BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER I: GENERAL PROVISIONS

Law
: rule of action 4. …common observance and benefit
: a system of uniformity - whoever you are or what is your
Divine Law status in life you need to observe
- law of religion and faith which the law whether you are rich or poor
concerns itself with the concept of sin Sources of State Law
and salvation 1. Constitution - the highest law
- promulgated by God 2. Legislation - they are the one who
- revealed to mankind by direct promulgates the law
revelation 3. Administrative rules - it comes from the
Natural Law executive department (headed by the
- divine inspiration in man of the sense president/cabinet secretaries as the alter
of justice, fairness, and ego of the president)
righteousness 4. Judicial decision - judiciary; the third
- the reasonable basis of state law branch of the government; Judicial=court;
Moral Law ● metropolitan - lowest in provincial
- norms of good and right ● regional trial court
- out of the collective sense of right ● court of appeals
and wrong of every community ● supreme court - the highest court
Physical Law 5. Customs - shariah law/shariah courts;
- happens in the operation or course of Muslim can base on their shariah law
nature where there are uniformities ex. polygamy
of actions and orders of sequence,
which we refer to as the physical Classification of State Law
phenomenon 1. As to its purpose
a. Substantive Law - what are the
State Law rights and obligation
: obligatory rules established for the purpose of ex. law of contracts
governing relations of persons in society b. Adjective Law (remedial law or
: rule of conduct, just, obligatory procedural law) - tells manner on
: promulgated by legitimate authority how we are going to enforce our
right; the rights of both parties
Characteristics of State Law ex. you can file a case if the
It is... debtor is not going to pay on
1. …a rule of conduct the maturity date
- it is to do or not to do 2. As to its subject matter
2. …obligatory a. Public Law - state to state or state
- whether you like it or not you need to to international; defines the relation
comply between a person or the state;
- there will be chaos in society if defines the relation of the state to
there's no obligatory another state
3. …promulgated by legitimate authority ex. criminal case - person vs
- promulgated by the congress, house state
of representative or senate ● representative of the state -
- legislative compose of congress and fiscal (public prosecutor)
senate
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

b. Private Law - deals with rights and (4) A juridical or legal tie (also called
obligations of the contracting parties efficient cause) or that which binds or
ONLY connects the parties to the obligation.

Article 1156. An obligation is a juridical Kinds of obligation according to the subject

necessity to give, to do, or not to do. matter
From the viewpoint of the subject matter, an
Civil Obligation obligation may either be:
The term obligation is derived from the Latin word (1) Real obligation (obligation to give) or that in
“obligatio” which means a “tying” or “binding.” which the subject matter is a thing which the
(1) It is a tie of law or a juridical bond by obligor must deliver to the obligee; or
virtue of which one is bound in favor of (2) Personal obligation (obligation to do or not to
another to render something — and this may do) or that in which the subject matter is an act to
consist in giving a thing, doing a certain act, be done or not to be done. There are thus two (2)
or not doing a certain act. kinds of personal obligation:
(a) Positive personal obligation or
Example – to give: Obligation to pay your tuition obligation to do or to render service (see
fee at school Art. 1167.); and
(b) Negative personal obligation or
Example – to do: Obligation of a parent to take obligation not to do (which naturally
care of their children includes obligations “not to give”). (see Art.
1168.)
Example – not to do: Obligation of anyone not to Article 1157. Obligations arise from: (1)
steal Law; (2) Contracts; (3) Quasi-contracts; (4) Acts
or omissions punished by law; and (5) Quasi-
Juridical Necessity delicts. (1089a)
: in case of non-compliance, the courts of justice
may be called upon to ENFORCE its fulfillment or, Sources of obligations
in default thereof, the economic value that it An obligation imposed on a person and the
represents corresponding right granted to another must be
rooted in at least any of the following sources:
Essential Requisites of an Obligation (1) Law. — when they are imposed by the
An obligation as defined in Article 1156 is law itself, e.g., obligation to pay taxes;
constituted upon the concurrence of the four (4) obligation to support one’s family (see Art.
essential elements thereof, namely: 195, Family Code.);
(1) A passive subject (called debtor or (2) Contracts. — when they arise from the
obligor) or the person who is bound to the stipulation of the parties (Art. 1306.), e.g.,
fulfillment of the obligation; he who has a the obligation to repay a loan by virtue of an
duty; agreement; to give something or to render
(2) An active subject (called creditor or service
obligee) or the person who is entitled to (3) Quasi-contracts. — when they arise
demand the fulfillment of the obligation; he from lawful, voluntary, and unilateral acts
who has a right; by virtue which are enforceable to the end
(3) Object or prestation (subject matter of that no one shall be unjustly enriched or
the obligation) or the conduct required to be benefited at the expense of another (Art.
observed by the debtor. Without the 2142.), e.g., the obligation to return money
prestation, there is nothing to perform. paid by mistake or which is not due. (Art.
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

2154.) In a sense, these obligations may be (5) Quasi-delicts or torts. — when they
considered as arising from the law; arise from damage caused to another
: “An obligation imposed by law to through an act or omission, there being
prevent unjust enrichment” fault or negligence, but no contractual
relationship exists between the parties (Art.
(a) Negotiorum gestio is the 2176.), e.g., the obligation of the head of a
voluntary management of the family that lives in a building or a part
property or affairs of another without thereof to answer for damages caused by
the knowledge or consent of the things thrown or falling from the same (Art.
latter. (Art. 2144.) Thus, if through 2193.); the obligation of the possessor of
the efforts of X, a neighbor, the an animal to pay for the damage which it
house of Y was saved from being may have caused. (Art. 2183.)
burned, Y has the obligation to : causing damages unintentionally
reimburse X for the expenses X
incurred although Y did not actually Article 1158. Obligations derived
give his consent to the act of X in from law are not presumed. Only those
saving his house on the principle of expressly determined in the code or in
quasi-contract. special laws are demandable.
(b) Solutio indebiti is the juridical
relation that is created when
something is received when there is
no right to demand it and it was
unduly delivered through mistake.
(4) Crimes or acts or omissions punished
by law. — when they arise from civil liability
which is the consequence of a criminal
offense (Art. 1161.), e.g., the obligation of a
thief to return the car stolen by him; the duty
of a killer to indemnify the heirs of his victim;
and scope of civil liabilities
(a) Restitution - the restoration or return
of something lost or stolen to its
owner
(b) Reparation for the damages
caused - process and result of
remedying the damage or harm
caused by an unlawful act
(c) Indemnification for consequential
damages - claims brought by third
parties for which a party is entitled to
be indemnified should be carved out
from consequential damage
disclaimers
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CHAPTER II: NATURE AND EFFECTS OF ordinary care (diligence) which an average
OBLIGATIONS and reasonably prudent man would do.
b. Another standard of care. Extraordinary
Article 1163. Every person obliged to give diligence is provided in the stipulation of
something is also obliged to take care of it with parties.
the proper diligence of a good father of a family c. Factors to be considered. Diligence
unless the law or the stipulation of the parties depends on the nature of obligation and
requires another standard of care. corresponds with the circumstances of the
person, time, and place (Art. 1173)
Determinate Thing (specific thing) d. Reason for debtor’s obligation. The
- when it is particularly designated or debtor must exercise diligence to ensure
physically segregated from all others of the that the thing to be delivered would subsist
same class in the same condition as it was when the
- it is distinct from all others and can obligation was contracted
individually be classified or determined
- debtors cannot substitute it with another Duties of Debtor in Obligation to Deliver a
although the latter is of the same kind and Generic Thing
quality without the consent of the creditor. (1) To deliver a thing which is of the quality
Indeterminate Thing (generic thing) intended by the parties taking into consideration
- refers only to a class or genus to which it the purpose of the obligation and other
pertains circumstances (Art. 1246.);
- cannot be pointed out with particularly (2) To bear the expenses of having someone else
- identified only by its specie comply with the obligation (Art. 1165 par. 2)
- the debtor can give anything of the same (3) To be liable for damages in case of fraud,
class as long as it is of the same kind negligence, or delay, in the performance of his
obligation, or contravention of the tenor thereof.
Obligation of Debtor in Obligation To Give a (Art. 1170.)
Determinate Thing
(1) To preserve or take care of the thing due; * Debtor is not liable if his failure to deliver the thing is
(2) To deliver the fruits of the thing (see Art. 1164.); due to fortuitous events (happened by accident) or force
(3) To deliver its accessions and accessories (see majeure without negligence or fault in his part;
*Stipulation - stated in the contract
Art. 1166.);
(4) To deliver the thing itself (see Arts. 1163, 1233,
1244; as to kinds of delivery, Arts. 1497 to 1501); Article 1164. The creditor has a right to
and the fruits of the thing from the time the
(5) To answer for damages in case of non-fulfillment obligation to deliver it arises. However, he shall
or breach. (see Art. 1170.) acquire no real right over it until the same has
been delivered to him.
Obligation to take care of the thing due
1. Preserve the thing - in obligation to give (real Different Kinds of Fruits:
obligation), the obligor has the incidental duty to 1. Natural – spontaneous products of the soil,
take care of the thing due with the diligence of a the young and other products of animals;
good father of a family pending delivery. w/o intervention of human labor
a. Diligence of a good father. A good father 2. Industrial – produced by lands of any
does not abandon his family, he is always cultivation or labor; with the intervention of
ready to provide and protect his family; human labor
3. Civil – those derived by virtue of juridical
relation.
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(1) Real Right (jus in re) - the right or interest of a Article 1165. When what is to be delivered
person over a specific thing (like ownership, is a determinate thing, the creditor … may
possession, mortgage) compel the debtor to make delivery. If the thing
(2) Personal Right (jus ad rem) - a right or power is indeterminate or generic, he may ask that the
pertaining of a person (the creditor) to demand from obligation be complied with at the expense of
another (debtor), as a definite passive subject, the the debtor. If the obligor delays or has promised
fulfillment of a prestation to give, to do or not to do; to deliver the same thing to two or more persons
right enforceable only between the contracting who do not have the same interest, he shall be
parties responsible for any fortuitous event until he has
● Before the delivery, the creditor, in affected the delivery.
obligations to give, has merely a personal
right against the debtor – a right to ask for *This provision applies to an obligation to give.
delivery of the thing and the fruits thereof.
● Once the thing and the fruits are delivered, Remedies of the creditor in the real obligation
then he acquires a real right over them. 1. Specific real obligation - the obligation to
● Ownership is transferred by a delivery which deliver a determinate thing; to...
could be either actual or constructive. (Art. a. demand specific performance or fulfillment
1477) (if it is still possible) of the obligation with a
● The remedy of the buyer when there is no right to indemnity (compensate) for
delivery despite demand is to file a damages; or
complaint for “SPECIFIC PERFORMANCE b. demand rescission or cancellation (in
AND DELIVERY” because he is not yet the certain cases) of the obligation also with a
owner of the property before the delivery right to recover damages (Art. 1170.); or
c. demand payment of damages only, where it
Actual Delivery – actual delivery of a thing from the is the only feasible remedy
hand of the grantor to the hand of the grantee 2. Generic real obligation - obligation to deliver a
(personally), or manifested by certain possessory generic thing
acts executed by the grantee with the consent of a. can be performed by a third person since
the grantor (realty). the object is expressed only according to its
family or genus
b. it is, thus, not necessary for the creditor to
compel the debtor to make the delivery,
although he may ask for performance of the
obligation
c. the creditor has the right to recover
damages under Article 1170 in case of
breach or violation of the obligation
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Article 1166. The obligation to give a Remedies of the creditor in the positive real
determinate thing includes that of delivering all obligation
its accessions and accessories, even though (1) Performance at debtor’s cost. If the debtor
they may not have been mentioned. fails to comply with his obligation to do, the creditor
has the right:
(1) Accessions. Fruits of the thing or additions to or ● to have the obligation performed by himself,
improvements upon the principal − those which are or by another, at the debtor’s expense.
naturally or artificially attached to the thing ● to recover damages
ex. House or trees on a land; rents of a *In case the obligation is done in contravention of
building; air conditioner in a car; profits or the terms or is poorly done, it may be ordered (by
dividends accruing from shares of stocks, the court) that it shall be reversed if still possible.
etc.
(2) Accessories. Things that are joined to or (2) Personal Compulsion. If no law was
included with the principal thing for the latter’s implemented that regards the cause of action.
embellishment, better use, or completion. Then the only sanction of civil obligations is
ex. key of a house; frame of a picture; a compensation for the damages.
bracelet of a watch; machinery in a factory; (3) Indemnification for Damages. If the obligation
the bow of a violin to do cannot be done by another, in case of non-
performance the only feasible remedy of the
*there should be no changes happened upon the creditor is indemnification for damages.
delivery of the determinate thing
Article 1168. When the obligation
Article 1167. If a person obliged to do consists in not doing and the obligor does what
something fails to do it, the same shall be has been forbidden him, it shall also be undone
executed at his cost. This same rule shall be at his expense.
observed if he does it in contravention of the
tenor of the obligation … it may be decreed that *This provision applies to an obligation not to do.
what has been poorly done be undone
: this article is also known as a negative obligation
*This provision applies to an obligation to do, to of prestation, that is not to do a certain thing or
perform an act, or render a service. act. The thing done or act performed shall be
undone at the expense of the obligor. Damages
Three (3) Situations may be claimed against him
(1) The debtor fails to perform any obligation to do;
● A creditor may do the obligation, or by
another, at the expense of the debtor;
● recover damages
(2) The debtor performs an obligation to do but
contrary to the terms thereof; or
● order of the court to undo the same at the
expense of the debtor
(3) The debtor performs an obligation to do but in a
poor manner
● order of the court to undo the same at the
expense of the debtor
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Article 1169. Those obliged to deliver or to do

something incur in delay from the time the
obligee judicially or extrajudicially demands from
them the fulfillment of their obligation. However,
the demand by the creditor shall not be
necessary in order that delay may exist:
● When the law or obligation so expressly
declares; (stated in the contract)
● When from the nature of the contract, time
is the essence and motivating factor for
its establishment;
● When demand would be useless
(prestation is impossible);
● In reciprocal obligations, from the
moment one of the parties fulfills his
obligation;
● When the debtor admits he is in default

Note: (NO DEMAND, NO LEGAL DELAY) in

Unilateral Obligations

Delay
: the act of postponing or slowing

Kinds of Delay:
(1) Ordinary Delay. Failure to perform any
obligation on time
(2) Legal Day (default or mora). Failure to perform
an obligation on time which failure, constitutes a
breach of the obligation

Types of Default:
1. Mora Solvendi. The delay on the part of the
debtor to fulfill his obligation (to give/to do)
2. Mora Accipendi. The delay on the part of
the creditor to accept the performance of the
obligation
3. Compensatio Morae. The delay of the
obligors in reciprocal obligation; default of
both parties
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CHAPTER II: NATURE AND EFFECTS OF Article 1171. Responsibility arising from
OBLIGATIONS fraud is demandable in all obligations. Any
waiver of an action for future fraud is void.
Article 1170. Those who in the (1102a)
performance of their obligations are guilty of
fraud, negligence, or delay, and those who in any *This provision refers to incidental fraud which is
manner contravene the tenor thereof, are liable employed in the fulfillment of obligation
for damages. (1101)
Waiver of action for future fraud void
*The above provision gives the four (4) grounds for - a waiver of action for future fraud is
liability which may entitle the injured party to void
damages - the one who performs the obligation
*The breach of contract is involuntary; a breach will will still be liable because fraud is
be possible when a person fails or refuses to perform against the law
his obligation without legal justification Waiver of action for past fraud valid
- the waiver can be considered as an
(1) Fraud (deceit or dolo). It is the deliberate or act of generosity and magnanimity
intentional evasion of the normal fulfillment of an (the virtue of being great of mind and
obligation; it implies some kind of malice or heart) on the part of the party who is
dishonesty that cannot cover cases of mistake and the victim of the fraud
errors of judgment made in good faith. - the effects of the fraud are
a. Incidental Fraud (dolo incidente) - renounced
committed in the performance of an
obligation already existing because Article 1172. Responsibility arising from
of contract negligence in the performance of every kind of
(remedy: claim of damages obligation is also demandable, but such liability
but there is no breach of the may be regulated by the courts, according to the
contract) circumstances. (1103)
b. Causal Fraud (dolo causante) -
employed in the execution of a Three Different Senses of Negligence
contract (before and during) under (1) Contractual Negligence (culpa contractual).
Art. 1338, which vitiates consent Negligence in contracts resulting in their breach; in
(remedy: annulment of the a breach of contract claim, the party filing the
contract plus damages) lawsuit needs to show three elements: the
existence of a contract, the breaching of the
(2) Negligence (fault or culpa). It is any voluntary contract, and the injury that resulted from the
act or omission, there being no malice, which breach
prevents the normal fulfillment of an obligation (2) Civil Negligence (culpa aquiliana).
(3) Delay (mora). Refer to Art. 1169 Negligence by itself is the source of an obligation
(4) Contravention of the terms of the obligation. between the parties not formally bound before by
It is the violation of the terms and conditions any pre-existing contract. It is also called “tort” or
stipulated in the obligation; must not be due to a “quasi-delict.”
fortuitous event (or accidental) (3) Criminal Negligence (culpa criminal).
Negligence resulting in the commission of a crime;
may produce civil liability arising from a crime
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Article 1173. The fault or negligence of the (2) Extraordinary Fortuitous Events. Events that
obligor consists in the omission of that diligence are uncommon and which the contracting parties
which is required by the nature of the obligation could not have reasonably foreseen
and corresponds with the circumstances of the ex. earthquake, fire, war, unusual flood
persons, of the time, and of the place. When Article 1175. Usurious transactions shall be
negligence shows bad faith, the provisions of governed by special laws. (n)
Articles 1171 and 2201, paragraph 2, shall apply.
If the law or contract does not state the diligence Simple Loan (mutuum)
which is to be observed in the performance, that : a contract whereby one of the parties delivers to
which is expected of a good father of a family another money or other consumable thing, upon
shall be required. (1104a) the condition that the same amount of the same
kind and quality shall be paid. It may be gratuitous
Article 1174. Except in cases expressly or with a stipulation to pay interest
specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the Usury
obligation requires the assumption of risk, no : contracting for or receiving interest in excess of
person shall be responsible for those events the amount allowed by law for the loan or use of
which could not be foreseen, or which, though money, goods, chattels, or credits
foreseen, were inevitable. (1105a)
Requisites for recovery of monetary interest
Fortuitous Event (force majeure) (1) The payment of interest must be expressly
: any extraordinary event which cannot be foreseen, stipulated (Art. 1956.);
or which, though foreseen, is inevitable (2) The agreement must be in writing; and
: impossible to foresee/impossible to avoid (3) The interest must be lawful. (Art. 1957.)
: included in contracts to remove liability for natural
and unavoidable catastrophes that interrupt the A stipulation for the payment of usurious interest is
expected course of events and prevent participants void, that is as if there is no stipulation as to
from fulfilling obligations. interest. (see comments under Art. 1413.)

Fortuitous Event Distinguished from The Legal Rate in the Philippines is 6% per
Force Majeure annum if there is a stipulated interest in the
a. Acts of Man - fortuitous event is an contract but does not have a specific rate.
event independent of the will of the
obligor but not of other human wills Kinds of Interest
ex. war, fire, robbery, murder (1) Simple Interest. When the rate of interest as
b. Acts of God - events that are totally stipulated by the parties
independent of the will of every (2) Compound Interest. When the interest earned
human being; generally applies to a is upon interest due
natural accident (3) Legal Interest. When the rate of interest
ex. typhoon, flood, tsunami intended by the parties is presumed by law, as
when the loan mentions interest but does not
Kinds of Fortuitous Events specify the rate thereof
(1) Ordinary Fortuitous Events. Events that are (4) Lawful Interest. When the rate of interest is
common and which the contracting parties could within the maximum allowed by (usury) law
reasonably foresee (5) Unlawful Interest. When the rate of interest is
ex. rain beyond the maximum fixed by law
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Article 1176. The receipt of the principal Article 1178. Subject to the laws, all
by the creditor, without reservation with respect rights acquired in virtue of an obligation are
to the interest, shall give rise to the presumption transmissible if there has been no stipulation to
that said interest has been paid. the contrary. (1112)
The receipt of a later installment of a debt
without reservation as to prior installments shall Transmissibility
likewise raise the presumption that such : an act, a deed, or a title whereby it passes on to
installments have been paid. (1110a) one’s heirs or assigns

Presumption Assignment of Rights

: a conclusion made as to the existence or : incorporeal properties; shifts contract rights to
nonexistence of a fact that must be drawn from another party (assignee)
other evidence that is admitted and proven to be Transmissibility of Rights
true All rights acquired in virtue of an obligation are generally
transmissible. (see Art. 1311.) The EXCEPTION to this
Two Kinds of Presumption rule are the following:
(1) Conclusive (or irrebuttable) Presumption. (1) Prohibited by law. Like the rights in
One which cannot be contradicted or refuted in any partnership, agency, and commodatum which are
case and no evidence will be allowed to rebut or purely personal in character
overcome it a. By the contract of partnership - two or
more persons bind themselves to contribute
(2) Disputable (or rebuttable) Presumption. One money, property, or industry to a common
which can be contradicted or rebutted by presenting fund, with the intention of dividing the
proof (evidence) to the contrary; assumed true until profits among themselves. (Art. 1767.)
a person proves otherwise b. By the contract of agency - a person
binds himself to render some service or to
Article 1177. The creditors, after having pursued do something in representation or on behalf
the property in possession of the debtor to of another, with the consent or authority of
satisfy their claims, may exercise all the rights the latter. (Art. 1868.)
and bring all the actions of the latter for the same c. By the contract of commodatum - one of
purpose, save those which are inherent in his the parties delivers to another something
person; they may also impugn the acts which the not consumable so that the latter may use
debtor may have done to defraud them. (1111) the same for a certain time and return it.
Commodatum is essentially gratuitous. (Art.
*The creditor has the right to demand the properties 1933.)
owned by the debtor if he failed to pay. (2) Prohibited by stipulation of parties. When
prohibited by stipulation of the parties, like the
stipulation that upon the death of the creditor, the
obligation shall be extinguished or that the creditor
cannot assign his credit to another.
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CHAPTER III: DIFFERENT KINDS OF Article 1180. When the debtor binds
OBLIGATIONS himself to pay when his means permit him to do
so, the obligation shall be deemed to be one
SECTION 1. PURE AND CONDITIONAL with a period, subject to the provisions of Article
OBLIGATIONS 1197.

Article 1179. Every obligation whose Obligation with a period - the remedy of the
performance does not depend upon a future or creditor is to go to the court for prescription of the
uncertain event, or upon a past event unknown period for the debtor
to the parties, is demandable at once.
Every obligation which contains a resolutory Article 1182. When the fulfillment of the
condition shall also be demandable, without condition depends upon the sole will of the
prejudice to the effects of the happening of the debtor, the conditional obligation shall be void.
event. (1113) If it depends upon chance or upon the will of a
third person, the obligation shall take effect in
Pure Obligation conformity with the provisions of this Code.
: not subject to any condition and no specific date is
mentioned for its fulfillment and is, therefore, Example: The debtor promise the creditor that he
IMMEDIATELY DEMANDABLE will pay the PHP100,000 after he sold the car. After
a week, the creditor ask for the payment of the
Conditional Obligation debtor but the car has not been sold yet.
: one whose consequences are subject in one way Therefore, the obligation is still non-demandable
or another to the fulfillment of a condition not until the car was sold.
*it will be valid if it is the sole will of the creditor
Condition
: a future and uncertain event; the Article 1183. Impossible conditions, those
effectivity/extinguishment of an obligation/rights contrary to good customs or public policy and
subject to it depends those prohibited by law shall annul the
obligation which depends upon them. If the
Characteristics: obligation is divisible, that part thereof which is
(1) Future and uncertain. It is not enough not affected by the impossible or unlawful
that it be future; it must also be uncertain condition shall be valid.
(2) Past but unknown. May refer to a past The condition not to do an impossible
event unknown to the parties thing shall be considered as not having been
agreed upon.
Two Principal Kinds of Conditions
(1) Suspensive Condition (condition *refers to suspensive conditions
precedent/condition antecedent). The fulfillment *applies only to cases where the impossibility
of which will give rise to an obligation (or right); the already existed at the obligation was constituted
demandability of the obligation is suspended until
the happening of a future and uncertain event Two Kinds of Impossible Conditions
(2) Resolutory Condition (condition (1) Physically Impossible Condition. When they,
subsequent). One the fulfillment of which will in the nature of things, cannot exist or cannot be
extinguish an obligation (or right) already existing; done; and
immediately demandable (2) Legally Impossible Conditions. When they
are contrary to law, morals, good customs, public
order, or public policy
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Effect of Impossible Conditions Article 1188. The creditor may, before the
(1) Conditional Obligation Void. Both the fulfillment of the condition, bring the
obligation and the condition are void; the obligor appropriate actions for the preservation of his
knows his condition is cannot be fulfilled right. The debtor may recover what during the
(2) Conditional Obligation Valid. If the condition is same time he has paid by mistake in case of a
negative, that is, not to do an impossible thing, it is suspensive condition.
disregarded and the obligation is rendered pure and
valid 1st Sentence and Situation: During the pendency of
(3) Only the Affected Obligation Valid. If the the condition, the debtor is not preserving the thing
obligation is divisible, the part thereof not affected (car) or not observing the diligence of the good
by the impossible condition shall be valid. father (ordinary diligence). The creditor can bring
ex. “I will give you P10,000.00 if you sell my actions against the debtor for the preservation of the
land, and a car, if you kill Pedro.” car to the court and request that the car will be
deposited to a third person to protect and preserve
The obligation to give P10,000.00 is valid the thing.
but the obligation to give a car is void
because it is dependent upon an impossible 2nd Sentence: soutio indebiti; make a payment by
condition. mistake in this case the debtor may recover
(4) Only the Condition Void. If the obligation is
preexisting and does not depend upon the
fulfillment of the condition which is impossible, for
its existence, only the condition is void

Article 1187. The effects of a conditional

obligation to give, once the condition has been
fulfilled, shall retroact to the day of the
constitution of the obligation. Nevertheless,
when the obligation imposes reciprocal
prestations upon the parties, the fruits and
interests during the pendency of the condition
shall be deemed to have been mutually
compensated. If the obligation is unilateral, the
debtor shall appropriate the fruits and interests
received, unless from the nature and
circumstances of the obligation it should be
inferred that the intention of the person
constituting the same was different.
In obligations to do and not to do, the
courts shall determine, in each case, the
retroactive effect of the condition that has been
complied with.
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1189. When the conditions have Kinds of Loss

been imposed with the intention of suspending (1) Physical Loss. When a thing perishes as when
the efficacy of an obligation to give, the following a house is burned and reduced to ashes;
rules shall be observed in case of the (2) Legal Loss. When a thing goes out of
improvement, loss, or deterioration of the thing commerce (expired medicines, canned goods, etc.)
during the pendency of the condition: or when a thing heretofore legal becomes illegal
(3) Civil Loss. When a thing disappears in such a
(1) If the thing is lost without the fault of way that its existence is unknown; or even if
the debtor, the obligation shall be known, it cannot be recovered
extinguished;

(2) If the thing is lost through the fault of Rules in Case of Loss During The Pendency of
the debtor, he shall be obliged to pay Suspensive Condition
(1) Lose of thing without debtor’s fault
damages; it is understood that the thing is
(2) Lose of thing through debtor’s fault
lost when it perishes, or goes out of
(3) Deterioration of thing without debtor’s fault
commerce, or disappears in such a way
that its existence is unknown or it cannot (4) Deterioration of thing through debtor’s fault
be recovered; (5) Improvement of thing by nature or by time (e.g.
wine, jewelry, lands, real estate, etc.)
(3) When the thing deteriorates without (6) Improvement of thing at expense of debtor
the fault of the debtor, the impairment is
to be borne by the creditor; Article 1190. When the conditions have
for their purpose the extinguishment of an
(4) If it deteriorates through the fault of the obligation to give, the parties upon the
debtor, the creditor may choose between fulfillment of said conditions shall return to each
the rescission of the obligation and its other what they have received.
fulfillment, with indemnity for damages in *resolutory condition
either case; In case of the loss, deterioration, or
improvement of the thing, the provisions which,
(5) If the thing is improved by its nature, or
with respect to the debtor, are laid down in the
by time, the improvement shall inure to
preceding article shall be applied to the party
the benefit of the creditor;
who is bound to return.
(6) If it is improved at the expense of the
debtor, he shall have no other right than As for obligations to do and not to do, the
that granted to the usufructuary provisions of the second paragraph of Article
*usufruct - the right to use 1187 shall be observed as regards the effect of
*Deterioration - decreases in value; depreciate the extinguishment of the obligation.

Requisites for Application of Article 1189

Article 1189 applies only if:
(1) The obligation is a real obligation;
(2) The object is a specific or determinate thing;
(3) The obligation is subject to a suspensive
condition;
(4) The condition is fulfilled; and
(5) There is loss, deterioration, or improvement of
the thing during the pendency of the happening on
one condition.
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1191. The power to rescind

obligations is implied in reciprocal ones, in case UNILATERAL RECIPROCAL
one of the obligors should not comply with what General Rule: General Rule:
No demand, No delay Delay occurs from the
is incumbent upon him. moment one party fulfills
The injured party may choose between the his undertaking, while the
fulfillment and the rescission of the obligation, other does not comply or
with the payment of damages in either case. He is not ready to comply in
a proper manner with
may also seek rescission, even after he has what is incumbent upon
chosen fulfillment if the latter should become him
impossible. Exceptions: Exceptions:
The court shall decree the rescission 1. The law or obligation Different dates for the
so declare performance of
claimed unless there be just cause authorizing 2. Time is the controlling respective obligations are
the fixing of a period. motive for the fixed by the parties
This is understood to be without prejudice establishment of
to the rights of third persons who have acquired obligation
3. Demand would be
the thing, in accordance with Articles 1385 and useless
1388 and the Mortgage Law. Example: Example:
Rowan promised to give Adam sold his only car to
Reciprocal Obligations his dog named “Ben” to Byron for P150,000.
Alan to be delivered on There was no agreement
- an obligation where both parties have their September 15, 2020. regarding the time of
corresponding obligations delivery and time of
- when one party does not comply with these General Rule: No payment
demand, No delay
obligations then the other party has the
General Rule: When one
power to rescind the obligation (or contract) Analysis: party fulfills his
1. Supposed, on obligation, delay on the
Article 1192. In case both parties have September 15, 2020, other starts.
Alan did not demand the
committed a breach of the obligation, the liability delivery of the dog and Analysis:
of the first infractor shall be equitably tempered Rowan did not deliver the 1. Supposed Byron paid
by the courts. If it cannot be determined which of dog until September 16. P150,000 the following
the parties first violated the contract, the same 2. Supposed, on day, Adam must deliver
September 15, 2020, the car on the same day
shall be deemed extinguished, and each shall Alan demanded the to avoid incurring delay
bear his own damages. delivery of the dog and 2. Supposed Adam
Rowan did not deliver the delivered the car the
First Infractor dog until September 16. following day, Byron
must pay the P150,000
- the first one who committed the breach of the on the same day to avoid
contract his liability shall be equitably incurring day
tempered by the courts

end of prelims
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER III: DIFFERENT KINDS OF b. Conventional or Voluntary Period –

OBLIGATIONS agreed to by the parties
c. Judicial Period – fixed by the court
SECTION 2. OBLIGATIONS WITH A PERIOD
(3) According to definiteness:
Article 1193. Obligations for whose a. Definite Period – fixed/known when it will
fulfillment a day certain has been fixed shall be come
demandable only when that day comes. d. Indefinite Period – not fixed/not known
Obligations with a resolutory period take when it will come
effect at once but terminate upon arrival of the
day certain. Article 1194. In case of loss, deterioration, or
A day certain is understood to be that improvement of the thing before the arrival of
which must necessarily come, although it may the day certain, the rules in Article 1189 shall be
not be known when. observed. (n)
If the uncertainty consists in whether the
day will come or not, the obligation is Article 1195. Anything paid or delivered before
conditional, and it shall be regulated by the rules the arrival of the period, the obligor being
of the preceding Section. unaware of the period or believing that the
obligation has become due and demandable,
Two Kinds: may be recovered, with the fruits and interests.
(1) As to effect: (1126a)
a. Suspensive Period (Ex Die) - a period that
makes the obligation demandable; Article 1196. Whenever in an obligation a
obligation begins only from a day certain period is designated, it is presumed to have
upon the arrival of the period been established for the benefit of both the
b. Resolutory Period (In Diem) - a period that creditor and the debtor, unless from the tenor of
terminates (or extinguished) an obligation; the same or other circumstances it should
appear that the period has been established in
CONDITION PERIOD
favor of one or of the other. (1127)

an uncertain event a certain event Example: Sakaido (the debtor) borrowed

P500,000 with 12% interest from Kaeru (the
affects the existence of the affects the demandability of
obligation the obligation creditor). The principal and interest will mature
after 12 months.
has retroactive effects has no retroactive effects a. Sakaido will benefit because he is given
(art.1187) more time to save or earn the money while
a suspensive condition left a suspensive period left to for Kaeru the period is for his benefit to
to the will of the debtor the will of the debtor makes earn interest.
makes the obligation void the obligation still valid b. Kaeru cannot be compelled to accept
(art.1182) payment before the arrival of the period
may refer to a future refers only to a future day (because the debtor will be denying him his
uncertain event or to past certain right to earn interest)
events unknown to the c. Sakaido cannot be compelled to pay before
parties
the arrival of the period (because the
creditor will be depriving him of the time to
(2) According to the source: save or earn money to repay the debt)
a. Legal Period – provided by law
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

d. It will be a disadvantage to Sakaido if Kaeru

demand 6 months before the maturity date
and as well as to Kaeru because the amount
of interest will be 6% only.
Article 1197. If the obligation does not fix a
period, but from its nature and the circumstances
it can be inferred that a period was intended, the
courts may fix the duration thereof.
The courts shall also fix the duration of
the period when it depends upon the will of the
debtor. (if the period is void)
In every case, the courts shall determine
such period as may under the circumstances
have been probably contemplated by the parties.
Once fixed by the courts, the period cannot be
changed by them. (1128a)

Article 1198. The debtor shall lose every

right to make use of the period:
*debts will be demandable at once
(1) When after the obligation has been
contracted, he becomes insolvent, unless he
gives a guaranty or security for the debt;
(Incapacity to pay debts; the liability of the debtor is
higher compared to his assets)

(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 guarantees or securities after their
establishment, and when through a fortuitous
event they disappear, unless he immediately
gives new ones equally satisfactory;

(4) When the debtor violates any

undertaking, in consideration of which the
creditor agreed to the period;

(5) When the debtor attempts to abscond

(pagtakas sa utang). (1129a)
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER III: DIFFERENT KINDS OF Article 1201. The choice shall produce no
OBLIGATIONS effect except from the time it has been
communicated. (1133)
SECTION 3. ALTERNATIVE OBLIGATIONS (1) Effect of notice. Until the choice is made and
communicated, the obligation remains alternative
Article 1199. A person alternatively bound (2) Proof and form of notice. The burden proving
by different prestations shall completely perform that such communication has been made is upon
one of them. him who made the choice; orally or in writing,
The creditor cannot be compelled to expressly or impliedly.
receive part of one and part of the other
undertaking. (1131) Article 1202. The debtor shall lose the
*compell - pilitin right of choice when among the prestations
Alternative Obligation whereby he is alternatively bound, only one is
: various prestation are due practicable. (1134)
: right of choice belongs to the debtor
Example: (impossibility/illegality of prestation)
Kinds of Obligation According to object: (choice of debtor) Gerald promises to deliver one
(1) Simple Obligation. One where there is only one of the following items to Renfri:
prestation a. Specific Rock from Pluto
(2) Compound Obligation. One where there are b. Specific Bag of Shabu
two or more prestation c. Specific Tablet
a. Conjunctive Obligation – there are several *from alternative obligation it will become simple
prestation and all of them are due obligation due to the debtor has no choice out of the
b. Distributive Obligation – one of two or prestations
more of the prestation is due. Example: (loss via fortuitous event) (choice of
debtor) Gerald promises to deliver one of the
Article 1200. The right of choice belongs to following items to Renfri:
the debtor, unless it has been expressly granted a. Specific Phone (loss prestation)
to the creditor. b. Specific Laptop
The debtor shall have no right to choose c. Specific Tablet
those prestations which are impossible, unlawful *b and c remain to be alternative since the debtor still
or which could not have been the object of the have choices
obligation. (1132) *but if only one has left out of the choices Article 1202
will be applied and become simple obligation
General Rule: choice of debtor
Exception: it may be exercised by the creditor but Article 1203. If through the creditor’s
only when expressly granted to him acts the debtor cannot make a choice
according to the terms of the obligation, the
Right of Choice of Debtor Not Absolute latter may rescind the contract with damages.
(1) The debtor cannot choose those prestations (n)
which are: impossible, unlawful, or could not have
been the object of the obligation. These prestations Example: (loss via fortuitous event) (choice of
are void. debtor) Gerald promises to deliver one of the
(2) The debtor has no more right of choice, when following items to Renfri:
among the prestations whereby he is alternatively a. Specific Phone
bound, only one is practicable. (Art.1202.) b. Specific Laptop
(3) The debtor cannot choose part of one prestation c. Specific Tablet
*the obligation will be extinguished with damages
and part ofanother prestation. (see Art. 1199, par.2)
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Example: (loss via debtor’s fault) (choice of debtor) Until then the responsibility of the debtor
Gerald promises to deliver one of the following shall be governed by the following rules:
items to Renfri: (1) If one of the things is lost through a
a. Specific Phone fortuitous event, he shall perform the obligation
b. Specific Laptop by delivering that which the creditor should
c. Specific Tablet choose from among the remainder, or that
*the obligation remains to be alternative since there are which remains if only one subsists;
still 2 prestation to choose from (2) If the loss of one of the things occurs
*if 2 prestation loss via debtor’s fault it will become through the fault of the debtor, the creditor may
simple obligation claim any of those subsisting, or the price of
that which, through the fault of the former, has
Article 1204. The creditor shall have a disappeared, with a right to damages;
right to indemnity for damages when, through (3) If all the things are lost through the
the fault of the debtor, all the things which are fault of the debtor, the choice by the creditor
alternatively the object of the obligation have shall fall upon the price of any one of them, also
been lost, or the compliance of the obligation has with indemnity for damages.
become impossible. The same rules shall be applied to
The indemnity shall be fixed taking as a obligations to do or not to do in case one, some
basis the value of the last thing which or all of the prestations should become
disappeared, or that of the service which last impossible. (1136a)
became impossible.
Damages other than the value of the last General Rule: choice of creditor
thing or service may also be awarded. (1135a)
Example: (loss via fortuitous event) (choice of
Effects of Loss creditor) Gerald promises to deliver one of the
(1) Some of the objects. Loss of some of the following items to Renfri:
objects or have come impossible, the creditor is not a. Specific Phone
liable since he has the right of choice and the b. Specific Laptop
obligation can still be performed. c. Specific Tablet
(2) All of the objects. Loss of all the objects or *remains alternative if one or two of the prestation loss
have become impossible through the debtor’s fault, *the creditor can choose among the remainder items
the creditor shall have a right to indemnity for *obligation is extinguished if all the prestation loss
damages; if loss due to fortuitous event, the
obligation is extinguished Example: (loss via debtor’s fault) (choice of
creditor) Gerald promises to deliver one of the
Example: (loss via debtor’s fault) Gerald promises following items to Renfri:
to deliver one of the following items to Renfri: a. Specific Phone
a. Specific Phone b. Specific Laptop
b. Specific Laptop c. Specific Tablet
c. Specific Tablet *the choices remains to be alternative and the creditor
*the debtor is obliged to pay the value of the last thing still have 3 prestation to choose from
lost plus damages *the creditor can still choose and demand the loss
prestation but only its value plus damages
Article 1205. When the choice has been *if the creditor choose the existing prestation he cannot
demand damages
expressly given to the creditor, the obligation
*if all of the prestation loss it will still remain to be
shall cease to be alternative from the day when
alternative and the creditor can still demand for the
the selection has been communicated to the
value of the lost specific thing plus damages
debtor.
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1206. When only one prestation ALTERNATIVE FACULTATIVE

has been agreed upon, but the obligor may
render another in substitution, the obligation is two or more prestation only one prestation
called facultative.
debtor or the creditor may only the debtor has the right
The loss or deterioration of the thing have the right of choice of substitution
intended as a substitute, through the negligence
of the obligor, does not render him liable. But the illegality/impossibility of the illegality/impossibility of
once the substitution has been made, the obligor one prestation does not the prestation invalidates
invalidate the whole the whole obligation even if
is liable for the loss of the substitute on account obligation as long as there the substitute is valid
of his delay, negligence or fraud. (n) are remaining valid
prestation
Facultative Obligations
loss of one or more of the loss of the thing due
: an obligation with only one prestation but the debtor alternatives through a extinguishes the obligation
may render another in substitution fortuitous event does not
: there is only one active prestation which is the extinguish the obligation
principal object if there is no substitution of prestation loss of one or more of the loss of one or more of the
happened yet alternatives through alternatives through
debtor’s fault does not debtor’s fault makes him
(loss/deterioration of prestation & substitute) render him liable liable
Example: Gerald promises to deliver a specific
laptop to Renfri and also stipulated that he may
deliver a specific tablet as substitute.
1. Identify if substitution was already made
2. Identify the prestation and the substitute

Effects of Loss
(1) Before substitution. Loss/deterioration of the
prestation (principal thing), the debtor is liable if he is
the cause of loss/deterioration plus damages; if lost
through fortuitous event, the obligation is
extinguished
(2) After substitution. Loss/deterioration of the
prestation (principal thing), the debtor is not liable
even if he is the cause of loss/deterioration because
it is no longer due; if the substitute is lost, the liability
of the debtor depends upon whether or not the loss
is due through his fault.
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER III: DIFFERENT KINDS OF c. Mixed Solidary – solidary on the part of

OBLIGATIONS the debtors and creditors; each one of the
debtors is liable to render and each one of
SECTION 4. JOINT AND SOLIDARY the creditors has the right to demand, entire
OBLIGATIONS compliance with the obligation

(2) According to source

Article 1207. The concurrence of two or
a. Conventional Solidarity – where solidary
more creditors or of two or more debtors in one
is agreed upon by the parties; if nothing is
and the same obligation does not imply that each
mentioned in the contract relating to
one of the former has a right to demand, or that
solidary, the obligation is only joint
each one of the latter is bound to render, entire
b. Legal Solidarity – where solidarity is
compliance with the prestations. There is a
imposed by the law
solidary liability only when the obligation
c. Real Solidarity – where solidarity is
expressly so states, or when the law or the nature
imposed by the nature of the obligation
of the obligation requires solidarity. (1137a)
Example: A, B, and C are bound to pay solidary
: refers to the juridical tie of the debtors or creditors creditors X, Y, and Z P9,000.
: concurrence of multiple creditors or debtors or *the debtors are in joint obligation since it is not
both in one and same obligation mention if they are solidary debtors

Article 1208. If from the law, or the nature Question 1: How much is the share of A, B, and
or the wording of the obligations to which the C in the debt?
preceding article refers the contrary does not - P3,000 each
appear, the credit or debt shall be presumed to
Question 2: How much is the share of X, Y, and
be divided into as many equal shares as there are
Z in the debt?
creditors or debtors, the credits or debts being
- P3,00 each
considered distinct from one another, subject to
the Rules of Court governing the multiplicity of Question 3: How much can Z collect?
suits. (1138a) - P9,000
*if it is not mention in the problem whether it is solidary or
joint it will be automatically become a joint obligation Question 4: How much is B liable to pay X?
- P3,000
Solidary Obligation Question 5: How much can Z collect from A?
: each one of the creditors has a right to demand - P3,000 because the debtors are in joint
entire compliance with the prestation obligation and they share the same
: each one of the debtors has an obligation to obligation that is divided equally
render entire compliance with the prestation - Once Z collect the P9,000 he will the
obligation to reimburse P3,000 for X and Y
Kinds of Solidary
Question 6: How many distinct debts are there?
(1) According to the parties bound:
- 3 debts
a. Passive Solidary – solidary on the part of
+ A pays X, Y, or Z P3,000
the debtors; anyone of them can be made
+ B pays X, Y, or Z P3,000
liable for the fulfillment of entire obligation + C pays X, Y, or Z P3,000
b. Active Solidary – solidary on the part of the
creditors; anyone of them can demand the
fulfillment of the entire obligation
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Example: Solidary debtors A, B, and C are bound - A has the right to claim reimbursement from
to pay X, Y, and Z P9,000. B and C, P3,000 each
*this time the creditors are joint
Question 5: How many distinct debts are there?
- 1 debt
Question 1: How much is the share of A, B, and + A, B, or C pays X, Y, or Z P9,000
C in the debt?
- P3,000 each Joint Obligation
: each one of the creditors has a right to demand
Question 2: How much is the share of X, Y, and compliance with the prestation with regard to his
Z in the debt? share
- P3,000 each : each one of the debtors has an obligation to
Question 3: How much is B liable to pay? render compliance with the prestation with regards
- P9,000 because they are in solidary to his share
obligation : if the share of creditors or debtors or both not
mentioned in the problem the prestation will be
Question 4: How much is B liable to pay X?
divided equally
- P3,000 only because the creditors are joint
and only have the right to demand for their
Example: A, B, C are bound to pay X, Y, and Z
share
P9,000
- the joint creditors can demand all their share
to B alone Debtors: A, B, and C; Creditors: X, Y, and Z
- B has the right to demand reimbursement Question 1: How much is A, B, and C, liable to
from A and C, P3,000 each pay?
- each one of the debtors is obliged to pay
Question 5: How much can Z collect from A? P3,000 each
- P3,000 because he is a joint creditor *each one of the creditors has the right to demand for
together with X and Y their share which is P3,000 each

Question 6: How many distinct debts are there? Question 2: How much is B liable to pay X?
- 3 debts : the P3,000 will be divided depending on how
+ A, B, or C pays X P3,000 many creditors are there, since there are 3
+ A, B, or C pays Y P3,000 creditors, therefore, B is obliged to pay P1,000 to X
+ A, B, or C pays Z P3,000
Example: Solidary debtors A, B, and C are bound Question 3: How much can Z collect from A?
to pay solidary creditors X, Y, and Z P9,000. : the P3,000 will be divided depending on how
many debtors are there. Therefore, the amount of
Question 1: How much is B liable to pay? Z that he can collect from A is P1,000 since there
- P9,000 are 3 debtors.

Question 2: How much can Z collect Question 4: How many distinct debts are there?
- P9,000 : 9 debts
X
Question 3: How much is B liable to pay X?
A is bound to pay P1,000 to… Y
- P9,000 because both the debtors and Z
creditors are solidary X
- X has an obligation to give the share of Y B is bound to pay P1,000 to… Y
and Z Z
X
Question 4: How much can Z collect from A?
C is bound to pay P1,000 to… Y
- P,9000
Z
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Kinds of Obligation According to the Number of Kinds of Solidary Obligation According to the
Parties Legal Tie
(1) Individual Obligation. There is only one obligor (1) Uniform. When the parties are bound by the
(debtor) and one obligee (creditor) same stipulations or clauses
(2) Collective Obligation. There are two or more (2) Non-Uniform or Varied. When the parties are
debtors and/or two or more debtors. It may be joint not subject to the same stipulations or clauses
or solidary
Words Used to Indicate Joint and Solidary Example: A, B, C, and D obliged themselves
Liability solidarily to pay E P20,000 as follows:
JOINT SOLIDARY
✓ A, to pay by installment at the rate of
jointly jointly and severally P1,000 a month, to start in July
✓ B, to pay in September
conjoint in solidum ✓ C, to pay in December
mancomunada simple mancomunada solidaria ✓ D, if E passes the Bar examinations

pro rata juntos o separadamente

1st: A, to pay by installment at the rate of P1,000 a
month, to start in July
proportionate individually and collectively - P1,000 will be due in July but A can
demand the payment from A, B, C, or D
Article 1209. If the division is impossible, the - On August, E can demand the P1,000
right of the creditors may be prejudiced only by among A, B, C, and D
their collective acts, and the debt can be 2nd: B, to pay in September
enforced only by proceeding against all the - P5,000 plus the P1,000 from the monthly
debtors. If one of the latter should be insolvent, installment of A will be equals to P6,000
the others shall not be liable for his share. (1139) - again, E can demand the total of P6,000 to
anyone among A, B, C, and D
Joint Indivisible Obligation
3rd: C, to pay in December
: the object is not physically divisible into different
- P5,000 plus the P1,000 from the monthly
parts installment of A will be equals to P6,000
- again, E can demand the total of P6,000 to
Example: A, B, and C are jointly liable to give D a anyone among A, B, C, and D
car. On the date of delivery, A and B are willing to
deliver but C is not. 4th: D, if E passes the Bar examinations
- once, the condition has been fulfilled the
Question: Can A and B validly delivered the whole liability of D to A can be demand to other
car to D? debtors
- No, because the willingness of C is needed.

Article 1210. The indivisibility of an obligation

does not necessarily give rise to solidarity. Nor
does solidarity of itself imply indivisibility. (n)

Article 1211. Solidarity may exist although the

creditors and the debtors may not be bound in
the same manner and by the same periods and
conditions. (1140)
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1212. Each one of the solidary creditors Article 1216. The creditor may proceed
may do whatever may be useful to the others, but against any one of the solidary debtors or some
not anything which may be prejudicial to the or all of them simultaneously. The demand made
latter. (1141a) against one of them shall not be an obstacle to
those which may subsequently be directed
Example: A owes B and C, solidary creditors, the against the others, so long as the debt has not
sum of P2,000 been fully collected. (1144a)
- Action Beneficial to the other – if either B or
C demands the obligation from A Example:
- Action Prejudicial to the other – if either B or X → A, B, C (solidary debtors)
C renounces the entire obligation, either B - if either A, B, or C did not pay yet the whole
or C has the right to demand his share to B obligation X has the right to demand
or C continuously until the whole obligation has
Article 1213. A solidary creditor cannot been done
assign his rights without the consent of the
others. Article 1217. Payment made by one of the
solidary debtors extinguishes the obligation. If
Article 1214. The debtor may pay any one of two or more solidary debtors offer to pay, the
the solidary creditors; but if any demand, judicial creditor may choose which offer to accept.
or extrajudicial, has been made by one of them, He who made the payment may claim
payment should be made to him. (1142a) from his co-debtors only the share which
corresponds to each, with the interest for the
Example: A owes B and C, solidary creditors, the payment already made. If the payment is made
sum of P2,000. On due date, B demanded the before the debt is due, no interest for the
obligation from A. However, A ended up paying C. intervening period may be demanded.
- the payment of A to C is not valid because When one of the solidary debtors
the first one to demand is B cannot, because of his insolvency, reimburse
his share to the debtor paying the obligation,
Article 1215. Novation, compensation, such share shall be borne by all his co-debtors,
confusion or remission of the debt, made by any in proportion to the debt of each. (1145a)
of the solidary creditors or with any of the
solidary debtors, shall extinguish the obligation, Effects of Payment by a Solidary Debtor
without prejudice to the provisions of Article (1) Between the Solidary Debtors and
1219. Creditor(s). Payment made by one of the solidary
The creditor who may have executed any debtors extinguishes the obligation (full payment).
of these acts, as well as he who collects the debt, If two or more solidary debtors offers to pay the
shall be liable to the others for the share in the creditor is given the right to choose whose
obligation corresponding to them. (1143) payment he will accept.
(2) Among the Solidary Debtors. Payment by
Example: D owes A, B, and C, solidary creditors, one solidary debtor entitles him to claim
the sum of P3,000. If C remitted the entire reimbursement from his co-debtors
obligation without A or B’s consent, the obligation a. Their liability is not based on the original
will still be extinguished. However, C is liable to A obligation which has been extinguished, but
upon the payment made by the co-debtors
and B with regards to the respective shares (P1,000
which creates a joint obligation of
each).
reimbursement on the part of the others.
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

b. If the payment of a solidary debtor exceeds Article 1220. The remission of the whole
his share in the obligation he can recover obligation, obtained by one of the solidary
through reimbursement from the co-debtors debtors, does not entitle him to reimbursement
c. If a solidary debtor pays less than his share, from his co-debtors. (n)
he cannot demand reimbursement.
(3) Among the Solidary Creditors. The receiving Example: X, Y, and Z, solidary debtors, owe C the
creditor is jointly liable to others for their sum of P3,000. C, thereafter, remitted the whole
corresponding shares. obligation when Z offered to pay.
Question: Can Z claim “reimbursement” from X and
Article 1218. Payment by a solidary debtor Y?
shall not entitle him to reimbursement from his - No, because since his whole obligation has
co-debtors if such payment is made after the been remitted and did not pay for anything.
obligation has prescribed or become illegal. (n) Article 1221. If the thing has been lost or
if the prestation has become impossible without
Example: X, Y, and Z, solidary debtors, owe C the the fault of the solidary debtors, the obligation
sum of P3,000. The debt is due December 31. On shall be extinguished.
due date, C did not demand the payment. C also If there was fault on the part of any one of
failed to demand obligation for the next 15 years them, all shall be responsible to the creditor, for
after which Z voluntarily paid the debt of P3,000 the price and the payment of damages and
(although it was known to him that the debt already interest, without prejudice to their action against
prescribed the guilty or negligent debtor.
*according to a civil code if a debt has not been If through a fortuitous event, the thing is
demanded for a period of more than 10 years in case of
lost or the performance has become impossible
written obligation or contract it will prescribed
after one of the solidary debtors has incurred in
(extinguished)
delay through the judicial or extra-judicial
- Z has no right to reimbursed from his co-
demand upon him by the creditor, the
debtors
provisions of the preceding paragraph shall
apply. (1147a)
Article 1219. The remission made by the
creditor of the share which affects one of the Rules in case thing has been lost or prestation
solidary debtors does not release the latter from has become impossible
his responsibility towards the co-debtors, in case (1) Loss is without fault and before delay.
the debt had been totally paid by anyone of them Example: A, B, and C obliged themselves
before the remission was effected. (1146a) solidarily to deliver to D a particular truck valued at
P300,000.
Example: X, Y, and Z, solidary debtors, owe C the - The obligation shall be extinguished if the
sum of P3,000. C, thereafter, remitted the share of truck is lost or destroyed through a
Z. fortuitous event without the fault of A, B,
Question: On due date, can C demand payment and C and before they have incurred in
from Z? delay. (Arts. 1262, par. 1; 1174.)
- Yes, because he is still a solidary debtor and (2) Loss is due to fault on the part of a solidary
C can demand for the share of Z which is
debtor.
P1,000. The P2,000 can still be demanded
Example: If, in the preceding example, the truck
from Z and Z has the right to claim
was lost through the fault of C, A and B shall also
reimbursement from X and Y.
be responsible to D for the price of the truck as
well as damages although A and B were not at
fault at all. A solidary obligation is, in essence, a
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

mutual agency. As far as the creditor is concerned, Example: X, Y, and Z are solidary debtors of C for
the fault or delay of one solidary debtor, shall be the the amount of P100,000
fault or delay of all the solidary debtors. 1. Assuming the debt already prescribed.
- A and B, however, can recover from C, the - Derived from the nature of the obligation is
guilty or negligent debtor, the full amount of a complete defense because the debt and
such price and damages if A and B have the obligation has been prescribed and no
already contributed to the price of the truck. longer existing.
- If D recovers the price and damages from C,
2. Assuming Y is insane at the time the
the latter cannot claim reimbursement from
A and B, because he alone was at fault. obligation was contracted.
- Based to person, specifically Y. Y can put
✓ Suppose now that the truck in question up a defense of insanity with respect to the
belonged to C and A and B would contribute entire obligation. Therefore, C cannot
P100,000 each as their share in the obligation. If demand payment from Y and is a complete
B paid D P300,000 plus P10,000 as damages, B defense.
can recover the shares of A and C (P100,000 3. Assuming Y’s share is dependent upon a
each) in the price of the truck. Only C shall bear suspensive condition.
the damages of P10,000. In this case, the loss
- The non-fulfillment of suspensive condition
of C would be P410,000: P100,000. for his
is a partial defense and therefore, C can
share, P10,000 for the damages, and P300,000,
only demand the portion of X and Z but not
the value of his truck.
the share of Y.
(3) Loss is without fault but after delay.
4. The defense of insanity or non-fulfillment of
Example: If the truck was lost through a fortuitous
suspensive condition is not available to X and
event but after a demand was made upon C, D can
Z.
still recover damages from A or B or both of them
- Having only a partial defense, X and Z is
without prejudice to the right of action of the latter still liable for the payment in the obligation.
against C following the same rule in No. 2.
- The default by C makes all of the solidary
debtors responsible even for a fortuitous
event.
Article 1222. A solidary debtor may, in
actions fi led 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. (1148a)

Defenses Available to a Solidary Debtor

(1) Defenses derived from the nature of the
obligation.
(2) Defenses personal to, or which pertain to
share of, debtor sued.
(3) Defenses personal to other solidary debtors.
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER III: KINDS OF OBLIGATIONS Article 1224. A joint indivisible obligation

gives rise to indemnity for damages from the
SECTION 5. DIVISIBLE AND INDIVISIBLE time anyone of the debtors does not comply
OBLIGATION with his undertaking. The debtors who may have
been ready to fulfill their promises shall not
Article 1223. The divisibility or contribute to the indemnity beyond the
indivisibility of the things that are the object of corresponding portion of the price of the thing
obligations in which there is only one debtor and or of the value of the service in which the
only one creditor does not alter or modify the obligation consists. (1150)
provisions of Chapter 2 of this Title. (1149)
: in a joint indivisible obligation, the effect of non-
Divisible Obligation compliance by a debtor is to make all the debtors
: the object in its delivery or performance is capable liable for damages but the innocent debtors shall
of partial fulfillment not contribute beyond their respective shares of
the obligation. The obligation becomes a divisible
Indivisible Obligation one.
: the object in its delivery or performance is not
capable for partial fulfillment Article 1225. For the purposes of the
: there is only one creditor and only one debtor preceding articles, obligations to give definite
- Whether or not the object or prestation is things and those which are not susceptible of
divisible the debtor has to perform the partial performance shall be deemed to be
obligation in its totality indivisible.
- The creditor is not compelled to received When the obligation has for its object the
partially the prestations execution of a certain number of days of work,
the accomplishment of work by metrical units,
Kinds of Division or analogous things which by their nature are
(1) Qualitative Division. Based on quality, not on susceptible of partial performance, it shall be
number or quantity of the things that are the object divisible.
of the obligation. However, even though the object or
(2) Quantitative Division. Based on quantity rather service may be physically divisible, an
than on quality obligation is indivisible if so, provided by law or
(3) Ideal/Intellectual Division. Exists only in the intended by the parties.
minds of the parties. In obligations not to do, divisibility or
indivisibility shall be determined by the
Kinds of Indivisibility character of the prestation in each particular
(1) Legal Indivisibility. A specific provision of law case. (1151a)
declares as indivisible, obligations which, by their
nature, are divisible Obligations Deemed Indivisible
(2) Conventional Indivisibility. The will of the (1) Obligations to give definite things.
parties makes as indivisible, obligations which, by *paragraph 1
their nature, are divisible Example: To give a particular electric fan; to
(3) Natural Indivisibility. The nature of the object deliver a specific car. Here, the obligation is
or prestation does not admit of division indivisible because of the nature of the subject
matter.
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

(2) Obligations which are not susceptible of partial

performance (Ibid).
*paragraph 1
Example: To sing a song

- the obligation is indivisible by reason of its

purpose which requires the performance of all the
parts

(3) Obligations provided by law to be indivisible

even if thing or service is physically divisible.
*paragraph 3
Example: Payment of Tax. Although the money is
divisible, the amount of tax payable must not be
delivered partially

(4) Obligations intended by the parties to be

indivisible even if thing or service is physically
divisible
*paragraph 3
Example: The obligation of D to give P1,000.00 to
C on a certain date. Money is physically divisible
but the clear intention here is for D to deliver P1,000
at one time and as a whole
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER III: KINDS OF OBLIGATIONS Example: B promise to construct the house of A

within 90 days for One Million Pesos.
SECTION 6. OBLIGATIONS WITH A PENAL “For every day’s delay after the stipulated 90 days,
CAUSE B would pay a fine/penalty of P10,000.”
- if B exceeds 5 days, he will be fine P50,000, then
Article 1226. In obligations with a penal A will pay P1 million less the penalty clause of
clause, the penalty shall substitute the indemnity P50,000 with a total of P950,000 payment to B
for damages and the payment of interests in case *the three purposes can be observed from the example
of noncompliance, if there is no stipulation to the Kinds of Penal Clause
contrary. Nevertheless, damages shall be paid if (1) As to its origin:
the obligor refuses to pay the penalty or is guilty a. Legal Penal Clause – when it is provided
of fraud in the fulfillment of the obligation. for by law; and
The penalty may be enforced only when it b. Conventional Penal Clause – when it is
is demandable in accordance with the provisions provided for by stipulation of the parties.
of this Code. (1152a) (2) As to its purpose:
a. Compensatory Penal Clause – when the
General rule: penalty serves as substitute to penalty takes the place of damages; and
damages and interest b. Punitive Penal Clause – when the
Exceptions: (1) when so stipulated by the parties; penalty is imposed merely as punishment
(2) when the debtor refuses to pay the penalty and; for breach.
(3) when the debtor is guilty of fraud
(3) As to its dependability or effect:
a. Subsidiary or Alternative Penal Clause
Principal Obligation
– when only the penalty can be enforced
: can stand by itself; does not depend for its validity Example: B obliged himself to give A a
and existence upon another obligation specific car on December 25, if he fails to
do so, B will pay P100,000.
Accessory Obligation b. Joint or Cumulative Penal Clause –
: attached to a principal obligation and, therefore, when both the principal obligation and the
cannot stand alone penal clause can be enforced.
Example: B obliged himself to give A a
Obligation with a Penal Clause specific car on December 25, if he fails to
: an accessory undertaking attached to an do so, B, in addition to the car must pay A
obligation to assume greater liability on the part of P100,000
the obligor in case of breach of the obligation Obligation B promise A to give a diamond ring, and
with Penal if he fails to do so, he must give A
Purposes of Penal Clause Clause P500,000.
(1) ensure performance Conditional B promise A to pay P500,000 if he fails
(2) substitute the indemnity for damages and the Obligation to give her a diamond ring.
payment of interests in case of non-compliance a Facultative B promise A to give a diamond ring, and
Obligation if B desires, he can give A P500,000.
(3) punish the debtor for the non-fulfillment of his
Alternative B promise to give her, either a particular
obligation Obligation diamond ring, or P500,000.

Liability for Penalty, Damages, and/or Interests

(1) Penalty substitutes for damages and
interests. The penalty takes place of the indemnity
for damages and the payment of interests in case
of non-compliance
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

(2) Penalty and interest enforceable. The law consequence, A suffered damage in the amount of
permits an agreement upon a penalty apart from the P15,000.
interest; the penalty does not include the interest - Even if there is an amount of damage, B
(3) Penalty, damages, and interest enforceable. will only pay for the penalty with an amount
The creditor, in addition to the penalty, may recover of P20,000, as well as if A suffered greater
damages and interest: (exceptions) amount of damage the stipulated penalty
(4) Requirement to make penalty enforceable. will be the amount that B should pay.
The penalty is demandable as stipulated in a Note: Damages recoverable in addition to penalty
contract if there is a breach of the obligation must be proved.
Article 1227. The debtor cannot exempt
himself from the performance of the obligation Article 1229. The judge shall equitably
by paying the penalty, save in the case where this reduce the penalty when the principal obligation
right has been expressly reserved for him. has been partly or irregularly complied with by
Neither can the creditor demand the fulfillment of the debtor. Even if there has been no
the obligation and the satisfaction of the penalty performance, the penalty may also be reduced
at the same time, unless this right has been by the courts if it is iniquitous or
clearly granted him. However, if after the creditor unconscionable. (1154a)
has decided to require the fulfillment of the
obligation, the performance thereof should Example: B promises to deliver A 10 bottles of
become impossible without his fault, the penalty wine on December 25, or upon failure to do so, to
may be enforced. (1153a) pay a penalty of P5,000.
* penalty is not a substitute for performance of
obligations
Situation: On December 25, B was only able to
deliver 9 out of 10 bottles of wine to A.
Example: B obliged himself to construct the house
- A cannot demand P5,000 of penalty instead
of A and to finish it within 3 months, otherwise B is it will be reduced by the court since there is
going to pay A, P100,000 as penalty. irregular compliance of the debtor

Question: What are the rights and obligations of

the parties? Example: B promises to pay A P10,000 on
(1) B cannot just pay P100,000 and refuse to December 25, or upon failure, to pay a penalty of
construct the house of A, unless of course, if there P50,000.
is an agreement giving him that option. - if B was not able to pay P10,000 on Dec.
(2) A cannot demand from B that he will construct 25, A cannot demand P50,000 since the
the house and at the same time pay P100,000, amount is iniquitous or unconscionable as
stated by the court and will be reduced
unless agreed upon.
(3) If A demand fulfillment, but the performance
became impossible due to B’s fault, without the fault Article 1230. The nullity of the penal
of A, A can ask the payment of penalty. clause does not carry with it that of the principal
obligation.
Article 1228. Proof of actual damages The nullity of the principal obligation
suffered by the creditor is not necessary in order carries with it that of the penal clause. (1155)
that the penalty may be demanded. (n)
: if penal clause is void and the principal obligation
Example: B promised to deliver a specific car to A. is valid, the principal obligation remains solid and
The contract carried a penal clause that in case of demandable while the penal clause will be
non-compliance, B would have to pay a penalty of disregarded as if there is no penalty stipulated
P20,000. B did not deliver the car and, as a
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

: if principal obligation is void, the penal clause will

likewise be void because the penal clause cannot
stand alone without principal obligation

Example: B obliged himself to give A a pack of

shabu, and in case of non-compliance, P500,000
will be forfeited from B.
- the principal obligation will be void therefore
the penal clause will also be void
Example: B obliged himself to construct a house for
A within 3 months. In case B is not able to perform
his obligation within the stipulated period. B will give
A a pack of shabu.
- the penal clause is void but the principal
obligation will still be demandable
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER IV: EXTINGUISHMENT OF (4) Confusion or Merger of Rights

OBLIGATIONS
Example: P loan to M P500,000. M issued a
Article 1231. Obligations are promissory note payable to P. Later, P sells the
extinguished: note to A, A to B, B to C, and C back to M.
(1) By payment or performance;
(2) By the loss of the thing due; (5) Compensation. Both parties are creditor and
(3) By the condonation or remission of debtor to each other
the debt;
(4) By the confusion or merger of the Example: X is indebted to Y for P100,000. Y is
rights of creditor and also indebted to X for P100,000.
debtor;
(5) By compensation; Kinds of Compensation
(6) By novation. a. Legal Compensation – without the need of
Other causes of extinguishment of consent from the either party
obligations, such as annulment, rescission, b. Conventional Compensation – the
fulfillment of a resolutory condition, and consent of both parties is needed to take an
prescription, are governed elsewhere in this effect
Code. (1156a) c. Facultative Compensation – only one
party has the ability to enforce a
compensation
Modes of Extinguishment of Obligations
d. Judicial Compensation – the court will
(1) Payment or Performance. Once the debtor
decide if what will be the effect of
does his obligation the obligation will be extinguish.
compensation in their obligation

Example: X bound himself to give a specific car to

Y. (6) Novation. A change of obligation
Example: X bound himself to repair Y’s car.
Example: X is indebted to Y for P100,000. X and Y
Special Modes of Payment or Performance agreed that instead of P100,000, X will be giving
a. Application of Payment – which debt will the his car instead as payment.
debtor apply his payment
b. Dacion en pago (Dation in Payment) – Kinds of Novation
instead of paying in cash the debtor will pay a. Real Novation – change of prestation
non-cash asset b. Personal Novation – change of subject
c. Cession en pago (Payment by Cession) (Either the debtor or the creditor)
d. Tender of Payment and Consignation – the 1. Substitution (Debtor)
act of paying something using a legal i. Expromission. A third person will
tender (notes from BSP); consignation – the initiate the substitution and will be
act of depositing the obligor’s debt in the the new debtor
court ii. Delegacion. The original debtor
initiates the substitution
(2) Loss of the thing.
2. Subrogation (Creditor)
(3) Condonation (or remission). The creditor will no
c. Mixed Novation – change of the prestation
longer enforce the debtor’s obligation and one of the subjects

Example: X is indebted to Y for P500,000 payable

Dec. 31 next year. Before the due date, Y no longer
demanded or enforce the payment of X.
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER IV: EXTINGUISHMENT OF Example:

OBLIGATIONS B (debtor) -------P1,000------- A (creditor)
C (third person) offer to pay P1,000 to A
SECTION 1. PAYMENT OR PERFORMANCE - A accepted the payment of C
Question: Can C recover from B?
Article 1232. Payment means not only the
- Without the knowledge of B – C can ask
delivery of money but also the performance, in
for reimbursement only; but unknown to C
any other manner, of an obligation. (n) who already paid for P1,000, it is found out
that previously B already paid P500 to A
Payment such that P500 is the remaining debt,
: not only in the delivery of money but also the therefore, if C asked for reimbursement, he
giving of a thing, the doing of an act, or not doing of is only entitled to demand P500 to B and
an act the other P500 will be recover from A, who
: consummation of prestation that is due in the first place should not accept the
whole payment (solutio indebiti)
WHO CAN PAY? - With the knowledge of B – A can recover
(or reimburse) from
Article 1236. The creditor is not bound to
Example: On May 1, D borrowed from C P10,000
accept payment or performance by a third person
and mortgage his land, payable on May 25.
who has no interest in the fulfillment of the
However, on May 10, X, a third person paid C
obligation, unless there is a stipulation to the
P10,000 without the knowledge of D. When the
contrary.
obligation falls due, D is already insolvent, he
Whoever pays for another may demand
cannot reimburse X of what the latter paid C.
from the debtor what he has paid, except that if
- B the P1,000 with all the rights of
he paid without the knowledge or against the will
subrogation
of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor. Question 1: Can X foreclose the mortgaged
(1158a) property?
- No, because there is no consent of D and
Persons from Whom the Creditor Must Accept can only asked for reimbursement of
Payment P10,000 however, D is insolvent and will
(1) Debtor not be able to pay X
(2) Any person who has an interest in the obligation
(e.g., guarantor, mortgager, sureties) Question 2: Supposing X paid C with D’s
(3) Third person who has no interest in the consent, will your answer be the same?
obligation when there is stipulation that he can - No, because since there is consent of D, X
will have the right to demand
make payment
reimbursement as well as the rights of
subrogation where foreclosing of a
Effect of Payment by a Third Person
mortgage property is included.
(1) With the debtor’s knowledge and consent.
The third person is entitled to demand for
reimbursement and subrogation from the original
debtor
*subrogation – payor steps into the shoes of the creditor
(2) Without the debtor’s knowledge or consent.
The recovery is only up to the extent or amount of
the debt at the time of payment; no subrogation
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Example: A owes B, P1M. Later, A paid B Question: If B cannot pay, may C foreclose the
P700,000 leaving a balance of P300,000. C, a mortgage on B’s land?
classmate of A, and intending to surprise A, paid B - No, because C paid without the consent of
the sum of P1M, thinking that A still owed B that B.
amount. He did this without the knowledge of A.
Article 1238. Payment made by a third
Question: How much can C recover from A?
person who does not intend to be reimbursed by
- P300,000 only because the remaining debt
the debtor is deemed to be a donation, which
is in that amount
requires the debtor’s consent. But the payment
- the P700,000 will be recover from B, the
is in any case valid as to the creditor who has
creditor, whom should have not accepted
the whole payment accepted it. (n)
- because of what B did he will be liable for “Embodies the idea that no one should be
not acting in good faith and will be subjected compelled to accept the generosity of another.”
to interest in lieu of damages
- the consent of the debtor is needed
- if the creditor accepts the payment although
Article 1237. Whoever pays on behalf of the debtor did not give his consent to the
the debtor without the knowledge or against the donation shall be valid
will of the latter, cannot compel the creditor to
subrogate him in his rights, such as those arising Example: B owes A P1M. C, in behalf of B, pays A
from a mortgage, guaranty, or penalty. (1159a) P1M against the consent of B, although C had
previously told B that she has no intention of being
SUBROGATION REIMBURSEMENT reimbursed. A, accepted the payment by C in
recourse can be had to there is no such recourse behalf of B.
the mortgage or guaranty
or penalty Question: Is B’s obligation toward A,
the debt is extinguished in new creditor has different extinguished?
one sense, but a new rights - Yes, the obligation is extinguished because
creditor, with exactly the A already accepted the payment of C
same right as the old one,
appears on the scene
there is more than there is only a personal
personal action of action to recover the Question: May C recover from B?
recovery amount
- Even if C has no intention to be
there can be recovery of what the third person has paid
reimbursed, he can still demand for
reimbursement because there is no valid
Example: B borrowed from A P1M payable on
and real donation and as well as consent of
December 25, 2020. The loan was secured by a B
mortgage of B’s land. Without the knowledge of B, - if the payment is made with consent and
C paid A P1M. B was benefited to the amount of valid and real donation B is not liable to
P1M. reimburse C

Question: Can C claim reimbursement from B? -----------------------------------------------------------------

How much?
- Yes, as much as B was benefited with an
amount of P1M
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

WHO TO PAY? Exceptions: Keep the thing delivered and the

payment benefited him
Article 1240. Payment shall be made to the Example: B is indebted to A for P100,000. On
person in whose favor the obligation has been maturity date, A is insane and despite being aware
constituted, or his successor in interest, or any of the insanity, D still paid A P100,000 and A
person authorized to receive it. (1162a) accepted the payment

Person to whom payment shall be made Question: Is the obligation extinguished?

(1) Payment shall be made to: - Yes, because A kept the money that has
a. the creditor or obligee been delivered
b. his successor in interest (an heir/assignee)
c. any person authorized to receive it Example:
i. authorized by the creditor B (debtor) ------- P1M ------- A (creditor)
ii. authorized by law - when B paid to A, A is insane or
incapacitated
(2) The creditor referred to must be the creditor at - supposed that there is a swindler asking A
the time the payment is to be made not at the for P1M in exchange of a ring worth
constitution of the obligation. Hence, if a person is P500,000
subrogated to the right of the creditor, payment
Question: Is the obligation extinguished?
should be made to the new creditor.
- Yes, because A kept the money that has
(3) When payment is made to the wrong party, the
been delivered
obligation is not extinguished as to the creditor who
is without fault or negligence even if the debtor Question: Does the payment of P1M by B to A
acted in outmost good faith and by mistake as to remains to be valid?
the person of the creditor or through error induced - Yes, but only up to an amount of P500,000
by fraud of a third person. because it is the only amount which A was
really benefited from B’s payment
: if the creditor dies then the successor or heirs or
Question: Who has the burden of proving that
assignee will be the one that accept the payment the incapacitated payee benefited?
- The one who made the payment, which is
Article 1241. Payment to a person who is B.
incapacitated to administer his property shall be
valid if he has kept the thing delivered, or insofar *since A is incapacitated, if A lost the P1M the payment
of B is not valid; if A was able to restore his health and
as the payment has been beneficial to him.
already in sound mind he can demand again the P1M
Payment made to a third person shall also
from B
be valid insofar as it has redounded to the benefit *or if A is still not in sound mind his legal representative
of the creditor. Such benefit to the creditor need and guardian can demand the P1M from B
not be proved in the following cases:
(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. (1163a)

General Rule: Payment to incapacitated person is

not valid
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

WHAT IS TO BE PAID? through the fault of the creditor they have been
impaired.
Article 1244. The debtor of a thing cannot In the meantime, the action derived from
compel the creditor to receive a different one, the original obligation shall be held in abeyance.
although the latter may be of the same value as, (1170)
or more valuable than that which is due.
*refers to real obligation to deliver a specific thing Legal Tender
In obligations to do or not to do, an act or : currency which a debtor can legally compel a
forbearance cannot be substituted by another act creditor to accept in payment of a debt in money
or forbearance against the obligee’s will. (1166a)
*refers to personal obligation to do and not to do
BSP Circular No. 537 series of 2006
- coins in denomination of 1 peso, 5 peso,
Exceptions: Facultative obligation; other and 10 pesos, shall be legal tender in an
agreement resulting on Dation in Payment or amount not exceeding 1,000
Novation; waiver by the creditor - coins in denomination of 1 cent, 5 cents, 10
Article 1246. When the obligation consists cents, and 25 cents, shall be legal tender in
in the delivery of an indeterminate or generic an amount not exceeding 100
thing, whose quality and circumstances have not
(pag.2)
been stated, the creditor cannot demand a thing
: the mercantile documents such as promissory
of superior quality. Neither can the debtor deliver
notes they are not a legal tender so the creditor
a thing of inferior quality. The purpose of the
cannot be compelled to accept payment through
obligation and other circumstances shall be
this
taken into consideration. (1167a)
Example: B owes A P10,000, payable on
Rule of the Medium Quality
December 25, 2020. B is paying a promissory note
- Obligation to give Specific Thing – the very
of P10,000.
thing due must be delivered
- Obligation to deliver a Generic Thing
Question: Can A refuse to accept? Can she
“… indeterminate or generic thing, whose accept?
quality and circumstances have not been - Yes, because it is not a legal tender and
stated…” accepting the PN is her option.
: it is alright for the creditor to accept non-inferior
Question: If she accepts, does this mean that
quality, but the creditor cannot demand a thing of
payment has been effected?
superior quality
- Not yet, because according to Art. 1249 it
: it is alright for the debtor to deliver a superior
shall produce the effect of payment ONLY
quality, but the debtor cannot deliver a thing of
when they have been cashed.
inferior quality
Question: Supposing, A consented that B’s
Article 1249. The payment of debts in payment is a promissory note payable 2
money shall be made in the currency stipulated, months later. Now, during the intervening
and if it is not possible to deliver such currency, period, may A bring an action to recover from
then in the currency which is legal tender in the B?
Philippines. - No, because it is held in abeyance.
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
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

HOW TO PAY? : principle of estoppel – prevents someone from

arguing something or asserting a right that
Article 1233. A debt shall not be contradicts what they previously said or agreed to
understood to have been paid unless the thing or by law
service in which the obligation consists has been
completely delivered or rendered, as the case Requisites:
may be. (1157) (1) The obligee knows that the performance is
incomplete or irregular
Requisites: (2) The obligee accepts the performance without
(1) Integrity of the prestation. The prestation must expressing any protest or objection
be fulfilled/rendered completely *therefore, the obligation is extinguished

Example: B bound himself to pay A P10,000. Article 1248. Unless there is an express
- B only paid P9,000 to A, therefore, A can stipulation to that effect, the creditor cannot be
refuse to accept the payment because the compelled partially to receive the prestations in
fulfillment is not complete which the obligation consists. Neither may the
Exceptions: Substantial Performance in Good debtor be required to make partial payments.
Faith (Art. 1234); Waiver (Art. 1235) and; However, when the debt is in part
Application of payments if the debts are equally liquidated and in part unliquidated, the creditor
onerous (Art. 1254) may demand and the debtor may effect the
payment of the former without waiting for the
(2) Identity of the prestation. The stipulated liquidation of the latter. (1169a)
prestation must be delivered or performed.
General Rule: payment must be complete
Burden of Proving Payment Exceptions: there is a stipulation to that effect; if
(1) The creditor has the burden showing that there the debt is in part liquidated and in part
is a valid debt and existing obligation, then; unliquidated
(2) The debtor has the burden of showing with legal
certainty that the obligation has been discharged by Example (pag.1):
payment (e.g., presentation of receipt) B -------- P1M (due today)--------- A
- since the due date is today, B cannot
Article 1234. If the obligation has been compel A to receive a partial payment in an
amount of P500,000
substantially performed in good faith, the obligor
- A cannot compel B to pay partial payment
may recover as though there had been a strict
- UNLESS, there is a stipulation or
and complete fulfillment, less damages suffered
agreement in the contrary
by the obligee. (n)
Example (pag.2):
Requisites: B -------- P1M + damages --------- A
(1) There must be substantial performance. - if the exact amount for damages is not yet
(2) The obligor must be in good faith. determined, but the P1M is already known
and liquidated, A may demand and B may
Article 1235. When the obligee accepts the pay the P1M first since it is liquidated and
performance, knowing its incompleteness or later on the unliquidated damages.
irregularity, and without expressing any protest -----------------------------------------------------------------
or objection, the obligation is deemed fully
complied with. (n)
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

WHERE TO PAY

Article 1251. Payment shall be made in the

place designated in the obligation.
There being no express stipulation and if
the undertaking is to deliver a determinate thing,
the payment shall be made wherever the thing
might be at the moment the obligation was
constituted.
In any other case the place of payment
shall be the domicile of the debtor.
If the debtor changes his domicile in bad
faith or after he has incurred in delay, the
additional expenses shall be borne by him.
These provisions are without prejudice to
venue under the Rules of Court. (1171a)

Place where obligation shall be paid

(1) If there is a stipulation, the payment shall be
made in the place designated
(2) If there is no stipulation and the thing to be
delivered is specific, the payment shall be made at
the place where the thing was, at the perfection of
the contract
(3) If there is no stipulation and the thing to be
delivered is generic, the place of payment shall be
the domicile (actual/physical habitation of a person)
of the debtor. The creditor bears the expenses in
going to the debtor’s place to accept payment

-----------------------------------------------------------------
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1239. In obligations to give, payment b. injunction – an order of the court directing
made by one who does not have the free disposal a person not to do certain things
of the thing due and capacity to alienate it shall c. garnishment – the proceeding by which a
not be valid, without prejudice to the provisions debtor’s creditor is subjected to the
of Article 1427 under the Title on “Natural payment of his own debt to another
Obligations.’’ (1160a) Example of Garnishment:
B (d) ------ P1M -------- A (c)
Free Disposal of the Thing A (d) ------ P1M -------- C (c)
- the thing must be delivered or to be - C filed an action against A to demand the
delivered must not subject to any claim or P1M
lean or encumbrance of a third person - However, A claims insolvency and admits
Capacity to Alienate the credit which he has over B
- the person is not incapacitated to enter into - B was summoned by the court to retain the
contracts and for that atter t to make money – the debt is garnished
disposition of the thing - the court will determine first if A really has a
debt to C
*The creditor cannot be compelled to accept payment - during the pending of determination of
where the person paying has no capacity to make it. court, any payment of B to A is NOT VALID

Article 1242. Payment made in good faith

Article 1247. Unless it is otherwise
to any person in possession of the credit shall
stipulated, the extrajudicial expenses required
release the debtor. (1164)
by the payment shall be for the account of the
debtor. With regard to judicial costs, the Rules
Example: C found a negotiable instrument payable
to bearer. Supposing the negotiable instrument is a of Court shall govern. (1168a)
promissory note. C make known to B about the
promissory note. B paid C since it is payable to Judicial Costs (legal expenses)
bearer. : the statutory amounts allowed to a party to an
action for his expenses incurred in the action; to be
Question: Will the obligation be extinguished? paid by the losing party
- Yes, because B paid C in good faith - debtor has the obligation to pay for
- if A indorsed the promissory note to C, they extrajudicial expenses, unless there is a
had a private agreement that C would not stipulation that the creditor will pay for the
collect from B, payment by B in good faith to extrajudicial expenses.
C will still extinguished the obligation of B. - if there is no stipulation on who will pay for
The right of C will be against X. the extrajudicial expenses required by the
payment then the debtor will be the one
who will pay in accordance to Article 1247
Article 1243. Payment made to the creditor
by the debtor after the latter has been judicially
ordered to retain the debt shall not be valid.
(1165)

The judicial ordered it may have been prompted

by an order for:
a. interpleader – technical name of the action
in which a certain person in possession of
certain property wants claimants to litigate
among themselves for the same
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1250. In case an extraordinary (4) Tender of Payment and Consignation (Art.
inflation or deflation of the currency stipulated 1256 – 1261)
should supervene, the value of the currency at
the time of the establishment of the obligation Dation in Payment (dacion en pago)
shall be the basis of payment, unless there is an : a mode of extinguishment of an obligation
agreement to the contrary. (n) whereby the debtor will give a non-cash asset in
order to satisfy the money or monetary debt
Inflation
: a sharp sudden increase of money or credit or Governing Law
both without a corresponding increase in business - Law of Sales governs because dation in
transactions payment may be considered a specie of
: it causes a drop in the value of money, resulting in sale in which the amount of the money debt
rise of the general price level becomes the price of the thing alienated
Deflation - the thing offered as an accepted equivalent
: the reduction in volume and circulation of the of the performance of an obligation is
available money or credit considered as the object of the contract of
sale, while the debt is considered as the
: it results a decline of the general price level
purchase price
- common consent is an essential
Requisites:
prerequisite to have the effect of totally
(1) There is an official declaration of extraordinary extinguishing the debt or obligation
inflation or deflation from the Bangko Sentral ng
Pilipinas (BSP) SALE DATION IN PAYMENT
(2) The obligation is contractual in nature no pre-existing credit there is pre-existing credit
obligations are created obligations are extinguished
(3) The parties expressly agreed to consider the
the cause is the price paid the extinguishment of the
effects of the extraordinary inflation or deflation
from the viewpoint of the debt, from the viewpoint of
seller, or the acquisition of the debtor, or the acquisition
Devaluation the thing sold, from the of the object in lieu of the
: an official reduction in the value of one currency viewpoint of the buyer credit, from the viewpoint of
from an officially fixed level imposed by monetary the creditor
authorities the buyer has still to pay the payment is received
the price before the contract is
perfected which is to be
Depreciation
charged against the debtor’s
: the downward change in the value of one currency debt
in terms of the currencies of other nations which the parties deliver and the parties deliver and
occurs as a result of market forces in the foreign receive thing as seller and receive the thing as debtor
exchange market buyer and creditor
the giving of the price may the giving of the object in lieu
DATION IN PAYMENT generally, end the of the credit may extinguish
obligation completely or only partially
the credit (depending on the
Article 1245. Dation in payment, whereby
agreement)
property is alienated to the creditor in
satisfaction of a debt in money, shall be
governed by the law of sales. (n)

Special Forms of Payment

(1) Dation in Payment (Art. 1245)
(2) Application of Payments (Art. 1253)
(3) Payment by Cession (Art. 1255)
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

SUBSECTION 1. – APPLICATION OF PAYMENTS which is most onerous to the debtor among those
due, shall be deemed to have been satisfied
Article 1252. He who has various debts of (5) If the debts due are of the same nature and
the same kind in favor of one and the same burden, the payment shall be applied to all of them
creditor, may declare at the time of making the proportionately
payment, to which of them the same must be (6) If neither party has exercised its option and
applied. Unless the parties so stipulate, or when there is disagreement as to debts to which
the application of payment is made by the party payment must be applied, the court will apply the
for whose benefit the term has been constituted, payment according to the justice and equity of the
application shall not be made as to debts which case, taking into consideration all its circumstances
are not yet due.
If the debtor accepts from the creditor a Example:
receipt in which an application of the payment is 1st transaction: B ------ P1M ------- A
made, the former cannot complain of the same, 2nd transaction: B ------ P1M --------- A
unless there is a cause for invalidating the 3rd transaction: B ------ P1M ---------A
contract. (1172a) - due on October 15, 2020
- B only has P5M with him
Application of Payments - apply the rules
: designation of the debt to which should be applied
the payment made by a debtor who has various of
Article 1253. If the debt produces
debts of the same kind in favor of one and the same
interest, payment of the principal shall not be
creditor
deemed to have been made until the interests
have been covered. (1173)
Requisites:
(1) There must be one debtor and one creditor;
Example:
(2) There must be two or more debts
B --------- P10,000 with 12% interest ----------A
(3) The debts must be of the same kinds
- B only has P10,000 tenders’ payment
(4) The debts to which payment made by the debtor
- B cannot decide that his payment must only
has been applied must be due; and be apply to the principal because the
(5) The payment made must not be sufficient to interest must be covered first and the
cover (or extinguish) all the debts remaining money will be applied to the
principal amount
Rules:
(1) The debtor has the first choice; he must indicate
at the time of making payment, and not afterwards, Article 1254. When the payment cannot
which particular debt is being paid. The debtor be applied in accordance with the preceding
cannot later claim that the payment should be rules, or if application cannot be inferred from
applied to another debt other circumstances, the debt which is most
(2) The right to make the application once exercised onerous to the debtor, among those due, shall
is irrevocable unless the creditor consents to the be deemed to have been satisfied.
change If the debts due are of the same nature
(3) The debtor’s right to apply payment is not and burden, the payment shall be applied to all
mandatory but merely directory. If the debtor does of them proportionately. (1174a)
not apply payment, the creditor has the subsidiary
right to make the designation by specifying in the onerous debt – burdensome
receipt which debt is being paid ex. an interest-bearing debt than a non-
(4) If the creditor has not also made the application, interest-bearing debt; a debt as a sole
or if the application is not valid (par. 2.), the debt, debtor than as a solidary debtor; older
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

debts; dets secured by a mortgage or by

pledge; an obligation with a penal clause
Rules in Case No Application of Payment has
been Voluntarily Made
(1) Apply to the most onerous debts
(2) If debts are of the same nature and burden,
application shall be made to all, proportionately

Example:
B ------- P1.2M and P600,000 --------- A
- B only paid P300,000 without application of
payment
Question: How should the payment be applied
presuming that the debt is in the same nature?
- the ratio of the debt is 2:1, therefore the
P300,000 must also be divided in the same
ratio
- P200,000 will be deducted at P1.2M and a
deduction of P100,000 from P600,000
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

SUBSECTION 2. – PAYMENT BY CESSION assignment shall be in full satisfaction of his

debts
Article 1255. The debtor may cede or
CESSION IN PAYMENT DATION IN PAYMENT
assign his property to his creditors in payment of
both are substitutes forms of payment or performance
his debts. This cession, unless there is
there are several there is usually only one
stipulation to the contrary, shall only release the creditors creditor
debtor from responsibility for the net proceeds of debtor is insolvent at the does not presuppose the
the thing assigned. The agreements which, on time of assignment insolvency of the debtor or
the effect of the cession, are made between the a situation of financial
debtor and his creditors shall be governed by difficulties
special laws. (1175a) extends to all the does not involve all the
property of the debtor property of the debtor
subject to execution
Payment by Cession the creditors only acquire the creditor becomes the
: assignment or abandonment of the debtor’s the right to sell the thing owner of the thing given by
property to his creditors in payment of his debts and apply the proceeds the debtor
to their credit pro rata
Requisites:
(1) There must be two or more creditors;
(2) The debtor must be (partially) insolvent;
(3) The assignment must involve all the properties
of the debtor; and
(4) The cession must be accepted by the creditors

Effects
Unless there is a stipulation to the contrary,
(1) The assignment does not make the creditors the
owners of the property of the debtor
*the creditors will just be merely assignees which only
gives them an authority to sell the properties
*but if the debtor transfer the ownership to the creditor
then it will be under Art. 1245 or the dation in payment
(2) The debtor is released from his obligation only
up to the amount of the net proceeds of the sale of
the property assigned. Unless there is stipulation to
the contrary

Example:
B (debtor) ------- P2M A, C, D (creditors)
With the consent of the creditors, B may assign his
property to A, C, and D to sell his property in order
to satisfy their credits. After selling the properties of
B, the net proceeds only reach to P1.5M.

Question: Is B still liable?

- Yes, with an amount of P500,000 because
the net proceeds of his properties are only
P1.5M, unless there is a stipulation that the
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

SUBSECTION 3. – TENDER OF PAYMENT AND Cases when Tender of Payment is Not

CONSIGNATION Required
(1) When the creditor is absent or unknown, or does
Article 1256. If the creditor to whom tender not appear at the place of payment;
of payment has been made refuses without just (2) When he is incapacitated to receive the payment
cause to accept it, the debtor shall be released at the time it is due;
from responsibility by the consignation of the *if the incapacitated creditor has no legal representative
thing or sum due. or guardian then it can be consign
Consignation alone shall produce the (3) When, without just cause, he refuses to give a
same effect in the following cases: receipt;
(1) When the creditor is absent or (4) When two or more persons claim the same right
unknown, or does not appear at the place of to collect;
payment; (5) When the title of the obligation has been lost.
(2) When he is incapacitated to receive the
payment at the time it is due; Consignation
(3) When, without just cause, he refuses to : the act of depositing the thing or amount due with
give a receipt; the proper court when the creditor cannot accept or
(4) When two or more persons claim the refuses to accept payment
same right to collect;
(5) When the title of the obligation has Requisites of a Valid Consignation
been lost. (1176a) (1) existence of a valid debt which is due
(2) tender of payment by the debtor and refusal
*tender of payment without consignation does not without justifiable reason by the creditor to accept it
extinguished the obligation (3) previous notice of consignation to persons
*tender of payment is always followed by consignation interested in the fulfillment of the obligation
(4) actual consignation
Tender of Payment (5) subsequent notice of consignation made to the
: the act, on the part of the debtor, of offering to the interested parties
creditor the thing or amount due
Article 1257. In order that the
Tender of Payment must be: consignation of the thing due may release the
(1) In legal tender – payment through e.g., obligor, it must first be announced to the
promissory note or cheque gives the creditor the persons interested in the fulfillment of the
right to refuse the payment of debtor obligation.
(2) Include interest – if the debtor refused to pay The consignation shall be ineffectual if it
the interest and only want to pay for the principal, is not made strictly in consonance with the
the creditor has the right to refuse provisions which regulate payment. (1177)
(3) Unconditional
: the persons interested in the fulfillment of the
Proof of Tender of Payment. The tender must be obligation are the guarantor, mortgagees,
proved by the debtor in the proper case in order to solidary debtors, solidary creditors, etc. must be
consign in the court notify
: the purpose of the announcement is to give the
creditor a chance to reflect on his previous refusal
to accept the payment
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1258. Consignation shall be made : the debtor will bear the expenses
by depositing the things due at the disposal of Article 1261. If, the consignation having
judicial authority, before whom the tender of been made, the creditor should authorize the
payment shall be proved, in a proper case, and debtor to withdraw the same, he shall lose every
the announcement of the consignation in other preference which he may have over the thing.
cases. The co-debtors, guarantors and sureties shall
The consignation having been made; the be released. (1181a)
interested parties shall also be notified thereof.
(1178) Effect of Withdrawal with Authority of Creditor
(1) the creditor shall lose every preference which
: process of consignation – (1) depositing the he may have over the thing
thing due at the disposal of the judicial authority; (2) (2) The co-debtors, guarantors, and sureties shall
there must be proof that tender had been previously be released
made; (3) notice to the interested person that
consignation will be made and as well as after the
consignation has been made

Article 1259. The expenses of

consignation, when properly made, shall be
charged against the creditor. (1179)

: because of the fault or unjust refusal of the creditor

to accept payment the expenses of consignation
should be charged against him
: if the consignation is not properly made the
expenses are chargeable to the debtor

Article 1260. Once the consignation has

been duly made, the debtor may ask the judge to
order the cancellation of the obligation.
Before the creditor has accepted the
consignation, or before a judicial declaration that
the consignation has been properly made, the
debtor may withdraw the thing or the sum
deposited, allowing the obligation to remain in
force. (1180)

Withdrawal by Debtor of Thing/Sum Deposited

The debtor, however, may withdraw as a matter of right
the thing or sum deposited…
(1) before the creditor has accepted the
consignation or
(2) before a judicial declaration that the
consignation has been properly made, as he is still
the owner of the same.

: in such a case, the obligation shall continue to

remain in force.
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER IV: EXTINGUISHMENT OF Article 1263. In an obligation to deliver a

OBLIGATIONS generic thing, the loss or destruction of
anything of the same kind does not extinguish
SECTION 2. LOSS OF THE THING DUE the obligation. (n)
*loss of generic thing
There is a loss: Principle: Generic thing never perishes. It can
➔ when the object perishes always be replaced
➔ goes out of commerce (expired foods) Exception: delimited generic thing
➔ disappears in such a way that its existence
is unknown Example of Delimited Generic Thing: B obliged
➔ its existence is known but cannot be himself to deliver to A a one hundred (100) sacks
recovered of rice from this December 2020 harvest. Before
There is impossibility of performance: the due date, the thing is destroyed due to
➔ physical impossibility typhoon.
➔ legal impossibility
Question: Is the obligation extinguished?
- Yes, because aside from it has been
: the effect of loss of the thing is extinguishment of destroyed without the debtors fault it is
obligation because it is no longer possible to deliver stipulated that the sacks of rice are from
the object but it can be converted into monetary December 2020 harvest
obligations

Article 1264. The courts shall determine

Article 1262. An obligation which consists
whether, under the circumstances, the partial
in the delivery of a determinate thing shall be
loss of the object of the obligation is so
extinguished if it should be lost or destroyed
important as to extinguish the obligation. (n)
without the fault of the debtor, and before he has
incurred in delay.
Effect of Partial Loss of a Specific Thing
When by law or stipulation, the obligor is
- a portion of the thing is lost or destroyed or
liable even for fortuitous events, the loss of the
when it suffers depreciation or deterioration
thing does not extinguish the obligation, and he
- equivalent of difficulty of performance in
shall be responsible for damages. The same rule
obligation to do
applies when the nature of the obligation - the court is given the discretion, in case of
requires the assumption of risk. (1182a) disagreement between the parties to decide
*loss of specific thing whether the partial loss is such as to be
equivalent to a complete or total loss
General Rule: loss of the thing = obligation
extinguished When is partial loss considered as total loss?
Exceptions: debtor is in default, when law so - when the loss is so material and the
provides, when the stipulation so provides, nature of remaining portion of the object is
obligation requires assumption of risk, obligation insignificant or immaterial, partial loss of the
arises from a crime thing may be considered as total

Requisites:
(1) the obligation is to deliver a specific or
determinate thing;
(2) the loss of the thing occurs without the fault of
the debtor
(3) the debtor is not guilty of delay
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1265. Whenever the thing is lost in Example: B obliged himself to construct a
the possession of the debtor, it shall be commercial building for A. The government refuses
presumed that the loss was due to his fault, to issue building permit because the area has been
unless there is proof to the contrary, and without declared by law as a residential zone. Therefore,
prejudice to the provisions of Article 1165. This the obligation has become legally impossible.
presumption does not apply in case of
earthquake, flood, storm, or other natural Article 1267. When the service has
calamity. (1183a) become so difficult as to be manifestly beyond
*a presumption only wherein it can be overcome by the contemplation of the parties, the obligor may
providing proof that the debtor is not at fault also be released therefrom, in whole or in part.
(n)
Example: B borrowed the car of A. On the due date *another exception to obligatory force of a contract
of returning the car, B told A that the car was lost *one party must cast for release
and that it is not his fault. The obligation will not be
extinguished and there will be a presumption that General Rule: impossibility of performance
the car is loss due to B’s fault. Hence, he is liable releases the obligor (debtor)
unless he proves the contrary
Suppose the house of B was destroyed Effect of Difficulty of Performance
because of fire. It is admitted that there was a fire - releases the obligor (debtor) from the
and it was accidental and that the car was in the obligation in whole or in part
house at the time it occurred. Here, B is not liable Example: X agreed to construct a road near a
unless A proves fault on the part of B. mountain. A very strong typhoon caused an
avalanche making the construction of the road
Article 1266. The debtor in obligations to dangerous to human lives. (Note: The obligation is
do shall also be released when the prestation not impossible of performance.)
becomes legally or physically impossible without In this case, X may be released, in whole or
the fault of the obligor. (1184a) in part, from his obligation to continue with the
*loss or impossibility of performance in personal
construction.
obligation
*there must be an obligation first then later on it becomes
legally or physically impossible Article 1268. When the debt of a thing
certain and determinate proceeds from a
Effects of Impossibility of Performance criminal offense, the debtor shall not be
- impossibility must exist after the constitution exempted from the payment of its price,
of the obligation – because if even the whatever may be the cause for the loss, unless
obligation is impossible from the very the thing having been offered by him to the
beginning, the obligation is void therefore, person who should receive it, the latter refused
there is no obligation to be extinguished without justification to accept it. (1185)
*does not exempt the debtor from liability
Example: B obliged himself to construct a
commercial building for A. One week after, B dies Effect of Loss where Obligation proceeds from
that results to physically impossible to construct the a Criminal Offenses
building of A. Therefore, B is released from his - the obligation subsists except when the
obligation and the obligation is extinguished. creditor refused to accept the thing (e.g.,
stolen property), without justification, after it
had been offered to him (mora accipendi)
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Example: B stole the car of A. He is ordered to

return the stolen car. Before the delivery, the house
of B has been destroyed due to fire including the
car of A

Question: Is B’s obligation extinguished?

- No, because the obligation arises from
criminal offense which makes him still liable
Question: Supposed before the fire, B tendered
the car but A refused to accept, is the obligation
to deliver extinguished?
- Yes, because the creditor is under mora
accipendi
Question: What should B do, if A refuse to
accept?
- B has an option to consign the thing in the
court or keep it in his possession until it has
delivered to A. While it in his possession B
has to exercise the due diligence of a good
father.

Article 1269. The obligation having been

extinguished by the loss of the thing, the creditor
shall have all the rights of action which the
debtor may have against third person by reason
of the loss. (1186)

Right of Creditor to Proceed against Third

Persons
- the creditor is given the right to proceed
against the third person responsible for the
loss
- no need for an assignment by the debtor
- the rights of action of the debtor are
transferred to the creditor from the moment
the obligation is extinguished, by operation
of law to protect the interest of the latter by
reason of the loss
Example: B is obliged to deliver a watch to A. C get
the watch from B and loss the thing at her fault. A
has a right to proceed against C because the
moment that the watch was loss at the fault of C,
the obligation of B to deliver the thing has been
extinguished.
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER IV: EXTINGUISHEMENT OF (2) As to its form:

OBLIGATIONS a. Express – when it is made either verbally
or in writing;
SECTION 3. CONDONATION OR REMISSION OF b. Implied – when it can only be inferred from
THE DEBT conduct
(3) As to its date of effectivity:
Article 1270. Condonation or remission is a. Inter vivos – when it will take effect during
essentially gratuitous, and requires the the lifetime of the donor; or
acceptance by the obligor. It may be made b. Mortis causa – when it will become
expressly or impliedly. effective upon the death of the donor. It
One and the other kind shall be subject to must comply with the formalities of a will.
the rules which govern inofficious donations.
Express condonation shall, furthermore, comply
Article 1271. The delivery of a private
with the forms of donation. (1187)
document evidencing a credit, made voluntarily
by the creditor to the debtor, implies the
Condonation or Remission
renunciation of the action which the former had
: the creditor will no longer enforce the obligation of
against the latter.
the debtor
If in order to nullify this waiver it should
: a gratuitous abandonment by the creditor of his
be claimed to be inofficious, the debtor and his
right in favor of the debtor
heirs may uphold it by proving that the delivery
of the document was made in virtue of payment
Example: X is indebted to Y for P500,000 payable
of the debt. (1188)
Dec. 31 next year. Before the due date, Y told X
that he no longer needs to pay for the P500,000.
Presumption in case Private Document of
Therefore, the obligation was extinguished through
Indebtedness Voluntarily Delivered by Creditor
condonation or remission.
(1) Presumption of implied remission. The delivery
of the private document be a voluntary act of the
Requisites:
creditor
(1) it must be gratuitous;
(2) Contrary evidence. Evidence is admissible to
*walang kapalit dapat; free of charge, voluntary
show.
(2) it must be accepted by the obligor
*like the donation it must be with consent of the debtor or (3) Extent of remission. If the obligation is joint, the
the debtor is aware in order to be effected presumption of remission, when applicable,
(3) the parties must have capacity pertains only to the share of the debtor who is in
(4) it must not be inofficious possession of the document; if solidary, to the total
*inofficious or excessive – no one can give more than obligation.
what she can give by will (4) Presumption applicable only to private
*shall be reduced by the court accordingly document.
(5) If made expressly, it must comply with the forms
of donation Example: B issues promissory note in favor of A in
an amount of P1M. Later on, A delivered back the
Kinds of Remission promissory note to B without collecting the P1M. In
(1) As to its extent: this case, there is a presumption of implied
a. Complete – when it covers the entire remission/condonation.
obligation; *since it is only a presumption A can prove that there is
b. Partial – when it does not cover the entire no remission happened and prove that there is other
obligation intention or purpose on delivering the private document
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1272. Whenever the private Article 1274. It is presumed that the
document in which the debt appears is found in accessory obligation of pledge has been
the possession of the debtor, it shall be remitted when the thing pledged, after its
presumed that the creditor delivered it delivery to the creditor, is found in the
voluntarily, unless the contrary is proved. (1189) possession of the debtor, or of a third person
who owns the thing. (1191a)
Presumption in case Private Document found in
Possession of Debtor Presumption in Case Thing Pledged Found in
- if the private document which a debt Possession of Debtor
appears is found in the possession of the - If the thing pledged is later found in the
debtor there is a presumption of voluntary hands of the debtor or the third person, only
delivery the accessory obligation of pledge is
presumed remitted, not the principal
Example: D owes C P1,000.00 evidenced by a
obligation itself.
promissory note. The note, signed by D, is given to
- the debtor does not have to return the thing
C. pledged (accessory obligation)
If the promissory note is voluntarily delivered
to D, the presumption is that the debt must have
been paid by D.
If it is known that D has not yet paid C, it
must be presumed that the obligation has been
remitted by C. (Art. 1271.)
Suppose it is not known how D came into
possession of the promissory note. The
presumption is that it was voluntarily delivered by C,
unless C proves the contrary. (Art. 1272.)

Article 1273. The renunciation of the

principal debt shall extinguish the accessory
obligations; but the waiver of the latter shall
leave the former in force. (1190)

Effect of Renunciation of Principal Debt on

Accessory Obligation
- follows the rule that the accessory follows
the principal while the accessory obligation
cannot exist without the principal obligation,
the latter (principal obligation) may exist
without the former (accessory obligation)
Example: B owes A P1M while C is the guarantor.
Principal Obligation → P1M
Accessory Obligation → the obligation of C as a
guarantor if B did not pay the debt C will be liable

If A renounced the obligation of B, the obligation of

C will be extinguished also. But if the obligation of C
is renounced by A, then it will be extinguished while
the obligation of B will remain enforceable.
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER IV: EXTINGUISHMENT OF *while extinguishment of principal obligation also

OBLIGATIONS extinguishes the accessory obligation

SECTION 4. CONFUSION OR MERGER OF Effect of Merger in the Person of Principal

RIGHTS Debtor or Creditor
- merger in the person of principal debtor or
Article 1275. The obligation is creditor extinguishes the obligation →
extinguished from the time the characters of extinguishes accessory obligation
creditor and debtor are merged in the same Example:
person. (1192a) B (d) ------ P1M ------- A (c)
E (guarantor)
Confusion or Merger A assigned the credit to F. Later on, F assigned
: the capacities of creditor and debtor are united in the credit to B.
the same person - Hence, E, the guarantor, is released from
his obligation as a guarantor because there
Basis for Confusion is a confusion or merger happened in the
(1) The law treats confusion or merger as a mode of principal obligation
extinguishing obligations because if a debtor is his
own creditor, enforcement of the obligation
Effect of Merger on Guarantors
becomes absurd since a person cannot claim
- extinguishment of accessory obligation
payment from himself.
does not carry with it that of the principal
obligation
Example: P loan to M P500,000. M issued a - the principal obligation is in force
promissory note payable to P. Later, P sells the
note to A, A to B, B to C, and C back to M. Example:
B (d) ------ P1M ------- A (c)
Requisites of Confusion E (guarantor)
(1) It must take place between the principal debtor A assigned the credit to F. Later on, F assigned the
and creditor; credit to E, the guarantor
(2) It must be complete and definite; - the obligation of E is extinguished.
(3) The very obligation involved must be the same however, the principal obligation subsists. E
or identical. now is the new creditor and can demand
payment from B
Usual Causes of Confusion
(1) Succession.
(2) Donation
(3) Negotiation of a Negotiable Instrument
(endorsing)

Article 1276. Merger which takes place in

the person of the principal debtor or creditor
benefits the guarantors. Confusion which takes
place in the person of any of the latter does not
extinguish the obligation. (1193)
*accessory follows the principal
*extinguishment of accessory obligation leaves the
principal obligation in force
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1277. Confusion does not

extinguish a joint obligation except as regards
the share corresponding to the creditor or debtor
in whom the two characters concur. (1194)

Example: B and C are jointly liable to A in an

amount of P1M evidence by a promissory note. A
endorsed the promissory note to F. Later on, F
endorsed the same promissory note to C. In here,
the share of C is extinguished but the share of B
with an amount of P500,000 still subsist since they
are under joint obligation, wherein debts are distinct
and separate from each other.

: merger in the person of one of the solidary debtors

shall extinguish the entire obligation and has the
right to claim for reimbursement.
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER IV: EXTINGUISHMENT OF Kinds of Compensation

OBLIGATIONS (1) By its effect or extent:
a. Total – both obligations are of the same
SECTION 5. COMPENSATION amount and are entirely extinguished
b. Partial – two obligations are of different
Article 1278. Compensation shall take amounts and a balance remains
place when two persons, in their own right, are (2) By its cause or origin:
creditors and debtors of each other. (1195) a. Legal – it takes place by operation of law
when all the requisites are present even
Compensation without the knowledge of the parties
: both parties are creditor and debtor to each other b. Conventional or Voluntary – it takes
: partially or complete place by agreement of the parties
c. Judicial – it takes place by order from a
Example: X is indebted to Y for P100,000. Y is also court in a litigation
indebted to X for P100,000. d. Facultative – when it can be set up only by
one of the parties
Example: X is indebted to Y for P100,000. Y is also Example: B is indebted to A in an amount of P1M
indebted to X for P80,000. Assuming that both due on December 15. In another transaction, A is
debts are due and payable today. The also indebted to B with the same amount of P1M
compensation takes place immediately by operation demandable on or before December 30. A who is
of law and it takes place partially to the concurrent given a benefit of term may claim compensation
amount of P80,000, therefore, X is now liable to Y because she can choose to pay his debt on or
with an amount of P20,000. The obligation of X is before the stipulated date.
extinguished while the obligation of Y still subsists.

COMPENSATION CONFUSION
two persons, each of one person who is creditor
whom is a debtor and a and debtor of himself
creditor of the other
two obligations one obligation

COMPENSATION PAYMENT
takes effect by operation takes effect by act of the
of law parties
the law permits partial it is necessary that the
extinguishment of the obligation is complete in
obligation order to be extinguished
the parties must have the it is not required that the
free disposal of the thing parties have the capacity to
due and capacity to give or to receive, as the
alienate case may be (Art. 1290)

COMPENSATION COUNTERCLAIM
both debts consist in such requirement is not
money, or things due that provided
are consumable, they be
of the same kind and
quality
two debts must be no requirement
liquidated
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1279. In order that compensation Example: B obliged himself to deliver A 10 sacks
may be proper, it is necessary: of rice. On the other hand, A also has an obligation
(1) That each one of the obligors be bound to deliver B 10 sacks of corn. There will be no
principally, and that he be at the same time a compensation even if they are both consumable
principal creditor of the other; things because they are not in the same kind and
(2) That both debts consist in a sum of quality.
money, or if the things due are consumable, they
be of the same kind, and also of the same quality Example: A owes B any horse. B owes A any
if the latter has been stated; horse. Compensation will take place in this case,
(3) That the two debts be due; although the things due are not consumable since
(4) That they be liquidated and the things due are of the same kind. As to their
demandable; quality, Article 1246 governs.
(5) That over neither of them there be any *the creditor cannot demand superior quality and the
retention or controversy, commenced by third debtor cannot deliver an inferior quality
persons and communicated in due time to the
debtor. (1196) Example: A owes B P10,000.00 B owes A
P10,000.00 or a cow. There can be no legal
Requisites: compensation because B may prefer to deliver a
(1) The parties are principal creditors and cow. But if the right of choice belongs to A,
principal debtors of each other. compensation will take place.

Example: X is indebted to Y for P100,000 with Z as Example: A owes B a specific horse. B owes A
guarantor. Y is also indebted to X for P100,000. In another specific horse. Compensation cannot be
this situation, compensation will take place set up by A or B (see Art. 1244.), unless both
because X and Y are principal debtors and creditors agree.
of each other
(3) The two debts are due or demandable.
Example: X is indebted to Y for P100,000 with Z as *due – period has arrive or condition has been fulfilled
guarantor. Y is indebted to Z for P100,000. There *demandable – no debts has prescribed and must be
valid and legal
will be no compensation between Y and Z
Example: B owes A P1M payable on December
because while Y is principally liable to Z, Z is merely
25. A owes B P1M payable on December 30.
subsidiarily liable to X for being a guarantor. Hence,
Z can demand payment from Y.
Question: Can there be legal compensation on
December 25?
(2) Both debts consist in a sum of money, or of
- No, because one of the debts is not yet due
consumable things of the same kind and
- But it can be a voluntary compensation if
quality.
both parties have agreed to it. But by
operation of law there will be no
Example: B obliged himself to deliver A 10 sacks of compensation for it lacks one requisite
“wagwag” rice. On the other hand, A also has an
obligation to deliver B any 10 sacks of rice. (4) The two debts are liquidated.
Compensation will take place but only A can *liquidated – debts can already be determine or
ascertained
claimed compensation since he can deliver any kind
Example: B owes A P10,000. A owes B share in
of rice. It would be the same as if A will receive 10
the business which the amount is unliquidated. No
sacks of “wagwag” rice from B and then returned
compensation will take place as the debt of A is not
the same to B in payment of his debt. This is an
liquidated. If part of the debt of B has been
example of facultative compensation.
liquidated, compensation takes place with respect
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

to that part without waiting for the liquidation of the Requisites:

rest. (Art. 1248.) (1) each of the parties has the right to dispose of
the credit he seeks to compensate
(5) No retention or controversy has been (2) they agree to the mutual extinguishment of their
commenced by a third person. credits

Article 1280. Notwithstanding the Article 1283. If one of the parties to a suit
provisions of the preceding article, the guarantor over an obligation has a claim for damages
may set up compensation as regards what the against the other, the former may set it off by
creditor may owe the principal debtor. (1197) proving his right to said damages and the
*compensation benefits guarantors amount thereof. (n)

Example: B owes A P1M with E as guarantor. A Judicial Compensation or set-off

owes B P300,000 in another transaction. On due : compensation ma take place when so declared
date, A demand the P1M from B but B cannot pay, by a final judgement of a court in a suit
so E as the guarantor of B will pay for the debt.
: a party may set off his claims for damages
Question: How much will E pay? against his obligation to the other party by proving
- P700,000 because E can set up the his right to the said damages and amount thereof –
P300,000 credit of B as the basis for partial all the requisites under Article 1279 must also be
compensation. present – except at the time of pleading, the claim
Article 1281. Compensation may be total is not yet liquidated because the liquidation or
or partial. When the two debts are of the same determination of amount must be made in that
amount, there is a total compensation. (n) proceedings

: total compensation results when the two debts are Article 1284. When one or both debts are
of the same amount rescissible or voidable, they may be
: if they are of different amounts, compensation is compensated against each other before they are
total as regards the smaller debt, and partial only judicially rescinded or avoided. (n)
with respect to the larger debt
Compensation of Rescissible or Voidable
Article 1282. The parties may agree upon Debts
the compensation of debts which are not yet due. : it is valid until they are judicially rescinded or
(n) avoided
: prior to rescission or annulment, the debts may
Voluntary Compensation be compensated against each other
: an exception to the general rule that only debts
which are due and demandable can be Example: A owes B P10,000.00. Subsequently, A,
compensated through fraud was able to make B sign a
: takes place by agreement of the parties even if all promissory note that B is indebted to A for the
the requisites for legal compensation are not same amount.
present The debt of A is valid but that of B is
: absence of mutual creditor-debtor relation cannot voidable. Before the debt of B is nullified, both
negate the conventional compensation debts may be compensated against each other if
all the requisites for legal compensation are
present. (Art. 1279.)
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Suppose B’s debt is later on annulled by the Example: X is indebted to Y for P100,000. Y, on
court, is A still liable considering that compensation the other hand, is indebted to X for the following
had already taken place? Yes. The effect of the amount (together with due dates):
annulment is retroactive. It is the same as if there June 13 – P10,000 June 25 – P10,000
had been no compensation. June 18 – P12,000 July 1 – P15,000
June 22 – P8,000
Article 1285. The debtor who has Total Amount: P55,000
consented to the assignment of rights made by a
creditor in favor of a third person, cannot set up Question: Assuming on June 24, Y assigned
against the assignee the compensation which the P100,000 to Z (new creditor). X gained
would pertain to him against the assignor, unless knowledge of assignment on June 26. How
the assignor was notified by the debtor at the much can Z collect from X?
time he gave his consent, that he reserved his
right to the compensation. HOW EXTENT OF HOW MUCH CAN
If the creditor communicated the cession ASSIGNED? COMPENSATION X SETUP AS
to him but the debtor did not consent thereto, the COMPENSATION?
latter may set up the compensation of debts With debtors’ can setup
consent – compensation as
previous to the cession, but not of subsequent
with to any debts due P55,000 (Z can
ones. reservation collect P45,000)
If the assignment is made without the to
knowledge of the debtor, he may set up the compensation
compensation of all credits prior to the same and With debtors’ cannot setup
also later ones until he had knowledge of the consent – compensation as
assignment. (1198a) without to any debts due P0 (Z can collect
reservation P100,000)
*cession = assignment
to
compensation
Compensation in Assigned Debts Without can setup
HOW
EXTENT OF COMPENSATION debtor’s compensation as P30,000 (Z can
ASSIGNED? consent to debts due prior collect P70,000)
With debtors’ can setup compensation as to any to assignment
consent – with debts due Without can setup
reservation to debtor’s compensation as
compensation knowledge to debts due prior P40,000 (Z can
With debtors’ cannot setup compensation as to to debtor gaining collect P60,000)
consent – without any debts due knowledge of
reservation to assignment
compensation
Without debtor’s can setup compensation as to
consent debts due prior to assignment
Without debtor’s can setup compensation as to
knowledge debts due prior to debtor gaining
knowledge of assignment

with reservation – the debtor claims his rights to

compensation
without reservation – the debtor did not claim his
rights to compensation
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1286. Compensation takes place Example: B deposited P100,000 at ABC Bank.
by operation of law, even though the debts may Later on, B loan at the same bank P10,000.
be payable at different places, but there shall be
an indemnity for expenses of exchange or Question: Can the bank set-up compensation?
transportation to the place of payment. (1199a) - Yes, because deposits in bank are
governed by a contract of loan. The
Example: A owes B $1,000.00 payable in New depositor is the creditor and the bank is the
York. B owes A P28,000.00 (equivalent amount) debtor
payable in Manila.
(2) Commodatum. a gratuitous contract whereby
If A claims compensation, he must pay for the one of the parties delivers to another something
expenses of exchange. not consumable so that the latter may use the
same for a certain time and return it.
Example: A obliged himself to deliver to B 100 Example: A borrowed the car of B. B owes A
sacks of rice in Davao. B is also bound to deliver to P100,000. Later on, A cannot refuse to return the
A 100 sacks of rice of the same kind in Bulacan. car of B just because B is also indebted to him. No
The expenses for transportation of the rice to Davao compensation can take place when one of the
amount to P4,000 and to Bulacan, P1,000. debts arises from a commodatum.

If A claims compensation, he must indemnify B the (3) When one debt arises from a claim for
amount of P3,000 for the expenses of transportation support due by gratuitous title
of the rice to Davao Example: F is the father of B, a minor, who under
the law is entitles to be supported by F. Now B
Article 1287. Compensation shall not be owes F P50,000.
proper when one of the debts arises from a
depositum or from the obligations of a F cannot compensate his obligation to support B
depositary or of a bailee in commodatum. Neither by what B owes him because the right to receive
can compensation be set up against a creditor support cannot be compensated.
who has a claim for support due by gratuitous
title, without prejudice to the provisions of Article 1288. Neither shall there be
paragraph 2 of Article 301. (1200a) compensation if one of the debts consists in
civil liability arising from a penal offense. (n)
When Legal Compensation Cannot Take Place:
(1) When one debt arises from a depositum continuation of Article 1287…
*depositum = safe keeping (4) If one debt arises from a crime
Example: B deposited to A 100 sacks of rice valued Example: B owes A P10,000. Later on, A and B
at P100,000. B is also indebted to A in an amount of has an altercation and A has inflected physical
P1M. Later on, when B asked A for withdrawal of injuries against B. B filed a case against A, and the
the 100 sacks of rice, A refuses to deliver and court rendered judgement in favor of B against A,
claiming compensation. and ordered to pay B P10,000, applying the
principle “a person criminally liable is also civilly
Question: Is A allowed to ask for liable”. A cannot set-up compensation because the
compensation? debt of A to B arises from a crime. But B, the
- No, because the obligation is arising from offended party, can set-up compensation because
deposit and therefore, compensation shall the provision of Article 1288 pertains only to the
not be proper.
accused
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1289. If a person should have

against him several debts which are susceptible
of compensation, the rules on the application of
payments shall apply to the order of the
compensation. (1201)

Rules on Application of Payments Applicable to

Order of Compensation
(1) If a debtor has various debts which are
susceptible of compensation, he must inform the
creditor which of them shall be the object of
compensation
(2) In case he fails to do so, then the compensation
shall be applied to the most onerous obligation

Example: B owes A P1,000 and another P1,000

with 6% interest due today. A owes B P1,000 due
today. B must specify to A which of the two debts
should be compensated. If he fails to inform A, then
the latter should apply the compensation to the
second obligation of B, namely, the obligation
bearing the 6% interest because it is the most
onerous obligation.

Article 1290. When all the requisites

mentioned in Article 1279 are present,
compensation takes effect by operation of law,
and extinguishes both debts to the concurrent
amount, even though the creditors and debtors
are not aware of the compensation. (1202a)

Consent of Parties Not Required in Legal

Compensation
(1) Compensation occurs automatically by mere
operation of law. Even in the absence of
agreement between the parties and even against
their will, and extinguishes both debts to the
concurrent amount.
*concurrent amount – one debt is larger than the other
debt and have a balance left that will still subsists
(2) Full legal capacity of parties not required
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER IV: EXTINGUISHMENT OF Example: S agreed to deliver to B a car. Later,

OBLIGATIONS they entered into another contract whereby,
instead of S delivering a car, he would deliver 10
SECTION 6. NOVATION air conditioners. The obligation to deliver the car is
extinguished by the obligation to deliver the 10 air
Article 1291. Obligations may be modified by: conditioners. The change may involve the principal
(1) Changing their object or principal terms of the obligation.
conditions;
(2) Substituting the person of the debtor; b. Personal Novation – change of subject
(3) Subrogating a third person in the (Either the debtor or the creditor)
rights of the creditor. (1203) 1. Substitution (Debtor)
i. Expromission. A third person will
Novation initiate the substitution and will be
: a change of obligation the new debtor
: the act of replacing a legitimate existing contract ii. Delegacion. The original debtor
initiates the substitution
with a new contract, where the transfer is mutually
2. Subrogation (Creditor)
agreed by both parties concerned
c. Mixed Novation – change of the prestation
: total or partial extinction of an obligation through
and one of the subjects
the creation of a new one which substitutes it.

Example: X is indebted to Y for P100,000. X and Y

agreed that instead of P100,000, X will be giving his
car instead as payment.

Kinds of Novation
(1) According to origin:
a. Legal – which takes place by operation of
law
b. Conventional – which takes place by
agreement of the parties
(2) According to how it constituted:
a. Express – when it is so declared in
unequivocal terms
b. Implied – when the old and the new
obligations are essentially incompatible with
each other
(3) According to extent or effect:
a. Total or Extinctive – when the old
obligation is completely extinguished
b. Partial or Modificatory – when the old
obligation is merely modified
(4) According to the subject:
a. Real Novation – change of prestation or
principal condition
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

EFFECT OF NOVATION EFFECT OF NOVATION ON ACCESSORY

OBLIGATIONS
Article 1292. In order that an obligation
may be extinguished by another which Article 1296. When the principal
substitutes the same, it is imperative that it be so obligation is extinguished in consequence of a
declared in unequivocal terms, or that the old novation, accessory obligations may subsist
and the new obligations be on every point only insofar as they may benefit third persons
incompatible with each other. (1204) who did not give their consent. (1207)

General Rule: Old obligation is extinguished and Example: A owes B P2,000 with interest at 14%. B
replaced by the new one stipulated owes C P280 – interest. It was agreed among the
parties that A would pay the interest of P280 to C.
Requisites: In this case, beside the principal obligation of A,
(1) The existence of a previous valid obligation there is stipulation in favor of C, a third person.
(2) The intention or agreement and capacity of the Later on, A and B executed another contract
parties to extinguish or modify the obligation whereby they agreed that A would deliver to B a
(3) The extinguishment or modification of the television set in payment if the loan.
obligation
(4) The creation or birth of a valid new obligation In spite of the novation, the accessory obligation to
pay interest of P280 to C still subsists unless C
Article 1297 and Article 1298 there is no novation if gives his consent to the novation.
the new obligation and original obligation is void.

Article 1297. If the new obligation is void,

the original one shall subsist, unless the parties
intended that the former relation should be
extinguished in any event. (n)

if new obligation is VOID → the original one shall

subsist
if new obligation is VOIDABLE → Novation can take
place

Article 1298. The novation is void if the

original obligation was void, except when
annulment may be claimed only by the debtor, or
when ratification validates acts which are
voidable. (1208a)

if original obligation is VOID → Novation is void

if original obligation is VOIDABLE → Novation can
be valid IF the voidable obligation is ratified before
novation and until it is annulled in court
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

SUBSTITUTION Example: D owes C P1,000. D propose to C that X

would substitute him as debtor. C agreed to the
Article 1293. Novation which consists in proposal. If, at the time of the delegacion, X was
substituting a new debtor in the place of the already insolvent but his insolvency was neither of
original one, may be made even without the public knowledge nor known to D, then D is not
knowledge or against the will of the latter, but not liable. Neither is D liable if the insolvency of X took
without the consent of the creditor. Payment by place after he delegated his debt.
the new debtor gives him the rights mentioned in
Articles 1236 and 1237. (1205a) When old debtor’s debt can be revived?
(1) New debtor’s insolvency exists before or during
Substitution the delegacion
: the person of the debtor is substituted (2) The old debtor has knowledge of insolvency or
: with or without the knowledge or against the will of if he has none, the new debtor’s insolvency is of
the latter (or original debtor) public knowledge (Art. 1295)
: must have the consent of the creditor
Article 1300. Subrogation of a third
Article 1294. If the substitution is without person in the rights of the creditor is either legal
the knowledge or against the will of the debtor, or conventional. The former is not presumed,
the new debtor’s insolvency or non-fulfillment of except in cases expressly mentioned in this
the obligation shall not give rise to any liability Code; the latter must be clearly established in
on the part of the original debtor. (n) order that it may take effect. (1209a)
Article 1295. The insolvency of the new
debtor, who has been proposed by the original Subrogation
debtor and accepted by the creditor, shall not : a third person is subrogated in all the rights of the
revive the action of the latter against the original creditor (against the debtor or third persons,
obligor, except when said insolvency was guarantors or possessors of mortgages, subject to
already existing and of public knowledge, or stipulation in a conventional subrogation
known to the debtor, when he delegated his debt.
(1206a) a. Legal Subrogation. A creditor pays
another creditor who is preferred, even
a. Expromission. A third person will initiate without the debtor’s knowledge; done by
the substitution and will be the new debtor; operation of law
the consent of the creditor is needed
*when a third person paid without the knowledge Article 1301. Conventional subrogation of a
of the debtor the person will have the right to third person requires the consent of the original
claim for reimbursement parties and of the third person. (n)
When old debtor’s debt can be revived?
b. Conventional Subrogation. Conventional
(1) No revival (Art. 1294)
subrogation of a third person requires the
(2) There may be a revival if old debtor is an
consent of the original parties and of the
accomplice of the new debtor
third person. (Art. 1301)

b. Delegacion. The original debtor initiates the Example:

substitution or takes the initiative to present C ----- 100,000 ----- D – G (guarantor), M
to the creditor a new debtor (mortgagor)
Mr. X – new creditor → subrogation
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1302. It is presumed that there is Article 1304. A creditor, to whom partial
legal subrogation: payment has been made, may exercise his right
(1) When a creditor pays another creditor for the remainder, and he shall be preferred to
who is preferred, even without the debtor’s the person who has been subrogated in his
knowledge; place in virtue of the partial payment of the same
(2) When a third person, not interested in credit. (1213)
the obligation, pays with the express or tacit
approval of the debtor; c. Partial Subrogation. A creditor, to whom
(3) When, even without the knowledge of partial payment has been made, may
the debtor, a person interested in the fulfillment exercise his right for the remainder, and he
of the obligation pays, without prejudice to the shall be preferred to the person who has
effects of confusion as to the latter’s share. been subrogated in his in virtue of the
(1210a) partial payment of the same credit. (Article
1304)
Legal Subrogation happens when the following Example: D is indebted to C for P10,000. X pays C
pays the creditor: P6,000 with the consent of D. There is here
(1) When a creditor pays another creditor who is subrogation as to the amount of P6,000. C remains
preferred, even without the debtor’s knowledge; the creditor with respect to the balance of P4,000.
Example: A owes B P1,000 secured by a first Thus, two credits subsist. In case of insolvency of
mortgage on the land of A. A also owes C P2,000. D, C is preferred to X, that is, he shall be paid from
This debt is unsecured. Under the law, B, who is a the assets of B ahead of X
preferred creditor, has preference to payment with --------------------------------------------------------------------
respect to the land as against C who is merely an Article 1299. If the original obligation was
ordinary creditor. If C pays the debt of A to B, C will subject to a suspensive or resolutory condition,
be subrogated in B’s right so that he can have the the new obligation shall be under the same
mortgaged foreclosed in case A fails to pay the condition, unless it is otherwise stipulated. (n)
P1,000 debt.
Effect if the Original Obligation is Conditional
(2) When a third person, not interested in the - the condition that is originally attached to
obligation, pays with the express or tacit approval of the original obligation will also be attached
the debtor; to the new obligation
Example: A owes B P1,000. C pays B with the - exception: if there is contrary stipulation
express or implied consent of A. In this case, C will
Example: B promised A to deliver a car IF A pass
be subrogated in the rights of B.
her board exam. Later on, they have stipulated that
instead of a car B will give A house and lot.
(3) When, even without the knowledge of the
debtor, a person interested in the fulfillment of the
Article 1303. Subrogation transfers to the
obligation pays, without prejudice to the effects of
person subrogated the credit with all the rights
confusion as to the latter’s share. (Art. 1302)
thereto appertaining, either against the debtor
Example: Suppose in the same example, C is the
or against third persons, be they guarantors or
guarantor of A, C is a person interested in the
possessors of mortgages, subject to stipulation
fulfillment of the obligation of A as he would be
in a conventional subrogation. (1212a)
benefited by its extinguishment. If C pays B, even
without the knowledge of A, C is subrogated in the
Effect of Legal Subrogation
rights of B. Confusion takes place in the person of
- except only for the change in the person of
C. Hence, the guaranty is extinguished but the the creditor, the obligation subsists in all
principal obligation still subsists. respects as before the novation
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER I: GENERAL PROVISIONS b. Gratuitous – one of the parties

proposes to give to other a benefit
Article 1305. A contract is a meeting of
without any equivalent or compensation
minds between two persons whereby one binds
(e.g., commodatum)
himself, with respect to the other, to give
c. Remunerative – the cause is based on
something or to render some service. (1254a)
services or benefits already received
Contract
: meeting of minds between two contracting parties (4) According to relation to other contract
which takes place when an offer by one party is a. Principal – a principal contract is one
accepted by the other which can subsist independently from
: bind himself or themselves with respect to another other contracts and whose purpose can
or others, or reciprocally, to the fulfillment of a be fulfilled by themselves
prestation to give, to do, or not to do b. Accessory – existence depends upon a
principal contract (e.g., pledge,
CONTRACT OBLIGATIONS mortgage, guaranty)
one of the sources of legal tie or relation itself c. Preparatory – necessary as a
obligations that exists after a contract preliminary step towards the formation
has been entered into of another subsequent contract;
there can be no contract if there is no obligation
preparatory is also principal contracts
but an obligation may exist without a contract
CONTRACT AGREEMENTS
that can exist independently
all contracts are agreement
not all agreements are contracts (5) According to risks
a. Commutative – when the undertaking
Classifications of Contract of one party is considered the equivalent
(1) According to name of that of the other (e.g., sales, lease –
a. Nominate – one which has a name or equivalent exchange)
designation and is regulated by special b. Aleatory – when it depends upon an
provisions of law (e.g., sales, loan, uncertain event or contingency both as
partnership, donation – under the civil to benefit or loss (e.g., contract of
code) insurance, sale of hope such as lotto
b. Innominate – no specific name or ticket)
designation by the law
(6) According to parties obligated
(2) According to perfection a. Unilateral – only one party is obliged
a. Consensual – perfected by mere (e.g., commodatum, donation --
consent, object, and cause (COC) (e.g., gratuitous)
sales, real mortgage) b. Bilateral – both parties are obliged
b. Real – perfected by consent, object, and (e.g., sales, barter)
cause (COC) + the delivery of the object
by one party to the other (e.g., deposit, (7) According to binding force
pledge) a. Valid
c. Formal or Solemn – perfected by COC b. Rescissible
+ formalities required by law (e.g., c. Voidable
donation of real property, chattel d. Unenforceable
mortgage) e. Void or inexistent

(3) According to cause (8) According to number of persons who

a. Onerous – the cause has valuable participated in the drafting of contracts
consideration a. Ordinary
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

b. Contract of Adhesion – prepared only o by stipulation

by one party and the only participation o by nature
of the other party is to sign − the heir is not liable beyond the value of the
property he received from the decedent
Characteristics of Contract (MARCO)
(1) Mutuality of Contracts When third persons may be affected by a
− the contract must bind both contracting contract
parties; its validity or compliance cannot be o stipulation pour autrui (Art. 1311 par.
left to the will of one of the parties (Art. 2)
1308) o third persons in possession creating
− the determination of the performance may real rights (Art. 1312)
be left to a third person, whose decision o contract is entered to defraud
shall not be binding until it has been made creditor (Art. 1313)
known to both contracting parties (Art. o third person induced a party to a
1309) contract to violate the contract (Art.
− the determination shall not be obligatory if it 1314)
is evidently inequitable. In such case, the
(4) Consensuality of Contracts (Art.1315)
court shall decide what is equitable under
the circumstances (Art. 1310) − contracts are perfected by mere consent of
the parties with regards to the object and
Example: S sold his parcel of land to B. It was the cause
agreed that X, a real estate appraiser, would be the
one to determine the reasonable price of the land. (5) Obligatory Force of Contracts
X, then, fixed the price after considering all the − obligations arising from contracts have the
circumstances and factors affecting the value of the force of law between the contracting parties
land. and should be complied with in good faith
- the appraised value of the land by X is not (Art. 1159)
the binding of the contract yet. The value or
amount must be communicated first to the Article 1306. The contracting parties may
seller and buyer, from there the seller and establish such stipulations, clauses, terms and
buyer will discussed if they will agree with conditions as they may deem convenient,
the amount given by the appraiser. provided they are not contrary to law, morals,
good customs, public order, or public policy.
(2) Autonomy of Contracts (1255a)
− also called liberty of contracts or freedom to Freedom to Contract/Autonomy of Contract
stipulate in contracts : the right to enter into a contract is one of the
− the contracting parties may establish such liberties guaranteed to the individual by the
stipulations, clauses, terms, and conditions Constitution
as they may deem convenient, provided : it signifies the right to choose with whom one
they are not contrary to law, morals, good desires to contract
customs, public order, or public policy (Art. : a constitutional and statutory rights
1306) : the contract must not be contrary to law, morals,
good customs, public order, or public policy
(3) Relativity of Contracts
− benefits and consequences in the contract
take effects only between the parties, their
assigns and heirs (with exceptions)
− contracts are generally transmissible
except:
o by law
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1307. Innominate contracts shall

be regulated by the stipulations of the parties, by
the provisions of Titles I and II of this Book, by
the rules governing the most analogous
nominate contracts, and by the customs of the
place. (n)
Nominate Contract
: has a specific name or designation in law

Innominate Contract
: has no specific name or designation in law

Kinds of Innominate Contract

(1) do ut des (I give that you may give) – I give,
and you give
(2) do ut facias (I give that you may do) – I give,
and you do; a commutative contract whereby
something is given so that something may be done
in return (e.g., performing)
(3) facio ut des (I do that you may give) – I do, and
you give; a person agrees to do something for
reward
(4) facio ut facias (I do that you may do) – I do,
and you do;
*do ut des is, however, no longer an innominate contract
for it has already been given a name of its own, i.e.,
barter or exchange

Rules Governing Innominate Contracts

Innominate contracts shall be governed by:
(1) the agreement of the parties
(2) the provisions of the Civil Code on obligations
and contracts
(3) the rules governing the most analogous contract
*may kahawig na type of contract
(4) the customs of the place
*nakagawian
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

MUTUALITY OF CONTRACTS (5) Release of Obligor from Compliance

Article 1308. The contracts must bind Article 1309. The determination of the
both contracting parties; its validity or performance may be left to a third person, whose
compliance cannot be left to the will of one of decision shall not be binding until it has been
them. (1256a) made known to both contracting parties. (n)
Contract Binds Both Contracting Parties
(1) Principle of Mutuality of Contract Article 1310. The determination shall not
✓ a contract is an agreement which give rise be obligatory if it is evidently inequitable. In such
to obligations case, the courts shall decide what is equitable
✓ it must bind both parties in order that it can under the circumstances. (n)
be enforced against either; contract can be
renewed, revived, extended, abandoned,
renounced, or terminated ONLY BY
MUTUAL CONSENT of the parties
✓ WITHOUT MUTUALITY and EQUALITY
between the parties, it cannot be said that
the contract has the force of law between
them
✓ a party to a contract is liable for damages
for breach or violation
✓ breach of contract – failure without legal
reason to comply with the terms of the
contract or failure without legal excuse to
perform any promise which forms the whole
or part of the contract

(2) Fulfillment or Extinguishment of Contract

✓ a contract containing a condition which
makes its fulfillment or extinguishment
dependent exclusively upon the
uncontrolled will of one of the contracting
parties is void

(3) Renunciation or Violation of Contract

✓ an elementary rule that no party can
renounce or violate the law of the contract
unilaterally or without the consent of the
other
✓ “Its validity or compliance cannot be left to
the will of one of them”

(4) Proof of Alleged Defect in Contract

✓ If after a perfect and binding contract has
been executed between the parties it occurs
to one of them to allege defect as a reason
for annulling it, the alleged defect must be
conclusively proved since the validity and
fulfillment of contracts cannot be left to the
will of one of the contracting parties
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

EXCEPTIONS TO THE RELATIVITY OF Example: D is indebted to C for P1,000,000 with

CONTRACT 12% interest. It was stipulated that X will receive
the 12% interest. This stipulation is accepted by X
Article 1311. Contracts take effect only
and duly communicated the acceptance to D and C
between the parties, their assigns and heirs,
except in case where the rights and obligations
After a year, D and C decided to change the
arising from the contract are not transmissible
contract into giving a specific house and lot. Under
by their nature, or by stipulation or by provision
relativity of contracts, third person cannot act upon
of law. The heir is not liable beyond the value of
the decisions of the parties in a contract. However,
the property he received from the decedent.
X in this case is an exemption.
If a contract should contain some - the 12% interest that will benefit the third
stipulation in favor of a third person, he may person will remain even after there was a
demand its fulfillment provided he novation in the contract and obligation
communicated his acceptance to the obligor
before its revocation. A mere incidental benefit Persons Affected by A Contract
or interest of a person is not sufficient. The (1) General Rule – contracts take effect only
contracting parties must have clearly and between the parties, their assigns and heirs
deliberately conferred a favor upon a third (2) Real Parties in Interest
person. (1257a) (3) Exceptions – cases when a contract are
effective only between the parties are when the
Relativity of Contract rights and obligations arising from the contract are
: benefits and consequences in the contract take not transmissible:
effects only between the parties, their assigns and ✓ by their nature
heirs (with exceptions) ✓ by stipulation
: contracts are generally transmissible except: ✓ by provision of law
− by law
− by stipulation Article 1312. In contracts creating real
− by nature rights, third persons who come into possession
: the heir is not liable beyond the value of the of the object of the contract are bound thereby,
property he received from the decedent subject to the provisions of the Mortgage Law
and the Land Registration Laws.19 (n)
Stipulation Pour Autrui
: the direct conferment of a benefit towards the third Third Persons in Possession of a Property
person Creating Real Rights

Requisites of Stipulation Pour Autrui: Example: S sold to B a specific land for P1M. B
(1) There must be a stipulation in favor of a third occupied the said land but did not register it. One
person day, S sold the same land to X. X registered the
(2) The stipulation must be part, not the whole of said property at the Registry of Deeds
the contract - the third person or the second buyer has the
(3) The contracting parties must have clearly and right to the property since he registered it
deliberately conferred a favor upon a third person, already
NOT a mere incidental benefit or interest - the third person has the right to intervene
(4) The third person must have communicated his because the property is in his possession
acceptance to the obligor before its revocation
(5) No relation of agency exists between any of the
parties and third person favored
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1313. Creditors are protected in Article 1316. Real contracts, such as
cases of contracts intended to defraud them. (n) deposit, pledge and commodatum, are not
perfected until the delivery of the object of the
Contract is Entered to Defraud Someone
obligation. (n)
Creditors
: right of creditor to impugn contracts intended to Stages in The Life of a Contract
defraud them (1) Preparation or Conception
a. p
Example: D is indebted to C for P1M. D fearing b. th reparatory step which eventually will
that he won’t be able to pay the debt and ultimately leadto the perfection of contract;
his land being levied, sold the said land at a very c. the bargaining point therefore, there is no
low price to X with the condition that he can meeting of minds
purchase it back. d. ere will be negotiation
(2) Perfection
Article 1314. Any third person who a. there is already meeting of minds regarding
induces another to violate his contract shall be the subject matter and the cause of the
liable for damages to the other contracting party. contract
(3) Consummation
Third Person Induced a Party to a Contract to
a. the parties performed their respective
Violate the Contract
obligation therefore, the contract is put to an
end and has been extinguished
Example: After agreeing to sell his parcel of land to
B, S sells the land to C instead because of the
Example: On December 1, A offer B to sell a car
inducement of D. In this case, B can sue D for
for P1M (preparation stage). Then, on December 2,
damages.
B offer to buy the car for P800,000 and A
- the main contract is between B and S in
immediately accepted the counter offer of B
regards to the selling of land
(perfection stage). By December 3, A deliver the car
*inducement – a promise made to another party to make
them agree to a contract to B and B paid A P800,000 (consummation).

-------------------------------------------------------------------- How Contracts are Perfected

(1) Consensual – perfected by mere consent of the
Article 1315. Contracts are perfected by parties with regards to the object, and the cause of
mere consent, and from that moment the parties the contract (COC) (e.g., sales, real mortgage)
are bound not only to the fulfillment of what has (2) Real – perfected by consent, object, and cause
been expressly stipulated but also to all the (COC) + the delivery of the object by one party to
consequences which, according to their nature, the other (e.g., deposit, pledge)
may be in keeping with good faith, usage and (3) Formal or Solemn – perfected by COC +
law. (1258) formalities required by law (e.g., donation of real
property, chattel mortgage)
Exceptions: Real Contracts (Art.1316) and Formal
Contracts
*real contracts are perfected by COC + delivery of the
object
*formal contracts are perfected by COC + formalities
required by the law

Consensuality of Contracts
: contracts are perfected by mere consent with
regards to the object and the cause – essential
elements
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1317. No one may contract in the

name of another without being authorized by the
latter, or unless he has by law a right to
represent him.
A contract entered into in the name of
another by one who has no authority or legal
representation, or who has acted beyond his
powers, shall be unenforceable, unless it is
ratified, expressly or impliedly, by the person on
whose behalf it has been executed, before it is
revoked by the other contracting party. (1259a)
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER II: ESSENTIAL REQUISITES OF CHAPTER II: ESSENTIAL REQUISITES OF

CONTRACTS CONTRACRS
Article 1318. There is no contract unless SECTION 1. CONSENT
the following requisites concur:
Article 1319. Consent is manifested by
(1) Consent of the contracting parties; the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute
(2) Object certain which is the subject
the contract. The offer must be certain and the
matter of the contract; acceptance absolute. A qualified acceptance
(3) Cause of the obligation which is constitutes a counter-offer.
established. (1261)
Acceptance made by letter or telegram
does not bind the offerer except from the time it
Elements of Contract
came to his knowledge. The contract, in such a
*the elements may not always be subsist except for
case, is presumed to have been entered into in
essential elements
the place where the offer was made. (1262a)
(1) Essential Elements (Art. 1318 – 1355)
a. Consent – a voluntary agreement to Consent
another’s proposition : a voluntary agreement to another’s proposition
b. Object – a contract’s subject matter; the
thing (selling of property), service Requisites of Consent
(agency), or rights (assignment) in the (1) There must be two or more parties;
object of the obligation is also the object (2) The parties must be capable or capacitated;
of the contract (3) There must be no vitiation of consent;
c. Cause – the essential reason which (4) There must be no conflict between what was
moves the parties to enter into a expressly declared and what was really intended;
contract (5) Intent must be declared properly
*all 3 essential elements are required and must
always be exist in order to have a contract and a Requisites of Consent
contract to be called a contract (1) It must be manifested by the concurrence of the
(2) Natural Elements – initially present in a certain offer and acceptance (Art. 1319 – 1326)
contract at the birth of the contract and it can be (2) The contracting parties must possess the
removed later on in the contract (e.g., warranty necessary legal capacity (Art. 1327 – 1329)
against eviction and hidden defects in case of (3) It must be intelligent, free, spontaneous, and
sales) real (not vitiated) (Art. 1330 – 1346)
(3) Accidental Elements – it is initially does not
exist while forming the contract, it must be Offer
stipulated by the parties (e.g., stipulation such as : a specific proposal initiated by a party to enter into
interest in loan, modes of payment, penalties) an agreement with another
*agreement refers to the contract
*can be verbally or in writing

Note: an offer must be intentional and certain

Example: When offering to sell something, you

should specify the object being sold
*the object must certain as well as the price
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

SPECIAL CASES OF OFFERS compel S to accept the payment for there is

no consideration
Article 1320. An acceptance may be
express or implied. (n) Example of Unilateral Promise Accepted: S offer
Form of Acceptance of Offer to sell his land to B for Php 1,000,000. B refused.
(1) Acceptance by promise. An offer of a promise However, S still insist that he is willing to give B 30
or an act may be accepted by giving a promise. days to decide. B accepted the promise and gave S
(2) Acceptance by act. An offer is made that the Php 1,000 as option money.
offeror will do something else, if the offeree shall do - there will be binding and perfection of
a particular thing contract
(3) Acceptance by silence or inaction. As a rule, - this is only a option contract but not a sale
silence cannot be construed as acceptance. The of contract
acceptance must be affirmatively and clearly made
and evidenced by words or some acts or conduct Example of Bilateral Promise: S promised to sell
communicated to the offeror his land to B for Php 1,000,000 after 1 month.
Exceptions: where the parties agree Likewise, B promise to buy S’s land for Php
expressly or impliedly, that it shall amount to 1,000,000 after 1 month.
acceptance, where specific provisions of this example converts into a perfected
law so declare, where under the contract but it is not directly yet a contract of sale it
circumstances such silence constitutes is only a binding contract.
estoppel Article 1321. The person making the offer
may fix the time, place, and manner of
PERFECTED
PROMISE BINDING CONTRACT
acceptance, all of which must be complied with.
Unilateral Promise No None (n)
unaccepted
Binding if promise
: without compliance the contract must be deemed
Unilateral Promise Option Contract
accepted is supported by only as terminated
consideration : an offer is terminated when it is rejected by the
Bilateral promise Yes Binding contract of offeree
promise to enter
into a contract
Article 1322. An offer made through an
*unilateral promise – a party made a promise to the
agent is accepted from the time acceptance is
another party
*bilateral promise – both parties made a promise communicated to him. (n)
Communication of Acceptance to Agent
Promises in Offer and Acceptance : an agent is considered an extension of the
Example of Unilateral Promise Unaccepted: S personality of his principal
offers to sell his land to B for Php 1,000,000. B : this provision applies only if the offer is made
refused. However, S still insist that he is willing to through the agent and the acceptance is
give B 30 days to decide. However, B still refuse. communicated through him
Again, S still stand with his promise : there would be no meeting of the minds if the
principal himself made the offer and the acceptance
Example of Unilateral Promise Accepted: S is communicated to the agent unless, of course, the
offers to sell his land to B for Php 1,000,000. B latter is authorized to receive the acceptance
refused. However, S still insist that he is willing to
give B 30 days to decide. B accepted the promise
- No, because it is not supported by a
consideration
- But if S withdraw the offer within 30 days
and B go to him with the money, he cannot
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1323. An offer becomes ineffective of other things or undertaking but they must be of
upon the death, civil interdiction, insanity, or value; the option money is not reimbursable or
insolvency of either party before acceptance is refundable for its purpose is the privilege to reserve
conveyed. (n) the car
Earnest Money – is actually a partial
When offer becomes ineffective
payment of the purchase price and is
: an offer may be withdrawn before it is accepted
considered as proof of the perfection of the
: after acceptance the contract is already perfected
contract, therefore, there is already a sale
: acceptance will not produce a meeting of the
with the buyer bound to pay the balance
minds in case the offer has already become
ineffective because of the death, civil interdiction,
Example: On November 1, B offer to sell his house
insanity, or insolvency of either party before the
for Php 1,000,000 to A and sent a letter giving A 10
conveyance of the acceptance to the offeror
days to decide or accept. But on November 5, B
: at the time the acceptance is communicated, both
personally go to A’s house to withdraw his offer to
parties, offeror and offeree, must be living and sell his house.
capacitated
: failure to comply with the condition of the offer as Question: Can B validly do so?
to the time, place, and the manner of payment (Art. - Yes, because it is only a mere offer and
1321.), the expiration of the period fixed in the offer
aside from there is still no acceptance
for acceptance (Art. 1324.), the destruction of the
coming from A it is also prior to the days or
thing due before acceptance (Art. 1262.), rejection
time he given A to decide or accept
of the offer, etc. will also render the offer ineffective
and prevent the juridical tie from being formed
Question: Supposed A give Php 1,000 as an
option money. Can B still validly withdraw his
Article 1324. When the offerer has offer?
allowed the offeree a certain period to accept, - No, because the offer is founded in a
the offer may be withdrawn at any time before consideration
acceptance by communicating such withdrawal,
except when the option is founded upon a Withdrawal of offer where period for acceptance
consideration, as something paid or promised. stipulated
(n)
General Rule: the offer may be withdrawn as a
Option matter of right at any time before acceptance
: refers to the privilege itself given to the offeree to Exception: when the option is founded upon a
accept an offer within a certain period separate consideration, as something paid or
promised in which case, a contract of option is
Meaning of Contract of Option; Option Period, deemed perfected and the offer may not be
Option Money withdrawn before the lapse of the option
(1) Option Contract. A preparatory contract giving period; otherwise, it would be a breach of the
a person for a consideration a certain period under contract of option and render the optionor-offeror
specified conditions within which to accept the offer liable for damages
of the offeror
(2) Option Period. The period given within which Article 1325. Unless it appears otherwise,
the offeree must decide whether or not to enter into business advertisements of things for sale are
the principal contract; the offeror cannot offer or sell not definite offers, but mere invitations to make
the object to another person until the option period an offer. (n)
given has not been past
(3) Option Money. The money paid or promised to
be paid as a distinct consideration for an option
contract. The would-be buyer who is gives option
money is not required to buy. This may also consist
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1326. Advertisements for bidders Example: A offer to buy the car for Php 800,000. B
are simply invitations to make proposals, and then asked if A can buy the car for Php 1,000,000
the advertiser is not bound to accept the highest but A can’t afford it so he left. Suddenly, B agreed
or lowest bidder, unless the contrary appears. to A that he is willing to sell his for Php 800,000.
(n)
Question: Can A not buy the car? Is the
Advertisement for Bidders
contract perfected?
Example: S sell at a public auction a specific land.
- Yes, because when B counter-offer he did
The starting bid is Php 1,000,000. A placed a Php
not accept the offer of A to buy the car for
1,100,000 bid; B placed Php 1,150,000; and C
Php 800,000 – a qualified acceptance
placed Php 1,300,000.
- when B is already willing to sell his car to A
- there is no contract between S and C,
for Php 800,000 it is already a new offer
therefore S still have an option to reject the
made by B which can be accepted or
offer or money of C who has the highest bid
rejected by A
for there is no contract because *qualified acceptance constitutes counter-offer
advertisement for bidders is an invitation to wherein another party rejected the original offer
make an offer to him
- S is not the one who is offering but the
bidders Acceptance made by letter or telegram
-------------------------------------------------------------------- (1) Knowledge of the acceptance. The contract is
continuation of Article 1319… perfected from the time of the offeror’s knowledge,
actual or constructive, of the acceptance.
Acceptance Constructive knowledge – where the letter
: agreeing verbally or in writing to the terms of a or telegram containing the acceptance is
contract, which is one of the requirements to show received but not where he could not have
there was a contract read it as when he was absent or physically
: must be absolute (100% acceptance), incapacitated at the time of the receipt of
unconditional, or unqualified the same. The presumption, however, is
: may be express or implied that the offeror read the contents thereof or
come to know the acceptance
Example: S offer B to sell his specific house and lot (2) Revocation of offer. Before the acceptance is
in Quezon City for Php 1,500,000. B accepted the known, the offer can be revoked.
offer but is only willing to buy the land (3) Revocation of acceptance. The offeree may
- there is no consent therefore there is also revoke the acceptance he has already sent,
no contract for the acceptance of the thing provided, the revocation reaches the offeror before
being sold is not absolute or 100% the latter learns of the acceptance
- this example is also called counter-offer
wherein the principal is not accepted Example par. 2: On December 1, B offer A to sell
absolutely car his car for Php 1,000,000 through letter. On
- if the offeror accepted the counter-offer of December 5, A received the letter which she
offeree then there is consent which leads to accepted the offer and agree to buy the car from B.
perfection of contract Then on December 10, A sent a letter accepting the
offer of B. Before accepting the letter, B died.
Example: B offer to sell car for Php 1,000,000. A
accepted the offer by saying “Yes, I’ll but it for Php Question: Is the contract perfected?
1,000,000”. But if A counter-offer on buying the car - No, because the death of other party before
with an amount of Php 800,000 then there is no the acceptance results to showing of no
agreement. knowledge regarding the acceptance of A to
his offer.
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Example par. 2: Supposed in December 1, 2020, B the status of contract of the persons who are
write a letter to A to offer for lease his house. On relatively incapacitated is VOID
December 15, 2020, A wrote back a letter to B a. those under Civil interdiction for
completely accepting the offer. The letter of transactions inter vivos (RPC Art. 34)
acceptance by A was received by B on December b. Undischarged insolvents (may utang pa)
16, 2020. But during December 15, 2020, B sent a c. Husband and wife: cannot donate (Art. 123
letter to A withdrawing the offer but A do not have FC) to each other, nor sell if the marriage is
yet the knowledge about the withdrawal. under ACP (Art. 1490)

Question: Was there a contract? Article 1328. Contracts entered into

- No, because prior to the receiving of letter during a lucid interval are valid. Contracts
of acceptance the offer has already been agreed to in a state of drunkenness or during a
withdraw. hypnotic spell are voidable. (n)
- the acceptance is binding only by the time
Lucid Interval
the offeror came to the knowledge of
: a temporary period of sanity
acceptance
: the contract is valid

Article 1327. The following cannot give Article 1329. The incapacity declared in
consent to a contract: Article 1327 is subject to the modifications
determined by law, and is understood to be
(1) Unemancipated minors;
without prejudice to special disqualifications
(2) Insane or demented persons, and established in the laws. (1264)
deaf-mutes who do not know how to write. *refer to Article 1327
(1263a)
Two Kinds of Incapacity Article 1330. A contract where consent is
(1) Absolutely Incapacity. When an absolutely given through mistake, violence, intimidation,
incapacitated person enters to a contract the status undue influence, or fraud is voidable. (1265a)
of the contract is VOIDABLE Characteristics of Consent
a. Unemancipated Minors – persons who have (1) It is intelligent
not yet reached the age of majority and are (2) It is free and voluntary
subject to parental authority (3) It is conscious or spontaneous
i. except for contracts involving
necessary Vices of Contract
ii. where minor misrepresented his (1) Error or Mistake (Art. 1331)
age; also called estoppel - characteristic 1
b. Insane or Demented Person – the insanity (2) Violence or Force (Art. 1335)
must exist at the time of contracting - characteristic 2
i. exception: Lucid Interval wherein the (3) Intimidation or Threat or Duress (Ibid.)
person is in sound mind during the - characteristic 2
making of the contract and after the (4) Undue Influence (Art. 1337)
execution of the contract the person - characteristic 2
become insane (5) Fraud or Deceit (Art. 1338)
c. Deaf-mutes who do not know how to write - characteristic 3
*the presence of these vices doesn’t necessarily hinder
(2) Relatively Incapacity. Persons who are the perfection of the contract but the status of the
generally capacitated to enter a contract however, contract is voidable or it can be invalidated once the
they are not capacitated to enter a certain contract; party take an action
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1331. In order that mistake may When can you say that the error is substantial?
invalidate consent, it should refer to the - If one party would still enter into the contract
substance of the thing which is the object of the in spite of knowing that there is a mistake
contract, or to those conditions which have then it is not substantial
principally moved one or both parties to enter - In order to have a substantial error, one
into the contract. party who has knowledge to the mistake or
error will not give his consent to enter the
Mistake as to the identity or qualifications
contract
of one of the parties will vitiate consent only
when such identity or qualifications have been
Article 1332. When one of the parties is
the principal cause of the contract.
unable to read, or if the contract is in a language
A simple mistake of account shall give not understood by him, and mistake or fraud is
rise to its correction. (1266a) alleged, the person enforcing the contract must
show that the terms thereof have been fully
Mistake or Error explained to the former. (n)
: false notion of a thing or a fact material to the
contract General Presumption: One always act with due
: can entitle one part or both parties to a rescission care and signs with full knowledge of the content of
of the contract the document
*presumption is not applicable in this provision
Requisites in order that mistake may vitiate
consent, it must refer to: - unable to read and write including the blind,
(1) the substance of the thing which is the object of mute
the contract; or - a blind person who enters in a contract and
claims fraud o mistake, the other person
Example: Ben is buying from Sarah a breeding has the burden of proving in compliance
cow but Sarah is selling a barren cow. with Article 1332

(2) those conditions which have principally moved Article 1333. There is no mistake if the
one or both parties to enter into the contract; or party alleging it knew the doubt, contingency or
risk affecting the object of the contract. (n)
Example: Sarah is selling his parcel of land for Article 1334. Mutual error as to the legal
P100,000 cash but Ben is buying the land thinking effect of an agreement when the real purpose of
that the price is payable in installments the parties is frustrated, may vitiate consent.

(3) the identity or qualifications of one of the Mistake of Law

parties, provided, the same was the principal cause : arises from an ignorance of some provisions of
of the contract law
: does not vitiate consent because “ignorance of the
Example: Sarah sold his car to Ben. Sarah thought law excuses no one from compliance with” or
that Ben, who is a lawyer, was a doctor. The ignorantia legis neminem excusat
mistake here is not material as to avoid the
contract. When Mistake of Law Vitiates Consent
- there is a mistake on the construction or
Example: Ryan donated his car to Ena. Ryan application of law
thought that Ena was his half-sister. It turned out
that Ena is not related to Ryan. The mistake as to Requisites
the identity of Ena in this case is material because (1) The error must be mutual
his identity was the principal reason or (2) It must be as to the legal effect of an agreement
consideration for the donation. (3) It must frustrate the real purpose of the parties
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1335. There is violence when in Article 1336. Violence or intimidation

order to wrest consent, serious or irresistible shall annul the obligation, although it may have
force is employed. been employed by a third person who did not
take part in the contract. (1268)
There is intimidation when one of the
contracting parties is compelled by a reasonable Violence or Intimidation by a third person
and well-grounded fear of an imminent and grave - it is necessary that the requisites in Art.
evil upon his person or property, or upon the 1335 must be of the character in order to
person or property of his spouse, descendants vitiate the contract
or ascendants, to give his consent.
Article 1337. There is undue influence
To determine the degree of the
when a person takes improper advantage of his
intimidation, the age, sex and condition of the
power over the will of another, depriving the
person shall be borne in mind.
latter of a reasonable freedom of choice. The
A threat to enforce one’s claim through following circumstances shall be considered:
competent authority, if the claim is just or legal, the confidential, family, spiritual and other
does not vitiate consent. (1267a) relations between the parties, or the fact that the
person alleged to have been unduly influenced
General Rule: violence and intimidation both was suffering from mental weakness, or was
results to vitiation of contract ignorant or in financial distress. (n)

Violence Undue Influence

: more on physical coercion : one person taking advantage of a position of
power over another person
Intimidation
: more on moral or mental coercion Three Elements or Requisites
(1) a person who can be influenced or has improper
Requisites for Violence to Vitiate Consent advantage of his power
(1) Employment of serious or irresistible force; (2) the fact that improper influence was extended
(2) It must have been the reason why the contract (3) submission to the overwhelming effect of such
was entered into unlawful conduct

Requisites for Intimidation to Vitiate Consent Article 1338. There is fraud when, through
(1) Reasonable and well-grounded fear insidious words or machinations of one of the
*must consider age, consider, and sex of the person contracting parties, the other is induced to enter
concerned into a contract which, without them, he would
(2) Of an imminent and grave evil not have agreed to. (1269)
(3) Upon his person, property or upon the person or
Causal Fraud (dolo causante)
property of his spouse descendants or ascendants
: fraud employed in the execution of a contract
(4) It must have been the reason why the contract
which vitiates consent and makes the contract
was entered into
voidable
(5) The threat must be of unjust act, an actionable
wrong
Incidental Fraud (dolo incidente)
: fraud committed in the performance of an
obligation already existing
: gives rise to a right by the innocent party to
recover damages
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Requisites for Dolo Causante Article 1341. A mere expression of an

(1) there must be misinterpretation or concealment opinion does not signify fraud, unless made by
by a party prior to the consent or creation of the an expert and the other party has relied on the
contract former’s special knowledge. (n)
(2) it must be serious
General Rule: expression of opinion is not a fraud
(3) it must have been employed by ONLY one of
the contracting parties
Requisites when an opinion signifies fraud
(4) it must be made in bad faith or with intent to
(1) it must be made by an expert
deceive
(2) the other contracting party has relied on the
(5) it must have induced the consent of the other
expert’s opinion
contracting party
(3) the opinion turned out to be false or erroneous
(6) it must be alleged and proved by clear and
convincing evidence, and not merely by a
Article 1342. Misrepresentation by a third
preponderance thereof
person does not vitiate consent, unless such
misrepresentation has created substantial
Article 1339. Failure to disclose facts,
mistake and the same is mutual. (n)
when there is a duty to reveal them, as when the
parties are bound by confidential relations, General Rule: misrepresentation by a third person
constitutes fraud. (n) does NOT vitiate consent
Fraud by Concealment Exception/s: the misrepresentation by the third
: neglect or failure to communicate that which a person has created substantial mistake and the
party to a contract knows and ought to same is mutual
communicate constitutes concealment
Example: A bought a land from B for Php 1,000 per
: a purpose or design to hide facts which the other
square meter although the reasonable price of the
party ought to know
land in the same vicinity is Php 2,000 per square
meter. But B sell it for Php 1,000 per square meter
- the injured party is entitled to cancel or
believing by what C says, a third person, that it is
annul a contract whether the failure to
the market value of the land.
disclose the material facts is intentional or
- the contract cannot be annulled because
unintentional as long as there is a duty to
reveal or disclose them to according to good the fraud is committed by a third person
- there is no mutual substantial mistake
faith
- unless, B can prove connivance between A
and C to defraud him
Article 1340. The usual exaggerations in
trade, when the other party had an opportunity
Example: A is looking for a land to build her factory
to know the facts, are not in themselves
at the province of B and B is an owner of parcel of
fraudulent. (n)
land. C, a third person, told A and B that the land of
Caveat Emptor B is an industrial zone which makes A decided to
: let the buyer beware buy the land from B to build her factory. It turns out,
: the principle that the buyer alone is responsible for the place of the land is a residential zone which
checking the quality and suitability of goods before makes the building of factory is impossible.
a purchase is made - therefore, the contract of sale may be
annulled because there is a mutual
substantial mistake since both parties are
mislead by C
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1343. Misrepresentation made in Article 1345. Simulation of a contract may

good faith is not fraudulent but may constitute be absolute or relative. The former takes place
error. (n) when the parties do not intend to be bound at all;
the latter, when the parties conceal their true
- misrepresentation is not intentional but
agreement. (n)
made in good faith, is considered a mere
mistake or error Article 1346. An absolutely simulated or
- fraud is more serious than mistake; hence, fictitious contract is void. A relative simulation,
the party guilty of fraud is subject to a when it does not prejudice a third person and is
greater liability not intended for any purpose contrary to law,
morals, good customs, public order or public
Article 1344. In order that fraud may make policy binds the parties to their real agreement.
a contract voidable, it should be serious and (n)
should not have been employed by both
Simulation of a Contract
contracting parties.
: the act of deliberately deceiving others, by
Incidental fraud only obliges the person feigning or pretending by agreement, the
employing it to pay damages. (1270) appearance of a contract which is either non-
existent or concealed or is different from that which
Two Kinds of Fraud in the Making of a Contract
was really executed
(1) Causal Fraud. Employed to secure the consent
of the other party is ground for the annulment of a Requisites
contract
(1) an outward declaration of will different from the
(2) Incidental Fraud. Obliges the person
will of the parties
employing the fraud to pay damages
(2) the false appearance must have been intended
by mutual agreement; and
Requisites
(3) the purpose is to deceive third persons
(1) it should be serious
(2) it should not have been employed by both
Kinds of Simulation
contracting parties
(1) Absolute Simulation. The contract does not
(3) it should not have been known by the other
really exist and the parties do not intend to be
contracting parties
bound at all
(4) it should be invoked by the proper party
Example: B and A executed a contract of sale for
purposes of deceiving other people without any
intention to be bound by the contract.

(2) Relative Simulation. The contract entered into

by the parties is different from their true agreement
or the parties state a false cause in the contract to
conceal their real agreement

Example: B donated his house and lot to A. But B

do not want to pay for donors’ tax therefore, they
executed Deed of Sale instead of Deed of
Donation.
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER II: ESSENTIAL REQUISITES OF Requisites of Inheritance to be Considered

CONTRACTS Future
(1) the succession has not yet been opened at the
SECTION 2. OBJECT OF CONTRACTS
time of the contract
Article 1347. All things which are not (2) the object of the contract forms part of the
outside the commerce of men, including future inheritance
things, may be the object of a contract. All rights (3) the promisor has, with respect to the object, an
which are not intransmissible may also be the expectancy of a right which is purely hereditary in
object of contracts. nature

No contract may be entered into upon Requisites of Services

future inheritance except in cases expressly (1) the service must be within the commerce of
authorized by law. men
All services which are not contrary to law, (2) must not be impossible, physically or legally
morals, good customs, public order or public (3) Determinate or determinable
policy may likewise be the object of a contract.
(1271a) Kinds of Impossibility
(1) Physical. The thing or service in the very nature
Article 1348. Impossible things or of things cannot exist
services cannot be the object of contracts. a. Absolute – when the act cannot be done
(1272) in any case so that nobody can perform it
b. Relative – arises from the special
General Rule: all rights may be the object of the
circumstances of the case or the special
contract
conditions or qualifications of the obligor
Exceptions: the rights are untransmissible by their
(2) Legal. The thing or service is contrary to law,
nature, or by stipulation, or by provision of law
morals, good customs, public order, or public policy
Object of a Contract
: the subject matter Effect of Physical Impossibility on Validity of
: maybe things, rights, or services Contract
(1) the absolute impossibility nullifies the contract
Requisites of Object (2) the relative impossibility, if temporary, does not
(1) Lawful: not contrary to law, morals, good nullify the contract; if permanent, it annuls the
customs, public order or public policy contract, such as blindness in contracts which
(2) It must not be impossible, legally or physically require use of eyesight
(3) Transmissible: within the commerce of men
*not within: roads, tourist attractions, etc Article 1349. The object of every contract
(4) Determinate or determinable must be determinate as to its kind. The fact that
the quantity is not determinate shall not be an
Special Cases obstacle to the existence of the contract,
(1) Future Inheritance. Any property or right, not in provided it is possible to determine the same,
existence or capable of determination at the time of without the need of a new contract between the
the contract, that a person may inherit the future parties. (1273)
- the object of the contract must be
Example: X is the sone of Y. While Y is still alive, X
determinate as to its kind or at least
sold his inheritance to Z.
determinable without the necessity of a new
- the future inheritance cannot be an object of
or further agreement between the parties
contract
- the contract of sale of X and Z is invalid and
void since Y is still alive
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER II: ESSENTIAL REQUISITES OF Article 1352. Contracts without cause, or

CONTRACTS with unlawful cause, produce no effect whatever.
The cause is unlawful if it is contrary to law,
SECTION 3. CAUSE OF CONTRACTS
morals, good customs, public order or public
Article 1350. In onerous contracts the policy. (1275a)
cause is understood to be, for each contracting
Requisites
party, the prestation or promise of a thing or
(1) It must exist at the time of the contract is
service by the other; in remuneratory ones, the
entered into
service or benefit which is remunerated; and in (2) It must be lawful
contracts of pure beneficence, the mere
(3) It must be true or real
liberality of the benefactor. (1274)
Cause (Causa) Effect of Absence of Cause/Want of Cause/
: essential or proximate purpose or reason which Without Cause
the contracting parties have in view at the time of - the contract becomes void
entering into the contract - absence or want of cause means that there
is a total lack of any valid consideration for
Onerous Contracts the contract
: the cause has valuable consideration
: the parties are reciprocally obligated to each other Example: Sale of a race car for Php 1,000,000 but
it is found out that there is no existing race car.
Remunerative Contracts
: the cause is based on services or benefits already Example: Sale of agricultural land for Php 200,000
received but the buyer found out that instead of seeing an
: the purpose of the contract is to reward the agricultural land it is a body of water.
service
Failure of Cause
Article 1351. The particular motives of the : there is failure in the performance of the obligation
parties in entering into a contract are different
from the cause thereof. (n) Effect of Failure of Cause
- the failure of cause does not render a
Motive contract void for from the start the contract
: purely personal or private reason which a party is already valid and the failure of cause
has in entering into a contract happened during the performance of the
CAUSE MOTIVE obligation
immediate or direct reason remote or indirect reason
always known to the other may be unknown Example: A seller and buyer enter into a contract
contracting party of sale – a valid contract. The seller sold his car to
an essential element of a motive is not
contract
the buyer for Php 500,000. The delivery of the car
illegality of the cause affects illegality of one’s motive has been done but the buyer refused to pay or give
the validity of a contract does not render the the Php 500,000 payment.
contract void - remedy of seller: recission of contract +
Situations: damages or may file a case for specific
1. Contracts without cause/absence of cause/want performance
of cause →VOID
2. Contracts with unlawful cause → VOID
3. False cause → VOID unless founded upon
another cause which is VALID
4. Failure of cause → VALID with a remedy to
demand payment for damages
5. Inadequacy of cause → VALID
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1353. The statement of a false Article 1355. Except in cases specified by
cause in contracts shall render them void, if it law, lesion or inadequacy of cause shall not
should not be proved that they were founded invalidate a contract, unless there has been
upon another cause which is true and lawful. fraud, mistake or undue influence. (n)
(1276)
Lesion
*there is a valid contract : any damage caused by the fact that the price is
False Cause or Falsity of Cause unjust or inadequate
: the contract states a valid consideration but such
statement is not true Effect of Lesion or Inadequacy of Cause
- General Rule: lesion or inadequacy of
Effect of Falsity of Cause cause does not of itself invalidate a
- the contract is void contract. CONTRACT IS VALID.
- it becomes valid if proved that it is founded
upon another cause which is true and lawful Example: The seller already sold his house and lot
for Php 5,000,000 but the actual worth of the house
Example: S sells to B a parcel of land. In the deed and lot is Php 10,000,000. He realized that he sold
of sale, Php 300,000 is stated as the price of the the house and lot for a lower price so he filed a
land. According to B, he already paid for the land case in court asking the judge to rescind the
but no such payment is found. If this statement is contract of sale and willing to return the Php
false, then there is no contract of sale and becomes 5,000,000 plus legal rate in return of getting back
void. the house and lot.
- However, if B can prove that the contract is - the contract of sale cannot be rescinded
founded upon another cause or - the inadequacy of cause does not invalidate
consideration, as when B has exchanged the contract
his car for the land, then the contract of - IF there is a mistake or fraud it will be
barter or exchange (not sale) shall be valid. possible to rescind the contract
Otherwise stated, there is, in fact, a real
consideration but the same is not the one
stated in the contract
Object vs. Cause
Article 1354. Although the cause is not Contract of Sale:
stated in the contract, it is presumed that it S sells his land to B for Php 1,000,000.
exists and is lawful, unless the debtor proves the *the object is the land
contrary. (1277) *the cause in perspective of S is the price of the land
* the cause in perspective of B is the delivery of the land
- cause presumed to exist and lawful unless
the debtor proves the contrary Contract of Lease:
- not necessary that the cause be expressly S leases his land to B for P10,000 per year.
stated in the contract *the object is the land
*the cause in perspective of S as the lessor is the yearly
rent of Php 10,000
* the cause in perspective of B as the lessee is the right
to use the land
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER III: FORM OF CONTRACTS CONTRACT FORMALITY

Donation of personal
Article 1356. Contracts shall be property whose value must be in writing, if not the
obligatory, in whatever form they may have been exceeds Php 5,000 (Art. donation will be void
entered into, provided all the essential requisites 748)
for their validity are present. However, when the must be in public instrument
Donation of real property
– authenticated by a public
law requires that a contract be in some form in (Art. 749)
office
order that it may be valid or enforceable, or that must be in public instrument
a contract be proved in a certain way, that Partnership where
with inventory of immovables
immovables are contributed
requirement is absolute and indispensable. In contributed, if not the
(Art. 1773) – land, building,
such cases, the right of the parties stated in the contract of partnership will
etc.
be void
following article cannot be exercised. (1278a)
Sale of a piece of land or contract of agency must be
Form of Contracts any interest therein through in writing; otherwise, the sale
an agent (Art. 1874) is void
: the manner in which a contract is executed or
must be in writing both the
manifested may be in oral, verbal, or in writing (in a amount of the principal and
public or private instrument) Antichresis (Art. 2134)
of the interest must also be
: generally, form is not required in order for the specified
contract to be valid and obligatory as long as the Chattel Mortgage (Art. 2140) must be registered
essential requisites (COC) for the validity are payment of interest must be
in writing – the contract of
present Agreements regarding
loan is in writing and
payment of interests in
mentioned the interest
Forms of Contract contracts of loans (Art. 2314)
otherwise, no interest will be
(a) oral charged
(b) in writing Negotiable Instruments –
(c) partly oral and partly in writing. promissory notes, bill of must be in writing
exchange, etc.
− if in writing, it may be in a public or a private
instrument
2. Enforceability of the contract
− it is generally recognized that to be a written o contracts that will not follow the
contract, all its terms must be in writing. So,
formality especially if that formality is
a contract partly in writing and partly oral is,
required for enforceability although it
in legal effect, an oral contract will not be void but it will become an
unenforceable contract
Classification of Contracts According to Form 3. Convenience of the parties
(1) Informal or Common Contract. May be o some certain formalities are required
entered into in whatever form, provided, all the
for the convenience of the parties, it
essential requisites for their validity
means even if it the formality will not
(2) Formal or Solemn Contract. Required by law
be followed the contract will remain
for its efficacy to be in a certain specified form
valid and enforceable however, it will
be hard to prove a contract
Why contracts need to be in certain forms? especially if its in oral or verbal and
Needed for: not in writing because in the court a
1. Validity of the contract pure verbal or oral of the contract
o contracts that did not follow the will be hard to prove and claim
proper formality they will be damages
considered void or non-existent
contracts
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1357. If the law requires a Article 1358. The following must appear in
document or other special form, as in the acts a public document:
and contracts enumerated in the following
(1) Acts and contracts which have for
article, the contracting parties may compel each
their object the creation, transmission,
other to observe that form, once the contract has
been perfected. This right may be exercised modification or extinguishment of real rights
over immovable property; sales of real property
simultaneously with the action upon the
or of an interest therein are governed by Articles
contract. (1279a)
1403, No. 2, and 1405;
- right to compel the other party to execute
(2) The cession, repudiation or
the necessary form
renunciation of hereditary rights or of those of
the conjugal partnership of gains;
*this provision presupposes that the contract is
valid and enforceable (3) The power to administer property, or
any other power which has for its object an act
Form for The Convenience of the Parties appearing or which should appear in a public
- applicable if form is needed only for document, or should prejudice a third person;
convenience
(4) The cession of actions or rights
Example: B donated his land to A in a private proceeding from an act appearing in a public
instrument. A accepted the donation in the same document.
private instrument and would like to register the All other contracts where the amount
donation. But registration requires that the donation involved exceeds five hundred pesos must
be in public instrument. Therefore, A requested to B appear in writing, even a private one. But sales
to put down the donation in a public instrument but of goods, chattels or things in action are
B refuses to execute the public instrument. A filed a governed by Articles 1403, No. 2 and 1405.
case against B to compel to observe the necessary (1280a)
form.
*this provision is for the conveniency of the parties
Question: Can B be compelled to execute the
necessary document? Art. 1358, No. 1 Example: B sold his land to A in a
- No, because the contract of donation needs private instrument and want to register the sale. But
to be in a public instrument to be valid registration requires that the sale be in public
- in the first place, the contract is already instrument.
invalid because it is executed in a private
instrument, therefore, B cannot be Question: Can B be compelled to execute the
compelled necessary document?
- Yes, because the contract of sale is valid
Example: Supposed, B sold his land to A in a and enforceable and just need to execute
private instrument and want to register the sale. But the necessary public document
registration requires that the sale be in public
instrument. Art. 1358, No. 2 Example: A and B are heirs of
Father. When Father died, B renounce his shares
Question: Can B be compelled to execute the of inheritance in favor of A. Therefore, B’s
necessary document? renunciation of inheritance must be in public
- Yes, because the contract of sale is valid document.
and enforceable
Art. 1358, No. 3 Example: B appointed A to
administer his property while he is in vacation.
Therefore, the authority of A to administer/manage
B’s property must be in public document.
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Art. 1358, No. 4 Example: B mortgage his land in

favor of A in order to secure his loan for his debt.
Therefore, the cession of A’s right as a mortgagee
must also be in public document.

- other contracts exceeding the amount of

Php 500 must appear in writing, even a
private one
- sales of goods, chattels or things in action
are governed by Art. 1403, No. 2 and1405.
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER IV: REFORMATION OF Inequitable Conduct Examples

INSTRUMENTS (n) (1) Taking advantage by one party of the other
party’s illiteracy;
Article 1359. When, there having been a (2) abusing confidence;
meeting of the minds of the parties to a contract, (3) concealing what of right should have been
their true intention is not expressed in the
disclosed;
instrument purporting to embody the agreement,
(4) drafting or having drafted an instrument contrary
by reason of mistake, fraud, inequitable conduct
to the previous understanding of the parties and
or accident, one of the parties may ask for the
making the other party to believe the instrument
reformation of the instrument to the end that
other than it actually is; or
such true intention may be expressed.
(5) in taking advantage of a mistake of the other
If mistake, fraud, inequitable conduct, or party, known or suspected at the time of the
accident has prevented a meeting of the minds execution of the instrument
of the parties, the proper remedy is not
reformation of the instrument but annulment of Mistake, Fraud, & Inequitable Conduct in
the contract. Reformation vs. Voidable Contracts

Reformation Consent of Perfected

→ → Instrument
: a remedy whereby a written instrument to the Parties Contract
contract is amended to conform to the true There is a proper consent and proper meeting of minds of
intentions of the parties the parties which makes the contract perfected. However,
the perfected contract does not conform with the written
: the written instrument that represents the contract
instrument by the reason of mistake, fraud, or inequitable
is the one being reform not the contract itself conduct. The remedy for this case is Reformation of
Contract.
Requisites of Reformation of Contracts Consent of Perfected
→ → Instrument
(1) there is a valid contract Parties Contract
*there is essential requisites or COC and if a contract There is not meeting of minds or there is already a mistake,
requires other essential elements such as the real fraud, or inequitable conduct as to the acquiring of the
contracts that needs delivery and specific formality consent of the other party. There will be a perfected
contract but it will be voidable. The remedy for this case is
(2) the written instrument does not conform the true Annulment of Contract.
intention of the parties
*substance over the formality
Article 1360. The principles of the general
*the stipulation or what the parties meeting of minds
must be followed
law on the reformation of instruments are hereby
(3) the non-conformity is due to mistake, fraud, adopted insofar as they are not in conflict with
inequitable conduct or accident the provisions of this Code.
(4) the facts upon which relief by way of reformation General Law on Reformation
of the instrument is sought are put in issue by the -
pleadings
(5) there is a clear and convincing evidence of the
mistake, fraud, inequitable conduct, or accident
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1361. When a mutual mistake of Article 1362. If one party was mistaken
the parties causes the failure of the instrument and the other acted fraudulently or inequitably in
to disclose their real agreement, said instrument such a way that the instrument does not show
may be reformed. their true intention, the former may ask for the
reformation of the instrument.
Requisites of Mutual Mistake as Basis for
Reformation Unilateral Mistake as Basis of Reformation
(1) the mistake must be of fact - reformation is granted when the mistake is
(2) such mistake must be proved by clear and mutual
convincing evidence - a unilateral mistake in the making of an
(3) the mistake must be mutual, that is, common to agreement, of which the other party is
both parties to the instrument entirely ignorant and to which he in no way
(4) the mistake must cause the failure of the contributes, will not affect the agreement or
instrument to express their true intention ground for its reformation

Article 1364. When through the Article 1363. When one party was
ignorance, lack of skill, negligence or bad faith mistaken and the other knew or believed that the
on the part of the person drafting the instrument instrument did not state their real agreement, but
or of the clerk or typist, the instrument does not concealed that fact from the former, the
express the true intention of the parties, the instrument may be reformed.
courts may order that the instrument be
Concealment of Mistake by Other Party
reformed.
- the injured party who acted in good faith has
Example: S sold to B a lot with 10 hectares area. the right to demand for reformation
However, through mistake of the clerk, their deed of
sale showed 1 hectare area. S and B did not notice Example: S sold to B a lot with 10 ha. area with a
that there was a mistake in the contract. right of repurchase after 5 years. However, through
- the stipulated size of lot did not conform fraud, B made appear that the deed of sale is an
with the written instrument absolute sale. Since the contract is in English
- the contract is perfectly valid however, there language, S was not aware that the deed is
is a defect in the written instrument that different from their real agreement.
represents the contract - the mistake here is not mutual
- both S and B may seek for reformation - the injured party who acted in good faith has
- general rule: substance over form the right to demand for reformation, in this
- there is a mutual mistake resulting from the example S has the right to demand for
mistake of the third person, therefore, the reformation
remedy will be Reformation of Contract – a
new deed of sale will be created which will
represent the true intention wherein the 1 Article 1365. If two parties agree upon the
hectare before will be corrected into 10 mortgage or pledge of real or personal property,
hectares area but the instrument states that the property is
(Art. 1361 & 1364) sold absolutely or with a right of repurchase,
reformation of the instrument is proper.
Example: B mortgage his land in favor of A to
secure his loan. However, their instrument drafted
is an absolute sale or contract of sale. The written
instrument will be subjected to reformation.
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

EXCEPTIONS OF REFORMATION Article 1368. Reformation may be ordered

at the instance of either party or his successors
Article 1366. There shall be no
in interest, if the mistake was mutual; otherwise,
reformation in the following cases:
upon petition of the injured party, or his heirs
(1) Simple donations inter vivos wherein and assigns.
no condition is imposed;
Who may seek reformation?
(2) Wills; - either party
- a successor in interest, if the mistake was
(3) When the real agreement is void. mutual
Article 1367. When one of the parties has - upon petition of the injured party – or by his
brought an action to enforce the instrument, he heirs and assigns
cannot subsequently ask for its reformation.
Article 1369. The procedure for the
Example: S unconditionally sold to B a lot with 10 reformation of instruments shall be governed by
ha. area. However, through mistake, the deed of rules of court to be promulgated by the Supreme
sale appears to be a sale with a right to repurchase Court.
after 5 years. Both parties didn’t notice the deed
because they didn’t bother reading it at all
- there is a mutual mistake
- in substance it is an absolute sale however,
their instrument reflects a right to
repurchase after 5 years
- after 5 years, S read the contract that he
has the right to repurchase and tried to
exercised or enforce the written instrument
even if he is aware that it is not what have
agreed before
- by the time S enforced what was written in
the instrument he loses the right to seek for
reformation of contract
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER V: INTERPRETATION OF Rule No. 3:

CONTRACTS Article 1371. In order to judge the
intention of the contracting parties, their
Interpretation of Contracts contemporaneous and subsequent acts shall be
: the act of making intelligible that was not before
principally considered. (1282)
understood, ambiguous, or not obvious
: a method by which the meaning of language is - where the parties to a contract have placed
ascertained an interpretation to the terms of the contract
: the determination of the meaning of the terms or by their contemporaneous and/or
words used by the parties in their contract subsequent acts
- as by acts in partial performance, such
RULES IN INTERPRETATION OF CONTRACTS interpretation may be considered by the
court in determining its meaning and
Rule No. 1 & 2:
ascertaining the intention of the parties
Article 1370. If the terms of a contract are
when such intention cannot clearly be
clear and leave no doubt upon the intention of
ascertained from the words used in their
the contracting parties, the literal meaning of its
contract
stipulations shall control.
If the words appear to be contrary to the Rule No. 4:
evident intention of the parties, the latter shall Article 1372. However general the terms
prevail over the former. (1281) of a contract may be, they shall not be
understood to comprehend things that are
Rule No. 1: Literal meaning controls when distinct and cases that are different from those
language is clear upon which the parties intended to agree. (1283)
- if the terms of a contract are clear and
unequivocal, the parties are bound by such - although it is general it doesn’t mean that
terms. what you all see will be in your ownership
- the concern here is not what existed in the
minds of the parties but what intention is Example: S sold to B his house including all
expressed in the language used furniture
- you will only interpret if the terms used in - the general term used is the word “all”
the contract is not clear but if it is clear then - the interpretation is hindi lahat ng makikita
you don’t have to interpret mong furniture ay automatically lahat na yun
- there might be furniture that S does not own
Rule No. 2: Evident intention of parties prevails but S must inform B that furniture that he
over terms of contract doesn’t own
- words and clauses of a written contract are
in conflict with the manifest intention of the
parties, the latter shall prevail over the
former
- it is a cardinal interpretation of contracts that
the intention of the parties should always
prevail because their will has the force of
law between them
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Rule No. 5: Rule No. 7:

Article 1373. If some stipulation of any Article 1375. Words which may have
contract should admit of several meanings, it different significations shall be understood in
shall be understood as bearing that import which that which is most in keeping with the nature and
is most adequate to render it effectual. (1284) object of the contract. (1286)
- if one interpretation makes a contract valid - if a word is susceptible of two or more
and the other makes it ineffective or illegal, meanings, it is to be understood in that
the former interpretation will prevail sense which is most in keeping with the
nature and object of the contract in line with
Example: S sold to B his race horse named “Tom”. the cardinal rule that the intention of the
Incidentally, there are two horses with the name parties must prevail
Tom. However, one of them is amputated
- B bought a horse for race purposes Example: R leased to E a roof for the purpose of
therefore; he must receive a race horse erecting an advertising sign. The contract provides
name “Tom” that is NOT amputated for the termination of the lease by E if a “building”
should be constructed on an adjoining property of
Rule No. 6: such height as to obscure the view of E’s sign.
Article 1374. The various stipulations of a There was erected on the roof of an adjoining
contract shall be interpreted together, attributing building a sign which obstructed the view of E’s
to the doubtful ones that sense which may result sign.
from all of them taken jointly. (1285) - the word “building” will also be construed to
the erection of a sign that obstructed the
- a contract must be interpreted as a whole
view of E’s sign
and the intention of the parties is to be
- therefore, the termination of the contract is
gathered from the entire instrument
valid
- all provisions should, if possible, be so
interpreted as to harmonize with each other Rule No. 8:
Article 1376. The usage or custom of the
Example: X leased his house to Y. X forbid Y from
place shall be borne in mind in the interpretation
subleasing the property without his consent.
of the ambiguities of a contract, and shall fill the
Further, it was stipulated: “If Y sublease the omission of stipulations which are ordinarily
property to a third person, there will be additional
established. (1287)
Php 1,000 per month payment on top of his rent.”
- if the quotation is interpreted on its own it - the existence of usage or custom shall be
means that Y is allowed to sublease but proved by the party alleging it
there is additional payment for it
- but if it is read as a WHOLE, in the first Example: S sold to B a horse. It was the customs
place it is not allowed to sublease but if Y of the place to place horse shoe on sold horses
sublease the Php 1,000 is a form of penalty - even if placing a horse shoe on sold horses
for subleasing is not mentioned in the contract the customs
of the place shall be followed
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Rule No. 9: B. Shall be settled in favor of the greatest

Article 1377. The interpretation of reciprocity of interests
obscure words or stipulations in a contract shall o this applies when the doubts refer to
not favor the party who caused the obscurity. incidental circumstances of Onerous
(1288) Contracts – exchange of valuable
consideration
- the party who drafted the contract, more *greatest reciprocity of interest = fairness in mutual
easily than the other, could have prevented dealings between the partiesx
mistakes or ambiguity in meaning by careful
choice of words or by the exercise of a little Example: It was not clear whether A sold or leased
more care; and generally, the party who to B a building. Is the contract a sale or a lease?
causes the obscurity acts with ulterior - the rule if there are doubts in onerous
motives contracts it shall be settled in favor of the
greatest reciprocity of interests therefore, it
Contracts of Adhesion will a contract of sale
- this contract does not result from mutual
negotiation between the parties as they are C. Principal object is doubtful
usually prescribed in printed forms prepared o the doubt refers to the principal
by one party to which the other party merely object of the contract and such
“adheres” (or sign his signature) if he doubt cannot be resolved thereby
chooses but which he cannot change leaving the intention of the parties
unknown, the contract is null and
Rule No. 10: void
Article 1378. When it is absolutely
impossible to settle doubts by the rules Article 1379. The principles of
established in the preceding articles, and the interpretation stated in Rule 123 of the Rules of
doubts refer to incidental circumstances of a Court shall likewise be observed in the
gratuitous contract, the least transmission of construction of contracts. (n)
rights and interest shall prevail. If the contract is
onerous, the doubt shall be settled in favor of the
greatest reciprocity of interests.
If the doubts are cast upon the principal
object of the contract in such a way that it cannot
be known what may have been the intention or
will of the parties, the contract shall be null and
void. (1289)
A. The least transmission of rights and
interests shall prevail
o this applies when the doubts refer to
incidental circumstances of
Gratuitous Contracts

Example: It was not clear whether A lent or

donated to B a specific phone. Is the contract a
commodatum or a donation?
- in this case the rule least transmission of
rights shall prevail therefore it will be
interpreted as a contract of commodatum
- lending someone a thing will make the
lender has least transmission of right
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

INSTRODUCTION TO CHAPTERS 6, 7, 8, AND 9 (4) There must be no other legal remedy to obtain
FOUR KINDS OF DEFECTIVE CONTRACTS reparation for damages
(5) The party asking for recission must be able to
Four Kinds of Defective Contracts – in order of
return what he is obliged to restore by reason of the
their defectiveness or efficaciousness
contract
1. Rescissible Contracts (6) The object of the contract must not legally be in
2. Voidable Contracts the possession of third persons who did not act in
3. Unenforceable Contracts the bad faith
4. Void or Inexistent Contracts (7) The period for filing the action for recission must
not have prescribed
VALID BINDING ENFORCEABALE
RESCISSIBLE ✓ ✓ ✓ Article 1381. The following contracts are
VOIDABLE ✓ ✓ ✓ rescissible:
UNENFORCEABLE ✓ x x
VOID x x x (1) Those which are entered into by
guardians whenever the wards whom they
RESCISSIBLE VOIDABLE UNENFORCEABLE VOID represent suffer lesion by more than one fourth
Why causes consent is lack of authority or missing of the value of the things which are the object
Defective damage to 3rd essential
persons
defective necessary form
element/s thereof;
Can be
Yes Yes Yes No
Ratified? (2) Those agreed upon in representation
Applicable
Art. 1381 Art. 1390 Art. 1403 Art. 1409
Provisions of absentees, if the latter suffer the lesion stated
Remedy to
Avoid this Recission Annulment N/A N/A
in the preceding number;
Contracts
*retification = the defect will be cured (3) Those undertaken in fraud of creditors
when the latter cannot in any other manner
CHAPTER VI: DEFECTIVE CONTRACTS – collect the claims due them;
RESCISSIBLE CONTRACTS
(4) Those which refer to things under
Article 1380. Contracts validly agreed litigation if they have been entered into by the
upon may be rescinded in the cases established defendant without the knowledge and approval
by law. (1290) of the litigants or of competent judicial authority;

Rescissible Contract (5) All other contracts specially declared

: valid – all the essential elements exist, therefore, by law to be subject to rescission. (1291a)
legally effective
Art. 1381 No. 1, Example: G is the guardian of W,
: remedy → recission
ward. G sold to X the property of W for Php
250,000. The value of the property is Php 500,000.
Recission *lesion = inadequacy of the price
: an equitable remedy granted by law to the *ward is a minor person and when in right age he can
contracting parties and sometimes even to third rescind the contract with enough time given by the court
persons in order to secure reparation of damages
caused them by a valid contract Art. 1381 No. 2, Example: R is the representative
of A, absentee. R sold to X the property of A for
Requisites Php 250,000. The value of the property is Php
(1) The contract must be validly agreed upon 500,000.
(2) There must be lesion or pecuniary (or monetary) *the absentee can rescind the contract with enough time
prejudice or damage to one of the parties or to a given by the court in the time he/she is not absentee
third person anymore
(3) The recission must be based upon a case
especially provided by law
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1384. Rescission shall be only to

Art. 1381 No. 3, Example: D is a debtor of C, the extent necessary to cover the damages
creditor. Fearing that he won’t be able to pay his caused. (n)
debt to C and his land levied, D sold his land to X
Extent of Rescission
without the intention of using the proceeds to pay
- entire contract need not be set aside by
C.
*the contract of D and X is rescissible rescission of the damage can be repaired or
*it can be rescind by C for he was defraud by D covered by partial rescission
- only the creditor who brought action for
Art. 1381 No. 4, Example: S sues B for the rescission benefit from the rescission
recovery of a parcel of land. In this case, the land is
a “thing under litigation.” Suppose B sold to X the Example: G is the guardian of M, a minor with two
parcel of land. parcels of land valued at Php 200,000 each. G sold
*the contract of B and X is rescissible the two properties to B for only Php 200,000.
- the contract is rescissible due to lesion
Article 1382. Payments made in a state of - since it has been sold for one half of the
insolvency for obligations to whose fulfillment price and can cover one parcel of land while
the debtor could not be compelled at the time the other one that suffers to lesion can be
they were effected, are also rescissible. (1292) rescinded
- in conclusion, the sale of the first parcel of
Rescissible Payment land is valid and cannot be rescinded
: a payment that can be rescind
Article 1385. Rescission creates the
Example: D, while insolvent, pays X his debt, Y obligation to return the things which were the
and Z are also creditors of D but cannot, in any object of the contract, together with their fruits,
manner, collect from D. and the price with its interest; consequently, it
*the other creditors (Y and Z) can rescind the
can be carried out only when he who demands
payment of D to X in the court
rescission can return whatever he may be
*there is nothing wrong with the payment of D
but it has the effect to other creditors obliged to restore.
Neither shall rescission take place when
Article 1383. The action for rescission is the things which are the object of the contract
subsidiary; it cannot be instituted except when are legally in the possession of third persons
the party suffering damage has no other legal who did not act in bad faith.
means to obtain reparation for the same. (1294)
In this case, indemnity for damages may
Example: G is the guardian of M, a minor with two be demanded from the person causing the loss.
parcels of land valued at Php 200,000 each. G sold (1295)
the two properties to B for only Php 200,000.
- when M reach the majority age he can Mutual Restitution
rescind the contract however, recission is - when the court declares a contract
only a subsidiary therefore, it cannot be rescinded, the parties must return to each
sought if there is other option for example, B other:
is willing to pay the Php 200,000 lesion in (a) the object of the contract with its
this case, M doesn’t need to rescind the fruits;
contract (b) the price thereof with legal
interest

Exception: legally in the possession of third

persons who did not act in bad faith
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Example: In fraud of B’s creditor, he sold his land Art. 1387 par. 2, Example: D contracted several
in favor of A. A already has a legal possession on debts amounting to Php 200,000 with A and B.
the land. Also, D has Php 300,000 total assets composed of
a car, land, and building. Supposed A obtained a
Question: May the sale in favor of A be writ of attachment on D’s properties from the court.
rescinded? Meanwhile, D sold the car to X.
- it depends whether A is in good faith or in - the sale of car to X is considered fraudulent
bad faith and can be rescinded by the creditors
- if A is in good faith (not in bad faith), then
her right is protected and the contract will Article 1388. Whoever acquires in bad
not be rescinded faith the things alienated in fraud of creditors,
shall indemnify the latter for damages suffered
Question: If the creditor cannot rescind the by them on account of the alienation, whenever,
contract, what is their remedy? due to any cause, it should be impossible for him
- indemnity for damages may be demanded to return them.
from the person causing the loss
If there are two or more alienations, the
first acquirer shall be liable first, and so on
Article 1386. Rescission referred to in
successively. (1298a)
Nos. 1 and 2 of Article 1381 shall not take place
with respect to contracts approved by the Acquisition of Third Person in Bad Faith
courts. (1296a) Example: To defraud C, S sold to B his car. B
knows S’s purpose.
Article 1387. All contracts by virtue of
*since it is in bad faith the contract may be rescinded
which the debtor alienates property by
gratuitous title are presumed to have been
Example: To defraud C, S sold to B his car. B
entered into in fraud of creditors, when the donor
knows S’s purpose. B sold to D, bad faith, and D
did not reserve sufficient property to pay all
sold to E, good faith.
debts contracted before the donation.
- in this case, the first one who will be liable is
Alienations by onerous title are also B then, next is D
presumed fraudulent when made by persons - while E will not be liable for, he is in good
against whom some judgment has been faith
rendered in any instance or some writ of
attachment has been issued. The decision or Example: To defraud C, S sold to B his car. B
attachment need not refer to the property doesn’t know S’s purpose. B sold to D, bad faith,
alienated, and need not have been obtained by and D sold to E, bad faith.
the party seeking the rescission. - the contract cannot be rescinded because
the first alienation, which is B, act in good
In addition to these presumptions, the faith
design to defraud creditors may be proved in any
other manner recognized by the law of evidence.
(1297a)
Contracts presumed to be rescissible
Art. 1387 par. 1, Example: D contracted several
debts amounting to Php 200,000. Also, D has Php
300,000 total assets. One day, D donated to X a
property from his total assets worth Php 170,000.
- when we subtract the donated money to the
total asset of D it will be Php 130,000 which
is not sufficient to cover his Php 200,000
debt
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1389. 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. (1299)
Prescription of Recission
: there is a time limit claim recission of the contract
which is four (4) years

Exceptions: under guardianship, absentees

 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER VII: DEFECTIVE CONTRACTS – Article 1391. The action for annulment
VOIDABLE CONTRACTS shall be brought within four years.
Article 1390. The following contracts are This period shall begin:
voidable or annullable, even though there may
In cases of intimidation, violence or
have been no damage to the contracting parties:
undue influence, from the time the defect of the
(1) Those where one of the parties is consent ceases.
incapable of giving consent to a contract;
In case of mistake or fraud, from the time
(2) Those where the consent is vitiated by of the discovery of the same.
mistake, violence, intimidation, undue influence
And when the action refers to contracts
or fraud.
entered into by minors or other incapacitated
These contracts are binding, unless they persons, from the time the guardianship ceases.
are annulled by a proper action in court. They are (1301a)
susceptible of ratification. (n)
VOIDABLE CONTRACTS are susceptible of
Voidable Contracts RATIFICATION
: are those which possess all the essential
Article 1392. Ratification extinguishes the
requisites of a valid contract but one of the parties
action to annul a voidable contract. (1309a)
is legally incapable of giving consent
: the consent is vitiated by mistake, violence, Ratification
intimidation, undue influence, or fraud : extinguishes the action to annul a voidable
contract
Exception: when contract involves necessaries : the person voluntarily adopts and gives sanction
to the defective contract
Example: M, minor, bought food from X, 25 years : he doesn’t make any objections
old. This contract may have been voidable but it
involves a necessary (food). Therefore, this WHAT IS THE EFFECT OF VOIDABLE
contract is perfectly valid CONTRACT?

Binding Force of Voidable Contracts Article 1396. Ratification cleanses the

- they are existent, valid, and obligatory contract from all its defects from the moment it
unless annulled or set aside by proper was constituted. (1313)
action in court Effect of Ratification Retroactive
- proof of damage is not needed in order to - the effect of ratification is to make the
file voidable contract but the vitiated contract valid from its inception or the
consent must be proved moment it was constituted
- the action to annul is extinguished
RESCISSION ANNULMENT
the basis is lesion or the basis is vitiated
damage consent or incapacity to Article 1393. Ratification may be effected
consent expressly or tacitly. It is understood that there is
defect is external or defect is intrinsic a tacit ratification if, with knowledge of the
intrinsic reason which renders the contract voidable and
the action is subsidiary the action is principal such reason having ceased, the person who has
to prevent recission, to prevent annulment, a right to invoke it should execute an act which
ratification is not required ratification is required
necessarily implies an intention to waive his
right. (1311a)
Kinds of Ratification
(1) Express. The ratification is manifested in words
or in writing
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

(2) Implied or Tacit. May take diverse form, such their rights with respect to one of the
as by silence or acquiescence; by acts showing contracting parties
adoption or approval of the contract; or by - the guilty party, including his successors-in-
acceptance and retention of benefits flowing interest, cannot ask for annulment – as
therefrom sustained by the principle that he who
comes to court must do so with clean hands
Requisites of Ratification
(1) for implied ratification Example: X, a capacitated person, entered into a
a. there must be knowledge of the reason contract with M, a minor. Hence, X cannot file a
which renders the contract voidable case for annulment of the contract based on the
b. such reason must have ceased ground that M is a minor.
c. the injured party must have executed an act
which necessarily implies an intention to Example: Y, a person who employed fraud, cannot
waive his right base his action for annulment of the contract upon
(2) for express ratification the ground that there is fraud in the contract.
- the same as the implied ratification except
that the former is effected expressly WHAT ARE THE EFFECTS OF ANNULMENT OF
THE CONTRACT?
WHO MAY RATIFY A VOIDABLE CONTRACT?
Article 1398. An obligation having been
Article 1394. Ratification may be effected annulled, the contracting parties shall restore to
by the guardian of the incapacitated person. (n) each other the things which have been the
subject matter of the contract, with their fruits,
(1) A contract entered into by an incapacitated
and the price with its interest, except in cases
person may be ratified by:
provided by law.
a. the guardian; or
b. the injured party himself, provided, he is In obligations to render service, the value
already capacitated thereof shall be the basis for damages. (1303a)
(2) In case the contract is voidable on the ground of
Duty of Mutual Restitution upon Annulment
mistake, etc., ratification can be made by the party
(1) if the contract is annulled, the parties, as a
whose consent is vitiated.
general rule, must restore to each other:
a. the subject matter of the contract with its
Article 1395. Ratification does not require
fruits
the conformity of the contracting party who has
b. the price thereof with legal interest
no right to bring the action for annulment. (1312)
o the purpose of the law is to restore
WHO CAN FILE AN ACTION FOR ANNULMENT? the parties to their original situation
Article 1397. The action for the annulment
of contracts may be instituted by all who are EXECEPTION FOR MUTUAL RESTITUTION
thereby obliged principally or subsidiarily.
Article 1399. When the defect of the
However, persons who are capable cannot
contract consists in the incapacity of one of the
allege the incapacity of those with whom they
parties, the incapacitated person is not obliged
contracted; nor can those who exerted
to make any restitution except insofar as he has
intimidation, violence, or undue influence, or
been benefited by the thing or price received by
employed fraud, or caused mistake base their
him. (1304)
action upon these flaws of the contract. (1302a)
Restitution by Incapacitated Person
Party Entitled to Bring an Action to Annul
- the incapacitated person is obliged to make
- the real parties in interest are those who are
restitution only to the extent that he was
parties to the contract, or are bound either
benefited by the thing or price received by
principally or subsidiary or are prejudiced in
him
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

- if he was not benefited, he is not obliged to Example: B was forced to sign a contract with A,
restore what he had received but the other granting A a house. B destroyed the house given to
contracting party is still bound to return what him.
he had received, whether he was benefited
or not Question: May B still bring the action for
- the party who has capacity has the burden annulment?
of proving the benefit or profit received by - B’s act of destroying the house extinguishes
the incapacitated person – enrichment od his right to file for annulment of contract
the incapacitated person is NOT presumed
Example: A sold her house to B, who is a minor.
Article 1400. Whenever the person The house was destroyed due to a fortuitous event.
obliged by the decree of annulment to return the
thing cannot do so because it has been lost Question: May B, a minor, still annulled the
through his fault, he shall return the fruits contract to recover from A the payment with
received and the value of the thing at the time of interest?
the loss, with interest from the same date. - Yes, because the loss of the thing is not
(1307a) through B’s fault
Effect of Loss of Thing to be Returned
Article 1402. As long as one of the
(1) loss of the thing without the fault of the person
contracting parties does not restore what in
obliged to make restitution (defendant), there is no
virtue of the decree of annulment he is bound to
more obligation to return such thing
return, the other cannot be compelled to comply
(2) loss of the thing through his fault, his obligation
with what is incumbent upon him. (1308)
is not extinguished but is converted into an
indemnity for damages consisting of the value of Effect where a party cannot restore what he is
the thing at the time of the loss with interest from bound to return
the same date and fruits received from the time the - cannot compel the other party to comply the
thing was given to him to the time of its loss obligation to restore
- there will be no annulment if the party
Article 1401. The action for annulment of cannot restore what is bound to return
contracts shall be extinguished when the thing
which is the object thereof is lost through the Example: B forced A to exchange cars with him. A
fraud or fault of the person who has a right to ask for annulment. The court gave the decree of
institute the proceedings. annulment which ordered that each party should
return whatever they received. A, refuses to return
If the right of action is based upon the
the car of B.
incapacity of anyone of the contracting parties,
- in this case, A cannot compel B to return the
the loss of the thing shall not be an obstacle to car to her – B cannot be compelled to
the success of the action, unless said loss took
comply with what is incumbent upon him
place through the fraud or fault of the plaintiff.
(1314a)
Extinguishment of Action for Annulment
- if the person, who has a right to institute an
action for annulment, will not be able to
restore the thing which he may be obliged to
return in case the contract is annulled
because such thing is lost through his fraud
or fault, his right to have the contract
annulled is extinguished. If the loss is not
due to his fault or fraud, Art. 1402 applies
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER VIII: DEFECTIVE CONTRACTS – (f) A representation as to the credit

UNENFORCEABLE CONTRACTS of a third person.
Article 1403. ART. 1403. The following (3) Those where both parties are
contracts are unenforceable, unless they are incapable of giving consent to a contract.
ratified:
Unenforceable Contracts
(1) Those entered into the name of : those that cannot be enforced in court or sued
another person by one who has been given no upon by reason of defects provided by law until and
authority or legal representation, or who has unless they are ratified according to law
acted beyond his powers; : all essential requisites are present which makes it
a valid contract
(2) Those that do not comply with the
: the reason it is defective because it cannot be
Statute of Frauds as set forth in this number. In
enforced unless they are ratified
the following cases an agreement hereafter
: a party cannot compel or demand another party to
made shall be unenforceable by action, unless
comply to its obligation
the same, or some note or memorandum thereof,
be in writing, and subscribed by the party Binding Force of Unenforceable Contracts
charged, or by his agent; evidence, therefore, of - unenforceable contracts, although valid, are
the agreement cannot be received without the unenforceable unless they are ratified
writing, or secondary evidence of its contents:
(a) An agreement that by its terms Kinds of Unenforceable Contracts
is not to be performed within a year from (1) those entered into in the name of another by
the making thereof; one without or acting in excess of authority
(2) those that do not comply with the Statue of
(b) A special promise to answer for Frauds; and
the debt, default, or miscarriage of (3) those where both parties are incapable of giving
another; consent
(c) An agreement made in - if the legal guardian of the creditor ratifies
consideration of marriage, other than a the contract it will be valid (Art. 1407)
mutual promise to marry;
Unauthorized Contracts
(d) An agreement for the sale of : those entered into in the name of another person
goods, chattels, or things in action, at a by one who has given no authority or legal
price not less than Five hundred pesos, representation or who has acted beyond his powers
unless the buyer accept and receive part : there is no SPA (Special Power of Attorney) but
of such goods and chattels, or the even if there is and the person acted beyond his
evidences, or some of them, of such power it will still be unenforceable
things in action, or pay at the time some
part of the purchase money; but when a Statute of Frauds
sale is made by auction and entry is made : a law which requires that certain contracts must
by the auctioneer in his sales book, at the be in writing for it to be enforceable as a proof of
time of the sale, of the amount and kind of writing of agreement
property sold, terms of sale, price, names : there must be proof first of written contract in
of the purchasers and person on whose order to make a demand
account the sale is made, it is a sufficient
memorandum; Application of Statute of Frauds
(a) presupposes the existence of a perfected
(e) An agreement for the leasing
contract and requires only a note or memorandum
for a longer period than one year, or for
be executed in order to compel judicial enforcement
the sale of real property or of an interest
thereof
therein;
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

(b) the Statute of Frauds refers to specific kinds of Article 1407. In a contract where both
transactions and cannot apply to any other parties are incapable of giving consent, express
transactions and cannot apply to any other or implied ratification by the parent, or guardian,
transaction that is not enumerated therein as the case may be, of one of the contracting
(c) it is applicable only to executory contracts parties shall give the contract the same effect as
(where no performance has yet been made by both if only one of them were incapacitated.
parties) and not to contracts which are totally
If ratification is made by the parents or
(consummated) or partially performed
guardians, as the case may be, of both
(d) it is not applicable where the contract is
admitted, by the Failure to deny specifically its contracting parties, the contract shall be
validated from the inception.
existence, no further evidence thereof being
required
(e) it is not applicable where a writing does not Article 1408. Unenforceable contracts
express the true agreement of the parties. This cannot be assailed by third persons.
is so because the Statute cannot be used as a
shield for fraud or as a means for the perpetration
of it.
*the remedy in this case is reformation of contract
(f) the defense of the Statute of Frauds is subject
to waiver. (Art. 1405)
(g) the defense of the Statute of Frauds is personal
to the parties and cannot be interposed by
strangers to the contract. (Art. 1408)

Article 1404. Unauthorized contracts are

governed by Article 1317 and the principles of
agency in Title X of this Book.

Article 1405. Contracts infringing the

Statute of Frauds, referred to in No. 2 of Article
1403, are ratified by the failure to object to the
presentation of oral evidence to prove the same,
or by the acceptance of benefits under them.

Article 1406. When a contract is

enforceable under the Statute of Frauds, and a
public document is necessary for its registration
in the Registry of Deeds, the parties may avail
themselves of the right under Article 1357.
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

CHAPTER IX: VOID OR INEXISTENT Characteristics of A Void or Inexistent Contract

CONTRACTS 1. Generally, it produces no force and effect
whatsoever.
Article 1409. The following contracts are 2. It cannot be ratified (Art. 1409)
inexistent and void from the beginning: 3. The right to set up the defense of illegality
(1) Those whose cause, object or purpose cannot be waived
is contrary to law, morals, good customs, public 4. The action or defense for the declaration of its
order or public policy; inexistence does not prescribe. (Art. 1410)
5. The defense of illegality is not available to third
(2) Those which are absolutely simulated persons whose interests are not directly
or fictitious; affected (Art. 1421)
(3) Those whose cause or object did not 6. It cannot give rise to a valid contract. (Art. 1422)
exist at the time of the transaction; 7. Its invalidity can be questioned by anyone
affected by it.
(4) Those whose object is outside the
commerce of men; Instances of Void Contracts
1. Contracts whose cause, object, or purpose is
(5) Those which contemplate an
contrary to law, etc. (Art. 1306 and 1416)
impossible service;
2. Contracts which are absolutely simulated or
(6) Those where the intention of the fictitious (Art. 1345 and 1346)
parties relative to the principal object of the 3. Contracts without cause or object (Art. 1347,
contract cannot be ascertained; 1352, and 1353)
4. Contracts whose object is outside the
(7) Those expressly prohibited or commerce of men (Art. 1347 and 1348)
declared void by law. 5. Contracts which contemplate an impossible
These contracts cannot be ratified. service (Articles 1347 and 1348)
Neither can the right to set up the defense of 6. Contracts where the intention of the parties
illegality be waived. relative to the object cannot be ascertained (Art.
1378)
Void Contracts 7. Contracts expressly prohibited or declared void
: are considered inexistent from its inception or by law:
from the very beginning a. Contracts upon future inheritance
: because of certain defects, generally produces no except in cases expressly authorized
effect by law (Art. 1347)
b. Sale of property between husband
Two Kinds of Void Contracts and wife except when there is a
(1) Inexistent Contract. Refer to agreements separation of property (Art. 1490)
which lack one or some or all of the elements c. Purchase of property by persons
(consent, object, and cause) or do not comply with who are specially disqualified by law
the formalities which are essential for the existence because of their position or relation
of a contract with the person or property under
(2) Illegal or Illicit Contract. May produce effects their care (Art. 1491)
under certain circumstances where the parties are d. Donation between the spouse during
not of equal guilt their marriage except moderate gifts
on the occasion of any family
rejoicing.
e. A testamentary provision in favor of
a disqualified person even though
made under the guise of an onerous
contracts, or made through an
intermediary shall be void.
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

f. Any stipulation that household Article 1412. If the act in which the
service shall be without unlawful or forbidden cause consists does not
compensation is void. constitute a criminal offense, the following rules
g. Members of congress are prohibited shall be observed:
from being financially interested,
(1) When the fault is on the part of both
directly or indirectly, in any contract
contracting parties, neither may recover what he
with the government or any
has given by virtue of the contract, or demand
subdivision of instrumentality
the performance of the other’s undertaking;
thereof.
(2) When only one of the contracting
Article 1410. The action or defense for the parties is at fault, he cannot recover what he has
declaration of the inexistence of a contract does given by reason of the contract, or ask for the
not prescribe. fulfillment of what has been promised him. The
other, who is not at fault, may demand the return
Article 1411. When the nullity proceeds
of what he has given without any obligation to
from the illegality of the cause or object of the
comply with his promise. (1306)
contract, and the act constitutes a criminal
offense, both parties being in pari delicto, they Rules where contract is illegal but the act does
shall have no action against each other, and both not constitute a criminal offense
shall be prosecuted. Moreover, the provisions of (1) Where both parties are in pari delicto
the Penal Code relative to the disposal of effects a. neither party may recover what he has
or instruments of a crime shall be applicable to given by virtue of the contract
the things or the price of the contract. b. neither party may demand the performance
of the other’s undertaking
This rule shall be applicable when only
(2) Where only one party is guilty
one of the parties is guilty; but the innocent one
a. the guilty party loses what he has given by
may claim what he has given, and shall not be
reason of the contract
bound to comply with his promise. (1305)
b. the guilty party cannot ask for the fulfillment
Rules where contract is illegal and the act of the other’s undertaking
constitutes a criminal offense c. the innocent party may demand the return
(1) Where both parties are in pari delicto (or in of what he has given
equal fault); effect: d. the innocent party cannot be compelled to
a. the parties shall have no action against comply with his promise
each other
b. both shall be prosecuted RULES FOR RECOVERY
c. the things or the price of the contract, as the
effects or instruments of the crime, shall be Article 1413. Interest paid in excess of the
confiscated in favor of the government. interest allowed by the usury laws may be
(2) Where only one party is guilty (in delicto, but not recovered by the debtor, with interest thereon
in pari delicto). from the date of the payment.
- the party are not equally guilty Recovery of Excessive Interest
a. the guilty party will be prosecuted - the entire interest agreed upon may be
b. the instrument of the crime or object of the recovered, not merely that in excess of
contract will be confiscated those allowed by law
c. the innocent one may claim what he has
given; or if he has not yet given anything, he
shall not be bound to comply with his
promise
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

Article 1414. When money is paid or Article 1417. When the price of any article
property delivered for an illegal purpose, the or commodity is determined by statute, or by
contract may be repudiated by one of the parties authority of law, any person paying any amount
before the purpose has been accomplished, or in excess of the maximum price allowed may
before any damage has been caused to a third recover such excess.
person. In such case, the courts may, if the
Ceiling Law
public interest will thus be subserved, allow the
: a statute fixing the maximum price of any article or
party repudiating the contract to recover the
commodity
money or property.
Recovery where contract entered into for illegal Recovery of amount paid in excess of ceiling
purpose price
- provided the contract is repudiated before - recovery of any amount paid in excess of
the purpose has been accomplished or the ceiling price is allowed to curb the evils
before any damage has been caused to a of profiteering or black-marketing
third person
- the court consider that public interest will be Article 1418. When the law fixes, or
subserved by allowing recovery authorizes the fixing of the maximum number of
hours of labor, and a contract is entered into
Article 1415. Where one of the parties to whereby a laborer undertakes to work longer
an illegal contract is incapable of giving consent, than the maximum thus fixed, he may demand
the courts may, if the interest of justice so additional compensation for service rendered
demands, allow recovery of money or property beyond the time limit.
delivered by the incapacitated person.
Recovery of additional compensation for
Recovery by Incapacitated Person services rendered beyond time limit
- recovery can be allowed if one the parties is - the normal hours of work of any employee
incapacitated and the interest of justice so shall not exceed eight hours a day
demands - the law allows recovery of overtime pay in
case work exceeds eight hours
Article 1416. When the agreement is not
illegal per se but is merely prohibited, and the Article 1419. When the law sets, or
prohibition by the law is designed for the authorizes the setting of a minimum wage for
protection of the plaintiff, he may, if public policy laborers, and a contract is agreed upon by which
is thereby enhanced, recover what he has paid a laborer accepts a lower wage, he shall be
or delivered. entitled to recover the deficiency.
Recovery where contract is not illegal per se Recovery of amount of wage less than
- the agreement is not illegal per se but is minimum fixed
merely prohibited - if an employee receives less than minimum
- prohibition is designed for the protection of wage rate, he can still recover the
the plaintiff deficiency with legal interest and the
- public policy would be enhanced by allowing employer shall be criminally liable
the plaintiff to recover what he has paid or
delivered
 BSA 1102: LAW ON OBLIGATIONS AND CONTRACTS

EFFECT OF ILLEGALITY
Article 1420. In case of a divisible
contract, if the illegal terms can be separated
from the legal ones, the latter may be enforced.
Effect of illegality where contract indivisible or
divisible
(1) When the consideration is entire and single the
contract is indivisible so that if part of such
consideration is illegal, the whole contract is void
(2) Where the contract is divisible as when the
consideration is made up of several parts, and the
illegal ones can be separated from legal portions,
the latter may be enforced. The rule subject to the
contrary intention of the parties

Article 1421. The defense of illegality of

contracts is not available to third persons whose
interests are not directly affected.
Article 1422. A contract which is the direct
result of a previous illegal contract, is also void
and inexistent.