Untitled

OBLIGATIONS PART I OBLIGATIONS
AND CHAPTER 1 | GENERAL PROVISIONS....................................................................... 2

CHAPTER 2 | NATURE AND EFFECT OF OBLIGATIONS ................................... 4
CONTRACTS CHAPTER 3 | DIFFERENT KINDS OF OBLIGATIONS ........................................12

SECTION 1. Pure and Conditional Obligations ...............................................12
REVIEWER SECTION 2. Obligations with a Period...............................................................17

SECTION 3. Alternative Obligations ...................................................................20
SECTION 4. Joint and Solidary Obligations .....................................................22
SECTION 5. Divisible and Indivisible Obligations ........................................30
Marian M. Vanslembrouck SECTION 6. Obligations with a Penal Clause ..................................................31

CHAPTER 4 | EXTINGUISHMENT OF OBLIGATIONS .......................................34
SECTION 1. Payment or Performance ...............................................................34
SUBSECTION 1. Application of Payments ...................................................44
SUBSECTION 2. Payment by Cession ............................................................45
SUBSECTION 3. Tender of Payment and Consignation .........................46
SECTION 2. Loss of the Thing Due ......................................................................50
SECTION 3. Condonation or Remission of the Debt ....................................52
VANSLEMBROUCK OBLICON REVIEWER (Updated as of: February 14, 2016) SECTION 4. Confusion or Merger of Rights .....................................................54
For OBLICON, CODAL is the way to go! So read the codals carefully before reading the SECTION 5. Compensation .....................................................................................55
explanations. This reviewer was merged mostly from the books of DeLeon, Paras and
Pineda, and some additional comments from Tolentino, Jurado and Caguoia. SECTION 6. Novation ................................................................................................59
Permission is granted to view, store, print, reproduce, and distribute this reviewer (and
any page within) provided that (a) it is not uploaded to any site available for viewing to
the general PUBLIC (b) the authors name remains clearly associated with the work.
Title. I. OBLIGATIONS 5. Alternative and Facultative
CHAPTER 1 | GENERAL PROVISIONS a. Alternative involves multiple prestations but debtor will only perfroom
one or some but not all, depending whose choice it is
b. Facultative multiple prestations with a principal obligation and
Art. 1156. An obligation is a juridical necessity to give, to do or not to do. (n) substitute prestations, choice is generally given to the obligor
Juridical Necessity means that the court may be asked to order the performance of 6. Divisible and Indivisible
an obligation if the debtor does not fulfil it. a. Divisible may be partially performed
b. Indivisible cannot be partially performed
Requisites of an Obligation:
1 7. With a penal clause an accessory undertaking (dependent upon some other
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1. Active subject (creditor/obligee) the party who has the right to demand obligation to exist) to assume greater liability in case of breach
performance of the obligation 8. Determinate or Generic
2. Passive Subject (debtor/obligor) the party who is obliged to perform the a. Determinate particularly designated or physically segregated from all
obligation others of the same class
3. Efficient cause (vinculum or legal or juridical tie) which bind the parties to an b. Generic referred by the class, kind or genus
obligation and which may arise either from bilateral or unilateral acts of persons 9. Accessory or Principal
4. Prestation / Object the object or subject matter of the obligation. The particular a. Accessory existence depends on another
conduct of the debtor which may consist of giving, doing, or not doing something b. Principal can stand alone
a. To give obligation to deliver a movable / immovable (e.g. sale, deposit, 10. Unilateral or Bilateral
donation, pledge) a. Unilateral only one party is bound
b. To do covers all kinds of works or services whether physical or mental b. Bilateral both parties are bound; reciprocal obligations
c. Not to do consists in abstaining from doing some act. i. both obligation arise from same source
ii. each prestation is equivalent to the other
Example: A promises to paint Bs picture for B as a result of an agreement. (Here A is the iii. performance of one is conditioned to performance of the other
obligor; B is the obligee; the painting of Bs picture is the object or prestation; the agreement 11. Civil / Natural/ Moral
or contract is the efficient cause.) a. Civil Obligations an obligation, which if not fulfilled when it becomes
due and demandable, may be enforced in court through an action
Kinds of Obligations b. Natural Obligations not based on positive law but on equity and
1. Personal or Real natural law; do not grant a right of action to enforce their performance,
a. Personal (obligation to do or not to do) that in which the subject matter but after voluntary fulfillment by the obligor, they authorize retention of
is an act to be done or not to be done what has been delivered or rendered by reason thereof [1423]
b. Real (obligation to give) that in which the subject matter is a thing c. Moral Obligations those that cannot be enforced by action but which
which the obligor must deliver to the obligee are binding on the party who makes it in conscience and natural law
2. Pure and Conditional 12. Positive or Negative
a. Pure not subject to a condition or period; demandable at once a. Positive when the obligor is obliged to give or to do something
b. Conditional depends on a future and uncertain event b. Negative when the obligor must refrain from giving or doing something
3. With a period / term some space or time suspends demandability or produces
extinction of the obligation; depends on a future and certain event Art. 1157. Obligations arise from:
4. Joint and Solidary (1) Law;
a. Joint each can be made to pay only his share in the obligation (2) Contracts;
b. Solidary one can be made to pay for the whole obligation subject to (3) Quasi-contracts;
reimbursement (4) Acts or omissions punished by law; and
(5) Quasi-delicts. (1089a)
Sources of Obligation:
1. Law
1 2. Contract meeting of the minds between two persons whereby one binds himself,
The form (e.g. oral/written) in which the obligation is manifested is sometimes added as a fifth
with respect to the other, to give something or to render some service [1305]
requisite.
2
Subjects pertain to both natural and juridical persons.
CHAPTER 1 | GENERAL PROVISIONS Obligations and Contracts Reviewer Ateneo Law 2018| Marian Vanslembrouck |2
3. Quasi-contracts certain lawful, voluntary and unilateral acts giving rise to juridical Force of Law between the parties means that they have the same binding effect
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relation to the end that no one shall be unjustly enriched at the expense of another of obligations imposed by laws.
[2142] Compliance in Good Faith means performance in accordance with the
a. Negotiorum gestio the voluntary administration of the property, stipulations, clauses, terms and conditions of the contract / agreement.
business or affairs of another without his consent or authority. It creates Generally, contracts are perfected by mere consent and from that moment, the
the obligation to reimburse the gestor for necessary and useful expenses parties are bound to fulfill the obligations that arise whether reciprocal / unilateral.
[1250]
b. Solutio indebiti refers to payment by mistake of an obligation which Note: An obligation is the result of a contract (or some other source). Hence, while a
was not due when paid. It creates the obligation to return the payment. contract, if valid, always results in obligations, not all obligations come from contracts. A
[2154] contract always presupposes a meeting of the minds; this is not necessarily true for all kinds
4. Acts or omissions punishable by law these are crimes or felonies. The of obligations.
commission of a crime makes the offender civilly liable [100, RPC].
5. Quasi-delicts (tort or culpa aquiliana) acts or omissions that cause damage to
Art. 1160. Obligations derived from quasi-contracts shall be subject to the provisions of
another, there being fault or negligence but without any pre-existing contractual
Chapter 1, Title XVII, of this Book. (n)
relation between the parties
Quasi-contract is that juridical relation resulting from a lawful, voluntary, and
Note: unilateral act, and which has for its purpose the payment of indemnity to the end
The enumeration by the law is exclusive; hence, no obligation exists if its source is that no one shall be unjustly enriched or benefited at the expense of another. [2142]
not one of those enumerated under Art. 1157. (Navales v. Rias).
In reality there are only two sources: the law and contracts, because obligations Kinds of Quasi-Contract
arising from quasi-contracts, crimes, and quasi-delicts are really imposed by the 1. Negotiorum Gestio (unauthorized management)
law. (Leung Ben v. OBrien). the voluntary management of the property or affairs of another without the
knowledge or consent of the latter [2144].
Art. 1158. Obligations derived from law are not presumed. Only those expressly Reimbursement must be made for necessary and useful expenses, as a rule [2150].
determined in this Code or in special laws are demandable, and shall be regulated by the
precepts of the law which establishes them; and as to what has not been foreseen, by the Note: This juridical relation does not arise in either of these instances:
provisions of this Book. (1090) i. When the property or business is NOT neglected / abandoned (1317, 1403 and
1404 regarding unauthorized contracts shall govern)
Refers to legal obligations or obligations arising from law. They are not presumed ii. IF in fact the manager has been tacitly authorized by the owner (rules on Agency
because they are considered a burden upon the obligor. They are the exception, shall apply)
not the rule. To be demandable they must be clearly set forth in the law
Special laws refer to all other laws not in the Civil Code (e.g. Corporation Code, Essential Requisites of Negotiorum Gestio
Negotiable Instruments Law, RPC, etc.) 1) No meeting of the minds
2) Taking charge of anothers business or property
How can we determine WON an obligation arises from law or from another source? 3) Property or business must be abandoned or neglected
When the law establishes the obligation and the act or condition upon which it is 4) The officious manager (gestor) must NOT have been expressly or impliedly
based is nothing more than a factor for determining when it becomes demandable authorized
= LAW 5) The officious manager must have VOLUNTARILY taken charge (there must be no
However, when the law merely recognizes or acknowledges the existence of an vitiated consent, such as error in thinking that he owned the property or business)
obligation generated by an act which may constitute a contract, quasi-contract,
criminal offense or quasi-delict and its only purpose is to regulate such obligation,
then the act itself is the source of the obligation and not the law (Manresa)
Art. 1159. Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. (1091a) 3
This does not mean that a contract is superior to law. As a source of enforceable obligation, the
contract must be valid and it cannot be valid if it is against the law. Moreover, the right of the parties to
Contract meeting of the minds between two persons whereby one binds himself, stipulate is limited. Art. 1306 of the Civil Code says: The contracting parties may establish such
with respect to the other, to give something or to render some service [1305] stipulations, clauses, terms and conditions as they may deem convenient, provided, they are not
contrary to law, morals, good customs, public order, or public policy.
CHAPTER 1 | GENERAL PROVISIONS Obligations and Contracts Reviewer Ateneo Law 2018| Marian Vanslembrouck |3
2. Solutio Indebiti (undue payment) Test for Determination of Negligence: Would a prudent man (in his position)
Juridical relation which is created when something is received when (1) there is no foresee harm to the person injured as a reasonable consequence of the course
right to demand it, and (2) it was unduly delivered thru mistake. about to be pursued? If so, the law imposes a duty on the actor to refrain from that
The recipient has the duty to return it. (Example: If I let a storekeeper change my P50.00 course, or to take precaution, and the failure to do so constitutes negligence.
bill and by error he gives me P50.60, I have the duty to return the extra P0.60). [2154] (Picart v. Smith)
Requisites of Solutio Indebiti: Requisites of A Quasi-Delict

1) Receipt (not mere acknowledgement of something) 1) there is an act or omission
2) There was no right to demand it (because the giver had no obligation) 2) there is fault or negligence
3) Undue delivery was because of mistake (either of fact or of law) 3) there is damage caused
4) there is a direct relation of cause and effect between the act or omission and the
Note: damage
Other examples of quasi-contracts are provided in Art. 2164 2175 of the Civil 5) there is no pre-existing contractual relation
Code. The enumeration is NOT exclusive [2143].
A quasi-contract is a contract created by the acts of the gestor; NO express consent
is given by the other party. The consent needed is provided by LAW through CHAPTER 2 | NATURE AND EFFECT OF OBLIGATIONS
presumption (presumptive consent).
Art. 1163. Every person obliged to give something is also obliged to take care of it with
Art. 1161. Civil obligations arising from criminal offenses shall be governed by the penal the proper diligence of a good father of a family, unless the law or the stipulation of the
laws, subject to the provisions of Article 2177, and of the pertinent provisions of Chapter parties requires another standard of care. (1094a)
2, Preliminary Title, on Human Relations, and of Title XVIII of this Book, regulating
damages. (1092a) Dilligence of a good father of a family (Bonus Pater Familia) means the ordinary
care that an average (a reasonably prudent) person exercises in taking care of his
GR: Every person criminally liable for a felony is also civilly liable property.
Civil liability may be in the form of: GR: Every person should take care of a thing with the proper diligence of a good
o Restitution father of a family
o Reparation of the damage caused XPN:
o Indemnification of consequential damages [104, RPC] 1) Law / Stipulation of parties requires another standard of care (e.g.
XPN: Treason, Rebellion, Gambling slight/extraordinary diligence)
Art. 12 of RPC, providing for exempting circumstances exempts only the CRIMINAL 2) Common Carriers extraordinary diligence over goods and safety of
liability, not the CIVIL liability passengers transported by them is required
Note: As a general rule, whenever a criminal action is instituted, the civil action for 3) Banks duty bound to treat deposit accounts of their depositors with the
recovery of the civil liability is also impliedly instituted together with the criminal highest degree of care (Reyes vs. CA)
action. (Rule 111, ROC) Reason: Absent the duty of the obligor to take care of the thing, the obligation to
deliver would be illusory (as the thing might not be in the same condition as when
Art. 1162. Obligations derived from quasi-delicts shall be governed by the provisions of the obligation was contracted). Failure to preserve the SPECIFIC thing would give
Chapter 2, Title XVII of this Book, and by special laws. (1093a) rise to liability for damages unless it is due to a fortuitous event.
Quasi-Delict whoever by act or omission causes damage to another, there being Note: The parties may agree upon diligence which is MORE or LESS than that of a good father
fault or negligence, is obliged to pay for the damage done. Such fault or negligence, of a family but NOT to stipulate for absolute exemption from liability of the obligor for any
if there is no pre-existing contractual relation between the parties is a quasi-delict fault or negligence on his part (this is contrary to public policy). [1306]
[2176]
Quasi-delicts can refer to acts which are criminal in character (not only acts not
punished by law), whether the same be voluntary or negligent. (Elcano vs. Hill)
Negligence (Culpa)
Negligence - the omission of that diligence which is required by the circumstances
of person, place, and time. [1173]
CHAPTER 2 | NATURE AND EFFECT OF OBLIGATIONS Obligations and Contracts Reviewer Ateneo Law 2018| Marian Vanslembrouck |4
Art. 1164. The creditor has a right to the fruits of the thing from the time the obligation to o XPN:
deliver it arises. However, he shall acquire no real right over it until the same has been Subject to a suspensive condition, it arises from the happening
delivered to him. (1095) of the condition
Subject to a suspensive term / period, it arises from the lapse
of the term
Kinds of Fruits If there is a contrary stipulation of the parties with respect to
1. Natural Fruits the spontaneous products of the soil and the young and other the time when THING or FRUITS shall be delivered.
products of animals (e.g. grass) Example: If A is obliged to give B a Car on January 25, the obligation to deliver arises on such
2. Industrial Fruits those produced by land of any kind through cultivation or labor date. If the obligation of A is to give B such car if B passes the Bar, the obligation to deliver
(e.g. rice, corn, other crops through intervention of human labor) arises upon the fulfillment of such condition.
3. Civil Fruits fruits which are the result of a juridical relation such as the rent of a
building, price of a lease of land and other property and the amount of perpetual or Rights of the Creditor
life annuities [442] 1. Personal right (jus in personam or jus ad rem)
There is a definite active subject and definite passive subject; thus binding
Note: Delivery of the thing involves placing the thing in the possession or control of the only on a particular person
creditor either actually or constructively. Ownership and other real rights are acquired in the right or power of a person (creditor) to demand from another (debtor), as
certain contracts by DELIVERY. In sale, for example, although there might have already been a definite passive subject, the fulfillment of the latters obligation to give, to
a meeting of the minds and PERFECTION of the contract, the creditor does not become the do, or not to do.
owner of the thing until the specific thing has been delivered to him. Such as the right of the creditor to demand the delivery of the thing and its
fruits from the debtor.
Kinds of Delivery: 2. Real right (jus in re)
1) Actual Delivery (or tradition) where physically, the property changes hands. (ex:
Only a definite active subject; binding against the whole world
If A sells B a fountain pen, the giving by A to B of the fountain pen is actual tradition)
the right or interest of a person over a specific thing (like ownership,
2) Constructive delivery that where the physical transfer is implied. This may be
possession, mortgage), without a definite passive subject against whom the
done by:
right may be personally enforced (can be enforced against the whole world).
a. Symbolical Tradition use of token / symbol to represent (e.g. keys)
b. Traditio Longa Manu pointing out the thing which is in sight This is the right acquired by the creditor over the thing and its fruits when they
c. Traditio Brevi Manu kind of delivery whereby a possessor of a thing not have been delivered to him.
as an owner, becomes the possessor as owner (ex: when a tenant already in
possession buys the house he is renting) Note: From this it is clear that before the delivery of the thing and the fruits thereof, the
d. Traditio Constitutm Possessorium the opposite of brevi manu; thus, creditor has merely a personal right against the debtor a right to ask for the delivery of the
the delivery whereby a possessor of a thing as an owner, retains thing and the fruits. Once the thing and the fruits are delivered, then he acquires a real right
possession no longer as an owner, but in some other capacity (ex: like a over them, a right which is enforceable against the whole world.
house owner, who sells a house, but remains in possession as tenant of the same
house). Art. 1165. When what is to be delivered is a determinate thing, the creditor, in addition to
e. Tradition by public instrument substitution of real delivery of the right granted him by Article 1170, may compel the debtor to make the delivery.
possession by a public writing with the delivery of a document which If the thing is indeterminate or generic, he may ask that the obligation be complied with
evidences the transaction (ex: like the execution of a public instrument selling at the expense of the debtor.If the obligor delays, or has promised to deliver the same
land).
thing to two or more persons who do not have the same interest, he shall be responsible
for any fortuitous event until he has effected the delivery. (1096)
When obligation to deliver arises:
a) In obligations based on law, quasi-contracts, crimes and quasi-delicts, the specific Determinate thing one that is particularly designated or physically segregated
provisions of the applicable law shall determine when DELIVERY shall be effected from all others of the same class (my horse named Ebony, a 2009 Toyota Corolla
b) If the obligation is based on contracts: with engine no. 123456, body no. 54611, and plate no. FRS 840)
o GR: The obligation to deliver the thing (and fruits) from the PERFECTION Indeterminate/Generic Thing refers only to a class or genus to which it pertains
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of the contract. and cannot be pointed out with particularity (e.g. a horse, car, 10,000)
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As a general rule, contracts are perfected by mere consent. Commonly referred to as consensual
contracts, PERFECTION refers to the meeting of the minds between the parties. There are certain perfected until the delivery of the object of the obligation. WON it is consensual / real, the rule is that
contracts, however, called real contracts such as deposit, pledge, and commodatum which are not from the moment it is perfected, obligations which may be unilateral or bilateral arise.
Importance of knowing WON a thing is determinate / generic: Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at
o As a rule, the loss of a determinate thing through a fortuitous event his cost.
extinguishes the obligation. [1262] This same rule shall be observed if he does it in contravention of the tenor of the
o On the other hand, the loss or destruction of anything of the same class obligation. Furthermore, it may be decreed that what has been poorly done be undone.
or genus (generic thing) shall not extinguish the obligation. This is based (1098)
on the maxim that the genus of a thing can never perish (genus nunquam
peruit) This talks about Positive Personal Obligations (TO DO)
Specific performance is not a remedy in personal obligations (as compared to real
Remedies of the Creditor When the Debtor Fails to Comply With His Obligation obligations where the debtor can be compelled to deliver the specific thing);
1. demand specific performance (or compliance) of the obligation (whether otherwise, this may amount to involuntary servitude, which as a rule is prohibited
determinate or generic obligation) under our Constitution.
2. demand rescission or cancellation (in some cases) Remedies of Creditor if Debtor Fails to Do
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3. demand damages either with or without either of the first two, (a)/(b). 1. To have the obligation performed (by himself or by another) at debtors
expense (only if another can do the performance)
Loss Due to Fortuitous Event 2. to obtain damages. (Art. 1170, Civil Code).
GR: Loss due to a fortuitous event exempts debtor from responsibility. Note: Damages alone cannot substitute for performance if owners can do it; if
XPN: purely personal or special as a painting to be done by a reputed artist only
o Law damages may be asked, unless substitution is permitted.
o Stipulation to contrary When a Thing May Be Ordered Undone
o Nature of the obligation requires the assumption of risk 1. if made poorly (Here performance by another and damages may be
o Debtor promised to deliver same thing to two or more persons who do demanded).
not have the same interest [1165] 2. if the obligation is a negative (NOT TO DO) one (provided the undoing is
o Debtor was already in delay when the fortuitous event took place [1165] possible)
o Obligation arises from a criminal offense [1263]
o Object is lost and the loss is partly the fault of the debtor (Jurado) Art. 1168. When the obligation consists in not doing, and the obligor does what has been
forbidden him, it shall also be undone at his expense. (1099a)
Note: Ordinary delay is different from legal delay (default). The first is merely non-
performance at the stipulated time; default is that delay which amounts to a virtual This Article refers to a negative personal obligation.
nonfulfillment of the obligation. (As a rule, to put a debtor in default, there must be a In an obligation not to do, the duty of the obligor is to abstain from the act. Hence,
demand for fulfillment, the demand being either judicial or extrajudicial.) there is no specific performance.
The very obligation is fulfilled in not doing what is forbidden. Hence, in this kind of
obligation the debtor cannot be guilty of delay.
Art. 1166. The obligation to give a determinate thing includes that of delivering all its
accessions and accessories, even though they may not have been mentioned. (1097a) As a rule, the remedy is the undoing of the prohibited thing plus damages.
However, if it is not possible to undo what was done (physically/legally) or because
Accessories those joined to or included with the principal for the latters better of third persons in good faith, or some other reason, the remedy would be an
use, perfection, or enjoyment. (Ex: the keys to a house, the dishes in a restaurant.) action for damages.
Accessions fruits of a thing or additions to or improvements upon a thing. These
include alluvium (soil gradually deposited by the current of a river on a river bank) SUMMARY OF DUTIES AND RIGHTS OF DEBTORS AND CREDITORS
and whatever is built, planted, or sown on a persons parcel of land.
Effect of Stipulation: Of course, if there is a stipulation to said effect, accessions I. Obligation to Give (REAL Obligations)
and accessories do not have to be included.
Duties of the Debtor / Obligor With Respect to a Determinate Thing:
1. To deliver the thing which he has obligated himself to give [1244]
2. To take care of the thing with the proper diligence of a good father of a family
[1163]
3. TO deliver all accessions and accessories [1166]
4. Deliver the fruits [1164]
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The above remedies are not incompatible with each other. Hence, a creditor may file an action for 5. To pay damages in case of breach of the obligation [1170]
specific performance under 1165 and at the same time, avail of the action for damages under 1170.
Rights Available to Creditor / Obligee With Respect to a Determinate Thing Art. 1169. Those obliged to deliver or to do something incur in delay from the time the
1. To compel specific performance [1165] obligee judicially or extrajudicially demands from them the fulfillment of their obligation.
2. To ask for rescission or resolution
3. To recover damages in case of breach of the obligation [1170] However, the demand by the creditor shall not be necessary in order that delay may exist:
4. Right to the fruits and interests from the time the obligation to deliver arises [1164] (1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the
Duties of the Debtor / Obligor With Respect to a Generic / Indeterminate Thing: designation of the time when the thing is to be delivered or the service is to be rendered
1. To deliver a thing which must be neither of superior nor inferior quality [1246] was a controlling motive for the establishment of the contract; or
2. To pay damages in case of breach of obligation [1170]
(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.
Rights Available to Creditor/ Obligee With Respect to a Generic / Indeterminate Thing
1. To ask for performance of the obligation [1246] In reciprocal obligations, neither party incurs in delay if the other does not comply or is
2. To ask that the obligation be complied with by a third person at the expense of the not ready to comply in a proper manner with what is incumbent upon him. From the
debtor [1165] moment one of the parties fulfills his obligation, delay by the other begins. (1100a)
3. To ask for rescission
4. To recover damages in case of breach of the obligation [1170] Art. 1170. Those who in the performance of their obligations are guilty of fraud,
negligence, or delay, and those who in any manner contravene the tenor thereof, are
II. Obligation to Do (Positive PERSONAL Obligations) liable for damages. (1101)
Duties of the Obligor / Debtor Grounds for Liability in the Performance of Obligations
1. To comply with obligation to do [1167] 1. Fraud (deceit or dolo) (intentional evasion of fulfillment)
2. To shoulder the cost if someone else does it (unless personal considerations are 2. Negligence (fault or culpa)
involved) [1167] 3. Default (or mora) (if imputable to the debtor)
3. To undo what has been poorly done [1167] 4. Contravention of the tenor of the obligation (violatio) (unless excused in proper
4. To pay damages [1170-1172, 2201-2202] cases by fortuitous events)
Rights of a Creditor Kinds of Damages (Keyword MENTAL)

1. Have the obligation performed at the expense of the obligor (except when the a) Moral (for mental and physical anguish)
prestation consists of an act where the personal or special qualification of the b) Exemplary (corrective or to set an example)
obligor is the principal motive for the establishment of the obligation. In such a c) Nominal (to vindicate a right when no other kind of damages may be
case, the remedy is an action for damages. recovered)
2. Ask to undo what has been poorly done d) Temperate (when the exact amount of damages cannot be determined)
3. To recover damages in case of breach of the obligation [1170] e) Actual (actual losses as well as unrealized profit)
f) Liquidated (predetermined beforehand by agreement)
III. Obligation NOT to DO (Negative PERSONAL Obligations)
Duties of the Obligor / Debtor I. Fraud (see 1171)
1. Not to do what should not be done [1168] II. Negligence (see 1172, 1173)
2. To shoulder the cost to undo what should not have been done [1168] III. Delay (Mora)
3. To pay damages [1170] Failure to perform an obligation in due time
Delay is incurred from the time the obligee makes a judicial or extrajudicial
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Rights of A Creditor (if debtor does what has been forbidden) DEMAND
1. Have it undone at the expense of the debtor o To put a debtor in default, as a rule, DEMAND is needed.
2. To ask for DAMAGES, where it would be physically or legally impossible to undo o If extrajudicial, from the date of demand, and if judicial, from date of
what has been done because of: filing of complaint
a. The very nature of the act itself In reciprocal obligations, delay by the other begins from the moment one fulfils his
b. Rights acquired by third persons who acted in good faith obligation
c. When the effects of the acts prohibited are definite in character and will
not cease even if the thing prohibited be undone. 6
Ordinary delay is different from legal delay (default). The first is merely non-performance at the
stipulated time; it is converted to legal delay (default) when the obligee DEMANDS fulfillment.
Demand Not Necessary Effects of Mora Accipiendi:
GR: Without demand (judicial or extrajudicial), the effect of default will not arise a) Responsibility of the debtor for the thing is reduced and limited to fraud
XPN: and gross negligence
1. Obligation or law expressly so declares b) Debtor is exempted from the risks of loss of the thing, which
2. From the nature of the circumstances of the obligation it appears that automatically passes to the creditor
the time was a controlling motive c) All expenses incurred by the debtor for the preservation of the thing after
3. Demand would be useless: the delay shall be chargeable to the creditor
Caused by some act or fault of the debtor d) The creditor becomes liable for damages
Impossibility caused by a fortuitous event e) The debtor may relieve himself of the obligation by CONSIGNATION of
the thing
Requisites in Order to Consider the Obligor in Default f) If the obligation bears interest, the debtor does not have to pay from the
1. Obligation is Demandable and already liquidated moment of the mora (Tolentino)
2. The obligor/debtor Delays performance
3. The creditor requires Perfromance judicially or extra-judicially (SSS vs. Moonwalk) 3. Compensatio Morae delay of the parties in a reciprocal obligation; Neither party
incurs delay if the other does not comply or is not ready to comply in a proper
KINDS OF DELAY manner with what is incumbent upon him [1169] Except if there is a contrary
1. Mora Solvendi delay on the part of the debtor by not performing his obligation stipulation (e.g. installment basis)
after a demand/specified time and may either be:
a. Ex re obligations to give Effects of Compensatio Morae
b. Ex Persona obligations to do a) Delay of the obligor cancels delay of the obligee and vice versa
b) No actionable default on the part of both parties
Requisites: c) If delay of one party is followed by that of the other, the liability of the
a) obligation requires positive act first infractor shall be equitably balanced by the courts. If it cannot be
b) demandable, due and liquidated determined which of the parties is guilty of delay, the contract shall be
c) delay due to fraud or negligence deemed extinguished and each shall bear his own damages [1192]
d) creditor demands performance
Note:
Effects of Mora Solvendi There can only be delay in obligations to give and to do (positive obligations) and
a) If the debtor is in default, he may be liable for interest or damages. not in obligations not to give or not to do (negative obligations). One can never
b) He may also have to bear the risk of loss. (In both cases, it is, however, be late in not giving or doing something. No delay in NATURAL obligations as well.
essential that his being in default is attributable to his own fault.) Delay in the performance of the obligation must either be malicious or negligent.
c) He is liable even for a fortuitous event [1165] although damages here Hence, if the delay was only due to inadvertence without any malice or negligent,
may be mitigated if he can prove that even if he had not been in default, the obligor will not be held liable under Art. 1170. (RCBC vs. CA)
loss would have occurred just the same. [2215]
When Damages or Interest May Be Lost
2. Mora Accipiendi creditor is guilty of default when he unjustifiably refuses to -A creditor entitled to damages or interest because of MORA may lose the same
accept payment or performance at the time said payment or performance can be a) If the principal obligation is allowed to lapse by prescription;
7
done b) If the damages or interest are allowed to prescribe;
c) If the damages or interest are condoned (waived or remitted).
Requisites:
1) obligation requires cooperation of creditor for its fulfillment IV. Contravention of the Tenor
2) debtor has done ALL that is incumbent upon him means any illicit act, which impairs the strict and faithful fulfilment the obligation,
3) creditor refuses to accept or every kind of defective performance (Tolentino)
violation of the terms and conditions stipulated in the obligation, which must not
be due to a fortuitous event or force majeure(De Leon).
7
Read in Relation to Art. 1256-1261 (Tender of Payment and Consignation)
Art. 1171 Simple negligence may in certain cases be excused or mitigated
Responsibility arising from fraud is demandable in all obligations. Any waiver of an action The effect of contributory negligence of obligee is reduction of amount for
for future fraud is void. damages
Test of Negligence: Would a prudent man, in the position of the person to whom
Fraud referred to in this article is NOT the fraud to induce another to enter into a negligence was attributed, foresee harm to the person injured as a reasonable
contract. consequence to the course pursued? (Picart vs. Smith)
It refers to the fraud in the performance of an obligation (intentional evasion of
the normal fulfilment of an obligation) Effects of Negligence:
Any deliberate deviation from the normal way of fulfilling the obligation may be a 1. Damages are demandable which the court may regulate according to the
proper basis for claim for damages against the guilty party. circumstances [1172]
Implies some kind of malice or dishonesty and cannot cover cases of mistake and 2. Invalidates the defense of fortuitous event.
errors in judgment made in good faith. In such case obligor can be held liable for
damages. Kinds of Negligence:
1. Civil Negligence
Q: May an action arising from fraud be waived? a. Culpa Contractual fault or negligence of obligor by virtue of which he is
Past fraud may be waived (may be deemed an act of generosity). unable to perform his obligation arising from a pre-existing contract
Future fraud CANNOT be waived (renders the obligatory force of contracts b. Culpa Aquiliana / Quasi-delict fault or negligence of a person, whose
illusory). It is VOID. failure to observe the required diligence to the obligation causes damage
to another
Kinds of Fraud: 2. Culpa Criminal fault or negligence which results in the commission of a crime.
1. Fraud In The Performance Of The Obligation
2. Fraud In The Perfection Of The Contract Distinctions between the 3 Kinds of Culpa
a. Dolo Causante [1344] Culpa Contractual Culpa Aquiliana Culpa Criminal
b. DoloIncidente [1338] Negligence is incidental to Negligence is direct, substantive, Negligence is direct, substantive,
performance of obligation and independent of contract and independent of contract
Fraud During the Perfection of the Contract Fraud During The Performance Of The Obligation Contract No Contract No contract
When Employed Proof : preponderance of
Preponderance of evidence Guilt beyond reasonable doubt
Before or during the perfection of the contract During the performance of a pre-existing obligation evidence
Purpose of Execution NOT a proper defense.
Defense of good father of a Defense of good father of a
To secure the consent of another to enter into Employees guilt is automatically
To evade the normal fulfilment of the obligation family in selection of family is a proper and complete
the contract employers civil guilt (if former
employees NOT a defense defense
insolvent
Resultant Effect
Vitiation of Consent Breach of an Obligation
Status of the Contract Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence
Voidable Valid which is required by the nature of the obligation and corresponds with the circumstances
Right or Remedy of Aggrieved Party of the persons, of the time and of the place. When negligence shows bad faith, the
Right of innocent part to annul the contract Right of innocent part or creditor to claim for
provisions of Articles 1171 and 2201, paragraph 2, shall apply.
with damages damages
If the law or contract does not state the diligence which is to be observed in the
Art. 1172 performance, that which is expected of a good father of a family shall be required.
Responsibility arising from negligence in the performance of every kind of obligation is (1104a)
also demandable, but such liability may be regulated by the courts, according to the
Diligence the attention and care required of a person in a given situation
circumstances.
Due Diligence that measure of prudence as is properly to be expected from and is
Negligence omission of the diligence required by the nature of the particular ordinarily exercised by a prudent man under the particular circumstances
obligation and corresponds with the circumstances of persons, time and place Necessary Diligence degree of diligence a person must exercise in order to entitle
Courts have discretionary power to moderate liability (may increase or decrease) him to the protection of the law
according to the circumstances of the case Standard of Diligence Required: If nothing is stated, that of a Good Father of the
Gross negligence can never be excused in advance (contrary to public policy) Family
Negligence omission of the diligence required by the nature of the particular Classes of Fortuitous Events
obligation and corresponds with the circumstances of persons, time and place 1. As to origin or cause
a. Act of God event absolutely independent of human intervention (e.g.
Kinds of Diligence to be observed by Parties: earthquake, storms, flood)
1. Required by Law b. Act of Man (force majeure) event caused by legitimate or illegitimate
2. Stipulated by parties acts of persons other than the obligor (e.g. armed invasion, attack by bandits,
3. Diligence expected of a Good Father of a Family robbery, etc.)
2. As to foreseeability
Effect of Good Faith or Bad Faith in the Negligence of OBLIGOR Liability for Damages a. Ordinary events which ordinarily happen or which could be reasonably
GOOD FAITH BAD FAITH foreseen but are inevitable
Obligor is liable for ALL damages which can be b. Extraordinary those which do not usually happen and could not be
Obligor is responsible only for the Natural and
reasonably attributed to the non-performance of the reasonably foreseen
Probable Consequences of the breach [2201]
obligation [2201]
Note: Fortuitous event includes unavoidable accidents, even if there has been an
Note: intervention of human element, provided fault or negligence cannot be imputed to the
If obligees own negligence was the cause of his injury = CANNOT recover damages debtor. (Tolentino)
If negligence was only contributory = obligee MAY recover damages, but court shall
mitigate damages awarded Requisites for Exemption
1. Must be independent of the human will
Fraud Distinguished from Negligence 2. Event must be unforeseeable or unavoidable
Fraud Negligence 3. Must render it impossible for the debtor to fulfil the obligation in a normal manner
DELIBERATE intention to cause damage or NO DELIBERATE intention to cause damage (although 4. Debtor must be free of participation in the aggravation of the injury to the creditor
prejudice voluntary)
Liability CANNOT be reduced by courts Liability MAY BE reduced in certain cases8 Effect of Fortuitous Event:
Future waiver may be valid
On DETERMINATE obligation - the obligation is extinguished
Future waiver is void XPN: Nature of the obligation or public policy
requires extraordinary diligence (e.g. common carrier) On GENERIC obligation - the obligation is not extinguished (genus nun quam peruit
Presumed from the breach of contractual - genus never perishes)
Must be clearly proved
obligation
Liability For Fortuitous Event
GR: No liability for fortuitous event.
Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared
XPNs which Make Obligor Liable for Fortuitous Events
by stipulation, or when the nature of the obligation requires the assumption of risk, no
1. It is expressly specified by law
person shall be responsible for those events which could not be foreseen, or which,
(a) Obligor is in delay
though foreseen, were inevitable. (1105a)
(b) Debtor is guilty of fraud, negligence, delay or contravention
Fortuitous event occurrence which could not be foreseen, or if foreseen, is of the tenor of the obligation
inevitable (c) Obligor has promised to deliver the same thing to two or
The fortuitous event must not only be the proximate cause but it must also be the more persons who do not have the same interest
only and SOLE cause. Contributory negligence of the debtor renders him liable (d) Obligation to deliver a specific thing arises from a crime
despite the fortuitous event. (e) The object is a generic thing
2. Declared by stipulation
3. The nature of the obligation requires the assumption of risk
Assumption of Risk
8
Doctrinal basis: no wrong is done to one who consents (volenti non fit injuria)
Mitigation of Liability for Damages: refers to a situation in which the obligor or debtor, with full knowledge of the risk
1) Plaintiff himself has contravened the terms of the contract
voluntarily enters into some relation with the obligee or creditor
2) Plaintiff derived some benefit as a result of the contract
3) In cases of exemplary damages and defendant acted upon advice of counsel
4) Loss would have resulted in any event
5) Defendant has done his best to lessen plaintiffs loss since filing of action
Art. 1175. Usurious transactions shall be governed by special laws. (n) 2. Real (to GIVE) obligation:
a. Generic thing substitute performance; delivery may be made by a
Usury the exaction of excessive interest (more than the allowable rate set by law) person other than the debtor since the object is merely designated by its
Central Bank Circular 905 rendered usury legally non-existent. class or genus. The creditor may ask that the obligation be complied with
Unconscionable interests are reducible under Art. 21 of the CC for being contrary at the expense of the debtor. [1165]
to morals may be reduced by the courts b. Specific thing specific performance may be demanded, that is, the
Money Lenders do not have the authority to raise interest rates to any level creditor may compel the debtor to make the delivery
Increase of interest rate without petitioners assent violate the principle of
mutuality of contracts Subsidiary Remedies of Creditor
Jurisprudence provides that an interest rate of 24-25% per annum is fair (Frias vs. GR: Contracts are binding only between the parties thereto, and their heirs,
San Diego-Sison, Bacolor vs. Banco Filipino) assignees, and the estate, UNLESS: Accion Subrogatoria, Pauliana, Directa
1. Accion Subrogatoria: right of creditor to exercise all of the rights (except those inherent in
Art. 1176. The receipt of the principal by the creditor without reservation with respect to
the person) and bring all of the actions which his debtor may have against third persons; the
the interest, shall give rise to the presumption that said interest has been paid.
debtor of my debtor is also my debtor
The receipt of a later installment of a debt without reservation as to prior installments,
Requisites:
shall likewise raise the presumption that such installments have been paid. (1110a)
1) Debtor to whom the right of action properly pertains must be indebted to the
If creditor has issued a receipt to the debtor covering the principal obligation (with creditor
no reservation regards to interest due), there arises a REBUTTABLE presumption 2) The debt is due and demandable
that interest has already been paid 3) The creditor must be prejudiced by the failure of the debtor to collect his own debt
Receipt of a later installment also gives rise to the rebuttable presumption that the from 3rd persons either through malice or negligence
prior installments have also been paid 4) The debtors assets are insufficient (debtor is insolvent)
No presumption of payment of income taxes (taxes payable by the year NOT 5) The right of action is not purely personal to the debtor
instalments)
2. Accion Pauliana action to rescind where the creditor may impugn the acts which the
debtor may have done to defraud them
Art. 1177. The creditors, after having pursued the property in possession of the debtor to
satisfy their claims, may exercise all the rights and bring all the actions of the latter for the
Requisites:
same purpose, save those which are inherent in his person; they may also impugn the acts
1) There is a credit in favor of plaintiff prior to alienation
which the debtor may have done to defraud them. (1111)
2) Credit must be due and demandable.
Remedies of Creditors in Case of Breach 3) The debtor has performed a subsequent contract conveying a patrimonial benefit
1. Specific Performance performance of the debtor of the prestation to third persons
2. Substitute Performance someone else performs at debtors expense 4) The third person who received the property is an accomplice in the fraud
3. Action for Recission (or resolution in reciprocal obligations) cancellation of 5) The debtors acts are fraudulent to the prejudice of the creditor
contract
4. Action for Damages 3. Accion Directa A person may directly sue another even if there is no privity of contract
5. Exhaust debtors properties e.g. by attachment (except those exempt; see p.45) between them. The law in certain cases gives to the creditor a direct action, an action by the
6. Subsidiary remedies of creditors creditor in his own name but directed against the name of his debtor. [1652, 1729, 1608,
a. Accion subrogatoria 1114]
b. Accion pauliana
c. Accion directa
Art. 1178. Subject to the laws, all rights acquired in virtue of an obligation are
transmissible, if there has been no stipulation to the contrary. (1112)
Q: When may there be substitute performance?
1. Personal (to DO) obligation: GR: Rights are transmissible
a. If not purely personal - substitute performance; the obligation shall be XPN:
executed at debtors cost if he fails to do it. 1. Not transmissible by their very nature (i.e. PERSONAL right)
b. Purely personal no substitute performance may be demanded 2. Not transmissible by stipulation of the parties
(involuntary servitude). The only remedy is damages. 3. Not transmissible by operation of law
CHAPTER 3 | DIFFERENT KINDS OF OBLIGATIONS 3. As to possibility
SECTION 1. Pure and Conditional Obligations a. Possible capable of fulfilment (by law, nature, public policy and good
customs)
b. Impossible not capable of fulfilment (by law, nature, public policy, good
Art. 1179. Every obligation whose performance does not depend upon a future or customs)
uncertain event, or upon a past event unknown to the parties, is demandable at once. 4. As to mode
Every obligation which contains a resolutory condition shall also be demandable, without a. Positive an act is to be performed
prejudice to the effects of the happening of the event. (1113) b. Negative involves omission of an act
Condition a future and uncertain event upon which the existence or 5. As to divisibility
extinguishment of an obligation is made to depend a. Divisible capable of partial performance
Term / Period that which necessarily must come WON the parties will know it b. Indivisible not capable of partial performance
will happen 6. As to numbers
Pure obligation one without a condition or a term (demandable at once)
9 a. Conjunctive if all the conditions must be performed
Conditional obligation one whose consequences are subject to the fulfilment of a b. Alternative if only one/few of the conditions have to be performed
condition 7. As to form
o Suspensive condition the happening of the condition gives rise to the a. Express condition is expressly stated
obligation b. Implied condition not expressly stated
o Resolutory condition the happening of the condition extinguishes the
obligation Art. 1180. When the debtor binds himself to pay when his means permit him to do so, the
Past Event Unknown to Parties what is really meant is future knowledge of a obligation shall be deemed to be one with a period, subject to the provisions of Article
10
past event will determine WON an obligation will arise. 1197. (n)
When his means permit payment does not depend on debtors will (since he
PERIOD CONDITION
As to Time
promised payment)
May refer to past event unknown to the o What depends on him is not payment, but the TIME when the payment is
Refers to the future to be made
parties
As to Fulfillment The obligation will then be considered as Obligation with a TERM or PERIOD
It will happen at an exact date or at an indefinite The Court is then obliged to fix the duration of the period (it would be unjust to
time, but is May or may not happen leave the discretion to either)
sure to arrive GR: Creditor must ask court first for fixing of the term. When the term arrives, he
As to its Influence on the Obligation to be Fulfilled or Performed can demand fulfilment.
No effect or influence upon the existence of the May give rise to an obligation (suspensive) or XPN: If prior action fixing the term would serve no purpose but delay = IMMEDIATE
obligation but only in its demandability or the cessation of one already existing action may be allowed.
performance (resolutory)
Classification of Conditions Art. 1181. In conditional obligations, the acquisition of rights, as well as the
1. As to effect extinguishment or loss of those already acquired, shall depend upon the happening of the
a. Suspensive happening of condition gives rise to obligation event which constitutes the condition. (1114)
b. Resolutory happening of condition extinguishes the obligation
2. As to cause or origin Suspensive Condition / Condition Precedent / Condition Antecedent
a. Potestative depends on the will of the debtor Happening of which gives rise to the obligation
b. Casual depends on chance / hazard or the will of a third person Its obligatory force depends on the happening of a future and uncertain event
c. Mixed depends partly on the will of one of the parties and partly on If it does not take place, it is as if the conditional obligation never existed
chance or the will of a third person
Resolutory Condition / Condition Subsequent
Happening of which extinguishes the rights and obligations already existing
9
Though demandable at once, the debtor should be given a reasonable period to perform the obligation Rights already acquired are lost once the condition is fulfilled
depending on the nature and complexity of such. (Tolentino)
10
Is NOT exactly a condition (there is no element of uncertainty, as it already happened)
CHAPTER 3 | DIFFERENT KINDS OF OBLIGATIONS Obligations and Contracts Reviewer Ateneo Law 2018| Marian Vanslembrouck |12
Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, Note: This applies only to obligations and contracts, not to wills or donations. In
the conditional obligation shall be void. If it depends upon chance or upon the will of a said case, the impossible condition is just disregarded and the will or donation
third person, the obligation shall take effect in conformity with the provisions of this remains valid (liberality of the giver is the reason for the gift)
Code. (1115)
Art. 1184. The condition that some event happen at a determinate time shall extinguish
This article applies ONLY to Suspensive Conditions
the obligation as soon as the time expires or if it has become indubitable that the event
Does NOT apply to Resolutory Conditions (if resolutory condition is dependent on
will not take place. (1117)
sole will of debtor it is still VALID)
The reason behind the invalidity of conditional obligations in cases of pure This article deals with POSITIVE conditions (performance of an act)
Potestative condition on the part of the debtor is to prevent establishment of Effect: Obligation is EXTINGUISHED if condition has not been fulfilled and:
illusory obligations a) period has lapsed
b) the event is certain not to happen
Effects of Conditions covered by the Article: If the period is not fixed in the contract, the COURT, considering the partys
1. Potestative (Facultative) Condition depends on exclusive will of one of the parties; intentions should determine what period was really intended
Effects:
Exclusive Will of Debtor and a Suspensive Condition VOID obligation Art. 1185. The condition that some event will not happen at a determinate time shall
Exclusive Will of DEBTOR and a Resolutory Condition VALID obligation render the obligation effective from the moment the time indicated has elapsed, or if it
Exclusive Will of CREDITOR VALID obligation has become evident that the event cannot occur.
2. Casual Condition - depends on chance OR upon the will of a third person = VALID
3. Mixed Condition depends partly on (a) will of the parties & (b) chance/ will of 3rd If no time has been fixed, the condition shall be deemed fulfilled at such time as may have
person = VALID probably been contemplated, bearing in mind the nature of the obligation. (1118)
This article talks about negative conditions
Art. 1183. Impossible conditions, those contrary to good customs or public policy and
Effect: Condition that some event will NOT happen at a specified time, will make
those prohibited by law shall annul the obligation which depends upon them. If the
the Obligation EFFECTIVE if:
obligation is divisible, that part thereof which is not affected by the impossible or
a) Specified time already lapsed without the event happening
unlawful condition shall be valid.
b) It has become definite that the event will NOT occur
The condition not to do an impossible thing shall be considered as not having been agreed
upon. (1116a) Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents
its fulfillment. (1119)
Deals with the effect of impossible and illegal conditions
Applies only to cases where condition was already IMPOSSIBLE from the time of CONSTRUCTIVE FULFILLMENT of Obligation not an actual fulfilment of an
11 obligation
the creation of the obligation
Rationale: One must not profit by his own fault
Impossible Requisites:
Physically impossible contrary to law of nature (e.g. make dead man alive) 1. Voluntarily made (either malicious or not, intent to prevent must be
Juridically impossible contrary to law, public policy, morals and good customs present)
2. Actually Prevents
Effect on Obligation: 2. Intention without prevention or prevention without intentions is NOT sufficient.
If condition imposed is impossible = VOID obligation 3. Generally applies only to a suspensive condition, may sometimes apply to
If obligation is divisible, portion not affected by the impossible condition shall be resolutory condition
valid.
If the condition is not to do an impossible thing, it shall be considered as not having
been agreed upon. Consequently, it becomes pure and immediately demandable.
11
Otherwise it would fall under Art. 1266 (Subsequent Impossibility)
Art. 1187. The effects of a conditional obligation to give, once the condition has been Effect of Fulfillment of Suspensive Conditions = Obligation becomes effective
fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when From what day?
the obligation imposes reciprocal prestations upon the parties, the fruits and interests 1. RETROACTS (as a general rule) to the day the obligation was constituted
during the pendency of the condition shall be deemed to have been mutually 2. NO retroactivity with reference only to Fruits or interests
compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and Unilateral obligations debtor gets fruits and interests, unless there is a
interests received, unless from the nature and circumstances of the obligation it should contrary intent
be inferred that the intention of the person constituting the same was different. Reciprocal obligations fruits and interests during pendency of condition
shall be deemed to compensate each other
In obligations to do and not to do, the courts shall determine, in each case, the retroactive
effect of the condition that has been complied with. (1120) Art. 1188. The creditor may, before the fulfillment of the condition, bring the appropriate
actions for the preservation of his right.
This article only applies to suspensive conditions where there was fulfillment
Once the condition is fulfilled, its effects shall retroact to the day when the
The debtor may recover what during the same time he has paid by mistake in case of a
obligation was constituted.
suspensive condition. (1121a)
The retroactivity is explained by the fact that the condition is NOT an essential
12
element of the obligation Action to Preserve Creditors Rights: If not allowed to take appropriate actions,
During the pendency of the fulfillment of the suspensive condition, the Obligor there is a danger that the creditor will receive nothing
CANNOT alienate the subject property if it is determinate This article does NOT grant preference of credit but only allows the bringing of the
o If it is alienated: alienation will be annulled when the condition happens, proper action for preservation of the credit.
as obligee has a better and superior right than the transferee
o If good faith 3rd person acquired it: Obligee cannot recover. Remedy is Examples of Remedies Available to Creditors:
damages. 1. Action for prohibition - restraining the alienation of the thing
o If bad faith 3rd person: Compelled to deliver the thing or its value, plus 2. Recording of Creditors Right - in appropriate Registry of deeds, if real property is
damages involved
During the pendency of the fulfillment of the suspensive condition, the Obligee 3. Action to Demand security if debtor has become insolvent
May Alienate 4. Action to Set Aside Alienations by Debtor in fraud of creditors
o Alienation shall be convalidated by the fulfillment of the condition and 5. Action against adverse possessors interrupt running of the prescriptive period
the rights of the transferee are consolidated.
In personal obligations, court may determine their retroactive effect Rights Of Debtor: Entitled to recover what he has paid by mistake prior to the happening of
the suspensive condition
To Give To Do/Not To Do The creditor may or may not be able to fulfil the condition so it is not certain that
If reciprocal, the fruits and interests shall be In obligations to do or not to do, the court the obligation will arise
deemed to have been mutually shall determine the retroactive effect of the The payment must be by mistake (if not, impliedly waived the condition)
compensated as a matter of justice and condition that has been complied with. (Art.
convenience (Art. 1187, par. 1) 1187, par. 2) Art. 1189. When the conditions have been imposed with the intention of suspending the
If unilateral, the debtor shall appropriate the The power of the court includes the efficacy of an obligation to give, the following rules shall be observed in case of the
fruits and interests received, unless from the determination whether or not there will be improvement, loss or deterioration of the thing during the pendency of the condition:
nature and circumstance it should be any retroactive effects. This rule shall (1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;
inferred that the intention of the persons likewise apply in obligations with a (2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is
constituting the same was different. resolutory condition understood that the thing is lost when it perishes, or goes out of commerce, or disappears
in such a way that its existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the impairment is to be
borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may choose between the
rescission of the obligation and its fulfillment, with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the improvement shall inure to the
12
An obligation can exist without being subject to a condition. Had the parties known beforehand that benefit of the creditor;
the condition would be fulfilled they would have bound themselves under a pure obligation. Hence, the (6) If it is improved at the expense of the debtor, he shall have no other right than that
obligation should be considered from the time it is constituted and not from the time the condition was granted to the usufructuary. (1122)
fulfilled.
Article only applies if: Effects of Fulfillment of Resolutory Condition
a) Obligation is a REAL obligation 1. Real obligations:
b) Object is determinate a) The parties shall return to each other what they have received (including
c) Obligation is subject to a suspensive condition which is fulfilled fruits and interests)
d) There is loss, deterioration, or improvement of the thing during the b) Obligation is extinguished.
pendency of the condition. c) In case of the loss, deterioration or improvement of the thing, Art. 1189,
NO OBLIGATION if condition is not fulfilled. The effects of deterioration, loss or with respect to the debtor, shall be applied to the party who is bound to
improvement of the thing will concern the debtor alone. return.
2. Personal obligationsthe courts shall determine, in each case, the retroactive
Object may: effect of the condition that has been complied with.
1. Be Lost 3. Reciprocal obligations fruits and interests shall be compensated against each
a) When it perishes other. The law allows compensation up to the current amount.
b) When it goes out of commerce
c) Disappears in such a way that its existence is unknown Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
d) Disappears in such a way that it cannot be recovered the obligors should not comply with what is incumbent upon him.
2. Deteriorate impairment or reduction of the value or utility of the thing which does The injured party may choose between the fulfillment and the rescission of the obligation,
not amount to total loss with the payment of damages in either case. He may also seek rescission, even after he
3. Be improved increases the value of the thing; by time/nature, addition of has chosen fulfillment, if the latter should become impossible.
something The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
Art. 1189 With Debtors Fault Without Debtors Fault
This is understood to be without prejudice to the rights of third persons who have
Obligation is extinguished (fortuitous event) if
LOSS Payment of damages
determinate
acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law.
Creditor may choose recission of (1124)
the obligation or fulfillment APPLIES ONLY TO: Reciprocal obligations
DETERIORATION Creditor shall bear impairment
(with indemnity for damages in
Reciprocal Obligations one where two parties are mutually debtor and creditor
either case)
1. By the things nature or by time inure to the benefit of the creditor
of each other in the SAME transaction
2. At the debtors expense DR shall have no right other than that granted to a Breach of contract failure without legal reason to comply with the terms of a
IMPROVEMENT contract
usufructuary (not entitled to indemnification, but may remove improvements, if
doing so causes no damage to property) Power to Rescind right to cancel the contract or reciprocal obligations in case
of non-fulfillment on the part of one.
Art. 1190. When the conditions have for their purpose the extinguishment of an EFFECT: Recission abrogates the contract from its inception and requires a MUTUAL
obligation to give, the parties, upon the fulfillment of said conditions, shall return to each RESTITUTION of benefits received. You place parties in their original situation
other what they have received. Recission referred to here is more aptly referred to as resolution
In case of the loss, deterioration or improvement of the thing, the provisions which, with
respect to the debtor, are laid down in the preceding article shall be applied to the party Article 1191 Resolution Articles 1380, 1381 Recission
Principal action which seeks the resolution or Subsidiary action limited to cases or rescission for
who is bound to return.
cancellation of the contract. lesion in 1381; NOT necessarily cancellation
Predicated on breach of faith by the defendant Predicated on injury to economic interests
As for the obligations to do and not to do, the provisions of the second paragraph of which is violative of the reciprocity between
Article 1187 shall be observed as regards the effect of the extinguishment of the parties
obligation. (1123) Reciprocal Obligations Only Unilateral and reciprocal obligations.
Only the a party to the contract may demand Even a third person who is prejudiced by the
Refers to fulfillment of resolutory condition = obligation is then extinguished
the fulfillment or seek the rescission contract may demand the rescission of the
It is as if the obligation did not exist, the parties are back to status quo before the (cancellation) of the contract. contract
constitution of their obligation Purpose: To cancel the contract. To seek reparation for the damage or injury
caused, thus allowing partial rescission of contract.
Who Can Rescind The Contract? Proof of violation of agreement is (evidence) needed to justify recission
The party who is able to comply with his own obligations while the other is not able Recission of contract done at the Regional Trial Courts
to perform his own.
A party who has not performed his part (guilty) in the obligation CANNOT rescind. Recission Without Judicial Approval
He who comes to court must come with clean hands. 1. Express stipulation of automatic recission without need of judicial action
Here the parties validly enter into an agreement that violation of the
Remedies Available to Injured Party terms of the contract would cause cancellation thereof even WITHOUT
1. Fulfillment / Specific performance of the obligation (with damages) judicial intervention or permission.
2. Recission of the contract (with damages) LIMITATION: Resolutory provision must not be contrary to law morals,
good customs, public order or public policy
Rules to Apply In Choosing Which Remedy RECISSION TAKES EFFECT: After creditor has notified the debtor in writing
GR: May only choose one or the other remedy above (cannot ask for both) of his choice of recission
XPN: The extrajudicial recission has legal effect where such party does not
o If fulfillment had been chosen but had become impossible, recission may oppose it. Where it is objected to, a determination of the issue by the
still be sought. court is necessary.
o If there is valid basis for extension of the performance of the reciprocal 2. Where contract is still executory
obligation, court will not decree recission but will fix a period When there is NO performance yet by both parties, but one is ready and
o There may be partial recission and partial performance (Tan Guat vs. willing to comply with what is incumbent upon him and the other is not.
Pamintuan) Example: No delivery yet of the object (if already delivered, judicial
approval needed)
Characteristics of the Right to Rescind Under This Article
13
a) It exists only in reciprocal obligations. Extrajudicial Recission
b) It can be demanded only if the plaintiff is ready, willing, and able to comply with his The cancellation made by the injured party who relies on stipulation of automatic
14
own obligation, and the other is not. recission provided in the contract is PROVISIONAL.
c) The right to rescind is NOT absolute. Thus: It is Subject to Judicial Scrutiny only FINAL JUDGMENT of the court will settle
15
(1) Trivial causes or slight breaches will not cause rescission. Only WON action taken was correct
17
SUBSTANTIAL ones!
(2) If there be a just cause for fixing the period within which the debtor can
comply, the court will not decree rescission. Art. 1192. In case both parties have committed a breach of the obligation, the liability of
(3) If the property is now in the hands of an innocent third party (in Good the first infractor shall be equitably tempered by the courts. If it cannot be determined
Faith) who has lawful possession of the same remedy is indemnification which of the parties first violated the contract, the same shall be deemed extinguished,
for value of thing and damages and each shall bear his own damages. (n)
d) The right to rescind needs judicial approval in certain cases, and in others, does not First infractor known = If both parties violated he obligation, the liability of the
need such approval. Extrajudicial rescission of a contract is only possible when FIRST infractor should be equitably reduced
there is an express stipulation to that effect. o First infractor cannot be determined = contract shall be deemed
e) The right to rescind may be waived, expressly or impliedly. extinguished and each shall bear his own damages
Note:
It is the judgment of the Court and not the mere act of the vendor which produces
the recission.
Recission is still applicable even if not expressly agreed upon in a reciprocal
16
contract (implied) should the other obligor fail to comply with its obligations
16
The right to rescind is implied (presumed) to exist in every contract and, therefore, need not be
13
Note however, that if the obligation is reciprocal BUT with a period, neither party can demand expressly stipulated upon. But unlike those contracts which expressly stipulate automatic recission
performance or be considered in default before the expiration of the period. without judicial action, one must still go to court.
14 17
Otherwise, if neither is ready, neither can resolve. Neither can the guilty party. This doesnt mean though that at the time that it was extra judicially rescinded its still not binding. Its
15
Rescission may be had only for such breaches that are so SUBSTANTIAL and fundamental as to defeat binding, what this just means is that if the other party questions it, he may bring it to court and the court
the object of the parties in making the agreement. will decide if the extrajudicial recission made by the other party was correct.
SECTION 2. Obligations with a Period Effect of Term/ Period: Demandable only when the day fixed for their performance arrives
Remember:
Refer to page 11 for the difference between a period and a condition.
Art. 1193. Obligations for whose fulfillment a day certain has been fixed, shall be
Remember also that Art. 1180 provides that when the debtor binds himself to pay
demandable only when that day comes.
when his means permit him, the obligation shall be deemed one with a period.
Obligations with a resolutory period take effect at once, but terminate upon arrival of the
day certain.
Quick Drills: Term / Condition (Answers below):
18
1. I will begin supporting you if X dies.
A day certain is understood to be that which must necessarily come, although it may not 19
2. I will begin supporting you from the time X dies of a heart attack.
be known when. 20
3. I will give you P800 a month until the end of the year.
21
4. I will pay you 30 days from today.
If the uncertainty consists in whether the day will come or not, the obligation is 22
5. I will pay you my debt when my means permit me to do so.
conditional, and it shall be regulated by the rules of the preceding Section. (1125a) 23
6. I will pay you at the end of this month.
24
Period / Term future and certain event upon the arrival of which the obligation 7. I will support you from the time X marries.
25
subject to it either arises or is terminated. It is a day certain which must come 8. I will support you until you die.
26
although it may now be known when. 9. I will support you until you graduate from college.
Day Certain that which must necessarily come, although it may not be known
when
Art. 1194. In case of loss, deterioration or improvement of the thing before the arrival of
On or about period, means only a few days after stated date. Never a remote the day certain, the rules in Article 1189 shall be observed. (n)
date or one fixed by the obligor.
However if it is on or before, the deadline is fixed. (ex. On or about Jan. 31, Involves loss, deterioration, improvement of the thing before the day certain
may include a few days after. While on or before Jan. 31, means the deadline is See comments under Article 1189 as the principles are the same
on Jan. 31)
Period of prescription commences from the time the term in the obligation arrives, Art. 1195. Anything paid or delivered before the arrival of the period, the obligor being
for it is only from that date that it is due and demandable. unaware of the period or believing that the obligation has become due and demandable,
may be recovered, with the fruits and interests. (1126a)
Kinds of Period or Term
1. According to effect Applies only to obligations to give article speaks of payment or delivery
a) Ex die SUSPENSIVE period; the obligation becomes effective only upon NO recovery in personal obligations physically impossible to recover services
the arrival of a certain day (ex. I will pay you 30 days from today) rendered
b) In Diem RESOLUTORY period; the obligation is valid up to a day certain Rationale: prevent unjust enrichment of the creditor
and terminates upon the arrival of a certain day (ex. I will support you Recover what: Payment, Fruits and Interests
until you die) The law presumes that the debtor knew of the prematureness. He has the burden
2. According to source of proving that he was unaware.
a) Legal when period is fixed by law
b) Voluntary / Conventional when period is agreed upon by the parties Requisites To Be Able To Recover:
c) Judicial when it is fixed by the court (for performance or 1. Must have been unaware of the period
extinguishment of an obligation) 2. Must have believed that obligation is due and demandable
3. According to definiteness
a) Definite exact date or time is known (ex. next Christmas)
18
b) Indefinite arrival of date or time is not known although it will happen Term (suspensive); even if the word IF was used, there is no doubt X will eventually die sooner or later
19
(ex. Death of a person) Condition (suspensive); X will die sooner or later, BUT we are not sure whether or not he will die of a
heart attack.
20
Requisites of a Valid Term or Period Term (resolutory)
21
Term (suspensive)
1. Must be future 22
Term (suspensive)
2. Must be certain (sure to come) but can be extended (by mutual agreement) 23
Term (suspensive)
3. Must be possible physically/legally 24
Condition (suspensive); here we cannot be sure WON X will marry.
25
Term (resolutory)
26
Condition (resolutory)
Consequences of Premature Payment or Delivery Reasons Why Creditor Cannot Be Compelled To Accept Before the Arrival of the Period
1. Good Faith 1. Payment of Interest (lessened interest if premature payment is done)
NOT aware of the period or believed the obligation was due and demandable 2. Creditors desire to have his money invested safely rather than having it in his
Effect: Can recover what was paid including fruits and interests hands (period protects him from decline in purchasing power of the currency)
2. Bad Faith 3. Usury Law ( special prohibition on payment of interest in advance of more than a
Was Aware of period and paid voluntarily year)
Effect: CANNOT recover payment or delivery he made
Deemed to have waived the benefit of the term and obligation is considered How Terms or Periods Are Computed
to be matured When the laws speak of years, months, days or nights, it shall be understood that
o years are of three hundred sixty-five days each;
Situations in Which No Recovery Can Be Made Even If Conditions in the Article Present o months of thirty days;
1. In reciprocal obligations and there has been premature performance on both sides o days of twenty-four hours;
2. When the Obligation is a loan which the debtor is bound to pay interest o and nights from sunset to sunrise.
3. Period is for the benefit of the creditor (debtor paying in advance loses nothing) If months are designated by their name, they shall be computed by the number of
days which they respectively have.
Note: In solutio indebiti, there is no debt or obligation to pay. In comparison in Art. 1195, In computing a period, the first day shall be excluded and the last day included.
there exists a debt or obligation which will become demandable upon arrival of the period. (Art. 13, NCC).
Art. 1196. Whenever in an obligation a period is designated, it is presumed to have been Art. 1197. If the obligation does not fix a period, but from its nature and the
established for the benefit of both the creditor and the debtor, unless from the tenor of circumstances it can be inferred that a period was intended, the courts may fix the
the same or other circumstances it should appear that the period has been established in duration thereof.
favor of one or of the other. (1127) The courts shall also fix the duration of the period when it depends upon the will of the
debtor.
Applies only when parties themselves have fixed a period (not the Court) In every case, the courts shall determine such period as may under the circumstances
No early demand from creditor, no early payment by debtor have been probably contemplated by the parties. Once fixed by the courts, the period
Debtor has no right to accelerate payment of the obligation, UNLESS the creditor cannot be changed by them. (1128a)
consents.
The presumption is rebuttable Applies if the parties have NOT fixed a period for the fulfillment of the obligation
Status of the obligation is suspended before the period had been fixed
PRESUMPTION AS TO BENEFIT OF PERIOD If the obligation does not state a period and NO period is intended, the court is not
GR: Presumed to have been established for the benefit of BOTH the creditor and debtor authorized to fix a period. The courts have NO right to make contracts for the
EXCEPTION: parties.
1. Term is for the benefit of the DEBTOR Whenever the court fixes the term of an obligation, it merely enforces or carries
Debtor cannot be compelled to pay prematurely (can oppose the premature out the intention of the parties. It cannot arbitrarily fix a period out of thin air.
demand to perform the obligation), but he can if he desires to do so. Once the court has fixed the period, it CANNOT be extended or changed by the
Loan without interest is generally for the benefit of the debtor courts as it becomes part of the contract. The parties may of course change the
When payment is to be made within a certain period from date of contract period by mutual agreement.
Ex: A will pay B within 6 years A can pay anytime even after one week from Specific performance cannot be demanded simultaneously with a petition for
the time the obligation was contracted fixing of a period as the former is premature. XPN: Latter serves no purpose but
2. Term is for the benefit of the CREDITOR delay.
Creditor can demand fulfillment before arrival of the term BUT debtor cannot Prescriptive Period for Filing of Action (to fix the period) is 10 years from perfection
require him to accept payment before the expiration of the stipulated period of the contract
Usually only exists if there is a stipulation to this effect
Ex: A promised to pay B on Dec. 31, 2014, with the stipulation that B can
demand performance even before said date
When the Court May Fix a Period Loss of the Right to Use the Period or Term
1. No period is fixed but a period is intended 1. When debtor becomes insolvent
Contract to construct a house where the period is not stated (Concepcion vs. Insolvency does NOT have to be judicially declared
People) It is enough that the debtor cannot pay his financial obligations due to
Donation where land was given provided certain construction were to be lack of money
made on it. Here the time within which construction is to be made should be Insolvency must occur AFTER the obligation has been contracted
fixed by the courts (Barreto vs. City of Manila) Obligation becomes pure unless the debtor gives sufficient guaranty and
In a lease contract where the stipulation reads that the owners of the land security
undertake to maintain the Lawn Tennis Club as tenant as long as the latter 2. When debtor does not furnish guaranties or securities promised
shall see fit (Eleizegui vs. Lawn Tennis Club) Ex: Debtor makes a mortgage in favor of a third person instead of the
In a sale on credit, when the parties forgot to state in the invoice the period creditor.
for payment (Cosmic Lumber vs. Manois) 3. When guaranties or securities given have been impaired or have disappeared
2. Duration of the period depends on the will of the debtor There is an impairment (fault of the debtor) of the securities or the same
When my means permit me to do so [1180] got LOST by a fortuitous event (In Fortuitous event it must completely
As soon as possible (Gonzales vs. Jose) disappear)
Obligation becomes pure unless immediately provided with an equally
How the Court Fixes the Period satisfactory security.
The Court determines the period by considering the time probably contemplated by Ex: Mortgaged house is allowed to decay; Mortgaged house completely
the parties. Once the period is fixed by the courts, the period becomes part of the lost in a typhoon
contract, thus the courts cannot change it. 4. When debtor violates an undertaking
The parties may of course change the period by mutual agreement, or may even (Ex. Employee violation of employment contract)
disregard the same (Barretto v. City of Manila) in which case, the obligation 5. When debtor attempts to abscond
becomes a pure one, and demandable at once. Mere attempt to abscond is sufficient indication of BAD FAITH
Mere physical leaving with no intent to defraud is not sufficient
When the Court May NOT fix a Period
1. If there is a period agreed upon and it has already lapsed
2. No term was specified as no term was intended
3. Obligation or note is payable on demand (Peoples Bank vs. Odom)
4. Specific periods are provided for by law
Art. 1198. The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes insolvent, unless he
gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities which he
has promised;
(3) When by his own acts he has impaired said guaranties or securities after their
establishment, and when through a fortuitous event they disappear, unless he
immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration of which the
creditor agreed to the period;
(5) When the debtor attempts to abscond. (1129a)
Applies ONLY if the parties have fixed a period for the fulfillment of the obligation
GR: Obligation is not demandable before the lapse of the period.
In any of the exceptions, the debtor shall lose every right to make use of the
period.
The period is disregarded and the obligation becomes PURE and immediately
demandable.
SECTION 3. Alternative Obligations Art. 1201. The choice shall produce no effect except from the time it has been
communicated. (1133)
Art. 1199. A person alternatively bound by different prestations shall completely perform 3. Since the law requires no specific form, choice can be communicated orally, or in
one of them. writing, expressly or impliedly (such as by performance of one of the obligations)
The creditor cannot be compelled to receive part of one and part of the other 4. Concurrence of the creditor to the choice made by the debtor NOT required
undertaking. (1131) 5. The burden of proving that a choice has been communicated is upon him who
made the choice.
Simple Obligation one where there is only one prestation (Ex. A promised to repair Bs car) 6. In case of plurality of debtors or creditors (joint obligations), ALL must give their
consent. UNLESS the obligation is Solidary, in which the choice of one is binding to
Classification of Obligations with Plurality of Prestations or Objects all.
1. Conjunctive Obligation one where there are several prestations and ALL of them are due
2. Alternative Obligation one where several prestations are due but the performance of Effects of Choice or Selection
one is sufficient 1. Becomes a SIMPLE obligation (Obligation is limited to the prestation chosen)
3. Facultative Obligation one where only one prestation is due but the debtor may 2. The choice is irrevocable (other party may be exposed to damages for instance
substitute another from costly preparations in anticipation of the performance of the announced
prestation)
Example of Alternative Obligation: A will give B this car or this ring or this fountain pen. A
does not have to give B all the three things enumerated. The giving of one is sufficient to Note: In case of delay, the fair resolution it to punish the one who is supposed to choose. If
satisfy the obligation. the debtor is in delay, court may authorize the creditor to make the choice and vice versa.
Reason for Communicating Choice to Debtor
Note: Performance must be COMPLETE. The creditor cannot be compelled to receive parts of In Ong Guan Can vs. Century Insurance, the SC stated that the debtor must notify
the different prestations. (In the example above, he cannot be compelled to accept half the the creditor in order for creditor to express his consent or disagreement.
car and half the ring). This is an ERROR, because the debtor is then being deprived of his right, under the
law, to make the choice.
Real Purpose of the Notice:
Art. 1200. The right of choice belongs to the debtor, unless it has been expressly granted o Inform the creditor that the obligations is now a simple one, no longer
to the creditor. alternative;
o And if already due, for the creditor to receive the object being delivered,
The debtor shall have no right to choose those prestations which are impossible, unlawful if tender of the same has been made.
or which could not have been the object of the obligation. (1132)
1. GR: The right to choose the prestation to be performed belongs to the DEBTOR. In Requisites for Making of the Choice
the absence of any stipulation, the debtor is given the right of choice Made properly so that the creditor will know
2. XPN: Made with full knowledge that a selection is being made
1. May be exercised by the creditor only if EXPRESSLY granted to him. Made voluntarily and freely
(Implied grant of the right of the creditor is NOT allowed). Made in due time, that is, before or upon maturity
2. May be exercised by a third person when the right is given to him by Made to all proper persons
common agreement [1306] Made without conditions unless agreed to by the creditor
May be waived, expressly or impliedly (rights in general may be waived)
Limitation on Debtors Choice
1. Impossible (ex. A soil from Jupiter)
2. Unlawful (ex. Kill a person) Art. 1202. The debtor shall lose the right of choice when among the prestations whereby
3. Or which could not have been the object of the obligation (ex. Giving of a calesa he is alternatively bound, only one is practicable. (1134)
horse instead of a race horse as agreed) When only one prestation is practicable (e.g. the others have become impossible),
4. Only one prestation is practicable, the obligation becomes simple. the debtor loses his right of choice.
The obligation loses its alternative character and becomes a simple obligation.
Note: In an obligation with a term, the general rule is that the term is for the benefit of both If more than one is practicable, it is Art. 1200 that will apply.
the creditor and debtor. In an alternative obligation, the general rule is that the debtor has This article applies only to DEBTORS. If creditor is given the right to choose = 1205.
the right of choice.
Art. 1203. If through the creditor's acts the debtor cannot make a choice according to the Art. 1205. When the choice has been expressly given to the creditor, the obligation shall
terms of the obligation, the latter may rescind the contract with damages. (n) cease to be alternative from the day when the selection has been communicated to the
debtor.
When Debtor Cannot Make A Choice Due to The Creditors Acts:
Until then the responsibility of the debtor shall be governed by the following rules:
o The debtor may RESCIND the contract with damages.
(1) If one of the things is lost through a fortuitous event, he shall perform the
However, if the debtor is being prevented to choose only a particular prestation,
obligation by delivering that which the creditor should choose from among the
(and there are others available) he is free to choose any of the others.
remainder, or that which remains if only one subsists;
Recission does not take place ipso facto but only at the INITIATIVE of the debtor. (2) If the loss of one of the things occurs through the fault of the debtor, the
Recission creates the obligation to return the things which were the object of the creditor may claim any of those subsisting, or the price of that which, through
contract together with their fruits, and the price with its interest. [1385] the fault of the former, has disappeared, with a right to damages;
(3) If all the things are lost through the fault of the debtor, the choice by the
Example: For 200,000, D promised to teach C Oblicon for the year 2015 or to buy for him a creditor shall fall upon the price of any one of them, also with indemnity for
laptop. If in 2015, C goes to Belgium, D obviously cannot teach him and since D is deprived of damages.
the right to choose because of Cs own act (of leaving), D may either: (a) Buy the laptop or (b) The same rules shall be applied to obligations to do or not to do in case one, some or all
Rescind the contract with right to recover whatever damages he suffered. of the prestations should become impossible. (1136a)
Applies only when the right of choice has been granted to the CREDITOR.
Art. 1204. The creditor shall have a right to indemnity for damages when, through the
Obligation of the debtor ceased to be alternative from the time of communication
fault of the debtor, all the things which are alternatively the object of the obligation have
by the creditor. The obligation becomes a simple one.
been lost, or the compliance of the obligation has become impossible.
Before creditor makes the selection, the debtor CANNOT incur delay (Reason: until
obligation becomes a simple obligation, the debtor would not know which
The indemnity shall be fixed taking as a basis the value of the last thing which
protestation to perform).
disappeared, or that of the service which last became impossible.
Rules In Case Of Loss Before Creditor Has Made Choice
Damages other than the value of the last thing or service may also be awarded. (1135a)
1. When a thing is lost through a fortuitous event
Applies when: Creditor may choose any of the remainders, or
1. Right to choose belongs to the debtor If only one remains, debtor must deliver this to the creditor
2. Loss or impossibility happened before the selection was made 2. When a thing is lost through the debtors fault
ALL of the objects of Alternative Obligations have become impossible Creditor may choose any of the remainders, or
o If by fault of the debtor: creditor is entitled for liability for damages Choose the value of the one lost, with damages in either case if warranted
o If by fortuitous event: Obligation is extinguished (unless there is a 3. When ALL the things are lost through the debtors fault :
contrary stipulation) Creditor may choose the price of any of the things, with damages if warranted
SOME of the objects have become impossible 4. When ALL the things are lost through a fortuitous event
o If by fault of the debtor: Creditor CANNOT claim for damages as the Obligation is extinguished (Art. 1174, NCC)
debtor who has the right of choice, may still perform any of the
remaining alternative prestations. Summary of Effects of Loss or Deterioration
Basis of Indemnity 1. Choice Belongs to Debtor Art. 1204

The value of the last thing which disappeared (obligations to give) or that of the Due to Fortuitous Event Due to Debtors Fault
service which has become impossible last (obligations to do). All Are Lost DR released from the CR shall have a right to indemnity
It is the creditor who must prove such value or which thing last disappeared or obligation for damages based on the value of
27
which service last become impossible. the last thing which disappeared or
Other damages may also be awarded. service which became impossible
Some but not all are DR shall deliver that which DR shall deliver that which he shall
lost he shall choose from among choose from among the remainder
27
The reason behind this is because upon the loss or impossibility of the first thing or service, the last the remainder without damages
one is converted into a simple obligation. Consequently, the debtor has no more alternative to choose Only one remains Deliver that which remains
from. He must deliver or perform the last thing or service. If he fails to do so, due to his own fault, he will
be liable for damages using the value of this last thing as measurement for damages.
2. Choice belongs to Creditor Art. 1205 SECTION 4. Joint and Solidary Obligations
Due to Fortuitous Event Due to Debtors Fault
All Are Lost DR released from obligation CR may claim the price/value of
Art. 1207. The concurrence of two or more creditors or of two or more debtors in one and
any of them with indemnity for
the same obligation does not imply that each one of the former has a right to demand, or
damages
that each one of the latter is bound to render, entire compliance with the prestation.
Some but not all DR shall deliver that which he CR may claim any of those There is a solidary liability only when the obligation expressly so states, or when the law
are lost shall choose from among the subsisting without a right to or the nature of the obligation requires solidarity. (1137a)
remainder damages OR price/value of one
those lost with right to damages
Only one remains Deliver that which remains. In case of fault of DR, CR may claim Kinds of Obligations According To Number of Parties
remaining thing without a right to damages OR the price or value of 1. Individual Obligation one where there is only one obligor or obligee
the 2. Collective Obligation one where there are two or more debtors and two or more
creditors. It may be:
a. Joint Obligation one where the whole obligation is to be paid
Art. 1206. When only one prestation has been agreed upon, but the obligor may render proportionately by the different debtors and/or is to be demanded
another in substitution, the obligation is called facultative. proportionately by the different creditors
b. Solidary Obligation one where each one of the debtors is bound to
The loss or deterioration of the thing intended as a substitute, through the negligence of render, and/or each one of the creditors has a right to demand from any
the obligor, does not render him liable. But once the substitution has been made, the of the debtors, entire compliance with the prestation
obligor is liable for the loss of the substitute on account of his delay, negligence or fraud. i. Passive Solidarity solidarity on the part of the debtors
(n) ii. Active Solidarity solidarity on the part of the creditors
Facultative obligation obligor is obliged to perform only one prestation, but he is
allowed to perform or deliver another one in substitution thereof. (Ex. I will give Collective Obligation Presumed to be Joint
you my piano, but I may give you my TV as substitute) GR: The presumption in a Collective Obligation is that the obligation is JOINT
XPN: Unless otherwise provided (that it is solidary) by
Difference between Alternative and Facultative Conditions a) Law
Basis Alternative Obligation Facultative Obligation b) Stipulation of the parties
As to contents of obligation Several prestations due, but Only ONE prestation due, although c) Nature of the obligation
compliance of one is sufficient debtor is allowed to substitute it The presumption in this article is rebuttable. It is also subject to the Rules of Court
As to nullity If one of the prestations VOID, If principal obligation Void, creditor governing multiplicity of suits.
others are still valid CANNOT compel delivery of
Solidary obligation cannot be presumed but must be EXPRESSLY stated.
substitute
o Reason: It is burdensome on the debtors. It results in the increase of their
Effect of loss or impossibility If various prestations are If there is impossibility to deliver
impossible to perform except the principal thing, the obligation is responsibilities and liabilities as against solidary creditors.
one, this one must be delivered. extinguished
If all are impossible, the Consequences of Joint Obligation
obligation is extinguished. 1. There as are many debts as there are debtors
Right of Choice May be given to creditor or Right to make a substitution is Each debtor is liable for any proportionate part of the entire debt
debtor or third person given ONLY to the debtor. Ex: A and B owe C 1,000.00. The liability of A and B is only 500.00 each.
2. There are as many credits as there are creditors
Effect of Loss or Deterioration of the Thing Each creditor, if there are several, is entitled to only a proportionate part
Before Substitution After Substitution of the credit
Principal o Due to fortuitous event o Due to fault or without fault of debtor debtor
Ex: A obtained a loan of 1,000.00 from B and C. B and C can only collect
obligation extinguished not liable (obligation is to deliver substitute)
o Due to debtors fault liable for 500.00 each from A.
damages 3. Breach of obligation by the act of one debtor, he alone must bear the damages
Substitute o Due to fault or without fault of o Due to fortuitous event obligation caused.
debtor obligor is not liable extinguished 4. Demand by the creditor on one joint debtor puts him in default, but not the others
o Obligor can still choose the o Due to obligors negligence, delay or fraud: since the debts are distinct.
principal in payment of the Obligor is liable
obligation
5. When the creditor interrupts the running of the prescriptive period by demanding Kinds of Solidary Obligation
judicially from one, the others are not affected. 1. Conventional Solidarity obligation itself expressly provides
It is possible that the share of one joint debtor has not prescribed, while 2. Legal Solidarity the law expressly provides
those of the others have already prescribed 3. Real Solidarity the nature of the obligation requires solidarity (Ex. Two or more
6. Insolvency of a debtor does not make others responsible for his share people acting together violate Art. 19-22 of the NCC; A moral wrong cannot be
7. Vitiated consent on part of one debtor does not affect the others divided into two parts)
Ex: A and B are joint debtors of C for 1,000.00. As consent was obtained 4. Judicial Solidarity imposed by final judgment by a court upon several defendants
by C through fraud. B will still be liable for 500.00, while A will not be
liable, since the 2 debts are considered distinct from each other. Words Used to Indicate Solidary Liability
8. Defenses of one debtor are not necessarily available to the others 1. Jointly and/or severally
2. Individually and collectively
Consequences of Solidarity 3. Together and/or separately
1. Passive Solidarity (solidarity among DEBTORS) 4. I promise to pay signed by two or more debtors (in contrast to signing of two or
Solidarity on the part of the DEBTORS, where any one of them can be more debtors of We promise to pay, which indicates a joint obligation)
made liable for the fulfillment of the entire obligation 5. Mancomunada solidaria
Without prejudice to his right to seek reimbursement from his co-debtors 6. Juntos or separadamente
as to their respective shares in accordance with their internal agreement 7. De mancomun e insolidum
Creation of a relationship of mutual guaranty among co-debtors 8. In solidum
The total remission of the debt in favor of a debtor releases all the
debtors Words Used to Indicate Joint Liability
All the debtors are liable for the loss of the thing due, even if such loss is 1. Proportionate
caused by the fault of only one of them and for delay, even if it is caused 2. Pro rata
by just one of them 3. Mancomunada
The interruption of prescription as to one debtor affects all the others; 4. Mancomunada simple
but the renunciation by one debtor of prescription already had does not
prejudice the others Some Instances Where the Law Imposes Solidarity
Ex: A and B are solidary debtors of C for 1,000.00. C can demand 1. Obligations arising from quasi-delicts (torts)
payment of the entire 1,000.00 from A or B. 2. Obligations arising from quasi-contract
2. Active Solidarity (solidarity among CREDITORS) 3. Legal provisions regarding the obligations of devisees and legatees
4. Liability of principals, accomplices and accessories of a felony
Solidarity on the part of the CREDITORS, where any one of them can
demand the fulfillment of the entire obligation
Note: The precise word solidary need not be used it is sufficient that the obligation states
Creation of a relationship of MUTUAL AGENCY among co-creditors (with
that each one of the debtors can be compelled to pay the entire obligation.
power to exercise the rights of others in the same manner as their own
rights)
Q: May the obligation be joint on the side of the creditors and solidary on the side of the
A solidary creditor cannot assign his rights without the consent of the
debtors and vice versa? YES. Examples:
others. (Art. 1213)
1. A and B are joint debtors of C, D, E and F, solidary creditors to the amount of 1,000.00.
Ex: A owes 1,000.00 to B and C who are solidary creditors. A can either
How much can C collect from A?
pay B or C. The full payment extinguishes the obligation.
a. C is a solidary creditor, so presumably he can collect the whole debt. But since
Note: Debtor may pay any of the solidary creditors; however, if one of A is only a joint debtor, C is entitled to collect only 500.00 from A.
them makes a judicial or extrajudicial demand, debtor must pay to him. 2. A and B are solidary debtors of C, D, E and F, joint creditors to the amount of 1,000.00.
3. Mixed Solidarity (solidarity among creditors and debtors) How much can C recover from A.
Each one of the debtors is liable to render, and each one of the creditors a. Since C is only a joint creditor, he can only recover his share which is 250.00
has a right to demand entire compliance with the obligation from A, a solidarity debtor.
Solidarity is not destroyed by the fact that the obligation of each debtor is
subject to different conditions or periods. Note: Had C been a solidary creditor, he could have recovered 1,000.00 from A; had A been
The creditor can commence an action against anyone of the debtors for a joint debtor, and C, also a joint creditor, C could have recovered only 125.00, from A.
the compliance with the entire obligation minus the portion or share
which corresponds to the debtor affected by the condition or period.
Art. 1208. If from the law, or the nature or the wording of the obligations to which the 2. If there are two or more creditors, the delivery must be made to ALL, and not
preceding article refers the contrary does not appear, the credit or debt shall be merely to one, unless that one be specifically authorized by the others.
presumed to be divided into as many shares as there are creditors or debtors, the credits o NOTE: If a creditor refuses to accept, he may resort to tender of payment
28
or debts being considered distinct from one another, subject to the Rules of Court and to be followed by proper consignation of the thing.
governing the multiplicity of suits. (1138a) 3. Each credit is distinct from one another; therefore a joint debtor cannot be
required to pay for the share of another with debtor, although he may pay if he
Joint Obligation one in which each debtor is liable only for the proportionate part wants to.
of the debt, and the creditor is entitled to demand only a proportionate part 4. In case of insolvency of one of the debtors, the others shall not be liable for his
PRESUMPTION that when there are two or more debtors, or two or more creditors, shares. To hold otherwise would destroy the joint character of the obligation.
the obligation is joint and as a consequence: 5. No creditor can do acts prejudicial to others.
o The debt shall be divided into as many shares as there are debtors 6. Each joint creditor is allowed to renounce his proportionate credit.
o The credits or debts will be distinct from one another.
Effects of Breach of a Joint Indivisible Obligation
Illustration of the Presumption 1. If one of the joint debtors fails to comply with his undertaking, the obligation can
1. In a contract, when the final version is silent WON the obligation is solidary or joint. no longer be fulfilled or performed. It is the converted into one of INDEMNITY FOR
It is presumed to be joint even if the lawyers brief provided otherwise. (What DAMAGES. Innocent joint DR shall not contribute to the indemnity beyond their
matters is the contents of the contract) corresponding share of the obligation.
2. In a final judgment which was silent WON the obligation is solidary or joint. It is 2. The debtor who failed to comply with the obligation shall shoulder ALL the
presumed to be joint even if the contract was solidary (Final judgment superseded damages suffered by the creditors. If the other debtors also suffered damages, they
the action brought for the enforcement of the contract). may also recover damages from the erring debtor.
Avoid Multiplicity of Suits NOTE: Meaning of Right of the Creditors May Be Prejudiced only by their Collective Acts
Regarding the bringing of the action in court, the Rules of Court regarding carries the implication that beneficial acts of ONE creditor may possibly benefit the others
multiplicity of suits will be followed. depending upon the circumstances.
Ordinarily one creditor may sue one of the debtors for the latters share of the
obligation (because of distinct shares). Example:
Since the aim of the Rules of Court is to obtain a just, speedy, and inexpensive A, B and C are jointly liable to give a particular car worth 1.2 million in favor of D, E, F and G.
determination of every proceeding, it would be better to sue all the necessary A is insolvent and the debtors, therefore, cannot purchase the car to give to the creditors. D
parties at the same time. and E have renounced their rights. The debtors are not in default. How much can each of the
creditors get from each of the debtors?
Art. 1209. If the division is impossible, the right of the creditors may be prejudiced only by
Since this is a joint and indivisible obligation and since the car cannot be given, it is converted
their collective acts, and the debt can be enforced only by proceeding against all the
into an obligation to give indemnity for damages. Since this is a joint obligation, each debtor
debtors. If one of the latter should be insolvent, the others shall not be liable for his
is proportionately liable and each creditor is only entitled to his proportionate credit.
share. (1139)
This article talks about Joint Indivisible Obligation 1.2 M divided by 3 = 400,000 (the total debt of each debtor)
o Indivisible referring to the OBJECT 400,000 divided by 4 = 100,000 (the credit belonging to each joint creditor)
o Joint referring to the TIE between the parties, who are merely
proportionately liable A is insolvent, and his share will not be included in the liability of B and C.
In other words, it is JOINT as to liabilities of the debtors or rights of the creditors
but INDIVISBLE as to compliance. (Ex: A and B are jointly liable to give C this car) Therefore:
Its fulfillment requires the concurrence of ALL the debtors (each for his part). There D and E have renounced their rights, they get nothing.
must be a collective action for acts which are prejudicial to the rights of creditors. F has not renounced his right, so he can get 100,000 from B and 100,000 from C.
Over A, F has the rights of creditor over an insolvent debtor.
Different Permutations for Joint Indivisible Obligations G has exactly the same rights as F.
1. If there are two or more debtors, compliance with the obligation requires the
concurrence of all the debtors, although each for his own share. Demand, must
therefore be made on ALL the joint debtors.
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Read in Relation to Art. 1256-1261 (Tender of Payment and Consignation)
Art. 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor Forms of Solidarity
does solidarity of itself imply indivisibility. (n) 1. Uniform Solidarity when the debtors are bound by the same stipulations
2. Varied Solidarity when the debtors while bound under the same obligation are
Indivisible Obligation refers to SUBJECT MATTER; character of the object which not subject to the same terms and conditions of payment but to different
does not permit its division or segregation without destroying its essence or secondary stipulations or clauses
substance. (Ex. An obligation to deliver a live dog one cannot deliver it in pieces)
Solidary Obligation refers to the TIE BETWEEN parties; one where each debtor is Example:
liable for the entire obligation, and each creditor is entitled to demand the In 2004, A, B, and C bound themselves in solidum to give X 300,000 subject to the following
fulfillment of the whole obligation stipulations: A to pay in 2005; B if he passes the bar; C, in 2007.
Kinds of Indivisibility In 2005, X can demand 100,000 from A. Since this is solidary, X has a right to 300,000 (the
1. Legal indivisibility law declares obligation indivisible (Ex. Definite things like a car) whole) MINUS Bs share of 100,000 and Cs share of 100,000, or a total of only 100,000.
2. Conventional indivisibility when agreed to by the parties In 2007, C can collect from A the 100,000 corresponding to C. The moment B passes the bar,
X can also collect from A, Bs share of 100,000.
Basis Indivisibility Solidarity
Refers to the prestation which If X instead made a demand on C in 2005, he can only collect 100,000 from C, the share
Nature constitutes the object of the Refers to the legal tie or vinculum corresponding to A because Cs own share has not yet matured and B has not yet passed the
obligation
bar.
Plurality of subjects is not
Number of Subjects Plurality of subjects is indispensable
required
In case of breach, obligation is
NOTE: In both problems, the rule is that the whole solidary obligation can be recovered from
When there is liability on the part of ANY of the solidary debtors MINUS the share of those with unmatured conditions or terms.
converted into indemnity for
the debtors because of the breach,
Effect of Breach damages because the
the solidarity among the debtors
indivisibility of the obligation is Art. 1212. Each one of the solidary creditors may do whatever may be useful to the
remains
terminated
others, but not anything which may be prejudicial to the latter. (1141a)
Heirs of the debtor remain Terminates the solidarity, the tie or
Effect of death of debtor bound to perform the vinculum, being in transmissible to
prestation. the heirs. Beneficial Acts of Solidary Creditor
Others are not liable for The other debtors are 1. Demand by the creditor (extra-judicial or judicial) is sufficient to interrupt the
Effect of Insolvency
insolvency of the debtor proportionately liable [1217]
running of the prescriptive period within which to file the action
This is beneficial as the claim of the creditors does not become stale.
Indivisibility and Solidarity Though Not Identical Can Co-Exist
2. Filing a complaint so that the obligation may bear legal interest
1. Joint Divisible Obligation A and B are jointly liable to X for 1 million.
2. Joint Indivisible Obligation A and B are jointly liable to give X this car.
NOTE: Every solidary creditor is benefited by the useful acts of any one of them. This is based
3. Solidary Divisible Obligation A and B are solidarily bound to give X 1 million.
on the theory of MUTUAL AGENCY among solidary creditors.
4. Solidary Indivisible Obligation A and B are solidarily bound to give X this car.
Prejudicial Acts of Solidary Creditor
Art. 1211. Solidarity may exist although the creditors and the debtors may not be bound Acts such as: Novation, Compensation, Merger, Remission Or Condonation
in the same manner and by the same periods and conditions. (1140) Prejudicial as obligation is extinguished
Solidarity is NOT affected by diverse stipulations like differences in term and Solidary creditor who executed such extinguishing acts shall be liable to the others
conditions. for damages
Enforcement of terms and conditions may be made at different times.
NOTE: Prejudicial acts of a solidary creditor may have valid legal effects, but the performing
The rule is that the creditor may bring his action in toto against any of the solidary
creditor shall be liable to his co-creditors.
debtors less the shares of the other debtors with unexpired terms or unfulfilled
conditions.
Upon the expiration of the term or the fulfillment of the condition, the creditor will Art. 1213. A solidary creditor cannot assign his rights without the consent of the others.
have the right to demand the payment of the remainder.
Reason: The Mutual agency of solidary creditors which is based on mutual trust
and confidence. This agency cannot be just assigned to a third person without the
consent of the other creditors. With the consent of ALL, the rights may be assigned.
Art. 1214. The debtor may pay any one of the solidary creditors; but if any demand, Summary of Effect of Modes of Extinguishment
Compensation & Assignment of
judicial or extrajudicial, has been made by one of them, payment should be made to him. Novation Remission
Confusion Rights
(1142a) If prejudicial, the solidary creditor If it is partial, the If entire obligation, The solidary
GR: Debtor must pay to any of the solidary creditors who effected the novation shall rules regarding obligation is totally creditor
reimburse the others for damages application of extinguished. cannot assign
XPN: Payment must be made to a solidary creditor who made a demand.
incurred by them; payment shall apply his right
Payment to another creditor will not extinguish the obligation except insofar as (w/o) prejudice to If for the benefit of one because it is
the share of the payor is concerned. If beneficial and secured by one, the right of other of the debtors covering predicated
If there are other debtors to whom no demand was made, they are free to pay to he shall be liable to the others for creditors who have his entire share, he is upon mutual
any of the solidary creditors unless the first had FULLY paid (they then have to the share (obligation & benefits) not caused the completely released confidence,
pay the debtor who paid) which corresponds to them confusion or from the creditor/s. UNLESS:
If two or more demands made by other creditors: FIRST demand must be given compensation to be
If by substituting the debtor, the reimbursed to the If for the benefit of one (1) the
priority.
solidary creditor who effected the extent that their of the debtors and it assignment is
novation is liable for the acts of rights are diminished covers only part of his to a co-
Art. 1215. Novation, compensation, confusion or remission of the debt, made by any of the new debtor in deficiency or or affected share, his character as a creditor;
the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, damages solidary debtor is not (2) assignment
If total, the affected. is with
without prejudice to the provisions of Article 1219.
If by subrogating a third person obligation is consent of co-
in creditors rights, the obligation extinguished, what is creditor
The creditor who may have executed any of these acts, as well as he who collects the is not in reality extinguished as left is the ensuing
debt, shall be liable to the others for the share in the obligation corresponding to them. the relation between the other liability for
(1143) creditors and the debtor/s is reimbursement
maintained.
Novation is the modification of an obligation by:
1. Changing its object or principal condition
2. Substituting the person of the debtor Art. 1216. The creditor may proceed against any one of the solidary debtors or some or all
3. Subrogating a third person in the rights of the creditor of them simultaneously. The demand made against one of them shall not be an obstacle
Compensation takes place when two persons, in their own right, becomes to those which may subsequently be directed against the others, so long as the debt has
creditors and debtors of each other. not been fully collected. (1144a)
Confusion or Merger of Rights takes place when the characters of creditor and NOT applicable to Joint Obligations only SOLIDARY obligations
debtor are merged in the same person. If a solidary creditor made extrajudicial demands on a solidary debtor and the latter
Remission or Condonation (or waiver) is the gratuitous abandonment by the did not pay, the latter may still demand from the OTHER co-debtors.
creditor of his right. Acceptance by the obligor is necessary. Where the creditor IF the demand is a judicial one and judgment was rendered by the court:
tells the debtor to forget about the whole thing Favorable to the solidary creditor
It is but logical that the creditor who executed any of these acts should be liable to o judgment will benefit all other co-creditors
the others for their corresponding shares considering that such acts are prejudicial Solidary co-debtor insolvent & case filed only against him
to them. o judgment CANNOT be executed against other co-debtors who were not
made parties in the complaint
o New action is required to make them liable (NOT barred by the first
action)
o There is no waiver against those not sued.
Solidary creditor lost the case
o Judgment will constitute a bar to the filing of the same case by any or
some or all of the solidary creditors
o Remedy of the co-creditors is to go after the creditor who filed the case
for NOT informing them
o If they were informed they cannot complain if something went wrong
without them protecting their interests.
o Ex: Case dismissed for failure to prosecute act of negligence; co- Art. 1217. Payment made by one of the solidary debtors extinguishes the obligation. If
creditors cannot file a similar case against the same parties. two or more solidary debtors offer to pay, the creditor may choose which offer to accept.
Judgment may be executed within 10 years from its finality
o However, after the 5th year, the procedure to enforce the judgment is by He who made the payment may claim from his co-debtors only the share which
filing a case of revival corresponds to each, with the interest for the payment already made. If the payment is
made before the debt is due, no interest for the intervening period may be demanded.
In Solidarity among Debtors, Creditor Can go Against:
1. Any of the solidary debtors When one of the solidary debtors cannot, because of his insolvency, reimburse his share
2. Some of the solidary debtors to the debtor paying the obligation, such share shall be borne by all his co-debtors, in
3. All of the solidary debtors simultaneously proportion to the debt of each. (1145a)
Note: In joint obligations, failure to collect from one joint debtor his share does not
29
authorize the creditor to proceed against the others, regarding the insolvent debtors share. Effect of Payment by a Solidary Debtor
In solidary obligations, if the creditor sues only one, two or some (but not all) there is no 1. Between the solidary debtors and creditor(s)
waiver against those not yet sued. They may be proceeded against later. Full payment by a solidary debtor extinguishes the obligation.
However, creditor is given the right to choose which offer to accept if two
Passive Solidarity and Suretyship or more solidary debtors offer to pay
2. Among the solidary debtors
Similarity: Both the solidary debtor and surety The paying solidary debtor can demand reimbursement from his co-
1. Guarantee for another person and debtors for their proportionate shares with legal INTEREST (only from the
2. Both can demand reimbursement time of payment)
A JOINT OBLIGATION is created for the rest of the co-debtor for
Differences reimbursement to the debtor-payer
Basis Passive Solidarity Suretyship However, in case of insolvency of any of the solidary debtors, the others
Nature of Obligation Primary Subsidiary assume the share of the insolvent one pro rata
Solidary debtor liable for his 3. Among the solidary creditor(s)
Surety is responsible only for the
Extent of Liability own obligation and that of his
principal debtor The receiving creditor is jointly liable to the others for their
co-debtors
corresponding shares.
Solidary debtor entitled to be
Surety is entitled to be reimbursed
Right to reimbursement reimbursed for what he has
for everything he paid. NOTE: When two or more solidary debtors offer to pay, the creditor may choose which of the
paid, minus his own share
Co-debtors are not released offers to accept [1217]. Compare to Art. 1214, if two or more demands made by other
If principal debtor is granted
Effect of grant of extension but shall remain liable for the creditors: FIRST demand must be given priority.
extension of time without the
of time to the debtor to pay whole obligation minus the
consent of the surety, the surety is
the creditor share of the debtor who was
released from the obligation Art. 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his
granted the extension
co-debtors if such payment is made after the obligation has prescribed or become illegal.
Example: A borrowed from C 1,000,000. B acted as surety (solidary guarantor) for A. C can (n)
demand 1,000,000 from either A or B. But if B is made to pay, B can demand the whole GR: Paying debtor is entitled to reimbursement from his co-debtors.
amount of 1,000,000 from A since B is not really a principal debtor. XPN: Two cases when a paying debtor cannot get any reimbursement:
1. Obligation prescribed due to lapse of the time required by law
Note: A guarantor binds himself subsidiarily to answer for the principal debtor, in case of 2. Obligation has become illegal
insolvency; hence the creditor CANNOT immediately proceed against the guarantor; a surety
is a guarantor who binds himself solidarily with the principal debtor, hence, creditor can Examples: A, B and C are solidary debtors to C in the amount of 1,000,000. The creditor did
proceed against the surety immediately (that is, without first exhausting the properties of not make any demand after more than 10 years. Hence the obligation prescribed. If A,
the principal debtor). nevertheless, paid the debt, he cannot collect from B because of Art. 1218. Neither can A
recover from C as the payment he made is deemed a fulfillment of a natural obligation.
29
Payment extinguishes the obligation and consists in the delivery of the thing or the rendition of
service which is the object of the obligation
A and B are solidarily bound to give C some drugs worth 1,000,000. Later, the law prohibits Art. 1220. The remission of the whole obligation, obtained by one of the solidary debtors,
the transaction of said drugs. Knowing this, A nevertheless delivers the drugs to C. A cannot does not entitle him to reimbursement from his co-debtors. (n)
get any reimbursement from B because A made the payment after the obligation had
become illegal. This article applies when:
1. WHOLE obligation is remitted.
Prescriptive Period of Actions 2. Remission obtained w/o any of the solidary debtors spending anything
1. 10 Years for it
Written contract Debtor Payer is NOT entitled to reimbursement in case of TOTAL remission
Obligation created by law In case of partial remission, the solidary debtor is entitled to reimbursement with
Upon a judgment [1144] respect only to the amount he actually paid
2. 6 Years
Oral contract Example:
Quasi-contract [1145] A and B are solidary debtor of 2,000 for C. C remitted the whole obligation out of regard for
3. 4 Years A. A is not entitled to reimbursement from B since A did not pay anything to C. If only 1,300
Injury to the rights of the plaintiff is remitted, B is still liable to C for 700. B has no obligation to reimburse A for the 300 of
Quasi-delict [1146] Bs share affected by the remission for the same reason that no payment was made by A.
Art. 1219. The 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- Art. 1221. If the thing has been lost or if the prestation has become impossible without
debtors, in case the debt had been totally paid by anyone of them before the remission the fault of the solidary debtors, the obligation shall be extinguished.
was effected. (1146a)
If there was fault on the part of any one of them, all shall be responsible to the creditor,
If one of the solidary debtors paid the entire obligation to the creditor and the for the price and the payment of damages and interest, without prejudice to their action
creditor remitted the share of one of the solidary debtors: The one whose share against the guilty or negligent debtor.
has been belatedly remitted is NOT released from his responsibility to his co-
debtors. If through a fortuitous event, the thing is lost or the performance has become impossible
Purpose: Prevent fraud and give justice to the paying debtor. after one of the solidary debtors has incurred in delay through the judicial or extrajudicial
If however, remission is made previous to the payment, solutio indebiti arises. It is demand upon him by the creditor, the provisions of the preceding paragraph shall apply.
incumbent upon the debtor whose debt is remitted to prove the priority of the (1147a)
remission to the payment to release him from responsibility to his co-debtors.
The obligation to deliver the thing is converted into an obligation to pay indemnity
Example: when there is loss or impossibility of performance.
1. A and B solidarily owe X 1,000,000. A paid X the whole amount. Later, X remitted Bs This indemnity includes the PRICE of thing plus DAMAGES and INTEREST
share. A can still recover reimbursement of 500,000 from B. Article 1221 is just a repetition of 1174, 1262, and 1266.
2. A, B and C are liable in solidum to D in the amount of 3,000. D remitted the share of A.
After paying D 2,000, the balance of the credit, B demands reimbursement from C who has Effect of Loss or Impossibility
become insolvent after the remission. Is A obliged to contribute to the share of C? 1. If without fault of debtor no liability; obligation is extinguished
2. IF with fault ALL co-debtors are liable (also for damages and interest) without
Yes. Article 1217 says that the share of the insolvent co-debtor shall be borne by ALL his co- prejudice to their action against the guilty or negligent solidary debtor
debtors, in proportion to the debt of each. Furthermore, the remission can only refer to the 3. Loss because of a fortuitous event AFTER default there will be liability because of
share of A in the obligation and cannot, therefore, affect his responsibility to contribute to default
the share of C, the insolvent debtor. A creditor has no right to alter or modify the rights and
obligations of the solidary debtors as among themselves. Rule When Creditor Was Paid by the Guilty or Negligent Solidary Debtor
THING LOST: The guilty solidary debtor cannot get any contribution from his co-
debtors because he was the one who caused the loss.
DELAY, FRAUD/NEGLIGENCE: All (including innocent debtors) will pay the principal
prestation. However, if there are damages or interest imposed, the debtor who
was guilty of delay, fraud or negligence, will ALONE be liable for it.
Examples:
1. A and B are solidarily obliged to give C this particular car. If the car was lost through the 2. Defenses personal to (or which pertain to share of) the debtor sued
fault of A, and C makes a demand later upon B, B will still be liable even if he was not at fault o this is generally a complete defense, but if the defense is non-fulfillment yet of a
at all. A solidary obligation implies mutual agency and mutual confidence. The law expressly condition or the non-arrival yet of the term, this is only a partial defense, that is, he
makes B liable in such a case both for the price of a car as well as damages or interests, but B will still be liable except for his own share in the meantime
can later recover from A the whole of what he paid, for had A not been at fault, the Vitiated consent (as when he was forced, etc.) COMPLETE defense
obligation would have already been extinguished. Incapacity to give consent (as when he is a minor) COMPLETE defense
Non-fulfillment of condition imposed regarding his share PARTIAL
2. A, B, and C are solidary debtors of D in an obligation to give a particular car. D makes an defense
extrajudicial demand on A. After the demand, the car was lost by a fortuitous event. Is the
obligation extinguished? If not, what is Ds right? The obligation is not extinguished because Examples:
the loss through a fortuitous event occurred after default on the part of the debtors had a) If the action by C is against B, and B was insane at the time the obligation was
arisen. Ds right is to exact the price of the car from any of them. The debtors, however, who contracted, B can put up the defense of insanity with respect to the entire
did not have a hand in the default (B and C) have the right to recover from their co-debtor A, obligation. This defense is personal to B alone and is a complete defense.
who after all, was responsible due to his default. b) If the portion of the obligation affecting B is subject to a suspensive condition
which has not yet happened, the non-fulfillment of the condition is a partial
Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defense as it can be set up by B only with respect to his share. C can demand from
defenses which are derived from the nature of the obligation and of those which are B the portion of the obligation pertaining to A because B is solidarily liable.
personal to him, or pertain to his own share. With respect to those which personally
belong to the others, he may avail himself thereof only as regards that part of the debt for 3. Those personal to the other solidary debtors
which the latter are responsible. (1148a)
Example: In the two preceding examples, the defense of insanity or non-fulfillment of
Applies to ACTIONS filed by the creditor the suspensive condition is not available to A as to release him from his liability for his
When a creditor files a complaint against a solidary debtor, WON the case is filed share in the obligation. In other words, A may avail himself thereof only as regards that
solely against him or against all of the solidary debtors, he may set up defenses part of the debt for which B is liable. Hence having only a partial defense, A is still liable
for 2,000, his share in the obligation.
Kinds Of Defenses Available To A Solidary Debtor
1. Defenses derived from the nature of the obligation

This is a COMPLETE DEFENSE because it nullifies the obligation or renders it
ineffective
Extinguishment of the obligation (debt has been paid, remitted or
prescribed)
Statute of Frauds
When there are VICES OF CONSENT on the part of ALL the debtors
(such as when ALL were forced or intimidates or unduly influenced)
When ALL the debtors were incapacitated to give consent
(unemancipated minors, insane, idiots, persons under hypnotic spell)
Non-fulfilment of the suspensive condition (if made upon the whole
object or upon ALL the debtors)
Absolute simulation (as when the contract is totally fictitious)
Illegal consideration
Lack of consideration or cause
Example: A and B are solidarily liable to C in the amount of 4,000. The entire debt of A
and B was paid by D. In an action by C against A, the latter can raise the defense of
payment by virtue of which the obligation was extinguished.
SECTION 5. Divisible and Indivisible Obligations Art. 1224. A joint indivisible obligation gives rise to indemnity for damages from the time
anyone of the debtors does not comply with his undertaking. The debtors who may have
Art. 1223. The divisibility or indivisibility of the things that are the object of obligations in been ready to fulfill their promises shall not contribute to the indemnity beyond the
which there is only one debtor and only one creditor does not alter or modify the corresponding portion of the price of the thing or of the value of the service in which the
provisions of Chapter 2 of this Title. (1149) obligation consists. (1150)
This article applies to a JOINT INDIVISIBLE OBLIGATION
Divisible and Indivisible Obligations o The object is indivisible but the liability of the parties is joint
1. Divisible Obligation one capable of partial performance (deliver 200kg of sugar) o Action for enforcement of the obligation must be pursued against ALL the
2. Indivisible Obligation not capable of partial performance (deliver specific car) debtors
o Ex: A and B are jointly bound to give a specific car to C.
Test of Divisibility: True test is whether or not the prestation is susceptible to PARTIAL Non-compliance involves the inability of any of the debtors to comply with his
PERFORMANCE. If a thing could be divided into parts and as divided, its value is impaired undertaking
disproportionately, that thing is indivisible. Otherwise, it is divisible. Furthermore, it is also Remember also Art. 1209.
determined by the PURPOSE of the obligation or the INTENTION of the parties. Hence, even
though the object or service may be physically divisible, an obligation is indivisible, if so Effect of Non-Compliance
provided by law or intended by the parties. Obligation is converted into a MONETARY one for damages.
Creditor cannot ask specific performance or recission because there is NO CAUSE
Kinds of Divisibility OF ACTION against the other debtors who are willing to fulfill their promises
1. Conventional by agreement of contracting parties
2. Natural or absolute because of the nature of the object or undertaking (ex: take Example:
a trip to Manila; give a particular ring; sing in a wedding) A and B undertook to deliver to C, a painting displayed in a gallery worth 100,000. At the maturity date
3. Legal if provided by law to deliver the painting, only A was ready with his 50,000 to purchase the painting. B due to his own
fault, could not produce his share of 50,000. Consequently, they failed to deliver the painting to C. The
obligation to deliver is converted into a monetary obligation meaning A and B will be liable for the value
Kinds of Division
of the painting 100,000. A is liable to pay C 50,000. But he is not liable for the share of B. B is also
1. Quantitative division divisibility depends on the quantity (Ex. 100kg of sugar) indebted to C in the sum of 50,000. Damages may be imposed against B, if warranted by the
2. Qualitative division divisibility depends on quality (Ex: inheritance of land and circumstances.
cash)
3. Ideal or Intellectual Division one that exists merely in the mind of the parties (Ex. If A and B are solidarily liable (not jointly) to deliver the painting to C, A can be made liable for the entire
A and B own in common a car. One-half share of either is only in the mind) monetary obligation of 100,000 without prejudice to his right to go against B for the latters share in
the obligation in the amount of 50,000.
Note: When there is only one creditor and debtor, the provisions in Arts. 1163-1178
regarding the Nature and Effect of Obligations in general are also applicable to divisible and Art. 1225. For the purposes of the preceding articles, obligations to give definite things
indivisible obligations. and those which are not susceptible of partial performance shall be deemed to be
indivisible.
Difference Between Solidarity and Indivisibility When the obligation has for its object the execution of a certain number of days of work,
Solidarity Indivisibility the accomplishment of work by metrical units, or analogous things which by their nature
Refers to tie between parties Refers to nature of the obligation are susceptible of partial performance, it shall be divisible.
Needs at least two debtors or creditors Exists even if there is only one debtor and However, even though the object or service may be physically divisible, an obligation is
creditor indivisible if so provided by law or intended by the parties.
The fault of one is the fault of others Fault of one is not the fault of others In obligations not to do, divisibility or indivisibility shall be determined by the character of
Death of debtor extinguishes the solidarity Death of debtors does not extinguish the the prestation in each particular case. (1151a)
as it is not transferred to the heirs prestation; heirs are bound by the prestation
Test of divisibility of an OBJECT is its susceptibility to physical division.
Test of divisibility of an OBLIGATION is its susceptibility of partial performance.
The divisibility of an object does not necessarily carry with it the divisibility of an
obligation, unlike the indivisibility of an object which carries with it the indivisibility
of the obligation.
However, the PURPOSE of the obligation is still the controlling circumstance
Indivisible Obligations SECTION 6. Obligations with a Penal Clause
1. Obligations to give definite things (ex. To give this car)
2. Those not susceptible to partial performance (ex. Wedding dress for wedding day)
Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for
3. Obligations provided by law to be indivisible (ex. Amount of tax payable in a
damages and the payment of interests in case of noncompliance, if there is no stipulation
period)
to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the
4. Obligations intended by parties to be indivisible (ex. Pay 1000 on Jan. 1)
penalty or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the
Divisible Obligations
provisions of this Code. (1152a)
1. Obligation to execute a certain number of days of work (ex. paint house in 2 days)
2. Accomplishment of work by metrical units (ex. Sew Tablecloth 3 feet long) Obligation with a penal clause one which contains an accessory undertaking to
3. Payment of a certain amount in installments (ex. Debtor paying in 10 installments) pay a previously stipulated indemnity in case of breach (i.e., obligation not fulfilled
4. Accomplishment of work susceptible of partial performance (ex. Sing 3 songs) or partly or irregularly complied with)
To entitle the injured party to the penalty, NO NEED TO PROVE DAMAGES:
Effect of Illegality of a Part of A Contract It is sufficient for the injured party to PROVE that there was a breach of contract
1. Divisible Contract the illegal part is void and not enforceable; the legal part shall The penalty is the means of repairing the losses and damages suffered by injured
be valid and is enforceable party
2. Indivisible Contract entire contract is void and not enforceable
Principal and Accessory Obligations
Effect of Partial Performance of an Indivisible Obligation: It is tantamount to non- 1. Principal obligation one which can stand by itself and does not depend for its
performance. When an obligation is indivisible it is not susceptible to partial performance. validity and existence upon another obligation
2. Accessory obligation one which is attached to a principal obligation and
Divisibility or Indivisibility in Obligations NOT to do: therefore, cannot stand alone
The CHARACTER of the prestation in each particular case shall determine divisibility
or indivisibility Purposes of a Penal Clause:
Examples 1. Insure performance by creating deterrent against breach (making consequences as
o Indivisible A obliged to not sell B cigarettes in his store for one year. onerous as possible)
Here, the obligation should be fulfilled continuously during a certain 2. Substitute a penalty for indemnity for damages and payment of interests
period. (reparation)
o Divisible if the obligation of A is not to sell cigarettes in his store only 3. Punish debtor for violation of the obligation (punishment)
during Sundays and holidays, the obligation is divisible because the
forbearance is not continuous. Different Kinds of Penalties
1. As to origin
NOTE: Obligations to do or not to do are generally indivisible. Obligations to do in par. 2 of a. Legal constituted by law
Art. 1225 are divisible. b. Conventional constituted by agreement of the parties
2. As to purpose
a. Compensatory established for the purpose of indemnifying damages
b. Punitive established for the purpose of punishing the debtor for breach
3. As to effect
a. Subsidiary only the penalty may be demanded in case of breach
b. Joint the principal obligation and the penalty may both be demanded
Penalty Clause Compared With Liquidated Damages:

Difference: Penal clause is strictly penal in nature or cumulative in character and
does not partake the nature of liquidated damages.
Similarity: Have the same legal results:
(1) recovered without proving actual damages
(2) reduced when found unconscionable.
Nature of the Penalty Imposed In Case of Breach Distinctions between Obligation with a Penal Clause and an Alternative Obligation
1. Indemnity for damages Basis Obligation with a Penal Clause Alternative Obligation
2. Payment of Interests One principal obligation, non-
Number of Two or more obligations, fulfillment of one
3. Stipulation to the contrary (can be in form of money, an act or an abstention) performance of which makes the
obligations is sufficient to satisfy the obligation
penalty enforceable
Impossibility Impossibility of the principal obligation Impossibility of one of the obligations,
Note: Penalty may only be enforced when it is demandable. It is demandable only if there is a
of Obligation extinguishes the penalty leaves the other prestations subsisting
BREACH of the obligation. It may also be reduced if it is iniquitous or unconscionable.
Obligor cannot choose to pay penalty to
Freedom to Obligor can choose which prestation or
excuse self from principal obligation
When ADDITIONAL Damages May Be Recovered Aside From The Stipulated Penalty: Choose obligation to fulfill
(unless given the right explicitly)
GR: The penalty substitutes or takes the place of indemnity for damages and
payment of interests in case of non-compliance. Distinctions between Obligation with a Penal Clause and a Facultative Obligation
XPNs: The creditor, in addition to the penalty, may recover damages and interests: Basis Obligation with a Penal Clause Facultative Obligation
1. Express stipulation of the parties (that other damages or interests are Power to make Obligor cannot substitute payment of Obligor has the absolute power
demandable) substitution the penalty for the principal to make the substitution
2. Obligor refuses to pay the penalty (creditor may recover legal interest on obligation, unless expressly allowed
penalty) Demand for Creditor may demand BOTH principal Creditor cannot demand both
3. Obligor is guilty of fraud in the fulfillment of the obligation (the fulfillment of and accessory obligations prestations or obligations
difference between proven damages and stipulated damages may be both prestations
recovered)
Examples:
Example: 1. Obligation with a penal clause
X promised to construct Ys house. Penalty clause stated that X would have to pay a penalty Mara is obliged to give me a diamond ring. If she fails to do so she must
of 500,000 for non-compliance. X did not construct the house and as consequence, Y give 500,000.
suffered damages worth 400,000. Note: Mara cannot excuse herself from giving the ring by paying
The penalty of 500,000 should be paid by X. Y CANNOT recover more than the 500,000. For her to substitute the penalty, she must be given the right
penalty stipulated even if he proves that the damages he suffered is 600,000. to do so.
The penalty SUBSTITUTES the indemnity for the damage of 400,000 (unless there 2. Facultative Obligation
is contrary stipulation). Mara is obliged to give me a particular diamond ring. However, if she so
If X REFUSES to pay the penalty of 500,000, Y may recover LEGAL INTEREST (the desires, she may instead give me 500,000.
interest representing new damages brought about by the non-payment of the Note: Mara is allowed to make the substitution. If the ring is lost by a
penalty) fortuitous event, she is excused from giving the 500,000 for the principal
If X is guilty of FRAUD he is also liable for damages in conformity with Art. 1171. obligation has been extinguished.
Proof of the fraud and the existence and amount of damages is incumbent upon Y. 3. Alternative Obligation
But Y need not prove fraud to recover the penalty. Mara is obliged to give me either a particular diamond ring or 500,000.
Note: The choice given to Mara is absolute. If, however, the ring is lost by
Distinctions between Obligation with a Penal Clause and One with a Suspensive Condition
a fortuitous event, she is still obliged to give the 500,000.
Obligation with Penal Clause Obligation with Suspensive Condition
Existing principal obligation No obligation until condition fulfilled Note: Penalties inserted into contracts are not always demandable or recoverable. If the
Accessory obligation dependent upon the penalty imposed is unlawful, immoral or against public order, it should not be enforced.
Principal obligation dependent on the
non-performance of the principal
happening of future and uncertain event
obligation
Becomes demandable in default of the In default of the unperformed principal Art. 1227. The debtor cannot exempt himself from the performance of the obligation by
unperformed principal obligation obligation is never demandable paying the penalty, save in the case where this right has been expressly reserved for him.
Neither can the creditor demand the fulfillment of the obligation and the satisfaction of
the penalty at the same time, unless this right has been clearly granted him. However, if
after the creditor has decided to require the fulfillment of the obligation, the performance
thereof should become impossible without his fault, the penalty may be enforced.
(1153a)
Penalty Not Substitute for Performance Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has
GR: Debtor cannot just pay the penalty instead of performing the obligation (if the been partly or irregularly complied with by the debtor. Even if there has been no
debtor is allowed to just pay this would in effect make it an alternative obligation) performance, the penalty may also be reduced by the courts if it is iniquitous or
XPN: When debtor is EXPRESSLY granted the right to substitute the penalty for the unconscionable. (1154a)
principal obligation
Courts can only reduce penalties in PRIVATE contracts (e.g. sureties on taxes due
Restriction on the Right of the Creditor in Cases of Non-Fulfillment cannot be reduced)
GR: Creditor cannot demand the fulfillment of the obligation and the satisfaction of Iniquitous or Unconscionable Penalty revolting to the conscience of common
the penalty at the same time. sense and is grossly disproportionate to the damage suffered. Penalty must then be
XPN: reduced (it is not void)
1. Creditor was clearly given the right to enforce the principal obligation and Court must consider the circumstances of the case to determine if iniquitous
the penalty penalty
2. Creditor has demanded the fulfillment of the obligation, but the same
could no longer be fulfilled due to the debtors fault, he may demand the Penalty May Be Reduced By Courts:
penalty 1. Obligation has been partly complied with by the debtor (Partial Performance)
Fault due to Creditors Act = CANNOT claim penalty 2. Obligation has been irregularly complied with by the debtor (Irregular
Fraud on Debtors Part = creditor may recover penalty and damages [Art. 1226] Performance)
Due to Fortuitous Event = Obligation and penalty extinguished 3. Penalty is iniquitous or unconscionable, even if there has been no performance
Note: If creditor chooses to demand the satisfaction of the penalty, he cannot
afterwards demand the fulfillment of the obligation. Penalty is Not Enforceable:
1. Impossibility of performance of the principal obligation
Example: 2. Creditor prevents the fulfillment of the obligation by the debtor
S is required to deliver to B timber; otherwise, he shall pay a penalty of 500,000. 3. Penalty agreed upon is contrary to morals and good customs
If S delivered the timber after delay and B accepted it (performance), B cannot also 4. Both parties are guilty of breach
demand the penalty, UNLESS such right is clearly given to him 5. None of the parties committed wilful or culpable violation of the agreement
6. Breach of contract committed by creditor
If S did not deliver, B can choose between fulfilment or penalty
If B chooses fulfillment, he cannot subsequently choose the penalty unless
Note: The civil code allows an agreement on the payment of interest in case of breach of
fulfillment becomes impossible without his fault (i.e. through Ss fault).
contract, in addition to the penalty agreed. In such a case, the two may be demanded
IF B chooses the penalty, he may not subsequently choose the fulfillment.
separately from the debtor.
However, he may still demand fulfillment should S not pay the penalty.
Art. 1230. The nullity of the penal clause does not carry with it that of the principal
Art. 1228. Proof of actual damages suffered by the creditor is not necessary in order that
obligation.
the penalty may be demanded. (n)
Penalty is demandable WITHOUT proof of actual damages. The nullity of the principal obligation carries with it that of the penal clause. (1155)
To ENFORCE the penalty:
Nullity of principal obligation = penal clause null and void
o Creditor only has to prove the violation of the obligation by the debtor
Nullity of penal clause (contrary to law, public morals, good customs) = principal
(not necessary to adduce evidence to prove losses or damages)
obligation is still valid (it can stand alone, and the void penal clause is just
o Mere NON-FULFILLMENT of the principal obligation is all that is necessary
disregarded)
BUT, he cannot recover more than the stipulated penalty even if the amount of
The accessory follows the principal and NOT vice versa
damages exceeds the penalty
HOWEVER, in any of the three exceptions when damages may be recovered in
addition to the penalty (see page 31), the creditor must prove the amount of such
damages which he actually suffered resulting from the breach of the principal
obligation.
CHAPTER 4 | EXTINGUISHMENT OF OBLIGATIONS Kinds of Payment
1. Voluntary the debtor willingly pays in money or performs the prestation
GENERAL PROVISIONS 2. Involuntary the debtor is forced to deliver or perform by order of the court
NOTE: If the judgment upon which the aggrieved party made payment is null and void, the
Art. 1231. Obligations are extinguished: payment made there under is also null and void.
(1) By payment or performance
(2) By the loss of the thing due Requisites of a Valid Payment
(3) By the condonation or remission of the debt; 1. Capacity of the person paying
(4) By the confusion or merger of the rights of creditor and debtor; 2. Capacity of the person receiving the payment
(5) By compensation; 3. Delivery of the full amount or full performance of the prestation
(6) By novation. 4. Propriety of time, place and manner of payment
5. Acceptance by creditor (implies that payment may be rejected)
Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment
of a resolutory condition, and prescription, are governed elsewhere in this Code. (1156a) NOTE: A person pays a pre-existing obligation. If no such obligation exists, strictly speaking
there is no payment.
Causes of Extinguishment of Obligations
1. Ordinarily by Art. 1233. A debt shall not be understood to have been paid unless the thing or service in
a. Payment or performance which the obligation consists has been completely delivered or rendered, as the case may
b. Loss of the thing due be. (1157)
c. Condonation or remission of the debt or waiver
d. Confusion or merger of the rights of creditor and debtor Debt may refer to an obligation to deliver money, to deliver a thing (other than
e. Compensation money), to do an act or not to do an act
f. Novation GR: A debt is considered paid:
2. Other causes mentioned in Art. 1231 but governed under other chapters o The very thing or service contemplated must be delivered/rendered
a. Annulment o Fulfillment must be complete
b. Rescission XPN:
c. Fulfillment of resolutory condition o Unless otherwise stipulated
d. Prescription o Art. 1234 Substantial Performance in Good Faith
3. Still other causes o Art.1235 Waiver of Incomplete or Irregular Performance
a. Death of a party in personal obligations (ex. Singer dies before concert)
b. Resolutory term / condition (the obligation ceases upon its arrival) How Payment or Performance is Made
c. Change of Civil Status (ex. Unmarried woman gets married) 1. Debt is a monetary obligation by delivery of the money in full (unless otherwise
d. Compromises [Art. 2028] agreed)
e. Mutual dissent (ex. Both parties of a contract refuse to go ahead with it) 2. Debt is delivery of thing/s delivery of the thing/s
f. Impossibility of Fulfillment 3. Debt is doing of a personal undertaking by performing said undertaking
g. Fortuitous event 4. Debt is NOT doing something by refraining from doing the act (at the
contemplated time)
SECTION 1. Payment or Performance
Who Must Pay?
In general:
Art. 1232. Payment means not only the delivery of money but also the performance, in 1. Debtor
any other manner, of an obligation. (n) 2. Anyone acting on the debtor's behalf
Payment satisfaction or fulfillment of a prestation that is due, resulting in the a. Duly authorized agent or legal representative
extinguishment of the obligation. It consists of: b. Heirs (provided that the debtor is already dead for otherwise they are
o Delivery of money, or considered as third persons interested in the obligation)
o Performance (to do or not to do) in any other manner of an obligation c. Successors-in-interest and assignees
In law, payment and performance are synonymous.
CHAPTER 4 | EXTINGUISHMENT OF OBLIGATIONS Obligations and Contracts Reviewer Ateneo Law 2018| Marian Vanslembrouck |34
3. Third Person Who is An Interested Party (Interested Party - one who has an When is the Right to Rescind a Contract Proper? See Art. 1191
interest in the extinguishment of the obligation) such as: Right to Rescind under Art. 1191 cannot be invoked when there has been only
a. Co-debtors SLIGHT breaches of the obligation, because if the performance is SUBSTANTIAL,
b. Sureties that is equivalent to fulfillment or payment of the obligation.
c. Guarantors Court may even allow a person in default some time to fulfill the obligation
d. Owners of mortgaged proeprty or pledge
Art. 1235. When the obligee accepts the performance, knowing its incompleteness or
Note: Even without the knowledge of the debtor, a person interested in the fulfillment of the
irregularity, and without expressing any protest or objection, the obligation is deemed
obligation can pay [1302].
fully complied with. (n)
Burden of Proof This article is founded on the principle of ESTOPPEL and WAIVER.
An alleged creditor has the burden of showing that a valid debt exists If the payment is incomplete or irregular, the creditor may properly reject it.
Once he does this, the debtor has the burden of proving that he has paid the same. In case of acceptance, the law considers that he waives his right. The whole
Good Proof of Payment: Presentation of a receipt obligation is extinguished.
A debtor is justified in demanding that a creditor issue a receipt when the debt is ACCEPT means to take as satisfactory or sufficient or to give assent or to
paid. agree or accede to an incomplete performance.
There is still a possibility that a protest or objection can be made
Examples There is no particular manner in protesting required by the law so long as the acts
1. A is obliged to deliver 100 sacks of rice to B. S delivered only 90 sacks. Under the law, there of the creditor (at time of payment or reasonable time thereafter) show that he is
is no payment by S and B can refuse to pay for the 90 sacks if S does not deliver what is not satisfied with the said payment or performance the obligation then is NOT
lacking. deemed fully extinguished
2. X agreed to paint the house of Y for 20,000. X did not paint the kitchen and instead asked
Y to pay him 20,000 less the cost of painting the kitchen. Y can refuse to pay X because the Requisites for the Application of Article 1235:
debt of Y (to deliver money) will arise only after the debt of X (to paint the house) is 1. Obligee knows that the performance is incomplete or irregular
completely rendered. [Art. 1191] 2. He accepts the performance without expressing any protest or objection
Art. 1234. If the obligation has been substantially performed in good faith, the obligor Note: Liability of debtor for damages suffered by creditor in case of substantial performance
may recover as though there had been a strict and complete fulfillment, less damages DOES NOT arise under the conditions set forth in Art. 1235 (as there is a waiver of his right)
suffered by the obligee. (n) as compared with Art. 1234 (where liability for damages arises).
Substantial Performance in Good Faith

Art. 1236. The creditor is not bound to accept payment or performance by a third person
o When in good faith the debtor attempted to perform the prestation but
who has no interest in the fulfillment of the obligation, unless there is a stipulation to the
o Through oversight or excusable neglect
contrary.
o He failed to make a full and complete performance, for which the other
party must be indemnified.
Whoever pays for another may demand from the debtor what he has paid, except that if
There must be NO intentional deviation and the defect must be slight and
he paid without the knowledge or against the will of the debtor, he can recover only
unimportant and should NOT be material so as to frustrate the accomplishment of
insofar as the payment has been beneficial to the debtor. (1158a)
the intended work.
Rationale: Fairness is evident. In case of substantial performance, the obligee is GR: Creditor can refuse payment by a stranger (third person)
benefited. XPN:
EFFECT: The obligor should be allowed to recover as if there has been complete 1. If there is a stipulation allowing this
fulfillment LESS damages suffered by the obligee. This last condition affords just 2. If said person has an interest in the fulfillment of the obligation (co-
compensation for the relative breach committed by the obligor). debtor, guarantor, surety, mortgagee)
Rationale: Creditor has a right to insist on the liability of the debtor. He should also
Requisites for the Application of Article 1234: not be compelled to accept payment from a third person he may dislike or distrust.
1. There must be substantial performance Furthermore, the creditor cannot be absolutely sure that the thing delivered is in
2. Obligor must be in good faith accordance with the contract.
Effect of Payment by Third Person Example:
1. If made with the knowledge and with consent of the debtor D borrowed from C 1,000. G is the guarantor. Without the knowledge or consent
Payer shall have the rights of reimbursement and subrogation of D, S paid 1,000.
He can recover what he has paid and acquire all of the rights of the In this case, S can claim reimbursement from D for the whole amount of 1,000
creditor [Art. 1236, 1237, 1302, 1303] inasmuch as D was benefited up to that amount. [Art. 1236]
Proof of Knowledge by Debtor: Proved inferentially or by his act/conduct If D cannot pay S, the latter CANNOT proceed against G, the guarantor because,
2. If made without knowledge or against the will of the debtor having paid without the consent of D, S is not entitled to subrogation. If the
Payer can recover from the debtor only insofar as the payment has been payment however was made with the consent of D, S would be entitled not merely
beneficial to the latter. (Read in relation with 1241 where benefit to the to full reimbursement but also subrogation.
creditor is presumed)
In other words, the recovery is only up to the amount of the debt at the Art. 1238. Payment made by a third person who does not intend to be reimbursed by the
time of payment. debtor is deemed to be a donation, which requires the debtor's consent. But the payment
Consequently, if the debt had already prescribed or been paid, the is in any case valid as to the creditor who has accepted it. (n)
payment would no longer be beneficial to the debtor and the payer is not Consent of the debtor is REQUIRED in payment made by a third person who does
entitled to reimbursement by the debtor NOT intend to be reimbursed as no one should be compelled to accept the
generosity of another
Example: D owes C 1,000. If S, a stranger offers to pay C: Payment by a stranger is deemed a donation (law on ordinary donation will apply)
If debtor did not give consent: If the payment is accepted by the creditor it will
1. Without the knowledge or against the will of D If the actual indebtedness is 1,000 and S
extinguish the obligation. The consent of the debtor is immaterial insofar as the
paid 1,000, he can ask reimbursement form D for 1,000. However, if 400 had already
extinguishment of the obligation is concerned.
been paid by D, S is entitled to be reimbursed only for the amount of 600 because it is only
to that amount that D has been benefited. S can recover 400 from C who should not have
Example:
accepted it. If C acted in bad faith, he is responsible not only for the return of 400 but also
D owes C 1,000. Without the intention of being reimbursed, S paid Ds obligation. D accepts
for interest in lieu of damages.
Ss generosity. In this case, D is not liable to S and his obligation to C is extinguished. But if D
did not consent to the donation, S may recover from D since there has been no donation,
2. With the knowledge of D In either case, if the payment of 1,000 was made with the
although originally S did not intend to be reimbursed. Nevertheless, the obligation of D to C
knowledge or consent of D, S can recover from D 1,000 with all the rights of subrogation to
is extinguished because the payment is valid as to C who accepted it. However, inasmuch as
the accessory obligation such as mortgage, guaranty or penalty.
the payment by S has been effected against the will of D, all that S can recover from D is to
the extent that D has been benefitted by Ss payment to C in Ds behalf.
Art. 1237. Whoever pays on behalf of the debtor without the knowledge or against the
will of the latter, cannot compel the creditor to subrogate him in his rights, such as those
Art. 1239. In obligations to give, payment made by one who does not have the free
arising from a mortgage, guaranty, or penalty. (1159a)
disposal of the thing due and capacity to alienate it shall not be valid, without prejudice to
Subrogation the juridical act of putting somebody into the place of the creditor the provisions of Article 1427 under the Title on "Natural Obligations." (1160a)
by virtue of which the former is enabled to exercise all the rights and actions
Free disposal of the thing due means that the thing to be delivered must not be
pertaining to the latter (creditor)
subject to any claim or lien or encumbrance (e.g. mortgage, pledge) of a 3rd
Under Art. 1236, since payment is made WITH consent; debtor is entitled to person.
(1) Subrogation and
Capacity to alienate means that the person is not incapacitated to enter into
(2) Reimbursement
contracts and for that matter, to make a disposition of the things due.
Under Art. 1237, since payment is made WITHOUT consent; debtor is
Payment Made by an Incapacitated Person
(1) NOT entitled to subrogation,
GR: If person paying has no capacity to give, the payment is NOT VALID (thing paid
(2) ONLY reimbursed as far as it has benefitted the debtor
can be recovered) and the creditor cannot be compelled to accept it
XPN: Art. 1427 of the Civil Code (When a minor between eighteen and twenty-one
Rights Which May Be Exercised by the Person Subrogated in the Place of the Creditor
years of age, who has entered into a contract without the consent of the parent or
1. Mortgage
guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment
2. Guaranty
of the obligation, there shall be no right to recover the same from the obligee who
3. Penalty or penal clause
has spent or consumed it in good faith.)
Example: This article refers to payment made by the debtor to:
1. S sells to B a television set. If the television set belongs to C, the same can be recovered by (1) Incapacitated person
C because the payment is not valid. S does not have free disposal of the television set. (2) Unauthorized third person
2. Under Art. 1427: A is a minor between 18 to 21 years, and enters into a contract to pay B Effects of Payment Made to an Incapacitated Person
the sum of 1,000 without the consent of his parents. B did not know of As minority and he GR: Payment to a person incapacitated to administer his property is NOT valid
accepted the sum and spent 800. Later, As parents learned of the transaction and brought XPN (Payment is valid and the obligation is extinguished when):
an action in court to recover the 1,000 paid to B. The parents can recover only 200 1. Incapacitated person has kept the thing delivered
inasmuch as 800 had already been spent in good faith. Note that, if the entire amount had 2. Incapacitated person was benefited by the payment
been spent by B, As parents would not be able to recover anything.
Note:
NOTE: Art. 1239 refers to payment BY an incapacitated person. Art. 1241 refers to payment Proof of such benefit is incumbent upon the debtor who paid. Benefit may be
TO an incapacitated person. financial, moral or intellectual but it must be proved.
In the absence of this benefit, the debtor may be made to pay again by the
Art. 1240. Payment shall be made to the person in whose favor the obligation has been guardian or by the incapacitated person himself when he acquires capacity
constituted, or his successor in interest, or any person authorized to receive it. (1162a) Rationale: As the creditor is incapacitated, payment should have been made to the
legal representative or guardian. If there is none, consignation in court [Art. 1256]
To make the payment valid and effective the law enumerates persons to whom
payment shall be made Example:
GR: Payment made to an unauthorized person is NOT a valid payment D delivers 1,000 to C, a minor under guardianship, in payment of a debt. C loses 700 of the
XPN: money due to ignorance. In this case, the payment should be considered as made only to the
1. payment made to an incapacitated person or a 3rd person under Art. extent of 300. On the other hand, if C kept the money or spent it for purposes useful to him,
1241. the payment shall be valid; otherwise C would unduly enrich himself at the expense of D.
2. payment in good faith to any person in possession of the credit, though
such person may not be authorized to receive it under Art. 1242 Effects of Payment Made to an Unauthorized Third Person
GR: Payment to a third person or wrong party is NOT valid, even though made in
Persons to Whom Payment Shall be Made: good faith
1. Creditor or obligee(person in whose favor obligation has been constituted) XPN:
Creditor shall refer the creditor AT THE TIME OF PAYMENT, not at the (1) It has redounded to the benefit of the creditor
constitution of the obligation Furthermore, benefit to the creditor is PRESUMED when:
If the credit has been transferred to another person, payment shall be a) Subrogation of the payer in the creditors rights
made to the latter b) Ratification by the creditor
2. Successor in interest (like the heirs) c) Estoppel on part of the creditor (if by creditors conduct, the
3. Any person authorized to receive it debtor has been led to believe that the third person had
May be an attorney-in-fact or agent authority to receive the payment)
Authorization may be made by AGREEMENT or by LAW (guardian to d) Assignment of rights without notice to debtor [Art. 1626]
ward, liquidator of a corporation, administrator or executor of estate) (2) Art. 1242 payment to a possessor of credit in good faith
Art. 1241. Payment to a person who is incapacitated to administer his property shall be Note:
valid if he has kept the thing delivered, or insofar as the payment has been beneficial to The validity of the payment is co-extensive to the benefit which the creditor
him. Payment made to a third person shall also be valid insofar as it has redounded to the achieved
benefit of the creditor. Such benefit to the creditor need not be proved in the following It is not presumed that the creditor was benefited by the payment and therefore
cases: such benefit must be proved. However, the benefit need not be proved in the four
(1) If after the payment, the third person acquires the creditor's rights; given situations ABOVE as there is a presumption of benefit.
(2) If the creditor ratifies the payment to the third person; In the absence of such proof, the payment thereof in error and in good faith will
(3) If by the creditor's conduct, the debtor has been led to believe that the third not deprive the creditor of his right to demand payment
person had authority to receive the payment. (1163a)
Example: consent of A and the Court. If he does, and A wins the case, A can compel C to pay
D is indebted to C in the amount of 1,000. On the date of maturity of the obligation, again the sum representing the debt garnished.
payment was made by D to T, a third person. In this case, D is still liable to C. If T delivered In the illustration given above, C may consign (deposit) the money in court for his
1700 to C, the payment by D is valid only to the extent of 700. But D must prove the own convenience. If this is properly done, he will be freed from further
delivery to C. Such proof, however, is not necessary if, after payment, T acquired Cs right responsibility.
against D or C ratified the payment to T, or if before payment, D has been led to believe by
Cs conduct or fault that T had authority to receive the payment even if T had, in fact, no such
Art. 1244. The debtor of a thing cannot compel the creditor to receive a different one,
authority.
although the latter may be of the same value as, or more valuable than that which is due.
Art. 1242. Payment made in good faith to any person in possession of the credit shall In obligations to do or not to do, an act or forbearance cannot be substituted by another
release the debtor. (1164) act or forbearance against the obligee's will. (1166a)
Possessor of credit refers to a person who has the appearances of the creditor Debtor cannot COMPEL creditor to accept a different object
but who actually is not; there must be possession of the credit itself and not merely Creditor shall be paid only what has been stipulated upon because the contract is
the document evidencing the credit the law between parties (even if it is worth more than what is agreed)
Requisites: What the law prohibits is the compulsion
1. Payment by PAYOR must be made in good faith (payee may be in good or Thus, if the creditor consents to the delivery of a different thing, his acceptance
bad faith) extinguishes the obligation
2. PAYEE must be in possession of the credit itself (not merely the document
evidencing the credit) Every Prestation Due Must Be Complied With
Example: 1. Real Obligations
X found a negotiable promissory note payable to bearer. If the maker thereof pays in good Obligations to give; A thing different from that due cannot be offered or
faith to X, the debt is extinguished, even if X was not entitled to it (here he was considered in demanded against the will of the creditor or debtor as the case may be
possession of the credit itself). If the promissory note however, was payable to a specific 2. Personal Obligations
person, say Lars, then payment to X is not valid, because X would be the possessor only of Obligations to do or not to do; The act to be performed or prohibited
the document, not the credit itself. cannot be substituted against the obligees will
Art. 1243. Payment made to the creditor by the debtor after the latter has been judicially When Prestation may be Substituted (Instances when Art. 1244 Does Not Apply)
ordered to retain the debt shall not be valid. (1165) 1. In case of facultative obligations debtor can substitute another [Art. 1206]
2. In case there is another agreement resulting in either
This article applies to debts or credits and not to property a. Dation in payment [Art. 1245]
Properties are attached, while a credit on the other hand is garnished. b. Novation [Art. 1291]
Payment made after judicial order to retain is VOID. 3. In case of waiver by the creditor (expressly or impliedly)
The judicial order may have been prompted by an order of injunction or
garnishment
Art. 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction
Garnishment takes place when the debtor of a debtor is ordered not to pay the
of a debt in money, shall be governed by the law of sales. (n)
latter so that preference would be given to the latters creditor
Injunction - Judicial process by virtue of which a person is generally ordered to Dation In Payment mode of extinguishing an obligation whereby the debtor
refrain from doing something alienates in favor of the creditor, property for the satisfaction of monetary debt
Note: An interpleader is not within the ambit of the article. Dation in payment is a form of novation in which there is a change in the object
An interpleader, a person who possesses a certain property, interest or credit is involved in the original contract
confronted by two or more persons laying conflicting claims on the same thing, Example: To pay my debt of 1,000,000 in favor of Bella, I gave her with her
files a case against all claimants that the latter may litigate among themselves their consent a diamond ring instead worth 1,000,000.
conflicting claims. The Law on Sales shall govern the relation of the parties.
o This is so because dation in payment really partakes in one sense of the
Example: nature of sale, i.e., the creditor is really buying some property of the
A is creditor of B. B is creditor of C. A filed to collect from B. A issued writ of debtor, payment for which is to be charged against the debtors debt
garnishment against B. Writ was served upon C. C shall not pay to B without o The debtor shall be deemed the vendor and the creditor, the vendee
As such the essential Elements Of A Contract Of Sale must be present: Art. 1246. When the obligation consists in the delivery of an indeterminate or generic
1. Consent thing, whose quality and circumstances have not been stated, the creditor cannot
2. Object Certain demand a thing of superior quality. Neither can the debtor deliver a thing of inferior
3. Cause or Consideration quality. The purpose of the obligation and other circumstances shall be taken into
consideration. (1167a)
Elements of Dation in Payment
1. Existence of a money obligation Applies to:
2. Alienation to creditor of a property by the debtor with the consent of the former o obligation to give generic things
3. Satisfaction of the money obligation of the debtor o the quality and circumstances have not been stated
Rule of the medium quality: Only the ordinary kind or category of the said thing
Other Legal Terms Synonymous With Dation In Payment should be delivered.
1. Dacion en pago o Creditor cannot demand a thing of superior quality
2. Adjudicacion en pago o Debtor cannot deliver a thing of inferior quality
3. Datio in solutum The PURPOSE and other CIRCUMSTANCES shall be considered in the determination
of what quality shall be delivered
Conditions Under Which a Dation in Payment Would be Valid: Rationale: This is a principle of equity in that it supplies justice in cases where there
1. If the creditor consents (for a sale presupposes consent of both parties) is lack of precise declaration in the obligation. It is always hard to find one thing
2. If the Dation in payment will not prejudice the other creditors (might lead the that is exactly similar to another. If there is disagreement between the parties, the
debtor to connive with one creditor in defrauding the other creditors) law steps in and determines whether or not the contract has been complied with or
3. If the debtor is not judicially declared insolvent (for here his property is supposed to not according to the circumstances.
be administered by an assignee Benefit of this article may be waived:
o Creditor may demand and accept one of inferior quality
Note: PERFECTION refers to the meeting of the minds between the parties. Generally, o Debtor may deliver one of superior quality
contracts are perfected by mere consent (in this case, once the parties agree to have the
dacion en pago). Here since the Law on Sales governs, as a general rule it is not at perfection When Contract Is Void
that the creditor owns it but it is DELIVERY of the object which transfers ownership. The Article speaks of quality and other circumstances. Quantity is not mentioned.
If the Quantity and Quality cannot be determined without resorting to a new
Dation In Payment Sale agreement, the contract is considered VOID.
There is a pre-existing credit There is no pre-existing credit
This extinguishes obligations This gives rise to obligations Example: S promised to deliver B a horse. B cannot compel S to deliver a price-winning race
The cause or consideration is the horse. Neither can S require B to accept an old sickly horse.
The cause or consideration here is the PRICE
EXTINGUISHMENT of the debt (from 1. If B owns a stable of race horses, which fact is known to S, and the price agreed
(from viewpoint of the seller); or obtaining
viewpoint of debtor/vendor); or upon is the reasonable price of a race horse, then S must deliver a race horse.
the OBJECT (from the viewpoint of the
ACQUISITION of the object offered in credit 2. If B happens to be a calesa driver and B agreed to pay S for the horse an amount
buyer)
(from viewpoint of creditor/vendee) which is reasonable for the price of a calesa horse, then that kind of horse may
There is less freedom in determining the There is greater freedom in determination of be delivered.
price the price (both parties in equal footing) 3. If B is a veterinary doctor and his only purpose in buying the horse is to examine its
The giving of the object in lieu of credit may organs in connection to his work, this and other relevant circumstances show that
Giving of the price may generally end the the old sickly horse was intended by the parties to be delivered.
extinguish completely or partially the credit
obligation of the buyer
(depending on the agreement)
Art. 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the
Special Forms of Payment (special, as it is not the ordinary way of extinguishing the payment shall be for the account of the debtor. With regard to judicial costs, the Rules of
obligation) Court shall govern. (1168a)
1. Dation in payment [Art. 1245]
2. Application of payments [Art. 1253] GR: Debtor has to pay for the extrajudicial expenses incurred during the payment
3. Payment by Cession [Art. 1255] XPN: When there is a stipulation to the contrary
4. Tender of payment and consignation [Art. 1256-1261] Reason for the law: It is the debtor who benefits primarily, since his obligation is
extinguished by reason of the payment
This does not include expenses incurred by creditor going to debtor Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not
Judicial costs are the statutory amounts allowed to a party to an action for his possible to deliver such currency, then in the currency which is legal tender in the Philippines.
expenses incurred in the action. Repealed by RA 8183: All monetary obligations shall be settled in the Philippine currency
Rule 142, Rules of Court governs judicial costs. which is the legal tender in the Philippines. However, parties may agree that the
o Generally, The LOSING party pays judicial costs to the winning party. obligation or transaction shall be settled in any other currency at the time of payment.
o The court, may however, for special reasons, adjudge that either party
shall pay the costs or that the same be divided as may be equitable. The delivery of promissory notes payable to order, or bills of exchange or other
Generally, no costs against the Government, unless otherwise provided by law. mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired.
Art. 1248. Unless there is an express stipulation to that effect, the creditor cannot be
compelled partially to receive the prestations in which the obligation consists. Neither In the meantime, the action derived from the original obligation shall be held in the
may the debtor be required to make partial payments. abeyance. (1170)
Legal Tender is that currency which a debtor can legally compel a creditor to
However, when the debt is in part liquidated and in part unliquidated, the creditor may accept in payment of a debt; ALL notes and coins issued by the BSP
demand and the debtor may effect the payment of the former without waiting for the The amount of coins that may be accepted as legal tender are (Bangko Sentral ng
liquidation of the latter. (1169a) Pilipinas Circular 537, 2006)
Reason why Partial Payment Not Allowed: Art. 1233 especially provides that a o Up to 1000 - 1, 5, 10
debt shall not be understood as paid until the obligation has been completely o Up to 100 - 0.25 or less
delivered. Paper bills are valid legal tenders for any amount, unlike coins
Creditor may accept but he cannot be compelled to accept partial performance.
The debtor has the duty to comply with the whole of the obligation but cannot be Past Legal Tenders in the Philippines
required to make partial payments if he does not wish to do so. Japanese Military Notes during the Japanese Occupation
Emergency notes issued by the Commonwealth Government
When Partial Performance Allowed Philippine treasury certificates, new Victories series
GR: Performance of the obligation should be complete and not partial
XPN: Currency In Payment
1. When there is a stipulation to this effect Payment may be either:
2. When the different prestations are subject to different conditions or 1. In the currency stipulated
terms 2. Or if it is not possible to deliver such currency, Philippine legal tender
3. When a debt is part liquidated (definitely and determined or computed) No more legal impediment to agree on payment by foreign currency
and part unliquidated Obligations in foreign currency may be discharged in Philippine currency based on
Other exceptions: the prevailing exchange rate at the Time of PAYMENT
o When a joint debtor pays his share
o When a solidary debtor pays only the part demandable because the rest Note: Compare to Art. 1250, the value of the currency is based on the time of establishment
are not yet demandable on account of their being subject to different of the obligations, when there has been an official declaration of existence of extraordinary
terms and conditions inflation or deflation.
o In case of compensation, when one debt is larger than the other, it
follows that a balance is left Delivery of Commercial Instruments
o When work is to be done by parts Promissory notes, checks, bills of exchange, etc. are not legal tender and the
creditor cannot be compelled to accept them
When Prestation is Partly Liquidated and Partly Unliquidated A managers check or check consigned in court is not legal tender either
Performance of the liquidated part may be insisted upon either by the debtor or Creditor may accept without the acceptance producing the effect of payment
creditor. In the meantime, the demandability of the original obligation is suspended
Example: D owes C 1,000 plus damages. Even if the amount of damages has not EFFECT ON OBLIGATION - The obligation is not extinguished:
yet been ascertained, the 1,000 is already known or liquidated. This is already 1. Until they have been cashed
demandable and payable. 2. Unless they have been impaired through the fault of the creditor
Instances When Commercial Document Should Be Accepted As Payment Art. 1251. Payment shall be made in the place designated in the obligation.
1. Creditor is in estoppel or had previously promised he would accept a check
2. Check has lost its value because of the fault of the creditor as when he has There being no express stipulation and if the undertaking is to deliver a determinate
unreasonably delayed in presenting the check for payment (PNB vs. Seeto) or in thing, the payment shall be made wherever the thing might be at the moment the
the case of a foreign bill of exchange, the creditor neglects to make a protest obligation was constituted.
(Quiros vs. Tan Guinlay)
3. When check is deposited by the clerk of court with the bank after payment by the In any other case the place of payment shall be the domicile of the debtor.
vendor and the vendee has petitioned the court that he be allowed to withdraw
(Cordero vs. Siosoco)
If the debtor changes his domicile in bad faith or after he has incurred in delay, the
additional expenses shall be borne by him.
Rule on Impairment of Commercial Documents by Fault of Creditor
Impairment by the fault of the creditor will constitute payment of a debt only when These provisions are without prejudice to venue under the Rules of Court. (1171a)
these commercial documents are executed by THIRD PERSONS and delivered by
the debtor to the creditor.
It does NOT apply to an instrument executed by the debtor himself and delivered Venue of Payment
to his creditor. 1. If there is a stipulation in the place DESIGNATED
2. If there is no stipulation
a. Determinate thing where the thing was at the time obligation was
Art. 1250. In case an extraordinary inflation or deflation of the currency stipulated should constituted (if temporarily there, e.g. shipped, payment at domicile of D)
supervene, the value of the currency at the time of the establishment of the obligation b. Other cases like deliver a generic thing, deliver money, or personal
shall be the basis of payment, unless there is an agreement to the contrary. (n) obligation DOMICILE of the debtor
Inflation sharp sudden increase of money or credit or both without a
corresponding increase in business transactions. Since the value of money Note: In case of conflict between parties stipulation of the venue and the Rules Of Venue
decreases, the natural result is an increase in the price of goods and services. under Secs. 1-5, Rule 4, Rules of Court, the latter shall prevail.
Deflation reduction in volume and circulation of available money or credit,
resulting in a decline in the general price level; it is the opposite of inflation Effect of Debtors Change of Domicile
Extraordinary inflation or deflation of currency any uncommon decrease or Bad Faith / After Delay: Additional expenses incurred by the creditor shall be borne
increase in the purchasing power of the currency which could not have been by the debtor (these do not cover regular expenses incurred going to original place
reasonably foreseen of D)
Good Faith: Not liable for said additional expenses (e.g. security reasons, appointed
Application of Law as officer in other place)
If the inflation or deflation is just ordinary, that is, it is a universal trend which did
not spare the country, Article 1250 will not apply. Note: It is believed that the term domicile as used in Article 1251, connotes mere physical
The effects of extraordinary inflation or deflation can only be applied when there is residence (De Leon). MMV: As distinguished from Domicile in our Consti law.
an official declaration by competent authorities (Bangko Sentral)
The employment of the words extraordinary inflation or deflation of the currency Example:
stipulated, clearly shows that Art. 1250 envisages CONTRACTUAL obligations 1. S obliged himself to deliver to B a dog. It was agreed that the dog shall be delivered at Bs
where a specific currency is selected. house. The house of B shall be the place of delivery.
Doesnt apply if the obligation to pay arises from a source independent of contract 2. If there is no agreement as to the place of delivery and the dog was in the house of S when
such as law, quasi-contract, crime, tort or payments in expropriation proceeding. the parties entered into the contract, then the delivery shall be made at the house of S. But if
Legal rate of Interest in Obligations which consist in payment of money: 12% / year the dog was temporarily at some place (e.g. on a plane in transit), the place of delivery shall
be the domicile of S unless otherwise stipulated.
Basis for Payment 3. If the obligation of S is to pay B a sum of money (generic thing), the place of payment is
GR: The value at the time the obligation was constituted or incurred that designated in the obligation; otherwise, B must have to go to the house of S to receive
payment. B incurs the expenses incidental to such collection. If S changes his domicile in bad
XPN: Unless there is an agreement to the contrary
faith or after he has incurred in delay, the additional expenses shall be borne by him.
SUMMARY OF PAYMENT AND PERFORMANCE
Diagrams by Prof. Eduardo A. Labitag
SUBSECTION 1. Application of Payments Limitations on Debtors Right of Choice:
1. Cannot apply to payment not yet due (XPN: See above)
Art. 1252. He who has various debts of the same kind in favor of one and the same 2. If the creditor is given the benefit of the period, which has not arrived
creditor, may declare at the time of making the payment, to which of them the same 3. If there is an agreement as to which debts paid first
must be applied. Unless the parties so stipulate, or when the application of payment is 4. If there is a principal obligation which bears interests, payment of interests first
made by the party for whose benefit the term has been constituted, application shall not before payment of capital
be made as to debts which are not yet due. 5. Cannot choose to pay a bigger debt partially when payment can be applied in full to
If the debtor accepts from the creditor a receipt in which an application of the payment is a smaller debt (cannot make partial payments, unless there is an agreement to the
made, the former cannot complain of the same, unless there is a cause for invalidating contrary)
the contract. (1172a)
2. If the debtor does not apply the payment, the creditor may make the designation by
Application of Payments designation of the debt to which the payment must be specifying in the receipt which debt is being paid. Once the debtor has accepted the
applied when the debtor has several debts of the same kind in favor of the same application, he cannot contest such application unless there is a cause for invalidating
creditor the acceptance.
Debtor can contest if his assent was vitiated by causes such as mistake, violence,
Requisites for a Valid Application of Payment by the Debtor: intimidation, fraud, etc. Application by creditor is not valid, and Art. 1254 will
1. One debtor and creditor apply.
2. Two or more debts If creditor makes the application without the knowledge and consent of the debtor,
3. Debts must be of the same kind the application is not valid.
4. Debts must be due and demandable 3. If the creditor has not also made the application, or if the application is not valid, legal
5. Payment made not sufficient to cover all the debts application will govern (1253, 1254). The debt which is most onerous to the debtor shall
be deemed to have been satisfied.
Requisites for a Valid Application of Payment by the Creditor: 4. If the debts due are of the same nature and burden, the payment shall be applied to all
1. The debtor did not make any designation on which debt should be paid when he of them proportionately.
made the payment.
2. The creditor issued a receipt expressing the application of the payment to a When Application of Payments Cannot be Availed Of:
particular debt. 1. In the case of a partner-creditor under Art. 1792 of the Civil Code
3. The debtor assented to the application made by the creditor by accepting the 2. Right Cannot be invoked by a surety or a solidary guarantor (he has only one debt,
receipt w/o objections. and that is dependent on the principal debtors failure to pay)
Note:
Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to
The requirement of only one debtor does not prohibit application of payments to
have been made until the interests have been covered. (1173)
solidary obligations, as the solidary debtor who paid may have obligations other
than the solidary obligation in favor of the creditor to whom payment is made. There has been some doubt whether the rule stated in the above article is
Even if some of the obligations are not of the same kind at their constitution, directory or obligatory
application of payment is still possible if at the time the application is made, such Manresa believes that it is obligatory as it is more in consonance with justice
obligations had already been converted into obligations to indemnify with damages o So, the payment must be applied FIRST to the interest and whatever
by reason of breach or non-fulfillment. balance is left can be credited to the principal.
o The creditor can refuse an application of the debtor to the principal
No Application For Debts Not Yet Due, Unless: before the interest is paid
1. If the parties so stipulate o But remember: If the debtor makes a proper application and the creditor
2. When the application of payment is made by the party for whose benefit the term refuses, the creditor will be in mora accipiendi. See 1170.
is constituted (Art. 1196) The Supreme Court however believes it is merely directory
o Since the rule is subject to any agreement between the parties, or to
Rules on Application of Payments waiver by the creditor.
1. Debtor has FIRST choice; he must indicate at TIME OF PAYMENT (not afterwards) which o SC has held that the above provision applies ONLY in the absence of a
particular debt is being paid. The right to make the application once exercised is written / verbal agreement to the contrary. (Baltazar vs. Lingayen Gulf;
irrevocable unless the creditor consents to the change. Magdalena Estate vs. Rodriguez)
Art. 1254. When the payment cannot be applied in accordance with the preceding rules, Example:
or if application can not be inferred from other circumstances, the debt which is most 1. The debtor owes his creditor several debts, all of them due, to wit: (a) an
onerous to the debtor, among those due, shall be deemed to have been satisfied. unsecured debt, (b) a debt secured with a mortgage of the debtors property, (c) a
debt bearing interest; (d) a debt in which the debtor is solidarily liable with
If the debts due are of the same nature and burden, the payment shall be applied to all of another. The debt which is most onerous to the debtor must be satisfied. The most
them proportionately. (1174a) onerous is (d), followed by (b), (c) and then (a). 1982 Bar
2. If one debt is for 1 million and another is for 2 million and only one 1 million is
Legal application of payment if both the creditor and the creditor failed to paid, how will the payment be applied? (a) If the debtor makes the application, the
exercise the right of application of payment, the law makes the application of payment should be credited to the first debt. The debtor cannot insist that the
payment creditor accept it for the second, as it is only a partial payment and under the law a
Onerous debt one with a burden creditor cannot be compelled to accept partial payment. If no application is made,
This Article does not apply where there has already been an application of payment the law steps in and application will be made proportionally.
3. If one debt is 1.2 million and the other is 600,000 and the debtor gives 300,000
Applicability of Article without making any application of payment, how should said payment be applied?
1. When application of payment cannot be made under 1252 and 1253 The payment will be applied proportionately. Hence, 200,000 will be deducted
2. Application of payment cannot be inferred from other sources from the first, and 100,000 will be deducted from the second. The first debt will
now be 1 million and the second debt 500,000. The ratio here of the first debt to
Rules in Legal Application of Payment the second debt is thus preserved (2:1).
1. Apply it to the most onerous (in case the due and demandable debts are of
different natures)
2. If the debts are of the same nature and burden, application should be made to all SUBSECTION 2. Payment by Cession
proportionately
Art. 1255. The debtor may cede or assign his property to his creditors in payment of his
debts. This cession, unless there is stipulation to the contrary, shall only release the
Note: When it cannot be determined which debt is most onerous to the debtor, payment debtor from responsibility for the net proceeds of the thing assigned. The agreements
must be applied to all the debts proportionately. which, on the effect of the cession, are made between the debtor and his creditors shall
be governed by special laws. (1175a)
When Debts Are Not Of Same Burden
1. When there are various debts, the oldest ones are more burdensome Cession or assignment a special form of payment whereby the debtor abandons
2. When one bears interest and the other does not, even if the latter is the older all of his property for the benefit of his creditors in order that from the proceeds
obligation, the former is considered more onerous thereof the latter may obtain payment of their credits.
3. Of two interest-bearing debts, the one with a higher rate is more onerous.
4. When a person is bound as principal in one obligation and as surety in another, the Requisites:
former is more onerous 1. More than one debt
5. A debt as a sole debtor is more onerous than as a solidary debtor 2. More than one creditor
6. When there is an encumbrance, the debt with a guaranty is more onerous than 3. Complete or partial insolvency of the debtor
that without security 4. Acceptance of cession by the creditors
7. With respect to indemnity for damages, the debt which is subject to the general 5. Property ceded or assigned not exempt from execution
rules on damages is less burdensome than that in which there is a penal clause
8. The liquidated debt is more burdensome than the unliquidated one Note: In case the creditors do not accept the cession or assignment, a similar result may be
9. An obligation in which the debtor is in default is more onerous than one in which obtained by proceeding in accordance with the Insolvency Law.
he is not
10. Advances for subsistence are more onerous than cash advances Kinds of Cession
1. Contractual cession under Art. 1255
Note: If a principal debtor is guaranteed by a surety but the guaranty is for a smaller amount, 2. Legal cession under Insolvency Law, which may be voluntary or involuntary
any partial payment made by the debtor shall be applied to the portion which is NOT
secured, since this exclusive debt is considered more onerous to him. (Hongkong v. Aldanese) Some Properties Exempt from Execution
1. Family home, save in certain exceptions (Art. 223, 226)
2. Ordinary tools and implements used for livelihood
3. Necessary clothing and articles for ordinary use
4. Household furniture and utensils necessary for housekeeping SUBSECTION 3. Tender of Payment and Consignation
5. Provisions for individual or family use for four months
6. Professional libraries and equipments of lawyers, doctors, engineers Art. 1256. If the creditor to whom tender of payment has been made refuses without just
7. Lettered gravestones cause to accept it, the debtor shall be released from responsibility by the consignation of
8. Amount needed by debtor to support himself and those he is required by law to the thing or sum due.
support (Art. 750). If such amount is not reserved, the cession is not void but Consignation alone shall produce the same effect in the following cases:
merely reducible to the extent that the support is impaired. The party prejudiced (1) When the creditor is absent or unknown, or does not appear at the place of
can ask the court for the reduction. payment;
(2) When he is incapacitated to receive the payment at the time it is due;
Family Home not exempt from attachment for: (3) When, without just cause, he refuses to give a receipt;
1. Non-payment of taxes (4) When two or more persons claim the same right to collect;
2. Debts incurred before the declaration was recorded in the Registry of Property; (5) When the title of the obligation has been lost. (1176a)
3. Debts secured by mortgages on the premises before or after such record of the
declaration; Tender of Payment Manifestation of the debtor to the creditor of his decision to
4. Debts due to laborers, mechanics, architects, builders, material-men and others comply immediately with his obligation (offer creditor what is due to him). The
who have rendered service or furnished material for the prosecution of the debtor must show that he has in his possession the thing or money to be delivered
building. at the time of the offer.
Consignation act of depositing the thing due with the court whenever the
Effect of Payment creditor cannot accept or refuses to accept payment. It generally requires a prior
The creditors do not become owners; they are merely assignees with authority to tender of payment.
sell. (If ownership is transferred, this becomes a dation in solutum) If the creditor refuses the tender of payment without just cause, the debtors are
The debtor is released up to the amount of the net proceeds of the sale, unless discharged from the obligation by the consignation of the sum due.
there is a stipulation to the contrary (that the assignment shall be in full
satisfaction of his debts). The debtor is still liable if there is a balance. Basis Tender of Payment Consignation
Creditors will collect credits in the order of preference agreed upon, or in default of Nature Preparatory act to consignation Principal act to extinguish the obligation
agreement, in the order ordinarily established by law. Does not by itself extinguish the Extinguishes the obligation when
Effect
obligation declared valid
Basis Cession Dation Judicial for it requires the filing of a
Character Extrajudicial
Number Plurality of creditors May be only one creditor complaint in court
Universality of property of
Thing delivered is considered
Object debtor is what is ceded Requisites of A Valid Tender of Payment
as equivalent of performance
(except those exempt) 1. Must be made in legal tender (no checks)
Financial condition of Debtor must be partially or Not necessarily in state of 2. Must include whatever interest is due
debtor relatively insolvent financial difficulty 3. Must be unconditional and for the whole amount
Requires the consent of all Only concerned creditors 4. Obligation must already be due
Consent 5. Tender of payment must have been made before consignation
the creditors consent required
Ownership transferred upon
Ownership Ownership not transferred Tender of Payment Not Required / Consignation Alone Is Sufficient
delivery
Novation Not an act of novation An act of novation 1. Creditor is absent, unknown, or doesnt appear at place of payment
Payment extinguishes Doesnt need to be judicially declared absent; no representative to accept
Merely releases debtor for obligation to the extent of 2. Creditor refuses to issue a receipt without just cause
net proceeds of tings ceded the value of the thing Title of the obligation has been lost
Extent of extinguishment 3. Creditor is incapacitated to receive payment at the time it is due
or assigned, unless there is a delivered as agreed upon,
contrary intention provided or implied form the Does NOT apply if the creditor has a legal representative and the debtor
conduct of the creditor knows this
4. Two or more persons claim the right to collect
An action in INTERPLEADER would be proper here
5. Consignation is ordered by the Court (Southwestern University vs. Salvador)
Requisites of A Valid Consignation 2. Prior valid tender, unless tender is dispensable
1. Existence of a valid debt which is due See requisites of a valid tender of payment and exceptions above
2. Prior valid tender, unless tender is dispensable Mere sending of letters with intent to pay the obligation without
3. Creditor unjustly refuses the tender of payment accompanying payment in legal tender is not a valid tender of payment
4. Prior notice of consignation Tender must be proved by evidence
5. Actual consignation It is beneficial to the debtor to make the tender in writing accompanied
6. Subsequent notice of consignation by the actual payment
A valid tender of payment has the effect of exempting the debtor from
When Consignation Is Not Required payment of interests and/or damages
Tender of payment without consignation does not extinguish the debt; 3. Creditor unjustly refuses the tender of payment
consignation must follow Refusal must be without valid cause
In some cases, however, consignation is not required, mere tender being needed. If there is a valid cause, the subsequent deposit of the amount will not
This is so where there really exists no debt, no obligation, and where the payment extinguish the obligation. (ex. Debt not yet due, payment in check,
is purely voluntary, where the person offering could have refused to offer incomplete payment)
May happen in cases where only a right, not a duty exists. Mere tender would be 4. Prior notice of consignation to persons interested in the fulfillment of the
sufficient to preserve the right or privilege, in cases of: obligation
o OPTION CONTRACT, PACTO DE RETRO, LEGAL REDEMPTION Prior notice of consignation must first be announce to persons interested
Thus, if one is granted an option to buy, he may or may not buy, it is his choice; if (like guarantors, sureties, solidary co-creditors/co-debtors)
one is granted the right to redeem, he may or may not redeem also his own choice. Without such notice, the consignation as a payment is void
Purpose of notice: to allow them to reconsider their previous refusal and
Example: D entered into a contract with C. D is given the right to cancel the contract upon thus avoid litigation by the simply accepting the payment
payment of 1,000 to C. In this case, D has no existing debt to C. The amount of 1,000 is not First notice of consignation may be accomplished simultaneously with the
owed by D, being merely the consideration for the exercise of his right to cancel the contract. tender of payment, although the acts are separate and distinct from each
Hence, consignation of the 1,000 is not necessary. Tender of payment in good faith is other
sufficient to entitle D to cancellation. Mere tender is sufficient to preserve the right to cancel. 5. Actual consignation in court or competent authority
Debtor deposits the thing or amount with the Clerk of Court
Note: Certain cases have allowed the deposit to competent authority such as
If after tender, consignation is made very much later (one year, for example) the bank (Alfonso vs. CA) and the sheriff (Fabros vs. Villa Agustin)
interest should run until the principal is paid. To make the deposit, it is necessary, that a consignation case be filed
There must be a fusion of intent, ability and capability to make good such tender of (which is in reality an action for specific performance OR cancellation of
payment, which must be absolute and must cover the amount due. (FEBTC vs. Diaz the obligation)
Realty) Without a suit, there can be no valid consignation
Case may be filed with the RTC, MTC, MeTC depending on value of thing
Art. 1257. In order that the consignation of the thing due may release the obligor, it must 6. Subsequent notice of consignation to persons interested
first be announced to the persons interested in the fulfillment of the obligation. This is mandatory, and therefore without it, the consignation is VOID.
The consignation shall be ineffectual if it is not made strictly in consonance with the Purpose: Give persons interested opportunity to withdraw thing
provisions which regulate payment. (1177) deposited
Consignation requires a creditor-debtor relationship between the parties. FORM:
- Notice may be made in the form of a letter addressed to
Consignation must first be announced to the creditor to give the creditor the
interested persons
opportunity to accept the tender of payment and avoid unnecessary litigation.
- However, second notice may be complied with by the service
of summons together with a copy of the complaint for
REQUISITES OF A VALID CONSIGNATION
consignation upon the creditor (Limkako vs. Limkako)
1. Existence of a valid debt which is due
Notice by Publication may be allowed when the creditor is absent or
If the debt is not valid, (ex. has prescribed, is illegal) there is no debt
unknown.
Tender of payment for a debt that is not yet due can be refused by the
Notice, however, is NOT essential if the sum to be deposited is the sum
creditor (ex. Conditional obligation not yet fulfilled)
due under a final judgment (since the law contemplates only contractual
When there is no debt due, consignation with the court is not necessary
debts)
Art. 1258. Consignation shall be made by depositing the things due at the disposal of Effect if Consignation Has Been Duly Made
judicial authority, before whom the tender of payment shall be proved, in a proper case, 1. Debtor may ask the judge to order the cancellation of the obligation
and the announcement of the consignation in other cases. 2. The running of interest is suspended
3. However, it should be observed that before the creditor ACCEPTS, or before the
The consignation having been made, the interested parties shall also be notified thereof. judge declares that the consignation has been PROPERLY MADE, the obligation
(1178) REMAINS.
When Consignation Deemed Properly Made

How Consignation Is Actually Made 1. Creditor accepts the thing without objection as payment of the obligation
1. By depositing the very object that is due 2. Creditor questions the validity of the consignation and the court, after hearing,
2. With the proper judicial authority which, in certain cases, may include the sheriff declares that it has been properly made
3. Accompanied by proof that: 3. Creditor neither accepts nor questions the validity of the consignation, and the
a. tender has been duly made, unless tender is excused; court after hearing orders the cancellation of the obligation
b. first notice of consignation had already been sent
Effect of Improper Consignation
Effects Of The Deposit If the consignation was improperly made, the OBLIGATION REMAINS, because the
The property is in custodia legis consignation is NOT EFFECTIVE as payment (ex. lack of jurisdiction, did not deposit
And will, therefore, be exempted from attachment and execution full amount)
If the property is perishable, the court may order the sale If at the time of the consignation the debt was already due, and the requisites for
In the meantime, the debtor, by consigning the thing, practically makes himself the consignation are absent, the debtor is in DEFAULT.
agent or receiver of the court, particularly if for some reason, the property cannot
actually be placed in the hands of the court. Effect of Dismissal of the Case
This is particularly true when the object involved is REAL PROPERTY. If the case in which consignation was made is dismissed by the court, the
The proper thing to do, however, in such a case is to ask for a RECEIVERSHIP, consignation naturally would produce NO effect.
because ordinarily, unless such deposit is made, payment cannot be made and The same thing results if there is a failure to reconstitute the case, for here there
consequently the obligation would remain in force. Indeed, the payment would be would be a WAIVER
void.
Note: If one of the essential requisites for consignation is not present, the debtor may still
Art. 1259. The expenses of consignation, when properly made, shall be charged against ask for the cancellation of the obligation if the creditor does not object. This would have the
the creditor. (1178) effect of a waiver.
Creditor generally bears expenses of consignation if properly made When Debtor May Withdraw The Thing Consigned
Reason: Consignation is his fault, had he accepted there would have been no need 1. As a matter of right the right is given to the debtor because he still owns the
for it. thing; however, he bears the expenses. The co-debtors, guarantors cannot object.
If not properly made, the expenses are chargeable to the debtor Before the creditor has accepted the consignation
Expenses include those for the preservation or warehousing of the goods pending Before judicial declaration that the consignation has been properly made
litigation, filing fees, attorneys fees (obligation remains in force and accessory stipulations remain)
2. As a matter of privilege
Art. 1260. Once the consignation has been duly made, the debtor may ask the judge to When after consignation has been properly made, the creditor authorizes
order the cancellation of the obligation. the debtor to withdraw the thing. Article 1261 applies.
Before the creditor has accepted the consignation, or before a judicial declaration that Note: The creditor can prevent the debtor from exercising the RIGHT to withdraw the thing
the consignation has been properly made, the debtor may withdraw the thing or the sum consigned by immediately accepting the consignation with or without reservations. IF he
deposited, allowing the obligation to remain in force. (1180) accepts without reserving his right to further claims such as damages, this would be a case of
WAIVER.
Party Who Bears Risk of Loss

If consignation done properly, loss borne by creditor
If case is dismissed, or consignation improperly made, loss borne by debtor
Art. 1261. If, the consignation having been made, the creditor should authorize the SUMMARY OF PAYMENT AND PERFORMANCE
debtor to withdraw the same, he shall lose every preference which he may have over the
Application of
thing. The co-debtors, guarantors and sureties shall be released. (1181a) Cession Dation Tender and Consignation
Payments
Under this article, the consignation has already been made. The Requisites
withdrawal by the debtor is a matter of PRIVILEGE. 1. One debtor and 1. More than one debt 1. The creditor 1. Existence of a valid debt
creditor 2. More than one consents which is due
2. Two or more creditor 2. It will not 2. Prior valid tender, unless
Effects of Article 1261:
debts 3. Complete or partial prejudice the tender is dispensable
1. The obligation remains. 3. Debts must be of insolvency of the other 3. Creditor unjustly refuses
2. The creditor loses any priority over the thing the same kind debtor creditors the tender of payment
3. The co-debtors, guarantors and sureties are RELEASED (unless they consented). 4. Debts must be due 4. Acceptance of 3. Debtor is not 4. Prior notice of
5. Payment made not cession by the judicially consignation
Note: The co-debtors referred to here are solidary co-debtors. They are released only from sufficient to cover creditors declared 5. Actual consignation
the solidarity, not from their own individual shares, since unlike guarantors or sureties, the all the debts 5. Property ceded or insolvent 6. Subsequent notice of
solidary co-debtors are in themselves PRINCIPAL debtors. If later on the debtor could not pay assigned not exempt consignation
from execution
the whole obligation, such co-debtor can be made to pay his share of the debt to the
Effects
creditor. IF the debtor paid in full the entire obligation, he can go after his solidary co-
Payment of debt Assignment liberates Extinguishment If accepted by the creditor or
creditors for their shares on the obligation he paid to the creditor. designated as to debtor up to the of debt as an declared properly made by the
corresponding amount of the net equivalent of the Court:
Examples: amount proceeds of the sale of performance of
1. D is indebted to C in the amount of 50,000 with G as guarantor. On the due date of the his assets. obligation. 1. Debtor is released in same
obligation, D offered payment but C refused to accept the same. So D made a consignation. manner as if he had performed
Subsequently, D withdrew the deposit after securing the consent of C. Under Article 1261, C Assignment does not the obligation at the time of
shall lose whatever preference he may have over that amount and G, the guarantor, shall be vest title to the consignation
property in the
released.
creditors, who are only 2. Accrual of interest is
2. If in the example given, D and G are solidarily liable to C, G is released only from his authorized to sell it. suspended from the moment
solidary liability but he is still liable to C for 25,000, his share in the obligation. of consignation.
Effects of Withdrawal by Debtor 3. Deterioration or loss of the

1. Before approval of the court Obligation remains in force. thing or amount consigned,
2. After approval of the court or acceptance by the creditor, and without creditors occurring without the fault of
consent - Obligation subsists, without change in the liability of guarantors and co- debtor, must be borne by
creditor from the moment of
debtors, or the creditors right of preference.
deposit
3. After approval of the court or acceptance by the creditor, with the consent of the
latter - Obligation remains in force, but guarantors and co-debtors are liberated. 4. Any increment or increase in
Preference of the creditor over the thing is lost. the value of the thing after
consignation inures to the
SUMMARY OF TENDER OF PAYMENT AND CONSIGNATION benefit of the creditor
1. Tender has been made (unless excused)
2. Tender has been unjustifiably rejected
3. First notice of consignation
4. Fling of a consignation case in court
5. Second notice of consignation
6. Effects of Consignation
a. Creditor accepts the thing obligation is extinguished / cancelled
b. Creditor contests the validity / Creditor uninterested / Absent
Litigation; if during the trial, the debtor is able to establish that the
requisites of a valid consignation had been complied with, the obligation
is extinguished/ cancelled
SECTION 2. Loss of the Thing Due Effect of Partial Loss of A Specific Thing
1. Due to fault or negligence of debtor creditor has the right to demand the
recission of the obligation or to demand specific performance, plus damages, in
Art. 1262. An obligation which consists in the delivery of a determinate thing shall be
either case.
extinguished if it should be lost or destroyed without the fault of the debtor, and before
2. Due to fortuitous event
he has incurred in delay.
a. Substantial Loss obligation extinguished
When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the
b. Unsubstantial Loss creditor shall deliver thing promised in its impaired
thing does not extinguish the obligation, and he shall be responsible for damages. The
condition
same rule applies when the nature of the obligation requires the assumption of risk.
(1182a)
Art. 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed
Loss of a determinate thing under Art. 1262 (par. 1) is the equivalent of that the loss was due to his fault, unless there is proof to the contrary, and without
impossibility of performance in obligations to do referred to in Art. 1266 prejudice to the provisions of article 1165. This presumption does not apply in case of
But loss of the thing due as used in Article 1231 (1) and the above section earthquake, flood, storm, or other natural calamity. (1183a)
subtitle, extends to both obligations to give and obligations to do.
GR: There is a disputable presumption that the debtor is at fault when the thing to
When a thing is considered Lost be delivered is lost and it was in his possession.
1. It goes out of commerce XPN: Presumption shall not apply in case loss is due to natural calamity
2. It perishes (earthquake, flood, storm, etc.)
3. It disappears in such a way that its existence is unknown XPN to the XPN: (Debtor still liable for loss even if fortuitous event)
4. It disappears in such a way that it cannot be recovered 1. Debtor is in delay
2. Debtor promised to deliver thing to two or more persons with different
Loss Of the Thing Will Extinguish an Obligation to Give: interests (Art. 1165)
1) Obligation to deliver specific thing The creditor has no duty to show that the debtor was at fault.
2) Loss without fault of the debtor
3) Debtor is not guilty of delay Art. 1266. The debtor in obligations to do shall also be released when the prestation
becomes legally or physically impossible without the fault of the obligor. (1184a)
Loss of the Thing Will NOT Extinguish Liability
1) Law provides Applies when without the debtors fault the obligation becomes impossible
2) Stipulation provides Note that this makes express reference to Obligations TO DO / Personal
3) Nature of obligation requires assumption of risk Obligations
4) Obligation to deliver a specific thing arises from a crime Effect: The impossibility of the obligation will result in the EXTINGUISHMENT of the
obligation
Art. 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of Impossibility must take place AFTER the constitution of the obligation, and not
the same kind does not extinguish the obligation. (n) BEFORE (otherwise the obligation is void under Art. 1183)
Obligation is not extinguished by the loss or by a fortuitous event because genus Types of Impossibility To Perform an Obligation to Do:
never perishes 1. Legal Impossibility act stipulated to be performed is subsequently prohibited by
Debtor can still be compelled to deliver a thing of the same kind law
2. Physical Impossibility act stipulated could not be physically performed by the
Art. 1264. The courts shall determine whether, under the circumstances, the partial loss obligor due to reasons subsequent to the execution of the contract. (ex. Person
of the object of the obligation is so important as to extinguish the obligation. (n) dies)
Partial loss when only a portion of the thing is lost or destroyed or when it suffers Example: D obliged himself to paint C a picture within a month. D met an accident and his
depreciation or deterioration; it is the equivalent of difficulty of performance in arms were amputated. Ds obligation has become physically impossible and therefore, D is
obligations to do (Art. 1267) released from his obligation.
In cases of partial loss, the court will decide whether the partial loss is such as to be
equivalent to a total loss
Art. 1267. When the service has become so difficult as to be manifestly beyond the Effect of Fortuitous Event Where Obligation Proceeds from A Criminal Offense
contemplation of the parties, the obligor may also be released therefrom, in whole or in GR: Debtor shall NOT be exempted from the payment of his obligation regardless
part. (n) of the cause of the loss
XPN: Debtor is not liable when the creditor (the offended party in the crime)
Applicable only to personal obligations but NOT to obligations to give. refuses to accept the thing without justification (MORA ACCIPENDI)
This article does not refer to impossibility but to difficulty of service or
performance manifestly beyond the intention of the parties. Remedies Of Debtor If Creditor Refuses Without Just Cause To Receive The Thing:
Rebus sic stantibus a principle in international law which means that an 1. Consign the thing in court and seek the cancellation of the obligation
agreement is valid only if the same conditions prevailing at the time of contracting 2. Keep the thing and preserve it using due diligence, but obligation will subsist. But if
continue to exist at the time of performance. It is the basis of the principle of the thing is then lost through a fortuitous event, the obligor is no longer liable.
unforeseen difficulty of service.
Principle of unforeseen events applies when the service has become so difficult as
Art. 1269. The obligation having been extinguished by the loss of the thing, the creditor
to be manifestly beyond the contemplation of the parties, the obligor may be
shall have all the rights of action which the debtor may have against third persons by
released therefrom in whole or in part.
reason of the loss. (1186)
However, this principle cannot be applied absolutely in contractual relations since
parties are presumed to have assumed the risk of unfavourable developments The creditor is given the right to proceed against the third person responsible for
o Not applicable if the debtor had merely suffered minor or insignificant the loss.
losses which are normal risks in contractual relationships. There is no need for an assignment by the debtor.
o Unforeseen events or circumstances must be greatly beyond what could The rights of action of the debtor are transferred to the creditor from the moment
have been reasonably anticipated by diligent persons at the time of the the obligation is extinguished, by operation of law to protect the interest of the
execution of the contract. latter by reason of the loss
Art. 1269 finds frequent application in insurance.
Principle of Unforeseen Events / Doctrine of Frustration of Enterprise
GR: Impossibility of performance releases the obligor [1266] Example: S is obliged to give B a specific horse. The horse is lost through the fault of T. The
XPN: Performance of the service has become so difficult, the court is authorized to obligation of S is extinguished and he is not liable to B. Such being the case, S would not be
release the obligor in whole or in part interested in going after T. The law, however, protects B by giving him the right to bring an
action against T to recover the price of the horse with damages.
Requisites for Principle of Unforeseen Events to Apply:
1. Event could not have been foreseen at the time of the constitution of the contract SUMMARY OF EFFECT OF LOSS OF THE THING DUE
2. Event makes performance extremely difficult but not impossible 1. Determinate obligation to give
3. Event not due to any act of the parties GR: Obligation is extinguished
4. Contract is for future prestation XPN:
1) Law provides otherwise
Art. 1268. When the debt of a thing certain and determinate proceeds from a criminal 2) Nature of the obligation requires assumption of risk
offense, the debtor shall not be exempted from the payment of its price, whatever may 3) Stipulation to the contrary
be the cause for the loss, unless the thing having been offered by him to the person who 4) Debtor contributed to loss
should receive it, the latter refused without justification to accept it. (1185) 5) Loss of the thing after debtor incurred delay
6) Debtor promised to deliver the same thing to two or more
Applies to an obligation to deliver a determinate thing which obligation arose out persons who do not have the same interest
of the commission of a criminal offense committed by the debtor. 7) Debt of a certain and determinate thing proceeds from a
If the thing is lost for whatever reason, the debtor shall pay for the value of the criminal offense
thing. 8) Obligation is generic
Offer referred to in this article is different from consignation; the former refers to 2. Generic Obligation to give
extinguishment of obligation through loss while the latter refers to payment of the GR: The obligation is NOT extinguished because a generic thing never
obligation perishes
3. Obligation to Do
GR: Obligation is extinguished when prestation becomes legally or
physically impossible without the fault of the obligor.
SECTION 3. Condonation or Remission of the Debt Implied and Legal Condonations:
Tacit condonations may be deduced from the acts of the parties confirming the
existence and acceptance of the condonation not reduced to writing
Art. 1270. Condonation or remission is essentially gratuitous, and requires the acceptance
If the debtor does not accept the remission but does not pay, and the creditor does
by the obligor. It may be made expressly or impliedly.
not enforce payment within the prescriptive period, the abandonment will result in
One and the other kind shall be subject to the rules which govern inofficious donations.
the prescription of the credit.
Express condonation shall, furthermore, comply with the forms of donation. (1187)
Remissions or waivers are not presumed. Their existence must be established by
Condonation gratuitous abandonment by the creditor of his right against the convincing evidence.
debtor
The ACCEPTANCE by the debtor is required. Limitation on Condonation:
o There can be NO unilateral Condonation. It is subject to the rule that it shall not be inofficious.
o This is because Condonation is an act of liberality. It is a donation of an The creditor must reserve sufficient means for his own support and of all relatives
existing credit, considered a property right, in favor of the debtor. who are entitled to be supported by him at the time of the acceptance of the
condonation or remission. [see 750, 752, CC]
Requisites of Condonation or Remission
1. Must be gratuitous Effect of Inofficious Condonation
2. Must be accepted by the debtor No one can give more that that which he can give by will; otherwise, the excess
3. Parties must have capacity shall be inofficious and shall be reduced by the court accordingly.
4. Must not be inofficious It may be totally revoked or reduced depending on whether or not it is totally or
5. If made expressly, must comply with the forms of donations partially inofficious. The grounds for revocation are found in Articles 760, 761, and
765 of the Code.
Kinds of Remission As a rule, testamentary dispositions which impair the legitime shall be reduced on
1. As to extent petition of the heirs
a. Complete when it covers the entire obligation
b. Partial when it does not cover the entire obligation
Art. 1271. The delivery of a private document evidencing a credit, made voluntarily by the
2. As to form
creditor to the debtor, implies the renunciation of the action which the former had
a. Express when it is made verbally or in writing
against the latter.
b. Implied when it can only be inferred from conduct
3. As to its date of effectivity
If in order to nullify this waiver it should be claimed to be inofficious, the debtor and his
a. Inter vivos when it will take effect during the lifetime of the donor
heirs may uphold it by proving that the delivery of the document was made in virtue of
b. Mortis causa when it will become effective upon the death of the
payment of the debt. (1188)
donor. It must comply with the formalities of a will
Express Condonation or Remission: Effect of Delivery of Private Document Evidencing the Credit
When the condonation is express, it is not enough that it be in writing. The Article speaks of a private document, not a public one because in the case of
It must follow the formalities required of ordinary donations provided in Articles the latter, a copy is easily obtainable, being a public record.
748 and 749. Note that with the delivery of the private instrument, a remission or renunciation is
When the condonation is oral and involves movable things, the same need not presumed.
follow the formalities.
When the express condonation is defective for failure to follow form of ordniary Rationale: If the debt is not yet paid, the creditor would need the document to enforce
30
contracts, it does not become an implied condonation with valid effect. payment. In case he voluntarily delivers it to the debtor, the only logical inference is that he
is renouncing his right. However, evidence is admissible to show otherwise, as when it was
delivered only for examination.
Implied Remission
30
Otherwise, the requirement of the law on express remission would be rendered useless. Thus, an
It should be noted that Art. 1271 gives us an example of an implied remission.
express remission, not made in due form, cannot affect the creditor if it is withdrawn in due time. It The voluntary destruction by the creditor of the instrument is likewise another
would affect him only when new acts of waiver confirm the express purpose of the former, as one of the form of implied remission.
bases on which tacit or implied remission may rest.
But the mere fact that the creditor has omitted a certain debt or the name of the Art. 1273. The renunciation of the principal debt shall extinguish the accessory
debtor from an inventory made by him does not imply a tacit remission. obligations; but the waiver of the latter shall leave the former in force. (1190)
JOINT OBLIGATION = remission only to the share of the debtor who is in possession
of the document. If solidary, to the total obligation. If the principal debt has been remitted, the accessory obligation is extinguished.
The reasons are that the existence of the accessory obligation is dependent upon
Defense of Debtor and His Heirs when Waiver of Action is Challenged: the principal.
If the remission is claimed to be inofficious meaning, it is excessive as it cannot be This article follows the rule that the accessory follows the principal
totally covered by the disposable free portion of the estate of the deceased While the accessory obligations cannot exist without the principal obligation, the
creditor, or that is revocation is sought under Articles 750, 752, 760, and 761, the latter may exist without the former
law provides a defense for the debtor or his heirs.
DEFENSE: Delivery of the document was made in virtue of payment of the debt. Art. 1274. It is presumed that the accessory obligation of pledge has been remitted when
If the debtor has no receipts to prove payment, there will be two presumptions the thing pledged, after its delivery to the creditor, is found in the possession of the
available: debtor, or of a third person who owns the thing. (1191a)
o Either presumption of payment or the presumption of remission.
o If they are not rebutted, the action of the creditor shall fall. Pledge a contract by virtue of which the debtor delivers to the creditor or to a
In the face of these two favorable presumptions, presumption of payment should third person a movable or instrument evidencing incorporeal rights for the purpose
be stressed because there is greater reciprocity of interests in that presumption. of securing the fulfilment of a principal obligation with the understanding that
when the obligation is fulfilled the thing delivered shall be returned with all its
fruits and accessions
Art. 1272. Whenever the private document in which the debt appears is found in the
Ordinarily, the thing pledged is in the possession of the creditor or a third person
possession of the debtor, it shall be presumed that the creditor delivered it voluntarily,
by common agreement
unless the contrary is proved. (1189)
Presumption in case thing pledged found in possession of debtor or a third
While Art. 1271 gives a presumption of remission, Art. 1272 gives a presumption of person: That the accessory obligation of the pledge is presumed REMITTED (not the
voluntary delivery. obligation itself)
Note again here that the law speaks of a private document. The debtor shall continue to be indebted but he does not have to return the thing
In case the document is found in the possession of the debtor, this gives rise to the pledged.
presumption that it was voluntarily delivered by the creditor (as ordinarily, the
document evidencing the debt is in the possession of the creditor) Example: D gives C his diamond ring in pledge to guarantee payment of a loan. If later on the
This presumption of voluntary delivery also gives rise to the presumption of ring is found in the possession of D, the presumption is that C has agreed to the loan without
remission the pledge. C may prove that he returned the ring to D upon the latters request to be
However, it is believed that the presumption of voluntary delivery should give rise delivered back to him.
to the presumption of payment only when it is known that indeed there is no
payment should there be a presumption of remission
Presumption in Joint or Solidary Obligations

Example: A and B owe C P100,000, evidenced by a private document.
If the private document is found in the possession of A, who is a joint debtor, what
is the presumption?
o ANS.: The presumption is that only As debt has been remitted. Reason:
As debt is not P100,000 but only P50,000; in other words, his debt is
really distinct from Bs debt.
If the private document is found in the possession of A who is a solidary debtor,
what is the presumption?
o ANS.: Since this is a solidary obligation, the presumption is that the whole
obligation (not merely As share) has been remitted.
In both cases, may the presumption be rebutted?
o ANS.: Yes, the presumption in both cases can be overcome by superior
contrary evidence.
SECTION 4. Confusion or Merger of Rights Merger In the Person of Guarantor
Effect: Extinguishment of accessory obligation does not extinguish principal
Merger, which takes place in the person of the guarantor leaves the principal
Art. 1275. The obligation is extinguished from the time the characters of creditor and
obligation in force (even if it extinguishes the guaranty)
debtor are merged in the same person. (1192a)
Confusion or merger is the meeting in one person of the qualities of creditor and Example: If in the example above, C assigns his credit to E who, in turn, assigns the credit to
debtor with respect to the same obligation G, the guarantor. In this case, the contract of guaranty is extinguished. However Ds
EFFECT of Confusion: Obligation is extinguished as creditor and debtor became obligation to pay the principal obligation subsists. G now, as the new creditor, can demand
same person payment from D.
There can be partial confusion. It will be definite and complete up to the extent of
the concurrent amount or value, but the remaining obligation subsists.
Art. 1277. Confusion does not extinguish a joint obligation except as regards the share
corresponding to the creditor or debtor in whom the two characters concur. (1194)
Reason for Confusion
Enforcement of the obligation becomes absurd since a person cannot claim Confusion or Merger in a Joint obligation: Confusion will extinguish only the share
payment from himself corresponding to the creditor or debtor in whom the two characters concur (part of
Furthermore, when there is a confusion of rights, the purposes for which the the obligation still exists)
obligation may have been created are deemed realized Confusion or Merger in a Solidary Obligation: Confusion shall extinguish the
ENTIRE obligation because it is also a merger in the other solidary debtors. He who
Requisites of Confusion makes the payment may claim reimbursement from his co-debtors for the shares
1. Merger in the same person of the characters of both a creditor and debtor which correspond to them
2. Must take place between principal debtor and creditor
3. Must be complete Examples:
1. A, B, and C are jointly liable to D in the amount of 9,000 evidenced by a promissory note.
Examples: D indorsed the note to E, who in turn indorsed it to A. In this case, As share in the obligation
1. D owes C 1,000 for which D executed a promissory note in favor of C. C indorsed the note is extinguished because of confusion in his person. However, the indebtedness of B and C in
to E who, in turn, indorsed it to F. Now F bought goods from the store of D. Instead of paying the amount of 3,000 each remains, because as to them there is no confusion. Consequently,
cash, F indorsed the promissory note to D. Here, D owes himself. Consequently, his B and C would be liable to A, the new creditor, 3,000 each.
obligation is extinguished by merger.
2. In the above example, if the obligation of A, B and C is solidary, the indorsement to A
2. D borrowed money from C. As security, D mortgaged his land. Subsequently, D sold the extinguishes the entire obligation of 9,000. A can demand reimbursement form B and C.
land to C. In this case, the mortgage is extinguished, but the obligation subsists. The Here, the basis of the right of A is not the original obligation which has been extinguished by
extinguishment of the accessory obligation does not carry with it that of the principal the confusion which takes place in his person but the confusion itself. It is as if A paid the
obligation. entire debt. He can, therefore, collect the proportionate shares belonging to B and C on an
implied contract of reimbursement.
Art. 1276. Merger which takes place in the person of the principal debtor or creditor
Revocation of Confusion or Merger of Rights
benefits the guarantors. Confusion which takes place in the person of any of the latter
If the act which created the confusion is revoked for some causes such as recission
does not extinguish the obligation. (1193)
of contracts, or nullity of the will or contract, the confusion or merger is also
revoked. The subject obligation is revived in the same condition as it was before
Merger In the Person of Principal Debtor Or Creditor the confusion.
Effect: Extinguishes the obligation. During such interregnum, the running of the period of prescription of the
Hence, the accessory obligation of guaranty is also extinguished in accordance with obligation is suspended.
the principle that the accessory follows the principle.
Example: D is indebted to C with G as guarantor. Merger of the characters of debtor and

creditor in D shall free G from liability as guarantor. Similarly merger which takes place in the
person of C benefits G because the extinction of the principal obligation carries with it that of
the accessory obligation of guaranty.
SECTION 5. Compensation Requisites of legal compensation
1. The parties are principal creditors and principal debtors of each other
2. Both debts consist in a sum of money, or of consumable things of the same kind
Art. 1278. Compensation shall take place when two persons, in their own right, are
and quality
creditors and debtors of each other. (1195)
3. The two debts are due or demandable
Compensation extinguishment to the concurrent amount of the debts of two 4. The two debts are liquidated
persons who, in their own right, are debtors and creditors of each other 5. No retention or controversy commenced by a third person
There may be compensation in joint and solidary obligations 6. Compensation must not be prohibited by law (Art. 1290)
Confusion Compensation Examples of the Requisites

Only one person who is a creditor and Two persons involved, each of whom is a 1. Principal Creditors and Debtors of Each Other
debtor himself debtor and creditor of the other A owes B 500. B owes A 500. Compensation takes place as A and B are principal
There is but one obligation There are two obligations debtors and creditors of each other.
There is Impossibility of payment There is indirect payment A owes B 500 with C as guarantor. B owes C 500. No compensation between B
and C, because while B is principally liable to C, C is merely subsidarily liable to B.
Kinds Of Compensation Hence, C can demand payment form B.
1. By its effect or extent A owes B, C, D (partners in a partnership) 500. The partnership owes A 500. A
a. Total obligations are of the same amount and are entirely extinguished cannot set up compensation because B, etc., are not principally liable to A.
b. Partial when two obligations are of different amounts and a balance A (stockholder) owes B (corporation) for amounts A collected as treasurer of B. B
remains; the extinctive effect of compensation will be partial only as owes A amount representing overypayment by A of his stocks. Compensation was
regards the larger debt held proper as A and B are mutually debtors and creditors of each other.
2. By its cause or origin A owes B 1,000 in the latters capacity as administrator of his fathers estate. B
a. Legal when it takes place by operation of law (Art. 1278, 1279) owes A 1000 representing debt of Bs father. Compensation was held proper
b. Voluntary when it takes place by agreement of the parties because the credit of A is chargeable against the estate under Bs administration.
c. Judicial when it takes place by order from a court in litigation 2. Both debts money or consumable things of same kind and quality
d. Facultative when it can be set up by only one of the parties A owes B 1,000. B owes A an electric range worth 1,000. No compensation.
A owes B 10 sacks of corn. B owes A 10 sacks of rice. No compensation as they are
Art. 1279. In order that compensation may be proper, it is necessary: not of the same kind.
(1) That each one of the obligors be bound principally, and that he be at the same A owes B 10 sacks of wagwag rice. B owes A 10 sacks of macan rice. No
time a principal creditor of the other; compensation as they are not of the same kind.
(2) That both debts consist in a sum of money, or if the things due are consumable, A owes B 10 sacks of wagwag rice. B owes A any 10 sacks of rice. There can be
they be of the same kind, and also of the same quality if the latter has been compensation because of the lack of identity of the kind and quality of the rice due.
stated; But A cannot set up compensation if opposed by B. This is an example of facultative
(3) That the two debts be due; compensation (Art. 1287).
(4) That they be liquidated and demandable; A owes B a specific horse. B owes A another specific horse. Compensation cannot
(5) That over neither of them there be any retention or controversy, commenced be set up by A or B, unless both agree.
by third persons and communicated in due time to the debtor. (1196) A owes B 5,000. B owes A 5,000 or a cow. There can be no legal compensation
because B may prefer to deliver the cow. But if the right of choice belongs to A,
When all the requisites are present, compensation takes effect by operation of compensation will take place.
law, and extinguishes both debts to the concurrent amount, even though the 3. Debts due and demandable
creditors and debtors are not aware of the compensation (Art. 1290) A owes B 500 due today. B owes A 500 due next month. Compensation cannot
Compensation is not proper where the claim of the person asserting the set-off take place since one is not due. However, if A has not yet paid B on the date that
against the other is not clear or liquidated; compensation cannot extend to the obligation of B becomes due, there will be compensation on that date.
unliquidated, disputed claim existing from breach of contract. 4. Debts are liquidated
RETENTION when the credit of one of the parties is subject to the satisfaction of A owes B 500. B owes A the share of the latter in a business the amount of which
the claims of a third person. is still to be ascertained. Compensation will NOT take place as the debt of B is not
CONTROVERSY exists when a third person claims he is the creditor of one of the liquidated. If part of the debt of B has been liquidated, compensation takes place
parties. with respect to that part without waiting for the liquidation of the rest. (Art. 1248)
5. No retention or controversy by third person Example: A owes B 500 with G as guarantor. B owes A 500. The obligation of guaranty is
A owes B 500. B owes A 500. B also owes C 500. C causes the garnishment of extinguished by compensation. But if the compensation is only partial and A cannot pay the
the credit of B against A and notifies A not to pay B 500 as C has a better right to balance, G will be liable for the said balance.
the said amount. B may not owe C but the latter claims that he and not B is the
creditor of A. In this case, compensation cannot take place between A and B in Art. 1281. Compensation may be total or partial. When the two debts are of the same
view of a controversy commenced by C, a third person. In the meantime, the amount, there is a total compensation. (n)
compensation is suspended. If C loses the case, compensation shall be deemed to
have taken place as of the date the requisites for legal compensation concurred. Total Compensation two debts are of the same amount
If they are of different amounts, compensation is total as regards the smaller debt,
Compensation Distinguished from Payment and partial only with respect to the larger debt.
While payment must be complete and indivisible as a rule, in compensation, partial
extinguishment is always permitted. Art. 1282. The parties may agree upon the compensation of debts which are not yet due.
While payment involves delivery or action, true compensation (legal compensation) (n)
takes place by operation of law.
Voluntary compensation any compensation which takes place by agreement of
Compensation Distinguished from Merger the parties even if all of the requisites for legal compensation is not present.
As to the number of persons: In confusion, there is only one person in whom is GR: For compensation to be effective mutual debts must both be due
merged the qualities of creditor and debtor. In compensation, there must be two XPN: The parties may agree that their mutual debts be compensated even if the
persons who are mutually creditor and debtor to each other. same are not yet due
As to the number of obligations: In confusion, there can be only one. In No special requisites for voluntary compensation. As a matter of fact, the requisites
compensation, there must be two. mentioned in Art. 1279 do not apply.
It is sufficient in conventional compensation that the agreement or contract which
Compensation Distinguished from Counterclaim or Set-off declares the compensation should itself be valid; thus among other things, the
A set-off or a counterclaim must be pleaded to be effectual, whereas compensation parties must have legal capacity and must freely give their consent.
takes place by mere operation of law, and extinguishes reciprocally the two debts
as soon as they exist simultaneously, to the amount of their respective sums Art. 1283. If one of the parties to a suit over an obligation has a claim for damages against
A set-off or counterclaim works as a sort of judicial compensation, provided that the other, the former may set it off by proving his right to said damages and the amount
the requirements of the Rules of Court, particularly on Counterclaims and/or Cross- thereof. (n)
claims are observed.
Judicial Compensation / Set-Off compensation when so declared by a final
judgment of a court in a suit
Art. 1280. Notwithstanding the provisions of the preceding article, the guarantor may set A party may set off his claim for DAMAGES against his OBLIGATION to the other
up compensation as regards what the creditor may owe the principal debtor. (1197) party by proving his right to said damages and the amount thereof.
Pleading and proof of the counterclaim must be made.
Compensation benefits the guarantor All the requisites mentioned in Art. 1279 must be present, except that at the time
GR: For compensation, the parties must be the principal debtors and creditors of of pleading, the claim need not yet be liquidated. The liquidation (or fixing of the
each other. proper sum) must be made in the proceedings.
XPN: Guarantor is allowed to set up compensation for: Unless pleading and proof are made, the court cannot of its own accord declare the
1. What the creditor owes the principal debtor whom the guarantor is compensation. This is because of the supplicatory character of our civil
guaranteeing and/or procedure.
2. For what the creditor owes the guarantor himself. The compensation retroacts to the date of the filing of the pleading where
The creditor shall not collect from the guarantor on the basis of the guaranty, as compensation was alleged and claimed.
long as the principal debtor is capable of paying his obligation. Thus, the guarantor
(even if only subsidiarily bound) is given the right to set up compensation. Example: A owes B 500. When B demanded payment, A failed to pay. In anger, B damaged
Reason: The extinguishment of the principal obligation because of compensation As property to the extend of 400. A can set off the obligation of B to pay him damages in
carries with it the accessory obligation such as guaranty. the amount of 400 against his debt of 500.
Art. 1284. When one or both debts are rescissible or voidable, they may be compensated Example: A owes B 3,000 due yesterday. B owes A 1,000 due yesterday. Both debts are
against each other before they are judicially rescinded or avoided. (n) extinguished up to the maount of 1,000. Hence, A still owes B 2,000 today. If B assigns his
right to C, the latter can collect only 2,000 from A. However, if A gave his consent to the
Rescissible (Art. 1381) and voidable obligations (Art. 1390) are valid until rescinded assignment before it was made or subsequently, A loses the right to set up the defense of
or voided; hence, compensation is allowed. compensation. So A will be liable to C for 3,000 but he can still collect the 1,000 owed by
Prior to rescission or annulment, the debts may be compensated against each B. In other words, the compensation shall be deemed to not have taken place.
other.
To avoid unfairness if rescission or annulment is later on decreed by the court, the 2. Assignment BEFORE Compensation took place
compensation is automatically cancelled and there shall be restitution of what each With the consent of the debtor compensation cannot be set up except when the
party had received before the rescission. right to compensation is reserved.
If the prescriptive period for the rescission or annulment of the debts had already
lapsed, there is automatic compensation and the same will not be disturbed. Example: A owes B 3,000 due Jan. 15. B owes A 1,000 due Jan. 15. B assigned his
right to C on Jan. 1 with the consent of A. On Jan. 15, A cannot set up against C, the
Example: D owes C 500. Subsequently, D, through fraud, was able to make C sign a assignee, the compensation which would pertain to him against B, the assignor. In
promissory note that C is indebted to D for the same amount. The debt of D is valid but that other words, A is liable to C for 3,000 but he can still collect the 1,000 debt of B.
of C is voidable. Before the debt of C is nullified, both debts may be compensated against However, if A, while consenting to the assignment, reserved his right to the
each other if all the requisites for legal compensation are present. Suppose Cs debt is later compensation, he would be liable only for 2,000 to C.
on annulled by the court, D is still liable. The effect of the annulment is retroactive. It is the
same as if there had been no compensation. With the knowledge but without consent of the debtor compensation can be set
up regarding debts previous to the cession or assignment but not subsequent ones.
Art. 1285. The debtor who has consented to the assignment of rights made by a creditor
in favor of a third person, cannot set up against the assignee the compensation which Example: A owes B 1,000 due November 1. B owes A 2,000 due November 10. A
would pertain to him against the assignor, unless the assignor was notified by the debtor owes B 1,000 due November 15. A assigned his right to C on November 12. A
at the time he gave his consent, that he reserved his right to the compensation. notified B but the latter did not give his consent to the assignment. B can set up the
compensation of debts on November 10 which was before the cession on November
If the creditor communicated the cession to him but the debtor did not consent thereto, 12. There being a partial compensation, the assignment is valid only up to the
the latter may set up the compensation of debts previous to the cession, but not of amount of 1,000. But B cannot raise the defense of compensation with respect to
subsequent ones. the debt of A due on November 15 which has not yet matured. So, on November 12,
B is liable to C for 1,000. Come November 15, A will be liable for his debt of 1,000
If the assignment is made without the knowledge of the debtor, he may set up the to B.
compensation of all credits prior to the same and also later ones until he had knowledge
of the assignment. (1198a) Without the knowledge of debtor can set up compensation as a defense for all
debts maturing prior to his knowledge of the assignment
When all the requisites of compensation are present, compensation takes effect
automatically by operation of law, whether the parties are aware of it or not. Example: In the preceding example, let us suppose that the assignment was made
Now then, if AFTER automatic compensation has taken place one of the without the knowledge of B who learned of the assignment only on November 16.
extinguished debts is ASSIGNED to a stranger, ordinarily this would be a useless act In this case, B can set up the compensation of credits before and after the
since there is nothing more to assign (except only the excess amounts). assignment. The crucial time is when B acquired knowledge of the assignment and
Insofar as the excess is concerned, the assignment to 3rd person with the consent not the date of the assignment. If B learned of the assignment after the debts had
rd
of debtor constitutes subrogation of 3 person in the rights of the creditor [1300] already matured, he can raise the defense of compensation; otherwise, he cannot.
Effect of Assignment on Compensation of Debts: Assignment under the Article is Different from Cession under Article 1255
Article 1255 refers to cession or assignment of the property of the debtor to his
1. Assignment AFTER the compensation took place creditors in payment of his debts. In the present article, the one assigning rights is
GR: Ineffectual; useless act since there is nothing more to assign the creditor in favor of a third person who need not be a creditor.
XPN: When the assignment was made with the consent of the debtor (such
consent operates as a waiver of the rights to compensation) Limitation to Assignment of Rights
XPN to the XPN: At time he gave his consent, he reserved right to compensation A solidary creditor cannot assign his rights without the consent of the others [1213]
Art. 1286. Compensation takes place by operation of law, even though the debts may be Deposit constituted from the moment a person receives a thing
payable at different places, but there shall be an indemnity for expenses of exchange or belonging to another (depositor) with the obligation of safely keeping it
transportation to the place of payment. (1199a) and returning the same
Bank deposit is not really a depositum but a loan. However, the
This applies to Compensation by Operation of Law. relationship of the depositor and the bank is one of creditor and debtor
Indemnity for expenses of transportation this applies to transportation of the between whom there can be compensation.
goods or of the object in case of a thing to be delivered NOTE: It is the depositary who cannot claim compensation. The depositor
Indemnity for expenses of exchange this refers to monetary exchange, in case the is allowed to so claim.
debts are money debts 2. Debts arising from a commodatum
It does not refer to the difference in the value of the things in their respective places Commodatum gratuitous contract whereby one of the parties delivers
Exchange rate price of one currency expressed or quoted in relation to another to another something not consumable so that the latter may use the
currency same for a certain time and return it.
Once these expenses are liquidated, the debts also become compensable The lender may claim compensation; the borrower is NOT allowed to do
The indemnity shall be paid by the person who raises the defense of compensation so.
3. Claims for support due by gratuitous title
Examples: Support comprises everything that is indispensable for sustenance,
1. A owes B $1,000 payable in New York. B owes A 40,000 (equivalent amount) payable in dwelling, clothing, medical attendance, education and transportation, in
Manila. If A claims compensation, he must pay for the expenses of exchange. keeping with the financial capacity of the family (Art. 194, Family Code)
4. Obligations arising from criminal offenses
2. A obliged himself to deliver to B 500 sacks of rice in Davao. B is also bound to deliver to A 5. Certain obligations in favor of government (e.g. taxes, fees, duties and others of a
100 sacks or rice of the same kind in Bulacan. The expenses for transportation of the rice to similar nature)
Davao amount to 4,000 and to Bulacan, 1,000. If A claims compensation he must
indemnify B the amount of 3,000 for the expenses of the transportation of the rice to Note: In the foregoing discussion, please observe that while compensation cannot be made
Davao. use of by one party (e.g., the depositary), compensation may be claimed by the other party
(e.g., the depository). Here the depositor and the lender have an option to claim or not to
Art. 1287. Compensation shall not be proper when one of the debts arises from a claim compensation. This kind of compensation, whereby only one side can claim it but not
depositum or from the obligations of a depositary or of a bailee in commodatum. the other, is referred to as FACULTATIVE COMPENSATION.
Neither can compensation be set up against a creditor who has a claim for support due by Art. 1288. Neither shall there be compensation if one of the debts consists in civil liability
gratuitous title, without prejudice to the provisions of paragraph 2 of Article 301. (1200a) arising from a penal offense. (n)
Debts arising from crime cannot be compensated by the criminal.
Facultative Compensation Compensation is improper because the satisfaction of the obligation arising from
One of the parties has a choice of claiming opposing the compensation but waives crime is imperative.
his objection thereto such as an obligation of such party is with a period for his However, the victim is allowed to claim compensation
benefit alone and he renounces the period to make the obligations become due.
It is unilateral and does not require mutual agreement (as opposed to conventional
Art. 1289. If a person should have against him several debts which are susceptible of
compensation)
compensation, the rules on the application of payments shall apply to the order of the
compensation. (1201)
Example: X owes Y 500 demandable and due on Apr. 1. Y owes X 500 demandable and due
on or before Apr. 15. Y, who was given the benefit of the term, may claim compensation on Thus, it can happen that a debtor may have several debts to a creditor and vice
April 1. On the other hand, X, who demands compensation, can be properly opposed by Y versa. Compensation is similar to payment.
because Y could not be made to pay until Apr. 15. Under these circumstances, Articles 1252 to 1254 (application of payments) shall
apply.
Instances When Legal Compensation Not Allowed: If the debtor has several debts susceptible to compensation, he must inform the
1. Debts arising from a depositum creditor which of them shall be the object of the compensation.
In case he fails to do so, then the compensation shall be applied to the most
onerous obligation
Art. 1290. When all the requisites mentioned in Article 1279 are present, compensation SECTION 6. Novation
takes effect by operation of law, and extinguishes both debts to the concurrent amount,
even though the creditors and debtors are not aware of the compensation. (1202a) Art. 1291. Obligations may be modified by:
To the concurrent amount means that if one debt is larger than the other, the (1) Changing their object or principal conditions;
balance subsists as debt. (2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (1203)
Compensation which extinguishes principal obligations also extinguishes accessory
obligations Novation extinction of an obligation through the creation of a new one which
As it takes place by operation of law and without any act of the parties, it is not substitutes it by:
required that the parties have full legal capacity [37, CC] to give or to receive, as o Changing the object or principal condition
the case may be o Substituting the person of the debtor
o Subrogating a third person in the rights of the creditor
Time When Compensation Takes Effect Novation does not operate as an absolute but only as a relative extinction because
Legal Compensation = the moment all five requisites become present, it creates a new one in place of the old which is only modified implying clearly
compensation takes place by operation of law, even though the parties are not that it may be partial.
aware thereof (unless there has been valid waiver thereof).
Voluntary Compensation = it will take effect from the time or day agreed upon by Two-Fold Function of Novation:
the parties. 1. It extinguishes an obligation
Judicial Compensation = it will be effective from the moment the judgment 2. Creates a new obligation in lieu of the old one
becomes final and executory.
Kinds of Novation
1. According to origin
a. Legal takes place by operation of law [1300, 1302]
b. Conventional takes place by agreement of the parties [1300, 1301]
2. According to how it is constituted
3. Express when it is declared in unequivocal terms [1292]
4. Implied when the old and new obligations are essentially incompatible
5. According to extent or effect
a. Total / Extinctive old obligation is completely extinguished
b. Partial / Modificatory old obligation is merely modified
6. According to subject
a. Real / Objective when the object (or cause) or principal conditions of
the obligation are changed
b. Personal / Subjective when the person of the debtor is substituted
and/or when a third person is subrogated in the rights of the creditor
i. Passive Novation (substituting the person of the debtor)
1. Delegacion substitution initiated by old debtor
himself by convincing another to take his place
2. Expromision substitution of old debtor is upon
initiative or proposal of a third person / the creditor
ii. Active Novation (subrogating 3rd person in the rights of the
creditor)
c. Mixed when the object and or principal conditions of the obligation and
the debtor or the creditor, or both the parties, are changed. It is a
combination of real and personal novations.
Art. 1292. In order that an obligation may be extinguished by another which substitute Some Instances When the Court Held That There Was Extinctive Novation
the same, it is imperative that it be so declared in unequivocal terms, or that the old and 1) If a debt subject to a condition is made an absolute one without a condition.
the new obligations be on every point incompatible with each other. (1204) (Macondray v. Ruiz)
2) Reduction of the term or period originally stipulated. (Kabankalan Sugar Co. v.
Novation is never presumed. It must be proven as fact either by: Pacheco)
1. Explicit declaration if it be so declared in unequivocal terms 3) When, without the consent of some subscribers, the capital stock of a corporation
2. Material incompatibility that the old and the new obligations be on is increased. Here the subscribers who did not consent to the increase are released
every point incompatible with each other or freed from their subscription. (National Exchange Co. v. Ramos)
Requisites of Novation Instances When the Court Held That There Was NO Extinctive Novation
1. Previous valid obligation (Here the original contract or obligation remains, subject only to the slight modifications
2. Intention of the parties to modify or extinguish the obligation introduced. In other words, only a modificatory novation has been effected.)
3. Capacity and consent of ALL parties to new contract 1) When the new contract merely contains supplementary agreement. (Asiatic
4. Modification or extinguishment of the obligation Petroleum Co. v. Quary Sim Pao)
5. Creation of a new valid obligation 2) When additional interest is agreed upon. (Bank of the P.I. v. Gooch)
3) When additional security is given. (Bank of the P.I. v. Herridge)
Notes on the Requisites: 4) When the place of payment is changed or when there is a variation in the amount
Previous Valid Obligation of partial payments
If the old obligation is VOID or NON-EXISTENT, there is nothing to novate. 5) When a public instrument is executed to confirm a valid contract, whether oral or
If the old obligation is VOIDABLE, novation is still possible provided the in a private instrument.
obligation has not yet been annulled.
Capacity and Consent of ALL (except in the case of expromision, where the old Art. 1293. Novation which consists in substituting a new debtor in the place of the original
debtor does not participate). one, may be made even without the knowledge or against the will of the latter, but not
New Valid Obligation If the new obligation created is void, there is no novation. without the consent of the creditor. Payment by the new debtor gives him the rights
The original obligation will subsist, unless the parties intended that the former mentioned in Articles 1236 and 1237. (1205a)
relation is extinguished in any event.
Consent of the creditor is mandatory in both expromision and delegacion
How Implied Novation May Be Made It may be expressed or implied from his acts but not from his mere acceptance of
-Implied novation is done by making SUBSTANTIAL CHANGES payment by a third party, for there is no true transfer of debt
(1) in the object or subject matter of the contract (Example: delivery of a car instead of
a diamond ring) Kinds of Personal Novation
(2) in the cause or consideration of the contract (Example: an upward change in the 1. Substitution when the person of the debtor is substituted
price). 2. Subrogation when a third person is subrogated in the rights of the creditor
(3) in the principal terms or conditions of the contract
Kinds of Substitution
Test of Incompatibility Between Two Obligations: 1. Expromision
Whether or not the old and new obligation can stand together, each one having an that which takes place when a third person of his own initiative and
independent existence. without the knowledge or against the will of the original debtor assumes
No incompatibility exists when they can stand together. Hence, there is no the latters obligation with the consent of the creditor.
novation. Incompatibility exists when they cannot stand together. Hence, there is Consent of third person and creditor needed
novation. The former obligation loses all its force and effect and only the new It is essential that the old debtor be RELEASED from his obligation,
obligation can be enforced. otherwise there will be no expromision, no novation.
The incompatibility must affect any of the essential elements of the obligation,
such as its object, cause or principal conditions thereof; otherwise, the change is Requisites of Expromision
merely modificatory in nature and insufficient to extinguish the original obligation. 1. Substitution is upon the initiative or proposal of a third person who will step
(Heirs of Servando Franco vs. Sps Gonzales) into the shoes of the debtor
2. Creditor must give his consent to the proposal of the third person
3. Old debtor must be released from the obligation with the consent of the
creditor.
2. Delegacion Art. 1294. If the substitution is without the knowledge or against the will of the debtor,
That which takes place when the creditor accepts a third person to take the new debtor's insolvency or non-fulfillment of the obligations shall not give rise to any
place of the debtor at the instance of the old debtor. liability on the part of the original debtor. (n)
Here the delegacion or initiative comes from the old debtor himself.
The creditor may withhold approval.
Consent of all parties needed (old debtor, new debtor and creditor) Effect of Insolvency of New Debtor Expromision
In expromision, the replacement of the old debtor is not made at his own initiative.
Requisites of delegacion Thus, the new debtors insolvency or non-fulfillment of the obligation will not
1. Substitution is upon the initiative or proposal of the old debtor himself revive the action of the creditor against the old debtor whose obligation is already
2. The creditor accepts and the new debtor agrees to the proposal of the third extinguished
person
3. The old debtor is released from the obligation with the consent of the Art. 1295. The insolvency of the new debtor, who has been proposed by the original
creditor. debtor and accepted by the creditor, shall not revive the action of the latter against the
original obligor, except when said insolvency was already existing and of public
The Parties in Delegacion knowledge, or known to the debtor, when the delegated his debt. (1206a)
a) The delegante the original debtor
b) The delegatario the creditor
c) The delegado the new debtor Effect of Insolvency of New Debtor Delegacion
GR: Old debtor is not liable to the creditor in case of insolvency of the new debtor
When Delegacion Does Not Give Rise To Novation: XPN:
a) When the third person was only an agent, messenger, or employee of the debtor. 1. Said insolvency was already existing and of public knowledge (although it
b) When the third person acted only as guarantor or surety. was not known to the old debtor) at the time of the delegacion
c) When the new debtor merely agreed to make himself solidarily liable for the 2. The insolvency was already existing and known to the debtor (although
obligation. not public knowledge) at the time of delegacion
d) When the new debtor merely agreed to make himself jointly or partly responsible This article refers to delegacion and it speaks only of insolvency.
for the obligation. (Here the delegacion is merely with reference to the joint or If the non-fulfillment of the obligation is due to other causes, old debtor not liable
proportionate share.) The exceptions in this article are intended to prevent fraud by old debtor
Right of New Debtor Who Pays Example: D owes C 500. D proposed to C that T would substitute him as debtor. C agreed to
WITHOUT CONSENT OF DEBTOR: In expromision, payment by the new debtor gives the proposal. If at the time of the delegacion, T was already insolvent but his insolvency was
him the right to beneficial reimbursement neither of public knowledge nor known to D, then D is not liable. Neither is D liable if the
WITH DEBTORS CONSENT: If payment was made with the consent of the original insolvency of T took place after he delegated his debt.
debtor or on his own initiative (delegacion), the new debtor is entitled to
reimbursement and subrogation [Art. 1237] Art. 1296. When the principal obligation is extinguished in consequence of a novation,
accessory obligations may subsist only insofar as they may benefit third persons who did
Examples: not give their consent. (1207)
1. D (debtor) tells C (creditor) that T will pay Ds debt. C agrees. It does not necessarily mean
that there is delegacion here. But if D tells C that T will pay his debt and he asks C to release GR: Extinguishment of the principal carries with it the extinguishment of accessory
him from his obligation, to which C agrees, delegacion results. XPN: An accessory obligation created in favor of a third person remains in force
2. Suppose, in the same example, it is T who approaches C and tells him that T will pay the unless said third person gives his consent to the novation.
dent of D. C agrees. There is no expromision in this case, unless there is an agreement that D Reason: Person should not be prejudiced by the act of another without his consent
shall be released from his obligation to C.
SUMMARY OF DELEGACION AND EXPROMISION Art. 1298. The novation is void if the original obligation was void, except when annulment
Basis Delegacion Expromision
may be claimed only by the debtor or when ratification validates acts which are voidable.
Initiated by Old Debtor Third Person
(1208a)
Consent of the May be expressed or implied from his acts but not from his mere acceptance of
creditor payment by a third party. Effect where OLD obligation VOID: No novation, nothing to novate
Consent of old With consent of the old debtor (since With or without the knowledge of the Effect where OLD obligation is VOIDABLE
debtor he initiated the substitution) debtor or against his will o If ratified before it could be annulled it can be the subject of novation
3rd Person Consent needed Consent needed o If it was already annulled it ceases to exist and there is nothing to
Consent novate
Intention Released from the obligation with the consent of the creditor
Rights of the new With the debtors consent right of With the debtors consent - right of Prescribed Obligation May Be the Subject of Novation
debtor reimbursement and subrogation reimbursement and subrogation Unless the defense of prescription is set up by the debtor, the obligation continues,
since this failure amounts to a WAIVER. (Estrada v. Villareal)
Without the consent of the old
NOTE: A prescribed debt, constituting as it does a moral or natural obligation, may
debtor or against his will right to
be the cause or consideration of a new obligation to pay therefor.
beneficial reimbursement (only
insofar as the payment has been
beneficial to such debtor). No Art. 1299. If the original obligation was subject to a suspensive or resolutory condition,
subrogation. the new obligation shall be under the same condition, unless it is otherwise stipulated. (n)
Insolvency or GR: Shall not revive the action of the With the debtors consent If the old
nonfulfillment of latter against the original obligor debtor gave his consent and the new
the obligation of debtor could not fulfill the obligation, Effects of Condition in Novation
the new debtor XPN: Original debtor held liable the old debtor should be liable for the 1. If the original obligation was subject to a CONDITION (suspensive/resolutory) the new
31
1. Insolvency was already existing and payment of his original obligation obligation shall be under the same condition, unless the contrary is stipulated.
of public knowledge, or known to the If the condition is suspensive, and not complied with = NO Obligation
debtor Without the consent of the old If the condition is resolutory, and complied with = NO Obligation
2. Insolvency of the new debtor was debtor or against his will the new In either case, it would fail the requisite of a previous valid obligation
already existing and known to the debtors insolvency or non-fulfillment 2. If the new obligation and the old obligation are subject to different conditions:
original debtor at the time of the of the obligation shall not give rise to If the conditions can stand together (compatible conditions):
delegation of the debt to the new any liability on the part of the original i. If both are fulfilled - the new obligation becomes demandable
debtor debtor ii. If only the condition affecting the old obligation is fulfilled - old
obligation is revived while the new obligation loses its force
iii. If only the condition affecting the new obligation is fulfilled - there is
Art. 1297. If the new obligation is void, the original one shall subsist, unless the parties no novation since the requisite of a previous valid and effective
intended that the former relation should be extinguished in any event. (n) obligation would be lacking
If the conditions are incompatible - the effect is to extinguish the old
obligation so that only the new obligation remains and whose
Effect Where New Obligation Is VOID
demandability/effectivity depend upon the fulfillment or non-fulfillment of
GR: No novation for if new obligation is void, therefore, the original obligation shall
the condition affecting it
subsist
XPN: If the parties intended that the old obligation should be extinguished in any
event Art. 1300. Subrogation of a third person in the rights of the creditor is either legal or
conventional. The former is not presumed, except in cases expressly mentioned in this
Effect Where New Obligation Is VOIDABLE Code; the latter must be clearly established in order that it may take effect. (1209a)
GR: Novation can take place (as it is valid and binding until annulled)
XPN: Once the obligation is annulled, the old obligation will subsist and the
novation is considered as not having taken place and the original one can be
enforced (unless the intention of the parties is that the obligation would still be
extinguished in any event). 31
The efficacy of the new obligation depends upon WON the condition which affects the old obligation is
complied with or not.
Kinds of Subrogation Examples:
1. Conventional 1. A owes B 1,000 secured by a first mortgage on the land of A. A also owes C 2,000. This
when it takes place by consent of the old debtor, new debtor and debt is unsecured. Under the law, B, who is a preferred creditor, has preference to
creditor payment with respect to land as against C who is merely an ordinary creditor. If C
must be clearly established in order that it may take place pays the debt of A to B, C will be subrogated in Bs right so that he can have the
2. Legal mortgage foreclosed in case A fails to pay the 1,000 debt.
takes place without agreement but by operation of law 2. A owes B 1,000. C pays B with the express or implied consent of A. In this case, C will be
is not presumed except in cases expressly provided by law [1302] subrogated in the rights of B. [Art 1236-1237]
3.a. Suppose in the same example, C is the guarantor of A. C is a person interested in the
fulfilment of the obligation of A as he would be benefited by its extinguishment. If
Art. 1301. Conventional subrogation of a third person requires the consent of the original
C pays B even without the knowledge of A, C is subrogated in the rights of B.
parties and of the third person. (n)
Confusion takes place in the person of C. Hence the guaranty is extinguished but
the principal obligation still subsists.
Conventional Subrogation Consent of all the parties required 3.b. A and B are joint debtors of C for the amount of 1,000. Without the knowledge of A, B
1. Debtor because he becomes liable under the new obligation to a new creditor pays the debt of 1,000. In this case, B becomes a creditor of A for 500, the
2. Old Creditor because his right against the debtor is extinguished latters share of the debt but not for the remaining 500, the portion of the debt
3. New Creditor because he may dislike or distrust the debtor which corresponds to B, which is extinguished by confusion or merger of rights.
Basis Conventional Subrogation Assignment of Credit

Art. 1303. Subrogation transfers to the persons subrogated the credit with all the rights
Effect Extinguishes the original The transfer of the credit/right does not
thereto appertaining, either against the debtor or against third person, be they
obligation and creates a new one. extinguish or modify the obligation. The
transferee becomes the new creditor for the guarantors or possessors of mortgages, subject to stipulation in a conventional
same obligation. subrogation. (1212a)
Need for Debtors consent necessary Debtors consent NOT required (notification is
Consent of enough for the validity of the assignment)
Effect of Total Subrogation
Debtor
Effectivity Begins from the moment of Begins from the notification The Effect of legal subrogation is to transfer to the new creditor the credit and all
subrogation. of the debtor. the rights and actions that could have been exercised by the former creditor either
Curability of The defect in the old obligation The defect in the credit or rights is not cured by against the debtor or against third persons (guarantors / mortgagors)
defect or vice may be cured such that the new its mere assignment to a third person. In other words, except for the change in the person of the creditor, the obligation
obligation becomes valid. remains the same as before the novation
Art. 1302. It is presumed that there is legal subrogation: Art. 1304. A creditor, to whom partial payment has been made, may exercise his right for
(1) When a creditor pays another creditor who is preferred, even without the the remainder, and he shall be preferred to the person who has been subrogated in his
debtor's knowledge; place in virtue of the partial payment of the same credit. (1213)
(2) When a third person, not interested in the obligation, pays with the express or
tacit approval of the debtor;
Effect of Partial Subrogation
(3) When, even without the knowledge of the debtor, a person interested in the
Here, there are two creditors:
fulfillment of the obligation pays, without prejudice to the effects of confusion
as to the latter's share. (1210a) o the old creditor, who still remains a creditor as to balance (because only a
partial payment has been made to him);
Legal subrogation is subrogation by operation of law. o the new creditor who is a creditor to the extent of what he had paid the
Generally, it is not presumed, except for the three instances below. creditor.
In case of insolvency of the debtor, the old creditor is given a preferential right
Cases of Legal Subrogation under the above article to recover the remainder as against the new creditor.
1. When a creditor pays another creditor who is preferred
2. When a third person without interest in the obligation pays with the approval of Example: D is indebted to C for 10,000. T pays C 6,000 with the consent of D. There is here
the debtor partial subrogation as to the amount of 6,000. C remains the creditor with respect to the
3. When a third person with interest in the obligation pays even without the balance of 4,000. Thus, two credits subsist. In case of insolvency of D, C is preferred to T,
knowledge of the debtor that is, he shall be paid from the assets of D ahead of T.

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OBLIGATIONS PART I OBLIGATIONS

AND CHAPTER 1 | GENERAL PROVISIONS....................................................................... 2

CONTRACTS CHAPTER 3 | DIFFERENT KINDS OF OBLIGATIONS ........................................12

REVIEWER SECTION 2. Obligations with a Period...............................................................17

Marian M. Vanslembrouck SECTION 6. Obligations with a Penal Clause ..................................................31

Requisites of Solutio Indebiti: Requisites of A Quasi-Delict

Rights of a Creditor Kinds of Damages (Keyword MENTAL)

Basis of Indemnity 1. Choice Belongs to Debtor Art. 1204

1. Defenses derived from the nature of the obligation

Penalty Clause Compared With Liquidated Damages:

Substantial Performance in Good Faith

When Consignation Deemed Properly Made

Party Who Bears Risk of Loss

Effects of Withdrawal by Debtor 3. Deterioration or loss of the

Presumption in Joint or Solidary Obligations

Example: D is indebted to C with G as guarantor. Merger of the characters of debtor and

Confusion Compensation Examples of the Requisites

Basis Conventional Subrogation Assignment of Credit

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