Obligations and Contracts: Atty. Jad S. Estopa

OBLIGATIONS AND
CONTRACTS
ATTY. JAD S. ESTOPA
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.
1. 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.
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 -
Mario bought laptop from Luigi but Mario did not pay
the laptop. If after demand, Mario still did not pay,
Luigi can sue Mario in Court either to demand payment
or for recovery of the refrigerator.
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
To give, To
Debtor or Creditor or
do or not to
Obligor Obligee
do
Illustration:
Mario enters into a contract of sale with Luigi who
paid the purchase of a Asus laptop. Mario did not
deliver the laptop. Mario is the passive subject or
debtor and Luigi is the active subject or creditor. The
object or prestation is the Asus laptop and the
obligation to deliver is the legal tie or the vinculum
juris which binds Mario and Luigi.
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 Asus laptop.
On the other hand, if Mario, delivered the Asus laptop

and Luigi did not pay, then Luigi becomes the debtor who
is bound to pay while Mario is the creditor who has the
right to demand the prestation.
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 obligations while not all obligations are
contracts.
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; andas 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)
□
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 Gaya as the lessee and Tito 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
Solutio Indebiti (Payment by mistake)
.
1
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 Pi, ooo.oo. By mistake, Arvin paid P2, 000.00. Ian has the
obligation to return the Pi, 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 enricn himself at the
expense of another.
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 rault 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 of negligence attributable to

the offended;
• 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.
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 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 Quasidelict 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.
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. sugarcane, vegetables, rice.
□ Civil - derived by virtue of juridical relations. E.g. rents of a
building; prices of leases of lands and other similar income.
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.
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
an action to have the fence remove at the expense of A.
ART. 1169. Those oblige to_deliyer 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 -
Gaya obliged herself to deliver a determinate horse to Tito on
June 20. this year. Gaya failed to delivered on the agreed date, Is
Gaya already on delay on June 20, only when Tito makes a
judicial or extra-judicial demand and from such date of
demand when Gaya is on default or delay.
However, there are instances when the demand by
the Creditor is not necessary to place the debtor on
delay:
i. 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, Gaya binds herself to sew
the wedding gown of Maya to be used by the latter on
her wedding date. Gaya did not deliver the wedding
gown on the date agreed upon. Even without demand,
Gaya 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 whoin 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 king 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)
Delay (Mora) - like when there has been judicial or
extrajudicial demand and the debtor does not comply
his obligation, delay will occur.
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.
Delay (Mora) - like when there has been judicial or
extrajudicial demand and the debtor does not comply
his obligation, delay will occur.
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.
u8g)
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
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)
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 Diet. P. 1131)
Kinds of Damages
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 plaintiffs business standing or
commercial credit.
Kinds of Damages
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 - ther 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.
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 even - is an event which cannot be foreseen which
though foreseen is inevitable.
Fortuitous event proper are acts of God such as volcanic

eruption, earthquake, lightning, etc. is now similar with force
majuere 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 - Gaya obliged herself to deliver a determine car

to Tito on Dec. 30,1998. Before the arrival of the period,
the car was struck by lightning and was totally destroyed.
Gaya 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 even).
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.
When declared by stipulation;
c. When the nature of obligation requires the assumption of

risk. An example of this is a contract of insurance.
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
maximum rate of interest allowed by
law
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)
Presumption means “the inference as to the

existence of a certain fact which if not contradicted is
considered as true.”
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
^resumption does not admit any evidence or proof,
lence, 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 been paid.
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 01 the latter for the same purpose,
save those whicn 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:
to levy by attachment and execution upon all the property of the
debtor, except such as are exempt by law from execution;
to exercise all the rights and actions of the debtor, except, such as
are inherently personal to him; and
to ask for the rescission of the contracts made by the debtor in

fraud of their rights.
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
. ;Conditional
2
3 W ; ith a period;
4 Alternative;
5 Facultative
6 J;oint
7 ;Solidary or several or in solidum;
8 Divisible
9. ;Indivisible
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)
i. 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 - Gaya obliged herself to pay her loan of Pi,ooo to Tito
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 to resolutory period.
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 (Pi, 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.
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,
O IT 1 O ;
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.
ART. 1186. The condition shall be deemed fulfilled when

the obligor voluntarily prevents its fulfillment. (1119)
Kinds or classifications of
condition:
i. Suspensive and Resolutory
□ Suspensive - the happening of the condition gives rise to an
obligation.
Example:
Maya binds herself to deliver a determinate car to Tito if he marries Gaya.
The obligation is only demandable upon the happening of the condition that
is, if Tito marries Gaya. The obligation is suspended ana 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. Ians 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.
Kinds or classification of
condition:
Possible and Impossible
Impossible condition is divided into
a) Physical Impossibility - the condition imposed is not capable of being
2:
performed physically.
Exampl
e: 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 Pioo,ooo if Ernesto will
kill Mario.
2. Contrary to aood custom - Santos binds himself to give Maria a gold
wrist watch it 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.
condition:
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.
condition:
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 Pi, 000.00 ifY furnishes X with
information as to the whereabouts of Z and another sum of P2,
000.00 ifY kills Z. in the obligation, the first part (to pay Pi,
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:
i. 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 As 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 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 ifY
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

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;
2. To prevent concealment of the debtor’s
properties which constitute the guaranty in case
of nonperformance 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.
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,
47) p.
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 oe present:
1. The debtor paid the creditor before the fulfillment of the condition;
2. Payment made by debtor was through mistake and error;
i. 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:
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;
If the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor;
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.
i. 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 shall be liable for damages upon the fulfillment of
the condition.
It is understood that the thing is lost:
a) When it perishes (as when a house is burnt to ashes)
a) When it goes out of commerce (as when the object

before is unprohibited becomes prohibited)
b) When disappears in such a way that its existence is

unknown (as when a particular car has been missing for
some time)
c) 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).
2. When the thing deteriorates -
a) When the thing deteriorates during the pendency of the condition,
without the fault of the debtor, the impairment is to be borne by the
creditor.
Example -
Arvin obliged himself to give Ian a determinate Toyota car if Ian passes
the October CPA Exams. During the pendency of the condition, the
car was partially damaged by flood, without the fault on the part of
Arvin. If the condition is fulfilled, Ian will bear the impairment.
b) If the thing deteriorates, during the pendency of the condition,

through the fault of the debtor, the creditor may choose, after the
fulfillment of the condition, between the rescission of the obligation or
its fulfillment, with indemnity for damages in either case.
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 obligatios 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 te 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.
As to time - a period refers only to the

b
)
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.
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 ana 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 exceptions, however, if the tenor of the obligation or
other circumstances may indicate that a period is have oeen
established for the benefit of either the creditor or debtor:
i. For the benefit of both creditor and debtor
□ Example -
Gaya obtained a loan of Pio, ooo at 12% interest per annum from Tito for
one year. Gaya has a period of one year within which to use the money,
while Tito will benefit from the interest which the money will earn.
2. For the benefit of the creditor

□ Example -
Gaya executes a promissory note in favor of Tito which reads: “I promise to
pay Tito or order the amount of Pio, 000 on demand. Thus, Tito can
demand payment from Gaya anytime.
3. For the benefit of debtor

□ Example -
Gaya executes a promissory note which reads: “I promise to pay Tito r order
the amount of P 10,000 or before December 31, 2001. Gaya can pay her
obligation on or before Dec. 31, 2001.
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:
i. 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:
Gaya borrowed loan from Tito which loan was secured by a
chattel mortgage of Gayas car as a guaranty. After obtaining the
loan, Gaya 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:
Gaya borrowed P50, 000 from Tito which loan was secured by a
chattel mortgage on Gaya s car. Later, Gayas fault, the car was
damaged or she causes the impairment or the car, Gaya loses
her right to make use of the period, unless she gives anotner
When Debtor Loses the Right to
Make Use Of A Period
4. When by fortuitous event, the guaranty or security was lost.
Example:
Gaya borrowed P50, 000 from Tito which loan was secured by a chattel
mortgage on Gayas car. After obtaining the loan, the car was lost by
fortuitous event. Gaya loss her right to male 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 snail 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:
Gaya binds herself to give Tito either a determinate refrigerator or a TV
set. If Gaya chooses and delivers the TV set, the obligation is
extinguished. Thus, Gaya cannot compel Tito to accept part of one and the
part of the other prestations.
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.- Gaya promised to deliver to Tito 100 sacks of rice or a stone from Mars.
Gaya cannot chose to deliver the stone coming from Mars as it is physically
impossible.
b) Unlawful - E.g. Gaya obliged herself to deliver to Tito a kilo of dangerous drug or a parcel
of lancT Gaya can choose only the delivery of parcel of land.
c) Could not have been the object of the obligation - E.g. Gaya borrowed from Tito P50,
000. It was agreed that Gaya would give Tito her horse or her German Piano. Now, Gaya
has two horses, a race horse worth P50, 000 and an ordinary horse which is worth for
only P5, 000. Gaya cannot choose
d) Only one prestation is practicable (Art. 1202) - E.g. Gaya will deliver to Tito her carabao, or
her horse or her refrigerator. Through no fault of Gaya, the horse and the carabao were
lost by fortuitous event. Gaya 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 creditors 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:
Gaya borrowed from Tito P5, 000.00. it was agreed that instead of P5, 000,
Gaya could deliver a TV set or a refrigerator or a piano. If through the fault
of Tito, the TV set was destroyed, Gaya can rescind the contract if she
wants. In case of rescission, the amount of P 5, 000.00 must be returned by
Gaya with interest. Tito, in turn, must pay Gaya 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 tne 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.
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.
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 los through a

fortuitous event Example
Gaya obliged herself to deliver to Tito a TV set, or a
refrigerator, or a piano. If the TV set was lost
through fortuitous event, Tito can choose from
among the remainder or that which remains if only
one subsists.
2. When a thing is lost through
debtors fault Example:
If the loss of the TV set occurs through the fault of Gaya, Tito 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 debtors fault Example:
If all the items are lost through the fault of Gaya, then Tito 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 Gaya shall be extinguished if all the items
which are alternatively the object of tne 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;
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 Court
governing 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
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,
ooo
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 Pio, ooo. B and
C are solidary creditors.
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, ooo.
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 solidarity.
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 althe joint debtor. If any of the
joint debtors be insolvent, the others shall not be liable for others.
ART. 1210. The indivisibility of an obligation does not
necessarily give rise t 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 Pio, ooo.
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 Pio,
000.
4. Solidary indivisible obligation - A and B are solidarily liable to give C their
car.
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 Pio, ooo 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 house of C.
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 creditor is allowed to so remit, and
the obligation is extinguished.
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 from A in case C does not turn over to B his share.
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 other solidary creditors for their corresponding
shares considering that such acts are prejudicial to them. (Art. 1212,
NCC)
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 PQ, ooo. 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 soldiery 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

codebtors 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
codebtors, 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 oy law.
□ Example - A and B are solidarily indebted to C in the amount of P10, 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 the prohibited drugs. B is not anymore entitled to
reimbursement from A.
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
codebtors.
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 provisions of the preceding paragraph
shall apply. (1147a)
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 neld 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.
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
i. 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, ooo. 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 Pio, ooo 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 indivisible.
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
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.
Obligations intended by the parties to be indivisible even if

thing or service is physically divisible.
□ Example:
The obligation of A to give Pio, ooo 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 Indivisible
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.
Obligations which have for their object the accomplishment of work by metrical
units.
□ Example:
A obliged himself to deliver 25 cubic meter of sand.
Obligations which by their nature are susceptible of partial performance
□ Example
The obligation of A to pay a debt of Pio, 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 indemnity incase of breach.
It is attached to obligations in order to insure their performance.
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.
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 he can just pay, fulfillment of the obligation will be considered an
alternative one. The word expressly means that any implied reservation is not allowed.
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;
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 tne 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 penalty to deliver the
prohibited drug is void. For failure of A to comply with the obligation, B
may recover damages
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, th obligation is extinguished ana 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
pesons 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 ot 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 testators 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 cfebt. Or it was voluntarily delivered to the debtor, which gives
rise to the remission of the obligation.
Example, Gaya owes Tito Pio, ooo evidenced by a promissory

note. The note as signed by Gaya was given to Tito. If the
promissory note is voluntarily delivered to Gaya, the presumption
is that the debt must have been paid by Gaya.
it is known that Gaya has not yet paid Tito, it must be

presumed that the obligation has been remitted. Suppose it is not
known how Gaya came into possession of the promissory note, the
presumption is that it was voluntarily delivered by Tito unless Tito
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
fore. (1190).
Of Effect 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 Tito Pio, ooo with Gaya as guarantor. The
principal debt here is the Pio, ooo while the accessory obligation is the
guaranty of Gaya. The remission of the debt of Arvin by Tito extinguishes
the guaranty of Gaya. But if only the guaranty of Gaya is condoned, the
obligation of Arvin shall remain in force.
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)
Pledged, Defined
Pledged 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.
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
i. 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, Gaya issued a promissory note for Pio, 000 in favor of

Tito payable 30 days after sight. Before the maturity of the note, Tito
indorsed it to Arvin; Arvin indorsed it to Mary; Mary indorsed it to
Gaya. The obligation of Gaya to Tito is extinguished oecause 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 of any of the latter does not extinguish the obligation. (1193)
Effect of Merger
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, Gaya obtains Pio, 000 loan from Tito which loan was
guaranteed by Arvin. Later, Tito assigned the credit to Mary, who in turn
assigned it to Gaya. The principal debt is extinguished and Arvin is
released from his obligation as guarantor. If, in this same example, the
credit was assigned by Tito to Mary and Mary to Arvin. The contract of
guaranty is extinguished but the principal obligations remains. Gaya has
now the obligation to pay Arvin.
ART. 1277. Confusion does not extinguish a joint obligation except as
regards the share corresponding to the creditor or debtor in whom the two
characters concur. (1194)
Effect of Merger in Joint Obligation

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, Gaya, Mary and Arvin are jointly indebted to Tito in the amount of P15, 000. Tito assigns
his credit to Ian who in turn assigned it to Gaya. There is here a merger between Gaya and Tito but Mary and
Arvin would now owe Gaya 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)
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
i. the parties are principal creditor and principal debtor of each other;
Example, Arvin owes Tito Pio, ooo payable on Dec. 20, 1999. Tito on the other
hand owes Arvin Pio, 000 also due ana payable on Dec. 30, 1999. These two
obligation become due on Dec. 30, 1999 compensation takes place because both
Arvin and Tito 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 Tito 100 sacks of rice on October
30, 1999. Tito, 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, Gaya owes Maya Pio, 000 payable on October 30,1999. Maya owes
Gaya Pio, 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 Pio, 000 and Ian owes Arvin Pio, 000 but
Arvin credit of Pio, 000 has been garnished by Gaya 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 Gaya 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 Tito Pio, 000. Maya is the guarantor of Arvin. Tito
owes Arvin Pio, 000. When Tito sues Arvin for P4, 000. When Tito sues Arvin
and Arvin cannot pay, Maya will be liable for only P6, 000 because he can set
the P4, 000 credit 01 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, Gaya is indebted to Maya the amount of Pio, ooo due on
Dec. 19,1999. Maya is likewise indebted to Gaya in the amount of Pio, 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, Gaya 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)
Compensation By Agreement Of the Parties
This is a voluntary compensation as an execution to the

general rule that only debts which are due and demandable can be
compensated. (Art.1279)
Example, Gaya owes Maya Pio, 000 due on Nov. 30, 2001.
On the other hand Maya owes Gaya Pio, 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
obligation has acclaim 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 Pi, ooo. 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 Pi, ooo.
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 P10, ooo. 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
o o t r r n j
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.
,-Wtfere CompensafRnrHaTTaken
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 Pi, ooo due Dec. 1. B owes A P2, 000 Dec. 10.
A owes B Pi, 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 Pi, 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 Pi, 000. Come Dec. 15, A will liable for his debt of Pi, 000 to B.
Assignment without the knowledge of the debtor

Example, in the preceding example, let us suppose that the
assignment was made witnout 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.
CompensationtakeTpIai aeration even
thought eh debts may be payable at differentofplaces, bu 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, Gaya owes Maya $1, ooo payable in New York. Maya owes
Gaya P38, ooo(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.
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 wil of only one of the parties.
Classification of A Contract
(FROM)
i. As to perfection
a. Consensual - one which is perfected by mere consent (Art.
131
b. Real Contract - perfected by mere consent and by the delivery of the
5object 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 te 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 ha an obligation to perform. Ex.
Contract of donation, commodation.
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, Gaya and Laura entered into a contract to sell

whereby Gaya binds herself to sell her only parcel of land to Laura if
Gaya decides to leave for States. The contract is void because the
fulfillment of the condition depends on the will of Gaya.
□ 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, Gaya 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, Gaya mortgaged her parcel of land in favor of Laura as collateral for
her debt. The mortgage is duly registered. Later on, Gaya sold the same land to
Tito. In this case, Tito bought the land subject to the mortgage constituted
thereon. Tito, 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, thre 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.
If the 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 Pio, ooo
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)
Meaning of Rescission
Rescission is 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
i. 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.
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;
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)
Instances of Void or
Inexestence 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 does 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 orlegal

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
Thank you!!!!!

Obligations and Contracts: Atty. Jad S. Estopa

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Obligations and Contracts: Atty. Jad S. Estopa

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OBLIGATIONS AND

On the sources of obligation, the main sources are

□ OBLIGATIONS as defined by ARIAS RAMOS is a

1. Characteristics of patrimonial obligations:

1. Meaning of Juridical Necessity - it means the rights

a) An active subject, who has the power to demand the

On the other hand, if Mario, delivered the Asus laptop

Distinctions between Obligations and Contracts:

Quasi-contract is the juridical relation resulting from a lawful,

Contracts and quasi-contracts distinguished:

2. Negotiorum gestio (management of another’s property)

□ Civil liability arising from delicts:

• There must be fault of negligence attributable to

ART. 1165. When what is to be delivered is a determinate

If the obligor delays, or has promised to deliver the

ART. 1166. The obligation to give a determinate thing

This same rule shall be observed if he does it in

□ When the debtor fails to do the obligation;

Obligation of the Debtor NOT To Do -

(1) When the obligation or the law expressly declares; or

( 2 ) When from the nature and the circumstances of the

The debtor incurred delay if:

i. When the obligation expressly so provides

3. When time is of the essence

5. In a reciprocal obligation, from the moment one

Mora solvendi - delay on the part of the debtor.

Mora accipiendi - delay on the part of the creditor,

Compensatio morae - delay both parties in a

ART. 1171. Responsibility arising from fraud is

ART. 1172. Responsibility arising from

If the law or contract does not state the diligence

2. Negligence (culpa) - consists in the omission by the

Loss of the thing with the fault of

□ Like in quasi-delicts, if the defendant acted

Temperate or moderate damages - are more than

2. Dolo - waiver of liability of future fraud is

Dolo - fraud must be clearly proved.

4. Dolo - liability cannot mitigated by the courts.

Fortuitous event proper are acts of God such as volcanic

1. Requisite necessary to constitute fortuitous event

□ Example - Gaya obliged herself to deliver a determine car

a. When the law expressly so provides, such as:

When declared by stipulation;

c. When the nature of obligation requires the assumption of

The receipt of a later installment of a debt

Presumption means “the inference as to the

Presumption under this article:

to ask for the rescission of the contracts made by the debtor in

a.) Unilateral and bilateral;

ART. 1179. Every obligation whose

Every obligation which contains a resolutory

that part thereof which is not affected by the impossible or unlawful

ART. 1186. The condition shall be deemed fulfilled when

□ Resolutory - the happening of the condition extinguishes the

□ Casual - is one the fulfillment of which depends upon chance.

b) Illegal Impossibility - when the condition imposed is contrary to law,

Divisible - that part of obligation which is not affected by

6. Express and Implied

The debtor may recover what during the same time

Preservation of Creditor’s Right

3. To demand security if the debtor becomes

4. To compel the acknowledgement of the debtor’s

5. To register the deeds of sale or mortgages;