CHAPTER I
In all of the above cases, ignorance of the law excuses no one from
INTRODUCTION TO CONTRACTS
GENERAL CONSIDERATION
Without being aware of it, each one of us
enters into a contract as often as the need
arises. When we do little things like buying a
stick of cigarette or a detergent soap nearby, or
ride in a jeep or tricycle to or from the school or
office, we in fact enter into a contract which
gives rise to rights and obligations. Contracts of
bigger scale surely awaits us in the future
especially when we become professionals or
businessmen, hence, the need to study the law
on contracts to which the law on obligation is
integrated.
OBLIGATION DEFINED
An obligation is a juridical necessity to
give, to do or not to do. It comes form the Latin
word obligare which means to bind through
giving, doing or not doing something. It is a
juridical necessity because the rights and duties
emanating from obligation may be enforced in
courts of justice which may order their
performance if refused or neglected.
MEANING OF OBLIGATION TO GIVE, TO DO OR
NOT TO DO
The obligation to give is in the essence of
a real obligation because a physical thing is
involved and delivery of the same extinguishes
the obligation.
Example: X obliged to give Y a bicycle.
On the other hand, the prestations to do or not
to do are personal obligations, like to draw a
plan of a house (a positive one) or not to draw a
plan (a negative one).
the obligation is demandable when due, and
therefore can be enforced in court if not
performed.
REQUISITES OF AN OBLIGATION
Every obligation has four essential
requisites, namely:
a. juridical tie or vinculum which is the link
that binds the parties;
b. the prestation which is the giving, doing or
not doing of something;
c. the active subject which is the person who
holds the right to demand the prestation,
called oblige or creditor; and
d. the passive subject which is the person
against whom the prestation may be
demanded, called obligor or debtor.
Example: X entered into a contract with Y
whereby X agreed to deliver an electric guitar.
The juridical tie is the contract, the prestation
is the delivery of the guitar, the active subject
is Y and the passive subject is X.
SOURCES OF OBLIGATION
Article 1157 of the Civil Code enumerates
the sources of obligations, namely: 1. laws; 2.
Contract; 3. quasi-contract; 4. acts or omissions
punishable by law; and 5. quasi-delicts.
1. OBLIGATIONS ARISING FROM LAW
Law is a rule of conduct, just, obligatory
and laid down by the legitimate authority for
common observance and benefit. Without it
there will be no order in a society which will be
ruled by the maxim of what is might is right.
Thus, everyone is presumed to know the law, as
compliance therewith.
This kind of obligation is dictated by law
like the obligation of husband and wife to live
with each other, observe mutual respect and
fidelity, and render mutual support, the
obligation to pay taxes under the National
Internal Revenue Code, and the obligation of an
employer to pay minimum wage to the workers.
2. OBLIGATION ARISING FROM CONTRACTS
A contract is the meeting of minds
between two persons whereby one binds himself
with respect to the other to give something or
render some services. When duly entered into,
the obligation arising from contract has the full
force of law between the parties, hence should
be complied with in good faith.
The contracts enumerated and treated in
the Civil Code, among others, are sale, barter,
lease, partnership, agency, loan, deposit,
insurance, guaranty, pledge, mortgage and
antichresis.
3. OBLIGATIONS ARISING FROM QUASI-
CONTRACTS
A quasi-contract is a juridical relation
arising from lawful, voluntary and unilateral
acts by virtue of which the parties become
bound to each other to the end that no one shall
be unjustly enriched or benefited at the
expense of another.
There are two kinds of quasi-contracts,
namely: negotorium gestio and solutio indebiti.
1. Negotorium gestio is the voluntary
administration or management of an
abandoned business or property belonging to
 another without his consent. For relationship
to exist, the following elements: 1) the
management must refer to specific affairs;
2) the business or property is neglected or
abandoned; 3) there is no express or implied
authority from the owner; 4) there is no
prohibition from the owner; and 5) the
management must be for an intention to
protect the interest of the owner.
2. Solutio indebiti is the juridical relation
which is created by virtue of a payment by
mistake consequently obliging the payee to
return to payor what he received.
OBLIGATIONS ARISING FROM CRIMES
Acts or omissions punishable by law are
better known as crimes or delicts, like
homicide or damage to property through
reckless imprudence. Under the law a person
who is convicted for a criminal offense may be
imprisoned, and in addition, will be required to
indemnify the heirs of the victim. This
obligation is what is known as civil liability
arising from crimes may be complied with in the
form of restitution, indemnification, or
reparation of damages.
OBLIGATION ARISING FROM QUASI-DELICT
A quasi-delict is a legal wrong committed
through fault or negligence causing damage to a
person or property thereby obliging the
wrongdoer to pay for the damage done,
provided that there exists no contractual
relation between them. A typical example of
this is a pedestrian who was hit and suffered
injuries by reason of a speeding vehicle and
death due to poisoning from beverages, foods,
etc. against the fabricators.
DILIGENCE REQUIRED IN THE PERFORMANCE
OF AN OBLIGATION
Every person obliged to give something is
also obliged to take care of it with the diligence
of a good father of the family, unless the law or
stipulation of the parties requires another
standard of care. This means that pending the
delivery of the thing, the obligor shall take care
of it with the diligence and concern that a
prudent man will exercise in taking care of his
property depending upon the nature of the
obligation and the circumstances of time,
person and place. On the other hand, if the
obligation is personal in that it consists in doing
or not doing something, and the same is not
done, or done in contravention with the tenor of
the obligation, the same shall be done or
undone, as the case may be, at the expense of
the guilty party.
RIGHTS TO THE FRUITS OF THE THING TO BE
DELIVERED
The creditor has the right to the fruits of
the thing from the time the obligation to deliver
arises. However, he shall acquire no real right
over it until the same has been delivered. This
means that while the thing and the fruits have
not been delivered, the obligee acquires only a
personal right. But once the thing is delivered,
the obligee acquires the real right of ownership.
RULE WHEN OBLIGOR INCURS DELAY
Those obliged to deliver or to do
something incur in delay from the time the
obligee judicially or extra-judicially demands
from them the fulfillment of their obligation.
However, the demand by the creditor shall not
be necessary in order that delay may exist:
1. When the obligation or the law expressly so
declares; or
2. When from the nature and circumstances of
the obligation it appears that the designation
of the time when the thing is to be delivered
or the service is to be rendered was the
controlling motive for the establishment of
the contract; or
3. When demand would be useless, as when the
obligor has been rendered it beyond his
power to perform.
In reciprocal obligations, neither party
incurs in delay if the other does not comply or is
not ready to comply in a proper manner with
what is incumbent upon him. From the moment
one of the parties fulfill his obligation, delay by
the other begins.
LIABILITY OF OBLIGOR FOR FRAUD,
NEGLIGENCE, DELAY, ETC.
Those who in the performance of their
obligation are guilty of fraud, negligence or
delay, and those who in any manner contravene
the tenor thereof are liable for damages. Delay
exists when the obligor fails to fulfill his
obligation on the date agreed upon and after a
demand by the oblige, either judicially (with
court intervention) or extra-judicially (outside a
court) orally or in writing, has been made on the
obligor, whereas, fraud is simply the voluntary
and deliberate act of the obligor to evade or
cheat for personal gain the fulfillment of the
obligation. In connection with negligence or
fault, it consists in the failure to observe for the
protection of the interest of another person,
that degree of care, precaution and vigilance
which is demanded by the circumstances, and
because of which the other party suffers
damage or injury.
LIABILITY ARISING FROM FORTUITOUS EVENT
Except in cases expressly authorized by
law, or when it is otherwise declared by
stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall
be responsible for those events which could not
be foreseen, or which though foreseen, were
inevitable. A fortuitous event is an unexpected
event or act of God which cannot be foreseen or
resisted, like floods, earthquakes, torrents, ship
wreck, lightnings, and conflagration, to mention
a few.
KINDS OF OBLIGATIONS
The Civil Code classifies obligation into
1. pure and conditional;
2. obligation with a period;
3. alternative and facultative;
4. joint and solidary;
5. divisible and indivisible; and
6. obligation with a penal clause
PURE OBLIGATION
A pure obligation is one which is not
subject to any condition or burden and whose
fulfillment is neither dependent upon a future
or uncertain or even a past event unknown to
the parties, hence, immediately demandable.
Example: X promises to deliver a specific
guitar to Y. This obligation is immediately
demandable because there is no specific date or
condition mentioned for its fulfillment.
CONDITIONAL OBLIGATION
A conditional obligation is one whose
performance is subject to a condition which may
either be suspensive or resolutory in effect. A
suspensive condition is one which upon
fulfillment gives rise to the obligation
dependent upon it.
Example: X promises to give Y a car if he
passes the Board Exam for Mechanical
Engineers.
The Civil Code provides that in case of
improvements, loss or deterioration of the thing
before the fulfillment of the suspensive
condition, the following rules shall govern:
1. If the thing is lost without the fault of the
debtor, the obligation shall be extinguished;
2. If the thing is lost through the fault of the
debtor, he shall be obliged to pay damages;
it is understood that the thing is lost when it
perishes or goes out of commerce, or
disappears in such a way that its existence is
unknown or it cannot be recovered;
3. When the thing deteriorates without the
fault of the debtor, the impairment is to be
borne by the creditor; the creditor may
chose between rescission of the obligation
and its fulfillment, with indemnity of
damages in either case;
4. If the thing is improved by its nature, or by
time, the improvement shall inure to the
benefit of the creditor; and
5. If it is improved at the expense of the
debtor, he shall have no other right than
that granted to the usufructuary
If the condition is resolutory, the
happening of the condition extinguishes the
obligation and the parties are obliged to make
mutual restitution of whatever they have
received by reason thereof.
OBLIGATION WITH A PERIOD
An obligation with a period is one in
which a day certain has been fixed for its
fulfillment. This obligation is different from a
conditional obligation because the condition
imposed therein may or may not happen,
whereas, the period fixed in this obligation is
sure to come although the time as to when is
uncertain, as in the death of a person.
ALTERNATIVE OBLIGATION
An alternative obligation is one where
various prestations are due, but the
performance of one, usually chosen by the
obligor, is sufficient. The choice may be granted
to the obligee or creditor.
Example: X binds himself to deliver to Y
a color TV or betamax. X should deliver the
color TV or the Betamax on the due date of
obligation. The obligor or debtor does not have
the right to choose prestations which are
impossible, unlawful or which could not have
been the object of the obligation.
FACULTATIVE OBLIGATION
In a facultative obligation, only one
prestation is due but the obligor or debtor may
substitute another in lieu of the prestation due.
The loss or deterioration of the thing intended
as a substitute does not render him liable
except when the substitution has already been
communicated and on account of negligence,
delay and fraud.
Example: X binds himself to deliver to Y
an Australian horse. Later, X proposed and Y
agreed that a 1984 Familia car will do if none
can be imported. X should deliver the car.
JOINT OBLIGATION
A joint obligation is one where the entire
obligation is to be fulfilled proportionately by
the various obligors or debtors, and each one of
the obligees or creditors is entitled and can
demand a proportionate part of the credit due
from each of them.
Example: X and Y signed a promissory
note binding themselves to pay Z the sum of
P10,000.00. Z can demand from X P5,000.00,
and from Y the same amount because the rule in
a joint obligation is that the debt or credit is
divided into as many parts as there are creditors
or debtors or to each his own.
SOLIDARY OBLIGATION
A solidary obligation is exactly the
opposite of a joint obligation in the sense that
each of the solidary debtors is liable for the
entire obligation as long as the same has not
been performed, and each of the creditors can
demand compliance. A solidary obligation may
exist only when a) the obligation so provides; b)
when the law so provides; and c) the nature of
the obligation requires solidarity.
Example: X and Y bind themselves jointly
and severally to pay Z and M the sum of
P10,000.00. In this case, X or Y may be
compelled by Z or M to pay the entire amount,
and after payment, the paying debtor can
compel the other solidary debtor to contribute
his share. Among the terms usually indicating
solidarity are jointly and severally, in
solidum, and individually and collectively.
DIVISIBLE OBLIGATIONS
A divisible obligation is one capable of
being performed partially.
Example: X obliged himself to deliver 600
cubic feet sand within a week. This may be
complied with in two or three days. It is not the
rule, however, that because the subject matter
is divisible, the obligation is divisible if the
intent is to make it divisible.
INDIVISIBLE OBLIGATION
Indivisible obligation is the exact
opposite of divisible obligation as no partial
performance is permitted. Thus, if the 600 cu.
ft. sand in the example is to be delivered on
May 1, 1985, the obligation is indivisible because
under the law, the controlling factor in
determining whether an obligation is divisible or
indivisible is the intention of the parties.
To determine whether the obligation is
divisible or indivisible the test is, did the parties
intend partial performance? Thus, the object of
the obligation may be physically divisible, but
they intended it to be indivisible or if so
provided by law the object is divisible.
OBLIGATION WITH A PENAL CLAUSE
An obligation which contains an accessory
undertaking to assume a greater liability in case
of breach is an obligation with a penal clause.
The penal clause is attached to the principal
obligation to insure its fulfillment. The penalty
may either be subsidiary as when only the
penalty is demandable, or joint when both the
principal and the penalty can be enforced.
Example: X borrowed from Y the sum of
P20,000.00 payable on May 31, 1985. They
agreed in writing that if X fails to pay the same
on the said date, X shall in addition pay
P4,000.00 as penalty.
MODES OF EXTINGUISHING OBLIGATIONS.
Article 1231 of the Civil Code provides
that obligations are extinguished as follows: 1)
by payment or performance; 2) by loss of the
thing due; 3) by condonation or remission of the
debt; 4) by confusion or merger of the rights of
creditor and debtor; 5) by compensation; 6) by
novation. Elsewhere in the Code are other
relative modes, among which are: annulment,
rescission, fulfillment of a resolutory condition
and prescription.
PAYMENT OR PERFORMANCE
This mode consist not only of delivery of
money but also the performance of an obligation
in any other manner. It is the essence of this
mode that there must be a pre-existing
obligation (not option) otherwise, no payment
could be made. Thus, a debt is not considered
to have been paid unless the thing or service in
which the obligation consists have been
completely delivered or rendered, as the case
may be.
Payment may also be effected in various
special forms, namely: 1) dacion in payment or
dacion en pago; 2) payment by cession; and 3)
tender of payment and consignation.
(1) Dacion in payment. Dacion en pago is the
conveyance of the ownership of a thing which is
accepted by the oblige (creditor) as a payment
of a debt in lieu of money, thereby extinguishing
the obligation.
Example: X is indebted to Y in the amount of
P10,000.00. Instead of paying money, X
delivered a cd player worth the same amount
which is accepted by Y.
(2) Payment by cession. Payment by cession
consists of the assignment of all the properties
of the debtor to his creditors in order that the
same may be solf by the creditors to satisfy
their credits. Unless there is a stipulation to the
contrary, the cession shall extinguish the
liability of the debtor to the extent of the net
proceeds in the sale.
Example: M is indebted to X, Y and Z in the
amount of P30,000.00. If M is insolvent,
partially or totally, he may assign or cede his
properties to X, Y and Z who may sell them and
apply the proceeds to the payment
proportionally to his various debts. Cession or
assignment may be of two kinds, namely: (1) the
voluntary cession in which the consent of the
creditors is needed, and (2) the legal or judicial
where the approval of the court is required.
The latter is governed by the Insolvency Law.
(3) Tender of payment or consignation. This
special form of payment is done through the
actual offering (not just a proposal) by the
debtor to the creditor of the thing or sum which
he considers to be due. If this tender is unjustly
refused, the debtor shall complete this by
making a consignation by depositing the thing or
the amount due with the court of competent
jurisdiction in accordance with the formalities
required by law. Consignation shall be made
also to extinguish the obligation in the following
cases: a) when the creditor is absent or is
unknown, or does not appear at the place of
payment; b) when he is incapacitated to receive
payment at the time it is due; c) when without
just cause, he refuses to give a receipt; d) when
two or more persons claim the same right to
collect; and e) when the title to the obligation
has been lost.
LOSS OF THE THING
The thing due is considered lost when it
perishes, or goes out of commerce, or
disappears in such a way that its existence is
unknown or cannot be recovered. When the
obligation consists of doing something, there is
loss when the prestation becomes legally or
physically impossible. On the other hand, an
obligation consisting in the delivery of a
determinate thing shall be extinguished if it is
destroyed without fault of the debtor and
before he has incurred delay.
Example: X obliged himself to deliver a
specific Australian horse to Y. Before the
agreed date of delivery, the horse died without
Xs fault. In this case the obligation is
extinguished because it consists of the delivery
of a determinate thing. But if the obligation is
to delivery a generic thing, the loss or
destruction of anything of the same kind does
not extinguish the obligation.
CONDONATION OR REMISSION
It is an act of liberality by which the
oblige, who receives no price or equivalent
thereof, renounces the enforcement of an
obligation, which is extinguished in whole or in
part.
Example: Y is indebted to X in the
amount of P5,000.00. On the due date of the
obligation, Y offered to pay but X renounces his
right to collect as he won in the sweepstakes.
This is a complete remission. But if the
renunciation is only one-half, Y should still pay
P2,500.00.
CONFUSION OR MERGER
This mode takes place when the qualities
of the obligor and that of the obligee meet I one
person, the effect of which generally
extinguishes the obligation.
Example: X is indebted to Y for
P10,000.00 for which he issued a promissory
note. Later, Y indorsed it to Z who then
indorsed it back to X. In this case, the
obligation is extinguished since X had become
his own creditor and debtor.
COMPENSATION
Compensation takes place when two or
more persons, in their own rights, are creditors
and debtors to each other. This means that by
operation of law, the debts of the parties who
are creditors and debtors in their own rights are
extinguished to the concurrent amount even if
they do not know it.
Example: X is indebted to Y in the
amount of P20,000.00 while Y is indebted to X in
the same amount. If both debts are due and
demandable and no prohibition against any of
them exists, compensation shall take place since
both are creditors and debtors in their own
right.

DISTINCTION BETWEEN CONFUSION AND
COMPENSATION
The differences are:
(1) In confusion, there is only one person who
becomes both a creditor and debtor but in
compensation, the personality of the debtors
and creditors is preserved; and
(2) There is only one obligation in confusion but
not in the other where there are two.
NOVATION
Novation is the change, substitution, or
renewal of an obligatory relation, with the
intention of extinguishing or modifying
essentially the former, debitum pro debito (new
debt for an old debt). It may take place by
changing the object or principal conditions of
the obligation or substitution of another person
in the place of the debtor or in subrogation to
the rights of the creditor or combination of both
through a change in the person of the parties or
the object or principal condition.
Personal novation may either be in the
form of expromision or delegacion. Expromision
takes place when a third person of his own
accord and even without the knowledge of the
original debtor assumes the obligation, with the
consent of the creditor.
Example: X is indebted to Y in the
amount of P10,000.00. Then Z, a third person,
goes to Y and tell him that he will be the one to
pay the P10,000.00. If Y agrees, a novation by
expromision takes place even if X does not know
or consent to it. Delegacion takes place when
the debtor asks the creditor to accept a third
person to take his place as the obligor. The
creditor may withhold his approval. Thus in the
same example, if X goes to Y bringing Z and
proposes to Y that Z who is willing will pay the
P10,000.00 and Y consents to it, the novation by
delegacion extinguishes the obligation.
QUESTIONS
1. What is an obligation and explain with
illustrations its requisites?
2. What are the sources of obligations?
3. What is a quasi-contract and explain each
kind?
4. What is a quasi-delict and how it is
differentiated with delicts?
5. Enumerate and explain the special forms of
payment.
6. When may an obligor be relieved from his
obligation by reason of loss of thing due?
7. X promises the use of his one-door apartment
to Y provided the latter passes the Board
Examination for Mechanical Engineers. IN
this case, what kind of obligation is
established? Explain.