Atty. Aliakhbar A.

Jumrani
Law Professor and Bar Reviewer
 Definition
◦ It is a juridical necessity to give, to do or not to do

 Elements
◦ Juridical tie – the legal or juridical relationship
◦ Active subject – the obligee or creditor; the party who has the
right to demand the performance of the obligation
◦ Passive subject – the obligor or debtor; the party who has the
duty to perform the obligation
◦ Prestation – the obligation to be performed

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 Sources
◦ Law
◦ Contracts
◦ Quasi-contracts
◦ Quasi-delicts
◦ Delicts

 Note: The source of the obligation must contemplate an active

subject (creditor) and the obligation must either be the payment of
a sum of money or the performance of an act or deed

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 Concept of Right vs. Obligation
◦ In every obligation there is a right in favor of another
◦ This right can be demanded and enforced by law
◦ The right must be rooted in any of the sources of obligation (law,
contract, etc.)

 Remedies
◦ Specific performance/sum of money
◦ Rescission
 Requires substantial breach. The policy of the law is to sustain the
contract and allow the obligor to perform the obligation.
◦ Damages where appropriate
 Generally, it is ancillary to the main relief, except when it is a separate
action in cases of tort or quasi-delict.

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 Personal vs. Real obligations
◦ Personal obligations = Obligations to do
◦ Real obligations = Obligations to give

Note: Generally, rights and obligations are transmissible, except

those that are personal to the party. Examples of obligations that
are intransmissible:
◦ Rights and obligations of the bailee in a contract of commodatum
◦ Rights and obligations of a partner in a partnership

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 Performance of obligations:
◦ According to the terms of the contract or law
◦ In good faith

Thus:

◦ Art. 19, CC (to act with justice, give everyone his due and observe
honesty and good faith)
◦ Art. 1167, CC (to execute what he failed to do and to undo what
has been poorly done)

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 To perform every obligation with DILIGENCE:
◦ Every obligation to do must be performed with the diligence
required by the contract, law or nature of the obligation
◦ Diligence depends on the nature of the obligation and must
correspond to circumstances of the persons, of the time and of
the place
◦ When the law or contract does not provide the degree of diligence
required, it is understood to be simple diligence or the diligence
of a good father of a family

◦ Negligence is the omission of the diligence required

 It entitles the creditor or oblige a right to damages if the obligation is
performed negligently.
 Also, it can be a separate cause of action in torts and quasi-delicts.

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 Right to the Fruits
◦ Fruits refer to natural, civil and industrial fruits
◦ The oblige is entitled to the fruits of the thing in obligations to
give or deliver
◦ The right accrues from the time the obligation arises

Note: If the contract does not involve transfer of ownership, there is

no right to the fruits. The fruits will still pertain to the owner. Ex:
commodatum, lease, deposit

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 Right to Accession
◦ In obligations to give or deliver a thing
◦ Present even when it is not mentioned
◦ May be waived

 Default or Delay
◦ Requisites:
 That the obligation be demandable and already liquidated;
 That the debtor delays performance; and
 That the creditor makes a judicial or extrajudicial demand

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◦ When demand is not necessary to put the debtor in default:
◦ When the obligation or the law expressly so declares;
◦ 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
◦ When the demand would be useless, as when the obligor has
rendered it beyond his power to perform

◦ Also, demand is not necessary in other obligations like those

arising from quasi-delict and delict

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 Fraud – when present, it can either annul the contract or make the
obligor liable for damages
◦ Dolo causante
◦ Dolo incidente

◦ Acts not considered fraudulent:

 Art. 1340. The usual exaggerations in trade, when the other
party had an opportunity to know the facts, are not in
themselves fraudulent.
 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.

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 Art. 1342. Misrepresentation by a third person does not
vitiate consent, unless such misrepresentation has created
substantial mistake and the same is mutual.
 Art. 1343. Misrepresentation made in good faith is not
fraudulent but may constitute error.

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 Fortuitous event
◦ Elements:
◦ 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;
◦ 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;
◦ the occurrence must be such as to render it impossible for the
debtor to fulfill obligations in a normal manner; and
◦ the obligor must be free from any participation in the
aggravation of the injury or loss.

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◦ Generally, the obligor is not liable unless the contrary is
stipulated by the parties (ex. Insurance) and in cases provided by
law (ex. commodatum, deposit, negotiorum gestio). In these
cases, the obligor assumes the risk of loss even if the loss is
caused by a fortuitous event.

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 Pure and conditional obligations

◦ Pure obligations - those 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. It is demandable at
once.

◦ Conditional obligations - those whose effectivity depends upon

the fulfillment or non-fulfillment of a future and uncertain fact or
event.

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 Kinds of conditions:

◦ Suspensive conditions
 A suspensive condition is a condition the fulfillment of which
gives rise to an obligation of the party in whose favor the
condition is created. Ex: full payment of the purchase price in a
contract to sell

◦ Resolutory conditions
 A resolutory condition is one which extinguishes rights and obligations
already existing. Ex: in a pacto de retro sale, the repurchase by the
previous owner extinguishes the previous sale

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◦ Potestative condition – one that depends upon the exclusive will
of one of the parties. Under Art. 1182 of the Civil Code, it is
considered void.

◦ Note:
 Where the potestative condition is imposed not on the birth of
the obligation but on its fulfillment, only the condition is
avoided, leaving unaffected the obligation itself. (Catungal vs.
Rodriguez, G.R. No. 146839, March 23, 2011)

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 Obligations with a period
◦ An obligation with a period is one whose consequences are
subjected to the expiration of a period or term. Ex. Price in a
contract of sale payable on installment
◦ The obligation is demandable only when the day comes (Art.
1193, CC)
◦ A potestative condition is different from an obligation with a
period. The former is void, the latter is valid. The court may be
asked to fix a period in an obligation with a period.
◦ A period is presumed to have been established for the benefit of
both creditor and debtor.

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When debtor loses the right to use the period:
◦ When after the obligation has been contracted, he becomes
insolvent, unless he gives a guaranty or security for the debt;
◦ When he does not furnish to the creditor the guaranties or
securities which he has promised;
◦ 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;
◦ When the debtor violates any undertaking, in consideration of
which the creditor agreed to the period;
◦ When the debtor attempts to abscond. (Art. 1198, CC)

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 Alternative obligations
◦ There is more than one obligation, the performance of one is
sufficient.
◦ The debtor has the right of election and the choice is effective
when it is communicated to the creditor.
◦ If the creditor is given the right of election, the obligation ceases
to be alternative from the time the creditor communicates his
choice.

◦ Distinguished from Facultative Obligations

 It is a facultative obligation when only one prestation has been
agreed upon but the debtor may render another in substitution.

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 Joint and solidary obligations
◦ In a "joint" obligation, each obligor answers only for a part of the
whole liability;
◦ In a "solidary" or "joint and several" obligation, the relationship
between the active and the passive subjects is so close that each
of them must comply with or demand the fulfillment of the whole
obligation
◦ Presumption in favor of joint obligations

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 When the law imposes solidary liability
o Liability for quasi-delicts (Malayan Insurance vs. Court of
Appeals, L-36413, September 26, 1988)
o Liability of co-principals in a contract of agency (Art. 1915, CC)
o Liability of partners and the partnership in wrongful acts
committed against third persons (Art. 1822 and 1823, CC)
o Liability of two or more bailees in a commodatum (Art. 1945,
CC)
o Corporate officers are solidarily liable with the corporation for
the illegal termination of services of employees IF they acted
with malice or bad faith. (Polymer vs. Salamuding, G.R. No.
185160, July 24, 2013)

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 Effects of solidary obligation
o In active solidarity or where there is solidarity of creditors, each
creditor is empowered to exercise against the debtor not only the
rights which correspond to him, but also all the rights which
correspond to the other creditors with the consequent obligation
to render an accounting of his acts to such creditors.
o In passive solidarity or where there is solidarity of debtors, each
debtor is liable for the payment of the entire obligation, with the
consequent right to demand reimbursement from the others for
their corresponding shares once payment has been made.
o A solidary creditor cannot assign his rights without the consent of
the others.

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o Novation, compensation, confusion or remission of the debt,
made by any of the solidary creditors or with any of the solidary
debtors, shall extinguish the obligation, subject to the following:
o 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 has been
totally paid by anyone of them before the remission was effected.
(Art. 1219, CC)

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 Divisible and indivisible obligations
◦ Distinctions (Art. 1225, CC):
 Divisible obligations are which have for their object the
execution of a certain number of days of work, the
accomplishment of work by metrical units and others which are
susceptible of partial performance
 Indivisible obligations are obligations to give definite things
and those which are not susceptible of partial performance
◦ Whether it is divisible or indivisible depends on the law or the
intention of the parties

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 Obligations with a penal clause
• The penalty shall substitute the indemnity for damages and the
payment of interests in case of non-compliance, if there is no
stipulation to the contrary. Nevertheless, damages shall be paid
if:
 The obligor refuses to pay the penalty;
 The obligor is guilty of fraud in the fulfillment of the
obligation. (art. 1226, CC)
• The penalty is generally undertaken to ensure performance and
works as either, or both, punishment and reparation. It is an
exception to the general rules on recovery of losses and
damages.
• A penal clause must be specifically set forth in the obligation.
(Rivera vs. Spouses Chua, G.R. No. 184458, January 14, 2015)

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 Payment or Performance
◦ Payment is a mode of extinguishing obligations and it means not
only the delivery of money but also the performance, in any other
manner, of an obligation. (Art. 1231, CC)
◦ Integrity of payment – the thing or service in which the obligation
exists must be completely delivered or rendered
◦ Identity of payment – the very thing, service or forbearance must
be performed
◦ Acceptance vs. receipt
 The word “accept” in Art. 1235, CC, means to take as satisfactory or
sufficient, or to agree to an incomplete or irregular performance. The
mere “receipt” of a partial payment is not equivalent to the required
acceptance of performance as would extinguish the whole obligation
(De Castro vs. Court of Appeals, G.R. No. 115838, July 18, 2002)

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◦ When a creditor may accept payment by a third person:
 When made by a third person who has an interest in the
fulfillment of the obligation; or
 When there is a stipulation to the effect that a third person
may pay the obligation.

◦ When the debtor may pay to a third person:

 It has redounded to the benefit of the creditor; or
 The third person is in possession of the credit in good faith.

◦ Payment shall be made in the legal tender. However, the parties

may agree that the obligation or transaction be settled in another
currency. (Sec. 1, RA 8183)

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 ◦ Promissory notes, checks, etc. shall have the effect of payment
only when they have been cashed or when through the fault of
the creditor they have been impaired. (Art. 1249, CC)

 Application of Payments
◦ It is the designation of the debt to which payment must be
applied when the debtor has several obligations of the same kind
in favor of the same creditor.
◦ Generally, it is the debtor’s right. But the creditor may make the
selection if the debtor does not elect or when there is an
agreement to that effect
◦ Payment shall be applied on the interest first, in case the debt
incurs interest (Art. 1253, CC)

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 Dation in Payment
◦ Requisites:
 Existence of a monetary obligation
 Alienation to the creditor of a property by the debtor with the
consent of the former
 Satisfaction of the money obligation of the debtor
◦ Application of the law on sales. Ex. Adequacy of the price,
warranties

 Payment by Cession
◦ This takes place when the debtor cedes or assigns his property to
his creditors in payment of his debts
◦ Compared to dation in payment, cession involves plurality of
creditor, partial or complete insolvency, universality of property
ceded and the release is to the extent of the proceeds of the
things ceded or assigned.

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 Tender and Consignation
◦ Distinction
• Tender of payment is the manifestation of the debtor to the
creditor of his decision to comply immediately with his
obligation.
• Consignation is the act of depositing the thing due with the
court or judicial authorities whenever the creditor cannot
accept or refuses to accept payment and it generally requires a
prior tender of payment

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 Requisites of valid consignation
◦ There was a debt due;
◦ The consignation of the obligation had been made because the
creditor to whom tender of payment was made refused to
accept it, or because he was absent or incapacitated, or
because several persons claimed to be entitled to receive the
amount due or because the title to the obligation has been lost;
◦ Previous notice of the consignation had been given to the
person interested in the performance of the obligation;
◦ The amount due was placed at the disposal of the court;
◦ After the consignation had been made, the person interested
was notified thereof

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 When prior tender of payment is excused
o When the creditor is absent or unknown, or does not appear at

the place of payment;

o When he is incapacitated to receive the payment at the time it is

due;
o When, without just cause, he refuses to give a receipt;

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

o When the title of the obligation has been lost

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 Loss of the Thing due
◦ In obligations to give, loss, as a mode of extinguishing an
obligation, depends on the thing involved
 If the thing is determinate, the obligation is extinguished
 If the thing is generic or indeterminate, the obligation is NOT
extinguished following the principle of genus nunquan perit or
the genus of a thing can never perish
◦ In obligations to do, the obligation is extinguished when the
prestation becomes legally or physically impossible without the
fault of the obligor

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 Condonation or Remission of the Debt
o It must be gratuitous;
o It must be accepted by the debtor;
o The obligation must be demandable

 Note:
o It may become dation in payment when the creditor receives a
thing different from that stipulated;
o It may become novation when the object or principal conditions
of the obligation should be changed; and
o It may become a compromise when the matter renounced is in
litigation or dispute and in exchange of some concession which
the creditor receives. (Dizon vs. Court of Tax Appeals, G.R. No.
140944, April 30, 2008)

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 Confusion or Merger of Rights
• It is the merger of the characters of the creditor and the debtor in
one and the same person by virtue of which the obligation is
extinguished.
• Requisites:
 That the characters of creditor and debtor must be in the
same person;
 That it must take place in the person of either the principal
creditor or the principal debtor
 It must be complete and definite

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 Compensation
◦ It is the extinguishment in the concurrent amount of the
obligation of those persons who are reciprocally debtors and
creditors of each other
◦ Types:
 Legal
 Voluntary or conventional

◦ Requisites of legal compensation:

◦ That each one of the obligors be bound principally, and that he
be at the same time a principal creditor of the other;
◦ 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;

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 ◦ That the two debts be due;
◦ That they be liquidated and demandable;
◦ That over neither of them there be any retention or
controversy, commenced by third persons and communicated
in due time to the debtor

 Requisites of conventional compensation:

◦ That each of the parties can dispose of the credit he seeks to
compensate;
◦ That they agree to the mutual extinguishment of their credits.

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 Novation
• It is the extinguishment of an obligation by the substitution or
change of the obligation by a subsequent one which extinguishes
or modifies the first, either:
 by changing the object or principal conditions;
 by substituting another in place of the debtor; or
 by subrogating a third person in the rights of the creditor
 Requisites:

 There must be a previous valid obligation;

 There must be an agreement of the parties concerned to a
new contract;
 There must be the extinguishment of the old contract; and
 There must be the validity of the new contract.

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 Novation by substitution of debtor

• Substitution by expromision – the initiative of the change does

not come from—and may even be made without the knowledge
of—the debtor. It consists of a third person’s assumption of the
obligation.
• Substitution by delegacion – the debtor offers, and the creditor
accepts, a third person who consents to the substitution and
assumes the obligation.

• In both cases, novation by substitution of debtor must always be

made with the consent of the debtor. (Bognot vs. RRI Lending,
G.R. No. 180144, September 24, 2014)

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 Subrogation
◦ It is the transfer of all the rights of the creditor to a third person,
who substitutes him in all his rights

• Types of subrogation:
◦ Legal subrogation is that which takes place without agreement
but by operation of law because of certain acts, e.g. in
insurance payouts or indemnities where the insurer is
subrogated to the rights of the insured against the third person
who caused the damage or injury
◦ Conventional subrogation is that which takes place by
agreement of the parties. Conventional subrogation
extinguishes the obligation and gives rise to a new one (Licaros
vs. Gatmaitan, G.R. No. 142838, August 9, 2001).

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 Atty. Campos was one of the incorporators of ABC Corporation.
From 2005 to 2010, he was the President and Chairman of the
Board. In 2010, he sold majority of his shares and became a
minority stockholder. He was not elected to the Board but was
permitted to attend the meetings by the former Chairman for his
significant contributions to the company. During the annual
stockholders’ meeting in 2017, the Board was reorganized with a
new Chairman and new directors. Atty. Campos went to attend the
first board meeting but was denied entry. He insisted, claiming that
he has the right to attend and the Board the obligation to permit
him to attend.

◦ What are the sources of obligation?

◦ In the case above, does Atty. Campos have a right—and the ABC
Corporation’s Board the obligation to allow him—to attend the
board meeting? Explain.

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 Julius opened a savings account with XYZ Bank in 2015. In 2017, he
applied for a housing loan from the same bank. Last year, Julius
defaulted. XYZ Bank then applied the balance in Julius’s savings
account to pay for the amortizations of the housing loan. Julius
questioned this, claiming that he did not give his consent.

◦ What is compensation or set-off as a mode of extinguishing

obligations?
◦ In the case above, was XYZ Bank correct in applying
compensation or set-off? Why?

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 Norma’s Salon, Inc. was buried in debts. Unlike five years ago, the
Salon was now facing tough competition from Bench Fix and Bruno’s
Barbers, to name a few. In an effort to reduce its ballooning debts,
Norma’s Salon delivered, by way of dacion en pago, 20 salon seats
and 10 hair blowers to its principal creditor, Chinabank. The items
were collectively valued at P700,000.00. Seven months after,
Chinabank found that some of the salon seats and hair blowers
were defective. Chinabank sued Norma’s Salon, Inc., for breach of
warranty against hidden defects.

◦ What is dacion en pago as a mode of extinguishing an obligation?

◦ In the case above, is Chinabank correct in invoking the warranty
against hidden defects? Explain.

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Definition
 It is a meeting of the minds, with respect to the other, to give
something or to render some service
 Kw: meeting of minds, parties, obligation

Elements
 Consent

 Object

 Cause

Types
 Real, consensual, solemn

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Characteristics of Contracts

 Relativity
 Obligatoriness
 Consensuality
 Mutuality
 Autonomy

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About the Consent
 Offer and acceptance
 Vices of Consent

About the Object

 Within the commerce of man
 Licit and not contrary to law, morals, good customs, etc.
 Must not be impossible
 Must be determinate as to its kind

About the Cause

 Must exist at the time of the contract
 Must be licit or lawful
 Must be true

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Form of Contracts

 Contracts are valid in whatever form (Art. 1356, CC)

 When form is indispensable for its validity; when it is merely for
convenience
 Contracts that must be in a public instrument (Art. 1358, CC)
◦ Contracts involving real rights over immovable property, sale of
real property or any interest therein;
◦ Cession, repudiation or renunciation of hereditary rights or those
of the CPG;
◦ Power to administer property, power that may prejudice a third
person;
◦ Cession of actions or rights proceeding from an act appearing in
a public document.

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Reformation of Contracts

 When reformation is proper

◦ True intention of the parties not expressed
◦ Due to mistake, fraud, inequitable conduct or accident
 When it is not proper
◦ Donations inter vivos wherein no condition is imposed
◦ Wills
◦ When the real agreement is void

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Interpretation of Contracts

 Plain meaning rule

 Rules of construction in case of doubt or ambiguity

 Contract of adhesion

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Defective Contracts

 Void and inexistent contracts

◦ Generally, those where one of the essential requisites of a valid
contract is totally wanting
◦ Note:
◦ A void contract produces no legal effect
◦ It cannot be ratified
◦ The right to set it up as a defense does not prescribe
◦ The action to declare the nullity of a contract does not prescribe
◦ Courts will leave the parties as they are following the in pari
delicto rule.

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 Voidable contracts
◦ Generally, those where one of the parties is incapable of giving
consent, or when the consent is vitiated by mistake, violence,
intimidation, undue influence or fraud.
◦ Note:
◦ The action to annul a contract may be lost due to:
 Prescription (4 years)
 Ratification by the injured party

 Rescissible contracts
◦ Contracts, although validly agreed upon, which can be rescinded
by reason of lesion or economic prejudice.

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 Notes on Rescission
◦ 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.
◦ He who demands rescission must be able to return whatever he
may be obliged to restore.
◦ 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.
◦ The action for rescission must be commenced within 4 years

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 Unenforceable contracts
◦ Those entered into in the name of another by one without or
acting in excess of authority;
◦ Those where both parties are incapable of giving consent (if only
one of the parties is incapable of giving consent, the contract is
voidable); and
◦ Those which do not comply with the Statute of Frauds.

 Agreements covered by the Statute of Frauds:

◦ Agreements not to be performed within a year from the making
thereof;
◦ Special promise to answer for a debt, default or miscarriage of
another;
◦ Agreement in consideration of marriage other than a mutual
promise to marry;

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◦ Agreement for the sale of goods, etc. at a price not less than
P500.00;
◦ Contracts of lease for a period longer than one year;
◦ Agreements for the sale of real property or interest therein; and
◦ Representation as to the credit of a third person.

◦ Note:
◦ The Statute of Frauds requires that the contract be evidenced by
some note, memorandum or any writing.
◦ The Statute of Frauds applies only to executory contracts.
◦ The contracts supposedly covered by the Statute of Frauds
become enforceable when they are ratified.

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 A contract of agency for “following up papers in the different
governments offices to which they were referred" (Tee vs. Tacloban
Electric, L-11980, February 14, 1959)

 A non-involvement clause, or that which indefinitely prohibits an

employee from engaging in any business similar to that of his
employee after the termination of his employment contract (Tiu vs.
Platinum Plans, G.R. No. 163512, February 28, 2007)

 A compromise agreement for the settlement of an obligation arising

out of a void contract (Osmeńa vs. Commission on Audit, G.R. No.
98355, March 2, 1994)

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 Any stipulation where the fixing of interest rate is the sole
prerogative of the creditor/mortgagee (Andal vs. Philippine National
Bank, G.R. No. 194201, November 27, 2013)

 A loan obtained by the municipality for the purpose of funding the

conversion of the public plaza (a property of public dominion) into a
commercial center (Land Bank vs. Cacayuran, G.R. No. 191667, April
17, 2013) Art. 1197, Civil Code.

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 Remedios, a Filipina, met Robert, a British national, on a dating
website. They fell in love and got married five years ago. Two years
ago, Remedios, with the money of Robert, purchased a beach
property in San Vicente, Palawan. Remedios and Robert then entered
into a Contract of Lease whereby Robert is given the exclusive use
and enjoyment of the beach property for 50 years, renewable for
another 50 years. Also, Remedios obligated herself not to sell,
alienate, encumber and otherwise impair the rights of Robert to the
property without Robert’s consent.

◦ What is a contract and what are its elements?

◦ In the case above, is the Contract of Lease valid? Why?

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 Rochelle was selling her house and lot in Kawit, Cavite for P5
Million. She verbally appointed her friend Dessa as her agent, who
then offered the property to Lynnette, who accepted and paid
P200,000.00 as partial payment, out of the P5 Million purchase
price. When Lynnette went to Rochelle to give the check for the
balance of the purchase price, Rochelle refused and told Lynnette
that the contract was void and/or unenforceable because the
contract of agency to sell was not in writing as required under Art.
1403 and Art. 1874 of the Civil Code.

◦ Differentiate void from unenforceable contracts?

◦ Is Lynnette correct that the supposed contract of sale was void
and/or unenforceable?

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THANK YOU!

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