1.
Law itself provides that it shall be
(Book IV Civil Code: Articles 1156-1422)
Prepared by:
ATTY. ALEXIS R. AGMATA
COLLEGE OF ACCOUNTANCY AND COMMERCE
Saint Louis University, Baguio City
GENERAL OVERVIEW OF THE LAW
LLLaaaw
w –
w –– (defined)
= general sense (derecho) – science of moral laws
based on the rational nature of man.
= specific sense (ley) – a rule of conduct, just,
obligatory, promulgated by legitimate authority, and of common
observance and benefit.
General Division of Law:
a. Natural Law – based on morality and equity
b. Moral Law – the totality of norms of good or
right conduct. It may vary in different countries.
c. Divine Law – law of religion and faith. Believed
to have been promulgated by God.
d. Physical Law –refers to law of physical science
or physical law.
e. Positive or State Law – imposed by the State
and enforceable in Court.
Classification of Positive Law:
1. Private Law – regulates relationship
of the members of the community with
each other.
e.g. Civil Law – Article 19, CC
(Abuse of Rights)
“Every person must, in the exercise of his
rights and in the performance of his duties,
act with justice, give everyone his due and
observe honesty and good faith”
(Velayo v. Shell Co. of the Phil.
100 Phil 186, Hermosisima v.
CA, 109 Phil. 629)
2. Public Law – regulates the
relationship of the members of the
community with the State.
e.g. Political Law – The State
cannot be sued without its
consent.
3. Substantive Law – establishes rights
as well as duties.
e.g. NIRC
4. Procedural/Adjective Law – govern
the procedure by which the rights or
claims may be enforced.
When laws shall take effect.
- 15 days from the completion of its publication in the
Official Gazette or in a newspaper of general circulation
unless otherwise provided by law.
(Article 2, Civil Code (CC) and E.O. 200, June 18,
1987).
Article 3, CC - “Ignorance of the law excuses no one from
compliance there with”
“Ignorantia legis neminem excusat”
- only with respect to the existence of the law and
not to the application or interpretation of a
difficult provision of law because the latter might
be used as a basis of GOOD FAITH.
- Based on expediency, public policy and
necessity.
Article 4, CC – General Rule: Laws shall be given
prospective (future) application.
Exceptions:
given retroactive application.
2. Penal in nature – if favorable to the
accused that is not a habitual
delinquent.
Habitual delinquent = (Article 62 (5), RPC) – within
10 years from release or last conviction shall commit
the crimes of serious or less serious physical injuries,
robbery, theft estafa or falsification a third time or
oftener.
3. Interpretative of other laws.
4. Curative in nature.
Article 5, NCC – General Rule: Acts executed against the
provision of a mandatory or prohibitory law shall be void.
Exceptions:
1. When the law authorizes its validity.
e.g. sweepstakes, lotto, horse racing
2. Law authorizes its validity but
punishes the violator.
e.g. Woman who remarries before the
lapse of 300 days after the death of
her husband is liable to criminal
prosecution, but the marriage itself is
valid. (aresto mayor (imprisonment
ranging from 1 month and 1 day to 6
months) and fine not exceeding 500
pesos)
3. Law makes the act not void but merely
voidable.
e.g. marriage celebrated through
violence or intimidation aka
“shotgun wedding”.
How to compute a period:
Article 13, NCC - When the law speak of years, months, days
or nights, it shall be understood that years are of 365 days
each; months of 30 days; days of 24 hours; and nights from
sunset to sunrise.
If the months are designated by their name, they
shall be computed by the number of days, which they
respectively had.
In computing a period, the first day shall be
excluded and the last day included.
e.g. Mr. A entered into a contract on November 15,
2001 which will mature within 10 days from said date.
Date of maturity: November 25, 2001.
(In computing
the period, November
15 shall be excluded.
Start counting on the
16th and end counting
on the 10th day).
Characteristics of Law: (See specific definition of law)
1. It is a rule of conduct – the law provides not only
the acts to be done or performed but also the acts
not to be done.
2. It is obligatory –strict compliance of the law is
required. Violation of the law carries with it a
corresponding penalty or sanction.
3. It is promulgated by legitimate authority –
promulgated by the legislative department of the
government (Congress = House of Representative
and House of Senate).
4. It is of common observance and benefit – the law
is intended to be observed by all men. “No person
is above the law”
Sources of Law:
1. Constitution - fundamental law of the land. It is the
highest law of the land.
In case of conflict between the Constitution and a law
or administrative order, rules or regulation – the
Constitution will prevail.
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2. Legislation – refers to law promulgated by JURIDICAL PERSONS) – When either subject
legitimate authority. cannot be determined the obligatory tie can have no
N.B. If the law was effect)
promulgated by local 3. Object or Prestation
governments, it is called an - it is not a thing but a PARTICULAR
“ordinance”. CONDUCT OF THE DEBTOR.
3. Administrative or executive orders, regulations, and - 3 KINDS OF PRESTATION
rulings. 1. to give
- they are enacted by administrative officials - is one in which the prestation consists
performing legislative functions (law making in the delivery of a movable or an
power). immovable thing in order to create a
- The administrative or executive orders are valid real right, or for use of the recipient, or
only when they are not contrary to the laws and for its simple possession, or in order to
to the Constitution. return it to its owner.
e.g. Civil Service Commission Examples:
4. Judicial decisions or jurisprudence a. a specific or
Article 8, CC – Judicial determinate thing
decisions applying or b. an indeterminate or
interpreting the laws or generic thing
the provision of the GENERIC THING –
Constitution shall form - it refers only to a particular class or genus (genus
part of the legal system non quam perit)
of the Philippines. - is one that is indicated only by its kind, without
The aforequoted provision applies only to decisions being designated and distinguished from others of a
promulgated by the Supreme Court which is considered as the the same kind.
highest court or tribunal of the land. Decisions of the lower SPECIFIC OR DETERMINATE
courts (Court of Appeals, Regional Trial Courts, Municipal Trial - particularly designated or
Courts, Metropolitan Trial Courts, etc.) – are merely physically segregated from all
persuasive or recommendatory thus, not necessarily binding. others of the same class.
Note: Stare Decisis – adherence to precedents. – one which is already separated
5. Custom from a particular genus or kind.
Requisites before a custom can be used in deciding a case.
a. no law 2. to do
b. repetition or uniformity of acts - includes all kinds of work or services.
c. existence of juridical intention among the believers 3. not to do
of the custom -consists in abstaining from some
d. lapse of a considerable period of time act.
e. must not be contrary to law and good moral. Ex. Obligation NOT to
e.g. (Martinez v. Van Buskirk, 18 Phil. 79) – create a nuisance on his
cochero who left his horse to unload the cargo of his caratella. property.
The horse went berserk and it hit a pedestrian. Q? Is the • NOT TO DO includes
cochero negligent? A: No, – not negligent – custom of the the NOT TO GIVE both
place. being negative
6. Other sources obligations.
e.g. opinions of legal experts, decisions of
foreign tribunals. REQUISITES FOR PRESTATION:
1. it must be possible
CIVIL CODE = a collection of laws, which regulates the private – physically or juridically
relations of the members of society, determining their 2. it must be
respective rights and obligations, with reference to persons, determinate or at least determinable
things, and civil acts. 3. it must have
possible equivalent in money.
Art. 1156 - the pecuniary benefit need not be for one of the
An obligation is a juridical necessity, to give, to do or parties but in favor of a third party – stipulation pour
not to do. autrui
4. Efficient cause or the juridical
(Definition is passive or one sided. By Sanchez tie or the vinculum
Roman) - this is the reason why the debtor is
bound to the creditor by reason of the
Complete definition by Arias Ramos. prestation.

“An obligation is a juridical relation whereby a person (called - this relation is either established by
the creditor) may demand from another (called the debtor) the the following:
observance of a determinate conduct, and in case of breach, 1. law (-obligation between
may obtain satisfaction from the assets of the latter.” husband and wife to give
support)
2. bilateral acts (- contracts
Elements: giving rise to obligations
1. Active subject (he has the power to demand the stipulated therein)
prestation) – obligee or the creditor. - In contracts the parties are free to make such
2. Passive subject (he is bound to perform the stipulation provided the same are NOT contrary to
prestation) – obligor or the debtor. LAW, MORALS, GOOD CUSTOM, PUBLIC ORDER
NOTE: 1 and 2 are the so-called Personal or PUBLIC POLICY.
Elements (either INDIVIDUAL PERSONS or
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3. unilateral acts ( such as own exclusive volition, escape his
crimes) obligations under the contract, unless
5.Form – not considered essential the other party consented thereto or is
- no particular form is authorized by competent authority.
required to make an - does not mean that the law is inferior
obligation except in to contracts because before a contract
rare instances. will be enforced, it must first be valid,
Example: Statute and it cannot be valid if it is against
of Frauds the law. Moreover, note the
NOTE: the obligation defined under Article 1156 is the so- “Principle of Autonomy of Will”.
called CIVIL OBLIGATION:
CONTRACT – Article 1305
There are other kinds of obligations such as: - A contract is a meeting of the
1. Civil obligation – Article 1156 minds between two persons whereby one binds
2. Natural obligation – himself, with respect to the other, to give something
3. Moral obligation – or to render some service.
Q. Is it possible to convert moral obligation into civil
obligation? - a.k.a. PRINCIPLE OF AUTONOMY OF WILL/
Civil obligation vs. Natural obligation FREEDOM TO STIPULATE.
1. an obligation which give a 1. these cannot be enforced - freedom of the parties stipulate the
RIGHT OF ACTION to by court action but which are terms and conditions of a contract but
compel their performance. binding to the parties who this should not be contrary to LAW,
makes them – in MORALS, GOOD CUSTOMS,
CONSCIENCE AND PUBLIC ORDER, and PUBLIC
ACCORDING TO NATURAL POLICY.
JUSTICE AND EQUITY - If NOT any one of the foregoing was
2. derive their binding force 2. derive their binding force violated – the contact can be given
from law from natural law and equity effect NOTWITHSANDING the
3.can be enforced by a court 3. cannot be enforced by a ABSENCE OF ANY LEGAL
action or by a coercive power court action – depends on the PROVISION AT THE TIME IT WAS
from public authority GOOD CONSCIENCE of the ENTERED INTO.
debtor. Article 1160
- see codal ( QUASI-CONTRACT AS
Art. 1157 A SOURCE OF AN OBLIGATION)
Obligations arise from: QUASI-CONTRACT – is a juridical relation which
arises from a lawful, voluntary and unilateral acts, to the end
1. LAW; that no one may be unjustly enriched or benefited at the
2. CONTRACTS; expense of another.
3. QUASI-CONTRACTS; Kinds of Quasi-contract:
4. ACTS OR OMISSIONS PUNISHED BY LAW; 1. Negotiorum Gestio – (unauthorized
and management)
5. QUASI-DELICTS. 2. Solutio Indebitii – (undue payment)
3. Other forms of Quasi-Contract
(According to Roman Law – Q. Is a Quasi-Contract an Implied Contract?
1. ex lege - law No, because in quasi-contract (unlike in a n implied
2. ex contractu - contract contract) there is NO meeting of the minds.
3. ex quasi-contractu – quasi-contract Article 1161
4. ex maleficio/ delicto - crime - see codal ( CRIME AS A SOURCE
5. ex quasi-maleficio/delicto (torts) – quasi- delict OF AN OBLIGATION)
Art. 1158 - Based on Article 100 of the Revised
- see codal (LAW AS A SOURCE OF AN Penal Code. “Every person criminally
OBLIGATION) liable for a felony is also civilly liable
- there must be an express or implied for the same.”
provision of law which created the Civil liability as a consequence of crime includes:
obligation. 1. Restitution – the thing itself must be
- does not totally exclude human acts. restored subject to certain exceptions.
The law as a source of an obligation 2. Reparation of the damage caused.
still depends upon the acts of the - the value of the damage and the
parties. sentimental value of the thing shall be
e.g. duty to pay taxes considered.
indebitatus assumpsit – right of a person 3. Indemnification for consequential
who loss in gambling to collect back his losses. damages.
De Guzman v. Northern Theatrical - includes not only damages suffered by
Enterprises; the injured party but also that of his
(50 O.G. 4225, September 1954) family or by a third person by reason
- there is no law requiring the owner of a crime.
Northern Theatrical Enterprises to answer for the civil aspect of
the criminal case filed against the security guard of the NTE Article 1162 – see codal (QUASI-DELICT AS A SOURCE OF
who has killed a gatecrasher. AN OBLIGATION)
Art. 1157 QUASI-DELICT- Article 2176
- see codal (CONTRACTS AS A
SOURCE OF AN OBLIGATION) “Whoever by acts or omission causes damage to
- it means that neither party in the another, there being fault or negligence, is obliged to pay for
contract may unilaterally and upon his the damage done. Such fault or negligence, if there is no pre-
 4
existing contractual relation between the parties, is called Ronquillo v. Singson
quasi-delict.” A man ordered a ten-year-old boy to climb a santol
- the basis of liability in quasi-delict is tree.
the PRINCIPLE OF EQUITY. Article 1164 – see codal
Negligence – it is the failure to observe for the - First sentence – it is merely a personal
protection of the interest of another person, that right.
degree of care, precaution and vigilance which the - Second sentence – it is a real right.
circumstances justly demand, whereby such other Real Right vs Personal Right
person suffers injury.” Real right – it is demandable against the whole world.
Circumstance: Personal Right – it is demandable only to a specific person so
1. Time that the latter will comply with his obligation.
2. Place and E.g. A obliged to deliver a particular parcel of land – December
3. Person 3, 2001. Effected delivery only on March 31, 2002 –
KINDS OF NEGLIGENCE: December 3, 2001 to March 31, 2002 – right is personal
1. Culpa-aquilana or quasi delict March 31, 2002 – right is real
- this is negligence as a source of an It is said that personal rights will be acquired at the time of
obligation. delivery.
(Article 2176 –2194)
2. Culpa-contractual Do you know the basis of this?
- this is the negligence in the Based on the maxim “As a consequence of certain
performance of an obligation. contracts, it is not agreement but tradition or delivery that
(Article 1179) transfers ownership.”
Fraud/Dolo vs. Negligence/Culpa
1. Fraud – wilful or deliberate 2. Negligence – want of care
or diligence KINDS OF DELIVERY:

REQUISITES FOR QUASI-DELICT: 1.Actual delivery – physically property changes hands

1. Act or omission – fault or negligence 2. Constructive delivery:
2. Damage caused a. Traditio symbolica
3. Causal connection between the act or omission and b. Traditio longa manu –
the damage caused delivery by mere consent
4. No contractual relation between the parties by pointing the object
c. Traditio brevi manu –
NATURE AND EFFECT OF OBLIGATIONS shorthand – possessor
Chapter 2 becomes the owner
ACCESSORY OBLIGATIONS IN THE DELIVERY OF A d. Traditio Constitutum
DETERMINATE THING possessorium – opposite
1. the obligation to preserve the thing – Article 1163 of brevi manu
2. the obligation to deliver the fruits – Article 1164 e. Tradition by the execution
3. the obligation to deliver the accessions and the of some legal forms and
accessories – Article 1166 solemnities.

Article 1163 – see codal Article 1165 Rights of the Creditor

- applies only to real obligation - to give specific or
determinate thing.
- the debtor has the obligation NOT
only to deliver but it carries with it also
the obligation to preserve it or to
preserve the thing delivered.
Diligence of a good father of a family “bunos
paterfamilias” – Article 1173
- it is the diligence that is being
observed by an ordinary person or
also known as average diligence.
Liability in case of breach or observe the said diligence?
- held liable for damages EXCEPT
when the failure to observe the
diligence required is due to a
FORTUITOUS EVENT or FORCE
MAJURE (Causes which are beyond
the control of man).
Obejera, et al. v. Iga Sy 76 Phil. 580
Japanese Occupation: A and B sought refuge in the
house of Villena. When Japanese neared A and B hid their
valuables in Villena’s dugout. Later the valuables were lost. A
claimed that he had given his things to B for safeguarding.
Held: 1st hard to believe that B consented to safeguard the
valuables at a time when no one could be sure of his own life.
2nd assuming that he consented to the same – his
liability was already extinguished taking into consideration the
circumstances of time and place. Amounted to fortuitous event.
1. Thing to be delivered is determinate – damages
and specific performance
2. Thing to be delivered is indeterminate or generic –
ask that the obligation be complied with at the expense of the
debtor.
- Obligor delays
- Promised to deliver the same thing
to two or more person with different
interest – LIABLE IF THE THING IS
LOST EVEN BY FORTUITOUS
EVENT until the thing is delivered.
Delay v. Default
Delay – non-fulfilment of an obligation within a specific time.
Default – delay which amounts to virtual non-fulfilment of an
obligation.
Article 1166 – delivery of a DETERMINATE THING –
includes the delivery of its accessions and accessories.
BASIS? Accessio cedit principali (Accessory follows the
principal)
ACCESSORIES –those joined or included in the principal thing
for better use, perfection or enjoyment.

Example: machines in a factory, keys with respect to
a house, stereo of a car.
ACCESSIONS – includes anything which is produced by a
thing, or which is produced or incorporated
thereto. (embellishment).
Example: The house on a lot. (The house is an
industrial accession of the house)
Island form in a navigable river –
accession natural of the riverbank
Alluvium (gradual deposit of land
accumulated at the river bank due to the
natural flow of the water) – considered as
accession natural of the riverbank.
Article 1167 – If a person obliged to do something fails to do it
the same shall be executed at his cost. (TO DO)
NOTES: - This Article pertains to obligation PERSONAL
OBLIGATION (TO DO)
REMEDIES OF CREDITOR IN POSITIVE PERSONAL
OBLIGATION:
1. To do the thing in a proper manner
a. by himself and ask for damages; or
b. by a third person and ask for damages – can be
availed of only if the obligation is not purely personal.
E.g. of purely personal:
Singing – if there is breach of
obligation to sing the proper
remedy is only to ask for
DAMAGES.
E.g for remedy 1.
In case of an obligation to construct a
house for P1M, but the contractor failed to do it, the creditor
can ask a third person to construct the house even at a higher
house, say P1.5M and recover the difference or the damage
suffered by him from the debtor-contractor.
2. If the obligation was done in contravention of the tenor of
the obligation or is poorly done – the remedy is to ask the
debtor to undo it at his own expense.
Eg for remedy 2.
The contractor of a house failed to place window
grills – contrary to the agreement or constructed a building with
a weak foundation – remedy is to undo it at his (creditor) own
expense.
Instances when a thing may be ordered undone.
a. Article 1167 (par. 2) – when a thing was poorly
done
b. Article 1168 – If the obligation is a negative
personal obligation provided that undoing is possible.
Article 1168.
It pertains to NEGATIVE PERSONAL
OBLIGATIONS.
Remedy if the obligor does what is forbidden
him?
- Undoing of the obligation plus
damages.
Exceptions:
1. Although it is possible to undo what
was done, results contrary to the
object of the obligation have been
definitely produced.
Note: Remember our example
about the rice terraces.
2. In cases where it is already
impossible; either actual or legal to
undo the obligation.
Article 1169.
Default – delay which amounts to virtual non-
fulfilment of the obligation.
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Delay – non-fulfilment of the obligation within a
specific time.
General Rule:
The obligor is in default from the time the obligee
JUDICIALLY OR EXTRA-JUDICIALLY DEMANDS the
fulfilment of the obligation.
Exceptions:
1. When the law expressly provides – payment of
taxes.
2. When the obligation expressly declares – I
promise to pay my obligation on December 14,
2001, without the need of demand.
3. When time is of the essence of the contract. – to
deliver a gown to be used in a wedding.
4. When demand would be useless – when the
debtor destroyed, hides, or disposed off the
thing to be delivered.
5. In reciprocal obligation, when one party fulfils or
is ready to fulfil in a proper manner with his
contractual duty, delay by the other party
begins. – only when the performance of the
obligation is set on the same date.
E.g. contract of sale when the performance
is set on the same date – when the seller
will deliver the thing sold the buyer party
must pay the value (simultaneous
performance of the obligation)
If the performance were set on
different dates – demand is required to
place the other party in default.
6. When the debtor expressly recognizes or
acknowledges that he has incurred in delay.
NOTE: Mere request for extension of time to
pay the obligation – not an express
acknowledgment of the default, hence, demand
is required to put the obligor in default.
Kinds of Default (Mora)
1. Mora solvendi – default on the part of the debtor
a. Mora solvendi ex re – default of debtor in
real obligation.
b. Mora solvendi ex persona – default on the
part of the debtor in positive personal
obligation.
NOTE: No mora in negative personal
obligation and in natural obligation.
2. Mora accipiendi – default on the part of the creditor –
only when he unjustifiably refuses to accept the
performance of the obligation or delivery of the thing.
3. Compensatio Morae – both the creditors and debtor
are in default.
Effect if both are in default? It is as if
there is no default.
Article 1170.
Grounds for liability: (Basis for claim of
damages)
1. Fraud (deceit or dolo) Article 1171–
deliberate or intentional evasion of the
normal fulfilment of the obligation.
2. Negligence (culpa) Article 1172 –
voluntary act or omission there being
no malice, which effectively prevents
the normal fulfilment of the obligation.
3. Delay (mora) – Article 1169 –
4. Contravention of the tenor of the
obligation – violation of the terms and
conditions of the obligation.
E.g. Contract of carriage – the
passenger was not able to reach
his destination safely – can claim
for damages.

Article 1171.
Fraud (deceit or dolo) – deliberate or intentional
evasion of the normal fulfilment of the obligation.
- demandable in all kinds of obligation – means that it
can be claimed in obligation arising from law, contract, quasi-
contract, crime, and quasi-delict.
Kinds of Dolo:
I. As to Time
a. Future fraud – cannot be waived being
contrary to law and public policy.
b. Past fraud – can be waived – an act of
forgiveness.
II. As to meaning
a. Dolo incidente (incidental fraud) –
fraud in the fulfilment of the obligation.
Article 1171 should be understood in this
concept.
b. Dolo causante (causal fraud) – fraud in
obtaining consent – effect? It will make the
contract voidable.
Article 1172.
Negligence (culpa) – voluntary act or omission there
being no malice, which effectively prevents the normal
fulfilment of the obligation.
- demandable in all kinds of obligation – means that it
can be claimed in obligation arising from law, contract, quasi-
contract, crime, and quasi-delict.
- future negligence can be waived except gross
negligence, or when the negligence amounts to bad faith –
being contrary to public policy.
DOLO (DOLO) CULPA (NEGLIGENCE)
1. deliberate intention to 1. voluntary but no deliberate
cause damage intent to cause damage.
2. liability cannot be 2. liability can be mitigated.
mitigated or reduced by
court
3. waiver for future fraud is 3. waiver for future negligence
void can be waived
Kinds of Culpa:
1. Culpa-contractual – (contractual negligence) –
negligence in the performance of a pre-existing
obligation.
2. Culpa-acquilana – (torts or quasi-delict) –
negligence as a source of an obligation
NOTE: Both 1 and 2 are found in the Civil Code.
3. Culpa criminal – criminal negligence – or that which
results in the commission of a crime or delict.
Article 1173.
Kinds of Diligence under the Civil Code.
Under the Civil Code the following kinds of
diligence are required.
1. that agreed upon by the parties
2. in the absence of (a), that required by law
e.g. common carriers – extra-ordinary
diligence to transport passenger.
- passenger to
observe ordinary diligence.
3. in the absence of (b), that expected of a good
father of a family (bonus pater familias).
Article 1174.
Fortuitous Event – events which cannot be foreseen
or if foreseen are inevitable.
e.g. earthquake, lightning, war
NOTE: Tire blow-out, defective brakes – not
considered as fortuitous event.
General Rule:
No liability for fortuitous event.
Exceptions:
The debtor is liable for fortuitous event in the
following cases:
6
1. When expressly declared by law.
E.g. - when the thing to be delivered and was lost is a generic
thing (genus nonquam peruit)
- when the debtor is in default, when the debtor is in bad
faith.
2. When expressly stipulated in a contract that the debtor is
liable even in cases of caso fortuito.
3. When the nature of the obligation requires the assumption of
risk.
E.g. Contract of Insurance – the insurer assumes the
risk of loss
Essential Characteristics of a Fortuitous Event
1. the cause must be independent of the will of the
debtor – no participation for the loss.
2. impossibility of foreseeing or impossibility of avoiding
it, even if foreseen.
3. occurrence must be such as to render it impossible
for the debtor to fulfil his obligation in a normal
manner.
4. the obligor must be free from any participation in the
aggravation of the injury to the creditor.
E.g. Loss of stolen cellphone because of lightning – liable for
the loss.
Article 1175 – Usury Law – already considered as “legally
inexistent” by Central Bank Circular No. 905, December 12,
1982.
Legal rates of interest:
12% per annum – interest for use of money.
6% per annum – interest for unpaid damages.
Read: Medel v. Court of Appeals, 299 SCRA 481
Article 1176.
PRESUMPTIONS:
1. Receipt of the Principal shall give rise to the
presumption that the interest has been paid.
Reason? Under Article 1253, CC interest precedes
payment of the principal.
2. Receipt of later instalment shall give rise to the
presumption that the earlier instalments have
been paid.
E.g. If the creditor receives the 3rd
instalment it is presumed that the 1 st and
2nd instalments have been paid. (NOTE: it
must be specified that the receipt must be
for the payment of a particular instalment
due).
Article 1177.
Rights of Creditors:
1. Exact payment
2. Exhaust debtor’s properties generally by attachment
except properties those exempted by law. (E.g.
necessary clothing and articles for ordinary personal
use, jewellery not included; three horses or three cow
or three carabaos used by the obligor in his ordinary
occupation)
3. accion subrogatoria (subrogatory action) – exercise
all rights and actions except those inherent in the
person. (e.g. to hold office – if debtor is mayor, the
creditor cannot be the mayor because holding of
office is purely personal).
4. accion pauliana (impugn or rescind or revoke acts or
contracts done by the debtor to defraud the creditors)
e.g. debtor sold all his property to his son to evade
payment of his obligation to his creditor – the latter
can ask from the court to rescind the sale.
Article 1178.
Transmissibility of Rights
General Rule:
Rights are transmissible.
Exceptions:
 7
1. if the law provides otherwise
2. if the contract provides otherwise. Article 1180. Reason – to protect the interest of the creditor –
3. if the obligation is purely personal so it is regarded as a period/term or time

KINDS OF OBLIGATION Period – is a future and uncertain event upon the arrival of
which the obligation subject to it either arises or is
Pure and Conditional Obligation extinguished.
Article 1179.
1. Pure Obligation – one without a condition or a term Similar terms:
(hence, demandable at once) 1. When my means permit me to do so
e.g. 1. I promise to pay you P1, 000.00 2. When I can afford it
2. I promise to pay you P1, 000.00 on 3. When I am able to
demand. 4. When I have the money
3. When the original period or condition 5. As soon as possible
has been cancelled by the mutual
stipulation of both parties. In cases falling under this article the creditor should
file an action to fix a period for the payment or performance of
2. Conditional Obligation – one, which is subject to a the obligation. An action to enforce the obligation without the
condition. period being fixed is premature.

Condition – it is a future and uncertain Article 1181. Kinds of Condition as to Effect

event, which yields an influence on a legal
relationship.
Period – that which is necessarily must
come whether the parties know when it will
happen or not.
When is an obligation demandable at once?
1. Suspensive Condition – (a.k.a. “Condition
Precedent or Antecedent) – happening will give
rise to the obligation. If the condition does
happen there will be no obligation or it is as if
there is no conditional obligation.
2. Resolutory Condition – (a.k.a. Condition
subsequent) - extinguish the obligation.

1. When it is pure. Article 1182. Classification of Condition as to Cause or Origin.

2. When it has a resolutory condition. (I’ll give you
my car if you will not marry Maria this year) I’ll 1.
give you my car if you can prove that by the end
of this year, you have not married Maria.
Past Event Unknown to the Parties
Potestative or Facultative – depends upon the
sole will of a party.
Kinds of Potestative Condition:
1. Potestative on the part of the debtor

- must be with respect to future Note: Trillana v. Quezon College

knowledge of a past event. Inc. – I will pay my subscription when I
harvested my fishpond – both the
Classification of Conditions obligation and condition are void.
A. a. If suspensive – both the
1. Suspensive Condition – the happening of the condition and the
condition gives rise to the obligation. obligation are void.
2. Resolutory Condition – the happening of the e.g. I will give you a car
condition extinguishes the obligation. next month if I live.
B. b. If resolutory – valid
1. Potestative – depends upon the will of the debtor. e.g. I will employ you now
2. Casual – depends upon chance or hazard or the will but I will terminate you if
of a third person. the machine, which I will
3. Mixed – depend partly on the will of one of the parties order, will not arrive within
and partly on chance or the will of a third person. a month from today.
C. 2. Casual – depends upon chance or upon
1. Divisible – capable of partial performance the will of a third person.
2. Indivisible – not capable of partial performance e.g. “…if I win the lottery.”
because of the nature of the thing or of the intention 3. Mixed – depends partly upon the will of
of the parties. one of the parties and partly upon chance
or upon the will of a third person.
D. 1. Positive – an act is to be performed - partly potestative and partly casual.
2. Negative – something will be omitted e.g I will give you P1M if I am able to
sell my house.
E. 1. Express – condition is stated It is VALID because the condition
2. Implied – the condition is merely inferred. is MIXED.
- Potestative – whether
F. Possible – capable of fulfilment in nature and in law you will sell the house or not.
- Casual – whether or
Impossible – not capable of fulfilment due to nature or due to not there will be buyer
the operation of the law or morals or due to the operation of the of the house even if
law or morals or public policy; or due to a contradiction in its you are willing to sell.
terms Article 1183. Deals with the effects of Impossible or Illegal
conditions.
G. Conjunctive – if all the conditions must be performed 1. Physically Impossible – contrary to the law of
Alternative – if only few of the conditions have to be performed. nature or things.

e.g to make a square which is at the same
time a circle.
2. Legally Impossible (Illegal) – contrary to law,
morals, good customs, public order, or public policy.
3. Illogical conditions – there is logical impossibility of
conditions.
e.g to deliver my house when it is
destroyed.
EFFECTS:
1. If the condition is to do an impossible or
illegal thing, BOTH the condition and the
obligation are VOID (because the debtor knows
no fulfilment can be done and therefore is not
serious about being liable).
2. If the condition is NEGATIVE, that is not to do
the impossible or illegal just disregard the
condition BUT the obligation remains – valid.
3. If the condition is DIVISIBLE – the part, which is
NOT affected by the impossible or unlawful
condition, is VALID.
e.g. I will give you P10K if you can show to
me the whereabouts PGMA and I will also
give you P20k if you will kill her.
- 1st is valid because it was not
affected by the unlawful
condition-to kill her.
Article 1184. Positive Suspensive Condition – the event will
happen at a determinate time.
- the happening of the event within the
period specified will give rise to the
obligation.
However, this type of obligation is
extinguished:
1. as soon as the time expires without
the event taking place.
2. as soon as it become indubitable
(certain or unquestionable) that the
event will not take place.
If no period was stipulated within which the obligation
is to be performed – the court should fix the period
taking into consideration the intentions of the parties.]
Article 1185. Negative Condition - which the obligation will not
happen within a specific time.
The obligation shall become effective:
1. from the moment the time indicated
has elapsed without the event-taking
place.
2. from the moment it has become
evident that the event cannot occur,
although the time indicated has not
yet elapsed.
Article 1186. The condition shall be deemed fulfilled when the
obligor voluntarily prevents its fulfilment. – Deals with
CONSTRUCTIVE or PRESUMED fulfilment of a condition.
Reason: One must not profit by his own fault.
Ways by which a condition can be fulfilled.
1. Actual fulfilment
2. Presumed or constructive fulfilment – Article 1186.
Requisites:
1. It refers only to suspensive conditions.
2. The obligor actually prevents and
3. The obligor voluntarily prevented it – the intent
to prevent must be present.
NOTE: If the intention to prevent is wanting – Article
1186 cannot be applied.
8
Article 1187. Effects of Fulfilment of Suspensive Condition.
The obligation becomes effective.
From what day?
1. RETROACTS – (as a
general rule) to the day the
obligation was constituted.
2. NO RETROACTIVITY with
reference only to:
a. fruits or interest –
refers to natural,
industrial and civil
fruits.
b. Period of
prescription.
Reason? Because the Suspensive Condition is
merely an ACCIDENTAL ELEMENT- not an
ESSENTIAL ELEMENT.
NOTE: The rule on retroactive effect can
apply only to CONSENSUAL contracts –
contracts, which are perfected by mere
consent, e.g. contract of sale, donation,
and NOT to REAL contracts which are
perfected only upon delivery.
Article 1188.
First paragraph – Action to preserve the creditors
right – if the creditor is not allowed to take the appropriate
action there is a danger that he will receive nothing.
e.g. sue in court
ask for security
Second Paragraph – Right of the debtor to recover
whatever has been delivered by mistake – a case of solutio
indebitii.
Q? if payment was not by “mistake” (that is, it was
done deliberately), can there be recovery?
Ans. It depends.
1. If the condition is fulfilled – no
recovery because of the Rule on
Retroactivity. (Article 1187).
2. If the condition is not fulfilled – there
should be a recovery (for this will be a
case of unjust enrichment) unless a
pure donation was intended.
Article 1189.
Rules in case of LOSS, DETERIORATION,
IMPROVEMENT.
NOTE: It shall be applied only if:
1. if the suspensive condition is fulfilled and
2. if the object is not specific (not generic).
LOSS – defined
1. when it perishes – PHYSICAL LOSS - a house
is burnet into ashes.
2. when it goes out of commerce. The thing still
exists but in the eyes of the law it is deemed
lost. – LEGAL LOSS - when the object
subsequently becomes prohibited.
3. when it disappears in such a way that its
existence is unknown or even if its existence is
known it can no longer be recovered – CIVIL
LOSS.
Rule:
a. If the thing is lost without the fault of
the debtor – the obligation is
extinguished.

b. If the thing is lost through the fault of
the debtor – the debtor shall be liable
for damages.
DETERIORATION – any reduction or impairment in the
substance or value of a thing, which does not amount to a loss.
The thing is still physically existing but no longer intact.
Rule:
a. If the thing deteriorated without the
fault of the debtor – the impairment
shall be borne by the creditor.
b. If the thing deteriorated through the
fault of the debtor – the creditor may
choose between:
i. Rescission plus damages or
ii. Specific performance plus
damages.
IMPROVEMENT – any addition or incorporation or attachment
to the thing to be delivered.
Rule:
a. If the improvement is caused by the Nature
of the thing or by time – the improvement
shall inure to the benefit of the creditor.
b. If the improvement is at the expense of the
debtor – the debtor shall only have the right
of a usufructuary.
i. To remove the
improvement if it will not
cause substantial damage
upon the principal thing.
ii. To seek reimbursement
for necessary expenses.
iii. To set-off the value of the
improvement with the
value of the damage he
caused upon the thing.
Article 1190. Effects when the Resolutory Condition is fulfilled.
1. The obligation is extinguished.
2. The parties shall restore to each other what they
have received – to return the parties into a status quo
because the happening of the resolutory condition it
is as if no obligation was created.
3. The fruits or interest should also be returned after
deducting the expenses for their production,
gathering and preservation. (Art.443.NCC)
Others claim that the fruits and interest are
deemed mutually compensated applying
Article 1187.
4. Article 1189 is applicable to the one who have the
duty to return in cases of loss, deterioration and
improvement.
5. The courts are given power to determine the
retroactivity of the fulfilment of resolutory condition.
E.g, A dealer of cement bound to consign 10,000 bags of
cement to the owner of a store so that he can sell it but it shall
be returned if its not sold after a year.
1. There is already the obligation.
2. After a year the dealer has the duty to return
3. If in his possession it deteriorated without his fault the
creditor bears the deterioration. Article 1189.
Article 1191. Right to rescind is implied in reciprocal ones.
Rescission – means cancellation of a contract or reciprocal
obligation in case of non-fulfillment on the part of one – but the
parties are required to return to each other whatever they have
received.
9
Reciprocal obligation – the parties are mutual creditors and
debtors to each other and that the cause must be IDENTICAL
and the obligation should arise simultaneously
E.g. Contract of sale – buyer can rescind if seller does not
deliver.
- seller can rescind if buyer does not deliver.
Contract of Loan – bank not able to extend the full
amount of the loan because it subsequently became
insolvent – rescission is available remedy with regard
to the remaining amount.
Contract of loan –
Contract of deposit - NO IDENTITY
The power to rescind is “implied” – means that it
should not be expressly stipulated in the
contract – if it was expressly stipulated in the
contract – it is the provision in the contract that
will be binding and not Article 1191.
The right to rescind is applicable only in cases
of RECIPROCAL OBLIGATIONS, it can be
demanded only if the one demanding is READY,
WILLING, and ABLE to comply with his
obligation, and the other cannot
RIGHT TO RESCIND IS NOT APPLICABLE IN CASES OF:
1. Trivial or slight breaches – was not able to pay the
lease because of pressure in the work
2. If the object of the obligation is already in possession
of an innocent purchaser for value – double sale
3. If there is a just cause for fixing the period within
which the debtor can comply, the court will not
decree the rescission. – sale by installments
- increase the price by the seller – serious
breach amounts to rescission.
- The right to rescind needs judicial approval
in certain cases, and in others, does not
need such approval.
a. Judicial approval is needed
when there has already been
delivery of the object
b. Judicial approval is NOT
needed when there has been
no delivery yet and when the
right to rescind was expressly
stipulated or agreed upon by
the parties in the contract –
REASON: the express
agreement of the parties is the
law between them.
REMEDY: is in the hands of the Injured Party.
1. fulfillment (specific performance) plus damages.
2. Rescission plus damages
The right is alternative and not conjunctive hence cannot ask
for both. But can claim rescission after he has chosen
fulfillment if specific performance is not possible.
Article 1192 – both parties committed breach – liability of the
first infractor shall be equitably tempered by the courts.
If the first infractor cannot be determined the contract shall be
deemed extinguished and each shall bear his own damage.
OBLIGATION WITH A PERIOD
 10
Article 1193 Period – future and certain event upon the arrival - If payment is not by mistake – he cannot
of the obligation or right subject to it either arises or is recover anything because it is presumed
terminated. that the debtor impliedly renounced the
period.
Day certain – is understood to be that which must necessarily - If it depends upon the will of the debtor –
come, although it may not be known when payment by him amounts to his
determination of the arrival of the period.
Distinction:
Period Condition Article 1196. Period – is deemed to have been established for
1. As to fulfilment Uncertain the benefit of BOTH CREDITOR and DEBTOR.
is certain
2. Reference to time May even refer to the past Exception:
always future 1. For the benefit of the debtor.
3. Influence on the obligation - determines whether the - If without interest, to be required to pay
fixes the time of the obligation may arise or not only at the end of the period.
efficaciousness of the - If with interest, can pay at any time even
obligation before the arrival of the period.
2. For the benefit of the creditor.
- if without interest, can demand at any time
Kinds: - if with interest, he cannot be compelled to
accept payment from the debtor prior to the
1. Suspensive Period – (Ex Die) “from a day certain” the stipulated period.
demandability of the obligation is suspended until the
arrival of the period - this Article is applicable only in cases
2. Resolutory Period _ (in diem) “up to the day certain” where the parties themselves established
the obligation is demandable on the date of the the period. – Voluntary/Contractual period.
obligation and shall continue until the arrival of the NOT when the parties have called upon the
period. Day certain arrives – terminated court to fix the period or in cases of judicial
period.
Other classifications:
1. Legal period – fixed by law - Computation of the period – remember our introduction
2. Voluntary/Contractual/Conventional – mutually before. – Exclude the first include the last.
agreed upon or stipulated by the parties Article 1197.
3. Judicial – fixed by the courts Deals with the authority of the court to fix a period or
4. Definite – definite and fixed date of time JUDICIAL period.
5. Indefinite – day certain uncertainty is WHEN will it
happen NOT on whether it will happen or not General Rule:
The Court has no authority to fix the period.
Article 1194 – In cases of loss, deterioration and improvement
apply Art. 1189. Exceptions:
1. When the duration depends upon the will of the
Article 1195 – Anything paid or delivered before the arrival of debtor.
the period, the obligor being un aware of the period or believing 2. When although the obligation does not fix a
that the obligation has become due and demandable, may be period, it can be inferred that a period was
recovered with the fruits and interest. intended.

- Deals with premature payments: – applies only in cases where:

1. the obligor being 1. the obligation does NOT fix a period;
unaware of the period 2. but from the nature and circumstances
or of the obligation it can be inferred that
- presumption a period was intended.
however is e.g. Donation where a land was given provided
that the certain construction were to be made on it. Here the
debtor is time within which construction is to be made should
aware of the be fixed by the courts.
period. The
onus - The period once fixed by the Court, the period can no longer
probandi is be changed by the parties – it shall be deemed a part of the
on the side of contract.
the debtor.
BUT the parties by mutual agreement can change
2. believing the obligation the period or even disregard the period fixed by the court in
has become due and which case it will become a PURE obligation, which is already
demandable demandable at once.

see – Article 1189 par 2 similar because it allows recovery of NOTE: - The court is not creating a contract for the parties it is
whatever paid by mistake. merely fixing the contract for the parties.

- Before the maturity can recover whatever Article 1198. The debtor loses the benefit to make use of the
was delivered and the fruits and interest period – “ the term is extinguished and the obligation is
- after the date of maturity he can recover demandable at once.”
the fruits and interest only – the action to
recover the interest prescribed within 5
years after premature payment

1. When AFTER the obligation has been contracted –
obligor becomes insolvent UNLESS gives
SECURITY or GUARANTY.
- judicial declaration of insolvency is not
required. Serious financial distress is
already sufficient.
2. When he does not furnish the SECURITY or
GUARANTY he has promised – relate it to number 1.
3. When the SECURITY or GUARANTY he has given:
- was IMPAIRED by his own ACTS; or
- has DISAPPEARED through a fortuitous
event
UNLESS by his own acts he gives a NEW one which
is EQUALLY SATISFACTORY.
NOTE: if the security was IMPAIRED through a
fortuitous event – he can still make use of the period.
4. When the debtor violates any of the undertaking, in
consideration of which the creditor agreed to the
period;
5. When the debtor attempts to abscond.
Abscond – to depart suddenly and secretly
with the intention to avoid payment of his
obligation.
ALTERNATIVE OBLIGATIONS
Article 1199. Alternative Obligation – an obligation where out of
two or more prestations which may be given, only one is due.
The delivery of one shall extinguish the obligation.
The CREDITOR cannot be allowed to receive a part
of one and the part of another prestation.
Kinds of Obligation Accdg. To Object:
1. Simple Obligation – one where there is only one
prestation.
2. Compound Obligation – one where there are two or
more prestations.
a. Conjunctive Prestations – one where there
are several prestations and all of them are
due.
b. Distributive Obligation
i. Alternative Obligation – one
where several prestations are
due but the performance of on is
sufficient.
ii. Facultative Obligation – one
where only one prestation is due
but the debtor may substitute
another.
Article 2000. Right of choice
General Rule: It belongs to the debtor.
Exception: When the right of choice was expressly granted or
given to the creditor.
LIMITATIONS of the DEBTOR’s RIGHT OF CHOICE:
The debtor cannot choose those prestations which
are:
1. Impossible;
2. Unlawful; or
3. which could not have been the object of the
obligation.
Article 2001. CHOICE shall produce effect only at the time it
has been communicated.
11
- the choice can be communicated either –
ORALLY, in WRITING, EXPRESSLY or
IMPLIEDLY
EFFECT OF NOTICE?
- After the choice was communicated – the
obligation cease to be ALTERNATIVE and
it now becomes a SIMPLE OBLIGATION to
do or deliver the object selected.
Article 2002. The DEBTOR’s RIGHT to CHOOSE is lost when
AMONG THE PRESTATIONS whereby he is alternatively
bound – ONLY ONE IS PRACTICABLE.
Article 2003. When the DEBTOR cannot exercise his RIGHT
TO CHOOSE because of the CREDITOR’s ACT – the debtor
MAY rescind the contract with damages.
E.g. The debtor bound himself to deliver A, B and C.
However, through the conduct of the creditor, A and B was
destroyed. In this case the debtor may:
1. deliver C; or
2. rescind the contract plus damages.
- NOTE: The right to rescind is not automatic
– it is merely permissive (MAY) not
mandatory.
Article 2004. When ALL the things which are the OBJECT of
the ALTERNATIVE OBLIGATION
A. is LOST through the fault of the DEBTOR, or
B. when the COMPLIANCE of the OBLIGATION has
become IMPOSSIBLE through the fault of the debtor.
- the CREDITOR shall have a RIGHT TO
INDEMNITY FOR DAMAGES.
- The basis of the indemnity is the VALUE of the
thing which last disappeared or that of the service
which last become impossible
- Damages other than the value of the last
thing or service may also be awarded.
NOTE:
This Article is applicable only when:
1. the right to choose belonged to the
debtor and
2. the loss or impossibility happened
before section was made.
Article 2005. Rules in cases where the RIGHT OF CHOICE
belongs to the CREDITOR.
- The obligation ceases to be alternative
from the day when the selection has been
communicated to the debtor.
The liability of the DEBTOR is governed by the following rules:
1. If ONE of the things is LOST through a FORTUITOUS
EVENT – the debtor shall perform his obligation BY:
(a) delivering that which the creditor should choose
from among the remainder, or
(b) to deliver that which remains if only one subsists.
2. If ONE of the things is LOST through the FAULT OF THE
DEBTOR -
(a) the CREDITOR may claim any of those existing,
or
(b) the PRICE of the thing lost – the fault of the
debtor plus damages.
3. If ALL the things are lost through the FAULT OF THE
DEBTOR -
 12
- the creditor’s choice shall fall upon the Exceptions:
PRICE of any of the thing lost plus There is solidary obligation only when:
damages. 1. the obligation so states;
e.g. in solidum, jointly
-SAME rule shall be applied in cases of PERSONAL and severally;
OBLIGATIONS. individually and
collectively.
Article 1206. FACULTATIVE OBLIGATION – it is one where 2. when the law requires
only one prestation has been agreed upon the obligor may solidarity
render another in substitution. e.g. liability arising from
torts; liability arising
NOTE: - The lost or deterioration of the thing intended as a from quasi-delicts.
substitute through the negligence of the obligor does NOT 3. when the nature of the
render the DEBTOR liable. obligation requires
solidarity.
- After the substitution was made the obligor is liable e.g. co-ownership
for the loss of the substitute on account of his delay, Note: The obligation maybe solidary on the part of the debtors
negligence or fraud. ( Refer to Article 1170) and joint on the part of the creditors or vice-versa.

- If the substitute is impossible or unlawful the obligation is still Kinds of Solidarity:

valid if the principal is a valid obligation. 1. As to Parties:
a. Passive Solidarity – solidarity on the part of the
E.g “A” promised to deliver to “B” a car or an opium as a debtors.
substitute? b. Active Solidarity – solidarity o n the part of the
Q. Is the obligation a valid facultative obligation? creditors.
A. Yes. It is facultative obligation. The illegality of the c. Mixed Solidarity – solidarity on the part of both
substitute does not affect the validity of the obligation as long debtors and creditors.
as the principal prestation is a valid prestation. In Facultative 2. As to Origin of solidarity:
Obligation it is only the car that is due. The substitute, to wit, - a. Legal – when imposed or declared by law.
the opium, will be due only if the debtor will chose it as a b. Conventional or contractual – when stipulated
substitute. Hence, for as long as substitution is not yet effected, upon by the parties.
the obligation remains to be a valid facultative obligation. c. Natural or real – when derived from or as required
by the nature of the obligation.
ALTERNATIVE FACULTATIVE 3. According to toes that bind the parties: (Article 1211)
1. Various things are due, but 1. Only one thing is principally a. Uniform – when the parties are bound by the same
the giving of one is sufficient. due, and it is that one which terms and conditions;
generally is given, but the b. Varied – when the parties are not bound by the
other (the substitute) may be same terms and conditions.
given to render payment or
fulfilment. Article 1208 - Presumption? The obligation is JOINT – the
2. If one of the prestations is 2. If the principal obligation is obligation shall be divided into as many equal shares as there
illegal, the others may be void, and there is no are creditors or debtors, the credits or debts are considered as
valid and the obligation necessity of giving the distinct from one another.
remains. substitute.
3. If it is impossible to give all 3. If it is impossible to give the Article 1209 – JOINT INDIVISIBLE OBLIGATION
except one that last one must principal, the substitute does Indivisible – referred to the object.
still be given. not have to be given, if it is Joint – referred to the tie.
impossible to give the Note:
substitute the principal must a. The obligation is joint but since the object is indivisible the
still be given. creditor must proceed against ALL the joint debtors because
4. The right to choose may be 4. The right of choice is given compliance is possible only if all will act together.
given either to the debtor or only to the debtor. b. demand must be made to all the joint debtors.
creditor. c. If any of the joint debtors is insolvent the other joint debtors
shall not be liable for his own share.
JOINT AND SOLIDARY OBLIGATIONS
Articles 1207-1222 Article 1210. – The indivisibility of the obligation does not
necessarily gives rise to solidarity. Nor does solidarity of itself
Joint Obligation – “each obligor answers only for a part of the imply indivisibility.
whole liability and for each obligee belongs only a part of the
correlative rights. Indivisibility – refers to the subject matter.
- “To each his own.” Solidarity – refers to the tie between the parties.

Solidary obligation or Joint and solidary obligation – the
relationship between the active and passive subject is so close
that each of the latter or each of the former may demand
fulfilment of or must comply with the whole obligation.
- “One for all, all for one.”
General Rule and Exceptions:
When there are two or more debtors or two or
more creditors, the obligation is:
General Rule: JOINT
Article 1211 – Solidarity may exist although the creditors and
the debtors are not bound in the same manner and by the
same periods and conditions.
Article 1212 – Solidary creditors may do useful, not prejudicial
acts.
Article 1213 – A solidary creditor cannot assign his rights
without the consent of the others.
Gen. Rule: Cannot assign his rights.

REASON: Solidary obligation implies mutual agency
and mutual confidence.
Exception: If ALL the others consent.
Article 1214.
To whom debtor must pay.
a. To any of the solidary creditors.
b. Exception – Payment must be made to the solidary
creditor who made a demand (judicial or
extrajudicial).
Article 1215.
Effects of NOVATION, COMPENSATION,
CONFUSION OR REMISSION made by any SOLIDARY
creditors or with any of the SOLIDARY debtors.
- the obligation is extinguished without
prejudice to the provision of Article 1219.
1. Novation.
Novation – is a modification of the obligation by:
a. changing their object or
principal condition; or
b. by substituting the person of
the debtor; or
c. by subrogating a third person
in the rights of the creditor.
2. Compensation – is that which take place when two persons
in their own right, are creditors and debtors of each other.
Kinds:
1. Total Compensation – automatically
extinguishes the obligation whether known or
unknown to the parties.
2. Partial Compensation –
3. Confusion (or Merger) – is that which takes place when the
characters of creditor and debtor are merged in the same
person.
4, Remission or Waiver - is an act of liberality whereby the
creditor condones the obligation of the debtor.
Note: In Article 1219 – where the remission took
place after one of the solidary debtors paid the entire obligation
the remission will not exonerate the person (debtor) whose
liability was remitted from reimbursing the person who paid the
entire obligation.
Article 1216. CREDITOR may proceed against ANY, SOME of
the solidary debtors or ALL of them simultaneously.
Demand against one of the solidary debtors shall not
be deemed as waiver to proceed against the other debtors.
Note: This provision is applicable only in cases of PASSIVE
SOLIDARITY or in cases of MIXED SOLIDARITY.
Article 1217.
Payment – is one of the ways by which the obligation is
extinguished and consists in the delivery of the thing or the
rendition of the service which is the object of the obligation.
Effect of Payment by a solidary debtor
A. Between the solidary debtor and creditor(s)
- Payment made by any of the solidary
debtors – EXTINGUISH the obligation.
- If there are two or more solidary debtor who offered to pay the
obligation the creditor may choose whom to accept.
B. Between or among the solidary debtors
- After payment the debtor who paid the
entire obligation can ask reimbursement from his co-debtors
ONLY THE SHARE WHICH CORRESPONDS TO EACH. In
13
other words the obligation among the debtors after the
payment is merely JOINT.
_ if payment was made before the obligation is due –
INTEREST for the intervening period cannot be collected.
Q. How about of one of the solidary debtor is insolvent, who will
pay his share?
- the share of the INSOLVENT solidary debtor shall
be borne by ALL his co-debtors in proportion to the debt of
each. (PRO-RATA)
Article 1218.
Other effect of payment made by a solidary debtor.
- The solidary debtor who paid the obligation
SHALL NOT BE ENTITLED TO THE
REIMBURSEMENT FROM HIS CO-
DEBTORS IF:
a. Payment was made after the
obligation PRESCRIBED or
b. The after the obligation
became illegal.
Note: In Natural Obligation – if you paid the obligation after
maturity date – the payor being aware of the fact that the
obligation prescribed already cannot recover the payment
made.
Article 1219
Effect of Partial Remission received by one of the
solidary debtors after total payment had already extinguished
the obligation.
- the remission of the share of the solidary
creditor does not release him from his
responsibility towards the co-debtors.
Article 1220. Effect of Remission of the Entire Obligation – the
remission does not entitle the solidary debtor who obtained the
remission to ask for reimbursement from his co-debtors.
Reason: Because remission is essentially gratuitous.
Article 1221.
Rules in case thing have been lost or prestation has
become impossible.
1. If was lost without fault and before delay – the
obligation is extinguished.
2. If was lost with fault – ALL shall be responsible to
the creditor for the PRICE, DAMAGE and
INTEREST.
Note: This is without prejudice to the right
of the other debtors to go against the erring
debtor.
3. If was lost because of a fortuitous event AFTER
default through a judicial or extra-judicial
demand - ALL shall be responsible to the creditor for
the PRICE, DAMAGE and INTEREST.
Note: This is without prejudice to the right
of the other debtors to go against the erring
debtor.
Article 1222.
Defenses available to SOLIDARY DEBTORS in
actions filed by the creditor.
1. Those derived from the nature of the
obligation – this is a complete defense.
e.g simulation of contract (contract is fictitious);
Statute of Frauds; extinguishments of the
obligation; illegal consideration
 14
2. Those personal to the debtor sued (it may be a SOLIDARITY INDIVISIBILITY
complete or partial defense). 1. refers to tie between the 1. refers to nature of
e.g. Vitiated consent- complete defense parties. obligation.
Incapacity to give consent – complete 2. need at least two debtors 2. may exist even if there is
defense] or creditors. only one debtor and only one
Non-fulfillment of condition – partial creditor.
Non-arrival of period – partial 3. the fault of one is the fault 3. the fault of one is not the
of the other. fault of the others.
3. Those personal to the others – same as (2) –
partial defense. Classes or Kinds of Indivisibility:

Problem1: 1. Conventional indivisibility – by common agreement

A and B owe Y and Z P2,000.00 in joint obligation. 2. Natural or absolute indivisibility – based on the
How many obligation exist in this case, who are the parties in nature of the object of undertaking.
each obligation and for how much? Why? 3. Legal indivisibility – if provided by law.

Ans: There are four (4) obligations. The parties and the amount
of each obligations are:
1. A as debtor of Y in the amount of P500.00.
2. A as debtor of Z in the amount of P500.00.
3. B as debtor of Y in the amount of P500.00.
4. B as debtor of Z in the amount of P500.00.
Problem2:
A, B and C executed a promissory note binding
themselves to pay P9,000.00 to X, Y and Z. The note is now
due and demandable.
Question1: Can the creditors proceed against A alone for
payment of the entire obligation? Why?
Kinds of Division.
1. Quantitative Division - based on quantity – e.g. 10
chairs are equally divided between two brothers.
2. Qualitative Division – depends on quality
irrespective of the quality – e.g. if one child inherits
land, and another inherits cash.
3. Intellectual or Moral Division – one that exists
merely in the mind, and not in physical reality – e.g.
my brother and I own a car in common. My one-half
share is only in the mind.
Article 1224
Joint Indivisible Obligation – here the object is
indivisible and yet the parties are bound jointly merely.

Answer: No. They cannot proceed against A alone for the
payment of the entire obligation because the promissory note is
silent on the right of the creditors and on the liability of the
debtors it is therefore presumed that the obligation is joint.
Consequently, the rights of the creditors if they would proceed
against A alone is only to collect the amount of P3,000.00, his
proportionate share in the obligation.
Question2: Suppose that X proceeds against A alone for
payment, how much can he collect? Why?
Answer: If X proceeds against A alone for payment, the most
that he will be able to collect will be only P1,000.00.
Why?
Because A has a total obligation of P3,000.00 to X,
Y, and Z, or P1,000.00 for each creditor. Remember that in
joint obligation, the entire obligation is divided into as many
equal shares, as there are creditors or debtors.
Question3: Suppose that C is insolvent, can A and B be held
liable for his share in the obligation? Why?
Answer: If C is insolvent, his co-debtors cannot be held liable
for his share in the obligation. A and B will still be liable for
P3,000.00 each.
Note: If the obligation in the problem would have been a
solidary obligation, then A and B would have been pro-rata
liable to obligation of the insolvent co-debtor. Or A and B will be
liable for P4,500.00 each (the P3,000.00 plus P1,500.00, the
amount corresponding to the share of the insolvent debtor).
DIVISIBLE AND INDIVISIBLE OBLIGATION
Article 1223
Divisible Obligation – one capable of partial
performance.
e.g. to deliver 200 kilos of sugar
Indivisible Obligation – one NOT capable of partial
performance.
If there is NON_COMPLIANCE:
1. The obligation is converted into a monetary one
for indemnity.
- If the debtors who may have been ready to fulfil
their promise 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 consists.
e.g. A and B bound themselves to deliver a car to X the value
of which is P200,000.00. If A will refuse to give his consent for
the delivery of the car, X will collect from B P100,000.00 and
from A P100,000.00 plus damages.
Article 1225.
Obligations that are deemed Indivisible.
1. Obligation to give definite things. E.g. to deliver a
specific house.
2. Those which are not susceptible of partial
performance.
3. Even if the thing is physically divisible, it may be
made indivisible if PROVIDED BY LAW or IF SO
INTENDED BY THE PARTIES.
Obligations that are deemed Divisible.
1. When the object of the obligation is the execution of a
certain NUMBER OF DAYS OF WORK.
E.g. When a laborer is hired to work for 10 days.
2. When the object of the obligation is the accomplishment of
work by METRICAL UNITS.
E.g. When a laborer is hired to construct a street 3
meters wide and 50 meters long.
3. When the purpose of the obligation is to pay a certain
amount in installments.
4. When the object of the obligation is the accomplishment of
work susceptible of partial performance.

Note: In case of a divisible contract, if the illegal terms can be
separated from the legal ones, the latter may be enforced.
N.B. Even though the object or service may be physically
divisible, an obligation is indivisible if so provided by law or
intended by the parties. (Article 1225 par. 3).
HOWEVER, if the object is NOT physically divisible or the
service is not susceptible of partial performance – the
obligation is always indivisible – the intention of the parties to
the contrary notwithstanding.
E.g. A and B bound themselves to deliver a definite
car to X. They intended that their obligation should be divisible.
In this case, the obligation is still considered as
indivisible – the object is an indivisible thing. The intention of
the parties to the contrary notwithstanding.
OBLIGATIONS WITH A PENAL CLAUSE
Article 1226.
Penal Clause – is an accessory undertaking to assume greater
liability in case of breach.
Principal Obligation – is one which can stand by itself and
does not depend for its validity and existence upon another
obligation.
Accessory Obligation – is one which is attached to a principal
obligation and, therefore, cannot stand alone.
Obligation with a penal clause – is one which contains an
accessory undertaking to pay a previously stipulated indemnity
in case of breach. 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.
Note: However, damages may still be demanded if
the OBLIGOR refuses to pay the penalty or is guilty of fraud in
the fulfilment of the obligation.
Penal Clause Condition
1. Constitutes an obligation 1. it is not an obligation
although accessory
2. Since it is an obligation it is 2. not demandable
demandable
Kinds of Penal Clauses:
1. As to origin:
a. Legal penal clause – provided by law
b. Conventional penal clause – provided for
by stipulation of the parties.
2. As to its purpose:
a. Compensatory penal clause – when the
penalty takes the place of damages.
b. Punitive penal clause – when the penalty is
imposed merely as punishment for breach.
3. As to demandability or effect:
a. Subsidiary or alternative penal clause –
when only the penalty may be enforced.
b. Joint or cumulative penal clause – when
both the principal obligation and the penal
clause can be enforced.
General Rule:
- the penalty takes the place of indemnity for
damages and for the payment of interest.
Exceptions:
1. When so stipulated by the parties – Article 1227.
15
2. When the debtor refuses to pay the penalty
imposed in the obligation.
3. When the debtor is guilty of fraud or dolo in the
fulfilment of the obligation. – Article 1229.
Note:
Q. May any penalty be demandable?
A. No. The penalty may be enforced only when it is
demandable in accordance with the provisions of the Civil
Code. It means that it can be demanded only when there is
breach of the obligation, and it is not contrary to law, morals,
good customs, public order, or public policy. In Article 1229 if
the penalty is iniquitous, or unconscionable it will be reduced
by the court.
Article 1227.
Generally, the debtor cannot exempt himself from the
performance of the obligation by just paying the penalty.
Except, when that right has been expressly
reserved for him. (Implied? Not allowed)
Generally, the creditor cannot demand BOTH the
fulfilment of the obligation and the payment of the penalty at
the same time.
Except, when said right is CLEARY GRANTED to the
creditor – the fulfilment of the obligation and the payment of the
penalty.
Note: If the creditor has chosen fulfilment but it subsequently
become impossible to fulfil the obligation without his fault – the
penalty may be enforced.
Article 1228. Proof of actual damages suffered by the creditor
is not necessary in order that the penalty may be considered.
Note: The penalty may, in the proper case, be demanded
without the necessity of proving actual damages.
As long as there is non-fulfilment of an obligation with
a penal clause.
Article 1229.
Instances when penalty may be reduced by the
Court.
1. When the obligation has been PARTLY
complied with by the debtor.
2. When the obligation has been irregularly
complied with by the debtor.
3. When even if there in no performance – the
penalty is iniquitous or unconscionable.
Note:
Penal clause cannot be enforced if:
1. the breach is the fault of the creditor.
2. or a fortuitous event intervened, unless the
debtor expressly agreed on his liability in case
of fortuitous events.
3. the debtor is not yet in default.
Article 1230.
The nullity of the penal clause does not carry with it
that of the principal obligation.
Reason: The principal obligation can stand alone,
and the void penal clause will just be disregarded.
The nullity of the principal obligation carries with it
that of the penal clause.
EXTINGUISHMENT OF OBLIGATION
General Provision
Article 1231. Obligations are extinguished by:
(PaLoReMeCoN)
 16
1. Payment or performance As a rule, the creditor cannot be compelled to accept
2. Loss of the thing due partial payment or the creditor can be compelled to make
3. Condonation or remission of the debt partial payment.
4. Confusion or merger of the rights of creditor and
debtor Exceptions:
5. Compensation 1. Article 1234 – If the obligation has been
6. Novation substantially performed in good faith – the
obligor may recover as though there had been a
Additional grounds for extinguishments: complete fulfillment less damages suffered by
the obligee.
1. Death of a party in case the obligation is a personal
one. Requisites:
2. Mutual desistance or withdrawal. 1. There must be substantial
3. Arrival of a resolutory period. performance; and
4. Compromise 2. The obligor must be in good faith.
5. Impossibility of fulfilment
6. Happening of a fortuitous event 2. Article 1235. When the obligee accepts the
performance, knowing its incompleteness or
irregularity, and without expressing any protest
or objection, the obligation is deemed fully
MODES OF EXTINGUISHING OBLIGATION complied with.
PAYMENT OR PERFORMANCE
Reason: There is estoppel. There is an
Article 1232 implied waiver of his right to demand
Payment – means not only the delivery of money but also the complete payment of the obligation.
performance, in any other manner, of an obligation.
Requisites:
Ordinary parlance: Payment means the delivery of money only. 1. The obligee knows the performance is
irregular or incomplete.
Legal sense: 2. He accepts the performance without
expressing any protest or objection.
1. In monetary obligation – delivery of money – (Pay
P20,000.00) Article 1236.
2. In obligation to give – the delivery of the thing-object
of the obligation other than money. (Deliver a car, The creditor is bound to accept payment or
house) performance from the following:
3. In Obligation to do – the performance of the
prestation (To paint the house) 1. debtor
4. In obligation not to do – to refrain from performing the 2. from any person who has an interest in the obligation
act which he is not obliged not to do. (Prohibited from (like a guarantor, joint debtor or a co-debtor) or
erecting a building more than 6 storey high) 3. from a third person who has no interest in the
5. In obligation with a penalty – the payment of the fulfillment of the obligation only when there is a
penalty or damage in lieu of the fulfillment of an stipulation to that effect.
obligation.
As a general rule:
Note: A creditor cannot be compelled to accept a payment
If payment is by means of check, promissory note or made by a third person.
bill of exchange – payment is produced only from the time the Why? Because he should not be compelled to accept
check converted to cash or through the fault of the creditor, it is payment from a third person whom he may dislike or distrust.
impaired or it cannot be encashed. (e.g. stale – failed to
encash within 90 days from issue) Except when there is a stipulation to that effect.

Payment and performance are synonymous. What rule shall be observed when there is payment made by a
stranger or a third person who has no interest in the fulfillment
When should payment be made? of the obligation?
- when there is a demand, judicial or extra-judicial
after the due date of the obligation. 1. When payment is made with the knowledge of
- in cases where the debtor loses his right to make the debtor:
use of the period (Article 1198) – after a demand even before - here the payor is entitled to
the obligation is due. REIMBURSEMENT (Article 1236) and
SUBROGATION to such rights such
Article 1233. as guaranty, penalty clause or
A debt shall not be understood to have been paid mortgage. (Article 1237 – can compel
unless the thing or service in which the obligation consists has the creditor to subrogate him in his
been completely delivered or rendered, as the case may be. rights, such as those arising from
mortgage, guaranty, or penalty).
Explanation – the debt is not considered paid as to extinguish Example. Secured by a real estate
the obligation unless the object or the thing is completely mortgage/ with guarantor.
delivered or the service is performed to the satisfaction of the
creditor. Subrogation – means an act of putting
somebody into the shoes of the creditor,
Hence, partial or irregular performance of the obligation will not hence, enabling the former to exercise all
extinguish the obligation. the rights and actions that could have been
exercised by the latter.

2. When payment is made without the knowledge
or against the will of the debtor.
- here the payor is not entitled to
subrogation – Article 1237; moreover,
he is allowed only BENEFICIAL
REIMBURSEMENT. – Article 1236,
2nd paragraph - he can recover only
insofar as the payment has been
beneficial to the debtor. Example.
Condoned/ paid a part.
3. Article 1238. Payment made by a third person
who does not intend to be reimbursed by the debtor
is deemed to be a donation, which requires the
debtor’s consent. But the payment is in any case
valid as to the creditor who has accepted it.
- Required to observe the formality of a
donation. Such as when the amount
intended to be donated exceeds
P5,000.00 the acceptance must be in
writing.
- Reason why acceptance is needed?
No person can be compelled to accept
the generosity of another. Example:
Article 1239. Payment made by an incapacitated person:
Payment made by one who does not have the free
disposal of the thing due and capacity to alienate it shall not be
valid.
Except:
1. When there is estoppel – the minor
misled the creditor when they entered
into contract and the creditor is in
good faith.
2. Article 1427 – minor between 18 and
21 years old, who entered into
contract without the consent of the
parent or guardian, voluntarily pays a
sum of money or delivers fungible
thing in fulfillment of the obligation,
there shall be no right to recover the
same from the obligee who has spent
or consumed it in good faith.
Article 1240.
Payment shall be made to the person in whose favor
the obligation has been constituted, or his successor in
interest, or any person authorized to receive it.
To whom payment must be made?
1. to the person in whose favor the
obligation has been constituted
(creditor)
2. to his successor in interest (like heirs,
to any person who acquired his right
by assignment or transfer);
3. to any person authorized to receive it,
as in the case of a legal
representative (executor,
administrator, receiver or guardian)
(the authorization maybe by
agreement or by law) If the recipient
was not authorized, the payment
generally is not valid (Article 1241)]
Article 1241
1st paragraph – payment to a person who is incapacitated to
administer his property VALID if
a. he has kept the thing delivered or
17
b. insofar as the payment has been beneficial to
him. (The benefit may be financial, moral or
intellectual but it must be proved)
- paid to a minor who used it in
gambling – obligation still subsists
- paid to an insane who throw it and get
lost -same
2nd paragraph.
Payment made to a third person valid – if redounded
to the benefit of the creditor.
Note: The obligor or debtor has the burden of
proving that the incapacitated person was
actually benefited by such payment.
Proof that payment actually redounded to the
benefit of the creditor is not required in the following
cases:
1. (SUBROGATION) If after payment, the third person acquires
the creditor’s rights. (If he donated)
- by assignment or by waiver
2. (RATIFICATION) If the creditor ratifies the payment to the
third person (approved the payment)
3. (ESTOPPEL) If by the creditor’s conduct, the debtor has
been let to believe that the third person had authority to receive
the payment. (if wrote the debtor that he can pay to the 3 rd
person even if the latter is unaware of such authority)
Article 1242 Payment made in good faith to the person in
possession of the credit shall release the debtor.
Article 1243.
As a rule payment to the creditor will extinguish the
obligation, however, if the payment was made after the debtor
was judicially ordered to retain the debt, it shall not be valid.
Ex. B is the boarder of A. B is about to pay the rentals due for
the month when X questioned the authority of B to collect the
monthly rentals due. The court then issued an Order, requiring
B to withhold payment of the rentals due to B. However,
despite such Order, B still paid the rents to A. In this case the
obligation of B to A is not extinguish by payment. Why? Apply
1243.
Article 1244 in relation to Article 1246.
Under 1244, the prestation due must be delivered – wherein
the creditor cannot be compelled to receive a different one
even of the latter is of equal or superior quality.
E.g. D the debtor bound himself to deliver a Pentium II with
serial no. 123456 computer to the creditor. On the due date,
the debtor cannot compel the creditor to receive a Pentium III
computer or Pentium II computer with serial number 654321,
because the prestation itself must be the one to be delivered.
Article 1246. When a generic or an indeterminate thing is to be
delivered – and the quality or circumstances thereof was not
indicated –
- the creditor cannot demand a thing of
superior quality.
- The debtor cannot also deliver a thing
of inferior quality.
The purpose of the obligation and other
circumstances shall be considered.
E.g. D promised to deliver to C a computer. D cannot
deliver a computer which is 386 model. C cannot also compel
D to deliver a Pentium IV computer. D can however deliver a
thing of MEDIUM quality say a Pentium II computer.

SPECIAL FORMS OF PAYMENT
1. Dation in Payment – Article 1245
2. Application of Payments – Article 1252
3. Payment by Cession – Article 1255
4. Tender of Payment and Consignation – Articles 1256-1261.
18
3. complete or partial insolvency of the debtor
4. abandonment of all debtor’s properties not exempt from
execution in favor of the debtor and
5. acceptance or consent of the on the part of the creditors.
Effects of Assignment:

DATION IN PAYMENT – (adjudication or dacion en pago) 1. The creditors do not become the owners; they are merely
- is the conveyance of ownership of a thing as an assignee with authority to sell. (If ownership is assigned it will
accepted equivalent of performance. become Pactum Commissorium)

E.g. Malou owes Lex the amount of P3,000.00. On maturity 2. The debtor is released up to the amount of the net proceeds
date, Malou has no money to pay the debt. She instead of the sale, unless there is a stipulation to the contrary.
delivered an 18 karat ring as payment with the consent of Lex.
3. Creditors will collect credits in the order of the preference
agreed upon, or in default of agreement, in the order ordinarily
APPLICATION OF PAYMENTS established by law.
- is the designation of the debt to which should be
applied the payments made by a debtor who owes several DACION EN PAGO CESSION
debts in favor of the same creditor. 1. does not affect ALL the 1. in general, it affects ALL
properties the properties of the debtor
2. does NOT require plurality 2. requires more than one
Requisites for Application of Payments: of creditors creditor
3. only the specific or 3. requires the consent of all
1. there must be one debtor and one creditor; concerned creditor’s consent the creditors
2. there must be two or more debt; is required
3. the debts must be of the same kind; 4. may take place during the 4. requires full or partial
4. the debts to which payment made by the debtor has been solvency of the debtor insolvency
applied must be due; and 5. transfers ownership upon 5. does not transfer
5. the payment made must not be sufficient to cover all the delivery ownership
debts. 6. this is really an act of 6. not an act of novation
novation
NOTA BENE:
Application of Payments as to debts not yet due is TENDER OF PAYMENT
possible only when: - the act of offering to the creditor what is due him
together with a demand that the creditor accept the same.
1. there is a stipulation to that effect;
2. when made by the debtor or creditor, for whose benefit the CONSIGNATION
period has been constituted. - the act of depositing the thing due with the court or
(Note: Obligation with a Period – the period is as a judicial authorities whenever the creditor cannot accept or
rule established for the benefit of both). refuses to accept payment. It generally requires prior tender of
payment.
Rules on application of payments:
1. The debtor has the first choice; he must indicate which Nota Bene:
particular date is being paid. Tender of payment without consignation does not
2. If the debtor does not apply payment; the creditor; may extinguish the debt; consignation must follow.
make the designation. HOW? – by specifying in the receipts
which debt is being paid. Exceptions:
3. If the creditor has not made the application or when the Instances when consignation is sufficient
application is not valid – the debt which is more onerous without a prior tender
(burdensome oppressive) to the debtor.
4. If debts due are of the same nature and burden, the payment 1. When the creditor is ABSENT or
shall be made PROPORTIONATELY. UNKOWN or DOES NOT APPEAR at
the place of payment;
Order of payment: 2. When the creditor is
1. To the one designated by the debtor. INCAPACITATED to receive payment
2. To the interest. (Article 1253. Interest precedes the payment at the time it is due;
of the principal). 3. When without cause, the creditor
3. To the more onerous or burdensome. REFUSES to give a receipt;
4. When two or more persons claim the
PAYMENT BY CESSION same right to collect.
- it is the process by which a debtor transfer all the 5. When the title of the obligation has
properties not subject to execution in favor of his creditors so been LOST;
that the latter may sell them, and thus apply their proceeds to 6. When the debtor had previously been
their credits. notified by the creditor that the latter
would not accept the payment.
Kinds or Classes of Assignment: Essential Requisites for Valid Consignation.
1. Legal – governed by the Insolvency Law (Section 8, Act 1. Existence of valid debt
1956). 2. valid prior tender, unless the tender is excused
2. Voluntary – Article 1255 (see Art. 1256)
Requisites For Voluntary Assignment: 3. prior notice of consignation (before deposit)
4. actual consignation (deposit)
1. more than one debt 5. subsequent notice of consignation.
2. more than one creditor

Note: The expenses for consignation shall be at the expense of
the creditor.
Effects if Consignation has been duly made:
If the consignation is DULY (properly) made:
1. The debtor may ask the judge to order the
cancellation of the obligation;
2. The running of interest is suspended;
3. However, before the creditor ACCEPTS, or before
the judge declares the consignation has been
PROPERLY MADE, the obligation REMAINS –
hence, the debtor can still withdraw the thing or the
sum deposited allowing the obligation to remain in
force.
Article 1249 – Payment of debts in money shall be made in the
currency stipulated, and if it is not possible to deliver such
currency, then in the currency which is legal tender in the
Philippines.
Legal Tender – is the currency which a debtor can legally
compel a creditor to accept in payment of a debt in money
when tendered by the debtor in the right amount.
R.A. No. 8183, June 11, 1996 – any currency other than the
Philippine Peso can extinguish an obligation if AGREED upon
by BOTH parties at the time they entered into the obligation.
- In cases of extra-ordinary inflation or deflation – the value of
the currency at the time of the establishment of the obligation
shall be followed – unless there is a stipulation to that effect.
Place where obligation shall be paid.
1. If there is a stipulation – the payment shall be made
in the place designated.
2. If there is no stipulation – and object to be delivered
is a determinate thing – the payment shall be made
at the place where the thing was, at the perfection of
the contract.
3. If there is no stipulation – and object to be delivered
is generic – pay at the domicile of the debtor
LOSS OF THE THING DUE
“Loss” also includes the impossibility of performance.
When is there a loss?
- Article 1189
1. When the object perishes
2. when it goes out of commerce
3. when it disappears in such a way that
a. its existence is unknown
b. or it cannot be recovered
Two kinds of Obligation “To Give”
An obligation to give may consists of an obligation:
1. to give a generic thing
2. or to give a specific thing
In an obligation to give a generic thing – the
obligation is NOT extinguished by a fortuitous event –
because GENUS NEVER PERISHES. (Article 1263)
In an obligation to give a specific thing:
General rule:
- the obligation is extinguished
Exceptions:
1. If the debtor is at fault
2. when the debtor is made
liable for a fortuitous event
because:
a. of a provision of
law;
19
b. of a contractual
stipulation;
c. the nature of the
obligation requires
the assumption of
the risk on the part
of the debtor.
N.B. When the thing is lost while in the possession of the
debtor – it is presumed that the loss was due to his fault. The
presumption is not applicable in cases of EARTHQUAKE,
FLOOD, STORM or other NATURAL CALAMITIES.
The debtor is also released from his obligation in cases of:
1. Legal impossibility – Article 1266
2. Physical impossibility – Article 1266
3. Moral impossibility – Article 1267
Effect of loss in criminal offenses:
When a determinate and certain thing which
proceeds from a criminal act was lost through a fortuitous event
– the obligation is not extinguish EXCEPTION – when the
creditor (the offended party in the crime) is in MORA
ACCIPIENDI.
Article 1269. The obligation having been extinguished – the
rights of the debtor to proceed against third persons by reason
of the loss is transferred to the creditor.
CONDONATION OR REMISSION OF DEBT
Remission or Condonation
- is the gratuitous abandonment by the creditor of
his right.
Ex. Malou owes Lex P500. When the debtor matured Lex told
Malou that she need not pay the debt since he was condoning
it. Malou in turn expressed her gratitude. Here the debt has
been extinguished by remission.
Essential Requisites for Remission:
1. There must be an agreement.
2. The parties must be capacitated and must consent.
3. There must be subject matter or object to be
condoned.
4. The cause or consideration must be liberality –
because remission is essentially gratuitous.
5. The obligation must have been demandable at the
time of the remission.
6. The remission must not be inofficious.
7. Formalities of a donation are required in cases of an
express (not implied) remission.
e.g. A remission of an obligation to give a
land must be in a public instrument in order
to be valid.
8. Waivers or remission are not presumed generally –
they must be clearly and convincingly shown.
Effects of Delivery of Private Documents Evidencing the
Credit – Article 1271
- the delivery of a private document evidencing
a credit, made voluntarily by the creditor to the
debtor implies the renunciation of the debt.
- This is an example of Implied Remission.
o The voluntary destruction by the
creditor of the instrument is likewise
another form of implied remission.
Presumption of Voluntary Delivery – Article 1272
- Article 1272 gives rise to presumption of
voluntary delivery – when the private document

in which the debt appears is found in the
possession of the debtor.
- Presumption in Joint or Solidary
Obligations.
Effect if the obligation is joint, and if it is
solidary.
Example: A and B owe C P1,000, evidence by a
private document.
a) If the private document is found in the
possession of the A, who is a joint debtor, what
is the presumption?
Ans: The presumption is that only A’s debt
has been remitted.
b) If the private document is found in the
possession of A who is a solidary debtor, what
is the presumption?
Ans: Since this is a solidary obligation, the
presumption is that the whole obligation has
been remitted.
Effect of Remission of Pledge:
- When the obligation has been secured by a pledge
and 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 – presumed that the accessory obligation of pledge is
remitted.
CONFUSION OR MERGER OF RIGHTS
Merger or Confusion
It is the meeting in one person of the qualities of the
creditor with respect to the same obligation.
Requisites of a Valid Merger.
1. It should take place between the principal debtor and
creditor.
2. The merger must be clear and definite.
3. The very obligation involved must be the same or
identical.
Example:
Malou makes a check payable to the bearer, and
hands the check to Lex who hands it to Pinky, who hands
it to Lea who finally hands it to Malou. Here Malou owes
herself. A clear case of merger, and hence the obligation
of Malou is extinguished.
Effects of Merger:
1. Merger in the person of the principal debtor or
creditor benefits the guarantors.
E.g. Malou owes Lex P1,000, guaranteed
by Pinky. Lex assigns his credit to James.
James assigns the credit to Yasha. Yasha
assigns the credit to Malou. Malou’s
obligation is extinguished and Pinky is
released from his obligation as guarantor.
2. Confusion which takes place in the person of any of
the latter does not extinguish the obligation.
E.g. Malou owes Lex, guaranteed by Pinky.
Lex assigns his credit to James. James
assigns his credit to Yasha. Yasha assigns
her credit to Pinky, the guarantor. Does
Malou still have to pay Pinky?
Ans. Yes. However, the contract
of guaranty is extinguished, but not Malou’s
obligation to pay the P1,000.00.
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COMPENSATION
Compensation
- is one which will take place when two persons,
in their own right, are creditors and debtors of
each other.
Classifications:
1. Legal Compensation – Article 1279.
Requisites:
a. That each one of the obligors be bound
principally, and he be at the same time a
principal creditor of the other;
- there must be a debtor and
creditor relationship
- there must be two debts and
two credits
- they must generally be bound
as principals.
b. That both debts consists in a sum of
money, or if the things due are
consumable, the be of the same kind, and
also of the same quality if the latter has
been stated;
- both debts consist in a sum of
money, or if the things due are
consumable (fungible- means
susceptible of substitution), they
are of the same kind and also
have the same quality if the latter
has been stated.
c. That the two debts be due;
- means that the period has
arrived or the condition has been
fulfilled.
d. That they be liquidated and demandable;
- liquidated – means that the
exact amount has been
determined.
- demandable – see comment in
(c).
e. That over neither of them there be any
retention or controversy, commenced by
third persons and communicated in due
time to the debtor.
The guarantor may set-up compensation with respect to
principal debtor- Article 1280.
E.g. A owes B P5,000. C is the guarantor of A. B
owes A P1,000. When B sues A, A cannot pay, for how much
will C be liable?
Ans. C will be liable for only P4,000, because he can
set up the P1,000 credit of A as the basis for partial
compensation.
- If all the above-mentioned requisites are present – there shall
be automatic compensation even though the creditors and
debtors are not aware of the compensation. (Article 1290)
2. Total or Partial Compensation – when the two debts are
of the same amount there is total compensation – Article
1281.
3. Conventional or Voluntary Compensation – Article 1282.
- the parties may agree upon the compensation of
debts which are not yet due.

4. Judicial Compensation or Set-off – Article 1283.
- if on of the parties to a suit over an obligation
has a claim for damages against the other, the
former may set if off by proving his right to said
damages and the amount thereof.
Q? Is compensation allowed in cases of rescissible or
voidable debts?
A. Yes, because rescissible or voidable debts are valid until
rescinded or voided, hence, compensation is allowed.
5. Compensation by Operation of Law – Legal
Compensation – Articles 1286-1287.
- takes place even though the debts may be payable
at different places, but there shall be an indemnity for expenses
of exchange or transportation to the place of payment.
E.g. A owes B P1M payable in Manila and B owes A
P1M payable in England. Whoever claims compensation must
pay for the exchange rate of currency.
Legal Compensation cannot take place when:
1. One of the debts arises from depositum
- the purpose is to prevent breach of trust and
confidence.
- It is the depository who cannot claim
compensation. The depositor is allowed to so
claim.
- It does not apply to deposit in banks because
the real relations between the bank and the
depositor is that of creditor and debtor – hence,
compensation is allowed.
2. When one debt arises from the obligations of a
depositary.
- same reason in (1).
3. When one debt arises from the obligations of a bailee in
commodatum (the borrower of property who pays nothing
for the loan)
Commodatum – borrowing of personal property.
Mutuum – borrowing of money.
- the reason is to prevent a breach of trust.
- The lender may claim compensation; the
borrower is not allowed to dos so.
4. When one debt arises because of a claim for support
due to gratuitous title.
- support in arrears may be compensated but
NOT future support.
Problems:
a) A has a P10,000 savings deposit with BPI. One day
A borrowed P2,000 from the Bank. Without asking
permission from A, the Bank subtracted the P2,000
from A’s account, leaving a balance of P8,000 in A’s
favor. Is the bank’s action proper?
ANS. Yes, compensation is allowed here
because in this case, the relationship
between the bank and the depositor is that
of debtor and creditor.
b) A asked B to keep P100 for him. Now, A is indebted
to B for the amount of P40. When A asks for the
return of his money, B gives him only P60 alleging
partial compensation. Is B correct?
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ANS. No, B is not correct because the
P100 deposit with him is not subject to
compensation.
5. Debt arising from crimes – the civil liability in a criminal
case.
N.B. If there are several debts which are susceptible of
compensation – apply the rules on application of payments.
(Article 1289).
NOVATION
Novation – is one which extinguishes an obligation by:
1. Changing the object or principal conditions of
the obligation – Real Novation – the object will
be changed;
2. Substituting the person of the debtor;
a. Expromission – initiative to change
the debtor emanated from a third
person.
b. Delegacion – initiative to change the
person of the debtor came from the
debtor himself;
3. Subrogating a third person in the right of the
creditor.
- Nos. 2 and 3 – Personal Novation – the
parties will be changed.
Requisites for Novation (in General)
1. The existence of a VALID obligation
Note:
1. If the old obligation is VOID or NON-
EXISTENT, there is nothing to novate;
2. If the old obligation is VOIDABLE, novation
is still possible provided the obligation has
not yet been annulled.
2. The intent to extinguish or to modify the old obligation
by a substantial difference – the extinguishments or
modification itself is a RESULT of novation;
3. The capacity and consent of all the parties – except
in the case of expromission, where the old debtor
does not participate.
4. The validity of the new obligation
Express Novation – novation must be declared in unequivocal
terms – Article 1292
Implied Novation- complete or substantial incompatibility
- Implied novation is done by making
SUBSTANTIAL CHANGES –
a) in the object or subject matter of the
contract
E.g. delivery of a car instead of a diamond
ring;
b) in the cause or consideration of the contract
E.g. upward change in the price.
Reduction in price implies
remission.
c) in the principal terms or conditions of the
contract
E.g. Reduction of the term or period
originally stipulated.
Personal or Subjective Novation
1. Active - change of the creditor

2. Passive – change of the debtor
a. Expromission – where the initiative
comes from a third person – Article
1294
- it is essential that the old debtor is
RELEASED from his obligation,
otherwise there will be no
expromission – no novation.
E.g. D owes C P1,000. F, a friend
of D, approaches C and tells him: “I
will pay you what D owes you.” C
agrees. Is there expromission here?
ANS. There is no expromission
because there is no agreement that D
would be released from his obligation.
D owes C P1,000. F, friend of D,
approaches C and tells him: “I will pay
you what D owes you. From now on,
consider me your debtor, not D. D is to
be excused. Do you agree?” C
agrees. Is there expromission here?
ANS. Yes, and even if F does not
pay C, D cannot be held liable
anymore because his obligation has
already been extinguished. – see
Article 1294.
Effect of insolvency or non-
fulfillment by the new debtor in
expromission – (substitution
without the knowledge or against
the will of the old debtor)
- the new debtor’s insolvency or
non-fulfillment of the obligation shall
not give rise to any liability on the part
of the original debtor.
Requisites for Expromission:
1. The initiative must come from a
third person (who will be the new
debtor)
2. The new debtor and the creditor
must CONSENT
3. The old debtor must be excused
or released from his obligation.
b. Delegacion – method of novation
caused by the replacement of the old
debtor by a new debtor, who (the old
debtor) has proposed him to the
creditor, and which replacement has
been agreed to by said creditor and by
said new debtor.
- initiative came from the old
debtor himself
- the old debtor must also be
released from the obligation
otherwise there will be no valid
novation.
The parties in Delegacion
1. The delegante – the
original debtor
2. The delegario – the
creditor
3. the delegado – the new
debtor
Requisites for Delegacion
1. The initiative comes from the old debtor.
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2. All the parties concerned must consent or
agree
Effect of Insolvency by New Debtor in
Delegacion.
- As a rule: it does not revive the action of
the creditor against the original debtor.
Exceptions:
1. The insolvency was already
existing and of PUBLIC
KNOWLEDGE at the time of
the delegation.
2. OR the insolvency was
already existing and
KNOWN TO THE DEBTOR
at the time of the delegation.
Article 1296- When the principal obligation has been
extinguished by Novation – the Accessory obligation may
subsists only insofar as they may benefit third persons that did
not give their consent – a case of Stipulation Pour Autrui
Stipulation Pour Autrui – stipulation made in favor
of a third person who accepted the same before the
offer is revoked by the parties.
Article 1300 – Subrogation of a third person in the
rights of the creditor
Subrogation – (extinctive subjective novation by
change of the creditor) is the transfer to a third
person of all the rights appertaining to the creditor to
the creditor, including the right to proceed against
guarantors, or possessors or mortgages, subject to
any legal provision or any modification that may be
agreed.
Kinds:
1. Legal – it takes place by operation of law,
hence it is never presumed.
- only those situations found in Article 1302 that
will be considered as Legal subrogation.]
Article 1302.
1. When a creditor pays another creditor
who is preferred, even without the debtor’s
knowledge.
E.g. Malou has two creditors:
Lovely, who is a mortgage creditor for P15,000; and
Sharah who is an ordinary creditor. Sharah without
Malou’s knowledge paid Malou’s debt of P15,000 to
Lovely. Here Sharah will be subrogated to the rights
of Lovely.
2. When a third person, not interested in
the obligation pays with the express or tacit
approval of the debtor.
E.g. Windele owes Witty P10,00
secured by a mortgage. Blesida, a classmate of
Windele, and having no connection with the contract
at all, paid Witty the P10,000 with Windele’s
approval. Is Blesilda subrogated in Witty’s place?
ANS. Yes, because although not
interested in the obligations she nevertheless paid off
Witty with the approval of Windele, the debtor.
3. When even without the knowledge of
a debtor, a person interested in the fulfillment of
the obligation pays, without prejudice to the
effects of confusion as to the latter’s share
E.g. of persons “interested”
- guarantor

- the owner of the property
mortgaged as security for the
debtor’s debt.
E.g. D owes C P10,000 secured by a
mortgage and by a guaranty of G. If G even without
the D’s knowledge, pays C the P10,000 G will be
subrogated in C’s place. But of course the guaranty
is extinguished. This is what the law means when it
says that there is legal subrogation “without prejudice
to the effects of confusion as to the latter’s (payor’s)
share in the obligation.
2. Conventional – this requires an agreement;
and the consent of the original parties and of the
third person _ Article 1301.
CONTRACTS
Contract – is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to give
something or to render some service.
N.B. Not all agreements are contracts. Only when an
agreement gives rise to an obligation may it be called a
contract.
Kinds of Contracts:
1. Consensual Contracts – contracts which are
perfected by mere consent, like contract of sale.
2. Real contracts – which are perfected by delivery like
pledge, deposit and commodatum.
3. Unilateral contracts – one where only one party is
obligated like an insurance contract, where the
insurer is the one liable upon maturity of the policy.
4. Reciprocal or bilateral contracts, where the parties
are bound to each other like sale and lease.
5. Gratuitous contracts, which are those involving no
consideration like donations.
6. Onerous contracts, which are those involving
consideration like sale and lease.
7. Preparatory contracts, where the undertaking is a
prelude to another undertaking like agency.
8. Principal contracts, where the undertakings involved
are primary and which may be supported by
accessory contracts, like loan contracts, and sales
contracts by installments.
9. Accessory contracts, which are those entered into to
support principal contracts or complementary to said
contracts like contracts on security arrangements
(mortgages, pledges, antichresis) and contracts for
the benefit of third persons taking the forms of
stipulation pour autrui.
10. Nominate contracts, those with designated names
like partnerships, sales, etc.
11. Innominate contracts, those without designated
names like partnership, sales, etc.
12. Commutative contracts, those where each of the
contracting parties gives and receives an equivalent
value line sale.
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13. Aleatory contracts, those where one of the parties or
both reciprocally bind themselves to give or to do
something in consideration of what the other shall
give or do upon the happening of an event which is
uncertain, or which is to occur at any indeterminate
time like insurance contracts.
Characteristics of contracts:
1. Obligatory force of contracts –contracts have the
force of law between the contracting parties and
should be complied with in good faith (Article 1159)
2. Independence of contracts (the freedom to contract)
– under which the contracting parties are free to
stipulate upon anything not contrary to law, morals,
good customs, public order or public policy (Article
1306)
3. Mutuality of contracts – under which contracts must
bind the contracting parties, their validity or
compliance cannot be left to the will of one of them.
(Article 1308)
- Determination of the performance may
be left to a third person, whose decision
shall not be binding until made known to
both contracting parties. (Article 1309)
- Determination made by the third person
– shall not be obligatory if it is evidently
inequitable – in such case the court shall
decide what is equitable under the
circumstances. (Article 1310)
4. Relativity of contracts – contracts take effect only
between the contracting parties, their assigns and
heirs,
Exceptions:
1. Stipulations in favor of third persons
(Stipulation pour autrui);
Classification:
1. those where the stipulation
is intended for the sole
benefit of such person (the
third person)
2. those where an obligation is
due from the promissory to
the third person which the
former seeks to discharge
by means of such
stipulation. (Uy Tam and Yu
Yet v. Leonard, 30 Phil.
473).
2. Binding effect of registered contracts
(creating real rights) upon third
persons; (article 1312)
3. Creditors may bring an action to
rescind contracts entered into to
defraud them (Article 1313)
4. A contracting party may sue third
person who induces another to violate
his contract (Article 1314)
5. Consensuality of contracts – as a rule, contracts are
perfected by mere consent, and from that moment
the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the
consequences which, according to their nature, may
be in keeping with good faith, usage and law. (Article
1315).
Stages of contracts:
1. Perfection of the contract –
which means that birth of
the contract, or the
commencement of the
contract’s juridical life;

2. Compliance with contract –
means the life of the
contract, where its terms are
being complied with or
implemented; and
3. Consumation the contract –
means the extinction of the
contract by the performance
of the obligation created by
it.
Note: Breach of contract gives rise to an action or liability for
damages.
Limitations on freedom to contract:
- The contract must not be contrary to law, morals,
good customs, public order, or public policy.
Innominate contracts –
What shall govern?
1. The terms and clauses and conditions stipulated or
agreed upon by the parties;
2. The provisions of the law on obligations and
contracts;
3. The rules governing the most analogous contracts;
4. The customs of the place;
Kinds or Classes of Innominate Contracts:
1. Do ut des (I give that you may give)
2. Facio ut des (I do that you may give)
3. Do ut facias (I give that you may do)
4. Facio ut facias (I do that you may do)
Note: No one may contract in the name if another without
being authorized by the latter, or unless he has by law a
right to represent him – if a person entered into such contract
without the authority – the contract is unenforceable which
however can be ratified to be made valid.
ESSENTIAL REQUISITES OF CONTRACTS:
No contract shall exists unless the following are
present:
1. Consent of the contracting parties;
2. Object certain which is the subject matter of the
contract;
3. Cause of the obligation, which is established.
I. CONSENT – is manifested by the meeting of the minds
between the parties – on the thing and on the cause of the
contract.
Elements of Consent:
1. Offer that is certain; and
2. Acceptance that is absolute – made
known to the offeror.
- A qualified acceptance
constitutes a counter-offer.
- The counter-offer is
always considered in law as a
rejection of the original offer and
an attempt to enter the
negotiation between the parties
on a different basis.
- Acceptance by letter or telegram does NOT bind
the offeror EXCEPT from the time it came to his knowledge.
The contract, in such a case is presumed to have been entered
into the place where the offer was made.
- The acceptance must be ABSOLUTE or IMPLIED.
e.g. Malou offers to pay for the services of
Lex as a school dentist, Lex instead of
saying “YES” to the offer renders his
24
services to the school. There is an implied
acceptance of the offer.
Note:
- An offer made through an agent is
accepted from the time acceptance is
communicated to the agent.
E.g. Lex constituted Malou as his
agent to sell his lot covered by
TCT No. 104-C to Pinky. On
February 14, 2002 Lex made the
offer to Pinky. On February 19,
2002, Pinky, communicated his
acceptance of the offer to Malou.
Lex learned of the acceptance
only on February 28, 2002. In this
case, the contract of sale was
perfected on February 19, 2002
and not on February 28, 2002.
An offer will become ineffective when:
1. Either party dies, suffers civil interdiction,
becomes insane or becomes insolvent
before acceptance.
2. In cases of revocation, rejection, or
withdrawal of the offer before acceptance is
communicated.
3. Qualified acceptance of the offer as the
acceptance is really a counter-offer.
4. Expiration of the period given to the offeree
within which to signify his acceptance
Note: When the offeror has allowed the offeree a TIME to
accept the offer - the offer may be withdrawn at any time
before the acceptance by communicating the offer to the
offeree EXCEPT when the option is founded upon a
consideration (in cases there is an Option Money given).
- The offeror may anytime withdraw the
option (without being liable for damages)
EXCEPT if the option is based on a paid or
promised consideration.
i. The consideration paid is called
OPTION MONEY and there
exists an OPTION CONTRACT.
ii. OPTION – it is a contract
granting a person the privilege to
buy or not to buy certain objects
at anytime within the agreed
period at a fixed time.
- EARNEST MONEY – is the money which
will form part of the purchase price.
Payment of such is an evidence of a
perfected contract of sale.
Article 1325 – Business advertisements of things for sale are
not definite offers, but mere invitations to make an offer –
unless it appears otherwise.
e.g. In the Inquirer, this advertisement appears: “For
sale, 2002 Models of BMW automobiles: Contact Ms. Rochelle
Fallorin, Tel. No. 02-345-6789.” This is an invitation to make an
offer; it is not an offer in itself.
Article 1326 – Advertisement for bidders are simply invitations
to make proposals, and the advertiser is not bound to accept
the highest or lowest bidder, unless the contrary appears.
The following CANNOT give consent to a contract:
1. Unemancipated minors;
2. Insane or demented persons, and
3. Deaf-mutes who do not know how to write.

- Note: Contracts entered into during lucid interval are
VALID.
- Contracts agreed to in a state of drunkenness or
during a hypnotic spell are VIODABLE.
Article 1330 – A contract where consent is given through
mistake, violence, intimidation, undue influence, or fraud
is VOIDABLE.
Requisites for mistake to invalidate the contract:
1. The mistake must be substantial -
a. The mistake should refer to the substance
of the thing which is the object of the
contract;
b. Those conditions which have principally
moved one or both parties to enter into the
contract.
c. Mistake as to identity or qualifications of
one of the parties will vitiate consent only
when such identity if qualifications have
been the principal cause of the contract.
2. It must be a mistake of fact and not of law.
Reason: “Ignorantia legis non excusat but ignorantia
facti excusat”
- Ignorance of the law excuses no one from
compliance therewith but ignorance of the
facts is excusable.
4. It must be excusable
- A simple mistake of account shall give
rise to its correction.
- If one of the parties is illiterate or the
contract is the language not understood by
him and mistake or fraud is alleged – the
person enforcing the contract must show
that the contract was adequately
explained to him.
- There is no mistake if the party alleging it
knew of the doubt, contingency or risk
affecting the object of the contract.
E.g.
A is offering to B a piece of land
that is under litigation. B is aware
of such case, despite such, he
still bought the lot. In this case, B
cannot later on invoke mistake to
rescind the contract of sale,
because he was aware of the risk
at the time he bought the lot.
Kinds of fraud:
1. Dolo causante – fraud in getting consent to a
contract
2. Dolo incidente – fraud in the performance of the
obligation.
Note: - It is only dolo causante or causal
fraud that vitiates consent and renders a
contract voidable.
Requisites of causal fraud:
5. The fraud must be serious;
6. The fraud must be causal (contributory) not
incidental;
7. It must not be employed by both
contracting parties (that is, it must be
employed by one of the contracting
parties); and
8. It must have induced the other party to
agree to the contract.
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E.g. A offers to sell a carabao to
B and tells B that the carabao is
young, robust and still fit for work.
B agreed to buy the carabao. It
turns out however that the
carabao is sickly old and unfit for
work. In this case, A committed
causal fraud.
Article 1339. – Failure to disclose facts, when there is a duty to
reveal them, as when the parties are bound by confidential
relations, constitutes fraud.
Article 1340. – The usual exaggerations in trade, when the
other party had an opportunity to know the facts, are not in
themselves fraudulent.
- Sales talk is common and let the buyer
beware of exaggerations of a highly
interested seller. CAVEAT EMPTOR -
“BUYERS BEWARE”.
Article 1341. – A mere expression of an opinion does not
signify fraud, unless made by an expert and the other party has
relied on the former’s special knowledge.
- Mere false opinion is not fraud.
Article 1342 – Misrepresentation by a third person does not
vitiate consent, unless such misrepresentation has created
substantial mistake and the same is mutual.
Article 1343 – Misrepresentation made in good faith is not
fraudulent but may constitute error.
E.g. Malou sells a watch to Lex with the
misrepresentation that it is a Rolex watch. She believes
however, that it is really a Rolex watch. In such case the
misrepresentation is NOT fraudulent but may constitute error.
Article 1344 – Fraud to make the contract voidable – it should
be serious and should NOT have been employed by both
contracting parties.
SIMULATION OF CONTRACTS -
- it is the process of intentionally deceiving others by
producing the appearance of a contract that really does not
exist (absolute simulation) or which is different from the true
agreement.
Kinds of Simulation of Contracts:
1. Absolute simulation – here the parties do not intend to be
bound.
Effect: The contract is VOID.
E.g. A and B executed a deed of sale although they
did not intend to be bound at all by the contract.
2. Relatively simulation – here the parties conceal their true
agreement.
Effect: The parties are bound to the real or true
agreement except –
a) If the contract should prejudice
a third person;
b) Or if the purpose is contrary to
law, morals, good customs,
public order, or public policy.
E.g. A real estate mortgage to secure a loan
appearing is writing as a pacto de retro sale. In such
case, there is an equitable mortgage.
II OBJECT OF CONTRACTS
- the object of a contract is really to
create or to end obligations which in
turn may involve things or services.

Requisites:
1. the thing or service must be within the commerce of man;
2. must be transmissible;
3. must not be contrary to law, morals, good customs, public
order, or public policy;
4. must not be impossible (Article 1348)
5. must be determinate as to its kind or determinable without
the need of a new contract or agreement. (Article 1349)
Q. What can be made as an object of the contract?
A. The following can be made as an object of a contract:
1. All things which are outside the commerce of
man;
2. Future things;
3. All rights which are not intransmissible – in other
words rights which are transmissible.
4. All services which are not contrary to law,
morals, good customs, public order, public
policy.
- Future inheritance cannot be the subject of
a contract except:
i. In the case of marriage
settlements;
ii. By the case of partitions of
property inter vivos by the
deceased.
III CAUSE OF CONTRACTS
- is the essential and impelling reason why a
party assumes an obligation.
Classifications of Contracts according to Cause:
a. In ONEROUS contracts – the cause the prestation
or promise of a thing or service by another.
b. In REMUNERATORY contracts – the cause is the
service or thing remunerated.
c. In contract of PURE BENEFICENCE – the pure
liberality of the benefactor.
Note: The particular motive in entering into a contract are
different from the cause thereof.
A wanted to give her daughter a 8850 cellphone as a
gift.
- In here the motive (to give the cellphone as
a gift), as far as the sale of the car is
concerned, does not legally affect the
cause of the sales contract.
- A contract WITHOUT A CAUSE or WITH UNLAWFUL
CAUSE produce NO EFFECT.
- A cause is considered UNLAWFUL if it is
CONTRARY TO LAW, MORALS, GOOD
CUSTOMS, PUBLIC ORDER, OR PUBLIC
POLICY.
e.g. of Unlawful cause:
a. Promise to stifle criminal prosecution for
a consideration;
b. Promise to commit adultery or
concubinage for a stated amount;
c. Promise to sell opium or prohibited
drugs.
d. Promise not to engage in any kind of
business in the Philippines for a consideration.
- Statement of a false cause in contracts shall render the
contract VOID – UNLESS it can be proved that it is based on
another CAUSE WHICH IS TRUE AND LAWFUL.
- Means that a cause must be true, and if the
cause is false , the contract is void for lack
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of cause, unless there be another cause
that it is true and lawful.
E.g. If a land worth P1M is sold
for only P50,000.00, the price is
not only shockingly inadequate
but illusory. The contract is void
for being no cause unless it can
be shown that it is not really a
contract of sale but a donation
where in the real cause would be
the pure liberality of the donor – it
will be a contract based on pure
beneficence wherein the cause is
the liberality of the of the donor.
Requisites of cause:
1. It must exists at the time the contract is entered
into;
2. It must be lawful;
3. It must be true or real;
- Effects of Lesion or inadequacy of the price
Lesion – any damage caused by the fact that the
price is unjust or inadequate.
General Rule:
- Lesion or inadequacy of the price does not
itself invalidate a contract.
Exceptions:
Lesion will invalidate a contract –
a. when there has been fraud, mistake,
or undue influence; and
b. in cases specified by law – see Article
1381 pars. 1 and 2.
FORMS OF CONTRACTS
Form of Contract
- the manner in which a contract is executed or
manifested.
General Rule:
- contracts are binding and enforceable in whatever
maybe the form the contract has been entered into provided
that all the three essential requisites are present.
Exceptions:
Form however, is required in the following cases.
a. when the law requires that a contract be in
some form to be valid;
b. when the law requires that a contract be in
some form to be enforceable or proved in
certain way; or
c. when the law requires that a contract be in
some form for the convenience of the
parties or for the purpose of affecting third
persons – Article 1356
E.g.
1. Donation of personal property if the
value is P5,000.00 or more
2. Donation of real property regardless of
its value
3. Contract of partnership is void where
immovable property is contributed
thereto, if an inventory of said property
is not made, signed by the parties,
and attached to the public instrument.
4. Sale of a land through an agent – the
authority of the agent must be in
writing.

The following must appear in a PUBLIC INSTRUMENT:
1. Creation, transmission, modification, or
extinguishments of real rights over immovable
properties;
2. Cession or renunciation of hereditary rights or those
of conjugal partnership of gains;
3. Power to administer property;
4. Cession of action or real rights.
- All other contracts where the amount
involved exceeds FIVE HUNDRED PESOS
must appear in WRTING – public or
private.
- The above mentioned contracts even if it
will NOT APPEAR in a public instrument
will still be VALID and ENFORCEABLE,
because the requirement that it must
appear in a public instrument is NOT FOR
VALIDITY OR ENFORCEABILITY but
more of CONVENIENCE and GREATER
PROTECTION OF THE PARTIES.
REFORMATION OF INSTRUMENTS
Reformation – is the 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 agreement or intention.
Requisites of Reformation:
In order that there can be reformation of the
instrument, the following requisites must, therefore, concur:
1. There must be a meeting of the minds of the parties;
2. Their true intention is not expressed in the
instrument; and
3. Such failure to express their true intention is due to
mistake, fraud, inequitable conduct or accident.
Note: If there is NO MEETING OF THE MINDS or when the
first requisite is wanting the proper remedy is NOT
REFORMATION but the ANNULMENT OF THE CONTRACT.
Examples of Instruments which may be reformed.
1. When a mutual mistake of the parties causes the
failure of the instrument to disclose their real
agreement. (Art. 1361)
2. If one party was mistaken and the other acted
fraudulently or inequitable in such a way that the
instrument does not show their true intention. (Art.
1362)
3. When one party was mistaken and the other knew or
believed that the instrument did not state their real
agreement, but concealed that fact from the former.
(Art. 1363)
4. When through the ignorance, lack of skill, negligence
or bad faith on the part of the person drafting the
instrument or of the clerk or typist the instrument
does not express the true intention of the parties.
(Art. 1364)
5. If two parties agree upon the mortgage or pledge of
real or personal property, but the instrument states
that the property is sold absolutely, or with a right of
repurchase. (Art. 1365).
NOTE: In the above examples the following can bring the
action for reformation of the instrument:
- In No. 1 – the party who can bring the
action is either party or his successor in
interest;
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- In Nos. 2, 3, 4, and 5 – the party who can
bring the action is the injured party or his
heirs and assigns. (Art. 1368)
Q. What instruments cannot be reformed?
A: The following instruments cannot be reformed:
1. Simple donations inter vivos wherein no condition is
imposed;
- Donations inter vivos – are those
donations which will take during the lifetime
of the donor.
2. Wills; and
3. Those where the real agreement is void. (Art 1366)
DEFECTIVE CONTRACTS
Four Classes of Defective Contracts:
1. Rescissible Contracts
2. Voidable Contracts
3. Unenforceable Contracts; and
4. Void and inexistent contracts.
ESSENTIAL FEATURES OR CHARACTERISTICS OF
DEFECTIVE CONTRACTS:
I. RESCISSIBLE CONTRACTS:
1. Their defect consists in injury or damage either
to one of the contracting parties or to third
persons.
2. Before rescission, they are valid and therefore
legally effective.
3. They are susceptible of convalidation only by
PRESCRIPTION, and not by reformation.
4. They can be attacked directly only, and not
collaterally.
5. They can be attacked either by a contracting
party who suffers injury or by third person who is
defrauded.
II. VOIDABLE CONTRACTS:
1. Their defect consists in the vitiation of
consent or in the legal incapacity of one of
the contracting parties.
2. They are binding until they are annulled by a
competent court.
3. They are susceptible of convalidation either by
ratification or prescription.
4. They cannot be attacked or assailed by third
persons.
III. UNEFORCEABLE CONTRACTS:
1. Their defect consists with either in the fact
hat they were entered in to in excess or
without any authority, or they do not comply
with the Statute of Frauds, or both
contracting parties are legally incapacitated.
2. They cannot be enforced by a proper action in
court.
3. They are susceptible of convalidation by
ratification.
4. They cannot be attacked or assailed by third
persons.
IV. VOID AND INEXISTENT CONTRACTS:
1. Their defect consists in the fact that they
lack absolutely either in fact or in law one or
some of the elements of a valid contract.
2. As a general rule, they produce no legal effects
in accordance with the principle “quod nullum
est nullum producil effectum”
3. They are not susceptible of convalidation either
by ratification or by prescription.
4. The right to set up the defense of absolute
nullity or inexistence cannot be renounced.

5. They can be attacked or assailed either by a
contracting party or by a third person whose
interest is directly affected.
RESCISSIBLE CONTRACTS
Define:
- It is a contract which is valid because it contains all
the essential requisites prescribed by law, but which is
defective because of injury or damage to either of the
contracting parties or to third persons, as a consequence of
which it may be rescinded by means of a proper action for
rescission.
Q. What contracts are rescissible?
A: 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;
Requisites:
1. The contract must be entered into
by the guardian in behalf of his
ward or by the legal representative
in behalf of an absentee.
2. The ward or absentee suffered lesion
of more than one-fourth of the value
of the property which is the object of
the contract.
3. The contract must be entered into
without judicial approval.
4. There must be no other legal means
for obtaining reparation for the lesion.
5. The person bringing the action must
be able to return whatever he may be
obliged to restore.
6. The object of the contract must be
legally in the possession of a third
person who did not act in bad faith.
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 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. (Art. 1381)
6. Payments made in a state of insolvency for
obligations to whose fulfillment the debtor could
not be compelled at the time they were effected.
(Art. 1382)
E.g. Antonio is in a state of insolvency on
January 2, 2000. Antonio pays Benjamin, his
creditor the amount of P10,000.00, the payment
of which is due on March 2, 2001. The payment
may be rescinded for Antonio, because when
payment is made he (Antonio) cannot be
compelled by his creditor to effect payment.
Note:
The rescission shall only be to the extent necessary
to cover the damages caused.
E.g. Rochelle sold two lots in one Deed of Sale in favor of
Roselle while there existed an unsatisfied money judgment for
P1,000,000.00 won by Malou against Rochelle. One lot was
valued and priced at P1,500,000.00 and the other lot, at
28
P1,000,000.00. In a suit for rescission by Malou who claimed
that she had no other means to have her money judgment
satisfied, the court may rescind only the sale of the lot worth
P1,000,000.00 to satisfy the judgment in favor of Malou.
Note: In rescission there shall be MUTUAL RESTORATION –
or the rescission creates the obligation to return the things
which were the object of the contract. Hence, there can be no
rescission when the thing which is the object of the contract is
legally in the possession of third persons who did not act in bad
faith.
VOIDABLE CONTRACTS
Definition:
Voidable contracts are those in which all the
essential elements for validity are present, but the element of
consent is vitiated either by lack of legal capacity of one of the
contracting parties, or by mistake, violence, intimidation, undue
influence or fraud.
- A voidable contract is valid until annulled.
Q. What contracts are voidable?
A. 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 his consent to a contract; (look for those
person who cannot give a valid consent – p. 4)
and
2. Those where the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud.
E.g. A sold his lot to B at gunpoint. In this case the contract of
sale between A and B is voidable because the consent of A
was obtained through intimidation.
Q. How may a voidable contract co validated?
A. It is convalidated either by:
1. by prescription of the action for annulment;
2. by ratification or confirmation;
3. by loss of the thing object of the contract
through fraud or fault of the person entitled to
institute the action for the annulment of the
contract.
E.g of a voidable contract:
Malou 17, years old, sells a lot owned by her valued
at P200,000.00 for P500,000.00, without consent of her
parents. This contract is voidable and yet Malou gained
P30,000.00. This will not prevent her guardian (or herself upon
reaching the age of majority) to annul the contract.
UNENFORCEABLE CONTRACTS
Definition:
They are those which cannot be enforced by a proper
action in court, unless they are ratified, because either they are
entered into without or in excess of authority or they do not
comply with the Statute of Frauds or both of the contracting
parties do not possess the required legal capacity.
Q: What contracts are unenforceable?
A: The following contracts are unenforceable:
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.
- In contracts covered with Statute of
Frauds – it is required that an executory
contract (a contract still to be executed

NOT EXECUTED OR PARTIALLY
EXECUTED CONTRACT) must be placed
in writing.
a. An agreement that by its terms is not
to be performed within a year from the
making thereof;
b. A special promise to answer for the
debt, default, or miscarriage of
another.
c. An agreement made in consideration
of marriage other than a mutual
promise to marry;
d. An agreement for the sale of goods,
chattels or things in action, at a price
not less than five hundred pesos;
e. An agreement for the leasing for a
longer period than one year, or for the
sale of real property or 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.
Problem 1:
Lex and Malou are husband and wife. Lex sold the
paraphernal property (exclusive property of the wife) without
the consent of Malou. Was such sale valid, void, voidable,
rescissible or unenforceable? Explain.
A. The sale is unenforceable because it was entered into the
name of another person by one who has been given NO
authority or legal representation. Since the property was sold
by Lex is paraphernal, and therefore, it belongs exclusively to
Lex’ wife Malou, and since the sale was made without the
consent of Malou, the sale is unenforceable.
Problem 2:
Lex and Malou entered into a verbal contract
whereby Lex agreed to sell to Malou his only parcel of land for
P500,000.00 and Malou agreed to buy at the aforementioned
price. Malou then went to the bank withdrew the necessary
amount, and returned to Lex for the consummation of the
contract. Lex however had changed his mind and refused to go
through with the sale. Is the agreement valid? Will the action by
Malou against Lex for specific performance prosper? Reason.
A:
Is the agreement valid?
- Yes, the contract of sale is valid because a verbal
agreement to sell land is valid so long as there is already an
agreement with respect to the object and the purchase price.
Will the action for specific performance prosper?
- No, unless it is ratified. The property is covered by
the Statute of Frauds, It cannot therefore be enforced by a
court action because it is not evidenced by any note or
memorandum or writing properly subscribed by the party
charged.
Problem 3.
Rochelle purchased from Roselle a parcel of land,
paying part of the agreed price, with the understanding that she
will pay the balance upon the execution of the deed of
conveyance. Subsequently, Rochelle sold the same land to
Malou, who knew of the first sale. As a result Roselle brought
this action against both Rochelle and Malou to enforce the
contract. Rochelle and Malou on the other hand contend that
the contract is unenforceable under the Statute of Frauds.
Decide the case, stating the reason.
A: The contract is enforceable against Malou and
Rochelle. Well settled is the rule that Stature of Frauds is
29
applicable only to executory contracts and NOT to contracts
which are totally executed or partially performed. In the case at
bar, it was already partially performed by Rochelle and Roselle.
Q: How may contracts infringing the Statute of Frauds be
ratified?
A: Contracts infringing the Statute of Frauds may be ratified
either
1. by the failure to object to the presentation of oral
evidence to prove the same, or
2. by the acceptance of benefits under them.
VOID OR INEXISTENT CONTRACTS
Void contract – is one which has the requisites of a contract
but the same is either contrary to or prohibited by law.
Inexistent contract – is one wanting or lacking in one, some
or all of the requisites.
Both are the same and can be used interchangeably.
The following are void or inexistent contracts:
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 are 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;
8. Those which are the direct results of previous illegal
contracts.
9. Those which do not comply with required form where
such form is essential for validity. (see page 7)
e.g. of void contracts:
1. Sale between A and B with a simulated or fictitious of
price.
2. Sale where the subject matter or object does not
exist.
3. Sale where the object is not certain as to its kind.
4. Contract for trial marriage.
5. Donation to a woman by a married man subject to
the donation that the woman lives in concubinage
with him.
6. Donation between husband and wife
7. Lease of Public plaza is null and void