1156. An obligation is a juridical necessity to give, to do, or not to do.

JURIDICAL NECESSITY juridical tie; connotes that in case of noncompliance, there will be legal
sanctions.
- An obligation is nothing more than the duty of a person (obligor) to satisfy a specific demandable
claim of another person
(obligee) which, if breached, is enforceable in court.
- A contract necessarily gives rise to an obligation but an obligation does not always need to have a
contract.

KINDS OF OBLIGATION

A. From the viewpoint of sanction

1. CIVIL OBLIGATION that defined in Article 1156; an obligation, if not fulfilled when it becomes due
and
demandable, may be enforced in court through action; based on law; the sanction is judicial due
process
2. NATURAL OBLIGATION defined in Article 1423; a special kind of obligation which cannot be
enforced in court
but which authorizes the retention of the voluntary payment or performance made by the debtor;
based on equity
and natural law. (i.e. when there is prescription of duty to pay, still, the obligor paid his dues to the
obligee the obligor cannot recover his payment even there is prescription) the sanction is the law,
but only conscience had originally motivated the payment.
3. MORAL OBLIGATION the sanction is conscience or morality, or the law of the church. (Note: If a
Catholic
promises to hear mass for 10 consecutive Sundays in order to receive P1,000, this obligation
becomes a civil one.)

B. From the viewpoint of subject matter

1. REAL OBLIGATION the obligation to give

2. PERSONAL OBLIGATION the obligation to do or not to do (e.g. the duty to paint a house, or to
refrain from
committing a nuisance)
C. From the affirmativeness and negativeness of the obligation 1. POSITIVE OR AFFIRMATIVE OBLIGATION the obligation to give or to do
2. NEGATIVE OBLIGATION the obligation not to do
Art. 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;

(4) Acts or omissions punished by law; and

(5) Quasi-delicts. (1089a)
JURADO: **The addition of lege has been criticized as
theoretically erroneous.
Art. 1158. Obligations derived from law are not presumed. Only those expressly determined in this
Code or in special laws are demandable, and shall be regulated by the precepts of the law which
establishes them; and as to what has not been foreseen, by the provisions of this Book. (1090)
NOTE: if the law only regulates the act, the source is not the law but the act itself.
Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and
should be complied with in good faith. (1091a)
Contract-meeting of minds between two persons
whereby one binds himself, with respect to the
other, to give something or to render some service.
Consensual contracts- contracts perfected by
mere consent, and from that moment the parties
are bound not only to the fulfillment of what has
been expressly stipulated but also to all of the
consequences which according to their nature may
be in keeping with good faith, usage and law.
Real Contracts- perfected upon the delivery of
the obligation.
Art. 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1,
Title XVII, of this Book. (n)
Negotiorum gestio
Solutio indebiti
Presumptive consent- consent given by law if
there is no express consent given by the other
party
--gives rise to multiple juridical relations resulting in
obligations for delivery of the thing or rendering of
service.
Art. 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws, subject
to the provisions of Article 2177, and of the pertinent provisions of Chapter 2, Preliminary Title, on
Human Relations, and of Title XVIII of this Book, regulating damages. (1092a)
Effects of acquittal:
Not proven beyond reasonable doubt- may still institute a civil suit
Nonexistence of commission of offense- No recovery for damages
except: treason, rebellion, illegal possession of
firearms and gambling.
Enforcement of civil liability

1. institution of criminal and civil actions- civil

action impliedly instituted, except:
i. express waive of the civil action
ii. reservation of right to institute it
separately, or
iii. institution of the civil action prior to the
criminal action.
2. independent civil action
3. other civil actions arising from offense
Art. 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2,
Title XVII of this Book, and by special laws. (1093a)
by his acts or omission, connected or unconnected
with, but independent from, any contractual
relation, causes damage to another person.
-covers not only those that are not punished by law
but also those acts which are voluntary and
negligent
4 reasons: cited in Barredo vs Gracia
CHAPTER 2
NATURE AND EFFECT OF OBLIGATIONS

Art. 1163. Every person obliged to give something is also obliged to take care of it with the proper
diligence of a good father of a family, unless the law or the stipulation of the parties requires another
standard of care. (1094a)
Art. 1163-1166 Obligation to Give
diligence of a good father of a family
- standard normal state of diligence
-ordinary diligence
obligations to give
determinate- the object is particularly
designated or physically segregated from
all others of the same class (Art. 1163
applies particularly to determinate object)
generic- the object is merely designated
by its class or genus without any particular
designation or physical segregation from all
others of the same class. (e.g. money)
***Art. 1163 is a guaranty that the debtor will
comply with the obligation.
Nature of right of the creditor
--The obligee/creditor has the right to the
thing which is the object of the obligation as
well as the fruits thereof from the time the
obligation to deliver it arises. (Art. 1164)

Art. 1164. 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. (1095)
Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right
granted him by Article 1170, may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense
of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or more persons who do not
have the same interest, he shall be responsible for any fortuitous event until he has effected the
delivery. (1096)
Art. 1166. The obligation to give a determinate thing includes that of delivering all its accessions and
accessories, even though they may not have been mentioned. (1097a)
Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
positive personal obligation)
**If the obligor fails to do what he has obligated
himself to do, the obligee can have the obligation
performed or executed at the expense of the latter
and recover damages .
**This type of obligation recognizes individual
freedom, the obligor cannot be compelled to do
what he has obligated himself to do.
Remedy for obligee/creditor: performance of the
obligation at the expense of the obligor
(in case there has been a performance of the
obligation but in contravention of the tenor thereof)
to have the obligation performed at the
expense of the obligor
to ask that what has been poorly done be
undone
to recover damages for breach of
obligation
This same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been poorly done be undone. (1098)
Art. 1168. When the obligation consists in not doing, and the obligor does what has been forbidden
him, it shall also be undone at his expense. (1099a)
-fulfilled or realized so long the obligor does not do
what is forbidden
Remedy for obligee in case of breach:
to have it undone at the expense of the
obligor (Art. 1168)
exception (cannot be undone):
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the designation of
the time when the thing is to be delivered or the service is to be rendered was a controlling motive for
the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to
perform.
General Rule: Unless there is no demand there is
no delay.
***In reciprocal obligation, the moment the other
party complied with his obligation failure to comply
will cause the other party to be in delay
Default(mora)- signifies delay in the fulfillment of
an obligation with respect to time.
***The mere stipulation of a date when the
obligation is due does not by itself dispense with
the necessity of a demand, unless there is an
express stipulation (either by law or contract) that
the debtor will incur delay without need of a
demand.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins. (1100a)
Art. 1170. 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. (1101)
(Art. 1170-1173)
Fraud (dolo)- consist in the conscious and
intentional proposition to evade the normal
fulfillment of an obligation
damages.
***Fraud or dolo is synonymous with bad faith.
***Waiver or renunciation of liability made in
anticipation of the fraud is VOID. (Art. 1171)
***Waiver or renunciation of liability made after the
fraud has already been committed is VALID.
***What is renounced is the effect of fraud or the
right of the party to indemnity.
Art. 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action
for future fraud is void. (1102a)
Art. 1172. Responsibility arising from negligence in the performance of every kind of obligation is also
demandable, but such liability may be regulated by the courts, according to the circumstances. (1103)
Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is
required by the nature of the obligation and corresponds with the circumstances of the persons, of the
time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201,
paragraph 2, shall apply.

If the law or contract does not state the diligence which is to be observed in the performance, that
which is expected of a good father of a family shall be required. (1104a)
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which, though foreseen, were inevitable.
(1105a)
Fortuitous event (caso fortuito)- event which
could have not been foreseen, or though foreseen,
were inevitable
in the obligation is a fortuitous event, the obligor is
exempted from liability whatsoever.
EXCEPT:
1. where such liability is expressly specified
by law;
2. where it is declared by stipulation of the
parties;
3. where the nature of the obligation requires
the assumption of risk.
-(volenti non fit injuria) no wrong is
done to one who consents
***Art. 1174 applies only to determinate obligations
and not to generic ones.
Art. 1175. Usurious transactions shall be governed by special laws. (n)
Usury- contracting for or receiving something in
excess of the amount allowed by law for the loan
or forbearance of money, goods or chattels.
-taking of more interest for the use of money,
goods, or chattels or credits than the law allows.
Usury Law (Act No. 2655) and other laws
amending it- special law referred to in Art. 1175.
Art. 1176. 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.
***There is a presumption that the interests has
been paid if on the face of the receipt that the
creditor issued to the obligor that the principal has
been paid without reservation with respect to the
interest. (in accordance with Art. 1253)
***If the debtor is issued a receipt by the creditor
acknowledging payment of a latter installment
without reservation to prior installments, there is
also a presumption that such prior installments
have already been paid.
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. (1110a)
Art. 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their
claims, may exercise all the rights and bring all the actions of the latter for the same purpose, save

those which are inherent in his person; they may also impugn the acts which the debtor may have
done to defraud them. (1111)
Remedies of creditor to protect credits:
1. to exhaust the property in possession of
the debtor;(Art. 2236, CC)
2. to be subrogated to all of the rights and
actions of the debtor to save those which
are inherent in hi person. (accion
subrogatoria)
Conditions:
that the debtor is indebted to the
creditor;
the creditor must be prejudiced by
the inaction of the debtor to
proceed against the third person;
the creditor must have first pursued
all of the properties of the debtor
which are not exempt from
execution.
3. to impugn all of the acts which the debtor
may have done to defraud him. (accion
pauliana)
Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there
has been no stipulation to the contrary. (1112)

General rule: Rights of obligations or those rights

which are acquired by virtue of an obligation are
transmissible in character.
Exceptions:
1. where they are not transmissible in their
very nature (i. e. purely personal rights);
2. where there are stipulations by the parties
that they are not transmissible;
3. where they are not transmissible by
operation of law.

CHAPTER 3
DIFFERENT KINDS OF OBLIGATIONS
SECTION 1. - Pure and Conditional Obligations

Art. 1179. Every obligation whose performance does not depend upon a future or uncertain event, or
upon a past event unknown to the parties, is demandable at once.
Every obligation which contains a resolutory condition shall also be demandable, without prejudice to
the effects of the happening of the event. (1113)
Pure Obligation- one whose effectivity or

extinguishment does not depend upon the

fulfillment or non-fulfillment of a condition or upon
the expiration of a term or period;
characterized by the quality of
immediate demandability, but there
must be a reasonable period of grace.
Condition- future and uncertain fact or event upon
which an obligation is subordinated or made to
depend.
Term/period- a term will surely pass and may or
may not know when exactly; characterized by
futurity and certainty
condition- it may or may not happen
Conditional obligations- one whose effectivity is
subordinated to the fulfillment or non-fulfillment of a
future and uncertain act or event.
Art. 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation
shall be deemed to be one with a period, subject to the provisions of Article 1197. (n)
Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of
those already acquired, shall depend upon the happening of the event which constitutes the condition.
(1114)
Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the
conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the
obligation shall take effect in conformity with the provisions of this Code. (1115)
Art. 1183. Impossible conditions, those contrary to good customs or public policy and those prohibited
by law shall annul the obligation which depends upon them. If the obligation is divisible, that part
thereof which is not affected by the impossible or unlawful condition shall be valid.
The condition not to do an impossible thing shall be considered as not having been agreed upon.
(1116a)
obligation, the obligation itself is Void.
***If the impossible condition is attached to a
simple donation or testamentary disposition, the
condition is not imposed, although the donation
or testamentary disposition itself is valid
.
***Total Absence of seriousness- reason why the
law invalidate the impossible condition & the
dependent obligation.
EXCEPTION: gratuitous disposition/donation;
because the moving force here is the generosity of
the donor.
***The impossibility of the condition should be
determined at the time the obligation is made or
constituted.
Art. 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. (1117)

Art. 1185. The condition that some event will not happen at a determinate time shall render the
obligation effective from the moment the time indicated has elapsed, or if it has become evident that
the event cannot occur.
If no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably
been contemplated, bearing in mind the nature of the obligation. (1118)
consideration the nature of the obligation, shall
govern if no time has been fixed for the fulfillment
of the condition. The same rule applies to
POSITIVE CONDITION.
Constructive Fulfillment of Suspensive
Condition- The condition shall be deemed fulfilled
when the obligor voluntarily prevents [the obligee
from] its fulfillment [of the condition].(Art. 1186)
-applicable only to Suspensive conditions
and not to Resolutory conditions.
***The prevention must have been done for the
precise purpose of preventing the condition.
Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.
(1119)
Art. 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall
retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes
reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition
shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall
appropriate the fruits and interests received, unless from the nature and circumstances of the
obligation it should be inferred that the intention of the person constituting the same was different.
In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the
condition that has been complied with. (1120)
Art. 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for the
preservation of his right.
The debtor may recover what during the same time he has paid by mistake in case of a suspensive
condition. (1121a)
Art. 1188, par. 1- Protection for the creditor
file an injunction to stop the debtor
does not necessarily always
involves court action in spite the
wordings of the law.
i.e. registration
Art. 1188, par. 2- protection for the debtor
Art. 1189. When the conditions have been imposed with the intention of suspending the efficacy of an
obligation to give, the following rules shall be observed in case of the improvement, loss or
deterioration of the thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;

(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is
understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a
way that its existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the
creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of
the obligation and its fulfillment, with indemnity for damages in either case;
***Rule in Art. 1189 are natural consequences of
the principle of retroactivity.
***Predicated on the fulfillment of the condition.
***Refer only to conditional obligations to give a
determinate thing
usufruct- right or enjoyment of a thing, the
property of which is vested in another and to draw
from the same all the profit, utilities, and advantage
it may produce without altering the form/substance
of the thing.
Loss
a thing is considered lost when it:
1. perishes;
2. goes out of commerce impossible to
legally transfer or re-acquire
3. disappears in such a way that its existence
is unknown or it cannot be recovered
Improvements
natural accessions: alluvion, avulsion,
abandoned river beds, island formed
***The debtor cannot ask for reimbursement for
expenses incurred for useful improvements or
improvements for pleasure.
***the debtor may have the right to remove such
improvements provided it is possible to do so
of resolutory condition; what was delivered need to
be returned.
***The fulfillment of a resolutory condition signifies
the nonexistence of the obligation, what is
nonexistent must no give rise to any effect
whatsoever.
******There is no provision of mutual compensation
of fruits and interests but in connection with the
concept of justice, restitution in Art. 1190 carries
with it the consequence of reimbursement for all
the expenses incurred for the production,
gathering, and preservation of the fruits.
***Mutual restitution is absolute in resolutory
conditions because the obligation is extinguished,
and it ceases to have effect thus does not carry
with it fruits and interests.

***In obligations to do or not to do, the retroactive

effects shall depend upon the discretion of the
courts.
***Art. 1189 is also applicable with regard the
effects of loss, deterioration, and improvements of
things during the pendency of resolutory condition.
***In Resolutory condition the debtor is the
person obliged to return while the creditor is the
person to whom the thing must be returned.
(5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the
creditor;
(6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the
usufructuary. (1122)
Art. 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the
parties, upon the fulfillment of said conditions, shall return to each other what they have received.
In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the
debtor, are laid down in the preceding article shall be applied to the party who is bound to return.
As for the obligations to do and not to do, the provisions of the second paragraph of Article 1187 shall
be observed as regards the effect of the extinguishment of the obligation. (1123)
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing,
in accordance with Articles 1385 and 1388 and the Mortgage Law. (1124)
Reciprocal obligation-created or established at
the same time, out of the same cause and which
results in the mutual relationship of creditor and
debtor between the parties.
-characterized by reciprocity; one obligation
is correlative of the other.
-bilateral in character.
-tacit resolutory condition.
***General rule: If one of the parties fails to
comply with what is incumbent upon him,there is a
right on the part of the other to rescind (or resolve)
the obligation.
Right of rescission- belongs to the injured party
alone.
-must be invoked judicially by filing the
proper action of rescission.
not absolute; the court is given the
discretionary power to fix a period

within which the obligor in default may

be permitted to comply with what is
incumbent upon him.
implied in reciprocal obligations(Art.
1191, par. 1)
***If the contract contains a resolutory provision by
virtue of which the obligation may be canceled or
extinguished by the injured party in case of breach
of obligation, judicial permission to cancel or
rescind the contract is no longer necessary. But the
Court may confirm such extra judicial rescission.
Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first
violated the contract, the same shall be deemed extinguished, and each shall bear his own damages.
(n)

Effect of breach by both parties

(Art. 1192)
Rules:
1. the liability of the first infractor shall be
equitably tempered by the courts.
-fair to both parties because the
second infractor also derived, or
thought he would derive, some
advantage for his own act or
neglect
2. If it cannot be determined which of the
parties first violated the contract, the same
shall be deemed extinguished, and each
shall bear his own damages
-it is presumed that both at about
the same time tried to reap some
benefit
Sec. 2. - Obligations with a Period
Term or Period- interval of time, which exerting an
influence on an obligation as a consequence of a
juridical act, either suspends its demandability or
produces its extinguishment.
Obligations with a period- obligations whose
demandability or extinguishment is subject to the
expiration of a term or a period.
SECTION 2. - Obligations with a Period

Art. 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable only
when that day comes.
Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.
A day certain is understood to be that which must necessarily come, although it may not be known
when.

If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall
be regulated by the rules of the preceding Section. (1125a)
Classification of term or period
1. suspensive or resolutory
a) suspensive (ex die) - demandable only
upon the arrival of a day certain.
b) resolutory (in diem) demandable at
once, although it is terminated upon the
arrival of a day certain
***day certain- which must necessarily
come, although it may not be known when.
2. legal, conventional, or judicial
a) legal- term or period granted by law
b) conventional- stipulated by the parties
c) judicial- fixed by the courts
3. definite or indefinite
a) definite- the date or time is known
beforehand
b) indefinite- can only be determined by
an even which must necessarily come
to pass, although it may not be known
Art. 1194. In case of loss, deterioration or improvement of the thing before the arrival of the day
certain, the rules in Article 1189 shall be observed. (n)
Art. 1195. Anything paid or delivered before the arrival of the period, the obligor being unaware of the
period or believing that the obligation has become due and demandable, may be recovered, with the
fruits and interests. (1126a)
Art. 1196. Whenever in an obligation a period is designated, it is presumed to have been established
for the benefit of both the creditor and the debtor, unless from the tenor of the same or other
circumstances it should appear that the period has been established in favor of one or of the other.
(1127)
General rule: a period designated for the
performance or fulfillment of an obligation is
presumed to have been established for the benefit
of both the creditor and the debtor.
Case: de Leon vs Syjuco
***If the tenor of the obligation or from other
circumstances that the term or period has been
established in favor of the creditor or of the debtor,
the general rule will not apply.
Judicial term or period- when fixed by a
competent court, the period can no longer be
judicially changed (Art. 1197, par. 3).
-becomes a law governing the contract
between the party
Cases when court can fix term:
if the obligation does not fox a period, but it
can be inferred that a period was intended
by the parties
cannot be applied to contract for

services in which no period was fixed

by the parties. In such contracts the
period of employment is understood to
be implicitly fixed, in default of express
stipulation, by the period of the
payment of the salary of the employee,
in accordance with the custom
universally observed throughout the
world.
cannot be applied to pure obligations
if the duration of the period depends upon
the will of the debtor
just and logical, because otherwise,
there would always be the possibility
that the obligation will never be fulfilled
or performed.
if the debtor binds himself to pay when his
means permit him to do so.
Art. 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be
inferred that a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as may under the circumstances have been
probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by
them. (1128a)
Art. 1198. The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty
or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities which he has promised;
(3) When by his own acts he has impaired said guaranties or securities after their establishment, and
when through a fortuitous event they disappear, unless he immediately gives new ones equally
satisfactory;
(4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the
period;
(5) When the debtor attempts to abscond. (1129a)

SECTION 3. - Alternative Obligations

Conjunctive obligation- all of the objects of the
obligation are demandable at the same time
distributive obligation- when only one object of
the obligation is demandable.
Alternative - comprehends several objects
or prestation which are due, but it may be
complied with by the delivery or
performance of only one of them.
Performance of one of the obligation is

Sufficient
Facultative - comprehends only one object
or prestation which is due, but it may be
complied with by the delivery of another
object or the performance of another
prestation in substitution.

Art. 1199. A person alternatively bound by different prestations shall completely perform one of them.
The creditor cannot be compelled to receive part of one and part of the other undertaking. (1131)
Art. 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the
creditor.
The debtor shall have no right to choose those prestations which are impossible, unlawful or which
could not have been the object of the obligation. (1132)
pertains to the debtor.
***Once the debtor has made the choice, and such
choice is duly communicated to the creditor, the
obligation becomes simple.
Exceptions:
when the right of choice belongs or
pertains to the creditor
when it has been expressly granted to a
third person.
Limitation to the right of choice:
debtor cannot choose those prestations or
undertakings that are impossible, unlawful,
or which could not have been the object of
the obligation.
Prestations which could not have been the object
of prestation
undertakings that are not included among
others those from which the obligor may
select, or
those which are not yet due and
demandable at the time the selection is
made, or
those by reason of accident or some other
cause, have acquired a new character
distinct or different from that contemplated
by the parties when the obligation was
constituted.
***Par. 2 of Art. 1200 contemplates a case in which
the right to choose or select is NOT lost or
extinguished altogether.
Art. 1201. The choice shall produce no effect except from the time it has been communicated. (1133)
***Applicable to cases in which the choice is
dependent on the debtor, creditor, or third person

Art. 1202. The debtor shall lose the right of choice when among the prestations whereby he is
alternatively bound, only one is practicable. (1134)
***When only one prestation is practicable, the
debtor loses his right of choice altogether. The
obligation becomes simple.
Art. 1203. If through the creditor's acts the debtor cannot make a choice according to the terms of the
obligation, the latter may rescind the contract with damages. (n)
***When the debtor's right of choice is rendered
ineffective through the creditor's fault, the only
possible remedy for the debtor is to bring an action
for the rescission of the contract with damages.
(Art. 1203)
Art. 1204. The creditor shall have a right to indemnity for damages when, through the fault of the
debtor, all the things which are alternatively the object of the obligation have been lost, or the
compliance of the obligation has become impossible.
The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that of
the service which last became impossible.
Damages other than the value of the last thing or service may also be awarded. (1135a)
Factors to consider in knowing the effect of loss of
the object of prestation
to whom the right of choice belong?
What is the cause of the loss of the object
of prestation? (fortuitous event or fault of
the debtor)
Art. 1205. When the choice has been expressly given to the creditor, the obligation shall cease to be
alternative from the day when the selection has been communicated to the debtor.
Until then the responsibility of the debtor shall be governed by the following rules:
(1) If one of the things is lost through a fortuitous event, he shall perform the obligation by delivering
that which the creditor should choose from among the remainder, or that which remains if only one
subsists;
(2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of
those subsisting, or the price of that which, through the fault of the former, has disappeared, with a
right to damages;
(3) If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the
price of any one of them, also with indemnity for damages.
The same rules shall be applied to obligations to do or not to do in case one, some or all of the
prestations should become impossible. (1136a)
Art. 1206. When only one prestation has been agreed upon, but the obligor may render another in
substitution, the obligation is called facultative.
The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor,
does not render him liable. But once the substitution has been made, the obligor is liable for the loss
of the substitute on account of his delay, negligence or fraud. (n)

Facultative obligation- obligation wherein only

one object or prestation has been agreed upon by
the parties to the obligation, but which may be
complied with by the delivery of another object or
the performance of another prestation in
substitution.
SECTION 4. - Joint and Solidary Obligations
Joint obligation - obligation where there is a
concurrence of several creditors, or of several
debtors, or of several creditors and debtors, by
virtue of which each of the creditors has a right to
demand, and each of the debtors is bound to
render, compliance with his proportionate part of
the prestation which constitutes the obligation
obligacion mancomunada
Solidary obligation obligation where there is a
concurrence of several creditors, or of several
debtors, or of several creditors and debtors, by
virtue of which each of the creditors has a right to
demand, and each of the debtors is bound to
render, entire compliance with the prestation which
constitutes the obligation
obligacion solidaria

Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and the same
obligation does not imply that each one of the former has a right to demand, or that each one of the
latter is bound to render, entire compliance with the prestation. There is a solidary liability only when
the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.
(1137a)
PRESUMPTION JOINT- unless by law nature or stipulation
Art. 1208. If from the law, or the nature or the wording of the obligations to which the preceding article
refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many
shares as there are creditors or debtors, the credits or debts being considered distinct from one
another, subject to the Rules of Court governing the multiplicity of suits. (1138a)
***Each creditor can demand only for the payment
of his proportionate share of the credit, while the
debtors can be held liable only for the payment of
his proportionate share of the debt.
***Joint creditor cannot act in representation of the
others; neither can debtor be compelled to answer
for the liability of the others.
***The payment or acknowledgement by one of the
joint debtors will not stop the running of the period
of prescription as to the others
Art. 1209. If the division is impossible, the right of the creditors may be prejudiced only by their
collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the
latter should be insolvent, the others shall not be liable for his share. (1139)
Kinds of obligation according to number of parties
1. Individual obligation only one obligor or one oblige

2. Collective obligation one where there are two or more debtors and/or two or more creditors
A. joint obligations whole obligation to be paid fulfilled proportionately by the different debtors
and/or demanded proportionately by different creditors
I. proportionately
ii. We promise to pay
B. Solidary obligations (act of one is the act of all) 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
I. Jointly and/or severally
II. Together and/or separately
III. Individually and/or collectively
IV. I promise to pay
- Kinds of solidarity
To according to parties bound
1. passive part of the debtors
2. active part of the creditors
3. mixed solidarity both
According to source
1. conventional agreed upon by parties
2. legal imposed by law
3. real imposed by nature of obligation
Joint Indivisible obligation
Parties are merely proportionately liable. It is indivisible because the object or the subject of the
matter is not physically divisible into different parts
It is joint as to liabilities of debtors and rights of the creditors but indivisible as to
Compliance
Art 1210
The indivisibility of an obligation does not necessarily give rise to solidarity, nor does solidarity of itself
imply indivisibility (Solidary indivisible)
Art 1211
Solidarity may exist although the creditors and the debtors may not be bound in the
same manner and by the same periods and conditions
Kinds of solidary obligation accdg to the legal tie
1. Uniform same stipulations
2. Non uniform or varied not subject to same stipulations
Art 1212
Each one of the solidary creditors may do whatever may be USEFUL to the others BUT NOT
ANYTHING WHICH MAY PREJUDICIAL TO THE LATTER
Art 1213

A solidary creditor cannot assign his rights without the consent of the others (3rdperson)
Art 1214
A debtor may pay any one of the solidary creditors but if any demand, judicial or
extrajudicial, has been made by one of them, payment should be made to him
Art 1215 (Deals with Solidary Obligations)
1. Novation extinguished of old obligation replaced by a new obligation.
2. Compensation both parties are debtors and creditors of each other.
3. Confusion the debtor is also the creditor. (Cycle).
4. Remission - (condonation) extinguishment of obligation gratuitously.
Art 1216
The creditor may proceed against any one of the solidary debtors or some or all of the
simultaneously. The demand against one of the shall not be an obstacle to those which may
subsequently directed against the others, so long as the debt has not been fully collected.
Art 1217
- The creditor has the right to accept which mode of payment to accept if more than
one of the debtors offers payment.
- Debtor who makes payment can collect interest. If payment was made BEFORE the
debt is due, interest cannot be demanded from hi co-debtors.
Art 1218
Payment made by a solidary debtor shall not entitle him reimbursement from his codebtors
if such payment is made AFTER THE OBLIGATION HAS PRESCRIBED or becomes ILLEGAL.
Prescribed lapsed; no longer due and demandable; expired
Prescriptive period time when rights should be exercised or else rights expire
Art 1219
The remission made by the creditor of the share which affects one of the solidary debtors
does not release the latter from his responsibility towards the co-debtors, in case the debt had
been totally paid by anyone of them before the remission was effected.
- if payment was made by the other debtor, the creditor should give back the condoned
amount
- If remission was made after debt was paid, the debtor A has the right to reimburse from
debtor B.
Art 1220
The remission of the whole obligation obtained by one of the solidary debtors does not
entitle him to reimbursement from his co-debtors
Art 1221
- Specific thing has been lost without the fault of the solidary debtors, obligation is
EXTINGUISHED. (no delay)
- If loss is caused by any one debtor, all debtors are responsible to the creditor. (Innocent
debtors can recover from debtor at fault.)
- If a thing is loss because of a fortuitous event after DELAY, debtors are responsible to the
creditor still.
Art 1222

A solidary debtor may, in actions filed by the creditor, avail himself of ALL DEFENSES
which are derived from the nature of the obligation and of those which are personal to him, or
pertain to his own share.
DEFENSES
1.
2.
3.
4.
5.
6.
7.

nature of the obligation

expired/prescribed
personal to him or pertains to his share
insane
below legal age
incapacitated
personal to other solidary debtors

SECTION 5. - Divisible and Indivisible Obligations

Art. 1223. The divisibility or indivisibility of the things that are the object of obligations in which there is
only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this Title.
(1149)
One debtor one creditor- the divisibility is of little
significance.
General Rule: the creditor cannot be compelled to
partially receive the prestation in which the
obligation consists; neither may the debtor may the
required to make partial fulfillment.
Exceptions:
when the obligation expressly stipulates
the contrary
when the different prestations constituting
the objects of the obligation are subject to
different terms and conditions.
When the obligation is in part liquidated
and in part unliquidated
Art. 1224. A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the
debtors does not comply with his undertaking. The debtors who may have been ready to fulfill their
promises shall not contribute to the indemnity beyond the corresponding portion of the price of the
thing or of the value of the service in which the obligation consists. (1150)
Art. 1225. For the purposes of the preceding articles, obligations to give definite things and those
which are not susceptible of partial performance shall be deemed to be indivisible.
When the obligation has for its object the execution of a certain number of days of work, the
accomplishment of work by metrical units, or analogous things which by their nature are susceptible of
partial performance, it shall be divisible.
However, even though the object or service may be physically divisible, an obligation is indivisible if so
provided by law or intended by the parties.

In obligations not to do, divisibility or indivisibility shall be determined by the character of the
prestation in each particular case. (1151a)

True test of divisibility: WON the obligation is

susceptible of partial compliance.
***The susceptibility of partial compliance should
be understood in the sense of the possibility of
realizing the end or purpose which the obligation
seeks to attain. (Applies to obligations to give, to
do, or not to do)
SECTION 6. - Obligations with a Penal Clause
OBLIGATIONS WITH A PENAL CLAUSE

A penal clause is attached to an obligation to ensure compliance (PRINCIPAL)

It is an ACCESORY undertaking
Meant to punish a debtor for non-compliance
Debtor assumes greater responsibility in case of breach

OBLIGATIONS WITH A PENAL CLAUSE

KINDS
AS TO ORIGIN
1. LEGAL
2. CONVENTIONAL
AS TO PURPOSE
1. COMPENSATORY takes the place of damages
2. PUNITIVE as punishment for breach
AS TO DEMADABILITY/EFFECT
1. SUBSIDIARY/ALTERNATIVE only the penalty can be imposed
2. JOINT/CUMULATIVE both principal and penal clause can be enforced

OBLIGATIONS WITH A PENAL CLAUSE

Penalty is not a substitute for performance. Debtor cannot choose to perform the penal clause
instead of the principal unless the right is expressly reserved

Penalty is subsidiary. Creditor cannot demand its fulfilment if primary/principal obligation has
been complied with

Proof of actual damages suffered by the creditor is NOT necessary in order that the penalty
may be demanded
Courts can reduce the penalty if (1) there has been partial performance, (2) irregular
performance or (4) when the penalty agreed upon is iniquitous or unconscionable

The nullity of the penal clause does not carry with it that of the principal obligation.

The nullity of the principal obligation carries with it that of the penal clause

Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages

and the payment of interests in case of noncompliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the
fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of this
Code. (1152a)
Art. 1227. The debtor cannot exempt himself from the performance of the obligation by paying the
penalty, save in the case where this right has been expressly reserved for him. Neither can the
creditor demand the fulfillment of the obligation and the satisfaction of the penalty at the same time,
unless this right has been clearly granted him. However, if after the creditor has decided to require the
fulfillment of the obligation, the performance thereof should become impossible without his fault, the
penalty may be enforced. (1153a)
Art. 1228. Proof of actual damages suffered by the creditor is not necessary in order that the penalty
may be demanded. (n)
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly
or irregularly complied with by the debtor. Even if there has been no performance, the penalty may
also be reduced by the courts if it is iniquitous or unconscionable. (1154a)
Art. 1230. The nullity of the penal clause does not carry with it that of the principal obligation.
The nullity of the principal obligation carries with it that of the penal clause. (1155)

CHAPTER 4
EXTINGUISHMENT OF OBLIGATIONS
GENERAL PROVISIONS
modes of extinguishing obligations
payment or performance
loss of the thing due
condonation or remission of the debt
confusion
compensation
novation
annulment
rescission
fulfillment of a resolutory condition
prescription
--renunciation or waiver by the creditor
compromise
expiration of the resolutory term or
condition
death of one of the contracting parties
(personal obligations)
will of one of the contracting parties
mutual assent or dissent
Art. 1231. Obligations are extinguished:
(1) By payment or performance:
(2) By the loss of the thing due:

(3) By the condonation or remission of the debt;

(4) By the confusion or merger of the rights of creditor and debtor;
(5) By compensation;
(6) By novation.
Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a
resolutory condition, and prescription, are governed elsewhere in this Code. (1156a)

SECTION 1. - Payment or Performance

Art. 1232. Payment means not only the delivery of money but also the performance, in any other
manner, of an obligation. (n)
Art. 1233. A debt shall not be understood to have been paid unless the thing or service in which the
obligation consists has been completely delivered or rendered, as the case may be. (1157)
General Rule: there should be complete
performance. (Art. 1233)
Except:
substantial performance in good faith
the debtor may recover as though there
has been a strict and complete
fulfillment, less damages suffered by
the creditor. (Art. 1234)
Case: Diesel Construction vs UPSI
When the obligee accepts the performance
knowing its incompleteness or irregularity,
without expressing any objection or protest.
(Art. 1235)
Based on the principle of estoppel
when the obligation has been converted
into an indemnification (falls under Art.
1233)
(
Art. 1234. If the obligation has been substantially performed in good faith, the obligor may recover as
though there had been a strict and complete fulfillment, less damages suffered by the obligee. (n)
Art. 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and
without expressing any protest or objection, the obligation is deemed fully complied with. (n)
Art. 1236. The creditor is not bound to accept payment or performance by a third person who has no
interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that if he paid
without the knowledge or against the will of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor. (1158a)
(Art. 1236-1238)

General Rule: Creditor is not bound to accept

payment or performance by a third person. This is
because the creditor may not have confidence in
the honesty of the 3rd person who might deliver a
defective thing or pay with a check which may not
be honored.
Except:
when it is made by a 3rd person who has
interest in the fulfillment of the obligation.
(joint debtor, guarantor, surety)
when there is a stipulation to the contrary
persons who may pay obligation:
the debtor himself or his legal
representatives
any third person who have an interest in
the fulfillment of the obligation. (subject to
some juridical effects)
Art.1236-1237 are not applicable to a third
person who pays the redemption price in
sales with right to repurchase, because a
vendor a retro is not a debtor within the
meaning of the law.
Rights of a 3rd person
(with the knowledge and consent of the debtor)
right of reimbursement recover from the
debtor the entire amount which he has
paid.
right of subrogation
(without the knowledge and consent of the debtor)
right of reimbursement recover only
insofar as the payment has been beneficial
to the debtor
***If the obligation has been previously
extinguished by any mode, the 3rd person may
proceed against the creditor based on the principle
of unjust enrichment.
Gratuitous payments payments effected by a
third person who does not intend to be reimbursed
by the debtor.
consent of the debtor is
necessary. There is no gift if the
gift was not accepted by the
debtor.
If the consent is SECURED
rules on ordinary donation will
apply
if the consent is NOT
SECURED, Art. 1236 and 1237
will apply.
Such gratuitous payments are
valid as far as the creditor is

concerned.(Art. 1238) so the 3rd

person who offered the gift but
was declined by the debtor can
compel the debtor to reimburse
him (3rd person) the amount
accepted by the creditor.
(Art. 1239)
***It is essential that the person who pays the
obligation should have the necessary legal
capacity to effect such payment.
free disposal of the thing due
capacity to alienate the thing
effect of absence of one or another will effect the
invalidity of payment
Art. 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter,
cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage,
guaranty, or penalty. (1159a)
Art. 1238. Payment made by a third person who does not intend to be reimbursed by the debtor is
deemed to be a donation, which requires the debtor's consent. But the payment is in any case valid
as to the creditor who has accepted it. (n)
Art. 1239. In obligations to give, payment made by one who does not have the free disposal of the
thing due and capacity to alienate it shall not be valid, without prejudice to the provisions of Article
1427 under the Title on "Natural Obligations." (1160a)
Art. 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or
his successor in interest, or any person authorized to receive it. (1162a)
Art. 1240
to whom payment must be made
person in whose favor the obligation has
been constituted
his successor in interest
any person authorized to receive payment
by the creditor himself (conventional
authority)
by law or legal authority (guardian,
executor or administrator of the estate
of a deceased person, assignee or
liquidator of a partnership or
corporation)
General rule:payment to unauthorized person is
invalid. Exceptions:
payment made to a 3rd person, provided
that it has redounded to the benefit of the
creditor. This can be invoked through the
following proofs: (Art. 1241)
if after payment, the 3rd person
acquires the creditor's rights
if the creditor ratifies the payment to the
3rd person
if by the creditor's conduct, the debtor
has been led to believe that the 3rd

person has authority to receive the

payment
Payment made to the possessor of the
credit, provided that it was made in good
faith. (Art. 1242)
Valid payment to the possessor of the
credit does not refer to possessor of
the document evidencing it.
the remedy of the creditor would be to
proceed against the possessor if credit
to whom payment was improperly
made.
***Although the payment is not valid because it is
not made to a person authorized to receive
payment, nevertheless it is clear that the vendee
had acted in good faith; he can not therefore be
said to have incurred in delay; consequently, the
vendor cannot ask for rescission of the contract.
Art. 1241. Payment to a person who is incapacitated to administer his property shall be valid if he has
kept the thing delivered, or insofar as the payment has been beneficial to him.
Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the
creditor. Such benefit to the creditor need not be proved in the following cases:
(1) If after the payment, the third person acquires the creditor's rights;
(2) If the creditor ratifies the payment to the third person;
(3) If by the creditor's conduct, the debtor has been led to believe that the third person had authority to
receive the payment. (1163a)
Art. 1242. Payment made in good faith to any person in possession of the credit shall release the
debtor. (1164)
Art. 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to
retain the debt shall not be valid. (1165)
Art. 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the
latter may be of the same value as, or more valuable than that which is due.
In obligations to do or not to do, an act or forbearance cannot be substituted by another act or
forbearance against the obligee's will. (1166a)
(Art. 1244-1246)
obligation to give specific or determinate thing
the debtor cannot fulfill his obligation by delivering
a thing which is different from what is due although
such may be of the same value or even more
valuable than that which is due.
Obligation to do or not to do the obligor cannot
fulfill his obligation by substituting another act or
forbearance.
***if the creditor or obligor accepts the delivery or

substitution, such acceptance shall give the same

effect as a fulfillment or performance of the
obligation.
Dation in payment (dacion en pago)
transmission of the ownership of a thing by the
debtor to the creditor as an accepted equivalent of
the performance of the obligation.
Property is alienated to the creditor in
satisfaction of a debt in money;
law on sales shall gover
Art. 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in
money, shall be governed by the law of sales. (n)
Art. 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose
quality and circumstances have not been stated, the creditor cannot demand a thing of superior
quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the obligation and
other circumstances shall be taken into consideration. (1167a)
Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall
be for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern. (1168a)
***If the debtor changed his domicile in bad faith or
after he has incurred in delay, the additional expenses shall be borne by him.
Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled
partially to receive the prestations in which the obligation consists. Neither may the debtor be required
to make partial payments.
However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and
the debtor may effect the payment of the former without waiting for the liquidation of the latter. (1169a)
3 conditions or characteristics of payment:
identity only the prestation agreed upon
and no other must be complied with
completeness the thing or service in
which the obligation consists must be
completely delivered or rendered
indivisibility the payment or performance
must be indivisible
General Rule: Art. 1248 is applicable only to
obligation where there is one debtor and one
creditor. Exceptions:
when the obligation expressly states the
contrary
when the different prestations which
constitutes the objects of the obligation are
subject to different terms and conditions
when the obligation is in part liquidated and
in part unliquidated.
Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency which is legal tender in the Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents
shall produce the effect of payment only when they have been cashed, or when through the fault of
the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in the abeyance. (1170)
***A judgment awarding an amount in US dollar
may be made with its equivalent amount in local
currency in the conversion rate prevailing at the
time of payment. The trial court should determine
the the conversion rate if the parties cannot agree
on the same. (Zagala vs Jimenez)
RA 529 An Act to assure the uniform value of
Philippine Coins and Currency.
the rule that payment of debts imoney shall
be made in the currency stipulated was
completely abrogated.
RA 4100 amending RA 529
the law prohibiting stipulations in domestic
monetary obligations purporting to give the
obligee the right to require payment in
currency other than the Phil. currency does
not apply to transactions listed on pp. 246,
Obligations and Contracts, Jurado.
Art. 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene,
the value of the currency at the time of the establishment of the obligation shall be the basis of
payment, unless there is an agreement to the contrary. (n)
***In case of extraordinary inflation or deflation, the
value of the currency at the time of the
establishment of the obligation would be the basis
of payment.
Art. 1251. Payment shall be made in the place designated in the obligation.
There being no express stipulation and if the undertaking is to deliver a determinate thing, the
payment shall be made wherever the thing might be at the moment the obligation was constituted.
In any other case the place of payment shall be the domicile of the debtor.
If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional
expenses shall be borne by him.
These provisions are without prejudice to venue under the Rules of Court. (1171a)

SUBSECTION 1. - Application of Payments

Requisites:
one debtor, one creditor
2 or more debts of the same kind
Exception: if at the time the designation
or application is made, such obligations
had already been converted into

obligations to indemnify with damages

by reason of breach or nonfulfillment.
all debts must be due
Exception:
when there is a stipulation to the
Contrary
the application of payment is made
by the party for whose benefit the
term or period has been
constituted.
amount paid by the debtor not sufficient to
pay the total amount of the debt
right to designate belongs primarily to the debtor,
only at the time when payment is made.
Art. 1252. He who has various debts of the same kind in favor of one and the same creditor, may
declare at the time of making the payment, to which of them the same must be applied. Unless the
parties so stipulate, or when the application of payment is made by the party for whose benefit the
term has been constituted, application shall not be made as to debts which are not yet due.
If the debtor accepts from the creditor a receipt in which an application of the payment is made, the
former cannot complain of the same, unless there is a cause for invalidating the contract. (1172a)
Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have been
made until the interests have been covered. (1173)
payment of interest first before payment of
principal.
Manresa: the rule is obligatory because it is more
in consonance with justice.
Art. 1254. When the payment cannot be applied in accordance with the preceding rules, or if
application can not be inferred from other circumstances, the debt which is most onerous to the
debtor, among those due, shall be deemed to have been satisfied.
If the debts due are of the same nature and burden, the payment shall be applied to all of them
proportionately. (1174a)
Applicable only when payment cannot be applied in
accordance with the rules.
When the debt due are not of the same burden, the
rule that the debt which is most onerous to the
debtor shall be deemed to have been satisfied

SUBSECTION 2. - Payment by Cession

Art. 1255. The debtor may cede or assign his property to his creditors in payment of his debts. This
cession, unless there is stipulation to the contrary, shall only release the debtor from responsibility for
the net proceeds of the thing assigned. The agreements which, on the effect of the cession, are made
between the debtor and his creditors shall be governed by special laws. (1175a)

Cession or assignment- special form of payment

whereby the debtor abandons all of his property for

the benefit of the creditor in order that from the

proceeds thereof the latter may obtain payment of
their credits.
Requisites:
plurality of debts
partial or relative insolvency of the debtor
acceptance of the cession by the creditor
insolvency Law- applicable if the
creditor did not accept the cession
Kinds of Cession:
contractual- Art. 1255, NC
SUBSECTION 3. - Tender of Payment and Consignation

Art. 1256. If the creditor to whom tender of payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:
(1) When the creditor is absent or unknown, or does not appear at the place of payment;
(2) When he is incapacitated to receive the payment at the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (1176a)
tender of payment manifestation made by the
debtor to the creditor to immediately comply with
the obligation
consignation deposit of the object of the
obligation in a competent court in accordance with
the rule prescribed by law after refusal or inability
of the creditor to accept the tender of payment.
Art. 1257. In order that the consignation of the thing due may release the obligor, it must first be
announced to the persons interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which
regulate payment. (1177)
Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial
authority, before whom the tender of payment shall be proved, in a proper case, and the
announcement of the consignation in other cases.
The consignation having been made, the interested parties shall also be notified thereof. (1178)
Art. 1259. The expenses of consignation, when properly made, shall be charged against the creditor.
(1178)
Art. 1260. Once the consignation has been duly made, the debtor may ask the judge to order the
cancellation of the obligation.

Before the creditor has accepted the consignation, or before a judicial declaration that the
consignation has been properly made, the debtor may withdraw the thing or the sum deposited,
allowing the obligation to remain in force. (1180)
Effects of consignation:
if the creditor finally accepts the thing or
amount deposited, the payment is settled
altogether
if the creditor refuses to accept the thing
deposited, litigation for the extinguishment
or cancellation of the obligation on the
ground of a valid and effective consignation
will arise.
If the creditor neither refuses nor accepts,
the debtor may ask the court to cancel the
obligation after showing the the requisites
of consignation have been complied with
(Art. 1260)- tolentino
Art. 1261. 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. (1181a)

SECTION 2. - Loss of the Thing Due

Art. 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it
should be lost or destroyed without the fault of the debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does
not extinguish the obligation, and he shall be responsible for damages. The same rule applies when
the nature of the obligation requires the assumption of risk. (1182a)
effect of loss in obligation to give a determinate
thing: extinguishment of the obligation
requisites:
thing lost must be determinate
the thing was lost without the fault of the
debtor (if it is lost through the fault of the
debtor, the obligation is converted into an
obligation to indemnify the creditor for
damages.)
the thing lost before the debtor has
incurred in delay (if it is lost after the debtor
has incurred in delay, the debtor will be
held liable for indemnity for damages
effect of fortuitous event: extinguishment of the
obligation, Exceptions:
when by law, the debtor is still liable even
for fortuitous events

 when stipulated by the parties

when the nature of the obligation requires
the assumption of risk
when the loss of the thing is due partly to
the fault of the debtor
when the loss of the thing occurs after the
debtor has incurred in delay
when the debtor promised to deliver the
same thing to 2 or more persons who do
not have the same interest
when the obligation arises from a criminal
offense
when the obligation is generic
Art. 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same
kind does not extinguish the obligation. (n)
loss of a generic thing does not extinguish the
obligation because generic things do not perish
(genus nunquam peruit)
effect of loss in reciprocal obligation: if one of
the reciprocal obligation is extinguished the other
must also be extinguished. (Tolentino)
Art. 1264. The courts shall determine whether, under the circumstances, the partial loss of the object
of the obligation is so important as to extinguish the obligation. (n)
Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss
was due to his fault, unless there is proof to the contrary, and without prejudice to the provisions of
article 1165. This presumption does not apply in case of earthquake, flood, storm, or other natural
calamity. (1183a)
Art. 1266. The debtor in obligations to do shall also be released when the prestation becomes legally
or physically impossible without the fault of the obligor. (1184a)
***Same requisites provided in Art. 1262
***Legal and physical impossibility must have
occurred AFTER the constitution of the obligation.
Art. 1267. When the service has become so difficult as to be manifestly beyond the contemplation of
the parties, the obligor may also be released therefrom, in whole or in part. (n)
Relative impossibility- service has become so
difficult as to be manifestly beyond the
contemplation of the parties, the court should be
authorized to release the obligor in whole or in
part.
Service = performance
rebus sic stantibus the parties stipulate in the
light of certain prevailing conditions and once these
condition cease to exist, the contract also ceases
to exist.
Case: Naga Telephone Co. et al. vs. CA

Art. 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the
debtor shall not be exempted from the payment of its price, whatever may be the cause for the loss,
unless the thing having been offered by him to the person who should receive it, the latter refused
without justification to accept it. (1185)
Art. 1269. The obligation having been extinguished by the loss of the thing, the creditor shall have all
the rights of action which the debtor may have against third persons by reason of the loss. (1186)

***All the rights of action which the debtor may

have against 3rd persons by reason of the loss of
the thing are transmitted by operation of law to the
creditor.
Transmission made from the moment the
obligation is extinguished.
Example:
insured object which is lost or destroyed,
creditor may collect from the insurer.
Expropriated land, the creditor may collect
the compensation due by reason of the
expropriation.
SECTION 3. - Condonation or Remission of the Debt
Requisites:
it must be gratuitous
must be accepted by the obligor
the obligation must be demandable

Art. 1270. Condonation or remission is essentially gratuitous, and requires the acceptance by the
obligor. It may be made expressly or impliedly.
One and the other kind shall be subject to the rules which govern inofficious donations. Express
condonation shall, furthermore, comply with the forms of donation. (1187)
***Condonation must necessarily be accepted by
the debtor.
***Condonation is a bilateral act because our Code
requires its acceptance by the debtor
Art. 1271. The delivery of a private document evidencing a credit, made voluntarily by the creditor to
the debtor, implies the renunciation of the action which the former had against the latter.
If in order to nullify this waiver it should be claimed to be inofficious, the debtor and his heirs may
uphold it by proving that the delivery of the document was made in virtue of payment of the debt.
(1188)
(Art. 1271-1272)
Delivery of the private document evidencing debt is
a presumption of creditor's renunciation of any right
of action for the collection of the debt.
Reason: private document is the best evidentiary
proof to show that the obligation has not been

paid.
Requisites:
document evidencing the credit has been
delivered by the creditor to the debtor
document must be a private document, delivery must be voluntary
Art. 1272. Whenever the private document in which the debt appears is found in the possession of the
debtor, it shall be presumed that the creditor delivered it voluntarily, unless the contrary is proved.
(1189)
Art. 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the
waiver of the latter shall leave the former in force. (1190)
Art. 1274. It is presumed that the accessory obligation of pledge has been remitted when the thing
pledged, after its delivery to the creditor, is found in the possession of the debtor, or of a third person
who owns the thing. (1191a)

SECTION 4. - Confusion or Merger of Rights

Art. 1275. The obligation is extinguished from the time the characters of creditor and debtor are
merged in the same person. (1192a)

Confusion merger of the characters of the

creditor and debtor in one and the same person, by
virtue of which, the obligation is extinguished.
meeting in one and the same person the
qualities of a creditor and debtor with
respect to one and the same obligation.
Requisites:
merger of characters of debtor and creditor
must be in the same person
it must take place in the person of either
the principal creditor or principal debtor
there must be complete and definite
merger of the qualities
Art. 1276. Merger which takes place in the person of the principal debtor or creditor benefits the
guarantors. Confusion which takes place in the person of any of the latter does not extinguish the
obligation. (1193)
Art. 1277. Confusion does not extinguish a joint obligation except as regards the share corresponding
to the creditor or debtor in whom the two characters concur. (1194)

SECTION 5. Compensation QUITS NA

Compensation- mode of extinguishing in their

concurrent amount those obligations of persons
who in their own right are creditors and debtors to

each other.
weighing two obligations simultaneously in
order to extinguish them to the extent in
which the amount of one is covered by the
amount of the other.
Simplified payment (pago abreviado)
double advantage over payment:
facility of payment- takes effect by
operation of law
guaranty for the effectivity of the creditmay
avoid prejudice to one party by
fraud or insolvency of the other.
As to cause
Legal- takes effect by operation of law
when all the requisites are present (Art.
1278-1279, Civil Code)
Voluntary- agreement of the parties who
are mutually creditors and debtors to
compensate their respective obligations,
requisites may not all be present
takes effect the moment the parties
Agree
Facultative- by the will of only one party
and the other one cannot choose
compensation because of any impediment.
(Art. 1287-1288)
Judicial- takes effect by judicial decree
takes effect the moment the judicial
decree becomes final and executory
As to effect
Total compensation of 2 equal debts
Partial - compensation of two unequal
debts.

Art. 1278. Compensation shall take place when two persons, in their own right, are creditors and
debtors of each other. (1195)
Art. 1279. In order that compensation may be proper, it is necessary: REQUISITES FOR
COMPENSATION
(1) That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the
same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor. (1196)
Art. 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up
compensation as regards what the creditor may owe the principal debtor. (1197)
Art. 1281. Compensation may be total or partial. When the two debts are of the same amount, there is
a total compensation. (n)
Art. 1282. The parties may agree upon the compensation of debts which are not yet due. (n)
Art. 1283. If one of the parties to a suit over an obligation has a claim for damages against the other,
the former may set it off by proving his right to said damages and the amount thereof. (n)
Art. 1284. When one or both debts are rescissible or voidable, they may be compensated against
each other before they are judicially rescinded or avoided. (n)
Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a
third person, cannot set up against the assignee the compensation which would pertain to him against
the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he
reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may
set up the compensation of debts previous to the cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may set up the compensation of all
credits prior to the same and also later ones until he had knowledge of the assignment. (1198a)
Art. 1286. Compensation takes place by operation of law, even though the debts may be payable at
different places, but there shall be an indemnity for expenses of exchange or transportation to the
place of payment. (1199a)
Art. 1287. Compensation shall not be proper when one of the debts arises from a depositum or from
the obligations of a depositary or of a bailee in commodatum.
Neither can compensation be set up against a creditor who has a claim for support due by gratuitous
title, without prejudice to the provisions of paragraph 2 of Article 301. (1200a)
Art. 1288. Neither shall there be compensation if one of the debts consists in civil liability arising from
a penal offense. (n)
Art. 1289. If a person should have against him several debts which are susceptible of compensation,
the rules on the application of payments shall apply to the order of the compensation. (1201)
Art. 1290. When all the requisites mentioned in Article 1279 are present, compensation takes effect by
operation of law, and extinguishes both debts to the concurrent amount, even though the creditors
and debtors are not aware of the compensation. (1202a)

SECTION 6. Novation
Novation (extinctive) substitution or change of an
obligation or change of an obligation by another,
resulting in its extinguishment or modification,
either by
changing its object or principal conditions,
or

 by substituting another in place of the

debtor, or
by subrogating any 3rd person in the rights
of the creditor.
- mode of extinguishing obligations through the
creation of a new one effected by the change or
substitution of an obligatory relation by another
with the intention of substantially extinguishing or
modifying the same.
- two-fold purpose:
extinguishing the old obligations
giving birth to a new obligation to take
place of the old
requisites:
previous valid obligation
agreement of the parties to the new
obligation
extinguishment of the old obligation
validity of the new obligation

Art. 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (1203)
Art. 1292. In order that an obligation may be extinguished by another which substitute the same, it is
imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on
every point incompatible with each other. (1204)
***refers to forms of novation
novation by presumption has never been favoured
animus novandi intent to substitute a new
obligation for the old one; must be clearly
established before we can say that there is a
novation resulting in the extinguishment of the old
obligation and in the creation of a new one.
(Delegatus debitor est odiosus in lege)
Express novation- declared in unequivocal terms:
clearly results from the agreement, or
shown by full discharge of the original debt
otherwise the old contract remains in force and the
new one is added to it
Implied novation test of incompatibility
***WON the 2 obligations can stand together, each
having its own independent existence.
No incompatibiliy = No novation

Art. 1293. Novation which consists in substituting a new debtor in the place of the original one, may
be made even without the knowledge or against the will of the latter, but not without the consent of the
creditor. Payment by the new debtor gives him the rights mentioned in Articles 1236 and 1237.
(1205a)
Art. 1294. If the substitution is without the knowledge or against the will of the debtor, the new debtor's
insolvency or non-fulfillment of the obligations shall not give rise to any liability on the part of the
original debtor. (n)
Effect of non-payment of the new debtor:
general rule: novation by substitution of the debtor
whether by expromision or delegacion has the
effect of releasing the original debtor from his
obligation to the creditor, and the same time of
substituting the new debtor thereto.
***Art. 1294 is applicable only to expromision.
If the substitution is without the knowledge
or against the will of the original debtor, the
new debtor's insolvency SHALL NOT
REVIVE the original debtor's liability to the
Creditor
if the substitution is with the knowledge and
consent of the original debtor, the new
debtor's insolvency SHALL REVIVE the
original debtor's liability to the creditor
***Art. 1295 is applicable only to delegacion.
Right of action of the creditor against the original
debtor can no longer be revived EXCEPT in the
ffg. cases:
when the insolvency of the delegado was
already existing and of public knowledge at
the time the delegante delegated his debts
when such insolvency was already existing
and known to the original debtor when he
delegated his debt.
(Art. 1296)
applicable to:
objective novation
novation by substituting the person of the
debtor
effect upon accessory obligations:
it may subsist if there is a stipulation
constituted in favor of a 3rd person which
may be demanded separately from the
principal obligation, although subordinated
to the latter
pour autrui beneficial stipulation;
stipulation in a contract, clearly and
deliberately conferred by the contracting parties as
a favor upon a 3rd
person, who must have accepted it
before it could be revoked (Art. 1311)

Art. 1295. The insolvency of the new debtor, who has been proposed by the original debtor and
accepted by the creditor, shall not revive the action of the latter against the original obligor, except
when said insolvency was already existing and of public knowledge, or known to the debtor, when the
delegated his debt. (1206a)
Art. 1296. When the principal obligation is extinguished in consequence of a novation, accessory
obligations may subsist only insofar as they may benefit third persons who did not give their consent.
(1207)

Art. 1297. If the new obligation is void, the original one shall subsist, unless the parties intended that
the former relation should be extinguished in any event. (n)
(Art. 1297-1298)
- requisite of a valid new and old obligation before
effecting novation is logical because the purpose of
novation is substitution of the new obligation for the
old.
Old obligation
void there is nothing to novate; new
obligation cannot take effect
voidable when annulment depends upon
the debtor or when a voidable obligation is
ratified, novation is valid
expromision without the consent of the
debtor debtor can still avail himself of
the right to invoke the voidable
character of the obligation against any
claim of the 2nd debtor
if the new debtor is aware of the defect
of the old obligation at the time when
he assumed payment, he cannot avail
himself of the right to invoke the
voidable character of the obligation
against any claim of the creditor.
new obligation
void old obligation subsist, unless the
parties intended that the former relation
should be extinguished in any event
Art. 1298. The novation is void if the original obligation was void, except when annulment may be
claimed only by the debtor or when ratification validates acts which are voidable. (1208a)
Art. 1299. If the original obligation was subject to a suspensive or resolutory condition, the new
obligation shall be under the same condition, unless it is otherwise stipulated. (n)
If the original obligation was subject to a
suspensive or resolutory condition, the new
obligation shall be under the same condition,
unless it is otherwise stipulated.
Effect if old and new are subject to a different
condition:
both condition can stand together both

the condition in the original and new

obligation must be fulfilled; the new
obligation becomes demandable
only the condition affecting the 1st
obligation is fulfilled previous obligation is
revived, new obligation loses its force
only the condition affecting the 2nd
obligation is fulfilled there is no novation
since the requisite of a valid previous
obligation would be lacking
if conditions of both obligations are
incompatible 1st obligation is
extinguished, new obligation remains (as
the latest expression of the will or intent of
the parties)
Art. 1300. Subrogation of a third person in the rights of the creditor is either legal or conventional. The
former is not presumed, except in cases expressly mentioned in this Code; the latter must be clearly
established in order that it may take effect. (1209a)
novation by subrogation
conventional subrogation takes place by
agreement of the original creditor, the 3rd
person, and the debtor
legal subrogation takes place by force of
law.
Art. 1301. Conventional subrogation of a third person requires the consent of the original parties and
of the third person. (n)
conventional subrogation must be clearly
established in order to take effect.
Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with the express or tacit approval of the
debtor;
(3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the
obligation pays, without prejudice to the effects of confusion as to the latter's share. (1210a)
Art. 1303. Subrogation transfers to the persons subrogated the credit with all the rights thereto
appertaining, either against the debtor or against third person, be they guarantors or possessors of
mortgages, subject to stipulation in a conventional subrogation. (1212a)
(Art. 1303-1304)
Effect of total subrogation:
transfer of all the rights which the original creditor
had against the debtor or against 3rd persons
accessory obligations are not extinguished.
This rule is absolute in legal
subrogation
in conventional subrogation such

accessory obligation may be increased

or reduced depending upon the
agreement of the parties.
Effect of partial subrogation:
- both the rights of the 3rd person and that of the
creditor shall co-exist.
In case of conflict, creditor's right shall be
preferred.
Art. 1304. A creditor, to whom partial payment has been made, may exercise his right for the
remainder, and he shall be preferred to the person who has been subrogated in his place in virtue of
the partial payment of the same credit. (1213)

Title II. - CONTRACTS

CHAPTER 1
GENERAL PROVISIONS

Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service. (1254a)
Art. 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. (1255a)
Art. 1307. Innominate contracts shall be regulated by the stipulations of the parties, by the provisions
of Titles I and II of this Book, by the rules governing the most analogous nominate contracts, and by
the customs of the place. (n)
Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to
the will of one of them. (1256a)
Art. 1309. The determination of the performance may be left to a third person, whose decision shall
not be binding until it has been made known to both contracting parties. (n)
Art. 1310. The determination shall not be obligatory if it is evidently inequitable. In such case, the
courts shall decide what is equitable under the circumstances. (n)
Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case
where the rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the value of the property he received
from the decedent.
If a contract should contain some stipulation in favor of a third person, he may demand its fulfillment
provided he communicated his acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting parties must have clearly and
deliberately conferred a favor upon a third person. (1257a)

Art. 1312. In contracts creating real rights, third persons who come into possession of the object of the
contract are bound thereby, subject to the provisions of the Mortgage Law and the Land Registration
Laws. (n)
Art. 1313. Creditors are protected in cases of contracts intended to defraud them. (n)
Art. 1314. Any third person who induces another to violate his contract shall be liable for damages to
the other contracting party. (n)
Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not
only to the fulfillment of what has been expressly stipulated but also to all the consequences which,
according to their nature, may be in keeping with good faith, usage and law. (1258)
Art. 1316. Real contracts, such as deposit, pledge and Commodatum, are not perfected until the
delivery of the object of the obligation. (n)
Art. 1317. No one may contract in the name of another without being authorized by the latter, or
unless he has by law a right to represent him.
A contract entered into in the name of another by one who has no authority or legal representation, or
who has acted beyond his powers, shall be unenforceable, unless it is ratified, expressly or impliedly,
by the person on whose behalf it has been executed, before it is revoked by the other contracting
party. (1259a)

CHAPTER 2
ESSENTIAL REQUISITES OF CONTRACTS
GENERAL PROVISIONS

Art. 1318. There is no contract unless the following requisites concur:

(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (1261)
SECTION 1. - Consent

Art. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and
the cause which are to constitute the contract. The offer must be certain and the acceptance absolute.
A qualified acceptance constitutes a counter-offer.
Acceptance made by letter or telegram does not bind the offerer except from the time it came to his
knowledge. The contract, in such a case, is presumed to have been entered into in the place where
the offer was made. (1262a)
Art. 1320. An acceptance may be express or implied. (n)
Art. 1321. The person making the offer may fix the time, place, and manner of acceptance, all of
which must be complied with. (n)

Art. 1322. An offer made through an agent is accepted from the time acceptance is communicated to
him. (n)
Art. 1323. An offer becomes ineffective upon the death, civil interdiction, insanity, or insolvency of
either party before acceptance is conveyed. (n)
Art. 1324. When the offerer has allowed the offeree a certain period to accept, the offer may be
withdrawn at any time before acceptance by communicating such withdrawal, except when the option
is founded upon a consideration, as something paid or promised. (n)
Art. 1325. Unless it appears otherwise, business advertisements of things for sale are not definite
offers, but mere invitations to make an offer. (n)
Art. 1326. Advertisements for bidders are simply invitations to make proposals, and the advertiser is
not bound to accept the highest or lowest bidder, unless the contrary appears. (n)
Art. 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to write. (1263a)
Art. 1328. Contracts entered into during a lucid interval are valid. Contracts agreed to in a state of
drunkenness or during a hypnotic spell are voidable. (n)
Art. 1329. The incapacity declared in Article 1327 is subject to the modifications determined by law,
and is understood to be without prejudice to special disqualifications established in the laws. (1264)
Art. 1330. A contract where consent is given through mistake, violence, intimidation, undue influence,
or fraud is voidable. (1265a)
Art. 1331. In order that mistake may invalidate consent, it should refer to the substance of the thing
which is the object of the contract, or to those conditions which have principally moved one or both
parties to enter into the contract.
Mistake as to the identity or qualifications of one of the parties will vitiate consent only when such
identity or qualifications have been the principal cause of the contract.
A simple mistake of account shall give rise to its correction. (1266a)
Art. 1332. When one of the parties is unable to read, or if the contract is in a language not understood
by him, and mistake or fraud is alleged, the person enforcing the contract must show that the terms
thereof have been fully explained to the former. (n)
Art. 1333. There is no mistake if the party alleging it knew the doubt, contingency or risk affecting the
object of the contract. (n)
Art. 1334. Mutual error as to the legal effect of an agreement when the real purpose of the parties is
frustrated, may vitiate consent. (n)
Art. 1335. There is violence when in order to wrest consent, serious or irresistible force is employed.
There is intimidation when one of the contracting parties is compelled by a reasonable and wellgrounded fear of an imminent and grave evil upon his person or property, or upon the person or
property of his spouse, descendants or ascendants, to give his consent.

To determine the degree of intimidation, the age, sex and condition of the person shall be borne in
mind.
A threat to enforce one's claim through competent authority, if the claim is just or legal, does not vitiate
consent. (1267a)
Art. 1336. Violence or intimidation shall annul the obligation, although it may have been employed by
a third person who did not take part in the contract. (1268)
Art. 1337. There is undue influence when a person takes improper advantage of his power over the
will of another, depriving the latter of a reasonable freedom of choice. The following circumstances
shall be considered: the confidential, family, spiritual and other relations between the parties, or the
fact that the person alleged to have been unduly influenced was suffering from mental weakness, or
was ignorant or in financial distress. (n)
Art. 1338. There is fraud when, through insidious words or machinations of one of the contracting
parties, the other is induced to enter into a contract which, without them, he would not have agreed to.
(1269)
Art. 1339. Failure to disclose facts, when there is a duty to reveal them, as when the parties are
bound by confidential relations, constitutes fraud. (n)
Art. 1340. The usual exaggerations in trade, when the other party had an opportunity to know the
facts, are not in themselves fraudulent. (n)
Art. 1341. A mere expression of an opinion does not signify fraud, unless made by an expert and the
other party has relied on the former's special knowledge. (n)
Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such misrepresentation
has created substantial mistake and the same is mutual. (n)
Art. 1343. Misrepresentation made in good faith is not fraudulent but may constitute error. (n)
Art. 1344. In order that fraud may make a contract voidable, it should be serious and should not have
been employed by both contracting parties.
Incidental fraud only obliges the person employing it to pay damages. (1270)
Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the
parties do not intend to be bound at all; the latter, when the parties conceal their true agreement. (n)
Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not
prejudice a third person and is not intended for any purpose contrary to law, morals, good customs,
public order or public policy binds the parties to their real agreement. (n)

SECTION 2. - Object of Contracts

Art. 1347. All things which are not outside the commerce of men, including future things, may be the
object of a contract. All rights which are not intransmissible may also be the object of contracts.
No contract may be entered into upon future inheritance except in cases expressly authorized by law.
All services which are not contrary to law, morals, good customs, public order or public policy may
likewise be the object of a contract. (1271a)

Art. 1348. Impossible things or services cannot be the object of contracts. (1272)
Art. 1349. The object of every contract must be determinate as to its kind. The fact that the quantity is
not determinate shall not be an obstacle to the existence of the contract, provided it is possible to
determine the same, without the need of a new contract between the parties. (1273)

SECTION 3. - Cause of Contracts

Art. 1350. In onerous contracts the cause is understood to be, for each contracting party, the
prestation or promise of a thing or service by the other; in remuneratory ones, the service or benefit
which is remunerated; and in contracts of pure beneficence, the mere liberality of the benefactor.
(1274)
Art. 1351. The particular motives of the parties in entering into a contract are different from the cause
thereof. (n)
Art. 1352. Contracts without cause, or with unlawful cause, produce no effect whatever. The cause is
unlawful if it is contrary to law, morals, good customs, public order or public policy. (1275a)
Art. 1353. The statement of a false cause in contracts shall render them void, if it should not be
proved that they were founded upon another cause which is true and lawful. (1276)
Art. 1354. Although the cause is not stated in the contract, it is presumed that it exists and is lawful,
unless the debtor proves the contrary. (1277)
Art. 1355. Except in cases specified by law, lesion or inadequacy of cause shall not invalidate a
contract, unless there has been fraud, mistake or undue influence. (n)

CHAPTER 3
FORM OF CONTRACTS
Contract (cum traho)- meeting of the minds
between 2 persons whereby one binds himself,
with respect to the other, to give something or to
render some service.
agreement
limited exclusively to those agreements
which produce patrimonial obligations
specie
juridical convention manifested in legal
persons bind themselves in favor of
another or others, or reciprocally to the
fulfillment of a prestation to give, to do, or
not to do.
convention includes any kind of agreement
which may create,modify, or extinguish patrimonial
and even family relations
genus


Resolution (Rescission of reciprocal obligation
o
Party who may institute action

For resolution, only party to the contract

o
Causes

Failure of one party to comply w/ obligation

o
Kind of contract

Reciprocal obligation only

o
Power of the courts

Can grant extension for performance

Rescissible Contracts

Guardian who represent ward, lession of more than of the value of the thing

In representation of absentee, lession of

In fraud of creditor who is unable to collect

Things under litigation, entered into by defendant without approval of litigants and court

Payment made in state of insolvency where debt not yet due

o
Those which may be declared by law

Partition (1098)

Result of deterioration (1189)

Unpaid seller (1526 and 1534)

Badges of Fraud
o
o Cause or consideration is inadequate
o
o Transfer made after suit has begun or pending
o
o Sale on credit by an insolvent debtor
o
o Evidence of large indebtedness or completeinsolvency
o
o Transfer of all or nearly all of debtor properties
o
o Between father and son, with any of abovecircumstances
o
o Failure of vendee to take exclusive possession Voidable ContractsVoidable Contracts

Where one party is incapable of giving consent to a contract

Where the consent is vitiated by mistake, violence,intimidation, fraud, undue influence

ConvalidationConvalidation

Prescription (Four years)

From time incapacity ceases

From discovery of such fraud or mistake

Ratification or confirmation

Loss of the thing by thru the fault of the person who has rightto annul
Effects of annulment of Voidable ContractEffects of annulment of Voidable Contract

If not consummated, then parties are released from obligation

If consummated, parties are to restore to each other what theyhave given, with fruits and
interests, plus damages

If to do or not to do, there will be apportionment of damages

Incapacitated party not obliged to make restitution except forwhat he was benefited
Unenforceable ContractsUnenforceable Contracts

Those entered into in the name of another person by one whohas been given no authority or
legal representation or who has acted beyond his powers

Those not complying with Statute of Frauds.

Statute of FraudStatute of Fraud

Purpose is to prevent fraud, not to aid the commission of fraud

Basic and fundamental principles

Applies only to executory contracts

Cannot apply if action is not for damage bec of violation of agreement or for specific performance

Exclusive

May be waived

Personal defense

Contracts are not void

Rule of exclusion

Concerns admissibility of evidence, not credibility

Does not apply if action is to claim reformation

Following must be in writing or in some notes or memorandum:

Agreement not to be performed within a year from themaking thereof

A special promise to answer for debt, defaults ormiscarriage of another


Agreement in consideration of marriage

Sales of goods, chattels, things above P500

Lease of more than one year

Representation as to credit of another

Void ContractsVoid Contracts

No concurrence of offer/acceptance

Cause, object, purpose contrary to law, morals, good customs,public order, or public policy

Absolutely simulated or fictitious

Cause or object did not exist at the time of the transaction

Object outside commerce of men

Impossible service

Intention of the parties relative to principal object cannot beascretained

Prohibited or declared void by law

EstoppelEstoppel

Estoppel in pais - by ones conduct or acts, representatioons,admissions or silence, culpable

negligience induces another to believe certain facts to exist and such other rightfully relies
andacts on such belief.

Estoppel by Deed - A party to a deed, are precluded fromaasserting against the other party to
the deed any right or title inderogation of the deed, or from denying any material fact
assertedtherein.

Estoppel by Record - A party precluded from denying the truthof matters set forth in a record,
whether judicial or legislative.
Estoppel by LachesEstoppel by Laches

Estoppel by Laches

Failure or neglect to enforce a right for an

Unreasonable and unexplained length of time

Despite knowledge or notice

Art. 1356. Contracts shall be obligatory, in whatever form they may have been entered into, provided
all the essential requisites for their validity are present. However, when the law requires that a contract
be in some form in order that it may be valid or enforceable, or that a contract be proved in a certain
way, that requirement is absolute and indispensable. In such cases, the right of the parties stated in
the following article cannot be exercised. (1278a)
Art. 1357. If the law requires a document or other special form, as in the acts and contracts
enumerated in the following article, the contracting parties may compel each other to observe that
form, once the contract has been perfected. This right may be exercised simultaneously with the
action upon the contract. (1279a)

Art. 1358. The following must appear in a public document:

(1) Acts and contracts which have for their object the creation, transmission, modification or
extinguishment of real rights over immovable property; sales of real property or of an interest therein a
governed by Articles 1403, No. 2, and 1405;
(2) The cession, repudiation or renunciation of hereditary rights or of those of the conjugal partnership
of gains;
(3) 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;
(4) The cession of actions or rights proceeding from an act appearing in a public document.
All other contracts where the amount involved exceeds five hundred pesos must appear in writing,
even a private one. But sales of goods, chattels or things in action are governed by Articles, 1403, No.
2 and 1405. (1280a)

CHAPTER 4
REFORMATION OF INSTRUMENTS (n)

Art. 1359. When, there having been a meeting of the minds of the parties to a contract, their true
intention is not expressed in the instrument purporting to embody the agreement, by reason of
mistake, fraud, inequitable conduct or accident, one of the parties may ask for the reformation of the
instrument to the end that such true intention may be expressed.
If mistake, fraud, inequitable conduct, or accident has prevented a meeting of the minds of the parties,
the proper remedy is not reformation of the instrument but annulment of the contract.
Art. 1360. The principles of the general law on the reformation of instruments are hereby adopted
insofar as they are not in conflict with the provisions of this Code.
Art. 1361. When a mutual mistake of the parties causes the failure of the instrument to disclose their
real agreement, said instrument may be reformed.
Art. 1362. If one party was mistaken and the other acted fraudulently or inequitably in such a way that
the instrument does not show their true intention, the former may ask for the reformation of the
instrument.
Art. 1363. When one party was mistaken and the other knew or believed that the instrument did not
state their real agreement, but concealed that fact from the former, the instrument may be reformed.
Art. 1364. When through the ignorance, lack of skill, negligence or bad faith on the part of the person
drafting the instrument or of the clerk or typist, the instrument does not express the true intention of
the parties, the courts may order that the instrument be reformed.
Art. 1365. If two parties agree upon the mortgage or pledge of real or personal property, but the
instrument states that the property is sold absolutely or with a right of repurchase, reformation of the
instrument is proper.
Art. 1366. There shall be no reformation in the following cases:
(1) Simple donations inter vivos wherein no condition is imposed;

(2) Wills;
(3) When the real agreement is void.
Art. 1367. When one of the parties has brought an action to enforce the instrument, he cannot
subsequently ask for its reformation.
Art. 1368. Reformation may be ordered at the instance of either party or his successors in interest, if
the mistake was mutual; otherwise, upon petition of the injured party, or his heirs and assigns.
Art. 1369. The procedure for the reformation of instrument shall be governed by rules of court to be
promulgated by the Supreme Court.

CHAPTER 5
INTERPRETATION OF CONTRACTS

Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting
parties, the literal meaning of its stipulations shall control.
If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over
the former. (1281)
Art. 1371. In order to judge the intention of the contracting parties, their contemporaneous and
subsequent acts shall be principally considered. (1282)
Art. 1372. However general the terms of a contract may be, they shall not be understood to
comprehend things that are distinct and cases that are different from those upon which the parties
intended to agree. (1283)
Art. 1373. If some stipulation of any contract should admit of several meanings, it shall be understood
as bearing that import which is most adequate to render it effectual. (1284)
Art. 1374. The various stipulations of a contract shall be interpreted together, attributing to the doubtful
ones that sense which may result from all of them taken jointly. (1285)
Art. 1375. Words which may have different significations shall be understood in that which is most in
keeping with the nature and object of the contract. (1286)
Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the
ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established.
(1287)
Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party
who caused the obscurity. (1288)
Art. 1378. When it is absolutely impossible to settle doubts by the rules established in the preceding
articles, and the doubts refer to incidental circumstances of a gratuitous contract, the least
transmission of rights and interests shall prevail. If the contract is onerous, the doubt shall be settled
in favor of the greatest reciprocity of interests.
If the doubts are cast upon the principal object of the contract in such a way that it cannot be known
what may have been the intention or will of the parties, the contract shall be null and void. (1289)

Art. 1379. The principles of interpretation stated in Rule 123 of the Rules of Court shall likewise be
observed in the construction of contracts. (n)

CHAPTER 6
RESCISSIBLE CONTRACTS

Art. 1380. Contracts validly agreed upon may be rescinded in the cases established by law. (1290)
Art. 1381. The following contracts are rescissible:
(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion
by more than one-fourth of the value of the things which are the object thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the
preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the
claims due them;
(4) Those which refer to things under litigation if they have been entered into by the defendant without
the knowledge and approval of the litigants or of competent judicial authority;
(5) All other contracts specially declared by law to be subject to rescission. (1291a)
Art. 1382. Payments made in a state of insolvency for obligations to whose fulfillment the debtor could
not be compelled at the time they were effected, are also rescissible. (1292)
Art. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same. (1294)
Art. 1384. Rescission shall be only to the extent necessary to cover the damages caused. (n)
Art. 1385. Rescission creates the obligation to return the things which were the object of the contract,
together with their fruits, and the price with its interest; consequently, it can be carried out only when
he who demands rescission can return whatever he may be obliged to restore.
Neither shall rescission take place when the things which are the object of the contract are legally in
the possession of third persons who did not act in bad faith.
In this case, indemnity for damages may be demanded from the person causing the loss. (1295)
Art. 1386. Rescission referred to in Nos. 1 and 2 of Article 1381 shall not take place with respect to
contracts approved by the courts. (1296a)
Art. 1387. All contracts by virtue of which the debtor alienates property by gratuitous title are
presumed to have been entered into in fraud of creditors, when the donor did not reserve sufficient
property to pay all debts contracted before the donation.
Alienations by onerous title are also presumed fraudulent when made by persons against whom some
judgment has been issued. The decision or attachment need not refer to the property alienated, and
need not have been obtained by the party seeking the rescission.
In addition to these presumptions, the design to defraud creditors may be proved in any other manner
recognized by the law of evidence. (1297a)

Art. 1388. Whoever acquires in bad faith the things alienated in fraud of creditors, shall indemnify the
latter for damages suffered by them on account of the alienation, whenever, due to any cause, it
should be impossible for him to return them.
If there are two or more alienations, the first acquirer shall be liable first, and so on successively.
(1298a)
Art. 1389. The action to claim rescission must be commenced within four years.
For persons under guardianship and for absentees, the period of four years shall not begin until the
termination of the former's incapacity, or until the domicile of the latter is known. (1299)

CHAPTER 7
VOIDABLE CONTRACTS

Art. 1390. The following contracts are voidable or annullable, even though there may have been no
damage to the contracting parties:
(1) Those where one of the parties is incapable of giving consent to a contract;
(2) Those where the consent is vitiated by mistake, violence, intimidation, undue influence or fraud.
These contracts are binding, unless they are annulled by a proper action in court. They are
susceptible of ratification. (n)
Art. 1391. The action for annulment shall be brought within four years.
This period shall begin:
In cases of intimidation, violence or undue influence, from the time the defect of the consent ceases.
In case of mistake or fraud, from the time of the discovery of the same.
And when the action refers to contracts entered into by minors or other incapacitated persons, from
the time the guardianship ceases. (1301a)
Art. 1392. Ratification extinguishes the action to annul a voidable contract. (1309a)
Art. 1393. Ratification may be effected expressly or tacitly. It is understood that there is a tacit
ratification if, with knowledge of the reason which renders the contract voidable and such reason
having ceased, the person who has a right to invoke it should execute an act which necessarily
implies an intention to waive his right. (1311a)
Art. 1394. Ratification may be effected by the guardian of the incapacitated person. (n)
Art. 1395. Ratification does not require the conformity of the contracting party who has no right to
bring the action for annulment. (1312)
Art. 1396. Ratification cleanses the contract from all its defects from the moment it was constituted.
(1313)
Art. 1397. The action for the annulment of contracts may be instituted by all who are thereby obliged
principally or subsidiarily. However, persons who are capable cannot allege the incapacity of those

with whom they contracted; nor can those who exerted intimidation, violence, or undue influence, or
employed fraud, or caused mistake base their action upon these flaws of the contract. (1302a)
Art. 1398. An obligation having been annulled, the contracting parties shall restore to each other the
things which have been the subject matter of the contract, with their fruits, and the price with its
interest, except in cases provided by law.
In obligations to render service, the value thereof shall be the basis for damages. (1303a)
Art. 1399. When the defect of the contract consists in the incapacity of one of the parties, the
incapacitated person is not obliged to make any restitution except insofar as he has been benefited by
the thing or price received by him. (1304)
Art. 1400. Whenever the person obliged by the decree of annulment to return the thing can not do so
because it has been lost through his fault, he shall return the fruits received and the value of the thing
at the time of the loss, with interest from the same date. (1307a)
Art. 1401. The action for annulment of contracts shall be extinguished when the thing which is the
object thereof is lost through the fraud or fault of the person who has a right to institute the
proceedings.
If the right of action is based upon the incapacity of any one of the contracting parties, the loss of the
thing shall not be an obstacle to the success of the action, unless said loss took place through the
fraud or fault of the plaintiff. (1314a)
Art. 1402. As long as one of the contracting parties does not restore what in virtue of the decree of
annulment he is bound to return, the other cannot be compelled to comply with what is incumbent
upon him. (1308)

CHAPTER 8
UNENFORCEABLE CONTRACTS (n)

Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given no authority or legal
representation, or who has acted beyond his powers;
(2) Those that do not comply with the Statute of Frauds as set forth in this number. In the following
cases an agreement hereafter made shall be unenforceable by action, unless the same, or some note
or memorandum, thereof, be in writing, and subscribed by the party charged, or by his agent;
evidence, therefore, of the agreement cannot be received without the writing, or a secondary evidence
of its contents:
(a) An agreement that by its terms is not to be performed within a year from the making thereof;
(b) A special promise to answer for the debt, default, or miscarriage of another;
(c) An agreement made in consideration of marriage, other than a mutual promise to marry;
(d) An agreement for the sale of goods, chattels or things in action, at a price not less than five
hundred pesos, unless the buyer accept and receive part of such goods and chattels, or the
evidences, or some of them, of such things in action or pay at the time some part of the purchase
money; but when a sale is made by auction and entry is made by the auctioneer in his sales book, at

the time of the sale, of the amount and kind of property sold, terms of sale, price, names of the
purchasers and person on whose account the sale is made, it is a sufficient memorandum;
(e) An agreement 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.
(3) Those where both parties are incapable of giving consent to a contract.