Revised By: Atty. Virginio L. Valle

Revised By:
Atty. Virginio L. Valle

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

Obligations to give; Obligations to do;
Obligations not to do
a) Liability of Damages
Fraud Dolo incidente; Dolo causante
Neglignce
Delay Mora solvendi, accipiendi, compensatio
morae
Contravention of tenor of obligation
PART III GENERAL PROVISIONS ON CONTRACT
Contracts Defined
Elements of Contract:
Stages of A Contract
Characteristics of Contracts:
Classification of A Contract: (FROM)
Contract Binds by Both Parties
Cases Where Third person May Be Affected By a Contract
Forms of Contracts
Reformation of Instruments
Interpretation Of Contracts
Cause of Contracts
PART IV DEFECTIVE CONTRACTS
Rescissible Contracts
Voidable Contracts
Unenforceable Contracts
Void or inexistent contracts
PART 1
INTRODUCTION TO LAW AND BUSINESS LAW
1. Definition of Law and Business Law

2. Sources of Business Law
3. Characteristics of Business Law
Introduction to Law
Preliminaries
In the preliminaries, the sight of a human being in

his everyday undertaking has to follow some.
The instructions that a person will learn, result to

that consciousness of following the law. As he
learns the law, he can define it, with its
characteristics.
In Philosophy, the human mind consists principally of two faculties:
1. the Intellect the object of which is the TRUTH.
2. the Will the object of which is the GOOD.
The infinite truth and infinite good is infinite beauty of God.
The person was created by God and destined for God, the people
can attain the final destiny by following the law.
The laws that contained the instructions of God given to us are the
COMMANDMENTS.
Law
The most basic, simple and concise definition of
law was defined by Sanchez Roman, a Spanish
Civilist and he defined Law as:
A RULE OF CONDUCT , JUST AND OBLIGATORY

PROMULGATED BY LEGITIMATE AUTHORITY FOR
THE COMMON OBSERVANCE AND BENEFIT.
Edgardo Paras defined Law as an ordinance of

reason promulgated for the common good
by Him who is in charge.
Characteristics of Law
1. A RULE OF CONDUCT
Meaning any action, things, dictate of reason if

regulated or gathered together could become a
conglomeration of rules, regulations that can
create an orderly, peaceful, harmonious
relations among the people concerned so that in
the end justice will prevail.
2. PROMULGATED BY LEGITIMATE AUTHORITY
That is, made known to those who are expected to

follow it. In a Republican State like the Philippines, we
have three branches of government legislative body
(like Congress, Sanggunian) is the law-making body;
the executive body is the implementing body and the
judiciary as the enforcing body.
3. JUST and OBLIGATORY
Treatment of Law should be equal, regardless of sex,

creed, age and status in life and to follow the law
there should be equivalent punishment or penalties
to enforce them. The dictum Justice delayed is
Justice denied is commonly abused term on the
relation of a criminally inclined poor person and a
moneyed person on the treatment of the application
of law. Obligatory means any duty binding parties to
perform their agreement. (Blacks dict. P. 1074).
4. FOR THE COMMON OBSERVANCE and
BENEFIT
The application of law should not be titled or

favoring an individual but by the observance of
all and the benefits that may be derived from it.
Sources of Law
1. LEGISLATIVE
It consists of legal rights by a competent authority. In the

Philippines, being a democratic form of government, the
Legislative is the law-making body. For national
government, Congress comprising the House of
Representatives and the Senate. For provinces, the
Sangguniang Panlalawigan for every province. For a town,
the Sangguniang Pambayan or the local Municipal council.
For a Barangay level, the Sangguniang Pambarangay.
Sources of Law
2. CONSTITUTION
The fundamental law that governs a nation in

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

its relation to its citizens. All laws must conform
and comply with the provisions of the
Constitution, otherwise it becomes
unconstitutional.
Sources of Law
4. JUDICIAL DECISIONS OR JURISPRUDENCE
Judicial decisions or interpreting the laws or the

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

(Let it Stand), the doctrine which in reality is adherance
to precedents stated that once a case has been decided,
then another case involving the same point at issue,
should be decided in the same manner. Therefore, if the
Supreme Court being a Court of last resort, has decided
that a certain law passed by Congress is constitutional,
the law becomes binding and has its full force and effect.
Sources of Law
5. CUSTOM
It consists of those habits and practices which

through long and uninterrupted usage have become
acknowledged and approved by society as binding
rule of conduct. Thus, it has been a custom for a
person to enter and exit a door. Once a person uses
the window for his entrance and exit, it runs counter
to the custom of use of the door. Even our Lord said
as a good shepherd, if a person does not pass the
gate, he is a thief for a marauder.
Sources of Law
6. OTHER SOURCES
To add, the principle of justice and equity,

decisions of foreign tribunals, opinions of text
writers and even religion may also be sources
of law.
Kinds of Law
1. DIVINE LAW
It is formally promulgated by God, revealed or

divulged to mankind by means of direct revelation
like the Ten Commandments.
Kinds of Law
2. NATURAL LAW
Promulgated impliedly in our conscience and body. It

is the divine interpretation in man in the sense of
justice, fairness, right and equity by internal dictate
of reason on our mind. Like for instance, it is better
to do good than to do evil for being a God-fearing
person.
Kinds of Law
3. PHYSICAL LAW
Refers to the act of rules governing the action and movement
of things like the law on gravity by Newton.
4. HUMAN LAW
Those promulgated by man to regulate human relations.
THIS CAN BE CLASSIFIED INTO:

Classification of Human
Law
A. GENERAL or PUBLIC LAW
Body of rules which regulates the rights and duties
arising from the relationship between the State and its
inhabitants.
It includes the following:
1. International Law consists of those rules and

principles which govern the relations and dealing of
nations with each other.
2. Constitutional Law It simply governs the relations

between the State and its citizens.
Law
GENERAL or PUBLIC LAW
3. Administrative Law it fixes the organization and determines

the competence of the authorities that execute the law and
indicates to the individual remedies for the violation of his rights.
4. Political Law deals with the organization and operation of the

governmental organs of the State and defines the relations of the
state with the inhabitants of its territory.
5. Criminal Law guaranties the coercive power of the law so that

it will be obeyed. Governs the methods of trial and punishment of
crimes.
Law
B. INDIVIDUAL or PRIVATE LAW
Those law which govern the private relation person.
It includes the following:
1. Civil Law branch of law which has for its double

purpose the organization of the family and the regulation
of property. It is defined as the mass of precepts which
determines and regulate the relation of assistance,
authority and obedience among the members of a society
for the protection of private interests.
Law
INDIVIDUAL or PRIVATE LAW
2. Commercial Law defined as a whole body of

substantial jurisprudence applicable to the rights,
intercourse and relation of persons engaged in
commerce, trade or mercantile pursuits. (Blacks law
dict. 338)
Law
INDIVIDUAL or PRIVATE LAW
3. Procedural Law defined as the branch of law which

prescribes the method of enforcing rights or obtaining
redress for their invasion, Procedural law otherwise known
as Remedial Law, as distinguished from Substantive law
which creates, defines and regulate rights.
(Ballantine Law Dict. P. 36)
Sources of Philippine Civil
Code
1. The New Civil Code of the Philippines the
collection of laws which regulates the private
relations of the members of civil society,
determining the defective rights and
obligations with reference to persons, things
and civil acts.
A civil code is a compilation of existing Civil Laws,

scientifically arranged into books, titles, chapters
and subheads and promulgated by legitimate
authority. (Black Law Dict. 334).
Code
2. Special laws or statutes, Presidential decrees
and other social legislation.
3. Jurisprudence there is need to mention

that, jurisprudence in our system of
government, cannot be considered as an
independent source of law; but the Courts
interpretation of a statute that constitute part of
the law as of the date it was originally passed
since the Courts construction merely
establishes contemporaneous legislative intent,
that the interpreted law could take into effect.
Code
4. Customs and Traditions Custom is a judicial
rule which results from a constant and continuous
uniform practice by the members of a social group.
5. The Code Commission itself A Code

commission of five members was created by Pres.
Manuel Roxas through Exec. Order No. 48 dated Mar.
20,1947 in view of the need of revision in keeping
with progressive modern legislation. The Civil Code
was finished on Dec. 15, 1947 and Congress
approved the draft on June, 1949.
Books of the Civil Code
Book I Person and Family Relations
Thiswas re-codified as Family Code of the Philippines

embodied in Exec. Order No. 209 as amended by
Exec. Order No. 227. The Family Code effectuates the
long-felt reforms and changes to the Civil Code
provisions on Family relations consistent with Filipino
values, customs and traditions vis--vis recent
developments in the social-cultural scene. (Pineda,
Family Code).
Books of the Civil Code
Book II Property, Ownership and its modifications.
Book III Different Modes of Acquiring Ownership

(Succession)
Book IV Obligations and Contracts
Book V Special contracts
The Civil Code begins with preliminary titles and ends up with the
repealing clause. This module is taken from the Civil Code of the
Philippines from Articles 1156 to 1422 inclusive.
Concept of Commercial
Law
The commercial laws, excepting the Code of Commerce
are designated by the legislator by any mark or sign,
which determines their nature and their commercial
function, but they derive their mercantile character
from their subject matter or their contents. In order to
determine whether a particular law or provision of law
is commercial, it is necessary to first inquire if its
purpose is to govern a relation pertaining to
commercial matters and in this inquiry, the Code of
Commerce should be principally considered, because it
defines the acts and the person having a mercantile
character. Generally, all laws referring to merchants
and to commercial transactions are commercial in
nature. (Agbayani, Vol. 1 p 2)
Code of Commerce
The Code of Commerce is only one of the remaining
laws in relation to business that has been heavily
modified and repealed by subsequent laws which
originally divided into four books.
BOOK ONE - Merchants and Commerce in

General
BOOK TWO - Special Commercial Contracts
BOOK THREE - Maritime Commerce
BOOK FOUR - Suspension of payments,
Bankruptcy and Prescription of Actions.
Subsequent Repealing
Legislation
The following are among the important special laws
which repealed either expressly or impliedly certain
portions of the Code of Commerce.
1. The Corporation Code which repealed principally

the provision on sociedad/anonimas on Book Two and
the Corporation law;
2. The Negotiable Instrument Law which repealed

principally the provisions of Promissory; Notes and Bill
of Exchange in Book Two
Legislation
3. The Insolvency law, which repealed the
provisions on Suspension of payments and
Bankruptcy in Book four;
4. Insurance Law, which repealed the

provisions on Fire and Marine Insurance on
books two and three;
5. The Securities Act, which repealed the

provisions on Commercial Houses in Book Two;
Legislation
6. The New Civil Code which repealed the provisions on
Partnership, Agency, Sales, Loan, Deposit and Guaranty
in Book two.
7. Other legislation, in addition to the foregoing special

laws, there wee other laws and now form part of the
Commercial laws of the Philippines: The Warehouse
Receipts law; the General Bonded Warehouse Act; the
Chattel Mortgage law; the Usury law; the General
Banking Act; the Central Bank Act; The Rural Act; The
Public Service Act; Carriage of Gods by Sea Act; the
Salvage law; the Copyright law; the Patent law; the Trade-
mark law; the Law on the Use of Duly Marked Bottles,
Boxes, Casks, Kegs, Barrels, and other Similar Containers;
the Business Names Law; and the Law on Monopolies and
Combinations.
Legislation
8. Provisions of the Code of Commerce still in force.
a. Those contained in Book one governing merchants and commerce

in general, commercial registries, books and bookkeeping of
commerce and general provisions relating to commercial contracts,
except such portions thereof as have been repealed or modified by
the New Civil Code and other legislation.
b. Those contained in Book Two governing joint accounts, transfers,

transfers of non-negotiable credits, commercial contracts on
transportation overland; and letters of credits but not those relating to
partnership, agency, sales, loans, deposit
Legislation
8. Provisions of the Code of Commerce still in
force.
c. Those contained in Book Three governing maritime

commerce but not those relating to marine insurance
which have been repealed. All the provisions in Book
four are no longer in force as they have likewise been
repealed. (Agbayani, Vol. 1, pp3-4)
Legislation
9. Some provision of the code of Commerce which
are pertinent in our study in business in general:
a. MERCHANTS Merchants may be natural or juridical

person:
In the case of natural person, he is a merchant:

a. If he has legal capacity to engage in commerce; and
b. He habitually engage thereto
Legislation
A natural person has legal capacity to engage in
commerce;
1. If he has reached the age of twenty one years;
2. He is not subject to parental authority; and
3. He has free disposition of his property.
In the case of juridical person, it is a merchant:

a. It is a commercial and industrial company;
b. It is organized in accordance with existing legislation and
c. Its engaging in commerce is habitual.
Legislation
b. Habituality in engaging in commerce
Habituality in engaging in commerce is attained when there

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

Legislation
2. Announcement through circulars, newspaper, handbills, posters
and similar means of the opening of an establishment for
commercial acts or dealings with the public; or
3. Where a foreign corporation appoints an agent as required by law.
4. A series of acts consisting of investigating and preparations of

project studies implying an intention to engage in commerce and
comes to reality.
Legislation
c. Absolute Disqualifications The following may not
engage in commerce nor hold office or have any direct
administrative or financial intervention in commercial of
industrial companies:
1. Those suffering the penalty of civil

interdiction primarily because they are deprived
of the right to mange and to dispose of their
properties inter-vivos or during their lifetime;
Legislation
2. Those judicially declared insolent while

they have not obtained their discharge;
3. Those who in account of special laws or

provisions cannot engage in commerce like
incapacitated persons or employees
covered by the Civil Service law.
Legislation
d. Relative Disqualifications These are persons who cannot
engage in commerce in places where they exercise their
functions.
1. Justices, judges, and officials of the Prosecutors office

in active service, except Municipal Mayors; municipal
judge; municipal prosecuting attorneys and those who
temporarily discharge judicial or prosecuting duties;
2. Administrative, economic or military heads of districts,

provinces or post;
Legislation
3. Those employed in the collection and
administration of funds of the State appointed by
the Government except those who administer and
collect under contract and their representative.
4. Stock and commercial brokers of whatever class;
5. Those who under special laws and provisions

cannot trade in specified territory.
Legislation
e. Commercial Registry
A commercial registry is a public office that takes

charge of the registration of merchants, business
associations, vessels and documents of commercial
importance. The purpose of a commercial registry is
to furnish necessary information and reliable data to
any interested party so as to promote and facilitate
trade and commercial transaction.
Legislation
f. Books of Merchants
1. Merchants must keep the following books:
a. Book of inventories and balances;

b. A journal;
c. A ledger;
d. Book or books for copies of letters or
telegrams; and other books that may be
required by special laws.
Legislation
f. Books of Merchants
2. Corporation are bound to keep:
a. Record of all business transactions;

b. Minutes of all meetings of directors;
c. Minutes of all meetings of
stockholders; and Stock and transfer
books.
Registration is
compulsory:
1. In case of vessel of more than three (3)
tons gross in use in Philippine waters;
2. In case of partnership whose immovable

property is contributed by any partner to a
common fund.
3. In case of business names under the

Business Names Law.
Registration is
compulsory:
4. In case of ship agent;
5. In case of vehicles with the Land

Transportation Office.
6. In all other cases required by law.

Commercial Registries in the
Philippines
1. Bureau of Domestic Trade for registration of business
names and merchants to avoid duplication of trade names.
2. Securities and Exchange Commission for registration of

partnership and Corporation.
3. Local municipalities, cities or province for local permits

and licenses.
4. Office of Register of deeds for registration all transaction

affecting lands, as well as shattel mortgage.
Philippines
5. The MARINA (Marine Industry Authority) for
registration of vessels and other transaction
affecting vessels.
6. Intellectual property Office for registration of

patents and design as well as trade names;
trademarks and service marks;
7. Land Transportation Office for registration of

patents and designs as well as trade names;
trademarks and service marks;
Philippines
8. Office of Air Transportation Administration for registration of
aircrafts.
9. Bureau of Public Library for registration of copyrights;
10. Board of investment for registration of pioneer and registered

enterprises and with corporations having foreign entity participation.
Kinds of Procedural Law
1. Public Remedial Law affords a remedy in
favor of the State against the individual,
like criminal procedure or in favor of the
individual against the State, like Habeas
Corpus.
2. Private Remedial Law affords a remedy

in favor of an individual against another
individual, like the civil procedure.
Philippine Remedial Law
Principally contained in the Rules of Court,
which is a combination of rules promulgated
by the Supreme Court for the easy, orderly,
adequate and effective compliance with the
law. The Rules of Court have the force and
effect of law. (Alvero V. dela Rosa, 76 Phil
428).
COURTS DEFINED
It is the entity, body or tribunal vested with a portion
of the judicial power. (Lontok V. Battung 63 Phil 1054)
JUDICIAL POWER
Includes the duty of the courts of justice to settle
actual controversies involving rights which are legally
demandable and enforceable, and to determine
whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction
on the part of any branch or instrumentality of the
Government. (Const. Art. VIII, Sec. 1, par.2)
Different Courts of Justice
1. Supreme Court
2. Sandigan-bayan
3. Court of Appeals
4. Regional Trial Court; and
5. Metropolitan / Municipal Trial Courts
Lesson 1: General
Provisions on
Obligation
The definition of obligations establishes the
unilateral act of the debtor either to give, to
do or not to do as a patrimonial obligation. It
means that the debtor has the obligation
while the creditor has its rights.
On the sources of obligation, the main sources

are really Law and Contracts. The other
sources are also established by law.
ART. 1156. An obligation is a juridical
necessity to give, to do or not to do.
OBLIGATIONS as defined by ARIAS RAMOS is a

juridical relation whereby a person (called the
creditor) may demand from another (called the
debtor) the observance of a determinate conduct,
and, in case of breach, may obtain satisfaction
from the assets of the latter. (Approved by Mr.
Justice J. B. L. Reyes)
The obligations referred to in our manual is a patrimonial
obligations that is, those obligations with pecuniary value
or assessable in terms of money.
1.Characteristics of patrimonial obligations:

They represent an exclusively private interest.
They create ties that are by nature transitory.
They exist a power to make effective in case of non-fulfillment, the
economic equivalent obtained at the patrimony of a debtor.
1.Meaning of Juridical Necessity it means the rights and

duties arising from obligation are legally demandable and
the courts of justice may be called upon through proper
action to order the performance.
Action means an ordinary suit in court of justice by
which one party prosecutes another for the
enforceable or protection for a right or a prevention
or redress of a wrong ( Sec. 1. Rules of court ).
Example
Gaya bought refrigerator from Tito but Gaya did
not pay the refrigerator. If after demand, Gaya
still did not pay, Tito can sue Gaya in Court
either to demand payment or for recovery of
the refrigerator.
3. Essential requisites of an obligation
a) An active subject, who has the power to demand the

prestation, known as the creditor or oblige;
b) A passive subject, who is bound to perform the prestation,
known as debtor or obligor.
c) An object or the prestation which may consist in the act of
giving, doing or not doing something.
d) The vinculum juris or the juridical tie between the two
subjects by reason of which the debtor is bound in favor
of the creditor to perform the prestation. It is the legal tie
which constitutes the source of obligationthe coercive
force which makes the obligation demandable. It is the
legal tie which constitutes the devise of obligation the
coercive force which makes the obligation demandable.
Juridical Tie
Debtor To give, to do Creditor Or Obligor
or not to do or Obligee
Illustration:
Gaya enters into a contract of sale with Tito who paid
the purchase of a GE refrigerator. Gaya did not deliver
the refrigerator. Gaya is the passive subject or debtor
and Tito is the active subject or creditor. The object or
prestation is the GE refrigerator and the obligation to
deliver is the legal tie or the vinculum juris which
binds Gaya and Tito.
This is also known as a unilateral obligation, that is, the
obligation of the debtor to fulfill or comply his
commitment, in this case, the delivery of the refrigerator.
On the other hand, if Gaya, delivered the refrigerator and

Tito did not pay, then Tito becomes the debtor who is
bound to pay while Gaya is the creditor who has the
right to demand the prestation.
4.Distinctions between Obligations and Contracts:

Contract is the only one of the sources of obligation, while
obligations have other sources like law, quasi-contracts, delicts or
quasi-delicts;
Contract is a bilateral obligation while obligation is a unilateral
obligation;
All contracts are obligations while not all obligations are
contracts.
5. Civil obligations as distinguished from
Natural obligations
Civil obligations derive their binding force from
positive law; Natural Obligation derives their binding
effect from equity and natural justice.
Civil can enforced by court action of the coercive
power of public authority;
Natural the fulfillment cannot be
compelled by court action but depends on
the good conscience of debtor.
ART. 1157. Obligations arise from:
Law;
Contracts;
Quasi-contracts;
Acts or omissions punished by law; and
Quasi-delicts. (1089a)
ART. 1158. Obligations derived from law are not

presumed. Only those expressly determined in this
Code or in special laws are demandable, and shall be
regulated by the precepts of the law which establishes
them; and as to what has not been foreseen, by the
provisions of this Book. (1090)
ART. 1159. Obligations arising from contracts have

the force of law between the contracting parties and
should be complied with in good faith. (1091a)
ART. 1160. Obligations derived from quasi-

contracts shall be subject to the provisions of Chapter
1, Title XVII, of this Book.
ART. 1161. Civil obligations arising from criminal

offenses shall be governed by the penal laws, subject
to the provisions of article 2177, and of the pertinent
provisions of Chapter 2, Preliminary Title, on Human
Relations, and of Title XVIII of this Book, regulating
damages. (1092a)
ART. 1162. Obligations derived from quasi-delicts

shall be governed by the provisions of Chapter 2, Title
XVIII of this Book, and by special law. (1093a)
Source of Obligations
1. LAW as a source of obligations
The provisions of Art. 1158 refers to the legal obligations
or obligations imposed by specific provisions of law,
which means that obligations arising form law are not
presumed and that to be demandable must be clearly
provided for, expressly or impliedly in the law.
Examples:
It is the duty of the Spouses to support each other. (Art.
291, New Civil Code)
And under the National Internal Revenue Code, it is the duty
of every person having an income to pay taxes.
Source of Obligations
2. CONTRACT as a source of obligations
Contract as defined in Art. 1305, NCC is the meeting of minds between two
person whereby one binds himself with respect to the other,
Obligations arising from contracts have the force of law between the
contracting parties because that which is agreed upon in the contract by
the parties is the law between them, thus, the agreement should be
complied with in good faith. (Art. 1159).

For examples:
A contract of lease was executed between Gaya as the lessee and Tito as
the lessor for the rent of an apartment.
Although contracts have the force of law, it does not mean that contract
are over and above the law. Contracts are with the limitations imposed by
law in Art. 1306, NCC, it states that the contracting parties may establish
such stipulations, clauses terms and conditions as, they may deem
convenient, provided that are not contrary to law, morals, good custom,
public order or public policy.
Sources of Obligations
3.QUASI-CONTRACTS as a source of obligations
The quasi literally means as if.
Quasi-contract is the juridical relation resulting from a lawful,

voluntary and unilateral act which has for its purpose the
payment of indemnity to the end that no one shall unjustly
enrich or benefited at the expense of another. (Art. 2142, NCC)
Contracts and quasi-contracts distinguished:

in a contract, consent is essential requirement for its validity while
in quasi-contract, there is no consent as the same is implied by law;
contract is a civil obligation while quasi-contract is a natural
obligation.
2 Kinds of Quasi-
contracts
1. Solutio Indebiti (Payment by mistake)
It is the juridical relation which arises when a person is obliged to return
something received by him through error or mistake.

Example-
Arvin owed Ian the sum of P1, 000.00. By mistake, Arvin paid P2, 000.00. Ian
has the obligation to return the P1, 000.00 excess because there was payment
by mistake.

2. Negotiorum gestio (management of anothers property)
It is the voluntary management or administration by a person of the
abandoned business or property of another without any authority or power
from the latter. (Art. 2144, NCC)
Example-
Victor, a wealthy landowner suddenly left for abroad leaving his livestock farm
unattended. Ramon, a neighbor of Victor managed the farm thereby incurring
expenses. When Victor returns, he has the obligation to reimburse Ramon for
the expenses incurred by him and to pay him for his services. It is bases on the
principle that no one shall enrich himself at the expense of another.
4. DELICTS or acts or omissions punished by law as a source of
obligations
Acts or omission punished by law is known as Delict or Felony or Crime.
While an act or omission is felonious because it is punished by law, the

criminal act gives rise to civil liability as it caused damage to another.
Civil liability arising from delicts:

Restitution which is the restoration of or returning the object of the crime to the
injured party.
Reparation which is the payment by the offender of the value of the object of the
crime, when such object cannot be returned to the injured party.
Indemnification the consequential damages which includes the payment of other
damages that may have been caused to the injures party.
Illustration:
Mario was convicted and sentenced to imprisonment by the Court for
the crime of theft, the gold wrist watch, of Rito. In addition to whatever
penalty that the Court may impose, Mario may also be ordered to return
(restitution) the gold wrist watch to Rito. If restitution is no longer
possible, for Mario to pay the value (reparation) of the gold wrist watch.
In addition to either restitution or reparation, Mario shall also pay for
damages (indemnification) suffered by Rito.
5. QUASI-DELICTS as a source of obligations
Concepts of Quasi-Delict
Quasi-delict is one where whoever by act or omission
causes damage to another, there being fault of
negligence, is obliged to pay for the damage done. Such
fault of negligence, if there is no pre-existing
contractual relation between the parties. (Art. 2176)
Example-
If Pedro drives his car negligently and because of his
negligence hits Jose, who is walking on the sidewalk of
the street, inflicting upon him physical injuries. Then
Pedro becomes liable for damages based on quasi-
delict.
6. DELICTS or acts or omissions punished by
law as a source of obligations
Acts or omission punished by law is known as Delict or
Felony or Crime.
While an act or omission is felonious because it is punished
by law, the criminal act gives rise to civil liability as it
caused damage to another.
Civil liability arising from delicts:

Restitution which is the restoration of or returning
the object of the crime to the injured party.
Reparation which is the payment by the offender of
the value of the object of the crime, when such
object cannot be returned to the injured party.
Requisites of a quasi-
delicts -
There must be fault of negligence attributable

to the offended;
There must be damage or injury caused to
another;
There is no pre-existing contract.
Negligence Defined
is the failure to observe for the protection of the
interests of another person, that degree of care,
precaution and vigilance which the circumstances
justly demand, whereby such other person suffers
injury. (Judge Cooley)
Test of Negligence
For the existence of negligence, the following are
necessary:
a duty on a party of the defendant to protect the plaintiff
from the injury of which the letter complains;
a failure to perform that duty; and
an injury to the plaintiff through such failure.
Kinds of Negligence
Culpa Aquiliana, also known as quasi-delict or

negligence as a source of obligation.
Culpa contractual or negligence in the

performance of a contract.
An illustration showing this difference is founding
Gutierrez vs. Gutierrez, 56 Phil 177-
While trying to pass each other on a narrow bridge, a

passenger truck and private automobile collided, and the
plaintiff, a passenger in the truck, was injured.
The owner of the passenger truck was made a defendant,

although a driver was driving the truck and the owner of
the car was also made a defendant, although he was not in
the car but which was being driven by his 18 year old son
and in which members of his family were then riding. The
court found both drivers negligent, basing basing the
liability of the owner of the truck to the plaintiff on the
contract of carriage; while the liability of the owner of the
car was based on Quasi-delict of the Civil Code. As against
the owner of the truck, there was Culpa contractual, while
as against the owner of the car there was culpa Aquiliana.
LESSON 2: NATURE AND
EFFECT OF
OBLIGATIONS
ART. 1163. Every person obliged to give something is
also obliged to take care of it with the proper diligence of
a good father of a family, unless the law or the
stipulation of the parties requires another standard of
care. (1904a)
ART. 1664. The creditor has a right to the fruits of

the thing from the time the obligation to deliver it arises.
However, he shall acquire no real right over it until the
same has been delivered to him. (1905)
ART. 1165. When what is to be delivered is a

determinate thing, the creditor, in addition to the right
granted him by article 1170, may compel the debtor to
make the delivery.
If the thing is indeterminate or generic, he may ask
that the obligation be complied with at the expense
of the debtor.
If the obligor delays, or has promised to deliver the

same thing to two or more persons who do not have
the same interest, he shall be responsible for any
fortuitous event until he has effected the deliver.
(1906)
ART. 1166. The obligation to give a determinate

thing includes that of delivering all its accessions
and accessories, even though they may not have
been mentioned. (1097a)
Obligations of the Debtor To
Give a determinate thing-
1. To preserve or take care of the thing with the proper
diligence of a good father of a family. It means the
ordinary diligence that a prudent man would exercise in
taking care of his own property taking into
consideration the nature of the obligation, of the time
and of the place, like a person who is obliged to deliver
a determinate horse to another should, pending its
delivery, preserve it by taking care of the same as if
the horse is his own.
To deliver the object or thing when the obligation to
deliver arises, including:
1.Fruits of the thing if any. Kinds of fruits: Natural; industrial
or civil.
Natural - spontaneous product of the soil; the young and
other products of animal. E.g. tress, plants on lands without
he intervention of man.
Industrial - produced by lands of any king through
cultivation and labor. E.g. sugar cane, vegetables, rice.
Civil - derived by virtue of juridical relations. E.g. rents of
a building; prices of leases of lands and other similar income.
2. Accessions and accessories.
Accession is the right pertaining to the owner of a thing over
its products and whatever is attached thereto either naturally or
artificially.
Example-
Accretion which refers to the gradual and addition of sediment
to the shore by action of water.
Accessories are those things which are joined attached to
the principal object as ornament or to render it perfect.
Example-
Radio attached to a car; or key to a car.
3. To be liable for damages in case of breach of obligation
(Art. 1170, NCC)
When creditor acquire a right to the thing to be delivered

and its fruits-
The creditor has a right to the fruits of the thing from
the time the obligation to deliver it arises. However, he
shall acquire no real right over it until the same have been
delivered to him. (Art. 1164, NCC)
Example a binds himself to sell his horse to B for fro P10,

000. No date nor condition is stipulated for delivery of the
horse. Later, the horse gave birth to a colt. A has right to
the colt, if B has not paid the horse. Before delivery, B
does not acquire ownership over it.
Definition of terms:
1. Determinate thing a thing is determinate when it is

particularly designated or physically segregated from
all others from the same class. (Art. 1460, NCC)
2. Indeterminate or generic thing A thing is generic
when it refers to a class or thing or genus and cannot
be designated with particularity. (Art. 1460, NCC)
3. Fortuitous Events those events which could not be
foreseen or which though foreseen were inevitable.
(Art. 1174, NCC)
Art. 1167. If a person obliged to do something
fails to do it, the same shall be executed at his
cost.
This same rule shall be observed if he does it

in contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has
been poorly done be undone. ( 1098 )
Obligation of the debtor To
Do
Being a personal positive obligation, The creditor has

the right to secure the services of third person to
perform the obligation at the expense of the debtor
under the following instances:
When the debtor fails to do the obligation;

When the debtor performs the obligation but contrary to
the tenor; or
When the obligor poorly performs the obligation.
ART. 1168. When the obligation consists in not doing, and
the obligor does has been forbidden him, it shall also be
undone at his expense, (1099a)
Obligation of the Debtor NOT To Do

This is negative personal obligation which is consisting of an
obligation, of not doing something. If the debtor does what has
been forbidden him to do, the obligee can ask the debtor to have
it undone. If it is impossible to undo what was done, the remedy
of the injured party is for an action of damages.
Example-
A bought a land from B. It was stipulated that A would not
construct a fence in a certain portion of his land adjoining that
land sold by B. Should A construct a fence in violation of the
agreement, B. can bring an action to have the fence remove at
the expense of A.
ART. 1169. Those oblige to deliver or to do something incur in
delay from the time the obligee judicially or extra - judicially

demands from theme the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in

order that delay may exist:
( 1 ) When the obligation or the law expressly declares; or
( 2 ) When from the nature and the circumstances of the

obligation it appears that the destination of the time when the
thing is to be delivered or the service is to rendered was
controlling motive for the establishment of the contract; or
( 3 ) When demand would be useless, as when the obligor has

rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other

does not comply in a proper manner with what is incumbent upon
him. From the moment one of the parties fulfills his obligation,
delay by the other begins. ( 1100a )
Delay ( Mora )
means a legal delay or default and it consists of failure discharge a
duty resulting to ones own disadvantaged.
The debtor incurred delay if:

The debtor fails to perform his obligation when it falls due; and
A demand has been made by the creditor judicially or extra judicially.
Example
Gaya obliged herself to deliver a determinate horse to Tito on June
20. this year. Gaya failed to delivered on the agreed date, Is Gaya
already on delay on June 20, only when Tito makes a judicial or
extra-judicial demand and from such date of demand when Gaya is
on default or delay.
However, there are instances when the demand
by the Creditor is not necessary to place the
debtor on delay:
1. When the obligation expressly so provides

The mere fixing of the period is not sufficient
to constitute a delay. An agreement to the effect
that fulfillment or performance is not made
when the obligation becomes due, default or
delay by the debtor will automatically arise.
2. When the law so provides
The express provision of law that a debtor is in default.
For instance, taxes must be paid on the date
prescribed by law, and demand is not necessary in
order that the taxpayer is liable for penalties.
3. When time is of the essence

Because time is the essential factor in the fulfillment of
the obligation. Example, Gaya binds herself to sew the
wedding gown of Maya to be used by the latter on her
wedding date. Gaya did not deliver the wedding gown
on the date agreed upon. Even without demand, Gaya
will be in delay because time of the essence.
4.When demand would be useless
When the debtor cannot comply his obligation as when it is
beyond his power to perform. Like when the object of the
obligation is lost or destroyed through the fault of the
debtor, demand is not necessary.
5.In a reciprocal obligation, from the moment one

of the parties fulfills his obligation, delay to the
other begins
For instance, in a contract of sale, if the seller delivers the
object to the buyer and the buyer does not pay, then delay
by the buyer begins and vice versa, if the buyer pays and
the seller did not deliver the object, then the seller is on
delay.
Kinds of delay
Mora solvendi delay on the part of the debtor.
Mora accipiendi delay on the part of the creditor,

like when the creditor unjustifiably refused to accept
payment at the time it was due, is in delay.
Compensatio morae delay both parties in a

reciprocal obligation.
ART. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or delay,
and those whoin any manner contravene the tenor
thereof, are liable for damages. (1101)
ART. 1171. Responsibility arising from fraud is

demandable in all obligations. Any waiver of an
action for future fraud is void. (1120a)
ART. 1172. Responsibility arising from negligence

in the performance of every king of obligation is
also demandable, but such liability may be
regulated by the courts, according to the
circumstances. (1130)
ART. 1173. The fault or negligence of the obligor
consists in the omission of that diligence which is
required by the nature of the obligation and
corresponds with the circumstances of the
persons, of the time and of the place. When
negligence shows bad faith, the provisions of
articles 1171 and 2201, paragraph 2, shall apply.
If the law or contract does not state the diligence

of which is to be observed in the performance, that
which is expected of a good father of a family shall
be required. (1104a)
Sources of liability for
damages:
1. Fraud (dolo) is the intentional deception made by one
person resulting in the injury of another.
The fraud referred to is incidental fraud, that is, fraud
incident to the performance of a pre-existing obligation.
2. Negligence (culpa) consists in the omission by the

obligor of that diligence which is required by the nature of
the obligation and corresponds with the circumstances of
the person, of the time and of the place. (Art. 1173, NCC)
damages:
3. Delay (Mora) like when there has been judicial or extra-
judicial demand and the debtor does not comply his
obligation, delay will occur.
4. In contravention of the tenor of the obligation refers to

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

the violation of the terms and conditions or defects in the
performance of the obligation, like when a landlord fails to
maintain a legal and peaceful possession of a tenant
being leased by the latter because the landlord was not
the owner and the real owner wants to occupy the land,
there is contravention of the tenor of the obligation.
Other sources of liability
for damages
Loss of the thing with the fault of debtor.
Deterioration with the fault of debtor. (Art. 1189)

Kinds of Damages
1. Moral damages include physical sufferings,
mental anguish, fright, serious anxiety,
besmirched reputation, wounded feeling, moral
shock, social humiliation and similar injury.
2. Exemplary damages imposed by way of

example or correction for the public good.
Like in quasi-delicts, if the defendant acted with

gross negligence. (Art. 2231, NCC)
Kinds of Damages
3. Nominal damages are adjudicated in order that a
right of the plaintiff, which has been violated by the
defendant, may be vindicated or recognized and not
for the purpose of indemnifying the plaintiff for any
loss suffered by him. (Art. 2221, NCC)
4. Temperate or moderate damages are more than

nominal but less than compensatory damages may
be recovered when the courts finds that its amount
cannot, from the nature of the case, be proved with
certainty. Pecuniary loss means loss of money, or of
something by which money or something of money
value may be acquired. (Black Law Dict. P. 1131)
Kinds of Damages
5. Actual or compensatory damages except as
provided by law, or a stipulation, one is entitled to
an adequate compensation only for such
pecuniary loss suffered by him as he has duly
proved. (Art. 2199, NCC)
Damages may be recovered:

For loss or impairment of earning capacity in cases of
temporary or permanent personal injury;
For injury, to the plaintiffs business standing or
commercial credit.
Kinds of Damages
6. Liquidated damages are those agreed upon
by parties to a contract to be paid in case of
breach thereof. (Art. 2226, NCC)
Distinguish Fraud (Dolo)
from Negligence (culpa)
1. Dolo there is deliberate intent to cause damage or injury.
Culpa ther is no deliberate intent to cause damage.
2. Dolo waiver of liability of future fraud is void.

Culpa waiver may in some cases be allowed.
3. Dolo fraud must be clearly proved.

Culpa presumed from breach of contractual obligation.
4. Dolo liability cannot mitigated by the courts.

Culpa may be reduced according to circumstances.
ART. 1174. Except in cases
expressly specified by the law, or when it
is otherwise declared by stipulation, or
when the nature of the obligation
requires the assumption of risk, no
person shall be responsible for those
events which could not be foreseen, or
which, though foreseen, were inevitable
(1105a)
Fortuitous even is an event which cannot be foreseen which
though foreseen is inevitable.
Fortuitous event proper are acts of God such as volcanic

eruption, earthquake, lightning, etc. is now similar with force
majuere or acts of man such as conflagration, war, robbery,
etc.
1.Requisite necessary to constitute fortuitous event

The failure of the debtor to comply with the obligation must be
independent from the human will;
The occurrence makes it impossible for the debtor to fulfill the
obligation on a normal manner, and the obligor did not take part
as to aggravate the injury of the creditor. (Vasquez v.C.A. G.R.
42926)
2. As a general rule, no person shall be held
responsible for fortuitous events
Example Gaya obliged herself to deliver a

determine car to Tito on Dec. 30, 1998. Before
the arrival of the period, the car was struck by
lightning and was totally destroyed. Gaya cannot
be held responsible for the destruction of the car,
hence her obligation to deliver is extinguished.
Exceptions (when the person is responsible despite the
fortuitous even).
a.When the law expressly so provides, such as:

The debtor is guilty of fraud, negligence or in contravention of the
tenor of the obligation. (Art, 1170, NCC)
The debtor has proved to deliver the same thing to two or more
persons who do not have the same interest. ( Art. 1165,NCC )
The thing to delivered is generic.
The debtor is guilty of default or delay. ( Art. 1169,NCC )
The debtor is guilty of concurrent negligence.
b.When declared by stipulation;
c. When the nature of obligation requires the assumption of

risk. An example of this is a contract of insurance.
ART. 1175. Usurious transaction shall be governed by special
laws.
Note: C.B. Circular No. 905 suspends the ceilings in the usury law. Hence,
parties can agree as to the rate of interest.
Kinds of interest
1. Conventional *The rate which is agreed upon by the
parties.
2. Legal Interest *The rate which is prescribed by law.
3. Lawful Interest *The rate which is agreed upon by the
parties but which rate is within the rate authorized by law.
4. Usurious Interest *The rate which is in excess of the
maximum rate of interest allowed by law.
ART. 1176. The receipt of the principal by
the creditor without reservation with respect
to the interest, shall give rise to the
presumption that said interest has been paid.
The receipt of a later installment of a debt

without reservation as to prior installments,
shall likewise raise the presumption that such
installments have been paid. (1110a)
Presumption means the inference as to the

existence of a certain fact which if not contradicted
is considered as true.
The presumption in the above article is a disputable
presumption, whereby one which can be
contradicted by presenting proof to the contrary
while a conclusive presumption does not admit any
evidence or proof, hence, it is considered as a fact.
Presumption under this article:

1. Receipt of the principal, without reservation as to
the interest, shall give rise to the presumption that
the said interest has been paid.
2. When the creditor issues a receipt of a later
installment of a debt without reservation as to prior
installment is presumed to have been paid.
ART. 1177. The creditors, after having pursued the property
in possession of the debtor to satisfy their claims, may
exercise all the rights and bring all the actions of the latter
for the same purpose, save those which are inherent in his
person; they may also impugn the acts which the debtor may
have done to defraud them. (1111)
Rights of Creditors
In order to satisfy their claims against the debtor, creditors have the
following successive rights:
1. to levy by attachment and execution upon all the property of the

debtor, except such as are exempt by law from execution;
2. to exercise all the rights and actions of the debtor, except, such as
are inherently personal to him; and
3. to ask for the rescission of the contracts made by the debtor in fraud
of their rights.
ART. 1178. Subject to the laws, all rights
acquired in virtue of an obligation are
transmissible, if there has been no stipulation
to the contrary. (1112)
As a rule, all rights acquired in virtue of an obligation

are transmissible, except in the following cases:
1.When the law so provides.
2.When the parties stipulate otherwise by agreement of
parties that the rights acquired by them will not be
transmitted to any other person.
3.When the obligation is purely personal in nature.
LESSON 3: Kinds of
Obligations
Classification of Obligations:
The Civil Code classifies obligations primarily into: (PU
CO PE ALFA JOS DIP)
1.Pure;
2.Conditional;
3.With a period;
4.Alternative;
5.Facultative;
6.Joint;
7.Solidary or several or in solidum;
8.Divisible;
9.Indivisible;
10.With a penal clause.
Other provisions of the Civil Code, however,
impliedly admit other classes of obligations, to
wit:
a.) Unilateral and bilateral;

b.) determinate and generic;
c.) legal, conventional and penal;
d.) real and personal
Section I. Pure and Conditional Obligations
ART. 1179. Every obligation whose performance

does not depend upon a future or uncertain event,
or upon a past event unknown to the parties, is
demandable at once.
Every obligation which contains a resolutory

condition shall also be demandable, without
prejudice to the effects of the happening of the
event. (1113)
1. Pure Obligation when the obligation contain no term
or condition whatever upon which depends the
fulfillment of the obligation contracted by the debtor.
It is immediately demandable and there is nothing to
exempt the debtor from compliance therewith.
Example Gaya obliged herself to pay her loan of P1,000 to Tito
on demand.
Instances when obligations immediately demandable:
1.It is a pure obligation;
2.It is subject to a resolutory condition;
3.It is subject to resolutory period.
2. Conditional Obligations one which is subject to a condition of one
whose performance depends upon a future or uncertain events or upon
past event unknown to the parties.
ART. 1180. When the debtor binds himself to pay when his
means permits him to do so, the obligation shall be
deemed to be one with the period, subject to the
provisions of article 1197.(n)
Example
A promissory note states that This is to acknowledge receipt of sum of
One thousand Six Hundred pesos (P1, 600.00) and I am to pay my debt
to Arvin as soon as possible or as soon as I have the money. It was
held that the conditional obligation is void, because the collection
would be impossible, the remedy of the creditor is to ask the Court to
fix the period of payment, thus, it becomes an obligation with a period.
ART. 1181. In conditional obligations, the acquisition of
rights as well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the event which
constitutes the condition. (1114)
ART. 1182. When the fulfillment of the condition depends

upon the sole will of the debtor, the conditional obligation shall
be void. If it depends upon chance or upon the will of a third
person, the obligation shall take effect in conformity with the
provisions of this code. (1115)
ART. 1183. Impossible conditions, those contrary to good

customs or public policy and those prohibited by law shall
annul the obligation which depends upon them. If the
obligation is divisible, that part thereof which is not affected
by the impossible or unlawful condition shall be valid,
The condition not to do an impossible thing shall be

considered as not having been agreed upon. (1116a)
ART. 1184. The condition that some event happen
at a determinate time shall extinguish the obligation as
soon as the time expires or if it has become indubitable
that the event will not take place. (1117)
ART. 1185. The condition that some event will not

happen at a determinate time shall render the obligation
effective from the moment the time indicated has
elapsed, or if it has become evident that the event cannot
occur.
If not time has been fixed, the condition shall be

deemed fulfilled at such time as may have probably been
contemplated, bearing in mind the nature of the
obligation. (1118)
ART. 1186. The condition shall be deemed fulfilled

when the obligor voluntarily prevents its fulfillment.
(1119)
Kinds or classifications
of condition:
1. Suspensive and Resolutory
Suspensive the happening of the condition gives rise to an obligation.
Example:
Maya binds herself to deliver a determinate car to Tito if he marries
Gaya. The obligation is only demandable upon the happening of the
condition that is, if Tito marries Gaya. The obligation is suspended
and not yet demandable.
Resolutory the happening of the condition extinguishes the obligation

already existing.
Example:
Arvin binds himself to lend his only car to Ian until the latter passes
the CPA Board. The obligation to lend is immediately demandable.
Ians right over the car is extinguished upon his passing the CPA
board. Ian is now obliged to return the car.
of condition:
2. Potestative, Casual and Mixed
Potestative is one the fulfillment of which depends upon the sole will of the
debtor. This kind of condition is void.
Example:
Arvin Promise to give his only parcel of land to Maya if he decides to leave
for the United States.
Casual is one the fulfillment of which depends upon chance.

Example:
Mario agrees to give Maria a determinate car if Marias only racing horse
will win the sweepstake race.
Mixed is one which depends partly upon the will of third person and partly
upon chance
Example:
Vincent promise to give Victor a new Toyota Car if Victor will be able to play
with and beat Karpov in a game of chess. This is mixed condition, that is
Karpov willingness to play chess with Victor and the latters winning over
Karpov.
of condition:
3. Possible and Impossible
Impossible condition is divided into 2:
a) Physical Impossibility the condition imposed is not capable of being
performed physically.
Example:
Grace will give Christine a gold necklace if she swims across the
Pacific Ocean.
b) Illegal Impossibility when the condition imposed is contrary to law,

good custom or public policy.
Example:
1. Contrary to law Pedro agrees to give Ernesto P100,000 if Ernesto
will kill Mario.
2. Contrary to good custom Santos binds himself to give Maria a gold
wrist watch if she will cohabit with Mr. Reyes without benefit of
marriage.
3. Contrary to public policy Maria agrees to employ Grace in her
company if Grace will not join a labor union.
of condition:
4. Positive and Negative:
A Negative condition is one where some event will not

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

impossible or unlawful condition shall be valid (Art. 1183, NCC)
Example-
X promise to pay Y the sum of P1, 000.00 if Y furnishes X with
information as to the whereabouts of Z and another sum of P2,
000.00 if Y kills Z. in the obligation, the first part (to pay P1, 000.00)
is valid while the second part (P2, 000.00) is void because only
the latter is affected by the condition.
6. Express and Implied

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

determine, in each case, the retroactive effect of the
condition that has been complied with. (1120)
Effects of conditional
obligation to give:
Once the condition is fulfilled, the effects of the
conditional obligations shall retroact to the day of the
constitution of the obligation and not on the date
when the condition was fulfilled.
Example
On Jan. 1, 1999 A agreed to give B a parcel of land
if he passes the May, 1999 CPA exams. If B passes
the CPA exams in May, 1999, he is entitled to the
land effective Jan. 1, 1999 because Bs right over
the land retroacts to the date when the obligation
was constituted.
As to the fruits and interest The effect of conditional
obligation to give, as a rule, do not retroact to the date of
the constitution of the obligation. The following rules shall
govern:
1. In reciprocal obligation (like a contract of sale) - the fruits

and interest during the pendency of the condition shall be
deemed to have been mutually compensated.
Example:
A agrees to sell and B agrees to buy As parcel of land if
B passes the May, 1999 CPA exams. If B passes the
May, 1999 CPA Board, the obligation becomes
demandable. B is entitled to all the interests that his
money (with which to pay A) may earn while A is
entitled to the fruits which the parcel of land may have
produced during the pendency of the condition.
2. In unilateral obligation the debtor shall appropriate
the fruits and interests received during the
pendency of the condition unless a contrary
intention appears.
Example
X agreed to give Y a parcel of land if Y passes
the CPA Board in May, 1999 exams. Pending the
happening of the condition, A is entitled to the
fruits which the land may produce, A will deliver
only the parcel of land if the condition is
fulfilled, unless a contrary intention appears.
ART. 1188. The creditor may, before the fulfillment
of the condition, bring the appropriate actions for
the preservation of his right.
The debtor may recover what during the same

time he has paid by mistake in case of a
suspensive condition (1121a)
Preservation of Creditors Right

The action for the preservation of the creditors right
may have for their objectives:
1. To prevent the loss or deterioration of the things which are

the objects of the obligation by enjoining or restraining acts
of alienation or destruction by the debtor himself or by third
person;
Preservation of
Creditors Right
2. To prevent concealment of the debtors properties which

constitute the guaranty in case of non-performance of the
obligation;
3. To demand security if the debtor becomes insolvent;
4. To compel the acknowledgement of the debtors signature

on a private document or the execution of proper public
document for registration so as to affect third person.
Preservation of
Creditors Right
5. To register the deeds of sale or mortgages;
6. To set aside fraudulent alienation made by the debtor;
7. To interrupt the period of prescription by actions against

adverse possessors of the things which are objects of
the obligation. (Lawyers journal, 1951, p. 47)

Paragraph I of the above article authorizes the creditor to take
any appropriate actions for the preservation of creditors right
during the pendency of the condition:
Example:
On Jan. 1, 1999, Raul obliged himself to sell a parcel of land to
Dennis if he passes the CPA exams in October, 1999. From the
time the obligation was constituted and pending the happening
of the condition (passing the CPA Exams) Dennis may cause the
annotation of the condition in the certificate of title in the
Register of Deeds where the land is located, to preserve his right
over the parcel of land.
Paragraph II in order that debtor may recover what he has paid by
mistake, during the pendency of the condition, the following
requisites may be present:
1. The debtor paid the creditor before the fulfillment of the condition;
2. Payment made by debtor was through mistake and error;
1. The action to recover what was paid by mistake should be made

before the fulfillment of the condition.
Example
Pedro obliged himself to pay Santos P20, 000 if a PAL plane crashes at
Cebu before Dec. 30, 1998. After the obligation was constituted and
before Dec. 30, 1998, a plane crushed in Cebu. Pedro honestly and
believing that the condition was fulfilled paid the P20, 000 to Santos. It
turned out however that it was a Cebu airline that crushed. Thus,
Pedro may recover the amount paid to Santos by mistake for the
reason that the condition has not yet been fulfilled.
ART. 1189. When the conditions have been imposed with the
intention of suspending the efficacy of an obligation to give, the
following rules shall be observed in case of the improvement, loss
or deterioration of the thing during the pendency of the condition:
1) If the thing is lost without the fault of the debtor, the obligation shall
be extinguished.
2) If the thing is lost through the fault of the debtor, he shall be obliged
to pay damages; it is understood that the thing is lost when it
perishes, or goes out of commerce, or disappears in such a way that its
existence is unknown or it cannot be recovered;
3) When the thing deteriorates without the fault of the debtor, the
impairment is to be borne by the creditor;
4) If it deteriorates through the fault of the debtor; the creditor may
choose between the rescission of the obligation and its fulfillment,
with indemnity for damages in either case;
5) If the thing is improved by its nature, or by time, the improvement
shall inure to the benefit of the creditor;
6) If it is improved at the expense of the debtor, he shall have no other
right than that granted to the usufructuary.
These rules apply only to obligation to give a determinate
or specific thing subject to a suspensive condition in case
of loss, deterioration or improvement of the thing.
1. In case of loss of the thing
a) If the thing is lost without the fault of the debtor, the obligation
shall be extinguished.
Example
Reyes obliged himself to give Santos a determinate car if he
passes the CPA Exams in Oct. the current year. If during the
pendency of the condition the car was lost through fortuitous event
without the fault of Reyes, the obligation to deliver the car is
extinguished even if the condition is fulfilled later.
b) If the thing is lost through the fault of the debtor, he shall be

obliged to pay damages. If in the example above, the specific car
was lost through the fault of Reyes, he shall be liable for damages
upon the fulfillment of the condition.
It is understood that the thing is lost:
a) When it perishes (as when a house is burnt to ashes)
a) When it goes out of commerce (as when the object

before is unprohibited becomes prohibited)
b) When disappears in such a way that its existence is

unknown (as when a particular car has been missing
for some time)
c) When it disappears in such a way that it cannot be

recovered (as when a particular diamond ring is
dropped in the middle of the Atlantic Ocean).
2. When the thing deteriorates -
a) When the thing deteriorates during the pendency of the
condition, without the fault of the debtor, the impairment
is to be borne by the creditor.
Example
Arvin obliged himself to give Ian a determinate Toyota car
if Ian passes the October CPA Exams. During the
pendency of the condition, the car was partially damaged
by flood, without the fault on the part of Arvin. If the
condition is fulfilled, Ian will bear the impairment.
b) If the thing deteriorates, during the pendency of the

condition, through the fault of the debtor, the creditor
may choose, after the fulfillment of the condition,
between the rescission of the obligation or its fulfillment,
with indemnity for damages in either case.
3. When the thing improved
a) If the thing improved during the pendency of the

condition, by its nature, or by time, the improvement
shall inure to the benefit of the creditor. The reason for
this is to compensate the creditor who would suffer in
case, instead of improvement, there would be
deterioration without the fault of the debtor.
b) If the thing is improved at the expense of the debtor,
he have no other right than that granted to the
usufructuary. By us usufruct is meant the right to enjoy
the property of another which includes the right to
enjoy and use the fruits of the property.
ART. 1190. When the conditions have for their
purpose the extinguishment of an obligation to give,
the parties, upon the fulfillment of said conditions,
shall return to each other what they have received.
In case of the loss, deterioration or improvement

of the thing, the provisions which, with respect to
the debtor , are laid down to the preceding article
shall be applied to the party who is bound to return.
As for obligations to do or not to do, the

provisions of the second paragraph of article 1187
shall be observed as regards the effect of the
extinguishment of the obligation. (1123)
Effects When Resolutory
Condition is fulfilled
1. The obligation is extinguished. (Art. 1181, NCC)
2. Because the obligation is extinguished and considered to have had no
effect, the parties should restore to each other what they have received.
3. The fruits and interests thereon should also be returned after deducting of
course the expenses made for the production, gathering and preservation, if
any.
4. The rules given in Art. 1189, N CC will apply to whoever has the duty to
return in case of loss, deterioration or improvement of the thing.
5. The courts are given power to determine the retroactivity of the fulfillment
of a resolutory conditions.
Example :
A gave B a parcel of land on condition that B will pass the CPA Exams on
May, this year. B did not pass the CPA Exams. The obligation is
extinguished and therefore, it is as if there was never an obligation at
all. B will therefore have to return both the land and the fruits he had
received there from the moment A has given him the land.
ART. 1191. The power to rescind obligatios is
implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission,
even after he has chosen fulfillment, if the later should
become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the
rights of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 and the
Mortgage Law.
Right to Rescind
The right to rescind means the right to cancel or to resolve in
case of reciprocal obligation in case of non-fulfillment on the
part of one.
Example:
In a contract of sale, the buyer can rescind if the seller does not
deliver or te seller can rescind if the buyer does not pay.
The power to rescind is given to the injured party and the
injured party has the following alternative remedies:
1. Demand fulfillment of the obligation plus damages; or
2. Demand rescission of the obligation plus damages.
ART. 1192. In case both parties have committed a
breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts. If
it cannot be determined which of the parties first
violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages.
Rules if Both Parties Have Committed a Breach

The above rules are deemed just. The first one is fair to
both parties because the second infract or, though they
would derive some advantage by his own act or neglect.
The second rule is likewise just, because it is presumed
that both parties at about the same time tried to reap
some benefits. (Report of the Code Commission)
Section 2 - Obligations with a period
`
ART. 1193. Obligations for whose fulfillment
a day certain has been fixed, shall be demandable
only when that day comes.
Obligations with a resolutory period take effect

at once, but terminate upon arrival of the day
certain.
A day certain is understood to be that which

must necessarily come, although it may not be
known when.
If the uncertainty consists in whether the day will

come or not, the obligation is conditional, and it shall
be regulated by the rules of the preceding Section.
Period Defined
A period is a future and certain length of time which

determines the effectivity or the extinguished of obligation.
Obligation with a period is one whose consequences are

subject in one way or another to the expiration of said period
or term. (8Manresal58)
A day certain is understood to be that which must

necessarily come, although it may not be known when.
Period and Condition
Distinguished:
a) As to fulfillment - A period is a certain event which
must happen sooner or later while a condition is an
uncertain event.
b) As to time a period refers only to the future while a

condition may refer to a past unknown event.
c) As to influence or effect on the obligation the

period fixes the time of the effectivity of the
obligation while a condition may cause the
demandability of the obligation to arise or to
terminate.
ART. 1194. In case of loss, deterioration or
improvement of the thing before the arrival of
the day certain, the rules in article 1189 shall be
observed. (n)
Effect of loss, deterioration, or improvement before the
arrival of period.
Note the cross reference to Art. 1189, NCC.

Example:
If A is suppose to deliver to B a particular car on Dec.
19, 1999 by the car was destroyed by fortuitous event
in July 1, 1999, the obligation is extinguished.

ART. 1195. Anything paid or delivered before the
arrival of the period, the obligor being unaware of the
period or believing that the obligation has become de
and demandable, may be recovered, with the fruits
and interests. (1126a)
Effect Of Payment Before Arrival of Period
This article which is similar to Article 1188, NCC, in an

obligation to give, allows the recovery of what has been paid by
mistake before the fulfillment of a suspensive condition.
Example -
E owes G P20, 000.00, which was supposed to be paid on December
25 this year. By mistake, E paid his obligation on December 25 last
year. Assuming that today is only June 30, E can recover the amount
plus interest therein. But E cannot recover, except he interest, if the
debt had already matured or if E had knowledge of the period.
ART. 1196. Whenever in an obligation a period is
designated, it is presumed to have been established
for the benefit of both the creditor and the debtor,
unless from the tenor of the same or other
circumstances it should appear that the period has
been established in favor of one or of the other.
(1127)
Presumption As to Benefit Of A Period

The general rule is that when a period is fixed by the parties ,
the period is presumed to be for the benefit of both creditor
and debtor.
Which means that before the expiration of the period, the

debtor may not fulfill the obligation and neither the creditor
demand its fulfillment.
By way of exceptions, however, if the tenor of the obligation or
other circumstances may indicate that a period is have been
established for the benefit of either the creditor or debtor:
1. For the benefit of both creditor and debtor
Example
Gaya obtained a loan of P10, 000 at 12% interest per annum from Tito for
one year. Gaya has a period of one year within which to use the money,
while Tito will benefit from the interest which the money will earn.
2. For the benefit of the creditor

Example -
Gaya executes a promissory note in favor of Tito which reads: I promise to
pay Tito or order the amount of P10, 000 on demand. Thus, Tito can
demand payment from Gaya anytime.
3. For the benefit of debtor

Example
Gaya executes a promissory note which reads: I promise to pay Tito r
order the amount of P 10,000 or before December 31, 2001. Gaya can
pay her obligation on or before Dec. 31, 2001.
ART. 1197. If the obligation does not fix a period, but
from its nature and circumstances it can be inferred
that a period was intended, the courts may fix the
duration thereof.
The courts shall also fix the duration of the period when it
depends upon the will of the debtor.
In every case, the courts shall determine such period as
may under the circumstance have been probably
contemplated by the parties. Once by the courts, the period
cannot be changed by them. (1128 a)
Court Generally is Without Power to Fix a Period

If an obligation does not state a judicial period and no period is
intended, the court is not authorized to fix a period. The courts
have no right to make contracts for the parties.
Exceptions to the
general rule
1. If the obligation does not fix a period but it can be inferred from its nature and
circumstances that a period is intended.
Example:
S sold a parcel of land to B with a right of repurchase. No
term is specified in the contract for the exercise of the right.
Then, the court is authorized to fix the period to repurchase.
2. If the duration of the period depends upon the sole will of the debtor
Example:
I will pay you as soon as possible. Here , the period is not
fixed, so the court may fix the same because if this is not so
the obligation may never be complied with by the debtor.
ART. 1198. The debtor shall lose every right to make
use of the period:
1) When after the obligation has been contracted, he
becomes insolvent, unless he gives a guaranty or security
for the debt;
2) When he does not furnish to the creditor the guaranties
or securities which he has promised ;
3) When by his own acts he has impaired said guaranties or
securities after their establishment, and when through a
fortuitous event they disappear, unless he immediately
gives new ones equally satisfactory;
4) When the debtor violates any undertaking, in
consideration of which the creditor agreed to the period;
5) When the debtor attempts to abscond. (1129a)
When Debtor Loses The
Right to Make Use Of A
Period
The general rule is that the obligation is not demandable
before the lapse of the period. The exceptions are based
on the fact that the debtor might not be able to comply
with his obligation:
1. When debtor becomes insolvent:

The insolvency need not be judicially declared. It is
sufficient that the debtor has less assets than his
liabilities or if debtor is unable to pay his debts as they
mature. It is noted that the insolvency of the debtor
must occur after the obligation has been contracted.
Period
2. When debtor does not furnish guaranties or securities promised:
Example:
Gaya borrowed loan from Tito which loan was secured by a chattel
mortgage of Gayas car as a guaranty. After obtaining the loan,
Gaya fails or does not execute a chattel mortgage, the loan
becomes demandable or the debtor loses her right to make use of
the period.
3. When by his own acts he has impaired said guaranties or securities:

Example:
Gaya borrowed P50, 000 from Tito which loan was secured by a
chattel mortgage on Gaya s car. Later, Gayas fault, the car was
damaged or she causes the impairment of the car, Gaya loses her
right to make use of the period, unless she gives another one
equally satisfactory.
Period
4. When by fortuitous event, the guaranty or security was lost.
Example:
Gaya borrowed P50, 000 from Tito which loan was secured by a chattel
mortgage on Gayas car. After obtaining the loan, the car was lost by
fortuitous event. Gaya loss her right to male use of the period unless she
gives another guaranty or security equally satisfactory.
5. When debtor violates an undertaking

Example:
Art secured a loan from Arnold on condition that Art will paint the house
of Arnold. If after the proceeds of the loan was given to Art, he did not
pant the house of Arnold, Art loses his right to make use of the period.
6. When the debtor attempts to abscond.

Abscond means a depart or escape from creditors knowledge to avoid
payment of his debt. Mere attempt on the part of debtor will entitle the
creditor to demand payment of the obligation without waiting for the
period to expire.
Section 3. Alternative and Facultative obligations
ART. 1199. A person alternatively bound by different

prestations shall completely perform one of them.
The creditor cannot be compelled to receive part of one

and part of the other undertaking. (1131)
Meaning of Alternative Obligation

It means an obligation where two or more prestations are due
but the delivery of one is sufficient to extinguish the obligation.
Example:
Gaya binds herself to give Tito either a determinate refrigerator or a TV
set. If Gaya chooses and delivers the TV set, the obligation is
extinguished. Thus, Gaya cannot compel Tito to accept part of one and
the part of the other prestations.
ART. 1200. The right of choice belongs
to the debtor, unless it has been
expressly granted to the creditor.
The debtor shall have no right to

choose those prestations which are
impossible, unlawful or which could not
have been the object of the obligation.
Rule on Who Makes the
Choice
As a general rule, the right of choice or to select the prestation belongs to the
debtor, unless the right to choose is expressly granted to the creditor. But the
right of the debtor is subject to the following:
The debtor cannot choose those prestations which are:
a) Impossible E.g.- Gaya promised to deliver to Tito 100 sacks of rice or a
stone from Mars. Gaya cannot chose to deliver the stone coming from Mars
as it is physically impossible.
b) Unlawful E.g. Gaya obliged herself to deliver to Tito a kilo of dangerous drug
or a parcel of land. Gaya can choose only the delivery of parcel of land.
c) Could not have been the object of the obligation - E.g. Gaya borrowed from
Tito P50, 000. It was agreed that Gaya would give Tito her horse or her
German Piano. Now, Gaya has two horses, a race horse worth P50, 000 and
an ordinary horse which is worth for only P5, 000. Gaya cannot choose
d) Only one prestation is practicable (Art. 1202) E.g. Gaya will deliver to Tito
her carabao, or her horse or her refrigerator. Through no fault of Gaya, the
horse and the carabao were lost by fortuitous event. Gaya can only delivery
the refrigerator which is the only one practicable.
ART. 1201. The choice shall produce no effect
except from the time it has been communicated.
(1133)
Right of Choice Must be Communicated

Until the choice is made and communicated, the
communicated, the obligation remains alternative. Once the
notice to the effect that a choice is made, the obligation
ceases to be alternative and becomes a simple obligation.
Where the choice has been expressly given to the creditor,
such choice shall likewise produce legal effects upon being
communicated to the debtor. (Art. 1205, par. 1)
ART. 1202. The debtor shall lose the right of choice
when among the prestations whereby he is alternatively
bound, only one is practicable.
ART. 1203. If Through The creditors acts the debtor
cannot make a choice according to the terms of the
obligation, the latter may rescind the contract with
damages.
When debtor may rescind contract

If through the creditors fault, the debtor cannot made a choice
according to the terms of the obligation the debtor is given the
right to rescind and recover damages.
Example:
Gaya borrowed from Tito P5, 000.00. it was agreed that instead of P5,
000, Gaya could deliver a TV set or a refrigerator or a piano. If through
the fault of Tito, the TV set was destroyed, Gaya can rescind the
contract if she wants. In case of rescission, the amount of P 5, 000.00
must be returned by Gaya with interest. Tito, in turn, must pay Gaya the
value of the TV set plus damages.
ART. 1204. The creditor shall have a right to indemnity for
damages when, through the fault of the debtor, all the
things which are alternatively the object of the obligation
have been lost, or the compliance of the obligation has
become impossible.
The indemnity shall be fixed taking as a basis the value of

the last thing which disappeared, or that of the service
which last became impossible.
Damages other than the value of the last thing or service

may also be awarded. (1135a)

When right of choice is with debtor and all prestations were
lost
This article entitles the creditor to indemnity for damages when all
the alternative objects are lost through the fault of the debtor before
he has made his choice. The indemnity for which the creditor is
entitled shall be based on the value of the last thing which
disappeared or lost or the compliance of the obligation has become
impossible.
ART. 1205. When the choice has been expressly
given to the creditor, the obligation shall cease to be
alternative from the day when the selection has been
communicated to the debtor.
Until then the responsibility of the debtor shall be
governed by the following rules
1) If one of the things is lost through a fortuitous event, he

shall perform the obligation by delivering that which the
creditor should choose from among the remainder, or that
which remains if only one subsists;
2) If the loss of one of the things occurs through the fault of

the debtor, the creditor may claim any of those subsisting,
or the price of that which, through the fault of the former,
has disappeared, with a right to damages
3) If all the things are lost through the fault of the debtor,
the choice by the creditor shall fall upon the price of any
one of them, also with indemnity for damages.
The same rules shall be applied to obligations to
do or not to do in case one. Some or all of the
prestations should become impossible. (1136a)
When Right of Choice is With Creditor and All

Prestations Were Lost
This article provides for the rules to be observed when the
right of choice is expressly granted to the creditor, the
rules are as follows:
1. When a thing is los through a fortuitous event

Example
Gaya obliged herself to deliver to Tito a TV set, or a
refrigerator, or a piano. If the TV set was lost through
fortuitous event, Tito can choose from among the
remainder or that which remains if only one subsists.
2. When a thing is lost through debtors fault
Example:
If the loss of the TV set occurs through the fault of Gaya,
Tito may claim the refrigerator or the piano with a right of
damages or the price of the TV set with a right of damages.
3. When all the things were lost through debtors fault

Example:
If all the items are lost through the fault of Gaya, then Tito
can demand the payment of the price of any one of them
with a right to indemnity for damages.
4. When all the thing are lost through a fortuitous event

Example:
The obligation of Gaya shall be extinguished if all the items
which are alternatively the object of the obligation are lost
through a fortuitous event (Art. 1174 will apply).
ART. 1206. When only one prestation has been
agreed upon, but the obligor may render another in
substitution, the obligation is called facultative.
The loss or deterioration of the thing intended as a
substitute, through the negligence of the obligor, does
not render him liable. But once the substitution has
been made, the obligor is liable for the loss of the
substitute on account of his delay, negligence or fraud.
Meaning of Facultative Obligation

A facultative obligation is one where only one prestation has
been agreed upon but the obligor may render another in
substitution.
Example:
I will give you my piano but I may give my television set as a
substitute.
Alternative and
Facultative Distinguished

1) As to choice In facultative the right for substitution is given
only to the debtor in Alternative the choice may be given
either to the debtor or to the creditor;
2) As to things due In facultative only the principal obligation

is due by may substitute another; in alternative, there are
several things due but the delivery of one is sufficient;
3) As to validity or nullity In facultative if the principal thing is

unlawful or impossible, there is no need of delivering the
substitute in alternative if one of the thing is unlawful or
impossible, there is still a need to deliver any of those which
remain valid or the only remaining one is valid.
Section 4 Joint and Solidary Obligations
ART. 1207. The concurrence of two or more creditors

or of two or more debtors in one and the same obligation
does not imply that each one of the former has a right to
demand, or that each one of the latter is bound to render,
entire compliance with the prestation. There is a solidary
liability only when the obligation requires solidarity.
(1137a)
ART. 1208. If from the law, or the nature or the

wording of the obligations to which the preceding article
refers the contrary does not appear, the credit or debt
shall be presumed to be divided into as many equal
shares as there are creditors or debtors, the credits or
debts being considered distinct from one another, subject
to the Rules of Court governing the multiplicity of suits.
(1138a)
Joint Obligation
It is an obligation where there is a concurrence of two or
more debtors or two or more creditors or of several debtors
and creditors, by virtue of which each of the debtors is
liable for a proportionate part of the credit.
Example of different instances

1) A, B, and C borrowed P9, 000 for D. The presumption is that A, B
and C are jointly liable. D can demand only P3, 000 from each or a
total of P9, 000.
2) A borrowed from B, C and D P9, 000. There is one debtor and three
creditors. Each creditor can demand only P3, 000 from A.
3) A and B are liable to C and D for P9, 000. There are two debtors and
two creditors. Each creditor can demand only P4, 500 from each
debtor.
SOLIDARY OBLIGATION
There are solidary liability when
1) The obligation expressly so states, or
2) The law requires solidarity or
3) The nature of the obligation requires solidarity.

Kinds of Solidary
Obligation
1. Passive solidarity on the part of the debtors, where anyone of them
can be made liable for the fulfillment of the entire obligation.
Example A and B are solidary debtors of C in the amount of P 10, 000
2. Active solidarity on the part of the creditors, where anyone of them

can demand the fulfillment of the entire obligation.
Example A is liable to B and C for the amount of P10, 000. B and C are
solidary creditors.
3. Mixed Solidarity solidarity on the part of the debtors and creditors

where each one of the debtors is liable to render and each one of the
creditors has a right to demand, entire compliance with the
obligation.
Example A and B are solidarity debtors to C and D, solidary creditors in
the amount of P 10, 000.
Solidarity not presumed
The presumption, where there are two or more persons in the same
obligation, is that it is joint. The reason is that solidary obligations are
very burdensome for they create unusual rights and liabilities. Solidarity
between debtors increases their responsibility while solidarity between
creditors presuming that they are bound jointly and not solidarily.
ART. 1209. If the division is impossible, the right of the

creditors may be prejudiced only by their collective acts, and
the debt can be enforced only by proceeding against all the
debtors. If one of the latter should be insolvent, the others
shall not be liable for his share.
Indivisible Joint Obligation

The object is indivisible and the T/E between the parties are merely
proportionately liable.
Example
A and B are jointly liable to give C a particular car. The obligation is joint but since
the object is indivisible, the creditor must proceed against al the joint debtor. If any
of the joint debtors be insolvent, the others shall not be liable for others.
ART. 1210. The indivisibility of an obligation does
not necessarily give rise t solidarity. Nor does
solidarity of itself imply indivisibility. (n)
Indivisibility as Distinguished from Solidarity

Indivisibility refers to the subject matter while solidarity
refers to the Tie between the parties.
Examples:
1. Joint divisible obligation A and B are jointly liable to C for P10, 000.
2. Joint indivisible obligation A and B are jointly liable to give C their

car.
3. Solidary divisible obligation A and B are solidarily liable to give C

P10, 000.
4. Solidary indivisible obligation A and B are solidarily liable to give C

their car.
ART. 1211. Solidarity may exist although the
creditors and the debtors may not be bound in the same
manner and by the same periods and conditions.
The solidary character of the obligation is not destroyed even if

the creditors and debtors are bound by different terms and
conditions. The solidarity is still preserved by recognizing in the
creditor the power of claiming from any or all debtors the
payment of the entire obligation.
Example:
A and B solidarily bound themselves to pay a total of P10, 000 to C, and D
and E to the following conditions. Cs share will be due at the end of the
year; D will get his share only after he passes the CPA exams and E will get
his share only after he painted the house of C.
ART. 1212. Each one of the solidary creditors may do
whatever may be useful to the others, but not anything
which may be prejudicial to the latter. (1141a)
ART. 1213. A solidary creditor cannot assign his rights

without the consent of the others.
Solidary Creditors May Do Useful Act; Not Prejudicial Acts

A solidary creditor may do any act beneficial or useful to the
others but he cannot act prejudicial to them.
Example of Beneficial Acts

To interrupt the running of prescription, the act of one solidary creditor in
making a judicial demand upon any of the solidary debtors is sufficient.
(Art. 1155, NCC)
Example of Prejudicial Acts

Should not be performed, otherwise, there will be liability for damages.
However, in the case of remission or condonation, the solidary creditor is
allowed to so remit, and the obligation is extinguished.
Art. 1214. The debtor may pay any one of the
solidary creditors but if any demand, judicial or
extrajudicial, has been made by one of them,
payment should be made to him.
Payment to Any of the Solidary Creditors

The rule is that the debtor may pay any one of the creditors.
But when a demand is made by any of the creditors, payment
should be made to him who made the demand, judicially or
extra-judicially.
Example
A is liable to B and C P5, 000. A may pay either B or C But if B made a
demand then payment should only be made to him. If A paid C, B is
still entitled to his share from A in case C does not turn over to B his
share.
ART. 1215. Novation, compensation, confusion
or remission of the debt, made by any of the
solidary creditors or with any of the solidary
debtors, shall extinguish the obligation, without
prejudice to the provisions of article 1219.
The creditor who may have executed any of these

acts, as well as he who collects the debt, shall be
liable to the others for the share in the obligation
corresponding to them.
Liability of Solidary Creditor in case of Novation,

Compensation, Confusion or Remission
When a creditor who executed any of these acts, it is

logical that he is liable to the other solidary creditors for
their corresponding shares considering that such acts are
prejudicial to them. (Art. 1212, NCC)
ART. 1216. The creditor may proceed against any one
of the solidary debtors or some or all of them
simultaneously. The demand made against one of them
shall not be an obstacle to those which may subsequently
be directed against the others, so long as the debt has
not been fully collected. (1144a)
Creditor May Proceed Against Any Solidary Debtor

In a solidary obligation, the creditor may proceed against any, some
or all of the solitary creditors simultaneously so long as it has not
been fully collected.
Example
A, B and C solidarily owe D the amount of P9, 000. D can collect from A or B
or C alone or from any two of them or all of them simultaneously. If demand
is made on A, the latter cannot require D to make a demand also on B and C
or to include them as party defendants as D has the right to proceed against
any one of them.
ART. 1217. Payment made by one of the soldiery
debtors extinguishes the obligation. If two or more
solidary debtors offer to pay the creditor may choose
which offer to accept.
He who made the payment may claim from his co-

debtors only the share which corresponds to each, with
the interest for the payment already made. If the
payment is made before the debt is due, no interest for
the intervening period may be demanded.
When one of the solidary debtors cannot, because of his

insolvency, reimburse his share to the debtor paying the
obligation, such share shall be borne by all his co-
debtors, in proportion to the debt to each. (1145a)
Effects of Payment by a Solidary Debtor
Payment is one of the ways by which an obligation is
extinguished and consist in the delivery of the thing or the
rendition of the service which is the object of the obligation.
Example
A, B and C are solidarily liable to D and E in the amount of P9,
000 due on Dec. 31. If both A and B offer to pay D on Dec. 31,
the latter may choose which offer to accept. If A pays the entire
amount of P9, 000 on Dec. 31, the obligation is extinguished.
The payment of A gives him the right of reimbursement from B

and C P3, 000 each with interest from the date of payment.
However, if C is insolvent, both A and B shall bear the insolvency
in proportion to their shares.
ART. 1218. Payment by a solidary debtor shall not entitle
in to reimbursement from his co-debtors if such
payment is made after the obligation has prescribed or
become illegal. (n)
Effect of Payment After Obligation Has Prescribed or

Become Illegal
1. Prescription is one where one acquires ownership and other

rights through the lapse of time in the manner and under the
conditions laid down by law.
Example A and B are solidarily indebted to C in the amount of P 10,

000. The debt prescribed. If A paid the debt, he cannot collect form B his
share of the debt. Neither can A can recover from C.
2. Becomes Illegal A and B are solidarily bound to deliver

medical drugs to C. the transaction of such medical drugs were
later prohibited by law. Notwithstanding the prohibition, B
performed the obligation by delivering the prohibited drugs. B
is not anymore entitled to reimbursement from A.
ART. 1219. The remission made by the creditor of the share
which affects one of the solidary debtors does not release
the latter from his responsibility towards the co-debtors, in
case the debt had been totally paid by anyone of them
before the remission was effected. (1146a)
ART. 1220. The remission of the whole obligation obtained

by one of the solidary debtors, does not entitle him to
reimbursement from his co-debtors.
Remission by Creditor
1) If payment if made first, the remission is of no effect. There is no

more to remit.
2) If remission is made prior to the payment and payment is made,

then there is payment by mistake.
3) If one of the solidary debtors obtained remission on the whole

obligation, he is not entitled to reimbursement from his co-debtors
because remission is essentially gratuitous.
ART. 1221. If the thing has been lost or if the
prestation has become impossible without the fault of
the solidary debtors, the obligation shall be
extinguished.
If there was fault on the part of any one of them, all

shall be responsible to the creditor, for the price and
the payment of damages and interest, without
prejudice to their action against the guilty or negligent
debtor.
If through a fortuitous event, the thing is lost or the

performance has become impossible after one of the
solidary debtors has incurred in delay through the
judicial or extrajudicial demand upon him by the
creditor, the provisions of the preceding paragraph
shall apply. (1147a)
Rules in Case thing has Been
Lost or Prestation Has Become
Impossible
1. If the thing is lost or has become impossible to
perform through a fortuitous event without the fault
of the debtor, the obligation is extinguished.
Example:
A, B and C are solidarily bound to deliver a
determinate car to D. Without any fault on the part
of any one of the debtors, the car was lost through
the fortuitous event. The obligation is extinguished.
Rules in Case thing has Been
Lost or Prestation Has Become
Impossible
2. If in the preceding paragraph, the car was lost
through the fault of anyone of the solidary debtors,
anyone of them may be held liable by D for the
price of the car plus damages. The debtors who did
not any fault on the lost of the car have the right to
recover from the co-debtor who is at fault.
3. The solidary debtors are likewise liable even if the

thing is lost through fortuitous event if the loss
occurs after anyone of the solidary debtors has
been in delay. The debtors, however who were not
in delay have the right to recover from their co-
debtors who was responsible due to his delay.
ART. 1222. A solidary debtor may, in actions
filed by the creditor, avail himself of all
defenses which are derived from the nature of
the obligation and of those which are personal
to him, or pertain to his own share.
With respect to those which personally belong

to the others, he may avail himself thereof
only as regards that part of the debt for which
the latter are responsible.
Defenses available to a
Solidary Debtor
The defenses available to the solidary debtors if the
creditor proceeds against him alone for the payment of
the entire obligation
1. The defenses derived from the nature of the obligation,

such as fraud prescription, remission illegality or absence
of consideration, payment or performance.
Example
A and B are solidarily liable to C in the among to P6, 000. The
entire debt was paid by d. in an action by C against A, the latter
can raise the defense of payment by virtue of which the obligation
was extinguished.
Defenses available to a
Solidary Debtor
2.Defenses personal to him or pertaining to his
own share, such as minority, insanity and
vitiated consent.
3.Defenses which are personal to others, such as

minority, insanity and vitiated consent.
Section 5 Divisible and Indivisible
Obligations]
ART. 1223. The divisibility or

indivisibility of the things that are the
object of obligations in which there is
only one debtor and only one creditor
does not alter or modify the provisions of
Chapter 2 of this title. (1149)
Definition of Terms
1. A divisible obligation is one the object of which in its delivery
or performance is capable of partial fulfillment.
Example:
A agreed to pay B P10, 000 in five monthly installment. The
obligation of A is divisible because it is payable in partial
payments.
2. An indivisible obligation is one the object which in its delivery

or performance is not capable of partial fulfillment.
Example:
A agreed to deliver a determinate car to B on Dec. 31. This is an
indivisible obligation because it is not subject to partial
performance.
ART. 1224. A joint indivisible obligation gives rise
to indemnity for damages from the time anyone of
the debtors does not comply with his undertaking.
The debtors who may been ready to fulfill their
promises shall not contribute to the indemnity
beyond the corresponding portion of the price of
the thing or of the value of the service in which the
obligation consist. (1150)
ART. 1225. For the purposes of the preceding

articles, obligation to give definite things and those
which are not susceptible of partial performance
shall be deemed to be indivisible.
When the obligation has for its object the execution
of a certain number of days of work, the accomplishment
of work by metrical units, or analogous things which by
their nature are susceptible of partial performance, it
shall be indivisible.
However, even though the object or service may be

physically divisible, and obligation is Indivisible if so
provided by law or intended by the parties.
In obligations not to do, divisibility or indivisibility

shall be determined by the character of the prestation in
each particular case. (1151a)
Obligations Deemed
Indivisible
The general rule of determining the divisibility or indivisibility of
an obligation depend on the purpose of the obligation.
1. Obligation to give definite things
Example:
To give a particular house. Here the obligation is indivisible because
of the nature of the subject matter.
2. Obligations which are not susceptible of partial performance
Example:
A is obliged to sing a song. Here the obligation is indivisible by
reason its purpose which requires the performance of all the parts.
Obligations Deemed
Indivisible
3. Obligation provided by law to be indivisible even if thing or
service physically divisible.
Example:
Taxes should be paid within a definite period. Although
money is physically divisible, the amount of tax payable
must be delivered in Toto, not partially.
4. Obligations intended by the parties to be indivisible even if

thing or service is physically divisible.
Example:
The obligation of A to give P10, 000 to B on a certain date.
Money is physically divisible by the clear intention ere for A
to deliver the amount at on time and as a whole.
Obligations Deemed
Divisible
1. Obligations which have for their object the execution of a certain number
of days of work.
Example
A obliged himself to paint the house of B to be finished in 10 days. The
obligation is divisible because it will not be finished in one time.
2. Obligations which have for their object the accomplishment of work by

metrical units.
Example:
A obliged himself to deliver 25 cubic meter of sand.
3. Obligations which by their nature are susceptible of partial performance
Example
The obligation of A to pay a debt of P10, 000 to B in ten (10) monthly
installments.
Section 6 Obligations with a Penal Code
ART. 1226.In obligations with a penal clause,

the penalty shall substitute the indemnity for
damages and the payment of interests in case of
non-compliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if
the obligor refuses to pay the penalty or is guilty
of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is

demandable in accordance with the provisions of
this Code. (1152a)
Meaning of Penal Clause

An obligation with a penal clause is one which contains an
accessory undertaking to pay a previously stipulated indemnity
incase of breach. It is attached to obligations in order to insure
their performance.
Purpose of a Penal
Clause
1) To insure the performance of the obligation.
2) To substitute for indemnity for damages and

the payment of interest in case of non-
compliance of the principal obligation.
3) To penalize the obligor in case of breach of

the principal obligation.
ART. 1227. The debtor cannot exempt himself from the
performance of the obligation by paying the penalty, save in the
case where this right has been expressly reserved for him.
Neither can the creditor demand the fulfillment of the obligation

and the satisfaction of the penalty at the same time, unless this
right has been clearly granted him. However, if after the creditor
has decided to require the fulfillment of the obligation, the
performance thereof should become impossible without his
fault, the penalty may be enforced. (1153a)
Debtor Cannot Substitute Penalty For the Principal Obligation

The general rule is that the debtor is not allowed to just pay the penalty instead of
fulfilling the obligation. He can do so if the right has been expressly reserved. The
reason is that if he can just pay, fulfillment of the obligation will be considered an
alternative one. The word expressly means that any implied reservation is not
allowed.
ART. 1228. Proof of actual damages suffered
by the creditor is not necessary in order that the
penalty may be demanded.
ART. 1229. The judge shall equitably reduce

the penalty when the principal obligation has
been partly or irregularly complied with by the
debtor. Even if there has been no performance,
the penalty may also be reduced by the courts if
it is iniquitous or unconscionable. (1154a)
When Penalty May be
Reduced by the Court
a) When the obligation has been partly complied
with by the debtor;
b) When the obligation has been irregularly

complied with by the debtor
c) When the penalty is iniquitous or

unconscionable, even if there has been no
performance at all.
ART. 1230. The nullity of the penal clause does not
carry with it that of the principal obligation.
The nullity of the principal obligation carries with it the

penal clause. (1155)
Effect of Nullity of Penal Clause

The general principle that the accessory follows the principal. If
only the penal clause is void, the principal obligation remains
valid and demandable. The penal clause may be disregarded.
Example:
A agreed to sell merchandise to B. it is provided in their agreement that
in case of default, A will deliver a prohibited drug as penalty. Here, the
obligation to sell merchandise is valid by the penalty to deliver the
prohibited drug is void. For failure of A to comply with the obligation, B
may recover damages
Meaning of Loss Of The
Thing Due
It means that he ting which constitutes the object of
the obligation perishes or goes out of commerce or
disappears. In such a way that its existence is unknown or it
cannot be recovered.
The general rule is that if the thing to be delivered is

determinate and it is lost without the fault of the debtor or is
lost through fortuitous even pending delivery, th obligation
is extinguished and the debtor cannot be held liable.
The exceptions to this rule
are:
1. by stipulation or agreement of the parties;
2. by provision of law;
3. when the nature of the obligation requires the assumption of risk;
4. when the thing to be delivered is generic or indeterminate.
5. if the debtor is at fault;
6. when the debt or a thing certain and determinate proceeds from

a crime.
7. when the debtor has promised to deliver the same thing to two or
more pesons who do not have the same interest.
Art. 1263. In an obligation to deliver a generic
thing, the loss or destruction of anything of the same
kind does not extinguish the obligation.
Art. 1264. The courts shall determine whether,

under the circumstances, the partial loss of the
object of the obligation is so important as to
extinguish the obligation.
Art. 1265. Whenever the thing is lost in the

possession of the debtor, it shall be presumed that
the loss was due to his fault, unless there is proof to
the contrary, and without prejudice to the provisions
of article 1165. This presumption does not apply in
case of earthquake, flood, storm, or other natural
calamity. (1183a)
Thing Lost In Possession
Of Debtor
If the thing is lost while in the
possession of the debtor, the
law presumes that he ting was
lost through his fault. The
presumption of fault, however,
does not apply when the ting
is lost due to earthquake, flood
or other natural calamities.
becomes legally or physically impossible without the
fault of the obligor. (1184a)
Art. 1267. When the service has become so difficult as

to be manifestly beyond the contemplation of the
parties, the obligor may also be released therefrom, in
whole or in part. (n)
Art. 1268. When the debt of a thing certain and

determinate proceeds from a criminal offense, the
debtor shall not be exempted from the payment of its
price, whatever may be the cause for the loss, unless
the thing having been offered by him to the person
who should receive it, the latter refused without
justification to accept it. (1185)
Effect Of Obligation
Arising From Felony
Obligation arising from felony or crime or if a
person who was convicted of the crime like of theft ,
was ordered by the court to return the object to its
owner is liable for the payment of its value if such
object is lost through whatever case.
The only exception to this rules when the person

who should receive the object unjustifiably refused to
accept it and the object is subsequently lost due ot
fortuitous event, in which case the obligation is
extinguished.
Art. 1269. The obligation having been
extinguished by the loss of the thing, the
creditor shall have all the rights of action
which the debtor may have against third
persons by reason of the loss. (1186)
When Creditor Acquires
Debtors Right Of Action
By reason of the loss of the thing, the

creditor acquire all the rights of actions which
a debtor may have against at third person.
SECTION 3. - Condonation
or Remission of the Debt
Art. 1270. Condonation or remission is

essentially gratuitous, and requires the
acceptance by the obligor. It may be made
expressly or impliedly.
One and the other kind shall be subject to

the rules which govern inofficious donations.
Express condonation shall, furthermore, comply
with the forms of donation. (1187)
Condonation or Remission
Defined
Remission is an act of liberality by which

the obligee, without receiving any price or
equivalent, renounces the enforcement of the
obligation, as a result his right against the
debtor. (4 Sanchez Roman 422)
Requisites of
Condonations OR
Remissions
it must be gratuitous;
it must be accepted by the debtor;
the parties must have capacity;
must not be inofficious; and
if made expressly, it must comply with the forms

Effect of inofficious
Remission
While a person may make donations, no one can
give more than that which he can give by a
testamentary will, otherwise, the excess shall be
inofficious and shall be reduced by the Court
accordingly.
Like for example, a part of the testators property

called legitimate cannot be disposed of because the
law has reserved it from certain heirs called the
compulsory heirs.
ART. 1271. The delivery of a private document
evidencing a credit, made voluntarily by the creditor to
the debtor, implies the renunciation of the action which
the former had against the latter.
If in order to nullify the waiver it should be claimed to

be inofficious, the debtor and his heirs may uphold it by
proving that the delivery of the document was made in
virtue of payment of the debt. (1188)
ART. 1271. Whenever the private document in which

the debt appears is found in the possession of the debtor,
it shall be presumed that the creditor delivered it
voluntarily, unless the contrary is proved. (1189)
Presumption In Case Document
Found In the Possession Of
Debtor
If the document is found in the hands of the debtor and
it is not known how he came into possession of the same,
the presumption is that there was payment by virtue of the
payment of the debt. Or it was voluntarily delivered to the
debtor, which gives rise to the remission of the obligation.
Example, Gaya owes Tito P10, 000 evidenced by a

promissory note. The note as signed by Gaya was given to
Tito. If the promissory note is voluntarily delivered to Gaya,
the presumption is that the debt must have been paid by
Gaya.
it is known that Gaya has not yet paid Tito, it must be

presumed that the obligation has been remitted. Suppose it
is not known how Gaya came into possession of the
promissory note, the presumption is that it was voluntarily
delivered by Tito unless Tito proves to the contrary.
ART. 1273. The renunciation of the principal debt
shall extinguish the accessory obligations; but the
waiver of the latter shall leave the former in forc.
(1190).
Of Effect Renunciation Of the

Principal Debt
The above provision follows the rule that the accessory
follows the principal. The accessory cannot exist without the
principal obligation.
Example, Arvin owes Tito P10, 000 with Gaya as guarantor.

The principal debt here is the P10, 000 while the accessory
obligation is the guaranty of Gaya. The remission of the debt of
Arvin by Tito extinguishes the guaranty of Gaya. But if only the
guaranty of Gaya is condoned, the obligation of Arvin shall
remain in force.
ART. 1274. It is presumed that the
accessory obligation of pledge has been
remitted when the thing pledged, after its
delivery to the creditor, is found in the
possession of the debtor, or of a third person
who owns the thing. (1191a)
Pledged, Defined
Pledged is a contract by virtue of which the
debtor delivers to the creditor or to a third person a
movable or instrument evidencing incorporeal rights
for the purpose of securing the fulfillment of a
principal obligation with the understanding that
when the obligation is fulfilled, the thing delivered
shall be returned with all its fruits and accessions.
Presumption In case Thing in
Possession of Debtor
If the thing pledged is found in the hands of debtor or the third
person, only the accessory obligation of pledge is presumed remitted, not
the obligation itself.
Section 4. Confusion or
Merger of Rights
ART. 1275. The obligation is extinguished from

the time the characters or creditor and debtor are
merged in the same person. (1192a)
Meaning of Confusion or
Merger
Confusion is the meeting in one
person of the qualities of creditor and
debtor with respect to the same
obligation. (4Sanchez Roman 421)
Requisites of A Valid
Confusion
1. the merger of the qualities of creditor and debtor must
be in the same person;
2. it must take place in the person of either the principal
debtor and principal creditor; and
3. it must be complete, clear and definite; and
4. the very obligation must be the same.
Example, Gaya issued a promissory note for

P10, 000 in favor of Tito payable 30 days after sight.
Before the maturity of the note, Tito indorsed it to Arvin;
Arvin indorsed it to Mary; Mary indorsed it to Gaya. The
obligation of Gaya to Tito is extinguished because there is
here a merger of the qualities of the debtor and creditor in
one and the same person with respect to one and the
same obligation cannot demand and collect payment from
himself.
ART. 1276. Merger which takes place in the person of the
principal debtor or creditor benefits the guarantors. Confusion
which takes place in the person of any of the latter does not
extinguish the obligation. (1193)
Effect of Merger
This article reiterates the principles established in
Articles 1176, 1274, NCC, that accessory follows the principal.
The extinguishment of the principal obligation

extinguishes the accessory obligation; but the extinguishment
of the accessory does not extinguish the principal obligation
Example, Gaya obtains P10, 000 loan from Tito which loan
was guaranteed by Arvin. Later, Tito assigned the credit to
Mary, who in turn assigned it to Gaya. The principal debt is
extinguished and Arvin is released from his obligation as
guarantor. If, in this same example, the credit was assigned
by Tito to Mary and Mary to Arvin. The contract of guaranty is
extinguished but the principal obligations remains. Gaya has
now the obligation to pay Arvin.
ART. 1277. Confusion does not extinguish a joint obligation
except as regards the share corresponding to the creditor or
debtor in whom the two characters concur. (1194)
Effect of Merger in Joint

Obligation
In a joint obligation, the debts are distinct and separate from each other. In
case there is merger in a joint obligation, it affects only the share corresponding
to the creditor or debtor in whom the two characters concur. The co-debtor will
not owe his corresponding share to this former joint co-debtor.
Example, Gaya, Mary and Arvin are jointly indebted to Tito in the amount of
P15, 000. Tito assigns his credit to Ian who in turn assigned it to Gaya. There is
here a merger between Gaya and Tito but Mary and Arvin would now owe Gaya P5,
000 each.
Section 5. Compensation
ART. 1278. Compensation shall take
place when two persons, in their own
right are creditors and debtors of each
other. (1195)
Compensation,Defined
Compensation shall take place when two persons, in their
own rights are creditors and debtors of each other.
Compensation
Distinguished From
Confusion
as to number of persons in compensation there
must be two persons; in confusion, there is only
one person in whom the quality of creditor and
debtor is merged;
as to number of obligation in compensation thEre
must be two obligations; in confusion there is only
Kinds of Compensation
1. as to cause
a. Legal takes effect by operation of law provided all

the requisites prescribed by law are present.
b. Voluntarily takes place by virtue of the agreement

of the parties.
c. Judicial takes place only through court orders.
2. as to effect
a. Total when both debts are completely

extinguished because the debt are the same
amount
b. Partial the debts are not the same amount hence

after compensation, a balance remains
outstanding.
Requisites of a Proper
Compensation or Legal
Compensation
1. the parties are principal creditor and principal debtor of each other;
Example, Arvin owes Tito P10, 000 payable on Dec. 20, 1999. Tito on the
other hand owes Arvin P10, 000 also due and payable on Dec. 30, 1999.
These two obligation become due on Dec. 30, 1999 compensation takes
place because both Arvin and Tito are principal creditor and principal
debtor of each other.
2. both debts consists in a sum of money or of consumable things of the same

kind and quality;
Example, Arvin obliged himself to deliver to Tito 100 sacks of rice on

October 30, 1999. Tito, on the other hand, has an obligation to deliver 100
sacks of rice to Arvin on October 20, 1999. There is compensation because
they are consisting of consumable things.
3. the two debts are due and demandable;
Example, Gaya owes Maya P10, 000 payable on October 30, 1999. Maya
owes Gaya P10, 000 payable also on October 30, 1999. There is
compensation when the obligation becomes due on October 30, 1999.
4. the two debts liquidated; and
The liquidated means that the amount of debt has already
been fixed and determined, while the word demandable means
when it is due;
5. there be no retention or controversy means a third person

who is claiming to be a creditor.
Example, Arvin woes Ian P10, 000 and Ian owes Arvin P10,
000 but Arvin credit of P10, 000 has been garnished by Gaya
who claims to be an unpaid creditor of Arvin. Ian has been
duly notified of the controversy. Any possible compensation
is in the meantime suspended. If Gaya wins her claim, there can
be no compensation. If she loses, the controversy is
resolved, and then compensation can take place.
ART. 1280. Notwithstanding the
provision of the preceding article, the
guarantor may set up compensation as
regards what the creditor may owe the
principal debtor
Guarantor May Set Up
Compensation
This is an exception to Article 1279, part. 1 because the
article allows setting up compensation as regard what the
creditor may owe to the principal debtor.
Example, Arvin owes Tito P10, 000. Maya is the

guarantor of Arvin. Tito owes Arvin P10, 000. When Tito sues
Arvin for P4, 000. When Tito sues Arvin and Arvin cannot pay,
Maya will be liable for only P6, 000 because he can set the P4,
000 credit of Arvin as the basis of partial compensation.
ART. 1281. Compensation may be total
or partial. When the two debts are of the
same amount, there is a total compensation.
Kinds of Compensation
Total compensation is when the amount due are equal or
of the same amount, hence both obligations are extinguished.
Example, Gaya is indebted to Maya the amount of P10,

000 due on Dec. 19, 1999. Maya is likewise indebted to Gaya
in the amount of P10, 000 due on Dec. 19, 1999. There is here
a total compensation; hence both debts will be extinguished.
Partial compensation is when the amount
are not the same after compensation took
place, there is a balance remains.
Example, Gaya owes Maya P10, 000 due

on Dec. 19, 2009. On the other hand, Maya
owes the due date arrives because a balance
of P4, 000 will remain after compensation
takes place.
ART. 1282. The parties may agree upon the

compensation of debts which are not yet due. (n)
Compensation By Agreement Of the Parties
This is a voluntary compensation as an

execution to the general rule that only debts which
are due and demandable can be compensated.
(Art.1279)
Example, Gaya owes Maya P10, 000 due on

Nov. 30, 2001. On the other hand Maya owes Gaya
P10, 000 due on Dec. 19, 2001. Generally
compensation the parties there may be
compensation
cannot take place comes Nov. 30, 2001 because
Mayas debt is not yet due. However, by voluntary
agreement between
ART. 1283. If one of the parties to a suit
over an obligation has acclaim for damages
against the other, the former may set it off
by providing his right to said damages and
the amount thereof. (N)
Judicial Compensation
A judicial compensation is one whereby a money debt of a

person may be allowed by the court to be compensated with a
claim of damages by another.
Example, X owes Y P1, 000. When Y demanded payment, X

failed to pay. In anger, Y damaged the property of X to the
extend of P800. X can set off the obligation of Y to pay him
damages in the amount of P800 against his debt of P1, 000.
ART. 1284. When one or both debts are
rescissible or voidable, they may be
compensated against each other before they
are judicially rescinded or avoided.
Compensation Of Rescissible or Voidable Debts
Rescissible and voidable obligations are valid until they are
judicially rescinded or avoided and prior rescission or annulment, the
debts may be compensated.
Example, A owes B P 10, 000. Subsequently, A, through fraud

was able to make B sign a promissory note that B is indebted to A for
the same amount. The debt of A is valid, but that of B is voidable.
Before the debt of B is nullified, both debts may be compensated
against each other if all the requisites for legal compensation are
present.
If suppose the debt of B is later annulled by the court, A is still

liable considering compensation had already taken place because the
effect of annulment is retroactive, it is as if there was no compensation.
ART. 1285. The debtor who has consented to
the assignment of rights made by a creditor in favor
of a third person, cannot set up against the assignee
the compensation which would pertain to him against
the assignor, unless the assignor was notified by the
debtor at the time he gave his consent, that he
reserve his right to the compensation.
If the creditor communicated the cession to him but
the debtor did not consent thereto, the latter may
set up the compensation of debts previous to the
cession , but not of subsequent ones.
If the assignment is made without the

knowledge of the debtor, he may set up the
compensation of all credits prior to the same and
also later ones until he had knowledge of the
assignment.
When Compensation Has Taken
Place BEFORE Assignment
If an extinguished obligation has been assigned by the
creditor to third person, the debtor can raise the defense of
compensation with respect to the debt. The remedy of the
assignee is against the assignor.
Example, A owes B P5, 000 due yesterday. B owes A P3,

000 due also yesterday. Both debts are extinguished up to
amount of P3, 000. Hence, A still owes B P2, 000 today. If B
assigns his right to C, latter can collect only P2, 000 from A.
However, if A gave his consent to the assignment before it was
made on will be liable to C for P5, 000 but he can still collect the
P2, 000 owed by B. It is as if no compensation took place.
Where Compensation
Has Taken Place AFTER
Assignment
There are three cases of compensation which take
place after an assignment of rights made by the
creditor. They are:
Assignment with consent of debtor
Example, A owes B P5, 000 due Dec. 19. B owes A P3,
000 due Dec. 19. B assigned his right to C, the
assignee, the compensation which would pertain to
him against B, the assignor. A is still liable to C for P5,
000 but he can still collect the P2, 000 debt from B.
However, if A while consenting to the assignment,
reserved his right to the compensation, he would be
liable only P2, 000 to C.
Assignment with the knowledge but without the consent of debtor
Example, A owes B P1, 000 due Dec. 1. B owes A P2, 000 Dec. 10. A owes B P1, 000 due
Dec. 15. A assigned his right to C on Dec. 12. A notified B but the latter did not give his
consent to the assignment, how much can C collect from B? B can set up the
compensation of debts on Dec. 10 which was before the cession on Dec. 12. There being
partial compensation, the assignment is valid only up to the amount of P1, 000 but B
cannot raise the defense of compensation with respect to the debt of A due on Dec. 15
which has not yet matured. So, on Dec. 12, B is liable to C for P1, 000. Come Dec. 15, A
will liable for his debt of P1, 000 to B.
Assignment without the knowledge of the debtor

Example, in the preceding example, let us suppose that the assignment was made
without the knowledge of B who learned of the assignment only on Nov. 16. In this case,
B can set up the compensation of credits before and after the assignment. The crucial
time is when B acquired knowledge of the assignment and not the date of the
assignment. If B learned of the assignment after the debts had already matured, he can
raise the defense of compensation, otherwise, he cannot.
ART. 1286. Compensation takes place by operation
of law, even thought eh debts may be payable at
different places, bu there shall be an indemnity for
expenses of exchange or transportation to the
place of payment. (1199a)
Compensation Where Debts Payable At Different Places
This legal compensation does not refer to the difference in the value of
the things in their respective places but to the expenses of monetary
exchange and expenses of monetary exchange and expenses in
transportation. Once these expenses are liquidated, the debts also
become compensated. The indemnity shall be paid by the person who
raises the defense of compensation.
Example, Gaya owes Maya $1, 000 payable in New York. Maya owes
Gaya P38, 000(equivalent amount) payable in Manila. If A claim
compensation, he must pay for the expenses of exchange.
ART. 1287. Compensation shall not be
proper when one of the debts arises from a
depositum or from the obligations of a
depository or of a bailee in commodatum.
Neither can compensation be set up

against a creditor who has a claim for support
due by gratuitous title, without prejudice to
the provision of paragraph 2 of article 301.
ART. 1288. Neither shall there be

compensation if one of the debts consists in
civil liability arising from a penal clause.
PART III
General Provisions on Contracts
Learning Objectives:
After studying this lesson, you should:

1. know the definition of contract
2. learn the different classifications of contracts;
3. know the elements of contracts; and
4. that contracts take effect only between parties and its
exceptions.
The classifications of contracts summarizes those types
of contracts that may be freely agreed upon as long as they
are not contrary to law, morals, good customs, public order or
public policy.
ART. 1305. A contract is a meeting of minds between two

persons whereby one binds himself, with respect to the other,
to give something or to render service. (1254a)
Contracts, Defined
The above article defines the term Contract.

In a contract, one or more persons bind
themselves with respect to another or
reciprocally, to the fulfillment of a
presentation to give, to do or not to do.
Elements of Contract:
1. Essential elements those elements without which there
can be no valid contract. This element are consent, object or
subject matter and cause or consideration
2. Natural elements those elements which are found in a

contract by its nature and presumed by law to exist, such as
Warranty of hidden defects or eviction in contract of sale.
3. Accidental elements - those which exist by virtue of an

agreement for the purpose of expanding, limiting, or modifying a
contract. Such accidental elements are condition, clauses,
terms, modes of payment, or penalties.
Stages of A Contract:
1. Preparatory or conception process of formation such as
bargaining, negotiation to arrive at a define contract.
2. Perfection or birth there is now a meeting of minds to

arrive at a definite agreement as to the subject matter, cause
or consideration, terms and conditions of contract.
3. Consumption or death which is the fulfillment or

performance of the terms and conditions agreed upon in the
contract may be said to have been fully accomplished or
executed.
Characteristics of
Contracts:
1. Freedom to contract they may establish terms
and conditions as they may deem convenient.
2. Relativity it is binding only upon the parties

and their successors.
3. Obligatory force it constitutes the law as

between the parties.
4.Mutuality its validity and performance cannot

be left to the wil of only one of the parties.
Classification of A Contract:
(FROM)
1. As to perfection
a. Consensual one which is perfected by mere consent (Art.
1315
b. Real Contract perfected by mere consent and by the delivery of
the object or subject matter. Ex. Deposit, pledge, or commodatum.
2. As to dependence to other contract.

a. Principal one which can stand alone. Ex. A contract of sale,
lease.
b. Accessory those which are dependent upon another
contract. Ex. Contract of mortgage, pledge of guaranty.
c. Preparatory those which is created in order that a future
transaction or contract may be entered into by te parties. Ex.
Contract of partnership or agency.
3. According to name or designation
a. Nominate one which has particular name or designation such
as sale, agency, etc.
b. Innominate those without particular name.
4. According to the nature of obligation

a. Unilateral where only one ha an obligation to perform. Ex.
Contract of donation, commodation.
b. Bilateral where both parties have reciprocal obligation to
perform. Ex. Sale.
5. According to risk involved

a. Commutative - where there is an exchange of values, such as
lease.
b. Aleatory - one which the fulfillment of the obligation depends upon
chance. Ex. Contract of insurance.
6. According to cause
a. Onerous one which imposes valuable consideration such as sale,
mortgage.
b. Gratuitous one which one of the parties does not receive any
valuable consideration, such as commodatum.
7. According to form
a. Oral by word of mouth of the parties
b. Written the agreement which is reduced in
writing which may be public or private or private
document
ART. 1306. The contracting parties

may establish such stipulations, clauses, terms
and conditions as they may deem convenient,
provided they are not contrary to law, morals,
good customs, public order, or public policy.
(1255a)
Contract Binds by Both
Parties
ART. 1308. The contract must bind both

contracting parties; its validity or compliance cannot
be left to the will of one of them. (1256a)
Contracts entered by and between the parties
mush bind both parties in order that it can be enforced
against each other. This is also known as mutuality of
contract. Hence, its validity or compliance cannot be
left to the will of one of them. This principle is based on
the essential equality of the parties. It is elementary rule
that no party can renounce or violate the law of the
contract without the consent of the other. (11 Manresa
380)
Example, Gaya and Laura entered into a contract

to sell whereby Gaya binds herself to sell her only parcel
of land to Laura if Gaya decides to leave for States. The
contract is void because the fulfillment of the condition
depends on the will of Gaya.
ART. 1309. The determination of the
performance may be left to a third person, whose
decision shall not be binding until it has been
made known to both contracting parties.
ART. 1310. The determination shall not be

obligatory if it is evidently inequitable. In such
case, the courts shall decide what is equitable
under the circumstances.
Determination of
Performance by Third
Person
As a rule, compliance with a contract cannot be left to the will
of one of the contracting parties. However, the determination of its
performance may be left to a third person after it has been made
known to both contracting parties. Provided, further, the parties are
not bound by the determination if it is evidently inequitable or
unjust when the third person acted in bad faith or by mistake, the
courts shall decide what is equitable under the circumstances.
Example, Gaya sold her parcel of land to Laura. It was

agreed that Maya, a real estate appraiser would be the one to
determine the reasonable price of the land. Maya, then, fixed the
price after considering the factors affecting the value of the land,
and informing both contracting party that the decision is just and
suitable. If the decision made by Maya is manifestly inequitable, the
court may be called upon to decide what is equitable.
ART. 1311. Contracts take effect only between the
parties, their assigns and heirs, except in case where
the rights and obligations arising from the contract are
not transmissible by their nature, or by stipulation, or
by provision of law. The heir is not liable beyond the
value of the property he perceived from the decedent.
If a contact should contain some stipulation in

favor of third person, he may demand its fulfillment
provided he communicated his acceptance to the
obligor before its revocation. A mere incidental benefit
or interest of a person is not sufficient. The contracting
parties must have clearly and deliberately conferred a
favor upon a third person. (1257a)
Cases Where Third person
May Be Affected By a
Contract
1. In determining the performance of both parties (Art. 1309).
2. In contracts containing a stipulation in favor of a third person

(Art. 1311).
3. In contracts creating real rights (Art. 1312).
4. In contracts entered into to defraud creditor (Art. 1313).
5. In contracts which have been violated at the inducement of

the third person (Art. 314).
Example, Gaya mortgaged her parcel of land in favor of Laura

as collateral for her debt. The mortgage is duly registered. Later on,
Gaya sold the same land to Tito. In this case, Tito bought the land
subject to the mortgage constituted thereon. Tito, although a
stranger in the mortgage, being a real right follows the property on
the right of Laura to the mortgage.
Forms of Contracts
Art. 1356. Contracts shall be
obligatory, in whatever form they may have
been entered into, provided all the essential
requisites for their validity are present.
However, when the law requires that a
contract be in some form in order that it may
be valid or enforceable, or that a contract be
proved in a certain way, that requirement is
absolute and indispensable. In such cases,
the right of the parties stated in the
following article cannot be exercised.
(1278a)
Meaning of Form of
Contracts
Forms of a contract refer to the

manner in which a contract is
executed or manifested
Rules Regarding Form of
Contracts
General Rule Contracts are binding and

therefore, enforceable reciprocally by the
contracting parties, whatever may be the form
in which the contact has been entered into to
provided all the three essential requisites
(consent, object, cause) for their validity are
present.
Reformation of Instruments
Art. 1359. When, there having been a
meeting of the minds of the parties to a contract,
their true intention is not expressed in the
instrument purporting to embody the agreement,
by reason of mistake, fraud, inequitable conduct
or accident, one of the parties may ask for the
reformation of the instrument to the end that
such true intention may be expressed.
If mistake, fraud, inequitable conduct, or

accident has prevented a meeting of the minds of
the parties, the proper remedy is not reformation
of the instrument but annulment of the contract.
Meaning of Reformation
Reformation is that remedy by
means of which a written instrument is
amended or rectified so as to express or
conform to the real agreement or
intention of the parties when by reason of
mistake, fraud, inequitable conduct, or
accident the instrument fails to express
such an agreement or intention.
Requisites of Reformation
1. There is a meeting of the minds of the
parties to the contract;
2. The written instrument does not express

the true agreement or intention of the parties;
3. The failure to express the true intention is

due to mistake, fraud, inequitable conduct or
accident;
4. The facts upon which relief by way of
reformation of the instrument is sought are put in
issue by the pleadings; and
5. There is clear and convincing evidence of the

mistake, fraud, inequitable conduct or accident.
Example, Arvin sold his land to Ryan. It was greed

that the sale will include all the improvements.
However, the contract was signed by the parties,
states that the land is being sold excluding the
improvements thereon. In this case, the remedy is
reformation, because there has been a meeting of
minds.
Cases When Reformation
Not Allowed
1. Simple donation inter vivos where no condition is
imposed Donation is an act of liberality whereby a
person disposes gratuitously of a thing or right in
favor of another, who accepts it. (Art. 725). Donation
is strictly personal andfree act so that if the intend of
the donor that the donation will take effect during his
lifetime, it is a donation inter vivos, while the
opposite of inter vivos is donation mortis causa which
takes effect after the donors death.
2. Wills A will is an act whereby a person is

permitted with a formalities prescribed by law to
control to a certain degree the disposition of his
estate, to take effect after his death.
3. When the real agreement is void If the real
agreement is void, thre is nothing to reform.
4. When one party ahs brought an action to

enforce the instrument (Art. 1367) When a
party brings an action to enforce the contract, he
admits its validity and that it expresses the true
intention of the parties. The bringing of the
action is thus inconsistent with reformation
Interpretation Of Contracts
Art. 1370. If the terms of a contract are clear

and leave no doubt upon the intention of the
contracting parties, the literal meaning of its
stipulations shall control.
If the words appear to be contrary to the

evident intention of the parties, the latter shall
prevail over the former. (1281)
Meaning of Interpretation of
a contract
Interpretation of a contract is the
determination of the meaning of the terms of word
used by the parties in their contact.
If the terms of a contract are clear and
unequivocal, the parties are bound thereby
according to the literal sense of their stipulations.
Example, a contract was executed by A and B,
the contract recites that is a sale of land belongs to
A for P500. The terms of the contract are clear and
it does not appear that the intention of the parties is
contrary to the literal meaning of said terms
Cause of Contracts
Art. 1350. In onerous contracts the
cause is understood to be, for each
contracting party, the prestation or
promise of a thing or service by the other;
in remuneratory ones, the service or
benefit which is remunerated; and in
contracts of pure beneficence, the mere
liberality of the benefactor. (1274)
Meaning of Cause
Cause is the essential or more proximate
purpose which the contracting parties have in
view at the time of entering into a contract.
(8Manresa697)
It is the Civil Code term for

consideration in Anglo American or Common
Law.
Classification of Contracts
According to Cause
1. ONEROUS the cause of which for each
contracting parties is the pre-station or promise
of a thing or service of the other. Ex. Sale, lease
of things.
2. REMUNERATORY - the cause is the service or
benefit which is remunerated. Ex. A rendered
service as the lawyer-counsel of B who agreed
to pay P10, 000 for said services.
3. GRATUTIOUS the cause which is the mere
liberality of the benefactor or giver. Ex. X
donated a parcel of land to Y. The cause is the
liberality of X, the done or benefactor.
Art. 1352. Contracts without cause, or
with unlawful cause, produce no effect
whatever. The cause is unlawful if it is
contrary to law, morals, good customs,
public order or public policy. (1275a)
Art. 1353. The statement of a false

cause in contracts shall render them void, if
it should not be proved that they were
founded upon another cause which is true
and lawful. (1276)
Requisites of Cause
1. it must exist at the time the contract is
entered into. (Art. 1352)
2. it must be lawful; (Ibid) and
3. it must be true or real. (Art 1353)

Effect of Absence of
Cause
A contract without cause or with an
unlawful cause, according to this article,
produces no effect whatever. Like, for
example, an absolutely simulated contract
produces no effect because there is no
cause at all.
Effect of Inadequacy of
Cause
Inadequacy of cause does not
invalidate a contact. (Art. 1355).
Illegality of cause implies that there is
a cause but the same is unlawful or
illegal. By falsity of Cause is meant
that the contract states a valid
consideration but such statement is
not true
PART IV
DEFECTIVE CONTRACTS
There are four kinds of defective contracts:

1. Rescissible contracts (Chapter 6);
2. Voidable contracts (Chapter 7);
3. Unenforceable Contracts (Chapter 8); and
4. Void or inexistent contracts (Chapter 9)

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

upon may be rescinded in the cases
established by law. (1290)
Meaning of Rescission
Rescission is a remedy granted by law

to the contracting parties and sometimes
even to third person in order to secure
reparation of damages caused them by a valid
contract, by means of the restoration of things
to their condition in which they were prior to
the celebration of said contract. (8Manresa
748)
Requisites of Rescission
1. The contract must be validly agreed upon;
2. There must be lesion on pecuniary

prejudice to one of the parties or to a third
person;
3. The rescission must be based upon a case

especially provided by law;
4. There must be no other legal remedy to

obtain reparation for the damage;
5. The party asking for rescission must
be able to return what he is obliged to
restore by reason of the contract.
6. The object of the contract must not

legally be in the possession of third
person who did not act in bad faith;
7. The period for filing the action for

rescission must not have prescribed
Art. 1381. The following contracts are rescissible:
`
(1) Those which are entered into by guardians whenever the wards
whom they represent suffer lesion by more than one-fourth of the value
of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer
the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any
other manner collect the claims due them;
(4) Those which refer to things under litigation if they have been entered
into by the defendant without the knowledge and approval of the
litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to
rescission. (1291a)
Voidable Contracts
Art. 1390. The following contracts are voidable
or annullable, even though there may have been no
damage to the contracting parties:
(1) Those where one of the parties is
incapable of giving consent to a contract;
(2) Those where the consent is vitiated by
mistake, violence, intimidation, undue influence or
fraud. These contracts are binding, unless they are
annulled by a proper action in court. They are
susceptible of ratification.
Meaning of Voidable
Contracts
Voidable or annullable contracts are
those which possess all the essential
requisites of valid contract but one of the
parties is incapable of giving consent, or
consent is vitiate by mistake, violence,
intimidation, undue influence of fraud.
Meaning of Annulment
Annulment is a remedy granted by
law, for reason of public interest, for
the declaration of the inefficacy of a
contract based on defect or vice in
the consent of one of the contracting
parties in order to restore them to
their original position in which there
were before contract was executed.
Characteristics of Voidable
Contracts
1. The defect in the contract consists in the vitiation
of consent of one of the contracting parties;
2. The contract is binding until annulled by a

competent court;
3. The contract is susceptible of convalidation by

ratification or prescription;
4. The defect or voidable character of the contract

cannot be invoked by third persons.
Art. 1391. The action for annulment shall be brought
within four years. This period shall begin:
In cases of intimidation, violence or undue

influence, from the time the defect of the consent
ceases.
In case of mistake or fraud, from the time of the

discovery of the same.
And when the action refers to contracts entered

into by minors or other incapacitated persons, from
the time the guardianship ceases. (1301a)
Period for Filing Action for
Annulment
The period within which the action for
annulment shall be brought within four(4)
years from:
1. The time the intimidation, violence or

undue influence ceases;
2. The time of the discovery of mistake or
fraud; and
3. The time guardianship ceases, in cases of
contracts entered into by incapacipated
persons.
Unenforceable Contracts
Art. 1403. The following contracts are
unenforceable, unless they are ratified:
(1) Those entered into in the name of another

person by one who has been given no authority or legal
representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of

Frauds as set forth in this number. In the following cases an
agreement hereafter made shall be unenforceable by
action, unless the same, or some note or memorandum,
thereof, be in writing, and subscribed by the party charged,
or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or a secondary
evidence of its contents:
(a) An agreement that by its terms is not
to be performed within a year from the making
thereof;
(b) A special promise to answer for the

debt, default, or miscarriage of another;
(c) An agreement made in consideration

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

giving consent to a contract.
Meaning of Unenforceable
Contracts
Unenforceable contracts are those that
cannot be enforced in court or sued upon by
reason of defects provide by law until unless
they are ratified according to law.
They are contracts either entered into

without or in excess of authority or do not
comply with the statue of frauds or both of the
contracting parties do not possess the required
legal capacity.
Classes of Unenforceable
Contracts
1. Those entered into the same of
another person by one without authority
or in excess of his authority;
2. Those which do not comply with

the Statue of Frauds; and
3. Those where both parties are

incapable of giving consent
Art. 1404. Unauthorized contracts are
governed by Article 1317 and the
principles of agency in Title X of this
Book.
Art. 1405. Contracts infringing the

Statute of Frauds, referred to in No. 2 of
Article 1403, are ratified by the failure to
object to the presentation of oral
evidence to prove the same, or by the
acceptance of benefit under them.
Void or Inexistent Contracts
Art. 1409. The following contracts are inexistent
and void from the beginning:
1) Those whose cause, object or purpose is

contrary to law, morals, good customs, public order or
public policy;
2) Those which are absolutely simulated or

fictitious;
3) Those whose cause or object did not exist

at the time of the transaction;
4) Those whose object is outside the

commerce of men;
5) Those which contemplate an impossible

service;
6) Those where the intention of the
parties relative to the principal object of the
contract cannot be ascertained;
7) Those expressly prohibited or declared

void by law.
These contracts cannot be ratified.

Neither can the right to set up the defense of
illegality be waived.
Art. 1410. The action or defense for the

declaration of the inexistence of a contract does
not prescribe.
Meaning of Void or
Inexistent Contracts
1. it cannot be ratified. (Art 1409)
2. the right to set up the defense of
illegality cannot be waived.
3. the action or defense for the
declaration of its inexistence does
not prescribed. (art. 1410)
4. the defense of illegality is not
available to third persons whose
interests are not directly affected; and
5. it cannot give rise to a valid
contract. (Art. 1422)
Instances of Void or
Inexistence Contract
There is no need for a detail
discussion of these different kinds of void
inexistent contracts considering that they
have been discussed in previous chapters
of this book.
Void of inexistent contracts does

not prescribe. Mere lapse of time cannot
give effect to contracts which are null and
void.
Art. 1411. When the nullity proceeds from
the illegality of the cause or object of the
contract, and the act constitutes a criminal
offense, both parties being in pari delicto, they
shall have no action against each other, and
both shall be prosecuted. Moreover, the
provisions of the Penal Code relative to the
disposal of effects or instruments of a crime
shall be applicable to the things or the price of
the contract.
This rule shall be applicable when only

one of the parties is guilty; but the innocent one
may claim what he has given, and shall not be
bound to comply with his promise. (1305)
Meaning of Pari Delicto
Pari Delicto means both parties are

equally at fault or are equally guilty. The
principle of pari delicto, means that when
the defect of avoid contracts consists in
the illegality of the cause or object f the
contract and both parties are at fault or in
a pari delicto, the law refuse them every
remedy, or the parties have no action
against each other.
Illegal contract with
Criminal Offense
1. When both parties are in pari delicto
Rules
a. the parties shall have no action against
each other;
b. both shall be prosecuted; and
c. the things of the price of the contract,
shall be confiscated in favor of the
government.
2. Where only one party is guilty.

The innocent one or less guilty may claim
what he has given and shall not be bound
to comply with his promise
Art. 1412. If the act in which the unlawful or
forbidden cause consists does not constitute a
criminal offense, the following rules shall be
observed:
(1) When the fault is on the part of both

contracting parties, neither may recover what he has
given by virtue of the contract, or demand the
performance of the others undertaking;
(2) When only one of the contracting parties is

at fault, he cannot recover what he has given by
reason of the contract, or ask for the fulfillment of
what has been promised him. The other, who is not at
fault, may demand the return of what he has given
without any obligation to comply his promise. (1306)
Effect of Illegal Terms in a
Contract
Art. 1420. In case of a divisible contract, if
the illegal terms can be separated from the
legal ones, the latter may be enforced.
In case a contract containing an illegal

orlegal terms, the law allows the legal terms to
be enforced if it can be enforced if it can be
separated from the illegal ones.
Persons Entitled to Raise
Defense of Illegality or
Nullity
As general rule, contracts bind
only the contracting parties, their heirs
or assigns. Corollary to this rule, the
illegality of a contract maybe set up as
a defense only by contracting parties
or by parties whose interest are affect
by the contracts as a defense
Thank you!!!!!

Revised By: Atty. Virginio L. Valle

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Atty. Virginio L. Valle

a) According to the Object or Prestation

INTRODUCTION TO LAW AND BUSINESS LAW

1. Definition of Law and Business Law

In the preliminaries, the sight of a human being in

The instructions that a person will learn, result to

The infinite truth and infinite good is infinite beauty of God.

A RULE OF CONDUCT , JUST AND OBLIGATORY

Edgardo Paras defined Law as an ordinance of

Meaning any action, things, dictate of reason if

That is, made known to those who are expected to

Treatment of Law should be equal, regardless of sex,

The application of law should not be titled or

It consists of legal rights by a competent authority. In the

The fundamental law that governs a nation in

The fundamental law that governs a nation in

Judicial decisions or interpreting the laws or the

Thus, our country adhere to the Doctrine of Stare Decisis

It consists of those habits and practices which

To add, the principle of justice and equity,

It is formally promulgated by God, revealed or

Promulgated impliedly in our conscience and body. It

THIS CAN BE CLASSIFIED INTO:

It includes the following:

1. International Law consists of those rules and

2. Constitutional Law It simply governs the relations

3. Administrative Law it fixes the organization and determines

4. Political Law deals with the organization and operation of the

5. Criminal Law guaranties the coercive power of the law so that

Those law which govern the private relation person.

It includes the following:

1. Civil Law branch of law which has for its double

2. Commercial Law defined as a whole body of

3. Procedural Law defined as the branch of law which

A civil code is a compilation of existing Civil Laws,

3. Jurisprudence there is need to mention

5. The Code Commission itself A Code

Thiswas re-codified as Family Code of the Philippines

Book III Different Modes of Acquiring Ownership

Book IV Obligations and Contracts

Book V Special contracts

BOOK ONE - Merchants and Commerce in

1. The Corporation Code which repealed principally

2. The Negotiable Instrument Law which repealed

4. Insurance Law, which repealed the

5. The Securities Act, which repealed the

7. Other legislation, in addition to the foregoing special

a. Those contained in Book one governing merchants and commerce

b. Those contained in Book Two governing joint accounts, transfers,

c. Those contained in Book Three governing maritime

a. MERCHANTS Merchants may be natural or juridical

In the case of natural person, he is a merchant:

In the case of juridical person, it is a merchant:

Habituality in engaging in commerce is attained when there

1. Throwing open to the public a business entity or establishment;

3. Where a foreign corporation appoints an agent as required by law.

4. A series of acts consisting of investigating and preparations of

1. Those suffering the penalty of civil

2. Those judicially declared insolent while

3. Those who in account of special laws or

1. Justices, judges, and officials of the Prosecutors office

2. Administrative, economic or military heads of districts,