CHAPTER 1 GENERAL PROVISIONS

OBLIGATION (Article 1156)

 An obligation is a juridical necessity to give, to do or not to do.
 An obligation is a juridical relation whereby a person called the creditor may demand from another
person called the debtor, the observance of a determinative conduct which is the giving, doing or not
doing, and in case of breach, may demand satisfaction from the assets of the latter.

ESSENTIAL REQUISITES OF AN OBLIGATION

A. PASSIVE SUBJECT or DEBTOR or OBLIGOR
– He who has the duty of giving, doing or not doing. The person who is bound to the fulfillment of
the obligation; he who has a duty.
B. ACTIVE SUBJECT or CREDITOR or OBLIGEE
– The possessor of a right; he in whose favor the obligation is constituted. The person who is
entitled to demand the fulfillment of the obligation; he who has a right.
C. OBJECT or PRESTATION or SUBJECT MATTER
– The conduct required to be observed by the debtor which may consists in giving a thing, doing or
not doing a certain act.
D. JURIDICAL TIE or LEGAL TIE or EFFICIENT CAUSE or VINCULUM JURIS
– The reason why the obligation exists.

FORM OF OBLIGATIONS
– The manner in which an obligation is manifested or incurred. It may be oral, or in writing, or partly oral
and partly in writing.
RULES AS TO FORM
A. As a general rule, the law does not require any form in obligations arising from contracts for their
validity or binding force.
B. Obligations arising from other sources do not have any form at all.

SOURCES OF OBLIGATIONS (Article 1157)

A. LAW (Article 1158)
– When they are imposed by the law itself.
B. CONTRACTS (Articles 1159 and 1306)
– When they arise from the stipulations of the parties.
C. QUASI-CONTRACTS (Articles 1160 and 2142)
– Lawful, voluntary, and unilateral acts which generally require a person to reimburse or
compensate another in accordance with the principle that no one shall be unjustly enriched or
benefited at the expense of another .
D. ACTS OR OMISSIONS PUNISHABLE BY LAW (Article 1161and Article 100, Revised Penal
Code, Act No. 3815, December 8, 1930)
– When they arise from civil liability which is the consequence of a criminal offense.
E. QUASI-DELICTS (Articles 1162 and 2176)
– When they arise from damage caused to another through an act or omission, there being fault or
negligence, but no contractual relation exists between the parties.

LEGAL OBLIGATIONS or OBLIGATIONS EX LEGE (Article 1158)

– These obligations are not presumed because they a considered a burden upon the debtor. They are the
exception, not the rule. To be demandable, they must be clearly set forth in the law.
– No agreement is necessary before legal obligations can arise , but the law steps in only because of
human actuations.
CONTRACTUAL OBLIGATIONS or OBLIGATIONS EX CONTRACTU
– A contract is a meeting of the minds between two persons whereby one binds himself, with respect to
the other, to give something, or to render some service (Article 1305).
– Obligations arising from contracts have the force of law between the contracting parties, i.e., they have
the same binding effect as legal obligations (Article 1159).
– A contract, assuming all essential elements are present, is valid if it is not contrary to law, morals, good
customs, public order and public policy.

QUASI-CONTRACTUAL OBLIGATIONS or OBLIGATIONS EX QUASI-

CONTRACTU (Article
1160)
– A juridical relation resulting from lawful, voluntary and unilateral acts by virtue of which the parties
become bound to each other to the end that no one will be unjustly enriched or benefited at the expense
of another (Article 2142).

TWO PRINCIPAL KINDS OF QUASI-CONTRACTS

A. NEGOTIORUM GESTIO
– This takes place when a person voluntarily manages another’s abandoned business or property
without the owners’ consent (Article 2144). Reimbursement must be made to the officious manager or
gestor for necessary and useful expenses, as a rule (Article 2150).

B. SOLUTIO INDEBITI
–It is the juridical relation which is created when something is received when there is no right to
demand it and it was unduly delivered through mistake. The
recipient has the duty to return it (Article 2154).
REQUISITES OF SOLUTIO INDEBITI
1. There is no right to receive the thing delivered; and
2. The thing was delivered through mistake.

CIVIL LIABILITY ARISING FROM CRIMES or ACTS OR OMISSIONS PUNISHABLE BY LAW or

DELICT or OBLIGATIONS EX DELICTO or OBLIGATIONS EX MALEFICIO (Article 1161)
– The commission of a crime causes not only moral evil but also material damage. From this principle, the rule
has been established that every person criminally liable for an act or omission is also civilly liable for damages
(Article 100, Revised Penal Code, Act No. 3815, December 8, 1930).
SCOPE OF CIVIL LIABILITY
A. Restitution.
B. Reparation for the damage caused.
C. Indemnification for consequential damages.

OBLIGATIONS ARISING FROM QUASI-DELICTS or TORTS or CULPA AQUILIANA or

OBLIGATIONS EX QUASI- DELICTO or OBLIGATIONS EX QUASI-MALEFICIO
– An act or omission by a person (tortfeasor) which causes damages to another in his person, property, or rights
giving rise to an obligation to pay for the damage done, there being fault or negligence but there is no pre-
existing contractual relation between the parties (Article 2176).
REQUISITES OF QUASI-DELICT
A. There must be an act or omission.
B. There must be fault or negligence.
C. There must be damage caused.
D. There must be a direct relation or connection of cause and effect between the act or omission and the
 damage (DOCTRINE OF PROXIMATE CAUSE).
E. There is no pre-existing contractual relation between the parties.

CHAPTER 2 NATURE AND EFFECTS OF OBLIGATIONS

SPECIFIC AND GENERIC OBJECTS

A. SPECIFIC or DETERMINATE OBJECT
– If the thing can be particularly designated or physically segregated from others of the same class.
It is identified by its individuality.
– The debtor cannot substitute it with another although the latter is of the same kind and quality
without the consent of the creditor.
B. GENERIC or INDETERMINATE OBJECT
– A thing is generic when it refers only to a class or genus to which it pertains and cannot be
pointed out with particularity. It is identified only by its specie.
– The debtor can give anything of the same class as long as it is of the same kind.

DUTIES OF A DEBTOR IN SPECIFIC REAL OBLIGATIONS

A. DUTY TO PRESERVE THE THING or DUTY TO EXERCISE DILIGENCE
– In real obligations, the debtor has the incidental duty to take care of the thing due pending
delivery with the diligence of a good father of a family.
–
B. DUTY TO DELIVER THE FRUITS OF THE THING
– 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 (Article
1164).
KINDS OF FRUITS
1. NATURAL FRUITS - Spontaneous products of the soil and the young and other products of animals.
2. INDUSTRIAL FRUITS - Produced by lands of any kind through cultivation or labor.
3. CIVIL FRUITS - Those derived by virtue of a juridical relation.

RIGHT OF CREDITOR TO THE FRUITS (Article 1164)

– The creditor is entitled to the fruits of the thing to be delivered from the time the obligation to make
delivery arises. The intention of the law is to protect the interest of the obligee should the obligor
commit delay, purposely or otherwise, in the fulfillment of his obligation.

WHEN OBLIGATION TO DELIVER FRUITS ARISES

1. Generally, the obligation to deliver the thing due and, consequently, the fruits thereof, if any, arises from
the time of the perfection of the contract.
2. If the obligation is subject to a suspensive condition or period (Articles 1179, 1189, and 1193.), it arises
upon the fulfillment of the condition or arrival of the term. However, the parties may make a stipulation
to the contrary as regards the right of the creditor to the fruits of the thing.
3. In a contract of sale, the obligation arises from the perfection of the contract even if the obligation is
subject to a suspensive condition or a suspensive period where the price has been paid.
4. In obligations to give arising from law, quasi-contracts, delicts, and quasi-delicts, the time of
performance is determined by the specific provisions of the law applicable.

C. DUTY TO DELIVER THE ACCESSIONS AND ACCESSORIES

– The obligation to give a determinate thing includes that of delivering all its accessions and accessories,
even though they may not have been mentioned (Article 1166).
ACCESSIONS – the fruits of a thing or additions to or improvements upon a thing (the principal)
 ACCESSORIES – those joined to or included with the principal thing for the latter’s embellishment, better
use or completion.

D. DUTY TO DELIVER THE THING ITSELF

– Every person obliged to give a determinate thing must deliver, and the creditor may compel the delivery
of, that itself which was promised, and he cannot substitute it unless the creditor agrees (Article 1165).
WHEN THE OBLIGATION TO DELIVER ARISES
1. If there is no term or condition, then from the perfection of the contract.
2. If there is a term or a condition, then from the moment the term arrives or the condition happens.

E. DUTY TO ANSWER FOR DAMAGES IN CASE OF NON-FULFILLMENT OR BREACH

– Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those
who in any manner contravene the tenor thereof, are liable for damages (Article 1170).

DUTIES OF A DEBTOR IN GENERIC REAL OBLIGATIONS

A. The creditor may ask that the obligation be complied with at the expense of the debtor (Article 1165).
B. If the thing to be delivered is indeterminate or generic, the obligor must deliver a thing of the quality
specified or intended by the parties taking into consideration the purpose of the obligation and other
circumstances; if none is fixed, he must deliver one of average quality and neither can the obligor
deliver a thing of inferior quality nor the obligee demand one of superior quality (Article 1246).
C. To be liable for damages in case of fraud, negligence, or delay, in the performance of his obligation, or
contravention of the tenor thereof (Article 1170).

REMEDIES OF CREDITOR IN CASE OF BREACH OF REAL OBLIGATIONS (Article 1165)

A. SPECIFIC REAL OBLIGATION
1. Demand specific performance or fulfillment of the obligation with a right to indemnity for
damages.
2. Demand rescission or cancellation (in certain cases) of the obligation also with a right to recover
damages.
3. Demand payment of damages only where it is the only feasible remedy.

B. GENERIC REAL OBLIGATION

– Demand compliance with the obligation. If debtor fails, it can be performed by a third person since the object
is expressed only according to its family or genus. However, the creditor can recover damages in case of
breach.
WHEN DEBTOR DELAYS OR IS IN BAD FAITH
– If the debtor is in delay or promised delivery to separate creditors, the happening of a fortuitous event does
not exempt the debtor from responsibility because an indeterminate thing cannot be the object of destruction
based on the doctrine genus never perishes (genus nunquam perit).
STIPULATIONS CONTEMPLATED
A. The debtor fails to perform an obligation to do.
B. The debtor performs an obligation to do but contrary to the terms thereof.
C. The debtor performs an obligation to do but in a poor manner.

REMEDIES OF A CREDITOR IN POSITIVE PERSONAL OBLIGATIONS (Article 1167)

A. If the debtor fails to comply with his obligation to do, the creditor has the right:
1. To have the obligation performed by himself, or by another, unless personal considerations are involved,
at the debtor’s expense.
2. To recover damages.
3. In case the obligation is done in contravention of the terms of the same or is poorly done, it may be
ordered (by the court) that it be undone if it is still possible to undo what was done.
RULES REGARDING PERFORMANCE BY A THIRD PERSON
1. A personal obligation can be performed by a third person. However, an action for specific performance
cannot be ordered in a personal obligation because this may amount to involuntary servitude, which as a
rule, is prohibited under the Constitution.
2. Where personal qualifications of the debtor are the determining motive for the obligation contracted, the
performance of the same by another would be impossible or would result to be so different that the
obligation could not be considered performed. Hence, the only remedy of the creditor is indemnification
for damages.

REMEDIES OF CREDITOR IN NEGATIVE PERSONAL OBLIGATIONS (Article 1168)

A. The thing may be ordered undone provided undoing is possible at the expense of the debtor plus
damages.
B. If it is not possible to undo what was done, either physically or legally, or because of the rights acquired
by third persons who acted in good faith, or for some other reason, the remedy is an action for damages
caused by the debtor’s violation of his obligation.

GROUNDS FOR LIABILITY (Article 1170)

A. FRAUD or DECEIT or DOLO
– The deliberate or intentional evasion of the normal fulfillment of an obligation. As a ground for damages, it
implies some kind of malice or dishonesty and it cannot cover cases of mistake and errors of judgment made in
good faith. It is synonymous to bad faith in that, it involves a design to mislead or deceive another.
KINDS OF FRAUD
1. CAUSAL FRAUD or DOLO CAUSANTE
– Fraud employed in the execution of a contract which vitiates consent.
– Substantial fraud that may constitute a ground for annulment of the contract.
2. INCIDENTAL FRAUD or DOLO INCIDENTE
– Fraud committed in the performance of an obligation already existing because of a contract so
although fraud is absent or not exercised, the other party would have nonetheless entered into the
agreement on significantly the same terms.
– Incidental fraud which merely calls for reparation for damages.
–
B. NEGLIGENCE or FAULT or CULPA
– It is any voluntary act or omission, there being no bad faith or malice, which prevents the normal
fulfillment of an obligation.

C. LEGAL DELAY or DEFAULT or MORA (Article 1169)

KINDS OF DELAY
1. ORDINARY DELAY -Merely the failure to perform an obligation on time.
2. LEGAL DELAY or DEFAULT or MORA
– The failure to perform an obligation on time which failure constitutes a breach of the obligation.
– Those obliged to deliver or to do something incur in default from the time the creditor judicially
or extrajudicially demands from them the fulfillment of their obligation (Article 1169).
KINDS OF DEFAULT
1. MORA SOLVENDI -Default on the part of the debtor to fulfill his obligation.
2. MORA ACCIPIENDI - Default on the part of the creditor to accept performance of the obligation.
3. COMPENSATIO MORAE -The delay of the obligors in reciprocal obligations, the delay of the
obligor cancels the delay of the obligee, and vice versa. The net result is that there is no actionable
default as both parties are in default; here it is as if neither is in default.
WHEN DEMAND IS NOT NEEDED TO PUT DEBTOR IN DEFAULT (Article 1169)
 1. When the obligation expressly so provides.
2. When the law so provides.
3. When time is of the essence of the contract.
4. When demand would be useless.
5. When there is performance by a party in reciprocal obligations.

D. CONTRAVENTION OF THE TERMS OF THE OBLIGATION

– The violation of the terms and conditions stipulated in the obligation. The contravention must not be
due to a fortuitous event or force majeure.

RESPONSIBILITY ARISING FROM FRAUD (Article 1171)

– Responsibility arising from incidental fraud can be demanded with respect to all kinds of obligations
and unlike in the case of responsibility arising from negligence, the court is not given the power to
mitigate or reduce the damages to be awarded.

RULES REGARDING WAIVER FOR FRAUD

A. A waiver of an action for future fraud is void (no effect, as if there is no waiver) as being against the
law and public policy.
B. A past fraud can be the subject of a valid waiver because the waiver can be considered as an act of
generosity and magnanimity on the part of the party who is the victim of the fraud.

RESPONSIBILITY ARISING FROM NEGLIGENCE (Article 1172)

– In the performance of every kind of obligation, the debtor is also liable for damages resulting from his
negligence. The courts, however, are given wide discretion in fixing the measure of damages because
negligence is a question which must necessarily depend upon the circumstances of each particular case and is
not as serious as fraud because there is not deliberate intention to cause injury or damages.

KINDS OF NEGLIGENCE ACCORDING TO SOURCE OF OBLIGATION

A. CONTRACTUAL NEGLIGENCE or CULPA CONTRACTUAL –
- Negligence in contracts resulting in their breach.
B. CIVIL NEGLIGENCE or QUASI-DELICT or TORTS or CULPA AQUILIANA or
OBLIGATIONS
EX QUASI-DELICTO or OBLIGATION EX QUASI-MALEFICIO
-Negligence which by itself is the source of an obligation between the parties not so related before any
pre-existing contract.
C. CRIMINAL NEGLIGENCE or CULPA CRIMINAL
- Negligence resulting in the commission of a crime.

FACTORS TO BE CONSIDERED TO DETERMINE NEGLIGENCE (Article 1173)

A. Nature of the obligation.
B. Circumstances of the person.
C. Circumstances of time.
D. Circumstances of the place.

FORTUITOUS EVENT or ACT OF GOD or FORCE MAJEURE or CASO FORTUITO

– Is any event which cannot be foreseen, or which, though foreseen, is inevitable. Stated otherwise, it is an
event which is either impossible to foresee or impossible to avoid. It is independent of the will of the debtor
and which happening, makes the normal fulfillment of the obligation impossible.

REQUISITES OF A FORTUITOUS EVENT

 A. The event must be independent of the human will or at least of the debtor’s will.
B. The event could not be foreseen, or if foreseen, is inevitable.
C. The event must be of such a character as to render it impossible for the debtor to comply with his
obligation in a normal manner.
D. The debtor must be free from any participation in, or the aggravation of, the injury to the creditor, that
is, there is no concurrent negligence on his part.

RULES AS TO LIABILITY IN CASE OF FORTUITOUS EVENT

A. GENERAL RULE
As a general rule, a person is not responsible for loss or damage caused to another resulting from the
non-performance of his obligation due to fortuitous events. In other words, the obligation is
EXTINGUISHED.

B. EXCEPTIONS (WHEN OBLIGATION IS NOT EXTINGUISHED) (Article 1174)

1. WHEN EXPRESSLY SPECIFIED BY LAW
a) The debtor is guilty of fraud, negligence, or delay, or contravention of the tenor of the obligation (Article
1170).
b) The debtor is in bad faith or has promised to deliver the same (specific) thing to two or more persons
who do not have the same interest (Article 1165).
c) The obligation to deliver a specific thing arises from a crime (Article 1268).
d) The thing to be delivered is generic (Article 1263) in accordance with the principle genus never perishes
(genus nunquam perit).
2. WHEN DECLARED BY STIPULATION
– The basis for this exception rests upon the freedom of contract (Article 1306).
3. WHEN THE NATURE OF THE OBLIGATION REQUIRES THE ASSUMPTION OF RISK or
DOCTRINE OF CREATED RISK
– The risk of loss or damage is an essential element in the obligation.
SIMPLE LOAN (MUTUUM)
– Is a contract whereby one of the parties delivers to another, money, or other consumable thing, upon the
condition that the same amount of the same kind and quality shall be paid. It may be gratuitous or with a
stipulation to pay interest (Article 1933).

USURY (Article 1175)

– It is contracting for or receiving interest in excess of the amount allowed by law for the loan or use of
money, goods, chattels or credits. In other words, usury is the exaction of excessive interest.
– A stipulation for payment of usurious interest is void, that is, as if there is no stipulation as to interest.
– By virtue, however, of Central Bank Circular No. 905 (December 10, 1982), the rate of interest and
other charges on a loan or forbearance of money, goods, or credit, regardless of maturity and whether
secured or unsecured, that may be charged or collected shall not be subject to any ceiling prescribed under
the Usury Law. Usury is now legally inexistent. Parties are now free to stipulate any amount of interest. It
does not, however, give absolute right to the creditor to charge the debtor interest that is iniquitous or
unconscionable.
REQUISITES FOR RECOVERY OF INTEREST
A. The payment of interest must be expressly stipulated (Article 1956).
B. The agreement must be in writing.
C. The interest must be lawful.

PRESUMPTION
– The inference of a fact not actually known arising from its usual connection with another which is
known or proved.
TWO KINDS OF PRESUMPTION
A. CONCLUSIVE PRESUMPTION - One which cannot be contradicted.
B. DISPUTABLE PRESUMPTIONor REBUTTABLE PRESUMPTION -VOne which can be
contradicted or rebutted by presenting proof to the contrary.

TWO PRESUMPTIONS
A. The receipt of the principal by the creditor without reservation with respect to the
interest, shall give rise to the presumption that said interest has been paid.
B. The receipt of a later installment of a debt without reservation as to prior installments, shall likewise
raise the presumption that such installments have been paid.

EXCEPTIONS TO PRESUMPTIONS (WHEN PRESUMPTIONS DO NOT APPLY)

A. WITH RESERVATION AS TO INTERESTV -The = presumption do not arise where there is a
reservation that no payment has been made as to interest or prior installments, as the case may be. The
reservation may be made in writing or verbally.
B. RECEIPT WITHOUT INDICATION OF PARTICULAR INSTALLMENT PAID – The presumption is
not applicable if the receipt does not recite that it was issued for a particular installment due as when the
receipt is only dated.
C. RECEIPT FOR A PART OF THE PRINCIPAL - Such a receipt, without mentioning the interest, implies
that the creditor waives his right to apply payment first to the interest and then to the principal. It is only
when the principal is fully receipted for and there is failure by the creditor to reserve claim for interest, that
the presumption that the said interest has been paid will arise.
D. PAYMENT OF TAXES - There is no presumption that previous taxes have been paid by payment of later
ones.
E. NON-PAYMENT PROVEN - A presumption cannot prevail against a proven fact.

REMEDIES AVAILABLE TO CREDITORS IN CASE OF BREACH

A. Exact fulfillment or SPECIFIC PERFORMANCE (specific real obligations), or SUBSTITUTE
PERFORMANCE (personal obligations) with damages.
B. Pursue the leviable (not exempt from attachment under the law) property of the debtor.
C. Exercise all rights (like the right to redeem) and bring all actions of the debtor (like the right to collect
from the debtor of his debtor (SUBROGATORY ACTION or ACCION SUBROGATORIA)) except
those inherent in or personal to the person of the debtor.
D. Ask the court to rescind or impugn acts or contracts which the debtor may have done to defraud him
when he cannot in any manner recover his claim (RESCISSORY ACTION or ACCION PAULIANA).

GENERAL RULE
– All rights acquired by virtue of an obligation are transmissible.
EXCEPTIONS
A. PROHIBITED BY LAW
- When prohibited by law like the rights in partnership, agency, and commodatum which are purely
personal in character.
B. PROHIBITED BY STIPULATION OF THE PARTIES
- When prohibited by stipulation of the parties, like the stipulation that upon the death of the creditor, the
obligation shall be extinguished, or that the creditor cannot assign his credit to another. Such stipulation,
being contrary to the general rule, must be clearly proved, or, at he very least, clearly implied from the
wordings or terms of the contract itself.

CHAPTER 3 DIFFERENT KINDS OF OBLIGATIONS

 SECTION 1. PURE AND CONDITIONAL OBLIGATIONS
PURE OBLIGATION (Article 1179)
– One which is not subject to any condition and no specific period or date is mentioned for its fulfillment
and is, therefore, immediately demandable provided there will be no absurdity.

CONDITION
– A future and uncertain event, upon the happening of which, the effectivity or extinguishment of
an obligation or right subject to it depends.
– It may also refer to a past event unknown to the parties which refers to the knowledge to be acquired in
the future of a past event which at the moment is unknown to the parties interested.

CONDITIONAL OBLIGATION
– One whose consequences are subject in one way or another to the fulfillment of a condition.
– 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.

CHARACTERISTICS OF A CONDITION
A. FUTURE AND UNCERTAIN -In order to constitute an event as a condition, it is not enough that it be
future, it must also be uncertain.
B. PAST BUT UNKNOWN - A condition may refer to a past event unknown to the parties. If it refers to a
future event, both its very occurrence and the time of such occurrence must be uncertain, otherwise, it is
not a condition.
C. POSSIBLE - A condition must not be impossible.

TWO PRINCIPAL KINDS OF CONDITION

A. SUSPENSIVE CONDITION or CONDITION PRECEDENT or CONDITION ANTECEDENT
- One the fulfillment of which will give rise to an obligation or right. The demandability of the
obligation is suspended until the happening of the uncertain event which constitutes the condition.
- When the acquisition of rights or demandability of the obligation must await the occurrence of the
condition (Article 1181).
B. RESOLUTORY CONDITION or CONDITION SUBSEQUENT
- One the fulfillment of which will extinguish an obligation or right already existing.
- When the obligation is at once due and demandable but the right is extinguished or lost upon the
fulfillment of the condition (Articles 1179 and 1181).

WHEN OBLIGATION IS DEMANDABLE AT ONCE

A. When the obligation is pure.
B. When it is subject to a resolutory condition.
C. When it is subject to a resolutory period.

PAST EVENT UNKNOWN TO THE PARTIES

– A past event cannot be said to be a condition since the demandability of an obligation subject to a condition
depends upon whether the event will happen or will not happen. What is really contemplated by the law is the
knowledge to be acquired in the future of a past event which at the moment is unknown to the parties
interested, for it is only in that sense that the event can be deemed uncertain. This knowledge determines
whether the obligation will arise or not.

PERIOD
– A future and certain event upon the arrival of which the obligation subject to it either arises or is
extinguished.
WHERE DURATION OF PERIOD DEPENDS UPON THE WILL OF DEBTOR (Article 1180)
– If the debtor promises to pay when his means permit him to do so, the obligation shall be deemed to be
one with a period. In this case, what depends upon the debtor’s will is not whether he should pay or not
for indeed he binds himself to pay. What is left only to his will is the duration of the period.
– If the debtor and the creditor cannot agree as to the specific time for payment, the court shall fix the
same on the application of either party (Article 1197).

POTESTATIVE or FACULTATIVE CONDITION

– A condition suspensive in nature which depends upon the sole will of one of the contracting parties.
KINDS OF POTESTATIVE CONDITION
A. SUSPENSIVE POTESTATIVE DEPENDENT UPON THE WILL OF THE DEBTOR
1. CONDITIONAL OBLIGATION VOID (Article 1182)
- Where the potestative condition depends solely upon the will of the debtor, the conditional obligation
shall be void because its validity and compliance is left to the will of the debtor and it cannot, therefore, be
easily demanded. In order not to be liable, the debtor will not just fulfill the condition. There is no burden
on the debtor and consequently, no juridical tie is created. The obligation is really illusory since the debtor
will simply choose not to fulfill the condition to evade the obligation.
- Both the condition and the obligation is void.
2. ONLY CONDITION VOID
– If the obligation is a pre-existing one and, therefore, does not depend for its existence upon the fulfillment
by the debtor of the potestative condition, only the condition is void leaving unaffected the obligation itself.
Here, the condition is imposed not on the obligation itself but on its fulfillment.
B. RESOLUTORY POTESTATIVE DEPENDENT UPON THE WILL OF THE DEBTOR
– The obligation is valid although its fulfillment depends upon the sole will of the debtor since the
fulfillment of the condition merely causes the extinguishment or loss of rights already acquired. The
debtor is naturally interested in its fulfillment.
C. POTESTATIVE DEPENDENT UPON THE WILL OF THE CREDITOR
– The obligation and condition is valid because the creditor is naturally interested in the fulfillment of the
obligation.

CASUAL -If the suspensive condition depends upon chance or upon the will of a third person, the
obligation subject to it is valid.
MIXED - The obligation is valid if the suspensive condition depends partly upon chance and partly upon the
will of a third person.
TWO KINDS OF IMPOSSIBLE CONDITIONS
A. PHYSICALLY IMPOSSIBLE CONDITIONS
- When they, in nature of things, cannot exist or cannot be done.Includes logical impossibility.
B. LEGALLY IMPOSSIBLE CONDITIONS or ILLEGAL CONDITIONS
- When they are contrary to or prohibited by law, morals, good customs, public order, or public policy.

EFFECTS OF IMPOSSIBLE CONDITIONS (Article 1183)

A. CONDITIONAL OBLIGATION VOID -Impossible conditions annul the obligation which depends
upon them. Both the obligation and the condition are void. The reason behind the law is that the obligor
knows his obligation cannot be fulfilled. He has no intention to comply with his obligation.
B. CONDITIONAL OBLIGATION VALIDb-If the condition is negative, that is, not to do an impossible
thing, it is disregarded and the obligation is rendered pure and valid. Actually, the condition is always
fulfilled when it is not to do an impossible thing so that it is the same as if there were no condition.
C. ONLY THE AFFECTED OBLIGATION VOIDm-If the obligation is divisible, the part thereof not
affected by the impossible condition shall be valid.
 D. ONLY THE CONDITION VOID- If the obligation is a pre-existing obligation, and, therefore, does not
depend upon the fulfillment of the condition which is impossible, for its existence, only the condition is
void.
POSITIVE CONDITION (Article 1184)
– The condition that some event happen at a determinate time shall extinguish the obligation as soon as
the time expires or if it has become indubitable that the event will not take place.
– Refers to positive and suspensive condition – the happening of an event at a determinate time.
WHEN THE OBLIGATION IS EXTINGUISHED
A. As soon as the time expires without the event taking place.
B. As soon as it has become indubitable that the event will not take place although the time specified has not
expired.

NEGATIVE CONDITION (Article 1185)

– The condition that some event will not happen at a determinate time shall render the obligation effective
from the moment the time indicated has elapsed, or if it has become evident that the event cannot occur.
– Speaks of a negative condition – that an event will not happen at a determinate time.
WHEN THE OBLIGATION BECOMES EFFECTIVE
A. From the moment the time indicated has elapsed without the event taking place.
B. From the moment it has become evident that the event cannot occur, although the time indicated has not yet
elapsed.

DOCTRINE OF CONSTRUCTIVE or PRESUMED FULFILLMENT OF SUSPENSIVE CONDITION

(Article 1186)
– The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment for one must not
profit by his own fault or bad faith. The act must be voluntary and there must be actual prevention.

REQUISITES
A. The condition is suspensive.
B. The obligor actually prevents the fulfillment of the condition.
C. He acts voluntarily.

DOCTRINE OF CONSTRUCTIVE or PRESUMED FULFILLMENT OF RESOLUTORY CONDITION

– This article applies also to an obligation subject to a resolutory condition with respect to the debtor who is
bound to return what he has received upon the fulfillment of the condition.

RETROACTIVE EFFECTS OF FULFILLMENT OF SUSPENSIVE CONDITION (Article 1187)

A. IN REAL OBLIGATIONS
– An obligation to give subject to a suspensive condition becomes demandable only upon the fulfillment of the
condition. However, once the condition is fulfilled, its effect shall retroact to the day when the obligation was
constituted.
B. IN PERSONAL OBLIGATIONS
– With respect to the retroactive effect of the fulfillment of a suspensive condition in obligations to do or not
to do, no fixed rule is provided. This does not mean, however, that in these obligations the principle of
retroactivity is not applicable. The courts are empowered by the use of sound discretion and bearing in mind
the intent of the parties, to determine, in each case, the retroactive effect of the suspensive condition that has
been complied with. It includes the power to decide that the fulfillment of the condition shall have no
retroactive effect or from what date such retroactive effect shall take effect.

RETROACTIVE EFFECTS AS TO FRUITS AND INTERESTS IN REAL OBLIGATIONS (Article

1187)
A. IN RECIPROCAL OBLIGATIONS
- There is no retroactivity because the fruits and interests during the pendency of the condition shall be deemed
to mutually compensate each other even though they really be unequal for the purpose of convenience and
practical effectiveness since the parties would not have to render mutual accounting of what they have
received.
B. IN UNILATERAL OBLIGATIONS
- There is usually no retroactive effect because they are gratuitous. The debtor receives nothing from the
creditor. Thus, fruits and interests belong to the debtor unless from the nature and other circumstances of the
obligation it should be inferred that the intention of the person constituting the same was different.

RIGHTS PENDING FULFILLMENT OF SUSPENSIVE CONDITION (Article 1188)

A. RIGHTS OF CREDITOR = He may take or bring appropriate actions for the preservation of his right, as
the debtor may render nugatory the obligation upon the happening of the condition.
B. RIGHTS OF DEBTOR – He is entitled to recover what he has paid by mistake prior to the happening of
the suspensive condition. This right is granted to the debtor because the creditor may or may not be able to
fulfill the condition imposed and hence, it is not certain that the obligation will arise. This is a case of
solutio indebiti. Note that the payment before the fulfillment of the condition must be by mistake,
otherwise, the debtor is deemed to have impliedly waived the condition. In any case, he cannot recover
what he has prematurely paid once the suspensive condition is fulfilled.

RULES IN CASE OF LOSS, DETERIORATION, OR IMPROVEMENT OF THING DURING

PENDENCY OF SUSPENSIVE CONDITION (Article 1189)
A. LOSS OF THING WITHOUT DEBTOR’S FAULT
The obligation is extinguished. As a general rule, the debtor is not liable for a fortuitous event.
B. LOSS OF THING THROUGH DEBTOR’S FAULT
The debtor is obliged to pay damages.
C. DETERIORATIONOR IMPAIRMENT OF THING WITHOUT DEBTOR’S FAULT
The creditor suffers the deterioration, impairment, or reduction in value.

D. DETERIORATIONOF THING THROUGH DEBTOR’S FAULT

The creditor may choose between the rescission of the obligation or its fulfillment with indemnity for
damages in either case.
E. IMPROVEMENT OF THING BY NATURE OR BY TIME
The improvement shall inure to the benefit of the creditor.
F. IMPROVEMENT OF THING AT EXPENSE OF DEBTOR
The debtor shall have no other right than that granted to the usufructuary.

EFFECTS OF FULFILLMENT OF RESOLUTORY CONDITION (Article 1190)

A. IN REAL OBLIGATIONS – When the resolutory condition in an obligation to give is fulfilled, the
obligation is extinguished and the parties are obliged to return to each other what they have received under the
obligation.
EFFECTS
1. There is a return to the status quo. In other words, the effect of the fulfillment of the condition is retroactive.
2. In case the thing to be returned is legally in the possession of a third person in good faith, the remedy of the
party entitled to restitution is against the party bound to return.
3. The obligation of mutual restitution is absolute. It applies not only to the thing received but also to the fruits
and interests. The fruits or the interests thereon should also be returned after deducting of course the
expenses made for their production gathering and preservation (Article 443).
4. The rules in Article 1189 will apply to whoever has the duty to return in case of the loss, deterioration or
improvement of the thing.
5. The only exception to the rule is the intention of the parties not to avail of restitution.
B. IN PERSONAL OBLIGATIONS – In such obligations, the courts shall determine the retroactive effect of
the fulfillment of the resolutory condition. The courts in the exercise of discretion may even disallow
retroactivity, taking into account the circumstances of each case.

KINDS OF BILATERAL OBLIGATION

A. RECIPROCAL BILATERAL OBLIGATION
Arises from the same cause and the performance of one party is designed to be the equivalent and the
condition for the performance of the other. Each party may treat the fulfillment of what is incumbent upon
the other as a suspensive condition to this obligation and its non-fulfillment, as a tacit or implied resolutory
condition, giving him the right to demand the rescission of the contract.
B. NON-RECIPROCAL BILATERAL OBLIGATION
Those which do not impose simultaneous and correlative performance on both parties. The performance of
one party is not dependent upon the simultaneous performance by the other.

REMEDIES IN RECIPROCAL OBLIGATIONS (Article 1191)

A. ACTION FOR SPECIFIC PERFORMANCE OR FULFILLMENT OF THE OBLIGATION WITH
DAMAGES
B. ACTION FOR RESCISSION OF THE OBLIGATION WITH DAMAGES
Rescission in Article 1191 governs where there is non-compliance by one of the contracting parties in case
of reciprocal obligations. The remedy is granted for breach by the other contracting party that violates the
reciprocity between them.

LIMITATIONS ON THE RIGHT TO DEMAND RESCISSION

A. RESORT TO THE COURTS
The rescission contemplated by Article 1191 is a judicial rescission or one granted by a court. The
injured party has to resort to the courts to assert his rights judicially for the same article provides that
"the court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period."
B. POWER OF COURT TO FIX PERIOD
– The court has discretionary power to allow a period within which a person in default may be permitted
to perform his obligation if there is a just cause for giving time to the guilty party such as when he is
willing to comply with his obligation but needs time to do so and not where he refuses to perform. The
default incurred was not willful or could be excused in view of the surrounding circumstances.
C. RIGHT OF THIRD PERSON
– If the thing subject matter of the obligation is in the hands of a third person whoacted in good faith,
rescission is not available as a remedy.
D. SUBSTANTIAL VIOLATION
The general rule is rescission will not be granted for trivial causes or slight breaches of contract; the
violation should be substantial and fundamental as to defeat the object of the parties in making the
agreement.
E. WAIVER OF RIGHT
The right to rescind may be waived, expressly or impliedly.
F. AVAILABLE ONLY TO INNOCENT PARTY
It can be demanded only if the plaintiff is ready, willing and able to comply with his own obligation and
the other is not. Moreover, the guilty party cannot rescind.

RESCISSION WITHOUT PREVIOUS JUDICIAL DECREE

A. WHERE AUTOMATIC RESCISSIONEXPRESSLY STIPULATED
The parties may validly enter into an agreement that violation of the terms of the contract would cause
cancellation thereof even without judicial intervention or permission. Where the contract itself contains
 such a stipulation, the right to rescind is not "implied" but expressly recognized by the parties. Hence,
Article 1191 not applicable.
B. WHERE CONTRACT STILL EXECUTORY
Where there is no performance yet by both parties, but one is ready and willing to comply with what is
incumbent upon him and the other is not, the willing party may, by his own declaration, rescind the contract
without a previous judicial decree of rescission. In such a case, it is not necessary that there be stipulation
providing for automatic rescission.
RULES IN CASE OF BREACH BY BOTH PARTIES (Article 1192)
A. 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.
B. 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. The rule is that the contract shall be deemed extinguished and each
shall bear his own damages.
– In effect, the court shall not provide remedy to either of the parties, who must suffer the damages
allegedly sustained by them.

CHAPTER 3 DIFFERENT KINDS OF OBLIGATIONS

SECTION 2. OBLIGATIONS WITH A PERIOD

OBLIGATION WITHA PERIOD

– One whose effects or consequences are subjected in one way or another to the expiration or arrival of
said period or term.
PERIOD or TERM
– A future and certain event upon the arrival of which the obligation or right subject to it
either arises or is terminated.
– It is a day certain which must necessarily come, although it may not be known when (Article 1193).
KINDS OF PERIOD OR TERM
A. ACCORDING TO EFFECT
1. SUSPENSIVE PERIOD (EX DIE)
 A period or term with a suspensive effect. The obligation begins only from a day certain, in other
words, upon the arrival of the period.
 Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day
comes (Article 1193).
2. RESOLUTORY PERIOD (IN DIEM)
 A period or term with a resolutory effect. Up to a certain time, the obligation remains valid, but upon the
arrival of said period, the obligation terminates.
B. ACCORDING TO SOURCE
1. LEGAL PERIOD - A period granted under the provisions of the law.
2. CONVENTIONAL PERIOD or VOLUNTARY PERIOD - Period agreed upon or stipulated by the
parties.
3. JUDICIAL PERIOD - The period or term fixed by the courts for the performance of an obligation or for
its termination.
C. ACCORDING TO DEFINITENESS
1. DEFINITE PERIOD - The exact date or time is known and given.
2. INDEFINITE PERIOD - Something that will surely happen but the date of happening is unknown as in
the case of death. Where the period is not fixed but a period is intended, the courts are usually empowered by
law to fix the same.
RULES IN CASE OF LOSS, DETERIORATION, OR IMPROVEMENT OF THING BEFORE THE
ARRIVAL OF THE SUSPENSIVE PERIOD (Article 1194)
– In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules
in Article 1189 shall be observed.
A. LOSS OF THING WITHOUT DEBTOR’S FAULT - The obligation is extinguished. As a general rule,
the debtor is not liable for a fortuitous event.
B. LOSS OF THING THROUGH DEBTOR’S FAULT - The debtor is obliged to pay damages.
C. DETERIORATION OR IMPAIRMENT OF THING WITHOUT DEBTOR’S FAULT - The creditor
suffers the deterioration, impairment, or reduction in value.
D. DETERIORATION OF THING THROUGH DEBTOR’S FAULT- The creditor may choose between
the rescission of the obligation or its fulfillment with indemnity for damages in either case.
E. IMPROVEMENT OF THING BY NATURE OR BY TIME - The improvement shall inure to the benefit
of the creditor.
F. IMPROVEMENT OF THING AT EXPENSE OF DEBTOR - The debtor shall have no other right than
that granted to a usufructuary.

PAYMENT BEFORE ARRIVAL OF PERIOD (Article 1195)

– Anything paid or delivered before the arrival of the period, the obligor being unaware of the period or
believing that the obligation has become due and demandable, may be recovered, with the fruits and
interests.
– The creditor cannot unjustly enrich himself by retaining the thing or money received before the arrival
of the period.
DEBTOR PRESUMED AWARE OF PERIOD
– The debtor is presumed to be aware of the period. He has the burden of proving that he was unaware of
the period. Where the duration of the period depends upon the will of the debtor, payment by him
amounts, in effect, to his determination of the arrival of the period. The debtor may no longer recover
the thing or money once the period has arrived but he can recover the fruits or interests thereof from
the date of premature performance to date of maturity of the obligation.

PERIOD WITHIN WHICH RECOVERY MAY BE MADE

A. IF THE DEBTOR DID NOT KNOW THAT PAYMENT WAS NOT YET DUE
Before the debt matures regarding what was paid. Even after maturity, regarding interest for after all, the
creditor was in bad faith. However, the right prescribes five years after premature payment.
B. IF THE DEBTOR KNEW THAT PAYMENT WAS NOT YET DUE
No recovery can be had of what has been paid, much less can there be recovery of interest. This is true
whether the creditor is in good or bad faith, since the important thing is the knowledge by the debtor of the
prematureness for this is implied waiver.

PRESUMPTIONAS TO BENEFIT OF PERIOD (Article 1196)

– In an obligation subject to a period fixed by the parties, the period is presumed to have been established for
the benefit of both the creditor and debtor. Before the expiration of the period, the debtor may not fulfill the
obligation and neither may the creditor demand its fulfillment without the consent of the other especially if the
latter would be prejudiced or inconvenienced thereby. The debtor cannot pay prematurely and the creditor
cannot demand prematurely. It applies only where the parties to a contract themselves have fixed a period.
EXCEPTIONS IF THERE BE SUCH INTENT
A. TERM IS FOR THE BENEFIT OF THE DEBTOR ALONE - He is required to pay only at the end but
he may pay even before if he desires to do so. The debtor may also resist premature demand for compliance.
B. TERM IS FOR THE BENEFIT OF THE CREDITOR ALONE - The creditor can demand payment at
any time even before the term expires and he cannot be compelled to accept payment fromthe debtor prior to
the stipulated period.
GENERAL RULE
– If the obligation does not state a period and no period is intended, the court is not
authorized to fix a period. The courts have no right to make contract for the parties.
EXCEPTIONS (WHEN THE COURTS CAN FIX THE TERM) (Article 1197)
A. NO PERIOD IS FIXED BUT A PERIOD WAS INTENDED
When although the obligation does not fix a period, it can be inferred from its nature and the
circumstances that a period was intended.
B. DURATION OF THE PERIOD DEPENDS UPON THE WILL OF THE DEBTOR AS
PROVIDED FOR IN ARTICLE 1180
In this case what really depends on the debtor is not the payment, for he had promised to pay,
but the TIME when payment is to be made. When such is the case, the court is obliged to fix the
duration of the period. The creditor must ask the court first for the fixing of the term, and it is only
when that term set arrives that he can demand fulfillment. Any action to recover before this is done is
considered premature.

PERIOD FIXED CANNOT BE CHANGED BY THE COURTS

A. If there is a period agreed upon and it has already lapsed, the court cannot fix another period.
B. From the very moment the parties give their acceptance and consent to the period fixed by the court,
said period acquires the nature of a contract, because the effect of such acceptance and consent by the
parties is exactly the same as if they had expressly agreed upon it, and having been agreed upon by
them, it becomes a law governing their contract. However, the parties may modify the term by a new
agreement.

WHEN DEBTOR SHALL LOSE EVERY RIGHT TO MAKE USE OF THE PERIOD (FIIVA) (Article
1198)
A. WHEN DEBTOR BECOMES INSOLVENT
When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or
security for the debt.
B. WHEN THE DEBTOR DOES NOT FURNISH GUARANTIES OR SECURITIES PROMISED
C. WHEN GUARANTIES OR SECURITIES GIVEN HAVE BEEN IMPAIRED OR HAVE
DISAPPEARED
When by his own acts he has impaired said guaranties or securities after their establishment, and when
through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory.
D. WHEN DEBTOR VIOLATES AN UNDERTAKING
When the debtor violates any undertaking, in consideration of which the creditor agreed to the period.
E. WHEN THE DEBTOR ATTEMPTS TO ABSCOND