2020 2021 Civil Law Handout No. 6 Obligations and Contracts 1

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CIVIL LAW
Obligations and Contracts
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REMINDERS IN OBLIGATIONS AND CONTRACTS
3. A passive subject known as the obligor or

OBLIGATIONS debtor, against whom the obligation is juridically
demandable; and
Definition
1. An obligation is a juridical necessity to give, to 4. The fact, prestation or service which constitutes
do or not to do (Art. 1156, NCC of the Philippines). the object of the obligation. It is a conduct that
may consist of giving, doing, or not doing
2. Obligation is the juridical necessity to comply something.
with a prestation (4 Sanchez Roman 53).
Different kinds of Prestation
3. Legal relation established between one person
and another, whereby the latter is bound to the 1. Obligation to give consists in the delivery of an
fulfillment of a prestation, which the former may immovable or a movable thing, in order to create
demand of him (8 Manresa, 5th Ed., Bk. 1, p. 21). a real right, or for the use of the recipient, or for
its simple possession or in order to return to its
4. The definition of an obligation under Art. 1156 owner.
refers only to the definition of a civil obligation
and does not cover all types of obligations. Only 2. Obligation to do consists in rendering a service
a civil obligation is “a juridical necessity” or performing an act.
because in case of non-compliance, the
obligee/creditor acquires a right of action against 3. Obligation not to do consists in abstaining from
the obligor/debtor and the courts of justice may some act; it includes the obligation not to give,
be called upon by the aggrieved party to enforce both being negative obligations.
its fulfillment or, in default thereof, to demand
the economic value that it represents. A non-civil Classifications of obligation
obligation like a natural obligation, on the other 1. As to juridical quality:
hand, does not give rise to a right of action to
compel performance of the obligation. a. Natural – when the obligation is in
accordance with natural law.
5. Under Art. 1423 of the NCC, an obligation may
either be civil or natural. b. Civil – when the obligation is in accordance
with positive law.
A civil obligation is defined in Art. 1156. A civil
obligation is based on “positive” law, which is c. Mixed - when the obligation is in accordance
the product of an affirmative act of human with both natural and positive law.
legislation.
2. As to parties
Failure to comply with a civil obligation will a. Unilateral and bilateral – unilateral, where
grant the aggrieved party a right to seek the aid only one party is bound, and bilateral, where
of the courts. both parties are mutually or reciprocally
bound.
Elements of an obligation
1. A juridical or legal tie, which binds the parties to b. Individual and collective – individual, where
the obligation, and which may arise from either there is only one obligor, and collective,
bilateral or unilateral acts of persons; where there are several obligors. The latter
may be joint, when each obligor is liable only
2. An active subject known as the obligee or for his proportionate share of the obligation,
creditor, who can demand the fulfillment of the or solidary, when each obligor may be held
obligation; liable for the entire obligation.
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3. As to object:
b. Conditional – when the obligation is subject
a. Determinate and generic – determinate, to a condition, which may be suspensive, in
when the object is specific, generic, when the which case the happening or fulfillment of
object is designated by its class or genus. the condition results in the birth of the
obligation; or resolutory, in which case the
b. Simple and multiple – simple, when there is happening or fulfillment of the condition
only one undertaking, multiple, when there results in the extinguishment of the
are several undertakings. Multiple obligation.
obligations may be conjunctive, when all of
the undertakings are demandable at the same c. With a term or period (a plazo) – when the
time, or distributive, when only one obligation is subject to a term or period
undertaking out of several is demandable. which may be suspensive or from a day
Distributive obligations, on the other hand, certain, in which case the obligation is
may be alternative, when the obligor is demandable only upon the expiration of the
allowed to choose one out of several term; or resolutory or to a day certain, in
obligations, which may be due and which case the obligation terminates upon
demandable, or facultative, when the obligor the expiration of the term (Comments and
is allowed to substitute another obligation for Jurisprudence on Obligations and Contracts,
one which is due and demandable. Jurado, 11th Ed., pp. 3-6).
c. Positive and negative – positive, when the Natural Obligation

obligor is obliged to give or do something; A natural obligation is not based on positive law.
negative, when the obligor must refrain from Instead, it is based on equity and natural law. Its
giving or doing something. basis is not man-made; hence its performance is
merely voluntary on the part of the obligor. The
d. Real and personal – real, when the obligation failure to comply with such obligation does not give
consists in giving something; personal, when a right of action to compel its performance. Not
the obligation consists in doing or not doing being man-made, it cannot be enforced by human
something. institutions like the courts. The obligor therefore,
in a natural obligation, does not, as a rule, enjoy
e. Possible and impossible – possible, when the the protection of the courts.
obligation is capable of fulfillment in nature
as well as in law; impossible, when the The performance of a natural obligation cannot be
obligation is not capable of fulfillment either compelled. Under Art. 1423 however, once a natural
in nature or in law. obligation has been voluntarily performed, the law
now steps in and allows the obligee to retain what
f. Divisible and indivisible – divisible, when has been delivered or rendered voluntarily by the
the obligation is susceptible of partial obligor. In other words, it cannot be judicially
performance; indivisible, when the enforced but authorizes the obligee to retain the
obligation is not susceptible of partial obligor’s payment or performance.
performance.
Examples:
g. Principal and accessory – principal, when it When a debt has prescribed, the legal obligation to
is the main undertaking; accessory, when it is pay the debt no longer exists. This is because
merely an undertaking to guarantee the prescription is a mode of extinguishing a civil
fulfillment of the principal obligation. obligation (Art. 1231, NCC). Hence, the creditor can
no longer successfully sue the debtor. However,
4. As to perfection and extinguishment: when despite knowledge of the fact of prescription
of his debt, the debtor voluntarily pays his debt,
a. Pure – when the obligation is not subject to which has prescribed, the debtor cannot recover
any condition or term and is immediately what he has paid (Art. 1424, NCC). It is the act of
demandable. voluntarily performing the obligation, which puts
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the obligee in a natural obligation within the quasi delict and its only purpose is to regulate such
protection of the courts. Note that when a debt obligation or to help enforce the obligation, then the
prescribes, the debt is extinguished as far as human law is not the source of the obligation. Thus, if AA
law is concerned, but under the precepts of equity commits a crime against VV, the obligation to
and natural justice, the debt still subsists. Because it indemnify VV arises from the crime of AA. If DD
subsists, the debtor may voluntarily perform his borrows money from CC, the obligation to pay arises
obligation. But once he pays, he can no longer from the contract of loan, not from the law since no
recover what has been paid voluntarily. legal provision exists requiring CC to lend money to
DD (Comments and Jurisprudence on Obligations and
A creditor sues a debtor but the court was not Contracts, Jurado, 12th Ed., pp. 7-8).
convinced of the existence of the debt. The court
rendered a judgment in favor of the debtor. 1. OBLIGATIONS ARISING FROM LAW
Assuming that despite winning the case, the debtor, a. Obligations arising from law are not presumed.
who felt a tremendous remorse of conscience, Only those expressly in this Code or in special laws
voluntarily paid the debt, may he recover what he are demandable, and shall be regulated by the
has paid voluntarily? He cannot recover. Under Art. precepts of the law which establishes them. (Art.
1428, “when after an action to enforce a civil 1158, NCC)
obligation has failed, he cannot demand the return
of what he has delivered or the payment of the value Cases:
of the service he has rendered”. i. In Serrano vs. Central Bank (96 SCRA 96), it was
held that the Central Bank is not under
Sources of obligations obligation to pay the deposit of a depositor made
1. The following are the sources of obligations under in an insolvent bank because there is no law
the NCC of the Philippines: authorizing it.
a. Law (Obligation ex lege);
b. Contracts (Obligation ex contractu); ii. In Dela Cruz vs. Northern Theatrical Enterprises (95
c. Quasi- contracts (Obligations ex quasi- Phil 739), it was held that an employer has no
contractu); obligation to furnish free legal assistance to an
d. Acts or omissions punished by law (Ex employee, who was forced to engage a lawyer to
delictu, ex-maleficio or culpa criminal); and defend him in court for having shot and killed a
e. Quasi- delicts (Obligation ex quasi delicto or gate crasher, because there is no law requiring it.
ex quasi maleficio) (Art. 1157, NCC)
iii. In San Francisco Inn vs. San Pablo City Water
2. The sources of obligations referred to above are the (G.R. No. 2014639, February 15, 2017), the Supreme
sources only of civil obligations and not of any other Court, in sum, ruled that faithful compliance with
type of obligations. This list is exclusive, i.e., no civil the requirements of the law is necessary to create a
obligation may arise from a source other than those binding obligation arising from law.
enumerated under Article 1157.
2. CONTRACTUAL OBLIGATIONS
3. An obligation imposed on a person and the a. Obligations arising from contracts are governed
corresponding right granted to another, must be primarily by the agreement of the contracting
rooted in at least one of these five sources (Makati parties. This is clearly deducible not only from the
Stock Exchange, Inc. vs. Campos, 138814, April 16, 2009). nature of the contracts, but also from Art. 1315 of
the New NCC, which declares that such obligation,
4. It will be observed that all the sources of obligations have the force of law between the contracting
are described in various laws but this does not mean parties and should be complied with in good faith.
that the law is the only source of obligations. When “Compliance in good faith” means performance
it is the law itself, which establishes the obligation in accordance with the stipulations, clauses, terms
(like payment of 13th month pay to employees), the and conditions of the contract.
law is the source of obligation. However, when the
law merely acknowledges the existence of an
obligation generated by an act which may constitute
a contract, quasi- contract, delict/criminal offense or

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3. EXTRA-CONTRACTUAL accused did not commit the crime charged, or

OBLIGATIONS there is a declaration in the decision of acquittal
that no negligence can be attributed to the
One of the sources of extra contractual obligations accused, and that the fact from which the civil
found in our NCC is the quasi-contract premised on action might arise did not exist. (Pineda,
the Roman maxim that nemo cum alterius detriment Obligations and Contracts, citing Castillo vs CA, 176
locu pletari protest. Quasi-contracts are those SCRA 591)
juridical relations arising from lawful, voluntary and
unilateral acts, by virtue of which the parties 5. QUASI-DELICT
become bound to each other, based on the
principle that no one shall be unjustly enriched or Another source of extra-contractual obligations is
benefited at the expense of another. Examples of the quasi-delict which is the fault or negligence of a
quasi-contracts are negotiorum gestio and solution person, who, by his act or omission, connected or
indebiti. unconnected with, but independent from, any
contractual relation, causes damage to another
A. Negotiorum gestio is the juridical relation, which person. A perusal of Article 2176 shows that
arises whenever a person voluntarily takes obligations arising from quasi-delicts or tort, also
charge of the agency or management of the known as extra-contractual obligations, arise only
business or property of another without any between parties not otherwise bound by contract,
power or authority from the latter (Art. 2144, whether express or implied.
NCC).
a. However, this impression has not prevented
B. Solutio indebiti, on the other hand, is the this Court from determining the existence of a tort
juridical relation which arises whenever a even when there obtains a contract. In Air France vs.
person unduly delivers a something by Carrascoso (124 Phil. 722), the private respondent was
mistake to another who has no right to demand awarded damages for his unwarranted expulsion
it (Art. 2154, NCC). from a first- class seat aboard the petitioner airline. It
is noted, however, that the Court referred to the
4. CIVIL LIABILITY ARISING FROM petitioner-airline's liability as one arising from
CRIMES tort, not one arising from a contract of carriage. In
a. For acts or omissions punished by law, as a rule, every effect, Air France is authority for the view that
person liable for a felony is also civilly liable (Art. liability from tort may exist even if there is a contract,
100, Revised Penal Code). This principle is based on for the act that breaks the contract may be also a tort
the fact that, generally, a crime has dual aspect – the (PSBA vs. CA, G.R. No. 84698, February 4, 1992).
criminal aspect and the civil aspect. This civil
liability includes restitution, reparation for the b. A cause of action is an act or an omission by which
damage caused, and indemnification for a party violates the rights of another (Sec. 2, Rule II,
consequential damages. Rules of Court). A single act or omission can be
violative of various rights at the same time, as when
EXCEPTION: the act constitutes juridically a violation of several
a. There are offenses and special crimes without separate and distinct legal obligations.
civil liability. Examples are crimes of treason,
rebellion, illegal possession of firearm and
This happens, for example, when a passenger of a
gambling.
common carrier, such as a taxi, is injured in a
collision with another vehicle due to the negligence
b. In situations where independent civil actions are
of the respective drivers of both vehicles. In such a
allowed, the acquittal of the accused in the
case, several rights of the passenger are violated,
criminal case on ground of reasonable doubt
inter alia, (a) the right to be safe from the negligent
does not preclude the filing of a subsequent civil
acts of either or both the drivers under the law on
action.
culpa-aquiliana or quasi-delict; (b) the right to be
safe from criminal negligence of the said drivers
EXCEPTION:
under the penal laws; and (c) the right to be safely
When the acquittal is based on the reason that the

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conducted to his destination under the contract of Only determinate or specific things are subject to
carriage and the law covering the same, not counting loss. An indeterminate or generic thing, being a
anymore the provisions of Article 33 of the NCC. The “class” or a “genus” cannot be lost thus, the
violation of each of these rights is a cause of action in doctrine “genus nun quam perit” (a class never
itself. Hence, such a passenger has at least three perishes). Consequently, the obligation to deliver
causes of action arising from the same act (The City an indeterminate or generic thing is not
of Bacolod vs. San Miguel Brewery, Inc., G.R. No. L- extinguished by fortuitous event.
25134, October 30, 1969).
Illustration: DD undertakes to deliver his only horse
c. In determining the liability of the tortfeasor in named “Lightning” to CC on a specified date.
quasi-delict, the law only looks for the proximate Before the agreed date for delivery, “Lightning”
cause and not for the remote cause. Generally stated, dies when it was hit by a lightning bolt without
a proximate cause is such adequate and efficient fault of DD. What happens to the obligation of DD?
cause as, in the natural order of events, and under The obligation of DD is extinguished. Art. 1262
the particular circumstances surrounding the case, provides:
would necessarily produce the event. (Urbano vs.
IAC 157 SCRA 1) “An obligation which consists in the delivery of a
determinate thing shall be extinguished if it should
Nature and Effect of obligations be lost or destroyed without the fault of the debtor,
1. Obligation to give and before he has incurred in delay”.
An obligation to give involves the delivery of a
thing (res). Writers refer to an obligation to give as Assume that the promise was to deliver “a horse”.
a “real” obligation because it is intimately Will the death of the horse extinguish the
connected with a “res”. obligation? It will not. The obligation to deliver a
generic thing will not be extinguished by the loss
The thing, which the debtor may give to his of a member of a class. Art. 1263 provides, “In an
creditor, may either be determinate (specific) or obligation to deliver a generic thing, the loss or
indeterminate (generic). destruction of anything of the same kind does
not extinguish the obligation.”
2. A determinate or specific thing is one, which is
particularly designated or physically segregated 5. Another reason for the need to distinguish
from all others of the same class. between an obligation to deliver a specific thing
from an obligation to deliver a generic thing is to
However, the requisite that a thing be determinate know whether or not a particular accessory
is satisfied if: obligation exists. For instance, under Art. 1166, the
obligation to give a specific (determinate) thing
a. At the time the contract is entered into, includes that of delivering all its accessions and
b.The thing is capable of being made accessories, even though they may not have been
determinate, mentioned. This accessory obligation does not
c. Without the necessity of a new or further apply to a generic obligation. Art. 1163, foran
agreement between the parties (Art. 1460, instance, mandates that every person obliged to
NCC). give something “is also obliged to take care of it
with the proper diligence of a good father of a
3. An indeterminate or generic thing is something family …” Does this duty apply to a generic
that has reference to a class or genus only, e.g. A obligation? This duty refers only to the
promise to deliver “my only car” is determinate. obligation to deliver a specific thing because in
However, a promise to deliver “a car” is this kind of obligation, the thing to be cared for is
indeterminate. properly identified. If the promise is to deliver “a
dog”, the obligor would not be able to determine
4. There are legal reasons for the need to distinguish which dog he should take care of.
between the delivery of a determinate thing and
the delivery of an indeterminate thing. One reason 6. Whether or not the obligation is to deliver a
is from the point of view of the “doctrine of loss”. specific or a generic thing, the obligee/creditor has

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a right to demand the delivery of what has been The creditor shall have the right to claim the
promised. In an obligation to deliver a determinate fruits of the determinate thing which the obligor
thing however, it is the thing specified which has is bound to deliver to him only from the moment
to be delivered and the creditor has the right to the obligation to deliver arises.
compel its delivery (Art. 1165, par. 1, NCC).Since it
is only the debtor who can make the delivery, the The obligation to deliver arises depending on the
creditor cannot ask that someone else shall make source:
the delivery or that the obligation be complied
with at the expense of the debtor. Such right a. When the obligation is based on law, quasi-delict,
applies only to an obligation to give a generic thing quasi-contract or crime, the specific provisions of
(Art. 1165, par. 2, NCC). Hence, if DD the applicable law, shall determine when the
promises to deliver to CC his only Toyota Camry delivery shall be done or effected;
car, only DD may comply with the b. When the obligation is subject to a suspensive
obligation. CC cannot ask TP, a third person to condition, the obligation to deliver arises from the
make the delivery at the expense of DD. happening of the conditions;
c. When the obligation is subject to a suspensive term
If the obligation is to give a generic thing like “a car”, or period, upon the lapse of the term or period.
what car shall the debtor deliver? d. When there is no condition or term, from the
constitution, creation or perfection of the
The car to be delivered shall depend first on the obligation (Pineda, 31-32)
quality and circumstances stated in the agreement
of the parties. In short, the stipulation of the parties 3. Deliver the accessions and/or accessories.
shall initially be considered. In the absence of a
stipulation, the thing to be delivered shall depend Accession is the fruits of the thing or additions to
upon (a) the purpose of the obligation, and (b) or improvements upon the principal.
other circumstances, all of which shall be taken Accessories, on the other hand, are things
into consideration. The creditor cannot demand included with the principal for the latter’s
the delivery of a thing of superior quality. The embellishment, better use, or completion.
debtor cannot also require the creditor to accept a However, the parties may stipulate the certain
thing of inferior quality (Art. 1246, NCC). accessions or accessories which shall be excluded
as they have freedom to stipulate;
Duties of the debtor
1. Preserve or take care of the things due; 4. Deliver the thing itself; and
a. DILIGENCE OF A GOOD FATHER – a good 5. Answer for damages in case of non-fulfillment or

father does not abandon his family. He is breach.
always ready to provide and protect his
family; ordinary care which an average and Obligation to do or not to do
reasonably prudent man would do. 1. Obligation to do (positive personal
obligations) under Art. 1167
i. Another standard of care – extraordinary contemplates three situations, to wit:
diligence provided in the stipulation of
parties, or as required by law. a. If the obligor fails to do that which he has
obligated himself to do, the obligee can have the
ii. Factors to be considered – diligence depends on obligation performed or executed at the expense
the nature of obligation and corresponds with the of the former, and, at the same time, demand for
circumstances of the person, time, and place. damages by reason of the breach;
Note: Debtor is not liable if his failure to deliver the b. Obligor performs the undertaking but in
thing is due to fortuitous events or force majeure contravention of the tenor of the obligation, the
without negligence or fault in his part. obligee may ask the court to have the obligation
performed or executed at the expense of the
2. Deliver the fruits of a thing; obligor and demand damages as well; and

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because an obligation may sometimes be

c. Obligor performs but in a poor manner, the breached involuntarily as when the
obligee has the right to ask court that what has debtor/obligor cannot fulfill his obligation
been poorly done be undone plus damages. because of a fortuitous event. The general rule is
that a person is not responsible for a fortuitous
Illustration: If A has an obligation to construct a event and is therefore, not liable unless so
garage for B for P5,000 and he fails or refuses to provided by the law, or by stipulation or when
construct it within the period specified in the the nature of the obligation requires the
contract, B has a right to ask another contractor assumption of risk (Art. 1174, NCC).
to perform the undertaking even for a higher
price. B can recover the difference from A. A. Fraud
1. Fraud (dolo) is either the intentional proposition
However, the right of the obligee to have the to evade the normal fulfillment of an obligation
obligation performed or executed at the expense (dolo incidente as per Manresa) or the use of
of the obligor cannot be availed of when such insidious words or machinations by one party to
prestation consists of an act where the personal induce another to enter into a contract and
and special qualification of the obligor is the without which, the latter would not have agreed
principal motive for the establishment of the to (dolo causante; Art. 1338, NCC).
obligation.
2. Dolo incidente presupposes the existence of a
2. In obligations not to do (negative personal valid contract because the fraud does not exist at
obligations), the object of the obligation is the time the parties are forging or perfecting an
fulfilled or realized so long as that which is agreement. The fraud occurs at a later stage and
forbidden is not done by the obligor. If the that is at the time of the performance of the
obligor does what has been forbidden him, two obligation.
remedies are available to the obligee – to have it
undone at the expense of the obligor and to ask If the parties, for example, have agreed that the
for damages. seller shall deliver Class A rice to the buyer for a
specified consideration, there is a valid
The first remedy, however, is not applicable to agreement between the parties. No fraud is
cases where the effects of the act which is committed at this time. If however, the buyer
forbidden are definite in character, or it would be delivers Class B rice claiming it is Class A, then
physically or legally impossible to undo what there is fraud in the performance of the
has been done by virtue of the very nature of the obligation called dolo causante. Since the fraud in
act itself, a prohibition by law or conflicting dolo causante did not affect the consent of the
rights of third persons. parties in the perfection of the contract, the same
is a perfectly valid contract if all the other
Breach of obligations essential elements of a contract are present. An
1. An obligation may be breached voluntarily or action to annul the contract is not possible. The
involuntarily. The following are the voluntary remedy of the aggrieved party is merely to file an
causes for the non-fulfillment of an obligation: action for damages. Under Art.1344 of the New
Civil Code, “incidental fraud only obliges the
a. Fraud (dolo); person employing it to pay damages”.
b. Negligence (culpa);
c. Delay (mora); and 3. Dolo causante is employed in order to obtain the
d. Contravention of the tenor of the obligation consent of one party to enter into a contract
(Art. 1170, NCC) through insidious words or machinations.
Here, the party employing the fraud usually
Note: A voluntary breach of an obligation gives misrepresents the character of the object of the
rise to the obligation to pay damages (Art. 1170, contract. Because of such misrepresentation the
NCC). other party gives his consent. Where dolo causante
is present, the consent of the party defrauded is
2. Not every obligation is violated voluntarily vitiated. Under Art. 1390 (No.2), when consent is

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vitiated by fraud, the contract is voidable. (Benjie made after the fraud, has already been
B. Georg vs. Holy Trinity College, Inc., G.R. No. committed. Thus, waiver for future fraud is
190408, July 20, 2016) The remedy of the party contrary to law and public policy. Waiver for a
defrauded is to file an action for annulment (Art. past fraud, however, is valid since such waiver
1390, NCC). Damages will also be available if the can be deemed an act of generosity (Comments
party defrauded suffers injury as a result of the and Jurisprudence on Obligations and Contracts,
fraud (Art. 1170, NCC). Jurado, 11th Ed., p. 65).
4. Not every fraud is dolo incidente or dolo causante. 7. Under Article 1344, the fraud must be serious to
In other words, fraud may be employed not in annul or avoid the contract and render it
connection with the performance of the voidable. This fraud or deception must be so
obligation or the perfection of the contract. Fraud material that had it not been present, the
sometimes occurs when an oral contract is set defrauded party would not have entered into the
forth in writing by the parties and the writing contract. (Ferro Chemical, Inc. vs. Antonio M.
through fraud does not reflect the true Garcia, et al., G.R. No. 168134, October 5, 2016)
agreement of the parties.
B. Negligence
For instance, the parties orally agreed on the sale 1. Negligence (culpa; fault) consists in the omission
of 50,000 sq. meters of land for a specified price. of that diligence which is required by the nature
When the seller learned that the buyer is of the obligation and corresponds with the
intellectually deficient, he wrote 5,000 sq. meters circumstances of the persons, of the time and of
in the deed of sale instead of 50,000 and for the the place (Art. 1173, NCC). Negligence connotes
same price earlier agreed upon. We find a the absence of intent to cause injury unlike fraud,
situation here where despite the meeting of the which is intentional in character.
minds between the parties, their intention is not
expressed in the instrument by reason of fraud. However, when negligence shows bad faith,
The defect in this case lies not in the agreement the negligence would have the effects of fraud
of the parties but in the instrument. Hence, the (Art. 1171, NCC) and the defendant/obligor shall
fraud here gives rise to an action for a be responsible for all damages, which may be
reformation of the instrument (not reformation reasonably attributed to the non-
of the contract) under Art. 1359 of the NCC. performance of the obligation (Art. 2201, par. 2,
NCC).
Notice that the fraud under Art. 1359 is used only
in the preparation of the instrument evidencing Negligence is the omission to do something
the contract or agreement between the parties which a reasonable man, guided by those
and did not affect the meeting of their minds or considerations which ordinarily regulate the
their consent. If the fraud has prevented the conduct of human affairs, would do, or the doing
meeting of the minds, the proper remedy is not of something which a prudent and reasonable
reformation of the instrument but annulment of man would not do (Bank of the Philippine Islands
the contract (Art. 1359, NCC). vs. Lifetime Marketing Corporation, June 25, 2008).
5. Fraud may also be employed to defraud 2. When negligence is merely incidental to the
creditors. This may occur if a debtor disposes of performance of a contractual obligation, the
his properties in such a way that the creditor can negligence is merely the reason for the breach of
no longer collect the debt in any other manner the obligation and the cause of action lies in the
(Art. 1381, NCC). This kind of fraud renders the breach of the contract and not in the negligent
contract rescissible (Art. 1381 No. 3, NCC). act. This type of negligence is called culpa
contractual. To recover under culpa contractual the
6. Under Article 1171, it is a rule that the liability plaintiff has to prove only the existence of the
cannot be waived or renounced. It must be noted, contract and the breach or violation of the
however, that what is prohibited is the waiver or contract without need to prove negligence of the
renunciation, which is made in advance or in defendant (Calalas vs. Court of Appeals, 332 SCRA
anticipation of the fraud, and not that, which is 356; FGU Insurance vs. G.P. Sarmiento Trucking,

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G.R. 141910, August 6, 2002).

c. That the illicit act of the employee was on
3. For breach of contract due to negligence in the occasion or by reason of the functions
providing a safe learning environment, Far entrusted to him (Sps. Jayme vs. Apostol, G.R.
Eastern University was held liable to the No. 163609, November 27, 2008).
petitioner for damages for his having been shot
by a security guard. The school breached its Note: There is no need to prove the negligence of
contractual duty to provide a safe environment the employer because when an employee causes
to its students (Saludaga vs. Far Eastern University, damage to another in the course of his
G.R. No. 179337, April 30, 2008). employment, there arises a presumption juris
tantum that the employer is negligent (Pejano
4. In culpa contractual, the mere proof of the vs. H.T. Lines, G.R. No. 83047, September 26, 2006;
existence of the contract and the failure of its Manliclic vs. Calaunan, G.R. No. 150157, January
compliance justify prima facie, a right to relief 25, 2007).
(Radio Communications of the Philippines, Inc. vs.
Verchez, 481 SCRA 384; and St. Luke’s College of 7. Negligence of a driver in a vehicle mishap is also
Medicine, et al., G.R. No. 222740, September 28, presumed, although disputably, if he had been
2016) found guilty of reckless driving or violating
traffic regulations at least twice within the next
5. When the cause of action is primarily premised preceding two months (Art. 2184, NCC).
on the negligent act of the defendant and no pre-
existing contract exists between the parties, the 8. It is also presumed, unless there is proof to the
negligence is substantive and independent. The contrary, that a person driving a motor vehicle
liability of the defendant is based on the has been negligent, if at the time of the mishap,
negligent act,which causes damage to another. he was violating any traffic regulation (Art. 2185,
This kind of negligence is called culpa aquiliana NCC).
and is the negligence in a quasi-delict under Art.
2176 of the NCC. 9. There is also prima facie presumption of
negligence on the part of the defendant if the
6. General rule: The negligence of the defendant in death or injury rests from the possession of
culpa aquiliana must be proved. dangerous weapons or substances, such as
firearms and poison, except when the possession
Exception to this rule is the one found under the or use thereof is indispensable in his occupation
rule of “vicarious liability” where the or business (Art. 2188, NCC).
negligence of an employer, among others
mentioned in Art. 2180, is presumed and where 10. Negligence is also presumed when the doctrine
diligence is a matter of defense. of res ipsa loquitor applies. Absent any proof to the
contrary, the effect of the doctrine is to warrant a
Article 2180 of the NCC provides that a person is presumption or inference that the defendant is
not only liable for one’s own quasi-delictual acts, negligent. The doctrine is peculiar to the law of
but also for those persons for whom one is negligence, which recognizes that prima facie
responsible. This liability is popularly known as negligence may be established without direct
vicarious or imputed liability. To sustain claims proof, and furnishes a substitute for specific
against employers for the acts of their proof of negligence.
employees, the following requisites must be
established: While negligence is not ordinarily inferred or
presumed, and while the mere happening of an
a. That the employee was chosen by the accident or injury will not generally give rise to
employer personally or through another; an inference or presumption that it was due to
negligence on defendant’s part, under the
b. That the service to be rendered in doctrine of res ipsa loquitur (the thing or
accordance with orders which the employer transaction speaks for itself), the facts or
has the authority to give at all times; and circumstances accompanying an injury may be

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such as to raise a presumption, or at least permit Islands vs. Lifetime Marketing Corporation, June 25,
an inference of negligence on the part of the 2008).
defendant, or some other person who is charged
with negligence. Where it is shown that the thing C. Delay (default or mora)
or instrumentality which caused the injury 1. Delay signifies the non-fulfillment of the
complained of was under the control or obligation from the point of view of time. If the
management of the defendant, and that the creditor commits the delay, the delay is called
occurrence resulting in the injury was such as in mora accipiendi. A creditor may be in delay if he
the ordinary course of things would not happen refuses to accept a valid tender of payment
if those who had its control or management used without just cause (Art. 1256, NCC).
proper care, there is sufficient evidence, or, as
sometimes stated, reasonable evidence, in the 2. If the delay is by the debtor in an obligation to
absence of explanation by the defendant, that the do, the delay is called mora solvendi ex persona.
injury arosefrom or was caused by the When the delay is by the debtor in an obligation
defendant’s want of care. to give, the delay is called mora solvendi ex re.
When the parties in a reciprocal obligation
11. The res ipsa loquitur doctrine is based in part upon commit the delay, the delay is called compensation
the theory that the defendant in charge of the morae.
instrumentality which causes the injury either
knows the cause of the accident or has the best 3. There is no delay in an obligation “not to do”. To
opportunity of ascertaining it and that the be in delay in this kind of obligation would be
plaintiff has no such knowledge, and therefore is absurd. The concept applies only when one is
compelled to allege negligence in general terms obliged to deliver (to give) or to do something
and to rely upon the proof of the happening of (Art. 1169, NCC).
the accident in order to establish negligence. The
inference which the doctrine permits is Need for Demand
grounded upon the fact that the chief evidence of Note that under the law, the mere non- fulfillment of
the true cause, whether culpable or innocent, is the obligation on the due date of the obligation does
practically accessible to the defendant but not automatically give rise to delay. The debtor or
inaccessible to the injured person (D.M. Consunji obligor incurs in delay if despite demand, he does
vs. Court of Appeals, G.R. No. 137873, April 20, not fulfill the obligation (Art. 1169, NCC). Thus, a
2001; In Re: Undated Letter of Mr. Biraogo, A.M. No. person who promises to pay his debt on April 27,
09-2-19-SC, February 24, 2009). 2009, is not in default if he does not pay on the
agreed date if no demand is made upon him to pay.
12. Common carrier is presumed to be negligent if
goods are lost, destroyed or deteriorated (Art. Exceptions: In certain instances, a person may be
1735, NCC) or in case a passenger is injured or deemed in delay even if there is no demand, if:
dies (Art. 1746, NCC). 1. When there is an express stipulation to that
effect;
Under the doctrine of “contributory negligence”, 2. Where the law so provides;
the negligence of the plaintiff will not bar 3. When the period is the controlling motive or
recovery by the plaintiff provided his negligence the principal inducement for the creation of
is only contributory and the negligence of the the obligation; and
defendant is the immediate and proximate cause 4. Where demand would be useless.
of the injury. The contributory negligence of the
defendant is only a reason to mitigate or In the first two paragraphs, it is not sufficient that
equitably reduce the damages he may recover the law or obligation fixes a date for
from the defendant but not to absolve the latter performance; it must further state expressly that
(Arts. 2179, 1741; and 1762, NCC). after the period lapses, default will commence
Thus, the damages awarded to a bank depositor (Rivera vs. Spouses Chua, G.R. Nos. 184458, January
may be reduced on account of its own 14, 2015).
contributory negligence in accordance with
Article 1172 of the NCC (Bank of the Philippine Demand would be useless where there would be

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impossibility of the other party complying with a. The law provides liability for a fortuitous
its obligation due to its fault. Also, for failure of event;
one party to assume and perform the obligation b. The stipulation between the parties so
imposed on him, the other party does not incur provide; or
delay (Almocera vs. Ong, February 18, 2008). c. The nature of the obligation requires the
assumption of risk (Art. 1174, NCC).
Demand, whether judicial or extrajudicial, is not
required before an obligation becomes due and 3. A natural disaster (fortuitous event), including
demandable because the due date of the obligation force majeure will not be exempting if the
is generally a matter of agreement by the parties. cause of the loss is not exclusively the fortuitous
A demand is only necessary in order to put an event. Thus, if such event was coupled with
obligor in delay, which in turn is for the purpose of negligence, fault or delay, a fortuitous event or a
making the obligor liable for interests or damages for force majeure is not exempting. Applied to
the period of delay (Autocorp Group vs. Intra Strata common carriers, in order to exempt said carrier
Assurance Corporation, G.R. No. 166662, June 27, 2008). from liability, the natural disaster must have
been the proximate and only cause of the loss
The liabilities of a person who is in delay are the and must have exercised diligence to prevent
following: or minimize losses before, during and after the
disaster (Art. 1739, NCC). Jurisprudentially, a
a. Damages (Art. 1170, NCC); fortuitous event will be exempting if the
following requisites are present:
b. Interest in case of money obligations (Art.
2209, NCC). a. The cause of the breach is independent of the
will of the defendant or debtor;
Note: As a general rule, a person shall not be liable
for interest unless the payment of the same has been b. The event must be either unforeseeable or
expressly stipulated in writing (Art. 1956, NCC). unavoidable;
However, even in the absence of such stipulation,
the debtor is liable for interest as a consequence c. The event must be such as to render it
of his delay or default; and impossible for the debtor to fulfill his
obligation in a normal manner; and
c. He is also liable for the effects of a fortuitous
event if he is in delay (Art. 1165, par. 3, NCC). d. The debtor must be free from any
participation in, or aggravation of, the injury
Fortuitous events to the creditor (Yobido vs. Court of Appeals, 281
1. Fortuitous events are those events, which cannot SCRA 1).
be foreseen or even though foreseen are inevitable
(Art. 1174, NCC). When the event is man- made or Taken together, these requisites are simply the
caused by human intervention, the event is called expanded meaning of Art. 1739 of the NCC that
force majeure. The legal effects of a fortuitous event the event must be the only and proximate cause
and a force majeure are however, identical. of the loss.
Note: Malfunction of a vehicle is not a fortuitous 4. For the defense of fortuitous event or force
event as when the brakes fail majeure to prosper, it is necessary that one has
or when there is a tire blowout (In Re Vehicular committed no negligence or misconduct that
Accident Involving Gerry B. Moral, A.M. No. may have occasioned the loss. When the effect is
2008-13-0SC, November found to be partly caused by human
19, 2008; Yobido vs. Court of Appeals, 281 intervention whether by neglect, fault or active
SCRA 1). intervention, the occurrence is humanized and
removed from the rules applicable to acts of
2. There are, however, instances when a person may God (Radio Communications of the Philippines vs.
still be held liable for a fortuitous event as when: Verchez, 481 SCRA 384).

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3. The debtor may defeat the right of the creditor by

5. The phrase “in any manner contravene the his inaction or his failure to collect his credit,
tenor” of the obligation includes not only any which he may have against third person. As a
illicit act which impairs the strict and faithful result, his creditors are prejudiced. In order to
fulfillment of the obligation, but also every kind prevent this, the creditor may avail of accion
of defective performance (Arrieta vs. National Rice subrogatoria. The law expressly recognizes the
and Corn Corp., 10 SCRA 79). right of the creditor to proceed against such third
persons as if he is the debtor. Such may only be
6. The defense that the fire was a fortuitous event availed by the former after exhausting all the
is untenable. Absent an explanation from assets of the latter.
appellants on the cause of the fire, the doctrine
of res ipsa loquitur applies (College Assurance Plan 4. Accion pauliana refers to the right available to the
vs. Belfranlt Development, Inc. G.R. No. 155604) creditor by virtue of which he can secure the
rescission of any act of the debtor which is in
Remedies of creditors in cases of breach fraud and to the prejudice of his rights as a
1. The general remedies available to the creditor in creditor. By its very nature, it is subsidiary in
case of breach or non-compliance of the character – it can only be availed of in the absence
obligation are the following: of any other legal remedy to obtain reparation for
the injury.
a. Specific Performance
b. Substitute Performance 5. Remedies of a creditor also include exact
c. Rescission fulfillment of the obligation by specific or
substitute performance with a right to damages
2. In case the creditor was already able to secure a in either case.
writ of execution through the above-mentioned
remedies, but the same was left unsatisfied, the 6. In case of reciprocal obligations, petition the
creditor has the following auxiliary remedies to court to resolve the contract. The rescission in
enforce his rights against the debtor: Art.1191 also called "resolution" - is a principal
action based on the breach of the obligation by
a. To exhaust the property in possession of the the other party in a reciprocal obligation.
debtor;
There must be an existing valid contract and
b. To be subrogated to all of the rights and actions requires that the obligation be reciprocal. If one
of the debtor save those which are inherent in party breaches the obligation, then rescission or
his person (accion subrogatoria); and “resolution” of the contract is proper under the
said article.
c. To impugn all of the acts which the debtor may
have done to defraud him (accion pauliana). 7. Where there is, however, no contract between the
parties, there cannot be a breach and hence, no
The second and third, however, are subsidiary to rescission. If a party bound himself to execute an
the first. absolute deed of sale covering two parcels of
land only upon full payment by the other of the
2. The first remedy is in conformity with the rule purchase price. And the latter failed to pay. The
stated in Art. 2236 of the NCC, which states that failure to pay is not a breach of the contract of
that the debtor is liable with all his property, sale between the parties because there is no sale
present and future, for the fulfillment of his to be breached. There is no sale to be breached
obligations subject to the exemptions provided because there is no contract of sale. There was
by law. The exemptions referred to are found in only a contract to sell and the sale was subject to
Sec. 12, Rule 39 of the Rules of Court, Sec. 118 of a suspensive condition, i.e., the payment of the
the Public Land Act, and in scattered provisions purchase price. The non-fulfillment of the
of the NCC, such as Arts. 223, 232, 243, 302 and condition did not give rise to the contract of sale.
1708. There can be no rescission of an obligation that is
non-existent.

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no express stipulation authorizing him to

8. The right of rescission of a party to an obligation extrajudicially rescind (Art. 1592, NCC; Roberto Z.
under Article 1191 of the Civil Code is predicated Laforteza et al. vs. Alonzo Machuca, G.R. No.
on a breach of faith by the other party who 137552, June 16, 2000).
violates the reciprocity between them. The
breach contemplated in the said provision is the 10. Accion directa is the right of the lessor to go
obligor’s failure to comply with an existing directly to sublessee for unpaid rents of the
obligation. When the obligor cannot comply with lessee. Also, it is the right of the laborers or
what is incumbent upon it, the obligee may seek persons who furnish materials for a piece of
rescission and, in the absence of any just cause work undertaken by a contractor to go directly to
for the court to determine the period of the owner for any unpaid claims due to the
compliance, the court shall decree the rescission. contractor (Arts. 1729 and 1652, NCC).
Thus, the delay in the completion of the project
as well as of the delay in the delivery of the unit Kinds of Civil Obligations
are breaches of statutory and contractual
obligations which entitle respondent to rescind Pure obligations
the contract, demand a refund and payment of When the performance of an obligation is not subject
damages (Swire Realty Development Corporation to the arrival of a period or term or upon the
vs. Yu, G.R. No. 207133, March 09, 2015). fulfillment of a condition, the obligation is said to be
“pure”. Because it is pure, it is immediately
9. Rescission because of breach of reciprocal demandable. It is this immediate demandability,
obligations under Article 1911 results in mutual which is the most distinctive characteristic of a pure
restitution. Article 1191 itself clearly states that obligation (Art. 1179, NCC).
the options of rescission and specific
performance come with “the payment of Conditional obligations
damages in either case.” (PEZA vs. Pilhino Sales 1. In its juridical sense, a condition may be defined
Corporation, G.R. No. 185765, September 28, 2016) as a future and uncertain fact or event upon
which an obligation is subordinated or made to
10. Rescission arises because one party fails to depend. A conditional obligation may, therefore,
comply with what is incumbent upon him. The be defined as one whose effectivity is
injured party has options. He may sue for subordinated to the fulfillment or non-
fulfillment of the obligation plus damages. He fulfillment of a future and uncertain fact or
may also opt to rescind the obligation plus event. The event must not only be future, but it
damages. In Art.1192, if both parties breached must also be uncertain. It is essential that both
the obligation, the courts shall equitably temper requisites must concur (Comments and
the liability of the first infractor. If it cannot be Jurisprudence on Obligations and Contracts, Jurado,
determined which of the parties first violated the 11th Ed., p. 105).
contract, the same shall be deemed extinguished,
and each shall bear his own damages. 2. However, pursuant to the 1st paragraph of
Article 1179, a past event can also be considered
Admittedly, the failure of a party to pay the as a condition. A past event can be treated as a
balance of the purchase price is a breach of the condition if the event is unknown to the parties
contract and could be a ground for rescission. of the contract. But since the event already
However, rescission will not be permitted for a happened, the element of uncertainty no longer
slight or casual breach, but only for such exists. The uncertainty therefore is not with
substantial and fundamental breach as would regard the possibility of the event coming into
defeat the very object of the parties in making the reality, but rather one that is merely as regards
agreement. A mere delay in payment is not a whether or not the parties will acquire
substantial breach. It is a mere casual breach knowledge or awareness of the fact that such
occasioned for example by the plaintiff’s justified event already took place. In other words, the
but mistaken belief that an extension to pay was uncertainty is one present in the mind.
granted to him. A seller cannot unilaterally and
extrajudicially rescind a contract where there is Therefore, a condition in the category of a “past

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event unknown to both parties” is deemed upon the will of the debtor. In the first, the condition
fulfilled when the fact of its prior happening as well as the obligation is valid, while in the second,
comes to the knowledge of at least one of the not only the condition but even the obligation itself,
parties to the contract. is void. The second pertains to a potestative
suspensive condition (Comments and Jurisprudence on
3. When the effectivity of the obligation depends Obligations and Contracts, Jurado, 11th Ed., pp. 112-
upon the fulfillment of a condition, the 113).
obligation is conditional. The condition in this
case is called a suspensive condition, so-called 6. Once the event, which constitutes the condition,
because the obligation’s existence is suspended is fulfilled, the obligation arises or becomes
until the condition is fulfilled. Example: “I shall effective. The right of the creditor, which, before
give you P100,000 if you top the bar the fulfillment of the condition, was a mere hope
examinations.” or expectancy, is perfected. It becomes effective
and demandable. The obligor or debtor, on the
When a contract is subject to a suspensive other hand, can thereafter be compelled to
condition, its birth or effectivity can take place comply with what is incumbent upon him
only when the event which constitutes the (Comments and Jurisprudence on Obligations and
condition happens or is fulfilled, and if the Contracts, Jurado, 11th Ed., p. 125).
suspensive condition does not take place, the
parties would stand as if the conditional 7. Rights, which are vested in the obligations with
obligation has never existed (Insular Life a resolutory condition, are always subject to a
Assurance Company vs. Toyota Bel-Air, Inc., G.R. threat of extinction during the pendency of the
No. 137884, March 28, 2008). condition. If the resolutory condition is not
fulfilled, such rights are consolidated. In other
4. Sometimes, a condition may have the effect of words, they become absolute in character. If it is
extinguishing the obligation once it is fulfilled. fulfilled, such rights are extinguished altogether.
This condition is called resolutory. Example: I There is, therefore, a return to the status quo
shall allow you to use my house until you finish (Comments and Jurisprudence on Obligations and
your bar review”. This obligation is immediately Contracts, Jurado, 11th Ed., p. 130).
demandable but is extinguished once the
condition, “until you finish your bar review”, is 8. It is understood that the thing is lost when:
fulfilled.
a. It perishes;
5. As regards the cause upon which its fulfillment b. It goes out of commerce; or
depends, a condition may be either potestative, c. It disappears in such a way that its existence
casual or mixed. is unknown or it cannot be recovered.
a. Purely potestative condition is one whose It is evident from an examination of the first and
fulfillment depends exclusively upon the will second rules stated in article 1189 of the New NCC
of either one of the parties to the obligation. that the effect of the loss or destruction of the thing,
which constitutes the objects of the obligation, shall
b. Casual condition is one whose fulfillment depend upon whether the loss or destruction
depends exclusively upon chance and/or occurred without the fault of the debtor, the
upon the will of a third person. obligation is extinguished. However, it is lost
c. Mixed condition is one whose fulfillment through his fault, the obligation is converted into one
depends jointly upon the will of either one of of indemnity for damages (Art. 1189).
the parties to the obligation and upon chance
and/or the will of a third person. 9. If the thing deteriorates without the fault of the
debtor, the impairment is to be borne by the
A distinction must be made between the effects of a creditor. However, if it deteriorates through the
potestative condition whose fulfillment depends fault of the debtor, the creditor may choose
exclusively upon the will of the creditor and the between bringing an action for rescission of the
effects of one whose fulfillment depends exclusively obligation with damages and bringing an action

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for specific performance with damages. the benefit of both creditor and debtor (Art.
1196, NCC). The period is for the benefit of the
10. If the thing is improved by its nature or by time, debtor because he has a longer period to use
the improvement shall inure to the benefit of the prior to payment. It is for the benefit of the
creditor. However, if the thing is improved at the creditor so his right to interest may run longer.
expense of the debtor, he shall have no right than
that granted to a usufructuary. Consequently, Exception: If it can be proved either from the
the debtor cannot ask reimbursement for the tenor of the obligation or from other
expenses incurred for useful improvements or circumstances that the period or term has been
for improvements for mere pleasure. He can, established in favor of the creditor or for the
however, ask reimbursement for necessary debtor, the general rule or presumption will
expenses. Although the debtor cannot ask the not apply. Hence, if it should appear that such
creditor to reimburse his expenses for useful period has been established for the benefit of the
improvements and improvements for mere creditor, he may demand the fulfillment or
pleasure, he has the right to remove such performance of the obligation at any time, but
improvements, provided, it is possible to do so the obligor or debtor, on the other hand,
without damage to the thing or property. He cannot compel him to accept payment before the
may also set-off the improvements he may have expiration of the period. If it should appear that
made on the property against any damage the period has been established in favor of the
to the same. obligor or debtor, he may oppose any premature
demand on the part of the obligee or creditor for
11. If loss, deterioration or improvement occurs in performance of the obligation, or if he so desires,
an obligation subject to a resolutory condition, he may renounce the benefit of the period by
the debtor is the person obliged to return, while performing his obligation in advance.
the creditor is the person to whom the thing
or object must be returned (Comments and 3. When the debtor binds himself to pay when his
Jurisprudence on Obligations and Contracts, Jurado, means shall permit him to do so, the obligation
11th Ed., pp. 128-132). shall be deemed to be one with a period (Art.
1180, NCC) but the court may fix the period in
Case: this case (Art. 1197, NCC). A promise to pay
A stipulation in the Conditional Deed of Sale, stating “whenever I shall have money” is an obligation
that respondent shall pay the balance of the purchase with a period (Art. 1197).
price when he has successfully negotiated and
secured a road right of way, is not a condition on the 4. GENERAL RULE: The creditor may not
perfection of the contract nor the validity of the demand of the obligation before the arrival of
entire contract or its compliance as contemplated in the period because the debtor has the right to
Article 1308. It is a condition imposed only on make use of the period granted him, sometimes
respondent’s obligation to pay the remainder of the the creditor may demand payment of the
purchase price, applying Article 1182, such a obligation before its due date in certain cases.
condition is not purely potestative. (Catungal vs. Under these cases, the obligation ceases to be
Rodriguez, G.R. No. 146839) one with a period and becomes a pure
obligation.
Obligation with a period or term
1. An obligation with a period is one, which is These cases are those provided for under
demandable only when that day comes (Art. Art. 1198 of the NCC, namely:
1193, NCC). Hence, if DD promises to pay his
debt on December 22, 2009, the creditor cannot a. When the debtor becomes insolvent after the
demand payment before the said date comes. obligation is constituted, unless he gives a
Neither can the debtor compel the creditor guaranty or security for the debt;
to accept payment before the due date.
b. When the debtor does not furnish to the
2. This is because whenever a period is designated in creditor the guaranties or securities which he
an obligation, such period is presumed to be for has promised to give;

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obligations only one of which should be

c. When he has impaired the guaranties and performed by him (Art. 1199, NCC). The debtor
securities through his own acts, and when has the right to choose which to comply with
through a fortuitous event they disappear, among the various alternatives, unless the right
unless he gives new ones equally of choice has been expressly granted to the
satisfactory; creditor (Art. 1200, NCC). In a facultative
obligation, only one obligation or prestation has
d. When the debtor violates any undertaking, in been agreed upon, but the obligor or debtor may
consideration of which the creditor agreed to render another in substitution.
the period;
Examples: A promise to deliver a specific dog, a
e. When the debtor attempts to abscond. specific cat or a specific horse is an alternative
obligation. An obligation to deliver a specific
Under any of the above circumstances, it would horse but allows the obligor to deliver a cow
not be premature to demand fulfillment of the instead is facultative.
obligation before the arrival of the date agreed
upon. Reason: The once obligation with a period It is, therefore, clear that the characteristic feature
is now a pure obligation. of an alternative obligation is that various objects
being due, the payment or performance of one of
5. A period may be suspensive (ex die) or resolutory them, determined by the election, which as a
(in diem). It is suspensive when the obligation general rule, pertains to the obligor or debtor,
becomes demandable only upon the arrival of a and is sufficient. The characteristic feature of a
day certain. It is resolutory when the obligation facultative obligation, on the other hand, is that
is demandable at once, although it is terminated only one object or prestation is due, but the
upon the arrival of a day certain. Day certain is obligor or debtor may deliver another object or
that which must necessarily come, although, it perform another prestation in substitution
may not be known when. (Comments and Jurisprudence on Obligations and
Contracts, Jurado, 11th Ed., p. 169).
6. If the obligor pays or delivers prior to the arrival
of the suspensive period, and he is unaware that 2. The effect of loss upon an alternative obligation
the period has yet arrived, or believed that the depends upon two factors or circumstances –
obligation is already due and demandable, then first, whether the right of choice belongs to the
he will have the right to recover what he has debtor or to the creditor, and second, whether
paid or delivered. It will become a case of quasi- the loss or impossibility was due to a fortuitous
contract, specifically solutio indebiti or payment event or to the fault of the debtor. If such is the
by mistake. case, the debtor cannot be held liable for
damages. Consequently, if one of the things is
The right of the obligor to recover extends even lost or one of the prestations cannot be
to the fruits and interests of the thing performed by a reason of a fortuitous event, the
prematurely delivered. This is even if the debtor must still comply with the obligation by
obligee acted in good faith in accepting the delivering or performing that which he shall
payment or delivery. The reason being that “it is choose from among the remainder. If all the
unfair if the creditor will be allowed to hold on things, except one, are lost, or all of the
the thing when it is not yet due and leave the prestations, except one, cannot be performed by
debtor without any relief. During the time that reason of a fortuitous event, the debtor must still
the creditor was holding the thing, that is, before comply with his obligation by delivering or
he had returned it, he must be made to pay for performing that which remains. If all the things
the fruits and interests derivable from the thing are lost or all of the prestations cannot be
paid or delivered”. (Pineda, 131) performed by reason of a fortuitous event, the
debtor is released from the obligation.
Alternative obligation
1. In an alternative obligation, the debtor is entitled 3. If all the things are lost or all of the prestations
to choose among various prestations or cannot be performed due to the fault of the

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debtor, the creditor shall have the right to otherwise would destroy the joint character of
indemnity for damages. Such indemnity shall be the obligation.
fixed taking as a basis the value of the last thing
to be lost or that of the service, which last, Joint indivisible obligation
became impossible. However, if one, or more, 1. A joint indivisible obligation is in a sense
but not all, of the things are lost or one or some, somewhat midway between the joint and the
but not all, of the prestations cannot be solidary obligation, although it still retains the
performed due to the fault of the debtor, the two fundamental characteristics of the former –
creditor cannot hold the debtor liable for first, that no creditor can act in representation of
damages. This is so because the debtor can still the others, and second, that no debtor can be
comply with his obligation (Comments and compelled to answer for the liability of the
Jurisprudence on Obligations and Contracts, Jurado, others. In this type of obligation, it is joint with
11th Ed., pp. 167-168). respect to the parties and indivisible with respect
to the fulfillment of the obligation.
Joint and solidary obligation
1. When there is a concurrence of two or more If there are two or more debtors, the fulfillment
creditors or of two or more debtors in one and of or compliance with the obligation requires the
the same obligation, the obligation may be either concurrence of all of the debtors, although each
joint (obligación mancomunada) or solidary for his own share. Consequently, the obligation
(obligación solidaria). can be enforced only by proceeding against all
the debtors.
Joint divisible obligation
1. A joint obligation may be defined as an 2. If there are two or more creditors, the
obligation where there is a concurrence of concurrence or collective act of all the creditors,
several creditors and debtors, by virtue of which although each for his own share, is also necessary
each of the creditors has a right to demand, and for the enforcement of the obligation
each of the debtors is bound to render (Comments and Jurisprudence on Obligations and
compliance with his proportionate part of the Contracts, Jurado, 11th Ed., p. 180).
prestation which constitutes the object of the
obligation. 3. Joint indivisible obligation arises when X and Y
jointly undertake to deliver a car to Z. If we
2. Corollary to the abovementioned rule, the credit follow the rule on joint obligations, Z may
or debt, shall be presumed, in the absence of any demand from X only his share and from Y also
law or stipulation to the contrary, to be divided only his share. But since the obligation is joint, X
into as many shares as there are creditors, the or Y may only deliver half of the car, which is not
credits or debts being considered distinct from physically possible. To solve this dilemma,
one another. Article 1209 of the NCC provides that the debt
can be enforced only by proceeding or
It necessarily follows that a joint creditor cannot demanding from all the parties and not
act in representation of others; neither can a joint separately. Z must, therefore, demand from both
debtor be compelled to answer for the liability of X and Y, not from either of them. If either X or Y
the others. Consequently, if there is a breach of is insolvent and cannot contribute his share to
the obligation by reason of the act of one of the obtain the car, the obligation is converted into an
debtors, the damages due to its breach must be obligation to pay damages which is now
borne by him alone. Similarly, any defense which divisible (Art. 1224, NCC). The other debtor
is purely personal to one of the debtors, he alone shall not be responsible for the share of the
can avail himself of such defense (Comments and insolvent debtor (Art. 1209, NCC).
Jurisprudence on Obligations and Contracts, Jurado,
11th Ed., p. 177). Since in a joint indivisible obligation,
compliance can only be enforced by
3. If one of the joint debtors should be insolvent, the proceeding against all of the debtors, it
others shall not be liable for his share (Art.1209, necessarily follows that if one of the joint
New NCC). The rule is logical because to hold debtors fails to comply with his undertaking,

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the obligation can no longer be fulfilled or obligation. Hence, a promise of X and Y to

performed. Consequently, it is converted into deliver to Z 10 sacks of rice (divisible) may be
one of indemnity for damages. However, the solidary. It may also be joint. Hence, the
debtors who may have been ready to fulfill or indivisibility of an obligation does not
perform what was incumbent upon them shall necessarily give rise to solidarity. Nor does
not contribute to the indemnity beyond the solidarity of itself imply indivisibility (Art. 1210,
corresponding portion of the price of the thing or NCC).
of the value of the service in which the obligation
consists (Comments and Jurisprudence 4. As a consequence of the relationship of mutual
on Obligations and Contracts, Jurado, 11th Ed.,p. agency existing among the solidary creditors,
181). each one of them may do whatever may be useful
or beneficial to the others, but not anything
Solidary obligation which may be prejudicial to the latter.
1. The general rule is that an obligation is joint.
Solidarity comes only by way of an exception. If As far as prejudicial acts are concerned, we must
the law, nature of the obligation or the wordings distinguish between the effect of such acts upon
of an obligation do not show solidarity, the relationship of the solidary creditors with the
theobligation should be considered as joint (Art. debtor or debtors, and the effect upon the
1208, NCC). In a joint obligation, each creditor entirely different relationship of the solidary
can only demand for his share and each debtor creditors among themselves. As far as the debtor
can be made to pay only his share in the or debtors are concerned, a prejudicial act
obligation. Thus, if A and B promise to pay P the performed by a solidary creditor shall be valid
amount of P1 million, the obligation is deemed and binding because of the principle of mutual
to be joint because nothing in the obligation representation which exists among the creditors,
suggests solidarity. If it is joint, P can only however, as far as the solidary creditors are
demand P500,000 from A and another P500,000 concerned, the creditor who performed the act
from B. Neither A nor B can be made to pay P the shall incur the obligation of indemnifying the
entire amount of P1 million (Art. 1207, NCC). others for damages (3 Castan, 7th Ed., p. 72).
If A and B promise to pay P the amount of P1 The novation, compensation, confusion or

million “jointly and severally,” the obligation is remission of the debt shall result in the
solidary. P can demand from either A or B the extinguishment of the obligation, but the
entire amount of the obligation. solidary creditor responsible for the act shall be
liable to the others for the share in the obligation
2. The most fundamental effect of active solidarity corresponding to them (Comments and
is the creation of a relationship of “mutual Jurisprudence on Obligations and Contracts, Jurado,
agency” among the solidary creditors by 11th Ed., p. 192).
virtue of which each creditor is empowered
to exercise against the debtor or debtors not 5. Article 1207 of the New Civil Code does not
only the rights which correspond to him, but presume solidary liability unless: 1) the obligation
also all the rights which correspond to the expressly so states; or 2) the law or the nature
other creditors, with the consequent obligation to requires solidarity. (AFP Retirement and Separation
render an accounting of his acts to such creditors Benefits System vs. Sanvictores, G.R. No. 207586,
(8 Manresa, 5h Ed., Bk. 1, pp. 431-432). August 17, 2016))
3. A solidary obligation must not be confused

with an indivisible obligation. An obligation is
indivisible when the object of the obligation is,
by nature, not subject to division like a “car”. It
is indivisible when the obligation is to pay
P10,000 or to deliver 10 sacks of rice. A joint
and solidary obligation refers to the relationship
of the parties and not to the object of the

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Divisible and indivisible obligations In obligations with a penal clause, the penalty shall
Divisible Indivisible substitute the indemnity for damages and the
obligations obligations payment of interests in cases of non-compliance, if
there is no stipulation to the contrary (Art. 1226,
Those, which have Those which have as
as their object a their object a NCC). Recall that when a debtor is in delay, he is
prestation, which is prestation which is liable for damages (Art. 1170, NCC) and interests
susceptible of not susceptible of (Art. 2209, NCC). If he does not comply with his
partial performance partial performance, obligation in an obligation with a penal clause, and
pays the penalty, he is no longer required to pay
without the essence because, otherwise,
of the obligation the essence of the damages and interests. But if he refuses to pay the
being changed. obligation will be penalty, or is guilty of fraud in the fulfillment of
changed (3 Castan, 7th theobligation, the obligor shall be liable for damages.
Ed., p. 92).
Extinguishment of Obligations
The following are the modes of extinguishing an
Where there is only one creditor and only one
obligation under the law (Art. 1231, NCC):
debtor, as a general rule, the creditor cannot be
compelled partially to receive the prestation in
a. Payment or performance;
which the obligation consists, neither may the debtor
b. Loss of the thing due;
be required to make partial payments (Art. 1248,
c. Condonation or remission of the debt;
New NCC). There are, however, three exceptions to
d. Confusion or merger;
this rule. These are:
e. Compensation;
f. Novation;
a. When the obligation expressly stipulates the
g. Annulment;
contrary,
h. Rescission;
b. When the different prestations constituting
i. Fulfillment of a resolutory condition; and
the objects of the obligation are subject to
j. Prescription.
different terms and conditions, and
c. When the obligation is in part liquidated and
Payment
in part unliquidated (8 Manresa, 5th Ed., Bk. 1,
1. Payment does not only mean the delivery of
pp. 363-365).
money. It also means the performance of the
obligation in any other manner (Art. 1232, NCC).
Where there is plurality of debtors and creditors, the
effect of the divisible or indivisible character of the
2. General Rule: A third person cannot compel the
obligation shall depend upon whether the obligation
creditor to accept payment of an obligation
is joint or solidary. If it is solidary, the provisions of
Articles 1211 to 1222 of the New NCC are applicable.
Exception: (1) when it is made by a third person
If it is joint and at the same time divisible, the
who has an interest in the fulfillment of the
provision of Article 1208 is applicable. If it is joint
obligation, and (2) when there is a stipulation to
and at the same time indivisible, the provisions of
the contrary (Art. 1236).
Articles 1209 and 1224 are applicable.
3. If a third person pays the obligation with the

Obligation with a penal clause
knowledge and consent of the debtor, he
An obligation with a penal clause involves two
acquires the (1) right to recover the entire
obligations, namely, the principal obligation and the
amount which he has paid, and (b) right to be
accessory obligation. The latter will not be imposed
subrogated to all the rights of the creditor. If the
if the main obligation is complied with. Example, an
third person pays without the knowedge or
undertaking to construct a house in ninety
against the will of the debtor, he can only recover
(90) days for the obligee and for the
insofar as the payment has been beneficial to the
contractor/obligor to pay a penalty of P100,000 per
debtor.
day of delay after ninety (90)) days is an obligation
with a penal clause.
4. The delivery of promissory notes payable to

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order, or bills of exchange or mercantile not have been reasonably foreseen or was
documents shall produce the effect of payment manifestly beyond the contemplation of the
only when they have been cashed, or when parties at the time of the establishment of the
through the fault of the creditor they have been obligation (Almeda vs. Bathala Marketing
impaired (Art. 1249, NCC). Under Sec. 60 of the Industries, January 28, 2008).
New Central Bank Act, checks do not have legal
tender power and their acceptance in the 8. The concept of application of payments represents
payment of debts, both public and private is at another mode of payment. This mode
the option of the creditor. When however, when contemplates a situation where a debtor has:
the check has been cleared and credited to the a. Several debts of the same kind;
account of the creditor after it has been b. In favor of the same creditor;
deposited, such fact is equivalent to the delivery c. All debts are due; and
to the creditor in cash in an amount equal to the d. The money in his hands is not sufficient to
amount credited to his account. satisfy all the debts.
5. In obligations for the payment of money, and an At the time of payment, the debtor may declare to
extraordinary deflation or inflation of the which debt his payment shall apply (Art. 1252,
stipulated currency occurs, the value of the NCC). If the debt to which the payment has been
currency at the time the obligation was applied bears interest, the interest must be paid first
established shall be the basis of payment, except before paying the principal (Art. 1253, NCC). If no
if there is a stipulation to the contrary (Art. 1250, application to a particular debt is made, then it is
NCC). presumed that the most onerous debt is deemed to
have been paid and if all have the same nature and
Article 1250 of the NCC, providing that, in case burden, the payment shall be applied to all debts
of extraordinary inflation or deflation, the value proportionately (Art. 1254, NCC)
of the currency at the time of the establishment
of the obligation shall be the basis for the 9. Article 1252 gives the right to the debtor to
payment when no agreement to the contrary is choose which of several obligations to apply a
stipulated, has strict application only to particular payment that he tenders to the
contractual obligations (Nepomuceno vs. City of creditor. But likewise grants the creditor the right
Surigao G.R. No. 146091, July 28, 2008). to apply such payment in case the debtor fails to
direct its application. Lorenze Realty’s silence
6. Absent an official pronouncement of can be construed as a acquiescence to China
extraordinary inflation during a given period, Bank’s application of the payment. (Sps. Tan vs.
the effects of extraordinary inflation are not to be China Banking Corporation, G.R. No. 200299,
applied. Article 1250 shall only be applied if August 17, 2016)
there is an official pronouncement of
extraordinary inflation (Almeda vs. Bathala 10. There are four (4) special forms of payment, to
Marketing Industries January 28, 2008). wit:
7. Inflation has been defined as the sharp increase of a. Dation in payment

money or credit, or both, without a b. Payment by cession
corresponding increase in business transaction. c. Application of payment
There is inflation when there is an increase in the d. Tender of payment and consignation
volume of money and credit relative to available
goods, resulting in a substantial and continuing 11. Dacion en pago or dation in payment is a mode of
rise in the general price level. In a number of payment whereby instead of paying money, the
cases, the Court has explained that extraordinary debtor alienates property in favor of the creditor
inflation exists when there is a decrease or in satisfaction of the debt. Example: If the debtor
increase in the purchasing power of the owes the creditor P50,000, he transfers to the
Philippine currency which is unusual or beyond creditor the ownership of a TV set instead of
the common fluctuation in the value of said delivering money to the latter. Dation in
currency, and such increase or decrease could payment is governed by the law on sales (Art.

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1245, NCC). In effect, it is considered a sale, the payment whereby the debtor abandons all of his
debtor being the seller and the creditor the property for the benefit of his creditors in order
buyer. that from the proceeds thereof the latter may
obtain payment of their credits (8 Manresa, 5th Ed.,
Dacion en pago is the delivery and transmission of Bk. 1, p. 606)
ownership of a thing by the debtor to the creditor
as an accepted equivalent of the performance of In payment by cession, at least partial or relative
the obligation, a special mode of payment where insolvency of the debtor is required.
the debtor offers another thing to the creditor
who accepts it as equivalent of payment of an 13. In Sps. Villaluz vs. Land Bank of the Philippines (G.R.
outstanding debt. The undertaking really No. 192602, January 18, 2017), the Supreme Court
partakes in one sense of the nature of sale, that is, ruled that the Deed of Assignment, being
the creditor is really buying the thing or property intended to be a mere security rather than a
of the debtor, payment for which is to be charged satisfaction of indebtedness, is not a dation in
against the debtor’s debt. As such, the essential payment under Article 1245 and did not
elements of a contract of sale, namely, consent, extinguish the loan obligation.
object certain, and cause or consideration must
be present. It its modern concept, what actually 14. Consignation. When the debtor makes a tender
takes place in dacion en pago is an objective of payment and the creditor refuses to accept
novation of the obligation where the thing payment or performance without justifiable
offered as an accepted equivalent of the cause, the debtor may make a consignation. As a
performance of an obligation is considered as the rule, consignation produces the effect of
object of the contract of sale, while the debt is payment but before the debt is deemed paid,
considered as the purchase price. In any case, there must first be a prior tender of payment,
common consent is an essential prerequisite, be which was refused by the creditor without just
it sale or novation, to have the effect of totally cause (Art. 1256, NCC).
extinguishing the debt or obligation. A suit to
obtain the enforcement of an approved and 15. However, consignation alone shall produce the
agreed dacion en pago, is doubtless, a suit for same effect, even without prior tender of
specific performance and one incapable of payment, in the following cases:
pecuniary estimation cognizable by the Regional
Trial Courts (Social Security System vs. Atlantic Gulf a. When the creditor is absent or unknown, or
and Pacific Company of Manila, Inc. G.R. No. 175952, does not appear at the place of payment;
April 30, 2008).
b. When he is incapacitated to receive payment
Dacion en pago is a special mode of payment at the time it is due;
whereby the debtor offers another thing to the
creditor who accepts it as equivalent of c. When, without just cause, he refuses to
payment of an outstanding obligation. The give a receipt;
undertaking is really one of sale, that is, the
creditor is really buying the thing or property of d. When two or more persons claim the same
the debtor, payment for which is to be charged right to collect; and
against the debtor’s debt. As such, the essential
elements of a contract of sale, namely consent, e. When the title of the obligation has been lost
object certain, and cause or consideration must (Art. 1256 par.2, NCC).
be present. It is only when the thing offered as an
equivalent is accepted by the creditor that To release the obligor, it is also required that the
novation takes place, thereby, totally consignation be announced to all parties
extinguishing the debt (Tecnogas Philippines interested in the obligation (Art. 1257, NCC).
Manufacturing Corp. vs. Philippine National Bank, Consignation is made by depositing the things
G.R. No. 161004 April 14, 2008). due at the disposal of judicial authority, before
which the tender of payment shall be proved
12. Cession or assignment is a special form of (Art. 1258, NCC).

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prepared vouchers for their monthly rentals.

Consignation is the act of depositing the thing But that was insufficient to constitute a
due with the court or judicial authorities valid tender of payment. Even assuming that
whenever the creditor cannot accept or refuses it was a valid tender, still, it would not
to accept payment and it generally requires a constitute payment for want of consignation
prior tender of payment. In order that of the amount. Well- settled is the rule that
consignation may be effective, the debtor tender of payment must be accompanied by
must show that: consignation in order that the effects of
payment may be produced (Pasricha vs. do
a. There was a debt due; Luis Dison Realty, Inc., G.R. No. 136409, March
14, 2008).
b. The consignation of the obligation was made
because the creditor to whom tender of Note that tender of payment is not a mode of
payment has been made refused to accept it extinguishing an obligation. It is the judicial
or was absent or incapacitated, or because declaration that a consignation has been
several persons claimed to be entitled to properly made that would release the debtor
receive the amount due, or because the title from the obligation.
to the obligation was lost;
Loss of determinate thing or impossibility or
c. Previous notice of the consignation was difficulty of performance
given to the person interested in the
performance of the obligation; 1. A thing is considered lost when the thing
perishes, goes out of commerce or disappears in
d. The amount due was placed at the disposal such a way that its existence is unknown or
of the court; and it cannot be recovered. If the thing is lost
without the fault of the debtor, the obligation
e. After the consignation had been made, the shall be extinguished; if the thing is lost through
person interested was notified thereof. the fault of the debtor, he shallbe obliged to pay
Failure in any of these requirements is damages (Art. 1189, NCC). This rule presupposes
enough ground to render a consignation that the thing is specific or determinate. Generic
ineffective (Insular Life Assurance Company vs. things are not subject to loss under the principle
Toyota Bel-Air, Inc. G.R. No. 137884 March 28, of genus nun quam perit. The extinguishment of
2008). the obligation through loss also presupposes that
the loss occurred before the debtor incurs in
Not knowing to whom to pay the rentals delay (Art. 1262, NCC).
does not justify the failure of the lessees to
pay because they are not without 2. Also where by law or stipulation, the obligor
remedy—they should avail of the provisions assumes liability even for fortuitous events, or
of the NCC on consignation of payment and when the nature of the obligation requires the
of the Rules of Court on interpleader. assumption of risk, the loss of the thing due does
Consignation shall be made by depositing not extinguish the obligation (Art. 1262, NCC).
the things due at the disposal of a judicial
authority, before which the tender of 3. Article 1266 of the New NCC refers to
payment shall be proved in a proper case, impossibility of performance in
and the announcement of consignation in obligations to do. In order that the impossibility
other cases. The rationale for consignation of compliance with the obligation shall result
is to avoid the performance of an obligation in its extinguishment, the prestation
becoming more onerous to the debtor by constituting the object of the obligation must
reason of causes not imputable to him. In have become legally or physically impossible of
the instant case, consignation alone would compliance without the fault of the obligor and
have produced the effect of payment of the before he has incurred in delay, otherwise, the
rentals. Petitioners claim that they made a obligation shall be converted into one of
written tender of payment and actually indemnity for damages. In addition, the

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impossibility must have occurred after the is condoned, the accessory obligations are
constitution of the obligation, otherwise, if it was likewise deemed condoned but not vice versa
before the obligation was constituted, there (Art. 1274, NCC). In the case of a pledge, when
would be an obligation which would be the thing pledged is delivered to or found in
ineffective from its inception (Comments and possession of the debtor or its owner after it has
Jurisprudence on Obligations and Contracts, Jurado, been previously given to the creditor, the pledge
11th Ed., p. 289-290). is deemed impliedly condoned (Art. 1274, NCC).
Condonation or remission of debt Confusion

1. Condonation or remission of the debt means that 1. Confusion may be defined as the merger of the
the creditor does not decide to collect and instead characters of creditor and debtor in one and the
he forgives the debt. Condonation is essentially same person by virtue of which the obligation is
gratuitous. It may be made expressly or extinguished.
impliedly but in either case, the debtor must
accept the condonation for it to have effect (Art. By its very nature, confusion or merger of right
1270, NCC). will necessarily result in the extinguishment of
the obligation because of the impossibility of
2. According to the second paragraph of Article 1270 enforcing it since it would certainly be absurd for
of the New NCC, express remission or a person to enforce a claim against himself.
condonation must comply with the forms of
donation. Consequently, if the obligation to 2. In order that there will be a confusion of rights
give,which is expressly condoned involves which will result in the extinguishment of the
personal property, the provision of Article obligation, it is essential that the following
748 of the same code shall apply. If the requisites must concur:
condonation involves immovable property,
Article 749 shall apply. a. That the merger of the characters of creditor
and debtor must be in the same person;
3. As a mode of extinguishing an obligation,
condonation or remission of the debt is b. That it must take place in the person of either
defined as an act of liberality, by virtue of the principal creditor or the principal debtor,
which, without receiving any equivalent, the and
creditor renounces the enforcement of the
obligation, which is extinguished in its entirety c. That it must be complete and definite.
or in that part or aspect of the same to which the
remission refers. It is an essential characteristic of 3. Confusion or merger of rights may be
remission to be gratuitous, that there is no classified as follows:
equivalent received for the benefit given; once
such equivalent exists, the nature of the act a. As to cause or constitutions:
changes. It may become dation in payment
when the creditor receives a thing different from i. Inter vivos, when it is constituted by
that stipulated; or novation, when the object or agreement of the parties; or
principal conditions of the obligation should be
changed; or compromise, when the matter ii. Mortis causa, when it is constituted by
renounced is in litigation or dispute in exchange succession.
of some concession which the creditor receives
(Dizon vs. Court of Tax Appeals, G.R. No. 140944, b. As to extent or effect:
April 30, 2008).
i. Total, if it results in the extinguishment of
4. The voluntary delivery of a private document the entire obligation; or
evidencing the credit, made by the creditor to the
debtor implies the renunciation of whatever ii. Partial, if it results in the extinguishment
action the creditor has against the debtor of only a part of the obligation.
(Art.1271, NCC). Also, when the principal debt

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4. If the confusion or merger of rights will take the requisites are present. It is voluntary when
place in the person of either the principal the parties who are mutually creditors and
creditor or the principal debtor, the effect is the debtors agree to compensate their respective
extinguishment, not only of the principal obligations, even though all of the requisites for
obligation, but also of the accessory obligation. compensation may not then be present. It is
This is logical because of the principle that the judicial when it takes effect by judicial decree.
accessory obligation cannot exist without the 3. As to effect, compensation may be total or
principal obligation (3 Castan, 7th Ed., p. 269). partial. It is total when the debts to be
compensated are equal in amount. It is partial
5. If, on the other hand, the confusion or merger will when the debts to be compensated are not equal
take place in the person of a subsidiary creditor, in amount.
it is evident that there is no extinguishment of the
principal obligation, there will only be a 4. The essential requisites of compensation are:
substitution of creditor or debtor.
NOTE: For confusion to be an effective mode of a. There must be two parties, who, in their own
extinguishment of obligation there must be a right, are principal creditors and principal
merger of the principal debtor and principal debtors of each other;
creditor.
b. Both debts must consist in money, or if the
6. If the confusion or merger is constituted by things due are fungibles (consumables) they
agreement, it is evident that it may be revoked by must be of the same kind and quality;
the presence of any of the causes for the
rescission, annulment, nullity or inexistence of c. Both debts must be due;
contracts or by some special cause such as
redemption. d. Both debts must be liquidated and
demandable;
7. If it is constituted by inheritance, it may be
revoked by the nullity of the will, or by the e. There must be no retention or controversy
subsequent appearance of an heir with a better commenced by third persons over either of
right, or by any other cause, which will nullify the debts and communicated in due time to
the merger. the debtor; and
8. In all of these cases, the original obligation, as a f. The compensation must not be prohibited by
general rule, is recreated in the same form and law.
under the same condition in which it was found
before the merger took place (8 Manresa, 5th Ed., There are five kinds of debts or obligations, which
Bk. 1, pp. 709-710). are not susceptible of legal compensation. They are:
Compensation a. Debts arising from contracts of depositum;

1. Compensation may be defined as a mode of
extinguishing in their concurrent amount those b. Debts arising from contracts of commodatum;
obligations of persons who in their own right
are creditors and debtors of each other (3 Castan, c. Claims for support due by gratuitous title;
7th Ed., p. 270). It may also be defined as a
figurative operation of weighing two d. From criminal offenses; and
obligations simultaneously in order to
extinguish them to the extent in which the e. Certain obligations in favor of the
amount of one is covered by the amount of the government, such as taxes, fees, duties and
other (8 Manresa, 5th Ed., Bk. 1, p. 713). others of a similar nature.
2. As to cause, compensation may be legal, Novation

voluntary or judicial. It is legal when it takes 1. Novation is the extinguishment of an obligation
effect by operation of law from the moment all of by the substitution or change of the obligation

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by a subsequent one which extinguishes or

modifies the first, either by changing the Kinds of Novation
object or principal conditions, or by
substituting another in place of the debtor, or 1. Expromision
by subrogating a third person in the rights of In a novation by the change of the debtor, an original
the creditor. Novation is never presumed, and debtor may be substituted by a new debtor without
the animus novandi whether totally or partially, his knowledge or even against his will but with the
must appear by express agreement of the consent of the creditor. This kind of novation is
parties, or by their acts that are too clear and called expromision. This is the substitution described
unmistakable (Sueno vs. Land Bank of the in Art. 1293 of the NCC. In case the new debtor turns
Philippines, G.R. No. 174711, September 14, 2008). out to be insolvent or fails to fulfill the obligation, the
original shall not be liable to the creditor (Art.1294,
2. Novation involves the extinguishment of an old NCC)
obligation and the birth of a new one because of
any of the following: 2. Delegacion
The substitution of the debtor may also be at the
a. A change in the object; instance of the old debtor with the consent of the
creditor. This novation is called delegacion (Art. 1295,
b. A change in the principal conditions; NCC). If the new debtor is insolvent, the creditor
cannot proceed against the original debtor except if
c. A substitution in the person of the debtor; the insolvency of the new debtor is known to the old
debtor or was already existing and of public
d. A subrogation by a third person in the rights knowledge at the time of delegation of the debt (Art.
of the creditor (Art. 1291, NCC; Reyes vs. BPI 1295, NCC).
Family Savings Bank, Inc., 486 SCRA 276;
Aquintey vs. Tibong, 511 SCRA 414). It is not only the debtor, which may be substituted.
Even the creditor may be substituted. This kind of
3. For novation to arise, the novation must be clear substitution is by subrogation of a third person in the
and unequivocal or that the old and new rights of the creditor. Here, a third person steps into
obligations be incompatible with each other on the shoes of the creditor and acquires the latter’s
every point (Art. 1292, NCC). Novation is not rights. This subrogation may either be legal or
presumed. It must be clear (Aguilar vs. Manila conventional (Art. 1300, NCC). A real subrogation
Banking Corporation, 502 SCRA 354). transfers to another person the rights of a creditor
without modifying or extinguishing the obligation.
4. The following requisites must concur for There is no novation here because this is a mere
novation to arise, as a mode of extinguishing or assignment of rights. The debtor’s consent is not
modifying an obligation: 1) There must be a even required in a legal subrogation and is governed
previous valid obligation. 2) The parties by Arts. 1624 to 1627 of the NCC on Assignment of
concerned must agree to a new contract. 3) The Credits and Incorporeal Rights
old contract must be extinguished. 4) There must
be a valid new contract (Parañaque vs. Equitable A subrogation is conventional when it has the effect
PCI Bank, 627 SCRA 328, G.R. No. 179441 August of extinguishing the old obligation, giving rise to a
9, 2010). new obligation and requires the consent of all
parties, including the debtor and the third person
4. Where the new instrument still expressly (Art. 1301-1304 NCC).
recognizes the old one and only the terms of
payment are changed, the new agreement Case:
merely supplements the old one and there is no
novation (Reyes vs. BPI Family Savings Bank, Inc., The general rule is that novation is never presumed;
486 SCRA 276). it must always be clearly and unequivocally shown.
Thus, “the mere fast that the creditor receives a
guaranty or accepts payments from a third person
who has agreed to assume obligation, when there is

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no agreement that the first debtor shall be released Case:

from responsibility, does not constitute novation, A contract expressly giving to one party the right to
and the creditor can still enforce the obligation cancel the same if a resolutory condition therein
against the original debtor. (Ever Electrical agreed upon is not fulfilled, is VALID, the reason
Manufacturing, Inc., et al. vs. PBCOM, G.R. No. being that when the contract is thus cancelled, the
187822, August 3, 2016) agreement of the parties is in reality being fulfilled.
Indeed, the power thus granted cannot be said to be
CONTRACTS immoral, much less unlawful, for it could be
exercised – not arbitrarily – but only upon the other
A contract is a meeting of minds between two contracting party committing the breach of contract
persons whereby one binds himself, with respect to of non-payment of the installments agreed upon.
the other, to give something or to render some (Garcia vs. Rita Legarda, Inc. G.R. L-20175)
service (Article 1305, New NCC).
Mutuality of contracts
General Rule:
It is a “juridical convention manifested in legal form, The contract must bind both contracting parties; its
by virtue of which one or more persons bind validity or compliance cannot be left to the will of
themselves in favor of another or others, or one of them (Article 1308, NCC).
reciprocally, to the fulfilment of a prestation to give,
to do, or not to do.” (SM Land, Inc. vs. Bases Exception:
Conversion and Development Authority, 753 SCRA 613, The determination of the performance may be left to
G.R. No. 203655 March 18, 2015) a third person, whose decision shall not be binding
until it has been made known to both contracting
Basic Principles or Characteristics of a Contract parties (Article 1309, NCC). However, the
determination shall not be obligatory if it is evidently
a. Freedom (or liberty to stipulate) provided not inequitable. In such case, the courts shall decide
contrary to law, morals, good customs, what is equitable under the circumstances (Article
public order, or public policy. (Art. 1306, 1310, NCC).
NCC)
b. Obligatory force and Compliance in Good A contract is the law between parties. Absent any
faith (Arts. 1159 and 1315, NCC) showing that its provisions are contrary to law,
c. Perfection by mere consent (Consensuality) morals, good customs, public order, or public policy,
as a rule (Art, 1315, id.) it should be enforced to the letter. Contracts cannot
d. Both parties are mutuality bound (Art. 1301, be altered for the benefit of one party and to the
id.) detriment of the another. (NAPOCOR vs. Southern
e. Relativity (generally, it is only binding Philippines Power Corporation, G.R. No. 219627, July 4,
between the parties, their assigns, and heirs). 2016)
(Art. 1311, id.) (Paras, Civil Code of the
Philippines Annotated, Volume IV, 2004) Relativity of contracts
1. Contracts take effect only between the parties,
Freedom of contracts their assigns and heirs, except in case where the
General Rule: rights and obligations arising from the contract
The contracting parties may establish such are not transmissible by their nature, or by
stipulations, clauses, terms and conditions as they stipulation or by provision of law. The heir is not
may deem convenient (Article 1306, NCC). liable beyond the value of the property he
received from the decedent.
Exception:
Such stipulations, clauses, terms and conditions 2. If a contract should contain some stipulation in
must not be contrary to law, morals, good customs, favor of a third person, he may demand its
public order, or public policy (Ibid). fulfillment provided he communicated his
acceptance to the obligor before its revocation. A
mere incidental benefit or interest of a person is
not sufficient. The contracting parties must have

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clearly and deliberately conferred a favor upon a the terms and conditions of the contract must
third person (Art. 1311, NCC). be intelligent, spontaneous and free from all
vices of consent; and
3. There are, however, four exceptional instances
under the New Civil Code where a contract may d. The said conformity must be real and not
produce effect either directly or indirectly on simulated or fictitious.
third persons. They are:
3. Consent may either be express or implied. There
a. Where the contract contains a stipulation in is also a presumptive consent, which is the basis
favor of a third person (stipulation pour of quasi- contracts.
atrui);
4. Implied acceptance may arise from acts or facts,
Note: This is a stipulation in a contract, which reveal the intent to accept, such as the
clearly and deliberately conferred by the consumption of the things sent to the offeree, or
contracting parties as a favor upon a third the fact of immediately carrying out of the
person, who must communicate his contract offered.
acceptance of the favor or benefit to the
obligor before it could be revoked. Neither of 5. Consent is manifested by the concurrence of
the parties must have acted as agent of the offer and acceptance with respect to the object
third person. and the cause of the contract. Once there is such
a manifestation, the period or stage of
b. Where the third person comes into negotiation is terminated. If consensual, the
possession of the object of a contract creating contract is perfected.
a real right;
6. A unilateral proposition must be definite
c. Where the contract is entered into in order to (distinguished from mere communications),
defraud a third person; and complete (stating the essential and non-essential
conditions desired by the offeror), and
d. Where the third person induces a contracting intentional (serious) when accepted by another
party to violate his contract party for such proposition to form a valid
contract. However, our New Civil Code as
Essential requisites having obligatory force does not recognize a
Essential requisites are those without which there unilateral promise. To be so, there must be an
can be no contract. These are the following: acceptance that shall convert it into a contract.
a. Consent; 7. When the parties merely exchange offers and

b. Object or subject matter; and counteroffers, no agreement or contract is
c. Cause or consideration. perfected. A party may withdraw its offer or
counteroffer prior to its receipt of the other
Consent party’s acceptance thereof.
1. Consent is manifested by the concurrence of the
offer and acceptance upon the thing and the Vices of consent
cause, which are to constitute the contract. 1. Article 1330 of the New NCC enumerates the
different vices which may vitiate consent, to wit:
2. In order that there is consent, the following a. mistake;
requisites must concur: b. violence;
c. intimidation;
a. Legal capacity of the contracting parties; d. undue influence; or
e. fraud.
b. Manifestation of the conformity of the
contracting parties; 2. In addition to the five stated in this article, also
included is simulation of contracts.
c. He parties’ conformity to the object, cause,

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3. Mistake should refer to the substance of the third, the evil must be unjust; and fourth, the evil
thing, which is the object of the contract, or to must be the determining cause for the party
those conditions which have principally moved upon who, it is employed in entering into the
one or both parties to enter into the contact. contract (3 Castan, 7th Ed., pp. 337-338).
There are two general kinds of mistakes –
mistake of fact and mistake of law. 9. There is undue influence when a person takes
improper advantage of his power over the will of
4. There is mistake of fact when or one both the another, depriving the latter of a reasonable
contracting parties believe that a fact exists when freedom of choice. Concisely stated, undue
in reality it does not, or that such fact does not influence invalidating a contract is that which
exist when in reality it does. There is mistake of substitutes the wishes of another for those of a
law when one or both of the contracting parties party to the contract or that which deprives the
arrive at an erroneous conclusion regarding the latter of his free agency.
interpretation of a question of law or the legal
effects of a certain act or transaction. 10. The test in order to determine whether or not
there is undue influence which will invalidate a
5. As a general rule, it is only mistake of fact and contract is to determine whether or not the
not of law, which will vitiate consent thus influence exerted has so overpowered or
rendering the contract voidable except under subjugated the mind of a contracting party as to
Article 1334. destroy his free agency, making him express the
will of another rather than his own (Coso vs.
6. The requisites under Article 1334 are the Fernandez Deza, 42 Phil. 595).
following:
11. A contract is valid even though one of the parties
a. Mistake must be with respect to the legal entered into it against his wishes and desires or
effect of an agreement; even against his better judgment. Contracts are
also valid even though they are entered into by
b. Mistake must be mutual; and one of the parties without hope of advantage or
profit (Martinez vs. Hongkong and Shanghai Bank,
c. Real purpose of the parties must have been 15 Phil. 252).
frustrated.
12. Fraud, which will render a contract voidable,
7. There is violence when, in order to wrest consent, refers to those insidious words or machinations
serious or irresistible force is employed (Art. employed by one of the contracting parties in
1335, New NCC). In order that consent is vitiated order to induce the other to enter into a contract,
through violence, it is essential that the following which, without them, he would not have agreed
requisites must concur: first, the force employed to.
to wrest consent must be serious or irresistible;
and second, it must be the determining cause for In order that the consent of a party to a contract
the party upon whom it is employed in entering is vitiated by fraud, it is essential that the
into the contract. following requisites must concur:
8. There is intimidation when one of the contracting a. Fraud or insidious words or machinations
parties is compelled by a reasonable and well- must have been employed by one of the
grounded fear of an imminent and grave evil contracting parties;
upon his person or property, or upon the person b. The fraud or insidious words or
or property of his spouse, descendants or machinations must have been serious;
ascendants, to give his consent (Art. 1335, New c. The fraud or insidious words or
NCC). It requires the concurrence of the machinations must have induced the other
following requisites: first, one of the contracting party to enter into the contract; and
parties is compelled to give his consent by a d. The fraud should not have been employed by
reasonable and well-grounded fear of an evil; both of the contracting parties or by third
second, the evil must be imminent and grave; persons.

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Failure to disclose facts, when there is a duty to d. Services which are contrary to law, morals,
reveal them, as when the parties are bound by good customs, public order or public policy;
confidential relations, constitutes fraud (Art. 1339,
New NCC). The usual exaggerations in trade, when e. Impossible things or services; and
the other party had an opportunity to know the facts,
are not in themselves fraudulent (Art. 1340, New f. Objects which are not possible of
NCC). A mere expression of an opinion does not determination as to their kind.
signify fraud, unless made by an expert and the
other party has relied on the former’s special Cause or consideration
knowledge. 1. The immediate, direct and most proximate
reason, which explains and justifies the creation
13. Mere weakness of mind alone, without of obligation.
imposition of fraud, is not ground for vacating a
contract. Only if there is unfairness in the 2. The following requisites must be present:
transaction, such as gross inadequacy of
consideration, that the low degree of intellectual a. Cause should be in existence at the time of
capacity of the party, may be taken into the celebration of the contract;
consideration for the purpose of showing such fraud
as will afford a ground for annulling a contract. b. Cause should be licit or lawful; and
Hence, a person is not incapacitated to enter into a
contract merely because of advanced years or by c. Cause should be true.
reason of physical infirmities, unless such age or
infirmities impair his mental faculties to the extent 3. In onerous contracts, the cause is understood to be,
that he is unable to properly, intelligently and fairly for each contracting party, the prestation of
understand the provisions of said contract (Yuson vs. promise of a thing or service by the other (Art.
Arciaga, et. al. G.R. No. 145015) 1350, NCC).
Object or subject matter 4. In remuneratory contracts, the service or benefit

1. The object of a contract is the thing, right or which is remunerated (Art. 1350, NCC).
service, which is the subject matter of the
obligation arising from the contract. 5. In contracts of pure beneficence, the mere liberality
of the donor or benefactor (Art. 1350, NCC).
2. The following requisites must be present:
6. In accessory contracts (mortgage or pledge), the
a. It must be within the commerce of man; cause is identical with the cause of the principal
contract, that is, the loan from which it derives its
b. It must be licit or not contrary law, morals, life and existence (Comments and Jurisprudence on
good customs, public order or public policy; Obligations and Contracts, Jurado, 12th Ed., p. 469).
c. It must be possible; and
Kinds of contracts
d. It must be determinate as to its kind. 1. A consensual contract is one, which is perfected by
mere agreement of the parties (ex. sales).
3. The following are the things which cannot be the
object of a contract: 2. A real contract is one, which requires not only the
consent of the parties for their perfection, but
a. Things which are outside the commerce of also the delivery of the object by one (1) party to
men; the other (ex. deposit).
b. Intransmissible rights; 3. A formal or solemn contract is one, which requires

some particular form like the following:
c. Future inheritance, except in cases expressly
authorized by law; a. Donations – Arts. 748-749;

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b. Partnership where real property is d. The cession of actions or rights proceeding

contributed – Arts. 1771, 1773; from an act appearing in a public document.
c. Antichresis – Art. 2134;
d. Agency to sell real property or an interest 4. All other contracts where the amount involved
therein – Art. 1874; exceeds five hundred pesos must appear in
e. Stipulation to charge interest – Art. 1956; writing, even a private one. But sales of goods,
f. Stipulation limiting common carrier’s duty of chattels or things in action are governed by
extraordinary diligence to ordinary diligence articles, 1403, No. 2 and 1405 of the New Civil
– Art. 1744; Code (Art. 1358, New NCC).
g. Chattel mortgage; and
h. Sale of large cattle. Reformation of Instruments
1. When the true intention of the parties to a
Formality of contracts perfected and valid contract are not expressed in
1. Contracts shall be obligatory, in whatever form the instrument purporting to embody their
they may have been entered into, provided all agreement, by reason of mistake, fraud,
the essential requisites for their validity are inequitable conduct or accident, one the parties
present. However, when the law requires that a may ask for the reformation of the instrument so
contract be in some form in order that it may be that such true intention may be expressed (Art.
valid or enforceable, or that a contract be proved 1359, NCC)
in a certain way, that requirement is absolute and
indispensable. In such cases, the right of the 2. If there is no meeting of the minds of the parties
parties stated in the following article cannot be yet, then the proper remedy is not the
exercised (Art. 1356, New NCC). reformation of the instrument but the
annulment of the contract.
2. If the law requires a document or other special
form, as in the acts and contracts enumerated in 3. The following documents cannot be reformed:
the following article, the contracting parties may
compel each other to observe that form, once the a. Simple donations inter vivos wherein no
contract has been perfected. This right may be condition is imposed;
exercised simultaneously with the action upon b. Wills; and
the contract (Art. 1357, NCC). c. Those where the real agreement is void. (Art.
1366, NCC)
3. The following must appear in a public
document: Defective Contracts
Rescissible contracts
a. Acts and contracts which have for their object 1. Rescissible contracts are contracts validly agreed
the creation, transmission, modification or upon but, by reason of lesion or economic
extinguishment of real rights over prejudice, may be rescinded in cases established
immovable property; sales of real property or by law.
of an interest therein are governed by
Articles 1403, No. 2, and 1405 of the New 2. The following contracts are rescissible:
Civil Code;
a. Those which are entered into by guardians
b. The cession, repudiation or renunciation of whenever the wards whom they represent
hereditary rights or of those of the conjugal suffer lesion by more than one-fourth of the
partnership of gains; value of the things which are the object
thereof;
c. The power to administer property, or any
other power which has for its object an act b. Those agreed upon in representation of
appearing or which should appear in a absentees, if the latter suffers the lesion stated
public document, or should prejudice a third in the preceding number;
person;
c. Those undertaken in fraud of creditors when

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the latter cannot in any other manner collect 3. The action to claim for rescission must be
the claims due them; commenced within four (4) years, (a) from the
time of the termination of the incapacity of the
d. Those which refer to things under litigation ward or from the time the domicile of the
if they have been entered into by the absentee is known (if based on lesion), and (b)
defendant without the knowledge and from the time of the discovery of the fraud (if
approval of the litigants or of competent based on fraud).
judicial authority;
Presumptions of contracts undertaken in fraud of
e. All other contracts specially declared by law creditors
to be subject to rescission (Art. 1381, New 1. Alienations by gratuitous title, when the donor
NCC); and did not reserve sufficient property to pay all
debts contracted before the donation.
f. Payments made in a state of insolvency on
account of obligations not yet enforceable 2. Alienation by onerous title, when made by a
(Art. 1382, New NCC). person against whom some judgement has been
issued. The decision or attachment need not refer
The following are the differences between rescission to the property alienated, and need not have
under Article 1191 and Article 1381 of the New Civil been obtained by the party seeking the rescission
Code: (Art. 1387, NCC)
Rescission in Article Rescission proper in Badges of Fraud

1191 Article 1381 If the fraud or intent to defraud cannot be
It is a principal action It is a subsidiary established by means of the presumptions
retaliatory in character. remedy. enunciated under Art. 1387, it may be done by
proving the existence the following circumstances
The only ground is non- There are five attending sales which have been dominated by the
performance of one’s (5)grounds to courts as badges of fraud:
obligation/s or what is rescind. Non-
incumbent upon him. performance by the a. The fact that the consideration of the
other party is not conveyance is fictitious or is inadequate.
important. b. A transfer made by a debtor after suit has
It applies only to It applies to both been begun and while it is pending against
reciprocal obligation. Unilateral and him.
reciprocal obligations c. A sale upon credit by an insolvent debtor.
Only a party to the Even a third person d. Evidence of large indebtedness or complete
contract may demand who is prejudiced by insolvency.
fulfillment or seek the the contract may e. The transfer of all or nearly all of his property
rescission of the contract. demand the by a debtor, especially when he is insolvent
rescission of the or greatly embarrassed financially.
contract. f. The fact that the transfer is made between
Court may fix a Court cannot grant father and son, when there are present other
period or grant extension extension of time for of the above circumstances.
of time for the fulfillment fulfillment of the g. The failure of the vendee to take exclusive
of the obligation. obligation. possession of all the property. (Oria vs.
Its purpose is to cancel Its purpose is to seek McMicking)
the contract. reparation for the
damage or injury Voidable contracts
caused, thus 1. Voidable contracts are those in which all of the
allowing partial essential elements for validity are present,
rescission of the although the element of consent is vitiated either
contract. by lack of capacity of one of the contracting
parties or by mistake, violence, intimidation,

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undue influence or fraud. Unenforceable contract

1. Unenforceable contracts are those which are
2. The causes of extinction to annul are the entered into in the name of another by one
following: without or acting in excess of authority, those
where both parties are incapable of giving
a. Prescription- the action to annul must be consent, and those which do not comply with the
commenced within four (4) years from the Statute of Frauds.
time the incapacity ends, the time the
violence, intimidation or undue influence 2. The following are the agreements which are
ends, or the time the mistake or fraud is within the scope of Statute of Frauds under
discovered. Discovery of fraud must be Article 1403 of the New Civil Code and, thus,
reckoned to have taken place from the time required to be in writing and subscribed by the
the document was registered in the office of party charged or his agent:
the register of deeds. Registration constitutes
constructive notice to the whole world a. Agreements not to be performed within one
(Carantes vs. CA, 76 SCRA 514). (1) year from the making thereof;
b. Ratification b. Special promise to answer for the debt,

The following requisites must concur: default or miscarriage of another;
i. There must be knowledge of the reason NOTE: This does not refer to the original or
which renders the contract voidable; independent promise of the debtor to his
ii. Such reason must have ceased; and own creditor. It refers rather to a collateral
iii. The injured party must have executed an promise.
act which expressly or impliedly conveys
an intention to waive his right. c. Agreement in consideration of marriage
other than a mutual promise to marry;
d. By loss of the thing which is the object of the
contract through fraud or fault of the person d. Agreement for the sale of goods, etc. at a
who is entitled to annul the contract. price not less than P500.00;
3. Effect of the annulment of a voidable contract: e. Contracts of lease for a period longer than
one year;
a. If the contract has not yet been
consummated, it is evident although the f. Agreements for the sale of real property or
NCC does not expressly so, that the interest therein; and
contracting parties shall be released from the
obligations arising therefrom. However, if g. Representation as to the credit of a third
the contract has already been consummated, person.
the rules provided for in Arts. 1398 to 1402
shall govern. Article 1398 provides for mutual NOTE: Not all agreements affecting land must be
restitution, whereby the parties should be put in writing to attain enforceability. Thus, the
restored to their original position prior to the setting up of boundaries, the oral partition of real
contract. However, under Article 1399, if the property, and an agreement creating a right of way
defect of the contract consists in the are not covered by the provisions of the statute of
incapacity of one of the contracting parties, frauds, as they are not included in the enumeration
the incapacitated person is not obligated to under Article 1403.
make any restitution except insofar as he has
been benefited by the thing or price received 3. The Statute of Frauds is applicable only to
by him. (Comments and Jurisprudence on executory contracts, not to contracts that are totally
Obligations and Contracts, Jurado, 21 st Ed., p. or partially performed. (Facturan vs. Sabanal).
886)

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Void contracts the contract. This is because of the presumed validity

1. Void contracts are those where all of the of the contract that has been duly executed. The
requisites of a contract are present but the cause, proof required to overcome the presumption of
object or purpose is contrary to law, morals, good validity must be convincing and preponderant.
customs, public order or public policy, or (Buenaventura vs. Metropolitan Bank and Trust
contract itself is prohibited or declared void by Company, G.R. No. 167082, August 3, 2016)
law.
Pactum commissorium
2. The following contracts are void: The creditor cannot appropriate the things given by
way of pledge or mortgage, or dispose of them. Any
a. Those whose cause, object or purpose is stipulation to the contrary is null and void (Art. 2088,
contrary to law, morals good customs, public NCC). A stipulation forbidding the owner from
order or public policy; alienating the immovable mortgaged shall be void
(Art. 2130, NCC).
b. Those whose object is outside the commerce
of men; Pactum de non alienando
A stipulation forbidding the owner from alienating
c. Those which contemplate an impossible the immovable mortgaged shall be void (Art. 2130,
service; NCC).
d. Those where the intention of the parties Pactum leonina

relative to the principal object of the contract A stipulation, which excludes one, or more partners
cannot be ascertained; and from any share in the profits or losses is void (Art.
1799, NCC).
e. Those expressly prohibited or declared void
by law.
3. The right to file an action for void contracts is

imprescriptible.
4. When the defect of a void contract consists in the

illegality of the cause or object of the contract,
and both of the parties are at fault or in pari
delicto, the law refuses them every remedy and
leaves them where they are.
Exceptions to the principle of pari delicto are

found in Articles 1414 to 1419 of the NCC.
Cases:
1. The most protuberant index of simulation of
contract is the complete absence of an attempt in any
manner on the part of the ostensible buyer to assert
rights of ownership over the subject properties. The
failure to take exclusive possession of the subject
properties or, in the alternative, to collect rentals, is
contrary to the principle of ownership. Such failure
is a clear badge of simulation that renders the whole
transaction void. (Heirs of Ureta vs. Heirs of Ureta, G.R.
No. 165748)
2. Note, however, that the burden of showing that

a contract is simulated rests on the party impugning

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COMPARATIVE TABLE OF DEFECTIVE CONTRACTS prescription in case of Article

VOID VOIDABLE RESCISSIBLE UNENFORCEABLE 1403 Nos. 1 or 3
As to Defect As to Susceptibility of Ratification
Defect is Defect is Defect is Defect is caused by Cannot be Can be Need not be Can be ratified
caused by caused by caused by lack of form, ratified ratified ratified
lack of vice of injury/damage authority, or As to Who May Assail Contracts
essential consent either to one of capacity of both Assailed by Assailed Assailed by a Assailed only by a
elements or the parties or parties not cured by a only by a contracting contracting party
illegality to a third prescription contracting contracting party and a
person party and a party third person
As to Effect third who is
Do not, as a Valid and Valid and Cannot be enforced person prejudiced or
general enforceable enforceable by a proper action in whose damaged by
rule, until until court interest is the contract
produce annulled by rescinded by a directly
any legal a competent competent affected
effect court court As to How Contracts May be Assailed
As to Prescription of Action or Defense Assailed Assailed Assailed Assailed directly or
Action for Action for Action for Corresponding directly or directly or directly only collaterally
the annulment rescission may action for recovery, collaterally collaterally
declaration or defense prescribe if there was total or
or nullity or of partial performance
-oOo-
inexistence annulability of the unenforceable
or defense may contract under No. 1
of nullity or prescribe or 3 of Article 1403
inexistence may prescribe
does not
prescribe
As to the Effect of Prescription
Not cured Cured by Cured by Not cured by
by prescription prescription prescription except

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2020 2021 Civil Law Handout No. 6 Obligations and Contracts 1

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Recoletos Law Center

“THE HOME OF THE NATION’S TOP BAR REVIEWERS”

REMINDERS IN OBLIGATIONS AND CONTRACTS

3. A passive subject known as the obligor or

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c. Positive and negative – positive, when the Natural Obligation

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3. EXTRA-CONTRACTUAL accused did not commit the crime charged, or

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a. DILIGENCE OF A GOOD FATHER – a good 5. Answer for damages in case of non-fulfillment or

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because an obligation may sometimes be

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G.R. 141910, August 6, 2002).

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3. The debtor may defeat the right of the creditor by

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no express stipulation authorizing him to

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obligations only one of which should be

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the obligation can no longer be fulfilled or obligation. Hence, a promise of X and Y to

If A and B promise to pay P the amount of P1 The novation, compensation, confusion or

3. A solidary obligation must not be confused

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3. If a third person pays the obligation with the

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7. Inflation has been defined as the sharp increase of a. Dation in payment

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prepared vouchers for their monthly rentals.

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Condonation or remission of debt Confusion

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Compensation a. Debts arising from contracts of depositum;

2. As to cause, compensation may be legal, Novation

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by a subsequent one which extinguishes or

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no agreement that the first debtor shall be released Case:

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a. Consent; 7. When the parties merely exchange offers and

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Object or subject matter 4. In remuneratory contracts, the service or benefit

b. Intransmissible rights; 3. A formal or solemn contract is one, which requires

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b. Partnership where real property is d. The cession of actions or rights proceeding

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Rescission in Article Rescission proper in Badges of Fraud