Lawonobligationsandcontracts 091020092307 Phpapp02

Revised By:
Atty. Virginio L. Valle

Course Outline
PART I INTRODUCTION TO LAW AND BUSINESS
LAW
1) Definition of Lawand BusinessLaw
2) Sourcesof BusinessLaw
3) Characteristicsof BusinessLaw
PART II OBLIGATIONS
6) In General
a) Definition
b) Sourcesof Obligations
Law; Contracts; Quasi-Contracts;
Delictsor Crimes; Quasi-Delicts
c) Essential requisitesof obligation
Parties; object; Juridical tieor vinculumjuris
PART II OBLIGATIONS
2) Natureand Effect of Obligation
a) AccordingtotheObject or Prestation
Obligationsto give; Obligationsto do;
Obligationsnot to do
b) Liability of Damages
Fraud Dolo incidente; Dolo causante
Neglignce
Delay Morasolvendi, accipiendi, compensatio morae
Contravention of tenor of obligation
PART III GENERAL PROVISIONS ON CONTRACT
ContractsDefined
Elementsof Contract:
Stagesof A Contract
Characteristicsof Contracts:
Classification of A Contract: (FROM)
Contract Bindsby Both Parties
CasesWhereThird person May BeAffectedBy aContract
Formsof Contracts
Reformation of Instruments
Interpretation Of Contracts
Causeof Contracts
PART IV DEFECTIVE CONTRACTS
RescissibleContracts
VoidableContracts
UnenforceableContracts
Voidor inexistent contracts
PART 1
INTRODUCTION TO LAW AND BUSINESS LAW
1. Definition of Lawand BusinessLaw

2. Sourcesof BusinessLaw
3. Characteristicsof BusinessLaw
Introduction to Law
Preliminaries
In the preliminaries, the sight of a human being in his everyday

undertakinghasto followsome.
The instructions that a person will learn, result to that

consciousness of following the law. As he learns the law, he can
defineit, with itscharacteristics.
In Philosophy, thehuman mind consistsprincipally of two
faculties:
1. theIntellect theobject of which istheTRUTH.
2. theWill theobject of which istheGOOD.
Theinfinitetruth and infinitegood isinfinitebeauty of God.
Theperson wascreated by God and destined for God, thepeoplecan

attain thefinal destiny by followingthelaw.
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 Lawas:
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
justicewill prevail.
2. PROMULGATED BY LEGITIMATE
AUTHORITY
That is, madeknown to thosewho areexpected to followit.

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 beequal, 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
partiestoperformtheir agreement. (Black sdict. P. 1074).
4. FOR THE COMMON OBSERVANCE and
BENEFIT
The application of law should not be titled or favoring an

individual but by theobservanceof all and thebenefits that
may bederivedfromit.
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 aBarangay level, theSangguniangPambarangay.
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
systemin thePhilippines still arenot laws for if this wereso, 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 alaw, it constitutein away, part of thelawsincethe
Courtsinterpretation merely establishesthelegislativeintent.
Sources of Law
4. JUDICIAL DECISIONS OR JURISPRUDENCE
Thus, our country adhere to the Doctrine of Stare Decisis

(Let it Stand), thedoctrinewhich in reality is adheranceto
precedentsstated 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 aCourt of last resort, has decided that a certain
law passed by Congress is constitutional, the law becomes
bindingandhasitsfull forceandeffect.
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 ruleof conduct. Thus, it has
been acustomfor aperson to enter and exit adoor. Oncea
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,
heisathief for amarauder.
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 alsobesourcesof 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-
fearingperson.
Kinds of Law
3. PHYSICAL LAW
Refers to the act of rules governing the action and movement of
thingslikethelawon gravity by Newton.
4. HUMAN LAW
Thosepromulgatedby man to regulatehuman relations.
THIS CAN BE CLASSIFIED INTO:

Classification of Human Law
A. GENERAL or PUBLIC LAW
Body of rules which regulates therights and duties arising fromthe
relationship between theStateand itsinhabitants.
It includesthefollowing:
1. International Law consists of those rules and principles which

govern therelationsand dealingof nationswith each other.
2. Constitutional Law It simply governs the relations between the

Stateand itscitizens.
GENERAL or PUBLIC LAW
3. Administrative Law it fixes the organization and determines the

competenceof theauthorities that executethelawand indicatesto the
individual remediesfor theviolation of hisrights.
4. Political Law deals with the organization and operation of the

governmental organs of the Stateand defines therelations of the state
with theinhabitantsof itsterritory.
5. Criminal Law guaranties thecoercivepower of thelaw so that it

will be obeyed. Governs the methods of trial and punishment of
crimes.
B. INDIVIDUAL or PRIVATE LAW
Thoselawwhich govern theprivaterelation person.
It includesthefollowing:
1. Civil Law branch of law which has for its doublepurposethe

organization of the family and the regulation of property. It is
defined as themass of precepts which determines and regulatethe
relation of assistance, authority and obedienceamong themembers
of asociety for theprotection of privateinterests.
INDIVIDUAL or PRIVATE LAW
2. Commercial Law defined as a whole body of substantial

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

prescribes the method of enforcing rights or obtaining redress for
their invasion, Procedural law otherwiseknown as Remedial Law,
as distinguished from Substantive law which creates, defines and
regulaterights.
(BallantineLawDict. 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 codeisacompilation of existing Civil Laws, scientifically

arranged into books, titles, chapters and subheads and
promulgated by legitimateauthority. (Black LawDict. 334).
2. Special laws or statutes, Presidential decrees and
other social legislation.
3. Jurisprudence there is need to mention that,

jurisprudence in our system of government, cannot be
considered as an independent source of law; but the
Court sinterpretation of astatutethat constitutepart of the
law as of the date it was originally passed since the
Court s construction merely establishes contemporaneous
legislative intent, that the interpreted law could take into
effect.
4. Customs and Traditions Custom is a judicial rule
which results from a constant and continuous uniform
practiceby themembersof asocial 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 Congressapproved thedraft on June, 1949.
Books of the Civil Code
Book I Person and Family Relations
This was re-codified as Family Code of the Philippines embodied

in Exec. Order No. 209 as amended by Exec. Order No. 227. The
Family Code effectuates the long-felt reforms and changes to the
Civil Codeprovisions on Family relations consistent with Filipino
values, customsand traditionsvis--visrecent developmentsin the
social-cultural scene. (Pineda, Family Code).
Books of the Civil Code
Book II Property, Ownershipanditsmodifications.
Book III Different Modes of Acquiring Ownership

(Succession)
Book IV ObligationsandContracts
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
PhilippinesfromArticles1156to 1422inclusive.
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 derivetheir mercantilecharacter fromtheir 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 p2)
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 lawswhich originally divided into four
books.
BOOK ONE - Merchants and Commerce in

General
BOOK TWO - Special Commercial Contracts
BOOK THREE - MaritimeCommerce
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
portionsof theCodeof Commerce.
1. The Corporation Code which repealed principally

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

principally theprovisionsof Promissory; Notesand Bill of
Exchangein Book Two
3. The Insolvency law, which repealed the provisions
on Suspension of paymentsand Bankruptcy in Book four;
4. InsuranceLaw, which repealed theprovisionson Fire

and MarineInsuranceon bookstwoand three;
5.The Securities Act, which repealed theprovisions on

Commercial Housesin Book Two;
6. The New Civil Code which repealed the provisions on
Partnership, Agency, Sales, Loan, Deposit andGuaranty 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
WarehouseAct; theChattel Mortgagelaw; theUsury law; theGeneral
BankingAct; theCentral Bank Act; TheRural Act; ThePublicService
Act; Carriageof Godsby SeaAct; theSalvagelaw; theCopyright 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; theBusinessNamesLaw; and theLawon Monopoliesand
Combinations.
8. Provisionsof theCodeof Commercestill 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 theNewCivil Codeandother 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
thoserelatingto partnership, agency, sales, loans, deposit
8. Provisionsof theCodeof Commercestill in force.
c. Thosecontained in Book Threegoverningmaritimecommerce

but not those relating to marine insurance which have been
repealed. All theprovisionsin Book four areno longer in forceas
they havelikewisebeen repealed. (Agbayani, Vol. 1, pp3-4)
9. Some provision of the code of Commerce which are
pertinent in our study in businessin general:
a. MERCHANTS Merchants may be natural or juridical

person:
In thecaseof natural person, heisamerchant:

a. If hehaslegal capacity to engagein commerce; and
b. Hehabitually engagethereto
A natural person haslegal capacity to engage in commerce;
1. If hehasreached theageof twenty oneyears;
2. Heisnot subject to parental authority; and
3. Hehasfreedisposition of hisproperty.
In thecaseof juridical person, it isamerchant:

a. It isacommercial and industrial company;
b. It isorganized in accordancewith existinglegislation and
c. Itsengagingin commerceishabitual.
b. Habituality in engagingin 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
theway of thefollowingacts:
1. Throwingopen to thepublicabusinessentity or establishment;

2. Announcement through circulars, newspaper, handbills, posters
and similar means of the opening of an establishment for
commercial actsor dealingswith thepublic; or
3. Whereaforeign corporation appointsan agent asrequired by law.
4. A series of acts consisting of investigating and preparations of

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

they are deprived of the right to mange and to dispose of their
propertiesinter-vivosor duringtheir lifetime;
2. Those judicially declared insolent while they have not obtained

their discharge;
3. Those who in account of special laws or provisions cannot

engage in commerce like incapacitated persons or employees
covered by theCivil Servicelaw.
d. Relative Disqualifications These are persons who
cannot engage in commerce in places where they exercise
their functions.
1.Justices, judges, and officials of the Prosecutor

s office in active
service, except Municipal Mayors; municipal judge; municipal
prosecuting attorney s and those who temporarily discharge
judicial or prosecutingduties;
2.Administrative, economic or military heads of districts, provinces

or post;
3. Thoseemployed in thecollection and administration of fundsof
the State appointed by the Government except those who
administer and collect under contract and their representative.
4. Stock and commercial brokersof whatever class;
5. Those who under special laws and provisions cannot trade in

specified territory.
e. Commercial Registry
A commercial registry is a public officethat takes

charge of the registration of merchants, business
associations, vessels and documents of commercial
importance. The purpose of a commercial registry is to
furnish necessary information and reliable data to any
interested party so as to promote and facilitate trade and
commercial transaction.
f. Booksof Merchants
1. Merchantsmust keepthefollowingbooks:
a. Book of inventoriesand balances;

b. A journal;
c. A ledger;
d. Book or books for copies of letters or telegrams; and other
booksthat may berequired by special laws.
f. Booksof Merchants
2.Corporation areboundtokeep:
a. Recordof all businesstransactions;

b. Minutesof all meetingsof directors;
c. Minutesof all meetingsof stockholders; and Stock
and transfer books.
Registration is compulsory:
1. In case of vessel of more than three (3) tons gross
in usein Philippinewaters;
2. In case of partnership whose immovable property

iscontributed by any partner toacommon fund.
3. In case of business names under the Business

NamesLaw.
Registration is compulsory:
4. In caseof ship agent;
5. In case of vehicles with the Land Transportation

Office.
6. In all other casesrequiredby law.

Commercial Registries in the
Philippines
1. Bureau of Domestic Trade for registration of business
namesandmerchantstoavoidduplication of tradenames.
2. Securities and Exchange Commission for registration of

partnershipandCorporation.
3. Local municipalities, cities or province for local permits

andlicenses.
4. Office of Register of deeds for registration all transaction

affectinglands, aswell asshattel mortgage.
Philippines
5. TheMARINA (MarineIndustry Authority) for registration
of vesselsandother transaction affectingvessels.
6. Intellectual property Office for registration of patents and

design aswell astradenames; trademarksandservicemarks;
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. PublicRemedial Lawaffordsaremedy in favor
of theStateagainst theindividual, likecriminal
procedureor in favor of theindividual against the
State, likeHabeasCorpus.
2. PrivateRemedial Lawaffordsaremedy in favor

of an individual against another individual, like the
civil procedure.
Philippine Remedial Law
Principally containedin theRulesof Court, which is
acombination of rulespromulgatedby theSupremeCourt
for theeasy, orderly, adequateandeffectivecompliance
with thelaw. TheRulesof Court havetheforceand effect
of law. (Alvero V. delaRosa, 76Phil 428).
COURTS DEFINED
It istheentity, body or tribunal vested with aportion of the
judicial power. (Lontok V. Battung63Phil 1054)
JUDICIAL POWER
Includestheduty of thecourtsof justiceto settleactual
controversiesinvolvingrightswhich arelegally demandable
andenforceable, andtodeterminewhether or not therehas
been agraveabuseof discretion amountingtolack or
excessof jurisdiction on thepart of any branch or
instrumentality of theGovernment. (Const. Art. VIII, Sec.
1, par.2)
Different Courts of Justice
1. SupremeCourt
2. Sandigan-bayan
3. Court of Appeals
4. Regional Trial Court; and
5. Metropolitan / Municipal Trial Courts
Lesson 1: General Provisions on
Obligation
Thedefinition of obligationsestablishestheunilateral act
of thedebtor either togive, to do or not to doasa
patrimonial obligation. It meansthat thedebtor hasthe
obligation whilethecreditor hasitsrights.
On thesourcesof obligation, themain sourcesarereally

Lawand Contracts. Theother sourcesarealso established
by law.
ART. 1156. An obligation is a juridical necessity to
give, to do or not to do.
OBLIGATIONS asdefinedby ARIAS RAMOS isa

juridical relation whereby aperson (called thecreditor)
may demand fromanother (called thedebtor) the
observanceof adeterminateconduct, and, in caseof
breach, may obtain satisfaction fromtheassetsof the
latter. (Approvedby Mr. JusticeJ. B. L. Reyes)
Theobligationsreferred to in our manual isapatrimonial
obligations that is, thoseobligationswith pecuniary valueor
assessablein termsof money.
3.Characteristicsof patrimonial obligations:

They represent an exclusively privateinterest.
They createtiesthat areby naturetransitory.
They exist apower to makeeffectivein caseof non-fulfillment, the
economicequivalent obtained at thepatrimony of adebtor.
5.Meaningof Juridical Necessity it meanstherightsand

dutiesarisingfromobligation arelegally demandableand the
courtsof justicemay becalled upon through proper action to
order theperformance.
Action meansan ordinary suit in court of justiceby which one
party prosecutesanother for theenforceableor protection for a
right or aprevention or redressof awrong ( Sec. 1. Rulesof
court ).
Example
Gayabought refrigerator fromTitobut Gayadidnot pay the
refrigerator. If after demand, Gayastill did not pay, Tito can
sueGayain Court either to demandpayment or for recovery
of therefrigerator.
2. Essential requisitesof an obligation
i An active subject, who hasthepower todemand theprestation,

known asthecreditor or oblige;
d A passive subject, whoisbound to performtheprestation, known
asdebtor or obligor.
i An object or theprestation which may consist in theact of giving,
doingor not doingsomething.
n Thevinculum juris or thejuridical tiebetween thetwosubjectsby
reason of which thedebtor isbound in favor of thecreditor to
performtheprestation. It isthelegal tiewhich constitutesthe
sourceof obligation thecoerciveforcewhich makesthe
obligation demandable. It isthelegal tiewhich constitutesthe
deviseof obligation thecoerciveforcewhich makesthe
obligation demandable.
Juridical Tie
Debtor To give, to do Creditor Or
Obligor or not to do or Obligee
Illustration:
Gayaentersinto acontract of salewith Titowhopaid the
purchaseof aGE refrigerator. Gayadidnot deliver the
refrigerator. Gayaisthepassivesubject or debtor and Tito
istheactivesubject or creditor. Theobject or prestation is
theGE refrigerator and theobligation to deliver isthe
legal tieor thevinculumjuriswhich bindsGayaandTito.
Thisisalsoknown asaunilateral obligation, that is, the
obligation of thedebtor tofulfill or comply hiscommitment, in
thiscase, thedelivery of therefrigerator.
On theother hand, if Gaya, deliveredtherefrigerator and

Titodidnot pay, then Titobecomesthedebtor whoisboundto
pay whileGayaisthe creditor whohastheright todemandthe
prestation.
5.Distinctionsbetween ObligationsandContracts:
Contract istheonly oneof thesourcesof obligation, whileobligations
haveother sourceslikelaw, quasi-contracts, delictsor quasi-delicts;
Contract isabilateral obligation whileobligation isaunilateral
obligation;
All contractsareobligationswhilenot all obligationsarecontracts.
2. Civil obligationsasdistinguishedfromNatural
obligations
Civil obligationsderivetheir bindingforcefrompositivelaw;
Natural Obligation derivestheir bindingeffect fromequity
andnatural justice.
Civil can enforced by court action of thecoercivepower of
publicauthority;
Natural thefulfillment cannot becompelledby
court action but dependson thegoodconscienceof
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
t LAW as a source of obligations
Theprovisionsof Art. 1158refersto thelegal
obligationsor obligationsimposedby specificprovisions
of law, which meansthat obligationsarisingformlaw
arenot presumedand that tobedemandablemust be
clearly provided for, expressly or impliedly in thelaw.
Examples:
It istheduty of theSpousesto support each other. (Art. 291,
NewCivil Code)
And under theNational Internal RevenueCode, it istheduty
of every person havingan incometopay taxes.
Source of Obligations
1. CONTRACT as a source of obligations
Contract asdefinedin Art. 1305, NCC isthemeetingof mindsbetween two person

whereby onebindshimself with respect to theother,
Obligationsarisingfromcontractshavetheforceof lawbetween thecontracting

partiesbecausethat which isagreed upon in thecontract by thepartiesisthelaw
between them, thus, theagreement shouldbecomplied with in goodfaith. (Art.
1159).

For examples:
A contract of leasewasexecuted between Gayaasthelesseeand Tito asthelessor
for therent of an apartment.
Although contractshavetheforceof law, it doesnot mean that contract areover

and abovethelaw. Contractsarewith thelimitationsimposed by lawin Art. 1306,
NCC, it statesthat thecontractingpartiesmay establish such stipulations, clauses
termsandconditionsas, they may deemconvenient, providedthat arenot contrary
to law, morals, good custom, publicorder or publicpolicy.
Sources of Obligations
2. QUASI-CONTRACTS as a source of obligations

The
quasiliterally means
asif
.
Quasi-contract isthejuridical relation resultingfromalawful,

voluntary and unilateral act which hasfor itspurposethepayment of
indemnity to theend that no oneshall unjustly enrich or benefitedat
theexpenseof another. (Art. 2142, NCC)
Contractsand quasi-contractsdistinguished:
in acontract, consent isessential requirement for itsvalidity whilein
quasi-contract, thereisno consent asthesameisimpliedby law;
contract isacivil obligation whilequasi-contract isanatural obligation.
2 Kinds of Quasi-contracts
- Solutio Indebiti (Payment by mistake)
It isthejuridical relation which ariseswhen aperson isobligedtoreturn somethingreceived
by himthrough error or mistake.

Example-
Arvin owedIan thesumof P1, 000.00. By mistake, Arvin paidP2, 000.00. Ian hasthe
obligation toreturn theP1, 000.00excessbecausetherewaspayment by mistake.

2. Negotiorum gestio (management of anothers property)
It isthevoluntary management or administration by aperson of theabandonedbusinessor
property of another without any authority or power fromthelatter. (Art. 2144, NCC)
Example-
Victor, awealthy landowner suddenly left for abroadleavinghislivestock farmunattended.
Ramon, aneighbor of Victor managedthefarmthereby incurringexpenses. When Victor
returns, hehastheobligation toreimburseRamon for theexpensesincurredby himandtopay
himfor hisservices. It isbaseson theprinciplethat nooneshall enrich himself at theexpense
of another.
1. DELICTS or acts or omissions punished by law as a source of obligations
Actsor omission punishedby lawisknown asDelict or Felony or Crime.
Whilean act or omission isfeloniousbecauseit ispunishedby law, thecriminal act

givesriseto civil liability asit caused damageto another.
Civil liability arisingfromdelicts:

Restitution which istherestoration of or returningtheobject of thecrimeto theinjured party.
Reparation which isthepayment by theoffender of thevalueof theobject of thecrime, when
such object cannot bereturned to theinjuredparty.
Indemnification theconsequential damageswhich includesthepayment of other damagesthat
may havebeen causedto theinjuresparty.
Illustration:
Mario wasconvicted and sentenced to imprisonment by theCourt for thecrimeof
theft, thegold wrist watch, of Rito. In addition to whatever penalty that theCourt
may impose, Mario may alsobeordered to return (restitution) thegoldwrist watch to
Rito. If restitution isnolonger possible, for Mario to pay thevalue(reparation) of the
gold wrist watch. In addition toeither restitution or reparation, Mario shall also pay
for damages(indemnification) suffered by Rito.
1. QUASI-DELICTS as a source of obligations
Conceptsof Quasi-Delict
Quasi-delict isonewherewhoever by act or omission causes
damagetoanother, therebeingfault of negligence, isobliged
topay for thedamagedone. Such fault of negligence, if there
isnopre-existingcontractual relation between theparties.
(Art. 2176)
Example-
If Pedrodriveshiscar negligently andbecauseof his
negligencehitsJose, whoiswalkingon thesidewalk of the
street, inflictingupon himphysical injuries. Then Pedro
becomesliablefor damagesbasedon quasi-delict.
DELICTS or acts or omissions punished by law as a
source of obligations
Actsor omission punished by lawisknown asDelict or Felony
or Crime.
Whilean act or omission isfeloniousbecauseit ispunishedby law,
thecriminal act givesrisetocivil liability asit caused damageto
another.
Civil liability arisingfromdelicts:

Restitution which istherestoration of or returningthe
object of thecrimetotheinjuredparty.
Reparation which isthepayment by theoffender of the
valueof theobject of thecrime, when such object cannot be
returnedtotheinjuredparty.
Requisites of a quasi-delicts -
Theremust befault of negligenceattributableto the

offended;
Theremust bedamageor injury caused to another;
Thereisno pre-existingcontract.
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 theexistenceof negligence, thefollowingare
necessary:
aduty on aparty of thedefendant to protect theplaintiff fromthe
injury of which theletter complains;
afailureto performthat duty; and
an injury to theplaintiff through such failure.
Kinds of Negligence
CulpaAquiliana, also known asquasi-delict or negligence

asasourceof obligation.
Culpacontractual or negligencein theperformanceof a

contract.
An illustration showing this difference is founding Gutierrez vs.
Gutierrez, 56 Phil 177-
Whiletryingto passeach other on anarrowbridge, apassenger truck and

privateautomobilecollided, and theplaintiff, apassenger in thetruck, was
injured.
Theowner of thepassenger truck wasmadeadefendant, although adriver

wasdrivingthetruck and theowner of thecar wasalso madeadefendant,
although hewasnot in thecar but which wasbeingdriven by his18year
old son and in which membersof hisfamily werethen riding. Thecourt
found both driversnegligent, basingbasingtheliability of theowner of the
truck to theplaintiff on thecontract of carriage; whiletheliability of the
owner of thecar wasbased on Quasi-delict of theCivil Code. Asagainst
theowner of thetruck, therewasCulpacontractual, whileasagainst the
owner of thecar therewasculpaAquiliana.
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-
2. To preserveor takecareof thethingwith theproper
diligenceof agoodfather of afamily. It meanstheordinary
diligencethat aprudent man would exercisein takingcare
of hisown property takinginto consideration thenatureof
theobligation, of thetimeand of theplace, likeaperson
whoisobligedto deliver adeterminatehorseto another
should, pendingitsdelivery, preserveit by takingcareof the
sameasif thehorseishisown.
determinate thing-
To deliver theobject or thingwhen theobligation to
deliver arises, including:
i
Fruitsof thethingif any. Kindsof fruits: Natural; industrial or
civil.
Natural - spontaneousproduct of thesoil; theyoungand other
productsof animal. E.g. tress, plantson landswithout he
intervention of man.
Industrial - produced by landsof any kingthrough cultivation
and labor. E.g. sugar cane, vegetables, rice.
Civil - derivedby virtueof juridical relations. E.g. rentsof a
building; pricesof leasesof landsand other similar income.
determinate thing-
Accessionsandaccessories.
Accession istheright pertainingto theowner of athingover its
productsand whatever isattached thereto either naturally or
artificially.
Example-
Accretion which refersto thegradual and addition of sediment to
theshoreby action of water.
Accessories arethosethingswhich arejoined attached to the
principal object asornament or to render it perfect.
Example-
Radio attached to acar; or key to acar.
determinate thing-
1. To beliablefor damagesin caseof breach of obligation (Art. 1170,
NCC)
When creditor acquirearight to thethingto bedelivered and itsfruits-

Thecreditor hasaright to thefruitsof thethingfromthetimethe
obligation to deliver it arises. However, heshall acquireno real right
over it until thesamehavebeen delivered to him. (Art. 1164, NCC)
Exampleabindshimself to sell hishorseto B for fro P10, 000. No date

nor condition isstipulated for delivery of thehorse. Later, thehorsegave
birth to acolt. A hasright to thecolt, if B hasnot paid thehorse. Before
delivery, B doesnot acquireownership over it.
Definition of terms:
r Determinate thing athingisdeterminatewhen it is

particularly designated or physically segregatedfromall
othersfromthesameclass. (Art. 1460, NCC)
s Indeterminate or generic thing A thingisgeneric
when it refersto aclassor thingor genusand cannot be
designatedwith particularity. (Art. 1460, NCC)
p Fortuitous Events thoseeventswhich couldnot be
foreseen or which though foreseen wereinevitable. (Art.
1174, NCC)
Art. 1167. If aperson obligedto dosomethingfailsto do
it, thesameshall beexecutedat hiscost.
Thissameruleshall beobserved if hedoesit in

contravention of thetenor of theobligation. Furthermore,
it may bedecreed that what hasbeen poorly donebe
undone. ( 1098)
Obligation of the debtor To Do
Beingapersonal positiveobligation, Thecreditor has

theright tosecuretheservicesof thirdperson to perform
theobligation at theexpenseof thedebtor under the
followinginstances:
When thedebtor failsto do theobligation;

When thedebtor performstheobligation but contrary to the
tenor; or
When theobligor poorly performstheobligation.
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

Thisisnegativepersonal obligation which isconsistingof an
obligation, of not doingsomething. If thedebtor doeswhat hasbeen
forbidden himto do, theobligeecan ask thedebtor tohaveit undone. If
it isimpossibleto undo what wasdone, theremedy of theinjured party
isfor an action of damages.
Example-
A bought aland fromB. It wasstipulatedthat A would not construct a
fencein acertain portion of hisland adjoiningthat land sold by B.
ShouldA construct afencein violation of theagreement, B. can bring
an action tohavethefenceremoveat theexpenseof 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 )
meansalegal delay or default andit consistsof failure
dischargeaduty resultingtoone sown disadvantaged.
The debtor incurred delay if:

Thedebtor failsto performhisobligation when it fallsdue; and
A demand hasbeen madeby thecreditor judicially or extrajudicially.
Example
Gayaobligedherself todeliver adeterminatehorsetoTitoon June
20. thisyear. Gayafailedtodeliveredon theagreeddate, IsGaya
already on delay on June20, only when Titomakesajudicial or
extra-judicial demandandfromsuch dateof demandwhen Gayais
on default or delay.
However, thereareinstances when thedemandby theCreditor
isnot necessary to placethedebtor on delay:
When the obligation expressly so provides

Themerefixingof theperiod isnot sufficient to
constituteadelay. An agreement to theeffect that fulfillment
or performanceisnot madewhen the obligation becomesdue,
default or delay by thedebtor will automatically arise.
When the law so provides
Theexpressprovision of lawthat adebtor isin default. For
instance, taxesmust bepaidon thedateprescribedby law,
anddemandisnot necessary in order that thetaxpayer is
liablefor penalties.
When time is of the essence

Becausetimeistheessential factor in thefulfillment of the
obligation. Example, Gayabindsherself tosewthe
wedding gown of Mayatobeusedby thelatter on
her weddingdate. Gayadidnot deliver thewedding
gown on thedateagreed upon. Even without demand,
Gayawill bein delay because timeof theessence.
When demand would be useless
When thedebtor cannot comply hisobligation aswhen it isbeyond
hispower to perform. Likewhen theobject of theobligation islost or
destroyed through thefault of thedebtor, demandisnot necessary.
In a reciprocal obligation, from the moment one of the

parties fulfills his obligation, delay to the other begins
For instance, in acontract of sale, if theseller deliverstheobject to the
buyer and thebuyer doesnot pay, then delay by thebuyer beginsand
viceversa, if thebuyer paysand theseller didnot deliver theobject,
then theseller ison delay.
Kinds of delay
Mora solvendi delay on thepart of thedebtor.
Mora accipiendi delay on thepart of thecreditor, like

when thecreditor unjustifiably refused to accept payment
at thetimeit wasdue, isin delay.
Compensatio morae delay both partiesin areciprocal

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:
l Fraud (dolo) istheintentional deception madeby one
person resultingin theinjury of another.
Thefraud referred to isincidental fraud, that is, fraud incident
totheperformanceof apre-existingobligation.
Negligence (culpa) consistsin theomission by the

obligor of that diligencewhich isrequired by thenatureof
theobligation andcorrespondswith thecircumstancesof
theperson, of thetimeandof theplace. (Art. 1173, NCC)
Delay (Mora) likewhen therehasbeen judicial or extra-
judicial demand andthedebtor doesnot comply his
obligation, delay will occur.
In contravention of the tenor of the obligation refersto the

violation of thetermsandconditionsor defectsin the
performanceof theobligation, likewhen alandlord failsto
maintain alegal and peaceful possession of atenant being
leased by thelatter becausethelandlord wasnot theowner
andthereal owner wantsto occupy theland, thereis
contravention of thetenor of theobligation.
Delay (Mora) likewhen therehasbeen judicial or extra-
judicial demand andthedebtor doesnot comply his
obligation, delay will occur.
In contravention of the tenor of the obligation refersto the

violation of thetermsandconditionsor defectsin the
performanceof theobligation, likewhen alandlord failsto
maintain alegal and peaceful possession of atenant being
leased by thelatter becausethelandlord wasnot theowner
andthereal owner wantsto occupy theland, thereis
contravention of thetenor of theobligation.
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
Moral damagesincludephysical sufferings, mental
anguish, fright, seriousanxiety, besmirchedreputation,
woundedfeeling, moral shock, social humiliation and
similar injury.
Exemplary damagesimposed by way of exampleor

correction for thepublicgood.
Likein quasi-delicts, if thedefendant acted with gross

negligence. (Art. 2231, NCC)
Kinds of Damages
Nominal damagesareadjudicated in order that aright of
theplaintiff, which hasbeen violated by thedefendant, may
bevindicatedor recognized and not for thepurposeof
indemnifyingtheplaintiff for any losssuffered by him.
(Art. 2221, NCC)
Temperate or moderate damagesaremorethan nominal

but lessthan compensatory damagesmay berecovered
when thecourtsfindsthat itsamount cannot, fromthe
natureof thecase, beprovedwith certainty. Pecuniary loss
meanslossof money, or of somethingby which money or
somethingof money valuemay beacquired. (Black Law
Dict. P. 1131)
Kinds of Damages
Actual or compensatory damages except asprovided by
law, or astipulation, oneisentitled toan adequate
compensation only for such pecuniary losssuffered by him
ashehasduly proved. (Art. 2199, NCC)
Damages may be recovered:

For lossor impairment of earningcapacity in casesof temporary or
permanent personal injury;
For injury, to theplaintiff
sbusinessstandingor commercial credit.
Kinds of Damages
Liquidated damagesarethoseagreed upon by parties
toacontract to bepaid in caseof breach thereof. (Art.
2226, NCC)
Distinguish Fraud (Dolo) from
Negligence (culpa)
1. Dolothereisdeliberateintent tocausedamageor injury.
Culpather isnodeliberateintent tocausedamage.
4. Dolowaiver of liability of futurefraudisvoid.

Culpawaiver may in somecasesbeallowed.
7. Dolofraudmust beclearly proved.

Culpapresumedfrombreach of contractual obligation.
10. Dololiability cannot mitigatedby thecourts.

Culpamay bereducedaccordingtocircumstances.
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 isan event which cannot beforeseen which
though foreseen isinevitable.
Fortuitousevent proper areactsof Godsuch asvolcaniceruption,

earthquake, lightning, etc. isnowsimilar with forcemajuereor
actsof man such asconflagration, war, robbery, etc.
5.Requisitenecessary toconstitutefortuitousevent
Thefailureof thedebtor to comply with theobligation must be
independent fromthehuman will;
Theoccurrencemakesit impossiblefor thedebtor to fulfill the
obligation on anormal manner, and theobligor didnot takepart asto
aggravatetheinjury of thecreditor. (Vasquez v.C.A. G.R. 42926)
1. Asageneral rule, no person shall beheldresponsiblefor
fortuitousevents
ExampleGayaobliged herself to deliver adeterminecar to

Titoon Dec. 30, 1998. Beforethearrival of theperiod, thecar
wasstruck by lightningandwastotally destroyed. Gaya
cannot beheldresponsiblefor thedestruction of thecar,
henceher obligation todeliver isextinguished.
Exceptions (when theperson isresponsibledespitethefortuitous
even).
c.When thelawexpressly soprovides, such as:

Thedebtor isguilty of fraud, negligenceor in contravention of thetenor of
theobligation. (Art, 1170, NCC)
Thedebtor hasproved to deliver thesamethingto two or morepersonswho
do not havethesameinterest. ( Art. 1165,NCC )
Thethingto delivered isgeneric.
Thedebtor isguilty of default or delay. ( Art. 1169,NCC )
Thedebtor isguilty of concurrent negligence.
e.When declaredby stipulation;
g.When thenatureof obligation requirestheassumption of risk. An

exampleof thisisacontract of insurance.
ART. 1175. Usurious transaction shall be governed by special laws.
Note: C.B. Circular No. 905suspendstheceilingsin theusury law.

Hence, partiescan agreeasto therateof interest.
Kinds of interest
1. Conventional *Theratewhich isagreedupon by the
parties.
2. Legal Interest *Theratewhich isprescribed by law.
3. Lawful Interest *Theratewhich isagreedupon by the
partiesbut which rateiswithin the
rateauthorized by law.
4. UsuriousInterest *Theratewhich isin excessof the
maximumrateof interest allowedby
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)
Presumptionmeanstheinferenceasto theexistence
of acertain fact which if not contradicted isconsideredas
true.
Thepresumption in theabovearticleisadisputable
presumption, whereby onewhich can becontradicted by
presentingproof tothecontrary whileaconclusive
presumption doesnot admit any evidenceor proof, hence, it
isconsideredasafact.
Presumption under thisarticle:

1. Receipt of theprincipal, without reservation asto the
interest, shall giverisetothepresumption that thesaid
interest hasbeen paid.
2. When thecreditor issuesareceipt of alater installment of a
debt without reservation astoprior installment ispresumed
tohavebeen 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 claimsagainst thedebtor, creditorshavethefollowing
successiverights:
6. to levy by attachment and execution upon all theproperty of thedebtor, except

such asareexempt by lawfromexecution;
8. to exerciseall therightsand actionsof thedebtor, except, such asareinherently

personal to him; and
10.to ask for therescission of thecontractsmadeby thedebtor 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)
Asarule, all rightsacquired in virtueof an obligation are

transmissible, except in thefollowingcases:
2.When thelawso provides.
3.When thepartiesstipulateotherwiseby agreement of parties
that therightsacquiredby themwill not betransmittedtoany
other person.
4.When theobligation ispurely personal in nature.
LESSON 3: Kinds of Obligations
Classification of Obligations:
TheCivil Codeclassifiesobligationsprimarily into: (PU CO PE
ALFA JOS DIP)
3.Pure;
4.Conditional;
5.With aperiod;
6.Alternative;
7.Facultative;
8.Joint;
9.Solidary or several or in solidum;
10.Divisible;
11.Indivisible;
12.With apenal clause.
Other provisionsof theCivil Code, however, impliedly
admit other classesof obligations, towit:
a.) Unilateral and bilateral;

b.) determinateand generic;
c.) legal, conventional andpenal;
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. PureObligation when theobligation contain notermor
condition whatever upon which dependsthefulfillment of
theobligation contractedby thedebtor.
It isimmediately demandableand thereisnothingto exempt
thedebtor fromcompliancetherewith.
ExampleGayaobligedherself to pay her loan of P1,000toTito on
demand.
Instanceswhen obligationsimmediately demandable:
3.It isapureobligation;
4.It issubject to aresolutory condition;
5.It issubject to resolutory period.
1. Conditional Obligationsonewhich issubject to acondition of one
whoseperformancedependsupon afutureor uncertain eventsor upon
past event unknown totheparties.
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 notestatesthat Thisisto acknowledgereceipt of
sumof Onethousand Six Hundred pesos(P1, 600.00) andI amtopay
my debt toArvin assoon aspossibleor assoon asI havethemoney.
It washeld that theconditional obligation isvoid, becausethe
collection would beimpossible, theremedy of thecreditor isto ask
theCourt tofix theperiod of payment, thus, it becomesan obligation
with aperiod.
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:
Suspensive and Resolutory
Suspensive thehappeningof thecondition givesriseto an obligation.
Example:
Mayabindsherself to deliver adeterminatecar toTitoif hemarriesGaya. The
obligation isonly demandableupon thehappeningof thecondition that is, if Tito
marriesGaya. Theobligation issuspendedandnot yet demandable.
Resolutory thehappeningof thecondition extinguishestheobligation already

existing.
Example:
Arvin bindshimself to lend hisonly car toIan until thelatter passestheCPA
Board. Theobligation tolend isimmediately demandable. Ian sright over thecar
isextinguished upon hispassingtheCPA board. Ian isnowobliged to return the
car.
condition:
1. Potestative, Casual and Mixed
Potestative isonethefulfillment of which dependsupon thesolewill of thedebtor. Thiskind

of condition isvoid.
Example:
Arvin Promisetogivehisonly parcel of landtoMayaif hedecidestoleavefor theUnited
States.
Casual isonethefulfillment of which dependsupon chance.

Example:
Mario agreesto giveMariaadeterminatecar if Maria
sonly racinghorsewill win the
sweepstakerace.
Mixed isonewhich dependspartly upon thewill of third person and partly upon chance
Example:
Vincent promisetogiveVictor anewToyotaCar if Victor will beabletoplay with andbeat
Karpov in agameof chess. Thisis mixedcondition, that isKarpov willingnesstoplay
chesswith Victor andthelatter
swinningover Karpov.
condition:
Possible and Impossible
Impossiblecondition isdivided into 2:
t Physical Impossibility thecondition imposed isnot capableof beingperformed
physically.
Example:
Gracewill giveChristineagold necklaceif sheswimsacrossthe
Pacific Ocean.
Illegal Impossibility when thecondition imposed iscontrary to law, good

customor publicpolicy.
Example:
Contrary to law Pedro agreesto giveErnesto P100,000if Ernesto will kill
Mario.
t Contrary to good custom Santosbindshimself to giveMariaagold wrist
watch if shewill cohabit with Mr. Reyeswithout benefit of marriage.
l Contrary to public policy Mariaagreesto employ Gracein her company if
Gracewill not join alabor union.
condition:
1. Positive and Negative:
A Negative condition isonewheresomeevent will not happen at a

determinatetime, either
a.) thetimeindicated haselapsed; or
b.) it hasbecomeevident that theevent cannot occur (Art.
1185, NCC)
Example:
Victor will giveJason acar if hewill not marry Helen until Dec. 19,
2001, if Jason hasnot married Helen until Dec. 19, 2001 or if Helen has
died within theprescribed timewithout havingmarried to Jason, the
obligation becomesdemandable. If Jason married Helen within the
prescribed time, theobligation of Victor isextinguished.
condition:
1. Divisible and Indivisible
Divisible that part of obligation which isnot affected by

impossibleor unlawful condition shall bevalid (Art. 1183, NCC)
Example-
X promisetopay Y thesumof P1, 000.00if Y furnishesX with
information asto thewhereaboutsof Z and another sumof P2,
000.00if Y killsZ. in theobligation, thefirst part (topay P1,
000.00) isvalid whilethesecondpart (P2, 000.00) isvoid
becauseonly thelatter isaffectedby thecondition.
7. 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:
Oncethecondition isfulfilled, theeffectsof the
conditional obligationsshall retroact totheday of the
constitution of theobligation andnot on thedatewhen the
condition wasfulfilled.
Example
On Jan. 1, 1999A agreedtogiveB aparcel of landif he
passestheMay, 1999CPA exams. If B passestheCPA
examsin May, 1999, heisentitledtothelandeffectiveJan.
1, 1999becauseB sright over thelandretroactstothedate
when theobligation wasconstituted.
Astothefruitsandinterest Theeffect of conditional obligation
togive, asarule, donot retroact tothedateof theconstitution of
theobligation. Thefollowingrulesshall govern:
1. In reciprocal obligation (likeacontract of sale) - thefruitsand

interest duringthependency of thecondition shall bedeemed to
havebeen mutually compensated.
Example:
A agreestosell andB agreestobuy A sparcel of
landif B passestheMay, 1999CPA exams. If B passesthe
May, 1999CPA Board, theobligation becomes demandable. B
isentitledtoall theintereststhat his money (with which to
pay A) may earn whileA is entitledtothefruitswhich the
parcel of landmay have producedduringthependency of the
condition.
1. In unilateral obligation thedebtor shall appropriatethe
fruitsandinterestsreceivedduringthependency of the
condition unlessacontrary intention appears.
Example
X agreedto giveY aparcel of landif Y
passestheCPA Board in May, 1999exams. Pendingthe
happeningof thecondition, A is entitled tothe
fruitswhich theland may produce, A will deliver only
theparcel of land if the condition is fulfilled, unlessa
contrary intention appears.
ART. 1188. The creditor may, before the fulfillment of the
condition, bring the appropriate actions for the preservation of
his right.
The debtor may recover what during the same time

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

Theaction for thepreservation of thecreditor
sright may
havefor their objectives:
1. To prevent thelossor deterioration of thethingswhich arethe

objectsof theobligation by enjoiningor restrainingactsof
alienation or destruction by thedebtor himself or by third person;
Preservation of Creditors Right
1. To prevent concealment of thedebtor

spropertieswhich
constitutetheguaranty in caseof non-performanceof the
obligation;
1. To demand security if thedebtor becomesinsolvent;
1. To compel theacknowledgement of thedebtor

ssignature
on aprivatedocument or theexecution of proper public
document for registration soastoaffect thirdperson.
Preservation of Creditors Right
2. To register thedeedsof saleor mortgages;
1. To set asidefraudulent alienation madeby thedebtor;
1. To interrupt theperiod of prescription by actionsagainst

adversepossessorsof thethingswhich areobjectsof the
obligation. (Lawyer
sjournal, 1951, p. 47)

Paragraph I of theabovearticleauthorizesthecreditor to
takeany appropriateactionsfor thepreservation of creditor
s
right duringthependency of thecondition:
Example:
On Jan. 1, 1999, Raul obligedhimself tosell aparcel of landto
Dennisif hepassestheCPA examsin October, 1999. Fromthe
timetheobligation wasconstitutedandpendingthehappening
of thecondition (passingtheCPA Exams) Dennismay cause
theannotation of thecondition in thecertificateof titlein the
Register of Deedswherethelandislocated, topreservehis
right over theparcel of land.
Paragraph II in order that debtor may recover what hehaspaidby
mistake, duringthependency of thecondition, thefollowingrequisites
may bepresent:
1. Thedebtor paid thecreditor beforethefulfillment of thecondition;

2. Payment madeby debtor wasthrough mistakeand error;
1. Theaction to recover what waspaid by mistakeshould bemadebefore

thefulfillment of thecondition.
Example
Pedro obliged himself to pay SantosP20, 000if aPAL planecrashesat
Cebu beforeDec. 30, 1998. After theobligation wasconstituted and
beforeDec. 30, 1998, aplanecrushed in Cebu. Pedro honestly and
believingthat thecondition wasfulfilled paid theP20, 000to Santos. It
turned out however that it wasaCebu airlinethat crushed. Thus, Pedro
may recover theamount paid to Santosby mistakefor thereason that the
condition hasnot 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:
If the thing is lost without the fault of the debtor, the obligation shall be
extinguished.
, If the thing is lost through the fault of the debtor, he shall be obliged to pay
damages; 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;
When the thing deteriorates without the fault of the debtor, the impairment
is to be borne by the creditor;
If it deteriorates through the fault of the debtor; the creditor may choose
between the rescission of the obligation and its fulfillment, with indemnity
for damages in either case;
If the thing is improved by its nature, or by time, the improvement shall
inure to the benefit of the creditor;
If it is improved at the expense of the debtor, he shall have no other right
than that granted to the usufructuary.
Theserules apply only toobligation togiveadeterminateor
specificthingsubject toasuspensivecondition in caseof loss,
deterioration or improvement of thething.
1. In caseof lossof thething
a) If thethingislost without thefault of thedebtor, theobligation shall be

extinguished.
Example
Reyesobliged himself to giveSantosadeterminatecar if hepasses
theCPA Examsin Oct. thecurrent year. If duringthependency of the
condition thecar waslost through fortuitousevent without thefault of
Reyes, theobligation to deliver thecar isextinguished even if the
condition isfulfilled later.
a) If thethingislost through thefault of thedebtor, heshall beobliged to

pay damages. If in theexampleabove, thespecificcar waslost through
thefault of Reyes, heshall beliablefor damagesupon thefulfillment of
thecondition.
It isunderstoodthat thethingislost:
a) When it perishes(aswhen ahouseisburnt to ashes)
a) When it goesout of commerce(aswhen theobject beforeis

unprohibitedbecomesprohibited)
c) When disappearsin such away that itsexistenceisunknown

(aswhen aparticular car hasbeen missingfor sometime)
e) When it disappearsin such away that it cannot berecovered

(aswhen aparticular diamondringisdroppedin themiddle
of theAtlanticOcean).
1. When thethingdeteriorates -
a) When thethingdeterioratesduringthependency of thecondition,
without thefault of thedebtor, theimpairment isto beborneby the
creditor.
Example
Arvin obligedhimself to giveIan adeterminateToyotacar if Ian passes
theOctober CPA Exams. Duringthependency of thecondition, thecar
waspartially damaged by flood, without thefault on thepart of Arvin.
If thecondition isfulfilled, Ian will bear theimpairment.
a) If thethingdeteriorates, duringthependency of thecondition, through

thefault of thedebtor, thecreditor may choose, after thefulfillment of
thecondition, between therescission of theobligation or itsfulfillment,
with indemnity for damagesin either case.
1. When thethingimproved
a) If thethingimproved duringthependency of thecondition, by its

nature, or by time, theimprovement shall inureto thebenefit of the
creditor. Thereason for thisistocompensatethecreditor who
would suffer in case, instead of improvement, therewouldbe
deterioration without thefault of thedebtor.
b) If thethingisimproved at theexpenseof thedebtor, hehaveno
other right than that granted to theusufructuary. By ususufruct is
meant theright to enjoy theproperty of another which includesthe
right to enjoy andusethefruitsof theproperty.
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
2. Theobligation isextinguished. (Art. 1181, NCC)
3. Becausetheobligation isextinguishedandconsideredto havehadnoeffect, the
partiesshould restoretoeach other what they havereceived.
4. Thefruitsand intereststhereon should also bereturned after deductingof course
theexpensesmadefor theproduction, gatheringandpreservation, if any.
5. Therulesgiven in Art. 1189, N CC will apply to whoever hastheduty to return in
caseof loss, deterioration or improvement of thething.
6. Thecourtsaregiven power todeterminetheretroactivity of thefulfillment of a
resolutory conditions.
Example:
A gaveB aparcel of landon condition that B will passthe CPA
Examson May, thisyear. B did not passtheCPA Exams. The obligation is
extinguished and therefore, it isasif therewasnever an obligation at all. B will
thereforehavetoreturn both theland and thefruitshehad received there
fromthemoment A hasgiven himtheland.
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
Theright torescindmeanstheright tocancel or toresolvein
caseof reciprocal obligation in caseof non-fulfillment on the
part of one.
Example:
In acontract of sale, thebuyer can rescind if theseller doesnot
deliver or teseller can rescind if thebuyer doesnot pay.
Thepower torescindisgiven totheinjuredparty andthe
injuredparty hasthefollowingalternativeremedies:
1. Demand fulfillment of theobligation plusdamages; or
2.Demand rescission of theobligation plusdamages.
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

Theaboverulesaredeemedjust. Thefirst oneisfair to
both partiesbecausethesecondinfract or, though they would
derivesomeadvantageby hisown act or neglect. Thesecondrule
islikewisejust, becauseit ispresumed that both partiesat
about thesametimetriedtoreap somebenefits. (Report of the
CodeCommission)
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 isafutureand certain length of timewhich

determinestheeffectivity or theextinguished of
obligation.
Obligation with aperiodisonewhoseconsequencesare

subject in oneway or another totheexpiration of said
period or term. (8Manresal58)
A day certain isunderstood tobethat which must

necessarily come, although it may not beknown when.
Period and Condition
Distinguished:
t As to fulfillment - A period isacertain event which must
happen sooner or later whileacondition isan uncertain event.
As to time aperiod refersonly to thefuturewhileacondition

may refer to apast unknown event.
a As to influence or effect on the obligation theperiod fixesthe

timeof theeffectivity of theobligation whileacondition may
causethedemandability of theobligation to ariseor 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 beforethearrival
of period.
NotethecrossreferencetoArt. 1189, NCC.

Example:
If A issupposeto deliver toB aparticular car on Dec.
19, 1999 by thecar wasdestroyed by fortuitousevent
in July 1, 1999, theobligation isextinguished.

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
Thisarticlewhich issimilar to Article1188, NCC, in an obligation to

give, allowstherecovery of what hasbeen paid by mistakebeforethe
fulfillment of asuspensivecondition.
Example -
E owesG P20, 000.00, which wassupposedtobepaid on December 25this
year. By mistake, E paid hisobligation on December 25last year. Assumingthat
today isonly June30, E can recover theamount plusinterest therein. But E
cannot recover, except heinterest, if thedebt hadalready maturedor if E had
knowledgeof theperiod.
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

Thegeneral ruleisthat when aperiod isfixedby theparties, the
period ispresumed to befor thebenefit of both creditor anddebtor.
Which meansthat beforetheexpiration of theperiod, thedebtor

may not fulfill theobligation andneither thecreditor demand its
fulfillment.
By way of exceptions, however, if thetenor of theobligation or other
circumstancesmay indicatethat aperiodishavebeen established for the
benefit of either thecreditor or debtor:
1. For thebenefit of both creditor and debtor
Example
Gayaobtainedaloan of P10, 000at 12% interest per annumfromTito for one
year. Gayahasaperiod of oneyear within which tousethemoney, whileTito
will benefit fromtheinterest which themoney will earn.
1. For thebenefit of thecreditor

Example-
Gayaexecutesapromissory notein favor of Tito which reads: I promisetopay
Tito or order theamount of P10, 000on demand. Thus, Tito can demand payment
fromGayaanytime.
1. For thebenefit of debtor

Example
Gayaexecutesapromissory notewhich reads: I promisetopay Tito r order the
amount of P10,000or beforeDecember 31, 2001. Gayacan pay her obligation
on or beforeDec. 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 doesnot stateajudicial period and no period is
intended, thecourt isnot authorized to fix aperiod. Thecourtshave
no right to makecontractsfor theparties.
Exceptions to the general rule
1. If theobligation doesnot fix aperiod but it can beinferred fromitsnature
and circumstancesthat aperiod isintended.
Example:
S sold aparcel of landtoB with aright of repurchase. No termis
specified in thecontract for theexerciseof theright. Then, the
court isauthorizedto fix theperiod to repurchase.
If theduration of theperioddependsupon thesolewill of thedebtor
Example:
I will pay you assoon aspossible. Here, theperiod isnot fixed,
sothecourt may fix thesamebecauseif thisisnot sothe
obligation may never becompliedwith by thedebtor.
ART. 1198. The debtor shall lose every right to make use of
the period:
When after the obligation has been contracted, he becomes
insolvent, unless he gives a guaranty or security for the debt;
When he does not furnish to the creditor the guaranties or
securities which he has promised ;
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;
When the debtor violates any undertaking, in consideration of
which the creditor agreed to the period;
When the debtor attempts to abscond. (1129a)
When Debtor Loses The Right to
Make Use Of A Period
Thegeneral ruleisthat theobligation isnot demandable
beforethelapseof theperiod. Theexceptionsarebasedon
thefact that thedebtor might not beableto comply with
hisobligation:
When debtor becomes insolvent:

Theinsolvency need not bejudicially declared. It issufficient that
thedebtor haslessassetsthan hisliabilitiesor if debtor isunable
topay hisdebtsasthey mature. It isnoted that theinsolvency of
thedebtor must occur after theobligation hasbeen contracted.
When debtor does not furnish guaranties or securities promised:
Example:
Gayaborrowed loan fromTito which loan wassecured by achattel
mortgageof Gaya scar asaguaranty. After obtainingtheloan, Gaya
failsor doesnot executeachattel mortgage, theloan becomes
demandableor thedebtor losesher right to makeuseof theperiod.
When by his own acts he has impaired said guaranties or securities:

Example:
Gayaborrowed P50, 000fromTito which loan wassecured by a
chattel mortgageon Gaya scar. Later, Gayasfault, thecar was
damaged or shecausestheimpairment of thecar, Gayalosesher right
to makeuseof theperiod, unlessshegivesanother one equally
satisfactory.
When by fortuitous event, the guaranty or security was lost.
Example:
Gayaborrowed P50, 000fromTito which loan wassecured by achattel mortgage
on Gaya scar. After obtainingtheloan, thecar waslost by fortuitousevent. Gaya
lossher right to maleuseof theperiod unlessshegivesanother guaranty or
security equally satisfactory.
When debtor violates an undertaking

Example:
Art secured aloan fromArnold on condition that Art will paint thehouseof
Arnold. If after theproceedsof theloan wasgiven to Art, hedid not pant the
houseof Arnold, Art loseshisright to makeuseof theperiod.
When the debtor attempts to abscond.

Abscond meansadepart or escapefromcreditor sknowledgeto avoid payment of
hisdebt. Mereattempt on thepart of debtor will entitlethecreditor to demand
payment of theobligation without waitingfor theperiod 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 meansan obligation wheretwo or moreprestationsaredue but the
delivery of oneissufficient to extinguish theobligation.
Example:
Gayabindsherself to giveTito either adeterminaterefrigerator or aTV set.
If GayachoosesanddeliverstheTV set, theobligation isextinguished. Thus,
Gayacannot compel Titotoaccept part of oneand thepart of theother
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
Asageneral rule, theright of choiceor to select theprestation belongsto thedebtor,
unlesstheright tochooseisexpressly granted to thecreditor. But theright of thedebtor
issubject tothefollowing:
Thedebtor cannot choosethoseprestationswhich are:
t Impossible E.g.- Gayapromised to deliver to Tito 100sacksof rice or astonefrom
Mars. Gayacannot choseto deliver thestonecomingfromMarsasit isphysically
impossible.
t Unlawful E.g. Gayaobliged herself to deliver to Tito akilo of dangerousdrugor a

parcel of land. Gayacan chooseonly thedelivery of parcel of land.
G Could not have been the object of the obligation - E.g. Gayaborrowed fromTito P50,
000. It wasagreed that Gayawould giveTito her horseor her German Piano. Now,
Gayahastwo horses, aracehorseworth P50, 000and an ordinary horsewhich isworth
for only P5, 000. Gayacannot choose
. Only one prestation is practicable (Art. 1202) E.g. Gayawill deliver to Tito her
carabao, or her horseor her refrigerator. Through no fault of Gaya, thehorseand the
carabao werelost by fortuitousevent. Gayacan only delivery therefrigerator which is
theonly onepracticable.
ART. 1201. The choice shall produce no effect
except from the time it has been communicated. (1133)
Right of Choice Must be Communicated

Until thechoiceismadeand communicated, thecommunicated,
theobligation remainsalternative. Oncethenoticetotheeffect
that achoiceismade, theobligation ceasestobealternativeand
becomesasimpleobligation.
Wherethechoicehasbeen expressly given to thecreditor, such
choiceshall likewiseproducelegal effectsupon being
communicatedtothedebtor. (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 thecreditor
sfault, thedebtor cannot madeachoiceaccordingto
thetermsof theobligation thedebtor isgiven theright to rescind and recover
damages.
Example:
Gayaborrowed fromTitoP5, 000.00. it wasagreedthat instead of P5, 000, Gaya
coulddeliver aTV set or arefrigerator or apiano. If through thefault of Tito, the
TV set wasdestroyed, Gayacan rescindthecontract if shewants. In caseof
rescission, theamount of P5, 000.00must bereturned by Gayawith interest. Tito,
in turn, must pay Gayathevalueof theTV set plusdamages.
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
Thisarticleentitlesthecreditor to indemnity for damageswhen all the
alternativeobjectsarelost through thefault of thedebtor beforehehasmade
hischoice. Theindemnity for which thecreditor isentitledshall bebased on
thevalueof thelast thingwhich disappeared or lost or thecomplianceof the
obligation hasbecomeimpossible.
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
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;
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
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
Thisarticleprovidesfor therulesto beobserved when the
right of choiceisexpressly grantedtothecreditor, therulesareas
follows:
When a thing is los through a fortuitous event

Example
Gayaobligedherself todeliver toTitoaTV set, or a
refrigerator, or apiano. If theTV set waslost through fortuitous
event, Titocan choosefromamongthe remainder or that which
remainsif only onesubsists.
When a thing is lost through debtors fault
Example:
If thelossof theTV set occursthrough thefault of Gaya, Tito may
claimtherefrigerator or thepiano with aright of damagesor the
priceof theTV set with aright of damages.
When all the things were lost through debtors fault

Example:
If all theitemsarelost through thefault of Gaya, then Tito can
demand thepayment of thepriceof any oneof themwith aright to
indemnity for damages.
When all the thing are lost through a fortuitous event

Example:
Theobligation of Gayashall beextinguishedif all theitemswhich
arealternatively theobject of theobligation arelost through a
fortuitousevent (Art. 1174will 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 facultativeobligation isonewhereonly oneprestation hasbeen
agreed upon but theobligor may render another in substitution.
Example:
I will giveyou my pianobut I may givemy television set asasubstitute.
Alternative and Facultative
Distinguished
F As to choice In facultativetheright for substitution isgiven
only tothedebtor in Alternativethechoicemay begiven either
to thedebtor or tothecreditor;
As to things due In facultativeonly theprincipal obligation is

dueby may substituteanother; in alternative, thereareseveral
thingsduebut thedelivery of oneissufficient;
h As to validity or nullity In facultativeif theprincipal thingis

unlawful or impossible, thereisnoneed of deliveringthe
substitutein alternativeif oneof thethingisunlawful or
impossible, thereisstill aneed to deliver any of thosewhich
remain valid or theonly remainingoneisvalid.
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 isan obligation wherethereisaconcurrenceof twoor
moredebtorsor two or morecreditorsor of several debtors
and creditors, by virtueof which each of thedebtorsisliable
for aproportionatepart of thecredit.
Exampleof different instances

1) A, B, and C borrowed P9, 000for D. Thepresumption isthat A, B
and C arejointly liable. D can demand only P3, 000fromeach or a
total of P9, 000.
2) A borrowed fromB, C and D P9, 000. Thereisonedebtor and three
creditors. Each creditor can demandonly P3, 000fromA.
3) A and B areliableto C and D for P9, 000. Therearetwo debtorsand
twocreditors. Each creditor can demand only P4, 500fromeach
debtor.
SOLIDARY OBLIGATION
There are solidary liability when
1) Theobligation expressly so states, or
3) Thelawrequiressolidarity or
5) Thenatureof theobligation requiressolidarity.

Kinds of Solidary Obligation
Passive solidarity on thepart of thedebtors, whereanyoneof themcan
bemadeliablefor thefulfillment of theentireobligation.
ExampleA and B aresolidary debtorsof C in theamount of P 10, 000
Active solidarity on thepart of thecreditors, whereanyoneof themcan

demand thefulfillment of theentireobligation.
ExampleA isliabletoB and C for theamount of P10, 000. B and C are
solidary creditors.
Mixed Solidarity solidarity on thepart of thedebtorsand creditors

whereeach oneof thedebtorsisliableto render and each oneof the
creditorshasaright to demand, entirecompliancewith theobligation.
ExampleA and B aresolidarity debtorsto C and D, solidary creditorsin
theamount of P 10, 000.
Solidarity not presumed
Thepresumption, wheretherearetwo or morepersonsin thesameobligation, is
that it isjoint. Thereason isthat solidary obligationsarevery burdensomefor
they createunusual rightsand liabilities. Solidarity between debtorsincreases
their responsibility whilesolidarity between creditorspresumingthat 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

Theobject isindivisibleand theT/E between thepartiesaremerely
proportionately liable.
Example
A andB arejointly liabletogiveC aparticular car. Theobligation isjoint but sincethe
object isindivisible, thecreditor must proceedagainst al thejoint debtor. If any of thejoint
debtorsbeinsolvent, theothersshall not beliablefor 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 referstothesubject matter whilesolidarity
referstotheTiebetween theparties.
Examples:
1. Joint divisibleobligation A and B arejointly liableto C for P10, 000.
3. Joint indivisibleobligation A and B arejointly liableto giveC their car.
5. Solidary divisibleobligation A and B aresolidarily liableto giveC P10,

000.
7. Solidary indivisibleobligation A and B aresolidarily liableto giveC

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.
Thesolidary character of theobligation isnot destroyedeven

if thecreditorsanddebtorsareboundby different termsand
conditions. Thesolidarity isstill preservedby recognizingin the
creditor thepower of claimingfromany or all debtorsthe
payment of theentireobligation.
Example:
A andB solidarily bound themselvesto pay atotal of P10, 000to C, andD
and E to thefollowingconditions. C ssharewill bedueat theend of the
year; D will get hisshareonly after hepassestheCPA examsand E will get
hisshareonly after hepainted thehouseof 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 theothersbut he
cannot act prejudicial to them.
Exampleof Beneficial Acts

To interrupt therunningof prescription, theact of onesolidary creditor in makingajudicial
demandupon any of thesolidary debtorsissufficient. (Art. 1155, NCC)
Exampleof Prejudicial Acts

Should not beperformed, otherwise, therewill beliability for damages. However, in thecase
of remission or condonation, thesolidary creditor isallowedtosoremit, andtheobligation 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

Theruleisthat thedebtor may pay any oneof thecreditors. But
when ademand ismadeby any of thecreditors, payment shouldbe
madeto himwho madethedemand, judicially or extra-judicially.
Example
A isliableto B andC P5, 000. A may pay either B or C But if B madea
demand then payment should only bemadetohim. If A paid C, B isstill
entitled tohissharefromA in caseC doesnot turn over to B hisshare.
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 acreditor who executed any of theseacts, it islogical that he

isliableto theother solidary creditorsfor their correspondingshares
consideringthat such actsareprejudicial tothem. (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 asolidary obligation, thecreditor may proceed against any, some
or all of thesolitary creditorssimultaneously so longasit hasnot
been fully collected.
Example
A, B and C solidarily oweD theamount of P9, 000. D can collect fromA or
B or C aloneor fromany two of themor all of themsimultaneously. If
demand ismadeon A, thelatter cannot requireD to makeademand also on
B and C or to includethemasparty defendantsasD hastheright to proceed
against any oneof 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 isoneof thewaysby which an obligation isextinguished
and consist in thedelivery of thethingor therendition of theservice
which istheobject of theobligation.
Example
A, B andC aresolidarily liableto D and E in theamount of P9, 000
dueon Dec. 31. If both A andB offer topay D on Dec. 31, thelatter
may choosewhich offer to accept. If A paystheentireamount of P9,
000on Dec. 31, theobligation isextinguished.
Thepayment of A giveshimtheright of reimbursement fromB and

C P3, 000each with interest fromthedateof payment. However, if C
isinsolvent, both A and B shall bear theinsolvency 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
3. Prescription isonewhereoneacquiresownership and other rightsthrough the

lapseof timein themanner and under theconditionslaiddown by law.
ExampleA andB aresolidarily indebtedtoC in theamount of P10, 000. Thedebt

prescribed. If A paidthedebt, hecannot collect formB hisshareof thedebt. Neither can A
can recover fromC.
5. BecomesIllegal A and B aresolidarily bound to deliver medical drugstoC.

thetransaction of such medical drugswerelater prohibited by law.
Notwithstandingtheprohibition, B performedtheobligation by deliveringthe
prohibited drugs. B isnot anymoreentitled toreimbursement fromA.
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 madefirst, theremission isof no effect. Thereisno moreto remit.
3) If remission ismadeprior to thepayment and payment ismade, then thereis

payment by mistake.
5) If oneof thesolidary debtorsobtained remission on thewholeobligation, heisnot

entitled to reimbursement fromhisco-debtorsbecauseremission isessentially
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 thethingislost or hasbecomeimpossibletoperform
through afortuitousevent without thefault of the
debtor, theobligation isextinguished.
Example:
A, B andC aresolidarily boundtodeliver adeterminatecar
toD. Without any fault on thepart of any oneof the
debtors, thecar waslost through thefortuitousevent. The
obligation isextinguished.
Rules in Case thing has Been Lost or
Prestation Has Become Impossible
1. If in theprecedingparagraph, thecar waslost through the
fault of anyoneof thesolidary debtors, anyoneof themmay
beheldliableby D for thepriceof thecar plusdamages. The
debtorswhodidnot any fault on thelost of thecar havethe
right torecover fromtheco-debtor whoisat fault.
3. Thesolidary debtorsarelikewiseliableeven if thethingis

lost through fortuitousevent if thelossoccursafter anyone
of thesolidary debtorshasbeen in delay. Thedebtors,
however whowerenot in delay havetheright torecover
fromtheir co-debtorswhowasresponsibleduetohisdelay.
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
Thedefensesavailabletothesolidary debtorsif the
creditor proceedsagainst himalonefor thepayment of the
entireobligation
1. Thedefensesderivedfromthenatureof theobligation, such as

fraudprescription, remission illegality or absenceof
consideration, payment or performance.
Example
A andB aresolidarily liableto C in theamongto P6, 000. Theentire
debt waspaid by d. in an action by C against A, thelatter can raisethe
defenseof payment by virtueof which theobligation wasextinguished.
Defenses available to a Solidary
Debtor
2.Defensespersonal to himor pertainingto hisown share,
such asminority, insanity andvitiatedconsent.
1. Defenseswhich arepersonal to others, such asminority,

insanity andvitiatedconsent.
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 divisibleobligation isonetheobject of which in itsdelivery or

performanceiscapableof partial fulfillment.
Example:
A agreed to pay B P10, 000in fivemonthly installment. Theobligation
of A isdivisiblebecauseit ispayablein partial payments.
4. An indivisibleobligation isonetheobject which in itsdelivery or

performanceisnot capableof partial fulfillment.
Example:
A agreed to deliver adeterminatecar to B on Dec. 31. Thisisan
indivisibleobligation becauseit isnot 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
Thegeneral ruleof determiningthedivisibility or indivisibility

of an obligation depend on thepurposeof theobligation.
2.Obligation to givedefinitethings
Example:
To giveaparticular house. Heretheobligation isindivisiblebecauseof
thenatureof thesubject matter.
5.Obligationswhich arenot susceptibleof partial performance
Example:
A isobliged to singasong. Heretheobligation isindivisibleby reason
itspurposewhich requirestheperformanceof all theparts.
Obligations Deemed Indivisible
1. Obligation provided by lawto beindivisibleeven if thingor service
physically divisible.
Example:
Taxesshould bepaid within adefiniteperiod. Although money isphysically
divisible, theamount of tax payablemust bedelivered in Toto, not partially.
4. Obligationsintended by thepartiesto beindivisibleeven if thingor

serviceisphysically divisible.
Example:
Theobligation of A to giveP10, 000to B on acertain date. Money is
physically divisibleby theclear intention erefor A to deliver theamount at
on timeand asawhole.
Obligations Deemed Divisible
1. Obligationswhich havefor their object theexecution of acertain number of daysof work.
Example
A obligedhimself to paint thehouseof B tobefinished in 10days. Theobligation isdivisible
becauseit will not befinished in onetime.
4. Obligationswhich havefor their object theaccomplishment of work by metrical units.
Example:
A obligedhimself to deliver 25cubicmeter of sand.
7. Obligationswhich by their naturearesusceptibleof partial performance
Example
Theobligation of A to pay adebt of P10, 000to 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 apenal clauseisonewhich containsan accessory
undertakingto pay apreviously stipulatedindemnity incaseof breach. It is
attached to obligationsin order toinsuretheir performance.
Purpose of a Penal Clause
1) To insuretheperformanceof theobligation.
3) To substitutefor indemnity for damagesandthe

payment of interest in caseof non-complianceof the
principal obligation.
5) To penalizetheobligor in caseof breach of theprincipal

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

Thegeneral ruleisthat thedebtor isnot allowed to just pay thepenalty instead
of fulfillingtheobligation. Hecan do so if theright hasbeen expressly reserved.
Thereason isthat if hecan just pay, fulfillment of theobligation will be
considered an alternativeone. Theword expressly meansthat any implied
reservation isnot 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 theobligation hasbeen partly complied with by
thedebtor;
c) When theobligation hasbeen irregularly complied with

by thedebtor
e) When thepenalty isiniquitousor unconscionable, even

if therehasbeen noperformanceat 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

Thegeneral principlethat theaccessory followstheprincipal. If
only thepenal clauseisvoid, theprincipal obligation remainsvalid
and demandable. Thepenal clausemay bedisregarded.
Example:
A agreed to sell merchandiseto B. it isprovided in their agreement that in case
of default, A will deliver aprohibited drugaspenalty. Here, theobligation to
sell merchandiseisvalidby thepenalty to deliver theprohibiteddrugisvoid.
For failureof A tocomply with theobligation, 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
existenceisunknown or it cannot berecovered.
Thegeneral ruleisthat if thething to bedelivered isdeterminateand

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 theparties;
2. by provision of law;
3. when thenatureof theobligation requirestheassumption of risk;
4. when thethingto bedelivered isgenericor indeterminate.
5. if thedebtor isat fault;
6. when thedebt or athingcertain and determinateproceedsfromacrime.
7. when the debtor has promised to deliver the same thing to two or more
pesonswho do not havethesameinterest.
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 thethingislost whilein the
possession of thedebtor, thelaw
presumesthat hetingwaslost through
hisfault. Thepresumption of fault,
however, doesnot apply when theting
islost duetoearthquake, 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 fromfelony or crimeor if aperson who was
convicted of the crime like of theft , was ordered by the court to
return theobject to its owner is liablefor thepayment of its valueif
such object islost 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 isextinguished.
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 isan act of liberality by which theobligee,

without receiving any price or equivalent, renounces the
enforcement of theobligation, as a result his right against
thedebtor. (4Sanchez Roman 422)
Requisites of Condonations OR
Remissions
it must begratuitous;
it must beaccepted by thedebtor;
thepartiesmust havecapacity;
must not beinofficious; and
if madeexpressly, it must comply with theforms

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

s property called
legitimate cannot bedisposed of becausethelawhasreserved it from
certain heirscalled thecompulsory 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 thethingpledged isfound in thehandsof debtor or thethird person, only the
accessory obligation of pledgeispresumed remitted, not theobligation 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 one obligation.
Kinds of Compensation
1. as to cause
a. Legal takes effect by operation of law provided all

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

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

the debt are the same amount
b. Partial the debts are not the same amount hence after
compensation, a balance remains outstanding.
Requisites of a Proper Compensation or Legal
Compensation
1. the parties are principal creditor and principal debtor of each other;
Example, Arvin owes Tito P10, 000 payable on Dec. 20, 1999. Tito on the other hand
owes Arvin P10, 000 also due and payable on Dec. 30, 1999. These two obligation become
due on Dec. 30, 1999 compensation takes place because both Arvin and Tito are principal
creditor and principal debtor of each other.
2. both debts consists in a sum of money or of consumable things of the same kind and quality;
Example, Arvin obliged himself to deliver to Tito 100 sacks of rice on October 30, 1999.
Tito, on the other hand, has an obligation to deliver 100 sacks of rice to Arvin on October
20, 1999. There is compensation because they are consisting of consumable things.
3. the two debts are due and demandable;
Example, Gaya owes Maya P10, 000 payable on October 30, 1999. Maya owes Gaya
P10, 000 payable also on October 30, 1999. There is compensation when the obligation
becomes due on October 30, 1999.
1. 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 Maya s debt is not yet
due. However, by voluntary agreement between
ART. 1283. If one of the parties to a suit over an
obligation has acclaim for damages against the other, the
former may set it off by providing his right to said damages
and the amount thereof. (N)
Judicial Compensation
A judicial compensation is one whereby a money debt of a person

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

failed to pay. In anger, Y damaged the property of X to the extend of
P800. X can set off the obligation of Y to pay him damages in the amount
of P800 against his debt of P1, 000.
ART. 1284. When one or both debts are rescissible or
voidable, they may be compensated against each other before
they are judicially rescinded or avoided.
Compensation Of Rescissible or Voidable Debts
Rescissible and voidable obligations are valid until they are judicially rescinded or
avoided and prior rescission or annulment, the debts may be compensated.
Example, A owes B P 10, 000. Subsequently, A, through fraud was able to make B
sign a promissory note that B is indebted to A for the same amount. The debt of A is valid, but
that of B is voidable. Before the debt of B is nullified, both debts may be compensated against
each other if all the requisites for legal compensation are present.
If suppose the debt of B is later annulled by the court, A is still liable considering
compensation had already taken place because the effect of annulment is retroactive, it is as if
there was no compensation.
ART. 1285. The debtor who has consented to the assignment of
rights made by a creditor in favor of a third person, cannot set up against
the assignee the compensation which would pertain to him against the
assignor, unless the assignor was notified by the debtor at the time he
gave his consent, that he reserve his right to the compensation.
If the creditor communicated the cession to him but the debtor did not
consent thereto, the latter may set up the compensation of debts
previous to the cession , but not of subsequent ones.
If the assignment is made without the knowledge of the debtor,

he may set up the compensation of all credits prior to the same and also
later ones until he had knowledge of the assignment.
When Compensation Has Taken Place
BEFORE Assignment
If an extinguished obligation has been assigned by the creditor to third
person, the debtor can raise the defense of compensation with respect to the debt. The
remedy of the assignee is against the assignor.
Example, A owes B P5, 000 due yesterday. B owes A P3, 000 due also
yesterday. Both debts are extinguished up to amount of P3, 000. Hence, A still owes B
P2, 000 today. If B assigns his right to C, latter can collect only P2, 000 from A.
However, if A gave his consent to the assignment before it was made on will be liable to
C for P5, 000 but he can still collect the P2, 000 owed by B. It is as if no compensation
took place.
Where Compensation Has Taken
Place AFTER Assignment
Therearethreecasesof compensation which takeplaceafter an
assignment of rightsmadeby thecreditor. They are:
Assignment with consent of debtor
Example, A owesB P5, 000dueDec. 19. B owesA P3, 000due
Dec. 19. B assignedhisright to C, theassignee, thecompensation
which would pertain to himagainst B, theassignor. A isstill liable
to C for P5, 000but hecan still collect theP2, 000debt fromB.
However, if A whileconsentingtotheassignment, reserved hisright
to thecompensation, hewouldbeliableonly P2, 000to C.
Assignment with theknowledgebut without theconsent of debtor
Example, A owesB P1, 000dueDec. 1. B owesA P2, 000Dec. 10.
A owesB P1, 000dueDec. 15. A assigned hisright toC on Dec. 12.
A notifiedB but thelatter did not givehisconsent to theassignment,
howmuch can C collect fromB? B can set upthecompensation of
debtson Dec. 10which wasbeforethecession on Dec. 12. There
beingpartial compensation, theassignment isvalidonly up to the
amount of P1, 000but B cannot raisethedefenseof compensation
with respect tothedebt of A dueon Dec. 15which hasnot yet
matured. So, on Dec. 12, B isliabletoC for P1, 000. ComeDec. 15,
A will liablefor hisdebt of P1, 000toB.
Assignment without theknowledgeof thedebtor

Example, in theprecedingexample, let ussupposethat the
assignment wasmadewithout theknowledgeof B who learnedof the
assignment only on Nov. 16. In thiscase, B can set up the
compensation of creditsbeforeandafter theassignment. Thecrucial
timeiswhen B acquiredknowledgeof theassignment andnot the
dateof theassignment. If B learned of theassignment after thedebts
hadalready matured, hecan raisethedefenseof compensation,
otherwise, hecannot.
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
Thislegal compensation doesnot refer tothedifferencein thevalue

of thethingsin their respectiveplacesbut totheexpensesof
monetary exchangeandexpensesof monetary exchangeand
expensesin transportation. Oncetheseexpensesareliquidated, the
debtsalso becomecompensated. Theindemnity shall bepaidby the
person whoraisesthedefenseof compensation.
Example, GayaowesMaya$1, 000payablein NewYork. Maya

owesGayaP38, 000(equivalent amount) payablein Manila. If A
claimcompensation, hemust pay for theexpensesof 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
TheabovearticledefinesthetermContract. In acontract,
oneor morepersonsbindthemselveswith respect to
another or reciprocally, to thefulfillment of apresentation
togive, 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 causeor 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 defectsor eviction in contract of sale.
3. Accidental elements- thosewhich exist by virtueof 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. Asto perfection
a. Consensual onewhich isperfected by mereconsent (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. Asto dependenceto 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, pledgeof 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. Accordingto nameor designation
a. Nominateonewhich hasparticular nameor designation such assale,
agency, etc.
b. Innominatethosewithout particular name.
4. Accordingto thenatureof obligation

a. Unilateral whereonly onehaan obligation toperform. Ex. Contract of
donation, commodation.
b. Bilateral whereboth partieshavereciprocal obligation to perform. Ex.
Sale.
5. Accordingto risk involved

a. Commutative- wherethereisan exchangeof values, such aslease.
b. Aleatory - onewhich thefulfillment of theobligation dependsupon
chance. Ex. Contract of insurance.
6. Accordingto cause
a. Onerousonewhich imposesvaluableconsideration such assale,
mortgage.
b. Gratuitousonewhich oneof thepartiesdoesnot receiveany
valuableconsideration, such ascommodatum.
7. Accordingto form
a. Oral by word of mouth of theparties
b. Written theagreement which isreduced in writing which
may bepublicor privateor privatedocument
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. Thecontract must bind both contracting

parties; itsvalidity or compliancecannot beleft tothewill of oneof
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 beleft to thewill of oneof them. Thisprincipleisbased on the
essential equality of theparties. It is elementary rulethat no party can
renounce or violate the law of the contract without the consent of the
other. (11 Manresa380)
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 thecondition dependson thewill of Gaya.
ART. 1309. The determination of the
performancemay beleft to athird person, whosedecision
shall not bebinding until it has been madeknown to both
contractingparties.
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, thepartiesarenot 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 thecircumstances.
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
affectingthevalueof theland, and informingboth contractingparty that the
decision is just and suitable. If the decision made by Maya is manifestly
inequitable, thecourt may becalled upon to decidewhat isequitable.
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 determiningtheperformanceof both parties(Art. 1309).
2. In contractscontainingastipulation in favor of athird person (Art.

1311).
3. In contractscreatingreal rights(Art. 1312).
4. In contractsenteredintoto defraud creditor (Art. 1313).
5. In contractswhich havebeen violated at theinducement of thethird

person (Art. 314).
Example, Gayamortgaged her parcel of land in favor of Lauraas

collateral for her debt. Themortgageisduly registered. Later on, Gayasold the
sameland to Tito. In thiscase, Tito bought theland subject tothemortgage
constitutedthereon. Tito, although astranger in themortgage, beingareal right
followstheproperty on theright of Laurato themortgage.
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
Formsof acontract refer to themanner in

which acontract isexecuted or manifested
Rules Regarding Form of Contracts
General Rule Contracts are binding and therefore,

enforceablereciprocally by thecontracting parties, whatever
may be theformin which thecontact hasbeen entered into
to provided all thethreeessential requisites(consent, object,
cause) for their validity arepresent.
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. Thereisameetingof themindsof thepartiestothe
contract;
2. Thewritten instrument doesnot expressthetrue

agreement or intention of theparties;
3. Thefailuretoexpressthetrueintention isdueto
mistake, fraud, inequitableconduct or accident;
4. Thefacts upon which relief by way of reformation of the
instrument issought areput in issueby thepleadings; and
5. There is clear and convincing evidence of the mistake,

fraud, inequitableconduct 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 theland 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 takeeffect during his lifetime, it is a donation inter vivos,
while the opposite of inter vivos is donation mortis causa
which takeseffect after thedonor sdeath.
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 thereal
agreement isvoid, threisnothingto reform.
4. When one party ahs brought an action to enforce the

instrument (Art. 1367) When aparty bringsan action to
enforcethecontract, headmitsitsvalidity andthat it
expressesthetrueintention of theparties. Thebringingof
theaction isthusinconsistent with reformation
Interpretation Of Contracts
Art. 1370. If thetermsof acontract areclear 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 theformer. (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,
thepartiesarebound thereby according to theliteral sense
of their stipulations.
Example, acontract wasexecutedby A andB, the
contract recitesthat isasaleof land belongstoA for
P500. Thetermsof thecontract areclear and it doesnot
appear that theintention of thepartiesiscontrary to the
literal meaningof 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
Causeistheessential or moreproximatepurpose
which thecontractingpartieshavein viewat thetimeof
enteringintoacontract. (8Manresa697)
It istheCivil Codetermfor consideration in

Anglo American or Common Law.
Classification of Contracts
According to Cause
1. ONEROUS the cause of which for each contracting
partiesisthepre-station or promiseof athingor serviceof
theother. Ex. Sale, leaseof 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
saidservices.
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
doneor 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 thetimethecontract isentered into.
(Art. 1352)
2. it must belawful; (Ibid) and
3. it must betrueor 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 Causeismeant
that the contract states a valid consideration but
such statement isnot true
PART IV
DEFECTIVE CONTRACTS
Therearefour kindsof defectivecontracts:

1. Rescissiblecontracts(Chapter 6);
2. Voidablecontracts(Chapter 7);
3. UnenforceableContracts(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. (8Manresa748)
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 restorethemto their original
position in which there were before contract
wasexecuted.
Characteristics of Voidable
Contracts
1. The defect in the contract consists in the vitiation of
consent of oneof thecontractingparties;
2. Thecontract isbindinguntil annulled by a competent court;
3. Thecontract is susceptibleof 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. Thisperiod shall begin:
In cases of intimidation, violence or undue influence,

fromthetimethedefect of theconsent ceases.
In case of mistake or fraud, from the time of the

discovery of thesame.
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 ayear fromthemakingthereof;
(b) A special promise to answer for the debt,

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

marriage, other than amutual promiseto 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 lawuntil unlessthey areratifiedaccordingto 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
requiredlegal capacity.
Classes of Unenforceable
Contracts
1. Those entered into the same of another person
by one without authority or in excess of his authority;
2. Those which do not comply with the Statue of

Frauds; and
3. Those where both parties are incapable of

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

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

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

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

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

men;
5) Those which contemplate an impossible service;

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

law.
These contracts cannot be ratified. Neither can the

right to set up the defense of illegality be waived.
Art. 1410. The action or defense for the declaration

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

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

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

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

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

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

fault, he cannot recover what he has given by reason of the
contract, or ask for the fulfillment of what has been
promised him. The other, who is not at fault, may demand
the return of what he has given without any obligation to
comply his promise. (1306)
Effect of Illegal Terms in a
Contract
Art. 1420. In caseof adivisiblecontract, if theillegal
termscan beseparatedfromthelegal ones, thelatter may be
enforced.
In caseacontract containingan illegal orlegal

terms, thelawallowsthelegal termstobeenforced if it can
beenforcedif it can beseparated fromtheillegal 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
thecontractsasadefense
Thank you!!!!!

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Revised By:

Atty. Virginio L. Valle

INTRODUCTION TO LAW AND BUSINESS LAW

1. Definition of Lawand BusinessLaw

In the preliminaries, the sight of a human being in his everyday

The instructions that a person will learn, result to that

Theinfinitetruth and infinitegood isinfinitebeauty of God.

Theperson wascreated by God and destined for God, thepeoplecan

A RULE OF CONDUCT , JUST AND OBLIGATORY

Edgardo Paras defined Law as an ordinance of reason

Meaning any action, things, dictate of reason if regulated or

That is, madeknown to thosewho areexpected to followit.

Treatment of Law should beequal, regardless of sex, creed,

The application of law should not be titled or favoring an

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

The fundamental law that governs a nation in its relation to

The fundamental law that governs a nation in its relation to

Judicial decisions or interpreting the laws or the Constitution

Thus, our country adhere to the Doctrine of Stare Decisis

It consists of those habits and practices which through long

To add, the principle of justice and equity, decisions of

It is formally promulgated by God, revealed or divulged to

Promulgated impliedly in our conscience and body. It is the

THIS CAN BE CLASSIFIED INTO:

1. International Law consists of those rules and principles which

2. Constitutional Law It simply governs the relations between the

3. Administrative Law it fixes the organization and determines the

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

5. Criminal Law guaranties thecoercivepower of thelaw so that it

Thoselawwhich govern theprivaterelation person.

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

2. Commercial Law defined as a whole body of substantial

3. Procedural Law defined as the branch of law which

A civil codeisacompilation of existing Civil Laws, scientifically

3. Jurisprudence there is need to mention that,

5. The Code Commission itself A Code commission

This was re-codified as Family Code of the Philippines embodied

Book III Different Modes of Acquiring Ownership

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. InsuranceLaw, which repealed theprovisionson Fire

5.The Securities Act, which repealed theprovisions on

7. Other legislation, in addition to the foregoing special laws, there

b. Those contained in Book Two governing joint accounts,

c. Thosecontained in Book Threegoverningmaritimecommerce

a. MERCHANTS Merchants may be natural or juridical

In thecaseof natural person, heisamerchant:

In thecaseof juridical person, it isamerchant:

Habituality in engaging in commerce is attained when there

1. Throwingopen to thepublicabusinessentity or establishment;

3. Whereaforeign corporation appointsan agent asrequired by law.

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

1.Those suffering the penalty of civil interdiction primarily because

2. Those judicially declared insolent while they have not obtained

3. Those who in account of special laws or provisions cannot

1.Justices, judges, and officials of the Prosecutor

2.Administrative, economic or military heads of districts, provinces

4. Stock and commercial brokersof whatever class;

5. Those who under special laws and provisions cannot trade in

A commercial registry is a public officethat takes

a. Book of inventoriesand balances;