OBLIGATIONS AND CONTRACTS NOTES 1
SAN BEDA COLLEGE OF LAW - MANILA
OBLIGATIONS AND CONTRACTS NOTES
TITLE I
OBLIGATION
CHAPTER 1
GENERAL PROVISION
ARTICLE 1156
MEANING OF OBLIGATION
o It is a tie of law or a juridical bond by virtue of which one is
bound in favor another to render something – and this may
consist in giving a thing, doing a certain act, or not doing a
certain act.
o A legal relation established between one party and another,
whereby the latter is bound to the fulfillment of a prestation
which the former may demand of him.
o Article 1156 merely stresses the duty under the law of the
debtor or obligator when it speaks of obligation as a juridical
necessity.
MEANING OF JURIDICAL NECESSITY
o In case of non-compliance, the court of justice may be called
upon to enforce its fulfillment or, in default thereof, the
economic value that it represents.
o The debtor may also be held liable for damages arising from
the injury or harm suffered by the creditor or oblige for the
violation of his rights.
o If obligations were not made enforceable, then people can
disregard them with impunity.
o If the obligation cannot be legally enforced, it may be only
a natural obligation.
NATURE OF OBLIGATIONS UNDER THE CIVIL CODE
o Civil Obligations – obligations which give to the creditor
or obligee a right of action in courts of justice to enforce
their performance.
o Natural Obligations – based on equity and natural law,
which do not grant a right of action to enforce their
performance although in case of voluntary fulfillment by
the debtor, the latter may not recover what has been
delivered or rendered by reason thereof.
ESSENTIAL REQUISITES OF AN OBLIGATION
Four Essential Elements
1. A passive subject (debtor or obligor)
2. An active subject (creditor or oblige)
3. Object or prestation (subject matter of the obligation)
In bilateral obligations, the parties are reciprocally debtors
and creditors
4. A juridical or legal tie (efficient cause) – can easily be
determined by knowing the source of obligation
FORMS OF OBLIGATIONS
General Rule: The law does not require any form in obligations
arising from contracts for their validity or binding force.
o Obligations arising from other sources (Article 1157) do
not have any form at all
OBLIGATION, RIGHT, AND WRONG (Cause of Action)
o Obligation – act or performance which the law will enforce.
o Right – power which a person has under the law, to demand
from another any prestation.
o Wrong – act or omission of one party in violation of the
legal right or rights of another, causing injury to the latter.
EXISTENCE OF CAUSE OF ACTION
(1) Essential Elements
(a) A legal right in favor of a person by whatever means
and under whatever law it arises or is created;
(b) A correlative legal obligation on the part of another to
respect or not to violate said right; and
(c) An act or omission in breach or violation of said right
by the defendant with consequential injury or damage
to the plaintiff for which he may maintain an action for
the recovery of damages or other appropriate relief.
(2) Allegation of all elements in complaint – If any of these
elements is absent, the complaint becomes vulnerable to a
motion to dismiss on the ground of failure to state the cause
of action. The presence of the cause of action rests on the
sufficiency, and not on the veracity, of the allegations in the
complaint, which will have to be examined during the trial
on the merits.
(3) Accrual of cause of action – a cause of action only arises
when the last element occurs.
(a) Right of action – governed by the procedural law;
springs from the cause of action, but does not accrue
until all the facts have occurred
Right to commence or maintain an action – depends
on substantive law
ILLUSTRATIVE CASE
S rejected or cancelled a contract to sell his property even before the
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arrival of the period in the exercise of the option to buy by the
purchaser who has already made a downpayment.
o B has a cause of action against S for prematurity. All the
elements of cause of action are present.
1. There is a legal right in favor of B (the right to complete the
payment of the purchase price should he choose to do so)
2. There is an obligation on the part of S to sell
3. There was a breach of S’s obligation to sell the property
o The fact that the rejection or cancellation of the contract by
S was not made judicially or by notarial act (Article 1592)
is of no moment. It is enough for purpose of determining
the existence of a cause of action that S has declared in no
uncertain terms his refusal to be bound by the contract to
sell.
CAUSE OF ACTION BASED UPON A WRITTEN CONTRACT
o Should be brought within 10 years from the time the right
of action accrues (Article 1144)
o An action based on a contract accrues only when an actual
breach or violation thereof occurs.
o The prescription period commences from the occurrence of
the breach.
Examples:
1. Action to rescind a contract of sale on installment basis –
at the time the last installment is not paid
2. Obligation is payable on demand – when demand is made
3. Contract of loan with real estate mortgage whereby
creditor could unilaterally increase the interest rate, where
the creditor foreclosed the mortgage when the debtor failed
to pay – from the date the debtor discovered the increased
interest rate

4. Agreement to buy and sell was conditioned upon the
conduct of preliminary survey of the land to verify – when
the plaintiff discovered the completion of the survey
5. Money claims arising from a contract of employment which
would prescribe in 3 years from the time the cause of action
accrued – date employer made a definite denial of the
employee’s claim
6. Reformation of a contract where it is alleged that the
contract is one sided in favor of the defendant, and certain
events had made the arrangement inequitable – when the
contract appeared disadvantageous.
7. Nature of the product sold is a major factor in determining
the accrual – cause of action will arise only from the
discovery of the same with certainty
INJURY, DAMAGE, AND DAMAGES
o Injury is the illegal invasion of a legal right; it is a wrongful
act or omission which causes loss or harm to another. It is
the legal wrong to be redressed.
o Damage is the loss, hurt or harm which results from the
injury.
o Damages denote the sum of money recoverable as amends
for the wrongful act or omission; recompense or
compensation awarded or recoverable for the damage or
loss suffered.
EXISTENCE OF ONE WITHOUT THE OTHER
o There may be injury without damage and damage without
injury.
1. Proof of loss for injury – as a rule, there must be, in
addition, loss or damage caused to him by the violation of
his right. But except for actual or compensatory damages
(Article 2199), no pecuniary proof is necessary in order that
moral, nominal, temperate, liquidated, or exemplary
damages may be awarded (Article 2216)
2. Liability for damages of a person exercising his legal
rights – One who makes use of his legal right does no
injury. Qui jure suo utitur mallum damnum facit. If
damage results from a person’s exercising his legal rights,
it is damnum absque injuria.
o The law affords no remedy for damages resulting from an
act which does not amount to a legal wrong or injury.
ILLUSTRATIVE CASE
Acts of importer contesting forfeiture, delay in the delivery of goods
to highest bidder.
o Such delay is an incident to the exercise by X of his right to
contest the forfeiture and the sale of his goods.
KINDS OF OBLIGATIONS ACCORDING TO SUBJECT
MATTER
1. Real Obligation (obligation to give) – subject matter is a
thing which the obligor must deliver to the oblige
2. Personal Obligation (obligation to do or not to do) –
subject matter is an act to be done or not to be done
a. Positive personal obligation – obligation to render
service/to do
b. Negative personal obligation – obligation not to do
ARTICLE 1157
SOURCES OF OBLIGATIONS
1. Law – imposed by the law
2. Contracts – arise from the stipulation of the parties
OBLIGATIONS AND CONTRACTS NOTES 2
3. Quasi-contracts – arise from lawful, voluntary and
unilateral acts and which are enforceable to the end that no
one shall be unjustly enriched or benefited at the expense
of another (Article 2142)
4. Crimes or acts or omissions punished by law – arise from
civil liability which is the consequence of a criminal
offense (Article 1161)
5. Quasi-delicts or torts – arise from damage caused to
another through an act or omission, there being fault or
negligence, but no contractual relation exists between the
parties (Article 2176)
SOURCES CLASSIFIED
Two classifications:
1. Those emanating from laws; and
2. Those emanating from private acts
a. Licit acts: contracts and quasi-contracts
b. Illicit acts: delicts and quasi-delicts
Two general sources:
1. Law
2. Contracts
ILLUSTRATIVE CASE
Liability of sheriff lawfully enforcing a judgment in an ejectment suit
o No proof has been submitted that a contract had been
entered into between plaintiff Y and defendants X and Z or
that the latter had committed illegal acts or omissions or
incurred in any kind of fault or negligence, from any of
which an obligation might have arisen on the part of X and
Z to indemnify Y. for this reason, the claim for indemnity,
on account of acts performed by the sheriff, while enforcing
a judgment, cannot under any consideration be sustained.
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ARTICLE 1158
LEGAL OBLIGATIONS
o They are not presumed because they are considered a
burden upon the obligor.
o To be demandable, they must be clearly set forth in the law
o Under Article 1158, special laws refer to all other laws not
contained in the Civil Code.
ILLUSTRATIVE CASE
Title to property purchased by a person for his own benefit but paid
by another
o If any such obligation was ever created on the part of X (son
of legal age), said obligation must arise from law. But
obligations derived from law are not presumed. Only those
expressly determined in the Civil Code or special laws are
demandable. Whatever right C (father) may have against X
either for the recovery of the money paid or for damages, it
is clear that such payment gave him no title, either legal or
equitable, to these vessels.

ARTICLE 1159
CONTRACTUAL OBLIGATIONS
o A contract is a meeting of minds between two persons
whereby one binds himself, with respect to the other, to
give something or to render some service.
1. Binding force – once perfected, valid contracts have the
force of law between the parties who are bound to comply
fully and not selectively with its terms in good faith, and
neither one may without the consent of the other, renege
therefrom.
The law stresses the obligatory nature of a binding and a
valid agreement, absent any allegation that it is contrary to
law, morals, good customs, public order, or public policy.
a. The law will not permit a party to be set free from
liability for any kind of misperformance of the
contractual undertaking or a contravention of the tenor
thereof. The mere proof of the existence of the contract
and the failure of its compliance justify, prima facie, a
corresponding right of relief.
b. Whatever fairly puts a person on inquiry is sufficient
notice, where the means of knowledge are at hand,
which if pursued by proper inquiry, the full truth might
have been ascertained.
c. If it occurs to one of the contracting parties to allege
some defect in a contract as a reason for invalidating
it, such alleged defect must be proved by him by
convincing evidence since its validity or compliance
cannot be left to will one of them.
d. Courts have no alternative but to enforce valid and
binding contracts as they were agreed upon and
written when the terms thereof are clear and readily
understandable, leaving no room for interpretation.
e. A compromise agreement is immediately executory
and not appealable, except for vices of consent or
forgery. Upon the parties, it has the effect and the
authority of res judicata, once entered into.
2. Requirements of a valid contract – as a source of
obligation, a contract must be valid and enforceable.
3. Where contract requires approval by the government –
such contract becomes a law between the contracting
parties only when approved, and where there is nothing in
it which is contrary to law, etc., its validity must be
sustained.
4. Compliance in good faith – evasion by a party of legitimate
obligations after receiving the benefits under the contract
would constitute unjust enrichment on his part.
5. Liability for breach of contract – our law on contracts
recognizes the principle that actionable injury inheres in
every contractual breach. Interest may, in the discretion of
the court, on equitable grounds, be allowed upon damages
awarded for breach of contract.
6. Unreasonable delay in demanding performance – contract
is ineffective where the contract does not provide for the
period within which the parties may demand the
performance of their respective undertakings but the parties
did not contemplate that the same could be made
indefinitely.
OBLIGATIONS AND CONTRACTS NOTES 3
7. Preservation of interest of promise – the remedy serves to
preserve the interest of the promise of having the benefit of
his bargain, or in being reimbursed for loss caused by
reliance on the contract, or in having restored to him any
benefit that he has conferred on the other party.
ARTICLE 1160
QUASI-CONTRACTUAL OBLIGATIONS
o A quasi-contract is that juridical relation resulting from
certain lawful, voluntary and unilateral acts by virtue of
which the parties become bound to each other to the end
that no one will be unjustly enriched or benefited at the
expense of another.
1. There is no consent but the same is supplied by fiction of
law. The law considers the parties as having entered into a
contract, irrespective of their intention, to prevent injustice.
2. Cause of action may be relieved against the party benefited.
KINDS OF QUASI-CONTRACTS
1. Negotiorum gestio is the voluntary management of the
property or affairs of another without the knowledge or
consent of the latter.
Not applicable to the following:
a. When the property or business is not neglected or
abandoned, in which case the provisions of the Civil
Code regarding unauthorized contracts shall govern;
or
b. The manager has been tacitly authorized by the owner,
in which case the rules on agency shall govern.
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2. Solutio indebiti is the juridical relation which is created
when something is received when there is no right to
demand it and it was unduly delivered through mistake.
o Under the principle, the government has to restore (credit
or refund) to the taxpayer the amounts representing
erroneous payments of taxes.
a. Payment is made when there exists no binding relation
between the payor, who has no duty to pay, and the
person who received the payment; and
b. The payment is made through mistake and not through
liberality or some other cause.
General Presumption: money paid by one to another was
due to the latter
3. Other Cases
Quantum meruit
o Allows recovery of the reasonable value regardless of any
agreement as to value.it entitles the party to “as much as he
reasonably deserves”
o Jurisprudence recognizes the principle of quantum meruit
in the interest of substantial justice.
o Prevents undue enrichment based on the equitable postulate
that it is unjust for a person to retain benefit without paying
for it.
Quantum valebant
o “as much as what is reasonably worth”
 OBLIGATIONS AND CONTRACTS NOTES 4

Liability of person responsible It is direct and primary

ARTICLE 1161
CIVIL LIABILITY ARISING FROM CRIMES OR DELICTS
1. Civil liability in addition to criminal liability – there is civil
liability when there is criminal liability
2. Criminal liability without civil liability – In crimes which
cause no material damage, there is no civil liability to be
enforced. A person not criminally responsible may still be
liable civilly when the obligation arises from quasi-delict or
tort not alleged and proved as constituting a criminal
offense.
RIGHT TO RECOVER CIVIL LIABILITY
1. Reservation and waiver – only the civil liability, arising
from the offense charged is deemed instituted with the
criminal action unless the offended party waives the civil
action, reserves his right to institute it separately, or
institutes the civil action prior to the criminal action. No
need under Articles 32, 33, 34 and 2176 of the NCC.
2. Independent civil action – reservation and waiver does not
include recovery of civil liability under Articles 32, 33, 34
and 2176 of the NCC arising from the same act or omission
which may be prosecuted separately even without a
reservation.
SCOPE OF CIVIL LIABILITY
1. The extent of this arising from crimes is governed by RPC
and NCC. It includes:
a. Restitution
b. Reparation
c. Indemnification
2. On appeal, SC may modify the decision by ordering
for the author of the negligent
act or omission is subsidiary
RECOVERY OF DAMAGES TWICE FOR THE SAME ACT OR
OMISSION PROHIBITED
1. Two causes of action – same may produce civil liability
arising from a crime or create an action for quasi-delict
2. Option given to offended party – Inasmuch as civil liability
co-exists with criminal responsibility in negligence cases,
the offended party has the option between an action for
enforcement of civil liability based on culpa criminal and
culpa aquiliana.
3. Two distinct civil liabilities – these two causes of action (ex
delicto or ex quasi delicto) may be availed of subject to the
caveat that the offended party cannot recover damages
twice for the same act or omission or under both causes.
Since these 2 civil liabilities are distinct and independent of
each other, the failure to recover in one will necessarily
preclude recovery in the other.
1156 – definition of obligation
1157 – sources of obligations
1158 – obligations derived from law
1159 – contractual obligations
1160 – quasi-contractual obligations
1161 – civil obligations arising from crimes or delicts
1162 – obligations arising from quasi-delicts

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indemnification of the offended party pursuant to Articles
100, 104(3), and 107 of the RPC.

ARTICLE 1162

OBLIGATIONS ARISING FROM QUASI-DELICTS

o A quasi-delict is an act or omission by a person (tortfeasor)
which causes damage to another in his person, property, or
rights giving rise to an obligation to pay for the damage
done, there being fault or negligence but there is no pre-
existing contractual relation between the parties.

REQUISITES OF QUASI-DELICT
1. There must be an act or omission by the defendant;
2. There must be fault or negligence of the defendant;
3. There must be damage caused to the plaintiff;
4. There must be a direct relation or connection of cause and
effect between the act or omission and the damage; and
5. There is no pre-existing contractual relation between the
parties.

CRIME QUASI-DELICT
Criminal or malicious intent Negligence only
or criminal negligence
Affects public interest Private interest
Criminal and Civil liability Only civil liability
Purpose is punishment Indemnification
Proof beyond reasonable Preponderance of evidence
doubt
No settlement of criminal Liability can be compromised
liability

CHAPTER 2
NATURE AND EFFECT OF OBLIGATIONS
ARTICLE 1163
MEANING OF SPECIFIC OR DETERMINATE THING
o A thing is said to be specific or determinate when it is
particularly designated or physically segregated from all
others of the same class.
MEANING OF GENERIC OR INDETERMINATE THING
o A thing is generic or indeterminate when it refers only to a
class or genus to which it pertains and cannot be pointed
out with particularity.
DUTIES OF DEBTOR IN OBLIGATION TO GIVE A
DETERMINATE THING
1. To preserve or take care of the thing due;
2. To deliver the fruits of the thing;
3. To deliver its accession and accessories;
4. To deliver the thing itself; and
5. To answer for damages in case of nonfulfillment or breach
OBLIGATION TO TAKE CARE OF THE THING DUE
1. Diligence of a good father of a family – the phrase has been
equated with ordinary care or that diligence which an
average person exercises over his own property.
2. Another standard of care – if there is a provision of another
standard of care, the said law or stipulation shall prevail
3. Factors to be considered – the diligence required depends
upon the nature of the obligation and corresponds with the
circumstances of the person, of the time, and of the place.
General Rule: the debtor is not liable if his failure to
preserve the thing is not due to his fault or negligence but
to fortuitous events or force majeure.
4. Reason for debtor’s obligation – the debtor must exercise
diligence to insure that the thing to be delivered would
subsist in the same condition as it was when the obligation
was contracted.
DUTIES OF DEBTOR IN OBLIGATION TO DELIVER A
GENERIC THING
1. To deliver a thing which is of the quality intended by the
parties taking into consideration the purpose of the
obligation and other circumstances; and
2. To be liable for damages in case of fraud, negligence, or
delay, in the performance of his obligation, or
contravention of the tenor thereof.
ARTICLE 1164
DIFFERENT KINDS OF FRUITS
1. Natural fruits are the spontaneous products of the soil, and
the young and other products of animals.
2. Industrial fruits are those produced by lands of any kind
through cultivation or labor.
3. Civil fruits are those derived by virtue of a juridical
relation.
RIGHT OF CREDITOR TO FRUITS
o The intention of the law is to protect the interest of the
oblige should the obligor commit delay, purposely or
otherwise, in the fulfillment of hi obligation.
OBLIGATIONS AND CONTRACTS NOTES 5
o In case rescission, the parties are under “obligation to
return the things which were the object of the contract,
together with their fruits and the price with interest.”
WHEN OBLIGATION TO DELIVER ARISES
1. Generally, it arises from the time of the perfection of the
contract. Perfection in this case refers to birth of the
contract or to the meeting of the minds between the parties.
2. On suspensive condition or period: it arises from upon
fulfillment of the condition or arrival of the period.
However, the parties may make a stipulation to the contrary
as regards to the right of the creditor to the fruits of the
things.
3. In contract of sale: arises from the perfection of the
contract even if the obligation is subject to a suspensive
condition or period where the price has been paid.
4. Arising from law, quasi-contracts, delicts, and quasi-
delicts: as determined by law applicable.
MEANING OF PERSONAL RIGHT AND REAL RIGHT
1. Personal right is the right or power of a person to demand
from another.
2. Real right is the right or interest of a person over a specific
thing without a definite passive subject against whom the
right may be personally enforced.
OWNERSHIP ACQUIRED BY DELIVERY
o Ownership and other real rights over property are acquired
and transmitted by law, by donation, by testate and intestate
succession, and in consequence of certain contracts by
tradition or delivery.
o Delivery in sale may be actual or real, constructive or legal,
or in any other manner signifying an agreement that the
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possession of the thing sold is transferred from the vendor
to the vendee.
o “he shall acquire no real right over it until the same has
been delivered to him” – the creditor does not become the
owner until the specific thing has been delivered to him.
ARTICLE 1165
REMEDIES OF CREDITOR IN REAL OBLIGATION
1. In a specific real obligation, the creditor may exercise the
following remedies or rights:
a. Demand specific performance or fulfillment of the
obligation with a right to indemnity for damages; or
b. Demand rescission or cancellation of the obligation,
also with a right to recover damages.
2. A generic real obligation can be performed by a third
person since the object is expressed only according to its
family or genus. It is thus not necessary for the creditor to
compel the debtor to make the delivery although he may
ask for performance of the obligation.
o The constitutional prohibition of non-payment of debt
applies only to purely civil debt arising from contractual
obligations.
WHEN DEBTOR DELAYS OR HAS PROMISED DELIVERY TO
SEPARATE CREDITORS
o Paragraph 3 refers to determinate thing. An indeterminate
thing cannot be the object of destruction by a fortuitous
event because genus nunquam perit (genus never
perishes).

ARTICLE 1166
MEANING OF ACCESSION AND ACCESSORIES
1. Accessions are the fruits of, or addition to, or improvement
upon, a thing (the principal)
o The concept includes accession in its three forms of
building, planting, and sowing, and accession natural such
as alluvion, avulsion, change of course of rivers, and
formation of islands.
2. Accessories are things joined to, or included with, the
principal thing for the latter’s embellishment, better use or
completion.
RIGHT OF CREDITOR TO ACCESSION AND ACCESSORIES
General Rule: All accessions and accessories are considered
included in the obligation to deliver a determinate thing although they
may not have been mentioned.
Principle: Accessory follows the principal
To be excluded: There must be a stipulation
ACESSION AS A RIGHT
o Accession can be defined as a right pertaining to the owner
of a thing over its products and whatever is incorporated or
attached thereto, either naturally or artificially.
o It is one of the rights which go to make up dominion or
ownership but under the aw, it is not a mode of acquiring
ownership.
ARTICLE 1167
SITUATIONS CONTEMPLATED IN A. 1167
1. The debtor fails to perform an obligation to do; or
2. The debtor performs an obligation to do, but contrary to the
terms thereof; or
3. The debtor performs an obligation to do but in a poor
manner.
REMEDIES OF CREDITOR IN POSITIVE PERSONAL
OBLIGATION
1. The creditor has the right:
a. To have the obligation performed by himself, or by
another unless personal considerations are involved, at
the debtor’s expense; and
b. To recover damages.
2. On the 2nd and 3rd situations, it may be ordered (by the court
upon complaint) that it be undone if it is still possible to
undo what was done.
PERFORMANCE BY A THIRD PERSON
o A specific performance cannot be ordered in a personal
obligation to do because this may amount to involuntary
servitude prohibited by the Constitution.
o Where the personal qualifications of the debtor are
determining motive for the obligation contracted, the only
feasible remedy is indemnification for damages.
OBLIGATIONS AND CONTRACTS NOTES 6
ARTICLE 1168
REMEDIES OF CREDITOR IN NEGATIVE PERSONAL
OBLIGATION
Rule: The remedy of the oligee is the undoing of the forbidden thing
plus damages.
If not possible to be undone: action for damages caused by the
debtor’s violation of his obligation
ARTICLE 1169
MEANING OF DELAY
1. Ordinary delay is merely the failure to perform an
obligation on time.
2. Legal delay or default or mora is the failure to perform an
obligation on time which failure, constitutes a breach of the
obligation.
KINDS OF DELAY (MORA)
1. Mora solvendi or the delay on the part of the debtor to
fulfill his obligations by reason of a cause imputable to him;
2. Mora accipiendi or the delay on the part of the creditor
without justifiable reason to accept the performance of the
obligation; and
3. Compensatio morae or the delay of obligors in reciprocal
obligation, i.e., the delay of the obligor cancels the delay of
the oblige, and vice-versa
o No delay in negative personal obligations
REQUISITES OF DELAY OR DEFAULT BY THE DEBTOR
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Three conditions for mora solvendi
1. Failure of the debtor to perform his obligation on the date
agreed upon;
2. Demand made by the creditor upon the debtor to fulfill,
perform, or comply with his legal obligation which
demand, may be either judicially or extra-judicially; and
3. Failure of the debtor to comply with such demand.
o The creditor has the burden of proving that a previous
demand has been made. It is incumbent upon the debtor, to
relieve himself from liability, to prove that the delay was
not caused by his fault.
ILLUSTRATIVE CASE(S)
1. Non-payment of taxes by mortgagor or mortgaged realty
rendered entire loan due and payable but no demand was
made either of the taxes or of loan itself.
 In view of the absence of previous demand for him to
make such payment notwithstanding that the failure to
pay the taxes rendered the entire loan due and
demandable. None of the circumstances in Article
1169 which would dispense E (creditor) from making
the demand was present. In light of the principal
stipulation of the contract when mortgage debt was to
be paid, the non-payment of taxes was not a material
breach of the contract.
2. Filing of foreclosure suit as equivalent to demand for
payment
 The filing of the foreclosure suit by S (creditor) is
sufficient notice to S of the completion of the roads
and S’s desire to be paid the purchase price.

3. Buyer bound herself to pay the balance of the purchase
price within a period of 10 years at a fixed monthly
amortization.
 CL (debtor) cannot ignore the provision on the
payment of monthly installments by claiming that the
10-year period within which to pay has not elapsed.
When CL did not pay the monthly amortizations in
accordance with the terms of contract, she was in delay
and liable for damages.
EFFECTS OF DELAY
1. Mora solvendi
a. The debtor is guilty of breach of obligation;
b. He is liable for interest in case of obligations to pay
money, or for damages in other obligations. In the
absence of extrajudicial demand, the interest shall
commence from the filing of the complaint; and
c. He is liable for any fortuitous event when the
obligation is to deliver the determinate thing.
2. Mora accipiendi
a. The creditor is guilty of breach of obligation;
b. He is liable for damages suffered, if any, by the debtor;
c. He bears the risk of loss of the thing due;
d. Where the obligation is to pay money. The debtor is
not liable for interest from the time of the creditor’s
delay; and
e. The debtor may release himself from the obligation by
the consignation of the thing or sum due.
3. Compensatio morae
a. The delay of the obligor cancels out the effects of the
delay of the oblige and vice versa. The net result is that
there is no actionable default on the part of both
parties, such that as if neither one is guilty of delay.
b. If the delay of one party is followed by that of the
other, the liability of the first infractor shall be
equitably tempered or balanced by the courts. If it
cannot be determined which of the parties is guilty of
delay, the contract shall be deemed extinguished and
each shall bear his own damages.
WHEN DEMAND NOT NECESSARY TO PUT DEBTOR IN
DELAY
General Rule: Delay begins only from the moment the creditor
demands, judicially or extra-judicially, the fulfillment of the
obligation.
Exceptions:
1. When the obligation so provides
 The obligation must expressly so declare that demand
is not necessary or must use words to that effect, as for
instance, “the debtor will be in default” or “I will be
liable for damages.”
2. When the law so provides
 Taxes should be paid on or before a specific date
 A partner is liable for the fruits of the things he may
have promised to contribute to the partnership from
the time they should have been delivered.
3. When time is of the essence
 Delivery of obligation on a particular date or at a
particular time
OBLIGATIONS AND CONTRACTS NOTES 7
 It is not necessary for the contract to categorically state
that time is of essence; intent is sufficient.
4. When demand would be useless
 Demand is also unnecessary where it is apparent that
it would be unavailing, as where there has been a prior
absolute refusal by S (obligor) or S has manifested an
intention or to comply with his obligation.
5. When there is performance by a party in reciprocal
obligations
a. Where a contract of sale imposes on the seller the
obligation to deliver to the buyer a reasonable
habitable dwelling in return for his undertaking to pay
the stipulated price in monthly amortizations as cause
to cancel the contract where the seller did not fulfill its
obligation and is not willing to put the house in a
habitable state.
b. Where the parties fix a period for the performance of
their reciprocal obligations, neither party can demand
performance nor incur in delay before the expiration
of the period.
c. Obligations under an option to buy are reciprocal
obligations.
WHEN TIME IS OF THE ESSENCE EVEN WITHOUT
EXPRESS STIPULATION
1. In agreements which are executed in the form of options,
time is always held to be of the essence of the contract, and
it is well recognized that in such contracts, acceptance of
the option and payment of the purchase price constitute
conditions precedent to specific performance.
2. The same is true generally of all unilateral contracts.
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3. In mercantile contracts for the manufacture and sale of
goods, time is also held to be of the essence of the
agreement.
4. Where the subject matter of a contract is of speculative or
fluctuating value, it is held that the parties must have
intended time to be of essence.
5. Where the contract relates to mining property.
ARTICLE 1170
GROUNDS FOR LIABILITY
o Here, the breach is voluntary
1. Fraud (deceit or dolo) – deliberate or intentional evasion
of the normal fulfillment of an obligation.
a. Includes any act, omission, or concealment involving
some kind of malice or dishonesty
b. A. 1170 refers to incidental fraud (dolo incidente)
committed in the performance of an obligation already
existing because of contract. It is to be differentiated
from causal fraud (dolo causante) of fraud employed
in the execution of a contract under A. 1338.
c. The NCC refers to civil fraud. Criminal fraud gives
rise to criminal liability.
2. Negligence (fault or culpa) – it is the failure to exercise
that degree of care required by circumstances.
3. Delay (mora) – SEE discussion on ARTICLE 1169
4. Contravention of the terms of the obligation – violation of
the terms and conditions stipulated on the obligation. The

contravention must not be due to fortuitous event or force
majeure.
RECOVERY OF DAMAGES FOR BREACH OF CONTRACT
OR OBLIGATION
1. Measure of recoverable damages – Title XVIII on
“Damages” of the NCC governs; there should be a fair and
just compensation commensurate to the loss sustained as a
consequence of the defendant’s act.
2. Contractual interests of oblige or promise, remedy serves
to preserve – the remedy serves to preserve the interests of
the promise which may include:
a. Expectation interest – interest in having the benefit of
his bargain
b. Reliance interest – interest in being reimbursed for
loss caused by reliance on the contract
c. Restitution interest – interest in having restored to him
an benefit that he conferred on the other party.
3. Excuse from ensuing liability – the effect of every
infraction is to create a new duty, that is, to make
recompense to the one who has been injured by the failure
of another to observe his contractual obligation.
4. Duty of oblige to minimize his damages – he cannot
recover damages for any loss which he might have avoided
with ordinary care. It may not be taken advantage of to
allow unjust enrichment.
DAMAGES RECOVERABLE WHERE OBLIGATION IS TO PAY
MONEY
1. Penalty interest for delay or non-performance – the rule
of damages when the obligation failed to perform only
consists of payment of money is that laid down in Article
2209.
o The damages dues do not include and are not included in
the computation of interests.
2. Rate of the penalty interest – in the absence of stipulation,
the additional interest shall be at a rate equal to the regular
monetary interest; and if no legal interest has been agreed
upon, then the legal interest (6%) shall be paid.
FRAUD AND NEGLIGENCE
FRAUD NEGLIGENCE
Deliberate intention None
Waiver of liability for future May be allowed
fraud is void
Must be clearly proved Presumed from the breach of
contractual obligation
Liability cannot be May be reduced
mitigated
WHEN NEGLIGENCE EQUIVALENT TO FRAUD
o Where the negligence shows bad faith or is so gross that it
amounts to malice or wanton attitude on the part of the
defendant, the rules on fraud shall apply.
o Gross negligence refers to negligence characterized by the
failure to exercise even slight care of diligence, or the entire
absence of care, acting or omitting to act on a situation
where there is a duty to act, not inadvertently, but willfully
OBLIGATIONS AND CONTRACTS NOTES 8
and intentionally, with complete disregard for the harmful
consequences of his conduct to others.
ARTICLE 1171
RESPONSIBILITY ARISING FROM FRAUD
o This article refers to incidental fraud which is employed in
the fulfillment of an obligation.
o This is deemed serious and evil so the court is not given the
power to mitigate or reduce damages to be awarded.
WAIVER OF ACTION
o For future fraud, void
o For past fraud, valid
Reason: the waiver can be considered generosity and
magnanimity on the part of the victim of fraud.
 The waiver must be couched in clear and unequivocal
terms which leave no doubt as to the intention of the
oblige to give up his right of action against the obligor.
ARTICLE 1172
LIABILITY ARISING FROM NEGLIGENCE DEMANDABLE
1. Discretion of the court to fix measures of damages – the
courts are given a wide discretion in fixing the measure of
damages.
2. Damages where both are mutually negligent – the fault of
one cancels or neutralizes the negligence of the other. No
one shall enrich himself at the expense at the expense of
another.
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VALIDITY OF WAIVER OF ACTION FOR FUTURE
NEGLIGENCE
1. May be renounced except where the nature of obligation
requires the exercise of extraordinary diligence as in the
case of common carriers.
2. When negligence is gross or shows bad faith, it is
equivalent to fraud.
KINDS OF NEGLIGENCE ACCORDING TO SOURCE OF
OBLIGATION
1. Culpa negligence (culpa contractual) – it merely makes
the debtor liable for damages in view of his negligence in
the fulfillment of a pre-existing obligation resulting in its
breach or non-fulfillment. It does not amount to a crime.
2. Civil negligence (culpa aquiliana) – also called tort or
quasi-delict; a pre-existing contractual relation between the
parties does not preclude the existence of culpa aquiliana.
A quasi-delict can be the cause of breaching a contract that
might thereby permit the application of governing
principles of tort even when there is a pre-existing contract
between the parties. This rule, however, governs only
where the act or omission itself complained of would
constitute an actionable tort independently of the contract.
3. Criminal negligence (culpa criminal) – negligence
resulting in the commission of a crime.
o In culpa contractual, the mere proof of the existence of the
contract and the failure of its compliance justify¸ prime
facie, a corresponding right of relief. In contract of
carriage, the driver who is not a party to the contract, may

not be held liable under the agreement. The action against
him can only be based on culpa aquiliana, which unlike
culpa contractual¸ would require the claimant for damages
to prove negligence or fault on part of the defendant.
EFFECT OF NEGLIGENCE ON THE PART OF THE
INJURED PARTY
o If his negligence was only contributory, the immediate and
proximate cause of the injury being the defendant’s lack of
due care, the plaintiff may recover damages, but the courts
shall mitigate the damages to be awarded.
o The defense of contributory negligence of the injured party
does not apply in criminal cases where the offense was
committed by the accused through reckless imprudence.
PRESUMPTION OF CONTRACTUAL NEGLIGENCE
1. In an action for quasi-delict or tort, it should be clearly
established.
2. When the action is based on a contract of carriage, and the
obligor (carrier) failed to transport the passenger to his
destination, the fault or negligence is presumed.
a. In culpa contractual, the moment a passenger dies or
is injured, the common carrier is presumed to have
been at fault or to have acted negligently, and the
disputable presumption may only be overcome by
evidence that he had exercised extraordinary diligence
or that death or injury was due to fortuitous event.
b. The driver is not solidarily liable with the carrier, the
latter being exclusively responsible to the passenger
without the right of the carrier to recover from his
driver for the latter’s negligence.
ARTICLE 1173
MEANING OFFAULT OR NEGLIGENCE
o Negligence is conduct that creates undue risk or harm to
another. It is the failure to observe for the protection of the
interests of another person, that degree of care, precaution
and vigilance which the circumstances justly demand,
whereby such other person suffers injury. (U.S. v. Barrias)
TEST FOR DETERMINING WHETHER A PERSON IS
NEGLIGENT
1. Reasonable care and caution expected of an ordinary
prudent person. The law imposes the duty on the actor to
refrain from that course or to take precaution against its
mischievous results, and the failure to do so constitutes
negligence. Foreseeability is the fundamental test of
negligence.
2. No hard and fast rule for measuring degree of care. It is
dependent upon the circumstances in which a person finds
himself situated.
FACTORS TO BE CONSIDERED
1. Negligence, a factual matter – its existence depends upon
the particular existence of each case. The following factors
should be considered:
a. Nature of the obligation
b. Circumstances of the person
c. Circumstances of time
d. Circumstances of the place
OBLIGATIONS AND CONTRACTS NOTES 9
2. Proof, presumption of negligence – negligence is never
presumed but must be proven by the party who alleges it.
Exception: culpa contractual
MEASURE OF LIABILITY FOR DAMAGES
1. Civil Code Provisions – Title on Damages
a. Article 2201
b. Article 2220
c. Article 2232
d. Article 21
2. Contractual breach committed in good faith/bad faith –
liability for damages to the natural and probable
consequences of the breach of the obligation and which the
parties had foreseen or could have reasonable foreseen
(good faith).
3. With respect to moral damages – must somehow be
proportional to and in approximation of the suffering
inflicted, the factual basis for which must be satisfactorily
established by the aggrieved party.
4. Code of Commerce provisions
a. Article 587 – civil liability of the ship agent
b. Article 590 – civil liability of the vessel co-owners
c. Article 837 – civil liability of the shipowners
 The liability of the owner or agent arising from the
operation of the ship is confined to the vessel,
equipment, and freight, or insurance, if any.
KINDS OF DILIGENCE REQUIRED
o Diligence is the attention and care required of a person in a
given situation and is the opposite of negligence.
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1. That agreed upon by the parties, orally or in writing;
2. In the absence of stipulation, that required by law in
the particular case; and
3. If both contract and law are silent, then the diligence
expected of a good father. It is the same as ordinary
diligence or that of a reasonable prudent person.
ARTICLE 1174
MEANING OF FORTUITOUS EVENT
o A fortuitous event is any extraordinary event which cannot
be foreseen, or which, though foreseen, is inevitable.
(impossible to foresee or to avoid)
FORTUITOUS EVENT vs. FORCE MAJEURE
Fortuitous event is classified either as:
1. Acts of man (e.g., war, fire, robbery, murder, insurrection,
etc.)
2. Acts of God (e.g., earthquake, flood, rain, shipwreck,
lightning, volcanic eruption, etc.; also called force
majeure)
KINDS OF FORTUITOUS EVENT
1. Ordinary – common and which the contracting parties may
reasonably foresee
2. Extraordinary – uncommon and which the contracting
parties could not have reasonably foreseen

REQUISITES OF A FORTUITOUS EVENT
1. The event must be independent of the human will or at least
of the obligor’s will;
2. The event could be unforeseeable or unavoidable;
3. The event must be of such a character as to render it
impossible for the obligor to comply with his obligation in
a normal manner; and
4. The obligor must be free from any participation in, or the
aggravation of the injury to the oblige.
CONCURRENT OR PREVIOUS NEGLIGENCE OF OBLIGOR
o There must be no concurrent or previous negligence or
imprudence on the part of the obligor by which the loss or
injury may have been occasioned.
o There should have been no human participation amounting
to a negligent act.
RULES AS TO LIABILITY IN CASE OF FORTUITOUS EVENT
Rule: a person is not responsible for loss or damage resulting from
the non-performance of his obligation due to a fortuitous event. His
obligation is extinguished.
Exceptions:
1. When expressly specified by the law
a. The debtor is guilty of fraud, negligence, or delay, or
contravention of the tenor of the obligation.
b. The debtor has promised to deliver the same (specific)
thing to two or more persons who do not have the same
interest for it would be impossible for the debtor to
comply with his obligation to two or more creditors
even without any fortuitous event taking place.
c. The debt of a thing certain and determinate proceeds
from a criminal offense.
d. The thing to be delivered is generic for the debtor can
still comply with his obligation by deliver another
thing of the same kind in accordance with the principle
that genus never perishes.
Other cases under no. (1):
i. Article 552
ii. Article 1740
iii. Article 1942
iv. Article 1979
v. Article 2147
vi. Article 2159
2. When declared by stipulation – the basis for this is the
freedom of contract but there shall be clear stipulation.
3. When the nature of the obligation requires the
assumption of risk – risk of loss or damage is an essential
element of obligation.
EFFECT WHERE RISK NOT ONE IMPOSSIBLE TO FORESEE
1. Risk quiet evident – the nature of the obligation is such that
a party could rightfully be deemed to have assumed it.
2. Mere difficulty to foresee risk – it is different from
impossibility to foresee or anticipate the same.
a. The 1997 financial crisis is not among the fortuitous
events contemplated under Article 1174.
b. Fluctuations in currency is not an instance of caso
fortuito.
OBLIGATIONS AND CONTRACTS NOTES 10
IMPOSSIBILITY OF PERFORMANCE MUST RESULT FROM
OCCURRENCE OF FORTUITOUS EVENT
o The impossibility of fulfilling the obligation must be the
direct consequence of the event. If notwithstanding its
occurrence, the obligation can be fulfilled, it will subsist
even if only in part.
EFFECT OF OBLIGOR’S NEGLIGENCE UPON HIS
LIABILITY
1. Negligence contributed to the loss or damage – when the
negligence of the person concurs with the fortuitous event
in producing a loss, he is not exempted from liability by
showing that the immediate cause of the damage was the
fortuitous event.
2. Negligence not contributory to the loss or damage – the
consequences are derivation of the fortuitous event – it
cannot be said that responsibility arises therefrom.
ARTICLE 1175
MEANING OF SIMPLE LOAN OR MUTUUM
o Contract whereby one of the parties delivers to another
money or other consumable thing, upon the condition that
the same amount of the same kind and quality shall be paid.
It may be gratuitous or with a stipulation to pay interest.
MEANING OF USURY
o Contracting for or receiving interest in excess of the amount
allowed by law for the loan or use of money, goods,
chattels, or credits.
KINDS OF INTEREST
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1. Simple interest – rate of interest is stipulated by the parties
2. Compound interest – interest earned is upon interest due
3. Legal interest – rate of interest intended by the parties is
presumed by law, as when the loan mentions interest but
does not specify the rate thereof.
4. Lawful interest – rate of interest is within the maximum
allowed by (usury) law (Sections 2, 3, Usury Law, Act No.
2655, as amended)
5. Unlawful interest – beyond maximum fixed by law
INTEREST RATE RULES
1. Legal rate – 6% per annum when interest is stipulated, but
there is no express contract as to the rate thereof. In case of
default, the indemnity for damages in the absence of
stipulation is also 6%
2. Maximum rate:
a. 12% per annum – if the loan is secured in whole or in
party by a mortgage upon real estate with a Torrens
Title or by any agreement conveying such real estate
(also registered) or an interest therein.
b. 14% per annum – if the loan is not secured as
provided above
c. The rate prescribed by the Monetary Board of the
Central Bank

MEANING OF MONETARY/COMPENSATORY INTEREST
o Monetary interest is the interest fixed by parties to a
contract for the use or forbearance of money.
o It is called compensatory interest if it is imposed by law or
by courts as penalty or indemnity for damages and it is
payable only if the obligor is proved to have defaulted in
the performance of his obligation.
REQUISITES FOR RECOVERY OF MONEY INTEREST
1. The payment of interest must be expressly stipulated;
2. The agreement must be in writing; and
3. The interest must be lawful
USURY LAW CEILING OR INTEREST RATES LIFTED
1. Interest rates now subject to agreement – interest can be
charged as lender and borrower may agree upon.
2. Rule where interest stipulated excessive – the stipulated
interest may be declared illegal if the same is excessive,
exorbitant or unconscionable.
3. Rule where escalation clause stipulated – a clause which
grants the creditor unbridled right to unilaterally increase
the rate of interest without the express conformity of the
debtor is void as it violates the principle of mutuality of
contracts.
LIABILITY FOR LEGAL INTEREST
1. Loan or forbearance of money – the interest due should be
that which may have been stipulated in writing. Legal
interest (6%) in the nature of (actual and compensatory)
damages for non-compliance with an obligation to pay a
sum of money is recoverable even if such rate is not
expressly stipulated in writing.
a. The debtor in delay is liable to pay interest which is
6% per annum.
b. Interest due shall earn legal interest from the time it is
judicially demanded although the obligation may be
silent upon this point.
c. A debtor cannot be considered delinquent and liable to
pay interest where he offered checks backed by
sufficient deposit or is ready to pay cash if the creditor
chose that means of payment.
2. Other than loan of forbearance of money – The rate of
12% (now 6%) interest referred to in C.B. Circular No. 416
applies only to loan of forbearance of money, goods, or
credit, or to cases where money is transferred from one
person to another and the obligation to return the same or a
portion thereof is adjudged.
3. Final and executory judgment awarding a sum of money
– where the case falls under Nos. (1) and (2) above, the rate
of legal interest, shall be 6% per annum from such finality
until its satisfaction, the judgment or award shall be
considered a loan or forbearance of money or credit.
4. Summary – previous rulings on the ward of interest in the
concept of actual or compensatory damages based on C.B.
Circular No. 416, are accordingly modified to embody BSP
Circular No. 799:
a. For loan or forbearance of money – the rate of
interest due is that stipulated in writing, otherwise, 6%
per annum computed from judicial or extrajudicial
demand until fully paid. In addition, interest due shall
earn legal interest (compound) from the time it is
judicially demanded.
OBLIGATIONS AND CONTRACTS NOTES 11
b. For other than loan or forbearance of money – the
interest shall also be 6% as indemnity at the discretion
of the court.
c. When a judgment awarding a sum of money under
(a) or (b) has become final and executory – the rate
of legal interest shall be 6% from such finality
ARTICLE 1176
MEANING OF PRESUMPTION
o Interfere of a fact not actually known arising from its usual
connection with another which is known or proved.
TWO KINDS OF PRESUMPTION
1. Conclusive presumption – cannot be contradicted, e.g., A.3
2. Disputable (or rebuttable) presumption – can be
contradicted upon showing of contrary proof
WHEN PRESUMPTIONS IN ARTICLE 1176 DO NOT APPLY
1. With reservation as to interest – the reservation may be
made in writing or verbally
2. Receipt for a part of principal – a receipt for a part of the
principal, without mentioning the interest, merely implies
that the creditor waives his right to apply the payment first
to the interest and then to the principal, as permitted by
Article 1253.
3. Receipt without indication of particular installment paid
– if the receipt does not recite that it was issued for a
particular installment due as when the receipt is only dated.
4. Payment of taxes – taxes payable by the year are not
installments of the same obligation
5. Non-payment proven – between a proven fact and a
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presumption pro tanto, the former stands, and the latter
falls.
ARTICLE 1177
REMEDIES AVAILABLE TO CREDITORS FOR THE
SATISFACTION OF THEIR CLAIMS
1. Exact fulfillment with the right to damages;
2. Pursue the leviable (not exempt from attachment under the
law) property of the debtor;
3. “after having pursued the property in possession of the
debtor,” exercise all the rights and bring all the actions of
the debtor except those inherent in or personal to the person
of the latter; and
4. Ask the court to rescind or impugn acts or contracts which
the debtor may have done to defraud him when he cannot
in any other manner recover his claim.
ARTICLE 1178
TRANSMISSIBILITY OF RIGHTS
Rule: all rights acquired in virtue of an obligation are generally
transmissible.
Exceptions:
1. Prohibited by law
a. By the contract of partnership – 2 or more
persons bind themselves to contribute money,
property or industry to a common fund, with the
intention of dividing the profits among
themselves.
 OBLIGATIONS AND CONTRACTS NOTES 12

b. By the contract of agency, a person binds himself

to render some service or to do something in
representation or on behalf of another, with the
consent or authority of the latter.
c. By the contract of commodatum, one of the
parties delivers to another something not
consumable so that the latter may use the same
for a certain time and return it.

2. Prohibited by stipulations of parties – the stipulation

must not be contrary to public policy

1163 – obligation to give something

1164 – right to the fruits
1165 – delivery of real obligations
1166 – accessions and accessories
1167 – failure to do obligations
1168 – negative personal obligations
1169 – delay
1170 – liability for damages
1171 – liability arising from fraud
1172 – liability arising from negligence
1173 – fault or negligence
1174 – fortuitous event
1175 – usurious transaction
1176 – presumption
1177 – remedies available to creditors to satisfy claims
1178 – transmissibility of rights

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 OBLIGATIONS AND CONTRACTS NOTES 13

CHAPTER 3 1. Future and uncertain – condition must be both future and

DIFFERENT KINDS OF OBLIGATIONS uncertain despite the use of disjunctive or.
2. Past but unknown – even if it is in the future, same must
CLASSIFICATIONS OF OBLIGATIONS be unknown to the parties
1. Primary classification under the Civil Code: o A condition must not be impossible
a. Pure and conditional
b. Obligations with a period TWO PRINCIPAL KINDS OF CONDITION
c. Alternative and facultative 1. Suspensive condition (condition precedent or condition
d. Joint and solidary antecedent) or one the fulfillment of which will give rise to
e. Divisible and indivisible an obligation (or right).
f. Obligations with penal clause a. The birth, perfection or effectivity of the contract
subject to a condition can take place only if and when
2. Secondary classification under the Civil Code the condition happens or is fulfilled.
a. Unilateral and bilateral b. It must appear that the performance of an act or the
b. Real and personal happening of an event was intended by the parties as a
c. Determinate and generic suspensive condition, otherwise, its non-fulfillment
d. Civil and natural will not prevent the perfection of a contract.
e. Legal, conventional, and penal c. There can be no rescission of an obligation that is still
non-existent, the suspensive condition not having been
3. Classification according to Sanchez Roman fulfilled.
a. By their juridical quality and efficaciousness 2. Resolutory condition (condition subsequent) or one the
1. Natural fulfillment of which will extinguish an obligation (or right)
2. Civil already existing.
3. Mixed
b. By parties or subject SUSPENSIVE RESOLUTORY
1. Unilateral or bilateral If fulfilled, obligation arises If fulfilled, obligation
2. Individual or collective extinguishes
3. Joint or solidary If the first does not take place, The legal tie is consolidated
c. By the object of the obligation or prestation no legal tie
1. Specific or generic Until the first takes place, the Its effect flow, but over it,
2. Positive or negative existence of the obligation is a hovers the possibility of
3. Real or personal mere hope. termination
4. Possible or impossible

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5. Divisible or indivisible WHEN CONDITION IMPOSED ON PERFECTION OF
6. Principal or accessory CONTRACT
7. Simple or compound; if compound: o Failure to comply with the condition imposed on the
i. Conjunctive perfection of contract results in the failure of a contract.
ii. Distributive o Failure to comply with the condition imposed on the
d. By their juridical perfection and extinguishment performance of an obligation only gives the other party the
1. Pure or conditional option either to refuse to proceed with the contract or to
2. With a period waive performance of the condition.

WHEN OBLIGATION DEMANDABLE AT ONCE

SECTION 1 1. When it is pure;
PURE AND CONDITIONAL OBLIGATIONS 2. When it is subject to a resolutory condition; or
3. When it is subject to a resolutory period
ARTICLE 1179 PAST EVENTS UNKNOWN TO THE PARTIES
o What is really contemplated by the law is the knowledge to
MEANING OF PURE OBLIGATION be acquired in the future of a past event which at the
o Not subject to any condition and no specific date is moment is unknown to the parties interested, for it is only
mentioned for its fulfillment and is, therefore, immediately in that sense that the event can be deemed uncertain.
demandable

MEANING OF CONDITIONAL OBLIGATION ARTICLE 1180

o One whose consequences are subject in one way or another
to the fulfillment of a condition WHERE DURATION OF PERIOD DEPENDS UPON THE
WILL OF DEBTOR
MEANING OF CONDITION 1. The debtor promises to pay when his means permit him to
o Future and uncertain event, upon the happening of which, do – what is left only to his will is the duration of the period.
the effectivity or extinguishment of an obligation (or rights) If the debtor and the creditor cannot agree as to the specific
subject to it depends time for payment, the court shall fix the same on the
application of either party.
CHARACTERISTICS OF A CONDITION
 OBLIGATIONS AND CONTRACTS NOTES 14

2. Other cases
a. Little by little
b. As soon as possible
c. From time to time
d. As soon as I have the money
e. At any time I have the money
f. In partial payments
g. When I am in the position to pay
ARTICLE 1181
EFFECT OF HAPPENING OF CONDITION
1. Acquisition of rights – in suspensive condition¸ the
acquisition of rights by the creditor depends upon the
happening of the event which constitutes the condition.
a. The surrender of the sweepstakes ticket is a condition
precedent to the payment of the prize
b. Where the loans of X from Y were supposed to
become due only at the time Y receives from Z the
proceeds of the approved financing scheme
c. In sales with assumption of mortgage, the assumption
of mortgage by the buyer is a condition precedent to
the seller-mortgagor’s consent to the sale
2. Loss of rights already acquired – in resolutory conditions,
the happening of the event which constitutes the condition
produces extinguishment or loss of rights already acquired.
EFFECT OF NON-COMPLIANCE WITH RESOLUTORY
CONDITION
o When a contract is subject to a resolutory condition, non-
compliance with or non-fulfillment of the condition
WHERE SUSPENSIVE CONDITION DEPENDS UPON THE
WILL OF THE DEBTOR
1. Conditional obligation void – void because its validity and
compliance is left to the will of the debtor and it cannot,
therefore, be legally demandable; no burden on the debtor
and no juridical tie.
2. Only the condition void – if the obligation is a pre-existing
one and does not depend upon the fulfilment of the
condition, only the condition is void leaving the obligation
unaffected.
WHERE SUSPENSIVE CONDITION DEPENDS UPON THE
WILL OF CREDITOR
o The obligation is valid.
o It is up to him whether to enforce his right or not.
WHERE RESOLUTORY CONDITION DEPENDS UPON THE
WILL OF THE DEBTOR
o The fulfillment of the condition merely causes the loss or
extinguishment of rights already acquired. The debtor is
naturally interested in its fulfillment.
o The debtor’s position is the same as that of the creditor in
suspensive condition
CASUAL CONDITION
1. If the suspensive condition depends upon chance or upon
the will of a third person, the obligation subject to it is valid.
2. When the fulfillment of the condition does not depend on
will of the obligor, but that on a third person who can in no
way be compelled to carry it out, and it is found by the court

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resolves the contract by force of law without need of that the obligor has done all in his power to comply with his
judicial intervention. obligation, his part of the contract is deemed complied with
and he has a right to demand performance of the contract
by the other party.
ARTICLE 1182
MIXED CONDITION
CLASSIFICATIONS OF CONDITION o The obligation is valid
1. As to effect o Both conditions (chance and will of a third person) must
a. Suspensive take place in order that obligation will arise.
b. Resolutory
2. As to form WHERE SUSPENSIVE CONDITION DEPENDS PARTLY
a. Express UPON THE WILL OF DEBTOR
b. Implied o Conditional obligations whose fulfillment depends partly
3. As to possibility upon the will of the debtor and partly upon the will of a
a. Possible third person, or upon chance are perfectly valid.
b. Impossible o If the compliance still depends upon the will of the debtor,
4. As to cause or origin the obligation is void.
a. Potestative – depends upon the will of the one of the
contracting parties
b. Casual – depends upon chance or upon the will of a ARTICLE 1183
third person
c. Mixed – partly chance and partly upon the will of a WHEN ARTICLE 1183 APPLIES
third person o Refers to suspensive condition
5. As to mode o Applies to cases where the impossibility already existed at
a. Positive the time the obligation was constituted. If after, A. 1266
b. Negative governs.
6. As to number
a. Conjunctive TWO KINDS OF IMPOSSIBLE CONDITIONS
b. Disjunctive 1. Physically impossible conditions – cannot exist or cannot
7. As to divisibility be done
a. Divisible 2. Legally impossible conditions – contrary to law, moral,
b. Indivisible good customs, public order, or public policy

EFFECT OF IMPOSSIBLE CONDITIONS
1. Conditional obligation void – annul the obligation
 In conditional testamentary dispositions and in simple
and remuneratory donations¸ the rule is different.
2. Conditional obligation valid – if the condition is negative,
that is, not to do an impossible thing, it is disregarded and
the obligation is rendered pure and valid.
3. Only the affected obligation void – if the obligation is
divisible
4. Only the condition void – if the obligation is a pre-existing
obligation, and, therefore, does not depend upon the
fulfillment of the condition which is impossible, for its
existence, only the condition is void.
ARTICLE 1184
POSITIVE CONDITION
o Refers to positive (suspensive) condition – the happening of
an event at a determinate time.
o The obligation is extinguished:
1. As soon as the time expires w/o the event
2. It has become indubitable that the event will not take
place even if time does not expire yet
ARTICLE 1185
NEGATIVE CONDITION
o The event will not happen at a determinate time
o The obligation shall become effective and binding:
1. From the moment the time indicated has elapsed w/o
the event; or
2. The event cannot occur although time has not yet
elapsed
o If no time is fixed, the circumstances shall be considered to
determine the intention of the parties. Same is applicable to
positive obligation.
ARTICLE 1186
CONSTRUCTIVE FULFILLMENT OF SUSPENSIVE
CONDITION
Three requisites for this application:
1. The condition is suspensive;
2. The obligor actually prevents the fulfillment of the
condition; and
3. He acts voluntarily or intentionally
o The law does not require that the obligor acts with malice
or fraud as long as his purpose is to prevent the fulfillment
of the condition. He should not be allowed to profit from
his own fault or bad faith.
CONSTRUCTIVE FULFILLMENT OF RESOLUTORY
CONDITION
o Applies also to an obligation subject of a resolutory
condition with respect to the debtor who is bound to return
what he has received upon the fulfillment of the condition.
OBLIGATIONS AND CONTRACTS NOTES 15
ARTICLE 1187
RETROACTIVE EFFECTS OF FULFILLMENT OF
SUSPENSIVE CONDITION
1. In obligations to give – once the condition is fulfilled, its
effects shall retroact to the day when the obligation was
constituted.
Reason: the condition is only an accidental element of a
contract. An obligation can exist without being subject to a
condition. Had the parties known beforehand that the
condition would be fulfilled, they would have bound
themselves under a pure obligation.
 has no application to real contracts
2. In obligations to do or not to do – no fixed rule is provided
 The courts are empowered by the use of sound
discretion and bearing in mind the intent of the parties,
to determine, in each case, the retroactive effect of the
suspensive condition that has been complied with.
RETROACTIVE EFFECTS AS TO FRUITS AND INTERESTS
IN OBLIGATIONS TO GIVE
1. In reciprocal obligations – there is no retroactivity because
the fruits and interests received during the pendency of the
condition are deemed to have been mutually compensated.
2. In unilateral obligations – there is no usually retroactive
effect because they are gratuitous.
ARTICLE 1188
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RIGHTS PENDING FULFILLMENT OF SUSPENSIVE
CONDITION
1. Rights of creditor – he may take or bring appropriate
actions for the preservation of his right, as the debtor may
render nugatory the obligation upon the happening of the
condition. The rule in paragraph one applies by analogy to
obligations subject to a resolutory condition
2. Rights of debtor – he is entitled to recover what he has paid
by mistake prior to the happening of the suspensive
condition. (SEE solutio indebiti)
ARTICLE 1189
REQUISITES FOR APPLICATION OF ARTICLE 1189
1. The obligation is a real obligation;
2. The object is a specific or determinate thing;
3. The obligation is subject to a suspensive condition;
4. The condition is fulfilled; and
5. There is loss, deterioration, or improvement of the thing
during the pendency of the happening on one condition.
KINDS OF LOSS
1. Physical loss – when a thing perishes
2. Legal loss – when a thing goes out of commerce or when a
thing heretofore legal becomes illegal; or
3. Civil loss – when a thing disappears in such a way that its
existence is unknown; or even if known, it cannot be
recovered, whether as a matter of fact or of law (e.g.,
property is lost through prescription)

RULES IN CASE OF LOSS, ETC. OF THING DURING
PENDENCY OF SUSPENSIVE CONDITION
1. Loss of thing without debtor’s fault
2. Loss of thing through debtor’s fault
3. Deterioration of thing without debtor’s fault
4. Deterioration of thing through debtor’s fault
5. Improvement of thing by nature or by time
6. Improvement of thing at expense of debtor
ARTICLE 1190
EFFECTS OF FULFILLMENT OF RESOLUTORY
CONDITION
1. In obligations to give – the obligation is extinguished and
the parties are obliged to return to each other what they have
received under the obligation.
a. There is a return to the status quo (retroactive).
b. The obligation of mutual restitution is absolute.
c. In case the thing to be returned “is legally in the
possession of a third person who did not act in bad
faith,” the remedy of the party entitled to restitution is
against the other.
d. Retroactivity admits of no exception whether the
obligation is bilateral or unilateral
e. If the condition is not fulfilled, the rights acquired by
a party becomes vested.
2. In obligations to do or not to do – in some obligations, the
courts shall determine the retroactive effect of the
fulfillment of the resolutory condition.
 The happening of a resolutory condition has the same
effect on the creditor as the suspensive condition has,
on the debtor – an obligation arises. The fulfillment of
the resolutory condition coverts the creditor to debtor,
and the debtor to creditor.
ARTICLE 1191
KINDS OF OBLIGATION ACCORDING TO THE PERSON
OBLIGED
1. Unilateral – when only one party is obliged to comply with
a prestation.
2. Bilateral – when both parties are mutually bound to each
other. Both parties are debtors and creditors to each other.
a. Reciprocal obligations are those which arise from the
same cause, and in which each party is a debtor and
creditor of the other.
b. Non-reciprocal obligations are those which do not
impose simultaneous and correlative performance on
both parties. In other words, the performance of one
party is not dependent upon the simultaneous
performance by the other.
CHOICE OF REMEDY IN RECIPROCAL OBLIGATIONS
1. Article 1191 speaks of the right of the ‘injured party’ or
aggrieved party to choose between two remedies: an
action for rescission or an action for specific performance
of the obligation, with the right to claim damages in either
case.
OBLIGATIONS AND CONTRACTS NOTES 16
2. The choice of remedy is predicated on a breach of
obligation by the other party that violates the reciprocity
between them.
3. As a general rule, previous demand by the oblige for the
fulfillment of the obligation is necessary before the obligor
can be considered in default.
REMEDY OF RESCISSION
o Remedy of rescission applicable to reciprocal obligations is
to be distinguished from rescission for lesion contemplated
in Article 1380 and from cancellation of a contract based,
for example, on defect in the consent, and not on the breach
by a party of his obligation.
o The effect of rescission is to put an end to the contract in all
its parts as though it never were.
o When a party demands rescission in reciprocal obligations
he, in effect, treats the non-fulfillment by the other party as
a resolutory condition.
BREACH OF OBLIGATION ON PART OF PLAINTIFF
o Breach of an obligation occurs when there is a failure or
refusal, by a party without legal reason or excuse to
perform, in whole or in part, the obligation or undertaking
which is incumbent upon him.
1. Guilty party not entitled to sue – under the rule
exceptio non adimpleti contractus, the party who has
not performed his part of the agreement is not entitled
to sue.
2. Injured party entitled to rescind even in absence of
stipulation – only the injured party can rescind a
contract without violating the principle of mutuality of
contracts.
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EXISTENCE OF ECONOMIC PREJUDICE NOT REQUIRED
o Article 1191, referring to resolution, is not predicated
lesion or economic prejudice to one of the parties but on
breach of faith by one of them that violates the reciprocity
between them.
EFFECT OF RESCISSION
1. Contract abrogated from its inception – to annul the
contract and restore the parties in their original positions
which they would have occupied as if no such contract had
ever been made.
2. Mutual restitution of benefits received by reach party
required – rescission creates the obligation to return the
object of the contract.
o Article 1191 refers to resolution of obligations in general,
whereas articles 1786 and 1788 especially refer to the
contract of partnership. And it is well-known principle that
special provisions prevail over general provisions.
o Contract of insurance creates reciprocal obligations for
both insurer and insured.
o Nominal damages are recoverable where a legal right is
technically violated and must be vindicated against an
invasion that has produced no actual loss of any kind, or
where there has been a breach of contract and no substantial
injury or actual damages whatsoever have been or can be
shown.

COURT MAY GRANT GUILTY PARTY TERM FOR
PERFORMANCE
o This exception applies only where the guilty party is
willing to comply with his obligation but needs time to do
so and not where he refuses to perform.
REMEDIES ARE ALTERNATIVE
o He is privileged to choose only one of the remedies subject
only to the exception in paragraph 2, to wit: he may also
seek rescission even after he has chosen fulfillment if the
latter should become impossible. But after choosing
rescission, he thereafter cannot demand its compliance.
WHEN CONTRACT RESOLVED BY NON-FULFILLMENT OR
VIOLATION OF RESOLUTORY CONDITION
1. Without option to demand fulfillment – jurisprudence
supports the view that when parties to a contract expressly
reserve an option to terminate or to rescind a contract upon
the violation of a resolutory condition, notice of resolution
must be given to the other party when such right is
exercised. Resort to courts may be necessary when the right
involves the retaking or property which is not voluntarily
surrendered by the other party.
2. With option to demand fulfillment – in respect to the sale
of immovable property, article 1191 must be read with
Article 1592 which applies to instances where no
stipulation for automatic rescission is made because it says
“even though.”
DAMAGES RECOVERABLE
o It follows that damages which would only be consistent
with the conception of specific performance cannot be
awarded in an action where rescission is sought, and vice
versa.
LIMITATIONS ON RIGHT TO DEMAND RESCISSION
1. Resort to the courts – the rescission contemplated by
Article 1191 is a judicial rescission. No person can take
justice in his own hands and decide by himself what are his
rights in the matter.
a. Even a counterclaim or a cross-claim found in the
Answer could constitute a judicial demand for
rescission that satisfies the requirement of the law.
b. The other party must be given an opportunity to be
heard.
c. Proof of violation by a party of the contract is a
condition precedent to resolution or rescission.
d. It has been held that a directive to take “legal steps”
for the rescission of a contract does not necessarily
have to be taken as an instruction to bring “legal
action.”
e. The law does not require the injured party to first file
suit and wait for a judgment before taking extrajudicial
steps to protect his interest.
2. Power of court to fix period – the court has discretionary
power to allow a period within which a person in default
may be permitted to perform his obligation if there is a just
cause for giving time to the debtor.
3. Compliance by aggrieved party with his obligation – the
right to rescind a contract can be demanded only if a party
OBLIGATIONS AND CONTRACTS NOTES 17
thereto is ready, willing, and able to comply with his own
obligations thereunder.
4. Right of third persons – the injured party may recover
damages from the person responsible for the transfer.
5. Slight or substantial violation – the violation should be
substantial and fundamental as to defeat the object of the
parties making the agreement.
 The question of whether a breach is slight or
substantial largely depends upon the attendant
circumstances and not merely on the percentage of the
amount not paid.
6. Waiver of right – the right may be waived, expressly or
impliedly.
7. Contract to sell/ of sale – the breach contemplated in
Article 1191 is the obligor’s failure to comply with an
obligation already extant, not a failure of a condition to
render binding that obligation.
a. In a contract to sell, the payment of the purchase price
is a positive suspensive condition
b. In a contract of sale, the non-payment of the price is
a resolutory condition which extinguishes the
transaction that for a time existed and discharges the
obligations created thereunder.
8. Sales of real property and of personal property in
installments – in sales of real property, Article 1592, as
impliedly amended by R.A. No. 6552, governs the exercise
of the right of rescission. With respect to the sales of
personal property on installments, Articles 1484, 1485,
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and 1486 are applicable.
9. Judicial compromise – Article 1191 does not apply to
obligations arising from a judicial compromise.
10. Arbitration clause in a contract – whatever infractions or
breaches by a party or differences arising from the contract
must be brought first and resolved by arbitration, and not
through an extrajudicial rescission or judicial action.
RESCISSION OF CONTRACT WITHOUT PREVIOUS
JUDICIAL DECREE
1. Where automatic rescission expressly stipulated – this
stipulation is in the nature of resolutory condition.
 Judicial action for rescission is not necessary where
the contract provides on automatic rescission in case
of breach.
 Where it is validly objected to, a judicial
determination of issue is still necessary.
 The right of “automatic rescission” stipulated in a
contract is subject to waiver.
2. Where contract still executory – in the absence of
stipulation to the contrary, the right rescind a contract must
be invoked judicially; it cannot be exercised solely on a
party’s own judgment that the other has committed a breach
of the obligation.
 OBLIGATIONS AND CONTRACTS NOTES 18

PROCEDURE WHERE EXTRAJUDICIAL RESCISSION

CONTESTED
1. With stipulation for automatic revocation – judicial
intervention is necessary not for purposes of obtaining a
judicial declaration rescinding a contract already deemed
rescinded by virtue of an agreement but in order to
determine whether or not rescission was proper.

2. Without stipulation for automatic revocation – a

contracting party has the power to rescind reciprocal
contracts extrajudicially but, as already observed, in case of
abuse or error by the rescinder, the other party is not barred
from questioning in court such abuse or error.

ACTION FOR RESCISSION NOT REQUIRED UPON BREACH

OF COMPROMISE AGREEMENT
o A compromise is an agreement between 2 or more persons
who, for preventing or putting an end to a lawsuit, adjust
their respective positions by mutual consent in the way they
feel they can love with.
o The party aggrieved by the breach of a compromise
agreement may, enforce or, if he chooses, bring the suit
contemplated or involved in his original demand, as if there
had never been any compromise agreement, without
bringing an action for rescission thereof.

RESCISSION DISTINGUISHED FROM TERMINATION

o Rescission is the unmaking of a contract or its undoing from
the beginning, and not merely its termination.
o Termination refers to “end in time or existence; a close,
cessation or conclusion.”

ARTICLE 1192

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WHERE BOTH PARTIES GUILTY OF BREACH
Two situations:
1. First infractor known – the liability of the 1st infractor
should be reduced.
2. First infractor cannot be determined – The contract shall
be deemed extinguished and each shall bear his own
damages.

1179 – pure and conditional obligation

1180 – duration upon the will of the debtor
1181 – happening of events
1182 – fulfillment of the condition
1183 – impossible conditions
1184 – positive condition
1185 – negative condition
1186 – obligor voluntarily prevents its fulfillment
1187 – retroactive effect of fulfillment of condition
1188 – rights pending fulfillment of suspensive condition
1189 – improvement, loss, or deterioration (suspensive)
1190 – improvement, loss, or deterioration (resolutory)
1191 – Rescission
1192 – In pari delicto
 OBLIGATIONS AND CONTRACTS NOTES 19

SECTION 2 DEBTOR PRESUMED AWARE OF THE PERIOD

OBLIGATIONS WITH A PERIOD o The debtor has the burden of proving that he was unaware
of the period.
o The obligor may no longer recover the thing or money once
ARTICLE 1193 the period has arrived but he can recover the fruits or
interests thereof from the date of premature performance to
MEANING OF OBLIGATIOB WITH A PERIOD the date of maturity of the obligation.
o Whose consequences are subjected in one way or another
to the expiration of said period or term. NO RECOVERY IN PERSONAL OBLIGATIONS
o Does not apply to obligations to do or not to do because as
MEANING OF PERIOD OR TERM to former, it is physically impossible to recover the service
o A period is a future and certain event upon the arrival of rendered.
which the obligation (or right) subject to it either arises or
is terminated.
ARTICLE 1196
PERIOD AND CONDITION DISTINGUISHED
PRESUMPTION OF BENEFIT OF PERIOD
PERIOD CONDITION 1. Obligation subject to a fixed period – the period is
As to fulfillment Uncertain event presumed to have been established for the benefit of both
Certain event which must the creditor and the debtor.
happen sooner or later at a 2. Reciprocal contract – the period must be deemed to have
date known beforehand, or at been agreed upon for the benefit of both parties, absent
a time which cannot be language showing that the term was deliberately set for the
determined benefit of the lessee or the lessor alone.
As to time May also refer to past
future unknown EXCEPTIONS TO THE GENERAL RULE
As to influence on the Causes an obligation to arise 1. Term is for the benefit of the debtor alone – He cannot be
obligation or to cease compelled to pay prematurely.
Merely fixes the time. If 2. Term is for the benefit of the creditor – He may demand
suspensive, it cannot prevent fulfillment even before the arrival of the term but the debtor
the birth of the obligation in cannot require him to accept payment before expiration.
due time; if resolutory, it does
not annul, even in fiction, the ACCELERATION BY DEBTOR OF TIME OF PAYMENT

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fact of its existence
As to effect, when left to
debtor’s will
Empowers the court to fix the
duration thereof
As to retroactivity effects
Does not have
Some reasons why a creditor may not be bound to receive payment
Invalidates the obligation before maturity:
1. Payment of interest
2. To keep his money invested safely instead of having it in
his hands
has 3. Protects himself against sudden decline in the purchasing
power of the currency loaned

KINDS OF PERIOD OR TERM o The debtor has no right to accelerate unless the creditor
1. According to effect: consents
a. Suspensive period (ex die); and
b. Resolutory period (in diem) EFFECT OF ACCEPTANCE BY CREDITOR OF PARTIAL
2. According to source: PAYMENT
a. Legal period o Amounts to a waiver of the period agreed upon during
b. Conventional or voluntary period which payment should not be made.
c. Judicial period
3. According to definiteness: ARTICLE 1197
a. Definite period
b. Indefinite period
COURT GENERALLY WITHOUT POWER TO FIX A PERIOD
o Judicial period is fixed by the court
ARTICLE 1194 o Contractual period is fixed by the parties
SEE ARTICLE 1189 o If the obligation does not state a period and no period is
intended, the court is not authorized to fix a period.

ARTICLE 1195 DURATION OF PERIOD DEPENDS UPON THE WILL OF

THE DEBTOR
PAYMENT BEFORE ARRIVAL OF PERIOD o In fixing the term, the court is merely enforcing the implied
o Applies only to obligation to give stipulation of the parties.
o It allows the recovery of what has been paid by mistake
before the fulfillment of a suspensive condition.
o No unjust enrichment
 OBLIGATIONS AND CONTRACTS NOTES 20

LEGAL EFFECT WHERE SUSPENSIVE

PERIOD/CONDITION DEPENDS UPON THE WILL OF
DEBTOR
1. Existence of Obligation – not affected although the period
depends upon the sole will of the debtor.
2. Validity of obligation – if the obligation is subject to a
condition which depends upon the will of the debtor, the
conditional obligation is void.

ACTION TO FIX DURATION OF PERIOD

1. Separate action for that express purpose – the only action
that can be maintained is to ask the court first to determine
the term within which the obligor must comply with his
obligation.

2. Where separate action would be a mere formality – the

duration of the period should be fixed in an action brought
for that express purpose separate from the action to enforce
payment but such technicality need not be adhered to when
a prior and separate action would be a mere formality and
would serve no other purpose than to delay.

ULTIMATE FACTS TO BE ALLEGED IN COMPLAINT

1. Facts showing that a contract was entered into, imposing on
one of the parties an obligation or obligations in favor of
another; and
2. Facts showing or from which an inference may reasonably
be drawn, that a period of performance was intended by the
parties.

PERIOD FIXED CANNOT BE CHANGED BY THE COURT

1. Period agreed upon by the parties – if it has already lapsed
or expired, the court cannot fix another period

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2. Period fixed by the court – it becomes a law governing the
parties’ contract
3. Period fixed in a final judgment – res judicata effect

ARTICLE 1198

WHEN OBLIGATION CAN BE DEMANDED BEFORE LAPSE

OF PERIOD
General Rule: Obligation is not demandable before the lapse of
period.
Exceptions: five cases mentioned in Article 1198

1. When the debtor becomes insolvent.

2. When the debtor does not furnish guaranties or securities
promised.
3. When guaranties or securities given have been impaired or
have disappeared.
4. When debtor violates an undertaking
5. When debtor attempts to abscond

1193 – day certain

1194 – loss, deterioration or improvement (day certain)
1195 – payment before arrival of period
1196 – benefit of period
1197 – court may fix duration of period
1198 – when debtor lose right to make use of period

SECTION 3
ALTERNATIVE OBLIGATIONS
ARTICLE 1199
KINDS OF OBLIGATION ACCORDING TO OBJECT
1. Simple obligation
2. Compound obligation
a. Conjunctive obligation
b. Distributive obligation (may be alternative or
facultative)
MEANING OF ALTERNATIVE OBLIGATION
o One wherein various prestations are due but the
performance of one of them is sufficiently determined by
the choice which, as a general rule, belongs to the debtor
EXAMPLE:
D borrowed from C P10,000.00. it was agreed that D could
comply with his obligation by giving C P10,000.00, or a color
television set, or by painting the house of C. however,
performance must be complete so as not to form co-ownership.
ARTICLE 1200
GENERAL RULE
General Rule: The right to choose the prestation belongs to the
debtor.
Exception: When expressly granted to the creditor or to a third person
by common agreement
LIMITATIONS
1. The debtor cannot choose prestations which are:
a. Impossible
b. Unlawful
c. Could not have been the object of the obligation
2. No more right of choice when among the prestations
whereby he is alternatively bound, only one is practicable.
3. The debtor cannot choose part of one and another prestation
ARTICLE 1201
COMMUNICATION OF NOTICE THAT CHOICE HAS BEEN
MADE
1. Effect of notice – until the choice is made and
communicated, the obligation remains alternative
a. Once the notice has been given, the obligation
becomes simple.
b. Choice is irrevocable and cannot be renounced.
c. Choice shall likewise produce legal effect.
2. Proof and form of notice – the burden of proof is on the
one who made the choice; no prescribed form of notice
ARTICLE 1202
EFFECTS WHEN ONLY ONE PRESTATION IS PRACTICABLE
o Obligation is converted to simple one.
OBLIGATIONS AND CONTRACTS NOTES 21
ARTICLE 1203
WHEN DEBTOR MAY RESCIND THE CONTRACT
o The right given the debtor to rescind the contract and
recover damages if any, through the creditor’s fault, he
cannot make a choice according to the terms of the
obligation. The debtor, however, is not bound to rescind.
ARTICLE 1204
EFFECT OF LOSS OR BECOMING IMPOSSIBLE OF
OBJECTS OF OBLIGATION
1. Some of the objects – the debtor is not liable (even if due
to his fault) since he has the right of choice and the
obligation can still be performed. This is an exception to
Article 1170 (liability for damages due to negligence)
2. All of the objects – the creditor shall the right to indemnity
for the damages since the obligation can no longer be
complied with unless the cause if due to fortuitous event.
BASIS OF INDEMNITY
o The value of the last thing which disappeared or that of the
service which last became impossible
o Other damages may also be awarded
ARTICLE 1205
WHERE RIGHT OF CHOICE BELONGS TO THE CREDITOR
o By express grant
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RULES IN CASE OF LOSS BEFORE CREDITOR HAS MADE
CHOICE
1. When a thing is lost through fortuitous event – can choose
from the remainder
2. When a thing is lost through debtor’s fault – can choose
from the remainder plus damages)
3. When all things are lost through debtor’s fault – demand
payment with indemnity for damages
4. When all things are lost through fortuitous event – article
1174 applies
ARTICLE 1206
MEANING OF FACULTATIVE OBLIGATION
o One where only one prestation has been agreed upon but
the obligor may render another in substitution
EXAMPLE:
I will give you my piano but I may give my television set
as a substitute.
EFFECT OF LOSS
1. Before substitution – the loss of the thing intended as a
substitute with or without the fault of the debtor does not
render him liable since it is not due.
2. After substitution – if the substitute is lost, the liability of
the debtor depends upon whether or not the loss is due to
his fault or not. The substitution becomes effective from the
time it has been communicated.
 OBLIGATIONS AND CONTRACTS NOTES 22

ALTERNATIVE AND FACULTATIVE OBLIGATIONS

DISTINGUISHED

ALTERNATIVE FACULTATIVE
Number of Several are due One is due
prestations but compliance to although debtor
one is sufficient can substitute
Right of choice May be given to Debtor only
the creditor or 3rd
person
Loss through Does not Extinguishes
fortuitous event extinguish the obligation
obligation
Loss through a. Loss of one a. Makes debtor
fault of the debtor does not render liable
debtor liable b. Loss of one
b. Where the before
choice belongs substitution
to the creditor, does not render
loss of one debtor liable.
gives rise to
liability.
Nullity of a. Does not a. Invalidate the
prestation invalidate the obligation
others b. Debtor is not
b. Shall choose bound to
from among the choose the
remainder substitute

1199 – alternative obligations

1200 – right of choice (debtor)
1201 – communication of notice

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1202 – only one practicable
1203 – rescind the contract
1204 – right to indemnity (creditor)
1205 – right of choice (creditor)
1206 – facultative obligation
 OBLIGATIONS AND CONTRACTS NOTES 23

SECTION 4 2. The law requires solidarity; or

JOINT AND SOLIDARY OBLIGATIONS
ARTICLE 1207 & 1208
KINDS OF OBLIGATIONS ACCORDING TO THE NUMBER
OF PARTIES
1. Individual obligations – one obligor and one oblige
2. Collective obligation – 2 or more debtors or 2 or more
creditors. It may jointly or solidary
MEANING OF JOINT AND SOLIDARY OBLIGATIONS
1. A joint obligation is one where the whole obligation is to
be paid or fulfilled proportionately by the different debtors
and/or is to be demanded proportionately by the different
creditors.
2. A solidary obligation is one where each one of the debtors
is bound to render, and/or each one of the creditors has a
right to demand entire compliance with the prestation.
COLLECTIVE OBLIGATION PRESUMED TO BE JOINT
o When there is a plurality of parties and the share of each in
the obligation is specified¸ the correlative rights and
obligations of the parties are known.
o If the share is not specified, the presumption is that the
obligation is joint. As a consequence:
a. There are as many debts as there are debtors;
b. There are as many credits as there are creditors;
c. The debts and/or credits are considered distinct and
separate from one another;
d. Each debtor is liable only for a proportionate part of
the debt;
3. The nature of the obligation requires solidarity
o Also exists when it is imposed in a final judgment against
several defendants
WORDS USED TO INDICATE SOLIDARY LIABILITY
o Severally, jointly and/or severally, solidaria, in solidum,
solidarily, together and/or separately, individually and/or
collectively, juntos o suparadamente, “I promise to pay”
signed by two or more persons.
o Usage of the term joint and solidary is confusing and
ambiguous
KINDS OF SOLIDARITY
1. According to the parties bound
a. Passive solidarity or solidarity on the part of the
debtors
b. Active solidarity or the solidarity on the part of the
creditors
c. Mixed solidarity or solidarity on the part of the debtors
and creditors
2. According to source
a. Conventional solidarity or where solidarity is agreed
upon by the parties.
b. Legal solidarity or where solidarity is imposed by the
law. (See page 238 of De Leon’s Comments and Cases
on Obligations and Contracts for EXAMPLES)
c. Real solidarity or where solidarity is imposed by the
nature of the obligation. The opinion is offered that the
cases contemplated are those in which the intent or
purpose of the law is to have the obligation satisfied in
full but the law itself does not expressly require

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e. Each creditor is entitled only to a proportionate part of solidarity.
the credit
PASSIVE SOLIDARITY AND SOLIDARY GUARANTY
PRESUMPTION SUBJECT TO RULE ON MULTIPLICITY OF COMPARED
SUITS
o The presumption in Article 1208 is made “subject to the Article 2047, paragraph 2 (Title XV. – Guaranty):
Rules of Court governing the multiplicity of suits” “If a person binds himself solidarily with the principal debtor, the
provisions of Section 4, Chapter 3, Title 1 of this Book shall be
WORDS USED TO INDICATE JOINT LIABILITY observed. In such case, the contract is called a suretyship.”
o Mancum, mancomunada, mancomunadamente, pro rata,
proportionately, pro rata, jointly, conjoint, “we promise to 1. Similarities
pay” signed by 2 or more persons a. In passive solidarity, guaranty is a characteristic which
o What determines the nature is the contract and not the predominates over that of mere agency. The solidary
admission of the parties debtor like the surety, answers for a debt which is not
properly his own; and
CHARACTERISTICS, ESSENCE, AND BASIS OF A b. After paying, he may demand reimbursement from the
SOLIDARY OBLIGATION debtor personally bound in the obligation paid.
1. Characteristics: unity of object and plurality of ties
2. Distinctions
2. Essence: each and every one of the solidary creditors can PASSIVE SOLIDARITY SOLIDARY GUARANTY
demand and each of the debtors must satisfy the same The solidary debtor is liable A guarantor does not incur
prestation, with the resulting duty on the part of the creditor not only for the debt of liability unless the principal
who received payment to pay to each of his co-creditors another but also for one debtor is held liable. The
what belongs to him, and the resulting right on the part of properly his own. nature and extent of the
the debtor who made payment to claim from his co-debtors liabilities of a surety is
the share which corresponds to each. determined by the contract of
suretyship.
3. Basis: mutual agency among those interested in the same The debtor who made The surety is entitled to be
obligation payment may claim indemnified by the principal
reimbursement from his co- debtor with the right to be
WHEN OBLIGATION SOLIDARY debtors for the share. subrogated by virtue of such
1. The obligation expressly so states; or payment to all the rights
 OBLIGATIONS AND CONTRACTS NOTES 24

which the creditor had against other debtors with unexpired terms or unfulfilled conditions
the debtor. who are entitled to defense under Article 1222.
An extension is granted by the An extension granted to the o Upon the expiration of the term or the fulfillment of the
creditor to one of the solidary principal debtor without the condition, the creditor will have the right to demand the
debtors without the consent of consent of the surety would payment of the remainder.
other solidary debtors have the effect of
extinguishing the suretyship JOINT OBLIGATION ON ONE SIDE, SOLIDARY ON THE
OTHER
SOLIDARITY NOT PRESUMED o The rules applicable to each subject of the obligation should
Reason: Solidary obligations are very burdensome for they create be applied, the character of the creditors or the debtors
unusual rights and liabilities. determining their respective rights and liabilities.
o The law tends to favor the debtors in presuming that they
are bound jointly and not solidarily. ARTICLE 1212
ARTICLE 1209 ACT OF SOLIDARY CREDITOR USEFUL/PREJUDICIAL TO
OTHERS
JOINT INDIVISIBLE OBLIGATION o If he performs prejudicial act and as a result the obligation
o It is indivisible because the object or the subject matter is is extinguished, he shall be responsible to the others for
not physically divisible into different parts. damages.
o The obligation constitutes the middle ground between a o The rule is based on the theory of mutual agency among the
joint obligation and solidary obligation. solidary creditors.
o It is joint as to liabilities of the debtors or rights of the
creditors but indivisible as to compliance.
ARTICLE 1213
ARTICLE 1210 ASSIGNMENT BY SOLIDARY CREDITOR OF HIS RIGHTS
o In the absence of consent given by the others, a solidary
INDIVISIBILITY DISTINGUISHED FROM SOLIDARITY creditor cannot assign his rights to a third person.

INDIVISIBILITY SOLIDARITY EFFECTS OF UNAUTHORIZED ASSIGNMENT

Refers to prestation Juridical or legal tie that binds o Such assignment is invalid
the parties o The representation (by each creditor) of the solidary

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Only the debtor guilty of All of the debtors are liable creditors is created by law and not by consent or agreement
breach of obligation is liable for the breach of the of the parties.
for damages obligation committed by a co-
debtor ARTICLE 1214
Can exist although there is There must be at least 2
only one debtor and one debtors and 2 creditors
creditor PAYMENT TO ANY OF THE SOLIDARY CREDITORS
Rule: Debtor may pay any one of the solidary creditors.
The others are not liable in The others are proportionately
Exception: When a demand, judicial or extrajudicial, has been made
case of insolvency liable
by one of them, to avoid confusion and prejudice, payment should be
made to him.
EXAMPLES:
o Article 1214 is applicable both to active solidarity and
1. Joint indivisible obligation
mixed solidarity although the singular “debtor” is
2. Solidary indivisible obligation
employed.
3. Solidary divisible obligation
4. Joint divisible obligation
ARTICLE 1215
ARTICLE 1211
LIABILITY OF THE SOLIDARY CREDITOR IN CASE OF
NOVATION, COMPENSATION, CONFUSION, OR
KINDS OF SOLIDARY OBLIGATION ACCORDING TO THE
REMISSION
LEGAL TIE
o These are modes of extinguishment of obligations
1. Uniform – when the parties are bound by the same
o The creditor should be liable to the others for their
stipulations or clauses; or
corresponding shares considering that such acts are
2. Non-uniform or varied – when the parties are not subject
prejudicial
to the same stipulations or clauses
EFFECT OF EXTENSION OF TIME GIVEN BY CREDITOR
SOLIDARITY NOT AFFECTED BY DIVERSE STIPULATIONS
TO A SOLIDARY DEBTOR
o There may be a solidary obligation although the parties may
o Does not amount to a novation that will discharge the other
not be bound in the same manner and by the same periods
solidary debtors. The latter shall be liable for the whole debt
and conditions.
less the share of the debtor granted the extension.
o The rule is that the creditor may bring his action in toto
against any of the solidary debtors less the shares of the

EFFECT OF NOVATION, ETC. WHERE OBLIGATION JOINT
o Does not extinguish or modify the obligation except with
respect to the creditor or debtor affected, without extending
its operation to any other part of the debt or of the credit
ARTICLE 1216
RIGHT OF THE CREDITOR TO PROCEED AGAINST ANY
SOLIDARY DEBTOR
1. Since liability is solidary, the other, solidary debtors are not
indispensable parties in suit filed by the creditor.
2. The bringing of an action against a solidary debtor to
enforce the payment of the obligation is not inconsistent
with and does not preclude the bringing of another to
compel the others.
3. In case of death of one, the creditor may proceed against
the estate of the deceased alone or against any or all of the
surviving solidary debtors whose liability is independent of
and separate from the deceased debtor, instead of instituting
a proceeding for the settlement of the estate of the deceased.
4. The choice is left to the solidary creditor to determine
against whom he will enforce collection.
o The rule in 1216 may be modified by the agreement of the
parties
ARTICLE 1217
EFFECTS OF PAYMENT BY A SOLIDARY DEBTOR
1. Between the solidary debtors and creditor(s) –
extinguishes the obligation; however, the creditor for his
protection is given the right to choose which offer to accept
if two or more solidary debtors offer to pay.
2. Among the solidary debtors – it merely entitles him to
claim reimbursement from his co-debtors.
3. Among the solidary creditors – the receiving creditor is
jointly liable to the others for their corresponding shares.
ARTICLE 1218
EFFECT OF PAYMENT WHERE OBLIGATION HAS
ALREADY PRESCRIBED OR BECOME ILLEGAL
Two conditions when the paying-debtor cannot reimburse
1. Prescription
2. Has become illegal
PRESCRIPTION PRIODS OF ACTIONS
Within ten (10) years from the accrual of the right of action:
1. Upon a written contract;
2. Upon an obligation created by law;
3. Upon a judgment
Within six (6) years:
1. Upon an oral contract;
2. Upon a quasi-contract
Within four (4) years:
1. Upon an inquiry to the rights of the plaintiff;
2. Upon a quasi-delict
OBLIGATIONS AND CONTRACTS NOTES 25
ARTICLE 1219
EFFECT OF REMISSION OF SHARE AFTER PAYMENT
o If remission is made previous to the payment and payment
is made, solutio indebiti arises.
o The purpose of this article is to forestall fraud whereby the
debt having been paid, the creditor, who does not stand to
suffer any loss or damage, remits the share of a particular
debtor. This also secures equality and justice among
debtors.
ARTICLE 1220
NO RIGHT OF REIMBURSEMENT IN CASE OF REMISSION
o Remission is essentially gratuitous.
o Only applies to remission
ARTICLE 1221
RULES IN CASE THING HAS BEEN LOST OR PRESTATION
HAS BECOME IMPOSSIBLE
1. Loss is without fault and before delay – obligation shall be
extinguished
2. Loss is due to fault on the part of a solidary debtor
(a) As far as the creditor is concerned, the fault or delay
of one solidary debtor shall be the fault or delay of all;
(b) One solidary debtor may also be made liable to pay
interest for the payment made
3. Loss is without fault but after delay – the default by one
solidary debtor makes all of the solidary debtors
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responsible even for a fortuitous event.
ARTICLE 1222
DEFENSES AVAILABLE TO A SOLIDARY DEBTOR
1. Defenses derived from the nature of the obligation – it is a
complete defense because it nullifies the oligation or
renders it ineffective.
2. Defenses personal to, or which pertain to share of, debtor
sued. – a solidary debtor, by his own act or inaction, such
as by failing to appeal, may lose the benefit of the
provisions of Article 1222.
3. Defenses personal to other solidary debtors – may still
avail of himself thereof only as regards that part of the debt
of which the other is liable
1207 – concurrence of 2 or more
1208 – nature or wording of the obligation
1209 – division is impossible
1210 – indivisibility does not give rise to solidarity
1211 – solidary obligation
1212 – useful but not prejudicial
1213 – assignment of creditor rights
1214 – payment to any solidary creditors
1215 – novation, compensation, confusion or remission
1216 – right to proceed against solidary debtor
1217 – payment by one solidary debtor
1218 – payment prescribed or became illegal
1219 – remission
 OBLIGATIONS AND CONTRACTS NOTES 26

1220 – remission of whole obligation

1221 – lost or became impossible
1222 – defenses available to a solidary debtor

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 OBLIGATIONS AND CONTRACTS NOTES 27

SECTION 5 OBLIGATIONS DEEMED DIVISIBLE

DIVISIBLE AND INDIVISIBLE OBLIGATIONS
ARTICLE 1223
TEST FOR THE DISTINCTION
o The controlling circumstance is the purpose of the
obligation or the intention of the parties.
o Even though the object or service may be physically
divisible, an obligation is indivisible if so provided by law
or intended by the parties.
1. Obligations which have for their object the execution of a
certain number of days of work
2. Obligations which have for their object the accomplishment
of work by metric unit
3. Obligations which by their nature are susceptible to partial
fulfillment
DIVISIBILITY OR INDIVISIBILITY IN OBLIGATIONS NOT
TO DO
o The character of the prestation in each particular case shall
determine their divisibility or indivisibility.

APPLICABILITY OF ARTICLE 1223 1223 – divisible and indivisible obligation

o Appears to be limited to real obligations because it speaks 1224 – joint indivisible obligation (non-compliance)
of things, the word is used in its broad sense as referring to 1225 – obligation deemed divisible and indivisible
the object or prestation of the obligation.

KINDS OF DIVISION
1. Qualitative – based on quality
2. Quantitative – based on quantity
3. Ideal or intellectual – exists only in the minds

KINDS OF INDIVISIBILITY
1. Legal – declared by law
2. Conventional – by will of the parties
3. Natural – by the nature of the object or prestation

WHERE THERE IS ONLY ONE CREDITOR AND ONE

DEBTOR
o The debtor has to perform the obligation in its totality,
whether or not the prestation is divisible.
o Unless there is a stipulation, the creditor cannot be

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compelled partially to receive the prestations in which the
obligation consists
o An obligation is not deemed paid unless the thing or service
in which the obligation consists has been completely
delivered or rendered, as the case may be.

ARTICLE 1224

EFFECT OF NON-COMPLIANCE BY A DEBTOR IN A JOINT

INDIVISIBLE OBLIGATION
1. Obligation transformed into one for damages – the
creditor cannot ask for specific performance or rescission
because there is no cause of action against the other debtors
who are willing fulfill their promises.
2. Contribution of innocent debtors limited to their
respective shares – the obligation becomes a divisible one.
(SEE ARTICLE 1209)

ARTICLE 1225

OBLIGATIONS DEEMED INDIVISIBLE

1. Obligations to give definite things
2. Obligations which are not susceptible of partial
performance
3. Obligations provided by law to be indivisible even if thing
or service is physically divisible
4. Obligations intended by the parties to be indivisible even if
thing or service is physically divisible

SECTION 6
OBLIGATIONS WITH A PENAL CLAUSE
ARTICLE 1226
MEANING OF PRINCIPAL AND ACCESSORY OBLIGATIONS
1. Principal obligation is one which can stand by itself and
does not depend for its validity and existence upon another
obligation.
2. Accessory obligation is one which is attached to a principal
obligation and cannot stand alone.
MEANING OF OBLIGATIONS WITH A PENAL CLAUSE
o One which contains an accessory undertaking to pay a
previously stipulated indemnity in case of breach of the
principal prestation intended primarily to induce its
fulfillment
MEANING OF PENAL CLAUSE
o Accessory undertaking attached to an obligation to assume
greater liability on the part of the obligor in case of breach
of the obligation
PURPOSES OF PENAL CLAUSE
1. To insure their performance by creating an effective
deterrent against breach, making the consequences of such
breach as onerous as it may be possible; and
2. To substitute a penalty for the indemnity for damages and
the payment of interest in case of non-compliance; or
3. To punish the debtor for the non-fulfillment or violation of
his obligation
PENAL CLAUSE AND CONDITION DISTINGUISHED
PENAL CLAUSE CONDITION
Constitutes an accessory No
obligation
demandable never
PENALTY GENERALLY RESOLVES QUESTION OF
DAMAGES
o When the purpose is reparation or compensation, the
matter of damages is generally resolved and the creditor is
not obliged to prove them.
o When the purpose is punishment, the penalty does not
resolve the question of damages, which it leaves intact.
Damages may be recovered in addition to penalty.
OBLIGATIONS WITH PENAL CLAUSE STRICTLY
CONSTRUED
o Sureties are only chargeable according to the strict terms of
the bond
DISTINGUISHED FROM CONDITIONAL, ALTERNATIVE,
AND FACULTATIVE OBLIGATIONS
1. In the obligation with penal clause – there is only one thing
due, which the creditor may demand unaffected by the
existence of the penal clause. The penal clause is a
conditional obligation being demandable only when the
condition on which it depends, that is, the non-performance
of the principal obligation takes place.
2. In the conditional obligation – the existence of obligation
is uncertain due to suspensive condition
OBLIGATIONS AND CONTRACTS NOTES 28
3. In the alternative obligation – two things are due
alternatively, and the obligation may be satisfied by the
performance of one of them.
4. In the facultative obligation – there can be substitution
KINDS OF PENAL CLAUSE
1. As to its origin
a. Legal
b. Conventional
2. As to its purpose
a. Compensatory – takes the place of the damage
b. Punitive – imposed as punishment
3. As to its dependability or effect
a. Subsidiary or alternative – only the penalty can be
enforced
b. Joint or cumulative – both principal and penal clause
can be enforced
LIABILITY FOR PENALTY, DAMAGES, AND/OR INTERESTS
1. Penalty substitutes for damages and interests – proof of
actual damages by the creditor is not necessary in order that
the penalty may be enforced.
2. Penalty and interest imposable – the law permits an
agreement upon a penalty apart from the interest.
3. Penalty, damages and interests enforceable
a. When stipulated by the parties;
b. When the obligor refuses to pay the penalty; or
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c. When the obligor is guilty of fraud in the fulfillment
of the obligation
4. Requirement to make penalty enforceable – only when it
is demandable in accordance with the provision of the Civil
Code.
ARTICLE 1227
PENALTY NOT SUBSTITUTE FOR PERFORMANCE
o The object of the penalty is to secure the compliance of the
obligation
o The debtor can exempt himself from the non-fulfillment of
the obligation only when this right has been expressly
reserved for him.
PENAL CLAUSE PRESUMED SUBSIDIARY
1. Where there is performance – once the obligation is
fulfilled, this purpose is attained and, therefore, there is no
need for demanding the penalty. The exception arises when
this right has been clearly granted the creditor.
2. Where there is no performance – in case of non-
compliance, the creditor may ask for the penalty or require
specific performance. The remedies are alternative and not
cumulative.
WHEN PENAL CLAUSE JOINT
o The debtor has the right to pay the penalty in lieu of
performance only when his right has been expressly
reserved for him.
 OBLIGATIONS AND CONTRACTS NOTES 29

o With respect to the creditor, he has the rights to demand

performance and payment jointly when this right has been
clearly granted him.
ARTICLE 1228
PENALTY DEMANDABLE WITHOUT PROOF OF ACTUAL
DAMAGES
o All that must be proved is the violation of the obligation.
o The creditor may enforce the penalty whether he suffered
damages or not.
DAMAGES RECOVERABLE IN ADDITION TO PENALTY
MUST BE PROVED
o The creditor must prove the amount of such damages
which he actually suffered when damages may be
recovered in addition to the penalty.
PENALTY AND LIQUIDATED DAMGES DISTINGUISHED
o A stipulation on liquidated damages is a penalty clause
where the obligor assumes a greater liability in case of
breach of an obligation.
o A surcharge or penalty stipulated in a loan agreement
partakes the nature of liquidated damage under Article
2227 and is separate from interest payment.
o In the NCC, liquidated damages are agreed damages
while penalty is a punishment.
o The purpose of penalty, however, may be reparation.
ARTICLE 1230
EFFECT OF NULLITY OF PENAL CLAUSE
General Rule: accessory follows the principal
o If only the penal clause is void, the principal obligation
remains valid and demandable.
o The injured party may recover indemnity for damages in
case of non-performance of the obligation as if no penalty
had been stipulated.
EFFECT OF NULLITY OF THE PRINCIPAL OBLIGATION
o The penal clause is likewise void.
o If the nullity is due to the fault of the debtor who acted in
bad faith, by reason of which the creditor suffered damages
on equitable grounds, the penalty may be enforced.
1226 – obligations with a penal clause
1227 – penalty not substitute for performance
1228 – proof of actual damages
1229 – reduced by court
1230 – nullity of penal clause
REFERENCE
 Comments and Cases on OBLIGATIONS AND
CONTRACTS by Hector S. De Leon & Hector M. De
Leon, Jr. (2014)

ARTICLE 1229

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WHEN PENALTY MAY BE REDUCED BY COURT
1. When there is partial or irregular performance – the first
is the extent and the latter is the manner of fulfillment

2. When the penalty agreed upon is iniquitous or

unconscionable – the question of whether a penalty is
reasonable or iniquitous is addressed to the sound discretion
of the court and on several factors including, but not limited
to the following:
a. Type, extent and purpose of the penalty;
b. The nature of the obligation;
c. The mode of breach and its consequences;
d. The supervening realities;
e. That standing and relationship of the parties;
f. The extent of the prejudice to the plaintiff;
g. And the like

CONSTRUCTION OF PENAL CLAUSE WHERE

PERFORMANCE PARTIAL OR IRREGULAR
1. Where penalty is punitive – the courts will rigidly apply the
doctrine of strict construction against the enforcement in its
entirety of the penalty.
2. Where penalty is compensatory – where the principal
purpose of the penalty agreed upon appears to have been to
provide for the payment of actual anticipated and liquidated
damages rather than the penalization of the breach of the
contract.