OBLIGATIONS
An obligation is a juridical necessity to give, to do, or not to do (NCC, Art. 1156).
It is a juridical relation or a juridical necessity whereby a person (creditor) may
demand from another (debtor) the observance of a determinative conduct
(giving, doing, or not doing), and in case of breach, may demand satisfaction
from the assets of the latter
ELEMENTS OF AN OBLIGATION
1. Juridical tie or vinculum juris or efficient cause - The efficient cause by virtue
of which the debtor becomes bound to perform the prestation (Pineda, 2000).
SOURCES OF OBLIGATIONS
1. OBLIGATION EX LEGE ( LAW)
Obligations derived from law are not presumed. Only those expressly
determined in the Code or in special laws are demandable and shall be
regulated by the precepts of the law which establishes them and as to what has
not been foreseen by the provisions of Book IV of NCC
2. OBLIGATION EX CONTRACTU (CONTRACTS)
Requisites of a contractual obligation
1. It must contain all the essential requisites of a contract (NCC, Art. 1318); and
2. It must not be contrary to law, morals, good customs, public order, and public
policy (NCC, Art. 1306).
Binding force of obligation ex contractu
Obligations arising from contracts have the force of law between the parties and
should be complied with in good faith (NCC, Art. 1159). This is known as the
“principle of obligatory force of contracts” (Rabuya, 2017).
3. OBLIGATION EX QUASI – CONTRACTU
Quasi-contract
A juridical relation arising from lawful, voluntary and unilateral acts based on
the principle that no one shall be unjustly enriched or benefited at the expense
of another (NCC, Art. 2142).
Distinguished from “implied contracts”
An implied contract, in the proper sense, is a contract which arises when the
intention of the parties is not expressed, but an agreement in fact, creating an
obligation, is implied or presumed from their acts, or where there are
circumstances which show a mutual intent to contract.
Principal forms of quasi-contracts
1. Negotiorum gestio (inofficious manager)– Arises when a person voluntarily
takes charge of the management of the business or property of another without
any power from the latter (NCC, Art. 2144).
2. Solutio indebiti (unjust enrichment) – Takes place when a person received
something from another without any right to demand for it, and the thing was
unduly delivered to him through mistake (NCC, Art. 2154).
4. OBLIGATIONS EX DELICTO
Delict
An act or omission punishable under the law.
GR: Art. 100 of the Revised Penal Code provides: “Every person criminally liable
for a felony is also civilly liable.”
Implied institution of the civil action in a criminal case
GR: When a criminal action is instituted, the civil action for the recovery of the
civil liability arising from the offense charged shall be deemed instituted with
the criminal action (Sec. 1, Rule 111, Rules of Court).
XPNs: When the offended party:
1. Waives the civil action;
2. Reserves the right to institute it separately; and
3. Institutes the civil action prior to the criminal action (Rule 111, Sec. 1, Rules
of Court).
5. OBLIGATIONS EX QUASI – DELICTO
Quasi-delict or tort
An act or omission arising from fault or negligence which causes damage to
another, there being no pre-existing contractual relations between the parties
(NCC, Art. 2176).
NATURE AND EFFECTS OF OBLIGATIONS
Types of real obligations
1. Determinate/specific – particularly designated or physically segregated from
all others of the same class;
2. Indeterminate/Generic – is designated merely by its class or genus;
3. Delimited generic – generic objects confined to a particular class (Tolentino,
2002);
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e.g. an obligation to deliver one of my horses.
Diligence of a good father of a family
NOTE: In an obligation to deliver a specific thing, the creditor has the right to That reasonable diligence which an ordinary prudent person would have done
demand preservation of the thing, its accessions, accessories, and the fruits. The under the same circumstances.
creditor is entitled to the fruits and interests from the time the obligation to
deliver the thing arise. Effects of breach of obligation
If a person obliged to do something fails to do it, or if he does it in contravention
Right of the creditor to the fruits of the tenor of the obligation or what has been poorly done be undone, the same
The creditor has a right to the fruits of the thing from the time the obligation to shall be executed at his cost (NCC, Art. 1167).
deliver it arises. However, he shall acquire no real right over it until the same
has been delivered to him (NCC, Art. 1164). When the obligation consists in not doing, and the obligor does what has been
forbidden him, it shall also be undone at his expense (NCC, Art.1168).
PERSONAL RIGHT REAL RIGHT
The right or power of a The right or interest of DELAY (MORA) OR DEBTOR’S DEFAULT
person (creditor) to a Those obliged to deliver or to do something incur in delay from the time the
demand from another person over a specific obligee (creditor) judicially or extrajudicially demands from them the
(debtor), as a definite thing fulfillment of their obligation.
passive subject, the (i.e. ownership,
fulfillment of the possession, In reciprocal obligations, neither party incurs in delay if the other does not
latter’s obligation to mortgage), without a comply or is not ready to comply in a proper manner with what is incumbent
give, to do, or not to do. definite subject against upon him. From the moment one of the parties fulfills his obligations, delay by
whom the right may be the other begins (NCC, Art. 1169). (2002 BAR)
personally enforced.
Kinds of legal delay or default
Principle of “balancing of equities” in actions for specific performance 1 Mora solvendi – default on the part of the debtor/obligor
In decreeing specific performance, equity requires not only that the contract be 2. Mora accipiendi – default on the part of the creditor/oblige;
just and equitable in its provisions, but that the consequences of specific 3.. Compensatio morae – default on the part of both the debtor and creditor in
performance likewise be just and equitable. The general rule is that this reciprocal obligations.
equitable relief will not be granted if, under the circumstances of the case, the
result of the specific performance of the contract would be harsh, inequitable, Delay in reciprocal obligations
and oppressive or result in an unconscionable advantage to the plaintiff ( One party incurs in delay from the moment the other party fulfills his obligation,
while he himself does not comply or is not ready to comply in a proper manner
BREACHES OF OBLIGATIONS with what is incumbent upon him.
Demand is only necessary in order for a party to incur delay when the
Degree of diligence required respective obligations are to be performed on separate dates.
1. That agreed upon;
2. In the absence of such, that which is required by the law; FRAUD (Deceit or Dolo)
3. GR: In the absence of the foregoing, diligence of a good father of a family It is an intentional evasion of the faithful performance of the obligation (8
Manresa 72).
XPNs:
a. Common carriers requiring extraordinary diligence (NCC, Arts. 1998-2002). 1. Dolo causante (casual fraud)
b. Banks require the highest degree of deligence, being imbued with public This is the essential cause of the consent without which the party would not
interest. have agreed to enter into the contract

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2 Dolo incidente (incidental fraud)
This is the kind of fraud which is not the efficient cause for the giving of the
consent to the contract, as it refers merely to an incident therein and, which
even if not present, the contracting party would have still agreed to the contract.
Kinds of negligence or culpa
1. Culpa contractual (contractual negligence) - negligence which results from
the breach of contract;
2. Culpa aquiliana (civil negligence or tort or quasi-delict) acts or omissions that
cause damage to
another, there being no contractual relation between the parties (NCC, Art.
2176);
3. Culpa criminal (criminal negligence) – those which results in the commission
of a crime or a delict.
FORTUITOUS EVENT / CASO FORTUITO
An occurrence or happening which could not be foreseen, or even if foreseen, is
inevitable (NCC, Art. 1174). (2002, 2008 BAR)
Requisites: (CODE)
1. Cause of breach is independent of the will of the debtor;
2. The Event is unforeseeable or unavoidable;
3. Occurrence renders it absolutely impossible for the debtor to fulfill his
obligation in a normal manner - impossibility must be absolute not partial,
otherwise not force majeure; and
4. Debtor is free from any participation in the aggravation of the injury to the
creditor.
Liability for loss due to fortuitous event
GR: There is no liability for loss in case of fortuitous event.
XPNs: (SLaP-BGC)
1. Law;
2. Nature of the obligation requires the assumption of risk;
3. Stipulation;
4. The debtor is guilty of dolo, malice or bad faith, has Promised the same thing
to two or more persons who does not have the same interest (NCC, Art. 1165);
5. The debtor Contributed to the loss (Tan v. Inchausti & Co., G.R. No. L-6472,
March 7, 1912);
6. The possessor is in Bad faith (NCC, Art. 552); or
7. The obligor is Guilty of fraud, negligence or delay or if he contravened the
tenor of the obligation
REMEDIES
In case of breach of obligation, the following are the remedies available:
5. Specific performance, or substituted performance by a third person in case of
an obligation to deliver a generic thing, and in obligations to do, unless it is a
purely personal act; or
6. Rescission (or resolution in reciprocal obligations);
7. Damages, in any case;
8. Subsidiary remedies of creditors:
a. Accion subrogatoria
b. Accion pauliana
c. Accion directa
SPECIFIC PERFORMANCE
Remedies in connection with specific performance
1. Exhaustion of the properties of the debtor (not exempt from attachment
under the law)
2. Accion subrogatoria (subrogatory action) – An indirect action brought in the
name of the debtor by the creditor to enforce the former’s rights except:
a. Personal rights of the debtor;
b. Rights inherent in the person of the debtor;
c. Properties exempt from execution.
e.g. family home
3. Accion pauliana (rescissory action) – An action to impugn or assail the acts
done or contracts entered into by the debtor in fraud of his creditor.
RESCISSION (RESOLUTION) (NCC, ART. 1191)
It refers to the cancellation of the contract or reciprocal obligation in case of
breach on the part of one, which breach is violative of the reciprocity between
the parties. This is properly called resolution. (2005, 2008 BAR)
ACCION SUBROGATORIA- An action whereby the creditor, whose claim has not
been fully satisfied, may go after thedebtor defendant debtor’s debtor (3rd
person)
ACCION PAULIANA- An action where the creditor files in court for the
rescission of acts or contracts entered into by the debtor designed to defraud
the former (NCC, Art. 1177).
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ACCION DIRECTA-The right of a person to go directly against another who is A condition where the rights already acquired are lost upon fulfillment of the
not a privy to the contract condition. It is also known as condition subsequent.

KINDS OF CIVIL OBLIGATIONS BASIS SUSPENSIV RESOLUTO

Pure obligation E RY
An obligation whose performance does not depend upon a future or uncertain CONDITION CONDITION
event, or upon a past event or upon a past event unknown to the parties, Effect of Obligation Obligation is
demandable at once (NCC, Art. 1179). fulfilment arises or extinguished
becomes
Conditional obligation effective.
An obligation subject to a condition and the effectivity of which is subordinated Effect of If not If not
to the fulfillment or non-fulfillment of a future and uncertain event, or upon a non- fulfilled, no fulfilled,
past event unknown to the parties (Pineda, 2000). fulfillment juridical juridical
relation is relation is
Constructive fulfillment of a condition created. consolidated
The condition shall be deemed fulfilled when the obligor voluntarily prevents .
its fulfillment (NCC, Art. 1186). When rights Rights are Rights are
Suspensive condition are not yet already
A condition the fulfillment of which will give rise to the acquisition of a right. acquired acquired, vested, but
While the condition has not arrived yet, in the meantime, the rights and but there is subject to
obligations of the parties are suspended. hope or the threat or
expectancy danger of
Requisites for the application of Art.1189 (SuRF LIDS) that they extinction.
1. Must be a Real obligation; will soon be
2. Object of the obligation is a Specific thing; acquired.
3. Obligation is subject to a SUspensive condition;
2. The condition is Fulfilled; and
3. There is loss, Deterioration or improvement of the thing during the pendency Negative resolutory condition
of the happening of the condition. An act, which if not done, would give rise to a cause of action against the obligor.
Potestative Condition (1997, 2000, 2003 BAR)
Positive suspensive condition A condition which depends upon the will of one of the contracting parties
A condition which requires a positive act on the part of the obligor that gives Effects of potestative conditions upon the obligation
rise to the acquisition of rights. If the condition is potestative in the sense that its fulfillment depends
exclusively upon the will of the debtor, and the same is suspensive, both the
In case of a contract to sell, the obligation to deliver the subject properties condition and obligation are VOID.
becomes demandable only upon the happening of the positive suspensive
condition (payment of full purchase price). Without full payment, there can be Casual Condition
no breach of contract to speak of because the seller has no obligation yet to turn It is the performance or the fulfillment of the condition which depends upon
over the title (Reyes v. Tuparan, G.R. No. 188064, June 1, 2011). chance and/or the will of a third person.

Resolutory condition (1999 BAR) Mixed Condition

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It is the performance or fulfillment of the condition which depends partly upon
the will of a party to the obligation and partly upon chance and or the will of a
third person.
e.g. condition is mixed because its fulfillment depends not only upon the will of
the debtor but also upon the concurrence of other factors, such as the
acceptability of the price and other conditions of the sale, as well as the
presence of a buyer, ready, able and willing to purchase the property.
Impossible Conditions (1997, 2007 BAR)
GR: Impossible conditions annul the obligation which depends upon the parties
but not of a third person.
XPNs:
1. Pre-existing obligation;
2. Obligation is divisible;
3. In simple or remuneratory donations;
4. In case of conditions not to do an impossible thing;
5. In testamentary dispositions.
OBLIGATIONS WITH A PERIOD
Obligation with a period or a term
Obligations for whose fulfillment a day certain has been fixed, shall be
demandable only when that day comes (NCC, Art. 1193).
“Day certain”
It is understood to be that which must necessarily come, although it may not be
known when.
e.g. “I will pay when my means permit me to do so.”
When the debtor binds himself to pay when his means permit him to do so, the
obligation is deemed with a period (NCC, Art. 1180). This is valid because it is
not the payment itself that is dependent upon the will of the debtor, but the
moment of payment.
As the time of payment is not fixed, the court must fix the same before any
action for collection may be entertained, unless, the prior action of fixing the
term or period will only be a formality and will serve no purpose but delay.
Instances where the court may fix the period (1991, 1997, 2003 BAR)
1. If the obligation does not fix a period, but from its nature and circumstances it
can be inferred that a period was intended by the parties.
2. If the duration of the period depends upon the will of the debtor (1997, 2003
BAR).
2. In case of reciprocal obligations, when there is a just cause for fixing the
period.
3. If the debtor binds himself when his means permit him to do so.
Instances where the debtor loses his right to make use of the period
1. When after the obligation has been contracted he becomes insolvent, unless
he gives a guaranty or security for the debt;
2. When he does not furnish to the creditor the guaranties or securities which
he has promised;
3. When by his own acts he has Impaired said guaranties or securities after their
establishment;
4. When through a fortuitous event they disappear, unless he immediately gives
new ones or equally satisfactory;
5. When the debtor violates any undertaking, in consideration of which the
creditor agreed to the period; and
1. When the debtor attempts to abscond (NCC, Art. 1198).
ALTERNATIVE /FACULTATIVE/ CONJUNCTIVE
OBLIGATIONS
Alternative obligation
It is one where the debtor is alternatively bound by different prestations but the
complete performance of one of them is sufficient to extinguish the obligation.
Facultative obligation
It is one where the debtor, who has a reserved right to choose another
prestation or thing, is bound to perform one of the several prestations due or to
deliver a thing as substitute for the principal.
Conjunctive obligation
One where the debtor has to perform several prestations; it is extinguished only
by the performance of all of them.
JOINT AND SOLIDARY OBLIGATIONS
(1992, 2001, 2008 BAR)
Joint obligations
One where the credit or debt shall be presumed to be divided into as many
equal shares as there are creditors or debtors, the credit or debts being
considered distinct from one another (NCC, Art. 1208). Each debtor is liable only
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for a proportionate part of the debt and each creditor to his proportionate share
to the credit. Indivisible obligations
Those which have as their object a prestation which is not susceptible of partial
Solidary obligations performance, because otherwise the essence of the obligation will be changed.
It is where each of the debtors obliges to pay the entire obligation while each The obligation is clearly indivisible because the performance of the contract
one of the creditors has the right to demand from any of the debtors, the cannot be done in parts, otherwise, the value of what is transferred is
payment or fulfillment of the entire obligation (NCC, Art. 1207; Pineda, 2000). diminished
JOINT INDIVISIBLE OBLIGATIONS
The obligation is joint because the parties are merely proportionately liable. It is
OBLIGATIONS WITH A PENAL CLAUSE
An obligation with a penal clause is one with an accessory undertaking by virtue of
indivisible because the object or subject matter is not physically divisible into which the obligor assumes a greater liability in case of breach of the obligations (Jurado,
different parts. In other words, it is joint as to liabilities of the debtors or rights 2009).
of the creditors but indivisible as to compliance (De Leon, 2010).
EXTINGUISHMENT OF OBLIGATIONS
(1998 BAR)
Modes of extinguishment of an obligation
A:
Principal Modes (PaLoCo3N)
a. Joey can be compelled to pay only the remaining balance of P200,000, in
1. Payment or performance
view of the remission of Jojo’s share by the creditor (NCC, Art. 1219).
2. Loss of the thing due
3. Condonation or remission of debt
b. Jojo can be compelled by Joey to contribute P50,000. When one of the
4. Confusion or merger
solidary debtors cannot, because of his insolvency, reimburse his share to the
5. Compensation
debtor paying the obligation, such share shall be borne by all his co-debtors, in
6. Novation (NCC, Art. 1231).
proportion to the debt of each [NCC, Art. 1217(3)].
Other Modes (PARF)
2015 bar: In a solidary obligation the remission of the whole obligation 7. Annulment
obtained by one of the solidary debtors does not entitle him to reimbursement 8. Rescission
from his co-debtors. (NCC, Art. 1220). 9. Fulfillment of a resolutory condition
10. Prescription (NCC, Art. 1231).
(2015 BAR).
A: NO. The obligation in this case is presumed to be joint. The concurrence of NOTE: The enumeration is not exclusive.
two or more creditors or two or more debtors in one and the same obligation
does not imply that each one of the former has the right to demand, or that each PAYMENT OR PERFORMANCE
one of the latter is bound to render the entire compliance of the prestation
(NCC, Art. 1207). In a joint obligation, there is no mutual agency among the joint Payment is the fulfillment of the obligation by the realization of the purposes for
debtors such that if one of them is insolvent the others shall not be liable for his which it was constituted (Jurado, 2010). (1998, 2009 BAR)
share. Payment may consist not only in the delivery of money but also the giving of a
thing (other than money), the doing of an act, or not doing of an act (NCC, Art.
DIVISIBLE AND INDIVISIBLE OBLIGATIONS 1232).
Divisible obligations Characteristics of payment
Those which have as their object a prestation which is susceptible of partial 1. Integrity – the payment of the obligation must be completely made.
performance with the essence of the obligation being changed.

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2. Identity – the payment of the obligation must consist the performance of the
very thing due.
3. Indivisibility – the payment of the obligation must be in its entirety.
PAYMENT MADE BY THIRD PERSONS
GR: The creditor is not bound to accept payment or performance by a third
person.
XPNs:
1. When made by a third person who has interest in the fulfillment of the
obligation;
2. Contrary stipulation (NCC, Art. 1236).
DATION IN PAYMENT (dacion en pago)
The delivery and transmission of ownership of a thing by the debtor to the
creditor as an accepted equivalent of the performance of the obligation. The
property given may consist not only of a thing but also of a real right (Tolentino,
2002) (2009 BAR)
Extraordinary Inflation
Exists when there is a decrease or increase in the purchasing power of the
Philippine currency which is unusual or beyond the common fluctuiation iin the
value of said currency and such decrease or increase could not have been
reasonably foreseen or was manifestly beyond the contemplation of the parties
at the time of the establishment of the obligation
APPLICATION OF PAYMENTS
Requisites:
1. There is only one debtor and creditor;
2. The debtor owes the creditor two or more debts;
3. Debts are of the same kind or identical nature;
e.g. both debts are money obligations obtained on different dates.
4. All debts are due and demandable, except:
a. When there is mutual agreement between the parties (Tolentino, 2002);
b. The application is made by the party for whose benefit the term has been
constituted [NCC, Art. 1252(1]).
5. The payment made is not sufficient to cover all obligations.
PAYMENT BY CESSION
Debtor cedes his property to his creditors so the latter may sell the same and
the proceeds realized applied to the debts of the debtor.
Requisites:
1. Plurality of debts;
2. Partial or relative insolvency of the debtor; and
3. Acceptance of the cession by the creditors
Tender of Payment
The definitive act of offering to the creditor what is due him together with the
demand that the creditor accept the same
Consignation
Act of depositing the object of the obligation with the court or competent
authority after the creditor has unjustifiably refused to accept the same or is not
in a position to accept it due to certain reasons or circumstances.
Effectivity of consignation as payment
GR: Consignation shall produce effects of payment only if there is a valid tender
of payment.
XPNs: It shall, however, not produce the same effect in the following cases.
When: (ARTIT)
1. Creditor is Absent or unknown, or doesn’t appear at place of payment;
2. Creditor Refuses to issue a receipt without just cause;
3. Title of the obligation has been lost;
4. Creditor is Incapacitated to receive payment at the time it is due;
5. Two or more persons claim the right to collect
LOSS OF THE THING DUE
When a thing is considered lost (DOPE)
1. It Disappears in such a way that its existence is unknown;
2. It goes Out of commerce;
3. It Perishes; or
4. Its Existence is unknown or if known, it cannot be recovered.
Effect of loss of the thing/object of the obligation
If the obligation is a:
1. Determinate obligation to give:
Requisites
a. The thing lost must be determinate;
b. The thing lost is without fault of the debtor;
c. The thing is lost before the debtor has incurred delay (NCC, Art. 1262).

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GR:The obligation is extinguished when the object of the obligation is lost or
destroyed (NCC, Art. 1262).
XPNs: (LAS-CD-PCG)
a. Law provides otherwise (NCC, Art. 1262);
b. Nature of the obligation requires the Assumption of risk;
c. Stipulation to the contrary;
d. Debtor Contributed to the loss;
e. Loss the of the thing occurs after the debtor incurred in Delay;
f. When debtor Promised to deliver the same thing to two or more persons who
do not have the same interest (NCC, Art. 1165);
g. When the debt of a certain and determinate thing proceeds from a Criminal
offense (NCC, Art. 1268);
h. When the obligation is Generic (NCC, Art. 1263).
2. Generic obligation to give:
GR: The obligation is not extinguished because a generic thing never perishes
(genus nun guam perit (NCC, Art. 1263).
XPNs:
a. In case of generic obligations whose object is a particular class or group with
specific or determinate qualities (delimited generic obligation);
b. In case the generic thing has already been segregated or set aside, in which
case, it has become specific.
3. An obligation to do – the obligation is extinguished when the prestation
becomes legally or physically impossible without the fault of the obligor (NCC,
Art. 1266).
Effect when the thing is lost in the possession of the debtor
GR: It is presumed that loss is due to debtor’s fault. The obligation is not
extinguished.
Creditor’s right of action
The obligation, having been extinguished by the loss of the thing, the creditor
shall have all the rights of action which the debtor may have against third
persons by reason of the loss (NCC, Art. 1269).
CONDONATION OR REMISSION OF DEBT (BAR 2000)
An act of liberality by virtue of which the creditor, without receiving any price
or equivalent, renounces the enforcement of the obligation, as a result of which
it is extinguished in its entirety or in that part or aspect of the same to which the
condonation or remission refers (Pineda, 2000).
Requisites of condonation (GAIDE)
1. Must be Gratuitous;
2. Acceptance by the debtor;
3. Must not be Inofficious;
4. Formalities provided by law on Donations must be complied with if
condonation is express; and
5. An Existing demandable debt at the time the remission is made.
Acceptance by the debtor
The acceptance by the debtor is required. There can be no unilateral
condonation. This is because condonation or remission is an act of liberality.
CONFUSION OR MERGER OF RIGHTS
There is a confusion when there is a meeting in one person of the qualities of a
creditor and debtor of the same obligation (4 Sanchez Roman 421).
Requisites of confusion or merger of rights
1. It must take place between the creditor and the principal debtor (NCC, Art.
1276);
2. The very same obligation must be involved (for if the debtor acquires rights
from the creditor, but not the particular obligation in question, there will be no
merger);
3. The confusion must be total or as regards the entire obligation.
COMPENSATION
It is a mode of extinguishing obligations that take place when two persons, in
their own right, are creditors and debtors of each other (NCC, Art. 1278).
It is the offsetting of the respective obligation of two persons who stand as
principal creditors and debtors of each other, with the effect of extinguishing
their obligations to their concurrent amount.
Requisites of compensation (1998, 2002, 2008, 2009 BAR)
In order that compensation may be proper, it is necessary that (NCC, Art. 1279):
1. Each one of the obligors must be bound principally, and that he be at the
same time a principal creditor of the other except guarantor who may set up
compensation as regards what the creditor may owe the principal (NCC, Arts.
1279-1280);
2. Both debts consist in sum of money, or if the things due are consumable, they
be of the same kind and also of the same quality if the latter has been stated;
3. Both debts are due;
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4. Both debts are liquidated and demandable;
5. Neither debt must be retained in a controversy commenced by third person
and communicated in due time to the debtor (neither debt is garnished) (NCC,
Art. 1279); and
6. Compensation must not be prohibited by law. (NCC, Art. 1290).
Q: Can rescissible or voidable debts be compensated against each other?
A: Yes. Under Art. 1284, when one or both debts are rescissible or voidable,
they may be compensated against each other before they are judicially
rescinded or avoided.
Debts or obligations not subject to compensation
1. Debts or obligations arising from contracts of depositum (NCC, Art. 1287);
2. Debts arising from obligations of a depositary;
3. Debts arising from obligations of a bailee in commodatum;
4. Claims for support due by gratuitous title;
5. Obligations arising from criminal offenses (NCC, Art. 1288);
6. Certain obligations in favor of government.
e.g. taxes, fees, duties, and others of a similar nature.
Insolvency of the new debtor in expromission
If substitution is without the knowledge or against the will of the debtor, the
new debtor’s insolvency or non-fulfillment of the obligation shall not give rise to
any liability on the part of the original debtor. (NCC, Art. 1294).
Insolvency of the new debtor in delegacion
GR: Insolvency of the new debtor (delegado), who has been proposed by the
original debtor (delegante) and accepted by the creditor (delegatario), shall not
revive the action of the latter against the original obligor (NCC, Art. 1295).
Subrogation
It is the active subjective novation characterized by the transfer to a third
person of all rights appertaining to the creditor in the transaction concerned
including the right to proceed against the guarantors or possessors of
mortgages and similar others subject to any applicable legal provision or any
stipulation agreed upon by the parties in conventional subrogation.

NOVATION (1994 2008 BAR)

It is the substitution or change of an obligation by another, resulting in its

extinguishment or modification, either by changing the object or principal
conditions, or by substituting another in the place of the debtor or by
subrogating a third person to the rights of the creditor (Pineda, 2000).

Requisites of novation (OIC –SN)

1. Valid Old obligation;
XPNs:
a. When the annulment may be claimed only by the debtor and he
consented to the novation; and
b. When ratification validates acts which are voidable.
2. Intent to extinguish or to modify the old obligation;
3. Capacity and consent of all the parties to the new obligation (except in case of
expromission where the old debtor does not participate);
4. Substantial difference of the old and new obligation – on every point
incompatible with each other (implied novation); and
5. Valid New obligation.

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CONTRACTS
A contract is a meeting of minds between two persons whereby one binds
himself, with respect to the other, to give something or to render some service
(NCC, Art. 1305).
RELATIVITY OF CONTRACTS (1991, 1996, 2002 BAR)
GR: Contracts take effect only between the parties or their assigns and heirs.
Res inter alios acta aliis neque nocet prodest (a thing done between others does
not harm or benefit others) – a contract can only obligate the parties who
entered into it, or their successors who assumed their personalities, and that,
concomitantly, a contract can neither favor nor prejudice third persons (Vitug,
2006).
XPNs:
1. Rights and obligations that are not transmissible by their nature, or by the
stipulation or by provisions of law (NCC, Art. 1311);
2. Stipulation pour autrui (stipulation in favor of a third person) – benefits
clearly and deliberately conferred by parties to a contract upon third persons
(NCC, Art. 1311) and which stipulation is merely part of a contract entered into
by the parties, neither of whom acted as agents of the third person and which
favor can be demanded by the third person if duly accepted by him before it
could be revoked;
3. Third persons coming into possession of the object of the contract creating
real rights subject to the provisions of Mortgage Law and the Land Registration
Law (NCC, Art. 1312);
4. Contracts entered into in fraud of creditors; (NCC, Art. 1313);
5. When a third person induces a party to violate the contract (NCC, Art. 1314).
(1991, 1998 BAR)
MUTUALITY OF CONTRACTS
The contract must bind both contracting parties and its validity or compliance
cannot be left to the will of one of them (NCC, Art. 1308). (2001, 2004, 2008
BAR)
AUTONOMY OF CONTRACTS / LIBERTY OF CONTRACTS (1996, 2004 BAR)
It is the freedom of the parties to contract and to stipulate provided the
stipulations are not contrary to law, morals, good customs, public order or
public policy (NCC, Art. 1306).
ESSENTIAL REQUISITES OF A CONTRACT
A. CONSENT (2005 BAR)
It is the concurrence of the wills of the contracting parties with respect to the
object and cause, which shall constitute the contract (De Leon, 2010).
Requisites of consent (LM-CR)
1. Legal capacity of the contracting parties;
2. Manifestation of the conformity of the contracting parties;
3. Parties’ Conformity to the object, cause, terms and condition of the contract
must be intelligent, spontaneous and free from all vices of consent; and
4. The conformity must be Real.
Persons incapacitated to give consent (DIM)
1. Deaf-mutes who do not know how to read and write (illiterates);
2. Insane or demented persons, unless the contract was entered into during a
lucid interval;
3. Minors (NCC, Art. 1327) except:
a. Contracts for necessaries (NCC, Art. 1489);
b. Contracts by guardians or legal representatives and the court having
jurisdiction had approved the same;
c. When there is active misrepresentation on the part of the minor (minor is
estopped);
Vices of consent (MI-VUF)
1. Mistake: Mistake as a vice of consent refers to mistake of facts and not of law,
thus rendering the contract voidable
2. IntimidationViolence
3. Undue influence
4. Fraud
NOTE: A threat to enforce a just or legal claim through a competent authority
does not amount to intimidation nor vitiate consent (NCC, Art. 1335).
B. OBJECTS, CAUSE AND FORM OF CONTRACTS
OBJECT: It is the subject matter of the contract. It can be a thing, right or service
arising from a contract. WITHIN THE COMMERCE OF MEN
Object of contracts
GR: All things or services may be the object of contracts.
XPNs:
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1. Things outside the commerce of men (NCC, Art. 1347);
2. Intransmissible rights;
3. Future inheritance, except in cases expressly authorized by law;
4. Services which are contrary to law, morals, good customs, public order or
public policy;
5. Impossible things or services; and
6. Objects which are not possible of determination as to their kind.
C. CAUSE: It is the essential and impelling reason why a party assumes an
obligation.
FORMALITY
Rules on the form of contracts
GR: Form is not required in consensual contracts.
XPNs: When the law requires a contract be in writing for its:
1. Validity (formal contracts);
2. Enforceability (under Statute of Frauds); or
3. For the convenience of the parties
NOTE: The parties may compel each other to reduce the verbal agreement into
writing (2006 BAR).
Contracts which must appear in a public document
1. Donation of real properties (NCC, Art. 719);
2. Partnership where immovable property or real rights are contributed to the
common fund (NCC, Arts. 1171 & 1773);
3. Acts and contracts which have for their object the creation, transmission,
modification or extinguishment of real rights over immovable property; sale of
real property or of an interest therein is governed by Arts. 1403, No. 2, and
1405 [NCC, Art. 1358(1)];
4. The cession, repudiation or renunciation of hereditary rights or of those of
the conjugal partnership of gains [NCC, Art. 1358(2)];
5. The power to administer property or any other power which has for its object
an act appearing or which should appear in a public document or should
prejudice a third person; [NCC, Art. 1358(3)];
6. The cession of actions or rights proceeding from an act appearing in a public
document [NCC, Art. 1358(4)].
KINDS OF CONTRACTS
According to perfection or formation:
1. Consensual contracts which are perfected by the mere meeting of the minds
of the parties (NCC, Art. 1305). (2005 BAR)
e.g. Sale, Lease.
2. Real contracts are those which require for their perfection both the consent
of the parties and the delivery of the object by one party to the other.
e.g. creation of real rights over immovable property must be written, deposit
and pledge.
3. Solemn contracts – contracts which must appear in writing,
REFORMATION OF INSTRUMENTS
It is a remedy to conform to the real intention of the parties due to mistake,
fraud, inequitable conduct, accident (NCC, Art. 1359).
Requisites in reformation of instruments
1. Meeting of the minds to the contract;
2. True intention is not expressed in the instrument;
3. By reason of: (MARFI)
a. Mistake;
b. Accident;
c. Relative simulation;
d. Fraud; or
e. Inequitable conduct
4. Clear and convincing proof of MARFI.
Prescriptive period in reformation of instruments
10 years from the date of the execution of the instrument
INTERPRETATION OF CONTRACTS
If the terms of a contract are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall control
Principle of effectiveness in contract interpretation
Pursuant to this principle, where two interpretations of the same contract
language are possible, one interpretation having the effect of rendering the
contract meaningless while the other would give effect to the contract as a
whole, the latter interpretation must be adopted
DEFECTIVE CONTRACTS
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RESCISSIBLE CONTRACTS
These are contracts validly constituted but nevertheless maybe set aside due to
a particular economic damage or lesion caused to either to one of the parties or
to a third person. It may be set aside in whole or in part, or up to the extent of
the damage caused (NCC, Art. 1381).
Contracts that may be rescinded
1. Under Art. 1381, those
a. Entered into by guardians whenever the wards whom they represent suffer
lesion by more than ¼ of value of the property [NCC, Art. 1381(1)];
NOTE: Contracts entered by a guardian over the property of his ward, without
court approval is void, not merely rescissible regardless of the existence of
lesion.
b. Agreed upon in representation of absentees, if absentee suffers lesion by
more than ¼ of value of property [NCC, Art. 1381(2)];
c. Contracts where rescission is based on fraud committed on creditor and
cannot collect the claim due (accion pauliana) [NCC, Art. 1381(3)];
NOTE: Contracts which are rescissible under the third paragraph of Art. 1381
are valid contracts, although undertaken in fraud of creditors. If the contract is
‘‘absolutely simulated’’, the contract is not merely rescissible but inexistent,
although undertaken as well in fraud of creditors (MBC v. Silverio, 466 SCRA 438,
August 11, 2005). In the former, the remedy is rescission; in the latter, the
remedy is an action to declare the contract inexistent which action is
imprescriptible (Rabuya, 2017).
d. Contracts where the object involved is the subject of litigation; contract
entered into by defendant without knowledge or approval of litigants or judicial
authority [NCC, Art. 1381(4)];
e. Payment by an insolvent – on debts which are not yet due; prejudices the
claim of others (NCC, Art. 1382);
f. Provided for by law (NCC, Arts. 1526, 1534, 1538, 1539, 1542, 1556, 1560, 1567
& 1659).
NOTE: C, D and E are contracts which are not necessarily entered into by
persons exercising fiduciary capacity. In Art. 1381 (1 & 2), the contract must be
of administration and representation.
2. Payments made in state of insolvency (NCC, Art. 1382):
a. Plaintiff has no other means to maintain reparation;
b. Plaintiff must be able to return whatever he may be obliged to return due to
rescission;
c. The things must not have been passed to third persons in good faith;
d. It must be made within 4 years (NCC, Art 1382).
Mutual Restitution
Rescission of contract creates an obligation of mutual restitution of the objects
of the contract, their fruits, and the price with interest.
VOIDABLE CONTRACTS (BAR 2004)
Voidable contracts are those where consent is vitiated either by the incapacity
of one of the contracting parties or by mistake, violence, intimidation, undue
influence or fraud.
Classes of voidable contracts
1. Those where one of the parties is incapable of giving consent; and
NOTE: If both parties are incapacitated to give consent, the contract is
unenforceable and not merely voidable.
2. Those where the consent is vitiated by mistake, violence, intimidation, undue
influence or fraud (NCC, Art. 1390).
Prescriptive period for an annulment of a voidable contract
The action for annulment shall be brought within 4 years, reckoned from:
1. In cases of intimidation, violence or undue influence, from the time the defect
of the consent ceases;
2. In case of mistake or fraud, from the time of the discovery of the same;
3. And when the action refers to contracts entered into by minors or other
incapacitated persons, from the time the guardianship ceases (NCC, Art. 1391).
Ratification
It is the act or means by virtue of which, efficacy is given to a contract which
suffers from a vice of curable nullity (Manresa).
UNENFORCEABLE CONTRACTS
Those contracts which cannot be enforced by action or complaint, unless they
have been ratified by the party or parties who did not give consent (NCC, Art.
1403).
Kinds of unenforceable contracts
The following contracts are unenforceable unless they are ratified:
1. Those entered into the name of another person by one who has been given no
authority/legal representation or acted beyond his powers;
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 VOID AND INEXISTENT CONTRACTS (2004 BAR)
NOTE: A contract of sale over a piece of land entered by an agent whose
authority is not in writing, even if he acted beyond the scope of his authority is
Void contracts are those which have no force and effect from the beginning and
void, not merely unenforceable (NCC, Art. 1874).
which cannot be ratified or validated by lapse of time
2. Those that do not comply with the Statute of Frauds; and
3. Those where both parties are incapable of giving consent to a contract (NCC,
Kinds of void contracts
Art. 1403).
Those lacking in essential elements:
a. Those whose cause, object or purpose is contrary to law, morals, good
Statute of Frauds (2009 BAR)
customs, public order or public policy: illicit cause, or object;
The term "Statute of Frauds" [Article 1403, (2)] is descriptive of statutes which
b. Those which are absolutely simulated or fictitious: no cause;
require certain classes of contracts to be in writing. It requires certain contracts
c. Those whose cause or object did not exist at the time of the transaction: no
enumerated therein to be evidenced by some note or memorandum subscribed
cause or object;
by the party charged or by his agent in order to be enforceable. The Statute does
d. Those whose object is outside the commerce of man: no object;
not deprive the parties of the right to contract with respect to the matters
e. Those which contemplate an impossible service: no object;
therein involved, but merely regulates the formalities of the contract necessary
f. Those where the intention of parties relative to principal object of the contract
to render it enforceable. Evidence of the agreement cannot be received without
cannot be ascertained.
the writing or a secondary evidence of its contents (Swedish Match, AB v. CA, G.R.
No. 128120, October 20, 2004).
Principle of in pari delicto
When the defect of a void contract consists in the illegality of the cause or object
Purpose of the Statute of Frauds
of the contract, and both of the parties are at fault or in pari delicto, the law
It is to prevent fraud and perjury in the enforcement of obligations depending
refuses them every remedy and leaves them where they are. This rule which is
for their evidence on the unassisted memory of witnesses, by requiring certain
embodied in Arts. 1141 & 1142 of the NCC is what is commonly known as the
enumerated contracts and transactions to be evidenced by a writing signed by
principle in pari delicto
the party to be charged

Contracts or agreements covered by the Statute of Frauds NATURAL OBLIGATIONS

1. An agreement that by its terms is not to be performed within a year from the Natural obligations, not being based on positive law but on equity and natural
making thereof; law, do not grant a right of action to enforce their performance, but after
2. A special promise to answer for the debt, default or miscarriage of another; voluntary fulfillment by the obligor, they authorize the retention of what has
3. An agreement made in consideration of marriage, other than a mutual been delivered or rendered by reason thereof (NCC, Art. 1423).
promise to marry;
4. An agreement for the sale of goods, chattels or things in action, at a price not BASIS NATURAL MORAL
less than 500 pesos, unless the buyer accepts and receives part of such goods OBLIGATIO OBLIGATIO
and chattels, or the evidences, or some of them, of such things in action, or pay N N
at the time some part of the purchase money; but when a sale is made by an As to the Juridical tie No juridical
auction and entry is made by the auctioneer in his sales book, at the time of the presence of previously tie
sale, of the amount and kind of property sold, terms of sale, price, names of the juridical tie existed
purchasers and person on whose account the sale is made, it is a sufficient between the
memorandum ; parties but
5. An agreement for the leasing for a longer period than one year, or for the sale because of
of real property or of an interest therein; certain
5. A representation as to the credit of a third person (NCC, Art. 1403). intervening
causes they

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 cannot be cannot later on seek to enforce the same, to the prejudice of the other party,
enforced in who has no notice or knowledge that the former would assert such rights and
courts whose condition has so changed that the latter cannot, without injury or
As to the Voluntary Performanc prejudice, be restored to his former state.
performanc fulfillment e is a pure
e of the by the act of LACHES (2000, 2002 BAR
obligation debtor is a liberality (Stale Demands)
legal which The failure or neglect, for an unreasonable length of time, to do that which by
fulfillment springs from exercising due diligence could or should have been done earlier; it is negligence
with legal blood or omission to assert a right within a reasonable time, warranting a
effect relation or presumption that the party entitled to assert it either has abandoned it or
affection declined to assert it. It is also known as stale demands (Lim Tay v. CA, 293 SCRA
As to the Within the Within the 34, G.R. No. 126891, August 5, 1998; Pineda, 2000).
applicabilit domain of domain of
y of the law the law morals
As to the When Performanc
effect of the fulfilled e does not
performanc producesmo produce
e of the ra legal legal effects
obigation effects
As to Can be Cannot be
susceptibili ratified ratified
ty to
ratification

ESTOPPEL

Kinds of Estoppel
1. Estoppel in pais – a person is considered in estoppel if by his conduct,
representations, admissions or silence when he ought to speak out, whether
intentionally or through culpable negligence, "causes another to believe certain
facts to exist and such other rightfully relies and acts on such belief, as a
consequence of which he would be prejudiced if the former is permitted to deny
the existence of such facts.

2. Estoppel by deed – a party to a deed and his privies are precluded from
denying any material fact stated in the deed as against the other party and his
privies.

3. Estoppel by laches – an equitable estoppel, a person who has failed or

neglected to assert a right for an unreasonable and unexplained length of time is
presumed to have abandoned or otherwise declined to assert such right and

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