OBLIGATIONS established them; and as to what has not been foreseen, by
the provisions of this book.
Definition.
A juridical necessity to give, to do, or not to do
(Article 1156). One impressed with the character of
enforceability.
Elements of an Obligation:
1. Active subject (called the obligee or creditor)—the
possessor of a right; he in whose favor the obligation is
constituted.
2. Passive subject (called the obligor or debtor)—he who
has the duty of giving, doing, or not doing;
3. Object or Prestation –the subject matter of the
obligation.
4. Efficient Cause (vinculum or juridical tie)—the reason why
the obligation exists.
Sources of Obligation:
1. Law (Obligations ex lege)—like the duty to pay taxes or
to support one’s family.
2. Contracts (Obligations ex contractu)—like the duty to
repay the loan by virtue of an agreement.
3. Quasi-Contracts (Obligations ex quasi-contractu)—like
the duty to refund an over-change of money because of
the quasi-contract of solution indebiti or “undue
payment.”
4. Crimes or Acts or Omissions Punished by Law
(Obligations ex maleficio or ex delicto)—like the duty to
return a stolen carabao.
5. Quasi-Delicts or Torts (Obligations ex quasi-delicto or ex
quasi-maleficio)—like the duty to indemnify a person who
suffered damages because your acts or negligence,
without criminal intent or pre-existing obligation.
Law as source of obligation.
Obligation derived from law are not presumed. Only
those expressly determined in this code or by special laws are
demandable, and shall be regulated by precepts of law which
Classification of Obligations in General
A. From the view point of “sanction”
Contract as source of obligation.
1. Civil Obligation—that defined in Article 1156.
Obligations arising from contracts have the full force The sanction is judicial process.
of law between the contracting parties and should be 2. Natural Obligation—the duty not to recover what
complied with in good faith. has voluntarily been paid although payment was
no longer required. The sanction is law but only
Quasi-contract as source of obligation. because conscience had originally motivated
the payment.
It is the is that juridical relation resulting from a
3. Moral Obligation—the duty of the Catholic to
lawful, voluntary, and unilateral act, and which has for its
hear mass on Sundays and holy days of
purpose the payment of indemnity to the end that no one
obligations. The sanction here is conscience or
shall be unjustly enriched or benefited at the expense of
morality, or the law of the church.
another
2 kinds: B. From the viewpoint of subject matter
1. Real Obligation—the obligation to give.
1. Negotiorum Gestio (unauthorized management) 2. Personal Obligation—the obligation to do or not
to do.
This takes place when a person voluntarily takes
charge of another’s abandoned business or property without C. From the affirmativeness and negativeness of
the owner’s authority (Article 2144). Reimbursement must the obligation
be made to the gestor for necessary and useful expenses, as 1. Positive or Affirmative Obligation—the
a rule. obligation to give or to do.
2. Negative Obligation—the obligation not to do.
2. Solutio Indebiti
This takes place when something is received when D. From the viewpoint of persons obliged.
there is no right to demand it, and it was unduly delivered thru a. Unilateral—where only one of the parties is
mistake. The recipient has the duty to return it. bound.
b. Bilateral—where both parties are bound.
Delict as a source of obligation.
Every person criminally liable for a felony is also
civilly liable. (Article 100, Revised Penal Code)
Quasi-delict or culpa aquiliana or tort as a source of
obligation.
One which causes damage to another, there being
fault or negligence, but there is no pre-existing contractual
relation between the parties.
 The prestation in an obligation. Before delivery of After delivery of fruits Rights of the creditor in an obligation to do something.
fruits
1. To give (real obligation) Determinate Generic
2. To do (positive personal obligation) The creditor’s right is The creditor has now a real right Compel specific Ask for the performance of
3. Not to do (negative personal obligation) personal or jus in over the fruits from the time of Performance (Art. 1165) the obligation (Art. 1165)
personam, a right delivery and becomes enforceable Recover damages in case
Obligations of a person obliged to give something. of breach of the obligation, Ask that the obligation be
which is enforceable against the whole world. In short, it exclusive or in addition to complied with at the
only against a gives a person direct and specific performance (Art. expense of the debtor (Art.
Referred to as real obligation (“res” or thing), if what definite passive immediate juridical power over a 1165) 1165)
is to be given is specific or particularly designated from all subject, the debtor. thing which can be exercised not Entitlement to the fruits, Recover damages in case
others or the same class, it is real determinate obligation; if only against a definite passive interests from the time the of breach of the obligation
object is designated merely by its class or genus, it is real subject but against the whole obligation to deliver arises. (Art. 1170)
generic obligation. world. The rights of ownership and
possession are real rights.
Breach of obligations.
Determinate Generic
1. Voluntary—Debtor, in the performance of the obligation,
Deliver the thing which he has Deliver the thing which is is guilty of:
obligated himself to give (Art. neither of superior nor
Kinds of fruits.
1165); inferior quality;
1. Natural fruits—spontaneous products of the soil without a. default (mora)
Take care of the thing with Pay damages in case of the intervention of human labor, and the young and other
proper diligence of a good breach of the obligation by product of animals with or without the intervention of b. fraud (dolo)
father of a family (Art. 1163); reason of delay, fraud, human labor, such as forest products.
negligence or contravention c. negligence (culpa)
2. Industrial fruits—products of the soil through cultivation
of the tenor thereof (Art.
or human labor, such as palay and vegetables, planted d. contravention of the tenor of the obligation
Deliver all accessions and 1170);
by farmers.
accessories of the thing even
though they may not have been 3. Civil fruits—fruits as a result of civilization or fruits arising Debtor is liable for damages.
mentioned (Art. 1166); out of juridical relation, such as rent of lands,
apartments and buildings. 2. Involuntary—Debtor is unable to comply with his
Pay damages in case of breach obligation because of fortuitous event. Debtor is not
of the obligation by reason of Accessions and accessories defined and exemplified. liable for damages.
delay, fraud, negligence or
contravention of the tenor
Accessories Accessions
thereof (Art. 1170);
Those which are used for the Include everything which
embellishment, use, or is produced by a thing,
Creditor’s right to the fruits of the thing. preservation of another thing incorporated or attached
of more importance. thereto, either naturally or
The creditor has a right to the fruits of the thing from scientifically. It includes
the time the obligation to deliver it arises. Example: tools and spare natural accession, such
parts with respect to a as alluvion, and industrial
machine accession, such as
building, planting and
sowing.
Effects of Breach. When delay is incurred. Negligence (Culpa).

Positive Personal Obligation Negative Personal There must be a demand (judicial or extra-judicial) Omission of that diligence which is required by the
Obligation before delay may be incurred. nature of the obligation and corresponds with the
circumstances of the persons, of the time and of the place.
The Creditor can: If the obligor does Exceptions:
what has been Diligence required:
Have the obligation performed 1. When stipulated by the parties.
forbidden him, the
at the expense of the obligor 1. That agreed upon by the parties
creditor can:
2. By provision of law.
(Art. 1167);
2. In the absence of stipulation, that required by law in the
Have it undone at the
3. When time is of the essence of the contract. particular case
Ask that what has been poorly expense of the obligor
done be undone (Art. 1167); (Art. 1168); and 4. Demand will be useless. 3. If both the contract and law are silent, diligence of a good
Recover damages because of father of a family
Ask for damages (art.
Fraud (Dolo).
the breach of the obligation (art. 1170)
1170). Concept of a Good Father of a Family.
Fraud or dolo consists in the conscious and
intentional proposition to evade normal fulfilment of an That reasonable diligence which an ordinary
obligation. prudent person would have done under the same
Default or Delay (Mora)
circumstances. The test of negligence can be determined by
2 kinds: this standard: If defendant, in committing or causing the
Non-fulfilment of the obligation with respect to time,
generally after demand to perform it has been made. negligent act, had used reasonable care and vigilance which
1. Fraud in obtaining consent (causal fraud/dolo causante)
a man of ordinary prudence would have employed under the
2. Fraud in performing a contract (incidental fraud/dolo
Requisites: same situation, he is not guilty of negligence. Otherwise, he
incidente)
is guilty.
1. Obligation is demandable and already liquidated;
Dolo incidente Dolo causante Fortuitous Event.
2. The debtor delays performance; Present during the Present during the time of
performance of a pre- birth or perfection of the An event which could not be foreseen or which
3. The creditor requires performance judicially or extra- existing obligation. obligation. though foreseen was inevitable.
judicially
Purpose is to evade the Purpose is to secure the Requisites:
2 Kinds: normal fulfilment of the consent of the other to
obligation. enter into a contract. 1. Cause is independent of the will of the debtor.
1. Mora Solvendi—delay of the debtor to perform his
obligation. It may be: Result in the non-fulfilment Results in the vitiation of 2. The event must be unforeseeable or unavoidable.
a. Ex re—obligation to give; or breach of the obligation. consent.
3. Occurrence must be such as to render it impossible for
b. Ex persona—obligation is to do; Gives rise to a right of the Gives rise to a right of an the debtor to fulfil his obligation in a normal manner.
creditor to recover damages innocent party to annul the
2. Mora Accipendi—delay of the creditor to accept the from the debtor. contract. 4. Debtor must be free from any participation in.
delivery of the thing which is the object of the obligation
5. The aggravation of the injury resulting to the creditor.
3. Compensatio Morae—delay of the parties or obligors in
reciprocal obligations. General Rule: No liability in case of fortuitous events.
Exceptions: Classification of Obligations. 7. Indivisible—condition is not susceptible of partial
realization.
1. When expressly declared by law [e.g. Article 552 (2), Primary Secondary
1165 (3), 1268, 1942, 2147, 2148 and 2159 of the 8. Conjunctive—where there are several conditions, all of
Civil Code] a. Pure and conditional a. Unilateral and bilateral which must be realized.
b. With a period or with b. Real and personal
2. When expressly declared by stipulation or contract a term c. Determinate and 9. Alternative—where there are several conditions but only
c. Alternative and indeterminate one must be realized.
3. When the obligor is in default or has promised to deliver
facultative d. Positive and negative
the same thing to 2 or more persons who do not have
d. Joint and solidary e. Legal and conventional Rule in Potestative Conditions.
the same interest [Article 1165 (3)].
e. Divisible and f. Civil and natural
If the fulfilment of the potestative condition
indivisible
Effect of Fortuitous Event: depends upon the sole will of the debtor, the condition as well
f. With a penal clause
as the obligation itself is void. It renders the obligation illusory
Determinate Obligation Generic Obligation (applicable only to a suspensive condition and to an
obligation which depends for its perfection upon the
Obligation is extinguished Obligation is not
Pure Obligation.
fulfilment of the potestative condition and not to pre-existing
extinguished based on the obligation).
One whose effectivity or extinguishment does not
rule that genus never
depend upon the fulfilment or non-fulfilment of a condition or
perishes (genus nunquam If the fulfilment depends exclusively upon the will of
upon the expiration of a term or period and is demandable at
peruit) the creditor, both the condition and obligation is valid.
once.
Rule in Impossible Conditions.
Conditional Obligation.
Remedies of the Creditor to Protect Credit. General rule: They shall annul the obligation which
One whose effectivity is subordinated to the
depends upon them.
fulfilment or non-fulfilment of a future and uncertain fact or
1. Exhaustion of debtor’s property
event.
Exceptions:
2. Accion subrogatoria to be subrogated to all the rights
Kinds of Conditions:
and actions of the debtor save those which are inherent 1. Pre-existing obligation
in his person.
1. Suspensive—fulfillment of the condition results in the
2. If obligation is divisible
acquisition of rights arising out of the obligation.
3. Accion pauliana—impugn all the acts which the debtor
may have done to defraud them. 3. In simple or renumeratory donations
2. Resolutory—fulfillment of the condition results in the
extinguishments of rights arising out of the obligation. 4. In testamentary disposition
General rule: Rights acquired by virtue of an
obligation are transmissible in character.
3. Casual—fulfillment of the condition depends upon 5. In case of conditions not to do an impossible thing.
chance and/or upon the will of a third person.
Exceptions:
Effects of Suspensive Condition.
1. When they are not transmissible by their very nature, 4. Possible—condition is capable of realization according to
e.g. personal right; the nature, law, public policy and good customs. 1. Before fulfilment of the condition, the demandability as
well as the acquisition or effectivity of the rights arising
2. When there is a stipulation of the parties that they are 5. Negative—condition involves the omission of an act. from the obligation is suspended;
not transmissible. 2. After the fulfilment of the condition, the obligation arises
6. Divisible—condition is susceptible to partial realization.
or becomes effective;
3. Not transmissible by operation of law.
3. The effects of a conditional obligation to give, once the Effects of Loss, Deterioration and Improvement in Real Classification of Term or Period:
condition has been fulfilled, shall retroact to the day of Obligations (During the Pendency of the Condition)
the constitution of the obligation; 1. Suspensive (Ex die)—obligation becomes demandable
A. Loss only upon arrival of a day certain.
4. When the obligation imposes reciprocal prestations 2. Resolutory (In Diem)—arrival of day certain terminates
upon the parties, the fruits and interests shall be the obligation;
Without debtor’s fault—obligation is extinguished
3. Legal—granted by law.
deemed to have been mutually compensated;
4. Conventional—stipulated by parties.
With debtor’s fault—debtor pays damages.
5. Judicial—fixed by courts.
5. If the obligation is unilateral, the debtor shall appropriate 6. Definite—date/time is known beforehand.
the fruits & interests received, unless from the nature Applies only to determinate thing. A thing is loss when it: 7. Indefinite—the date/time of day certain is unknown.
and circumstances it should be inferred that the
intention of the persons constituting the same was 1. Perishes Term Condition
different;
2. Goes out of commerce Interval of time which is Fact or event which is
6. In obligations to do or not to do, the court shall determine future and certain future and certain
the retroactive effect or conditions that have been 3. Disappears in such a way that its existence is
complied with. unknown or it cannot be recovered.
Interval of time which must Future and uncertain fact
necessarily come, although or event which may or may
Effects of Resolutory Condition. B. Deterioration
it may not be known when. not happen
Without debtor’s fault, impairment is to be borne by the
Before the fulfilment of the condition, the right Exerts an influence upon Exerts influence upon the
creditor.
which the creditor has already acquired by virtue of the time or demandability or very essence of the
obligation is subject to a threat of extinction; extinguishment of an obligation itself.
With debtor’s fault, creditor may choose between the
rescission of the obligation and its fulfilment with indemnity obligation.
If condition is not fulfilled, rights are consolidated;
for damages in either case.
they become absolute, the parties shall return to each other Does not have any Has retroactive effect.
what they received including the fruits. retroactive effect unless
C. Improvement
there is an agreement to the
Suspensive Condition Resolutory Condition If the thing is improved by its nature, or by time, the contrary.
improvement shall inure to the benefit of the creditor.
If fulfilled, obligation If fulfilled, obligation is When it is left exclusively to When it is left exclusively
arises or becomes extinguished; If it is improved at the expense of the debtor, he shall the will of the debtor, the to the will of the debtor,
effective; have no other right than that granted to the usufructuary. existence of the obligation is the very existence of the
If not fulfilled, judicial relation not affected. obligation is affected.
If not fulfilled, no judicial is consolidated; Obligations with a Period.
relation is created;
Rights are already acquired, Those whose demandability or extinguishment is
Rights are not yet but subject to the threat or subject to the expiration of a term or period. General rule: When a period is designated for the
acquired, but there is danger of extinction. performance or fulfilment of an obligation, it is presumed to
hope or expectancy that Requisites: have been established for the benefit of both creditor and
they will soon be debtor.
acquired. 1. Future
2. Certain Exception: When it appears from the tenor of the
3. Possible, legally and physically. obligation or other circumstances that the period has been
established in favor of one or of the other.
When Court May Fix Period. Limitations: The debtor shall have no right to choose those The effect of the loss of the thing in facultative obligation.
prestations which are:
1. If the obligation does not fix a period, but from its nature 1. Before susbstitution—If the principal thing is lost due to
and circumstances it can be inferred that a period was 1. Impossible fortuitous event, obligation is extinguished; if due to
intended by the parties; 2. Unlawful debtor’s fault, he is liable for damages.
3. Those which could not have been the object of the
2. If the duration of the period depends upon the will of the obligation. If the thing intended as a substitute is the one which was
debtor; lost, with or without debtor’s fault, the obligation to deliver the
Effect of loss of the object of the obligation. substitute is extinguished because what is to be delivered is
3. If the debtor binds himself when his means permit him the principal object and not the substitute. The loss of this
to do so (Art. 1180). a. If right of choice belongs to debtor: substitute is immaterial.

Reason for Fixing Period (Art. 1197) 1. If through fortuitous event, debtor cannot be held 2. After substitution—If the principal thing is lost, the debtor
liable for damages; is no longer liable whatever be the cause of the loss,
There can be no possibility of any breach of contract because it is no longer due. If the substitute is lost due
or failure to perform the obligation unless the period is fixed 2. If one or more but not all of the things are lost or to fortuitous event, obligation is extinguished; if due to
by the courts. one or some but not all of the prestations cannot be debtors fault, he is liable for damages.
performed due to the fault of the debtor, creditor
When debtor loses right to make use of period: cannot hold the debtor liable for damages because Facultative Alternative
the debtor can still comply with his obligation;
1. When after the obligation has been contracted, he Comprehends only one Comprehends several
becomes insolvent, unless he gives guaranties or b. If the right of choice belongs to the creditor: object or prestation which objects or prestations
securities for the debt (the insolvency need not be is due, but it may be which are due but may be
judicially declared); 1. If one of the things is lost through a fortuitous event,
complied with by the complied with by the
the debtor shall perform the obligation by delivering
delivery of another object or delivery or performance of
2. When he does not furnish to the creditor the guaranties that which the creditor should choose from among
performance of another only one of them;
or securities he promised; the remainder, or that which remains if only one
prestation in substitution.
subsists;
3. When by his own act he has impaired said guaranties or Fortuitous loss Fortuitous loss of all
securities after their establishment, and when through 2. If the loss of one of the things occurs through the
extinguishes the obligation prestations will extinguish
fortuitous event they disappear, unless he gives new fault of the debtor, the creditor may claim any of
the obligation
ones equally satisfactory when debtor violates any those subsisting, or the price of that which, through
undertaking, in consideration of which the creditor the fault of the former, has disappeared with a right Culpable loss obliges the Culpable loss of any object
agreed to the period; or to damages; debtor to deliver substitute due will give rise to liability
prestation without liability to debtor
4. When debtor attempts to abscond. 3. If all the things are lost through the fault of the
to debtor
debtor, the choice by the creditor shall fall upon the
Definition of Alternative Obligation: price of any one of them, also with indemnity for Choice pertains only to Choice may pertain to
damages. debtor creditor or even third
Alternative obligation is one where out of two or
person
more prestations which may be given, only one is due. In Facultative obligation.
short, there are several things due but the delivery of one is
sufficient to extinguish the obligation. It is one where only one prestation has been agreed upon but
the debtor may give another object as substitute.
General Rule: Right to choose belongs to the debtor

Exception: Unless given to the creditor

Joint Obligation. Joint vs. Solitary Obligations Exceptions:

It is one where the whole liability is to be paid or General rule: Obligation is presumed joint if there is 1. Where there is a stipulation to the contrary;
fulfilled proportionately by the different debtors and/or is to concurrence of two or more debtors and/or creditors.
be demanded also proportionately by the different creditors. 2. When the debtor is sued for refusal to pay the agreed
Exceptions: penalty; and
Features:
1. When expressly stated that there is solidarity; 3. When debtor is guilty of fraud.
1. Insolvency of one debtor does not make the others liable.
2. Vitiated consent on the part of one debtor does not affect 2. When the law requires solidarity; The debtor cannot exempt himself from the
the others. performance of the principal obligation by paying the
3. Demand made to one of the debtors is not demand to all 3. When the nature of the obligation requires solidarity. stipulated penalty unless when the right has been expressly
because the debt of one is distinct from the others. reserved for him.
4. When the creditor interrupts the running of the Joint Indivisible Obligations
The creditor cannot demand the fulfilment of the
prescriptive period by demanding judicially from one, the
The object or prestation is indivisible, not principal obligation and the satisfaction of the stipulated
others are not affected.
susceptible of division; while the tie between the parties is penalty at the same time unless the right has been clearly
5. Defences of one debtor are not necessarily available to
joint, that is, liable only to a proportionate share. granted him.
the others.
Characteristics: When penalty may be reduced.
Solidary Obligation.
1. Demand must be made to all the joint debtors. 1. If the principal obligation has been partly complied with;
It is one where each one of the debtors is bound to
2. The creditor must proceed against all the joint debtors,
render compliance of the entire obligation and/or each one
because the compliance of the obligation is possible only 2. If the principal obligation has been irregularly complied
of the creditors has a right to demand entire compliance of
if all of the joint debtors would act together. with; and
the prestation.
3. If one of the debtors is insolvent, the other shall not be
liable for his share. 3. If the penalty is iniquitous or unconscionable even if
Instances when the law requires solidarity:
4. If one of the debtors cannot comply, the obligation is there has been no performance;
1. All the partners are liable solidarily with the partnership converted into monetary consideration. One who is
ready and willing to comply will pay his proportionate Modes of Extinguishment of Obligations
if the act complained of arises from a crime or quasi-
delict. share, and the other not willing shall pay his share plus
damages when his financial condition will improve. 1. By payment or performance.
2. In agency, if two or more persons have appointed an
5. If there are more than one creditor, delivery must be 2. Loss of the thing due
agent for a common transaction, they shall be solidarily
made to all, unless one is authorized to receive from the 3. Condonation or remission of the debt
liable to the agent for all the consequences of the
others. 4. Confusion or merger
agency.
5. Compensation
3. The responsibility of two or more persons who are liable
Obligations with a Penal Clause. 6. Novation
for a quasi-delict is solidary.
4. The responsibility of two or more payees, when there has In addition:
One to which an accessory undertaking is attached
been payment of what is not due, is solidary.
for the purpose of insuring its performance by virtue of which
5. Legal provisions regarding the obligations of devises and 7. Annulment
the obligor is bound to pay a stipulated indemnity or perform
legatees. 8. Rescission
a stipulated prestation in case of breach.
6. Liability of principals, accomplices, and accessories of a 9. Fulfilment of a resolutory condition
felony. 10. Prescription
General Rule: The penalty fixed by the parties is a
7. Bailees in commodatum. 11. Death of a party in case the obligation is personal
compensation for substitute for damages in case of breach.
12. Mutual desistance
13. Compromise
14. Impossibility of fulfilment
15. Happening of fortuitous event
Payment or Performance
General rule: A debt shall not be understood to
have been paid unless the thing or service in which the
obligation in which the obligation consists has been
completely delivered or rendered, as the case may be.
Exceptions:
1. When the obligation has been substantially performed
in good faith;
2. When the obligee accepts performance, knowing its
incompleteness or irregularity & without expressing any
protest or objection;
3. When there is an express stipulation; and
4. When the debt is in part liquidated and in part liquidated.
Persons who may pay the obligation.
If payment was made without knowledge or against
the will of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor.
To whom payment must be made.
1. The person in whose favour the obligation has been
constituted;
2. His successor in interest; or
3. Any person authorized to receive it.
General rule: If payment is made to a person other
than those enumerated, it shall not be valid.
Exceptions:
1. Payment made to a 3rd person, provided that it has
redounded to the benefit of the creditor;
2. Payment made to the possessor of the credit, provided
that it was made in good faith.
Obligation to deliver generic object.
Legal tender.
Such currency which may be used for the payment
of all debts, whether in private or public. The kind of currency
which a debtor can legally compel a creditor to accept in
payment of a debt in money when tendered by the debtor in
the right amount.
Philippine currency notes have no limit to their legal
tender power. However, in the case of coins in denomination
of 1-, 5- and 10-piso they shall be legal tender in amounts not
exceeding Php1,000.00 while coins in denomination of 1-, 5-
and 10- and 25-sentimo shall be legal tender in amounts not
exceeding Php100.00, pursuant to BSP Circular No. 537,
Series of 2006.
Place of payment.
1. Place stipulated by the parties;
2. No stipulation and the obligation is to deliver a
determinate thing, payment shall be made at the place
where the thing might be at the time;

1. The debtor himself; If the quality and circumstances have not been 3. In any other case, the payment shall be made at the
stated, the creditor cannot demand a thing of superior quality; domicile of the debtor.
2. Any third person.
neither can the debtor deliver a thing of inferior quality.
General rule: Creditor is not bound to accept Special forms of payment.
payment or performance by a third person. Rules in monetary obligation
1. Application of payment;
Exceptions: 1. Payment in cash—must be made in the currency
stipulated; if it is not possible to deliver such currency, 2. Dation in payment;
1. When made by a third person who has an interest in the then in the currency which is legal tender in the
fulfilment of the obligation; Philippines; 3. Payment by cession;

2. When there is a stipulation to the contrary. 2. Payment in check or other negotiable instrument—not 4. Tender of payment and consignation.
considered payment; not considered legal tender and
Rights of a 3rd person who paid the obligation. Application of payment.
may be refused by the creditor. It shall only produce the
effect of payment:
If payment was made with knowledge and consent Designation of the debt to which the payment must
of the debtor: be applied when the debtor has several obligations of the
a. When it has been encashed; or
same kind in favour of the same creditor.
1. Can recover the entire amount paid;
b. When it has been impaired throught the fault
2. Can be subrogated to all the rights of the creditor. of the creditor.
 Requisites: Payment by cession. It is the principal act and judicial in character.

1. There must be only 1 debtor and only 1 creditor; Debtor abandons all of his property for the benefit Requisites:
of his creditors in order that from the proceeds thereof, the
2. There must be 2 or more debts of the same kind; latter may obtain payment of their credits. 1. The debt sought to be paid must be due;

3. All of the debts must be due except: if there is stipulation Requisites: 2. There must be a valid and unconditional tender of
to the contrary; or application of payment is made by the payment or any of the causes stated by law for effective
consignation without previous tender of payment exists;
party for whose benefit the term has been constituted; 1. Plurality of debts;
and 3. The consignation of the thing due must first be
2. Partial or relative insolvency of the debtor;
announced to the persons interested in the fulfilment of
4. Amount paid by the debtor must not be sufficient to the obligation;
cover the total amount of all debts. 3. Acceptance of the cession by the creditors
4. Consignation shall be made by depositing the things due
General rule: The right to designate the debt to Dation in payment Payment by cession at the disposal of judicial authority;
which the payment shall be applied primarily belongs to the
One creditor Plurality of creditors 5. The consignation having been made, the interested
debtor.
parties shall also be notified thereof.
Exception: If the debtor does not avail of such right Not necessarily in state of Debtor must be partially or
financial difficulty relatively insolvent Effects of consignation.
and he accepts from the creditor a receipt in which the
application is made. 1. If the creditor accepts the thing or amount deposited
Thing delivered is Universality of property of
without contesting the validity or efficacy of the
considered as equivalent of debtor is what is ceded
Legal application of payment. consignation, the obligation is extinguished;
the performance
1. If neither the debtor nor the creditor makes any 2. If the creditor contests the validity or efficacy of the
application of payment, or if it cannot be inferred from Payment extinguishes Merely releases debtor for consignation or if the creditor is not interested or
other circumstances, the debt which is most onerous to obligation to the extent of the net proceeds of things unknown or is absent, the result is litigation. If the debtor
the debtor, among those which are due, shall be deemed the value of the thing ceded or assigned, unless complied with all the requisites, the obligation is
to have been satisfied; delivered as agreed upon, there is contrary intention. extinguished.
proved or implied from the
2. If the debts due are of the same nature and burden, General rule: Consignation shall produce the effects of
conduct of the creditor.
payment shall be applied to all of them proportionately. payment only if there is a valid tender of payment.

Dation in payment (dacion en pago.) Exceptions:

Delivery and transmission of ownership of a thing by Tender of payment. 1. Creditor is absent or unknown or does not appear at the
the debtor to the creditor as an accepted equivalent of the place of the payment;
performance of the obligation. Manifestation of the debtor to the creditor of his
decision to comply immediately with his obligation. 2. Creditor incapacitated to receive payment at the time it
Requisites: is due;
It is preparatory act and extrajudicial in character.
1. Existence of a money obligation; 3. When two or more persons claim the right to collect;
Consignation. 4. When the title of the obligation has been lost;
2. Alienation to the creditor of a property by the debtor with
the consent of the former;
Deposit of the object of the obligation in a 5. When without just cause creditor refuses to give receipt.
3. Satisfaction of the money obligation of the debtor competent court in accordance with the rules prescribed by
law, after the tender of payment has been refused or because
of circumstances which render direct payment to the creditor
impossible or inadvisable.
Loss of the Thing Due. When the service has become difficult as to be 2. That it must take place in the person of either the
manifestly beyond the contemplation of the parties, the principal creditor or the principal debtor;
General rule: (In Determinate Obligations to give) obligor may also be released therefrom, in whole or in part.
Obligation is extinguished. 3. It must be complete and definite.
Requisites:
Requisites: Compensation.
1. The event or change in circumstances could not have
1. The thing which is lost is determinate; been foreseen at the time of the execution of the Extinguishment in the concurrent amount of the
contract; obligation of those persons who are reciprocally debtors and
2. The thing lost without the fault of the debtor; creditors to each other.
2. It makes the performance of the contract extremely
3. The thing lost before the debtor has incurred in delay. difficult but not impossible; Requisites:

Exceptions:
1. When by law, obligor is liable for fortuitous event;
2. When by stipulation, obligor is liable even for fortuitous
event;
3. When the nature of the obligation requires the
assumption of risk;
4. When the loss of the thing occurs after the debtor
incurred in delay;
5. When the debtor promised to deliver the same thing to
two or more persons who do not have the same interest;
6. When the debt of a certain and determinate thing
proceeds from a criminal offense.
General Rule: (in generic obligations to give)
Obligation is not extinguished because the genus of a thing
cannot perish.
Exception: In case of generic obligations whose
object is a particular class or group with specific or
determinate qualities.
General rule (in obligations to do): Obligation is
extinguished when prestation becomes legally or physically
impossible.
Effect of relative impossibility or doctrine of unforeseen
events.
3. The event must not be due to the act of any parties; and 1. There must be 2 persons who in their own right are
principal creditors and principal debtors of each other;
4. The contract is for future prestation.
2. Both debts must consist in money, or if the things due
Condonation or Remission of Debt. are fungibles, they must be of the same kind or quality
An act of pure liberality by virtue of which the oblige, 3. Both debts must be due;
without receiving any price or equivalent, renounces the
enforcement of the obligation, as a result of which it is 4. Both debts must be liquidated or demandable;
extinguished in its entirety or in part or aspect of the same to
5. There must be no retention or controversy commenced
which remission refers.
by 3rd persons over either of the debts communicated in
It is the gratuitous abandonment by the creditor of due time to the debtor; and
his right.
6. Compensation must not be prohibited by law.
Requisites:
Kinds:
1. It must be gratuitous.
1. Legal—takes effect by operation of law.
2. It must be accepted by the debtor;
2. Voluntary—agreed upon by the parties;
3. The obligation must be demandable.
3. Facultative—when it can be claimed by one of the parties
Confusion or Merger of Rights. who, however, has the right to object to it;
Merger of the characters of the creditor and debtor 4. Judicial—takes effect by judicial decree;
in one and the same person by virtue of which the obligation
is extinguished. 5. Facultative—when it can be claimed by one of the parties
who, however, has the right to object to it.
Requisites:
Debts not subject to compensation.
1. That the characters of creditor & debtor must be in the
same person; 1. Debts arising from contracts of deposit;

2. Debts arising from contracts of commodatum;

3. Claims for support due by gratuitous title; 2. Implied—when the old and new obligation are 3. Even without the debtor’s knowledge, a person
incompatible with each other on every point. interested in the fulfilment of the obligation pays without
4. Obligations arising from criminal offenses; prejudice to the effects of confusion as to the latter’s
Forms of substitution of debtors. share.
5. Certain obligations in favour of government.
1. Expromision—effected with the consent of the creditor at
Taxes are not subject to set-off or legal the instance of the new debtor even without the consent
compensation because the government and taxpayers are
not mutually creditors and debtors of each other.
or even against the will of the old debtor; CONTRACTS
Definition.
2. Delegacion—effected with the consent of the creditor at
Novation. the instance of the old debtor, with the concurrence of A contract is the meeting of minds between two
the new debtor. persons whereby one binds himself, with respect to the other,
Substitution or change of an obligation by another,
to give something or to render some service.
resulting in its extinguishment or modification, either by Effect of insolvency of new debtor.
changing its object or substituting another in place of the
Elements.
debtor, or by subrogating a third person in the rights of the 1. Expromision—the new debtor’s insolvency or
creditor. nonfulfillment of the obligation shall not revive the a. Essential—those without which there can be no
original debtor’s liability to the creditor whether the contract.
Requisites: substitution is effected with or without the knowledge or
against the will of the original debtor; 1. Consent
1. Precious valid obligation;
2. Delegacion—the credtor can sue the old debtor only 2. Object or Subject Matter
2. Agreement of the parties to the new obligation;
when the insolvency was prior to the delegation and
publicly known or when the old debtor knew of such 3. Cause or Consideration
3. Extinguishment of the old obligation; and
insolvency at the time he delegated the obligation.
b. Natural—those derived from the nature of the
4. Validity of the new obligation. contract and ordinarily accompany the same.
Kinds of subrogation.
Kinds: c. Accidental—those which exist only when the parties
1. Conventional—takes place by agreement of the parties;
this kind of subrogation requires the intervention and expressly provide for them for the purpose of
a. As to its essence
consent of 3 persons: the original creditor, the new limiting or modifying the normal effects of the
1. Objective/Real—refers to the change either in the creditor and the debtor; contract.
cause, object or principal conditions of the
obligations; 2. Legal—takes place without the agreement but by Different kinds of contracts.
operation of law because of certain acts.
2. Subjective/Personal—refers to the substitution of a. According to perfection
the person of the debtor or to the subrogation of a General rule: Legal subrogation cannot be 1. Consensual—perfected by mere consent.
3rd person in the rights of the creditor; presumed. 2. Real—perfected by the delivery of the object of
the contract, such as pledge, loan and deposit.
3. Mixed Exceptions: b. According to degree of importance
1. Principal—can stand alone, such as sale,
b. As to its form/constitution 1. Creditor pays another creditor who is preferred, without barter, deposit or loan.
debtor’s knowledge; 2. Accessory—its existence and validity is
1. Express—when it is declared in unequivocal terms dependent upon another contract, such as
that the old obligation is extinguished by new one 2. A third person is not interested in the obligation pays with pledge, mortgage and guaranty.
which substitutes the same. the express or tacit approval of the debtor; or
 3. Preparatory—contract is not an end by itself,
but a means thru which other contracts may be
made.
c. According to subject matter
1. Contracts involving things, such as sale, barter.
2. Contracts involving rights or credits, such as
usufruct or assignment of credit.
3. Contracts involving services, such as agency,
lease of service and contract of carriage.
d. According to name
1. Nominate—Those which have their own
distinctive individuality and are regulated by
special provisions of law.
2. Innominate--Those which lack individuality and
are not regulated by special provisions of law
but regulated by stipulations of the parties, by
general provisions of the Civil Code on
obligations and contracts, by rules governing
the most analogous nominate contracts and by
customs of the place.
Kinds:
1. Do ut des—I give that you give;
2. Do ut facias—I give that you do;
3. Facio ut des—I do that you give;
4. Facio ut facias—I do that you do.
e. According to cause
1. Onerous—there is an exchange of
consideration such as sale, barter and lease.
2. Gratuitous—there is no consideration received
in exchange for what has been given, such as
donation, remission and condonation.
3. Remuneratory—something is given for a benefit
or service performed without any legal
obligation to do so.
f. According to nature of obligation produced or
number of parties obligated
1. Unilateral—where only one of the parties is
obliged to give or to do something, such as
commodatum, gratuitous deposit, and
gratuitous mutuum.
2. Bilateral—where both parties are obliged to
give or to do something, such as sale, barter
and lease.
g. According to risk
1. Commutative—where equivalent values are
given by both parties such as sale, barter or
lease.
2. Aleatory—where fulfilment of the contract is
dependent upon chance, such as insurance.
Characteristics of Contracts.
a. Principle of autonomy of contracts (liberty to
contract)
The contracting parties may establish such stipulations,
clauses, terms, and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs,
public order, or public policy.
b. Principle of Relativity
General rule: Contracts take effect only between parties,
their assigns and heirs
Exceptions:
1. Stipulations pour atrui—stipulations in favor of a third
person;
2. When a third person induces a party to violate contract;
3. Third persons who come in possession of the object of
the contract creating real rights;
4. Contracts entered into in fraud of creditors.
c. Principle of Obligatory Force and Consensuality
Contracts are perfected by mere consent and from that
moment, the parties are bound not only to the fulfilment of
what has been expressly stipulated but also to all
consequences which, according to their nature may be in
keeping with good faith, usage and law.
d. Principle of Mutuality
The contract must bind both parties; its validity or
compliance must not be left to the will of one of them.
The contract cannot have any stipulation authorizing one
of the contracting parties (a) to determine whether or not the
contract shall be valid, or (b) to determine whether or not the
contract shall be fulfilled.
e. Principle Autonomy
The parties are free to stipulate anything they deem
convenient provided that they are not contrary to morals,
good customs, public order and public policy.
Consent.
Manifested by the concurrence of the offer and
acceptance upon the thing and the cause which are to
constitute the contract.
Requisites:
1. Legal Capacity of the contracting parties;
2. Manifestation of the conformity of the contracting
parties;
3. The parties’conformity to the object, cause, the terms
and conditions of the contract must be intelligent,
spontaneous and free from all vices of consent;
4. The said conformity must be real and not simulated or
fictitious.
Offer.
A proposal made by one party to another to enter
into a contract. It must be certain or definite, complete and
intentional.
Offer/proposal may be withdrawn so long as the
offeror has no knowledge of acceptance by offeree.
Rule in case of an offer to sell.
When the offerer has allowed the offeree a certain
period to accept, the offer may be withdrawn at any time
before acceptance by communicating such withdrawal,
except when the option is founded upon a consideration as
something paid or promised.
Option contract—one giving a person a certain
period within which to accept the offer of the offerer.
Option money—money paid or promised to be paid
in consideration for the option.
Acceptance.
1. Manifestation by the offeree of his assent to the terms
of the offer.
2. It must be absolute.
3. A qualified acceptance constitutes counter offer.
Acceptance may be revoked before it comes to the
knowledge of the offeror.
Persons incapacitated to give consent.
Vices of Consent.
1. Violence—when in order to wrest consent, serious or
irresistible force is employed.
2. Intimidation—when one of the contracting parties is
compelled by a reasonable and well-grounded fear of an
imminent and grave evil upon his person or property, or
upon the person or property of his spouse, descendants
or ascendants, to give his consent.
3. Mistake—it must be substantial regarding: (a) object of
the contract; (b) conditions which principally moved one
or both parties to enter into the contract; (c) identity or
qualification of persons; error must be excusable, and
not caused by negligence; and the error must be a
mistake of fact, and not of law.
4. Fraud—when through insidious words or machinations of
one of the contracting parties, the other is induced to
enter into a contract, without which, he would not have
agreed.
5. Undue Influence
Caveat emptor (“let buyers beware”).
appearance of a transaction which does not exist or which is
different from their true agreement.
Kinds:
1. Absolute—when the contracting parties do not intend to
be bound by the contract at all. Thus, an absolutely
simulated contract is VOID.
2. Relative—when the contracting parties conceal their true
agreement. A relatively simulated contract binds the
parties to their real agreement, when it does not
prejudice 3rd persons and is not intended for any
purpose contrary to law, morals, good customs, public
order or public policy.
Object of the Contract
The thing, right or service which is the subject
matter of the obligation arising from the contract.
Requisites:
1. It must be within the commerce of man;
2. It must be licit or not contrary to law, morals, good
customs, public order or public policy;

a. Minors 3. It must be possible;

The transaction is not fraudulent because this is
considered tolerable fraud. Exaggerations in trade, when the
Exceptions: 4. It must be determinate as to its kind.
other party had an opportunity to know the facts, are not in
themselves fraudulent. This is otherwise known as “dealer’s Things which cannot be object of contracts.
1. Contracts where the minor is stopped to false
talk.” Exception: If the opinion is made by an expert and the
minority as a defense through his own
other party has relied on such statement. 1. Things which are outside the commerce of men;
misrepresentation;
Statement of Opinion. 2. Intransmissible rights;
2. Contracts for necessaries;
The mere expression of opinion, even if false, does 3. Services which are contrary to law, morals, good
3. Contracts by guardians or legal representatives;
not vitiate consent that will render the contract voidable customs, public order or public policy;
unless such opinion is given by an expert and the other party
4. Contracts of life, health or accident insurance taken
relied on such opinion. 4. Impossible things or services;
on the life of the minor.

b. Insane or demented persons, unless the contract was
entered into during lucid interval;
c. Deaf mutes who do not know how to read and write.
Simulation of Contracts 5. Objects which are not possible of determination as to
their kind.
Is the declaration of a fictitious intent manifested
deliberately and by agreement by the parties in order to
produce, for the purposes of deceiving others, the
Cause of the Contract Contracts which are required to be in some specific 5. All other contracts especially declared by law to be
form is only for the convenience of parties and does not affect subject to rescission; and
The immediate, direct and most proximate reason validity and enforceability as between them.
which explains and justifies the creation of obligation. 6. Payments made in a state of insolvency on account of
Reformation of instruments: obligations not yet enforceable;
Requisites:
Requisites: Voidable Contracts
1. Cause should be in existence at the time of the
celebration of the contract; 1. Meeting of the minds to the contract; Those in which all of the essential elements for
validity are present, although the element of consent is
2. Cause should be licit and lawful; 2. True intentions is not expressed in the instrument by vitiated either by lack of capacity of one of the contracting
reason of mistake, accident, relative simulation, fraud, parties.
3. Cause should be true. inequitable conduct;
What contracts are voidable
Rules: 3. Clear and convincing proof of mistake, accident, relative
simulation, fraud or inequitable conduct. 1. Those where one of the parties is incapable of giving
1. In onerous contracts, the cause is understood to be, for
consent to a contract;
each contracting party, the prestation of promise of a When reformation is not proper
thing or service by the other; 2. Those where the consent is vitiated by mistake, violence,
1. Simple unconditional donations inter vivos; intimidation, undue influence, or fraud.
2. In renumenatory contracts, the service or benefit which
is renumerated; 2. Wills; Causes of extinction to annul a voidable contract
3. In contracts of pure beneficence, the mere liberality of 3. When the agreement is void. 1. Prescription—the action must be commenced within 4
the donor or benefactor;
years arising from:
Rescissible Contracts
4. In accessory contracts, the cause is identical with the
a. The time the incapacity ends;
cause of the principal contract, that is, the loan from Contracts validly agreed upon byt, by reason of
which it derives its life and existence. lesion or economic prejudice may be rescinded in cases b. The time the violence, intimidation, or undue
established by law. influence ends;
Form of Contracts
What contracts are rescissible c. The time the mistake or fraud is discovered.
General rule: Contracts shall be obligatory, in
whatever form they may have been entered into, provided all 1. Those entered into by guardians where the ward suffers 2. Ratification
the essential requisites for their validity are present. lesion of more than ¼ of the value of the things which
are objects thereof; Requisites:
Exceptions:
2. Those agreed upon in representation of absentees, if the a. There must be knowledge of the reason which
1. When the law requires that a contract be in some form latter suffer lesion by more than ¼ of the value of the renders the contract voidable;
in order that it may be valid; things which are subject thereof;
b. Such reason must have been ceased and
2. When the law requires that a contract be in some form 3. Those undertaken in fraud of creditors when the latter
in order that it may be enforceable. cannot in any manner claim what are due them; c. The injured party must have executed an act
which expressly or impliedly conveys an
Parties may compel each other to comply with the 4. Those which refer to things under litigation if they have intention to waive his right;
form required once the contract has been perfected; been entered into by the defendant without the
knowledge and approval of the litigants and the court;
3. By loss of the thing which is the object of the contract Ratification of contracts in violation of Statutes of Fraud Comparative Table of Defective Contracts
through fraud or fault of the person who is entitled to
annul the contract. 1. Failure to object to the presentation of oral evidence to VOID VOIDABLE RESCISSIBLE UNENFORCEABLE
prove such contracts;
Unenforceable Contracts Defect is Defect is Defect is Defect is caused
2. Acceptance of benefits under these contracts. caused by lack caused by vice caused by by lack of form,
of essential of consent injury/damage authority, or
Those which cannot be enforced by proper action in
elements or either to one of capacity of both
court unless ratified. Void Contracts
illegality the parties or parties not cured
to a 3rd person by prescription
What contracts are unenforceable: Those where all of the requisites of a contract are present
but the cause, object or purpose is contrary to law, morals, Do not, as a Valid and Valid and Cannot be
1. Those entered into in the name of another by one good customs, public order or public policy, or contract itself general rule, enforceable enforceable enforced by proper
without authority or acting in excess of authority; is prohibited or declared void by law. produce legal until they are until they are action in court
effects annulled by a rescinded by a
2. Those where both parties are incapable of giving What contracts are void. competent competent
consent; court court
1. Those whose cause, object or purpose is contrary to
3. Those which do not comply with the Statute of Frauds. law, morals, good customs, public law or public policy; Action for the Action for Action for Corresponding
declaration of annulment or rescission may action for recovery,
nullity or defense of prescribe if there was total or
Contracts covered by Statutes of Fraud 2. Those whose object is outside the commerce of men;
inexistence annulability partial
does not may prescribe performance of the
1. Agreements not be performed within one year from the 3. Those which contemplate an impossible service;
prescribe unenforceable
making thereof; contract may
4. Those where the intention of the parties relative to the prescribe
2. Special promise to answer for the debt, default or principal object of the contract cannot be ascertained;
miscarriage of another; Not cured by Cured by Cured by Not cured by
5. Those expressly prohibited or declared void by law. prescription prescription prescription prescription
3. Agreement in consideration of marriage other than a
mutual promise to marry; Inexistent Contracts Cannot be Can be ratified Need not be Can be ratified
ratified ratified
4. Agreement for the sale of goods at the price of not less Those where one or some or all of the requisites
than P500.00; essential for the validity of the contract are absolutely Assailed not only Assailed only Assailed not Assailed only by a
lacking. by contracting by a only by a contracting party
5. Contracts of lease for a period longer than one year; party but even contracting contracting
by a third person party party but even
What contracts are inexistent
whose interest is by third person
6. Agreements for the sale of real property or interest
directly affected who is
therein; and 1. Those which are absolutely simulated or fictitious; and prejudiced or
damaged by
7. Representation as to the credit of a third person. 2. Those whose cause or object did not exist at the time of the contract
the transaction.
The contracts/agreements under the Statute of Assailed directly Assailed Assailed Assailed directly or
Frauds require that the same be evidence by some note, or collaterally directly or directly only collateraly
memorandum or writing, subscribed by the party charged or collaterally
by his agent, otherwise, the said contracts shall be
unenforceable.
Principle of pare delicto
When the defect of a void contract consists in the
illegality of the cause or object of the contract and both of the
parties are at fault or in pari delicto, the law refuses them
every remedy and leaves them where they are.
Exceptions:
1. Payment of usurious interest;
2. Payment of money or delivery of property for an illegal
purpose, where the party who paid or delivered
repudiates the contract before the purpose has been
accomplkished, or before any damage has been caused
to a 3rd person;
3. Payment in money or delivery of property made by an
incapacitated person;
4. Agrrement or contract which is not illegal per se and the
prohibition is designed for the protection of the plaintiff;
5. Payment of any amount in excess of the maximum price
of any article or commodity fixed by law or regulation by
competent authority;
6. Contracts whereby a labourer accepts a wage lower than
the maximum number of hours fixed by law;
7. One who lost in gambling because of fraudulent
schemes practiced on him is allowed to recover losses.
Rules when only one of the parties is at fault.
1. Executed contracts:
a. Guilty party is barred from recovering what he has
given to the other party by reason of the contract;
b. Innocent party may demand for the return of what
he has given.
2. Executory contract—neither of the contracting parties
can demand for the fulfilment of any obligation from the
contract nor may be compelled to comply with such
obligation.
Natural Obligations
They are real obligations to which the law denies an
action, but which the debtor may perform voluntarily.
Examples:
1. Performance after the civil obligation has prescribed;
2. Reimbursement of a third person for a debt that has
prescribed;
Estoppel
A condition or state by virtue of which an admission
or representation is rendered conclusive upon the person
making it and cannot be denied or disproved as against a
person relying thereon.
Laches or “stale demands”
Failure or neglect, for an unreasonable length of
time, to do that which due diligence, could or should have
been done earlier.
Elements:
1. Conduct on part of the defendant or of one under whom
he claim, giving rise to the situation of which
complainant is made and of which the complaint seeks
a remedy;
2. Delay in asserting the complaint, rights, the complainant
having knowledge or notice of defendant’s conduct and
having been afforded the opportunity to institute the
action;
3. Lack of knowledge or notice on the part of the defendant
that the complainant would assert on the right on which
he bases his suit;
4. Injury to the defendant in the event relief is accorded to
the complainant or the suit is not held to be barred.