CHAPTER 1: GENERAL PROVISIONS

Art 1156
- An obligation is a juridical necessity to give, to do
or not to do. 3.) Quasi Contract
ELEMENTS OF AN OBLIGATION: Juridical relation resulting from lawful, voluntary and
1. Active subject (obligee/creditor): one in unilateral acts, which has for its purpose, the payment
whose favor the obligation is constituted of indemnity to the end that no one shall be unjustly
2. Passive subject (obligor/debtor): one who has enriched or benefited at the expense of another.
the duty of giving, doing or not doing • Distinguished from other Sources
3. Object: prestation; the conduct which has to 1. act giving rise to a quasi contract must be
be observed by the debtor/obligor LAWFUL distinguishing it from delict;
REQUISITES 2. act must be VOLUNTARY distinguishing it from
1. it must be licit (otherwise it is void) quasi-delict which is based on fault or
2. it must be possible, physically and juridically negligence;
(otherwise it is void) 3. act must be UNILATERAL distinguishing it from
3. it must be determinate or determinable contract which is based on agreement.
(otherwise it is void) (Tolentino, Volume IV, p. 68)
4. it must have pecuniary value KINDS OF QUASI-CONTRACT
a. Vinculum Juris: juridical/legal tie; binds
• Negotiorum gestio: unauthorized
the parties to the obligation
management;
b. Causa (causa debendi/causa obligationes):
arises whenever a person voluntarily takes
why obligation exists
charge of the agency or management of
another’s abandoned business or property
SOURCES OF OBLIGATION
without the latter’s authority
Art. 1157.
• Solutio indebiti: undue payment. Arises when
Obligations arise from:
a person unduly delivers a thing through
(1) Law;
mistake to another who has no right to demand
(2) Contracts
it (must not be through liberality or some other
(3) Quasi-contracts;
cause)
(4) Acts or omissions punished by law; and
Art 1159
(5) Quasi-delicts. (1089a)= punished by crimes (not
intentionally) and crimes are always punished by Obligations arising from contracts have the force of
law law between the contracting parties and should be
1.) Law complied with good faith
- It must be expressly or implied
2.) Contract Notes:
- Must be complied with in good faith - Principe of law that defines the contracts have the
- It is the “law” between parties; force of law between contracting parties and should
neither party may unilaterally evade his obligation in the
contract, unless: be complied with good faith
- Contract authorizes it - Speaks all kind of obligation that protects
- Other party assents
- All should be genuine (compliance with good faith)
- Parties may freely enter into any stipulations
provided they are not contrary to law, morals, good -
customs, public order or public policy
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.
NOTE: Rule on Standard of Care
• That which the law requires; or
• That stipulated by the parties; or
• In the absence of the two, diligence of a good
father of a family period
Notes from the lesson:
Diligence of a good father
- Obligor- obligation to take care
- Exercise his own property
- Active is the creditor (obligee)-demand the
fulfilment
- Passive (obligor)- is the obligation to take care
- To do everything is to take care of the problem. If it
is not followed the result would be negligence
- What is the consequence of negligence? They are
liable for damages
- Damage: money use to compensate for
another parties
Summary:
Duties of debtor- to give
1.) Preserve the thing- diligence
2.) Deliver the fruits- deliver the thing itself
3.) Deliver the accessions/ or accessions and
accessories
- Accessions – additions to or improvements
upon a thing. Ex: air conditioner in a car
- Accessories – things joined to, or included
with the principal thing for its better use,
embellishment or completion. Ex:key of a house;
frame of a picture (De Leon, 2003 ed., pp. 37-38)
4.) To pay the damages in case of breach of the
obligation by reason of delay, fraud, negligence or
contravention of the tenor of the obligation
Art. 1164
The creditor has a right to the fruits of the thing from
the time of the obligation to deliver it arises.
However, he shall acquire no real right over it until
the same has been delivered to him.
- The ownership of things is transferred not only by
mere agreements but by delivery
- REAL RIGHT 􏰃 power belonging to a person over
a specific thing, without a passive subject
individually determined, against whom such right
may be personally exercised.
- Gives to a person a direct and immediate power
over a thing, which is susceptible of being
exercised, not only against a determinate
person but against the whole world
- E.g. rights of ownership and possession
- PERSONAL RIGHT 􏰃 power belonging to one
person to demand of another, as a definite passive
subject, the fulfilment of a prestation to give, to do or
not to do
Remember: Real right is a right enforceably to a definite
person or group while Personal right is against the
whole world
- To deliver the fruits of the thing: Right to the fruits
of the thing from the time the obligation to deliver it
arises
WHEN OBLIGATION TO DELIVER ARISES
- GENERAL RULE: From the time of the
perfection of the contract (i.e. meeting of the
minds between the parties)
- EXCEPTIONS:
- when the parties made a stipulation as
regards the right of the creditor to the fruits
of the thing
- when the obligation is subject to a
suspensive condition or period; arises upon
 fulfillment of the condition or arrival of the
period
From the notes:
The obligation to deliver fruit arises when
1.) Time of ‘perfection’ of contract
2.) Suspensive condition- for instance there is no contact
3.) By law
4.) Possession is also a right
5.) Once you bought something, you have the real rights
Art. 1169
Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or
extrajudicially demands from them 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 so
declare; or
(2) When from the nature and the circumstances of
the obligation it appears that the designation of the
time when the thing is to be delivered or the service
is to be rendered was a 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 or is not ready to
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)
Notes:
- Ordinary delay and legal delay
- You cannot delay if there is no demand either judicial
or extrajudicial
3 exceptions
1.) When the obligation or the law expressly so declares
Ex: Tax laws have prescribed dates, you pay who should
be on the due date, you cannot just say they didn’t
demand you to pay so
2.) Time was the offence of contract
Ex: No need for contract because it is automatic
3.) Useless demand
BREACH OF AN OBLIGATION
1. Voluntary – debtor in the performance of the
obligation is guilty of: • fraud (Dolo)
• negligence (culpa) • delay (mora)
• 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
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)
FRAUD (Dolo)
• It is the deliberate or intentional evasion of the normal
fulfillment of an obligatio
- Concept Fraud is the voluntary execution of a
wrongful act, or a willful omission, knowing and
intending the effects which naturally and necessarily
arise from such act or omission.
- Deliberate and intentional evasion of the normal
fulfillment of obligations
- Any voluntary and willful act or omission which
prevents the normal realization of the prestation,
knowing and intending the effects which naturally
and necessarily arise from such act
- Fraud in the performance of a pre-existing
obligation
- Cannot cover mistake and errors of judgment
made in good faith, ergo synonymous to bad faith
(dishonest purpose or some moral obliquity and
conscious doing of wrong)
- The element of INTENT and NOT the harm done
is the test
KINDS OF FRAUD
- KINDS OF FRAUD
 1. Fraud in the performance (Art 1171)
2.
Fraud in the execution/creation/birth of the
contract
- Dolo causante (Art 1344)
- Dolo incidente (Art 1338)
3. Incidental Fraud (Dolo Incidente): fraud in
performance of obligation already existing because of a
contract
Effects of Fraud - Liability for damages, a crime or a
quasi-delict (Art 1170)
NEGLIGIENCE
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 contrac
- 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
Notes:
- Negligence, bad faith, contravene= liable for
damages
- Damages – include any and all damages that a human
being may suffer in any and all manifestations of his
life: physical or material, moral or psychological,
mental or spiritual, financial, economic, social,
political and religious. Breach of contractual
obligation entitles the other party to damages even if
no penalty for such breach is provided in the contract.
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
an obligation
Art 1171
Responsibility arising from fraud is demandable in
all obligations. Any waiver of an action for future
fraud is void. (1102a)
- Waiver of action for future fraud is void; however,
waiver of action for past fraud is valid. The reason is
that the waiver is considered to be an act of
generosity and magnanimity on the part of the party
who is the victim of the fraud. What is renounced is
the effect of the fraud, which is the right to indemnity
of the party entitled thereto. The fraud referred to in
this article is that which is mentioned in Art. 1170,
which is malice or bad faith in the performance of an
existing obligation, and not fraud or deceit used to
procure a contract.
ART 1172
Responsibility arising from negligence in the
performance of every kind of obligation is also
demandable, but such liability may be regulated by
the courts, according to the circumstances. (1103)
• Negligence not as serious as fraud – may be
mitigated
• Validity of waiver of action arising from
negligence
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)
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)
NOTE:
FORTUITOUS EVENT – An event which could not
be foreseen, or which though foreseen, was inevitable
- Except in cases expressly specified by law, or when
it is otherwise declared by stipulation, or when the
nature of 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
From notes
- Cannot foresee= natural calamities
- Effect of fortuitous= no person shall be responsible
for the damages
Requisites (Rule) of Fortuitous Event
1. Cause of the unforeseen and unexpected
occurrence or the failure of the debtor to comply
with his obligation must be independent of
human will
2. Impossible to foresee the event which constitute
the caso fortuito (ordinary) OR if it can be
foreseen, must be impossible to avoid
(extraordinary)
3. Occurrence must be such as to render it
impossible for the debtor to fulfill his obligation
in a normal manner
4. Obligor must be free from any participation in
the aggravation of the injury resulting to the
creditor (no concurrent negligence)
Concept of Fortuitous Event [Force Majeure, Fuerza
Mayor, Caso Fortuito]
• Act of God 􏰃 by nature e.g. earthquakes,
storms, floods, epidemics, fires, etc; all human
agencies excluded
• Act of Man 􏰃 by acts of man, e.g armed
invasion, attack by bandits, governmental
prohibitions, robbery, etc; for as long as that
they have a force of an imposition which the
debtor could not have resisted
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)
From notes
- creditor can take over the right of the debtor
properties
- Having pursue=judicial pursue
- Also an attack with the debit may have done to
defraud the creditor
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)
- General= all rights are transmissible
• Ex: Suppose there is an obligation to
deliver a generic thing and debtor fails to
deliver, what are legal remedies available
to the creditor? Demand for delivery,
damages, cancel the contract or both
cases can demand for damages
- Exceptions:
1. Not transmissible by their very nature e.g.
purely personal rights
2. There is a stipulation of the parties that they are
not transmissible 􏰃 not be easily implied but
clearly
established or at the very least, clearly inferable
3. Not transmissible by law
Chapter 3: Kinds of Obligation
I. Pure and Conditional Obligations
A. PURE OBLIGATIONS
- Art 1179 Par 1 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.
-􏰃 Contains no term or condition whatever upon which
depends the fulfilment of the obligation contracted by
the debtor. Immediately demandable and nothing would
exempt that debtor from compliance therewith.
Notes:
-not subject to any condition because there is no specific
date
- immediately demandable
B. CONDITIONAL OBLIGATIONS
Art 1181 In conditional obligations, the acquisition of
rights, as well as extinguishment or loss of those already
acquired, shall depend upon the happening of the event
which constitutes the condition.
CONDITION
• every future and uncertain event upon which
an obligation or provision is made to depend
• even though uncertain, it should be possible
• must be imposed by the will of a party and
NOT a necessary legal requisite of the act e.g.
 promise to give donation proper nuptials if a
person gets married is not conditional (DPN
presupposes marriage)
• “past event􏰃”- cannot be a condition because
it is not a future and uncertain event, more
properly called as
• “basis”􏰃; although proof of a past event may
be a condition
• TERM- not uncertain but must necessarily
happen e.g. death of a person
Condition Period
Determines existence of Determines
an obligation demandability of an
obligation
Notes: Powerpoint
- Conditional obligation- future and uncertain event.
One example would be graduating
- Condition can either be suspensive or resulotory
- Period or obligation with a period- future and
certain event. One example would be birthday
C. ALTERNATIVE OBLIGATION (Art1199)
Notes:
- One can substitute to one another
- One where several presentations are due but the
performance of one is sufficient
D. JOINT OBLIGATION (Art1207)
The Concurrence of two or more creditors or of two
or more debtors in one and the same obligation does
not imply that each one of the former has a right to
demand, or that each one of the latter is bound to
render, entire compliance with the prestation. There
is a solidarity liability only when the obligation
expressly so states, or when the law or the nature of
an obligation requires solidarity.
Notes:
- One where the whole obligation is to be paid or
fulfilled proportionately by several debtors or is to be
demanded proportionately by several creditors
- Example:
E. SOLIDARITY OBLIGATION (Art 1208)
If from the law, or the nature or the wording of the
obligations to which the preceding article refers, the
contrary does not appear, the credit or debt shall be
pressured to be divided into as many equal shares as
there are creditors or debtors, the credits or debts
being considered distinct from one another, subject
to the Rules of Court governing the multiplicity of
suits
Notes:
- Where each one of the debtors is bound to render and
each one of the creditor
- Whoever settles, will have the right to reimbursement
Kinds of Solidarity
1. Active – on the part of creditor or oblige •
EFFECTS:
- Death of 1 solidary creditor transmits share to
heirs (but collectively)
- Each creditor represents the other in the act of
recovery of payment
- Credit is divided equally between creditors as
among themselves
- Debtor may pay any of the solidary creditors
2. Passive – on the part of debtors or obligors
EFFECTS:
- Each debtor may be requested to pay whole
obligation with right to recover from co-
debtors
- Interruption of prescription to one creditor
affects all
- Interest from delay on 1 debtor is borne by all
3. Mixed – on the part of the obligors and obligees,
or the part of the debtors and the creditors
4. Conventional – agreed upon by the parties
5. Legal – imposed by law
- Instances where law imposes solidary
obligation:
a. Obligations arising from tort
 b. Obligations arising from quasi-contracts
c. Legal provisions regarding obligation of
devisees and legatees
d. Liability of principals, accomplices, and
accessories of a felony e. Bailees in
commodatum
- EFFECTS:
- Payment made before debt is due, no
interest can be charged, otherwise – interest
can be charged
- Insolvency of one – others are liable for
share pro-rata
- If different terms and conditions – collect
only
what is due, later on collect from any
- No reimbursement if payment is made after
prescription or became illegal
- Remission made after payment is made –
co-
debtor still entitled to reimbursement
- Effect of insolvency or death of co-debtor –
still liable for whole amount
- Fault of any debtor – every one is
responsible – price, damage and interest
JOINT DIVISIBLE OBLIGATIONS
1. Each creditor can demand for the payment of
his proportionate share of the credit, while
each debtor can be held liable only for the
payment of his proportionate share of the
debt
2. A joint creditor cannot act in representation
of the other creditors while a joint debtor
cannot be compelled to answer for the acts or
liability of the other debtors
Lesson from joint and solidarity obligation:
- Joint and Solidary is about performance
- Solidary is not presumed and presumption is not
solidary
- When Obligation is solidary
3. Express agreement
4.
The Law that creates solitary
5. Arise from the nature/ Nature of the obligation
• Ex: All laws refer to business enterprises
wherein they have civil code or labor
code(compilation of working
employees)
6. The use of “I” or “We”= solidary
- Solidary Way
- Agree
- Joint and several=another word for solidarity
- By law: Husband and wife=solidary
- Solidary bound for principle
What is joint indivisible obligation?
- It mostly talks about the problem of objects
- Indivisibility refers to the object and one of them will
not give the entire obligation. As a result, the creditor
can sue them.
Solidary
- What makes it solidary? (Look on "Obligation is
solidary”
EXAMPLES FROM THE INTERNET
JOINT OBLIGATION - it is one wherein a debtor is
obliged to pay a portion of the full amount of debt that
corresponds only to his share. Likewise, the joint
creditor can only demand a portion of the full amount
that corresponds to his share.
EXAMPLE:
For an instance, A and B contracted a loan amounting to
P10 million from X. A received a share amounting to P6
million while B received an amount equal to P4 million.
When the obligation came due, A is only obliged to pay
an amount corresponding to his share of the loan, which
is P6 million.
SOLIDARY OBLIGATION - refers to a kind of
obligation wherein either one of the creditors has the
right to demand full compliance of the obligation from
either one of the solidary debtors.
EXAMPLE
For an instance, in a loan contract, A and B borrowed an
amount equal to P10 million and agreed to pay the said
amount solidarilly to X and Y, who are also solidary
creditors. A received P6 million while B received P4
million. When the contract came due, either X or Y can
compel any of A and B to pay the whole amount of P10
million, regardless of their share. The one who paid the
whole amount will just reimburse the share received by Each creditor cannot Each creditor may
the other debtor. demand more than his demand the full
share and each debtor is prestation and each
not liable for more than debtor has the duty to
F. DIVISBLE, INDIVISBLE OBLIGATION (Art his share comply with the entire
1223) prestation
The divisibility or indivisibility of the things that are
the object of obligations in which there is only one
debtor and only one creditor does not alter or modify
the provisions of Chapter 2 of this Title (1449)
Only the debtor guilty of Solidarity refers to the
From notes
-Indivisible= deliver entire thing/ one where the object breach of obligation is legal tie or vinculum
is not capable of partial fullfilment liable for damages, defining the extent of
-Divisible= object of performance is capable of partial thereby terminating the liability
fullfillment agency
-It can be divisible and indivisible depends on the
intention/agreement of the parties
- Divisible and indivisible= talks about object
Only the debtor guilty of All of the debtors is
DIVISIBLE OBLIGATIONS breach of obligation is liable for the breach of
- Concept One which is susceptible of partial liable for damages, obligation committed by
performance; debtor can legally perform the obligation thereby terminating the any one of the debtors
by parts and the creditor cannot demand a single agency
performance of the entire obligation.
􏰃DIVISIBILITY OF THINGS different from
DIVISIBILITY OF OBLIGATIONS
o Divisible Thing: When each one of the parts into
Can exist even if there is Can only exist when
which it is divided forms a homogenous and
only one debtor or only there is at least creditor
analogous object to the other parts as well as to the thing
one creditor or debtors (requires
itself
plurality of subjects)
o Indivisible Thing: When if divided into parts, its
value is diminished disproportionately
􏰃 Test of Divisibility
1. Will or intention of the parties
2. Objective or purpose of the stipulated prestation The other debtors are not The other debtors are
3. Nature of the thing liable in case of proportionately liable in
4. Provisions of law affecting the prestation insolvency of one debtor case of insolvency of
INDIVISBLE OBLIGATION one debtor
- Concept whatever may be the nature of the thing
which is the object thereof, when it cannot be validly
performed in parts
Indivisbility Solidary

G. Obligation with a penal clause (Art 1226) From

Notes:
- liquidated damages= happens in bank loans
contracts. If you do not pay the bank, it will sue you
then have an exact Money to pay He cannot choose to pay the penalty to relieve himself of
The debtor an
- Form of penalty. One example would be the late the principal obligation, unless that right is expressly
payment of credit cards granted to him
- Arises with a contact or pre-agreement
-

PRINCIPAL OBLIGATION
AC
OBLIGATIONS WITH A PENAL CLAUSE FA

Can stand alone, independent of other obligations Payment of the penalty in lieu of the principal
Attached can be principal
to the made in order
Power of theto
only by express stipulation

OBLIGATIONS WITH A PENAL CLAUSE CONDITIONAL OBLIGATION

Creditor may demand both prestation as long as such right Power of the
is granted to him (i.e. complementary penalty)
No obligation before the suspensive condition happens, it
There is already an existing obligation (the principal)
is the fulfillment of the condition that gives rise to the
from the very beginning
obligation

OBLIGATIONS WITH A PENAL CLAUSE GUARANTY

Accessory obligation (penalty) is dependent upon non- Principal obligation itself is dependent upon an uncertain
performance of the principal obligation event Contract by vir
himself to fulfi
the latter shoul

OBLIGATIONS WITH A PENAL CLAUSE ALTERNATIVE OBLIGATION

Only one prestation and it is only when this is not
performed that the penal clause is enforceable
SIMILARITIES
1. They are both intended to insure the performance of the principal obliga
2. They are both accessory and subsidiary obligations.
3. Can be both assumed by a third person.
Two or more obligations are due, but fulfillment of one
of them is sufficient The object of th
To pay the penalty is different from the principal obligation guarantor is the

Impossibility of the principal obligation also extinguishes Impossibility of one of the obligations, without the fault
Principal obligation and the penalty can be assumed by the
the penalty of the debtor, still leaves the other subsisting Principal debto
same person.

Penalty is extinguished by the nullity of the principal obligation, voidable or unenforceable or is a natural one. However, if the
except when the penal clause is assumed by a third person
Kinds of Penal Clause
1. As to effect
• SUBSIDIARY 􏰃- only the penalty may be
enforced
• Presumed in Art 1227: 􏰃Cannot demand
the fulfillment of the obligation and the
satisfaction of the penalty at the same
time􏰃
• COMPLEMENTARY- both principal obligation
and penalty may be enforced
• Only occurs by express stipulation of the
parties
2. As to source
• CONVENTIONAL- by express stipulation of
the parties
• LEGAL 􏰃 by law
3. As to purpose
• PUNITIVE 􏰃- the right to damages, besides
the penalty subsists; the question of indemnity
for damage is not resolved, but remains
subsisting
• Only occurs by express stipulation of the
parties
• Sir Labitag: value of the penal clause is
much more than the value of the
principal, it􏰃s purpose is to bludgeon
the debtor into performing the
obligation
• The Courts are authorized to reduce the
damages if:
• They find that the breach was not
one that is wanton (noodles) or
done in callous disregard for the
rights of the creditor
• Treble damages
• REPARATORY 􏰃-substitutes the damages
suffered by creditor; the matter of damages is
generally resolved, and it represents the estimate of
the damages that a party might suffer from non-
Guaranty subsists even
performance of when the principal
the obligation, obligation
thereby is
avoiding the
difficulties of proving such damages
penal clause is assumed by a third person, the same principle
• Presumption in Art 1226, Par 1: 􏰃Shall
will apply as in the case of a guaranty.
substitute the indemnity for damages and
the payment of interests in case of non-
compliance􏰃
• Sir Labitag: pre-agreed measure prior to
the breach
• Cases when damages and interest may be
recovered in addition to the penalty
• There is an express provision to
that effect
• Debtor refuses to pay the penalty
• Debtor is guilty of fraud in the non-
fulfillment of the obligation
CONVENTIONAL 􏰃 by express stipulation of the
parties LEGAL 􏰃 by law
- As to purpose
PUNITIVE 􏰃 the right to damages, besides the penalty
subsists; the question of indemnity for damage is not
resolved, but remains subsisting
• Only occurs by express stipulation of the parties
Sir Labitag: value of the penal clause is much more
than the value of the principal, it􏰃s purpose is to
bludgeon the debtor into performing the obligation
• The Courts are authorized to reduce the
damages if
• They find that the breach was not
one that is wanton (noodles) or
done in callous disregard for the
rights of the creditor
• Treble damages
REPARATORY- substitutes the damages suffered by
creditor; the matter of damages is generally resolved,
and it represents the estimate of the damages that a party
might suffer from non-performance of the obligation,
thereby avoiding the difficulties of proving such
damages
- Presumption in Art 1226, Par 1: 􏰃Shall substitute the
indemnity for damages and the payment of interests in
case of non-compliance􏰃
- Sir Labitag: pre-agreed measure prior to the breach
- Cases when damages and interest may be recovered in
addition to the penalty
 1. There is an express provision to that effect
2. Debtor refuses to pay the penalty
3. Debtor is guilty of fraud in the non-fulfillment
of the obligation
Demandability of penalty
Art 1226 Par 2 The penalty may be enforced only when
it is demandable in accordance with the provisions of
Code.
• Only when the non-performance is due to the
fault or fraud of the debtor
• Non-performance gives rise to the presumption
of fault 􏰃 creditor does not need to prove the
fault of the
debtor. Burden of proof for the excuse on the
debtor. (Art 1228)
• When creditor elected fulfillment but the same
has become impossible (Art 1227)
• HOWEVER, penalty not enforceable
when the principal obligation becomes
IMPOSSIBLE:
- Due to fortuitous event
- Because the creditor prevents the
debtor from performing the principal
obligation
4. Creditor cannot collect other damages in addition to
penalty
Art 1226 Substitute the indemnity for damages and
the payment of interest in case of non-fulfillment *
EXCEPTIONS:
1. There is an express provision to that
effect
2. Debtor refuses to pay the penalty
3. Debtor is guilty of fraud in the non-
fulfillment of the obligation
When penalty shall by equitably reduced
Art 1229 The judge shall equitably reduce the penalty
when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there is
no performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable.
• Partial􏰃 􏰃 quantity or extent of fulfillment
• Irregular􏰃 􏰃 form of fulfillment
• Only applies to penalties prescribed in contracts
and not to collection of the surcharge on taxes that
are due, which is mandatory on the collector
When may penalty be reduced by the courts?
1. Partial performance of the obligation;
2. Irregular performance of the obligation; or
3. Penalty is Unconscionable even if there has been no
performance. (BatasNatin,n.d)

Effects of Penal Clause

1. Substitute for indemnity for damages and payment /
of interest (Art 1226)
EXCEPTION: Unless there is a stipulation to the Case Illustration
contrary e.g. becomes a facultative obligation Ibarra vs Aveyro and Emiliano Pre 37 Phil 274 (1917)
2. Not exempt debtor from performance 􏰃 penalty is Ponente: J. Torres
not a defense for leaving obligation unfulfilled Facts:
Art 1227 The debtor cannot exempt himself from On April 10, 1915, counsel for Alejandro Ibarra filed a
the performance of the obligation by paying the complaint with the Court of First Instance of Tarlac
penalty EXCEPTION: Where this right to substitute against Leopoldo Aveyro and Emiliano Pre, for the
penalty has been expressly reserved for him purpose of recovering from them jointly and severally
3. Creditor cannot demand both performance and the sum of P465 as principal, besides such additional
penalty at the same time sum as might be found owing in accordance with the
Art 1227 Neither can the creditor demand the penal clause of the contract, at the rate of P5 a day
fulfillment of the obligation and the satisfaction of from the date of the maturity of the obligation.
the penalty at the same time􏰃
EXCEPTION: Unless this right has been clearly The defendants denied the allegation. Aveyro
granted him purported that he sold a land to Ibarra in the amount of
P450 with the right to repurchase and that Ibarra
borrowed the land title and deed for the purpose of
reselling it on a higher price, and upon failing, returned
the same. Ibarra again borrowed the title and deed and
in addition executed a promissory note in favor of
Ibarra, with the security of a solvent surety, for the
amount of P450, and with a penal clause, to be
effective in case of delinquency in the payment, and
that if the sale should not be made, the borrowed deed
should be returned. the sale did not push through, and
when Ibarra tried to return the deed, Averyo refused.
Trial ensued and the court decided in favor of Averyo
and Pre. However, the penal clause was held to be null
and void for being immoral, pursuant to Article 1255
of the Civil Code
(Section 6: Obligation with a Penal Clause, March
25,2016)
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
Notes:
- suspending condition
- Law that are applicable in suspending condition
- Determines the fault
- Point number 1: It is extinguish= loss
- Point number 2: pay compensation of the damages
- Related with obligation of period
- Potestative Condition- One which depends upon the
will of one of the contracting parties; in the power of
one of the parties to realize or prevent
- Example: I will pay you when I want to pay you
- I’ll pay you when I want to=potestative
- If after allowance= period of obligation
Rules in case of loss, deterioration, or improvement
of thing during pendency of suspensive condition
1.) Loss of the thing without debtor’s fault
- obligation extinguished
2.) Loss of thing through debtor’s fault
- obliged to pay damages. A things is loss when it
perishes, goes out the commerce of man and
disappears in such a way that its existence is
unknown or it cannot be recovered
3.) Deterioration of thing without debtor’s fault-
thing deteriorates when the value reduced
- Borne= shouldered by the creditor (there’s no
fault)
4.) Deterioration of thing through debtor’s fault
- creditor may choose between the recession of the
obligation and its fulfilment with indemnity for
damages in either case
5.) Improvement of thing by nature and time
- benefits of the creditor
6.) Improvement of thing at expense of debtor
- Usufruct= rights of the debtor and there is no other
right except to enjoy the fruits (usufruct)
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. (n)
• Period – a future and certain event upon the
arrival of which the obligation subject to it
either arises or is extinguished
 • The debtor binds himself to pay when his
means permit him to do so – deemed to be one
with a period; what is left only to the debtor’s
will is the duration of the period; If the debtor
and the creditor cannot agree as to the specific
time for payment, the court shall fix the same
on the application of either party.
• The creditor should file an action to fix a
period for the payment of the obligation. An
immediate action to enforce the obligation,
without a period having been previously fixed
by court would be premature
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. (1115)
Conditions may be classified as follows:
1. As effect:
a. Suspensive - the happening of which gives rise to
the obligation
From notes:
- Thing or even that exists before
b. Resolutory - the happening of which extinguishes the
obligation
- Impossible obligation
- Cannot do legally physically
Art 1184,1185,1186
1184- agree on time and cannot happen=extinguish
1185-
1186- Obligor prevents the fulfilment
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. (1120)
From notes
- Effect of conditional obligation
- Can bring it to court
- Reciprocal- exchange of benefits
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. (1124)
Remember:
Rescind- to take away/ Right to revoke
Rescission- legal term for cancellation
Incumbent- imposed
Notes:
First paragraph:
- power to rescind
- Example: Buying and can’t deliver it= power to
rescind
- Concept of decision is not same with reciprocal
contracts
- Exchange between freedom and power to rescind
- Effect of rescind= payment of damages/ fulfilment of
obligator
Second Paragraph
- Ex: thing is cancelled and still pursued it= have to pay
for damages