TITLE I
OBLIGATIONS
CHAPTER 1
GENERAL PROVISIONS
I - The Obligation
A. Concept of Obligation
1 An obligation is a juridical relation whereby a person (called
the creditor) may demand from another (called the debtor) the
observance of a determinate conduct, and, in case of breach,
may obtain satisfaction from the assets of the latter.
2 An obligation is a juridical necessity to give, to do, or not to
do. (1156)
3 Subject to the laws, all rights acquired in virtue of an
obligation are transmissible, if there has been no stipulation to
the contrary. (1178)
A. Elements of Obligation
(1) an active subject, who has the power to demand the prestation,
known as the obligee or creditor;
(2) a passive subject, who is bound to perform the prestation,
known as the obligor or debtor;
(3) an object or the prestation; and
(4) the juridical tie or vinculum juris
II - The Object or Prestation
A. Concept of Object or Prestation
1 The object of an obligation is not a thing but a particular conduct of
the debtor which may consist in:
(1) giving something
(2) doing something
(3) not doing something
B. Requisites
The prestation must have the following requisites:
(1) it must be possible, physically and juridically;
(2) it must be determinate, or, at least, determinable
(3) it must be capable of pecuniary estimation
III - Sources of Obligations
2 Obligations arise from: (1157)
Law - obligations derived from law are not presumed. Only
those expressed in the Civil Code or in special laws are
demandable and shall be regulated by the precepts of the
law which establish them; and to what has not been
foreseen, the provisions of Book IV of the Civil Code.
(1158)
Contracts (ex contractu) - have the force of law between the
contracting parties and should be complied with in good
faith. (1159)
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. (1254a)
Quasi-contracts (quasi-contractu) - a juridical relation which
arises from certain lawful, voluntary, and unilateral acts,
to the end that no one may be unjustly enriched at the
expense of another.
Delicts (ex-maleficio) - governed primarily by the penal laws
Quasi-Delicts (quasi-maleficio)
Whoever by act or omission causes damage
to another, there being fault or negligence, is
obliged to pay for the damage done, if there is
no pre-existing contractual relation between
the parties (culpa aquiliana).
CHAPTER 2
NATURE AND EFFECTS OF OBLIGATIONS
There are three kinds of prestations in obligations:
to give
to do
not to do
I - Obligations To Give
The obligation to give may refer either to:
(1) a specific or determinate thing - one that is
individualized and can be identified
or distinguished from others of its kind
(2) an indeterminate or generic thing - one that is indicated
only by its kinds,
without being designated and distinguished from
others of the same kind
A. Obligation to Give a Specific or Determinate Thing
3 Three incidental or accessory obligations:
(1) The obligation to preserve the thing 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. (1163)
(2) The obligation to deliver the fruits. However, the
creditor shall acquire no real right over it until the same
has been delivered to him. (1164)
(3) The obligation to deliver the accessions and accessories,
even though they may not have been mentioned. (1166)
4 The creditor may compel the debtor to make the delivery. (1165 par.
1)
A. Obligations to Give an Indeterminate or Generic Thing
5 The creditor may ask that the obligation be complied with at the
expense of the debtor. (1165 par. 2)
II - Obligations To Do
6 The obligation shall be executed at his cost if:
(1) If the person obliged to do something fails to do it; or
(2) If he does it in contravention to the tenor of the
obligation.
7 Furthermore, it may be decreed that what has been poorly done be
undone. (1167)
8 The law does not authorize the imposition of personal force or
coercion upon the debtor to comply with his obligation. In such
case, he can be held liable for damages
III - Obligations Not To Do
9 If the obligor does what has been forbidden him:
(1) it shall be done at his expense (1168)
 (2) he can be held liable for damages Concept

IV - Remedies of the Creditor
10 When a debtor fails to comply with his obligation, the creditor may
avail himself of the following remedies:
(1) an action for specific performance
(2) an action to rescind the obligation
(3) an action for damages, exclusively or in addition to
either of the first two actions
2 Fortuitous events are events which could not be foreseen, or which,
though foreseen, were inevitable.
3 The doctrine of fortuitous event is applicable only to obligations to
give a specific thing and obligations to do.
4 The general effect is that the debtor cannot be held liable for
damages for non-performance.
5 To exempt the debtor from paying damages, the following instances
must concur:

V - Damages (1) Cause of the unforeseen occurrence or the failure of the

11 Those who in the performance of the obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages. (1170)
Modes of Breach
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. (1101)
A. Fraud (dolo incidente and dolo causante)
12 Fraud is a deliberate and intentional evasion of the normal
fulfillment of obligations.
13 Responsibility arising from fraud is demandable in all obligations.
Any waiver of an action for future fraud is void. (1171)
debtor to comply with his obligations must be
independent of the human will.
(2) It must be impossible to foresee, or if it can be foreseen,
it must be impossible to avoid.
(3) The occurrence must be such as to render it impossible
for the debtor to fulfill his obligation in a normal
manner.
(4) The obligor must be free from any participation in the
aggravation of the injury resulting to the creditor.
(5) Fault or negligence must not be imputed to the debtor.
(Concurrent negligence)
A. Exceptions
1 The debtor will still be liable for fortuitous event:

(1) if it is expressly specified by law

B. Negligence (Culpa Contractual) (2) if it is declared by stipulation
1 Negligence consists in the omission of that diligence which is (3) when the nature of the obligation requires the
required by the nature of the obligation and corresponds with assumption of risk
the circumstances of the persons, of the time, and of the place.
2 If the law or contract does not state the diligence which is to
be observed in the performance, that which is expected of a CHAPTER 3
good father of a family shall be required. (1173)
3 Responsibility arising from negligence in the performance of DIFFERENT KINDS OF OBLIGATIONS
every kind of obligation is also demandable, but such liability
may be regulated by the courts. (1172) 1 The Civil Code classifies obligations primarily into:
(1) pure
C. Delay (Mora) (1169) (2) conditional
(3) with a term
1 Delay is incurred from the time the obligee juridically or extra- (4) alternative
juridically demands the fulfillment of the obligation. There can be (5) joint or mancomunada
delay only in obligations to give and obligations to do. solidary or several or in solidum
divisible
2 Kinds: indivisible
with a penal clause
(1) Mora solvendi - default on the part of the debtor which
may either be:
(a) ex re - referring to obligations to give Section 1
ex persona - referring to obligations to do PURE AND CONDITIONAL OBLIGATIONS

(2) Mora accipiendi - default on the part of the creditor I -- Pure Obligations

(3) Compensatio morae - default of both parties in reciprocal
obligations
o delay begins from the moment one of the parties
fulfill his obligation (Exeptio non adimpleti
contractus.)
1 However, the demand by the creditor shall not necessary in order
that delay may exist:
(1) When the obligation or law expressly so declares
(2) When the period is the controlling motive or the
principal inducement for the creation of the obligation.
(3) When the demand would be useless, as when the obligor
has rendered it beyond his power to perform
VI - Force Majeure (1174)
A pure obligation is an obligation which contains no term or
condition whatsoever upon which depends the fulfillment of
the obligation contracted by the debtor. (1179 par. 1)
A pure obligation must be reasonably construed, distinguishing
immediate demandability by the creditor, from the fulfillment
by the debtor, for which a reasonable period may be granted.
II - Conditional Obligations
Concept
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. (1181)

A condition has been defined as every future and uncertain event

 upon which an obligation or provision is made to depend.
(1179 par. 2)
Classification of Conditions
(a) Suspensive condition or condition
precedent - the happening of the condition
gives rise to the obligation
(b) Resolutory or condition subsequent - the
happening of the condition extinguishes
rights already existing
(2)
(a) Potestative - depends upon the will of one of
the contracting parties
(a-1) Simple potestative - presupposes
not only a manifestation of will but also
the realization of an external act (“If
you sell your house”)
(a-2) Purely Potestative - depends solely
and exclusively upon the will (“If I
like”)
-- a purely potestative suspensive
condition is void (1182)
(b)Causal - depends exclusively upon chance or
upon the will of third persons and not upon
the will of the contracting parties.
Mixed- depends not only upon the will of the
debtor but also upon chance or the will of
others (1183)
(3)
(a) Positive - 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.
(1184)
(b) Negative - 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 vent cannot occur. (1185)
1 In both cases, 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.
(3) (a) Express
(b) Implied
(4) (a) Possible
(b) Impossible - those contrary to good customs or
public policy and those prohibited by law shall annul the
obligation which depends upon them.
2 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 a pure
obligation. (1183)
The impossibility must exist at the time of the creation of the obligation; a
supervening impossibility does not affect the existence of the
obligation. On the same principle, if the condition was impossible
when the obligation was constituted, the obligation remains void
even if such condition subsequently becomes possible, unless the
parties later agree again.
Kinds of impossibility:
Physical - contrary to the law of nature
Juridical - contrary to law, morals, good customs, and public policy.
Constructive Fulfillment
The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment. (1186)
Requisites:
intent of the obligor to prevent the fulfillment of the condition
actual prevention of compliance
If, however, in preventing the fulfillment of the condition the debtor
acts pursuant to a right, the condition will not be deemed s
fulfilled.
When the condition is resolutory but not dependent on the will of
the debtor, and he unjustifiably provokes or produces the
condition, which would not have happened without his doing
so, it will be considered as not having been fulfilled, and there
will be no extinguishment of rights.
III - Rights Pendente Conditione
A. Creditor
1 The creditor may, before the fulfillment of the condition, bring
the appropriate actions for the preservation of his rights. (1188
par. 1)
2 They may include for their objects:
(1) to prevent the loss or deterioration of the objects of the
obligation by enjoining or restraining acts of alienation
or destruction by the debtor himself or by third persons
(2) to prevent concealment of the debtor’s properties which
constitute the guaranty in case of non-performance of the
obligation
(3) to demand security if the debtor becomes insolvent
(4) to set aside fraudulent alienation made by the debtor
B. Debtor
1 May recover what during the same time he has paid by
mistake in case of a suspensive condition. (1188 par. 2)
2 If the payment was of a determinate thing, and it still exists in
the hands of the creditor, the accion reivindicatoria will lie;
otherwise, the provisions of solutio indebiti will apply.
3 If payment was made with knowledge of the condition, there
is an implied waiver of the condition, and whatever has been
paid cannot be recovered.
IV - Improvement, Loss, Deterioration Pendente Conditione
A. Definition of Terms
(1) Loss - a thing is lost:
(a) when it perishes
(b) when it goes out of the commerce of man
(c) when it disappears in such a manner that its
existence is unknown or it cannot be
recovered
(2) Deterioration - any reduction or impairment in the
substance or value of a thing which does not amount to
loss
(3) Improvement - anything added to, incorporated in, or
attached to a thing that is Due
B. Effects Regarding Suspensive Conditions (1189)
In obligations to deliver specific things, obligations to do, and
obligations not to do, the following rules shall apply with regards to loss,
deterioration, or improvement:
(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;
(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:
(a) rescission + damages; or
(b) fulfillment + damages
violated the contract, the same shall be deemed
extinguished and each shall bear his own damages.
VI - Retroactivity (1187)
A. Obligations to give
1 Once the condition (suspensive) has been fulfilled, it shall
retroact to the day of the constitution of the obligation.
(1) Reciprocal obligations - the fruits and interests during
the pendency of the condition shall be deemed to have
been mutually compensated
(2) Unilateral obligations - 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

(5) If the thing is improved by nature, or by time, the B. Obligations To Do and Not To Do
improvement shall inure to the benefit of the creditor;
2 The courts shall determine, in each case, the retroactive effect
(6) If it is improved at the expense of the debtor, he shall of the condition that has been complied with.
have no other right than that granted to the usufructuary.
(a) If the improvement can be removed by the
debtor without damage to the thing due, then Section 2
he may remove the same.
(b) But if the removal cannot be made without OBLIGATIONS WITH A PERIOD
substantial injury to the thing due, then the
improvement must be delivered together with I - The Term or Period
the thing due to the creditor without the latter
paying indemnity to the debtor. A. Concept of Term

C. Effects Regarding Resolutory Conditions (1190) 3 A period or term is a space of time which, exerting an
influence on obligations as a consequence of a juridical act,
(1) When the conditions have for their purpose the suspends their demandability or determines their
extinguishment of an obligation to give, the parties, upon extinguishment.
the fulfillment of said conditions, shall return to each 4 The period must be:
other what they have received. (1) future
(2) certain
(2) In case of loss, deterioration or improvement of the (3) possible
thing, the rules which, with respect to the debtor, are laid
down in the preceding article shall be applied to the B. Kinds
party who is bound to return.
(1)
(3) As for obligations to do and not to do, the courts shall (a) Suspensive (ex die - from a day certain) - a
determine the effects of the extinguishment of the period that must lapse before the
obligation. performance of the obligation can be
demanded
V - Reciprocal Obligations (b) Resolutory (in diem - to a day certain) - the
period after which the
A. Breach by One Party (1191) performance must terminate

The power to rescind obligations is implied in reciprocal ones, in (2) According to source:
case one of the obligors should not comply with what is (a) legal - period fixed by law
incumbent upon him. The power to rescind is given to the (b) voluntary - fixed by the parties
injured party. (c) juridical - that allowed by the courts
The injured party may choose between the fulfillment and the
rescission of the obligation, with payment of damages in either (3) (a) express
case. He may also seek rescission, even after he has chosen (b) implied
fulfillment, if the latter should become impossible
(4) (a) original
This is understood to be without prejudice to the rights of third (b) period of grace - extension fixed by the parties
persons who have acquired the thing, in accordance with themselves or by the court
articles 1385 and 1388 and the Mortgage Law.
(5) (a) definite - refers to a fixed or known date or time
B. Breach by Both Parties (1192)
(b) indefinite - refers to an event which will necessarily
happen but the date of its happening is unknown to the
(1) The liability of the first infractor shall be equitably parties
tempered by the courts.

(2) If it cannot be determined which of the parties first

C. Distinguished From Condition
(1) While a condition gives rise to an obligation or
extinguishes one already existing, a period has no effect
upon the existence of obligations, but only their
demandability or performance. Because of this
difference, a period does not carry with it, except when
there is a special agreement, any retroactive effect.
(2) A condition which depends exclusively on the will of the
debtor annuls the obligation, but a period left to the
debtor’s merely empowers the court to fix the term.
II - Effects
A. Presumption
1 The period 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 the other.
(1196)
B. Pending the Arrival of the Period
(1) In case of loss, deterioration or improvement of the thing
before the arrival of the term the rules in article 1189
shall be observed. (1194)
(2) 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. (1195)
(a) The creditor who accepts payment in bad
faith shall pay legal interest if a sum of
money is involved, or shall be liable for fruits
received.
(b) But if the creditor acted in good faith, he is
liable for fruits only in so far as they
benefited him.
C. Suspensive and Resolutory Periods
(1) Suspensive - obligation shall be demandable only when
the period comes
(2) Resolutory - obligations take effect at once, but
terminate upon arrival of the
day certain
D. No Fixed Term (1197)
(1) The courts may fix the term if from its nature and
circumstances it can be inferred that a period was
intended.
(2) 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 the parties.
E. Loss of Term (1198)
1 In the following cases, the obligation becomes immediately
due and demandable even if the period has not yet expired.
The obligation is thus converted to a pure obligation:
(1) When after the obligation has been contracted, the debtor
becomes insolvent, unless he gives a guaranty or security
for the debt;
(2) When the debtor does not furnish to the creditor the
guaranties or securities he has promised;
(3) When by his own acts the debtor 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.
Section 3
ALTERNATIVE OBLIGATIONS
I - Plurality of Objects
On the basis of plurality of objects, the obligations may be
classified into:
(1) Conjunctive - one where the debtor has to perform
several prestations; it is
extinguished only by the performance of all
of them
(2) Alternative - several objects being due, the fulfillment of
one is sufficient
(3) Facultative - only one thing is due, but the debtor has
reserved the right to
substitute it with another
II - Alternative Obligations
A. Right of Choice (Debtor)
2 The right of choice belongs to the debtor, unless it has been
expressly granted to the creditor (or a third person).
3 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. (1200)
4 The right to choose is indivisible. The debtor cannot choose
part of one prestation and part of another.
B. Effect
1 The choice shall produce no effect except from the time it has
been communicated. (1202)
C. Right to Damages
(1) Debtor
1 If through the creditor’s act the debtor cannot make
a choice according to the terms of the obligation,
the latter may rescind the contract with damages.
(1203)
(2) Creditor
o has a right to 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.

o The indemnity shall be fixed taking as a basis of
the value of the last thing which disappeared, or
that of the service which last became impossible.
o Damages other than the value of the last thing or
service may also be rewarded. (1204)
(a) If all the prestations become impossible due
to fortuitous event, the obligation is
extinguished; the debtor is not liable for
damages.
(b) If one or more of the prestations due become
impossible by fortuitous event, leaving only
one prestation, and then this last one becomes
impossible by fault of the debtor, the
provisions of the present article will apply.
(c) If some of the prestations become impossible
by fault of the debtor, and the n the remaining
prestation became impossible by fortuitous
event, the debtor is liable under the present
article, but the basis of damages will be the
value of the last prestation which became
impossible through his fault.
D. Delay in Making Choice
2 If the debtor who has the right to choose makes no selection
before the creditor files his action, the right to choose passes
automatically to the other party.
E. Right of Choice (Creditor) (1205)
3 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.
4 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.
1 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
III - Facultative Obligations (1206)
A. Concept of Facultative Obligations
1 When only one prestation (principal prestation) has been
agreed upon, but the obligor may render another in
substitution (substitute prestation), the obligation is called
facultative.
B. Right of Substitution
2 The option to perform the substitute prestation is exclusively
dependent upon the will of the debtor. He cannot even be
compelled to perform it if the principal prestation becomes
impossible.
3 If the impossibility of the principal prestation is due to his
fault, he may be held liable for damages, he cannot be
compelled to perform the substitute prestation.
4 Substitution becomes effective from the time the debtor
communicates to the creditor that he elects to perform the
substitute.
C. Loss of the Substitute
1 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.
Section 4
JOINT AND SOLIDARY OBLIGATIONS
2 According to the plurality of subjects involved, an obligation
may either be:
(1) joint; or
(2) solidary
I - Joint Obligations
A. Concept
3 A joint obligation is one in which each of the debtors is liable
only for a proportionate part of the debt, and each creditor is
entitled only to a proportionate part of the credit.
4 A joint obligation has been variously termed mancomunada or
mancomunada simple or a pro rata.
5 If the law, or the nature of the wording of the obligation does
not express anything to the contrary, the joint character of the
obligation is presumed.
B. Effects
(1) The demand by one creditor upon one debtor, produces
the effects of default only with respect to the creditor
who demanded and the debtor on whom the demand was
made, but not with respect to the others.
(2) The interruption of prescription by the judicial demand
of one creditor upon a debtor does not benefit the other
creditors nor interrupt the prescription as to the other
debtors.
(3) The vices of each obligation arising from the personal
defects of a particular debtor or creditor does not affect
the obligation or rights of the others.
(4) The insolvency of a debtor does not increase the liability
of his co-debtors, nor does it authorize a creditor to
demand anything from his co-creditors.
(5) In the joint divisible obligation, the defense of res
judicata is not extended from one debtor to another.
(6) In joint indivisible obligations, 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 debtors should be insolvent, the
others shall not be liable for his share. (1209)
(7) If there are several creditors and only one debtor, the
obligation can be performed only by delivering the
object to all the creditors jointly. A debtor who delivers
the thing to one creditor only, becomes liable for
damages because of non-performance to the other
creditors.
 (8) If only one or some of the creditors demand the
prestation, the debtor may legally refuse to deliver to
them; he can insist that all the creditors together to
receive the thing, and if any of them refuses to join the
others, the debtor may deposit the thing in court by way
of consignation.
II - Solidary Obligations
A. Concept
1 A solidary obligation is one which each debtor is liable for the
entire obligation, and each creditor is entitled to demand the
whole obligation.
2 There is solidary liability when the obligation expressly so
states, or when the law or the nature requires solidarity. (1207)
3 Solidarity may exist although the creditors and the debtors
may not be bound in the same manner and by the same periods
and conditions. (1211)
4 Solidarity may either be:
Active - solidarity among the creditors; or
Passive - solidarity among the debtors
Active Solidarity
A solidary creditor cannot assign his rights without the
consent of the others (1213)
The debtor may pay any one of the solidary creditors; but if
any demand, judicial or extra-judicial, has been made by
one of them, payment should be made to him. (1214)
(3) 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.
1 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. (1215)
C. Passive Solidarity
(1) 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, as long as the debt has not been fully
collected. (1216)
(2) The judgment adverse to a solidary creditor can be set up
against the other co-creditors in subsequent actions,
unless it is founded on a cause personal to the plaintiff in
the first action. The other debtors can invoke the
favorable judgment, provided it is not based on a defense
personal to the debtor in whose favor it was rendered.
Such a judgment can be based only in:
(a) the inexistence of the obligation, or its
unenforceability, or
(b) some other cause inherent in the vinculum
juris,
(c) defenses personal to the debtor-defendant,
and
(d) defenses personal to the other solidary
debtors as regards to that part of the debt for
which the latter are responsible. (1222)
(3) 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.
(4) He who made the payment may claim from his co-
debtors only the share which correspond 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
(5) 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. (1217)
(6) If a solidary debtor pays the obligation in part, he can
recover reimbursement from the co-debtors only in so far
as his payment exceeded his share of the obligation.
(7) After the creditor has made a remission of the share of
one solidary debtor, the credit will be limited to the
balance. However, this does not affect his obligation to
contribute to the share of an insolvent co-debtor.
(8) The remission of the whole obligation, obtained by one
of the solidary debtors, does not entitle him to
reimbursement from his co-debtors. (1220)
(9) If the thing has been lost or if the prestation has become
impossible, and there was fault on the part of any one of
the co-debtors, or if through fortuitous event, the thing is
lost or the performance has become impossible after one
of the solidary debtors has incurred in delay, all shall be
responsible to the creditor, for the price and payment of
damages and interest, without prejudice to their action
against the guilty. (1221)
D. Dual character of Obligations (1211)
2 The obligation may be join on the side of the creditors, and
solidary on the side of the debtors, or vice-versa. In such
cases the rules applicable to each subject of the obligation
should be applied.
Section 5
DIVISIBLE AND INDIVISIBLE OBLIGATIONS
I - Divisible and Indivisible Obligations
A. Distinction
3 A divisible obligation is one which is susceptible of partial
performance.
4 The obligation is indivisible, whatever may be the nature of
the thing which is the object thereof, when it cannot be validly
performed in parts.
5 Divisibility or indivisibility of the obligation therefore, refers
to the performance of the prestation, and not to the thing
which is the object thereof.
B. Things to Consider
1 The following may be considered as factors which determine
whether an obligation is divisible or indivisible:
(1) will of the contracting parties
(2) purpose of the stipulated prestation
(3) nature of the thing
(4) provisions of the law affecting the prestation

II - Effects of Partial Performance
2 Where the contract is indivisible, in that it is not susceptible of
partial performance, even if the compensation is fixed by unit
of measure, the debtor who fails to fully perform the work
agreed upon, but abandons the same after performing a part,
cannot recover on quantum meruit for the work already
finished, because in indivisible obligations partial performance
is equivalent to non-performance.
Section 6
OBLIGATIONS WITH A PENAL CLAUSE
I - The Penal Clause
A. Concept
3 In an obligation, th4e penal clause is an accessory undertaking
which serves a double purpose:
(1) to provide for liquidated damages
(2) to strengthen the coercive force of the obligation by the
threat of greater responsibility in the event of breach
4 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. (1266)
5 The creditor cannot recover more than the penalty stipulated, even if
he proves that the damages suffered by him exceed the amount of
such penalty.
6 The principal obligation may be joint, and yet the penalty may
either be joint or solidary, depending upon the agreement of the
parties.
7 Proof of actual damages suffered by the creditor is not necessary in
order that the penalty may be demanded. (1288)
B. Damages Besides Penalty
(1) When there is an express provision to that effect;
(2) When the debtor refuses to pay the penalty;
(3) When the debtor is guilty of fraud in the non-fulfillment
of the obligation. Non-performance gives rise to the
presumption of fraud
II - Provisions Concerning the Creditor and the Debtor
A. Creditor
(1) The creditor cannot demand the fulfillment of the
obligation and the satisfaction of the penalty at the same
time, unless this right has been clearly granted him.
(2) However, if after the creditor has decided to require the
fulfillment of the obligation, the performance thereof
should become impossible without the creditor’s fault,
the penalty may be imposed.
B. Debtor
1 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. (1227)
III - Regulation of the penal Clause
Penalty Not Enforceable
(1) Principal obligation becomes impossible due to
fortuitous event.
(2) Creditor prevents the debtor from performing the
principal obligation.
(3) Nullity of the principal obligation except:
(a) When it assumes the form of a guaranty
which is valid under Art. 2052
(b) Nullity of the principal obligation itself gives
rise to liability of the creditor for damages.
Nullity of the penal clause, in which case damages shall be
determined by the same rules as if no penalty had been
stipulated.
Chapter 4
EXTINGUISHMENT OF OBLIGATIONS
GENERAL PROVISIONS
Obligations are extinguished: (1231)
By payment or performance;
By the loss of the thing due (specific thing);
By the condonation or remission of the debt;
By the confusion or merger of the rights of creditor and
debtor;
By compensation;
By novation
Other causes of extinguishment of obligations, such as annulment,
rescission, fulfillment of a resolutory condition, and prescription are
governed elsewhere in the Civil Code.
Section 1
PAYMENT OR PERFORMANCE
I - Concept of Payment: Five Questions
A. What is Payment?
1 Payment means not only the delivery of money but also the
performance, in any other manner, of the obligation (1232)
2 When the obligation consists in the delivery of a 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. (1246) If there is disagreement,
the court shall be the one to settle the disagreement taking into
consideration the purpose of the obligation and other circumstances.
3 Unless there is an express stipulation to that effect, the creditor
cannot be compelled partially to receive the prestation. Neither may
the debtor be required to make partial payments.
B. Who Can Pay?
(1) Debtor; or
(2) Third person, whether interested or not interested, as
long as the creditor accepts.
C. To Whom Should Payment Be Made?
(1) To the person in whose favor the obligation has been
constituted; or
(2) His successors in interest; or
(3) Any person authorized to receive it.
(a) Legal authority - conferred by law (guardian
of an incapacitated creditor; administrator of
estate of deceased creditor)
(b) Conventional authority - given by the creditor
himself (agency)

1 Payment made by the debtor to a wrong party does not
extinguish the obligation as to the creditor, if there is no fault
or negligence which can be imputed to the latter.
D. When Should Payment Be Made?
2 When the obligation becomes due and demandable.
Where Should Payment 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.
Even if the thing is determinate but its existence at the place where
it was when the obligation was constituted was temporary, the
performance must be at the domicile of the debtor, unless
otherwise provided.
II - Exceptions to the Five Questions
Identity and Integrity (What is Payment?)
When the obligee accepts the performance with actual
knowledge of its incompleteness or irregularity, and without
expressing any protest or objection, the obligation is deemed
fully complied with
Payment by Third Persons (Who Can Pay?)
4 The creditor is not bound to accept payment from uninterested
third persons, unless there is a stipulation to the contrary.
5 The third person who pays 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. (1236) But as
between the debtor and the creditor, the obligation is
extinguished.
The third person who paid against the will of the debtor without the
knowledge or against the will of the latter cannot compel the
creditor to subrogate him in his rights (1237)
7 Payment by a third person who does not intend to be
reimbursed is deemed to be a donation which requires the
debtor’s consent. But the payment is an any case valid as to
the creditor who has accepted it. (1238)
8 Payment made by incapacitated third persons will not be valid
except in the case of natural obligations (1427). (1239)
C. Payment to Incapacitated Persons and Third Persons
(To Whom Should Payment Be Made?)
(1) Incapacitated Persons -- By virtue of consignation,
payment is valid as long as he has kept the thing
delivered, or insofar as the payment has been beneficial
to him.
(2) Third Persons - Valid as long as it has redounded to the
benefit of the creditor
III - Dacion en Pago (1245)
2 Dation in payment is the delivery and transmission of
ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of the obligation. The
property given may consist not only of a thing, but also of a
real right (such as an usufruct) or of a credit against a third
person.
3 The modern concept of dation in payment considers it as a
novation by the change of the object. It extinguishes the
obligation to the extent of the value of the thing delivered,
either as agreed upon by the parties or as may be proved.
4 If the obligation is payment of a sum of money, dation in
payment shall be governed by the law on sales.
IV - Payment of Debt in Money
A. Rule
(1) Should be in the currency which is legal tender in the
Philippines
(2) Promissory notes payable to order, or bills of exchange
or other mercantile documents shall produce the effect of
payment only when:
(a) they have been cashed
(b) when through the fault of the creditor they
have been impaired
B. Extra-Ordinary Circumstances
1 In case of extra-ordinary inflation or deflation (unusual
fluctuations in the value of the currency which the parties
could not have reasonably foreseen), 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.
V. Invalid Payment
2 Payment made to the creditor by the debtor after the latter has
been judicially ordered to retain the debt shall not be valid.
(1243)
VII - Additional Expenses to Debtor
(1) Extra-judicial expenses required by the payment; with
regards to judicial cost, the Rules Of Court shall govern
(1247)
(2) If the debtor changes his domicile in bad faith or after he
has incurred in delay (1251)
Subsection 1
APPLICATION OF PAYMENTS
Requisites:
The debtor must have:
various debts ; and
(1) of the same kind
(2) due and demandable
(3) in favor of one and the same creditor
B. Rules of Application
(1) Declaration of the debtor to which of them payment
must be applied.
If the debtor makes a proper application of the
payment, but the creditor refuses to accept it because he wants
to apply it to another debt, such creditor will incur in delay.
(2) Creditor can also make an application of payment by
 issuing a receipt that is accepted by the debtor. (1252)
(3) When the payment cannot be applied in accordance with
the preceding rules, or if application cannot be inferred
from other circumstances, the debt which is most
onerous to the debtor shall be deemed to have been
satisfied.
(4) If the debts due are of the same nature and burden, the
payment shall be applied to all of them proportionately.
If the debt produces interest, payment of the principal shall not
be deemed to have been made until the interest has been
covered.
Subsection 2
PAYMENT BY CESSION
Concept
If the debtor is on the verge of insolvency, and he has two or more
creditors, he may cede or assign his property to his creditors in
payment of his debts. Such assignment does not have the
effect of making the creditors the owners of the property of the
debtor, unless there is an agreement to the effect. The
assignment cannot include property exempt from execution
unless the debtor waives the exemption.
The assignment gives to the creditors the right to proceed to the sale
of the property, and to pay themselves in the amount which
the proceeds of the sale permit and in the manner agreed upon.
Requisites
(1) debtor is on the verge of insolvency; and
(2) he has two or more creditors
C. Distinguished from Dacion en Pago
(1) Dacion en Pago transfers ownership while in Payment
by cession, only possession and administration is
transferred.
(2) Dacion en Pago may totally extinguish the obligation
while Payment by Cession extinguishes the creditors to
the extent of the amount realized from the properties
assigned.
(3) Dacion en Pago involves cession of only some specific
thing while in Payment by Cession, assignment
involves all the property of the debtor.
(4) In Dacion en Pago, there is only one creditor while in
Payment by Cession, there are various creditors.
Subsection 3
TENDER OF PAYMENT AND CONSIGNATION
I - Concepts
A. Tender of Payment
1 Tender of payment is the manifestation made by the debtor to the
creditor or his desire to comply with his obligation, with the offer of
immediate performance
B. Consignation
1 Consignation is the deposit of the object of the obligation in a
competent court in accordance with rules prescribed by law, after
the tender of payment has been unjustly refused by the creditor. It
is the consignation which constitutes a form of payment, and must
follow, supplement, or complete the tender of payment in order to
discharge the obligation. Consignation is not necessary when there
is no debt due.
II - Requisites of A Valid Consignation
(1) Tender of payment must be made to the creditor and the
creditor refuses to accept it due to unjustifiable reasons.
(2) Consignation must first be announced to the persons
interested in the fulfillment of the obligation (co-debtors,
guarantors, or sureties, solidary co-creditors, or possible
litigants, such as those who claim to be entitled to the
payment. (1257) Lack of notice does not invalidate the
consignation, but simply makes the debtor liable for the
expenses
(3) Consignation shall be made by depositing the thing due
at the disposal of judicial authority. The court would
likewise have authority in such case to make an order for
the sale of property and the payment of the proceeds into
the court if the goods should be of a perishable nature.
(4) The consignation having been made, the interested
parties shall also be notified thereof. (1258 par. 2)
(5) Consignation is properly made
(a) when the creditor accepts the consignation
(b) when the creditor objects to the consignation
but the court, after proper hearing, declares
that the consignation has been validly made.
(6) Consignation has a retroactive effect and payment is
deemed to have been made at the time of the deposit of
the thing in court.
(7) The expenses of consignation, when properly made,
shall be charged against the creditor.
(8) If, the consignation having been made, the creditor
should authorize the debtor to withdraw the same, there
is a revival of the obligation and the relationship of the
debtor and creditor is restored to the condition in which
it was before the consignation. But third persons who
were benefited by the consignation are not prejudiced by
the revival of the obligation between the debtor and the
creditor.
III - Pending Completion
2 Before the consignation is completed, the debtor may withdraw the
thing or the sum deposited allowing the obligation to remain in
force. (1260 par. 2) Creditor may prevent the withdrawal by
accepting the consignation, even with reservations.
IV - Tender of Payment Not Necessary (1256)
(1) When the creditor is absent or unknown, or does not
appear at the place of the payment. He must
furthermore, have no legal representative, or if he has
one, the debtor, without his fault, does not know it.
Absence or incapacity need not be legally declared.
(2) When the creditor is incapacitated to receive the
payment at the time it is due
(3) When, without just cause, the creditor refuses to give a
receipt.
(4) When two or more persons claim the right to collect.
 They must have the appearance of a right to collect such
that the debtor would have a reasonable doubt, not based
on negligence, as to who is entitled to the payment.
(5) When the title of the obligation has been lost.
V -- Effect on Interest
(1) Accrual of interest is suspended when a tender of
payment is made in such a form that the creditor could
have realized payment, followed by a prompt attempt to
deposit the means of payment in court by way of
consignation.
5 This presumption does not apply in cases of:
(1) earthquake
(2) flood
(3) storm
(4) other natural calamity.
F. Effect of Extinguishment of Obligation
6 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 (1269)

(2) Interest is not suspended when the tender of payment is II - Exceptions to the Rule
not accompanied by means of payment and the debtor
did not take any immediate step to make a consignation. 7 The following cases constitute exceptions to the rule that loss of the
determinate object by fortuitous event extinguishes the obligation:
Section 2 (1) When the law provides it (1174). (Ex: Arts. 1492; 1979;
2147; 2159)
LOSS OF THE THING DUE (2) When it is stipulated
I - General Principles
(3) When the nature of the obligation requires the
assumption of risk (1174)
A. Concept of Loss
(4) When the debtor is at fault or is negligent
(5) When the loss occurs after the debtor has incurred in
3 A thing is lost when:
delay (1165)
(1) it perishes
(6) When the debtor has promised to deliver the same thing
(2) it goes out of commerce to two or more different parties (1165)
(3) it disappears in such a way that its existence is unknown (7) When the obligation to deliver a determinate thing arises
or it cannot be recovered. from a criminal act (1268)
1 The courts shall determine whether, under the circumstances,
the partial loss of the object of the obligation is so important Section 3
as to extinguish the obligation. (1264)
CONDONATION OR REMISSION OF THE DEBT
B. Requisites
(1) Loss must be subsequent to the execution of the contract. I - Condonation
(2) Loss must be without the fault of the debtor.
(3) Loss must be before the debtor has incurred in delay. A. Concept of Condonation (1270)

C. Scope By remission, the creditor renounces the enforcement of the

obligation, which is extinguished in its entirety or in that part or aspect of
2 Loss of the thing due extinguishes the obligation only in the the same to which the remission refers.
following cases:
B. Kinds
(1) Obligations to deliver a specific thing; subjective
impossibility will make the debtor liable for damages. (1) As to form
(1262 par. 1). (a) express - made formally and should be in
(2) In obligations to do when the prestation becomes accordance with the form of ordinary
physically or legally impossible. (1266) donations
(b) implied
3 When the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the obligor may also (2) As to extent
be released therefrom, in whole or in part. (1267) (a) total
(b) partial - may refer to the amount of the
D. Temporary Impossibility indebtedness, or to an accessory obligation
only (such as pledge or interest), or to some
(1) Does not extinguish the obligation if temporary obstacles other aspect of the obligation (such as
to the performance of the prestation may be expected to solidarity)
disappear in the near future.
(3) As to manner
(2) Extinguishes the obligation if the obstacle is of an (a) inter vivos - effective during the lifetime of
unknown or unforeseen duration. The obligation is the creditor
extinguished and is not revived by the fact that it (b) mortis causa - effective upon the death of the
becomes possible later when circumstances change. creditor
-- must be contained in a
E. Presumption will or a testament
II - Applicable Rules
4 When the thing is lost in the possession of the debtor, it shall be
presumed that the loss was due to his fault. A. Express Remission

8 Express remission should be in accordance with the form of
ordinary donation
(1) On the manner of acceptance, Arts. 745 and 746 apply
(2) With respect to the amount, Arts. 750 and 752 govern
(3) As to revocation, Arts. 760; 761; 764; and 765 apply
B. Implied Remission
(1) The delivery of a private document evidencing a credit,
made voluntarily by a creditor to the debtor, implies
remission. (1271 par. 1)
9 There may also be tacit remission when the creditor voluntarily
destroys or cancels the evidence of the credit, with the intent to
renounce his right. This is not true in the case of public documents,
because there is always a copy in the archives which can be used to
prove credit.
(2) Whenever the private document evidencing credit is in
the possession of the debtor, it shall be presumed that the
creditor delivered it voluntarily. (1272)
(3) The renunciation of the principal debt shall extinguish
the accessory obligations; but the waiver of the latter
shall leave the former in force. (1273)
o 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 debtor, or a third person
who owns the thing. (1274) The remission of the pledge
extinguishes only the security, not the principal
obligation.
o In remission, whether express or implied, one and the
other kind shall be subject to the rules which govern
inofficious donations.
Section 4
CONFUSION OR MERGER OF RIGHTS
A. Requisites
10 In confusion or merger of rights, the characters of creditor and
debtor are merged in the same person. (1275)
(1) It must take place between the creditor and the principal
debtor. (1276)
(2) The very same obligation must be involved.
(3) The confusion must be total or as regards the entire
obligation.
B. Causes of Merger
(1) An act which brings about a succession to the credit,
whether it is universal or particular, inter vivos or mortis
causa.
(2) Most frequent way is by way of testate or intestate
successions.
11 But where the creditor inherits from the debtor, there can be no
confusion if the debt is for a sum of money, because the debt is not
transmitted to the heir under our present law.
C. Revocation of Merger
12 When the act which occasions the merger is susceptible of
termination or revocation, the merger that has taken place is also
terminated or revoked, and the obligation is recreated in the same
condition that it had when the merger took place.
D. Benefits
(1) Merger which takes place in the person of the principal
debtor or creditor benefits the guarantors.
(2) When the merger takes place in the person of the
guarantor, his obligation as guarantor is extinguished,
but the principal obligation subsists and can be enforced
by him against the debtor and the other co-guarantors.
(3) Confusion does not extinguish a joint obligation except
as regards the share corresponding to the creditor or
debtor in whom the two characters concur.
Section 5
COMPENSATION
I - Compensation
A. Concept of Compensation
14 It is a mode of extinguishing to the concurrent amount, the
obligations of those persons who in their own right are reciprocally
debtors and creditors of each other (the obligation, however, should
not be reciprocal).
15 It is the offsetting of two obligations which are reciprocally
extinguished if they are of equal value (total compensation), or
extinguished to the concurrent amount if of different values (partial
compensation)
B. Rescissible or Voidable Contracts
1 When one or both debts are rescissible or voidable, they may
be compensated against each other before they are judicially
rescinded or avoided.
2 The moment it is rescinded or annulled, the decree of
rescission or annulment is retroactive, and the compensation
must be considered as cancelled. Rescission or annulment
require mutual restitution.
C. Several Debts
1 If a person should have against him several debts which are
susceptible of compensation, the rules on the application of
payments shall apply. (1289)
II - Kinds of Compensation
A. Legal
2 When compensation takes place by operation of law because
all the requisites are present:
(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 consists in a sum of money, or if the
things due are fungible, 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 9enforceable in court);
(4) That they be liquidated (debt’s existence and amount is
determined) 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. (1279)
B. Facultative Compensation
3 This compensation which can be set up only at the option of
 the creditor, when legal compensation cannot take place
because of the want or some legal requisites for the benefit of
the creditor. Facultative compensation takes place when the
creditor declares his option to set it up.
C. Conventional Compensation
4 When the parties agree to compensate their mutual obligations
even if some requisite is lacking, such as when the debts are
not yet due. (1282)
5 However, voluntary compensation is not limited to this. The
parties may compensate by agreement any obligations with the
minimum requirement that each one of the obligors be bound
principally, and that he be at the same time a principal creditor
of the other.
6 Voluntary/Conventional compensation takes effect upon the
agreement of the parties.
D. Judicial Compensation
1 This is compensation which takes place when the defendant,
who is creditor of the plaintiff for an unliquidated amount, sets
up his credit as counterclaim against the plaintiff, and his
credit is liquidated by the judgment, thereby compensating it
with the credit of the plaintiff.
2 Judicial compensation takes place upon final judgment.
III - Effects of Compensation
(1) Both debts are extinguished to the concurrent amount.
(2) Interests stop accruing on the extinguished obligations or
the part extinguished.
(3) Period of prescription stops with respect to the obligation
or part extinguished.
(4) All accessory obligations of the principal obligation
which has been extinguished are also extinguished.
IV - Assignment and Compensation (1285)
A. Assignment After Compensation
1 A subsequent assignment of an extinguished obligation cannot
produce any effect against the debtor. The assignee is left
only with an action for damages for fraud against the assignor.
2 The only exception to this rule is when the debtor consents to
the assignment of the credit; his consent constitutes a waiver
of the compensation, unless at the time he gives his consent,
he informs the assignor that he reserved his right to the
compensation.
Assignment Before Compensation
As far as the debtor is concerned, the assignment does not take
effect except from the time he is notified thereof.
(1) Debtor can set up compensation of debts due prior
of the assignment. If he consents to the assignment, he
waives compensation even of debts already due, unless
he makes a reservation.
(2) If the debtor does not consent, and the credit assigned to
a third person matures after that which pertains to the
debtor, the debtor may set up compensation provided
that the credit of the debtor became due before the
assignment.
(3) If the debtor did not have knowledge of the assignment,
he may set up compensation all credits maturing before
he is notified thereof.
V - Prohibition of Compensation
Compensation shall not be proper when:
(1) One of the debts arise from a depositum or from the
obligations of a depositary or of a bailee in commodatum
(2) Neither can compensation be set up against a creditor
who has a claim for support due by gratuitous title.
Support in arrears however can be compensated.
(3) If one of the debts consists in civil liability arising from
a penal offense. But the offended party entitled to the
indemnity can set up his claim in compensation of his
debt. This is another case of facultative compensation.
Section 6
NOVATION
I - General Principles
A. Concept of Novation
2 Novation is the extinguishment of an obligation by the
substitution or change of the obligation by a subsequent one
which extinguishes or modifies the first, either by:
(1) Changing the object or principal conditions (objective or
real);
(2) Substituting the person of the debtor (passive
subjective);
(3) Subrogating a third person in the rights of the creditor
(active subjective) (1291)
3 Novation is a juridical act of dual function in that at the time it
extinguishes an obligation it creates a new one in lieu of the
old.
B. Requisites
(1) Previous valid obligation
(2) The agreement of all the parties to the new contract
(3) The extinguishment of the old contract.
(4) The extinguishment of the old contract
(5) The validity of the new one
4 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.
5 Accessory obligations may subsist only insofar as they may
benefit third persons who did not give their consent. This rule
is especially applicable to novation by substitution of debtors.
6 If the new obligation is void, the original one shall subsist. If
the new obligation is only voidable, the novation becomes
effective. But if the obligation is annulled, it will be deemed as
if there had been no novation and the original obligation
subsists, unless the parties intended to definitely extinguish it
at all events. (1297)
C. Classification of Novation
(1) As to Form
(a) Express - the extinguishment of the old
obligation by the new one must be declared
in unequivocal terms
 (b) Implied - novation is never presumed
1 The old and the new obligation must be
on every point incompatible with each
other, otherwise the old contract
remains in force and the new contract is
added to it
2 In order that there may be an implied
novation, the change must refer to the
object, the cause, or the principal
conditions of the obligation. There
must be an essential change.
(2) As to effect
(a) partial - when there is only a modification in
some principal conditions of the obligation
(b) total - old obligation is completely
extinguished
II - Substitution of the Person of the Debtor
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.
B. Conventional Subrogation
3 Requires the consent of:
(1) the original creditor
(2) the new creditor
(3) the debtor
C. Partial Payment
4 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. (1304)

A. Expromision
TITLE II
1 The initiative for the change does not emanate from the debtor CONTRACTS
and may even be made without his knowledge, since it
consists in a third person assuming the obligation. It logically CHAPTER 1
requires the consent of the third person and the creditor.
GENERAL PROVISIONS
2 In expromision, the new debtor’s insolvency or non-
fulfillment of the obligation shall not give rise to any liability I - General Principles
on the part of the original debtor. (1294)
A. Concept of Contract
3 The new debtor can recover only insofar as the payment has
been beneficial to the old debtor. In this case, there is no 5 A contract is a juridical convention manifested in legal form,
subrogation. by virtue of which one or more persons bind themselves in
favor of another or others, or reciprocally, to the fulfillment of
B. Delegacion a prestation to give, to do, or not to do.

1 The debtor (delegante) offers and the creditor (delegatario) B. Characteristics of Contracts
accepts a third person (delegado) who consents to the
substitution, so that the consent of these three is necessary. (1) Obligatory force - constitutes the law as between the
parties
2 It is not enough to extend the juridical relation to a third (2) Mutuality - the contract must bind both contracting
person; it is necessary that the old debtor be released from the parties; its validity or compliance cannot be left to the
obligation, and the new debtor takes his place in the relation. will of one of them. (1308)
Without such release, there is no novation. (3) Relativity - contract is binding only upon the parties and
their successors
3 The new debtor could demand from the old debtor what he has
paid. Subrogation takes place. C. Limitations

4 In delegacion, the insolvency of the new debtor shall not
revive the action of the creditor against the original creditor
except:
(1) the insolvency was already existing and of public
knowledge
(2) the insolvency was known to the debtor when he
delegated his debt.
III - Subrogating a Third Person in the Rights of the Creditor
1 Subrogation transfers to the person subrogated the credit with
all the rights thereto appertaining, either against the debtor or
against third persons.
A. Legal Subrogation
2 Takes place by operation of law because of certain acts. It is
not presumed except in the following instances:
6 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. (1306)
D. Stages of A Contract
(1) Preparation, Conception, or Generation - period of
negotiation and bargaining, ending at the agreement of
the parties.
(2) Perfection or birth of the contract
(a) Consensual contracts - perfected by mere
consent (express or implied)
(b) Real contracts - perfected by the delivery of
the object of the obligation
(3) Consummation or death - fulfillment or performance of
the terms agreed upon in the contract.
II - Third Persons

(1) When a creditor pays another creditor who is preferred, A. Determination of performance
even without the debtor’s knowledge;
(2) When a third person, not interested in the obligation, 7 The determination of the performance may be left of third
 persons, whose decision shall not be binding until it has been
made known to both parties.
8 The determination shall not be obligatory if it is evidently
inequitable. In such case, the courts shall decide what is
equitable under the circumstances. (1310)
B. Effects
(1) A contract cannot be binding upon and cannot be
enforced against one who is not a party to it.
(2) However, 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 (pour autrui). (1311 par. 2)
(3) Juridical situations affecting them:
(a) 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.
(b) Creditors are protected in case of contracts
intended to defraud them. (1313)
(c) Any third person who induces another to
violate his contract shall be liable for
damages to the other contracting party.
(1314)
C. Contracting in the Name of Another
9 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.
CHAPTER 2
ESSENTIAL REQUISITES OF CONTRACTS
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
Section 1
CONSENT
I - Concept of Consent
10 The essence of consent is the conformity of the parties on the
terms of the contract, the acceptance of one by the offer made
by the other; it is the concurrence of the minds of the parties of
the object and the cause which shall constitute the contract.
11 Consent presupposes the following requisites:
(1) plurality of subjects
(2) capacity
(3) intelligence
(4) express or tacit manifestation of the will
(5) conformity of the internal will and its manifestation
II - Offer
A. Requisites
1 An offer is a unilateral proposition which one party makes to the
other for the celebration of a contract. It must therefore be:
(1) Definite
(2) Complete
(3) Intentional
B, Ineffectivity
2 An offer becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of either party before acceptance is
conveyed. (1323)
C. Withdrawal of Offer (1324)
3 The law permits the offeror to withdraw the offer at any time before
acceptance
(1) If there is a fixed period, the offeree may accept at
anytime until such period expires. However, the offer
can be withdrawn even before the period for acceptance
has expired.
(2) When the offeror has not fixed a period,
(a) If it is made to a person present, acceptance
must be made immediately
(b) If it is made to a person absent, the
acceptance may be made within such time
that, under normal circumstances, an answer
can be received from him.
C. Mere Invitations To Make Offers
(1) Business advertisements, unless it appears otherwise
(2) Advertisements for bidders
III - Acceptance
A. Concept
4 It is necessary that the acceptance be unequivocal and
unconditional, and the acceptance and the proposition shall be
without any variation whatsoever. Acceptance may either be
express or implied.
5 A qualified acceptance constitutes a counter-offer.
6 The person making the offer may fix the time, place, and manner of
acceptance all of which must be complied with.
B. Knowledge of the Offeror
1 No contract will arise unless acceptance is made known to the
offeror.
(1) By correspondence - the contract is presumed to have
been entered into in the place where the offer was made.
(2) By agent - an offer made through an agent is accepted
from the time acceptance is communicated to him.
IV - Incapacity to Give Consent
2 The following cannot give consent to a contract:
(1) Unemancipated minors
(2) Insane or demented persons - previous judicial
declaration of mental incapacity not necessary
(3) Deaf-mutes who do not know how to write
V - Vitiated Consent
3 A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable.
4 Defect or lack of valid consent must be established by full, clear,
and convincing evidence.
VI - Mistake
A. Scope
1 The error which is referred to is to both mistake of fact and mistake
of law based on good faith.
2 In order that mistake may invalidate consent, it should refer to:
(1) The object of the contract.
(2) The principal conditions which have moved one or both
parties to enter into the contract.
(3) 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. An error as to
the solvency of the other party is not a cause of nullity.
1 A simple mistake of account shall give rise to its correction
B. Burden of Proof
1 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.
D. Error of Law
2 Error of law may vitiate consent provided:
(1) the error must be as to the legal effect of the agreement
(2) it must be mutual
(3) the real purpose of the parties is frustrated
VII - Violence and Intimidation
A. Violence
(1) physical force employed must be irresistible
(2) such force is the determining cause in giving the consent
to the contract
B. Intimidation
(1) the intimidation must have caused the consent to be
given
(2) the threatened act be unjust or unlawful
(3) the threat be real and serious
(4) produces a reasonable and well-grounded fear that the
threat can and will be carried out
VIII - Fraud
A. Concept
3 Fraud is every kind of deception, whether in the form of insidious
words or machinations, manipulations, concealments or
misrepresentations of one of the contracting parties to the other
without necessarily constituting estafa or some offense under the
penal laws and the other is induced to enter into a contract which,
without them, he would not have agreed to.
4 Fraud must be established by full, clear, and convincing evidence,
and not merely a preponderance thereof.
B. Kinds
(1) Dolo causante - fraud prior or simultaneous to the
consent of the creation of the obligation and is the
essential cause of the consent.
1 Dolo causante is a ground for annulment of
contract
(2) Dolo incidente - fraud which occurs with the fulfillment
of the obligation.
2 Dolo incidente only gives rise to an action for
damages.
C. Requisites
(1) Employed by one contracting party upon the other.
(1344).
3 Misrepresentation by a third person does not vitiate
consent, unless such misrepresentation has created
substantial mistake and the same is mutual. (1342)
(2) It must have induced the other party to enter into the
contract.
(3) It must have been serious
(4) It must have resulted in injury to the party seeking
annulment.
D. Not Cases of Fraud
(1) Usual exaggeration in trade, when the other party had an
opportunity to know the facts
(2) A mere expression of an opinion unless made by an
expert and the other party has relied on the former’s
special knowledge
(3) Misrepresentation made in good faith is not fraudulent
but may constitute error.
VIII - Simulation of a Contract
A. Concept of Simulation
4 It is the declaration of a fictitious will, deliberately made by
agreement of the parties, in order to produce, for the purpose
of deception, the appearance of a juridical act which does not
exist or is different from that which was really executed.
B. Kinds
(1) Absolute Simulation - There is color of contract, without
any substance thereof, the parties, not having any
intention to be bound. An absolutely simulated contract
is known as simulado.
(2) Relative Simulation - The parties have an agreement
which they conceal under the guise of another contract.
Relatively simulated contracts are called disimulados.
C. Effects
(1) Absolutely simulated - void
(2) Relatively simulated - valid provided that:
(a) it does not prejudice third persons
(b) not intended for any purpose contrary to law,
morals, good customs, public order, or public
policy
(c) concealed contract must have all the essential
requisites such as consent, object, and cause.
5 When the purpose of the simulation is illicit, or to
prejudice a third person, it would be void and
inexistent (1409) and neither can have an action
 against the other. rejected other offers, and suffered damages, is he not entitled
to recover these?
D. Effects As To Third Persons (Of
Relatively Simulated Contracts) (1) If the debtor knew or could have known of the
impossibility, his bad faith or negligence makes him
(1) If the third person acted in good faith, he may avail liable for damages. The damages will be limited to the
himself of the conduct of the parties to the simulated losses the creditor may have suffered; he cannot recover
contract which is most favorable to himself all the damages arising from non -performance of the
contract.
(2) If he is prejudiced, he may invoke the nullity of the
simulated contract. (2) If the debtor is also ignorant of the impossibility, and his
ignorance is unjustifiable, or unavoidable, he cannot be
held liable for damages.
Section 2
(3) There is no liability for damages if both parties know of
OBJECTS OF CONTRACTS the impossibility.

I -- The Object C. Partial Impossibility

A. Concept of Object 3 If the object is indivisible there is no contract but if the thing is
divisible, then the contract is valid to the extent that it is
6 The object of a contract is its subject matter. The possible.
object of the contract and the object of the
obligation created thereby are identical.
Section 3
B. Requisites of Object
CAUSE OF CONTRACTS
(1) within the commerce of man
(2) licit, or not contrary to law, morals, good customs, I - The Cause
public policy, or public order at the time the contract
entered into A. Concept
(3) it must be possible
(4) it must be determinate or determinable as to its kind; the 4 The cause of a contract is the “why of the contract”, the
quantity may be indeterminate, so long as the right of the immediate and most proximate purpose of the contract, the
creditor is not rendered. essential reason which impels the contracting parties to enter
into it and which explains and justifies the creation of the
C. Future Inheritance (1347 par 2) obligation through such contract.

7 No contract may be entered its upon future inheritance B. Requisites

except in cases expressly authorized by law generally does
not allow contracts on future inheritance. In order that a
contract may fall with in the prohibition, the ff. Requisites
are necessary.
1. that the succession has not yet been opened
2. that the object of the contract form part of the inheritance
3. the promissor has, with respect to the object, an
expectancy of a right which is purely hereditary in
nature. (see p. 522)
II - Impossible Things
A. Concept
8 Impossible things or services cannot be the object of contracts
(1348). The impossibility must be actual and
contemporaneous with the making of the contract, and not
subsequent thereto
9 The impossibility may be:
(1) Absolute or objective - when nobody can perform it
(2) Relative or subjective- when due to the special
conditions or qualifications of the debtor cannot be
performed.
1 The absolute impossibility nullifies the contract and must be
determined objectively, and not in relation to the debtor
personally.
B. Liability for Damages
2 If the creditor, relying on the contract, has incurred expenses,
(1) It must exist - contracts without cause produce no effect
whatsoever
(2) It must be true
(3) It must be licit - contracts whose cause is contrary to
law, morals, good customs, public order, or public policy
produce no effect whatsoever
5 Although the cause is not stated in the contract, it is presumed
that it exists and is lawful, unless the debtor proves the
contrary. (1354)
6 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. (1355)
II - Onerous, Remuneratory, and Gratuitous Contracts (1350)
A. Onerous Contracts
7 The cause is understood to be, for each contracting party, the
prestation o promise of a thing or service by the other.
B. Remuneratory Contracts
8 A remuneratory contract is one where a party gives something
to another because of some service or benefit given or
rendered by the latter to the former, where such service or
benefit was not due as a legal obligation
9 The cause is the service or benefit which is remunerated.
C. Gratuitous Contracts
 10 Gratuitous contracts are essentially agreements to give
donations. The generosity or liberality of benefactor is the
cause of such contracts.
III - Statement of False Cause
11 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.(1353)
12 Where the true consideration is partly legal and partly illegal,
a party cannot recover upon the contract if he fails to prove
what part of the contract is supported by the legal cause.
CHAPTER 3
FORM OF CONTRACTS
I - General Principles
A. General Rule
1 Contracts shall be obligatory, in whatever form they may have been
entered into, provided all the essential requisites for their validity
are present. However, there are two cases when form is absolute
and indispensable:
(1) when the form is essential to its validity (ad essentia, ad
solemniatatem)
(2) when the contract is unenforceable unless it is in a
certain form, such as those under the Statute of Frauds
(ad probationem)
B. Compliance With Formality (1357)
1 If the law requires a document or other special form, the
contracting parties compel each to observe that form, once the
contract has been perfected. This right may be exercised
simultaneously with the action upon the contract.
2 When a party to a contract dies and is survived by his heirs,
the latter may be compelled to execute the proper documents.
II - Public Documents
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;
(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.
1 All other contracts where the amount involved exceeds five
hundred pesos must appear in writing, even a private one.
2This provision does not require such form in order to validate
the act or contract but to insure its inefficacy.
CHAPTER 4
REFORMATION OF INSTRUMENTS
I - General Principles
A. Requisites
(1) there must have been a meeting of the minds upon the
contract
(2) the instrument or document evidencing the contract does
not express the true agreement between the parties
(3) the failure of the instrument to express the agreement
must be due to mistake, fraud, inequitable conduct, or
accident
1 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.
B. Operation and Effect
2 Upon the reformation of an instrument, the general rule is that
it relates back to, and takes effect from the time of its original
execution, especially as between the parties.
II - Instances for Reformation
(1) Mutual mistake by the parties
(2) One party was mistaken and the other acted fraudulently
or inequitably. The fraud or inequitable conduct must be
clearly shown, and must be at the time of the execution
of the instrument. The mistake must refer to the contents
of the instrument, and not the subject matter or principal
conditions of the agreement. (1362)
(3) When one party was mistaken and the other knew or
believed that the instrument did not state their real
agreement, but concealed that fact from the former
(4) Mistake of the draftsman
(5) If two parties agree upon the mortgage or pledge of real
or personal property, but the instrument state that the
property is sold absolutely or with a right of repurchase.
III - No Reformation
(1) Simple donations inter vivos wherein no condition is
involved
(2) Wills (subject to the exception in Art 789)
(3) When the real agreement is void
IV - Procedure
(1) Governed by the rules promulgated by the Supreme
Court
(2) When one of the parties has brought an action to enforce
the instrument, he cannot subsequently ask for its
reformation.
(3) If mistake was mutual, reformation may be ordered at
the instance of either party or his successors in interest.
(4) In other cases, upon petition of the injured party, or his
heirs and assigns.
CHAPTER 5
INTERPRETATION OF CONTRACTS
(1) Meaning and intention must be sought first of all from the
language of the contract itself.
(2) The spirit of the contract prevails over its letter
(3) In order to judge the intention of the contracting parties, their
 contemporaneous and subsequent acts shall be principally
considered
(4) General terms do not comprehend things that are different from
those upon which the parties intended.
(5) A particular intent will control a general one that is inconsistent
with it.
(6) Interpret stipulations in favor of validity
(7) Interpret the contract as a whole
(8) Words which may have different significations shall be understood
in that which is most in keeping with the nature of the object of the
contract.
(9) The usage or custom of the place shall be borne in mind.
(10) Obscure terms shall be interpreted strictly against the one who
caused the obscurity.
(11) The least transmission of rights and interests shall prevail.
(12) If the contract is onerous, the doubt shall be settled in favor of the
greatest reciprocity of interests.
(13) The written portion prevails over the printed portions of a policy.
(14) Where the intention of the parties relative to the objects of the
contract cannot be known, the contract shall be null and void.
CHAPTER 6
RESCISSIBLE CONTRACRTS
I - General Principles
A. Concept of Rescission
3 Rescission is a remedy granted by law to the contracting
parties and even to third persons, to secure the reparation of
damages caused to them by a contract, even if this should be
valid, by means of the restoration of things to their condition
at the moment prior to the celebration of said contract.
B. Requisites
(1) The contract must be a rescissible contract.
(2) The party asking for rescission must have no other legal
means to obtain reparation for the damages suffered by
him. (The action for rescission is subsidiary.)
(3) The person demanding rescission must be able to return
whatever he may be obliged to re if rescission is granted.
(4) The things which are the object of the contract must not
have passed legally to the possession of a third person
acting in good faith.
(5) The action for rescission must be brought within the
prescriptive period of four years.
(6) Rescissible contracts must be attacked directly, not
collaterally
(7) A valid contract can be rescinded only for cases
established by law.
C. Who May Bring Rescission
(1) person injured
(2) heirs of these persons
(3) their creditors
D. How Attacked
4 Must be attacked directly
E. Prescriptive Period
5 Within four years.
6 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.
F. Effects of Rescission
(1) obligation to return the things which were the object of
the contracts
(2) right to damages if the thing cannot be returned
(3) rescission shall be only to the extent necessary to cover
the damages caused
II - The Rescissible Contracts
(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, unless it is judicially approved;
(2) Those agreed upon in representation of absentees, if the
latter suffer the lesion stated in the preceding number,
unless it is judicially approved;
(3) Those undertaken in fraud of creditors when the latter
cannot in any other manner collect the claims due him;
(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. (1381)
(6) Payments made in a state of insolvency for obligations
to whose fulfillment the debtor could not be compelled
at the time they were effected.
III - Subsequent Transfer
1 Whoever acquires in bad faith the things alienated in fraud of
creditors, shall return the thing or if return be impossible, he
shall indemnify the creditor for damages.
2 If there are two or more alienations, the first acquirer shall be
liable first, and so on successively. (1388)
CHAPTER 7
VOIDABLE CONTRACTS
I - General Principles
A. Concept
1 A voidable contract is valid until it is set aside. They can be
confirmed or ratified.
B. Voidable Contracts
2 The following contracts are voidable or annulable, 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 the contract
(2) Those where the consent is vitiated by mistake, violence,
intimidation, undue influence, or fraud.
B. Who May Attack?
The person must both be:
(1) The plaintiff must either be oblighed principally or
subsidiarily; and
(2) The victim and not the party responsible for the defect is
the person who must assert the same. (1327)
 Retroacts to the moment the contract was constituted
C. Prescriptive Period
III - Damages
3 Within four years.
4 The period shall begin: As a rule, the annulment of the contract, and the resulting mutual
(1) In cases of intimidation, violence or undue influence, restitution eliminates the possibility of damage suffered by the
from the time the defect of the consent ceases. injured party.
(2) In case of mistake or fraud, from the time of the
discovery of the same. In legal contemplation, discovery However, damages can be awarded in cases of additional expenses or loss
of fraud must be reckoned to have taken place from the or deterioration of the object of the obligation.
time the document was registered in the office of the
register of deeds, for registration is a notice to the whole In obligations to render service, the value thereof shall be the basis for
world. damages.
(3) When the action refers to contracts entered into by
minors or other incapacitated persons, from the time the IV - Loss of the Thing
guardianship ceases.
By Plaintiff
E. Effects of Annulment
If lost through fraud or fault, action for annulment is
extinguished.
(1) Nullity arising from Incapacity
If lost through fortuitous event, the defendant cannot be
compelled to make restitution.
(a) The incapacitated person is not obliged to
make any restitution except insofar as he has
By Defendant
been benefited by the thing or price received
by him.
If lost through his fault, he shall return the fruits received and
Capacitated party is obliged to make complete
the value of the thing at the time of the loss, with interest
restitution subject to the exception provided
from the same date.
in Natural Obligations (Art. 1497).
If lost through fortuitous event, he shall pay the value of the
thing at the time of its loss but without interest.
Nullity arising From Vitiated Consent
CHAPTER 8
The primary effect is mutual restitution of the subject
matter of the contract taking into account the
UNENFORCEABLE CONTRACTS
principle of unjust enrichment. Mutual restitution
under this provision does not apply to strangers to
Concept
the actual contractual relation.
An unenforceable contract is one which cannot be enforced unless it
As regards to the fruits and interests, the following rules
is first ratified in the manner provided by law. It is
apply:
distinguished from the rescissible and the annullable contracts
in that the latter two contracts produce legal effects unless
Restitution as long as the cause of nullity does not
they are set aside by a competent court, while the
involve an illicit act such as error and
unenforceable contract does not produce any effect unless it is
incapacity unknown to the other party.
ratified.
But when the cause of nullity is illicit (violence,
fraud), the party who employed those means
The Unenforceable Contracts
must be obliged to restore; on the other hand,
the innocent party should not be required to
Those entered into in the name of another person by one who
return fruits or pay interest.
has been given no authority or legal representation, or
who has acted beyond his powers.
II - Ratification
Those that do not comply with the Statute of Frauds.
Requisites
An agreement that by its terms is not to be
Ratification extinguishes the action to annul a voidable contract. It may
performed within a year from the making
either be express or implied.
thereof;
A special promise to answer for the debt, default,
Ratification, to be effective, must comply with the following requisites:
or miscarriage of another;
That the contract is a voidable contract
An agreement made in consideration of marriage,
That ratification is made with knowledge of the cause for
other than a mutual promise to marry;
nullity
An agreement for the sale of goods, chattels or
That at the time the ratification is made, the cause of nullity
things in action, at a price not less than five
has already ceased to exist
hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the
Who May Ratify?
evidences, or some of them, of such things in
action, or pay at the time some part of the
injured party
purchase money; but when a sale is made by
guardian of the incapacitated person
auction and entry is made by the auctioneer in
heirs of the party entitled to such right
his sales book, at the time of the sale, of the
amount and kind of property sold, terms of
Effects
sale, price, names of the purchasers and
person on whose account the sale is made, it
Extinguishes the action to annul a voidable contract
is a sufficient memorandum;
Cleanses the contract from all its defects
An agreement for the leasing for a longer period
 than one year, or for the sale of real property
or of an interest therein;
A representation to the credit of a third person.
TITLE III
Those where both parties are incapable of giving consent. NATURAL OBLIGATIONS

Express or implied ratification by the parent, or I - Types of Obligations

guardian of one of the contracting parties will turn the
contract into a voidable contract.
If ratification is made by the parents or guardians
of both contracting parties, the contract shall be
validated from the inception.
Enforceability
For contracts entered into within the Statute of Frauds to be
enforceable, a note or memorandum , in writing, and subscribed by the
party charged, or by his agent, evidence thereof, of the agreement is
needed.
Ratification
In juridical science, four types of obligations can be known:
Moral - duties of conscience completely outside the field of
law
Natural - not sanctioned by any action but have a relative
juridical effect
Civil - juridical obligations which are in conformity with
positive law but are contrary to juridical principles and
susceptible of being annulled.
Mixed - have full juridical effect
Jurisprudence has reduced this classification into only two: natural and
civil.

Contracts infringing the Statute of Frauds are ratified by:

II - Natural Obligations
failure to object to the presentation of oral evidence to prove
the same; or Concept
by acceptance of benefits under them
Natural obligations are midway between the civil obligations and the
Who May Assail? purely moral obligations. Civil obligations are enforceable by
action, while moral obligations rest entirely upon conscience. It is
They cannot be assailed by third persons distinguished from the moral in that it produces some juridical
CHAPTER 9 effect; such as the right to retain what has been voluntarily paid by
the debtor; and from the civil in that it does not give rise to an
VOID OR INEXISTENT CONTRACTS action to compel performance.

I - Concept TITLE IV
ESTOPPEL
A void or inexistent contract is one which has no force and effect
from the very beginning, as if it had never been entered into. Concept
They produce no legal effects and confer no rights or
obligations. Estoppel is a bar which precludes a person from denying or asserting
They cannot be ratified. anything to the contrary of that which has, in contemplation of law,
In case of divisible contracts, if the illegal terms can be separated been established as the truth, either by the acts of judicial or
from the legal ones, the latter may be enforced. legislative offices or by his own deed or representation, either
A contract which is the direct result of a previous illegal contract is express or implied.
also inexistent.
However, if the act, conduct or representation of the party sought to be
II - Void and Inexistent Contracts estopped is due to ignorance founded on innocent mistake, estoppel
will not lie.
Void Contracts
The void contracts are those in pars. 1 and 7 of Art 1409: Estoppel is effective only as between the parties thereto or their
successors in interest.
Those whose cause, object or purpose is contrary to law,
morals, good customs, public order, or public policy; Requisites
Those expressly prohibited or declared void by law.
Reliance
Inexistent Contracts Prejudice
The inexistent contracts are those enumerated in pars. 2-6 of Art 1409:
Those which are absolutely simulated or fictitious C Kinds
Those whose cause or object never came into existence
Those whose object is outside the commerce of man Estoppel by Record
Those which contemplate an impossible service Estoppel by Deed
Those where the intention of the parties relative to the Estoppel In Pais (Equitable Estoppel
principal object of the contract cannot be ascertained. Estoppel by Silence
Estoppel by Acquiescence
C. Who May Assail? Laches
Estoppel From Benefits
parties
third persons directly affected

D. Prescriptive Period

The action or defense for the declaration of the inexistence of a contract

does not prescribe.

I. Multiple Choice
1. The majority age begins at the age of

a. 21
b. 20
c. 18
d. 16

2. When an injury or damage is caused to another, there being fault or negligence and
there is no pre-existing contractual relation between the parties, the source of the
obligation is:

a. Law
b. Contracts
c. Quasi-contracts
d. Quasi-delicts

3. Donation is both an act and a contract.

a. No, because it is an act of man only.

b. No, because there is no exchange of value.
c. Yes, because it is a gratuitous contract.
d. No, because it is not part of Obligation and Contract of New Civil Code.
e. None of the above.

4. Donation of the same thing to two or more persons shall be governed by the rule on
double sale?

a. No, because they are of different contracts.

b. No, because they are covered by different chapters of the New Civil Code.
c. Yes, because both acts transfer ownership.
d. No, because in donation there is no exchange of value.
e. No, because in sale there is exchange of values.

5. When the debtor binds himself to pay when his means permit him to do so, the
obligation is:

a. Conditional
b. Pure
c. Simple
d. With a Period

6. "A sells to B his lot and house in the city if A decides to transfer and live in the
countryside" is an example of:


a. Mixed Condition
b. Potestative Condition
c. Casual Condition
d. Resolutory Condition

7. Contracts entered into in a state of drunkenness or during a hypnotic spell are:

a. Void
b. Valid
c. Voidable
d. Legal

8. It is a mode of extinguishing an obligation when two persons in their own right are
creditors of each other.

a. Confusion
b. Reformation
c. Compensation
d. Novation

9. If the obligation of the debtor is "I will pay you my debt after I have arrived from
abroad," this is

a. Unenforceable
b. With a Period
c. Void
d. Conditional

10. If the obligor binds himself to perform his obligation as soon as "he shall have obtained
a loan" from a certain bank, this obligation is:

a. With a Term
b. Conditional
c. Suspensive
d. Resolutory

II. Define the following concepts:

- Natural Obligation
- Civil Obligation
- Negotiorium gestio
- Real Obligation
- Negligence

III. Short Answer / Essay


May an obligor be liable under an obligation subject to as suspense condition although the
condition has not yet been fulfilled? Why or why not, explain.

Suggested Answer:

- Under the suspensive condition, the obligation will only arise when the said condition
is already fulfilled. Therefore, the obligor or the debtor is not yet liable and will only
incur liability if the condition is already satisfied.

What is the distinction between a contract to sell and a conditional contract of sale?

Suggested answer:
- A contract to sell is a species of conditional sale. The contract to sell does not sell a
thing or property; it sells the right to buy property. A conditional sale is a sale subject
to the happening or performance of a condition, such as payment of the full purchase
price, or the performance of other prestation to give, to do or not to do. Compliance
with the condition automatically gives the right to the vendee to demand the delivery
of the object of the sale. In a contract to sell, however, the compliance with the
condition does not automatically sell the property to the vendee. It merely gives the
vendee the right to compel the vendor to execute the deed of absolute sale.

Angie agreed to sell Brodie a specific car for 200,000, delivery o the car and the payment of
the price is to be made on June 15. Suppose that Angies delivered the car on the
aforementioned date but Brodie failed to pay the price. Has the sale been consummated?
What are the remedies of Angie?

Suggested answer:

- While a Contract of Sale is perfected by mere consent, ownership of the thing sold is
acquired only upon its delivery to the buyer. Upon the perfection of the sale, the seller
assumes the obligation to transfer ownership and to deliver the thing sold, but the real
right of ownership is transferred only "by tradition" or delivery thereof to the buyer.

- If a buyer fails to comply with his obligation to pay, the seller may choose between
two remedies, (a) action for specific performance/fulfillment of the obligation with
damages; or (b) action for the recession of the obligation with damages. The seller
has the privilege to choose only one of the remedies and not both. If the creditor
chosen the latter, he cannot demand the fulfillment of the obligation to the buyer. The
same would apply if he chose the former, he may not opt to recede the obligation in
question.

 BUSLAW1 Pre-test
State whether it is TRUE or FALSE.

QUESTIONS:

T 1. Ignorantia legis neminem excusat Ignorance of the law excuses no one

F 2. According to Article 1516, An Obligation is a juridical necessity to give, to 7756
do or not to do
T 3. Ratification cleanses the contract from all its defects from the moment it is
constituted
T 4. The debtor or the Obligor is the one who has the duty to do the obligation
F 5. In order for a contract to be valid, it should have the consent of only one
party Allparties
F Unilateral agreement means that both parties must agree with the contract Bilateral
6.
that is being perfected
T 7. Solutio Indebiti is a kind of Quasi-Contract where A accidentally gave a B
his money. There is an obligation for B to return the money to A.
T 8. Obligations derived from law are never presumed
There are only two3requisites of a contract. Consent and Object cause't
FF 9.
10.Facio ut des also means barter l do thatyou
maygive
F 11.“Parties must be equally bound by the contract” this shows the
characteristic of Obligatory nature of Contracts Mutuality
1 12.Juridical tie is a requisite of an obligation where it shows the cause of the
obligation. Not
F 13.Parties may stipulate anything in the contract as long as it is contrary to
law, morals, good customs, public order or public policy. A
F 14.Relative f fraudulentvoid notit'sval
Simulation Contracts are not void but voidable
15.In Pari Delicto means in equal consent
F 16.Contracts can only bind the parties whoFault
if
entered into it and it cannot favor
T or prejudice third persons unless otherwise stated.
T 17.The claim for rescission must be made within four years
18.A voidable contract is a valid contract until it is ratified. It becomes an
F absolutely valid contract once it is annulled e
T 19.There is rescission if the contract is rescissible and there is annulment if the
contract is voidable
T 20.Void contracts have no force or legal effects
21.Minors who entered a contract are not voidable but void. are not VOID but VOIDABLE
F 22.If a minor mentioned that he is of legal age when he entered a contract,
1 there is an active misrepresentation.
 23.A sold his brand new laptop to B for 30,000 pesos. When B used the laptop,
F it has corrupted files and viruses. B committed Fraud It's A
T 24.A wrote a letter to B asking B if B wants to buy A’s car for 1M. B wrote a
letter of acceptance to A that B agreed to buy the car. In this situation, the
contract is already perfected.
T 25. “A sold his car worth 1,000,000 to C for only 500,000” the contract is valid
since inadequacy of the cause will not invalidate the contract
T 26.Delay is present when the creditor started demanding the obligation from
the debtor
F 27. Mora Accipiendi speaks about the debtor being guilty of breachSolvendi
28.both parties are in delay under the effect of Compensation Morae
29.“I’ll give you 1000 pesos if you’ll buy the whole block Jollibee” this is an
T example of Suspensive Condition
F 30.“I’ll stop reminding you if you’ll buy me a toy” this is also an example of a
Suspensive Condition Resolutory
31.Bad Faith means it is the intentional dishonest act by not fulfilling legal or
T contractual obligations, misleading another etc.
T 32.Usurious transactions shall be governed by special laws
T 33.Law and Contracts are the two main source of Obligations
F 34.Natural fruits are those rents of buildings, price of leases of lands and other
natural transactions civil Fruits
35.If the right is acquired by virtue of an Obligation, then it is transmissible
T
T 36.Iffortuitous
the thing to be delivered was generic and it was destroyed due
event, the debtor is still liable because the thing is generic
to a

For Questions 37 – 40 Refer to the following situations

Wes borrowed a limited edition vase by Keating co rp. from Laurel. Wes placed in
on the center of his dining table. A few days later, an earthquake occurred and
the vase fell from the table and was destroyed.

37. Wes is still liable for the vase that he borrowed from Laurel. limited Edition
F 38. Due to a fortuitous event, the creditor is not liable for the damages incurred
39. If instead the thing was just any ordinary vase and it was destroyed due to
T the earthquake, Wes is liable for the loss
40. The earthquake that had happened was an example of an act of God
T
For Questions 41 – 42 Refer to the following situations
X and Y are neighbors; Y went to the province for 1 month, and after 2 weeks,
informal settlers started residing in his home; X drove them away for the first time.
To avoid from it happening again, X barricaded the whole lot and placed a no
trespassing sign.

T 41. Y should pay the expenses incurred by X in protecting their home

T 42. The kind of Quasi-Contract that has been made was a Negotiorum Gestio

For Questions 43 – 46 Refer to the following situations

Ross and Rachel agreed that for P1,000 (the amount was already received), Ross
will babysit Emma, their child, this weekend because Rachel has work.

43. The active subject here is Rachel

T
44. The passive subject is Ross
T 45. The Object is Rachel’s work
F 46. The Babysitting
juridical tie is the Babysitting service of Emma
F contract Agreement
For Questions 47 – 48 Refer to the following situations

Annalise Keating wanted to win a case in court so she slapped his client in the
face telling him to do what she says so that the case may be solved in favor of
them.
F 47. There is fraud in the situation
violence
48. The client can file a case for violence.
T

For Questions 49 – 50 Refer to the following situations

Bonnie smuggled goods. Frank bought the smuggled goods. Both of them knew
that the goods are smuggled.

F 49. Only Bonnie isin Pari Delicto Both are

in pari Delicto
T 50. Both of them are criminally liable.

-------- End of Pre-Test --------

Answers and Explanation:
1. True
2. False - It should be Article 1156
3. True
4. True
5. False - It should have the consent of all parties
6. False - Bilateral Agreement
7. True
8. True
9. False - There are three requisites namely: Consent, Object, Cause
10. False - Facio ut des means I do that you give
11. False - This is the characteristic of Mutuality of Contracts
12. True
13. False - …as long it is NOT contrary…
14. False - If the intention is to defraud a person, it is void otherwise, it is valid
15. False - In Pari Delicto means in equal FAULT
16. True
17. True
18. False - A voidable contract is a valid contract until it is annulled. It becomes
an absolutely valid contract once it is ratified
19. True
20. True
21. False - Minors who entered a contract are not void but voidable
22. True
23. False - A committed fraud not B
24. True
25. True
26. True
27. False- Mora Solvendi
28. False - No one is delay or no one is liable for damages
29. True
30. False - This is an example of a Resolutory Condition
31. True
32. True
33. True
34. False - these are Civil Fruits
35. True
36. True
37. False - Since the thing is considered a specific thing (limited edition), Wes is
no longer liable for the book
38. False - The creditor is liable not the debtor
39. True
40. True
41. True
42. True
43. True
44. True
45. False - The object is the babysitting of Emma
46. False - The juridical tie is the contract/agreement
47. False - There is violence since there is physical contact with the person
48. True
49. False - Both Bonnie and Frank are in pari Delicto because both of them knew
that the goods are smuggled
50. True