OBLIGATIONS

An obligation is a juridical necessity to give, to do, or not to do (Art. 1156). It is a juridical relation or a
juridical necessity whereby a person (creditor) may demand from another (debtor) the observance of a
determinative conduct (giving, doing, or not doing), and in case of breach, may demand satisfaction
from the assets of the latter (Makati Stock Exchange v. Campos, G.R. No. 138814, April 16, 2009).
ELEMENTS OF AN OBLIGATION
- Juridical tie or vinculum juris or efficient cause
- Active subject [creditor (CR) or obligee]
- Passive subject [debtor (DR) or obligor]
- Object or prestation
SOURCES OF OBLIGATIONS
1. Law; 2. Contracts; 2. Quasi-contracts; 3. Delict; 4. Quasi-delict
OBLIGATION EX QUASI – CONTRACTU
Quasi-contract
A juridical relation arising from lawful, voluntary, and unilateral acts based on the principle that no one
shall be unjustly enriched or benefited at the expense of another
Principal forms of quasi-contracts
1. Negotiorum gestio (inofficious manager) – Arises when a person voluntarily takes charge of the
management of the business or property of another without any power from the latter (NCC, Art. 2144);
2. Solutio indebiti (unjust enrichment) – Takes place when a person received something from another
without any right to demand for it, and the thing was unduly delivered to him through mistake (NCC,
Art. 2154). NOTE: The delivery must not be through liberality or some other cause
REMEDIES
In case of breach of obligation, the following are the remedies available:
1. Specific performance, or substituted performance by a third person in case of an obligation to deliver
a generic thing, and in obligations to do, unless it is a purely personal act;
2. Rescission (or resolution in reciprocal obligations);
3. Damages, in any case; or
4. Subsidiary remedies of creditors: a. Accion subrogatoria b. Accion pauliana c. Accion directa
SPECIFIC PERFORMANCE
Remedies in connection with specific performance
1. Exhaustion of the properties of the debtor (not exempt from attachment under the law);
2. Accion subrogatoria (subrogatory action) – An indirect action brought in the name of theCIVIL LAW
336 U N I V E R S I T Y O F S A N T O T O M A S 2 0 1 9 G O L D E N N O T E S debtor by the creditor to
enforce the former’s rights except: a. Personal rights of the debtor; b. Rights inherent in the person of
the debtor; c. Properties exempt from execution. e.g. family home
3. Accion pauliana (rescissory action) – An action to impugn or assail the acts done or contracts entered
into by the debtor in fraud of his creditor.
RESCISSION (RESOLUTION)
It refers to the cancellation of the contract or reciprocal obligation in case of breach on the part of one,
which breach is violative of the reciprocity between the parties. This is properly called resolution. (2005,
2008 Bar)
SUBSIDIARY REMEDIES
ACCION SUBROGATORIA
An action whereby the creditor, whose claim has not been fully satisfied, may go after the defendant
debtor’s debtor (third person) (NCC, Art. 1177).
Accion pauliana
An action where the creditor files in court for the rescission of acts or contracts entered into by the
debtor designed to defraud the former (NCC, Art. 1177).
ACCION DIRECTA
Accion directa The right of a person to go directly against another who is not a privy to the contract
(NCC, Articles 1652, 1608, 1729 and 1893).
KINDS OF CIVIL OBLIGATIONS
Pure obligation An obligation whose performance does not depend upon a future or uncertain event, or
uponOBLIGATIONS AND CONTRACTS 341 a past event or upon a past event unknown to the parties,
demandable at once (NCC, Art. 1179).
Conditional obligation An obligation subject to a condition and the effectivity of which is subordinated
to the fulfillment or non-fulfillment of a future and uncertain event, or upon a past event unknown to
the parties (Pineda, 2000).
BASIS SUSPENSIVE CONDITION RESOLUTORY CONDITION
Effect of fulfilment Obligation arises or becomes Obligation is extinguished.
effective.
Effect of nonfulfillmen If not fulfilled, no juridical If not fulfilled, juridical relation
relation is created. is consolidated.
When rights are acquired Rights are not yet acquired, but Rights are already vested, but
there is hope or expectancy that subject to the threat or danger
they will soon be acquired. of extinction.
OBLIGATIONS WITH A PERIOD
Obligation with a period or a term Obligations for whose fulfillment a day certain has been fixed, shall
be demandable only when that day comes (NCC, Art. 1193).

Term or period
A certain length of time which determines the effectivity or the extinguishment of the obligations
Instances where the debtor loses his right to make use of the period
1. When after the obligation has been contracted he becomes insolvent, unless he gives a guaranty or
security for the debt;
2. When he does not furnish to the creditor the guaranties or securities which he has promised;
3. When by his own acts he has impaired said guaranties or securities after their establishment;
4. When through a fortuitous event they disappear, unless he immediately gives new ones or equally
satisfactory;
5. When the debtor violates any undertaking, in consideration of which the creditor agreed to the
period; and
6. When the debtor attempts to abscond (NCC, Art. 1198).

ALTERNATIVE, FACULTATIVE, CONJUNCTIVE OBLIGATIONS

Alternative obligation It is an obligation where the debtor is alternatively bound by different prestations
but the complete performance of one is sufficient to extinguish the obligation.
Facultative obligation It is an obligation where the debtor, who has a reserved right to choose another
prestation or thing, is bound to perform one of the several prestations due or to deliver a thing as a
substitute for the principal.
Conjunctive obligation An obligation where the debtor has to perform several prestations; it is
extinguished only by the performance of all of them.
Joint obligations
One where the credit or debt shall be presumed to be divided into as many equal shares as there are
creditors or debtors, the credits or debts being considered distinct from one another (NCC, Art. 1208).
Each debtor is liable only for a proportionate part of the debt and each creditor to his proportionate
share to the credit.
Solidary obligations
It is where each of the debtors obliges to pay the entire obligation, while each one of the creditors has
the right to demand from any of the debtors, the payment or fulfillment of the entire obligation (NCC,
Art. 1207; Pineda, 2000)
JOINT INDIVISIBLE OBLIGATIONS
The obligation is joint because the parties are merely proportionately liable. It is indivisible because the
object or subject matter is not physically divisible into different parts. In other words, it is joint as to
liabilities of the debtors or rights of the creditors but indivisible as to compliance (De Leon, 2010).
BASIS SOLIDARITY INDIVISIBILITY
As to the kind of unity it refers Refers to the vinculum existing Refers to the prestation or
to between the subjects or parties. object of the contract.
As to the requirement of Requires the plurality of parties Does not require plurality of
plurality of parties or subjects or subjects subjects or parties
As to the effect of breach In case of breach, the liability of In case of breach, it is converted
the solidary debtors although to one of indemnity for
converted into one of the damages and the indivisibility of
indemnity for damages remains the obligation is terminated and
solidary. so each debtor is liable only for
his part of the indemnity.
As to the effect of death of a Death of solidary debtor Heirs of the debtor remain
party terminates the solidarity, the bound to perform the same
tie, or vinculum being prestation.
intransmissible to the heirs.

DIVISIBLE AND INDIVISIBLE OBLIGATIONS

Divisible obligations
Those which have as their object a prestation which is susceptible of partial performance with the
essence of the obligation being changed.
Indivisible obligations
Those which have as their object a prestation which is not susceptible of partial performance, because
otherwise the essence of the obligation will be changed. The obligation is clearly indivisible because the
performance of the contract cannot be done in parts, otherwise, the value of what is transferred is
diminished (Nazareno v. CA, G.R. No. 138842, October 18, 2000)
SPECIAL FORMS OF PAYMENT
Dation in Payment
Alienation by the debtor of a particular property in favor of his creditor, with the latter’s consent, for the
satisfaction of the former’s money obligation to the latter, with the effect of extinguishing the said
money obligation.
Application of Payment
Designation of the particular debt being paid by the debtor who has two or more debts or obligations of
the same kind in favor of the same creditor to whom the payment is made .
Payment by Cession
Debtor cedes his property to his creditors so the latter may sell the same and the proceeds realized
applied to the debts of the debtor.
Tender of Payment
Voluntary act of the debtor whereby he offers to the creditor for acceptance the immediate
performance of the former’s obligation to the latter.
Consignation
Act of depositing the object of the obligation with the court or competent authority after the creditor
has unjustifiably refused to accept the same or is not in a position to accept it due to certain reasons or
circumstances.
NOVATION
It is the substitution or change of an obligation by another, resulting in its extinguishment or
modification, either by changing the object or principal conditions, or by substituting another in the
place of the debtor or by subrogating a third person to the rights of the creditor (Pineda, 2000).
Express novation
Takes place only when the intention to effect a novation clearly results from the terms of the agreement
or is shown by a full discharge of the original debt (Jurado, 2010).
Implied novation
It is imperative that the old and new obligations must be incompatible with each other. The test of
incompatibility between the old and the new obligations is to determine whether or not both of them
can stand together, each having its own independence. If they can stand together, there is no
incompatibility; consequently, there is no novation. If they cannot stand together, there is
incompatibility; consequently, there is novation (Borja v. Mariano, G.R. No. L-44041, October 28, 1938)
CONTRACTS
A contract is a meeting of minds between two persons whereby one binds himself, with respect to the
other, to give something or to render some service (NCC, Art. 1305).
A contract is a meeting of the minds between two or more parties, whereby one party binds himself
with respect to the other, or where both parties bind themselves reciprocally, in favor of one another, to
fulfill a prestation to give, to do or not to do. (Pineda, 2009)
CONTRACT VS. OBLIGATION
While a contract is one of the sources of obligations, an obligation is the legal tie or relations itself that
exists after a contract has been entered into.
Hence, there can be no contract if there is no obligation. But an obligation may exist without a contract
(De Leon, 2010).
CHARACTERISTICS OF A CONTRACT
The following are the characteristics of a contract (AMOR): 1. Autonomy (NCC, Art. 1306); 2. Mutuality
(NCC, Art. 1308); 3. Obligatoriness and consensuality (NCC, Art. 1315); 4. Relativity (NCC, Art. 1311) 5.
Consensuality (NCC, Art. 1315)
Principle of relativity or Principle of limited effectivity of contracts (2011 BAR) GR:
Contracts take effect only between the parties or their assigns and heirs.

OBLIGATORY FORCE OF CONTRACTS

Contracts shall be obligatory, in whatever form they may have been entered into, provided all the
essential requisites for validity are present (NCC, Art. 1356).
Obligations arising from contracts have the force of law between the contracting parties and should be
complied with in good faith. (NCC, Art. 1159)
MUTUALITY OF CONTRACTS
The contract must bind both contracting parties and its validity or compliance cannot be left to the will
of one of them (NCC, Art. 1308). (2001, 2004, 2008 BAR)
Contract of Adhesion
(2018 BAR) It is a contract in which one of the parties prepares the stipulations in the form of a
readymade contract, which the other party must accept or reject, but not modify, by affixing his
signature or his “adhesion” thereto; leaving no room for negotiation and depriving the latter of the
opportunity to bargain on equal footing (Norton Resources and Development Corporation v. All Asia
Bank Corporation, G.R. No. 162523, November 25, 2009).
AUTONOMY OF CONTRACTS / LIBERTY OF CONTRACTS (1996, 2004 BAR)
It is the freedom of the parties to contract and to stipulate provided the stipulations are contrary to law,
morals, good customs, public order or public policy (NCC, Art. 1306).
EFFECT OF CONTRACTS
Contracts take effect only between the parties, and their assigns and heirs, the latter being liable only to
the extent of the property received from the decedent (NCC, Art. 1311).
ESSENTIAL REQUISITES OF A CONTRACT
ELEMENTS OF A CONTRACT
1. Natural Elements – Those which are derived from the very nature of the contract, and as a
consequence, ordinarily accompany the same.
2. Essential Elements – Those without which there can be no contract.
3. Accidental Elements – those which exist only when the contracting parties expressly provide for them
(De Leon, 2010).
ESSENTIAL REQUISITES OF A CONTRACT (2005 BAR)
The following are the essential requisites of contracts (COC)
: 1. Consent;
2. Object or subject matter;
and 3. Cause or consideration (NCC, Art 1318). (See Cathay Pacific v. Vasquez, 2003)
Option contract
It is a contract between the offeror and the offeree whereby the former grants the latter, for a valuable
consideration, the privilege to buy or not to buy certain objects at anytime within a specified period and
for a fixed price.
Persons incapacitated to give consent (DIM)
1. Deaf-mutes who do not know how to read and write (illiterates);
2. Insane or demented persons, unless the contract was entered into during a lucid interval;
3. Minors (NCC, Art. 1327)
Vices of consent (MI-VUF) 1. Mistake 2. Intimidation 3. Violence 4. Undue influence 5. Fraud

Dolo Causante v. Dolo Incidente

BASIS DOLO CAUSANTE (Art. 1338) DOLO CAUSANTE (Art. 1338)
Gravity of Fraud Serious in character Not serious
Efficient Cause Efficient cause which induces Not the efficient cause
the party to enter into a
contract
Effect on the Status of the Renders the contract voidable Does not affect the validity of
contract the contract
Remedies Annulment with damages Contract remains valid. Remedy
is claim for damages.

Simulation of contract It is the declaration of a fictitious will, deliberately made by agreement of the
parties, in order to produce, for the purposes of deception, the appearance of a juridical act which does
not exist or is different from that which was executed (Tolentino, 2002).
Kinds of simulation of contract
1. Absolute (simulados) – The contracting parties do not intend to be bound by the contract at all, thus
the contract is void (NCC, Arts. 1345- 1346). In absolute simulation, there is a colorable contract but it
has no substance as the parties have no intention to be bound by it. The main characteristic of an
absolute simulation is that the apparent contract is not really desired or intended to produce legal effect
or in any way alter the juridical situation of the parties. As a result, an absolutely simulated or fictitious
contract is void, and the parties may recover from each other what they may have given under the
contract (Heirs of Dr. Mario S. Intac and Angelina Mendoza-Intac v. CA, G.R. No. 173211, October 11,
2012). They lack the element of true consent.
2. Relative (disimulados) – The contracting parties conceal their true agreement (NCC, Art. 1345); binds
the parties to their real agreement when it does not prejudice third persons or is not intended for any
purpose contrary to law, morals, good customs, public order or public policy (NCC, Art. 1346). If the
concealed contract is lawful, it is absolutely enforceable, provided it has all the essential requisites:
consent, object, and cause (NCC, Arts. 1345-1346).
OBJECTS, CAUSE AND FORM OF CONTRACTS
OBJECT - It is the subject matter of the contract. It can be a thing, right or service arising from a contract.
Note: rights which are not intransmissible can only be the object of the contract. (NCC, Art. 1347)
CAUSE - Cause is the essential reason which moves the parties to enter into the contract It is the
immediate, direct and proximate reason which justifies the creation of an obligation through the will of
the contracting parties.
FORMALITY – Rules on the form of contracts GR: Form is not required in consensual contracts.
(Provided, all the essential requisites for their validity are present.)
XPNs: When the law requires a contract be in writing for its:
1. Validity (formal contracts);
2. Enforceability (under Statute of Frauds); or
3. For the convenience of the parties
KINDS OF CONTRACTS
According to perfection or formation:
1. Consensual contracts which are perfected by the mere meeting of the minds of the parties (NCC, Art.
1305). (2005 BAR) e.g. Sale, Lease.
2. Real contracts are those which require for their perfection both the consent of the parties and the
delivery of the object by one party to the other. e.g. creation of real rights over immovable property
must be written, deposit and pledge.
3. Solemn contracts – contracts which must appear in writing.
Commutative Contracts – are those where each of the parties acquire an equivalent of his prestation
and such equivalent is pecuniarily appreciable and already determined from the moment of the
perfection of the contract.
Aleatory Contracts – are those which are dependent upon the happening of an uncertain event, thus,
charging the parties with the risk of loss or gain. e.g. Insurance.
REFORMATION OF INSTRUMENTS
It is a remedy to conform to the real intention of the parties due to mistake, fraud, inequitable conduct,
accident (NCC, Art. 1359).
Reformation is a remedy in quity by means of which a written instrument is made or construed so as to
express or confirm the real intention of the parties when some error or mistake is committed. (Pineda,
2009)
Distinction between Reformation and Annulment
Reformation Annulment
There is meeting of the minds between the There is no meeting of the minds. Consent is
parties as to the object, cause of the contract vitiated.
The instrument failed to express the true The meeting of the mids was prevented by
intention of the parties due to mistake, fraud, reason of mistake, fraud, inequitable conduct or
inequitable conduct or accident. accident perpetrated by one party against the
other
The meeting of the mids was prevented by The meeting of the mids was prevented by
reason of mistake, fraud, inequitable conduct or reason of mistake, fraud, inequitable conduct or
accident perpetrated by one party against the accident perpetrated by one party against the
other other

INTERPRETATION OF CONTRACTS
If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control. If the words appear to be contrary to the evident
intention of the parties, the latter shall prevail over the former (NCC, Art. 1370). In order to judge the
intention of the contracting parties, their contemporaneous and subsequent acts shall be principally
considered (NCC, Art. 1371)
RESCISSIBLE CONTRACTS
These are contracts validly constituted but nevertheless maybe set aside due to a particular economic
damage or lesion caused to either to one of the parties or to a third person. It may be set aside in whole
or in part, or up to the extent of the damage caused (NCC, Art. 1381).
Badges of fraud
1. Consideration for the conveyance of the property is inadequate or fictitious;
2. Transfer was made by the debtor after a suit has commenced and during its pending against him;
3. Sale upon credit by an insolvent debtor;
4. The presence of evidence of large indebtedness or complete insolvency of the debtor;
5. Transfer of all his property by a debtor when he is financially embarrassed or insolvent;
6. Transfer is made between father and son, where there are present some or any of the above
circumstances; and
7. Failure of the vendee to take exclusive possession of the property (Oria v. McMicking, 21 Phil. 243, G.
R. No. 7003, January 18, 1912).

RESOLUTION (NCC, ART. 1191) RESCISSION (NCC, ART. 1381)

Principal action; Retaliatory in character Subsidiary remedy
Non-performance of obligation (only ground) 5 grounds under Art. 1381. (lesions or fraud of
creditors); Non-performance is not important
Only to reciprocal obligations Applies to both unilateral and reciprocal
obligations
10 years from accrual of right of action for 4 years (NCC, Art. 1389)
written contracts;
Cancellation of the contract Reparation for damage or injury, allowing partial
rescission of contract (Pineda, 2000)

VOIDABLE CONTRACTS (BAR 2004)

Voidable contracts are those where consent is vitiated either by the incapacity of one of the
contracting parties or by mistake, violence, intimidation, undue influence or fraud. These contracts are
binding, unless they are annulled by a proper action in court. It is susceptible of ratification (NCC, Art.
1390)
Effects of ratification Ratification cleanses the contract from all its defects from the moment it
was constituted, thereby extinguishing the action to annul a voidable contract. It results therefore that
after a contract is validly ratified, no action to annul the same can be maintained based upon defects
relating to its original validity (Rabuya, 2017).
UNENFORCEABLE CONTRACTS
Those contracts which cannot be enforced by action or complaint, unless they have been
ratified by the party or parties who did not give consent thereto (Jurado, 2009).
Statute of Frauds (2009 BAR) The term "Statute of Frauds" [Article 1403, (2)] is descriptive of statutes
which require certain classes of contracts to be in writing. It requires certain contracts enumerated
therein to be evidenced by some note or memorandum subscribed by the party charged or by his agent
in order to be enforceable. The Statute does not deprive the parties of the right to contract with respect
to the matters therein involved, but merely regulates the formalities of the contract necessary to render
it enforceable. Evidence of the agreement cannot be received without the writing or a secondary
evidence of its contents (Swedish Match, AB v. CA, G.R. No. 128120, October 20, 2004).
Purpose of the Statute of Frauds
It is to prevent fraud and perjury in the enforcement of obligations depending for their evidence
on the unassisted memory of witnesses, by requiring certain enumerated contracts and transactions to
be evidenced by a writing signed by the party to be charged (Swedish Match, AB v. CA, G.R. No. 128120,
October 20, 2004).
VOID AND INEXISTENT CONTRACTS (2004 BAR)
In general, void and inexistent contracts may be defined as those which lack absolutely either in
fact and or in law one or some or all of those elements which are essential for its validity. Void contracts
are those which have no force and effect from the beginning and which cannot be ratified or validated
by lapse of time (Pineda, 2000).
Kinds of void contracts
Those lacking in essential elements:
a. Those whose cause, object or purpose is contrary to law, morals, good customs, public order
or public policy: illicit cause, or object;
b. Those which are absolutely simulated or fictitious: no cause;
c. Those whose cause or object did not exist at the time of the transaction: no cause or object;
d. Those whose object is outside the commerce of man: no object;
e. Those which contemplate an impossible service: no object;
f. Those where the intention of parties relative to principal object of the contract cannot be
ascertained.
Contracts prohibited by law
a. Pactum commisorium – the creditor appropriates to himself the things given by way of
pledge or mortgage to fulfill the debt.
b. Pactum de non alienando – an agreement prohibiting the owner from alienating the
mortgaged immovable.
c. Pactum leonina – a stipulation in a partnership agreement which excludes one or more
partners from any share in the profits or losses.
d. Illegal or illicit contracts (e.g. contract to sell marijuana)
Principle of in pari delicto When the defect of a void contract consists in the illegality of the cause or
object of the contract, and both of the parties are at fault or in pari delicto, the law refuses them every
remedy and leaves them where they are. This rule which is embodied in Arts. 1141 & 1142 of the NCC is
what is commonly known as the principle in pari delicto.
NATURAL OBLIGATIONS
Natural obligations, not being based on positive law but on equity and natural law, do not grant
a right of action to enforce their performance, but after voluntary fulfillment by the obligor, they
authorize the retention of what has been delivered or rendered by reason thereof (NCC, Art. 1423)
ESTOPPEL
An admission or representation rendered conclusive upon the person making it, and cannot be denied
or disproved as against the person relying thereon (NCC, Art. 1431).
Estoppel is effective only between the parties thereto or their successors in interest (NCC, Art. 1439).
Basis and purpose of estoppel Estoppel is based on public policy, fair dealing, good faith and justice and
its purpose is to forbid one to speak against his own act, representation or commitments to the injury of
one who reasonably relied thereon (Pineda, 2000).
Kinds of Estoppel
1. Estoppel in pais – a person is considered in estoppel if by his conduct, representations, admissions or
silence when he ought to speak out, whether intentionally or through culpable negligence, "causes
another to believe certain facts to exist and such other rightfully relies and acts on such belief, as a
consequence of which he would be prejudiced if the former is permitted to deny the existence of such
facts.
2. Estoppel by deed – a party to a deed and his privies are precluded from denying any material fact
stated in the deed as against the other party and his privies.
3. Estoppel by laches – an equitable estoppel, a person who has failed or neglected to assert a right for
an unreasonable and unexplained length of time is presumed to have abandoned or otherwise declined
to assert such right and cannot later on seek to enforce the same, to the prejudice of the other party,
who has no notice or knowledge that the former would assert such rights and whose condition has so
changed that the latter cannot, without injury or prejudice, be restored to his former state.
LACHES (2000, 2002 BAR (Stale Demands)
The failure or neglect, for an unreasonable length of time, to do that which by exercising due diligence
could or should have been done earlier; it is negligence or omission to assert a right within a reasonable
time, warranting a presumption that the party entitled to assert it either has abandoned it or declined to
assert it. It is also known as stale demands (Lim Tay v. CA, 293 SCRA 34, G.R. No. 126891, August 5, 1998;
Pineda, 2000).
LACHES LACHES
Concerned with the effect of delay Concerned with the effect of delay
Principally a question of inequity of permitting a It is a matter of time
claimed to be enforced