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(Art. 1158)
(Art. 1156) obligations arising from law:
Obligation- juridical relation, created by virtue of -agreement of the parties is still necessary
certain facts, between two or more persons, -not presumed
whereby one of them, known as the creditor, may
demand from the other, known as the debtor, a (Art. 1159)
definite prestation. (Civil obligation) obligations arising from contracts
-force of law between the contracting parties
Credit- the right to demand of the object -payment for damages incurred from pre-
obligations contractual obligations may be awarded only if:
debt- the duty to give, to do, or not to do • offer must be clear and definite thus
leading the offeree to believe in good faith
Elements of obligation: to incur expenses in the expectation of
• Personal elements entering into the contract
◦ active subject-creditor • the withdrawal must be without just cause.
◦ passive subject-debtor
• object or the prestation (Art. 1160)
◦ to give quasi-contract- juridical relation which arises from
◦ to do certain lawful, voluntary, and unilateral acts, to the
◦ not to do end that no one may be unjustly enriched at the
expense of another.
▪ the prestation must have the ffg
(Art. 1161)
• possible
civil obligations arising from crimes
• determinate or at least -based on Art. 100 of RPC
determinable except: (Art. 12, RPC)
• must have a possible • imbecile or an insane person
equivalent in money
• a person under 9 years of age
• efficient cause or the juridical tie- vinculum
• a person over 9 years and under 15 unless
◦ established by law – husband & wife; he has acted with discernment
mother & child relationships
• any one who acts under the compulsion of
◦ by bilateral acts- contracts an irresistable force
◦ by unilateral acts – crimes and quasi- • acts under the impulse of an uncontrollable
delicts fear or fear of an equal or greater injury
Civil obligation vs Natural obligation
Gives right of effect Cannot be enforced (Art. 1162)
action to compel by action but which obligations arising form quasi-delicts
their performance are binding on the quasi-delict- act or omission through fault or
party who makes negligence that causes damage to another is a
them, in conscience source of obligation.
and according to -distinct from crime.
equity and natural
justice. Negligence- failure to observe for the protection of
the interests of another person, that degree of
Positive law source Equity and natural care, precaution and vigilance which the
justice circumstances justly demand, whereby such other
person suffers injury.
(Art. 1157) -want of care
Sources of obligations
• law 2 kinds of negligence:
• contracts • culpa aquiliana- quasi-delict
• quasi-contracts • culpa-contractual-contract
• crimes
• quasi-delicts dolo- willful or deliberate intent to cause damage or
injury to another comply with his obligation:
• action for specific performance
***The obligation arising from quasi-delict is • action to rescind or resolve the obligation
demandable not only for one's own acts or • action for damages
omissions, but also those of persons fro whiom
one is responsible (El Cano vs Hill) (Art. 1166)
accessories- things destined for embellishment,
CHAPTER 2 use, or preservation of another thing of more
NATURE AND EFFECTS OF OBLIGATIONS importance, have fo their object the completion of
the latter for which they are indispensable or
generic/indeterminate thing- indicated only by its convenient.
kinds, without being designated and distinguished
from others of the same kind. Accession- everything whch is produced by a
– the moment it was delivered, it became thing, or which is incorporated or attached thereto,
determinate either naturally or artificially.

specifi/determinate thing- individualized and can be ***both the accessories and accessions must be
identified or distinguished from others of its kinds delivered except if the parties have agreed that
3 incidental or accessory obligation: they be excluded.
• obligation to preserve the thing with due
care (Art. 1163) (Art. 1167)
• obligation to deliver the fruits (Art. 1164) -obligation to do: things not done by the debtor
• obligation to deliver the accessions and may be done by a 3rd person at the expense of the
accessories (Art. 1166) debtor
-what has been poorly done be undone
(Art. 1163) -indemnification for damages
diligence of a good father of a family (Art. 1173)
effect of breach: (Art. 1168)
• liability fro damages when the debtor fails obligation not to do:
to exercise the diligence of a good father in -the debtor does what was forbidden, the same
preserving the thing can be undone at his expense
• if due to fortuitous event, he is exempted -liability of debtor for damages
from liability
(Art. 1169)
(Art. 1164) need for judicial or extra-judicial demand
right to the fruits of the prestation from the time the
obligation to deliver it arises. delay- non-fulfillment of the obligatiion with respect
of time.
Real right – direct and immediate juridical power -applicable only to positive obligations (to give and
over a thing, susceptible of being exercised not to do), not to negative obligations (not to do)
only against a determinate person, but against the Kinds of mora:
whole world (right of ownership and possession) • mora solvendi- default on the part of the
personal right – power belonging to one person to ◦ ex re- obligations to give
demand of another the fulfillment of a prestation to ◦ ex persona- obligations to do
give, to do, or not to do. ◦ requisites:
▪ that the obligation be demandable
“the ownership of things is transferred not by mere and already liquidated
agreements but by delivery” ▪ that the debtor delays performance
▪ that the creditor requires the
***when the object has not been delivered yet, the performance judicially or extra-
right action is specific performance not judicially
revindicacion • mora accipiendi- default on the part of the
(Art. 1165) creditor
remedies of creditor when the debtor fails to ◦ requisites:
▪ offer of performance by the debtor diligence of a good father (bonos paterfamilias)-
who has the required capacity person of ordinary diligence
▪ offer must be to comply with the
prestation as it should be (Art. 1174)
performed fortuitous event (force majeure)- event which
▪ the creditor refuses performance takes place by accident and could not have been
without just cause. foreseen, or though foreseen was inevitable.
• compensatio morae- default of both Effect: the debtor cannot be held liable for
parties in reciprocal obligations damages for non-performance.
- the liability of the parties should be
offset equitably (Art. 1175)
- neither party incur in delay if the other Usurious transaction shall be governed by special
does not comply or is not ready to laws.
comply in a proper manner what is Usury- contracting for or receiving something in
incumbent upon him. excess of the amount allowed by law.

***default generally begins from the moment the (Art. 1176)

creditor demands the performance of the receipt of the principal without reservation to the
obligation, whether judicially or extra-judicially, interest, and receipt of later installment without
except: reservation as to prior installments give rise to the
• express stipulation to the contrary presumption that the latter has been paid.
• when the law so provides
(Art. 1177)
• when the period is the controlling motive of
rights of creditors
the obligation
• levy by attachment and execution upon all
• where demand would be useless
the property of the debtor, except such are
exempt by law from execution
cessation of the effects of mora:
• exercise all the rights and actions by the
• renunciation by the creditor
debtor, except such as are inherently
• prescription personal to him (accion subrogatoria)
• ask for the rescission of the contract made
(Art. 1170)
by the debtor in fraud of their rights.
fraud- voluntary execution of a wrongful act, or a
willful omission, knowing the effects which naturally
(Art. 1178)
and necessarily arise from such act or omission
rights acquired by virtue of an obligation are
– deliberate and intentional evasion of the transmissible in accordance with law.
normal fulfillment of obligations
Sec. 1
negligence- absence of due care required by the PURE AND CONDITIONAL OBLIGATIONS
Pure obligations-contains no term nor condition
“in any manner that contravenes the tenor whatever upon which depends the fulfillment of the
thereof”- includes any act which impairs the strict obligation contracted by the debtor
and faithful fulfillment of the obligation, or every
– immediately demandable
kind of defective performance.
conditional obligation- subject to a condition
(Art. 1171)
condition- any future and uncertain event upon
waiver of future fraud is void
which an obligation is made to depend
term- future and certain
(Art. 1172)
past even may constitute a condition: what can
kinds of culpa (negligence)
be a condition is the future knowledge or the proof
• culpa aquiliana of a past event unknown to the parties, but not the
• culpa contractual event itself.
(Art. 1173)
Classification of conditions: condition shall be valid.
• suspensive
• resolutory (Art. 1184)
• potestative the condition that some event happen at a
• casual determinate time shall extinguish the obligation as
• mixed soon as the time expires or if it has become
indubitable that the event will not take place.
• divisible
• indivisible
(Art. 1185)
• conjunctive The condition that some event will not happen at a
• alternative determinate time shall render the obligation
• positive effective from the moment the time indicated has
• negative elapsed, or if it has become evident that the event
• express cannot occur.
• implied If no time has been fixed, the condition shall be
• possible deemed fulfilled at such time as may have
• impossible probably been contemplated, bearing in mind the
nature of the obligation.
(Art. 1180)
“when my means permit me to do so”- obligation (Art. 1186)
with a period constructive fulfillment- voluntarily preventing
– court to fix period the fulfillment of the condition
– an immediate action to enforce the requisites:
obligation wothout a period having been • intent of the obligor to prevent fulfillment of
previously fixed by the court, would be the condition
premature • actual prevention of compliance

(Art. 1181) (Art. 1187)

suspensive-happening of this gives rise to an retroactivity of obligations – refers to the effect
obligation ;condition precedent of the happening of suspensive conditions
resolutory-happening of this extinguishes rights – the effect of the obligation retoacts to the
already existing; condition subsequent moment when the obligation was
constituted or created
(Art. 1182) – reason: the condition is only an accidental,
potestative condition- condition dependent upon and not an essential element of the
the sole will of one of the contracting party obligation.
– if dependent upon the sole will of the – Fruits and interests:
debtor such condition is void – reciprocal obligations: mutual
casual condition- condition that depends upon compensation
chance or other factors – unilateral obligations: the fruits received
mixed condition- condition depends not only upon by the debtor before the happening of
the will of the debtor but also upon chance or the the condition, are kept by him and are
will of others; renders the obligation valid. not delivered together with the thing
upon the fulfillment of the condition.
(Art.1183) – Obligations to do or not to do: the
impossible condition- void because of the lack of courts, in its sound discretion shall
seriousness of the party. determine the retroactive effect of the
– physically impossible- contrary to law of fulfillment of the condition.
– juridically impossible-contrary to law, (Art. 1188)
morals, good customs, and public policy -preservation of creditor's rights:
– such impossibility must exist at the time of -the 2nd paragraph of the article permits the debtor
the creation of the obligation who paid before the happening of the condition to
divisible obligations- the part of the obligation recover only what he paid by mistake and provided
which is not affected by the impossible or unlawful that the action to recover is brought before the
condition happens. • facultative
◦ only one thing is due
(Art. 1189) ◦ debtor reserved the right to substitute it
1. If the thing is lost without the fault of the with another
debtor, the obligation shall be ◦ loss of that which may be given as
extinguished; substitute does not affect the obligation
2. If the thing is lost through the fault of the ◦ election may NOT be granted to the
debtor, he shall be obliged to pay creditor
damages; it is understood that the thing is
◦ the loss of that which is due as the
lost when it perishes, or goes out of
object of the obligation, will extinguish
commerce, or disappears in such a way
such obligation
that its existence is unknown or it cannot
be recovered;
(Art. 1200)
3. When the thing deteriorates without the
election – the right to choose the method of
fault of the debtor, the impairment is to be
meeting the obligation
borne by the creditor;
– generally granted to the debtor
4. If it deteriorates through the fault of the
debtor, the creditor may choose between – although may be granted to the creditor or
the rescission of the obligation and its 3rd party provided that it is express.
fulfillment, with indemnity for damages – Indivisible (debtor cannot choose part of
in either case; one prestation or part of another)
5. If the thing is improved by its nature, or by
time, the improvement shall inure to the ***When the debtor has the right to choose, the
benefit of the creditor; plaintiff's action must be in alternative form,
6. If it is improved at the expense of the demanding “either object X or object Y, at the
debtor, he shall have no other right than election of the debtor”. If the creditor demands only
that granted to the usufructuary. one of the objects, he asks for more than what he
is entitled to demand. The judgment must also be
a thing is considered lost when it: in alternative form.
1. perishes;
2. goes out of commerce – impossible to (Art. 1201)
legally transfer or re-acquire ***The law does not require the other party to
3. disappears in such a way that its existence consent to the choice made by the party entitled to
is unknown or it cannot be recovered choose. It is a unilateral declaration of will.

(Art. 1190) ***The mere declaration of the choice

resolutory condition- the rights of the creditor are communicated to the other party, is sufficient.
immediately vested, but such rights are always in Except: when the debtor has chosen a prestation
the danger of being extinguished by the happening which could not have been the object of the
of the resolutory condition. obligation; the creditor's consent would bring about
novation of the obligation.
Obligations with several objects ***When there are various debtors or creditors, and
• conjunctive the obligation is joint, the consent of all is
necessary to make the selection effective
◦ several prestations
◦ extinguished only by the performance
***if the obligation is solidary, the choice by one will
of all of them
be binding personally upon him but not as to
• alternative others.
◦ several objects being due, the
fulfillment of one is sufficient ***selection made by one party CANNOT be
◦ debtor has the right f election subjected by him to a condition or a term unless
◦ loss of one thing due affects the the other party consents thereto.
obligation (simple?!?)
◦ election may be granted to the creditor Effect of choice:
◦ the loss of one of the things DOES • limit the obligation to the object or
NOT extinguish the obligation prestation selected
• obligation is converted into a simple ***the obligation ceases to be alternative and is
obligation to perform the prestation chosen converted into a simple one.
• choice, once communicated becomes
irrevocable ***If the impossibility of the other prestations is due
to the creditor's acts, Art. 1203 shall apply.
***When the debtor performs one of the
prestations, believing that he has a simple ***Applies only when the debtor has the right to
obligation (an ignorance of the alternative and the choose.
right to choose), there is NO selection, nor a
binding performance of the obligation. (Art. 1203)
Loss by fault of the CREDITOR
Debtor's delay ***debtor's right to rescind the contract (with
***If the debtor who has the right to choose makes damages) if the loss or impossibility of the
no election before the creditor files his action, who prestation is due to the act of the creditor.
will perform the selection?
• French theory (Art. 1204)
◦ the court should give the party entitled Loss by fault of the DEBTOR
to choose a period in which to make ***If only some of the prestations are rendered
the choice, with the intimation that if he impossible, the fault of the debtor does not make
does not choose within the period, the him liable for damages, because he can still
court will make the choice or will give comply with the obligation by performing any of the
the right to choose to the other party. other prestations which remains.
◦ The right to choose passes
automatically to the other party when
there is delay on the part of the entitled Fortuitous event Fault of the debtor
to choose All prestation is lost or becomes impossible
• German theory
◦ if suit is filed, the complaint must ask Obligation is the basis of damages
for the performance in the alternative, extinguished will be the value of the
and the judgment must also be in the last prestation which
same form. became impossible
through his fault
◦ If execution issues, and the debtor has
not made the selection, the creditor The debtor has no The debtor is liable for
may enforce execution for any of the liability for damages damages
prestations (if he is not able to have the
Only one prestation left
prestation, then he may enforce the
judgment against another prestation) Art. 1204 will apply (concurred with a latter
◦ so long as the judgment has not been fortuitous event)
satisfied, the debtor may still exercise
his right to select by offering the *obligation is
prestation he chooses. extinguished; debtor
◦ Acceptable under Philippine law relieved from liability
▪ the right to choose cannot paralyze
the remedy of the creditor by or
refusing to make a selection.
▪ If the debtor cannot select at the ***Debtor is liable for
time when the performance should damages under Art.
be affected, the choice can be 1204, but the basis of
made fro him by the creditor y damages will be the
applying Art. 1167 on obligations to value of the last
do. prestation which
became impossible
▪ deemed a waiver of the debtor's
through his fault
right to chose

(Art. 1202)
(Art. 1205)
***when the creditor has the right of selection, his (Art. 1209)
selection shall take effect from the moment it is ***the obligation not to, when there are several
communicated to the debtor debtors, is a joint indivisible obligation.
• express
• tacit

Creditor's delay
• the debtor will not incur in delay in the
performance of the obligation, even if there
is a definite period fixed for performance.
• In such case, the period is deemed waived
through the creditor's own inaction.

(Art. 1206)
***Before the substitution is effected, the substitute
is not the prestatition that is due; only the principal (Art. 1223)
prestation is due and enforceable by the creditor at Indivisible thing – if divided into parts, its value is
that time. Therefore, if the substitute prestation diminished disproportionately.
becomes impossible due to the fault or negligence
of the debtor, the obligation is NOT affected and he Divisible thing– when each one of the parts into
cannot be held liable for damages. which it is divided forms a homogenous and
analogous object to the other parts as well as the
Sec. 4 – Joint and Solidary Obligations thing itself.

joint obligation – one in which each of the debtors Division:

is liable only for a proportionate part of the debt, • Qualitative – not entirely homogenous
and each creditor is entitled only to a proportionate (inheritance)
part of the credit. • Quantitative – things are homogenous
– presumed in cases in which two persons • Ideal – parts are not separate din material
are liable under a contract or judgment, way
and no words appear in the contract or the
judgment to make each liable for the entire
obligation. divisible obligation – susceptible of partial
Solidary obligation – one in which all the debtors
are liable for the entire obligation, and each indivisible obligation – when it cannot be validly
creditor is entitled to demand the whole obligation performed in parts.

***The thing may be divisible yet the obligation

Effect of Joint Liability: may be indivisible (to deliver 10sacks of rice on a
• the demand by one creditor upon one fixed date)
debtor, produces the effects of default only
with respect to the creditor who demanded (Art. 1224)
and the debtor on who the demand was ***In case of non-performance by any of the
made, but not with respect to others. debtors, the obligation is converetd into a liability
• The interruption of the prescription by the for losses and damages, which is divisible.
judicial demand of one creditor upon a
debtor, does not benefit the other creditors ***The debtors who are ready to comply with their
nor interrupt the prescription as to other parts shall not be liable fr more than the portions
debtors respectively corresponding to them in the price of
the subject matter of the obligation.
When solidarity exists:
• express stipulation ***damages suffered by other debtors may be
recovered from the debtor who failed to perform.
• nature of the obligation
***entire liability for damages suffered by the Strict construction (Construction according to the
creditors shall be borne by the defaulting debtor. letter) applied on obligations imposing penalties.
The terms o their contract is the measure of their
***Solidarity vs Indivisibility liability.

***If the obligation is solidary and indivisible, every 3 cases when damages and interest may be
debtor is liable for losses and damages, although recovered in addition to the penalty
those ready to perform can later recover from the • when there is an express provision to that
guilty one. effect (i.e Attorney's fees)
• when the debtor refuses to pay the penalty
***But if the debtor who has paid the entire • when the debtor is guilty of fraud in the
indemnity may recover from the others their non-fulfillment of the obligation
respective shares in the price, and from the guilty
debtor the entire amount of damages.
(Art. 1229)
(Art. 1225) ***The power of the judge to reduce the penalty
factors to consider in determining whether the refers only to penalties prescribed in contracts. It
obligation is divisible or not. does not cover the collection of surcharge on tax
• The will or intention of the parties that are due, which is mandatory on the collector.
• the objective or purpose of the stipulated
prestation Iniquitous – contrary to good custom; would
• the nature of the thing occasion the economic ruin and represent an
• provisions of law affecting the prestation undue exploitation of the debtor
to give: certain objects – indivisible
to do – indivisibility is presumed. excessive – taking into account the interests of the
creditor, it is in open contradiction to the demands
The purpose of the parties is controlling. of justice and equity.

In indivisible obligations, partial performnace is ***penalty not enforceable when the principal
equivalent to non-performance. obligation has been extinguished due to fortuitous
Except: event or when the creditor prevents the debtor
• where the obligation has been substantially from performing the principal obligation.
performed in good faith, the debtor may
recover as if there had been complete (Art. 1230)
performance General Rule: the nullity of the principal obligation
• when the creditor accepts performance, carries with it the nullity of the penalty. Exceptions:
knowing its incompleteness, and without • when the penalty is undertaken by a third
protest, the obligation is deemed fully person precisely for an obligation which is
performed. unenforceable, voidable, or natural, in
which case it assumes the form of a
Severable and entire (pp. 256 – 258) guaranty which is valid under Art. 2152
Sec. 6 – obligations with penal clause • when the nullity of the principal obligation
itself gives rise to liability of the debtor for
(Art. 1226) damages
penal clause- is an accessory undertaking to
assume greater liability in case of breach Chapter 4
***the penalty and liquidated damages are the
same (Lambert vs Fox) (Art. 1231)
(modes of extinguishing obligation same as those
***The creditor cannot recover more than the listed in notes on Jurado )
penalty stipulated even if he proves that the
damage suffered by him exceed in amount such Sec. 1. Payment or Performance
(Art. 1232) creditor cannot object because of defects in
payment – is the fulfillment of the prestation due; performance resulting from his own acts or
– a juridical act which is voluntary, licit and directions)
made with the intent to extinguish the
obligation; (Art. 1236)
– payment and fulfillment are identical. ***Payment by a 3rd person results in the
modification of the prestation that is due.
Requisites of payment
• the person who pays ***if the debt has been remitted, paid,
• the person to whom payment must be compensated or prescribed, a payment by a 3rd
made person would constitute a payment which is not
• the thing to be paid due; his remedy would be against the person who
received the payment under such conditions, and
• the manner, the time and place of payment
not against the debtor who did not benefit from the
Kinds of payment
• normal – when the debtor voluntarily
(Art. 1237)
performs the prestation stipulated
subrogation – produces the effect of only a change
• abnormal – when the debtor is forced by in the active subject but not in the extinguishment
means of a judicial proceeding, either to of obligation.
comply with the prestation or to pay ***Should be interpreted for the benefit of the
indemnity. debtor. This provision does not mean that there
may be subrogation if the creditor willingly and
(Art 1233) spontaneously permits the 3rd person who has paid
identity – the very thing or service due must be to be subrogated in his rights, even without the
delivered or released consent of the debtor.
integrity – the prestation must be fulfilled (Art. 1238)
completely ***embodies the principle that no one should be
compelled to accept the generosity of another.
time of payment – date stipulated (Code Commission)
proof of payment – devolves upon the debtor (Art. 1239)
Effect of incapacity – where the person paying has
(Art. 1234) no capacity to make the payment, the creditor
substantial performance – there must have been cannot be compelled to accept it; consignation will
an attempt in good faith to perform, without any not be proper; in case he accepts it, the payment
willful or intentional departure therefrom. will not be valid, except in the case provided in Art.
– deviation must be slight 1427.
– omission or defect must be technical and
unimportant, and must not pervade the (Art. 1240)
whole or be so material that the object to whom payment must be made
which the parties intended to accomplish in • person in whose favor the obligation has
a particular manner is not attained. been constituted
• his successor in interest
(Art. 1235)
• any person authorized to receive payment
waiver – there must be an intentional
◦ by the creditor himself (conventional
relinquishment of a known right
– there must have been acceptance of the
◦ by law or legal authority (guardian,
defective performance with the actual
executor or administrator of the estate
knowledge of the incompleteness or the
of a deceased person, assignee or
defect, under circumstances that would
liquidator of a partnership or
indicate an intention to consider the
performance as complete and renounce
***payment to a wrong party does not extinguish
any claim arising from defect.
the obligation as to the creditor
***Rule in Art. 1235 is based on estoppel (the
Assignment Dation in payment
(Art. 1241)
***when the creditor is incapacitated to receive the Art. 1255 Art. 1245
payment, this must be done to his representative if Both are substitute forms of performance of an
there be one. If there be none, the debtor may obligation
deliver the ting to the Court in consignation, by
virtue of Art. 1256. Involves plurality of Does not involve
creditors plurality of creditors
benefit to the creditor – intelligent and reasonable Involves the whole of Does not involve the
use of the payment made, for purposes necessary the property of the whole of the property of
or useful to the creditor, such as that which his debtor the debtor
legal representative would have or could have
done under similar circumstances, even if at the Pledge – personal property delivered to the
time of complaint the effect of such use no lonegr creditor
(Art. 1246)
In the following situations, payment to a 3rd person quality of the thing delivered- determined by the
also releases the debtor: court taking into consideration the purpose and
• when, without notice of the assignment of other circumstances of the obligation.
the credit, he pays to the original creditor
(Art. 1256) (Art. 1247)
• when in good faith he pays to the one in reason for the article – extra judicial expenses
possession of the credit (Art. 1242) required by the payment s borne by the debtor, in
the absence of stipulation, because payment is his
(Art. 1242) duty and it inures to his benefit in that he is
one in possession of credit – the person who discharged form the burden of the obligation.
appears to be the owner of the credit but is not
actually the owner (Art. 1248)
– different from possession of the document ***The creditor who refuses to accept partial
representing the credit. prestation does not incur in delay or mora
– Good faith on the part of the debtor is accipiendi, except when there is an abuse of right
necessary or if good faith requires acceptance.
(Art. 1243)
***The payment to the creditor after the credit has ***Not applicable to obligations where there are
been attached or garnished is void as to the party several subjects or where the various parties are
who obtained the attachment or garnishment bound under different terms and conditions.

Consignation – depositing the money in court. (Art. 1249)

legal tender – such currency which in a given
(Art. 1244) jurisdiction can be used for the payments of debts,
substitution of prestation public or private, and which cannot be refused by
the creditor.

(Art. 1245) (Art. 1250)

dation in payment – delivery and transmission of ***Applies only when there is a contract or
ownership of a thing by the debtor to the creditor agreement involved and not to obligation to pay
as an accepted equivalent of the performance of that arises from law, independent of contracts.
the obligation.
– novation by change of the object (Art. 1251)
– extinguishes the obligation to the extent of
the value of the thing delivered, either as
agreed upon by the parties or as may be
– Onerous contract of alienation, bec the
object is given in exchange of the credit.
Subsection 1. - – May be contested if there is a cause for
APPLICATION OF PAYMENTS invalidating the contract (assent of the
debtor to the AP made in the receipt)
Application of payment- designation of the debt – use of the term contract was
which is being paid by a debtor who has several contested by Dean Capistrano
obligations of the same kind in favor of the creditor ***If no AP was made by the debtor and creditor,
to whom payment is made. Arts. 1253 and 1254 will apply.
– same is true when the AP made by the
(Art. 1252) creditor has been annulled by the debtor
***It is necessary that the obligations must all be
due change of AP-only by agreement of the debtor
Except: and creditor.
• on mutual agreements of the parties
• upon the consent of the party in whose the (Art. 1253)
favor the term was established payment of interest first before the principal
***It is necessary that all the debts be for the same interest- stipulated as earnings of the amount due
kind, generally of monetary character. under the obligation, but not to interest due
– includes obligations which are not because of mora solvendi.
originally of a monetary character but, – Salvat said that no distinction must be
at the time of the application , had been made because the law does not make
converted into an obligation to pay the distinction
damages by reason of breach or non-
performance (Art. 1254)
onerous- most burdensome
right of debtor- preferential right to choose the debt
to which his payment is to be applied. Types of Debts Which is more
Limitations: Onerous
• creditor cannot accept partial payment (Art. Principal vs surety Debt covering that of
1248) the principal
• law requires payment to be applied to Solidary debtor vs sole Solidary debtor
interest first before to the principal debtor
• payment not applicable to unliquidated
debt Solidary obligation Share corresponding to
the solidary debtor
• debtor cannot choose a debt with a period
for the benefit of the creditor, when the Incurred at different Oldest ones
period has not yet arrived. dates
• When there is an agreement as to the 2 debts both incurring Debt with higher interest
debts which are to be paid first, the debtor interest
cannot vary the agreement.
Secured and not Secured ones
Time the debt is paid- when right to exercise AP secured debts
should be done Debts bearing interest Debt which incurs the
against those which are interest
***If the debtor makes a proper AP, but the creditor not
refuses to accept it because he wants to apply it to
another debt, such creditor incurs in delay (mora Indemnity vs penalty Indemnity
accipiendi) obligation
Liquidated vs Liquidated
Application by creditor- if the debtor does not unliquidated
exercise the right to AP; may be made only in the
receipt issued at the time of payment Obligation which the Obligation which the
debtor is in default vs debtor is in default
– not binding IF made without the knowledge not
and consent of the debtor.
Section 5
Pro rata- in proportion Compensation
– what to apply when the obligations are
due of the same nature or burden (Art. 1278)
Compensation – mode of extinguishing to the
Subsection 2 concurrent amount the obligations of those
PAYMENT BY CESSION persons who in their right are reciprocally debtors
and creditors of each other.
Assignment or Cession- abandonment of the – offsetting of two obligations
universality of the property of the debtor for the – balancing between two obligations
benefit of his creditor, in order that such property – weighing two obligations simultaneously in
may be applied to the payment of the credits order to extinguish them to the extent that
– does not transfer ownership the amount of one is covered by the other
– makes payment between persons who are
indebted to each other simplified and
Subsection 3 assured
Payment Compensation
tender of payment- manifestation made by the
debtor to the creditor of his desire to comply with Capacity to give and to Capacity to give and to
his obligation, with the offer of immediate acquire are necessary acquire not essential
performance Operates by act of the Operates by law
– preparatory act parties
Must be complete Extinguishment may be
consignation – deposit of the object of the partial
obligation in a competetnt court after the tender of
payment has been refused or because of Advantages of compensation over payment
circumstances which render direct payment to the • simplicity – take effect without action by
creditor impossible or inadvisable. either party to extinguish their respective
– form of payment obligations
• guaranty - may avoid prejudice to one party
(Art. 1256) by fraud or insolvency of the other.
tender of payment of only a part of the obligation
ma be validly refused by the creditor Confusion Compensation

tender of payment followed by a consignation one obligation Two obligations

suspended the accrual of the interest 1 person n whom the Two persons mutually
characters of the debtors and creditors of
requisites of consignation: creditor and debtor each other in 2 different
(see jurado notes) meet obligation

Counterclaim Compensation
Must be pleaded to be Takes place by
effectual operation of law

Kinds of compensation:
As to their effects/extinguishment:
• total
• partial

As to origin:
• legal – by law
• facultative – by the creditor (Art. 1283-1284)
• conventional – by agreement of te two effect of judgment – voidable contract can be
parties compensated before it is rescinded or annulled.
• judicial – by court decree The decree of rescission is retroactive, and the
compensation is considered canceled. Rescission
(Art. 1279) requires mutual restitution. The party whose
1. That each one of the obligors be bound obligation is annulled can thus recover to the
principally, and that he be at the same time extent that his credit was extinguished by
a principal creditor of the other; compensation, because to that extent he is
– there can be no compensation when deemed to have made payment.
one is occupying a representative
capacity (Art. 1285)
2. That both debts consist in a sum of money, compensation--------->Assignment – there has
or if the things due are consumable, they already been extinguishment of one or the other of
be of the same kind, and also of the same the obligation
quality if the latter has been stated; – assignee is left only with an action for
– consumable – those which cannot be eviction or for damages for fraud against
used in a manner appropriate to their the assignor.
nature without being consumed – Exception: when the debtor consents to the
– fungible – things of the same kind assignment; consent constitutes a waiver
which in payment can be of the compensation unless he reserved
substituted for each other his right.
– when the obligation refer to
determinate or specific things, there Assignment---------->compensation - with the
can be no compensation consent of the debtor – the debtor cannot set up
3. That the two debts be due; against the assignee the compensation
4. That they be liquidated and demandable; ◦ if he notified the assignor that he
– prescription: reserves his right to the compensation,
he can still set up compensation as a
– voidable debts
defense when the assignee demands
– liquidated debts – amount ans
the payment of the credit.
existence are determined; when the
determination of the amount depends • With knowledge but without consent of the
ony on a simple arithmetical operation debtor – the debtor may set up the defense
5. That over neither of them there be any of compensation of debts prior to the
retention or controversy, commenced by assignment but not subsequent ones.
third persons and communicated in due ◦ Purpose: to prevent fraud.
time to the debtor. • Without knowledge of debtor - the debtor
may set up the defense of compensation of
(Art. 1280) all credits which he may have against the
reason: the liability of the guarantors only assignor and which may have become
subsidiary; it is accessory to the principal obligation demandable, before he was notified of the
of the debtor. If the principal debtor has a credit assignment.
against the creditor which can be compensated, it Remedy for the assignee: action for
would mean the extinguishment of the guaranteed indemnification against the assignor
debt, either totally or partially. This extinguishment
benefits the guarantor, for he can be held liable (Art. 1286-1287)
only to the same extent as the debtor. reason: based on justice
deposit is made or commodatum given on the
(Art. 1281-1282) basis of confidence
voluntary compensation is not limited to obligations
which are not yet due. The arties may compensate support- based on common policy and humanity.
by agreement. It is necessary however that the To allow its extinguishment by compensation would
parties should have the capacity to dispose of the defeat its exemption from attachment and
credits which they compensate. execution (Art 205, Family Code) ad may expose
the recipient to misery and starvation
(Art. 1288-1289)
effects of compensation:
1. both debts are extinguished to the
concurrent amounts
2. interests stop accruing on the extinguished
obligation or the part extinguished
3. the period of prescription stops with
respect to the obligation or part
4. all accessory obligations of the principal
obligation which has been extinguished are
also extinguished.

-compensation must be alleged and proved by the

debtor who claims its benefits