BOOK IV CHAPTER 2

Obligations and Contracts

Nature and Effect of Obligations
TITLE I
Obligations Article 1163. Every person obliged to give
something is also obliged to take care of it
CHAPTER 1 with the proper diligence of a good father of
General Provisions a family, unless the law or the stipulation of
the parties requires another standard of
Article 1156. An obligation is a juridical care. (1094a)
necessity to give, to do or not to do. (n)
Article 1164. The creditor has a right to the
Article 1157. Obligations arise from: fruits of the thing from the time the obligation
to deliver it arises. However, he shall
(1) Law; acquire no real right over it until the same
has been delivered to him. (1095)
(2) Contracts;
Article 1165. When what is to be delivered
is a determinate thing, the creditor, in
(3) Quasi-contracts;
addition to the right granted him by article
1170, may compel the debtor to make the
(4) Acts or omissions punished by delivery.
law; and
If the thing is indeterminate or generic, he
(5) Quasi-delicts. (1089a) may ask that the obligation be complied with
at the expense of the debtor.
Article 1158. Obligations derived from law
are not presumed. Only those expressly If the obligor delays, or has promised to
determined in this Code or in special laws deliver the same thing to two or more
are demandable, and shall be regulated by persons who do not have the same interest,
the precepts of the law which establishes he shall be responsible for any fortuitous
them; and as to what has not been foreseen, event until he has effected the delivery.
by the provisions of this Book. (1090) (1096)

Article 1159. Obligations arising from Article 1166. The obligation to give a
contracts have the force of law between the determinate thing includes that of delivering
contracting parties and should be complied all its accessions and accessories, even
with in good faith. (1091a) though they may not have been mentioned.
(1097a)
Article 1160. Obligations derived from
quasi-contracts shall be subject to the Article 1167. If a person obliged to do
provisions of Chapter 1, Title XVII, of this something fails to do it, the same shall be
Book. (n) executed at his cost.

Article 1161. Civil obligations arising from This same rule shall be observed if he does
criminal offenses shall be governed by the it in contravention of the tenor of the
penal laws, subject to the provisions of obligation. Furthermore, it may be decreed
article 2177, and of the pertinent provisions that what has been poorly done be undone.
of Chapter 2, Preliminary Title, on Human (1098)
Relations, and of Title XVIII of this Book,
regulating damages. (1092a)
Article 1168. When the obligation consists
in not doing, and the obligor does what has
Article 1162. Obligations derived from been forbidden him, it shall also be undone
quasi-delicts shall be governed by the at his expense. (1099a)
provisions of Chapter 2, Title XVII of this
Book, and by special laws. (1093a)

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Article 1169. Those obliged to deliver or to and of the place. When negligence shows
do something incur in delay from the time bad faith, the provisions of articles 1171 and
the obligee judicially or extrajudicially 2201, paragraph 2, shall apply.
demands from them the fulfillment of their
obligation. If the law or contract does not state the
diligence which is to be observed in the
However, the demand by the creditor shall performance, that which is expected of a
not be necessary in order that delay may good father of a family shall be required.
exist: (1104a)

(1) When the obligation or the law Article 1174. Except in cases expressly
expressly so declare; or specified by the law, or when it is otherwise
declared by stipulation, or when the nature
(2) When from the nature and the of the obligation requires the assumption of
circumstances of the obligation it risk, no person shall be responsible for
appears that the designation of the those events which could not be foreseen,
time when the thing is to be or which, though foreseen, were inevitable.
delivered or the service is to be (1105a)
rendered was a controlling motive
for the establishment of the contract; Article 1175. Usurious transactions shall be
or governed by special laws. (n)

(3) When demand would be useless, Article 1176. The receipt of the principal by
as when the obligor has rendered it the creditor without reservation with respect
beyond his power to perform. to the interest, shall give rise to the
presumption that said interest has been
In reciprocal obligations, neither party incurs paid.
in delay if the other does not comply or is
not ready to comply in a proper manner with The receipt of a later installment of a debt
what is incumbent upon him. From the without reservation as to prior installments,
moment one of the parties fulfills his shall likewise raise the presumption that
obligation, delay by the other begins. such installments have been paid. (1110a)
(1100a)
Article 1177. The creditors, after having
Article 1170. Those who in the performance pursued the property in possession of the
of their obligations are guilty of fraud, debtor to satisfy their claims, may exercise
negligence, or delay, and those who in any all the rights and bring all the actions of the
manner contravene the tenor thereof, are latter for the same purpose, save those
liable for damages. (1101) which are inherent in his person; they may
also impugn the acts which the debtor may
Article 1171. Responsibility arising from have done to defraud them. (1111)
fraud is demandable in all obligations. Any
waiver of an action for future fraud is void. Article 1178. Subject to the laws, all rights
(1102a) acquired in virtue of an obligation are
transmissible, if there has been no
Article 1172. Responsibility arising from stipulation to the contrary. (1112)
negligence in the performance of every kind
of obligation is also demandable, but such CHAPTER 3
liability may be regulated by the courts, Different Kinds of Obligations
according to the circumstances. (1103)
SECTION 1
Article 1173. The fault or negligence of the Pure and Conditional Obligations
obligor consists in the omission of that
diligence which is required by the nature of Article 1179. Every obligation whose
the obligation and corresponds with the performance does not depend upon a future
circumstances of the persons, of the time or uncertain event, or upon a past event

2
unknown to the parties, is demandable at have probably been contemplated, bearing
once. in mind the nature of the obligation. (1118)

Every obligation which contains a resolutory Article 1186. The condition shall be deemed
condition shall also be demandable, without fulfilled when the obligor voluntarily prevents
prejudice to the effects of the happening of its fulfillment. (1119)
the event. (1113)
Article 1187. The effects of a conditional
Article 1180. When the debtor binds himself obligation to give, once the condition has
to pay when his means permit him to do so, been fulfilled, shall retroact to the day of the
the obligation shall be deemed to be one constitution of the obligation. Nevertheless,
with a period, subject to the provisions of when the obligation imposes reciprocal
article 1197. (n) prestations upon the parties, the fruits and
interests during the pendency of the
Article 1181. In conditional obligations, the condition shall be deemed to have been
acquisition of rights, as well as the mutually compensated. If the obligation is
extinguishment or loss of those already unilateral, the debtor shall appropriate the
acquired, shall depend upon the happening fruits and interests received, unless from the
of the event which constitutes the condition. nature and circumstances of the obligation it
(1114) should be inferred that the intention of the
person constituting the same was different.
Article 1182. When the fulfillment of the
condition depends upon the sole will of the In obligations to do and not to do, the courts
debtor, the conditional obligation shall be shall determine, in each case, the
void. If it depends upon chance or upon the retroactive effect of the condition that has
will of a third person, the obligation shall been complied with. (1120)
take effect in conformity with the provisions
of this Code. (1115) Article 1188. The creditor may, before the
fulfillment of the condition, bring the
Article 1183. Impossible conditions, those appropriate actions for the preservation of
contrary to good customs or public policy his right.
and those prohibited by law shall annul the
obligation which depends upon them. If the The debtor may recover what during the
obligation is divisible, that part thereof which same time he has paid by mistake in case of
is not affected by the impossible or unlawful a suspensive condition. (1121a)
condition shall be valid.
Article 1189. When the conditions have
The condition not to do an impossible thing been imposed with the intention of
shall be considered as not having been suspending the efficacy of an obligation to
agreed upon. (1116a) give, the following rules shall be observed in
case of the improvement, loss or
Article 1184. The condition that some event deterioration of the thing during the
happen at a determinate time shall pendency of the condition:
extinguish the obligation as soon as the time
expires or if it has become indubitable that (1) If the thing is lost without the fault
the event will not take place. (1117) of the debtor, the obligation shall be
extinguished;
Article 1185. The condition that some event
will not happen at a determinate time shall (2) If the thing is lost through the
render the obligation effective from the fault of the debtor, he shall be
moment the time indicated has elapsed, or if obliged to pay damages; it is
it has become evident that the event cannot understood that the thing is lost
occur. when it perishes, or goes out of
commerce, or disappears in such a
If no time has been fixed, the condition shall way that its existence is unknown or
be deemed fulfilled at such time as may it cannot be recovered;

3
 (3) When the thing deteriorates This is understood to be without prejudice to
without the fault of the debtor, the the rights of third persons who have
impairment is to be borne by the acquired the thing, in accordance with
creditor; articles 1385 and 1388 and the Mortgage
Law. (1124)
(4) If it deteriorates through the fault
of the debtor, the creditor may Article 1192. In case both parties have
choose between the rescission of committed a breach of the obligation, the
the obligation and its fulfillment, with liability of the first infractor shall be equitably
indemnity for damages in either tempered by the courts. If it cannot be
case; determined which of the parties first violated
the contract, the same shall be deemed
(5) If the thing is improved by its extinguished, and each shall bear his own
nature, or by time, the improvement damages. (n)
shall inure to the benefit of the
creditor; SECTION 2
Obligations with a Period
(6) If it is improved at the expense of
the debtor, he shall have no other Article 1193. Obligations for whose
right than that granted to the fulfillment a day certain has been fixed, shall
usufructuary. (1122) be demandable only when that day comes.

Article 1190. When the conditions have for Obligations with a resolutory period take
their purpose the extinguishment of an effect at once, but terminate upon arrival of
obligation to give, the parties, upon the the day certain.
fulfillment of said conditions, shall return to
each other what they have received. A day certain is understood to be that which
must necessarily come, although it may not
In case of the loss, deterioration or be known when.
improvement of the thing, the provisions
which, with respect to the debtor, are laid If the uncertainty consists in whether the day
down in the preceding article shall be will come or not, the obligation is conditional,
applied to the party who is bound to return. and it shall be regulated by the rules of the
preceding Section. (1125a)
As for the obligations to do and not to do,
the provisions of the second paragraph of Article 1194. In case of loss, deterioration
article 1187 shall be observed as regards or improvement of the thing before the
the effect of the extinguishment of the arrival of the day certain, the rules in article
obligation. (1123) 1189 shall be observed. (n)

Article 1191. The power to rescind Article 1195. Anything paid or delivered
obligations is implied in reciprocal ones, in before the arrival of the period, the obligor
case one of the obligors should not comply being unaware of the period or believing that
with what is incumbent upon him. the obligation has become due and
demandable, may be recovered, with the
The injured party may choose between the fruits and interests. (1126a)
fulfillment and the rescission of the
obligation, with the payment of damages in Article 1196. Whenever in an obligation a
either case. He may also seek rescission, period is designated, it is presumed to have
even after he has chosen fulfillment, if the been established for the benefit of both the
latter should become impossible. creditor and the debtor, unless from the
tenor of the same or other circumstances it
The court shall decree the rescission should appear that the period has been
claimed, unless there be just cause established in favor of one or of the other.
authorizing the fixing of a period. (1127)

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Article 1197. If the obligation does not fix a Article 1200. The right of choice belongs to
period, but from its nature and the the debtor, unless it has been expressly
circumstances it can be inferred that a granted to the creditor.
period was intended, the courts may fix the
duration thereof. The debtor shall have no right to choose
those prestations which are impossible,
The courts shall also fix the duration of the unlawful or which could not have been the
period when it depends upon the will of the object of the obligation. (1132)
debtor.
Article 1201. The choice shall produce no
In every case, the courts shall determine effect except from the time it has been
such period as may under the communicated. (1133)
circumstances have been probably
contemplated by the parties. Once fixed by Article 1202. The debtor shall lose the right
the courts, the period cannot be changed by of choice when among the prestations
them. (1128a) whereby he is alternatively bound, only one
is practicable. (1134)
Article 1198. The debtor shall lose every
right to make use of the period: Article 1203. If through the creditor's acts
the debtor cannot make a choice according
(1) When after the obligation has to the terms of the obligation, the latter may
been contracted, he becomes rescind the contract with damages. (n)
insolvent, unless he gives a
guaranty or security for the debt; Article 1204. The creditor shall have a right
to indemnity for damages when, through the
(2) When he does not furnish to the fault of the debtor, all the things which are
creditor the guaranties or securities alternatively the object of the obligation have
which he has promised; been lost, or the compliance of the
obligation has become impossible.
(3) When by his own acts he has
impaired said guaranties or The indemnity shall be fixed taking as a
securities after their establishment, basis the value of the last thing which
and when through a fortuitous event disappeared, or that of the service which last
they disappear, unless he became impossible.
immediately gives new ones equally
satisfactory; Damages other than the value of the last
thing or service may also be awarded.
(4) When the debtor violates any (1135a)
undertaking, in consideration of
which the creditor agreed to the Article 1205. When the choice has been
period; expressly given to the creditor, the obligation
shall cease to be alternative from the day
(5) When the debtor attempts to when the selection has been communicated
abscond. (1129a) to the debtor.

SECTION 3 Until then the responsibility of the debtor

Alternative Obligations shall be governed by the following rules:

ARTICLE 1199. A person alternatively (1) If one of the things is lost through
bound by different prestations shall a fortuitous event, he shall perform
completely perform one of them. the obligation by delivering that
which the creditor should choose
The creditor cannot be compelled to receive from among the remainder, or that
part of one and part of the other which remains if only one subsists;
undertaking. (1131)

5
 (2) If the loss of one of the things Article 1209. If the division is impossible,
occurs through the fault of the the right of the creditors may be prejudiced
debtor, the creditor may claim any of only by their collective acts, and the debt
those subsisting, or the price of that can be enforced only by proceeding against
which, through the fault of the all the debtors. If one of the latter should be
former, has disappeared, with a right insolvent, the others shall not be liable for
to damages; his share. (1139)

(3) If all the things are lost through Article 1210. The indivisibility of an
the fault of the debtor, the choice by obligation does not necessarily give rise to
the creditor shall fall upon the price solidarity. Nor does solidarity of itself imply
of any one of them, also with indivisibility. (n)
indemnity for damages.
Article 1211. Solidarity may exist although
The same rules shall be applied to the creditors and the debtors may not be
obligations to do or not to do in case one, bound in the same manner and by the same
some or all of the prestations should periods and conditions. (1140)
become impossible. (1136a)
Article 1212. Each one of the solidary
Article 1206. When only one prestation has creditors may do whatever may be useful to
been agreed upon, but the obligor may the others, but not anything which may be
render another in substitution, the obligation prejudicial to the latter. (1141a)
is called facultative.
Article 1213. A solidary creditor cannot
The loss or deterioration of the thing assign his rights without the consent of the
intended as a substitute, through the others. (n)
negligence of the obligor, does not render
him liable. But once the substitution has Article 1214. The debtor may pay any one
been made, the obligor is liable for the loss of the solidary creditors; but if any demand,
of the substitute on account of his delay, judicial or extrajudicial, has been made by
negligence or fraud. (n) one of them, payment should be made to
him. (1142a)
SECTION 4
Joint and Solidary Obligations Article 1215. Novation, compensation,
confusion or remission of the debt, made by
Article 1207. The concurrence of two or any of the solidary creditors or with any of
more creditors or of two or more debtors in the solidary debtors, shall extinguish the
one and the same obligation does not imply obligation, without prejudice to the
that each one of the former has a right to provisions of article 1219.
demand, or that each one of the latter is
bound to render, entire compliance with the The creditor who may have executed any of
prestation. There is a solidary liability only these acts, as well as he who collects the
when the obligation expressly so states, or debt, shall be liable to the others for the
when the law or the nature of the obligation share in the obligation corresponding to
requires solidarity. (1137a) them. (1143)

Article 1208. If from the law, or the nature Article 1216. The creditor may proceed
or the wording of the obligations to which the against any one of the solidary debtors or
preceding article refers the contrary does some or all of them simultaneously. The
not appear, the credit or debt shall be demand made against one of them shall not
presumed to be divided into as many shares be an obstacle to those which may
as there are creditors or debtors, the credits subsequently be directed against the others,
or debts being considered distinct from one so long as the debt has not been fully
another, subject to the Rules of Court collected. (1144a)
governing the multiplicity of suits. (1138a)

6
Article 1217. Payment made by one of the creditor, the provisions of the preceding
solidary debtors extinguishes the obligation. paragraph shall apply. (1147a)
If two or more solidary debtors offer to pay,
the creditor may choose which offer to Article 1222. A solidary debtor may, in
accept. actions filed by the creditor, avail himself of
all defenses which are derived from the
He who made the payment may claim from nature of the obligation and of those which
his co-debtors only the share which are personal to him, or pertain to his own
corresponds to each, with the interest for the share. With respect to those which
payment already made. If the payment is personally belong to the others, he may
made before the debt is due, no interest for avail himself thereof only as regards that
the intervening period may be demanded. part of the debt for which the latter are
responsible. (1148a)
When one of the solidary debtors cannot,
because of his insolvency, reimburse his SECTION 5
share to the debtor paying the obligation, Divisible and Indivisible Obligations
such share shall be borne by all his co-
debtors, in proportion to the debt of each. Article 1223. The divisibility or indivisibility
(1145a) of the things that are the object of
obligations in which there is only one debtor
Article 1218. Payment by a solidary debtor and only one creditor does not alter or
shall not entitle him to reimbursement from modify the provisions of Chapter 2 of this
his co-debtors if such payment is made after Title. (1149)
the obligation has prescribed or become
illegal. (n) Article 1224. A joint indivisible obligation
gives rise to indemnity for damages from the
Article 1219. The remission made by the time anyone of the debtors does not comply
creditor of the share which affects one of the with his undertaking. The debtors who may
solidary debtors does not release the latter have been ready to fulfill their promises shall
from his responsibility towards the co- not contribute to the indemnity beyond the
debtors, in case the debt had been totally corresponding portion of the price of the
paid by anyone of them before the remission thing or of the value of the service in which
was effected. (1146a) the obligation consists. (1150)

Article 1220. The remission of the whole Article 1225. For the purposes of the
obligation, obtained by one of the solidary preceding articles, obligations to give
debtors, does not entitle him to definite things and those which are not
reimbursement from his co-debtors. (n) susceptible of partial performance shall be
deemed to be indivisible.
Article 1221. If the thing has been lost or if
the prestation has become impossible When the obligation has for its object the
without the fault of the solidary debtors, the execution of a certain number of days of
obligation shall be extinguished. work, the accomplishment of work by
metrical units, or analogous things which by
If there was fault on the part of any one of their nature are susceptible of partial
them, all shall be responsible to the creditor, performance, it shall be divisible.
for the price and the payment of damages
and interest, without prejudice to their action However, even though the object or service
against the guilty or negligent debtor. may be physically divisible, an obligation is
indivisible if so provided by law or intended
If through a fortuitous event, the thing is lost by the parties.
or the performance has become impossible
after one of the solidary debtors has In obligations not to do, divisibility or
incurred in delay through the judicial or indivisibility shall be determined by the
extrajudicial demand upon him by the character of the prestation in each particular
case. (1151a)

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 SECTION 6 (1) By payment or performance;
Obligations with a Penal Clause
(2) By the loss of the thing due;
Article 1226. In obligations with a penal
clause, the penalty shall substitute the (3) By the condonation or remission
indemnity for damages and the payment of of the debt;
interests in case of noncompliance, if there
is no stipulation to the contrary. (4) By the confusion or merger of the
Nevertheless, damages shall be paid if the rights of creditor and debtor;
obligor refuses to pay the penalty or is guilty
of fraud in the fulfillment of the obligation.
(5) By compensation;
The penalty may be enforced only when it is
(6) By novation.
demandable in accordance with the
provisions of this Code. (1152a)
Other causes of extinguishment of
obligations, such as annulment, rescission,
Article 1227. The debtor cannot exempt
fulfillment of a resolutory condition, and
himself from the performance of the
prescription, are governed elsewhere in this
obligation by paying the penalty, save in the
Code. (1156a)
case where this right has been expressly
reserved for him. Neither can the creditor
demand the fulfillment of the obligation and SECTION 1
the satisfaction of the penalty at the same Payment or Performance
time, unless this right has been clearly
granted him. However, if after the creditor Article 1232. Payment means not only the
has decided to require the fulfillment of the delivery of money but also the performance,
obligation, the performance thereof should in any other manner, of an obligation. (n)
become impossible without his fault, the
penalty may be enforced. (1153a) Article 1233. A debt shall not be understood
to have been paid unless the thing or
Article 1228. Proof of actual damages service in which the obligation consists has
suffered by the creditor is not necessary in been completely delivered or rendered, as
order that the penalty may be demanded. (n) the case may be. (1157)

Article 1229. The judge shall equitably Article 1234. If the obligation has been
reduce the penalty when the principal substantially performed in good faith, the
obligation has been partly or irregularly obligor may recover as though there had
complied with by the debtor. Even if there been a strict and complete fulfillment, less
has been no performance, the penalty may damages suffered by the obligee. (n)
also be reduced by the courts if it is
iniquitous or unconscionable. (1154a) Article 1235. When the obligee accepts the
performance, knowing its incompleteness or
Article 1230. The nullity of the penal clause irregularity, and without expressing any
does not carry with it that of the principal protest or objection, the obligation is
obligation. deemed fully complied with. (n)

The nullity of the principal obligation carries Article 1236. The creditor is not bound to
with it that of the penal clause. (1155) accept payment or performance by a third
person who has no interest in the fulfillment
CHAPTER 4 of the obligation, unless there is a stipulation
Extinguishment of Obligations to the contrary.

General Provisions Whoever pays for another may demand

from the debtor what he has paid, except
that if he paid without the knowledge or
Article 1231. Obligations are extinguished:
against the will of the debtor, he can recover

8
only insofar as the payment has been Article 1242. Payment made in good faith to
beneficial to the debtor. (1158a) any person in possession of the credit shall
release the debtor. (1164)
Article 1237. Whoever pays on behalf of the
debtor without the knowledge or against the Article 1243. Payment made to the creditor
will of the latter, cannot compel the creditor by the debtor after the latter has been
to subrogate him in his rights, such as those judicially ordered to retain the debt shall not
arising from a mortgage, guaranty, or be valid. (1165)
penalty. (1159a)
Article 1244. The debtor of a thing cannot
Article 1238. Payment made by a third compel the creditor to receive a different
person who does not intend to be one, although the latter may be of the same
reimbursed by the debtor is deemed to be a value as, or more valuable than that which is
donation, which requires the debtor's due.
consent. But the payment is in any case
valid as to the creditor who has accepted it. In obligations to do or not to do, an act or
(n) forbearance cannot be substituted by
another act or forbearance against the
Article 1239. In obligations to give, payment obligee's will. (1166a)
made by one who does not have the free
disposal of the thing due and capacity to Article 1245. Dation in payment, whereby
alienate it shall not be valid, without property is alienated to the creditor in
prejudice to the provisions of article 1427 satisfaction of a debt in money, shall be
under the Title on "Natural Obligations." governed by the law of sales. (n)
(1160a)
Article 1246. When the obligation consists
Article 1240. Payment shall be made to the in the delivery of an indeterminate or generic
person in whose favor the obligation has thing, whose quality and circumstances
been constituted, or his successor in have not been stated, the creditor cannot
interest, or any person authorized to receive demand a thing of superior quality. Neither
it. (1162a) can the debtor deliver a thing of inferior
quality. The purpose of the obligation and
Article 1241. Payment to a person who is other circumstances shall be taken into
incapacitated to administer his property shall consideration. (1167a)
be valid if he has kept the thing delivered, or
insofar as the payment has been beneficial Article 1247. Unless it is otherwise
to him. stipulated, the extrajudicial expenses
required by the payment shall be for the
Payment made to a third person shall also account of the debtor. With regard to judicial
be valid insofar as it has redounded to the costs, the Rules of Court shall govern.
benefit of the creditor. Such benefit to the (1168a)
creditor need not be proved in the following
cases: Article 1248. Unless there is an express
stipulation to that effect, the creditor cannot
(1) If after the payment, the third be compelled partially to receive the
person acquires the creditor's rights; prestations in which the obligation consists.
Neither may the debtor be required to make
(2) If the creditor ratifies the payment partial payments.
to the third person;
However, when the debt is in part liquidated
(3) If by the creditor's conduct, the and in part unliquidated, the creditor may
debtor has been led to believe that demand and the debtor may effect the
the third person had authority to payment of the former without waiting for the
receive the payment. (1163a) liquidation of the latter. (1169a)

9
Article 1249. The payment of debts in If the debtor accepts from the creditor a
money shall be made in the currency receipt in which an application of the
stipulated, and if it is not possible to deliver payment is made, the former cannot
such currency, then in the currency which is complain of the same, unless there is a
legal tender in the Philippines. cause for invalidating the contract. (1172a)

The delivery of promissory notes payable to Article 1253. If the debt produces interest,
order, or bills of exchange or other payment of the principal shall not be
mercantile documents shall produce the deemed to have been made until the
effect of payment only when they have been interests have been covered. (1173)
cashed, or when through the fault of the
creditor they have been impaired. Article 1254. When the payment cannot be
applied in accordance with the preceding
In the meantime, the action derived from the rules, or if application can not be inferred
original obligation shall be held in the from other circumstances, the debt which is
abeyance. (1170) most onerous to the debtor, among those
due, shall be deemed to have been
Article 1250. In case an extraordinary satisfied.
inflation or deflation of the currency
stipulated should supervene, the value of If the debts due are of the same nature and
the currency at the time of the establishment burden, the payment shall be applied to all
of the obligation shall be the basis of of them proportionately. (1174a)
payment, unless there is an agreement to
the contrary. (n) SUBSECTION 2. Payment by Cession

Article 1251. Payment shall be made in the Article 1255. The debtor may cede or
place designated in the obligation. assign his property to his creditors in
payment of his debts. This cession, unless
There being no express stipulation and if the there is stipulation to the contrary, shall only
undertaking is to deliver a determinate thing, release the debtor from responsibility for the
the payment shall be made wherever the net proceeds of the thing assigned. The
thing might be at the moment the obligation agreements which, on the effect of the
was constituted. cession, are made between the debtor and
his creditors shall be governed by special
In any other case the place of payment shall laws. (1175a)
be the domicile of the debtor.
SUBSECTION 3. Tender of Payment and
If the debtor changes his domicile in bad Consignation
faith or after he has incurred in delay, the
additional expenses shall be borne by him. Article 1256. If the creditor to whom tender
of payment has been made refuses without
These provisions are without prejudice to just cause to accept it, the debtor shall be
venue under the Rules of Court. (1171a) released from responsibility by the
consignation of the thing or sum due.
SUBSECTION 1. Application of Payments
Consignation alone shall produce the same
Article 1252. He who has various debts of effect in the following cases:
the same kind in favor of one and the same
creditor, may declare at the time of making (1) When the creditor is absent or
the payment, to which of them the same unknown, or does not appear at the
must be applied. Unless the parties so place of payment;
stipulate, or when the application of payment
is made by the party for whose benefit the (2) When he is incapacitated to
term has been constituted, application shall receive the payment at the time it is
not be made as to debts which are not yet due;
due.

10
 (3) When, without just cause, he SECTION 2
refuses to give a receipt; Loss of the Thing Due

(4) When two or more persons claim Article 1262. An obligation which consists in
the same right to collect; the delivery of a determinate thing shall be
extinguished if it should be lost or destroyed
(5) When the title of the obligation without the fault of the debtor, and before he
has been lost. (1176a) has incurred in delay.

Article 1257. In order that the consignation When by law or stipulation, the obligor is
of the thing due may release the obligor, it liable even for fortuitous events, the loss of
must first be announced to the persons the thing does not extinguish the obligation,
interested in the fulfillment of the obligation. and he shall be responsible for damages.
The same rule applies when the nature of
The consignation shall be ineffectual if it is the obligation requires the assumption of
not made strictly in consonance with the risk. (1182a)
provisions which regulate payment. (1177)
Article 1263. In an obligation to deliver a
Article 1258. Consignation shall be made generic thing, the loss or destruction of
by depositing the things due at the disposal anything of the same kind does not
of judicial authority, before whom the tender extinguish the obligation. (n)
of payment shall be proved, in a proper
case, and the announcement of the Article 1264. The courts shall determine
consignation in other cases. whether, under the circumstances, the
partial loss of the object of the obligation is
The consignation having been made, the so important as to extinguish the obligation.
interested parties shall also be notified (n)
thereof. (1178)
Article 1265. Whenever the thing is lost in
Article 1259. The expenses of consignation, the possession of the debtor, it shall be
when properly made, shall be charged presumed that the loss was due to his fault,
against the creditor. (1179) unless there is proof to the contrary, and
without prejudice to the provisions of article
1165. This presumption does not apply in
Article 1260. Once the consignation has
case of earthquake, flood, storm, or other
been duly made, the debtor may ask the
natural calamity. (1183a)
judge to order the cancellation of the
obligation.
Article 1266. The debtor in obligations to do
shall also be released when the prestation
Before the creditor has accepted the
becomes legally or physically impossible
consignation, or before a judicial declaration
without the fault of the obligor. (1184a)
that the consignation has been properly
made, the debtor may withdraw the thing or
the sum deposited, allowing the obligation to Article 1267. When the service has become
remain in force. (1180) so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may
also be released therefrom, in whole or in
Article 1261. If, the consignation having
part. (n)
been made, the creditor should authorize
the debtor to withdraw the same, he shall
lose every preference which he may have Article 1268. When the debt of a thing
over the thing. The co-debtors, guarantors certain and determinate proceeds from a
and sureties shall be released. (1181a) criminal offense, the debtor shall not be
exempted from the payment of its price,
whatever may be the cause for the loss,
unless the thing having been offered by him
to the person who should receive it, the

11
latter refused without justification to accept Article 1275. The obligation is extinguished
it. (1185) from the time the characters of creditor and
debtor are merged in the same person.
Article 1269. The obligation having been (1192a)
extinguished by the loss of the thing, the
creditor shall have all the rights of action Article 1276. Merger which takes place in
which the debtor may have against third the person of the principal debtor or creditor
persons by reason of the loss. (1186) benefits the guarantors. Confusion which
takes place in the person of any of the latter
SECTION 3 does not extinguish the obligation. (1193)
Condonation or Remission of the Debt
Article 1277. Confusion does not extinguish
Article 1270. Condonation or remission is a joint obligation except as regards the
essentially gratuitous, and requires the share corresponding to the creditor or debtor
acceptance by the obligor. It may be made in whom the two characters concur. (1194)
expressly or impliedly.
SECTION 5
One and the other kind shall be subject to Compensation
the rules which govern inofficious donations.
Express condonation shall, furthermore, Article 1278. Compensation shall take place
comply with the forms of donation. (1187) when two persons, in their own right, are
creditors and debtors of each other. (1195)
Article 1271. The delivery of a private
document evidencing a credit, made Article 1279. In order that compensation
voluntarily by the creditor to the debtor, may be proper, it is necessary:
implies the renunciation of the action which
the former had against the latter. (1) That each one of the obligors be
bound principally, and that he be at
If in order to nullify this waiver it should be the same time a principal creditor of
claimed to be inofficious, the debtor and his the other;
heirs may uphold it by proving that the
delivery of the document was made in virtue (2) That both debts consist in a sum
of payment of the debt. (1188) of money, or if the things due are
consumable, they be of the same
Article 1272. Whenever the private kind, and also of the same quality if
document in which the debt appears is the latter has been stated;
found in the possession of the debtor, it shall
be presumed that the creditor delivered it (3) That the two debts be due;
voluntarily, unless the contrary is proved.
(1189) (4) That they be liquidated and
demandable;
Article 1273. The renunciation of the
principal debt shall extinguish the accessory (5) That over neither of them there
obligations; but the waiver of the latter shall be any retention or controversy,
leave the former in force. (1190) commenced by third persons and
communicated in due time to the
Article 1274. It is presumed that the debtor. (1196)
accessory obligation of pledge has been
remitted when the thing pledged, after its Article 1280. Notwithstanding the provisions
delivery to the creditor, is found in the of the preceding article, the guarantor may
possession of the debtor, or of a third set up compensation as regards what the
person who owns the thing. (1191a) creditor may owe the principal debtor.
(1197)
SECTION 4
Confusion or Merger of Rights

12
Article 1281. Compensation may be total or provisions of paragraph 2 of article 301.
partial. When the two debts are of the same (1200a)
amount, there is a total compensation. (n)
Article 1288. Neither shall there be
Article 1282. The parties may agree upon compensation if one of the debts consists in
the compensation of debts which are not yet civil liability arising from a penal offense. (n)
due. (n)
Article 1289. If a person should have
Article 1283. If one of the parties to a suit against him several debts which are
over an obligation has a claim for damages susceptible of compensation, the rules on
against the other, the former may set it off the application of payments shall apply to
by proving his right to said damages and the the order of the compensation. (1201)
amount thereof. (n)
Article 1290. When all the requisites
Article 1284. When one or both debts are mentioned in article 1279 are present,
rescissible or voidable, they may be compensation takes effect by operation of
compensated against each other before they law, and extinguishes both debts to the
are judicially rescinded or avoided. (n) concurrent amount, even though the
creditors and debtors are not aware of the
Article 1285. The debtor who has compensation. (1202a)
consented to the assignment of rights made
by a creditor in favor of a third person, SECTION 6
cannot set up against the assignee the Novation
compensation which would pertain to him
against the assignor, unless the assignor Article 1291. Obligations may be modified
was notified by the debtor at the time he by:
gave his consent, that he reserved his right
to the compensation. (1) Changing their object or principal
conditions;
If the creditor communicated the cession to
him but the debtor did not consent thereto, (2) Substituting the person of the
the latter may set up the compensation of debtor;
debts previous to the cession, but not of
subsequent ones.
(3) Subrogating a third person in the
rights of the creditor. (1203)
If the assignment is made without the
knowledge of the debtor, he may set up the
Article 1292. In order that an obligation may
compensation of all credits prior to the same
be extinguished by another which substitute
and also later ones until he had knowledge
the same, it is imperative that it be so
of the assignment. (1198a)
declared in unequivocal terms, or that the
old and the new obligations be on every
Article 1286. Compensation takes place by point incompatible with each other. (1204)
operation of law, even though the debts may
be payable at different places, but there
Article 1293. Novation which consists in
shall be an indemnity for expenses of
substituting a new debtor in the place of the
exchange or transportation to the place of
original one, may be made even without the
payment. (1199a)
knowledge or against the will of the latter,
but not without the consent of the creditor.
Article 1287. Compensation shall not be Payment by the new debtor gives him the
proper when one of the debts arises from a rights mentioned in articles 1236 and 1237.
depositum or from the obligations of a (1205a)
depositary or of a bailee in commodatum.
Article 1294. If the substitution is without
Neither can compensation be set up against the knowledge or against the will of the
a creditor who has a claim for support due debtor, the new debtor's insolvency or non-
by gratuitous title, without prejudice to the

13
fulfillment of the obligations shall not give (2) When a third person, not
rise to any liability on the part of the original interested in the obligation, pays
debtor. (n) with the express or tacit approval of
the debtor;
Article 1295. The insolvency of the new
debtor, who has been proposed by the (3) When, even without the
original debtor and accepted by the creditor, knowledge of the debtor, a person
shall not revive the action of the latter interested in the fulfillment of the
against the original obligor, except when obligation pays, without prejudice to
said insolvency was already existing and of the effects of confusion as to the
public knowledge, or known to the debtor, latter's share. (1210a)
when the delegated his debt. (1206a)
Article 1303. Subrogation transfers to the
Article 1296. When the principal obligation persons subrogated the credit with all the
is extinguished in consequence of a rights thereto appertaining, either against
novation, accessory obligations may subsist the debtor or against third person, be they
only insofar as they may benefit third guarantors or possessors of mortgages,
persons who did not give their consent. subject to stipulation in a conventional
(1207) subrogation. (1212a)

Article 1297. If the new obligation is void, Article 1304. A creditor, to whom partial
the original one shall subsist, unless the payment has been made, may exercise his
parties intended that the former relation right for the remainder, and he shall be
should be extinguished in any event. (n) preferred to the person who has been
subrogated in his place in virtue of the
Article 1298. The novation is void if the partial payment of the same credit. (1213)
original obligation was void, except when
annulment may be claimed only by the TITLE II
debtor or when ratification validates acts CONTRACTS
which are voidable. (1208a)
CHAPTER 1
Article 1299. If the original obligation was General Provisions
subject to a suspensive or resolutory
condition, the new obligation shall be under Article 1305. A contract is a meeting of
the same condition, unless it is otherwise minds between two persons whereby one
stipulated. (n) binds himself, with respect to the other, to
give something or to render some service.
Article 1300. Subrogation of a third person (1254a)
in the rights of the creditor is either legal or
conventional. The former is not presumed, Article 1306. The contracting parties may
except in cases expressly mentioned in this establish such stipulations, clauses, terms
Code; the latter must be clearly established and conditions as they may deem
in order that it may take effect. (1209a) convenient, provided they are not contrary to
law, morals, good customs, public order, or
Article 1301. Conventional subrogation of a public policy. (1255a)
third person requires the consent of the
original parties and of the third person. (n) Article 1307. Innominate contracts shall be
regulated by the stipulations of the parties,
Article 1302. It is presumed that there is by the provisions of Titles I and II of this
legal subrogation: Book, by the rules governing the most
analogous nominate contracts, and by the
(1) When a creditor pays another customs of the place. (n)
creditor who is preferred, even
without the debtor's knowledge; Article 1308. The contract must bind both
contracting parties; its validity or compliance

14
cannot be left to the will of one of them. Article 1316. Real contracts, such as
(1256a) deposit, pledge and commodatum, are not
perfected until the delivery of the object of
Article 1309. The determination of the the obligation. (n)
performance may be left to a third person,
whose decision shall not be binding until it Article 1317. No one may contract in the
has been made known to both contracting name of another without being authorized by
parties. (n) the latter, or unless he has by law a right to
represent him.
Article 1310. The determination shall not be
obligatory if it is evidently inequitable. In A contract entered into in the name of
such case, the courts shall decide what is another by one who has no authority or legal
equitable under the circumstances. (n) representation, or who has acted beyond his
powers, shall be unenforceable, unless it is
Article 1311. Contracts take effect only ratified, expressly or impliedly, by the person
between the parties, their assigns and heirs, on whose behalf it has been executed,
except in case where the rights and before it is revoked by the other contracting
obligations arising from the contract are not party. (1259a)
transmissible by their nature, or by
stipulation or by provision of law. The heir is CHAPTER 2
not liable beyond the value of the property Essential Requisites of Contracts
he received from the decedent.
General Provisions
If a contract should contain some stipulation
in favor of a third person, he may demand its Article 1318. There is no contract unless
fulfillment provided he communicated his the following requisites concur:
acceptance to the obligor before its
revocation. A mere incidental benefit or (1) Consent of the contracting
interest of a person is not sufficient. The parties;
contracting parties must have clearly and
deliberately conferred a favor upon a third
(2) Object certain which is the
person. (1257a)
subject matter of the contract;
Article 1312. In contracts creating real
(3) Cause of the obligation which is
rights, third persons who come into
established. (1261)
possession of the object of the contract are
bound thereby, subject to the provisions of
the Mortgage Law and the Land Registration SECTION 1
Laws. (n) Consent

Article 1313. Creditors are protected in Article 1319. Consent is manifested by the
cases of contracts intended to defraud them. meeting of the offer and the acceptance
(n) upon the thing and the cause which are to
constitute the contract. The offer must be
certain and the acceptance absolute. A
Article 1314. Any third person who induces
qualified acceptance constitutes a counter-
another to violate his contract shall be liable
offer.
for damages to the other contracting party.
(n)
Acceptance made by letter or telegram does
not bind the offerer except from the time it
Article 1315. Contracts are perfected by
came to his knowledge. The contract, in
mere consent, and from that moment the
such a case, is presumed to have been
parties are bound not only to the fulfillment
entered into in the place where the offer was
of what has been expressly stipulated but
made. (1262a)
also to all the consequences which,
according to their nature, may be in keeping
with good faith, usage and law. (1258)

15
Article 1320. An acceptance may be Article 1330. A contract where consent is
express or implied. (n) given through mistake, violence,
intimidation, undue influence, or fraud is
Article 1321. The person making the offer voidable. (1265a)
may fix the time, place, and manner of
acceptance, all of which must be complied Article 1331. In order that mistake may
with. (n) invalidate consent, it should refer to the
substance of the thing which is the object of
Article 1322. An offer made through an the contract, or to those conditions which
agent is accepted from the time acceptance have principally moved one or both parties
is communicated to him. (n) to enter into the contract.

Article 1323. An offer becomes ineffective Mistake as to the identity or qualifications of

upon the death, civil interdiction, insanity, or one of the parties will vitiate consent only
insolvency of either party before acceptance when such identity or qualifications have
is conveyed. (n) been the principal cause of the contract.

Article 1324. When the offerer has allowed A simple mistake of account shall give rise
the offeree a certain period to accept, the to its correction. (1266a)
offer may be withdrawn at any time before
acceptance by communicating such Article 1332. When one of the parties is
withdrawal, except when the option is unable to read, or if the contract is in a
founded upon a consideration, as something language not understood by him, and
paid or promised. (n) mistake or fraud is alleged, the person
enforcing the contract must show that the
Article 1325. Unless it appears otherwise, terms thereof have been fully explained to
business advertisements of things for sale the former. (n)
are not definite offers, but mere invitations to
make an offer. (n) Article 1333. There is no mistake if the
party alleging it knew the doubt, contingency
Article 1326. Advertisements for bidders are or risk affecting the object of the contract. (n)
simply invitations to make proposals, and
the advertiser is not bound to accept the Article 1334. Mutual error as to the legal
highest or lowest bidder, unless the contrary effect of an agreement when the real
appears. (n) purpose of the parties is frustrated, may
vitiate consent. (n)
Article 1327. The following cannot give
consent to a contract: Article 1335. There is violence when in
order to wrest consent, serious or irresistible
(1) Unemancipated minors; force is employed.

(2) Insane or demented persons, There is intimidation when one of the

and deaf-mutes who do not know contracting parties is compelled by a
how to write. (1263a) reasonable and well-grounded fear of an
imminent and grave evil upon his person or
Article 1328. Contracts entered into during property, or upon the person or property of
a lucid interval are valid. Contracts agreed to his spouse, descendants or ascendants, to
in a state of drunkenness or during a give his consent.
hypnotic spell are voidable. (n)
To determine the degree of intimidation, the
Article 1329. The incapacity declared in age, sex and condition of the person shall
article 1327 is subject to the modifications be borne in mind.
determined by law, and is understood to be
without prejudice to special disqualifications A threat to enforce one's claim through
established in the laws. (1264) competent authority, if the claim is just or
legal, does not vitiate consent. (1267a)

16
Article 1336. Violence or intimidation shall Article 1345. Simulation of a contract may
annul the obligation, although it may have be absolute or relative. The former takes
been employed by a third person who did place when the parties do not intend to be
not take part in the contract. (1268) bound at all; the latter, when the parties
conceal their true agreement. (n)
Article 1337. There is undue influence when
a person takes improper advantage of his Article 1346. An absolutely simulated or
power over the will of another, depriving the fictitious contract is void. A relative
latter of a reasonable freedom of choice. simulation, when it does not prejudice a third
The following circumstances shall be person and is not intended for any purpose
considered: the confidential, family, spiritual contrary to law, morals, good customs,
and other relations between the parties, or public order or public policy binds the parties
the fact that the person alleged to have been to their real agreement. (n)
unduly influenced was suffering from mental
weakness, or was ignorant or in financial SECTION 2
distress. (n) Object of Contracts

Article 1338. There is fraud when, through Article 1347. All things which are not
insidious words or machinations of one of outside the commerce of men, including
the contracting parties, the other is induced future things, may be the object of a
to enter into a contract which, without them, contract. All rights which are not
he would not have agreed to. (1269) intransmissible may also be the object of
contracts.
Article 1339. Failure to disclose facts, when
there is a duty to reveal them, as when the No contract may be entered into upon future
parties are bound by confidential relations, inheritance except in cases expressly
constitutes fraud. (n) authorized by law.

Article 1340. The usual exaggerations in All services which are not contrary to law,
trade, when the other party had an morals, good customs, public order or public
opportunity to know the facts, are not in policy may likewise be the object of a
themselves fraudulent. (n) contract. (1271a)

Article 1341. A mere expression of an Article 1348. Impossible things or services

opinion does not signify fraud, unless made cannot be the object of contracts. (1272)
by an expert and the other party has relied
on the former's special knowledge. (n) Article 1349. The object of every contract
must be determinate as to its kind. The fact
Article 1342. Misrepresentation by a third that the quantity is not determinate shall not
person does not vitiate consent, unless such be an obstacle to the existence of the
misrepresentation has created substantial contract, provided it is possible to determine
mistake and the same is mutual. (n) the same, without the need of a new
contract between the parties. (1273)
Article 1343. Misrepresentation made in
good faith is not fraudulent but may SECTION 3
constitute error. (n) Cause of Contracts

Article 1344. In order that fraud may make Article 1350. In onerous contracts the
a contract voidable, it should be serious and cause is understood to be, for each
should not have been employed by both contracting party, the prestation or promise
contracting parties. of a thing or service by the other; in
remuneratory ones, the service or benefit
Incidental fraud only obliges the person which is remunerated; and in contracts of
employing it to pay damages. (1270) pure beneficence, the mere liberality of the
benefactor. (1274)

17
Article 1351. The particular motives of the extinguishment of real rights over
parties in entering into a contract are immovable property; sales of real
different from the cause thereof. (n) property or of an interest therein are
governed by articles 1403, No. 2,
Article 1352. Contracts without cause, or and 1405;
with unlawful cause, produce no effect
whatever. The cause is unlawful if it is (2) The cession, repudiation or
contrary to law, morals, good customs, renunciation of hereditary rights or of
public order or public policy. (1275a) those of the conjugal partnership of
gains;
Article 1353. The statement of a false
cause in contracts shall render them void, if (3) The power to administer
it should not be proved that they were property, or any other power which
founded upon another cause which is true has for its object an act appearing or
and lawful. (1276) which should appear in a public
document, or should prejudice a
Article 1354. Although the cause is not third person;
stated in the contract, it is presumed that it
exists and is lawful, unless the debtor (4) The cession of actions or rights
proves the contrary. (1277) proceeding from an act appearing in
a public document.
Article 1355. Except in cases specified by
law, lesion or inadequacy of cause shall not All other contracts where the amount
invalidate a contract, unless there has been involved exceeds five hundred
fraud, mistake or undue influence. (n) pesos must appear in writing, even a
private one. But sales of goods,
CHAPTER 3 chattels or things in action are
Form of Contracts governed by articles, 1403, No. 2
and 1405. (1280a)
Article 1356. Contracts shall be obligatory,
in whatever form they may have been CHAPTER 4
entered into, provided all the essential Reformation of Instruments (n)
requisites for their validity are present.
However, when the law requires that a Article 1359. When, there having been a
contract be in some form in order that it may meeting of the minds of the parties to a
be valid or enforceable, or that a contract be contract, their true intention is not expressed
proved in a certain way, that requirement is in the instrument purporting to embody the
absolute and indispensable. In such cases, agreement, by reason of mistake, fraud,
the right of the parties stated in the following inequitable conduct or accident, one of the
article cannot be exercised. (1278a) parties may ask for the reformation of the
instrument to the end that such true intention
Article 1357. If the law requires a document may be expressed.
or other special form, as in the acts and
contracts enumerated in the following article, If mistake, fraud, inequitable conduct, or
the contracting parties may compel each accident has prevented a meeting of the
other to observe that form, once the contract minds of the parties, the proper remedy is
has been perfected. This right may be not reformation of the instrument but
exercised simultaneously with the action annulment of the contract.
upon the contract. (1279a)
Article 1360. The principles of the general
Article 1358. The following must appear in a law on the reformation of instruments are
public document: hereby adopted insofar as they are not in
conflict with the provisions of this Code.
(1) Acts and contracts which have
for their object the creation, Article 1361. When a mutual mistake of the
transmission, modification or parties causes the failure of the instrument

18
to disclose their real agreement, said CHAPTER 5
instrument may be reformed. Interpretation of Contracts

Article 1362. If one party was mistaken and Article 1370. If the terms of a contract are
the other acted fraudulently or inequitably in clear and leave no doubt upon the intention
such a way that the instrument does not of the contracting parties, the literal meaning
show their true intention, the former may ask of its stipulations shall control.
for the reformation of the instrument.
If the words appear to be contrary to the
Article 1363. When one party was mistaken evident intention of the parties, the latter
and the other knew or believed that the shall prevail over the former. (1281)
instrument did not state their real
agreement, but concealed that fact from the Article 1371. In order to judge the intention
former, the instrument may be reformed. of the contracting parties, their
contemporaneous and subsequent acts
Article 1364. When through the ignorance, shall be principally considered. (1282)
lack of skill, negligence or bad faith on the
part of the person drafting the instrument or Article 1372. However general the terms of
of the clerk or typist, the instrument does not a contract may be, they shall not be
express the true intention of the parties, the understood to comprehend things that are
courts may order that the instrument be distinct and cases that are different from
reformed. those upon which the parties intended to
agree. (1283)
Article 1365. If two parties agree upon the
mortgage or pledge of real or personal Article 1373. If some stipulation of any
property, but the instrument states that the contract should admit of several meanings, it
property is sold absolutely or with a right of shall be understood as bearing that import
repurchase, reformation of the instrument is which is most adequate to render it
proper. effectual. (1284)

Article 1366. There shall be no reformation Article 1374. The various stipulations of a
in the following cases: contract shall be interpreted together,
attributing to the doubtful ones that sense
(1) Simple donations inter vivos which may result from all of them taken
wherein no condition is imposed; jointly. (1285)

(2) Wills; Article 1375. Words which may have

different significations shall be understood in
(3) When the real agreement is void. that which is most in keeping with the nature
and object of the contract. (1286)
Article 1367. When one of the parties has
brought an action to enforce the instrument, Article 1376. The usage or custom of the
he cannot subsequently ask for its place shall be borne in mind in the
reformation. interpretation of the ambiguities of a
contract, and shall fill the omission of
Article 1368. Reformation may be ordered stipulations which are ordinarily established.
at the instance of either party or his (1287)
successors in interest, if the mistake was
mutual; otherwise, upon petition of the Article 1377. The interpretation of obscure
injured party, or his heirs and assigns. words or stipulations in a contract shall not
favor the party who caused the obscurity.
Article 1369. The procedure for the (1288)
reformation of instrument shall be governed
by rules of court to be promulgated by the Article 1378. When it is absolutely
Supreme Court. impossible to settle doubts by the rules
established in the preceding articles, and the

19
doubts refer to incidental circumstances of a Article 1382. Payments made in a state of
gratuitous contract, the least transmission of insolvency for obligations to whose
rights and interests shall prevail. If the fulfillment the debtor could not be compelled
contract is onerous, the doubt shall be at the time they were effected, are also
settled in favor of the greatest reciprocity of rescissible. (1292)
interests.
Article 1383. The action for rescission is
If the doubts are cast upon the principal subsidiary; it cannot be instituted except
object of the contract in such a way that it when the party suffering damage has no
cannot be known what may have been the other legal means to obtain reparation for
intention or will of the parties, the contract the same. (1294)
shall be null and void. (1289)
Article 1384. Rescission shall be only to the
Article 1379. The principles of interpretation extent necessary to cover the damages
stated in Rule 123 of the Rules of Court caused. (n)
shall likewise be observed in the
construction of contracts. (n) Article 1385. Rescission creates the
obligation to return the things which were
CHAPTER 6 the object of the contract, together with their
Rescissible Contracts fruits, and the price with its interest;
consequently, it can be carried out only
Article 1380. Contracts validly agreed upon when he who demands rescission can return
may be rescinded in the cases established whatever he may be obliged to restore.
by law. (1290)
Neither shall rescission take place when the
Article 1381. The following contracts are things which are the object of the contract
rescissible: are legally in the possession of third persons
who did not act in bad faith.
(1) Those which are entered into by
guardians whenever the wards In this case, indemnity for damages may be
whom they represent suffer lesion by demanded from the person causing the loss.
more than one-fourth of the value of (1295)
the things which are the object
thereof; Article 1386. Rescission referred to in Nos.
1 and 2 of article 1381 shall not take place
(2) Those agreed upon in with respect to contracts approved by the
representation of absentees, if the courts. (1296a)
latter suffer the lesion stated in the
preceding number; Article 1387. All contracts by virtue of which
the debtor alienates property by gratuitous
(3) Those undertaken in fraud of title are presumed to have been entered into
creditors when the latter cannot in in fraud of creditors, when the donor did not
any other manner collect the claims reserve sufficient property to pay all debts
due them; contracted before the donation.

(4) Those which refer to things under Alienations by onerous title are also
litigation if they have been entered presumed fraudulent when made by persons
into by the defendant without the against whom some judgment has been
knowledge and approval of the rendered in any instance or some writ of
litigants or of competent judicial attachment has been issued. The decision
authority; or attachment need not refer to the property
alienated, and need not have been obtained
(5) All other contracts specially by the party seeking the rescission.
declared by law to be subject to
rescission. (1291a) In addition to these presumptions, the
design to defraud creditors may be proved in

20
any other manner recognized by the law of In case of mistake or fraud, from the time of
evidence. (1297a) the discovery of the same.

Article 1388. Whoever acquires in bad faith And when the action refers to contracts
the things alienated in fraud of creditors, entered into by minors or other incapacitated
shall indemnify the latter for damages persons, from the time the guardianship
suffered by them on account of the ceases. (1301a)
alienation, whenever, due to any cause, it
should be impossible for him to return them. Article 1392. Ratification extinguishes the
action to annul a voidable contract. (1309a)
If there are two or more alienations, the first
acquirer shall be liable first, and so on Article 1393. Ratification may be effected
successively. (1298a) expressly or tacitly. It is understood that
there is a tacit ratification if, with knowledge
Article 1389. The action to claim rescission of the reason which renders the contract
must be commenced within four years. voidable and such reason having ceased,
the person who has a right to invoke it
For persons under guardianship and for should execute an act which necessarily
absentees, the period of four years shall not implies an intention to waive his right.
begin until the termination of the former's (1311a)
incapacity, or until the domicile of the latter
is known. (1299) Article 1394. Ratification may be effected
by the guardian of the incapacitated person.
CHAPTER 7 (n)
Voidable Contracts
Article 1395. Ratification does not require
Article 1390. The following contracts are the conformity of the contracting party who
voidable or annullable, even though there has no right to bring the action for
may have been no damage to the annulment. (1312)
contracting parties:
Article 1396. Ratification cleanses the
(1) Those where one of the parties is contract from all its defects from the moment
incapable of giving consent to a it was constituted. (1313)
contract;
Article 1397. The action for the annulment
(2) Those where the consent is of contracts may be instituted by all who are
vitiated by mistake, violence, thereby obliged principally or subsidiarily.
intimidation, undue influence or However, persons who are capable cannot
fraud. allege the incapacity of those with whom
they contracted; nor can those who exerted
These contracts are binding, unless intimidation, violence, or undue influence, or
they are annulled by a proper action employed fraud, or caused mistake base
in court. They are susceptible of their action upon these flaws of the contract.
ratification. (n) (1302a)

Article 1391. The action for annulment shall Article 1398. An obligation having been
be brought within four years. annulled, the contracting parties shall
restore to each other the things which have
been the subject matter of the contract, with
This period shall begin:
their fruits, and the price with its interest,
except in cases provided by law.
In cases of intimidation, violence or undue
influence, from the time the defect of the
In obligations to render service, the value
consent ceases.
thereof shall be the basis for damages.
(1303a)

21
Article 1399. When the defect of the therefore, of the agreement cannot
contract consists in the incapacity of one of be received without the writing, or a
the parties, the incapacitated person is not secondary evidence of its contents:
obliged to make any restitution except
insofar as he has been benefited by the (a) An agreement that by its
thing or price received by him. (1304) terms is not to be performed
within a year from the
Article 1400. Whenever the person obliged making thereof;
by the decree of annulment to return the
thing can not do so because it has been lost (b) A special promise to
through his fault, he shall return the fruits answer for the debt, default,
received and the value of the thing at the or miscarriage of another;
time of the loss, with interest from the same
date. (1307a) (c) An agreement made in
consideration of marriage,
Article 1401. The action for annulment of other than a mutual promise
contracts shall be extinguished when the to marry;
thing which is the object thereof is lost
through the fraud or fault of the person who (d) An agreement for the
has a right to institute the proceedings. sale of goods, chattels or
things in action, at a price
If the right of action is based upon the not less than five hundred
incapacity of any one of the contracting pesos, unless the buyer
parties, the loss of the thing shall not be an accept and receive part of
obstacle to the success of the action, unless such goods and chattels, or
said loss took place through the fraud or the evidences, or some of
fault of the plaintiff. (1314a) them, of such things in
action or pay at the time
Article 1402. As long as one of the some part of the purchase
contracting parties does not restore what in money; but when a sale is
virtue of the decree of annulment he is made by auction and entry is
bound to return, the other cannot be made by the auctioneer in
compelled to comply with what is incumbent his sales book, at the time of
upon him. (1308) the sale, of the amount and
kind of property sold, terms
CHAPTER 8 of sale, price, names of the
Unenforceable Contracts (n) purchasers and person on
whose account the sale is
Article 1403. The following contracts are made, it is a sufficient
unenforceable, unless they are ratified: memorandum;

(1) Those entered into in the name (e) An agreement for the
of another person by one who has leasing for a longer period
been given no authority or legal than one year, or for the sale
representation, or who has acted of real property or of an
beyond his powers; interest therein;

(2) Those that do not comply with ( f ) A representation as to

the Statute of Frauds as set forth in the credit of a third person.
this number. In the following cases
an agreement hereafter made shall (3) Those where both parties are
be unenforceable by action, unless incapable of giving consent to a
the same, or some note or contract.
memorandum, thereof, be in writing,
and subscribed by the party
charged, or by his agent; evidence,

22
Article 1404. Unauthorized contracts are (5) Those which contemplate an
governed by article 1317 and the principles impossible service;
of agency in Title X of this Book.
(6) Those where the intention of the
Article 1405. Contracts infringing the parties relative to the principal object
Statute of Frauds, referred to in No. 2 of of the contract cannot be
article 1403, are ratified by the failure to ascertained;
object to the presentation of oral evidence to
prove the same, or by the acceptance of (7) Those expressly prohibited or
benefit under them. declared void by law.

Article 1406. When a contract is These contracts cannot be ratified. Neither

enforceable under the Statute of Frauds, can the right to set up the defense of
and a public document is necessary for its illegality be waived.
registration in the Registry of Deeds, the
parties may avail themselves of the right Article 1410. The action or defense for the
under Article 1357. declaration of the inexistence of a contract
does not prescribe.
Article 1407. In a contract where both
parties are incapable of giving consent, Article 1411. When the nullity proceeds
express or implied ratification by the parent, from the illegality of the cause or object of
or guardian, as the case may be, of one of the contract, and the act constitutes a
the contracting parties shall give the contract criminal offense, both parties being in pari
the same effect as if only one of them were delicto, they shall have no action against
incapacitated. each other, and both shall be prosecuted.
Moreover, the provisions of the Penal Code
If ratification is made by the parents or relative to the disposal of effects or
guardians, as the case may be, of both instruments of a crime shall be applicable to
contracting parties, the contract shall be the things or the price of the contract.
validated from the inception.
This rule shall be applicable when only one
Article 1408. Unenforceable contracts of the parties is guilty; but the innocent one
cannot be assailed by third persons. may claim what he has given, and shall not
be bound to comply with his promise. (1305)
CHAPTER 9
Void and Inexistent Contracts Article 1412. If the act in which the unlawful
or forbidden cause consists does not
Article 1409. The following contracts are constitute a criminal offense, the following
inexistent and void from the beginning: rules shall be observed:

(1) Those whose cause, object or (1) When the fault is on the part of
purpose is contrary to law, morals, both contracting parties, neither may
good customs, public order or public recover what he has given by virtue
policy; of the contract, or demand the
performance of the other's
(2) Those which are absolutely undertaking;
simulated or fictitious;
(2) When only one of the contracting
(3) Those whose cause or object did parties is at fault, he cannot recover
not exist at the time of the what he has given by reason of the
transaction; contract, or ask for the fulfillment of
what has been promised him. The
(4) Those whose object is outside other, who is not at fault, may
the commerce of men; demand the return of what he has
given without any obligation to
comply his promise. (1306)

23
Article 1413. Interest paid in excess of the Article 1421. The defense of illegality of
interest allowed by the usury laws may be contract is not available to third persons
recovered by the debtor, with interest whose interests are not directly affected.
thereon from the date of the payment.
Article 1422. A contract which is the direct
Article 1414. When money is paid or result of a previous illegal contract, is also
property delivered for an illegal purpose, the void and inexistent.
contract may be repudiated by one of the
parties before the purpose has been
accomplished, or before any damage has
been caused to a third person. In such case,
the courts may, if the public interest will thus
be subserved, allow the party repudiating
the contract to recover the money or
property.

Article 1415. Where one of the parties to an

illegal contract is incapable of giving
consent, the courts may, if the interest of
justice so demands allow recovery of money
or property delivered by the incapacitated
person.

Article 1416. When the agreement is not

illegal per se but is merely prohibited, and
the prohibition by the law is designed for the
protection of the plaintiff, he may, if public
policy is thereby enhanced, recover what he
has paid or delivered.

Article 1417. When the price of any article

or commodity is determined by statute, or by
authority of law, any person paying any
amount in excess of the maximum price
allowed may recover such excess.

Article 1418. When the law fixes, or

authorizes the fixing of the maximum
number of hours of labor, and a contract is
entered into whereby a laborer undertakes
to work longer than the maximum thus fixed,
he may demand additional compensation for
service rendered beyond the time limit.

Article 1419. When the law sets, or

authorizes the setting of a minimum wage
for laborers, and a contract is agreed upon
by which a laborer accepts a lower wage, he
shall be entitled to recover the deficiency.

Article 1420. In case of a divisible contract,

if the illegal terms can be separated from the
legal ones, the latter may be enforced.

24