CHAPTER 1

GENERAL PROVISIONS
OBLIGATIONS
OBLIGATION (Article 1156)
- An obligation is a juridical necessity to give, to door not to do.
- An obligation is a juridical relation whereby a person called the
creditor may demand from another person called the debtor,
the observance of a determinative conduct which is the giving,
doing or not doing, and in case of breach, may demand
satisfaction from the assets of the latter.
ESSENTIAL REQUISITES OF OBLIGATIONS
ESSENTIAL REQUISITES OF AN OBLIGATION

A. PASSIVE SUBJECT or DEBTOR or OBLIGOR

- He who has the duty of giving, doing or not doing. The person who is
bound to the fulfillment of the obligation; he who has a duty.

B. ACTIVE SUBJECT or CREDITOR or OBLIGEE

- The possessor of a right; he in whose favor the obligation is constituted.
The person who is entitled to demand the fulfillment of the obligation; he
who has a right.

C. OBJECTor PRESTATION or SUBJECT MATTER

- The conduct required to be observed by the debtor which may consists in
giving a thing, doing or not doing a certain act.

D. JURIDICAL TIE or LEGAL TIE or EFFICIENT CAUSE or VINCULUMJURIS

- The reason why the obligation exists.
FORM OF OBLIGATIONS
FORM OF OBLIGATIONS
- The manner in which an obligation is manifested or incurred. It
maybe oral, or in writing,or partly oral and partly in writing.

RULES AS TO FORM

A. As a general rule, the law does not require any form in obligations
arising from contracts for their validity or binding force.

B. Obligations arising from other sources do not have any format all.
SOURCES OF OBLIGATIONS
SOURCES OF OBLIGATIONS (Article 1157)
A. LAW (Article 1158)
- When they are imposed by the law itself.
B. CONTRACTS (Articles 1159 and 1306)
- When they arise from the stipulations of the parties.
C. QUASI-CONTRACTS (Articles 1160 and 2142)
- Lawful, voluntary, and unilateral acts which generally require a person to
reimburse or compensate another in accordance with the principle that no one
shall be unjustly enriched or benefited at the expense of another .
D. ACTS OR OMISSIONS PUNISHABLE BY LAW (Article 1161 and Article 100, Revised
Penal Code, Act No. 3815, December 8, 1930)
- When they arise from civil liability which is the consequence of a criminal offense.
E. QUASI-DELICTS (Articles 1162 and 2176)
- When they arise from damage caused to another through an act or omission,
there being fault or negligence, but no contractual relation exists between the
parties.
SOURCES OF OBLIGATIONS
LEGAL OBLIGATIONS or OBLIGATIONS EX LEGE(Article 1158)
- These obligations are not presumed because they a considered a
burden upon the debtor. They are the exception, not the rule. To
be demandable, they must be clearly set forth in the law.
- No agreement is necessary before legal obligations can arise, but
the law steps in only because of human actuations.

CONTRACTUAL OBLIGATIONS or OBLIGATIONS EXCONTRACTU

- A contract is a meeting of the minds between two persons
whereby one binds himself, with respect to the other, to give
something, or to render some service (Article 1305).
- Obligations arising from contracts have the force of law between the
contracting parties, i.e., they have the same binding effect as legal
obligations (Article 1159).
- A contract, assuming all essential elements are present, is valid
if it is not contrary to law, morals, good customs, public order and
public policy.
SOURCES OF OBLIGATIONS
QUASI-CONTRACTUAL OBLIGATIONS or OBLIGATIONS EX QUASI-
CONTRACTU (Article 1160)
– A juridical relation resulting from lawful, voluntary and unilateral
acts by virtue of which the parties become bound to each other to
the end that no one will be unjustly enriched or benefited at the
expense of another (Article 2142).

TWO PRINCIPAL KINDS OF QUASI-CONTRACTS

A. NEGOTIORUMGESTIO
– This takes place when a person voluntarily manages another’s
abandoned business or property without the owners’ consent (Article
2144). Reimbursement must be made to the officious manager
or gestor for necessary and useful expenses, as a rule (Article
2150).
SOURCES OF OBLIGATIONS
B. SOLUTIO INDEBITI
- It is the juridical relation which is created when something is
received when there is no right to demand it and it was unduly
delivered through mistake. The recipient has the duty to return it
(Article 2154).

REQUISITES OF SOLUTIO INDEBITI

1. There is no right to receive the thing delivered; and

2. The thing was delivered through mistake.

SOURCES OF OBLIGATIONS
CIVIL LIABILITY ARISING FROM CRIMES or ACTS OR OMISSIONS PUNISHABLE
BY LAW or DELICTor OBLIGATIONS EX DELICTO or OBLIGATIONS EX
MALEFICIO(Article 1161)
- The commission of a crime causes not only moral evil but also
material damage. From this principle, the rule has been established
that every person criminally liable for an act or omission is also civilly
liable for damages (Article 100, Revised Penal Code, Act No. 3815,
December 8, 1930).

SCOPE OF CIVIL LIABILITY

A. Restitution.

B. Reparation for the damage caused.

C. Indemnification for consequential damages.

SOURCES OF OBLIGATIONS
OBLIGATIONS ARISING FROM QUASI-DELICTS or TORTS or CULPA AQUILIANA or
OBLIGATIONS EX QUASI- DELICTO or OBLIGATIONS EXQUASI-MALEFICIO
- An act or omission by a person (tortfeasor) which causes damages to another
in his person, property, or rights giving rise to an obligation to pay for the
damage done, there being fault or negligence but there is no pre-existing
contractual relation between the parties (Article 2176).

REQUISITES OF QUASI-DELICT

A. There must bean act or omission.

B. There must be fault or negligence.

C. There must be damage caused.

D. There must be a direct relation or connection of cause and effect between the actor
omission and the damage (DOCTRINE OF PROXIMATE CAUSE).

E. There is no pre-existing contractual relation between the parties.

CHAPTER 2
NATURE AND EFFECTS OF
OBLIGATIONS
SPECIFIC AND GENERIC OBJECTS
SPECIFIC AND GENERIC OBJECTS

A. SPECIFIC or DETERMINATE OBJECT

- If the thing can be particularly designated or physically segregated
from others of the same class. It is identified by its individuality.
- The debtor cannot substitute it with another although the latter is
of the same kind and quality without the consent of the creditor.

B. GENERIC or INDETERMINATE OBJECT

- A thing is generic when it refers only to a class or genus to which it
pertains and cannot be pointed out with particularity. It is identified
only by its specie.
- The debtor can give anything of the same class as long as it is of the same
kind.
PECIFIC REAL OBLIGA TION S
DUTIES OF A DEBTOR IN SPECIFIC REAL OBLIGATIONS

A. DUTY TO PRESERVE THE THING or DUTY TO EXERCISE DILIGENCE

- In real obligations, the debtor has the incidental duty to take care of
the thing due pending delivery with the diligence of a good father of
a family.

B. DUTY TO DELIVER THE FRUITS OF THE THING

- The creditor has a right to the fruits of the thing from the time the
obligation to deliver it arises. However, he shall acquire no real
right over it until the same has been delivered to him (Article
1164).
PECIFIC REAL OBLIGA TION S
KINDS OF FRUITS

1. NATURAL FRUITS
- Spontaneous products of the soil and the young and other products of
animals.

2. INDUSTRIAL FRUITS
- Produced by lands of any kind through cultivation or labor.

3. CIVIL FRUITS
- Those derived by virtue of a juridical relation.

RIGHT OF CREDITOR TO THE FRUITS (Article 1164)

- The creditor is entitled to the fruits of the thing to be delivered from
the time the obligation to make delivery arises. The intention of the law
is to protect the interest of the obligee should the obligor commit delay,
purposely or otherwise, in the fulfillment of his obligation.
PECIFIC REAL OBLIGATI ON S
WHEN OBLIGATION TO DELIVER FRUITS ARISES

1. Generally, the obligation to deliver the thing due and,

consequently, the fruits thereof, if any, arises from the time of the
perfection of the contract.

2. If the obligation is subject to a suspensive condition or period

(Articles 1179, 1189, and 1193.), it arises upon the fulfillment of
the condition or arrival of the term. However, the parties may
make a stipulation to the contrary as regards the right of the creditor
to the fruits of the thing.
PECIFIC REAL OBLIGA TION S
3. In a contract of sale, the obligation arises from the perfection
of the contract even if the obligation is subject to a suspensive
condition or a suspensive period where the price has been paid.

4. In obligations to give arising from law, quasi-contracts, delicts, and

quasi-delicts, the time of performance is determined by the
specific provisions of the law applicable.

C. DUTY TO DELIVER THE ACCESSIONS AND ACCESSORIES

- The obligation to give a determinate thing includes that of
delivering all its accessions and accessories, even though they
may not have been mentioned (Article 1166).
PECIFIC REAL OBLIGATI ON S
ACCESSIONS
– The fruits of a thing or additions to or improvements upon
a thing (the principal).

ACCESSORIES
– Those joined to or included with the principal thing for
the latter’s embellishment, better use, or completion.

D. DUTY TO DELIVER THE THING ITSELF

– Every person obliged to give a determinate thing must deliver, and
the creditor may compel the delivery of, that itself which was
promised, and he cannot substitute it unless the creditor agrees
(Article 1165).
PECIFIC REAL OBLIGATI ON S
WHEN THE OBLIGATION TO DELIVER ARISES

1. If there is no term or condition, then from the perfection of the contract.

2. If there is a term or a condition, then from the moment the term

arrives or the condition happens.

E. DUTY TO ANSWER FOR DAMAGES IN CASE OF NON-FULFILLMENT OR BREACH

- Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the
tenor thereof, are liable for damages (Article 1170).
GENERIC REAL OBLIGATIONS
DUTIES OF A DEBTOR IN GENERIC REAL OBLIGATIONS

A. The creditor may ask that the obligation be complied with at the
expense of the debtor (Article 1165).

B. If the thing to be delivered is indeterminate or generic, the obligor

must deliver a thing of the quality specified or intended by the parties
taking into consideration the purpose of the obligation and other
circumstances; if none is fixed, he must deliver one of average quality
and neither can the obligor deliver a thing of inferior quality nor the
obligee demand one of superior quality (Article 1246).
C. To be liable for damages in case of fraud, negligence, or delay, in the
performance of his obligation, or contravention of the tenor thereof
(Article 1170).
REMEDIES IN REAL OBLIGATIONS
REMEDIES OF CREDITOR IN CASE OF BREACH OF REAL OBLIGATIONS (Article 1165)

A. SPECIFIC REAL OBLIGATION

1. Demand specific performance or fulfillment of the obligation

with a right to indemnity for damages.

2. Demand rescission or cancellation (in certain cases) of the

obligation also with a right to recover damages.

3. Demand payment of damages only where it is the only feasible remedy.

REMEDIES IN REAL OBLIGATIONS
B. GENERIC REAL OBLIGATION
- Demand compliance with the obligation. If debtor fails, it can be
performed by a third person since the object is expressed only
according to its family or genus. However, the creditor can recover
damages in case of breach.

WHEN DEBTOR DELAYS OR IS IN BAD FAITH

- If the debtor is in delay or promised delivery to separate
creditors, the happening of a fortuitous event does not
exempt the debtor from responsibility because an
indeterminate thing cannot be the object of destruction
based on the doctrine genus never perishes (genus nunquam
perit).
P ERSONAL OBLIGATION S
STIPULATIONS CONTEMPLATED

A. The debtor fails to perform an obligation to do.

B. The debtor performs an obligation to do but contrary to the terms thereof.

C. The debtor performs an obligation to do but in a poor manner.

REMEDIES IN PERSONAL OB LIGATIONS
REMEDIES OF A CREDITOR IN POSITIVE PERSONAL OBLIGATIONS (Article 1167)

A. If the debtor fails to comply with his obligation to do, the creditor has the
right:

1. To have the obligation performed by himself, or by another, unless

personal
considerations are involved, at the debtor’sexpense.

2. To recover damages.

B. In case the obligation is done in contravention of the terms of the same or

is poorly
done, it may be ordered (by the court) that it be undone if it is still
possible to undo what was done.
REMEDIES IN PERSONAL OB LIGATIONS
RULES REGARDING PERFORMANCE BY A THIRD PERSON

1. A personal obligation can be performed by a third person. However,

an action for specific performance cannot be ordered in a personal
obligation because this may amount to involuntary servitude,
which as a rule, is prohibited under the Constitution.

2. Where personal qualifications of the debtor are the determining

motive for the obligation contracted, the performance of the
same by another would be impossible or would result to be so
different that the obligation could not be
considered performed. Hence, the only remedy of the creditor is
indemnification for damages.
REMEDIES IN PERSONAL OB LIGATIONS
REMEDIES OF CREDITOR IN NEGATIVE PERSONAL OBLIGATIONS (Article 1168)

A. The thing maybe ordered undone provided undoing is possible at the

expense of the debtor plus damages.

B. If it is not possible to undo what was done, either physically or legally,

or because of the rights acquired by third persons who acted in
good faith, or for some other reason, the remedy is an action for
damages caused by the debtor’s violation of his obligation.
GROUNDS FOR LIABILI T Y
GROUNDS FOR LIABILITY (Article 1170)

A. FRAUD or DECEIT or DOLO

- The deliberate or intentional evasion of the normal fulfillment of an
obligation. As a ground for damages, it implies some kind of malice
or dishonesty and it cannot cover cases of mistake and errors of
judgment made in good faith. It is synonymous to bad faith in
that, it involves a design to mislead or deceive another.
KINDS OF FRAUD

1. CAUSAL FRAUD or DOLOCAUSANTE

- Fraud employed in the execution of a contract which vitiates consent.
- Substantial fraud that may constitute a ground for annulment of the
contract.
GROUNDS FOR LIABILI T Y
2. INCIDENTAL FRAUD or DOLO INCIDENTE
- Fraud committed in the performance of an obligation already
existing because of a contract so although fraud is absent or
not exercised, the other party would have nonetheless entered
into the agreement on significantly the same terms.
- Incidental fraud which merely calls for reparation for damages.

B. NEGLIGENCE or FAULT or CULPA

- It is any voluntary act or omission, there being no bad faith or
malice, which prevents the normal fulfillment of an obligation.

C. LEGAL DELAY or DEFAULT or MORA(Article 1169)

GROUNDS FOR LIABILI T Y
KINDS OF DELAY

1. ORDINARY DELAY
- Merely the failure to perform an obligation on time.

2. LEGAL DELAY or DEFAULT or MORA

- The failure to perform an obligation on time which failure
constitutes a breach of the obligation.
- Those obliged to deliver or to do something incur in default from
the time the creditor judicially or extrajudicially demands from
them the fulfillment of their obligation (Article 1169).
GROUNDS FOR LIABILITY
KINDS OF DEFAULT

1. MORASOLVENDI
- Default on the part of the debtor to fulfill his obligation.

2. MORAACCIPIENDI
- Default on the part of the creditor to accept performance of the
obligation.

3. COMPENSATIOMORAE
- The delay of the obligors in reciprocal obligations, the delay of the
obligor
cancels the delay of the obligee, and viceversa. The net result is
that there is no actionable default as both parties are in default;
here it is as if neither is in default.
GROUNDS FOR LIABILI T Y
WHEN DEMAND IS NOT NEEDED TO PUT DEBTOR IN DEFAULT (Article 1169)

1. When the obligation expressly so provides.

2. When the law so provides.

3. When time is of the essence of the contract.

4. When demand would be useless.

5. When there is performance by a party in reciprocal obligations.

GROUNDS FOR LIABILI T Y
D. CONTRAVENTION OF THE TERMS OF THE OBLIGATION
- The violation of the terms and conditions stipulated in the
obligation. The contravention must not be due to a fortuitous event
or force majeure.

RESPONSIBILITY ARISING FROM FRAUD (Article 1171)

- Responsibility arising from incidental fraud can be demanded with
respect to all kinds of obligations and unlike in the case of
responsibility arising from negligence, the court is not given the
power to mitigate or reduce the damages to be awarded.
RULES REGARDING WAIVER FOR FRAUD

A. A waiver of an action for future fraud is void (no effect, as if there is

no waiver) as being against the law and public policy.
GROUNDS FOR LIABILI T Y
B. A past fraud can be the subject of a valid waiver because the
waiver can be considered as an act of generosity and magnanimity
on the part of the party who is the victim of the fraud.

RESPONSIBILITY ARISING FROM NEGLIGENCE (Article 1172)

- In the performance of every kind of obligation, the debtor is
also liable for damages resulting from his negligence. The courts,
however, are given wide discretion in fixing the measure of
damages because negligence is a question which must necessarily
depend upon the circumstances of each particular case and is not
as serious as fraud because there is not deliberate intention to
cause injury or damages.
GROUNDS FOR LIABILI T Y
KINDS OF NEGLIGENCE ACCORDING TO SOURCE OF OBLIGATION

A. CONTRACTUAL NEGLIGENCE or CULPACONTRACTUAL

- Negligence in contracts resulting in their breach.

B. CIVIL NEGLIGENCE or QUASI-DELICT or TORTS or CULPAAQUILIANA or

OBLIGATIONS EXQUASI-DELICTO or OBLIGATION EXQUASI-MALEFICIO
- Negligence which by itself is the source of an obligation between
the parties not so related before any pre-existing contract.

C. CRIMINAL NEGLIGENCE or CULPACRIMINAL

- Negligence resulting in the commission of a crime.
GROUNDS FOR LIABILI T Y
FACTORS TO BE CONSIDERED TO DETERMINE NEGLIGENCE (Article 1173)

A. Nature of the obligation.

B. Circumstances of the person.

C. Circumstances of time.

D. Circumstances of the place.

 FORTUITOUS EVENT
FORTUITOUS EVENT or ACT OF GOD or FORCE MAJEURE orCASOFORTUITO
– Is any event which cannot be foreseen, or which, though foreseen, is
inevitable. Stated otherwise, it is an event which is either impossible to
foresee or impossible to avoid. It is independent of the will of the debtor
and which happening, makes the normal fulfillment of the obligation
impossible.
REQUISITES OF A FORTUITOUS EVENT
A. The event must be independent of the human will or at least of the debtor’swill.
B. The event could not beforeseen, or if foreseen, is inevitable.
C. The event must be of such a character as to render it impossible for the
debtor to comply with his obligation in a normal manner.
D. The debtor must be free from any participation in, or the aggravation of,
the injury to the creditor, that is, there is no concurrent negligence on his
part.
 FORTUITOUS EVENT
RULES AS TO LIABILITY IN CASE OF FORTUITOUS EVENT

A. GENERAL RULE
- As a general rule, a person is not responsible for loss or damage caused
to another resulting from the non-performance of his obligation due to
fortuitous events. In other words, the obligation is EXTINGUISHED.

B. EXCEPTIONS (WHEN OBLIGATION IS NOT EXTINGUISHED) (Article 1174)

1. WHEN EXPRESSLY SPECIFIED BY LAW

a. The debtor is guilty of fraud, negligence, or delay, or contravention of

the tenor of the obligation (Article 1170).

b. The debtor is in bad faith or has promised to deliver the same

(specific) thing to two or more persons who do not have the same
interest (Article 1165).
 FORTUITOUS EVENT
c. The obligation to deliver a specific thing arises from a crime (Article
1268).

d. The thing to be delivered is generic (Article 1263) in

accordance with the principle genus never perishes
(genusnunquamperit).

2. WHEN DECLARED BY STIPULATION

- The basis for this exception rests upon the freedom of contract (Article
1306).

3. WHEN THE NATURE OF THE OBLIGATION REQUIRES THE ASSUMPTION OF

RISK or
DOCTRINE OF CREATED RISK
- The risk of loss or damage is an essential element in the obligation.
USUR Y
SIMPLE LOAN (MUTUUM)
- Is a contract whereby one of the parties delivers to another,
money, or other consumable thing, upon the condition that the
same amount of the same kind and quality shall be paid. It may
be gratuitous or with a stipulation to pay interest (Article 1933).

USURY (Article 1175)

- It is contracting for or receiving interest in excess of the amount
allowed by law for the loan or use of money, goods, chattels or
credits. In other words, usury is the exaction of excessive interest.
- A stipulation for payment of usurious interest is void, that is, as if
there is no stipulation as to interest.
USUR Y
- By virtue, however, of Central Bank Circular No. 905 (December 10,
1982),the rate of interest and other charges on a loan or forbearance
of money, goods, or credit, regardless of maturity and whether
secured or unsecured, that may be charged or collected shall not
be subject to any ceiling prescribed under the Usury Law. Usury is
now legally inexistent. Parties are now free to stipulate any amount
of interest. It does not, however, give absolute right to the
creditor to charge the debtor interest that is iniquitous or
unconscionable.

REQUISITES FOR RECOVERY OF INTEREST

A. The payment of interest must be expressly stipulated (Article 1956).

B. The agreement must be in writing.

C. The interest must be lawful.
 PRESUMPTION
PRESUMPTION
- The inference of a fact not actually known arising from its usual
connection with another which is known or proved.

TWO KINDS OF PRESUMPTION

A. CONCLUSIVE PRESUMPTION
- One which cannot be contradicted.

B. DISPUTABLE PRESUMPTION or REBUTTABLE PRESUMPTION

- One which can be contradicted or rebutted by presenting proof to the
contrary.
 PRESUMPTION
TWO PRESUMPTIONS

A. The receipt of the principal by the creditor without reservation with

respect to the interest, shall give rise to the presumption that said
interest has been paid.

B. The receipt of a later installment of a debt without reservation

as to prior installments, shall likewise raise the presumption that such
installments have been paid.

EXCEPTIONS TO PRESUMPTIONS (WHEN PRESUMPTIONS DO NOT APPLY)

A. WITH RESERVATION AS TO INTEREST

- The presumption do not arise where there is a reservation that no
payment has been made as to interest or prior installments,
as the case may be. The reservation maybe made in writing or
verbally.
 PRESUMPTION
B. RECEIPT WITHOUT INDICATION OF PARTICULAR INSTALLMENT PAID
- The presumption is not applicable if the receipt does not recite that it
was issued for a particular installment due as when the receipt is only
dated.

C. RECEIPT FOR A PART OF THE PRINCIPAL

- Such a receipt, without mentioning the interest, implies that the creditor
waives his right to apply payment first to the interest and then to the
principal. It is only when the principal is fully receipted for and there is
failure by the creditor to reserve claim for interest, that the presumption
that the said interest has been paid will arise.

D. PAYMENT OF TAXES
- There is no presumption that previous taxes have been paid by payment of later
ones.
E. NON-PAYMENT PROVEN
- A presumption cannot prevail against a proven fact.
REMEDIES IN GENERA L
REMEDIES AVAILABLE TO CREDITORS IN CASE OF BREACH

A. Exact fulfillment or SPECIFIC PERFORMANCE (specific real

obligations), or SUBSTITUTE PERFORMANCE (personal obligations) with
damages.

B. Pursue the leviable (not exempt from attachment under the law)
property of the debtor.

C. Exercise all rights (like the right to redeem) and bring all actions of
the debtor (like the right to collect from the debtor of his debtor
(SUBROGATORY ACTION or ACCION SUBROGATORIA)) except those
inherent in or personal to the person of the debtor.
D. Ask the court to rescind or impugn acts or contracts which the
debtor may have done to defraud him when he cannot in any manner
recover his claim (RESCISSORY ACTION or ACCION PAULIANA).
ANSMISSIBILITY OF RIGH T S
GENERAL RULE
- All rights acquired by virtue of an obligation are transmissible.

EXCEPTIONS

A. PROHIBITED BY LAW
- When prohibited by law like the rights in partnership, agency, and
commodatum which are purely personal in character.

B. PROHIBITED BY STIPULATION OF THE 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.
- Such stipulation, being contrary to the general rule, must be clearly
proved, or, at the very least, clearly implied from the wordings or
terms of the contract itself.
CHAPTER 3
DIFFERENT KINDS OF
OBLIGATIONS
SECTION 1.
PURE AND CONDITIONAL
OBLIGATIONS
PURE AND CONDITIONAL OBLIGATIONS
PURE OBLIGATION (Article 1179)
- One which is not subject to any condition and no specific period or date is
mentioned for its fulfillment and is, therefore, immediately demandable
provided there will be no absurdity.
CONDITION
- A future and uncertain event, upon the happening of which, the
effectivity or extinguishment of an obligation or right subject to it depends.
- It may also refer to a past event unknown to the parties which refers to the
knowledge to be acquired in the future of a past event which at the
moment is unknown to the parties interested.
CONDITIONAL OBLIGATION
- One whose consequences are subject in one way or another to the
fulfillment of a condition.
- The acquisition of rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of the event which
constitutes the condition.
CONDITIONAL OBLIGATIONS
CHARACTERISTICS OF A CONDITION

A. FUTURE AND UNCERTAIN

- In order to constitute an event as a condition, it is not enough that
it be future, it must also be uncertain.

B. PAST BUT UNKNOWN

- A condition may refer to a past event unknown to the parties. If
it refers to a future event, both its very occurrence and the time of
such occurrence must be uncertain, otherwise, it is not a condition.

C. POSSIBLE
- Acondition must not be
CONDITIONAL OBLIGATIONS
TWO PRINCIPAL KINDS OF CONDITION

A. SUSPENSIVE CONDITION or CONDITION PRECEDENT or CONDITION ANTECEDENT

- One the fulfillment of which will give rise to an obligation
or right. The demandability of the obligation is suspended until the
happening of the uncertain event which constitutes the condition.
- When the acquisition of rights or demandability of the obligation
must await the occurrence of the condition (Article 1181).

B. RESOLUTORY CONDITION or CONDITION SUBSEQUENT

- One the fulfillment of which will extinguish an obligation or right already
existing.
- When the obligation is at once due and demandable but the right
is extinguished or lost upon the fulfillment of the condition (Articles
1179 and 1181).
CONDITIONAL OBLIGATIONS
WHEN OBLIGATION IS DEMANDABLE AT ONCE

A. When the obligation is pure.

B. When it is subject to a resolutory condition.

C. When it is subject to a resolutory period.

PAST EVENT UNKNOWN TO THE PARTIES

- A past event cannot be said to be a condition since the
demandability of an obligation subject to a condition depends upon
whether the event will happen or
will not happen. What is really contemplated by the law is the
knowledge to be acquired in the future of a past event which at
the moment is unknown to the parties interested, for it is only in
that sense that the event can be deemed uncertain. This
knowledge determines whether the obligation will arise or not.
PERIODIC OBLIGATIONS
PERIOD
– A future and certain event upon the arrival of which the obligation
subject to it either arises or is extinguished.

WHERE DURATION OF PERIOD DEPENDS UPON THE WILL OF DEBTOR (Article 1180)
– If the debtor promises to pay when his means permit him to do so,
the obligation shall be deemed to be one with a period. In this
case, what depends upon the debtor’s will is not whether he
should pay or not for indeed he binds himself to pay. What is left
only to his will is the duration of the period.
– If the debtor and the creditor cannot agree as to the specific time
for payment, the courtshall fix the same on the application of either
party (Article 1197).
KINDS OF CONDITIONS
POTESTATIVE or FACULTATIVE CONDITION
- A condition suspensive in nature which depends upon the sole will
of one of the contracting parties.

KINDS OF POTESTATIVE CONDITION

A. SUSPENSIVE POTESTATIVE DEPENDENT UPON THE WILL OF THE DEBTOR

1. CONDITIONAL OBLIGATION VOID (Article 1182)

- Where the potestative condition depends solely upon the will of the
debtor, the conditional obligation shall be void because its validity and
compliance is left to the will of the debtor and it cannot, therefore, be
easily demanded. In order not to be
liable, the debtor will not just fulfill the condition. There is no burden
on the debtor and consequently, no juridical tie is created. The
obligation is really illusory since the debtor will simply choose not to fulfill
the condition to evade the obligation.
- Both the condition and the obligation is void.
KINDS OF CONDITIONS
2. ONLY CONDITION VOID
- If the obligation is a pre-existing one and, therefore, does not
depend for its existence upon the fulfillment by the debtor of the
potestative condition, only the condition is void leaving
unaffected the obligation itself. Here, the condition is imposed
not on the obligation itself but on its fulfillment.

B. RESOLUTORY POTESTATIVE DEPENDENT UPON THE WILL OF THE DEBTOR

- The obligation is valid although its fulfillment depends upon the
sole will of the debtor since the fulfillment of the condition merely
causes the extinguishment or loss of rights already acquired.
The debtor is naturally interested in its fulfillment.
C. POTESTATIVE DEPENDENT UPON THE WILL OF THE CREDITOR
- The obligation and condition is valid because the creditor is
naturally interested in the fulfillment of the obligation.
KINDS OF CONDITIONS
CASUAL
- If the suspensive condition depends upon chance or upon the will of a third
person, the
obligation subject to it is valid.
MIXED
- The obligation is valid if the suspensive condition depends partly upon
chance and partly upon the will of a third person.
TWO KINDS OF IMPOSSIBLE CONDITIONS
A. PHYSICALLY IMPOSSIBLE CONDITIONS
- When they, in nature of things, cannot exist or cannot be done.
Includes logical impossibility.
B. LEGALLY IMPOSSIBLE CONDITIONS or ILLEGAL CONDITIONS
- When they are contrary to or prohibited by law, morals, good customs,
public order, or public policy.
KINDS OF CONDITIONS
EFFECTS OF IMPOSSIBLE CONDITIONS (Article 1183)
A. CONDITIONAL OBLIGATION VOID
- Impossible conditions annul the obligation which depends upon them. Both the
obligation and the condition are void. The reason behind the law is that the
obligor knows his obligation cannot be fulfilled. He has no intention to comply with
his obligation.
B. CONDITIONAL OBLIGATION VALID
- If the condition is negative, that is, not to do an impossible thing, it is
disregarded and the obligation is rendered pure and valid. Actually, the condition
is always fulfilled when it is not to do an impossible thing so that it is the same as
if there were no condition.
C. ONLY THE AFFECTED OBLIGATION VOID
- If the obligation is divisible, the part thereof not affected by the impossible
condition shall be valid.
D. ONLY THE CONDITION VOID
- If the obligation is a pre-existing obligation, and, therefore, does not depend
upon the fulfillment of the condition which is impossible, for its existence, only the
condition is void.
RULES REGARDING CONDIT IONS
POSITIVE CONDITION (Article 1184)
- The condition that some event happen at a determinate time shall
extinguish the obligation as soon as the time expires or if it has
become indubitable that the event will not take place.
- Refers to positive and suspensive condition - the happening of
an event at a determinate time.

WHEN THE OBLIGATION IS EXTINGUISHED

A. As soon as the time expires without the event taking place.

B. As soon as it has become indubitable that the event will not take
place although the time specified has not expired.
RULES REGARDING CONDIT IONS
NEGATIVE CONDITION (Article 1185)
- The condition that some event will not happen at a determinate
timeshall render the obligation effective from the moment the time
indicated has elapsed, or if it has become evident that the event
cannot occur.
- Speaks of a negative condition - that an event will not happen at
a determinate time.

WHEN THE OBLIGATION BECOMES EFFECTIVE

A. From the moment the time indicated has elapsed without the event taking
place.
B. From the moment it has become evident that the event cannot
occur, although the time indicated has not yet elapsed.
RULES REGARDING CONDIT IONS
DOCTRINE OF CONSTRUCTIVE or PRESUMED FULFILLMENT OF SUSPENSIVE
CONDITION (Article 1186)
- The condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment for one must not profit by his own fault or
bad faith. The act must be voluntary and there must be actual
prevention.

REQUISITES

A. The condition issuspensive.

B. The obligor actually prevents the fulfillment of the condition.

C. He acts voluntarily.
RULES REGARDING CONDIT IONS
DOCTRINE OF CONSTRUCTIVE or PRESUMED FULFILLMENT OF RESOLUTORY
CONDITION
- This article applies also to an obligation subject to a resolutory
condition with
respect to the debtor who is bound to return what he has
received upon the fulfillment of the condition.

RETROACTIVE EFFECTS OF FULFILLMENT OF SUSPENSIVE CONDITION (Article 1187)

A. IN REAL OBLIGATIONS
- An obligation to give subject to asuspensive condition becomes
demandable only upon the fulfillment of the condition. However,
once the condition is fulfilled, its effectshall retroact to the daywhen
the obligation was constituted.
RULES REGARDING CONDITIONS
B. IN PERSONAL OBLIGATIONS
- With respect to the retroactive effect of the fulfillment of a
suspensive condition in obligations to do or not to do, no fixed
rule is provided. This does not mean, however, that in these
obligations the principle of retroactivity is not applicable. The courts
are empowered by the use of sound discretion and bearing in mind
the intent of the parties, to determine, in each case, the
retroactive effect of the suspensive condition that has been
complied with. It includes the power to decide that the fulfillment of
the condition shall have no retroactive effect or from what date such
retroactive effectshall take effect.
RULES REGARDING CONDIT IONS
RETROACTIVE EFFECTS AS TO FRUITS AND INTERESTS IN REAL
OBLIGATIONS (Article 1187)

A. IN RECIPROCAL OBLIGATIONS
- There is no retroactivity because the fruits and interests during the
pendency of the condition shall be deemed to mutually
compensate each other even though they really be unequal for the
purpose of convenience and practical effectiveness since the parties
would not have to render mutual accounting of what they have
received.
B. IN UNILATERAL OBLIGATIONS
- There is usually no retroactive effect because they are
gratuitous. The debtor receives nothing from the creditor. Thus, fruits
and interests belong to the debtor unless from the nature and
other circumstances of the obligation it should be inferred that the
intention of the person constituting the same was different.
RULES REGARDING CONDITIONS
RIGHTS PENDING FULFILLMENT OF SUSPENSIVE CONDITION (Article 1188)

A. RIGHTS OF CREDITOR
- He may take or bring appropriate actions for the preservation of his right,
as the
debtor may render nugatory the obligation upon the happening of the
condition.

B. RIGHTS OF DEBTOR
- He is entitled to recover what he has paid by mistake prior to the
happening of the suspensive condition. This right is granted to the
debtor because the creditor mayor may not be able to fulfill the
condition imposed and hence, it is not certain that the obligation
will arise. This is a case of solutio indebiti. Note that the
payment before the fulfillment of the condition must be by
mistake, otherwise, the debtor is deemed to have impliedly
waived the condition. In any case, he cannot recover what he
has prematurely paid once the suspensive condition is fulfilled.
RULES REGARDING CONDIT IONS
RULES IN CASE OF LOSS, DETERIORATION, OR IMPROVEMENT OF THING DURING
PENDENCY OF SUSPENSIVE CONDITION (Article 1189)

A. LOSS OF THING WITHOUT DEBTOR’S FAULT

- The obligation is extinguished. As a general rule, the debtor is not liable
for a fortuitous event.
B. LOSS OF THING THROUGH DEBTOR’S FAULT
- The debtor is obliged to pay damages.

C. DETERIORATION OR IMPAIRMENT OF THING WITHOUT DEBTOR’S FAULT

- The creditor suffers the deterioration, impairment, or reduction in value.

D. DETERIORATION OF THING THROUGH DEBTOR’S FAULT

- The creditor may choose between the rescission of the obligation or its
fulfillment with indemnity for damages in either case.
RULES REGARDING CONDITIONS
E. IMPROVEMENT OF THING BY NATURE OR BY TIME
- The improvementshall inure to the benefit of the creditor.

F. IMPROVEMENT OF THING AT EXPENSE OF DEBTOR

- The debtorshall have no other right than that granted to the usufructuary.

EFFECTS OF FULFILLMENT OF RESOLUTORY CONDITION (Article 1190)

A. IN REAL OBLIGATIONS
- When the resolutory condition in an obligation to give is fulfilled, the
obligation is extinguished and the parties are obliged to return to
each other what they have received under the obligation.
RULES REGARDING CONDIT IONS
EFFECTS

1. There is a return to the statusquo. In other words, the effect of

the fulfillment of the condition is retroactive.

2. In case the thing to be returned is legally in the possession of a

third person in good faith, the remedy of the party entitled to
restitution is against the party bound to return.

3. The obligation of mutual restitution is absolute. It applies not only

to the thing received but also to the fruits and interests. The fruits
or the interests thereon should also be returned after deducting of
course the expenses made for their production gathering and
preservation (Article 443).
 RULES REGARDING CONDITIONS
4. The rules in Article 1189 will apply to whoever has the duty to return in
case of
the loss, deterioration or improvement of the thing.

5. The only exception to the rule is the intention of the parties not to
avail of
restitution.

B. IN PERSONAL OBLIGATIONS
- In such obligations, the courts shall determine the retroactive
effect of the fulfillment of the resolutory condition. The courts in
the exercise of discretion may even disallow retroactivity, taking
into account the circumstances of each case.
BILATERAL OBLIGATIONS
KINDS OF BILATERAL OBLIGATION

A. RECIPROCAL BILATERAL OBLIGATION

- Arises from the same cause and the performance of one party is
designed to be the equivalent and the condition for the performance
of the other. Each party may treat the fulfillment of what is
incumbent upon the other as a suspensive condition to this
obligation and its non-fulfillment, as a tacit or implied resolutory
condition, giving him the right to demand the rescission of the
contract.

B. NON-RECIPROCAL BILATERAL OBLIGATION

- Those which do not impose simultaneous and correlative
performance on both parties. The performance of one party is not
dependent upon the simultaneous performance by the other.
BILATERAL OBLIGATIONS
REMEDIES IN RECIPROCAL OBLIGATIONS (Article 1191)

A. ACTION FOR SPECIFIC PERFORMANCE OR FULFILLMENT OF THE OBLIGATION WITH

DAMAGES

B. ACTION FOR RESCISSION OF THE OBLIGATION WITH DAMAGES

- Rescission in Article 1191 governs where there is non-compliance
by one of the contracting parties in case of reciprocal obligations. The
remedy is granted for breach by the other contracting party that violates the
reciprocity between them.

LIMITATIONS ON THE RIGHT TO DEMAND RESCISSION

A. RESORT TO THE COURTS

- The rescission contemplated by Article 1191 is a judicial rescission or one
granted by a court. The injured party has to resort to the courts to assert
his rights judicially for the same article provides that "the court shall
decree the rescission claimed, unless there be just cause authorizing the
fixing of a period."
BILATERAL OBLIGATIONS
B. POWER OF COURT TO FIX PERIOD
- The court has discretionary power to allow a period within which
a person in default may be permitted to perform his obligation if
there is a just cause for giving time to the guilty party such as
when he is willing to comply with his obligation but needs time to
do so and not where he refuses to perform. The default incurred
was not willful or could be excused in view of the surrounding
circumstances.

C. RIGHT OF THIRD PERSON

- If the thing subject matter of the obligation is in the hands of a
third person who acted in good faith, rescission is not available as a
remedy.
BILATERAL OBLIGATIONS
D. SUBSTANTIAL VIOLATION
- The general rule is rescission will not be granted for trivial
causes or slight breaches of contract; the violation should be
substantial and fundamental as to defeat the object of the parties in
making the agreement.

E. WAIVER OF RIGHT
- The right to rescind maybe waived, expressly or impliedly.

F. AVAILABLE ONLY TO INNOCENT PARTY

- It can be demanded only if the plaintiff is ready, willing and able
to comply with his own obligation and the other is not. Moreover, the
guilty party cannot rescind.
BILATERAL OBLIGATIONS
RESCISSION WITHOUT PREVIOUS JUDICIAL DECREE

A. WHERE AUTOMATIC RESCISSION EXPRESSLY STIPULATED

- The parties may validly enter into an agreement that violation of the
terms of the contract would cause cancellation thereof even
without judicial intervention or permission. Where the contract
itself contains such a stipulation, the right to rescind is not
"implied" but expressly recognized by the parties. Hence, Article
1191 not applicable.

B. WHERE CONTRACT STILL EXECUTORY

- Where there is no performance yet by both parties, but one is ready
and willing to comply with what is incumbent upon him and the
other is not, the willing party may, by his own declaration, rescind
the contract without a previous judicial decree of rescission. In
such a case, it is not necessary that there be stipulation providing
for automatic rescission.
BILATERAL OBLIGATIONS
RULES IN CASE OF BREACH BY BOTH PARTIES (Article 1192)

A. FIRST INFRACTOR KNOWN

- One party violated his obligation; subsequently, the other also
violated his part of the obligation. In this case, the liability of the
first infractor should be equitably reduced.

B. FIRST INFRACTOR CANNOT BE DETERMINED

- One party violated his obligation followed by the other, but
it cannot be determined which of them was the first infractor.
The rule is that the contract shall be deemed extinguished and
each shall bear his own damages.
- In effect, the court shall not provide remedy to either of the
parties, who must suffer the damages allegedly sustained by them.
CHAPTER 3
DIFFERENT KINDS OF
OBLIGATIONS
SECTION 2.
OBLIGATIONS WITH A
PERIOD
PERIODIC OBLIGATIONS
OBLIGATION WITH A PERIOD
- One whose effects or consequences are subjected in one way or
another to the expiration or arrival of said period or term.

PERIOD or TERM
- A future and certain event upon the arrival of which the
obligation or right subject to it either arises or is terminated.
- It is a day certain which must necessarily come, although it may
not be known when (Article 1193).
KINDS OF PERIODS
KINDS OF PERIOD OR TERM

A. ACCORDING TO EFFECT

1. SUSPENSIVE PERIOD (EX DIE)

- A period or term with a suspensive effect. The obligation begins
only from a day certain, in other words, upon the arrival of the
period.
- Obligations for whose fulfillment a day certain has been
fixed, shall be demandable only when that day comes (Article
1193).

2. RESOLUTORY PERIOD (IN DIEM)

- A period or term with a resolutory effect. Up to a certain time, the
obligation
remains valid, but upon the arrival of said period, the obligation
terminates.
KINDS OF PERIODS
B. ACCORDING TO SOURCE

1. LEGAL PERIOD
- A period granted under the provisions of the law.

2. CONVENTIONAL PERIOD or VOLUNTARY PERIOD

- Period agreed upon or stipulated by the parties.

3. JUDICIAL PERIOD
- The period or term fixed by the courts for the performance of an
obligation or for its termination.
KINDS OF PERIODS
C. ACCORDING TO DEFINITENESS

1. DEFINITE PERIOD
- The exact date or time is known and given.

2. INDEFINITE PERIOD
- Something that will surely happen but the date of happening is
unknown as in the case of death.
- Where the period is not fixed but a period is intended, the
courts are usually empowered by law to fix the same.
RULES REGARDING PERIODS
RULES IN CASE OF LOSS, DETERIORATION, OR IMPROVEMENT OF THING
BEFORE THE ARRIVAL OF THE SUSPENSIVE PERIOD (Article 1194)
- In case of loss, deterioration or improvement of the thing before the
arrival of the day certain, the rules in Article 1189 shall be observed.

A. LOSS OF THING WITHOUT DEBTOR’S FAULT

- The obligation is extinguished. As a general rule, the debtor is
not liable for a fortuitous event.
B. LOSS OF THING THROUGH DEBTOR’S FAULT
- The debtor is obliged to pay damages.

C. DETERIORATION OR IMPAIRMENT OF THING WITHOUT DEBTOR’S FAULT

- The creditor suffers the deterioration, impairment, or reduction in value.
RULES REGARDING PERIODS
D. DETERIORATION OF THING THROUGH DEBTOR’S FAULT
- The creditor may choose between the rescission of the
obligation or its fulfillment with indemnity for damages in either
case.

E. IMPROVEMENT OF THING BY NATURE OR BY TIME

- The improvementshall inure to the benefit of the creditor.

F. IMPROVEMENT OF THING AT EXPENSE OF DEBTOR

- The debtorshall have no other right than that granted to a usufructuary.
RULES REGARDING PERIODS
PAYMENT BEFORE ARRIVAL OF PERIOD (Article 1195)
- Anything paid or delivered before the arrival of the period, the
obligor being unaware of the period or believing that the
obligation has become due and demandable, maybe recovered,
with the fruits and interests.
- The creditor cannot unjustly enrich himself by retaining the
thing or money received before the arrival of the period.

DEBTOR PRESUMED AWARE OF PERIOD

- The debtor is presumed to be aware of the period. He has the
burden of proving that he was unaware of the period. Where the
duration of the period depends upon the will of the debtor,
payment by him amounts, in effect, to his
determination of the arrival of the period. The debtor may no
longer recover the thing or money once the period has arrived
but he can recover the fruits or interests thereof from the date of
premature performance to date of maturity of the obligation.
RULES REGARDING PERIODS
PERIOD WITHIN WHICH RECOVERY MAY BE MADE

A. IF THE DEBTOR DID NOT KNOW THAT PAYMENT WAS NOT YET DUE
- Before the debt matures regarding what was paid. Even after
maturity, regarding interest for after all, the creditor was in bad
faith. However, the right prescribes five years after premature
payment.

B. IF THE DEBTOR KNEW THAT PAYMENT WAS NOT YET DUE

- No recovery can be had of what has been paid, much less can
there be recovery of interest. This is true whether the creditor is
in good or bad faith, since the important thing is the knowledge
by the debtor of the prematureness for this is implied waiver.
RULES REGARDING PERIODS
PRESUMPTION AS TO BENEFIT OF PERIOD (Article 1196)
- In an obligation subject to a period fixed by the parties, the period is
presumed to have been established for the benefit of both the creditor
and debtor. Before the expiration of the period, the debtor may not fulfill
the obligation and neither may the creditor demand its fulfillment without
the consent of the other especially if the latter would be prejudiced
or inconvenienced thereby. The debtor cannot pay prematurely and
the creditor cannot demand prematurely. It applies only where the
parties to a contract themselves have fixed a period.
EXCEPTIONS IF THERE BE SUCH INTENT
A. TERM IS FOR THE BENEFIT OF THE DEBTOR ALONE
- He is required to pay only at the end but he may pay even before if he
desires to do so. The debtor may also resist premature demand for
compliance.
B. TERM IS FOR THE BENEFIT OF THE CREDITOR ALONE
- The creditor can demand payment at any time even before the term expires
and he
cannot be compelled to accept payment from the debtor prior to the stipulated
period.
RULES REGARDING PERIODS
GENERAL RULE
- If the obligation does not state a period and no period is intended,
the court is not authorized to fix a period. The courts have no right to
make contract for the parties.
EXCEPTIONS (WHEN THE COURTS CAN FIX THE TERM) (Article 1197)
A. NO PERIOD IS FIXED BUT A PERIOD WAS INTENDED
- When although the obligation does not fix a period, it can be inferred from
its nature and the circumstances that a period was intended.
B. DURATION OF THE PERIOD DEPENDS UPON THE WILL OF THE DEBTOR AS
PROVIDED FOR IN ARTICLE 1180
- In this case what really depends on the debtor is not the payment, for he
had promised to pay, but the TIME when payment is to be made. When
such is the case, the court is obliged to fix the duration of the period.
The creditor must ask the court first for the fixing of the term, and it
is only when that term set arrives that he can demand fulfillment.
Any action to recover before this is done is considered premature.
RULES REGARDING PERIODS
PERIOD FIXED CANNOT BE CHANGED BY THE COURTS

A. If there is a period agreed upon and it has already lapsed, the

court cannot fix another period.

B. From the very moment the parties give their acceptance and consent
to the period fixed by the court, said period acquires the nature of a
contract, because the effect of such acceptance and consent by the
parties is exactly the same as if they had expressly agreed upon it,
and having been agreed upon by them, it becomes a law governing
their contract. However, the parties may modify the term by a
new agreement.
RULES REGARDING PERIODS
WHEN DEBTOR SHALL LOSE EVERY RIGHT TO MAKE USE OF THE PERIOD
(FIIVA) (Article 1198)

A. WHEN DEBTOR BECOMES INSOLVENT

- When after the obligation has been contracted, he becomes
insolvent, unless he gives a guaranty or security for the debt.

B. WHEN THE DEBTOR DOES NOT FURNISH GUARANTIES OR SECURITIES

PROMISED

C. WHEN GUARANTIES OR SECURITIES GIVEN HAVE BEEN IMPAIRED OR

HAVE
DISAPPEARED
- When by his own acts he has impaired said guaranties or
securities after their establishment, and when through a fortuitous
event they disappear, unless he immediately gives new ones
equally satisfactory.
RULES REGARDING PERIODS
D. WHEN DEBTOR VIOLATES AN UNDERTAKING
- When the debtor violates any undertaking, in consideration of which
the creditor agreed to the period.

E. WHEN THE DEBTOR ATTEMPTS TO ABSCOND

CHAPTER 3
DIFFERENT KINDS OF
OBLIGATIONS
SECTION 3.
ALTERNATIVE
OBLIGATIONS
OBLIGATIONS ACCORDING TO NUMBER OF OBJECTS DUE
KINDS OF OBLIGATION ACCORDING TO NUMBER OF OBJECT

A. SIMPLE OBLIGATION
- One where there is only one prestation.

B. COMPOUND OBLIGATION
- One where there are two or more prestations.

KINDS OF COMPOUND OBLIGATION

1. CONJUNCTIVE OBLIGATION
- One where there are several prestations and all of them are due.
OBLIGATIONS ACCORDING TO NUMBER OF OBJECTS DUE
2. DISTRIBUTIVE or DISJUNCTIVE OBLIGATION
- One where one, two, or more prestations are due.

KINDS OF DISTRIBUTIVE or DISJUNCTIVE OBLIGATION

a. ALTERNATIVE OBLIGATION
- One where several prestations are available and the
obligor must completely perform one of the alternatives.

b. FACULTATIVE OBLIGATION
- One where only one prestation has been agreed upon, but the
obligor may render another in substitution.
RULES REGARDING ALTERNATIVE OBLIGATIONS
RIGHT OF CHOICE (Article 1200)
- GENERAL RULE: As a general rule, the right of choice belongs to the debtor.
- EXCEPTION: It may be exercised by the creditor but only when
expressly granted to him or by a third person when the right is given
to him by common agreement.

LIMITATIONS ON THE RIGHT OF CHOICE OF THE DEBTOR

A. ARTICLE 1199
- The right of choice, as a general rule, belongs to the debtor. The
debtor must choose one prestation and completely deliver or
perform such prestation. The creditor cannot be compelled to
receive part of one and part of the other prestation.
RULES REGARDING ALTERNATIVE OBLIGATIONS
B. ARTICLE 1200
- The debtor cannot choose those prestations which are impossible,
unlawful or which could not have been the object of the
obligation. These prestations are void. Their presence does not
invalidate the obligation if it includes other undertakings
otherwise free from such defects. The right of choice is not
extinguished but limited to the remaining valid prestations.

C. ARTICLE 1202
- The debtor has no more right of choice when, among the
prestations whereby he is alternatively bound, only one is
practicable. In this case, there is not only a limitation but a loss of
the right of choice belonging to the debtor. The obligation becomes
simple.
RULES REGARDING ALTERNATIVE OBLIGATIONS
COMMUNICATION OF NOTICE THAT CHOICE HAS BEEN MADE

A. EFFECTS OF NOTICE (Article 1201)

1. Until the choice is made and communicated, the obligation remains

alternative.

2. Once the notice of the election has been given to the person
entitled to receive the same, the obligation ceases to be
alternative and becomes a simple obligation to door to deliver
the objectselected.

3. Such choice once properly made and communicated is irrevocable

and cannot, therefore, be changed by either party without the
consent of the other. The concurrence of the creditor to the choice
made by the debtor is not required.
RULES REGARDING ALTERNATIVE OBLIGATIONS
4. Where the choice has been expressly given to the creditor, such
choice shall
likewise produce legal effects upon being communicated to the debtor.

B. PROOF AND FORM OF NOTICE

- The burden of proving that such communication has been made is
upon him who made the choice. The law does not require any
particular form regarding the giving of notice. It maybe made
expressly which maybe oral or written. It maybe made impliedly,
such as when the debtor already performs one of the
prestations.
RULES REGARDING ALTERNATIVE OBLIGATIONS
WHEN THE DEBTOR MAY RESCIND THE CONTRACT (Article 1203)
– It is the very nature of an alternative obligation that the debtor
can make his choice without the consent of the creditor. Hence, the
right is given to the debtor to rescind the contract and recover
damages if, through the creditor’s fault, he cannot make a choice
according to the terms of the obligation. However, the debtor is
not obliged to rescind but may choose to perform any of the
remaining prestations but still with a right to recover the value of the
item destroyed by the creditor with damages.
– In case the debtor does not rescind but choses the object
destroyed by the creditor, the creditorshall no longer be liable for
damages.
RULES REGARDING ALTERNATIVE OBLIGATIONS
RULES IN CASE OF LOSS OR IMPOSSIBILITY BEFORE CHOICE IS COMMUNICATED BY THE
DEBTOR

A. IF ONLY ONE OR SOME OF THE PRESTATIONS ARE LOST DUE TO FORTUITOUS EVENT
OR FAULT
OF THE DEBTOR
- The debtor may deliver any of the remainder, or that which remains if only one
subsists.

B. IF ALL PRESTATIONS ARE LOST DUE TO FORTUITOUS EVENT

- The obligation is extinguished.

C. IF ALL PRESTATIONS ARE LOST DUE TO DEBTOR’S FAULT (Article 1204)

- The creditor shall have the right to indemnity for damages since the
obligation can no longer be complied with. The debtor shall pay the
value of the last thing which
disappeared or that of the service which last became impossible was lost plus
- Other damages may also be
damages.
RULES REGARDING ALTERNATIVE OBLIGATIONS
D. IF ALL PRESTATIONS EXCEPT ONE ARE LOST DUE TO DEBTOR’S
FAULT AND
REMAINING IS SUBSEQUENTLY LOST DUE TO FORTUITOUS EVENT
– The debtor’s obligation is extinguished.

E. IF ALL PRESTATIONS EXCEPT ONE ARE LOST DUE TO FORTUITOUS

EVENT AND
REMAINING IS SUBSEQUENTLY LOST DUE TO DEBTOR’S FAULT
– Debtorshall pay damages.
RULES REGARDING ALTERNATIVE OBLIGATIONS
RULES IN CASE OF LOSS OR IMPOSSIBILITY BEFORE CHOICE IS
COMMUNICATED BY THE CREDITOR (Article 1205)

A. IF ONLY ONE OR SOME PRESTATIONS ARE LOST DUE TO FORTUITOUS EVENT

– The debtor shall perform the obligation by delivering that which
the creditor should choose from among the remainder or that
which remains if only one subsists.
B. IF ALL PRESTATIONS ARE LOST DUE TO FORTUITOUS EVENT
– The obligation is extinguished.

C. IF ONLY ONE OR SOME PRESTATIONS ARE LOST DUE TO DEBTOR’S FAULT

– The creditor may claim any of those subsisting, or the price of any of
those which were lost due to debtor’s fault plus damages in both
cases.
RULES REGARDING ALTERNATIVE OBLIGATIONS
D. IF ALL PRESTATIONS ARE LOST DUE TO DEBTOR’S FAULT
- The creditor may claim the price of any of the objects lost plus damages.

RULES APPLICABLE TO PERSONAL OBLIGATIONS

- The above rules are also applicable to personal obligations.
FACULTATIVE OBLIGATIONS
FACULTATIVE OBLIGATION (Article 1206)
– One where only one prestation has been agreed upon but the
obligor may render another in substitution.

EFFECT OF LOSS

A. BEFORE SUBSTITUTION

1. LOSS OF THE PRINCIPAL THING

a. If due to a fortuitous event, the obligation is extinguished.

b. If due to debtor’s fault, the debtor is liable for damages.

FACULTATIVE OBLIGATIONS
2. LOSS OF THE SUBSTITUTE
– The loss of the thing intended as a substitute whether due to
a fortuitous event or the debtor’s fault does not make the
debtor liable because the substitute is not due. The debtor has
still to deliver the principal thing which is the thing due. The
effect of the loss of the substitute is merely to extinguish the
facultative character of the obligation and convert it into a
simple obligation.

B. AFTER SUBSTITUTION

1. LOSS OF THE PRINCIPAL THING

– If the principal thing is loss, the debtor is not liable whatever
may be the cause of the loss because it is no longer due. After
substitution, the obligation ceases to be facultative and becomes
a simple to deliver or perform the substituted thing or service.
FACULTATIVE OBLIGATIONS
2. LOSS OF THE SUBSTITUTE

a. If due to fortuitous event, the obligation is extinguished.

b. If due to debtor’s fault, he shall be obliged to pay damages.

CHAPTER 3
DIFFERENT KINDS OF
OBLIGATIONS
SECTION 4.
JOINT AND SOLIDARY
OBLIGATIONS
OBLIGATIONS ACCORDING TO NUMBER OF PARTIES
KINDS OF OBLIGATIONS ACCORDING TO THE NUMBER OF PARTIES

A. INDIVIDUAL OBLIGATION
- One where there is only one obligor or one obligee.

B. COLLECTIVE OBLIGATION
- One where there are two or more debtors and/or two or more creditors.

KINDS OF COLLECTIVE OBLIGATIONS

1. JOINT OBLIGATION
- One where the whole obligation is to be paid or fulfilled proportionately
by the
different debtors and/or is to be demanded proportionately by the different
creditors.
- Each obligor answers only for a part of the whole liability and to each
obligee belongs only a part of the correlative rights.
- To each his own.
OBLIGATIONS ACCORDING TO NUMBER OF PARTIES
2. SOLIDARY OBLIGATION
- One where each one of the debtors is bound to render, and/or
each one of the creditors has a right to demand from any of
the debtors, entire compliance with the prestation.
- The relationship between the creditors and debtors is so close that
each of the former or of the latter may demand the fulfillment of
or must comply with the whole obligation.
- One for all, all for one.
JOINT AND SOLIDARY OBLIGATIONS
COLLECTIVE OBLIGATION PRESUMED TO BE JOINT
- GENERAL RULE: In collective obligations where there are two or more
debtors or two or more creditors and the share of each debtor or
creditor is not specified, the obligation is presumed to be JOINT. This
presumption is rebuttable.
- EXCEPTIONS: There is solidary liability only when the obligation
expressly so states, or when the law or the nature of the obligation
requires solidarity.

WHEN OBLIGATION IS SOLIDARY (EXCEPTIONS TO THE PRESUMPTION THAT

OBLIGATION IS JOINT)

A. When there is a stipulation in the contract that the obligation is solidary.

B. When the nature of the obligation requires liability to be solidary.

C. When the law declares the obligation to be solidary.
JOINT AND SOLIDARY OBLIGATIONS
KINDS OF SOLIDARITY

A. ACCORDING TO PARTIES BOUND

1. PASSIVE SOLIDARITY
- Solidarity on the part of the debtors, where any one of them
can be made liable for the fulfillment of the entire obligation.

2. ACTIVE SOLIDARITY
- Solidarity on the part of the creditors, where anyone of them can
demand the fulfillment of the entire obligation.
JOINT AND SOLIDARY OBLIGATIONS
3. MIXED SOLIDARITY
- Solidarity on the part of the debtors and creditors, where each
one of the debtors is liable to render, and each one of the
creditors has a right to demand, entire compliance of the
obligation.

B. ACCORDING TO SOURCE

1. CONVENTIONAL SOLIDARITY
- Where solidarity is agreed upon by the parties. If nothing is
mentioned in the contract relating to solidarity, the obligation is
only joint.

2. LEGAL SOLIDARITY
- Where solidarity is imposed by the law.
JOINT AND SOLIDARY OBLIGATIONS
INSTANCES OF LEGAL SOLIDARITY (WHERE THE LAW IMPOSES
SOLIDARY LIABILITY)

a. Even when the agent has exceeded his authority, the

principal is solidarily liable with the agent if the principal allowed
the agent to act as though he had full powers (Article 1911).

b. All partners are solidarily liable with the partnership for crimes
or quasi- delicts committed by any partner acting in the ordinary
course of the business of the partnership or with authority of
the other partners (Articles 1822 to 1824).

c. If two or more persons have appointed an agent for a common

transaction or undertaking, they shall be solidarily liable to
the agent for all the consequences of the agency (Article
1915).
JOINT AND SOLIDARY OBLIGATIONS
d. When there are two or more bailees in commodatum to whom
the thing is loaned in the same contract, they are liable solidarily
(Article 1945).

e. The responsibility of two or more payees when there has been a

payment of what is not due, is solidary (solutioindebit (Article
2157).

f. The responsibility of two or more persons who are liable for a

quasi-delict is solidary (Article 2194).

g. If the engineer or architect supervises the construction of a

building, he shall be solidarily liable with the contractor for
damages for any defect in the construction (Article 1723).
JOINT AND SOLIDARY OBLIGATIONS
h. In a felony, the principal, accomplices and accessories, each
within their respective class, shall be liable severally (in solidum)
among themselves for their quotas, and subsidiarily for those of
other persons liable (Article 110, Revised Penal Code, Act No.
3815, December 8, 1930).

3. REAL SOLIDARITY
- Where solidarity is imposed by the nature of the obligation.

SOLIDARITY IS NOT PRESUMED

- Solidary obligations are very burdensome for they create unusual
rights and liabilities. Solidarity between debtors increases
their responsibility while solidarity between creditors increases the
right of each creditor. The law tends to favor the debtors in
presuming that they are bound jointly and not solidarily.
JOINT AND SOLIDARY OBLIGATIONS
JOINT INDIVISIBLE OBLIGATION (Article 1209)
- The obligation is joint because the parties are merely
proportionately liable. It is indivisible because the object or subject
matter is not physically divisible into different parts. In other words,
joint as to liabilities of the debtors or rights of the creditors but
indivisible as to compliance.
- This constitutes the middle ground between a joint obligation
and a solidary obligation.
ULES REGARDING SOLIDARY OBLIGATION S
INDIVISIBLE OBLIGATIONS NOT NECESSARILY SOLIDARY OBLIGATIONS (Article
1210)
- The indivisibility of an obligation does not necessarily give rise to
solidarity nor does solidarity of itself imply indivisibility.

SOLIDARITY NOT AFFECTED BY DIVERSE STIPULATIONS (Article 1211)

- The essence of solidarity consists in the right of each creditor to
enforce the rights of all and the liability of each debtor to answer
for the liabilities of all. Therefore, there may be a solidary
obligation although the parties may not be bound in the same
manner and by the same periods and conditions.
- The rule is that the creditor may bring his action intoto against
any of the solidary debtors less the shares of the other debtors
with unexpired terms or unfulfilled conditions who are entitled to
defenses under Article 1222. Upon the expiration of the term or the
fulfillment of the condition, the creditor will have the right to demand
the payment of the remainder. The parties may stipulate that any
solidary debtor already bound maybe made liable for the entire
obligation.
ULES REGARDING SOLIDARY OBLIGATION S
BENEFICIAL OR PREJUDICIAL ACT OF SOLIDARY CREDITOR (Article 1212)
- A solidary creditor may do any act beneficial or useful to the others
but he cannot perform any act prejudicial to them. If he performs
such act and as a result the obligation is extinguished, he shall be
responsible to the others for damages. As far as the debtors are
concerned, the actshall be valid and binding.

ASSIGNMENT BY SOLIDARITY CREDITOR OF HIS RIGHT (Article 1213)

- GENERAL RULE: The solidary creditor cannot assign his rights.
- EXCEPTION: A solidary creditor is allowed if all the others consent.
- If the assignment is made to co-creditor, the consent of the other
creditors is not necessary.
ULES REGARDING SOLIDARY OBLIGATION S
PAYMENT TO ANY OF THE SOLIDARY CREDITORS (Article 1214)
– The rule is that the debtor may pay anyone of the solidary
creditors. But when a demand, judicial or extrajudicial, has been
made by any one of them, to avoid confusion, as well as prejudice
to the more diligent creditor, payment should be made to him;
otherwise, the obligation will not be extinguished except insofar as
the creditor-payee’s share is concerned in case the latter does not
give to the other creditors their shares in the payments.
– If there are two or more debtors, only the debtor, upon whom
demand has been made, is bound to make payment to the creditor
who made the demand.
ULES REGARDING SOLIDARY OBLIGATION S
LIABILITY OF SOLIDARY CREDITOR IN CASE OF NOVATION, COMPENSATION,
CONFUSION, OR REMISSION (Article 1215)
- Novation, compensation, confusion, and remission are mode or
causes of extinguishment of obligations. It is but logical that the
creditor who executed any of these acts should be liable to the
others for their corresponding shares considering that such acts are
prejudicial to them.

RIGHT OF CREDITOR TO PROCEED AGAINST ANY SOLIDARY DEBTOR (Article 1216)

- The above provision is not applicable to a joint obligation. It
reiterates the rule that in a solidary obligation (passive solidarity),
any one or some or all of the solidary debtors simultaneously, may
be made to pay the debt so long as it has not been fully collected.
- The choice is left to solidary creditor to determine against whom he
will enforce collection. There is no waiver against those not yet sued.
They may be proceeded against later.
ULES REGARDING SOLIDARY OBLIGATION S
EFFECTS OF PAYMENT BY A SOLIDARY DEBTOR (Article 1217)

A. BETWEEN THE SOLIDARY DEBTORS AND CREDITORS

- Payment made by one of the solidary debtors extinguishes
the obligation. However, the creditor for his protection is given the
right to choose which offer to accept if two or more solidary debtors
offer to pay.

B. AMONG THE SOLIDARY DEBTORS

- After payment of the debt, the paying solidary debtor can demand
reimbursement from his co-debtors for their proportionate shares
with legal interest only from the time of payment.

C. AMONG THE SOLIDARY CREDITORS

- The receiving creditor is jointly liable to the others for their
corresponding
ULES REGARDING SOLIDARY OBLIGATION S
PRESCRIPTIVE PERIODS OF ACTIONS

A. WITHIN TEN YEARS FROM THE TIME THE RIGHT OF ACTION ACCRUES

1. Upon a written contract.

2. Upon an obligation created by law.

3. Upon a judgment.

B. WITHIN SIX YEARS FROM THE TIME THE RIGHT OF ACTION ACCRUES

1. Upon an oral contract.

2. Upon a quasi-contract.
ULES REGARDING SOLIDARY OBLIGATION S
C. WITHIN FOUR YEARS FROM THE TIME THE RIGHT OF ACTION ACCRUES

1. Upon an injury to the rights of the plaintiff.

2. Upon a quasi-delict.

EFFECT OF PAYMENT AFTER OBLIGATION HAS PRESCRIBED OR BECOME ILLEGAL

- When a solidary debtor pays the obligation he is entitled, as
a rule, to reimbursement from his co-debtors. However, when the
obligation has already prescribed or become illegal, the obligation
is extinguished. Hence, there is no more obligation to be complied
with.
ULES REGARDING SOLIDARY OBLIGATION S
EFFECT OF REMISSION OF SHARE AFTER PAYMENT
- If the share of a solidary debtor is remitted by the creditor after
another solidary debtor had paid the whole obligation, the remission
is useless because there was really nothing more the creditor could
remit in view of the complete payment. In such a case, the debtor
whose share was remitted can still be made to reimburse his share
to the payer-debtor. Inferentially, had remission preceded
payment, solutio indebitiarises. The debtor whose share has
been remitted cannot be made to reimburse anything, for after
all, the payer-debtor will have only the balance of the debt after
deducting the share of the debtors who have received the benefit
of remission.
ULES REGARDING SOLIDARY OBLIGATION S
NO RIGHT TO REIMBURSEMENT IN CASE OF REMISSION (Article 1220)
- The reason for the above article is that the debtor who obtains remission
pays nothing to the creditor. Remission is essentially gratuitous. It is
really a donation. The article applies only when the whole obligation is
remitted.

RULES IN CASE THING HAS BEEN LOST OR PRESTATION HAS BECOME IMPOSSIBLE

A. LOSS IS WITHOUT FAULT AND BEFORE DELAY

- Obligation is extinguished.

B. LOSS IS DUE TO FAULT ON THE PART OF A SOLIDARY DEBTOR

- All solidary debtors shall be responsible for the price as well as damages.
The innocent debtors can recover from the guilty debtor the amount they
have paid including damages if they have already contributed. If the
guilty debtor is made to pay the price as well as damages, he cannot
claim reimbursement from the innocent ones.
ULES REGARDING SOLIDARY OBLIGATION S
C. LOSS IS WITHOUT FAULT BUT AFTER DELAY
- Creditor can still recover damages from all solidary debtors. This is
without
prejudice to the right of action of the innocent debtors against the guilty
debtor.

DEFENSES AVAILABLE TO A SOLIDARY DEBTOR (Article 1222)

A. DEFENSES DERIVED FROM THE NATURE OF THE OBLIGATION

1. Illegality or absence of consideration or cause.

2. Absolute simulation.
3. Extinguishment of the obligation as when the whole debt has been
paid, remitted or has prescribed.
ULES REGARDING SOLIDARY OBLIGATION S
4. Non-fulfillment of the suspensive condition if made upon the whole
object or
upon all the debtors.

5. Statute of Frauds.

6. When all the debtors were incapacitated to give consent such as a

minor, insane, idiot and persons under a hypnotic spell.

7. When there are vices of consent on the part of all the debtors
such as when all were forced or intimidated or unduly influenced or
were led into error or there is
fraud.
 8.
ULES REGARDING SOLIDARY OBLIGATION S
B. DEFENSES PERSONAL TO, OR WHICH PERTAIN TO SHARE OF, DEBTOR SUED

1. Vitiated consent on the part of the debtor sued (complete defense).

2. Incapacity to give consent on the part of the debtor sued as when

he is a minor (complete defense).

3. Non-fulfillment of condition imposed regarding his share (partial defense).

4. Non-arrival of term regarding his share (partial defense).

ULES REGARDING SOLIDARY OBLIGATION S
C. DEFENSES PERSONAL TO OTHER SOLIDARY DEBTORS

1. Vitiated consent on the part of the other debtor (complete defense).

2. Incapacity to give consent on the part of the other debtor as when

he is a minor (complete defense).

3. Non-fulfillment of condition imposed regarding the share of the

other debtor (partial defense).

4. Non-arrival of term regarding the share of the other debtor (partial

defense).
CHAPTER 3
DIFFERENT KINDS OF
OBLIGATIONS
SECTION 5.
DIVISIBLE AND
INDIVISIBLE OBLIGATIONS
DIVISIBLE AND INDIVISIBLE OBLIGATIONS
DIVISIBLE OBLIGATION
- One the object of which, in its delivery or performance, is
capable of partial fulfillment.

INDIVISIBLE OBLIGATION
- One the object of which, in its delivery or performance, is not
capable of partial fulfillment.

KINDS OF DIVISION

A. QUALITATIVE DIVISION
- One based on quality, not on number or quantity of the things
which are the object of the obligation. Depends on value and worth,
irrespective of quantity.
DIVISIBLE AND INDIVISIBLE OBLIGATIONS
B. QUANTITATIVE DIVISION
- One based on quantity rather than on quality. Depends on number.

C. IDEAL DIVISION or INTELLECTUAL DIVISION or MORAL DIVISION

- One that exists merely in the minds of the parties and not in physical
reality.

KINDS OF INDIVISIBILITY

A. LEGAL INDIVISIBILITY
- Where a specific provision of law declares as indivisible,
obligations which, by their nature, are divisible.
DIVISIBLE AND INDIVISIBLE OBLIGATIONS
B. CONVENTIONAL INDIVISIBILITY
- Where the will of the parties makes as indivisible, obligations which, by
their nature, are divisible.

C. NATURAL INDIVISIBILTY or ABSOLUTE INDIVISIBILITY

- Where the nature of the objector undertaking does not admit of division.

JOINT INDIVISIBLE OBLIGATION (Article 1224)

- Here the objector compliance is indivisible and yet the parties are merely bound
jointly.

EFFECT OF NON-COMPLIANCE BY A DEBTOR IN A JOINT INDIVISIBLE OBLIGATION (Article

1224)
- If any one of the debtors does not comply with his undertaking in a
joint indivisible obligation, the obligation is converted into one for
damages, i.e. to pay money. The creditor cannot ask for specific
performance or rescission because there is no cause of action against the
other debtors who are willing to fulfill their promises.
L ES REGARDING DIVISIBLE OBLIGATI ON S
OBLIGATIONS THAT ARE DEEMED DIVISIBLE (Article 1225)

A. OBLIGATIONS WHICH HAVE FOR THEIR OBJECT THE EXECUTION OF A

CERTAIN
NUMBER OF DAYS OF WORK

B. OBLIGATIONS WHICH HAVE FOR THEIR OBJECT THE ACCOMPLISHMENT OF

WORK BY
METRICAL UNITS

C. OBLIGATIONS WHICH BY THEIR NATURE ARE SUSCEPTIBLE OF

PARTIAL
PERFORMANCE
LES REGARDING INDIVISIBLE OBLIGATI ON S
OBLIGATIONS DEEMED INDIVISIBLE (Article 1225)

A. OBLIGATIONS TO GIVE DEFINITE THINGS

- The obligation is indivisible because of the nature of the subject matter.

B. OBLIGATIONS WHICH ARE NOT SUSCEPTIBLE OF PARTIAL PERFORMANCE

- The obligation is indivisible by reason of its purpose which
requires the performance of all the parts.

C. OBLIGATIONS PROVIDED BY LAW TO BE INDIVISIBLE EVEN IF THING OR

SERVICE IS
PHYSICALLY DIVISIBLE

D. OBLIGATIONS INTENDED BY THE PARTIES TO BE INDIVISIBLE EVEN IF

THING OR
SERVICE IS PHYSICALLY DIVISIBLE
CHAPTER 3
DIFFERENT KINDS OF
OBLIGATIONS
SECTION 6.
OBLIGATIONS WITH A
PENAL CLAUSE
 OBLIG ATIONS WITH A PENAL CLAUS
PENAL CLAUSE
- An accessory undertaking attached to an obligation to assume
greater liability in case of breach, i.e. the obligation is not
fulfilled, or is partly or irregularly complied with.

OBLIGATION WITH A PENAL CLAUSE

- One which contains an accessory undertaking to pay a
previously stipulated indemnity in case of breach of the principal
prestation, intended primarily to induce its fulfillment.
PURPOSES OF PENAL CLAUSE

A. To insure the performance of an obligation by creating an effective

deterrent against breach, making the consequences of such breach
onerous as it maybe possible. The purpose is reparation. This is the
general purpose of a penal clause.
 OBLIG ATIONS WITH A PENAL CLAUS
B. To substitute a penalty for the indemnity for damages and the
payment of interests in case of non-compliance, or to punish the
debtor for the non-fulfillment or violation of his obligation. The
purpose is punishment. (Article 1226)

KINDS OF PENAL CLAUSE

A. AS TO ITS ORIGIN

1. LEGAL PENAL CLAUSE

- One that is imposed by law.

2. CONVENTIONAL PENAL CLAUSE

- That which has been agreed upon by the parties.
 OBLIG ATIONS WITH A PENAL CLAUS
B. AS TO ITS PURPOSE

1. COMPENSATORY PENAL CLAUSE

- When the penalty takes the place of damages.

2. PUNITIVE PENAL CLAUSE

- When the penalty is imposed merely as punishment for breach.

C. AS TO ITS DEMANDABILITY OR EFFECT

1. SUBSIDIARY
- When only the penalty maybe asked.

2. JOINT
- When both the principal contract and the penal clause can beenforced.
 OBLIG ATIONS WITH A PENAL CLAUS
PENALTY SUBSTITUTES FOR DAMAGES AND INTERESTS (Article 1226)
- As a general rule, penalty takes the place of indemnity for
damages and the payment of interest in case of non-compliance.
Proof of actual damages suffered by the creditor is not necessary in
order that the penalty maybe enforced.

WHEN CREDITOR MAY RECOVER DAMAGES IN ADDITION TO THE PENALTY (Article

1226)

A. When so stipulated by the parties.

B. When the obligor refuses to pay the penalty, in which case the creditor
may recover legal interest thereon.
OBLIGATIONS WITH A PENAL CLAUSE
C. When the obligor is guilty of fraud (doloincidente) in the fulfillment of the
obligation,
in which case the creditor may recover damages caused by such fraud.

WHEN PENALTY MAYBE ENFORCED (Article 1226)

- The penalty, as a stipulation in a contract, is demandable only if
there is a breach of the obligation and it is not contrary to law,
morals, good customs, public order, or public policy. Thus, if the
obligation cannot be fulfilled due to a fortuitous event, the penalty
is not demandable.
 RULES REGARDING OBLIGATIONS WITH A PENAL CLAUSE
PENALTY NOT SUBSTITUTE FOR PERFORMANCE (Article 1227)
- GENERAL RULE: The debtor cannot just pay the penalty instead of
performing the
obligation. Precisely, the purpose of the penalty is to secure compliance.
- EXCEPTION: The debtor can exempt himself from the non-fulfillment
of the
obligation only when this right has been expressly reserved for him.

PENAL CLAUSE PRESUMED SUBSIDIARY (Article 1227)

- GENERAL RULE: The creditor cannot demand the fulfillment of the
obligation and the satisfaction of the penalty at the sametime. A
penal clause is presumed to be subsidiary not joint.
A. WHEN THERE IS PERFORMANCE
- Once the obligation is fulfilled, the purpose is attained and, therefore,
there is no

- EXCEPTION: When the right has been clearly granted to him.

RULES REGARDING OBLIGATIONS WITH A PENAL CLAUSE
B. WHEN THERE IS NO PERFORMANCE
- In case of non-compliance, the creditor may ask for the penalty
or require specific performance. The remedies are alternative
and not cumulative nor successive, subject to the exception that
the penalty maybe enforced if after the creditor has decided to
require fulfillment, the same should become impossible without his
fault. If there was fraud on the part of the debtor, the creditor
may recover the penalty as well as damages for non-fulfillment.

WHEN PENAL CLAUSE JOINT

- The creditor has the right to demand performance and payment of
penalty jointly when this right has been clearly granted to him. It is
therefore not required that this right be expressly reserved for him;
an implied grant clearly deducible from the evidence or the nature
of the obligation is sufficient.
RULES REGARDING OBLIGATIONS WITH A PENAL CLAUSE
PENALTY DEMANDABLE WITHOUT PROOF OF ACTUAL DAMAGES (Article 1228)
- All that the creditor has to prove to enforce the penalty is the
violation of the obligation by the debtor. It is not necessary to
adduce evidence to prove losses and damages suffered by the
creditor or the extent of the same. One of the reasons of fixing
the penalty is to avoid such necessity and other difficulties
involved in litigations.
- The creditor may enforce the penalty whether he suffered damages
or not but he cannot recover more than the stipulated penalty
even if he proves that the amount of his damages exceed the
penalty.

WHEN PENALTY MAYBE REDUCED BY THE COURTS (Article 1229)

A. WHEN THERE IS PARTIAL OR IRREGULAR PERFORMANCE

- The first refers to the extent of fulfillment, the latter, to the manner.
RULES REGARDING OBLIGATIONS WITH A PENAL CLAUSE
B. WHEN THE PENALTY AGREED UPON IS INIQUITOUS OR UNCONSCIONABLE
- The penalty may be reduced even if there is no performance at
all. Even if iniquitous or unconscionable, liquidated damages,
whether intended as an indemnity or as a penalty, are not void,
but subject merely to equitable reduction.

WHEN PENAL CLAUSE CANNOT BE ENFORCED

A. The breach is the fault of the creditor.

B. A fortuitous event intervened, unless the debtor expressly agreed on

his liability in case of fortuitous event.

C. The debtor is not yet in default.

RULES REGARDING OBLIGATIONS WITH A PENAL CLAUSE
EFFECT OF NULLITY OF THE PENAL CLAUSE (Article 1230)
- If only the penal clause is void, the principal obligation
remains valid and demandable. The penal clause is just
disregarded. The injured party may recover indemnity for damages
in case of non-performance of the obligation as if no penalty had
been stipulated. This is pursuant to the general principle that the
accessory follows the principal and not viceversa.

EFFECT OF NULLITY OF THE PRINCIPAL OBLIGATION (Article 1230)

- If the principal obligation is void, the penal clause is likewise void
because the clause cannot stand alone without the principal
obligation to which it is subordinated. However, if the nullity of
the principal obligation is due to the fault of the debtor who acted
in bad faith, by reason of which the creditor suffered damages, on
equitable grounds, the penalty maybe enforced.
CHAPTER 4
EXTINGUISHMENT OF
OBLIGATIONS
GENERAL PROVISIONS
 CAUSES OF EXTINGUISHMENT
CAUSES OF EXTINGUISHMENT OF OBLIGATIONS (PALOREMECON FRAP)

A. PAyment or performance.

B. LOss of the thing due.

C. Condonation or REmission of the debt.

D. Confusion or MErger of the rights of creditor and debtor.

E. COmpensation.
 CAUSES OF EXTINGUISHMENT
F. Novation.

G. Fulfillment of a resolutory condition.

H. Rescission.

I. Annulment.

J. Prescription.
 CAUSES OF EXTINGUISHMENT
OTHER CAUSES OF EXTINGUISHMENT OF OBLIGATIONS (DEAD COMFI)

A. DEath of a party in case the obligation is personal.

B. Arrival of a resolutory period.

C. Mutual Desistance or withdrawal.

D. COMpromise.

E. Happening of a Fortuitous event.

F. Impossibility of fulfillment.
SECTION 1.
PAYMENT OR
PERFORMANCE
A YMENT OR PERFORMANC E
PAYMENT or PERFORMANCE
- May consist of not only the delivery of money but also the giving
of a thing, the doing of an act, or not doing of an act (Article 1232).
- To properly exist, the creditor has to accept the payment, expressly or
implicitly.

CONSIDERATIONS IN PAYMENT or PERFORMANCE (WHEN DEBT IS CONSIDERED

PAID)

A. INTEGRITY OF PRESTATION (Article 1233)

- A debt to deliver a thing or to render service is not understood to
have been paid unless the thing or service has been completely
delivered or rendered, as the case may be. Payment is complete
when the very thing or service contemplated has been paid
completely.
A YMENT OR PERFORMANC E
EXCEPTIONS TO INTEGRITY OF PRESTATION

1. Article 1234 – Substantial performance in good faith.

2. Article 1235 – Acceptance of incomplete or irregular performance.

3. Article 1248 – When partial performance is allowed.

B. IDENTITY OF THE PRESTATION (Article 1244)

– Theverything, service or prestation due must be delivered or performed.
– In real obligations, a thing different from that due cannot be offered
or demanded against the will of the creditor or debtor, as the case
maybe.
– In positive personal obligations, the act to be performed or the
act prohibited cannot be substituted against the obligee’swill.
A YMENT OR PERFORMANC E
EXCEPTIONS TO IDENTITY OF PRESTATION

1. Article 1206 - In case of facultative obligations.

2. Article 1245 - In case there is another agreement resulting in

either dation in payment or novation.

3. In case of waiver by the creditor.

SUBSTANTIAL PERFORMANCE or COMPLIANCE IN GOOD FAITH (Article 1234)

- A performance according to the fair intent of the contract, with
an attempt in good faith to perform. Good faith is always
presumed in the absence of contrary proof.
A YMENT OR PERFORMANC E
RECOVERY ALLOWED IN CASE OF SUBSTANTIAL PERFORMANCE IN GOOD
FAITH (Article 1234)
- In case of substantial performance, the obligee is benefited. So the
obligor should be allowed to recover as if there had been a strict
and complete fulfillment less damages suffered by the obligee. This
last condition affords a just compensation for the relative breach
committed by the obligor.

RECOVERY ALLOWED WHEN INCOMPLETE OR IRREGULAR PERFORMANCE

IS WAIVED (Article 1235)
- The reason is the presence of waiver and estoppel. If payment is
incomplete or irregular, the creditor may properly reject it. In
case of acceptance, the law considers that the creditor waives his
right. The whole obligation in extinguished. The waiver must be
proved by the debtor. A mere receipt of payment is not
necessarily acceptance.
A YMENT OR PERFORMANC E
QUALIFIED ACCEPTANCE OF INCOMPLETE OR IRREGULAR PAYMENT or
ACCEPTANCE UNDER PROTEST
- A protest or objection made by the creditor showing that there is
no waiver on his part to enforce his right to further recover from the
debtor.

WHEN PARTIAL PERFORMANCE IS ALLOWED (Article 1248)

A. BY STIPULATION
- When there is an express stipulation to that effect.

B. PARTIALLY LIQUIDATED DEBT

- When the debt is in part liquidated (definitely and determined or
computed) and in part unliquidated. Performance of the liquidated
part maybe insisted upon either by the debtor or the creditor.
A YMENT OR PERFORMANC E
C. WHEN THE DIFFERENT PRESTATIONS ARE SUBJECT TO DIFFERENT
CONDITIONS OR
DIFFERENT TERMS
- When the different prestations in which the obligation consists
are subject to different terms or conditions which affect some of
them. In obligations which comprehend several distinct prestations,
it is evident that the prestations need not be executed
simultaneously but each successive execution thereof must be
complete.

FACULTATIVE OBLIGATION (Article 1206)

- One where only one prestation has been agreed upon but the obligor
may render another in substitution.
A YMENT OR PERFORMANC E
DATION IN PAYMENT or DACION EN PAGO or ADJUDICATION EN PAGO
or DATIO IN SOLUTUM(Article 1245)
- It is the conveyance of ownership of a thing as an accepted
equivalent of performance. An existing debt in money is satisfied not
by payment of money but by the alienation of property.
- The law on sales governs dation in payment because the amount
of the money debt becomes the price of the thing alienated.
- The true intention of the parties to subject the obligation to dation
in payment, express or implied, must be clear.
RULES REGARDING PAYERS
PERSONS FROM WHOM CREDITOR MUST ACCEPT PAYMENT

A. The debtor.

B. Any person who has an interest in the obligation.

C. A third person who has no interest in the obligation when there is

stipulation that he can make payment.

CREDITOR MAY REFUSE PAYMENT BY A THIRD PERSON (Article 1236)

- The creditor has the right to insist on the liability of the debtor.
The creditor should not be compelled to accept payment from a
third person for whatever reason.
RULES REGARDING PAYERS
EXCEPTIONS TO THE RIGHT OF CREDITOR TO REFUSE PAYMENT BY THIRD
PERSON (WHEN CREDITOR MUST ACCEPT PAYMENT OF THIRD PERSON)

A. If there is a stipulation allowing this.

B. If said third person has an interest in the fulfillment of the obligation like
a co-debtor, guarantor or joint debtor.

EFFECT OF PAYMENT BY THIRD PERSON (Article 1236)

A. IF MADE WITHOUT THE KNOWLEDGE OR AGAINST THE WILL OF THE DEBTOR

- The payer can recover from the debtor only insofar as the payment has
been beneficial to the latter. The recovery is only up to the extent or
amount of the debt at the time of payment.
- The payor is not entitled to subrogation and is allowed only beneficial
reimbursement.
RULES REGARDING PAYERS
B. IF MADE WITH THE KNOWLEDGE AND CONSENT OF THE DEBTOR
- The payer shall have the right to reimbursement and subrogation to
such rights as guaranty, penalty clause, or mortgage. The payershall have
the right to recover what he has paid (not necessarily the amount of the
debt) and to acquire all the rights of the creditor.

WHEN THIRD PERSON CAN RECOVER PAYMENT MADE TO THE CREDITOR (NOT FROM THE
DEBTOR)

A. When the debt has prescribed.

B. When the debt had been completely remitted.

C. When the debt has already been paid.

D. When legal compensation had already taken place.

RULES REGARDING PAYERS
RIGHT OF THIRD PERSON TO SUBROGATION (Article 1237)
– Whoever pays on behalf of the debtor is entitled to subrogation if
the payment is with the consent of the latter. If the payment is
without the knowledge or against the will of the debtor, the third
person cannot compel the creditor to subrogate him in the latter’s
accessory rights of mortgage, guaranty, or penalty.

PAYMENT BY ATHIRD PERSON WHO DOES NOT INTEND TO BE REIMBURSED

(Article 1238) – The provision embodies the idea that no one should
be compelled to accept the generosity of another. If the paying
third person does not intend to be reimbursed, the
payment is deemed a donation which requires the debtor’s
consent to be valid. However, if the creditor accepts the payment, it
shall be valid
as to him and the payer although the debtor did not give his
consent to the donation. The debtor cannot legally refuse to pay
the third person and instead insist on paying the creditor.
RULES REGARDING PAYERS
FREE DISPOSAL OF THE THING DUE AND CAPACITY TO ALIENATE REQUIRED
(Article 1239)
- GENERAL RULE: If the person paying does not have free disposition
of the thing due and capacity to alienate it is not valid even if
accepted by the creditor. This means that the thing can be
recovered. Moreover, the creditor cannot be compelled to
accept payment and the remedy of consignation would not be
proper.
- EXCEPTION: Article 1427 - When a minor between eighteen and
twenty-one years of age, who has entered into a contract without
the consent of the parents or guardians voluntarily pays a sum
of money or delivers a fungible thing in fulfillment of the
obligation, there shall be no right to recover the same from the
obligee who has spent or consumed it in good faith.
RULES REGARDING PAYEES
PERSONS TO WHOM PAYMENTSHALL BE MADE (Article 1240)

A. THE CREDITOR OR OBLIGEE OR THE PERSON IN WHOSE FAVOR THE

OBLIGATION HAS
BEEN CONSTITUTED
- The creditor referred to must be the creditor at the time the
payment is to be made, not at the constitution of the obligation.

B. THE CREDITOR’S SUCCESSOR-IN-INTEREST (HEIR OR ASSIGNEE)

C. ANY PERSON AUTHORIZED TO RECEIVE IT

- It means not only a person authorized by the creditor, but
also a person authorized by law to receive payment, such as
a guardian, executor, or administrator of the estate of a
deceased, and assignee or liquidator of a partnership or
corporation as well as any other person who maybe authorized to do
so by law. The authorization maybe by agreement or by law.
RULES REGARDING PAYEES
EFFECT OF PAYMENT TO AN INCAPACITATED PERSON (Article 1241)
– Payment to a person incapacitated to administer or manage his
property is not valid unless such incapacitate person kept the thing paid
or delivered, or was benefited by the payment. In the absence of this
benefit, the debtor may be made to pay again by the creditor’s guardian
or by the incapacitated person himself when he acquires or recovers his
capacity. Proof of such benefit is incumbent upon the debtor who paid.
The benefit maybe financial, moral or intellectual but it must be proved.
EFFECT OF PAYMENT TO A THIRD PERSON (Article 1241)
– Payment to a third person or unauthorized party is not valid except
insofar as it has redounded to the benefit of the creditor. Such benefit
is not presumed and must be satisfactorily established by the person
interested in proving this fact. In the absence of such proof, the payment
thereof in error and in good faith will not deprive the creditor of his right to
demand payment.
– The payment is valid but only to the extent of benefit, financial, moral or
intellectual, to the creditor. The payment must be proved and is
therefore not presumed except in certain cases.
RULES REGARDING PAYEES
WHEN BENEFIT TO THE CREDITOR IS PRESUMED IN CASE OF PAYMENT
TO AN
UNAUTHORIZED PERSON (Article 1241)

A. Subrogation of the payee in the creditor’srights.

B. If the creditor ratifies the payment to the third person.

C. If by the creditor’s conduct, the debtor has been led to make the payment.
 RULES REGARDING PAYEES
PAYMENT TO THIRD PERSON IN POSSESSION OF CREDIT (Article 1242)
- Refers to a person who is not the creditor but who, on the face of the
instrument,
appears to be the rightful holder thereof.
- The third person must be in possession of the credit itself and not
merely of the
document or instrument evidencing the credit. Mere possession of
the instrument (unless a bearer instrument) does not entitle the
holder to payment nor does payment release the debtor.
Furthermore, the payer must act in good faith, i.e. in honest belief
that he is making a valid payment and that the payee is the owner
of the credit. Good faith is presumed.

WHEN PAYMENT TO CREDITOR NOT VALID (Article 1243)

 - Payment is ordered by the court or other competent authority to
be retained by the debtor. Payment made by such debtor is
invalid and he is considered in bad

- Retention is pursuant to an order of interpleader, injunction, or

garnishment.
OTHER RULES IN PAYMENT
RULE OF THE MEDIUM QUALITY (Article 1246)
- If the obligation is to deliver a generic thing, the purpose of the
obligation and other circumstances shall betaken into consideration
to determine the quality or kind of thing to be delivered.
- The benefit of this provision maybe waived. Thus the creditor may
accept a thing of inferior quality and the debtor may deliver a thing
of superior quality.

EXPENSES FOR PAYMENT (Article 1247)

A. EXTRAJUDICIAL EXPENSES
- GENERAL RULE: The debtor has to pay for the extrajudicial
expenses incurred during the payment. When payment is made, the
obligation is extinguished and it is the debtor who is primarily
benefited.
- EXCEPTION: When there is a stipulation to the contrary.
OTHER RULES IN PAYMENT
B. JUDICIAL COSTS
- Judicial costs shall be awarded to the winning party hence, the
costs of action shall be paid by the losing party. The court shall
have the power, for special reasons, to adjudge that either party
shall pay the costs of an action, or that the same be divided, as
maybe equitable (Section 1, Rule 142, Rules of Court, January 1,
1964).
- No costs are allowed against the Government, unless otherwise provided
by law.

PAYMENT IN LEGAL TENDER (Article 1249)

- The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then
in the currency which is legal tender in the Philippines.
OTHER RULES IN PAYMENT
PAYMENTS BY MEANS OF INSTRUMENTS OF CREDIT

A. RIGHT OF CREDITOR TO REFUSE OR ACCEPT

– Promissory notes, checks, bills of exchange and other commercial
documents are not legal tender and therefore, the creditor cannot
be compelled to accept them. This is true even though the check is
certified or is a manager’s check. The creditor, if he chooses, may
accept them without producing the effect of payment. In the
meantime, the demandability of the original obligation is
suspended. The creditor must then cash the instrument, and it is
only when it is dishonored that he can bring an action for non-
payment of the debt.
OTHER RULES IN PAYMENT
B. EFFECT ON OBLIGATION
- Payment by means of mercantile documents does not extinguish
the obligation until they have been cashed or unless they have been
impaired through the fault of the creditor.

EXTRAORDINARY INFLATION OR DEFLATION (Article 1250)

- A decrease or increase in the purchasing power of the Philippine
currency which is unusual or beyond the common fluctuation in the
value of said currency, and such increase or decrease could not
have been reasonably foreseen or was manifestly beyond the
contemplation of the parties at the time of the
establishment of the obligation.
OTHER RULES IN PAYMENT
BASIS OF PAYMENT IN CASE OF EXTRAORDINARY INFLATION OR DEFLATION (Article 1250)
– The purchasing value of the currency at the time of the establishment of
the obligation shall be the basis of payment in case of any extraordinary
increase or decrease in the purchasing power of the currency which the
parties could not have reasonably foreseen unless otherwise stipulated by
the parties.
RULES REGARDING PLACE OF PAYMENT (Article 1251)
A. If there is a stipulation, the paymentshall be made in the place designated.
B. If there is no stipulation and the thing to be delivered is specific, the
paymentshall be made at the place where the thing was, at the perfection
of the contract. If merely temporarily there, as when the object is being
shipped or is already in the ocean, payment should be at the domicile of the
debtor.
 e vered
C. i n g to d li g
th b e i s e n eri
i c t i
y p th s ase he creditor bears the place of)
.
a t s
p me n ha ll
t
n going o t he
SPECIAL FORMS OF
PAYMENT
 SPECIAL FORMS OF PAYMENT
SPECIAL FORMS OF PAYMENT

A. Application or imputation of payments (Article 1252).

B. Dation in payment or dacionen pago or adjudicacion en pago or

datio in solutum (Article 1245).

C. Cession or assignment in favor of creditors (Article 1255).

D. Tender of payment and consignation (Articles 1256 to 1261).

SUBSECTION 1.
APPLICATION OF
PAYMENTS
APPLICATION OF PAYMENTS
APPLICATION or IMPUTATION OF PAYMENTS
- The designation of the debt to which should be applied the
payment made by a debtor who has various debts of the same
kind in favor of one and the same creditor.

REQUISITES OF APPLICATION OF PAYMENT

A. There must be one debtor and one creditor.

B. There must be two or more debts.

C. The debts must be of the same kind.

APPLICATION OF PAYMENTS
D. The debts to which payment made by the debtor has been
applied must be due (Article 1252).

E. The payment made must not be sufficient to coverall debts.

APPLICATION OF PAYMENTS AS TO DEBTS NOT YET DUE (Article 1252)

A. There is a stipulation that the debtor may so apply.

B. It is made by the debtor or creditor, as the case maybe, for whose benefit
the period
has been constituted.
APPLICATION OF PAYMENTS
RULES ON APPLICATION OF PAYMENTS

A. The debtor has the first choice; he must indicate at the time of making
payment, and not afterwards, which particular debt is being paid (Article
1252). If, in making use of his right, the debtor applied the payment to a
debt, he cannot later claim that it should be applied to another debt. If there
was a valid prior but contrary agreement, the debtor cannot choose. The
debtor cannot choose to pay part of the principal ahead of the interest
(Article 1253) unless the creditor consents.

B. The right to make the application once exercised is irrevocable unless the
creditor consents to the change. However, the revocation or change in the
application will not be allowed if third persons would be prejudiced.

C. If the debtor does not apply payment, the creditor may make the designation
by specifying in the receipt which debt is being paid with the knowledge and
consent of the debtor otherwise the application is void.
APPLICATION OF PAYMENTS
D. If the creditor has not also made the application, or if the application is
not valid, the debt, which is most onerous to the debtor among those
due, shall be deemed to have been satisfied. The application is made
by operation of law.

E. If the debts due are of the same nature and burden, the payment
shall be applied to all of them proportionately.

INTEREST EARNED PAID AHEAD OF PRINCIPAL (Article 1253)

- This is obligatory, thus the debtor cannot insists that his payment
be credited to the principal instead of the interest unless the creditor
agrees. The payment must be applied first to the interest and
whatever balance is left can be credited to the principal. The creditor
can refuse application of the debtor made contrary to this provision.
The rule is subject to any agreement between the parties or to
waiver by the creditor.
APPLICATION OF PAYMENTS
APPLICATION OF PAYMENT TO MOST ONEROUS DEBT (Article 1254)
- In case no application of payment has been made by the debtor
and the creditor or the application cannot be inferred from
other circumstances, then the paymentshall be applied to the
most onerous debt.

RULES REGARDING MORE ONEROUS DEBTS

A. Older debts in case of running accounts.

B. An interest-bearing debt is more onerous than a non-interest-bearing

debt even if the latter is an older one.

C. A debt as a sole debtor is more onerous than as a solidary debtor.

APPLICATION OF PAYMENTS
D. Debts secured by a mortgage or by a pledge are more onerous
than unsecured debts.

E. Of two interest-bearing debts, the one with a higher rate is more onerous.

F. An obligation with a penalty clause is more burdensome than one

without penalty clause.

APPLICATION OF PAYMENT TO DEBTS OF THE SAME NATURE AND BURDEN (Article

1254)
- In case no application of payment has been made by the debtor
and the creditor and the debts are of the same nature and burden,
payment should be applied to all of them proportionately.
SUBSECTION 2.
CESSION
 CESSION
PAYMENT BY CESSION or ASSIGNMENT OF CREDIT
- It is the assignment or abandonment of all the properties of the
debtor for the benefit of his creditors in order that the latter may
sell the same and apply the proceeds thereof to the satisfaction of
their credits.

KINDS OF ASSIGNMENT

A. LEGAL
- Governed by the law on insolvency.

B. VOLUNTARY
- Referred to under Article 1255.
- All the creditors must agree.
 CESSION
REQUISITES OF VOLUNTARY PAYMENT BY CESSION

A. There must be two or more creditors.

B. The debtor must be partially or completely insolvent.

C. The assignment must involve all the properties of the debtor.

D. The cession must be accepted by the creditors.

 CESSION
EFFECT OF VOLUNTARY PAYMENT BY CESSION

A. The creditors do not become owners; they are merely assignees

with authority to sell.

B. The debtor is released up to the amount of the net proceeds of the

sale, unless there is a stipulation to the contrary. Thus the debtor is
still liable for the balance if any unless otherwise stipulated (Article
1255).

C. Creditors will collect credits in order of preference agreed upon, or

in default of agreement, in proportion to their credits.
SUBSECTION 3.
TENDER OF PAYMENT
AND
CONSIGNATION
 TENDER OF PAYMENT AND CONSIGNATION
TENDER OF PAYMENT
- The act on the part of the debtor, of offering to the creditor the thing
or amount due together with a demand that the creditor accept the same.
The debtor must show that he has in his possession the thing or money to
be delivered at the time of the offer.
- Tender of payment must be proved by the debtor unless tender is excused.

REQUISITES OF A VALID TENDER OF PAYMENT

A. It must comply with the rules on payment. It must be made in legal tender
and must include whatever interest is due. The obligation must be already
due.

B. Generally, it must be unconditional and for the whole amount. If made with
conditions but accepted by the creditor without protest, the creditor cannot
later on prescribe the terms for the validity of the acceptance which he had
already made.
C. It must be actually made. The manifestation of a desire or intention to pay is NOT
enough.
 TENDER OF PAYMENT AND CONSIGNATION
WHEN TENDER OF PAYMENT NOT REQUIRED (Article 1256)

A. When the creditor is absent or unknown or does not appear at the place of
payment.

B. When the creditor is incapacitated to receive payment at the time it is due.

C. When, without just cause, the creditor refuses to give a receipt.

D. When two or more persons claim the same right to collect.

E. When the title or written document of the obligation has been lost.

F. When the debtor had previously been notified by the creditor that
the latter would not accept any payment.
 TENDER OF PAYMENT AND CONSIGNATION
CONSIGNATION
- The act of depositing the thing or amount due with the proper
court when the creditor does not desire or cannot receive it, after
complying with the formalities required by law.
- It is always judicial and it generally requires a prior tender of
payment which is, by its very nature, extrajudicial.
- Consignation, to amount to a valid payment, must also comply with
the provisions which regulate payment such that payment should
be made in legal tender (Article 1257).

REQUISITES OF CONSIGNATION

A. Existence of a valid debt which is due.

 TENDER OF PAYMENT AND CONSIGNATION
B. Valid prior tender of payment by the debtor and refusal of without
justifiable cause
by the creditor to accept it, unless tender is excused.

C. Previous notice of consignation to persons interested in the fulfillment

of the
obligation (Article 1257).

D. Actual consignation of the thing or sum due.

E. Subsequent notice of consignation made to the interested parties (Article

1258).

CONSIGNATION MUST BE WITH PROPER JUDICIAL AUTHORITY (Article 1258)

- Consignation is necessary to effect payment. As tender of payment must
precede
consignation, the tender must be proved by the debtor in the
proper case. In other cases when tender is not required, only prior
notice to interested persons of the consignation needs to be proved.
 TENDER OF PAYMENT AND CONSIGNATION
CREDITOR BEARS EXPENSES OF CONSIGNATION (Article 1259)
- The consignation is made necessary because of the fault or unjust
refusal of the creditor to accept payment. That being the case, it is
but just that the expenses should be charged against the creditor.
- If consignation is not properly made or if the debtor
withdraws payment, expenses arechargeable to the debtor.

WHEN CONSIGNATION DEEMED PROPERLY MADE

A. When the creditor accepts the thing or sum deposited, without

objection, as payment of the obligation.

B. When the creditor questions the validity of the consignation, and

the court, after hearing, declares that it has been properly made.
 TENDER OF PAYMENT AND CONSIGNATION
C. When the creditor neither accepts nor questions the validity of the
consignation, and the court after hearing, orders the cancellation of the
obligation.

EFFECTS OF CONSIGNATION

A. The debtor may ask the judge to order the cancellation of the
obligation after due hearing and a judgment that all the requisites of
consignation have been met and this operates as a valid payment
(Article 1260).

B. The debtor may withdraw the thing or sum consigned as a matter of

right before the creditor has accepted the consignation or before there
is a judicial declaration that the consignation has been properly made.
In such case, the obligation will continue and all expenses are paid by
the debtor (Article 1260).
 TENDER OF PAYMENT AND CONSIGNATION
C. If, the consignation having been made, the creditor should authorize
the debtor to withdraw the same, he shall lose every preference
which he may have over the thing. The co-debtors, guarantors and
sureties shall be released (Article 1261).
CHAPTER 4
EXTINGUISHMENT OF
OBLIGATIONS
SECTION 2.
LOSS OF THE THING DUE
LOSS IN REAL OBLIGATIONS
WHEN IS THERE LOSS IN REAL OBLIGATIONS (Article 1189)

A. When the object perishes or it is destroyed physically.

B. When it goes out of commerce.

C. When it disappears in such away that its existence is unknown, or it cannot be

recovered.

WHEN LOSS OF THING WILL EXTINGUISH REAL OBLIGATIONS (Article 1262)

A. The obligation is to deliver a specific or determinate thing.

B. The loss of the thing occurs without the fault of the debtor.

C. The debtor is not guilty of legal delay.

LOSS IN REAL OBLIGATIONS
WHEN LOSS OF THING WILL NOT EXTINGUISH LIABILITY (Article 1262)

A. WHEN THE LAW SO PROVIDES

1. The debtor is guilty of fraud, negligence, or delay, or

contravention of the tenor of the obligation (Article 1170).

2. The debtor is in bad faith or has promised to deliver the same

(specific) thing to two or more persons who do not have the same
interest (Article 1165).

3. The obligation to deliver a specific thing arises from a crime (Article

1268).
4. The thing to be delivered is generic (Article 1263) in
accordance with the principle genus never perishes
(genusnunquamperit).
 LOSS IN REAL OBLIGATIONS
5. When a borrower of an object had lent the thing to another who is not a
member
of his own household (Article 1942).

6. When the thing loaned has been delivered with appraisal of the value,
unless
there is a stipulation exempting the borrower for responsibility in
case of a fortuitous event (Article 1942).

7. When the payee in solutioindebitiisin bad faith (Article 2159).

B. WHEN THE STIPULATION SO PROVIDES

C. WHEN THE NATURE OF THE OBLIGATION REQUIRES THE ASSUMPTION
OF RISK
(DOCTRINE OF CREATED RISK)
LOSS IN REAL OBLIGATIONS
EFFECT OF LOSS OF A GENERIC THING
A. GENERAL RULE (Article 1263)
- The debtor is liable even for a fortuitous event because the law provides
so. It is based on the principle that a generic thing never perishes
(genus nunquam perit). The debtor can still be compelled to deliver a
thing of the same kind. The creditor, however, cannot demand a thing of
superior quality and neither can the debtor deliver a thing of inferior
quality.
B. EXCEPTIONS
1. DELIMITED GENERIC THING
- If the generic thing is delimited.

2. SEGREGATED GENERIC THING

- If the generic thing has already been segregated or set aside, in
which case, it has become specific.
LOSS IN REAL OBLIGATIONS
EFFECT OF PARTIAL LOSS OF A SPECIFIC THING (Article 1264)
- There is partial loss when only a portion of the thing is lost or
destroyed or when it suffers depreciation or deterioration. In
personal obligations, partial loss is equivalent to difficulty of
performance.
- The courts shall determine, in case of disagreement between
the parties, whether under the circumstances, the partial loss of the
object is so important in relation to the whole as to extinguish the
obligation.
- In certain cases, partial loss may indeed be equivalent to a
complete loss. In other cases, the loss may be insignificant.
Hence, judicial determination of the effect is needed.
LOSS IN REAL OBLIGATIONS
PRESUMPTION OF FAULT IN CASE OF LOSS OF THING IN POSSESSION OF
DEBTOR (Article 1265)
- This article establishes a disputable presumption of fault whenever
the thing to be delivered is lost in the possession of the
debtor. This presumption is reasonable because the debtor who
has the custody and care of the thing can easily explain the
circumstances of the loss. The creditor has no duty to show that
the debtor was at fault.

WHEN PRESUMPTION NOT APPLICABLE (Article 1265)

- In case of natural calamities, the presumption of fault does not apply.
LOSS IN PERSONAL OBLIGATIONS
KINDS OF IMPOSSIBILITY

A. PHYSICAL IMPOSSIBILITY
- Occurs in purely personal obligations when the personal qualifications of
the obligor are involved, the obligor dies or becomes physically
incapacitated to perform the obligation.

B. LEGAL IMPOSSIBILITY
- Occurs when the obligation cannot be performed because it is rendered
impossible by provision of law, although physically it maybe possible to
perform.
- It may be directly caused as when prohibited by law, or indirectly
caused as when the debtor is required to enter a military draft.

C. MORAL IMPOSSIBILITY or IMPRACTICABILITY

- When the service has become so difficult as to be manifestly beyond the
contemplation of both parties due to change of certain conditions.
LOSS IN PERSONAL OBLIGATIONS
D. SUBJECTIVE IMPOSSIBILITY
- When the act is subjectively impossible for the debtor himself but
otherwise objectively possible for all others, usually the obligation
subsists, unless personal considerations are involved.

EFFECT OF LOSS IN PERSONAL OBLIGATIONS OR IMPOSSIBILITY OF PERFORMANCE

(Article 1266) - The debtor in personal obligations shall be released
from the obligation when the prestation becomes legally or physically
impossible without the fault of the obligor. The impossibility must take place
after the constitution of the obligation. If the obligation is
impossible from the very beginning, the obligation is void. In such
case, there is no obligation to be extinguished.

EFFECT OF PARTIAL IMPOSSIBILITY

- In case of partial impossibility, the courts shall determine
whether, under the circumstances, the partial impossibility of the
obligation is so important as to extinguish the obligation. Article 1264
applies.
LOSS IN PERSONAL OBLIGATIONS
EFFECT OF MORAL IMPOSSIBILITY (Article 1267)
- The general rule is that moral impossibility releases the obligor.
When there is moral impossibility, the court is authorized to release
the obligor in whole or in part. It would be doing violence to the
intention of the parties to hold the obligor liable still responsible.
There is an element of the unforeseen or fortuitous event in the
situation.
- This article applies not only to personal obligations but also real
obligations (Article 1156).

REBUS SIC STANTIBUS or THINGS STANDING THUS

- A treaty or agreement remains valid only if the same conditions
prevailing at the time of contracting continue to exist at the time of
performance.
OTHER RULES REGARDING LOSS
EFFECT OF FORTUITOUS EVENT WHERE OBLIGATION PROCEEDS FROM
A CRIMINAL OFFENSE (Article 1268)
- The obligation subsists except when the creditor refused to accept
the thing (e.g. property stolen from him) without justification
(moraaccipiend , after it had been offered to him. Consignation is
not necessary. The debtor, however, must still exercise due
diligence.

RIGHT OF CREDITORS TO PROCEED AGAINST THIRD PERSONS (Article 1269)

- The creditor is given the right to proceed against the third person
responsible for the loss. There is 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.
- This rule finds frequent application in insurance.
CHAPTER 4
EXTINGUISHMENT OF
OBLIGATIONS
SECTION 3.
CONDONATION OR
REMISSION OF DEBT
 CONDONATION OR REMISSION OF DEB
CONDONATION or REMISSION OF DEBT
- The gratuitous abandonment by the creditor of his right against the
debtor. It may be made expressly or impliedly.
- It is aform of donation.
KINDS OF REMISSION

A. AS REGARDS ITS EFFECT OR EXTENT

1. TOTAL or COMPLETE
- When it covers the entire obligation.

2. PARTIAL
- Only a portion is remitted or the remission may refer only to
the accessory obligations.
 CONDONATION OR REMISSION OF DEB
B. AS REGARDS ITS FORM
1. EXPRESS or FORMAL
- When it is made either verbally or in writing.
2. IMPLIED orTACIT
- When it can only be inferred from conduct. Conduct is sufficient and
it requires no formality.
C. AS REGARDS ITS DATE OF EFFECTIVITY
1. INTERVIVOS
- When it will take effect during the lifetime of the donor.
2. MORTIS CAUSA
- When it will become effective upon the death of the donor. It must
comply with the formalities of a will.
ESSENTIAL REQUISITES OF REMISSION
ESSENTIAL REQUISITES OF REMISSION (Article 1270)

A. IT MUST BE GRATUITOUS
- The cause or consideration must be liberality for remission is
essentially gratuitous.

B. IT MUST BE ACCEPTED BY THE OBLIGOR or DONEE

- There must bean agreement since the acceptance of the offer is required.

C. THE PARTIES MUST BE CAPACITATED AND MUST CONSENT

D. THE REMISSION MUST NOT BE INOFFICIOUS

- Otherwise, it would be reducible on petition of the heirs insofar
as they are inofficious or excessive, so that the legitimes of the
compulsory heirs would not be impaired. Such remission may also
be revoked on the grounds of ingratitude.
ESSENTIAL REQUISITES OF REMISSION
- While a person may make donations, no one can give more than
that which he can give by will, otherwise, the excess shall be
inofficious and shall be reduced by the court accordingly.

D. FORMALITIES OF A DONATION ARE REQUIRED IN THE CASE OF EXPRESS

REMISSION

EFFECT IF REMISSION IS NOT ACCEPTED BY THE DEBTOR

- This would not be remission; however, if the creditor does not
really collect within the statute of limitations, the debt may be said
to have been extinguished by prescription.
 PRESUMPTIONS IN REMISSI ON
PRESUMPTION IN CASE OF VOLUNTARY DELIVERY OF DOCUMENT OF
INDEBTEDNESS BY CREDITOR (Article 1271)
- This is an example of implied or tacit remission. If the debt is not
yet paid, the creditor would need the document to enforce
payment. In case the creditor voluntarily delivers it to the
debtor, the only logical inference is that he is remitting the
debt.
- The presumption is prima facie(on its face) or rebuttable by
contrary evidence. Evidence is admissible to show otherwise.
- The presumption applies only to a private document because a
copy of a public document is easy to obtain being public record.

PRESUMPTION OF REMISSION IN JOINT OR SOLIDARY OBLIGATIONS

- If the obligation is joint, the presumption of remission pertains only
to the share of the debtor who is in possession of the document.
If solidary, to the total obligation.
 PRESUMPTIONS IN REMISSI ON
PRESUMPTION IN CASE DOCUMENT FOUND IN POSSESSION OF DEBTOR (Article
1272)
- Ordinarily the document evidencing the debt is in the possession of
the creditor. He has in his favor the legal presumption that his
credit is not yet collected, unless the debtor proves otherwise. The
possession of the instrument of credit by the creditor is primafacie
proof of non-payment.
- If the document is later found in the hands of the debtor and it is
not known how he came into possession of the same, the
presumption is that it was voluntarily delivered by the creditor. The
presumption of voluntary delivery, in turn, gives rise to the
presumption of remission.
 PRESUMPTIONS IN REMISSI ON
EFFECT OF REMISSION OF THE PRINCIPAL DEBT WITH AN ACCESSORY
OBLIGATION (Article 1273)
- This follows the rule that the accessory follows the principal. While the
accessory obligation cannot exist without the principal obligation,
the principal obligation may exist without the accessory.

PRESUMPTION IN CASE THING PLEDGED FOUND IN POSSESSION OF

DEBTOR (Article 1274)
- In a contract of pledge, it is necessary that the thing pledged be
placed in the possession of the creditor, or of a third person by
common agreement (Article 2093). A third person who is not a
party to the principal obligation my secure the latter by pledging his
own property (Article 2085). If the thing pledged is later found in
the hands of the debtor or the third person only the accessory
obligation of pledge is presumed remitted, not the obligation
itself. The debtor shall continue to be indebted but he does not
have to return the thing pledged.
CHAPTER 4
EXTINGUISHMENT OF
OBLIGATIONS
SECTION 4.
CONFUSION OR MERGER
OF RIGHTS
ONFUSION OR MERGER OF RIGH TS
CONFUSION or MERGER OF RIGHTS (Article 1275)
- It is the meeting in one person of the qualities of creditor and debtor
with respect to the same obligation. It has the effect of extinguishing
an obligation.

REQUISITES OF CONFUSION

A. It must take place between the principal debtor and creditor.

B. It must be complete.
EFFECTS OF CONFUSION
EFFECT OF MERGER IN THE PERSON OF PRINCIPAL DEBTOR OR CREDITOR (Article
1276)
- Merger in the person of the principal debtor or creditor
extinguishes the obligation. Hence, the accessory obligation of
guaranty is also extinguished in accordance with the principle that
accessory follows principal.

EFFECT OF MERGER IN THE PERSON OF GUARANTOR (Article 1276)

- The extinguishment of the accessory obligation does not carry with
it that of the principal obligation. Consequently, merger which takes
place in the person of the guarantor, while it extinguishes the
guaranty, leaves the principal obligation in force.
CONFUSION IN JOINT AND SOLIDARY OBLIGATIONS
CONFUSION IN A JOINT OBLIGATION (Article 1277)
- Confusion taking place in the person of any debtor or creditor does
not affect the others. In other words, the confusion will
extinguish only the share corresponding to the creditor or debtor
in whom the two characters concur.

CONFUSION IN A SOLIDARY OBLIGATION

- Merger in the person of one of the solidary debtors shall
extinguish the entire obligation because it is also a merger in the
other solidary debtors. In a solidary obligation, there is only one
obligation and every debtor is individually responsible for the
payment of the whole obligation. He who makes payment may
claim reimbursement from his co-debtors for the shares which
correspond to them.
CHAPTER 4
EXTINGUISHMENT OF
OBLIGATIONS
SECTION 5.
COMPENSATION
 COMPENSATION
COMPENSATION (Article 1279)
- It is the extinguishment to the concurrent amount of the debts of
two persons who, in their own right, are debtors and creditors of
each other.

KINDS OF COMPENSATION

A. BY ITS EFFECT OR EXTENT (Article 1281)

1. TOTAL COMPENSATION
- When both obligations are of the same amount and are entirely
extinguished.

2. PARTIAL COMPENSATION
- When the two obligations are of different amounts and a balance
remains. The extinctive effect of compensation will be partial
only as regards the larger debt or in other words, there is partial
compensation of the larger debt.
 COMPENSATION
B. BY ITS CAUSE OR ORIGIN

1. LEGAL COMPENSATION (Article 1279, 1286, and 1290)

- When it takes place by operation of law even without the knowledge of the
parties.

2. VOLUNTARY or CONVENTIONAL COMPENSATION (Article 1282)

- It includes any compensation which takes place by the agreement of the
parties even if all the requisites for legal compensation are not present.
This kind of compensation has no special requisites. It is sufficient
that the contract of the parties, which declares the compensation.
- The agreement or contract which declares the compensation should
itself be valid; thus among other things, the parties must have legal
capacity and must freely give their consent.
- This provision of law is an exception to the general rule that only debts
which are due and demandable can be compensated.
 COMPENSATION
3. JUDICIAL COMPENSATION or SET-OFF (Article 1283)
- When it takes place by order from a court in litigation.
Strictly speaking, judicial compensation is merely a form of legal
or voluntary compensation when declared by the courts by virtue
of an action by one of the parties, who invokes it, and by the
defense of the other who refuses to admit it.
- A party may set off his claim for damages against his obligation
to the other party by proving his right to said damages and the
amount thereof.
- This must be pleaded and proven; it can be made effective only
by an order from the court.

4. FACULTATIVE COMPENSATION (Article 1287 and 1288)

- When it can be set up only by one of the parties. One of the
parties has the choice of claiming the compensation or of
opposing compensation.
 LEGAL COMPE NSATIO N
REQUISITES OF LEGAL COMPENSATION (Article 1279)

A. THE PARTIES ARE PRINCIPAL CREDITORS AND PRINCIPAL DEBTORS OF EACH

OTHER

B. BOTH DEBTS CONSIST IN A SUM OF MONEY, OR OF CONSUMABLE

THINGS OF THE SAME KIND AND QUALITY

C. THE TWO DEBTS ARE DUE OR DEMANDABLE

- GENERAL RULE: If one of the debts is not yet due, there can be no
compensation.
- EXCEPTION: The parties may agree upon the compensation of debts
which are not yet due. In which case, the compensation becomes
conventional or by agreement of the parties.
LEGAL COMPENSATION
D. THE TWO DEBTS ARE LIQUIDATED

E. NO RETENTION OR CONTROVERSY COMMENCED BY THIRD PERSON

- This is a negative requisite. The other such requisite is that the
compensation is not prohibited by law. Of course, compensation will
not take place where there is waiver.

LEGAL COMPENSATION WHERE DEBTS PAYABLE AT DIFFERENT PLACES (Article

1286)
- The indemnity contemplated above does not refer to the difference
in the value of the things in their respective places but to the
expenses of monetary exchange (in case of money debts) and
expenses of transportation (in case of things to be delivered). Once
these expenses are liquidated, the debts also become
compensable. The indemnity shall be paid by the person who raises
the defense of compensation.
 LEGAL COMPE NSATIO N
INSTANCES WHEN LEGAL COMPENSATION IS NOT ALLOWED BY LAW

A. WHEN ONE OF THE DEBTS ARISES FROM A DEPOSITUM(Article 1287)

- This is actually facultative compensation. Here the depositor has
the option to claim or not to claim compensation.

B. WHEN ONE OF THE DEBTS ARISES FROM A COMMODATUM(Article 1287)

- This is actually facultative compensation. Here the lender has the
option to claim or not to claim compensation.

C. WHERE ONE OF THE DEBTS ARISES FROM A CLAIM FOR SUPPORT DUE BY
GRATUITOUS
TITLE (Article 1287)
- Support in arrears maybe compensated but not future support.
 LEGAL COMPE NSATIO N
D. WHERE ONE OF THE DEBTS CONSISTS IN CIVIL LIABILITY ARISING FROM A
PENAL
OFFENSE (Article 1288)
- If one of the debts consists in civil liability arising from a
criminal offense, compensation would be improper and inadvisable
because the satisfaction of such obligation is imperative.
- This is another case of facultative compensation on the part of
the victim. The criminal cannot claim compensation but the victim
may claim the same.
 OTHER RULES IN COMPENSATION
COMPENSATION BENEFITS GUARANTOR (Article 1280)
- This is an exception to the general rule that only the principal
debtor can set up as against his creditor what the latter owes him.
Although the guarantor is only subsidiarily liable, not principally
bound, he is given the right to set up compensation. The
reason is that the extinguishment of the principal obligation as a
consequence of compensation carries with it the accessory
obligations such as guaranty.

COMPENSATION OF RESCISSIBLE OR VOIDABLE DEBTS (Article 1284)

- Rescissible and voidable obligations are valid until they are
judicially rescinded or annulled. Prior to rescission or annulment,
the debts may be compensated against each other.
- To avoid unfairness, if rescission or annulment is later on decreed by
the court, it is as if NO compensation ever took place. The decree
thus acts retroactively.
 OTHER RULES IN COMPENSATION
RULES AS TO ASSIGNMENT (Article 1285)

A. WHEN DEBTOR CONSENTS TO ASSIGNMENT

- The assignment of the credit of the creditor maybe made with the
consent of the debtor. In consenting to the assignment, the right to
the compensation is waived by the debtor. The rule applies
whether the consent to the assignment was before or after the
debts become compensable. In other words, when there is
consent, compensation shall be deemed not to have taken place.
OTHER RULES IN COMPENSATION
OTHER RULES IN COMPENSATION
 OTHER RULES IN COMPENSATION
B. WHEN COMPENSATION HAS TAKEN PLACE BEFORE ASSIGNMENT AND
DEBTOR IS
AWARE BUT DOES NOT CONSENT TO ASSIGNMENT
- When compensation takes place by operation of law, the debts are
extinguished to the concurrent amount. If subsequently, the
extinguished debt is assigned by the creditor to a third person
with the knowledge but without the consent or against the will of
the debtor, the debtor can raise or set up the defense of
compensation against the third person (assignee) regarding debts
previous to the cession or assignment. This refers to debts maturing
before the assignment, that is, before the NOTICE, hence here,
legal compensation has already taken place. The remedy of the
assignee is against the assignor.
OTHER RULES IN COMPENSATION
OTHER RULES IN COMPENSATION
C. WHEN COMPENSATION HAS TAKEN PLACE BEFORE ASSIGNMENT AND
DEBTOR HAS
NO KNOWLEDGE OF THE ASSIGNMENT
- The assignment may be made without the knowledge of the
debtor. The debtor can set up compensation as a defense for
all debts maturing prior to his knowledge of the assignment
whether the debts matured before or after the assignment. The
crucial time here is the time of knowledge of the assignment, not
the time of assignment itself.
OTHER RULES IN COMPENSATION
 OTHER RULES IN COMPENSATION
RULES ON APPLICATION OF PAYMENTS APPLY TO ORDER OF
COMPENSATION (Article 1289)
- Compensation is similar to payment. 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. In case
he fails to do so, then the compensation shall be applied to the most
onerous obligation.
CHAPTER 4
EXTINGUISHMENT OF
OBLIGATIONS
SECTION 6.
NOVATION
 NOVATION
NOVATION
- It is the total or partial extinction of an obligation through the creation
of a new one which substitutes it.
- The substitution or change of an obligation by another, which
extinguishes or modifies the first, either by changing its object or principal
conditions, or by substituting another in place of the debtor, or subrogating
a third person in the rights of the creditor.

KINDS OF NOVATION

A. ACCORDING TO HOW IT IS CONSTITUTED

1. EXPRESS
- When so declared in unequivocal terms.

2. IMPLIED
- When the old and the new obligation are essentially incompatible with each
other.
 NOVATION
HOW IMPLIED NOVATION IS DONE

a. By making substantial changes in the object or subject matter of the

contract.

b. By making substantial changes in the cause or consideration of the

contract.

c. By making substantial changes in the principal terms or

conditions of the contract.

B. ACCORDING TO EXTENT OR EFFECT

1. TOTAL or EXTINCTIVE
- When the old obligation is completely extinguished.
 NOVATION
2. PARTIAL or MODIFICATORY or IMPERFECT or IMPROPER
- When the old obligation is merely modified, i.e., the
change is merely incidental to the main obligation. The original
obligation still remains in force except insofar as it has been
modified.

C. ACCORDING TO THE SUBJECT OR OBJECT OR PURPOSE

1. REAL or OBJECTIVE
- When the object or cause or principal conditions of the obligation are
changed.

2. PERSONAL or SUBJECTIVE
- When the person of the debtor is substituted and/or when a
third person is subrogated in the rights of the creditor.
NOVATION
KINDS OF PERSONAL or SUBJECTIVE NOVATION

a. PASSIVE NOVATION
– Substituting the person of the debtor.

KINDS OF PASSIVE NOVATION or SUBSTITUTION

i. EXPROMISION
– That which takes place when a third person of his own
initiative and without knowledge or against the will of the
original debtor assumes the latter’s obligation with the
consent of the creditor.

ii. DELEGACION
– That which takes place when the creditor accepts a third
person to take the place of the debtor at the instance of the
latter.
NOVATION
b. ACTIVE NOVATION
- Subrogating a third person in the rights of the
creditor. KINDS OF ACTIVE NOVATION or
SUBROGATION

i. LEGAL SUBROGATION
- That which takes place by operation of law.

ii. CONVENTIONAL or VOLUNTARY SUBROGATION

- That which takes place by agreement of the parties.

3. MIXED
- When the object and/or principal conditions of the obligation and
the debtor or the creditor, or both the parties, are changed. It is
a combination of real and personal novations.
 REQUISITES OF NOVATION
REQUISITES OF NOVATION

A. PREVIOUS VALID OBLIGATION

EFFECT WHERE THE OLD OBLIGATION IS VOID OR IS VOIDABLE (Article 1298)

- If the old obligation is void or non-existent, there is nothing tonovate.
- If the old obligation is voidable, novation is still possible provided the
obligation has not yet been annulled. If the original obligation is ratified,
it can be novated.

B. CAPACITY AND INTENTION OF THE PARTIES TO MODIFY OR EXTINGUISH THE

OBLIGATION

NOVATION IS NOT PRESUMED (Article 1292)

- Novation is never presumed. It must be clearly and unmistakably
established either by express agreement of the parties or acts of
equivalent import or by the incompatibility of the two obligations with
each other in every material respect.
 REQUISITES OF NOVATION
C. THE MODIFICATION OR EXTINGUISHMENT OF THE OBLIGATION
- The extinguishment or modification itself is a result of novation.

D. THE CREATION OF A NEW VALID OBLIGATION

EFFECT WHERE THE NEW OBLIGATION IS VOID (Article 1297)

- GENERAL RULE: If the new obligation is void, the original one shall
subsists.
- EXCEPTION: Unless the parties intended that the former relation
should be extinguished in any event.

EFFECT WHERE THE NEW OBLIGATION IS VOIDABLE

- If the new obligation is voidable, novation can take place. If the
obligation has been annulled, the old obligation subsists, and
whatever novation has taken place will naturally have to be
set aside unless the parties stipulate otherwise.
 PASSIVE NOVA TIO N
KINDS OF PASSIVE NOVATION or SUBSTITUTION

A. EXPROMISION(Article 1293)
- Where the initiative comes from a third person. It logically requires
the consent of the third person and the creditor.
- It is essential that the old debtor be released from his obligation;
otherwise, there is no expromision.

B. DELEGACION
- The initiative comes from the old debtor himself. In delegacion,
all the parties must agree.
- The old debtor must be released from the obligation; otherwise
there is no valid delegacion.
 PASSIVE NOVA TIO N
RIGHT OF NEW DEBTOR WHO PAYS

A. In expromision, payment by the new debtor gives him the right

to beneficial reimbursement under the second paragraph of Article
1236.

B. If the payment was made with the consent of the original debtor
and on his own initiative (delegacion), the new debtor is entitled to
reimbursement and subrogation under Article 1237.
EFFECT OF NEW DEBTOR’S INSOLVENCY OR NON-FULFILLMENT OF THE OBLIGATION

A. IN EXPROMISION(Article 1294)
– In expromision, the new debtor’s insolvency or non-fulfillment of
the obligation will not revive the action against the old debtor
whose obligation is extinguished by the assumption of the debt by
the new debtor.
 PASSIVE NOVA TIO N
B. IN DELEGACION(Article 1295)

1. If the non-fulfillment of the obligation is due to causes other than

insolvency, the old debtor is not liable.

2. In case of insolvency:

a. GENERAL RULE
- If the insolvency of the new debtor occurred only after the
delegation, the old debtor is not liable.

b. EXCEPTIONS TO GENERAL RULE

- In this case the old debtor is liable.
PASSIVE NOVA TIO N
i. The said insolvency was already existing and of public
knowledge (although it was not known to the old debtor) at the
time of the delegacion.

ii. The insolvency was already existing and known to the debtor
(although it was not of public knowledge) at the time of the
delegacion.
 ACTIVE NOVATION
KINDS OF ACTIVE NOVATION OR SUBROGATION (Article 1300)

A. LEGAL SUBROGATION
- It is not presumed except in case expressly provided by law.

B. CONVENTIONAL or VOLUNTARY SUBROGATION

- It must be clearly established in order that it may take place.
- Requires the consent of the original parties and of the third person (Article
1301).

CASES OF LEGAL SUBROGATION (WHEN LEGAL SUBROGATION IS

PRESUMED) (Article 1302)

A. CREDITOR PAYS ANOTHER CREDITOR WHO IS PREFERRED EVEN

WITHOUT THE
DEBTOR’S KNOWLEDGE
 ACTIVE NOVATION
B. THIRD PERSON, NOT INTERESTED IN THE OBLIGATION, PAYS WITH THE
EXPRESS OR TACIT APPROVAL OF THE DEBTOR

C. THIRD PERSON WITH INTEREST IN THE OBLIGATION PAYS EVEN WITHOUT THE
KNOWLEDGE OF THE DEBTOR

EFFECT OF LEGAL SUBROGATION (Article 1303)

- The effect of legal subrogation is to transfer to the new creditor the
credit and all the rights and actions that could have been exercised by
the former creditor either against the debtor or against third persons, be
they guarantors or mortgagors.

EFFECT OF PARTIAL SUBROGATION (Article 1304)

- The creditor to whom partial payment has been made by the new
creditor remains a creditor to the extent of the balance of the debt. In case
of insolvency of the debtor, he is given a preferential right under this
article to recover the remainder as against the new creditor.
 OTHER RULES IN NOVATION
EFFECT OF NOVATION ON ACCESSORY OBLIGATIONS (Article 1296)
- GENERAL RULE: Extinguishment of the principal obligation carries with
it the
extinguishment of the accessory obligations such as pledges, mortgages and
guaranties.
- EXCEPTION: It may be agreed that despite the extinguishment of the old
obligation, the
accessory obligations would still remain provided that the debtors of
said accessory obligations give their consent.
- EXCEPTION: In case of an accessory obligation created in favor of a
third person (stipulations pour autru which remains in force unless
said third person gives his consent to the novation because a person
should not be prejudiced by the act of another without his consent.

PRESUMPTION WHERE ORIGINAL OBLIGATION SUBJECT TO A CONDITION (Article 1299)

- GENERAL RULE: The conditions attached to the old obligation are also
attached to the new obligation.
- EXCEPTION: If there is a contrary stipulation.
CHAPTER 1
GENERAL PROVISIONS
 CONTRACTS
CONTRACT (Article 1305)
- A meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service.
KINDS OF INNOMINATE CONTRACTS
A. DO UT DES
- I give that you may give.
B. DO UT FACIAS
- I give that you may do.
C. FACIO UT DES
- I do that you may give.
D. FACIO UT FACIAS
- I do that you may do.
BASIC PRINCIPLES OF CONTRACTS
BASIC PRINCIPLES OR CHARACTERISTICS OF CONTRACTS (MARCO)

A. AUTONOMY or LIBERTY or FREEDOM TO STIPULATE (Article 1306)

B. MUTUALITY (Articles 1308 to 1310)

C. RELATIVITY (Articles 1311 to 1314)

D. CONSENSUALITY (Articles 1315 to 1316)

E. OBLIGATORINESS or OBLIGATORY FORCE (Articles 1159 and 1315)

BASIC PRINCIPLES OF CONTRACTS
AUTONOMY or LIBERTY or FREEDOM TO STIPULATE (Article 1306)
- The contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order or public
policy.

MUTUALITY (Article 1308)

- A contract must bind both contracting parties in order that it can
be enforced against either party. Without this equality between the
parties, the contract has no force of law between them.
- It also includes the fundamental rule that no party can renounce or
violate the
law of the contract without the consent of the other. Hence,
its validity or compliance cannot be left to the will of one of them.
BASIC PRINCIPLES OF CONTRACTS
DETERMINATION OF PERFORMANCE BY A THIRD PERSON (Article 1309)
- The compliance with a contract cannot be left to the will of one
of the parties. However, under this provision, the determination of
its performance may be left to a third person. In such a case,
the obligation does not depend upon any potestative condition.
The decision of the third person shall bind the parties only after it
has been made known to both of them.

EFFECT WHERE DETERMINATION IS INEQUITABLE (Article 1310)

- A contracting party is not bound by the determination if it is
evidently inequitable or unjust as when the third person acted in bad
faith or by mistake. In such case, the courts shall decide what is
equitable under the circumstances.
BASIC PRINCIPLES OF CONTRACTS
RELATIVITY (Article 1311)
– Contracts are generally effective only between the PARTIES, their
ASSIGNS and their HEIRS.

PERSONS AFFECTED BY A CONTRACT

A. GENERAL RULE
– A party’s rights and obligations derived from a contract are
transmissible to the successors. Contracts take effect only between
the parties, their assigns, and heirs. This means that only the
parties, their assigns, and heirs can have rights and obligations
under the contract.
BASIC PRINCIPLES OF CONTRACTS
B. EXCEPTIONS TO RELATIVITY

1. THE CONTRACT IS EFFECTIVE ONLY BETWEEN THE PARTIES or

INTRANSMISSIBLE
- The rights and obligations arising from the contract are not
transmissible.

SCOPE OF INTRANSMISSIBILITY

a. BY NATURE
- Contracts involving personal qualifications.

b. BY STIPULATION
- In accordance with the principle of autonomy.

c. BY PROVISION OF LAW
- When death extinguishes the legal relationship.
BASIC PRINCIPLES OF CONTRACTS
2. THE CONTRACT AFFECTS STRANGERS OR THIRD PERSONS
a. Article 1311 - Contracts containing stipulations pourautrui.
b. Article 1312 - Contracts creating real rights.

c. Article 1313 - Contracts intended to defraud creditors.

d. Article 1314 - Contracts violated at the inducement of a third person.
STIPULATION POUR AUTRUI (Article 1311)
- A stipulation in a contract clearly and deliberately conferring a favor upon a
third person who has a right to demand its fulfillment provided he
communicates his acceptance to the obligor before its revocation by the
obligee or the original parties. The stipulation is merely part of the
contract entered into by the parties, neither of whom acted as agent of
the third person.
- The acceptance of the stipulation by the third party maybe made
expressly or implicitly, formally or informally.
BASIC PRINCIPLES OF CONTRACTS
THIRD PERSONS ARE BOUND BY CONTRACTS CREATING REAL RIGHTS (Article 1312)
- Third persons who come into possession of the object of a contract over
which there is a real right, are bound thereby even if they were not parties
to the contract. A real right is binding against the whole world and
attaches to the property over which it is exercised wherever it goes.

RIGHT OF CREDITOR TO IMPUGN CONTRACTS INTENDED TO DEFRAUD THEM (Article

1313)
- The creditor is given the right to impugn the contracts of his debtor to defraud
him.

LIABILITY OF THIRD PERSON RESPONSIBLE FOR BREACH OF CONTRACT (Article 1314)

- Since contractual right is a property, the law recognizes an instance when
a stranger to a contract can be sued for damages for his unwarranted
interference with the contract. It presupposes that the contract
interfered with is valid and the third person has knowledge of the
existence of the contract.
- The liability of the third person cannot be more than that of the party
who violated the contract. The liability will be based on the theory of quasi-
delict.
 STAGES IN THE LIFE OF A CONT
STAGES IN THE LIFE OF A CONTRACT
A. PREPARATION or NEGOTIATION or CONCEPTION or GENERACION
- The parties are progressing with their negotiations and this stage includes
all the steps taken by the parties leading to the perfection of the contract;
they have not yet arrived at any definite agreement, although there
may have been a preliminary offer and bargaining.
B. PERFECTION or BIRTH
- This is when the parties have come to a definite agreement or meeting
of the minds regarding the subject matter and cause of the contract,
i.e. upon concurrence of the essential elements thereof.
C. CONSUMMATION or TERMINATION or DEATH
- This is when the parties have performed their respective obligations and
the contract may be said to have been fully accomplished or
executed, resulting in the extinguishmentor termination thereof.
KINDS OF CONTRACTS
KINDS OF CONTRACTS ACCORDING TO PERFECTION

A. CONSENSUAL CONTRACT (Article 1315)

- As a general rule, contracts are perfected by mere consent of the parties
regarding the subject matter and the cause of the contract. They are
obligatory in whatever form they may have been entered into, provided
all the essential requisites for their validity are present.

B. REAL CONTRACTS (Article 1316)

- They are perfected by the delivery, actual or constructive, of the object of
the obligation. These contracts have for their purpose restitution because
they contemplate the return by a party of what has been received from
another.

C. FORMAL or SOLEMN CONTRACTS (Article 1356)

 When aw
- t he l r equires t h at a contract be in some form to be valid, this
necessary for it s pe rfection
special form is
UNAUTHORIZED CONTRACTS
UNAUTHORIZED CONTRACTS (Article 1317)
- 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.

UNAUTHORIZED CONTRACTS ARE UNENFORCEABLE (Article 1317)

- A person is not bound by the contract of another of which he has no
knowledge or to which he has not given his consent. A contract entered
into in the name of another by one who has no authority is unenforceable
against the former unless it is ratified by him before it is revoked by the
other contracting party.
- The mere CONTRACT
UNAUTHORIZED lapse of time cannot
S CAN give efficacy
BE CURED ONLY BYto such a contract. The
RATIFICATION
defect is such that it cannot be cured except by the subsequent
ratification of the person whose name the
 n o t so e mpowered.
- T her atification must be clear and express so as not to admit of any doubt of
vagueness.
Chapter 2
ESSENTIAL REQUISITES OF
CONTRACTS
ELEMENTS OF CONTRACTS

ELEMENTS OF CONTRACTS

A. Essential

1. Common

2. Special

B. Natural

C. Accidental
 COMMON ESSENTIAL ELEMENTS
COMMON ESSENTIAL ELEMENTS

A. Consent

B. Object

C. Cause
 CONSENT
CONSENT (Article 1319)
– The conformity or concurrence of wills
(offer and acceptance) and with respect
to contracts, it is the agreement of the
will of one contracting party with that of
another or others, upon the object and
terms of the contract.

GENERAL RULE
– Capacity to give consent is presumed.
 CONSENT
OFFER definite offers. A
C
• Article 1319 – Offer must be certain. P
• Article 1321 – Offer may fix time, place,
N
and manner of acceptance. E
• Article 1322 – Offer may be made through an
• Article 1320 –
agent. Acceptance may be •
• Article 1323 – Offer becomes ineffective
A
upon the r
• death,
Articlecivil
1324
insolvency.
interdiction,
– Offer mayinsanity, or
be withdrawn t
at any time before acceptance.
i
• Article 1325 – Business advertisements c
sale are not definite
l
agent who made e
• Article 1326 – Advertisements for bidders
are not
1
 319 – Acceptance must be
absolute.

• Article 1321 – Acceptance

must comply with the terms
of the offer.
• Article 1322 – Acceptance
must be communicated to
the
 CONSENT
PERSONS WHO CANNOT GIVE CONSENT (Article 1327)

A. Minors.

B. Insane or demented.

C. Deaf-mutes who do not knowhow to write.

 CONSENT
MODIFICATIONS ON INCAPACITY DISCUSSED UNDER
ARTICLE 1327 (Article 1329)

A. When necessaries such as food, are sold and

delivered to a minor or other person without
capacity to act, he must pay a reasonable price
therefor (Articles 1489 and 290).

B. A contract is valid if entered into through a

guardian or legal representative (Article 1381 (1)
and (2)).

C. A contract is valid where the minor misrepresented his

age and
convincingly led the other party to believe his
age his legal capacity.
 CONSENT
LUCID INTERVAL
– A temporary period of sanity.

EFFECT OF LUCID INTERVAL(Article 1328)

– A contract entered into by an insane or
demented person during a lucid interval
is valid. It must be shown however, that
there is a full return of the mind to sanity as
to enable him to understand the contract
he is entering into.
 CONSENT
EFFECT OF DRUNKENNESS AND HYPNOTIC SPELL
(Article 1328)
– Drunkenness and hypnotic spell impair the
capacity of a person to give intelligent
consent.
– These conditions are equivalent to
temporary insanity. Hence the contract
entered into during such state is voidable
and it is not required that such state
was
procured by the circumvention of the other party.
 CONSENT
VICES OF CONSENT (VIMFU)

A. Error or mistake. (Articles 1331 to 1334)

B. Violence or force. (Articles 1335 to 1336)

C. Intimidation or threat or duress. (Articles 1335 to

1336)

D. Undue influence. (Article 1337)

E. Fraud or deceit. (Articles 1338 to 1344)

 CONSENT
MISTAKE (Article 1331)
– The false notion or belief about a thing or a
fact material to the contract.
– The mistake contemplated by law is
substantial mistake of fact, that is, the party
would not have given his consent had he
known of the mistake. Hence not every
mistake will vitiate consent and make a
contract voidable.
 CONSENT
VIOLENCE (Article 1335)
– Requires the employment of physical force
which must be either serious or irresistible.
 CONSENT
INTIMIDATION or THREAT (Article 1335)
– The action of intimidating someone, or the
state of being intimidated. There is no
physical force but moral coercion.
– Whether or not the fear is reasonable and
well-grounded or the evil imminent and
grave depends upon the circumstances,
including the age, sex, and condition of the
person.
 CONSENT
UNDUE INFLUENCE (Article 1337)
– Influence of a kind that so overpowers the
mind of a
party as to destroy his free will and make him
express the will of another, rather than his
own.
 CONSENT
TWO KINDS OF FRAUD or DOLO (Articles 1338 and
1344)

A. CAUSAL FRAUD or DOLO CAUSANTE

– This is the kind of fraud which vitiates
consent and the law refers to this when it
speaks of vices of consent.
– It is the fraud used by a party to induce the
other to enter into a contract without which
the latter would not have
agreed to.
– It may be committed through
insidious words or machinations or by
concealment.
 CONSENT
B. INCIDENTAL FRAUD or DOLO INCIDENTE
– Renders the party who employs it liable
for damages because the fraud was not the
principal inducement that led the other to
give his consent.
 CONSENT
SIMULATION OFA CONTRACT (Article 1345 to 1346)
– It is the process of intentionally
deceiving others by producing the
appearance of a contract that really does
not exist or which is different from the true
agreement.
 CONSENT
KINDS OF SIMULATION

A. ABSOLUTE SIMULATION (FICTITIOUS CONTRACTS)

– Takes place when the contract does not really exist and
the parties do not intend to be bound at all. The contract
is inexistent or void.

B. RELATIVE SIMULATION (DISGUISED CONTRACTS)

– When the parties conceal their true agreement and the
contract entered into by the parties is different from their
true agreement.
– GENERAL RULE: The parties are bound to the real or true
agreement.
– EXCEPTIONS: 1) If the contract should prejudice a third
person; and 2) If the purpose is contrary to law, morals,
good customs, public order or public policy.
 OBJECT
OBJECT (Articles 1347 to 1349)
– It is the subject matter. In reality the
object of every contract is the obligation
created but since a contract cannot exist
without an obligation, the thing, service, or
right which is the object of the obligation
is also the
object of the contract.
 OBJECT
REQUISITES OF THINGSAS OBJECT OF CONTRACT

A. The thing must be within the commerce of men, that

is, it can
legally be the subject of commercial transaction.

B. It must not be impossible, legally or physically.

C. It must be in existence or capable of coming into

existence (future things) including future rights.

D. It must be determinate or determinable without the

need of a new
contract between the parties.
 OBJECT
REQUISITES OF SERVICESAS OBJECT OF CONTRACT

A. The service must be within the commerce of men.

B. It must not be impossible, legally or physically.

C. It must be determinate or capable of

being made determinate.
 OBJECT
RIGHTSAS OBJECT OF CONTRACT
– GENERAL RULE: All rights may be object of a
contract.
– EXCEPTION: When the rights are
intransmissible by their nature, or by
stipulation, or by provision of law.
 CAUSE
CAUSE or CAUSA or CONSIDERATION
– The essential reason or purpose which the
contracting parties have in view at the time of
entering into the contract.

KINDS OF CONTRACTSACCORDING TO CAUSE (Article 1350)

A. Onerous.

B. Remuneratory or remunerative.

C. Gratuitous or contracts of pure beneficence.

 CAUSE
MOTIVE (Article 1351)
– The purely personal or private reason which
a party has in entering into a contract. The
motive may be regarded as the cause in
a contract if it is founded upon a
fraudulent purpose to prejudice a third person.
 CAUSE
CAUSE • Must be M
present for a T
• Immediate or direct E
reason. contract to be
• Always known. valid.

• Essential element
of a contract.
• Illegality affects
the
validity of a contract.
• Remote or indirect reason.
• May be unknown to the
other party.
• Not an element of
a contract.
• Illegality does not
render the contract void.
• The presence of
motive cannot cure the
absence of
cause.
 CAUSE
LESION (Article 1355)
– Any damage or injury caused by the fact
that the price is unjust or cause is
inadequate. One party does not receive the
full equivalent for what he gives in a
commutative contract.
 CAUSE
EFFECT OF LESION

A. GENERAL RULE
– Lesion or inadequacy of price does not
invalidate a contract.

B. EXCEPTIONS

1. When, together with lesion, there has been fraud,

mistake
or undue influence.

2. In cases expressly provided by law.

CHAPTER 3
FORM OF CONTRACTS
 FORM OF CONTRACTS
FORM OF CONTRACTS
- Refers to the manner in which a contract is executed or manifested.
- A contract may be oral, or in writing, or partly oral and partly in writing. If in
writing, it
maybe public or a private instrument.
- To be recognized as awritten contract, all its terms must be in writing. A
contract partly
in writing and partly oral is, in legal effect, an oral contract.
CLASSIFICATION OF CONTRACTS ACCORDING TO FORM
A. INFORMAL or COMMON
- That which maybe entered into in whatever form provided all the essential
requisites for their validity are present. This refers only to consensual
contracts. An informal contract maybe oral or written.
B. FORMAL or SOLEMN
- That which requires compliance with certain formalities prescribed by
law for its efficacy, such prescribed form being thereby an essential
element thereof.
RULES REGARDING FORM
RULES REGARDING FORM OF CONTRACTS (Article 1356)

A. GENERAL RULE
- Form does not matter for the validity of a contract. It is enough
that there be consent, subject matter and cause. This rule
applies, however, to consensual contracts.
B. EXCEPTIONS

1. FORM FOR VALIDITY

- When the law requires that a contract be in some form to be valid.

2. FORM FOR ENFORCEABILITY

- When the law requires that a contract be in some form to be
enforceable or proved in a certain way.
RULES REGARDING FORM
3. FORM FOR CONVENIENCE OR GREATER EFFICACY
- When the law requires that a contract be in some form for the
convenience of the parties or for the purpose of affecting third
persons.

FORM FOR VALIDITY

A. REQUIRED TO BE IN WRITING

1. DONATION OF PERSONAL PROPERTY (Article 748)

- Donations of personal property the value of which exceeds ₱5,000
require that the donation and acceptance be made in writing
otherwise the donation is void.
RULES REGARDING FORM
2. STIPULATIONS REDUCING THE COMMON CARRIER’S EXTRAORDINARY
DILIGENCE
AND LIMITING ITS LIABILITY (Articles 1744-1750)

3. SALE OF LAND THROUGH AN AGENT (Article 1874)

- Sale of land thru an agent whose authority must be in writing,
otherwise, the sale is null and void.

4. STIPULATION TO PAY INTEREST (Article 1956)

- Stipulation to pay interest on loans, interest for the use of the
money must be in writing.

5. ANTICHRESIS (Article 2134)

- In contracts of antichresis, the amount of the principal and of
the interest shall be specified in writing; otherwise, the
contractshall be void.
RULES REGARDING FORM
B. REQUIRED TO BE IN A PUBLIC INSTRUMENT

1. DONATION OF REAL PROPERTY (Article 749)

- Donation of an immovable must be made in a public document.
The acceptance may be made in the same deed of donation or
in a separate public document, but it shall not take effect unless
it is done during the lifetime of the donor. If in a separate
instrument, the donor shall be notified thereof in an authentic
form, and this stepshall be noted in both instruments.

2. CONTRACT OF PARTNERSHIP (Articles 1771 and 1773)

- In partnerships where real property is contributed the contract of
partnership should be in writing.
RULES REGARDING FORM
FORM FOR ENFORCEABILITY (Article 1403)
- In the cases of contracts covered by the Statute of Frauds and
Perjuries, the law requires that they be in writing, subscribed by the
party charged or by his agent. If the contract is not in writing, the
contract is valid (assuming all the essential elements are present)
but it cannot be proved in court and is unenforceable (neither
party maybe compelled by court action to perform) unless it is
ratified.

FORM FOR CONVENIENCE OR GREATER EFFICACY

- In certain cases, a certain form is required for the convenience of
the parties in order that the contract maybe registered in the proper
registry to make effective the right acquired under such contract as
against third persons. Non-compliance with the required form
would not adversely affect the validity nor the enforceability
of the contract between the parties themselves.
RULES REGARDING FORM
- As between parties, the form is not indispensable since they are
allowed by law to compel the other to observe the proper form and
this right may be exercised simultaneously with the action to
enforce the contract. It is essential however that the contract be
both valid and enforceable (Article 1357).

CONTRACTS WHICH MUST APPEAR IN A PUBLIC DOCUMENT (Article 1358)

A. Acts and contracts which have for their object the creation,
transmission, modification or extinguishment of real rights over
immovable property.

B. The cession, repudiation or renunciation of hereditary rights or of

those of the conjugal partnership of gains.
RULES REGARDING FORM
C. The power to administer property, or any other power which has for its
object an act appearing or which should appear in a public document,
or should prejudice a third person.

D. The cession of actions or rights proceeding from an act appearing

in a public document.
CHAPTER 4
REFORMATION OF
INSTRUMENTS (n)
REFORMATION OF INSTRUMENTS
REFORMATION (Article 1359)
- That remedy in equity by means of which a written instrument is made
or construed so as to express or conform to the real intention of the
parties when by reason of mistake, fraud, inequitable conduct, or accident,
the instrument fails to express such agreement or intention.
REQUISITES FOR THE ACTION FOR REFORMATION
A. There must be meeting of the minds of the parties to the contract.
B. The true intention or agreement of the parties is not expressed in the written
instrument.
C. The failure to express the true intention is due to mistake, fraud,
inequitable conduct, or accident.
D. The facts upon which relief by way of reformation of the instrument is
sought are put in issue by the pleadings.
REFORMATION OF INSTRUMENTS
E. There must be clear and convincing proof of the mistake, fraud,
inequitable conduct, or accident.

F. It must be brought within the proper prescriptive period of 10 years.

G. The document must not refer to a simple unconditional donation

intervivos, wills or to a contract where the real agreement is void.

WHEN REFORMATION IS PROPER

A. Article 1361 - Mutual mistake.

B. Article 1362 - Mistake on one side and fraud or inequitable conduct on the other
side.

C. Article 1363 - Concealment of mistake by the other party.

REFORMATION OF INSTRUMENTS
D. Article 1364 - Ignorance, lack of skill, negligence, or bad faith on the
part of a third person.

E. Article 1365 - Mortgage or pledge stated as sale.

F. Article 1346 - Relative simulation that does not prejudice a third

person and is not unlawful.

PRINCIPLES OF THE GENERAL LAW ON REFORMATION (Article 1360)

- In case of conflict between the provisions of the New Civil
Code and the principles of general law on reformation, the former
prevails. The latter will have only suppletory effect.
REFORMATION OF INSTRUMENTS
MUTUAL MISTAKE (Article 1361)
- A mistake of fact that is common to both parties of the instrument
which causes the failure of the instrument to express their true
intention.

REQUISITES

A. The mistake must be of fact (Article 1331).

B. Such mistake must be proved by clear and convincing evidence.

C. The mistake must be mutual, that is, common to both parties to the
instrument.

D. The mistake must cause the failure of the instrument to express the
true intention of the parties.
REFORMATION OF INSTRUMENTS
MISTAKE ON ONE SIDE, FRAUD OR INEQUITABLE CONDUCT ON THE OTHER (Article
1362)
- The mistake is unilateral but the other party acted fraudulently
or inequitably. The right to ask for reformation is granted only to
the party who was mistaken since the mistake is not mutual.

CONCEALMENT OF MISTAKE BY THE OTHER PARTY (Article 1363)

- The mistake is unilateral but the other party is guilty of concealment.
The remedy of reformation may be availed of the party who
acted in good faith. The concealment of the mistake by the other
party constitutes fraud.
REFORMATION OF INSTRUMENTS
IGNORANCE, LACK OF SKILL, NEGLIGENCE, OR BAD FAITH ON THE
PART OF THIRD PERSON (Article 1364)
- Neither party is responsible for the mistake. Either party
may ask for reformation.
- The court may order the reformation of the instrument if the
instrument does not convey the true intention of the parties
because of the ignorance, lack of skill, or bad faith of the drafter of
the instrument, or the clerk, or the typist.

MORTGAGE OR PLEDGE STATED AS A SALE (Article 1365)

- The reformation of the instrument is proper; otherwise the true
intention of the parties would be frustrated. Such true intention
must prevail for the contract
must be complied with in good faith.
- The intent of the parties can be adjudged from their
contemporaneous and subsequent acts.
REFORMATION OF INSTRUMENTS
CASES WHEN REFORMATION IS NOT ALLOWED

A. SIMPLE DONATIONS INTERVIVOSWHERE NO CONDITION IS IMPOSED (Article

1366)
- The act is essentially gratuitous and the donee has no just cause
for complaint. The donor is not bound to correct mistakes or
defects in the deed of donation which in the first place he was not
bound to make. Of course, the donor may ask for the reformation of
a deed of donation.

B. WILLS (Article 1366)

- The making of a will is a strictly personal and free act, hence upon
the death of the testator, the right to reformation is lost.
Furthermore, a will may be revoked by the testator any time
before his death. However, after the death of the testator,
errors or imperfections in descriptions may be corrected under
Article 789, but not the manner of property disposal.
 REFORMATION OF INSTRUMENTS
C. WHEN THE REAL AGREEMENT IS VOID (Article 1366)
- If the real agreement is void, there is nothing to reform.

D. WHEN ONE PARTY HAS BROUGHT AN ACTION TO ENFORCE THE INSTRUMENT

(Article
1367)
- Based on estoppel or ratification. When a party brings an action to
enforce the contract, he admits its validity and that it expresses
the true intention of the parties. The bringing of the action is thus
inconsistent with reformation.
REFORMATION OF INSTRUMENTS
PARTY ENTITLED TO REFORMATION (Article 1368)

A. Either of the parties, if the mistake is mutual under Articles 1361, 1364, and
1365.

B. In all other cases, the injured party, under Articles 1362, 1363, 1364, and
1365.

C. The heirs or successors-in-interest, in lieu of the party entitled.

PROCEDURE FOR REFORMATION (Article 1369)

- The Rules of Court governs procedure. However, no rules
have yet been promulgated.
CHAPTER 5
INTERPRETATION OF
CONTRACTS
INTERPRETATION OF CONTRACTS
INTERPRETATION OF CONTRACT
- The determination of the meaning of the terms or words used by the
parties in their written contract.
RULES IN INTERPRETATION OF CONTRACTS

A. LITERAL MEANING CONTROLS WHEN LANGUAGE IS CLEAR (Article 1370)

- If the terms of a contract are clear and unequivocal, the parties are
bound by such terms. The concern here is not what existed in the
minds of the parties but what intention is expressed in the language
used.

B. EVIDENT INTENTION OF PARTIES PREVAILS OVER TERMS OF CONTRACT (Article 1370)

- Where the 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 rule in the interpretation of contracts that the
intention of the parties should always prevail because their will has the
force of law between them.
INTERPRETATION OF CONTRACTS
C. CONTEMPORANEOUS AND SUBSEQUENT ACTS RELEVANT IN THE
DETERMINATION OF INTENTION (Article 1371)
- Where the parties to a contract have placed an interpretation to the
terms of the contract by their contemporaneous and/or subsequent
acts, as by acts in partial performance, such interpretation may be
considered by the court in determining its meaning and
ascertaining the intention of the parties when such intention
cannot clearly be ascertained from the words used in their contract.
- Antecedent circumstances may also be considered.

D. SPECIAL INTENT PREVAILS OVER A GENERAL INTENT (Article 1372)

- The special provisions control over the general provisions when the
two cannot stand together. A reference to a special matter means
that attention was given to that particular matter and it must be
assumed that it expresses their intent. A reference to a general
matter within which a particular matter may be included, does not
mean that the parties had that particular matter in mind.
INTERPRETATION OF CONTRACTS
E. PRINCIPLE OF EFFECTIVENESS (Article 1373)
- When an agreement is susceptible of several meanings, one of
which would render it effectual, it should be given that
interpretation. If one interpretation makes a contract valid and the
other makes it illegal, the former interpretation will prevail.

F. INTERPRETATION OF VARIOUS STIPULATIONS OF A CONTRACT (Article 1374)

- A contract must be interpreted as a whole and the intention of the
parties is to be gathered from the entire instrument and not from
particular words, phrases, or clauses. All provisions should, if
possible, be so interpreted as to harmonize with each other.
INTERPRETATION OF CONTRACTS
G. INTERPRETATION OF WORDS WITH DIFFERENT SIGNIFICATIONS (Article 1375)
- If a word is susceptible of two or more meanings, it is to be
understood in that sense which is most in keeping with the nature
and object of the contract in line with the cardinal rule that the
intention of the parties must prevail.

H. RESORT TO USAGE OR CUSTOM ASAID IN INTERPRETATION (Article 1376)

- The usage or custom or the place where the contract was entered
into may be received to explain what is doubtful or ambiguous in a
contract on the theory that the parties entered into their contract with
reference to such usage or custom.
- It is necessary to prove the existence of usage or custom, the
burden of proof being upon the party alleging it. Usage or custom
is not admissible to supersede or vary the plain terms of a contract.
INTERPRETATION OF CONTRACTS
I. INTERPRETATION OF OBSCURE WORDS (Article 1377)
– In case of doubt, a written agreement should be interpreted against
the part who has drawn it, or be given an interpretation which will
be favorable to the other who, upon the faith of which, has
incurred an obligation. Since he caused the obscurity, the party
who drew up the contract with ambiguous terms should be
responsible therefore; so the obscurity must be construed against
him.
– The party who drafts the contract, more easily than the other,
could have prevented mistakes or ambiguity in meaning by
careful choice of words and general, the party who causes the
obscurity acts with ulterior motives.

CONTRACTS OF ADHESION
– Contracts most of the term of which do not result from mutual
negotiation
between the parties as they are usually prescribed in printed
forms prepared by one party to which the other party merely
“adheres” if he chooses but which he cannot change.
INTERPRETATION OF CONTRACTS
RULES IN CASE OF DOUBTS AS TO INCIDENTAL CIRCUMSTANCES (Article 1378)

A. LEAST TRANSMISSION OF RIGHTS AND INTERESTS

- Applies when the doubts refer to incidental circumstances of
gratuitous contracts.

B. GREATEST RECIPROCITY OF INTERESTS

- Applies when the doubts refer to incidental circumstances of onerous
contracts.

C. PRINCIPAL OBJECT IS DOUBTFUL

- If the doubt refers to the principal object of the contract and such
doubt cannot be resolved thereby leaving the intention of the
parties unknown, the contract is null and void.
CHAPTER 6
RESCISSIBLE CONTRACTS
RES CISSIBLE CONTRACT S
RESCISSIBLE CONTRACTS (Article 1380)
- Those that are validly agreed upon and enforceable because all
the essential elements exist and, therefore, legally effective, but in
the cases established by law, the remedy of rescission is granted
by the court in the interest of equity when there is economic
damage or prejudice or lesion to one of the parties or to a third
person. There is actually no defect at all but by reason of some
extrinsic defect, its enforcement would cause injustice.
RES CISSIBLE CONTRACT S
KINDS OF RESCISSIBLE CONTRACTS (Article 1381)

A. Contracts entered into in behalf of wards.

B. Contracts agreed upon in representation of absentees.

C. Contracts undertaken in fraud of creditors.

D. Contracts which refer to things under litigation.

E. Other instances. (Articles 1098, 1189, 1191, 1382, 1526 and 1534,
1539, 1542, 1556, 1560, 1567, 1599, and 1659.
RES CISSIBLE CONTRACT S
CONTRACTS APPROVED BY THE COURTS (Article 1386)
- If a contract entered into in behalf of a ward or absentee has been
approved by the court, rescission cannot take place because it is
valid whether or not there is lesion. The law presumes that the court
is acting in the interests of the ward or absentee when it approves
the contract despite of the lesion.
 RESCISSIBLE PAYMENT
PAYMENTS MADE IN A STATE OF INSOLVENCY (1382)
- Payments made for obligations to whose fulfillment the debtor
could not be compelled at the time they were effected. Includes
obligations which are not yet due and demandable but also those
which cannot be legally demanded such as natural obligations and
those that have prescribed.
 RESC ISSIO N
NATURE OF ACTION FOR RESCISSION (Articles 1383 and 1384)
- Rescission is not a principal remedy. It is merely a subsidiary
remedy. It can be availed of only if the injured party proves that he
has no other legal means aside from rescinding the contract to
obtain redress for the damage caused. If the damage is repaired,
rescission cannot take place.

RESCISSION CREATES OBLIGATION OF MUTUAL RESTITUTION (Article 1385)

- The purpose of rescission is to restore the parties to their original
situation. The law presumes that the party who received the object
of the contract has enjoyed the fruits thereof while the other has
used the money which is the price of the object.
 RESC ISSIO N
PERIOD FOR FILING ACTION FOR RESCISSION (Article 1389)

A. GENERAL RULE
- The action to claim rescission must be commenced within four
years from the date the contract was entered into.

B. EXCEPTIONS

1. For persons under guardianship, the period shall begin from the
termination of incapacity.

2. For absentees, from the time the domicile is known.

 RESC ISSIO N
PERSONS ENTITLED TO BRING ACTION FOR RESCISSION

A. The injured party or the defrauded creditor.

B. The heirs, assigns, or successors-in-interest.

C. The creditors of the above entitled to subrogation.

 BADGES OF FRAUD
WHEN ALIENATION PRESUMED IN FRAUD OF CREDITORS (Article 1387)
- Prima facie presumption of fraud in case of alienation by the
debtor of his property. The enumeration is not exclusive.

A. GRATUITOUS ALIENATION
- Presumed fraudulent when the debtor did not reserve sufficient
property to pay all debts contracted before the donation.
B. ONEROUS ALIENATION

1. Presumed to be fraudulent when made by persons against whom

some judgment has been rendered in any instance even if not yet a
final judgment.

2. When made by persons against whom some writ of attachment has been
issued.
 BADGES OF FRAUD
BADGES OF FRAUD
- Circumstances indicating that certain alienation have been made
in fraud of creditors.

CIRCUMSTANCES DENOMINATED AS BADGES OF FRAUD

A. The fact that the consideration of the conveyance is fictitious or inadequate.

B. A transfer made by a debtor after suit has been begun and while
it is pending against him.

C. A sale upon credit by an insolvent debtor.

 BADGES OF FRAUD
D. The transfer of all or nearly all of his property by a debtor, especially
when he is
insolvent or greatly embarrassed financially.

E. The fact that the transfer is made between father and son, when
the fact is
considered together with preceding circumstances.

F. The failure of the vendee to take exclusive possession of all the property.

G. It was known to the vendee that the vendor had no properties other
than that sold to him.
 PURCHASER IN BAD FAITH
LIABILITY OF PURCHASER IN BAD FAITH (Article 1388)
– The purchaser in bad faith, who acquired the object of the
contract alienated in fraud of creditors, must return the same if the
sale is rescinded and should it be impossible for him to return it, due
to any cause, he must indemnify the creditor.

EFFECT OF BAD FAITH

A. The acquirer must return or indemnify.

B. “Due to any cause” includes a fortuitous event.

 PURCHASER IN BAD FAITH
SUBSEQUENT TRANSFERS

A. If the first transferee is in good faith, the good or bad faith of the
next transferee is not important.

B. If the first transferee is in bad faith, the next transferee is liable only
if he is also in bad faith.
CHAPTER 7
VOIDABLE CONTRACTS
VOIDABLE CONTRACTS
VOIDABLE or ANNULLABLE CONTRACTS
- Those which possess all the essential requisites of a valid contract
but one of the parties is incapable of giving consent, or consent is
vitiated by mistake, violence, intimidation, undue influence, or fraud.
- These contracts are valid and binding between the parties unless
annulled by a proper court action. Once ratified, they become
absolutely valid and can no longer be annulled.

KINDS OF VOIDABLE CONTRACTS (Article 1390)

A. Legal incapacity to give consent, where one of the parties is

incapable of giving consent to the contract.

B. Violation of consent, where the vitiation is done by mistake,

violence, intimidation, undue influence, or fraud.
 RATIFICATION
RATIFICATION
- One voluntarily adopts some defective or unauthorized contract which,
without
his subsequent approval or consent, would not be binding on him.
- It cleanses the contract from all its defects from the moment it was
constituted.
(Article 1396)
- Extinguishes an action to annul avoidable contract. (Article 1392)
- Ratification maybe effected expressly or tacitly. (Article 1393)
- Ratification does not require the conformity of the contracting party
who has no right to bring the action for annulment. (Article 1395)
 RATIFICATION
PERSONS WHO MAY RATIFY (Article 1394)

A. IN CASE OF INCAPACITY

1. Guardian.

2. Injured party himself provided he is already capacitated.

B. IN CASE OF VITIATED CONSENT

- Party whose consent is vitiated.
 ANNULMENT
ANNULMENT
- A remedy provided by law, for reason of public interest, for the
declaration of the inefficacy of a contract based on a defect or
vice in the consent of one of the contracting parties in order to
restore them to their original position in which they were before
the contract was executed.

PARTY ENTITLED TO BRING ACTION TO ANNUL (Article 1397)

A. The plaintiff who must have an interest in the contract.

B. The victim and not the party responsible for the defect is the
person who must assert the same.
 ANNULMENT
PERIOD FOR FILING ACTION FOR ANNULMENT (Article 1391)

A. In cases of intimidation, violence, or undue influence, four years from

the time the intimidation, etc. ceases.

B. In case of mistake or fraud, four years from the time it is discovered.

C. In case of contracts entered into by minors or other incapacitated

persons, four years from the time the guardianship ceases.
 ANNULMENT
DUTY OF MUTUAL RESTITUTION (Article 1398)

A. If the contract is annulled, the parties, as a general rule, must restore

to each other the subject matter of the contract and the price thereof
with legal interest.

B. In personal obligations where the service has already been

rendered, the value thereof with the corresponding interest, is the
basis for damages recoverable from the party benefited by the service.

RESTITUTION BY AN INCAPACITATED PERSON (Article 1399)

- This is an exception to the general rule of mutual restitution laid
down in Article 1398. The incapacitated person is obliged to make
restitution only to the extent that he was benefited by the thing or
price received by him.
 ANNULMENT
EFFECT OF LOSS OF THING TO BE RETURNED BY THE GUILTY PARTY
(DEFENDANT) (Article 1400)

A. If the thing to be returned is lost without the fault of the person

obliged to make restitution (defendant), there is no more obligation to
return such thing but the other cannot be compelled to restore what
in virtue of the decree of annulment he is bound to return.

B. If it is lost through the fault of the person obliged to make

restitution (defendant), his obligation is not extinguished but is
converted into an indemnity for damages
consisting of the value of the thing at the time of the loss with
interest from the same date and the fruits received from the time the
thing was given to him to the time of its loss.
 ANNULMENT
EFFECT OF LOSS OF THE THING TO BE RETURNED BY THE INNOCENT PARTY
(PLAINTIFF)
- 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. (Article 1401)
- If the loss is not due to his fault or fraud, there is no annulment
if the party cannot restore what he is bound to return. This is true
even if the loss is due to a fortuitous event. (Article 1402) If an
innocent party asks for annulment but the thing he is supposed to
return is lost by a fortuitous event, there may still be restitution
provided he offers to give the value of the thing lost but he does
not have to give interest in view of the fortuitous event.
CHAPTER 8
UNENFORCEABLE
CONTRACTS
UNENFORCEABLE CONTRACTS
UNENFORCEABLE CONTRACTS
- Although valid, they are unenforceable in court unless they are
cured or ratified. Thus, it is as if they have no effect yet. Once
ratified, these contracts may then be enforceable and they can have
in such a case the effect of valid contracts. In one sense, therefore,
they maybe called validable.

RIGHT OF THIRD PERSONS TO ASSAIL AN UNENFORCEABLE CONTRACT (Article

1408)
- Strangers to an unenforceable contract cannot bring an action
to assail or question an unenforceable contract.
UNENFORCEABLE CONTRACTS
KINDS OF UNENFORCEABLE CONTRACTS (Article 1403)

A. Those unauthorized contracts i.e. those entered into in the name of

another by one without, or acting in excess of, authority.

B. Those that do not comply with the Statute of Frauds and Perjuries.

C. Those where both parties are incapable of giving consent to the contract.
UNAUTHORIZED CONTRA CTS
UNAUTHORIZED CONTRACTS (Articles 1317, 1403, and 1404)
– Those entered into in the name of another person by one who has
been given no authority or legal representation or who has acted
beyond his powers.
– Such contract must be ratified to become effective against the
person allegedly represented. Without ratification, the “agent”
assumes personal liability. The ratification must be clear and
express so as not to admit of any doubt of vagueness.
STATUTE OF FRAUDS AND PERJURIES
STATUTE OF FRAUDS AND PERJURIES
- It has been enacted not only to prevent fraud but also to guard
against the mistakes of honest men by requiring that certain
agreements specified that are susceptible to fraud must be in
writing; otherwise they are unenforceable by action in court.
- They are ratified by the failure to object to the presentation of
oral evidence to prove the same, or by acceptance of benefits under
them. (Article 1405)
- It is a Rule of Exclusion, that is, oral evidence might be
relevant to the agreements enumerated therein and might
therefore be admissible were it not for the fact that the law or the
statute excludes said oral evidence.
STATUTE OF FRAUDS AND PERJURIES
RULES OF APPLICATION OF THE STATUTE OF FRAUDS

A. The Statute of Frauds is not applicable in actions which are neither

for damages because of a violation of a contract, nor for the specific
performance thereof.

B. It is applicable only to executory contracts and not to contracts which

are totally or partially performed.

C. It is not applicable where the contract is admitted expressly, or

impliedly by the failure to deny specifically its existence, no further
evidence thereof being required
in such case.
D. It is applicable only to agreements enumerated therein.
STATUTE OF FRAUDS AND PERJURIES
E. It is not applicable where a writing does not express the true
agreement of the parties.

F. It does not declare that contracts infringing it are void but merely
unenforceable.

G. The defense of the Statute of Frauds is personal to the parties

and cannot be interposed by strangers to the contract.
STATUTE OF FRAUDS AND PERJURIES
AGREEMENTS WITHIN THE SCOPE OF THE STATUTE OF FRAUDS (Article 1403)

A. An agreement that by its terms is not to be performed within a year

from the making thereof.
B. A special promise to answer for the debt, default, or miscarriage of another.

C. An agreement made in consideration of marriage, other than a mutual promise to

marry.

D. An agreement for the sale of goods, chattels or things in action, at a price

not less than five hundred pesos, unless the buyer accept and receive part of
such goods and chattels, or the evidences, or some of them, of such things
in action or pay at the time some part of the purchase money; but when a
sale is made by auction and entry is made by the auctioneer in his sales book,
at the time of the sale, of the amount and kind of property sold, terms of
sale, price, names of the purchasers and person on whose account the sale
is made, it is a sufficient memorandum.
STATUTE OF FRAUDS AND PERJURIES
E. An agreement of the leasing for a longer period than one year, or for
the sale of real property or of an interest therein.

F. A representation as to the credit of a third person.

MODES OF RATIFICATION OF A CONTRACT COVERED BY THE STATUTE OF

FRAUDS AND PERJURIES (Article 1405)

A. By failure to object to the presentation of oral evidence to prove the

contract. The failure to so object amounts to a waiver and makes the
contract as binding as if it has been reduced to writing.

B. By acceptance of benefits under the contract. In this case, the

contact is no longer executoryand therefore, the Statute does not
apply.
NCAPACITY OF CONTRACTIN G PARTIES
RATIFICATION OF AN UNENFORCEABLE CONTRACT DUE TO THE INCAPACITY
OF THE
CONTRACTING PARTIES (Article 1407)

A. WHEN AN UNENFORCEABLE CONTRACT BECOMES AVOIDABLE CONTRACT

- If the parent or guardian, as the case may be, of either party, or
if one of the parties after attaining or regaining capacity, ratifies
the contract, it becomes voidable.

B. WHEN AN UNENFORCEABLE CONTRACT BECOMES A VALID CONTRACT

- If the ratification is made by the parents or guardians, as the case maybe,
of both
contracting parties, or by both contracting parties after attaining
or regaining capacity, the contract is validated and its validity
retroacts to the time it was entered into.
CHAPTER 9
VOID CONTRACTS
VOID CONTRACTS
VOID CONTRACTS
- Those which, because of certain defects, generally produces no effect at
all. They are considered as inexistent from its inception or from the very
beginning.

SPECIAL CLASSIFICATIONS OF VOID CONTRACTS

- In the case of Liguezv. Lopez, 102 Phil. 577, the Supreme Court, stated
that there are two kinds of VOID contracts:

A. INEXISTENT CONTRACT
- Agreements which lack one or some or all of the elements or do not
comply with formalities which are essential for the existence of a contract.

B. ILLEGAL OR ILLICIT CONTRACT

- May produce effects under certain circumstances where the parties are
not of equal guilt.
VOID CONTRACTS
CHARACTERISTICS OF AVOID OR INEXISTENT CONTRACT

A. Generally, it produces no force and effect whatsoever.

B. It cannot be ratified. (Article 1409)

C. The right to set up the defense of illegality cannot be waived.

D. The action or defense for the declaration of its inexistence does not prescribe.
(Article 1410)

E. The defense of illegality is not available to third persons whose interests

are not directly affected. (Article 1421)

F. It cannot give rise to a valid contract. (Article 1422)

VOID CONTRACTS
INSTANCES OF VOID CONTRACTS

A. Contracts whose cause, object, or purpose is contrary to law, etc. (Articles 1306 and
1416)

B. Contracts which are absolutely simulated or fictitious. (Articles 1345 and 1346)

C. Contracts without cause or object. (Articles 1347, 1352, and 1353)

D. Contracts whose object is outside the commerce of men. (Articles 1347 and 1348)

E. Contracts which contemplate an impossible service. (Articles 1347 and 1348)

F. Contracts where the intention of the parties relative to the object cannot
be ascertained. (Article 1378)

G. Contracts expressly prohibited or declared void by law.

VOID CONTRACTS
CONTRACTS EXPRESSLY PROHIBITED OR DECLARED VOID BY LAW

A. Contracts upon future inheritance except in cases expressly

authorized by law. (Article 1347)

B. Sale of property between husband and wife except when there is a

separation of property. (Article 1490)

C. Purchase of property by persons who are specially disqualified by law

because of
their position or relation with the person or property under their care. (Article
1491)

D. Donation between the spouses during their marriage except

moderate gifts on the occasion of any family rejoicing. (Article 87,
Family Code of the Philippines, Executive Order No. 209 as
amended, December 13, 1989)
VOID CONTRACTS
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. (Article 1031)

F. Any stipulation that household service shall be without

compensation is void. (Article 1689)

G. Members of congress are prohibited from being financially

interested, directly or indirectly, in any contract with the government
or any subdivision or instrumentality thereof. (Articles 1782, 1874,
2035, 2088, and 2130 and Section 14, Article VI, The Constitution of
the Republic of the Philippines, February 2, 1987)
LLEGAL AND CRIMINAL CONTR ACTS
RULES WHERE CONTRACT IS ILLEGAL AND THE ACT CONSTITUTES A CRIMINAL OFFENSE (Article
1411)

A. WHERE BOTH PARTIES ARE IN PARIDELICTO

1. The parties shall have no action against each other.

2. Both shall be prosecuted.

3. The things or the price of the contract, as the effects or instruments of the
crime, shall be confiscated in favor of the government.

B. WHERE ONLY ONE PARTY IS GUILTY

1. The guilty party will be prosecuted.
2. The instrument of the crime or object of the contract will be confiscated.
3. 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.
LLEGAL BUT NOT CRIMINAL CONTRACTS
RULES WHERE CONTRACT IS ILLEGAL BUT THE ACT DOES NOT CONSTITUTE A CRIMINAL
OFFENSE (Article 1412)
A. WHERE BOTH PARTIES ARE IN PARIDELICTO
1. Neither party may recover what he has given by virtue of the contract.
2. Neither party may demand the performance of the other’sundertaking.

B. WHERE ONLY ONE PARTY IS GUILTY

1. The guilty party loses what he has given by reason of the contract.

2. The guilty party cannot ask for the fulfillment of the other’s undertaking.

3. The innocent party may demand the return of what he has given.

4. The innocent party cannot be compelled to comply with his promise.

REC OVER Y
RULES FOR RECOVERY

A. RECOVERY OF EXCESSIVE INTEREST (Article 1413)

- The entire interest agreed upon may be recovered, not merely that
in excess of those allowed by law.

B. RECOVERY WHERE CONTRACT ENTERED INTO FOR ILLEGAL PURPOSE (Article

1414)
- Provided the contract is repudiated before the purpose has been
accomplished or before any damage has been caused to a third
person. The court considers that public interest will be subserved by
allowing recovery.

C. RECOVERY BY INCAPACITATED PERSON (Article 1415)

- Recovery can be allowed if one of the parties is incapacitated and
the interest of justice so demands.
RECOVERY
D. RECOVERY WHERE CONTRACT IS NOT ILLEGAL PERSE(Article 1416)
- Prohibition is designed for the protection of the plaintiff. Public policy would be
enhanced
by allowing the plaintiff to recover what he has paid or delivered.
E. RECOVERY OF AMOUNT PAID IN EXCESS OF CEILING PRICE (Article 1417)
- Recovery of any amount paid in excess of the ceiling price is allowed to
curb the evils of profiteering or black-marketing.

F. RECOVERY OF ADDITIONAL COMPENSATION FOR SERVICES RENDERED BEYOND

TIME LIMIT
(Article 1418)
- The normal hours of work of any employee shall not exceed eight hours a
day. The law allows recovery of overtime pay in casework exceeds eight
hours.

G. RECOVERY OF AMOUNT OF WAGE LESS THAN MINIMUM FIXED (Article 1419)

- If an employee receives less than minimum wage rate, he can still recover
the deficiency with legal interest and the employershall be criminally liable.
FFECT OF ILLEG ALIT Y
EFFECT OF ILLEGALITY WHERE CONTRACT INDIVISIBLE OR DIVISIBLE (Article 1420)

A. 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.

B. Where the contract is divisible as when the consideration is made

up of several parts, and the illegal ones can be separated from the
legal portions, the latter may beenforced. The rule is subject to the
contrary intention of the parties.