UP LAW BOC OBLIGATIONS AND CONTRACTS
AS TO THE AFFIRMATIVENESS OR
Obligations
IN GENERAL
DEFINITION
Art. 1156. An obligation is a juridical necessity to
give, to do or not to do.
ELEMENTS OF AN OBLIGATION (DE
LEON)
(1) Active Subject (Obligee/Creditor) – The
person who has the right or power to
demand the prestation.
(2) Passive Subject (Obligor/Debtor) – The
person bound to perform the prestation.
(3) Prestation (Object) – The conduct required to
be observed by the debtor/obligor (to give, to
do, or not to do).
(4) Vinculum Juris (Juridical Or Legal Tie;
Efficient Cause) – That which binds or
connects the parties to the obligation.
DIFFERENT KINDS OF PRESTATIONS
(1) To Give – real obligation; to deliver either
a specific or determinate thing, or
a generic or indeterminate thing.
(2) To Do – positive personal obligation;
includes all kinds of work or service.
(3) Not To Do – negative personal obligation; to
abstain from doing an act; includes the
obligation not to give.
CLASSIFICATION OF OBLIGATIONS
AS TO SANCTION
(1) Civil Obligation (or perfect obligation) – the
sanction is judicial process
(2) Natural Obligation – the sanction is the law
(3) Moral Obligation (or imperfect obligation) –
the sanction is conscience or morality
AS TO SUBJECT MATTER
(1) Real – obligation to give
(2) Personal – obligation to do or not to do
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CIVIL LAW
NEGATIVENESS OF THE OBLIGATION
(1) Positive/Affirmative – obligation to give or to
do
(2) Negative – obligation not to give or not to do
AS TO PERSONS OBLIGED
(1) Unilateral – only one of the parties is bound
(2) Bilateral – both parties are bound
(a) Reciprocal – performance by one is
dependent on the performance by the
other
(b) Non-reciprocal – performance by one is
independent of the other [Paras]
SOURCES OF OBLIGATIONS
Art. 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.
A SINGLE ACT OR OMISSION MAY GIVE RISE
TO DIFFERENT CAUSES OF ACTION
A concurrence of scope in regard to negligent
acts does not destroy the distinction between
the civil liability arising from a crime and the
responsibility for cuasi-delitos or culpa extra-
contractual. The same negligent act causing
damages may produce civil liability arising from
a crime... or create an action for cuasi-delito or
culpa extra-contractual. [Barredo vs. Garcia
(1942)]
UP LAW BOC OBLIGATIONS AND CONTRACTS CIVIL LAW

NATURE AND EFFECT OF Duties of the Debtor Rights of the Creditor

To Give a Generic Thing
OBLIGATIONS (1) To take care of (1) To ask that the
the thing [Art. 1163] obligation be
OBLIGATION TO GIVE (2) To deliver a complied with [Art.
thing of the quality 1165]
Limited intended by the (2) To ask that the
Specific Thing Generic Thing
Generic Thing parties taking into obligation be
Particularly Object is When the consideration the complied with by a
designated or designated generic purpose of the third person at the
physically only by its objects are obligation and other expense of the debtor
segregated class/ genus/ confined to a circumstances [Art. (3) To recover
from all species. particular 1246] damages in case of
others of the class. (3) Creditor breach [Art. 1165]
same class cannot demand a (4) Not to be
[Art. 1460]; thing of superior compelled to receive a
Identified by quality; neither can different one,
individuality. the debtor deliver a although of the same
Cannot be Can be thing of inferior value as, or more
substituted substituted by quality. valuable than that
any of the (4) To pay which is due [Art. 1244]
same class damages in case of
and same breach [Art. 1170]
kind.
OBLIGATION TO DO OR NOT TO DO
RIGHTS AND DUTIES OF PARTIES RIGHTS AND DUTIES OF PARTIES
Duties of the Debtor Rights of the Creditor Duties of the Debtor Rights of the Creditor
To Give a Specific Thing To Do
(1) To preserve or take (1) To compel delivery (1) To do it [Art. 1167] (1) To compel
care of the thing [Art. 1165] (2) To shoulder the performance
due [Art. 1163] (2) To recover cost of execution (2) To recover
(2) To deliver the thing damages in case of should he fail to do damages in case of
itself [Art. 1165] breach, exclusive or it [Art. 1167] breach [Art. 1170]
(3) To deliver the fruits in addition to (3) To undo what has
of the thing [Art. specific been poorly done
1164] performance [Art. [Art. 1167]
(4) To deliver its 1165; 1170] (4) To pay damages in
accessions and (3) Entitlement to case of breach [Art.
accessories [Art. fruits from the time 1170]
1166] the obligation to Not To Do
(5) To pay damages in deliver arises [Art. (1) Not to do what (1) To ask to undo
case of breach [Art. 1164] should not be done what should not be
1170] (4) Not to be (2) To shoulder cost of done
compelled to undoing what (2) To recover
receive a different should not have damages, where it
one, although of been done [Art. would be physically
the same value as, 1168] or legally
or more valuable (3) To pay damages in impossible to undo
than that which is case of breach [Art. what should not
due [Art. 1244] 1170] have been done,
because of :

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Duties of the Debtor Rights of the Creditor Unilateral Obligations Reciprocal Obligations
Not To Do (Continued) Those obliged to No delay if neither
(a) the very nature of deliver or to do performs.
the act itself; something incur in
(b) rights acquired by delay from the time
third persons who the obligee judicially
acted in good faith; or extrajudicially
(c) when the effects of demands from them
the acts prohibited the fulfillment of their
are definite in obligation. [Art. 1169
character and will par 1]
not cease even if
the thing Demand may be judicial or extrajudicial.
prohibited be
undone. When demand is necessary in order that
delay may exist [Art. 1169 par 2]
BREACH (1) When the obligation or the law expressly so
declare
Art. 1170. Those who in the performance of their (2) When from the nature and the circumstances
obligations are guilty of fraud, negligence, or of the obligation it appears that the
delay, and those who in any manner contravene designation of the time when the thing is to
the tenor thereof, are liable for damages. be delivered or the service is to be rendered
was a controlling motive for the
COMPLETE FAILURE TO PERFORM establishment of the contract; OR
(3) When demand would be useless, as when
Substantial Breach Slight or Casual Breach the obligor has rendered it beyond his power
(1) Total breach (1) Partial breach to perform.
(2) Amounts to (2) There is
non-performance, partial/ substantial Kinds of delay; requisites and effects
basis for rescission performance in good (1) Mora Solvendi
(resolution) under Art. faith (2) Mora Accipiendi
1191 and payment of (3) Gives rise to (3) Compensatio Morae
damages liability for damages
only [Art. 1234] Mora solvendi – Delay on the part of the debtor
to fulfil his obligation either to give (ex re) or to
DEFAULT, DELAY, OR MORA do (ex persona).
Failure to perform an obligation on time which
constitutes breach of the obligation. [De Leon] Requisites:
Rules on default, delay, or mora (1) Obligation must be liquidated, due and
Unilateral Obligations Reciprocal Obligations demandable.
General Rule: Neither party incurs in (2) Non-performance by the debtor within the
“No demand, no delay if the other does period agreed upon.
delay.” not comply or is not (3) Demand, judicial or extra-judicial, by the
ready to comply in a creditor.
The mere expiration of proper manner with
the period fixed by the what is incumbent There is no mora solvendi in:
parties is not enough upon him. From the (1) Negative obligations because delay is
in order that the moment one of the impossible [De Leon]
debtor may incur in parties fulfills his (2) Natural obligations [Tolentino]
delay. obligation, delay by
the other begins. [Art.
1169 par 3]

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Effects: FRAUD (DOLO) IN THE PERFORMANCE OF

(1) The debtor is liable for damages. THE OBLIGATION
(2) The debtor is liable even if the loss is due to
fortuitous events. Art. 1171. Responsibility arising from fraud is
(3) For determinate objects, the debtor shall demandable in all obligations. Any waiver of an
bear the risk of loss. action for future fraud is void.
Mora accipiendi – Delay on the part of the Fraud (dolo) is the deliberate or intentional
creditor to accept the performance of the evasion of the normal fulfilment of an
obligation. obligation. [De Leon]
Requisites: A waiver of future fraud is void but a past fraud
(1) Debtor offers performance. may be subject of a valid waiver by the
(2) Offer must be in compliance with the aggrieved party. [De Leon]
prestation.
(3) Creditor refuses performance without just Distinguished from Casual Fraud
cause.
Fraud in the
Effects: Casual Fraud
Performance
(1) The responsibility of the debtor is reduced to (dolo causante)
(dolo incidente)
fraud and gross negligence. [Arts. 1338, 1344]
[Art. 1170]
(2) The debtor is exempted from risk of loss of Present during the Present during the
the thing which is borne by the creditor. performance of a pre- time of birth or
(3) The expenses incurred by the debtor for the existing obligation perfection of the
preservation of the thing after the mora shall obligation
be chargeable to the creditor.
Purpose is to evade Purpose is to secure
(4) If the obligation bears interest, the debtor
normal fulfilment of consent of another to
does not have to pay from the time of delay.
obligation enter the contract
(5) The creditor is liable for damages.
Results in breach Results in vitiation of
(6) The debtor may relieve himself of the
consent
obligation by consigning the thing.
Obligee may recover Innocent party may
damages [Art. 1344] annul the contract
Compensatio morae – Delay of both parties in
reciprocal obligations. Valid obligation Voidable obligation

Effects: In order that fraud may vitiate consent, it must

(1) Delay of the obligor cancels delay of obligee
(and vice versa) hence it is as if there is no
default.
(2) The liability of the first infractor shall be
equitably tempered by the courts. If it cannot
be determined which of the parties first
violated the contract, the same shall be
deemed extinguished, and each shall bear
his own damages. [Art. 1192]
be the dolo causante and not merely the dolo
incidente, inducement to the making of the
contract. The false representation was used by
plaintiff to get from defendant a bigger share of
net profits. This is just incidental to the matter
in agreement. Because despite plaintiff’s deceit,
respondent would have still entered into the
contract. [Woodhouse vs. Halili (1953)]

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NEGLIGENCE (CULPA) IN THE
PERFORMANCE OF THE OBLIGATION
Art. 1172. Responsibility arising from negligence
in the performance of every kind of obligation is
also demandable, but such liability may be
regulated by the courts, according to the
circumstances.
The fault or negligence of the obligor consists in
the omission of that diligence which is required
by the nature of the obligation and corresponds
with the circumstances of the persons, of the
time and of the place. [Art. 1173]
Diligence Required [De Leon]
(1) By stipulation of the parties
(2) By law, in the absence of stipulation
Diligence of a good father of a family, if both the
contract and law are silent. [Art. 1173 par 2]
(3) Future negligence may be waived except in
cases where the nature of the obligation or
the public requires another standard of care
(i.e. common carriers)
Exceptions:
Common Carriers
Art. 1733. Common carriers, from the nature of
their business and for reasons of public policy,
are bound to observe extraordinary diligence in
the vigilance over the goods and for the safety
of the passengers transported by them,
according to all the circumstances of each case.
Such extraordinary diligence in the vigilance
over the goods is further expressed in articles
1734, 1735, and 1745, Nos. 5, 6, and 7, while the
extraordinary diligence for the safety of the
passengers is further set forth in articles 1755
and 1756.
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CIVIL LAW
Hotel and Inn-keepers
Art. 1998. The deposit of effects made by
travellers in hotels or inns shall also be
regarded as necessary. The keepers of hotels or
inns shall be responsible for them as
depositaries, provided that notice was given to
them, or to their employees, of the effects
brought by the guests and that, on the part of
the latter, they take the precautions which said
hotel-keepers or their substitutes advised
relative to the care and vigilance of their effects.
Art. 1999. The hotel-keeper is liable for the
vehicles, animals and articles which have been
introduced or placed in the annexes of the
hotel.
Art. 2000. The responsibility referred to in the
two preceding articles shall include the loss of,
or injury to the personal property of the guests
caused by the servants or employees of the
keepers of hotels or inns as well as strangers;
but not that which may proceed from any force
majeure. The fact that travellers are constrained
to rely on the vigilance of the keeper of the
hotels or inns shall be considered in
determining the degree of care required of him.
Art. 2001. The act of a thief or robber, who has
entered the hotel is not deemed force majeure,
unless it is done with the use of arms or through
an irresistible force.
Art. 2002. The hotel-keeper is not liable for
compensation if the loss is due to the acts of the
guest, his family, servants or visitors, or if the
loss arises from the character of the things
brought into the hotel.
Test of Negligence
Did the defendant in doing the alleged
negligent act use the reasonable care and
caution, which an ordinary and prudent person
would have used in the same situation? If not,
then he is guilty of negligence. [Mandarin Villa
Inc. vs. CA (1996)]
UP LAW BOC OBLIGATIONS AND CONTRACTS CIVIL LAW

Kinds of Civil Negligence

“In any manner contravenes the tenor” means
any illicit act, which impairs the strict and
Culpa Contractual Culpa Aquiliana
faithful fulfillment of the obligation, or every
Negligence is merely Negligence is kind of defective performance. [Tolentino]
incidental in the substantive and
performance of an independent. LEGAL EXCUSE FOR BREACH:
obligation. FORTUITOUS EVENT
There is always a pre- There may or may not
existing contractual be a pre-existing
relation. contractual obligation. Art. 1174. Except in cases expressly specified by
The source of The source of the law, or when it is otherwise declared by
obligation of obligation is the stipulation, or when the nature of the obligation
defendant to pay defendant’s requires the assumption of risk, no person shall
damages is the breach negligence itself. be responsible for those events which could not
or non-fulfillment of be foreseen, or which, though foreseen, were
the contract. inevitable.
Proof of the existence The negligence of the
of the contract and of defendant must be A happening independent of the will of the
its breach or non- proved. debtor and which makes the normal fulfillment
fulfillment is sufficient of the obligation impossible. [De Leon]
prima facie to warrant (1) Act of God: An accident, due directly or
recovery. exclusively to natural causes without human
Proof of diligence in Proof of diligence in intervention, which by no amount of
the selection and the selection and foresight, pains or care, reasonably to have
supervision of the supervision of the been expected, could have been prevented.
employees is NOT employee is a defense. (2) Act of Man: Force majeure is a superior or
available as defense. irresistible force, which is essentially an act of
man; includes unavoidable accidents, even if
Extent of Damages to be Awarded [Art. 2201] there has been an intervention of human
element, provided that no fault or negligence
Good Faith Bad Faith can be imputed to the debtor.
Obligor is liable for Obligor shall be
those that are the responsible for all LIABILITY IN CASE OF FORTUITOUS EVENT
natural and probable damages which may No person shall be responsible for fortuitous
consequences of the be reasonably events, UNLESS:
breach of the attributed to the non- (1) expressly specified by law [Arts. 552 par. 2,
obligation, and which performance of the 1942, 2147, 2148, 2159]
the parties have obligation. (2) liability specified by stipulation
foreseen or could have (3) the nature of the obligations requires
reasonably foreseen at Any waiver or assumption of risk [Art. 1174]
the time the obligation renunciation made in (4) debtor is guilty of concurrent or contributory
negligence
was constituted. the anticipation of
such liability is null (5) debtor has promised to deliver the same
and void. thing to two or more persons who do not
have the same interest [Art. 1165 par. 3]
CONTRAVENTION OF THE TENOR OF THE (6) the thing is lost due to the obligor’s fraud,
OBLIGATION negligence, delay or contravention of the
This refers to a violation of the terms and tenor of the obligation [Art. 1170]
conditions stipulated in the obligation, which (7) the obligation to deliver a specific thing
must not be due to a fortuitous event or force arises from a crime [Art. 1268]
majeure. [De Leon]

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(8) the object is a generic thing, i.e. the genus DISTINGUISHED FROM RESCISSION UNDER
never perishes ART. 1380

REQUISITES OF EXEMPTION BASED ON Rescission / Resolution

Rescission [Art. 1380]
FORCE MAJEURE [Art. 1191]
(1) The event must be independent of the Based on non- Based on lesion or
debtor’s will (fraud or negligence). performance or non- fraud upon creditors.
(2) The event must be unforeseeable or fulfillment of obligation.
inevitable. Action is instituted only Action is instituted by
(3) The event renders it impossible for debtor to by the injured party. either party or by a
fulfill his obligation in a normal manner. third person.
(4) The debtor must be free from any In some cases, court Court cannot grant a
participation in the aggravation of the injury may grant a term. period or term within
to the creditor [Tolentino (1987); De Leon which one must
(2003)] comply.
(5) It must be the only and sole cause, not Non-performance by the Non-performance by
merely a proximate cause. other party is important. the other party is
immaterial.
REMEDIES AVAILABLE IN CASE OF
BREACH DAMAGES, IN ANY EVENT

SPECIFIC PERFORMANCE Art. 1170. Those who in the performance of their

The creditor has a right to compel the debtor to
perform the prestation.
SUBSTITUTED PERFORMANCE
A third person may perform another’s obligation
to deliver a generic thing or an obligation to do,
unless it is a purely personal act, at the expense
of the debtor.
RESCISSION (RESOLUTION IN RECIPROCAL
OBLIGATIONS)
Art. 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the
obligors should not comply with what is
incumbent upon him.
The injured party may choose between the
fulfilment and the rescission of the obligation,
with the payment of damages in either case. He
may also seek rescission, even after he has
chosen fulfilment, if the latter should become
impossible.
The court shall decree the rescission claimed,
unless there be just cause authorizing the fixing
of a period.
This is understood to be without prejudice to the
rights of third persons who have acquired the
thing, in accordance with articles 1385 and 1388
and the Mortgage Law.
obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene
the tenor thereof, are liable for damages.
SUBSIDIARY REMEDIES OF CREDITORS
Accion Subrogatoria – Right of the creditor to
exercise all of the rights and bring all the
actions which his debtor may have against third
persons.
The creditors, after having pursued the property
in possession of the debtor to satisfy their
claims, may exercise all the rights and bring all
the actions of the latter for the same purpose,
save those which are inherent in his person.
[Art.1177]
Requisites:
(1) The person to whom the right of action
pertains must be indebted to the creditor
(2) The debt is due and demandable
(3) The creditor must be prejudiced by the
failure of the debtor to collect his debts due
him from third persons, either through
malice or negligence
(4) The debtors assets are insufficient (debtor is
insolvent)

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(5) The right of action is not purely personal to Payments of rent in advance by the sublessee
the debtor shall be deemed not to have been made, so far
as the lessor's claim is concerned, unless said
Accion Pauliana – Rescission, which involves the payments were effected in virtue of the custom
right of the creditor to attack or impugn by of the place.
means of rescissory action any act of the debtor
which is in fraud and to the prejudice of his Vendor has right of action against possessor
rights as creditor. whose right is derived from the vendee
Creditors may also impugn the acts which the
debtor may have done to defraud them. [Art. Art. 1608. The vendor may bring his action
1177] against every possessor whose right is derived
from the vendee, even if in the second contract
Requisites: no mention should have been made of the right
(1) There is a credit in favour of the plaintiff prior to repurchase, without prejudice to the
to the alienation by the debtor provisions of the Mortgage Law and the Land
(2) The debtor has performed a subsequent Registration Law with respect to third persons.
contract conveying patrimonial benefit to
third person/s. Laborer/ materialsman has right of action
(3) The debtor’s acts are fraudulent to the against owner of piece of work up to the amount
prejudice of the creditor. owed by the latter to the contractor
(4) The creditor has no other legal remedy to
satisfy his claim. Art. 1729. Those who put their labor upon or
(5) The third person who received the property is furnish materials for a piece of work undertaken
an accomplice to the fraud. by the contractor have an action against the
owner up to the amount owing from the latter
Accion Subrogatoria Accion Pauliana to the contractor at the time the claim is made.
However, the following shall not prejudice the
Not necessary that Credit must exist laborers, employees and furnishers of materials:
creditor’s claim is prior before the fraudulent (1) Payments made by the owner to the
to the acquisition of act contractor before they are due;
the right by the debtor (2) Renunciation by the contractor of any
No need for fraudulent Fraudulent intent is amount due him from the owner.
intent required if the contract
rescinded is onerous This article is subject to the provisions of special
No period for Prescribes in 4 years laws. (1597a) Article 1730. If it is agreed that the
prescription from the discovery of work shall be accomplished to the satisfaction
the fraud of the proprietor, it is understood that in case of
disagreement the question shall be subject to
Accion Directa expert judgment.

Subsidiary liability of sublessee to the lessor for If the work is subject to the approval of a third
rent due from the lessee person, his decision shall be final, except in case
of fraud or manifest error.
Art. 1652. The sublessee is subsidiarily liable to
the lessor for any rent due from the lessee.
However, the sublessee shall not be responsible
beyond the amount of rent due from him, in
accordance with the terms of the sublease, at
the time of the extra-judicial demand by the
lessor.

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Principal has right of action against substitute of (3) Potestative (casual or mixed)
agent in cases when the agent is liable for acts of
appointed substitute Suspensive – Obligation shall only be effective
upon the fulfilment of the condition [Art. 1181].
Art. 1893. In the cases mentioned in Nos. 1 and 2 The obligee acquires a mere hope or
of the preceding article, the principal may expectancy, protected by law, upon the
furthermore bring an action against the constitution of the obligation.
substitute with respect to the obligations which
the latter has contracted under the substitution. Before Fulfillment After Fulfillment
The demandability and The obligation arises or
Petitioner cannot invoke the credit of a different acquisition or effectivity becomes effective.
creditor to justify the rescission of the subject of the rights arising from The obligor can be
deed of donation, because the only creditor who the obligation is compelled to comply
may benefit from the rescission is the creditor suspended. Anything with what is incumbent
who brought the action; those who are paid by mistake during upon him.
strangers to the action cannot benefit from its such time may be
effects. [Siguan vs. Lim (1999)] recovered.

DIFFERENT KINDS OF CIVIL Doctrine of Constructive Fulfillment of

OBLIGATIONS
PURE OBLIGATIONS
Art. 1179. Every obligation whose performance
does not depend upon a future or uncertain
event, or upon a past event unknown to the
parties, is demandable at once.
Every obligation which contains a resolutory
condition shall also be demandable, without
prejudice to the effects of the happening of the
event.
Its effectivity or extinguishment does not
depend upon the fulfillment or non-fulfillment
of a condition or upon the expiration of a term
or period and characterized by the quality of its
being immediately demandable.
Suspensive Conditions
Art. 1186. The condition shall be deemed
fulfilled when the obligor voluntarily prevents its
fulfillment.
The condition shall be deemed fulfilled when
the obligor actually prevented the obligee from
complying with the condition, and that such
prevention must have been voluntary or willful
in character.
Applicable to suspensive conditions but not to
resolutory conditions.
The article can have no application to an
external contingency which is lawfully within the
control of the obligor.

CONDITIONAL OBLIGATIONS The mere intention of the debtor to prevent,

Art. 1181. In conditional obligations, the
acquisition of rights, as well as the
extinguishment or loss of those already
acquired, shall depend upon the happening of
the event which constitutes the condition.
A condition is a future and uncertain event.
without actually preventing fulfillment is not
sufficient. Constructive fulfillment will not hold
when the debtor acts pursuant to a right. There
is constructive fulfillment when:
(1) Intent of the obligor is to prevent fulfillment;
and
(2) There is actual prevention of compliance.

KINDS OF CONDITIONS; EFFECTS

(1) Suspensive
(2) Resolutory

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Principle of Retroactivity in Suspensive Resolutory – The obligation is demandable at

Conditions once, without prejudice to the effects of the
happening of the event [Art. 1179 par 2]. The
Art. 1187, par 1. The effects of a conditional rights are immediately vested to the creditor but
obligation to give, once the condition has been always subject to the threat or danger of
fulfilled, shall retroact to the day of the extinction by the happening of the resolutory
constitution of the obligation. Nevertheless, condition [Tolentino].
when the obligation imposes reciprocal
prestations upon the parties, the fruits and Before Fulfillment After Fulfillment
interests during the pendency of the condition
shall be deemed to have been mutually Preservation of Whatever may have
compensated. If the obligation is unilateral, the creditor’s rights [Art. been paid or delivered
debtor shall appropriate the fruits and interests 1187 par. 1] also applies by one or both of the
received, unless from the nature and to obligations with a parties upon the
circumstances of the obligation it should be resolutory condition. constitution of the
inferred that the intention of the person obligation shall have
constituting the same was different. to be returned upon
the fulfillment of the
The condition which is imposed is only condition [Art. 1190
accidental, not an essential element of the par. 1]. There is no
obligation. return to the status
quo. However, when
This is applies to consensual contracts only. the condition is not
There is no application to real contracts which fulfilled, rights are
can only be perfected by delivery. consolidated and they
become absolute in
Effects of the Happening of Suspensive character.
Conditions
Potestative (casual or mixed)
(1) Casual – The fulfilment of the condition
To Give To Do/Not To Do depends upon chance or upon the will of a
third person. [Art. 1182]
If reciprocal, the fruits In obligations to do or
(2) Mixed – The fulfilment of the condition
and interests shall be not to do, the court
depends partly upon the will of a party to the
deemed to have been shall determine the
contract and partly upon chance and/or will
mutually compensated retroactive effect of
of a third person.
as a matter of justice the condition that has
and convenience been complied with Exclusively
[Art. 1187, par. 1] [Art. 1187, par. 2] Condition and obligation are
upon the
If unilateral, the The power of the court valid.
Creditor’s Will
debtor shall includes the Condition and obligation are
appropriate the fruits determination of void because to allow such
and interests received, whether or not there Exclusively
condition would be equivalent
unless from the nature will be any retroactive upon the
to sanctioning obligations
and circumstance it effect. This rule shall Debtor’s Will in
which are illusory. It also
should be inferred that likewise apply in case of a
constitutes a direct
the intention of the obligations with a Suspensive
contravention of the principle
persons constituting resolutory condition Condition
of mutuality of contracts.
the same was [Art. 1190 par. 3] [Art. 1182]
There is nothing to demand
different. [Art. 1187 par. until the debtor wishes to.
1]

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Exclusively Condition and obligation are
upon the valid because in such situation,
Debtor’s Will in the position of the debtor is
case of a exactly the same as the
Resolutory position of the creditor when
Condition the condition is suspensive. It
[Art. 1179 par. does not render the obligation
2] illusory.
Defendant executed an endorsement saying
that she’ll pay her debt if the house in which she
lives is sold. Such condition depended upon her
exclusive will; thus, it is void. [Osmeña vs. Rama
(1909)]
The condition that payment should be made by
Hermosa as soon as he receives funds from the
sale of his property in Spain is a mixed
condition. The condition implies that the obligor
already decided to sell the house and all that
was needed to make the obligation
demandable is that the sale be consummated
and the price thereof remitted to the islands.
There were still other conditions that had to
concur to effect the sale, mainly that of the
presence of a buyer, ready, able and willing to
purchase the property under the conditions set
by the intestate. [Hermosa vs. Longara (1953)]
Loss, Deterioration, or Improvement of a Specific
Thing Before Fulfillment of Suspensive Condition
[Art. 1189] or of Resolutory Condition in
Obligations to Do or Not to Do [Art. 1190 par 3]
Art. 1189. When the conditions have been
imposed with the intention of suspending the
efficacy of an obligation to give, the following
rules shall be observed in case of the
improvement, loss or deterioration of the thing
during the pendency of the condition:
(1) If the thing is lost without the fault of the
debtor, the obligation shall be extinguished;
(2) If the thing is lost through the fault of the
debtor, he shall be obliged to pay damages;
it is understood that the thing is lost when it
perishes, or goes out of commerce, or
disappears in such a way that its existence is
unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault
of the debtor, the impairment is to be borne
by the creditor;
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CIVIL LAW
(4) If it deteriorates through the fault of the
debtor, the creditor may choose between the
rescission of the obligation and its
fulfillment, with indemnity for damages in
either case;
(5) If the thing is improved by its nature, or by
time, the improvement shall inure to the
benefit of the creditor;
(6) If it is improved at the expense of the debtor,
he shall have no other right than that
granted to the usufructuary.Rule 8.02. A
lawyer shall not directly or indirectly,
encroach upon the professional employment
of another lawyer; however it is the right of
any lawyer without fear or favor to give
proper advice and assistance to those
seeking relief against unfaithful or neglectful
counsel.
Art. 1190, par 3. As for the obligations to do and
not to do, the provisions of the second
paragraph of article 1187 shall be observed as
regards the effect of the extinguishment of the
obligation.
Without Debtor’s
With Debtor’s Fault/Act
Fault/Act
Loss
Obligation is Obligation is converted
extinguished. into one of indemnity
for damages.
Deterioration
Impairment to be Creditor may choose
borne by the creditor. between bringing an
action for rescission of
the obligation OR
bringing an action for
specific performance,
with damages in either
case.
Improvement
Improvement at the Improvement by the
debtor’s expense, the thing’s nature or by
debtor shall ONLY time shall inure to the
have usufructuary benefit of the creditor.
rights.
UP LAW BOC OBLIGATIONS AND CONTRACTS CIVIL LAW

IMPOSSIBLE CONDITIONS If the uncertainty consists in whether the day

will come or not, the obligation is conditional,
Art. 1183. Impossible conditions, those contrary and it shall be regulated by the rules of the
to good customs or public policy and those preceding Section.
prohibited by law shall annul the obligation
which depends upon them. If the obligation is Art. 1180. When the debtor binds himself to pay
divisible, that part thereof which is not affected when his means permit him to do so, the
by the impossible or unlawful condition shall be obligation shall be deemed to be one with a
valid. period, subject to the provisions of Article 1197.
The condition not to do an impossible thing Period or Term: Interval of time, which either
shall be considered as not having been agreed suspends demandability or produces
upon. extinguishment.
POSITIVE AND NEGATIVE CONDITIONS The period must be: future, certain, and
possible. [Tolentino]
Positive [Art. 1184] Negative [Art. 1185]
The condition that The condition that A fortuitous event does not interrupt the
some event happen at some event will not running of the period. It only relieves the
a determinate time happen at a contracting parties from the fulfillment of their
shall extinguish the determinate time shall respective obligations during the period.
obligation render the obligation
(a) as soon as the effective from the TERM/PERIOD AND CONDITION
time expires or moment DISTINGUISHED
(b) if it has become (a) the time indicated
indubitable that has elapsed, or
the event will not (b) if it has become Term/Period Condition
take place. evident that the Interval of time which Fact or event which is
event cannot is future and certain future and uncertain
occur. Must necessarily come, May or may not
although it may not be happen
The intention of the parties, taking into known when
consideration the nature of the obligation shall
Exerts an influence Exerts an influence
govern if no time has been fixed for the
upon the time of upon the very
fulfilment of the condition.
demandability or existence of the
extinguishment of an obligation itself
OBLIGATIONS WITH A PERIOD OR obligation
TERM No retroactive effect Has retroactive effect
unless there is an
Art. 1193. Obligations for whose fulfillment a day agreement to the
certain has been fixed, shall be demandable contrary
only when that day comes. When it is left When it is left
exclusively to the will exclusively to the will
Obligations with a resolutory period take effect of the debtor, the of the debtor, the very
at once, but terminate upon arrival of the day existence of the existence of the
certain. obligation is not obligation is affected
affected
A day certain is understood to be that which
must necessarily come, although it may not be
known when.

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KINDS OF PERIOD [Art 1193]
(1) Ex die – period with a suspensive effect.
Obligation becomes demandable after the
lapse of the period.
(2) In diem – period with a resolutory effect.
Obligation becomes demandable at once but
is extinguished after the lapse of the period.
EFFECT OF ADVANCE PAYMENT OR
DELIVERY
Art. 1195. Anything paid or delivered before the
arrival of the period, the obligor being unaware
of the period or believing that the obligation has
become due and demandable, may be
recovered, with the fruits and interests.
LOSS, DETERIORATION, OR IMPROVEMENT
OF THE THING BEFORE PERIOD EXPIRES
Art. 1194. In case of loss, deterioration or
improvement of the thing before the arrival of
the day certain, the rules in Article 1189 shall be
observed.
If the period is for the benefit of the debtor
alone, he shall lose every right to make use
of it—
(1) When after the obligation has been
contracted, he becomes insolvent, unless he
gives a guaranty or security for the debt
(2) When he does not furnish to the creditor the
guaranties or securities which he has
promised
(3) When by his own acts he has impaired said
guaranties or securities after their
establishment, and when through a
fortuitous event they disappear, unless he
immediately gives new ones equally
satisfactory
(4) When the debtor violates any undertaking, in
consideration of which the creditor agreed to
the period;
When the debtor attempts to abscond [Art.
1198]
(5) When required by law or stipulation;
(6) If parties stipulated an acceleration clause
[Tolentino]

BENEFIT OF THE PERIOD The obligation immediately becomes due and

Art. 1196. Whenever in an obligation a period is demandable even if the period has not yet
designated, it is presumed to have been expired. The obligation becomes a pure one.
established for the benefit of both the creditor [Tolentino]
and the debtor, unless from the tenor of the
same or other circumstances it should appear When Courts May Fix Period
that the period has been established in favor of Art. 1197. If the obligation does not fix a period,
one or of the other. but from its nature and the circumstances it can
be inferred that a period was intended, the
Period for the benefit of either creditor or courts may fix the duration thereof.
debtor
The courts shall also fix the duration of the
Creditor Debtor
period when it depends upon the will of the
Creditor may demand Debtor may oppose debtor.
the fulfillment or any premature
performance of the demand on the part of In every case, the courts shall determine such
obligation at any time the obligee for the period as may under the circumstances have
but the obligor performance of the been probably contemplated by the parties.
cannot compel him to obligation, or if he so Once fixed by the courts, the period cannot be
accept payment desires, he may changed by them.
before the expiration renounce the benefit of
of the period. the period by General rule: The court is not authorized to fix a
performing his period for the parties [De Leon]
obligation in advance.
Two-Step Rule in Determining Period By The
Court
(1) The Court shall determine:

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(a) If the obligation does not fix a period, but Alternative Obligations Facultative Obligations
from its nature and circumstances, it can
be inferred that a period was intended. The loss/impossibility
(b) If the period is void, such as when it of one of the things
depends upon the will of the debtor. does not extinguish
(c) If the debtor binds himself when his the obligation.
means permit him to do so. Culpable loss of any of Culpable loss of the
(2) The Court must decide what period was the objects object which the
“probably contemplated by the parties”. alternatively due debtor may deliver in
[Araneta v. Phil. Sugar Estates] before the choice is substitution before the
made may give rise to substitution is effected
Art. 1197 does not apply to contract of services liability on the part of does not give rise to
and to pure obligations. the debtor. any liability on the part
of the debtor.
The court, however, to prevent unreasonable
interpretations of the immediate demandability Alternative obligations: Several prestations are
of pure obligations, may fix a reasonable time in due but the performance of one is sufficient. [De
which the debtor may pay [Tolentino] Leon]

The only action that can be maintained by the RIGHT OF CHOICE [ART. 1200]
creditor under Art. 1197 is the action to ask the Belongs to the debtor, UNLESS—
courts to fix the term within which the debtor (1) it is expressly granted to the creditor
must comply with his obligation. The fulfillment (2) it is expressly granted to a third person
of the obligation itself cannot be demanded
until after the court has fixed the period for LIMITATIONS TO THE RIGHT OF CHOICE
compliance therewith, and such period has (1) impossible prestations
arrived. (2) unlawful prestations
(3) those which could not have been the object
ALTERNATIVE OR FACULTATIVE of the obligation
OBLIGATIONS
WHEN CHOICE SHALL PRODUCE EFFECT
Alternative Obligations Facultative Obligations Choice shall produce no effect except from the
Several objects are Only one object is due. time it has been communicated. [Art. 1201]
due.
May be complied with May be complied with The effect of the notice is to limit the obligation
by delivery of one of by the delivery of to the object or prestation selected. Notice of
the objects or by another object or by selection or choice may be in any form provided
performance of one of the performance of it is sufficient to make the other party know that
the prestations which another prestation in the selection has been made. It can be:
are alternatively due.substitution of that (a) oral
which is due. (b) in writing
Choice may pertain to Choice pertains only to (c) tacit
debtor, creditor, or the debtor. (d) any other equivocal means
third person.
Choice of the debtor when communicated to the
Loss/impossibility of Loss/impossibility of creditor does not require the latter’s
all object/prestation the object/prestation concurrence.
due to fortuitous event due to fortuitous event
shall extinguish the is sufficient to If through the creditor's acts the debtor cannot
obligation. extinguish the make a choice according to the terms of the
obligation. obligation, the latter may rescind the contract
with damages. [Art 1203]

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INSTANCES WHEN OBLIGATION IS Fortuitous Event Debtor’s Fault

CONVERTED INTO A SIMPLE OBLIGATION One Remains
(1) The person with the right of choice has Creditor may claim the Creditor may claim the
communicated his choice [Arts. 1201, 1205 remaining thing remaining thing
par 1] without a right to without a right to
(2) Only one prestation is practicable [Art. 1202] damages OR the damages OR the
price/value of the price/value of the
LOSS OF SPECIFIC THINGS OR thing lost with right to thing lost with right to
IMPOSSIBILITY OF PERFORMANCE OF damages. damages.
ALTERNATIVE
Facultative obligations: Only one prestation is
Art. 1204: Debtor’s Choice agreed upon, but the obligor may render
Fortuitous Event Debtor’s Fault another in substitution. [Art. 1206]
All Lost
Debtor is released Creditor shall have a Loss of Substitute in Facultative Obligations
from the obligation. right to indemnity for [Art. 1206]
damages based on the Before Substitution is After Substitution is
value of the last thing Made Made
which disappeared or If due to bad faith or The loss or
service which become fraud of obligor: obligor deterioration of the
impossible. is liable. substitute on account
Some of the obligor’s delay,
Debtor to deliver that Debtor to deliver that negligence, or fraud,
which he shall choose which the creditor renders the obligor
from among the shall choose from liable because once
remainder. among the remainder If due to the negligence the substitution is
without damages. of the obligor: obligor is made, the obligation
One Remains not liable. is converted into a
Debtor to deliver that Debtor to deliver that simple one with the
which remains. which remains. substituted thing as
the object of the
Art. 1205: Creditor’s Choice obligation.
Fortuitous Event Debtor’s Fault
All Lost JOINT OBLIGATIONS
Debtor is released Creditor may claim the The whole obligation, whether capable of
from the obligation. price/value of any of division into equal parts or not, is to be paid or
them with indemnity performed by several debtors and/or demanded
for damages. by several creditors.
Some
Debtor to deliver that Creditor may claim PRESUMPTION OF JOINT OBLIGATION
which he shall choose any of those subsisting An obligation is presumed joint if there is a
from among the without a right to concurrence of several creditors, or of several
remainder. damages OR debtors, or of several creditors and debtors in
price/value of the one and the same obligation [Art. 1207]
thing lost with right to
damages. Exceptions:
(1) When the obligation expressly states that
there is solidarity
(2) When the law requires solidarity, i.e. quasi-
delicts
(3) When the nature of the obligation requires
solidarity

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(4) When a charge or condition imposed upon
heirs or legatees, and the testament
expressly makes the charge or condition in
solidum
(5) When the solidary responsibility is imputed
by a final judgment upon several defendants
PRESUMPTION OF DIVISIBILITY IN JOINT
OBLIGATIONS (JOINT DIVISIBLE
OBLIGATIONS)
Credit or debt shall be presumed to be divided
into as many equal shares as there are creditors
or debtors, the credits or debts being considered
distinct from one another. [Art.1208]
One where a concurrence of several creditors, or
of several debtors, or of several creditors and
debtors, by virtue of which, each of the creditors
has a right to demand, and each of the debtors
is bound to render compliance with his
proportionate part of the prestation which
constitute the object of the obligation
(obligacion mancomunada).
Joint creditor cannot act in representation of the
others, neither can a joint debtor be compelled
to answer for the liability of others.
PRINCIPAL EFFECTS OF JOINT LIABILITY
(1) Demand by one creditor upon the debtor,
produces the effects of default only with
respect to the creditor who demanded and
the debtor on whom the demand was made,
but not with respect to others.
(2) Interruption of prescription by the judicial
demand of one creditor upon a debtor does
not benefit the other creditors nor interrupt
the prescription as to other debtors.
(3) Vices of each obligation arising from the
personal defect of a particular debtor or
creditor do not affect the obligation or right
of the others.
(4) Insolvency of a debtor does not increase the
responsibility of his co-debtors, nor does it
authorize a creditor to demand anything
from his co-debtors.
(5) Defense of res judicata is not extended from
one debtor to another.
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CIVIL LAW
Joint Indivisible Obligations
Art. 1209. If the division is impossible, the right
of the creditors may be prejudiced only by their
collective acts, and the debt can be enforced
only by proceeding against all the debtors. If
one of the latter should be insolvent, the others
shall not be liable for his share.
WHEN INDIVISIBLE [ART. 1225]
(1) Obligations to give definite things
(2) Obligations not susceptible of partial
performance
(3) Indivisibility is provided by law or intended by
the parties, even though object or service
may be physically divisible
(4) In obligations not to do, when character of
prestation requires indivisibility
Plurality of Creditors—If one or some of the
creditors demands the prestation, the debtor
may legally refuse to deliver to them, he can
insist that all the creditors together receive the
thing, and if any of them refuses to join the
others, the debtor may deposit the thing in
court by way of consignation [Tolentino]
Plurality of Debtors—If there are two or more
debtors, the fulfillment of or compliance with
the obligation requires the concurrence of all
the debtors, although each for his own share
and for the enforcement of the obligation.
Failure of one debtor to perform in a joint
indivisible obligation gives rise to indemnity for
damages
Art. 1224. A joint indivisible obligation gives rise
to indemnity for damages from the time anyone
of the debtors does not comply with his
undertaking. The debtors who may have been
ready to fulfill their promises shall not
contribute to the indemnity beyond the
corresponding portion of the price of the thing
or of the value of the service in which the
obligation consists.
UP LAW BOC OBLIGATIONS AND CONTRACTS CIVIL LAW

Joint Divisible Joint Indivisible Solidarity Indivisibility

Obligations Obligations Each creditor may Each creditor cannot
In case of breach of In case of breach demand the entire demand more than his
obligation by one of where one of the joint prestation and each share and each debtor
the debtors, damages debtors fails to comply debtor is bound to pay is not bound to pay
due must be borne by with his undertaking, the entire prestation more than his share
him alone. the obligation can no Effect of breach: Effect of breach:
longer be fulfilled or Solidarity remains Obligation is
performed. Thus, the converted to
action must be indemnity for
converted into one for damages
indemnity for All debtors are liable Only the debtors guilty
damages. for breach committed of breach of obligation
by a co-debtor is liable for damages
Joint Indivisible Obligations and Prescription All debtors are Other debtors are not
The act of a joint creditor which would ordinarily proportionately liable liable if one debtor is
interrupt the period of prescription would not for insolvency of one insolvent
have no effect on prescription because the debtor
indivisible character of the obligation requires
collective action of the creditors. KINDS OF SOLIDARY OBLIGATIONS
As to Source
Solidary Obligations (1) Legal – imposed by law
An obligation where there is concurrence of (2) Conventional – agreed upon by parties
several creditors, or of several debtors, or of (3) Real – imposed by the nature of the
several creditors and several debtors, by virtue obligation
of which, each of the creditors has the right to
demand, and each of the debtors is bound to As to Parties Bound
render, entire compliance with the prestation (1) Active (solidarity among creditors) – Each
which constitutes the object of the obligation creditor has the authority to claim and
(obligacion solidaria). enforce the rights of all, with the resulting
obligation of paying everyone of what
Solidarity may exist although the creditors and belongs to him.
the debtors may not be bound in the same (2) Passive (solidarity among debtors) – Each
manner and by the same periods and debtor can be made to answer for the others,
conditions. [Art. 1211] with the right on the part of the debtor-payor
to recover from the others their respective
DISTINGUISHED FROM INDIVISIBILITY shares.
(3) Mixed (solidarity among creditors and
debtors) – Solidarity is not destroyed by the
Art. 1210. The indivisibility of an obligation does
fact that the obligation of each debtor is
not necessarily give rise to solidarity. Nor does
subject to different conditions or periods. The
solidarity of itself imply indivisibility.
creditor can commence an action against
anyone of the debtors for the compliance
Solidarity Indivisibility with the entire obligation minus the portion
Refers to the legal tie Refers to the or share which corresponds to the debtor
(vinculum juris), and prestation that is not affected by the condition or period.
consequently to the capable of partial
subjects or parties of performance As to Uniformity
the obligation (1) Uniform – Parties are bound by the same
More than one creditor Exists even if there is stipulation
or more than debtor only one creditor (2) Non-uniform – Parties are bound by different
(plurality of subjects) and/or one debtor conditions or terms

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ACTIVE SOLIDARY OBLIGATION
Art. 1214. The debtor may pay any one of the
solidary creditors; but if any demand, judicial or
extrajudicial, has been made by one of them,
payment should be made to him.
A relationship of mutual agency is created
among co-creditors.
Art. 1222. A solidary debtor may, in actions filed
by the creditor, avail himself of all defenses
which are derived from the nature of the
obligation and of those which are personal to
him, or pertain to his own share. With respect to
those which personally belong to the others, he
may avail himself thereof only as regards that
part of the debt for which the latter are
responsible.

The creditor who may have executed any A relationship of mutual guaranty is created
novation, compensation, confusion, or remission among co-debtors.
of the debt, as well as he who collects the debt,
shall be liable to the others for the share in the The interruption of prescription as to one debtor
obligation corresponding to them. [Art. 1215, par affects all the others; but the renunciation by
2] one debtor of prescription already had does not
prejudice the others.
A solidary creditor cannot assign his rights
without the consent of the others. [Art. 1213] Defenses Available to a Solidary Debtor [Art.
1222]
PASSIVE SOLIDARY OBLIGATION (1) Those derived from the nature of the
obligation
Art. 1216. The creditor may proceed against any (2) Those personal to him
one of the solidary debtors or some or all of (3) Those pertaining to his own share
them simultaneously. The demand made (4) Those personally belonging to other co-
against one of them shall not be an obstacle to debtors but only as regards that part of the
those which may subsequently be directed debt for which the latter are responsible.
against the others, so long as the debt has not
been fully collected. Demand Upon a
Payment by a Debtor
Solidary Debtor
The demand made Full payment made by
Art. 1217. Payment made by one of the solidary against one of them one of the solidary
debtors extinguishes the obligation. If two or shall not be an debtors extinguishes
more solidary debtors offer to pay, the creditor obstacle to those the obligation [Art.
may choose which offer to accept. which may 1217].
subsequently be
He who made the payment may claim from his directed against the
co-debtors only the share which corresponds to others so long as the
each, with the interest for the payment already debt has not been
made. If the payment is made before the debt is fully collected [Art.
due, no interest for the intervening period may 1216].
be demanded. The creditor may If two or more solidary
proceed against any debtors offer to pay,
When one of the solidary debtors cannot, one of the solidary the creditor may
because of his insolvency, reimburse his share to debtors or all choose which offer to
the debtor paying the obligation, such share simultaneously [Art. accept [Art. 1217].
shall be borne by all his co-debtors, in 1216].
proportion to the debt of each.

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Demand Upon a debtors, shall extinguish the obligation, without

Payment by a Debtor
Solidary Debtor prejudice to the provisions of article 1219.
A creditor’s right to The solidary debtor
proceed against the who made the The creditor who may have executed any of
surety exists payment shall have these acts, as well as he who collects the debt,
independently of his the right to claim from shall be liable to the others for the share in the
right to proceed his co-debtors the obligation corresponding to them.
against the principal share which
corresponds to them
with interest, UNLESS Art. 1219. The remission made by the creditor of
barred by prescription the share which affects one of the solidary
or illegality [Art. 1218]. debtors does not release the latter from his
responsibility towards the co-debtors, in case
Debtors obligated themselves solidarily, so the debt had been totally paid by anyone of
creditor can bring its action against any of them. them before the remission was effected.
Remission of any part of the debt, made by the
creditor in favor of one of the solidary debtors, Art. 1220. The remission of the whole obligation,
inures to the benefit of the rest of them. obtained by one of the solidary debtors, does
[Inchausti vs. Yulo (1914)] not entitle him to reimbursement from his co-
debtors.
Loss of the thing or impossibility of performance
of the passive/mixed solidary obligation [Art. Each one of the solidary creditors may do
1221] whatever may be useful or beneficial to the
others, but not anything which may be
Without prejudicial to the latter.
The obligation shall be
fault of the
extinguished.
debtors As far as the debtors are concerned, a
All debtors shall be responsible to prejudicial act performed by a solidary creditor
the creditor, for the price and the is binding.
With fault
payment of damages and interest, As between the solidary creditors, the creditor
of any of
without prejudice to their action who performed such act shall incur the
the debtors
against the guilty or negligent obligation of indemnifying the others for
debtor. damages.
Through a All debtors shall be responsible to
fortuitous the creditor, for the price and the DIVISIBLE AND INDIVISIBLE
event after payment of damages and interest, OBLIGATIONS
one without prejudice to their action
incurred in against the guilty or negligent DIVISIBLE OBLIGATIONS
delay debtor. Ones which are susceptible to partial
performance, that is, the debtor can legally
EFFECTS OF PREJUDICIAL AND BENEFICIAL perform the obligation by parts and the creditor
ACTS cannot demand a single performance of the
entire obligation [Tolentino]
Art. 1212. Each one of the solidary creditors may
do whatever may be useful to the others, but INDIVISIBLE OBLIGATIONS
not anything which may be prejudicial to the Ones which cannot be validly performed in parts
latter. [Tolentino]

Art. 1215. Novation, compensation, confusion or Rules

remission of the debt, made by any of the (1) Divisibility/indivisibility refers to the
solidary creditors or with any of the solidary performance of the prestation and not to

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the thing which is the object thereof. The
thing may be divisible, yet the obligation
may be indivisible.
(2) When the obligation has for its object the
execution of a certain number of days of
work, the accomplishment of work by
metrical units, or analogous things which by
their nature are susceptible of partial
performance, it shall be divisible [Art.1225,
par. 2].
(3) Even though the object or service may be
physically divisible, an obligation is
indivisible if so provided by law or intended
by the parties.
(4) In obligations not to do, divisibility or
indivisibility shall be determined by the
character of the prestation in each
particular case.
(5) When there is plurality of debtors and
creditors, the effect of
divisibility/indivisibility of the obligation
depend upon whether the obligation is joint
or solidary.
(6) A joint indivisible obligation gives rise to
indemnity for damages from the time any
one of the debtors does not comply with his
undertaking [Art. 1224].
Effect
Creditor cannot be compelled to receive
partially the prestation in which the obligation
consists; neither may the debtor be required to
make the partial payment [Art. 1248], UNLESS:
(1) The obligation expressly stipulates the
contrary.
(2) The different prestations constituting the
objects of the obligation are subject to
different terms and conditions.
(3) The obligation is in part liquidated and in
part unliquidated.
OBLIGATIONS WITH A PENAL
CLAUSE
Penal Clause: An accessory undertaking to
assume greater liability in case of breach. It is
attached to an obligation in order to ensure
performance. The enforcement of the penalty
can be demanded by the creditor only when the
non-performance is due to the fault or fraud of
the debtor.
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CIVIL LAW
If the principal obligation is void, the penal
clause shall also be void. However, the nullity of
the penal clause does not carry with it the
nullity of the principal obligation [Art.1230].
PURPOSES OF PENALTY
(1) Funcion coercitiva de garantia - to insure the
performance of the obligation.
(2) Funcion liquidatoria - to liquidate the
amount of damages to be awarded to the
injured party in case of breach of the
principal obligation (compensatory).
(3) Funcion estrictamente penal - to punish the
obligor in case of breach of the principal
obligation (punitive).
CHARACTERISTICS OF PENALTY
(1) The penalty shall substitute the indemnity
for damages and payment of interest in
case of non-compliance [Art. 1226],
UNLESS:
(a) There is a stipulation to the contrary
(b) The obligor refuses to pay the penalty
(c) The obligor is guilty of fraud
(2) Debtor cannot exempt himself from the
performance of the principal obligation by
paying the stipulated penalty unless this
right has been expressly reserved for him
[Art. 1227].
(3) Creditor cannot demand the fulfillment of
the principal obligation and demanding the
satisfaction of the penalty at the same time
unless the right has been clearly granted to
him [Art. 1227]. Tacit or implied grant is
admissible.
(a) If the creditor has chosen fulfillment of
the principal obligation and the
performance thereof becomes
impossible without his fault, he may still
demand the satisfaction of the penalty.
(b) If there was fault on the part of the
debtor, creditor may demand not only
the satisfaction of the penalty but also
the payment of damages.
(c) If the creditor chooses to demand the
satisfaction of the penalty, he cannot
afterwards demand the fulfillment of
the obligation.
PROOF OF ACTUAL DAMAGE
Art. 1228: That proof of actual damages is not
necessary is applicable only to the general rule
UP LAW BOC OBLIGATIONS AND CONTRACTS
stated in Art. 1226, but not to the exceptions.
The penalty is exactly identical with what is
known as “liquidated damages” in Art. 2226.
WHEN PENALTY MAY BE REDUCED [ART.
1229]:
(1) If the principal obligation has been partly
complied with.
(2) If the principal obligation has been
irregularly complied with.
(3) If the penalty is iniquitous or
unconscionable even if there has been no
performance.
NATURAL OBLIGATIONS
Art. 1423. Obligations are civil or natural. Civil
obligations give a right of action to compel their
performance. Natural obligations, not being
based on positive law but on equity and natural
law, do not grant a right of action to enforce
their performance, but after voluntary
fulfillment by the obligor, they authorize the
retention of what has been delivered or
rendered by reason thereof. Some natural
obligations are set forth in the following articles.
EXAMPLES OF NATURAL OBLIGATIONS
Art. 1424. When a right to sue upon a civil
obligation has lapsed by extinctive prescription,
the obligor who voluntarily performs the
contract cannot recover what he has delivered
or the value of the service he has rendered.
(1) There is a civil obligation
(2) The right to sue upon it has already lapsed
by extinctive prescription
(3) Obligor performs contract voluntarily
Consequence: Obligor cannot recover what he
has delivered or value of the service he
rendered.
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CIVIL LAW
Art. 1425. When without the knowledge or
against the will of the debtor, a third person
pays a debt which the obligor is not legally
bound to pay because the action thereon has
prescribed, but the debtor later voluntarily
reimburses the third person, the obligor cannot
recover what he has paid.
(1) There is a debt
(2) Action upon the debt has prescribed
(3) A third person, without the knowledge or
against the will of the debtor, pays the debt
(4) Debtor voluntarily reimburses the third
person
Consequence: Obligor cannot recover what he
has paid.
Art. 1426. When a minor between eighteen and
twenty-one years of age who has entered into a
contract without the consent of the parent or
guardian, after the annulment of the contract
voluntarily returns the whole thing or price
received, notwithstanding the fact that he has
not been benefited thereby, there is no right to
demand the thing or price thus returned.
Art. 1427. When a minor between eighteen and
twenty-one years of age, who has entered into a
contract without the consent of the parent or
guardian, voluntarily pays a sum of money or
delivers a fungible thing in fulfillment of the
obligation, there shall be no right to recover the
same from the obligee who has spent or
consumed it in good faith.
Art. 1428. When, after an action to enforce a civil
obligation has failed the defendant voluntarily
performs the obligation, he cannot demand the
return of what he has delivered or the payment
of the value of the service he has rendered.
(1) There is a civil obligation
(2) An action to enforce such has failed
(3) Defendant voluntarily performs the
obligation
Consequence: Defendant cannot demand return
of what he has delivered or the payment of the
value of the service.
UP LAW BOC OBLIGATIONS AND CONTRACTS
Art. 1429. When a testate or intestate heir
voluntarily pays a debt of the decedent
exceeding the value of the property which he
received by will or by the law of intestacy from
the estate of the deceased, the payment is valid
and cannot be rescinded by the payer.
(1) Decedent incurred in debt during his lifetime
(2) Heir voluntarily pays debt
(3) Value of debt exceeds value of heir’s
inheritance
Consequence: Payment is valid and heir cannot
rescind it.
Art. 1430. When a will is declared void because it
has not been executed in accordance with the
formalities required by law, but one of the
intestate heirs, after the settlement of the debts
of the deceased, pays a legacy in compliance
with a clause in the defective will, the payment
is effective and irrevocable.
(1) There is a will providing for a legacy
(2) The will is declared void because it was not
executed in accordance with the formalities
required by law
(3) Heir pays legacy
Consequence: Payment is effective and
irrevocable.
EXTINGUISHMENT OF
OBLIGATIONS
Art. 1231. Obligations are extinguished:
(1) By payment or performance;
(2) By the loss of the thing due;
(3) By the condonation or remission of the
debt;
(4) By the confusion or merger of the rights of
creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of
obligations, such as annulment, rescission,
fulfillment of a resolutory condition, and
prescription, are governed elsewhere in this
Code.
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PAYMENT OR PERFORMANCE
(1) The delivery of money OR
(2) The performance of an obligation [Art.1232]
PRINCIPLE OF INTEGRITY OF PAYMENT
Art. 1233. A debt shall not be understood to
have been paid unless the thing or service in
which the obligation consists has been
completely delivered or rendered, as the case
may be.
Art. 1248. Unless there is an express stipulation
to that effect, the creditor cannot be compelled
partially to receive the prestations in which the
obligation consists. Neither may the debtor be
required to make partial payments.
However, when the debt is in part liquidated
and in part unliquidated, the creditor may
demand and the debtor may effect the payment
of the former without waiting for the liquidation
of the latter.
Art. 1235. When the obligee accepts the
performance, knowing its incompleteness or
irregularity, and without expressing any protest
or objection, the obligation is deemed fully
complied with.
BY WHOM
Payor must have free disposal of the thing due
and capacity to alienate it. [Art. 1239]
Payment by a third person
Art. 1236. The creditor is not bound to accept
payment or performance by a third person who
has no interest in the fulfillment of the
obligation, unless there is a stipulation to the
contrary.
Whoever pays for another may demand from
the debtor what he has paid, except that if he
paid without the knowledge or against the will
of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor.
UP LAW BOC OBLIGATIONS AND CONTRACTS
Art. 1237. Whoever pays on behalf of the debtor
without the knowledge or against the will of the
latter, cannot compel the creditor to subrogate
him in his rights, such as those arising from a
mortgage, guaranty, or penalty.
Art. 1238. Payment made by a third person who
does not intend to be reimbursed by the debtor
is deemed to be a donation, which requires the
debtor's consent. But the payment is in any case
valid as to the creditor who has accepted it.
TO WHOM
(1) The person in whose favor the obligation has
been constituted; or
(2) His successor in interest; or
(3) Any person authorized to receive it [Art. 1240]
Payment to a person who is incapacitated to
administer his property shall be valid if he has
kept the thing delivered, or insofar as the
payment has been beneficial to him. [Art. 1241
par 1]
Payment made in good faith to any person in
possession of the credit shall release the debtor.
[Art. 1242]
Payment made to the creditor by the debtor
after the latter has been judicially ordered to
retain the debt shall not be valid. [Art. 1243]
Payment to a third person [Art. 1241 par 2]
Payment made to a third person shall also be
valid insofar as it has redounded to the benefit
of the creditor.
General rule: That payment has redounded to
the benefit of the credit must be proved,
Exception:
(1) If after the payment, the third person
acquires the creditor's rights;
(2) If the creditor ratifies the payment to the
third person;
(3) If by the creditor's conduct, the debtor has
been led to believe that the third person
had authority to receive the payment.
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CIVIL LAW
PLACE OF PAYMENT
(1) In the place designated in the obligation.
(2) In the absence of stipulation—
(a) If obligation is to deliver a determinate
thing: wherever the thing might be at
the moment the obligation was
constituted.
(b) In any other case: Domicile of debtor
[Art. 1251]
Form of Payment
Art. 1249. The payment of debts in money shall
be made in the currency stipulated, and if it is
not possible to deliver such currency, then in the
currency which is legal tender in the Philippines.
The delivery of promissory notes payable to
order, or bills of exchange or other mercantile
documents shall produce the effect of payment
only when they have been cashed, or when
through the fault of the creditor they have been
impaired.
In the meantime, the action derived from the
original obligation shall be held in the
abeyance.
Extraordinary Inflation or Deflation
Art. 1250. In case an extraordinary inflation or
deflation of the currency stipulated should
supervene, the value of the currency at
the time of the establishment of the obligation
shall be the basis of payment, unless there is an
agreement to the contrary.
APPLICATION OF PAYMENTS
Designation of the debt to which should be
applied a payment made by a debtor who owes
several debts to the same creditor.
Requisites:
(1) There is a plurality of debts
(2) Debts are of the same kind
(3) Debts are owed to the same creditor and by
the same debtor
(4) All debts must be due, UNLESS parties so
stipulate, or when application is made by
the party for whose benefit the term has
been constituted
(5) Payment made is not sufficient to cover all
debts [Art. 1252]
UP LAW BOC OBLIGATIONS AND CONTRACTS CIVIL LAW

Rules on Application Requisites:

(1) Preferential right of debtor - debtor has the (1) There is a plurality of debts
right to select which of his debts he is (2) Partial or relative insolvency of debtor
paying. (3) Acceptance of the cession by the creditors
(2) The debtor makes the designation at the [Art. 1255]
time he makes the payment.
(3) If not, the creditor makes the application, by Debtor is released only for the net proceeds
so stating in the receipt that he issues, unless there is a stipulation to the contrary.
unless there is cause for invalidating the Cession and Dacion en pago Distinguished
contract.
(4) If neither the creditor nor debtor exercises Cession Dacion en pago
the right to apply, or if the application is not Plurality of creditors One creditor
valid, the application is made by operation Debtor must be Debtor not necessarily
of law. partially or relatively in state of financial
(5) If debt produces interest, the payment is not insolvent difficulty
to be applied to the principal unless the Universality of Thing delivered is
interests are covered. property is ceded equivalent of
(6) When no application can be inferred from performance
the circumstances of payment, it is applied: Merely releases debtor Extinguishes
(a) to the most onerous debt of the debtor; for the net proceeds of obligation to the
or (b) if debts due are of the same nature things ceded or extent of the value of
and burden, to all the debts in proportion assigned, unless there the thing delivered, as
(7) Rules of application of payment may not be is contrary intention agreed upon, proved
invoked by a surety or solidary guarantor. or implied from the
conduct of the creditor
Rules on application of payment cannot be Involves all properties Does not involve all
made applicable to a person whose obligation of debtor properties of debtor
as a mere surety is both contingent and Creditor does not Creditor becomes
singular. There must be full and faithful become owner of the owner
compliance with the terms of the contract. ceded property
[Reparations Commission vs. Universal Deep Sea
Fishing Corp (1978)] TENDER OF PAYMENT AND CONSIGNATION
Tender of payment: Manifestation made by the
DATION IN PAYMENT debtor to the creditor of his desire to comply
Delivery and transmission of ownership of a with his obligation, with offer of immediate
thing by the debtor to the creditor as an performance.
accepted equivalent of the performance of the (1) Preparatory act to consignation
obligation (dacion en pago). (2) Extrajudicial in character
Requisites: Consignation: Deposit of the object of obligation
(1) Existence of a money obligation in a competent court in accordance with the
(2) Alienation to the creditor of a property by rules prescribed by law whenever the creditor
the debtor with the creditor’s consent unjustly refuses payment or because of some
(3) Satisfaction of the money obligation circumstances which render direct payment to
the creditor impossible or inadvisable.
PAYMENT BY CESSION (1) Principal act which constitutes a form of
Special form of payment where the debtor payment
assigns/abandons ALL his property for the (2) Judicial in character
benefit of his creditors in order that from the
proceeds thereof, the latter may obtain
payment of their credits.

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Requisites of Consignation
(1) There is a debt due
(2) Consignation is made because of some
legal cause
(a) There was tender of payment and creditor
refuses without just cause to accept it
(b) Instances when consignation alone would
suffice as provided under Art. 1256
(3) Previous notice of consignation was given to
those persons interested in the performance
of the obligation
(4) Amount or thing due was placed at the
disposal of the court
(5) After the consignation has been made, the
persons interested were notified thereof
When Tender and Refusal Not Required [Art.
1256]
(1) Creditor is absent or unknown, or does not
appear at the place of payment.
(2) Creditor is incapacitated to receive the thing
due at the time of payment.
(3) Without just cause, creditor refuses to give
receipt.
(4) Two or more persons claim the same right
to collect.
(5) Title of the obligation has been lost.
What Constitutes Valid Consignation
In order that the consignation of the thing due
may release the obligor, it must first be
announced to the persons interested in the
fulfilment of the obligation.
The consignation shall be ineffectual if it is not
made strictly in consonance with the provisions
which regulate payment. [Art. 1257]
How Consignation is Made
Consignation shall be made by depositing the
things due at the disposal of judicial authority,
before whom the tender of payment shall be
proved, in a proper case, and the announcement
of the consignation in other cases.
The consignation having been made, the
interested parties shall also be notified thereof.
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Who Bears the Expenses
The expenses of consignation, when properly
made, shall be charged against the creditor.
[Art. 1259]
Effects of Consignation
If accepted by the creditor or declared properly
made by the Court:
(1) Debtor is released in same manner as if he
had performed the obligation at the time of
consignation
(2) Accrual of interest is suspended from the
moment of consignation.
(3) Deterioration or loss of the thing or amount
consigned, occurring without the fault of
debtor, must be borne by creditor from the
moment of deposit
Any increment or increase in the value of the
thing after consignation inures to the benefit of
the creditor
Effects of Withdrawal by Debtor [Arts. 1260- 1261]
Before approval of the court - Obligation
remains in force.
After approval of the court or acceptance by the
creditor, with the consent of the latter -
Obligation remains in force, but guarantors and
co-debtors are liberated. Preference of the
creditor over the thing is lost.
After approval of the court or acceptance by the
creditor, and without creditor’s consent -
Obligation subsists, without change in the
liability of guarantors and co-debtors, or the
creditor’s right of preference.
LOSS OF THE THING DUE OR
IMPOSSIBILITY OR DIFFICULTY OF
PERFORMANCE
Loss - A thing is lost when it perishes, goes out
of commerce or disappears in such a way that
its existence is unknown or it cannot be
recovered [Art. 1189 no. 2]
UP LAW BOC OBLIGATIONS AND CONTRACTS CIVIL LAW

EFFECTS OF LOSS [ARTS. 1262-1263] Partial loss

Art. 1264: Partial loss due to a fortuitous event
Obligation to Deliver a Obligation to Deliver a does not extinguish the obligation; thing due
Specific Thing Generic Thing shall be delivered in its present condition,
Extinguishment of the Loss of a generic thing without any liability on the part of the debtor,
obligation if the thing does not extinguish an UNLESS the obligation is extinguished when
was destroyed without obligation, EXCEPT in the part lost was of such extent as to make the
fault of the debtor and case of delimited thing useless.
before he has incurred generic things, where
delay. the kind or class is IMPOSSIBILITY OF PERFORMANCE [ARTS.
limited itself, and the 1266-1267]
whole class perishes. When prestation becomes legally or physically
impossible (by fortuitous event or force
Action against third persons - creditor shall majeure), the debtor is released. Impossibility
have all the rights of action the debtor may have must have occurred without fault of debtor, and
against third persons by reason of the loss. [Art. after the obligation has been constituted.
1269]
Subjective Impossibility
OTHER CASES WHERE LOSS IS Where there is no physical or legal loss, but the
ATTRIBUTED TO DEBTOR thing belongs to another, the performance by
(1) Law provides that the debtor shall be liable the debtor becomes impossible. The debtor
even if the loss is due to fortuitous events must indemnify the creditor for damages.
[Arts. 1942, 1979, 2147, 2159].
(2) Obligor is made liable by express stipulation. Partial Impossibility
(3) Nature of the obligation requires an Courts shall determine whether it is so
assumption of risk. important as to extinguish the obligation.
(4) Fault or negligence concurs with the (1) If debtor has performed part of the
fortuitous event. obligation when impossibility occurred,
(5) Loss occurs after delay. creditor must pay the part done as long as
(6) Debtor has promised to deliver the same he benefits from it.
thing to two or more different parties. (2) If debtor received full payment from
(7) Obligation arises from a criminal act. creditor, he must return excess amount
(8) Borrower in commodatum: saves his own corresponding to part which was impossible
things and not the thing of the creditor to perform.
during a fortuitous event.
Doctrine of Unforeseen Events
Loss of the thing when in possession of the When the service has become so difficult as to
debtor be manifestly beyond the contemplation of all
Loss was due to the debtor’s fault. Burden of the parties, the obligor may be released in
explaining the loss of the thing falls upon him, whole or in part. [De Leon]
UNLESS due to a natural calamity: earthquake,
flood, storm, etc Requisites:
(1) Event could not have been foreseen at the
In Reciprocal Obligations time of the constitution of the contract.
Extinguishment of the obligation due to loss of (2) Event makes performance extremely
the thing or impossibility of performance affects difficult but not impossible.
both the creditor and debtor; the entire juridical (3) Event is not due to any act of the parties.
relation is extinguished. (4) Contract is for future prestation.

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CONDONATION OR REMISSION OF
THE DEBT
An act of liberality, by virtue of which, without
receiving any equivalent, creditor renounces the
enforcement of the obligation. The obligation is
extinguished either in whole or in such part of
the same to which remission refers.
REQUISITES
(1) Debt must be existing and demandable.
(2) Renunciation must be gratuitous; without
any consideration.
(3) Debtor must accept the remission. [Art.
1270]
EFFECT
Renunciation of the principal debt shall
extinguish the accessory obligations, but
remission of the latter leaves the principal
obligation in force. [Art. 1273]
EXPRESS CONDONATION
Made formally; in accordance with forms of
ordinary donations. [Art. 1270]
IMPLIED CONDONATION
(1) Whenever the private document in which
the debt is found is in the possession of the
debtor, it shall be presumed that the
creditor delivered it voluntarily, unless the
contrary is proved. [Art. 1272]
(2) Delivery of a private document evidencing
credit made voluntarily by the creditor to
the debtor implies the renunciation of the
action of creditor against the latter. [Art.
1272]
(3) Accessory obligation of pledge has been
remitted when thing after its delivery is
found in the possession of the debtor or
third person. [Art. 1274]
CONFUSION OR MERGER OF RIGHTS
Confusion: The meeting in one person of the
qualities of creditor and debtor of the same
obligation.
REQUISITES
(1) It should take place between principal
debtor and creditor.
(2) It must be complete and definite – Parties
must meet all the qualities of creditor and
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CIVIL LAW
debtor in the obligation/ in the part
affected.
EFFECTS [ARTS. 1275- 1277]
(1) The obligation is extinguished from the time
the characters of the debtor and creditor are
merged in the same person.
(2) In joint obligations, confusion does not
extinguish the obligation except as regards
the corresponding share of the creditor or
debtor in whom the two characters concur.
(3) In solidary obligations, confusion in one of
the solidary debtors extinguishes the entire
obligation.
Obligation is not extinguished when confusion
takes place in the person of subsidiary debtor
(e.g. guarantor), but merger in the person of the
principal debtor shall benefit the former.
COMPENSATION
Compensation: Offsetting of two obligations
which are reciprocally extinguished if they are of
the same value, or extinguished to the
concurrent amount if of different values.
REQUISITES [ART. 1279]
(1) Each obligor is bound principally, and at the
same time a principal creditor of the other
(2) Both debts must consist in a sum of money,
or if the things due are FUNGIBLE, of the
same kind & quality
(3) Both debts are due
(4) Debts are liquidated and demandable
(5) There must be no retention or controversy
over either of the debts, commenced by
third persons and communicated in due
time to the debtor
(6) Compensation is not prohibited by law
EFFECTS
(1) Both debts are extinguished to the
concurrent amount, even though the
creditors and debtors are not aware of the
compensation.
(2) Accessory obligations are also extinguished.
Effects rise from the moment all the requisites
concur.
Debtor claiming its benefits must prove
compensation; once proven, effects retroact
from the moment when the requisites
concurred.
UP LAW BOC OBLIGATIONS AND CONTRACTS CIVIL LAW

Compensation and Confusion Distinguished Art. 1283. If one of the parties to a suit over an
obligation has a claim for damages against the
Compensation Confusion other, the former may set it off by proving his
right to said damages and the amount thereof.
There must always be Involves only one
two obligations. obligation.
(4) Facultative Compensation - When it can be
claimed by one of the parties who, however,
There are two persons There is only one
has the right to object to it.
who are mutually person whom the
debtors and creditors characters of the
Compensation which can only be set up at the
of each other in two creditor and debtor
option of a creditor, when legal compensation
separate obligations, meet.
cannot take place because some legal requisites
each arising from the
in favor of the creditor are lacking. Creditor may
same cause.
renounce his right to compensation, and he
himself may set it up. As opposed to
KINDS OF COMPENSATION
conventional compensation, facultative
As to extent
compensation is unilateral and does not depend
(1) Total – when two debts are of the same
upon the agreement of the parties.
amount [Art. 1281]
(2) Partial
Obligations which cannot be compensated
[Arts. 1287-1288]
As to cause
(1) Contracts of depositum
(1) Legal
(2) Contracts of commodatum
(2) Voluntary
(3) Future support due by gratuitous title
(3) Judicial
(4) Civil liability arising from a penal offense
(4) Facultative
(5) Obligations due to the government
(6) Damage caused to the partnership by a
KINDS:
partner
(1) Legal Compensation – takes place by
operation of law from the moment all
Right of a Guarantor
requisites are present.
A guarantor may set up compensation as
regards what the creditor may owe the principal
Art. 1290. When all the requisites mentioned in debtor. (Art. 1280)
article 1279 are present, compensation takes
effect by operation of law, and extinguishes Effect of Assignment of Rights by the Creditor to
both debts to the concurrent amount, even a Third Person [Art. 1285]
though the creditors and debtors are not aware
of the compensation. Debtor cannot set up against
With assignee compensation pertaining
(2) Voluntary Compensation – takes place when debtor’s to him against assignor UNLESS
parties who are mutually creditors and consent he reserved such right at the time
debtors of each other agree to compensate he gave his consent
their respective obligations even though one With Debtor may set up compensation
of the requisites of compensation may be debtor’s of debts previous to the
lacking knowledge assignment but not of subsequent
but without ones
Art. 1282. The parties may agree upon the consent
compensation of debts which are not yet due. Debtor may set up compensation
Without
of all credits prior and also later to
debtor’s
(3) Judicial Compensation – takes place by the assignment until he had
knowledge
judicial decree knowledge of the assignment

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NOVATION the novation OR those who may be affected,

Extinguishment of an obligation by the upon agreement between the parties.
substitution or change of the obligation by a
subsequent one which extinguishes or modifies ORIGINAL OR NEW OBLIGATION WITH
the first either by changing the object or SUSPENSIVE OR RESOLUTORY CONDITION
principal conditions, or by substituting the If original obligation was subject to a suspensive
person of the debtor, or by subrogating a third or resolutory condition, the new obligation shall
person in the rights of the creditor. A juridical be under the same condition, unless it is
act of dual function—it extinguishes an otherwise stipulated. [Art. 1299]
obligation, and at the same time, it creates a
new one in lieu of the old. Incompatible
Compatible Conditions
Conditions
REQUISITES (a) Fulfillment of both (a) Original
(1) A previous valid obligation conditions: new obligation is
(2) Agreement of all the parties to the new obligation becomes extinguished,
obligation demandable while new
(3) Animus novandi or intent to novate (b) Fulfillment of obligation
(4) Substantial difference between old and new condition concerning exists
obligations and, consequently, the original obligation: (b) Demandability
extinguishment of the old obligation old obligation is shall be subject
(5) Validity of the new obligation revived; new obligation to fulfillment/
loses force nonfulfillment
EFFECT (c) Fulfillment of of the condition
Old obligation is extinguished and condition concerning affecting it
In General replaced by the new one the new obligation: no
stipulated. novation; requisite of a
Novation is void if the original previous valid and
obligation was void, except when effective obligation
annulment may be claimed only lacking
by the debtor, or when ratification
If Original validates acts that are voidable KINDS OF NOVATION
Obligation [Art. 1298] As to form
is Void (1) Original obligation is void: No (1) Express – declared in an unequivocal terms
novation (2) Implied – the old and new obligations are on
(2) Original obligation voidable: every point incompatible with each other
Effective if contract is ratified
before novation. Novation is not presumed
New obligation is void, the old In the absence of an unequivocal declaration of
obligation subsists, unless the extinguishment of the pre-existing obligation,
parties intended that the former only proof of incompatibility between the old
relations shall be extinguished in and new obligation would warrant a novation by
If New implication. [California Bus Line vs. State
any event [Art. 1297]
Obligation Investment (2003)]
(1) New obligation void: No
is Void
novation
(2) New obligation voidable: Test of Incompatibility
Novation is effective Whether or not the old and new obligation can
stand together, each one having an
independent existence. No incompatibility exists
Accessory obligations are also extinguished, but when they can stand together. Hence, there is
may subsist only insofar as they may benefit no novation. Incompatibility exists when they
third persons who did not give their consent to cannot stand together. Hence, there is novation.

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As to effect
(1) Total Expromision Delegacion
(2) Partial Requisites
(1) Consent of the Consent of old debtor,
Total Partial creditor and the new new debtor, and
(1) Transfers to the A creditor, to whom debtor creditor
person subrogated partial payment has (2) Knowledge or
the credit with all been made, may consent of the old
the rights thereto exercise his right for debtor is not
appertaining, either the remainder, and required
against the debtor shall be preferred to Effects
or third persons. the person subrogated (1) Old debtor is (1) Insolvency of the
(2) Obligation is not in his place in virtue of released new debtor revives
extinguished, even the partial payment. (2) Insolvency of the the obligation of
if the intention is to new debtor does the old debtor if it
pay it. not revive the old was anterior and
(3) Defenses against obligation in case public, and known
the old creditor are the old debtor did to the old debtor.
retained, unless not agree to (2) New debtor can
waived by the expromision demand
debtor. (3) If with knowledge reimbursement of
and consent of old the entire amount
As to Essence debtor, new debtor he has paid from
(1) Objective/ Real can demand the original debtor.
(2) Subjective/ Personal reimbursement of He may compel
(a) Substitution of debtors the entire amount creditor to
(i) Expromision paid and with subrogate him to
(ii) Delegacion subrogation of all of his rights.
(b) Subrogation of a third person to the creditor’s rights.
rights of the creditor (4) If without
(i) Conventional knowledge of the
(ii) Legal old debtor, new
OBJECTIVE NOVATION debtor can demand
(1) Change of the subject matter reimbursement
(2) Change of cause or consideration only up to the
(3) Change of the principal conditions or terms extent that the
latter has been
SUBJECTIVE NOVATION benefited without
subrogation of
Substitution of Debtors
Expromision Delegacion
creditor’s rights.
Initiative for change Debtor (delegante)
does not emanate from offers or initiates the Subrogation
the debtor, and may change, and the Transfers to the person subrogated the credit
even be made without creditor (delegatorio) with all the rights thereto appertaining, either
his knowledge. accepts a third person against the debtor or against third persons, be
(delegado) as they guarantors or possessors of mortgages,
consenting to the subject to stipulation in a conventional
substitution. subrogation. [Art. 1303]

Conventional Subrogation – takes place by

agreement of parties

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Conventional
subrogation
Assignment of credit Contracts
Debtor’s consent is Debtor’s consent is not A contract is a meeting of the minds between
necessary. required. two persons whereby one binds himself, with
Extinguishes anRefers to the same respect to the other, to give something or to
obligation and gives right which passes render some service. [Art. 1305]
rise to a new one. from one person to
another, without Autonomy
modifying or
extinguishing the Art. 1306. The contracting parties may establish
obligation. such stipulations, clauses, terms and conditions
Defects/vices in the Defects/vices in the as they may deem convenient, provided they are
old obligation are old obligation are not not contrary to law, morals, good customs,
cured. cured. public order, or public policy.

Legal Subrogation – takes place by operation of Mutuality

law
Legal subrogation is not presumed, except in
the following circumstances:
(1) When creditor pays another creditor who is
preferred, even without the debtor’s
knowledge
(2) When a third person not interested in the
obligation pays with the express or tacit
approval of the debtor
(3) When, even without the knowledge of the
debtor, a person interested in the fulfillment
of the obligation pays, without prejudice to
the effects of confusion as to the latter’s
share [Art. 1302]
Art. 1308. The contract must bind both
contracting parties; its validity or compliance
cannot be left to the will of one of them.
Relativity
Art. 1311, par 1. Contracts take effect only
between the parties, their assigns and heirs,
except in case where the rights and obligations
arising from the contract are not transmissible
by their nature, or by stipulation or by provision
of law. The heir is not liable beyond the value of
the property he received from the decedent.

ESTOPPEL ESSENTIAL REQUISITES

An admission or representation is rendered
conclusive upon the person making it, and
cannot be denied or disproved as against the
person relying thereon. [Art. 1431]
Estoppel is effective only as between the parties
thereto or their successors in interest. [Art. 1439]
There is no contract unless the following
requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of
the contract;
(3) Cause of the obligation which is
established.

ELEMENTS OF ESTOPPEL CONSENT

(1) A person makes an admission or The meeting of the minds of the parties on the
representation to another subject matter and cause of the contract.
(2) There is reliance by the other on such
admission or representation Requisites:
(3) The other person acts upon such admission (1) It must be manifested by the concurrence of
or representation the offer and acceptance [Arts. 1319-1326].
(2) The contracting parties must possess the
necessary legal capacity [Arts. 1327-1329].

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UP LAW BOC OBLIGATIONS AND CONTRACTS
(3) It must be intelligent, free, spontaneous,
and real (not vitiated) [Arts. 1330-1346]
OFFER
A unilateral proposition which one party makes
to the other for the celebration of the contract
[Tolentino]
Requisites of an offer:
(1) Definite
(2) Intentional
(3) Complete
Invitation to make offers (advertisements)
(1) Business advertisements of things for sale
are NOT definite offers, just invitations to
make an offer, UNLESS the contrary
appears. [Art. 1325]
(2) Advertisements for bidders are invitations to
make proposals, the advertiser is NOT
bound to accept the lowest or highest bid;
UNLESS the contrary appears. The bidder is
the offeror. [Art. 1326]
(3) Statements of intention: no contract results
even if accepted.
In a letter informing another that the sender
was “in a position and is willing to entertain” the
purchase of a yacht under some terms, the word
“entertain” applied to an act does not mean the
resolution to perform said act, but simply a
position to deliberate for deciding to perform or
not to perform said act. It was merely a position
to deliberate whether or not he would purchase
the yacht and invitation to a proposal being
made to him, which might be accepted by him
or not. [Rosentstock vs. Burke (1924)]
Offer terminates upon—
(1) Rejection by the offeree
(2) Incapacity (death, civil interdiction, insanity,
or insolvency) of the offeror or offeree before
acceptance is conveyed
(3) Counter-offer
(4) Lapse of the time stated in the offer without
acceptance being conveyed
(5) Revocation of the offer before learning of
acceptance
(6) Supervening illegality before acceptance
[J.B.L. Reyes]
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CIVIL LAW
ACCEPTANCE
Requisites of acceptance:
(1) Unqualified and unconditional, i.e. it must
conform with all the terms of the offer,
otherwise it is a counter-offer [Art. 1319]
(2) Communicated to the offeror and learned by
him [Arts. 1319, 1322]. If made through an
agent, the offer is accepted from the time
the acceptance is communicated to such
agent.
(3) Express/implied, but is not presumed.
General rule: Contracts are perfected by mere
consent and from that moment the parties are
bound not only to the fulfillment of what has
been expressly stipulated but also to all the
consequences which, according to their nature,
may be in keeping with good faith, usage and
law. [Art. 1315]
Exceptions:
(1) Real contracts, such as deposit, pledge and
commodatum, are not perfected until the
delivery of the object of the obligation [Art.
1316]
(2) Formal contracts, where the law requires
that a contract be in some form or be
proved in a certain way [Art. 1356]
OPTION CONTRACT
A preparatory contract in which one party
grants to the other, for a fixed period, the option
to decide whether or not to enter into a principal
contract [Art. 1324]
With consideration Without consideration
Offeror cannot Offeror may withdraw
unilaterally withdraw by communicating
his offer. withdrawal to the
offeree before
acceptance.
CAPACITY TO CONTRACT
Persons incapacitated to give consent (Art. 1327)
(1) Minors, except—
(a) For necessaries [Art.1427]
(b) Estoppel – where the minor actively
misrepresents his age
Minors held in estoppel through active
misrepresentation. [Mercado v. Espiritu (1917)]
UP LAW BOC OBLIGATIONS AND CONTRACTS CIVIL LAW

There is no estoppel if the minority was known Mutual

Mistake of Fact Mistake of Law
by the other party. [Bambalan v. Maramba Mistake
(1928)] When one or When one or (1) Must be as
both both parties to the
(2) Insane or demented persons, UNLESS they contracting arrive at an legal
contract during a lucid interval. [Art. 1328] parties believe erroneous effect of
(3) Deaf-mutes who do not know how to read that a fact conclusion on an
AND write. exists when in the agreement
reality it does interpretation (2) Must be
Persons disqualified to contract not, or vice of a question mutual
(1) Those under civil interdiction for versa. of law or its (3) Real
transactions inter vivos [Art. 34, RPC]. legal effects. purpose of
(2) Undischarged insolvents [Insolvency Law, the parties
Sec. 24]. must have
(3) Husband and wife cannot donate to each been
other [Art. 123, FC], nor sell if the marriage is frustrated
under ACP [Art.1490].
(4) The ff. cannot purchase [Art. 1491]: Intimidation – When one of the contracting
(a) The guardian: his ward’s property parties is compelled by a reasonable and well-
(b) The agent: the principal’s property grounded fear of an imminent and grave evil
(c) Executors and administrators: property upon his person or property, or upon the person
under administration or property of his spouse, descendants or
(d) Public officers-state: property under ascendants, to give his consent.
their administration
(e) Justices, judges, prosecutors, clerks of To determine the degree of intimidation, the
court, lawyers: property attached in age, sex and condition of the person shall be
litigation. borne in mind. [Art. 1335]

VICES OF CONSENT The conveyance of several properties by the wife

A contract where consent is given through
(1) Mistake
(2) Violence
(3) Intimidation
(4) Undue influence
(5) Fraud is voidable. [Art. 1330]
Mistake - Inadvertent and excusable disregard
of a circumstance material to the contract [J.B.L.
Reyes]
In order that mistake may invalidate consent, it
should refer to the substance of the thing which
is the object of the contract, or to those
conditions which have principally moved one or
both parties to enter into the contract. [Art. 1331]
to her husband’s creditors, though reluctant, is
still consent. She assented to the requirements
of the defendants in order that the civil and
criminal actions against them would be
dropped. A contract is valid even though one of
the parties entered into it against his wishes and
desires, or even against his better judgment.
[Martinez v. HSBC]
Violence – Serious or irresistible force used to
extort consent [Art. 1335]
Undue Influence – When a person takes
improper advantage of his power over the will of
another, depriving the latter of a reasonable
freedom of choice.

Mistake which vitiates consent is an error of fact, Circumstances to consider:

and not an error of law. Ignorance of the law
excuses no one from compliance therewith [Art.
3]; but the modern tendency is to allow an
excusable mistake of law to be invoked as
vitiating consent. [Tolentino]
(1) Relationship of the parties (family, spiritual,
confidential etc.)
(2) That the person unduly influenced was
suffering from infirmity (mental weakness,
ignorance etc.) [Art.1337]

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Fraud – When, through insidious words or
machinations of one of the contracting parties,
the other is induced to enter into a contract
which, without them, he would not have agreed
to. [Art. 1338]
In order that fraud may make a contract
voidable, it should be serious and should not
have been employed by both contracting
parties. [Art. 1344]
Art. 1339. Failure to disclose facts, when there is
a duty to reveal them, as when the parties are
bound by confidential relations, constitutes
fraud.
Art. 1340. The usual exaggerations in trade,
when the other party had an opportunity to
know the facts, are not in themselves
fraudulent.
Art. 1341. A mere expression of an opinion does
not signify fraud, unless made by an expert and
the other party has relied on the former's special
knowledge.
Art. 1342. Misrepresentation by a third person
does not vitiate consent, unless such
misrepresentation has created substantial
mistake and the same is mutual.
Art. 1343. Misrepresentation made in good faith
is not fraudulent but may constitute error.
Simulation of Contracts
Takes place when the parties do not really want
the contract they have executed to produce the
legal effects expressed by its wordings. It may
be absolute or relative [Arts. 1345-1346]
Absolute Simulation Relative Simulation
No real transaction Real transaction
is intended. hidden.
Fictitious contract. Disguised contract.
Void. Bound as to hidden
agreement, so long as it
does not prejudice a
third person and is not
contrary to law, morals,
good customs, public
order or public policy.
CIVIL LAW
Stipulations must not be contrary to Mandatory
And Prohibitive Laws.
(1) Pactum commissorium [Arts. 2088, 2130,
1390]
A stipulation in a contract of mortgage or
pledge which provides that the mortgagee
will automatically own the property
mortgaged in case the mortgagor fails to
pay the loan is void [Art. 2088]
(2) Pactum de non alienando [Art. 2130]
A stipulation forbidding the owner from
alienating the immovable mortgaged shall
be void [Art.2130].
(3) Pactum leonina [Art. 1799]
A stipulation which excludes one or more
partners from any share in the profits or
losses is void [Art.1799]
OBJECT OF CONTRACTS
The subject matter; the thing, right or service
which is the subject matter of the obligation
arising from the contract. [Tolentino]
Requisites:
(1) Must be within the commerce of men [Art.
1347]
(2) Must not be impossible, legally or physically
[Art.1348]
(3) For things as object of contract, must be in
existence or capable of coming into
existence [See Arts. 1461, 1493, 1495]
(4) Must be determinate or determinable,
without the need of a new contract between
the parties [Arts. 1349, 1460, par.2]
General rule: All things or services may be the
object of contracts.
Exceptions:
is (1) Things which are outside the commerce of
men
(2) Intransmissible rights
(3) Future inheritance except in cases
authorized by law
(4) Impossible things or services
(5) Objects which are indeterminable as to their
kind, the genus should be expressed
In order that a thing, right, or service, may be
the object of a contract, it should be in existence
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at the moment of the celebration of the Moral Obligation as a Cause

contract, or at least, it can exist subsequently or In Villaroel v. Estrada (1940), where a moral
in the future. obligation is based upon a previous civil
obligation, which has already been barred by
A future thing may be the object of a contract, the statute of limitations at the time the
such contract may be interpreted as a: contract is entered into, it constitutes a
(1) Conditional contract, where its efficacy sufficient cause or consideration to support a
should depend upon the future existence of contract (natural obligation).
the thing.
(2) Aleatory contract, where one of the In Fisher v. Robb (1939), if the moral obligation
contracting parties assumes the risk that arises wholly from ethical consideration, it
the thing will never come into existence, e.g. cannot constitute a sufficient cause to support
insurance. an onerous contract, as when the promise is
made on the erroneous belief that one was
CAUSE OF CONTRACTS morally responsible for the failure of an
The essential and impelling reason why a party enterprise (moral obligation).
assumes an obligation [Manresa]. Motive, on the
other hand, is the particular reason for a Effect of Lack of Cause, Unlawful Cause, False
contracting party which does not affect the Cause and Lesion [Arts. 1352 – 1355]
other. Cause Effect
Lack of Cause – If there is no cause
REQUISITES absence or total whatsoever, contract is VOID;
(1) Must exist at the time of the contract is lack of cause a fictitious sale is VOID.
entered into [Arts. 1352, 1409, par. 3] NOTE: Cause must exist at
(2) Must be lawful (ibid). the time of the perfection of
(3) Must be true or real [Art.1353] the contract; it need not exist
later.
Distinguished from Motive Contrary to law, If cause is unlawful,
morals, good transaction is VOID.
Cause Motive customs, public
Proximate reason for Remote reason for the policy and If parts of a contract are
contract contract public order illegal but the rest are
Objective or juridical Psychological and (unlawful supported by lawful cause,
reason purely personal reason cause) claimant of such has the
Always the same for Differs for each burden of showing proof;
each contracting party contracting party otherwise, the whole contract
Illegality affects Illegality does not is VOID.
existence or validity of affect existence or
the contract validity of contract Contract with illegal cause
may still produce effect in
Cause in contracts [Art. 1350] certain cases where parties
are not of equal guilt: (1)
Onerous Remuneratory Pure innocent party can’t be
Contracts Contracts Beneficence compelled to perform his
The The service or Mere obligation and he may
undertaking benefit which is liberality of recover what has already
or the remunerated the been given; (2) if both parties
promise of benefactor are guilty, neither can sue
the thing or the other, the law leaving
service by the them as they are (in pari
other party delicto).

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Cause Effect (2) Partnerships where real property is

Falsity of cause Contract with a false cause is contributed [Art. 1771]
– cause is merely revocable/voidable. (3) Acts and contracts which have for their
stated but is object the creation, transmission,
untrue Parties are given a chance to modification or extinguishment of real
show that a cause really rights over immovable property;
exists, and that said cause is (4) The cession, repudiation or renunciation of
true and lawful. hereditary rights or of those of the conjugal
partnership of gains;
Lesion or Inadequacy of cause shall (5) The power to administer property, or any
inadequacy of not invalidate the contract other power which has for its object an act
cause – cause is except when: (1) there is appearing or which should appear in a
not fraud, mistake, undue public document, or should prejudice a third
proportionate to influence (2) when parties person;
object intended a donation (6) The cession of actions or rights proceeding
from an act appearing in a public
FORM OF CONTRACTS document.
(7) All other contracts where the amount
General rule: Contracts shall be obligatory, in
involved exceeds five hundred pesos [Art.
whatever form they may have been entered into,
1358]
provided all the essential requisites for their
validity are present.
Article 1358, which requires the embodiment of
certain contracts in a public instrument, is only
Exception: When the law requires that a
for convenience, and registration of the
contract be in some form in order that it may be
instrument only adversely affects third parties.
valid or enforceable, or that a contract be
[Fule vs. CA (1998)]
proved in a certain way [Art. 1356]

When Form is Important Art. 1357. If the law requires a document or

(1) For Validity – e.g. for formal or solemn
contracts
(2) For Enforceability – e.g. for agreements
enumerated under the Statute of Frauds
[Art.1403]
(3) For Convenience – e.g. for contracts
enumerated in Art. 1385
other special form, as in the acts and contracts
enumerated in the following article, the
contracting parties may compel each other to
observe that form, once the contract has been
perfected. This right may be exercised
simultaneously with the action upon the
contract.

Contracts Which Must Appear In Writing
(1) Donation of personal property where value
exceeds P5,000 [Art. 748]
(2) Authority of agent to sell a piece of land or
any interest therein [Art. 1874]
(3) Agreement to pay interest in a contract of
loan [Art. 1956]
(4) Antichresis [Art. 2134]
(5) Stipulation limiting common carrier’s
liability [Art. 1744]
Contracts Which Must Appear In a Public
Instrument
(1) Donations of immovable property [Art. 749]
This article applies only when form is needed for
convenience, not for validity or enforceability.
Thus, before the contracting parties may be
compelled to execute the needed form, it is
essential that the contract be:
(1) perfected or valid [Art.1357]
(2) enforceable under the Statute of Frauds
[Art.1356]
KINDS OF CONTRACTS
Consensual – Contracts which are perfected by
mere consent of the parties regarding the
subject matter and the cause of the contract
[Art.1315]

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Real – Contracts which are perfected not merely
by consent but by delivery, actual or
constructive, of the object of the obligation
[Art.1316]. Example: contract of pledge,
commodatum, mutuum.
Formal or Solemn – Contracts for which a
special form is necessary for its perfection [Art.
1356]
Formal/Solemn Special Form Required by
Contract Law
(1) Donations of real Must be in a public
property instrument [Art.749]
(2) Donations of Must be in a written
personal property contract if the donation
exceeds P500 [Art. 748]
(3) Partnerships Must be in public
where real instrument; otherwise
property the contract
contributed partnership is void
[Art.1771, 1773]
(4) Contracts of The principal loan and
antichresis the interest, if any, must
be specified in writing;
otherwise, the contract
of antichresis is void [Art.
2134]
(5) Agency to sell real Authority of the agent
property or any must be in writing;
interest therein otherwise, the sale is
null and void [Art.1874]
(6) Stipulation to pay Must be expressly made
interest on loans, in writing [Art.1956]
interest for the use
of money
(7) Stipulation Must be (1) in writing,
limiting common signed by the shipper or
carrier’s duty of owner; (2) supported by
extraordinary a valuable
diligence to
consideration; and (3)
ordinary diligencereasonable, just and not
contrary to public policy.
(8) Chattel mortgage Must be recorded in the
Chattel Mortgage
Register [Art. 2140]
(9) Transfer of large Requires transfer of the
cattle certificate of registration
[Rev. Adm. Code, Sec.
523]
CIVIL LAW
REFORMATION OF
INSTRUMENTS
Remedy by means of which a written instrument
is made or construed so as to express or
conform to the true intention of the parties
when some mistake, fraud or error has been
committed.
REQUISITES
(1) Meeting of the minds of the parties
(2) There is a written instrument which,
however, does not express their true
intention
(3) By reason of mistake, fraud, inequitable
conduct or accident [Art. 1359]
WHEN REFORMATION IS PROPER
(1) Mutual mistake of parties caused the failure
of of the instrument to disclose their real
agreement [Art.1361]
(2) If one party is mistaken and the other acted
fraudulently or inequitably [Art. 1362]
(3) When one party was mistaken and the other
knew but concealed the fact from the
former [Art. 1363]
(4) When the failure to express the real
agreement was due to the ignorance, lack of
skill, negligence or bad faith of the person
drafting the instrument or of the clerk or
typist [Art. 1364]
(5) When a mortgage or pledge of real property
was agreed upon but the instrument only
states a sale [Art. 1365]
WHEN REFORMATION IS NOT PROPER
(1) Simple donations inter vivos wherein no
condition is imposed
(2) Wills
(3) When the real agreement is void
(4) When one of the parties has brought an
action to enforce the instrument, he cannot
subsequently ask for its reformation
RESCISSIBLE CONTRACTS
Contracts which are valid until rescinded. All
essential requisites of a contract exist but there
is injury or damage to one of the parties or to
third persons – external or extrinsic defect
consisting of an economic damage or lesion.
[Paras]
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Art. 1381. The following contracts are rescissible: Distinguished from Rescission/Resolution under
(1) Those which are entered into by Art. 1191 [Congregation of the Religious Virgin
guardians whenever the wards whom they Mary vs. Orola (2008)]
represent suffer lesion by more than one-fourth Rescission or Rescission by reason of
of the value of the things which are the object Resolution [Art. 1191] lesion[Art. 1381]
thereof; Applies only to Does not apply to
(2) Those agreed upon in representation of reciprocal reciprocal obligation,
absentees, if the latter suffer the lesion stated in obligations, such that and therefore, action is
the preceding number; a party’s breach not based on a breach
(3) Those undertaken in fraud of creditors thereof partakes of a of an obligation.
when the latter cannot in any other manner tacit resolutory
collect the claims due them; condition which
(4) Those which refer to things under entitles the injured
litigation if they have been entered into by the party to rescission.
defendant without the knowledge and approval Predicated on breach Predicated on injury to
of the litigants or of competent judicial of faith. economic interests of
authority; the party
(5) All other contracts specially declared by plaintiff/lesion.
law to be subject to rescission. Principal action that Subsidiary action.
is retaliatory in
character.
Art. 1382. Payments made in a state of
The reparation of The cause of action is
insolvency for obligations to whose fulfillment
damages for the subordinated to the
the debtor could not be compelled at the time
breach is purely existence of an
they were effected, are also rescissible.
secondary. economic prejudice.
Hence, where the
Rescission – Process designated to render
defendant makes good
inefficacious a contract validly entered into and
the damages caused,
normally binding, by reason of external
the action cannot be
conditions, causing an economic prejudice to a
maintained or
party or to his creditors [Scaevola].
continued.
Remedy granted by law to the contracting
Effects of Rescission
parties and to third persons in order to secure
It creates an obligation to return the things
reparation for damages caused them by a
which were the object of the contract, together
contract, even if the contract is valid, by means
with their fruits, and the price with its interests.
of the restoration of things to their condition
prior to the celebration of said contract
However, if the object of the contract is in the
[Manresa]
possession of third persons in good faith,
rescission cannot take place and indemnity for
Relief to protect one of the parties or a third
damages may be demanded from the person
person from all injury and damages which the
causing the loss [Art. 1385]
contract may cause, to protect some
preferential right [Aquino v. Tañedo (1919)]
Prescription of the Action to Claim Rescission
The action to claim rescission must be
commenced within four years.

For persons under guardianship and for

absentees, the period of four years shall not
begin until the termination of the former's
incapacity, or until the domicile of the latter is
known. [Art. 1389]

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VOIDABLE CONTRACTS
Contracts which are valid until annulled, unless
ratified. Defect is more or less intrinsic, as in the
case of vitiated consent [Paras]
Art. 1390. The following contracts are voidable
or annullable, even though there may have been
no damage to the contracting parties:
(1) Those where one of the parties is incapable
of giving consent to a contract;
(2) Those where the consent is vitiated by
mistake, violence, intimidation, undue
influence or fraud.
These contracts are binding, unless they are
annulled by a proper action in court. They are
susceptible of ratification.
THREE WAYS OR MODES OF
CONVALIDATING A VOIDABLE CONTRACT
[JURADO]
(1) By prescription of the action for annulment
[Art.1391]
(2) By ratification or confirmation [Art. 1392-
1396]
(3) By loss of the thing which is the object of
the contract through the fraud or fault of
the person who is entitled to institute the
action for the annulment [Art.1401]
PRESCRIPTION OF THE ACTION FOR
ANNULMENT
The action for annulment shall be brought
within four years—
(1) From the time the defect of the content
ceases, in cases of intimidation, violence or
undue influence
(2) From the time of discovery of the fraud or
mistake
(3) From the time guardianship ceases, in
actions referring to contracts entered into by
minors or incapacitated persons
RATIFICATION
(1) Express or
(2) Tacit – When the person who has the right to
invoke it, with the knowledge of the reason
which renders the contract voidable and such
reason having ceased, executes an act
implying an intention to waive his right [Art.
1393]
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CIVIL LAW
Effect of Ratification
It cleanses the contract from all its defects from
the moment it was constituted [Art. 1396]
Effects of Annulment
The contracting parties shall restore to each
other the things which have been the subject
matter of the contract, with their fruits, and the
price with its interest, except in cases provided
by law. [Art. 1398]
When the defect of the contract consists in the
incapacity of one of the parties, the
incapacitated person is not obliged to make any
restitution except insofar as he has been
benefited by the thing or price received by him
[Art. 1399]
UNENFORCEABLE CONTRACTS
Contracts which cannot be sued upon or
enforced, unless ratified. Intermediate ground
between voidable and void contracts [Paras]
Those that cannot be enforced in court or sued
upon by reason of certain defects provided by
law until and unless they are ratified according
to law [De Leon]
Art. 1403. The following contracts are
unenforceable, unless they are ratified:
(1) Those entered into in the name of another
person by one who has been given no
authority or legal representation, or who has
acted beyond his powers;
(2) Those that do not comply with the Statute of
Frauds as set forth in this number. In the
following cases an agreement hereafter
made shall be unenforceable by action,
unless the same, or some note or
memorandum, thereof, be in writing, and
subscribed by the party charged, or by his
agent; evidence, therefore, of the agreement
cannot be received without the writing, or a
secondary evidence of its contents:
(a) An agreement that by its terms is not to
be performed within a year from the
making thereof;
(b) A special promise to answer for the debt,
default, or miscarriage of another;
(c) An agreement made in consideration of
marriage, other than a mutual promise to
marry;
UP LAW BOC OBLIGATIONS AND CONTRACTS
(d) An agreement for the sale of goods,
chattels or things in action, at a price not
less than five hundred pesos, unless the
buyer accept and receive part of such
goods and chattels, or the evidences, or
some of them, of such things in action or
pay at the time some part of the purchase
money; but when a sale is made by
auction and entry is made by the
auctioneer in his sales book, at the time of
the sale, of the amount and kind of
property sold, terms of sale, price, names
of the purchasers and person on whose
account the sale is made, it is a sufficient
memorandum;
(e) An agreement for the leasing for a longer
period than one year, or for the sale of
real property or of an interest therein;
(f) A representation as to the credit of a third
person.
(3) Those where both parties are incapable of
giving consent to a contract.
KINDS OF UNENFORCEABLE
CONTRACTS
(1) Unauthorized contracts – those entered into
by one who has no authority or legal
representation or who has acted beyond his
powers [Art.1403, par.1]
(2) Those which did not comply with the Statute
of Frauds [Art.1403, par.2]
(3) Those where both parties are incapable of
giving consent to a contract [Art.1403, par.3]
GENERAL RULES OF APPLICATION
OF STATUTE OF FRAUDS
(1) The Statute of Frauds is a Rule of Exclusion,
i.e. oral evidence might be relevant to the
agreements enumerated therein and might
therefore be admissible were it not for the
fact that the law excludes said oral
evidence.
(2) The defense of the Statute of Frauds may be
waived [Art.1405]
(3) Applies only to executory contracts, not
partially or completely executed
(consummated) contracts.
(4) The Statute of Frauds cannot apply if the
action is neither for damages because of the
violation of an agreement nor for the
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CIVIL LAW
specific performance of said agreement
[Lim vs. Lim, 10 Phil 635]
(5) The Statute of Frauds is exclusive, that is, it
applies only to the agreements or contracts
enumerated therein [See Quintos v. Morata
(1930)]
(6) The Statute of Frauds is a personal
defense, that is, a contract infringing it
cannot be assailed by third persons
[Art.1408]
(7) Contracts infringing the Statute of Frauds
are not void, they are merely unenforceable
[Art.1403]
(8) The Statute of Frauds does not determine
the credibility or weight of evidence. It
merely concerns itself with the
admissibility thereof.
(9) The Statute of Frauds does not apply if it is
claimed that the contract does not express
the true agreement of the parties. As long
as the true or real agreement is not
covered by the Statute of Frauds, it is
provable by oral evidence [Cayuga v.
Santos]
VOID OR INEXISTENT
CONTRACTS
Contracts which have no effect at all and cannot
be ratified or validated [Paras]
Those which, because of certain defects,
generally produce no effect at all. They are
considered as inexistent from its inception or
from the very beginning [De Leon]
Art. 1409. The following contracts are inexistent
and void from the beginning:
(1) Those whose cause, object or purpose is
contrary to law, morals, good customs,
public order or public policy;
(2) Those which are absolutely simulated or
fictitious;
(3) Those whose cause or object did not exist at
the time of the transaction;
(4) Those whose object is outside the commerce
of men;
(5) Those which contemplate an impossible
service;
(6) Those where the intention of the parties
relative to the principal object of the contract
cannot be ascertained;
UP LAW BOC OBLIGATIONS AND CONTRACTS CIVIL LAW

(7) Those expressly prohibited or declared void

by law.

These contracts cannot be ratified. Neither can

the right to set up the defense of illegality be
waived.

SPECIAL CLASSIFICATION OF VOID

CONTRACTS [PARAS]
(1) Inexistent Contracts: like those where
essential formalities are not complied with.
This produces no effect whatsoever.

Example: A donation of land in a private

instrument

(2) Illegal Or Illicit Contracts: In some way, the

donation produces some effect in that that
he who gave the donation cannot get back
what he has given.

Example: A donation made because of an

immoral condition, such as illicit sexual
intercourse

Non-Existing Cause or Object [Paras] Paragraph

3 speaks of contracts “whose object or cause did
not exist at the time of the transaction.” This is
not exactly correct because there can be valid
contracts involving future property; example,
sale of future or after-acquired property. Thus,
Mr. Justice J. B. L. Reyes notes: “Did not exist at
the time of the transaction” should be “Could
not come into existence because the object may
legally be a future thing.”

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UP LAW BOC OBLIGATIONS AND CONTRACTS CIVIL LAW

Rescissible Voidable Unenforceable Void

Defect
Damage to a party or to a Vitiation of consent Without or in excess of Absolute lack of essential
third person. authority, or doesn’t requisite in fact or in law.
comply with Statute of
Fraud, or both parties are
incapacitated.
Effect
Valid until rescinded. Valid until annulled. Cannot be enforced by Does not produce any
court action. effect.
Grounds
Arts. 1381 – 1382 Art. 1390 Art. 1403 Art. 1409
(1) Those which are (1) Those where one of the (1) Those entered into in (1) Those whose cause,
entered into by parties is incapable of the name of another object or purpose is
guardians whenever giving consent to a person by one who has contrary to law,
the wards whom they contract; been given no authority morals, good customs,
represent suffer lesion or legal representation, public order or public
by more than one- (2)Those where the or who has acted policy;
fourth of the value of consent is vitiated by beyond his powers;
the things which are mistake, violence, (2) Those which are
the object thereof; intimidation, undue (2) Those that do not absolutely simulated
(2) Those agreed upon in influence or fraud. comply with the or fictitious;
representation of Statute of Frauds as set
absentees, if the latter forth in this number. In (3) Those whose cause or
suffer the lesion stated the following cases an object did not exist at
in the preceding agreement hereafter the time of the
number; made shall be transaction;
(3) Those undertaken in unenforceable by
fraud of creditors when action, unless the (4) Those whose object is
the latter cannot in any same, or some note or outside the commerce
other manner collect memorandum, thereof, of men;
the claims due them; be in writing, and
(4) Those which refer to subscribed by the party (5) Those which
things under litigation charged, or by his contemplate an
if they have been agent; evidence, impossible service;
entered into by the therefore, of the
defendant without the agreement cannot be (6) Those where the
knowledge and received without the intention of the parties
approval of the writing, or a secondary relative to the principal
litigants or of evidence of its object of the contract
competent judicial contents: cannot be ascertained;
authority; (a) An agreement that by
(5) All other contracts its terms is not to be (7) Those expressly
specially declared by performed within a prohibited or declared
law to be subject to year from the making void by law.
rescission. thereof;
(6) Payments made in a (b) A special promise to
state of insolvency for answer for the debt,
obligations to whose default, or miscarriage
fulfillment the debtor of another;
could not be (c) An agreement made in
compelled at the time consideration of
they were effected, are marriage, other than a
also rescissible. mutual promise to
marry;

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UP LAW BOC OBLIGATIONS AND CONTRACTS CIVIL LAW

Rescissible Voidable Unenforceable Void

(d) An agreement for the
sale of goods, chattels
or things in action, at
a price not less than
five hundred pesos,
unless the buyer
accept and receive
part of such goods
and chattels, or the
evidences, or some of
them, of such things
in action or pay at the
time some part of the
purchase money; but
when a sale is made
by auction and entry is
made by the
auctioneer in his sales
book, at the time of
the sale, of the
amount and kind of
property sold, terms
of sale, price, names
of the purchasers and
person on whose
account the sale is
made, it is a sufficient
memorandum;

(e) An agreement for the

leasing for a longer
period than one year,
or for the sale of real
property or of an
interest therein;

(f) A representation as to
the credit of a third
person.

(3) Those where both

parties are incapable
of giving consent to a
contract.
Necessity of Damage
Necessary. Not necessary.
Ratification
Can’t be ratified. May be ratified. Can’t be ratified.
Prescription
Prescriptible. - Imprescriptible.
Assailability by third persons
Assailable by a party or by a third Assailable only by a party. Assailable by a party or by a third
party who is damaged. party who is damaged.

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UP LAW BOC OBLIGATIONS AND CONTRACTS
EFFECT OF CONTRACTS
General rule: Contracts are generally effective
only between the parties, their assigns and their
heirs (principle of relativity) [Art. 1311]
Exceptions:
(1) Obligations arising from the contract are
not transmissible by nature, stipulation or
law [Art.1311]
(2) Where there is a stipulation pour autrui.
Stipulation Pour Autrui - stipulation in favor
of a third person conferring clear and
deliberate favor which is merely art of the
contract entered into by parties, neither of
whom acted as agent of third person.
(3) Third person induces another to violate his
contract [Art. 1314].
(4) Where third persons may be adversely
affected by a contract where they did not
participate [See Arts. 1312, 2150, 2151].
(5) Where law authorizes creditor to sue on a
contract entered into by his debtor (Accion
Directa) [Art. 1313]
Quasi-Contracts
Art. 2142. Certain lawful, voluntary and
unilateral acts give rise to the juridical relation
of quasi-contract to the end that no one shall be
unjustly enriched or benefited at the expense of
another.
NEGOSTIORUM GESTIO
Art. 2144. Whoever voluntarily takes charge of
the agency or management of the business or
property of another, without any power from the
latter, is obliged to continue the same until the
termination of the affair and its incidents, or to
require the person concerned to substitute him,
if the owner is in a position to do so. This
juridical relation does not arise in either of these
instances:
(1) When the property or business is not
neglected or abandoned;
(2) If in fact the manager has been tacitly
authorized by the owner. In the first case, the
provisions of articles 1317, 1403, No. 1, and
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CIVIL LAW
1404 regarding unauthorized contracts shall
govern. In the second case, the rules on
agency in Title X of this Book shall be
applicable.
Requisites:
(1) The property or business is abandoned by its
owner
(2) One voluntarily takes charge of the agency or
management of the business or property
(3) Such taking charge was without any
authorization from the owner, whether
express or tacit.
LIABILITIES OF THE OFFICIOUS
MANAGER
(1) To pay damages which through his fault or
negligence may be suffered by the owner
[Art. 2145]
(2) For the acts of the person to whom he
delegated his duties [Art. 2146]
(3) For any fortuitous event—
(a) If he undertakes risky operations which
the owner was not accustomed to
embark upon
(b) If he has preferred his own interest to
that of the owner
(c) If he fails to return the property or
business after demand by the owner
(d) If he assumed the management in bad
faith
(e) If he is manifestly unfit to carry on the
management, except when the
management was assumed to save
property or business from imminent
danger
(f) If by his intervention he prevented a
more competent person from taking up
the management, except when the
management was assumed to save
property or business from imminent
danger [Arts. 2147- 2148]
(4) For contracts he has entered into with third
persons, except:
(a) If the owner has expressly or tacitly
ratified the management, or
(b) When the contract refers to things
pertaining to the owner of the business
[Art. 2152]
UP LAW BOC OBLIGATIONS AND CONTRACTS
LIABILITIES OF THE OWNER
(1) As principal upon the ratification of the
management [Art. 2149]
(2) To reimburse the officious manager the
necessary and useful expenses and
damages suffered in the performance of the
latter’s duties—
(a) If the owner enjoys the advantages of
the property or business [Art. 2150]
(b) When the management had for its
purpose the prevention of an imminent
and manifest loss, although no benefit
may have been derived [Art. 2150]
(c) When the officious manager has acted
in good faith, and the property or
business is intact, ready to be returned
to the owner [Art. 2151]
EXTINGUISHMENT [ART. 2153]
THE MANAGEMENT IS EXTINGUISHED:
(1) When the owner repudiates it or puts an
end thereto
(2) When the officious manager withdraws
from the management, subject to the
provisions of Article 2144
(3) By the death, civil interdiction, insanity or
insolvency of the owner or the officious
manager.
SOLUTIO INDEBITI
Art. 2154. If something is received when there is
no right to demand it, and it was unduly
delivered through mistake, the obligation to
return it arises.
Art. 2155. Payment by reason of a mistake in the
construction or application of a doubtful or
difficult question of law may come within the
scope of the preceding article.
OTHER QUASI-CONTRACTS
Art. 2164. When, without the knowledge of the
person obliged to give support, it is given by a
stranger, the latter shall have a right to claim
the same from the former, unless it appears
that he gave it out of piety and without
intention of being repaid.
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CIVIL LAW
Art. 2165. When funeral expenses are borne by a
third person, without the knowledge of those
relatives who were obliged to give support to
the deceased, said relatives shall reimburse the
third person, should the latter claim
reimbursement.
Art. 2166. When the person obliged to support
an orphan, or an insane or other indigent person
unjustly refuses to give support to the latter, any
third person may furnish support to the needy
individual, with right of reimbursement from the
person obliged to give support. The provisions
of this article apply when the father or mother of
a child under eighteen years of age unjustly
refuses to support him.
Art. 2167. When through an accident or other
cause a person is injured or becomes seriously
ill, and he is treated or helped while he is not in
a condition to give consent to a contract, he
shall be liable to pay for the services of the
physician or other person aiding him, unless the
service has been rendered out of pure
generosity.
Art. 2168. When during a fire, flood, storm, or
other calamity, property is saved from
destruction by another person without the
knowledge of the owner, the latter is bound to
pay the former just compensation.
Art. 2169. When the government, upon the
failure of any person to comply with health or
safety regulations concerning property,
undertakes to do the necessary work, even over
his objection, he shall be liable to pay the
expenses.
Art. 2170. When by accident or other fortuitous
event, movables separately pertaining to two or
more persons are commingled or confused, the
rules on co-ownership shall be applicable.
Art. 2171. The rights and obligations of the finder
of lost personal property shall be governed by
articles 719 and 720.
UP LAW BOC OBLIGATIONS AND CONTRACTS CIVIL LAW

Art. 2172. The right of every possessor in good

faith to reimbursement for necessary and useful
expenses is governed by article 546.

Art. 2173. When a third person, without the

knowledge of the debtor, pays the debt, the
rights of the former are governed by articles
1236 and 1237.

Art. 2174. When in a small community a majority

of the inhabitants of age decide upon a measure
for protection against lawlessness, fire, flood,
storm or other calamity, anyone who objects to
the plan and refuses to contribute to the
expenses but is benefited by the project as
executed shall be liable to pay his share of said
expenses.

Art. 2175. Any person who is constrained to pay

the taxes of another shall be entitled to
reimbursement from the latter.

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