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to the end that no one may be unjustly enriched at the

expense of another.


Delicts (ex-maleficio) - governed primarily by the penal laws


Quasi-Delicts (quasi-maleficio)
Whoever by act or omission causes damage
to another, there being fault or negligence, is
obliged to pay for the damage done, if there is
no pre-existing contractual relation between
the parties (culpa aquiliana).

I - The Obligation

Concept of Obligation



An obligation 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.
An obligation is a juridical necessity to give, to do, or not to
do. (1156)
Subject to the laws, all rights acquired in virtue of an
obligation are transmissible, if there has been no stipulation to
the contrary. (1178)

Elements of Obligation
(1) an active subject, who has the power to demand the prestation,
known as the obligee or creditor;
(2) a passive subject, who is bound to perform the prestation,
known as the obligor or debtor;
(3) an object or the prestation; and
(4) the juridical tie or vinculum juris

There are three kinds of prestations in obligations:
to give
to do
not to do
I - Obligations To Give

II - The Object or Prestation

The obligation to give may refer either to:

(1) a specific or determinate thing - one that is
individualized and can be identified
or distinguished from others of its kind
(2) an indeterminate or generic thing - one that is indicated
only by its kinds,
without being designated and distinguished from
others of the same kind


Concept of Object or Prestation


Obligation to Give a Specific or Determinate Thing

The object of an obligation is not a thing but a particular conduct of

the debtor which may consist in:

Three incidental or accessory obligations:

(1) The obligation to preserve the thing 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. (1163)
(2) The obligation to deliver the fruits. However, the
creditor shall acquire no real right over it until the same
has been delivered to him. (1164)
(3) The obligation to deliver the accessions and accessories,
even though they may not have been mentioned. (1166)

The creditor may compel the debtor to make the delivery. (1165 par.


Obligations to Give an Indeterminate or Generic Thing

The creditor may ask that the obligation be complied with at the
expense of the debtor. (1165 par. 2)

(1) giving something

(2) doing something
(3) not doing something
B. Requisites
The prestation must have the following requisites:
(1) it must be possible, physically and juridically;
(2) it must be determinate, or, at least, determinable
(3) it must be capable of pecuniary estimation

III - Sources of Obligations


Obligations arise from: (1157)

Law - obligations derived from law are not presumed. Only
those expressed in the Civil Code or in special laws are
demandable and shall be regulated by the precepts of the
law which establish them; and to what has not been
foreseen, the provisions of Book IV of the Civil Code.
Contracts (ex contractu) - have the force of law between the
contracting parties and should be complied with in good
faith. (1159)

II - Obligations To Do

The obligation shall be executed at his cost if:


If the person obliged to do something fails to do it; or

If he does it in contravention to the tenor of the

Furthermore, it may be decreed that what has been poorly done be

undone. (1167)

The law does not authorize the imposition of personal force or

coercion upon the debtor to comply with his obligation. In such
case, he can be held liable for damages

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
some service. (1254a)

III - Obligations Not To Do

Quasi-contracts (quasi-contractu) - a juridical relation which
arises from certain lawful, voluntary, and unilateral acts,

If the obligor does what has been forbidden him:

(1) it shall be done at his expense (1168)

(2) he can be held liable for damages


IV - Remedies of the Creditor


When a debtor fails to comply with his obligation, the creditor may
avail himself of the following remedies:
(1) an action for specific performance
(2) an action to rescind the obligation
(3) an action for damages, exclusively or in addition to
either of the first two actions


Fortuitous events are events which could not be foreseen, or which,

though foreseen, were inevitable.
The doctrine of fortuitous event is applicable only to obligations to
give a specific thing and obligations to do.
The general effect is that the debtor cannot be held liable for
damages for non-performance.
To exempt the debtor from paying damages, the following instances
must concur:
(1) Cause of the unforeseen occurrence or the failure of the
debtor to comply with his obligations must be
independent of the human will.
(2) It must be impossible to foresee, or if it can be foreseen,
it must be impossible to avoid.
(3) The occurrence must be such as to render it impossible
for the debtor to fulfill his obligation in a normal
(4) The obligor must be free from any participation in the
aggravation of the injury resulting to the creditor.
(5) Fault or negligence must not be imputed to the debtor.
(Concurrent negligence)

V - Damages
11 Those who in the performance of the obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages. (1170)
Modes of Breach
1170. Those who in the performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages. (1101)


Fraud (dolo incidente and dolo causante)

Fraud is a deliberate and intentional evasion of the normal
fulfillment of obligations.
Responsibility arising from fraud is demandable in all obligations.
Any waiver of an action for future fraud is void. (1171)

Negligence (Culpa Contractual)

Negligence 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.
If the law or contract does not state the diligence which is to
be observed in the performance, that which is expected of a
good father of a family shall be required. (1173)
Responsibility arising from negligence in the performance of
every kind of obligation is also demandable, but such liability
may be regulated by the courts. (1172)


Delay (Mora) (1169)

Delay is incurred from the time the obligee juridically or extrajuridically demands the fulfillment of the obligation. There can be
delay only in obligations to give and obligations to do.



The debtor will still be liable for fortuitous event:

(1) if it is expressly specified by law
(2) if it is declared by stipulation
(3) when the nature of the obligation requires the
assumption of risk


The Civil Code classifies obligations primarily into:

(1) pure
(2) conditional
(3) with a term
(4) alternative
(5) joint or mancomunada
solidary or several or in solidum
with a penal clause

(1) Mora solvendi - default on the part of the debtor which

may either be:
(a) ex re - referring to obligations to give
ex persona - referring to obligations to do

Section 1

(2) Mora accipiendi - default on the part of the creditor

I -- Pure Obligations

(3) Compensatio morae - default of both parties in reciprocal

delay begins from the moment one of the parties
fulfill his obligation (Exeptio non adimpleti


However, the demand by the creditor shall not necessary in order

that delay may exist:
(1) When the obligation or law expressly so declares
(2) When the period is the controlling motive or the
principal inducement for the creation of the obligation.
(3) When the demand would be useless, as when the obligor
has rendered it beyond his power to perform

VI - Force Majeure (1174)

A pure obligation is an obligation which contains no term or

condition whatsoever upon which depends the fulfillment of
the obligation contracted by the debtor. (1179 par. 1)
A pure obligation must be reasonably construed, distinguishing
immediate demandability by the creditor, from the fulfillment
by the debtor, for which a reasonable period may be granted.
II - Conditional Obligations
In conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend
upon the happening of the event which constitutes the
condition. (1181)
A condition has been defined as every future and uncertain event

upon which an obligation or provision is made to depend.

(1179 par. 2)

Constructive Fulfillment
The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment. (1186)

Classification of Conditions


condition or
precedent - the happening of the condition
gives rise to the obligation
Resolutory or condition subsequent - the
happening of the condition extinguishes
rights already existing

intent of the obligor to prevent the fulfillment of the condition

actual prevention of compliance
If, however, in preventing the fulfillment of the condition the debtor
acts pursuant to a right, the condition will not be deemed s

(a) Potestative - depends upon the will of one of
the contracting parties
(a-1) Simple potestative - presupposes
not only a manifestation of will but also
the realization of an external act (If
you sell your house)
(a-2) Purely Potestative - depends solely
and exclusively upon the will (If I
-- a purely potestative suspensive
condition is void (1182)
(b)Causal - depends exclusively upon chance or
upon the will of third
persons and not upon
the will of the contracting parties.
Mixed- depends not only upon the will of the
debtor but also upon chance or the will of
others (1183)

When the condition is resolutory but not dependent on the will of

the debtor, and he unjustifiably provokes or produces the
condition, which would not have happened without his doing
so, it will be considered as not having been fulfilled, and there
will be no extinguishment of rights.

III - Rights Pendente Conditione



The creditor may, before the fulfillment of the condition, bring

the appropriate actions for the preservation of his rights. (1188
par. 1)

They may include for their objects:


(1) to prevent the loss or deterioration of the objects of the

obligation by enjoining or restraining acts of alienation
or destruction by the debtor himself or by third persons
(2) to prevent concealment of the debtors properties which
constitute the guaranty in case of non-performance of the
(3) to demand security if the debtor becomes insolvent
(4) to set aside fraudulent alienation made by the debtor

(a) Positive - The condition that some event happen at

a determinate time shall extinguish the obligation
as soon as the time expires or if it has become
indubitable that the event will not take place.
(b) Negative - The condition that some event will not
happen at a determinate time shall render the
obligation effective from the moment the time
indicated has elapsed, or if it has become evident
that the vent cannot occur. (1185)


In both cases, if no 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.

(3) (a) Express

(b) Implied
(4) (a) Possible
(b) Impossible - those contrary to good customs or
public policy and those prohibited by law shall annul the
obligation which depends upon them.

If the obligation is divisible, that part thereof which is not affected

by the impossible or unlawful condition shall be valid.
The condition not to do an impossible thing shall be considered a pure
obligation. (1183)
The impossibility must exist at the time of the creation of the obligation; a
supervening impossibility does not affect the existence of the
obligation. On the same principle, if the condition was impossible
when the obligation was constituted, the obligation remains void
even if such condition subsequently becomes possible, unless the
parties later agree again.
Kinds of impossibility:
Physical - contrary to the law of nature
Juridical - contrary to law, morals, good customs, and public policy.


May recover what during the same time he has paid by

mistake in case of a suspensive condition. (1188 par. 2)

If the payment was of a determinate thing, and it still exists in

the hands of the creditor, the accion reivindicatoria will lie;
otherwise, the provisions of solutio indebiti will apply.

If payment was made with knowledge of the condition, there

is an implied waiver of the condition, and whatever has been
paid cannot be recovered.

IV - Improvement, Loss, Deterioration Pendente Conditione


Definition of Terms
(1) Loss - a thing is lost:
(a) when it perishes
(b) when it goes out of the commerce of man
(c) when it disappears in such a manner that its
existence is unknown or it cannot be
(2) Deterioration - any reduction or impairment in the
substance or value of a thing which does not amount to
(3) Improvement - anything added to, incorporated in, or
attached to a thing that is Due

violated the contract, the same shall be deemed

extinguished and each shall bear his own damages.

B. Effects Regarding Suspensive Conditions (1189)

In obligations to deliver specific things, obligations to do, and
obligations not to do, the following rules shall apply with regards to loss,
deterioration, or improvement:


VI - Retroactivity (1187)

If the thing is lost without the fault of the debtor, the

obligation shall be extinguished;

If the thing is lost through the fault of the debtor, he

shall be obliged to pay damages;


When the thing deteriorates without the fault of the

debtor, the impairment is to be borne by the creditor;


If it deteriorates through the fault of the debtor, the

creditor may choose between:
(a) rescission + damages; or
(b) fulfillment + damages


If the thing is improved by nature, or by time, the

improvement shall inure to the benefit of the creditor;


If it is improved at the expense of the debtor, he shall

have no other right than that granted to the usufructuary.
(a) If the improvement can be removed by the
debtor without damage to the thing due, then
he may remove the same.
(b) But if the removal cannot be made without
substantial injury to the thing due, then the
improvement must be delivered together with
the thing due to the creditor without the latter
paying indemnity to the debtor.

(2) Unilateral obligations - 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

(3) As for obligations to do and not to do, the courts shall

determine the effects of the extinguishment of the
V - Reciprocal Obligations

Obligations To Do and Not To Do


The courts shall determine, in each case, the retroactive effect

of the condition that has been complied with.

Section 2
I - The Term or Period

Concept of Term

Effects Regarding Resolutory Conditions (1190)

(2) In case of loss, deterioration or improvement of the

thing, the rules which, with respect to the debtor, are laid
down in the preceding article shall be applied to the
party who is bound to return.

Once the condition (suspensive) has been fulfilled, it shall

retroact to the day of the constitution of the obligation.
(1) Reciprocal obligations - the fruits and interests during
the pendency of the condition shall be deemed to have
been mutually compensated

(1) When the conditions have for their purpose the

extinguishment of an obligation to give, the parties, upon
the fulfillment of said conditions, shall return to each
other what they have received.


Obligations to give


A period or term is a space of time which, exerting an

influence on obligations as a consequence of a juridical act,
suspends their demandability or determines their
The period must be:
(1) future
(2) certain
(3) possible



Breach by One Party (1191)

The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is
incumbent upon him. The power to rescind is given to the
injured party.
The injured party may choose between the fulfillment and the
rescission of the obligation, with payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with
articles 1385 and 1388 and the Mortgage Law.

B. Breach by Both Parties (1192)

(1) The liability of the first infractor shall be equitably
tempered by the courts.
(2) If it cannot be determined which of the parties first

Suspensive (ex die - from a day certain) - a

period that must lapse before the
performance of the obligation can be
Resolutory (in diem - to a day certain) - the
period after which the
performance must terminate

(2) According to source:

(a) legal - period fixed by law
(b) voluntary - fixed by the parties
(c) juridical - that allowed by the courts
(3) (a) express
(b) implied
(4) (a) original
(b) period of grace - extension fixed by the parties
themselves or by the court
(5) (a) definite - refers to a fixed or known date or time
(b) indefinite - refers to an event which will necessarily
happen but the date of its happening is unknown to the


Distinguished From Condition

(1) When after the obligation has been contracted, the debtor
becomes insolvent, unless he gives a guaranty or security
for the debt;

(1) While a condition gives rise to an obligation or

extinguishes one already existing, a period has no effect
upon the existence of obligations, but only their
demandability or performance.
Because of this
difference, a period does not carry with it, except when
there is a special agreement, any retroactive effect.

(2) When the debtor does not furnish to the creditor the
guaranties or securities he has promised;
(3) When by his own acts the debtor 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;

(2) A condition which depends exclusively on the will of the

debtor annuls the obligation, but a period left to the
debtors merely empowers the court to fix the term.

(4) When the debtor violates any undertaking, in

consideration of which the creditor agreed to the period;

II - Effects


(5) When the debtor attempts to abscond.

The period 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 the other.

Section 3
I - Plurality of Objects


Pending the Arrival of the Period

(1) In case of loss, deterioration or improvement of the thing
before the arrival of the term the rules in article 1189
shall be observed. (1194)

On the basis of plurality of objects, the obligations may be

classified into:
(1) Conjunctive - one where the debtor has to perform
several prestations; it is
extinguished only by the performance of all
of them

(2) Anything paid or delivered before the arrival of the

period, the obligor being unaware of the period or
believing that the obligation has become due and
demandable, may be recovered, with the fruits and
interests. (1195)
(a) The creditor who accepts payment in bad
faith shall pay legal interest if a sum of
money is involved, or shall be liable for fruits
(b) But if the creditor acted in good faith, he is
liable for fruits only in so far as they
benefited him.

(2) Alternative - several objects being due, the fulfillment of

one is sufficient
(3) Facultative - only one thing is due, but the debtor has
reserved the right to
substitute it with another

II - Alternative Obligations

Suspensive and Resolutory Periods

(1) Suspensive - obligation shall be demandable only when
the period comes
(2) Resolutory - obligations take effect at once, but
terminate upon arrival of the
day certain


The right of choice belongs to the debtor, unless it has been

expressly granted to the creditor (or a third person).

The debtor shall have no right to choose those prestations

which are impossible, unlawful or which could not have been
the object of the obligation. (1200)

The right to choose is indivisible. The debtor cannot choose

part of one prestation and part of another.

No Fixed Term (1197)


The courts may fix the term if from its nature and
circumstances it can be inferred that a period was
The courts shall also fix the duration of the period when
it depends upon the will of the debtor.
In every case, the courts shall determine such period as
may under the circumstances have been probably
contemplated by the parties.
Once fixed by the courts, the period cannot be changed
by the parties.


Right of Choice (Debtor)

Loss of Term (1198)


In the following cases, the obligation becomes immediately

due and demandable even if the period has not yet expired.
The obligation is thus converted to a pure obligation:




The choice shall produce no effect except from the time it has
been communicated. (1202)

Right to Damages
(1) Debtor
If through the creditors act the debtor cannot make
a choice according to the terms of the obligation,
the latter may rescind the contract with damages.
(2) Creditor
has a right to 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.

compelled to perform the substitute prestation.


The indemnity shall be fixed taking as a basis of

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 rewarded. (1204)
(a) If all the prestations become impossible due
to fortuitous event, the obligation is
extinguished; the debtor is not liable for
(b) If one or more of the prestations due become
impossible by fortuitous event, leaving only
one prestation, and then this last one becomes
impossible by fault of the debtor, the
provisions of the present article will apply.




Loss of the Substitute



If the debtor who has the right to choose makes no selection

before the creditor files his action, the right to choose passes
automatically to the other party.

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

The same rules shall be applied to obligations to do or

not to do in case one, some or all of the prestations
should become impossible

According to the plurality of subjects involved, an obligation

may either be:
(1) joint; or
(2) solidary

I - Joint Obligations

The loss or deterioration of the thing intended as a substitute,

through the negligence of the obligor, does not render him
liable. But once the substitution has been made, the obligor is
liable for the loss of the substitute on account of his delay,
negligence, or fraud.

Section 4

Right of Choice (Creditor) (1205)


Substitution becomes effective from the time the debtor

communicates to the creditor that he elects to perform the


If some of the prestations become impossible
by fault of the debtor, and the n the remaining
prestation became impossible by fortuitous
event, the debtor is liable under the present
article, but the basis of damages will be the
value of the last prestation which became
impossible through his fault.

Delay in Making Choice



A joint obligation is one in which each of the debtors is liable

only for a proportionate part of the debt, and each creditor is
entitled only to a proportionate part of the credit.
A joint obligation has been variously termed mancomunada or
mancomunada simple or a pro rata.
If the law, or the nature of the wording of the obligation does
not express anything to the contrary, the joint character of the
obligation is presumed.

(1) The demand by one creditor upon one debtor, produces
the effects of default only with respect to the creditor
who demanded and the debtor on whom the demand was
made, but not with respect to the others.
(2) The interruption of prescription by the judicial demand
of one creditor upon a debtor does not benefit the other
creditors nor interrupt the prescription as to the other
(3) The vices of each obligation arising from the personal
defects of a particular debtor or creditor does not affect
the obligation or rights of the others.
(4) The insolvency of a debtor does not increase the liability
of his co-debtors, nor does it authorize a creditor to
demand anything from his co-creditors.

III - Facultative Obligations (1206)



Concept of Facultative Obligations

When only one prestation (principal prestation) has been
agreed upon, but the obligor may render another in
substitution (substitute prestation), the obligation is called
Right of Substitution

The option to perform the substitute prestation is exclusively

dependent upon the will of the debtor. He cannot even be
compelled to perform it if the principal prestation becomes

If the impossibility of the principal prestation is due to his

fault, he may be held liable for damages, he cannot be

(5) In the joint divisible obligation, the defense of res

judicata is not extended from one debtor to another.
(6) In joint indivisible obligations, the right of the creditors
may be prejudiced only by their collective acts, and the
debt can be enforced only by proceeding against all the
debtors. If one of the debtors should be insolvent, the
others shall not be liable for his share. (1209)
(7) If there are several creditors and only one debtor, the
obligation can be performed only by delivering the
object to all the creditors jointly. A debtor who delivers
the thing to one creditor only, becomes liable for
damages because of non-performance to the other

(8) If only one or some of the creditors demand the

prestation, the debtor may legally refuse to deliver to
them; he can insist that all the creditors together to
receive the thing, and if any of them refuses to join the
others, the debtor may deposit the thing in court by way
of consignation.

extinguishes the obligation. If two or more solidary

debtors offer to pay, the creditor may choose which offer
to accept.
(4) He who made the payment may claim from his codebtors only the share which correspond 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

II - Solidary Obligations

(5) 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 codebtors, in proportion to the debt of each. (1217)


A solidary obligation is one which each debtor is liable for the

entire obligation, and each creditor is entitled to demand the
whole obligation.

There is solidary liability when the obligation expressly so

states, or when the law or the nature requires solidarity. (1207)

Solidarity may exist although the creditors and the debtors

may not be bound in the same manner and by the same periods
and conditions. (1211)

Solidarity may either be:

(6) If a solidary debtor pays the obligation in part, he can

recover reimbursement from the co-debtors only in so far
as his payment exceeded his share of the obligation.
(7) After the creditor has made a remission of the share of
one solidary debtor, the credit will be limited to the
balance. However, this does not affect his obligation to
contribute to the share of an insolvent co-debtor.
(8) The remission of the whole obligation, obtained by one
of the solidary debtors, does not entitle him to
reimbursement from his co-debtors. (1220)

Active - solidarity among the creditors; or

Passive - solidarity among the debtors

(9) If the thing has been lost or if the prestation has become
impossible, and there was fault on the part of any one of
the co-debtors, or if through fortuitous event, the thing is
lost or the performance has become impossible after one
of the solidary debtors has incurred in delay, all shall be
responsible to the creditor, for the price and payment of
damages and interest, without prejudice to their action
against the guilty. (1221)

Active Solidarity
A solidary creditor cannot assign his rights without the
consent of the others (1213)
The debtor may pay any one of the solidary creditors; but if
any demand, judicial or extra-judicial, has been made by
one of them, payment should be made to him. (1214)
(3) Novation, compensation, confusion or remission of the
debt, made by any of the solidary creditors or with any
of the solidary debtors shall extinguish the obligation.



Dual character of Obligations (1211)


The creditor who may have executed any of these acts, as well
as he who collects the debt, shall be liable to the others for the
share in the obligation corresponding to them. (1215)

Passive Solidarity
(1) The creditor may proceed against any one of the solidary
debtors or some or all of them simultaneously. The
demand made against one of them shall not be an
obstacle to those which may subsequently be directed
against the others, as long as the debt has not been fully
collected. (1216)

Section 5
I - Divisible and Indivisible Obligations

(2) The judgment adverse to a solidary creditor can be set up

against the other co-creditors in subsequent actions,
unless it is founded on a cause personal to the plaintiff in
the first action. The other debtors can invoke the
favorable judgment, provided it is not based on a defense
personal to the debtor in whose favor it was rendered.
Such a judgment can be based only in:
(a) the inexistence of the obligation, or its
unenforceability, or
(b) some other cause inherent in the vinculum
(c) defenses personal to the debtor-defendant,
(d) defenses personal to the other solidary
debtors as regards to that part of the debt for
which the latter are responsible. (1222)
(3) Payment made by one of the solidary debtors

The obligation may be join on the side of the creditors, and

solidary on the side of the debtors, or vice-versa. In such
cases the rules applicable to each subject of the obligation
should be applied.



A divisible obligation is one which is susceptible of partial


The obligation is indivisible, whatever may be the nature of

the thing which is the object thereof, when it cannot be validly
performed in parts.

Divisibility or indivisibility of the obligation therefore, refers

to the performance of the prestation, and not to the thing
which is the object thereof.

Things to Consider

The following may be considered as factors which determine

whether an obligation is divisible or indivisible:

will of the contracting parties

purpose of the stipulated prestation
nature of the thing
provisions of the law affecting the prestation

Penalty Not Enforceable

(1) Principal obligation becomes impossible due to
fortuitous event.
(2) Creditor prevents the debtor from performing the
principal obligation.
(3) Nullity of the principal obligation except:
(a) When it assumes the form of a guaranty
which is valid under Art. 2052
(b) Nullity of the principal obligation itself gives
rise to liability of the creditor for damages.
Nullity of the penal clause, in which case damages shall be
determined by the same rules as if no penalty had been

II - Effects of Partial Performance


Where the contract is indivisible, in that it is not susceptible of

partial performance, even if the compensation is fixed by unit
of measure, the debtor who fails to fully perform the work
agreed upon, but abandons the same after performing a part,
cannot recover on quantum meruit for the work already
finished, because in indivisible obligations partial performance
is equivalent to non-performance.

Section 6
I - The Penal Clause

Chapter 4





In an obligation, th4e penal clause is an accessory undertaking

which serves a double purpose:
(1) to provide for liquidated damages
(2) to strengthen the coercive force of the obligation by the
threat of greater responsibility in the event of breach

In obligations with a penal clause, the penalty shall substitute the

indemnity for damages and the payment of interests in case of
noncompliance, if there is no stipulation to the contrary. (1266)

The creditor cannot recover more than the penalty stipulated, even if
he proves that the damages suffered by him exceed the amount of
such penalty.

The principal obligation may be joint, and yet the penalty may
either be joint or solidary, depending upon the agreement of the

Obligations are extinguished: (1231)

By payment or performance;
By the loss of the thing due (specific thing);
By the condonation or remission of the debt;
By the confusion or merger of the rights of creditor and
By compensation;
By novation
Other causes of extinguishment of obligations, such as annulment,
rescission, fulfillment of a resolutory condition, and prescription are
governed elsewhere in the Civil Code.
Section 1

Proof of actual damages suffered by the creditor is not necessary in

order that the penalty may be demanded. (1288)

I - Concept of Payment: Five Questions


What is Payment?

Payment means not only the delivery of money but also the
performance, in any other manner, of the obligation (1232)

When the obligation consists in the delivery of a generic thing

whose quality and circumstances have not been stated, the creditor
cannot demand a thing of superior quality. Neither can the debtor
deliver a thing of inferior quality. (1246) If there is disagreement,
the court shall be the one to settle the disagreement taking into
consideration the purpose of the obligation and other circumstances.

The creditor cannot demand the fulfillment of the
obligation and the satisfaction of the penalty at the same
time, unless this right has been clearly granted him.

Unless there is an express stipulation to that effect, the creditor

cannot be compelled partially to receive the prestation. Neither may
the debtor be required to make partial payments.


However, if after the creditor has decided to require the

fulfillment of the obligation, the performance thereof
should become impossible without the creditors fault,
the penalty may be imposed.

Who Can Pay?

(1) Debtor; or
(2) Third person, whether interested or not interested, as
long as the creditor accepts.


To Whom Should Payment Be Made?

(1) To the person in whose favor the obligation has been
constituted; or
(2) His successors in interest; or
(3) Any person authorized to receive it.
(a) Legal authority - conferred by law (guardian
of an incapacitated creditor; administrator of
estate of deceased creditor)
(b) Conventional authority - given by the creditor
himself (agency)

B. Damages Besides Penalty

(1) When there is an express provision to that effect;
(2) When the debtor refuses to pay the penalty;
(3) When the debtor is guilty of fraud in the non-fulfillment
of the obligation. Non-performance gives rise to the
presumption of fraud

II - Provisions Concerning the Creditor and the Debtor






The debtor cannot exempt himself from the performance of the

obligation by paying the penalty, save in the case where this right
has been expressly reserved for him. (1227)

III - Regulation of the penal Clause


Dation in payment is the delivery and transmission of

ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of the obligation. The
property given may consist not only of a thing, but also of a
real right (such as an usufruct) or of a credit against a third

The modern concept of dation in payment considers it as a

novation by the change of the object. It extinguishes the
obligation to the extent of the value of the thing delivered,
either as agreed upon by the parties or as may be proved.

If the obligation is payment of a sum of money, dation in

payment shall be governed by the law on sales.

Payment made by the debtor to a wrong party does not

extinguish the obligation as to the creditor, if there is no fault
or negligence which can be imputed to the latter.

When Should Payment Be Made?


When the obligation becomes due and demandable.

Where Should Payment be Made?

In the place designated in the obligation;
There being no express stipulation and if the undertaking is to
deliver a determinate thing, the payment shall be made
wherever the thing might be at the moment the
obligation was constituted.
In any other case the place of payment shall be the domicile of
the debtor.
Even if the thing is determinate but its existence at the place where
it was when the obligation was constituted was temporary, the
performance must be at the domicile of the debtor, unless
otherwise provided.

IV - Payment of Debt in Money


(1) Should be in the currency which is legal tender in the
(2) Promissory notes payable to order, or bills of exchange
or other mercantile documents shall produce the effect of
payment only when:
(a) they have been cashed
(b) when through the fault of the creditor they
have been impaired

II - Exceptions to the Five Questions

Identity and Integrity (What is Payment?)
When the obligee accepts the performance with actual
knowledge of its incompleteness or irregularity, and without
expressing any protest or objection, the obligation is deemed
fully complied with


Extra-Ordinary Circumstances

Payment by Third Persons (Who Can Pay?)


The creditor is not bound to accept payment from uninterested

third persons, unless there is a stipulation to the contrary.

The third person who pays may demand from the debtor what
he has paid, except that if he paid without the knowledge or
against the will of the debtor, he can recover only insofar as
the payment has been beneficial to the debtor. (1236) But as
between the debtor and the creditor, the obligation is



Payment by a third person who does not intend to be

reimbursed is deemed to be a donation which requires the
debtors consent. But the payment is an any case valid as to
the creditor who has accepted it. (1238)
Payment made by incapacitated third persons will not be valid
except in the case of natural obligations (1427). (1239)

(1) Extra-judicial expenses required by the payment; with

regards to judicial cost, the Rules Of Court shall govern
(2) If the debtor changes his domicile in bad faith or after he
has incurred in delay (1251)

Subsection 1
The debtor must have:
various debts ; and
(1) of the same kind
(2) due and demandable
(3) in favor of one and the same creditor

(1) Incapacitated Persons -- By virtue of consignation,

payment is valid as long as he has kept the thing
delivered, or insofar as the payment has been beneficial
to him.

III - Dacion en Pago (1245)

Payment made to the creditor by the debtor after the latter has
been judicially ordered to retain the debt shall not be valid.

VII - Additional Expenses to Debtor

Payment to Incapacitated Persons and Third Persons

(To Whom Should Payment Be Made?)

(2) Third Persons - Valid as long as it has redounded to the

benefit of the creditor

Invalid Payment

The third person who paid against the will of the debtor without the
knowledge or against the will of the latter cannot compel the
creditor to subrogate him in his rights (1237)

In case of extra-ordinary inflation or deflation (unusual

fluctuations in the value of the currency which the parties
could not have reasonably foreseen), the currency stipulated
should supervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment.


Rules of Application
(1) Declaration of the debtor to which of them payment
must be applied.
If the debtor makes a proper application of the
payment, but the creditor refuses to accept it because he wants
to apply it to another debt, such creditor will incur in delay.
(2) Creditor can also make an application of payment by

the tender of payment has been unjustly refused by the creditor. It

is the consignation which constitutes a form of payment, and must
follow, supplement, or complete the tender of payment in order to
discharge the obligation. Consignation is not necessary when there
is no debt due.

issuing a receipt that is accepted by the debtor. (1252)

(3) When the payment cannot be applied in accordance with
the preceding rules, or if application cannot be inferred
from other circumstances, the debt which is most
onerous to the debtor shall be deemed to have been

II - Requisites of A Valid Consignation

(4) If the debts due are of the same nature and burden, the
payment shall be applied to all of them proportionately.

(1) Tender of payment must be made to the creditor and the

creditor refuses to accept it due to unjustifiable reasons.

If the debt produces interest, payment of the principal shall not

be deemed to have been made until the interest has been

(2) Consignation must first be announced to the persons

interested in the fulfillment of the obligation (co-debtors,
guarantors, or sureties, solidary co-creditors, or possible
litigants, such as those who claim to be entitled to the
payment. (1257) Lack of notice does not invalidate the
consignation, but simply makes the debtor liable for the

Subsection 2

(3) Consignation shall be made by depositing the thing due

at the disposal of judicial authority. The court would
likewise have authority in such case to make an order for
the sale of property and the payment of the proceeds into
the court if the goods should be of a perishable nature.

If the debtor is on the verge of insolvency, and he has two or more

creditors, he may cede or assign his property to his creditors in
payment of his debts. Such assignment does not have the
effect of making the creditors the owners of the property of the
debtor, unless there is an agreement to the effect. The
assignment cannot include property exempt from execution
unless the debtor waives the exemption.

(4) The consignation having been made, the interested

parties shall also be notified thereof. (1258 par. 2)

The assignment gives to the creditors the right to proceed to the sale
of the property, and to pay themselves in the amount which
the proceeds of the sale permit and in the manner agreed upon.

(5) Consignation is properly made

(a) when the creditor accepts the consignation
(b) when the creditor objects to the consignation
but the court, after proper hearing, declares
that the consignation has been validly made.

(1) debtor is on the verge of insolvency; and
(2) he has two or more creditors

(6) Consignation has a retroactive effect and payment is

deemed to have been made at the time of the deposit of
the thing in court.
(7) The expenses of consignation, when properly made,
shall be charged against the creditor.

Distinguished from Dacion en Pago


Dacion en Pago transfers ownership while in Payment

by cession, only possession and administration is


Dacion en Pago may totally extinguish the obligation

while Payment by Cession extinguishes the creditors to
the extent of the amount realized from the properties


Dacion en Pago involves cession of only some specific

thing while in Payment by Cession, assignment
involves all the property of the debtor.


In Dacion en Pago, there is only one creditor while in

Payment by Cession, there are various creditors.

Subsection 3
I - Concepts

Tender of Payment

Tender of payment is the manifestation made by the debtor to the

creditor or his desire to comply with his obligation, with the offer of
immediate performance



Consignation is the deposit of the object of the obligation in a

competent court in accordance with rules prescribed by law, after

(8) If, the consignation having been made, the creditor

should authorize the debtor to withdraw the same, there
is a revival of the obligation and the relationship of the
debtor and creditor is restored to the condition in which
it was before the consignation. But third persons who
were benefited by the consignation are not prejudiced by
the revival of the obligation between the debtor and the

III - Pending Completion


Before the consignation is completed, the debtor may withdraw the

thing or the sum deposited allowing the obligation to remain in
force. (1260 par. 2) Creditor may prevent the withdrawal by
accepting the consignation, even with reservations.

IV - Tender of Payment Not Necessary (1256)

(1) When the creditor is absent or unknown, or does not
appear at the place of the payment.
He must
furthermore, have no legal representative, or if he has
one, the debtor, without his fault, does not know it.
Absence or incapacity need not be legally declared.
(2) When the creditor is incapacitated to receive the
payment at the time it is due
(3) When, without just cause, the creditor refuses to give a
(4) When two or more persons claim the right to collect.

They must have the appearance of a right to collect such

that the debtor would have a reasonable doubt, not based
on negligence, as to who is entitled to the payment.

This presumption does not apply in cases of:

(1) earthquake
(2) flood
(3) storm
(4) other natural calamity.

(5) When the title of the obligation has been lost.

V -- Effect on Interest
(1) Accrual of interest is suspended when a tender of
payment is made in such a form that the creditor could
have realized payment, followed by a prompt attempt to
deposit the means of payment in court by way of
(2) Interest is not suspended when the tender of payment is
not accompanied by means of payment and the debtor
did not take any immediate step to make a consignation.


Effect of Extinguishment of Obligation

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

II - Exceptions to the Rule


The following cases constitute exceptions to the rule that loss of the
determinate object by fortuitous event extinguishes the obligation:

Section 2

(1) When the law provides it (1174). (Ex: Arts. 1492; 1979;
2147; 2159)
(2) When it is stipulated


I - General Principles

Concept of Loss

A thing is lost when:

(1) it perishes
(2) it goes out of commerce
(3) it disappears in such a way that its existence is unknown
or it cannot be recovered.



The courts shall determine whether, under the circumstances,

the partial loss of the object of the obligation is so important
as to extinguish the obligation. (1264)

(1) Loss must be subsequent to the execution of the contract.
(2) Loss must be without the fault of the debtor.
(3) Loss must be before the debtor has incurred in delay.

Loss of the thing due extinguishes the obligation only in the

following cases:
(1) Obligations to deliver a specific thing; subjective
impossibility will make the debtor liable for damages.
(1262 par. 1).
(2) In obligations to do when the prestation becomes
physically or legally impossible. (1266)


(3) When the nature of the obligation requires the

assumption of risk (1174)
(4) When the debtor is at fault or is negligent
(5) When the loss occurs after the debtor has incurred in
delay (1165)
(6) When the debtor has promised to deliver the same thing
to two or more different parties (1165)
(7) When the obligation to deliver a determinate thing arises
from a criminal act (1268)

Section 3
I - Condonation

By remission, the creditor renounces the enforcement of the

obligation, which is extinguished in its entirety or in that part or aspect of
the same to which the remission refers.
B. Kinds
(1) As to form
(a) express - made formally and should be in
accordance with the form of ordinary
(b) implied

When the service has become so difficult as to be manifestly

beyond the contemplation of the parties, the obligor may also
be released therefrom, in whole or in part. (1267)

(2) As to extent
(a) total
(b) partial - may refer to the amount of the
indebtedness, or to an accessory obligation
only (such as pledge or interest), or to some
other aspect of the obligation (such as

Temporary Impossibility
(1) Does not extinguish the obligation if temporary obstacles
to the performance of the prestation may be expected to
disappear in the near future.
(2) Extinguishes the obligation if the obstacle is of an
unknown or unforeseen duration. The obligation is
extinguished and is not revived by the fact that it
becomes possible later when circumstances change.



When the thing is lost in the possession of the debtor, it shall be

presumed that the loss was due to his fault.

Concept of Condonation (1270)

(3) As to manner
(a) inter vivos - effective during the lifetime of
the creditor
(b) mortis causa - effective upon the death of the
-- must be contained in a
will or a testament
II - Applicable Rules

Express Remission



Express remission should be in accordance with the form of

ordinary donation
(1) On the manner of acceptance, Arts. 745 and 746 apply
(2) With respect to the amount, Arts. 750 and 752 govern
(3) As to revocation, Arts. 760; 761; 764; and 765 apply


There may also be tacit remission when the creditor voluntarily

destroys or cancels the evidence of the credit, with the intent to
renounce his right. This is not true in the case of public documents,
because there is always a copy in the archives which can be used to
prove credit.
(2) Whenever the private document evidencing credit is in
the possession of the debtor, it shall be presumed that the
creditor delivered it voluntarily. (1272)
(3) The renunciation of the principal debt shall extinguish
the accessory obligations; but the waiver of the latter
shall leave the former in force. (1273)
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 debtor, or a third person
who owns the thing. (1274) The remission of the pledge
extinguishes only the security, not the principal


When the merger takes place in the person of the

guarantor, his obligation as guarantor is extinguished,
but the principal obligation subsists and can be enforced
by him against the debtor and the other co-guarantors.


Confusion does not extinguish a joint obligation except

as regards the share corresponding to the creditor or
debtor in whom the two characters concur.

Section 5
I - Compensation

Concept of Compensation


It is a mode of extinguishing to the concurrent amount, the

obligations of those persons who in their own right are reciprocally
debtors and creditors of each other (the obligation, however, should
not be reciprocal).


It is the offsetting of two obligations which are reciprocally

extinguished if they are of equal value (total compensation), or
extinguished to the concurrent amount if of different values (partial


Rescissible or Voidable Contracts

In remission, whether express or implied, one and the

other kind shall be subject to the rules which govern
inofficious donations.

Section 4

When one or both debts are rescissible or voidable, they may

be compensated against each other before they are judicially
rescinded or avoided.

The moment it is rescinded or annulled, the decree of

rescission or annulment is retroactive, and the compensation
must be considered as cancelled. Rescission or annulment
require mutual restitution.





In confusion or merger of rights, the characters of creditor and

debtor are merged in the same person. (1275)
(1) It must take place between the creditor and the principal
debtor. (1276)
(2) The very same obligation must be involved.
(3) The confusion must be total or as regards the entire


Merger which takes place in the person of the principal

debtor or creditor benefits the guarantors.

Implied Remission
(1) The delivery of a private document evidencing a credit,
made voluntarily by a creditor to the debtor, implies
remission. (1271 par. 1)


Causes of Merger


Several Debts

II - Kinds of Compensation


(1) An act which brings about a succession to the credit,

whether it is universal or particular, inter vivos or mortis

But where the creditor inherits from the debtor, there can be no
confusion if the debt is for a sum of money, because the debt is not
transmitted to the heir under our present law.


Revocation of Merger


When the act which occasions the merger is susceptible of

termination or revocation, the merger that has taken place is also
terminated or revoked, and the obligation is recreated in the same
condition that it had when the merger took place.

When compensation takes place by operation of law because

all the requisites are present:
(1) That each one of the obligors be bound principally, and
that he be at the same time a principal creditor of the
(2) That both debts consists in a sum of money, or if the
things due are fungible, they be of the same kind, and
also of the same quality if the latter has been stated;
(3) That the two debts be due 9enforceable in court);
(4) That they be liquidated (debts existence and amount is
determined) and demandable
(5) That over neither of them there be any retention or
controversy, commenced by third persons and
communicated in due time to the debtor. (1279)

(2) Most frequent way is by way of testate or intestate


If a person should have against him several debts which are

susceptible of compensation, the rules on the application of
payments shall apply. (1289)

B. Facultative Compensation

This compensation which can be set up only at the option of

he may set up compensation all credits maturing before

he is notified thereof.

the creditor, when legal compensation cannot take place

because of the want or some legal requisites for the benefit of
the creditor. Facultative compensation takes place when the
creditor declares his option to set it up.

V - Prohibition of Compensation
Compensation shall not be proper when:

C. Conventional Compensation

When the parties agree to compensate their mutual obligations

even if some requisite is lacking, such as when the debts are
not yet due. (1282)

However, voluntary compensation is not limited to this. The

parties may compensate by agreement any obligations with the
minimum requirement that each one of the obligors be bound
principally, and that he be at the same time a principal creditor
of the other.

(1) One of the debts arise from a depositum or from the

obligations of a depositary or of a bailee in commodatum
(2) Neither can compensation be set up against a creditor
who has a claim for support due by gratuitous title.
Support in arrears however can be compensated.
(3) If one of the debts consists in civil liability arising from
a penal offense. But the offended party entitled to the
indemnity can set up his claim in compensation of his
debt. This is another case of facultative compensation.

Voluntary/Conventional compensation takes effect upon the

agreement of the parties.
Section 6


Judicial Compensation

This is compensation which takes place when the defendant,

who is creditor of the plaintiff for an unliquidated amount, sets
up his credit as counterclaim against the plaintiff, and his
credit is liquidated by the judgment, thereby compensating it
with the credit of the plaintiff.

I - General Principles

Concept of Novation

Judicial compensation takes place upon final judgment.

(1) Changing the object or principal conditions (objective or

(2) Substituting the person of the debtor (passive
(3) Subrogating a third person in the rights of the creditor
(active subjective) (1291)

III - Effects of Compensation

(1) Both debts are extinguished to the concurrent amount.
(2) Interests stop accruing on the extinguished obligations or
the part extinguished.
(3) Period of prescription stops with respect to the obligation
or part extinguished.
(4) All accessory obligations of the principal obligation
which has been extinguished are also extinguished.
IV - Assignment and Compensation (1285)


Assignment After Compensation


A subsequent assignment of an extinguished obligation cannot

produce any effect against the debtor. The assignee is left
only with an action for damages for fraud against the assignor.

The only exception to this rule is when the debtor consents to

the assignment of the credit; his consent constitutes a waiver
of the compensation, unless at the time he gives his consent,
he informs the assignor that he reserved his right to the

As far as the debtor is concerned, the assignment does not take

effect except from the time he is notified thereof.
(1) Debtor can
set up compensation of debts due prior
of the assignment. If he consents to the assignment, he
waives compensation even of debts already due, unless
he makes a reservation.

(3) If the debtor did not have knowledge of the assignment,


Novation is a juridical act of dual function in that at the time it

extinguishes an obligation it creates a new one in lieu of the

(1) Previous valid obligation
(2) The agreement of all the parties to the new contract
(3) The extinguishment of the old contract.
(4) The extinguishment of the old contract
(5) The validity of the new one

The novation is void if the original obligation was void, except

when annulment may be claimed only by the debtor, or when
ratification validates acts which are voidable.

Accessory obligations may subsist only insofar as they may

benefit third persons who did not give their consent. This rule
is especially applicable to novation by substitution of debtors.

If the new obligation is void, the original one shall subsist. If

the new obligation is only voidable, the novation becomes
effective. But if the obligation is annulled, it will be deemed as
if there had been no novation and the original obligation
subsists, unless the parties intended to definitely extinguish it
at all events. (1297)

Assignment Before Compensation

(2) If the debtor does not consent, and the credit assigned to
a third person matures after that which pertains to the
debtor, the debtor may set up compensation provided
that the credit of the debtor became due before the

Novation is the extinguishment of an obligation by the

substitution or change of the obligation by a subsequent one
which extinguishes or modifies the first, either by:

Classification of Novation
(1) As to Form
(a) Express - the extinguishment of the old
obligation by the new one must be declared
in unequivocal terms

(b) Implied - novation is never presumed

The old and the new obligation must be
on every point incompatible with each
other, otherwise the old contract
remains in force and the new contract is
added to it
In order that there may be an implied
novation, the change must refer to the
object, the cause, or the principal
conditions of the obligation. There
must be an essential change.
(2) As to effect
(a) partial - when there is only a modification in
some principal conditions of the obligation
(b) total - old obligation is completely



Conventional Subrogation


Partial Payment

The initiative for the change does not emanate from the debtor
and may even be made without his knowledge, since it
consists in a third person assuming the obligation. It logically
requires the consent of the third person and the creditor.


In expromision, the new debtors insolvency or nonfulfillment of the obligation shall not give rise to any liability
on the part of the original debtor. (1294)

I - General Principles

The new debtor can recover only insofar as the payment has
been beneficial to the old debtor. In this case, there is no

Concept of Contract


The debtor (delegante) offers and the creditor (delegatario)

accepts a third person (delegado) who consents to the
substitution, so that the consent of these three is necessary.

It is not enough to extend the juridical relation to a third

person; it is necessary that the old debtor be released from the
obligation, and the new debtor takes his place in the relation.
Without such release, there is no novation.

The new debtor could demand from the old debtor what he has
paid. Subrogation takes place.


Characteristics of Contracts



(1) Preparation, Conception, or Generation - period of

negotiation and bargaining, ending at the agreement of
the parties.
(2) Perfection or birth of the contract
(a) Consensual contracts - perfected by mere
consent (express or implied)
(b) Real contracts - perfected by the delivery of
the object of the obligation
(3) Consummation or death - fulfillment or performance of
the terms agreed upon in the contract.

Subrogation transfers to the person subrogated the credit with

all the rights thereto appertaining, either against the debtor or
against third persons.

Legal Subrogation

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. (1306)

D. Stages of A Contract

III - Subrogating a Third Person in the Rights of the Creditor


A contract is a juridical convention manifested in legal form,

by virtue of which one or more persons bind themselves in
favor of another or others, or reciprocally, to the fulfillment of
a prestation to give, to do, or not to do.

(1) Obligatory force - constitutes the law as between the

(2) Mutuality - the contract must bind both contracting
parties; its validity or compliance cannot be left to the
will of one of them. (1308)
(3) Relativity - contract is binding only upon the parties and
their successors

In delegacion, the insolvency of the new debtor shall not

revive the action of the creditor against the original creditor
(1) the insolvency was already existing and of public
(2) the insolvency was known to the debtor when he
delegated his debt.


A creditor, to whom partial payment has been made, may

exercise his right for the remainder, and he shall be preferred
to the person who has been subrogated in his place in virtue of
the partial payment of the same credit. (1304)



Requires the consent of:

(1) the original creditor
(2) the new creditor
(3) the debtor

II - Substitution of the Person of the Debtor


pays with the express or tacit approval of the debtor;

When, even without the knowledge of the debtor, a
person interested in the fulfillment of the obligation
pays, without prejudice to the effects of confusion as to
the latters share.

Takes place by operation of law because of certain acts. It is

not presumed except in the following instances:

II - Third Persons




When a creditor pays another creditor who is preferred,

even without the debtors knowledge;
When a third person, not interested in the obligation,

Determination of performance

The determination of the performance may be left of third

persons, whose decision shall not be binding until it has been

made known to both parties.


The determination shall not be obligatory if it is evidently

inequitable. In such case, the courts shall decide what is
equitable under the circumstances. (1310)

An offer is a unilateral proposition which one party makes to the

other for the celebration of a contract. It must therefore be:
(1) Definite
(2) Complete
(3) Intentional




A contract cannot be binding upon and cannot be

enforced against one who is not a party to it.
However, if a contract should contain some stipulation
in favor of a third person, he may demand its fulfillment
provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or
interest of a person is not sufficient. The contracting
parties must have clearly and deliberately conferred a
favor upon a third person (pour autrui). (1311 par. 2)

An offer becomes ineffective upon the death, civil interdiction,

insanity, or insolvency of either party before acceptance is
conveyed. (1323)

C. Withdrawal of Offer (1324)


Juridical situations affecting them:

(a) In contracts creating real rights, third persons
who come into possession of the object of
the contract are bound thereby, subject to the
provisions of the Mortgage Law and the
Land registration laws.
(b) Creditors are protected in case of contracts
intended to defraud them. (1313)
(c) Any third person who induces another to
violate his contract shall be liable for
damages to the other contracting party.

Contracting in the Name of Another


B, Ineffectivity

The law permits the offeror to withdraw the offer at any time before
(1) If there is a fixed period, the offeree may accept at
anytime until such period expires. However, the offer
can be withdrawn even before the period for acceptance
has expired.
(2) When the offeror has not fixed a period,


No one may contract in the name of another without being

authorized by the latter, or unless he has by law a right to
represent him.

(a) If it is made to a person present, acceptance

must be made immediately
(b) If it is made to a person absent, the
acceptance may be made within such time
that, under normal circumstances, an answer
can be received from him.
Mere Invitations To Make Offers
(1) Business advertisements, unless it appears otherwise
(2) Advertisements for bidders

III - Acceptance



It is necessary that the acceptance be unequivocal and

unconditional, and the acceptance and the proposition shall be
without any variation whatsoever. Acceptance may either be
express or implied.

A qualified acceptance constitutes a counter-offer.

The person making the offer may fix the time, place, and manner of
acceptance all of which must be complied with.


Knowledge of the Offeror

No contract will arise unless acceptance is made known to the


There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract
(3) Cause of the obligation which is established
Section 1
I - Concept of Consent

The essence of consent is the conformity of the parties on the

terms of the contract, the acceptance of one by the offer made
by the other; it is the concurrence of the minds of the parties of
the object and the cause which shall constitute the contract.


Consent presupposes the following requisites:


II - Offer


plurality of subjects
express or tacit manifestation of the will
conformity of the internal will and its manifestation

(1) By correspondence - the contract is presumed to have

been entered into in the place where the offer was made.
(2) By agent - an offer made through an agent is accepted
from the time acceptance is communicated to him.

IV - Incapacity to Give Consent


The following cannot give consent to a contract:

(1) Unemancipated minors
(2) Insane or demented persons - previous judicial
declaration of mental incapacity not necessary
(3) Deaf-mutes who do not know how to write

V - Vitiated Consent

B. Kinds
A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable.



The error which is referred to is to both mistake of fact and mistake

of law based on good faith.

In order that mistake may invalidate consent, it should refer to:


Dolo incidente - fraud which occurs with the fulfillment

of the obligation.
Dolo incidente only gives rise to an action for

(1) Employed by one contracting party upon the other.

Misrepresentation by a third person does not vitiate
consent, unless such misrepresentation has created
substantial mistake and the same is mutual. (1342)
(2) It must have induced the other party to enter into the
(3) It must have been serious
(4) It must have resulted in injury to the party seeking

A simple mistake of account shall give rise to its correction

B. Burden of Proof

When one of the parties is unable to read, or if the contract is in a

language not understood by him, and mistake or fraud is alleged, the
person enforcing the contract must show that the terms thereof have
been fully explained to the former.


Error of Law

Error of law may vitiate consent provided:

(1) the error must be as to the legal effect of the agreement
(2) it must be mutual
(3) the real purpose of the parties is frustrated


Not Cases of Fraud

(1) Usual exaggeration in trade, when the other party had an
opportunity to know the facts
(2) A mere expression of an opinion unless made by an
expert and the other party has relied on the formers
special knowledge
(3) Misrepresentation made in good faith is not fraudulent
but may constitute error.

VIII - Simulation of a Contract


VII - Violence and Intimidation

Concept of Simulation

It is the declaration of a fictitious will, deliberately made by

agreement of the parties, in order to produce, for the purpose
of deception, the appearance of a juridical act which does not
exist or is different from that which was really executed.

(1) physical force employed must be irresistible
(2) such force is the determining cause in giving the consent
to the contract




(1) The object of the contract.

(2) The principal conditions which have moved one or both
parties to enter into the contract.
(3) Identity or qualifications of one of the parties will vitiate
consent only when such identity or qualifications have
been the principal cause of the contract. An error as to
the solvency of the other party is not a cause of nullity.


Dolo causante - fraud prior or simultaneous to the

consent of the creation of the obligation and is the
essential cause of the consent.
Dolo causante is a ground for annulment of

Defect or lack of valid consent must be established by full, clear,

and convincing evidence.

VI - Mistake



(1) Absolute Simulation - There is color of contract, without

any substance thereof, the parties, not having any
intention to be bound. An absolutely simulated contract
is known as simulado.

(1) the intimidation must have caused the consent to be
(2) the threatened act be unjust or unlawful
(3) the threat be real and serious
(4) produces a reasonable and well-grounded fear that the
threat can and will be carried out

VIII - Fraud


Fraud is every kind of deception, whether in the form of insidious

words or machinations, manipulations, concealments or
misrepresentations of one of the contracting parties to the other
without necessarily constituting estafa or some offense under the
penal laws and the other is induced to enter into a contract which,
without them, he would not have agreed to.

Fraud must be established by full, clear, and convincing evidence,

and not merely a preponderance thereof.


(2) Relative Simulation - The parties have an agreement

which they conceal under the guise of another contract.
Relatively simulated contracts are called disimulados.

(1) Absolutely simulated - void
(2) Relatively simulated - valid provided that:
(a) it does not prejudice third persons
(b) not intended for any purpose contrary to law,
morals, good customs, public order, or public
(c) concealed contract must have all the essential
requisites such as consent, object, and cause.

When the purpose of the simulation is illicit, or to

prejudice a third person, it would be void and
inexistent (1409) and neither can have an action

rejected other offers, and suffered damages, is he not entitled

to recover these?

against the other.


Effects As To Third Persons (Of

Relatively Simulated Contracts)

(1) If the debtor knew or could have known of the

impossibility, his bad faith or negligence makes him
liable for damages. The damages will be limited to the
losses the creditor may have suffered; he cannot recover
all the damages arising from non -performance of the

(1) If the third person acted in good faith, he may avail

himself of the conduct of the parties to the simulated
contract which is most favorable to himself
(2) If he is prejudiced, he may invoke the nullity of the
simulated contract.

(2) If the debtor is also ignorant of the impossibility, and his

ignorance is unjustifiable, or unavoidable, he cannot be
held liable for damages.

Section 2

(3) There is no liability for damages if both parties know of

the impossibility.


I -- The Object

A. Concept of Object


The object of a contract is its subject matter. The

object of the contract and the object of the
obligation created thereby are identical.
Section 3

I - The Cause

No contract may be entered its upon future inheritance

except in cases expressly authorized by law generally does
not allow contracts on future inheritance. In order that a
contract may fall with in the prohibition, the ff. Requisites
are necessary.



that the succession has not yet been opened

that the object of the contract form part of the inheritance
the promissor has, with respect to the object, an
expectancy of a right which is purely hereditary in
nature. (see p. 522)

Although the cause is not stated in the contract, it is presumed

that it exists and is lawful, unless the debtor proves the
contrary. (1354)

Except in cases specified by law, lesion or inadequacy of

cause shall not invalidate a contract, unless there has been
fraud, mistake, or undue influence. (1355)


Impossible things or services cannot be the object of contracts

The impossibility must be actual and
contemporaneous with the making of the contract, and not
subsequent thereto


If the creditor, relying on the contract, has incurred expenses,

Onerous Contracts



The cause is understood to be, for each contracting party, the

prestation o promise of a thing or service by the other.

Remuneratory Contracts

The absolute impossibility nullifies the contract and must be

determined objectively, and not in relation to the debtor

Liability for Damages


II - Onerous, Remuneratory, and Gratuitous Contracts (1350)

The impossibility may be:

(1) Absolute or objective - when nobody can perform it
(2) Relative or subjective- when due to the special
conditions or qualifications of the debtor cannot be

The cause of a contract is the why of the contract, the

immediate and most proximate purpose of the contract, the
essential reason which impels the contracting parties to enter
into it and which explains and justifies the creation of the
obligation through such contract.

(1) It must exist - contracts without cause produce no effect

(2) It must be true
(3) It must be licit - contracts whose cause is contrary to
law, morals, good customs, public order, or public policy
produce no effect whatsoever

II - Impossible Things



Future Inheritance (1347 par 2)



If the object is indivisible there is no contract but if the thing is

divisible, then the contract is valid to the extent that it is

Requisites of Object
(1) within the commerce of man
(2) licit, or not contrary to law, morals, good customs,
public policy, or public order at the time the contract
entered into
(3) it must be possible
(4) it must be determinate or determinable as to its kind; the
quantity may be indeterminate, so long as the right of the
creditor is not rendered.


Partial Impossibility

A remuneratory contract is one where a party gives something

to another because of some service or benefit given or
rendered by the latter to the former, where such service or
benefit was not due as a legal obligation
The cause is the service or benefit which is remunerated.

Gratuitous Contracts


Gratuitous contracts are essentially agreements to give

donations. The generosity or liberality of benefactor is the
cause of such contracts.

I - General Principles

(1) there must have been a meeting of the minds upon the

III - Statement of False Cause



The statement of a false cause in contracts shall render them

void, if it should not be proved that they were founded upon
another cause which is true and lawful.(1353)

(2) the instrument or document evidencing the contract does

not express the true agreement between the parties

Where the true consideration is partly legal and partly illegal,

a party cannot recover upon the contract if he fails to prove
what part of the contract is supported by the legal cause.

(3) the failure of the instrument to express the agreement

must be due to mistake, fraud, inequitable conduct, or

If mistake, fraud, inequitable conduct, or accident has prevented a

meeting of the minds of the parties, the proper remedy is not
reformation of the instrument but annulment of the contract.


Operation and Effect

I - General Principles


General Rule

Contracts shall be obligatory, in whatever form they may have been

entered into, provided all the essential requisites for their validity
are present. However, there are two cases when form is absolute
and indispensable:

II - Instances for Reformation

(1) Mutual mistake by the parties
(2) One party was mistaken and the other acted fraudulently
or inequitably. The fraud or inequitable conduct must be
clearly shown, and must be at the time of the execution
of the instrument. The mistake must refer to the contents
of the instrument, and not the subject matter or principal
conditions of the agreement. (1362)
(3) When one party was mistaken and the other knew or
believed that the instrument did not state their real
agreement, but concealed that fact from the former
(4) Mistake of the draftsman
(5) If two parties agree upon the mortgage or pledge of real
or personal property, but the instrument state that the
property is sold absolutely or with a right of repurchase.

(1) when the form is essential to its validity (ad essentia, ad

(2) when the contract is unenforceable unless it is in a
certain form, such as those under the Statute of Frauds
(ad probationem)

Compliance With Formality (1357)


If the law requires a document or other special form, the

contracting parties compel each to observe that form, once the
contract has been perfected. This right may be exercised
simultaneously with the action upon the contract.

When a party to a contract dies and is survived by his heirs,

the latter may be compelled to execute the proper documents.

III - No Reformation
(1) Simple donations inter vivos wherein no condition is
(2) Wills (subject to the exception in Art 789)
(3) When the real agreement is void

II - Public Documents
The following must appear in a public document:


The cession, repudiation or renunciation of hereditary

rights or of those of the conjugal partnership of gains;


The power to administer property, or any other power

which has for its object an act appearing or which
should appear in a public document, or should
prejudice a third person;


Acts and contracts which have for their object the

creation, transmission, modification or extinguishment
of real rights over immovable property;

IV - Procedure
(1) Governed by the rules promulgated by the Supreme
(2) When one of the parties has brought an action to enforce
the instrument, he cannot subsequently ask for its
(3) If mistake was mutual, reformation may be ordered at
the instance of either party or his successors in interest.
(4) In other cases, upon petition of the injured party, or his
heirs and assigns.

The cession of actions or rights proceeding from an

act appearing in a public document.

All other contracts where the amount involved exceeds five

hundred pesos must appear in writing, even a private one.

This provision does not require such form in order to validate

the act or contract but to insure its inefficacy.

Upon the reformation of an instrument, the general rule is that

it relates back to, and takes effect from the time of its original
execution, especially as between the parties.


Meaning and intention must be sought first of all from the

language of the contract itself.
The spirit of the contract prevails over its letter
In order to judge the intention of the contracting parties, their

contemporaneous and subsequent acts shall be principally

General terms do not comprehend things that are different from
those upon which the parties intended.
A particular intent will control a general one that is inconsistent
with it.
Interpret stipulations in favor of validity
Interpret the contract as a whole
Words which may have different significations shall be understood
in that which is most in keeping with the nature of the object of the
The usage or custom of the place shall be borne in mind.
(10) Obscure terms shall be interpreted strictly against the one who
caused the obscurity.
(11) The least transmission of rights and interests shall prevail.
(12) If the contract is onerous, the doubt shall be settled in favor of the
greatest reciprocity of interests.

(1) obligation to return the things which were the object of

the contracts
(2) right to damages if the thing cannot be returned
(3) rescission shall be only to the extent necessary to cover
the damages caused
II - The Rescissible Contracts

(13) The written portion prevails over the printed portions of a policy.
(14) Where the intention of the parties relative to the objects of the
contract cannot be known, the contract shall be null and void.


Those which are entered into by guardians whenever the

wards whom they represent suffer lesion by more than
one fourth of the value of the things which are the object
thereof, unless it is judicially approved;


Those agreed upon in representation of absentees, if the

latter suffer the lesion stated in the preceding number,
unless it is judicially approved;


Those undertaken in fraud of creditors when the latter

cannot in any other manner collect the claims due him;


Those which refer to things under litigation if they have

been entered into by the defendant without the
knowledge and approval of the litigants or of competent
judicial authority;


All other contracts specially declared by law to be

subject to rescission. (1381)


Payments made in a state of insolvency for obligations

to whose fulfillment the debtor could not be compelled
at the time they were effected.

I - General Principles

Concept of Rescission


Rescission is a remedy granted by law to the contracting

parties and even to third persons, to secure the reparation of
damages caused to them by a contract, even if this should be
valid, by means of the restoration of things to their condition
at the moment prior to the celebration of said contract.

Who May Bring Rescission

(1) person injured
(2) heirs of these persons
(3) their creditors


How Attacked


Must be attacked directly

Prescriptive Period


Whoever acquires in bad faith the things alienated in fraud of

creditors, shall return the thing or if return be impossible, he
shall indemnify the creditor for damages.

If there are two or more alienations, the first acquirer shall be

liable first, and so on successively. (1388)

(1) The contract must be a rescissible contract.
(2) The party asking for rescission must have no other legal
means to obtain reparation for the damages suffered by
him. (The action for rescission is subsidiary.)
(3) The person demanding rescission must be able to return
whatever he may be obliged to re if rescission is granted.
(4) The things which are the object of the contract must not
have passed legally to the possession of a third person
acting in good faith.
(5) The action for rescission must be brought within the
prescriptive period of four years.
(6) Rescissible contracts must be attacked directly, not
(7) A valid contract can be rescinded only for cases
established by law.


III - Subsequent Transfer

Within four years.

For persons under guardianship and for absentees, the period
of four years shall not begin until the termination of the
formers incapacity or until the domicile of the latter is known.

Effects of Rescission

I - General Principles



A voidable contract is valid until it is set aside. They can be

confirmed or ratified.

Voidable Contracts

The following contracts are voidable or annulable, even

though there may have been no damage to the contracting

(1) Those where one of the parties is incapable of giving

consent to the contract
(2) Those where the consent is vitiated by mistake, violence,
intimidation, undue influence, or fraud.
B. Who May Attack?
The person must both be:
(1) The plaintiff must either be oblighed principally or
subsidiarily; and
(2) The victim and not the party responsible for the defect is
the person who must assert the same. (1327)

Retroacts to the moment the contract was constituted


Prescriptive Period
III - Damages


Within four years.

The period shall begin:
(1) In cases of intimidation, violence or undue influence,
from the time the defect of the consent ceases.
(2) In case of mistake or fraud, from the time of the
discovery of the same. In legal contemplation, discovery
of fraud must be reckoned to have taken place from the
time the document was registered in the office of the
register of deeds, for registration is a notice to the whole
(3) When the action refers to contracts entered into by
minors or other incapacitated persons, from the time the
guardianship ceases.

As a rule, the annulment of the contract, and the resulting mutual

restitution eliminates the possibility of damage suffered by the
injured party.
However, damages can be awarded in cases of additional expenses or loss
or deterioration of the object of the obligation.
In obligations to render service, the value thereof shall be the basis for
IV - Loss of the Thing
By Plaintiff

Effects of Annulment

If lost through fraud or fault, action for annulment is

If lost through fortuitous event, the defendant cannot be
compelled to make restitution.

(1) Nullity arising from Incapacity

(a) The incapacitated person is not obliged to
make any restitution except insofar as he has
been benefited by the thing or price received
by him.
Capacitated party is obliged to make complete
restitution subject to the exception provided
in Natural Obligations (Art. 1497).

By Defendant
If lost through his fault, he shall return the fruits received and
the value of the thing at the time of the loss, with interest
from the same date.
If lost through fortuitous event, he shall pay the value of the
thing at the time of its loss but without interest.

Nullity arising From Vitiated Consent

The primary effect is mutual restitution of the subject
matter of the contract taking into account the
principle of unjust enrichment. Mutual restitution
under this provision does not apply to strangers to
the actual contractual relation.
As regards to the fruits and interests, the following rules
Restitution as long as the cause of nullity does not
involve an illicit act such as error and
incapacity unknown to the other party.
But when the cause of nullity is illicit (violence,
fraud), the party who employed those means
must be obliged to restore; on the other hand,
the innocent party should not be required to
return fruits or pay interest.
II - Ratification

An unenforceable contract is one which cannot be enforced unless it
is first ratified in the manner provided by law. It is
distinguished from the rescissible and the annullable contracts
in that the latter two contracts produce legal effects unless
they are set aside by a competent court, while the
unenforceable contract does not produce any effect unless it is
The Unenforceable Contracts
Those 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.
Those that do not comply with the Statute of Frauds.

Ratification extinguishes the action to annul a voidable contract. It may
either be express or implied.
Ratification, to be effective, must comply with the following requisites:
That the contract is a voidable contract
That ratification is made with knowledge of the cause for
That at the time the ratification is made, the cause of nullity
has already ceased to exist
Who May Ratify?
injured party
guardian of the incapacitated person
heirs of the party entitled to such right
Extinguishes the action to annul a voidable contract
Cleanses the contract from all its defects

An agreement that by its terms is not to be

performed within a year from the making
A special promise to answer for the debt, default,
or miscarriage of another;
An agreement made in consideration of marriage,
other than a mutual promise to marry;
An agreement for the sale of goods, chattels or
things in action, at a price not less than five
hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the
evidences, or some of them, of such things in
action, or pay at the time some part of the
purchase money; but when a sale is made by
auction and entry is made by the auctioneer in
his sales book, at the time of the sale, of the
amount and kind of property sold, terms of
sale, price, names of the purchasers and
person on whose account the sale is made, it
is a sufficient memorandum;
An agreement for the leasing for a longer period

than one year, or for the sale of real property

or of an interest therein;
A representation to the credit of a third person.
Those where both parties are incapable of giving consent.
Express or implied ratification by the parent, or
guardian of one of the contracting parties will turn the
contract into a voidable contract.
If ratification is made by the parents or guardians
of both contracting parties, the contract shall be
validated from the inception.

I - Types of Obligations
In juridical science, four types of obligations can be known:
Moral - duties of conscience completely outside the field of
Natural - not sanctioned by any action but have a relative
juridical effect
Civil - juridical obligations which are in conformity with
positive law but are contrary to juridical principles and
susceptible of being annulled.
Mixed - have full juridical effect

For contracts entered into within the Statute of Frauds to be
enforceable, a note or memorandum , in writing, and subscribed by the
party charged, or by his agent, evidence thereof, of the agreement is

Jurisprudence has reduced this classification into only two: natural and

Contracts infringing the Statute of Frauds are ratified by:

II - Natural Obligations
failure to object to the presentation of oral evidence to prove
the same; or
by acceptance of benefits under them
Who May Assail?
They cannot be assailed by third persons
I - Concept
A void or inexistent contract is one which has no force and effect
from the very beginning, as if it had never been entered into.
They produce no legal effects and confer no rights or
They cannot be ratified.
In case of divisible contracts, if the illegal terms can be separated
from the legal ones, the latter may be enforced.
A contract which is the direct result of a previous illegal contract is
also inexistent.
II - Void and Inexistent Contracts
Void Contracts
The void contracts are those in pars. 1 and 7 of Art 1409:
Those whose cause, object or purpose is contrary to law,
morals, good customs, public order, or public policy;
Those expressly prohibited or declared void by law.
Inexistent Contracts
The inexistent contracts are those enumerated in pars. 2-6 of Art 1409:
Those which are absolutely simulated or fictitious
Those whose cause or object never came into existence
Those whose object is outside the commerce of man
Those which contemplate an impossible service
Those where the intention of the parties relative to the
principal object of the contract cannot be ascertained.
C. Who May Assail?
third persons directly affected
D. Prescriptive Period
The action or defense for the declaration of the inexistence of a contract
does not prescribe.

Natural obligations are midway between the civil obligations and the
purely moral obligations. Civil obligations are enforceable by
action, while moral obligations rest entirely upon conscience. It is
distinguished from the moral in that it produces some juridical
effect; such as the right to retain what has been voluntarily paid by
the debtor; and from the civil in that it does not give rise to an
action to compel performance.
Estoppel is a bar which precludes a person from denying or asserting
anything to the contrary of that which has, in contemplation of law,
been established as the truth, either by the acts of judicial or
legislative offices or by his own deed or representation, either
express or implied.
However, if the act, conduct or representation of the party sought to be
estopped is due to ignorance founded on innocent mistake, estoppel
will not lie.
Estoppel is effective only as between the parties thereto or their
successors in interest.
C Kinds
Estoppel by Record
Estoppel by Deed
Estoppel In Pais (Equitable Estoppel
Estoppel by Silence
Estoppel by Acquiescence
Estoppel From Benefits