Law On Obligations and Contracts by Joeffrey G. Pagdanganan UST COA AMV Edited

LAW ON
OBLIGATIONS AND
CONTRACTS
BY : Atty. J G PAGDANGANAN
Course Outline
PART I – INTRODUCTION TO LAW AND BUSINESS LAW

1) Definition of Law and Business Law
2) Sources of Business Law
3) Characteristics of Business Law
PART II – OBLIGATIONS
4) In General
a) Definition
b) Sources of Obligations
Law; Contracts; Quasi-Contracts;
Delicts or Crimes; Quasi-Delicts
c) Essential requisites of obligation
Parties; object; Juridical tie or vinculum juris
by :Atty. Joeffrey G. Pagdanganan 2

PART II – OBLIGATIONS
2) Nature and Effect of Obligation
a) According to the Object or Prestation
Obligations to give; Obligations to do;
Obligations not to do
b) Liability of Damages
Fraud – Dolo incidente; Dolo causante
Negligence –
Delay – Mora solvendi, accipiendi, compensatio morae
Contravention of tenor of obligation

PART III – GENERAL PROVISIONS ON CONTRACT
 Contracts Defined
 Elements of Contract:
 Stages of A Contract
 Characteristics of Contracts:
 Classification of A Contract: (FROM)
 Contract Binds by Both Parties
 Cases Where Third person May Be Affected By a Contract
 Forms of Contracts
 Reformation of Instruments
 Interpretation Of Contracts
 Cause of Contracts

PART IV – DEFECTIVE CONTRACTS
 Rescissible Contracts
 Voidable Contracts
 Unenforceable Contracts
 Void or inexistent contracts

Introduction to Law and Business Law
▪ 1. Definition of Law and Business Law

▪ 2. Sources of Business Law
▪ 3. Characteristics of Business Law

Introduction to Law
 Preliminaries
In the preliminaries, the sight of a human being in his

everyday undertaking has to follow some.
The instructions that a person will learn, result to that

consciousness of following the law. As he learns the law,
he can define it, with its characteristics.

 In Philosophy, the human mind consists
principally of two faculties:
1. the Intellect – the object of which is the TRUTH.
2. the Will – the object of which is the GOOD.
The infinite truth and infinite good is infinite beauty of God.
The person was created by God and destined for God, the
people can attain the final destiny by following the law.
The laws that contained the instructions of God given to us

are the COMMANDMENTS.
Law
The most basic, simple and concise definition of law was
defined by Sanchez Roman, a Spanish Civilist and he
defined Law as:
“A RULE OF CONDUCT , JUST AND OBLIGATORY

PROMULGATED BY LEGITIMATE AUTHORITY FOR THE
COMMON OBSERVANCE AND BENEFIT.”
Edgardo Paras defined Law as “an ordinance of reason

promulgated for the common good by Him who is in
charge.”

Characteristics of Law
 1. A RULE OF CONDUCT
 Meaning any action, things, dictate of reason if

regulated or gathered together could become a
conglomeration of rules, regulations that can
create an orderly, peaceful, harmonious relations
among the people concerned so that in the end
justice will prevail.

 2. PROMULGATED BY LEGITIMATE
AUTHORITY
 That is, made known to those who are expected to

follow it. In a Republican State like the Philippines,
we have three branches of government – legislative
body (like Congress, Sanggunian) is the law-making
body; the executive body is the implementing body
and the judiciary as the enforcing body.
3. JUST and OBLIGATORY
 Treatment of Law should be equal, regardless of sex, creed,

age and status in life and to follow the law there should be
equivalent punishment or penalties to enforce them. The
dictum “Justice delayed is Justice denied” is commonly
abused term on the relation of a criminally inclined poor
person and a moneyed person on the treatment of the
application of law. Obligatory means any duty binding
parties to perform their agreement. (Black’s dict. P. 1074).

 4. FOR THE COMMON OBSERVANCE and

BENEFIT
 The application of law should not be titled or

favoring an individual but by the observance of all
and the benefits that may be derived from it.

Sources of Law
1. LEGISLATIVE
 It consists of legal rights by a competent authority. In the

Philippines, being a democratic form of government, the
Legislative is the law-making body. For national
government, Congress comprising the House of
Representatives and the Senate. For provinces, the
Sangguniang Panlalawigan for every province. For a town,
the Sangguniang Pambayan or the local Municipal council.
For a Barangay level, the Sangguniang Pambarangay.
Sources of Law
 2. CONSTITUTION
 The fundamental law that governs a nation in its

relation to its citizens. All laws must conform and
comply with the provisions of the Constitution,
otherwise it becomes unconstitutional.

Sources of Law
 3. ADMINISTRATIVE OR EXECUTIVE
ORDERS, REGULATIONS AND
RULINGS
 The fundamental law that governs a nation in its

relation to its citizens. All laws must conform and
comply with the provisions of the Constitution,
otherwise it becomes unconstitutional.
Sources of Law
4. JUDICIAL DECISIONS OR JURISPRUDENCE
 Judicial decisions or interpreting the laws or the Constitution shall

form a part of the legal system of the Philippines. (Art. 8, New
Civil Code) Judicial decisions, though, are part of the legal system
in the Philippines still are not laws for if this were so, the Courts
exists for stating what the law is, but not for giving it. Judicial
decisions, though not law, are evidence of what the law means.
This is why they are part of the legal system in the Philippines. So,
f an interpretation is placed by the Supreme Court upon a law, it
constitute in a way, part of the law since the Courts
interpretation merely establishes the legislative intent.

Sources of Law
 4. JUDICIAL DECISIONS OR JURISPRUDENCE
 Thus, our country adhere to the Doctrine of Stare

Decisis (Let it Stand), the doctrine which in reality is
“adherance to precedents” stated that once a case has
been decided, then another case involving the same
point at issue, should be decided in the same manner.
Therefore, if the Supreme Court being a Court of last
resort, has decided that a certain law passed by
Congress is constitutional, the law becomes binding
and has its full force and effect.
Sources of Law
 5. CUSTOM
 It consists of those habits and practices which through

long and uninterrupted usage have become
acknowledged and approved by society as binding rule
of conduct. Thus, it has been a custom for a person to
enter and exit a door. Once a person uses the window
for his entrance and exit, it runs counter to the custom
of use of the door. Even our Lord said as a good
shepherd, if a person does not pass the gate, he is a
thief for a marauder.
Sources of Law
 6. OTHER SOURCES
 To add, the principle of justice and equity,

decisions of foreign tribunals, opinions of text
writers and even religion may also be sources of
law.

Kinds of Law
 1. DIVINE LAW
▪ It is formally promulgated by God, revealed or divulged

to mankind by means of direct revelation like the Ten
Commandments.

Kinds of Law
 2. NATURAL LAW
▪ Promulgated impliedly in our conscience and body. It is

the divine interpretation in man in the sense of justice,
fairness, right and equity by internal dictate of reason on
our mind. Like for instance, it is better to do good than
to do evil for being a God-fearing person.

Kinds of Law
 3. PHYSICAL LAW
▪ Refers to the act of rules governing the action and
movement of things like the law on gravity by Newton.
 4. HUMAN LAW
▪ Those promulgated by man to regulate human relations.
THIS CAN BE CLASSIFIED INTO:

Classification of Human Law
 A. GENERAL or PUBLIC LAW

▪ Body of rules which regulates the rights and duties arising
from the relationship between the State and its inhabitants.
It includes the following:
▪ 1. International Law – consists of those rules and principles which

govern the relations and dealing of nations with each other.
▪ 2. Constitutional Law It simply governs the relations between the

State and its citizens.
GENERAL or PUBLIC LAW
 3. Administrative Law – it fixes the organization and determines the

competence of the authorities that execute the law and indicates to the
individual remedies for the violation of his rights.
 4. Political Law – deals with the organization and operation of the

governmental organs of the State and defines the relations of the state
with the inhabitants of its territory.
 5. Criminal Law – guaranties the coercive power of the law so that it

will be obeyed. Governs the methods of trial and punishment of crimes.

 B. INDIVIDUAL or PRIVATE LAW
▪ Those law which govern the private relation person.
It includes the following:
▪ 1. Civil Law – branch of law which has for its double purpose the
organization of the family and the regulation of property. It is
defined as the mass of precepts which determines and regulate
the relation of assistance, authority and obedience among the
members of a society for the protection of private interests.
 INDIVIDUAL or PRIVATE LAW
▪ 2. Commercial Law – defined as a whole body of substantial

jurisprudence applicable to the rights, intercourse and relation of
persons engaged in commerce, trade or mercantile pursuits.
(Black’s law dict. 338)

 INDIVIDUAL or PRIVATE LAW
▪ 3. Procedural Law – defined as the branch of law which

prescribes the method of enforcing rights or obtaining redress for
their invasion, Procedural law otherwise known as Remedial Law,
as distinguished from Substantive law which creates, defines and
regulate rights.
(Ballantine Law Dict. P. 36)

Sources of Philippine Civil Code
 1. The New Civil Code of the Philippines – the

collection of laws which regulates the private
relations of the members of civil society,
determining the defective rights and obligations
with reference to persons, things and civil acts.
▪ A civil code is a compilation of existing Civil Laws,

scientifically arranged into books, titles, chapters and
subheads and promulgated by legitimate authority. (Black
Law Dict. 334).

2.Special laws or statutes, Presidential decrees and
other social legislation.
3. Jurisprudence – there is need to mention that,

jurisprudence in our system of government, cannot be
considered as an independent source of law; but the
Court’s interpretation of a statute that constitute part of
the law as of the date it was originally passed since the
Court’s construction merely establishes
contemporaneous legislative intent, that the interpreted
law could take into effect.
4. Customs and Traditions – Custom is a judicial rule
which results from a constant and continuous uniform
practice by the members of a social group.
5. The Code Commission itself – A Code commission of

five members was created by Pres. Manuel Roxas
through Exec. Order No. 48 dated Mar. 20,1947 in view
of the need of revision in keeping with progressive
modern legislation. The Civil Code was finished on Dec.
15, 1947 and Congress approved the draft on June, 1949.

Books of the Civil Code
 Book I – Person and Family Relations
▪ This was re-codified as Family Code of the Philippines embodied

in Exec. Order No. 209 as amended by Exec. Order No. 227. The
Family Code effectuates the long-felt reforms and changes to the
Civil Code provisions on Family relations consistent with Filipino
values, customs and traditions vis-à-vis recent developments in
the social-cultural scene. (Pineda, Family Code).

Books of the Civil Code
Book II – Property, Ownership and its modifications.
Book III – Different Modes of Acquiring Ownership

(Succession)
Book IV – Obligations and Contracts
Book V – Special contracts
 The Civil Code begins with preliminary titles and ends up with the
repealing clause. This module is taken from the Civil Code of the
Philippines from Articles 1156 to 1422 inclusive.
Kinds of Procedural Law
 1. Public Remedial Law – affords a remedy in

favor of the State against the individual,
like criminal procedure or in favor of the
individual against the State, like Habeas
Corpus.
 2. Private Remedial Law – affords a remedy

in favor of an individual against another
individual, like the civil procedure.
Philippine Remedial Law
Principally contained in the Rules of Court,

which is a combination of rules promulgated
by the Supreme Court for the easy, orderly,
adequate and effective compliance with the
law. The Rules of Court have the force and
effect of law. (Alvero V. dela Rosa, 76 Phil
428).

 COURTS DEFINED –
 It is the entity, body or tribunal vested with a portion of
the judicial power. (Lontok V. Battung 63 Phil 1054)
 JUDICIAL POWER
 Includes the duty of the courts of justice to settle
actual controversies involving rights which are legally
demandable and enforceable, and to determine
whether or not there has been a grave abuse of
discretion amounting to lack or excess of jurisdiction
on the part of any branch or instrumentality of the
Government. (Const. Art. VIII, Sec. 1, par.2)
Different Courts of Justice
1. Supreme Court
2. Sandigan-bayan
3. Court of Appeals
4. Regional Trial Court; and
5. Metropolitan / Municipal Trial Courts

Lesson 1: General Provisions on
Obligation
 The definition of obligations establishes the
unilateral act of the debtor either to give, to
do or not to do as a patrimonial obligation. It
means that the debtor has the obligation
while the creditor has its rights.
 On the sources of obligation, the main

sources are really Law and Contracts. The
other sources are also established by law.
 ART. 1156. An obligation is a juridical necessity to
give, to do or not to do.
 OBLIGATIONS as defined by ARIAS RAMOS is a

juridical relation whereby a person (called the
creditor) may demand from another (called the
debtor) the observance of a determinate conduct,
and, in case of breach, may obtain satisfaction from
the assets of the latter. (Approved by Mr. Justice J. B.
L. Reyes)

The obligations referred to in our manual is a patrimonial
obligations that is, those obligations with pecuniary value or
assessable in terms of money.

1. Characteristics of patrimonial obligations:
• They represent an exclusively private interest.
• They create ties that are by nature transitory.
• They exist a power to make effective in case of non-fulfillment,
the economic equivalent obtained at the patrimony of a debtor.
2. Meaning of Juridical Necessity – it means the rights and duties

arising from obligation are legally demandable and the courts of
justice may be called upon through proper action to order the
performance. by :Atty. Joeffrey G. Pagdanganan 40
 Action means an ordinary suit in court of justice by which one
party prosecutes another for the enforceable or protection for
a right or a prevention or redress of a wrong ( Sec. 1. Rules of
court ).
Example –
Jojo bought refrigerator from Justine but Jojo
did not pay for the refrigerator. If after
demand, Jojo still refuses to pay, Justine can
sue Jojo in Court either to demand payment or
for recovery of the refrigerator.
3. Essential requisites of an obligation –
a) An active subject, who has the power to demand the prestation,

known as the creditor or oblige;
b) A passive subject, who is bound to perform the prestation, known
as debtor or obligor.
c) An object or the prestation which may consist in the act of giving,
doing or not doing something.
d) The vinculum juris or the juridical tie between the two subjects by
reason of which the debtor is bound in favor of the creditor to
perform the prestation. It is the legal tie which constitutes the
source of obligation—the coercive force which makes the
obligation demandable. It is the legal tie which constitutes the
devise of obligation… the coercive force which makes the
obligation demandable.
Juridical Tie
Debtor or To give, to do Creditor Obligor

or not to do or Obligee
 Illustration:
Jun enters into a contract of sale with Jose who paid the
purchase of a GE refrigerator. Jun did not deliver the
refrigerator. Jun is the passive subject or debtor and
Jose is the active subject or creditor. The object or
prestation is the delivery of the GE refrigerator and the
obligation to deliver arose from a contract which is the
legal tie or the vinculum juris which binds Jun and Jose.

This is also known as a unilateral obligation, that is, the obligation of
the debtor to fulfill or comply his commitment, in this case, the
delivery of the refrigerator.
On the other hand, if Jun, delivered the refrigerator and Jose did not
pay, then Jose becomes the debtor who is bound to pay while Jun is
the creditor who has the right to demand the prestation.
4. Distinctions between Obligations and Contracts:

Contract is the only one of the sources of obligation, while
obligations have other sources like law, quasi-contracts, delicts or
quasi-delicts;
Contract is a bilateral obligation while obligation is a unilateral
obligation;
All contracts are
by :Atty. Joeffrey G. Pagdanganan
obligations while not all obligations are 44
5. Civil obligations as distinguished from Natural
obligations –
Civil obligations derive their binding force from
positive law; Natural Obligation derives their
binding effect from equity and natural justice.
Civil can enforced by court action of the coercive
power of public authority;
Natural – the fulfillment cannot be compelled by
court action but depends on the good conscience of
debtor.
ART. 1157. Obligations arise from:
Law;
Contracts;
Quasi-contracts;
Acts or omissions punished by law; and
Quasi-delicts. (1089a)

ART. 1158. Obligations derived from law are not presumed. Only those
expressly determined in this Code or in special laws are demandable, and
shall be regulated by the precepts of the law which establishes them; and
as to what has not been foreseen, by the provisions of this Book. (1090)

ART. 1159. Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good
faith. (1091a)
 by :Atty. Joeffrey G. Pagdanganan 46
ART. 1160. Obligations derived from quasi-contracts shall be
subject to the provisions of Chapter 1, Title XVII, of this Book.

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)

ART. 1162. Obligations derived from quasi-delicts shall be
governed by the provisions of Chapter 2, Title XVIII of this Book,
and by special law. (1093a)


Source of Obligations
1. LAW as a source of obligations –

The provisions of Art. 1158 refers to the legal obligations
or obligations imposed by specific provisions of law,
which means that obligations arising form law are not
presumed and that to be demandable must be clearly
provided for, expressly or impliedly in the law.
Examples:
It is the duty of the Spouses to support each other. (Art. 291,
New Civil Code)
And under the National Internal Revenue Code, it is the duty of
every person having an income to pay taxes.

Source of Obligations
2. CONTRACT as a source of obligations –
Contract as defined in Art. 1305, NCC is the meeting of minds between two person whereby
one binds himself with respect to the other,

Obligations arising from contracts have the force of law between the contracting parties
because that which is agreed upon in the contract by the parties is the law between them,
thus, the agreement should be complied with in good faith. (Art. 1159).

For examples:
A contract of lease was executed between Keisha as the lessee and Nathan as the lessor for
the rent of an apartment.
Although contracts have the force of law, it does not mean that contract are over and above
the law. Contracts are with the limitations imposed by law in Art. 1306, NCC, it states that
the contracting parties may establish such stipulations, clauses terms and conditions as,
they may deem convenient, provided that are not contrary to law, morals, good custom,
public order or public policy.

Sources of Obligations
3. QUASI-CONTRACTS as a source of obligations

The ‘quasi’ literally means ‘as if’.
Quasi-contract is the juridical relation resulting from a lawful,

voluntary and unilateral act which has for its purpose the payment
of indemnity to the end that no one shall unjustly enrich or
benefited at the expense of another. (Art. 2142, NCC)
Contracts and quasi-contracts distinguished:

in a contract, consent is essential requirement for its validity while in
quasi-contract, there is no consent as the same is implied by law;
contract is a civil obligation while quasi-contract is a natural obligation.
2 Kinds of Quasi-contracts
1. Solutio Indebiti (Payment by mistake)

It is the juridical relation which arises when a person is obliged to return something received
by him through error or mistake.

Example-
Arvin owed Ian the sum of P1, 000.00. By mistake, Arvin paid P2, 000.00. Ian has the
obligation to return the P1, 000.00 excess because there was payment by mistake.

2. Negotiorum gestio (management of another’s property)
It is the voluntary management or administration by a person of the abandoned business or
property of another without any authority or power from the latter. (Art. 2144, NCC)
Example-
Victor, a wealthy landowner suddenly left for abroad leaving his livestock farm unattended.
Ramon, a neighbor of Victor managed the farm thereby incurring expenses. When Victor
returns, he has the obligation to reimburse Ramon for the expenses incurred by him and to
pay him for his services. It is bases on the principle that no one shall enrich himself at the
expense of another.
4. DELICTS or acts or omissions punished by law as a source of obligations
Acts or omission punished by law is known as Delict or Felony or Crime.
While an act or omission is felonious because it is punished by law, the criminal act gives rise to
civil liability as it caused damage to another.
Civil liability arising from delicts:

Restitution – which is the restoration of or returning the object of the crime to the injured party.
Reparation – which is the payment by the offender of the value of the object of the crime, when such
object cannot be returned to the injured party.
Indemnification – the consequential damages which includes the payment of other damages that may
have been caused to the injures party.
Illustration:
Mario was convicted and sentenced to imprisonment by the Court for the crime of theft, the gold
wrist watch, of Rito. In addition to whatever penalty that the Court may impose, Mario may also
be ordered to return (restitution) the gold wrist watch to Rito. If restitution is no longer possible,
for Mario to pay the value (reparation) of the gold wrist watch. In addition to either restitution or
reparation, Mario shall also pay for damages (indemnification) suffered by Rito.
5. QUASI-DELICTS as a source of obligations
Concepts of Quasi-Delict –
Quasi-delict is one where whoever by act or omission causes
damage to another, there being fault of negligence, is obliged to
pay for the damage done. Such fault of negligence, if there is no
pre-existing contractual relation between the parties. (Art. 2176)
Example-
If Pedro drives his car negligently and because of his negligence
hits Jose, who is walking on the sidewalk of the street, inflicting
upon him physical injuries. Then Pedro becomes liable for
damages based on quasi-delict.
6. DELICTS or acts or omissions punished by law as a source of
obligations
Acts or omission punished by law is known as Delict or Felony
or Crime.
While an act or omission is felonious because it is punished by law,
the criminal act gives rise to civil liability as it caused damage to
another.
Civil liability arising from delicts:

Restitution – which is the restoration of or returning the object of the
crime to the injured party.
Reparation – which is the payment by the offender of the value of the
object of the crime, when such object cannot be returned to the
injured party.
Requisites of a quasi-delicts -
 There must be fault or negligence attributable

to the offender;
 There must be damage or injury caused to
another;
 There is no pre-existing contract.

Negligence Defined –
is the failure to observe for the protection of the interests
of another person, that degree of care, precaution and
vigilance which the circumstances justly demand,
whereby such other person suffers injury. (Judge Cooley)
Test of Negligence –
For the existence of negligence, the following are necessary:
a duty on a party of the defendant to protect the plaintiff
from the injury of which the letter complains;
a failure to perform that duty; and
an injury to the plaintiff through such failure.
Kinds of Negligence
 Culpa Aquiliana, also known as quasi-delict or

negligence as a source of obligation.
 Culpa contractual or negligence in the

performance of a contract.
 Culpa criminal ?

An illustration showing this difference is founding Gutierrez vs.
Gutierrez, 56 Phil 177-
While trying to pass each other on a narrow bridge, a passenger truck and
private automobile collided, and the plaintiff, a passenger in the truck, was
injured.
The owner of the passenger truck was made a defendant, although a driver
was driving the truck and the owner of the car was also made a defendant,
although he was not in the car but which was being driven by his 18 year old
son and in which members of his family were then riding. The court found both
drivers negligent, basing the liability of the owner of the truck to the plaintiff
on the contract of carriage; while the liability of the owner of the car was based
on Quasi-delict of the Civil Code. As against the owner of the truck, there was
Culpa contractual, while as against the owner of the car there was culpa
Aquiliana.
LESSON 2: NATURE AND EFFECT OF OBLIGATIONS
ART. 1163. Every person obliged to give something is also

obliged to take care of it with the proper diligence of a good
father of a family, unless the law or the stipulation of the parties
requires another standard of care. (1904a)
ART. 1664. The creditor has a right to the fruits of the thing from
the time the obligation to deliver it arises. However, he shall
acquire no real right over it until the same has been delivered to
him. (1905)
ART. 1165. When what is to be delivered is a determinate thing,

the creditor, in addition to the right granted him by article 1170,
may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that
the obligation be complied with at the expense of the
debtor.
If the obligor delays, or has promised to deliver the same

thing to two or more persons who do not have the same
interest, he shall be responsible for any fortuitous event
until he has effected the deliver. (1906)
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)
Obligations of the Debtor To Give a determinate thing-
1. To preserve or take care of the thing with the

proper diligence of a good father of a family. It
means the ordinary diligence that a prudent man
would exercise in taking care of his own property
taking into consideration the nature of the
obligation, of the time and of the place, like a
person who is obliged to deliver a determinate
horse to another should, pending its delivery,
preserve it by taking care of the same as if the
horse is his own. by :Atty. Joeffrey G. Pagdanganan 61
Obligations of the Debtor To Give a
determinate thing-
To deliver the object or thing when the obligation to deliver
arises, including:
1. Fruits of the thing if any. Kinds of fruits: Natural;
industrial or civil.
Natural - spontaneous product of the soil; the young and
other products of animal. E.g. tress, plants on lands without
he intervention of man.
Industrial - produced by lands of any king through
cultivation and labor. E.g. sugar cane, vegetables, rice.
Civil - derived by virtue of juridical relations. E.g. rents of a
building; prices of leases of lands and other similar income.
determinate thing-
2. Accessions and accessories.

Accession – is the right pertaining to the owner of a thing over
its products and whatever is attached thereto either naturally or
artificially.
Example-
Accretion which refers to the gradual and addition of sediment
to the shore by action of water.
Accessories – are those things which are joined attached to the
principal object as ornament or to render it perfect.
Example-
Radio attached to a car; or key to a car.
determinate thing-
3. To be liable for damages in case of breach of obligation (Art. 1170,
NCC)
When creditor acquire a right to the thing to be delivered and its

fruits-
The creditor has a right to the fruits of the thing from the time the
obligation to deliver it arises. However, he shall acquire no real right
over it until the same have been delivered to him. (Art. 1164, NCC)
Example – a binds himself to sell his horse to B for fro P10, 000. No
date nor condition is stipulated for delivery of the horse. Later, the
horse gave birth to a colt. A has right to the colt, if B has not paid the
horse. Before delivery, B does not acquire ownership over it.
Definition of terms:
1. Determinate thing – a thing is determinate when it is

particularly designated or physically segregated
from all others from the same class. (Art. 1460, NCC)
2. Indeterminate or generic thing – A thing is generic
when it refers to a class or thing or genus and cannot
be designated with particularity. (Art. 1460, NCC)
3. Fortuitous Events – those events which could not be
foreseen or which though foreseen were inevitable.
(Art. 1174, NCC)

 Art. 1167. If a person obliged to do something
fails to do it, the same shall be executed at his
cost.
 This same rule shall be observed if he does it

in contravention of the tenor of the
obligation. Furthermore, it may be decreed
that what has been poorly done be undone.
( 1098 )
Obligation of the debtor To Do
Being a personal positive obligation, The creditor

has the right to secure the services of third
person to perform the obligation at the expense
of the debtor under the following instances:
 When the debtor fails to do the obligation;

 When the debtor performs the obligation but contrary
to the tenor; or
 When the obligor poorly performs the obligation.

ART. 1168. When the obligation consists in not doing, and the
obligor does has been forbidden him, it shall also be undone at his
expense, (1099a)
Obligation of the Debtor NOT To Do –

This is negative personal obligation which is consisting of an obligation,
of not doing something. If the debtor does what has been forbidden
him to do, the obligee can ask the debtor to have it undone. If it is
impossible to undo what was done, the remedy of the injured party is
for an action of damages.
Example-
A bought a land from B. It was stipulated that A would not construct a
fence in a certain portion of his land adjoining that land sold by B.
Should A construct a fence in violation of the agreement, B. can bring
 ART. 1169. Those oblige to deliver or to do something incur in
delay from the time the obligee judicially or extra - judicially demands from theme 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 declares; or
( 2 ) When from the nature and the circumstances of the obligation it appears that the
destination of the time when the thing is to be delivered or the service is to rendered
was 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 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 )
Delay ( Mora )
means a legal delay or default and it consists of failure
discharge a duty resulting to one’s own disadvantaged.
The debtor incurred delay if:

The debtor fails to perform his obligation when it falls due; and
A demand has been made by the creditor judicially or extra judicially.
Example –
Keisha obliged herself to deliver a determinate horse to
Nathan on June 20. this year. Keisha failed to delivered on the
agreed date, Is Keisha already on delay on June 20, only when
Nathan makes a judicial or extra-judicial demand and from
such date of demand when Keisha is on default or delay.
 However, there are instances when the demand
by the Creditor is not necessary to place the
debtor on delay:
1. When the obligation expressly so provides

The mere fixing of the period is not sufficient
to constitute a delay. An agreement to the effect
that fulfillment or performance is not made
when the obligation becomes due, default or
delay by the debtor will automatically arise.
2. When the law so provides
The express provision of law that a debtor is in default. For
instance, taxes must be paid on the date prescribed by law,
and demand is not necessary in order that the taxpayer is
liable for penalties.
3. When time is of the essence

Because time is the essential factor in the fulfillment of the
obligation. Example, Keisha binds herself to sew the wedding
gown of Maya to be used by the latter on her wedding date.
Keisha did not deliver the wedding gown on the date agreed
upon. Even without demand, Keisha will be in delay because
time of the essence.
4. When demand would be useless
When the debtor cannot comply his obligation as when it is
beyond his power to perform. Like when the object of the
obligation is lost or destroyed through the fault of the debtor,
demand is not necessary.
5. In a reciprocal obligation, from the moment one of

the parties fulfills his obligation, delay to the other
begins
For instance, in a contract of sale, if the seller delivers the
object to the buyer and the buyer does not pay, then delay by
the buyer begins and vice versa, if the buyer pays and the
seller did not deliver the object, then the seller is on delay.
Kinds of delay –
 Mora solvendi – delay on the part of the debtor.
 Mora accipiendi – delay on the part of the creditor,

like when the creditor unjustifiably refused to
accept payment at the time it was due, is in delay.
 Compensatio morae – delay both parties in a

reciprocal obligation.

ART. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or delay, and those
who in any manner contravene the tenor thereof, are liable for
damages. (1101)
ART. 1171. Responsibility arising from fraud is

demandable in all obligations. Any waiver of an action for
future fraud is void. (1120a)
ART. 1172. Responsibility arising from negligence in the

performance of every kind of obligation is also demandable,
but such liability may be regulated by the courts, according to
the circumstances. (1130)
ART. 1173. The fault or negligence of the obligor
consists in the omission of that diligence which is
required by the nature of the obligation and
corresponds with the circumstances of the persons,
of the time and of the place. When negligence
shows bad faith, the provisions of articles 1171 and
2201, paragraph 2, shall apply.
If the law or contract does not state the diligence of

which is to be observed in the performance, that
which is expected of a good father of a family shall
be required. (1104a)
Sources of liability for damages:
1. Fraud (dolo) – is the intentional deception made

by one person resulting in the injury of another.
The fraud referred to is incidental fraud, that is, fraud
incident to the performance of a pre-existing obligation.

2. Negligence (culpa) – consists in the omission by
the obligor of that diligence which is required by
the nature of the obligation and corresponds with
the circumstances of the person, of the time and
of the place. (Art. 1173, NCC)
Sources of liability for damages:
3. Delay (Mora) – like when there has been judicial or extra-
judicial demand and the debtor does not comply his
obligation, delay will occur.
4. In contravention of the tenor of the obligation – refers to

the violation of the terms and conditions or defects in the
performance of the obligation, like when a landlord fails
to maintain a legal and peaceful possession of a tenant
being leased by the latter because the landlord was not
the owner and the real owner wants to occupy the land,
there is contravention of the tenor of the obligation.
Other sources of liability for damages –
 Loss of the thing with the fault of debtor.
 Deterioration with the fault of debtor. (Art. 1189)

Kinds of Damages
1. Moral damages – include physical sufferings,
mental anguish, fright, serious anxiety,
besmirched reputation, wounded feeling, moral
shock, social humiliation and similar injury.
2. Exemplary damages – imposed by way of

example or correction for the public good.
Like in quasi-delicts, if the defendant acted with gross

negligence. (Art. 2231, NCC)
Kinds of Damages
3. Nominal damages – are adjudicated in order that a right of

the plaintiff, which has been violated by the defendant, may
be vindicated or recognized and not for the purpose of
indemnifying the plaintiff for any loss suffered by him. (Art.
2221, NCC)

4. Temperate or moderate damages – are more than nominal
but less than compensatory damages may be recovered
when the courts finds that its amount cannot, from the
nature of the case, be proved with certainty. Pecuniary loss
means loss of money, or of something by which money or
something of money value may be acquired. (Black Law
Dict. P. 1131) by :Atty. Joeffrey G. Pagdanganan 81
Kinds of Damages
5. Actual or compensatory damages – except as

provided by law, or a stipulation, one is entitled to an
adequate compensation only for such pecuniary loss
suffered by him as he has duly proved. (Art. 2199,
NCC)
Damages may be recovered:

For loss or impairment of earning capacity in cases of temporary or
permanent personal injury;
For injury, to the plaintiff’s business standing or commercial credit.

Kinds of Damages
6. Liquidated damages – are those agreed upon

by parties to a contract to be paid in case of
breach thereof. (Art. 2226, NCC)

Distinguish Fraud (Dolo) from Negligence (culpa)
1. Dolo – there is deliberate intent to cause damage or injury.

Culpa – there is no deliberate intent to cause damage.
2. Dolo – waiver of liability of future fraud is void.

Culpa – waiver may in some cases be allowed.
3. Dolo – fraud must be clearly proved.

Culpa – presumed from breach of contractual obligation.
4. Dolo – liability cannot mitigated by the courts.

Culpa – may be reduced according to circumstances.
 ART. 1174. Except in cases expressly
specified by the law, or when it is otherwise
declared by stipulation, or when the nature
of the obligation requires the assumption
of risk, no person shall be responsible for
those events which could not be foreseen,
or which, though foreseen, were inevitable
(1105a)

Fortuitous event – is an event which cannot be foreseen or which
though foreseen is inevitable.
Fortuitous event proper are acts of God such as volcanic

eruption, earthquake, lightning, etc. is now similar with force
majeur or acts of man such as conflagration, war, robbery, etc.
1. Requisite necessary to constitute fortuitous event

The failure of the debtor to comply with the obligation must be
independent from the human will;
The occurrence makes it impossible for the debtor to fulfill the
obligation on a normal manner, and the obligor did not take part as to
aggravate the injury of the creditor. (Vasquez v.C.A. G.R. 42926)
2. As a general rule, no person shall be held
responsible for fortuitous events
Example – Keisha obliged herself to deliver a

determine car to Nathan on Dec. 30, 1998. Before
the arrival of the period, the car was struck by
lightning and was totally destroyed. Keisha cannot
be held responsible for the destruction of the car,
hence her obligation to deliver is extinguished.

Exceptions (when the person is responsible despite the fortuitous event).
a. When the law expressly so provides, such as:

The debtor is guilty of fraud, negligence or in contravention of the tenor
of the obligation. (Art, 1170, NCC)
The debtor has proved to deliver the same thing to two or more persons
who do not have the same interest. ( Art. 1165,NCC )
The thing to delivered is generic.
The debtor is guilty of default or delay. ( Art. 1169,NCC )
The debtor is guilty of concurrent negligence.
b. When declared by stipulation;
c. When the nature of obligation requires the assumption of risk. An

example of this is aby contract of insurance.
:Atty. Joeffrey G. Pagdanganan 88
ART. 1175. Usurious transaction shall be governed by
special laws.
Note: C.B. Circular No. 905 suspends the ceilings in the usury law.
Hence, parties can agree as to the rate of interest.
Kinds of interest
1. Conventional *The rate which is agreed upon by the
parties.
2. Legal Interest *The rate which is prescribed by law.
3. Lawful Interest *The rate which is agreed upon by the
parties but which rate is within the rate authorized by law.
4. Usurious Interest *The rate which is in excess of the
ART. 1176. The receipt of the principal by the creditor
without reservation with respect to the interest, shall
give rise to the presumption that said interest has been
paid.
The receipt of a later installment of a debt without

reservation as to prior installments, shall likewise raise
the presumption that such installments have been
paid. (1110a)
Presumptionmeans “the inference as to the existence of

a certain fact which if not contradicted is considered as
true.” by :Atty. Joeffrey G. Pagdanganan 90
The presumption in the above article is a disputable
presumption, whereby one which can be contradicted by
presenting proof to the contrary while a conclusive
presumption does not admit any evidence or proof,
hence, it is considered as a fact.
Presumption under this article:

1. Receipt of the principal, without reservation as to the
interest, shall give rise to the presumption that the said
interest has been paid.
2. When the creditor issues a receipt of a later installment of a
debt without reservation as to prior installment is presumed
to have beenbypaid.
ART. 1177. The creditors, after having pursued the property in possession of
the debtor to satisfy their claims, may exercise all the rights and bring all the
actions of the latter for the same purpose, save those which are inherent in his
person; they may also impugn the acts which the debtor may have done to
defraud them. (1111)
Rights of Creditors –
In order to satisfy their claims against the debtor, creditors have the following
successive rights:
1. to levy by attachment and execution upon all the property of the debtor, except
such as are exempt by law from execution;
2. to exercise all the rights and actions of the debtor, except, such as are inherently
personal to him; and
3. to ask for the rescission of the contracts made by the debtor in fraud of their
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)
As a rule, all rights acquired in virtue of an obligation are

transmissible, except in the following cases:
1. When the law so provides.
2. When the parties stipulate otherwise – by agreement of
parties that the rights acquired by them will not be
transmitted to any other person.
3. When the obligation is purely personal in nature.
LESSON 3: Kinds of Obligations
Classification of Obligations:
The Civil Code classifies obligations primarily into: (PU CO PE
ALFA JOS DIP)
1. Pure;
2. Conditional;
3. With a period;
4. Alternative;
5. Facultative;
6. Joint;
7. Solidary or several or in solidum;
8. Divisible;
9. Indivisible;
10. With a penal clause.
 Other provisions of the Civil Code, however,
impliedly admit other classes of obligations, to
wit:
a.) Unilateral and bilateral;

b.) determinate and generic;
c.) legal, conventional and penal;
d.) real and personal

 Section I. – Pure and Conditional Obligations
ART. 1179. Every obligation whose

performance does not depend upon a future
or uncertain event, or upon a past event
unknown to the parties, is demandable at
once.
Every obligation which contains a resolutory
condition shall also be demandable, without
prejudice to the effects of the happening of
the event. (1113)
1. Pure Obligation – when the obligation contain no
term or condition whatever upon which depends
the fulfillment of the obligation contracted by the
debtor.
It is immediately demandable and there is nothing to
exempt the debtor from compliance therewith.
Example – Keisha obliged herself to pay her loan of P1,000 to
Nathan on demand.
Instances when obligations immediately demandable:
1. It is a pure obligation;
2. It is subject to a resolutory condition;
3. It is subject byto resolutory
:Atty. period.
Joeffrey G. Pagdanganan 97
2. Conditional Obligations – one which is subject to a condition of one
whose performance depends upon a future or uncertain events or
upon past event unknown to the parties.
ART. 1180. When the debtor binds himself to pay when his means
permits him to do so, the obligation shall be deemed to be one
with the period, subject to the provisions of article 1197.(n)
Example –
A promissory note states that “This is to acknowledge receipt of sum
of One thousand Six Hundred pesos (P1, 600.00) and I am to pay my
debt to Arvin as soon as possible or as soon as I have the money.” It
was held that the conditional obligation is void, because the
collection would be impossible, the remedy of the creditor is to ask
the Court to fix the period of payment, thus, it becomes an obligation
with a period. by :Atty. Joeffrey G. Pagdanganan 98
 ART. 1181. In conditional obligations, the acquisition of rights as well
as the extinguishment or loss of those already acquired, shall depend
upon the happening of the event which constitutes the condition. (1114)
ART. 1182. When the fulfillment of the condition depends upon the sole
will of the debtor, the conditional obligation shall be void. If it depends
upon chance or upon the will of a third person, the obligation shall take
effect in conformity with the provisions of this code. (1115)
ART. 1183. Impossible conditions, those contrary to good customs or

public policy and those prohibited by law shall annul the obligation which
depends upon them. If the obligation is divisible, that part thereof which
is not affected by the impossible or unlawful condition shall be valid,
The condition not to do an impossible thing shall be considered as not

having been agreed upon. (1116a)
 ART. 1184. The condition that some event happen at a
determinate time shall extinguish the obligation as soon as the time
expires or if it has become indubitable that the event will not take
place. (1117)
ART. 1185. The condition that some event will not happen at a
determinate time shall render the obligation effective from the
moment the time indicated has elapsed, or if it has become evident
that the event cannot occur.

If not 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)
ART. 1186. The condition shall be deemed fulfilled when the obligor
Kinds or classifications of conditions:
1. Suspensive and Resolutory

Suspensive – the happening of the condition gives rise to an obligation.
Example:
Maya binds herself to deliver a determinate car to Nathan if he marries Keisha. The
obligation is only demandable upon the happening of the condition that is, if
Nathan marries Keisha. The obligation is suspended and not yet demandable.
Resolutory – the happening of the condition extinguishes the obligation already existing.

Example:
Arvin binds himself to lend his only car to Ian until the latter passes the CPA Board.
The obligation to lend is immediately demandable. Ian’s right over the car is
extinguished upon his passing the CPA board. Ian is now obliged to return the car.

Kinds or classifications of condition:
2. Potestative, Casual and Mixed
Potestative – is one the fulfillment of which depends upon the sole will of the debtor. This kind of
condition is void.
Example:
Arvin Promise to give his only parcel of land to Maya if he decides to leave for the United
States.

Casual – is one the fulfillment of which depends upon chance.
Example:
Mario agrees to give Maria a determinate car if Maria’s only racing horse will win the
sweepstake race.
Mixed – is one which depends partly upon the will of third person and partly upon chance
Example:
Vincent promise to give Victor a new Toyota Car if Victor will be able to play with and beat
Karpov in a game of chess. This is mixed condition, that is Karpov willingness to play chess
with Victor and the latter’s winning over Karpov.

3. Possible and Impossible

Impossible condition is divided into 2:
a) Physical Impossibility – the condition imposed is not capable of being
performed physically.
Example:
Grace will give Christine a gold necklace if she swims across the Pacific Ocean.
b) Illegal Impossibility – when the condition imposed is contrary to law, good

custom or public policy.
Example:
1. Contrary to law – Pedro agrees to give Ernesto P100,000 if Ernesto will kill Mario.
2. Contrary to good custom – Santos binds himself to give Maria a gold wrist watch if she will
cohabit with Mr. Reyes without benefit of marriage.
3. Contrary to public policy – Maria agrees to employ Grace in her company if Grace will not
join a labor union.

4. Positive and Negative:
A Negative condition is one where some event will not happen at a

determinate time, either
a.)the time indicated has elapsed; or
b.)it has become evident that the event cannot occur (Art. 1185,
NCC)
Example:
Victor will give Jason a car if he will not marry Helen until Dec. 19, 2001, if
Jason has not married Helen until Dec. 19, 2001 or if Helen has died
within the prescribed time without having married to Jason, the
obligation becomes demandable. If Jason married Helen within the
prescribed time, the obligation of Victor is extinguished.
5. Divisible and Indivisible
Divisible – that part of obligation which is not affected by

impossible or unlawful condition shall be valid (Art. 1183, NCC)
Example-
X promise to pay Y the sum of P1, 000.00 if Y furnishes X with
information as to the whereabouts of Z and another sum of P2,
000.00 if Y kills Z. in the obligation, the first part (to pay P1,
000.00) is valid while the second part (P2, 000.00) is void
because only the latter is affected by the condition.
6. Express and Implied

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

in each case, the retroactive effect of the condition that has
been complied with. (1120)
Effects of conditional obligation to give:
Once the condition is fulfilled, the effects of the

conditional obligations shall retroact to the day of the
constitution of the obligation and not on the date when
the condition was fulfilled.

Example –
On Jan. 1, 1999 A agreed to give B a parcel of land if he passes
the May, 1999 CPA exams. If B passes the CPA exams in May,
1999, he is entitled to the land effective Jan. 1, 1999 because
B’s right over the land retroacts to the date when the
obligation was constituted.

As to the fruits and interest – The effect of conditional obligation to
give, as a rule, do not retroact to the date of the constitution of the
obligation. The following rules shall govern:
1. In reciprocal obligation (like a contract of sale) - the fruits and interest

during the pendency of the condition shall be deemed to have been
mutually compensated.
Example:
A agrees to sell and B agrees to buy A’s parcel of land if B passes
the May, 1999 CPA exams. If B passes the May, 1999 CPA Board,
the obligation becomes demandable. B is entitled to all the
interests that his money (with which to pay A) may earn while A
is entitled to the fruits which the parcel of land may have
produced during the pendency
by :Atty. of the condition.
2. In unilateral obligation – the debtor shall appropriate the
fruits and interests received during the pendency of the
condition unless a contrary intention appears.
Example –
X agreed to give Y a parcel of land if Y passes the
CPA Board in May, 1999 exams. Pending the
happening of the condition, A is entitled to the
fruits which the land may produce, A will deliver
only the parcel of land if the condition is fulfilled,
unless a contrary intention appears.

ART. 1188. The creditor may, before the fulfillment of the
condition, bring the appropriate actions for the preservation of
his right.
The debtor may recover what during the same time he has
paid by mistake in case of a suspensive condition (1121a)
Preservation of Creditor’s Right –

The action for the preservation of the creditor’s right may
have for their objectives:
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 himself or by third person; 110
Preservation of Creditor’s Right –
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
proper public document for registration so as to affect
third person.
Preservation of Creditor’s Right –
5. To register the deeds of sale or mortgages;
6. To set aside fraudulent alienation made by the

debtor;
7. To interrupt the period of prescription by actions

against adverse possessors of the things which are
objects of the obligation. (Lawyer’s journal, 1951,
p. 47)

 Paragraph I of the above article authorizes the creditor
to take any appropriate actions for the preservation of
creditor’s right during the pendency of the condition:
 Example:
On Jan. 1, 1999, Raul obliged himself to sell a parcel of land to
Dennis if he passes the CPA exams in October, 1999. From the
time the obligation was constituted and pending the
happening of the condition (passing the CPA Exams) Dennis
may cause the annotation of the condition in the certificate of
title in the Register of Deeds where the land is located, to
preserve his right over the parcel of land.
Paragraph II in order that debtor may recover what he has paid by
mistake, during the pendency of the condition, the following requisites
may be present:

1. The debtor paid the creditor before the fulfillment of the condition;
2. Payment made by debtor was through mistake and error;

3. The action to recover what was paid by mistake should be made before the
fulfillment of the condition.

Example –
Pedro obliged himself to pay Santos P20, 000 if a PAL plane crashes at Cebu before
Dec. 30, 1998. After the obligation was constituted and before Dec. 30, 1998, a
plane crushed in Cebu. Pedro honestly and believing that the condition was fulfilled
paid the P20, 000 to Santos. It turned out however that it was a Cebu airline that
crushed. Thus, Pedro may recover the amount paid to Santos by mistake for the
reason that the condition has not yet been fulfilled.
ART. 1189. When the conditions have been imposed with the intention of
suspending the efficacy of an obligation to give, the following rules shall be
observed in case of the improvement, loss or deterioration of the thing during the
pendency of the condition:
1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished.
2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it
is understood that the thing is lost when it perishes, or goes out of commerce, or
disappears in such a way that its existence is unknown or it cannot be recovered;
3) When the thing deteriorates without the fault of the debtor, the impairment is to be
borne by the creditor;
4) If it deteriorates through the fault of the debtor; the creditor may choose between the
rescission of the obligation and its fulfillment, with indemnity for damages in either
case;
5) If the thing is improved by its nature, or by time, the improvement shall inure to the
benefit of the creditor;
6) If it is improved at the expense of the debtor, he shall have no other right than that
granted to the usufructuary.

These rules apply only to obligation to give a determinate or
specific thing subject to a suspensive condition in case of loss,
deterioration or improvement of the thing.
1. In case of loss of the thing
a) If the thing is lost without the fault of the debtor, the obligation shall be
extinguished.
Example –
Reyes obliged himself to give Santos a determinate car if he passes the CPA
Exams in Oct. the current year. If during the pendency of the condition the car
was lost through fortuitous event without the fault of Reyes, the obligation to
deliver the car is extinguished even if the condition is fulfilled later.
b) If the thing is lost through the fault of the debtor, he shall be obliged to pay
damages. If in the example above, the specific car was lost through the fault
of Reyes, he shallby :Atty. Joeffrey G.
be liable forPagdanganan
damages upon the fulfillment of the condition. 116
It is understood that the thing is lost:
a) When it perishes (as when a house is burnt to ashes)

b) When it goes out of commerce (as when the object before is
unprohibited becomes prohibited)
c) When disappears in such a way that its existence is unknown

(as when a particular car has been missing for some time)
d) When it disappears in such a way that it cannot be recovered

(as when a particular diamond ring is dropped in the middle of
the Atlantic Ocean).
3. When the thing improved –
a) If the thing improved during the pendency of the condition,

by its nature, or by time, the improvement shall inure to the
benefit of the creditor. The reason for this is to compensate
the creditor who would suffer in case, instead of
improvement, there would be deterioration without the fault
of the debtor.
b) If the thing is improved at the expense of the debtor, he have
no other right than that granted to the usufructuary. By us
usufruct is meant the right to enjoy the property of another
which includes the right to enjoy and use the fruits of the
property.
 ART. 1190. When the conditions have for their purpose the
extinguishment of an obligation to give, the parties, upon
the fulfillment of said conditions, shall return to each other
what they have received.
In case of the loss, deterioration or improvement of the

thing, the provisions which, with respect to the debtor , are
laid down to the preceding article shall be applied to the
party who is bound to return.
As for obligations to do or 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)
Effects When Resolutory Condition is fulfilled
1. The obligation is extinguished. (Art. 1181, NCC)

2. Because the obligation is extinguished and considered to have had no effect, the
parties should restore to each other what they have received.
3. The fruits and interests thereon should also be returned after deducting of course
the expenses made for the production, gathering and preservation, if any.
4. The rules given in Art. 1189, N CC will apply to whoever has the duty to return in
case of loss, deterioration or improvement of the thing.
5. The courts are given power to determine the retroactivity of the fulfillment of a
resolutory conditions.
Example :
A gave B a parcel of land on condition that B will pass the CPA Exams on May, this
year. B did not pass the CPA Exams. The obligation is extinguished and therefore, it is
as if there was never an obligation at all. B will therefore have to return both the land
and the fruits he had received there from the moment A has given him the land.

 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 later 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.
Right to Rescind
The right to rescind means the right to cancel or to

resolve in case of reciprocal obligation in case of non-
fulfillment on the part of one.
Example:
In a contract of sale, the buyer can rescind if the seller does not
deliver or the seller can rescind if the buyer does not pay.
The power to rescind is given to the injured party and the
injured party has the following alternative remedies:
1. Demand fulfillment of the obligation plus damages; or
2. Demand rescission of the obligation plus damages.

ART. 1192. In case both parties have committed a breach of the
obligation, the liability of the first infractor shall be equitably
tempered by the courts. If it cannot be determined which of the
parties first violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages.
Rules if Both Parties Have Committed a Breach

The above rules are deemed just. The first one is fair to both
parties because the second infract or, though they would derive
some advantage by his own act or neglect. The second rule is
likewise just, because it is presumed that both parties at about
the same time tried to reap some benefits. (Report of the Code
Commission)
Section 2 - Obligations with a period
`
ART. 1193. Obligations for whose fulfillment a day certain has
been fixed, shall be demandable only when that day comes.
Obligations with a resolutory period take effect at once, but

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

come, although it may not be known when.
If the uncertainty consists in whether the day will come or not,
the obligation is conditional, and it shall be regulated by the
rules of the preceding Section.
Period Defined –
 A period is a future and certain length of time which

determines the effectivity or the extinguished of
obligation.

 Obligation with a period is one whose consequences
are subject in one way or another to the expiration of
said period or term. (8Manresal58)
 A day certain is understood to be that which must

necessarily come, although it may not be known when.

Period and Condition Distinguished:
a) As to fulfillment - A period is a certain event which must

happen sooner or later while a condition is an uncertain event.
b) As to time – a period refers only to the future while a condition

may refer to a past unknown event.
c) As to influence or effect on the obligation – the period fixes the

time of the effectivity of the obligation while a condition may
cause the demandability of the obligation to arise or to
terminate.

 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)
 Effect of loss, deterioration, or improvement before the
arrival of period.
Note the cross reference to Art. 1189, NCC.

▪ Example:
If A is suppose to deliver to B a particular car on Dec.
19, 1999 by the car was destroyed by fortuitous
event in July 1, 1999, the obligation is extinguished.127

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 de and demandable, may be recovered, with
the fruits and interests. (1126a)
Effect Of Payment Before Arrival of Period
This article which is similar to Article 1188, NCC, in an obligation to give, allows
the recovery of what has been paid by mistake before the fulfillment of a
suspensive condition.
Example -
E owes G P20, 000.00, which was supposed to be paid on December 25 this year. By
mistake, E paid his obligation on December 25 last year. Assuming that today is only June
30, E can recover the amount plus interest therein. But E cannot recover, except he
interest, if the debt had already matured or if E had knowledge of the period.
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)
Presumption As to Benefit Of A Period

The general rule is that when a period is fixed by the parties , the period
is presumed to be for the benefit of both creditor and debtor.
Which means that before the expiration of the period, the debtor may
not fulfill the obligation and neither the creditor demand its fulfillment.
By way of exception, however, if the tenor of the obligation or other
circumstances may indicate that a period is have been established for the
benefit of either the creditor or debtor:
1. For the benefit of both creditor and debtor
Example –
Keisha obtained a loan of P10, 000 at 12% interest per annum from Nathan for one year. Keisha
has a period of one year within which to use the money, while Nathan will benefit from the interest
which the money will earn.
2. For the benefit of the creditor

Example -
Keisha executes a promissory note in favor of Nathan which reads: “I promise to pay Nathan or
order the amount of P10, 000 on demand. Thus, Nathan can demand payment from Keisha
anytime.

3. For the benefit of debtor
Example –
Keisha executes a promissory note which
by :Atty. Joeffrey reads: “I promise to pay Nathan or order the amount of130
G. Pagdanganan P
ART. 1197. If the obligation does not fix a period, but from
its nature and 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 circumstance have been probably contemplated by the parties.
Once by the courts, the period cannot be changed by them. (1128 a)
Court Generally is Without Power to Fix a Period

If an obligation does not state a judicial period and no period is
intended, the court is not authorized to fix a period. The courts have no
right to make contracts for the parties.
Exceptions to the general rule
1. If the obligation does not fix a period but it can be inferred from its nature
and circumstances that a period is intended.
Example:
S sold a parcel of land to B with a right of repurchase. No
term is specified in the contract for the exercise of the
right. Then, the court is authorized to fix the period to
repurchase.
2. If the duration of the period depends upon the sole will of the debtor
Example:
I will pay you as soon as possible. Here , the period is not
fixed, so the court may fix the same because if this is not so
the obligation may never be complied with by the debtor.

ART. 1198. The debtor shall lose every right to make
use of the period:
1) When after the obligation has been contracted, he becomes
insolvent, unless he gives a guaranty or security for the debt;
2) When he does not furnish to the creditor the guaranties or
securities which he has promised ;
3) When by his own acts he has impaired said guaranties or
securities after their establishment, and when through a
fortuitous event they disappear, unless he immediately gives
new ones equally satisfactory;
4) When the debtor violates any undertaking, in consideration
of which the creditor agreed to the period;
5) When the debtor attempts to abscond. (1129a)

When Debtor Loses The Right to Make Use Of A Period
 The general rule is that the obligation is not

demandable before the lapse of the period. The
exceptions are based on the fact that the debtor
might not be able to comply with his obligation:

1. When debtor becomes insolvent:
The insolvency need not be judicially declared. It is sufficient
that the debtor has less assets than his liabilities or if debtor is
unable to pay his debts as they mature. It is noted that the
insolvency of the debtor must occur after the obligation has
been contracted.
When Debtor Loses The Right to Make
Use Of A Period
2. When debtor does not furnish guaranties or securities promised:
Example:
Keisha borrowed loan from Nathan which loan was secured by a chattel
mortgage of Keisha’s car as a guaranty. After obtaining the loan, Keisha
fails or does not execute a chattel mortgage, the loan becomes
demandable or the debtor loses her right to make use of the period.

3. When by his own acts he has impaired said guaranties or securities:
Example:
Keisha borrowed P50, 000 from Nathan which loan was secured by a
chattel mortgage on Keisha ‘s car. Later, Keisha’s fault, the car was
damaged or she causes the impairment of the car, Keisha loses her right to
make use of the period, unless she gives another one equally satisfactory.

When Debtor Loses The Right to Make
Use Of A Period
4. When by fortuitous event, the guaranty or security was lost.
Example:
Keisha borrowed P50, 000 from Nathan which loan was secured by a chattel mortgage on
Keisha’s car. After obtaining the loan, the car was lost by fortuitous event. Keisha loss her
right to make use of the period unless she gives another guaranty or security equally
satisfactory.

5. When debtor violates an undertaking –
Example:
Art secured a loan from Arnold on condition that Art will paint the house of Arnold. If after
the proceeds of the loan was given to Art, he did not pant the house of Arnold, Art loses his
right to make use of the period.
6. When the debtor attempts to abscond.

Abscond means a depart or escape from creditor’s knowledge to avoid payment of his debt.
Mere attempt on the part of debtor will entitle the creditor to demand payment of the
obligation without waiting for the period to expire.

Section 3. Alternative and Facultative obligations
ART. 1199. A person alternatively bound by different

prestations shall completely perform one of them.
The creditor cannot be compelled to receive part of one and part of the
other undertaking. (1131)

Meaning of Alternative Obligation
It means an obligation where two or more prestations are due but the
delivery of one is sufficient to extinguish the obligation.
Example:
Keisha binds herself to give Nathan either a determinate refrigerator or a TV set. If
Keisha chooses and delivers the TV set, the obligation is extinguished. Thus, Keisha
by :Atty.
cannot compel Nathan toJoeffrey
accept G. Pagdanganan
part of one and the part of the other prestations. 137
 ART. 1200. The right of choice belongs to
the debtor, unless it has been expressly
granted to the creditor.
 The debtor shall have no right to choose

those prestations which are impossible,
unlawful or which could not have been the
object of the obligation.

Rule on Who Makes the Choice –
As a general rule, the right of choice or to select the prestation belongs to the debtor, unless
the right to choose is expressly granted to the creditor. But the right of the debtor is subject
to the following:
The debtor cannot choose those prestations which are:
a) Impossible – E.g.- Keisha promised to deliver to Nathan 100 sacks of rice or a stone from Mars. Keisha
cannot chose to deliver the stone coming from Mars as it is physically impossible.
b) Unlawful – E.g. Keisha obliged herself to deliver to Nathan a kilo of dangerous drug or a parcel of land.
Keisha can choose only the delivery of parcel of land.
c) Could not have been the object of the obligation - E.g. Keisha borrowed from Nathan P50, 000. It was
agreed that Keisha would give Nathan her horse or her German Piano. Now, Keisha has two horses, a
race horse worth P50, 000 and an ordinary horse which is worth for only P5, 000. Keisha cannot choose
d) Only one prestation is practicable (Art. 1202) – E.g. Keisha will deliver to Nathan her carabao, or her
horse or her refrigerator. Through no fault of Keisha, the horse and the carabao were lost by fortuitous
event. Keisha can only delivery the refrigerator which is the only one practicable.

 ART. 1201. The choice shall produce no effect
except from the time it has been communicated. (1133)
Right of Choice Must be Communicated –

Until the choice is made and communicated, the
communicated, the obligation remains alternative. Once the
notice to the effect that a choice is made, the obligation ceases
to be alternative and becomes a simple obligation.
Where the choice has been expressly given to the creditor, such
choice shall likewise produce legal effects upon being
communicated to the debtor. (Art. 1205, par. 1)

ART. 1202. The debtor shall lose the right of choice when among the
prestations whereby he is alternatively bound, only one is practicable.
ART. 1203. If Through The creditor’s acts the debtor cannot make a
choice according to the terms of the obligation, the latter may rescind
the contract with damages.

When debtor may rescind contract
If through the creditor’s fault, the debtor cannot made a choice according to the
terms of the obligation the debtor is given the right to rescind and recover
damages.
Example:
Keisha borrowed from Nathan P5, 000.00. it was agreed that instead of P5, 000, Keisha could
deliver a TV set or a refrigerator or a piano. If through the fault of Nathan, the TV set was
destroyed, Keisha can rescind the contract if she wants. In case of rescission, the amount of P
5, 000.00 must be returned by Keisha with interest. Nathan, in turn, must pay Keisha the value
of the TV set plus damages.
ART. 1204. The creditor shall have a right to indemnity for damages
when, through the fault of the debtor, all the things which are
alternatively the object of the obligation have been lost, or the
compliance of the obligation has become impossible.
The indemnity shall be fixed taking as a basis the value of the last thing which
disappeared, or that of the service which last became impossible.
Damages other than the value of the last thing or service may also be awarded.
(1135a)

When right of choice is with debtor and all prestations were lost –
This article entitles the creditor to indemnity for damages when all the alternative
objects are lost through the fault of the debtor before he has made his choice. The
indemnity for which the creditor is entitled shall be based on the value of the last
thing which disappeared or lost or the compliance of the obligation has become
impossible. by :Atty. Joeffrey G. Pagdanganan 142
ART. 1205. When the choice has been expressly given to the creditor,
the obligation shall cease to be alternative from the day when the
selection has been communicated to the debtor.
Until then the responsibility of the debtor shall be governed by the
following rules
1) If one of the things is lost through a fortuitous event, he shall perform the
obligation by delivering that which the creditor should choose from among the
remainder, or that which remains if only one subsists;
2) If the loss of one of the things occurs through the fault of the debtor, the
creditor may claim any of those subsisting, or the price of that which, through
the fault of the former, has disappeared, with a right to damages
3) If all the things are lost through the fault of the debtor, the choice by the
creditor shall fall upon the price of any one of them, also with indemnity for
damages. by :Atty. Joeffrey G. Pagdanganan 143
The same rules shall be applied to obligations to do or not to
do in case one. Some or all of the prestations should
become impossible. (1136a)
When Right of Choice is With Creditor and All Prestations Were

Lost
This article provides for the rules to be observed when the right of
choice is expressly granted to the creditor, the rules are as follows:
1. When a thing is lost through a fortuitous event
Example
Keisha obliged herself to deliver to Nathan a TV set, or a
refrigerator, or a piano. If the TV set was lost through
fortuitous event, Nathan can choose from among the
remainder or thatby :Atty.
which Joeffreyremains
G. Pagdanganan if only one subsists. 144
2. When a thing is lost through debtor’s fault
Example:
If the loss of the TV set occurs through the fault of Keisha, Nathan may claim the
refrigerator or the piano with a right of damages or the price of the TV set with a
right of damages.
3. When all the things were lost through debtor’s fault

Example:
If all the items are lost through the fault of Keisha, then Nathan can demand the
payment of the price of any one of them with a right to indemnity for damages.
4. When all the thing are lost through a fortuitous event

Example:
The obligation of Keisha shall be extinguished if all the items which are
alternatively the object of the obligation are lost through a fortuitous event (Art.
1174 will apply).
ART. 1206. When only one prestation has been agreed
upon, but the obligor may render another in substitution,
the obligation is called facultative.
The loss or deterioration of the thing intended as a substitute,
through the negligence of the obligor, does not render him
liable. But once the substitution has been made, the obligor is
liable for the loss of the substitute on account of his delay,
negligence or fraud.
Meaning of Facultative Obligation –

A facultative obligation is one where only one prestation has been
agreed upon but the obligor may render another in substitution.
Example:
I will give you my piano but I may give my television set as a substitute.
Alternative and Facultative Distinguished –
1) As to choice – In facultative – the right for substitution is given

only to the debtor in Alternative – the choice may be given either
to the debtor or to the creditor;
2) As to things due – In facultative – only the principal obligation is

due by may substitute another; in alternative, there are several
things due but the delivery of one is sufficient;
3) As to validity or nullity – In facultative – if the principal thing is

unlawful or impossible, there is no need of delivering the
substitute in alternative – if one of the thing is unlawful or
impossible, there is still a need to deliver any of those which
remain valid or the only remaining one is valid.
Section 4 – Joint and Solidary Obligations
ART. 1207. The concurrence of two or more creditors or of two

or more debtors in one and the same obligation does not imply
that each one of the former has a right to demand, or that each
one of the latter is bound to render, entire compliance with the
prestation. There is a solidary liability only when the obligation
requires solidarity. (1137a)
ART. 1208. If from the law, or the nature or the wording of the
obligations to which the preceding article refers the contrary does
not appear, the credit or debt shall be presumed to be divided into
as many equal shares as there are creditors or debtors, the credits
or debts being considered distinct from one another, subject to
the Rules of Courtbygoverning the multiplicity of suits. (1138a)
Joint Obligation –
It is an obligation where there is a concurrence of two or
more debtors or two or more creditors or of several
debtors and creditors, by virtue of which each of the
debtors is liable for a proportionate part of the credit.
Example of different instances

1) A, B, and C borrowed P9, 000 for D. The presumption is that A, B and C
are jointly liable. D can demand only P3, 000 from each or a total of P9,
000.
2) A borrowed from B, C and D P9, 000. There is one debtor and three
creditors. Each creditor can demand only P3, 000 from A.
3) A and B are liable to C and D for P9, 000. There are two debtors and two
creditors. Each creditor can demand only P4, 500 from each debtor.
SOLIDARY OBLIGATION
There are solidary liability when
1) The obligation expressly so states, or
2) The law requires solidarity or
3) The nature of the obligation requires solidarity.

Kinds of Solidary Obligation
1. Passive – solidarity on the part of the debtors, where anyone of them
can be made liable for the fulfillment of the entire obligation.
Example – A and B are solidary debtors of C in the amount of P 10, 000
2. Active – solidarity on the part of the creditors, where anyone of them

can demand the fulfillment of the entire obligation.
Example – A is liable to B and C for the amount of P10, 000. B and C are solidary
creditors.
3. Mixed Solidarity – solidarity on the part of the debtors and creditors

where each one of the debtors is liable to render and each one of the
creditors has a right to demand, entire compliance with the obligation.
Example – A and B are solidarity debtors to C and D, solidary creditors in the
amount of P 10, 000.

Solidarity not presumed
The presumption, where there are two or more persons in the same obligation, is that it is
joint. The reason is that solidary obligations are very burdensome for they create unusual
rights and liabilities. Solidarity between debtors increases their responsibility while
solidarity between creditors presuming that they are bound jointly and not solidarily.
ART. 1209. If the division is impossible, the right of the creditors may be
prejudiced only by their collective acts, and the debt can be enforced only by
proceeding against all the debtors. If one of the latter should be insolvent,
the others shall not be liable for his share.
Indivisible Joint Obligation –

The object is indivisible and the T/E between the parties are merely proportionately liable.
Example –
A and B are jointly liable to give C a particular car. The obligation is joint but since the object is
indivisible, the creditor must proceed against al the joint debtor. If any of the joint debtors be insolvent,
the others shall not be liable forJoeffrey
by :Atty. others. G. Pagdanganan 152
ART. 1210. The indivisibility of an obligation does not
necessarily give rise to solidarity. Nor does solidarity of itself
imply indivisibility. (n)
Indivisibility as Distinguished from Solidarity

Indivisibility refers to the subject matter while solidarity refers to
the Tie between the parties.
Examples:
1. Joint divisible obligation – A and B are jointly liable to C for P10, 000.
2. Joint indivisible obligation – A and B are jointly liable to give C their car.
3. Solidary divisible obligation – A and B are solidarily liable to give C P10, 000.

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.
The solidary character of the obligation is not destroyed even if

the creditors and debtors are bound by different terms and
conditions. The solidarity is still preserved by recognizing in the
creditor the power of claiming from any or all debtors the
payment of the entire obligation.
Example:
A and B solidarily bound themselves to pay a total of P10, 000 to C, and D and E to
the following conditions. C’s share will be due at the end of the year; D will get his
share only after he passes the CPA exams and E will get his share only after he
painted the housebyof:Atty.
C. Joeffrey G. Pagdanganan 154
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)
ART. 1213. A solidary creditor cannot assign his rights without the consent
of the others.
Solidary Creditors May Do Useful Act; Not Prejudicial Acts –

A solidary creditor may do any act beneficial or useful to the others but he cannot act
prejudicial to them.
Example of Beneficial Acts –

To interrupt the running of prescription, the act of one solidary creditor in making a judicial demand
upon any of the solidary debtors is sufficient. (Art. 1155, NCC)
Example of Prejudicial Acts –

Should not be performed, otherwise, there will be liability for damages. However, in the case of
remission or condonation, the solidary
by :Atty. Joeffrey G.creditor is allowed to so remit, and the obligation is extinguished.
Pagdanganan 155
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.
Payment to Any of the Solidary Creditors
The rule is that the debtor may pay any one of the creditors. But
when a demand is made by any of the creditors, payment should
be made to him who made the demand, judicially or extra-
judicially.
Example
A is liable to B and C P5, 000. A may pay either B or C But if B made a
demand then payment should only be made to him. If A paid C, B is still
entitled to his share fromG.APagdanganan
by :Atty. Joeffrey in case C does not turn over to B his share. 156
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.
Liability of Solidary Creditor in case of Novation,

Compensation, Confusion or Remission –
When a creditor who executed any of these acts, it is logical that he is

liable to the otherby solidary creditors for their corresponding 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)
Creditor May Proceed Against Any Solidary Debtor –

In a solidary obligation, the creditor may proceed against any, some or all of
the solitary creditors simultaneously so long as it has not been fully
collected.
Example
A, B and C solidarily owe D the amount of P9, 000. D can collect from A or B or C alone
or from any two of them or all of them simultaneously. If demand is made on A, the
latter cannot require D to make a demand also on B and C or to include them as party
defendants as D has the right to proceed against any one of them.
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 to each. (1145a)
Effects of Payment by a Solidary Debtor –
Payment is one of the ways by which an obligation is extinguished
and consist in the delivery of the thing or the rendition of the
service which is the object of the obligation.
Example –
A, B and C are solidarily liable to D and E in the amount of P9, 000
due on Dec. 31. If both A and B offer to pay D on Dec. 31, the latter
may choose which offer to accept. If A pays the entire amount of
P9, 000 on Dec. 31, the obligation is extinguished.
The payment of A gives him the right of reimbursement from B

and C P3, 000 each with interest from the date of payment.
However, if C is insolvent, both A and B shall bear the insolvency in
proportion to their shares.
ART. 1218. Payment by a solidary debtor shall not entitle in to
reimbursement from his co-debtors if such payment is made after
the obligation has prescribed or become illegal. (n)
Effect of Payment After Obligation Has Prescribed or Become Illegal –
1. Prescription – is one where one acquires ownership and other rights through
the lapse of time in the manner and under the conditions laid down by law.
Example – A and B are solidarily indebted to C in the amount of P 10, 000. The debt
prescribed. If A paid the debt, he cannot collect form B his share of the debt. Neither
can A can recover from C.
2. Becomes Illegal – A and B are solidarily bound to deliver medical drugs to C.

the transaction of such medical drugs were later prohibited by law.
Notwithstanding the prohibition, B performed the obligation by delivering
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)
ART. 1220. The remission of the whole obligation obtained by one of the
solidary debtors, does not entitle him to reimbursement from his co-debtors.
Remission by Creditor –
1) If payment if made first, the remission is of no effect. There is no more to remit.
2) If remission is made prior to the payment and payment is made, then there is payment by
mistake.
3) If one of the solidary debtors obtained remission on the whole obligation, he is not
entitled to reimbursement from his co-debtors because remission is essentially gratuitous.
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
Rules in Case thing has Been Lost or Prestation Has Become Impossible –
1. If the thing is lost or has become impossible to

perform through a fortuitous event without the
fault of the debtor, the obligation is
extinguished.
Example:
A, B and C are solidarily bound to deliver a
determinate car to D. Without any fault on the part of
any one of the debtors, the car was lost through the
fortuitous event. The obligation is extinguished.
Rules in Case thing has Been Lost or Prestation Has Become Impossible –
2. If in the preceding paragraph, the car was lost through the

fault of anyone of the solidary debtors, anyone of them may
be held liable by D for the price of the car plus damages. The
debtors who did not any fault on the lost of the car have the
right to recover from the co-debtor who is at fault.
3. The solidary debtors are likewise liable even if the thing is lost
through fortuitous event if the loss occurs after anyone of the
solidary debtors has been in delay. The debtors, however who
were not in delay have the right to recover from their co-
debtors who was responsible due to his delay.

 ART. 1222. A solidary debtor may, in actions
filed by the creditor, avail himself of all defenses
which are derived from the nature of the
obligation and of those which are personal to
him, or pertain to his own share.
 With respect to those which personally belong

to the others, he may avail himself thereof only
as regards that part of the debt for which the
latter are responsible.
Defenses available to a Solidary Debtor –
The defenses available to the solidary debtors if the

creditor proceeds against him alone for the payment of
the entire obligation
1. The defenses derived from the nature of the obligation, such

as fraud prescription, remission illegality or absence of
consideration, payment or performance.
Example
A and B are solidarily liable to C in the among to P6, 000. The entire
debt was paid by d. in an action by C against A, the latter can raise the
defense of payment by virtue of which the obligation was extinguished.

Defenses available to a Solidary
Debtor –
2. Defenses personal to him or pertaining to his

own share, such as minority, insanity and vitiated
consent.

3. Defenses which are personal to others, such as
minority, insanity and vitiated consent.

 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)
Definition of Terms –
1. A divisible obligation is one the object of which in its delivery or

performance is capable of partial fulfillment.
Example:
A agreed to pay B P10, 000 in five monthly installment. The obligation of
A is divisible because it is payable in partial payments.
2. An indivisible obligation is one the object which in its delivery or

performance is not capable of partial fulfillment.
Example:
A agreed to deliver a determinate car to B on Dec. 31. This is an indivisible
obligation because it is not subject to partial performance.
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 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 consist. (1150)
ART. 1225. For the purposes of the preceding articles,

obligation 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, and 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)
Obligations Deemed Indivisible –
The general rule of determining the divisibility or indivisibility of

an obligation depend on the purpose of the obligation.
1. Obligation to give definite things
Example:
To give a particular house. Here the obligation is indivisible because of the
nature of the subject matter.

2. Obligations which are not susceptible of partial performance
Example:
A is obliged to sing a song. Here the obligation is indivisible by reason its
purpose which requires the performance of all the parts.
Obligations Deemed Indivisible
3. Obligation provided by law to be indivisible even if thing or service
physically divisible.
Example:
Taxes should be paid within a definite period. Although money is physically
divisible, the amount of tax payable must be delivered in Toto, not partially.
4. Obligations intended by the parties to be indivisible even if thing or

service is physically divisible.
Example:
The obligation of A to give P10, 000 to B on a certain date. Money is physically
divisible by the clear intention ere for A to deliver the amount at on time and
as a whole.
Obligations Deemed Divisible
1. Obligations which have for their object the execution of a certain number of days of
work.
Example –
A obliged himself to paint the house of B to be finished in 10 days. The obligation is divisible
because it will not be finished in one time.

2. Obligations which have for their object the accomplishment of work by metrical units.
Example:
A obliged himself to deliver 25 cubic meter of sand.
3. Obligations which by their nature are susceptible of partial performance
Example
The obligation of A to pay a debt of P10, 000 to B in ten (10) monthly installments.

Section 6 – Obligations with a Penal Code
ART. 1226. In obligations with a penal clause, the penalty

shall substitute the indemnity for damages and the payment of
interests in case of non-compliance, if there is no stipulation to
the contrary. Nevertheless, damages shall be paid if the obligor
refuses to pay the penalty or is guilty of fraud in the fulfillment
of the obligation.
The penalty may be enforced only when it is demandable in

accordance with the provisions of this Code. (1152a)
Meaning of Penal Clause –

An obligation with a penal clause is one which contains an accessory undertaking
to pay a previously stipulated
by :Atty. indemnity incase of breach. It is attached to
Purpose of a Penal Clause
1) To insure the performance of the obligation.
2) To substitute for indemnity for damages and

the payment of interest in case of non-
compliance of the principal obligation.
3) To penalize the obligor in case of breach of

the principal obligation.

ART. 1227. The debtor cannot exempt himself from the
performance of the obligation by paying the penalty, save in the
case where this right has been expressly reserved for him.
Neither can the creditor demand the fulfillment of the obligation

and the satisfaction of the penalty at the same time, unless this
right has been clearly granted him. However, if after the creditor
has decided to require the fulfillment of the obligation, the
performance thereof should become impossible without his fault,
the penalty may be enforced. (1153a)
Debtor Cannot Substitute Penalty For the Principal Obligation –

The general rule is that the debtor is not allowed to just pay the penalty instead of
fulfilling the obligation. He can do so if the right has been expressly reserved. The
reason is that if hebycan just
:Atty. pay,G.fulfillment
Joeffrey Pagdanganan of the obligation will be considered an 178
 ART. 1228. Proof of actual damages suffered
by the creditor is not necessary in order that the
penalty may be demanded.
 ART. 1229. The judge shall equitably reduce

the penalty when the principal obligation has
been partly or irregularly complied with by the
debtor. Even if there has been no performance,
the penalty may also be reduced by the courts if
it is iniquitous or unconscionable. (1154a)
When Penalty May be Reduced by the Court –
a) When the obligation has been partly

complied with by the debtor;
b) When the obligation has been irregularly

complied with by the debtor
c) When the penalty is iniquitous or

unconscionable, even if there has been no
performance at all.
ART. 1230. The nullity of the penal clause does not carry with it
that of the principal obligation.
The nullity of the principal obligation carries with it the penal

clause. (1155)

Effect of Nullity of Penal Clause –
The general principle that the accessory follows the principal. If only
the penal clause is void, the principal obligation remains valid and
demandable. The penal clause may be disregarded.
Example:
A agreed to sell merchandise to B. it is provided in their agreement that in case of
default, A will deliver a prohibited drug as penalty. Here, the obligation to sell
merchandise is valid by the
by :Atty. penalty
Joeffrey to deliver the prohibited drug is void. For failure of
G. Pagdanganan 181
Payment or Performance - Requisites
 Completeness
 Indivisibility
 Identity

Special Forms of Payment
 Dation in payment
 Payment by cession
 Application of Payment
 Tender of Payment and Consignation

Dation in payment

Payment by Cession

Dation in payment vs. Payment by
Cession

Application of payment

Tender of Payment and Consignation

Meaning of Loss Of The Thing Due
 It means that he ting which constitutes the object of the obligation

perishes or goes out of commerce or disappears. In such a way that its
existence is unknown or it cannot be recovered.
 The general rule is that if the thing to be delivered is determinate
and it is lost without the fault of the debtor or is lost through fortuitous
even pending delivery, the obligation is extinguished and the debtor
cannot be held liable.

The exceptions to this rule are:
 1. by stipulation or agreement of the parties;

 2. by provision of law;
 3. when the nature of the obligation requires the assumption of risk;
 4. when the thing to be delivered is generic or indeterminate.
 5. if the debtor is at fault;
 6. when the debt or a thing certain and determinate proceeds from a
crime.
 7. when the debtor has promised to deliver the same thing to two or
more persons who do not have the same interest.

 Art. 1263. In an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish the
obligation.
 Art. 1264. The courts shall determine whether, under the
circumstances, the partial loss of the object of the obligation is so
important as to extinguish the obligation.
 Art. 1265. Whenever the thing is lost in the possession of the
debtor, it shall be presumed that the loss was due to his fault, unless
there is proof to the contrary, and without prejudice to the provisions
of article 1165. This presumption does not apply in case of
earthquake, flood, storm, or other natural calamity. (1183a)

Thing Lost In Possession Of Debtor
▪ If the thing is lost while in the

possession of the debtor, the law
presumes that he ting was lost
through his fault. The presumption
of fault, however, does not apply
when the ting is lost due to
earthquake, flood or other natural
calamities.

 becomes legally or physically impossible without the fault of
the obligor. (1184a)
 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)
 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)

Effect Of Obligation Arising From Felony
 Obligation arising from felony or crime or if a person who was

convicted of the crime like of theft , was ordered by the court to
return the object to its owner is liable for the payment of its value
if such object is lost through whatever case.
 The only exception to this rules when the person who should
receive the object unjustifiably refused to accept it and the object
is subsequently lost due to fortuitous event, in which case the
obligation is extinguished.

 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)

When Creditor Acquires Debtor’s Right
Of Action
 By reason of the loss of the thing, the creditor acquire all

the rights of actions which a debtor may have against at
third person.

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)

Condonation or Remission Defined
 Remission is an act of liberality by which

the obligee, without receiving any price or
equivalent, renounces the enforcement of
the obligation, as a result his right against the
debtor. (4 Sanchez Roman 422)

Requisites of Condonations OR
Remissions
 it must be gratuitous;
 it must be accepted by the debtor;
 the parties must have capacity;
 must not be inofficious; and
 if made expressly, it must comply with the forms

Effect of inofficious Remission
 While a person may make donations, no one can give more

than that which he can give by a testamentary will, otherwise, the
excess shall be inofficious and shall be reduced by the Court
accordingly.
 Like for example, a part of the testator’s property called

legitimate cannot be disposed of because the law has reserved it
from certain heirs called the compulsory heirs.

 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 the waiver it should be claimed to be
inofficious, the debtor and his heirs may uphold it by proving that the
delivery of the document was made in virtue of payment of the debt.
(1188)
 ART. 1271. Whenever the private document in which the debt
appears is found in the possession of the debtor, it shall be presumed
that the creditor delivered it voluntarily, unless the contrary is
proved. (1189)

Presumption In Case Document Found In
the Possession Of Debtor
 If the document is found in the hands of the debtor and it is not
known how he came into possession of the same, the presumption is
that there was payment by virtue of the payment of the debt. Or it
was voluntarily delivered to the debtor, which gives rise to the
remission of the obligation.
 Example, Keisha owes Nathan P10, 000 evidenced by a
promissory note. The note as signed by Keisha was given to Nathan.
If the promissory note is voluntarily delivered to Keisha, the
presumption is that the debt must have been paid by Keisha.
 it is known that Keisha has not yet paid Nathan, it must be
presumed that the obligation has been remitted. Suppose it is not
known how Keisha came into possession of the promissory note, the
presumption is that it was voluntarily delivered by Nathan unless
Nathan proves to the contrary.

ART. 1273. The renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter shall leave the former in
forc. (1190).
Effect of Renunciation Of the Principal
Debt
 The above provision follows the rule that the accessory follows the
principal. The accessory cannot exist without the principal obligation.
 Example, Arvin owes Nathan P10, 000 with Keisha as guarantor. The
principal debt here is the P10, 000 while the accessory obligation is the
guaranty of Keisha. The remission of the debt of Arvin by Nathan
extinguishes the guaranty of Keisha. But if only the guaranty of Keisha is
condoned, the obligation of Arvin shall remain in force.

Pledge, Defined
 Pledge is a contract by virtue of which the debtor delivers to the
creditor or to a third person a movable or instrument evidencing
incorporeal rights for the purpose of securing the fulfillment of a
principal obligation with the understanding that when the obligation
is fulfilled, the thing delivered shall be returned with all its fruits and
accessions.
ART. 1274. It is presumed that the accessory obligation of pledge has been remitted when the thing pledged, after
its delivery to the creditor, is found in the possession of the debtor, or of a third person who owns the thing. (1191a)

Presumption In case Thing in Possession of Debtor
If the thing pledged is found in the hands of debtor or the third person, only the accessory obligation of
pledge is presumed remitted, not the obligation itself.
Section 4. – Confusion or Merger of

Rights

ART. 1275. The obligation is extinguished from the time the
characters or creditor and debtor are merged in the same person.
(1192a)

Meaning of Confusion or Merger
 Confusion is the meeting in one person

of the qualities of creditor and debtor with
respect to the same obligation. (4Sanchez
Roman 421)

Requisites of A Valid Confusion
1. the merger of the qualities of creditor and debtor must be in the same person;
2. it must take place in the person of either the principal debtor and principal
creditor; and
3. it must be complete, clear and definite; and
4. the very obligation must be the same.
Example, Keisha issued a promissory note for P10, 000 in
favor of Nathan payable 30 days after sight. Before the maturity of the note,
Nathan indorsed it to Arvin; Arvin indorsed it to Mary; Mary indorsed it to
Keisha. The obligation of Keisha to Nathan is extinguished because there is
here a merger of the qualities of the debtor and creditor in one and the same
person with respect to one and the same obligation cannot demand and
collect payment from himself.
ART. 1276. Merger which takes place in the person of the principal debtor
or creditor benefits the guarantors. Confusion which takes place in the person
Effect of Merger
of any of the latter does not extinguish the obligation. (1193)
 This article reiterates the principles established in Articles 1176, 1274,

NCC, that accessory follows the principal.
 The extinguishment of the principal obligation extinguishes the
accessory obligation; but the extinguishment of the accessory does not
extinguish the principal obligation
 Example, Keisha obtains P10, 000 loan from Nathan which loan was
guaranteed by Arvin. Later, Nathan assigned the credit to Mary, who in
turn assigned it to Keisha. The principal debt is extinguished and Arvin
is released from his obligation as guarantor. If, in this same example,
the credit was assigned by Nathan to Mary and Mary to Arvin. The
contract of guaranty is extinguished but the principal obligations
remains. Keisha has now the obligation to pay Arvin.

ART. 1277. Confusion does not extinguish a joint obligation except as
Effect of Merger in Joint Obligation
regards the share corresponding to the creditor or debtor in whom the two
characters concur. (1194)
 In a joint obligation, the debts are distinct and separate

from each other. In case there is merger in a joint
obligation, it affects only the share corresponding to
the creditor or debtor in whom the two characters
concur. The co-debtor will not owe his corresponding
share to this former joint co-debtor.
 Example, Keisha, Mary and Arvin are jointly indebted to
Nathan in the amount of P15, 000. Nathan assigns his
credit to Ian who in turn assigned it to Keisha. There is
here a merger between Keisha and Nathan but Mary
and Arvin would now owe Keisha P5, 000 each.

Section 5. Compensation
 ART. 1278. Compensation shall take

place when two persons, in their own right
are creditors and debtors of each other.
(1195)

Compensation,Defined
Compensation shall take place when two persons, in their own rights are creditors
and debtors of each other.
Compensation Distinguished
From Confusion
 as to number of persons – in compensation there must be two
persons; in confusion, there is only one person in whom the quality
of creditor and debtor is merged;
 as to number of obligation – in compensation there must be two
obligations; in confusion there is only one obligation.

Kinds of Compensation
 1. as to cause
 a. Legal – takes effect by operation of law provided all
the requisites prescribed by law are present.
 b. Voluntarily – takes place by virtue of the agreement of
the parties.
 c. Judicial – takes place only through court orders.
 2. as to effect
 a. Total – when both debts are completely extinguished
because the debt are the same amount
 b. Partial – the debts are not the same amount hence after
compensation, a balance remains outstanding.


ART. 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be
at the same time a principal creditor of the their;
(2) That both debts consist in a sum of money, or if the things due
are consumable, they be the same kind, and also of the same quality
if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention of controversy,
commenced by third persons and communicated in due time to the
debtor. (1196)

Requisites of a Proper Compensation or
Legal Compensation
1. the parties are principal creditor and principal debtor of each other;
Example, Arvin owes Nathan P10, 000 payable on Dec. 20, 1999. Nathan on the other
hand owes Arvin P10, 000 also due and payable on Dec. 30, 1999. These two obligation
become due on Dec. 30, 1999 compensation takes place because both Arvin and Nathan are
principal creditor and principal debtor of each other.
2. both debts consists in a sum of money or of consumable things of the same kind and quality;
Example, Arvin obliged himself to deliver to Nathan 100 sacks of rice on October 30,
1999. Nathan, on the other hand, has an obligation to deliver 100 sacks of rice to Arvin on
October 20, 1999. There is compensation because they are consisting of consumable things.
3. the two debts are due and demandable;
Example, Keisha owes Maya P10, 000 payable on October 30, 1999. Maya owes Keisha
P10, 000 payable also on October 30, 1999. There is compensation when the obligation
becomes due on October 30, 1999.

4. the two debts liquidated; and
The liquidated means that the amount of debt has already been fixed and determined, while the word demandable means when it is due;
5. there be no retention or controversy means a third person who is claiming to be a creditor.
Example, Arvin woes Ian P10, 000 and Ian owes Arvin P10, 000 but Arvin credit of P10, 000 has been garnished by Keisha who claims to be an unpaid creditor of Arvin.
Ian has been duly notified of the controversy. Any possible compensation is in the meantime suspended. If Keisha wins her claim, there can be no compensation. If she
loses, the controversy is resolved, and then compensation can take place.

ART. 1280. Notwithstanding the provision of the preceding
article, the guarantor may set up compensation as regards
what the creditor may owe the principal debtor
Guarantor May Set Up

Compensation
 This is an exception to Article 1279, part. 1 because the article allows setting
up compensation as regard what the creditor may owe to the principal debtor.
 Example, Arvin owes Nathan P10, 000. Maya is the guarantor of Arvin.
Nathan owes Arvin P10, 000. When Nathan sues Arvin for P4, 000. When Nathan
sues Arvin and Arvin cannot pay, Maya will be liable for only P6, 000 because he
can set the P4, 000 credit of Arvin as the basis of partial compensation.

ART. 1281. Compensation may be total or partial. When the two
debts are of the same amount, there is a total compensation.
Kinds of Compensation
 Total compensation is when the amount due are equal or of the same
amount, hence both obligations are extinguished.
 Example, Keisha is indebted to Maya the amount of P10, 000 due on Dec.
19, 1999. Maya is likewise indebted to Keisha in the amount of P10, 000 due on
Dec. 19, 1999. There is here a total compensation; hence both debts will be
extinguished.

Partial compensation is when the amount are not the same after compensation took place, there is a
balance remains.
Example, Keisha owes Maya P10, 000 due on Dec. 19, 2009. On the other hand, Maya owes the due
date arrives because a balance of P4, 000 will remain after compensation takes place.
ART. 1282. The parties may agree upon the compensation of debts
which are not yet due. (n)
Example, Keisha owes Maya P10, 000 due on Nov. 30, 2001. On the
other hand Maya owes Keisha P10, 000 due on Dec. 19, 2001.
Generally compensation the parties there may be compensation
cannot take place comes Nov. 30, 2001 because Maya’s debt is not yet
due. However, by voluntary agreement between
ART. 1283. If one of the parties to a suit over an obligation has a claim for damages against
the other, the former may set it off by providing his right to said damages and the amount
thereof. (N)
Judicial Compensation
A judicial compensation is one whereby a money debt of a person
may be allowed by the court to be compensated with a claim of damages
by another.
Example, X owes Y P1, 000. When Y demanded payment, X failed to
pay. In anger, Y damaged the property of X to the extend of P800. X can
set off the obligation of Y to pay him damages in the amount of P800
against his debt of P1, 000.

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.
Compensation Of Rescissible or Voidable Debts

Rescissible and voidable obligations are valid until they are judicially rescinded or avoided
and prior rescission or annulment, the debts may be compensated.
Example, A owes B P 10, 000. Subsequently, A, through fraud was able to make B sign a
promissory note that B is indebted to A for the same amount. The debt of A is valid, but that of B
is voidable. Before the debt of B is nullified, both debts may be compensated against each other
if all the requisites for legal compensation are present.
If suppose the debt of B is later annulled by the court, A is still liable considering
compensation had already taken place because the effect of annulment is retroactive, it is as if
there was no compensation.
ART. 1285. The debtor who has consented to the assignment of rights
made by a creditor in favor of a third person, cannot set up against the
assignee the compensation which would pertain to him against the assignor,
unless the assignor was notified by the debtor at the time he gave his
consent, that he reserve his right to the compensation.
If the creditor communicated the cession to him but the debtor did not
consent thereto, the latter may set up the compensation of debts previous to
the cession , but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may

set up the compensation of all credits prior to the same and also later ones
until he had knowledge of the assignment.
When Compensation Has Taken Place
BEFORE Assignment
If an extinguished obligation has been assigned by the creditor to third person, the debtor can raise the
defense of compensation with respect to the debt. The remedy of the assignee is against the assignor.
Example, A owes B P5, 000 due yesterday. B owes A P3, 000 due also yesterday. Both debts are
extinguished up to amount of P3, 000. Hence, A still owes B P2, 000 today. If B assigns his right to C, latter
can collect only P2, 000 from A. However, if A gave his consent to the assignment before it was made on will
be liable to C for P5, 000 but he can still collect the P2, 000 owed by B. It is as if no compensation took place.
Where Compensation Has Taken Place
AFTER Assignment
There are three cases of compensation which take place after

an assignment of rights made by the creditor. They are:
 Assignment with consent of debtor
Example, A owes B P5, 000 due Dec. 19. B owes A P3, 000 due
Dec. 19. B assigned his right to C, the assignee, the compensation
which would pertain to him against B, the assignor. A is still liable
to C for P5, 000 but he can still collect the P2, 000 debt from B.
However, if A while consenting to the assignment, reserved his
right to the compensation, he would be liable only P2, 000 to C.

 Assignment with the knowledge but without the consent of debtor
Example, A owes B P1, 000 due Dec. 1. B owes A P2, 000 Dec. 10. A owes B P1,
000 due Dec. 15. A assigned his right to C on Dec. 12. A notified B but the latter
did not give his consent to the assignment, how much can C collect from B? B
can set up the compensation of debts on Dec. 10 which was before the cession
on Dec. 12. There being partial compensation, the assignment is valid only up to
the amount of P1, 000 but B cannot raise the defense of compensation with
respect to the debt of A due on Dec. 15 which has not yet matured. So, on Dec.
12, B is liable to C for P1, 000. Come Dec. 15, A will liable for his debt of P1, 000 to
B.
 Assignment without the knowledge of the debtor
Example, in the preceding example, let us suppose that the assignment was
made without the knowledge of B who learned of the assignment only on Nov.
16. In this case, B can set up the compensation of credits before and after the
assignment. The crucial time is when B acquired knowledge of the assignment
and not the date of the assignment. If B learned of the assignment after the
debts had already matured, he can raise the defense of compensation,
otherwise, he cannot.

ART. 1286. Compensation takes place by operation of law, even thought the
debts may be payable at different places, but there shall be an indemnity for
expenses of exchange or transportation to the place of payment. (1199a)
Compensation Where Debts Payable At Different Places
 This legal compensation does not refer to the difference in the

value of the things in their respective places but to the expenses of
monetary exchange and expenses of monetary exchange and
expenses in transportation. Once these expenses are liquidated,
the debts also become compensated. The indemnity shall be paid
by the person who raises the defense of compensation.
Example, Keisha owes Maya $1, 000 payable in New York. Maya
owes Keisha P38, 000(equivalent amount) payable in Manila. If A
claim compensation, he must pay for the expenses of exchange.

ART. 1287. Compensation shall not be proper when one of the
debts arises from a depositum or from the obligations of a
depository or of a bailee in commodatum.
Neither can compensation be set up against a creditor who has

a claim for support due by gratuitous title, without prejudice to the
provision of paragraph 2 of article 301.
ART. 1288. Neither shall there be compensation if one of the

debts consists in civil liability arising from a penal clause.

NOVATION

PART III
General Provisions on Contracts
Learning Objectives:
After studying this lesson, you should:
1. know the definition of contract

2. learn the different classifications of contracts;
3. know the elements of contracts; and
4. that contracts take effect only between parties and its exceptions.
The classifications of contracts summarizes those types of contracts that

may be freely agreed upon as long as they are not contrary to law, morals, good
customs, public order or public policy.
ART. 1305. A contract is a meeting of minds between two persons whereby

one binds himself, with respect to the other, to give something or to render
service. (1254a)

Contracts, Defined
 The above article defines the term Contract.

In a contract, one or more persons bind
themselves with respect to another or
reciprocally, to the fulfillment of a
presentation to give, to do or not to do.

Elements of Contract:
 1. Essential elements – those elements without which there can

be no valid contract. This element are consent, object or
subject matter and cause or consideration
 2. Natural elements – those elements which are found in a

contract by its nature and presumed by law to exist, such as
Warranty of hidden defects or eviction in contract of sale.
 3. Accidental elements - those which exist by virtue of an

agreement for the purpose of expanding, limiting, or modifying a
contract. Such accidental elements are condition, clauses, terms,
modes of payment, or penalties.
Stages of A Contract:
 1. Preparatory or conception – process of formation such as

bargaining, negotiation to arrive at a define contract.
 2. Perfection or birth – there is now a meeting of minds to

arrive at a definite agreement as to the subject matter, cause or
consideration, terms and conditions of contract.
 3. Consumption or death – which is the fulfillment or

performance of the terms and conditions agreed upon in the
contract may be said to have been fully accomplished or
executed.

Characteristics of Contracts:
 1. Freedom to contract – they may establish terms and

conditions as they may deem convenient.
 2. Relativity – it is binding only upon the parties and their

successors.
 3. Obligatory force – it constitutes the law as between the

parties.
 4. Mutuality – its validity and performance cannot be left to

the will of only one of the parties.

Classification of A Contract: (FROM)
 1. As to perfection
a. Consensual – one which is perfected by mere consent (Art. 1315
b. Real Contract – perfected by mere consent and by the delivery of
the object or subject matter. Ex. Deposit, pledge, or commodatum.
 2. As to dependence to other contract.

a. Principal – one which can stand alone. Ex. A contract of sale,
lease.
b. Accessory – those which are dependent upon another contract.
Ex. Contract of mortgage, pledge of guaranty.
c. Preparatory – those which is created in order that a future
transaction or contract may be entered into by the parties. Ex.
Contract of partnership or agency.

 3. According to name or designation
a. Nominate – one which has particular name or designation such as sale,
agency, etc.
b. Innominate – those without particular name.
 4. According to the nature of obligation
a. Unilateral – where only one has an obligation to perform. Ex. Contract of
donation, commodatum.
b. Bilateral – where both parties have reciprocal obligation to perform. Ex.
Sale.
 5. According to risk involved
a. Commutative - where there is an exchange of values, such as lease.
b. Aleatory - one which the fulfillment of the obligation depends upon
chance. Ex. Contract of insurance.
 6. According to cause
a. Onerous – one which imposes valuable consideration such as sale,
mortgage.
b. Gratuitous – one which one of the parties does not receive any
valuable consideration, such as commodatum.
 7. According to form
a. Oral – by word of mouth of the parties
b. Written – the agreement which is reduced in writing which
may be public or private or private document
ART. 1306. The contracting parties may establish such

stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals,
good customs, public order, or public policy. (1255a)

Contract Binds by Both Parties
ART. 1308. The contract must bind both contracting

parties; its validity or compliance cannot be left to the will of one
of them. (1256a)

Contracts entered by and between the parties mush bind
both parties in order that it can be enforced against each other. This is
also known as “mutuality of contract”. Hence, its validity or
compliance cannot be left to the will of one of them. This principle is
based on the essential equality of the parties. It is elementary rule
that no party can renounce or violate the law of the contract without
the consent of the other. (11 Manresa 380)
Example, Keisha and Laura entered into a contract to sell

whereby Keisha binds herself to sell her only parcel of land to Laura if
Keisha decides to leave for States. The contract is void because the
fulfillment of the condition depends on the will of Keisha.

 ART. 1309. The determination of the performance
may be left to a third person, whose decision shall
not be binding until it has been made known to both
contracting parties.
 ART. 1310. The determination shall not be obligatory

if it is evidently inequitable. In such case, the courts
shall decide what is equitable under the
circumstances.

Determination of Performance by
Third Person
As a rule, compliance with a contract cannot be left to the will of

one of the contracting parties. However, the determination of its
performance may be left to a third person after it has been made known
to both contracting parties. Provided, further, the parties are not bound
by the determination if it is evidently inequitable or unjust when the third
person acted in bad faith or by mistake, the courts shall decide what is
equitable under the circumstances.
Example, Keisha sold her parcel of land to Laura. It was agreed
that Maya, a real estate appraiser would be the one to determine the
reasonable price of the land. Maya, then, fixed the price after considering
the factors affecting the value of the land, and informing both
contracting party that the decision is just and suitable. If the decision
made by Maya is manifestly inequitable, the court may be called upon to
decide what is equitable.
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 perceived from the decedent.
If a contact should contain some stipulation in favor
of 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)

Cases Where Third person May Be
Affected By a Contract
1. In determining the performance of both parties (Art. 1309).
2. In contracts containing a stipulation in favor of a third person (Art.

1311).
3. In contracts creating real rights (Art. 1312).
4. In contracts entered into to defraud creditor (Art. 1313).
5. In contracts which have been violated at the inducement of the third
person (Art. 314).
Example, Keisha mortgaged her parcel of land in favor of Laura as
collateral for her debt. The mortgage is duly registered. Later on, Keisha
sold the same land to Nathan. In this case, Nathan bought the land subject
to the mortgage constituted thereon. Nathan, although a stranger in the
mortgage, being a real right follows the property on the right of Laura to the
mortgage.

Forms 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)
Meaning of Form of Contracts
 Forms of a contract refer to the manner in

which a contract is executed or manifested

Rules Regarding Form of Contracts
General Rule – Contracts are binding and

therefore, enforceable reciprocally by the
contracting parties, whatever may be the form
in which the contact has been entered into to
provided all the three essential requisites
(consent, object, cause) for their validity are
present.

Reformation of Instruments
Art. 1359. When, there having been a meeting of the minds

of the parties to a contract, their true intention is not expressed in
the instrument purporting to embody the agreement, by reason of
mistake, fraud, inequitable conduct or accident, one of the parties
may ask for the reformation of the instrument to the end that such
true intention may be expressed.
If mistake, fraud, inequitable conduct, or accident has

prevented a meeting of the minds of the parties, the proper
remedy is not reformation of the instrument but annulment of the
contract.

Meaning of Reformation
Reformation is that remedy by means

of which a written instrument is amended or
rectified so as to express or conform to the
real agreement or intention of the parties
when by reason of mistake, fraud, inequitable
conduct, or accident the instrument fails to
express such an agreement or intention.

Requisites of Reformation
 1. There is a meeting of the minds of the parties

to the contract;
 2. The written instrument does not express the

true agreement or intention of the parties;
 3.The failure to express the true intention is

due to mistake, fraud, inequitable conduct or
accident;
 4. The facts upon which relief by way of reformation of the
instrument is sought are put in issue by the pleadings; and
 5. There is clear and convincing evidence of the mistake,

fraud, inequitable conduct or accident.
Example, Arvin sold his land to Ryan. It was greed that

the sale will include all the improvements. However, the
contract was signed by the parties, states that the land is
being sold excluding the improvements thereon. In this
case, the remedy is reformation, because there has been a
meeting of minds.

Cases When Reformation Not Allowed
 1. Simple donation inter vivos where no condition is imposed

– Donation is an act of liberality whereby a person disposes
gratuitously of a thing or right in favor of another, who
accepts it. (Art. 725). Donation is strictly personal andfree
act so that if the intend of the donor that the donation will
take effect during his lifetime, it is a donation inter vivos,
while the opposite of inter vivos is donation mortis causa
which takes effect after the donor’s death.
 2. Wills – A will is an act whereby a person is permitted with
a formalities prescribed by law to control to a certain degree
the disposition of his estate, to take effect after his death.

 3.When the real agreement is void – If the real
agreement is void, there is nothing to reform.
 4. When one party ahs brought an action to

enforce the instrument – (Art. 1367) When a party
brings an action to enforce the contract, he
admits its validity and that it expresses the true
intention of the parties. The bringing of the
action is thus inconsistent with reformation

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.
 Ifthe words appear to be contrary to the

evident intention of the parties, the latter shall prevail
over the former. (1281)

Meaning of Interpretation of a contract
 Interpretation of a contract is the

determination of the meaning of the terms of word
used by the parties in their contact.
If the terms of a contract are clear and
unequivocal, the parties are bound thereby
according to the literal sense of their stipulations.
Example, a contract was executed by A and B,
the contract recites that is a sale of land belongs to A
for P500. The terms of the contract are clear and it
does not appear that the intention of the parties is
contrary to the literal meaning of said terms
Cause of Contracts
Art. 1350. In onerous contracts the

cause is understood to be, for each
contracting party, the prestation or promise
of a thing or service by the other; in
remuneratory ones, the service or benefit
which is remunerated; and in contracts of
pure beneficence, the mere liberality of the
benefactor. (1274)
Meaning of Cause
Cause is the essential or more proximate

purpose which the contracting parties have in
view at the time of entering into a contract.
(8Manresa697)
 It is the Civil Code term for

consideration in Anglo American or Common
Law.
Classification of Contracts According
to Cause
 1. ONEROUS – the cause of which for each

contracting parties is the pre-station or promise of a
thing or service of the other. Ex. Sale, lease of things.
 2. REMUNERATORY - the cause is the service or
benefit which is remunerated. Ex. A rendered service
as the lawyer-counsel of B who agreed to pay P10,
000 for said services.
 3. GRATUTIOUS – the cause which is the mere
liberality of the benefactor or giver. Ex. X donated a
parcel of land to Y. The cause is the liberality of X, the
done or benefactor.
 Art.1352. Contracts without cause, or with
unlawful cause, produce no effect whatever. The
cause is unlawful if it is contrary to law, morals,
good customs, public order or public policy. (1275a)
 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)

Requisites of Cause
 1. it must exist at the time the contract is

entered into. (Art. 1352)
 2. it must be lawful; (Ibid) and
 3. it must be true or real. (Art 1353)

Effect of Absence of Cause
 A contract without cause or with an unlawful

cause, according to this article, produces no effect
whatever. Like, for example, an absolutely
simulated contract produces no effect because
there is no cause at all.

Effect of Inadequacy of Cause
Inadequacy of cause does not invalidate

a contact. (Art. 1355). Illegality of cause implies
that there is a cause but the same is unlawful or
illegal. By falsity of Cause is meant that the
contract states a valid consideration but such
statement is not true

PART IV
DEFECTIVE CONTRACTS
There are four kinds of defective contracts:

 1. Rescissible contracts (Chapter 6);
 2. Voidable contracts (Chapter 7);
 3. Unenforceable Contracts (Chapter 8); and
 4. Void or inexistent contracts (Chapter 9)

Rescissible contracts
 Contracts are valid because all the

essential requisites of a contract exist but by
reason of injury or damage to one of the parties
or to third persons, such as creditors, the
contract may be rescinded.
Art. 1380. Contracts validly agreed upon

may be rescinded in the cases established by
law. (1290) by :Atty. Joeffrey G. Pagdanganan 262
Meaning of Rescission
Rescissionis a remedy granted by law to

the contracting parties and sometimes even to
third person in order to secure reparation of
damages caused them by a valid contract, by
means of the restoration of things to their
condition in which they were prior to the
celebration of said contract. (8Manresa 748)

Requisites of Rescission
 1. The contract must be validly agreed upon;
 2. There must be lesion on pecuniary prejudice
to one of the parties or to a third person;
 3. The rescission must be based upon a case
especially provided by law;
 4. There must be no other legal remedy to
obtain reparation for the damage;

 5. The party asking for rescission must be able to
return what he is obliged to restore by reason of
the contract.
 6. The object of the contract must not legally be in

the possession of third person who did not act in
bad faith;
 7. The period for filing the action for rescission

must not have prescribed

 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)

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.
Meaning of Voidable Contracts
Voidable or annullable contracts are

those which possess all the essential
requisites of valid contract but one of the
parties is incapable of giving consent, or
consent is vitiate by mistake, violence,
intimidation, undue influence of fraud.

Meaning of Annulment
 Annulment is a remedy granted by law, for

reason of public interest, for the declaration
of the inefficacy of a contract based on defect
or vice in the consent of one of the
contracting parties in order to restore them
to their original position in which there were
before contract was executed.

Characteristics of Voidable Contracts
 1. The defect in the contract consists in the vitiation of consent

of one of the contracting parties;
 2. The contract is binding until annulled by a competent court;
 3. The contract is susceptible of convalidation by ratification or

prescription;
 4. The defect or voidable character of the contract cannot be

invoked by third persons.

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)
Period for Filing Action for Annulment
The period within which the action for annulment

shall be brought within four(4) years from:
 1. The time the intimidation, violence or undue

influence ceases;
 2. The time of the discovery of mistake or fraud;
and
 3. The time guardianship ceases, in cases of
contracts entered into by incapacipated
persons. by :Atty. Joeffrey G. Pagdanganan 272
Unenforceable Contracts
Art. 1403. The following contracts are unenforceable, unless

they are ratified:
(1) Those entered into in the name of another person by one
who has been given no authority or legal representation, or who has
acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as
set forth in this number. In the following cases an agreement
hereafter made shall be unenforceable by action, unless the same, or
some note or memorandum, thereof, be in writing, and subscribed
by the party charged, or by his agent; evidence, therefore, of the
agreement cannot be received without the writing, or a secondary
evidence of its contents:

(a) An agreement that by its terms is not
to be performed within a year from the making
thereof;
(b) A special promise to answer for the

debt, default, or miscarriage of another;
(c)An agreement made in consideration

of marriage, other than a mutual promise to
marry; by :Atty. Joeffrey G. Pagdanganan 274
(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.
Meaning of Unenforceable Contracts
 Unenforceable contracts are those that

cannot be enforced in court or sued upon by
reason of defects provide by law until unless they
are ratified according to law.
 They are contracts either entered into

without or in excess of authority or do not comply
with the statue of frauds or both of the contracting
parties do not possess the required legal capacity.
Classes of Unenforceable Contracts
 1. Those entered into the same of

another person by one without authority or in
excess of his authority;
 2. Those which do not comply with the

Statue of Frauds; and
3. Those where both parties are

incapable of giving consent
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.
Void or 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.

Meaning of Void or Inexistent
Contracts
1. it cannot be ratified. (Art 1409)

2. the right to set up the defense of
illegality cannot be waived.
3. the action or defense for the declaration
of its inexistence does not prescribed. (art. 1410)
4. the defense of illegality is not available
to third persons whose interests are not
directly affected; and
5. it cannot give rise to a valid contract.
(Art. 1422) by :Atty. Joeffrey G. Pagdanganan 281
Instances of Void or Inexistence
Contract
There is no need for a detail discussion
of these different kinds of void inexistent
contracts considering that they have been
discussed in previous chapters of this book.
 Void of inexistent contracts do not

prescribe. Mere lapse of time cannot give
effect to contracts which are null and void.

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)
Meaning of Pari Delicto
Pari Delicto means both parties are

equally at fault or are equally guilty. The
principle of pari delicto, means that when the
defect of avoid contracts consists in the
illegality of the cause or object f the contract
and both parties are at fault or in a pari
delicto, the law refuse them every remedy, or
the parties have no action against each other.

Illegal contract with Criminal Offense
 1. When both parties are in pari delicto – Rules

 a. the parties shall have no action against
each other;
 b. both shall be prosecuted; and
 c. the things of the price of the contract,
shall be confiscated in favor of the government.
 2. Where only one party is guilty.
 The innocent one or less guilty may claim
what he has given and shall not be bound to
comply with his promise
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)

Effect of Illegal Terms in a Contract
Art. 1420. In case of a divisible contract, if

the illegal terms can be separated from the legal
ones, the latter may be enforced.
In case a contract containing an illegal or

legal terms, the law allows the legal terms to be
enforced if it can be enforced if it can be
separated from the illegal ones.
Persons Entitled to Raise Defense of
Illegality or Nullity
As general rule, contracts bind only the

contracting parties, their heirs or assigns.
Corollary to this rule, the illegality of a contract
maybe set up as a defense only by contracting
parties or by parties whose interest are affect by
the contracts as a defense

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PART I – INTRODUCTION TO LAW AND BUSINESS LAW

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▪ 1. Definition of Law and Business Law

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In the preliminaries, the sight of a human being in his

The instructions that a person will learn, result to that

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The infinite truth and infinite good is infinite beauty of God.

The laws that contained the instructions of God given to us

“A RULE OF CONDUCT , JUST AND OBLIGATORY

Edgardo Paras defined Law as “an ordinance of reason

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 Meaning any action, things, dictate of reason if

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 That is, made known to those who are expected to

3. JUST and OBLIGATORY

 Treatment of Law should be equal, regardless of sex, creed,

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 4. FOR THE COMMON OBSERVANCE and

 The application of law should not be titled or

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 It consists of legal rights by a competent authority. In the

 The fundamental law that governs a nation in its

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 The fundamental law that governs a nation in its

 Judicial decisions or interpreting the laws or the Constitution shall

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 4. JUDICIAL DECISIONS OR JURISPRUDENCE

 Thus, our country adhere to the Doctrine of Stare

 It consists of those habits and practices which through

 To add, the principle of justice and equity,

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▪ It is formally promulgated by God, revealed or divulged

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▪ Promulgated impliedly in our conscience and body. It is

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THIS CAN BE CLASSIFIED INTO:

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 A. GENERAL or PUBLIC LAW

It includes the following:

▪ 1. International Law – consists of those rules and principles which

▪ 2. Constitutional Law It simply governs the relations between the

GENERAL or PUBLIC LAW

 3. Administrative Law – it fixes the organization and determines the

 4. Political Law – deals with the organization and operation of the

 5. Criminal Law – guaranties the coercive power of the law so that it

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 B. INDIVIDUAL or PRIVATE LAW

▪ Those law which govern the private relation person.

It includes the following:

 INDIVIDUAL or PRIVATE LAW

▪ 2. Commercial Law – defined as a whole body of substantial

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 INDIVIDUAL or PRIVATE LAW

▪ 3. Procedural Law – defined as the branch of law which

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 1. The New Civil Code of the Philippines – the

▪ A civil code is a compilation of existing Civil Laws,

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