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Obligations and Contracts

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 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.
The obligations referred to in our manual is a patrimonial obligations that is, those obligations with pecuniary value or
assessable in terms of money.
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.
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.
ans 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.
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) Efficient Cause or 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

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.
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.


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;
 l contracts are obligations while
not all obligations are contracts.
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

ART. 1160. Obligations derived from quasi- contracts shall be subject to the provisions of Chapter 1, Title XVII, of

to the provisions of article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on Human Relations,
-delicts
shall be governed by the provisions of Chapter 2,
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
ue Code, it is the duty of
every person having an income to pay taxes.
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, to give something or to render some services.
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.
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.
Kinds of Quasi- contracts
a. 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.
b. 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:
– which is the restoration of or returning the object of the crime to the injured party.
– 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.
– 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
-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.




Requisites of a quasi- delicts -
ligence attributable to the offended;

-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-
and the
plaintiff, a passenger in the truck, was injured.
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.
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.
To deliver the object or thing when the obligation to deliver arises, including:
a. Fruits of the thing if any.
Kinds of fruits:
 Natural
 Industrial
 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.
b – is the right pertaining to the owner of a thing over its products and
whatever is attached thereto either naturally or artificially. Example-
– are those things which are joined attached to the
principal object as ornament or to render it perfect. Example- o attached to a car; or key to a car.
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.
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
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 th
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)
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)
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)
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.

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)
– 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.
independent from the human wil
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
– 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.


default or delay. ( Art. 11
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.
pecial laws.
interest.
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.
rvation 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.
7.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)
– 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.
stipulation to the contrary. (1112)
tue 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
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.

a.) Unilateral and bilateral; b.) determinate and generic; c.) legal, conventional and penal; d.) real and personal
– 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
– Gaya obliged herself to pay her loan of P1,000 to Tito on demand.
igations 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.
guishment or loss of those already
acquired, shall depend upon the happening of the event which constitutes the condition. (1114)
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)
hibited 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,
ered as not having been agreed upon. (1116a)
soon as the time expires or if it has become indubitable that the event will not take place. (1117)
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)
nt. (1119)
– 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.
– 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.
Kinds or classifications of condition: 2. Potestative, Casual and Mixed
– 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.

– 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.
– 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.
Kinds or classifications of 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.
Kinds or classifications of 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.
Kinds or classifications of condition: 5. Divisible and Indivisible
– 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
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.
that has been complied with. (1120)
s 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. – 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.
– 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.
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)
– 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)

creditor‘s right during the pendency of the condition:
ple: 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.
e 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. – 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.
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.
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.
ost: 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.
tions 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.
ions which, with respect to the debtor , are
laid down to the preceding article shall be applied to the party who is bound to return.
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.
ion 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.
ulfillment and the rescission
of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen
there be just
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
rescind if the buyer does
following alternative remedies: 1.Demand fulfillment of the obligation plus damages; or 2.Demand rescission of the
obligation plus damages.
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.
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)
- s been fixed,
shall be demandable only when that day comes.

be known when.
by the rules of the preceding Section.
Period Defined –
rmines the effectivity or the extinguished of
obligation.
of said period or term. (8Manresal58)
essarily 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.

Note the c
1999 by the car was destroyed by fortuitous event in July 1, 1999, the obligation is extinguished.
e 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)

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.
- 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.
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)
presumed to be for the benefit of both creditor and debtor.
ation of the period, the debtor may not fulfill the obligation and neither the
creditor demand its fulfillment.
have been established for th
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.
- 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.

– 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.
period was intended, the courts may fix the duration thereof.

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)
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.
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)

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.
When Debtor Loses The Right to Make Use Of A Period 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.
When Debtor Loses The Right to Make Use Of A Period 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.
igations


s 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.

o 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 –
s 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.

– ated, the communicated, the
obligation remains alternative. Once the notice to the effect that a choice is made, the obligation ceases to be
e
shall likewise produce legal effects upon being communicated to the debtor. (Art. 1205, par. 1)
rough 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.
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.

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.
e 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)

– 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.
o 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.
become impossible. (1136a)
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).
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.
ion –
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.
– Joint and Solidary Obligations
re 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)
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)
– 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.
e 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
– 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
– 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
– A and
B are solidarity debtors to C and D, solidary creditors in the amount of P 10, 000.
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.
itors 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.
– ect is indivisible and the T/E between the parties are merely proportionately
liable.
– 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.
imply indivisibility. (n)
sibility as Distinguished from Solidarity Indivisibility refers to the subject matter while solidarity refers to the Tie
– 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.
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.
wing
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.
l to the others, but not anything which
may be prejudicial to the latter. (1141a)

– A solidary creditor may do any act beneficial or useful to
the others but he cannot act prejudicial to them.

judicial demand upon any of the solidary debtors is sufficient. (Art. 1155, NCC)

the case of remission or condonation, the solidary creditor is allowed to so remit, and the obligation is extinguished.
made by one of them, payment should be made to him.
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.
d 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.
with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of article 1219.
others for the share in the obligation corresponding to them.

corresponding shares considering that such acts are prejudicial to them. (Art. 1212, NCC)
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)

some or all of the solitary creditors simultaneously so long as it has not been fully collected.
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.
o 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)
– 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 obliga – 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.
y 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)

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.
– 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.
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)
reimbursement from his co-debtors.

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.
out the fault of the solidary
debtors, the obligation shall be extinguished.
payment of damages and interest, without prejudice to their action against the guilty or negligent debtor.
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.
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.
es which are derived
from the nature of the obligation and of those which are personal to him, or pertain to his own share.
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.
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.
– Divisible and Indivisible Obligations]
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.
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.
agreed to deliver a determinate car to B on Dec. 31. This is an indivisible obligation because it is not
subject to partial performance.
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)
susceptible of partial performance shall be deemed to be indivisible.
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.
le, and obligation is Indivisible if so provided by
law or intended by the parties.
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
he nature of the subject matter.
2.Obligations which are not susceptible of partial performance
performance of all the parts.
Obligations Deemed Indivisible 3. Obligation provided by law to be indivisible even if thing or service physically
divisible.
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.
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.
– 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.

3. Obligations which by their nature are susceptible of partial performance

– Obligations with a Penal Code
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.


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.
the case where this right has been expressly reserved for him.
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)
– 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.
demanded.
l 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.
of the penal clause does not carry with it that of the principal obligation.
– 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.
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
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.
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:

by provision of law;



m a crime.
interest.
extinguish the obligation.
obligation is so important as to extinguish the obligation.
e 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)
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.

obligor may also be released therefrom, in whole or in part. (n)
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
he 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.
tifiably refused to accept it
and the object is subsequently lost due ot fortuitous event, in which case the obligation is extinguished.
f
action which the debtor may have against third persons by reason of the loss. (1186)
When Creditor Acquires Debtor‘s Right Of Action
third person.
SECTION 3. - Condonation or Remission of the Debt
made expressly or impliedly.
the rules which govern inofficious donations. Express condonation shall,
furthermore, comply with the forms of donation. (1187)
Condonation or Remission Defined
equivalent, renounces the
enforcement of the obligation, as a result his right against the debtor. (4 Sanchez Roman 422)
Requisites of Condonations OR Remissions


ty;


Effect of inofficious Remission
otherwise, the excess shall be inofficious and shall be reduced by the Court accordingly.
reserved it from certain heirs called the compulsory heirs.
elivery 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.
he 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)
shall be presumed that the creditor delivered it voluntarily, unless the contrary is proved. (1189)
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.
y 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.
ation 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
ory cannot exist
without the principal obligation.
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
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
is extinguished from the time the characters or creditor and debtor are merged in the
same person. (1192a)
Meaning of Confusion or Merger

(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

of the accessory does not extinguish the principal obligation
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
ct 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.
who in turn assigned it to Gaya. There is here a merger between Gaya and Tito but Mary and Arvin would now owe
Gaya P5, 000 each.
Section 5. Compensation
other. (1195)
Compensation,Defined
Compensation shall take place when two persons, in their own rights are creditors and debtors of each other.
– in compensation there must be two
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.


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 sum of 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 owes Maya 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, Arvin woes 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 Gaya wins 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
Article 1279, part. 1 because the article allows setting up compensation as regard what the creditor may owe to the
principal debtor.
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 i s a total
compensation. Kinds of Compensation
extinguished.
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 debts which 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
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.
ithout 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.
ppose 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
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
another or reciprocally, to the fulfillment of a presentation to give, to do or not to do.
Elements of Contract:
– those elements without which there can be no valid contract. This element are consent,
object or subject matter and cause or consideration
– 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.
- 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:
– process of formation such as bargaining, negotiation to arrive at a define contract.
– 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.
– 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:
– they may establish terms and conditions as they may deem convenient.
– it is binding only upon the parties and their successors.
– it constitutes the law as between the parties.
– its validity and performance cannot be left to the wil of only one of the parties.
Classification of A Contract: – 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.
nce 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.
– one which has particular name or designation such as sale,
agency, etc. b. Innominate – those without particular name.
– 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.
- 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.
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.
– 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)
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.
t to a third person, whose decision shall not be
binding until it has been made known to both contracting parties.
decide what is equitable under the circumstances.
Determination of Performance by Third Person
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.
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.
nly 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.
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)
1309).



nt of the third person (Art. 314).
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
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

Rules Regarding Form of Contracts
– 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
en, 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.
remedy is not reformation of the instrument but annulment of the contract.
Meaning of Reformation
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

ntention of the parties;

and
here 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
– 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.
– 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.
– If the real agreement is void, thre is nothing to reform.
– (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
contract are clear and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control.
mer.
(1281)
Meaning of Interpretation of a contract
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
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
into a contract. (8Manresa697)
il Code term for consideration in Anglo American or Common Law.
Classification of Contracts According to Cause
– 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 - the cause is the service or benefit which is remunerated.
Ex. A rendered service as the lawyer- –
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.
contrary to law, morals, good customs, public order or public policy. (1275a)
were founded upon another cause which is true and lawful. (1276)
Requisites of Cause


Effect of Absence of Cause
, 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
lies 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
ssible contracts (Chapter 6);



Rescissible contracts
ist 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
cission 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


case especially provided by law;


act must not legally be in the possession of third person who did not act in bad faith;

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
g
the knowledge and approv
declared by law to be subject to rescission. (1291a)
Voidable Contracts
een no damage to the
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
parties is incapable of giving consent, or consent is vitiate by mistake, violence, intimidation, undue influence of fraud.
Meaning of Annulment
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.
n the vitiation of consent of one of the
contracting parties;


contract cannot be invoked by third persons.
Art. 1391. The action for annulment shall be brought within four years. This period shall begin:

e of mistake or fraud, from the time of the discovery of the same.
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:
contracts entered into by incapacipated persons.
Unenforceable Contracts

entered into in the name of another person by one who has been given no authority or legal
representation, or who has acted beyond his powers;

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:


sideration of marriage, other than a mutual promise to marry;
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
(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;
(3) Those where both parties are incapable of giving consent to a contract.
upon by reason of defects provide by law until unless they are ratified according to law.
both of the contracting parties do not possess the required legal capacity.
Classes of Unenforceable Contracts


re incapable of giving consent
Art. 1404. Unauthorized contracts are governed by Article 1317 and the principles of agency in Title X of this Book.
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:
, object or purpose is contrary to law, morals, good customs, public order or public policy;


outside the commerce of men;



hese contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.

it cannot give rise to a valid contract. (Art. 1422)
Instances of Void or Inexistence Contract
considering that they
have been discussed in previous chapters of this book.
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.
given, and shall not be bound to comply with his promise. (1305)
Meaning of Pari Delicto
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.
– a. the parties shall have
shall be confiscated in favor of the government.
t 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:
) 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;
r 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.
an be
enforced if it can be separated from the illegal ones.
Persons Entitled to Raise Defense of Illegality or Nullity

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
Thank you!!!!!