TITLE I to the end that no one may be unjustly enriched at the

OBLIGATIONS expense of another.

CHAPTER 1 Delicts (ex-maleficio) - governed primarily by the penal laws

GENERAL PROVISIONS Quasi-Delicts (quasi-maleficio)

Whoever by act or omission causes damage
I - The Obligation to another, there being fault or negligence, is
obliged to pay for the damage done, if there is
A. Concept of Obligation no pre-existing contractual relation between
the parties (culpa aquiliana).
1 An obligation 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, CHAPTER 2
may obtain satisfaction from the assets of the latter.
2 An obligation is a juridical necessity to give, to do, or not to NATURE AND EFFECTS OF OBLIGATIONS
do. (1156)
3 Subject to the laws, all rights acquired in virtue of an There are three kinds of prestations in obligations:
obligation are transmissible, if there has been no stipulation to to give
the contrary. (1178) to do
not to do
A. Elements of Obligation
I - Obligations To Give
(1) an active subject, who has the power to demand the prestation,
known as the obligee or creditor; The obligation to give may refer either to:
(2) a passive subject, who is bound to perform the prestation, (1) a specific or determinate thing - one that is
known as the obligor or debtor; individualized and can be identified
(3) an object or the prestation; and or distinguished from others of its kind
(4) the juridical tie or vinculum juris (2) an indeterminate or generic thing - one that is indicated
only by its kinds,
without being designated and distinguished from
II - The Object or Prestation others of the same kind

A. Concept of Object or Prestation A. Obligation to Give a Specific or Determinate Thing

1 The object of an obligation is not a thing but a particular conduct of 3 Three incidental or accessory obligations:
the debtor which may consist in: (1) The obligation to preserve the thing with the proper
diligence of a good father of a family, unless the law or
(1) giving something the stipulation of the parties requires another standard of
care. (1163)
(2) doing something
(2) The obligation to deliver the fruits. However, the
(3) not doing something
creditor shall acquire no real right over it until the same
has been delivered to him. (1164)
B. Requisites
(3) The obligation to deliver the accessions and accessories,
The prestation must have the following requisites: even though they may not have been mentioned. (1166)

(1) it must be possible, physically and juridically; 4 The creditor may compel the debtor to make the delivery. (1165 par.
1)
(2) it must be determinate, or, at least, determinable
(3) it must be capable of pecuniary estimation
A. Obligations to Give an Indeterminate or Generic Thing

III - Sources of Obligations 5 The creditor may ask that the obligation be complied with at the
expense of the debtor. (1165 par. 2)
2 Obligations arise from: (1157)
II - Obligations To Do
Law - obligations derived from law are not presumed. Only
those expressed in the Civil Code or in special laws are 6 The obligation shall be executed at his cost if:
demandable and shall be regulated by the precepts of the
law which establish them; and to what has not been (1) If the person obliged to do something fails to do it; or
foreseen, the provisions of Book IV of the Civil Code. (2) If he does it in contravention to the tenor of the
(1158) obligation.

Contracts (ex contractu) - have the force of law between the 7 Furthermore, it may be decreed that what has been poorly done be
contracting parties and should be complied with in good undone. (1167)
faith. (1159)
8 The law does not authorize the imposition of personal force or
1305. A contract is a meeting of minds between two persons whereby one coercion upon the debtor to comply with his obligation. In such
binds himself, with respect to the other, to give something or to render case, he can be held liable for damages
some service. (1254a)
III - Obligations Not To Do

Quasi-contracts (quasi-contractu) - a juridical relation which 9 If the obligor does what has been forbidden him:
arises from certain lawful, voluntary, and unilateral acts, (1) it shall be done at his expense (1168)
 (2) he can be held liable for damages Concept

IV - Remedies of the Creditor 2 Fortuitous events are events which could not be foreseen, or which,
though foreseen, were inevitable.
10 When a debtor fails to comply with his obligation, the creditor may 3 The doctrine of fortuitous event is applicable only to obligations to
avail himself of the following remedies: give a specific thing and obligations to do.
(1) an action for specific performance 4 The general effect is that the debtor cannot be held liable for
(2) an action to rescind the obligation damages for non-performance.
(3) an action for damages, exclusively or in addition to 5 To exempt the debtor from paying damages, the following instances
either of the first two actions must concur:

V - Damages (1) Cause of the unforeseen occurrence or the failure of the

11 Those who in the performance of the obligations are guilty of fraud, debtor to comply with his obligations must be
negligence, or delay, and those who in any manner contravene the independent of the human will.
tenor thereof, are liable for damages. (1170) (2) It must be impossible to foresee, or if it can be foreseen,
it must be impossible to avoid.
Modes of Breach (3) The occurrence must be such as to render it impossible
1170. Those who in the performance of their obligations are guilty of for the debtor to fulfill his obligation in a normal
fraud, negligence, or delay, and those who in any manner contravene the manner.
tenor thereof, are liable for damages. (1101) (4) The obligor must be free from any participation in the
aggravation of the injury resulting to the creditor.
(5) Fault or negligence must not be imputed to the debtor.
A. Fraud (dolo incidente and dolo causante) (Concurrent negligence)
12 Fraud is a deliberate and intentional evasion of the normal
fulfillment of obligations. A. Exceptions
13 Responsibility arising from fraud is demandable in all obligations.
Any waiver of an action for future fraud is void. (1171) 1 The debtor will still be liable for fortuitous event:

(1) if it is expressly specified by law

B. Negligence (Culpa Contractual) (2) if it is declared by stipulation
1 Negligence consists in the omission of that diligence which is (3) when the nature of the obligation requires the
required by the nature of the obligation and corresponds with assumption of risk
the circumstances of the persons, of the time, and of the place.
2 If the law or contract does not state the diligence which is to
be observed in the performance, that which is expected of a CHAPTER 3
good father of a family shall be required. (1173)
3 Responsibility arising from negligence in the performance of DIFFERENT KINDS OF OBLIGATIONS
every kind of obligation is also demandable, but such liability
may be regulated by the courts. (1172) 1 The Civil Code classifies obligations primarily into:
(1) pure
C. Delay (Mora) (1169) (2) conditional
(3) with a term
1 Delay is incurred from the time the obligee juridically or extra- (4) alternative
juridically demands the fulfillment of the obligation. There can be (5) joint or mancomunada
delay only in obligations to give and obligations to do. solidary or several or in solidum
divisible
2 Kinds: indivisible
with a penal clause
(1) Mora solvendi - default on the part of the debtor which
may either be:
(a) ex re - referring to obligations to give Section 1
ex persona - referring to obligations to do PURE AND CONDITIONAL OBLIGATIONS

(2) Mora accipiendi - default on the part of the creditor I -- Pure Obligations

(3) Compensatio morae - default of both parties in reciprocal A pure obligation is an obligation which contains no term or
obligations condition whatsoever upon which depends the fulfillment of
o delay begins from the moment one of the parties the obligation contracted by the debtor. (1179 par. 1)
fulfill his obligation (Exeptio non adimpleti
contractus.) A pure obligation must be reasonably construed, distinguishing
immediate demandability by the creditor, from the fulfillment
1 However, the demand by the creditor shall not necessary in order by the debtor, for which a reasonable period may be granted.
that delay may exist:
II - Conditional Obligations
(1) When the obligation or law expressly so declares
(2) When the period is the controlling motive or the Concept
principal inducement for the creation of the obligation.
(3) When the demand would be useless, as when the obligor In conditional obligations, the acquisition of rights, as well as the
has rendered it beyond his power to perform extinguishment or loss of those already acquired, shall depend
upon the happening of the event which constitutes the
VI - Force Majeure (1174) condition. (1181)

A condition has been defined as every future and uncertain event

 upon which an obligation or provision is made to depend.
(1179 par. 2) Constructive Fulfillment

Classification of Conditions The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment. (1186)

(a) Suspensive condition or condition Requisites:

precedent - the happening of the condition
gives rise to the obligation intent of the obligor to prevent the fulfillment of the condition
(b) Resolutory or condition subsequent - the actual prevention of compliance
happening of the condition extinguishes
rights already existing If, however, in preventing the fulfillment of the condition the debtor
acts pursuant to a right, the condition will not be deemed s
(2) fulfilled.
(a) Potestative - depends upon the will of one of
the contracting parties When the condition is resolutory but not dependent on the will of
(a-1) Simple potestative - presupposes the debtor, and he unjustifiably provokes or produces the
not only a manifestation of will but also condition, which would not have happened without his doing
the realization of an external act (“If so, it will be considered as not having been fulfilled, and there
you sell your house”) will be no extinguishment of rights.
(a-2) Purely Potestative - depends solely
and exclusively upon the will (“If I
like”) III - Rights Pendente Conditione
-- a purely potestative suspensive
condition is void (1182) A. Creditor
(b)Causal - depends exclusively upon chance or
upon the will of third persons and not upon 1 The creditor may, before the fulfillment of the condition, bring
the will of the contracting parties. the appropriate actions for the preservation of his rights. (1188
Mixed- depends not only upon the will of the par. 1)
debtor but also upon chance or the will of
others (1183) 2 They may include for their objects:

(3) (1) to prevent the loss or deterioration of the objects of the

(a) Positive - The condition that some event happen at obligation by enjoining or restraining acts of alienation
a determinate time shall extinguish the obligation or destruction by the debtor himself or by third persons
as soon as the time expires or if it has become (2) to prevent concealment of the debtor’s properties which
indubitable that the event will not take place. constitute the guaranty in case of non-performance of the
(1184) obligation
(3) to demand security if the debtor becomes insolvent
(b) Negative - The condition that some event will not (4) to set aside fraudulent alienation made by the debtor
happen at a determinate time shall render the
obligation effective from the moment the time B. Debtor
indicated has elapsed, or if it has become evident
that the vent cannot occur. (1185) 1 May recover what during the same time he has paid by
mistake in case of a suspensive condition. (1188 par. 2)
1 In both cases, if no time has been fixed, the condition
shall be deemed fulfilled at such time as may have 2 If the payment was of a determinate thing, and it still exists in
probably been contemplated, bearing in mind the nature the hands of the creditor, the accion reivindicatoria will lie;
of the obligation. otherwise, the provisions of solutio indebiti will apply.
(3) (a) Express 3 If payment was made with knowledge of the condition, there
(b) Implied is an implied waiver of the condition, and whatever has been
paid cannot be recovered.
(4) (a) Possible
(b) Impossible - those contrary to good customs or
public policy and those prohibited by law shall annul the IV - Improvement, Loss, Deterioration Pendente Conditione
obligation which depends upon them.
A. Definition of Terms
2 If the obligation is divisible, that part thereof which is not affected
by the impossible or unlawful condition shall be valid. (1) Loss - a thing is lost:
The condition not to do an impossible thing shall be considered a pure
obligation. (1183)
(a) when it perishes
The impossibility must exist at the time of the creation of the obligation; a
(b) when it goes out of the commerce of man
supervening impossibility does not affect the existence of the
obligation. On the same principle, if the condition was impossible (c) when it disappears in such a manner that its
when the obligation was constituted, the obligation remains void existence is unknown or it cannot be
even if such condition subsequently becomes possible, unless the recovered
parties later agree again.
(2) Deterioration - any reduction or impairment in the
Kinds of impossibility: substance or value of a thing which does not amount to
loss
Physical - contrary to the law of nature (3) Improvement - anything added to, incorporated in, or
Juridical - contrary to law, morals, good customs, and public policy. attached to a thing that is Due
B. Effects Regarding Suspensive Conditions (1189) violated the contract, the same shall be deemed
extinguished and each shall bear his own damages.
In obligations to deliver specific things, obligations to do, and
obligations not to do, the following rules shall apply with regards to loss, VI - Retroactivity (1187)
deterioration, or improvement:
A. Obligations to give
(1) If the thing is lost without the fault of the debtor, the
obligation shall be extinguished; 1 Once the condition (suspensive) has been fulfilled, it shall
retroact to the day of the constitution of the obligation.
(2) If the thing is lost through the fault of the debtor, he
shall be obliged to pay damages; (1) Reciprocal obligations - the fruits and interests during
the pendency of the condition shall be deemed to have
(3) When the thing deteriorates without the fault of the been mutually compensated
debtor, the impairment is to be borne by the creditor;
(2) Unilateral obligations - debtor shall appropriate the fruits
(4) If it deteriorates through the fault of the debtor, the and interests received, unless from the nature and
creditor may choose between: circumstances of the obligation it should be inferred that
(a) rescission + damages; or the intention of the person constituting the same was
(b) fulfillment + damages different

(5) If the thing is improved by nature, or by time, the B. Obligations To Do and Not To Do
improvement shall inure to the benefit of the creditor;
2 The courts shall determine, in each case, the retroactive effect
(6) If it is improved at the expense of the debtor, he shall of the condition that has been complied with.
have no other right than that granted to the usufructuary.
(a) If the improvement can be removed by the
debtor without damage to the thing due, then Section 2
he may remove the same.
(b) But if the removal cannot be made without OBLIGATIONS WITH A PERIOD
substantial injury to the thing due, then the
improvement must be delivered together with I - The Term or Period
the thing due to the creditor without the latter
paying indemnity to the debtor. A. Concept of Term

C. Effects Regarding Resolutory Conditions (1190) 3 A period or term is a space of time which, exerting an
influence on obligations as a consequence of a juridical act,
(1) When the conditions have for their purpose the suspends their demandability or determines their
extinguishment of an obligation to give, the parties, upon extinguishment.
the fulfillment of said conditions, shall return to each 4 The period must be:
other what they have received. (1) future
(2) certain
(2) In case of loss, deterioration or improvement of the (3) possible
thing, the rules which, with respect to the debtor, are laid
down in the preceding article shall be applied to the B. Kinds
party who is bound to return.
(1)
(3) As for obligations to do and not to do, the courts shall (a) Suspensive (ex die - from a day certain) - a
determine the effects of the extinguishment of the period that must lapse before the
obligation. performance of the obligation can be
demanded
V - Reciprocal Obligations (b) Resolutory (in diem - to a day certain) - the
period after which the
A. Breach by One Party (1191) performance must terminate

The power to rescind obligations is implied in reciprocal ones, in (2) According to source:
case one of the obligors should not comply with what is (a) legal - period fixed by law
incumbent upon him. The power to rescind is given to the (b) voluntary - fixed by the parties
injured party. (c) juridical - that allowed by the courts
The injured party may choose between the fulfillment and the
rescission of the obligation, with payment of damages in either (3) (a) express
case. He may also seek rescission, even after he has chosen (b) implied
fulfillment, if the latter should become impossible
(4) (a) original
This is understood to be without prejudice to the rights of third (b) period of grace - extension fixed by the parties
persons who have acquired the thing, in accordance with themselves or by the court
articles 1385 and 1388 and the Mortgage Law.
(5) (a) definite - refers to a fixed or known date or time
B. Breach by Both Parties (1192)
(b) indefinite - refers to an event which will necessarily
happen but the date of its happening is unknown to the
(1) The liability of the first infractor shall be equitably parties
tempered by the courts.

(2) If it cannot be determined which of the parties first

C. Distinguished From Condition
(1) When after the obligation has been contracted, the debtor
(1) While a condition gives rise to an obligation or becomes insolvent, unless he gives a guaranty or security
extinguishes one already existing, a period has no effect for the debt;
upon the existence of obligations, but only their
demandability or performance. Because of this (2) When the debtor does not furnish to the creditor the
difference, a period does not carry with it, except when guaranties or securities he has promised;
there is a special agreement, any retroactive effect.
(3) When by his own acts the debtor has impaired said
(2) A condition which depends exclusively on the will of the guaranties or securities after their establishment, and
debtor annuls the obligation, but a period left to the when through a fortuitous event they disappear, unless
debtor’s merely empowers the court to fix the term. he immediately gives new ones equally satisfactory;

II - Effects (4) When the debtor violates any undertaking, in

consideration of which the creditor agreed to the period;
A. Presumption
(5) When the debtor attempts to abscond.
1 The period is presumed to have been established for the
benefit of both the creditor and the debtor, unless from the Section 3
tenor of the same or other circumstances it should appear that
the period has been established in favor of one or the other. ALTERNATIVE OBLIGATIONS
(1196)
I - Plurality of Objects
B. Pending the Arrival of the Period
On the basis of plurality of objects, the obligations may be
(1) In case of loss, deterioration or improvement of the thing classified into:
before the arrival of the term the rules in article 1189
shall be observed. (1194) (1) Conjunctive - one where the debtor has to perform
several prestations; it is
(2) Anything paid or delivered before the arrival of the extinguished only by the performance of all
period, the obligor being unaware of the period or of them
believing that the obligation has become due and
demandable, may be recovered, with the fruits and (2) Alternative - several objects being due, the fulfillment of
interests. (1195) one is sufficient

(a) The creditor who accepts payment in bad (3) Facultative - only one thing is due, but the debtor has
faith shall pay legal interest if a sum of reserved the right to
money is involved, or shall be liable for fruits substitute it with another
received.
(b) But if the creditor acted in good faith, he is
liable for fruits only in so far as they II - Alternative Obligations
benefited him.
A. Right of Choice (Debtor)
C. Suspensive and Resolutory Periods
2 The right of choice belongs to the debtor, unless it has been
(1) Suspensive - obligation shall be demandable only when expressly granted to the creditor (or a third person).
the period comes
3 The debtor shall have no right to choose those prestations
(2) Resolutory - obligations take effect at once, but which are impossible, unlawful or which could not have been
terminate upon arrival of the the object of the obligation. (1200)
day certain
4 The right to choose is indivisible. The debtor cannot choose
D. No Fixed Term (1197) part of one prestation and part of another.

(1) The courts may fix the term if from its nature and B. Effect
circumstances it can be inferred that a period was
intended. 1 The choice shall produce no effect except from the time it has
(2) The courts shall also fix the duration of the period when been communicated. (1202)
it depends upon the will of the debtor.
C. Right to Damages
In every case, the courts shall determine such period as
may under the circumstances have been probably (1) Debtor
contemplated by the parties. 1 If through the creditor’s act the debtor cannot make
a choice according to the terms of the obligation,
Once fixed by the courts, the period cannot be changed the latter may rescind the contract with damages.
by the parties. (1203)

(2) Creditor
E. Loss of Term (1198) o has a right to damages when through the fault of
the debtor all the
1 In the following cases, the obligation becomes immediately things which are alternatively the object of the
due and demandable even if the period has not yet expired. obligation have been lost, or the compliance of the
The obligation is thus converted to a pure obligation: obligation has become impossible.
 compelled to perform the substitute prestation.
o The indemnity shall be fixed taking as a basis of
the value of the last thing which disappeared, or 4 Substitution becomes effective from the time the debtor
that of the service which last became impossible. communicates to the creditor that he elects to perform the
substitute.
o Damages other than the value of the last thing or
service may also be rewarded. (1204) C. Loss of the Substitute
(a) If all the prestations become impossible due
to fortuitous event, the obligation is 1 The loss or deterioration of the thing intended as a substitute,
extinguished; the debtor is not liable for through the negligence of the obligor, does not render him
damages. liable. But once the substitution has been made, the obligor is
liable for the loss of the substitute on account of his delay,
(b) If one or more of the prestations due become negligence, or fraud.
impossible by fortuitous event, leaving only
one prestation, and then this last one becomes
impossible by fault of the debtor, the Section 4
provisions of the present article will apply.
JOINT AND SOLIDARY OBLIGATIONS
(c) If some of the prestations become impossible
by fault of the debtor, and the n the remaining 2 According to the plurality of subjects involved, an obligation
prestation became impossible by fortuitous may either be:
event, the debtor is liable under the present (1) joint; or
article, but the basis of damages will be the (2) solidary
value of the last prestation which became
impossible through his fault. I - Joint Obligations

D. Delay in Making Choice A. Concept

2 If the debtor who has the right to choose makes no selection 3 A joint obligation is one in which each of the debtors is liable
before the creditor files his action, the right to choose passes only for a proportionate part of the debt, and each creditor is
automatically to the other party. entitled only to a proportionate part of the credit.
4 A joint obligation has been variously termed mancomunada or
E. Right of Choice (Creditor) (1205) mancomunada simple or a pro rata.
5 If the law, or the nature of the wording of the obligation does
3 When the choice has been expressly given to the creditor, the not express anything to the contrary, the joint character of the
obligation shall cease to be alternative from the day when the obligation is presumed.
selection has been communicated to the debtor.
4 Until then the responsibility of the debtor shall be governed by B. Effects
the following rules:
(1) The demand by one creditor upon one debtor, produces
(1) If one of the things is lost through a fortuitous event, he the effects of default only with respect to the creditor
shall perform the obligation by delivering that which the who demanded and the debtor on whom the demand was
creditor should choose from among the remainder, or made, but not with respect to the others.
that which remains if only one subsists;
(2) If the loss of one of the things occurs through the fault of (2) The interruption of prescription by the judicial demand
the debtor, the creditor may claim any of those of one creditor upon a debtor does not benefit the other
subsisting, or the price of that which, through the fault of creditors nor interrupt the prescription as to the other
the former, has disappeared, with a right to damages. debtors.
(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 (3) The vices of each obligation arising from the personal
one of them, also with indemnity for damages. defects of a particular debtor or creditor does not affect
the obligation or rights of the others.
1 The same rules shall be applied to obligations to do or
not to do in case one, some or all of the prestations (4) The insolvency of a debtor does not increase the liability
should become impossible of his co-debtors, nor does it authorize a creditor to
demand anything from his co-creditors.
III - Facultative Obligations (1206)
(5) In the joint divisible obligation, the defense of res
A. Concept of Facultative Obligations judicata is not extended from one debtor to another.
1 When only one prestation (principal prestation) has been
agreed upon, but the obligor may render another in (6) In joint indivisible obligations, the right of the creditors
substitution (substitute prestation), the obligation is called may be prejudiced only by their collective acts, and the
facultative. debt can be enforced only by proceeding against all the
debtors. If one of the debtors should be insolvent, the
B. Right of Substitution others shall not be liable for his share. (1209)

2 The option to perform the substitute prestation is exclusively (7) If there are several creditors and only one debtor, the
dependent upon the will of the debtor. He cannot even be obligation can be performed only by delivering the
compelled to perform it if the principal prestation becomes object to all the creditors jointly. A debtor who delivers
impossible. the thing to one creditor only, becomes liable for
damages because of non-performance to the other
3 If the impossibility of the principal prestation is due to his creditors.
fault, he may be held liable for damages, he cannot be
 (8) If only one or some of the creditors demand the extinguishes the obligation. If two or more solidary
prestation, the debtor may legally refuse to deliver to debtors offer to pay, the creditor may choose which offer
them; he can insist that all the creditors together to to accept.
receive the thing, and if any of them refuses to join the
others, the debtor may deposit the thing in court by way (4) He who made the payment may claim from his co-
of consignation. debtors only the share which correspond to each, with
the interest for the payment already made. If the
payment is made before the debt is due, no interest for
II - Solidary Obligations the intervening period may be demanded

A. Concept (5) When one of the solidary debtors cannot, because of his
insolvency, reimburse his share to the debtor paying the
1 A solidary obligation is one which each debtor is liable for the obligation, such share shall be borne by all his co-
entire obligation, and each creditor is entitled to demand the debtors, in proportion to the debt of each. (1217)
whole obligation.
(6) If a solidary debtor pays the obligation in part, he can
2 There is solidary liability when the obligation expressly so recover reimbursement from the co-debtors only in so far
states, or when the law or the nature requires solidarity. (1207) as his payment exceeded his share of the obligation.

3 Solidarity may exist although the creditors and the debtors (7) After the creditor has made a remission of the share of
may not be bound in the same manner and by the same periods one solidary debtor, the credit will be limited to the
and conditions. (1211) balance. However, this does not affect his obligation to
contribute to the share of an insolvent co-debtor.
4 Solidarity may either be:
(8) The remission of the whole obligation, obtained by one
Active - solidarity among the creditors; or of the solidary debtors, does not entitle him to
Passive - solidarity among the debtors reimbursement from his co-debtors. (1220)

Active Solidarity (9) If the thing has been lost or if the prestation has become
impossible, and there was fault on the part of any one of
A solidary creditor cannot assign his rights without the the co-debtors, or if through fortuitous event, the thing is
consent of the others (1213) lost or the performance has become impossible after one
of the solidary debtors has incurred in delay, all shall be
The debtor may pay any one of the solidary creditors; but if responsible to the creditor, for the price and payment of
any demand, judicial or extra-judicial, has been made by damages and interest, without prejudice to their action
one of them, payment should be made to him. (1214) against the guilty. (1221)

(3) Novation, compensation, confusion or remission of the

debt, made by any of the solidary creditors or with any D. Dual character of Obligations (1211)
of the solidary debtors shall extinguish the obligation.
2 The obligation may be join on the side of the creditors, and
1 The creditor who may have executed any of these acts, as well solidary on the side of the debtors, or vice-versa. In such
as he who collects the debt, shall be liable to the others for the cases the rules applicable to each subject of the obligation
share in the obligation corresponding to them. (1215) should be applied.

C. Passive Solidarity Section 5

(1) The creditor may proceed against any one of the solidary DIVISIBLE AND INDIVISIBLE OBLIGATIONS
debtors or some or all of them simultaneously. The
demand made against one of them shall not be an I - Divisible and Indivisible Obligations
obstacle to those which may subsequently be directed
against the others, as long as the debt has not been fully A. Distinction
collected. (1216)
3 A divisible obligation is one which is susceptible of partial
(2) The judgment adverse to a solidary creditor can be set up performance.
against the other co-creditors in subsequent actions,
unless it is founded on a cause personal to the plaintiff in 4 The obligation is indivisible, whatever may be the nature of
the first action. The other debtors can invoke the the thing which is the object thereof, when it cannot be validly
favorable judgment, provided it is not based on a defense performed in parts.
personal to the debtor in whose favor it was rendered.
Such a judgment can be based only in: 5 Divisibility or indivisibility of the obligation therefore, refers
to the performance of the prestation, and not to the thing
(a) the inexistence of the obligation, or its which is the object thereof.
unenforceability, or
(b) some other cause inherent in the vinculum B. Things to Consider
juris,
(c) defenses personal to the debtor-defendant, 1 The following may be considered as factors which determine
and whether an obligation is divisible or indivisible:
(d) defenses personal to the other solidary
debtors as regards to that part of the debt for (1) will of the contracting parties
which the latter are responsible. (1222) (2) purpose of the stipulated prestation
(3) nature of the thing
(3) Payment made by one of the solidary debtors (4) provisions of the law affecting the prestation
 Penalty Not Enforceable

II - Effects of Partial Performance (1) Principal obligation becomes impossible due to

fortuitous event.
2 Where the contract is indivisible, in that it is not susceptible of (2) Creditor prevents the debtor from performing the
partial performance, even if the compensation is fixed by unit principal obligation.
of measure, the debtor who fails to fully perform the work (3) Nullity of the principal obligation except:
agreed upon, but abandons the same after performing a part, (a) When it assumes the form of a guaranty
cannot recover on quantum meruit for the work already which is valid under Art. 2052
finished, because in indivisible obligations partial performance (b) Nullity of the principal obligation itself gives
is equivalent to non-performance. rise to liability of the creditor for damages.
Nullity of the penal clause, in which case damages shall be
Section 6 determined by the same rules as if no penalty had been
stipulated.
OBLIGATIONS WITH A PENAL CLAUSE

I - The Penal Clause Chapter 4

A. Concept EXTINGUISHMENT OF OBLIGATIONS

3 In an obligation, th4e penal clause is an accessory undertaking GENERAL PROVISIONS

which serves a double purpose:
Obligations are extinguished: (1231)
(1) to provide for liquidated damages
(2) to strengthen the coercive force of the obligation by the By payment or performance;
threat of greater responsibility in the event of breach By the loss of the thing due (specific thing);
By the condonation or remission of the debt;
4 In obligations with a penal clause, the penalty shall substitute the By the confusion or merger of the rights of creditor and
indemnity for damages and the payment of interests in case of debtor;
noncompliance, if there is no stipulation to the contrary. (1266) By compensation;
By novation
5 The creditor cannot recover more than the penalty stipulated, even if
he proves that the damages suffered by him exceed the amount of Other causes of extinguishment of obligations, such as annulment,
such penalty. rescission, fulfillment of a resolutory condition, and prescription are
governed elsewhere in the Civil Code.
6 The principal obligation may be joint, and yet the penalty may
either be joint or solidary, depending upon the agreement of the Section 1
parties.
PAYMENT OR PERFORMANCE
7 Proof of actual damages suffered by the creditor is not necessary in
order that the penalty may be demanded. (1288) I - Concept of Payment: Five Questions

A. What is Payment?
B. Damages Besides Penalty
1 Payment means not only the delivery of money but also the
(1) When there is an express provision to that effect; performance, in any other manner, of the obligation (1232)
(2) When the debtor refuses to pay the penalty;
(3) When the debtor is guilty of fraud in the non-fulfillment 2 When the obligation consists in the delivery of a generic thing
of the obligation. Non-performance gives rise to the whose quality and circumstances have not been stated, the creditor
presumption of fraud cannot demand a thing of superior quality. Neither can the debtor
deliver a thing of inferior quality. (1246) If there is disagreement,
the court shall be the one to settle the disagreement taking into
II - Provisions Concerning the Creditor and the Debtor consideration the purpose of the obligation and other circumstances.

A. Creditor 3 Unless there is an express stipulation to that effect, the creditor

cannot be compelled partially to receive the prestation. Neither may
(1) The creditor cannot demand the fulfillment of the the debtor be required to make partial payments.
obligation and the satisfaction of the penalty at the same
time, unless this right has been clearly granted him. B. Who Can Pay?
(1) Debtor; or
(2) However, if after the creditor has decided to require the (2) Third person, whether interested or not interested, as
fulfillment of the obligation, the performance thereof long as the creditor accepts.
should become impossible without the creditor’s fault,
the penalty may be imposed. C. To Whom Should Payment Be Made?
(1) To the person in whose favor the obligation has been
B. Debtor constituted; or
(2) His successors in interest; or
1 The debtor cannot exempt himself from the performance of the (3) Any person authorized to receive it.
obligation by paying the penalty, save in the case where this right (a) Legal authority - conferred by law (guardian
has been expressly reserved for him. (1227) of an incapacitated creditor; administrator of
estate of deceased creditor)
III - Regulation of the penal Clause (b) Conventional authority - given by the creditor
himself (agency)
 2 Dation in payment is the delivery and transmission of
1 Payment made by the debtor to a wrong party does not ownership of a thing by the debtor to the creditor as an
extinguish the obligation as to the creditor, if there is no fault accepted equivalent of the performance of the obligation. The
or negligence which can be imputed to the latter. property given may consist not only of a thing, but also of a
real right (such as an usufruct) or of a credit against a third
D. When Should Payment Be Made? person.

2 When the obligation becomes due and demandable. 3 The modern concept of dation in payment considers it as a
novation by the change of the object. It extinguishes the
Where Should Payment be Made? obligation to the extent of the value of the thing delivered,
either as agreed upon by the parties or as may be proved.
In the place designated in the obligation;
There being no express stipulation and if the undertaking is to 4 If the obligation is payment of a sum of money, dation in
deliver a determinate thing, the payment shall be made payment shall be governed by the law on sales.
wherever the thing might be at the moment the
obligation was constituted.
In any other case the place of payment shall be the domicile of IV - Payment of Debt in Money
the debtor.
A. Rule
Even if the thing is determinate but its existence at the place where
it was when the obligation was constituted was temporary, the (1) Should be in the currency which is legal tender in the
performance must be at the domicile of the debtor, unless Philippines
otherwise provided. (2) Promissory notes payable to order, or bills of exchange
or other mercantile documents shall produce the effect of
II - Exceptions to the Five Questions payment only when:
(a) they have been cashed
Identity and Integrity (What is Payment?) (b) when through the fault of the creditor they
have been impaired
When the obligee accepts the performance with actual
knowledge of its incompleteness or irregularity, and without B. Extra-Ordinary Circumstances
expressing any protest or objection, the obligation is deemed
fully complied with 1 In case of extra-ordinary inflation or deflation (unusual
fluctuations in the value of the currency which the parties
Payment by Third Persons (Who Can Pay?) could not have reasonably foreseen), the currency stipulated
should supervene, the value of the currency at the time of the
4 The creditor is not bound to accept payment from uninterested establishment of the obligation shall be the basis of payment.
third persons, unless there is a stipulation to the contrary.
V. Invalid Payment
5 The third person who pays may demand from the debtor what
he has paid, except that if he paid without the knowledge or 2 Payment made to the creditor by the debtor after the latter has
against the will of the debtor, he can recover only insofar as been judicially ordered to retain the debt shall not be valid.
the payment has been beneficial to the debtor. (1236) But as (1243)
between the debtor and the creditor, the obligation is
extinguished. VII - Additional Expenses to Debtor
The third person who paid against the will of the debtor without the
(1) Extra-judicial expenses required by the payment; with
knowledge or against the will of the latter cannot compel the
regards to judicial cost, the Rules Of Court shall govern
creditor to subrogate him in his rights (1237)
(1247)
(2) If the debtor changes his domicile in bad faith or after he
7 Payment by a third person who does not intend to be
has incurred in delay (1251)
reimbursed is deemed to be a donation which requires the
debtor’s consent. But the payment is an any case valid as to
the creditor who has accepted it. (1238)
Subsection 1
8 Payment made by incapacitated third persons will not be valid APPLICATION OF PAYMENTS
except in the case of natural obligations (1427). (1239)
Requisites:
C. Payment to Incapacitated Persons and Third Persons The debtor must have:
(To Whom Should Payment Be Made?)
various debts ; and
(1) Incapacitated Persons -- By virtue of consignation, (1) of the same kind
payment is valid as long as he has kept the thing (2) due and demandable
delivered, or insofar as the payment has been beneficial
(3) in favor of one and the same creditor
to him.
B. Rules of Application
(2) Third Persons - Valid as long as it has redounded to the
benefit of the creditor
(1) Declaration of the debtor to which of them payment
must be applied.
If the debtor makes a proper application of the
payment, but the creditor refuses to accept it because he wants
III - Dacion en Pago (1245) to apply it to another debt, such creditor will incur in delay.

(2) Creditor can also make an application of payment by

 issuing a receipt that is accepted by the debtor. (1252) the tender of payment has been unjustly refused by the creditor. It
is the consignation which constitutes a form of payment, and must
(3) When the payment cannot be applied in accordance with follow, supplement, or complete the tender of payment in order to
the preceding rules, or if application cannot be inferred discharge the obligation. Consignation is not necessary when there
from other circumstances, the debt which is most is no debt due.
onerous to the debtor shall be deemed to have been
satisfied.
II - Requisites of A Valid Consignation
(4) If the debts due are of the same nature and burden, the
payment shall be applied to all of them proportionately. (1) Tender of payment must be made to the creditor and the
creditor refuses to accept it due to unjustifiable reasons.
If the debt produces interest, payment of the principal shall not
be deemed to have been made until the interest has been (2) Consignation must first be announced to the persons
covered. interested in the fulfillment of the obligation (co-debtors,
guarantors, or sureties, solidary co-creditors, or possible
Subsection 2 litigants, such as those who claim to be entitled to the
payment. (1257) Lack of notice does not invalidate the
PAYMENT BY CESSION consignation, but simply makes the debtor liable for the
expenses
Concept
(3) Consignation shall be made by depositing the thing due
If the debtor is on the verge of insolvency, and he has two or more at the disposal of judicial authority. The court would
creditors, he may cede or assign his property to his creditors in likewise have authority in such case to make an order for
payment of his debts. Such assignment does not have the the sale of property and the payment of the proceeds into
effect of making the creditors the owners of the property of the the court if the goods should be of a perishable nature.
debtor, unless there is an agreement to the effect. The
assignment cannot include property exempt from execution (4) The consignation having been made, the interested
unless the debtor waives the exemption. parties shall also be notified thereof. (1258 par. 2)

The assignment gives to the creditors the right to proceed to the sale (5) Consignation is properly made
of the property, and to pay themselves in the amount which (a) when the creditor accepts the consignation
the proceeds of the sale permit and in the manner agreed upon. (b) when the creditor objects to the consignation
but the court, after proper hearing, declares
Requisites that the consignation has been validly made.

(1) debtor is on the verge of insolvency; and (6) Consignation has a retroactive effect and payment is
(2) he has two or more creditors deemed to have been made at the time of the deposit of
the thing in court.

C. Distinguished from Dacion en Pago (7) The expenses of consignation, when properly made,
shall be charged against the creditor.
(1) Dacion en Pago transfers ownership while in Payment
by cession, only possession and administration is (8) If, the consignation having been made, the creditor
transferred. should authorize the debtor to withdraw the same, there
is a revival of the obligation and the relationship of the
(2) Dacion en Pago may totally extinguish the obligation debtor and creditor is restored to the condition in which
while Payment by Cession extinguishes the creditors to it was before the consignation. But third persons who
the extent of the amount realized from the properties were benefited by the consignation are not prejudiced by
assigned. the revival of the obligation between the debtor and the
creditor.
(3) Dacion en Pago involves cession of only some specific
thing while in Payment by Cession, assignment
involves all the property of the debtor. III - Pending Completion

(4) In Dacion en Pago, there is only one creditor while in 2 Before the consignation is completed, the debtor may withdraw the
Payment by Cession, there are various creditors. thing or the sum deposited allowing the obligation to remain in
force. (1260 par. 2) Creditor may prevent the withdrawal by
Subsection 3 accepting the consignation, even with reservations.

TENDER OF PAYMENT AND CONSIGNATION IV - Tender of Payment Not Necessary (1256)

I - Concepts (1) When the creditor is absent or unknown, or does not

appear at the place of the payment. He must
A. Tender of Payment furthermore, have no legal representative, or if he has
one, the debtor, without his fault, does not know it.
1 Tender of payment is the manifestation made by the debtor to the Absence or incapacity need not be legally declared.
creditor or his desire to comply with his obligation, with the offer of
immediate performance (2) When the creditor is incapacitated to receive the
payment at the time it is due
B. Consignation (3) When, without just cause, the creditor refuses to give a
receipt.
1 Consignation is the deposit of the object of the obligation in a
competent court in accordance with rules prescribed by law, after (4) When two or more persons claim the right to collect.
 They must have the appearance of a right to collect such 5 This presumption does not apply in cases of:
that the debtor would have a reasonable doubt, not based
on negligence, as to who is entitled to the payment. (1) earthquake
(2) flood
(5) When the title of the obligation has been lost. (3) storm
(4) other natural calamity.
V -- Effect on Interest
F. Effect of Extinguishment of Obligation
(1) Accrual of interest is suspended when a tender of
payment is made in such a form that the creditor could 6 The obligation having been extinguished by the loss of the thing, the
have realized payment, followed by a prompt attempt to creditor shall have all the rights of action which the debtor may
deposit the means of payment in court by way of have against third persons by reason of the loss (1269)
consignation.

(2) Interest is not suspended when the tender of payment is II - Exceptions to the Rule
not accompanied by means of payment and the debtor
did not take any immediate step to make a consignation. 7 The following cases constitute exceptions to the rule that loss of the
determinate object by fortuitous event extinguishes the obligation:
Section 2 (1) When the law provides it (1174). (Ex: Arts. 1492; 1979;
2147; 2159)
LOSS OF THE THING DUE (2) When it is stipulated
I - General Principles
(3) When the nature of the obligation requires the
assumption of risk (1174)
A. Concept of Loss
(4) When the debtor is at fault or is negligent
(5) When the loss occurs after the debtor has incurred in
3 A thing is lost when:
delay (1165)
(1) it perishes
(6) When the debtor has promised to deliver the same thing
(2) it goes out of commerce to two or more different parties (1165)
(3) it disappears in such a way that its existence is unknown (7) When the obligation to deliver a determinate thing arises
or it cannot be recovered. from a criminal act (1268)
1 The courts shall determine whether, under the circumstances,
the partial loss of the object of the obligation is so important Section 3
as to extinguish the obligation. (1264)
CONDONATION OR REMISSION OF THE DEBT
B. Requisites
(1) Loss must be subsequent to the execution of the contract. I - Condonation
(2) Loss must be without the fault of the debtor.
(3) Loss must be before the debtor has incurred in delay. A. Concept of Condonation (1270)

C. Scope By remission, the creditor renounces the enforcement of the

obligation, which is extinguished in its entirety or in that part or aspect of
2 Loss of the thing due extinguishes the obligation only in the the same to which the remission refers.
following cases:
B. Kinds
(1) Obligations to deliver a specific thing; subjective
impossibility will make the debtor liable for damages. (1) As to form
(1262 par. 1). (a) express - made formally and should be in
(2) In obligations to do when the prestation becomes accordance with the form of ordinary
physically or legally impossible. (1266) donations
(b) implied
3 When the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the obligor may also (2) As to extent
be released therefrom, in whole or in part. (1267) (a) total
(b) partial - may refer to the amount of the
D. Temporary Impossibility indebtedness, or to an accessory obligation
only (such as pledge or interest), or to some
(1) Does not extinguish the obligation if temporary obstacles other aspect of the obligation (such as
to the performance of the prestation may be expected to solidarity)
disappear in the near future.
(3) As to manner
(2) Extinguishes the obligation if the obstacle is of an (a) inter vivos - effective during the lifetime of
unknown or unforeseen duration. The obligation is the creditor
extinguished and is not revived by the fact that it (b) mortis causa - effective upon the death of the
becomes possible later when circumstances change. creditor
-- must be contained in a
E. Presumption will or a testament
II - Applicable Rules
4 When the thing is lost in the possession of the debtor, it shall be
presumed that the loss was due to his fault. A. Express Remission
 D. Benefits
8 Express remission should be in accordance with the form of
ordinary donation (1) Merger which takes place in the person of the principal
debtor or creditor benefits the guarantors.
(1) On the manner of acceptance, Arts. 745 and 746 apply
(2) With respect to the amount, Arts. 750 and 752 govern (2) When the merger takes place in the person of the
(3) As to revocation, Arts. 760; 761; 764; and 765 apply guarantor, his obligation as guarantor is extinguished,
but the principal obligation subsists and can be enforced
B. Implied Remission by him against the debtor and the other co-guarantors.

(1) The delivery of a private document evidencing a credit, (3) Confusion does not extinguish a joint obligation except
made voluntarily by a creditor to the debtor, implies as regards the share corresponding to the creditor or
remission. (1271 par. 1) debtor in whom the two characters concur.

9 There may also be tacit remission when the creditor voluntarily Section 5
destroys or cancels the evidence of the credit, with the intent to
renounce his right. This is not true in the case of public documents, COMPENSATION
because there is always a copy in the archives which can be used to
prove credit. I - Compensation

(2) Whenever the private document evidencing credit is in A. Concept of Compensation

the possession of the debtor, it shall be presumed that the
creditor delivered it voluntarily. (1272) 14 It is a mode of extinguishing to the concurrent amount, the
(3) The renunciation of the principal debt shall extinguish obligations of those persons who in their own right are reciprocally
the accessory obligations; but the waiver of the latter debtors and creditors of each other (the obligation, however, should
shall leave the former in force. (1273) not be reciprocal).
o It is presumed that the accessory obligation of pledge has
been remitted when the thing pledged, after its delivery 15 It is the offsetting of two obligations which are reciprocally
to the creditor, is found in the debtor, or a third person extinguished if they are of equal value (total compensation), or
who owns the thing. (1274) The remission of the pledge extinguished to the concurrent amount if of different values (partial
extinguishes only the security, not the principal compensation)
obligation.
B. Rescissible or Voidable Contracts
o In remission, whether express or implied, one and the
other kind shall be subject to the rules which govern 1 When one or both debts are rescissible or voidable, they may
inofficious donations. be compensated against each other before they are judicially
rescinded or avoided.

Section 4 2 The moment it is rescinded or annulled, the decree of

rescission or annulment is retroactive, and the compensation
CONFUSION OR MERGER OF RIGHTS must be considered as cancelled. Rescission or annulment
require mutual restitution.
A. Requisites
C. Several Debts
10 In confusion or merger of rights, the characters of creditor and
debtor are merged in the same person. (1275) 1 If a person should have against him several debts which are
susceptible of compensation, the rules on the application of
(1) It must take place between the creditor and the principal payments shall apply. (1289)
debtor. (1276)
(2) The very same obligation must be involved.
(3) The confusion must be total or as regards the entire II - Kinds of Compensation
obligation.
A. Legal
B. Causes of Merger
2 When compensation takes place by operation of law because
(1) An act which brings about a succession to the credit, all the requisites are present:
whether it is universal or particular, inter vivos or mortis
causa. (1) That each one of the obligors be bound principally, and
that he be at the same time a principal creditor of the
(2) Most frequent way is by way of testate or intestate other;
successions. (2) That both debts consists in a sum of money, or if the
things due are fungible, they be of the same kind, and
11 But where the creditor inherits from the debtor, there can be no also of the same quality if the latter has been stated;
confusion if the debt is for a sum of money, because the debt is not (3) That the two debts be due 9enforceable in court);
transmitted to the heir under our present law. (4) That they be liquidated (debt’s existence and amount is
determined) and demandable
C. Revocation of Merger (5) That over neither of them there be any retention or
controversy, commenced by third persons and
12 When the act which occasions the merger is susceptible of communicated in due time to the debtor. (1279)
termination or revocation, the merger that has taken place is also
terminated or revoked, and the obligation is recreated in the same B. Facultative Compensation
condition that it had when the merger took place.
3 This compensation which can be set up only at the option of
 the creditor, when legal compensation cannot take place he may set up compensation all credits maturing before
because of the want or some legal requisites for the benefit of he is notified thereof.
the creditor. Facultative compensation takes place when the
creditor declares his option to set it up.
V - Prohibition of Compensation

C. Conventional Compensation Compensation shall not be proper when:

4 When the parties agree to compensate their mutual obligations (1) One of the debts arise from a depositum or from the
even if some requisite is lacking, such as when the debts are obligations of a depositary or of a bailee in commodatum
not yet due. (1282)
(2) Neither can compensation be set up against a creditor
5 However, voluntary compensation is not limited to this. The who has a claim for support due by gratuitous title.
parties may compensate by agreement any obligations with the Support in arrears however can be compensated.
minimum requirement that each one of the obligors be bound
principally, and that he be at the same time a principal creditor (3) If one of the debts consists in civil liability arising from
of the other. a penal offense. But the offended party entitled to the
indemnity can set up his claim in compensation of his
6 Voluntary/Conventional compensation takes effect upon the debt. This is another case of facultative compensation.
agreement of the parties.
Section 6
D. Judicial Compensation
NOVATION
1 This is compensation which takes place when the defendant,
who is creditor of the plaintiff for an unliquidated amount, sets I - General Principles
up his credit as counterclaim against the plaintiff, and his
credit is liquidated by the judgment, thereby compensating it A. Concept of Novation
with the credit of the plaintiff.
2 Novation is the extinguishment of an obligation by the
2 Judicial compensation takes place upon final judgment. substitution or change of the obligation by a subsequent one
which extinguishes or modifies the first, either by:

III - Effects of Compensation (1) Changing the object or principal conditions (objective or
real);
(1) Both debts are extinguished to the concurrent amount. (2) Substituting the person of the debtor (passive
(2) Interests stop accruing on the extinguished obligations or subjective);
the part extinguished. (3) Subrogating a third person in the rights of the creditor
(3) Period of prescription stops with respect to the obligation (active subjective) (1291)
or part extinguished.
(4) All accessory obligations of the principal obligation 3 Novation is a juridical act of dual function in that at the time it
which has been extinguished are also extinguished. extinguishes an obligation it creates a new one in lieu of the
old.
IV - Assignment and Compensation (1285)
B. Requisites
A. Assignment After Compensation (1) Previous valid obligation
(2) The agreement of all the parties to the new contract
1 A subsequent assignment of an extinguished obligation cannot (3) The extinguishment of the old contract.
produce any effect against the debtor. The assignee is left (4) The extinguishment of the old contract
only with an action for damages for fraud against the assignor. (5) The validity of the new one

2 The only exception to this rule is when the debtor consents to 4 The novation is void if the original obligation was void, except
the assignment of the credit; his consent constitutes a waiver when annulment may be claimed only by the debtor, or when
of the compensation, unless at the time he gives his consent, ratification validates acts which are voidable.
he informs the assignor that he reserved his right to the
compensation. 5 Accessory obligations may subsist only insofar as they may
benefit third persons who did not give their consent. This rule
Assignment Before Compensation is especially applicable to novation by substitution of debtors.

As far as the debtor is concerned, the assignment does not take 6 If the new obligation is void, the original one shall subsist. If
effect except from the time he is notified thereof. the new obligation is only voidable, the novation becomes
effective. But if the obligation is annulled, it will be deemed as
(1) Debtor can set up compensation of debts due prior if there had been no novation and the original obligation
of the assignment. If he consents to the assignment, he subsists, unless the parties intended to definitely extinguish it
waives compensation even of debts already due, unless at all events. (1297)
he makes a reservation.

(2) If the debtor does not consent, and the credit assigned to C. Classification of Novation
a third person matures after that which pertains to the
debtor, the debtor may set up compensation provided (1) As to Form
that the credit of the debtor became due before the (a) Express - the extinguishment of the old
assignment. obligation by the new one must be declared
in unequivocal terms
(3) If the debtor did not have knowledge of the assignment,
 (b) Implied - novation is never presumed pays with the express or tacit approval of the debtor;
1 The old and the new obligation must be (3) When, even without the knowledge of the debtor, a
on every point incompatible with each person interested in the fulfillment of the obligation
other, otherwise the old contract pays, without prejudice to the effects of confusion as to
remains in force and the new contract is the latter’s share.
added to it
2 In order that there may be an implied B. Conventional Subrogation
novation, the change must refer to the
object, the cause, or the principal 3 Requires the consent of:
conditions of the obligation. There
must be an essential change. (1) the original creditor
(2) the new creditor
(2) As to effect (3) the debtor
(a) partial - when there is only a modification in
some principal conditions of the obligation C. Partial Payment
(b) total - old obligation is completely
extinguished 4 A creditor, to whom partial payment has been made, may
exercise his right for the remainder, and he shall be preferred
to the person who has been subrogated in his place in virtue of
II - Substitution of the Person of the Debtor the partial payment of the same credit. (1304)

A. Expromision
TITLE II
1 The initiative for the change does not emanate from the debtor CONTRACTS
and may even be made without his knowledge, since it
consists in a third person assuming the obligation. It logically CHAPTER 1
requires the consent of the third person and the creditor.
GENERAL PROVISIONS
2 In expromision, the new debtor’s insolvency or non-
fulfillment of the obligation shall not give rise to any liability I - General Principles
on the part of the original debtor. (1294)
A. Concept of Contract
3 The new debtor can recover only insofar as the payment has
been beneficial to the old debtor. In this case, there is no 5 A contract is a juridical convention manifested in legal form,
subrogation. by virtue of which one or more persons bind themselves in
favor of another or others, or reciprocally, to the fulfillment of
B. Delegacion a prestation to give, to do, or not to do.

1 The debtor (delegante) offers and the creditor (delegatario) B. Characteristics of Contracts
accepts a third person (delegado) who consents to the
substitution, so that the consent of these three is necessary. (1) Obligatory force - constitutes the law as between the
parties
2 It is not enough to extend the juridical relation to a third (2) Mutuality - the contract must bind both contracting
person; it is necessary that the old debtor be released from the parties; its validity or compliance cannot be left to the
obligation, and the new debtor takes his place in the relation. will of one of them. (1308)
Without such release, there is no novation. (3) Relativity - contract is binding only upon the parties and
their successors
3 The new debtor could demand from the old debtor what he has
paid. Subrogation takes place. C. Limitations

4 In delegacion, the insolvency of the new debtor shall not 6 The contracting parties may establish such stipulations,
revive the action of the creditor against the original creditor clauses, terms and conditions as they may deem convenient,
except: provided they are not contrary to law, morals, good customs,
public order, or public policy. (1306)
(1) the insolvency was already existing and of public
knowledge D. Stages of A Contract
(2) the insolvency was known to the debtor when he
delegated his debt. (1) Preparation, Conception, or Generation - period of
negotiation and bargaining, ending at the agreement of
III - Subrogating a Third Person in the Rights of the Creditor the parties.
(2) Perfection or birth of the contract
1 Subrogation transfers to the person subrogated the credit with (a) Consensual contracts - perfected by mere
all the rights thereto appertaining, either against the debtor or consent (express or implied)
against third persons. (b) Real contracts - perfected by the delivery of
the object of the obligation
A. Legal Subrogation (3) Consummation or death - fulfillment or performance of
the terms agreed upon in the contract.
2 Takes place by operation of law because of certain acts. It is
not presumed except in the following instances: II - Third Persons

(1) When a creditor pays another creditor who is preferred, A. Determination of performance
even without the debtor’s knowledge;
(2) When a third person, not interested in the obligation, 7 The determination of the performance may be left of third
 persons, whose decision shall not be binding until it has been
made known to both parties. 1 An offer is a unilateral proposition which one party makes to the
other for the celebration of a contract. It must therefore be:
8 The determination shall not be obligatory if it is evidently
inequitable. In such case, the courts shall decide what is (1) Definite
equitable under the circumstances. (1310) (2) Complete
(3) Intentional
B. Effects
B, Ineffectivity
(1) A contract cannot be binding upon and cannot be
enforced against one who is not a party to it. 2 An offer becomes ineffective upon the death, civil interdiction,
insanity, or insolvency of either party before acceptance is
(2) However, if a contract should contain some stipulation conveyed. (1323)
in favor of a third person, he may demand its fulfillment
provided he communicated his acceptance to the obligor
before its revocation. A mere incidental benefit or C. Withdrawal of Offer (1324)
interest of a person is not sufficient. The contracting
parties must have clearly and deliberately conferred a 3 The law permits the offeror to withdraw the offer at any time before
favor upon a third person (pour autrui). (1311 par. 2) acceptance

(3) Juridical situations affecting them: (1) If there is a fixed period, the offeree may accept at
(a) In contracts creating real rights, third persons anytime until such period expires. However, the offer
who come into possession of the object of can be withdrawn even before the period for acceptance
the contract are bound thereby, subject to the has expired.
provisions of the Mortgage Law and the
Land registration laws. (2) When the offeror has not fixed a period,
(b) Creditors are protected in case of contracts
intended to defraud them. (1313) (a) If it is made to a person present, acceptance
(c) Any third person who induces another to must be made immediately
violate his contract shall be liable for (b) If it is made to a person absent, the
damages to the other contracting party. acceptance may be made within such time
(1314) that, under normal circumstances, an answer
can be received from him.
C. Contracting in the Name of Another C. Mere Invitations To Make Offers

9 No one may contract in the name of another without being (1) Business advertisements, unless it appears otherwise
authorized by the latter, or unless he has by law a right to (2) Advertisements for bidders
represent him.
III - Acceptance

A. Concept
CHAPTER 2
4 It is necessary that the acceptance be unequivocal and
ESSENTIAL REQUISITES OF CONTRACTS unconditional, and the acceptance and the proposition shall be
without any variation whatsoever. Acceptance may either be
There is no contract unless the following requisites concur: express or implied.

(1) Consent of the contracting parties; 5 A qualified acceptance constitutes a counter-offer.

(2) Object certain which is the subject matter of the contract
(3) Cause of the obligation which is established 6 The person making the offer may fix the time, place, and manner of
acceptance all of which must be complied with.
Section 1
B. Knowledge of the Offeror
CONSENT
1 No contract will arise unless acceptance is made known to the
I - Concept of Consent offeror.
10 The essence of consent is the conformity of the parties on the (1) By correspondence - the contract is presumed to have
terms of the contract, the acceptance of one by the offer made been entered into in the place where the offer was made.
by the other; it is the concurrence of the minds of the parties of (2) By agent - an offer made through an agent is accepted
the object and the cause which shall constitute the contract. from the time acceptance is communicated to him.
11 Consent presupposes the following requisites:
IV - Incapacity to Give Consent
(1) plurality of subjects
(2) capacity 2 The following cannot give consent to a contract:
(3) intelligence
(4) express or tacit manifestation of the will (1) Unemancipated minors
(5) conformity of the internal will and its manifestation (2) Insane or demented persons - previous judicial
declaration of mental incapacity not necessary
II - Offer (3) Deaf-mutes who do not know how to write

A. Requisites
V - Vitiated Consent
B. Kinds
3 A contract where consent is given through mistake, violence,
intimidation, undue influence, or fraud is voidable. (1) Dolo causante - fraud prior or simultaneous to the
consent of the creation of the obligation and is the
4 Defect or lack of valid consent must be established by full, clear, essential cause of the consent.
and convincing evidence. 1 Dolo causante is a ground for annulment of
contract
VI - Mistake
(2) Dolo incidente - fraud which occurs with the fulfillment
A. Scope of the obligation.
2 Dolo incidente only gives rise to an action for
1 The error which is referred to is to both mistake of fact and mistake damages.
of law based on good faith.
C. Requisites
2 In order that mistake may invalidate consent, it should refer to:
(1) Employed by one contracting party upon the other.
(1) The object of the contract. (1344).
(2) The principal conditions which have moved one or both 3 Misrepresentation by a third person does not vitiate
parties to enter into the contract. consent, unless such misrepresentation has created
(3) Identity or qualifications of one of the parties will vitiate substantial mistake and the same is mutual. (1342)
consent only when such identity or qualifications have (2) It must have induced the other party to enter into the
been the principal cause of the contract. An error as to contract.
the solvency of the other party is not a cause of nullity. (3) It must have been serious
(4) It must have resulted in injury to the party seeking
1 A simple mistake of account shall give rise to its correction annulment.

B. Burden of Proof D. Not Cases of Fraud

1 When one of the parties is unable to read, or if the contract is in a (1) Usual exaggeration in trade, when the other party had an
language not understood by him, and mistake or fraud is alleged, the opportunity to know the facts
person enforcing the contract must show that the terms thereof have (2) A mere expression of an opinion unless made by an
been fully explained to the former. expert and the other party has relied on the former’s
special knowledge
D. Error of Law (3) Misrepresentation made in good faith is not fraudulent
but may constitute error.
2 Error of law may vitiate consent provided:
(1) the error must be as to the legal effect of the agreement
(2) it must be mutual VIII - Simulation of a Contract
(3) the real purpose of the parties is frustrated
A. Concept of Simulation
VII - Violence and Intimidation
4 It is the declaration of a fictitious will, deliberately made by
A. Violence agreement of the parties, in order to produce, for the purpose
of deception, the appearance of a juridical act which does not
(1) physical force employed must be irresistible exist or is different from that which was really executed.
(2) such force is the determining cause in giving the consent
to the contract B. Kinds

B. Intimidation (1) Absolute Simulation - There is color of contract, without

any substance thereof, the parties, not having any
(1) the intimidation must have caused the consent to be intention to be bound. An absolutely simulated contract
given is known as simulado.
(2) the threatened act be unjust or unlawful
(3) the threat be real and serious (2) Relative Simulation - The parties have an agreement
(4) produces a reasonable and well-grounded fear that the which they conceal under the guise of another contract.
threat can and will be carried out Relatively simulated contracts are called disimulados.

VIII - Fraud C. Effects

A. Concept (1) Absolutely simulated - void

(2) Relatively simulated - valid provided that:
3 Fraud is every kind of deception, whether in the form of insidious (a) it does not prejudice third persons
words or machinations, manipulations, concealments or (b) not intended for any purpose contrary to law,
misrepresentations of one of the contracting parties to the other morals, good customs, public order, or public
without necessarily constituting estafa or some offense under the policy
penal laws and the other is induced to enter into a contract which, (c) concealed contract must have all the essential
without them, he would not have agreed to. requisites such as consent, object, and cause.

4 Fraud must be established by full, clear, and convincing evidence, 5 When the purpose of the simulation is illicit, or to
and not merely a preponderance thereof. prejudice a third person, it would be void and
inexistent (1409) and neither can have an action
 against the other. rejected other offers, and suffered damages, is he not entitled
to recover these?
D. Effects As To Third Persons (Of
Relatively Simulated Contracts) (1) If the debtor knew or could have known of the
impossibility, his bad faith or negligence makes him
(1) If the third person acted in good faith, he may avail liable for damages. The damages will be limited to the
himself of the conduct of the parties to the simulated losses the creditor may have suffered; he cannot recover
contract which is most favorable to himself all the damages arising from non -performance of the
contract.
(2) If he is prejudiced, he may invoke the nullity of the
simulated contract. (2) If the debtor is also ignorant of the impossibility, and his
ignorance is unjustifiable, or unavoidable, he cannot be
held liable for damages.
Section 2
(3) There is no liability for damages if both parties know of
OBJECTS OF CONTRACTS the impossibility.

I -- The Object C. Partial Impossibility

A. Concept of Object 3 If the object is indivisible there is no contract but if the thing is
divisible, then the contract is valid to the extent that it is
6 The object of a contract is its subject matter. The possible.
object of the contract and the object of the
obligation created thereby are identical.
Section 3
B. Requisites of Object
CAUSE OF CONTRACTS
(1) within the commerce of man
(2) licit, or not contrary to law, morals, good customs, I - The Cause
public policy, or public order at the time the contract
entered into A. Concept
(3) it must be possible
(4) it must be determinate or determinable as to its kind; the 4 The cause of a contract is the “why of the contract”, the
quantity may be indeterminate, so long as the right of the immediate and most proximate purpose of the contract, the
creditor is not rendered. essential reason which impels the contracting parties to enter
into it and which explains and justifies the creation of the
C. Future Inheritance (1347 par 2) obligation through such contract.

7 No contract may be entered its upon future inheritance B. Requisites

except in cases expressly authorized by law generally does
not allow contracts on future inheritance. In order that a (1) It must exist - contracts without cause produce no effect
contract may fall with in the prohibition, the ff. Requisites whatsoever
are necessary. (2) It must be true
(3) It must be licit - contracts whose cause is contrary to
1. that the succession has not yet been opened law, morals, good customs, public order, or public policy
2. that the object of the contract form part of the inheritance produce no effect whatsoever
3. the promissor has, with respect to the object, an
expectancy of a right which is purely hereditary in 5 Although the cause is not stated in the contract, it is presumed
nature. (see p. 522) that it exists and is lawful, unless the debtor proves the
contrary. (1354)
II - Impossible Things
6 Except in cases specified by law, lesion or inadequacy of
A. Concept cause shall not invalidate a contract, unless there has been
fraud, mistake, or undue influence. (1355)
8 Impossible things or services cannot be the object of contracts
(1348). The impossibility must be actual and
contemporaneous with the making of the contract, and not II - Onerous, Remuneratory, and Gratuitous Contracts (1350)
subsequent thereto
A. Onerous Contracts
9 The impossibility may be:
7 The cause is understood to be, for each contracting party, the
(1) Absolute or objective - when nobody can perform it prestation o promise of a thing or service by the other.
(2) Relative or subjective- when due to the special
conditions or qualifications of the debtor cannot be B. Remuneratory Contracts
performed.
8 A remuneratory contract is one where a party gives something
1 The absolute impossibility nullifies the contract and must be to another because of some service or benefit given or
determined objectively, and not in relation to the debtor rendered by the latter to the former, where such service or
personally. benefit was not due as a legal obligation
9 The cause is the service or benefit which is remunerated.
B. Liability for Damages
C. Gratuitous Contracts
2 If the creditor, relying on the contract, has incurred expenses,
 10 Gratuitous contracts are essentially agreements to give
donations. The generosity or liberality of benefactor is the I - General Principles
cause of such contracts.
A. Requisites

III - Statement of False Cause (1) there must have been a meeting of the minds upon the
contract
11 The statement of a false cause in contracts shall render them
void, if it should not be proved that they were founded upon (2) the instrument or document evidencing the contract does
another cause which is true and lawful.(1353) not express the true agreement between the parties

12 Where the true consideration is partly legal and partly illegal, (3) the failure of the instrument to express the agreement
a party cannot recover upon the contract if he fails to prove must be due to mistake, fraud, inequitable conduct, or
what part of the contract is supported by the legal cause. accident

1 If mistake, fraud, inequitable conduct, or accident has prevented a

CHAPTER 3 meeting of the minds of the parties, the proper remedy is not
reformation of the instrument but annulment of the contract.
FORM OF CONTRACTS
B. Operation and Effect
I - General Principles
2 Upon the reformation of an instrument, the general rule is that
A. General Rule it relates back to, and takes effect from the time of its original
execution, especially as between the parties.
1 Contracts shall be obligatory, in whatever form they may have been
entered into, provided all the essential requisites for their validity II - Instances for Reformation
are present. However, there are two cases when form is absolute
and indispensable: (1) Mutual mistake by the parties
(2) One party was mistaken and the other acted fraudulently
(1) when the form is essential to its validity (ad essentia, ad or inequitably. The fraud or inequitable conduct must be
solemniatatem) clearly shown, and must be at the time of the execution
(2) when the contract is unenforceable unless it is in a of the instrument. The mistake must refer to the contents
certain form, such as those under the Statute of Frauds of the instrument, and not the subject matter or principal
(ad probationem) conditions of the agreement. (1362)
(3) When one party was mistaken and the other knew or
B. Compliance With Formality (1357) believed that the instrument did not state their real
agreement, but concealed that fact from the former
1 If the law requires a document or other special form, the (4) Mistake of the draftsman
contracting parties compel each to observe that form, once the (5) If two parties agree upon the mortgage or pledge of real
contract has been perfected. This right may be exercised or personal property, but the instrument state that the
simultaneously with the action upon the contract. property is sold absolutely or with a right of repurchase.

2 When a party to a contract dies and is survived by his heirs, III - No Reformation
the latter may be compelled to execute the proper documents.
(1) Simple donations inter vivos wherein no condition is
involved
II - Public Documents (2) Wills (subject to the exception in Art 789)
(3) When the real agreement is void
The following must appear in a public document:
IV - Procedure
(1) Acts and contracts which have for their object the
creation, transmission, modification or extinguishment (1) Governed by the rules promulgated by the Supreme
of real rights over immovable property; Court

(2) The cession, repudiation or renunciation of hereditary (2) When one of the parties has brought an action to enforce
rights or of those of the conjugal partnership of gains; the instrument, he cannot subsequently ask for its
reformation.
(3) The power to administer property, or any other power
which has for its object an act appearing or which (3) If mistake was mutual, reformation may be ordered at
should appear in a public document, or should the instance of either party or his successors in interest.
prejudice a third person;
(4) In other cases, upon petition of the injured party, or his
(4) The cession of actions or rights proceeding from an heirs and assigns.
act appearing in a public document.

1 All other contracts where the amount involved exceeds five CHAPTER 5
hundred pesos must appear in writing, even a private one.
INTERPRETATION OF CONTRACTS
2This provision does not require such form in order to validate
the act or contract but to insure its inefficacy. (1) Meaning and intention must be sought first of all from the
CHAPTER 4 language of the contract itself.
(2) The spirit of the contract prevails over its letter
REFORMATION OF INSTRUMENTS (3) In order to judge the intention of the contracting parties, their
 contemporaneous and subsequent acts shall be principally
considered (1) obligation to return the things which were the object of
(4) General terms do not comprehend things that are different from the contracts
those upon which the parties intended. (2) right to damages if the thing cannot be returned
(5) A particular intent will control a general one that is inconsistent (3) rescission shall be only to the extent necessary to cover
with it. the damages caused
(6) Interpret stipulations in favor of validity
(7) Interpret the contract as a whole II - The Rescissible Contracts
(8) Words which may have different significations shall be understood
in that which is most in keeping with the nature of the object of the (1) Those which are entered into by guardians whenever the
contract. wards whom they represent suffer lesion by more than
(9) The usage or custom of the place shall be borne in mind. one fourth of the value of the things which are the object
(10) Obscure terms shall be interpreted strictly against the one who thereof, unless it is judicially approved;
caused the obscurity.
(11) The least transmission of rights and interests shall prevail. (2) Those agreed upon in representation of absentees, if the
(12) If the contract is onerous, the doubt shall be settled in favor of the latter suffer the lesion stated in the preceding number,
greatest reciprocity of interests. unless it is judicially approved;

(13) The written portion prevails over the printed portions of a policy. (3) Those undertaken in fraud of creditors when the latter
(14) Where the intention of the parties relative to the objects of the cannot in any other manner collect the claims due him;
contract cannot be known, the contract shall be null and void.
(4) Those which refer to things under litigation if they have
CHAPTER 6 been entered into by the defendant without the
knowledge and approval of the litigants or of competent
RESCISSIBLE CONTRACRTS judicial authority;

I - General Principles (5) All other contracts specially declared by law to be

subject to rescission. (1381)
A. Concept of Rescission
(6) Payments made in a state of insolvency for obligations
3 Rescission is a remedy granted by law to the contracting to whose fulfillment the debtor could not be compelled
parties and even to third persons, to secure the reparation of at the time they were effected.
damages caused to them by a contract, even if this should be
valid, by means of the restoration of things to their condition III - Subsequent Transfer
at the moment prior to the celebration of said contract.
1 Whoever acquires in bad faith the things alienated in fraud of
B. Requisites creditors, shall return the thing or if return be impossible, he
shall indemnify the creditor for damages.
(1) The contract must be a rescissible contract.
(2) The party asking for rescission must have no other legal 2 If there are two or more alienations, the first acquirer shall be
means to obtain reparation for the damages suffered by liable first, and so on successively. (1388)
him. (The action for rescission is subsidiary.)
(3) The person demanding rescission must be able to return
whatever he may be obliged to re if rescission is granted. CHAPTER 7
(4) The things which are the object of the contract must not
have passed legally to the possession of a third person VOIDABLE CONTRACTS
acting in good faith.
I - General Principles
(5) The action for rescission must be brought within the
prescriptive period of four years.
A. Concept
(6) Rescissible contracts must be attacked directly, not
collaterally
1 A voidable contract is valid until it is set aside. They can be
(7) A valid contract can be rescinded only for cases
confirmed or ratified.
established by law.
B. Voidable Contracts
C. Who May Bring Rescission
2 The following contracts are voidable or annulable, even
(1) person injured
though there may have been no damage to the contracting
(2) heirs of these persons
parties:
(3) their creditors
(1) Those where one of the parties is incapable of giving
D. How Attacked consent to the contract
(2) Those where the consent is vitiated by mistake, violence,
4 Must be attacked directly intimidation, undue influence, or fraud.
B. Who May Attack?
E. Prescriptive Period
The person must both be:
5 Within four years.
6 For persons under guardianship and for absentees, the period (1) The plaintiff must either be oblighed principally or
of four years shall not begin until the termination of the subsidiarily; and
former’s incapacity or until the domicile of the latter is known. (2) The victim and not the party responsible for the defect is
the person who must assert the same. (1327)
F. Effects of Rescission
 Retroacts to the moment the contract was constituted
C. Prescriptive Period
III - Damages
3 Within four years.
4 The period shall begin: As a rule, the annulment of the contract, and the resulting mutual
(1) In cases of intimidation, violence or undue influence, restitution eliminates the possibility of damage suffered by the
from the time the defect of the consent ceases. injured party.
(2) In case of mistake or fraud, from the time of the
discovery of the same. In legal contemplation, discovery However, damages can be awarded in cases of additional expenses or loss
of fraud must be reckoned to have taken place from the or deterioration of the object of the obligation.
time the document was registered in the office of the
register of deeds, for registration is a notice to the whole In obligations to render service, the value thereof shall be the basis for
world. damages.
(3) When the action refers to contracts entered into by
minors or other incapacitated persons, from the time the IV - Loss of the Thing
guardianship ceases.
By Plaintiff
E. Effects of Annulment
If lost through fraud or fault, action for annulment is
extinguished.
(1) Nullity arising from Incapacity
If lost through fortuitous event, the defendant cannot be
compelled to make restitution.
(a) The incapacitated person is not obliged to
make any restitution except insofar as he has
By Defendant
been benefited by the thing or price received
by him.
If lost through his fault, he shall return the fruits received and
Capacitated party is obliged to make complete
the value of the thing at the time of the loss, with interest
restitution subject to the exception provided
from the same date.
in Natural Obligations (Art. 1497).
If lost through fortuitous event, he shall pay the value of the
thing at the time of its loss but without interest.
Nullity arising From Vitiated Consent
CHAPTER 8
The primary effect is mutual restitution of the subject
matter of the contract taking into account the
UNENFORCEABLE CONTRACTS
principle of unjust enrichment. Mutual restitution
under this provision does not apply to strangers to
Concept
the actual contractual relation.
An unenforceable contract is one which cannot be enforced unless it
As regards to the fruits and interests, the following rules
is first ratified in the manner provided by law. It is
apply:
distinguished from the rescissible and the annullable contracts
in that the latter two contracts produce legal effects unless
Restitution as long as the cause of nullity does not
they are set aside by a competent court, while the
involve an illicit act such as error and
unenforceable contract does not produce any effect unless it is
incapacity unknown to the other party.
ratified.
But when the cause of nullity is illicit (violence,
fraud), the party who employed those means
The Unenforceable Contracts
must be obliged to restore; on the other hand,
the innocent party should not be required to
Those entered into in the name of another person by one who
return fruits or pay interest.
has been given no authority or legal representation, or
who has acted beyond his powers.
II - Ratification
Those that do not comply with the Statute of Frauds.
Requisites
An agreement that by its terms is not to be
Ratification extinguishes the action to annul a voidable contract. It may
performed within a year from the making
either be express or implied.
thereof;
A special promise to answer for the debt, default,
Ratification, to be effective, must comply with the following requisites:
or miscarriage of another;
That the contract is a voidable contract
An agreement made in consideration of marriage,
That ratification is made with knowledge of the cause for
other than a mutual promise to marry;
nullity
An agreement for the sale of goods, chattels or
That at the time the ratification is made, the cause of nullity
things in action, at a price not less than five
has already ceased to exist
hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the
Who May Ratify?
evidences, or some of them, of such things in
action, or pay at the time some part of the
injured party
purchase money; but when a sale is made by
guardian of the incapacitated person
auction and entry is made by the auctioneer in
heirs of the party entitled to such right
his sales book, at the time of the sale, of the
amount and kind of property sold, terms of
Effects
sale, price, names of the purchasers and
person on whose account the sale is made, it
Extinguishes the action to annul a voidable contract
is a sufficient memorandum;
Cleanses the contract from all its defects
An agreement for the leasing for a longer period
 than one year, or for the sale of real property
or of an interest therein;
A representation to the credit of a third person.
TITLE III
Those where both parties are incapable of giving consent. NATURAL OBLIGATIONS

Express or implied ratification by the parent, or I - Types of Obligations

guardian of one of the contracting parties will turn the
contract into a voidable contract. In juridical science, four types of obligations can be known:
If ratification is made by the parents or guardians
of both contracting parties, the contract shall be Moral - duties of conscience completely outside the field of
validated from the inception. law
Natural - not sanctioned by any action but have a relative
Enforceability juridical effect
Civil - juridical obligations which are in conformity with
For contracts entered into within the Statute of Frauds to be positive law but are contrary to juridical principles and
enforceable, a note or memorandum , in writing, and subscribed by the susceptible of being annulled.
party charged, or by his agent, evidence thereof, of the agreement is Mixed - have full juridical effect
needed.
Jurisprudence has reduced this classification into only two: natural and
Ratification civil.

Contracts infringing the Statute of Frauds are ratified by:

II - Natural Obligations
failure to object to the presentation of oral evidence to prove
the same; or Concept
by acceptance of benefits under them
Natural obligations are midway between the civil obligations and the
Who May Assail? purely moral obligations. Civil obligations are enforceable by
action, while moral obligations rest entirely upon conscience. It is
They cannot be assailed by third persons distinguished from the moral in that it produces some juridical
CHAPTER 9 effect; such as the right to retain what has been voluntarily paid by
the debtor; and from the civil in that it does not give rise to an
VOID OR INEXISTENT CONTRACTS action to compel performance.

I - Concept TITLE IV
ESTOPPEL
A void or inexistent contract is one which has no force and effect
from the very beginning, as if it had never been entered into. Concept
They produce no legal effects and confer no rights or
obligations. Estoppel is a bar which precludes a person from denying or asserting
They cannot be ratified. anything to the contrary of that which has, in contemplation of law,
In case of divisible contracts, if the illegal terms can be separated been established as the truth, either by the acts of judicial or
from the legal ones, the latter may be enforced. legislative offices or by his own deed or representation, either
A contract which is the direct result of a previous illegal contract is express or implied.
also inexistent.
However, if the act, conduct or representation of the party sought to be
II - Void and Inexistent Contracts estopped is due to ignorance founded on innocent mistake, estoppel
will not lie.
Void Contracts
The void contracts are those in pars. 1 and 7 of Art 1409: Estoppel is effective only as between the parties thereto or their
successors in interest.
Those whose cause, object or purpose is contrary to law,
morals, good customs, public order, or public policy; Requisites
Those expressly prohibited or declared void by law.
Reliance
Inexistent Contracts Prejudice
The inexistent contracts are those enumerated in pars. 2-6 of Art 1409:
Those which are absolutely simulated or fictitious C Kinds
Those whose cause or object never came into existence
Those whose object is outside the commerce of man Estoppel by Record
Those which contemplate an impossible service Estoppel by Deed
Those where the intention of the parties relative to the Estoppel In Pais (Equitable Estoppel
principal object of the contract cannot be ascertained. Estoppel by Silence
Estoppel by Acquiescence
C. Who May Assail? Laches
Estoppel From Benefits
parties
third persons directly affected

D. Prescriptive Period

The action or defense for the declaration of the inexistence of a contract

does not prescribe.

I. Multiple Choice
1. The majority age begins at the age of

a. 21
b. 20
c. 18
d. 16

2. When an injury or damage is caused to another, there being fault or negligence and
there is no pre-existing contractual relation between the parties, the source of the
obligation is:

a. Law
b. Contracts
c. Quasi-contracts
d. Quasi-delicts

3. Donation is both an act and a contract.

a. No, because it is an act of man only.

b. No, because there is no exchange of value.
c. Yes, because it is a gratuitous contract.
d. No, because it is not part of Obligation and Contract of New Civil Code.
e. None of the above.

4. Donation of the same thing to two or more persons shall be governed by the rule on
double sale?

a. No, because they are of different contracts.

b. No, because they are covered by different chapters of the New Civil Code.
c. Yes, because both acts transfer ownership.
d. No, because in donation there is no exchange of value.
e. No, because in sale there is exchange of values.

5. When the debtor binds himself to pay when his means permit him to do so, the
obligation is:

a. Conditional
b. Pure
c. Simple
d. With a Period

6. "A sells to B his lot and house in the city if A decides to transfer and live in the
countryside" is an example of:


a. Mixed Condition
b. Potestative Condition
c. Casual Condition
d. Resolutory Condition

7. Contracts entered into in a state of drunkenness or during a hypnotic spell are:

a. Void
b. Valid
c. Voidable
d. Legal

8. It is a mode of extinguishing an obligation when two persons in their own right are
creditors of each other.

a. Confusion
b. Reformation
c. Compensation
d. Novation

9. If the obligation of the debtor is "I will pay you my debt after I have arrived from
abroad," this is

a. Unenforceable
b. With a Period
c. Void
d. Conditional

10. If the obligor binds himself to perform his obligation as soon as "he shall have obtained
a loan" from a certain bank, this obligation is:

a. With a Term
b. Conditional
c. Suspensive
d. Resolutory

II. Define the following concepts:

- Natural Obligation
- Civil Obligation
- Negotiorium gestio
- Real Obligation
- Negligence

III. Short Answer / Essay


May an obligor be liable under an obligation subject to as suspense condition although the
condition has not yet been fulfilled? Why or why not, explain.

Suggested Answer:

- Under the suspensive condition, the obligation will only arise when the said condition
is already fulfilled. Therefore, the obligor or the debtor is not yet liable and will only
incur liability if the condition is already satisfied.

What is the distinction between a contract to sell and a conditional contract of sale?

Suggested answer:
- A contract to sell is a species of conditional sale. The contract to sell does not sell a
thing or property; it sells the right to buy property. A conditional sale is a sale subject
to the happening or performance of a condition, such as payment of the full purchase
price, or the performance of other prestation to give, to do or not to do. Compliance
with the condition automatically gives the right to the vendee to demand the delivery
of the object of the sale. In a contract to sell, however, the compliance with the
condition does not automatically sell the property to the vendee. It merely gives the
vendee the right to compel the vendor to execute the deed of absolute sale.

Angie agreed to sell Brodie a specific car for 200,000, delivery o the car and the payment of
the price is to be made on June 15. Suppose that Angies delivered the car on the
aforementioned date but Brodie failed to pay the price. Has the sale been consummated?
What are the remedies of Angie?

Suggested answer:

- While a Contract of Sale is perfected by mere consent, ownership of the thing sold is
acquired only upon its delivery to the buyer. Upon the perfection of the sale, the seller
assumes the obligation to transfer ownership and to deliver the thing sold, but the real
right of ownership is transferred only "by tradition" or delivery thereof to the buyer.

- If a buyer fails to comply with his obligation to pay, the seller may choose between
two remedies, (a) action for specific performance/fulfillment of the obligation with
damages; or (b) action for the recession of the obligation with damages. The seller
has the privilege to choose only one of the remedies and not both. If the creditor
chosen the latter, he cannot demand the fulfillment of the obligation to the buyer. The
same would apply if he chose the former, he may not opt to recede the obligation in
question.

 BUSLAW1 Pre-test
State whether it is TRUE or FALSE.

QUESTIONS:

T 1. Ignorantia legis neminem excusat Ignorance of the law excuses no one

F 2. According to Article 1516, An Obligation is a juridical necessity to give, to 7756
do or not to do
T 3. Ratification cleanses the contract from all its defects from the moment it is
constituted
T 4. The debtor or the Obligor is the one who has the duty to do the obligation
F 5. In order for a contract to be valid, it should have the consent of only one
party Allparties
F Unilateral agreement means that both parties must agree with the contract Bilateral
6.
that is being perfected
T 7. Solutio Indebiti is a kind of Quasi-Contract where A accidentally gave a B
his money. There is an obligation for B to return the money to A.
T 8. Obligations derived from law are never presumed
There are only two3requisites of a contract. Consent and Object cause't
FF 9.
10.Facio ut des also means barter l do thatyou
maygive
F 11.“Parties must be equally bound by the contract” this shows the
characteristic of Obligatory nature of Contracts Mutuality
1 12.Juridical tie is a requisite of an obligation where it shows the cause of the
obligation. Not
F 13.Parties may stipulate anything in the contract as long as it is contrary to
law, morals, good customs, public order or public policy. A
F 14.Relative f fraudulentvoid notit'sval
Simulation Contracts are not void but voidable
15.In Pari Delicto means in equal consent
F 16.Contracts can only bind the parties whoFault
if
entered into it and it cannot favor
T or prejudice third persons unless otherwise stated.
T 17.The claim for rescission must be made within four years
18.A voidable contract is a valid contract until it is ratified. It becomes an
F absolutely valid contract once it is annulled e
T 19.There is rescission if the contract is rescissible and there is annulment if the
contract is voidable
T 20.Void contracts have no force or legal effects
21.Minors who entered a contract are not voidable but void. are not VOID but VOIDABLE
F 22.If a minor mentioned that he is of legal age when he entered a contract,
1 there is an active misrepresentation.
 23.A sold his brand new laptop to B for 30,000 pesos. When B used the laptop,
F it has corrupted files and viruses. B committed Fraud It's A
T 24.A wrote a letter to B asking B if B wants to buy A’s car for 1M. B wrote a
letter of acceptance to A that B agreed to buy the car. In this situation, the
contract is already perfected.
T 25. “A sold his car worth 1,000,000 to C for only 500,000” the contract is valid
since inadequacy of the cause will not invalidate the contract
T 26.Delay is present when the creditor started demanding the obligation from
the debtor
F 27. Mora Accipiendi speaks about the debtor being guilty of breachSolvendi
28.both parties are in delay under the effect of Compensation Morae
29.“I’ll give you 1000 pesos if you’ll buy the whole block Jollibee” this is an
T example of Suspensive Condition
F 30.“I’ll stop reminding you if you’ll buy me a toy” this is also an example of a
Suspensive Condition Resolutory
31.Bad Faith means it is the intentional dishonest act by not fulfilling legal or
T contractual obligations, misleading another etc.
T 32.Usurious transactions shall be governed by special laws
T 33.Law and Contracts are the two main source of Obligations
F 34.Natural fruits are those rents of buildings, price of leases of lands and other
natural transactions civil Fruits
35.If the right is acquired by virtue of an Obligation, then it is transmissible
T
T 36.Iffortuitous
the thing to be delivered was generic and it was destroyed due
event, the debtor is still liable because the thing is generic
to a

For Questions 37 – 40 Refer to the following situations

Wes borrowed a limited edition vase by Keating co rp. from Laurel. Wes placed in
on the center of his dining table. A few days later, an earthquake occurred and
the vase fell from the table and was destroyed.

37. Wes is still liable for the vase that he borrowed from Laurel. limited Edition
F 38. Due to a fortuitous event, the creditor is not liable for the damages incurred
39. If instead the thing was just any ordinary vase and it was destroyed due to
T the earthquake, Wes is liable for the loss
40. The earthquake that had happened was an example of an act of God
T
For Questions 41 – 42 Refer to the following situations
X and Y are neighbors; Y went to the province for 1 month, and after 2 weeks,
informal settlers started residing in his home; X drove them away for the first time.
To avoid from it happening again, X barricaded the whole lot and placed a no
trespassing sign.

T 41. Y should pay the expenses incurred by X in protecting their home

T 42. The kind of Quasi-Contract that has been made was a Negotiorum Gestio

For Questions 43 – 46 Refer to the following situations

Ross and Rachel agreed that for P1,000 (the amount was already received), Ross
will babysit Emma, their child, this weekend because Rachel has work.

43. The active subject here is Rachel

T
44. The passive subject is Ross
T 45. The Object is Rachel’s work
F 46. The Babysitting
juridical tie is the Babysitting service of Emma
F contract Agreement
For Questions 47 – 48 Refer to the following situations

Annalise Keating wanted to win a case in court so she slapped his client in the
face telling him to do what she says so that the case may be solved in favor of
them.
F 47. There is fraud in the situation
violence
48. The client can file a case for violence.
T

For Questions 49 – 50 Refer to the following situations

Bonnie smuggled goods. Frank bought the smuggled goods. Both of them knew
that the goods are smuggled.

F 49. Only Bonnie isin Pari Delicto Both are

in pari Delicto
T 50. Both of them are criminally liable.

-------- End of Pre-Test --------

Answers and Explanation:
1. True
2. False - It should be Article 1156
3. True
4. True
5. False - It should have the consent of all parties
6. False - Bilateral Agreement
7. True
8. True
9. False - There are three requisites namely: Consent, Object, Cause
10. False - Facio ut des means I do that you give
11. False - This is the characteristic of Mutuality of Contracts
12. True
13. False - …as long it is NOT contrary…
14. False - If the intention is to defraud a person, it is void otherwise, it is valid
15. False - In Pari Delicto means in equal FAULT
16. True
17. True
18. False - A voidable contract is a valid contract until it is annulled. It becomes
an absolutely valid contract once it is ratified
19. True
20. True
21. False - Minors who entered a contract are not void but voidable
22. True
23. False - A committed fraud not B
24. True
25. True
26. True
27. False- Mora Solvendi
28. False - No one is delay or no one is liable for damages
29. True
30. False - This is an example of a Resolutory Condition
31. True
32. True
33. True
34. False - these are Civil Fruits
35. True
36. True
37. False - Since the thing is considered a specific thing (limited edition), Wes is
no longer liable for the book
38. False - The creditor is liable not the debtor
39. True
40. True
41. True
42. True
43. True
44. True
45. False - The object is the babysitting of Emma
46. False - The juridical tie is the contract/agreement
47. False - There is violence since there is physical contact with the person
48. True
49. False - Both Bonnie and Frank are in pari Delicto because both of them knew
that the goods are smuggled
50. True