OBLIGATIONS AND CONTRACTS • Must be determinable.

TITLE I: OBLIGATIONS
 Object or prestation
CHAPTER 1: GENERAL PROVISIONS • Not a thing but a particular conduct of the debtor.

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

• Giving, doing, or not doing something.
o “to give” – delivery of movable or immovable thing.
OBLIGATION o “to do” – all kinds of works and services.
 Definitions o “not to do” – abstaining from some act.
• The juridical relation, created by virtue of certain facts, between two or more persons, whereby
one of them, known as the creditor or oblige, may demand of the other, known as the debtor or REQUISITES OF A VALID PRESTATION (P
obligor, a definite prestation (De Diego and Ruggiero). 1. Possible, physically and juridically.
• An obligation is a juridical tie between two persons, by virtue of which one of them, the 2. Legal
creditor, has the right to demand of the other, the debtor, a definite prestation (Brugi). 3. Determinate, or at least, determinable
• It is the legal relation established between one party and another whereby the latter is bound to 4. Susceptible of pecuniary estimation/value consideration.
the fulfillment of a prestation which the former may demand of him (Manresa).
• A juridical relation whereby a person (called the creditor) may demand from another (called the  Efficient Cause
debtor) the observance of a determinate conduct, and, in case of breach, may obtain satisfaction
from the assets of the latter (Aries Ramos). • Juridical tie or vinculum which may be a relation established by:
 Correlative to the concept of right. Where there is right or power to demand, there is a correlative 1. Law (husband and wife)
obligation. 2. Bilateral Acts (contracts)
3. Unilateral Acts (crimes and quasi-delicts)
ELEMENTS OF AN OBLIGATION:
CIVIL OBLIGATIONS NATURAL OBLIGATIONS
1. An active subject (obligee or creditor): has the power to demand the prestation.
2. A passive subject (obligor or debtor): bound to perform the prestation. Can be the basis of an enforceable right Cannot be the basis of an enforceable right
3. An object or the prestation
Give right of action to compel their performance. Cannot be enforced by court action but which are
4. The efficient cause or juridical tie
binding on the party who makes them, in
Can be enforced through court action or coercive conscience and according to equity and justice.
power of public authority.
REQUISITES FOR A CREDITOR REQUISITES FOR A DEBTOR
Derive binding force from positive law. Derive their binding effect from equity and
1. Only needs to be a person under the CC. 1. Juridical person natural justice.
2. Capacity to act
Article 40. Birth determines personality;
but the conceived child shall be considered Art. 1157. Obligations arise from:
Article 1327
born for all purposes that are favorable to (1) Law;
The following cannot give consent to a
it, provided it be born later with the (2) Contracts;
contract:
conditions specified in the following article. (3) Quasi-contracts;
(1) Unemancipated minors;
(4) Acts or omissions punished by law; and
(2) Insane or demented persons, and deaf-
(5) Quasi-delicts. (1089a)
Baby can demand support form parents. mutes who do not know how to write.
(1263a) Sources of Obligations
 Planiol: obligations arise wither from contract or from law.
EXCEPTIONS: Minors can enter into contracts  Ruggiero: Will of parties and acts of a different nature producing juridical tie.
to acquire their necessities (e.g. food, shelter,  More scientific classification: law and acts
education, medical expensess
Unilateral promise can give rise to obligations
 Personal elements:  Anyone who promises a reward for the realization of an act is obliged to pay that reward,
 Code contains no provision from which we can attribute any obligatory force to a unilateral promise
• Active and Passive subjects
before acceptance.
• May be individual persons or juridical persons.  An offer without acceptance is not binding.
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 REQUISITES OF A CONTRACT
Art. 1158. Obligations derived from law are not presumed. (A) Consent
(B) Object
Only those expressly determined in this Code or in special laws are demandable, and shall be (C) Cause
regulated by the precepts of the law which establishes them; and as to what has not been foreseen,
by the provisions of this Book. (1090) CONCEPT OF CONSENT When is there consent?
When there is a meeting of the minds between the parties. When the offeror makes an offer and the officer
OSG V AYALA LAND is accepted by the offerer.
MMDA, through an ordinance, required shopping malls to provide parking spaces for free to customers.
SC invoked Art. 1158, ruling that since the ordinance did not expressly state for the parking spots to be There are two basic elements of consent (1) Proposal and (2) Acceptance.
provided for free, the malls have no obligation to have the parking spaces used without charge.
- Concurrence of both will create the juridical tie.
OBLIGATIONS DERIVED FROM LAW CANNOT BE PRESUMED.
- So long as the provision of the contract is not contrary to law.
Agreement Unnecessary
Law cannot exist as a source of obligations, unless the acts to which its principles may be applied exist. Completeness Test – it must be complete such that it only leaves the offeree to either reject or accept.
But once those acts exist, the obligation arising therefrom by virtue of express provisions of the law are
entirely independent of the agreement of the parties. Example: You want to buy my car for P50,000. It is incomplete, there are some aspects that you need to
clarify such as what the color of the car is or where the car is.
Obligation Not Presumed
Obligations derived from law are not presumed. Only those expressly provided for in this Code or in NOTE: An advertisement is not an offer but an invitation to offer.
special laws are enforceable. 1. OFFER/PROPOSAL – Cause, determinable and not contrary to law.
2. UNCONDITIONAL & UNQUALIFIED ACCEPTANCE
Art. 1159. Obligations arising from contracts have the force of law between the contracting parties (a) Acceptance must be directed to the offeror
and should be complied with in good faith. (1091a) (b) Out of his own volition and must not be vitiated by other devices.
Article 1305.TO
FREEDOM Contracts.
CONTRACT A contract
- Article
is a1306.
meeting
Theofcontracting
minds between
partiestwo
may
persons
establish
whereby
such stipulations,
one binds (c) It must be unconditional
clauses, terms
himself, with respect
and conditions
to the other,
as they
to give
maysomething
deem convenient,
or to render
provided
somethey
service.
are not contrary to law,
morals, good customs, public order, or public policy. If there is a deviation from the tenor of the offeror it will be a counter offer.

Need not be express because obligations arising from contracts can be implied.
CUI V ARELLANO
Cui signed a contract with Arellano University, stating that he could only avail of his scholarship if he
stayed in the school. When he transferred to another law school, Arellano demanded payment for his
school fees. SC found this to be contrary to public policy (Memorandum No. 38), providing scholarship as
a form of merit, not to bolster the school’s prestige.
STAGES OF CONTRACT
1. Generation – period of negotiation and bargaining, ending at the moment of agreement of the parties.
2. Perfection or birth of the contract – the moment the parties come to an agreement on the terms of the
contract
3. Consummation – the fulfillment or performance of the terms agreed upon in the contract.
It is only when the contract is at the stage of perfection that a juridical tie is created
EXCEPTION: State can strike down a contract if it is contrary to law, good customs, public order, and
public policy.

HOW WILL WE DETERMINE THAT IT WILL BE ENFORCEABLE?
It must establish that the agreement is a contract. An agreement does not necessarily give rise to a
contract. Thus, there is no obligation.
NOTE: A contract is an agreement but not all agreement is a contract.
Article 1159. When there is a law between them, it must be complied in good faith.
- Non-impairment of Contracts Clause
Once the contract is perfected, the valid contract has the force of law binding the parties to comply
therewith in good faith.

A contract need not always be in writing. Nothing in the provision requires that it must be in writing, NOTE: The provisions of Article 1306 and 1159 must be read together.
therefore a contract may be done orally.
Unlike any other kinds of obligation, those arising from contracts are governed primarily by the agreement
Nothing in Article 1305 states that it must be clear and unequivocal. of the contracting parties.

Establishment of a Contract: A contract may be established by presumption, imputation, or it may be “Compliance in Good Faith”
expressed and implied. This means performance in accordance with the stipulations, clauses, terms, and conditions of a contract.

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Prescriptive Periods Meeting of the minds is required No meeting of minds
Ten (10) years (Art. 1144) Both are lawful and voluntary acts
1. Written Contracts
2. Obligations created by law In Quasi-contract where no express consent is given by the other party, the consent needed in a contract is
3. Upon Judgement provided by law through assumption (Presumptive consent). Presumptive consent gives rise to multiple
juridical relations resulting in obligations for delivery of the thing and rendering of service.
Six (6) years (Article 1144)
1. Oral Contract THREE CONCEPTS OF QUASI CONTRACT
2. Quasi Contract 1. Negotiorum Gestio or Officious Management (Article 2144)
2. Solutio Indebiti or Payment Not Due (Article 2154)
Four (4) Years (Article 1146) 3. Other Quasi-contracts (Article 2164-2175)
1. Injury to the rights of the plaintiff
2. Quasi Delicts

Validity of Contract
 Autonomy of will NEGOTIORIUM GESTIO
 Terms should not be contrary to law, morals, good customs, public policy, or public order. This is the 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.
Falsification of Contract
 Unauthorized insertion of additional stipulations does not avoid the whole contract. In this type of quasi-contract, once the gestor or officious manager has assumed the agency or
 Still enforceable management of the business or property, he shall be obliged to continue such agency or management until
 Disregard only the additional stipulations. the termination of the affair and its incidents, exercising such rights and complying with the obligations as
provided for in the Code.
Attorney’s Contracts
 Different footing from contracts of any other services. Parties in Negotiorium Gestio:
 The court may ignore the contract and limit recovery to reasonable compensation if the amount is a. Officious Manager
found by court to be unreasonable. b. Owner

Pre-Contractual Obligations WHAT IS AN OFFICIOUS MANAGER?

 Pre-contractual obligations are possible.
 The offeree may incur expenses for trips, testing, plans, and such would be a total loss if the offeror
suddenly withdraws his offer.
 If the offeror is guilty of fault or negligence – Art 2176 (quasi-delicts).
 No fault or negligence but there was abuse of right – Art 19.
Webster Dictionary defines “officious” as excessively forward. An officious manager is one without
authority, or one who did not require authority.
- “Pakialamero”
The owner is the beneficiary. He is unjustly enriched from the management of the officious manager.

Art. 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, REQUISIES OF NEGOTIORIUM GESTIO
Title XVII, of this Book. (n) 1. There is a property or building
Quasi-contracts are those juridical relations arising from lawful, voluntary and unilateral acts, by virtue of 2. It must be abandoned and neglected
which the parties become bound to each other, based on the principle that no one shall be unjustly
3. There is taking possession in order to manage or administer
enriched or benefited at the expense of the other.
- “Quasi” means “alike”. A quasi contract is like a contract but not exactly the same. 4. Which is unauthorized tacitly, expressly or impliedly
5. Voluntary and the officious manager has knowledge that it is for the benefit of the owner.
 A juridical relation which arises from certain lawful, voluntary, and unilateral acts, to the end that
no one may be unjustly enriched or benefited at the expense of another. Negotiorium Gestio creates two different prestations.
 Must be lawful a. To do – the gestor manages the property or building
 Must be unilateral b. To give – the owner reimburses the officious manager of the expenses
Accion in rem verso (Art 22) Solutio indebiti
Contracts Quasi-Contracts No mistake in paynent Payment by mistake
Created by the meeting of the minds Created by law based on the
between two or principle that no one shall be
more person unjustly enriched. Arise from law Arise from QC
Bilateral Acts Unilateral Acts Prevent the unjust enrichment of one party

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NEGIOTIORIUM GESTIO WITH THE PRESTATION TO DO
Active Subject – Owner or Beneficiary
Passive Subject – Gestor or the Officious manager
Prestation – to do
NOTE: The prestation is to do until the determination of relationship.
SITUATION: A stranger who saw a building which is negelected and abandoned. He saves it.
WHEN IS THE RELATIONSHIP DETERMINE?
The relationship in a prestation to do in negotiorium gestio is determined at the moment the owner knows
of the occupancy by the officious manager.
WHEN IS IT EXTINGUISHED?
The moment that the owner knows of the occupancy by the officious manager, the obligation is
extinguished. The extinguishment of the obligation creates a contract.
- A contract is created once the owner knows, and the officious manager has to take care of the property
until the end.
NEGOTIORIUM GESTIO WITH THE PRESTATION TO GIVE
Active Subject: Gestor or the Officious Managers
Passive Subject: The owner or Beneficiary
Prestation: To give
Negotiorium Gestio gives rise to a cause of action on the part of the officious manager to be paid or
reimbursed on the amount that he spent for the maintenance or improvement done in the property.
SITUATION: X owned a fish pond in Marawi which is now for harvest. Subsequently a seige happened
which caused all resident to suddenly leave the place. X left the country. Y saw that the fish pond is rich
with bangus. On his own he harvested the bangus and sold it in the market and bought another set of
fingerlings for the pond. X returned to the country, what is the cause of action?
On the part of X:
X is an officious manager, he had the obligation to do and maintain the pond until the owner returns. Since
X returned to country, he has to return the pond and the proceeds that came from the pond.
On the part of Y:
Y, as the owner, benefited or is unjustly enriched from the actions of X in maintaining the pond for him.
He has the obligation to pay X the amount he spent on the pond.
- It would be justified to account for and deduct it as X’s own fair wage in
maintaining the bond. NOTE: A reciprocal obligation is created in negotiorium gestio.
Article 1191. Reciprocal obligation
- It is an obligation where the parties are creditor and debtor to each other.
- In this kind of obligation there is more than 1 prestation.
- The determination of who is the creditor or debtor is determined from the
prestation.
- Two distinct prestation to give depends on the object of the obligation.
SOLUTIO INDEBITI
A juridical relation which arises when a person unduly delivers a thing through mistake to another who
has no right to demand it.
Requisites:
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OBLIGATIONS AND CONTRACTS | TOLENTINO SUMMARY | MADZ ONG
1. Something is delivered
2. Recipient has no right to receive it
3. The delivery is made through mistake
SITUATION: Bruno owns a farm that he has not seen for 10 years. He realizes that it needed cultivation
to improve its productivity. Bruno did not know about the boundary of his property, he extended his
cultivation work to the property of Mars, his neighbor. Both properties increased its cost / selling price
because of Bruno’s cultivation work. Bruno realized that he extended his cultivation work to Mars. Can
Bruno institute an action against Mars to pay him the necessary expenses incurred in cultivating his land?
The obligation created is Solutio Indebiti Unlike in Negotiorium Gestio there is no voluntariness in the
actions of Bruno because he was unaware of that he was cultivating the land of Mars.
OTHER QUASI-CONTRACTS:
The provisions of quasi-contracts are found in Articles 2164-
2175.
Article 1160 creates an obligation based on the principle that no one shall be unjustly enriched or
benefited at the expense of another.
What if the there is no law governing the relationship of parties in Quasi-contracts?
There is unjust enrichment for either or both parties.
SITUATION: Giving Support to a child because his parents are neglectful of his needs. Once a person
gives support to the neglected child, he can ask for reimbursement of the support given from the neglectful
parents.
Art. 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws,
subject to the provisions of Article 2177, and of the pertinent provisions of Chapter 2, Preliminary
Title, on Human Relations, and of Title XVIII of this Book, regulating damages. (1092a)
CIVIL LIABILITY FROM CRIMES
 Every person criminally liable for a felony is also civilly liable (Art 100).
 Oftentimes, commission of a crime causes not only moral evil but also material damage.
CRIMINAL LIABILITY INCLUDES:
RESTITUTION– restoration of property previously taken away; the thing itself shall be restored, even
though it be found in the possession of a third person who has acquired it by lawful means, saving to the
latter his action against the proper person who may be liable to him.
REPARATION OF THE DAMAGE CAUSED – court determines the amount of damage: price of a
thing, sentimental value, etc.
INDEMNIFICATION FOR CONSEQUENTIAL DAMAGES – includes damages suffered by the
family of the injured party or by a third person by reason of the crime.
 NON-LIABILITY FOR CRIME
 Article 12 of RPC – The ff. are exempt from criminal liability:
1. Imbecile or insane, unless the latter acted during a lucid interval.
2. Under 9 years old
3. Over 9 and under 15, unless he acted with discernment
4. Any person who acts under the compulsion of an irresistible force.
5. Any person who acts under the impulse of an uncontrollable fear of an equal or greater
injury.
*THEY ARE NOT EXEMPT FROM CIVIL LIABILITY
 SUBSIDIARY LIABILITY FOR CRIME
• Inkeepers, tavernkeepers, and any other persons or corporations shall be civilly liable for
crimes committed in their establishment, in all cases where a violation of municipal
 ordinances or some general or special police regulation have been committed by them or 1. A crime MAY not incur civil liability – no obligation to provide RRI because there was nothing
their employees. destroyed/to be restituted or repaired
• Inkeepers are also subsidiarily liable for the restitution of goods taken by robbery or theft 2. A crime incurs ONLY civil obligation – JEMAA (Criminal law) child without discernment has
within their houses from guests lodging therein, or for payment of value thereof. exempting circumstance but can be civilly liable for damages.
• Employers, teachers, persons, and corporations for felonies committed by their servants,
pupils, workmen, apprentices, or employees in the discharge of their duties.
Art. 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2,
EXTENT OF CIVIL LIABILITY Title XVII of this Book, and by special laws. (1093a)
 RPC (Art 104 – Art 111)
 Civil Code (Art 2202, 2204-2206, 2211, 2219, 2220, 2230) CHAPTER 2: NATURE AND EFFECT OF OBLIGATIONS
 EXTINGUISHMENT OF LIABILITY
• Civil liability for crimes is extinguished by the same causes provided by the Civil Code CONCEPT OF QUASI-DELICT
for the extinguishment of other obligations.  Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to
pay for the damage done.
ENFORCEMENT OF LIABILITY  DISTINCT FROM CRIME
 When a criminal action is instituted, the civil action for recovery of civil liability arising from the • An injured party or his heirs has the choice between an action to enforce civil liability
offense charged is impliedly instituted with the criminal action, unless offended party expressly arising from crime under Article 100 of the RPC and an action for quasi-delict under
reserves this right. Articles 2176-2194 of the Civil Code.
 SEPARATE CIVIL ACTION • No need to make a reservation to file a civil action in the criminal case, as the civil action
• Criminal and Civil actions arising from the same offense may be instituted separately, but is based on culpa aquiliana (tort).
after the criminal action has been commenced the civil action cannot be instituted until  BASIS OF LIABILITY
final judgment has been rendered in the criminal action, except when allowed by law. • Principle of equity: fault or negligence cannot prejudice anyone else besides its author.
 WRIT OF ATTACHMENT  FAULT OR NEGLIGENCE
• In earlier decisions, the SC held that a writ of preliminary attachment cannot be obtained • Negligence is merely the want of care required by the circumstances. It is relative or
against the properties of the accused by the offended party, because there is no rule in the comparative, and not an absolute term.
laws of criminal procedure which permits it, and the rules on attachment in the Code of  TEST OF NEGLIGENCE
Civil Procedure were applicable only to civil actions. • ELEMENTS:
o No logical reason for this conclusion. 6. A duty on the part of the defendant to protect the plaintiff from the injury of which the latter
• Upon the filing of a criminal action, there is impliedly filed also a civil action. complains
• Namit and Moreno cases granted a writ of preliminary attachment in an estafa case. 7. Failure to perform that duty
 NO CRIMINAL PROCEEDINGS
• A civil action may be validly instituted, without the necessity of first instituting the
8. An injury to the plaintiff through such failure
criminal action.
• Criterion for determining the existence of negligence:
 INDEPENDENT CIVIL ACTION (Art 31-34)
Would a prudent man, in the position of the person to whom negligence is attributed,
• Cases in which the civil action arising from a criminal act is entirely independent of the
foresee harm to the person injured as a reasonable consequence of the course about to be
criminal action. Hence, the civil action may be filed separately without any reservation in
pursued?
the criminal action.
1. Obligations not arising from the act or omission claimed to be criminal
2. Violations of constitutional rights and liberties of individuals  CULPA AQUILIANA VS CULPA CONTRACTUAL
3. Defamation, fraud, or physical injuries CULPA AQUILIANA CULPA CONTRACTUAL
4. Refusal or failure of members of a local police force to render protection to life or Negligence as a source of obligation Negligence in the performance of a contract.
property Governed by Art 2176-2194 Governed by Art 1179 et sequel and other
provisions relative to contracts
EVIDENCE REQUIRED Quasi-delict
 Amount of proof or evidence that is required depends upon the nature of the proceeding in which the
claim is made.  NEGLIGENCE VS DOLO
• Criminal: proof beyond reasonable doubt
• Civil Case: preponderance of evidence FRAUD/DOLO NEGLIGENCE/CULPA
Involves willfulness or deliberate intent to cause Mere want of care or diligence
EFFECT OF ACQUITTAL damage or injury to another
 It is only when the civil action is based on the very same facts on which the criminal action which
ended in acquittal was based, that the acquittal will bar the civil action.
 NEGLIGENCE VS CRIME
EXCEPTIONS
QUASI-DELICT CRIME

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Nature of the rightPrivate right - wrong against thePublic right – wrong against the state  In the obligation to deliver a generic thing, the object due is determinable; the moment it is
violated individual delivered, it becomes determinate.
Condition of the mind Criminal intent is not necessary Criminal intent is necessary
Legal basis of liability Any act or omission wherein fault or An act can be punished as a crime only DELIVERT OF DETERMINATE THING
negligence intervenes. when there is a penal law punishing it.  One that is individualized and can be identified or distinguished from others of its kind.
Liability for damages Every quasi-delict gives rise to There are crimes from which no civil  3 incidental or accessory obligations:
liability for damages. liability arises. 1. The obligation to preserve the thing with due care
Form of redress Reparation; Compensation orFine or imprisonment; Punishment 2. The obligation to deliver the fruits
indemnification 3. The obligation to deliver the accessions and accessories
Compromise Can be compromised Can never be compromised
Art. 1163. Every person obliged to give something is also obliged to take care of it with the proper
REQUISITES OF LIABILITY diligence of a good father of a family, unless the law or the stipulation of the parties requires
1. That there exists a wrongful act or omission imputable to the defendant by reason of his fault or another standard of care. (1094a)
negligence
2. There exists a damage or injury, which must be proven by the person claiming recovery REASON FOR PROVISION
3. There must be a direct causal connection or a relation of cause and effect between the fault or  The obligation to deliver a thing would be illusory if the debtor were not also obliged to preserve it.
negligence and the damage or injury, or that the fault or negligence be the cause of the damage or
injury. DILIGENCE REQUIRED
 Diligence of a good father of a family (1173)
4. No contributory negligence on part of creditor
5. No pre-existing contractual relation EFFECT OF BREACH
 Liability for damages
 DOCTRINE OF PROXIMATE CAUSE  Exception: fortuitous events or force majeure
Such adequate and efficient cause as, in the natural order of events, and under the particular circumstances
surrounding the case, could necessarily produce the event. EXCEPTIONS TO DOAGFOAF
LIABILITY FOR FAULT OF OTHERS
1. Art. 1173, Omission of diligence resulting in fault or negligence
 The obligation arising from quasi-delict is demandable not only for one’s own acts or omissions, but
also those of persons for whom one is responsible. 2. Stipulation of contracts where there is another standard of care required
• Father and mother – minor
• Guardians – minor CLASSIFICATION OF OBLIGATIONS
• Owners and managers of an establishment – employees As to PRESTATION:
• Employers – employees and household helpers
• State – special agent REAL OBLIGATION
• Teachers or heads of establishment or arts and trades – students to give based on the nature of the thing to be delivered
 DILIGENCE OF EMPLOYERS
QUASI-DELICT CRIME (A) Real obligation to give a specific thing
Liability of employer is primary Liability of employer is subsidiary (B) Real obligation to give a generic thing
Employer can avoid liability by proving that heLiability is absolute and cannot be avoided by
exercised the diligence of a good father of a proof of such diligence PERSONAL OBLIGATION
family to prevent damage to do or not to do
All employers are liable Employer is only liable when he is engaged in
some kind of business or industry. 1. Personal obligation to do (Postivie)
2. Personal Obligation not to do (Negative)
CHAPTER 2: NATURE AND EFFECT OF OBLIGATIONS
REAL OBLIGATION TO GIVE A GENERIC THING
PRESTATIONS IN OBLIGATIONS A generic or indeterminate thing is an object designated merely by its class or genus without any
1. To give particular designation or physical segregation from all others of the same class.
a. A specific or determinate object or thing - The object is whose determination is confined to that of its nature. To the genus for which it pertains.
b. An indeterminate or generic thing
NOTE: In obligation to give a generic thing, it needs to have a positive law for enforcement.
2. To do
3. Not to do In so far as to the obligation, you are only required to pick one from the class or genus.

DELIVERY OF GENERIC OBJECTS Article 1246. When the obligation consists in the delivery of an indeterminate or generic thing,
 A generic thing is one that is indicated only by its kinds. whose quality and circumstances have not been stated, the creditor cannot demand a thing of
superior quality. Neither can the debtor deliver a thing of inferior quality.
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OBLIGATIONS AND CONTRACTS | TOLENTINO SUMMARY | MADZ ONG
SITUATION: You will give you P500,000. Personal obligation to give a SPECIFIC THING
No, once the thing is lost before delivery. The obligation is extinguished. The loss of the thing irrespective
Money is a genus thing. It cannot perish. of the event the obligation is extinguished based on the original tenor or prestation.

EXCEPTION: If the money was appropriated for a particular use, it becomes a specific thing (Father Dela Personal obligation to give a GENERIC THING Yes, an obligation to give a generic thing is never
Peña). extinguished. The debtor can deliver a thing that is within the same class or genus.

Can you give me P250,000 only? Generic Object Specific Object

No. Article 1246 expressly provides that the debtor cannot deliver an object which is of inferior quality.
Loss of the object will not extinguish Loss of the thing will extinguish
Can you give me P700,000? the obligation the obligation
It depends. What is prohibited by Article 1246 is for the creditor demand the delivery of a superior thing.

If the P700,000 is given voluntarily given it is allowed. The provision is silent as regard to the debtor
voluntarily delivering an object of superior quality.
NOTE: The prohibition in Article 1246 is only limited to creditor not requiring a superior quality to be
delivered and for the debtor to deliver an inferior quality.
What if the creditor voluntarily takes an object of inferior quality?
When a creditor voluntarily takes an object of inferior quality, he has a cause if action to collect for the
difference.
REAL OBLIGATION TO GIVE A SPECIFIC THING
Article 1244. The debtor of a thing cannot compel the creditor to receive a different one, although
the latter may be the same value as, or more valuable than that which is due.
In obligations to do or not to do, an act or forbearance cannot be substituted by another act or
forbearance against the obligee's will.
- provides for the instruction on how to fulfill a certain object.
EXCEPTION: The loss an obligation to give a generic thing may be extinguished when the object of the
obligation falls OUTSIDE THE COMMERCE OF MAN.
- An object falls outside the commerce of man when it the object to be delivered is
unauthorized by law/ illegal.
- When there is a legislative enactment, the object becomes part of the commerce of
man.
SITUATION: X promised to deliver a pack of cigarettes to Y. A statute was passed prohibiting the use
and possession of cigarettes. X lost the pack of cigarettes he promised to
Y.
The obligation is automatically extinguished because the cigarette is outside the commerce of man,
therefore the loss before delivery extinguished the obligation.
SITUATION: X promised to deliver to Y one out of his 5 horses. He lost the one of the horses, is the
obligation extinguished?
NO. The horse is a generic thing, the loss before delivery does not extinguish the obligation. The loss of
the thing intended does not extinguish the obligation.

SPECIFIC/DETERMINATE OBJECT REAL OBLIGATION TO GIVE A LIMITED SPECIFIC OBJECT

- When the object is particularly designated or physically segregated from all others Generally, there are only two classifications of a real obligation: (a) Specific and (b) Generic. Tolentino
of the same class provides for a third classification known as limited specific object.
- A concrete, particularized thing, indicated by its own individuality. - Objects which belongs to the same class or genus but may be considered as specific
There is only one way to fulfill an obligation to give a specific thing, otherwise he cannot compel. because of the limited quantity of the object.

In case of specific or determinate object the debtor is required to give/deliver exactly what you promised Example: I will give you one of my 5 horses.
to give. - It is specific in the sense that the object to be delivered must be one of the horses.
- It cannot be more valuable or less valuable - There is no provision that refers to such an obligation. Because of the absence of a
- The object to be delivered becomes unique and cannot be replaced. specific provision, the provisions we have to rely on are the provisions of the civil code.

SITUATION: I will give you my red car. Rationalization: Why the law tells this way, the principle of justice, fair play or equity. If it is to serve the
golden rule then it will be satisfied.
This is not considered as a specific object. It cannot just mention the car it must include other aspects that
would make the object specific or unique, such as the color, the model, the age, and Specific Generic Limited Specific
other specific description,

In obligations to give a determinate thin, the obligor or debtor binds himself to deliver a thing or object Classification Real Real obligation Real obligation to
which is particularly designated or physically segregated from all the others of the same class. obligation to to deliver a deliver a
- He cannot comply with his obligation by delivering a thing which is different from deliver a generic object limited specific
that which is designated although belonging to the same class or genus. specific object
LOST OF THE THING TO BE DELIVERED IN REAL OBLIGATIONS:
If the object to be delivered is lost before delivery, is there still a way to collect?
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OBLIGATIONS AND CONTRACTS | TOLENTINO SUMMARY | MADZ ONG
Principal Article 1244. Article 1246. No provisions.
Obligation What is deliver within What is more RIGHT TO FRUITS
exactly agreed the applicable Article  The creditor or obligee, in an obligation to deliver a determinate thing, is entitled to the fruits from
upon. same class or 1244 or the time the obligation to delivery arises.
genus. 1246 • Law; Quasi-delicts; Quasi-contract; Crimes – Law
• Suspensive Condition – the moment the condition happens
• Suspensive term – expiration of term
• Neither term nor condition – perfection of contract
Supplemental DOAGOF, Proper DOAGOAF
Obligation (Art Diligence, REAL AND PERSONAL RIGHTS
1163) because it can  Real Right: the power belonging to a person over a specific thing, without a passive subject
be individually determined, against whom such right may be personally exercised.
replaced N/A • Delivery is essential.
 Personal Right: The power belonging to one person to demand of another, as a definite passive
Fruits and Articles NA NA subject, the fulfillment of a prestation to give, to do, or not to do.
accession 1164 and
1166 NEED FOR TRADITION OR DELIVERY
 From the time the obligation to deliver a determinate thing arises, the creditor has only a personal
right to the thing itself and to the fruits thereof.
RIGHTS AND OBLIGATION OF THE PARTIES  The delivery or tradition of a thing constitutes a necessary and indispensable requisite for the
purpose of acquiring the ownership of the same by virtue of a contract.
RIGHT OF THE CREDITOR DETERMINATE OBJECT
1. Compel Specific Performance – mere pecuniary liability does not extinguish
2. To recover damages Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right
granted him by Article 1170, may compel the debtor to make the delivery.
OBLIGATIONS OF THE DEBTOR DETERMINATE OBJECT If the thing is indeterminate or generic, he may ask that the obligation be complied with at the
1. To perform the obligation specifically expense of the debtor.
2. Take care of the object with DOAGOAF
3. Deliver all accessions and accessories If the obligor delays, or has promised to deliver the same thing to two or more persons who do not
have the same interest, he shall be responsible for any fortuitous event until he has effected the
4. Liable for damages in case of breach delivery. (1096)
RIGHTS OF THE CREDITOR GENERIC OBJECT Art. 1497. The thing sold shall be understood as delivered, when it is placed in the control and
1. To ask for performance possession of the vendee.
2. To ask for the obligation to be complied with at the expense of the debtor
3. Recover the damages Delivery – when the thing is transferred

OBLIGATION OF THE DEBTOR GENERIC OBJECT REMEDIES OF CREDITOR

1. Deliver the thing 3. Specific Performance
2. Liable in case of breach for damages. 4. Rescind or resolve the obligation
5. Damages, exclusively or in addition to either of the first actions
CONCEPT OF STANDARD OF CARE  SPECIFIC PERFORMANCE
There is a standard of care that must be followed by the debtor in obligations with the prestation to • Whether the object of the obligation is determinate or generic, the creditor has the right to
do. ask that the same be performed.

If the obligor fails to exercise the required standard of care in his obligation, then he risks the IMPRISONMENT FOR DEBT
obligation and may lead to its extinguishment. He is thus also liable to pay for damages.  Under the Constitution, no person shall be imprisoned for debt.
 This is without prejudice to subsidiary imprisonment for non-payment of civil liability imposed in a
Purpose: Is to ensure the efficacy of the performance of the obligation. criminal case or as punishment for contempt.

*Par 2 of 1165 is a remedial measure. Creditor must prove that debtor is unwilling or unable to fulfill the
Art. 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it principal obligation.
arises. However, he shall acquire no real right over it until the same has been delivered to him.
(1095)

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Art. 1166. The obligation to give a determinate thing includes that of delivering all its accessions and
accessories, even though they may not have been mentioned. (1097a)
MEANING OF ACCESSORIES
 Those things which, destined for the embellishment, use, or preservation of another thing of more
importance, have for their object the completion of the latter for which they are indispensable or
convenient.
MEANING OF ACCESSIONS
 Accessions include everything which is produced by a thing, or which is incorporated or attached
thereto, either naturally or artificially.
 Do not include fruits.
WHAT TO DELIVER
 Everything that is attached, naturally or artificially, to the principal thing, as well as that which
serves to complete it, even if not attached to it, must be delivered together with it.
CONTRARY INTENT
 The parties may agree to exclude any accession or accessory of the thing.
(2) When from the nature and the circumstances of the obligation it appears that the designation of
the time when the thing is to be delivered or the service is to be rendered was a controlling motive
for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to
perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins. (1100a)
CONCEPT AND NATURE OF DELAY
 Delay in the fulfillment of the obligation – synonymous to mora.
 Non-fulfillment with respect to time
 There can only be delay in positive obligations (to do and to give) and not in negative obligations
(not to do and not to give).
POSITIVE PERSONAL OBLIGATION (TO DO) Compel performance to a third person at the
expense of the debtor unless the specific skill or qualification is the moving cause of the obligation then
the only remedy is to file for damages.

Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost. NOTE: You cannot compel the performance because it amounts to involuntary servitude

This same rule shall be observed if he does it in contravention of the tenor of the obligation. WHAT IF HE FULFILLS BUT IN CONTRAVENTION OF
Furthermore, it may be decreed that what has been poorly done be undone. (1098) TENOR OF OBLIGATION?
1. Compel the performance to a third person at the expense of debtor
PERFORMANCE AT DEBTOR’S COST 2. Ask the thing to be done to be redone
 When the debtor does not comply with an obligation to do, the creditor is entitled to have the thing 3. File for damages
done in a proper manner, by himself or by a third person at the expense of the debtor.

PERSONAL COMPULSION NEGATIVE PERSONAL OBLIGATION (NOT TO DO)

 The law does not authorize the imposition of personal force or coercion upon the debtor to comply Cannot incur delay necause it is either fulfilled or not fulfilled.
with his obligation.
 Sanction: damages REMEDY
1. To have it undone at the expense of the debtor
INDEMNIFICATION FOR DAMAGES
 The application of this article presupposes that the act can be done by persons other than the debtor. EXCEPTION:
Where only the debtor can do the thing, the only remedy is to recover damages.
A. When the act forbidden are definite in character or permanent in character
Cannot compel a thing to be done, otherwise, this would constitute involuntary servitude.
B. When it is physically legally impossible to undo
Art. 1168. When the obligation consists in not doing, and the obligor does what has been forbidden
him, it shall also be undone at his expense. (1099a) 2. File for Damages.

DOING PROHIBITED THING INSTANCES WHEN THE DEBTOR IS LIABLE FOR

 Right granted under this article does not exclude the right to indemnity for damages.
EXCEPTIONS
1. Physically impossible to undo (ex: you can’t unsmoked)
2. Resulting in prejudice to a third party who was in good faith
Remedy if thing cannot be undone: Sue for damages.
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
DAMAGES
Delay, fraud, negligence, contravention of tenor of the obligation
DELAY
There is default in the fulfillment of an obligation with regard to time.
Why does the law still require demand?
RCBC v. Illustre answes the question. Default must be malicious or negligent and there must be bad
faith. It must not be from his own intentional malicious negligent.
WHEN IS THERE DELIVERY?
Article 1497 , when it placed in the control and possession.

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TWO KINDS o There must be an express recognition and not merely requests for extension.
ACTUAL – delivered physically  EFFECTS OF MORA SOLVENDI
CONSTRUCTIVE – symbolic 1. When it has for its objects a determinate thing, the delay places the risks of the
thing on the debtor
For Real properties there is not need for actual delivery, it can be symbolic when there is delivery of 2. He becomes liable for damages for the delay
condo keys.  MORA ACCIPIENDI
• Delay in the performance based on the omission by the creditor of the necessary
DELIVERY TO BE EFFECTED cooperation, especially acceptance on his part.
Only moment to establish whether the right of the creditor is personal or real. REQUISITES:
1. An offer of performance by the debtor who has the required capacity
KINDS OF MORA 2. The offer must be to comply with the prestation as it should be performed
1. Mora solvendi – default on the part of the debtor 3. The creditor refuses the performance without just cause
2. Mora accipiendi – default on the part of the creditor  EFFECTS OF MORA ACCIPENDI
3. Compensatio morae – default of both parties in reciprocal obligations 1. The responsibility of the debtor for the thing is reduced and limited to fraud and
gross negligence
 MORA SOLVENDI 2. The debtor is exempted from the risk of loss of the thing which automatically pass
• Mora on the part of the debtor is delay, contrary to law, in the fulfillment of the prestation to the creditor
by reason of a cause imputable to the former. 3. All expenses incurred by the debtor for the preservation of the thing after the mora
• There is no mora in natural obligations. shall be chargeable to the creditor
REQUISITES: 4. If the obligation bears interest, the debtor does not have to pay the same from the
1. That the obligation be demandable and liquidated moment of the mora
2. That the debtor delays performance 5. The creditor becomes liable for damages
3. That the creditor requires performance judicially or extrajudicially 6. The debtor may relieve himself of the obligation by consignation of the thing.
• NEED FOR DEMAND  COMPENSATIO MORAE
o Default generally begins the moment the creditor demands the performance of • In reciprocal obligations, the general rule is that the fulfillment by the parties should be
the obligation. simultaneous. Where both are in default, their respective liability for damages shall be
o Demand may be in any form, provided that it can be proved. offset equitably.
WHEN DEFAULT BEGINS CESSATION OF THE EFFECTS OF MORA – benefits of mora may cease
 Where there has been an extra-judicial demand before action for 1. Renunciation by the creditor – express or implied (grants extension)
performance was filed, the effects of default arise from the date of 2. Prescription
such extra-judicial demand.
NATURE OF DEMAND MOONWALK V SSS
 The demand must refer to the prestation that is due and not to On the basis of the contract, there is no justification for the addition of interest on the delay of payments.
another. Penalty clause is an accessory obligation. The validity is dependent on the validity of the principal
o Four cases where demand is not necessary: obligation.
1. Where there is an express stipulation to that effect
2. Where the law so provides Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or
3. When the period is the controlling motive or the principal inducement delay, and those who in any manner contravene the tenor thereof, are liable for damages. (1101)
for the creation of the obligation
4. Where demand would be useless Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in
o PERIOD FIXED delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of
 Intent of parties to constitute the debtor in delay upon maturity even the interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent
without demand must clearly appear in the agreement. per annum.
 NATURE OF OBLIGATION - Legal interest will become the basis for damages
o From the nature and circumstances of the obligation, it appears that the period
was the determining motive for the creation of the obligation. Voluntary Breach Involuntary Breach
 DEMAND WOULD BE USELESS Default, fraud, negilgence, An event which can be forseen or though
o Where performance has become impossible, demand would be useless and COTOTO foreseen is inevitable
will not be necessary to constitute the debtor in delay: NOTE: Refers to sum of money, COA is performance and damages.
1. Impossibility is caused by some act or fault of the debtor.
2. Impossibility is caused by fortuitous events, but the debtor has bound NON-PERFORMANCE BY FRAUD
himself to be liable in cases of such events.  Fraud: voluntary execution of a wrongful act, or a willful omission, knowing and intending the
 ACKNOWLEDGMENT OF DELAY effects which naturally and necessarily arise from such act or omission.
o Debtor will be in default even without demand, when he acknowledges that  Presence of deliberate intent
he has incurred delay.  BY FAULT OR NEGLIGENCE
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 •Culpa Contractual (Art 1173): fault or negligence of the debtor as an incident in the Dolo Causante (Article 1338) Dolo Incidente (article 1344)
fulfillment of an existing obligation Those deceptions or Those which are not serious in character and
• Culpa Aquiliana: fault or negligence which constitutes an independent source of misrepresntations of a serious character employed without which the other party would still have
obligation between parties not previously bound. by one party and without which the other party entered into the contract
 BY DELAY OR OTHER VIOLATIONS would not have entered into a contract
• Every debtor who fails in the performance of his obligation is bound to indemnify for the
losses and damages caused thereby. Fraud is essential in consent. Fraud is accidentally employed.
Nullifies the contract. Does not nullify the contract
EXCUSE FOR NON-PERFORMANCE Creditor can ask for damages Creditor can ask for dmaages
 When the failure of the debtor to perform is due to fortuitous events or force majeure, he cannot be ORIENTAL FREIGHT V EVERETT
held liable for damages unless there is an express agreement to the contrary or the law provides
otherwise in particular cases. NOTE: Dolo Causante are frauds committed in contracts that
does not have anything to do with the obligations
RECOVERABLE DAMAGES
 Include all damages that a human being may suffer. EFFECT OF FRAUD
 PAYMENT OF MONEY Liability cannot be waived or renounced.
• When obligation consists only in the payment of money, rule (Art 2209) is that “if the
obligation consists only in the payment of a sum of money, and the debtor incurs in YOU CANNOT WAIVE A FUTURE FRAUD
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the Waiver for a past fraude is premitted since such waiver is deemed an act of generosity.
payment of interest agreed upon, and in the absence of stipulation, the legal interest,
which is six percent per annum. Damages: Reasonably attributed
• Legal interest is recoverable even if not expressly stated in writing.
Damages – sum of money owed caused by voluntary breach. NEGLIGENCE
Moral The failure of the debtor to care for the object of the obligation with the standard of care required by the
Exemplary parties or by law.
Nominate
Temperal KINDS OF NEGLIGENCE
Actual CULPA CONTRACTUAL CULPA AQUILIANA 2176
Liquidated 1171
Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an Negligence
action for future fraud is void. (1102a) Nature Incident to the performance of Substantive and independent
the
PROHIBITED RENUNCIATION obligation
 The renunciation prohibited is that which is made in advance of the fraud. Source Breach of contract Negligent act or omission
Proof of Existence of a contract and Negligence of the defendant
FRAUD recovery evidence of breach
It is the conscious proposition to evade the performance of an obligation. It cannot cover cases of mistake
or error of judgement in good faith. Due Dilligence in the selection and Diligence in the selection and supervision
Diligence as Defense supervision of employees is not of employees is
- Done through deceit, machinations
available available
Pay damages when Negligble act or omission itself
FRAUD IN CONTRACT FRAUD OF OBLIGATION
breachh or non-fulfillent
(Article 1338 & 1344) (Article 1171)
Dependent of Fraud Independent of Fraud Ex. In a vehicular accident involving a taxi, the passenger and a pedestrian was injured. What is the
Obligation is created because of Obligation is performed with the liability of the taxi driver and the operator? Assuming this is a case of negligence.
the fraud faraud
No pre-existing obligation There is a pre- Passenger - Since there exists a contract of carriage, then it is culpa contractual.
(thus fraud, the obligation existing Pedestrian – Since there is no existing contract, then it is culpa aquiliana.
becomes existent) obligation
TEST OF NEGLIGENCE
No COA for performance only There is a COA for damages and fraud Did the defendant use the reasonable care and caution which an ordinary prudent man would use in the
damages and creditor can still ask for the same situation.
performance
Dolo-performance EFFECTS OF NEGLIGENCE
Liable for damages. Even if he is acquitted he can still be held liable.
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 Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is
May an action of negligence be waived? required by the nature of the obligation and corresponds with the circumstances of the persons, of
the time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and
PAST NEGLIGENCE: allowed, but it must be established by competent evidence. 2201, paragraph 2, shall apply.
-Courts regulate the damages
-Good faith and bad faith can be used as a defense If the law or contract does not state the diligence which is to be observed in the performance, that
which is expected of a good father of a family shall be required. (1104a)
GOOD FAITH v. BAD FAITH
GOOD FAITH BAD FAITH DEGREE OF DILIGENCE REQUIRED
 Good father of a family
Only natural and probable Damages reasonably
 Anyone who uses diligence below this standard is guilty of negligence
consequence attributed
What could have been foreseen or Any waiver. Of NEGLIGENCE A QUESTION OF FACT
reasoably foreseen future  No fixed standard of diligence applicable to each and every obligation. It depends upon the
negligence is null and void circumstances of the particular obligation.

CONTRIBUTORY NEGLIGENCE Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by
If he causes the proximate cause he cannot recover. stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.
1. He contributes to principal occurrence, determining factors - he cannot recover (1105a)
2. He contributes to his own injury - he may recover the amount that the defendeent is
responsible for. FORTUITOUS EVENT; FORCE MAJEURE
 An event which takes place by accident and could not have been forseen.
 2 General Causes: (1) Nature, (2) Act of man
 Characteristics:
CONTRAVENTION OF THE TENOR OF THE OBLIGATION 1. Cause of the unforeseen and unexpected occurrence or the failure of the debtor to comply with
You deviate from the obligation. If there is delay, negligence, then there is COTOTO, but it is not limited his obligation must be independent of the human will
to the three examples as long as you deviate from the obligation there is COTOTO. 2. It must be impossible to foresee the event, or if it can be foreseen, it must be impossible to
avoid
Art. 1172. Responsibility arising from negligence in the performance of every kind of obligation is 3. The occurrence must be such as to render it impossible for the debtor to fulfill his obligation in
also demandable, but such liability may be regulated by the courts, according to the circumstances. a normal manner
(1103) 4. The obligor must be free from any participation in the aggravation of the injury resulting to the
creditor
KINDS OF CULPA  EFFECT IN GENERAL
 Culpa Contractual and Culpa Aquiliana • He cannot be held liable for damages or non-performance
 DEFENSE OF EMPLOYER  EFFECT OF NEGLIGENCE
• Liability arising from culpa aquiliana, not involving a breach of an existing obligation, an • It is necessary that he be free from negligence
employer or master, may exculpate or exempt himself from liability by proving that he  EXPRESS STIPULATION
had exercised due diligence. • Parties may stipulate that the debtor shall be held liable even if performance is rendered
• Defense of due diligence is not available in culpa contractual. impossible by fortuitous event.
 LIABILITY OF EMPLOYER  ASSUMPTION OF RISK
• When the employer is sued jointly with the negligent employee, in cases of culpa • One of the exceptions: when the nature of the obligation requires assumption of risk.
contractual, the employee may be held liable solidarily with the employer.
 MITIGATION OF DAMAGES ACTS OF CREDITOR
• In culpa contractual, the court is given discretion to mitigate liability (Art 1172).  Debtor is released from liability not only when the non-performance of the obligation is due to
fortuitous event but also when it is due to the act of the creditor himself.
STIPULATION ON LIABILITY FOR NEGLIGENCE
 EXEMPTION FROM LIABILITY KINDS OF FORTUITOUS EVENT
• 2 kinds: ACTS OF GOD ACTS OF MAN
1. Party is relieved from the effects of his fault or negligence by a third person (Force Majeure)
2. One party renounces in advance the right to enforce liability arising from the fault Absolutely independent from Events which arise from legitimate or
or negligence of the other. human illegitimate acts of persons other than the
 Stipulations exempting from liability from gross negligence are void because such intervention obligor
negligence amounts to fraud.
Rains, typhoons, floods Riots, Wars, Robberry

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It is necessary that he is free from any previous negligence or misconduct. 2. Malicious or negligent inaction of the debtor in the exercise of his right or action of
such seriousness as to endanger the claim of the creditor
NOTE: Where it is found that the result is with the participation of a man the whole act is humanized. 3. The credit of the debtor against a third person is certain, demandable, and liquidated
4. The debtor’s right against the third person must be patrimonial, or susceptible of
REQUISITES: being transformed to patrimonial value
1. It must be independent of the will of the obligor  ACCION SUBROGATORIA
2. It must be unforseable or inevitable o An action which the creditor may exercise in the place of his negligent debtor in
3. The event must be of such character that would render the obligation impossible to be fulfilled order to preserve or recover for the patrimony of the debtor the product of such
4. It must be free from participation from the debtor aggravating the injury resulting the obligee action, and then obtain therefrom the satisfaction of his own credit.
or creditor.  PERSONAL RIGHTS OF DEBTOR
• Rights of the debtor which cannot be exercised by the creditor
EXCEPTIONS 1. Right to existence
2. Rights or relations of public character
1. Such liablity is expressly specified by law
3. Rights of an honorary character
2. Declared by the stipulations of the parties 4. Rights consisting of powers which have not been used
3. Nature of the obligation requires the assumption of risk. 5. Non-patrimonial rights
6. Patrimonial rights not subject to execution
Art. 1175. Usurious transactions shall be governed by special laws. (n) 7. Patrimonial rights inherent in the person of the debtor.
 RESCISSION OF FRAUDULENT ACT
INTEREST: Income produced by money in relation to its amount and to the time that it cannot be utilized • ACCION PAULIANA
by its owner. • Set aside or revoke the acts which the debtor may have done to defraud them.
o NEW DEBTS
USURY: Contracting for or receiving something in excess of the amount allowed by law for the loan or  New debts contracted by the insolvent debtor are not included
forbearance of money, goods, or chattels. because only acts which impair the assets of the debtor are
covered.
Art. 1176. The receipt of the principal by the creditor without reservation with respect to the
interest, shall give rise to the presumption that said interest has been paid. Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if
there has been no stipulation to the contrary. (1112)
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. (1110a) ARTICLE APPLIED
 When there is no stipulation with regard to the assignment of an obligation, all rights acquired by
RECEIPT OF PRINCIPAL virtue of an obligation are transmissible in accordance with law.
 Payment of principal shall not be deemed to have been made until the interests have been covered.
CHAPTER 3: DIFFERENT KINDS OF OBLIGATIONS
PAYMENT OF TAXES
 This article is not applicable to payment of taxes because a tax for one year is independent of the CLASSIFICATION OF OBLIGATIONS:
taxes for other years.
CIVIL CODE:
Art. 1177. The creditors, after having pursued the property in possession of the debtor to satisfy
1. Pure
their claims, may exercise all the rights and bring all the actions of the latter for the same purpose,
save those which are inherent in his person; they may also impugn the acts which the debtor may 2. Conditional
have done to defraud them. (1111) 3. With a term
4. Alternative
RIGHTS OF CREDITORS 5. Joint or mancommunada
1. To levy by attachment and execution upon all the property of the debtor, except such as are 6. Solidary or several or in solidum
exempt by law from execution 7. Divisible
2. To exercise all rights and actions of the debtor except such as are inherently personal to him 8. Indivisible
3. To ask for the rescission of the contracts made by the creditor in fraud of their rights.
9. With a penal clause
 LIABILITY OF DEBTOR’S PROPERTY
OTHER CLASSES OF OBLIGATIONS:
• Property of debtor is subject to liability for his obligations
 EXERCISE OF DEBTOR’S RIGHTS 1. Unilateral and bilateral
• REQUISITES: 2. Determinate and generic
1. Creditor has an interest in the right or action not only because of his credit but 3. Legal, conventional, and penal
because of the insolvency of the debtor

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 1. POTESTATIVE: depends upon the will of the party
 Natural 2. CASUAL: upon chance
 Civil 3. MIXED: partly upon chance and partly upon the will
 Mixed ACCORDING TO NATURE:
1. DIVISIBLE: Can be performed in parts
2. INDIVISIBLE: cannot be performed in parts
 Unilateral and Bilateral
 Simple or Individual ACCORDING TO PLURALITY OF CONDITIONS:
1. CONJUNCTIVE: All
SANCHEZ  Multiple or collective
2. ALTERNATIVE: only one
ROMAN’S
CLASSIFICATIO ACCORDING TO ACT OR OMMISSION:
N OF  Simple and compound or multiple 1. POSITIVE: act
OBLIGATIONS  Positive and Negative 2. NEGATIVE: ommission
 Real and Personal
SECTION 1: PURE AND  Possible and Impossible ACCORDING TO WHETHER STATED OR INFERRED:
CONDITIONAL 1. EXPRESS
 Divisible and Indivisible
OBLIGATIONS 2. IMPLIED
 Principal and Accessory
ARTICLE 1179. Every obligation ACCORDING TO WHETHER THEY CAN BE FULFILLED OR NOT:
whose performance does not depend upon a future or uncertain
1. POSSIBLE
event, or upon a past event unknown to the parties, is
 Pure 2. IMPOSSIBLE
demandable at once. Every obligation which contains a resolutory
condition shall also be  Conditional demandable, without prejudice to the
effects of the happening of the  With a term event. (1113) INDIVISIBILITY OF CONDITIONS
 Fulfillment of conditions is indivisible, even when the object of the condition is a divisible thing.
PURE OBLIGATIONS Hence, partial fulfillment does not give rise to the existence of part of the obligation.
 Contains no term or condition.  By the very nature of the condition, by stipulation, or by law, it may be divisible.
 It is immediately demandable and there is nothing to exempt the debtor from compliance therewith.
 A demand note is strictly a pure obligation. PLURALITY OF CONDITIONS
 When the period originally given has been cancelled or non-fulfillment of a condition resolves the  If several conditions are imposed for the same obligation, the necessity of complying with all or one
period stipulated, the obligation must be considered as pure. depends upon the intention of the parties.
 Alternatively or disjunctively: one is sufficient.
CONDITIONAL OBLIGATIONS  Conjunctively: all must be complied with.
 One which is subject to a condition.
 Condition: ARTICLE 1180. When the debtor binds himself to pay when his means permit him to do so, the
• Every future and uncertain event upon which an obligation or provision is made to depend. obligation shall be deemed to be one with a period, subject to the provisions of article 1197. (n)
• Futurity and uncertainty must concur as characteristics of the event.
 Condition must be imposed by will of the parties and not be a necessary legal requisite (e.g. COURT TO FIX PERIOD
Donation propter nuptias upon marriage)  Creditor should file an action to fix a period for the payment of the obligation.
 PAST EVENTS  Immediate action to enforce without a period previously fixed by court would be premature.
• Must be unknown to the parties.
• The uncertainty in such case exists only in the minds of the parties and not in reality. ARTICLE 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment
• What can be a condition is the future knowledge or proof of a past event unknown to the or loss of those already acquired, shall depend upon the happening of the event which constitutes
parties, but not the event itself. the condition. (1114)
• Proof of an unknown past event may, by the will of the parties, be established as a condition.
SUSPENSIVE AND RESOLUTORY CONDITIONS
CLASSIFICATION OF CONDITIONS:  SUSPENSIVE:
ACCORDING TO WHEN IT GIVES RISE TO AN OBLIGATION: • obligation arises: if condition does not happen, obligations does not come into existence.
• Condition precedent or antecedent.
1. SUSPENSIVE: happening of which, gives rise to an obligation
 RESOLUTORY:
2. RESOLUTORY: happening of which, extinguishes rights already existing. • extinguishes rights and obligations already existing.
• Subsequent
ACCORDING TO WHAT GIVES RISE TO THE OBLIGATION:  CONDITION DOES NOT HAPPEN:
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 • Suspensive: conditional creditor loses all hope of becoming a real creditor. REASON BEHIND THE LAW
• Resolutory: creditor's rights become absolute.  One who promises something under a condition that is impossible or illicit knows that it cannot be
fulfilled, and, manifests that he does not intend to be bound.
ARTICLE 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the
conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the SCOPE OF THE LAW
obligation shall take effect in conformity with the provisions of this Code. (1115)  condition must be positive and suspensive.
 If the illicit condition is negative, it is considered as not written and the obligation is converted into a
DEFINITIONS: pure and simple one.
 Potestative Condition: depends upon the will of one of the contractive parties.
 Casual Condition: depends exclusively by chance, and not upon the will of the contracting parties. TIME OF IMPOSSIBILITY
 Mixed Condition: depends upon the will of one of the contracting parties and other circumstances,  must exist at the time of the creation of the obligation.
including the will of a third person.  A supervening impossibility does not affect the existence of the obligation.
 If the condition was impossible when the obligation was constituted, the obligation remains void
KINDS OF POTESTATIVE CONDITION: even if such condition subsequently becomes possible.
1. Simple potestative:
• presupposes not only a manifestation of will but also the realization of an external act OF A 3RD ILLOGICAL CONDITIONS
PARTY.  Similar effect as to an impossible condition.
• On the part of the debtor, does not prevent formation of a valid obligation.
Example: I will give $50,000, if Mr. Roboto eats a live octopus. DIVISIBLE OBLIGATIONS
 When an obligation is divisible, that part which is not affected by the impossible or unlawful
condition shall be valid.
2. Purely potestative:
• depends solely and exclusively upon the will.
NEGATIVE IMPOSSIBLE CONDITION
• Destroys efficacy of the legal tie.  Condition not to do an impossible thing shall be considered as not having been agreed upon: should
Example:. I will you give $50,000, if I decide to eat a live octopus. be understood to include all negative impossible conditions.
 Obligation is a simple one.

EFFECT POTESTATIVE CONDITION: ARTICLE 1184. The condition that some event happen at a determinate time shall extinguish the
 When it depends on the exclusive will of the debtor, it is VOID (not only the condition but the whole obligation as soon as the time expires or if it has become indubitable that the event will not take
obligation). place. (1117)
 When it depends on the exclusive will of the creditor, it is VALID.
 Applicable only when the condition is suspensive, and cannot apply to resolutory conditions. WHERE NO PERIOD STATED
 A condition that is both potestative and resolutory may be valid even if it depends upon the exclusive  2nd paragraph of art 1185 is applicable.
will of the obligor.  Intention of parties is controlling.

MIXED CONDITIONS
 depends not only upon the will of the debtor, but also upon chance or the will of others.
 Valid
ARTICLE 1183. Impossible conditions, those contrary to good customs or public policy and those
prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible,
that part thereof which is not affected by the impossible or unlawful condition shall be valid.
ARTICLE 1185. The condition that some event will not happen at a determinate time shall render
the obligation effective from the moment the time indicated has elapsed, or if it has become evident
that the event cannot occur. If no time has been fixed, the condition shall be deemed fulfilled at such
time as may have probably been contemplated, bearing in mind the nature of the obligation. (1118)
ARTICLE 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment. (1119)

The condition not to do an impossible thing shall be considered as not having CONSTRUCTIVE FULFILLMENT
been agreed upon. (1116a)  Debtor may in some way prevent the condition from happening.
 Intention without actually preventing fulfillment is not sufficient.
IMPOSSIBLE CONDITIONS  2 REQUSITES:
 May be physical or juridical. 1. Intent of obligor to prevent fulfillment of condition
 PHYSICAL: contrary to the law of nature
2. Actual prevention of compliance
 JURIDICAL: contrary to law, morals, good customs, and public policy. When it restricts essential
 INTENT TO PREVENT COMPLIANCE: intent of debtor to prevent fulfillment is essential. Any
rights.
act imputable to the debtor, whether done with or without fraud or malice will suffice.
 ILLICIT CONDITIONS
• In Exercise of Right
• For a condition to be considered illicit, it must consist of an act or a fact.
o If in preventing the fulfillment of the condition the debtor acts pursuant to a right, the
• Illicit character is determined by its effects upon one of the parties. Intention of the party
imposing the condition must be considered. condition will not be deemed as fulfilled.

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 ACTUAL PREVENTION OF COMPLIANCE: There is constructive fulfillment of the condition
only if the act of the debtor had in fact prevented compliance with the condition.
PROVOKING RESOLUTORY CONDITION
 When a condition is resolutory but not dependent on the will of the debtor, and he unjustifiably
provokes or produces the condition, which would not have happened without his doing so, it will be
considered as not having been fulfilled, and there will be no extinguishment of rights.
 Debtor cannot be excused from compliance by the occurrence of an event which he himself brought
about, unless such possibility is permitted in the contract.
ARTICLE 1187. The effects of a conditional obligation to give, once the condition has been fulfilled,
shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation
imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the
condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the
debtor shall appropriate the fruits and interests received, unless from the nature and circumstances
of the obligation it should be inferred that the intention of the person constituting the same was
different.
In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of
the condition that has been complied with. (1120)
RETROACTIVITY OF OBLIGATION
 Between the moment of creation of the conditional obligation and the fulfillment of the suspensive
condition: creditor cannot enforce obligation as his right during that period is a mere expectancy.
 The moment the suspensive condition happens, the obligation becomes effective and enforceable.
The effects shall retroact to the moment when such obligation was constituted or created.
 REASON: Condition is only an accidental, and not an essential element of the obligation.
 CONTRACTS OF DEBTOR
• Delivery of a determinate thing: debtor cannot, before the happening of the suspensive
condition, make contracts disposing of or alienation or encumbering the thing. Creditor retains
a superior right.
• NOTE: under our law tradition – delivery transfers ownership or real rights over the thing.
o A 3rd person in good faith, who the debtor has made a contract pendent conditione, and
the thing has been delivered to him, the happening of the suspensive condition will not
defeat his right of ownership.
o 3rd person: in bad faith, cannot invoke protection.
 CONTRACTS OF CREDITOR
• If a creditor, before the happening of the condition, has already disposed of his expected right
(e.g. mortgage over property), the happening of the suspensive condition makes effective the
act performed pendent conditione.
 INCREASE IN VALUE
• Increase in value before the happening of the suspensive condition, inured to the benefit of the
creditor.
LIMITS ON RETROACTIVITY: Application of the principle of retroactivity of conditional obligations
is not absolute.
 ACTS OF ADMINISTRATION
• Acts of administration performed by the debtor before the happening of the suspensive
condition, are not affected by the retroactivity of the effects of the obligation.
• Acts in abuse of right, committed by the debtor in the guise of administration, should not be
allowed to defeat the rights of the creditor.
 FRUITS AND INTERESTS
• The law does not require delivery or payment of the fruits or interests accruing before the
happening of the suspensive condition.
• Right to the fruits is not within the principle of retroactivity.
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• Obligation is reciprocal: fruits and interests pending happening of the condition are deemed to
mutually compensate each other.
• Obligation is unilateral: fruits received by debtor before the happening of the condition, are
kept by him.
• These rues must yield to the contrary intent of the parties.
OBLIGATIONS TO DO, NOT TO DO
 Courts shall determine the retroactive effect of the fulfillment of the condition.
• To what date retroactivity shall be allowed
• It may even refuse to permit retroactivity.
ARTICLE 1188. The creditor may, before the fulfillment of the condition, bring the appropriate
actions for the preservation of his right.
The debtor may recover what during the same time he has paid by mistake in case of a suspensive
condition. (1121a)
PRESERVATION OF CREDITOR’S RIGHTS:
 Creditor only has an expectancy and cannot compel the debtor to perform. Acts or events may take
place which might render his right illusory when the condition happens. Hence, the law allows him
to take appropriate steps or bring proper actions for the preservation of his right.
• Actions for the preservation of the creditor’s rights may have for their objects:
1. To prevent the loss or deterioration of the things which are the objects of the obligation
by enjoining or restraining acts of alienation or destruction by the debtor or third
persons.
2. To prevent concealment of the debtor’s properties which constitute the guaranty in case
of non-performance of the obligation.
3. To demand security if the debtor becomes insolvent.
4. To compel the acknowledgement of the debtor’s signature on a private document or the
execution of the proper public document for registration so as to affect third persons.
5. To register the deeds of sale or mortgages evidencing the contract.
6. To set aside fraudulent alienations made by the debtor.
7. To interrupt the period of prescription, by actions against adverse possessors of the thing
which are the objects of the obligation.
 NO PREFERENCE: Does not grant any preference of credit but only allows bringing proper action
for the preservation of the creditor’s rights.
PAYMENT BEFORE CONDITION
 Second paragraph permits the debtor who paid before happening of the condition to recover only
when he paid by mistake.
• Accion reivindicatoria: Payment was of a determinate thing and it still exists in the hands of
the creditor.
• Solutio indebiti: Otherwise
 If payment was made with knowledge of the condition, there is an implied waiver of the condition,
and whatever has been paid cannot be recovered.
 If there has been a mistake in payment, and the debtor was ignorant of the suspensive condition,
subsequent fulfillment of the condition will bar the recovery of payment.
 No mistake and later on obligation is not fulfilled, debtor will be allowed to recover.
 FRUITS FROM THING
• Does not provide for recovery of fruits or interest by the debtor who has paid before the
happening of the condition.
• Silence of the law should not bar recovery of fruits or interest by the debtor.
• Provisions on solution indebiti can be applied (Art 2159).
o “Whoever in bad faith accepts an undue payment, shall pay legal interest or shall be
liable for the fruits received.
 o Bad faith: creditor knows that the debtor is paying before the suspensive condition has
happened.
ARTICLE 1189. When the conditions have been imposed with the intention of suspending the
efficacy of an obligation to give, the following rules shall be observed in case of the improvement,
loss or deterioration of the thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is
understood that the thing is lost when it perishes, or goes out of commerce, or disappears in
such a way that its existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by
the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission
of the obligation and its fulfillment, with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of
the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other right than that granted to
the usufructuary. (1122)
SCOPE OF ARTICLE
 Applies only to obligations to deliver a determinate or specific thing. It can have no application to
generic objects.
 Applies only when the suspensive condition is fulfilled.
 LOSS OF THE THING
• A thing is lost:
1. When it perishes.
2. When it goes out of the commerce of man.
3. When it disappears in such a manner that its existence is unknown or it cannot be
recovered.
 DETERIORATION OF THING
• Reduction or impairment in the substance or value.
• Not imputable to debtor: he is not liable and the creditor must accept the thing in its impaired
condition.
• If the deterioration is due to the fault of the debtor, then the creditor may demand the thing or
ask for rescission, with damages.
 IMPROVEMENT OF THING
• Anything added to, incorporated in, or attached to the thing.
• If caused by nature of the thing: inure to the benefit of the creditor.
• If improvement was at the expense of the debtor: he shall have the same rights as a
usufructuary (Art 579 and 580).
o Can be removed by the debtor without damage to the thing due.
o If removal cannot be made without substantial injury to the thing due, improvement
must be delivered together with the thing to the creditor without the latter paying
indemnity.
o If debtor has caused deteriorations to the thing, which he has also improved at his
expense, then the value of the improvements maybe set off against the damages for
deterioration.
Art. 1190. When the conditions have for their purpose the extinguishment of an obligation to give,
the parties, upon the fulfillment of said conditions, shall return to each other what they have
received.
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In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to
the debtor, are laid down in the preceding article shall be applied to the party who is bound to
return.
As for the obligations to do and not to do, the provisions of the second paragraph of Article 1187
shall be observed as regards the effect of the extinguishment of the obligation. (1123)
RESOLUTORY CONDITION HAPPENING
 If the resolutory condition happens, rights are extinguished and the obligation is treated as if it did
not exist; hence, each party is bound to return to the other whatever he has received.
 RIGHTS OF THIRD PERSONS
• When a thing has already been delivered, ownership has passed to the possessor, without
prejudice to the effect of the happening of the resolutory condition.
• If it is transferred to a third person, the party entitled to restitution cannot sue the third person
directly because he would no longer be the owner thereof. This is a personal right which he can
enforce only against his creditor. He has no real right that can be enforced against third persons
in good faith.
 DETERIORATION, IMPROVEMENT
• Provisions of Art 1189 shall be applicable.
 FRUITS AND INTERESTS
• Mutual restitution applies also to fruits and interests.
• In reciprocal restitution, the fruits and interests may be compensated against each other.
• He who receives the fruits has the obligation to pay the expense made by a third person in their
production, gathering, and preservation. Expenses incurred shall be deducted from the gross
value of the fruits to be returned.
PROTECTION OF RIGHTS
 Party entitled to restitution stands in the same position as a creditor in an obligation with a
suspensive condition, in that he has an expectancy of recovery of the thing.
 Pending fulfillment, he should be entitled to take the same steps and bring the same actions allowed
to the creditor under the first paragraph of Article 1188.
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the rights of third persons who have acquired the
thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. (1124)
RECIPROCAL OBLIGATIONS
 This article applies only to reciprocal obligations.
 RECIPROCAL OBLIGATIONS: those which arise from the same cause, and in which each party
is a debtor and a creditor of the other, such that the obligation of one is dependent upon the
obligation of the other.
 TACIT RESOLUTORY CONDITION
• Imposed by law – no need for an agreement.
• When one party performed his part of the contract, the other party incurs in delay; hence, the
party who has performed or is ready and willing to perform may rescind the obligation if the
other does not perform or is not ready and willing to perform.
• Power to rescind is given to the injured party. Two options:
1. Demand performance
 2. Ask for resolution Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first
• The party who did not perform is not entitled to insist upon the performance of the contract by infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties
the defendant or recover damages by reason of his own breach. first violated the contract, the same shall be deemed extinguished, and each shall bear his own
• DECLARATION OF RESCISSION damages. (n)
o Rescission may take place by the declaration of the injured party.
o Rescission is power. SECTION 2. - Obligations with a Period
o IF OBLIGATION HAS NOT YET BEEN PERFORMED: extra-judicial declaration
of resolution or rescission would suffice. Art. 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable only
o IF OBLIGATION HAS ALREADY BEEN PERFORMED BY THE INJURED when that day comes.
PARTY: he cannot by his own declaration rescind the contract.
o If the debtor impugns the declaration of rescission, it shall be subject to judicial Obligations with a resolutory period take effect at once, but terminate upon arrival of the day
certain.
determination. But if he does not object, such declaration will produce legal effects.
• NOT ABSOLUTE RIGHT
A day certain is understood to be that which must necessarily come, although it may not be known
o Right to resolve or rescind is not absolute.
when.
o Rescission will not be permitted for such a slight or casual breach of contract, but only
for such breaches as are so substantial and fundamental as to defeat the object of the If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it
parties in making the agreement. shall be regulated by the rules of the preceding Section. (1125a)
o Right of the injured party to rescind is subordinate to the rights of a third person to
whom bad faith is not imputable. CONCEPT OF TERM
• EFFECTS OF RESCISSION  A term or period is a space of time which, exerting an influence on obligations as a consequence of a
o Extinguishes the obligatory relation as if it had never been created, the extinction having juridical act, suspends their demandability or determines their exinguishment.
retroactive effect.  DISTINGUISHED FROM CONDITION
CONDITION PERIOD
 ALTERNATIVE REMEDIES As to fulfillment Uncertain event Event that must necessarily come.
As to influence on theGives rise to an obligation or Has no effect upon the existence of
TWO REMEDIES OF INJURED PARTY FOR NON-PERFORMANCE BY THE obligation extinguishes one already existing. obligations, but only their
OTHER OF HIS OBLIGATION IN A RECIPROCAL OBLIGATION: demandability or performance.
1. SPECIFIC PERFORMANCE
2. RESCISSION OF THE CONTRACT Does not carry with it any retroactive
effect.
 These remedies are alternative; the injured party cannot have both. As to time May refer to past event unknown to the Always refers to the future
 Where he asks for rescission, he cannot at the same time ask for specific performance. parties.
 If the injured party elects to enforce obligation, he will be bound by his election, and he cannot, As to will of debtor A condition which depends exclusively A period left to the debtor’s will merely
after having the contract enforced, ask for its rescission. on the will of the debtor annuls the empowers the court to fix such period.
 He cannot ask for partial rescission and partial fulfillment. obligation.
o However, where performance has become impossible, rescission with damages is proper
though he had sought specific performance.  REQUISITES OF PERIOD
 So long as there has been no judgment declaring rescission, the creditor who has asked for it 1. Future
may change his mind and demand specific performance and vice versa, unless he has 2. Certain
previously renounced one of these remedies. 3. Possible
 DAMAGES RECOVERABLE
o Those elements of damages which can be admitted are those which are compatible with KINDS OF TERMS
the choice of remedy.  Suspensive and Resolutory
• Suspensive: Must lapse before the performance of the obligation can be demanded,
 WAIVER
• Resolutory: Period after which the performance must be terminated.
o Right to rescind reciprocal obligations may be waived by the contracting parties.
 Legal, Voluntary, or Judicial
• Legal: Period fixed by law
EXPRESS RESOLUTORY CONDITION
• Voluntary: Stipulated by the parties
 The parties to a bilateral agreement may stipulate that if one of them does not comply with his
• Judicial: Allowed by the courts.
obligation, the contract shall be automatically resolved.
 Express or Implied
• Express: Specifically stated
DISAPPEARANCE OF BASIS OF CONTRACT
• Implied/Tacit: As when a person undertakes to do some work which can be done only
 The disappearance of the basis of a contract gives rise to a right of resolution in favor of the party
during a particular season.
prejudiced.
 An original period or a period of grace

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 Definite or indefinite
• Definite: Fixed known date or time
• Indefinite: Event which will necessarily happen but the date of happening is unknown.
EFFECT OF PERIOD
 Obligations with a term are demandable only when the day fixed for their performance arrives.
 Period of prescription must also be counted only from such date or maturity and not from the date of
the obligation.
 SUSPENSION OF PERIOD
• Relieves the parties from the fulfillment of their respective obligations during that term.
EFFECT OF MORATORIUM LAWS
 MORATORIUM: Postponement of the fulfillment of an obligation; it is an extension of the period
for the performance of the obligation, decreed by statute.
 True test of the constitutionality of a moratorium statute lies in the determination of the period of
suspension of the remedy. It is required that such suspension be definite and reasonable.
Art. 1194. In case of loss, deterioration or improvement of the thing before the arrival of the day
certain, the rules in Article 1189 shall be observed. (n)
Art. 1195. Anything paid or delivered before the arrival of the period, the obligor being unaware of
the period or believing that the obligation has become due and demandable, may be recovered, with
the fruits and interests. (1126a)
OBLIGATION COVERED: Applies only to obligations to give.
EFFECT OF ARRIVAL OF TERM
 Allows recovery of the thing or money itself, plus the fruits or interests, which must be understood
as accruing from the moment of payment to the date of recovery.
RIGHT TO INTERESTS AND FRUITS
 This article allows the debtor to recover fruits and interests in all cases where he paid under a
mistake as to the period.
 Creditor who accepts payment in bad faith, or with knowledge that the period has not yet arrived,
shall pay interest or shall be liable for fruits received.
 Creditor acted in good faith, he is liable for fruits only in so far as they benefited him.
 NO RECOVERY
1. When obligation is reciprocal, and there has been premature performance on both sides.
2. When obligation is a loan on which the debtor is bound to pay interest.
3. When the period is exclusively for the benefit of the creditor, because the debtor by paying in
advance loses nothing.
BURDEN OF PROOF: Presumed that the debtor knows of the period. He will have the burden of
proving ignorance.
PAYMENT WITH KNOWLEDGE OF TERM
 If the payment before the period was made voluntarily, with knowledge of the period, the payment
cannot be recovered.
 Debtor can be considered as having tacitly waived the benefit of the term.
Art. 1196. Whenever in an obligation a period is designated, it is presumed to have been established
for the benefit of both the creditor and the debtor, unless from the tenor of the same or other
circumstances it should appear that the period has been established in favor of one or of the other.
(1127)
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BENEFIT OF TERM
 If the term is for the benefit of both parties: creditor cannot demand payment and the debtor
cannot make an effective tender and consignation of payment
 If the term is for the benefit of the creditor only: creditor may demand performance at any time,
but the debtor cannot compel him to accept payment before the period expires.
 If the term is for the benefit of the debtor only: he may oppose a premature demand for payment,
but may validly pay at any time before the period expires.
 WAIVER BY CREDITOR
• Acceptance of the partial payment in the mortgage contract where it was provided that
the debtor cannot pay principal before the expiration is a waiver by creditor of term.
 IN FAVOR OF DEBTOR
• A stipulation that the payment is to be made “within” the stipulated period is for the
benefit of the debtor. Hence, although the creditor cannot enforce or demand payment
before the period fixed, the debtor may waive the period and pay in advance.
Art. 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be
inferred that a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as may under the circumstances have been
probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by
them. (1128a)
COURT MAY FIX TERM
 Whenever a period is fixed, the court does not amend or modify the obligation concerned, but
merely enforces or carries out an implied stipulation in the contract.
 When a decision is rendered conformably with compromise agreement but no time is specified
within which the parties should comply with their commitments, either party may move the court to
have a period fixed for the compliance of their respective commitments.
 e.g. When the debtor promises to pay “little by little,” “when his means permit him to do so,” or “in
partial payments.”
 The court may not fix a term when the obligation expressly states that it is payable on demand.
ACTION TO FIX TERM
 The only action that can be maintained n obligations falling under this article, is an action to ask the
court to fix a term within which the obligor must comply with his obligation.
 Where a term of lease has been left to the will of the lessee, the lessor should first bring and action to
ask the court to fix the period of the lease, and an action for eviction under such contract of lease is
premature.
 Fixing of period and ordering of payment cannot be made in the same action.
 EFFECT OF TERM
• In fixing the period, the term probably contemplated by the parties should be ascertained.
The court cannot arbitrarily fix a period out of thin air.
• Once fixed by the court, it becomes part of the contract, and it cannot be subsequently
changed or extended without the consent of both of the parties.
 PRESCRIPTION
• The action to fix a term is different from the action to enforce the obligation but both are
subject to the rules of prescription.
Art. 1198. The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty
or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities which he has promised;
(3) When by his own acts he has impaired said guaranties or securities after their establishment, ELECTION BY THE DEBTOR
and when through a fortuitous event they disappear, unless he immediately gives new ones equally  In alternative obligations, the debtor has the right to choose the method of meeting the obligation,
satisfactory; unless the creditor has expressly reserved that right to himself.
(4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the  ELECTION BY OTHERS: Grant to creditor must be EXPRESSED, it cannot be implied. The
period; choice may also be granted to a third person.
(5) When the debtor attempts to abscond. (1129a)
LIMITS ON ELECTION
LOSS OF TERM  Right to choose is INDIVISIBLE. The debtor cannot choose part of one prestation and part of
 In cases provided in this article, the obligation becomes immediately due and demandable even if the another.
period has not yet expired.  Debtor cannot choose UNLAWFUL or IMPOSSIBLE undertakings.
 Converted into a pure obligation. • Presence of such does not annul the obligation if there are other lawful and possible
 INSOLVENCY OF DEBTOR objects.
• It is enough that he is in such state of financial difficulty that he is unable to pay his  The debtor cannot select prestations which could not have been the object of the obligation.
debts.
• Insolvency must occur after the obligation is constituted. FORM OF ACTION
• MORATORIUM LAW  When the debtor has the right to choose, the plaintiff’s action must be in alternative form: “either
o Present article does not apply to the extension of the period fixed by object X or Y, at the election of the debtor.”
moratorium statutes.  The judgment must also be in alternative form.
o Insolvency of the debtor does not deprive him of the benefit of the
moratorium. Art. 1201. The choice shall produce no effect except from the time it has been communicated. (1133)
 LOSS OF SECURITIES GIVEN
• The disappearance or impairment of the securities given need not be total when caused by NOTICE OF SELECTION
the acts of the debtor.  May be in any form provided that it is sufficient to make the other party know that election has been
• If the cause is fortuitous event, there must be total disappearance in order to deprive the made.
debtor of the benefit of the term. 1. Orally
• Disappear=loss 2. In writing
3. Tacitly – performance or acceptance
SECTION 3. - Alternative Obligations 4. Other unequivocal means
 When the debtor, to whom right to choose pertains, performs one of the prestations with the intent to
Art. 1199. A person alternatively bound by different prestations shall completely perform one of discharge the obligation, he is released, because selection made may be implied in the fact of
them. performance.
 There is tacit selection by the creditor when he sues for the performance of one of the prestations.
The creditor cannot be compelled to receive part of one and part of the other undertaking. (1131)  CREDITOR’S CONSENT: The law does not require the other party to consent to the choice made
by the party entitled to choose. A mere declaration of the choice, communicated to the other party, is
OBLIGATIONS WITH SEVERAL OBJECTS sufficient.
1. Conjunctive: Debtor has to perform several prestations; it is extinguished only by the performance  PLURALITY OF SUBJECTS
of all of them. • Various debtors and creditors
2. Alternative: Several objects being due, the fulfillment of one is sufficient, determined by the o Obligation is joint: consent of all is necessary to make the selection effective,
choice of the debtor who generally has the right of election. because none of them can extinguish the entire obligation.
3. Facultative: Only one thing is due, but the debtor has reserved the right to substitute it with o Obligation is solidary: the choice of one will be binding personally upon him,
another. but not as to the others.
 CONDITION OR TERM: Selection cannot be subjected by a party to a condition or term unless
ALTERNATIVE FACULTATIVE the other party consents thereto.
Loss of one of the things affects the obligation. Loss of that which may be given as a substitute does
EFFECT OF CHOICE
not affect the obligation.
 The effect of the notice is to limit the obligation to the object or prestation selected.
The election may be granted to the creditor. The election may NEVER be granted to the creditor.
 Obligation is converted into a simple obligation to perform the prestation chosen.
The loss of one thing does not extinguish the The loss of that which is due as the object of the  Once selection has been communicated, it becomes irrevocable.
obligation. obligation, will extinguish such obligation.  To allow a change after it has been communicated is to expose the latter to damages arising from the
preparations he may make on the assumption that the prestation selected is the one to be performed.
Art. 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the  ERROR AS TO OBLIGATION: When the debtor performs one of the prestations, believing that
creditor. he has a simple obligation (ignorance of the alternatives and the right to choose), there is no
declaration of the selection nor a binding performance of the obligation. Debtor can recover.
The debtor shall have no right to choose those prestations which are impossible, unlawful or which
could not have been the object of the obligation. (1132) DELAY IN MAKING CHOICE

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 The right to choose is not lost by the mere fact that the party entitled to choose delays in making his  If all the prestations become impossible due to fortuitous event, the obligation is extinguished; the
selection. debtor is not liable for damages.
 2 theories:  If one or more of the prestations due become impossible by fortuitous event, and the last prestation
• French becomes impossible by the fault of the debtor, he will be liable for damages, with the value of the
o Court shall give the party, entitled to choose, a period in which to make a last prestation as the basis.
choice.  If some of the prestations become impossible by fault of the debtor, and the remaining prestation
o If he does not, the court will make a choice or will give the right to choose to became impossible by fortuitous event, there are two views:
the other party. • The obligation is extinguished. Impossibility of the first prestation even by fault of
• German debtor, converted the obligation into a simple obligation to perform the remaining
o Right to choose passes automatically to the other party. prestation. If this in turn becomes impossible by fortuitous event, the obligation is
o This is acceptable under our law. extinguished. NOTE: This is the better view according to SJP.
o Debtor cannot paralyze the remedy of the creditor by refusing to make a • Debtor is liable but the basis of the damages will be the value of the last prestation which
selection. He is deemed to have waived his right to choose. became impossible through his fault. This is the more acceptable view.

Art. 1202. The debtor shall lose the right of choice when among the prestations whereby he is Art. 1205. When the choice has been expressly given to the creditor, the obligation shall cease to be
alternatively bound, only one is practicable. (1134) alternative from the day when the selection has been communicated to the debtor.
Until then the responsibility of the debtor shall be governed by the following rules:
OBLIGATION BECOMES SIMPLE (1) If one of the things is lost through a fortuitous event, he shall perform the obligation by
 If all the prestations, except one, are impossible or unlawful, it follows that the debtor can choose delivering that which the creditor should choose from among the remainder, or that which remains
and perform only that one. if only one subsists;
 The obligation ceases to be alternative and is converted into a simple obligation. (2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any
 Impossibility must not be due to the creditor’s acts – Article 1203 shall apply. of those subsisting, or the price of that which, through the fault o f the former, has disappeared,
with a right to damages;
WHEN CREDITOR MAY CHOOSE (3) If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon
 This article applies only when the debtor has the right to choose. the price of any one of them, also with indemnity for damages.
 When the creditor is granted the right to choose, article 1205 will apply.
The same rules shall be applied to obligations to do or not to do in case one, some or all of the
Art. 1203. If through the creditor's acts the debtor cannot make a choice according to the terms of prestations should become impossible. (1136a)
the obligation, the latter may rescind the contract with damages. (n)
SELECTION BY CREDITOR
IMPOSSIBLITY DUE TO CREDITOR  When creditor has the right to choose, his selection takes effect from the moment it is communicated
 Based on principles of justice. to the debtor.
 Since one of the prestations had been rendered impossible by the acts of the creditor, and the debtor  Selection may be made expressly or tacitly.
precisely may have wanted to choose that particular prestation, the latter may:
• Rescind the contract and recover damages EFFECT OF CREDITOR’S DELAY
• Elect to perform that which remains.  When the creditor fails to make a selection in cases where he has the right to choose, the debtor will
not incur delay even if there is a definite period.
Art. 1204. The creditor shall have a right to indemnity for damages when, through the fault of the  There will be default or delay only when the obligation has become a simple one.
debtor, all the things which are alternatively the object of the obligation have been lost, or the
compliance of the obligation has become impossible. Art. 1206. When only one prestation has been agreed upon, but the obligor may render another in
substitution, the obligation is called facultative.
The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that
of the service which last became impossible. The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor,
Damages other than the value of the last thing or service may also be awarded. (1135a) does not render him liable. But once the substitution has been made, the obligor is liable for the loss
of the substitute on account of his delay, negligence or fraud. (n)
LOSS BY FAULT OF DEBTOR
 This article applies when the debtor has the right to choose. DISTINGUISHED FROM ALTERNATIVE
 If only some of the prestations are rendered impossible, the fault of the debtor does not make him ALTERNATIVE FACULTATIVE
liable for damages, because he can still comply with the obligation by performing any of the As to contents of theThere are various prestations all of Only the principal prestation
prestations remaining. obligation which constitute parts of theconstitutes the obligation, the accessory
 He will become liable for damages only when ALL the prestations become impossible through his obligation. being only a means to facilitate
fault. payment.
Creditor must demand all
EFFECT OF FORTUITOUS EVENT prestations Creditor can demand only the principal
prestation.

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As to nullity Nullity of one prestation does not Nullity of the principal invalidates the his part.
invalidate the obligation. obligation, and the creditor cannot
demand the substitute even when this is JOINT CHARACTER PRESUMED
valid.  When two persons are liable under a contract or under a judgment and no words appear in a contract
As to choice The right to choose may be givenOnly the debtor can choose the or the judgment to make each liable for the entire obligation, the presumption is that their obligation
to the creditor. substitute prestation. is joint.
As to effects of loss Only the impossibility of all the The impossibility of the principal  Final judgment against several defendants does not specify that they shall pay the amount thereof
prestations due without fault of the prestation is sufficient to extinguish the solidarily, the liability is joint.
debtor extinguishes the obligation. obligation, even if the substitute is  After judgment has become final, the court has no power to amend it to convert a defendant’s
possible. liability into a solidary obligation.
 EFFECT OF JOINT LIABILITY
LOSS OF SUBSTITUTE 1. The demand by one creditor upon one debtor, produces the effects of default only with respect to
 If the substitute prestation becomes impossible due to the fault or negligence of the debtor, the the creditor who demanded and the debtor on whom the demand was made, but not with
obligation is not affected, and he cannot be held liable for damages. respect to the others.
 What if debtor acted in bad faith? Code Commission thought it better to leave the courts to decide. 2. The interruption of prescription by the judicial demand of one creditor upon a debtor, does
 Whatever may be the cause of the impossibility of the substitute prestation is immaterial. The option not benefit the other creditors nor interrupt the prescription as to other debtors.
to perform is exclusively dependent upon the will of the debtor, he cannot be compelled to perform it 3. The vices of each obligation arising from the personal defect of a particular debtor or creditor
if the principal prestation becomes impossible. does not affect the obligation or rights of others,
 Therefore, even if he acts with bad faith, he cannot be held liable for damages, because he could not 4. The insolvency of the debtor does not increase the responsibility of his co-debtors, nor does
have been compelled to perform it even it were possible. it authorize a creditor to demand anything from his co-creditors.
5. The defense of res judicata is not extended from one debtor to another.
WHEN SUBSTITUTION EFFECTIVE
 Law does not expressly provide when the substitution of the prestation becomes effective and
WHEN SOLIDARITY EXISTS
binding upon the debtor.
 We believe that the rule with respect to alternative obligations can be applied by analogy – from the 1. When there is an express stipulation in the contract that the obligation is solidary.
time the debtor communicates to the creditor that he elects to perform the substitute prestation. 2. When a charge or condition is imposed upon the heirs or legatees, and the testament
• If the principal prestation thereafter becomes impossible, debtor is not relieved and expressly makes the charge or condition in solidum.
should still perform the substitute prestation he has chosen. 3. When the law expressly provides for solidarity.
• He will be liable for damages for his delay, neglect or bad faith in its performance. 4. When a solidary responsibility is imposed by final judgment upon several defendants.
5. When the nature of the obligation requires solidarity. (Art 19-22 of the Civil Code)
SECTION 4. - Joint and Solidary Obligations
DYSJUNCTIVE OBLIGATIONS (A binds himself to pay P100 either to X or to Y)
Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same  There are two or more creditors or to or more debtors, but they are named disjunctively. That is, they
obligation does not imply that each one of the former has a right to demand, or that each one of the are named as debtors or creditors in the alternative.
latter is bound to render, entire compliance with the prestation. There is a solidary liability only  The intention of the parties should prevail, in determining whether the rules on solidarity or those on
when the obligation expressly so states, or when the law or the nature of the obligation requires alternative obligations shall apply.
solidarity. (1137a)  In case of doubt, solidarity is favored as it is more conducive to the fulfillment of the obligation.

Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding RELATION OF CO-PARTIES
article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as  Co-creditors or co-debtors may regulate their rights or liabilities in their internal relations with each
many shares as there are creditors or debtors, the credits or debts being considered distinct from other. Thus, they may exclude a division and provide for sole responsibility, or they may provide for
one another, subject to the Rules of Court governing the multiplicity of suits. (1138a) total reimbursement, or for a division into unequal parts.

JOINT AND SOLIDARY OBLIGATIONS DUAL CHARACTER OF OBLIGATION

JOINT SOLIDARY  The obligation may be joint on the side of the creditors, and solidary on the side of the debtors, or
 Mancommunada  Mancommunada solidaria vice versa.
 joint and several
 in solidum Art. 1209. If the division is impossible, the right of the creditors may be prejudiced only by their
 juntos o separadamente collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the
 joint and several latter should be insolvent, the others shall not be liable for his share. (1139)
Each of the debtors is liable only for a proportionateEach debtor is liable for the entire obligation.
part of the debt, and each creditor is entitled only to a JOINT INDIVISIBLE OBLIGATIONS
proportionate part of the credit.  Where there are several debtors or creditors, but the prestation is indivisible, the obligation is joint,
Each creditor can recover only his share of theEach creditor may enforce the entire obligation, and unless solidarity has been stipulated.
obligation, and each debtor can be made to pay only each debtor may be obliged to pay it in full.  A midway between joint and solidary.

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 Fulfillment requires the concurrence of all the debtors, although each for his part.
 On the side of the creditors, collective action is expressly required for acts which may be prejudicial.
 PLURALITY OF CREDITORS
• Several creditors and only one debtor: obligation can be performed by delivering the
object to all the creditors jointly.
• A debtor who delivers the thing to one creditor only, becomes liable for damages because
of non-performance to other creditors, unless they have authorized the former to receive
the payment for all of them.
• If only one or some of the creditors demand the prestation, the debtor may legally refuse
to deliver them; he can insist that all the creditors together receive the thing, and if any of
them refuses to join the others the debtor may deposit the thing in court by way of
consignation.
• In case of non-performance by the debtor, the obligation to to pay damages arises. With
respect to damages, the prestation becomes divisible, each creditor can recover separately
his proportionate share.
• INTERRUPTION OF PRESCRIPTION
o An act which would ordinarily interrupt prescription, effected by one creditor
or against one of the debtors, is not valid and has no effect.
o As long as the obligation is joint, the act of one creditor cannot have any
effect as to another creditor.
o If a written demand is made by one creditor only, the debtor cannot pay to him
alone; payment must be made to all.
• PLURALITY OF DEBTORS
o Where the plurality of subjects is among the debtors, the indivisible obligation
can be performed by them only by acting together. Hence, all must be sued.
o If any of the debtors is not willing to perform, the prestation is converted into
an indemnification for damages. Creditor can sue the debtors separately for
their respective shares.
o OBLIGATIONS NOT TO DO
 The indivisibility of the obligation does not imply solidary
liability; the liability is joint unless otherwise stipulated.
 The obligation not to do, when there are several debtors, is a joint
indivisible obligation.
 The moment there is partial violation, the obligation is converted to
one for the payment of indemnity for damages, and each will be
liable for his share.
Art. 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does
solidarity of itself imply indivisibility. (n)
INDIVISIBILITY AND SOLIDARITY
 Where there are various creditors or various debtors, the obligation is joint even if the performance is
indivisible.
INDIVISIBILE JOINT SOLIDARITY
Each creditor cannot demand more than his shareEach creditor may demand the full prestation and
and each debtor is not liable for more than his each debtor has likewise the duty to comply with
share. the entire prestation.
Prestation is not capable of partial performance. Refers to the legal tie or vinculm defining the
extent of liability.
Art. 1211. Solidarity may exist although the creditors and the debtors may not be bound in the same
manner and by the same periods and conditions. (1140)
KINDS OF SOLIDARITY
 ACTIVE SOLIDARITY
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• Exists among the creditors.
• Essence consists in the authority of each creditor to claim and enforce rights of all, with
the resulting obligation of paying every one what belongs to him.
• There is mutual representation.
• Juridical effects:
1. Death of a solidary creditor does not transmit the solidarity to each of his heirs but
to all of them taken together.
2. Each creditor represents the others in the act of receiving payment, and in all other
acts which tend to secure the credit or make it more advantageous. Hence, if he
receives only a partial payment, he must divide it.
3. One creditor, does not represent others in such acts as novation, compensation, and
remission.
4. The credit and its benefits are divided equally unless there is an agreement to the
contrary.
5. The debtor may pay to any solidary creditor, but if a judicial demand is made on
him, he must pay only to the plaintiff.
6. Each creditor may renounce his right even against the will of the debtor.
 PASSIVE SOLIDARITY
• Exists among the debtors.
• Each debtor can be made to answer for others, with the right on the part of the debtor-
payor to recover from the others their respective shares.
• TERMS AND CONDITIONS
o Legal bonds may be uniform: when the debtors are bound by the same
conditions and clauses.
o Varied: where the obligors, although liable for the same prestation, are
nevertheless not subject to the same terms and conditions.
 Before the fulfillment of the condition or arrival of the term, an
action may be brought against such debtor or any other solidary
debtor for the recovery of the entire obligation minus the portion
corresponding to the debtor affected by the condition of the term.
 Upon happening of the condition, creditor may claim the
remaining portion from any of the debtors.
• Effects:
1. Each debtor can be required to pay the entire obligation; but after payment, he can
recover.
2. The debtor who is required to pay may set up by way of compensation his own
claim against the creditor, the effect is the same as payment.
3. The total remission of the debt in favor of a debtor releases all the debtors; but when
remission affects only the share of one debtor, the other debtors are still liable.
4. All the debtors are liable for the loss of the thing due even if such loss is caused by
the fault of only one of them, or by fortuitous event after incurring delay.
5. The interruption of prescription as to one debtor affects all others; but the
renunciation by one debtor of prescription already had does not prejudice the others.
6. The interests due by reason of the delay of one are borne by all of them.
 MIXED SOLIDARITY
• On the part of both creditors and debtors.
Art. 1212. Each one of the solidary creditors may do whatever may be useful to the others, but not
anything which may be prejudicial to the latter. (1141a)
ACTS BENEFICIAL
 Each solidary creditor may interrupt prescription, constitute the debtor in default, or bring suit.
ACTS PREJUDICIAL
 Solidary creditors cannot do anything prejudicial to the others.
 e.g. remission, novation, compensation, and merger or confusion.
Art. 1213. A solidary creditor cannot assign his rights without the consent of the others. (n)
REASON FOR ARTICLE
 Solidary creditor is an agent of the others; hence he cannot assign that agency to a third person
without the consent of the other creditors.
 Mutual agency, which is the essence of active solidarity, implies mutual confidence which may take
into account the personal qualifications of each creditor.
EFFECT OF UNAUTHORIZED TRANSFER
 The law has omitted to provide for the effects.
 The law seems to imply that since such assignment cannot be made, it produces no effect and the
debtor or debtors are not bound thereby.
 Assignment would produce its effects if made to a co-creditor, because the assignee is one as to
whom the confidence of the others already exist.
Art. 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or
extrajudicial, has been made by one of them, payment should be made to him. (1142a)
JUDICIAL DEMAND
 Creditors are tacitly mutual representatives of each other for demanding payment.
 The equality of rights of solidary creditors by virtue of this mutual representation, lasts only until
one of them goes ahead of the others and sues the debtor.
 When a creditor makes a judicial demand for payment, the tacit representation by the other creditors
is considered revoked, and during the pendency of the action, the creditors who did not sue lose their
representation of the others.
 A payment made to any of the creditors who did not sue would be a payment to a third person. If the
payee does not turn over to the others their shares in the payment, the debtor can still be required to
pay the plaintiff the full amount.
EXTRA-JUDICIAL DEMAND
 The present article has given to extra-judicial demand the same effect as judicial demand in
terminating the mutual representation among the solidary creditors and concentrating the agency in
the creditor who made the demand.
DEMAND BY SEVERAL CREDITORS
 If all or several solidary creditors demand payment separately, the debtor should pay to the one who
first notified him.
 If they demand at the same time or collectively, the debtor preserves his right to choose and may pay
anyone of those demanding payment.
PARTIAL PAYMENT
 If debtor has already paid the share of a creditor who made no demand upon him, his obligation to
that extent should be considered reduced.
 He can be required to pay to the creditor who made the demand the full amount of the debt minus the
share of the creditor who had been paid.
IN MIXED SOLIDARITY
 In mixed solidarity, when one creditor makes a demand upon one of the debtors, the latter cannot
pay to any other creditor but the one who made the demand.
• Does not apply to other debtors upon whom no demand has been made. They may pay to
any creditor who may not be the one who made the demand.
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OBLIGATIONS AND CONTRACTS | TOLENTINO SUMMARY | MADZ ONG
Art. 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary
creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to
the provisions of Article 1219.
The creditor who may have executed any of these acts, as well as he who collects the debt, shall be
liable to the others for the share in the obligation corresponding to them. (1143)
NOVATION
 Each solidary debtor may release all the others by binding himself alone, in their place, in favor of
the creditor.
 The debtor who effects the novation cannot, by himself, bind the others to a new debt without their
consent.
 Mere extension of time of payment given to a solidary debtor does not release the others from the
obligation.
 Suretyship: A material alteration of the principal contract, effected by the creditor and the principal
debtor, without the knowledge and consent of the sureties, completely discharges the sureties from
all liability.
 DATION IN PAYMENT
• Dation in payment is the delivery of a specific thing as a substitute for the performance of
the obligation.
• If not immediately effected, but is in the form of a promise, it amounts to a novation.
• If it is immediately effected, Article 1245 provides that it shall be governed by the law on
sales.
MERGER AND COMPENSATION
 When partial, rules on application of payments shall govern.
 When total, the obligation is extinguished.
REMISSION
 When one creditor makes a remission, it extinguishes the obligation in the amount and to the extent
in which it is made.
 Creditor who made the remission becomes liable to co-creditors for their shares.
 The debtor in whose favor the remission has been made, even it be of the whole obligation, cannot
recover anything from his co-debtors, because remission is a gratuitous act.
EFFECTS OF ACTS
 The relation between creditors and debtors
• Any of these acts will extinguish the obligation, so that no creditor may thereafter sue any
debtor, except in case of novation, where there may be no change or only partial change
of parties.
• The co-debtor as to whom the obligation was extinguished cannot recover from his other
co-debtors more than their respective shares in whatever he may have given up or lost as
the consideration for the extinguishment of the obligation.
 The relations among creditors
• The act of any of them extinguishing the obligation with respect to the debtor or debtors
does not prejudice the rights of the other creditors to recover their respective shares.
Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all of them
simultaneously. The demand made against one of them shall not be an obstacle to those which may
subsequently be directed against the others, so long as the debt has not been fully collected. (1144a)
PASSIVE SOLIDARITY AND SURETYSHIP
Passive Solidarity Suretyship
A solidary debtor, like a surety, stands for some other person.
Both debtor and surety after payment, may require that they be reimbursed.
Liable not only for his co-debtor’s obligation but Liable only for his co-debtor’s
also for his own.
Primary responsibility Subsidiary responsibility
Extension of time given by the creditor would not Extension of time would release a guarantor or
release debtor. surety.
LIABILITY OF SOLIDARY DEBTORS
 Creditor may bring an action against anyone of them, either alone or together with the principal
debtor.
 Solidary debtor is not released by the mere fact that the creditor brought an action against a co-
debtor first.
ACTIONS BASED ON SOLIDARITY
 Each solidary creditor may bring an action to enforce the obligation and payment can be made only
to the plaintiff in such case.
 Solidary debtors may be sued simultaneously, in one suit or successively in different suits.
 The parties may validly stipulate that the solidary debtors can only be sued simultaneously, or they
may provide for the order in which the debtors may be sued individually.
 JUDGMENT AS REGARDS CREDITORS
• If the judgment is favorable to the creditor, there seems to be no doubt that, under article
1212, this inures to the benefit of the co-creditors.
• If the judgment is adverse to the creditor, can be set-up against the other co-creditors in
subsequent actions, unless it is founded on a cause personal to the plaintiff.
 JUDGMENT AS REGARDS DEBTORS
• If judgment is favorable to the plaintiff, but the defendant solidary debtor is insolvent, the
other debtors can still be sued until the debt is fully paid. A new action must be filed.
• If the first action results in a judgment favorable to the solidary debtor, the other debtors
can invoke the favorable judgment, provided that it is not based on a defense personal to
the plaintiff.
• The judgment in favor of one solidary debtor amounts to an extinguishment of the
obligation with respect to him.
 IDENTITY OF PARTIES
• Because of the unity of the legal tie in solidarity, although the solidary debtors may be
individually distinct from each other, they constitute legally one and the same party with
the same interest.
Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or more
solidary debtors offer to pay, the creditor may choose which offer to accept.
He who made the payment may claim from his co-debtors only the share which corresponds to each,
with the interest for the payment already made. If the payment is made before the debt is due, no
interest for the intervening period may be demanded.
When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the
debtor paying the obligation, such share shall be borne by all his co-debtors, in proportion to the
debt of each. (1145a)
PAYMENT BY SOLIDARY DEBTOR
 Payment by one of the solidary debtors and his subsequent release from liability results in release
from liability of the other debtors to the creditor.
 The extinction or discharge of the solidary obligation by the payment made by the co-debtor gives
birth to a right in favor of the paying co-debtor, and imposes on the other co-debtors the duty to pay
him their shares.
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PARTIAL PAYMENT
 If a solidary debtor pays the obligation in part, he can recover reimbursement from the co-debtors
only in so far as his payment exceeded his share of the obligation.
REIMBURSEMENT
 When a solidary debtor pays the entire obligation, the resulting obligation of the co-debtors to
reimburse him becomes joint. If one, by insolvency, cannot pay his share in the reimbursement, the
others (including the one who paid) shall bear such share proportionately.
Art. 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors
if such payment is made after the obligation has prescribed or become illegal. (n)
EFFECT OF PAYMENT
 If one debtor actually pays an obligation no longer due, he does not thereby revive the obligation as
to the co-debtors. They cannot be made to pay anything to the debtor who has paid.
 But in other cases where the obligation no longer exists, he can recover from the creditor the amount
paid, under the rules on quasi-contracts.
Art. 1219. The remission made by the creditor of the share which affects one of the solidary debtors
does not release the latter from his responsibility towards the co-debtors, in case the debt had been
totally paid by anyone of them before the remission was effected. (1146a)
APPLICATION OF ARTICLE
 Co-debtor has already paid the obligation in full when the remission of the part affecting another co-
debtor is made.
 To exempt such co-debtor will give way to fraud.
 After one solidary debtor has paid the entire obligation, it is extinguished, and there is nothing more
to remit.
INSOLVENCY AFTER PARTIAL REMISSION
 After the creditor has made a remission of the share of one solidary debtor, the credit will be limited
to the balance.
 Remission of the share of one of the debtors does not affect his obligation to contribute to the share
of an insolvent debtor.
• In every passive solidarity, there is a dual relationship:
1. The relation between the creditor and the debtors – when creditor remits the share
of any debtor, he can affect only this relation.
2. The relation among debtors
Art. 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not
entitle him to reimbursement from his co-debtors. (n)
Art. 1221. If the thing has been lost or if the prestation has become impossible without the fault of
the solidary debtors, the obligation shall be extinguished.
If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price
and the payment of damages and interest, without prejudice to their action against the guilty or
negligent debtor.
If through a fortuitous event, the thing is lost or the performance has become impossible after one of
the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by
the creditor, the provisions of the preceding paragraph shall apply. (1147a)
LIMITED TO LOSS OF THING
 This article is limited to the case of non-performance because of loss of the thing or impossibility of
the prestation that is due.
 Loss is through fortuitous event: obligation is extinguished.
 Loss is due to fault of any solidary debtor or FE after debtor has incurred delay: the obligation is
converted to an obligation to pay indemnity.
• The entire indemnity may be recovered by the creditor from the other debtors who were
free from fault or delay. But if any of these debtors should pay the creditor, they can
recover from the guilty debtor the full amount of the indemnity.
• If the creditor recovers the indemnity from the guilty debtor, the latter cannot get any
contribution from his co-debtors.
NON-PERFORMANCE WITHOUT LOSS
 If the thing is not lost or the prestation has not become impossible, but there is delay, fraud, fault, or
negligence, or some other breach of the obligation, the creditor may also recover indemnity from any
solidary debtor.
 The guilty debtor cannot be made to shoulder, as part of the indemnity, the shares of the co-debtors
in the original obligation.
Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which
are derived from the nature of the obligation and of those which are personal to him, or pertain to
his own share. With respect to those which personally belong to the others, he may avail himself
thereof only as regards that part of the debt for which the latter are responsible. (1148a)
DEFENSES OF SOLIDARY DEBTOR
 3 kinds of defenses:
1. defenses derived from the nature of the obligation
2. defenses personal to the debtor-defendant
3. defenses personal to the other solidary debtors
 DEFENSES INHERENT IN OBLIGATION
• Derived from its nature; constitute a total defense:
1. The non-existence of the obligation because of illicit cause or object, or absolute
simulation.
2. Nullity due to defect in capacity or consent of all debtors (minority, mistake, fraud,
violence).
3. Unenforceability because of lack of proper proof under the Statute of Frauds.
4. Non-performance of suspensive condition or non-arrival of period affecting entire
obligation.
5. Extinguishment of the obligation, such as payment by remission.
6. All other means of defense which may invalidate the original contract (prescription, res
judicata).
DEFENSES PERSONAL TO DEFENDANT
 May be total or partial defense.
 Minority, insanity, fraud, violence, or intimidation.
DEFENSES PERSONAL TO OTHER DEBTORS
 To the debtor-defendant all these are only a partial defense, exempting hid from payment of the
obligation corresponding to the other debtors who have such personal defenses.
SECTION 5. - Divisible and Indivisible Obligations
Art. 1223. The divisibility or indivisibility of the things that are the object of obligations in which
there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2
of this Title. (1149)
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DIVISIBILITY OF THINGS
 A thing is indivisible, when, if divided into parts, its value is diminished disproportionately.
 A thing is divisible when each one of the parts into which it is divided forms a homogenous and
analogous object to the other parts as well as to the thing itself.
 Qualitative division: thing is not entirely homogenous (e.g. inheritance).
 Quantitative division: thing divided is homogenous (e.g. immovable).
 Ideal division: parts are not separated in a material way, but there are assigned to several persons the
undivided portions pertaining to the, as in co-ownership.
DIVISIBLE AND INDIVISIBLE OBLIGATIONS
 DIVISIBLE OBLIGATION: one which is susceptible of partial performance.
 INDIVISIBLE OBLIGATION: it cannot be validly performed in parts.
 Refers to the performance of the obligation and not to the thing which is the object thereof.
Art. 1224. A joint indivisible obligation gives rise to indemnity for damages from the time anyone of
the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill
their promises shall not contribute to the indemnity beyond the corresponding portion of the price
of the thing or of the value of the service in which the obligation consists. (1150)
INDIVISIBLE JOINT OBLIGATION
 Collective fulfillment
 In case of non-performance by any of the debtors, the obligation is converted into a liability for
losses and damages, which is divisible.
• If one of the debtors is insolvent, or fails to pay, the others will not be liable for his share.
• If the transformation causes damage to other debtors, they may recover such damages
from the debtor who failed to perform.
• Entire liability for other damages is shouldered by defaulting debtor.
SOLIDARITY AND INDIVISIBILITY
SOLIDARITY INDIVISIBILITY
Refers to vinculum and therefore to the subjects of Refers to the prestation or the object of the
the obligation obligation
Solidarity remains even when there has been non- When converted into one to pay damages, the reason
performance and the debtors become liable for for the indivisibility ceases to exist and the debtor
damages. becomes liable for his part of the indemnity.
Death of debtor terminates solidarity which is not Affects the heirs of the debtor in that they remain
transmitted to the heirs. bound to perform the prestation.
INDIVISIBLE SOLIDARY OBLIGATIONS
 Every debtor is liable for losses and damages, although those ready to perform can later recover from
the guilty one.
 The creditor may demand the entire indemnity from any debtor.
Art. 1225. For the purposes of the preceding articles, obligations to give definite things and those
which are not susceptible of partial performance shall be deemed to be indivisible.
When the obligation has for its object the execution of a certain number of days of work, the
accomplishment of work by metrical units, or analogous things which by their nature are
susceptible of partial performance, it shall be divisible.
However, even though the object or service may be physically divisible, an obligation is indivisible if
so provided by law or intended by the parties.
In obligations not to do, divisibility or indivisibility shall be determined by the character of the
prestation in each particular case. (1151a)
  A penal clause is an accessory undertaking to assume greater liability iin case of breach.
DETERMINATION OF DIVISIBILITY  Double function:
 The divisibility of the object does not necessarily determine the divisibility of the obligation. 1. provide for liquidated damages
 Test of divisibility: whether or not it is susceptible of partial performance. 2. strengthen the coercive force of the obligation
 While the indivisibility of the object carries with it the indivisibility of the obligation.  It may be subsidiary or alternative: upon non-performance, only penalty can be asked.
 The divisibility of the object does not always mean that the obligation is also divisible.  joint or cumulative: both the principal undertaking and the penalty may be demanded.
 FACTORS WHICH DETERMINE WHETHER AN OBJECT IS DIVISIBLE OR  Purpose may be reparation: substitutes for damages; or
INDIVISIBLE:  Punishment: right to damage, besides penalty, subsists.
1. The will or intention of the parties.
2. The object or purpose of the stipulated prestation. PENALTY AND DAMAGES
3. The nature of the thing.  Mere non-performance of the principal obligation gives rise to the right to the penalty.
4. The provisions of law affecting the prestation.  LIQUIDATED DAMAGES
 In obligations to give: indivisible • No difference between a penalty and liquidated damages.
 In obligations to do: indivisibility is also presumed and it is only under exceptional cases mentioned • The party to whom payment is to be made is entitled to recover the sum stipulated
in paragraph 2 of Art. 1225 that they are divisible. without the necessity of proving damages.
• The creditor cannot recover more than the penalty stipulated, even if he proves that the
EFFECT OF PARTIAL PERFORMANCE damages suffered by him exceed in amount such penalty.
 Indivisible: debtor who fails to fully perform the work agreed upon cannot recover quantum meruit  LEGALITY OF CLAUSE
because in indivisible obligations, partial performance is equivalent to non-performance. • When the penalty stipulated is not contrary to law, morals, or public order, it must be
 2 exceptions: enforced against the party liable therefor.
1. Where the obligation has been substantially performed in good faith, the debtor may recover as  HOW CONSTRUED
if there had been complete performance, minus the damages suffered by the creditor. • Strictly
2. When the creditor accepts performance, knowing its incompleteness, and without protest, the
DAMAGES BESIDES PENALTY
obligation is deemed fully performed.
 3 cases when damages and interest may be recovered in addition to penalty:
ENTIRE AND SEVERABLE CONTRACTS 1. when there is an express provision to that effect
 If the consideration is single, the contract is ENTIRE. 2. when the debtor refuses to pay the penalty
 If the consideration is expressly or by implication apportioned, the contract is SEVERABLE. 3. when the debtor is guilty of fraud in the non-fulfillment of the obligation
 When the consideration is entire and singe, the contract must be held to be entire.  EXPRESS STIPULATION
 If the part to be performed by one party consists in several distinct and separate items, and the price • When the contract expressly stipulates that the obligation shall bear interest at a given
is apportioned to each of them, the contract will generally be held to be severable. rate from its date until paid, and in addition there is an agreement for the payment of
 EFFECT OF ILLEGALITY penalty in case of failure to pay the obligation, both the penalty ad the interest can be
• If a contract is severable and one part is illegal, the part which is illegal is void but that collected in case of breach.
part which is legal is enforceable.
• If the contract is entire, and a part is illegal, the whole contract is unenforceable. ENFORCEMENT OF PENALTY
 EFFECT OF NULLITY  The enforcement of the penalty can be demanded by the creditor only when the non-performance is
• If one of the undertakings is void but not illegal, valid covenants may be enforced due to fault or fraud of the debtor.
whether the contract is severable or not.  The non-performance gives rise to the presumption of fault.
 STATUTE OF FRAUDS  PLURALITY OF DEBTORS
• The enforceability of a contract for the sale of chattels when affected by the statute of • When there are several debtors, the divisibility of the principal obligation among the
fraud depends on whether it is severable or entire. debtors does not necessarily carry with it the divisibility of the penalty among them.
• Separate: each sale for a price below the statutory limit is not affected by the statute. • Joint: each debtor responds only for his own failure to perform
• Entire: The contract is affected. • Solidary: penalty may be enforced against any debtor for the non-performance of another
debtor.
SECTION 6. - Obligations with a Penal Clause
DISTINGUISHED FROM CONDITIONAL OBLIGATIONS
Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages CONDITIONAL OBLIGATION OBLIGATION WITH A PENAL CLAUSE
and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. There is no obligation before the suspensiveThere is already an existing obligation from the very
Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in condition happens; it is the fulfillment of the beginning.
the fulfillment of the obligation. condition that gives rise to the obligation.
The principal obligation itself is depended upon an It is the accessory obligation (penalty) which is
The penalty may be enforced only when it is demandable in accordance with the provisions of this uncertain event. dependent upon non-performance of the principal
Code. (1152a) obligation.

CONCEPT AND NATURE OF PENALTY DISTINGUISHED FROM ALTERNATIVE OBLIGATIONS

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 ALTERNATIVE OBLIGATION OBLIGATION WITH A PENAL CLAUSE Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been
Two or more obligations are due, but fulfillment of There is only one prestation and it is only when this partly or irregularly complied with by the debtor. Even if there has been no performance, the
one of them is sufficient. is not performed that the penal clause is enforceable. penalty may also be reduced by the courts if it is iniquitous or unconscionable. (1154a)
The impossibility of one of the obligations, without The impossibility of the principal obligation
the fault of the debtor, still leaves the other extinguishes also the penalty. PARTIAL OR IRREGULAR PERFORMANCE
subsisting.  Partial performance refers to the extent or quantity or fulfillment; irregular, to the form.
The debtor can choose which prestation to fulfill. He cannot choose to pay the penalty to relieve  Courts will rigidly apply the doctrine of strict construction.
himself of the principal obligation, unless that right  Courts will be slow in exercising the authority conferred by this article where it appears that in fixing
is expressly granted to him. the penalty the parties had in mind a fair and reasonable compensation for actual damages.

DISTINGUISHED FROM FACULTATIVE OBLIGATION INIQUITOUS OR UNCONSCIONABLE

FACULTATIVE OBLIGATION OBLIGATION WITH A PENAL CLAUSE  The amount or the penalty is not determined by the injury suffered by the creditor, but by what has
The power of the debtor to make the substitution is The payment of the penalty in lieu of the principal been agreed upon.
absolute. obligation can be made only by express stipulation.  A penalty may also become iniquitous by a supervening change of circumstances, which makes the
amount grossly disproportionate to the damage suffered by the creditor.
The creditor can never demand both prestations. Such right may be granted to him.
 When the penalty is contrary to morals or good customs, it may even be entirely voided.
 The courts should also consider the gravity of the violation of the obligation and the benefits which
COMPARED WITH GUARANTY
the debtor may have derived from it.
GUARANTY OBLIGATION WITH A PENAL CLAUSE
 INTEREST OF CREDITOR
They are both intended to insure performance of the principal obligation. • The penalty is excessive when, taking into account the interest of the creditor, it is in
They are both accessory and subsidiary obligations. open contradiction to the demands of justice and equity.
The object of the obligations of the principal debtor The obligation to pay the penalty is different from  NO DAMAGE SUFFERED
and the guarantor is the same. the principal obligation. • The penalty my be reduced in instances where it is out of proportion to the actual damage
The principal debtor cannot be the guarantor of thePrincipal obligation and the penalty can be assumed caused by the non-performance or improper performance of the contract.
same obligation. by the same person. • This does not authorize the court under this article to rescind the penalty altogether, if the
The guaranty subsists even when the principalThe penalty is extinguished by the nullity of the plaintiff suffers no damage.
obligation is voidable or unenforceable or is a principal obligation, except when the penal clause is
natural one. assumed by a third person. ATTORNEY’S FEES
 The court has jurisdiction to determine the reasonableness of the sum stipulated, and to reduce the
Art. 1227. The debtor cannot exempt himself from the performance of the obligation by paying the same if excessive.
penalty, save in the case where this right has been expressly reserved for him. Neither can the  It is not necessary to show that it is contrary to law, morals, or public order. It is sufficient that it is
creditor demand the fulfillment of the obligation and the satisfaction of the penalty at the same time, unreasonable or unconscionable.
unless this right has been clearly granted him. However, if after the creditor has decided to require
the fulfillment of the obligation, the performance thereof should become impossible without his PENALTY NOT ENFORCEABLE
fault, the penalty may be enforced. (1153a)  The penalty is not enforceable when the principal obligation becomes impossible due to fortuitous
event, or when the creditor prevents the debtor from performing the principal obligation.
RIGHT OF DEBTOR
 The debtor cannot avoid performance of the principal obligation by offering to pay the penalty. Art. 1230. The nullity of the penal clause does not carry with it that of the principal obligation.
 EXCEPTION: The right to substitute the penalty for the principal obligation may be expressly The nullity of the principal obligation carries with it that of the penal clause. (1155)
granted to the debtor.
NULLITY OF PRINCIPAL OBLIGATION
RIGHT OF CREDITOR  The nullity of the principal obligation also nullifies the penal clause.
 Creditor cannot demand performance of the principal obligation and the penalty at the same time.  EXCEPTIONS
 EXCEPTIONS: 1. When the penalty is undertaken by a third person precisely for an obligation which is
• the creditor may enforce both the principal and the penalty when this right is clearly unenforceable, voidable, or natural, in which case it assumes the form of a guaranty which is
granted to him. valid.
o Must be expressly given to him 2. When the nullity of the principal obligation itself gives rise to liability of the debtor for
• Creditor has demanded fulfillment of the principal obligation but it cannot be performed. damages, such as when the vendor knew that the thing was inexistent at the time of the
In this case, he may demand the penalty. contract.
 “Performance thereof should become impossible without his (creditor’s) fault”
• Could refer to FE which will extinguish the obligation. The law obviously means that the NULLITY OF PENAL CLAUSE
performance becomes impossible through the fault of the debtor.  The penal clause may be void because it is contrary to law, morals, good customs, public order, or
public policy. In such case, the principal obligation subsists, if valid.
Art. 1228. Proof of actual damages suffered by the creditor is not necessary in order that the penalty
may be demanded. (n) CHAPTER 4 EXTINGUISHMENT OF OBLIGATIONS

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GENERAL PROVISIONS Art. 1233. A debt shall not be understood to have been paid unless the thing or service in which the
Art. 1231. Obligations are extinguished: obligation consists has been completely delivered or rendered, as the case may be. (1157)
(1) By payment or performance:
(2) By the loss of the thing due: IDENTITY AND INTEGRITY
(3) By the condonation or remission of the debt;  2 REQUISITES OF PAYMENT
(4) By the confusion or merger of the rights of creditor and debtor; 1. The identity of the prestation: that the very thing or service due must be delivered or
(5) By compensation; released.
(6) By novation. 2. Its integrity: prestation must be fulfilled completely.
Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a  TIME OF PAYMENT
resolutory condition, and prescription, are governed elsewhere in this Code. (1156a) • The payment or performance must be on the date stipulated.
• Failure to perform on the date stipulated is not excused by the fact that such date falls on
MISCELLANEOUS CAUSES a Sunday and the next day is a legal holiday.
 Prescription, death, renunciation by the creditor, compromise, fulfillment of resolutory condition,  PROOF OF PAYMENT
rescission and nullity, will of one of the parties, change in civil status, unforeseen events, etc. • When the existence of a debt is fully established by the evidence, the burden of proving
 DEATH that it has been extinguished by payment devolved upon the debtor.
• Death of ether the creditor or debtor does not extinguish the obligation. Obligations • ISSUANCE OF RECEIPT
actively and passively are transmissible to the heirs. o Code does not require the creditor to issue a receipt for the payment.
• EXCEPTION: When the law, the stipulation of the parties, or the nature of the obligation o Issuance of a receipt is a consequence of usage and good faith which must be
prevents such transmission. observed.
 WANT OF INTEREST o Refusal of the creditor to issue a receipt, without just cause, is a ground for
• Want of interest of the creditor in the fulfillment of the obligation does not extinguish it.
consignation.
• There are cases, however, when the enforcement of the obligation, if the creditor has no
more interest to serve, may amount to an abuse of right and the debtor should be relieved.
Art. 1234. If the obligation has been substantially performed in good faith, the obligor may recover
 ABANDONMENT
as though there had been a strict and complete fulfillment, less damages suffered by the obligee. (n)
• There are special cases of extinguishment of obligations by abandonment of the thing
charged with the obligation.
SUBSTANTIAL PERFORMANCE
 MUTUAL, UNILATERAL DISSENT
 There must be an attempt of good faith to perform, without any willful or intentional departure
• Contracts can be terminated by mutual agreement of the parties, express or implied.
therefrom.
• Mutual agreement can create a contract, mutual disagreement can cause its
 The deviation must be slight, and the omission or defect must be technical and unimportant, and
extinguishment.
must not be material.
 INSOLVENCY
 The non-performance of a material part of a contract will prevent the performance from amounting
• An obligation is not extinguished by the insolvency of the debtor, unless it has been
to a substantial compliance.
judicially declared and a discharge has been given to him.
 The party claiming substantial compliance must show that he has attempted in good faith to perform
his contract, but has through oversight, misunderstanding or any excusable neglect failed to
SECTION 1. - Payment or Performance
completely perform in certain negligible respects.
 A party who knowingly and willfully fails to perform his contract in any respect, or omits to perform
Art. 1232. Payment means not only the delivery of money but also the performance, in any other
a material part of it, cannot be permitted, under the protection of this rule, to compel the other party
manner, of an obligation. (n)
to perform.
 EFFECT
CONCEPT OF PAYMENT
• When one has received the benefits of substantial performance by the other without
 Payment is the fulfillment of the prestation due, a fulfillment that extinguishes the obligation by
paying the price agreed upon, and he cannot or does not return these benefits, it is
realization of the purposes for which it was constituted.
manifestly unjust to permit him to retain them without paying, or doing as he promised.
 Payment and fulfillment are thus identical.
• The party who has received the benefits of substantial performance, therefore, cannot
require the performance of the residue as a condition precedent to his liability. He must
REQUISITES OF PAYMENT
perform his part of the contract and rely on his claim for damages in respect to the defect
1.The person who pays (must have capacity) or omission in the performance.
2.The person to whom payment is made
3.The thing due to be paid Art. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity,
4.The manner, time and place of payment (must be in accordance with the obligation) and without expressing any protest or objection, the obligation is deemed fully complied with. (n)

KINDS OF PAYMENT WAIVER OF DEFECT IN PERFORMANCE

 NORMAL: debtor voluntarily performs the prestation stipulated  A person entering into a contract has a right to insist on its performance in all particulars. But if he
 ABNORMAL: when he is forced by means of a judicial proceeding chooses to waive any of the terms introduced for his own benefit, he may do so.
 There must be an intentional relinquishment of a known right.

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 There must have been acceptance of the defective performance with actual knowledge of the
incompleteness or defect.
ESTOPPEL OF CREDITOR
 A creditor cannot object because of defects in performance resulting from his own acts or directions.
 Where a party makes particular objections to the sufficiency of performance he is estopped to later
set up other objections.
Art. 1236. The creditor is not bound to accept payment or performance by a third person who has
no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that if he paid
without the knowledge or against the will of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor. (1158a)
REASON FOR ARTICLE
 Whenever a third person pays there is a modification of the prestation that is due.
 A creditor should not be compelled to accept payment from a third person whom he may dislike or
distrust.
RIGHT OF THIRD PERSON
 A person who pays a debt for the account of another may recover from the debtor the sum so paid
out, at lease to the extent in which the payment may have been beneficial to the debtor.
 The debtor who knows that another has paid his obligation for him, and who does not object thereto
or repudiate the same at any time, must pay the amount advanced by the third person.
 AMOUNT OF RECOVERT
• Generally: entitled to recover full amount
• If the debtor has no knowledge or has expressed his opposition: limits recovery to the
amount by which the debtor has been benefited.
 PRESCRIPTION
• A partial payment made by a stranger of the obligation without the authorization of the
debtor, will not stay the running of the period of prescription with respect to the
remainder of the debt.
 REPURCHASE PRICE
• When a person has right to repurchase certain property does the payment by a third
person, does it constitute payment by a third person? The SC has conflicting decisions.
PAYMENT AGAINST THE DEBTOR’S WILL
 It is optional for the creditor to accept payment from a third person.
 If the debtor opposes: 3rd person can only recover the extent that the payment has benefited him.
 But as between the debtor and the creditor, the obligation is extinguished.
Art. 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the
latter, cannot compel the creditor to subrogate him in his rights, such as those arising from a
mortgage, guaranty, or penalty. (1159a)
REIMBURSEMENT AND SUBROGATION
 The right to recover from the debtor is based on the mere fact of payment and on consideration of
justice.
 When subrogation takes place, the payor actually steps into the shoes of the creditor and becomes
entitled, not only to recover what he has paid but also to exercise all the rights.
 There is a change in the active subject.
SUBROGATION OF CREDITOR
 From the language of this article, it would seem that there may be subrogation if the creditor
willingly and spontaneously permits the third person who has paid to be subrogated in his rights,
even without the consent of the debtor.
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• Not proper
 Creditor may assign his rights
Art. 1238. Payment made by a third person who does not intend to be reimbursed by the debtor is
deemed to be a donation, which requires the debtor's consent. But the payment is in any case valid
as to the creditor who has accepted it. (n)
Art. 1239. In obligations to give, payment made by one who does not have the free disposal of the
thing due and capacity to alienate it shall not be valid, without prejudice to the provisions of Article
1427 under the Title on "Natural Obligations." (1160a)
EFFECT OF INCAPACITY
 Where the person paying has no capacity to make payment, creditor cannot be compelled to accept
it.
 Consignation will not be proper
 In case creditor accepts, it will not be valid
 EXCEPTION: Article 1427
Art. 1240. Payment shall be made to the person in whose favor the obligation has been constituted,
or his successor in interest, or any person authorized to receive it. (1162a)
TO WHOM PAYMENT TO BE MADE
 The person in whose favor the obligation is constituted, or to another authorized to receive payment.
 AUTHORIZED PERSON
• Legal or conventional
• Legal: conferred by law
• Conventional: authority has been given by the creditor himself.
PAYMENT TO WRONG PARTY
 Does not extinguish the obligation as to the creditor, if there is no fault or negligence which can be
imputed to the latter.
 DEPOSIT IN BANK
• The deposit of the amount of the obligation by the debtor in a bank, in the name and to
the credit of the creditor, without authorization of the latter, does not constitute payment.
• But when creditor cannot be found in the place of payment, such deposit may be a valid
excuse for not holding the debtor in default.
 DEPOSIT IN COURT
• Consignation in court will extinguish the obligation.
Art. 1241. Payment to a person who is incapacitated to administer his property shall be valid if he
has kept the thing delivered, or insofar as the payment has been beneficial to him.
Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the
creditor. Such benefit to the creditor need not be proved in the following cases:
(1) If after the payment, the third person acquires the creditor's rights;
(2) If the creditor ratifies the payment to the third person;
(3) If by the creditor's conduct, the debtor has been led to believe that the third person had
authority to receive the payment. (1163a)
PAYMENT TO INCAPACITATED
 When the creditor is incapacitated to receive payment, this must be made to his legal representative
if there is one. If none: consignation in court.
 If payment is made to the creditor who is incapacitated, it shall be valid in so far as it accrued to his
benefit. In the absence of this benefit, the debtor may be made to pay again.
 BENEFIT TO CREDITOR
 • Payment shall be considered as having benefited the incapacitated person, if he made an
intelligent and responsible use thereof, for purposes necessary or useful to him, such as
that which his legal representative would have or could have done under similar
circumstances.
PAYMENT TO THIRD PERSON
 The same principles governing payment to an incapacitated creditor, are applicable to payments
made to a third person.
 The debtor is not released from liability by payment to one who is not the creditor nor one
authorized to receive the payment.
• EXCEPT: to the extent the payment inured to the benefit of the creditor.
• Payment to a third person releases the debtor:
1. When without notice of the assignment of the credit, he pays to the original creditor (Art
1626).
2. When in good faith he pays to one in possession of the credit (Art 1242).
 FAULT OF CREDITOR
• If the mistake of the debtor was due to the fault of the creditor, he cannot demand
payment anew even when he receives no benefit.
Art. 1242. Payment made in good faith to any person in possession of the credit shall release the
debtor. (1164)
POSSESSION OF CREDIT
 EXCEPTION to the rule that payment must be made to the creditor or his authorized representative.
 Possession of the credit should be distinguished from possession of the title or evidence of the credit.
 The mere holding of the document will not generally be sufficient, but is necessary to consider the
nature of the credit.
 Payment to the possessor of the document or title does not necessarily extinguish the credit.
 PAYMENT IN GOOD FAITH
• Payment must also be made in good faith.
• Good faith consists in the belief that the party who presents the title of the obligation is
the true creditor, or that person to whom payment is made is the owner of the credit.
• Only good faith on the part of the debtor is required.
Art. 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to
retain the debt shall not be valid. (1165)
EFFECT OF GARNISHMENT
 The payment to the creditor after the credit has been attached or garnished, is void as to the party
who obtained the attachment or garnishment, to the extent of the amount of the judgment in his
favor.
 Debtor can be made to pay again, but he can recover to the same extent what he has paid to his
creditor.
 CONSIGNATION
• The debtor upon whom a garnishment order is served, can always deposit the money in
court by way of consignation.
 IF ACTION FAILS
• If the action of the attaching or garnishing creditor fails, then the garnishment is of no
effect.
• The payment which the garnishee has made to his creditor must be considered valid.
Art. 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the
latter may be of the same value as, or more valuable than that which is due.
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In obligations to do or not to do, an act or forbearance cannot be substituted by another act or
forbearance against the obligee's will. (1166a)
SUBSTITUTION OF PRESTATION
 The debtor of a thing cannot compel the creditor to receive a different one although the latter may be
of the same value than that which is due.
WAIVER OF DEFECTS
 The defects of the thing delivered may be waived by the creditor, if he so expressly declares or if,
with knowledge thereof, he accepts the thing without protest or disposes of it or consumes it.
Art. 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt
in money, shall be governed by the law of sales. (n)
CONCEPT OF DATION IN PAYMENT
 Dation in payment is the delivery and transmission of ownership of a thing by the debtor to the
creditor as an accepted equivalent of the performance of the obligation.
 The modern concept of dation in payment considers it as a novation by change of the object.
 EFFECT ON OBLIGATION
• Dation in payment extinguishes the obligation to the extent of the value of the thing
delivered, either as agreed upon by the parties or as may be proved.
• EXCEPTION: unless the parties by agreement, express or implied, or by their silence,
consider the thing as equivalent to the obligation, in which case the obligation is totally
extinguished.
 DISTINGUISHED FROM ASSIGNMENT
• Assignment of property by the debtor to his creditors, provided for in article 1255, is
similar to dation in payment in that both are substitute forms of performance of an
obligation.
• Dation in payment does not involve pluarilty of creditors.
 PLEDGE
• In case where personal property is delivered to the creditor, the transaction is a pledge,
not dation in payment. In case of doubt, presumption is in favor of pledge.
WARRANTIES OF DEBTOR
 The provision on sales, regarding warranty against eviction and hidden defects of the thing, are
therefore applicable, the debtor being considered as the vendor.
ERROR IN PAYMENT
 In dation in payment, the obligor who delivers the thing does so for the purpose of releasing himself
from the obligation, and not as a vendor.
 If the debtor proves he paid by mistake, he can recover, not the price but thing itself which was
conveyed.
Art. 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose
quality and circumstances have not been stated, the creditor cannot demand a thing of superior
quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and
other circumstances shall be taken into consideration. (1167a)
DETERMINATION OF QUALITY
 If there is disagreement, the court should decide whether it complies with the obligation, taking into
consideration the purpose and other circumstances of the obligation.
WAIVER OF BENEFIT
 The creditor or debtor may waive the benefit of this article.
 The creditor may require a thing of inferior quality, and the debtor may deliver an object of superior
quality.
Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall
be for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern.
(1168a)
REASON
 Payment is his duty and it inures to his benefit.
Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled
partially to receive the prestations in which the obligation consists. Neither may the debtor be
required to make partial payments.
However, when the debt is in part liquidated and in part unliquidated, the creditor may demand
and the debtor may effect the payment of the former without waiting for the liquidation of the
latter. (1169a)
PARTIAL PRESTATIONS
 The creditor who refuses to accept partial prestations does not incur in delay or mora accipiendi.
 EXCEPT: when there is an abuse of right or if good faith requires acceptance.
• Amount or quantity is so big that performance can reasonable be expected to be made in
various deliveries.
 PLURALITY OF SUBJECTS AND TIES
• The article does not apply to obligations where there are several subjects or where the
various parties are bound under different terms and conditions.
Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when through
the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in the abeyance.
(1170)
LEGAL TENDER
 Legal tender means such currency which in a given jurisdiction can be used for the payment of
debts, public and private, and which cannot be refused by the creditor.
 JAPANESE OCCUPATION
• Payments made during said period with Japanese military notes were valid.
o LOSS OF VALUE
 Those who accepted Japanese military war notes during the
occupation and held them as owners, suffered the consequences
when such notes depreciated in value or became worthless.
CURRENCY IN PAYMENT
 This article sanctions payment of debts in currency other than that which is legal tender in the
Philippines, if there is a stipulation to that effect.
DELIVERY OF INSTRUMENTS
 The provision of the law that the delivery of notes or other commercial instruments shall produce the
effects of payment only when they are collected, is applicable, not only to those instruments
executed by third persons and delivered by the debtor to the creditor, but also to a note executed by
the debtor himself and delivered to the creditor.
 PAYMENT BY CHECK
• Payment by check may be validly refused by the creditor.
• A check, whether a manager’s check or an ordinary check, is not legal tender.
 LOSS OF VALUE
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• The clause relating to the prejudice caused to the instrument by the fault of the creditor, is
applicable only to instruments executed by third persons and delivered by the debtor to
the creditor.
Art. 1250. In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the obligation shall be the
basis of payment, unless there is an agreement to the contrary. (n)

APPLICATION OF LAW
 Applies only where a contract or agreement is involved. It does not apply where the obligation to
pay arises from law.
EXTRAORDINARY INFLATION OR DEFLATION
 That which is unusual or beyond the common fluctuations in the value of the currency which the
parties could not have reasonable foreseen.
 REVALUATION OF CURRENCY
• To determine payment when there has been great fluctuations in the value of currency,
we can resort, considering the circumstances of each particular case, to the principle of
good faith in Article 1315.
o Parties to contracts are bound not only to the fulfillment of what has been
expressly stipulated, but also to all the consequences which according to their
nature may be in keeping with good faith, usage and law.
• Effect of devaluation should not be borne by the creditor alone. Revaluation should be
made.
Art. 1251. Payment shall be made in the place designated in the obligation.
There being no express stipulation and if the undertaking is to deliver a determinate thing, the
payment shall be made wherever the thing might be at the moment the obligation was constituted.
In any other case the place of payment shall be the domicile of the debtor.
If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional
expenses shall be borne by him.
These provisions are without prejudice to venue under the Rules of Court. (1171a)
DETERMINATE THINGS
 Absence of stipulation, performance must be made at the place where the thing was located at the
time the obligation was constituted.
PAYMENT AT DEBTOR’S DOMICILE
 Even when the thing is determinate but its existence at the place where it was when the obligation
was constituted was temporary, the performance must be at the domicile of the debtor.
 Obligations for a sum of money, it is the duty of the creditor to go to the domicile of the debtor to
collect.
 CREDITOR’S EXPENSES
• If the creditor, in going to the debtor’s domicile to collect, incurs expenses, the creditor
must bear the expenses.
• But if the debtor changes his domicile in bad faith or after he has incurred in delay, then
the additional expenses shall be borne by him.
RISK OF TRANSMISSION
 When the debtor has been required to remit money to the creditor, the latter bears the risks and the
expenses of the transmission.
SUBSECTION 1. - Application of Payments
CONCEPT: Application of payment is the designation of the debt which is being paid by a debtor who
has several obligations of the same kind in favor of the creditor to whom payment is made.
Art. 1252. He who has various debts of the same kind in favor of one and the same creditor, may
declare at the time of making the payment, to which of them the same must be applied. Unless the
parties so stipulate, or when the application of payment is made by the party for whose benefit the
term has been constituted, application shall not be made as to debts which are not yet due.
If the debtor accepts from the creditor a receipt in which an application of the payment is made, the
former cannot complain of the same, unless there is a cause for invalidating the contract. (1172a)
Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have been
made until the interests have been covered. (1173)
PAYMENT OF INTEREST
 Partial payments are to applied first on account of the interest and then to reduce the principal.
 WHAT INTEREST COVERED
• No distinction should be made because the law makes no such distinction (on
compensatory interest and interest due to delay).
• Delay should worsen, not improve, the position of a debtor.

DEBTS TO BE PAID Art. 1254. When the payment cannot be applied in accordance with the preceding rules, or if
 Obligations must all be due. application can not be inferred from other circumstances, the debt which is most onerous to the
 It is only in cases of mutual agreement of upon the consent of the party in whose favor the term was debtor, among those due, shall be deemed to have been satisfied.
established, that payments may be applies to obligations which have not yet matured.
 It is also necessary that all the debts be for the same kind, generally of monetary character. If the debts due are of the same nature and burden, the payment shall be applied to all of them
proportionately. (1174a)
RIGHT OF DEBTOR
 The law grants to the debtor a preferential right to choose the debt to which his payment is to be MOST ONEROUS DEBT
applied.  It is assumed that if the debtor had chosen the debt to be paid, he would have relieved himself first of
 Limitations on the right of the debtor: the more burdensome debt.
1. If the debtor owes two debts – 50 and 200, and he makes a payment of 50, he cannot  Basis:
choose to apply it to the 200 debt because the creditor cannot be compelled to accept 1. Principal and surety: Principal is more onerous
partial payment. 2. Sole and solidary debtor: Sole
2. If there is only one obligation bearing interest, the debtor cannot apply the payment to the 3. Oldest debt
capital because the law requires its application to interest first. 4. Higher interest rate
3. The debtor cannot apply the payment to a debt that is not yet liquidated. 5. Debt with guaranty
4. He cannot choose a debt with a period for the benefit of the creditor, when the period has 6. Damages and one with penal clause: damages
not yet arrived. 7. Liquidated debt
5. When there is an agreement as to the debts which are to be paid first, the debtor cannot 8. Debtor is in default
vary the agreement.  NATURE AND BURDEN
 EFFECT OF CREDITOR’S REFUSAL • Where the debts are of the same nature and burden, there must always be a pro rata
• If the debtor makes a proper application of payment, but the creditor refuses to accept it application of the payment.
because he wants to apply it to another debt, such creditor may incur delay.
SUBSECTION 2. - Payment by Cession
APPLICATION BY CREDITOR
 If at the time of payment, the debtor does not exercise his right to apply, the application shall be Art. 1255. The debtor may cede or assign his property to his creditors in payment of his debts. This
understood as provided by law. cession, unless there is stipulation to the contrary, shall only release the debtor from responsibility
 EXCEPT: the creditor makes the application and his decision is accepted by the debtor. for the net proceeds of the thing assigned. The agreements which, on the effect of the cession, are
 Once the debtor has accepted, the former cannot contest such application. made between the debtor and his creditors shall be governed by special laws. (1175a)
 An application made by the creditor without the knowledge and consent of the debtor, is not binding
upon the latter. CONCEPT OF ASSIGNMENT
 CONTESTED BY THE DEBTOR  The assignment of the universality of the property of the debtor for the benefit of his creditors, in
• The application made by the creditor, stated in the receipt issued to the debtor, may be order that such property may be applied to the payment of the credits.
contested by the latter if there is a cause for invalidating the contract.  Initiative comes from the debtor but it must be accepted by the creditors.
• Real intent of the law is that the application made by the creditor can be contested by the  A voluntary assignment cannot be imposed upon a creditor who is not willing to accept it.
debtor.  Assignment by the debtor has two forms: voluntary and legal.
 The present article deals with voluntary assignment.
APPLICATION BY LAW  The assignment gives to the creditors the right to proceed to the sale of the property, and to pay
 When neither the debtor nor the creditor has made a valid application of payment, then the themselves in the amount which the proceeds of the sale permit and in the manner agreed upon.
application shall take place by operation of law.  If the proceeds of the property should not cover all the obligations, the unpaid amount remains due
and demandable.
CHANGE OF APPLICATION  PROPERTY EXEMPT
 The debtor and the creditor, by agreement, can validly change the application of payment already • Support
made, without prejudice to the rights of third persons acquired before such agreement. • Family home
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 DISTINGUISHED FROM DATION IN PAYMENT •For a valid consignation, it is necessary that the creditor must have refused without just
cause to accept payment, or that there be some other legal cause.
CESSION DATION IN PAYMENT • Mere consignation without one of these causes does not produce the effect of releasing
Only the possession and administration areTransfers the ownership over the thing alienated to the debtor.
transferred. the creditor. • UNJUST REFUSAL BY CREDITOR
Only extinguishes the credits to the extent of theMay totally extinguish the obligation 1. That there was previous tender of payment, without which the consignation is
amount realized from the properties unless otherwise ineffective.
agreed upon 2. That the tender of payment was of the very thing due, or in case of money
Involves all the properties of the debtor Specific thing obligations, that legal tender currency, was offered.
Various creditors Transfer is only in favor of one creditor 3. That the tender of payment was unconditional.
4. That the creditor refused to accept payment without just cause.
• ABSENCE OR INCAPACITY OF CREDITOR
SUBSECTION 3. - Tender of Payment and Consignation o Absence or incapacity need not be legally declared.
o It is not enough that the creditor be absent or incapacitated, he must have no
TENDER OF PAYMENT: The manifestation made by the debtor to the creditor of his desire to comply legal representative. Or if he has, the debtor, without his fault, does not know
with his obligation, with the offer of immediate performance. such legal representative.
• VARIOUS CLAIMANTS
CONSIGNATION: The deposit of the object of the obligation in a competent court in accordance with o They must have the appearance of a right to collect such that the debtor would
rules prescribed by law, after the tender of payment has been refused or because of circumstances which have a reasonable doubt.
render direct payment to the creditor impossible or inadvisable. • CAUSES NOT ENUMERATED
o The enumeration must not be interpreted in the restrictive sense, but in light of
Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause to the purpose of the institution of consignation, which is to avoid the
accept it, the debtor shall be released from responsibility by the consignation of the thing or sum performance of an obligation becoming more onerous to the debtor by reason
due. of causes not imputable to him.
Consignation alone shall produce the same effect in the following cases:  PREVIOUS NOTICE
(1) When the creditor is absent or unknown, or does not appear at the place of payment; • Consignation should be made known or announced to the creditor and to other persons
(2) When he is incapacitated to receive the payment at the time it is due; interested in the obligation.
(3) When, without just cause, he refuses to give a receipt; • Lack of notice does not invalidate the consignation (it invalidates consignation according
(4) When two or more persons claim the same right to collect; to JSP)
(5) When the title of the obligation has been lost. (1176a) • Notices can be made at the same time or in the same act
 DEPOSIT IN COURT
TENDER OF PAYMENT • The thing or amount due must be placed at the disposal of the judicial authority.
 Tender of payment is required before consignation. • OBJECT OF CONSIGNATIONS
 Tender is not required in the cases enumerated in the five numbered paragraphs of this article. o Even immovable property can be placed at the disposal of the court.
 Mere sending of letters by the debtor expressing intent to pay, without payment, is not a valid tender.  SECOND NOTICE
 Tender of payment of only part of the obligation, when the contract calls for full payment of the • After consignation has been made, the interested parties must be notified thereof.
balance due upon default of an installment, may be validly refused. • After notice, the creditor may
 EFFECT ON INTEREST 1. Accept the thing or amount deposited, in which case the matter or payment is
• When a tender of payment is made in such a form that the creditor could have terminated
immediately realized payment if he had accepted the tender, followed by a prompt 2. Refuse to accept the thing or amount, in which case a trial must be held to determine
attempt of debtor to deposit the means of payment in court by way of consignation, the the validity of the consignation.
accrual of interest will be suspended. 3. The creditor may neither accept nor refuse, in which case the debtor may ask the
court to cancel the obligation after showing that the requisites of consignation has
REQUISITES OF CONSIGNATION been complied with.
1. That there was a debt due.
2. That the consignation of the obligation was made because of some legal cause provided in the present Art. 1257. In order that the consignation of the thing due may release the obligor, it must first be
article. announced to the persons interested in the fulfillment of the obligation.
3. That previous notice of the consignation has been given to the persons interested in the performance
of the obligation. The consignation shall be ineffectual if it is not made strictly in consonance with the provisions
4. That the amount or thing due was placed at the disposal of the court. which regulate payment. (1177)
5. That after the consignation has been made the persons interested were notified thereof. PERSONS TO BE NOTIFIED
 The notice of consignation must be given to all persons interested in the fulfillment of the obligation,
 EXISTENCE OF DEBT whether they be passive subjects or possible litigants.
• There must be a debt to be paid.
 CAUSE FOR CONSIGNATION HOW NOTICE IS GIVEN
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 Tender of payment and notice may be made in the same act.
WITHDRAWAL BY DEBTOR
Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial  The right of the debtor to withdraw the thing or amount deposited in court, depends upon whether or
authority, before whom the tender of payment shall be proved, in a proper case, and the not the consignation has already been accepted or judicially declared proper.
announcement of the consignation in other cases.  Before that time, the debtor is still the owner, and he may withdraw.
 Once consignation has been accepted by the creditor or judicially declared proper, the debtor loses
The consignation having been made, the interested parties shall also be notified thereof. (1178) his right and cannot withdraw without the consent of the creditor. If the creditor consents, the
obligation is revived as against the debtor, but all rights of preference of the creditor over the thing
DEPOSIT IN COURT and all his actions against co-debtors, guarantors and sureties are extinguished.
 The very thing due must be placed at the disposal of the judicial authority.  When the debtor withdraws the thing, he must bear all the expenses.
 OBJECTION BY OTHER DEBTORS
JUDICIAL AUTHORITY • Other parties liable for the obligation have no right to oppose his withdrawal of such
 Includes the sheriff thing or amount.
 POWER OF COURT  OBJECTION BY CREDITOR
• Order that the property be taken into custody of an officer of the court or of a receiver to • Before consignation has been judicially declared proper, the creditor may prevent the
be specially appointed by it. withdrawal by the debtor, by accepting the consignation even with reservations.
• The court would likewise have authority in such case to make an order for the sale of the • If no reservations are made, acceptance is a waiver of further claims.
property.
ATTACHMENT BY THIRD PERSONS
NOTICE AFTER CONSIGNATION  Before consignation has been accepted, other creditors of the debtor may still attach the thing
 This requirement is fulfilled by the service of the summons upon the defendant together with a copy consigned as property belonging to the debtor.
of the complaint.
DISMISSAL OF ACTION
Art. 1259. The expenses of consignation, when properly made, shall be charged against the creditor.  If the case in which the consignation is made, is dismissed, the consignation will become ineffectual.
(1178)
Art. 1261. If, the consignation having been made, the creditor should authorize the debtor to
EXPENSES BORNE BY THE CREDITOR withdraw the same, he shall lose every preference which he may have over the thing. The co-
1. When after the thing has been deposited in court, the creditor accepts the consignation without debtors, guarantors and sureties shall be released. (1181a)
objection and without any reservation of his right to contest it because of failure to comply with any
of the requisites for consignation. WITHDRAWAL WITH CREDITOR’S CONSENT
2. When the creditor objects to the consignation but the court, after proper hearing, declares that the  There is a revival of the obligation.
consignation has been validly made.  Third persons who were benefited by the consignation, are not prejudiced by the revival of the
obligation between debtor and creditor.
Art. 1260. Once the consignation has been duly made, the debtor may ask the judge to order the  Withdrawal of the consignation releases the solidary co-debtor only from his solidary liability for the
cancellation of the obligation. share of others, but not from his liability for his own share.

Before the creditor has accepted the consignation, or before a judicial declaration that the SECTION 2. - Loss of the Thing Due
consignation has been properly made, the debtor may withdraw the thing or the sum deposited,
allowing the obligation to remain in force. (1180) CONCEPT OF LOSS OF THE THING
 Not limited to obligations to give
WHEN CONSIGNATION TAKES EFFECT  Extends to those which are personal, embracing therefore all causes which may render impossible
 Consignation is completed at the time the creditor accepts the same without objections, or, if he the performance of the prestation.
objects, at the time the court declares that it has been validly made in accordance with law.  Impossibility of performance.
 Consignation has a retroactive effect.  If impossibility already existed when the contract was made: inefficacy of the obligation

EFFECTS OF CONSIGNATION Art. 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if
1. Debtor is released it should be lost or destroyed without the fault of the debtor, and before he has incurred in delay.

2. Accrual of interest is suspended
When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does
3. Deteriorations or loss of the thing without the fault of the debtor must be borne by the creditor. not extinguish the obligation, and he shall be responsible for damages. The same rule applies when
4. Any increment or increase inures to the benefit of the creditor. the nature of the obligation requires the assumption of risk. (1182a)

 RECIPROCAL OBLIGATIONS LOSS OF DETERMINATE OBJECT

• When the debtor is bound simultaneously to perform with the creditor, he can ask the  Perishes
court that the thing be delivered to the creditor only upon compliance by the latter with  Goes out of commerce
the counter prestation.  Disappears in such a way that its existence is unknown or it cannot be recovered.
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 SUBJECTIVE IMPOSSIBILITY
• No physical or legal loss, but the thing belongs to another, the performance by the debtor
of the obligation undoubtedly becomes impossible.
• Debtor must indemnify creditor
EFFECT OF FORTUITOUS EVENT
 An obligation consisting in the delivery of a specified thing, shall be extinguished when the said
thing shall be lost or destroyed without the fault of the obligor and before he is in default.
 ROBBERY AND THEFT
• If the thing has been lost through robbery with violence, the debtor must show that he
could not resist the violence.
• If the lost is through theft, the debtor is considered negligent.
 EFFECT ON RECIPROCAL OBLIGATIONS
• The entire juridical relation is extinguished, so that if the creditor has himself an
obligation, this is likewise extinguished.
 EXCEPTION
• The debtor who is unable to perform becomes liable for damages when the thing is lost
through a fortuitous event:
1. When the law expressly provides that the debtor shall be liable even if the loss is
due to fortuitous events.
2. When by express stipulation, the obligor is made liable even of loss occurs through
fortuitous events.
3. When the nature of the obligation requires the assumption of risk
4. When the fault or negligence of the debtor concurs with the fortuitous event.
5. When the loss occurs after the debtor has incurred in delay.
6. When the debtor has promised to deliver the same though to two or more different
parties.
7. When the obligation to deliver a determinate object arises from a criminal act.
Art. 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same
kind does not extinguish the obligation. (n)
LOSS OF GENERIC THINGS
 A determinate thing is a concrete particularized object, indicated by its own individuality.
 A generic thing is one whose determination is confined to that of its nature, to the genus to which it
pertains.
 The loss of the determinate object without fault of the debtor extinguishes the obligation to give; but
the obligation is not extinguished if the object is indeterminate or generic.
 When all the things of the kind stipulated disappear or perish, the obligation is extinguished.
 DELIMITED GENERIC THINGS
• When there is a limitation of the generic object to a particular existing mass or a
particular existing mass or a particular group or of things, the obligation is extinguished
by the loss of the particular mass or group or limited quantity from which the prestation
has to be taken.
Art. 1264. The courts shall determine whether, under the circumstances, the partial loss of the
object of the obligation is so important as to extinguish the obligation. (n)
EFFECT OF PARTIAL LOSS
 Based on the assumption that partial loss is not imputable to the fault or negligence of the debtor.
 If the portion that is lost is of such extent or nature that the obligation would not have been
constituted without it, then the obligation is extinguished.
Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the
loss was due to his fault, unless there is proof to the contrary, and without prejudice to the
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provisions of article 1165. This presumption does not apply in case of earthquake, flood, storm, or
other natural calamity. (1183a)
APPLICATION OF ARTICLE
 The burden of explaining the loss of a thing in the possession of the debtor, rests upon the latter.
 The debtor must show that he is free from negligence, for negligence is presumed from the mere fact
of loss.
 EXCEPTION: In case of natural calamity, where lack of fault on part of debtor is likely and it is
unjust to presume negligence on his part.
Art. 1266. The debtor in obligations to do shall also be released when the prestation becomes legally
or physically impossible without the fault of the obligor. (1184a)
SUBSEQUENT IMPOSSIBILITY
 Impossible at the time the obligation is constituted: Nullity of the contract
 Impossible at the time of performance: modification or extinguishment of obligation depending on
whether it is imputable to debtor.
 This article refers to an impossibility which arises after the obligation has been constituted.
 NATURE OF IMPOSSIBILITY
• Physical impossibility: the act, by reason of its nature, cannot be accomplished.
• Legal impossibility: the act, by reason of a subsequent law, is prohibited.
• Objective impossibility: the act or service in itself, without considering the person of the
obligor, becomes impossible.
• Subjective impossibility: the act or service cannot be dome by the debtor himself.
• Objective and subjective impossibility produce the same effect.
EFFECT OF IMPOSSIBILITY
 Releases the debtor from his obligation.
 However, where it is not the prestation that has become impossible, but an act to be performed after
the fulfillment of the prestation, the obligation is extinguished.
PARTIAL IMPOSSIBILITY
 If at the time performance becomes impossible the debtor has already fulfilled part of the obligation,
the creditor must pay the part done so long as he benefits from such partial compliance.
 If the debtor has already received something from the creditor, he must return anything in excess of
what corresponds to the part already performed when the impossibility supervened.
TEMPORARY IMPOSSIBILITY
 Do not extinguish the obligation, but merely delay its fulfillment, unless by its nature or by the will
of the parties it has to be performed at a determinate time.
RECIPROCAL OBLIGATIONS
 Release of the debtor due to impossibility of performance, also releases the creditor from the
counter-prestation.
Art. 1267. When the service has become so difficult as to be manifestly beyond the contemplation of
the parties, the obligor may also be released therefrom, in whole or in part. (n)
CHANGE OF CIRCUMSTANCES
 Intention of the parties should govern,
 Based on rebus sic stantibus in public international law. Under this theory, the parties stipulate in the
light of certain prevailing conditions, and once these conditions cease to exist the contract also cease
to exist.
 The parties to a contract must be presumed to have assumed the risk of unfavorable developments. It
is therefore only in abosolutely exceptional changes of circumstances that equity demands assistance
for the debtor.
 REQUISITES
1. the event or change in circumstance could not have been foreseen at the time of the
execution of the contract.
2. It makes the performance of the contract extremely difficult but not impossible.
3. The event must not be due to the act of any of the parties.
4. The contract is for a future prestation.
• UNFORSEEN EVENTS
o Any change of circumstances, going beyond these limits would be manifestly
going beyond the contemplation of the parties.
• DIFFICULTY OF PERFORMANCE
o A manifest disequilibrium in the prestation, such that one party would be
placed at a disadvantage by the unforeseen event.
LOSS OF PROTECTED INTEREST
 The disappearance of the creditor’s interest which is sought to be protected by the obligation, will
extinguish the obligation.
Art. 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the
debtor shall not be exempted from the payment of its price, whatever may be the cause for the loss,
unless the thing having been offered by him to the person who should receive it, the latter refused
without justification to accept it. (1185)
OFFER OF PAYMENT
 When the debtor tenders payment and the creditor refuses to receive it without reason, there are 2
alternatives:
1. to consign the thing and relieve himself from any further responsibility
2. to just keep the thing, with the obligation to use due diligence
Art. 1269. The obligation having been extinguished by the loss of the thing, the creditor shall have
all the rights of action which the debtor may have against third persons by reason of the loss. (1186)
EXTENT OF CREDITOR’S RIGHTS
 Refers to right against third persons and indemnity which the debtor may have already received.
 Applicable to the money obtained from the insurance of the thing lost or destroyed.
SECTION 3. - Condonation or Remission of the Debt
Art. 1270. Condonation or remission is essentially gratuitous, and requires the acceptance by the
obligor. It may be made expressly or impliedly.
One and the other kind shall be subject to the rules which govern inofficious donations. Express
condonation shall, furthermore, comply with the forms of donation. (1187)
CONCEPT OF REMISSION
 Remission is an act of liberality.
 The creditor renounces the enforcement of the obligation, which is extinguished in its entirety or in
that part or aspect of the same to which the remission refers.
 Gratuitous
 KINDS OF REMISSION
• FORM
o Express: made formally, and should be in accordance with the forms of
ordinary donations.
o Implied: it can be inferred from the acts of the parties.
• EXTENT
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o Total
o Partial
• MANNER
o Inter vivos (effective during the lifetime of the creditor)
o Mortis causa (effective upon the death of the creditor); must be contained in a
will or testament
 APPLICABLE RULES
• Condonation or remission is essentially a donation.
• It is a bilateral act which requires acceptance by the debtor.
• It is subject to the rules on donations.
 REQUISITES OF REMISSION
1. the debt must be existing and demandable at the time the remission is made
2. the renunciation of the debt must be gratuitous, or without any equivalent or consideration
3. debtor must accept the remission
• EXPRESS REMISSION
o The law subjects remission to the same formalities as donations.
 ACT OF CREDITOR
• To condone is to forgive or remit a debt.
• There is no law which condones payment or interest.
• Party who can condone is the creditor and not the courts of justice.
 EVIDENCE REQUIRED
• Should be proven by clear and more convincing evidence.
UNILATERAL RENUNCIATION
 Remission requires acceptance, but there is nothing that can prevent a creditor from making a
unilateral renunciation of his right, abandoning his credit, and thereby extinguishing it.
Art. 1271. The delivery of a private document evidencing a credit, made voluntarily by the creditor
to the debtor, implies the renunciation of the action which the former had against the latter.
If in order to nullify this waiver it should be claimed to be inofficious, the debtor and his heirs may
uphold it by proving that the delivery of the document was made in virtue of payment of the debt.
(1188)
IMPLIED REMISSION
 Creditor voluntarily destroys or cancels the evidence of the credit, with the intent to renounce his
right.
 LIMITED TO PRIVATE DOCUMENT
• The code presupposes that when the creditor delivers a private document evidencing a
debt to his debtor, he surrenders the weapon for the enforcement of his right.
• This is not true in the case of a public document because there is always a copy in the
archives.
• The voluntary delivery to the debtor of the first original copy of a public instrument does
not imply remission.
 RELEASE THROUGH ERROR
• The creditor may grant a release by mistake, the debtor may accept it also in error.
• There is no extinguishment of the obligation.
 WHEN INOFFICIOUS
• Second paragraph implies that the voluntary return of the title of credit is presumed to be
by reason of remission, unless the contrary is proven.
• De Diego: this provision is absurd and immoral in that it authorizes the debtor and his
heirs to prove that they paid the debt, when the provision itself assumes that there has
been a remission, which is gratuitous.
Art. 1272. Whenever the private document in which the debt appears is found in the possession of Art. 1276. Merger which takes place in the person of the principal debtor or creditor benefits the
the debtor, it shall be presumed that the creditor delivered it voluntarily, unless the contrary is guarantors. Confusion which takes place in the person of any of the latter does not extinguish the
proved. (1189) obligation. (1193)

NATURE OF PRESUMPTION RELEASE OF GUARANTOR

 Implies the remission of the debt evidenced by such private document.  Extinguishment through confusion releases the guarantors, because their obligation is merely
 This presumption is only prima facie. accessory.

PLURALITY OF SUBJECTS MERGER IN GUARANTOR

 When the obligation is joint, and the private document evidencing a debt is found in the possession
of one of the debtors, the presumption of remission can refer only to the portion of the debtor who is
in possession of the instrument. Only the share pertaining to him shall be deemed remitted.
 If the obligation is solidary, remission must be considered total.
Art. 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the
waiver of the latter shall leave the former in force. (1190)
 Obligation is not extinguished. His obligation as a guarantor is extinguished, but the principal
obligation subsists.
MORTGAGED PROPERTY
 Mortgagee acquires a part of such property, that part is released from the encumbrance but the credit
is not extinguished even in part.
 Mortgagee acquires ownership of the entire mortgaged property, the mortgage is extinguished.

Art. 1274. It is presumed that the accessory obligation of pledge has been remitted when the thing Art. 1277. Confusion does not extinguish a joint obligation except as regards the share
pledged, after its delivery to the creditor, is found in the possession of the debtor, or of a third corresponding to the creditor or debtor in whom the two characters concur. (1194)
person who owns the thing. (1191a)
SECTION 5. – Compensation
NATURE OF PRESUMPTION
 Prima facie Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and
debtors of each other. (1195)
EFFECT OF REMISSION OF PLEDGE
 Extinguishes only the security; it does not affect the principal obligation. DEFINITION OF COMPENSATION
 Mode of extinguishing to the concurrent amount, the obligation of those persons who in their own
SECTION 4. - Confusion or Merger of Rights right are reciprocally debtors and creditors of each other.
 Offsetting
Art. 1275. The obligation is extinguished from the time the characters of creditor and debtor are  DISTINGUISHED FROM PAYMENT
merged in the same person. (1192a) PAYMENT COMPENSATION
Capacity to dispose of the thing paid and capacity to Such capacity is not necessary, because
CONCEPT OF MERGER receive are required for debtor and creditorcompensation operates by law and not by the act of
 Merger or confusion is the meeting in one person of the qualities of the creditor and debtor with respectively. the parties.
respect to the same obligation. Performance must be complete. There may be partial extinguishment of an
 It erases plurality. obligation.
 REQUISITES 2 advantages:
1. It must take place between the creditor and the principal debtor. 1. simple
2. The very same obligation must be involved. 2. there is more guaranty in making the credit
3. The confusion must be total or as regards the entire obligation. effective.
 CAUSES OF MERGER
• Succession to credit  DISTINGUISHED FROM MERGER
• Testate or intestate succession MERGER COMPENSATION
 REAL RIGHTS Involves only one obligation There must always be two obligations
• Real rights, which do not involved the relation of the debtor and the creditor, may be There is only one person in whom the character of There are two persons who are mutually debtors and
extinguished by the merger of the real right with the right of ownership. the debtor and creditor meet creditors.
REVOCATION OF MERGER  DISTINGUISHED FROM COUNTERCLAIM
 When the act which occasions the merger is susceptible of termination or revocation, the merger that SET-OFF OR COUNTERCLAIM COMPENSATION
has taken place is also terminated or revoked, and the obligation is recreated.
Must be pleaded Takes place by operation of law.
EFFECT OF MERGER
KINDS OF COMPENSATION
 Extinguish the obligation
 EFFECTS
• Total: when two obligations are of the same amount
• Partial: when the amounts are not equal
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 ORIGIN • If the requisites for compensation have co-existed, even if it be only for one day, there
• Legal: takes place by operation of law because all the requisites are present will be mutual extinguishment.
• Facultative: it can be claimed by one of the parties who, however, has the right to object  RESCISSIBLE OR VOIDABLE DEBTS
to it – when period is for the benefit of one party alone and who renounces the period to • The moment it is rescinded or annulled, the decree is retroactive, and compensation can
make the obligation due. no longer take place.
• Conventional: Parties agree to compensate  LIQUIDATED DEBTS
• Judicial: decreed by court. • A debt is liquidated when its existence and amount are determined.
 CONVENTIONAL COMPENSATION • Compensation can only take place between certain and liquidated debts.
• By agreement of the parties
• It is intended to eliminate or overcome obstacles which prevent ipso jure extinguishment CLAIMS OF THIRD PERSONS
of the obligations.  When one of the obligations sought to be compensated is subject to a suit between a third party and
• Requisites: the party interested in the compensation, each claiming to be the creditor in said obligation, there is a
1. that each of the parties can dispose of the credit he seeks to compensate. provisional suspension of the possible compensation.
2. that they agree to the mutual extinguishment of their credi  If third party is adjudged the creditor, there will be no compensation.
 FACULTATIVE COMPENSATION
• Can be set up only at the option of a creditor. PLURALITY OF PRESTATIONS
• Unilateral  When one obligation is simple, and the other is alternative, there can be no legal compensation.
 JUDICIAL COMPENSATION  Neither can compensation take place is one of the obligations is facultative.
• Takes place when the defendant, who is a creditor of the plaintiff for an unliquidated
amount, sets up his credit as a counterclaim against the plaintiff, and his credit is Art. 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up
liquidated by the judgment, thereby compensating it with the credit of the plaintiff. compensation as regards what the creditor may owe the principal debtor. (1197)

Art. 1279. In order that compensation may be proper, it is necessary: REASON

(1) That each one of the obligors be bound principally, and that he be at the same time a principal  If the principal debtor has a credit against the creditor which can be compensated, it would mean the
creditor of the other; extinguishment of the guaranteed debt either totally or partially.
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the
same kind, and also of the same quality if the latter has been stated; Art. 1281. Compensation may be total or partial. When the two debts are of the same amount, there
(3) That the two debts be due; is a total compensation. (n)
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons Art. 1282. The parties may agree upon the compensation of debts which are not yet due. (n)
and communicated in due time to the debtor. (1196)
VOLUNTARY COMPENSATION
MUTUAL DEBTORS AND CREDITORS  Not limited to obligations which are not yet due.
 The parties must be mutually debtors and creditors in their own right and as principals.  Parties may compensate by agreement.
 No compensation when one party is occupying a representative capacity.  Requisites for legal compensation are not necessary.
 The parties should have the capacity to dispose of the credits which they compensate.
FUNGIBLE THINGS DUE
 Things of the same kind. Art. 1283. If one of the parties to a suit over an obligation has a claim for damages against the other,
 Fungible not consumable. the former may set it off by proving his right to said damages and the amount thereof. (n)
 Fungible: things which can be substituted for each other.
 When the obligation refers to determinate or specific things, there can be no compensation. Art. 1284. When one or both debts are rescissible or voidable, they may be compensated against
each other before they are judicially rescinded or avoided. (n)
MATURITY OF DEBTS
 Both debts must be due to permit compensation. EFFECT OF JUDGMENT
 The moment it is rescinded or annulled, the decree of rescission or annulment is retroactive, and the
DEBTS BOTH DEMANDABLE compensation must be considered as cancelled.
 Debts are enforceable in court.  Rescission or annulment requires mutual restitution.
 Must be civil obligations
 An obligation is not demandable when: Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a
1. There is a period which has not yet arrived third person, cannot set up against the assignee the compensation which would pertain to him
against the assignor, unless the assignor was notified by the debtor at the time he gave his consent,
2. When there is a suspensive condition that has not yet happened.
that he reserved his right to the compensation.
3. When the obligation cannot be sued upon, as in natural obligations.
 PRESCRIPTION If the creditor communicated the cession to him but the debtor did not consent thereto, the latter
• If at the time when the two debts co-exist, neither has prescribed, the prescription of one may set up the compensation of debts previous to the cession, but not of subsequent ones.
afterwards will not prevent compensation.
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If the assignment is made without the knowledge of the debtor, he may set up the compensation of
all credits prior to the same and also later ones until he had knowledge of the assignment. (1198a)
ASSIGNMENT AFTER COMPENSATION
 There has already been an extinguishment of one or the other of the obligations.
 A subsequent assignment of an extinguished obligation cannot produce any effect against the debtor.
 EXCEPTION: when debtor consents to the assignment. This constitutes a waiver, unless he reserved
his right to compensation.
OFFENDER BARRED
 The person who has a civil liability arising from crime is the only party who cannot set up the
compensation.
 The offended party entitled to indemnity can set up his claim in compensation of his debt. This is a
case of facultative compensation.
Art. 1289. If a person should have against him several debts which are susceptible of compensation,
the rules on the application of payments shall apply to the order of the compensation. (1201)

ASSIGNMENT BEFORE COMPENSATION Art. 1290. When all the requisites mentioned in Article 1279 are present, compensation takes effect
 Debtor: assignment does not take effect except from the time he is notified thereof. If the notice is by operation of law, and extinguishes both debts to the concurrent amount, even though the
simultaneous to the transfer, he can set up compensation of debts due prior to the assignment. creditors and debtors are not aware of the compensation. (1202a)
 If notice was given before the assignment, this takes effect at the time of the assignment. Same rule
applies if he consents to the assignment. EFFECTCTIVITY OF COMPENSATION
 If debtor was notified and he did not consent, and the credit assigned matures, the debtor may set up  Legal compensation takes effect from the moment that the requisites of articles 1278 and 1279 co-
compensation when the assignee attempts to enforce the assigned credit, provided that the credit of exist.
the debtor became due before the assignment.  Voluntary or conventional compensation takes effect upon the agreement of the parties.
 If the assigned credit matures earlier than that of the debtor, the assignee may immediately enforce  Facultative compensation takes place when the creditor declares his option to set it up.
it, and the debtor cannot set up compensation because his credit is not yet due.  Judicial compensation takes place upon final judgment.
 If debtor did not have knowledge of the assignment, he may set up by way of compensation all
credits maturing before he is notified thereof. EFFECTS OF COMPENSATION
1. Both debts are extinguished to the concurrent amount.
Art. 1286. Compensation takes place by operation of law, even though the debts may be payable at 2. Interests stop accruing on the extinguished obligation or the part extinguished.
different places, but there shall be an indemnity for expenses of exchange or transportation to the 3. The period of prescription stops with respect to the obligation or part extinguished.
place of payment. (1199a)
4. All accessory obligations are extinguished.
APPLICATION
MUST BE SET UP
 Applies to legal compensation and not to voluntary compenstation.
 Must be alleged and proved by the debtor.
Art. 1287. Compensation shall not be proper when one of the debts arises from a depositum or from
RENUNCIATION OF COMPENSATION
the obligations of a depositary or of a bailee in commodatum.
 Compensation can be renounced either at the time the obligation is contracted or afterwards.
Compensation rests upon a potestative right, and a unilateral declaration of the debtor would be
Neither can compensation be set up against a creditor who has a claim for support due by
sufficient renunciation.
gratuitous title, without prejudice to the provisions of paragraph 2 of Article 301. (1200a)
 Compensation can be renounced expressly or impliedly.
 Implied renunciation:
REASON FOR PROHIBITION
• Not setting it up in the litigation
 Depositum or commodatum is based on justice.
• By consenting to the assignment of a credit
 A deposit made or a commodatum is given on the basis of confidence.
• By paying the debt voluntarily, with knowledge that it has been extinguished by
compensation.
DEPOSIT AND COMMODATUM
 Only the depositary and the borrower cannot set up compensation.
NO COMPENSATION
 Even when all the requisites are present, compensation may not take place in the ff. cases:
SUPPORT
 Not only legal support, but also including all other rights. 1. When there is a renunciation of the effects of compensation by a party.
2. When the law prohibits compensation.
OBLIGATION IN FAVOR OF THE GOVERNMENT
 Debts in favor of the government cannot be extinguished by compensation.
 But when debt in favor of the government is purely contractual, there is no reason why compensation SECTION 6. – Novation
cannot take place.
Art. 1291. Obligations may be modified by:
Art. 1288. Neither shall there be compensation if one of the debts consists in civil liability arising (1) Changing their object or principal conditions;
from a penal offense. (n) (2) Substituting the person of the debtor;
3) Subrogating a third person in the rights of the creditor. (1203)
REASON FOR ARTICLE
 Compensation would be improper CONCEPT OF NOVATION

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 Novation is the extinguishment of an obligation by the substitution or change of the obligation by a • There must be essential change.
subsequent one which extinguishes or modifies the first either by:  ACCIDENTAL CHANGES
1. Changing the object or principal conditions • Accidental modifications in an existing obligation do not extinguish it by novation.
2. Substituting the person of the debtor • Changes refer to secondary agreements = no novation
3. Subrogating a third person in the rights of the creditor.  DETERMINATION OF CHANGE
• Depend upon the facts and circumstances of each case.
CLASSIFICATION OF NOVATION • Courts should consider not only the nature, but also the intention of the parties.
 NATURE
• Subjective or personal: Change of subject; passive – substitution of the debtor; active – Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may
third person is subrogated in the rights of the creditor. be made even without the knowledge or against the will of the latter, but not without the consent of
• Objective or real: substituting the object or changing the principal conditions. the creditor. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237.
• Mixed: combination of the subjective and objective novation. (1205a)
 FORM
• Express: parties declare SUBSTITUTION OF DEBTOR
• Implied: there is such an incompatibility between the old and the new obligations that  2 forms:
they cannot stand together. • Expromision: initiative for the change does not emanate from the debtor and may be
 EFFECT made even without his knowledge. It requires consent of this third person and the
• Partial: modification or change in some principal conditions of the obligation creditor.
• Total: when the old obligation is completely extinguished • Delegacion: the debtor offers and the creditor accepts a third person who consents to the
substitution. The consent of these three is necessary.
REQUISITES OF NOVATION  RELEASE OF OLD DEBTOR
• It is necessary that the old debtor be release from the obligation, and the third person or
1. Previous valid obligation
new debtor take his place in the relation.
2. Agreement of all the parties to the new contract • Without such release, there is no novation.
3. The extinguishment of the old contract  CONSENT OF CREDITOR
4. Validity of the new one • Consent of creditor to the change of debtors is an indispensable requirement.
• Consent may be express or implied.
 ORIGINAL EXISTING OBLIGATION • When the original contract authorizes the debtor to transfer his obligation to a third
• Obligation must not only be valid, but also that it has not been extinguished. person, the novation by substitution of debtor is effected when the creditor is notified that
 CONSENT OF PARTIES such transfer has been made.
• There must be consent of ALL the parties. • Consent of creditor cannot be presumed from his acceptance of payments by a third party.
 EXTINGUISHMENT OF OBLIGATION  CONSENT OF DEBTORS
• May take place by express or by implication. • Expromision: consent of debtor is not necessary.
 NEW VALID OBLIGATION • Delegacion: old debtor always consents because initiative comes from him.
• New contract must be valid and effective. A mere draft cannot annul a prior valid and • In both cases, consent of new debtor is necessary.
effective contract.  EFFECT ON DEBTORS
• Releasing the original debtor and making the new debtor liable.
Art. 1292. In order that an obligation may be extinguished by another which substitute the same, it • As between the old and the new debtors
is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be o Donation cannot be presumed and the old debtor must reimburse to the new
on every point incompatible with each other. (1204) debtor whatever benefit he derives from the novation.
o Expromision: new debtor pays, the matter is governed by the rules on payment
NOVATION NOT PRESUMED by third person.
 Novation is never presumed. o Delegacion: Rule applicable to payment by a third person with the consent of
 It must be established that the old and new contracts are incompatible in all points or that the will to the debtor should apply.
novate appear by express agreement or in acts of equivalent import.
Art. 1294. If the substitution is without the knowledge or against the will of the debtor, the new
EXPRESS NOVATION debtor's insolvency or non-fulfillment of the obligations shall not give rise to any liability on the part
 Novation takes place only when the parties expressly disclose their object in making the new of the original debtor. (n)
contract is to extinguish the old contract.
SUBSTITUTION BY EXPROMISION
IMPLIED NOVATION  No liability for the new debtor’s insolvency can be enforced against the old debtor because the later
 No specific form is required. All that is required is incompatibility between the original and the did not have the initiative in making the change.
subsequent contracts.
 Test of incompatibility: Whether they can stand together, each one having an independent existence. Art. 1295. The insolvency of the new debtor, who has been proposed by the original debtor and
 ESSENTIAL CHANGES accepted by the creditor, shall not revive the action of the latter against the original obligor, except
• Change must refer to the object, the cause, or the principal conditions.
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when said insolvency was already existing and of public knowledge, or known to the debtor, when
the delegated his debt. (1206a)
SUBSTITUTION BY DELEGACION
 Insolvency of the new debtor permits the creditor to sue the old debtor when the insolvency was
prior to the delegation and publicly known, or when the old debtor knew of such insolvency.
 Some believe that there are other cases in which the old debtor will be liable:
1. If the new debtor is only secondarily liable
2. If the third person is only an agent of the debtor.
3. Where the new debtor is bound solidarily with the old debtor.
Art. 1296. When the principal obligation is extinguished in consequence of a novation, accessory
obligations may subsist only insofar as they may benefit third persons who did not give their
consent. (1207)
ACCESSORY OBLIGATIONS
 The extinguishment of the principal obligation by novation extinguishes the obligation to pay
interests, unless otherwise stipulated.
 The exception provided has reference to a stipulation in favor of a third person which is subordinate
to the principal obligation.
 It is in reality an distinct obligation in favor of a third person, and cannot be extinguished without the
consent of the latter.
Art. 1297. If the new obligation is void, the original one shall subsist, unless the parties intended that
the former relation should be extinguished in any event. (n)
NEW VALID OBLIGATION
 Indispensable that the new contract be valid and effective.
NEW OBLIGATION VOIDABLE
 If the new obligation is not entirely void, but only voidable, the novation becomes effective.
 But if the action to annul is brought and the obligation was set aside, it will be deemed as if there had
been no novation.
CONDITIONAL NEW OBLIGATION
 If the intention is merely to attach the condition to the original obligation, there is no novation.
EXTINGUISHMENT OF NEW OBLIGATION
 After novation has taken place, by the change of the object, the old obligation can no longer be
enforced.
 If new obligation is extinguished by the loss of its object, the creditor cannot demand the object of
the original obligation.
Art. 1298. The novation is void if the original obligation was void, except when annulment may be
claimed only by the debtor or when ratification validates acts which are voidable. (1208a)
ORIGINAL OBLIGATION VOID
 When the original obligation is void, there can be no novation, because one of the requisites would
be lacking.
 An obligation which has already been extinguished is also inexistent. Hence, it cannot be novated.
OLD OBLIGATION VOIDABLE
 When the original obligation has been ratified before novation, the novation is effective.
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 Even if there has been no previous ratification at the time of the novation, if the nullity can only be
claimed by the debtor, the consent of the debtor to the novation will render the novation effective,
because such consent is impliedly a waiver of the action for nullity.
 PRESCRIPTION
• When debt is already barred by prescription, it cannot be enforced by the creditor, but a
new contract, recognizing and assuming the prescribed debt, would be valid and
enforceable.
• The prescription being available only to the debtor can be waived by him.
Art. 1299. If the original obligation was subject to a suspensive or resolutory condition, the new
obligation shall be under the same condition, unless it is otherwise stipulated. (n)
OLD OBLIGATION CONDITIONAL
 The original obligation may be conditional and the new obligation pure.
 If the intention is merely to suppress the condition, there will be no novation, but if it is to extinguish
the original obligation, the new obligation does not arise except from the fulfillment of the condition
of the original obligation.
 The reason is, if the suspensive condition of the original obligation is not performed, that obligation
does not come into existence and the cause for the new obligation would then be wanting.
 If the condition is resolutory, its happening would resolved the old obligation and place it in the
same category as a void obligation or one which has been extinguished.
BOTH OBLIGATIONS CONDITIONAL
 Old and new obligations are both conditional.
 If the conditions in the two obligations are not incompatible, they must all be fulfilled in order that
the novation may be become effective.
 If the conditions are incompatible, there is an obvious intention to substitute the new conditional
obligation for the old conditional obligation.
Art. 1300. Subrogation of a third person in the rights of the creditor is either legal or conventional.
The former is not presumed, except in cases expressly mentioned in this Code; the latter must be
clearly established in order that it may take effect. (1209a)
KINDS OF SUBROGATION
 Subrogation is the transfer of all the rights of the creditor to a third person, who substitutes him in all
his rights.
 It may be legal or conventional.
 Legal subrogation: takes place by operation of law. This is the subrogation referred to in Art 1302.
 Conventional subrogation: takes place by agreement of the parties. This requires the intervention
and consent of three persons – the original creditor, the new creditor, and the debtor.
CONSENT OF ALL PARTIES
 In conventional subrogation, consent of all the parties is essential.
CONVENTIONAL SUBROGATION AND ASSIGNMENT OF CREDITS
 Conventional subrogation is not identical to assignment of credit.
 In conventional subrogation, the debtor’s consent is necessary. This is not required in assignment of
credit.
 Subrogation extinguishes the obligation and gives rise to a new one.
 Assignment refers to the same right.
Art. 1301. Conventional subrogation of a third person requires the consent of the original parties
and of the third person. (n)
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with the express or tacit approval of  Agreement on the declaration of a common will.
the debtor;  Our code seems to limit the definition to cases, where one party binds himself to perform a
(3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the prestation in favor of another, excluding cases of reciprocal prestations.
obligation pays, without prejudice to the effects of confusion as to the latter's share. (1210a)  Better definition (Sanchez Roman)
• A juridical convention manifested in legal form, by virtue of which one or more persons
PAYMENT WITH DEBTOR’S APPROVAL bind themselves in favor of another or others, or reciprocally, to the fulfillment of a
 If a third person pays the creditor without the consent of the debtor, he is only entitled to prestation to give, to do, or not to do.
reimbursement from the debtor for the amount paid by him.  OTHER CONVENTIONS
• A contract is limited to agreements which produce patrimonial liabilities.
PAYMENT BY INTERESTED PARTY • Distinguished from other acts based on consent of two or more persons (marriage,
 Those who would be benefited by the extinguishment of the obligation. donation, adoption, and succession):
 Co-debtors, guarantors, sureties, etc. CONTRACT OTHER
Creates a more particular, concrete, and
Art. 1303. Subrogation transfers to the persons subrogated the credit with all the rights thereto transitory obligation, because it establishes a
appertaining, either against the debtor or against third person, be they guarantors or possessors of relation which is more limited by reason of
mortgages, subject to stipulation in a conventional subrogation. (1212a) persons, effects, and importance.
Freedom to stipulate predominated over theMeeting of the minds is merely secondary
EFFECTS OF SUBROGATION necessity of the act. Intention of the parties is
 Subrogation transfers to the third person or new creditor the entire credit, with all the corresponding the determining factor in contracts.
rights. Law only has suppletory effect Law is the principal source of rights and
 If a suspensive condition is attached to it, that condition must be fulfilled. obligations

SUBROGATION IN INSURANCE  OTHER TERMS

 Upon payment of the loss, the insurer is entitled to be subrogated to any right of action which the CONTRACT
insured may have against the third person whose negligence or wrongful act caused the loss. PERFECT PROMISE Tends only to assure and pave the Establishes and determines the
way for the celebration of a obligation arising therefrom
Art. 1304. A creditor, to whom partial payment has been made, may exercise his right for the contract in the future.
remainder, and he shall be preferred to the person who has been subrogated in his place in virtue of IMPERFECT PROMISE Policitacion; A mere unaccepted
the partial payment of the same credit. (1213) offer.
PACT Special part of a contract,
sometimes merely incidental and
separable from the principal
agreement.
STIPULATION Similar to a pact. When a contract
is an instrument, stipulation refers
to the essential and dispositive part,
as distinguished from the
exposition of the fats and
antecedents upon which it is based.

NUMBER OF PARTIES
 The code requires “two persons” for the existence of a contract; obviously what is meant by the law
is “two parties.”
• HUSBAND AND WIFE
o Art 1490: husband and wife cannot sell property to each other unless there is a
separation of property between them.
o Prohibition is to protect the conjugal partnership.
Title II. – CONTRACTS • AUTO-CONTRACTS
o Contract where one person contracts with himself.
CHAPTER 1 GENERAL PROVISIONS o Same person, acting in another’s capacity, and his own.
o Validity of auto-contracts is generally acceptable except when there is conflict
Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with of interest or a possibility of injury, and except when the law expressly
respect to the other, to give something or to render some service. (1254a) prohibits it in specific cases.
o So long as there are two distinct patrimonies, even if they are represented by
CONCEPT OF CONTRACT the same person, a juridical relation can be created between them.
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 o(1) When a person, in his capacity as representative of another, contracts with
himself; (2) When as a representative of two different persons, he brings about
a contract between his principals Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as
• CONTRACTS OF ADHESION they may deem convenient, provided they are not contrary to law, morals, good customs, public
o When one party has already a prepared form of a contract, containing the order, or public policy. (1255a)
stipulations he desires, and he simply asks the other party to agree to them if
he wants to enter into the contract. FREEDOM TO CONTRACT
 Save in limited and exceptional situations provided by the law itself, courts have no authority to
CHARACTERISTICS OF CONTRACTS prescribe the terms and conditions of a contract for the parties.
Obligatory Force Constitutes the law as between the parties
Mutuality Validity and performance cannot be left to the will of only one of the VALIDITY OF STIPULATIONS
parties  The contract is the law between the contracting parties.
Relativity of Contracts It is binding only upon the parties and their successors.  TRUST RECEIPTS
• Partake the nature of a conditional sale. The importer becomes absolute owner of the
ELEMENTS OF CONTRACT imported merchandise as soon as he had paid its price.
 ESSENTIAL ELEMENTS • Valid
 OTHER STIPULATIONS
3. Consent
• Escalation clauses are valid.
4. Subject matter • COMPROMISES
5. Cause o The whole essence of a compromise is that by making reciprocal concessions,
 NATURAL ELEMENTS the parties avoid litigation or put an end to one already commenced.
• Those which exist as part of the contract even if the parties do not provide for them,  QUALIFICATION OF CONTRACT
because the law, as suppletory to the contract, creates them (e.g. warranty in sale). • The validity of the agreements is one thing and the juridical qualification of the contract
 ACCIDENTAL ELEMENTS resulting therefrom is very distinctly another.
• Agreed upon by the parties and which cannot exist without being stipulated. • The law, not the parties, determine the juridical situation created by the parties through
their contract and the rights and the obligations arising therefrom.
STAGES OF CONTRACT • A contract is to be judged by its character, and courts will look to the substance and not to
PREPARATION, Period of negotiation and bargaining, ending at the moment of agreement of the the mere form of the transaction.
CONCEPTION, ORparties.
GENERATION LIMITATIONS ON STIPULATIONS
PERFECTION The moment when the parties come to agree on the terms of the contract  An act or contract that is illegal per se is one that by universally recognized standards is inherently or
CONSUMMATION Fulfillment or performance of the terms agreed upon in the contract. by its very nature, bad, improper, immoral or contrary to good conscience.
 CONTRARY TO MORALS
CLASSIFICATION OF CONTRACTS • Morals may be considered as meaning good customs; or those generally accepted
Dependence 4. Preparatory (agency) principles of morality which have received some kind of social and practical
5. Principal (lease or sale) confirmation.
6. Accessory (pledge, mortgage) • It is not contrary to morals or good customs to make and act dependent upon money or
Perfection some pecuniary value, when it is of such nature that it should not depend thereon.
1. Consensual
 CONTRARY TO PUBLIC ORDER
2. Real • Public order signifies public weal.
Solemnity/form 1. Common form  ATTORNEY’S FEES
2. Special form • A client has a right to dismiss his lawyer at any time, even if there is a contract for
Purpose 1. Transfer of ownership professional services with a stipulated compensation.
2. Conveyance of use
Subject-matter 1. Things Art. 1307. Innominate contracts shall be regulated by the stipulations of the parties, by the
provisions of Titles I and II of this Book, by the rules governing the most analogous nominate
2. Services
contracts, and by the customs of the place. (n)
Nature of obligation produced 1. Bilateral
2. Unilateral INNOMINATE CONTRACTS: Contracts which do not have specific name
Cause 1. Onerous  Do ut des (I give and you give)
2. Gratuitous  Do ut facias (I give and you do)
Risk 1. Commutative  Facio ut des (I do and you give)
2. Aleatory  Facio ut facias (I do and you do)
Name 3. Nominate ANALOGOUS CONTRACTS
4. Innominate
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 Innominate contracts are, in the absence of stipulations and specific provisions of law on the matter,
to be governed by rules applicable to the most analogous contracts.
 In contracts where one party renders services to another without express agreement as to the
compensation or price, it has been held that such compensation or price can be determined wither in
relation to a definite thing, or under the usage and customs of the place, or by leaving it to the
judgment of the courts in case of disagreement or dispute.
Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left
to the will of one of them. (1256a)
MUTUALITY OF CONTRACTS
1. That obligations arising from contracts have the force of law between the contracting parties
2. That there must be mutuality between the parties based on their essential equality.
UNILATERAL CANCELLATION
 Once a contract is entered into, no party can renounce it unilaterally or without the consent of the
other.
 The unilateral act of one party in terminating the contract without legal justification, makes it liable
for damages.
 WHEN STIPULATED
• An agreement of the parties that either one of them may terminate the contract upon a
reasonable period of notice, is valid.
 EXPRESS AGREEMENT
• It is perfectly licit to leave the fulfillment of the contract to the will of either of the parties
in the negative form of rescission.
Art. 1309. The determination of the performance may be left to a third person, whose decision shall
not be binding until it has been made known to both contracting parties. (n)
Art. 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the
courts shall decide what is equitable under the circumstances. (n)
Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case
where the rights and obligations arising from the contract are not transmissible by their nature, or
by stipulation or by provision of law. The heir is not liable beyond the value of the property he
received from the decedent.
If a contract should contain some stipulation in favor of a third person, he may demand its
fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere
incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly
and deliberately conferred a favor upon a third person. (1257a)
 PARTIES BOUND BY CONTRACT
• Contracts produce effect as between the parties who execute them.
• THIRD PERSONS NOT BOUND
o A contract cannot be binding upon and cannot be enforced against one who is
not a party to it, even if he is aware of such contract and has acted with
knowledge thereof.
• THIRD PERSONS AFFECTED
o Although contracts do not bind third persons, juridical situations may be
created affecting them.
 A contract creating a real right affects third persons who may have
some right over the thing.
 A contract may reduce the properties of a debtor and thus diminish
the available security for the claims of creditors.
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 In some cases, as n composition in insolvency and suspension of
payments, certain agreements are made binding by law on creditors
who may not have agreed thereto.
• ENFORCEMENT OF CONTRACTS
o Only a party to the contract can maintain an action to enforce the obligations
arising under said contract.
• ANNULMENT OF CONTRACT
o Since a contract is binding only upon the parties thereto, a third person cannot
ask for its annulment, although of course, he may ask for its rescission if it is
in fraud of his rights.
• CONTRACT BIND HEIRS
o As a general rule, rights and obligations under a contract are transmitted to the
heirs of the parties.
o With the exception of money debts, obligations are also transmitted to the
heirs of the parties, and they may be compelled to fulfill the same.
• INTRANSMISSIBLE CONTRACTS
o Those which are purely personal – partnership and agency
o Contracts for the payment of money debts are not transmitted to the heirs of a
party, but constitute a charge against his estate.
 STIPULATIONS FOR THIRD PARTIES
• First paragraph: only parties thereto and their privies acquire rights and assume
obligations thereunder.
• Second paragraph: exception to the first; it permits a third person to avail himself of a
benefit extended to him by its terms.
• Stipulations in favor of third persons may be divided into two classes:
1. The stipulation is intended for the sole benefit of such third person.
2. Those where an obligation is due from the promisee to the third person and the
former seeks to discharge it by means of stipulation.
• REQUISITES:
1. There must be a stipulation in favor of a third person;
2. That the stipulation in favor of a third person should be a part, not the whole of the
contract;
3. That the contracting parties must have clearly and deliberately conferred a favor
upon a third person, not a mere incidental benefit or interest;
4. That the favorable stipulation should not be conditioned or compensated by any
kind of obligation whatever;
5. That the third person must have communicated his acceptance to the obligor before
its revocation;
6. Neither of the contracting parties bears the legal representation or authorization of
the third party.
 BENEFICIARIES
• A stipulation may validly be made in favor of indeterminate persons, provided that they
can be determined in some manner at the time when the prestation from the stipulation
has to be performed.
 TEST OF BENEFICIAL STIPULATION
• A mere incidental interest of a third person is not within the doctrine of stipulations pour
autrui.
• The third person acquires a right to the prestation only when this is in accordance with
the intention of the contracting parties.
• To constitute a valid stipulation pour autrui, it must be the purpose and intent of the
stipulating parties to benefit the third person, and it is not sufficient that the third person
may be incidentally benefited by the stipulation.
• So, the fairest test is to rely upon the intention of the parties as disclosed in their contract.
 ACCEPTANCE BY THIRD PARTY
 •A stipulation in favor of a third person has no binding effect in itself before its acceptance
by the party favored. Before such acceptance, there is legally no “obligor.” Neither party
can sue the other for non-performance.
• The acceptance is optional to the third person and the acceptance retroacts to the moment
intended by the parties to the contract.
• Acceptance must be absolute, unconditional, and identical with the terms of the offer.
• Acceptance does not have to be in any particular form.
• Acceptance may be implied form the performance by third person of his obligation under
the stipulation.
• The law does not provide when the third person must make his acceptance. There is no
time limit, he has all the time until the stipulation is revoked.
 RIGHTS OF PARTIES
• Before acceptance by the third person, the contracting parties, by mutual agreement, may
modify the contract or revoke it.
• After acceptance and there is a failure of performance, he can sue for specific
performance or resolution with damages.
• Between the third person and the party who required the stipulation, there certainly exists
a juridical relation.
• DEPENDENCE ON CONTRACT
o The right of the third person does not exist if the contract is void; it disappears
if the contract is annulled or dissolved.
 WHO MAY REVOKE
• The right to revoke does not pertain simply to the promisor. As a general rule, it pertains
to the other contracting party, or promise, who may exercise it without the consent of the
promisor. But it may be agreed that the revocation should have the consent of the
promisor, and this agreement may be implied when the latter has an interest, even if
moral, in the fulfillment of the promise.
• Right to revoke may not be exercised by the heirs or creditors of promise.
COLLECTIVE CONTRACTS
 Cases where the law authorizes the will of the majority to bind a minority to an agreement
notwithstanding the opposition of the latter, when all have a common interest in the juridical act.
 Application of this is limited to specific cases provided by law.
• Suspension of payments, compositions in insolvency proceedings, collective bargaining
etc.
 Bases: co-ownership is legally presumed.
Art. 1312. In contracts creating real rights, third persons who come into possession of the object of
the contract are bound thereby, subject to the provisions of the Mortgage Law and the Land
Registration Laws. (n)
REAL RIGHTS IN PROPERTY
 A real right directly affects property subject to it.
 E.g. mortgage
Art. 1313. Creditors are protected in cases of contracts intended to defraud them. (n)
CONTRACTS IN FRAUD OF CREDITORS
 Creditors may ask for rescission.
Art. 1314. Any third person who induces another to violate his contract shall be liable for damages
to the other contracting party. (n)
INTEREFERENCE BY THIRD PERSONS
 A third person may be held liable for damages because he has induced a party to the contract to
violate the terms thereof.
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 An injured party may recover damages.
 Malice in some form is generally supposed to be an essential ingredient. But it is enough if the
wrongdoer, having knowledge of the existence of the contract relation, in bad faith sets about to
break it up. Whether his motice is to benefit himself or gratify his spite is immaterial.
 Malice in the sense of ill-will or spite is not essential.
 REQUISITES:
1. The existence of a valid contract;
2. Knowledge by the third person of the existence of the contract;
3. Interference by the third person in the contractual relation without legal justification.
 EXTENT OF LIABILITY
• Stranger cannot be more extensively liable in damages or non-performance of the
contract than the party in whole behalf he intermeddles.
• Their liability should be solidary.
Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound
not only to the fulfillment of what has been expressly stipulated but also to all the consequences
which, according to their nature, may be in keeping with good faith, usage and law. (1258)
PERFECTION OF CONSENSUAL CONTRACTS
 The perfection of a contract is the moment from which it exists; juridical tie arises from that time.
 CONSENSUAL CONTRACTS: Perfected by mere consent. The consent need not be made
expressly.
 FORMAL CONTRACTS: Those in which compliance with special external formalities is
necessary for the validity of the contract, are no longer recognized under our law, as distinct from the
consensual contracts.
BINDING EFFECT OF CONTRACTS
 The binding force of a contract is not limited to what is expressly stipulated, but extends to all
consequences which are the natural effect of the contract.
Art. 1316. Real contracts, such as deposit, pledge and commodatum, are not perfected until the
delivery of the object of the obligation. (n)
PERFECTION OF REAL CONTRACTS
 REAL CONTRACT: Not perfected by mere consent; delivery of the thing is also required.
 It is the delivery of the object which forms the basis of the obligations under the contract.
Art. 1317. No one may contract in the name of another without being authorized by the latter, or
unless he has by law a right to represent him.
A contract entered into in the name of another by one who has no authority or legal representation,
or who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or
impliedly, by the person on whose behalf it has been executed, before it is revoked by the other
contracting party. (1259a)
RATIFICATION NECESSARY
 Where a contract is entered into in behalf of another who has not authorized it, such contract is not
valid and binding as against him, unless he ratifies the transaction and is estopped to question its
legality.
 Nullity is permanent and will exist until contract is not ratified.
 Party is a minor, it can be ratified by him upon reaching maturity or by his legal guardian.
 EXPRESS OR IMPLIED
• The ratification of an unauthorized contract may be either express or implied.
 EFFECT RETROACTIVE
• The ratification of a contract validates the act from the moment of its celebration.
 2. Capacity
STATUS BEFORE RATIFICATION 3. Intelligence and free will
 The unauthorized contract produces a state of suspense; its effectivity depends upon its ratification. 4. Express or tacit manifestation of the will
 Before ratification, the other party may not do anything which would frustrate the rights of the
5. Conformity of the internal will and its manifestation
former which may arise in the event of ratification.
FORMS OF CONSENT
LIABILITY OF REPRESENTATIVE
 Express or implied
 If the contract is not ratified by the person represented, the representative becomes liable in damages
to the other party, if he did not give notice of the absence or deficiency of his power.
MANIFESTATION OF CONSENT
 The third party is not entitled to damages if he knew or should have known that the authority does
not exist.  Consent is manifested by the concurrence of offer and acceptance with respect to the object
and the cause of the contract.
 OFFER BY ONE PARTY
ESSENTIAL REQUISITES OF CONTRACTS o An offer is a unilateral proposition which one party makes to the other fro the
celebration of a contract.
GENERAL PROVISIONS o Must be: Definite, complete, and intentional.
o DEFINITE
Art. 1318. There is no contract unless the following requisites concur:  Offer must be definite, so that upon acceptance an agreement can be
(1) Consent of the contracting parties; reached on the whole contract.
(2) Object certain which is the subject matter of the contract; o COMPLETE
(3) Cause of the obligation which is established. (1261)  Indicating with sufficient clearness the kind of contract intended and
definitely stating the essential conditions of the proposed contract, as
PARTIES TO CONTRACT well as the non-essential ones.
 There must be at least 2 parties. o INTENTIONAL
 The number of parties should not be confused with the number of persons.  An offer without seriousness is absolutely without juridical effects and
 A single person can represent two parties and one party can be composed of two or more cannot give rise to a contract.
persons.  But if the offeree is induced to take it seriously, he must be indemnified
for damages.
CAPACITY OF PARTIES o MENTAL RESERVATIONS
 Legal capacity is an essential element.  There is a mental reservation when a party makes a declaration but
 It is n indispensible condition for the existence of consent. secretly does not desire the effects of such declaration.
 The mental reservation of the offeror, unknown to the other, cannot
WANT OF CONSENT affect the validity of the offer.
 No consent and consequently no contract when the agreement is absolutely simulated or  ACCEPTANCE BY OFFEREE
fictitious, or when it is entered into in behalf of another who has never given his authorization • An offer that is not accepted does not give rise to consent, and the contract does not come
therefor, or when the consent of a party is subject to a condition and the condition has not been into existence.
complied with. • It is necessary that the acceptance be unequivocal and unconditional, and the acceptance
and the proposition shall be without any variation whatsoever, and any modification or
SECTION 1. – Consent variation from the terms of the offer annuls the latter and frees the offeror.
 AMPLIFIED ACCEPTANCE
Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and • A mere amplification on the offer must be understood as an acceptance of the original
the cause which are to constitute the contract. The offer must be certain and the acceptance offer, plus a new offer which is contained in the amplification.
absolute. A qualified acceptance constitutes a counter-offer.  COMPLEX OFFERS
• In cases where a single offer involves two or more contracts, the perfection where there is
Acceptance made by letter or telegram does not bind the offerer except from the time it came to his only partial acceptance will depend upon the relation of the contracts between
knowledge. The contract, in such a case, is presumed to have been entered into in the place where themselves.
the offer was made. (1262a) • Where the contracts are inter-related, acceptance one will not give rise to a perfected
contract.
CONCEPT OF CONSENT • Not inter-related, acceptance of one gives rise to a contract unless the offeror has made it
 The essence of consent is the conformity of the parties on the terms of the contract, acceptance clear that one is dependent upon the other and acceptance of both is necessary.
by one of the offer made by the other.  SIMULTANEOUS OFFERS
 It is the concurrence of the minds of the parties on the object and the cause which shall • Offer and acceptance must be successive in order that a contract may arise.
constitute the contract. • When there are cross offers, no contract is formed unless one of the parties accepts the
 ELEMENTS offer received by him.
 SUCCESSIVE AGREEMENTS
1. Plurality of subjects
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 • The present article of the Code requires the concurrence of offer and acceptance only as
to the thing and the cause which are to constitute the contract, and not as to all matters.
• If the intentions of one or both parties is that there be concurrence on all points, the
contract is not perfected if there is a point of disagreement, even if there is already
agreement on th essential elements of the contract.
 KNOWLEDGE OF OFFEROR
• Even if there has been an unconditional acceptance of the offer by the offeree, no contract
will arise unless that acceptance is made known to the offeror.
• THROUGH INTERMEDIARIES
o An intermediary who has no authority to contract, but is limited to the
transmittal of the offer, the acceptance, or both, may be treated in the same
light as the mail service.
 BY CORRESPONDENCE
• When the offer to buy was written or prepared in Tokyo, and the acceptance thereof n
Manila was sent by the offeree by airmail, the contract is presumed to have been entered
into in Tokyo.
 BY TELEPHONE
• Considered as entered into at the place whete the offer was made.
 EFFECT OF SILENCE
• When the circumstances imply a duty to speak on the part of the person for whom an
obligation is proposed, his silence can be construed as consent.
• REQUISITES FOR SILENCE TO PRODUCE TACIT ACCEPTANCE:
1. that there is a duty or the possibility to express oneself
2. that the manifestation of the will cannot be interpreted in any other way
3. that there is a clear identity in the effect of the silence and the undisclosed will
• APPLICABLE DOCTRINE
o As between persons present: If silence is entirely unconnected with any fact,
there can be no contract.
o As between persons absent: If there has been no antecedent relation between
the parties, silence will not give rise to a contract.
WITHDRAWAL OF OFFER
 Both the offer and the acceptance can be revoked before the contract is perfected.
 Offeror may withdraw his offer at any time before he learns of the acceptance.
 LAPSE OF TIME
• An offer without a period must be considered as becoming ineffective after the lapse of
more than the time necessary for its acceptance.
REVOCATION OF ACCEPTANCE
 The acceptance may be revoked before it comes to the knowledge of the offeror.
NEW CONTRACT BEFORE ACCEPTANCE
 Pending the acceptance of an offer, the offeror can perfect a contract over the same thing with
another person.
 If the first offer is not revoked by him before it is accepted, then he becomes liable for damages.
 The one whose acceptance perfected a contract first is given priority, the other party only has an
action for damages.
PUBLIC OFFERS
 A promise may be made publicly by advertising a reward, compensation or prize for any person who
performs or executes a particular act or obtains a particular result.
 2 theories:
• An obligatory unilateral promise sufficient to create a valid legal tie: reward can be
recovered by one who performs the desired act, even when he did not do it in
consideration of the promise.
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• An offer which gives rise to a contract upon acceptance: a binding obligation arises only
when the act is done with the intention of accepting the promise.
 Equity dictates that nobody should make a fool of the public.
 If several persons who execute the act simultaneously: divide the recompense equally. If division
cannot be made, they shall determine preference by lot.
 Our code however, gives only the 5 sources of obligations. A unilateral promise is not recognized by
our code as having obligatory force. There must be an acceptance to convert it into a contract.
Art. 1320. An acceptance may be express or implied. (n)
IMPLIED ACCEPTANCE
 May arise from acts or facts which reveal the intent to accept.
WAIVER OF ACCEPTANCE
 Offeror can waive the declaration of acceptance.
 Contract is perfected from the moment the intention to accept can be inferred.
EFFECT OF SILENCE
 Silence is not equivalent to consent, but there are specific legal provisions which make silence, under
certain circumstances, amount to consent.
Art. 1321. The person making the offer may fix the time, place, and manner of acceptance, all of
which must be complied with. (n)
RIGHT OF OFFEROR
 The owner of the property offered for sale at auction has the right to prescribe the manner,
conditions, and terms of sale.
 PERIOD FOR ACCEPTANCE
• Acceptance, to become effective, must be known to the offeror before the period lapses.
• Acceptance made beyond the time constitutes a new offer and may be accepted or
rejected by the original offeror.
 MANNER OF ACCEPTANCE
• An acceptance which is not made in the manner prescribed by the offeror is not effective,
but constitutes a counter-offer which the offeror may accept.
Art. 1322. An offer made through an agent is accepted from the time acceptance is communicated to
him. (n)
CONTRACT THROUGH INTERMEDIARY
 Contract is perfected when intermediary communicates such acceptance to the offeror.
Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of
either party before acceptance is conveyed. (n)
REASON FOR ARTICLE
 Contract is not perfected except by the concurrence of two wills.
 Disappearance of either party or his loss of capacity before perfection prevents the contractual tie
from being formed.
Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when the
option is founded upon a consideration, as something paid or promised. (n)
PERIOD FOR ACCEPTANCE
 The offeree may accept at any time until such period expires.
 No period, and the offer is made to a person present, acceptance must be made immediately.
 Reasonable tacit period: time normally necessary to enable the offeree to know the proposal and to
make known his reaction.
 3 points must be considered:
1. Under normal circumstances, how long will it take the letter to reach the offeree?
2. How long will a person of ordinary prudence take to answer such an offer?
3. How long will the offer reach the offeror.
 WITHDRAWAL OF OFFER
• Law permits the offeror to withdraw the offer at any time before acceptance. Even before
the period for acceptance has expired.
• This does not mea that he can exercise this right absolutely without regard to the rights of
others.
• He must allow the offeree sufficient opportunity.
• If he disregards the right of the offeree and arbitrarily revokes the offer, he must be held
liable for the damages which the offeree may suffer.
CROSSING OF REVOCATION AND ACCEPTANCE
 GR: expression of the will of a person, does not become effective except from the time it is received.
 Distinctions may be made:
1. Intention is not to demand an express acceptance: Tacit acceptance perfects the contract and the
subsequent receipt of a letter of revocation is ineffective.
2. Intention is that there should be an express acceptance, contract will be perfected if the
acceptance is the first to reach the offeror and it will not be perfected if the revocation is the
first to reach the offeree.
 If revocation and acceptance cross, that which arrives firs at its destination is effective.
 EFFECT OF DELAY
• It is not the moment of sending but the time of receipt of the revocation or acceptance
which is controlling.
CONTRACT OF OPTION
 This is a preparatory contract in which one party grants to the debtor, for a period and under
specified conditions, the power to decide whether or not to enter into a principal contract.
 If the option is not supported by an independent consideration, the offeror can withdraw the privilege
at any time by communicating withdrawal to the other party, even if the “option” had already been
accepted.
Art. 1325. Unless it appears otherwise, business advertisements of things for sale are not definite
offers, but mere invitations to make an offer. (n)
SALES ADVERTISEMENTS
 A business advertisement of things for sale may or may not constitute a definite offer. It is not a
definite offer when the object is not determinate.
 When the advertisement does not have the necessary specification of essential elements of the future
contract, it cannot constitute an offer.
DEFINITE OFFERS TO PUBLIC
 It is not necessary that the offeror should know the person who receives his offer. A valid offer to the
public can be made.
Art. 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser
is not bound to accept the highest or lowest bidder, unless the contrary appears. (n)
EFFECT OF BIDDING
 When in the advertisement it can be inferred with certainty that the best bid will be considered as
giving rise to a binding contract, each bid will imply the perfection of a contract, although subject to
the condition that no better bid is made.
 If this is not especially provided in the advertisement, then each bid is merely an offer, which the
advertiser is free to reject.
JUDICIAL SALES
 This provision is not applicable to bids in judicial sales, where the highest bid must necessarily be
accepted.
Art. 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write. (1263a)
EFFECT OF INCAPACITY
 If both parties are incapable of giving consent, the contract is unenforceable.
 If only one is incapable, it is annullable or voidable.
 EXCEPTION: Where necessaries (everything indispensable for sustenance) are sold and delivered to
a minor or other person without capacity to act, he must pay reasonable price therefor.
UNEMANCIPATED MINORS
 Contracts entered into by them are not binding upon them UNLESS upon reaching majority they
ratify the same or the contract has been entered into through a guardian and approved by the
guardianship court.
 ESTOPPEL
• There is strong authority, with sound juridical reasoning, to the effect that the
misrepresentation of an incapacitated person does not estop him from denying that he was
of age, or from asserting that he was under age, at the time he entered into the contract.
INSANE PERSONS
 It is not necessary that there be a previous judicial declaration of mental incapacity in order that a
contract entered into by a mentally defective person may be annulled.
 It is enough that insanity existed at the time the contract was made.
 In case of lunatics, it is possible that there are lucid intervals, and a contract executed during such
interval will be valid.
 The burden of proving such incapacity at the time of the execution rests upon who alleges it.
DEAF-MUTES
 Being a deaf-mute is not by itself alone a disqualification for giving consent.
 The law refers to the deaf-mute who does not know how to write.
Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of
drunkenness or during a hypnotic spell are voidable. (n)
LUCID INTERVALS
 The presumption of insanity and mental incapacity in a person under guardianship for mental
derangement is only prima facie and may be rebutted by evidence.
 A person under guardianship for insanity may still enter into a valid contract and even convey
property, provided it is proven that at the time of entering into said contract, he was not insane or
that his mental defect, if mentally deranged, did not interfere with or affect he capacity to appreciate
the meaning and significance of the transaction.
LIQUOR AND DRUGS
 The use of intoxicants does not necessarily mean a complete loss of understanding. The same may be
said regarding drugs.

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 It has been held that drunkenness, if in such degree that obscures completely the faculties and almost
extinguishes the consciousness of acts, may be a ground for annulment of a contract. Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing
which is the object of the contract, or to those conditions which have principally moved one or both
HYPNOTISM AND SOMNABULISM parties to enter into the contract.
 Article also applies to somnambulism.
Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such
Art. 1329. The incapacity declared in Article 1327 is subject to the modifications determined by law, identity or qualifications have been the principal cause of the contract.
and is understood to be without prejudice to special disqualifications established in the laws. (1264)
A simple mistake of account shall give rise to its correction. (1266a)
OTHER CAUSES OF INCAPACITY
 Rules of court provide for the guardianship of incompetents: CONCEPT OF ERROR
• Persons suffering from the penalty of civil interdiction  Ignorance: Complete absence of any notion about a particular matter.
• Hospitalized lepers  Error or mistake: A wrong or false notion about such matter.
• Prodigals  Juridically, ignorance and mistake produce the same effect.
• Deaf and dumb who are unable to read and write  The concept of error under this article must be included both ignorance and mistake. In both cases,
• Unsound mind there is a lack of full and correct knowledge about the thing.
• By reason of age, disease, weak mind, cannot take care of themselves and manage their
property. MISTAKE OF FACT OR LAW
 Incompetence under the Rules of Court is not necessarily a disqualification to give consent.  Error referred to in this article is an error of fact, and not an error of law.
 Art 1327: Persons of unsound mind and deaf and dumb who are unable to write are incapacitated to  An error of law is not a ground for annulment of contracts.
contract.  Supreme Court has held that excusable ignorance of law can be the basis of good faith possession.
 Art 34 of the RPC: Persons under civil interdiction cannot enter into contracts disposing or in
relation to the management of their property. AS TO OBJECT
 Other incompetents can enter into contracts only through their guardians.  Error must refer to the substance of the thing.
 If they have not been placed under guardianship, there is a presumption in favor of their capacity to  NATURE OF CONTRACTS
contract. • The error may refer to the very nature of the contract, in which case, it is an essential
 If there is no guardianship but it can be shown that at the time of the contract, they do not have the mistake.
necessary understanding of the nature and consequences, then their contract is voidable. • Where the error refers to the rights of the parties, the contract is not invalidated.
 PRINCIPAL CONDITIONS
SPECIAL DISQUALIFICATION • The principal condition of the thing is its essential or substantial character, without which
 Certain disqualifications provided by law to invalidate contracts: the thing ceases to be what it is.
• Incapacity of a person declared insolvent or bankrupt  ACCIDENTAL, ACCESSORY CONDITIONS
• Incapacity of the husband and wife to sell property to each other • May exist in varying proportions, without the thing ceasing to be what it is.
• The following mistakes do not in any manner affect the validity of the contract:
INCAPACITY DISQUALIFICATION 1. Error with respect to accidental qualities
There is a restriction upon the exercise of a right. There is a restriction upon the very right itself. 2. Error in the value of the thing
Contract is voidable Contract is void 3. Error which refers, not to the conditions of the thing, but to accessory matters
 EFFECT OF INTENT
• The fact of error must be determined largely by its influence upon the party. If
Art. 1330. A contract where consent is given through mistake, violence, intimidation, undue the party would have entered into the contract even if he had knowledge of the
influence, or fraud is voidable. (1265a) true fact, then the error does not vitiate consent.

REQUISITES OF CONSENT VITIATED BY ERROR AS TO PERSON

Intelligence Error  An error in the name, without error as to person, will not invalidate the consent. An error as to the
Free Violence, Intimidation, or Undue Influence person will invalidate consent when the consideration of the person has been the principal cause of
Spontaneous Fraud the same.
 Mistake as to qualifications, even when there is no error as to person, is a cause vitiating consent, if
DEFECTS OF THE WILL such qualifications have been the principal cause of the contract.
 A donation or a will, or a recognition of illegitimate children, could also be vitiated by these causes.  An error as to the person will generally invalidate consent in gratuitous contracts, because affection,
relationship, friendship and gratitude are determining causes of the act of liberality.
DISCRETION OF COURTS  It will also invalidate consent in onerous contracts where the artistic or intellectual qualifications,
 Courts are given a wide latitude in weighing the facts or circumstances in a given case. moral character or integrity, and other personal qualities of a party are the determining cause of the
 PROOF NECESSARY consent of the other.
• Defect or lack of valid consent must be established by full, clear, and convincing  Where the identity of the other party is not material to the contract, an error as to person will not
evidence and not merely by preponderance thereof. vitiate consent.

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 SOLVENCY OF THE PARTY
• An error as to the solvency of the other party is not a cause of nullity.
 MOTIVE OF PARTY
• A mistake as to the motive of a party does not affect the contract.
• When motive has, however, been expressed and was a condition of the consent given,
annulment is proper, because an accidental element is, by the will of the parties,
converted into a substantial element.
 To invalidate consent, the error must be excusable. It must be a real error, and not one that could
have been avoided by the party alleging it.
 The error must arise from facts unknown to him. He cannot allege error which refers to a fact known
to him, or which he should have known by ordinary diligent examination of the facts.
Art. 1334. Mutual error as to the legal effect of an agreement when the real purpose of the parties is
frustrated, may vitiate consent. (n)

ERROR AS TO ACCOUNT ERROR OF LAW

 An error of account is purely a mistake in computation; it is a mathematical error.  Mistake of law is traditionally considered as having a different effect from mistake of fact in relation
 It does not vitiate consent, but the intention of the parties is to accept the amounts or quantities to consent in contracts.
involved as they should be and not as what they were erroneously computed to be.  It is permissible to excuse errors of law, and an excusable mistake of law may be invoked as vitiating
 ACCOUNT AND QUANTITY consent.
• Mistake as to quantity: there is a real mistake with the principal conditions and the  LEGAL EFFECTS OF CONTRACT
contract is vitiated. • Error is limited to error on the legal effect of an agreement.
• Mistake as to account: mistake can be corrected. • 3 REQUISITES:
 CORRECTION OF ACCOUNTS 1. The error must be as to the legal effect of an agreement.
• Once there has been a liquidation of accounts between two parties, and the accounts have 2. It must be mutual
been approved by those affected, no revision or correction of said accounts may be made 3. The real purpose of the parties is frustrated.
at the instance of only one party.
• EXCEPTION: Unless it is proven that there was fraud or error in the approval of said ERROR AS TO NATURE OF CONTRACT
accounts.  An error as to the nature or character of a contract is always essential, and makes the act juridically
• The burden of proving such deceit or error lies upon the party seeking the revision. inexistent.
ERROR AS TO BASIS OF CONTRACT Art. 1335. There is violence when in order to wrest consent, serious or irresistible force is employed.
 A mistake as to the existence of some circumstances or the occurrence of some event, which exerted
a determining influence in the creation of the contract, so that the contract would not have been There is intimidation when one of the contracting parties is compelled by a reasonable and well-
entered without it constitutes an error in the basis of the contract. grounded fear of an imminent and grave evil upon his person or property, or upon the person or
property of his spouse, descendants or ascendants, to give his consent.
ERROR AS TO ESTIMATES
 Mistakes in estimating the results of a contract cannot vitiate consent unless they were induced by To determine the degree of intimidation, the age, sex and condition of the person shall be borne in
fraud or deceit. mind.
ERROR IN UNILATERAL DECISION A threat to enforce one's claim through competent authority, if the claim is just or legal, does not
 When the error of a party is not in relation to the contract, but in a decision unilaterally adopted, he vitiate consent. (1267a)
cannot demand responsibility from persons whomay have acted according to his decision.
VIOLENCE AND INTIMIDATION DISTINGUISHED
LIABILITY FOR ERROR
 There is no provision making the party in error liable for damages which the other party may have DURESS: degree of constraint or danger actually inflicted (violence) or threatened and impending
suffered relying on his declaration. However, such liability can be based on the theory of fault or (intimidation), sufficient to overcome the mind and will of a person of ordinary firmness.
negligence.
VIOLENCE INTIMIDATION
Art. 1332. When one of the parties is unable to read, or if the contract is in a language not
Physical force or compulsion Moral force or compulsion
understood by him, and mistake or fraud is alleged, the person enforcing the contract must show
External Internal - Influences the mind to choose between to
that the terms thereof have been fully explained to the former. (n)
evils
FRAUD OR MISTAKE ALLEGED
 The obligations to show that the terms of the contract had been fully explained to the party who is REQUISITES OF VIOLENCE
unable to read or understand the language of the contract, when fraud or mistake is alleged, devolves 1. That the physical force employed must be irresistible, or of such degree that the victim has no other
on the party seeking to enforce it. course, under the circumstances, but to submit.
2. That such force is the determining cause in giving the consent to the contract.
Art. 1333. There is no mistake if the party alleging it knew the doubt, contingency or risk affecting
the object of the contract. (n) REQUISITES OF INTIMIDATION
1. Intimidation must be the determining cause of the contract, or must have caused the consent to be
INEXCUSABLE ERROR given.
2. The threatened act must be unjust or unlawful
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3. The threat must be real and serious, there being an evident disproportion between the evil and the
resistance which all men can offer, leading to the choice of the contract as the lesser evil.
4. It produces a reasonable and well-grounded fear from the fact that the person from whom it comes has
the necessary means or ability to inflict the threatened injury.
 UNJUST ACT
• The intimidation that will annul a contract has to do with evil or hard arising from an
unlawful act.
• The threat must be unjust, contrary to law or morals.
• ENFORCEMENT OF CLAIM
o One who makes use of his right even if this be unpleasant to another,
juridically does not prejudice the latter.
o A threat to enforce one’s right cannot annul a contract made by the debtor in
relation to the claim sought to be enforced.
o WHEN IMPROPER
 One who uses illegal means to attain a legal objective, by infusing
fear, is guilty of intimidation.
 There is intimidation when a party goes beyond legal channels or
takes the law into his own hands.
 The threat to enforce a right should not be aimed at a result which
is contrary to law or morals or which is unjust and contrary to good
faith.
 SERIOUS EVIL OR WRONG
• The seriousness of the wrong or evil threatened must be considered objectively and
subjectively; objectively, by determining the degree of harm that the evil in itself is likely
to produce, and subjectively by determining the effect of the threat upon the mind of the
victim in view of his personal circumstances and his relation to the author of intimidation.
• IMMINENCE OF EVIL
o To be imminent, it is not necessary that the evil should follow immediately
upon the refusal to do the act demanded. It is enough that there be real danger.
• OBJECT OF EVIL
o The threatened evil must fall upon the party himself, or upon his spouse,
ascendants or descendants. This is not restrictive. It can be directed to a
brother, lover, or close friend.
• NATURE OF INJURY
o A threatened evil upon liberty or honor can have the same moral effect as that
upon person or property. Hence, the term “person” should not be limited to
life and physical integrity, but should include liberty and honor.
 REASONABLE FEAR
• The fear occasioned by the threat must be reasonable and well-grounded; it must be
commensurate with the threat.
• RESPECT AND OBEDIENCE
o If in addition to fear of displeasing a person to whom obedience and respect
are due, there is an imposition upon the will, then the consent will be vitiated.
 CAUSE OF CONSENT
• It must be proved that the consent was obtained through intimidation; the fear must be the
direct and determining cause which compelled the consent to be given.
• If the intimidation was only incidental, the contract is not annullable.
MORAL COERCION
 When a person is in grave danger, and he is made to promise to pay a certain amount if he is saved
the person to whom the promise is made, the contract is not avoided, because there is no intimidation
which causes consent to be given.
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Art. 1336. Violence or intimidation shall annul the obligation, although it may have been employed
by a third person who did not take part in the contract. (1268)
DURESS BY THIRD PERSON
 Even if the intimidation or threat had been employed by a third person who was not a party to the
contract, the agreement is still null and void.
Art. 1337. There is undue influence when a person takes improper advantage of his power over the
will of another, depriving the latter of a reasonable freedom of choice. The following circumstances
shall be considered: the confidential, family, spiritual and other relations between the parties, or the
fact that the person alleged to have been unduly influenced was suffering from mental weakness, or
was ignorant or in financial distress. (n)
UNDUE INFLUENCE
 Any means employed upon a party which, under the circumstances, he could not well resist, and
which controlled his colition and induced him to give his consent to the contract, which otherwise he
would not have entered into.
 Influence obtained by persuasion or argument or by appeals to the affections is not prohibited.
UNDUE INFULENCE INTIMIDATION
There need not be an unjust or unlawful act. There must be an unlawful or unjust act which is
threatened and which causes consent to be given.
THERE IS MORAL COERCION
 CIRCUMSTANCES TO CONSIDER
• It is essential to ascertain the power of coercion on the part of one party, and the
susceptibility to its influence on the part of the other.
 EMPLOYED BY THIRD PERSON
• Undue influence employed by a third person may annul the contract.
CONTRACTS OF ADHESION
 A contract of adhesion is one in which one of the parties imposes a ready-made form of contract,
which the other party may accept or reject, but which the latter cannot modify.
 There is such economic inequality between the parties to these contracts that the independence of
one of them is entirely paralyzed.
 A contract of adhesion is construed strictly against the one who drew the same.
Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without them, he would not have agreed
to. (1269)
CONCEPT OF FRAUD
 Fraud is every kind of deception, for the purpose of leading another party into error and thus execute
a particular act.
 Error of one party is produced by the bad faith of the other contracting party; it presupposes an illicit
act.
 INSIDIOUS WORDS AND MACHINATIONS
• Constitutes deceit, includes false promises, exaggeration of hopes or benefits, abuse of
confidence, fictitious names, qualifications or authority.
• Forms of deception.
KINDS OF FRAUD
 Article 1171: Fraud occurs in connection with the fulfillment of the obligation.
 Article 1338: Fraud is prior or simultaneous to the consent or the creation of the obligation. It has
two classes: Dolo Causante and Dolo Incidente.
 Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and the
DOLO CAUSANTE DOLO INCIDENTE other party has relied on the former's special knowledge. (n)
That which determines or is the essential cause of the That which does not have such a decisive influence
consent. but refers only to some particular accident of the EXPRESSION OF OPINION
obligation.  The refusal of a seller to warrant his estimate should admonish the purchaser that that estimate was
Ground for annulment of contract Only gives rise to an action for damages put forth as a mere opinion.
 MADE BY EXPERT
COMPARED WITH ERROR • An opinion of an expert is like a statement of a fact, and if false, may be considered a
 The result of fraud is error on the part of the victim. fraud giving rise to annulment.
 Fraud and error causes nullity of consent. • When the expert however, was employed by the party who was misled, he cannot ask for
 Error will vitiate consent only when it refers to the matters mentioned in Art 1331. annulment, because he is chargeable with the acts and declarations of his employee.
 Mistake induced by fraud will always vitiate consent.
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such
REQUISITES OF FRAUD misrepresentation has created substantial mistake and the same is mutual. (n)
1. It must have been employed by one contracting party upon the other;
FRAUD BY THIRD PERSON
2. It must have induced the other party to enter into the contract;
 The fraud employed by a third person upon one of the parties does not vitiate consent. It merely
3. It must have been serious; gives rise to an action for damages by the party injured against such third person.
4. It must have resulted in damage or injury to the party seeking annulment.  If one party is in collusion with the third person, or knows of the fraud by the third person, and he is
benefited, he maybe considered as an accomplice and the contract becomes voidable. Complicity
EFFECTS OF FRAUD makes the third person and the party who knew of the fraud liable solidarily.
 Effects of Dolo Causante:  MUTUAL ERROR
1. Nullity of the contract • Deceit by a third person, even without connivance or complicity with one of the
2. Indemnification of damages contracting parties, may lead to error on the part of the parties to the contract, in this case,
the consent is vitiated, and the contract may be annulled.
PROOF OF FRAUD  COMPARED WITH VIOLENCE
 The misrepresentation constituting the dolo causante must be alleged and proved, otherwise, • Contract is annulled even if such violence or intimidation is exercised by a third person.
contracts cannot be annulled on this ground. • In fraud, act of third person does not annul the contract, unless it produces substantial
mutual mistake on the part of both contracting parties.
Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are • 2 reasons to justify the difference:
bound by confidential relations, constitutes fraud. (n) o That the party has nothing to do with fraud by a third person and cannot be
blamed for it.
CONCEALMENT AS FRAUD o Intimidation can be more easily resisted than fraud.
 The deceit which avoids the contract need not be by means of misrepresentation in words. It exists
where the party who obtains consent does so my means of concealing or omitting to state material Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute error. (n)
facts, with intent to deceive, by reason of which omission or concealment the other party was
induced to give a consent which he would not otherwise have given. Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not
 There must be a special duty to disclose or according to good faith and the usages of commerce the have been employed by both contracting parties.
communication should be made. Incidental fraud only obliges the person employing it to pay damages. (1270)
 INNOCENT NON-DISCLOSURE
• The innocent non-disclosure of a fact does not affect the formation of the contract or MAGNITUDE OF FRAUD
operate to discharge the parties from their agreement.  The deceit must be serious. The fraud is serious when it is sufficient to impress, or to lead an
ordinarily prudent person into error.
Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the  If they are sufficiently effective to induce the other party to enter into the contract, they are serious;
facts, are not in themselves fraudulent. (n) otherwise, they are not.
 In case of tolerated fraud, even if it is the determining cause of the consent, it cannot be a ground for
TOLERATED FRAUD annulment.
 Minimizing the defects of the thing, exaggeration of its good qualities, and giving it qualities that it  DETERMINING CAUSE
does not have. • Fraud must be the determining cause of the contract.
 This is lawful misrepresentation known as dolus bonus. • Fraud must be dolo causante.
 Do not affect the validity of the contract, so long as they do not go to the extent of malice or bad
faith. FRAUD BY ONE PARTY TO ANOTHER
 OPPORTUNITY TO KNOW  In order to be a ground for annulment of a contract, the fraud must be exercised by one party upon
• Where the means of knowledge are at hand and equally available to both parties one will the other.
not be heard to say that he has been deceived. MUTUAL FRAUD

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 When both parties use fraud reciprocally, neither one has an action against the other and neither can transfer is not a prerequisite to the nullity of the that the creditor cannot recover in any other manner
ask for annulment. contract what is due him
Does not prescribe Prescribes in 4 years
PLURALTY OF SUBJECTS
 If one party contracts with several persons and one of the latter employs fraud on the former and the  SIMULATION PRESUMED
fraud has caused substantial error, the injured party can ask for annulment against all of them under • Article 1602 presumes as equitable mortgage a contract of sale with right to repurchase
the rules on error. under the circumstances mentioned in said article.

DOLO INCIDENTE RELATIVE SIMULATION

 When the fraud is not the determining cause of the contract, it only gives rise to an action for
damages, but not for annulment of the contract.
Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the
parties do not intend to be bound at all; the latter, when the parties conceal their true agreement.
(n)
 It is valid EXCEPT when it prejudices third persons or has an illicit purpose.
 Its validity is based on the freedom of contract.
 If the concealed contract is lawful, it is absolutely enforceable as long as it has all the essential
requisites.
 When the purpose is illicit, or to prejudice a third person, the true contract cannot be enforced. It
would be void and inexistent.

DEFINITION OF SIMULATION EFFECT AS TO THIRD PERSONS

 It is the declaration of a fictitious will, deliberately made by agreement of the parties, in order to  A third person may avail himself of the conduct of the parties to the simulated contract which is
produce, for the purposes of deception, the appearance of a juridical act which does not exist or is most favorable to himself.
different from that which was really executed.  The simulated contract will therefore be binding if it is favorable to him to consider it so.
 It involves a defect in declaration.  ACQUISITIONS OF TITLE
 Absolutely simulated contracts are known as simulados. • The declaration that a contract is simulated destroys the title of a third person who has
 Relatively simulated contracts are disimulados. acquired it in bad faith.
• If the third person, however, has acted in good faith, he is given the protection of the law.
ABSOLUTE SIMULATION The declaration that the contract is simulated does not prejudice hime.
 There is a color of contract, without any substance thereof, the parties not having any intention to be
bound. SECTION 2. - Object of Contracts

RELATIVE SIMULATION Art. 1347. All things which are not outside the commerce of men, including future things, may be
 The parties have an agreement which they conceal under the guise of another contract. the object of a contract. All rights which are not intransmissible may also be the object of contracts.
 Two juridical acts involved here: No contract may be entered into upon future inheritance except in cases expressly authorized by
• OSTENSIBLE ACT: Apparent or fictitious; which is the contract that the parties law.
pretend to have executed. All services which are not contrary to law, morals, good customs, public order or public policy may
• HIDDEN ACT: Real; which is the true agreement between the parties. If the concealed likewise be the object of a contract. (1271a)
or hidden act is lawful, it is enforceable of the essential requisites are present.
Art. 1348. Impossible things or services cannot be the object of contracts. (1272)
Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does
not prejudice a third person and is not intended for any purpose contrary to law, morals, good Art. 1349. The object of every contract must be determinate as to its kind. The fact that the quantity
customs, public order or public policy binds the parties to their real agreement. (n) is not determinate shall not be an obstacle to the existence of the contract, provided it is possible to
determine the same, without the need of a new contract between the parties. (1273)
ABSOLUTE SIMULATION
 Nullity is based on want of true consent. SECTION 3. - Cause of Contracts
 It is generally fraudulent and for the purpose of injuring third persosn.
 RECOVERY UNDER CONTRACT Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the
• If the absolute simulation does not have an illicit purpose, the parties to the contract may prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit
prove the simulation in order to recover whatever may have been given under such which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor.
simulated act. (1274)
• But if it has an illegal object, Art 1411 and 1412 will apply.
 DISTINGUISHED FROM FRAUDULENT ALIENATION Art. 1351. The particular motives of the parties in entering into a contract are different from the
cause thereof. (n)
ABSOLUTE SIMULATION FRAUDULENT ALIENATION
There is no existing contract There is a true and existing transfer or contract Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is
Can be attacked by any creditor Can be assailed only by creditors before the unlawful if it is contrary to law, morals, good customs, public order or public policy. (1275a)
alienation
The insolvency of the debtor making the simulatedThe action to rescind, or acion pauliana, requires

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Art. 1353. The statement of a false cause in contracts shall render them void, if it should not be
proved that they were founded upon another cause which is true and lawful. (1276)
Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful,
unless the debtor proves the contrary. (1277)
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a
contract, unless there has been fraud, mistake or undue influence. (n)
CHAPTER 3 FORM OF CONTRACTS
Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into,
provided all the essential requisites for their validity are present. However, when the law requires
that a contract be in some form in order that it may be valid or enforceable, or that a contract be
proved in a certain way, that requirement is absolute and indispensable. In such cases, the right of
the parties stated in the following article cannot be exercised. (1278a)
Art. 1357. If the law requires a document or other special form, as in the acts and contracts
enumerated in the following article, the contracting parties may compel each other to observe that
form, once the contract has been perfected. This right may be exercised simultaneously with the
action upon the contract. (1279a)
Art. 1358. The following must appear in a public document:
(1) Acts and contracts which have for their object the creation, transmission, modification or
extinguishment of real rights over immovable property; sales of real property or of an interest
therein a governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal
partnership of gains;
(3) The power to administer property, or any other power which has for its object an act appearing
or which should appear in a public document, or should prejudice a third person;
(4) The cession of actions or rights proceeding from an act appearing in a public document.
All other contracts where the amount involved exceeds five hundred pesos must appear in writing,
even a private one. But sales of goods, chattels or things in action are governed by Articles, 1403,
No. 2 and 1405. (1280a)
CHAPTER 4 REFORMATION OF INSTRUMENTS (n)
Art. 1359. When, there having been a meeting of the minds of the parties to a contract, their true
intention is not expressed in the instrument purporting to embody the agreement, by reason of
mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of
the instrument to the end that such true intention may be expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the
parties, the proper remedy is not reformation of the instrument but annulment of the contract.
Art. 1360. The principles of the general law on the reformation of instruments are hereby adopted
insofar as they are not in conflict with the provisions of this Code.
Art. 1361. When a mutual mistake of the parties causes the failure of the instrument to disclose their
real agreement, said instrument may be reformed.
Art. 1362. If one party was mistaken and the other acted fraudulently or inequitably in such a way
that the instrument does not show their true intention, the former may ask for the reformation of
the instrument.
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Art. 1363. When one party was mistaken and the other knew or believed that the instrument did not
state their real agreement, but concealed that fact from the former, the instrument may be
reformed.
Art. 1364. When through the ignorance, lack of skill, negligence or bad faith on the part of the
person drafting the instrument or of the clerk or typist, the instrument does not express the true
intention of the parties, the courts may order that the instrument be reformed.
Art. 1365. If two parties agree upon the mortgage or pledge of real or personal property, but the
instrument states that the property is sold absolutely or with a right of repurchase, reformation of
the instrument is proper.
Art. 1366. There shall be no reformation in the following cases:
(1) Simple donations inter vivos wherein no condition is imposed; (2) Wills;
(3) When the real agreement is void.
Art. 1367. When one of the parties has brought an action to enforce the instrument, he cannot
subsequently ask for its reformation.
Art. 1368. Reformation may be ordered at the instance of either party or his successors in interest, if
the mistake was mutual; otherwise, upon petition of the injured party, or his heirs and assigns.
Art. 1369. The procedure for the reformation of instrument shall be governed by rules of court to be
promulgated by the Supreme Court.
CHAPTER 5 INTERPRETATION OF CONTRACTS
Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control.
If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over
the former. (1281)
Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered. (1282)
Art. 1372. However general the terms of a contract may be, they shall not be understood to
comprehend things that are distinct and cases that are different from those upon which the parties
intended to agree. (1283)
Art. 1373. If some stipulation of any contract should admit of several meanings, it shall be
understood as bearing that import which is most adequate to render it effectual. (1284)
Art. 1374. The various stipulations of a contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken jointly. (1285)
Art. 1375. Words which may have different significations shall be understood in that which is most
in keeping with the nature and object of the contract. (1286)
Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the
ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established.
(1287)
Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party
who caused the obscurity. (1288)
Art. 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding
articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least
transmission of rights and interests shall prevail. If the contract is onerous, the doubt shall be
settled in favor of the greatest reciprocity of interests.
If the doubts are cast upon the principal object of the contract in such a way that it cannot be
known what may have been the intention or will of the parties, the contract shall be null and void.
(1289)
Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be
observed in the construction of contracts. (n)
CHAPTER 6 RESCISSIBLE CONTRACTS
Art. 1380. Contracts validly agreed upon may be rescinded in the cases established by law. (1290)
Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they represent suffer
lesion by more than one-fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the
preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the
claims due them;
(4) Those which refer to things under litigation if they have been entered into by the defendant
without the knowledge and approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission. (1291a)
Art. 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor
could not be compelled at the time they were effected, are also rescissible. (1292)
Art. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same. (1294)
Art. 1384. Rescission shall be only to the extent necessary to cover the damages caused. (n)
Art. 1385. Rescission creates the obligation to return the things which were the object of the
contract, together with their fruits, and the price with its interest; consequently, it can be carried
out only when he who demands rescission can return whatever he may be obliged to restore.
Neither shall rescission take place when the things which are the object of the contract are legally in
the possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss. (1295)
Art. 1386. Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take place with respect to
contracts approved by the courts. (1296a)
Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are
presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient
property to pay all debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent when made by persons against whom
some judgment has been issued. The decision or attachment need not refer to the property
alienated, and need not have been obtained by the party seeking the rescission.
In addition to these presumptions, the design to defraud creditors may be proved in any other
manner recognized by the law of evidence. (1297a)
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Art. 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify
the latter for damages suffered by them on account of the alienation, whenever, due to any cause, it
should be impossible for him to return them.
If there are two or more alienations, the first acquirer shall be liable first, and so on successively.
(1298a)
Art. 1389. The action to claim rescission must be commenced within four years.
For persons under guardianship and for absentees, the period of four years shall not begin until the
termination of the former's incapacity, or until the domicile of the latter is known. (1299)
CHAPTER 7 VOIDABLE CONTRACTS
Art. 1390. The following contracts are voidable or annullable, even though there may have been no
damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They are
susceptible of ratification. (n)
Art. 1391. The action for annulment shall be brought within four years. This period shall begin:
In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases.
In case of mistake or fraud, from the time of the discovery of the same.
And when the action refers to contracts entered into by minors or other incapacitated persons, from
the time the guardianship ceases. (1301a)
Art. 1392. Ratification extinguishes the action to annul a voidable contract. (1309a)
Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit
ratification if, with knowledge of the reason which renders the contract voidable and such reason
having ceased, the person who has a right to invoke it should execute an act which necessarily
implies an intention to waive his right. (1311a)
Art. 1394. Ratification may be effected by the guardian of the incapacitated person. (n)
Art. 1395. Ratification does not require the conformity of the contracting party who has no right to
bring the action for annulment. (1312)
Art. 1396. Ratification cleanses the contract from all its defects from the moment it was constituted.
(1313)
Art. 1397. The action for the annulment of contracts may be instituted by all who are thereby
obliged principally or subsidiarily. However, persons who are capable cannot allege the incapacity
of those with whom they contracted; nor can those who exerted intimidation, violence, or undue
influence, or employed fraud, or caused mistake base their action upon these flaws of the contract.
(1302a)
Art. 1398. An obligation having been annulled, the contracting parties shall restore to each other the
things which have been the subject matter of the contract, with their fruits, and the price with its
interest, except in cases provided by law.
In obligations to render service, the value thereof shall be the basis for damages. (1303a)
Art. 1399. When the defect of the contract consists in the incapacity of one of the parties, the
incapacitated person is not obliged to make any restitution except insofar as he has been benefited
by the thing or price received by him. (1304)
Art. 1400. Whenever the person obliged by the decree of annulment to return the thing can not do
so because it has been lost through his fault, he shall return the fruits received and the value of the
thing at the time of the loss, with interest from the same date. (1307a)
Art. 1401. The action for annulment of contracts shall be extinguished when the thing which is the
object thereof is lost through the fraud or fault of the person who has a right to institute the
proceedings.
If the right of action is based upon the incapacity of any one of the contracting parties, the loss of
the thing shall not be an obstacle to the success of the action, unless said loss took place through the
fraud or fault of the plaintiff. (1314a)
Art. 1402. As long as one of the contracting parties does not restore what in virtue of the decree of
annulment he is bound to return, the other cannot be compelled to comply with what is incumbent
upon him. (1308)
CHAPTER 8 UNENFORCEABLE CONTRACTS (n)
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given no authority or
legal representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note
or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the writing, or a secondary
evidence of its contents:
(a) An agreement that by its terms is not to be performed within a year from the making
thereof;
(b) A special promise to answer for the debt, default, or miscarriage of another;
(c) An agreement made in consideration of marriage, other than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five
hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action or pay at the time some part of the purchase
money; but when a sale is made by auction and entry is made by the auctioneer in his sales
book, at the time of the sale, of the amount and kind of property sold, terms of sale, price,
names of the purchasers and person on whose account the sale is made, it is a sufficient
memorandum;
(e) An agreement of the leasing for a longer period than one year, or for the sale of real
property or of an interest therein;
(f) A representation as to the credit of a third person.
(3) Those where both parties are incapable of giving consent to a contract.
Art. 1404. Unauthorized contracts are governed by Article 1317 and the principles of agency in Title
X of this Book.
Art. 1405. Contracts infringing the Statute of Frauds, referred to in No. 2 of Article 1403, are
ratified by the failure to object to the presentation of oral evidence to prove the same, or by the
acceptance of benefit under them.
Art. 1406. When a contract is enforceable under the Statute of Frauds, and a public document is
necessary for its registration in the Registry of Deeds, the parties may avail themselves of the right
under Article 1357.
Art. 1407. In a contract where both parties are incapable of giving consent, express or implied
ratification by the parent, or guardian, as the case may be, of one of the contracting parties shall
give the contract the same effect as if only one of them were incapacitated.
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If ratification is made by the parents or guardians, as the case may be, of both contracting parties,
the contract shall be validated from the inception.
Art. 1408. Unenforceable contracts cannot be assailed by third persons.
CHAPTER 9
VOID AND INEXISTENT CONTRACTS
Art. 1409. The following contracts are inexistent and void from the beginning:
(1) Those whose cause, object or purpose is contrary to law, morals, good customs, public order or
public policy;
(2) Those which are absolutely simulated or fictitious;
(3) Those whose cause or object did not exist at the time of the transaction;
(4) Those whose object is outside the commerce of men;
(5) Those which contemplate an impossible service;
(6) Those where the intention of the parties relative to the principal object of the contract cannot be
ascertained;
(7) Those expressly prohibited or declared void by law.
These contracts cannot be ratified. Neither can the right to set up the defense of illegality be waived.
Art. 1410. The action or defense for the declaration of the inexistence of a contract does not
prescribe.
Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and
the act constitutes a criminal offense, both parties being in pari delicto, they shall have no action
against each other, and both shall be prosecuted. Moreover, the provisions of the Penal Code
relative to the disposal of effects or instruments of a crime shall be applicable to the things or the
price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim
what he has given, and shall not be bound to comply with his promise. (1305)
Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal
offense, the following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover what he has given
by virtue of the contract, or demand the performance of the other's undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what he has given by
reason of the contract, or ask for the fulfillment of what has been promised him. The other, who is
not at fault, may demand the return of what he has given without any obligation to comply his
promise. (1306)
Art. 1413. Interest paid in excess of the interest allowed by the usury laws may be recovered by the
debtor, with interest thereon from the date of the payment.
Art. 1414. When money is paid or property delivered for an illegal purpose, the contract may be
repudiated by one of the parties before the purpose has been accomplished, or before any damage
has been caused to a third person. In such case, the courts may, if the public interest will thus be
subserved, allow the party repudiating the contract to recover the money or property.
Art. 1415. Where one of the parties to an illegal contract is incapable of giving consent, the courts
may, if the interest of justice so demands allow recovery of money or property delivered by the
incapacitated person.
Art. 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by
the law is designated for the protection of the plaintiff, he may, if public policy is thereby enhanced,
recover what he has paid or delivered.
Art. 1417. When the price of any article or commodity is determined by statute, or by authority of
law, any person paying any amount in excess of the maximum price allowed may recover such
excess.

Art. 1418. When the law fixes, or authorizes the fixing of the maximum number of hours of labor,
and a contract is entered into whereby a laborer undertakes to work longer than the maximum thus
fixed, he may demand additional compensation for service rendered beyond the time limit.

Art. 1419. When the law sets, or authorizes the setting of a minimum wage for laborers, and a
contract is agreed upon by which a laborer accepts a lower wage, he shall be entitled to recover the
deficiency.

Art. 1420. In case of a divisible contract, if the illegal terms can be separated from the legal ones, the
latter may be enforced.

Art. 1421. The defense of illegality of contract is not available to third persons whose interests are
not directly affected.
Art. 1422. A contract which is the direct result of a previous illegal contract, is also void and
inexistent.

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