MODULE - BSSLAW1 - 2nd Sem 2021

Prepared by:
Atty. Angeline My F. Togade

BSSLAW1 2nd Sem 2020-2021
SCHOOL OF BUSINESS ADMINISTRATION AND ACCOUNTANCY
A Self-regulated Learning Module 1

THE LAW ON OBLIGATIONS
PAGE
INTRODUCTION TO THE MODULE 6
CHAPTER1 INTRODUCTION TO LAW 7
Definition of Law
General Classification of Laws
Classifications of Laws in the Philippines
Sources of Laws
Activities 11
CHAPTER2 GENERAL PROVISIONS ON OBLIGATION 12
Article 1156 Obligation defined; Elements of Obligation; Kinds
of Obligation
Article 1157 Sources of Obligation
Article 1158 Obligations Arising from Law
Article 1159 Freedom to Contract
Article 1160 Quasi-contract
Article 1161 Obligations Arising from Crimes
Article 1162 Quasi-delict
Activities 19
CHAPTER3 NATURE AND EFFECTS OF OBLIGATIONS 20
Article 1163 Obligations of a Debtor in Real Obligations
Article 1164 Kinds of Fruits
Article 1165 Effects of Fortuitous Events
Article 1166 Accessories and Accessions
Article 1167 Positive Personal Obligation
Article 1168 Negative Personal Obligation
Article 1169 Rules on Delay
Article 1170 Grounds for Damages
Article 1171 Fraud
Article 1172 Negligence
Article 1173 Kinds of Negligence
Article 1174 Fortuitous Events
Article 1175 Usury
Article 1176 Presumptions
Article 1177 Remedies of the Creditor
Article 1178 Transmissibility of Rights
Activities 38
CHAPTER4 DIFFERENT KINDS OF OBLIGATIONS 39
Article 1179 Pure and Conditional Obligations
Article 1180 Obligations with a Period
Article 1181 Conditions

Article 1182 Classifications of Conditions as to Cause
Article 1183 Impossible Conditions
Article 1184 Indubitability of Condition
Article 1185 Improbability of Condition
Article 1186 When Condition is Deemed Fulfilled
Article 1187 Retroactive Effect of Fulfilled Condition
Article 1188 Rights of Debtor and Creditor in Conditional
Obligations
Article 1189 Rules on Loss, Deterioration and Improvement
Article 1190
Article 1191 Rescission in Reciprocal Obligations
Article 1192 In pari delicto
Article 1193 Obligations with a Period
Article 1194 Applicability of Art. 1189 in Obligations with a
Period
Article 1195 Recovery of Fruits
Article 1196 Benefit of a period
Article 1197 Duration of a Period
Article 1198 Instances When the Debtor Losses the Right to
the Period
Article 1199 Alternative Obligations
Article 1200 Right of Choice in Alternative Obligations
Article 1201 Effect of Choice
Article 1202 Limitation to the Right of Choice
Article 1203 When the Debtor Cannot Make a Choice
Article 1204 Effect of Loss of the Choices
Article 1205 Rules on Loss in Alternative Obligations
Article 1206 Facultative obligation
Article 1207 Solidary Obligations
Article 1208 Joint Obligations
Article 1209 Joint Indivisible Obligations
Article 1210 Solidarity versus Indivisibility
Article 1211 Characteristics of Solidary Obligations
Article 1212
Article 1213
Article 1214
Article 1215 Effect of Novation, Compensation, Confusion or
Remission of Debt on Solidary Obligations
Article 1216
Article 1217 Payment by a Solidary Debtor
Article 1218 Prescription
Article 1219
Article 1220
Article 1221

Article 1222
Article 1223 Divisible and Indivisible Obligations
Article 1224
Article 1225 Presumption of Indivisibility
Article 1226 Obligations with a Penal Clause
Article 1227
Article 1228
Article 1229
Article 1230
Activities 69
CHAPTER5 EXTINGUISMENT OF OBLIGATIONS 70
Article 1231 Modes of Extinguishing an Obligation
Article 1232 Payment
Article 1233
Article 1234
Article 1235
Article 1236
Article 1237
Article 1238 Effects of Payment
Article 1239
Article 1240
Article 1241
Article 1242
Article 1243
Article 1244
Article 1245 Dacion en pago
Article 1246
Article 1247
Article 1248
Article 1249
Article 1250
Article 1251
Article 1252 Application of Payment
Article 1253
Article 1254
Article 1255 Payment by Cession
Article 1256 Tender of Payment and Consignation
Article 1257
Article 1258 Requisites of Valid Consignation
Article 1259
Article 1260
Article 1261 Effect of Withdrawal After Consignation
Article 1262 Loss of the Thing Due
Article 1263 Kinds of Loss

Article 1264
Article 1265
Article 1266
Article 1267
Article 1268
Article 1269
Article 1270
Article 1271 Condonation or Remission
Article 1272
Article 1273
Article 1274
Article 1275 Confusion or Merger
Article 1276
Article 1277
Article 1278 Compensation
Article 1279 Requisites of Legal Compensation
Article 1280
Article 1281
Article 1282
Article 1283
Article 1284
Article 1285
Article 1286
Article 1287
Article 1288
Article 1289
Article 1290
Article 1291 Novation
Article 1292
Article 1293
Article 1294
Article 1295 Kinds of Substitution
Article 1296
Article 1297
Article 1298
Article 1299
Article 1300
Article 1301
Article 1302 Kinds of Subrogation
Article 1303
Article 1304
Activities 92

CHAPTER6 GENERAL PROVISION ON CONTRACTS 93
Activities 110
CHAPTER7 ESSENTIAL REQUISITES OF CONTRACTS 111
Activities 126
CHAPTER8 FORM, REFORMATION AND INTERPRETATION OF CONTRACTS 127
Activities 134
CHAPTER9 DEFECTIVE CONTRACTS 135
Activities 151
APPENDICES 152
INTRODUCTION TO THE MODULE

Course Code and Course BSSLAW1
Title Law on Obligations and Contracts
This unit introduces the students to the legal basic concepts
related to obligations and contracts. It will cover the general
principles of obligations and contracts, the various
classifications and kinds thereof, its nature and effect, the
Course Description modes of extinguishing the obligations, the form of contracts
and the remedy of reformation as well as the rules of
interpretation.
This learning module is being formulated considering the

following situations of students: (1) Those students who do
not have internet connection, (2) students whose family
share computer equipment (3) students with slow and weak
internet connectivity. The pandemic created a global change
Rationale of the Module in our daily norm and the academe, as dynamic as it is, is
adjusting to this changes.
The learning module seeks to provide an avenue for student
to learn by self-pace learning or asynchronous learning. This
module would also be uploaded in the google classroom
which the student can assess and study offline.
• Periodical Examination for the first semester:
Prelims, Midterms and Finals
Requirements of the
• Assignments
Course
• Quizzes
• Research Work
Email: amftogade@e.ubaguio.edu
Angeline May F. Togade
Google Class Room Code:

Chapter 1: INTRODUCTION TO LAW
Objective(s)
At the end of the module, the students will be able to enumerate and identify and
basic concepts of law as to its definition, general and specific classifications, and the
sources of laws.
CHAPTER 1: INTRODUCTION TO LAW
General definitions of law

1. A rule of conduct
2. A defined mode of behavior
3. A system of uniformity
General Classification of Laws
A. NON-STATE LAW – rule of conduct that was not created by states or governments.
1. DIVINE LAW
Divine law comprises anybody of law that is perceived as deriving from a

transcendent source, such as the will of God or gods - in contrast to man-made law
or to secular law. It may refer to a commandment from any religion. It is considered
divine law because its origin and authority is divine.
2. NATURAL LAW
Natural law, in philosophy, a system of right or justice held to be common to all

humans and derived from nature rather than from the rules of society, or positive law.
The theory of natural law says that humans possess an intrinsic sense of right and
wrong that governs our reasoning and behavior. The concepts of natural law are
ancient, stemming from the times of Plato and Aristotle. Natural law is constant
throughout time and across the globe because it is based on human nature, not on
culture or customs.
3. MORAL LAW
Moral law is a system of guidelines for behavior. These guidelines may or may
not be part of a religion, codified in written form, or legally enforceable. It is relative in
nature as some societies have defined acceptable behavior which may be looked down
upon by other sectors.
4. ETERNAL LAW OR PHYSICAL LAW

Physical law, scientific law, or a law of nature is a scientific generalization based
on empirical observations of physical behavior. Empirical laws are typically
conclusions based on repeated scientific experiments over many years, and which have
become accepted universally within the scientific community.
B. STATE LAW - which have the following characteristicsi:
1. is a set of rules.
2. It regulates the human conduct
3. It is created and maintained by the state.
4. It has certain amount of stability, fixity and uniformity.
5. It is backed by coercive authority.
6. Its violation leads to punishment.
7. It is the expression of the will of the people and is generally written down to give it
definiteness.
8. It is related to the concept of 'sovereignty' which is the most important element of
state.
Classifications of Laws in the Philippines
A. Public law is the part of law that governs relationships between legal persons and a
government, between different institutions within a state, between different branches
of government, and relationships between persons that are of direct concern to society.
It includes the following:
1. Constitutional law
Constitutional law is the body of law that evolves from a constitution, setting out
the fundamental principles according to which a state is governed and defining the
relationship between the various branches of government within the state. It is the
basic or fundamental law of a country.
2. Administrative law
Administrative law is the body of rules and principles that governs the duties
and operations of state administrative agencies.
3. Criminal law
Criminal law defines the acts and omissions that merits corresponding penalties
therefor.
4. Remedial law
Remedial is also known as procedural law or adjective law is that branch of law
which prescribes the method of enforcing rights or obtaining redress for their
invasion.
5. Financial and tax laws

Financial and tax It covers the rules, policies and laws that oversee the tax
process, which involves charges on estates, transactions, property, income, licenses
and more by the government.
6. International public law

International public law is the body of rules that is legally binding on States and
international organizations in their interactions with other States, international
organizations, individuals, and other entities.
B. Private law is concerned with relationships between individuals and include the
following:
1. Civil law
Civil law is a body of rules that defines and protects the private rights of citizens,
offers legal remedies that may be sought in a dispute, and covers areas of law such
as contracts, torts, property and family law.
2. Commercial law
Commercial law or mercantile law or business law or trade law, is the body of
law that applies to the rights, relations, and conduct of persons and businesses
engaged in commerce, merchandising, trade, and sales.
3. Labor law
Labor law governs employment practices and labor relations.
4. International private law.

International private law or private international law is a set of rules of
procedural law that regulates the relationships between physical and judicial
persons of different nationalities.
Sources of Laws
The main sources of Philippine law are:
1. The Constitution which is the fundamental and supreme law of the land.
2. Legislations or statutes which are enacted by the law-making branch of the
government.
3. Administrative rules and regulations which includes the implementing rules and
guidelines issued by the executive branch of the government.
4. Jurisprudence or judicial decisions of the Supreme Court of the Philippines. Art 8 of
the Civil Code provides that ‘judicial decisions applying to or interpreting the laws or
the Constitution shall form a part of the legal system of the Philippines’.

*Stare decisis is a legal doctrine that obligates courts to follow historical cases when
making a ruling on a similar case. This doctrine ensures that cases with similar
scenarios and facts are approached in the same way.
*Stare decisis, et non quieta movere. Simply put, it binds courts to follow legal
precedents set by previous decisions by the Supreme Court.
5. Treaty which is also known as an international agreement, protocol, covenant,
convention, pact, or exchange of letters, among other terms and is formal written
agreement entered into by actors in international law, namely sovereign states and
international organizations.
6. Customs or customary law also forms part of the Filipino legal system. Art 6, para 2 of
the Constitution provides that ‘the State shall recognize, respect, and protect the rights
of indigenous cultural communities to preserve and develop their cultures, traditions
and institutions’.
7. The primary sources of Muslim law / Shariah are the Quran, Sunnaqh, Ijma and Qiyas.
IGNORANTIA LEGIS NON EXCUSAT - ignorance of the law excuses not

IGNORANTIA LEGIS NEMINEM EXCUSAT -ignorance of law excuses no one
NEMO CENSETUR IGNORARE LEGEM - nobody is thought to be ignorant of the law)
IGNORANTIA IURIS NOCE - not knowing the law is harmful
These are legal principles holding that a person who is unaware of a law may not escape
liability for violating that law merely because one was unaware of its content.
DURA LEX SED LEX - the law is harsh but it is the law
It follows from the principle of the rule of law that even draconian laws must be followed
and enforced; if one disagrees with the result, one must seek to change the law.

ACTIVITY1_OBLIGATIONS:
1.a Vocabulary enhancement. Choose at least 20 words from Chapter 1 that you are not
familiar with. Find a definition or concept of those words that you understand. Write a
sentence using the word in the context of the law.Follow the format found in Appendix A.
1.b Create 20 Multiple Choice Questions based on Chapter 1. Provide 4 distinct but related
choices. Follow the format found in Appendix B.
1.c In not less than 300 words, explain by way of example the legal meme in the Facebook
group. The rubric that will be used in evaluating your essay is found in Appendix C.
1.d Online Quizzers will be scheduled.

Chapter 2: GENERAL PROVISIONS ON OBLIGATION
Objective(s)
At the end of the module, the students will be able to enumerate and identify the
general provisions on obligations.
CHAPTER 2: GENERAL PROVISIONS ON OBLIGATION

Articles 1156 to 1162
The Civil Code of the Philippines is a substantive law. It is divided into five books:
1. BOOK I Persons and Family Relations
2. BOOK II Property, Ownership and its Modifications
3. BOOK III Different Modes of Acquiring Ownership
4. BOOK IV Obligations and Contracts
5. BOOK V Special Contracts
Etymology
From Middle English obligacioun, from
Old French obligacion, from Latin
What is an obligation?
obligatio, obligationem, from
obligatum (past participle of obligare),
from ob- (“to”) + ligare (“to bind”),
from Proto-Indo-European *leig- (“to
bind”). (Wikipedia)
Art. 1156. An obligation is a juridical necessity to give, to do or not to

do.
*Juridical necessity connotes that the rights and duties arising from an obligation are legally
demandable and the courts of justice may be called upon through proper action to order its
performance or compliance.
Requisites of an obligation:
1. An active subject/creditor/obligee and refers to the party who has the power to demand
the prestation.
2. A passive subject/debtor/obligor and refers to the party who is bound to perform the
prestation.

3. An object, subject matter or the prestation which may consist in the act of giving, doing
or not doing something.
4. The vinculum juris/juridical tie/legal tie/source of obligation between the two subjects
by reason of which the debtor is bound in favor of the creditor to perform the prestation.
Kinds of obligation
As to nature:
1. Civil obligations (Art. 1423) are those enforceable in a court of law.
2. Natural obligations (Art. 1423) are those, not being based on positive law but on equity
and natural law, are not enforceable through court action but may be voluntarily
complied with by the debtor or authorizes the retention of what has been delivered or
received by reason thereof.
As to prestation
1. Real obligation- the obligation is to give

2. Positive personal obligation – the obligation is to do
3. Negative personal obligation – the obligation is not to do
As to sanction
1. Civil obligations which are enforceable through court action.

2. Moral obligations which creates no juridical tie between the parties but may be
voluntarily complied with but does not producec any legal effect.
3. Natural obligations which creates a juridical tie but is not enforceable. However, the
voluntary compliance by the debtor may be recognized and protected by the courts.
As to persons obligated
1. Unilateral where only one party is bound to give, to do or not to do.

2. Bilateral where both parties are bound to give, to do or not to do.
Art. 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.

Sources of obligations
1. Law (Art. 1158)

2. Contracts (Art. 1159)
3. Quasi-contracts (Art. 1160)
4. Acts or omissions punished by law or crimes or delicts (Art. 1161)
5. Quasi-delicts or torts (Art. 1162)
Art. 1158. Obligations derived from law are not presumed. Only those
expressly determined in this Code or in special laws are
demandable, and shall be regulated by the precepts of the law
which establishes them; and as to what has not been
foreseen, by the provisions of this Book.
An obligation ex lege must be clearly stated. It is never presumed. For example, the
obligation to pay taxes must be clearly seen from the taxation law that seeks to exact the fees
from the taxpayers. Likewise, the obligation of a husband and wife to mutually help and
support each other is found in the Family Code.
Art. 1159. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with
in good faith.
Art. 1305 defines a contract as a meeting of minds between two (or more) persons
whereby one binds himself with respect to the other, to give.
Under the “freedom to contract” rule, the parties can agree on anything except if it is
contrary to:
a. Law
b. Morals
c. Good customs
d. Public order
e. Public policy
Art. 1160. Obligations derived from quasi-contracts shall be subject to

the provisions of Chapter 1, Title XVII, of this Book.

No undue enrichment
A quasi-contract is a juridical relation that arises from certain lawful, voluntary and
unilateral acts to the end that no one shall be unjustly enriched or benefited at the expense
of another. There is no meeting of the mind between the parties.
Kinds of quasi-contract
1. Negotiorum gestio
Art. 2144. Whoever voluntarily takes charge of the agency or management of

the business or property of another, without any power from the latter, is obliged to
continue the same until the termination of the affair and its incidents, or to require the
person concerned to substitute him, if the owner is in a position to do so. This juridical
relation does not arise in either of these instances:
(1) When the property or business is not neglected or abandoned;
(2) If in fact the manager has been tacitly authorized by the owner.
. 2150. Although the officious management may not have been expressly
ratified, the owner of the property or business who enjoys the advantages of the same
shall be liable for obligations incurred in his interest, and shall reimburse the officious
manager for the necessary and useful expenses and for the damages which the latter
may have suffered in the performance of his duties.
The same obligation shall be incumbent upon him when the management had
for its purpose the prevention of an imminent and manifest loss, although no benefit
may have been derived. (1893)
Example: Alma owns a mango farm in La Union. She had to go to on a one-week

emergency trip to Davao City and while thereat, a typhoon hit the province of La Union.
The neighbors and relatives took upon themselves to harvest the fruits and in doing
so, incurred expenses amounting to P5,000.00. Alma has the obligation to reimburse
the P5000.
In negotiorum gestio, the officious manager assumes the management of the

business, he is obliged to continue the same until the termination of the business,
under Art. 2144. Likewise, he shall perform his duties with all the diligence of a good
father of a family, and pay the damages which through his fault or negligence may be
suffered by the owner of the property or business under management, under Art. 2145.

2. Solutio indebiti
Solutio indebiti is also known as payment by mistake. Art. 2154 provides that
if something is received when there is no right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises.
Example: Daniel rode a jeepney. His fare is P8.50. He paid with a P10.00 coin. The
driver gave Daniel a change of P5.50. Here, Daniel has the obligation to return the
P4.00.
Anyone who knowingly accepts something to which he is not entitled shall

incur liability as Art. 2159 provides that whoever in bad faith accepts an undue
payment, shall pay legal interest if a sum of money is involved, or shall be liable for
fruits received or which should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss or impairment of the thing

from any cause, and for damages to the person who delivered the thing, until it is
recovered.
Art. 1161. Civil obligations arising from criminal offenses shall be

governed by the penal laws, subject to the provisions of
Article 2177, and of the pertinent provisions of Chapter 2,
Preliminary Title, on Human Relations, and of Title XVIII of
this Book, regulating damages.
Governing laws on an obligation ex delicto or ex maleficio

1. The Revised Penal Code (RPC) of the Philippines which defines crimes that consist of
acts and omissions that are prohibited and prescribes penalty for such. Under Art. 100
of the RPC, persons who are criminally liable are civilly liable.
2. Chapter 2, Preliminary Title of the Civil Code, on Human Relations.
3. Title 18, Book IV of the Civil Code, on Damages.
Civil liability from crimes include the following:

1. Restitution or restoration of the thing subject of the crime to the lawful owner, as far
as practicable. Art 105 (RPC) provides that the thing itself shall be restored, even
though it be found in the possession of a third person who has acquired it by lawful
means, saving to the latter his action against the proper person who may be liable to
him.

2. Reparation of the damages causes. The court shall determine the amount of damage,
taking into consideration the price of the thing, whenever possible, and its sentimental
value to the injured party, and reparation shall be made accordingly, under Art. 106
(RPC).
3. Indemnification for consequential damages. It shall include not only those caused by
the injured party, but also those suffered by his family or by a third person by reason
of the crime, as provided in Art. 107 (RPC). Indemnification for damages shall
comprehend not only the value of the loss suffered, but also that of the profits which
the oblige failed to obtain, under Art. 2200 (RPC).
In crimes, Art. 2202 provides that the defendant shall be liable for all damages which
are the natural and probable consequences of the act or omission complained of. It is not
necessary that such damages have been foreseen or could have reasonably been foreseen
by the defendant. Art. 2211 provides that interest as a part of the damages may, in a
proper case, be adjudicated in the discretion of the court. Art. 2212 states that interest
due shall earn legal interest from the time it is judicially demanded, although the
obligation may be silent upon this point.
Example: Mario was hired by Digna to drive her van. Mario stole the car and on his way
to Isabela, bumped into a private car owned and driven by Leni, resulting to the
hospitalization of Leni and damages to the car amounting to P50,000.00. In case Mario is
convicted, the court might order him, among others, to return the van and shoulder the
cost of the repair of both vehicles, as well as the cost of Leni’s hospitalization.
Art. 1162. Obligations derived from quasi-delicts shall be governed by

the provisions of Chapter 2, Title XVII of this Book, and by
special laws.
Quasi-delict or torts is defined in Art. 2176 and it provides that whoever by act or
omission causes damage to another, there being fault or negligence, is obliged to pay for the
damage done. Such fault or negligence, if there is no pre-existing contractual relation
between the parties, is called a quasi-delict.
The liability for damages in quasi-delict is the fault or negligence of the person causing
the damage. Art. 1173 states that the fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of the obligation and corresponds
with the circumstances of the persons, of the time and of the place.
The test by which to determine the existence of negligence in a particular case may be
stated as follows: Did the defendant in doing the alleged negligent act use that reasonable
care and caution which an ordinarily prudent person would have used in the same situation?

If not, then he is guilty of negligence. [G.R. No. 164749, ROMULO ABROGAR and ERLINDA
ABROGAR, Petitioners vs COSMOS BOTTLING COMPANY and INTERGAMES, INC. (2017)].
Example: Blake owns a factory that partially collapsed six months ago and Luna, a passerby
was hit by some of the debris and wounded. Blake is liable for the injuries suffered by Luna.
Art. 2190 provides that the proprietor of a building or structure is responsible for the
damages resulting from its total or partial collapse, if it should be due to the lack of necessary
repairs.

2.a. Vocabulary enhancement. Choose at least 20 words from Chapter 2 that you are not
sentence using the word in the context of the law. Follow the format found in Appendix A.

Chapter 3: NATURE AND EFFECT OF OBLIGATIONS
Objective(s)
basic concepts relating to the nature and effect of obligations.
CHAPTER 3: NATURE AND EFFECT OF OBLIGATIONS
Art. 1163. Every person obliged to give something is also obliged to take care of it
with the proper diligence of a good father of a family, unless the law or
the stipulation of the parties requires another standard of care.
Classification of things
1. Determinate or specific thing is one that is particularly designated or physically

segregated from all others of the same class.
Examples:
a. An iPhone 6s plus with serial number abc123txp1
b. A car with plate number ABC 123
Art. 1163 talks about the obligation of a debtor in the delivery of a determinate thing,
which include the following:
1. Take good care of the thing, while in his possession, with the diligence of a good father
of a family.
2. Deliver the thing.
3. Deliver the fruits
4. Deliver the accessories and accessions.
5. Be liable for damages in case of breach
2. Generic or indeterminate thing is one that designated merely by its class or genus
without particular designation or physical segregation from all others of the same
class and the debtor is not liable for loss thereof without fault and before incurring
delay. This is based on the principle that genus never perishes (genus nunquam
perit).
Examples:
a. A car
b. An iPhone

The obligation of the debtor in the delivery of a generic thing include:
1. Deliver the generic thing which must be neither of superior nor of inferior quality.
This is known as the rule of the medium quality.
2. To be liable for damages in case of breach.
Diligence
Diligence is the care, caution or attention required of a person in a given situation.
Due diligence
Due diligence is the degree of care reasonably expected from, and ordinarily
exercised by a person who discharges an obligation.
Kinds of diligence
1. Ordinary diligence or diligence of a good father of a family which means ordinary care.
Just like a father of a family, it is a care that an average person would do in taking
care of his property.
2. Extraordinary diligence is that extreme care and caution which very prudent and
thoughtful persons exercise under the same or similar circumstances.
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 fruits are the spontaneous products of the earth or of animals.

2. Industrial fruits are those produced on lands through cultivation or labor.
3. Civil fruits are revenues derived from a thing by operation of law or by reason of a
juridical act, such as rentals, interest, and certain corporate distributions.
Personal and real rights
1. Personal rights or jus in personam are those enforceable against specific persons.
2. Real rights or jus in re are are those enforceable against the whole world.
Kinds of delivery
1. Actual delivery as when the thing is passed hand to hand.

2. Constructive delivery where the physical transfer is implied and the possessory rights
are transferred. It can take the following forms:
a. Traditio symbolica (symbolical tradition)
Example: When the keys of a house is given to the new owner
b. Traditio longa manu (Traditio by the long hand) where delivery is effected by mere
consent or by pointing out the object.
Example: When a sack of potato purchased from a farmer is simply pointed out.
c. Traditio brevi manu (delivery by the short hand) where the buyer is already in
possession of the object of the sale even before the sale.
Example: A tenant who buys the condominium unit he is renting.
d. Traditio constitutum possessorium which is the opposite of brevi manu where the
seller remains in possession after selling the property but in some other capacity.
Example: A house owner who sells his house but rents it from the buyer.
e. Tradition by the execution of legal documents.
Example: The execution of a Deed of Sale over a parcel of land.
Art. 1165. When what is to be delivered is a determinate thing, the creditor, in

addition to the right granted him by Article 1170, may compel the
debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation

be complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two
or more persons who do not have the same interest, he shall be
responsible for any fortuitous event until he has effected the delivery.
(1096)
Specific performance
1. If the thing is determinate, the creditor can compel the debtor to make the delivery
in an action called specific performance and/or damages.
2. If the thing is indeterminate, the creditor can compel the debtor to make the delivery
of the thing subject to the rule on medium quality and/or damages.

Fortuitous event
A fortuitous event is one which cannot be foreseen, or if foreseen, could not be avoided.
General rule: No one is liable for loss due to fortuitous event. Art. 1165 give two exceptions
when the happening of fortuitous event will not extinguish an obligation.
1. If the obligor delays.
2. If the obligor promises to deliver the same thing to two or more persons with different
interest as there is bad faith in this instance.
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 and accessories

1. Accessions refer to anything attached to the principal thing either naturally or
artificially. It includes natural, industrial and civil fruits. Everything that grows or
planted and sown on a parcel of land is considered accessory.
2. Accessory is anything that is necessary for the perfection, use, and preservation of
another thing to which they are attached. It will include factory equipment, tool of
machines, the keys to a house.
Example: If Normy binds herself to deliver a mobile phone to Klauss, she should deliver the
phone and the charger for the phone. This is based on the principle that accessory follows
the principal.
Art. 1167. If a person obliged to do something fails to do it, the same shall be
executed at his cost.
This same rule shall be observed if he does it in contravention of the

tenor of the obligation. Furthermore, it may be decreed that what has
been poorly done be undone.
Art. 1167 is applicable to a positive personal obligation or the obligation “to do”.
Remedies of the creditor
1. If the debtor fails to do what is expected of him, the creditor can have the prestation
be performed by another, at the cost of the failing debtor. The failing debtor cannot
be compelled to perform as it is a violation of the prohibition on involuntary
servitude which is protected by the Constitution.
2. If the debtor performed the obligation in violation of the terms of the agreement, the
same shall be performed by another at the failing debtor’s cost.

3. If the debtor performed the obligation with poor workmanship, the same shall be
undone at the debtor’s cost.
Example: Leila agreed to sing during the wedding of Donna. But on the day of the wedding,
Leila did not show up. The remedy of Donna against is one for damages.
Art. 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.
Art. 1168 applies in a negative personal obligation or an obligation not to do. What is
being demanded of the debtor is not the performance of an act but an omission. The remedy
is for the debtor to undo what has been done.
Example: Rene is leasing an apartment owned by Milo. It was agreed that Rene is not allowed
to sublease. If Rene violates the agreement on sub-leasing, the remedy is for him to stop sub-
leasing and be liable for any damages.
Art. 1169. Those obliged to deliver or to do something incur in delay from the time
the obligee judicially or extrajudicially 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 declare; 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 fulfills his
obligation, delay by the other begins.
Kinds of delay or default
1. Ordinary delay is the failure to deliver or perform on time.

2. Legal delay has three elements:
a. Ordinary delay
b. Demand to comply

c. Failure to comply with the demand
Kinds of legal delay

1. Mora solvendi or the delay on the part of the debtor
a. Mora solvendi ex re - delay in real obligations (to give)

b. Mora solvendi ex persona - delay in personal obligations (to do)
2. Mora accipiendi or the delay on the part of the creditor
3. Compensatio morae or the delay of both parties, in which case, the delay of one will
cancel out the delay of the other.
When delay exists
General Rule: No demand no delay!
The debtor incurs in delay from the time the obligee judicially or extrajudicially
demands from the debtor the fulfillment of an obligation but the debtor fails to perform his
obligation despite such demand.
For delay to exist the following must be present:
a. The obligation must be due and demandable

b. The debtor does not perform his obligation
c. The creditor demands for the performance of the obligation judicially or extra-judicially
d. The debtor fails to comply to such demand
Example: Efren bound himself to pay Roma P10,000.00 on July 15, 2020 but failed to pay
on that date. Roma sends a demand letter to Efren on December 1, 2020, giving him five (5)
days from receipt of the letter to pay. Efren receives the letter on December 5, 2020 but did
not comply. As of December 11, 2020, Efren is already in legal delay and liable for damages
from such date.
Exceptions to the General Rule:
There is no need for demand in order for delay to exist in the following cases:
a. The obligation or the law expressly so declare

Example: In payment of taxes and the taxpayer is not able to pay on time, the Bureau of
Internal Revenue does not need to demand payment. Failure of the taxpayer to pay on the
set due date puts him immediately on legal delay.
b. When the parties agreed that demand is not necessary to put the debtor in delay.
c. When time is of the essence. This is applicable in contracts where the designation of
the time when the thing is to be delivered or the performance is to be made was the controlling
motive for the establishment of the contract.
Example: Andy and Emo are getting married and engaged the services of a photo and video
company for the wedding day. If the company does not send its photographers and
videographers on the say of the wedding, the company is in legal delay without any need for
a demand.
d. When demand would be useless when the debtor has rendered it beyond his power
to perform the obligation.
Example: Arno is to deliver a specific car to Dante but before he could do so, the car was
destroyed by Dante’s son and Dante was aware of it.
d. 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 fulfills his obligation, delay by the other begins.
Effect of delay
As to debtor:
a. Debtor shall be liable for damages (Art. 1170)

b. If obligation to deliver determinate thing, debtor shall be responsible for any fortuitous
event until he has effected the delivery. (Art. 1165)
As to creditor:
a. Debtor may resort to consignation of the thing due. (Art 1258)

b. Creditor shall bear the risk of loss and shoulders the expenses for preservation of the
thing.
Art. 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.

Grounds for damages
1. Fraud or deceit or dolo
2. Negligence or recklessness or culpa
3. Delay or default or mora
4. Contravention of the term of the agreement
Kinds of damages
(1) Actual or compensatory maybe recovered for pecuniary loss suffered, including profits.
Art. 2205 provide the following basis of actual damages:
a. For loss or impairment of earning capacity in cases of temporary or permanent
personal injury
b. For injury to the plaintiff's business standing or commercial credit
(2) Moral Damages

Art. 2219. Moral damages may be recovered in the following and analogous cases:
(1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape, or other lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;

(8) Malicious prosecution;
(9) Acts mentioned in Article 309;
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
The parents of the female seduced, abducted, raped, or abused, referred to in No. 3 of
this article, may also recover moral damages.
The spouse, descendants, ascendants, and brothers and sisters may bring the action
mentioned in No. 9 of this article, in the order named.
Art. 2220. Willful injury to property may be a legal ground for awarding moral damages
if the court should find that, under the circumstances, such damages are justly due.
The same rule applies to breaches of contract where the defendant acted fraudulently
or in bad faith.
(3) Nominal damages

Art. 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which
has been violated or invaded by the defendant, may be vindicated or recognized, and
not for the purpose of indemnifying the plaintiff for any loss suffered by him.
Art. 2222. The court may award nominal damages in every obligation arising from any
source enumerated in Article 1157, or in every case where any property right has been
invaded.
Art. 2223. The adjudication of nominal damages shall preclude further contest upon
the right involved and all accessory questions, as between the parties to the suit, or
their respective heirs and assigns.
(4) Temperate or moderate

Art. 2224. Temperate or moderate damages, which are more than nominal but less
than compensatory damages, may be recovered when the court finds that some
pecuniary loss has been suffered but its amount can not, from the nature of the case,
be provided with certainty.
Art. 2225. Temperate damages must be reasonable under the circumstances.
(5) Liquidated
Art. 2226. Liquidated damages are those agreed upon by the parties to a contract, to
be paid in case of breach thereof.
Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall
be equitably reduced if they are iniquitous or unconscionable.
Art. 2228. When the breach of the contract committed by the defendant is not the one
contemplated by the parties in agreeing upon the liquidated damages, the law shall
determine the measure of damages, and not the stipulation.
(6) Exemplary or corrective

Art. 2229. Exemplary or corrective damages are imposed, by way of example or
correction for the public good, in addition to the moral, temperate, liquidated or
compensatory damages.
Art. 2230. In criminal offenses, exemplary damages as a part of the civil liability may
be imposed when the crime was committed with one or more aggravating
circumstances. Such damages are separate and distinct from fines and shall be paid
to the offended party.
Art. 2231. In quasi-delicts, exemplary damages may be granted if the defendant acted
with gross negligence.
Art. 2232. In contracts and quasi-contracts, the court may award exemplary damages
if the defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner.

Art. 2233. Exemplary damages cannot be recovered as a matter of right; the court will
decide whether or not they should be adjudicated.
Art. 2234. While the amount of the exemplary damages need not be proved, the plaintiff
must show that he is entitled to moral, temperate or compensatory damages before the
court may consider the question of whether or not exemplary damages should be
awarded. In case liquidated damages have been agreed upon, although no proof of loss
is necessary in order that such liquidated damages may be recovered, nevertheless,
before the court may consider the question of granting exemplary in addition to the
liquidated damages, the plaintiff must show that he would be entitled to moral,
temperate or compensatory damages were it not for the stipulation for liquidated
damages.
Art. 2235. A stipulation whereby exemplary damages are renounced in advance shall
be null and void.
Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any
waiver of an action for future fraud is void.
Classifications of fraud
1. Criminal fraud
2. Civil fraud
a. Fraud in the performance of an obligation which consists in the conscious and
intentional proposition to evade the normal fulfillment of an obligation. This fraud
results in breach of the obligation by non-fulfillment and will give rise to damages.
b. Fraud in the constitution of an obligation which is employed for purposes of

securing the consent of the party to enter into the contract. This fraud results in
vitiated consent.
b.1. Causal fraud or dolo causante which refers to serious misrepresentations used
by one party without which the other party would not have entered into the contract.
The innocent party may seek the annulment of the contract.
b.2. Incidental fraud or dolo incidente which are not serious in character and
without which the other party would still have entered into the contract. The
innocent part may seek to recover damages.
Art. 1172. Responsibility arising from negligence in the performance of every kind
of obligation is also demandable, but such liability may be regulated by
the courts, according to the circumstances.

Negligence is a failure to take reasonable care to avoid causing injury or loss to another
person. There are four steps in proving negligence. The plaintiff must prove:
1. that there is a duty in the circumstances to take care duty of care

2. that the behaviour or inaction of the defendant in the circumstances did not meet the
standard of care which a reasonable person would meet in the circumstances (breach
of duty)
3. that the plaintiff has suffered injury or loss which a reasonable person in the
circumstances could have been expected to foresee (damage)
4. that the damage was caused by the breach of duty (causation).
Kinds of negligence
1. Culpa contractual or contractual negligence which is governed by the New Civil Code.
It is the fault or negligence incident in the performance of an obligation which already
existed, and which increases the liability from such already existing obligation
2. Culpa aquiliana or civil negligence which results in quasi-delict which is governed by

the New Civil Code in Art. 2176 which states that whoever by act or omission causes
damage to another, there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no pre-existing contractual relation between
the parties, is called a quasi-delict.
3. Criminal negligence which is governed by the Revised Penal Code and arises in the
commission of a crime.
Art. 1173. The fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time and of
the place. When negligence shows bad faith, the provisions of Articles
1171 and 2201, paragraph 2, shall apply.
If the law or contract does not state the diligence which is to be observed
in the performance, that which is expected of a good father of a family
shall be required.
Diligence required
1. By provision of law. An example would be the ordinary diligence or the diligence of a

good father of a family is required in Art. 1733. Common carriers, on the other hand,
are bound to exercise extraordinary diligence in the vigilance over the goods and safety
of passengers being transported.

2. By stipulation of the parties. The agreement between the parties will prevail as long as
it does not violate the principle of freedom to contract.
3. In the absence of law and stipulation. The default is the diligence of a good father of a
family.
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires
the assumption of risk, no person shall be responsible for those events
which could not be foreseen, or which, though foreseen, were
inevitable.
Fortuitous event or force majeure or caso fortuito
A fortuitous event or force majeure or caso fortuito is an unforeseeable event or, if

foreseeable, the same cannot be avoided.
Classifications
1. Acts of God, independent of human will, like typhoons, floods, earthquakes.
2. Acts of man which arises form legitimate or illegitimate acts of people other than the
obligor, like robbery, war, and riot.
General rule: No one is liable for loss due to fortuitous events. Hence, if the obligor is unable
to fulfill his obligation by reason of fortuitous event, the obligation is extinguished, For as
long as he is not at fault, there will be no liability for damages.
Example: Dana obligated herself to deliver a specific car to Carlo. On her way to deliver, an
earthquake occurred which opened the grounds, destroying the car. Luckily, Dana got out
alive. Her liability to deliver the car to Carlo is extinguished.
Exceptions to the rule:
1. If the law holds the obligor liable despite loss due to fortuitous event.
Example: Art. 1263 states that in an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish the obligation.
2. If such liability is agreed upon by the parties.

3. If the nature of the obligation requires the assumption of risk where the obligor, having
full knowledge of the risk, voluntarily agrees to the obligation. This is usual in aleatory
contracts like insurance.
Example: The University of Baguio insured its buildings against fire. In case there was
a lightning storm causing the electrical system in one of the building to be short-
circuited causing fire, the insurance company cannot deny liability by invoking the
general rule on non-liability by reason of fortuitous event.
Art. 1175. Usurious transactions shall be governed by special laws.
Usury is the act of lending money at an interest rate that is considered unreasonably
high or that is higher than the rate permitted by law.
The Usury Law or Act. No. 2655 and the laws amending it govern usurious
transactions.
Art. 1176. The receipt of the principal by the creditor without reservation with
respect to the interest, shall give rise to the presumption that said
interest has been paid.
The receipt of a later installment of a debt without reservation as to

prior installments, shall likewise raise the presumption that such
installments have been paid.
Presumption
In the law of evidence, a presumption of a particular fact can be made without the aid
of proof in some situations. The invocation of a presumption shifts the burden of proof from
one party to the opposing party in a court trial.
Types of presumption
1. Rebuttable or disputable presumption
A rebuttable presumption is assumed true until a person proves otherwise.
2. Conclusive or irrebuttable presumption

A conclusive presumption cannot be refuted in any case.
Aside from the presumptions in Art. 1176, under Rule 131 of the Rules of Court,
paragraphs 1,2 and 3, the following are some presumptions.

RULE 131: Burden of Proof and Presumptions
Section 1. Burden of proof. — Burden of proof is the duty of a party to present evidence on
the facts in issue necessary to establish his claim or defense by the amount of evidence
required by law. (1a, 2a)
Section 2. Conclusive presumptions. — The following are instances of conclusive

presumptions:
(a) Whenever a party has, by his own declaration, act, or omission, intentionally and
deliberately led to another to believe a particular thing true, and to act upon such belief, he
cannot, in any litigation arising out of such declaration, act or omission, be permitted to
falsify it:
(b) The tenant is not permitted to deny the title of his landlord at the time of commencement
of the relation of landlord and tenant between them. (3a)
Section 3. Disputable presumptions. — The following presumptions are satisfactory if

uncontradicted, but may be contradicted and overcome by other evidence:
(a) That a person is innocent of crime or wrong;
(b) That an unlawful act was done with an unlawful intent;
(c) That a person intends the ordinary consequences of his voluntary act;
(d) That a person takes ordinary care of his concerns;
(e) That evidence willfully suppressed would be adverse if produced;
(f) That money paid by one to another was due to the latter;
(g) That a thing delivered by one to another belonged to the latter;
(h) That an obligation delivered up to the debtor has been paid;
(i) That prior rents or installments had been paid when a receipt for the later one is produced;
(j) That a person found in possession of a thing taken in the doing of a recent wrongful act is
the taker and the doer of the whole act; otherwise, that things which a person possess, or
exercises acts of ownership over, are owned by him;
(k) That a person in possession of an order on himself for the payment of the money, or the
delivery of anything, has paid the money or delivered the thing accordingly;

(l) That a person acting in a public office was regularly appointed or elected to it;
(m) That official duty has been regularly performed;
(n) That a court, or judge acting as such, whether in the Philippines or elsewhere, was acting
in the lawful exercise of jurisdiction;
(o) That all the matters within an issue raised in a case were laid before the court and passed
upon by it; and in like manner that all matters within an issue raised in a dispute submitted
for arbitration were laid before the arbitrators and passed upon by them;
(p) That private transactions have been fair and regular;
(q) That the ordinary course of business has been followed;
(r) That there was a sufficient consideration for a contract;
(s) That a negotiable instrument was given or indorsed for a sufficient consideration;
(t) That an endorsement of negotiable instrument was made before the instrument was
overdue and at the place where the instrument is dated;
(u) That a writing is truly dated;
(v) That a letter duly directed and mailed was received in the regular course of the mail;
(w) That after an absence of seven years, it being unknown whether or not the absentee still
lives, he is considered dead for all purposes, except for those of succession.
The absentee shall not be considered dead for the purpose of opening his succession till after
an absence of ten years. If he disappeared after the age of seventy-five years, an absence of
five years shall be sufficient in order that his succession may be opened.
The following shall be considered dead for all purposes including the division of the estate
among the heirs:
(1) A person on board a vessel lost during a sea voyage, or an aircraft with is missing, who
has not been heard of for four years since the loss of the vessel or aircraft;
(2) A member of the armed forces who has taken part in armed hostilities, and has been
missing for four years;
(3) A person who has been in danger of death under other circumstances and whose existence
has not been known for four years;

(4) If a married person has been absent for four consecutive years, the spouse present may
contract a subsequent marriage if he or she has well-founded belief that the absent spouse
is already death. In case of disappearance, where there is a danger of death the circumstances
hereinabove provided, an absence of only two years shall be sufficient for the purpose of
contracting a subsequent marriage. However, in any case, before marrying again, the spouse
present must institute summary proceedings as provided in the Family Code and in the rules
for declaration of presumptive death of the absentee, without prejudice to the effect of
reappearance of the absent spouse.
(x) That acquiescence resulted from a belief that the thing acquiesced in was conformable to
the law or fact;
(y) That things have happened according to the ordinary course of nature and ordinary nature
habits of life;
(z) That persons acting as copartners have entered into a contract of copartneship;
(aa) That a man and woman deporting themselves as husband and wife have entered into a
lawful contract of marriage;
(bb) That property acquired by a man and a woman who are capacitated to marry each other
and who live exclusively with each other as husband and wife without the benefit of marriage
or under void marriage, has been obtained by their joint efforts, work or industry.
(cc) That in cases of cohabitation by a man and a woman who are not capacitated to marry
each other and who have acquired properly through their actual joint contribution of money,
property or industry, such contributions and their corresponding shares including joint
deposits of money and evidences of credit are equal.
(dd) That if the marriage is terminated and the mother contracted another marriage within
three hundred days after such termination of the former marriage, these rules shall govern
in the absence of proof to the contrary:
(1) A child born before one hundred eighty days after the solemnization of the subsequent
marriage is considered to have been conceived during such marriage, even though it be born
within the three hundred days after the termination of the former marriage.
(2) A child born after one hundred eighty days following the celebration of the subsequent
marriage is considered to have been conceived during such marriage, even though it be born
within the three hundred days after the termination of the former marriage.
(ee) That a thing once proved to exist continues as long as is usual with things of the nature;
(ff) That the law has been obeyed;

(gg) That a printed or published book, purporting to be printed or published by public
authority, was so printed or published;
(hh) That a printed or published book, purporting to contain reports of cases adjudged in
tribunals of the country where the book is published, contains correct reports of such cases;
(ii) That a trustee or other person whose duty it was to convey real property to a particular
person has actually conveyed it to him when such presumption is necessary to perfect the
title of such person or his successor in interest;
(jj) That except for purposes of succession, when two persons perish in the same calamity,
such as wreck, battle, or conflagration, and it is not shown who died first, and there are no
particular circumstances from which it can be inferred, the survivorship is determined from
the probabilities resulting from the strength and the age of the sexes, according to the
following rules:
1. If both were under the age of fifteen years, the older is deemed to have survived;
2. If both were above the age sixty, the younger is deemed to have survived;
3. If one is under fifteen and the other above sixty, the former is deemed to have survived;
4. If both be over fifteen and under sixty, and the sex be different, the male is deemed to have
survived, if the sex be the same, the older;
5. If one be under fifteen or over sixty, and the other between those ages, the latter is deemed
to have survived.
(kk) That if there is a doubt, as between two or more persons who are called to succeed each
other, as to which of them died first, whoever alleges the death of one prior to the other, shall
prove the same; in the absence of proof, they shall be considered to have died at the same
time. (5a)
Instance of no presumption
Section 4. No presumption of legitimacy or illegitimacy. — There is no presumption of

legitimacy of a child born after three hundred days following the dissolution of the marriage
or the separation of the spouses. Whoever alleges the legitimacy or illegitimacy of such child
must prove his allegation.

Art. 1177. The creditors, after having pursued the property in possession of the
debtor to satisfy their claims, may exercise all the rights and bring all
the actions of the latter for the same purpose, save those which are
inherent in his person; they may also impugn the acts which the debtor
may have done to defraud them.
Remedies of the Creditor
1. Pursue a claim over the properties of the debtor by levying through attachment and
execution, unless exempted under the law.
2. Be subrogated in the shoes of the debtor and exercise all the rights and actions of
the debtor, save those that are personal to the latter (accion subrogatoria).
3. Seek rescission of the contracts executed by the debtor to defraud the creditors
(accion pauliana).
Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation are
transmissible, if there has been no stipulation to the contrary.
Transmissibility of rights
General rule: All rights acquired by virtue of an obligation are transferable and maybe
assigned or alienated in favor if third persons.
Exceptions
1. Purely personal rights
2. Rights not transmissible by agreement of parties
3. Rights not transmissible by operation of law

3.a. Vocabulary enhancement. Choose at least 20 words from Chapter 3 that you are not

Chapter 4: DIFFERENT KINDS OF OBLIGATION
Objective(s)
different kinds of obligations.
CHAPTER 4: DIFFERENT KINDS OF OBLIGATIONS
PRIMARY CLASSIFICATION OF OBLIGATION

1. Pure obligations
2. Conditional obligations
3. Obligations with a period
4. Alternative obligations
5. Facultative obligations
6. Joint obligations
7. Solidary obligations
8. Divisible obligations
9. Indivisible obligations
10. Obligations with a penal clause
SECONDARY CLASSIFICATION OF OBLIGATIONS

1. Legal obligation
2. Conventional obligation
3. Penal obligations
4. Real obligation
5. Personal obligation
6. Determinate or specific obligation
7. Indeterminate or generic obligation
8. Positive obligation
9. Negative obligation
10. Unilateral obligation
11. Bilateral obligation
12. Civil obligation
13. Natural obligation
14. Accessory obligation
15. Principal obligation
16. Individual obligations
17. Collective obligation
SECTION 1. - Pure and Conditional Obligations

Art. 1179. Every obligation whose performance does not depend upon a future or
uncertain event, or upon a past event unknown to the parties, is
demandable at once.
Every obligation which contains a resolutory condition shall also be

demandable, without prejudice to the effects of the happening of the
event.
Pure obligation
A pure obligation is one whose performance does not depend upon any contingency
and is immediately demandable.
Example: Darla obligates herself to pay Cyndi P10,000. There is no condition attached to it.
It is immediately demandable.
Conditional obligation
An obligation whose performance or delivery is based on a happening of an event is a

conditional obligation.
Condition
1. A past and unknown event

2. A future and uncertain event
Classifications of conditions
1. As to effect on the obligation

a. Suspensive condition is one where the happening of the condition gives rise to the
obligation.
b. Resolutory condition, the happening of which will extinguish an existing obligation.
2. As to cause or origin
a. Potestative condition is one which depends upon the will of one of the contracting
parties.
b. Casual condition is one depends upon chance or the will of a third person.
c. Mixed is one which depends partly upon the will of one of the contracting parties
and partly upon chance or the will of a third person.
3. As to possibility
a. Possible conditions which are those that are capable of coming into existence or
realization according to its nature, law, public policy or good customs.

a.1. physical
a.2. legal
b. Impossible conditions which are those that are not capable of happening or
realization according to its nature, law, public policy or good customs.
b.1 physical
b.2 legal
4. As to mode
a. Positive condition which involves the performance of an act.
b. Negative condition which involves the non-performance of an act
5. As to divisibility
a. Divisible condition is one which is susceptible of partial performance.
b. Indivisible condition is one which is not susceptible of partial performance.
6. As to numbers
a. Conjunctive condition presupposes the existence of several conditions, all of which
must be complied with.
b. Alternative condition presupposes the existence of several conditions and only one
must be complied with.
7. As to form
a. Express condition is one which has been clearly stated.
b. Implied condition is one which is tacit.
Art. 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.
Period
A period is a future and certain event. It connotes a definite length of time. It is day
certain. While having means or money to pay is a future and uncertain event, by express
provision of law, such event is deemed a period.
Similar phrases
1. “When I have the money”

2. “As soon as possible”
3. “When I can afford to pay”
4. “Little by little”
Art. 1197. If the obligation does not fix a period, but from its nature and the circumstances
it can be inferred that a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the
debtor.
In every case, the courts shall determine such period as may under the circumstances have
been probably contemplated by the parties. Once fixed by the courts, the period cannot be
changed by them.
Art. 1181. In conditional obligations, the acquisition of rights, as well as the

extinguishment or loss of those already acquired, shall depend upon
the happening of the event which constitutes the condition.
In an obligation with suspensive condition, the obligation arises when the condition is
fulfilled.
Example: Maria binds herself to deliver an iPhone X to Linda if Linda gets a grade of 90 and
above in all her subjects this semester.
In an obligation with a resolutory condition, the happening of the condition will extinguish
an existing obligation.
Example: Fred’s parents will support his schooling until he graduates.
Art. 1182. When the fulfillment of the condition depends upon the sole will of the
debtor, the conditional obligation shall be void. If it depends upon
chance or upon the will of a third person, the obligation shall take
effect in conformity with the provisions of this Code.
Potestative condition – one which depends upon the will of one of the contracting parties.
1. Condition is potestative on the part of the debtor
Example: I will pay you if I feel I want to pay you.
*Note: Both the obligation and the condition are void as it is fully dependent on the
whims of the debtor.
2. Condition is potestative on the part of the creditor
Example: I will pay you when you want the payment already.

Casual condition – is one dependent upon chance or the will of a third person.
Example: I will pay you if I win the Lotto draw on Saturday.

Or I will contribute some amount if my mother approves.
Mixed condition is one which combines both potestative and casual conditions.
Example: I will give you P100K if your girlfriend agrees to marry you and I will the
lottery.
Art. 1183. Impossible conditions, those contrary to good customs or public policy
and those prohibited by law shall annul the obligation which depends
upon them. If the obligation is divisible, that part thereof which is not
affected by the impossible or unlawful condition shall be valid.
The condition not to do an impossible thing shall be considered as not having been
agreed upon.
Physically impossible conditions are those which do not conform to the law of nature.
Example: I will give you P10,000 if you can bring the dead back to life.
Legally impossible conditions are those contrary to law, morals, public policy or public
order.
Example: I will give you P10,000 if you can give me 1 kilo of shabu.
Legal effect of impossible conditions
General rule: Impossible conditions annul the obligations which depends upon them. Thus,
both condition and obligation are voided.
Exception:
1. In divisible obligations, that part which is not affected by the impossible condition will
not be affected.
2. If the condition is negative or not to do an impossible condition, it shall be considered
as not having been agreed upon. Hence, the obligation is pure and valid.
3. If the obligation is pre-existing and not dependent on the fulfillment of the impossible
condition for its existence, only the condition is void.

Art. 1184. The condition that some event happen at a determinate time shall
extinguish the obligation as soon as the time expires or if it has become
indubitable that the event will not take place.
Positive conditions involve the performance of an act.
Example: I will give you P1000 if you graduate with honors.
Art. 1185. The condition that some event will not happen at a determinate time
shall render the obligation effective from the moment the time
indicated has elapsed, or if it has become evident that the event cannot
occur.
If 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.
Negative conditions involve the non-performance of an act.
Example: I will give you P1000 if you will not have any failing grade.
Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment.
This article refers to the doctrine of constructive fulfillment of suspensive

condition.
Requisites
1. The condition is suspensive.
2. The debtor actually prevents the fulfillment of the condition.
3. The debtor acts voluntarily or willfully.
Example: Daniela sold a parcel of land to Betta with a condition. The properties were
mortgaged to Ester. It was agreed that Betta will likewise assume the mortgage and upon
payment of the mortgage loan, the certificate of title will be released to Betta. Later, Betta
found out that Daniela paid the mortgage debt to Ester and the certificate of title was
issued to Daniela and then sold the property to Carla. Since it was Daniela who prevented
Betta from fulfilling the condition, it is deemed fulfilled.

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

case, the retroactive effect of the condition that has been complied
with.
Retroactive effect
1. In real obligation, once the condition is fulfilled it shall retroact to the day of the
constitution of the obligation.
Example: On December 15, 2019, Alma promised to give her car to Berta if the latter
graduates in May, 2020. Subsequently, Berta graduated in May 2020. By operation of
law or ipso facto, as if Berta owned the car since December 15, 2019.
2. In a personal obligation, the Court shall determine the retroactive effect of the
suspensive condition that was complied with.
Retroactive effect as to fruits and interests in real obligations
1. In reciprocal obligations, there is no retroactive effect. The fruits and interests during
the pendency of the condition shall be deemed to have been mutually compensated.
2. In unilateral obligation, there is no retroactive effect unless there is an agreement to
the contrary.
Art. 1188. The creditor may, before the fulfillment of the condition, bring the
appropriate actions for the preservation of his right.
The debtor may recover what during the same time he has paid by
mistake in case of a suspensive condition.
This article provides for the rights of the parties while waiting for the fulfillment of the
condition.

Art. 1189. When the conditions have been imposed with the intention of suspending
the efficacy of an obligation to give, the following rules shall be
observed in case of the improvement, loss or deterioration of the thing
during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be
extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay
damages; it is understood that the thing is lost when it perishes, or
goes out of commerce, or disappears in such a way that its existence
is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the impairment is
to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may choose
between the rescission of the obligation and its fulfillment, with
indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the improvement shall inure
to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other right than
that granted to the usufructuary. (1122)
Art. 1189 applies to a real obligation with a suspensive condition and the object is a
specific thing, and the loss, deterioration or improvement of the thing occurs after the
constitution of the obligation but before the fulfillment of the condition.
Kinds of loss
1. Physical loss – when the thing perishes like a house that is burnt to ashes
2. Legal loss – when the thing goes out of commerce like when a law prohibits it from
being traded
3. Civil loss
a. When the thing disappears in such a way that its existence in unknown like a car
that was carnapped
b. When the thing disappears in such a way that it cannot be recovered like a diamond
ring that was dropped in the middle of the ocean
Rules on loss
1. If the thing lost without the fault of the debtor, the obligation is extinguished.
2. If the thing is lost through the fault of the debtor, he is liable for damages.

Rules on deterioration
1. If the thing deteriorates without the fault of the debtor, the impairment is borne by the
creditor.
2. If the thing deteriorates through the fault of the debtor, the creditor may choose
between:
a. Rescission or cancellation of the obligation with indemnity for damages
b. Fulfillment of the obligation or specific performance with indemnity for damages
Rule on improvement
1. If the thing is improved by nature or time, it benefits the creditor.
2. If the thing is improved at the expense of the debtor, he will have the rights of a
usufructuary.
* Usufruct is a legal right accorded to a person or party that confers the temporary right to
use and derive income or benefit from someone else's property.
*The usufructuary is the person who has the right to use the property of another.
Art. 1190. When the conditions have for their purpose the extinguishment of an
obligation to give, the parties, upon the fulfillment of said conditions,
shall return to each other what they have received.
In case of the loss, deterioration or improvement of the thing, the provisions which,
with respect to the debtor, are laid down in the preceding article shall
be applied to the party who is bound to return.
As for the 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.
Status quo
Once a resolutory condition is fulfilled, the real obligation is extinguished and the
parties have to give back what they received. In case of loss, deterioration or improvement,
the rules in Art. 1189 will apply.
Art. 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 the 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.
Rescission
Rescission means “undoing” a contract from the beginning and thus requires the
return of the object of the contract.
Reciprocal obligations
Reciprocal obligations mean the obligations of the parties arise from the same
agreement, each party being a debtor and creditor of each other and the performance of one
is conditioned on the simultaneous fulfillment of the other.
General rule in reciprocal obligations
If one of the parties fails to comply with his obligation, the other party has the right to
rescind.
Exception
1. Waiver
2. If the rescinding party cannot return what he has received
Art. 1192. In case both parties have committed a breach of the obligation, the
liability of the first infractor shall be equitably tempered by the courts.
If it cannot be determined which of the parties first violated the
contract, the same shall be deemed extinguished, and each shall bear
his own damages.

Effects of breach by both parties
1. The liability of the first infractor shall be equitably tempered by the courts
2. 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. In this case, the
parties are in pari delicto.
SECTION 2. - Obligations with a Period
Art. 1193. Obligations for whose fulfillment a day certain has been fixed, shall be
demandable only when that day comes.
Obligations with a resolutory period take effect at once, but terminate

upon arrival of the day certain.
A day certain is understood to be that which must necessarily come,

although it may not be known when.
If the uncertainty consists in whether the day will come or not, the
obligation is conditional, and it shall be regulated by the rules of the
preceding Section.
Period
A period is a future and certain event. It is a day certain. It means, that day or event
will surely come, and which actual date may or may not be known. Unlike a condition where
the uncertainty is on the happening of the event, in period the event will come to pass
although there may be uncertainty as to the actual date of happening.
Kinds of period
1. As to effect
a. Suspensive period (Ex die). The arrival of the period gives rise to the obligation.
Example: Dana donates a parcel of land to Dina to be delivered upon the death of
Dana.
b. Resolutory period (In diem). The arrival of the period ends an existing obligation.
Example: By way of usufruct, Dina allowed Dana to occupy her house until she
dies.

2. As to source
a. Legal period. This is a period granted by law.
Example: Art. 1391. The action for annulment shall be brought within four years.
b. Conventional or voluntary period. This is a period agreed upon by the parties.

Example: Greg and Romy entered into a contract of loan for P100K payable in one
year.
c. Judicial period. This is a period fixed by the courts.

Example: In a case for collection of money filed by Sally against Toni, the court
rendered decision giving Toni a period of 90 days within which to tender full
payment of all amounts due.
3. As to definiteness
a. Definite period. The time and/or date in known beforehand.
Example: Holly binds herself to give Kyla a new pair of pants on her birthday.
b. Indefinite period. The actual time/date is not yet known.

Example: Linda binds herself to donate all her property to a chosen charitable
institution upon her death.
Art. 1194. In case of loss, deterioration or improvement of the thing before the
arrival of the day certain, the rules in Article 1189 shall be observed.
Art. 1194 applies in a real obligation subject to a suspensive condition or period. In

case of loss, deterioration and improvement of the thing prior to the arrival of the period, the
rules of Art. 1189 will apply.
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.
The rule on solutio indebiti or payment by mistake applies to a real obligation with a
period. Any payment or delivery made before the arrival of the period is not yet demandable.
Thus, the debtor can demand back its return.
Art. 1196. Whenever in an obligation a period is designated, it is presumed to have

been established for the benefit of both the creditor and the debtor,
unless from the tenor of the same or other circumstances it should
appear that the period has been established in favor of one or of the
other.

As a general rule, whenever the parties agree on a period, it is presumed that that
conventional period will benefit both of them.
Example: Jena borrowed the amount of P100K from Willy, payable in a year, at an interest
rate of 5% per month.
In this example, Willy is benefited by the period because of the interests he will derive.
Jena is benefitted as she can have the whole year to come up with the principal amount and
in the meantime have an opportunity to earn from the use of that money.
Art. 1197. If the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended, the courts
may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon
the will of the debtor.
In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once
fixed by the courts, the period cannot be changed by them.
General rule
The agreement of the parties as to period is controlling and the courts will not alter
that period.
Exceptions
1. If the obligation does not fix a period, but from its nature and the circumstances it can
be inferred that a period was intended.
2. If the period depends solely upon the will of the debtor.
3. If, under the circumstances, the parties have probably contemplated a period.
4. When the debtor binds himself to pay when his means permit him to do so.

Art. 1198. The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes

insolvent, unless he gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities
which he has promised;
(3) When by his own acts he has impaired said guaranties or securities
after their establishment, and when through a fortuitous event they
disappear, unless he immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration of which

the creditor agreed to the period;
(5) When the debtor attempts to abscond.
General Rule
When the parties establish a period, it benefits both parties.
Exceptions
Art. 1189 states the instances when the debtor loses the right to the period and the
obligations becomes immediately due and demandable.
1. When after the obligation has been contracted, he becomes insolvent, unless he gives a
guaranty or security for the debt.
Example: In a contract of loan entered into on January 15, 2020, Tanya agreed to pay
Yana P100K on December 31, 2020. However, due to the Covid-19 pandemic, Tanya
became insolvent on September, 2020. In this case, Yana does not need to wait for
December 31, 2020 and can immediately demand the obligation.
2. When he does not furnish to the creditor the guaranties or securities which he has
promised.
Example: In a contract of loan that will fall due on December 15, 2020, Tanya agreed to
deliver her car to Yana on May 15, 2020 to secure payment of the obligation but failed to
do so. Yana can immediately demand payment of the loan.
3. When by his own acts he has impaired said guaranties or securities after their
establishment, and when through a fortuitous event they disappear, unless he immediately
gives new ones equally satisfactory.

Example: In a contract of loan that will fall due on December 15, 2020, Tanya agreed to
deliver her car to Yana on May 15, 2020 to secure payment of the obligation. Unfortunately,
the car was stolen. Tanya was not able to give another property as security. Yana can
immediately demand payment of the loan.
4. When the debtor violates any undertaking, in consideration of which the creditor agreed
to the period.
Example: In a contract of loan with Yana that will fall due on December 15, 2020, Tanya
agreed to use the money to pay her tuition fee on May 15, 2020. However, Tanya used the
money in a gambling spree and lost. Yana can immediately demand payment of the loan.
5. When the debtor attempts to abscond.
To abscond means to escape. To attempt to escape shows bad faith as the debtor has
displayed signs of evading his obligation.
SECTION 3. - Alternative Obligations
Art. 1199. A person alternatively bound by different prestations shall completely

perform one of them.
The creditor cannot be compelled to receive part of one and part of the other
undertaking.
Kinds of obligation as to subject

1. Simple obligation. This is an obligation where there is only one subject.
Example: Norli binds herself to deliver a horse to Shiela.
2. Compound obligation. This is an obligation where there are two or more subjects.
Example: Viola binds herself to deliver a laptop, a mobile phone and/or an ipad to
Rina, including all the accessories and accessions thereof.
a. Conjunctive obligation. All of the objects must be performed or delivered for the
obligation to be extinguished.
b. Distributive obligation. One of the objects must be performed for the obligation to
be extinguished.
b.1. Alternative obligation. The performance of any of the given obligations is
sufficient.

b.2. Facultative obligation. There is only one obligation but the debtor may
substitute another object.
Art. 1200. The right of choice belongs to the debtor, unless it has been expressly
granted to the creditor.
The debtor shall have no right to choose those prestations which are impossible,
unlawful or which could not have been the object of the obligation.
General rule
In alternative obligations, the right of choice belongs to the debtor.
Exception
When the right of choice has been expressly given to the creditor.
Limitation on the choices
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.
Example: Viola binds herself to deliver a laptop or a mobile phone or an ipad to Rina,
including all the accessories and accessions thereof or 100 grams of shabu. Viola can choose
to deliver either one of the gadgets mentioned but not the shabu.
Art. 1201. The choice shall produce no effect except from the time it has been
communicated.
including all the accessories and accessions thereof. Viola communicated to Rina that she
has chosen to deliver the mobile phone and its accessories. The selection then is irrevocable
and the obligation has now become simple.
Art. 1202. The debtor shall lose the right of choice when among the prestations
whereby he is alternatively bound, only one is practicable.
including all the accessories and accessions thereof. Before she could choose, the laptop and
ipad were both stolen. The obligation has become a smple obligation to deliver the mobile
phone and its accessories.

Art. 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.
including all the accessories and accessions thereof. While Rina was inspecting the items,
she negligently dropped the laptop and the ipad, destroying both. As a rule, since there is
only one item viable, Viola can choose to deliver the mobile phone. However, since Rina was
negligent, she is liable to Viola for damages for the damaged items.
Art. 1204. The creditor shall have a right to indemnity for damages when, through
the fault of the debtor, all the things which are alternatively the object
of the obligation have been lost, or the compliance of the obligation
has become impossible.
The indemnity shall be fixed taking as a basis the value of the last thing
which disappeared, or that of the service which last became impossible.
Damages other than the value of the last thing or service may also be
awarded.
This article gives the instances for damages to arise when the debtor is at fault and the
basis of indemnity is the value of the last thing which disappeared or service which has
become impossible.
Art. 1205. When the choice has been expressly given to the creditor, the obligation
shall cease to be alternative from the day when the selection has been
communicated to the debtor.
Until then the responsibility of the debtor shall be governed by the following rules:
(1) If one of the things is lost through a fortuitous event, he shall perform the
obligation by delivering that which the creditor should choose from
among the remainder, or that which remains if only one subsists;

(2) If the loss of one of the things occurs through the fault of the debtor, the creditor
may claim any of those subsisting, or the price of that which, through
the fault of the former, has disappeared, with a right to damages;
(3) If all the things are lost through the fault of the debtor, the choice by the creditor
shall fall upon the price of any one of them, also with indemnity for
damages.
The same rules shall be applied to obligations to do or not to do in case one, some
or all of the prestations should become impossible.
This article lays down the rules when the right of choice in alternative obligations
is given to the creditor and the rules on loss of the objects.
Art. 1206. When only one prestation has been agreed upon, but the obligor may
render another in substitution, the obligation is called facultative.
The loss or deterioration of the thing intended as a substitute, through the

negligence of the obligor, does not render him liable. But once the
substitution has been made, the obligor is liable for the loss of the
substitute on account of his delay, negligence or fraud.
Facultative obligation
A facultative obligation where only one prestation has been agreed upon but the obligor
may render another in substitution. The effects of loss will be applied but based on which
item was lost, either the original object or the substitute, and when the loss occurred, either
before the substitution or afterwards.
SECTION 4. - Joint and Solidary Obligations
Art. 1207. The concurrence of two or more creditors or of two or more debtors in
one and the same obligation does not imply that each one of the former
has a right to demand, or that each one of the latter is bound to render,
entire compliance with the prestation. There is a solidary liability only
when the obligation expressly so states, or when the law or the nature
of the obligation requires solidarity.

Kinds of obligation as to number of parties
1. Individual obligation where there is one debtor and one creditor.

2. Collective obligation where there are more than two parties.
a. Joint obligation where there are as many debts and credits as there are debtors and
creditors. The whole obligation is divided proportionately and fulfilled
proportionately between the debtors and demanded proportionately between the
creditors.
Terms indicative of joint obligation

- Jointly
- Conjoint or mancum or mancomunada
- Mancomunada simple
- Pro rata obligation
- Proportionate
b. Solidary obligation where each of the debtors is bound to render and each of the
creditors can demand full compliance of the obligation. This kind of obligation is
never presumed and must be clearly agreed upon unless the law itself states so.
Terms indicative of solidary obligation

- Joint and several
- Saintly and severally
- In solidum
- Mancomunada solidaria
- Juntos y separadamente
- Individually and collectively
- “I promise to pay…” and signed by two or more debtors
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 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.
When the obligation is silent as to the nature of the rights and obligations of more than
two parties in an obligation, the presumption is that it is joint, unless the law states
otherwise.
Example: Art. 1824. All partners are liable solidarily with the partnership for
everything chargeable to the partnership under Articles 1822 and 1823.

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.
Joint indivisible obligation
This article is referring to a joint indivisible obligation where the nature of the rights
and obligations of the parties is joint but the object is indivisible.
Indivisible obligation
An indivisible obligation is one which is not susceptible of partial performance like the
giving of things.
Characteristics of joint indivisible obligation
1. No joint creditor can act in representation of the other joint debtors or creditors, unless
expressly authorized to do so.
2. No joint debtor can be compelled to fulfill the obligation of the other joint debtors or
creditors.
Art. 1210. The indivisibility of an obligation does not necessarily give rise to
solidarity. Nor does solidarity of itself imply indivisibility.
Indivisibility versus solidarity
Indivisibility refers to the nature of the subject matter while solidarity refers to the
nature of the obligation of the parties or the juridical tie.
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.
Kinds of solidarity
1. As to source
a. Legal solidarity which is imposed by law.
b. Conventional or voluntary solidarity which is agreed upon by the parties.
c. Real solidarity which is imposed by the nature of the obligation.

2. As to parties bound
a. Active solidarity which is solidarity as to the creditors.
b. Passive solidarity which is solidarity among the debtors.
c. Mixed solidarity which is solidarity among debtors and creditors.
3. As to uniformity
a. Uniform solidarity where the parties are bound by the same stipulation.
b. Non-uniform or varied solidarity where the parties are not subject to the same
stipulation.
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.
A demand letter given by one solidary creditor to any of the solidary debtor benefits all
the other solidary creditors. Waiver of the obligation by a solidary debtor is prejudicial to the
other solidary creditors.
Art. 1213. A solidary creditor cannot assign his rights without the consent of the
others.
This refers to the instance when a solidary creditor can and cannot assign his rights
in the obligation.
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.
General rule
The debtor may pay any one of the solidary creditors.
Exception
If a demand, judicial or extrajudicial, has been made by one of the solidary creditors,
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.
Novation, compensation, confusion or remission of debt are modes of extinguishing

obligations.
Art. 1216. The creditor may proceed against any one of the solidary debtors or some
or all of them simultaneously. The demand made against one of them
shall not be an obstacle to those which may subsequently be directed
against the others, so long as the debt has not been fully collected.
Any of the solidary debtors may be made liable on the obligation. Demand made on
any of them does not prejudice the rights of the creditor to make the other solidary debtors
liable until the full obligation is settled.
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.
Payment is a mode of extinguishing an obligation. Any solidary debtor who pays the
creditor has a right to reimbursement from his co-debtors. The insolvency of any of the
debtors will not prejudice the creditors and such insolvency shall be borne proportionately
by the other debtors.
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.
Prescription is the period of time prescribed by law which when it lapses, either a right
is acquired or lost.

Art. 1139. Actions prescribe by the mere lapse of time fixed by law.
Art. 1140. Actions to recover movables shall prescribe eight years from the time the
possession thereof is lost, unless the possessor has acquired the ownership by prescription
for a less period, according to Articles 1132, and without prejudice to the provisions of
Articles 559, 1505, and 1133.
Art. 1141. Real actions over immovables prescribe after thirty years.
This provision is without prejudice to what is established for the acquisition of ownership
and other real rights by prescription.
Art. 1142. A mortgage action prescribes after ten years. (

Art. 1143. The following rights, among others specified elsewhere in this Code, are not
extinguished by prescription:
(1) To demand a right of way, regulated in Article 649;
(2) To bring an action to abate a public or private nuisance. (n)
Art. 1144. The following actions must be brought within ten years from the time the
right of action accrues:
(1) Upon a written contract;
(2) Upon an obligation created by law;
(3) Upon a judgment. (n)
Art. 1145. The following actions must be commenced within six years:
(1) Upon an oral contract;
(2) Upon a quasi-contract. (n)
Art. 1146. The following actions must be instituted within four years:
(1) Upon an injury to the rights of the plaintiff;
(2) Upon a quasi-delict;
However, when the action arises from or out of any act, activity, or conduct of any
public officer involving the exercise of powers or authority arising from Martial Law including
the arrest, detention and/or trial of the plaintiff, the same must be brought within one (1)
year. (As amended by PD No. 1755, Dec. 24, 1980.)
Art. 1147. The following actions must be filed within one year:
(1) For forcible entry and detainer;
(2) For defamation. (n)
Art. 1148. The limitations of action mentioned in Articles 1140 to 1142, and 1144 to
1147 are without prejudice to those specified in other parts of this Code, in the Code of
Commerce, and in special laws. (n)

Art. 1149. All other actions whose periods are not fixed in this Code or in other laws
must be brought within five years from the time the right of action accrues. (n)
Art. 1150. The time for prescription for all kinds of actions, when there is no special
provision which ordains otherwise, shall be counted from the day they may be brought.
(1969)
Art. 1151. The time for the prescription of actions which have for their object the
enforcement of obligations to pay principal with interest or annuity runs from the last
payment of the annuity or of the interest. (1970a)
Art. 1152. The period for prescription of actions to demand the fulfillment of obligation
declared by a judgment commences from the time the judgment became final. (1971)
Art. 1153. The period for prescription of actions to demand accounting runs from the
day the persons who should render the same cease in their functions.
The period for the action arising from the result of the accounting runs from the date
when said result was recognized by agreement of the interested parties.
Art. 1154. The period during which the obligee was prevented by a fortuitous event
from enforcing his right is not reckoned against him. (n)
Art. 1155. The prescription of actions is interrupted when they are filed before the
court, when there is a written extrajudicial demand by the creditors, and when there is any
written acknowledgment of the debt by the debtor.
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.
From the moment any of the solidary debtors paid the obligation, he is entitled to
the proportionate reimbursement from his co-debtors. Remission, which is another more
of extinguishing an obligation, made by any creditor after such payment has been made
will not negate the right of the debtor who paid from collecting from his co-debtors.
Art. 1220. The remission of the whole obligation, obtained by one of the solidary
debtors, does not entitle him to reimbursement from his co-debtors.

Remission or condonation is gratuitous. It means that the debt was forgiven and no
collection was made and, thus, does not entitle the solidary debtor who was extended such
remission to any reimbursement from his co-debtors.
Art. 1221. If the thing has been lost or if the prestation has become impossible
without the fault of the solidary debtors, the obligation shall be
extinguished.
If there was fault on the part of any one of them, all shall be responsible
to the creditor, for the price and the payment of damages and interest,
without prejudice to their action against the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the performance has

become impossible after one of the solidary debtors has incurred in
delay through the judicial or extrajudicial demand upon him by the
creditor, the provisions of the preceding paragraph shall apply.
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. Those derived from the nature of the obligation like payment, prescription and other
modes of extinguishing the obligation. All co-debtors can avail of these defenses.
2. Those that are personal in nature pertaining to the one debtor like minority, insanity,
fraud, mistake or violence. These are total defenses but only for that particular debtor.
3. Those that are personal only to the other debtors may only be availed of by the paying
debtor as far as that part of the obligation pertaining to the other debtors.

SECTION 5. - Divisible and Indivisible Obligations
Art. 1223. The divisibility or indivisibility of the things that are the object of
obligations in which there is only one debtor and only one creditor does
not alter or modify the provisions of Chapter 2 of this Title.
Divisible obligations
Divisible obligations are those which have as their object a prestation which is
susceptible of partial performance without the essence of the obligation being changed.
Indivisible obligations
Indivisible obligations are those which have for their object a prestation which is not
susceptible of partial performance.
Divisible thing
A thing is divisible when, if separated into parts, its essence is not changed or its value
is not decreased disproportionately, because each of the parts into which it is divided are
homogeneous and analogous to each as well as to the thing itself.
Indivisible thing
A thing is indivisible when, if separated into parts, its essence is changed or its value
decreased disproportionately.
Kinds of Division
1. Qualitative Division- Based on quality, not on number or quantity of the things which
are the object of the obligation
2. Quantitative Division-Based on quantity rather than on quality
3. Ideal or Intellectual Division-Exists only in the minds of the parties
Kinds of Indivisibility
1. Legal Indivisibility- Where a specific provision of law declares as indivisible, obligations
which, by their nature are divisible
2. Conventional Indivisibility-Where the will of the parties makes as indivisible, obligations
which, by their nature, are divisible.
3. Natural Indivisibility-Where the nature of the object or prestation does not admit of division
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.
In case of breach of a joint indivisible obligation, it is converted into an indemnity for

damages. The joint debtors who failed or refused to comply with their respective obligation
shall bear the burden of paying all the damages to the creditor or paying joint debtors.
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 to give definite things and those which are not susceptible of partial
performance are deemed indivisible.
Example: The obligation to deliver a laptop.

The obligation to deliver a one-hour lecture.
Obligations that are divisible include 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.
Example: The obligation to build a house in two months.

The obligation to cement a 5-kilometer road.
The obligation to pay the tuition fee in 3 equal installments.

Exception
Even though the object or service may be physically divisible, an obligation is

indivisible if so provided by law or intended by the parties
Example: Andy agreed to pay the amount of P10,000 to Lucia on January 15, 2021. While
the money is divisible, the intention is one-time payment of the full amount.
SECTION 6. - 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
noncompliance, 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.
In an obligation with a penal clause, the accessory undertaking expands the obligation
of the debtor.
Principal obligation
A principal obligation is one that can stand alone and its validity or compliance is not
dependent on any other obligation.
Example: A loan.
Accessory obligation
An accessory obligation is one which is dependent on another contract for its validity
or compliance.
Example: interest on a loan
Purposes of a penal clause

1. To ensure performance of the principal obligation by the debtor.
2. To provide for liquidated damages.
3. To enhance the coercive force of an obligation by the threat of greater responsibility.

Kinds of penalty
1. As to origin
a. Legal penalty – that which is provided by law.
b. Conventional or voluntary penalty – that which is agreed upon b the parties.
2. As to purpose
a. Compensatory penalty- that which is established for the purpose of indemnifying
the damages suffered by the obligee in case of breach of the obligation.
b. Punitive penalty – that which is established for the purpose of punishing the obligor
or debtor in case of breach of the obligation.
3. As to effect
a. Subsidiary penalty – when only the penalty may be demanded in case of breach of
obligation.
b. Joint penalty – when the injured party may demand the enforcement of both the
penalty and the principal obligation.
Art. 1227. The debtor cannot exempt himself from the performance of the
obligation by paying the penalty, save in the case where this right has
been expressly reserved for him. Neither can the creditor demand the
fulfillment of the obligation and the satisfaction of the penalty at the
same time, unless this right has been clearly granted him. However, if
after the creditor has decided to require the fulfillment of the
obligation, the performance thereof should become impossible without
his fault, the penalty may be enforced.
Limitations
General rule
The debtor cannot exempt himself from the performance of the obligation by paying
the penalty.
Exception
The debtor can exempt himself from the performance of the obligation by paying the
penalty where this right has been expressly reserved for him
General rule
The creditor cannot demand the fulfillment of the obligation and the satisfaction of the
penalty at the same time.

Exception
The creditor can demand the fulfillment of the obligation and the satisfaction of the
penalty at the same time if this right has been clearly granted him.
Art. 1228. Proof of actual damages suffered by the creditor is not necessary in order
that the penalty may be demanded.
As the purpose of a penal clause is to substitute the penalty for the indemnity for
damages and payment of interests in case of non-compliance, there is no need for proof of
actual damages.
Art. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor.
Even if there has been no performance, the penalty may also be
reduced by the courts if it is iniquitous or unconscionable.
As a rule, agreement of parties as to penalty shall be respected by the court. However,

if the penalty is iniquitous or unconscionable, which is unreasonably high that it is already
morally shocking to the senses, the same may be reduced.
Art. 1230. The nullity of the penal clause does not carry with it that of the principal
obligation.
The nullity of the principal obligation carries with it that of the penal clause.
This is based on the principle that accessory follows the principal.


Chapter 5: EXTINGUISHMENT OF OBLIGATIONS
Objective(s)
basic concepts relating to the modes of extinguishing obligations.
CHAPTER 5: EXTINGUISHMENT OF OBLIGATIONS
GENERAL PROVISIONS
Art. 1231. Obligations are extinguished:
(1) By payment or performance:
(2) By the loss of the thing due:
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as annulment, rescission,

fulfillment of a resolutory condition, and prescription, are governed elsewhere in
this Code.
Other modes of extinguishing an obligation include:
1. Death of either party in a personal obligation

2. Mutual desistance or withdrawal of the parties
3. Arrival of a resolutory period
4. Compromise agreement
5. Impossibility of fulfillment
6. Happening of fortuitous event
SECTION 1. - Payment or Performance

Art. 1232. Payment means not only the delivery of money but also the
performance, in any other manner, of an obligation.
Payment infers applicability to a real obligation while performance infers

applicability to positive personal obligations. Corollarily, non-performance would apply to
negative personal obligation.
Art. 1233. A debt shall not be understood to have been paid unless the thing or
service in which the obligation consists has been completely delivered
or rendered, as the case may be.
Requisites of payment
1. Identity of the prestation which means that the very thing due or service due must be
delivered or complied with.
2. Integrity of the prestation which means that prestation must be fulfilled completely.
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.
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.
General rule: Principle of integrity
Payment or performance shall be full and complete.
Exceptions
1. If there has been substantial compliance and good faith

2. Acceptance by the obligee of the performance, knowing its incompleteness or
irregularity, and without expressing any protest or objection
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.
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.
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.
Who is bound to pay?
1. Debtor
2. Heirs, successors-in-interest
3. Authorized third persons
Rights of the third person who pays
1. If payment is made with the knowledge or consent of the debtor, the third person has
the rights of reimbursement and subrogation.
2. If payment is made without knowledge or consent of the debtor, the third person has
the right of reimbursement.
3. If the third person does not intend to be reimbursed, then the payment he made is a
donation which requires acceptance of the debtor as no on can impose his generosity
on another.
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."
General rule
Payment by an incapacitated person is not valid.
Exception
Art. 1427. When a minor xxx who has entered into a contract without the consent of
the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in

fulfillment of the obligation, there shall be no right to recover the same from the obligee who
has spent or consumed it in good faith.
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.
To whom should payment be made
1. Creditor or obligee
2. Successors-in-interest or heirs of the creditor
3. Any authorized persons
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 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
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.
Benefit to the creditor is presumed in the following cases
1) Subrogation - If after the payment, the third person acquires the creditor's rights.
2) Ratification - If the creditor ratifies the payment to the third person.
3) Estoppel - If by the creditor's conduct, the debtor has been led to believe that the third
person had authority to receive the payment.
Art. 1242. Payment made in good faith to any person in possession of the credit
shall release the debtor.

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.
Attachment
A court order to levy upon the properties of the defendant as security for the
satisfaction of whatever monetary judgment in an action filed by the creditor against the
debtor.
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.
In real obligations, the debtor has to deliver the object agreed upon. In personal
obligations, the act agreed upon should be performed. Any deviation should be agreed upon.
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 modes of payment
1. Dation in payment or dacion en pago or adjudicacion en pago or payment of a money

debt in kind
2. Application of payment
3. Payment by cession
4. Tender and consignation
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
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.
Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by

the payment shall be for the account of the debtor. With regard to
judicial costs, the Rules of Court shall govern.
Extrajudicial expenses
These are expenses incurred by the parties in relation to the payment of the obligation,
like bank fees or foreign exchange costs, shall be for the account of the debtor, unless agreed
upon otherwise.
Judicial costs
These are costs related to court action to enforce payment or performance and is
governed by the Rules of Court.
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. (1169a)
This article sets another exception to the principle of integrity.
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.
Rules in payments of debts in money
1. It 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.
2. Delivery of promissory notes payable to order, or bills of exchange (checks) 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.
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
Inflation is the sudden increase in money circulating without a corresponding increase

in transactions.
Deflation
Deflation is the sudden decrease of money without a corresponding decrease in

business transaction.
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.

Residence
Residence is where a person actually lives, whether permanent or where he is just

momentarily sojourning.
Domicile
Domicile is the place where a person habitually lives and goes back to after a temporary
sojourn in another place.
Venue
Venue is the place where an action may be filed.
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 payment
Application of payment is the designation of the debt to which the payment must be
applied when the debtor has several obligations of the same in favor of the same creditor.
Requisites of application of payment
1. There must be one debtor and one creditor.

2. There must be two or more debts of the same kind.
3. All debts must be due.
4. The amount paid by the debtor must not be sufficient to cover all the debts.

Rules on application of payment
1. The debtor makes the choice as to which debt the payment will be applied.
2. If the debtor does not make the choice, the creditor can make the choice.
3. If the creditor does make the choice or the choice is invalid, the payment shall be
applied to the most onerous or burdensome debt.
4. If the debts are of equal weight, ceteris paribus, the payment shall be applied
proportionately.
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.
(1173)
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.
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. 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
Payment by cession is the voluntary abandonment of the debtor of his rights over his
properties in favor of the creditors who would dispose the same and divide the proceeds
among themselves.

Requisites
1. There is one debtor

2. There are two or more creditors
3. The debtor is partially or relatively insolvent
4. There must be acceptance of the cession by the creditors
SUBSECTION 3. - Tender of Payment and Consignation
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.
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.
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.

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.
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.
Tender of payment
Tender of payment is the unconditional offer to pay the exact amount to satisfy a debt.
Consignation of payment
Consignation is the act of depositing the thing due with the court or judicial authorities
whenever the creditor cannot accept or refuses to accept payment and generally requires a
prior tender of payment.
General rule
Consignation is preceded by tender.
Exception
There is no need for a prior tender and the debtor can immediately consign the payment
in court in the following instances:
(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.

Requisites of consignation
1. There is a debt that is due.

2. There was prior tender or prior tender is not required
3. Debtor files a case of consignation in court.
4. The creditor is notified.
5. The amount is placed at the disposal of the court,
6. The creditor is notified of such disposal.
SECTION 2. - Loss of the Thing Due
Art. 1262. An obligation which consists in the delivery of a determinate thing shall
be extinguished if it should be lost or destroyed without the fault of
the debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous

events, the loss of the thing does not extinguish the obligation, and
he shall be responsible for damages. The same rule applies when the
nature of the obligation requires the assumption of risk.
Art. 1263. In an obligation to deliver a generic thing, the loss or destruction of

anything of the same kind does not extinguish the obligation.
Art. 1264. The courts shall determine whether, under the circumstances, the
partial loss of the object of the obligation is so important as to
extinguish the obligation.
Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be
presumed that the loss was due to his fault, unless there is proof to
the contrary, and without prejudice to the provisions of article 1165.
This presumption does not apply in case of earthquake, flood, storm,
or other natural calamity.
Art. 1266. The debtor in obligations to do shall also be released when the
prestation becomes legally or physically impossible without the fault
of the obligor.
Art. 1267. When the service has become so difficult as to be manifestly beyond
the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part.
Art. 1268. When the debt of a thing certain and determinate proceeds from a
criminal offense, the debtor shall not be exempted from the payment

of its price, whatever may be the cause for the loss, unless the thing
having been offered by him to the person who should receive it, the
latter refused without justification to accept it.
Art. 1269. The obligation having been extinguished by the loss of the thing, the
creditor shall have all the rights of action which the debtor may have
against third persons by reason of the loss.
Relate this to the discussion under Art. 1189 on the rules of loss.
SECTION 3. - Condonation or Remission of the Debt
Art. 1270. Condonation or remission is essentially gratuitous, and requires the

acceptance by the obligor. It may be made expressly or impliedly.
One and the other kind shall be subject to the rules which govern inofficious
donations. Express condonation shall, furthermore, comply with the
forms of donation. (1187)
Art. 1271. The delivery of a private document evidencing a credit, made

voluntarily by the creditor to the debtor, implies the renunciation of
the action which the former had against the latter.
If in order to nullify this waiver it should be claimed to be inofficious, the debtor

and his heirs may uphold it by proving that the delivery of the
document was made in virtue of payment of the debt. (1188)
Art. 1272. Whenever the private document in which the debt appears is found in
the possession of the debtor, it shall be presumed that the creditor
delivered it voluntarily, unless the contrary is proved. (1189)
Art. 1273. The renunciation of the principal debt shall extinguish the accessory
obligations; but the waiver of the latter shall leave the former in force.
(1190)
Art. 1274. It is presumed that the accessory obligation of pledge has been remitted
when the thing pledged, after its delivery to the creditor, is found in
the possession of the debtor, or of a third person who owns the thing.
(1191a)

Condonation or remission
Condonation or remission is the gratuitous abandonment of the creditor of his rights

to make the debtor liable. In essence, the creditor “forgives” the debt.
Requisites
1. It must be gratuitous.
2. It must be accepted by the debtor.
3. The obligation must be demandable.
4. The parties must have capacity.
5. The condonation must not be inofficious.
6. The condonation must comply with the forms of a donation or a will
Classes of condonation
1. As to effect or extent
a. Total condonation – when the total obligation is extinguished.
b. Partial condonation – when only a portion of the obligation is extinguished.
2. As to form
a. Express condonation – when it is made with the required formalities.
b. Implied or tacit condonation – when it can be deduced from the acts of the obligee.
3. As to constitution or date of effectivity
a. Inter vivos condonation – when it takes effect during the lifetime of the donor.
b. Mortis causa condonation – when it takes effect after the death of the creditor.
SECTION 4. - Confusion or Merger of Rights
Art. 1275. The obligation is extinguished from the time the characters of creditor
and debtor are merged in the same person.
Art. 1276. Merger which takes place in the person of the principal debtor or
creditor benefits the guarantors. Confusion which takes place in the
person of any of the latter does not extinguish the obligation.

Art. 1277. Confusion does not extinguish a joint obligation except as regards the
share corresponding to the creditor or debtor in whom the two
characters concur.
Confusion or merger
Confusion or merger extinguishes an obligation when the qualities of the creditor and
debtor meet in one person with respect to one and the same obligation.
Requisites
1. The merger of the characters of the creditor and debtor must be in the same person.
2. The merger must take place in the person of either the principal debtor or the principal
creditor.
3. The merger must be complete and definite.
SECTION 5. - Compensation
Art. 1278. Compensation shall take place when two persons, in their own right,
are creditors and debtors of each other.
Art. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be
at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are
consumable, they be of the same kind, and also of the same quality if
the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,

commenced by third persons and communicated in due time to the
debtor.
Art. 1280. Notwithstanding the provisions of the preceding article, the guarantor
may set up compensation as regards what the creditor may owe the
principal debtor.
Art. 1281. Compensation may be total or partial. When the two debts are of the
same amount, there is a total compensation.

Art. 1282. The parties may agree upon the compensation of debts which are not
yet due.
Art. 1283. If one of the parties to a suit over an obligation has a claim for damages
against the other, the former may set it off by proving his right to said
damages and the amount thereof.
Art. 1284. When one or both debts are rescissible or voidable, they may be
compensated against each other before they are judicially rescinded
or avoided.
Art. 1285. The debtor who has consented to the assignment of rights made by a
creditor in favor of a third person, cannot set up against the assignee
the compensation which would pertain to him against the assignor,
unless the assignor was notified by the debtor at the time he gave his
consent, that he reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not
consent thereto, the latter may set up the compensation of debts
previous to the cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may

set up the compensation of all credits prior to the same and also later
ones until he had knowledge of the assignment. (1198a)
Art. 1286. Compensation takes place by operation of law, even though the debts
may be payable at different places, but there shall be an indemnity for
expenses of exchange or transportation to the place of payment.
(1199a)
Art. 1287. Compensation shall not be proper when one of the debts arises from a
depositum or from the obligations of a depositary or of a bailee in
commodatum.
Neither can compensation be set up against a creditor who has a claim

for support due by gratuitous title, without prejudice to the provisions
of paragraph 2 of Article 301.
Art. 1288. Neither shall there be compensation if one of the debts consists in civil
liability arising from a penal offense. (n)
Art. 1289. If a person should have against him several debts which are susceptible
of compensation, the rules on the application of payments shall apply
to the order of the compensation.

Art. 1290. When all the requisites mentioned in Article 1279 are present,
compensation takes effect by operation of law, and extinguishes both
debts to the concurrent amount, even though the creditors and
debtors are not aware of the compensation.
Compensation or Set-off
Compensation or set-off extinguishes in the concurrent amount of obligations of parties

who are reciprocally debtors and creditors of each other.
Classification of compensation
1. As to effect
a. Total compensation – when both obligations are completely extinguished because
they are of equal amount.
b. Partial compensation – when only one obligation is extinguished and a pat of the
larger obligation remains.
2. As to origin or cause
a. Voluntary or conventional compensation – which takes place by reason of the
agreement between the parties.
b. Judicial compensation – which takes place by virtue of a court order.
c. Facultative compensation where only one of the parties can claim compensation.
Examples:
Art. 1287. Compensation shall not be proper when one of the debts arises
from a depositum or from the obligations of a depositary or of a bailee in
commodatum.
Neither can compensation be set up against a creditor who has a claim for
support due by gratuitous title, without prejudice to the provisions of paragraph
2 of Article 301.
Art. 1288. Neither shall there be compensation if one of the debts consists in
civil liability arising from a penal offense.
d. Legal compensation – which takes place ipso facto or by operation of law as long as
the elements are present.

Requisites of legal compensation
(1) That each one of the obligors be bound principally, and that he be at the same time
a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.
Example: Delia owes Cora the amount of P100K with Greg as the guarantor, payable
on December 15, 2020. Cora owes Greg P50K, payable on December 30, 2020. Cora
owes Delia P80K and a chihuahua puppy worth P20K, both demandable on December
30, 2020. What are the legal effects as to compensation in this case? In case Greg files
a case against Cora for the collection of the amount owing him and he wins the case
and the court issues an order of garnishment ordering the creditors of Cora to withhold
payment, what will be the effect of compensation?
1. There can only be partial legal compensation between Delia and Cora as they are
principal debtors and creditors of each other.
2. The legal compensation between Delia and Cora can take place on December 30,
2020 because by then, both debts are due and demandable. However, they can
agree to have the voluntary compensation on any date.
3. The legal compensation will cover only the money debts. However, Delia and Cora
can also agree on voluntary compensation to cover the cash amount and the value
of the dog.
4. In case of legal compensation validly takes place between Delia and Cora, Greg will
be released as a guarantor.
5. The writ of garnishment will prevent the legal compensation between Cora and Delia
as Greg has a claim over the debt owed to Cora.
\
SECTION 6. - Novation
Art. 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;

(3) Subrogating a third person in the rights of the creditor.
Art. 1292. In order that an obligation may be extinguished by another which

substitute the same, it is imperative that it be so declared in
unequivocal terms, or that the old and the new obligations be on every
point incompatible with each other.
Art. 1293. Novation which consists in substituting a new debtor in the

place of the original one, may be made even without the knowledge
or against the will of the latter, but not without the consent of the
creditor. Payment by the new debtor gives him the rights mentioned
in Articles 1236 and 1237.
Art. 1294. If the substitution is without the knowledge or against the

will of the debtor, the new debtor's insolvency or non-fulfillment of
the obligations shall not give rise to any liability on the part of the
original debtor.
Art. 1295. The insolvency of the new debtor, who has been proposed
by the original debtor and accepted by the creditor, shall not revive
the action of the latter against the original obligor, except when said
insolvency was already existing and of public knowledge, or known to
the debtor, when the delegated his debt.
Art. 1296. When the principal obligation is extinguished in

consequence of a novation, accessory obligations may subsist only
insofar as they may benefit third persons who did not give their
consent.
Art. 1297. If the new obligation is void, the original one shall subsist,
unless the parties intended that the former relation should be
extinguished in any event.
Art. 1298. The novation is void if the original obligation was void,
except when annulment may be claimed only by the debtor or when
ratification validates acts which are voidable.
Art. 1299. If the original obligation was subject to a suspensive or

resolutory condition, the new obligation shall be under the same
condition, unless it is otherwise stipulated.
Art. 1300. Subrogation of a third person in the rights of the creditor

is either legal or conventional. The former is not presumed, except in

cases expressly mentioned in this Code; the latter must be clearly
established in order that it may take effect.
Art. 1301. Conventional subrogation of a third person requires the

consent of the original parties and of the third person.
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even

without the debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with
the express or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person

interested in the fulfillment of the obligation pays, without prejudice
to the effects of confusion as to the latter's share.
Art. 1303. Subrogation transfers to the persons subrogated the credit

with all the rights thereto appertaining, either against the debtor or
against third person, be they guarantors or possessors of mortgages,
subject to stipulation in a conventional subrogation.
Art. 1304. A creditor, to whom partial payment has been made, may
exercise his right for the remainder, and he shall be preferred to the
person who has been subrogated in his place in virtue of the partial
payment of the same credit.
Novation
Novation, from the word novatio which is literally construed as “to make new”, is a
mode of extinguishing an old obligation by replacing it with a new one. Based on the principle
of novatio non praesumitur, generally, novation is never presumed.
Requisites
1. Existence of a valid obligation.

2. Intent to extinguish or modify the old obligation.
3. Capacity and consent of the parties.
4. Validity of the new obligation.
Kinds of novation

1. As to form
a. Express novation – where the novation is stated in unequivocal terms.
b. Implied novation – where the old and the new obligation are incompatible with each
other.
2. As to extent
a. Total or extinctive novation – where the entire agreement is novated with a new one.
b. Partial or modificatory novation – where the novation changes only the object or the
parties.
3. As to origin
a. Legal novation – which takes place by operation of law
(a.1) When a creditor pays another creditor who is preferred, even without the
debtor's knowledge.
(a.2) When a third person, not interested in the obligation, pays with the express or
tacit approval of the debtor.
(a.3) When, even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays, without prejudice to the effects of confusion as to
the latter's share.
b. Conventional novation – which takes place by agreement of the parties.
4. As to subject
a. Real or objective novation – where the object or principal condition of the obligation
is changed.
Example: Flora agreed to deliver a mobile phone to Henry. Later, the parties agreed
that instead of the mobile phone, the object will be a laptop.
b. Personal or subjective novation – where the debtor or creditor is replaced.
b.1 Substitution of the debtor
Expromision is that kind of substitution where the initiative to pay or assume

the obligation comes from the new debtor, whether or not the new debtor does so
with or without the knowledge of the debtor, or that he does not intend to be
reimbursed, in which case, the rules in Articles 1236, 1237, 1238 and 1294 applies.
This novation should always be with the consent of the creditor.
Delegacion is that kind of substitution where the initiative to pay or assume the
obligation comes from the original debtor. It requires the consent of the creditor. As

a rule, the insolvency of the new debtor shall not revive the action against the
original debtor, unless:
1. Such insolvency was already existing when the debt was delegated and of public
knowledge or
2. Such insolvency was of known to the debtor when he delegated the debt.
Delegado – the new debtor

Delegante – the original debtor
Delegatario – the creditor
b.2 Subrogating a third person in place of the creditor
Conventional subrogation – which takes place by agreement of the parties.
Legal subrogation – which takes place by operation of law
1) When a creditor pays another creditor who is preferred, even without the
debtor's knowledge.
2) When a third person, not interested in the obligation, pays with the express
or tacit approval of the debtor.
3) When, even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays, without prejudice to the effects of confusion as
to the latter's share.
c. Mixed novation – where the novation a combination of the objective and subjective
novation is present.


Chapter 6: INTRODUCTION TO CONTRACTS
Objective(s)
basic concepts relating to contracts.
CHAPTER 6: GENERAL PROVISIONS
Relation of obligation and contract

In Art. 1157, the different sources of obligations were discussed. One of those
sources is contracts..
CHAPTER 1 : GENERAL PROVISION ON CONTRACTS
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.
Contract
Sanchez Roman, a Spanish Commentator in Civil Law, defined a contract as a
juridical convention manifested in legal form, by virtue of which, on or more persons bind
themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to
give, to do or not to do.
Common essential elements of a contract
All contracts have these basic elements:
1. Consent
2. Object or subject matter or prestation
3. Cause or consideration
Special essential elements of some contracts

Aside from the common essential elements, some contracts requires addition
elements like:
1. Form
2. Delivery

Natural elements of a contract
Natural elements are those found only in certain contracts and inherently part of
those contracts. They are presumed to exist, unless a contrary agreement appears.
Example: implied warranties in sale
Accidental elements of a contract

Accidental elements are only present in a contract because the parties agreed on
them.
Example: The stipulation to pay interest and the period agreed upon
Classifications of contracts
1. As to perfection
a. Consensual contract which is perfected by mere consent as to object and cause.
Example: sale
b. Real contract which is perfected by delivery of the object of the contract. Example:
depositum, commodatum, pledge
2. As to form
a. Common or informal contract is one that does not require some particular form.
Example: mutuum, commodatum
b. Special or formal contract is one that requires a particular form. Example:
donation, chattel mortgage
3. As to their relation to other contracts

a. Principal contract is a stand-alone contract and does not depend on other
contracts for its validity. Example: sale, lease
b. Accessory contract is one which depends on other contracts for its validity.
Example: pledge, mortgage
c. Preparatory contract which is the basis of future contracts. Example: partnership,
agency
4. As to purpose
a. Contract transferring ownership is one where the ownership is passed on.
Example: sale

b. Contract for the conveyance of use of a thing is one where only the enjoyment of
the use of the thing is given and no ownership is passed on. Example: usufruct,
commodatum
c. Contract for rendition of service is one where the object is the service. Example:
agency, employment
5. As to nomenclature
a. Nominate contract is one with has a special or specific designation given to it by
law. Example: sale, lease, donation
b. Innominate contract is one which has no specific name.
6. As to risk
a. Commutative contract is one where the parties bear equivalent risks. Example:
sale, lease
b. Aleatory contract is one where the fulfillment is based upon chance. Example:
insurance
7. As to fulfillment
a. Executory contract is one where the obligations are yet to be fulfilled. Example:
lease where the rentals are not yet paid
b. Executed contract is one where the obligations have been complied with.
Example: sale where full price has been paid and delivery is effected
8. As to the legal tie

a. Unilateral contract is one where only one of the parties has an obligation to fulfill.
Example: donation, gratuitous deposit
b. Bilateral or reciprocal contract is one which gives rise to an obligation for both
parties. Example: sale, lease
9. As to cause
a. Gratuitous contract is one where one of the parties performs an obligation for
free. Example: commodatum
b. Onerous or burdensome contract is one where both parties get a benefit from the
agreement. Example: sale
Art. 1306. The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order, or
public policy.

Freedom to contract or liberality to contract or autonomy of contract
As a general rule, the parties can agree on anything and such contract has the force
of law between the parties. The only limitation is that the agreement must not be contrary
to :
1. law
2. morals
3. good customs
4. public order
5. public policy
Art. 1307. Innominate contracts shall be regulated by the stipulations of the

parties, by the provisions of Titles I and II of this Book, by the
rules governing the most analogous nominate contracts, and by the
customs of the place.
Kinds of innominate contracts
1. Do ut des – I give that you may give
2. Do ut facias – I give that you may give
3. Facio ut des – I do that you may give
4. Facio ut facias – I do that you may do
Art. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
Mutuality of contract
Since contracts bind both parties, the terms and conditions are to be agreed upon by
both parties as they should be on equal footing. It prevents the condition that makes the
fulfillment or pre-termination of the agreement to de dependent exclusively upon the
uncontrolled will of just one of the contracting parties.
Art. 1309. The determination of the performance may be left to a third

person, whose decision shall not be binding until it has been made
known to both contracting parties.
Art. 1310. The determination shall not be obligatory if it is evidently
inequitable. In such case, the courts shall decide what is equitable
under the circumstances.

General rule
The determination of the performance may be left to a third person, whose decision
shall not be binding until it has been made known to both contracting parties.
Exception
The determination shall not be obligatory if it is evidently inequitable. The remedy is
to bring the matter to the court.
Art. 1311. Contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising from
the contract are not transmissible by their nature, or by stipulation
or by provision of law. The heir is not liable beyond the value of the
property he received from the decedent.
If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated
his acceptance to the obligor before its revocation. A mere
incidental benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately conferred a
favor upon a third person.
Art. 1312. In contracts creating real rights, third persons who come into
possession of the object of the contract are bound thereby, subject
to the provisions of the Mortgage Law and the Land Registration
Laws.
Art. 1313. Creditors are protected in cases of contracts intended to defraud
them.
Art. 1314. Any third person who induces another to violate his contract shall
be liable for damages to the other contracting party.
Relativity of contracts
General rule
Contracts take effect only between the parties, their assigns and heirs.

Exceptions
1. Contracts that are not transmissible by nature (Art. 1311)
2. Contracts that are not transmissible by agreement (Art. 1311)
3. Contracts that are not transmissible by provision of law (Art. 1311)
4. Contracts with stipulation pour autrui (Art. 1311)
5. In cases when a third person induces another to violate his contract (Art.
1314)
6. Contracts that are rescissible (Art. 1381)
Art. 1315. Contracts are perfected by mere consent, and from that moment
the parties are bound not only to the fulfillment of what has been
expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage
and law.
Art. 1316. Real contracts, such as deposit, pledge and commodatum, are not
perfected until the delivery of the object of the obligation.
Perfection of contracts
1. Consensual contracts are perfected by mere consent.
2. Real contracts are perfected by the delivery of the thing.
Deposit or depositum is a contract for safekeeping. A deposit is constituted

from the moment a person receives a thing belonging to another, with the
obligation of safely keeping it and of returning the same. If the safekeeping of
the thing delivered is not the principal purpose of the contract, there is no
deposit but some other contract. (Art. 1962)
Pledge or pignus is a contract of bailment where a good or property is delivered

by the bailor to the bailee to secure the payment or performance of a principal
obligation.
Commodatum is a contract of loan whereby one of the parties deliver a non-

consummable and non-fungible thing to another for the latter’s use for a
period of time and after which, the same thing must be returned.
3. Formal or solemn contracts require a special form.

Legal effect of perfection
All the rights and obligations appurtenant to the contract becomes legally
demandable from each party.
Art. 1317. No one may contract in the name of another without being
authorized by the latter, or unless he has by law a right to
represent him.
A contract entered into in the name of another by one who has no
authority or legal representation, or who has acted beyond his
powers, shall be unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been executed,
before it is revoked by the other contracting party.
General rule
A person should enter into a contract in his own name. No person can enter into a
contract for another, otherwise it becomes unenforceable.
Exceptions
1. When authorized by the person being represented
2. When the law gives him the right to represent the other
3. When the contract is ratified

ACTIVITY6_CONTRACTS:

Chapter 7: GENERAL PROVISIONS ON OBLIGATION
Objective(s)
essential requisites of contracts.
CHAPTER 7: ESSENTIAL REQUISITES OF CONTRACTS
GENERAL PROVISIONS
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Elements of a contract
1. Essential elements are those which without any of it, there is no contract to speak of.
A. Common (communes) – present in all contracts like consent, object and cause
B. Special (especiales) – present only in certain contracts like delivery in real
contracts
C. Extraordinary or peculiar (especialisimos) – perculiar only to certain contracts like
the price in sale
2. Natural elements are those derived from the nature of the contract. They are
presumed to exist and need not be agreed upon may be excluded by agreement.
3. Accidental elements are those which only exists when expressly agreed upon by the
parties.
SECTION 1. - Consent
Art. 1319. Consent is manifested by the meeting of the offer and the
acceptance upon the thing and the cause which are to constitute
the contract. The offer must be certain and the acceptance
absolute. A qualified acceptance constitutes a counter-offer.

Acceptance made by letter or telegram does not bind the offerer
except from the time it came to his knowledge. The contract, in
such a case, is presumed to have been entered into in the place
where the offer was made.
Art. 1320. An acceptance may be express or implied.
Consent
Consent is manifested by the meeting of the offer and the acceptance upon the thing
and the cause which constitute the contract.
Requisites of consent
1. There must be two or more parties.
2. The parties must be capacitated to contract.
3. Consent must not be vitiated.
4. The intention of the parties must be expressly declared.
Offer
An offer is a unilateral proposition made by one party to another. For to be valid, the
offer must be certain, definite, complete and intentional.
Policitacion
Policitacion is an imperfect promise, it is an unaccepted unilateral offer.
Counter-offer
A counter-offer is a qualified acceptance.
Acceptance
Acceptance is the acquiescence of the offeree to the terms and conditions made by
the offeror. Acceptance made by letter or telegram is binding only when it comes to the
knowledge of the offeror.

Art. 1321. The person making the offer may fix the time, place, and manner
of acceptance, all of which must be complied with.
The offeror has the prerogative to fix the terms and conditions of the offer. The offeree
can either agree or make a counter-offer, in which case, he now becomes the offeree.
Art. 1322. An offer made through an agent is accepted from the time
acceptance is communicated to him.
By legal fiction, an agent is an extension of the personality of the principal he

represents. The act of the agent is the act of the principal, for as long as it is within his
power and authority, subject to the limits and exceptions provided by law.
Art. 1323. An offer becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of either party before acceptance is
conveyed.
When an offer becomes ineffective before acceptance

1. When either party dies
2. When either suffers civil interdiction
Civil interdiction is the interruption of person in managing his or her own
property. This can occur for example when a person is deemed incompetent
3. When either party becomes insane
4. When either becomes bankrupt or insolvent
5. Rejection of the offer
6. Counter-offer by the offeree
7. When the object becomes illegal
8. When the object is lost
9. When the period within which to accept lapses
Art. 1324. When the offerer has allowed the offeree a certain period to accept,
the offer may be withdrawn at any time before acceptance by
communicating such withdrawal, except when the option is
founded upon a consideration, as something paid or promised.

Option
An option is a choice.
Option contract
An option contract is one granting a privilege to buy or sell at a determined price
within an agreed time. It is a preparatory contract within which a party will decide whether
or not he will enter into a subsequent principal contract.
Option period
The time frame within which to exercise an option.
Option money
Option money is the consideration for an option contract. It is not part of the
consideration of the subsequent principal contract and is not refundable whether or not the
party entitled to the exercise of the option makes use of that option.
Earnest money
Earnest money is downpayment for a principal contract and is part of the entire
contract price.
Art. 1325. Unless it appears otherwise, business advertisements of things for

sale are not definite offers, but mere invitations to make an offer.
Art. 1326. Advertisements for bidders are simply invitations to make

proposals, and the advertiser is not bound to accept the highest or
lowest bidder, unless the contrary appears.
Not definite offers

1. Business advertisement of things for sale are invitations to make an offer.
2. Bidding advertisements are invitations to make an offer.

Art. 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know
how to write.
Art. 1328. Contracts entered into during a lucid interval are valid. Contracts
agreed to in a state of drunkenness or during a hypnotic spell are
voidable.
Art. 1329. The incapacity declared in Article 1327 is subject to the
modifications determined by law, and is understood to be without
prejudice to special disqualifications established in the laws.
Persons incapacitated to give consent

1. Minors
2. Insane or demented persons
3. Deaf mutes who do not know how to write
Lucid interval
Lucid interval is a period of sanity.
Lunatic episode
Lunatic episode is a period of insanity.
Some persons specially disqualified by law to enter into certain contracts

Art. 1490. The husband and the wife cannot sell property to each other, except:
(1) When a separation of property was agreed upon in the marriage settlements; or
(2) When there has been a judicial separation or property under Article 191.
Art. 1491. The following persons cannot acquire by purchase, even at a public or
judicial auction, either in person or through the mediation of another:
(1) The guardian, the property of the person or persons who may be under his
guardianship;

(2) Agents, the property whose administration or sale may have been entrusted to
them, unless the consent of the principal has been given;
(3) Executors and administrators, the property of the estate under administration;
(4) Public officers and employees, the property of the State or of any subdivision
thereof, or of any government-owned or controlled corporation, or institution, the
administration of which has been intrusted to them; this provision shall apply to
judges and government experts who, in any manner whatsoever, take part in the
sale;
(5) Justices, judges, prosecuting attorneys, clerks of superior and inferior courts, and
other officers and employees connected with the administration of justice, the
property and rights in litigation or levied upon an execution before the court within
whose jurisdiction or territory they exercise their respective functions; this
prohibition includes the act of acquiring by assignment and shall apply to lawyers,
with respect to the property and rights which may be the object of any litigation in
which they may take part by virtue of their profession.
(6) Any others specially disqualified by law.
Art. 1330. A contract where consent is given through mistake, violence,

intimidation, undue influence, or fraud is
Vices of consent
1. Mistake or error – Arts. 1331 to 1334
2. Violence or force – Arts. 1335 to 1336
3. Intimidation or threat – Arts. 1335 to 1336
4. Undue influence – Art. 1337
5. Fraud or deceit – Art. 1338
Art. 1331. In order that mistake may invalidate consent, it should refer to the
substance of the thing which is the object of the contract, or to
those conditions which have principally moved one or both parties
to enter into the contract.

Mistake as to the identity or qualifications of one of the parties will
vitiate consent only when such identity or qualifications have been
the principal cause of the contract.
A simple mistake of account shall give rise to its correction.
Art. 1332. When one of the parties is unable to read, or if the contract is in a
language not understood by him, and mistake or fraud is alleged,
the person enforcing the contract must show that the terms
thereof have been fully explained to the former.
Art. 1333. There is no mistake if the party alleging it knew the doubt,
contingency or risk affecting the object of the contract.
Art. 1334. Mutual error as to the legal effect of an agreement when the real
purpose of the parties is frustrated, may vitiate consent.
Mistake or error
Mistake or error is a misunderstanding of the meaning or implication of something
leading to a wrong action. It is a false belief of something.
Kinds of mistake
1. Mistake of law which is does not vitiate consent unless it is mutual. Mistake of law
connotes that one or both of the contracting parties arrived at an erroneous
conclusion regarding the interpretation of a question of law or the legal effects of a
certain act or transaction.
Requisites for mistake of law to vitiate consent

a. The mistake must be with respect to the legal effect of an agreement.
b. The mistake must be mutual
c. The real purpose of the parties must be frustrated
2. Mistake of fact which is the misapprehension of facts and circumstances that was the
basis of a decision.

Art. 1335. There is violence when in order to wrest consent, serious or
irresistible force is employed.
There is intimidation when one of the contracting parties is
compelled by a reasonable and well-grounded fear of an imminent
and grave evil upon his person or property, or upon the person or
property of his spouse, descendants or ascendants, to give his
consent.
To determine the degree of intimidation, the age, sex and condition
of the person shall be borne in mind.
A threat to enforce one's claim through competent authority, if the
claim is just or legal, does not vitiate consent.
Art. 1336. Violence or intimidation shall annul the obligation, although it may
have been employed by a third person who did not take part in the
contract.
Violence
There is violence when in order to wrest consent, serious or irresistible force is
employed.
Requisites of violence
1. The force employed is serious or irresistible.
2. It must be the determining cause for a party upon whom it is used in agreeing to the
contract.
Intimidation of threat
There is intimidation when one of the contracting parties is compelled by a
reasonable and well-grounded fear of an imminent and grave evil upon his person or
property, or upon the person or property of his spouse, descendants or ascendants, to give
his consent.

Art. 1337. There is undue influence when a person takes improper advantage
of his power over the will of another, depriving the latter of a
reasonable freedom of choice. The following circumstances shall be
considered: the confidential, family, spiritual and other relations
between the parties, or the fact that the person alleged to have
been unduly influenced was suffering from mental weakness, or was
ignorant or in financial distress.
Undue influence
There is undue influence when a person takes improper advantage of his power over
the will of another, depriving the latter of a reasonable freedom of choice.
Circumstances considered
1. Confidential, family, spiritual and other relations between the parties
2. Mental weakness
3. Ignorance
4. Financial distress
Art. 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.
This article defines fraud.
Kinds of fraud
Dolo causante – Art. 1338 – refers to those deceptions or misrepresentations that are of
serious nature employed by one party without which the other party would not have
entered into the contract. It will result in the nullification of the contract and
indemnification for damages.
Dolo incidente – Art. 1344 – refers to the misrepresentations that are not serious in
character and without which the other party would still have entered into a contract. It will
give rise to damages.
Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as
when the parties are bound by confidential relations, constitutes
fraud.

This article is about the principle of concealment which is another form of fraud.
Art. 1340. The usual exaggerations in trade, when the other party had an
opportunity to know the facts, are not in themselves fraudulent.
Art. 1341. A mere expression of an opinion does not signify fraud, unless made
by an expert and the other party has relied on the former's special
knowledge.
Not fraudulent
1. Exaggerations in trade like those shown or asserted in commercial ads. Any
purchaser of goods or services should exercise the caveat emptor (buyers beware)
principle but sellers should also exercise the caveat venditor principle and must
likewise comply with the law on Truth in Advertising.
2. An expression of an opinion unless made by an expert.
Art. 1342. Misrepresentation by a third person does not vitiate consent,

unless such misrepresentation has created substantial mistake and
the same is mutual.
Art. 1343. Misrepresentation made in good faith is not fraudulent but may
constitute error.
Art. 1344. In order that fraud may make a contract voidable, it should be
serious and should not have been employed by both contracting
parties.
Incidental fraud only obliges the person employing it to pay
damages.
General rule
Misrepresentation by a third person does not vitiate consent as he is not a party to
the contract.

Exception
Misrepresentation by a third person vitiate consent if it created substantial mistake
and that the same is mutual.
Misrepresentation in good faith

Misrepresentation made in good faith is not fraudulent but may constitute error.
Art. 1345. Simulation of a contract may be absolute or relative. The former

takes place when the parties do not intend to be bound at all; the
latter, when the parties conceal their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void. A relative

simulation, when it does not prejudice a third person and is not
intended for any purpose contrary to law, morals, good customs,
public order or public policy binds the parties to their real
agreement.
Simulation
Simulation is the process of intentionally deceiving others.
Kinds of simulated contract
1. Absolute simulation is one where the contract does not really exist as the parties did
not intend to be bound.
2. Relative simulation is one where the contract does not show the true intention of the
parties.
Juridical acts in relative simulation

a. Ostensible act is the creation of the contract that the parties pretend to have
executed.
b. Hidden act which the real agreement between the parties.

SECTION 2. - Object of Contracts
Art. 1347. All things which are not outside the commerce of men, including
future things, may be the object of a contract. All rights which are
not intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in
cases expressly authorized by law.
All services which are not contrary to law, morals, good customs,
public order or public policy may likewise be the object of a
contract.
Art. 1348. Impossible things or services cannot be the object of contracts.
Art. 1349. The object of every contract must be determinate as to its kind.
The fact that the quantity is not determinate shall not be an
obstacle to the existence of the contract, provided it is possible to
determine the same, without the need of a new contract between
the parties.
The object or subject matter or prestation of a contract is the end-thin aimed at, the
thing sough to be accomplished. (Black’s)
Kinds of objects of a contract

1. Things which are not outside the commerce of man, including future things but not
future inheritance.
2. Rights which are transmissible.
3. Services which are not contrary to law, morals, good customs, public order or public
policy.
Requisites of a valid object

1. Within the commerce of men

2. Transmissible
3. Not contrary for law, morals, good customs, public order or public policy
4. Possible physically and legally
5. Determinate or capable of becoming determinate
6. Existing or capable of coming into existence
Examples of things outside the commerce of men

1. Personal rights like status or capacity
2. Public office
3. Political rights like the right to vote
4. Public dominion like parks, roads, rivers and public bridges
SECTION 3. - Cause of Contracts
Art. 1350. In onerous contracts the cause is understood to be, for each
contracting party, the prestation or promise of a thing or service
by the other; in remuneratory ones, the service or benefit which is
remunerated; and in contracts of pure beneficence, the mere
liberality of the benefactor.
Art. 1351. The particular motives of the parties in entering into a contract are
different from the cause thereof.
Art. 1352. Contracts without cause, or with unlawful cause, produce no effect
whatever. The cause is unlawful if it is contrary to law, morals,
good customs, public order or public policy.
Art. 1353. The statement of a false cause in contracts shall render them void,
if it should not be proved that they were founded upon another
cause which is true and lawful.
Art. 1354. Although the cause is not stated in the contract, it is presumed
that it exists and is lawful, unless the debtor proves the contrary.

Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall
not invalidate a contract, unless there has been fraud, mistake or
undue influence.
Cause or consideration
Cause or consideration is the essential reason why a party enters into a contract. In
bilateral contracts, the cause of one is the object of the other and vice-versa.
Kinds of causes
1. Onerous or burdensome cause which is the prestation for each contracting party
2. Remuneratory cause when it is the past service rendered that will be renumerated
3. Gratuitous cause where the cause is the mere liberality of the benefactor
Cause versus motive

Cause is the essential reason for the contract and is an element of the contract.
Motive is the particular reason for a contracting party which is not an element of a
contract.
Requisites of a cause
1. It must exist.
2. It must be lawful.
3. It must be true.
Want of cause
Want of cause is the total lack or absence of cause. It invalidates a contract.
Unlawful or illegal cause

An unlawful or illegal cause is one which violates the freedom to contract principle. It
makes a contract null and void.

False cause
A false cause refers to one that is not true or real. It can give rise to reformation to
show the true cause.
Lesion
Lesion is the inadequacy or insufficiency of cause of a contract. Generally, it does not
invalidate a contract unless:
a. There is fraud
b. There is mistake
c. There is undue influence
d. The law expressly provides


Chapter 8: FORM, REFORMATION AND INTERPRETATION OF CONTRACTS
Objective(s)
basic concepts relating to the form, reformation and interpretation of contracts.
CHAPTER 8.A: FORM OF CONTRACTS
Art. 1356. Contracts shall be obligatory, in whatever form they may have been
entered into, provided all the essential requisites for their validity
are present. However, when the law requires that a contract be in
some form in order that it may be valid or enforceable, or that a
contract be proved in a certain way, that requirement is absolute
and indispensable. In such cases, the right of the parties stated in
the following article cannot be exercised.
Art. 1357. If the law requires a document or other special form, as in the acts
and contracts enumerated in the following article, the contracting
parties may compel each other to observe that form, once the
contract has been perfected. This right may be exercised
simultaneously with the action upon the contract.
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property; sales of real property or of an interest therein
a governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or

of those of the conjugal partnership of gains;

(3) The power to administer property, or any other power which has
for its object an act appearing or which should appear in a public
document, or should prejudice a third person;
(4) The cession of actions or rights proceeding from an act

appearing in a public document.
All other contracts where the amount involved exceeds five

hundred pesos must appear in writing, even a private one. But sales
of goods, chattels or things in action are governed by Articles,
1403, No. 2 and 1405.
General rule
Contracts are obligatory in whatever form they have been entered into
provided all the essential requisites for their validity is present.
Exceptions
1. When the law requires a particular format for the validity or enforceability of a
contract
2. When the law requires that a contract be proved in a certain way
Importance of form
1. Validity
2. Enforceability
3. Convenience
Public document
A public document is one duly notarized to authenticated by a notary public
or any public official authorized by law.

CHAPTER 8.B: REFORMATION OF INSTRUMENTS
Art. 1359. When, there having been a meeting of the minds of the parties to a
contract, their true intention is not expressed in the instrument
purporting to embody the agreement, by reason of mistake, fraud,
inequitable conduct or accident, one of the parties may ask for the
reformation of the instrument to the end that such true intention
may be expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a
meeting of the minds of the parties, the proper remedy is not
reformation of the instrument but annulment of the contract.
Art. 1360. The principles of the general law on the reformation of instruments
are hereby adopted insofar as they are not in conflict with the
provisions of this Code.
Art. 1361. When a mutual mistake of the parties causes the failure of the
instrument to disclose their real agreement, said instrument may
be reformed.
Art. 1362. If one party was mistaken and the other acted fraudulently or
inequitably in such a way that the instrument does not show their
true intention, the former may ask for the reformation of the
instrument.
Art. 1363. When one party was mistaken and the other knew or believed that
the instrument did not state their real agreement, but concealed
that fact from the former, the instrument may be reformed.
Art. 1364. When through the ignorance, lack of skill, negligence or bad faith
on the part of the person drafting the instrument or of the clerk or
typist, the instrument does not express the true intention of the
parties, the courts may order that the instrument be reformed.

Art. 1365. If two parties agree upon the mortgage or pledge of real or personal
property, but the instrument states that the property is sold
absolutely or with a right of repurchase, reformation of the
instrument is proper.
Art. 1366. There shall be no reformation in the following cases:

(1) Simple donations inter vivos wherein no condition is imposed;
(2) Wills;
(3) When the real agreement is void.
Art. 1367. When one of the parties has brought an action to enforce the
instrument, he cannot subsequently ask for its reformation.
Art. 1368. Reformation may be ordered at the instance of either party or his
successors in interest, if the mistake was mutual; otherwise, upon
petition of the injured party, or his heirs and assigns.
Art. 1369. The procedure for the reformation of instrument shall be governed
by rules of court to be promulgated by the Supreme Court.
Reformation
Reformation is that remedy in equity by means of which a written instrument is
amended, changed or modified to express the true intention of the parties where some
errors or mistakes have been committed.
Requisites of reformation
1. There must have been a meeting of the minds.
2. The instrument does not express the real intention of the parties.
3. The failure to express the true intention of the parties is due to mistake, fraud,
inequitable conduct or accident.
4. There must be clear and convincing proof.

CHAPTER 8.C: INTERPRETATION OF CONTRACTS
Art. 1370. If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its
stipulations shall control.
If the words appear to be contrary to the evident intention of the
parties, the latter shall prevail over the former.
Art. 1371. In order to judge the intention of the contracting parties, their
contemporaneous and subsequent acts shall be principally
considered.
Art. 1372. However general the terms of a contract may be, they shall not be
understood to comprehend things that are distinct and cases that
are different from those upon which the parties intended to agree.
Art. 1373. If some stipulation of any contract should admit of several

meanings, it shall be understood as bearing that import which is
most adequate to render it effectual.
Art. 1374. The various stipulations of a contract shall be interpreted together,

attributing to the doubtful ones that sense which may result from
all of them taken jointly.
Art. 1375. Words which may have different significations shall be understood
in that which is most in keeping with the nature and object of the
contract.
Art. 1376. The usage or custom of the place shall be borne in mind in the
interpretation of the ambiguities of a contract, and shall fill the
omission of stipulations which are ordinarily established.

Art. 1377. The interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity.
Art. 1378. When it is absolutely impossible to settle doubts by the rules

established in the preceding articles, and the doubts refer to
incidental circumstances of a gratuitous contract, the least
transmission of rights and interests shall prevail. If the contract is
onerous, the doubt shall be settled in favor of the greatest
reciprocity of interests.
If the doubts are cast upon the principal object of the contract in
such a way that it cannot be known what may have been the
intention or will of the parties, the contract shall be null and void.
Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of
Court shall likewise be observed in the construction of contracts.
Interpretation
The act or result of explaining something or the determination of the meaning to the
words written or spoken.
Rules of interpretation
1. When the intention of the parties is clear, there is no need to interpret.
2. In case of conflict between the words of the contract and the intention of the parties,
the intention prevails.
3. The intention of the parties shall be judged from their contemporaneous and
subsequent acts.
4. General terms will be understood to include distinct things intended by the parties.
5. Choose the meaning that will make the agreement effectual.

6. The meaning of various stipulation shall be taken together and the agreement read in
its entirety.
7. Words with various meaning shall be understood in such a manner as it relates to

the nature and object of the contract.
8. The custom of the place shall also be used to give proper interpretation to an
agreement.
9. The interpretation shall be strictly construed against the person who caused the
ambiguity.
10. The principles of interpretation under the Rules of Court shall also be used to
aid interpretation.

Chapter 9: DEFECTIVE CONTRACTS

Objective(s)
basic concepts relating to defective contracts.
CHAPTER 9.A: RESCISSIBLE CONTRACTS
Art. 1380. Contracts validly agreed upon may be rescinded in the cases
established by law.
Rescission is the cancellation of a contract from its beginning, ensuring that all
parties return to the position they were in before it was signed. It is a process of rendering
inefficacious a valid contract earlier entered into, by reason of external conditions causing
economic prejudice to a party or to his creditors. Recission has the effect of “unmaking” or
undoing a contract from the beginning.
Requisites
1. There exists a valid contract.
2. There is lesion of financial prejudice.
Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards
whom they represent suffer lesion by more than one-fourth of the
value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter

suffer the lesion stated in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot

in any other manner collect the claims due them;

(4) Those which refer to things under litigation if they have been
entered into by the defendant without the knowledge and approval
of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to

rescission.
Rescissible contracts are not void and can remain legally effective until cancelled in a
an action brought for that purpose.
Ward
A ward can refer to any incapacitated person who is under guardianship.
Absentee
Ab absentee is one who disappears from his domicile, whose whereabouts is
unknown, and does not leave behind any agent to administer his properties.
Art. 1382. Payments made in a state of insolvency for obligations to whose

fulfillment the debtor could not be compelled at the time they were
effected, are also rescissible.
Insolvency
Insolvency or bankruptcy is that state where a person has more liabilities than his
assets.
Requisites for premature payment

1. The debtor-payor must have been insolvent when payment was made.
2. The debt was not yet due and demandable.
Art. 1383. The action for rescission is subsidiary; it cannot be instituted

except when the party suffering damage has no other legal means
to obtain reparation for the same.

Subsidiary remedy
Subsidiary remedy is the exhaustion of all remedies by the prejudiced creditor to
collect claims due him before rescission is resorted to. The Supreme Court has ruled that
the rescissory action to set aside contracts in fraud of creditors is accion pauliana,
essentially a subsidiary remedy accorded under Art. 1383 of the Civil Code which the party
suffering damage can only avail of when he has no other legal means to obtain reparation
for the same. In net effect, the provision applies only when the creditor cannot recover in
any other manner what is due him.1
Art. 1384. Rescission shall be only to the extent necessary to cover the
damages caused.
The reason for this article is that rescission is to repair the damages caused.
Art. 1385. Rescission creates the obligation to return the things which were
the object of the contract, together with their fruits, and the price
with its interest; consequently, it can be carried out only when he
who demands rescission can return whatever he may be obliged to
restore.
Neither shall rescission take place when the things which are the
object of the contract are legally in the possession of third persons
who did not act in bad faith.
In this case, indemnity for damages may be demanded from the

person causing the loss.
Mutual restitution
1
Union Bank of the Phils. V Sps Ong and Jackson Lee, G.R. No. 152347, June 21, 2006

Mutual restitution entails the return of the benefits that each party may have
received as a result of the contract. This means that the parties must revert to status quo.
However, if it is no longer possible to return the object of the contract, an indemnity for
damages operates as restitution.
Art. 1386. Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take
place with respect to contracts approved by the courts.
Art. 1387. All contracts by virtue of which the debtor alienates property by
gratuitous title are presumed to have been entered into in fraud of
creditors, when the donor did not reserve sufficient property to pay
all debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent when

made by persons against whom some judgment has been issued.
The decision or attachment need not refer to the property
alienated, and need not have been obtained by the party seeking
the rescission.
In addition to these presumptions, the design to defraud creditors

may be proved in any other manner recognized by the law of
evidence.
Art. 1388. Whoever acquires in bad faith the things alienated in

fraud of creditors, shall indemnify the latter for damages suffered
by them on account of the alienation, whenever, due to any cause,
it should be impossible for him to return them.
If there are two or more alienations, the first acquirer shall be

liable first, and so on successively.
Presumption of fraud is not conclusive

The presumption of fraud on the part of the debtor in this article is not conclusive
and may be rebutted by satisfactory and convincing evidence.
Badges of fraud
1. The fact that the consideration of the conveyance is fictitious or is inadequate.
2. A transfer made by the debtor after a suit has begun and while it is pending against
him.
3. A sale upon credit by an insolvent debtor.
4. Evidence of large indebtedness or complete insolvency.
5. The transfer of all or nearly all his property by a debtor especially when he is
insolvent of greatly embarrassed financially.
6. The fact that the transfer is made between father and son, when there are present
any of the above circumstances.
7. The failure of the vendee to take exclusive possession of all the property.
Who can bring an action for rescission

1. The injured party
2. The defrauded creditor
3. The heirs or successors-in-interest of the injured party
4. Creditors of the injured party an action for subrogation the rescission
Art. 1389. The action to claim rescission must be commenced within four
years.
For persons under guardianship and for absentees, the period of

four years shall not begin until the termination of the former's
incapacity, or until the domicile of the latter is known.
The prescriptive period within which to file an action for rescission is 4 years
1. from the time the incapacity of the ward ends
2. from the time the domicile of the absentee is known

CHAPTER 9.B : VOIDABLE CONTRACTS
Art. 1390. The following contracts are voidable or annullable, even though
there may have been no damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to
a contract;
(2) Those where the consent is vitiated by mistake, violence,

intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper

action in court. They are susceptible of ratification.
Voidable or annullable contracts are existent, valid and binding but they can be
annulled in an action for that purpose because of want of capacity or by reason of vitiated
consent of any one of the parties unless ratified by the parties. The vices of consent are
mistake, violence, intimidation, undue influence and fraud.
Art. 1391. The action for annulment shall be brought within four years.
This period shall begin:
In cases of intimidation, violence or undue influence, from the

time the defect of the consent ceases.
In case of mistake or fraud, from the time of the discovery of the
same.
And when the action refers to contracts entered into by minors or

other incapacitated persons, from the time the guardianship
ceases.

This article talks about the prescriptive period of the action within which the
aggrieved party can bring the action for annulment of a voidable contract.
Art. 1392. Ratification extinguishes the action to annul a voidable contract.
Art. 1393. Ratification may be effected expressly or tacitly. It is understood

that there is a tacit ratification if, with knowledge of the reason
which renders the contract voidable and such reason having
ceased, the person who has a right to invoke it should execute an
act which necessarily implies an intention to waive his right.
Art. 1394. Ratification may be effected by the guardian of the incapacitated

person.
Art. 1395. Ratification does not require the conformity of the contracting
party who has no right to bring the action for annulment.
Art. 1396. Ratification cleanses the contract from all its defects from the
moment it was constituted.
Ratification, Confirmation and Acknowledgment

1. Ratification cures the defect of lack of authority in contracts entered into in behalf of
another. (Arts. 1317, 1405)
2. Confirmation cures the defect in voidable contracts. (Art. 1396)
3. Acknowledgment remedies a deficiency of proof as when an oral loan is put in
writing.
*Under the New Civil Code, the three technical terms above are now uniformly called
ratification.
Kinds of ratification
1. Express – clearly stated whether oral or written

2. Tacit or implied – when inferred as a waiver
Art. 1397. The action for the annulment of contracts may be instituted by all
who are thereby obliged principally or subsidiarily. However,
persons who are capable cannot allege the incapacity of those with
whom they contracted; nor can those who exerted intimidation,
violence, or undue influence, or employed fraud, or caused mistake
base their action upon these flaws of the contract.
Persons who may seek annulment

1. Parties principally or subsidiarily bound.
2. Guardians of incapacitated parties.
Art. 1398. An obligation having been annulled, the contracting parties shall
restore to each other the things which have been the subject
matter of the contract, with their fruits, and the price with its
interest, except in cases provided by law.
In obligations to render service, the value thereof shall be the basis

for damages.
Art. 1399. When the defect of the contract consists in the incapacity of one of
the parties, the incapacitated person is not obliged to make any
restitution except insofar as he has been benefited by the thing or
price received by him.
Art. 1400. Whenever the person obliged by the decree of annulment to return
the thing can not do so because it has been lost through his fault,
he shall return the fruits received and the value of the thing at the
time of the loss, with interest from the same date.

Art. 1401. The action for annulment of contracts shall be extinguished when
the thing which is the object thereof is lost through the fraud or
fault of the person who has a right to institute the proceedings.
If the right of action is based upon the incapacity of any one of the
contracting parties, the loss of the thing shall not be an obstacle to
the success of the action, unless said loss took place through the
fraud or fault of the plaintiff.
Art. 1402. As long as one of the contracting parties does not restore what in
virtue of the decree of annulment he is bound to return, the other
cannot be compelled to comply with what is incumbent upon him.
Effects of annulment
1. In executory contracts, the parties are excused from their obligation.
2. In executed contracts, there must be mutual restitution.
a. However, as long as one of the contracting parties does not restore what in virtue
of the decree of annulment he is bound to return, the other cannot be compelled
to comply with what is incumbent upon him.
b. Whenever the person obliged by the decree of annulment to return the thing can
not do so because it has been lost through his fault, he shall return the fruits
received and the value of the thing at the time of the loss, with interest from the
same date.
c. When the defect of the contract consists in the incapacity of one of the parties, the
incapacitated person is not obliged to make any restitution except insofar as he
has been benefited by the thing or price received by him.

CHAPTER 9.C: UNENFORCEABLE CONTRACTS
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who
has been given no authority or legal representation, or who has
acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set forth
in this number. In the following cases an agreement hereafter made
shall be unenforceable by action, unless the same, or some note or
memorandum, thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or a secondary evidence of
its contents:
(a) An agreement that by its terms is not to be performed
within a year from the making thereof;
(b) A special promise to answer for the debt, default, or
miscarriage of another;
(c) An agreement made in consideration of marriage, other
than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in
action, at a price not less than five hundred pesos, unless the
buyer accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action or pay at the
time some part of the purchase money; but when a sale is made by
auction and entry is made by the auctioneer in his sales book, at
the time of the sale, of the amount and kind of property sold,
terms of sale, price, names of the purchasers and person on whose
account the sale is made, it is a sufficient memorandum;
(e) An agreement of the leasing for a longer period than one

year, or for the sale of real property or of an interest therein;
(f) A representation as to the credit of a third person.

(3) Those where both parties are incapable of giving consent to a
contract.
Art. 1404. Unauthorized contracts are governed by Article 1317 and the
principles of agency in Title X of this Book.
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of

Article 1403, are ratified by the failure to object to the
presentation of oral evidence to prove the same, or by the
acceptance of benefit under them.
Art. 1406. When a contract is enforceable under the Statute of Frauds, and a
public document is necessary for its registration in the Registry of
Deeds, the parties may avail themselves of the right under Article
1357.
Art. 1407. In a contract where both parties are incapable of giving consent,
express or implied ratification by the parent, or guardian, as the
case may be, of one of the contracting parties shall give the
contract the same effect as if only one of them were incapacitated.
If ratification is made by the parents or guardians, as the case may

be, of both contracting parties, the contract shall be validated from
the inception.
Art. 1408. Unenforceable contracts cannot be assailed by third

persons.
Unenforceable contracts are valid contracts but because of some technical defect,
they cannot be enforced or sued upon until they are ratified. Prior to ratification, they have
no effect. It includes the following contracts:
1. Unauthorized contracts
2. Those that do not comply with the Statute of Frauds
3. Those where both parties are incapable of giving consent to a contract.

Statute of Fraud
The Statute of Fraud is based on the infallibility of man’s memory. It was a law
enacted in England in 1677 to prevent fraud and perjuries by parties seeking to hold
another to an alleged obligation. The original law is the basis of statutes that have been
enacted in all U.S. states. It required various contracts and causes of action to be evidenced
by a writing signed by the party to be charged or by a lawfully authorized agent.
Basic tenets governing the Statute of Frauds

1. The statute applies only to executory contracts.
2. It applies only if the action is for damages due to breach of contract or for specific
performance.
3. The defense arising therefrom can be waived.
4. It is a personal defense and cannot be assailed by third persons.
5. Contracts infringing the statute are only unenforceable and not void.
Ratification of contracts infringing the Statute of Frauds

1. Failure to object to presentation of parol evidence or evidence of oral statements.
2. Acceptance of the benefits under them.

CHAPTER 9.D: VOID AND INEXISTENT CONTRACTS
Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals,
good customs, public order or public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the
transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal
object of the contract cannot be ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up
the defense of illegality be waived.
Art. 1410. The action or defense for the declaration of the inexistence of a
contract does not prescribe.
Art. 1411. When the nullity proceeds from the illegality of the cause or object
of the contract, and the act constitutes a criminal offense, both
parties being in pari delicto, they shall have no action against each
other, and both shall be prosecuted. Moreover, the provisions of the
Penal Code relative to the disposal of effects or instruments of a
crime shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty;
but the innocent one may claim what he has given, and shall not be
bound to comply with his promise. (1305)

Art. 1412. If the act in which the unlawful or forbidden cause consists does not
constitute a criminal offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither
may recover what he has given by virtue of the contract, or demand
the performance of the other's undertaking;
(2) When only one of the contracting parties is at fault, he cannot

recover what he has given by reason of the contract, or ask for the
fulfillment of what has been promised him. The other, who is not at
fault, may demand the return of what he has given without any
obligation to comply his promise.
Art. 1413. Interest paid in excess of the interest allowed by the usury laws may
be recovered by the debtor, with interest thereon from the date of
the payment.
Art. 1414. When money is paid or property delivered for an illegal purpose, the
contract may be repudiated by one of the parties before the purpose
has been accomplished, or before any damage has been caused to a
third person. In such case, the courts may, if the public interest will
thus be subserved, allow the party repudiating the contract to
recover the money or property.
Art. 1415. Where one of the parties to an illegal contract is incapable of giving
consent, the courts may, if the interest of justice so demands allow
recovery of money or property delivered by the incapacitated
person.
Art. 1416. When the agreement is not illegal per se but is merely prohibited,
and the prohibition by the law is designated for the protection of the
plaintiff, he may, if public policy is thereby enhanced, recover what
he has paid or delivered.

Art. 1417. When the price of any article or commodity is determined by
statute, or by authority of law, any person paying any amount in
excess of the maximum price allowed may recover such excess.
Art. 1418. When the law fixes, or authorizes the fixing of the maximum number
of hours of labor, and a contract is entered into whereby a laborer
undertakes to work longer than the maximum thus fixed, he may
demand additional compensation for service rendered beyond the
time limit.
Art. 1419. When the law sets, or authorizes the setting of a minimum wage for
laborers, and a contract is agreed upon by which a laborer accepts a
lower wage, he shall be entitled to recover the deficiency.
Art. 1420. In case of a divisible contract, if the illegal terms can be separated
from the legal ones, the latter may be enforced.
Art. 1421. defense of illegality of contract is not available to third persons

whose interests are not directly affected.
Art. 1422. A contract which is the direct result of a previous illegal contract, is
also void and inexistent.
Void contracts are those which have no force and effect because of the failure to meet
the essential requisites of a valid contract, or because of it being unlawful or illegal.
Special classification of void contracts
1. Inexistent contracts which are void because the essential formalities are not complied
with.
2. Illegal or illicit contracts which are contrary to the freedom to contract principle.
Kinds of illegal contracts

1. Those where there is a criminal offense. (Art. 1411)
Effects:

a. Where both parties are guilty like in sale of shabu, they will have no action against
each other for any breach, both of the parties shall be prosecuted and the effects
or the instruments of the crime shall be confiscated in favor of the government.
b. Where only one party is guilty like a sale of government property by A to B, the
latter being in good faith. In this case, the guilty party will be prosecuted, the
instrument of the crime will be confiscated and the innocent party may claim what
he has given.
2. Those where there is no criminal offense. (Art. 1412)

Effects:
a. Where both parties are guilty, then (in pari delicto) neither party may recover what
he has given.
b. Where only one party is guilty, the guilty party cannot recover what he has given
while the innocent party can demand back what he has given with no obligation to
comply with his promise.
Characteristic of void contracts

1. Void contracts produce no legal effect.
2. In void contracts, the defect consists in the lack of any or all of the essential elements
of a contract.
3. The action to declare the nullity or inexistence of void contracts does not prescribe.
4. As a rule, the nullity or inexistence of a void contract cannot be assailed by third
persons whose interests are not directly affected.
5. Void contracts cannot be ratified.
6. No action is generally required to set it aside unless the contract has already been
performed,
7. Void contracts cannot be cured by prescription.
8. The defense of a contract being void can be availed of by anybody as long as his
interest is directly affected.
9. Void contracts are an absolute nullity.
10. The right to set up the defense of illegality cannot be waived.
11. Void contracts cannot give rise to any other contract.

group. The rubric that will be used in evaluating your essay is found in Appendix C. Take a
screenshot of all the memes and upload in the Google Classroom.
9.d. Final requirement: In not less that 1000 words, write an essay, entitled EPIPHANIES
FOR 2nd SEM 2019 2020, where you will evaluate the activities this semester vis-à-vis the
VMO of the University of Baguio.

APPENDIX “A”
ACTIVITY #: ______________
VOCABULARY ENHANCEMENT
SUBJECT: SECTION: DATE DUE:

FAMILY NAME GIVEN NAME EMAIL ADDRESS
TOPIC:
# WORD MEANING
1
(Sentence)
2
(Sentence)
3
(Sentence)
4
(Sentence)
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
*Use font 14, Courier New or Times New Roman, single space
1 inch margin on all sides, short bond paper

APPENDIX “B”
ACTIVITY #: ______________
MULTIPLE CHOICE QUESTIONS
1. The choices should include 4 distinct but related choices.
2. Use CAPITAL LETTERS for the choices.
3. Use complete sentences for the statements and always provide a complete
premise.
4. The following are not allowed as choices:
a. Either A or B
b. Both A or B
c. Neither A nor B
d. None of the above
e. All of the above
f. Article numbers
g. Numbers
SUBJECT: SECTION: DATE DUE:

FAMILY NAME GIVEN NAME EMAIL ADDRESS
ANS # STATEMENTS AND CHOICES

C 1 A kind of obligation that has for its prestation the
giving of an object.
A. POSITIVE PERSONAL OBLIGATION
B. NEGATIVE PERSONAL OBLIGATION
C. REAL OBLIGATION
D. SIMPLE OBLIGATION
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
*Use font 14, Courier New or Times New Roman, single space
1 inch margin on all sides, short bond paper

APPENDIX “C”
FACEBOOK/YOUTUBE ACTIVITIES (MEMES)

1. Organization and completeness of thought = 5 points
2. Form (Grammar) = 5 points

i
https://www.quora.com/What-are-the-characteristics-of-law

MODULE - BSSLAW1 - 2nd Sem 2021

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MODULE - BSSLAW1 - 2nd Sem 2021

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Prepared by:

Atty. Angeline My F. Togade

SCHOOL OF BUSINESS ADMINISTRATION AND ACCOUNTANCY

A Self-regulated Learning Module 1

A Self-regulated Learning Module 2

A Self-regulated Learning Module 3

A Self-regulated Learning Module 4

A Self-regulated Learning Module 5

INTRODUCTION TO THE MODULE

This learning module is being formulated considering the

A Self-regulated Learning Module 6

CHAPTER 1: INTRODUCTION TO LAW

General definitions of law

General Classification of Laws

Divine law comprises anybody of law that is perceived as deriving from a

Natural law, in philosophy, a system of right or justice held to be common to all

4. ETERNAL LAW OR PHYSICAL LAW

A Self-regulated Learning Module 7

Classifications of Laws in the Philippines

5. Financial and tax laws

A Self-regulated Learning Module 8

6. International public law

4. International private law.

The main sources of Philippine law are:

A Self-regulated Learning Module 9

IGNORANTIA LEGIS NON EXCUSAT - ignorance of the law excuses not

A Self-regulated Learning Module 10

1.d Online Quizzers will be scheduled.

A Self-regulated Learning Module 11

CHAPTER 2: GENERAL PROVISIONS ON OBLIGATION

Art. 1156. An obligation is a juridical necessity to give, to do or not to

A Self-regulated Learning Module 12

1. Real obligation- the obligation is to give

1. Civil obligations which are enforceable through court action.

1. Unilateral where only one party is bound to give, to do or not to do.

Art. 1157. Obligations arise from:

A Self-regulated Learning Module 13

1. Law (Art. 1158)

Art. 1160. Obligations derived from quasi-contracts shall be subject to

A Self-regulated Learning Module 14

Art. 2144. Whoever voluntarily takes charge of the agency or management of

Example: Alma owns a mango farm in La Union. She had to go to on a one-week

In negotiorum gestio, the officious manager assumes the management of the

A Self-regulated Learning Module 15

Anyone who knowingly accepts something to which he is not entitled shall

He shall furthermore be answerable for any loss or impairment of the thing

Art. 1161. Civil obligations arising from criminal offenses shall be

Governing laws on an obligation ex delicto or ex maleficio

Civil liability from crimes include the following:

A Self-regulated Learning Module 16

Art. 1162. Obligations derived from quasi-delicts shall be governed by

A Self-regulated Learning Module 17

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2.d Online Quizzers will be scheduled.

A Self-regulated Learning Module 19

CHAPTER 3: NATURE AND EFFECT OF OBLIGATIONS

1. Determinate or specific thing is one that is particularly designated or physically

A Self-regulated Learning Module 20

Diligence is the care, caution or attention required of a person in a given situation.

1. Natural fruits are the spontaneous products of the earth or of animals.

Personal and real rights

A Self-regulated Learning Module 21

Example: A tenant who buys the condominium unit he is renting.