Obligations and Contract
General Provisions
 ‘obligare” – to bind
 OBLIGEE or CREDITOR – the possessor of a right; he in whose favor the obligation is
 OBLIGOR or DEBTOR – he who has the duty of giving, doing, or not doing.
 OBJECT or PRESTATION – the subject matter of the obligation
 the EFFICIENT CAUSE – the reason why the obligation exists (the juridical tie)
PRESTATION: an obligation; may consist of giving, doing, or not doing a certain act. As a
juridical necessity, non-compliance of obligation can results in juridical or legal sanction.
1. From the viewpoint of SANCTION
a. CIVIL OBLIGATION (or perfect obligation): The sanction is judicial process (Art.
b. NATURAL OBLIGATION: the duty not to recover what has voluntarily been paid
although payment was no longer required
c. MORAL OBLIGATION (or imperfect obligation): the duty of a Catholic to hear mass
on Sunday… the law of the church.
2. From the viewpoint of SUBJECT MATTER
a. REAL OBLIGATION: the obligation to GIVE
 POSITIVE: the obligation to GIVE or TO DO
 NEGATIVE: the obligation NOT TO DO/GIVE
3. From the viewpoint of PERSONS OBLIGED
Four (4) Essential requisites/ELEMENTS of an obligation.
(1) A passive subject (called debtor or obligor) or the person who is bound to the fulfillment of
the obligation; he who has a duty;
(2) An active subject (called creditor or obligee) or the person who is entitled to demand the
fulfillment of the obligation; he who has a right;
(3) Object or prestation (subject matter of the obligation) or the conduct required to be observed
by the debtor. It may consist in giving, doing, or not doing. (see Art. 1232.) Without the
prestation, there is nothing to perform. In bilateral obligations (see Art. 1191.), the parties
are reciprocally debtors and creditors; and
Obligations and Contract
(4) A juridical or legal tie (also called effi cient cause) or that which binds or connects the parties
to the obligation. The tie in an obligation can easily be determined by knowing the source of
the obligation. (Art. 1157.)
Essential elements of cause of action.
1. a legal right in favor of a person (creditor/plaintiff) by whatever means and under whatever
law it arises or is created;
2. a correlative legal obligation on the part of another (debtor/defendant) to respect or not to
violate said right; and
3. an act or omission in breach or violation of said right by the defendant with consequential
injury or damage to the plaintiff for which he may maintain an action for the recovery of
damages or other appropriate relief.
Sources of obligations.
2 Kinds of quasi-contracts. [no one shall be unjustly enriched or benefited at the expense
of another]
(1) Negotiorum gestio [undue management] is the voluntary management of the property or
affairs of another without the knowledge or consent of the latter.
(2) Solutio indebiti [undue payment] is the juridical relation which is created when something is
received when there is no right to demand it and it was unduly delivered through mistake.
Civil liability arising from crimes or delicts. Every person criminally liable (moral evil) for a
felony is also civilly liable (material damage).
1. Restitution
2. Reparation of damage caused
3. Indemnification for consequential damages
Degree of Proof.
1. Civil action – preponderance of evidence
2. Criminal action – beyond reasonable doubt
Effects of Acquittal.
1. Acquittal because the accused could not have committed the act – no civil liability
2. Acquittal because of exempting circumstance (insane) – there is civil liability
3. Independent civil action ARTICLE 1162
Meaning of quasi-delicts. an act or omission by a person (tort feasor) which causes damage
to another in his person, property, or rights giving rise to an obligation to pay for the damage
done, there being fault or negligence but there is no pre-existing contractual relation between
the parties.
Obligations and Contract
Requisites of quasi-delict.
(1) There must be an act or omission by the defendant;
(2) There must be fault or negligence of the defendant;
(3) There must be damage caused to the plaintiff;
(4) There must be a direct relation or connection of cause and effect between the act or
omission and the damage; and
(5) There is no pre-existing contractual relation between the parties.
Crime distinguished from quasi-delict.
1. there is criminal or malicious intent or
criminal negligence
2. affects public interest, while quasi-delict
3. there are generally two liabilities: criminal
and civil
4. the purpose is punishment
5. cannot be compromised or settled by the
parties themselves,
6. the guilt of the accused must be proved
beyond reasonable
7. the liability of the person responsible for
the author of the negligent act or omission
is subsidiary, while in quasi-delict
1. there is only negligence
2. concerns private interest
3. there is only civil liability
4. indemnification of the offended party
5. can be compromised as any other civil
6. the fault or negligence of the defendant
need only be proved by preponderance of
7. it is direct and primary
Obligations and Contract
Three (3) Kinds of Obligation
1. Obligation to Give – delivery of payment; transfer of ownership; movable/immovable
2. Obligation to Do – render services
3. Obligation Not to DO – refrain from doing
Two (2) Kinds of Things
Specific or Determinate
When it is particularly designated or physically
segregated from all others of the same class
It is identified by its individuality
The debtor cannot substitute it with another
although the latter is of the same kind and quality
without the consent of the creditor. (Art. 1244.)
Duties of Debtor
Five (5) Duties of debtor in obligation to
give a determinate thing.
1. Preserve the thing
2. Deliver the fruits of the thing
3. Deliver the accessions and accessories
4. Deliver the thing itself
5. Answer for damages in case of nonfulfillment or breach
Generic or Indeterminate
when it refers only to a class or genus to which it
pertains and cannot be pointed out with
It is identified only by its specie
the debtor can give anything of the same class as
long as it is of the same kind.
Two (2) Duties of debtor in obligation to
deliver a generic thing.
1. To deliver a thing which is of the quality
intended by the parties taking into
consideration the purpose of the
obligation and other circumstances (Art.
1246.); and
2. To be liable for damages in case of fraud,
negligence, or delay, in the performance
of his obligation, or contravention of the
tenor thereof. (see Art. 1170.)
Duties of Debtor
Five (5) Duties of debtor in obligation to give a determinate thing.
1. Preserve
the thing
Obligation to take care of the thing due.
1. Diligence of a good father of a family. — obligor is required to
exercise this diligence in obligations to give (real obligations). The
phrase has been equated with ordinary care or that diligence which
an average (a reasonably prudent) person exercises over his own
2. Another standard of care. — However, if the law or the stipulation of
the parties provides for another standard of care (slight or
extraordinary diligence), said law or stipulation must prevail. (Art.
a. Extraordinary diligence – a common carrier
b. Statutory diligence – a firewall is required by Building Code
Obligations and Contract
3. Stipulated by the parties, higher or lower level of diligence or
ordinary diligence, but a stipulation exempting a carrier from liability
for gross negligence is against public policy (not complete absence
of diligence).
GENERAL RULE: The debtor is not liable if his failure to preserve
the thing is not due to his fault or negligence but to fortuitous events
or FORCE MAJEURE. (Art 1174)
2. Deliver the
thing itself
When obligation to deliver arises.
1. arises from the time of the perfection of the contract. Perfection in this case refers to the
birth of the contract or to the meeting of the minds between the parties. (Arts. 1305, 1315,
2. If the obligation is subject to a suspensive condition or period (Arts. 1179, 1189, 1193.), it
arises upon fulfillment of the condition or arrival of the period.
3. In a contract of sale, the obligation arises from the perfection of the contract even if the
obligation is subject to a suspensive condition or a suspensive period where the price has
been paid. [subject to suspensive condition or suspensive period]
4. In obligations to give arising from law, quasi-contracts, delicts, and quasi-delicts, the time of
performance is determined by the specific provisions of law applicable. [determined by
specific provision of law applicable]
Ownership and other real rights over property are acquired and transmitted
1. by law,
2. by donation,
3. by testate and intestate succession, and
4. in consequence of certain contracts by tradition (Art. 712.) or delivery – creditor does not
become the owner until the specific thing has been delivered to him;
Obligations and Contract
3. Deliver the
fruits of the
Three (3) kinds of fruits.
1. Natural fruits - without the intervention of human labor, ex.,
grass, trees, animals
2. Industrial fruits – with the intervention of human labor, ex., sugar
cane, vegetables
3. Civil fruits – results of juridical relation, ex., rents of buildings,
price of leases of lands
Two (2) Kinds of Rights
Personal Rights (jus ad rem)
right or power of creditor to demand from
debtor, as a definite passive subject, the
fulfillment of the latter’s obligation to give, to
do, or not to do.
there is a definite active subject and a
definite passive subject
Real Rights (jus in re)
right or interest of a person over a specific
thing (like ownership, possession,
mortgage), without a definite passive subject
against whom the right may be personally
there is only a definite active subject without
any definite passive subject
When are rights acquired?
Before the delivery, the creditor, in obligations to give, has merely a personal right against the
debtor – a right to ask for delivery of the thing and the fruits thereof.
Once the thing and the fruits are delivered, then he acquires a real right over them.
> sold House
and Lot to > Y
Perfection – Nov 3, 2007 (Y has no right over the fruits)
Planned Delivery – Dec 3, 2017 (Y has personal right enforceable against
X acquired from this point until actual delivery)
Actual Delivery – Jan 3, 2018 (real right begins, can now demand from
Leased to
A for P15,000 (Fruit)
Kinds of Delivery
1. Actual or Real (Art. 1497) – where physically the property changes hands.
2. Legal or Constructive (Arts. 1498-1501) – where physical transfer is implied:
a. Traditio simbolica –make use of a token symbol to represent the thing delivered, e.g.,
key to house;
b. Legal formalities –the delivery is made through the execution of a public document;
except when:
i. there is no intention to deliver, when there is stipulation to contrary, execution does not
produce effect of delivery; and
ii. third party claiming rights over the property, when at the time of execution of instrument,
subject matter was not subject to control of the seller.
Obligations and Contract
c. Traditio longa manu – movable property is delivered by mere consent by the
contracting parties if the thing sold cannot be transferred to the possession of the
vendee at the time of the sale, e.g., pointing out of the car;
d. Traditio brevi manu – the vendee already has the possession of the thing sold by
virtue of another title as when the lessor sells the thing leased to the lessee;
e. Traditio constitotum possessorium – the vendor continues in possession of the
property sold not as owner but in some other capacity (e.g., as tenant of the vendee).
3. Quasi-Traditio (Art. 1501) – delivery of rights, credits or incorporeal real property, made by
placing the titles of ownership in the hands of the vendee or lawyer, by execution of a
public instrument, or by allowing the vendee to use his rights as new owner with the
consent of the vendor.
Ownership is transferred by delivery which could be either actual or constructive. (Art. 1477)
The remedy of the buyer when there is no delivery despite demand is to file a complaint for
“SPECIFIC PERFORMANCE AND DELIVERY” because he is not yet the owner of the property
before the delivery.
4. Deliver the
General Rule: they are included.
Addition or improvement, e.g.,
(Examples: House or trees on a
land, Rents of a building,
Airconditioner in a car)
Everything attached to the
property (the principal)
Accessions are not necessary
to the principal thing.
Attached/included object to the
objection of obligation for better
use and enjoyment, (Examples:
Key of a house, Frame of a
picture, Bracelet of a watch,
Machinery in a factory)
Accessory and the principal thing
must go together. Both can exist in
relation to the principal.
Exception: If there is a stipulation to said effect, they do not have to
be included.
Obligations and Contract
5. Answer for damages
in case of nonfulfillment or breach
Remedies of creditor in real obligation (TO GIVE). In a specific real obligation (obligation to
deliver a determinate thing), the creditor may exercise the following remedies or rights in case
the debtor fails to comply with his obligation:
1. demand specific performance or fulfillment (if it is still possible) of the obligation with a right
to indemnity for damages; or
2. demand rescission or cancellation (in certain cases) of the obligation also with a right to
recover damages (Art. 1170.); or
3. demand the payment of damages only (see Art. 1170.) where it is the only feasible remedy.
An indeterminate thing cannot be the object of destruction by a fortuitous event because genus
nunquam perit (genus never perishes). (see Arts. 1174, 1263). He can still be compelled to
deliver a thing of the same kind (see Art. 1263.) or held liable for damages. (Art. 1170)
Remedies of creditor in positive personal obligation (TO DO).
1. If the debtor fails to comply with his obligation to do, the creditor has the right:
a. to have the obligation performed by himself, or by another (THIRD PERSON) unless
personal considerations are involved, at the debtor’s expense; and
b. to recover damages. (Art. 1170.)
2. If debtor’s performance was contrary to the terms agreed upon, it may be ordered (by the
court) that it be undone the same at the expense of the debtor
3. If poorly done, it may be ordered (by the court) that it be, undone if it is still possible to undo
what was done.
Performance by a third person.
A personal obligation to do, like a real obligation to deliver a generic thing, can be performed by
a third person. While the debtor can be compelled to make the delivery of a specific thing (Art.
1165.), a specific performance cannot be ordered in a personal obligation to do because this
may amount to involuntary servitude which, as a rule, is prohibited under our Constitution.
Remedies of creditor in negative personal obligation (NOT TO DO). The remedy of the
obligee is the undoing of the forbidden thing plus damages. (Art. 1170.)
Obligations and Contract
Meaning of delay.
(1) Ordinary delay is merely the failure to perform an obligation on time; no CONSEQUENCE,
(2) Legal delay or default or mora is the failure to perform an obligation on time which failure,
constitutes a breach of the obligation.
When is obligor considered legally delayed?
General Rule: Delay begins only from the moment the creditor demands, judicially or
extrajudicially, the fulfillment of the obligation.
1. When the law or obligation so expressly declares;
2. When from the nature of the contract, time us the essence and motivating factor for its
3. When demand would be useless (prestation is impossible);
4. In reciprocal obligations, from the moment one of the parties fulfills his obligation (Art. 1191);
5. When the debtor admits he is in default
Kinds of delay (mora).
1. Mora solvendi or the delay on
the part of the debtor to fulfill his
obligation (to give or to do) by
reason of a cause imputable to
him; does not apply to obligation
NOT TO DO (only fulfillment and
violation are possible)
Requisites of LEGAL delay or default by the debtor.
(1) Obligation is due (condition is fulfilled, period has arisen)
(2) Obligation is liquidated (3) failure of the debtor to perform his (positive) obligation on
the date agreed upon;
(4) demand (not mere reminder or notice) made by the creditor
upon the debtor to fulfill, perform, or comply with his
obligation which demand, may be either judicial (when a
complaint is filed in court) or extra-judicial (when made
outside of court, orally or in writing); and
(5) failure of the debtor to comply with such demand.
Effects of delay.
(1) He is liable for INTEREST in case of obligations to pay
money (Art. 2209.) or DAMAGES in other obligations. (Art.
1170.) In the absence of extrajudicial demand, the interest
shall commence from the filing of the complaint;
(2) He is liable even for a fortuitous event when the obligation
is to deliver a determinate thing. (Arts. 1165, 1170.)
2. Mora accipiendi or the delay on
the part of the creditor without
justifiable reason to accept the
performance of the obligation;
[unjustified refusal to accept the
performance of the obligation];
1. There must be an offer of the obligor to pay, deliver the
sum of money
2. Offer is in compliance with prestation
3. Creditor refuses to accept the performance of the debtor
without justified reason
Effects of delay.
1. The creditor is guilty of breach of obligation;
2. He is liable for damages suffered, if any, by the debtor;
3. He bears the risk of loss of the thing due;
Obligations and Contract
4. Where the obligation is to pay money, the debtor is not liable
for interest from the time of creditor’s delay; and
5. The debtor may release himself from the obligation by the
consignation or deposit in court of the thing or sum due
3. Compensatio morae or the delay
of the obligors and obligees in
reciprocal obligations (like in
sale), i.e., the delay of the
obligor cancels the delay of the
obligee, and vice versa.
Effects of delay.
the default of one compensates the default of the other; their
respective liabilities shall be offset equitable.
Obligation –
 If not subject to a period, performance is immediate
 If subject to a condition or period, demand is necessary
 In compensation morae, if without period, performance is simultaneous without need of
Grounds for liability for damages.
(1) Fraud (deceit or dolo) – it is the deliberate or intentional evasion of the normal fulfillment
of an obligation
(2) Negligence (fault or culpa). - any voluntary act or omission, there being no malice, which
prevents the normal fulfillment of an obligation
(3) Delay (mora).
(4) Contravention of the terms of the obligation
Liabilities in Fraud and Delay
1. Damages – there are six (6) kinds
a. Moral – mental and physical anguish, e.g., sleepless nights; proofs are needed
b. Exemplary – set an example; corrective so others will not follow
c. Nominal – to vindicate a right where there are no other damages may be recovered
d. Temperate – damage cannot be ascertained
e. Actual – actual losses as well as unrealized profit, e.g., car damages, lost income
f. Liquidated – already determined from the time of the constitution of the obligation
2. Interest –
a. Compensatory interest – in writing
b. Monetary interest – should not be unconscionable or legal interest
According to the time of commission, fraud may be past or future.
Waiver of action for future fraud void.
A waiver of an action for future fraud is void (no effect, as if there is no waiver) as being against
the law and public policy. A contrary rule would encourage the perpetration of fraud because the
obligor knows that even if he should commit fraud he would not be liable for it thus making the
obligation illusory.
Obligations and Contract
Waiver of action for past fraud valid.
A past fraud can be the subject of a valid waiver because the waiver can be considered as an
act of generosity and magnanimity on the part of the party who is the victim of the fraud. Here,
what is renounced is the effects of the fraud, that is, the right to indemnity of the party entitled
Classification of Fraud or Dolo
1. In obtaining consent
2. In performing contract:
a. DOLO CAUSANTE (causal fraud) (vitiates consent) or
b. DOLO INCIDENTE (incidental fraud)
Tax evasion – connotes fraud if there is use of devices to lessen or defeat taxes
ARTICLE 1172/1173
Meaning of Negligence
 Failure to exercise due diligence in taking care of the obligation
 the omission of that diligence which is required by the nature of the obligation and
corresponds with the circumstances of the person, of the time and of the place
1. there is deliberate intention to cause
damage or injury,
2. Waiver of the liability for future fraud is
void (Art. 1171.),
3. Fraud must be clearly proved, mere
preponderance of evidence not being
sufficient, while negligence is;
4. liability for fraud cannot be mitigated by
the courts,
1. there is no such intention;
2. such waiver may, in a certain sense, be
allowed in negligence;
3. presumed from the breach of a
contractual obligation
4. liability for negligence may be reduced
according to the circumstances. (Art.
When negligence is equivalent to fraud. Gross negligence is negligence characterized by
want or absence of or failure to exercise even slight care or diligence, or the entire absence of
care, acting or omitting to act on a situation where there is a duty to act, not inadvertently but
willfully and intentionally.
Kinds of FUTURE negligence
1. Gross negligence cannot be waived as this would be tantamount to waiving liability for
fraud; can never be excused in advance... contrary to public policy
2. Simple Negligence can be waived; can be excused or mitigated
Contract of Adhesion – negligence is construed against the drafter
Obligations and Contract
*Kinds of negligence according to source of obligation
1. Contractual negligence
(culpa contractual)
1. negligence in contracts
resulting in their breach.
2. Criminal negligence (culpa
1. negligence resulting in the
commission of a crime.
3. Civil negligence (culpa
1. negligence which by itself is
the source of an obligation
between the parties not so
related before by any preexisting contract.
2. Negligence is merely
incidental, incident to the
performance of an obligation
3. There is existing contractual
4. Preponderance of evidence
5. Due diligence of a good
father of a family as a
defense cannot be invoked
6. Negligence is always
presumed on the part of the
debtor; it is his duty to prove
2. Negligence is direct
3. There is NO existing
contractual obligation
4. Beyond reasonable doubt
5. Due diligence of a good
father of a family is a NOT
proper defense (owner is
not the defendant anyway).
The employee’s guilt is
automatically the employer’s
guilt if former is insolvent
(employer being subsidiarily
6. Presumption of innocence;
prosecution has the burden
of proving the negligence of
the accused
it is also called tort or quasidelict
2. Negligence is direct
3. There is NO existing
contractual obligation
4. Preponderance of evidence
5. Due diligence of a good
father of a family is a proper
and complete defense
6. Negligence has to be
Example: Contract of Carriage – negligence resulting in damage to property
Owner of the jeepney Subsidiary liability
Driver of the jeepney – reckless
imprudence resulting in damage
to property
Example: A personal driver caused damage to property
Employer of the driver is liable;
driver cannot be negligent;
owner must prove he exercised
due diligence in the selection
and supervision of the driver
Double Recovery:
In negligence cases, the aggrieved party has the choice between (1) an action to enforce civil
liability arising from crime under Article 100 of the Revised Penal Code; and (2) a separate
action for quasi delict under Article 2176 of the Civil Code of the Philippines. Once the choice is
made, the injured party can not avail himself of any other remedy because he may not recover
damages twice for the same negligent act or omission of the accused
Obligations and Contract
Meaning: any extraordinary event which cannot be foreseen, or which, though foreseen, is
inevitable. In other words, it is an event which is either impossible to foresee or impossible to
Force Majeure
1. Acts of man – acts of men, e.g., robbery, theft
2. Acts of God – do not have human intervention
Liability in case of loss and damage while in possession of the obligor.
General Rule: Obligation is extinguished for as long as there is no contributory negligence on
the part of the obligor.
Exceptions: The debtor is responsible for a fortuitous event in the ff cases:
1. When expressly declared by stipulations or contract such as when the contract says that
damages can be demanded in case of delays caused by any fortuitous event.
2. When expressly declared by law such as when the possessor is in bad faith or is in default.
(Art 1165)
3. When the Nature of obligation requires the assumption of risk
4. Fraud – promised to deliver to two persons (Article 1165)
Requisites of a Fortuitous Event
1. the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to
comply with obligations must be independent of human will;
2. it must be impossible to foresee the event that constitutes the caso fortuito or, if it can be
foreseen, it must be impossible to avoid;
3. the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a
normal manner;
4. the obligor must be free from any participation in the aggravation of the injury or loss.
Note: The absence of any of the above requisites (all of which must be proved) would prevent
the obligor from being exempt from liability.
Usury Law is suspended; there is no limit, but subject to agreement of the parties, so long it is
not contrary to public policy and moral.
Meaning: receiving interest in excess of the amount allowed by law for the loan
Obligations and Contract
Two (2) Kinds of Interest
Moratory Interest
Interest for the use of the money; must be in
writing, without which there is no liability
Compensatory Interest
Imposed by law or by courts as penalty or
indemnity for damages; no need for any
interest fixed by the parties to a contract for
the ease or forbearance of money (any
obligation to pay money)
For the purpose of rate of interest, it must be
in writing otherwise the legal interest shall
Requisites for recovery of Monetary Interest
1. The payment of interest must be expressly stipulated
2. The agreement must be in writing
3. The interest must be lawful [usurious rates are void]
Liability for legal interest
1. Loan or forbearance of money – interest should be in writing; actual and compensatory
interest don’t have to be in writing – unless stipulated, its 12% per annum
2. Other than loan or forbearance of money – 6%
3. Final and executory judgment awarding a sum of money - 6%
2 kinds of presumption
1. Conclusive – cannot be contradicted
2. Disputable – can be contradicted by presenting a proff
When presumptions do not apply
1. With reservation as to interest – in writing or verbally
2. Receipt for a part of principal – 1st para of 1176 refers only to the last installment of the
entire capital
3. Receipt without indication of particular installment paid
4. Payment of taxes
5. Non-payment proven
Obligations and Contract
In case when debtor does not comply with his obligation – creditor’s remedies include [the
debtor is liable with all his property present and future, except those exemptions provided by
1. exact fulfillment (specific performance) with the right to damages;
2. pursue the leviable property of the debtor (not exempt from attachment under the law);
3. accion subragatoria, i.e., exercise all rights (like the right to redeem) and bring all the actions
of the debtor (like the right to collect from the debtor of his debtor) except those inherent in
or personal to the person of the latter (such as the right to vote, to hold office, to receive
legal support, to revoke a donation on the ground of ingratitude, etc.); and
4. accion pauliana, i.e., ask the court to rescind or impugn acts or contracts which the debtor
may have done to defraud him when he cannot in any other manner recover his claim. (see
Arts. 1380-1389.)
Transmissibility of Rights
All rights acquired in virtue of an obligation are generally transmissible. (see Art. 1311.) The
exceptions to this rule are the following:
1. Prohibited by law – rights in partnership, agency and commodatum
2. Prohibited by stipulation of parties – stipulation against transmission must not be
contrary to public policy.
Obligations and Contract
1. Primary classifications
a. Pure and conditional
b. Obligations with a period
c. Alternative and facultative
d. Joint and solidary
e. Divisible and indivisible obligations
f. With a penal clause
2. Secondary classifications
a. Unilateral and bilateral
b. Real and personal
c. Determinate and generic
d. Positive and negative
e. Civil and natural obligations
f. Legal, conventional and penal obligations
3. Classification of obligations according to Sanchez Roman
a. By their juridical quality and efficaciousness
i. Natural
ii. Civil
iii. Mixed
b. By the parties or subject
i. Unilateral or bilateral
ii. Individual or collective
iii. Joint or solidary
c. By the object of the obligation or prestation
i. Specific or generic
ii. Positive or negative
iii. Real or personal
iv. Possible or impossible
v. Divisible or indivisible
vi. Principal or accessory
vii. Simple or compound
1. Conjunctive
2. Distributive
4. Classification By the Code according to Defects
i. No defect - valid
ii. Defective (rescissible, voidable, unenforceable, void)
Obligations and Contract
1. not subject to any condition;
2. no specific date for fulfillment;
3. immediately demandable
Consequences are subject to fulfillment of a
Note: An obligation is demandable at when it
is also subject to a Resolutory Condition.
In their fulfillment
With reference to time
As to influence on the
It is a future and uncertain event, on
which the effectivity or
extinguishment of an obligation
May also refer even to the Past (but
Causes an obligation to arise or to
An event which must happen
sooner or later at a date known
beforehand, or a time which
cannot be determined
Always refers to the future
Merely fixes the time or
efficaciousness of an obligation.
Suspensive period: cannot
prevent the birth of the
obligation in due time
Resolutory period: does not
militiate against its existence
Two (2) Principal Kinds of Condition
1. Fulfillment gives rise to the efficacy of the
2. OBLIGATION ARISES upon fulfillment of the
future and uncertain event which constitutes
the condition.
Actually, the birth, perfection or
effectivity of the contract subject to a
condition can take place only if and
when the condition happens or is
 There can be no rescission (Art. 1191.) of
an obligation that is still non-existent,
the suspensive condition not having
1. Obligation acquired or being performed can
be EXTINGUISHED upon happening of the
Obligations and Contract
1. Potestative
2. Casual
3. Mixed
Performance depends SOLELY ON THE WILL of one of the parties.
Performance depends on the will of the THIRD PARTY or CHANCE.
COMBINATION of potestative and casual conditions.
4. Impossible
Contrary to law, moral, good customs. ANNULS THE CONTRACT
ARTICLE 1184/5
5. Negative
Disregards the condion; as if there is no obligation. ANNULS THE
6. Positive
1. the condition is suspensive
2. the obligor prevents the fulfillment
3. the obligor acts voluntarily
ARTICLE 1187-89
Kinds of Obligation according to the person obliged
1. Unilateral – to give, to pay; one creditor, one debtor
2. Bilateral - one to give and to pay; both are creditors and debtors at the same time
a. Reciprocal – arise from same cause; to be performed simultaneously (fulfillment may be
suspensive condition; while non-fulfillment a tacit resolutory condition); e.g., contract of
sale without stipulation
b. Non-reciprocal - Does not require simultaneous and correlative performance
Remedies in Reciprocal Obligation,
GENERAL RULE: where there is breach of obligation
1. Fulfillment of obligation, with the right to claim damages
2. Rescission of contracts, with the right to claim damages
Obligations and Contract
Note: cannot apply both remedies at the same time.
EXCEPTION: he may also
1. seek rescission even after he has chosen fulfillment if the latter should become impossible.
But after choosing rescission of the obligation, he cannot thereafter demand its compliance,
nor seek partial fulfillment under the guise of recovering damages.
2. BY PRESCRIPTION, written (10 years), oral (4 years), from the time specific performance
has become impossible.
3. Once a breach or non-performance, remedy of specific performance is automatic (compel
the party to comply)????
Breach of obligation on part of plaintiff.
Breach of an obligation – failure or refusal without legal reason or excuse to perform the
Existence of economic prejudice not required.
Article 1191
Ground: substantial breach
Who can file: Aggrieved party.
Decision: Principal/primary
Article 1381
Ground: lesion or economic prejudice
Who can file: Third party
Decision: Subsidiary, only when all has been
Characteristics of the Right to Rescind
1. Rescission applies only to reciprocal obligations
2. Can be demanded only if plaintiff is ready, willing and able to comply with his own
obligation, and the other is not.
3. The right to rescind is not absolute.
a. Thus trivial causes or slight breaches will not cause rescission
b. If there is a just cause for fixing the period within which the debtor can comply,
the court will not declare rescission
c. If the property is now in the hands of an innocent third party who has lawful
possession of the same
4. The right to rescind needs judicial approval. Only the court determines proper rescission.
 Sufficient extrajudicial rescission
a. Service of notice
b. Only from his point of view that rescission is proper – assumes the risk
that rescission may not be proper
5. The right to rescind is implied to exist and therefore, need not be expressly stipulated.
6. The right to rescind may be waived, expressly or impliedly.
Effect of rescission.
1. annul the contract and restore the parties to the relative positions
2. mutual restitution is required to bring back the parties to their original situation prior to
the inception of the contract
Obligations and Contract
1. Rights of Forfeiture – payable in installments, in case of default, seller may rescind the
contract, all payments may be forfeited
 Should not be unconscionable
 Maceda Law, in case of cancellation, at least 24 months, at least 50% of
payments made may be reimbursed.
PERIOD - a day certain; will certainly arrive; which determines effectivity or the extinguishment of
Classifications of Period.
According to definiteness
The exact date or time is known and given.
It will happen but the date of happening is
According to source
Provided by law.
Agreed upon by the parties
Ordered by the court
According to effect
Ex Die
A period with a suspensive effect… obligation
In Diem
A period with a resolutory effect… obligation
1. Refers to future
2. Must be certain
3. Physically and legally possible
1. Both parties get benefitted – When there is interest stipulated. The creditor is interested in the
term because of the interests that would be earned; the debtor is interested because he is given
enough time to pay. Thus, both cannot be compelled to perform obligation.
2. Debtor gets benefitted – When there is no interest; debtor cannot be compelled to pay
3. Creditor gets benefitted – When the creditor is interested in keeping his money safely invested or
when he wants to protect himself from dangers of currency depreciation.
- deposit a car to - B-obligor/bailee
Return date – Dec 5, 2018 (A cannot be compelled to receive back the car before then)
Obligations and Contract
Debtor lose the benefit of the Period – the obligation become due and demandable before the arrival of
the Period
Plurality of subject matter or
object of obligations
There are 2 or more objects,
delivery of just ONE
extinguishes the obligation.
Once selection is made, the
obligation becomes a SIMPLE
EFFECTS in case of loss: (Art
There is only one object or
prestation, but can be
substituted by the DEBTOR.
There are 2 or more objects,
delivery of ALL extinguishes the
Joint and Solidary Obligations
Plurality of Parties
Joint Obligation
Several parties to each his own
Anyone of the debtors is liable to his
proportionate share
Six (6) Consequences of Joint obligation
1. Each of the debtors are liable/each of the
creditors can demand – proportionate share
2. vitiated consent on the of one debtor does not
affect the others.
3. Insolvency of one debtor does not make
others responsible for his share.
4. Demand by the creditor on one joint debtor
puts him in default, but not the others since
the debts are distinct
5. When the creditor interrupts the prescription
period, the others are not affected
6. Defenses of one debtor are not necessarily
available to the others
mancum, mancomunada; mancomunadamente;
pro rata; proportionately; pro rata, jointly;
conjoint; “we promise to pay” signed by two
or more persons
Solidary Obligation
All for one, one for all
Anyone is obliged to the whole world
Three (3) situations where there are solidary
1. Stipulated by the parties
2. Law provides
3. Natural obligation
4. Court decrees
Joint and severally, in solidum, mancomunada
solidaria, junto separadamente, individually and
collectively, each will pay the whole value
Obligations and Contract
Solidary Obligations
There are two or more
1 debtor
There is one (1) creditor
2 or more debtors
There are two or more
creditors and debtors
Article 1216
and Surety
1. Both are solidary obligors
2. Both can demand reimbursement
1. Solidary debtor is indebted for his own share
2. Can be reimbursed what he has paid minus
his own share
3. Defenses: goes to the nature of obligation
1. the surety is indebted only for the share of the
principal debtor;
2. can be reimbursed for everything he paid
3. Defenses: all defenses of principal can be
Article 1222
Three (3) Kinds of Defenses of Debtor
Those derived from the nature
Those personal to the debtor
of defenses
 prescription
 Vitiated consent
 Lack of consideration or
 Incapacity to give consent
 Nonfulfimment of
 Absolute simulation
 Illegal consideration
 Incapacitated to give
consent (insane, idiots, etc)
 Statute of Frauds
 When there are vices of
consent (all were forced or
intimidated, etc.)
Articles 1211-1221 – READ CASES!
Those personal to others
Obligations and Contract
Divisible and Indivisible Obligations
DIVISIBLE obligation
object may be fulfilled partially (delivered or
can complete partial performance
INDIVISIBLE obligation
Opposite of divisible obligation
Not capable of partial performance
assumes there is only ONE CREDITOR AND
Three (3) Kinds of Indivisibility
1. Legal – as may be provided by law, e.g.,
capital gains tax
2. Natural – nature of the object
3. Conventional – by common agreement
Joint Indivisible Obligation:
 if one defaulted, the creditor cannot compel
the others to pay
 monetary obligation – if object is indivisible
Illegal portion: just because object is indivisible
does not make obligation automatically solidary.
Applicability: object or prestation of the obligation, which may be to deliver a thing (real obligation) or to
render some service (personal obligation).
NOTE: The divisibility of an obligation should not be confused with the divisibility of the thing which is the
object thereof.
TEST FOR DISTINCTION – controlling circumstance is not the possibility or impossibility of partial
prestation but the PURPOSE of the obligation or the intention of the parties
Kinds of Division
1. Qualitative – specific property
2. Quantitative - can be divided in terms of number
3. Ideal or intellectual – the use of specific property
Kinds of indivisibility.
1. Legal indivisibility. — divisible rendered indivisible by provision of law (Art.1225, par. 3.)
2. Conventional indivisibility. — divisible rendered indivisible by the will of the parties
3. Natural indivisibility. — where the nature of the object or prestation does not admit of division,
e.g., to give a particular car, to sing a song, etc. (Ibid., par. 1.)
solidary obligation
In a solidary obligation, the breach by a co-debtor
makes all debtors liable for damages. (Art. 1221,
par. 2.)
joint indivisible obligation
In a joint indivisible obligation, the effect of noncompliance by a debtor is to make all the debtors
liable for damages but the innocent debtors
shall not contribute beyond their respective shares
of the obligation. The obligation becomes a
divisible one. . (Art. 1209)
Obligations and Contract
Obligations deemed INDIVISIBLE.
1. Obligations to give definite things (par. 1.)
2. Obligations which are not susceptible of partial performance (Ibid.).
3. Obligations provided by law to be indivisible even if thing or service is physically divisible (par. 3.).
4. Obligations intended by the parties to be indivisible even if thing or service is physically divisible
(par. 3.).
Obligations deemed DIVISIBLE.
1. Obligations which have for their object the execution of a certain number of days of work (par. 1.).
2. Obligations which have for their object the accomplishment of work by metrical units (Ibid).
3. Obligations which by their nature are susceptible of partial performance
Divisibility or indivisibility in obligations not to do (negative obligations): the character of the
prestation in each particular case shall determine their divisibility or indivisibility
 Obligations “to do” and “not to do” are generally indivisible.
 Obligations “to do” stated in paragraph 2 of Article 1225 are divisible
 Divisible and indivisible obligations are not to be confused with divisible and indivisible contracts.
Obligations and Contract
Obligations with a Penal Clause
PENAL CLAUSE – an accessory undertaking to assure greater liability in case of breach of obligation
PRINCIPAL obligation – can stand by itself; does not depend for its validity and existence upon
another obligation.
ACCESSORY obligation is one which is attached to a principal obligation and, therefore, cannot
stand alone.
obligation with a PENAL CLAUSE(deterrent against breach) –contains an accessory
undertaking to pay a previously stipulated indemnity in case of breach of the principal prestation;
intended primarily to induce its fulfillment.
Four (4) Kinds of Penal Clause
1. legal – one that is imposed by law
2. conventional – that which has been agreed upon by the parties (loan agreements)
3. subsidiary – in case there is nonperformance of principal, compel payment of penalty
4. joint – when both the principal contract and the penal clause can be enforced
PURPOSES of Penal Clause.
1. to insure performance; make breach as onerous as it may be possible; coercive measure.
(General purpose of a penal clause)
2. to substitute a penalty for the indemnity for damages and the payment of interests; damage has
been predetermined at the time of the constitution of the obligation, in such a case, only
requirement is a proof of breach of contract [if there is no prior determination, one must show
proof of damage and the extent of damage] e.g., construction agreement (Art. 1226.); or
3. to punish the debtor for the non-fulfillment or violation of his obligation. (damages may be
recovered in addition to the penalty)
(Additional damages may be recovered)
1. There is express stipulation
2. When the debtor refuses to pay the penalty
3. When the debtor is guilty of fraud or dolo in the fulfillment of the obligation
Penal clause
constitutes an obligation although accessory
becomes demandable in default of the
unperformed obligation and sometimes jointly
with it
Penal clause
Suppose S makes the following promises to B:
to convey to B house X, to pay P500,000.00, if
and if he fails, to pay B
he fails to convey to B
house X
Does not constitute an obligation although
Never demandable
to convey house X to B
or pay him
to convey house X to B
with the right to
substitute the same
with the payment of
Obligations and Contract
An analogy exists in all these obligations, in the sense that, in the proper cases contemplated, B may
become the owner of house X or receive payment of P500,000.00.
Demandable only nonNature: existence
The obligation is not
performance; and,
extinguished by the
when there is express
Effects: cannot demand fortuitous destruction or
its performance until
loss of the house in the
jointly with the principal the (suspensive)
example, but merely
condition takes place.
changes the obligation
And, if the condition
when the house is
does not take place,
a simple one.
destroyed by fortuitous
event, the obligation is
obligation is deemed in
law never to have
 If the obligation cannot be fulfilled due to a fortuitous event, the penalty is not demandable.
 Penalty not substitute for performance.
 The debtor can exempt himself from the non-fulfillment of the obligation only when “this right has
been expressly reserved for him.”
 Penal clause presumed subsidiary.
 when damages may be recovered in addition to the penalty (Art. 1227.), the creditor must prove
the amount of such damages which he actually suffered resulting from the breach of the principal
liquidated damages
Agreed damages
Obligations and Contract
When penalty may be reduced by the courts.
1. When there is partial or irregular performance: proportionate with the extent of the breach of the
contract or of the damage suffered.
2. When the penalty agreed upon is iniquitous or unconscionable: FACTORS TO CONSIDER [the type,
extent, and purpose of the penalty, the nature of the obligation, the mode of breach and its
consequences, the supervening realities, the standing and relationship of the parties, the extent of the
prejudice to the plaintiff, and the like.]
Construction of penal clause where performance partial or irregular.
1. Where penalty is punitive – e.g., construction of house in Urdaneta Village (not to indemnify but to
compel performance of obligation)
2. Where penalty is compensatory
Effect of nullity of the penal clause – the principal obligation remains
valid and demandable.
Effect of nullity of the principal obligation - penal clause is likewise void; if debtor is in bad
faith, penalty may be enforced
Obligations and Contract
Chapter 4
[6 ways: BY
1. PoP – 1232
2. LotTD –
3. CoRotD –
4. CoMotRoCaD –
5. C –
6. N –
Causes of extinguishment of obligations – other causes
(1) Death of a party in case the obligation is a personal one (Art.1311, par. 1.);
(2) Mutual desistance or withdrawal [mutuo disenso] - the borrower, instead of insisting for its
release, asked that the mortgage given by him as security be cancelled and the creditor (DBP)
acceded thereto
(3) Arrival of resolutory period (Art. 1193, par. 2.);
(4) Compromise (Art. 2028.);
(5) Impossibility of fulfillment (Art. 1266.); and
(6) Happening of a fortuitous event. (Art. 1174.)
Modes of extinguishment of obligations classified.
1. Voluntary
2. Involuntary
a. Performance
a. By reason of the subject
i. Payment
i. Confusion
ii. Consignation
ii. Death of the contracting parties
b. Substitution
b. By reason of the subject
i. Dacion en pago
i. Loss of the thing due or
ii. Novation
impossibility of performance
c. By release agreement
c. By reason to exercise (right of action)
i. Subsequent to the constitution of
i. Extinctive prescription
the obligation
1. Mutual waiver
2. Unilateral waiver
3. remission
ii. Simultaneous to the constitution
of the obligation
1. Resolutory condition
2. Extinctive period
Obligations and Contract
SECTION 1. — Payment or Performance
Meaning of payment. Not only delivery of money; also giving of a thing, doing of an act, or not
doing of an act = PERFORMANCE
Elements of payment.
1. Integrity of the object; should be delivered completely
2. Identity of the object; can’t deliver other things
3. Identity of the obligee,
4. Identity of the obligor or authorized or third party
5. Time and place of payment
Burden of proving payment.
Burden of proof – presentation of evidence of the facts in issue necessary to prove truth of his
claim or defense by the amount of evidence required by law.
 burden of proving extinguishment by payment devolves upon the debtor who pleads
payment or offers such a defense to the claim of the creditor rather than on the latter to
prove non-payment. [A receipt of payment, although not exclusive, is deemed to be the best evidence of payment.]
 In the absence of receipt, testimonial evidence
When debt considered paid. an obligation to deliver money, to deliver a thing (other than
money), to do an act, or not to do an act
(1) Integrity of the prestation – prestation must be fulfilled completely; Partial or irregular
performance will not produce the extinguishment of an obligation as a general rule.
(2) Identity of the prestation – very prestation due must be delivered or performed
ARTICLE 1234 [exception #1 to Article 1233]
Recovery allowed in case of substantial performance in good faith.
Requisites for the application of Article 1234.
(1) There must be substantial performance. Its existence depends upon the circumstances of
each particular case; and
(2) The obligor must be in good faith. Good faith is presumed in the absence of proof to the
ARTICLE 1235 [exception #2 to Article 1233]
Recovery allowed when incomplete or irregular performance waived. founded on the
principle of ESTOPPEL; acceptance = creditor’s waives his rights, obligation extinguished
Requisites for the application of Article 1235.
(1) The obligee knows that the performance is incomplete or irregular; and
Obligations and Contract
(2) He accepts the performance without expressing any protest or objection.
Meaning of “accept,” take as “satisfactory or suffi cient,” or to “give assent to,” or to “agree” or
“accede” to an incomplete or irregular performance.
Form of protest of creditor. So long as the acts of the creditor, at the time of the incomplete or
irregular payment by the debtor, or within a reasonable time thereafter, evince that the former is
not satisfied or agreeable to said payment or performance, the obligation shall not be deemed
Persons from whom the creditor must accept payment.
(1) The debtor;
(2) Any person who has an interest in the obligation (like a guarantor); or
(3) A third person who has no interest in the obligation when there is stipulation that he can
make payment.
Creditor may refuse payment by a third person.
Effect of payment by a third person.
(1) If made without the knowledge or against the will of debtor. — The payer can recover from
the debtor only in so far as the payment has been beneficial to the latter; third person is not
(2) If made with the knowledge of the debtor. — The payer shall have the rights of
reimbursement and subrogation; to acquire all the rights of the creditor
Payment with/without the knowledge or against the will of the debtor.
Obligations and Contract
Right of third person to subrogation.
Subrogation and reimbursement distinguished
In subrogation, the person who pays for the
debtor is put into the shoes of the creditor
The payer acquires not only the right to be
reimbursed for what he has paid but also all other
rights which the creditor could have exercised
pertaining to the credit either against the debtor or
against third persons, be they guarantors or
possessors of mortgages.
In reimbursement, the third person entitled by
reason of payment has merely the bare right to be
refunded without the right to
the guarantees and securities of the original
In subrogation, however, there is no real
extinction of the obligation, but only a change
of creditor.
[embodies the idea that no one should be compelled to accept the generosity of another]
Payment by a third person who does not intend to be reimbursed. If the paying third person
does not intend to be reimbursed the payment is deemed a donation which requires the debtor’s
Meaning of free disposal of thing due and capacity to alienate.
Free disposal of the thing due means that the
thing to be delivered must not be subject to any
claim or lien or encumbrance of a third
Capacity to alienate means that the person is not
incapacitated to enter into contracts and for that
matter, to make a disposition of the thing due.
Free disposal of thing due and capacity to alienate required.
Person to whom payment shall be made.
(1) Payment shall be made to:
(a) the creditor or obligee (person in whose favor the obligation has been constituted);
(b) his successor in interest (like an heir or assignee); or
(c) any person authorized to receive it.
(2) Creditor at the time the payment is to be made not at the constitution of the obligation.
(3) When payment is made to the wrong party, the obligation is not extinguished as to the
creditor who is without fault or negligence even if the debtor acted in outmost good faith and by
mistake as to the person of the creditor or through error induced by fraud of a third
Obligations and Contract
Meaning of “any person authorized to receive it.” not only a person authorized by the
creditor, also a person authorized by law to receive the payment, such as a
1. guardian, executor or administrator of the estate of a deceased, and
2. assignee or liquidator of a partnership or corporation as well as
3. any other person who may be authorized to do so by law.
in addition to SPA… the nature and extent of the alleged powers and authority granted to
the agent must be presented as well
Effect of payment to an incapacitated person. not valid unless the incapacitated keeps the
payment for his own benefit… Proof of such benefit is incumbent upon the debtor who paid.
Effect of payment to a third person. not valid except insofar as it has redounded to the benefit
of the creditor… … Proof of such benefit is incumbent upon the debtor who paid
When benefit to creditor need not be proved by debtor.
(1) subrogation of the payer in the creditor’s rights;
(2) ratification by the creditor; or
(3) estoppel on the part of the creditor.
Payment to third person in possession of credit.
“possession” – possession of the credit itself and not merely of the document or instrument
evidencing the credit… If the promissory note is payable to bearer or holder the obligation will be
extinguished if D pays X in good faith; also if the promissory note was indorsed by C to X, even if there is
no authority to collect
When payment to creditor not valid.
Garnishment of debtor’s credit.
”Garnishment” is the proceeding for the purpose of subjecting a debtor’s credit to the payment
of his debt to another.. a levy on personal property.
Obligations and Contract
Very prestation due must be complied with.
When prestation may be substituted. if the obligee consents.. in facultative obligation…
Special forms of payment.
(1) dation in payment (Art. 1245.);
(2) application of payments (Art. 1253.) – Strictly speaking, application of payments is not a
special form of payment.
(3) payment by cession (Art. 1255.); and
(4) tender of payment and consignation. (Arts. 1256-1261.)
Meaning of dation in payment. (adjudication or dacion en pago) is the conveyance of property
instead of performance of a monetary obligation.
Requisites of dation in payment
(1) There must be performance of the prestation in lieu of payment (animo solvendi) which
may consist in the delivery of a corporeal thing or a real right or a credit against a third
(2) There must be some difference between the prestation due and that which is given in
substitution (aliud pro alio); and
(3) There must be an agreement between the creditor and debtor that the obligation is
immediately extinguished by reason of the performance of a prestation different from that
It is an objective novation of the obligation.
Governing law. law of sales governs… As such, the essential elements of a contract (see Art.
1318.) must be present.
Sale distinguished from dation in payment.
1. there is no pre-existing credit
2. obligations are created
3. the cause is the price paid from the viewpoint
of the seller or the acquisition of the thing
sold, from the viewpoint of the buyer
4. there is more freedom in fixing the price
5. the buyer has still to pay the price
6. the parties deliver and receive the thing as
seller and buyer
Dation in payment
1. there is pre-existing credit
2. obligations are extinguished
3. the cause is the extinguishment of the debt,
from the viewpoint of the debtor, or the
acquisition of the object in lieu of the credit,
from the viewpoint of the creditor
4. there is less freedom in fixing the price
5. the payment is received before the contract is
perfected which is to be charged against the
debtor’s debt
6. … as debtor and creditor
Obligations and Contract
Transmission of ownership to creditor. no dacion en pago is accomplished if there is no
delivery and transmission of ownership of a thing to the creditor.
Rule of the medium quality. A principle of equity in that it supplies justice in cases where there
is lack of precise declaration in the obligation of the quality or kind of thing to be delivered…
purpose of the obligation… The benefit of this article may be waived by the creditor by
accepting a thing of inferior quality and by the debtor by delivering a thing of superior quality.
Debtor pays for extrajudicial expenses. Extinguishment benefits the debtor
Losing party generally pays judicial costs.
Judicial costs are the statutory amounts allowed to a party to an action for his expenses
incurred in the action.
Complete performance of obligation necessary. Applies only where there is one creditor and
only one debtor
When partial performance of obligation allowed.
(1) when there is an express stipulation to that effect (par. 1.);
(2) when the debt is in part liquidated (definitely determined or determinable) and in part
unliquidated (par. 2.);
(3) when the different prestations in which the obligation consists are subject to different terms
or conditions which affect some of them. In obligations which comprehend several distinct
prestations (e.g., obligation to pay debt in installments.), it is evident that the prestations
need not be executed simultaneously but each successive execution thereof must be
(4) when the parties know that the obligation reasonably cannot be expected to be performed
completely at one time; and
(5) when there is abuse of right or if good faith requires acceptance.
Alternative exceptions:
[4. Joint debtors; 5. In case of compensation when obligation is not equal]
Obligations and Contract
Payment of debts in money payable in Philippine currency. “currency stipulated” used in
Article 1249 refers to money different from that which is the legal tender or legally current in the
 modified by Republic Act No. 529 which requires the payment of domestic obligations in
money in Philippine currency
o repealed by R.A. No. 8183, approved on June 11, 1996. There is no longer any
legal impediment to having obligations or transactions paid in a foreign currency
as long as the parties agree to such arrangement.
Meaning of legal tender. Legal tender is that currency which a debtor can legally compel a
creditor to accept in payment of a debt in money
Legal tender in the Philippines. In the Philippines, all coins and notes issued by the Bangko
Sentral ng Pilipinas constitute legal tender for all debts
Payment by means of instruments of credits.
(1) Right of creditor to refuse or accept. payment of a judgment obligation
(2) Payment for purpose of redemption. not rendered invalid… It is the policy of the law to be
liberal in redemption cases, to aid rather than to defeat the right of redemption
(3) Effect on obligation. Payment by means of mercantile documents does not extinguish the
obligation… effect of a valid payment only
Applicability of impairment clause of Article 1249
Meaning of inflation and deflation.
Inflation is a sharp sudden increase of money
or credit or both without a corresponding
increase in business transactions. Inflation
causes a drop in the value of money,
resulting in rise of the general price level.
Deflation is the reduction in volume and
circulation of the available money or credit,
resulting in a decline of the general price
level; it is the opposite of inflation.
Requisites for application of Article 1250.
(1) There is an official declaration of extraordinary inflation or deflation from the Bangko Sentral
ng Pilipinas (BSP).
(2) The obligation is contractual in nature; and
(3) The parties expressly agreed to consider the effects of the extraordinary inflation or
Basis of payment in case of extraordinary inflation or deflation.
When inflation or deflation extraordinary. “one that neither party had reason to foresee when
the obligation was established” or “manifestly beyond the contemplation of the parties” at the
time of the establishment of the obligation
Devaluation and depreciation distinguished.
Obligations and Contract
involves an official reduction in the value of
one currency from an officially fixed level
imposed by monetary authorities.
downward change in the value of one
currency in terms of the currencies of other
nations which occurs as a result of market
forces in the foreign exchange market
Both refer to the decrease in the value of the currency
Place where obligation shall be paid.
(1) If there is a stipulation, the payment shall be made in the place designated
(2) If there is no stipulation and the thing to be delivered is specific, the payment shall be made
at the place where the thing was, at the perfection of the contract (par. 2.);
(3) If there is no stipulation and the thing to be delivered is generic, the place of payment shall
be the domicile of the debtor. (par. 3.) In this case, the creditor bears the expenses in going to
the debtor’s place to accept payment (see Art. 1247.) subject to the rule in paragraph 4.
Note: Venue is the place where a court suit or action must be filed or instituted.
Concept of domicile. It is believed that the term “domicile,” as used in Article 1251, connotes
“actual” or “physical’’ habitation of a person as distinguished from “legal” residence.
Meaning of application of payments. is the designation of the debt to which should be applied
the payment made by a debtor who has various debts of the same kind in favor of one and the
same creditor.
Requisites of application of payments.
(1) There must be one debtor and one creditor;
(2) There must be two or more debts;
(3) The debts must be of the same kind;
(4) The debts to which payment made by the debtor has been applied must be due; and
(5) The payment made must not be sufficient to cover all the debts.
Application as to debts not yet due. cannot be made unless:
(1) there is a stipulation that the debtor may so apply; or
(2) it is made by the debtor or creditor, as the case may be, for whose benefit the period has
been constituted.
Rules on application of payments.
(1) The debtor has the first choice; he must indicate at the time of making payment, and not
afterwards, which particular debt is being paid. If, in making use of his right, the debtor
applied the payment to a debt, he cannot later claim that it should be applied to another
(2) The right to make the application once exercised is irrevocable unless the creditor consents
to the change;
(3) It is clear from the use of the word “may’’ rather than the word “shall’’ in Article 122 that the
debtor’s right to apply payment is not mandatory but merely directory. If the debtor does not
Obligations and Contract
apply payment, the creditor has the subsidiary right to make the designation by specifying
in the receipt which debt is being paid;
(4) If the creditor has not also made the application, or if the application is not valid (par. 2.),
the debt, which is most onerous to the debtor among those due, shall be deemed to have
been satisfied;
(5) If the debts due are of the same nature and burden, the payment shall be applied to all of
them proportionately. and
(6) If neither party has exercised its option and there is disagreement as to debts to which
payment must be applied, the court will apply the payment according to the justice and
equity of the case, taking into consideration all its circumstances.
The rules in Articles 1252 to 1254 apply to a person owing several debts of the same kind
to a single creditor. They are not applicable to a person whose obligation as a mere
surety is both contingent and singular.
Interest earned paid ahead of principal. the debtor cannot choose to credit his payment to the
principal before the interest is paid.
Application of payment to more onerous debts. A debt is more onerous than another when
it is more burdensome to the debtor.
Where debts subject to different burdens. Apply to all of them proportionately.
Meaning of payment by cession. The assignment or abandonment of all the properties of the
debtor for the benefit of his creditors for the latter to sell the same.
Requisites of payment by cession
(1) There must be two or more creditors;
(2) The debtor must be (partially) insolvent;
(3) The assignment must involve all the properties of the debtor; and
(4) The cession must be accepted by the creditors.
Effect of payment by cession. debtor is still liable if there is a balance
Article 1255 refers to contractual assignment. Different from legal or judicial assignment
which is governed by the Insolvency Law.
Dation in payment and cession distinguished.
Dation in payment
A thing is alienated by the debtor to the
creditor who accepts it as equivalent of
payment of an existing debt in money
1. only one creditor
2. does not presuppose the insolvency
of the debtor
no dation if the transfer of property is by way
of security only, and not by way of satisfying
the debt.
1. there are several creditors
2. debtor is insolvent at the time of
Obligations and Contract
3. does not involve all the property of the
4. the creditor becomes the owner of the
thing given by the debtor
5. an act of novation
3. extends to all the property of the
debtor subject to execution
4. the creditors only acquire the right to
sell the thing and apply the proceeds
to their credits pro rata
5. not an act of novation.
Both are substitute forms of payment or performance.
They are governed by the law on sales.
Obligations and Contract
SUBSECTION 3. — Tender of Payment
and Consignation
Meaning of tender of payment and consignation.
Tender of payment is the act, on the part of
the debtor, of offering to the creditor the thing
or amount due
… must be in possession of the thing being
… an act preparatory to consignation
Consignation is the act of depositing the thing
or amount due with the proper court
… the creditor does not desire, or refuses
to accept payment,
… cannot receive it, after complying with the
formalities required by law.
Nature of and rationale for consignation
(1) A facultative remedy. —
(2) Avoidance of greater liability. —
Requisites of a valid consignation.
(1) existence of a valid debt which is due (Art. 1256, par. 1.) (2) tender of payment by the debtor and refusal without justifiable reason by the creditor to
accept it (Ibid.);
(3) previous notice of consignation to persons interested in the fulfillment of the obligation (Art.
1257, par. 1.);
(4) consignation of the thing or sum due (Art. 1258, par. 1.); and
(5) subsequent notice of consignation made to the interested parties.
Requirements for valid tender of payment.
(1) Tender of payment must comply with the rules on payment. good faith of the offeror or ability
to make good the offer should in simple justice excuse the debtor from paying interest after
the offer was rejected
(2) It must be unconditional and for the whole amount.
(3) It must be actually made.
Proof of tender of payment.
When tender of payment not required.
1. When debtor receives notification from the creditor that the money will not be received.
2. When mortgagee (bank) had long foreclosed the mortgage extrajudicially and the sale of
the mortgaged property had already been scheduled for non-payment of the obligation
Prior notice to persons interested required. Tender of payment and notice of consignation
may be done in the same act, e.q., sending a letter that should the creditor fail to accept the
payment tendered, the debtor would consign the amount in court.
Consignation must comply with provisions on payment.
Obligations and Contract
(1) payment should be made in legal tender.
(2) there is unmistakable evidence on record that the prerequisites of a valid consignation
are present
Tender of payment of judgment. Articles 1256 and 1257 are not applicable
Consignation must be with proper judicial authority.
Notice to be given to interested parties of consignation made.
Consignation applicable only to payment of debt.
Property deposited with court exempt from attachment.
Liability of creditor for expenses of consignation.
When consignation deemed properly made.
(1) When the creditor accepts the thing or sum deposited, without objection, as payment of the
obligation (Art. 1260, par. 2.);
(2) When the creditor questions the validity of the consignation, and the court, after hearing,
declares that it has been properly made (Ibid.); and
(3) When the creditor neither accepts nor questions the validity of the consignation, and the
court after hearing, orders the cancellation of the obligation.
Withdrawal by debtor of thing or sum deposited.
Risk of loss of thing or sum consigned.
Effect of withdrawal with authority of creditor.
doctrine of unforeseen events
theory of rebus sic stantibus the parties stipulate in the light of certain prevailing conditions, and once
these conditions cease to exist the contract also ceases to exist.
General Rule: The impossibility of performance releases the obligor.
“Service’’ should be understood as referring to the performance of the obligation; applies to a
real obligation to give or deliver a thing.
1. difficult.. could not be foreseen at the time of constitution
2. one of the parties ask for relief
3. future prestation
4. business risks
Obligations and Contract
SECTION 2. — Loss of the Thing Due
When a thing considered lost.
1. when it perishes, or
2. goes out of commerce or
3. disappears in such a way that (i) its existence is unknown, or it cannot be recovered. (Art.
1189, par. 2.)
Difference between Article 1266 and 1231
Loss of a determinate thing under Article
1262 (par. 1.) is the equivalent of
impossibility of performance in obligations
to do referred to in Article 1266.
“loss of the thing due,” as used in Article
1231(1) and the above section, extends to
both obligations to give and obligations
to do
Impossibility of Performance includes the ff:
a. physical impossibility (Article 1266)
b. legal impossibility (Article 1266)
c. moral impossibility (Article 1267)
Effect of Loss on an Obligation to Deliver a Specific Thing:
General Rule: The obligation is extinguished. But the loss must be AFTER the perfection of the contract,
i.e., the obligation has been incurred. If prior, there would not be any SUBJECT MATTER, there would
not have been any OBLIGATION at all.
Exceptions: [obligation remains because there can still be monetary obligation DAMAGES]
1. if the debtor is at fault
2. when the debtor is made liable for a fortuitous even because
a. of a contractual stipulation
b. of a provision of law (Arts. 1170, 1165[par. 3], 1263.)
i. there is delay when the debtor is in default (delay/mora)
ii. obligation arises from a crime (Article 1268)
c. the nature of the obligation requires the assumption of risk on the part of the debtor (par. 2;
see Art. 1174.)
Generic thing never perishes. Thus, obligation cannot be extinguished. The debtor can still be
compelled to deliver a thing of the same kind. The creditor, however, cannot demand a thing of
superior quality and neither can the debtor deliver a thing of inferior quality. (see Art.1246.)
Effect of partial loss of a specific thing. In case of partial loss, the court is given the
discretion, in case of disagreement between the parties, to determine whether under the
circumstances it is so important in relation to the whole as to extinguish the obligation. In other
words, the court will decide whether the partial loss is such as to be equivalent to a complete or
total loss.
Presumption of fault in case of loss of thing in possession of the debtor.
Obligations and Contract
General Rule: It is the debtor who must prove that he was not at fault. the debtor who has the
custody and care of the thing can easily explain the circumstances of the loss.
Exemption: In case of natural calamities, the presumption of fault does not apply. Lack of fault
on the part of the debtor is more likely. So it is unjust to presume negligence on his part.”
makes express reference to obligations to do or personal obligations. In obligations not to do,
impossibility of performance can hardly take place.
Rebus sic stantibus
potestative condition
‘service’ should be understood as referring to the ‘performance’ of the obligation.
What Article 1267 authorizes is a total or partial release from an obligation, not a modifi cation
or revision of the terms and conditions of the contract between the parties
1. Obligation must become so difficult that it was manifestly beyond the contemplation of
both parties.
2. The difficulty could not have been foreseen at the time of the constitution of the contract.
3. One of the parties must ask for relief.
4. The object must be a future service with future unusual change in conditions.
5. Business risk
Article 1268 is another instance where a fortuitous event does not exempt the debtor from
liability, except when creditor is in Mora Accipiendi. (Arts. 1174, 1262.)
Right of creditor to proceed against third persons. The rule finds frequent application in
insurance. In the case where a third person lost the car the debtor was supposed to deliver to
the creditor, whatever rights of debtor against the third person will be subrogated to the creditor.
In such case, debtor’s obligation is extinguished.
Obligations and Contract
SECTION 3. — Condonation or Remission
of the Debt
Meaning of condonation or remission. It is the gratuitous renunciation by the creditor of his
right against the debtor resulting in the extinguishment of the latter’s obligation in its entirely or
in that part of the same to which the renunciation refers. It is thus a form of donation.
Evidence required to prove remission.
Kinds of remission.
(1) As to its extent:
(a) Complete. — when it covers the entire obligation; (Solidary Obligation)
(b) Partial. — when it does not cover the entire obligation. (Joint Obligation)
(2) As to its form:
(a) Express. — when it is made either verbally or in writing;
(b) Implied. — when it can only be inferred from conduct. (Delivery of private document)
(3) As to its date of effectivity:
(a) Inter vivos. — when it will take effect during the lifetime of the donor; or
(b) Mortis causa. — when it will become effective upon the death of the donor. It must
comply with the formalities of a will
[Disputable] Presumption in case document of indebtedness voluntarily delivered by
(1) Presumption of implied remission, e.g., voluntary delivery of private document, or destruction
of the instrument
(2) Contrary evidence.
(3) Extent of remission.
(4) Presumption applicable only to private document.
Conflict of Presumption: remission vs payment
[Disputable] Presumption in case document found in possession of debtor.
Presumption of voluntary delivery
Effect of renunciation of principal debt on accessory obligation.
The above provision follows the rule that the accessory follows the principal. While the
accessory obligations cannot exist without the principal obligation, the latter may exist without
the former. (see Art. 1230.)
Obligations and Contract
[Disputal] Presumption in case thing pledged [COLLATERAL] found in possession of
If the pledge was found in the possession of the debtor, or of the third person who owns the
thing, the presumption is that the pledge, as an accessory obligation, has been remitted.
However, this presumption can be rebutted by the creditor if he proves that the thing is stolen,
returned for repairs, etc., in which case, there shall be no remission.
SECTION 4. — Confusion or Merger
of Rights
Meaning of confusion or merger.
It is the meeting in one person of the qualities of creditor and debtor with respect to the same
Requisites of confusion.
(1) It must take place between the principal debtor and creditor;
(2) It must be complete and definite; and
(3) the very obligation must be the same and identifical
Extinction of real rights by confusion.
Naked owner and usufructuary become one => consolidation of ownership
Revocability of Confusion or Merger.
If reason ceases, obligation is revived.
Effect of merger in the person of principal debtor or creditor.
Merger in the person of the principal debtor or creditor extinguishes the obligation. Hence, the
accessory obligation of guaranty is also extinguished
Confusion in a joint obligation.
the confusion will extinguish only the share corresponding to the creditor or debtor in whom the
two characters concur.
Confusion in a solidary obligation.
Merger in the person of one of the solidary debtors shall extinguish the entire obligation
because it is also a merger in the other solidary debtors. (Art. 1215.) He who makes payment
may claim reimbursement from his codebtors for the shares which correspond to them. (Art.
1217, par. 2.)
Obligations and Contract
SECTION 5. — Compensation
Meaning of compensation.
Obligations and Contract
SECTION 6. — Novation
Meaning of novation.
It is the total or partial extinction of an obligation through the creation of a new one which
substitutes it. It is the substitution or change of an obligation by another, which extinguishes or
modifies the first, either by
1. changing its object or principal conditions,
2. substituting another in place of the debtor, or by
3. subrogating a third person in the rights of the creditor.
Dual function or purpose of novation.
As a juridical act, novation is a contract containing two stipulations:
1. to extinguish or modify an existing obligation [certain terms and conditions may be
carried], expressly or by implication, over to the new obligation; and
2. to substitute a new one in its place.
Kinds of novation.
(1) According to the subject:
(a) Real or OBJECTIVE. — when the object (or cause) or principal conditions of the
obligation are changed (Art. 1291[1]
(b) Personal or SUBJECTIVE. — when the person of the debtor is substituted and/or when a
third person is subrogated in the rights of the creditor (Ibid., [2, 3].); or
(c) Mixed. — when the object or principal condition of the obligation and the debtor or the
creditor or both the parties, are changed. It is a combination of real and personal
novations. (Ibid.)
(2) According to how it is constituted:
(a) Express. — when it is so declared in unequivocal terms (Art. 1292.); or
(b) Implied. — when the old and the new obligations are essentially incompatible with each
other. (Ibid.)
(3) According to extent or effect:
(a) Total or extinctive. — when the old obligation is completely extinguished; or
(b) Partial or modificatory. — when the old obligation is merely modified, i.e., the change is
merely incidental to the main obligation.
(4) According to origin:
4. Legal. — that which takes place by operation of law (Arts. 1300, 1302; see Art. 1224.); or
5. Conventional. — that which takes place by agreement of the parties. (Arts. 1300, 1301.)
Obligations and Contract
Four (4) Requisites of novation.
(1) The existence of a previous valid obligation;
(2) The intention or agreement and capacity of the parties to extinguish or modify the
(3) The extinguishment or modification of the obligation; and
(4) The creation or birth of a valid new obligation.
Novation of judgment.
A final judgment of a court that had been executed but not yet fully satisfied, may be novated
by compromise.
Novation with respect to criminal liability.
Novation is not a mode of extinguishing criminal liability.
Novation not presumed.
While as a general rule, no form of words or writing is necessary to give effect to a novation, it
must be clearly and unmistakably established by express agreement or by the acts of the parties,
as novation is never presumed.
Two (2) ways of effecting conventional novation.
(1) by the express agreement of the parties or acts of equal or equivalent import
(2) by the irreconcilable incompatibility of the two obligations with each other in every material
respect. Express agreement is not required.
To effect an objective novation,
it is imperative that the new obligation
expressly declares that the old obligation is
thereby extinguished, or that the new
obligation be on every point incompatible
with the new one.
To effect an subjective novation,
By a change in the person of the debtor, it is
necessary that the old debtor be released
expressly from the obligation and the third
person or new debtor assumes his place in
the relation. There is no novation without
such release as the third person who
assumed the debtor’s obligation becomes
merely a co-debtor or surety.
There could be no novation if the parties in the new contract are not the same parties in the old
Obligations and Contract
Burden of showing novation.
The burden of establishing a novation is on the party who asserts its existence.
Incompatibility between two obligations or contracts.
The incompatibility should take place in any of the essential elements of the obligation, i.e.:
(a) the juridical relation or tie, such as from a mere commodatum to lease of things, or from
negotorium gestio to agency, or from a mortgage to antichresis, or from a sale to one of loan;
(b) the object or principal conditions such as a change of the nature of the prestation; or
the subjects, such as the substitution of a debtor or the subrogation of the creditor.
Test of Incompatibility
Whether or not the old and new obligation can stand together, each one having an independent
existence. No incompatibility exists when they can stand together. Hence, there is no novation.
Incompatibility exists when they cannot stand together. Hence, there is novation.
Effect of modifications of original obligation.
(1) Slight modifications and variations… there is no novation
 to avoid an immediate demand for the payment of the principal, promised to pay an extra
rate of interest which he was under no obligation to pay… a mere contractual
agreement, separate and distinct from the original contract which remained unchanged
 a mere extension of the term (period) for payment or performance… does not alter the
essence of the contract
 where surety becomes a principal obligor, does not released the original principal debtor
 mere reduction of the amount due
 acceptance of a partial payment
 consolidation of three (3) loan agreements
(2) Material deviations or changes
Two (2) Kinds of personal (subjective) novation.
(1) Substitution. — when the person of the debtor is substituted (Art. 1291[2].); or
(2) Subrogation. — when a third person is subrogated in the rights of the creditor. (Ibid., [3]; Art.
Two (2) Kinds of substitution novation.
(1) Expromision when a third person of his
own initiative and without the
knowledge or against the will of the
original debtor assumes the latter’s
obligation with the consent of the
creditor. It is essential that the old
debtor be released from his obligation;
Right of new debtor who pays.
(1) In expromision, payment by the new
debtor gives him the right to beneficial
reimbursement (Article 1236(2)).
(2) If the payment was made with the
consent of the original debtor or on his
own initiative (delegacion), the new debtor
Obligations and Contract
(2) Delegacion or when the creditor accepts
a third person to take the place of the
debtor at the instance of the latter. The
creditor may withhold approval. (Ibid.;
Art. 1295) In delegacion, all the parties, the
old debtor, the new debtor, and the
creditor must agree.
is entitled to reimbursement and
subrogation under Article 1237
Acceptance by creditor of payment from a
third person.
when there is no agreement that the first
debtor shall be released from responsibility,
does not constitute a novation, and the
creditor can still enforce the obligation
against the original debtor.
Consent of creditor necessary to substitution.
(1) Substitution implies waiver by creditor of his credit.
(2) Substitution may be prejudicial to creditor.
(3) Creditor has right to refuse payment by third person without interest in obligation.
(4) Involuntary novation by substitution of debtor. garnishment (see Art. 1243.),
ARTICLE 1294/95
Effect of new debtor’s insolvency or non-fulfillment of obligation.
In expromision
will not revive the action of the creditor
against the old debtor
In delegacion
General Rule: old debtor is not liable to the
creditor in case of the insolvency of the new
(1) The said insolvency was already existing
and of public knowledge (although it was
not known to the old debtor) at the time
of the delegacion; or
(2) The insolvency was already existing and
known to the debtor (although it was not
of public knowledge) at the time of the
The exceptions are intended to prevent fraud
on the part of the old debtor.
Effect of novation on accessory obligations.
an exception in the case of an accessory obligation created in favor of a third person which
remains in force unless said third person gives his consent to the novation.
Obligations and Contract
ARTICLE 1297/98
In General
If Original Obligation is Void
If New Obligation is Void
Old obligation is extinguished
and replaced by the new one
Novation is void if the original
obligation was void, except
when annulment may be
claimed only by the debtor, or
when ratification validates acts
that are voidable. (Art. 1298)
New obligation is void, the old
Obligation subsists, unless the
parties intended that the former
relations shall be extinguished in
any event. (Art. 1297)
6. Original obligation is void:
No novation
7. Original obligation voidable:
Effective if contract is
ratified before novation
(1) New obligation void: No
(2) New obligation voidable:
Novation is effective
 Accessory obligations are also extinguished, but may subsist only insofar as they may
benefit 3rd persons who did not give their consent to the novation OR may not be affected
upon agreement between the parties.
Presumption where original obligation subject to a condition.
the first obligation is subject to a suspensive or resolutory condition, the second obligation is
deemed subject to the same condition unless the contrary is stipulated by the parties in their
Meaning of subrogation. It is
(1) the substitution of one person in the place of another
(2) with reference to a lawful claim or right,
(3) so that he who is substituted succeeds to the right of the other
(4) in relation to a debt or claim, including its remedies and securities.
Kinds of subrogation.
(1) Conventional. — when it takes place by express agreement of the original parties (the debtor
and the original creditor) and the third person (the new creditor) (Art. 1301.); or
(2) Legal. — when it takes place without agreement but by operation of law. (Art. 1302.)
Conventional subrogation must be clearly established in order that it may take place. (Arts.
1292, 1300.) Legal subrogation is not presumed except in the cases expressly provided by law.
(Art. 1302.)
Obligations and Contract