Obli ppt

Revised By:
Atty. Virginio L. Valle

Course Outline
PART I – INTRODUCTION TO LAW AND BUSINESS
LAW
1) Definition of Law and Business Law
2) Sources of Business Law
3) Characteristics of Business Law
PART II – OBLIGATIONS
1) In General
a) Definition
b) Sources of Obligations
Law; Contracts; Quasi-Contracts;
Delicts or Crimes; Quasi-Delicts
c) Essential requisites of obligation
Parties; object; Juridical tie or vinculum juris

PART II – OBLIGATIONS
2) Nature and Effect of Obligation
a) According to the Object or Prestation
Obligations to give; Obligations to do;
Obligations not to do
b) Liability of Damages
Fraud – Dolo incidente; Dolo causante
Neglignce –
Delay – Mora solvendi, accipiendi, compensatio morae
Contravention of tenor of obligation

PART III – GENERAL PROVISIONS ON CONTRACT
 Contracts Defined
 Elements of Contract:
 Stages of A Contract
 Characteristics of Contracts:
 Classification of A Contract: (FROM)
 Contract Binds by Both Parties
 Cases Where Third person May Be Affected By a Contract
 Forms of Contracts
 Reformation of Instruments
 Interpretation Of Contracts
 Cause of Contracts

PART IV – DEFECTIVE CONTRACTS
 Rescissible Contracts
 Voidable Contracts
 Unenforceable Contracts
 Void or inexistent contracts

PART 1
INTRODUCTION TO LAW AND BUSINESS LAW
 1. Definition of Law and Business Law
 2. Sources of Business Law
 3. Characteristics of Business Law

Introduction to Law
 Preliminaries
In the preliminaries, the sight of a human being in his
everyday undertaking has to follow some.
The instructions that a person will learn, result to that
consciousness of following the law. As he learns the law, he
can define it, with its characteristics.

 In Philosophy, the human mind consists principally of
two faculties:
1. the Intellect – the object of which is the TRUTH.
2. the Will – the object of which is the GOOD.
The infinite truth and infinite good is infinite beauty of God.
The person was created by God and destined for God, the people
can attain the final destiny by following the law.
The laws that contained the instructions of God given to us are
the COMMANDMENTS.

Law
 The most basic, simple and concise definition of law
was defined by Sanchez Roman, a Spanish Civilist and
he defined Law as:
“A RULE OF CONDUCT , JUST AND OBLIGATORY
PROMULGATED BY LEGITIMATE AUTHORITY FOR
THE COMMON OBSERVANCE AND BENEFIT.”
 Edgardo Paras defined Law as “an ordinance of
reason promulgated for the common good by Him
who is in charge.”

Characteristics of Law
 1. A RULE OF CONDUCT
 Meaning any action, things, dictate of reason if regulated
or gathered together could become a conglomeration of
rules, regulations that can create an orderly, peaceful,
harmonious relations among the people concerned so
that in the end justice will prevail.

 2. PROMULGATED BY LEGITIMATE AUTHORITY
 That is, made known to those who are expected to follow
it. In a Republican State like the Philippines, we have
three branches of government – legislative body (like
Congress, Sanggunian) is the law-making body; the
executive body is the implementing body and the
judiciary as the enforcing body.

 3. JUST and OBLIGATORY
 Treatment of Law should be equal, regardless of sex,
creed, age and status in life and to follow the law there
should be equivalent punishment or penalties to enforce
them. The dictum “Justice delayed is Justice denied” is
commonly abused term on the relation of a criminally
inclined poor person and a moneyed person on the
treatment of the application of law. Obligatory means
any duty binding parties to perform their agreement.
(Black’s dict. P. 1074).

 4. FOR THE COMMON OBSERVANCE and
BENEFIT
 The application of law should not be titled or favoring
an individual but by the observance of all and the
benefits that may be derived from it.

Sources of Law
 1. LEGISLATIVE
 It consists of legal rights by a competent authority. In
the Philippines, being a democratic form of government,
the Legislative is the law-making body. For national
government, Congress comprising the House of
Representatives and the Senate. For provinces, the
Sangguniang Panlalawigan for every province. For a
town, the Sangguniang Pambayan or the local Municipal
council. For a Barangay level, the Sangguniang
Pambarangay.

Sources of Law
 2. CONSTITUTION
 The fundamental law that governs a nation in its
relation to its citizens. All laws must conform and
comply with the provisions of the Constitution,
otherwise it becomes unconstitutional.

Sources of Law
 3. ADMINISTRATIVE OR EXECUTIVE ORDERS,
REGULATIONS AND RULINGS
 The fundamental law that governs a nation in its
relation to its citizens. All laws must conform and
comply with the provisions of the Constitution,
otherwise it becomes unconstitutional.

Sources of Law
 4. JUDICIAL DECISIONS OR JURISPRUDENCE
 Judicial decisions or interpreting the laws or the Constitution
shall form a part of the legal system of the Philippines. (Art.
8, New Civil Code) Judicial decisions, though, are part of the
legal system in the Philippines still are not laws for if this
were so, the Courts exists for stating what the law is, but not
for giving it. Judicial decisions, though not law, are evidence
of what the law means. This is why they are part of the legal
system in the Philippines. So, f an interpretation is placed by
the Supreme Court upon a law, it constitute in a way, part of
the law since the Courts interpretation merely establishes the
legislative intent.

Sources of Law
 4. JUDICIAL DECISIONS OR JURISPRUDENCE
 Thus, our country adhere to the Doctrine of Stare
Decisis (Let it Stand), the doctrine which in reality is
“adherance to precedents” stated that once a case has
been decided, then another case involving the same
point at issue, should be decided in the same manner.
Therefore, if the Supreme Court being a Court of last
resort, has decided that a certain law passed by Congress
is constitutional, the law becomes binding and has its
full force and effect.

Sources of Law
 5. CUSTOM
 It consists of those habits and practices which through
long and uninterrupted usage have become
acknowledged and approved by society as binding rule
of conduct. Thus, it has been a custom for a person to
enter and exit a door. Once a person uses the window
for his entrance and exit, it runs counter to the custom
of use of the door. Even our Lord said as a good
shepherd, if a person does not pass the gate, he is a thief
for a marauder.

Sources of Law
 6. OTHER SOURCES
 To add, the principle of justice and equity, decisions of
foreign tribunals, opinions of text writers and even
religion may also be sources of law.

Kinds of Law
 1. DIVINE LAW
 It is formally promulgated by God, revealed or divulged to
mankind by means of direct revelation like the Ten
Commandments.

Kinds of Law
 2. NATURAL LAW
 Promulgated impliedly in our conscience and body. It is the
divine interpretation in man in the sense of justice, fairness,
right and equity by internal dictate of reason on our mind.
Like for instance, it is better to do good than to do evil for
being a God-fearing person.

Kinds of Law
 3. PHYSICAL LAW
 Refers to the act of rules governing the action and movement
of things like the law on gravity by Newton.
 4. HUMAN LAW
 Those promulgated by man to regulate human relations.
THIS CAN BE CLASSIFIED INTO:

Classification of Human Law
 A. GENERAL or PUBLIC LAW
 Body of rules which regulates the rights and duties arising from
the relationship between the State and its inhabitants.
It includes the following:
 1. International Law – consists of those rules and principles
which govern the relations and dealing of nations with each
other.
 2. Constitutional Law It simply governs the relations between
the State and its citizens.

 GENERAL or PUBLIC LAW
 3. Administrative Law – it fixes the organization and determines
the competence of the authorities that execute the law and
indicates to the individual remedies for the violation of his rights.
 4. Political Law – deals with the organization and operation of the
governmental organs of the State and defines the relations of the
state with the inhabitants of its territory.
 5. Criminal Law – guaranties the coercive power of the law so that
it will be obeyed. Governs the methods of trial and punishment of
crimes.

 B. INDIVIDUAL or PRIVATE LAW
 Those law which govern the private relation person.
It includes the following:
 1. Civil Law – branch of law which has for its double purpose
the organization of the family and the regulation of property. It
is defined as the mass of precepts which determines and
regulate the relation of assistance, authority and obedience
among the members of a society for the protection of private
interests.

 INDIVIDUAL or PRIVATE LAW
 2. Commercial Law – defined as a whole body of substantial
jurisprudence applicable to the rights, intercourse and relation
of persons engaged in commerce, trade or mercantile pursuits.
(Black’s law dict. 338)

 INDIVIDUAL or PRIVATE LAW
 3. Procedural Law – defined as the branch of law which
prescribes the method of enforcing rights or obtaining redress
for their invasion, Procedural law otherwise known as
Remedial Law, as distinguished from Substantive law which
creates, defines and regulate rights.
(Ballantine Law Dict. P. 36)

Sources of Philippine Civil Code
 1. The New Civil Code of the Philippines – the
collection of laws which regulates the private relations
of the members of civil society, determining the
defective rights and obligations with reference to
persons, things and civil acts.
 A civil code is a compilation of existing Civil Laws,
scientifically arranged into books, titles, chapters and
subheads and promulgated by legitimate authority. (Black
Law Dict. 334).

 2. Special laws or statutes, Presidential decrees and
other social legislation.
 3. Jurisprudence – there is need to mention that,
jurisprudence in our system of government, cannot be
considered as an independent source of law; but the
Court’s interpretation of a statute that constitute part
of the law as of the date it was originally passed since
the Court’s construction merely establishes
contemporaneous legislative intent, that the
interpreted law could take into effect.

 4. Customs and Traditions – Custom is a judicial rule
which results from a constant and continuous uniform
practice by the members of a social group.
 5. The Code Commission itself – A Code
commission of five members was created by Pres.
Manuel Roxas through Exec. Order No. 48 dated Mar.
20,1947 in view of the need of revision in keeping with
progressive modern legislation. The Civil Code was
finished on Dec. 15, 1947 and Congress approved the
draft on June, 1949.

Books of the Civil Code
 Book I – Person and Family Relations
 This was re-codified as Family Code of the Philippines
embodied in Exec. Order No. 209 as amended by Exec. Order
No. 227. The Family Code effectuates the long-felt reforms and
changes to the Civil Code provisions on Family relations
consistent with Filipino values, customs and traditions vis-à-vis
recent developments in the social-cultural scene. (Pineda,
Family Code).

Books of the Civil Code
 Book II – Property, Ownership and its modifications.
 Book III – Different Modes of Acquiring Ownership
(Succession)
 Book IV – Obligations and Contracts
 Book V – Special contracts
 The Civil Code begins with preliminary titles and ends up with the
repealing clause. This module is taken from the Civil Code of the
Philippines from Articles 1156 to 1422 inclusive.

Concept of Commercial Law
The commercial laws, excepting the Code of
Commerce are designated by the legislator by any mark or
sign, which determines their nature and their commercial
function, but they derive theirmercantile character from their
subject matter or their contents. In order to determine
whether a particular law or provision of law is commercial, it
is necessary to first inquire if its purpose is to govern a
relation pertaining to commercial matters and in this inquiry,
the Code of Commerce should be principally considered,
because it defines the acts and the person having a mercantile
character. Generally, all laws referring to merchants and to
commercial transactions are commercial in nature.
(Agbayani, Vol. 1 p 2)

Code of Commerce
 The Code of Commerce is only one of the remaining laws
in relation to business that has been heavily modified and
repealed by subsequent laws which originally divided into
four books.
 BOOK ONE - Merchants and Commerce in
General
 BOOK TWO - Special Commercial Contracts
 BOOK THREE - Maritime Commerce
 BOOK FOUR - Suspension of payments,
Bankruptcy and Prescription of
Actions.

Subsequent Repealing Legislation
 The following are among the important special laws
which repealed either expressly or impliedly certain
portions of the Code of Commerce.
 1. The Corporation Code – which repealed
principally the provision on sociedad/anonimas on
Book Two and the Corporation law;
 2. The Negotiable Instrument Law which repealed
principally the provisions of Promissory; Notes and
Bill of Exchange in Book Two

 3. The Insolvency law, which repealed the provisions
on Suspension of payments and Bankruptcy in Book
four;
 4. Insurance Law, which repealed the provisions on
Fire and Marine Insurance on books two and three;
 5. The Securities Act, which repealed the provisions
on Commercial Houses in Book Two;

 6. The New Civil Code which repealed the provisions on
Partnership, Agency, Sales, Loan, Deposit and Guaranty in Book
two.
 7. Other legislation, in addition to the foregoing special laws,
there wee other laws and now form part of the Commercial laws of
the Philippines: The Warehouse Receipts law; the General Bonded
Warehouse Act; the Chattel Mortgage law; the Usury law; the
General Banking Act; the Central Bank Act; The Rural Act; The
Public Service Act; Carriage of Gods by Sea Act; the Salvage law;
the Copyright law; the Patent law; the Trade-mark law; the Law on
the Use of Duly Marked Bottles, Boxes, Casks, Kegs, Barrels, and
other Similar Containers; the Business Names Law; and the Law
on Monopolies and Combinations.

 8. Provisions of the Code of Commerce still in force.
 a. Those contained in Book one governing merchants and
commerce in general, commercial registries, books and
bookkeeping of commerce and general provisions relating to
commercial contracts, except such portions thereof as have
been repealed or modified by the New Civil Code and other
legislation.
 b. Those contained in Book Two governing joint accounts,
transfers, transfers of non-negotiable credits, commercial
contracts on transportation overland; and letters of credits but
not those relating to partnership, agency, sales, loans, deposit

 8. Provisions of the Code of Commerce still in force.
 c. Those contained in Book Three governing maritime
commerce but not those relating to marine insurance which
have been repealed. All the provisions in Book four are no
longer in force as they have likewise been repealed. (Agbayani,
Vol. 1, pp3-4)

 9. Some provision of the code of Commerce which
are pertinent in our study in business in general:
 a. MERCHANTS – Merchants may be natural or juridical
person:
 In the case of natural person, he is a merchant:
 a. If he has legal capacity to engage in commerce; and
 b. He habitually engage thereto

A natural person has legal capacity to engage in commerce;
 1. If he has reached the age of twenty – one years;
 2. He is not subject to parental authority; and
 3. He has free disposition of his property.
In the case of juridical person, it is a merchant:
 a. It is a commercial and industrial company;
 b. It is organized in accordance with existing legislation and
 c. Its engaging in commerce is habitual.

 b. Habituality in engaging in commerce –
Habituality in engaging in commerce is attained when
there exists series of acts of commerce or commercial dealings.
There must be continuity of repetition of commercial acts.
However, a single act may be deemed habituality in engaging
in commerce in the way of the following acts:
1. Throwing open to the public a business entity or
establishment;

2. Announcement through circulars, newspaper, handbills,
posters and similar means of the opening of an establishment
for commercial acts or dealings with the public; or
3. Where a foreign corporation appoints an agent as required by
law.
4. A series of acts consisting of investigating and preparations of
project studies implying an intention to engage in commerce
and comes to reality.

 c. Absolute Disqualifications – The following may not
engage in commerce nor hold office or have any direct
administrative or financial intervention in commercial
of industrial companies:
1. Those suffering the penalty of civil interdiction primarily
because they are deprived of the right to mange and to
dispose of their properties inter-vivos or during their
lifetime;

2. Those judicially declared insolent while they have not
obtained their discharge;
3. Those who in account of special laws or provisions cannot
engage in commerce like incapacitated persons or
employees covered by the Civil Service law.

 d. Relative Disqualifications – These are persons who
cannot engage in commerce in places where they
exercise their functions.
1. Justices, judges, and officials of the Prosecutor’s office in
active service, except Municipal Mayors; municipal judge;
municipal prosecuting attorney’s and those who temporarily
discharge judicial or prosecuting duties;
2. Administrative, economic or military heads of districts,
provinces or post;

3. Those employed in the collection and administration of
funds of the State appointed by the Government except
those who administer and collect under contract and their
representative.
4. Stock and commercial brokers of whatever class;
5. Those who under special laws and provisions cannot trade in
specified territory.

 e. Commercial Registry
A commercial registry is a public office that
takes charge of the registration of merchants, business
associations, vessels and documents of commercial
importance. The purpose of a commercial registry is to
furnish necessary information and reliable data to any
interested party so as to promote and facilitate trade and
commercial transaction.

 f. Books of Merchants
1. Merchants must keep the following books:
a. Book of inventories and balances;
b. A journal;
c. A ledger;
d. Book or books for copies of letters or telegrams; and other
books that may be required by special laws.

 f. Books of Merchants
2. Corporation are bound to keep:
a. Record of all business transactions;
b. Minutes of all meetings of directors;
c. Minutes of all meetings of stockholders; and Stock
and transfer books.

Registration is compulsory:
 1. In case of vessel of more than three (3) tons gross
in use in Philippine waters;
 2. In case of partnership whose immovable property
is contributed by any partner to a common fund.
 3. In case of business names under the Business
Names Law.

Registration is compulsory:
 4. In case of ship agent;
 5. In case of vehicles with the Land Transportation
Office.
 6. In all other cases required by law.

Commercial Registries in the
Philippines
1. Bureau of Domestic Trade – for registration of business
names and merchants to avoid duplication of trade
names.
2. Securities and Exchange Commission – for registration of
partnership and Corporation.
3. Local municipalities, cities or province – for local permits
and licenses.
4. Office of Register of deeds – for registration all
transaction affecting lands, as well as shattel mortgage.

Philippines
5. The MARINA (Marine Industry Authority) – for
registration of vessels and other transaction affecting
vessels.
6. Intellectual property Office for registration of patents
and design as well as trade names; trademarks and
service marks;
7. Land Transportation Office for registration of patents
and designs as well as trade names; trademarks and
service marks;

Philippines
8. Office of Air Transportation Administration for
registration of aircrafts.
9. Bureau of Public Library – for registration of
copyrights;
10. Board of investment for registration of pioneer and
registered enterprises and with corporations having
foreign entity participation.

Kinds of Procedural Law
 1. Public Remedial Law – affords a remedy in favor
of the State against the individual, like criminal
procedure or in favor of the individual against the
State, like Habeas Corpus.
 2. Private Remedial Law – affords a remedy in favor
of an individual against another individual, like
the civil procedure.

Philippine Remedial Law
Principally contained in the Rules of Court, which
is a combination of rules promulgated by the Supreme
Court for the easy, orderly, adequate and effective
compliance with the law. The Rules of Court have the
force and effect of law. (Alvero V. dela Rosa, 76 Phil
428).

 COURTS DEFINED –
 It is the entity, body or tribunal vested with a portion of
the judicial power. (Lontok V. Battung 63 Phil 1054)
 JUDICIAL POWER
 Includes the duty of the courts of justice to settle actual
controversies involving rights which are legally
demandable and enforceable, and to determine whether
or not there has been a grave abuse of discretion
amounting to lack or excess of jurisdiction on the part of
any branch or instrumentality of the Government.
(Const. Art. VIII, Sec. 1, par.2)

Different Courts of Justice
1. Supreme Court
2. Sandigan-bayan
3. Court of Appeals
4. Regional Trial Court; and
5. Metropolitan / Municipal Trial Courts

Lesson 1: General Provisions on
Obligation
 The definition of obligations establishes the unilateral
act of the debtor either to give, to do or not to do as a
patrimonial obligation. It means that the debtor has
the obligation while the creditor has its rights.
 On the sources of obligation, the main sources are
really Law and Contracts. The other sources are also
established by law.

 ART. 1156. An obligation is a juridical necessity to
give, to do or not to do.
 OBLIGATIONS as defined by ARIAS RAMOS is a
juridical relation whereby a person (called the
creditor) may demand from another (called the
debtor) the observance of a determinate conduct, and,
in case of breach, may obtain satisfaction from the
assets of the latter. (Approved by Mr. Justice J. B. L.
Reyes)

The obligations referred to in our manual is a
patrimonial obligations that is, those obligations with
pecuniary value or assessable in terms of money.
1. Characteristics of patrimonial obligations:
• They represent an exclusively private interest.
• They create ties that are by nature transitory.
• They exist a power to make effective in case of non-fulfillment,
the economic equivalent obtained at the patrimony of a debtor.
1. Meaning of Juridical Necessity – it means the rights and
duties arising from obligation are legally demandable
and the courts of justice may be called upon through
proper action to order the performance.

 Action means an ordinary suit in court of justice by which
one party prosecutes another for the enforceable or
protection for a right or a prevention or redress of a wrong
( Sec. 1. Rules of court ).
Example –
Gaya bought refrigerator from Tito but Gaya did not pay
the refrigerator. If after demand, Gaya still did not pay,
Tito can sue Gaya in Court either to demand payment or
for recovery of the refrigerator.

3. Essential requisites of an obligation –
a) An active subject, who has the power to demand the prestation,
known as the creditor or oblige;
b) A passive subject, who is bound to perform the prestation,
known as debtor or obligor.
c) An object or the prestation which may consist in the act of
giving, doing or not doing something.
d) The vinculum juris or the juridical tie between the two subjects
by reason of which the debtor is bound in favor of the creditor
to perform the prestation. It is the legal tie which constitutes
the source of obligation—the coercive force which makes the
obligation demandable. It is the legal tie which constitutes the
devise of obligation… the coercive force which makes the
obligation demandable.

Juridical Tie
Debtor To give, to do Creditor
Or Obligor or not to do or Obligee
 Illustration:
Gaya enters into a contract of sale with Tito who paid
the purchase of a GE refrigerator. Gaya did not deliver
the refrigerator. Gaya is the passive subject or debtor
and Tito is the active subject or creditor. The object or
prestation is the GE refrigerator and the obligation to
deliver is the legal tie or the vinculum juris which
binds Gaya and Tito.

 This is also known as a unilateral obligation, that is, the
obligation of the debtor to fulfill or comply his commitment,
in this case, the delivery of the refrigerator.
On the other hand, if Gaya, delivered the refrigerator
and Tito did not pay, then Tito becomes the debtor who is
bound to pay while Gaya is the creditor who has the right to
demand the prestation.
4. Distinctions between Obligations and Contracts:
 Contract is the only one of the sources of obligation, while
obligations have other sources like law, quasi-contracts, delicts or
quasi-delicts;
 Contract is a bilateral obligation while obligation is a unilateral
obligation;
 All contracts are obligations while not all obligations are contracts.

5. Civil obligations as distinguished from Natural
obligations –
 Civil obligations derive their binding force from positive
law; Natural Obligation derives their binding effect from
equity and natural justice.
 Civil can enforced by court action of the coercive power of
public authority;
Natural – the fulfillment cannot be compelled by
court action but depends on the good conscience
of debtor.

 ART. 1157. Obligations arise from:
 Law;
 Contracts;
 Quasi-contracts;
 Acts or omissions punished by law; and
 Quasi-delicts. (1089a)
 ART. 1158. Obligations derived from law are not presumed.
Only those expressly determined in this Code or in special laws
are demandable, and shall be regulated by the precepts of the
law which establishes them; and as to what has not been
foreseen, by the provisions of this Book. (1090)

 ART. 1159. Obligations arising from contracts have the force of
law between the contracting parties and should be complied
with in good faith. (1091a)


 ART. 1160. Obligations derived from quasi-contracts shall
be subject to the provisions of Chapter 1, Title XVII, of this
Book.

 ART. 1161. Civil obligations arising from criminal offenses
shall be governed by the penal laws, subject to the
provisions of article 2177, and of the pertinent provisions of
Chapter 2, Preliminary Title, on Human Relations, and of
Title XVIII of this Book, regulating damages. (1092a)

 ART. 1162. Obligations derived from quasi-delicts shall be
governed by the provisions of Chapter 2, Title XVIII of this
Book, and by special law. (1093a)


Source of Obligations
1. LAW as a source of obligations –
The provisions of Art. 1158 refers to the legal
obligations or obligations imposed by specific
provisions of law, which means that obligations
arising form law are not presumed and that to be
demandable must be clearly provided for, expressly or
impliedly in the law.
Examples:
 It is the duty of the Spouses to support each other. (Art.
291, New Civil Code)
 And under the National Internal Revenue Code, it is the
duty of every person having an income to pay taxes.

Source of Obligations
2. CONTRACT as a source of obligations –
Contract as defined in Art. 1305, NCC is the meeting of minds between two
person whereby one binds himself with respect to the other,
Obligations arising from contracts have the force of law between the contracting
parties because that which is agreed upon in the contract by the parties is the law
between them, thus, the agreement should be complied with in good faith. (Art.
1159).
For examples:
A contract of lease was executed between Gaya as the lessee and Tito as the lessor
for the rent of an apartment.
 Although contracts have the force of law, it does not mean that contract are over
and above the law. Contracts are with the limitations imposed by law in Art. 1306,
NCC, it states that the contracting parties may establish such stipulations, clauses
terms and conditions as, they may deem convenient, provided that are not
contrary to law, morals, good custom, public order or public policy.

Sources of Obligations
3. QUASI-CONTRACTS as a source of obligations
The ‘quasi’ literally means ‘as if ’.
 Quasi-contract is the juridical relation resulting from a lawful,
voluntary and unilateral act which has for its purpose the
payment of indemnity to the end that no one shall unjustly
enrich or benefited at the expense of another. (Art. 2142, NCC)
Contracts and quasi-contracts distinguished:
 in a contract, consent is essential requirement for its validity while in
quasi-contract, there is no consent as the same is implied by law;
 contract is a civil obligation while quasi-contract is a natural
obligation.

2 Kinds of Quasi-contracts
1. Solutio Indebiti (Payment by mistake)
It is the juridical relation which arises when a person is obliged to return something
received by him through error or mistake.
Example-
Arvin owed Ian the sum of P1, 000.00. By mistake, Arvin paid P2, 000.00. Ian has the
obligation to return the P1, 000.00 excess because there was payment by mistake.
2. Negotiorum gestio (management of another’s property)
It is the voluntary management or administration by a person of the abandoned
business or property of another without any authority or power from the latter. (Art.
2144, NCC)
Example-
Victor, a wealthy landowner suddenly left for abroad leaving his livestock farm
unattended. Ramon, a neighbor of Victor managed the farm thereby incurring expenses.
When Victor returns, he has the obligation to reimburse Ramon for the expenses
incurred by him and to pay him for his services. It is bases on the principle that no one
shall enrich himself at the expense of another.

4. DELICTS or acts or omissions punished by law as a source of obligations
Acts or omission punished by law is known as Delict or Felony or Crime.
 While an act or omission is felonious because it is punished by law, the criminal act
gives rise to civil liability as it caused damage to another.
Civil liability arising from delicts:
 Restitution – which is the restoration of or returning the object of the crime to the injured
party.
 Reparation – which is the payment by the offender of the value of the object of the crime,
when such object cannot be returned to the injured party.
 Indemnification – the consequential damages which includes the payment of other
damages that may have been caused to the injures party.
Illustration:
 Mario was convicted and sentenced to imprisonment by the Court for the crime of
theft, the gold wrist watch, of Rito. In addition to whatever penalty that the Court
may impose, Mario may also be ordered to return (restitution) the gold wrist watch
to Rito. If restitution is no longer possible, for Mario to pay the value (reparation)
of the gold wrist watch. In addition to either restitution or reparation, Mario shall
also pay for damages (indemnification) suffered by Rito.

5. QUASI-DELICTS as a source of obligations
 Concepts of Quasi-Delict –
Quasi-delict is one where whoever by act or omission causes
damage to another, there being fault of negligence, is
obliged to pay for the damage done. Such fault of
negligence, if there is no pre-existing contractual relation
between the parties. (Art. 2176)
Example-
If Pedro drives his car negligently and because of his
negligence hits Jose, who is walking on the sidewalk of the
street, inflicting upon him physical injuries. Then Pedro
becomes liable for damages based on quasi-delict.

6. DELICTS or acts or omissions punished by law
as a source of obligations
 Acts or omission punished by law is known as Delict or
Felony or Crime.
 While an act or omission is felonious because it is punished by
law, the criminal act gives rise to civil liability as it caused damage
to another.
 Civil liability arising from delicts:
 Restitution – which is the restoration of or returning the
object of the crime to the injured party.
 Reparation – which is the payment by the offender of the
value of the object of the crime, when such object cannot
be returned to the injured party.

Requisites of a quasi-delicts -
 There must be fault of negligence attributable to the
offended;
 There must be damage or injury caused to another;
 There is no pre-existing contract.

 Negligence Defined –
is the failure to observe for the protection of the
interests of another person, that degree of care, precaution
and vigilance which the circumstances justly demand,
whereby such other person suffers injury. (Judge Cooley)
Test of Negligence –
For the existence of negligence, the following are
necessary:
 a duty on a party of the defendant to protect the plaintiff from
the injury of which the letter complains;
 a failure to perform that duty; and
 an injury to the plaintiff through such failure.

Kinds of Negligence
 Culpa Aquiliana, also known as quasi-delict or
negligence as a source of obligation.
 Culpa contractual or negligence in the performance of a
contract.

 An illustration showing this difference is founding Gutierrez
vs. Gutierrez, 56 Phil 177-
 While trying to pass each other on a narrow bridge, a passenger truck
and private automobile collided, and the plaintiff, a passenger in the
truck, was injured.
 The owner of the passenger truck was made a defendant, although a
driver was driving the truck and the owner of the car was also made a
defendant, although he was not in the car but which was being driven
by his 18 year old son and in which members of his family were then
riding. The court found both drivers negligent, basing basing the
liability of the owner of the truck to the plaintiff on the contract of
carriage; while the liability of the owner of the car was based on Quasi-delict
of the Civil Code. As against the owner of the truck, there was
Culpa contractual, while as against the owner of the car there was
culpa Aquiliana.

LESSON 2: NATURE AND EFFECT
OF OBLIGATIONS
 ART. 1163. Every person obliged to give something is also
obliged to take care of it with the proper diligence of a good
father of a family, unless the law or the stipulation of the
parties requires another standard of care. (1904a)
 ART. 1664. The creditor has a right to the fruits of the thing
from the time the obligation to deliver it arises. However,
he shall acquire no real right over it until the same has been
delivered to him. (1905)
 ART. 1165. When what is to be delivered is a determinate
thing, the creditor, in addition to the right granted him by
article 1170, may compel the debtor to make the delivery.

 If the thing is indeterminate or generic, he may ask that
the obligation be complied with at the expense of the
debtor.
 If the obligor delays, or has promised to deliver the
same thing to two or more persons who do not have the
same interest, he shall be responsible for any fortuitous
event until he has effected the deliver. (1906)
 ART. 1166. The obligation to give a determinate thing
includes that of delivering all its accessions and
accessories, even though they may not have been
mentioned. (1097a)

Obligations of the Debtor To Give a
determinate thing-
1. To preserve or take care of the thing with the proper
diligence of a good father of a family. It means the
ordinary diligence that a prudent man would exercise in
taking care of his own property taking into consideration
the nature of the obligation, of the time and of the place,
like a person who is obliged to deliver a determinate
horse to another should, pending its delivery, preserve it
by taking care of the same as if the horse is his own.

determinate thing-
 To deliver the object or thing when the obligation to
deliver arises, including:
1. Fruits of the thing if any. Kinds of fruits: Natural;
industrial or civil.
 Natural - spontaneous product of the soil; the young and
other products of animal. E.g. tress, plants on lands without
he intervention of man.
 Industrial- produced by lands of any king through cultivation
and labor. E.g. sugar cane, vegetables, rice.
 Civil - derived by virtue of juridical relations. E.g. rents of
a building; prices of leases of lands and other similar income.

determinate thing-
2. Accessions and accessories.
 Accession – is the right pertaining to the owner of a thing
over its products and whatever is attached thereto either
naturally or artificially.
Example-
 Accretion which refers to the gradual and addition of
sediment to the shore by action of water.
 Accessories – are those things which are joined attached to
the principal object as ornament or to render it perfect.
Example-
 Radio attached to a car; or key to a car.

determinate thing-
3. To be liable for damages in case of breach of obligation (Art. 1170,
NCC)
 When creditor acquire a right to the thing to be delivered and its fruits-
The creditor has a right to the fruits of the thing from the time
the obligation to deliver it arises. However, he shall acquire no real
right over it until the same have been delivered to him. (Art. 1164, NCC)
Example – a binds himself to sell his horse to B for fro P10, 000. No date
nor condition is stipulated for delivery of the horse. Later, the horse
gave birth to a colt. A has right to the colt, if B has not paid the horse.
Before delivery, B does not acquire ownership over it.

Definition of terms:
1. Determinate thing – a thing is determinate when it is
particularly designated or physically segregated from
all others from the same class. (Art. 1460, NCC)
2. Indeterminate or generic thing – A thing is generic
when it refers to a class or thing or genus and cannot
be designated with particularity. (Art. 1460, NCC)
3. Fortuitous Events – those events which could not be
foreseen or which though foreseen were inevitable.
(Art. 1174, NCC)

 Art. 1167. If a person obliged to do something fails to do
it, the same shall be executed at his cost.
 This same rule shall be observed if he does it in
contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been
poorly done be undone. ( 1098 )

Obligation of the debtor To Do
Being a personal positive obligation, The creditor
has the right to secure the services of third person to
perform the obligation at the expense of the debtor
under the following instances:
 When the debtor fails to do the obligation;
 When the debtor performs the obligation but contrary
to the tenor; or
 When the obligor poorly performs the obligation.

 ART. 1168. When the obligation consists in not doing, and the
obligor does has been forbidden him, it shall also be undone
at his expense, (1099a)
 Obligation of the Debtor NOT To Do –
This is negative personal obligation which is consisting of an
obligation, of not doing something. If the debtor does what has
been forbidden him to do, the obligee can ask the debtor to have it
undone. If it is impossible to undo what was done, the remedy of
the injured party is for an action of damages.
Example-
A bought a land from B. It was stipulated that A would not construct
a fence in a certain portion of his land adjoining that land sold by B.
Should A construct a fence in violation of the agreement, B. can
bring an action to have the fence remove at the expense of A.

 ART. 1169. Those oblige to deliver or to do something incur in
delay from the time the obligee judicially or extra - judicially
demands from theme the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in
order that delay may exist:
( 1 ) When the obligation or the law expressly declares; or
( 2 ) When from the nature and the circumstances of the
obligation it appears that the destination of the time when the
thing is to be delivered or the service is to rendered was controlling
motive for the establishment of the contract; or
( 3 ) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other
does not comply in a proper manner with what is incumbent upon
him. From the moment one of the parties fulfills his obligation,
delay by the other begins. ( 1100a )

Delay ( Mora )
means a legal delay or default and it consists of failure
discharge a duty resulting to one’s own disadvantaged.
 The debtor incurred delay if:
 The debtor fails to perform his obligation when it falls due; and
 A demand has been made by the creditor judicially or extra
judicially.
Example –
Gaya obliged herself to deliver a determinate horse to Tito on
June 20. this year. Gaya failed to delivered on the agreed date, Is
Gaya already on delay on June 20, only when Tito makes a
judicial or extra-judicial demand and from such date of
demand when Gaya is on default or delay.

 However, there are instances when the demand by the
Creditor is not necessary to place the debtor on delay:
1. When the obligation expressly so provides
The mere fixing of the period is not sufficient to
constitute a delay. An agreement to the effect that
fulfillment or performance is not made when the
obligation becomes due, default or delay by the debtor
will automatically arise.

2. When the law so provides
The express provision of law that a debtor is in default.
For instance, taxes must be paid on the date
prescribed by law, and demand is not necessary in
order that the taxpayer is liable for penalties.
3. When time is of the essence
Because time is the essential factor in the fulfillment of
the obligation. Example, Gaya binds herself to sew
the wedding gown of Maya to be used by the latter on
her wedding date. Gaya did not deliver the wedding
gown on the date agreed upon. Even without
demand, Gaya will be in delay because time of the
essence.

4. When demand would be useless
 When the debtor cannot comply his obligation as when it is
beyond his power to perform. Like when the object of the
obligation is lost or destroyed through the fault of the debtor,
demand is not necessary.
5. In a reciprocal obligation, from the moment one of
the parties fulfills his obligation, delay to the other
begins
 For instance, in a contract of sale, if the seller delivers the object to
the buyer and the buyer does not pay, then delay by the buyer
begins and vice versa, if the buyer pays and the seller did not
deliver the object, then the seller is on delay.

Kinds of delay –
 Mora solvendi – delay on the part of the debtor.
 Mora accipiendi – delay on the part of the creditor, like
when the creditor unjustifiably refused to accept
payment at the time it was due, is in delay.
 Compensatio morae – delay both parties in a reciprocal
obligation.

ART. 1170. Those who in the performance of
their obligations are guilty of fraud, negligence, or
delay, and those whoin any manner contravene the
tenor thereof, are liable for damages. (1101)
ART. 1171. Responsibility arising from fraud is
demandable in all obligations. Any waiver of an
action for future fraud is void. (1120a)
ART. 1172. Responsibility arising from
negligence in the performance of every king of
obligation is also demandable, but such liability
may be regulated by the courts, according to the
circumstances. (1130)

ART. 1173. The fault or negligence of the obligor
consists in the omission of that diligence which is
required by the nature of the obligation and
corresponds with the circumstances of the persons,
of the time and of the place. When negligence shows
bad faith, the provisions of articles 1171 and 2201,
paragraph 2, shall apply.
If the law or contract does not state the diligence
of which is to be observed in the performance, that
which is expected of a good father of a family shall be
required. (1104a)

Sources of liability for damages:
1. Fraud (dolo) – is the intentional deception made by one
person resulting in the injury of another.
 The fraud referred to is incidental fraud, that is, fraud
incident to the performance of a pre-existing obligation.
2. Negligence (culpa) – consists in the omission by the
obligor of that diligence which is required by the nature
of the obligation and corresponds with the
circumstances of the person, of the time and of the
place. (Art. 1173, NCC)

Sources of liability for damages:
3. Delay (Mora) – like when there has been judicial or extra-judicial
demand and the debtor does not comply his
obligation, delay will occur.
4. In contravention of the tenor of the obligation – refers to
the violation of the terms and conditions or defects in the
performance of the obligation, like when a landlord fails
to maintain a legal and peaceful possession of a tenant
being leased by the latter because the landlord was not
the owner and the real owner wants to occupy the land,
there is contravention of the tenor of the obligation.

Other sources of liability for
damages –
 Loss of the thing with the fault of debtor.
 Deterioration with the fault of debtor. (Art. 1189)

Kinds of Damages
1. Moral damages – include physical sufferings, mental
anguish, fright, serious anxiety, besmirched
reputation, wounded feeling, moral shock, social
humiliation and similar injury.
2. Exemplary damages – imposed by way of example or
correction for the public good.
 Like in quasi-delicts, if the defendant acted with gross
negligence. (Art. 2231, NCC)

Kinds of Damages
3. Nominal damages – are adjudicated in order that a right
of the plaintiff, which has been violated by the
defendant, may be vindicated or recognized and not for
the purpose of indemnifying the plaintiff for any loss
suffered by him. (Art. 2221, NCC)
4. Temperate or moderate damages – are more than
nominal but less than compensatory damages may be
recovered when the courts finds that its amount cannot,
from the nature of the case, be proved with certainty.
Pecuniary loss means loss of money, or of something by
which money or something of money value may be
acquired. (Black Law Dict. P. 1131)

Kinds of Damages
5. Actual or compensatory damages – except as provided
by law, or a stipulation, one is entitled to an adequate
compensation only for such pecuniary loss suffered by
him as he has duly proved. (Art. 2199, NCC)
 Damages may be recovered:
 For loss or impairment of earning capacity in cases of temporary
or permanent personal injury;
 For injury, to the plaintiff ’s business standing or commercial
credit.

Kinds of Damages
6. Liquidated damages – are those agreed upon by
parties to a contract to be paid in case of breach
thereof. (Art. 2226, NCC)

Distinguish Fraud (Dolo) from
Negligence (culpa)
1. Dolo – there is deliberate intent to cause damage or injury.
Culpa – ther is no deliberate intent to cause damage.
2. Dolo – waiver of liability of future fraud is void.
Culpa – waiver may in some cases be allowed.
3. Dolo – fraud must be clearly proved.
Culpa – presumed from breach of contractual obligation.
4. Dolo – liability cannot mitigated by the courts.
Culpa – may be reduced according to circumstances.

 ART. 1174. Except in cases expressly specified
by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall
be responsible for those events which could not
be foreseen, or which, though foreseen, were
inevitable (1105a)

 Fortuitous even – is an event which cannot be foreseen which
though foreseen is inevitable.
Fortuitous event proper are acts of God such as volcanic
eruption, earthquake, lightning, etc. is now similar with force
majuere or acts of man such as conflagration, war, robbery, etc.
1. Requisite necessary to constitute fortuitous event
 The failure of the debtor to comply with the obligation must be
independent from the human will;
 The occurrence makes it impossible for the debtor to fulfill the
obligation on a normal manner, and the obligor did not take part
as to aggravate the injury of the creditor. (Vasquez v.C.A. G.R.
42926)

2. As a general rule, no person shall be held responsible
for fortuitous events
 Example – Gaya obliged herself to deliver a determine car
to Tito on Dec. 30, 1998. Before the arrival of the period,
the car was struck by lightning and was totally destroyed.
Gaya cannot be held responsible for the destruction of the
car, hence her obligation to deliver is extinguished.

 Exceptions (when the person is responsible despite the
fortuitous even).
a. When the law expressly so provides, such as:
 The debtor is guilty of fraud, negligence or in contravention of the tenor
of the obligation. (Art, 1170, NCC)
 The debtor has proved to deliver the same thing to two or more persons
who do not have the same interest. ( Art. 1165,NCC )
 The thing to delivered is generic.
 The debtor is guilty of default or delay. ( Art. 1169,NCC )
 The debtor is guilty of concurrent negligence.
b. When declared by stipulation;
c. When the nature of obligation requires the assumption of
risk. An example of this is a contract of insurance.

 ART. 1175. Usurious transaction shall be governed by special
laws.
 Note: C.B. Circular No. 905 suspends the ceilings in the usury law.
Hence, parties can agree as to the rate of interest.
 Kinds of interest
1. Conventional *The rate which is agreed upon by the
parties.
2. Legal Interest *The rate which is prescribed by law.
3. Lawful Interest *The rate which is agreed upon by the
parties but which rate is within the
rate authorized by law.
4. Usurious Interest *The rate which is in excess of the
maximum rate of interest allowed by
law.

ART. 1176. The receipt of the principal by the
creditor without reservation with respect to the
interest, shall give rise to the presumption that said
interest has been paid.
The receipt of a later installment of a debt
without reservation as to prior installments, shall
likewise raise the presumption that such
installments have been paid. (1110a)
Presumption means “the inference as to the
existence of a certain fact which if not contradicted is
considered as true.”

The presumption in the above article is a disputable
presumption, whereby one which can be contradicted by
presenting proof to the contrary while a conclusive
presumption does not admit any evidence or proof,
hence, it is considered as a fact.
 Presumption under this article:
1. Receipt of the principal, without reservation as to the
interest, shall give rise to the presumption that the said
interest has been paid.
2. When the creditor issues a receipt of a later installment
of a debt without reservation as to prior installment is
presumed to have been paid.

 ART. 1177. The creditors, after having pursued the property in
possession of the debtor to satisfy their claims, may exercise all the
rights and bring all the actions of the latter for the same purpose,
save those which are inherent in his person; they may also impugn
the acts which the debtor may have done to defraud them. (1111)
 Rights of Creditors –
In order to satisfy their claims against the debtor, creditors have the
following successive rights:
1. to levy by attachment and execution upon all the property of the debtor,
except such as are exempt by law from execution;
2. to exercise all the rights and actions of the debtor, except, such as are
inherently personal to him; and
3. to ask for the rescission of the contracts made by the debtor in fraud of
their rights.

 ART. 1178. Subject to the laws, all rights acquired in
virtue of an obligation are transmissible, if there
has been no stipulation to the contrary. (1112)
 As a rule, all rights acquired in virtue of an obligation are
transmissible, except in the following cases:
1. When the law so provides.
2. When the parties stipulate otherwise – by agreement of
parties that the rights acquired by them will not be
transmitted to any other person.
3. When the obligation is purely personal in nature.

LESSON 3: Kinds of Obligations
Classification of Obligations:
 The Civil Code classifies obligations primarily into: (PU CO
PE ALFA JOS DIP)
1. Pure;
2. Conditional;
3. With a period;
4. Alternative;
5. Facultative;
6. Joint;
7. Solidary or several or in solidum;
8. Divisible;
9. Indivisible;
10. With a penal clause.

 Other provisions of the Civil Code, however, impliedly
admit other classes of obligations, to wit:
a.) Unilateral and bilateral;
b.) determinate and generic;
c.) legal, conventional and penal;
d.) real and personal

 Section I. – Pure and Conditional Obligations
ART. 1179. Every obligation whose
performance does not depend upon a future or
uncertain event, or upon a past event unknown to
the parties, is demandable at once.
Every obligation which contains a resolutory
condition shall also be demandable, without
prejudice to the effects of the happening of the
event. (1113)

1. Pure Obligation – when the obligation contain no term
or condition whatever upon which depends the
fulfillment of the obligation contracted by the debtor.
 It is immediately demandable and there is nothing to
exempt the debtor from compliance therewith.
 Example – Gaya obliged herself to pay her loan of P1,000 to Tito
on demand.
 Instances when obligations immediately demandable:
1. It is a pure obligation;
2. It is subject to a resolutory condition;
3. It is subject to resolutory period.

2. Conditional Obligations – one which is subject to a condition of
one whose performance depends upon a future or uncertain
events or upon past event unknown to the parties.
ART. 1180. When the debtor binds himself to pay
when his means permits him to do so, the obligation
shall be deemed to be one with the period, subject to the
provisions of article 1197.(n)
Example –
A promissory note states that “This is to acknowledge receipt
of sum of One thousand Six Hundred pesos (P1, 600.00) and I am to
pay my debt to Arvin as soon as possible or as soon as I have the
money.” It was held that the conditional obligation is void, because
the collection would be impossible, the remedy of the creditor is to
ask the Court to fix the period of payment, thus, it becomes an
obligation with a period.

 ART. 1181. In conditional obligations, the acquisition of rights as
well as the extinguishment or loss of those already acquired, shall
depend upon the happening of the event which constitutes the
condition. (1114)
 ART. 1182. When the fulfillment of the condition depends upon
the sole will of the debtor, the conditional obligation shall be void. If
it depends upon chance or upon the will of a third person, the
obligation shall take effect in conformity with the provisions of this
code. (1115)
 ART. 1183. Impossible conditions, those contrary to good
customs or public policy and those prohibited by law shall annul the
obligation which depends upon them. If the obligation is divisible,
that part thereof which is not affected by the impossible or unlawful
condition shall be valid,
 The condition not to do an impossible thing shall be considered
as not having been agreed upon. (1116a)

 ART. 1184. The condition that some event happen at a
determinate time shall extinguish the obligation as soon as
the time expires or if it has become indubitable that the event
will not take place. (1117)
 ART. 1185. The condition that some event will not happen
at a determinate time shall render the obligation effective
from the moment the time indicated has elapsed, or if it has
become evident that the event cannot occur.
 If not time has been fixed, the condition shall be deemed
fulfilled at such time as may have probably been
contemplated, bearing in mind the nature of the obligation.
(1118)
 ART. 1186. The condition shall be deemed fulfilled
when the obligor voluntarily prevents its fulfillment. (1119)

Kinds or classifications of
condition:
1. Suspensive and Resolutory
 Suspensive – the happening of the condition gives rise to an obligation.
Example:
Maya binds herself to deliver a determinate car to Tito if he marries Gaya. The
obligation is only demandable upon the happening of the condition that is, if
Tito marries Gaya. The obligation is suspended and not yet demandable.
 Resolutory – the happening of the condition extinguishes the obligation
already existing.
Example:
Arvin binds himself to lend his only car to Ian until the latter passes the CPA
Board. The obligation to lend is immediately demandable. Ian’s right over the
car is extinguished upon his passing the CPA board. Ian is now obliged to
return the car.

condition:
2. Potestative, Casual and Mixed
 Potestative – is one the fulfillment of which depends upon the sole will of the debtor.
This kind of condition is void.
Example:
Arvin Promise to give his only parcel of land to Maya if he decides to leave for the United
States.
 Casual – is one the fulfillment of which depends upon chance.
Example:
Mario agrees to give Maria a determinate car if Maria’s only racing horse will win the
sweepstake race.
 Mixed – is one which depends partly upon the will of third person and partly upon chance
Example:
Vincent promise to give Victor a new Toyota Car if Victor will be able to play with and
beat Karpov in a game of chess. This is mixed condition, that is Karpov willingness to
play chess with Victor and the latter’s winning over Karpov.

condition:
3. Possible and Impossible
Impossible condition is divided into 2:
a) Physical Impossibility – the condition imposed is not capable of being
performed physically.
Example:
Grace will give Christine a gold necklace if she swims across the
Pacific Ocean.
b) Illegal Impossibility – when the condition imposed is contrary to law, good
custom or public policy.
Example:
1. Contrary to law – Pedro agrees to give Ernesto P100,000 if Ernesto will
kill Mario.
2. Contrary to good custom – Santos binds himself to give Maria a gold
wrist watch if she will cohabit with Mr. Reyes without benefit of marriage.
3. Contrary to public policy – Maria agrees to employ Grace in her
company if Grace will not join a labor union.

condition:
4. Positive and Negative:
A Negative condition is one where some event will not happen at a
determinate time, either
a.) the time indicated has elapsed; or
b.) it has become evident that the event cannot occur (Art.
1185, NCC)
Example:
Victor will give Jason a car if he will not marry Helen until Dec.
19, 2001, if Jason has not married Helen until Dec. 19, 2001 or if Helen
has died within the prescribed time without having married to Jason,
the obligation becomes demandable. If Jason married Helen within the
prescribed time, the obligation of Victor is extinguished.

condition:
5. Divisible and Indivisible
 Divisible – that part of obligation which is not affected by
impossible or unlawful condition shall be valid (Art. 1183, NCC)
Example-
X promise to pay Y the sum of P1, 000.00 if Y furnishes X with
information as to the whereabouts of Z and another sum of P2,
000.00 if Y kills Z. in the obligation, the first part (to pay P1,
000.00) is valid while the second part (P2, 000.00) is void
because only the latter is affected by the condition.
6. Express and Implied

 ART. 1187. The effects of a conditional obligation
to give, once the condition has been fulfilled, shall
retroact to the day of the constitution of the obligation.
Nevertheless, when the obligation imposes reciprocal
prestations upon the parties, the fruits and interests
during the pendency of the condition shall be deemed to
have been mutually compensated. If the obligation is
unilateral, the debtor shall appropriate the fruits and
interests received, unless from the nature and
circumstances of the obligation it should be inferred
that the intention of the person constituting the same
was different.
 In obligations to do and not to do, the courts shall
determine, in each case, the retroactive effect of the
condition that has been complied with. (1120)

Effects of conditional obligation to
give:
 Once the condition is fulfilled, the effects of the
conditional obligations shall retroact to the day of the
constitution of the obligation and not on the date
when the condition was fulfilled.
 Example –
On Jan. 1, 1999 A agreed to give B a parcel of land if he
passes the May, 1999 CPA exams. If B passes the CPA
exams in May, 1999, he is entitled to the land effective
Jan. 1, 1999 because B’s right over the land retroacts to
the date when the obligation was constituted.

 As to the fruits and interest – The effect of conditional
obligation to give, as a rule, do not retroact to the date of the
constitution of the obligation. The following rules shall
govern:
1. In reciprocal obligation (like a contract of sale) - the fruits and
interest during the pendency of the condition shall be deemed
to have been mutually compensated.
Example:
A agrees to sell and B agrees to buy A’s parcel of
land if B passes the May, 1999 CPA exams. If B passes the
May, 1999 CPA Board, the obligation becomes
demandable. B is entitled to all the interests that his
money (with which to pay A) may earn while A is
entitled to the fruits which the parcel of land may have
produced during the pendency of the condition.

2. In unilateral obligation – the debtor shall appropriate
the fruits and interests received during the pendency
of the condition unless a contrary intention appears.
Example –
X agreed to give Y a parcel of land if Y
passes the CPA Board in May, 1999 exams.
Pending the happening of the condition, A is
entitled to the fruits which the land may produce,
A will deliver only the parcel of land if the
condition is fulfilled, unless a contrary intention
appears.

 ART. 1188. The creditor may, before the fulfillment of
the condition, bring the appropriate actions for the
preservation of his right.
The debtor may recover what during the same time
he has paid by mistake in case of a suspensive
condition (1121a)
 Preservation of Creditor’s Right –
The action for the preservation of the creditor’s right
may have for their objectives:
1. To prevent the loss or deterioration of the things which are the
objects of the obligation by enjoining or restraining acts of
alienation or destruction by the debtor himself or by third
person;

Preservation of Creditor’s Right –
2. To prevent concealment of the debtor’s properties
which constitute the guaranty in case of non-performance
of the obligation;
3. To demand security if the debtor becomes insolvent;
4. To compel the acknowledgement of the debtor’s
signature on a private document or the execution of
proper public document for registration so as to affect
third person.

Preservation of Creditor’s Right –
5. To register the deeds of sale or mortgages;
6. To set aside fraudulent alienation made by the debtor;
7. To interrupt the period of prescription by actions
against adverse possessors of the things which are
objects of the obligation. (Lawyer’s journal, 1951, p.
47)

 Paragraph I of the above article authorizes the creditor
to take any appropriate actions for the preservation of
creditor’s right during the pendency of the condition:
 Example:
On Jan. 1, 1999, Raul obliged himself to sell a parcel of land
to Dennis if he passes the CPA exams in October, 1999.
From the time the obligation was constituted and pending
the happening of the condition (passing the CPA Exams)
Dennis may cause the annotation of the condition in the
certificate of title in the Register of Deeds where the land is
located, to preserve his right over the parcel of land.

 Paragraph II in order that debtor may recover what he has paid by
mistake, during the pendency of the condition, the following
requisites may be present:
1. The debtor paid the creditor before the fulfillment of the condition;
2. Payment made by debtor was through mistake and error;
1. The action to recover what was paid by mistake should be made
before the fulfillment of the condition.
 Example –
Pedro obliged himself to pay Santos P20, 000 if a PAL plane crashes at
Cebu before Dec. 30, 1998. After the obligation was constituted and
before Dec. 30, 1998, a plane crushed in Cebu. Pedro honestly and
believing that the condition was fulfilled paid the P20, 000 to Santos. It
turned out however that it was a Cebu airline that crushed. Thus, Pedro
may recover the amount paid to Santos by mistake for the reason that
the condition has not yet been fulfilled.

 ART. 1189. When the conditions have been imposed with the
intention of suspending the efficacy of an obligation to give, the
following rules shall be observed in case of the improvement, loss
or deterioration of the thing during the pendency of the
condition:
1) If the thing is lost without the fault of the debtor, the obligation shall
be extinguished.
2) If the thing is lost through the fault of the debtor, he shall be obliged
to pay damages; it is understood that the thing is lost when it
perishes, or goes out of commerce, or disappears in such a way that its
existence is unknown or it cannot be recovered;
3) When the thing deteriorates without the fault of the debtor, the
impairment is to be borne by the creditor;
4) If it deteriorates through the fault of the debtor; the creditor may
choose between the rescission of the obligation and its fulfillment,
with indemnity for damages in either case;
5) If the thing is improved by its nature, or by time, the improvement
shall inure to the benefit of the creditor;
6) If it is improved at the expense of the debtor, he shall have no other
right than that granted to the usufructuary.

 These rules apply only to obligation to give a determinate or
specific thing subject to a suspensive condition in case of loss,
deterioration or improvement of the thing.
1. In case of loss of the thing
a) If the thing is lost without the fault of the debtor, the obligation shall
be extinguished.
Example –
Reyes obliged himself to give Santos a determinate car if he
passes the CPA Exams in Oct. the current year. If during the
pendency of the condition the car was lost through fortuitous event
without the fault of Reyes, the obligation to deliver the car is
extinguished even if the condition is fulfilled later.
b) If the thing is lost through the fault of the debtor, he shall be obliged
to pay damages. If in the example above, the specific car was lost
through the fault of Reyes, he shall be liable for damages upon the
fulfillment of the condition.

 It is understood that the thing is lost:
a) When it perishes (as when a house is burnt to ashes)
a) When it goes out of commerce (as when the object before
is unprohibited becomes prohibited)
b) When disappears in such a way that its existence is
unknown (as when a particular car has been missing for
some time)
c) When it disappears in such a way that it cannot be
recovered (as when a particular diamond ring is dropped
in the middle of the Atlantic Ocean).

2. When the thing deteriorates -
a) When the thing deteriorates during the pendency of the condition,
without the fault of the debtor, the impairment is to be borne by
the creditor.
Example –
Arvin obliged himself to give Ian a determinate Toyota car if Ian
passes the October CPA Exams. During the pendency of the
condition, the car was partially damaged by flood, without the fault
on the part of Arvin. If the condition is fulfilled, Ian will bear the
impairment.
b) If the thing deteriorates, during the pendency of the condition,
through the fault of the debtor, the creditor may choose, after the
fulfillment of the condition, between the rescission of the
obligation or its fulfillment, with indemnity for damages in either
case.

3. When the thing improved –
a) If the thing improved during the pendency of the condition, by
its nature, or by time, the improvement shall inure to the
benefit of the creditor. The reason for this is to compensate the
creditor who would suffer in case, instead of improvement,
there would be deterioration without the fault of the debtor.
b) If the thing is improved at the expense of the debtor, he have no
other right than that granted to the usufructuary. By us usufruct
is meant the right to enjoy the property of another which
includes the right to enjoy and use the fruits of the property.

 ART. 1190. When the conditions have for their
purpose the extinguishment of an obligation to give,
the parties, upon the fulfillment of said conditions,
shall return to each other what they have received.
 In case of the loss, deterioration or improvement
of the thing, the provisions which, with respect to the
debtor , are laid down to the preceding article shall be
applied to the party who is bound to return.
 As for obligations to do or not to do, the
provisions of the second paragraph of article 1187 shall
be observed as regards the effect of the
extinguishment of the obligation. (1123)

Effects When Resolutory
Condition is fulfilled
1. The obligation is extinguished. (Art. 1181, NCC)
2. Because the obligation is extinguished and considered to have had no effect,
the parties should restore to each other what they have received.
3. The fruits and interests thereon should also be returned after deducting of
course the expenses made for the production, gathering and preservation, if
any.
4. The rules given in Art. 1189, N CC will apply to whoever has the duty to return
in case of loss, deterioration or improvement of the thing.
5. The courts are given power to determine the retroactivity of the fulfillment of a
resolutory conditions.
 Example :
A gave B a parcel of land on condition that B will pass the
CPA Exams on May, this year. B did not pass the CPA Exams. The
obligation is extinguished and therefore, it is as if there was never
an obligation at all. B will therefore have to return both the land and the
fruits he had received there from the moment A has given him the land.

 ART. 1191. The power to rescind obligatios is implied
in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
 The injured party may choose between the
fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
later should become impossible.
 The court shall decree the rescission claimed,
unless there be just cause authorizing the fixing of a
period.
 This is understood to be without prejudice to the
rights of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 and the Mortgage
Law.

Right to Rescind
The right to rescind means the right to cancel or to resolve
in case of reciprocal obligation in case of non-fulfillment
on the part of one.
 Example:
In a contract of sale, the buyer can rescind if the seller does
not deliver or te seller can rescind if the buyer does not pay.
 The power to rescind is given to the injured party and the
injured party has the following alternative remedies:
1. Demand fulfillment of the obligation plus damages; or
2. Demand rescission of the obligation plus damages.

 ART. 1192. In case both parties have committed a breach
of the obligation, the liability of the first infractor shall
be equitably tempered by the courts. If it cannot be
determined which of the parties first violated the
contract, the same shall be deemed extinguished, and
each shall bear his own damages.
 Rules if Both Parties Have Committed a Breach
The above rules are deemed just. The first one is fair to
both parties because the second infract or, though they
would derive some advantage by his own act or neglect.
The second rule is likewise just, because it is presumed
that both parties at about the same time tried to reap
some benefits. (Report of the Code Commission)

 Section 2 - Obligations with a period
`
 ART. 1193. Obligations for whose fulfillment a
day certain has been fixed, shall be demandable only
when that day comes.
 Obligations with a resolutory period take effect at
once, but terminate upon arrival of the day certain.
 A day certain is understood to be that which must
necessarily come, although it may not be known when.
 If the uncertainty consists in whether the day will
come or not, the obligation is conditional, and it shall
be regulated by the rules of the preceding Section.

Period Defined –
 A period is a future and certain length of time which
determines the effectivity or the extinguished of
obligation.
 Obligation with a period is one whose consequences
are subject in one way or another to the expiration of
said period or term. (8Manresal58)
 A day certain is understood to be that which must
necessarily come, although it may not be known when.

Period and Condition
Distinguished:
a) As to fulfillment - A period is a certain event which must
happen sooner or later while a condition is an uncertain
event.
b) As to time – a period refers only to the future while a
condition may refer to a past unknown event.
c) As to influence or effect on the obligation – the period fixes
the time of the effectivity of the obligation while a condition
may cause the demandability of the obligation to arise or to
terminate.

 ART. 1194. In case of loss, deterioration or
improvement of the thing before the arrival of the
day certain, the rules in article 1189 shall be
observed. (n)
 Effect of loss, deterioration, or improvement before the
arrival of period.
Note the cross reference to Art. 1189, NCC.
 Example:
If A is suppose to deliver to B a particular car on Dec.
19, 1999 by the car was destroyed by fortuitous event
in July 1, 1999, the obligation is extinguished.

 ART. 1195. Anything paid or delivered before the arrival
of the period, the obligor being unaware of the period or
believing that the obligation has become de and
demandable, may be recovered, with the fruits and interests.
(1126a)
 Effect Of Payment Before Arrival of Period
This article which is similar to Article 1188, NCC, in an obligation to
give, allows the recovery of what has been paid by mistake before the
fulfillment of a suspensive condition.
 Example -
E owes G P20, 000.00, which was supposed to be paid on December 25 this
year. By mistake, E paid his obligation on December 25 last year. Assuming
that today is only June 30, E can recover the amount plus interest therein.
But E cannot recover, except he interest, if the debt had already matured or
if E had knowledge of the period.

 ART. 1196. Whenever in an obligation a period is
designated, it is presumed to have been established for
the benefit of both the creditor and the debtor, unless
from the tenor of the same or other circumstances it
should appear that the period has been established in
favor of one or of the other. (1127)
 Presumption As to Benefit Of A Period
The general rule is that when a period is fixed by the parties , the
period is presumed to be for the benefit of both creditor and
debtor.
 Which means that before the expiration of the period, the
debtor may not fulfill the obligation and neither the creditor
demand its fulfillment.

 By way of exceptions, however, if the tenor of the obligation or
other circumstances may indicate that a period is have been
established for the benefit of either the creditor or debtor:
1. For the benefit of both creditor and debtor
 Example –
Gaya obtained a loan of P10, 000 at 12% interest per annum from Tito for one
year. Gaya has a period of one year within which to use the money, while Tito
will benefit from the interest which the money will earn.
2. For the benefit of the creditor
 Example -
Gaya executes a promissory note in favor of Tito which reads: “I promise to
pay Tito or order the amount of P10, 000 on demand. Thus, Tito can demand
payment from Gaya anytime.
3. For the benefit of debtor
 Example –
Gaya executes a promissory note which reads: “I promise to pay Tito r order
the amount of P 10,000 or before December 31, 2001. Gaya can pay her
obligation on or before Dec. 31, 2001.

 ART. 1197. If the obligation does not fix a period, but
from its nature and circumstances it can be inferred
that a period was intended, the courts may fix the
duration thereof.
 The courts shall also fix the duration of the period when
it depends upon the will of the debtor.
 In every case, the courts shall determine such period as
may under the circumstance have been probably
contemplated by the parties. Once by the courts, the
period cannot be changed by them. (1128 a)
 Court Generally is Without Power to Fix a Period
If an obligation does not state a judicial period and no period is
intended, the court is not authorized to fix a period. The courts
have no right to make contracts for the parties.

Exceptions to the general rule
1. If the obligation does not fix a period but it can be inferred from its
nature and circumstances that a period is intended.
Example:
S sold a parcel of land to B with a right of repurchase. No term is
specified in the contract for the exercise of the right. Then, the
court is authorized to fix the period to repurchase.
2. If the duration of the period depends upon the sole will of the
debtor
Example:
I will pay you as soon as possible. Here , the period is not fixed,
so the court may fix the same because if this is not so the
obligation may never be complied with by the debtor.

 ART. 1198. The debtor shall lose every right to make use
of the period:
1) When after the obligation has been contracted, he
becomes insolvent, unless he gives a guaranty or security
for the debt;
2) When he does not furnish to the creditor the guaranties
or securities which he has promised ;
3) When by his own acts he has impaired said guaranties or
securities after their establishment, and when through a
fortuitous event they disappear, unless he immediately
gives new ones equally satisfactory;
4) When the debtor violates any undertaking, in
consideration of which the creditor agreed to the period;
5) When the debtor attempts to abscond. (1129a)

When Debtor Loses The Right to
Make Use Of A Period
 The general rule is that the obligation is not
demandable before the lapse of the period. The
exceptions are based on the fact that the debtor might
not be able to comply with his obligation:
1. When debtor becomes insolvent:
The insolvency need not be judicially declared. It is sufficient
that the debtor has less assets than his liabilities or if debtor is
unable to pay his debts as they mature. It is noted that the
insolvency of the debtor must occur after the obligation has
been contracted.

2. When debtor does not furnish guaranties or securities promised:
Example:
Gaya borrowed loan from Tito which loan was secured by a chattel
mortgage of Gaya’s car as a guaranty. After obtaining the loan, Gaya
fails or does not execute a chattel mortgage, the loan becomes
demandable or the debtor loses her right to make use of the period.
3. When by his own acts he has impaired said guaranties or
securities:
Example:
Gaya borrowed P50, 000 from Tito which loan was secured by a
chattel mortgage on Gaya ‘s car. Later, Gaya’s fault, the car was
damaged or she causes the impairment of the car, Gaya loses her
right to make use of the period, unless she gives another one
equally satisfactory.

4. When by fortuitous event, the guaranty or security was lost.
Example:
Gaya borrowed P50, 000 from Tito which loan was secured by a chattel
mortgage on Gaya’s car. After obtaining the loan, the car was lost by fortuitous
event. Gaya loss her right to male use of the period unless she gives another
guaranty or security equally satisfactory.
5. When debtor violates an undertaking –
Example:
Art secured a loan from Arnold on condition that Art will paint the house of
Arnold. If after the proceeds of the loan was given to Art, he did not pant the
house of Arnold, Art loses his right to make use of the period.
6. When the debtor attempts to abscond.
Abscond means a depart or escape from creditor’s knowledge to avoid payment
of his debt. Mere attempt on the part of debtor will entitle the creditor to
demand payment of the obligation without waiting for the period to expire.

 Section 3. Alternative and Facultative obligations
 ART. 1199. A person alternatively bound by different
prestations shall completely perform one of them.
 The creditor cannot be compelled to receive part of one and
part of the other undertaking. (1131)
 Meaning of Alternative Obligation
It means an obligation where two or more prestations are due
but the delivery of one is sufficient to extinguish the obligation.
Example:
Gaya binds herself to give Tito either a determinate refrigerator or a TV
set. If Gaya chooses and delivers the TV set, the obligation is
extinguished. Thus, Gaya cannot compel Tito to accept part of one and
the part of the other prestations.

 ART. 1200. The right of choice belongs to the
debtor, unless it has been expressly granted to the
creditor.
 The debtor shall have no right to choose those
prestations which are impossible, unlawful or
which could not have been the object of the
obligation.

Rule on Who Makes the Choice –
 As a general rule, the right of choice or to select the prestation belongs to the
debtor, unless the right to choose is expressly granted to the creditor. But the right
of the debtor is subject to the following:
The debtor cannot choose those prestations which are:
a) Impossible – E.g.- Gaya promised to deliver to Tito 100 sacks of rice or a stone
from Mars. Gaya cannot chose to deliver the stone coming from Mars as it is
physically impossible.
b) Unlawful – E.g. Gaya obliged herself to deliver to Tito a kilo of dangerous drug or a
parcel of land. Gaya can choose only the delivery of parcel of land.
c) Could not have been the object of the obligation - E.g. Gaya borrowed from Tito
P50, 000. It was agreed that Gaya would give Tito her horse or her German Piano.
Now, Gaya has two horses, a race horse worth P50, 000 and an ordinary horse
which is worth for only P5, 000. Gaya cannot choose
d) Only one prestation is practicable (Art. 1202) – E.g. Gaya will deliver to Tito her
carabao, or her horse or her refrigerator. Through no fault of Gaya, the horse and
the carabao were lost by fortuitous event. Gaya can only delivery the refrigerator
which is the only one practicable.

 ART. 1201. The choice shall produce no effect
except from the time it has been communicated.
(1133)
 Right of Choice Must be Communicated –
 Until the choice is made and communicated, the
communicated, the obligation remains alternative. Once
the notice to the effect that a choice is made, the obligation
ceases to be alternative and becomes a simple obligation.
 Where the choice has been expressly given to the creditor,
such choice shall likewise produce legal effects upon being
communicated to the debtor. (Art. 1205, par. 1)

 ART. 1202. The debtor shall lose the right of choice when
among the prestations whereby he is alternatively bound, only
one is practicable.
 ART. 1203. If Through The creditor’s acts the debtor cannot
make a choice according to the terms of the obligation, the
latter may rescind the contract with damages.
 When debtor may rescind contract
If through the creditor’s fault, the debtor cannot made a choice
according to the terms of the obligation the debtor is given the right to
rescind and recover damages.
 Example:
Gaya borrowed from Tito P5, 000.00. it was agreed that instead of P5, 000,
Gaya could deliver a TV set or a refrigerator or a piano. If through the fault of
Tito, the TV set was destroyed, Gaya can rescind the contract if she wants. In
case of rescission, the amount of P 5, 000.00 must be returned by Gaya with
interest. Tito, in turn, must pay Gaya the value of the TV set plus damages.

 ART. 1204. The creditor shall have a right to indemnity for
damages when, through the fault of the debtor, all the things which
are alternatively the object of the obligation have been lost, or the
compliance of the obligation has become impossible.
The indemnity shall be fixed taking as a basis the value of the last
thing which disappeared, or that of the service which last became
impossible.
Damages other than the value of the last thing or service may also be
awarded. (1135a)
 When right of choice is with debtor and all prestations were lost –
This article entitles the creditor to indemnity for damages when all the
alternative objects are lost through the fault of the debtor before he has
made his choice. The indemnity for which the creditor is entitled shall be
based on the value of the last thing which disappeared or lost or the
compliance of the obligation has become impossible.

 ART. 1205. When the choice has been expressly given to the
creditor, the obligation shall cease to be alternative from the
day when the selection has been communicated to the debtor.
Until then the responsibility of the debtor shall be governed
by the following rules
1) If one of the things is lost through a fortuitous event, he shall
perform the obligation by delivering that which the creditor
should choose from among the remainder, or that which
remains if only one subsists;
2) If the loss of one of the things occurs through the fault of the
debtor, the creditor may claim any of those subsisting, or the
price of that which, through the fault of the former, has
disappeared, with a right to damages
3) If all the things are lost through the fault of the debtor, the
choice by the creditor shall fall upon the price of any one of
them, also with indemnity for damages.

 The same rules shall be applied to obligations to do or
not to do in case one. Some or all of the prestations
should become impossible. (1136a)
 When Right of Choice is With Creditor and All Prestations
Were Lost
This article provides for the rules to be observed when
the right of choice is expressly granted to the creditor, the rules
are as follows:
1. When a thing is los through a fortuitous event
Example
Gaya obliged herself to deliver to Tito a TV set, or a
refrigerator, or a piano. If the TV set was lost through
fortuitous event, Tito can choose from among the
remainder or that which remains if only one subsists.

2. When a thing is lost through debtor’s fault
Example:
If the loss of the TV set occurs through the fault of Gaya, Tito
may claim the refrigerator or the piano with a right of damages or
the price of the TV set with a right of damages.
3. When all the things were lost through debtor’s fault
Example:
If all the items are lost through the fault of Gaya, then Tito can
demand the payment of the price of any one of them with a right
to indemnity for damages.
4. When all the thing are lost through a fortuitous event
Example:
The obligation of Gaya shall be extinguished if all the items
which are alternatively the object of the obligation are lost
through a fortuitous event (Art. 1174 will apply).

 ART. 1206. When only one prestation has been agreed
upon, but the obligor may render another in
substitution, the obligation is called facultative.
 The loss or deterioration of the thing intended as a
substitute, through the negligence of the obligor, does not
render him liable. But once the substitution has been
made, the obligor is liable for the loss of the substitute on
account of his delay, negligence or fraud.
 Meaning of Facultative Obligation –
 A facultative obligation is one where only one prestation has
been agreed upon but the obligor may render another in
substitution.
 Example:
 I will give you my piano but I may give my television set as a substitute.

Alternative and Facultative
Distinguished –
1) As to choice – In facultative – the right for substitution is given
only to the debtor in Alternative – the choice may be given
either to the debtor or to the creditor;
2) As to things due – In facultative – only the principal obligation
is due by may substitute another; in alternative, there are
several things due but the delivery of one is sufficient;
3) As to validity or nullity – In facultative – if the principal thing
is unlawful or impossible, there is no need of delivering the
substitute in alternative – if one of the thing is unlawful or
impossible, there is still a need to deliver any of those which
remain valid or the only remaining one is valid.

 Section 4 – Joint and Solidary Obligations
 ART. 1207. The concurrence of two or more creditors
or of two or more debtors in one and the same obligation
does not imply that each one of the former has a right to
demand, or that each one of the latter is bound to render,
entire compliance with the prestation. There is a solidary
liability only when the obligation requires solidarity. (1137a)
 ART. 1208. If from the law, or the nature or the
wording of the obligations to which the preceding article
refers the contrary does not appear, the credit or debt shall be
presumed to be divided into as many equal shares as there
are creditors or debtors, the credits or debts being considered
distinct from one another, subject to the Rules of Court
governing the multiplicity of suits. (1138a)

 Joint Obligation –
It is an obligation where there is a concurrence of two or
more debtors or two or more creditors or of several
debtors and creditors, by virtue of which each of the
debtors is liable for a proportionate part of the credit.
 Example of different instances
1) A, B, and C borrowed P9, 000 for D. The presumption is that A,
B and C are jointly liable. D can demand only P3, 000 from each
or a total of P9, 000.
2) A borrowed from B, C and D P9, 000. There is one debtor and
three creditors. Each creditor can demand only P3, 000 from A.
3) A and B are liable to C and D for P9, 000. There are two debtors
and two creditors. Each creditor can demand only P4, 500 from
each debtor.

SOLIDARY OBLIGATION
There are solidary liability when
1) The obligation expressly so states, or
2) The law requires solidarity or
3) The nature of the obligation requires solidarity.

Kinds of Solidary Obligation
1. Passive – solidarity on the part of the debtors, where anyone of them
can be made liable for the fulfillment of the entire obligation.
 Example – A and B are solidary debtors of C in the amount of P 10, 000
2. Active – solidarity on the part of the creditors, where anyone of them
can demand the fulfillment of the entire obligation.
 Example – A is liable to B and C for the amount of P10, 000. B and C are
solidary creditors.
3. Mixed Solidarity – solidarity on the part of the debtors and creditors
where each one of the debtors is liable to render and each one of the
creditors has a right to demand, entire compliance with the
obligation.
 Example – A and B are solidarity debtors to C and D, solidary creditors
in the amount of P 10, 000.

 Solidarity not presumed
 The presumption, where there are two or more persons in the same
obligation, is that it is joint. The reason is that solidary obligations are very
burdensome for they create unusual rights and liabilities. Solidarity
between debtors increases their responsibility while solidarity between
creditors presuming that they are bound jointly and not solidarily.
 ART. 1209. If the division is impossible, the right of the creditors
may be prejudiced only by their collective acts, and the debt can be
enforced only by proceeding against all the debtors. If one of the
latter should be insolvent, the others shall not be liable for his
share.
 Indivisible Joint Obligation –
 The object is indivisible and the T/E between the parties are merely
proportionately liable.
 Example –
A and B are jointly liable to give C a particular car. The obligation is joint but since
the object is indivisible, the creditor must proceed against al the joint debtor. If any of
the joint debtors be insolvent, the others shall not be liable for others.

 ART. 1210. The indivisibility of an obligation does not
necessarily give rise t solidarity. Nor does solidarity of
itself imply indivisibility. (n)
 Indivisibility as Distinguished from Solidarity
Indivisibility refers to the subject matter while solidarity
refers to the Tie between the parties.
 Examples:
1. Joint divisible obligation – A and B are jointly liable to C for P10, 000.
2. Joint indivisible obligation – A and B are jointly liable to give C their
car.
3. Solidary divisible obligation – A and B are solidarily liable to give C
P10, 000.
4. Solidary indivisible obligation – A and B are solidarily liable to give C
their car.

 ART. 1211. Solidarity may exist although the creditors
and the debtors may not be bound in the same manner
and by the same periods and conditions.
The solidary character of the obligation is not destroyed
even if the creditors and debtors are bound by different terms
and conditions. The solidarity is still preserved by recognizing
in the creditor the power of claiming from any or all debtors
the payment of the entire obligation.
 Example:
A and B solidarily bound themselves to pay a total of P10, 000 to C, and
D and E to the following conditions. C’s share will be due at the end of
the year; D will get his share only after he passes the CPA exams and E
will get his share only after he painted the house of C.

 ART. 1212. Each one of the solidary creditors may do whatever may
be useful to the others, but not anything which may be prejudicial to
the latter. (1141a)
 ART. 1213. A solidary creditor cannot assign his rights without the
consent of the others.
 Solidary Creditors May Do Useful Act; Not Prejudicial Acts –
A solidary creditor may do any act beneficial or useful to the others but
he cannot act prejudicial to them.
 Example of Beneficial Acts –
 To interrupt the running of prescription, the act of one solidary creditor in making a
judicial demand upon any of the solidary debtors is sufficient. (Art. 1155, NCC)
 Example of Prejudicial Acts –
 Should not be performed, otherwise, there will be liability for damages. However, in
the case of remission or condonation, the solidary creditor is allowed to so remit, and
the obligation is extinguished.

 Art. 1214. The debtor may pay any one of the solidary
creditors but if any demand, judicial or extrajudicial, has
been made by one of them, payment should be made to
him.
 Payment to Any of the Solidary Creditors
The rule is that the debtor may pay any one of the creditors.
But when a demand is made by any of the creditors, payment
should be made to him who made the demand, judicially or
extra-judicially.
 Example
A is liable to B and C P5, 000. A may pay either B or C But if B made a
demand then payment should only be made to him. If A paid C, B is still
entitled to his share from A in case C does not turn over to B his share.

 ART. 1215. Novation, compensation, confusion or
remission of the debt, made by any of the solidary
creditors or with any of the solidary debtors, shall
extinguish the obligation, without prejudice to the
provisions of article 1219.
 The creditor who may have executed any of these acts, as
well as he who collects the debt, shall be liable to the others
for the share in the obligation corresponding to them.
 Liability of Solidary Creditor in case of Novation,
Compensation, Confusion or Remission –
 When a creditor who executed any of these acts, it is logical that
he is liable to the other solidary creditors for their corresponding
shares considering that such acts are prejudicial to them. (Art.
1212, NCC)

 ART. 1216. The creditor may proceed against any one of
the solidary debtors or some or all of them
simultaneously. The demand made against one of them
shall not be an obstacle to those which may subsequently
be directed against the others, so long as the debt has
not been fully collected. (1144a)
 Creditor May Proceed Against Any Solidary Debtor –
 In a solidary obligation, the creditor may proceed against any,
some or all of the solitary creditors simultaneously so long as it
has not been fully collected.
 Example
A, B and C solidarily owe D the amount of P9, 000. D can collect from A
or B or C alone or from any two of them or all of them simultaneously. If
demand is made on A, the latter cannot require D to make a demand
also on B and C or to include them as party defendants as D has the right
to proceed against any one of them.

 ART. 1217. Payment made by one of the soldiery debtors
extinguishes the obligation. If two or more solidary
debtors offer to pay the creditor may choose which offer
to accept.
He who made the payment may claim from his co-debtors
only the share which corresponds to each, with
the interest for the payment already made. If the
payment is made before the debt is due, no interest for
the intervening period may be demanded.
When one of the solidary debtors cannot, because of
his insolvency, reimburse his share to the debtor paying
the obligation, such share shall be borne by all his co-debtors,
in proportion to the debt to each. (1145a)

 Effects of Payment by a Solidary Debtor –
Payment is one of the ways by which an obligation is
extinguished and consist in the delivery of the thing or the
rendition of the service which is the object of the obligation.
 Example –
A, B and C are solidarily liable to D and E in the amount of P9,
000 due on Dec. 31. If both A and B offer to pay D on Dec. 31, the
latter may choose which offer to accept. If A pays the entire
amount of P9, 000 on Dec. 31, the obligation is extinguished.
The payment of A gives him the right of reimbursement from B
and C P3, 000 each with interest from the date of payment.
However, if C is insolvent, both A and B shall bear the
insolvency in proportion to their shares.

 ART. 1218. Payment by a solidary debtor shall not entitle in to
reimbursement from his co-debtors if such payment is made after
the obligation has prescribed or become illegal. (n)
 Effect of Payment After Obligation Has Prescribed or Become Illegal
–
1. Prescription – is one where one acquires ownership and other rights
through the lapse of time in the manner and under the conditions laid
down by law.
 Example – A and B are solidarily indebted to C in the amount of P 10, 000. The debt
prescribed. If A paid the debt, he cannot collect form B his share of the debt. Neither
can A can recover from C.
2. Becomes Illegal – A and B are solidarily bound to deliver medical drugs
to C. the transaction of such medical drugs were later prohibited by law.
Notwithstanding the prohibition, B performed the obligation by
delivering the prohibited drugs. B is not anymore entitled to
reimbursement from A.

 ART. 1219. The remission made by the creditor of the share which
affects one of the solidary debtors does not release the latter from his
responsibility towards the co-debtors, in case the debt had been totally
paid by anyone of them before the remission was effected. (1146a)
 ART. 1220. The remission of the whole obligation obtained by one of
the solidary debtors, does not entitle him to reimbursement from his co-debtors.
 Remission by Creditor –
1) If payment if made first, the remission is of no effect. There is no more to
remit.
2) If remission is made prior to the payment and payment is made, then there is
payment by mistake.
3) If one of the solidary debtors obtained remission on the whole obligation, he is
not entitled to reimbursement from his co-debtors because remission is
essentially gratuitous.

 ART. 1221. If the thing has been lost or if the prestation
has become impossible without the fault of the solidary
debtors, the obligation shall be extinguished.
 If there was fault on the part of any one of them, all shall
be responsible to the creditor, for the price and the
payment of damages and interest, without prejudice to
their action against the guilty or negligent debtor.
 If through a fortuitous event, the thing is lost or the
performance has become impossible after one of the
solidary debtors has incurred in delay through the
judicial or extrajudicial demand upon him by the
creditor, the provisions of the preceding paragraph shall
apply. (1147a)

Rules in Case thing has Been Lost or
Prestation Has Become Impossible –
1. If the thing is lost or has become impossible to
perform through a fortuitous event without the fault
of the debtor, the obligation is extinguished.
 Example:
A, B and C are solidarily bound to deliver a determinate
car to D. Without any fault on the part of any one of the
debtors, the car was lost through the fortuitous event.
The obligation is extinguished.

Rules in Case thing has Been Lost or
Prestation Has Become Impossible –
2. If in the preceding paragraph, the car was lost through
the fault of anyone of the solidary debtors, anyone of
them may be held liable by D for the price of the car plus
damages. The debtors who did not any fault on the lost of
the car have the right to recover from the co-debtor who
is at fault.
3. The solidary debtors are likewise liable even if the thing
is lost through fortuitous event if the loss occurs after
anyone of the solidary debtors has been in delay. The
debtors, however who were not in delay have the right to
recover from their co-debtors who was responsible due to
his delay.

 ART. 1222. A solidary debtor may, in actions filed by
the creditor, avail himself of all defenses which are
derived from the nature of the obligation and of
those which are personal to him, or pertain to his
own share.
 With respect to those which personally belong to
the others, he may avail himself thereof only as
regards that part of the debt for which the latter
are responsible.

Defenses available to a Solidary
Debtor –
The defenses available to the solidary debtors if the
creditor proceeds against him alone for the payment of the
entire obligation
1. The defenses derived from the nature of the obligation,
such as fraud prescription, remission illegality or absence of
consideration, payment or performance.
 Example
A and B are solidarily liable to C in the among to P6, 000. The entire
debt was paid by d. in an action by C against A, the latter can raise
the defense of payment by virtue of which the obligation was
extinguished.

Defenses available to a Solidary
Debtor –
2. Defenses personal to him or pertaining to his own
share, such as minority, insanity and vitiated consent.
3. Defenses which are personal to others, such as
minority, insanity and vitiated consent.

 Section 5 – Divisible and Indivisible Obligations]
 ART. 1223. The divisibility or indivisibility of
the things that are the object of obligations in
which there is only one debtor and only one
creditor does not alter or modify the provisions of
Chapter 2 of this title. (1149)

Definition of Terms –
1. A divisible obligation is one the object of which in its delivery
or performance is capable of partial fulfillment.
 Example:
A agreed to pay B P10, 000 in five monthly installment. The
obligation of A is divisible because it is payable in partial payments.
2. An indivisible obligation is one the object which in its delivery
or performance is not capable of partial fulfillment.
 Example:
A agreed to deliver a determinate car to B on Dec. 31. This is an
indivisible obligation because it is not subject to partial
performance.

 ART. 1224.A joint indivisible obligation gives rise to
indemnity for damages from the time anyone of the
debtors does not comply with his undertaking. The
debtors who may been ready to fulfill their
promises shall not contribute to the indemnity
beyond the corresponding portion of the price of
the thing or of the value of the service in which the
obligation consist. (1150)
 ART. 1225. For the purposes of the preceding
articles, obligation to give definite things and those
which are not susceptible of partial performance
shall be deemed to be indivisible.

 When the obligation has for its object the
execution of a certain number of days of work, the
accomplishment of work by metrical units, or
analogous things which by their nature are susceptible
of partial performance, it shall be indivisible.
 However, even though the object or service may be
physically divisible, and obligation is Indivisible if so
provided by law or intended by the parties.
 In obligations not to do, divisibility or
indivisibility shall be determined by the character of
the prestation in each particular case. (1151a)

Obligations Deemed Indivisible –
The general rule of determining the divisibility or
indivisibility of an obligation depend on the purpose of the
obligation.
1. Obligation to give definite things
 Example:
To give a particular house. Here the obligation is indivisible because
of the nature of the subject matter.
2. Obligations which are not susceptible of partial performance
 Example:
A is obliged to sing a song. Here the obligation is indivisible by
reason its purpose which requires the performance of all the parts.

Obligations Deemed Indivisible
3. Obligation provided by law to be indivisible even if thing or service
physically divisible.
 Example:
Taxes should be paid within a definite period. Although money is
physically divisible, the amount of tax payable must be delivered in
Toto, not partially.
4. Obligations intended by the parties to be indivisible even if thing or
service is physically divisible.
 Example:
The obligation of A to give P10, 000 to B on a certain date. Money is
physically divisible by the clear intention ere for A to deliver the
amount at on time and as a whole.

Obligations Deemed Divisible
1. Obligations which have for their object the execution of a certain number of days of
work.
 Example –
A obliged himself to paint the house of B to be finished in 10 days. The obligation is
divisible because it will not be finished in one time.
2. Obligations which have for their object the accomplishment of work by metrical units.
 Example:
A obliged himself to deliver 25 cubic meter of sand.
3. Obligations which by their nature are susceptible of partial performance
 Example
The obligation of A to pay a debt of P10, 000 to B in ten (10) monthly installments.

 Section 6 – Obligations with a Penal Code
 ART. 1226. In obligations with a penal clause, the
penalty shall substitute the indemnity for damages and
the payment of interests in case of non-compliance, if
there is no stipulation to the contrary. Nevertheless,
damages shall be paid if the obligor refuses to pay the
penalty or is guilty of fraud in the fulfillment of the
obligation.
 The penalty may be enforced only when it is
demandable in accordance with the provisions of this
Code. (1152a)
 Meaning of Penal Clause –
 An obligation with a penal clause is one which contains an accessory
undertaking to pay a previously stipulated indemnity incase of breach.
It is attached to obligations in order to insure their performance.

Purpose of a Penal Clause
1) To insure the performance of the obligation.
2) To substitute for indemnity for damages and the
payment of interest in case of non-compliance of the
principal obligation.
3) To penalize the obligor in case of breach of the
principal obligation.

 ART. 1227. The debtor cannot exempt himself from the
performance of the obligation by paying the penalty, save in
the case where this right has been expressly reserved for him.
 Neither can the creditor demand the fulfillment of the
obligation and the satisfaction of the penalty at the same
time, unless this right has been clearly granted him. However,
if after the creditor has decided to require the fulfillment of
the obligation, the performance thereof should become
impossible without his fault, the penalty may be enforced.
(1153a)
 Debtor Cannot Substitute Penalty For the Principal Obligation –
The general rule is that the debtor is not allowed to just pay the penalty
instead of fulfilling the obligation. He can do so if the right has been
expressly reserved. The reason is that if he can just pay, fulfillment of the
obligation will be considered an alternative one. The word expressly means
that any implied reservation is not allowed.

 ART. 1228. Proof of actual damages suffered by the
creditor is not necessary in order that the penalty
may be demanded.
 ART. 1229.The judge shall equitably reduce the
penalty when the principal obligation has been
partly or irregularly complied with by the debtor.
Even if there has been no performance, the penalty
may also be reduced by the courts if it is iniquitous
or unconscionable. (1154a)

When Penalty May be Reduced by
the Court –
a) When the obligation has been partly complied with
by the debtor;
b) When the obligation has been irregularly complied
with by the debtor
c) When the penalty is iniquitous or unconscionable,
even if there has been no performance at all.

 ART. 1230. The nullity of the penal clause does not carry
with it that of the principal obligation.
 The nullity of the principal obligation carries with it the
penal clause. (1155)
 Effect of Nullity of Penal Clause –
The general principle that the accessory follows the
principal. If only the penal clause is void, the principal obligation
remains valid and demandable. The penal clause may be
disregarded.
 Example:
 A agreed to sell merchandise to B. it is provided in their agreement that in
case of default, A will deliver a prohibited drug as penalty. Here, the
obligation to sell merchandise is valid by the penalty to deliver the
prohibited drug is void. For failure of A to comply with the obligation, B
may recover damages

Meaning of Loss Of The Thing Due
 It means that he ting which constitutes the object of the
obligation perishes or goes out of commerce or disappears. In such a
way that its existence is unknown or it cannot be recovered.
 The general rule is that if the thing to be delivered is determinate
and it is lost without the fault of the debtor or is lost through fortuitous
even pending delivery, th obligation is extinguished and the debtor
cannot be held liable.

The exceptions to this rule are:
 1. by stipulation or agreement of the parties;
 2. by provision of law;
 3. when the nature of the obligation requires the assumption of risk;
 4. when the thing to be delivered is generic or indeterminate.
 5. if the debtor is at fault;
 6. when the debt or a thing certain and determinate proceeds from a
crime.
 7. when the debtor has promised to deliver the same thing to two or
more pesons who do not have the same interest.

 Art. 1263. In an obligation to deliver a generic thing, the loss
or destruction of anything of the same kind does not extinguish
the obligation.
 Art. 1264. The courts shall determine whether, under the
circumstances, the partial loss of the object of the obligation is
so important as to extinguish the obligation.
 Art. 1265. Whenever the thing is lost in the possession of the
debtor, it shall be presumed that the loss was due to his fault,
unless there is proof to the contrary, and without prejudice to the
provisions of article 1165. This presumption does not apply in
case of earthquake, flood, storm, or other natural calamity.
(1183a)

Thing Lost In Possession Of
Debtor
 If the thing is lost while in the
possession of the debtor, the law
presumes that he ting was lost
through his fault. The presumption
of fault, however, does not apply
when the ting is lost due to
earthquake, flood or other natural
calamities.

 becomes legally or physically impossible without the fault
of the obligor. (1184a)
 Art. 1267. When the service has become so difficult as to be
manifestly beyond the contemplation of the parties, the
obligor may also be released therefrom, in whole or in part.
(n)
 Art. 1268.When the debt of a thing certain and determinate
proceeds from a criminal offense, the debtor shall not be
exempted from the payment of its price, whatever may be
the cause for the loss, unless the thing having been offered
by him to the person who should receive it, the latter
refused without justification to accept it. (1185)

Effect Of Obligation Arising From
Felony
 Obligation arising from felony or crime or if a person who
was convicted of the crime like of theft , was ordered by the court
to return the object to its owner is liable for the payment of its
value if such object is lost through whatever case.
 The only exception to this rules when the person who
should receive the object unjustifiably refused to accept it and
the object is subsequently lost due ot fortuitous event, in which
case the obligation is extinguished.

 Art. 1269. The obligation having been
extinguished by the loss of the thing, the creditor
shall have all the rights of action which the debtor
may have against third persons by reason of the
loss. (1186)

When Creditor Acquires Debtor’s
Right Of Action
 By reason of the loss of the thing, the creditor
acquire all the rights of actions which a debtor may have
against at third person.

SECTION 3. - Condonation or
Remission of the Debt
 Art. 1270. Condonation or remission is essentially
gratuitous, and requires the acceptance by the obligor. It
may be made expressly or impliedly.
 One and the other kind shall be subject to the rules
which govern inofficious donations. Express condonation
shall, furthermore, comply with the forms of donation.
(1187)

Condonation or Remission
Defined
 Remission is an act of liberality by which the
obligee, without receiving any price or equivalent,
renounces the enforcement of the obligation, as a
result his right against the debtor. (4 Sanchez Roman
422)

Requisites of Condonations OR
Remissions
 it must be gratuitous;
 it must be accepted by the debtor;
 the parties must have capacity;
 must not be inofficious; and
 if made expressly, it must comply with the forms

Effect of inofficious Remission
 While a person may make donations, no one can give more
than that which he can give by a testamentary will, otherwise,
the excess shall be inofficious and shall be reduced by the Court
accordingly.
 Like for example, a part of the testator’s property called
legitimate cannot be disposed of because the law has reserved
it from certain heirs called the compulsory heirs.

 ART. 1271. The delivery of a private document evidencing a
credit, made voluntarily by the creditor to the debtor, implies the
renunciation of the action which the former had against the
latter.
 If in order to nullify the waiver it should be claimed to be
inofficious, the debtor and his heirs may uphold it by proving
that the delivery of the document was made in virtue of payment
of the debt. (1188)
 ART. 1271. Whenever the private document in which the
debt appears is found in the possession of the debtor, it shall be
presumed that the creditor delivered it voluntarily, unless the
contrary is proved. (1189)

Presumption In Case Document Found In
the Possession Of Debtor
 If the document is found in the hands of the debtor and it is
not known how he came into possession of the same, the
presumption is that there was payment by virtue of the payment
of the debt. Or it was voluntarily delivered to the debtor, which
gives rise to the remission of the obligation.
 Example, Gaya owes Tito P10, 000 evidenced by a
promissory note. The note as signed by Gaya was given to Tito. If
the promissory note is voluntarily delivered to Gaya, the
presumption is that the debt must have been paid by Gaya.
 it is known that Gaya has not yet paid Tito, it must be
presumed that the obligation has been remitted. Suppose it is
not known how Gaya came into possession of the promissory
note, the presumption is that it was voluntarily delivered by Tito
unless Tito proves to the contrary.

ART. 1273. The renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter shall leave the former in
forc. (1190).
Of Effect Renunciation Of the Principal
Debt
 The above provision follows the rule that the accessory follows the
principal. The accessory cannot exist without the principal obligation.
 Example, Arvin owes Tito P10, 000 with Gaya as guarantor. The
principal debt here is the P10, 000 while the accessory obligation is the
guaranty of Gaya. The remission of the debt of Arvin by Tito
extinguishes the guaranty of Gaya. But if only the guaranty of Gaya is
condoned, the obligation of Arvin shall remain in force.

ART. 1274. It is presumed that the accessory
obligation of pledge has been remitted when the thing
pledged, after its delivery to the creditor, is found in
the possession of the debtor, or of a third person who
owns the thing. (1191a)
Pledged, Defined
 Pledged is a contract by virtue of which the debtor delivers
to the creditor or to a third person a movable or instrument
evidencing incorporeal rights for the purpose of securing the
fulfillment of a principal obligation with the understanding that
when the obligation is fulfilled, the thing delivered shall be
returned with all its fruits and accessions.

Presumption In case Thing in Possession of
Debtor
If the thing pledged is found in the hands of debtor or the third person, only
the accessory obligation of pledge is presumed remitted, not the obligation itself.
Section 4. – Confusion or Merger of
Rights
 ART. 1275. The obligation is extinguished from the time the
characters or creditor and debtor are merged in the same person.
(1192a)

Meaning of Confusion or Merger
 Confusion is the meeting in one person of the
qualities of creditor and debtor with respect to
the same obligation. (4Sanchez Roman 421)

Requisites of A Valid Confusion
1. the merger of the qualities of creditor and debtor must be in the same
person;
2.it must take place in the person of either the principal debtor and
principal creditor; and
3.it must be complete, clear and definite; and
4. the very obligation must be the same.
Example, Gaya issued a promissory note for P10, 000 in favor of
Tito payable 30 days after sight. Before the maturity of the note, Tito
indorsed it to Arvin; Arvin indorsed it to Mary; Mary indorsed it to
Gaya. The obligation of Gaya to Tito is extinguished because there is
here a merger of the qualities of the debtor and creditor in one and the
same person with respect to one and the same obligation cannot
demand and collect payment from himself.

ART. 1276. Merger which takes place in the person of the principal
debtor or creditor benefits the guarantors. Confusion which takes place in the
person of any of the latter does not extinguish the obligation. (1193)
Effect of Merger
 This article reiterates the principles established in Articles 1176, 1274,
NCC, that accessory follows the principal.
 The extinguishment of the principal obligation extinguishes the
accessory obligation; but the extinguishment of the accessory does not
extinguish the principal obligation
 Example, Gaya obtains P10, 000 loan from Tito which loan was
guaranteed by Arvin. Later, Tito assigned the credit to Mary, who in turn
assigned it to Gaya. The principal debt is extinguished and Arvin is released
from his obligation as guarantor. If, in this same example, the credit was
assigned by Tito to Mary and Mary to Arvin. The contract of guaranty is
extinguished but the principal obligations remains. Gaya has now the
obligation to pay Arvin.

ART. 1277. Confusion does not extinguish a joint obligation except as
regards the share corresponding to the creditor or debtor in whom the two
characters concur. (1194)
Effect of Merger in Joint Obligation
 In a joint obligation, the debts are distinct and separate from each other. In case there is
merger in a joint obligation, it affects only the share corresponding to the creditor or debtor in
whom the two characters concur. The co-debtor will not owe his corresponding share to this former
joint co-debtor.
 Example, Gaya, Mary and Arvin are jointly indebted to Tito in the amount of P15, 000. Tito
assigns his credit to Ian who in turn assigned it to Gaya. There is here a merger between Gaya and
Tito butMary and Arvin would now owe Gaya P5, 000 each.

Section 5. Compensation
 ART. 1278. Compensation shall take place
when two persons, in their own right are creditors
and debtors of each other. (1195)

Compensation,Defined
Compensation shall take place when two persons, in their own rights
are creditors and debtors of each other.
Compensation Distinguished
From Confusion
 as to number of persons – in compensation there must be two
persons; in confusion, there is only one person in whom the
quality of creditor and debtor is merged;
 as to number of obligation – in compensation thEre must be
two obligations; in confusion there is only one obligation.

Kinds of Compensation
1. as to cause
a. Legal – takes effect by operation of law provided all
the requisites prescribed by law are present.
b. Voluntarily – takes place by virtue of the agreement
of the parties.
c. Judicial – takes place only through court orders.
2. as to effect
a. Total – when both debts are completely extinguished because
the debt are the same amount
b. Partial – the debts are not the same amount hence after
compensation, a balance remains outstanding.

ART. 1279. In order that compensation may be proper,
it is necessary:
(1) That each one of the obligors be bound principally,
and that he be at the same time a principal creditor of
the their;
(2) That both debts consist in a sum of money, or
if the things due are consumable, they be
the same kind, and also of the same quality
if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention of
controversy, commenced by third persons and
communicated in due time to the debtor. (1196)

Requisites of a Proper Compensation or Legal
Compensation
1. the parties are principal creditor and principal debtor of each other;
Example, Arvin owes Tito P10, 000 payable on Dec. 20, 1999. Tito on the other
hand owes Arvin P10, 000 also due and payable on Dec. 30, 1999. These two
obligation become due on Dec. 30, 1999 compensation takes place because both
Arvin and Tito are principal creditor and principal debtor of each other.
2. both debts consists in a sumof money or of consumable things of the same kind and
quality;
Example, Arvin obliged himself to deliver to Tito 100 sacks of rice on October
30, 1999. Tito, on the other hand, has an obligation to deliver 100 sacks of rice to
Arvin on October 20, 1999. There is compensation because they are consisting of
consumable things.
3. the two debts are due and demandable;
Example, Gaya owesMaya P10, 000 payable on October 30, 1999. Maya owes Gaya
P10, 000 payable also on October 30, 1999. There is compensation when the
obligation becomes due on October 30, 1999.

4. the two debts liquidated; and
The liquidated means that the amount of debt has already been
fixed and determined, while the word demandable means when it is
due;
5. there be no retention or controversy means a third person who is
claiming to be a creditor.
Example, Arvinwoes Ian P10, 000 and Ian owes Arvin P10, 000 but
Arvin credit of P10, 000 has been garnished by Gaya who claims to be an
unpaid creditor of Arvin. Ian has been duly notified of the controversy. Any
possible compensation is in the meantime suspended. If Gayawins her
claim, there can be no compensation. If she loses, the controversy is
resolved, and then compensation can take place.

ART. 1280. Notwithstanding the provision of the
preceding article, the guarantor may set up compensation as
regards what the creditor may owe the principal debtor
Guarantor May Set Up
Compensation
 This is an exception to Article 1279, part. 1 because the article allows
setting up compensation as regard what the creditor may owe to the
principal debtor.
 Example, Arvin owes Tito P10, 000. Maya is the guarantor of Arvin.
Tito owes Arvin P10, 000. When Tito sues Arvin for P4, 000. When Tito sues
Arvin and Arvin cannot pay, Maya will be liable for only P6, 000 because he
can set the P4, 000 credit of Arvin as the basis of partial compensation.

ART. 1281. Compensation may be total or partial.
When the two debts are of the same amount, there is a total
compensation.
Kinds of Compensation
 Total compensation is when the amount due are equal or of the same
amount, hence both obligations are extinguished.
 Example, Gaya is indebted toMaya the amount of P10, 000 due on Dec.
19, 1999. Maya is likewise indebted to Gaya in the amount of P10, 000 due on
Dec. 19, 1999. There is here a total compensation; hence both debts will be
extinguished.

Partial compensation is when the amount are not the
same after compensation took place, there is a balance
remains.
Example, Gaya owes Maya P10, 000 due on Dec. 19,
2009. On the other hand, Maya owes the due date arrives
because a balance of P4, 000 will remain after compensation
takes place.
ART. 1282. The parties may agree upon the compensation
of debtswhich are not yet due. (n)

Compensation By Agreement Of the Parties
This is a voluntary compensation as an execution to the
general rule that only debts which are due and demandable can
be compensated.(Art.1279)
Example, Gaya owes Maya P10, 000 due on Nov. 30, 2001.
On the other hand Maya owes Gaya P10, 000 due on Dec. 19, 2001.
Generally compensation the parties there may be compensation
cannot take place comes Nov. 30, 2001 because Maya’s debt is not
yet due. However, by voluntary agreement between

ART. 1283. If one of the parties to a suit over an
obligation has acclaim for damages against the other, the
former may set it off by providing his right to said damages
and the amount thereof. (N)
Judicial Compensation
A judicial compensation is one whereby a money debt of a
person may be allowed by the court to be compensated with a claim
of damages by another.
Example, X owes Y P1, 000. When Y demanded payment, X
failed to pay. In anger, Y damaged the property of X to the extend of
P800. X can set off the obligation of Y to pay him damages in the
amount of P800 against his debt of P1, 000.

ART. 1284. When one or both debts are rescissible or
voidable, they may be compensated against each other before
they are judicially rescinded or avoided.
Compensation Of Rescissible or Voidable Debts
Rescissible and voidable obligations are valid until they are judicially
rescinded or avoided and prior rescission or annulment, the debts may be compensated.
Example, A owes B P 10, 000. Subsequently, A, through fraud was able to make
B sign a promissory note that B is indebted to A for the same amount. The debt of A is
valid, but that of B is voidable. Before the debt of B is nullified, both debts may be
compensated against each other if all the requisites for legal compensation are present.
If suppose the debt of B is later annulled by the court, A is still liable
considering compensation had already taken place because the effect of annulment is
retroactive, it is as if there was no compensation.

ART. 1285. The debtor who has consented to the assignment of
rights made by a creditor in favor of a third person, cannot set up against
the assignee the compensation which would pertain to him against the
assignor, unless the assignor was notified by the debtor at the time he
gave his consent, that he reserve his right to the compensation.
If the creditor communicated the cession to him but the debtor did not
consent thereto, the latter may set up the compensation of debts
previous to the cession , but not of subsequent ones.
If the assignment is made without the knowledge of the debtor,
he may set up the compensation of all credits prior to the same and also
later ones until he had knowledge of the assignment.

When Compensation Has Taken Place
BEFORE Assignment
If an extinguished obligation has been assigned by the creditor to third
person, the debtor can raise the defense of compensation with respect to the
debt. The remedy of the assignee is against the assignor.
Example, A owes B P5, 000 due yesterday. B owes A P3, 000 due also
yesterday. Both debts are extinguished up to amount of P3, 000. Hence, A still
owes B P2, 000 today. If B assigns his right to C, latter can collect only P2, 000
from A. However, if A gave his consent to the assignment before it was made on
will be liable to C for P5, 000 but he can still collect the P2, 000 owed by B. It is
as if no compensation took place.

Where Compensation Has Taken
Place AFTER Assignment
There are three cases of compensation which take place
after an assignment of rights made by the creditor. They are:
 Assignment with consent of debtor
Example, A owes B P5, 000 due Dec. 19. B owes A P3, 000 due
Dec. 19. B assigned his right to C, the assignee, the
compensation which would pertain to him against B, the
assignor. A is still liable to C for P5, 000 but he can still collect
the P2, 000 debt from B. However, if A while consenting to the
assignment, reserved his right to the compensation, he would be
liable only P2, 000 to C.

 Assignment with the knowledge but without the consent of
debtor
Example, A owes B P1, 000 due Dec. 1. B owes A P2, 000 Dec. 10.
A owes B P1, 000 due Dec. 15. A assigned his right to C on Dec. 12.
A notified B but the latter did not give his consent to the
assignment, how much can C collect from B? B can set up the
compensation of debts on Dec. 10 which was before the cession
on Dec. 12. There being partial compensation, the assignment is
valid only up to the amount of P1, 000 but B cannot raise the
defense of compensation with respect to the debt of A due on
Dec. 15 which has not yet matured. So, on Dec. 12, B is liable to C
for P1, 000. Come Dec. 15, A will liable for his debt of P1, 000 to B.
 Assignment without the knowledge of the debtor
Example, in the preceding example, let us suppose that the
assignment was made without the knowledge of B who learned of
the assignment only on Nov. 16. In this case, B can set up the
compensation of credits before and after the assignment. The
crucial time is when B acquired knowledge of the assignment and
not the date of the assignment. If B learned of the assignment
after the debts had already matured, he can raise the defense of
compensation, otherwise, he cannot.

ART. 1286. Compensation takes place by operation of law, even
thought eh debts may be payable at different places, bu there shall be
an indemnity for expenses of exchange or transportation to the place
of payment. (1199a)
Compensation Where Debts Payable At Different Places
 This legal compensation does not refer to the difference in the
value of the things in their respective places but to the expenses
of monetary exchange and expenses of monetary exchange and
expenses in transportation. Once these expenses are liquidated,
the debts also become compensated. The indemnity shall be
paid by the person who raises the defense of compensation.
Example, Gaya owes Maya $1, 000 payable in New York. Maya
owes Gaya P38, 000(equivalent amount) payable in Manila. If A
claim compensation, he must pay for the expenses of exchange.

ART. 1287. Compensation shall not be proper when one
of the debts arises from a depositum or from the obligations of a
depository or of a bailee in commodatum.
Neither can compensation be set up against a creditor
who has a claim for support due by gratuitous title, without
prejudice to the provision of paragraph 2 of article 301.
ART. 1288. Neither shall there be compensation if one of
the debts consists in civil liability arising from a penal clause.

PART III
General Provisions on Contracts
Learning Objectives:
After studying this lesson, you should:
1. know the definition of contract
2. learn the different classifications of contracts;
3. know the elements of contracts; and
4. that contracts take effect only between parties and its exceptions.
The classifications of contracts summarizes those types of contracts
that may be freely agreed upon as long as they are not contrary to law,
morals, good customs, public order or public policy.
ART. 1305. A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give something or to
render service. (1254a)

Contracts, Defined
 The above article defines the term Contract. In a
contract, one or more persons bind themselves with
respect to another or reciprocally, to the fulfillment of
a presentation to give, to do or not to do.

Elements of Contract:
 1. Essential elements – those elements without which there
can be no valid contract. This element are consent, object or
subject matter and cause or consideration
 2. Natural elements – those elements which are found in a
contract by its nature and presumed by law to exist, such as
Warranty of hidden defects or eviction in contract of sale.
 3. Accidental elements - those which exist by virtue of an
agreement for the purpose of expanding, limiting, or modifying a
contract. Such accidental elements are condition, clauses,
terms, modes of payment, or penalties.

Stages of A Contract:
 1. Preparatory or conception – process of formation such
as bargaining, negotiation to arrive at a define contract.
 2. Perfection or birth – there is now a meeting of minds
to arrive at a definite agreement as to the subject matter,
cause or consideration, terms and conditions of contract.
 3. Consumption or death – which is the fulfillment or
performance of the terms and conditions agreed upon in
the contract may be said to have been fully accomplished or
executed.

Characteristics of Contracts:
 1. Freedom to contract – they may establish terms and
conditions as they may deem convenient.
 2. Relativity – it is binding only upon the parties and
their successors.
 3. Obligatory force – it constitutes the law as between
the parties.
 4. Mutuality – its validity and performance cannot be
left to the wil of only one of the parties.

Classification of A Contract:
(FROM)
 1. As to perfection
a. Consensual – one which is perfected by mere consent (Art.
1315
b. Real Contract – perfected by mere consent and by the delivery of
the object or subject matter. Ex. Deposit, pledge, or commodatum.
 2. As to dependence to other contract.
a. Principal – one which can stand alone. Ex. A contract of sale,
lease.
b. Accessory – those which are dependent upon another
contract. Ex. Contract of mortgage, pledge of guaranty.
c. Preparatory – those which is created in order that a future
transaction or contract may be entered into by te parties. Ex.
Contract of partnership or agency.

 3. According to name or designation
a. Nominate – one which has particular name or designation such as
sale, agency, etc.
b. Innominate – those without particular name.
 4. According to the nature of obligation
a. Unilateral – where only one ha an obligation to perform. Ex. Contract
of donation, commodation.
b. Bilateral – where both parties have reciprocal obligation to perform.
Ex. Sale.
 5. According to risk involved
a. Commutative - where there is an exchange of values, such as lease.
b. Aleatory - one which the fulfillment of the obligation depends upon
chance. Ex. Contract of insurance.
 6. According to cause
a. Onerous – one which imposes valuable consideration such as sale,
mortgage.
b. Gratuitous – one which one of the parties does not receive any
valuable consideration, such as commodatum.

 7. According to form
a. Oral – by word of mouth of the parties
b.Written – the agreement which is reduced in writing which
may be public or private or private document
ART. 1306. 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. (1255a)

Contract Binds by Both Parties
ART. 1308. The contract must bind both
contracting parties; its validity or compliance cannot be left to
the will of one of them. (1256a)

 Contracts entered by and between the parties mush bind
both parties in order that it can be enforced against each other.
This is also known as “mutuality of contract”. Hence, its validity or
compliance cannot be left to the will of one of them. This principle
is based on the essential equality of the parties. It is elementary
rule that no party can renounce or violate the law of the contract
without the consent of the other. (11 Manresa 380)
Example, Gaya and Laura entered into a contract to sell
whereby Gaya binds herself to sell her only parcel of land to Laura
if Gaya decides to leave for States. The contract is void because the
fulfillment of the condition depends on the will of Gaya.

 ART. 1309. The determination of the
performance may be left to a third person, whose
decision shall not be binding until it has been made
known to both contracting parties.
 ART. 1310. The determination shall not be
obligatory if it is evidently inequitable. In such case,
the courts shall decide what is equitable under the
circumstances.

Determination of Performance by
Third Person
 As a rule, compliance with a contract cannot be left to the will of
one of the contracting parties. However, the determination of its
performance may be left to a third person after it has been made
known to both contracting parties. Provided, further, the parties are
not bound by the determination if it is evidently inequitable or unjust
when the third person acted in bad faith or by mistake, the courts shall
decide what is equitable under the circumstances.
 Example, Gaya sold her parcel of land to Laura. It was agreed
that Maya, a real estate appraiser would be the one to determine the
reasonable price of the land. Maya, then, fixed the price after
considering the factors affecting the value of the land, and informing
both contracting party that the decision is just and suitable. If the
decision made by Maya is manifestly inequitable, the court may be
called upon to decide what is equitable.

 ART. 1311. Contracts take effect only between the
parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract
are not transmissible by their nature, or by
stipulation, or by provision of law. The heir is not
liable beyond the value of the property he perceived
from the decedent.
 If a contact should contain some stipulation in
favor of third person, he may demand its fulfillment
provided he communicated his acceptance to the
obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately
conferred a favor upon a third person. (1257a)

Cases Where Third person May Be
Affected By a Contract
 1. In determining the performance of both parties (Art. 1309).
 2. In contracts containing a stipulation in favor of a third person (Art.
1311).
 3. In contracts creating real rights (Art. 1312).
 4. In contracts entered into to defraud creditor (Art. 1313).
 5. In contracts which have been violated at the inducement of the
third person (Art. 314).
 Example, Gaya mortgaged her parcel of land in favor of Laura as
collateral for her debt. The mortgage is duly registered. Later on, Gaya
sold the same land to Tito. In this case, Tito bought the land subject to the
mortgage constituted thereon. Tito, although a stranger in the mortgage,
being a real right follows the property on the right of Laura to the
mortgage.

Forms of Contracts
 Art. 1356. Contracts shall be obligatory, in
whatever form they may have been entered into,
provided all the essential requisites for their
validity are present. However, when the law
requires that a contract be in some form in order
that it may be valid or enforceable, or that a
contract be proved in a certain way, that
requirement is absolute and indispensable. In
such cases, the right of the parties stated in the
following article cannot be exercised. (1278a)

Meaning of Form of Contracts
 Forms of a contract refer to the manner
in which a contract is executed or
manifested

Rules Regarding Form of Contracts
 General Rule – Contracts are binding and
therefore, enforceable reciprocally by the contracting
parties, whatever may be the form in which the contact
has been entered into to provided all the three essential
requisites (consent, object, cause) for their validity are
present.

Reformation of Instruments
 Art. 1359. When, there having been a meeting of the
minds of the parties to a contract, their true intention is not
expressed in the instrument purporting to embody the
agreement, by reason of mistake, fraud, inequitable conduct
or accident, one of the parties may ask for the reformation of
the instrument to the end that such true intention may be
expressed.
 If mistake, fraud, inequitable conduct, or accident has
prevented a meeting of the minds of the parties, the proper
remedy is not reformation of the instrument but annulment
of the contract.

Meaning of Reformation
 Reformation is that remedy by means of
which a written instrument is amended or rectified
so as to express or conform to the real agreement or
intention of the parties when by reason of mistake,
fraud, inequitable conduct, or accident the
instrument fails to express such an agreement or
intention.

Requisites of Reformation
 1. There is a meeting of the minds of the parties to
the contract;
 2. The written instrument does not express the true
agreement or intention of the parties;
 3. The failure to express the true intention is due to
mistake, fraud, inequitable conduct or accident;

 4. The facts upon which relief by way of reformation of
the instrument is sought are put in issue by the pleadings;
and
 5. There is clear and convincing evidence of the mistake,
fraud, inequitable conduct or accident.
Example, Arvin sold his land to Ryan. It was greed
that the sale will include all the improvements. However,
the contract was signed by the parties, states that the land
is being sold excluding the improvements thereon. In this
case, the remedy is reformation, because there has been a
meeting of minds.

Cases When Reformation Not
Allowed
 1. Simple donation inter vivos where no condition is
imposed – Donation is an act of liberality whereby a person
disposes gratuitously of a thing or right in favor of another,
who accepts it. (Art. 725). Donation is strictly personal
andfree act so that if the intend of the donor that the
donation will take effect during his lifetime, it is a donation
inter vivos, while the opposite of inter vivos is donation
mortis causa which takes effect after the donor’s death.
 2. Wills – A will is an act whereby a person is permitted
with a formalities prescribed by law to control to a certain
degree the disposition of his estate, to take effect after his
death.

 3. When the real agreement is void – If the real
agreement is void, thre is nothing to reform.
 4. When one party ahs brought an action to enforce
the instrument – (Art. 1367) When a party brings an
action to enforce the contract, he admits its validity
and that it expresses the true intention of the parties.
The bringing of the action is thus inconsistent with
reformation

Interpretation Of Contracts
 Art. 1370. If the terms of a contract are clear and
leave no doubt upon the intention of the
contracting parties, the literal meaning of its
stipulations shall control.
 If the words appear to be contrary to the
evident intention of the parties, the latter shall
prevail over the former. (1281)

Meaning of Interpretation of a
contract
 Interpretation of a contract is the determination
of the meaning of the terms of word used by the
parties in their contact.
If the terms of a contract are clear and
unequivocal, the parties are bound thereby according
to the literal sense of their stipulations.
Example, a contract was executed by A and B, the
contract recites that is a sale of land belongs to A for
P500. The terms of the contract are clear and it does
not appear that the intention of the parties is contrary
to the literal meaning of said terms

Cause of Contracts
 Art. 1350. In onerous contracts the cause is
understood to be, for each contracting party, the
prestation or promise of a thing or service by the
other; in remuneratory ones, the service or benefit
which is remunerated; and in contracts of pure
beneficence, the mere liberality of the benefactor.
(1274)

Meaning of Cause
 Cause is the essential or more proximate purpose
which the contracting parties have in view at the time
of entering into a contract. (8Manresa697)
 It is the Civil Code term for consideration in
Anglo American or Common Law.

Classification of Contracts
According to Cause
 1. ONEROUS – the cause of which for each contracting
parties is the pre-station or promise of a thing or
service of the other. Ex. Sale, lease of things.
 2. REMUNERATORY - the cause is the service or
benefit which is remunerated. Ex. A rendered service
as the lawyer-counsel of B who agreed to pay P10, 000
for said services.
 3. GRATUTIOUS – the cause which is the mere
liberality of the benefactor or giver. Ex. X donated a
parcel of land to Y. The cause is the liberality of X, the
done or benefactor.

 Art. 1352. Contracts without cause, or with
unlawful cause, produce no effect whatever. The
cause is unlawful if it is contrary to law, morals,
good customs, public order or public policy. (1275a)
 Art. 1353. The statement of a false cause in
contracts shall render them void, if it should not be
proved that they were founded upon another cause
which is true and lawful. (1276)

Requisites of Cause
 1. it must exist at the time the contract is entered
into. (Art. 1352)
 2. it must be lawful; (Ibid) and
 3. it must be true or real. (Art 1353)

Effect of Absence of Cause
 A contract without cause or with an unlawful
cause, according to this article, produces no effect
whatever. Like, for example, an absolutely
simulated contract produces no effect because
there is no cause at all.

Effect of Inadequacy of Cause
 Inadequacy of cause does not
invalidate a contact. (Art. 1355). Illegality of
cause implies that there is a cause but the
same is unlawful or illegal. By falsity of
Cause is meant that the contract states a valid
consideration but such statement is not true

PART IV
DEFECTIVE CONTRACTS
There are four kinds of defective contracts:
 1. Rescissible contracts (Chapter 6);
 2. Voidable contracts (Chapter 7);
 3. Unenforceable Contracts (Chapter 8); and
 4. Void or inexistent contracts (Chapter 9)

Rescissible contracts
 Contracts are valid because all the essential
requisites of a contract exist but by reason of injury
or damage to one of the parties or to third persons,
such as creditors, the contract may be rescinded.
Art. 1380. Contracts validly agreed upon may
be rescinded in the cases established by law. (1290)

Meaning of Rescission
 Rescission is a remedy granted by law to
the contracting parties and sometimes even
to third person in order to secure reparation
of damages caused them by a valid contract,
by means of the restoration of things to their
condition in which they were prior to the
celebration of said contract. (8Manresa 748)

Requisites of Rescission
 1. The contract must be validly agreed upon;
 2. There must be lesion on pecuniary prejudice to
one of the parties or to a third person;
 3. The rescission must be based upon a case
especially provided by law;
 4. There must be no other legal remedy to obtain
reparation for the damage;

 5. The party asking for rescission must be able to
return what he is obliged to restore by reason of
the contract.
 6. The object of the contract must not legally be
in the possession of third person who did not act
in bad faith;
 7. The period for filing the action for rescission
must not have prescribed

 Art. 1381. The following contracts are rescissible:
`
 (1) Those which are entered into by guardians whenever the
wards whom they represent suffer lesion by more than one-fourth
of the value of the things which are the object
thereof;
 (2) Those agreed upon in representation of absentees, if
the latter suffer the lesion stated in the preceding number;
 (3) Those undertaken in fraud of creditors when the latter
cannot in any other manner collect the claims due them;
 (4) Those which refer to things under litigation if they have
been entered into by the defendant without the knowledge
and approval of the litigants or of competent judicial
authority;
 (5) All other contracts specially declared by law to be
subject to rescission. (1291a)

Voidable Contracts
 Art. 1390. The following contracts are
voidable or annullable, even though there may have
been no damage to the contracting parties:
 (1) Those where one of the parties is
incapable of giving consent to a contract;
 (2) Those where the consent is vitiated by
mistake, violence, intimidation, undue influence or
fraud. These contracts are binding, unless they are
annulled by a proper action in court. They are
susceptible of ratification.

Meaning of Voidable Contracts
 Voidable or annullable contracts are those
which possess all the essential requisites of valid
contract but one of the parties is incapable of giving
consent, or consent is vitiate by mistake, violence,
intimidation, undue influence of fraud.

Meaning of Annulment
 Annulment is a remedy granted by law,
for reason of public interest, for the
declaration of the inefficacy of a contract
based on defect or vice in the consent of one
of the contracting parties in order to restore
them to their original position in which
there were before contract was executed.

Characteristics of Voidable
Contracts
 1. The defect in the contract consists in the vitiation of
consent of one of the contracting parties;
 2. The contract is binding until annulled by a competent
court;
 3. The contract is susceptible of convalidation by ratification or
prescription;
 4. The defect or voidable character of the contract cannot be
invoked by third persons.

Art. 1391. The action for annulment shall be brought
within four years. This period shall begin:
 In cases of intimidation, violence or undue
influence, from the time the defect of the consent ceases.
 In case of mistake or fraud, from the time of the
discovery of the same.
 And when the action refers to contracts entered into
by minors or other incapacitated persons, from the time
the guardianship ceases. (1301a)

Period for Filing Action for
Annulment
The period within which the action for annulment
shall be brought within four(4) years from:
 1. The time the intimidation, violence or undue
influence ceases;
 2. The time of the discovery of mistake or fraud;
and
 3. The time guardianship ceases, in cases of
contracts entered into by incapacipated
persons.

Unenforceable Contracts
 Art. 1403. The following contracts are unenforceable,
unless they are ratified:
 (1) Those entered into in the name of another person by
one who has been given no authority or legal representation,
orwho has acted beyond his powers;
 (2) Those that do not comply with the Statute of Frauds
as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by action,
unless the same, or some note or memorandum, thereof, be in
writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received
without the writing, or a secondary evidence of its contents:

 (a) An agreement that by its terms is not to be
performed within a year from the making thereof;
 (b) A special promise to answer for the debt,
default, or miscarriage of another;
 (c) An agreement made in consideration of
marriage, other than a mutual promise to marry;

 (d) An agreement for the sale of goods, chattels or things
in action, at a price not less than five hundred pesos, unless the
buyer accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action or pay at
the time some part of the purchase money; but when a sale is
made by auction and entry is made by the auctioneer in his
sales book, at the time of the sale, of the amount and kind of
property sold, terms of sale, price, names of the purchasers and
person on whose account the sale is made, it is a sufficient
memorandum;
 (e) An agreement of the leasing for a longer period than
one year, or for the sale of real property or of an interest
therein;
 (f ) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving
consent to a contract.

Meaning of Unenforceable
Contracts
 Unenforceable contracts are those that cannot be
enforced in court or sued upon by reason of defects
provide by law until unless they are ratified according to
law.
 They are contracts either entered into without or
in excess of authority or do not comply with the statue of
frauds or both of the contracting parties do not possess
the required legal capacity.

Classes of Unenforceable
Contracts
 1. Those entered into the same of another
person by one without authority or in excess of his
authority;
 2. Those which do not comply with the Statue
of Frauds; and
 3. Those where both parties are incapable of
giving consent

Art. 1404. Unauthorized contracts are
governed by Article 1317 and the principles of
agency in Title X of this Book.
 Art. 1405. Contracts infringing the Statute of
Frauds, referred to in No. 2 of Article 1403, are
ratified by the failure to object to the
presentation of oral evidence to prove the same,
or by the acceptance of benefit under them.

Void or Inexistent Contracts
Art. 1409. The following contracts are inexistent and
void from the beginning:
 1) Those whose cause, object or purpose is contrary to
law, morals, good customs, public order or public policy;
 2) Those which are absolutely simulated or fictitious;
 3) Those whose cause or object did not exist at the
time of the transaction;
 4) Those whose object is outside the commerce of
men;
 5) Those which contemplate an impossible service;

 6) Those where the intention of the parties
relative to the principal object of the contract cannot be
ascertained;
 7) Those expressly prohibited or declared void by
law.
 These contracts cannot be ratified. Neither can
the right to set up the defense of illegality be waived.
 Art. 1410. The action or defense for the declaration
of the inexistence of a contract does not prescribe.

Meaning of Void or Inexistent
Contracts
 1. it cannot be ratified. (Art 1409)
 2. the right to set up the defense of illegality
cannot be waived.
 3. the action or defense for the declaration of
its inexistence does not prescribed. (art. 1410)
 4. the defense of illegality is not available to
third persons whose interests are not directly
affected; and
 5. it cannot give rise to a valid contract. (Art.
1422)

Instances of Void or Inexistence
Contract
 There is no need for a detail discussion of
these different kinds of void inexistent contracts
considering that they have been discussed in
previous chapters of this book.
 Void of inexistent contracts does not
prescribe. Mere lapse of time cannot give effect to
contracts which are null and void.

Art. 1411. When the nullity proceeds from the
illegality of the cause or object of the contract, and
the act constitutes a criminal offense, both parties
being in pari delicto, they shall have no action
against each other, and both shall be prosecuted.
Moreover, the provisions of the Penal Code relative
to the disposal of effects or instruments of a crime
shall be applicable to the things or the price of the
contract.
 This rule shall be applicable when only one of
the parties is guilty; but the innocent one may claim
what he has given, and shall not be bound to comply
with his promise. (1305)

Meaning of Pari Delicto
 Pari Delicto means both parties are equally at
fault or are equally guilty. The principle of pari
delicto, means that when the defect of avoid
contracts consists in the illegality of the cause or
object f the contract and both parties are at fault or
in a pari delicto, the law refuse them every remedy,
or the parties have no action against each other.

Illegal contract with Criminal
Offense
 1. When both parties are in pari delicto – Rules
 a. the parties shall have no action against each
other;
 b. both shall be prosecuted; and
 c. the things of the price of the contract, shall
be confiscated in favor of the government.
 2. Where only one party is guilty.
 The innocent one or less guilty may claim what
he has given and shall not be bound to
comply with his promise

Art. 1412. If the act in which the unlawful or
forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:
 (1) When the fault is on the part of both
contracting parties, neither may recover what he has
given by virtue of the contract, or demand the
performance of the other’s undertaking;
 (2) When only one of the contracting parties is at
fault, he cannot recover what he has given by reason of
the contract, or ask for the fulfillment of what has been
promised him. The other, who is not at fault, may
demand the return of what he has given without any
obligation to comply his promise. (1306)

Effect of Illegal Terms in a Contract
Art. 1420. In case of a divisible contract, if the
illegal terms can be separated from the legal ones, the
latter may be enforced.
 In case a contract containing an illegal orlegal
terms, the law allows the legal terms to be enforced if it
can be enforced if it can be separated from the illegal
ones.

Persons Entitled to Raise Defense
of Illegality or Nullity
 As general rule, contracts bind only the
contracting parties, their heirs or assigns.
Corollary to this rule, the illegality of a
contract maybe set up as a defense only by
contracting parties or by parties whose
interest are affect by the contracts as a defense

Presenters:
Marvin Morente
Marianita Rachelle Pica
BOA IV-1

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