CHAPTER 1 Production – the process by which resources are

transformed into products.

The Accountancy Profession Casualty - is any sudden or unanticipated events
termed as ‘Acts of God’.
Accounting Standards Council
Accounting is a service activity. Its function to MEASURING - is the assigning of peso amounts
provide quantitative information, primarily to the accountable economic transactions and
financial in nature, about economic entities, that events.
is intended to be useful in making economic
decisions. COMMUNICATING - is the process of preparing
and distributing accounting reports to potential
AICPA users of accounting information.
Accounting is the art of recording, classifying,
and summarizing in a significant manner and in 1. Recording/Journalizing - the process of
terms of money, transactions and events which systematically maintaining a record of all
are in part at least of a financial character and economic business transactions after
interpreting the results thereof. they have been identified and
measured.
American Accounting Association
Accounting is the process of identifying, 2. Classifying - the sorting or grouping of
measuring and communicating economic similar and interrelated economic
decisions to permit informed judgment and transactions into their respective
decision by users of the information. classes.
Ledger – group of accounts.
3 important points;
1. It is about QUANTITATIVE INFORMATION 3. Summarizing – the preparation of
2. The information is likely to be FINANCIAL IN financial statements.
NATURE
3. The information should be USEFUL IN Financial statements – the documents that
DECISION MAKING. report financial information about an entity to
decision makers.
IDENTIFICATION is the recognition or
nonrecognition of business activities as The objective of accounting is to provide
ACCOUNTABLE events. quantitative financial information about a
Accountable/quantifiable - Has an effect on A = business that is useful to statement users
L + OE particularly owners and creditors, in making
economic decisions.
Subject matter of accounting – Economic
activity or the measurement of economic The accountant’s objective is to supply financial
resources and economic obligations information so that the statement users could
make informed judgment and better decisions.
Transactions - economic activities of an entity.
REPUBLIC ACT 9298 or PHILIPPINE
External Transactions – Economic events
involving one entity and another. ACCOUNTANCY ACT OF 2004 is the law
regulating the practice of accountancy in the
Internal Transactions – Economic events Philippines.
involving the entity only.
BOARD OF ACCOUNTANCY is the body controlling and allocating the resources of the
authorized by law to promulgate rules and entity.
regulations affecting the practice of the Controller - Highest accounting officer.
accountancy profession in the Philippines.
Single practitioners and partnerships for the 3. GOVERNMENT ACCOUNTING
practice of public accountancy shall be FOCUS: the study and administration of public
registered CPA in the Philippines funds.
This encompasses the process of analyzing,
CERTIFICATE OF ACCREDITATION – shall be classifying, summarizing and communicating ball
issued to CPAs in public practice only upon transaction involving the receipt and disposition
showing in accordance with rules and of government funds and property and
regulations promulgated by the BOARD OF interpreting the results thereof.
ACCOUNTANCY and approved by the
PROFESSIONAL REGULATION COMISSION that CONTINUING PROFESSIONAL DEVELOPMENT
such registrant has acquired a MINIMUM OF 3 (CPD) refers to the inculcation, assimilation and
YEARS of meaningful experience in any of the acquisition of knowledge, skill, proficiency, and
areas of public practice. ethical and moral values after the initial
registration of the CPA.
1. PUBLIC ACCOUNTING CPD credit units shall be 60 credit units for three
Composed of individual practitioners, years.
small accounting firms and large multinational EXEMPTIONS:
organizations that render independent and 1. 65 years old
expert financial services to the public.
TEMPORARY EXEMPTIONS:
External Auditing / Auditing The CPA is practicing the profession or furthering
Examination of financial statements by studies abroad. The exemption is for the
independent CPAs for the purpose of expressing duration of stay abroad.
an opinion as to the fairness with which the
financial statements are prepared The CPA has been out of the country for at least
2 years immediately prior to the date of renewal
Taxation Service of license and accreditation.
Includes the preparation of annual income tax
returns and determination of tax consequences ACCOUNTING VS AUDITING
of certain proposed business endeavors.
ACCOUNTING AUDITING
Management Advisory Services Broad Embraces One of the
Include advice on installation of computer sense auditing. areas of
system, quality control, installation and Accounting
modification of accounting system, budgeting, specialization.
forecasting, design or modification of retirement
plans and even entity mergers and takeovers. Limited CONSTRUCTIVE ANALYTICAL
Sense Ceases when Work starts
2. PRIVATE ACCOUNTING financial when the work
OBJECTIVE: to assist management in planning statements are of the
and controlling the entity’s operation. prepared. accountant
Includes maintaining the records, producing the ends.
financial reports, preparing the budgets and
 AUDITOR – examines the financial PURPOSE OF ACCOUNTING STANDARDS
statements to ascertain whether they To identify proper accounting practices for the
are in conformity with the GAAP. preparation and presentation of financial
statements.
ACCOUNTING VS BOOKKEEPING
FINANCIAL REPORTING STANDARDS COUNCIL
ACCOUNTING BOOKKEPING The accounting standard setting body created
CONCEPTUAL PROCEDURAL by the PROFESSIONAL REGULATION
Concerned with Concerned with COMMISSION upon recommendation of the BOA
reason or development and to assist the BOA in carrying out it’s powers and
justification or any maintenance of functions provided under RA act 9298.
action adapted. accounting record. MAIN FUNCTION – establish and improve
‘HOW’ ACCOUNTING STANDARS THAT WILL be
generally accepted in the Philippines.
PAS and FRSC – approved statements of the
ACCOUNTING VS ACCOUNTANCY FRSC.
1 CHAIRMAN – had been or is presently a senior
ACCOUNTANCY ACCOUNTING accounting practitioner.
Refers to the Used in reference BOA 1
profession of only to a particular SEC 1
accounting practice. field of accountancy BSP 1
BIR 1
COA 1
FINANCIAL ACCOUNTING VS MANAGERIAL FINEX 1
ACCOUNTING PUBLIC PRACTICE 2
COMMERCE AND 2
FINANCIAL ACCOUNTING INDUSTRY
Primarily concerned with the recording of ACADEME 2
business transactions and the eventual GOVERNMENT 2
preparation of financial statements. It is
intended for EXTERNAL AND INTERNAL USERS. It
*3 years term renewable for another term
emphasizes reporting to CREDITORS AND
*any member of the ASC shall not be
INVESTORS.
disqualified from being appointed to the FRSC
MANAGERIAL ACCOUNTING
PHILIPPINE INTERPRETATIONS COMMITTEE
The accumulation and preparation of financial
reports for INTERNAL USERS ONLY. It emphasizes
Formed by the FRSC (AUG 2006) and replaced
developing accounting information for use
the Interpretations committee (formed by the
WITHIN AN ENTITY.
ASC in MAY 2000)
Role: to prepare interpretations of PFRS for
GENERALLY ACCEPTED ACCOUNTING
approval by the FRSC and in the context of the
PRINCIPLES
conceptual framework, to provide timely
Represent the rules, procedures, practice and
guidance on financial reporting issues not
standards followed in the preparation and
specifically addressed in the PFRS.
presentation of financial statements.
INTERNATIONAL ACCOUNTING STANDARDS
COMMITTEE (June 1973)
An independent private sector body, with the 4. To assist auditors in forming an opinion as to
objective on achieving uniformity in the whether financial statements conform with
accounting principles which are used by business Philippine GAAP.
and other organizations for financial reporting 5. To provide information to those interested in
around the world. the work of the FRSC in the formulation of PFRS.
OBJECTIVES:
To formulate and publish in the public interest USERS OF FINANCIAL INFORMATION
accounting standards to be observed in the
presentation of financial statements and to PRIMARY USERS
promote their worldwide acceptance and The parties to whom general purpose financial
observance. reports are primarily directed. Includes the
To work generally for the improvement and existing and potential investors, lenders and
harmonization of regulations, accounting other creditors.
standards, and procedures relating to the  INVESTORS – need information to help
presentation of financial statements. them determine whether they should
buy, hold, or sell.
INTERNATIONAL ACCOUNTING STANDARDS  SHAREHOLDERS – need information to
BOARD assess the ability of the entity to pay
Replaced the IASC. dividends.
Intended to bring about greater TRANSPARENCY  LENDERS and CREDITORS – need
and a higher degree of COMPARABILITY in information to determine whether their
financial reporting. loan, interest thereon and other
amounts owing to them will be paid
1. IFRS=PFRS when due.
2. IAS = PAS
3. IC = PIC OTHER USERS
Are users of financial information other than the
CHAPTER 2 existing and potential investors, lenders and
other creditors. Includes the employees,
Conceptual Framework customers, government and their agencies, and
Financial Reporting and Assumptions the public.
 EMPLOYEE – needs information about
CONCEPTUAL FRAMEWORK – is the summary of the stability and profitability of the
the terms and concepts that underlie the entity to assess the ability of the entity
preparation and presentations of financial to provide remuneration, retirement
statements for external users. benefits and employment opportunities.
 CUSTOMERS - need information about
Purposes of conceptual framework the continuance of an entity especially
1. To assist the FRSC in developing accounting when they have a long term involvement
standards that will represent the Philippines with or are dependent on the entity.
GAAP.  GOVERNMENT AND THEIR AGENCIES –
2. To assist preparers of financial statements in need information to regulate the
applying accounting standards and in dealing activities of the entity, determine
with issues not yet covered by GAAP. taxation policies and as a basis for
3. To assist the FRSC in review and adoption of national income and similar statistics.
IFRS.  PUBLIC – providing information about
the trend and the range of its activities.
 adjustments are unnecessary to reflect any
ACCOUNTING ASSUMPTIONS/ POSTULATES are changes in purchasing power.
the basic notions or fundamental premises on
which the accounting process is based. ACCOUNTING FUNCTION
To account for nominal pesos only and no for
The conceptual framework for financial constant peso or changes in purchasing power.
reporting only mentions one assumption, GOING
CONCERN. CHAPTER 3

4 BASIC ASSUMPTIONS Conceptual Framework

Qualitative Characteristics
[Link] CONCERN
Means that in the absence of evidence in the QUALITATIVE CHARACTERISTICS are the
contrary, the accounting entity is viewed as qualities or attributes that make financial
continuing in operation indefinitely. accounting information useful to the users.

2. ACCOUNTING ENTITY Fundamental qualitative characteristics;

The entity is separate from the owners, 1. Relevance
managers and employees who constitute the The capacity of the information to influence a
entity. To have fair presentation of financial decision.
statements.
Financial information has PREDICTIVE VALUE if it
3. TIME PERIOD can be used as an input to processes employed
Requires that the indefinite life of an entity is by users to predict future outcome.
subdivided into time periods or accounting
periods which are usually of equal length for the Financial information has CONFIRMATORY
purpose of preparing financial reports on VALUE if it provides feedback about previous
financial position, performance and cash flows. evaluations.

Calendar year - 12 month period that ends on MATERIALITY or doctrine of convenience is a

December 31 practical Rule in accounting which dictates that
Natural business year – 12 month period that strict Adherence to GAAP is not required when
ends on any month when the business is at the the items are not significant enough to affect
lowest or experiencing slack season. evaluation, decision and fairness of the financial
statements.
4. MONETARY UNIT
2 aspects 2. Faithful Representation
QUANTIFIABILITY ASPECT – The assets, Financial reports represent economic
liabilities, equity, income, and expenses should phenomena or transactions in words or numbers
be stated in terms of a unit of measure which is
the PESO IN THE PHILIPPINES. INGREDIENTS OF FAITHFUL REPRESENTATION

STABILITY OF THE PESO ASSUMPTION – the  COMPLETENESS

purchasing power of the pesos stable or constant Requires that relevant information should be
and that its instability is insignificant and presented in a way that facilitates understanding
therefore may be ignored. and avoids erroneous implications.
STABLE PESO POSTULATE – an amplification of
the going concern assumption so much so that STANDARD OF ADEQUATE DISCLOSURE
Disclosure of any financial facts significant Relate to the presentation and from of financial
enough to influence the judgment of informed statements. Intended to increase the usefulness
users. of the financial information that is relevant and
faithfully represented.
NOTES TO FINANCIAL STATEMENTS
Provide narrative description or disaggregation COMPARABILITY
of the items presented in the financial The ability to bring together for the purpose of
statements and information about items that do noting points of likeness and difference.
not qualify for recognition.
COMPARABILITY WITHIN AN ENTITY or
 NEUTRALITY or PRINCIPLE OF FAIRNESS HORIZONTAL COMPARABILITY or
The information contained in the financial INTRACOMPARABILITY
statements must be free from bias.
The quality of information that allows
 FREE FROM ERROR comparisons within a single entity through time
There are no errors or omissions in the or from one accounting period to the next.
description of the phenomenon or transaction,
and the process used to produce the reported COMPARABILITY BETWEEN AND ACROSS
information has been selected and applied with ENTITIES or DIMENSIONAL COMPARABILITY or
no errors in the process. INTERCOMPARABILITY

SUBSTANCE OVER FORM The quality of information that allows

If information is to represent faithfully the comparisons between two are more entities
transactions and other events it purports to engaged in the same industry.
represent, it is necessary that transactions and
events are accounted in accordance with their CONSISTENCY
substance and reality and not merely their legal The accounting methods and practices should be
form. applied on a uniform basis from period to period.

CONSERVATISM UNDERSTANDABILITY
In case of doubt, record any loss and do not Financial information must be comprehensible
record any gain. or intelligible if it is to be most useful.

CONTINGENT LOSS – recognized as a provision if VERIFIABILITY

the loss is probable and the amount can be Different knowledgeable and independent
reliably measured. observers could reach consensus, although not
CONTINGENT GAIN – not recognized but necessarily complete agreement, that a
disclosed only. particular depiction is a faithful representation.

PRUDENCE DIRECT VERIFICATION – verifying an amount or

The desire to exercise care and caution with other representation through direct
dealing with the uncertainties in the observation.
measurement process such that assets or
income are not overstated and liabilities or INDIRECT VERIFICATION – checking the inputs to
expenses are not understated. a model, formula or other technique and
recalculating the inputs using the same
ENHANCING QUALITATIVE CHARACTERISTICS methodology.
TIMELINESS INCOME – is increase in economic benefit during
Financial information must be available or the accounting period in the form of an inflow or
communicated early enough when a decision is increase in asset or decrease of liability that
to be made. results in increase in equity, other than
contribution from equity participants, and
COST CONSTRAINT
Cost – a pervasive constraint on the EXPENSES – is decrease in economic benefit
information that can be provided by financial during the accounting period in the form of an
reporting. inflow or decrease in asset or increase of liability
that results in decrease in equity, other than
contribution from equity participants.
CHAPTER 4
These are broad classes of events or transactions
Conceptual Framework that are grouped according to their economic
Elements of Financial Statements characteristics.

Recognition is the process of reporting an asset, What are the conditions that must be present for
liability, income or expense on the face of the the recognition of an item that meets the
financial statements of an entity. This also definition of an element?
involves inclusion of peso amount in the financial
statements. 1. It is probable that any future economic
benefit associated with the item will
What are the elements of financial statements? flow to or from the entity.
2. The item has cost or value that can be
The elements of financial statements refer to the measured reliably.
quantitative information shown in the statement
of financial position and statement of Explain the asset recognition principle.
comprehensive income. Two conditions must be present for the
recognition of an asset:
The elements directly related to the 1. It is probable that any future economic
measurement of financial position: benefit associated with the item will
flow to or from the entity.
ASSETS – is defined as resource controlled by the 2. The item has cost or value that can be
entity as a result of past event and from which measured reliably.
future economic benefit are expected to flow to
the entity. Inherent in asset recognition the cost principle.
This principle requires that assets shall be
LIABILITIES – is a present obligation of the entity recorded initially at original acquisition cost.
arising from a past event the settlement of which
is expected to result in an outflow from the entity In other words, the financial statements shall be
of resources embodying economic benefits, and based on historical cost rather than market
value. The reason is that cost is objective and
EQUITY – is the residual interest in the assets of therefore verifiable while market value is
the entity after deducting all of the liabilities. subjective.

The elements directly related to the Explain the liability recognition principle.
measurement of financial performance: Two conditions must be present for the
recognition of a liability:
 1. It is probable that an outflow of F. Admission fees – when the event takes
economic benefit will be required for the place.
settlement of a present obligation. G. Tuition fees – over the period in which
2. The amount of obligation can be tuition is provided.
measured reliably.

Explain the income recognition principle or Explain the expense recognition principle.
realization principle. Two conditions must be present for the
The basic principle is that “income shall be recognition of expenses:
recognized when earned.” 1. It is probable that a decrease in future
But the question is when is income considered to economic benefits has occurred.
be earned: 2. The decrease in economic benefits can
Two conditions must be present for the be measured reliably.
recognition of an income:
1. It is probable that future economic Expenses – arises in the course of ordinary
benefits will flow to the entity as a result regular activities.
of increase in an asset or a decrease in Losses - represent other items that meet
liability. definition of expenses but does not arise in the
2. The economic benefits can be measured course of ordinary regular activities.
reliably.
Undoubtedly, both conditions are present at the The expense recognition principle is the
point of sale. The point of sale is the point of application of the matching principle. This
revenue recognition. requires that those costs and expenses incurred
in earning a revenue should be reported in the
Revenue - arises in the course of ordinary regular same period.
activities.
Gains – represent other items that meet In other words, there should be simultaneous or
definition of income but does not arise in the combined recognition of revenue and expenses
course of ordinary regular activities. that result directly from the same transactions
and events.
Explain the recognition of revenue from:
A. Interest – shall recognized on a time Expenses are incurred in conformity with the
proportion basis that takes into account three applications of the matching principle
the effective yield on the asset. namely:
B. Royalties – shall be recognized on an
accrual basis in accordance with the 1. Cause and Effect Association (Strict
substance of the relevant agreement. Matching Principle) – the expense is
C. Dividends – shall be recognized when recognized when the revenue is already
the shareholder’s right to receive recognized on the basis of presumed
payment is establishment, when the direct association of the expense with
dividends are declared. specific revenue.
D. Installation fees – over the period of E.g. Doubtful accounts, warranty
installation by reference to the stage of expense and sales commissions.
completion. 2. Systematic and Rational Allocation
E. Subscription fees – on a straight line Principle – some costs are expensed by
basis over the subscription period.
 simply allocating them over the periods of an entity that is useful to a wide range of users
benefited. in making economic decisions.
E.g. Depreciation and amortization.
3. Immediate Recognition Principle – the COMPONENTS OF FINANCIAL STATEMENTS
cost incurred is expensed outright
because of uncertainty of future 1. Statement of financial position - formal
economic benefits or difficulty of reliably statement showing the three elements
associating certain costs with future comprising financial position, namely assets,
revenue. E.g. officer’s salaries. liabilities and equity.
MEASUREMENT BASES and equity.
ASSET
A. HISTORICAL COST or PAST PURCHASE Resource controlled by the entity as a result of
EXCHANGE PRICE past events and from which future economic
The amount of cash or cash equivalent paid benefits are expected to flow the entity.
or the fair value of the consideration given to
acquire an asset at the time of acquisition. Essential characteristics of an asset

B. CURRENT COST or CURRENT PURCHASE 1. The asset is controlled by the entity

EXCHANGE PRICE 2. The asset is the result of a past transaction or
The amount of cash or cash equivalent that event.
would have to be paid if the same or 3. The asset provides future economic benefits
equivalent asset was acquired currently. 4. The cost of the asset can be measured reliably.

C. REALIZABLE VALUE or CURRENT SALE Classifications of assets

EXCHANGE PRICE
The amount of cash or cash equivalent that CURRENT ASSETS
could currently be obtained by selling the PAS 1 paragraph 66 provides that an
asset in an orderly disposal. entity should classify asset as current asset
when:
A. PRESENT VALUE or FUTURE EXCHANGE
PRICE a. The asset is cash or cash equivalent unless the
The discounted value of the future net cash asset is restricted from being exchanged or used
inflows that the asset is expected to to settle a liability for at least 12 months after the
generate in the normal course of business. reporting period.
b. The entity holds the asset primarily for the
CHAPTER 5 purpose of trading.
c. The entity expects to realize the asset within
Presentation of Financial Statements twelve months after the reporting period.
Statement of Financial Position D. the entity expects to realize the asset or
intends to use or consume it within the entity’s
FINANCIAL STATEMENTS are the means by operating cycle.
which information accumulated and processed
in financial accounting is communicated to the PAS 1 paragraph 54, the line items under current
users. assets are:

OBJECTIVE OF FINANCIAL STATEMENTS A. Cash and cash equivalents

To provide information about the financial
position, financial performance, and cash flows
B. Financial assets at fair value such as trading
securities and other investments in quoted a. The liability is the present obligation of a
equity instruments. particular entity.
C. Trade and other receivables b. The liability arises from past transaction or
D. Inventories event.
E. Prepaid Expenses C. the settlement of the liability requires an
outflow of resources embodying economic
benefits.
NONCURRENT ASSETS
PAS 1 paragraph 66 states that an entity shall CURRENT LIABILITIES
classify all other assets not classified as current PAS 1 paragraph 69 provides that an
as noncurrent. entity should classify a liability as current when:

This includes; A. The entity expects the liability to settle within

the entity’s normal operating cycle.
A. PROPERTY, PLANT AND EQUIPMENT B. the entity holds the liability primarily for the
PAS 16 paragraph 6, tangible assets purpose of trading.
which are held by an entity for use in production C. the liability is due to be settled within 12
or supply of goods and services, for rental to months after the reporting period.
others, or for administrative purposes, and are D. the entity does not have an unconditional
expected to be used during more than one right to defer settlement of the liability for at
period. least 12 months after the reporting period.

B. LONG-TERM INVESTMENTS PAS 1 paragraph 54, the line items under current
IASC defines investment as an asset held liability are:
by an entity for the accretion of wealth through
capital distribution, such as interest, royalties, a. Trade and other receivables
dividends and rentals, for capital appreciation or B. current provisions
for other benefits to the investing entity such as c. Short term borrowing
those obtained through trading relationships. D. current portion of long term debt
E. current tax liability
C. INTANGIBLE ASSETS
An identifiable nonmonetary asset NONCURRENT LIABILITIES
without physical substance. PAS 1 paragraph 69 states that an entity shall
classify all liabilities not classified as current are
D. DEFERRED TAX ASSETS classified as noncurrent.

E. OTHER NONCURRENT ASSETS A. Noncurrent portion of a long term debt

Assets that do not fit in the definition of B. Finance lease liability
noncurrent assets. C. Deferred tax liability
D. Long term obligations to company officers
LIABILITY E. Long term deferred revenue.
Present obligation of an entity arising
from past events, the settlement of which is EQUITY
expected to result in an outflow from the entity Residual interest in the assets of the entity after
of resources embodying economic benefits. deducting all of its liabilities.
The holders of instruments classified as equity
Essential characteristics of a liability are OWNERS.
 6. Investment in associates accounted for by the
SHAREHOLDER’S EQUITY -is the residual interest equity method
of owners in the net assets of a corporation 7. Intangible assets
measured by the excess of assets over liabilities. 8. Investment property
PHILIPPINE TERM IAS TERM 9. Biological asset
Capital Stock Share Capital 10. Total assets classified as held for sale and
Subscribed Capital Subscribed Share assets included in disposal group classified as
Stock Capital held for sale
Preferred Stock Preference Share 11. Trade and other payables
Capital 12. Current tax liabilities
Common Stock Ordinary Share 13. Deferred tax asset and deferred tax liability
Capital 14. Provisions
Additional Paid In Share Premium 15. Financial liabilities
Capital 16. Liabilities included in disposal group
Retained Earnings Accumulated Profits classified as held for sale
(deficit) (Losses) 17. Noncontrolling assets
Retained Earnings Appropriated 18. Share capital and reserves
Appropriated Reserve
Revaluation Surplus Revaluation Reserve CHAPTER 6
Treasury Stock Treasury Share Presentation of Financial Statements
Statement of comprehensive income
NOTES TO FINANCIAL STATEMENTS
Provide narrative description or COMPREHENSIVE INCOME
The change in equity during a period
disaggregation of items presented in the
resulting from transactions and other events,
financial statements and information about
items that do not qualify for recognition. other than changes resulting from transactions
with owners in their capacity as owners.
Purpose: to provide the necessary disclosures
Includes:
required by PFRS.
A. Components of profit or loss
FORMS OF FINANCIAL POSITION
Profit or loss - the total income less expenses,
A. REPORT FORM excluding the components of other
comprehensive income.
This form sets form the three major sections in a
downward sequence of assets, liabilities and
B. Components of other comprehensive
equity.
B. ACCOUNT FORM income
Comprises items of income and expenses
The assets are shown on the left side and the
liabilities and equity on the right side of the including reclassification adjustments that are
balance sheet. not recognized in profit or loss as required or
permitted by PFRS.
PAS 1, paragraph 54, balance sheet line items
Components:
1. Cash and cash equivalents
2. Financial assets A. OCI that will be reclassified subsequently to
profit or loss when specific conditions are met.
3. Trade and other receivables
4. Inventories 1. Unrealized gain or loss on equity
5. Property, plant and equipment investment measured at fair value
through other comprehensive income.
 2. unrealized gain or loss on debt 3. Income statement
investment measured at fair value A formal statement showing the financial
through other comprehensive income. performance of an entity for a given period of
3. Gain or loss from translation of the time.
financial statements of a foreign
operation. SOURCES OF INCOME
Sales of merchandise to customers
B. OCI that will not be reclassified subsequently Rendering of services
to profit or loss Use of entity resources
4. revaluation surplus during the year. Disposal of resources other than products
5. Unrealized gain or loss from derivative
contracts designated as cash flow hedge. COMPONENTS OF EXPENSE
6. “remeasurements” of defined benefit A. Cogs or cos
plan, including actuarial gain or loss. B. Distribution costs or selling expenses
7. Change in fair value attributable to C. Administrative expenses
credit risk of a financial liability D. Other expenses
designated at fair value through profit or E. Income tax expense
loss.
DISTRIBUTION COSTS constitute costs which are
Presentation of other comprehensive income directly related to selling, advertising and
delivery of goods to customers.
PAS 1 paragraph 82A, provides that the
statement of comprehensive income shall ADMINISTRATIVE EXPENSES constitute cost of
present line items for amounts of other administering the business. These ordinarily
comprehensive income during the period include all operating expenses not related to
classified by nature. selling and cost of goods sold.

The line items for amounts of OCI shall be OTHER EXPENSES are those expenses which are
grouped as follows. not directly related to the selling and
administrative function.
PRESENTATION OF COMPREHENSIVE INCOME
1. TWO STATEMENTS PAS 1 paragraph 87, An entity shall not present
A. An income statement showing the any items of income and expense as
components of profit or loss. extraordinary items, either on the face of the
B. A statement of comprehensive income statement or the statement of
income beginning with profit or loss comprehensive income or in the notes.
as shown in the income statement PAS 1 paragraph 82, Income statement and
plus or minus the components of statement of comprehensive income line items.
other comprehensive income
A. Revenue
2. SINGLE STATEMENT OF B. Gain and loss from the derecognition of
COMPREHENSIVE INCOME financial asset measured at amortized cost as
This is the combined statement showing required by PFRS 9
the components of profit or loss and C. Finance Cost
components of other comprehensive D. Share in income or loss of associate and joint
ventures accounted for using equity method
income in a single statement.
E. Income tax expense
F. A single amount comprising discontinued
operations Shows the changes affecting directly the
G. Profit or loss for the Period retained earnings of an entity and relates the
H. Total Other Comprehensive income income statement to the statement of financial
I. Comprehensive income for the period being position.
the total of profit or loss and other
comprehensive income. Should be disclosed in the statement of retained
earnings:
The following items shall be disclosed on the face
of the income statement and statement of A. Profit or loss for the period
comprehensive income: B. prior period errors
C. dividends declared and paid to shareholders
A. profit or loss for the period D. effect of change in accounting policy
attributable to noncontrolling interest and E. appropriation of retained earnings
owners of the parent
4. Statement of changes in equity
B. total comprehensive income for the Shows the movements in the elements
period attributable to noncontrolling interest or components of the shareholders equity
and owners of the parent.
5. Statement of cash flows
FORMS OF INCOME STATEMENT Summarizes the operating, investing and
financing activities of an entity.
PAS 1 paragraph 99. An entity shall present an
analysis of expenses recognized in profit or loss 6. Notes, comprising a summary of
using in classification based on either the significant accounting policies and other
function of expenses or their nature within the explanatory notes
entity, whichever provides information that is
more reliable and more relevant. CHAPTER 7

2 ways to present an income statement PAS 2:

INVENTORIES
1. FUNCTIONAL PRESENTATION/COST OF
SALES METHOD Inventories are assets which are held for sale in
This form classifies expenses according the ordinary course of business, in the process of
to their function as part of cost of sales , production for such a sale or in the form of
distribution costs, administrative
materials or supplies to be consumed in the
activities and other activities.
2. NATURAL PRESENTATION/NATURE OF production process or in the rendering of
EXPENSE METHOD services
Expenses are aggregated according to
their nature and not allocated among Cost of inventories:
the various functions within the entity. a) cost of purchase
b) cost of conversion
PAS 1 paragraph 105, Because each presentation c) other cost in bring the inventories to
has merit for different types of entities, their present location and condition.
management is required to select the
presentation that is reliable and more relevant. Cost of purchase includes purchase price, import
STATEMENT OF RETAINED EARNINGS duties, irrecoverable taxes, freight, handling and
other costs directly attributable to the January 18 250,000 23
acquisition of finished goods, materials and January 28 100,000 24
services.
Trade discounts, rebates and other similar items A physical count on January 31 shows 250,000
are deducted in determining the cost of units of product A on hand.
purchase
What is the cost of the inventory on January 31
Cost of conversion of inventories includes direct under the FIFO method?
labor and fixed and variable production
overheads. Solution:
Units Unit Cost Total
Other cost in bring the inventories to their January 18 150,000 23 3,450,000
present location and condition. January 28 250,000 24 2,400,000
However, the following costs are excluded from Total FIFO Cost 250,000 5,850,000
the cost of inventories;
 Storage costs on goods in process are 2. Weighted Average
capitalized but storage costs on finished The cost of the beginning inventory plus the total
goods are expensed. cost of purchases during the period is divided by
 Abnormal amounts are expensed. the total units purchased plus the beginning
inventory to get a weighted average unit cost.
Cost of inventories of a service provider consists
primarily of the labor and other costs of The argument for the weighted average method
personnel directly engaged in providing the is that it is relatively, easy to apply especially with
service, including supervisory personnel and computer. The argument against it is that there
attributable overhead may be a considerable lag between the current
cost and inventory valuation since the average
Cost Methods unit cost involves early purchases.
1. First In, First Out (FIFO)
First come, first sold; consequently the goods Sample problem:
remaining in the inventory at the end of the X Company provided the following inventory
period are those most recently purchased or card during February:
produced. Purchase Units Balance
Price Used Units
In period of inflation, FIFO method would result Units
to the highest net income. However, in period of Jan 10 100 20,000 20,000
deflation, FIFO method would result to the Jan 31 10,000 10,000
lowest net income. Feb 08 110 30,000 40,000
The objection in this method is that there is Feb 09 1,000 41,000
improper matching of cost against revenue Return
because the goods sold are stated at earlier or Feb 28 11,000 30,000
older prices resulting in the understatement of
cost of goods sold. Solution:
Units Unit Cost Total Cost
Sample problem: Jan 10 20,000 100 2,000,000
Purchases of Product A during the month of Feb 08 30,000 110 3,300,000
January were: 50,000 5,300,000
Units Unit Cost Weighted average unit cost (5,300,000/50,000)= 106
January 10 200,000 22
Cost of Inventory (30,000X106)= 3,180,000

The standard does not permit anymore the use

of the last in, first out (LIFO) as an alternative
formula in measuring cost of inventories.

Net realizable value is the estimated selling price

in the ordinary course of the business less
estimated cost of completion and the estimated
cost necessary to make the sale.

Inventories are usually written down to NRV on

an item by item or individual basis. It is not
appropriate to write down inventories based on
a classification of inventory.
 SOURCES OF LAW
INTRODUCTION TO LAW
1. Constitution (Fundamental, Supreme, or Highest Law) -
LAW - any rule of action or any system of uniformity. -written instrument by which the
fundamental powers of the government are established,
limited and defined.

GENERAL DIVISIONS OF LAW 2. Legislation

1. Strict Legal Sense - promulgated and enforced by the -consists in the declaration of legal rules by a competent
state. authority.

2. Non-legal Sense - not promulgated and enforced by the 3. Administrative or Executive orders, regulations and
state. rulings

-issues by administrative officials under legislative authority.

SUBJECTS OF LAW 4. Judicial decision or Jurisprudence

1. Divine Law - law of religion and faith concerning itself with -decisions of Supreme Court, applying or interpreting the
the concept of sin. laws.

2. Natural Law - divine inspiration in man of the sense of -”Doctrine of Precedent or Stare Decisis”
justice, fairness, and
righteousness. -decision of a superior court on a point of law are
binding on all subordinate court.
3. Moral Law - deals with the totality of the norms of good
and right and or right 5. Custom
or wrong.
-consist of habits and practices which through long and
4. Physical Law - uniformities of actions and orders of uninterrupted usage have become acknowledged and approved by
sequence the laws or by society.
called physical phenomena that we feel and sense.
6. Other Sources
5. State Law - these are laws promulgated and enforced by
the state.

CLASSIFICATION OF LAW

CHARACTERISTIC OF LAW 1. As to purpose:

1. Rule of Conduct - tells us what shall be done and shall not a) Substantive Law - body of law creating, defining, and
be done. regulating rights and
duties.
2. Obligatory - positive command imposing a duty to obey
and involving a sanction b) Adjective Law - body of law prescribing the manner or
frocing obedience. procedure by which rights and
violation may be enforced or
3. Promulgated by legitimate authority redressed.
4. Of common observance and benefit - maintain harmony 2. As to subject matter:
in society to make order and co-existence possible.
a) Public Law - body of legal rules which regulates the
rights and duties.
 i. Criminal Law - defines crimes and provides ART. 1156: Meaning of obligation
corresponding
punishments. OBLIGATION - a tie or bond recognized by law by virtue of which
one is bound in favor of another to render juridical necessities to
ii. International Law - governs relations among give, to do, or not to do.
nations or
states. - from the latin term obligatio which means tying or
binding.
iii. Constitutional Law - governs relations between
states and its citizens,
establishing the governments
power. *If obligation is not enforcable by the court it may be disregarded
with impunity.
iv. Administrative Law - governs methods on how
authorities
should perform their functions.

b) Private Law - body of rules regulating the relationship ESSENTIAL ELEMENTS OF AN OBLIGATION
of individuals with one another for
purely private ends. 1. Active Subject (creditor/obligee)
Has the right to demand performance of obligation.

ORGANIZATION OF COURTS
2. Passive Subject (debtor/obligor)
Person obliged to perform obligation.
1. Regular Court - Court of Appeals, Supreme Court, Regional
Trial Court, 3. Prestation (object)
Metropolitan Trial Court.
Particular conduct of the debtor and creditor in an
2. Special Court - specific obligation consisting giving, doing, or not doing.
3. Quasi-judicial Agencies - under the executive branch but 4. Efficient Cause (juridical/legal tie/vinculum juris)
work as if it is under the
legislative branch. Binds or connects both parties to the obligation.

LAW ON OBLIGATION AND CONTRACTS - body of rules which deals KINDS OF OBLIGATION AS TO SUBJECT MATTER
with the nature and sources of obligations and the rights and duties
arising from agreement and the particular contracts. 1. Real Obligation - obligation to give in which the subject
matter is a thing which
the obligor must deliver.

*“Ignorance of the law excuses no one” a) Determinate or Specific

*“Ignoratio Legis Non Excusat” Obligation of the debtor is to deliver a determinate or

specific thing to the creditor.

b) Indeterminate or Generic
CHAPTER 1: OBLIGATIONS
Obligation of the debtor is to deliver an indeterminate
or generic thing to the creditor.
 2. Personal Obligation - obligation to do or not to do in which COMPLIANCE IN GOOD FAITH - compliance or performance in
the subject matter accordance with the stipulations or terms of the contract or
is an act to be done or not to be done. agreement.

a) Positive Personal Obligation - Obligation to do or

render services.
ART. 1157: Sources of obligation
b) Negative Personal Obligation -Obligation not to do or
perform SOURCES OF OBLIGATION
services.
1. Law
2. Contracts
3. Quasi-contracts
OBLIGATION RIGHT CAUSE OF ACTION
Act or performance Power by which a An act or omission of 4. Acts or omissions punished by law or delict
which the law will person has under the one party in violation of
enforce. law. the legal right(s). 5. Quasi-delicts
Also known as wrong or
injury.
LAW - a rule of conduct, just, obligatory, promulgated by legitimate
authority fro common observance and benefits.
CIVIL ACTION - a party sues another for the enforcement of a right,
or the prevention or redress of a wrong.

ART. 1158:
COMPLAINT - contains written statement allegin the plaintiff’s claim *“Obligation derived from law are not presumed. Only those
or cause of action expressly determined in special laws are demandable and shall be
regulated”.

ESSENTIAL ELEMENT OF CAUSE OF ACTION

CONTRACTS - meeting of minds of two individuals whereby one
1. Legal right of the plaintiff
binds himself, with respect to the other, to give or do something.
2. Correlative obligation of the defendant
*“A contract is valid if it is not contrary to the law, morals, good
3. Act or omission of the defendant in violation of said legal customs, public order and public policy assuming all essential
right. elements are met.”

PLAINTIFF - party bringing civil suit in a court BREACH OF CONTRACT - failure or refusement of compliance by a
party without lega reason or justification with his or her obligations.

DEFENDANT - party sued in a civil proceeding.

*“A contract may be breached or violated by a party in whole or in
part.”
STAGES OF CONTRACT DELICT - a wrongful act or omission giving rise to a claim for
compensation.
1. Negotiation - covers the period where parties
indicate interest in the contract.

2. Perfection - covers the concurrence of the essential CIVIL LIABILITIES IN DELICT

elements thereof.
1. Restitution - the thing itself is restored.
3. Consummation - covers the perforance of
undertakings by both parties. 2. Reparation of the damage caused - court determines
the amount of damage taking the price and
sentimental values into consideration.
ART. 1159: 3. Indemnification fr consequentail damages - includes
both damage cause to the injured party and
*“Obligation srising from conctracts have the force of law between
suffered by his or her family or by third person by
contracting parties and should comly in good faith.” reason of the crime.

QUASI - latin term for “as if” ART. 1161:

*“Civil obligation arising from criminal offenses shall be governed

by penal laws.”
QUASI-CONTRACT - certain lawful, voluntary and unilateral act
giving rise to the statement that no one shall be unjustly enriched or
benefited at the expense of another.
QUASI-DELICT (TORT OR CULPA AQUILANA) - arise from damage
caused to another through an act or omission, there being fault or
negligence withouth contractual relationship between the
KINDS OF QUASI-CONTRACT individuals.

1. Negotiorum Gestio - volutary administration of the

property, business, or
affairs, of another without his consent or NEGLIGENCE - failure to take the care that a responsible person
authority. usually takes.
2. Solutio Indebiti - payment by mistake of an obligation
which was not due when
paid. ELEMENTS OF NEGLIGENCE
3. Other Quasi-contracts
1. Fault or negligence of the defendant
2. Damage suffered by the plaintiff
ART. 1160: 3. Realtionof cause and effect between the first two elements.
*“Obligation derived from quasi-contract are subject for
provisions.”
KINDS OF NEGLIGENCE

1. Culpa Aquilana (Quasi-delict)- negligence resulting from

the failure to observe
 OBLIGATIONS OF THE DEBTOR
DETERMINATE REAL OBLIGATION INDETERMINATE REAL OBLIGATION
Deliver the thing which he is obliged Deliver the thing which must be neither GENERIC OR DETERMINATED THING - designated by class or genus
with. of superior or inferior quality. to which it pertains and cannot be pointed out with particularity.
Take care of the thing with proper Pay damages in case of breach.
diligence of a good father.
Deliver accessions and accessories.
Pay damages in case of breach. ART. 1163:
required diligence causing damage to
another *“Every person obliged to deliver a thing is also obliged to take care
person. of it with a proper diligence of a good father, unless there a
stipulation from the parties requiring another standard of care.”
2. Culpa Contractual - negligence in the performance of pre-
existing contracts.

3. Culpa Criminal - also known as criminal negligence, DILIGENCE - care, caution, attention and care required.
results from a
commission of a crime.

DUE DILIGENCE - diligence reasonably expected from and ordinarily

DELICT QUASI-DELICT exercised by a person who seek to satisfy a legal requirement.
Wrong committed against the state. Wrong committed against a person.
Criminal intent is necessary for Criminal intent is not necessary.
liability to exist.
EXTRAORDINARY DILIGENCE - extreme care that a person of
Applicable only if penal law exists. Actionable in any act or omission
unusual prudence exercises to secure right of property.
wherein fault or negligence intervenes.
Requires proof beyond reasonable Requires preponderance of evidence.
doubt.
Employer’s lability is subsidiary. Employer’s liability is primary.
ART. 1164:

PROXIMATE CAUSE - cause acting first and producing the injury. *“Creditor has right to the fruits of the thing from the time to
deliver it arises, however he shall not acquire real right until
the thing has been delivered.”

ART. 1162: DELIVERY - formal act of transferring something; giving or

*“Obligations derive from quasi-delict shal be governed by yielding posssessions or control of something to another.
provisions in chapter 2 and special laws.”

KINDS OF DELIVERY
CHAPTER 2: NATURE AND EFFECT OF OBLIGATIONS
1. Actual Delivery - act of giving and immediate
possession to the buyer or his
agent.
SPECIFIC OR DETERMINATE THING - particulary designated or
physically segregated from others of the same class. 2. Constructive Delivery - act that amounts to a
transfer of title by operation of
 law when actual transfer is that obligation of one is dependant on the obligation of the
impractical or impossible. other.

KINDS OF RIGHTS ART. 1166:

1. Personal Right (jus in personam/jus ad rem) -right *“Obligation to deliver a determinate thing includes that
that may be enforced by one person on another of delivering all its accessions and accessories, even if not
containing a definite active subject and a definite
mentioned.”
passive subject.

2. Real Right (jus in re) -right or power over a specific

thing containing only a definite active subject ACCESSIONS - fruits of a thing or is incorporated or
without any definite passive subject and is directed
attached to it either artificially or naturally.
against the whole world.

KINDS OF FRUITS ACCESSORIES - thign joined to or included with the pricipal

thing for latter’s embellishment, better use, perfection, or
1. Natural Fruits - sponataneous products of the soil, enjoyment.
and the young and other
products of animals.

2. Industrial Fruits - produced by land of any kind ART. 1167:

through cultivation or labor.
*“If a person obliged to do something and fails to do it, the
3. Civil Fruits - refers to fruit related to tge result of a same shall be executed at his expense. Same rule is applied id
juridical relation such as rents of he does it in contravention of the tenor of the obligation.
building, price of lease of land and other property Furthermore, it may be decreed that what has been poorly
and the amount of perpetual or life
done be undone.”
annuities.

ART. 1165: Remedies of Creditor in Real Obligation ART. 1168:

*“When obligation consists in not doing, and the obligor does

what has been forbidden him. It shall be undone at his
RIGHTS OF THE CREDITOR IN REAL OBLIGATION expense.”
DETERMINATE REAL OBLIGATION INDETERMINATE REAL OBLIGATION
Compel specific performance. Ask for performance of obligation.
Demand rescission or cancellation of Ask for obligation to be complied with
the obligation. at the expense of the debtor. RIGHTS OF THE CREDITOR IN PERSONAL OBLIAGATION
Recover damages in case of breach of Recover damages in case of breach of Obligation “To Do” Obligation “Not To Do”
obligation. obligation.
Have the obligation performed or Have it undone at the expense of
executed at ht eexpense of obligor, the obligor.
except when the prestation
RECIPROCAL OBLIGATION - arise from the same cause,
consists personal and special
which each party is a debtor and a creditor of the other, such
 qualification of the obligor is the
principal motive for the
embelishment of obligation. KINDS OF MORA OR DELAY
Ask that what has been poorly done Ask for damages.
be undone. 1. Mora Solvendi (debtor’s fault) - a delay in the
Recover damages fulfillment of an obligation, by
reason of a cause
imputable to the debtor.
ART. 1169:
a) Mora Solvendi Ex Re - when it is obligation to give.
*“Those obliged to deliver incur in a delay from the time the
b) Mora Solvendi Ex Persona - when obligation is to
obligee judicially or extrajudicially demands from them the do.
fulfillment of obligation.”
2. Mora Accipiendi - delay of the obligee or creditor to
accept the delivery of the
thing which is the object of the obligation.
*“In reciprocal obligation, netiher party incurs in delay if the
other does not comply or not ready to comply in a proper 3. Compensatio Morae - delay on both of the parties
manner what is incumbent upon him.” because neither has
completed their part in reciprocal
obligation.

*“If one of the party fulfills his duties, delay by the other
begins.”
ART. 1170:

*“Who who perform their obligation with fraud, negligence, or

WHEN DEMAND BY THE CREDITOR IS NOT NECESSARY: delay and those who in any manner contravene the tenor
therof, are liable for damages.”
1. When obligation provides so
2. When the law provide so
INJURY - legal invasion of legal right.
3. When time is of the essence
4. When demand be useless DAMAGE -is the hurt, loss, or harm which results from the
injury.

DAMAGES - the recompense or compensation awarded for

MORA (DELAY) - failure to perform the obligationin due time the damage suffered.
because of dolo (malice) or culpa
(negligence).

KINDS OF BREACH OF THE OBLIGATION

LIQUIDATED DEBT - debt wherein amount is known and 1. Voluntary Breach of the Obligation - arises either by
determinable by inspection of the fraud, negligence, delay,
terms and conditions of relevant promissory notes and and in any manner contravene the tenor
related documentation. of the
obligation. Debtor or obligor may
 be held liable for Waiver for future fraud is void. Waiver for future negligence may
damages. be valid.

2. Involuntary Breach of the Obligation - arises due to

fortuitous events. Debtor NEGLIGENCE (culpa) - the omission to do something which is
or obligor will be exempted from liability. required by nature of the obligation and corresponds with the
circumstances of the person, time, and place.

MODES OF VOLUNTARY BREACH

1. Fraud or dolo KINDS OF NEGLIGENCE

2. Negligence or culpa 1. Civil Negligence

3. Delay or default or mora a) Culpa Contractual

4. Contravention of the tenor of the obligation b) Culpa Aquilana/Quasi-delict

2. Culpa Criminal

FRAUD (deceit or dolo) - the deliberate or intentional evasion

by the debtor of the normal
CULPA CONTRACTUAL VS CULPA AQUILANA VS CULPA CRIMINAL
compliance of his obligation.
CONTRACTUAL AQUILANA CRIMINAL
Negligence Negligence is Negligence is Negligence is
merely direct, direct, substantive,
KINDS OF FRAUD incidental. substantive, and independent.
and
DOLO CAUSANTE DOLO INCIDENTE
independent.
(CAUSAL FRAUD) (INCIDENTAL FRAUD)
Contractual With pre-existing No pre- No pre-existing
A fraud inducing a party to enter It is not the reason that induced
Relationship contract. existing contract.
the contract. party entered the contract.
contract.
Renders voidabl contract. Renders a party liable to damages
Source of Breach of Defendant’s Defendant’s
Obligation contract. negligenct act negligenct act or
FRAUD VS BAD FAITH
or omission. omission.
FRAUD BAD FAITH Proof Proponderance Proponderanc Beyond reasonable
Established by clear and Imports a dishones purpose or moral Required of evidence. e of evidence. reason.
convinceing evidence; mere obliquity and conscious doing of a Defense of a Not a proper or A proper ad Not a proper
preponderance of evidence is not wrong, not simply bad judgment or good father complete complete defense,
adequate. negligence. in the defense, though defense. employees’s guilt
selection of may mitigate is automatic if
employees liablity. former is
FRAUD VS NEGLIGENCE insolvent.
FRAUD NEGLIGENCE Presumption Proof of Plaintiff has to Accused is
Willfulness or deliberate intent to Mere want of care or diligence ands existence gives prove presumed innocent
cause damage or injury to another. not the voluntariness of act or rise to negligence of until contrary is
omission. presumption of the defendant. proved.
Liablity cannot be mitigated by Liability may be mitigated by fault.
courts. courts.
DELAY (defaut or moral) - failure to perform the obligation in - physical suffering, incapable of pecuniary computation
due time because of dolo (malice) or culpa (negligence). but may be recovered if they are the proximate result
of defendant’s wrongful act.

2. ACTUAL DAMAGES
KINDS OF DELAY
- adequate compensation only for such pecuniary loss
1. Mora Solvendi suffered by him as he has duly proved.
a) Mora Solvendi Ex Re 3. NOMINAL DAMAGES
b) Mora Solvendi Ex Persona - adjudicated in order for the right of the plaintiff may
2. Mora Accipiendi be vindicated or recognized, recoverable if no
actual, substantial, or specific damages were shown.
3. Compensatio Morae
4. TEMPERATE DAMAGES (moderate)
- more than nominal but less than compensatory
REQUISITE OF MORA SOLVENDI damages, may be recovered when court finds that some
1. Obligation is demandable and liquidated. pecuniary loss has been suffered but amount cannot
be provided with certainty.
2. Debtor delays performance.
5. LIQUIDATED DAMAGES
3. Creditor judicially and extrajudicially requires debtor’s
performance. - agreed upon by the parties to a contract, to be paid in
case of breach thereof.

6. EXEMPLARY DAMAGES (corrective)

REQUISITES OF MORA ACCIPIENDI
- imposed, by way of example or correction for the
1. Offer of performance by the debtor who has the required public good.
capacity.
2. Offer must be to comply with the prestation as it should be
performed. ART. 1171:
3. Creditor refuses the performance witout just case.
*“Responsibility arising from fraud is demandable in all
obligations. Any waiver of an action for future fraud is void.”

CONTRAVENTION OF THE TENOR OF THE OBLIGATION - the

violation of the terms and conditions stpulated in the
obligation. WAIVER - voluntary relinquishment or abandonment, express
or implied, of a legal right or advantages.

KINDS OF DAMAGES UNDER CIVIL CODE

ACTION - ordinary proceeding in a court of justice, by which
1. MORAL DAMAGES one party prosecutes another party for the enforcement or
protection of a right.
 ORDINARY FORTUITOUS EVENTS EXTRA-ORDINARY FORTUITOUS
EVENTS
ART. 1172: Events which are common and Events which are uncommon and
which the contracting parties could which contracting parties could not
*“Responsibility arising from negligence in the performance reasonably foreseen. have reasonably foreseen.
of very kinds of obligation is also demandable, but such
liability may be regulated by the courts, according to the
circumstances.” ACT OF MAN VS ACT OF GOD
ACT OF MAN ACT OF GOD
An event independent of the will of Referred to as force majeure) or
the obligor but not of other human those event which are totally
ART. 1173: wills. independent of every human being.

*“Fault or negligence of the obligor consists the omission of

the diligence required in the obligation and when negligence REQUISITE OF FORTUITOUS EVENTS
shows bad faith provions on art. 1770 and 2201 shall be
applied.” 1. Event must be independent on human will or the will of the
obligor.
2. Event could have not been foreseen or if foresee, is
*”If the contract does not state the diligence required in the inevitable.
performance, that which is expected of a good father of a 3. It’s occurence must have been such as to render it
family shall be required.” impossible for the debtors to fulfill their obligation in a normal
manner.
4. Obligor must have been free from any participation in the
BAD FAITH - imports a dishonest purpose or some moral aggravation of the resulting injury to the creditor.
obliquity or conscious doing of a wrong that partakes of the
nature of fraud.
ART. 1175:

*”Usurious transactions shal be governed by special laws.”

ART. 1174:

*”No person shall be responsible for those events which could

not be foreseen, or which though foreseen, were inevitable, SIMPLE LOAN (mutuum) - a contract whereby one of the
unless it is specified by law, declared by stipulation, when parties delivers money or other consummable thing, upon the
nature of obligation requires assumption of risk.” condition that the same amount shall be paid.

FORTUITOUS EVENT - an event which cannot be foreseen, or USURY - contracting for or receiving interest in excess of the
which, though foresee, is inevitable. amount allowed by law for the loan or use of money, goods,
chattels, or credits.

KINDS OF FORTUITOUS EVENT

ART. 1176:
 *”Receipt of the principal by the creditor and receipt of a JOINT AND SOLIDARY POSITIVE AND NEGATIVE
later installment of a debt, without reservation with respect DIVISIBLE AND INDIVISIBLE UNILATERAL AND BILATERAL
to the interest and as to ptior to installmentss shall give rise OBLIGATION WITH PENAL CLAUSE CIVIL AND NATURAL
to the presumption that said interest or installment have been ACCESSORY AND PRINCIPAL
paid.” INDIVIDUAL AND COLLECTIVE

SECTION 1: PURE AND CONDITIONAL OBLIGATION

PRESUMPTION - interference of a fact not actually known
arising from its usual connection with another which is known
or proved. ART. 1179:

*”Obligations whose performance does not depend upon a

future or uncertain event, or upon a past event shall be
KINDS OF PRESUMPTION
demandable at once.”
1. Conclusive Presumption - one which cannot be
contradicted by another.

2. Disputable Presumption - one which can be contradicted *”Obligations which contains a resolutory condition shall also
or or rebutted by presenting proof to the contrary. be demandable, without prejudice to the effects of the
happening of the event.”

ART. 1177:
PURE OBLIGATION - one which is not subject to any condition
*”After creditors pursued the property in possession of the
and no secific date is mentioned for its fulfillment and is,
debtor to satisfy their calims, may exercise all the rights and
thereof, immediately demandable.
bring all actions of the latter for the same purpose and may
also impugn the acts which the debtor may have doe to
defraud them.”
CONDITIONAL OBLIGATION - one where acquisition of rights,
as well as the extinguishment or loss of those already
acruired, shall depend upon the happening of the event which
ART. 1178:
constitutes the condition.
*”Subject to the laws, all rights acquired in virtue of an
obligation are transmissible, if there is no stipulation to the
contrary.” CONDITION - a future and uncertain event, upon the
happening of which, the effectivity or extinguishment of an
CHAPTER 3: CLASSIFICATION OF OBLIGATION
obligation subject to it depends.

CLASSIFICATION OF OBLIGATION OBLIGATIONS DEMANDABLE AT ONCE

PRIMARY CLASSIFICATION SECONDARY OBLIGATION
PURE AND CONDITIONAL LEGAL, CONVENTIONAL, AND PENAL
1. It is pure
OBLIGATION WITH A PERIOD REAL AND PERSONAL
ALTERNATIVE AND FACULTATIVE DETERMINATE AND GENERIC 2. Subject to resolutory condition
3. Subject to a resolutory period 4. AS TO MODE

POSITIVE CONDITION NEGATIVE CONDITION

Involves the performance of an act. Involves non-performance of an
CHARACTERISTICS OF CONDITION act.

1. Future and uncertain

5. AS TO DIVISIBILITY
2. Past but unknown
DIVISIBLE CONDITION INDIVISIBLE CONDITION
Susceptible of partial realization. Not susceptible of partial
CLASSIFICATION OF CONDITION realization.

1. AS TO EFFECT:
6. AS TO NUMBERS
SUSPENSIVE CONDITION RESOLUTORY CONDITION
(conditions precedent) (conditions subsequent) CONJUNCTIVE CONDITION ALTERNATIVE CONDITION
FULFILLED Obligation becomes Obligation is [Link] conditions, all of which Several conditions, one of which
effective. must be realized. must be realized.
UNFULFILLE No juridical relation is Juridical relation is
D created. consolidated
RIGHTS Not yet acquired, but has Already acquired, but 7. AS TO FORM
mere hope or expectancy subject to the threat of EXPRESS CONDITION IMPLIED CONDITION
that will be soon acquired.. extinction. Stated expressly. Condition that is tacit.

2. AS TO ORIGIN ART. 1180:

POTESTATIVE CAUSAL CONDITION MIXED CONDITION
CONDITION *”When debtor binds himself to pay when his means permit
Fulfillment of Fulfillment of Fulfillment of conditionhim to do so, the obligation shall be deemed to be one with a
condition depends conditoin depends depends upon partly period, subject to provision of art. 1197.”
upon the will of one of upon chance and/or upon the will of a party
the parties. upon the will of the and will of the third
third person. person.
PERIOD - A future and certain event upon the arrival of hich
the obligation subject to it either arises or is extinguished.
3. AS TO POSSIBILITY

POSSIBLE CONDITION IMPOSSIBLE CONDITION

Capable of realization Not capable of realization according toPERIOD WAS NOT FIXED BY THE PARIES
according to nature, law, nature, law, public policy, or good
public policy, or good customs. 1. Court may fix the duration
customs.
2. Court shall also fix the duration of the period
May be physical or contrary to law of
nature. 3. Court shall determine such period
May be legal or contrary to law, morals,
good custom, or public policy

ART. 1181:
 *”In conditional obligation, acquisition of rights and the
extinguishment or loss of those already acuire, shall depend *”If no time has been fixed , condition shall be deemed fulfilled
upon the happening of the event which constitutes the at such time as may have propably been contemplated,
condition.” bearing the nature of obligation in mind.”

ART. 1182: ART. 1186: DOCTRINE OF CONSTRUCTIVE FULFILLMENT OF

SUSPENSIVE CONDITION
*”When fulfillment of conditions depends solely on the will of
the debtor conditional obligation shall be void. If it depends
upon chance or on the will of the third person, obligation shall
take effect in conformity with the provisions.” DOCTRINE OF CONSTRUCTIVE FULFILLMENT OF SUSPENSIVE
CONDITION

-condition shall be deemed fulfilled when the obligor

ART. 1183: coluntarily prevents its fulfillment.

*”Impossible consitions shall annul the obligation which

depends upon them, if the obligation is divisible, that part
thereof which is not affected by the impossible condition shall REQUISITES OF DOCTRINE OF CONSTRUCTIVE FULFILLMENT
be valid.” OF SUSPENSIVE CONDITION:

1. Condition is suspensive
*”Condition not to do an impossible thing shall be considered 2. Debtor prevents the fulfillment of the condition
as not having been agreed upon.”
3. Debtor act voluntarily or wilfully

ART. 1187:

*”Once condition in an obligation has been fulfilled it shall

ART. 1184: retroact to the day of the constitution of the obligation.”

*”Condition that some event happen at a determinate time

shall extinguish the obligation as soon as the time expires or *”When obligation imposes reciprocal prestations upon the
if it had become indubitable that the event will not take place.” parties, the fruits and interest during pendency of condition it
shall be deemed mutually compensated.”

ART. 1185: *”If obligation is unilateral, debtor shall appropriate the fruits
and interest received, unless it should be inferred that the
*”Condition that some event will not happen t a determinate
intention of the person constituting the same was different.”
time shall render the obligation effective from the moment
the time indicated has elapsed or evident that it will not take
place.” *”In obligation to do and not to do, court shall determine the
retroactive effect of the condition that has been complied in 6. If thing is improved at hte expense of the debtor, he shall
each case.” have no other right than that granted to the usufructuary.

ACCIDENTAL ELEMENTS OF A CONTRACT NOTE: These rules do not apply to generic or indeterminate
thing because they never perish. It is only applicable to
-exist only when parties expressly provide for them for determinate things where the suspensive condition is not
the purpose of limiting or modyfying the normal effect ofthe fulfilled.
contract.

KINDS OF LOSS
ART, 1188:
1. Physical Loss - a thing perishes.
*”Before the fulfillment of the condition creditor may bring
2. Legal Loss - a thing goes out of commerce or heretofore
the appropriate actions for the preservation of his right.”
legal becomes illegal.

3. Civil Loss - a thing disappears in such a way that its

*”Debtor may recover what he has paid by mistake in case of existence is unknown or known bu cannot be recovered.
a suspensive condition during that time.”

USUFRUCT - gives a ight to enjoy the property of another with

the obligation of preserving its form and substance, unless the
ART. 1189:
title constituting it or law otherwise provides.
*”When condition are impoed for the suspension of the
efficacy of an obligation to give, following rules are to be
followed in case of improvement, loss or deterioration of the USUFRUCTUARY - one who has the right t the benefits of
thing during pendency.” another’s property.

RULES IN ART. 1189: ART. 1190:

1. Thing is lost without the fault of the debtor, obligation is *”Upon fulfillments of conditions in resolutory condition in
extinguished. obligation to give parties shall return to each other what they
2. Thing is lost with the fault of the debtor, he is obliged to pay have received.”
damages.
3. Thing deteriorates without the fault of the debtor
impairment is borne by the creditor. *”In obligation to do and not to do in the fulfillment of a
resolutory condition court shall determine the retroactive
4. Thing deteriorates with the fault of the debtor, creditor may effect of the condition that has been complied with.”
choose between rescission and indemnity for damages.
5. If thing is improved by nature or time, improvement shall
incure to the benefit of the creditor. ART. 1191:
*”Rescission is implied in reciprocal obligation in case one of
the obligors should not comply with what is incumbent upon
him.” SPECIFIC PERFORMANCE - the remedy of requiring exact
performance of a contract in the specific form in which it was
made, or according to the precise terms agreed upon.

*”Injured party may choose between the fulfillment and

rescission of the obligation, with the paymtn of damages in
either case. He maw also seek rescission, even after he has REMEDIES IN RECIPROCAL OBLIGATION
chosen fulfillment, if the latter becomes impossible.” 1. Choice of remedies
a) Action for specific performance of the obligation
with damages.
*”Court shall decree the rescission claimed unless there be
just cause authorizing the fixing of a period.” b) Action for rescission of the obligation with
damages.
2. Remedy of rescission for non-compliance.
RESCISSION - the unmaking of a contract or its undoing from
the beginning and not merely its termination.
LIMITATIONS ON RIGHT TO DEMAND RESCISSION

1. Resort to the courts.

RESCIND - to declare a contract void at its inception and to
put an end to it as though it never was. 2. Power of court to fix period
3. Right of third person
4. Substantial violation
RECIPROCAL OBLIGATION - those which arise from the same
cause, wherein each party is a debtor and a creditor of the 5. Waiver of right
other, such that the performance of one is conditioned upon
the simultaneous fulfillment of the other.
ART. 1192:

*:”In case both parties have committed a breach of the

NON-RECIPROCAL OBLIGATION - those which do not impose
obligation, the liability of the infractor shall be equitably
simultaneous and correlative performance on both parties.
tempered by the courts. If it cannot be determined which of
the parties first violated the contract, the same shall be
deemed extinguished, and each shall bear his own damages.”
MUTUAL RESTITUTION - bringing the parties back to their
original status prior to the inception of the contract.
SECTION 2: OBLIGATION WITH A PERIOD

EXTRAJUDICIAL RESCISSION - not possible without an

express stiplation to that effect.
ART. 1193:
 *”Obligations for whose fulfillment a day certain has been TERM/PERIOD - an interval of time, which, exerting an
fixed shall be demandable on,y when that day comes.” influence on an obligation as a consequence of a juridical act,
either suspends the demandability or produces its
extinguishments.
*”Obligations with resolutory period take effect at once, but
terminate upon arrival of the day certain.”
KIND OF PERIOD/TERM

1. AS TO EFFECT:
*”A day certain is understood to be that which must
necessarily come, although it may not be known when.” SUSPENSIVE PERIOD (EX DIE) RESOLUTORY PERIOD (IN DIEM)
Obligation whose fulfillment a day Obligation tahtbtakes effect at
certain has been fixed, shall be once, but teminate upon arrival of
demandable only when that day the day certain.
*”If the uncertainty consist in whether the day will come or comes.
not, the obligation is conditional, and it shall be regulated by
the rules f he preceding section.”
2. AS TO EXPRESSION:

EXPRESS IMPLIED
OBLIGATION WITH A PERIOD - obligation whose fulfillment a When period is When period is not specifically stated but it can be
day certain has been fixed, shall be demandable only when specifically deduced that the parties intended a period just like
stated. when the debtor cinds himself to pay when his means
that day comes.
permit him to do so.

CONDITION VS TERM/PERIOD
CONDITION TERM/PERIOD 3. AS TO DEFINITENESS:
Refers to an event. Refers to an interval of time DEFINITE PERIOD INDEIFNITE PERIOD
Requisites are futurity and Requisites are futurity and cetainty. When there is a fixed date or time. When there is no fixed date or time.
uncetainty.
It may or may not happen. Will surely come to pass, although it
may not be known when. 4. AS TO SOURCE:
Exerts an influence upon the very Exerts an influence only upon its
existence of the obligation itself. demandability. CONVENTIONAL LEGAL JUDICIAL
Has retroactive effects. Does not have retroactive effects Period is agreed upon Period is fixed by law. Period Is fixed by the
unless there is an agreement to the by the parties. courts.
contrary.
When left exclusively to the will of When the duration is left exclusively
the debtor, the very validity of the to the will of the debtor, the ART, 1194:
obligation is affected. obligation is still valid.
Must be possible, otherwise, Must be possible, otherwise, *”In case of loss, deterioration or imrovement of the thing
obligation is void. obligation is void. before the arrival of the day certain, rules in art. 1189 is
DAY CERTAIN - understoo to be that which must necessarily observed.
come, although it may not be known when.

ART. 1195:
*”Anything paid or deilvered before the arrival of the period,
obligor being unaware of the priod or believing that the
obligation has become due and demandable, may be NOTE: Court is not authorized to fix a period except in
recovered, with the fruits, and interests. cases in art. 1197.

ART. 1196: ART. 1198: WHEN DEBTOR LOSS RIGHT TO MAKE USE OF A
PERIOD
*”If period is designated in an obligation it is presumed to
have been established for the benefit of both parties, unless it
has been established in favor of the debtor or the creditor.”
WHEN DEBTOR LOSES RIGHT TO MAKE USE OF A PERIOD:

1. When after the obligation has been contracted, he becomes

PERIOD ESTABLISHED IN FAVOR OF THE DEBTOR insolvent, unless he gaves a guaranty or security of a debt.
2. When he does not furnish to the creditor the guaranties or
Debtor cannot be compelled to perform the obligation
securities which he has promised.
prematurly, but he can do if he desires.
3. When by his own acts he has impaired said guaranties or
securities after their embelishment, and when through a
fortuitous event they disappear, unless he immediately gives
PERIOD ESTABLISHED IN FAVOR OF THE CREDITOR new ones equally satisfactory.
Creditor may demand the fulfillment of the obligation at 4. When the debtor violates any undertaking, in consideration
any time but the debtor cannot compel him to accept the of which the creditor agreed to the period.
payment before the expiration of period.
5. When the debtor attempts to abscond.

ART. 1197:
ABSCOND - go away suddenly and secretly in order to escape
*”If period was not fixed in an obligation, but from its nature from somewhere.
and circumstances it can be inferred that a period was
intended, court may fix the duration therof.
SECTION 3: ALTERNATIVE AND FACULTATIVE OBLIGATION

*”Court shall also fix the duration of the period when it

depends upon the will of the debtor.” ART. 1199:

*”A person alternatively bound by different prestations shall

completely perform one of them.”
*”Court shall also determine such period as may under the
circumstances have been probably contemplated by the
parties. Once fixed by the court, the period cannot be changed
by them. *”Creditor cannot be compelled to receive part of one and
part of the other undertaking.”
 ART. 1203:

KINDS OF OBLIGATION ACCORDING TO OBJECT *”If through the creditor’s act the debtor cannot make a
SIMPLE OBLIGATION COMPOUND OBLIGATION choice according to the terms of the obligation, the latter may
One where there is only one One where there are two or more rescind the contract with damages.”
prestation. prestation.

KINDS OF COMPOUND OBLIGATION ART. 1204:

CONJUNCTIVE OBLIGATION DITRIBUTIVE OBLIGATION
There are two or more objects and There are two or more objects and *”The creditor shall have right to indemnity for damages
all of them are due to extinguish one of them are due to extinguishwhen, throught the fault of the debtor, all the things which are
the contract. the contract. alternatively the object of the obligation have been lost, or the
compliance of the obligation has become impossible.”
KINDS OF DISTRIBUTIVE OBLIGATION
ALTERNATIVE OBLIGATION FACULTATIVE OBLIGATION
There are two or more objects are An obligation where only one object*”The indemnity shall be fixed taking as a basis the value of
due but the performance of one is is due but the debtor may the last thing which disappeared, or that of the service which
sufficient. substitute another object. last became impossible.”

ART. 1200:
*”Damages other than the value of the last thing or service
*”The right of choice belongs to the debtor, unless it has been
may also be awarded.”
expressly granted to the creditor.”

EFFECT OF LOSS OF ALTERNATIVE OBLIGATION CHOICE BELONGS TO

*”Debtor shall have no right to choose those prestations DEBTOR
which are impossible, unlawful, or which could not have been ALL OBJECT ARE ONLY ONE TWO OR MORE
the object of the obligation.” LOST OBJECT OBJECT
REMAINS REMAINS
LOSS DUE Obligation of the Debtor must Debtor must
TO debtor is deliver deliver that
ART. 1201: FORTUITOU extinguished. remaining which he shall
S EVENT object making it choose from
*”The choice shall produce no effect except from the time it a simple among the
has been communicated.” obligation. remainder.
LOSS DUE Creditor have right Debtor must Debtor must
TO to indemnity for deliver deliver that
DEBTOR’S damages based on remaining which he shall
ART. 1202: FAULT the value of the last object making it choose from
thing disappeared. a simple among the
*”Debtor shall lose the right of choice when among the
obligation. remainder.
prestations whereby he is alternatively bound, only one is
practicable.”
ART. 1205:
*”When the choice has been expressly given to the creditor,
the obligation shall cease to be alternative from the day when
the selection has been communicated to the debtor.” ART. 1207:

*”The concurrence of teo or more creditors and debtors in

one and same obligation does not imply that each one of the
EFFECT OF LOSS OF ALTERNATIVE OBLIGATION CHOICE BELONGS TO former has a right to demand, or that each one of the latter is
CREDITOR bound to render, entire compliance with the prestation. “
ALL OBJECT ONLY ONE TWO OR MORE OBJECT
ARE LOST OBJECT REMAINS REMAINS
LOSS DUE Obligation of Debtor must Debtor must deliver
TO the debtor is deliver that which creditor *”There is only solidary liability only when the obligation
FORTUITOU extinguished. remaining object shall choose from expressly so states, or when the law or the nature of the
S EVENT making it a among the remainder. obligation requies solidarity.”
simple obligation.
LOSS DUE Creditor shall Creditor may Debtor must deliver
TO choose the choose the that which creditor
DEBTOR’S price of any object which shall choose from INDIVIDUAL OBLIGATION - one where there is ony one obligor
FAULT of the object remains and the among the remainderand one obligee.
with debtor cannot be and debtor cannot be
indemnity for held liable for held laible for
damages. damages, damages.
COLLECTIVE OBLIGATION - one where there are two or more
creditor and two or more debtor. It may be joint or solidary.
ART. 1206:

*”When only one prestation has been agreed upon, but the
obligor may render another in substitution, the obligation is JOINT OBLIGATION - credit or debt is divided into as many
called facultative.” shares as there are creditor or debtors, the credits or debts
being considered distinct from one another.

*”Loss or deterioration of the thing intended as a substitute,

through the negligence of the obligor, does not render him OTHER TERMS INTERCHANGEABLY USED WITH JOINT
liable, but once substitution has been made, obligor is liable OBLIGATIONS
for the loss of the substitute on account of his delay,
negligence, or fraud.” 1. Joint or Jointly
2. Conjoint (means: Mancum or Mancomunada)
EFFECT OF LOSS OR DETERIORATION OF SUBSTITUTE IN FACULTATIVE
OBLIGATION 3. Mancomunada Simple
BEFORE SUBSTITUTION AFTER SUBSTITUTION
4. Pro Rata Obligation
Loss or deterioration of the thing Obligor is liable for damages for
intended as a substitute, through the loss or deterioration of the 5. Proportionate
the negligence of the obligor does substitute on account of his delay,
not render him liable. fraud, or negligence.

EFFECTS OF JOINT OBLIGATION

SECTION 4: JOINT AND SOLIDARY OBLIGATION
1. Defect of each obligation arising from the personal defect WHEN IS AN OBLIGATION SOLIDARY:
of a particular joint debtor or creditor does not affect the
obligation or right of the other joint parties. 1. Obligation expressly so states that there is solidarity.

2. Insolvency of one joint debtor does not make the other joint 2. Law requires solidary.
debtor(s) responsible for his proportionate share. 3. Nature of obligation requires solidary.
3. Demand by the creditor(s) on one joint debtors puts him in
delay in case of non-payment while the other joint debtor(s)
are not liable. ART. 1209:
4. Defenses of one jointdebtor are not necessarily available to *”If division is impossible, right of creditor may be prejudiced
the other joint debtor(s).
only by their collective acts, and debts can be enforced only
by proceeding against all debtors. If one of the latter should
be insolvent, other shall be not liable for his share.”
SOLIDARY OBLIGATION - one where each one of the debtors
is bound to render, and/or each one of the creditor have a
right to demand from any of the debtors, entire compliance
CHARACTERISTIC OF JOINT INDIVISIBLE OBLIGATION
with the prestation.
1. No joint creditor can act in representation of the other joint
creditor(s).
OTHER TERMS INTERCHANGEABLY USED WITH JOINT 2. No joint debtor can be compelled to fulfill the obligation of
OBLIGATIONS the other joint debtor(s).
1. Joint and several or several
2. In solidum ART. 1210:
3. Macomunada solidaria
*”The indivisibility of an obligation does not necessarily give
4. Juntos or separadamene rise to solidarity, nor does solidarity of itself imply
indivisibility.”
5. Individually or collectively

ART. 1208: INDIVISIBILITY VS SOLIDARITY

INDIVISIBILITY SOLIDARITY
*”Credit or debt shall be presumed to be divided into as many Referes to prestation that is not Refers to the juridical tie or legal
share as there are creditor or debtor, each obligation is capabe of partial performance. tiw or vinculum juris.
distinct from each other subject to the rules of court Exist even if there is only one Exist only if there are two or more
debtor or creditor. debtors and creditors.
governing the multiplicity of suits.”
Each debtor is not bound to fulfill Each debtor is bound to fulfill or
obligation of the other, and each comply the entire obligation, and
NOTE: It is a joint obligation if there is concurrence of two
creditor cannot demand fulfillment each creditor may demand
or more creditors or two or more debtors in one and the more than his share. fulfillment or compliance of the
same obligation except in some cases. entire obligation.
In case of breach obligation is In case of breach solidary
converted into indemnity character of obligation remains.
 fordamages; thus, indivisible
character is terminated.
Only the debtors guilty of breach All debtors are liable for damages ART. 1213:
are liable for damages. evenif only one is guilty,
If one debtor is insolvent, other are If oe debtor is insolvent, all solvent*”A solidary creditor cannot assign his rights without the
not liable for his share. partner are proportionately liable. consent of the others.”

ART. 1211:
ART. 1214:
*”Solidarity may exist although the creditors and the debtors
may not be bound in the same manner and by the same *”Debtor may pay any one of the solidary creditor; but if any
periods and conditions.” demand, judicial or extrajudicial, has been made by one of
them, payment should be made to him.”

KINDS OF SOLIDARITY
ART. 1215:
1. AS TO SOURCE:
*”Novation, compensation, or remission of the debt made by
LEGAL CONVENTIONAL REAL SOLIDARITY any of the solidary creditors or with ant of the solidary
SOLIDARITY SOLIDARITY debtors, shall extinguish the obligation, without prejudice to
Imposed by law. Agreed upon by Imposed by nature of the provision of art. 1219.”
parties. obligation.

2. AS TO PARTIES BOUND: *”Creditor who may have executed any of these acts, as well
ACTIVE SOLIDARITY PASSIVE SOLIDARITY MIXED SOLIDARITYas he who collects the debt, shall be liable to the others for
Solidarity of the creditor, Solidarity of the debtor, Solidarity among the share in the obligation corresponding to them.”
a tie or vinculum among a tie or vinculum among debtors and
several creditors of one several creditors of one creditors.
and the same obligation. and the same obligation.
EXTINGUISHMENT OF OBLIGATION

1. By payment or performance
2. By loss of the thing due
3. AS TO UNIFORMITY:
3. By the condonation or remission of the debt
UNIFORM SOLIDARITY NON-UNIFORM SOLIDARITY
(varied) 4. By confusion or merger of the right of both parties
Parties bound by same Parties are not subject to same
stipulation. stipulation. 5. By compensation
6. By novation
ART. 1212:

*”Each one of the solidary creditors may do whatever may be NOVATION - act of changing the object or principal conditions,
useful to the other, but not anything which may prejudice to or by substituting the person of the debtor or by subrogating a
the latter.” third person in the rights of the creditor.
 PAYMENT - the operative fact that entitles either the solidary
debtors to seek reimbursement for the share which
COMPENSATION - take place when two persons in their own corresponds to each of the debtors.
rights are creditors and debtors of each other.

SURETYSHIP - an accessory or a collateral to a principal

CONFUSION OR MERGER OF RIGHTS - happens when creditor obligation,
and debtor are merged in the same person.

SURETYSHIP CONTRACT - an agrrement whereunder one

REMISSION OR CONDONATION - act of liberality by virtue person, the surety, engages to be answerable for the debt,
which the obligee renounces the enforcement of the obligation. default, or miscarriage of the principal.

ART. 1216: ART. 1218:

*”Creditor may proceed against any one of the solidary *”Payment by a solidary debtor shall not entitle him to
debtors or some of them simultaneously. Demand made reimburse from his co-debtos if such payment is made after
against one of them shall not be an obstacle to those which the obligation has prescribed or become illegal.”
may subsequently be directed against the other, so long as
the debt has not been fully collected.”

PRESCRIPTION - one acquires ownership and other real

rights through lapse of time in the manner and under the
ART. 1217: conditions laid down by law.
*”Payment made by one of the solidary debtors extinguishes
the obligtion. If two or more offers to pay creditor may
choose which offer to accept.” PRESCRIPTION OF ACTIONS

1. Action to recover movable shall prescribe 8 yeears from

the time of possession.
*”He who pay may claim his co-debtors only the share which
corresponds to each, with the interest for the payment made. 2. Action over immovables prescribes after 30 years.
If payment is made before debt is due, no interest for the 3. Mortgage action prescribes after 10 years.
intervening period may be demanded.”
4. Rights not extinguished by prescription:
a) Demand a right of way
*”When one of the solidary debtors cannot reimburse his b) Bring an action to abate a public or private
share to the debtor paying the obligation due to insolvency, nuisance
such share shall be borne by all his co-debtors, in proportion
to the debt of each.” 5. Actions that should be brought within 10 years from the
right of action accrues:
a) Upon written contract
 b) Upon an obligation created by law *”If thing was lost or prestation has become impossible
without the fault of the solidary debtors, obligation is
c) Upon judgement
extinguished.”
6. Actions that must be commenced within 6 years:
a) Upon oral contract
*”If there was fault on the part of any of the debtor, all shall
b) Upon quasi-contract
be responsible to the creditor, for the price and the payment
7. Action that must be instituted within 4 years: of damages and interest, without prejudice to their action
against guilty or negligent debtor.”
a) Upon an injury to the rights of the plaintiff
b) Upon quasi-delict
8. Actions that should be filed within 1 year: *”If through a fortuitous event but after one of them has
incurred in delay, all shall be responsible to the creditor, for
a) Forcible entry and detainer
the price and the payment of damages and interest, without
b) Defamation prejudice to their action against guilty or negligent debtor.”
9. Limitations of actions mentione in art. 1140-1142 and 1144-
1147 are without prejudice to other part of this code.
ART. 1222:
10. All other action whose period are not fixed shall be
brought within 5 years. *”Solidary debtor may avail himself of all defenses which are
derived from the nature of the obligation, personal to him or
pertaining to his own share, or personal to other solidary co-
ART. 1219: debtors.”

*”Remission made by the creditor of the share which affects

one of the solidary debtors does not release the latter from
his responsibility towards the co-debtors, in case the debt DEFENSES AVAILABLE TO A SOLIDARY DEBTOR
had been totally paid by anyone of them before the remission 1. DERIVED FROM NATURE OF OBLIGATION
was effected.”
- total defense and all solidary co-debtors are
benefited.

ART. 1220: 2. PERSONAL TO HIM OR PERSONAL TO HIS OWN SHARE

*”Remission of the whole obligation, obtained by one of the -constitutes total defense and partial defense.
solidary debtors, does not entitle him to reimburse from his
3. DERIVED FROM PERSONAL TO OTHER SOLIDARY CO-
co-debtors.”
DEBTOR
-regards that as part of the debt from which other co-
ART. 1221: debtor are responsible.

SECTION 5: DIVISIBLE AND INDIVISIBLE OBLIGATION

 LEGAL CONVENTIONAL NATURAL
INDIVISIBILITY INDIVISIBILITY INDIVISIBILITY
ART. 1223: A specific provision Where the will of the Where the nature of
of law declares as parties makes as the object or
*”Divisibility or indivisibility of the things that are the object indivisible, indivisible, obligation prestation does not
of the obligations in which there is only one debtor and only obligation which, by which, by their nature, are admit of division.
one creditor does not alter or modify the provisions of their nature, are divisible.
cahpter 2 of this title.” divisible.

ART. 1224:

*”The non-compliance of one of the debtor in a joint indivisble

DIVISIBLE OBLIGATION - those which have as their object a obligation shall give rise to the indemnity for damages.
prestation which is susceptible of partial performance Debtor’s whose ready to comply shall not contribute to the
without the essence of the obligation being changed. indemnity beyond the corresponding portion of the price that
the obligation consist.”

DIVISIBLE THING - thing separated into parts and its essence

is not changed or value does not decrease disproportionately ART. 1225:
because each division is homogeneous and analogous to each
other. *”Obligations to give a definite things and those which are not
susceptible o partial performance shall be deemed
indivisible.”

KINDS OF DIVISION

QUALITATIVE QUANTITATIVE INTELLECTUAL *”If object of obligation is for the execution of a certain
DIVISION DIVISION DIVISION number of days work, accomplishment of work by metrical
Can be materially Can be materially Can only be separated units, or analogous thing swhich by nature are susceptible of
divided into parts and dividided, but the into ideal or undivided partial performance are deemed divisible.”
such parts are parts are not parts, not material
homogeneous to each homogeneous to each parts.
other. other.
*”Even if the object is divisible an obligation is indivisible if
provided by law or intended by the parties.”
INDIVISIBLE OBLIGATION - those which have as their object a
prestation which is not susceptible of partial performance
because essence of obligation will be changed.
*”In obligation not to do, divisibility or indivisibility shall be
determined by character of prestation in each cases.”
INDIVISIBLE THING - if separated into parts, its essence is
changed or its value is decreased disproportionately.
SECTION 6: OBLIGATION WITH A PENAL CLAUSE

KINDS OF INDIVISIBILITY
ART. 1226: 2. Penalty shall substitute the indemnity from damages and
the payment of interest in case of non compliance.
*”In obligation with a penal clause, penalty shall substitue the
indeminity for the damages and payment of interest in case of
noncompliance, if there is no stipulation to the contrary.
FUNCTIONS OF PENAL CLAUSE
Nevertheless, damages shall be paid if the obligor refuses to
pay the penalty or is guilty of fraud in the fulfillment of the 1. Provide for liquidated damages.
obligation.”
2. Strengthen the coercive force of obligation by the threat of
great responsiblity in case of breach.

*”Penalty may be enforced only when it is demandable in

accordance with the provisions of this code.” KINDS OF PENALTY

1. AS TO ORIGIN:
OBLIGATION WITH A PENAL CLAUSE - one with an accessory LEGAL CONVENTIONAL
undertaking by virtue of which the obligor assumes greater Constituted by law. Constituted by agreement of
liability in case of breach of obligation. parties.

2. AS TO PURPOSE:
PRINCIPAL OBLIGATION - one by which can stand by itself
and does not depend for its validity and existence upon COMPENSATORY PUNITIVE
another obligation. Established for the purpose of Established for the purpose of
indemnifying the damages suffered punishing the obligor or debtor in
by the obligee or creditor in case of case of breach.
breach.
ACCESSORY OBLIGATION - one which is ttached to a prncipal
obligation and, therefor, cannot stand alone.
3. AS TO EFFECT:

SUBSIDIARY JOINT
PENAL CLAUSE -an accessory undertaking to assume greater Only the penalty may be demanded May demand enforcement of both
in case of breach. the penalty and the principal
liability in case of breach and is attached to an obligation in
obligation.
order to secure its performance.

ART. 1227: LIMITATIONS IN OBLIGATION WITH PENAL CLAUSE

NOTE: Penalty is demandable in case of non performance *”Debtor cannot exempt himself from the performance of th
or late performance of the main obligation. obligation by paying the penalty, unless when this right has
been expressly reserved for him.”

PURPOSE OF PENAL CLAUSE

1. Attached to an obligation in order to insure performance.

*”Creditor cannot demand the fulfillment of the obligation and
the satisfaction of the penalty at the same time, unless this
right has been clearly granted him.”

*”If after creditor has decided to require the fulfillment of the

obligation, the performance thereof should become
impossible without his fault, the penalty may be enforced.”

ART. 1228:

*”Proof of actual damages suffered by the creditor is not

necessary in order that the penalty may be demanded.”

ART. 1229: WHEN DOES THE COURT REDUCE THE PENALTY

*”Judge shall equitably reduce the penalty when the prinicpal

obligation has been partly or irregularly complied with by the
debtor. Even if there has been no performance, the penalty
may also be reduced by the courts if it is iniquitous or
unconscionable.”

ART. 1230: EFFECT OF NULLITY

*”The nullity of the penal clause does not carry with it that of
the prinicpal obligation.”

*”The nullity of the prinicpal obligation carries with it that of

the penal clause.”