Course Title : LAW ON OBLIGATION AND CONTRACTS

No. of Units : 3 units

Instructor ; ROSELLA E. LLAGA, MPA

COURSE DESCRIPTION

This course is a study of the concepts of Law in Obligations and Contracts. It covers (a)
obligations, their nature, elements, sources, classification, legal effects and modes of extinction;
and (b) contracts, their nature, elements, legal effects, form, interpretation, rescission, nullity,
annulment and enforcement.

UNIT OF COMPETENCIES (UC)

By end of the course, the students should be able to:

1. Define law, obligations and contracts;

2. Understand the nature, effects and kinds of obligation erform the main accounting and
banking tasks in each financial process;
3. Identify the factors affecting the extinguishment of obligation;
4. Describe the general provisions of law on contracts;
5. Memorize the essential requisites of contracts;

Week 1: Introduction to LAW ON OBLIGATIONS and CONTRACTS

Week 2: GENERAL PROVISIONS ON OBLICON (Article 1156-1162)

General Provisions
Art. 1156. An obligation is a juridical necessity to give, to do or not to do. The definition of
obligations establishes the unilateral act of the debtor either to give, to do or not to do as a
patrimonial obligation. It means that the debtor has the obligation while the creditor has its
rights.
3. The obligations referred to is a patrimonial obligations that is, those obligations with pecuniary
value or assessable in terms of money.
1. Characteristics of patrimonial obligations:
• They represent an exclusively private interest.
• They create ties that are by nature transitory.
• They exist a power to make effective in case of non- fulfillment, the economic equivalent
obtained at the patrimony of a debtor.
2. Juridical Necessity – it 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.
4. Action means an ordinary suit in court of justice by which one party prosecutes another for
the enforceable or protection for a right or a prevention or redress of a wrong ( Sec. 1. Rules of
court ).
Example – Gaya bought a refrigerator from Tito but Gaya did not pay the refrigerator. If after
demand, Gaya still did not pay, Tito can sue Gaya in Court either to demand payment or for
recovery of the refrigerator.
5. 3. Essential requisites 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.
6. Juridical Tie
Debtor Or Obligor To give,
Creditor or Obligee to do or not to do
Example: Gaya enters into a contract of sale with Tito who paid the purchase of a GE
refrigerator. Gaya did not deliver the refrigerator. Gaya is the passive subject or debtor and Tito
is the active subject or creditor. The object or prestation is the GE refrigerator and the obligation
to deliver is the legal tie or the vinculum juris which binds Gaya and Tito.
7. This is also known as a unilateral obligation, that is, the obligation of the debtor to fulfill or
comply his commitment, in this case, the delivery of the refrigerator. On the other hand, if Gaya,
delivered the refrigerator and Tito did not pay, then Tito becomes the debtor who is bound to
pay while Gaya is the creditor who has the right to demand the prestation.
4. Distinctions between Obligations and Contracts:
Contract is the only one of the sources of obligation, while obligations have other sources like
law, quasi-contracts, delicts or quasi-delicts;
Contract is a bilateral obligation while obligation is a unilateral obligation;
All contracts are obligations while not all obligations are contracts.
8. 5. Civil obligations as distinguished from Natural obligations – Civil obligations derive their
binding force from positive law; Natural Obligation derives their binding effect from equity and
natural justice. Civil can enforced by court action of the coercive power of public authority;
Natural – the fulfillment cannot be compelled by court action but depends on the good
conscience of debtor.
9. ART. 1157. Obligations arise from:
 Law;
 Contracts;
 Quasi-contracts;
 Acts or omissions punished by law; and
 Quasi-delicts. (1089a)
On the sources of obligation, the main sources are really Law and Contracts. The other sources
are also established by law.
10. Source of Obligations
1. LAW as a source of obligations – The provisions of Art. 1158 refers to the legal obligations or
obligations imposed by specific provisions of law, which means that obligations arising from 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.
11. 2. CONTRACT as a source of obligations – Contract as defined in Art. 1305, NCC is the
meeting of minds between two person whereby one binds himself with respect to the other,
Obligations arising from contracts have the force of law between the contracting parties
because that which is agreed upon in the contract by the parties is the law between them, thus,
the agreement should be complied with in good faith. (Art. 1159).
For examples: A contract of lease was executed between Gaya as the lessee and Tito as the
lessor for the rent of an apartment. 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.
12. 3. QUASI-CONTRACTS as a source of obligations 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) 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.
13. 2 Kinds of Quasi-contracts
1. Solutio Indebiti (Payment by mistake) It is the juridical relation which arises when a person is
obliged to return something received by him through error or mistake.
Example- Arvin owed Ian the sum of P1, 000.00. By mistake, Arvin paid P2, 000.00. Ian has the
obligation to return the P1, 000.00 excess because there was payment by mistake.
2. Negotiorum gestio (management of another’s property) It is the voluntary management or
administration by a person of the abandoned business or property of another without any
authority or power from the latter. (Art. 2144, NCC)
Example- Victor, a wealthy landowner suddenly left for abroad leaving his livestock farm
unattended. Ramon, a neighbor of Victor managed the farm thereby incurring expenses. When
Victor returns, he has the obligation to reimburse Ramon for the expenses incurred by him and
to pay him for his services. It is bases on the principle that no one shall enrich himself at the
expense of another.
14. DELICTS or acts or omissions punished by law as a source of obligations Acts or omission
punished by law is known as Delict or Felony or Crime. While an act or omission is felonious
because it is punished by law, the criminal act gives rise to civil liability as it caused damage to
another.
Civil liability arising from delicts:
Restitution – which is the restoration of or returning the object of the crime to the injured party.
Reparation – which is the payment by the offender of the value of the object of the crime, when
such object cannot be returned to the injured party.
Indemnification – the consequential damages which includes the payment of other damages
that may have been caused to the injures party.
Illustration: Mario was convicted and sentenced to imprisonment by the Court for the crime of
theft, the gold wrist watch, of Rito. In addition to whatever penalty that the Court may impose,
Mario may also be ordered to return (restitution) the gold wrist watch to Rito. If restitution is no
longer possible, for Mario to pay the value (reparation) of the gold wrist watch. In addition to
either restitution or reparation, Mario shall also pay for damages (indemnification) suffered by
Rito.
6. QUASI-DELICTS as a source of obligations
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)
 Example- If Pedro drives his car negligently and because of his negligence hits Jose, who is
walking on the sidewalk of the street, inflicting upon him physical injuries. Then Pedro becomes
liable for damages based on quasi-delict.
Requisites of a quasi-delicts There must be fault of negligence attributable to the offended;
There must be damage or injury caused to another; There is no pre-existing contract.
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.(1090)
ART. 1159. Obligations arising from contracts have theforce of law between the contracting
parties and should becomplied with in good faith. (1091a)
ART. 1160. Obligations derived from quasi- contracts shall be subject to provisions.
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 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)
Week 3: NATURE & EFFECTS OF OBLIGATIONS (Article 1163-1171)
Chapter 2: NATURE AND EFFECT OF OBLIGATIONS
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)
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)
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.
20. 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)
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)
21. Obligations of the Debtor To Give a determinate thing-
1. To preserve or take care of the thing with the proper diligence of a good father of a family. It
means the ordinary diligence that a prudent man would exercise in taking care of his own
property taking into consideration the nature of the obligation, of the time and of the place, like a
person who is obliged to deliver a determinate horse to another should, pending its delivery,
preserve it by taking care of the same as if the horse is his own.
22. 2. Accessions and accessories.
Accession – is the right pertaining to the owner of a thing over its products and whatever is
attached thereto either naturally or artificially.
Example- Accretion which refers to the gradual and addition of sediment to the shore by action
of water.
Accessories – are those things which are joined attached to the principal object as ornament or
to render it perfect.
Example- Radio attached to a car; or key to a car.
23. 3. To be liable for damages in case of breach of obligation (Art. 1170, NCC)
When creditor acquire a right to the thing to be delivered and its fruits- 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 have been delivered to him. (Art. 1164, NCC)
Example – a binds himself to sell his horse to B for fro P10, 000. No date nor condition is
stipulated for delivery of the horse. Later, the horse gave birth to a colt. A has right to the colt, if
B has not paid the horse. Before delivery, B does not acquire ownership over it.
24. Definition of terms:
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.
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)
3. Fortuitous Events – those events which could not be foreseen or which though foreseen were
inevitable. (Art. 1174, NCC)
25. Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at
his cost. This same rule shall be observed if he does it in contravention of the tenor of the
obligation. Furthermore, it may be decreed that what has been poorly done be undone. ( 1098 )
26. Obligation of the debtor - To Do Being a personal positive obligation, The creditor has the
right to secure the services of third person to perform the obligation at the expense of the debtor
under the following instances: When the debtor fails to do the obligation; When the debtor
performs the obligation but contrary to the tenor; or When the obligor poorly performs the
obligation.
27. 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.
Example- A bought a land from B. It was stipulated that A would not construct a fence in a
certain portion of his land adjoining that land sold by B. Should A construct a fence in violation
of the agreement, B. can bring an action to have the fence remove at the expense of A.
28. 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 )
29. Delay ( Mora ) means a legal delay or default and it consists of failure discharge a duty
resulting to one’s own disadvantaged. The debtor incurred delay if:
The debtor fails to perform his obligation when it falls due; and
A demand has been made by the creditor judicially or extra judicially.
Example – Gaya obliged herself to deliver a determinate horse to Tito on June 20. this year.
Gaya failed to delivered on the agreed date, Is Gaya already on delay on June 20, only when
Tito makes a judicial or extra-judicial demand and from such date of demand when Gaya is on
default or delay.
30. However, there are instances when the demand by the Creditor is not necessary to place
the debtor on delay:
1. When the obligation expressly so provides The mere fixing of the period is not sufficient to
constitute a delay. An agreement to the effect that fulfillment or performance is not made when
the obligation becomes due, default or delay by the debtor will automatically arise.
31. 2. 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.
3. When time is of the essence Because time is the essential factor in the fulfillment of the
obligation.
Example, Gaya binds herself to sew the wedding gown of Maya to be used by the latter on her
wedding date. Gaya did not deliver the wedding gown on the date agreed upon. Even without
demand, Gaya will be in delay because time of the essence.
32. 4. When demand would be useless
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. 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.
33. Kinds of delay –
Mora solvendi – delay on the part of the debtor.
Mora accipiendi – delay on the part of the creditor, like when the creditor unjustifiably refused to
accept payment at the time it was due, is in delay.
Compensatio morae – delay both parties in a reciprocal obligation.
34. 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) ART. 1171. Responsibility arising from fraud is demandable in all obligations.
Any waiver of an action for future fraud is void. (1120a)
ART. 1172. Responsibility arising from negligence in the performance of every kind of
obligation is also demandable, but such liability maybe regulated by the courts, according to the
circumstances. (1130)

Week 4: NEGLIGENCE (ARTICLES 1172-1178)

ART. 1172. Responsibility arising from negligence in the performance of every king of obligation
is also demandable, but such liability maybe regulated by the courts, according to the
circumstances. (1130)
35. 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)
36. Sources of liability for damages:
1. Fraud (dolo) – is the intentional deception made by one person resulting in the injury of
another. The fraud referred to is incidental fraud, that is, fraud incident to the performance of
a pre-existing obligation.
2. Negligence (culpa) – consists in the omission by the obligor of that diligence which is required
by the nature of the obligation and corresponds with the circumstances of the person, of the
time and of the place. (Art. 1173, NCC)
37. 3. Delay (Mora) – like when there has been judicial or extra-judicial demand and the debtor
does not comply his obligation, delay will occur.
4. In contravention of the tenor of the obligation – refers to the violation of the terms and
conditions or defects in the performance of the obligation, like when a landlord fails to maintain
a legal and peaceful possession of a tenant being leased by the latter because the landlord was
not the owner and the real owner wants to occupy the land, there is contravention of the tenor of
the obligation.
38. Other sources of liability for damages
Loss of the thing with the fault of debtor.
Deterioration with the fault of debtor. (Art. 1189)
39. Kinds of Damages
1. Moral damages – include physical sufferings, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feeling, moral shock, social humiliation and similar injury.
2. Exemplary damages – imposed by way of example or correction for the public good. Like in
quasi-delicts, if the defendant acted with gross negligence. (Art. 2231, NCC)
40. 3. Nominal damages – are adjudicated in order that a right of the plaintiff, which has been
violated by the defendant, may be vindicated or recognized and not for the purpose of
indemnifying the plaintiff for any loss suffered by him. (Art. 2221, NCC)
4. Temperate or moderate damages – are more than nominal but less than compensatory
damages may be recovered when the courts finds that its amount cannot, from the nature of the
case, be proved with certainty. Pecuniary loss means loss of money, or of something by which
money or something of money value may be acquired. (Black Law Dict. P. 1131)
41. 5. Actual or compensatory damages – except as provided by law, or a stipulation, one is
entitled to an adequate compensation only for such pecuniary loss suffered by him as he has
duly proved. (Art. 2199, NCC)
Damages may be recovered:
For loss or impairment of earning capacity in cases of temporary or permanent personal injury;
For injury, to the plaintiff’s business standing or commercial credit.
42. Liquidated damages – are those agreed upon by parties to a contract to be paid in case of
breach thereof. (Art. 2226, NCC)
43. 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)
44. Fortuitous even – is an event which cannot be foreseen which though foreseen is inevitable.
Fortuitous event proper are acts of God such as volcanic eruption, earthquake, lightning, etc. is
now similar with force majuere or acts of man such as conflagration, war, robbery, etc.
1. Requisite necessary to constitute fortuitous event .
The failure of the debtor to comply with the obligation must be independent from the human
will;
The occurrence makes it impossible for the debtor to fulfill the obligation on a normal manner,
and the obligor did not take part as to aggravate the injury of the creditor. (Vasquez v.C.A. G.R.
42926)
45. 2. As a general rule, no person shall be held responsible for fortuitous events
Example – Gaya obliged herself to deliver a determine car to Tito on Dec. 30, 1998. Before the
arrival of the period, the car was struck by lightning and was totally destroyed. Gaya cannot be
held responsible for the destruction of the car, hence her obligation to deliver is extinguished.
46. Exceptions (when the person is responsible despite the fortuitous even).
a. When the law expressly so provides, such as:
The debtor is guilty of fraud, negligence or in contravention of the tenor of the obligation. (Art,
1170, NCC)
The debtor has proved to deliver the same thing to two or more persons who do not have the
same interest. ( Art. 1165,NCC )
The thing to delivered is generic.
The debtor is guilty of default or delay. ( Art. 1169,NCC )
The debtor is guilty of concurrent negligence.
b. When declared by stipulation;
c. When the nature of obligation requires the assumption of risk. An example of this is a contract
of insurance.
47. 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. Conventional *The rate which is agreed upon by the parties.
2. Legal Interest *The rate which is prescribed by law.
3. Lawful Interest *The rate which is agreed upon by the parties but which rate is within the rate
authorized by law.
4. Usurious Interest *The rate which is in excess of the maximum rate of interest allowed by law.
48. 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) Presumption means “the inference
as to the existence of a certain fact which if not contradicted is considered as true.”
49. The presumption in the above article is a disputable presumption, whereby one which can
be contradicted by presenting proof to the contrary while a conclusive presumption does not
admit any evidence or proof, hence, it is considered as a fact. Presumption under this article:
1. Receipt of the principal, without reservation as to the interest, shall give rise to the
presumption that the said interest has been paid.
2. When the creditor issues a receipt of a later installment of a debt without reservation as to
prior installment is presumed to have been paid.
50. 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 – In order to satisfy their claims against the debtor, creditors have the
following successive rights:
1. to levy by attachment and execution upon all the property of the debtor, except such as are
exempt by law from execution;
2. to exercise all the rights and actions of the debtor, except, such as are inherently personal to
him; and
3. to ask for the rescission of the contracts made by the debtor in fraud of their rights.
51. 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)
As a rule, all rights acquired in virtue of an obligation are transmissible, except in the following
cases:
1. When the law so provides.
2. When the parties stipulate otherwise – by agreement of parties that the rights acquired by
them will not be transmitted to any other person. 3. When the obligation is purely personal in
nature.

Week 5: KINDS OF OBLIGATIONS (Article 1179-1198)

• Classification of Obligations

1. Primary Classification

(a) Pure and Conditional

(b)Obligations with a Period

(c) Alternative and Facultative

(d)Joint and Solidary

(e) Divisible and Indivisible

(f) Obligations with a Penal Clause2. Secondary Classification

(a) Unilateral and Bilateral

(b)Real and Personal

(c) Determinate and Generic

(d)Civil and Natural

(e) Legal, Conventional and Penal

“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.”A.

Definition of Pure Obligation

• A pure obligation is one whose effectivity or extinguishment does not depend upon the
fulfillment or non-fulfillment of a condition or upon the arrival of a period.

• The most distinct characteristic of a pure obligation is its immediate demandability.

• Immediate demandability does not mean immediate performance. Although the creditor can
demand the performance of the obligation immediately, a reasonable period of grace when to
perform the obligation should be given.

• Examples: A obliges himself to pay B P500..

Conditional Obligation

• An obligation whose consequences are subject to the fulfillment of a condition.

• A condition is a future and uncertain even, upon the happening of which, the effectivity or
extinguishment of an obligation (right) subject to it depends.

• Examples:

i. when you pass Obligations and Contracts

ii. if you marry Anton

• A condition may also refer to a past but unknown event. In this case, the past event itself is not
the condition but the knowledge or ascertainment of a fact as to the past event which at the
moment is unknown to the parties.

• Example:

X is the owner of a parcel of land being claimed by Y. Last week, the Supreme Court rendered a
decision upholding the right of X. However, X has not yet

received the notice that he had won the case. Now X obliged himself to sell the land to B,
should he win the case.

U to B upon receipt of the notice.

• Two Principal Kinds of Conditions

1. Suspensive Condition- the fulfillment of the condition gives rise to an obligation; results in the
acquisition of rights arising out of such obligation

2. Resolutory Condition- the fulfillment of the condition results in the extinguishment of the
obligation already existing.

“Art. 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.”

• The obligation to pay in this case is deemed with a period.

• A period is a future and certain event upon the arrival of which the obligation subject to it either
arises or is extinguished.

• Example: A obliges himself to pay when his means permit him to do so.
• In this case, what depends upon the debtor’s will is not whether he should pay or not for
indeed he binds himself to pay. What is left only to the will is the duration of the period.

• If the debtor and creditor cannot agree as to the period, upon application, the court shall fix the
period as may under the circumstances have been probably contemplated by the parties. Once
fixed, the period cannot be changed by the parties.

• Other cases: as soon as the debtor has the money, little by little, as soon as possible, when I
am in the position to pay, when I can afford, when I have the money“

Art. 1181. In conditional obligations, the a c q u i s i t i o n o f r i g h t s , a s w e l l a s t h e

extinguishment or loss of those already acquired, shall depend upon the happening of the event

which constitutes the condition”

• In suspensive condition (condition precedent), the birth or effectivity of the obligation is

suspended until the happening or fulfillment of the event which constitutes the condition.•
Examples:

1. A obligates himself to give B P100,000 if the latter gets married to C. In this case, B cannot
acquire the P100,000 unless he gets married to C.

2. X obligates himself to give Y house a lot if the latter passes the bar examination in his first
attempt. The condition here is also suspensive in character because Y cannot acquire the
house and lot immediately. There is a need for Y to pass the bar examination at his first attempt.

• In resolutory condition (condition subsequent), the happening or fulfillment of the condition

results in the extinguishment of the rights which are already acquired by virtue of the obligation.

• Examples:

1. In a contract with a right of repurchase, the vendor a retro sells a property to a vendee a retro
but with

express reservation of right to repurchase. Hence if a contract of repurchase is perfected, the

right of vendee a retro is not absolute. It may be extinguished or lost if the vendor a retro
exercises his right to repurchase.

2. X binds himself to support Y until Y graduates from college. Here, the right is already
acquired by Y- the right to receive support. Such right will be extinguished or lost once the
condition (graduating from college) is fulfilled.

3. Parks vs. Province of Tarlac Case“

Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the
conditional obligation shall be void. If it depends upon chance or upon the will of a third person,
the obligation shall take effect in conformity with the provisions of this Code.”

• Article 1182 talks about the effects of potestative condition, casual condition and mixed
condition.

A. Potestative Condition

• a condition which depends upon the sole will of one of the contracting parties is known as
potestative condition.

• Effects of Potestative Condition

1. If the potestative condition is solely dependent on the will of the debtor, we need to
distinguish:.
i. If the potestative condition is attached to anobligation which is suspensive in character,
both the condition and obligation are void.

Example: I will pay you if I want; as soon as I harvest my fish in the pond

ii. If the potestative condition is attached to an obligation which is resolutory in character, then
both the condition and obligation are valid. In this case, although the fulfillment depends solely
upon the will of the debtor, it is valid because the fulfillment of the condition merely causes the
extinguishment of rights already acquired. Besides, it is the debtor who is naturally interested in
its fulfillment.

iii. If the potestative condition is present in a preexisting obligation, the condition is void but the
obligation is valid. The debtor has still the obligation to comply with the pre-existing obligation.

Example: A borrowed P2,000 from B. There was partial payment of P1,000. The balance is
payable if A is in the mood to do so.2. If the potestative condition is solely dependent on the will
of the creditor, then both the condition and obligation are valid. The reason for this is because
in an obligation, it is the obligee or the creditor who is naturally interested in the fulfillment of the
obligation. It is up to the creditor whether to enforce his right or not. Example: I will give you my

notes if you want them.

B. Casual Condition

• the condition depends upon chance or upon the will of a third person or partly upon chance
and partly upon the will of third person.

• Effect of Casual Condition

1. The conditional obligation is valid.

2. Examples:

I will give you P500 if Atty. Hilbay will win the 2019 Senatorial election;

I will give you P500 if it rains today at 7:00 pm.

C. Mixed Condition

• the condition depends upon the will of a contracting party and other factors which may be upon
chance or will of a third person.

• Effect of Mixed Condition

1. The conditional obligation is valid.

2. Example: I will pay my debt to you when my house is sold.

The condition is mixed. The condition not only depends on the debtor but also upon the
concurrence of other factors such as the acceptability of price and other conditions of sale.“

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.”
• Article 1183 talks about the effects of possible and impossible conditions.A. Possible Condition

• when the condition is capable of realization according to its nature or when they are not
contrary to laws, morals, good customs public order or public policy.

• The conditional obligation is valid.B. Impossible Conditions

• conditions not capable of realization by its nature or when they are contrary to law, morals,
good customs, public policy or public order.

• The first kind is referred to as Physically Impossible conditions while the second kind refers to
Legally Impossible conditions

.• Effects of Impossible Conditions

1. Conditional Obligation is void. The debtor knows that his obligation cannot be fulfilled. He has
no intention to comply with his obligation.

Example: I will give you P500 if you will be able to talk to the inhabitants in Mars; if you will
secure an annulment against your wife

2. Conditional Obligation is valid. If the condition is not to do an impossible, it shall be

considered as not having been agreed upon. It will be disregarded. As a consequence, the
obligation becomes pure and therefore immediately demandable.

Example: I will give you P300 if you will neither sell nor use any prohibited drugs.

3. Only the affected obligation is void. If the obligation is divisible, the part which is not affected
by the impossible or unlawful condition shall be valid. Thus if A binds himself to pay B his debt
in two installments- the first installment conditioned upon the delivery of opium and the second
installment conditioned upon marrying C, since the obligation is divisible, the second part which
is not unlawful will not be affected. It remains as valid. The first part is void.

4. Only the condition is void. If the obligation is a preexisting obligation, and, therefore, does not
depend upon the fulfillment of the condition which is impossible, for its existence, only the
condition is void.“

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.”
• This article talks about the effects of a positive condition.

• Positive Condition

• the happening of an event at a determinate time.

• The obligation is extinguished:

1. As soon as the time expires without the event taking place; or

2. As soon at it has become indubitable that the event will not take place although the time
specified has not yet expired

• X obliges himself to give B P10,000 if B will marry C before B reaches the age of 23.“

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 no 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.”

• This article talks about the effects of a negative condition.

• Negative Condition

• an event will not happen at a determinate time.

• The obligation shall become effective and binding:

1. from the moment the time indicated has elapsed without the event taking place; or

2. from the moment it has become evident that the event cannot occur, although the time
indicated has not yet elapsed.

• X binds himself to give B P10,000 if B is not yet married to C on December 30.“Art. 1186. The
condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.”

• The principle in Article 1186 is called Constructive Fulfillment of an Obligation

• Requisites:

1. The condition is suspensive; (but the principle applies also to an obligation subject to a
resolutory condition with respect to the debtor who is bound to return)
2. The obligor actually prevents the fulfillment of the condition; and

3. He acts voluntarily.• For this rule to apply there must be concurrence between intention and
action. There is intention on the part of debtor to prevent the fulfillment plus there must be actual
act to prevent which is voluntary and willful in character. Intention is internal while an action is
external.

• Example:

A promises to give B an Ipad if B will sing in class on Wednesday. On Tuesday night, A gave a
cake with peanuts on it to B knowing that B is allergic to it. As a consequence, B was
hospitalized and was not able to go to class.“

Art. 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.”• Retroactive Effects of Fulfillment of Suspensive

Condition in Obligation to Give

1. Distinguish between a unilateral and reciprocal obligation.

2. When the obligation is unilateral, the fruits and interests (during the pendency of the
fulfillment of the condition) shall be for the account of the debtor. In a unilateral obligation, only
one party has the duty. It is the debtor. The debtor does not receive any equivalent or valuable
consideration from the obligee.

3. 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.
Thus in an obligation that goes like this- A obligated himself to deliver a certain parcel of land
with mango trees on it to B for P100,000 subject to a condition which is suspensive in character,
and such condition was perfected two years after the perfection of contract, a literal application
of the retroactive effect would mean- A has the obligation to deliver not only the land but also
the mango trees and the fruits to be gathered within the two year period. At the same time B has

the obligation to pay not only the principal amount of P100,000 but also interest. But because of
Article 1187, it provides that the fruits and interest during the pendency of the condition shall be
deemed to have been mutually compensated.

• Retroactive Effects of Fulfillment of Suspensive Condition in Obligation to give and to do and in

not to do

• In obligations to do or not to do, retroactivity depends on the determination of the court.

• In obligation to give there is retroactivity.

Example: In January 2018, A sold a parcel of land to B subject to a condition that he wins a
case in court involving the land. A later sold the land to C on March 2018. A won the case
December 2018. Between B and C who has a better right? It is B.“

Art. 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions
for the preservation of his right. The debtor may recover what during the same time he has paid
by mistake in case of a suspensive condition.”

• Article 1188 talks about the rights available to the parties (debtor and creditor) pending the
fulfillment of the suspensive condition

.• Rights of Creditor

• During the pendency of the suspensive condition, the obligee has only a mere hope or
expectancy. This hope or expectancy, however is protected by law.

• Inasmuch as the obligee has an expectant right o the eventual fulfillment or performance of the
obligation, it is but just and proper that the law accords him the right to avail of remedies for the
protection or preservation of such right.

• Example:

• If the obligor has promised in writing to sell a parcel of land to the obligee upon a happening

of a certain condition, and subsequently before the fulfillment of the condition, he changes his
mind and finally decides to sell the land to another person, the obligee can bring an appropriate
action such as the issuance of writ of injunction to prevent the sale.• Rights of Debtor
• He is entitled to recover what he has paid by mistake prior to the happening of the suspensive
condition. This right is granted to the debtor because the creditor may or may not be able to

fulfill the condition imposed and hence, it is not certain that the obligation will arise.“

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
the usufructuary.”

• Requisites for application of Article 1189

1. The obligation is a real obligation;

2. The object is a specific or determinate thing;

3. The obligation is subject to a suspensive condition;

4. The condition is fulfilled; and

5. There is loss, deterioration, or improvement of the thing during the pendency of the condition.

• Kinds of Loss

1. Physical Loss- when a thing perishes as when a house is burned and reduced into ashes;
2. Legal Loss- when a thing goes out of commerce or when a thing heretofore legal becomes
illegal

3. Civil Loss- when a thing disappears in such a way that its existence is unknown or even if
known it cannot be recovered

• Rules in case of loss, deterioration or improvement during the pendency of suspensive

condition

1. Loss of thing without debtor’s fault- the obligation is extinguished and the debtor is not liable.

2. Loss of thing through debtor’s fault- the debtor is liable to pay damages. The obligation is
converted into an obligation for the payment of damages.

3. Deterioration of thing without the debtor’s fault- a thing deteriorates when its value is reduced
or impaired with or without the fault of the debtor. If the thing deteriorates without the fault of the
debtor, the impairment is to be borne by the creditor.

4. Deterioration of thing through debtor’s fault- the creditor may choose between rescission
orfulfillment with payment of damages in either case.

5. Improvement of the thing by nature or by timea thing is improved when its value is increased
or enhanced by nature or by time or at the expense of the debtor or creditor. In this case, the
improvement inures to the benefit of the creditor.

6. Improvement of thing at the expense of the debtor- the debtor shall have no other right than
that granted to a usufructuary

.• Usufruct- is the right to enjoy the use and fruits of a thing belonging to another with the
obligation of preserving it.

• Usufructuary- the person who enjoys the use and fruits in the property subject of a usufruct.

• Rights of Usufructuary

1. Reimbursement of necessary expenses

2. In case of useful and luxurious expenses, he shall have no right to be indemnified therefor.
He may however remove such improvements should it be possible without damage to property.

3. Right of set-off (improvements-damages)“

Art. 1190. When the conditions have for their purpose the extinguishment of an obligation to
give, the parties, upon the fulfillment 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.”

• Effects of Fulfillment of Resolutory Condition

1. The parties are obliged to return to each other what they have received under the obligation.
There is a return to the status quo.

2. Example: X allows Y to use the former’s car until X returns from the province. Upon the return
of X from the province, Y must give back the car. The parties intend the return of the car.3. The
obligation of mutual restitution applies not only to the thing received but also to the fruits and
interests. The exception to this is when the intention of the parties is otherwise.

4. Example: X binds himself to give Y P500 a month until Y passes the CPA examination. If Y
passes the CPA examination, he need not return the amounts he has received. It is clear that
the parties do not intend the return of the same.

5. In obligations to do or not to do, the courts shall determine the retroactive effect of the
fulfillment of the resolutory condition as in the case where the condition is suspensive.

6. The rules provided in Articles 1188 and 1189 are applicable.“

Art. 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. 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. 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.”
• Kinds of Obligation According to the Person

Obliged

1. Unilateral- when only one party is obliged to comply with a prestation.

2. Bilateral- when both parties are mutually bound to each other. Both parties are debtors and
creditors of each other.

• Kinds of Bilateral Obligation

1. Reciprocal Obligations- are those which arise from the same cause and in which each
party is a debtor and creditor of the other, such that the performance of one is designed
to be the equivalent and the condition for the performance of each other.

Example: contract of sale, contract of lease2. Non-reciprocal Obligations- are those which
do not impose simultaneous and correlative performance on both parties. In other words,
the performance of one party is not dependent upon the simultaneous performance by the
other.

• Example: X borrowed from Y P5,000. Y, on the other hand, borrowed X’s car. The
performance of X of his obligation to Y is not conditioned upon the performance by Y of his
obligation and vice versa.

• Remedies in Reciprocal Obligations

1. Action for specific performance (fulfillment) of the obligation with damages

2. Action for rescission of the obligation also with damages

• Note: The remedies are alternative and not cumulative. However, if the initial remedy chosen
was fulfillment, the injured or aggrieved party may instead seek rescission if fulfillment

should become impossible

.• Rules/ Limitations on Right to Demand Rescission

1. The rescission contemplated by Article 1191 is a judicial rescission or one granted by the
court.
2. When the contract provides for extra-judicial rescission then resort to court will not be
necessary. But it must be noted that the rescission is provisional only. It can still be questioned
in the court.

3. The court shall order the rescission claimed unless there should be just cause for granting the
party in default a period for the performance of the obligation.

4. Rescission will not be granted for slight breaches of contract. The violation should be
substantial as to defeat the object of the parties in making the agreement.

5. If the thing subject matter of the obligation is in the hands of a third person who acted in good
faith, rescission is not available as a remedy.“

Art. 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.”

• Rules where both parties are guilty of breach

1. First infractor known- one party violated his obligation; subsequently, the other also violated
his part of the obligation. In this case, the liability of the first infractor should be equitable
reduced.

2. First infractor cannot be determined- one party violated his obligation followed by the other,
but it cannot be determined which of them was the first infractor. The rule is that the contract
shall be deemed extinguished and each shall bear his own damages

Week 6: PRELIMINARY EXAMINATIONS

Week 7: KINDS OF OBLIGATIONS (Article 1199-1206)
Week 8: KINDS OF OBLIGATIONS (Article 1207-1230)
Week 9: EXTINGUISHMENT OF OBLIGATIONS (Article 1231-1269)
Week 10: EXTINGUISHMENT OF OBLIGATIONS (Article 1270-1304)
Week 11: GENERAL PROVISIONS ON CONTRACTS (Article 1305-1355)
Week 12: MIDTERM EXAMINATIONS
Week 13: ESSENTIAL REQUISITES OF CONTRACTS (Article 1318-1355)
Week 14: FORMS OF CONTRACTS (Article 1356-1402)
Week 15: REFORMATION OF CONTRACTS (Article 1403 – 1408)
Week 16: KINDS OF DEFECTIVE CONTRACTS (Article 1409 – 1422 0
Week 17: KINDS OF DEFECTIVE CONTRACTS 1409 – 1422 0
Week 18 FINAL EXAMINATIONS