaning
Implied novation
- the two obligations are essentially incompatible as
a whole in every point – if they can be harmonized,
no implied novation
Test: Can they stand together?
*Novation is not one of the means recognized by the RPC
whereby criminal liability can be extinguished – only the
state can say if there can be novation
ARTICLE 1292
Real or objective novation
- not only the main obligation; if the principal
condition is changed, there is novation
Classifications according to manner or form
1. Express novation
- declared in unequivocal terms
2. Implied novation
- the old and new obligations must be totally
incompatible
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OBLIGATIONS & CONTRACTS NOTES (ATTY. CAPILI LECTURES)

- done by making substantial changes in the ARTICLE 1295

object or subject matter, cause or consideration,
or principal terms or conditions Delegacion – substitution of the debtor; he knows that he
will be substituted
[NOTE: Extension to pay is not novation. BUT decrease General rule: The old debtor cannot be held liable in case
in the period of an obligation to pay a lump sum may be of the new debtor’s insolvency because the creditor
considered as novation due to its effect; i.e. a debt accepted.
payable in two years will be paid tomorrow instead.]
Exceptions:
1. When the insolvency was already existing and of
ARTICLE 1293 public knowledge when the debt was delegated
2. When the insolvency was already existing and
Passive subjective or personal novation known to the debtor when the debt was delegated
[NOTE: If the insolvency occurred only after the
1. Passive – change of the debtor delegation, the old debtor is not liable.]
2. Active – change of the creditor
[NOTE: This article deals only with insolvency and not
Key: Creditor must consent. with other causes of non-fulfillment. In other causes,
[NOTE: Novation should not be mixed up with payment the old debtor is not liable.]
or specific performance.]
Forms of passive subjective novation ARTICLE 1296
1. Expromision – may or may not be known to the Extinctive novation
debtor
Requisites: [NOTE: This article applies only to novation by
a. initiative must come from a third person substitution of debtor and not to novation by
b. only two consents necessary; i.e. new subrogation of the creditor.]
debtor and creditor
c. the old debtor must be excused or released General rule: Extinguishment of the principal carries with
from his obligation it the extinguishment of the accessory obligations.
Exception: Accessory obligations or stipulations made in
2. Delegacion favor of third persons (stipulations pour autrui) remain
Requisites: unless said third persons have their consent to the
a. initiative comes from the old debtor novation.
b. all the parties must consent (creditor must
accept; new debtor must agree) Reason: Their rights to the accessory obligations
c. old debtor is released (which, for them, is really a distinct one) should not be
prejudiced without their consent.
Rights of the new debtor
Illustration:
1. Beneficial reimbursement – if payment was
made without the knowledge or against the will of
the old debtor
2. Reimbursement and subrogation – if it was made
with the old debtor’s consent

ARTICLE 1294
Expromision – the old debtor will not be responsible for When the REM over the 10M is extinguished, the
the new debtor’s insolvency or non-fulfillment of the third party mortgage should also be extinguished BUT since
obligation it covers 1M loan, it should not yet be extinguished (in favor
Reason: The expromision was brought about without of third person).
his initiative.
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OBLIGATIONS & CONTRACTS NOTES (ATTY. CAPILI LECTURES)
ARTICLE 1297
General rule: If the new obligation is void, the original one
shall subsist.
Reason: A void contract produces no legal effect.
Exception: When, by agreement of the parties, that there is
waiver or remission of the obligation (the former obligation ARTICLE 1301 *just read
should be extinguished in any event).
[NOTE: The second contract is considered as a new
contract because there is nothing to novate. Hindi ! ARTICLE 1302
porke’t may dalawang magkasunod na contracts, may
novation na.] Instances of legal subrogation (for example situations,
refer to pp. 522-524, Paras)
Rule if the new obligation is merely voidable
1.
1. The old obligation is novated because a voidable
obligation is valid until annulled – the novation
must come before annulment
2. If the new obligation is annulled, the old obligation
subsists and whatever novation has taken place
will be set aside
[NOTE: Voidable contracts are valid. Do not revive the
old obligation unless there is stipulation.]
ARTICLE 1298 *just read
ARTICLE 1299 2.
General rule: The conditions attached to the obligation are
also attached to the new obligation.
Reason: If, for example, the suspensive condition
attached to the obligation is not fulfilled, the old
obligation never rose. There would be nothing to
novate.
Exception: If there is contrary stipulation.
3.
ARTICLE 1300
Subrogation (active subjective novation)
- transfer to a third person of all the rights
appertaining to the creditor subject to any
provision or any modification that may be agreed
upon
Kinds:
1. Conventional or voluntary subrogation
- requires an agreement and the consent of the
original parties and the creditor
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- must be clearly established
2. Legal subrogation
- takes place by operation of law
- not presumed
When a creditor pays another creditor who is
preferred, even without the debtor’s knowledge
“Creditor” – one who has an interest in the obligation,
e.g. to get the rights over foreclosure of REM
“Preferred” – one who enjoys priority payment
Q: How do you know who is preferred?
A: Refer to Preference of Credits.
*Claim by a third person over the REM without the
debtor’s knowledge – file a case to defend the right (a
person cannot mortgage what he does not own)
When a third person, not interested in the obligation,
pays with the express or tacit approval of the debtor
*Right to reimbursement not by virtue of law BUT by
virtue of legal subrogation.
*Before the third person paid, debtor agreed – previous
approval of the debtor is extinguished, not the payment
by the person
When, even without the knowledge of the debtor, a
person interested in the fulfillment of the obligation
pays, without prejudice to the effects of confusion as to
the latter’s share
“Person interested” – one who can be affected,
directly or indirectly
a. a guarantor
b. a third party mortgagor (owner of the property
mortgaged as security for the debtor’s debt)
c. a surety
*There is no more accessory obligation (wala na
siyang hahabulin in case hindi makabayad si debtor kasi
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OBLIGATIONS & CONTRACTS NOTES (ATTY. CAPILI LECTURES)

siya yung may hawak ng security). His liability is merged

to him. He cannot be liable to himself.
Illustration:

ARTICLE 1303
Effects of subrogation
The credit and all the appurtenant rights, either against
the debtor or against third persons, are transferred.
[NOTE: The credit or obligation, in a sense, subsists. It
is not really extinguished.]

ARTICLE 1304
Partial subrogation (rule of preference)
When there is conflict of interest or when payment is not
enough to cover the two credits, the old creditor shall be
preferred over the new creditor.

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OBLIGATIONS & CONTRACTS NOTES (ATTY. CAPILI LECTURES)
TITLE II – CONTRACTS
Chapter 1
GENERAL PROVISIONS
ARTICLE 1305
Contract: a meeting of minds between two persons
whereby one binds himself, with respect to the other, to
give something or to render some service
Suggested definition: A contract is a meeting of minds
between two or more parties, whereby one party binds
himself with respect to the other, or where both parties
bind themselves reciprocally, in favor of one another, to
fulfill a prestation to give, to do, or not to do.
Stages of a contract
*courtship engagement marriage
1. Conception or Generation (Preparation) – the
parties are progressing with the negotiations; no
definite agreement yet but there may have been
preliminary offer and bargaining
2. Perfection or Birth – there is a definite agreement
(as to the object, cause or consideration, terms and
conditions)
3. Consummation or Fulfillment (Death or
Termination) – the terms of the contract are
performed; contract is fully executed
Some classifications of contracts
a. According to perfection or formation
1. Consensual – perfected by mere consent
2. Real – perfected by delivery
3. Formal or Solemn – where special formalities are
essential before perfection
b. According to cause or equivalence of the value of
prestations
1. Onerous – interchange of equivalent valuable
consideration
2. Gratuitous or Lucrative – all to be done is to
accept; one party receives no equivalent prestation
or compensation
3. Remunerative – a prestation is given in
consideration of a past deed (benefit or service)
c. According to their name or designation
1. Nominate – the contract is given a particular or
special name; e.g. contract of marriage
2. Innominate – those not given any special name;
e.g. “do ut des” (I give that you may give), “do ut
facias” (I give that you may do), “facio ut facias” (I
do that you may do), “facio ut des” (I do that you
may give).
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Basic principles or characteristics of a contract
1. Freedom to Stipulate (Article 1306)
2. Obligatory Force of Contracts [and Compliance
In Good Faith] (Articles 1159 and 1315)
3. Mutuality of Contracts (Article 1308)
4. Relativity of Contracts (Article 1311)
5. Perfection by Mere Consent (Consensuality)
(Article 1315)
ARTICLE 1306
Freedom to stipulate
- The contracting parties may establish such
stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not
contrary to law, morals, good customs, public
order, or public policy
- Free entrance into contracts without restraint
Limitations imposed by law
- must not be contrary to mandatory and prohibitive
laws
- must respect the law for the provisions of all laws
are understood to be incorporated in the contract
Limitations imposed by morals
- deals with right and wrong and with human
conscience
- moral principles that are incontrovertible and
accepted universally
- e.g. Medel v. CA
Limitations imposed by good customs
- those that received for a period of time practical
and social confirmation
Limitations imposed by public order
- maintenance of public safety, peace, and order
Limitations imposed by public policy
- “public, social, and legal interest in private law”
- constitution and laws; manifest will of a state
- e.g. socialized housing from government cannot be
sold to others because it is made for the less
fortunate
ARTICLE 1307
Innominate contracts: contracts that cannot be classified
under the Civil Code and/or commercial laws
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Governing rules
1. stipulations
2. Titles I and II CC (Obligations and Contracts)
3. rules on the most analogous nominate contracts
4. customs of the place
ARTICLE 1308
Mutuality of Contracts
- The contract must bind both contracting parties; its
validity or compliance cannot be left to the will of
one of them
Basis: essential equality of the parties
- To be properly called a contract, it must be the
force of law between the parties; cannot be left to
the hands of one party
- e.g. continue leasing a property as long as you pay
rent – not valid (both parties should decide on the
compliance)
Power to unbind
- when it is expressly provided that one of the
contracting parties is authorized to cancel it and
the party given the right subsequently cancelled,
the agreement is just being fulfilled
- no violation of the principle of mutuality of
contracts
General rule: A party cannot revoke or renounce a contract
without the consent of the other.
Exception: When, under such terms and conditions they
may deem wise, they mutually cancel such contract.
ARTICLE 1309 *related to 1308
Determination of the performance may be left to a third
person. The decision binds the parties only after it is made
known to both.
Q: Can validity or compliance be given to a third person?
A: NO. Determination of performance only but it is not
binding. If unequitable, not obligatory (Article 1310).
Example:
There is a contract between Philippines and Japan.
A third party contractor determines what materials should
be used, who the sub-contractors should be, etc.
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ARTICLE 1310 *related to 1308
If the determination is unequitable, it shall not be
obligatory. The court is called upon to decide what is
equitable.
ARTICLE 1311
Relativity of Contracts
- Contracts are generally effective only between the
parties, their assigns (after transfer), and their
heirs (upon death)
- If the parties are still there, assigns or heirs will not
come in
- Personal rights or those prohibited by law are not
transmissible
[NOTE: A creditor can go after his debtor’s heir but not
to the extent of the property received.]
Illustration:
General rule: Third persons have nothing to do with
contracts they are not parties to.
Exception: When there is a stipulation in favor of a third
person who accepted the benefit before the contract had
been revoked – stipulation pour autrui.
Stipulation Pour Autrui (paragraph 2) *1st XPN to relativity principle
- a stipulation in favor of a third person conferring a
clear and deliberate favor upon him, and which
stipulation is merely part of a contract entered
into by the parties, neither of whom acted as agent
of the third person
[NOTE: Just because he has benefit doesn’t
mean that he is already bound. It must be
express and deliberate.
e.g. insurance contract of husband is
assigned or give to the wife – the wife is a
third person because the contract is
between the husband and the insurance
company]
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Other exceptions to the principle: [NOTE: Even if not a party: right – accion pauliana;
liability – tortious interference.]
1. If there is a court order
2. Tortious interference Elements:
3. Accion pauliana
1. Existing valid contract between two or more
persons
2. Third person is aware of the existence of the
ARTICLE 1312 *2nd XPN to relativity principle contract
Contracts creating real rights 3. Third person interferes by inducing a party to
violate the contract and was thus violated
- third person who come into possession of the 4. No legal justification or valid excuse for the
object of the contract are bound even if: (1) they interference
are not originally bound; (2) they did not
participate in the contract
e.g. real estate mortgage ARTICLE 1315
Reason: A real right binds the property over which it is Consensuality of Contracts: perfection by mere consent
exercised.
What binds them:
1. Stipulation
ARTICLE 1313 *3rd XPN to relativity principle 2. Nature of the agreement
Right of defrauded creditors
- creditors are protected in cases of contracts ARTICLE 1316
intended to defraud them – basis of accion
pauliana Requisites for perfection of real contracts
[NOTE: Ordinarily, a creditor has nothing to say on the 1. Consent
contract between his debtor and a third person and yet, 2. Subject matter
the law gives him the right to interfere.] 3. Cause or consideration
4. Delivery – for validity, or else no contract at all
[NOTE: The creditor does not need to wait for
consummation of the contracts. Mere intention shall be Most common kinds of real contracts
sufficient.]
1. Deposit
[NOTE, IMPORTANT: The debtor must not have any 2. Pledge
other property. Thus, the contract he is trying to enter 3. Commondatum
into will prejudice his contract with the creditor.] 4. Contract of carriage
5. Mutuum (loan)

ARTICLE 1314 *4th XPN to relativity principle

ARTICLE 1317
Principle of Tortious Interference with Contractual
Relations Requisites for a person to contract in the name of
another
- the contract is violated through inducement by
the third person 1. He must be duly authorized, expressly or
- a stranger to a contract can be sued because of his impliedly
unwarranted interference; whoever is injured may 2. He must have by law a right to represent him
properly sue for damages (guardian, administrator)
3. The contract must be subsequently ratified
Basis for damages: ill motives How ratified? The principal ratifies, expressly
[NOTE: There is no tortious interference if purely or impliedly.
economic motives with no ill motives; i.e. purely Absent the requisites, the contract shall be unenforceable
business – legal justification (only negotiate upon unless ratified before revoked by the other party.
expiration.)]
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“I am not the owner but I am authorized to sell
(although he really is not).”
Example of unauthorized contract (a form
unenforceable contract)
In Jose’s name, but without Jose’s authorization,
Maria sold Jose’s car to Marilyn. The sale of the car is
unauthorized.
Effect of ratification
- cleanses the contract from all its defects from the
moment the contract was entered into (Article
1396)
- there is a retroactive effect
[NOTE: There can be no more ratification if the contract
has previously been revoked by the contracting party.]
[NOTE: Ratification can be implied from acts, e.g.
when the owner of a hacienda, which was sold to
strangers without his authority, collected the amount in
a promissory note given as purchase price.]
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Chapter 2
ESSENTIAL REQUISITES OF CONTRACTS
of ARTICLE 1318
Requisites (consensual contracts):
1. Consent of the contracting parties
2. Object certain which is the subject matter of the
contract
3. Cause of the obligation which is established
Fourth requisite for real contracts: delivery
Fourth requisite for solemn or formal contracts:
compliance with the formalities required by law (e.g. simple
donation inter vivos requires a public instrument for its
perfection)
Section 1
CONSENT
ARTICLE 1319
Consent
- the meeting of the minds between the parties on the
subject matter and the cause of the contract
- the manifestation of the meeting of the offer and
the acceptance upon the thing and the cause which
are to constitute the contract
Requisites of consent
1. the parties must be capable or capacitated; if
incapacitated, the party may be represented by a
legal representative
2. there must be overt acts showing the concurrence
of the offer and the acceptance of the object and
the cause of the contract – no conflict between
what was expressly declared and what was really
intended
3. there must be no vitiation of consent, the
conformity must be intelligent and spontaneous
4. the conformity must be real and not simulated or
fictitious
[NOTE: Silence is not acceptance except when it shall be
considered implied acceptance or coupled with acts
that will be considered implied acceptance.]
ARTICLE 1320
Forms of acceptance: express and implied
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ARTICLE 1321 - preparatory contract to the one contemplated;

separate and distinct from the contract that may be
Things that may be fixed by the offeror entered into upon consummation
1. time of acceptance - i.e. you cannot force the owner of a property to sell
2. place of acceptance it to you since there is no contract of sale yet
3. manner of acceptance ‘Valuable consideration’
[NOTE: The offeror may also fix the form of payment - amount that the offeror can weigh to depend upon
and such other terms.] by the contract
[NOTE: If the manner is not complied with, it cannot be - one peso is not enough to be considered as valuable
treated as a valid acceptance.] Three kinds of contracts (CASE: Ang Yu v. CA)
1. Offer without any consideration – withdrawn
ARTICLE 1322 anytime
2. Option contract = offer + valuable consideration
General rule: The act or knowledge of the agent is the act - if perfected, may become a basis for action
or knowledge of the principal. - independent contract, different from the main
contract
Exceptions: 3. Right of first refusal
1. Article 1321 (any acceptance must be directly - dependent upon grantor’s intention (grantor-
communicated to the principal) owner not yet decided, price not yet set)
2. When the authority of the agent has been limited - remedy is damages because it was never
by the principal perfected
- you were given a right but you were not
offered anything; there is no obligation to
proceed with the offer
ARTICLE 1323
[NOTE: Under Sales, earnest money is not equivalent to
Instances when offer becomes ineffective valuable consideration. Earnest money forms part of
the purchase price; therefore, it is evidence of the
1. Death (either party)
perfection of a contract/evidence of agreement to the
2. Civil interdiction (either party)
main contract.]
3. Insanity (either party)
4. Insolvency (either party)
[NOTE: It must be before acceptance is conveyed.] ARTICLE 1325
General rule: Business advertisements are not definite
offers. They are mere invitations to make an offer.
! ARTICLE 1324
Exception: When it is specifically provided – the wordings
General rule: If the offeror has allowed the offeree a certain
would say that it is a concrete offer.
period to accept, the offer may be withdrawn at any time
before acceptance (or the thing being offered) by [NOTE: “I’m accepting.” – you are the one making an
communicating such withdrawal. offer.]
Exception: When the option is founded upon a
consideration as something paid or promised.
ARTICLE 1326
[NOTE: If the offeror withdraws, he will be liable since
there is already a contract.] Advertisements for bidders are mere announcements or
invitations to make proposals.
Option contract
General rule: Advertiser not bound to accept the highest or
- a contract granting a person the privilege to buy or lowest bidder.
not to buy certain objects at any time within the
agreed period at a fixed price Exception: When it is specific or very clear that it is a
definite offer.

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ARTICLE 1327 Hypnotic spell

Persons who cannot give consent to a contract - induced by drugs or by deliberate or unintentional
hypnotism
1. Unemancipated minors – those under 18 years - loss of level of informed consciousness
old; under custody or guardianship
[NOTE: For civil contracts, consent is not needed
by 18-year-olds and above.]
[NOTE: Marriage contracts (special contracts – ARTICLE 1329 *just read
union) are not included here because they are not Effect on the contract: violate prohibition
governed by Obligations and Contracts.
Exceptions:
a. When the minor misrepresented his age
and pretended to be one of major age. It is ARTICLE 1330
essential that the other party must have Causes of vitiated consent (vic es of consent)
been misled.
b. Contracts for necessities such as food. The 1. mistake or error
people who are legally bound to give them 2. fraud or deceit
support should pay (Article 1489). 3. violence
c. Upon reaching the age of majority, they 4. intimidation
ratify the same. 5. undue influence
d. Contracts in the form of savings account
(Postal Savings Bank), provided that the
minor was at least 7 years old.
ARTICLE 1331
e. Insurance for life, health, and the accident
on the minor’s life. Mistake or error
f. Those entered into through a guardian,
approved by the court. - erroneous belief of something
- not equivalent to ignorance
2. Insane or demented persons
Requisites:
Reason: People who contract must know what
they are entering into. 1. The error must be substantial regarding the:
Exception: When they acted during a lucid a. object of the contract
interval. b. conditions which principally moved or
induced one or both parties to enter into
3. Deaf-mutes who do not know how to write (and the contract
read) – if he knows how to write, he can give a full c. identity or qualifications but only if such
consent was the principal cause
2. The error must be excusable, i.e. not caused by
Effect: voidable if other party is capacitated; unenforceable
negligence
if both are incapacitated (but can be ratified)
3. The error must be a mistake of fact and not of law
[NOTE: Article 3, CC – Ignorance of the law does not
ARTICLE 1328 excuse anyone from compliance therewith.]

Rule: Contracts entered into during lucid interval are valid. Error re the object of the contract – mistake as to the
substance
[NOTE: A person is already presumed insane.
Therefore, the sanity must be proved.] Error in quality – the principal condition must be the
moving factor why a person entered into the contract
State of drunkenness
Error in quantity – can vitiate but not to simple mistake
- temporarily results in complete loss of
understanding which may be equivalent to Error in identity or in qualifications – does not affect
temporary insanity except if it is the principal reason
- a person almost doesn’t know what he is doing
- a talk over a bottle of beer is not the drunkenness
anticipated under this article
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Examples: Requisites:

*In a sale of a car, you thought that the seller is a woman but
is actually a transgender – does not affect the transaction or
the contract
*In a sale of a car, you thought that the seller is the owner
but is actually not – void as to the owner, voidable as to
both the ‘contracting parties’
[NOTE: Not every mistake vitiates consent (see Roman
Catholic Church v. Pante). Mistake in motive will not
vitiate consent.]
ARTICLE 1332
Inability to read – a contract may be written or oral
Inability to understand the language of the contract – a
contract may be written in Tagalog (or any other language)
*If one of the parties did not really understand, vitiated
consent can be alleged.
[NOTE: Consent is there but not fully intelligent
enough.]
[NOTE: The inabilities must be coupled by allegation of
mistake of fraud to constitute vitiated consent because
a person who is unable to read or is unable understand
the language by itself does not constitute vitiated
consent (reasons noted in the provision).]
ARTICLE 1333
Knowledge of doubt, contingency, or risk does not
vitiate consent – it is assumed that the party was willing to
take the risk
Examples:
*A mechanic cannot say that he did not know that an engine
was not functioning properly. He is a person knowledgeable
or is an expert of that kind of contract (or of the
contingency).
*One cannot allege vitiated consent just because a 300-
square-meter property became 150 square meters due to
the high tide.
1. The error must refer to the legal effect of the
agreement (hindi dapat basta-bastang error or
effect lang)
2. The real purpose of the parties is frustrated
ARTICLE 1335
Violence – present and physical coercion
Requisites for violence to vitiate consent:
1. Employment of serious or irresistible force
2. It must have been the reason why the contract was
entered into
[NOTE: The violence must be against you only. The
killing of your wife for you to sign a contract is not
violence against your wife not intimidation to her BUT
intimidation against you in order to sign the contract. It
was intended to scare you, to be forced to sign]
Intimidation – moral coercion; directed towards
everything else
Requisites for intimidation to vitiate consent:
1. Reasonable and well-grounded fear of an imminent
and grave evil upon his person, property, or upon
the person or property of his spouse, descendants,
or ascendants
[NOTE: “grave” – papatayin, hindi yung
pipitikin sa ilong; not imminent or grave –
tinutukan ng baril through Skype; “upon
property” – susunugin yung bahay]
2. It must have been the reason why the contract was
entered into
3. The threat must be of an unjust act, an actionable
wrong
Reasonable and well-grounded fear – depends upon
many circumstances, including the age, condition, and sex
of the person concerned
Example: a midget threatening a giant – no reasonable
or well-grounded fear except when the midget has a
gun

ARTICLE 1336
ARTICLE 1334
Violence or intimidation caused by third person
Mutual error – mistake on the part of both parties
- contract may still be annulled because the consent
is still vitiated; otherwise, the other party could just
fake ignorance
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ARTICLE 1337
Requisites for undue influence to vitiate consent
1. improper advantage of one’s power over the will of
another
2. deprivation of the latter’s will of a reasonable
freedom of choice
[NOTE: If the latter was not deprived and it did not
result to the destruction of free will, there is no undue
influence that vitiates consent. Here, the consent is full
and the contract may be valid.]
Circumstances to be considered
1. confidential, family, spiritual, and other relations
between the parties
2. mental weakness
3. ignorance
4. financial distress
Due influence: consists in persuasive arguments or in
appeals to the affections which are not prohibited by law,
morals, good customs, public order, or public policy;
consent is not vitiated
E.g. solicitation, importunity, argument, persuasion
ARTICLE 1338 *distinguish rom Article 1171
Fraud
- when one of the contracting parties is induced to
enter into a contract through insidious words and
machinations of the other party which, without
them, he would not have agreed to
- vitiates consent because the other party’s will is
misled
- must be proved by clear and convincing
evidence; good faith is always assumed
[NOTE: Fraud and mistake can overlap. Fraud can
cause one to make a mistake. It is important, therefore,
to be able to know what ground to use.]
Kinds of fraud
1. Fraud in the celebration of the contract (fraud
proper)
a. Dolo causante (causal fraud; Article 1338)
– were it not for the fraud, the other party
would not have consented; voidable
b. Dolo incidente (incidental fraud) – even
without the fraud, the parties would not
have agreed just the same, hence fraud is
only incidental in causing consent; valid,
ask for damages
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2. Fraud in the performance of the obligation
stipulated in the contract – presupposes the
existence of an already perfected contract;
damages
e.g. Because of shortage, a seller mixed NFA
rice to the jasmine rice so he would not lose his
customers.
Requisites of dolo causante
1. It must have been employed by only one of the
contacting parties, because if both committed
fraud, the contract would remain valid.
2. It must be material and serious, i.e. it really
induced the consent.
3. There must be a deliberate intent to deceive or
to induce.
4. It must have resulted in damage or injury to the
victim.
Example:
A and B are best friends. A said he’d be the best chef
so he and B should open a restaurant someday. It turns out,
however, A does not know how to cook.
*If the motivating factor is their childhood friendship and B
did not care whether or not A knows how to cook, there can
be no fraud.
*If, however, if A was a different person, there can be fraud
because his being a chef is the motivating factor.
ARTICLE 1339
Concealment
- failure to disclose facts constitutes fraud when
there is duty to reveal them
e.g. A real state agent should disclose to potential
buyers the fact that a person committed suicide inside
the house being sold.
Obligation of agents to their principals: Good faith not
only requires that a partner should not make any false
concealment, but he also should abstain from all
concealment.
ARTICLE 1340
Principle of tolerated fraud (trader’s/dealer’s talk)
- usual exaggerations in trade are not in themselves
fraudulent
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- minimizing the defects of the quality of an object or
a service
- caveat emptor: let the buyer beware; a buyer must
be on his guard
Example:
A was persuaded to buy a condominium unit from
B after seeing a fully furnished model in B’s showroom.
However, when it was turned over, the unit was bare.
It is a usual practice in real estate not to present a
bare model to potential buyer, hence the use of interior
design.
ARTICLE 1341
General rule: A mere expression of an opinion does not
signify fraud.
Exception: When it is made by an expert and the other
party has relied on the former’s special knowledge.
Reason: An expert’s opinion is almost in the same
category as a fact.
Q: X, desiring to buy certain property, hired an expert to
ascertain its true value. But the expert’s opinion turned out
to be wrong and X was, therefore misled. May X ask for
annulment of the contract?
A: No because his own expert (technically his employee)
committed the error. X may, however, ask for damages.
ARTICLE 1342
General rule: Misrepresentation by a third person does not
vitiate consent. Therefore, it does not make the contract
voidable.
Exception: When such has created substantial mistake and
the same is mutual.
[NOTE: Article 1342 – capable to give consent but
vitiated; Article 1407 – incapable to give consent.]
[NOTE: Vitiated consent is not equivalent to incapacity
to give consent. In the latter, how can there be vitiation
when there is no consent to give.]
ARTICLE 1343
Misrepresentation made in good faith – not fraudulent
but may constitute error
e.g. A bought a laptop from B. A thought that it was black
but it was actually dark blue. There is only substantial
error.
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ARTICLE 1344
Requisites for fraud to vitiate consent:
1. It must be serious
2. The parties must not be in pari delicto (mutual
guilt)
Reason: One fraud cancels the other fraud.
Therefore, the contract would be considered
valid.
e.g. iPhone X – natapon na yung box kaya
nagpagawa sa Quiapo kaso nabubura pala
yung print – no vitiated consent kasi hindi
naman yung box ang binili kundi yung phone
(tamad na ko mag-translate, balakajan self)
ARTICLE 1345
Simulation of contract: deliberate act of making a
fictitious agreement by the parties for purposes of
deception, when in fact the juridical act that appears on the
contract does not really exist or is different from what is
actually agreed upon
ARTICLE 1346
Kinds of simulated contracts
1. Absolutely simulated or fictitious contracts
- takes place when the parties do not intend to
be bound at all
- the contract is void
2. Relatively simulated or disguised contracts
- when the parties conceal their true agreement
- the parties intend to be bound but by a
different agreement
- all the elements of a contract are present, may
be valid but it is the hidden or true agreement
that is valid
- the parties are bound to the true agreement
except:
 if the contract should prejudice a third
person – declare the contract as void
 if the purpose is contrary to law, morals,
good customs, public order, or public
policy
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Section 2 4. it must be determinate or determinable as to

OBJECT OF CONTRACTS quantity

ARTICLE 1347 [NOTE: It need not be specific because generic objects

can be the subject of a contract.]
Object or subject matter of a contract
1. things
- not outside the commerce of men
- includes future things such as an offspring of
an animal
2. rights
- considered as property
- may be present, future, existing (e.g.
commission to write a book – copyright
belongs to you but sell to me now, in the case
of a biography)
3. services
- must not be contrary to law, morals, good
customs, public order, or public policy
- household services, driver, masseuse
General rule: No contract may be entered into upon future
inheritance.
Reason: A supposed heir has nothing to give.
Exception: When expressly authorized by law.
*Article 84, Family Code – marriage settlements
*Succession inter vivos

ARTICLE 1348
Impossible things or services – cannot be the object of
contracts
1. because of the nature of the transaction
2. because of the law
3. absolute or objectively impossible – no one can do
it
4. relative or subjectively impossible – the particular
debtor cannot comply
[NOTE: Mere difficulty is not impossibility. While it is
difficult, it is still doable. The debtor cannot escape
responsibility. He must still perform even if it became
so difficult because it is not impossible.]

ARTICLE 1349
Rules (or requisites of object of contracts):
1. it must be determinate as to its kind
2. it must be existing or is capable of existing
3. it must be licit
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Section 3 3. it must be lawful

CAUSE OF CONTRACTS

ARTICLE 1350 ARTICLE 1353

Cause: the essential and impelling reason why a party Statement of a false cause
assumes and obligation
- renders the contract void if it is not proved that the
[NOTE: A moral obligation can be a cause if based on a cause is true and lawful
past civil obligation.] - burden of proof is one the one enforcing the
Q: Is it needed that the cause and the subject matter be contract
equal to have a valid contract?
A: No need because the cost of a property may be increased ARTICLE 1354
or decreased.
Presumption: The cause exists and it is a lawful cause
Classifications of contracts as to cause unless the debtor proves the contrary. It is not necessary to
1. Onerous – the cause is the prestation or promise state the cause in the contract.
of a thing or service Reason: Contracts are valid in all forms. For instance,
2. Remuneratory – the cause is the past service or verbal contracts need not be in writing, the cause is
benefit (you want to compensate) which is a nowhere to be found but it is presumed that it was agreed
recoverable debt upon.
3. Gratuitous (contracts of pure beneficence) – the
cause is the pure liberality of the benefactor; e.g.
donation
ARTICLE 1355 *complementary to Article 1470 (Sales)
Lesion: inadequacy of cause
ARTICLE 1351
General rule: Mere inadequacy does not invalidate a
Motives of the parties contract (it may be voidable or rescissible).
- different from the cause Exceptions:
- cannot substitute for cause or consideration
- do not enter at all in the validity or invalidity of the 1. when there has been fraud, mistake, or undue
cause or consideration influence
2. in cases expressly provided by law (rescission)
Example:
A and B are classmates. A sells shirts. Because A is
very pretty, B calls her every single night to buy a shirt just
so he could talk to her. Here, B’s motive does not invalidate
the contract.

ARTICLE 1352
Contracts without cause or with unlawful cause
- void, produce no legal effect
- complements the rule that contracts should have
all the elements
Requisites for cause
1. it must be present at the time the contract was
entered into
2. it must be true

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OBLIGATIONS & CONTRACTS NOTES (ATTY. CAPILI LECTURES)

Chapter 3 A: There are certain acts that need to be done, e.g.

FORM OF CONTRACTS registration in the registry, notary, etc.

! ARTICLE 1356
General rule: Contracts shall be obligatory, binding in ! ARTICLE 1358
whatever form as long as all the essential elements are The following must appear in a public document:
there.
1. creation, transmission, modification, or
Exception: When the law requires a certain form for its extinguishment of real rights over immovable
validity, enforceability, or evidentiary value (defense or property; sales of real property or of an interest
cause of action), it is absolute and indispensable (solemn
contracts). [NOTE: The lease must be in a note or
memorandum. Lease for 3 months need not be
E.g. donation of real property – must be in a public in writing.]
instrument, i.e. in writing and notarized; requires
acceptance also in a public instrument 2. cession, repudiation, or renunciation of hereditary
rights or those of conjugal partnership o gains
[NOTE: The registry and transfer of title is
ARTICLE 1357 binding upon the heirs.]
Right to compel 3. power to administer property or any other power
- remedy when there is contract but is not in writing whose object is an act appearing or which should
or not notarized appear in a public document, or should prejudice a
- available to both the debtor and the creditor third person
- provides a cause of action to compel the [NOTE: This refers to GPA. SPA is not required
observance of form to be notarized except when it is a sale of real
[NOTE: This Article contemplates consensual property or when it is needed to be given to the
contracts.] bank.]

[NOTE: If the contract is perfected, require the other
party to follow the form required by law. If there is no
contract yet, there can be no right to compel
(premature).]
Applicability: When form is needed only for convenience,
not for validity or enforceability.
4. cession of action or rights proceeding from an act
appearing in a public document
[NOTE: Contracts need not be in a public document. It
not a mandatory requirement for validity or
enforceability, only for convenience. Nothing says
that if not in a public document, it will be void.]

Requisites in order to avail of this right: Q: If not mandatory, why can you require to compel under
Article 1357?
1. the contract must be perfected (Article 1357)
2. the contract must be enforceable under the Statute A: To use the agreement to the full extent, not only between
of Frauds (Article 1356) the two parties but also to others for the transfer for
prestation to government agencies.
What can be compelled
Form for convenience: a public document is necessary if
1. to be in writing you want to bind third persons
2. notarization (if already in writing)
[NOTE: Shake-hand deal is sufficient except when the
Inapplicability of the remedy: law requires it to be in writing and/or notarized.]
1. solemn contracts which require form to be valid (Safe answer: As a rule, contracts are valid in any form
2. unenforceable contracts – did not follow the form unless the law requires a certain form for its validity, if not
for its enforceability.)
Prescriptive period: 5 years
Q: Why do you still need to compel the other party?

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OBLIGATIONS & CONTRACTS NOTES (ATTY. CAPILI LECTURES)

Chapter 4 ARTICLE 1361

REFORMATION OF INSTRUMENTS
Mutual mistake
ARTICLE 1359 - when it causes the failure of the instrument to
Reformation: a remedy in equity by means of which a disclose the parties’ real agreement, the
written instrument is made or construed so as to express or instrument may be reformed
conform to the real intention of the parties when some - must be of fact; an error of law is not enough
error or mistake has been committed [NOTE: When the mutual mistake is on the legal effect,
[NOTE: This is not available to verbal contracts because the remedy is annulment under Article 1334. This is
it is essential that the parties have a contract reduced vitiation of consent.]
into writing. The ‘instruments’ referred to is not the
agreement/meeting of the minds itself, only an
evidence of the agreement.] ARTICLE 1362
[NOTE: File for a declaratory relief no a petition for Unilateral mistake
reformation.]
- mistake of one coupled with fraudulent or
Rationale inequitable act of the other
- mistake on the preparation of the document
- it would be unjust and inequitable to allow the (content, font, terms, writing) not on the giving of
enforcement of a written instrument which does the consent
not reflect or disclose the real meeting of the minds
of the parties
- to forestall the effects of mistake, fraud, inequitable
conduct, or accident ARTICLE 1363

REFORMATION ANNULMENT Unilateral mistake

No question on the No agreement because of - mistake of one who is guilty of concealment
agreement vitiated consent - mistake on the preparation also
There is mistake, fraud, Mistake, fraud, inequitable
inequitable conduct, or conduct, or accident
accident in the contract as prevented the meeting of
written the minds ARTICLE 1364
Does not invalidate a Invalidates a contract Failure to convey the true intent of the parties through
contract the ignorance. lack of skill. or bad faith of the drafter of the
To establish the true To render inefficacious the instrument or the clerk or the typist
agreement of the parties, contract
not to create a new
contract
ARTICLE 1365
Intent to have a mortgage or pledge
Requisites for the action for reformation
- ask for reformation when the instrument states
1. There must be a meeting of the minds
that the property is sold absolutely or with a right
2. The true intention is not expressed in the
to repurchase
instrument
Reason: Sale is more burdensome because
3. There is mistake, fraud, inequitable conduct, or
rights are transferred.
accident
4. The aforementioned affected the drafting of the
instrument but not the meeting of the minds
ARTICLE 1366
No reformation (one who questions has nothing to do and
ARTICLE 1360 has no right to the contracts):
Civil Code prevails over the principles of the general law on 1. Simple donations inter vivos wherein no
the reformation of instruments, in case of conflict. condition is imposed
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OBLIGATIONS & CONTRACTS NOTES (ATTY. CAPILI LECTURES)

- the cause or consideration is pure liberality Chapter 5

- one has no right to demand INTERPRETATION OF CONTRACTS

2. Wills ! ARTICLE 1374

- the making of a will is strictly a personal act
which is free
- a notary public is not allowed to keep copies
because the heirs can easily go to them and
complain about their shares
- what the parties can do is to participate in the
probate of the will
Doctrine of Complementary Contracts Construed
Together
- an accessory contract must be read in its entirety
and interpreted together with the principal
agreement

3. Void agreements
- such procedure would be useless since there is
nothing to reform

ARTICLE 1367
No reformation
- when one of the parties brought an action to
enforce the instrument; basis is estoppel, waiver,
or ratification

ARTICLE 1368
Who can petition
1. if mistake was mutual, either party or his
successors in interest
2. in all other cases, the injured party or his heirs
and assigns
Prescriptive period: 10 years (if filed after, you are already
bound by it)

ARTICLE 1369
Procedural rules: ROC; Rule 63 – Declaratory Relief

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OBLIGATIONS & CONTRACTS NOTES (ATTY. CAPILI LECTURES)

Chapter 6 - Q: Does the debtor’s fraudulent act give rise to the

RESCISSIBLE CONTRACTS creditor’s right to ask for rescission?
A: No. Not all fraudulent acts of the debtor will give
ARTICLE 1380 the creditor the right to ask for accion pauliana. The
fraudulent act may have nothing to do with the
Rescission contract between them.
- a contract is valid and enforceable until there is a - ‘Creditor’ need not be the actual creditor; can be:
court order declaring or rendering it to be  Heirs (contracts that intend to alienate
rescinded properties that will impair inheritance) –
- certain persons are injured or damaged; for purposes of asking rescission of the
extrinsic defect donation
- only the injured party can ask for rescission  Lessee (right of first refusal) – attended by
bad faith (substantial interest; prejudiced
[NOTE: The Court will not necessarily grant whole by the sale to third person also in bad
rescission. The Court can choose partial rescission if faith)
there is sufficient ground.] - badges of fraud only indicators, not conclusive
proof of intent to defraud
Important principles under rescission 4. those which refer to things under litigation, entered
1. Valid contracts into by defendant without knowledge and approval of
2. Remedy of last resort – do not ask for rescission if the litigants or of competent judicial authority
there are other remedies - the object is in custodia legis (control of the court)
3. The court will not necessarily rescind the whole - anybody who conspired will be liable
contract – only to the extent necessary (Article 5. all other contracts specially declared by law
1384)
4. If you file, be ready to return the object of the
contract (restitution) ARTICLE 1382
5. File within 4 years
Premature payments made in a state of insolvency
Effects of rescission
Q: Why did he volunteer to pay when the debt is subject to
1. terminates the contract time or period?
2. releases the parties from further obligations
3. abrogates the contract from its inception A: Because iniiwasan or tinatakasan yung demands ng other
4. restores the parties to their original position as if creditor.
no contract has been made

ARTICLE 1381
Enumeration of rescissible contracts
1. those entered into by guardians in behalf of wards who
suffer lesion by more than ¼ of the value of the things
which are the object of the contracts
- economic damage or lesion, e.g. the guardian sold
a property worth 1M for 500k (50% damage)
- unless approved by the court
2. those agreed upon in representation of absentees who
suffer lesion stated in the first enumeration
- also economic damage or lesion
3. those undertaken in fraud of creditors who cannot in
any other manner collect the claims due them
- the action to be filed is a petition to rescind
through accion pauliana
- intent to defraud creditors; no minimum damage
or actual damage required
ARTICLE 1383
Rescission is not a principal remedy
General rule: Exhaust all remedies first before filing an
action for rescission.
Exception: When the party suffering damage has no other
legal means to obtain reparation for the same.
[NOTE: If the debtor has other properties, the creditor
cannot choose. The debtor is merely negotiating the
other properties.]
ARTICLE 1384
Partial rescission – only if there is sufficient ground; the
contract must be divisible
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OBLIGATIONS & CONTRACTS NOTES (ATTY. CAPILI LECTURES)
ARTICLE 1385
Principle of mutual restitution
- rescission creates the obligation to return the
things which were the object of the contract,
together with their fruits, and the price with its
interest
- the one who demands must be ready to return
what he has received
[NOTE: If the object cannot be returned, the petition for
rescission should be dismissed. Damages is the
remedy.]
[NOTE: A third person who acquired the object in good
faith may ask for rescission because there is nothing to
lose in that contract, i.e. donation.]
ARTICLE 1386
Effect if contracts were judicially approved
- rescission shall not take place (nos. 1 and 2, Article
1381)
- Who will rescind when the court already
approved?
- one court cannot mutualize the decision of another
court
- the remedy would be appeal or certiorari
ARTICLE 1387
Statutory presumption of fraud (bad faith): rebuttable;
good faith is always presumed
Gratuitous alienations
- presumed fraudulent when the debtor did not
reserve sufficient property to pay all debts
contracted before the donation
Onerous alienations
- presumed fraudulent when made by persons:
 against whom some judgment has been
rendered in any instance (even if not yet a
final judgment or still on appeal) or
 against whom some writ of attachment has
been issued
[NOTE: There is not presumption if the creditor has
other means to collect or when the debtor has other
means to pay.]
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[NOTE: There is a presumption but the creditor is still
given burden of proof that the debtor has intent to
defraud him.]
Badges of fraud – rules by which the fraudulent
character of the transaction may be determined
1. The consideration or conveyance is fictitious or
inadequate
2. A transfer made by a debtor after suit has begun
and while it is pending against him
3. A sale upon credit by an insolvent debtor
- Bakit pinautang pa eh may utang na nga siya?
There really is intent to defraud his creditor.
4. The transfer of all or nearly all of his property by a
debtor, especially when he is insolvent or greatly
embarrassed financially
5. Evidence of large indebtedness or complete
insolvency
6. The fact that the transfer is made between father
and son (considered with the preceding
circumstances)
7. The failure of the vendee to take exclusive
possession of all the property
- third person is not getting the property, it is
the debtor that still uses the property
ARTICLE 1388
Transfer to third person in bad faith – liable for damages
to the creditor when it becomes impossible for him to
return due to any cause (including fortuitous event)
Q: When the creditor was able to prevent the third person
to further transfer and the property was recovered, can he
still ask for damages?
A: Yes.
Two or more alienations – first acquirer shall be liable
first and so on, successively
ARTICLE 1389
Prescriptive period for rescission
General rule: 4 years from the date the contract was
entered into
Exceptions:
1. persons under guardianship – from termination of
incapacity (age of majority; lucid interval)
2. absentees – from the time the domicile is known
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OBLIGATIONS & CONTRACTS NOTES (ATTY. CAPILI LECTURES)

Chapter 7 ARTICLE 1394

VOIDABLE CONTRACTS
Who can ratify
! ARTICLE 1390 1. Innocent party, in case of vitiated consent
Grounds for annulment 2. Guardian, in case of contracts entered into by
incapacitated persons
1. incapacity to give consent
2. vitiated consent
[NOTE: Damage or lesion is not necessary.] ARTICLE 1395

Q: Can annulment still be asked if the voidable contract is
beneficial to the minor?
A: Yes because the essence of voidable contracts is the
defect on the consent but if he is benefited, he can ratify.
[NOTE: Only the injured party can ratify. The other
party has no business to ratify it.]
Conformity of guilty party is not needed
- otherwise, ratification would no longer would
make sense
- otherwise, he may find a way of getting out of the
contract by the simple expedient of refusing to
ratify

ARTICLE 1396
ARTICLE 1391
Retroactive effect of ratification
Relatively ineffective contracts – valid between the
parties; not binding upon third persons - once ratification has taken place, annulment based
on the original defects cannot prosper
Prescriptive period – within four years - the rights of innocent third persons must be
protected and not prejudiced
The period shall begin:
1. from the time the defect of the consent ceases
(intimidation, violence, or undue influence) ARTICLE 1397
2. from the time of discovery (mistake or fraud)
3. from the time the guardianship ceases (minors or Who may ask for annulment
other incapacitated persons) - victim (whether principally or subsidiarily liable)
not the guilty person or his successor
Reason: He who comes to equity must come
ARTICLE 1392 with clean hands.
Effects of ratification [NOTE: A third party mortgagor, who is a person
subsidiarily liable, can use the minority of the debtor as
1. the action to annul is extinguished defense and initiate an action for annulment. This is
2. the right to ask for annulment is also extinguished because if the debtor cannot pay, he will become liable.]
3. the contract becomes a completely valid one
4. the contract is cleansed of its defect from the General rule: A minor can ask for annulment.
beginning
Exception: When he is guilty of active misrepresentation,
i.e. when he asserts that he is of legal age. He cannot ask for
annulment because of estoppel.
ARTICLE 1393
Kinds of ratification
ARTICLE 1398
1. Express – oral or written
2. Tacit – implied, as from conduct implying a waiver Effect of an annulment of an obligation – mutual
restitution of the thing with fruits and the price with
E.g. a minor bought land but sold the same interest
after reaching 21 years of age to a third person

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[NOTE: ‘Obligation’ is used instead of ‘contract’ because obstacle to the success of the action unless through fraud
one contract can cover several obligations.] or fault of the plaintiff
Limitations to mutual restitution: [NOTE: Here, the incapacitated party nevertheless gave
consent without active representation but the petition
1. Unjust enrichment – only proportional restitution will still not be granted. Di ko alam.]
E.g. 4 months was used up in a 1-year rent,
return only 8 months
2. If there is a law that prohibits full restitution
3. Article 1399 ARTICLE 1402

General rule: The whole contract is annulled. Duty of mutual restitution – one party cannot be
compelled to comply with what is incumbent upon him if
Exception: Joint obligations – annul only, for example, the other party does not restore what he is bound to return
minority. There is full annulment with respect to his share,
not partial; i.e. everything that pertains to the minors can be [NOTE: Annulment may be granted immediately.]
annulled.
Partial obligation to do – cannot force to undo because it
will result to involuntary servitude; if there is no
performance yet, there is nothing to return

ARTICLE 1399
General rule: There is no restitution if the defect of the
contract consists in the incapacity of one of the parties.
Exception: When he has been benefited by the thing or
price received by him.

ARTICLE 1400
Duty to return the thing cannot be done because of loss
through fault of the person obliged
- return the fruits received and the value of the
thing at the time of loss, with interest from the
same date
[NOTE: If the thing is generic, it cannot be considered
lost. If the thing is determinate, the person is not liable
if through fortuitous event but if through his fault, he
must return the value at the time it was lost plus fruits
and interest.]

ARTICLE 1401
Effect of loss of object through fraud or fault of victim –
action for annulment shall be extinguished
[NOTE: The victim can still file for annulment if the
object is lost through fortuitous event.]
Right of action based upon incapacity of any of the
contracting parties – loss of the thing shall not be an

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OBLIGATIONS & CONTRACTS NOTES (ATTY. CAPILI LECTURES)
Chapter 8
UNENFORCEBLE CONTRACTS
ARTICLE 1403
Unenforceable contracts
- cannot be sued upon or enforced [in court] unless
ratified; thus, as if no effect yet
- they are valid (because if void, why not just call
them void?)
[NOTE: Not all unenforceable contracts fall under the
Statute of Frauds but all covered by the Statute of
Frauds are unenforceable contracts.]
Kinds of unenforceable contracts
1. Unauthorized contracts (see Article 1317)
- entered into in the name of another person by
one:
 who has given no authority or legal
representation (one declared who is the
real owner and claimed that he is the legal
representative)
 who has acted beyond his powers (there is
authority but exceeded)
2. Contracts covered by the Statute of Frauds
- an agreement shall be unenforceable by action
unless the same or some note or
memorandum be in writing and subscribed by
the party charged or by his agent
- to prevent fraud and perjury in the
performance of certain required agreements
- there must be some writing even in a form of
note or memorandum so that it may be
enforced
3. Agreement contracts where both parties are
incapable of giving consent
[NOTE: If only one party is incapacitated and
the other has full capacity, the contract is only
merely voidable.]
Some guidelines concerning the Statute of Frauds
1. The SOF applies only to executory contracts and
not partially or completely executed.
- wholly executory, i.e. neither party has
performed their obligation yet
- partial execution does not warrant invocation
of the Statute of Frauds because it would result
to injustice and inequity
- Nag-perform na yung isa, bakit hindi mo
pwedeng ipagawa sa kabila?
2. The SOF is exclusive. It applies only to the
agreements enumerated.
- inclusio unios est exclusion alterius
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- those enumerated are enforceable even if not
in writing
3. The SOF is a personal defense. A contract
infringing it cannot be assailed by third
persons.
- invoked only by that party to a contract
4. The defense of SOF may be waived.
- by failure to object to the testimony or through
cross-examination
- must be in writing, if not in a note or
memorandum
Specific agreements under the Statute of Frauds
- limitative, i.e. if unlisted, not included
- when the party has already performed, it would be
unjustified to not allow him to collect
a. An agreement not to be performed within one year from
the making thereof.
 Mag-aaral ka sa UST tapos may gusto kang upahang
condo sa Dapitan. Nag-usap kayo nugn landlord na
sa’yo niya ipapa-rent next year since meron pang
umuupa for the rest of the school year. However,
after 1 year, may iba na palang umuupa sa unit nay
un.
- If no contract in writing, you cannot demand
because it is unenforceable.
 Obligation with a period
- If silent on period, there is no presumption
because the court can fix the period
[NOTE: It is not unenforceable if there is already
downpayment for next year’s rent. The act constitutes
partial performance.]
b. A special promise to answer for the debt, default, or
miscarriage of another.
 ‘miscarriage’ of obligation – failure to perform
 ‘special promise’ – subsidiary or collateral promise
to pay (contract of guaranty)
 involves burden on the part of the promisor; hence,
it is needed to be in writing for enforceability, not
for validity
c. An agreement made in consideration of marriage other
than a mutual promise to marry.
 breach of promise to marry is not actionable
 examples are marriage settlements and
donations propter nuptias (must be in writing)
d. An agreement for the sale of goods, chattels, or things in
action, at a price not less than five hundred pesos.
 movable property – must be in writing because
these are easy to move around… hahaha ewan
 example: contract of sale of a cellphone
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- if in writing, you are already bound by it
because there is already a contract meaning,
you cannot change your mind the next day and
say you don’t want to buy it anymore
 exception: auction sale
- even though not yet declared and not yet in
writing but it is noted in their sales book
- also, if you are considered a bidder, it is already
binding
e. An agreement for the leasing for a longer period than
one year, or for the sale of real property or of an interest
therein.
 ‘interest’ – easement, usufruct, right of a mortgage
 if there is already downpayment, deposit, or
advanced rental, the contract is considered as
partially executed (dapat wholly executory!)
 partition of property is not covered
f. A representation as to the credit of a third person.
 merely an assurance
 representation of good credit standing but not
binding
Telegram – not considered as sufficient memorandum
because important details are set out
Requirements for sufficient memorandum
1. must be clear on the following: names of the
parties, terms of the contract, subject matter, place,
signature
2. the essential requisites of a contract must appear
[NOTE: No particular form of language or instrument is
necessary to constitute a memorandum or note in
writing under the SOF. Thus, a formal deed of sale is not
necessary.]
Rule on authority of the agent to sell land or any
interest therein – if land is included, it is not automatically
covered by the SOF therefore, it can be proved by
testimonial evidence
ARTICLE 1404
Unauthorized contracts – governed by Article 1317 and
principles of agency; cured by ratification
ARTICLE 1405
Two ways of ratification (contracts under SOF)
1. failure to object to the presentation of oral
evidence or by cross-examination – deemed as a
waiver
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2. acceptance of benefits under them – does not apply
to executed or partially executed or performed
contracts
ARTICLE 1406
Right of one party to compel the other to execute the
needed instrument
- only when the contract is valid and enforceable
(note, memorandum, in writing)
- a public document is necessary for its registration;
i.e. you cannot present your prelims booklet as a
deed of sale to the Registry of Deeds or to a notary
public (proper form must be observed to be
enforced on the other party)
ARTICLE 1407
Ratification of contracts where both parties are
incapacitated (express or implied)
1. By the parent or guardian of one of the contracting
parties – voidable
2. By the parent or guardian of both contracting
parties – validated from the inception
Q: Can the parent or guardian who did not ratify ask for
annulment?
A: A and B, both 15 years old, entered into a contract. The
contract is unenforceable because both cannot give consent.
*If the parent or guardian of A ratifies (e/i) the contract,
it becomes voidable, valid unless annulled by the
parent or guardian of B.
*However, if the parent or guardian of B also ratifies,
the contract is validated right from the time it was first
entered into.
[NOTE: How can unenforceable contract be annulled?
For unauthorized contracts, apply 1317. For those
under SOF, apply 1405. For incapacitated, apply 1407.]
ARTICLE 1408
Unenforceable contracts cannot be assailed by third
persons in order to avoid liability.
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Chapter 9 ARTICLE 1411

VOID AND INEXISTENT CONTRACTS
Nullity proceeds from the illegality of the cause or
! ARTICLE 1409 object, act constitutes a criminal offense

Void: agreements which are tainted with illegality
Inexistent: agreements which lack any of the essential
requisites of a contract
[NOTE: Void and inexistent contracts take precedence
over other defective contracts.]
Important principles:
1. Void contracts produce no legal effect
2. Cannot be ratified
3. Using the defense that the contract is void can be
made anytime and cannot be waived
4. Action to declare a contract void is
imprescriptible
5. A third person whose rights are not affected
cannot question illegality
6. No need to declare it void except when there has
been performance, or affects title of any
property/when rights or interest will be affected
Void and inexistent contracts:
1. Agreements tainted with illegality – cause, object,
or purpose is contrary to law, morals, good
customs, public order, or public policy
2. Absolutely simulated or fictitious contracts
(relatively simulated contracts may also be
included)
3. Lack of essential requisites of a contract – cause or
object did not exist at the time of transaction
4. Object outside the commerce of men (e.g. parks,
military reservations, mountains)
5. Contemplates an impossible service
6. Intention of the parties relative to the principal
object cannot be ascertained – equivalent to lack of
object (see Article 1378)
7. Expressly prohibited or declared void by law (e.g.
donation by husband to wife)
[NOTE: Agreements to regularize a void contract is not
ratification. There is a new contract, it’s just that same
terms were reiterated.]
- e.g. transaction of marijuana
- both parties in pari delicto, no action against each
other and both are prosecuted
Only one of the parties is guilty
- innocent party received the illegal thing, he must
return the same to the state or to the government
- innocent party may claim what he has given and
not bound to comply with his promise
[NOTE: ‘Promise’ is used instead of ‘obligation’
because it is void, covering a legal object;
therefore, there is no obligation.]
- e.g. Pinarada mo yung kotse mo sa Dapitan tapos
nawala yung side mirror mo. May nagbenta sa’yo
ng side mirror kasi napansin niyang wala yung
isang side mirror mo. It turns out, sa’yo pala yun.
Kapag binayaran mo, dapat ma-prosecute yung
guilty party and you are allowed to recover the
money you paid.
ARTICLE 1412
Contract is void because of illegal object but no crime
committed
- e.g. violation of a socialized housing loan
Rules:
1. both parties are guilty
- no action against each other (cannot recover
what he has given nor demand performance of
the other)
- both shall be prosecuted
- instruments of the crime shall be confiscated in
favor of the government
2. only one of the parties is guilty
- guilty party cannot recover what he has given
- guilty party cannot demand fulfillment of what
has been promised him
- innocent party may demand the return of what
he has given without any obligation to comply
with his promise

ARTICLE 1410
Action or defense for the declaration of the inexistence ARTICLE 1413
of a contract is mprescriptible – you can have it declared Usury law is suspended
void anytime
- whatever excessive may be given back or be
recovered by virtue of jurisprudence (Medel)
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ARTICLE 1414 ARTICLE 1419

Instances when recovery is allowed even if in pari No waiver of right to minimum wage – recover the
delicto deficiency even if he agreed to a lower wage
1. if the purpose has not yet been accomplished
2. if damage has not yet been caused any third person
ARTICLE 1420
[NOTE: The Court will decide if any or both of the
parties are allowed to recover.] Illegal terms of a contract

Recovery is not allowed if: 1. Indivisible

- whole contract is void even if only some terms
1. Public interest is subserved are illegal
2. Purpose has been accomplished 2. Divisible
3. Damage has been caused - legal terms may be enforced if they can be
separated from the illegal terms
- ‘separability clause’
ARTICLE 1415 - Protection of client’s intention to enter into a
valid and legal contract, not an illegal one
One of the parties to an illegal contract is incapable to
give consent
- recovery of money or property may be allowed by ARTICLE 1421
the court if the interest of justice so demands Defense of illegality not available to third persons
- ‘void na nga, incapable to give consent pa’ – hadn’t
it been for the illegal object, the contract is voidable - if he is directly affected by the void contract, he
can question it
Example:
ARTICLE 1416
You cannot question the sale or transaction of marijuana
Contracts illegal per se between two persons because you are not a party thereto.
- forbidden because of public interest What you can do is report it to the authorities.

Merely prohibited contracts

- forbidden because of private interest
- recovery is permitted if the prohibition is designed
for the protection of the plaintiff and if public policy
would be enhanced
E.g. the portion which violates right to inheritance shall
not be affected by the void portions
ARTICLE 1417
Price control
- recover the amount paid in excess of the maximum
price allowed of any article or commodity
- to curb the evils of profiteering
ARTICLE 1422
Contract that is the direct result of a previous illegal
contract, also void
Example:
1st contract – yung anak ni Don Manolo ang naging object
nung contract trough trafficking
2nd contract – to apply for a visa, they made it appear that
the anak is under a contract of employment
*The 2nd contract is also void since it is an offshoot of a
previous void contract.

ARTICLE 1418
Laborer works longer than maximum hours – demand
additional compensation (OT pay)
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OBLIGATIONS & CONTRACTS NOTES (ATTY. CAPILI LECTURES)
TITLE III – NATURAL OBLIGATIONS
ARTICLE 1423
Civil obligations: can be enforced in court and ask for
damages (take note of the sources of obligations)
Natural obligations
- cannot be enforced in court and cannot ask for
damages but the obligation is there
E.g. prescribed debt – retain although no
longer enforceable
- obligation without sanction because it is based on
equity
- already lost enforceability due to certain
circumstances
Voluntary fulfillment (alam mo yet ginawa mo)
- the debtor complied with the same even if he knew
that he could not have been legally forced to do so
ARTICLE 1424
Extinctive prescription
- a right or property has been lost
- the obligor cannot recover what he has delivered
or the value of the service he has rendered
Essence: voluntary fulfillment
ARTICLE 1425
Debt already prescribed, payment by third person
without the knowledge or against the will of the debtor
- if the debtor voluntarily reimbursed, he cannot
recover
ARTICLE 1426
Contracts by minors when there has been annulment
- without parental consent
- no right to demand the thing or price he voluntarily
returned even though he has not been benefited
thereby
[NOTE: In voidable contracts, where mutual restitution
is required, a minor is not obliged to restitute except
when delegated or when he has been benefited.]
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ARTICLE 1427
Contracts by minors when there has been no
annulment yet
- no right to recover what has been voluntarily paid
or delivered in fulfillment of an obligation when the
oblige has spent or consumed it in good faith
[NOTE: If the other party acted in bad faith,
reimbursement can be asked.]
ARTICLE 1428
Winner in an action to enforce a civil obligation
- if you win the case, you do not owe the plaintiff
anything, you are not obliged because there is a
court decision
- but if you voluntary do so, you cannot recover
ARTICLE 1429
Payment of debts beyond value of the decedent’s estate
- if you receive inheritance, you cannot be held by
the creditor of your estate beyond you received,
your personal money should not answer for the
deficiency
- but if you want to, you cannot recover
ARTICLE 1430
Payment of legacies despite the will being void
- if the will is void, the legacy would also be void and
the deceased is considered to have died without a
will
- but if you voluntarily pay it to the legatee, no more
recovery
[NOTE: Legacy means personal or movable property.
Device pertains to real property.]
[NOTE: Payment is not valid, under the law on natural
obligations. If you want, result to settlement of estate
with donation.]
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OBLIGATIONS & CONTRACTS NOTES (ATTY. CAPILI LECTURES)
TITLE IV – ESTOPPEL
ARTICLE 1431
Estoppel
- a bar which precluded a person from denying or
asserting anything contrary to that which has been
established as the truth either by acts of judicial or
legislative officers or by his own deed or
representation (express/implied)
- legal principle based on equity and public policy
- there is conflict between the supposed facts or
assertion
- there is a contest of what is the real fact
General rule: It is bound only by the words or acts in
respect to that person who relied on such. It is not bound to
the whole world (mga hindi mo sinabihan, wala kayong
transaction, the assertion was not made to him).
But those who heard can be made witnesses of the
person to whom assertion was made.
Purpose:
1. aid in the administration of justice
2. shield against injustice
Elements:
1. act, assertion (utterances), omission (estoppel by
silence) which conveys a particular fact as the truth
- must be plain and clear, not ambiguous
2. intent or expectation that other party will rely on
his act or assertion
3. you have knowledge of the real facts – whatever
asserted may not be in line with the real facts
4. other party will suffer injustice or damages (if
allowed to retract)
[NOTE: Estoppel applies only to questions of fact (e.g.
who is the real owner), not to questions of law because
the Supreme Court is the final arbiter of what the law
provides.]
Estoppel in contracts – whatever you put there cannot be
retracted
E.g. You said na notices should be sent to *this address*
pero you moved without informing them. You are thus
held in default. You cannot use moving as defense.
Estoppel by silence or inaction – must be more than
innocent silence; there must be unjustifiable reason
Estoppel by laches – unreasonable delay in making a claim
in court based on equity, not on any law
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[NOTE: Equity cannot be used or applied when there is
a governing law.]
[NOTE: Negligence or omission to assert a right within
a reasonable time warrants a presumption that he
already abandoned his right or he refused to assert that
right (doctrine of state demand).]
[NOTE: If the assertion of a right is still within the
prescriptive period, one cannot assert laches.
Prescription does not apply when there is no
agreement, laches shall be used instead. Moreover, in
all other instances when prescription cannot be
properly asserted, laches is used.]
Promissory estoppel – you made a promise, the other
party relied but you did not comply, the other party
subsequently suffered damages
E.g. promised to extend – cannot assert specific
performance but may ask for damages under the
promissory note
[NOTE: It is essential that the other party must act or
must rely. Otherwise, no promissory estoppel.]
Instances when estoppel does not apply
1. Omission or neglect of government officials does
not create estoppel against the government
2. No estoppel against the government because of the
error or mistake of its agent
3. Validation of unlawful acts (e.g. euthanasia)
4. Probate proceedings (mahaba ang proseso sa mga
inheritance churva)
ARTICLE 1432
General principles of estoppel – only suppletory
ARTICLE 1433
Kinds of estoppel
1. Estoppel in pais (equitable estoppel)
- when one intentionally or through culpable
negligence, induces another to believe certain
facts to exist and the other rightfully relies and
acts on such belief who is later prejudiced by
the denial of the existence of such facts
- by conduct or by misrepresentation or
concealment
- all kinds of estoppel arising from writing on
record
2. Estoppel by deed proper (technical estoppel)
- there must be a written instrument
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- estoppel by record 3. party misled must have been unaware of the true
- estoppel by judgment as a court record facts
4. party defrauded must have acted in accordance
with the misrepresentation
ARTICLE 1434
Sale or alienation by non-owner ARTICLE 1438
- if he later acquires the title, it passes by operation Estoppel that results from acceptance of benefits
of law to the buyer or grantee; the defect is cured
- allowing someone to assumer apparent ownership
Example: of personal property
Atty. Capili sold in his own name Dean Divina’s Lexus to - the possessor is presumed to be the owner of the
Judge Gina. He also delivered it to Judge Gina. If later one, personal or movable property
Dean Divina donates the car to Atty. Capili, ownership over - no ready proof, i.e. you cannot have the receipts
the same passes to Judge Gina, not by tradition or delivery, with you all the time (difficult to ascertain
but by operation of law. ownership)

ARTICLE 1435 ARTICLE 1439

Estoppel created in representative capacity Persons bound by estoppel

- sale or alienation in representation of another, he 1. Both contracting parties

cannot set up his own title against the buyer or 2. Successors-in-interest
grantee [NOTE: Third persons cannot claim estoppel because
Example: the assertion was not made upon them.]

Atty. Capili, in representation of Dean Divina, sells to Judge [NOTE: Under the Torrens System, any registration is
Gina a car. Atty. Capili cannot afterwards allege that he was equivalent to an announcement to the whole world.
really the owner of the car and that the sale is not valid. You are estopped.]

ARTICLE 1436 fin.

Estoppel on the part of a lessee or a bailee

- you rent something, you cannot say that the lessor
or bailor is not the owner because you previously
recognized his rights

ARTICLE 1437
Estoppel concerning immovable property between
third persons where one of them is misled
- you asserted that you are not the owner, you
cannot later say that you are the owner if all the
requisites are present
Requisites:
1. fraudulent representation or wrongful
concealment of facts known to the party estopped
2. party precluded must intend that the other should
act upon the facts as misrepresented
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