OBLIGATIONS AND

CONTRACTS
• ART. 1156. An obligation is a
juridical necessity to give, to do or
not to do.
 OBLIGATIONS [as defined by ARIAS
RAMOS] is a juridical relation whereby
a person (called the creditor) may
demand from another (called the
debtor) the observance of a
determinate conduct, and, in case of
breach, may obtain satisfaction from
the assets of the latter.
• Note: Art. 1156 refers only to civil obligations
which are enforceable in court when
breached. It does not cover natural
obligations (Arts. 1423-1430, NCC) because
these are obligations that cannot be enforced
in court being based merely on equity and
natural law and not on positive law. (Pineda,
Obligations and Contract, 2000 ed. P.3)
• Juridical Necessity- means the rights and
duties arising from obligation are legally
demandable and the courts of justice may be
called upon through proper action to order
the performance.
• ELEMENTS OF AN OBLIGATION
a) An active subject, who has the power to demand the
prestation, known as the creditor or oblige;
b) A passive subject, who is bound to perform the
prestation, known as debtor or obligor.
c) An object or the prestation which may consist in the
act of giving, doing or not doing something.
d) The vinculum juris or the juridical tie between the two
subjects by reason of which the debtor is bound in
favor of the creditor to perform the prestation. It is
the legal tie which constitutes the source of
obligation—the coercive force which makes the
obligation demandable. It is the legal tie which
constitutes the devise of obligation… the coercive force
which makes the obligation demandable.
The object must be:
1. Licit or lawful;
2. Possible , physically and judicially;
3. Determinate and determinable; and
4. Pecuniary value or possible equivalent in money.

Note: absence of either the first three (licit/possible

and/or determinate) makes the object void.
Form is generally considered essential, though
sometimes it is added as the 5th requisite. There is
no particular form to make obligations binding,
except in certain rare cases. (Tolentino, Civil Code
of the Philippines, Vol. IV, 2002 ed. p. 57)
PRESTATION
It is a conduct that may consist of giving,
doing, or not doing something.
Note: It is the conduct that must be
observed by the debtor/obligor.
Requisites of a valid prestation:
1. Possible, physically and juridically;
2. Determinate, or at least determinable
according to pre‐established elements or
criteria; and
3. Has a possible equivalent in money
(Tolentino, Civil Code Vol. IV, p. 58, 1999
ed).
 OBLIGATION TO OBLIGATION TO DO OBLIGATION NOT
GIVE TO DO
Consists in the Covers all kinds of Consists in refraining
delivery of a movable works or services from doing some acts
or immovable thing whether physical or
to the creditor mental

i.e. – Sale, deposit, i.e. – Contract for i.e. – Easement

pledge, donation, professional services prohibiting building
antichresis like painting, proprietor or possessor
modeling, singing, etc. from committing
nuisance(Art. 682,
NCC), restraining
order or injunction
(Pineda, Obligations
and Contracts, p. 3,
2000 ed)
• KINDS OF OBLIGATION
 From the viewpoint of:
1. Sanction
a) Civil – gives a right of action to compel their
performance
b) Natural– not based on positive law but on equity
and natural law; does not grant a right of action to
enforce their performance, but after voluntary
fulfillment by the obligor, they authorize retention of
what has been delivered/ rendered by reason
thereof.
c) Moral– cannot be enforced by action but are binding
on the party who makes it in conscience and natural
law.
2. Performance
a) Positive – to give; to do
b) Negative – not to do

3. Subject matter
a) Personal – to do; not to do
b) Real – to give

4. Object
a) Determinate / specific – particularly designated or
physically segregated from all others of the same class.
b) Generic– is designated merely by its class or genus.
c) Limited generic– generic objects confined to a
particular class (e.g. an obligation to deliver one of my
horses) (Tolentino, Civil Code of the Philippines, Vol. IV,
2002 ed, p. 91)
5. Person obliged
a) Unilateral – only one party is bound
b) Bilateral – both parties are bound

6. Creation
a) Legal – imposed by law (Art. 1158, NCC)
b) Conventional – established by the agreement
of the parties like contracts

7. Susceptibility of partial fulfillment

a) Divisible – obligation is susceptible of partial
performance
b) Indivisible – obligation is not susceptible
8. Existence of burden or condition
a) Pure – is not burdened with any condition or
term. It is immediately demandable.
b) Conditional – is subject to a condition which may
be suspensive (happening of which shall give rise
to the obligation) or resolutory (happening
terminates the obligation).

9. Character of responsibility or liability

a) Joint – each debtor is liable only for a part of the
whole liability and to each creditor shall belong
only a part of the correlative rights
b) Solidary – a debtor is answerable for the whole
of the obligation without prejudice to his right to
collect from his co‐debtors the latter’s shares in
the obligation (Art. 1207, NCC)
10. Right to choose and substitution
a) Alternative – obligor may choose to
completely perform one out of the several
prestations(Art. 1199, NCC)
b) Facultative – only one prestation has been
agreed upon, but the obligor may render one
in substitution of the first one (Art. 1206, NCC)

11. Imposition of penalty

a) Simple – there is no penalty imposed for
violation of the terms thereof
b) Obligation with penalty – obligation which
imposes a penalty for violation (Art. 1226, NCC)
(Pineda, Obligations and Contracts, 2000 ed,
p. 5‐7)
 ART. 1157. Obligations arise from:
1. Law;
2. Contracts;
3. Quasi-contracts;
4. Acts or omissions punished by law; and
5. Quasi-delicts. (1089a)

 ART. 1158. Obligations derived from law are not

presumed. Only those expressly determined in this Code
or in special laws are demandable, and shall be
regulated by the precepts of the law which establishes
them; and as to what has not been foreseen, by the
provisions of this Book. (1090)

 ART. 1159. Obligations arising from contracts have the

force of law between the contracting parties and should
be complied with in good faith. (1091a)
 ART. 1160. Obligations derived from quasi-
contracts shall be subject to the provisions of
Chapter 1, Title XVII, of this Book.
 ART. 1161. Civil obligations arising from criminal
offenses shall be governed by the penal laws,
subject to the provisions of article 2177, and of the
pertinent provisions of Chapter 2, Preliminary
Title, on Human Relations, and of Title XVIII of
this Book, regulating damages. (1092a)
 ART. 1162.Obligations derived from quasi-delicts
shall be governed by the provisions of Chapter 2,
Title XVIII of this Book, and by special law.
(1093a)
1. LAW as a source of obligations –
Obligation ex lege
The provisions of Art. 1158 refers to the legal
obligations or obligations imposed by specific
provisions of law, which means that obligations
arising form law are not presumed and that to
be demandable must be clearly provided for,
expressly or impliedly in the law.
Examples:
 It is the duty of the Spouses to support each other.
(Art. 291, New Civil Code)
 And under the National Internal Revenue Code, it is
the duty of every person having an income to pay
taxes.
– Characteristics of a legal obligation or obligation
ex lege:
1. Does not need the consent of the obligor;
2. Must be expressly set forth in the law creating
it and not merely presumed; and
3. In order that the law may be a source of
obligation, it should be the creator of the
obligation itself.

• What governs obligations arising from law are

the provisions of the law which establishes
them. The Civil Code is applicable suppletorily.
2. CONTRACT as a source of obligations –
Obligations ex contractu
 Requisites for a contract to give rise to obligations ex
contractu:
1. It must contain all the essential requisites of a
contract
2. It must not be contrary to law, morals, good customs,
public order, and public policy

 GR:These obligations shall be governed primarily by the

stipulations, clauses, terms and conditions of the parties’
agreements.
 XPN: Contracts with prestations that are unconscionable or
unreasonable.
• Note: In case of unconscionable penalty for breach of contract
(Art. 1229, NCC), or liquidated damages (Art. 2226, NCC), the
same may be reduced by the court. (Pineda, Obligations and
Contracts, p.13, 2000 ed)
 Although contracts have the force of law, it does not mean
that contract are over and above the law. Contracts are
with the limitations imposed by law in Art. 1306, NCC, it
states that the contracting parties may establish such
stipulations, clauses terms and conditions as, they may deem
convenient, provided that are not contrary to law, morals,
good custom, public order or public policy.
 Must be complied with in good faith.
 “Compliance in good faith”-It is performance in accordance
with the stipulation, clauses, terms and conditions of the
contract.
 The contract is the “law” between the parties.
 Neither party may unilaterally evade his obligation in the
contract, unless:
1. Contract authorizes it
2. Other party assents
The so-called Innominate Contracts (Contratos
Innominados)
1. Do ut des-I give that you may give.
2. Do ut facias- I give that you may do.
3. Facio ut des- I do that you may give.
4. Facio ut facias- I do that you may do.

 Example: A worked for B as an interpreter.

Even without express agreement as to
compensation, A is entitled to compensation
because of facio ut des– I do the interpreting
that you may give the money.
3. QUASI-CONTRACTS as a source of
obligations -Obligation ex quasi
contractu
The ‘quasi’ literally means ‘as if’.
 Quasi-contract is the juridical relation resulting from a
lawful, voluntary and unilateral act which has for its
purpose the payment of indemnity to the end that no
one shall unjustly enrich or benefited at the expense of
another. (Art. 2142, NCC)
 Since a quasi‐contract is a unilateral contract created
by the sole act or acts of the gestor, there is no express
consent given by the other party. The consent needed
in a contract is provided by law through presumption.
This is called PRESUMPTIVE CONSENT (Pineda,
Obligations and Contracts, p. 15, 2000 ed)
Contracts and quasi-contracts distinguished:
• in a contract, consent is essential requirement for
its validity while in quasi-contract, there is no
consent as the same is implied by law;
• contract is a civil obligation while quasi-contract is
a natural obligation.
Distinguished from other Sources
1. act giving rise to a quasi contract must be LAWFUL
distinguishing it from delict;
2. act must be VOLUNTARY distinguishing it from
quasi-delict which is based on fault or negligence;
3. act must be UNILATERAL distinguishing it from
contract which is based on agreement.(Tolentino,
Volume IV, p. 68)
Kinds of Quasi-Contract
1. Negotiorum gestio: unauthorized management; arises
whenever a person voluntarily takes charge of the
agency or management of another’s abandoned
business or property without the latter’s authority
(Article 2144, NCC). Reimbursment must be made to
the gestor for necessary and useful expenses, as a rule
(Article 2150, NCC).

2. Solutio indebiti: undue payment. Arises when a person

unduly delivers a thing through mistake to another
who has no right to demand it (must not be through
liberality or some other cause)
4. DELICTS or acts or omissions punished
by law as a source of obligations-
Obligation ex maleficio or ex delicto
– Acts or omission punished by law is known as
Delict or Felony or Crime.
– RPC: Art. 100 Every person criminally liable for a
felony is also civilly liable.
– GOVERNING RULES
1. Articles 100-113 of the RPC and other penal laws
subject to Art 2177 Civil Code (quasi-delict);
2. Chapter 2, Preliminary title, on Human Relations
(Civil Code )
3. Title 18 of Book IV of the Civil Code on damages
SCOPE OF CIVIL LIABILITY
1. Restitution
2. Reparation for damage caused
3. Indemnity for Consequential damages
EFFECT OF ACQUITTAL IN CRIMINAL CASE
1. When due to reasonable doubt – no civil liability
2. When due to exempting circumstances – there is civil
liability
3. When there is preponderance of evidence – there is civil
liability
CRIMES WITHOUT CIVIL LIABILITY
1. Contempt
2. Insults to persons in authority
3. Gambling
4. Violations of traffic regulations (De Leon, 2003 ed.,p. 23)
5. QUASI-DELICTS as a source of
obligations- Obligation e quasi
maleficio or wx quasi-delicto

 Concepts of Quasi-Delict –
Quasi-delict is one where whoever by act or
omission causes damage to another, there
being fault of negligence, is obliged to pay for
the damage done. Such fault of negligence, if
there is no pre-existing contractual relation
between the parties. (Art. 2176)
It is an act or omission arising from fault or
negligence which causes damage to another,
there being no pre‐existing contractual relations
between the parties.
ELEMENTS:
1. There must be an act or omission
2. There must be fault or negligence attributable to the
person charged
3. There must be damage or injury
4. There must be a direct relation of cause and effect
between the act arising from fault or negligence and
the damage or injury (proximate cause );
5. There is no pre-existing contractual relation between
the parties.
Scope of Civil Liability
1. Restitution;
2. Reparation for damage caused; and
3. Indemnity for consequential damages.
NEGLIGENCE
• Failure to observe for the protection of
the interests of another person, that
degree of care, precaution and vigilance
which the circumstances justly demand,
whereby such other person suffers injury.
(US v. Barrias, 23 Phil. 434 [1912])
 Test of Negligence –
• For the existence of negligence, the following are
necessary:
1. a duty on a party of the defendant to protect the
plaintiff from the injury of which the letter
complains;
2. a failure to perform that duty; and
3. an injury to the plaintiff through such failure.

Kinds of Negligence
1. Culpa Aquiliana, also known as quasi-delict or
negligence as a source of obligation.

2. Culpa contractual or negligence in the performance

of a contract.
• ART. 1163. Every person obliged to give
something is also obliged to take care of it
with the proper diligence of a good father of
a family, unless the law or the stipulation of
the parties requires another standard of care.
(1904a)
• DUTY TO EXERCISE DILIGENCE
1. To preserve or take care of the thing due with
the diligence of a good father of a family.
Diligence of a Good Father of the Family-
ordinary care or that diligence which an average
or reasonably prudent person would exercise
over his own property

NOTE: Rule on Standard of Care

a) That which the law requires; or
b) That stipulated by the parties; or
c) In the absence of the two, diligence of a good father
of a family
• ART. 1664. The creditor has a right to the
fruits of the thing from the time the obligation to
deliver it arises. However, he shall acquire no
real right over it until the same has been
delivered to him. (1905)
WHEN CREDITOR IS ENTITLED TO THE FRUITS
a) Personal Right – is called “jus in personam” or “jus ad
rem”; a personal right is power demandable by one
person of another – to give, to do, or not to do.
b) Real Right – is a “jus in re”; a real right is a power over a
specific thing (as in ownership or possession) and is binding
on the whole world.

Nature of the right of the creditor with respect to the

fruits
a) Before delivery-personal right
b) After delivery- real right
Kinds of Delivery
1. Actual Delivery (Tradition or Material Delivery) –
where physically, the property changes hands.
2. Constructive Delivery – that where the physical transfer
is implied. This is done by;
a) Symbolical Tradition – as when the keys of a
bodega are given.
b) Delivery by Mere Consent or the Pointing Out of
an Object
c) Delivery by Short Hand (Traditio Brevi Manu) –
that kind of delivery whereby a possessor of a
thing, not as an owner, becomes the possessor as
owner.
d) Opposite of Traditio Brevi Manu – the delivery,
whereby a possessor of thing as an owner, retains
possession of the thing no longer as an owner, but
in some other capacity.
e) Tradition by the Execution of Legal Forms and
Solemnization – like the execution of a public
instrument selling land
 Kinds of fruits:
a) Natural- spontaneous product of the soil; the young and
other products of animal. E.g. tress, plants on lands
without he intervention of man.
b) Industrial- produced by lands of any king through
cultivation and labor. E.g. sugar cane, vegetables, rice.
c) Civil- derived by virtue of juridical relations. E.g. rents of
a building; prices of leases of lands and other similar
income.

When Obligation to Deliver Arise

• GENERAL RULE: From the time of the perfection of the
contract (i.e. meeting of the minds between the parties)
• EXCEPTIONS
a) when the parties made a stipulation as regards the
right of the creditor to the fruits of the thing
b) when the obligation is subject to a suspensive condition
or period; arises upon fulfillment of the condition or
arrival of the period
 PERSONAL REAL
Jus ad rem Jus in re
Enforceable only against a Enforceable against the
definite person/group of whole world
persons
Right to demand from Right over a specific thing,
another, as a definite without a definite passive
passive subject, the subject against whom the
fulfillment of the right may be personally
prestation to give, to do, enforced.
or not to do.
Has a definite passive No definite passive subject
subject
• ART. 1165. When what is to be delivered is
a determinate thing, the creditor, in addition
to the right granted him by article 1170, may
compel the debtor to make the delivery.
If the thing is indeterminate or generic, he
may ask that the obligation be complied with
at the expense of the debtor.
If the obligor delays, or has promised to
deliver the same thing to two or more persons
who do not have the same interest, he shall
be responsible for any fortuitous event until
he has effected the deliver. (1906)
1. Determinate thing – a thing is
determinate when it is particularly
designated or physically segregated
from all others from the same class.
(Art. 1460, NCC)
2. Indeterminate or generic thing – A
thing is generic when it refers to a class
or thing or genus and cannot be
designated with particularity. (Art.
1460, NCC)
• Remedies of Creditor in case of failure to
deliver a thing:
SPECIFIC OBLIGATION GENERIC OBLIGATION
Specific performance Specific performance (delivery of
any thing belonging to the same
species)
Rescission (action to rescind under Ask that the obligation be
Art. 1380, NCC) complied with at the debtor’s
expense
Resolution (action for cancellation Resolution or Specific
under Art. 1191, NCC) Performance, with damages in
either case (Art. 1191, NCC)
Damages, in both cases (Art. 1170, NCC)

Note: May be exclusive or in addition to the above-mentioned

remedies(Pineda, Obligations and Contracts, 2000 ed, p. 37)
 Note: In obligation to deliver a specific thing, the
creditor has the right to demand preservation of
the thing, its accessions, accessories, and the fruits.
The creditor is entitled to the fruits and interests
from the time the obligation to deliver the thing
arise.

• Fortuitous Events – those events which could not

be foreseen or which though foreseen were
inevitable. (Art. 1174, NCC)
– Effect of Fortuitous Events
1. A specific obligation, that is, an obligation to
deliver a specific thing is, as a rule, extinguished
by a fortuitous event or act of God.
2. Upon the other hand, generic obligations are
never extinguished by fortuitous events.
Two Instances where Fortuitous Event does not
exempt:
1. If the obligor delays
2. If the obligor is guilty of bad faith

ORDINARY DELAY versus DEFAULT (Legal

Delay):
• Ordinary Delay – this is merely non-performance at
the stipulated time.
• Default – is that delay which amounts to a virtual
non-fulfilment of the obligation.
 As a rule, to put a debtor in default, there must be a
demand for fulfilment, the demand being either judicial
or extrajudicial.
• ART. 1166. The obligation to give a
determinate thing includes that of delivering
all its accessions and accessories, even though
they may not have been mentioned. (1097a)
Obligation to give a determinate thing includes:
1. ACCESSORIES – those joined to or included with
the principal for the latter’s better use, perfection,
or enjoyment.
• Example: the keys to a house, the dishes in restaurant
2. ACCESSIONS – additions or improvements upon a
thing. These include alluvium and whatever is
built, planted, or sown on a person’s parcel of land.
EFFECT OF STIPULATION:
• Of course, if there is a stipulation to said effect, accessions
and accessories do not have to be included.
• Art. 1167. If a person obliged to do something fails
to do it, the same shall be executed at his cost.
 Positive obligation to do.
 REMEDIES OF THE CREDITOR IF DEBTOR FAILS TO DO
1. To have the obligation performed (by himself or
another) at the debtor’s expense (only if another can
do the performance)
2. Also to obtain damages. Damages alone cannot
substitute for performance if owners can do it; if
purely personal or special, only damages may be
asked, unless substitution is permitted.
 When Thing may be Ordered Undone:
1. If made poorly – here performance by another and
damages may be demanded.
2. If the obligation is a negative one – provided the
undoing is possible.
 ART. 1168. When the obligation consists in not
doing, and the obligor does has been
forbidden him, it shall also be undone at his
expense, (1099a)

Obligation of the Debtor NOT To Do –

This is negative personal obligation which is
consisting of an obligation, of not doing something. If
the debtor does what has been forbidden him to do,
the obligee can ask the debtor to have it undone. If
it is impossible to undo what was done, the remedy
of the injured party is for an action of damages.
 ART. 1169. Those oblige to deliver or to do something incur in delay from
the time the obligee judicially or extra - judicially demands from theme
the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that
delay may exist:

1. When the obligation or the law expressly declares; or

2. When from the nature and the circumstances of the obligation it

appears that the destination of the time when the thing is to be
delivered or the service is to rendered was controlling motive for the
establishment of the contract; or

3. When demand would be useless, as when the obligor has rendered it

beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not
comply in a proper manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay by the other begins.
( 1100a )
RULES TO PUT DEBTOR IN DEFAULT
• Delay or Mora: means a legal delay or default and it
consists of failure discharge a duty resulting to one’s
own disadvantaged.
• General Rule:
– To put a debtor in default, as a rule, DEMAND is needed.
» Two Kinds of Demand:
1. Judicial Demand – as when a complaint for specific performance
is filed.
2. Extrajudicial Demand – without court proceedings.
• Exceptions:
– When demand is not necessary to put debtor in demand:
1. When the law so provides;
• The express provision of law that a debtor is in default. For
instance, taxes must be paid on the date prescribed by
law, and demand is not necessary in order that the taxpayer
is liable for penalties.
2. When the obligation expressly so provides
• NOTE: The mere fixing of a period is not
enough. There must be a provision that if
payment is not made when due, default or
liability for damages or interests automatically
arises.

3. When time is of the essence of the contract or

when the fixing of time was the controlling
motive for the establishment of the contract.
• NOTE: It is not necessary for the contract to
categorically state that time is of the essence;
the intent is sufficient as long as that it is
implied.
4. When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
• When the debtor cannot comply his obligation as when
it is beyond his power to perform. Like when the object
of the obligation is lost or destroyed through the fault of
the debtor, demand is not necessary.
5. When the obligor has expressly acknowledged that he
really is in default.
• NOTE: His mere asking of an extension of time is not an
express acknowledgement of the existence of default on
his part.
6. In a reciprocal obligation, from the moment one of the
parties fulfills his obligation, delay to the other begins
• For instance, in a contract of sale, if the seller delivers the
object to the buyer and the buyer does not pay, then
delay by the buyer begins and vice versa, if the buyer
pays and the seller did not deliver the object, then the
seller is on delay.
DELAY (MORA)
1. Ordinary Delay – failure to perform an obligation on
time
2. Legal Delay/ Default – failure to perform an
obligation on time which failure constitutes a breach
of the obligation. (De Leon, 2003 ed., p.42)
REQUISITES OF DELAY:
1. Obligation must be due, demandable and
liquidated;
2. Debtor fails to perform his positive obligation on the
date agreed upon;
3. A demand (not merely a reminder or notice), judicial
or extra-judicial, made by the creditor upon the
debtor to fulfill, perform or comply with his
obligation otherwise, he will be in default; and
4. Failure of the debtor to comply with such demand.
Different kinds of Mora:
1. Mora Solvendi– default on the part of the debtor:
a) Mora Solvendi Ex re – default in real obligations
b) Mora Solvendi Ex persona – default in personal obligations
– REQUISITES:
1. The obligation must be due, enforceable and already
liquidated or determinate in amount;
2. There must be non-performance; and
3. There must be a demand, unless demand is not required.
– EFFECTS:
1. Debtor is guilty of breach of the obligation
2. Liability: If obligation to pay money- must pay interest. If no
extra-judicial demand, interest runs from the filing of the
complaint. In other obligations, pay damages;
3. Obligations to deliver a determinate thing, liable for fortuitous
events. If debtor can prove that loss would have resulted even
if he had not been in default, the court may equitably mitigate
the damages (Art. 2215[4])
4. Resolution (Art 1170, in proper cases)
2. Mora Accipiendi – default on part of creditor when
he unjustifiably refuses to accept the performance of
the obligation.
• REQUISITES:
1. Offer of performance by the debtor
2. Offer must be to comply with the prestation as it should be
performed
3. Creditor refuses the performance without just cause
• EFFECTS:
1. Responsibility of debtor is limited to fraud and gross
negligence
2. Debtor is exempted from risk of loss of thing; creditor bears
risk of loss
3. Expenses by debtor for preservation of thing after delay is
chargeable to creditor
4. If obligation bears interest, debtor does not have to pay from
time of delay
5. Creditor liable for damages
6. Debtor may relieve himself of obligation by consigning the
thing
3. Compensatio morae – both parties are in default
(in reciprocal obligations); there is no actionable
default on the part of both parties
RULES ON DEFAULT
1. Unilateral obligations
• GR: Default or delay begins from extrajudicial or judicial
demand – mere expiration of the period fixed is not
enough in order that DR may incur delay.
• XPNs:
a) The obligation or the law expressly so dictates;
b) Time is of the essence;
c) Demand would be useless, as debtor has rendered it beyond his
power to perform; or
d) Debtor has acknowledged that he is in default.
2. Reciprocal obligations
• GR: Fulfillment by both parties should be simultaneous.
• XPN: When different dates for the performance of
obligation is fixed by the parties
RULES ON DEFAULT
1. Unilateral obligations
• GR: Default or delay begins from extrajudicial or
judicial demand – mere expiration of the period fixed
is not enough in order that DR may incur delay.
• XPNs:
a) The obligation or the law expressly so dictates;
b) Time is of the essence;
c) Demand would be useless, as DR has rendered it beyond his
power to perform; or
d) DR has acknowledged that he is in default.
2. Reciprocal obligations
• GR: Fulfillment by both parties should be
simultaneous.
• XPN: When different dates for the performance of
obligation is fixed by the parties
When Damages or Interest May Be Lost:
• A creditor entitled to damages or interest because of
MORA may lose the same:
1. If the principal obligation is allowed to lapse by
prescription;
2. If the damages or interest are allowed to prescribe;
3. If the damages or interest are condoned (waived or
remitted).
• NOTE: If a debt is not paid at the stipulated period,
INTEREST (as damages) should be charged not from
the date of maturity but from the time the judicial
action is filed, in case no extrajudicial demand was
made.
• NOTE: A debtor who incurs in delay or default is liable
for damages plus interest, generally from extrajudicial
demand or judicial demand in the form of interest.
• BREACH OF OBLIGATIONS (See Arts. 1170 –1174)
• ART. 1170. Those who in the performance of
their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene
the tenor thereof, are liable for damages. (1101)
GROUNDS FOR LIABILITY in the PERFORMANCE OF
OBLIGATIONS:
1. Fraud (deceit or dolo) (intentional evasion of fulfilment)
2. Negilgence (fault or culpa)
3. Default (or Mora) (if imputable to debtor)
4. Violation of the terms of the obligation (unless excused in
proper cases by fortuitous events)
NOTE: The following do not excuse fulfilment:
1. Increase in cost of performance;
2. Poverty;
3. War between the subject of neutral country and the subject
of a country at war, as long as substantial compliance can
still be done.
LABILITY FOR DAMAGES:
• Those liable under Article 1170 should pay damages, but
generally only if from the breach of contract, prejudice or
damage was caused. Damages should be paid by those
responsible for them.
Damages in Monetary Obligation:
1. That agreed upon;
2. In the absence of agreement, the legal rate of interest. If a
contract of simple loan stipulates the time when the interest
will be counted, said stipulated time controls.
KINDS of DAMAGES: (M.E.N.T.A.L)
1. Moral Damages – for mental and physical anguish
2. Exemplary Damages – corrective or to set an
example
3. Nominal Damages – to vindicate a right; when no
other kind of damages may be recovered; the
assessment of which is left to the discretion of the
court.
4. Temperate Damages – when the exact amount of
damages cannot be determined
5. Actual Damages – actual losses as well as
unrealized profit
6. Liquidated Damages – predetermined
beforehand; by agreement
• BREACH OF OBLIGATIONS (See Arts. 1170 –
1174)
1. Voluntary – debtor in the performance of the
obligation is guilty of:
1. fraud (Dolo)
2. negligence (culpa)
3. delay (mora)
4. contravention of the tenor of the obligation
 NOTE: debtor is liable for damages
2. Involuntary – debtor is unable to comply with
his obligation due to fortuitous event/s
 NOTE: debtor is not liable for damages
• BREACH OF OBLIGATIONS (See Arts. 1170 –1174)
• ART. 1171. Responsibility arising from fraud is
demandable in all obligations. Any waiver of an
action for future fraud is void. (1120a)

FRAUD (Dolo)
• It is the deliberate or intentional evasion of the normal
fulfillment of an obligation. (8 Manresa 72)
TYPES OF FRAUD
1. Causal Fraud (Dolo Causante): fraud employed in
the execution of the contract
2. Incidental Fraud (Dolo Incidente): fraud in
performance of obligation already existing because
of a contract
The fraud must be incidental fraud, or that which is
present during the performance of the obligation,
and not causal fraud, or fraud employed in the
execution of a contract, which vitiates consent.
Waiver of Future Fraud
 With respect to fraud that has already been
committed, the law does not prohibit renunciation
of the action for damages based on the same.
However, the law does prohibit any waiver of an
action for future fraud since the same is contrary to
law and public policy.
 Note: Waiver of past fraud is valid since such can be
deemed an act of generosity. What is renounced is
the effect of fraud, particularly the right to
indemnity.
 FRAUD IN THE CAUSAL FRAUD INCIDENTAL FRAUD
PERFORMANCE (ART. 1338) (ART. 1344)
(ART. 1170)

Present during the Present during the Present during the

performance of a pre- perfection of a contract perfection of a contract
existing obligation

Purpose is to evade the Purpose is to secure the Purpose is to secure the

normal fulfillment of consent of another to consent of the other
the obligation enter into the contract party but the fraud was
not the principal
inducement in making
the contract
Results in the breach of Results in vitiation of Does not result in the
an obligation consent; voidable vitiation of consent
contract
Gives rise to a right in Gives rise to a right of Gives rise to a right of
favor of the creditor to an innocent party to innocent party to claim
recover damages annul the contract for damages
 REMEDIES OF DEFRAUDED PARTY
a) Insist on specific performance (Art 1233)
b) Resolve contract (Art 1191)
c) Claim damages, in either case

• ART. 1172. Responsibility arising from

negligence in the performance of every king of
obligation is also demandable, but such liability
may be regulated by the courts, according to the
circumstances. (1130)
NEGLIGENCE
• Consists in the omission of that diligence which is
required by the nature of the obligation and
corresponds with the circumstances of the persons, of
the time and of the place.
 FRAUD NEGLIGENCE
Thre is deliberate intention to There is no deliberate
cause damage intention to cause damage
Liability cannot be mitigated Liability may be mitigated
Waiver for future fraud is void Waiver for future negligence
may be allowed in certain
cases

KINDS OF NEGLIGENCE
1. Quasi-Delict (Culpa aquiliana/culpa extra
contractual)- source of obligation
2. Contractual Negligence (Culpa Contractual)-
negligence in the performance of a contract
 CULPA AQUILIANA CULPA CONTRACTUAL
Negligence is substantive and Negligence merely an incident
independent of performance of an obligation
There may or may not be a pre- There is a pre-existing
existing contractual obligation contractual relation
Source of the obligation is the Source of the obligation is the
negligence itself breach of contractual obligation
Negligence must be proved Proof of existence of the
contract and its breach is prima
facie sufficient to warrant
recovery
Diligence in the selection and Diligence in the selection and
supervision of the employees is a supervision of the employees is
defense not available as a defense.
STIPULATIONS REGARDING NEGLIGENCE
(Future Negligence)
• RULE #1: GROSS Negligence can never be
excused in advance for this would be contrary
to public policy.
• RULE #2: SIMPLE Negligence may in certain
cases be excused or mitigated.
Rule in Contracts of Adhesion:
• There is greater freedom to stipulate on
negligence if the parties are on equal plane,
not where they are obviously in unequal
positions (CONTRACTS of ADHESION) such as
in the case of employment or transportation
contracts.
 NOTE: STIPULATIONS ON NEGLIGENCE must be
strictly construed against the party stipulated in a
higher or more advantageous position.
EFFECTS OF CONTRIBUTORY
NEGLIGENCE OF THE CREDITOR
• GENERAL RULE: Reduces or mitigates the
damages which he can recover
• EXCEPTION: If the negligent act or omission of
the creditor is the proximate cause of the
event which led to the damage or injury
complained of, he cannot recover.
• ART. 1173. The fault or negligence of the
obligor consists in the omission of that diligence
which is required by the nature of the obligation
and corresponds with the circumstances of the
persons, of the time and of the place. When
negligence shows bad faith, the provisions of
articles 1171 and 2201, paragraph 2, shall apply.

If the law or contract does not state the diligence

of which is to be observed in the performance,
that which is expected of a good father of a
family shall be required. (1104a)
DEGREES OF CULPA (Negligence) Under Roman
Law:
a) CULPA LATA – grave negligence
b) CULPA LEVIS – ordinary negligence
c) CULPA LEVISSIMA – slight negligence
DEGREE OF DILIGENCE REQUIRED
1. That agreed upon
2. In the absence of such, that which is required by the
law
3. In the absence of the foregoing, diligence of a good
father of a family – that reasonable diligence which
an ordinary prudent person would have done under
the same circumstances.
– XPN: Common carriers requiring extraordinary
diligence (Arts. 1998‐2002)
• ART. 1174. Except in cases expressly specified
by the law, or when it is otherwise declared
by stipulation, or when the nature of the
obligation requires the assumption of risk, no
person shall be responsible for those events
which could not be foreseen, or which, though
foreseen, were inevitable (1105a)

FORTUITOUS EVENT
• An event which could not beforeseen, or which
though foreseen, was inevitable
– REQUIREMENTS: (Nakpil and Sons vs. CA):
1. The cause of the breach of the obligation must be
independent of the will of the debtor
2. The event must be either unforeseeable or
unavoidable
3. The event must be such as to render it impossible for
the debtor to fulfill his obligation in a normal manner
4. The debtor must be free from any participation in, or
aggravation of injury to the creditor.

• Note: The fortuitous event must not only be the

proximate cause but it must also be the only and sole
cause. Contributory negligence of the debtor renders
him liable despite the fortuitous event. (Pineda,
Obligations and Contracts, 2000 ed, p. 62)
RULE ON FORTUITOUS EVENT:
• GENERAL RULE: No liability for loss in case of fortuitous
event
• EXCEPTIONS:
1. When expressly declared by law ( bad faith, subject
matter is generic, debtor is in delay )
2. When expressly declared by stipulation or contract
3. When nature of obligation requires assumption of
risk
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
5. The debtor Contributed to the loss (Tan v. Inchausti
& Co., G.R. No. L‐6472, Mar. 7, 1912)
6. The possessor is in Bad faith (Art. 552)
7. The obligor is Guilty of fraud, negligence or delay or
if he contravened the tenor of the obligation (Juan
Nakpil v. United Construction Co., Inc. v. CA, G.R. No.
L‐47851, Apr. 15, 1988)
Effects of Fortuitous Event
• On determinate obligation – the obligation is
extinguished
• On generic obligation – the obligation is not
extinguished (genus nun quam peruit – genus never
perishes)

ACT OF GOD ACT OF MAN

Fortuitous event Force Majeure
Event which is absolutely Event caused by the legitimate
independent of human or illegitimate acts of persons
intervention other than the obligor
i.e.-earthquakes, storms, floods, i.e.-armed invasion, robbery,
epidemics war (Pineda, Obligations and
Contract, 2000 ed, p. 60)
ART. 1175. Usurious transaction shall
be governed by special laws.
Note: C.B. Circular No. 905 suspends the ceilings in the
usury law. Hence, parties can agree as to the rate of
interest.

Kinds of interest:
1. Moratory Interest – for the use of money
2. Compensatory Interest – interest given by way
of damages; it compensates the damage
caused.
• ART. 1176. The receipt of the principal by the
creditor without reservation with respect to the
interest, shall give rise to the presumption that
said interest has been paid.
The receipt of a later installment of a debt
without reservation as to prior installments, shall
likewise raise the presumption that such
installments have been paid. (1110a)
Receipt of Principal without Reservation as to
Interest:
• It shall give rise to the presumption that said interest has
been paid already. This is because under Article 1253 of the
Civil Code, payment of the interest as a rule precedes
payment of the principal.
• Of course, Article 1176 establishes merely rebuttable, not a
conclusive presumption.
– Receipt of a Later Installment:
• It shall give rise to the presumption that
earlier installments have already been paid.
For example, if a creditor receives the fourth
installment of a debt, it is under stood that
the first three installments have been paid.
• For the presumption to apply, it is not
enough that the receipt for the installment
paid be dated; it must also specify that the
receipt is for the payment of a particular
installment due, for example, for a certain
month
• ART. 1177. The creditors, after having
pursued the property in possession of the
debtor to satisfy their claims, may exercise all
the rights and bring all the actions of the
latter for the same purpose, save those which
are inherent in his person; they may also
impugn the acts which the debtor may have
done to defraud them. (1111)
– RIGHTS OF CREDITORS:
1. Exact payment
2. Exhaust debtor’s property, generally by attachment
(except properties exempted by the law)
3. Subrogatory Action – to exercise all rights and
actions except those inherent in the person
 – Examples of Rights Inherent in the person of the Debtor
which therefore cannot be exercised by the Creditors:
a) The right to existence (thereby, exempting from the reach of
creditors, whatever he may be receiving as support)
b) Rights or Relations of a Public Character (like positions in the
government)
c) Rights of an Honorary Character like a doctor’s degree.
d) Rights pertaining to the affairs of the home and of the family
e) Rights granted by law only to the debtor such as the action to
revoke a donation on the ground of ingratitude
f) Right to appear in court proceedings.
4. Accion Pauliana – impugn or rescind acts or
contracts done by the debtor to defraud creditors.
Extent of Debtor’s Liability:
• The debtor is liable with all his property, present and future,
for the fulfillment of his obligations subject to exemptions
provided by law
• ART. 1178. Subject to the laws, all rights
acquired in virtue of an obligation are
transmissible, if there has been no stipulation
to the contrary. (1112)
RULES ON TRANSMISSIBLITY OF RIGHTS:
• General Rule: Rights are transmissible.
• Exceptions: When rights are not transmissible:
1. If the law provides otherwise;
2. If the contract provides otherwise;
3. If the obligation is purely personal.
» NOTE: Instransmissibility by contractual stipulation,
being the exception to the rule, must be clearly
proved.
• CLASSIFICATION OF OBLIGATION:
A. According to the PRIMARY CLASSIFICATION of
the Civil Code:
1. Pure vs. Conditional
2. Pure vs. Obligation with a Period or Term
3. Alternative or Facultative Obligation vs.
Conjunctive
4. Joint Obligation vs. Solidary Obligation
5. Divisible Obligation vs. Indivisible Obligation
6. Obligation with a Penal Clause vs. Without a
Penal Clause
B. According to the SECONDARY CLASSIFICATION of
the Civil Code:
1. Unilateral Obligations vs. Bilateral Obligations
2. Real Obligation vs. Personal Obligation
3. Determinate vs. Generic
4. Positive Obligation vs. Negative Obligation
5. Legal, Conventional, Penal Obligations
6. Civil and Natural Obligations

C. According to Sanchez Roman:

1. According to juridical quality and efficaciousness
a) Natural Obligation – according to natural law
b) Civil Obligation – according to civil law
c) Mixed Obligation – according to both natural and
civil laws
2. By the parties or subjects
a) Unilateral, Bilateral
b) Individual, Collective
c) Joint, Solidary
3. By the object of the obligation
a) Specific, Generic
b) Positive, Negative
c) Real, Personal
d) Possible, Impossible
e) Divisible, Indivisible
f) Principal, Accessory
g) Simple, Compound
[If compound-may be
1. Conjunctive-demandable at the same time
2. Distributive-either alternative or facultative
D. According to DEFECTS:
1. Valid Obligation
2. Defective Obligations
a) Rescissible Obligations
b) Viodable Obligations
c) Unenforceable Obligations
d) Void Obligation
• ART. 1179. Every obligation whose
performance does not depend upon a future or
uncertain event, or upon a past event unknown
to the parties, is demandable at once.
Every obligation which contains a resolutory
condition shall also be demandable, without
prejudice to the effects of the happening of the
event. (1113)
1. Pure Obligation – when the obligation contain
no term or condition whatever upon which
depends the fulfillment of the obligation
contracted by the debtor.
 It is immediately demandable and there is
nothing to exempt the debtor from compliance
therewith.
 Instances when obligations immediately
demandable:
1. It is a pure obligation;
2. It is subject to a resolutory condition;
3. It is subject to resolutory period.
2. CONDITIONAL – one whose effectivity is
subordinated to the fulfillment or non-fulfillment of
a future AND uncertain event or upon a past
event unknown to the parties
3. CONDITION - Future and uncertain event or a
past event unknown to the parties

• CLASSIFICATION OF CONDITIONS:
1. Suspensive Condition – the happening of the condition gives rise
to the obligation
2. Resolutory Condition – the happening of the condition
extinguishes the obligation.

2. Potestative Condition – depends upon the will of the debtor;

considered void.
3. Casual Condition – depends on chance or hazard or the will of a
third person
4. Mixed Condition – depends partly on the will of one of the
parties and partly on chance or thewill of a third person.
3. Divisible Condition – capable of partial performance
4. Indivisible Condition – not capable of partial performance
because of the nature of the thing, or because of the intention
of the parties.

4. Positive Condition – an act is to be performed

5. Negative Condition – something will be omitted.

5. Express Condition – the condition is stated.

6. Implied Condition – the condition is merely inferred.

6. Possible Condition – capable of fulfilment in nature and in law.

7. Impossible Condition – not capable of fulfilment due to nature
or due to operation of the law or morals or public policy or due
to the contradiction in its term

7. Conjunctive Condition – if all the conditions must be performed.

8. Alternative Condition – if only a few of the conditions have to
be performed.
• Article 1180. When the debtor binds himself to
pay when his means permit him to do so, the
obligation shall be deemed to be one with a
period, subject to the provisions of article 1197.
POTESTATIVE OBLIGATION
• In this kind of obligation, the condition depends solely
upon the will of the debtor and therefore apparently
void under Article 1182 of the Civil Code.
• Similar Phrases:
1. “when my means permit to do so”
2. “when I can afford it”
3. “when I am able to”
4. “when I have money”
• Article 1181. In conditional obligations, the
acquisition of rights, as well as the
extinguishment or loss of those already acquired,
shall depend upon the happening of the event
which constitutes the condition.

SUSPENSIVE AND RESOLUTORY CONDITIONS

• SUSPENSIVE CONDITIONS – the happening of which
will give rise to the acquisition of a right. This is also
called conditions precedent or conditions antecedent.
Be it noted that what characterizes an obligation with
a suspensive condition is the fact that its efficacy or
obligatory force is subordinated to the happening of a
future and uncertain event; if the suspensive condition
does not take place, the parties would stand as if the
conditional obligation had never existed.
RESOLUTORY CONDITIONS – also called
conditions subsequent; here, rights already
acquired are lost once the condition is
fulfilled.
• Example of a Resolutory Condition:
–I will give you my car nor but should you
pass the bar, the donation will not be
effective. If you pass the bar, you must
return the car to me.
 ART. 1183. Impossible conditions, those contrary
to good customs or public policy and those
prohibited by law shall annul the obligation
which depends upon them. If the obligation is
divisible, that part thereof which is not
affected by the impossible or unlawful
condition shall be valid,

The condition not to do an impossible

thing shall be considered as not having been
agreed upon. (1116a)
• IMPOSSIBLE AND ILLEGAL CONDITIONS
 IMPOSSIBLE CONDITIONS – because of physical
impossibility like to make a dead man alive; or because
of logical impossibility like to make a circle that is at the
same time a square.
 ILLEGAL CONDITIONS – those prohibited by good
customs, public policy, prohibited, directly or indirectly by
law.

– GENERAL RULE: They shall annul the obligation which

depends upon them
– EXCEPTIONS:
a) pre-existing obligation
b) if obligation is divisible
c) in simple or remuneratory donations
d) testamentary dispositions
e) conditions not to do an impossible thing
EFFECTS:
• RULE 1: If the condition is to do an impossible
thing BOTH the condition and the obligation are
VOID.
• RULE 2: if the condition is to do an illegal thing
BOTH the condition and the obligation are VOID.
• RULE 3: If the condition is not to do an impossible
thing, just disregard the condition, BUT the
obligation remains. This becomes a pure and
valid obligation.
• RULE 4: if the condition is not to do an illegal
thing, BOTH the condition and the obligation are
VALID
• ART. 1184. The condition that some event
happen at a determinate time shall
extinguish the obligation as soon as the time
expires or if it has become indubitable that
the event will not take place. (1117)

• POSITIVE CONDITIONS
– Effect if Period of Fulfilment is Not Fixed:
• If the period is not fixed in the contract, the
court, considering the parties’ intentions, should
determine what period was really intended.
 ART. 1185. The condition that some event will not
happen at a determinate time shall render the
obligation effective from the moment the time
indicated has elapsed, or if it has become evident
that the event cannot occur.
If not time has been fixed, the condition shall
be deemed fulfilled at such time as may have
probably been contemplated, bearing in mind
the nature of the obligation. (1118)
• Condition of Non-Happening of a Future Event
– The condition that some event will not happen at a
specified time will make the obligation effective only:
1. When the specified time had already elapsed without the
event having occurred; or
2. If it has become definite that the event will not occur
• ART. 1186. The condition shall be deemed
fulfilled when the obligor voluntarily prevents
its fulfillment. (1119)
• Constructive Fulfillment of Condition
– Refers to a constructive and not an actual
fulfillment of the condition. However, the mere
intention to prevent the happening of the
condition will not be enough without actually
preventing the fulfillment. The prevention of the
condition must be consummated. These two
requisites are sine qua non for constructive
fulfillment to operate.
When an obligor committed an act
voluntarily which is not intended to prevent
the fulfillment of the condition, but
nevertheless resulted in the frustration of the
condition, there shall be no constructive
fulfillment.
Rationale: No person shall profit by his own
wrong. If the obligor deliberately prevented
the fulfillment of the condition imposed on the
obligation, the law says the condition is
deemed fulfilled.
• Article 1187. The effects of a conditional obligation to
give, once the condition has been fulfilled, shall
retroact to the day of the constitution of the
obligation. Nevertheless, when the obligation imposes
reciprocal prestations upon the parties, the fruits and
interests during the pendency of the condition shall be
deemed to have been mutually compensated. If the
obligation is unilateral, the debtor shall appropriate
the fruits and interests received, unless from the
nature and circumstances of the obligation it should
be inferred that the intention of the person
constituting the same was different.
In obligations to do and not to do, the courts shall
determine, in each case, the retroactive effect of the
condition that has been complied with.
EFFECTS OF FULFILMENT OF SUSPENSIVE
CONDITIONS:
• The obligation becomes effective.
FROM WHAT DAY?
• General Rule: The effectivity “retroacts” to the day the
obligation was constituted.
• Exception: No retroactivity with reference only to fruits or
interests and with respect to period of prescription. The
period of prescription runs from the day the condition was
fulfilled, because it can be enforced only from said date.
• In UNILATERAL OBLIGATIONS, debtor gets the fruits and
interests unless there is contrary intent.
• In RECIPROCAL OBLIGATIONS, the fruits and interests
during the pendency of the condition shall be deemed to
compensate each other (for the purpose of convenience
and practical effectivenes seven though they really be
unequal).
• Article 1188. The creditor may, before the
fulfilment of the condition, bring the appropriate
actions for the preservation of his right. (TO
PRESERVE CREDITOR’S RIGHTS)

The debtor may recover what during the

same time he has paid by mistake in case of a
suspensive condition. (RIGHT OF DEBTOR TO RECOVER
WHAT WAS PAID BY MISTAKE)

ACTION TO PRESERVE CREDITOR’S RIGHTS

• Reason: If not allowed to take the appropriate actions,
there is a danger the creditor will receive nothing, as when
the object is deliberately destroyed, or hidden, or alienated.
 “Bring appropriate action” – this means to sue in
court.
 Other Appropriate Actions:
1. Ask for security if the debtor is about to be
insolvent
2. Ask the court to prevent alienation or
concealment pendent conditionae
 NOTE: Financial losses will not excuse abolition of
the obligation because the obligation to pay
money is an obligation to give a generic thing.
RIGHT OF DEBTOR TO RECOVER WHAT
WAS PAID BY MISTAKE:
 Reason: What was paid by mistake may be
recovered because, after all, the condition may
not materialize. In the meantime, the debtor has
lost the use of the object. It is unfair for the creditor
to unjustly enrich himself
 NOTE: The debtor is also entitled to the fruits or
legal interest if the creditor be in BAD faith, that
is, if the creditor knew the payment was being
made prior to the fulfilment of the condition.
 NOTE: If payment was NOT by mistake, that it
was done deliberately, and the condition is
already fulfilled, no recovery because of
retroactivity. HOWEVER, if the condition is not
fulfilled, there should be a recovery) for this would
be unjust enrichment) unless a pure donation was
intended.
 ART. 1189. When the conditions have been imposed with the intention of
suspending the efficacy of an obligation to give, the following rules shall
be observed in case of the improvement, loss or deterioration of the thing
during the pendency of the condition:

1) If the thing is lost without the fault of the debtor, the obligation
shall be extinguished.
2) If the thing is lost through the fault of the debtor, he shall be
obliged to pay damages; it is understood that the thing is lost
when it perishes, or goes out of commerce, or disappears in such a
way that its existence is unknown or it cannot be recovered;
3) When the thing deteriorates without the fault of the debtor, the
impairment is to be borne by the creditor;
4) If it deteriorates through the fault of the debtor; the creditor may
choose between the rescission of the obligation and its fulfillment,
with indemnity for damages in either case;
5) If the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor;
6) If it is improved at the expense of the debtor he shall have no
other right than that granted to a usufruectuary.
– NOTE: This Article applies only if the suspensive
condition is fulfilled and the object is specific (not
generic).
– Loss – it is understood that the thing is lost when it
perishes; when it goes out of commerce; when it
disappears in such a way that its existence is unknown;
when it disappears in such a way that it cannot be
recovered.
– Effects of Partial Loss
• It may be partial loss:
1. That would amount to loss important enough to be
considered a complete loss (this will be determined
by the courts);
2. That would merely be considered “deterioration” of
the thing, in which case the rules on deterioration
should apply.
  Effects:
a) Effectivity retroacts to the day of the constitution of the obligation
b) No retroactivity with reference to fruits or interest and prescription
c) Creditor may preserve rights
d) Debtor – recovery of payment by mistake or even w/o mistake

 RULES ON LOSS, DETERIORATION, AND IMPROVEMENTS DURING

PENDENCY OF A SUSPENSIVE CONDITION (Art. 1189)

Improvement If by nature or If at the expense of

by time inures to the benefit of the debtor debtor’s right is
the only that of a usufructuary
debtor

 REQUISITES FOR THE APPLICATION OF ARTICLE 1189

a) The obligation must be a real obligation
b) The object is a specific or determinate thing
c) The obligation is subject to a suspensive condition
d) The condition is fulfilled
e) There is loss, deterioration or improvement of the thing during the
pendency of the happening of the condition
RULES in CASE of LOSS:
1. If without the fault of the debtor (like in case of fortuitous
event) – the obligation will be extinguished.
– Reason for the Rule: No one should be liable for a fortuitous
event unless otherwise provided by law or contract.
– BUT, in an obligation to deliver a GENERIC thing, the loss or
destruction of anything of the same kind does not extinguish the
obligation.
2. If the thing is lost with the fault of the debtor – the debtor
shall be liable for damages.
RULES in CASE of DETERIORATION:
1. If without the fault of the debtor – the impairment is to
be borne by the creditor.
2. If with the fault of the debtor – the creditor may choose
between the rescission of the obligation and its fulfilment,
with indemnity for damages in either case.
RULES in CASE of IMPROVEMENT:
1. If the thing is improved by its nature or by time – the
improvement shall inure to the benefit of the creditor.
2. If the thing has improved, not thru time or by its nature,
but thru the efforts and expense of the debtor – the
debtor will have the rights granted to a USUFRACTUARY
for improvements on a thing held in usufruct. But the
debtor shall have no right to be indemnified therefore. He
may remove the improvements provided he does not, by
doing so, damage the property.
» Usufruct – is the right to the enjoyment of the use
and the fruits of the thing.
3. If the improvement is due partly to the expenses made by
the debtor and partly due by its nature or thru time – the
creditor gets the benefit of the improvement of the thing
by its nature or thru time, but the debtor is entitled to the
rights of a usufractuary over useful improvements that
may have been caused at his expense.
• Article 1190. When the conditions have for their
purpose the extinguishment of an obligation to
give, the parties, upon the fulfilment of said
conditions, shall return to each other what they
have received.
In case of the loss, deterioration or
improvement of the thing, the provisions which,
with respect to the debtor, are laid down in the
preceding article shall be applied to the party
who is bound to return.
As for the obligations to do and not to do,
the provisions of the second paragraph of article
1187 shall be observed as regards the effect of the
extinguishment of the obligation.
 Refers to fulfillment of Resolutory Condition
• The presence of a resolutory condition in an obligation immediately
vests the contemplated rights unto the creditor subject however to
extinguishment should the condition be finally fulfilled. If the
condition is not fulfilled, that is, it does not happen, the rights become
consolidated and absolute.

 EFFECTS WHEN RESOLUTORY CONDITION IS

FULFILLED:
1. The obligation is extinguished.
2. Because the obligation had been extinguished and considered to
have had no effect, the parties should restore to each other what
they have received.
3. Aside from the actual things received, the fruits or the interests
thereon should also be returned after deducting of course the
expenses made for their production, gathering, and preservation.
4. The Rules in Article 1189 (in case of loss, deterioration, or
improvement of the object) will apply to whoever has the duty to
return in case of loss, deterioration, or improvement.
5. The courts are given the power to determine the retroactivity of
the fulfilment of resolutory conditions.
Loss, Deterioration and Improvement
 Before the happening of the resolutory condition, the
thing delivered to the creditor may suffer changes or
alterations just like the preceding Article. The thing
may get lost, suffer deterioration or improve in value
or utility.
 Under these circumstances, the same rules in Art. 1189
will be applicable except that the party bound to
return something under the present Article shall be
considered as the debtor. Thus, if the thing is lost
without fault, before the happening of the resolutory
condition, the loss will be borne by the party who is
supposed to return it. If the loss is due to his fault, he
will still be liable for damages.
 With regard to improvements, the same shall inure to
the benefit of the party who is bound to receive the
thing in the restoration process.
• Article 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him. (POWER TO RESCIND IN
RECIPROCAL OBLIGATIONS, implied)

The injured party may choose between the fulfillment and

the rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
(CHOICES OF THE INJURED PARTY –rescission or fulfilment, in either
case damages)

The court shall decree the rescission claimed, unless there

be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance with
articles 1385 and 1388 and the Mortgage Law.
RIGHT TO RESCIND in RECIPROCAL
OBLIGATIONS:
• RECIPROCAL OBLIGATIONS – obligations where two
parties are reciprocally obliged to do or give
something like a contract of sale. It is NOT enough
that both parties are indebted to each other. The
CAUSE must be INDENTICAL and the obligations
should arise simultaneously.
• Parenthetically, in reciprocal contracts or transactions,
the obligation or promise of each party is the cause or
consideration for the obligation or promise of the
other.
• The “power to rescind”, as used in this Article, means
the right to cancel (or resolve) the contract or
reciprocal obligations in case of non-fulfilment on the
part of one of the parties.
 • Rescission referred to here is NOT predicated on injury to
economic interests on the part of the party-plaintiff, but on
the breach of faith by the defendant, which breach is
violative of the reciprocity between the parties.
• Substantial Breach of Reciprocal Obligations – entitles the
injured party to rescind the obligation.

EFFECT OF RESCISSION:
• Rescission abrogates the contract from its inception and
requires a mutual restitution of benefits received. It creates
the obligation to return the object of the contract. It can be
carried out only when the one who demands rescission can
return whatever he may be obliged to restore.
• To rescind is to declare the contract void from its inception
and to put an end to it as though it never was. It is NOT
merely to terminate it and release the parties from further
obligations to each other, but to abrogate it from the
beginning and restore the parties to their relative positions
as if no contract has been made.
CHARACTERISTICS OF THE RIGHT TO RESCIND
under this Article:
1. It exists “only in reciprocal obligations.”
 NOTE: However, if the obligation is reciprocal BUT with a
period, neither party can demand performance or be
considered in default before the expiration of the period.
2. It can be demanded “only if the plaintiff is ready,
willing, and able to comply with his own obligation,
and the other party is not”. If neither is ready, neither
can rescind.
3. The right to rescind is “not absolute”.
– Trivial causes or slight breaches will not cause rescission.
However, a substantial breach of an employee’s obligations is
sufficient cause to put an end to a reciprocal contract.
Rescission may be had only for such breaches that are so
substantial and fundamental as to defeat the object of the
parties in making the agreement.
4. The right to rescind “needs judicial approval” in certain
cases, and in others, does not need such approval.
– Judicial approval is needed when there has already been
delivery of the object (unless of course there is voluntary
returning).
– Judicial approval is NOT needed when there has been no
delivery yet. Or, in case there has been delivery, the contract
stipulates that either party can rescind the same or take
possession of the property upon non-fulfilment by the other
party.
– There is nothing in Article 1191 of the Civil Code or in any legal
provision that prohibits the parties from entering into an
agreement that violation of the terms would cause
cancellation thereof, even without judicial intervention.
– NOTE: Extrajudicial rescission of a contract is not possible
without express stipulation to thateffect.
5. The right to rescind “is implied (or presumed)” to exist
and, therefore, need not be expressly stipulated upon.
6. The right to rescind “may be waived”, expressly or
impliedly.
CHOICES OF THE INJURED PARTY:
• The injured party may choose between:
1. Fulfilment (specific performance) PLUS damages; or
2. Rescission PLUS damages.
• NOTE: The damages sought must ne asked in the same
action; otherwise the damages are deemed waived.
• NOTE: The right of the injured party is “alternative” and
an alternative prayer may be made in a court complaint
unless eight had been waived previously.
• GENERAL RULE: The right is not conjunctive, that is the
plaintiff CANNOT ask for both remedies. If the plaintiff
elects fulfilment of a reciprocal obligation, rescission thereof
may not be declared at the same time.
• EXCEPTION: The injured party who has elected fulfilment
may, if fulfilment be impossible, still ask for rescission. The
rule is vice-versa, provided the court has not yet given a
final judgment.
RIGHT OF RESCISSION versus RIGHTS OF
INNOCENT THIRD PERSONS:
• The law subordinates the right of rescission to the right
of innocent third persons.
• QUESTION: How much DAMAGES for Breach of Lease
Contract?
• ANSWER: It depends upon what remedy has been
resorted to by the landlord-plaintiff for nonpayment
of rent by the lessee:
a) If he selects specific performance, he can demand the
accrued rent plus the future rent for the unexpired
term.
b) If he selects rescission, he gets only the back rents and
ouster of the lessee, plus damages, but not
(necessarily) the future rents or rentals for the
unexpired term.
• Article 1192. In case both parties have committed a
breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts. If
it cannot be determined which of the parties first
violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages.
 RULE IF BOTH PARTIES HAVE COMMITTED A BREACH:
• Rule 1: The liability of the first infractor shall be
equitably tempered by the courts.
– Reason for Rule 1: It is because the second infractor also
derived or thought he would derive some advantage
by his own act or neglect.
• Rule 2: If it cannot be determined which of the parties
first violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages.
– Reason for Rule 2: It is presumed that both at about the
same time tried to reap some benefit.