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2. As to parties
CHAPTER 1. GENERAL PROVISIONS
a. Unilateral and Bilateral
Articles 1156 – 1162 b. Individual and Collective
(Collective – Joint and Solidary)
OBLIGATION
JURIDICAL3. As to object
OBLIGATION NECESSITY - a. Determinate and Generic
An obligation is a juridical necessity to give, to do or not to do. b. Simple and Multiple
the court may (Multiple – Conjunctive and Distributive)
Obligation may either be civil or natural: be called (Distributive – Alternative and Facultative)
a. Civil obligation – one which has a binding force in law, and upon by the
which gives the creditor the right of enforcing it against aggrieved c. Positive and Negative
the obligor in the courts. party in case d. Real and Personal
b. Natural obligation – cannot be enforced by action but of non e. Possible and Impossible
which is binding on the party who makes it in conscience compliance, f. Divisible and Indivisible
and according to natural law. g. Principal and Accessory
in order to
enforce the4. As to perfection and extinguishment
Civil Obligation Natural Obligation fulfillment of a. Pure
Based on positive law Based on equity & natural law
the obligation. b. Conditional (Suspensive or resolutory)
Enforceable in the courts Not enforceable in the courts
c. With a term of period
Requisites of Obligations:
1. Juridical or legal tie – binds the parties to the obligation SOURCES OBLIGATION
2. Active subject (creditor) – can demand the fulfillment of
the obligation 1. Law
3. Passive subject (debtor) – against whom the obligation is 2. Contracts
juridically demandable. 3. Quasi-contracts
4. Prestation – object of the obligation 4. Delicts (Acts or omissions punished by law0
5. Quasi-delicts
Requisites of prestation:
 It must be licit OBLIGATIONS DERIVED FROM LAW
 It must be possible, physically or juridically
Obligations derived from law are not presumed. Only those
 It must be determinate or at least determinable
expressly determined in the Civil Code or in special laws are
 It must be of pecuniary value
demandable.
CLASSIFICATIONS OF OBLIGATIONS
How to determine whether an obligation arises from law or from
Primary classifications under the Civil Code other sources
1. Pure and Conditional
2. With a period 1. Law – when the law establishes the obligation and the act
3. Alternative and facultative or condition upon which it is based is nothing more than a
4. Joint and solidary factor for determining when it becomes demandable
5. Divisible and indivisible
6. With a penal clause Examples:
Obligation to pay taxes (Internal Revenue Code)
Classifications of a secondary character Obligation to support (Family Code)
1. Legal, conventional and penal
2. Real and personal 2. Other sources – when the law merely recognizes or
3. Determinate and generic acknowledges the existence of an obligation generated by
4. Positive and negative an act which may constitute a contract, quasi-contract,
5. Unilateral and bilateral delict or quasi-delict and its only purpose is to regulate
6. Individual and collective such obligation.
7. Accessory and principle
OBLIGATIONS DERIVED FROM CONTRACTS
Classifications according to Sanchez Roman
Obligations arising from contracts have the force of law between the
1. As to juridical quality contracting parties and should be complied with in good faith.
a. Natural
b. Civil CONTRACT
c. Mixed Meeting of minds between two persons whereby one binds himself
with respect to the other, to give something or render some service.

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Two kinds of contract:
1. Consensual contract – perfected by mere consent. Once
the contract is perfected, the valid contract has the force
of law binding the parties to comply therewith in good
faith, where neither one may renege therefrom without
the consent of the other.
2. Real contract - not perfected until the delivery of the
object of the obligation. (pledge, commodatum, deposit)
Rule
Whether the contract is consensual or real, the rule is that from the
moment it is perfected, obligations which may be either reciprocal
or unilateral arise.
 Reciprocal obligations - Those where the parties are mutually or
reciprocally obliged to do or give something.
 Unilateral obligations - Those where only one of the parties, the
debtor, is obliged to do or give something
Compliance in good faith
Means performance in accordance with the stipulations, clauses,
terms and conditions of the contract. It must be observed to prevent
one party from taking unfair advantage over the other.
OBLIGATIONS DERIVED FROM QUASI-CONTRACTS
QUASI-CONTRACT
A juridical relation arising from lawful, voluntary and unilateral acts,
by virtue of which the parties become bound to each other, based
on the principle that no one shall be unjustly enriched or benefited
at the expense of another.
Principal kinds of quasi-contracts
1. Negotiorum gestio – a juridical relation which arises
whenever a person voluntarily takes charge of the agency
or management of the business or property of another
without any power or authority from the latter.
2. Solutio indebiti – a juridical relation which arises whenever
a person unduly delivers a thing through mistake to
another who has no right to demand it.
Perez v. Palomar
In a quasi-contract where no express consent is given by the other party, the
consent needed in a contract is provided by law through presumption.
(presumptive consent)
OBLIGATIONS DERIVED FROM DELICTS
Civil obligations arising from offenses shall be governed by the penal
laws, subject to the provisions of Art 2177, Chapter 2 on Human
Relations and Title 18 of the Civil Code on damages.
OBLIGATIONS ARISING FROM CRIMINAL OFFENSES
Article 100 RPC Every person criminally liable is civilly liable. A crime
has a dual aspect – criminal and civil aspect.
 Criminal aspect – affects social order and the purpose is to
punish the offender
 Civil aspect – affects private rights and the purpose is to repair
the damages suffered by the injured party
However, there are offenses and special crimes without civil liability
(treason, rebellion, illegal possession of firearm, gambling – they do
not affect private rights)
ENFORCEMENT OF CIVIL LIABILITY
General rule: The civil action is deemed impliedly instituted in the
criminal action. (Rule 111, Sec 1 Revised Rules on Crimpro)
Except when the offended party:
1. Expressly waives the civil action
2. Reserves his right to institute it separately
3. Institutes the civil action prior to the criminal action
INDEPENDENT CIVIL ACTIONS (Articles 31, 32, 33, 34, 2176)
A civil action entirely separate and distinct from the criminal action
may be brought by the injured party during the pendency of the
criminal case. Such shall proceed independently of the criminal
prosecution and shall require only a preponderance of evidence.
Rule 111 Sec 3 Revised Rules of Criminal Procedure 2000
There is no need to reserve the right to file an independent civil action.
(Removal of the reservation requirement)
Two kinds of independent civil actions
1. Civil action based on an obligation NOT arising from an act
or omission complained of as a felony (law, contract,
quasi-contract or quasi-delict)
2. Civil action entirely separate and distinct from the criminal
action. (Articles 31, 32, 33, 34, 2176)
Other civil actions arising from offenses
Rules to observe:
1. Criminal and civil actions arising from the same offense
may be instituted separately. (Art 100 – Dependent CA)
BUT, after the criminal action has been commenced, the
civil action cannot be instituted until final judgment has
been rendered in the criminal action.
2. If the civil action has been filed ahead of the criminal
action, and the criminal action is subsequently
commenced:
Effects:
 The civil action shall be suspended in whatever
stage, until final judgment in the criminal action
has been rendered.
 The civil action may be consolidated with the
criminal action upon application with the court
trying the criminal action. In which case, both
the criminal and civil action shall be tried jointly
3. Extinction of the criminal action does not carry with it
extinction of the civil (Dependent CA)
UNLESS the extinction proceeds from an acquittal based
on pure innocence
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PERIOD OF PRESCRIPTION
1. Dependent civil actions – during the pendency of the
criminal action, the period of prescription of the civil
action shall NOT run because it has to wait for the final
judgment of the criminal case
2. Independent civil actions – the period of prescription shall
run because it can be instituted separately.
JUDGMENT IN CIVIL ACTION NOT A BAR
A final judgment rendered in a civil action absolving the defendant
from civil liability is not a bar to a criminal action because the
quantum of evidence for both actions are different.
SUSPENSION BY REASON OF PREJUDICIAL QUESTION
Elements of a prejudicial question:
1. The previously instituted civil action which involves an
issue similar or intimately relation to the issue raised in the
subsequent criminal action
2. The resolution of such issue determines whether or not
the criminal action may proceed.
EFFECT OF ACQUITTAL IN DEPENDENT CIVIL ACTIONS
If acquittal is based on:
1. Guilt has NOT been proved beyond reasonable doubt – a
civil action may still be instituted (Reason: different
quantum of evidence)
2. Pure innocence – Bars the institution of a civil action
ARE TWO CIVIL ACTIONS ALLOWED?
Though the objective is the same which is to recover damages but
pursued differently in two distinct civil actions, the rule does not
prohibit simultaneous
OBLIGATIONS DERIVED FROM QUASI-DELICT
QUASI-DELICT - Obligations which do not arise from law, contracts,
quasi-contracts or criminal offenses. Fault or negligence which
causes damage to another, there being no pre-existing contractual
relations between the parties. (Article 2176)
Obligations derived from quasi-delicts shall be governed by the
provisions of Chapter 2, Title 17 of the Civil Code and by special
laws. (Article 1162)
PERSONS LIABLE
1. Father/mother – minor children
2. Guardians – minor or incapacitated persons
3. Owners and managers – employees on the occasion of
their functions
4. Employers – employees within the scope of their assigned
tasks
5. State – special agent acting outside the bounds of their
authority
Take Note: Responsibility shall cease if they can prove that they
observed the diligence of a good father of a family
Requisites of liability
1. Fault or negligence of the defendant
2. Damage suffered by the plaintiff
3. Relation of cause and effect
CRIME AND QUASI-DELICT DISTINGUISHED
Delict Quasi-delict
Affects public interest Only of private concern
Punished by the RPC Civil Code repairs the damages
through indemnification
Criminal and civil liability Only civil liability
So broad includes all acts in which
Only punished if there is a law any kind of fault or negligence
intervenes
SCOPE OF QUASI-DELICTS
Quasi delicts include acts which are criminal in character or in
violation of the penal law, whether voluntary or negligence. The
fault or negligence referred to in Article 2176 covers not only acts
not punishable by law but also acts criminal in character, whether
intentional, voluntary or negligent. (Elcano v. Hill)
Take Note: This pronouncement expands the coverage of quasi-
delicts beyond what was originally contemplated by the lawmakers.
Coverage of quasi-delicts which DO NOT overlap with delicts
1. Negligent acts or omissions not punishable as criminal
offenses
2. Intentional quasi-delicts (Articles 19, 21, 22, 26, 27, 28 and
1314)
3. Strict liability torts where there is neither negligence nor
intent to cause damage or injury (Articles 23, 696 and 705)
Coverage of quasi-delicts which overlap with delicts
1. Criminal negligence
2. Acts or omissions punishable as crimes under the RPC but
the Civil Code expressly declares that the civil action
arising therefrom is separate and independent from the
criminal action. (Articles 31, 32, 33, 34)
CHARACTER OF REMEDY
A negligent act may give rise to at least 2 separate and independent
liabilities
1. Civil liability arising from crime (culpa criminal)
2. Civil liability arising from negligence (culpa aquiliana)
Take Note: These two concepts of faults are so distinct from each
other that exoneration from one does not result in exoneration from
the other. Hence, they can be prosecuted separately and
independently from each other.
However: The Civil Code precludes recovery of damages twice for
the same negligent act or omission. (Article 2177)
In essence: Simultaneous remedies are allowed, but not double
recovery.
Contradicting jurisprudence anent selection of remedies
Elcano v. Hill
The extinction of civil liability founded on Article 100 of the RPC does
not extinguish the civil liability for the same act considered as a
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quasi-delict, even by a declaration in the criminal case that the
accused was innocent.
Mendoza v. Arrieta
There was a return to the old doctrine of selection of remedies.
Acquittal in the criminal action due to pure innocence where the
civil action is impliedly instituted bars the injured party from
commencing the civil action anchored on quasi-delict, for the end
result would be the same.
JURISPRUDENCE WHICH HIGHLIGHT THE NATURE OF QUASI-DELICT
Barredo v. Garcia
Fault or negligence as a source of obligation has a dual character,
the criminal and the civil.
Despite the overlapping coverage of quasi-delicts and delicts, a
concurrence of scope in regard to negligent acts does not destroy
the distinction between the civil liability arising from a crime and the
responsibility for quasi-delicts. The same negligent act causing
damages may produce civil liability arising from a crime under
Article 100 of the RPC, or create an action for quasi-delict under
Articles 1902-1019 of the Civil Code.
A quasi-delict is a separate legal institution under the Civil Code,
with a substantivity of its own and individuality that is entirely apart
and independent from a delict or crime.
LIABILITY OF EMPLOYER FOR QUASI-DELICT IN CRIMINAL ACTION
NO, since quasi-delict is not deemed instituted with the criminal
action. If at all, the only civil liability of the employer in the criminal
action is subsidiary liability.
EFFECT OF DEATH OF ACCUSED ON CIVIL ACTIONS
Death after arraignment or during the pendency of the criminal
action – shall extinguish civil liability arising from the crime.
However, the independent civil action instituted may be continued.
Death before arraignment- the case shall be dismissed without
prejudice to any civil action the offended party may file against the
estate of the deceased.
CHAPTER 2. NATURE AND EFFECT OF OBLIGATIONS
ARTICLES 1163-1178
OBLIGATIONS TO GIVE
An obligation to give may be either:
1. Determinate – when the object is particularly designated
or physically segregated from all others of the same class
2. Generic – when the object is designated merely by its class
or genus without any particular designation.
STANDARD OF CARE
Every person obliged to give something is also obliged to take of it
with the proper diligence of a good father or family, unless the law
or the stipulation of the parties requires another standard of care.
WHEN DOES THE OBLIGATION TO DELIVER THE THING ARISE?
Depends upon the nature of the obligation itself.
1. From the time designated by the provisions of the Civil
Code or of special laws creating them (If obligation arises
from law, quasi-contracts, quasi-delicts and delicts)
2. From the moment of the perfection of the contract (If
obligation arises from a contract)
Exception: when the obligation is subject to a suspensive
condition (obligation to deliver only arises from the
moment the condition is fulfilled)
Article 1164
The creditor has a right to the fruits of the thing from the time the
obligation to deliver it arises. However, he shall acquire no real right
over it until the same has been delivered to him.
NATURE OF RIGHT
The creditor has a right to the thing as well as the fruits thereof from
the time the obligation to deliver it arise.
1. Personal right – A right pertaining to a person to demand
from another; enforceable only against a definitive person
(jus ad rem)
2. Real right – A right pertaining to a person over a specific
thing; enforceable against the whole world (jus in re)
Therefore, before delivery, the creditor in obligations to give, has
merely a personal right against the debtor (to ask for delivery of the
thing and the fruits thereof). Once the thing and the fruits are
delivered, he then acquires a real right over them, a right
enforceable against the whole world.
RIGHTS OF CREDITOR
In determinate obligations
1. To compel specific performance
2. To recover damages for breach of obligations
In generic obligations
1. To ask for performance of the obligation
2. To ask that the obligation be complied with at the expense
of the debtor
3. To recover damages for breach of the obligation
OBLIGATIONS OF DEBTOR
In determinate obligations
1. To perform the obligation specifically
2. To take care of the thing with the proper diligence of a
good father of a family
3. To deliver all accessions and accessories of the things,
even though they may not have been mentioned
4. To be liable for damages in case of breach of obligation by
reason of delay, fraud, negligence of contravention of the
tenor thereof.
In generic obligations
1. To deliver a thing which is neither of superior nor inferior
quality.
2. To be liable for damages for damages in case of breach of
the obligation by reason of delay, fraud, negligence of
contravention of the tenor thereof.
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OBLIGATIONS TO DO
If a person obliged to do something fails to do it, the same shall be
executed at his cost. The same rule shall be observed if he does it in
contravention of the tenor of the obligations. Furthermore, what
has been poorly done be undone.
EFFECTS OF BREACH: If the obligor fails to do that which he has
obligated himself to do, the obligee can have the obligation
performed or executed at the expense of the former, and demand
for damages by reason of breach.
WHAT IS PROHIBITED
The creditor cannot compel the obligor for specific performance
because the law recognizes the individual’s freedom to choose
between doing that which he promised and not doing it, otherwise it
would result to involuntary servitude.
REMEDIES AVAILABLE FOR CREDITOR IN OBLIGATIONS TO DO
1. Have the obligation executed at the expense of the debtor
2. Ask for damages
Where the first remedy is not available
When the prestation consists of an act where the personal and
special qualification of the obligor is the principal motive for the
establishment of the obligation. Only the remedy of damages can be
availed of.
Example: Talent and prestige of an artist
When there is performance of the obligation but in contravention
of the tenor thereof: (Case in point: Chavez v. Gonzales)
Rights of the creditor:
1. To have the obligation performed or executed at the
expense of the obligor
2. To ask what has been poorly done be undone
(Case in point: Tanguilig v. CA)
3. To recover damages because of breach of obligation
OBLIGATIONS NOT TO DO
When the obligation consists in not doing, and the obligor does what
has been forbidden him, it shall be undone at his expense. The
object of the obligation is fulfilled so long as that which is forbidden
is not done by the obligor.
EFFECTS OF BREACH: If the obligor does what has been forbidden
him, two remedies are available to the obligee:
1. To have it undone at the expense of the obligor(Art 1168)
2. Ask for damages (Art 1170)
Delay or mora is not possible
In obligations not to do, delay is not possible because in negative
obligations, the obligation is either fulfilled or not fulfilled.
Instances where 1st remedy is not available
1. Where the effects of the act which is forbidden is definite
in character
2. Where it would be physically or legally impossible to undo
what has been done because of the nature of the act itself,
because of a provision of the law or because of conflicting
rights of third persons.
Take Note: Here, the only remedy is damages.
BREACH OF OBLIGATIONS
Two kinds of breach of obligation:
1. Voluntary (default, fraud, negligence, contravention)
2. Involuntary (fortuitous event)
VOLUNTARY BREACH THROUGH DEFAULT
DEFAULT – Signifies the idea of delay in the performance of an
obligation with respect to time.
Three kinds of default:
1. Mora solvendi – delay of the debtor to perform his
obligation. (Mora solvendi ex re – obligation to give; Mora
solvendi ex persona – obligation to do)
2. Mora accipiendi – delay of the creditor to accept the
delivery of the thing which is the object of the obligation
3. Compensation morae – delay of the parties in reciprocal
obligations.
Requisites of default:
1. The obligation is demandable and already liquidated
2. The obligor delays performance
3. The creditor requires the performance judicially or extra-
judicially
Default in positive obligations
In obligations to give or to do, the debtor incurs in delay from the
time the creditor demands from him the fulfillment of the
obligation. Demand may either be:
1. Judicial – creditor files a complaint against the debtor in
court for the fulfillment of the obligation
2. Extrajudicial – creditor demands from the debtor either
orally or in writing.
Take Note: Whether demand is judicial or extrajudicial, if the debtor
fails to performs his obligation, he is in mora solvendi and therefore
liable for damages.
When demand is not necessary
Demand by the creditor is not necessary in order that delay may
exist in the following cases:
1. When the obligation or the law expressly so declares
2. When it appears that the designation of time was the
controlling motive for the establishment of the contract
3. When demand would be useless as when the debtor has
rendered it beyond his power to perform.
Default in negative obligations
The debtor can not incur delay in negative obligations. Fulfillment
and violation are possible, but never delay.
Default in reciprocal obligations
Reciprocal obligations – those which are created or established at
the same time, out of the same cause and which result in mutual
relationships of creditor ad debtor between the parties.
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Conditional character
These obligations are condition in the sense that fulfillment of an
obligation by one party depends upon the fulfillment of the
obligation by the other.
General rule: Fulfillment by both parties should be simultaneous.
Exception: When different dates for performance for each party are
fixed by the parties.
When delay is incurred
One party incurs in delay from the moment the other party fulfils his
obligation while he himself does not comply or is not ready to
comply.
Take Note: If neither party complies, the default of one compensates
the default of the other. In which case, there can be no legal delay.
Effects of default
Once the debtor incurred in delay, he can be held liable by the
creditor for damages. This liability subsists even if the thing may
have been lost through a fortuitous event
Fraud is synonymous to bad faith. (As a ground for damages, malice
or dishonesty is implied. It cannot cover mistake and errors of
judgment made in good faith)
Rule on waiver:
Liability cannot be waived or renounced. What is prohibited is the
waiver made in advance or in anticipation of fraud. Thus, waiver for
past fraud is allowed.
 Waiver for future fraud – contrary to law and public policy.
Hence, such waiver is void.
 Waiver for past fraud – valid since such waiver can be deemed
as an act of generosity. Further, what is renounced is the effect
of fraud or the right of the party to indemnity.
VOLUNTARY BREACH THROUGH NEGLIGENCE OR CULPA
NEGLIGENCE – omission of that diligence which is required by the
nature of the obligation and corresponds with the circumstances of
the persons, of the time and the place; absence of due care required
by the nature of the obligation.

When obligation consists in the payment of money
The indemnity for damages shall be the payment of interest agreed
upon, and in the absence of stipulation, the legal interest. Interest
due shall earn legal interest from the time it is judicially demanded.
VOLUNTARY BREACH THROUGH FRAUD
FRAUD – consists in the conscious and intentional proposition to
evade the normal fulfillment of an obligation.
Take Note: This type of fraud is present during the performance of
the obligation, and must NOT be confused with causal or incidental
fraud which is present at the time of the birth of the obligation
Two kinds of fraud:
1. Criminal fraud
2. Civil fraud
a. Fraud in the performance of an obligation
b. Fraud in the constitution of an obligation
Take note: If the law or contract does not state the degree of
diligence, that which is expected of a good father of the family shall
be required.
Kinds of negligence
1. Criminal negligence
2. Civil negligence
a. Culpa contractual – fault or negligence of the debtor by
virtue of which he is unable to perform his obligation
arising from a pre-existing contract because of the
omission of the diligence which is required of the
obligation.
b. Culpa aquiliana (quasi-delict) – fault or negligence of a
person who, because of the omission of the diligence
which is required by the nature of the obligation, causes
damage to another.
Culpa contractual and culpa aquiliana distinguished

FRAUD A
Present only during the
performance of a pre-existing
obligation
Purpose is to evade the
normal fulfillment of an
obligation
Results in the nonfulfillment
or breach of the obligation
Gives rise to a right of the
creditor to recover damages
Effect of Fraud:
If there is breach or non-fulfillment of the obligation by reason of
fraud on the part of the debtor, he can be held liable for damages.
FRAUD B
Culpa contractual Culpa aquiliana
Present only at the time of the birth of
There is always a pre- There may or may not
the obligation As to relationship
existing contractual be a pre-existing
of the parties
relation contractual relation
Purpose is to secure the consent of the
other party to enter into a contract
As to source of Breach or nonfulfillment Defendant’s negligent
obligation of the contract act or omission itself
Results in the vitiation of consent
Existence of the contract
As to proof Negligence of the
Gives rise to the right of the innocent and its breach is sufficient
required for defendant must be
party to ask for annulment of the prima facie evidence to
recovery proved
contract (causal), or recover damages warrant recovery
(incidental)
Proof of diligence in the
As to availability It is available as a
selection and supervision
of due diligence defense.
of employees is not
as a defense
available as a defense

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Negligence distinguished from Fraud
Negligence Fraud
Act or omission is voluntary in Conscious or intentional
character proposition to evade the normal
fulfillment of the obligation
There is merely abandonment,
carelessness or lack of diligence There is intent to cause damage or
TN: Where negligence shows bad
injury
faith, the rules on fraud shall govern
Test of negligence
Did the defendant in doing the alleged negligent act use the
reasonable care and caution which an ordinarily prudent person
would have used in the same situation?
Regulatory power of the courts
Liability arising from negligence in the performance of every kind of
obligation may be regulated by the courts. Consequently, the court
may increase or decrease the liability of the party at fault depending
upon the circumstances of each case. The court, then, make take
into consideration the good or bad faith of the debtor or the
conduct of the creditor when the damage was incurred.
Effect of good faith
Debtor shall only be liable for natural and probable consequences of
the breach of obligation and which the parties have foreseen or
could have reasonably foreseen at the time of the obligation.
Effect of bad faith
The rules on fraud shall govern. Thus the debtor can be held
responsible for all damages which may be reasonably attributed to
the non-performance of the obligation. Furthermore, any waiver
which is made in the anticipation of such liability is null and void.
Effect of contributory negligence
If there is negligence on the part of the creditor, the effect depends
whether the negligence is the:
1. Proximate cause of the accident – creditor cannot recover
2. Merely contributory – the damages which the creditor can
recover from the debtor is reduced or mitigated
Other circumstances where the courts can equitably mitigate the
damages
1. Where the plaintiff himself has contravened the terms of
the contract
2. Where the plaintiff has derived some benefit as a result of
the contract
3. In cases where exemplary damages are to be awarded,
where the defendant acted upon the advice of counsel
4. Where the loss would have resulted in any event
5. Where upon the filing of the action, the defendant has
done his best to lessen the plaintiff’s loss or injury.
VOLUNTARY BREACH THOUGH CONTRAVENTION OF TENOR
Debtor is bound to indemnify the creditor for the damages caused
thereby. Contravention of the tenor of the obligation includes every
kind of defective performance.
CONCEPT OF FORTUITOUS EVENT
FORTUITOUS EVENT – An event which could not be foreseen, or
which, though foreseen, was inevitable. (Covers acts of God and
force majeure)
Acts of God - Those which are absolutely independent of human
intervention, such as rains, typhoons, floods, cyclones, earthquakes
or any other similar calamity brought about by natural forces.
Force majeure – Events which arise from legitimate or illegitimate
acts of persons other than the obligor, such as commotions, riots,
wars, robbery and similar acts.
CLASSIFICATIONS OF FORTUITOUS EVENT
As to human intervention
1. Fortuitous event proper (act of God) – event absolutely
independent of human intervention
2. Force majeure – event which arises from legitimate or
illegitimate acts of persons other than the obligor.
As to forseeability
1. Ordinary – Event which usually happens or which could be
reasonably foreseen
2. Extraordinary – Event which does not usually happen and
which could not have been reasonably foreseen, such as
war, pestilence, earthquake, etc.
EFFECT UPON OBLIGATION
If the obligor is unable to comply with his obligation by reason of
fortuitous event:
General rule:
Obligation is extinguished. Obligor is exempted from any liability.
Exceptions
1. When the obligation is generic (the genus of a thing can
never perish)
2. Where such liability is expressly specified by law
3. Where it is declared by stipulation of the parties
4. Where the nature of the obligation requires the
assumption of risk (no wrong is done to one who consents)
Examples: Insurance contracts, workmen’s compensation
acts, common carriers
5. When the object of the obligation is lost and the loss is
due partly to the fault of the debtor
6. When the object of the obligation is lost and the loss
occurs after the debtor has incurred in delay
7. When the debtor promised to deliver the same thing to
two or more persons who do not have the same interest
8. When the obligation to deliver arises from a criminal
offense
ESSENTIAL CONDITIONS
These conditions must concur before general rule can be applied.
1. The event must be independent of the will of the obligor
2. The event must be either unforeseeable or inevitable
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3. The event must be of such character as to render it
impossible for the obligor to fulfil his obligation in a
normal manner
4. The obligor must be free from any participation in the
aggravation of the injury resulting to the obligee.
In short, there must be an entire exclusion of human agency from
the cause of injury or loss. The fortuitous event must not only be the
proximate cause of the loss or destruction, but must be the sole
cause.
USURIOUS TRANSACTIONS
Usurious transactions shall be governed by special laws (Act No.
1655 Usury Law)
USURY – Contracting for or receiving something in excess of the
amount allowed by law for the loan or forbearance of money, goods
KINDS OF INTEREST
1. Simple interest – When the rate of interest is stipulated by
the parties
2. Compound interest – When the interest earned is upon
interest due
3. Legal interest – When the rate of interest intended by the
parties is presumed by law, as when the loan mentions
interest but does not specify the rate thereof.
4. Lawful interest – when the rate of interest is within the
maximum allowed by law.
5. Unlawful interest – when the rate of interest is beyond
the maximum fixed by law
USURY LAW
Legal rate – 12% per annum if the transaction is a loan or
forbearance of money, goods, or credits, otherwise it is only 6%. (to
be counted from the filing of the complaint until fully paid)
Maximum rate
a. 12% per annum – secured loans
b. 14% per annum – unsecured loans
Requisites for Recovery of Interest
In order that interest may be recovered, the following requisites
must be present:
1. The payment of interest must be expressly stipulated
2. The agreement must be in writing
3. The interest must be lawful
A stipulation for the payment of usurious interest is void, that is, as
if there is no stipulation as to interest.
Take Note: By virtue of CB No. 905 issued by the Monetary Board,
the rate of interest and other charges on loan or forbearance of
money, goods or credit, whether secured or unsecured, shall not be
subject to any ceiling prescribed under the Usury Law. Hence,
interest can be charged as lender and borrower may agree upon. CB
No. 905 suspended the effectivity of the Usury law.
Before January 1, 1983 under the Treasury Laws
No person shall receive a rate of interest higher than 12% per
annum or the maximum rate prescribed by the Monetary Board for
a loan secured by a mortgage upon real estate the title to which is
duly registered.
After January 1, 1983 under CB Circular No. 905
The Central Bank Monetary Board is authorized to fix interest rates.
The ceiling rates under the Usury law have been abolished.
Take Note
CB Circular 905 did not repeal nor amend the Usury Law but simply
suspended its effectivity.
LIABILITY FOR LEGAL INTEREST
Loan or forbearance of money
When the obligation consists in the payment of money (loan or
forbearance of money), the interest due should be that which may
have been stipulated in writing.
a. Central Bank Circular No. 905
12% per annum
REMEDIES OF CREDITOR TO PROTECT CREDIT
1. Exact payment
2. To exhaust the property in possession of the debtor
3. To be subrogated to all of the rights and actions of the
debtor, save those which are inherent in his person
4. To impugn all of the acts which the debtor may have done
to defraud him (Article 1177)
Take Note
The second and the third are subsidiary to the first.
EXHAUSTION OF DEBTOR’S PROPERTY
The principal remedy of the creditor to protect and enforce his
credit, generally by attachment.
Basis
Article 2236 of the Civil Code – debtor is liable with all his property,
present and future, for the fulfillment of his obligations subject to
the exemptions provided by law.)
Exemptions:
1. Sec 12, Rule 39 of the New Rules of Court
2. Sec 118 of the Public Land Law
3. Articles 223, 232, 243, 302, 1708
ACCION SUBROGATORIA (SUBROGATORY ACTION)
Right of the creditor to exercise all of the rights and bring all of the
actions which the debtor may have against third persons.
Exception
Rights which are purely personal in the sense that they are inherent
in the person of the debtor.
Examples:
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1. Parental authority
2. Right to revoke donations on ground of ingratitude
3. Public or honorary in character (Position in the
government, doctor’s degree)
4. Right to appear in court proceedings (settlement of estate)
Conditions/Requisites
1. The debtor to whom the right or action properly pertains
must be indebted to the creditor
2. The creditor must be prejudiced by the inaction or failure
of the debtor to proceed against the third person
3. The creditor must have first pursued or exhausted all of
the properties of the debtor which are not exempted from
execution
ACCION PAULIANA
Right of the creditor to impugn or directly attack acts or contracts
done by the debtor to third persons to defraud the former.
Example:
Regalado v. Luchasingco and Co.
Facts: A was a defendant in a civil case. He lost, and attachment was
issued against his property. B, the winner, could not collect his claim
because it was discovered that A had sold his warehouse to his son, C,
after attachment had been issued on such property. B, who could not
collect in any other way because A had no money, brought an action to
rescind the contract allegedly made to defraud him. It was proved that:
1. Although the warehouse was worth P25,000, the son allegedly
paid only P15,000 for it;
2. The son probably did not have the P15, 000 or any other sum
of importance with which to buy the said warehouse.
Held: The transaction is fraudulent and since B, the creditor, cannot
recover in any other way, the contract ought to be rescinded.
TRANSMISSIBILITY OF RIGHTS
General Rule: Rights of obligations or those rights which are
acquired by virtue of an obligation are transmissible in character.
Hence, can be alienated or assigned to third persons.
Exceptions:
1. Where they are not transmissible by their very nature
(purely personal right)
2. Where there is a stipulation of the parties that they are
not transmissible (not implied; must be clearly established)
3. Where they are not transmissible by operation of law
CHAPTER 3. DIFFERENT KINDS OF OBLIGATIONS
Section 1. PURE AND CONDITIONAL OBLIGATIONS
Articles 1179 – 1192
PURE AND CONDITIONAL OBLIGATIONS
PURE OBLIGATION
An obligation that is demandable at once; whose effectivity or
extinguishment does not depend upon the fulfillment of a condition
or upon the expiration of a term or period.
Immediate demandability
The distinctive characteristic of a pure obligation. However, the
quality of immediate demandability should not violate or infringe
the right of the debtor for a reasonable period for performance.
Examples:
1. I’ll pay you P1 million on demand.
2. I will give you my watch.
CONDITIONAL OBLIGATION
An obligation whose effectivity is subordinate to the fulfillment or
nonfulfillment of a condition.
Examples
1. I’ll buy your land for P10 million if you pass the last bar
examinations. (This is suspensive for the results will be
awaited).
2. I’ll give you my land now, but should you fail in the last bar
examinations, your ownership will cease and it will be
mine again. (This is resolutory because it ends upon
failure.).
Condition
A future and uncertain fact or event upon which an obligation is
subordinate or made to depend.
Requisites of a condition
1. The fact or event must be future
2. The fact of event must be uncertain
Past event unknown to the parties not a condition
The event can never constitute a condition because in order that it
can be classified as such, the requisites of futurity and uncertainty
must be present.
Term or Period
That which necessarily must come (like 2005) whether the
parties know when it will happen or not (like death, since this
is sure)
Example: “I’ll pay you P1 Million on Jun. 1, 2005.”
Take note: Death because of S.A.R.S. is a condition, since death may
be due to other causes.
CLASSIFICATIONS OF CONDITIONS
A. EFFECT:
1. Suspensive - the happening of the condition gives rise to
the obligation.
2. Resolutory – the happening of the condition extinguishes
the obligation
B. CAUSE/ORIGIN:
1. Potestative – the fulfillment of the obligations depend
upon the will of the debtor. (Ex. I’ll sell you my car if I like)
2. Casual – depends on chance or hazard or the will of a third
person (Ex. If I win in the lotto)
3. Mixed – depends partly on the will of one of the parties
and partly on chance or the will of a third person. (Ex. If I
pass the bar examinations)
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C. DIVISIBILITY:
1. Divisible – when the condition is susceptible of partial
realization or performance
2. Indivisible – not susceptible of partial realization or
performance because of the nature of the thing or
because of the nature of the parties
D. POSSIBILITY:
1. Possible – when the condition is capable of fulfillment
according to nature, law public policy or good customs.
2. Impossible – not capable of fulfillment according to nature
or due to the operation of law, or morals, public policy or
due to a contradiction in its terms. i.e., Killing
E. MODE:
1. Positive – when the condition involves the performance of
an act (to give and to do)
2. Negative – when the condition involves the omission of an
act. (not to do)
F. NUMBERS:
1. Conjunctive – when there are several conditions and all of
which must be performed
2. Alternative – when there are several conditions but only
one must be performed.
G. FORM:
1. Express – when the condition is stated expressly
2. Implied – when the condition is tacit or merely inferred.
SUSPENSIVE AND RESOLUTORY CONDITIONS
SUSPENSIVE CONDITION
Effectivity of obligation is suspended until the happening or
fulfillment of the condition.
Effect: The acquisition of rights shall depend upon the happening of
the condition. What is acquired by the creditor upon the
constitution of the obligation is only a mere hope or expectancy.
Example: I will give you my car if you pass the Bar examinations.
RESOLUTORY CONDITION
Effectivity of obligation is extinguished upon the happening or
fulfillment of the obligation.
Effect: Although rights are immediately vested in the creditor upon
the constitution of the obligation, such rights are always subject to
the threat or danger of extinction.
Example: I will give my car now, but should you not pass the Bar
examinations, this shall be returned to me.
POTESTATIVE, CASUAL, AND MIXED CONDITIONS
POTESTATIVE CONDITION
One whose fulfillment depends exclusively upon the will of either of
the parties to the obligation.
Effects:
SUSPENSIVE POTESTATIVE
1. Depends exclusively upon the will of the creditor
Condition and obligation is valid
Rationale: Because the creditor is naturally interested in
the fulfillment of the suspensive condition, since it is only
by such fulfillment that the obligation can become
effective.
2. Depends exclusively upon the will of the debtor
Condition and obligation is void.
Rationale: It would sanction obligations which are illusory,
in direct contravention of the principle that validity and
fulfillment of contracts cannot be left to the will of one of
the contracting parties.
Exception: pre-existing obligation (condition is void, but
obligation is valid)
Example of a pre-existing obligation:
I will pay my P20,000 indebtedness when I am in the
mood. (Condition is void, but obligation is still valid)
RESOLUTORY POTESTATIVE
1. Condition and obligation is valid even if fulfillment
exclusively depends upon the will of the debtor
Rationale: It is but natural that the debtor is interested in
the fulfillment of the resolutory condition since it is only
by such fulfilment that he can reacquire the rights.
CASUAL CONDITION
One whose fulfillment depends exclusively upon chance and/or the
will of a third person.
Effect: The obligation including such condition shall take effect.
Example: I will give you my car if Aquino gets elected as President
MIXED CONDITION
One whose fulfillment depends jointly upon the will of either of the
parties and upon chance/will of a third person.
Effect: The obligation including such condition shall take effect.
Example: I promise to pay my debt as soon as I receive funds derived
from the sale of my house
POSSIBLE AND IMPOSSIBLE CONDITIONS
POSSIBLE CONDITION
Capable of realization, not only according to its nature, but also
according to law, good customs and public policy.
IMPOSSIBLE CONDITION
Not capable of realization either according to its nature or according
to law, good customs or public policy.
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Examples:
1. I’ll pay you P10,000 if you can contract the inhabitants of
Mars (impossible)
2. I’ll give you my land if you secure a divorce from your wife
(contrary to law, good customs and public policy)
Effects
1. The obligation which depends upon the condition shall be
annulled.
2. Divisible obligation - The part which is not affected by the
impossible or unlawful condition shall be valid.
3. Condition is not to do an impossible thing – Shall be
considered as not having been agreed upon. Hence,
obligation becomes pure, and immediately demandable.
Take Note:
1. Impossible condition attached to an obligation –
OBLIGATION IS VOID
2. Impossible condition attached to a simple or remuneratory
donation – CONDITION IS NOT IMPOSED, BUT DONATION
IS VALID
POSITIVE AND NEGATIVE CONDITIONS
POSITIVE CONDITION
Involves the performance of an act or fulfillment of an event
Effect: The condition that some event happen at a determinate time
shall extinguish the obligation as soon as the time expires or if it
becomes indubitable that the event will not take place.
Example: I will give you P2,000 if you pass the bar exam in your first
attempt. (If he flunks the exam, the obligation is extinguished)
NEGATIVE CONDITION
Involves the non-performance or an act or nonfulfillment of an
event.
Effect: 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 becomes evident that
the event cannot occur.
Example: I will give you P2,000 provided that you should not get
married before reaching 25. (If he is still not married at 25, the
obligation becomes effective)
CONSTRUCTIVE FULFILLMENT OF SUSPENSIVE CONDITIONS
Doctrine of constructive fulfillment of suspensive conditions
The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment. The debtor must have actually voluntarily
and willfully prevented the creditor from complying with the
condition
Example: Where the conditions imposed by the company so its
employees would be entitled to retirement benefits can no longer
be complied because of the retirement plan was willfully abrogated
by a unilateral act of the Board of Directors, the conditions are
deemed complied with. Thus, the employees are now entitled to
retirement benefits.
RETROACTIVE APLICATION OF CONDITIONAL OBLIGATIONS
OBLIGATIONS TO GIVE
The effects of a conditional obligation to give, once the condition
has been fulfilled, shall retroact to the day of the constitution of the
obligation.
If reciprocal obligation
The fruits and interests during the pendency of the condition shall
be deemed to have been mutually compensated
If unilateral obligation
The debtor shall appropriate the fruits and obligations 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.
OBLIGATIONS TO DO AND NOT TO DO
The courts shall determine in each case, the retroactive effect or the
condition that has been complied with.
EFFECT OF SUSPENSIVE CONDITIONS BEFORE FULFILLMENT
Effect on creditor
The demandability as well as the acquisition or effectivity of rights
arising from the obligation is suspended pending the happening of
the condition. Thus, the creditor has only a mere hope or
expectancy.
Right of creditor to preserve such right
This hope or expectancy is protected by law. Thus, if the obligor
promises to sell a parcel of land to the obligee upon the happening
of a condition, and subsequently, before the fulfillment of the
condition, he changes his mind and decides to sell the land to
another person, the obligee can bring an appropriate action, such as
a petition for the issuance of a writ of injunction to prevent the sale
in order to preserve his right.
Effect on debtor
During the pendency of the condition, the debtor’s obligation to
comply with the prestation is suspended until the fulfillment of the
condition.
Right of debtor
If he has paid anything by mistake during the pendency of the
condition, he can recover what he has been paid.
EFFECT OF SUSPENSIVE CONDITIONS AFTER FULFILLMENT
Once the event which constitutes the condition is fulfilled, the
obligation arises or becomes effective.
Effect on creditor
The right of the creditor, which, before the fulfillment of the
condition, was a mere hope or expectancy, is perfected. It becomes
effective and demandable.
Effect on debtor
The debtor can be compelled to comply with what is incumbent
upon him.
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RETROACTIVITY OF EFFECT OF SUSPENSIVE CONDITIONS constitution of the obligation or only to a specified date
Take Note: The principle of retroactivity can only apply to before fulfillment
consensual contracts, and never to real contracts (i.e. pledge, 2. Power to determine whether or not there will be any
commodatum, deposit) or contracts which can be realized within retroactivity of effects
successive periods or intervals (lease, hire of service life annuity)
LOSS, DETERIORATION OR IMPROVEMENT IN SUSPENSIVE
General rule: Once the event which constitutes the condition is
“I will give you my car if you pass the Bar examinations.”
fulfilled thus resulting in the effectivity of the obligation, its effects
must logically retroact to the time of the establishment of the
What is the effect of the loss, deterioration or improvement of the
obligation.
thing which constitutes the object of the obligation during the
pendency of the condition?
LIMITATIONS ON THE APPLICABILITY OF RETROACTIVE EFFECT

Obligations to give Take Note: The rules in Art 1189 refer only to conditional obligations
to give a determinate thing.
Reciprocal obligation
The fruits and interests during the pendency of the condition shall LOSS
be deemed to have been mutually compensated. The thing is lost when:
1. It perishes
Example: 2. It goes out of commerce
A obligated to sell a parcel of land to B for P100, 000 if B finishes law 3. It disappears in such a way that its existence is unknown or
school. Two years later, B finished law school. cannot be recovered

Effects: Loss is either:

1. A is compelled to deliver not only the land but also the
fruits which he gathered during the period from the time 1. Without the fault of the debtor
the contract was perfected until the fulfillment of the Effect: The obligation is extingusihed
obligation. (2 years) 2. Through the fault of the debtor
2. B is compelled to pay A not only P100, 000, but also the Effect: The obligation is converted into one of indemnity
interest during the same period. for damages

However, because of the reciprocal character of the obligation, the DETERIORATION

law, as a matter of convenience and justice, considers the fruits and
the interest as the equivalent of each other. Thus, they compensate  Without the fault of the debtor
each other mutually. Effect: Impairment is to be borne by the creditor
 Through the fault of the debtor
Unilateral obligation Effect: Creditor may choose between rescission of the
Debtor shall appropriate the fruits and obligations received, unless obligation with damages and bringing an action for specific
from the nature and circumstances of the obligation, it should be performance
inferred that the intention of the person constituting the same was
different. IMPROVEMENTS

This rule is based on justice since the debtor does not receive any
equivalent or valuable consideration from the creditor in cases of
unilateral obligations. Thus, he shall be entitled to all of the fruits or
interests of the thing pending the fulfillment of the obligation.
Example:
A obligation himself to give to B a parcel of land if B gets married to
C. Two years later, B married C.
Effect:
A is obligated to deliver only the land and not the fruits which he
may have gathered during the pendency of the condition.
Obligations to do or not to do
The courts will have to determine in each case the retroactive effect
of the condition that has been complied with.
1. Power to determine whether the effects of the fulfillment
of the condition shall retroact to the very moment of the
 By its nature or by time
Effect: The improvement shall inure to the benefit of the
creditor
 At the expense of the debtor
Effect: Debtor cannot have any other right than granted to
a usurfructuary. He cannot ask for reimbursement for the
expenses incurred for useful improvements or for
improvements for mere pleasure. (Except: Reimbursement
for necessary expenses)
However, he has the right to:
a. Remove such improvements, provided there is no
damage to the thing or property.
b. Set off the improvements he may have made on the
property against any damage to the same.

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Take Note:
Question: Do the rules also apply to resolutory conditions?
Answer: YES, provided that the debtor is the person obliged to
return the object of the obligation in case of fulfillment of the
condition, while the creditor is the person to whom the thing or
object must be returned.
EFFECTS OF RESOLUTORY CONDITIONS ANENT ITS FULFILLMENT
EFFECT OF RESOLUTORY CONDITIONS BEFORE FULFILLMENT
Effect on creditor
The right which the creditor has acquired by virtue of the obligation
is always subject to the threat of extinction during the pendency of
the condition.
Effect on debtor
Debtor is placed in a position which is very similar to that of the
creditor in suspensive conditions. He also has hope or expectancy
during the pendency of the condition because when the resolutory
condition is fulfilled, he will reacquire whatever he may have
delivered to the creditor.
EFFECT OF RESOLUTORY CONDITIONS AFTER FULFILLMENT
If the resolutory condition is not fulfilled
Such rights are consolidated and become absolute in character.
If resolutory condition is fulfilled
Such rights are extinguished altogether and whatever may have
been delivered upon the constitution of the obligation shall be
returned upon the fulfillment of the condition. Thus, there is return
to the status quo.
RETROACTIVITY OF EFFECT OF RESOLUTORY CONDITIONS
There are no exceptions or limitations to the principle of
retroactivity.
Reason: In obligations with a resolutory condition, the fulfillment of
the condition and its retroactivity have the effect of signifying the
nonexistence of the obligation and what is nonexistent must not
give rise t any effect whatsoever.
Obligations to give
Upon the fulfillment of the resolutory condition, the parties shall
return to each other what they have received. This rule is applicable
whether the obligation is reciprocal or unilateral.
Obligations to do or not to do
The retroactivity of effects of the resolutory condition shall depend
upon the discretion of the courts as in the case of suspensive
conditions.
LOSS, DETERIORATION OR IMPROVEMENT IN RESOLUTORY
“I will give my car now, but should you not pass the Bar
examinations, this shall be returned to me”
Effects: The rules with regards to loss, deterioration and
improvement in suspensive conditions equally apply. Only that, the
debtor is the person obliged to return, while the creditor is the
person to whom the thing must be returned.
RESCISSION OF OBLIGATIONS
The power to rescind obligations is implied in reciprocal ones, in
case one of the obligor should not comply with what is incumbent
upon him.
CONCEPT OF RECIPROCAL OBLIGATIONS
Reciprocal obligations are those which are created or established at
the same time, out of the same cause and which result in mutual
relationships of creditor and debtor between the parties.
Example: In a contract of sale, the obligation of the vendee to pay
the price is a correlative of the obligation of the vendor to deliver
the thing sold.
Take Note:
Although reciprocal obligations are bilateral in character, they must
not be confused with those obligations in which the parties are
mutually, but not reciprocally obligated. (ex. As when a person is the
debtor of another by virtue of a contract of loan)
TACIT RESOLUTORY CONDITION
If one of the parties fails to comply with what is incumbent upon
him, there is a right on the part of the other to rescind. Since it has
the effect of extinguishing rights which are already acquired or
vested, it is resolutory in character.
NECESSITY OF JUDICIAL ACTION
The right to rescind the obligation is a right which belongs to the
injured party alone. However, it is essential that it must be invoked
judicially. The court shall decree the rescission, unless there be a just
cause authorizing the fixing of a period.
General rule
Rescission of the obligation shall be invoked judicially. It is the
judgment of the court which produces the rescission.
Exception
Where the contract itself contains a resolutory provision by virtue of
which the obligation may be cancelled or extinguished by the injured
party in case of breach. Thus, judicial permission to cancel or rescind
the contract is no longer necessary.
Limitation: The rescission must not be contrary to law, morals, good
customs, public order or public policy.
Limitations on the application of the article
1. Article 1191 can be applied only to reciprocal contracts which
contain no resolutory conditions. The right to rescind is
“implied” only if not expressly granted. No right can be said to
be implied if expressly granted.
2. Cannot be applied to sales of real property (Recto law) or sales
of personal property by installments (Maceda Law)
NATURE OF BREACH
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What must be the nature of the breach which will entitle the injured
party to file an action for the rescission of the obligation?
Cases in point:
Song Fo v. Hawaiian Philippine Co. and Delta Motor Corp v. Gentino
Rescission will not be permitted for a slight or causal breach of the
contract, but only for such breaches which are substantial and
fundamental as to defeat the object of the parties in making the
agreement.
ALTERNATIVE REMEDIES OF INJURED PARTY
In case one of the parties should not comply with what is incumbent
upon him, the injured party may choose between:
1. Fulfillment of obligation with damages
2. Rescission of the obligation with damages
Take Note: The remedies are alternative, not cumulative. Hence, the
injured party cannot seek both.
However, even after the injured party has chosen fulfillment and
such should become impossible, he can still seek rescission of the
obligation.
DAMAGES TO BE AWARDED
In estimating the damages to be awarded, only those elements of
damages can be admitted which are compatible with the idea of the
remedy chosen.
Example: In case of a rescission of contract of sale for failure of the
buyer to pay the stipulated price, the seller is only entitled to be
restored to the possession of the thing sold. He cannot have both
the thing sold and the price agreed upon.
JUDICIAL DISCRETION TO DECREE RESCISSION
The right of the injured party in reciprocal obligations to rescind is
not absolute in character. The court is given the discretionary power
to fix a period within which the debtor in default may be permitted
to comply with what is incumbent upon him.
However, this cannot be applied to reciprocal obligations arising
from a contract of lease. (Art 1659 – no discretionary power is
granted to the courts)
EFFECT OF RESCISSION
When an obligation is rescinded, it is the duty of the court to require
the parties to surrender whatever they may have received from the
other. Hence, the parties are placed in their original situation.
However, this is without prejudice to the liability for damages of the
party who was unable to comply with what was incumbent upon
him.
EFFECT UPON THIRD PERSONS
The decree of rescission shall be without prejudice to the rights of
third persons who have acquired the thing, in accordance with:
1. Article 1385 – Rescission cannot take place when the
things which are the object of the contract are legally in
the possession of third persons who did not act in bad
faith.
2. Article 1388
3. Mortgage Law
EFFECT OF BREACH OF BOTH PARTIES
In case both parties have committed a breach of the obligation, the
liability of the first infractor shall be equitably tempered by the
courts. If it cannot be determined which of the parties first violated
the contract, the same shall be deemed extinguished, and each shall
bear his own damages.
This article contemplates of two situations:
1. First infractor known – One party violated his obligation,
subsequently, the other also violated his part of the
obligation. In this case, the liability of the first infractor
should be equitably reduced.
Case in point: Central Bank v. CA
The bank failed to release the entire approved loan (P80,000)
but the borrower also failed to pay the partial loan release
(P17,000) he received after it fell due. Both are in default and
their respective liability for damages shall be offset equitably,
exclusive of the interest due on the overdue loan portion
(P17,000) since the borrower derived benefit for its use.
Take Note: This is fair to both parties because the second
infractor also derived, or thought he would derive some
advantage by his own act or neglect.
2. First infractor cannot be determined – One party violated
his obligation followed by the other, but it cannot be
determined which of them was the first infractor. In which
case, the contract shall be deemed extinguished and each
shall bear his own damages.
Take Note: This rule is likewise just because it is presumed
that both at about the same tried to reap some benefit.
SECTION 2. OBLIGATIONS WITH A PERIOD
Articles 1193 – 1198
OBLIGATIONS WITH A PERIOD
OBLIGATION WITH A PERIOD
One whose demandability or extinguishment is subject to the
expiration of a term or period.
CONCEPT OF TERM OR PERIOD
An interval of time, which, exerting an influence on an obligation as
a consequence of juridical act, either suspends its demandability or
produces its extinguishment.
Period – A future and certain event upon the arrival of which, the
obligation subject to it either arises or is terminated. It is a day
certain which must necessarily come (ex. Year 2019, next
Christmas), although it may not be known when (ex. Death of a
person)
Condition – A future and uncertain event upon which an obligation
is made to depend.
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PERIOD AND CONDITION DISTINGUISHED According to source

1. Legal period – When it is granted by law (ex. Arts. 1606,
Term or Period Condition
1623, 1682, 1687)
Refers to an interval of Refers to a fact or 2. Conventional period – When it is stipulated by the parties
As to requisites time which is future and event which is future (ex. Art. 1196)
certain and uncertain
3. Judicial period – When it is fixed by the courts.
(ex. Art. 1197)
May also refer to a
As to time Refers only to the future past event unknown
to the parties According to definiteness
1. Definite period – When the date or time is known
A future and beforehand and is known when it will come
An interval of time which
As to fulfillment must necessarily come, uncertain fact or
event which may or 2. Indefinite period – When it can only be determined by an
although it may not be
may not happen event which must necessarily come to pass, although it
known when
may not be known when.
Merely exerts an Exerts an influence Take Note:
influence upon the time upon the very
As to influence Question: If the happening of a future event is fixed by the parties
on obligation of the demandability or existence of the
for the fulfillment or extinguishment of an obligation what is the
extinguishment of an obligation itself
nature of the obligation – is it with a term or is it conditional?
obligation

Answer: If the event will necessarily happen, although it may not be

Arrival of the period does Happening of the known when, the obligation is with a term. If the uncertainty
As to retroactivity not have any retroactive condition has consists in whether the event will happen or come to pass, such
of effects effect unless there is an retroactive effects event constitutes a condition.
agreement
EFFECTS OF TERM OR PERIOD
As to effect,
The court is empowered Invalidates the If term or period is suspensive
when left to
debtor’s will to fix the duration thereof obligation The fulfillment or performance of the obligation is demandable only
upon the arrival of the day certain or the expiration of the term.
What is therefore suspended by the term is not the acquisition of
Take Note: the right or the effectivity of the obligation, but merely its
Like a condition, a period or term must be possible. Otherwise, the demandability.
obligation is void. (ex. February 30)
In other words, the obligation itself becomes effective upon its
CLASSIFICATIONS OF TERM OR PERIOD constitution, but once term or period expires, it becomes
demandable.
According to effect
If the term or period is resolutory
1. Suspensive period (ex die) – when the obligation becomes The fulfillment or performance of the obligation is demandable at
demandable only upon the arrival of a day certain. once, but once it is extinguished or terminated upon the arrival of
Examples: the day certain or the expiration of the term.
a. I will pay you on January 1 next year
b. I will support you from the time your father dies. EFFECT OF FORTUITOUS EVENT
c. I will pay you when my means permit me to do so In obligations with a term or period, any stipulation in the contract
to the effect that in case of a fortuitous event the contract shall be
2. Resolutory period (in diem) – when the obligation is deemed suspended during the term or period, does not mean that
demandable at once; although it is terminated upon the the happening of the fortuitous event shall stop the running of the
arrival of a day certain. term or period agreed upon.

Examples: Effect: Only to relieve the contracting parties from the fulfillment of
a. I will give you P1,000/month until the end of the year their respective obligations during the term or period.
b. I will support you until you die

Day certain – that which must necessarily come, although

it may not be known when.

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LOSS, DETERIORATION OR IMPROVEMENT BEFORE PERIOD
PERIOD
As to the effects of loss, deterioration or improvement before the
arrival of the day certain, the rules of Art. 1189 shall be observed
LOSS
 Without the fault of the debtor
Effect: The obligation is extinguished
 Through the fault of the debtor
Effect: The obligation is converted into one of indemnity
for damages
DETERIORATION
 Without the fault of the debtor
Effect: Impairment is to be borne by the creditor
 Through the fault of the debtor
Effect: Creditor may choose between rescission of the
obligation with damages and bringing an action for specific
performance
IMPROVEMENTS
 By its nature or by time
Effect: The improvement shall inure to the benefit of the
creditor
 At the expense of the debtor
Effect: Debtor cannot have any other right than granted to
a usurfructuary. He cannot ask for reimbursement for the
expenses incurred for useful improvements or for
improvements for mere pleasure. (Except: Reimbursement
for necessary expenses)
However, he has the right to:
c. Remove such improvements, provided there is no
damage to the thing or property.
d. Set off the improvements he may have made on the
property against any damage to the same.
EFFECT OF ADVANCED PAYMENT OR DELIVERY
If the obligor, being unaware of the period or believing that the
obligation has become due and demandable, paid or delivered
something before the arrival or expiration of the period
Remedy: He may recover what he has paid or delivered with fruits
and interests.
Conditions
1. Only applies to obligations to give
2. Payment or delivery must have been made by the debtor
because he was unaware of the period or believed that the
obligation had become due and demandable.
Otherwise, if made voluntarily, there can be no right of
recovery.
BENEFIT OF TERM OR PERIOD
GENERAL RULE
When a person is designated for the performance or fulfillment of
an obligation, it is presumed to have been established for the
benefit of both the creditor and the debtor.
Hence, the creditor cannot demand performance nor can the debtor
perform the obligation before the expiration of the designated
period.
Example: On January 1, D borrowed from E P100, 000 payable on
December 31 at 15% interest. (D cannot pay before December 31
without the consent of E and neither can E compel D to pay before
the expiration of the term.
Mutual benefit: Both are benefited here because D can use the
money for one year, and E can benefit from the interest the money
would earn for one year.
EXCEPTION
If it can be established either from the tenor of the obligation or
from other circumstances that the period or term has been
established in favour of the creditor or the debtor, the general rule
on presumption shall not apply.
Term is for the benefit of the debtor alone
He cannot be compelled to pay prematurely, but he can, if he
desires, to do so.
Examples:
1. B borrowed from C P100, 000 to be paid within 1 year
without interest.
2. B promised to pay his debt on or before December 31,
2000.
3. B promised to pay his debt within five years.
Term is for the benefit of the creditor
He may demand fulfillment even before the arrival of the term but
the debtor cannot compel him to accept payment before the
expiration of the stipulated period.
Example:
1. B borrowed from C P100, 000 payable on December 31,
with a stipulation that B cannot make payment before the
lapse of the period but C may demand fulfillment even
before said date.
ACCELERATION BY DEBTOR OF TIME OF PAYMENT
Three reasons why a creditor may not be bound to receive payment
before maturity:
1. Payment of interest
2. Creditor may want to keep his money invested safely
instead of having it in his hands
3. Creditor, by fixing a period, protects himself against
sudden decline of purchasing power of the currency
loaned.
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Unless the creditor consents, debtor has no right to accelerate the
time of payment even if the premature tender included an offer to
pay principal and interest in full.
EFFECT OF ACCEPTANCE BY CREDITOR OF PARTIAL PAYMENT
Amounts to a waiver of the period agreed upon during which
payment should be made. If no explanation is given as to why the
creditor received such partial payment before maturity of the
obligation, it may be presumed that his relinquishment was
intentional and his choice to dispense with the term, voluntary. `
Prescriptive period of the action
The action may also prescribe like an ordinary civil action – 10 years.
EFFECT OF JUDICIAL PERIOD
Once fixed by the courts, the period can no longer be judicially
changed. This is because the moment the parties have their consent
to the period fixed by the court, said period acquires the nature of a
covenant – it becomes a law governing their contract.
EXTINGUISHMENT OF DEBTOR’S RIGHT TO PERIOD

JUDICIAL TERM OR PERIOD

JUDICIAL TERM OR PERIOD
A term or period is judicial when the duration thereof is fixed by a
competent court in accordance with cause expressly recognized by
law. Once fixed, the period can no longer be judicially changed.
Restrictions:
1. Cannot be applied to contracts for services
2. Cannot be applied to pure obligations
WHEN OBLIGATION CAN BE DEMANDED BEFORE LAPSE OF PERIOD
General Rule
Obligation is not demandable before the lapse of the period.
Exceptions
The debtor shall lose every right to make use of the period, that is,
the period is disregarded and the obligation becomes pure and
demandable.

Two instances where the courts can fix the duration of the period:
1. If the obligation does not fix a period, but from its nature,
and the circumstances, it can be inferred that a period was
intended.
Examples:
a. Donation of a parcel of land to the City of Manila
subject to the condition that it shall be converted into
a public square, but silent with regard to the period
for fulfillment of the condition.
b. Failure to fix a definite period within which the
debtor was to complete the construction of a house.
2. When the period depends upon the will of the debtor.
Examples:
a. I will pay my indebtedness when my means permit
me to do so.
b. I will pay as soon as possible.
c. I will pay as soon as I have the money.
Take Note: Once fixed by the courts, the period cannot
anymore be changed.
NATURE OF ACTION
The only action that can be maintained under Art. 1197 is an action
to ask the court to fix the duration of the term or period. It is only
after the duration has been fixed by a proper court that any other
action involving the fulfillment of the obligation can be maintained.
1. When debtor becomes insolvent after the obligation has
been contracted
Except: If there is a guaranty or security for the debt
Take Note: Insolvency here need not be judicially declared.
It is sufficient that the assets of the debtor are less than his
liabilities or is unable to pay his debts as they mature.
2. When the debtor does not furnish guaranties or
securities promised
Example: D promised to mortgage his house to secure the
debt. If he fails to furnish said security as promised, he
shall lose his right to the period.
3. When the guaranties or securities given have been
impaired through debtor’s fault or disappeared through a
fortuitous event
Except: If he immediately gives a new guaranty or security
which is equally satisfactory
Take Note:
There is a difference between the effect of impairment
and disappearance.
a. If the security is impaired through the fault of the
debtor – he shall lose his right to period
b. If impaired without his fault – he shall retain his right
c. If disappears through any cause even without fault of
debtor – he shall lose his right to period

Take Note: As long as such period has not yet been fixed by the 4.
court, there can be no possibility of any breach of contract or failure
to perform the obligation.
5.
Express request in complaint not necessary
It is not necessary that the creditor should expressly ask the court, in
his complaint, to fix the duration of the period. Where the essential
allegations of the pleadings describe an obligation with an indefinite
period, the court can fix the duration of the period.
When the debtor violates an undertaking
Example: The promise to repair the piano free of charge.
When debtor attempts to abscond
Example: Debtor changed his address before the due date
of the obligation, without informing the creditor, with the
intention to escape from his obligation. TN, mere attempt
or intent to abscond is sufficient.

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