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Meaning of Law
 Any rule of action
 Any system of uniformity
General Divisions
1. Strict legal sense (state law) –
promulgated and enforced by state
2. Non-legal sense – not promulgated and
enforced by the state
2.1.Divine law
2.2.Natural law
2.3.Moral law
2.4.Physical law
Divine Law
The law of religion and faith which
concerns itself with the concept of sin (as
contrasted with crime) and salvation.
Natural Law
The divine inspiration in man of the
sense of justice, fairness, and righteousness, not
by divine revelation or formal promulgation, but
by internal dictates of reason alone.
It is the basic understanding of right
and wrong based on an understanding of the
fundamental standard or criterion of good and
evil.
Moral Law
The totality of the norms of good and
right conduct growing out of the collective sense
of right and wrong of every community.
It is not absolute. It varies with the
changing of times, conditions or convictions of
the people.
Examples:
 Polygamy – immoral in the Phils.
but allowed in some parts of the
world
 Marriage between the same sex
Physical Law
An order or regularity in nature by which
certain results follow certain causes.
Examples:
 Law of gravitation
 Law of chemical combination
State Law (Positive Law, Municipal Law,
Civil Law, Imperative Law)
The law that is promulgated and
enforced by the state.
Concepts of State Law
1. General/Abstract sense
2. Specific/Material Sense
General Sense
The mass of obligatory rules established
for the purpose of governing the relations of
persons in society.
Specific Sense
A rule of conduct, just, obligatory,
promulgated by legitimate authority, and of
common observance and benefit.
Characteristics of Law (In its specific
sense)
1. A rule of conduct
2. Obligatory
3. Promulgated by legitimate authority
4. Of common observance and benefit
A rule of conduct
Law tells us what shall be done and
what shall not be done.
Obligatory
Law is considered a positive command
imposing a duty to obey and involving a sanction
which forces obedience.
Promulgated by legitimate authority
The legitimate or competent authority is
the legislature.
Of common observance and benefit
Law regulates the relation of men to
maintain harmony in society and to make order
and co-existence possible.
Sources of Law (principal sources 1-5)
1. Constitution
2. Legislation
3. Administrative Rules and
Regulations
4. Judicial Decisions
5. Customs
6. Other sources (principles of justice
and equity, decisions of foreign
tribunals, opinions of textwriters, and
religion)
Constitution (1987)
The Fundamental law or Supreme Law
or Highest Law of the land.
The written instrument by which the
fundamental powers of the government are
established, limited and defined, and by which
these powers are distributed among the several
departments for their safe and useful exercise
for the benefit of the people.
It is the law to which all other laws
enacted by the legislature (as well as
administrative or executive acts, orders and
regulations having the force of law) must
conform.
Legislation
It consists in the declaration of legal
rules by a competent authority.
Acts passed by the legislature are so-
called enacted law or statute law.
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Administrative or Executive Orders, The body of rules which regulates the

Regulations, and Rulings relations of individuals with one another for
They are those issued by administrative purely private ends.
officials under legislative authority. Example:
Administrative rules and regulations are  Obligations and Contracts –
intended to clarify or explain the law and carry contracting parties only
into effect its general provisions.

Judicial Decisions or Jurisprudence Law on Obligations and Contracts

The decisions of the courts, particularly The body of rules which deals with the
the Supreme Court, applying or interpreting the nature and sources of obligations and the rights
law or the Constitution form part of the legal and duties arising from agreements and the
system of the Phils. particular contracts.
The decisions of a superior court on a
point of law are binding on all subordinate Conclusive presumption of knowledge of
courts. law
This is called the doctrine of Art. 3, Civil Code:
precedent or stare decisis. “Ignorance of law excuses no
one from compliance
Custom therewith.”
It consists of those habits and practices
which through long and uninterrupted usage
have become acknowledged and approved by
Chapter I – General Provisions
society as binding rules and conduct.
Obligations (Arts. 1156-1304)
Others sources
They are only supplementary, that is,
Obligation defined
they are resorted to by the courts in the
Art. 1156
absence of all other sources.
“An obligation is a juridical necessity to
give, to do or not to do.”
Branches of the Government
1. Executive
Parties
2. Legislative
1. Obligor/Debtor
3. Judiciary
2. Obligee/Creditor
Classifications of Law
Juridical Necessity
As to its purpose
In case of noncompliance, the courts of
1. Substantive
justice may be called upon by the aggrieved
2. Procedural/Adjective Law
party to enforce its fulfillment or, in default
As to its subject matter
thereof, the economic value that it represents.
1. Public Law
2. Private Law
Civil Obligations vs. Natural Obligations
Civil Obligations – give to the obligee/creditor a
Substantive
right under the law to enforce their performance
That portion of the body of law creating
in courts of justice
or defining rights and duties which may be
either public or private in character.
Natural Obligations – based on equity and
natural law which do not grant a right of action
Procedural/Adjective Law
to enforce their performance (Title III, Arts.
That portion of the body of law
1423-1430)
prescribing the manner or procedure by which
rights may be enforced or their violations
Real Obligations vs. Personal Obligations
redressed.
Real Obligations (obligation to give) – that in
which the subject matter is a thing which the
Public Law
obligor must deliver to the oblige
The body or legal rules which regulates
Example:
the rights and duties arising from the
X binds himself to deliver a piano to Y.
relationship of the state to the people.
Example:
Personal Obligations (obligation to do or not to
 Criminal Law – a crime against
do) – that in which the subject matter is an act
the state to be done or not to done.

Private Law Kinds of Personal Obligations (2)

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1. Positive Personal Obligation –
obligation to do or to render service
Example:
X binds himself to repair the piano of Y.
2. Negative Personal Obligation –
obligation not to do (naturally includes
obligations “not to give”)
Example:
X obliges himself not to build a fence on
a certain portion of his lot in favor of Y
who is entitled to a right of way over
said lot.
Essential Requisites (4)
1. Passive subject (debtor/obligor) –
person bound to fulfil the obligation
2. Active subject (creditor/oblige) – person
entitled to demand the fulfilment of the
obligation
3. Object/Prestation – subject matter of
the obligation
4. Juridical/Legal tie – the efficient cause,
that which binds or connects the parties
to the obligation
Example:
A building contract, X bound himself to
build a house for Y for P 1M.
Forms of Obligations
 Oral
 In writing
 Partly oral and partly in writing
As a general rule, the law does not
require any form in obligations arising
from contracts for their validity or
binding force. (Art. 1356)
Obligation, Right and Cause of Action
(Wrong) distinguished
Obligation – the act or performance which the
law will enforce
Right – the power which a person has under the
law, to demand from another any prestation
Cause of Action – an act or omission of one
party in violation of the legal right or rights
(recognized by law) of another.
Essential elements of a cause of action (3)
1. a legal right in favor of a person
(obligee/creditor)
2. a correlative legal obligation on the part
of another (obligor/debtor) to respect or
not to violate said right
3. an act or omission by the obligor/debtor
in violation of said right with resulting
injury or damage to the oblige/creditor
Sources of Obligation
Art. 1157
“Obligations arise from:
1. Law
2. Contracts
3. Quasi-contracts
4. Acts or Omissions
punished by law
5. Quasi-delicts”
Law – when they are imposed by law itself
Examples:
 Obligation to pay taxes
 Obligation to support one’s
family (Art. 291)
Contracts – when they arise from the
stipulation of the parties (Art. 1306)
Example:
The obligation to repay a loan or
indebtedness by virtue of an agreement.
Quasi-contracts – when they arise from
lawful, voluntary and unilateral acts which are
enforceable to the end that no one shall be
unjustly enriched or benefited at the expense of
another (Art. 2142)
Example:
The obligation to return money paid by
mistake or which is not due. (Art. 2154)
Crimes or acts or omissions punished by
law – when they arise from civil liability which is
the consequence of a criminal offense. (Art.
1161)
Examples:
 The obligation of a thief to
return the car stolen by him
 The duty of a killer to indemnify
the heirs of his victim
Quasi-delicts or torts – when they arise from
damage caused to another through an act or
omission, there being fault or negligence, but no
contractual relation exists between the parties.
(Art. 2176)
Examples:
 The obligation of the head of the family
that lives in a building or a part thereof
to answer for damages caused by things
thrown or falling from the same (Art.
2193)
 The obligation of the possessor of an
animal to pay for the damage which it
may have caused (Art. 2183)
Actually, there are only (2) sources:
1. law (quasi-contracts, delicts, quasi-
delicts are imposed by law)
2. contracts
Art. 1158
“Obligations derived from law are not
presumed. Only those expressly
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determined in this Code or in special
laws are demandable, and shall be
regulated by the precepts of law which
establishes them; and as to what has not
been foreseen, by the provisions of this
Book.”
Examples: (no law)
 Free legal assistance to employees
 Clothing allowance to its teachers
Examples: (existing law)
 A person who wins money in
gambling has the duty to return his
winning to the loser. (Art. 2014)
 (special laws) Corporation Code
 Negotiable Instruments Law
 Insurance Code
 NIRC
 RPC
Art. 1159
“Obligations arising from contracts have
the force of law between the contracting
parties and should be complied with in
good faith.”
Contract defined
Art. 1305
“A contract is a meeting of minds between two
persons whereby one binds himself, with
respect to the other, to give something or to
render some service.”
Although it has the force of law between the
contracting parties, it must be valid and not
against the law.
Example: (void)
A contract whereby A will kill B in
consideration to be paid by C, is void
and non-existent because killing a
person is contrary to law.
Art. 1160
“Obligations derived from quasi-
contracts shall be subject to the
provisions of Chapter 1, Title XVII of this
Book.”
Quasi-contracts (contracts implied in law)
defined
That juridical relation resulting from
lawful, voluntary and unilateral acts by virtue of
which the parties become bound to each other
to the end that no one will be unjustly enriched
or benefited at the expense of another. (Art.
2142)
Contract Quasi-Contract
 There is a meeting  There is no consent
of the minds or but the same is
consent supplied by fiction of
law, to prevent
injustice.
Principal Kinds of Quasi-Contracts
1. Negotiorum Gestio
2. Solutio Indebiti
Negotiorum Gestio
The voluntary management of the
property or affairs of another without the
knowledge or consent of the latter. (Art. 2144)
Example:
X’s house while in Bagiou caught fire. Y
was able to save the house but incurred
expenses. X has the obligation to reimburse Y,
although he did not actually give his consent to
the act of saving.
Solutio Indebiti
The juridical relation which is created
when something is received when there is no
right to demand it and it was unduly delivered
through mistake. (Art. 2154)
Requisites:
1. There is no right to receive the thing
delivered; and
2. The thing was delivered through
mistake
Examples:
 D owes C Php 1,000.00. If D paid
T believing that T was authorized to
receive payment for C, the obligation to
return on the part of T arises. If D paid
C Php 2,000.00 by mistake, C must
return the excess of Php 1,000.00.
 Arts. 2164 to Arts. 2175
Art. 1161
“Civil obligations arising from criminal
offenses shall be governed by the penal
laws, subject to the provisions of article
2177, and of the pertinent provisions of
article 2177, and of the pertinent
provisions of Chapter 2, Preliminary Title,
on Human Relations, and of Title XVIII of
this Book, regulating damages.”
Every person criminally liable for an act
or omission is also civilly liable. (Art. 100, RPC)
Scope of Civil Liability
1. Restitution
2. Reparation of damage caused; and
3. Indemnification for consequential
damages (Art. 104, RPC)
Example:
X stole the car of Y. If X is convicted,
the court will order X:
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1. To return the car (restitution) or to pay its proper diligence of a good father of a
value if it was lost or destroyed family, unless the law or the stipulation of
2. To pay for any damage caused to the car; the parties requires another standard of
and care.”
3. To pay such other damages suffered by Y as
a consequence of the crime Specific or Determinate thing
Art. 1460
Art. 1162 “A thing is determinate when it is particularly
“Obligations derived from quasi-delicts designated or physically segregated from all
shall be governed by the provisions of others of the same class.”
Chapter 2, Title XVII of this Book, and by
special laws.” Examples:
 My dog named “Terror”
Quasi-Delict/Torts (Arts. 2176 to 2194)  Her 1995 Toyota Altis with plate no.
An act or omission by a person AAA 888
(tortfeasor) which causes damage to another in
his person, property, or rights giving rise to an Generic or Indeterminate thing
obligation to pay for the damage done, there When it refers only to a class or genus
being fault or negligence but there is no pre- to which it pertains and cannot be pointed out
existing contractual relation between the parties. with particularity.
(Art. 2176) Examples:
 A police dog
Requisites:  A 1995 Toyota car
1. act or omission
2. fault or negligence Specific/Determinate vs.
3. damage caused Generic/Indeterminate
4. a direct relation or connection of cause Specific/Determinate Generic/Indeterminate
and effect between the act or omission thing thing
and the damage; and  Identified by its  Identified only by its
5. no pre-existing contractual relation individuality. The specie. The debtor
between the parties debtor cannot can give anything of
substitute it with the same class as
Example: another although long as it is of the
X broke the window of Y while playing the latter is of the same kind.
softball with his friends same kind and
quality without the
Crime vs. Quasi-Delict consent of the
Crime Quasi-Delict creditor (Art. 1244)
 there is criminal or  there is only
malicious intent or negligence Duties of debtor in obligation to give a
criminal negligence determinate thing
 purpose is  purpose is 1. Preserve the thing – with the diligence
punishment indemnification of a good father of a family or through
 Affects public  Concerns private another standard of care pending
interest interest delivery
 Two liabilities:  One liability: civil 2. Deliver the fruits of the thing (Art. 1164)
criminal and civil 3. Deliver the Accessions and Accessories
 Criminal liability  Civil liability can be (Art. 1166)
cannot be compromised 4. Deliver the thing itself (Arts, 1163,
compromised or 1233, 1244; as to kinds of delivery, see
settled by the Arts. 1497 to 1501)
parties themselves 5. Answer for damages in case of non-
 Guilt of the accused  Fault or negligence fulfillment or breach (Art. 1170)
must be proved of the defendant
beyond reasonable need only be proved Diligence of a good father of a family
doubt by preponderance of Ordinary care or that diligence which an
evidence average (a reasonably prudent) person exercises
over his own property.
Example:
S binds himself to deliver a specific
Chapter II – Nature and Effect of Obligations
horse to B on a certain date.
Art. 1163 (specific or determinate thing)
Another Standard of Care
“Every person obliged to give something is
also obliged to take care of it with the
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If the law or the stipulation of the
parties provides another standard of care (slight
or extraordinary diligence), said law or
stipulation must prevail. (Art. 1163)
However, it is contrary to public policy
to stipulate for absolute exemption from liability
of the obligor for any fault or negligence on his
part.
Example:
Art. 1755
“A common carrier is bound to carry the
passengers safely as far as human care and
foresight can provide, using the utmost
diligence of very cautious persons with a due
regard for all the circumstances.”
If the law or contract does not state the
diligence which is to be observed in the
performance, that which is expected of a good
father of a family shall be required. (2 nd par.,
Art. 1173)
Duties of debtor in obligation to deliver a
generic thing
1. To deliver a thing which is of the quality
intended by the parties taking into
consideration the purpose of the
obligation and other circumstances (Art.
1246)
Art. 1246
“When the obligation consists in the delivery of
a indeterminate or generic thing, whose quality
and circumstances have not been stated, the
creditor cannot demand a thing of superior
quality. Neither can the debtor deliver a thing
of inferior quality.”
2. To be liable for damages in case of
fraud, negligence, or delay, in the
performance of his obligation, or
contravention of the tenor thereof.
(Art.1170)
Art. 1164
“The creditor has a right to the fruits of
the thing from the time the obligation to
deliver it arises. However, he shall
acquire no real right over it until the same
has been delivered to him.”
Kinds of Fruits
1. Natural
2. Industrial
3. Civil
Natural fruits
The spontaneous products of the soil,
and the young and other products of animals.
Examples:
 Grass, trees, plants on lands produced
without the intervention of human labor
Industrial fruits
Those produced by lands of any kind
through cultivation or labor
Examples:
 Sugar cane, vegetables, rice, and all products
of lands brought about by reason of human
labor
Civil fruits
Those derived by virtue of a juridical
relation
Examples:
 Rents of buildings, price of leases of lands
and other property, amount of perpetual or
life annuities or other similar income
When obligation to deliver fruits arises
1. Generally, the obligation to deliver the
thing due and, consequently, the fruits
thereof, if any, arises from the time of
the PERFECTION OF THE CONTRACT.
Perfection refers to the birth of the
contract or the meeting of the minds
between the parties. (Arts. 1305, 1315,
1319)
2. If the obligation is subject to a
SUSPENSIVE CONDITION or period
(Arts. 1179, 1189, 1193), it arises upon
the fulfilment of the condition or arrival
of the term.
The parties may, however, make
stipulations to the contrary as regards
the right of the creditor to the fruits of
the thing.
4. In a contract of sale, the obligation
arises from the perfection of the
contract even if the obligation is subject
to a suspensive condition or a
suspensive period where the price has
been paid.
Example:
S sold his horse to B for Php 15,000.00.
While still in the possession of S, the horse gave
birth to a colt.
Personal Right
The right or power of a person (creditor)
to demand from another (debtor), as a definite
passive subject, the fulfillment of the latter’s
obligation to give, to do, or not to do.
Real Right
The right or interest of a person over a
specific thing (like ownership, possession,
mortgage), without a definite passive subject
against whom the right may be personally
enforced.
Personal right vs. Real right
Personal Real
 Definite active and  Definite active
passive subject subject only
 Binding or  Binding or
enforceable only enforceable against
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against a particular the whole world
person
Ownership acquired by delivery
Ownership and other real rights over
property are acquired and transmitted in
consequence of certain contracts by tradition
(Art. 712) or delivery.
In sale, mere agreement on the terms
thereof does not effect transfer of ownership of
the thing sold in the absence of delivery, actual
or constructive, of the thing.
Example:
S is obliged to give to B on July 25 a
particular horse. Before July 25, B has no right
over the horse. B will acquire a personal right
against S to fulfill his obligation only from July
25.
Art. 1165
“When what is to be delivered is a
determinate thing, the creditor, in
addition to the right granted him by
Article 1170, may compel the debtor to
make the delivery.
If the thing is indeterminate or generic, he
may ask that the obligation be complied
with at the expense of the debtor.
If the obligor delays, or has promised to
deliver the same thing to two or more
persons who do not have the same
interest, he shall be responsible for
fortuitous event until he has effected the
delivery.”
Remedies of creditor in real obligation
 In a specific real obligation (obligation to
deliver a determinate thing), the creditor may
exercise the following remedies or rights in
case the debtor fails to comply with his
obligation: (Alternative)
1. Demand specific performance or
fulfilment (if it is still possible) of the
obligation with a right to indemnity for
damages; or
2. Demand rescission (Art. 1385) or
cancellation (in certain cases) of the
obligation also with a right to recover
damages (Art. 1170); or
3. Demand payment of damages only,
where it is the only feasible remedy
Example:
S sells his piano to B for Php 10,000.00.
If S refuses to comply with his obligation to
deliver the piano, B can bring an action for
fulfilment or recession of the obligation with the
payment of damages in either case.
 In a generic real obligation (obligation to
deliver a generic thing), it can be performed
by a third person since the object is expressed
only according to its family or genus.
Example:
S obliges himself to deliver to B 100
sacks of rice on 4 December for Php 50,000.00.
If S does not comply with his obligation, B may
buy rice from C, a third person. If B paid C Php
55,000.00, he may recover (assuming B has not
yet paid S) Php 5,000.00 from S. Plus damages.
Par. 3 gives two (2) instances (delay
and delivery to separate creditors) when a
fortuitous event does not exempt the debtor
from responsibility. It refers to a determinate
thing.
An indeterminate thing cannot be the
object of destruction by a fortuitous event.
(genus nunquam perit – genus never perishes)
Delay – Art. 1169
Fortuitous events – Art. 1174
Art. 1166
“The obligation to give a determinate
thing includes that of delivering all its
accessions and accessories, even though
they may not have been mentioned.”
ACCESSIONS – the fruits of a thing or additions
to or improvements upon a thing (the principal)
Examples:
House or trees on land, rents of a
building, air-conditioner in a car.
ACCESSORIES – things joined to or included
with the principal thing for the latter’s
embellishment, better use, or completion.
Examples:
Key of a house, frame of a picture,
bracelet of a watch, machinery in a factory
Accessions are not necessary to the
principal thing.
Accessories and the principal thing must
go together.
Both can exist only in relation to the
principal.
Right of creditor to accessions and
accessories
The general rule is that all accessions
and accessories are considered included in the
obligation to deliver a determinate thing
although they may not have been mentioned.
This rule is based on the principle of law
that the accessory follows the principal. In
order that they will be excluded, there must be a
stipulation to that effect.
Question:
Does the sale of a house on a lot, sufficient to
convey title or any right to the land?
On the other hand, the lease of a house
naturally includes the lease of the lot on which it
is constructed for the possession of the lot is
implied in the lease of the improvement.
Art. 1167
“If a person is obliged to do something
fails to do it, the same shall be executed
at his cost.
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This same rule shall be observed if he does
it in contravention of the tenor of the
obligation. Furthermore, it may be
decreed that what has been poorly done
be undone.”
Three (3) situations contemplated
1. Debtor fails to perform an obligation to
do
2. Debtor performs an obligation to do but
contrary to the terms thereof
3. Debtor performs an obligation to do but
in poor manner
Remedies of creditor in positive personal
obligation
1. To have the obligation performed by
himself, or by another, unless personal
considerations are involved, at the
debtor’s expense; and
2. To recover damages
3. In case the obligation is done in
contravention of the terms of the same
or is poorly done, it may be ordered (by
the court) that it be undone if it is still
possible to undo what was done.
Notes:
A debtor can be compelled to make the delivery
of a specific thing (Art. 1165)
However, a debtor cannot be compelled to do a
personal obligation because it amounts to
involuntary servitude which is prohibited under
the Constitution.
Art. III, Sec. 18(2) of the 1987 Constitution
“No involuntary servitude in any form shall exist
except as a punishment of a crime whereof the
party shall have been duly convicted”
Example:
To sing in a night club
Article 1168
“When the obligation consists in not
doing, and the obligor does what has been
forbidden him, it shall also be undone at
his expense.”
Remedies of creditor in negative personal
obligation
 Undone and
 Damages (1170)
 If cannot be undone, only
damages
Example:
B bought a land from S. It was
stipulated that S would not construct a fence on
certain portion of his land adjoining that sold to
B.
Should S construct a fence in violation
of the agreement, B can bring an action to have
the fence removed at the expense of S.
NOTE: In this kind of obligation, the debtor
cannot be guilty of delay. (1169)
Article 1169
“Those obliged to deliver or to do
something incur in delay from the time the
obligee judicially or extra-judicially
demands from them the fulfillment of
their obligation.
However, the demand by the creditor shall
not be necessary in order that delay may
exist:
1. When the obligation or the law
expressly so declares; or
2. When from the nature and the
circumstances of the obligation it
appears that the designation of the
time when the thing is to be
delivered or the service is to be
rendered was a controlling motive
for the establishment of the
contract; or
3. When demand would be useless, as
when the obligor has rendered it
beyond his power to perform.
In reciprocal obligations, neither party
incurs in delay if the other does not
comply or is not ready to comply in a
proper manner with what is incumbent
upon him. From the moment one of the
parties fulfill his obligation, delay by the
other begins.”
Meaning of Delay (Default or Mora)
Ordinary Delay Legal Delay/Default/Mora
 Failure to  Failure to perform
perform an an obligation on time
obligation time w/c failure constitutes
a breach of the
obligation
Kinds of delay or default
1. Mora solvendi (to give or to do) – delay
on the part of the debtor to fulfill his
obligation
2. Mora accipiendi – delay on the part of
the creditor to accept the performance
of the obligation
3. Compensatio morae – delay of the
obligors in reciprocal obligations (i.e.
sale)
 The delay of the debtor cancels the
delay of the creditor, and vice versa.
NOTE: No delay in negative personal obligation.
Requisites of delay or default by the
debtor (mora solvendi)
1. Obligation is already due or
demandable.
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2. Failure of the debtor to perform his
(positive) obligation on the date agreed
upon.
3. Demand (not mere reminder or notice)
made by the creditor upon the debtor to
comply with his obligation, which
demand may be either:
a. judicial – when a complaint is filed
in court
b. extra-judicial – when made outside
of court, orally or in writing
4. Failure of the debtor to comply with
such demand
NOTES:
 The creditor has the burden of
proving that demand has been made.
(Art. 1279[4])
 It is incumbent upon the debtor to
prove that delay was not caused by his
fault to relieve himself from liability.
(Art. 1173, 1174)
Example:
S obliged himself to deliver to B a
specific refrigerator on 10 December.
If S does not deliver the refrigerator on
10 December, he is only in ordinary delay in the
absence of any demand from B although a
period had been fixed for the fulfillment of the
obligation. The law presumes that B is giving S
an extension of time within which to deliver the
refrigerator. Hence, there is no breach of the
obligation and S is not liable for damages.
If a demand is made upon S by B on 15
December and S fails to deliver the refrigerator,
S is considered in default only from the date.
If an action for specific performance is
filed by b on 20 December, the payment of
damages for the default must commence on 15
December when he made the extra-judicial
demand and not on 20 December. In the
absence of evidence, as to such extra-judicial
demand, the effects of default arise from the
date of the judicial demand, that is, from the
filing of the complaint.
Effects of delay (Mora solvendi)
1. Debtor is guilty of breach or violation
of the obligation
2. Debtor is liable to creditor for interest
(in case of obligations to pay money
[Art. 2209]) or damages (in other
obligations [Art. 1170])
NOTE: In the absence of extra-judicial
demand, the interest shall
commence from the filing of the
complaint.
3. Debtor is liable even for a fortuitous
event when the obligation is to
deliver a determinate thing (Arts.
1165, 1170)
NOTE: If the debtor can prove that the
loss would have resulted just the
same even if he had not been in
default, the court may equitably
mitigate or reduce the damages.
(Art. 2215[4]).
NOTE: In an obligation to deliver a
generic thing, the debtor is not
relieved from liability for loss due
to a fortuitous event. He can still
be compelled to deliver a thing of
the same kind (Art. 1263) or held
liable for damages (Art. 1170).
Effects of delay (Mora accipiendi)
1. Creditor is guilty of breach of
obligation
2. Creditor is liable for damages suffered,
if any, by the debtor
3. Creditor bears the risk of loss of the
thing due (Art. 1262)
4. In an obligation to pay money, debtor
is not liable for interest from the time
of creditor’s delay
5. Debtor may release himself from the
obligation by the consignation or
deposit in court of the thing or sum
due (Art. 1256)
Effects of delay (Compensatio morae)
 The delay of the debtor cancels
the delay of the creditor and vice versa.
Legally speaking, there is no default or
delay on the part of both parties.
 If it cannot be determined which of
the parties is guilty of delay, the
contract shall be deemed
extinguished and each shall bear
his own damages (Art. 1192).
When demand is not necessary to put
debtor in delay
1. When the obligation so provides
2. When the law so provides
3. When time is of the essence
4. When demand would be useless
5. When there is performance by a party in
reciprocal obligations
When the obligation so provides
Example: D promised to pay C the sum of Php
20,000.00 on or before 30
November without the need of
any demand. (automatic
default)
When the law so provides
Example:
1. Under the law, taxes should be paid on
or before a specific date, otherwise,
penalties and surcharges are imposed
without the need of demand for
payment by the government.
When time is of the essence
Examples:
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1. The making of a wedding dress where
the wedding is scheduled at a certain
time
2. The delivery of balloons on a particular
date when a children’s party will be held
When demand would be useless
Example: S obliged himself to deliver a specific
horse to B on 5 September. Through S’s
negligence or deliberate act, or by reason of
fortuitous event for which S has expressly bound
himself responsible (Art. 1174), the horse died
on 2 September.
Under this situation, any demand for the
delivery of the horse on 5 September would be
useless as S has made it impossible for him to
perform his obligation.
When there is performance by a party in
reciprocal obligations
 The performance of one is conditioned
upon the simultaneous fulfillment on the
part of the other.
 From the moment a party fulfills or is
ready to fulfill his obligation, delay by the
other begins.
Examples:
1. S agreed to sell to B his television set
for Php 10,000.00. The obligation of S
is to deliver the television set while that
of B, to pay Php 10,000.00.
Since no date is set for the performance
of their respective obligations, it is
understood that it must be
simultaneous. S cannot demand
payment if he himself cannot deliver the
television set. From the moment S
delivers the television set, B is in default
if he does not pay S without the need of
any demand.
2. (performance is set on same date)
If the agreement is that the delivery and
payment shall be made on 10
December, the delivery by S on 5
December does not give him the right to
demand payment from B. Neither party
will incur in delay before 10 December
notwithstanding that the other has
already complied with his obligation.
3. (performance is set on different dates)
Suppose, the delivery is to be made on
10 December and the payment on 15
December.
A demand on 10 December by B is
necessary to put S in delay following the
general rule. (Art. 1169, par.1)
Similarly, the delivery of the television
set by S does not put B in delay until a
demand is made upon him on 15
December or subsequently.
Article 1170
“Those who in the performance of their
obligations are guilty of fraud, negligence,
or delay and those who in any manner
contravene the tenor thereof, are liable
for damages.”
NOTES:
1170 – the breach of obligation is voluntary
1174 – the breach of obligation is involuntary
Grounds for liability (4):
1. Fraud (deceit or dolo)
2. Negligence (fault or culpa)
3. Delay (mora)
4. Contravention of the terms of the
obligation
Fraud (deceit or dolo)
The deliberate or intentional evasion of
the normal fulfillment of an obligation.
As a ground for damages, it implies
some kind of malice or dishonesty and it cannot
cover cases of mistake and errors of judgment
made in good faith.
It is synonymous to bad faith in that, it
involves a design to mislead or deceive another.
NOTE: Art. 1170 refers to incidental fraud
(dolo incidente) committed in the performance
of an obligation already existing because of
contract.
Example:
S obliged himself to deliver to b 20
battles of wine, of a particular brand.
Subsequently, S delivered 20 bottles knowing
that they contain cheaper wine.
NOTE: The remedy of B is not annulment of
contract of sale but to claim damages.
It is to be differentiated from causal
fraud (dolo causante) or fraud employed in the
execution of a contract under Art. 1338, which
vitiates consent.
Example:
If B bought the 20 bottles of wine on
the false representation of S that the wine is
that as represented by labels, the fraud
committed by S is causal fraud. Without the
fraud, B would not have given his consent to the
contract.
Article 1338
“There is fraud when, through insidious words
or machinations of one of the contracting
parties, the other is induced to enter into a
contract which, without them, he would not
have agreed to.”
Art. 1390
“The following contracts are voidable or
annullable, even though there may have been
no damage to the contracting parties:
1. xxx xxx
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2. Those where the consent is vitiated by
mistake, violence, intimidation, undue influence
or fraud.
These contracts are binding unless they are
annulled by a proper action in court. They are
susceptible of ratification.”
A waiver of an action for future fraud
is void as being against the law and public
policy. (Art. 1409[1])
However, a waiver of action for past
fraud is valid. (as an act of forgiveness; waiver
of indemnity)

Negligence (fault or culpa) Article 1172

Any voluntary act or omission, there “Responsibility arising from negligence in
being no malice, which prevents the normal the performance of every kind of
fulfillment of an obligation. obligation is also demandable, but such
Example: liability may be regulated by the courts,
A passenger and an owner of a taxi. according to the circumstances.”
There exists a contract of carriage between the
parties. If through the recklessness of the NOTE: The courts are given wide discretion in
driver, like driving at an unjustified rate of speed fixing the measure of damages. The reason is
or entering a one-way street, an accident because negligence is a question which must
occurs, as a result of which the passenger is necessarily depend upon the circumstances of
injured, the owner would be liable for damages. each particular case. (Art. 1173)
Also, there is no deliberate intention to
Delay (mora) cause injury or damages.
Discussed already under art. 1169. An action for future negligence may be
waived except where the nature of the
Contravention of the terms of the obligation requires the exercise of extraordinary
obligation diligence (i.e., common carriers, Art. 1733)
The violation of the terms and However, where negligence shows bad
conditions stipulated in the obligation. The faith (i.e., deliberately committed), it is
contravention must not be due to a fortuitous considered equivalent to fraud. (Art. 2201, 2nd
event or force majeure. (Art. 1174) par.)
Example:
Lease of an apartment Kinds of negligence according to source of
obligation
Fraud vs. Negligence 1. Contractual negligence (culpa
Fraud Negligence contractual) or negligence in contracts
 There is  There is no resulting in their breach.
deliberate such intention 2. Civil negligence (culpa aquiliana) or
intention to cause negligence which by itself is the source
damage or injury of an obligation between the parties
 Waiver of the  Waiver, in a not so related before any pre-existing
liability for future certain case, contract. It is also called tort or quasi-
fraud is void (Art. allowed (Art. 1172) delict (Art. 2176)
1171) 3. Criminal negligence (culpa criminal) or
 Fraud must  Negligence is negligence resulting in the commission
be clearly be presumed from the of a crime. (Arts. 3, 365 RPC)
proved violation of a
contractual NOTE: In negligence cases, the aggrieved party
obligation may choose between a criminal action under
 Liability for  Liability for Art. 100 of the RPC or a civil action for damages
fraud cannot be negligence may be under Art. 2176 of the Civil Code. What is
mitigated or reduced according prohibited under Art. 2177 of the Civil Code is to
reduced by the to the recover twice for the same negligent act.
courts circumstances (Art.
1173) Effect of negligence on the part of the
injured party
Suppose the creditor is also guilty of
negligence, can he recover damages?
Article 1171 Art. 2179 of the new Civil Code
“Responsibility arising from fraud is provides:
demandable in all obligations. Any waiver “When the plaintiff’s own negligence
of an action for future fraud is void.” was the immediate and proximate cause of his
injury, he cannot recover damages. But if his
NOTE: The court is not given the power to
negligence was only contributory, the immediate
mitigate or reduce the damages to be awarded.
and proximate cause of the injury being the
defendant’s lack of due care, the plaintiff may
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recover damages, but the courts shall mitigate 3. if both the contract and law are silent,
the damages to be awarded.” (Arts. 2214, 2215) then the diligence expected of a good
Example: father of a family
A passenger in a bus.
1st scenario: in a carefully driven bus, the Article 1174
passenger jumped off, as a result of which, he “Except in cases expressly specified by the
suffered injuries. law, or when it is otherwise declared by
stipulation, or when the nature of the
2nd scenario: the passenger was standing on the obligation requires the assumption of risk,
running board and was repeatedly told by the no person shall be responsible for those
conductor to go inside but refused. However, events which could not be foreseen, or
the driver was intoxicated and was driving which though foreseen, were invevitable.”
recklessly
Meaning of fortuitous event
3rd scenario: the bus was running carefully when Any event which cannot be foreseen, or
it collided with another bus accidentally, causing which, though foreseen, is inevitable.
injury to the passenger. An event which either impossible to
foresee or impossible to avoid.
Article 1173
“The fault or negligence of the obligor Fortuitous Event Force Majeure
consists in the omission of that diligence Independent of the will Acts of God or events
which is required by the nature of the of the debtor but not w/c are totally
obligation and corresponds with the of other human wills independent of the will
circumstances of the person, of the time (W/ human of every human being
and of the place. When negligence shows intervention)
bad faith, the provisions of articles 1171 Examples: war, fire, Examples: Earthquake,
and 2201, paragraph 2, shall apply. robbery, murder flood, rain, eruption of
If the law or contract does not state the volcano
diligence which is to be observed in the
performance, that which is expected of a NOTE: In our law, fortuitous events and force
good father of a family shall be required.” majeure are identical in so far as they exempt
an obligor from liability. Both are independent
Meaning of fault or negligence (art. 1173) of the will of the obligor.
SC: The failure to observe for the
protection of the interests of another person, Requisites of a fortuitous event
that degree of care, precaution and vigilance 1. The event must be independent of the
which the circumstances justly demand, debtor’s will
whereby such other person suffers injury. (U.S. 2. The event could not be foreseen, or if
vs. Barrias 23 Phil. 434) foreseen, is inevitable
3. The event must be of such a character
NOTE: Negligence is a question of fact, its as to render it impossible for the debtor
existence being dependent upon the particular to comply with his obligation in a normal
circumstances of each case. manner
4. There must be no negligence of the part
Factors of the debtor
1. Nature of the OBLIGATION – smoking
while carrying inflammable materials
2. Circumstances of the PERSON – a
guard in the prime life, sleeping on duty EFFECT:
3. Circumstances of the TIME – driving a GR: A person (debtor) is not responsible for loss
car without headlights at night or damage caused to another resulting from
4. Circumstances of the PLACE – driving fortuitous events. Hence, the obligation is
at 100km/hr in a busy street extinguished.

SKIPPED: Good faith vs. Bad faith – extent of EXCEPTIONS:

damages (Art. 2201)
Kinds of diligence required
1. that agreed upon by the parties, orally
or in writing
2. in the absence of stipulation, that
required by law in the particular case
1. When expressly specified by law
2. When declared by stipulation
3. When the nature of the obligation
requires the assumption of risk
When expressly specified by law
Examples:
Article 1170 CC
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“Those who in the performance of their
obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene
the tenor thereof, are liable for damages”
Article 1165 par. 3
“If the obligor delays, or has promised to deliver
the same thing to two or more persons who do
not have the same interest he shall be
responsible for any fortuitous event until he has
effected delivery.”
REASON: It would be impossible for the debtor
to comply with his obligation to both creditors
even without any fortuitous event taking place.
Article 1263
“In an obligation to deliver a generic thing, the
loss or destruction of anything of the same kind
does not extinguish the obligation.”
REASON: Debtor can still comply with his
obligation by delivering another thing of the
same kind (PRINCIPLE: Genus never perishes)
Article 1268 – the obligation to deliver a
specific thing arises from a crime. (ex. X has the
obligation to return the stolen cow eventhough
it died)
When declared by stipulation
Freedom of contract, to procure greater
diligence on the part of the debtor in the
fulfillment of his obligation.
When the nature of the obligation requires
the assumption of risk
Risk of loss or damage is an essential
element in the obligation.
Example: House insured was destroyed by
accidental fire.
Article 1175
“Usurious transactions shall be governed
by special laws.”
Meaning of Usury
Contracting for or receiving interest in
excess of the amount allowed by law for the
loan or use of money, goods, chattels or credits.
Requisites for recovery of interest
1. The payment of interest must
expressly stipulated (Art. 1956)
2. The agreement must be in writing
3. The interest must be lawful
RULE: A stipulation for the payment of
USURIOUS INTEREST is VOID.
NOTE: Central Bank Circular No. 905. Usury is
now legally non-existent. Parties are now free
to stipulate any amount of interest.
Article 1176
“The receipt of the principal by the
creditor, without reservation with respect
to the interest, shall give rise to the
presumption that said interest has been
paid.
The receipt of later instalment of a debt
without reservation as to prior
instalments, shall likewise raise the
presumption that such instalments have
been paid”
_______________________________________
Article. 1177
“The creditors, after having pursued the
property in possession of the debtor to
satisfy their claims, may exercise all the
rights and bring all the actions of the
latter for the same purpose, save those
which are inherent in his person; they may
also impugn the acts which the debtor
may have done to defraud them.”
Remedies available to creditors for the
satisfaction of their claims
1. Exact fulfillment (specific performance)
with right to damages
2. Purse the leviable property of the debtor
3. Exercise all the rights (i.e., right to
redeem) and bring all the actions of the
debtor (i.e., right to collect), except
those inherent in or personal to the
person of the latter (i.e., right to vote,
to hold office, to receive legal support)
4. Ask the court to rescind or impugn acts
or contracts which the debtor may have
done to defraud him.
Article. 1178
“Subject to the laws, all rights acquired in
virtue of an obligation are transmissible, if
there has been no stipulation to the
contrary.”
Exceptions:
1. Prohibited by law
2. Prohibited by stipulation of the parties
(must be clearly established)
3. Intransmissible by nature (ex. Artist,
singer)
Prohibited by law
Examples: Rights in partnership, agency, and
commodatum w/c are purely personal in
be character.
Prohibited by stipulation of the parties
Example: Upon death of the creditor, the
obligation shall be extinguished, or that the
creditor cannot assign his credit to another.
CHAPTER 3
DIFFERENT KINDS OF OBLIGATIONS
Primary classification
1. Pure and Conditional (1179-1192)
2. Obligations with a Period (1193-1198)
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3. Alternative (1199-1205) and Facultative
obligations (1206)
4. Joint and Solidary obligations (1207-
1222)
5. Divisible and Indivisible obligations
(1223-1225)
6. Obligations w/ a penal clause (1226-
1230
Secondary classification
1. Unilateral and Bilateral obligations
(1169-1191)
2. Real and Personal obligations (1163-
1168)
3. Determinate and Generic obligations
(1165)
4. Civil and Natural obligations (123)
5. Legal, Conventional, and Penal
obligations. (1157, 1159, 1161)
Section I – Pure and Conditional Obligations
Article 1179
“Every obligation whose performance
does not depend upon a future or
uncertain event, or(N:and) upon a past
event unknown to the parties, is
demandable at once.
Every obligation which contain a
resolutory condition shall also be
demandable, without prejudice to the
effects of the happening of the event.”
Meaning of Pure obligation
One which is not subject to any
condition and no specific date is mentioned for
its fulfillment and is, therefore, immediately
demandable.
Examples:
X obliges himself to pay Y Php 1,000.00.
– immediately demandable
X binds himself to pay Y Php 1,000.00
upon demand – immediately due and
demandable
Meaning of condition
A future and uncertain event, upon the
happening of which, the effectivity or
extinguishment of an obligation subject to it
depends.
Meaning of Conditional obligation
One whose consequences are subject in
one way or another to the fulfillment of a
condition.
Characteristics of a condition
1. Future and Uncertain – both its
occurrence and the time of such
occurrence must be uncertain,
otherwise, it is not a condition.
2. Past but unknown
Example:
X won in a title case against Y, however was
not unknown to him. He obliges himself to
sell the said land to Z in case he wins.
NOTE: A condition must not be impossible. (Art.
1183)
Two principal kinds of condition
1. Suspensive condition
2. Resolutory condition
Suspensive condition
One the fulfillment of which will give rise
to an obligation.
The demandability of the obligation is
suspended until the happening of the uncertain
event which constitutes the condition.
Resolutory condition
One the fulfillment of which will
extinguish an obligation already existing.
When obligation is demandable at once
1. When it is pure (1179, par. 1)
2. When it is subject to a resolutory
condition (Ibid., par. 2)
3. When it is subject to a resolutory period
(1193, par. 2)
Article 1180
“When the debtor binds himself to pay
when his means permit him to do so, the
obligation shall be deemed to be one with
a period, subject to the provisions of
article 1197.”
REASON: What depends upon the debtor’s will
is not whether he should pay or not for indeed
he binds himself to pay. What is left only to his
will is the duration of the period.
Other cases:
1. little by little
2. as soon as possible
3. from time to time
4. at any time I have the money
5. in partial payments
6. when I am in a position to pay
NOTE: If the parties cannot agree as to the
specific time for payment, the court shall fix the
same on the application of either party. (1197,
Par. 2)
NOTE: The duration of period depends upon the
will of the debtor.
NOTE: Condition is uncertain while Period is
certain event.
Meaning of Period
A future and certain event, the arrival of
which gives rise or extinguishes the obligation.
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Article. 1181 3. I will pay you after I have harvested fish

“In conditional obligations, the acquisition
of rights, as well as the extinguishment or In the above examples, both the conditions and
loss of those already acquired, shall the obligations are void.
depend upon the happening of the event
which constitutes the condition.” Example of “only the condition void”
X borrowed P10k from Y payable within
NOTE: This article reiterates the distinction two (2) months. Subsequently, X
between a suspensive condition and a resolutory promised to pay Y after he sells his car
condition. to which Y agreed. In this case, only
the condition is void and not the pre-
Article. 1182 existing obligation.
“When the fulfillment of the condition
depends upon the sole will of the debtor, Where suspensive condition depends upon will
the conditional obligation shall be void. If of CREDITOR – VALID
it depends upon chance or upon the will of REASON: Normally the creditor is interested in
a third person, the obligation shall take the fulfillment of the obligation because it is for
effect in conformity with the provisions of his benefit.
this Code.”
Casual condition
NOTE: This article refers to Potestative and Examples:
Casual conditions Upon chance – X, building contractor, obliges
himself in favor of Y, owner, to repair at his
Classification of conditions expense any damage that may be caused to the
1. As to effect: building by any earthquake occurring within 10
a. Suspensive years from the date of completion of its
b. Resolutory construction.
2. As to possibility:
a. Possible - capable of fulfillment, Upon will of a third person – X binds himself to
legally and physically sell his land to Y if he wins a case which is
b. Impossible – not capable of pending before the SC.
fulfillment, legally or physically
3. As to cause or origin: Article 1183
a. Potestative – condition depends “Impossible conditions, those contrary to
upon the will of ONE OF THE good customs or public policy and those
CONTRACTING PARTIES prohibited by law shall annul the
b. Casual – condition depends obligation which depends upon them. If
upon CHANCE or upon the will of a the obligation is divisible, that part
THIRD PERSON thereof which is not affected by the
c. Mixed – partly upon chance and impossible or unlawful condition shall be
partly upon the will of a third person valid.
4. As to mode: The condition not to do an impossible
a. Positive – consists in the thing shall be considered as not having
performance of an act been agreed upon.”
b. Negative – consists in the
omission of an act NOTE: This article applies only to cases where
5. As to numbers: the impossibility already existed at the time the
a. Conjunctive – there are several obligation was constituted.
conditions and ALL must be fulfilled
b. Disjunctive – there are several If the impossibility arises after the creation of
conditions and ONLY ONE or SOME of the obligation, Article 1266 governs.
them must be fulfilled
6. As to divisibility: Art. 1266 – The debtor in obligations to do shall
a. Divisible – condition is also be released when the prestation becomes
susceptible of partial performance legally or physically impossible without the fault
b. Indivisible – condition is not of the obligor.
susceptible of partial performance
Two (2) kinds of impossible conditions
Where suspensive condition depends upon 1. Physically impossible conditions – in the
will of DEBTOR nature of things, cannot exist or cannot
Examples: be done.
1. I will pay you if I want 2. Legally impossible conditions – contrary
2. I will pay you after I recover what X to law, morals, good customs, public
owes order, or public policy.
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Effect of impossible conditions
1. Condtional obligation void – both the
obligation and the condition are void
2. Only the affected obligation void – if the
obligation is divisible, the part thereof
not affected by the impossible condition
shall be valid.
3. Only the condition void – if the
obligation is a pre-existing obligation,
and, therefore, does not depend upon
the fulfillment of the impossible
condition for its existence, only the
condition is void.
Article 1184
“The condition that some event
happen at a determinate time shall
extinguish the obligation as soon
as the time expires or if it has
become indubitable that the event
will not take place.”
NOTE: This article refers to a Positive condition
The obligation is extinguished:
1. as soon as the time expires without the
event taking place
2. as soon as it has become
indubitable(definite, certain) that the
event will not take place although the
time has not expired.
Example:
X obliges himself to give Z P10k if Z will marry Y
before Z reaches the age of 23.
Article 1185
“The condition that some event will not
happen at a determinate time shall render
the obligation effective from the moment
the time indicated has elapsed, or if it has
become evident that the event cannot
occur.
If no time has been fixed, the condition
shall be deemed fulfilled at such time as
may have probably been contemplated,
bearing in mind the nature of the
obligation.”
NOTE: This article refers to a Negative condition
– an event will not happen at a determinate
time
The obligation shall become effective and
binding:
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
Example: X binds himself to give Z P10k if Z is
not yet married to Y on December
30
Article 1186
“The condition shall be deemed fulfilled
when the obligor voluntarily prevents its
fulfillment.”
NOTE: This article refers to Constructive
fulfillment of suspensive condition
Three (3) requisites:
1. Condition is suspensive
2. Obligor actually prevents the fulfillment
of the condition
3. Obligor acts voluntarily
REASON: He should not be allowed to profit
from his own fault or bad faith.
This article also applies to Constructive
fulfillment of a resolutory condition
Article 1187
“The effects of a conditional obligation to
give, once the condition has been fulfilled,
shall retroact to the day of the
constitution of the obligation.
Nevertheless, when the obligation
imposes reciprocal prestations upon the
parties, the fruits and interests during the
pendency of the condition shall be
deemed to have been mutually
compensated. If the obligation is
unilateral, the debtor shall appropriate the
fruits and interests received, unless from
the nature of the circumstances of the
obligation it should be inferred that the
intention of the person constituting the
same was different.
In obligations to do and not to do, the
courts shall determine, in each case, the
retroactive effect of the condition that has
been complied with.”
Retroactive effects of fulfillment of
suspensive condition
1. In obligations to give
An obligation to give subject to a
suspensive condition becomes
demandable only upon the fulfillment of
the condition. However, once the
condition is fulfilled, its effects shall
retroact to the day when the obligation
was constituted.
Example:
On January 20, S agreed to sell his
parcel of land to B for P50k should B
lose a case involving the recovery of
another parcel of land. On April 10, S
sold his land to C. B lost the case on
December 4.
2. In obligations to do or not to do
The courts are empowered by the use of
sound discretion and bearing in mind
the intent of the parties, to determine,
in each case, the retroactive effect of
Law on Obligations and Contracts
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the suspensive condition that has been
complied with.
Example:
C obliged himself to condone the debt of
D, his lawyer, should the latter win C’s
case in the Supreme Court.
_______________________________________
Article 1188
The creditor may, before the fulfillment of
the condition, bring the appropriate
actions for the preservation of his right.
The debtor may recover what during the
same time he has paid by mistake in case
of a suspensive condition.”
Rights of creditor
Rights of debtor – solutio indebiti – should be by
mistake
Article 1189
When the conditions have been imposed
with the intention of suspending the
efficacy of an obligation to give, the
following rules shall be observed in case
of the improvement, loss or deterioration
of the thing during the pendency of the
condition:
1. If the thing is lost without the fault
of the debtor, the obligation shall be
extinguished;
2. If the thing is lost through the fault
of the debtor, he shall be obliged to
pay damages; it is understood that
the thing is lost when it perishes, or
goes out of commerce, or disappears
in such a way that its existence is
unknown or it cannot be recovered;
3. When the thing deteriorates
without the fault of the debtor,
the impairment is to be borne
by the creditor;
4. If it deteriorates through
the fault of the debtor, the
creditor may choose between
the rescission of the obligation
and its fulfillment, with
indemnity for damages in either
case;
5. If the thing is improved by
its nature, or by time, the
improvement shall inure to the
benefit of the creditor;
6. If it is improved at the
expense of the debtor, he shall
have no other right than that
granted to the usufructuary.”
Requisites:
1. The obligation is a real obligation
2. The object is a specific or determinate
thing
3. The obligation is subject to a suspensive
condition
4. The condition is fulfilled
5. There is loss, deterioration, or
improvement of the thing during the
pendency of the condition.
Kinds of loss:
1. Physical loss – the thing perishes (e.g.,
a house burned)
2. Legal loss – the thing goes out of
commerce (e.g., expropriated) or
becomes illegal
3. Civil loss – the thing disappears in such
a way that its existence is unknown, or
even if known, it cannot be recovered,
whether as a matter of fact (e.g., a
particular ring dropped from a ship at
sea) or of law (e.g., a property is lost
through prescription)
Rules in case of loss, deterioration, or
improvement of thing during pendency of
suspensive condition
1. Loss of thing without debtor’s fault
2. Loss of thing through debtor’s fault
3. Deterioration of thing without debtor’s
fault
4. Deterioration of thing through debtor’s
fault
5. Improvement of thing by nature or by
time
6. Improvement of thing at expense of
debtor
USUFRUCT is the right to enjoy the use and
fruits of a thing belonging to another.
Rights granted to usufructuary are: “The
usufructuary may make on the property held in
usufruct such useful improvements or expenses
for mere pleasure as he may deem proper
provided he does not alter its form or
substance; but he shall have no right to be
indemnified therefore. He may, however,
remove such improvements should it be possible
to do so without damage to property.” (Art.
579)
Article 1190
“When the conditions have for their
purpose the extinguishment of an
obligation to give, the parties, upon the
fulfillment of said conditions, shall return
to each other what they have received.
In case of loss, deterioration or
improvement of the thing, the provisions
which, with respect to the debtor, are laid
down in the preceding article shall be
applied to the party who is bound to
return.
As for obligations to do and not to do, the
provisions of the second paragraph of
Article 1187 shall be observed as regards
the effect of the extinguishment of the
obligation.”
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Effects of fulfillment of resolutory
condition
1. In obligations to give – mutual
restitution (also to the fruits and
interests)
Example:
Ex1: X allows Y to use the former’s car
until X returns from the province.
Ex2: X binds himself to give Y P500/mo.
until Y passes the CPA examination.
2. In obligations to do or not to do – the
court shall determine the retroactive
effect of the fulfillment of the resolutory
condition.
Article 1191
“The power to rescind obligations is
implied in reciprocal ones, in case one of
the obligors should not comply with what
is incumbent upon him.
The injured party may choose between
the fulfillment and the rescission of the
obligation, with payment of damages in
either case. He may also seek rescission,
even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission
claimed, unless there be just cause
authorizing the fixing of a period.
This is understood to be without prejudice
to the rights of third persons who have
acquired the thing, in accordance with
Articles 1385 and 1388 and the Mortgage
Law.”
Kinds of obligation according to the person
obliged
1. Unilateral – when only one party is
obliged to comply with prestations
2. Bilateral – when both parties are
mutually bound to each other.
2.1. Reciprocal – those which arise
from the same cause and in
which each party is a debtor
and creditor of the other, such
that the performance of one is
designed to be the equivalent
and the condition for the
performance of the other.
2.2. Non-reciprocal – those which
are not dependent of each other
(not from the same cause) and
are not simultaneous.
Remedies in reciprocal obligations
(ALTERNATIVE)
1. Action for specific performance with
damages or
2. Action for rescission with damages
NOTE (4th par.) The court has discretionary
power to allow a period within which a person in
default may be permitted to perform his
obligation if there is a just cause for giving time
to the debtor. (e.g., not willful, excused under
the circumstances)
NOTE: Right to rescind may be waived,
expressly or impliedly
Automatic rescission may be stipulated
(but there must be at least a notice to
the other party)
Article 1192
“In case both parties have committed a
breach of the obligation, the liability of
the first infractor shall be equitably
tempered by the courts. If it cannot be
determined which of the parties first
violated the contract, the same shall be
deemed extinguished, and each shall bear
his own damages.”
Where both parties are guilty of breach
1. First infractor known
2. First infractor cannot be determined
Section 2 – Obligations with a Period
Target: Articles 1193 – 1206
Article 1193
“Obligations for whose fulfillment a day
certain has been fixed, shall be
demandable only when that day comes.
Obligations with a resolutory period take
effect at once, but terminate upon arrival
of the day certain.
A day certain is understood to be that
which must necessarily come, although it
may not be known when.
If the uncertainty consist in
whether the day will come or not, the
obligation is conditional, and it shall be
regulated by the rules of the preceding
section.”
Obligation with a period
One whose effects or consequences are
subjected in one way or another to the
expiration or arrival of said period or term.
Period or Term
A future and certain event upon the
arrival of which the obligation subject to it either
arises or is terminated.
Period Condition
 Certain to happen  Uncertain to happen
 If left to the  If left to the debtor’s
debtor’s will – courts will – invalidates the
will fix duration obligation
 No retroactive  Has retroactive
effective unless effect
stipulated
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NOTE: Like a condition (art. 1183), a period In favor of the debtor alone
must also be possible. (i.e., February 30 or Example: Contract of loan without interest
constructing a building w/in 24 hours)
Article 1197
Kinds of period or term “If the obligation does not fix a period, but
1. As to effect from its nature and the circumstances it
1.1 suspensive can be inferred that a period was
1.2 resolutory intended, the courts may fix the duration
2. According to source thereof.
2.1 Legal –provided by law The courts shall also fix the duration of
2.2 Conventional or voluntary – the period when it depends upon the will
agreed by the parties of the debtor.
2.3 Judicial – fixed by court In every case, the courts shall determine
3. According to definiteness such period as may under the
3.1 Definite – fixed or known when circumstances have been probably
it will come contemplated by the parties. Once fixed
3.2 Indefinite – not fixed or not by the courts, the period cannot be
known when it will come changed by them.”

Article 1194 General Rule: There must be an intention of

“In case of loss, deterioration or
improvement of the thing before the
arrival of the day certain, the rules in
Article 1189 shall be observed.”
NOTE: same with Art. 1189
Art. 1195
“Anything paid or delivered before the
arrival of the period, the obligor being
unaware of the period or believing that
the obligation has become due and
demandable, may be recovered, with the
fruits, and interests.”
NOTE: same with Art. 1188 par. 2
This article applies only to obligation TO GIVE.
the parties to set a period, otherwise the courts
have no right to make contracts for the parties.
Exceptions:
1. No period is fixed but a period was
intended
Examples: D agreed to construct the house
of C without fixing the period
B bought lumber from the store of S on
credit.
2. Duration of the period depends upon
the will of the debtor
Examples: When his means permits him to
do so
Little by little, etc.
NOTE: Period fixed cannot be changed by
the courts – lapsed

This article is inapplicable in obligations TO DO Article 1198

because it is physically impossible to recover the “The debtor shall lose every right to make
service rendered; NOT TO DO because nothing use of the period:
has been done. 1. When after the obligation has been
contracted, he becomes insolvent,
Article 1196 unless he gives a guaranty or
“Whenever in an obligation a period is security for the debt;
designated, it is presumed to have been 2. When he does not furnish to the
established for the benefit of both the creditor the guaranties or
creditor and the debtor, unless from the securities which he has promised;
tenor of the same or other circumstances, 3. When by his own acts he has
it should appear that the period has been impaired said guaranties or
established in favor of one or of the securities after their
other.” establishment, and when through a
fortuitous event they disappear,
Presumption as to benefit of period unless he immediately gives new
This means that before the expiration of ones equally satisfactory;
the period, the debtor may not fulfill the 4. When the debtor violates any
obligation and neither may the creditor demand undertaking, in consideration of
its fulfillment without the consent of the other which the creditor agreed to the
especially if the latter would be prejudiced or period;
inconvenienced thereby. 5. When the debtor attempts to
abscond.”
Example: Contract of loan with interest
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When obligation can be demanded before
the lapse of period
1. When the debtor becomes insolvent –
need not be judicially declared
2. When debtor does not furnish
guaranties or securities promised –
(e.g., mortgage)
3. When guaranties or securities given
have been impaired or have disappeared
– (e.g., mortgaged house burned)
4. When debtor violates an undertaking
5. When debtor attempts to abscond –
(e.g., change of address w/o
notification)
Section 3 – Alternative Obligations
Article 1199
“A person alternatively bound by different
prestations shall completely perform one
of them.
The creditor cannot be compelled to
receive part of one and part of the other
undertaking.”
NOTE: Prestation refers to personal obligations
(to do)
Kinds of obligation according to object
1. Simple obligation – only one prestation
2. Compound obligation – two or more
prestations
2.1 Conjunctive obligation – all of
them are due
2.2 Distributive obligation – one or
two or more is due.
2.2.1 Alternative obligation –
several prestations are due but the
performance of ONE is sufficient
2.2.2 Facultative – only one
prestation is due but the debtor may
substitute another
Alternative Obligation
One wherein various prestations are due
but the performance of one of them is sufficient
as determined by the choice which, as a general
rule, belongs to the debtor.
Article 1200
“The right of choice belongs to the debtor,
unless it has been expressly granted to
the creditor.
The debtor shall have no right to choose
those prestations which are impossible,
unlawful or which could not have been the
object of the obligation.”
Question: If debtor delays his choice, can the
creditor exercise the right? NO, it
should be expressly granted to
him.
Limitations on right of choice of debtor
1. Impossible – (e.g., deliver soil from
Jupiter)
2. Unlawful – (e.g., delivery of illegal drugs
or to kill)
3. W/c could not have been the object of
the obligation (e.g., horse for calesa
instead of race horse)
4. Only one prestation is practicable
NOTE: The foregoing prestations are void but
do not invalidate the obligation. The
remaining valid prestations shall be
considered.
The debtor cannot choose parts of the
prestations.
Article 1201
“The choice shall produce no effect except
from the time it has been communicated.”
Effect of notice (orally or in writing)
 Until the choice is made and
communicated, the obligation remains
alternative.
 Once communicated, it becomes
simple.
 Irrevocable
 Concurrence of creditor to the
choice is not required
Article 1202
“The debtor shall lose the right of choice
when among the prestations whereby he
is alternatively bound, only one is
practicable.”
Article 1203
“If through the creditor’s acts, the debtor
cannot make a choice according to the
terms of the obligation, the latter may
rescind the contract with damages.”
_______________________________________
Article 1204
“The creditor shall have a right to
indemnity for damages when, through the
fault of the debtor, all the things which
are alternatively the object of the
obligation have been lost, or the
compliance of the obligation has become
impossible.
The indemnity shall be fixed taking as a
basis the value of the last thing which
disappeared, or that of the service which
last became impossible.
Damages other than the value of the last
thing or service may also be awarded.”
Effects of loss of objects of obligation
QUESTION: What if only some of the objects
have been lost or have become impossible
through the fault of the debtor? Debtor is still
not liable, he has the right of choice.
QUESTION: What if all have been lost, however,
generic?
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QUESTION: What if all have been lost, however,
through fortuitous event?
Article 1205
“When the choice has been expressly
given to the creditor, the obligation shall
cease to be alternative from the day when
the selection has been communicated to
the debtor.
Until then the responsibility of the debtor
shall be governed by the following rules:
If one of the things is lost through a
fortuitous event, he shall perform the
obligation by delivering that which the
creditor should choose from among the
remainder, or that which remains if only
one subsists;
\If the loss of one of the things occurs
through the fault of the debtor, the
creditor may claim any of those
subsisting, or the price of that which,
through the fault of the former, has
disappeared, with a right to damages;
If all the things are lost through the fault
of the debtor, the choice by the creditor
shall fall upon the price of any one of
them, also with indemnity for damages.
The same rules shall be applied to
obligations to do or not to do in case one,
some or all of the prestations should
become impossible.”
_______________________________________
Article 1206
“When only one prestation has
been agreed upon, but the obligor
may render another in substitution,
the obligation is called facultative.
The loss or deterioration of the
thing intended as a substitute,
through the negligence of the
obligor, does not render him liable.
But once the substitution has been
made, the obligor is liable for the
loss of the substitute on account of
his delay, negligence or fraud.”
Facultative obligation
One where only one prestation has been agreed
upon but the obligor may render another IN
SUBSTITUTION.
NOTE: The loss of the thing intended as a
substitute WITH or WITHOUT the fault
of the debtor does not render him
liable.
REASON: The thing intended as a substitute is
not due.
Example: S will give B item ONE or if S wants,
item TWO.
If item ONE is lost through a fortuitous
event – extinguished
If item ONE is lost through the fault of S
– S is liable for damages
If item TWO is lost with or without
fault of S – S is still liable to deliver item
ONE, he is not liable for damages
Alternative Facultative
 Several prestations  Only one prestation
are due but is due although
compliance with one is substitution is allowed
sufficient
 Right of choice may  Right of choice is
be given to creditor or only given to the
debtor
3rd person
 Loss of one or more  Loss of the thing
of the alternatives due extinguishes the
through fortuitous obligation
event does not
extinguish the
obligation
 Loss of one of the  Loss of the thing
alternatives through due through his fault
the fault of the debtor makes him liable
does not render him
liable
_______________________________________
JOINT AND SOLIDARY OBLIGATIONS
Art. 1207
“The concurrence of two or more creditors
or of two or more debtors in one and the
same obligation does not imply that each
one of the former has a right to demand,
or that each one of the latter is bound to
render, entire compliance with the
prestation. There is a solidary liability
only when the obligation expressly so
states, or when the law or the nature of
the obligation requires solidarity.”
Art. 1208
“If from the law, or the nature or the
wording of the obligations to which the
preceding article refers, the contrary does
not appear, the credit or debt shall be
presumed to be divided into as many
equal shares as there are creditors or
debtors, the credits or debts being
considered distinct from one another,
subject to the Rules of Court governing
the multiplicity of suits.”
Kinds of Obligations according to the
NUMBER OF PARTIES
1. Individual Obligation – only ONE obligor
or obligee
2. Collective Obligation – TWO or MORE
debtors and/or creditors
2.1. Joint
2.2. Solidary
JOINT Obligation
The whole obligation is to be paid or
fulfilled proportionately by the different debtors
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and/or is to be demanded proportionately by the
different creditors.
SOLIDARY Obligation
Each one of the debtors is bound to
render, and/or each one of the creditors has a
right to demand from any of the debtors, entire
compliance with the prestation.
General Rule – The presumption is JOINT.
(reason: burdensome if solidary)
Examples:
1. A is liable to B for Php 9,000 – individual
obligation – no problem
2. A,B and C are liable to D for Php 9,000 –
specified (Php 3,000 each) – no problem
3. A, B and C are liable to D for Php 9,000
– not specified – presumption is JOINT
Rules:
1. The debts and/or credits are distinct and
separate from one another.
2. Each debtor is liable only for a
proportionate part of the debt.
3. Each creditor is entitled only to a
proportionate part of the credit.
Examples:
1. three (3) debts and one (1) credit
2. one (1) debt and three (3) credits
3. two (2) debts and two (2) credits
Words used to indicate joint liability
1. proportionately
2. pro rata
3. we promise to pay, signed by two or
more persons
General Rule - JOINT
Exceptions (When Solidary)
1. The obligation EXPRESSLY so states
2. Required by LAW
3. Required by the NATURE of the
obligation
Words used to indicate SOLIDARY liability
1. solidary
2. jointly and/or severally
3. together and/or separately
4. individually and/or collectively
5. I promise to pay, signed by two or more
persons
Kinds of Solidarity according to parties
bound
1. Passive solidarity – solidarity on the part
of the debtors
2. Active solidarity – solidarity on the part
of the creditors
3. Mixed solidarity – solidarity on the part
of the creditors and debtors
Example (Passive)
1. A and B are solidary debtors of C in the
amount of Php 10,000
Payment by A extinguishes the
obligation but A may claim from B the
share which corresponds to him
depending upon the agreement between
them.
Example (Active)
1. A is liable for Php 10,000 in favor of B
and C who are solidary creditors
If B received payment, he is liable to C
for the latter’s share in the credit
according to their agreement.
Example (Mixed)
1. A and B are solidarily liable to C and D,
solidary creditors, in the amount of Php
10,000
Kinds of Solidarity according to source
1. Conventional solidarity – agreed upon
by the parties
2. Legal solidarity – imposed by law
3. Real solidarity – imposed by the nature
Examples (Legal)
1. The responsibility of two or more
persons who are liable for a quasi-delict
is solidary (Art. 2194)
2. If the engineer or architect supervises
the construction of a building, he shall
be solidarily liable with the contractor
for damages for any defect in the
construction (Art. 1723)
3. When the agent has exceeded his
authority, the principal is solidarily liable
with the agent if the former allowed the
latter to act as though he had full
powers (Art. 1911)
Examples (Real)
1. The nature of the obligation of
employers under the Workmen’s
Compensation Law to pay indemnity or
compensation for death or injury
caused to their employees while in the
performance of their assigned duty is
solidary
2. The operator and grantee of the
certificate of public convenience is
solidary liable in case of accidents
operated under the “kabit system”
Art. 1209
“If the division is impossible, the right of
the creditors may be prejudiced only by
their collective acts, and the debt can be
enforced only by proceeding against all
the debtors. If one of the latter should be
insolvent, the others shall not be liable for
his share.”
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JOINT INDIVISIBLE OBLIGATION
The obligation is joint because the
parties are merely proportionately liable. It is
indivisible because the object or subject matter
is not physically divisible into different parts.
Examples:
1. A, B and C are jointly liable to give D a
car valued at Php 30,000. On the date
of delivery, A and B are willing to deliver
but C is not.
C shall be liable for damages to D; If A
and B suffered damages by reason of
the non-fulfillment by C, they may
likewise recover from C
NOTE: In case anyone of the debtors be
insolvent, the others shall not be liable for their
share.
2. A is to deliver the car to D and E, joint
creditors, A can insist that both D and E
together accept the car; if either of
them refuses, a may legally refuse to
deliver the car. He may deposit the car
in court by way of consignation (Art.
1256)
Art. 1210
“The indivisibility of an obligation does
not necessarily give rise to solidarity. Nor
does solidarity of itself imply
indivisibility.”
Rules:
1st sentence – An INDIVISIBLE obligation may
be JOINT or SOLIDARY
2nd sentence – A SOLIDARY obligation may be
DIVISIBLE or INDIVISIBLE
Outcome:
1. JOINT INDIVISIBLE
2. SOLIDARY INDIVISIBLE
3. JOINT DIVISIBLE
4. SOLIDARY DIVISIBLE
Art. 1211
“Solidarity may exist although the
creditors and the debtors may not be
bound in the same manner and by the
same periods and conditions.”
Example:
1. A, B and C obliged themselves solidarily
to pay D Php 3,000 as follows:
A, to pay by instalment of 100 per week
to start in September
B, to pay Php 1,000 in December
C, to pay when D passes the bar.
Art. 1212
“Each one of the solidary creditors may do
whatever may be useful to the others, but
not anything which may be prejudicial to
the latter.”
Example
1. A owes B and C, solidary creditors, the
sum of Php 10,000
If B collects from A, C will be benefited;
If B condones the debt of A, B has to
reimburse C for the latter’s share
Art. 1213
“A solidary creditor cannot assign his
rights without the consent of the others.”
REASON – Each creditor represents the others
and the assignee may not have the confidence
of the original solidary creditors considering that
the assignee after receiving payment may not
give the shares of the others.
EXCEPTION – If the assignment was made to a
CO-CREDITOR, the consent of the other
creditors is not necessary.
Art. 1214
“The debtor may pay any one of the
solidary creditors; but if any demand,
judicial or extrajudicial, has been made
by one of them, payment should be made
to him.”
Art. 1215
“Novation, compensation, confusion or
remission of the debt, made by any of the
solidary creditors or with any of the
solidary debtors, shall extinguish the
obligation, without prejudice to the
provisions of Article 1219.
The creditor who may have executed any
of these acts, as well as he who collects
the debt, shall be liable to the others for
the share in the obligation corresponding
to them.”
Modes of extinguishment of obligations
1. Novation – Art. 1291
2. Compensation – Art. 1278
3. Confusion or Merger – Art. 1275
4. Remission – Art. 1270
REASON: Such acts are prejudicial (Art. 1212)
to the others.
Art. 1216
“The creditor may proceed against any
one of the solidary debtors or some or all
of them simultaneously. The demand
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made against one of them shall not be an
obstacle to those which may subsequently
be directed against the others, so long as
the debt has not been fully collected.”
Merely reiterates the rule that in solidary
obligation (passive solidarity), any one or some
or all of the solidary debtors simultaneously,
may be made to pay the debt so long as it has
not been fully collected.
Art. 1217
“Payment made by one of the solidary
debtors extinguishes the obligation. If
two or more solidary debtors offer to pay,
the creditor may choose which offer to
accept.
He who made the payment may claim
from his co-debtors only the share which
corresponds to each, with the interest for
the payment already made. If the
payment is made before the debt is due,
no interest for the intervening period may
be demanded.
When one of the solidary debtors cannot,
because of his insolvency, reimburse his
share to the debtor paying the obligation,
such share shall be borne by all his co-
debtors, in proportion to the debt of
each.”
DIFFERENTIATE 3rd par. from liability of JOINT
debtors (Art. 1209)
Art. 1218
“Payment by a solidary debtor shall not
entitle him to reimbursement from his co-
debtors if such payment is made after the
obligation has prescribed or become
illegal.”
Effect of payment AFTER obligation
PRESCRIBED or become ILLEGAL
NOTE: Prescription – rights and actions are lost
(Art. 1106)
10 years – written contract, obligation created
by law
6 years – oral contract, quasi-contract (Art.
1145)
4 years – quasi-delict (Art. 1146)
Examples:
1. A and B are solidarily indebted to C in
the amount of Php 1,000. The debt
PRESCRIBED.
2. A and B are solidarily bound to deliver
10 carabaos to C for slaughter purposes.
Later, a law was passed which prohibits
the slaughter of carabaos.
Art. 1219
“The remission made by the creditor of the
share which affects one of the solidary
debtors does not release the latter from
his responsibility towards the co-debtors,
in case the debt had been totally paid by
anyone of them before the remission was
effected.”
EXAMPLE
1. A and B are liable in solidum to C in the
amount of Php 1,000. C remitted A’s share (Php
500). Subsequent payment by B of Php 1,000
to C will not entitle him to reimbursement from
A since the remission extinguished the obligation
with respect to A’s share. B can demand the
return of Php 500 from C under the principle of
solutio indebiti.
NOTE: If remission is made PREVIOUS to the
payment and payment is made, solutio indebiti
arises.
Art. 1220
“The remission of the whole obligation
obtained by one of the solidary debtors,
does not entitle hi to reimbursement from
his co-debtors.”
DIFFERENTIATE from Art. 1219 which is a
partial remission.
Art. 1221
“If the thing has been lost or if the
prestation has become impossible without
the fault of the solidary debtors, the
obligation shall be extinguished.
If there was fault on the part of any one of
them, all shall be responsible to the
creditor, for the price and the payment of
damages and interest, without prejudice
has to their action against the guilty or
negligent debtor.
If through a fortuitous event, the thing is
lost or the performance has become
impossible after one of the solidary
debtors has incurred in delay through the
judicial or extra-judicial demand upon him
by the creditor, the provisions of the
preceding paragraph shall apply.”
NOTE: This article refers to a DETERMINATE
thing or prestation.
Three (3) situations:
1. Loss is without fault and before delay
2. Loss is due to fault on the part of a
solidary debtor
3. Loss is without fault but after delay
Law on Obligations and Contracts
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Example (due to fault or without fault but after
delay)
1. A, B and C promised solidarily to deliver
to D a particular truck valued at Php
15,000. If the truck was lost through
the fault of C, A and B shall also be
responsible to D for the price of the
truck as well as damages although A
and B were not at fault at all. A and B,
can recover from C the full amount of
such price and damages if A and B have
already contributed to the price of the
truck.
Art. 1222
“A solidary debtor may, in actions filed by
the creditor, avail himself of all defenses
which are derived from the nature of the
obligation and of those which are personal
to him, or pertain to his own share. With
respect to those which personally belong
to the others, he may avail himself thereof
only as regards that part of the debt for
which the latter are responsible.”
Defenses available to a solidary debtor
1. From the nature of the obligation
2. Personal to, or which pertain to his
share
3. Personal to other solidary debtors
EXAMPLE (Nature)
1. A and B are solidarily liable to C in the
amount of Php 4,000. The entire debt
of A and B was paid by D. In an action
by C against A or B, the latter can raise
the defense of extinguishment by
payment.
2. Fraud, Prescription, Remission, Illegality
or absence of consideration.
EXAMPLE (Personal)
1. If the action by C is against B, and B
was insane at the time the obligation
was contracted, the latter can put up
the defense of insanity with respect to
the entire obligation. This defense is
personal to B alone.
2. Incapacity, mistake, violence, minority.
(COMPLETE DEFENSE)
3. INCOMPLETE DEFENSE – If the portion
of the obligation affecting B is subject to
a suspensive condition which has not
yet happened, B can set up such
defense with respect to his share.
However, C can demand from B the
portion of the obligation pertaining to A.
Art. 1223
“The divisibility or indivisibility of the
things that are the object of obligations in
which there is only one debtor and only
one creditor does not alter or modify the
provisions of Chapter 2 of this Title.”
DIVISIBLE obligation – capable of partial
fulfillment
INDIVISIBLE obligation – not capable of partial
fulfillment
Rule – The controlling circumstance is not the
possibility or impossibility of partial
prestation but the purpose of the
obligation or the intention of the
parties.
Rule – If the object is not physically divisible or
the service is not susceptible of partial
performance, the obligation is ALWAYS
INDIVISIBLE.
NOTE – The divisibility of an obligation should
not, therefore, be confused with the
divisibility of the thing which is the
object thereof.
EXAMPLE
1. A agreed to pay B Php 10,000 in four
equal monthly instalments.
The obligation is divisible because it is
capable of partial performance.
But, if the agreement is that A will pay B
on a certain date the full amount of Php
10,000, the obligation is indivisible
although money is physically divisible.
KINDS of Indivisibility
1. Legal – Art. 1225, par. 3
2. Conventional – will of the parties makes
as indivisible, obligations which, by their
nature, are divisible
3. Natural – the nature of the object or
prestation does not admit of division,
e.g., to give a particular car, to sing a
song.
Art. 1224
“A joint indivisible obligation gives rise to
indemnity for damages from the time
anyone of the debtors does not comply
with his undertaking. The debtors who
may have been ready to fulfill their
promises shall not contribute to the
indemnity beyond the corresponding
portion of the price of the thing or of the
value of the service in which the
obligation consists.”
NOTE – If any one of the debtors does not
comply with his undertaking in a joint indivisible
obligation, the obligation is converted into one
for DAMAGES. The creditor cannot ask for
specific performance or rescission because there
is no cause of action against the other debtors
Law on Obligations and Contracts
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who are willing to fulfill their promises. (see Art.
1209)
Art. 1225
“For the purposes of the preceding
articles, obligations to give definite things
and those which are not susceptible of
partial performance shall be deemed to be
indivisible.
When the obligation has for its object the
execution of a certain number of days of
work, the accomplishment of work by
metrical units, or analogous things which
by their nature are susceptible of partial
performance, it shall be divisible.
However, even though the object or
service may be physically divisible, an
obligation is indivisible if so provided by
law or intended by the parties.
In obligations not to do, divisibility or
indivisibility shall be determined by the
character of the prestation in each
particular case.
Obligations deemed INDIVISIBLE
1. Obligations to give definite things
2. Obligations which are not susceptible of
partial performance
3. Obligations provided by law to be
indivisible even if the thing or service is
physically divisible (e.g., taxes should be
paid within a definite period)
4. Obligations intended by the parties to be
indivisible even if thing or service is
physically divisible
Obligations deemed DIVISIBLE
1. Obligations which have for their object
the execution of a certain number of
days of work (e.g., painting a house in
ten (10) days)
2. Obligations which have for their object
the accomplishment of work by metrical
units (e.g., delivery of 20 cubic meters
of sand)
3. Obligations which by their nature are
susceptible of partial performance (e.g.,
obligation to teach for one year)
OBLIGATIONS WITH A PENAL CLAUSE
Art. 1226
“In obligations with a penal clause, the
penalty shall substitute the indemnity for
damages and the payment of interests in
case of non-compliance, if there is no
stipulation to the contrary. Nevertheless,
damages shall be paid if the obligor
refuses to pay the penalty or is guilty of
fraud in the fulfillment of the obligation.
The penalty may be enforced only when it
is demandable in accordance with the
provisions of this Code.”
PRINCIPAL Obligation
One which can stand by itself and does
not depend for its validity and existence upon
another obligation.
ACCESSORY obligation
One which is attached to a principal
obligation and, therefore, cannot stand alone.
Obligation with a penal clause
One which contains an accessory
undertaking to pay a previously stipulated
indemnity in case of breach of the principal
prestation, intended primarily to induce its
fulfillment.
Purposes:
1. To insure their performance
2. To substitute a penalty for the
indemnity for damages and the payment
of interests in case of non-compliance
3. To punish the debtor for the non-
fulfillment or violation of his obligation
NOTE: Proof of actual damages suffered by the
creditor is not necessary in order that
the penalty may be enforced.
When creditor may recover damages IN
ADDITION to penalty
1. Stipulated by the parties
2. Obligor refuses to pay the penalty;
creditor may also recover interest
3. Guilty of fraud
Meaning of 2nd par. – The penalty, as a
stipulation in a contract, is demandable only if
there is a breach of the obligation and it is not
contrary to law, morals, good customs, public
order or public policy. (e.g., If the obligation
cannot be fulfilled due to a fortuitous event, the
penalty is not demandable.)
Art. 1227
“The debtor cannot exempt himself from
the performance of the obligation by
paying the penalty, save in the case where
this right has been expressly reserved for
him. Neither can the creditor demand the
fulfillment of the obligation and the
satisfaction of the penalty at the same
time, unless this right has been clearly
granted him. However, if after the
creditor has decided to require the
fulfillment of the obligation, the
performance thereof should become
impossible without his fault, the penalty
may be enforced.”
Rule – Penalty not substitute for performance
Rule – Penal clause presumed subsidiary;
EXCEPTION – if after the creditor has decided to
require the fulfillment of the obligation, the
Law on Obligations and Contracts
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performance thereof should become impossible Other causes of extinguishment of

without his fault. obligations, such as annulment, rescission,
fulfillment of a resolutory condition, and
prescription, are governed elsewhere in
Art. 1228 this Code.
“Proof of actual damages suffered by the
creditor is not necessary in order that the Causes of extinguishment of obligations:
penalty may be demanded.” 1. Payment or performance
2. Loss of the thing due
RULE – The creditor may not recover more than 3. Condonation or remission
the stipulated penalty even if he 4. Confusion or merger of the rights of the
proves that the amount of his creditor and debtor
damages exceeds the penalty. 5. Compensation
6. Novation
EXCEPTION – Proof of actual damages is
necessary in order to recover 7. Annulment
damages in addition to penalty. 8. Rescission
9. Fulfillment of a resolutory condition
10. Prescription
11. Death of a party in case of personal
Art. 1229
obligation (1311 par. 1)
“The judge shall equitably reduce the
12. Mutual desistance or withdrawal
penalty when the principal obligation has
13. Arrival of resolutory period (1193 par. 2)
been partly or irregularly complied with by
14. Compromise (2028)
the debtor. Even if there has been no
15. Impossibility of fulfillment (1266)
performance, the penalty may also be
16. Happening of a fortuitous event (1174)
reduced by the courts if it is iniquitous or
_______________________________________
unconscionable.”
 
SECTION 1. - Payment or Performance
When penalty may be reduced by the
 
courts
1. Partial or irregular performance Art. 1232
2. Penalty is iniquitous or unconscionable Payment means not only the delivery of
money but also the performance, in any
other manner, of an obligation.
Art. 1230 NOTES:
“The nullity of the penal clause does not  PAYMENT consists of the following:
carry with it that of the principal 1. delivery of money
obligation. 2. giving of a thing other than money
The nullity of the principal obligation 3. doing of an act
carries with it that of the penal clause.” 4. not doing of an act
5. payment of damages or penalty in
General Rule – The accessory follows the lieu of the fulfillment of an obligation
principal, not vice versa.  PAYMENT and PERFORMANCE are
synonymous.
EXAMPLE – A agreed to sell merchandise to B. _______________________________________
It is provided in their agreement that in case of
default, A will deliver a prohibited drug as Art. 1233
penalty. A debt shall not be understood to have
_______________________________________ been paid unless the thing or service in
which the obligation consists has been
CHAPTER 4 completely delivered or rendered, as the
EXTINGUISHMENT OF OBLIGATIONS case may be.
 
GENERAL PROVISIONS When debt is considered paid
  NOTES:
Art. 1231. Obligations are extinguished:  A DEBT may refer to:
(1) By payment or performance: 1. an obligation to deliver money
(2) By the loss of the thing due: 2. to deliver a thing other than
(3) By the condonation or money
remission of the debt; 3. to do an act
(4) By the confusion or merger of 4. not to do an act
the rights of creditor and debtor;  EXCEPTIONS:
(5) By compensation;
(6) By novation.
Law on Obligations and Contracts
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1. Art. 1234 – substantial
compliance
2. Art. 1235 – incomplete or
irregular performance is waived
Requisites:
1. Integrity of the prestation -
COMPLETELY delivered or rendered.
 Partial or irregular performance will not
extinguish the obligation.
 ILLUSTRATION:
S obliged himself to deliver 100 sacks of
rice to B. S delivered only 90 sacks. NO
PAYMENT by S. B can refuse to pay for
the 90 sacks.
X agreed to paint the house of Y for
P100k. X did not paint the kitchen
anymore and instead asked Y to pay
him P100k less the cost of painting the
kitchen. Y can REFUSE to pay X.
2. Identity of the prestation – the very
prestation due must be delivered or
performed.
_______________________________________
Art. 1234
If the obligation has been substantially
performed in good faith, the obligor may
recover as though there had been a strict
and complete fulfillment, less damages
suffered by the obligee.
Recovery allowed in case of substantial
performance in good faith
Requisites:
1. Substantial performance
2. Good faith – always presumed in the
absence of proof to the contrary
ILLUSTRATION:
S obliged himself to deliver 500 bags of
cement to B for a certain price.
However, despite diligent efforts on his
part, S was able to deliver only 400 bags
because of cement shortage. (reasons
beyond his control). S can recover as
though there had been complete
delivery less the price of the 100 bags.
_______________________________________
Art. 1235
When the obligee accepts the
performance, knowing its incompleteness
or irregularity, and without expressing
any protest or objection, the obligation is
deemed fully complied with.
Recovery allowed when incomplete or
irregular performance is waived
NOTES:
 Founded on the PRINCIPLE OF
ESTOPPEL.
 GR – if the payment is incomplete or
irregular, the creditor may properly
reject it.
 EXC – in case of acceptance, the law
considers that he waives his right. The
WHOLE obligation is EXTINGUISHED.
Requisites:
1. Obligee knows that the
performance is incomplete or irregular
2. Obligee accepts the
performance without expressing any
protest or objection
ILLUSTRATION:
X agreed to paint the house of Y with a
particular brand of paint. If Y accepted
the performance of X, knowing that the
paint used was another brand and
without expressing any protest or
objection, the obligation is deemed
FULLY complied with.
_______________________________________
Art. 1236
The creditor is not bound to accept
payment or performance by a third person
who has no interest in the fulfillment of
the obligation, unless there is a stipulation
to the contrary.
Whoever pays for another may demand
from the debtor what he has paid, except
that if he paid without the knowledge or
against the will of the debtor, he can
recover only insofar as the payment has
been beneficial to the debtor.
Persons from whom the creditor must
accept payment:
1. debtor
2. any person who has an interest in the
obligation (e.g., guarantor)
3. 3rd person who has no interest in the
obligation when there is such a stipulation
NOTES:
 GR - Creditor may refuse
payment by a third person.
 EXC – in case of stipulation,
payment or performance may be made by
any person not incapacitated, EVEN
WITHOUT THE KNOWLEDGE or AGAINST
THE WILL of the debtor, and ALTHOUGH he
has absolutely NO INTEREST in the
obligation.
a. If made WITOUT the
knowledge or AGAINST the will of the
debtor – payer can recover only insofar
as the payment has been beneficial to
the latter. In short, the recovery is only
up to the extent or amount of the debt
at the time of the payment.
Law on Obligations and Contracts
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b. If made WITH the
knowledge of the debtor – payer shall
have the rights of reimbursement and
subrogation, that is, to recover what he
has paid (not necessarily the amount of
the debt) and to acquire all the rights of
the creditor.
ILLUSTRATION:
D owes C P1k. If S, a stranger offers to
pay the C, the latter may or may not
accept the offer of payment.
Without the knowledge or against the
will of D – If the actual debt is P1k and
S paid P1k, he can ask reimbursement
for P1k. But if P400 had already been
paid by D, then S is entitle to be
reimbursed only for P600, the amount
that D has been benefited. S can
recover from C who hould not have
accepted it.
With the knowledge of D – S can
recover from D P1k with all the rights of
subrogation to the accessory obligations
such as mortgage, guaranty or penalty.
______________________________________
Art. 1237
Whoever pays on behalf of the debtor
without the knowledge or against the will
of the latter, cannot compel the creditor to
subrogate him in his rights, such as those
arising from a mortgage, guaranty, or
penalty.
NOTES:
 GR – whoever pays on behalf of
the debtor is entitled to subrogation if the
payment is WITH the consent of the latter.
Thus, if the payment is without the
knowledge or against the will of the debtor,
the 3rd person CANNOT compel the creditor
to subrogate him in the latter’s accessory
rights of mortgage, guaranty, or penalty.
 Question: May there be
subrogation, if the creditor willingly permits
the payor to be subrogated in his rights?
Answer: NO, Art. 1237 is for the BENEFIT
OF THE DEBTOR. Thus, subrogation can
only take place with his consent.
Subrogation Reimbursement
The person who pays The person who pays
for the debtor is put has merely the bare
into the shoes of the right to be refunded
creditor
ILLUSTRATION:
D borrowed from C P1k. G is the guarantor.
Without the knowledge or consent of D, S
paid C P1k. S can claim reimbursement from
D for the amount of P1k inasmuch as D was
benefited.
If D cannot pay S, the latter cannot proceed
against G, even if C is willing, because having
paid WITHOUT consent of D, S is not entitled
to subrogation.
_______________________________________
Art. 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.
Payment by a 3rd person who does not
intend to be reimbursed
NOTES:
 If the paying third person does not
intend to be reimbursed, the payment is
deemed a DONATION, which REQUIRES
the debtors’ consent to be valid.
 However, if the creditor accepts the
payment, it shall be valid as to him and
the payor although the debtor did not
give his consent to the donation.
 Under 1427, the creditor CANNOT be
compelled to accept payment where the
person paying has no capacity to make
it.
ILLUSTRATION:
D owes C P10k. Without the intention of being
reimbursed, S paid D’s obligation. D accepted
S’ generosity. D is not liable to S and his
obligation is extinguished.
But if D did not consent to the donation, S may
recover from D since there has been no
donation, although originally S did not intend
to be reimbursed. Nevertheless, the obligation
of D to C is extinguished because the payment
is valid as to C who has accepted it.
Question: Can D legally refuse to pay S
and instead insist on paying C?
Answer: No. If Without the knowledge or
against the will of D, he is liable to S as far as
he was benefited. (1236, par. 2)
_______________________________________
Art. 1239
In obligations to give, payment made by
one who does not have the free disposal
of the thing due and capacity to alienate it
shall not be valid, without prejudice to the
provisions of Article 1427 under the Title
on "Natural Obligations."
NOTES:
 Free disposal of thing due – thing to be
delivered must not be subject to any claim
or lien or encumbrance (e.g., mortgage,
pledge) of a 3rd person.
Law on Obligations and Contracts
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 Capacity to alienate – the person is NOT
INCAPACITATED1 to enter into contracts and
make a disposition of the thing due.
 GR – in obligations to give, payment by
one who does not have the free disposition
of the thing due and capacity to alienate it is
NOT valid.
ILLUSTRATION:
S agreed to sell to B a tv. If the tv delivered
to B belongs to C, the same can be recovered
by C because the payment is not valid. S
does not have the free disposal of the tv.
The same right of recovery exists
although the tv belongs to S if he is a
minor thus, has no capacity to alienate
it.
_______________________________________
Art. 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.
Person to whom payment shall be made:
1. creditor/obligee (person in whose favor
obligation has been constituted)
2. his successor in interest (heir/assignee)
3. any person authorized to receive it
NOTES:
 The creditor referred to must be
the creditor AT THE TIME the payment is to
be made, NOT AT THE CONSTITUTION of
the obligation.
 “Any person authorized to
receive it” – includes a person authoritzed
by law to receive payment (e.g., guardian,
executor or administrator of the estate of
the deceased, assignee or liquidator of a
partnership or corporation
 RE: Under Art. 1242, payment
in good faith to any person in possession of
the credit is VALID although such person
may not be authorized to receive the
payment.
_______________________________________
Art. 1241
Payment to a person who is incapacitated
to administer his property shall be valid if
he has kept the thing delivered, or insofar
as the payment has been beneficial to
him.
Payment made to a third person shall also
be valid insofar as it has redounded to the
benefit of the creditor. Such benefit to the
1
Under Art. 1327, the following cannot give consent to
contracts:
a. Unemancipated minors
b. Insane/demented
c. Deaf and mutes who does not know how to
write.
creditor need not be proved in the
following cases:
(1) If after the payment, the third
person acquires the creditor's rights;
(2) If the creditor ratifies the payment
to the third person;
(3) If by the creditor's conduct, the
debtor has been led to believe that the
third person had authority to receive
the payment.
Effect of payment to an incapacitated
person
NOTES:
 Payment to a person incapacitated to
administer or manage his property is NOT
valid unless:
1. such incapacitated person kept
the thing paid or delivered; or
2. such incapacitated person was
benefited by the payment
 In the absence of this
benefit, the debtor may be made to PAY
AGAIN by the creditor’s guardian or by the
incapacitated person himself when he
acquires or recovers his capacity.
ILLUSTRATION:
D delivers P1k to C, a minor, in payment of a
debt. C loses P700 of the money in gambling
or due to negligence or ignorance. In this
case, the payment should be considered as
made only to the extent of P300.
On the other hand, if C kept the money or
spent it for purposes useful to him, the
payment shall be valid, otherwise there would
be unjust enrichment.
Effect of payment to a 3rd person
NOTE: Payment to a 3rd person or wrong party
is NOT valid EXCEPT insofar as it has
redounded to the benefit of the creditor.
Such benefit is not presumed and must
be satisfactorily established EXCEPT
those provided in the 2nd paragraph.
When benefit to creditor need not be
proved by debtor:
1. subrogation of the payer in the
creditor’s rights
2. ratification by the creditor
3. estoppel on the part of the creditor
 In the foregoing, the benefit to
the creditor is PRESUMED.
ILLUSTRATION:
D is indebted to C for P1k. On the date of
the maturity of the obligation, payment was
made by D to T, a 3 rd person. In this case, D
is still liable to C. If T delivered P700 to C,
the payment by D is valid only to the extent
of P700.
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Art. 1242
Payment made in good faith to any person
in possession of the credit shall release
the debtor.
Payment to 3rd person in possession of
credit
NOTES:
 The “possession” referred to is
possession of the credit ITSELF and NOT
MERELY of the document or instrument
evidencing the credit.
 Payer must act in GOOD FAITH.
ILLUSTRATION:
D is indebted to C for P1k which debt is
evidenced by a promissory not signed by D in
favor of C. C lost the promissory note which
was found by T who demanded payment
from D. Payment to T is not valid because T
is merely a possessor of the document
evidencing the credit and not the credit itself.
_______________________________________
Art. 1243
Payment made to the creditor by the
debtor after the latter has been judicially
ordered to retain the debt shall not be
valid.
When payment to creditor not valid
NOTES: In an action against the debtor who is
the creditor of another (debtor-
stranger), during the pendency of the
case, may be ordered by the court to
retain the debt until the right of the
plaintiff, the creditor in the main
litigation is resolved.
ILLUSTRATION:
D owes C P1k. E, in turn owes D P1k. In an
action by C against D, E upon petition of C,
may be ordered by the court not to pay D and
to retain the debt in the meantime. In this
case, the debt of E is said to be garnished or
is subjected to payment to C. Any payment
made by E to D in violation of the order is
INVALID.
_______________________________________
Art. 1244
The debtor of a thing cannot compel the
creditor to receive a different one,
although the latter may be of the same
value as, or more valuable than that which
is due.
In obligations to do or not to do, an act or
forbearance cannot be substituted by
another act or forbearance against the
obligee's will.
NOTES:
 Par. 1 - refers to a real obligation to
deliver a specific thing. A thing different,
although of same value or more valuable,
from the due cannot be offered or
demanded against the will of the creditor or
debtor.
 Par. 2 – refers to personal obligations.
The act to be performed or the act
prohibited cannot be substituted against the
obligee’s will.
 RE: Facultative obligations wherein the
debtor is given the right to render another
prestation in substitution.
_______________________________________
Art. 1245
Dation in payment, whereby property is
alienated to the creditor in satisfaction of
a debt in money, shall be governed by the
law of sales.
Special forms of payment (4):
1. Dation in payment (1245)
2. Application of payments (1253)
3. Payment by cession (1255)
4. Tender of payment and consignation
(1256-1261)
Dation in payment (dacion en pago)
The conveyance of ownership of a thing as an
accepted equivalent of performance.
One wherein an existing debt in money is
satisfied, not by payment of money but by
the alienation of property.
ILLUSTRATION:
D owes C P30k. To fulfill the obligation, D
with the consent of C, delivers a piano. If the
piano is worth less than P30k, the
conveyance must be deemed to extinguish
the obligation TO THE EXTENT ONLY of the
value agreed upon UNLESS the parties agree
to consider the piano as full payment.
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Art. 1246
When the obligation consists in the
delivery of an indeterminate or generic
thing, whose quality and circumstances
have not been stated, the creditor cannot
demand a thing of superior quality.
Neither can the debtor deliver a thing of
inferior quality. The purpose of the
obligation and other circumstances shall
be taken into consideration.
Rule of the medium quality
NOTES:
 If the obligation consists in the delivery
of a specific thing, the very thing due must
be delivered.
 However, if the obligation is to deliver a
generic thing, the purpose of the obligation
and other circumstances shall be taken into
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consideration to determine the quality or
kind of thing to be delivered.
 The benefit of this article may be
waived.
ILLUSTRATION:
S promised to deliver to B a horse. B cannot
compel S to deliver a price-winning race
horse. Neither can S require B to accept an
old sickly horse.
(e.g., If B’s main diversion in life is horse-
racing, if B is a calesa driver, if B is a
veterinary doctor)
_______________________________________
Art. 1247
Unless it is otherwise stipulated,
extrajudicial expenses required by
payment shall be for the account of
debtor. With regard to judicial costs,
Rules of Court shall govern.
NOTES:
 GR- Debtor pays for extrajudicial
expenses UNLESS there is a stipulation to
the contrary.
 The reason is that the extinguishment of
the obligation is primarily for the benefit of
the debtor.
_______________________________________
Art. 1248
Unless there is an express stipulation to
that effect, the creditor cannot be
compelled partially to receive the
prestations in which the obligation
consists. Neither may the debtor be
required to make partial payments.
However, when the debt is in part
liquidated and in part unliquidated, the
creditor may demand and the debtor may
effect the payment of the former without
waiting for the liquidation of the latter.
NOTES:
 GR - Performance of obligation should
be COMPLETE.
 EXC – When partial performance
allowed:
1. express stipulation to that effect
2. debt is in part liquidated (definitely
determined)
3. when different prestations in which the
obligation consists are subject to
different terms or conditions
_______________________________________
Art. 1249
The 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.
The delivery of promissory notes payable
to order, or bills of exchange or other
mercantile documents shall produce the
effect of payment only when they have
been cashed, or when through the fault of
the creditor they have been impaired.
In the meantime, the action derived from
the original obligation shall be held in the
abeyance.
Legal tender
That 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.
the Coins of legal tender
the P50 .25
the P20 .10
the
Payment by means of instruments of
credits
NOTES:
 Promissory notes, checks, bills of
exchange and other commercial documents
are NOT legal tender. Thus, the creditor
cannot be compelled to accept them.
 The foregoing does not extinguish the
obligation:
1. until they have been cashed
2. unless they have been impaired through
the fault of the creditor
_______________________________________
Art. 1250
In case an extraordinary inflation
or deflation of the currency stipulated
should supervene, the value of the
currency at the time of the establishment
of the obligation shall be the basis of
payment, unless there is an agreement to
the contrary.
Inflation
A sharp sudden increase of money or credit
or both without a corresponding increase in
business transactions which causes a DROP in
the VALUE of the money, resulting in the
RISE of the general price level.
Deflation
The reduction in volume and circulation of the
available money or credit, resulting in a
DECLINE of the general price level.
NOTE: The purchasing value of the currency AT
THE TIME OF THE ESTABLISHMENT of
the obligation shall be the basis of
payment, in case of any extraordinary
increase or decrease in the purchasing
power of the currency which the parties
could not have reasonable foreseen.
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Art. 1251
Payment shall be made in the place
designated in the obligation.
There being no express stipulation and if
the undertaking is to deliver a
determinate thing, the payment shall be
made wherever the thing might be at the
moment the obligation was constituted.
In any other case the place of payment
shall be the domicile of the debtor.
If the debtor changes his domicile in bad
faith or after he has incurred in delay, the
additional expenses shall be borne by him.
These provisions are without prejudice to
venue under the Rules of Court.
Place where obligation shall be paid
NOTES:
 If there is a stipulation, payment shall
be made in the place designated.
 If there is NO stipulation and the thing
to be delivered is SPECIFIC, the payment
shall be made AT THE PLACE where the
thing was, at the perfection of the contract.
 If the is NO stipulation and the thing to
be delivered is GENERIC, the place of
payment shall be the DOMICILE OF
DEBTOR.
 The order as above enumerated is
SUCCESSIVE and EXCLUSIVE.
Domicile
The place of a person’s habitual residence.
(50); the place where he has his true fixed
permanent home and to which place he,
whenever he is absent, has the intention of
returning.
Residence
Only an element of domicile. It simply
requires the bodily presence as an inhabitant
in a given place, while domicile/legal
residence requires bodily presence in that
place and also an intention to make it one’s
domicile.
_______________________________________
SUBSECTION 1. - Application of Payments
Art. 1252
He who has various debts of the same
kind in favor of one and the same creditor,
may declare at the time of making the
payment, to which of them the same must
be applied. Unless the parties so stipulate,
or when the application of payment is
made by the party for whose benefit the
term has been constituted, application
shall not be made as to debts which are
not yet due.
If the debtor accepts from the creditor a
receipt in which an application of the
payment is made, the former cannot
complain of the same, unless there is a
cause for invalidating the contract.
Application of payments
The designation of the debt to which should
be applied the payment made by a debtor
who has various debts of the same kind in
favor of one and the same creditor.
Requisites:
1. (1) debtor and (1) creditor
2. (2) or more debts
3. debts must be of the same kind
4. debts to which payment made by the
debtor has been applied must be DUE
5. payment made must not be sufficient to
cover all the debts
Application as to debts not yet due
NOTES:
GR – the application of payments as to debts
not yet due cannot be made.
EXCs:
1. there is a stipulation that the debtor
may so apply; OR
2. it is made by the debtor or creditor, as
the case may be, for whose benefit the
period has been constituted.
Rules on application of payments:
1. Debtor has the first choice. He must
indicate AT THE TIME OF MAKING
PAYMENT, and not afterwards, which
particular debt is being paid.
2. Right to make the application, once
exercised is IRREVOCABLE, UNLESS the
creditor consents to the change.
3. If the debtor does not apply payment,
the CREDITOR may make the designation by
specifying in the receipt which debt is being
paid.
4. If the creditor has not also made the
application, or if the application is not valid,
the debt, which is MOST ONEROUS to
debtor among those due, shall be deemed
to have been satisfied.
5. If the debts due are of the SAME nature
and burden, the payment shall be applied to
all of them PROPORTIONATELY.
ILLUSTRATION:
D owes C the following:
1. 1,500 payable on Sep 5
2. 1,200 payable on Sep 20
3. A specific transistor radio worth
P2k to be delivered on Sep 20
4. 1k payable on Oct 15
On Sep 20, D paid C P1,500. D may apply
the P1,500 to debt no.1 or to debt no.2 and if
Law on Obligations and Contracts
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C does not object, to a portion of debt no.1
(300)
1. If D paid only 1k, he cannot
choose to apply his payment to debt
no.1 because C cannot be compelled to
receive partial payment (1248).
D cannot properly apply his payment to debt
no.3 because it is not of the same kind. He
must deliver the very thing agreed upon.
Neither can he apply it to debt no.4 which is
not yet due unless there is a stipulation to the
contrary or he has the benefit of the period.
NOTE: An application of payment made by
the debtor WITHOUT objection from
the creditor is BINDING upon the
latter.
2. If D does not make a
choice, C can make the designation in
the receipt WITH the consent of D. D
may change the application made by C.
NOTE: The law says “if the debtor accepts”
which implies that he has the liberty to reject
also.
The acceptance by D of the receipt given by C is
regarded by the law as a contract in itself
independent of the principal obligation. His
acquiescence to the application made by C
amounts to an assent to such application which
he may no longer revoke or change, unless
there is a cause for invalidating the contract.
(e.g., where the consent of D in accepting the
receipt was vitiated by reason of fraud, mistake,
undue influence, etc.)
3. If C does not make the
application in the receipt or no receipt
was issued by him, then the legal rules
in Art. 1254 will govern.
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Art. 1253
If the debt produces interest, payment of
the principal shall not be deemed to have
been made until the interests have been
covered.
Interest earned paid ahead of principal
NOTES:
 GR - The rule here is
MANDATORY.
 EXC - The rule here, however,
is subject to any agreement between the
parties, or to waiver by the creditor.
 The debtor cannot choose to
credit his payment to the principal before
the interest is paid.
ILLUSTRATION:
D owes C 10k with 1k as accrued
interest. D pays C 10k.
The 10k will first be applied to the
interest earned by the debt. Then the
balance of 9k will be credited to the
amount. Therefore, D will still owe 1k
of the principal.
_______________________________________
Art. 1254
When the payment cannot be applied in
accordance with the preceding rules, or if
application can not be inferred from other
circumstances, the debt which is most
onerous to the debtor, among those due,
shall be deemed to have been satisfied.
If the debts due are of the same nature
and burden, the payment shall be applied
to all of them proportionately.
Application of payment to most onerous
debt
NOTES:
 In case no application of
payment has been made by the debtor and
the creditor, then the payment shall be
applied to the most onerous debt.
 If the debts are of the same
nature and burden, payment shall be made
to all of them proportionately.
When a debt more onerous than another:
1. An interest-bearing debt is more
onerous than a non-interest-bearing
debt.
2. A debt as a sole debtor is more
onerous than as a solidary debtor.
3. Debts secured by a mortgage or
by pledge are more onerous than
unsecured debts.
4. Of the two interests bearing
debts, the one with a higher rate is
more onerous.
5. An obligation with a penalty
clause is more burdensome than one
without penalty clause.
Where debts subject to different burdens
One debt secured by a mortgage and the
other with a penalty clause. It cannot be
definitely determined which debt is most
onerous to the debtor. Payment shall be
applied to both proportionately.
_______________________________________
SUBSECTION 2. - Payment by CESSION
 
Art. 1255
The debtor may cede or assign his
property to his creditors in payment of his
debts. This cession, unless there is
stipulation to the contrary, shall only
release the debtor from responsibility for
the net proceeds of the thing assigned.
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The agreements which, on the effect of  

the cession, are made between the debtor
and his creditors shall be governed by
special laws.
Payment by CESSION
Another special form of payment which is the
assignment or abandonment of ALL the
properties of the debtor for the benefit of his
creditors in order that the latter may sell the
same and apply the proceeds thereof to the
satisfaction of their credits.
Requisites:
1. Two or more creditors;
2. Debtor must be PARTIALLY insolvent;
3. Assignment must involve ALL the
properties of the debtor;
4. Cession must be ACCEPTED by the
creditors.
Art. 1256
If the creditor to whom tender of payment
has been made refuses without just cause
to accept it, the debtor shall be released
from responsibility by the consignation of
the thing or sum due.
Consignation alone shall produce the same
effect in the following cases:
(1) When the creditor is absent or unknown,
or does not appear at the place of payment;
(2) When he is incapacitated to receive the
payment at the time it is due;
(3) When, without just cause, he refuses to
give a receipt;
(4) When two or more persons claim the
same right to collect;
(5) When the title of the obligation has been
lost. (1176a)

Effect of payment by cession Tender of Payment

Assignment does not make the creditors the The act, on the part of the debtor, of
owners of the property of the debtor and the offering to the creditor the thing or amount
debtor is released from his obligation only up due.
to the net proceeds of the sale of the
property assigned. If there is a balance, the Consignation
debtor is still liable. The act of depositing the thing or amount
due with the proper court when the creditor
ILLUSTRATION: does not desire or cannot receive it, after
D is indebted to several creditors in the total complying with the formalities required by
amount of 2M. His assets are not sufficient to law.
pay all his debts. NOTE: It is always judicial and it generally
With the consent of his creditors, D may requires a prior tender of payment which is,
assign his property to them to be sold, to by its very nature, extrajudicial.
satisfy their credits. If the net proceeds of
the sale amount only to 1.5M, D is still liable Requisites:
for the balance of 500K unless there is a 1. Valid debt which is due;
stipulation that the assignment shall be in full 2. Tender of payment by the debtor and
satisfaction of all his debts. refusal without justifiable reason by the
creditor to accept it;
Dation in Payment Cession 3. Previous notice of consignation to
1. Usually one 1. Several persons interested in the fulfillment of
creditor creditors the obligation;
2. Does not 2. Debtor is 4. Consignation of the thing or sum due;
presuppose the insolvent at the 5. Subsequent notice of consignation made
insolvency of the time of assignment to the interested parties.
debtor
3. Does not 3.
Extends to all ILLUSTRATION:
involve all the the property of the D owes C a sum of money. On the due date
property of the debtor subject to of the obligation, D offers to pay the
debtor execution obligation but C refuses to accept the
4. Creditor 4. Creditors only payment without any justifiable reason.
becomes the acquire the right to In this case, D’s obligation will not be
owner of the sell the thing and extinguished until he has made a valid
thing given by apply the proceeds consignation. The refusal by C to accept
the debtor to their credits without just cause will not have the effect of
proportionately payment.
5. Really an act 5. Not an act of
of novation novation When tender of payment not required
_______________________________________ In the five (5) cases mentioned in the 2 nd
par. of this article, tender of payment is not
SUBSECTION 3. - Tender of Payment and necessary before the debtor can consign the
Consignation thing due with the court.
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Requirements for valid tender of payment
1. Tender of payment must comply with
the rules on payment;
2. It must be unconditional and for the
whole amount;
3. It must be actually made.
_______________________________________
Art. 1257
In order that the consignation of the thing
due may release the obligor, it must first
be announced to the persons interested in
the fulfillment of the obligation.
The consignation shall be ineffectual if it is
not made strictly in consonance with the
provisions which regulate payment.
Prior notice to persons interest required
In the absence of prior notice to the
persons interested in the fulfillment of
the obligation (e.g., guarantors,
mortgagees, solidary debtors, solidary
creditors), the consignation, as
payment, shall be VOID.
Consignation must comply with provisions
on payment
One of these rules is that payment
should be made in legal tender (1249)
_______________________________________
Art. 1258
Consignation shall be made by depositing
the things due at the disposal of judicial
authority, before whom the tender of
payment shall be proved, in a proper case,
and the announcement of the
consignation in other cases.
The consignation having been made, the
interested parties shall also be notified
thereof.
NOTE: Consignation must
judicial authority.
Notice to be given to interested parties of
the consignation made
NOTES:
 After the consignation has been
made, the interested parties must also be
notified thereof.
 The purpose of the 2nd notice is
to enable the creditor to withdraw the thing
or sum deposited in case he accepts the
consignation.
_______________________________________
Art. 1259
The expenses of consignation, when
properly made, shall be charged against
the creditor.
_______________________________________
Art. 1260
Once the consignation has been duly
made, the debtor may ask the judge to
order the cancellation of the obligation.
Before the creditor has accepted the
consignation, or before a judicial
declaration that the consignation has been
properly made, the debtor may withdraw
the thing or the sum deposited, allowing
the obligation to remain in force.
Withdrawal by debtor of thing or sum
deposited
The debtor may withdraw AS A MATTER OF
RIGHT the thing or sum deposited:
1. before the creditor has accepted the
consignation;
2. before a judicial declaration that the
consignation has been properly made,
as he is still the owner of the same.
_______________________________________
Art. 1261
If, the consignation having been made,
the creditor should authorize the debtor to
withdraw the same, he shall lose every
preference which he may have over the
thing. The co-debtors, guarantors and
sureties shall be released.
Effect of withdrawal with authority of
creditor
NOTES:
 Consignation is for the benefit
of the creditor.
 Creditor may authorize the
debtor to withdraw the deposit after he has
accepted the same or after the court has
issued an order cancelling the obligation.
 However, the creditor shall lose
every preference which he may have over
the thing, and the co-debtors (solidary
debtors), guarantors, and sureties shall be
be with proper released.
 The solidary debtors are
released only from their solidary liability, but
not from their shares of the obligation, since
unlike guarantors and sureties, they are also
principal debtors.
ILLUSTRATION:
D is indebted to C in the sum of 50k with G as
guarantor. On the due date of the obligation,
D offered payment but C refused to accept
the same. So, D made a consignation.
Subsequently, D withdrew the deposit after
securing the consent of C.
C shall lose whatever preference he may have
over the amount and G, the guarantor, shall
be released.
If, in the example, D and G are solidarily
liable to C, G is released only from his solidary
liability but he is still liable to C for 25, his
share in the obligation.
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