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OBLIGATIONS AND CONTRACTS

TITLE 1. OBLIGATIONS
CHAPTER I. General Provisions
I. Concept
a. Definition
Obligation is a juridical necessity to give, to do, or not to do; juridical necessity to comply w/ a prestation.
b. Elements

Juridical or legal tie

Active subject obligee or creditor

Passive subject obligor or debtor

Fact, prestation or service (object of the obligation) conduct that must be observed
c. Distinction between Natural and Civil Obligations

Natural obligation on which cannot be enforced by court action, but which is binding on the party who
makes it in conscience and according to natural law
no legal sanction; initially not prescribed with court action but if the debtor complied voluntarily, he/she
already cannot get back what has been given
there must be knowledge of important facts for conscience to arise
* in case of quasi-contract/unjust enrichment/solutio indebiti the debtor has the right to claim back

Civil obligation has a binding force in law, and which gives the obligee or creditor the right of enforcing it
against the obligor or debtor in a court of justice
there is a court sanction in case of non-compliance
II. Sources of Obligations
a. Law when they are imposed by the law itself
ex: obligation of a parent to support his/her child under the Family Code
b. Contracts when they arise from the stipulation of the parties
ex: obligation to work in a company under a 2-year contract
c. Quasi-Contracts the law deems that there is a contract but there is none
ex: solutio indebiti; unjust enrichment
d. Acts/Omissions punished by law civil liability arising from criminal offense
- basis of the civil liability is the crime; no crime, no civil liability
e. Quasi-Delicts products of negligence
ex: reckless imprudence resulting to serious physical injury; civil liability arising from quasi-contract
Elements of cause of action:

Plaintiffs legal right

Defendants correlative counter motion

Damages
III. Classification of Obligations
A. Primary Classifications under the Civil Code:
1. Pure there is no condition or term to fulfill; demandable at the time the contract is perfected
Conditional there is a condition which should be fulfilled
a. Suspensive the condition is awaited; the obligation arises the moment the condition is satisfied
b. Resolutory the condition is to be avoided; the obligation is extinguished the moment the condition is
satisfied
2. With a period or term subject to a term or period which may be suspensive or from a day certain, or resolutory
or to a day certain; that which necessarily must come regardless of whether the parties know when it happen or not
3. Alternative obligor is allowed to choose one out of several obligations which may be due and demandable;
when it comprehends several objects or prestations which are due, but it may be complied with by the delivery or
performance of only one of them
Facultative obligor is allowed to substitute another obligation for one which is due and demandable; when it
comprehends only one object or prestation which is due, but it may be complied with by the delivery of another
object or the performance of another prestation in substitution
4. Joint each obligor is liable only for his proportionate share; there are more than one person who is liable for the
obligation; they have equal share of responsibility
Solidary each obligor may be held liable for the entire obligation; upon the insolvency of one of the parties who is
responsible for the obligation, the other party is to fulfill the full liability of the contract

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5. Divisible susceptible of partial performance; the fulfillment of the obligation may be done at separate times
Indivisible not susceptible of partial performance; the fulfillment of the obligation must be done at one time
6. With a penal clause an accessory obligation attached to the principal obligation by virtue of which the obligor
is bound to pay a stipulated indemnity or to perform a stipulated prestation in case of breach of obligation
B. Secondary Classifications:
1. Legal obligations arising from laws
Conventional obligations arising from contracts
Penal obligations arising from criminal offenses
2. Real (to give) obligation consists in giving something; right pertaining to a person over a specific thing
(without a passive subject)
jus in re right enforceable against the whole world
Personal (to do) obligation consists in doing or not doing something; right pertaining to a person to demand from
another (as a definite passive subject)
jus ad rem right enforceable only against a definite person or group of persons
3. Determinate specific object is the subject of the obligation
Generic the subject of the obligation belongs to a particular class
4. Positive (to give, to do) obligor is obliged to give or do something
Negative (not to give, not to do) obligor must refrain from giving or doing something
5. Unilateral only one party is bound
Bilateral both parties are mutually or reciprocally bound
6. Individual there is only one obligor
Collective there are several obligors (may be joint or solidary)
7. Accessory merely an undertaking to guarantee the fulfillment of the principal obligation; depends upon
another obligation
Principal main undertaking; which can stand by itself
8. As to object or prestation:
Simple only one undertaking
Multiple several undertakings (may be conjunctive or distributive)
Conjunctive when all of the undertakings are demandable at the same time
Distributive only one undertaking out of several is demandable
Alternative obligor is allowed to choose one out of several obligations which may be due and
demandable; when it comprehends several objects or prestations which are due, but it may be complied
with by the delivery or performance of only one of them
Facultative obligor is allowed to substitute another obligation for one which is due and demandable;
when it comprehends only one object or prestation which is due, but it may be complied with by the
delivery of another object or the performance of another prestation in substitution
9. Possible when the obligation is capable of fulfillment in nature as well as in law
Impossible when the obligation is not capable of fulfillment either in nature or in law
CHAPTER II. Nature and Effects of Obligations
I. Kinds of Prestation
A. Obligation to give
- may be determinate or indeterminate

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- the obligee or creditor has the right to the thing which is the object of the obligation as well as the fruits thereof
from the time the obligation to deliver it arises
* personal right right to demand from another for a performance
* real right right over a thing
Rights of creditor in determinate obligation:

To compel specific performance.

To recover damages for breach of the obligation.


Rights of creditor in generic obligation:

To ask for performance of the obligation.

To ask that the obligation be complied with at the expense of the debtor.

To recover damages for breach of obligation.


Obligations of debtor in determinate obligation:

To perform the obligation specifically.

To take care of the thing with the proper diligence of a good father of a family.

To deliver all the accessions and accessories of the thing, even though they may have not been mentioned.

(To deliver the fruits)

To be liable for damages in case of breach of obligation by reason of delay, fraud, negligence or
contravention of the tenor thereof.
* accessions those things which are produced by the thing which is the object of the obligation, and as well
as those which are naturally or artificially attached thereto; additions or improvements
Ex: house or trees on land; rents of a building; profits or dividends from shares of stocks

accession discreta natural, industrial (human labor) and civil fruits


accession industrial building, planting and sowing
accession natural alluvion, avulsion, abandoned river beds and islands formed
accession with respect to movable property - adjunction or conjunction, confusion or commixtion, and
specification

* accessories those things which have their object for embellishment, use or preservation of another thing;
includes all of those things which are necessary or convenient for the perfection of another thing; accessory
and principal thing must go together
Ex: key of a house; frame of a picture; bracelet of a watch
Obligations of debtor in generic obligation:

To deliver a thing which is neither of superior nor inferior quality.

To be liable for damages in case of breach of obligation by reason of delay, fraud, negligence or
contravention of the tenor thereof.
B. Obligation to do
- positive personal obligations
- if obligor fails to do that which he has obligated himself to do, the obligee can have the obligation performed or
executed at the expense of the former; may demand damages by reason of the breach
- the obligee does not possess the power to compel the obligor to comply with his obligation
- the law recognizes the individuals freedom or liberty to choose between doing it that which he has promised to do
and not doing it
- personal act (acto personalisimo)
If there has been a performance of the obligation, but in contravention of the tenor thereof, the following rights are
available to the obligee:

To have the obligation performed or executed at the expense of the obligor.

To ask that what has been poorly done be undone.

To recover damages because of breach of the obligation.


C. Obligation not to do
- negative personal obligations
- the object of the obligation is fulfilled or realized so as long as that which is forbidden is not done by the obligor
If the obligor does what has been forbidden him, 2 remedies are available to the obligee:

To have it undone at the expense of the obligor. (Art. 1168)

To ask for damages. (Art. 1170)


II. Breach of Obligation
A. Concept
- there is a violation

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- may be voluntary (default, fraud, negligence, and any manner which contravenes the tenor) or involuntary
(fortuitous event)
* only substantial violation is actionable

B. Modes of Breach
1. Fraud (dolo) - deliberate or intentional evasion of the normal fulfillment of an obligation
- synonymous to bad faith
- there is malice or dishonesty
- waiver of action for future fraud is void and is contrary to law and public policy; but waiver of action for
past fraud is valid because it shows the generosity and forgiveness of the creditor towards the debtor
* 2 classifications of Civil Fraud:

Fraud or dolo in the performance of an obligation (fraud in the fulfillment of the obligation)
present only during the performance of the obligation
employed for the purpose of evading the normal fulfillment of the obligation
results in the nonfulfillment or breach of the obligation
gives rise to a creditor or obligee to recover damages from the debtor or obligor

Fraud or dolo in the constitution or establishment of an obligation (fraud in securing consent)


present only at the time of the birth of obligation
employed for the purpose of securing the consent of the party to enter into the contract
the reason for the other party upon whom it is employed for entering into the contract, results in the
vitiation of his consent
gives rise to a right of the innocent party to ask for the annulment of the contract if the fraud is causal
or to recover damages if it is incidental
2. Negligence (culpa) omission of diligence which is required by the nature of the obligation
- absence of due care by the nature of the obligation
- voluntary in character but there is no malice
* kinds of negligence/culpa:

Culpa contractual fault or negligence of the obligor by virtue of which he is unable to perform his
obligation arising from a pre-existing contract
negligence of the defendant is merely an incident in the performance of the obligation
there is pre-existing contractual relation
source is breach or nonfulfillment of the contract
proof of the existence of the contract and of its breach of fulfillment is sufficient prima facie evidence to
warrant a recovery
proof of diligence in the selection and supervision of employees is not available as a defense

Culpa Aquiliana fault or negligence of a person, who, because of the omission of the diligence which is
required by the nature of the obligation causes damages to another
negligence of the defendant is substantive and independent
there may or may not be a pre-existing contractual obligation
source is the defendants negligent act or omission itself
negligence of the defendant must be proved
proof of diligence in the selection and supervision of employees is available as a defense

Culpa Criminal
negligence resulting in the commission of a crime
3. Delay (mora) delay/default in the fulfillment of an obligation with respect to time
* 3 kinds of delay/mora:

Mora solvendi delay of the debtor or obligor in the performance of his obligation
o
Mora solvendi ex re obligation is obligation to give
o
Mora solvendi ex persona obligation is obligation to do

Mora accipiendi delay of the creditor or obligee to accept of the delivery or the thing which is the object
of the obligation

Compensation morae delay of the parties or obligors in reciprocal obligations


* 3 requisites which should be present in order that the obligor or debtor may be considered in default:

The obligation is demandable and already liquidated.

The obligor or debtor delays performance.

The creditor requires the performance judicially or extra-judicially.


* when demand not necessary:

When the obligation or the law expressly so declares.

When from the nature and the circumstances of the obligation it appears that the designation of the time
when the thing is to be delivered or the service is to be rendered was a controlling motive for the
establishment of the contract.

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When demand would be useless, as when the obligor has rendered it beyond his power to perform.

4. Contravention of the tenor debtor does not comply with the terms of the agreement
- the phrase "in any manner contravene the tenor" of the obligation includes any illicit act which impairs
the strict and faithful fulfillment of the obligation, or every kind of defective performance

III. Remedies of Creditor in case of Breach


A. Action for Performance
- asking the obligor to perform the prestation (except in obligation to do)
- specific performance (is only a remedy for obligation to give)
B. Action for Damages
- can be accompanied with specific performance or rescission
C. Action for Rescission
- treat a contract as if it does not exist
- return the thing
- coupled with damages
- remedy for non-compliance in reciprocal obligations
- only for substantial breach
* Termination stops any future obligations because of a contract
IV. Subsidiary Remedies of Creditor
- there is no other way (or assets) to satisfy the claims of the creditor
A. Accion Subrogatoria the law expressly grants the creditor the right to exercise all of the rights and bring all
of the actions which the debtor may have against 3rd persons
* corporeal/tangible may not be sufficient to pay all of his debts
* incorporeal/intangible may be more than sufficient
* certain conditions must be present before the creditor can avail this remedy:

The debtor to whom the right or action properly pertains must be indebted to the creditor.

The creditor must be prejudiced by the inaction or failure of the debtor to proceed against the 3 rd person.

The debtor must have first pursued or exhausted all of the properties of the debtor which are not
exempted from execution.
* 1 very important exception:

Rights which are purely personal in the sense that they are inherent in the person of the debtor.
B. Accion Pauliana the right available to the creditor by virtue of which he can secure the rescission of any act
of the debtor which is in fraud and to the prejudice of his rights as a creditor
- such acts made by the debtor where the creditor is prejudiced can be impugned or attacked directly by
means of a rescissory action
- subsidiary in character
- can be availed of in absence of any other legal remedy to obtain reparation of the injury
* constructive notice rule annotate the writ of attachment
- not to prohibit the person to make sale transactions but will serve as a warning to buyers
C. Other Specific Remedies
Art. 1652. The sublessee is subsidiarily liable to the lessor for any rent due from the lessee. However, the sublessee
shall not be responsible beyond the amount of rent due from him, in accordance with the terms of the sublease, at
the time of the extrajudicial demand by the lessor.
Payments of rent in advance by the sublessee shall be deemed not to have been made, so far as the lessor's claim
is concerned, unless said payments were effected in virtue of the custom of the place.
Art. 1729. Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor
have an action against the owner up to the amount owing from the latter to the contractor at the time the claim is
made. However, the following shall not prejudice the laborers, employees and furnishers of materials:
(1) Payments made by the owner to the contractor before they are due;
(2) Renunciation by the contractor of any amount due him from the owner.
This article is subject to the provisions of special laws.
Art. 1608. The vendor may bring his action against every possessor whose right is derived from the vendee, even if
in the second contract no mention should have been made of the right to repurchase, without prejudice to the
provisions of the Mortgage Law and the Land Registration Law with respect to third persons.

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V. Extinguishment of Liability in case of Breach due to Fortuitous Event


A. Concept of Fortuitous Event
- Fortuitous event (caso fortuito) event which could not be foreseen, or which, though foreseen, was inevitable
- the presence of unforseeability or inevitability

*2 general causes:

By nature (earthquakes, storms, floods, epidemics, fires)

By the act of man (armed invasion, attack by bandits, governmental prohibitions, robbery)
* 2 classifications:

Act of God fortuitous event proper


- absolutely independent of human intervention

Force majeure fuerza mayor


- an event which arises from legitimate or illegitimate acts of persons other than the obligor
both refers to an event or cause which is independent of the will of the obligor
B. Requisites
1. The cause of the unforeseen or unexpected occurrence, or of the failure of the debtor to comply with his
obligation, must be independent of the human will.
2. It must be impossible to foresee the event which constitutes the caso fortuito, or if it can be foreseen, it
must be impossible to avoid.
3. The occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal
manner.
4. The obligor (debtor) must be free from any participation in the aggravation of the injury resulting to the
creditor
* There must be an entire exclusion of human agency from the cause of injury or loss.
* Tire Blowout A tire blowout does not constitute negligence unless the tire was already old and should not
have been used at all. (Rodriguez vs. Red Line Transportation)
C. Extinguishment of Liability
- if the obligor is unable to comply with his obligation by reason of a fortuitous event, the general rule is that he is
exempted from any liability whatsoever
Exceptions:

Where such liability is expressly specified by law.


- Arts. 552(2), 1165(3), 1268, 1942, 1979, 2147, 2148 and 2159 of the New Civil Code

Where it is declared by stipulation of the parties.


- if the contracting parties expressly agree that the debtor can be held liable even in case of fortuitous
events, such an agreement shall be binding

Where the nature of the obligation requires the assumption of risk.


- Doctrine of Assumption of Risk it refers to a situation in which the obligor or debtor enter into some
obligatory relation with the creditor or obligee
- volenti non fit injuria no wrong is done to one who consents
VI. Usurious Transactions
* Usury contracting for or receiving something in excess of the amount allowed by the law for the loan or forbearance of
money, goods, or chattels
taking of more interest for the use of money, goods, or chattels or credits that the law allows
unlawful interest
A. PD 858
- amending the Usury Law
- The Monetary Board is hereby authorized to prescribe the maximum rate or rates of interest for the loan or
renewal thereof or the forbearance of any money, goods or credits, and to change such rate of rates whenever
warranted by prevailing economic and social conditions.
PD 1685
- authorizing the Central Bank of the Philippines to engage in special borrowing and lending operations
B. Central Bank Circular 416
- Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan
or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express
contract as to such rate of interest, shall be twelve (12%) per cent per annum.
C. Monetary Board Circular No. 905 lifting interest rate ceiling

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- January 1, 1983
- Monetary Board is authorized to fix interest rates; the ceiling rates under the Usury Law have been abolished
- it did not repeal nor in any way amend the Usury Law but simply suspend the latters effectivity
VII. Fulfillment of Obligations
A. Chapter 4, Payment
- Article 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an
obligation.
B. Presumptions in payment of interests and installments
- Article 1176.
The receipt of the principal by the creditor without reservation with respect to the interest, shall give rise to the
presumption that said interest has been paid.
The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the
presumption that such installments have been paid. (This presumption, however can be properly rebutted by
competent evidence to the contrary.)
* Talks about presumptions which could either be:
(1) Conclusive
- you are no longer allowed to present other evidences to prove otherwise
- these are evidences which you cannot rebut
(ex. We are all presumed to know the law; thus you cannot defend yourself by saying that you are not aware of such
law.)
- such presumption is reasoned by experience and convenience
(2) Disputable or rebuttable (what is contemplated in this article)
- presumption applies and is advantageous to debtor or lessee
- such fact is presumed unless you present other evidences that will prove otherwise
Take Note: A creditor can refuse to accept if you do not pay the amount you are obliged to pay.
* 1st paragraph of 1176
- tackles presumption in payments of interests
- the first payment is that of the interest and the balance will be on the principal
Take note:
- The creditor can rebut such claim wherein the lessee will say that he has already paid the interest for the receipt
shows payment for principal; however the burden of proof is that of the creditor.
- The creditor can specify in the receipt a reservation with regards to the interest so that even though it is specified
in the receipt that payment is for the principal amount, there will be no presumption that the interest has already
been paid.
* 2nd paragraph of 1176
- tackles presumptions in payments of installments
- ex: A receipt acknowledging the payment of rentals of March gives the presumption that rentals for January and
February is paid
- you can likewise, as a lessor, note the reservation
VIII. Transmissibility of Rights
- rights of obligations or those rights which are acquired by virtue of an obligation are as a general rule transmissible in
character
- they may be alienated to 3rd persons
* exceptions:

Where they are not transmissible by their very nature (such as purely personal right)

Where there is a stipulation of the parties that they are not transmissible

Where they are not transmissible by operation of law


CHAPTER III. Different Kinds of Obligations
I. Pure and Conditional Obligations
A. Pure Obligations (Art. 1179, par. 1)
Art. 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past
event unknown to the parties, is demandable at once.
Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of
the happening of the event.

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- one whose effectivity or extinguishment does not depend upon the fulfillment or nonfulfillment of a condition or
upon the expiration of a term or period, and which, as a consequence, is characterized by the quality of immediate
demandability
- there must be a reasonable period granted for the performance
B. Conditional Obligations (Art. 1181)
Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of the event which constitutes the condition.
- a future and uncertain fact or event upon which an obligation is subordinated or made to depend
- one whose effectivity is subordinated to the fulfillment or nonfulfillment of a future and uncertain fact or event
- term: future and certain
- condition: future and uncertain

1. Condition
a. Concept
- the requisites of futurity and uncertainty must be present
b. Condition vs. Period/Term

Condition proof or ascertainment thereof may or may not happen or come to pass

Period/Term proof or ascertainment of the fact or event will surely come to pass,
although it may not be known when
2. Kinds of Conditions
a. As to effect on obligation (Art. 1181)

the obligation

i. Suspensive (condition precedent)


when the fulfillment of the condition results in the acquisition of rights arising out of

- retroactive effect when condition is fulfilled --- (Art. 1187)


Art. 1187. The effects of a conditional obligation to give, once the condition has been
fulfilled, shall retroact to the day of the constitution of the obligation.
- The effects of a conditional obligation to GIVE generally retroacts to the day of the
constitution of the obligation (applicable only to consensual contracts)
- Exception to the General Rule: with regards to FRUITS or INTERESTS and PERIOD OF
PRESCRIPTION:
- reciprocal it is presumed they are mutually compensated
- unilateral debtor shall appropriate/deliver the fruits and interest unless it
can be inferred that the intention is otherwise)
- In an obligation to DO and NOT TO DO, the court will determine the retroactive effect of
the condition.
- rights of creditor and debtor before fulfillment of condition --- (Art. 1188)
Art. 1188. The creditor may, before the fulfillment of the condition, bring the
appropriate actions for the preservation of his right
The debtor may recover what during the same time he has paid by mistake in case of a
suspensive condition.
- This article contemplates on:
1) actions to preserve creditors rights and
2) right of the debtor to recover what was paid by mistake
- bring appropriate actions for the preservation of his rights; ask for security if debtor is
about to be insolvent; ask the court to prevent alienation or concealment
- This is a case of solutio indebiti.
- The demandability as well as the acquisition or effectivity of rights arising from the
obligation is suspended pending the happening or fulfillment of the fact or event which
constitutes the condition. The obligee or creditor has only a mere hope or expectancy.

of the obligation

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ii. Resolutory (condition subsequent)


when the fulfillment of the condition results in the extinguishment of right arising out

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- effect of resolutory conditions before fulfillment right which the obligee or creditor
has already acquired by virtue of the obligation is always subject to threat or extinction
during the pendency of the condition
- effect of resolutory conditions after fulfillment
if not fulfilled --- such rights are consolidated; they become absolute in character
if fulfilled --- such rights are extinguished altogether; shall have to be returned upon
the fulfillment of the condition
b. As to cause or origin (Art. 1182)
Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the
conditional obligation shall be void. If it depends upon chance or upon the will of a third person,
the obligation shall take effect in conformity with the provisions of this Code.
i. Potestative
when the fulfillment of the condition depends upon the will of a party to the obligation
- effect if fulfillment of condition depends solely on the will of the debtor --- is void
(applicable only to a suspensive condition)
- debtors promise to pay when he can is not a conditional obligation
- prohibition directed against potestative conditions extends only to those which are

potestative to the debtor

ii. Casual
when the fulfillment of the condition depend upon chance and/or upon the will of a
third person --- the obligation including such condition shall take effect
iii. Mixed
when the fulfillment of the condition depends partly upon the will of a party to the
obligation and partly upon chance and/or will of a third person --- the obligation
including such condition shall take effect
c. As to possibility (Art. 1183)
Art. 1183. Impossible conditions, those contrary to good customs or public policy and those
prohibited by law shall annul the obligation which depends upon them. If the obligation is
divisible, that part thereof which is not affected by the impossible or unlawful condition shall be
valid.
i. Possible
when the condition is capable of realization according to nature, law, public policy or

good customs

ii. Impossible
- effect
when the condition is not capable of realization according to nature, law, public policy

or good customs

d. As to mode
i. Positive (Art. 1184)
when the condition involves the performance of an act
Art. 1184. The condition that some event happen at a determinate time shall extinguish
the obligation as soon as the time expires or if it has become indubitable that the event
will not take place.
- effect: annuls the obligation
ii. Negative (Art. 1185)
when the condition involves the omission of an act
Art. 1185. The condition that some event will not happen at a determinate time shall
render the obligation effective from the moment the time indicated has elapsed, or if it
has become evident that the event cannot occur.
- effect: considered simple as not written, obligation considered as pure and simple
3. Rules in case of loss, deterioration, or improvement pending happening of the condition (Arts. 1189 and
1190)

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Article 1189. When the conditions have been imposed with the intention of suspending the efficacy of an
obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of
the thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood
that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its
existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the
creditor;

(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the
obligation and its fulfillment, with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the

creditor;

(6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the
usufructuary.
Article 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the
parties, upon the fulfillment of said conditions, shall return to each other what they have received.
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 who is bound to return.
As for the obligations to do and not to do, the provisions of the second paragraph of Article 1187 shall be
observed as regards the effect of the extinguishment of the obligation.
a. Meaning of loss (Art. 1189 [2]), deterioration, and improvement
- Loss:
1) when it perishes;
2) when it goes out of commerce;
3) when it disappears in such a way that its existence is unknown or it cannot be recovered
b. Effect of loss or deterioration
i. without debtors fault
the impairment is to borne by the creditor

ii. with debtors fault


the creditor may choose between the rescission of the obligation and its fulfillment,
with indemnity for damages in either case
c. Effect of improvement
i. by nature or time
- by nature inure to the benefit of the creditor
- by passage of time inure to the benefit of the creditor
ii. at the debtors expense
debtor have the right than that granted to the usufructuary (if improvement cannot be
removed without causing damage, then the debtor is not entitled to the improvement.
But if it can be removed without causing damage, the debtor can remove such
improvement)
4. Effect of prevention of the fulfillment of the condition by the obligor (Art. 1186)
Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.
* Constructive Fulfillment of Suspensive Condition it is necessary that the obligor must have actually
prevented the obligee from complying with the condition, and that such prevention must have been
voluntary or willful in character. (Art. 1186)
- this doctrine can be applied only to suspensive condition and no to resolutory condition
C. Reciprocal Obligations (Arts. 1191 and 1192) (in general)
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should
become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance
with Articles 1385 and 1388 and the Mortgage Law.
1. Concept

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* Reciprocal Obligations are those which are created or established at the same time, out of the same
cause, and which result in mutual relationships or creditor and debtor between the parties.
* Rescission (or Resolve) abrogates the contracts from its inception and requires a mutual restitution of
benefits received; its as if no contract has been made (restore the parties to their relative positions)
Take note: The cause must be identical and the obligations should arise simultaneously.
- Tacit Resolutory Condition: If one of the parties fails to comply with what is incumbent upon him, there is
a right on the part of the other to rescind (or resolve) the obligation. This condition is implied as general
rule in all reciprocal obligations.
- The right to rescind or resolve the obligation is a right which belongs to the injured party alone. It must be
invoked judicially.
- Judicial permission to cancel or rescind the contract is no longer necessary.
- Judicial action for the rescission of a contract is not necessary where the contract provides that it may be
cancelled for violation of any of its terms and conditions.
- Nature of Breach: The general rule is that rescission will not be permitted for a slight or casual breach of
the contract, but only for such breaches as are substantial and fundamental as to defeat the object of the
parties in making the agreement.
(Song Fo & Co. vs. Hawaiian-Phil. Co.)
2. Alternative remedies of injured party
- Either:
1) FULFILLMENT (file an action for specific performance; demand the person in delay) + DAMAGES;
or
2) RESCISSION + DAMAGES
* Note: The right is not conjunctive, thus the plaintiff cannot ask for both remedies. However, you can file
for rescission after choosing fulfillment if the latter becomes impossible.
- Only those elements of damages can be admitted that are compatible with the idea of rescission, and
only those elements of damages can be admitted which are compatible with the idea of specific
performance.
- Effect upon 3rd persons:
1) 3rd person in good faith remedy is to proceed against the party responsible for the transfer or
reconveyance for damages
2) 3rd person in bad faith remedy is to proceed against the 3rd person who acted in bad faith for
damages, and you can also go after both the seller and 3rd party if both of them acted in bad
faith
Article 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall
be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the
same shall be deemed extinguished, and each shall bear his own damages.
- In case both parties committed a breach:
1) Determine the first infractor he is to pay the liability (but this can be tempered because both committed
a breach)
2) If it cannot be determined each shall bear his own damages
II. Obligations with a Period
Article 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day
comes.
Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.
A day certain is understood to be that which must necessarily come, although it may not be known when.
If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the
rules of the preceding Section.
A. Period or Term
1. Concept
* Term/Period is an interval time, which, exerting an influence on an obligation as a consequence of a
juridical act, either suspends its demandability or produces its extinguishment
* Obligations with a period those whose demandability or extinguishment is subject to the expiration of a
term or period
2. Period/Term vs. Condition

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TERM or PERIOD
Interval of time which is future and
certain
Interval of time which must
necessarily come, although it may
not be known when
Merely exerts an influence upon the
time of the demandability or
extinguishment of an obligation
Does not have any retroactive effect
unless there is an agreement to the
contrary
Left exclusively to the will of the
debtor, the existence of obligation is
not affected

1. As to requisites
2. As to fulfillment
3. As to influence on
obligation
4. As to retroactivity of
effects
5. As to effect of will of
debtor

CONDITION
Fact or event which is future and
uncertain
Future and uncertain fact or event
which may or may not happen
Exerts an influence upon the very
existence of the obligation itself
Has retroactive effects
Left exclusively to the will of the
debtor, the very existence of
obligation is affected

B. Kinds of Period/Term
1. As to effect
a. suspensive (ex dis) (Art. 1193[1])
when the obligation becomes demandable only upon the arrival of a day certain
b. resolutory (in diem) (Art. 1193[2])
when the obligation is demandable at once, although it is terminated upon the arrival of a day

certain

2. As to expression
a. express
when specifically stated
b. implied
when parties intended a period
3. As to definiteness
a. definite
when the date or time is known beforehand
b. indefinite
when it can only be determined by an event which must necessarily come to pass, although it

may not be known when

4. As to source
a. voluntary/conventional
period agreed upon or stipulated by the parties
b. legal
period granted under the provision of the law
c. judicial
period or term fixed by the courts
* Effect of fortuitous event: Any stipulation in the contract to the effect that in case a fortuitous event the contract
shall be deemed suspended during the term or period does not mean that the happening of the fortuitous event
shall stop the running of the term or period agreed upon. Its only effect is to relieve the contracting parties from the
fulfillment of their respective obligations during the term or period.
C. Rules in case of loss, deterioration, or improvement before arrival of period (Art. 1194 and 1189)
Article 1194. In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the
rules in Article 1189 shall be observed.
- Contemplates on a suspensive term.

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Article 1189. When the conditions have been imposed with the intention of suspending the efficacy of an
obligation to give, the following rules shall be observed in case of the improvement, loss or deterioration of the
thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the
thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown
or it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the
obligation and its fulfillment, with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the
usufructuary.
D. Effect of payment in advance (Art. 1195)
Article 1195. Anything paid or delivered before the arrival of the period, the obligor being unaware of the period
or believing that the obligation has become due and demandable, may be recovered, with the fruits and interests.
- Talks about premature payment
- Simply means that a debtor can recover his payments of debts as well as the fruits and interests if he paid before
the arrival of period and he was unaware that the time has not yet accrued or he believed that the obligation had
become due and demandable
- This can only apply to obligations to give
* Take note: If debtor knew that the arrival of period has not yet come but paid, he can no longer recover what he
paid for. If both the debtor and creditor implicitly changed the period, the debtor could no longer recover payment.
E. Benefit of Period
Article 1196. Whenever in an obligation a period is designated, it is presumed to have been established for the
benefit of both the creditor and the debtor, unless from the tenor of the same or other circumstances it should
appear that the period has been established in favor of one or of the other.
1. For whose benefit
a. creditor
b. debtor
c. both
2. Effects
* General rule: Creditor cannot demand performance of the obligation before expiration of the period and
debtor cannot perform the obligation before the expiration of the period.
Note: This article applies if the setting of period is voluntary or conventional. It is not applicable if period is
set by court (judicial).
* Exceptions:
Term is for the best of the debtor alone (debtor required to pay only at the end)
Term is for the benefit of the creditor alone (creditor can demand at any time, but he cannot be
compelled to accept payment before the expiration of the period)
3. Presumption (Art. 1196)
It is presumed to have been established for the benefit of both creditor and debtor.
4. When debtor loses the right to make use of the period (Art. 1198)
Article 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.
* Debtor loses every right to make use of the period when:
1) He becomes insolvent, unless he gives a guaranty or security for the debt
insolvent must be understood in its ordinary or popular sense; it includes any case in which it
would not be possible financially for the debtor to comply with his obligation

assets.)

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(Q: When is a debtor considered insolvent? Should there be a judicial proceeding or declaration?
A: Judicial declaration is not necessary in this case. He is insolvent if his obligation exceeds his

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2)

He does not furnish the creditor the guarantees or securities which he has promised (making a
mortgage in favor of a third person instead of the creditor)
he shall lose his right to the term or period

3)

By his own acts he has impaired said guarantees or securities after their establishment; through
fortuitous event they disappear (the security will disappear) unless he immediately gives new
ones equally satisfactorily
The rules may be restated as follows:

If the guaranty or security is impaired through the fault of the debtor, he shall lose his
right to the benefit of the period.

If the guaranty or security disappears through any cause, even without any fault of the
debtor, he shall lose his right to the benefit of the period. In either case, however, the
debtor shall not lose his right to the benefit of the period if he gives a new guaranty or
security which is equally satisfactory.
(There are two situations in this provision.)
(Take note: The security, if destroyed during the fortuitous event, does not extinguish the
obligation because this is not the real subject of the obligation. The more because of the fact that
such is also a generic thing.)

4)

Debtor violates any undertaking

5) Debtor attempts to abscond (The debtor tries to escape the obligation is a sign of bad faith. Intent
is sufficient)
Nos. 4 & 5, the rule that he shall lose his right to the benefits of the period is proper.
F. When Court may fix period (Art. 1197)
Article 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred
that a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as may under the circumstances have been probably
contemplated by the parties. Once fixed by the courts, the period cannot be changed by them.
1. Period is implied
- If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a
period was intended by the parties.
2. Period depends solely on the will of the debtor
- If the duration of the period depends solely upon the will of the debtor.
* It is not, however, necessary that the creditor, in his complaint, must expressly ask the court to ix the duration of
the term or period.
* 2 ultimate facts should be alleged in the complaint:
1) Facts showing that a contract was entered into imposing on one of the parties an obligation in favor of the
other; and
2) Facts showing that the performance of the obligation was left to the will of the obligor, or clearly showing
or from which interference can be reasonably drawn that as period was intended.

III. Alternative Obligations


A. Concept (Art. 1199)
Article 1199. A person alternatively bound by different prestations shall completely perform one of them.
The creditor cannot be compelled to receive part of one and part of the other undertaking.
* When an obligation comprehends several objects or prestations it may be either conjunctive or distributive.
* Conjunctive when all of the objects or prestations are demandable at the same time
* Distributive when only one is demandable

Alternative when it comprehends several objects or prestations which are due, but it may be
complied with by the delivery or performance of only one of them

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Facultative when it comprehends only one object or prestation which is due, but it may be
complied with by the delivery of another object or the performance of another prestation in
substitution

* Characteristic feature of an alternative obligation: Various objects being due, the payment or performance of one
of them, determined by the election which as a general rule, pertains to the obligor or debtor, is sufficient.
* Characteristic feature of a facultative obligation: Only one or prestation is due, but the obligor or debtor may
deliver another object or perform another prestation in substitution.
- Person alternatively bound by different prestation shall completely perform one of them.
- Creditor should not accept a portion of the different prestations.
B. Right of Choice (Art. 1200)
Article 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the creditor.
The debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have
been the object of the obligation.
- General rule: The right of choice belongs or pertains to the debtor
- Exceptions:
1) When the right of choice has been expressly granted to the creditor
2) When it has been expressly granted to a third person
- Limitations; Debtor cannot choose those prestations or undertakings which are:

Impossible

Unlawful

Could not have been the object of the obligation


* prestations which could not have been the object of the obligation
those undertakings which are not included among those from which the obligor may select
those which are not yet due and demandable at the time the selection is made
those which, by reason of accident or some other cause, have acquired a new character distinct or different from
that contemplated by the parties when the obligation was constituted
C. Effect of notice of choice
Once he has made it, and such choice is duly communicated to the creditor, the obligation becomes simple.
D. When notice produces effect (Art. 1201)
Article 1201. The choice shall produce no effect except from the time it has been communicated.
- The choice among the alternative obligations should be communicated orally or written (implied or expressed) to
the creditor before it takes effect.
Note: Any form may be employed provided that the other party is properly notified of the selection.
- Once the choice is made, debtor can no longer renounce it and take an alternative which was first open to him.
Note: Once choice is communicated to the creditor, the obligation becomes simple thus ceasing to be alternative.
- Reason behind the need for Communication: It is to inform the creditor that the obligation is now a simple one, no
longer alternative, and if already due, for the creditor to receive the object being delivered.

E. Effect of loss or impossibility of one or all prestation (Arts. 1202-1205)


Article 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively
bound, only one is practicable.
- When one prestation is practicable:
The debtor loses his right of choice altogether.
Obligation loses its alternative character; it becomes a simple obligation.
Article 1203. If through the creditor's acts the debtor cannot make a choice according to the terms of the
obligation, the latter may rescind the contract with damages.
- When choice is rendered impossible:
Since the debtors right of choice is rendered ineffective through the creditors fault, his only possible recourse
will be to bring an action to rescind the contract with damages.

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Article 1204. The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the
things which are alternatively the object of the obligation have been lost, or the compliance of the obligation has
become impossible.
The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that of the service
which last became impossible.
Damages other than the value of the last thing or service may also be awarded.
- General Rule
- It is applicable only to a case where the right of choice belongs to the debtor.
1) right of choice belongs to debtor; loss or impossibility is due to a fortuitous event
debtor cannot be held liable for damages
2) one of the things is lost; one of the prestations cannot be performed; reason of fortuitous event
debtor must still comply with the obligation by delivering or performing that which he shall choose from among
the remainder
3) all of the things, except one, are lost; all prestations, except one, cannot be performed; reason of fortuitous event
debtor must still comply with his obligation by delivering or performing that which remains
4) all of the things are lost; all of the prestations cannot be performed; reason of fortuitous event
debtor is released from the obligation
* But if the loss or impossibility is due to the fault of the debtor, then Art. 1204 is applicable.
Article 1205. When the choice has been expressly given to the creditor, the obligation shall cease to be alternative
from the day when the selection has been communicated to the debtor.
Until then the responsibility of the debtor shall be governed by the following rules:
(1) If one of the things is lost through a fortuitous event, he shall perform the obligation by delivering that which
the creditor should choose from among the remainder, or that which remains if only one subsists;
(2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those
subsisting, or the price of that which, through 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 creditor shall fall upon the price of any
one of them, also with indemnity for damages.
The same rules shall be applied to obligations to do or not to do in case one, some or all of the prestations should
become impossible.
- Exception
- It is applicable only to a case where the right of choice belongs to the creditor.
1) right or choice belongs to the creditor; loss or impossibility is due to a fortuitous event
debtor cannot be held liable
2) loss or impossibility is due to the fault of the debtor (nos. 2 and 3 shall apply)

If all things are lost; or all prestations cannot be performed; due to the fault of the debtor
creditor may claim the price of value of any of one of them with indemnity for damages

If one or some, but not all of the things are lost; or one or some, but not all of the prestations cannot be
performed; due to the fault of the debtor
the creditor may claim any of those subsisting without any liability on the part of the debtor for
damages or the price or value of that, which through the fault of the former, was lost or could not be
performed, with indemnity, for damages
F. Facultative Obligation (Art. 1206)
Article 1206. When only one prestation has been agreed upon, but the obligor may render another in substitution,
the obligation is called facultative.
The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor, does not
render him liable. But once the substitution has been made, the obligor is liable for the loss of the substitute on
account of his delay, negligence or fraud.
1. Concept
* Facultative Obligation an obligation wherein only one or prestation has been agreed upon by the parties
to the obligation, but which may be complied with by the delivery of another object or the performance of
another prestation in substitution
- only one prestation is due, but if the obligor fails to deliver such object or to perform such prestation, he
can still comply with his obligation by delivering another object or performing another prestation in
substitution
2. Distinguished from Alternative Obligation

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1) as to objects due
2) as to compliance

3) as to choice
4) as to the effect of
fortuitous loss
5. as to effect of culpable
loss

Facultative
Only one object is due
By the delivery of another object or
by the performance of another
prestation in substitution of that
which is due
Right of choice pertains only to the
debtor
Sufficient to extinguish the
obligation
(before the substitution if effected)
does not give rise to any liability
on the part of such debtor

Alternative
Several objects are due
By the delivery of one of the
objects or by the performance of
one of the prestations which are
alternatively due
Right of choice may pertain to
creditor or 3rd person
Necessary to extinguish the
obligation
(alternatively due before the choice
is made) may give rise to a
liability on the part of the debtor

3. Effect of substitution
- Article 1206 is silent with respect to the time or moment when the substitution will take effect
- The only one who is empowered to make the substitution is the debtor.
- In order that the creditor
IV. Joint and Solidary Obligations
- When there is a concurrence of 2 or more creditors or of 2 or more debtors in one and the same obligation, the obligation
may be either joint or solidary.
A. Joint Obligations
1. Concept
- obligacion mancomunada
- an obligation where there is a concurrence of several creditors, or of several debtors, or of several
debtors and creditors, by virtue of which each of the creditors has a right to demand, and each of the
debtors is bound to render, compliance with his proportionate part of the prestation which constitutes the
object of the obligation
2. Presumption (Arts. 1207, 1208)
Article 1207. The concurrence of two or more creditors or of two or more debtors in one and the same
obligation does not imply that each one of the former has a right to demand, or that each one of the latter
is bound to render, entire compliance with the prestation.
- When there is a concurrence of several creditors or of several debtors or of several creditors and debtor
in one and the same obligation, there is a presumption that the obligation is joint and not solidary.
- If the obligation is silent, it is presumed as joint obligation.
- Exceptions:
1) When the obligation expressly states that there is solidarity
2) When the law requires solidarity
3) When the nature of the obligation requires solidarity
Article 1208. If from the law, or the nature or the wording of the obligations to which the preceding article
refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many
shares as there are creditors or debtors, the credits or debts being considered distinct from one another,
subject to the Rules of Court governing the multiplicity of suits.
- Apportionment is as many shares as there are creditor or debtors.
3. Effects (Arts. 1207, 1208)

debt.

a. Extent of liability of debtor


Each of the debtor can be held liable only for the payment of his proportionate share of the
b. Extent of right of creditor
Each of the creditor can demand only for the payment of his proportionate share of the credit.
c. In case of novation, compensation, confusion (Art. 1277), remission; (Art. 1215)
Article 1215. Novation, compensation, confusion or remission of the debt, made by any of the
solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without
prejudice to the provisions of Article 1219.
The creditor who may have executed any of these acts, as well as he who collects the debt, shall
be liable to the others for the share in the obligation corresponding to them.

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Article 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.
B. Solidary Obligations
1. Concept
- obligacion solidaria
- an obligation where there is a concurrence of several creditors, or of several debtors, or of several
debtors and creditors, by virtue of which each of the creditors has a right to demand, and each of the
debtors is bound to render, entire compliance with the prestation which constitutes the object of the
obligation
a. requisites
b. words used to indicate solidary obligations

jointly and severally

individually and collectively

Jointly and severally liable


2. Kinds
a. As to source (Art. 1208)
1. Legal
when the law requires solidarity
2. Conventional
agreed upon or stipulated by the parties
3. Real
when the nature of the obligation requires solidarity
b. As to parties bound
1. Active
among creditors
a tie or vinculum existing among several creditors of one and the same obligation by
virtue of which each of them, in relation to his co-creditors, possesses the character of
creditor only with respect to his share in the obligation, but in relation to the common
debtor or debtors, represents all of the other creditors
2. Passive
among debtors
a tie or vinculum existing among several debtors of one and the same obligation by
virtue of which each of them, in relation to his co-debtors, possesses the character of
debtor only with respect to his share in the obligation, but in relation to the common
creditor or creditors, represents all of the other debtors
3. Mixed
among creditors and debtors
c. As to uniformity
1. Uniform
2. Varied/Non-uniform (Art. 1211)
Article 1211. Solidarity may exist although the creditors and the debtors may not be
bound in the same manner and by the same periods and conditions.
- effects: The vinculum or bond which binds the creditors and the debtors in solidary
obligations may either be uniform or varied, depending upon whether they are bound in
the same manner and by the same conditions or periods or not. The character of
solidarity is not destroyed if the debtors are bound by different conditions or by different
periods.

3. Effects
a. Solidary creditor in relation to:

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1. common debtor
Article 1214. The debtor may pay any one of the solidary creditors; but if any demand,
judicial or extrajudicial, has been made by one of them, payment should be made to
him.
Simply contemplates to whom the debtors must pay:

To any of the solidary creditors (if there is no demand made)

Exception: Payment must be made to solidary creditor who made a demand


(judicial or extrajudicial)
Note: If one of the creditors already sued for action, it is essential that the first action
be first terminated before other creditors could demand. However, if the first action was
just an extrajudicial demand and the debtor does not pay, the other creditor may now
file a judicial demand.
2. solidary co-creditor/s
* in case of novation, compensation, confusion, Art. 1215(2)
Article 1215(2). The creditor who may have executed any of these acts, as well as he
who collects the debt, shall be liable to the others for the share in the obligation
corresponding to them.
The creditor who may have executed any of these acts, as well as he who collects the
debt, shall be liable for the share in the obligation corresponding to them.
1. Novation change of substitution of an obligation by another, resulting in its
extinguishment or modification
- Modification of an obligation by changing its object or principal conditions (if prejudicial,
reimburse others for damages; if beneficial, liable to others for the share which
corresponds to them, with benefits),
or by substituting another person in place of the debtor (liable for the acts of new debtor
in case of deficiency in performance or in case damages are incurred in the result of
substitution),
or by subrogating a 3rd person in the rights of the solidary creditor responsible (obligation
of debtor or creditors is not in reality extinguished),
or by subrogating a third person in the rights of all solidary creditors (creditor responsible
is liable to the other creditors for the share which corresponds to them in the obligation)
- It gives rise to a new obligation.
2. Compensation figurative operation of weighing 2 obligations simultaneously in
order to extinguish them to the extent that the amount of one is covered by the amount
of the other
- Takes place when two persons, in their own right, are creditors and debtors of each
other.

- May be total or partial depending on the amount involved.


- Total Compensation: Automatically extinguishes the obligation.
3. Confusion merger of the qualities of creditor and debtor in one and the same
person with respect to one and the same obligation
- Takes place when the characters of creditor and debtor are merged in the same person
(original debtor eventually becomes a creditor of his own payment).
- Usually happens when the creditors endorse debtors payment to another person and
such person endorses the payment back to one of the debtors.
- In this case, the solidary obligation is extinguished.
4. Remission (or waiver) act of pure liberality by virtue of which the creditor,
without having received any compensation or equivalent, renounces his right to enforce
the obligation, thereby extinguishing the same either in its entirety or in the part or
aspect thereof to which the remission refers
- Act of pure liberality whereby a creditor condones the obligation of the debtor. (Tells the
debtor, Forget about the whole thing.)
- Remission may be total or partial, effected by one, some, but not all of the solidary
creditors in favor of one, some or all of the debtors. (In partial, can remit only one of the
debtors obligations.)
- In this case, the co-debtor in a total remission benefits from the act of remission.
- As far as the solidary debtors are concerned, the effects of remission are:

If it covers entire obligation obligation is totally extinguished and the entire


juridical relation among debtors is terminated altogether

If it is for the benefit of one of the debtors and it covers his entire share in the
obligation he is completely released from the creditor/s, but he is still bound
to his co-debtors

If it is for the benefit of one of the debtors and it covers only a part of his share
in the obligation his character as a solidary debtor is not affected; it
continues both with respect to the creditor/s and with respect to other debtors
* prejudicial acts prohibited (Art. 1212)

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Article 1212. Each one of the solidary creditors may do whatever may be useful to the
others, but not anything which may be prejudicial to the latter.
solidary creditors may do useful, not prejudicial acts

beneficial to interrupt the running of prescription


Note: The prescription of actions is interrupted when they are filed before the
courts.
Ex: You demand full payment from debtor will stop the prescriptive period.

Prejudicial remission or condonation


Note: as far as the solidary creditors are concerned, the creditor who performed the
act shall incur the obligation and damages to his fellow creditors
* assignment of rights not allowed (Art. 1213)
Article 1213. Each one of the solidary creditors may do whatever may be useful to the
others, but not anything which may be prejudicial to the latter.
Reason for such rule: Because such obligation implies mutual agency and mutual
confidence. If a creditor does acts that is prejudicial to the others, then their rights are
endangered, hence, the necessity of their consent.
If one of the creditors assigned without consent and the person assigned collects from
the debtor, such collection is not considered valid. This is to avoid connivance so as to
result extinguishment of obligation through payment.
Note: debtor can also refuse to pay 3rd person if the latter claims to have been
assigned by one of the creditors.
b. Solidary debtor in relation to:
1. common creditor
* obligation to perform (Art. 1207)

prestation to yourself.
prestations.

Article 1207. The concurrence of two or more creditors or of two or more debtors in one
and the same obligation does not imply that each one of the former has a right to
demand, or that each one of the latter is bound to render, entire compliance with the
prestation. There is a solidary liability only when the obligation expressly so states, or
when the law or the nature of the obligation requires solidarity.
Simply means that you do not render or demand the entire compliance with the
Each one of the solidary co-debtors is bound to render entire compliance with the
* in case of novation, compensation, confusion, remission by a creditor (Art. 1215[1])
Article 1215(1). Novation, compensation, confusion or remission of the debt, made by
any of the solidary creditors or with any of the solidary debtors, shall extinguish the
obligation, without prejudice to the provisions of Article 1219.
Extinguishes the obligation without prejudice to the responsibility of a solidary codebtor with respect to reimbursement prior to his remission.
2. solidary co-debtor/s
* in case of payment by a co-debtor (Arts. 1217, 1218, 1219, 1220)
Article 1217. Payment made by one of the solidary debtors extinguishes the obligation.
If two or more solidary debtors offer to pay, the creditor may choose which offer to
accept.
He who made the payment may claim from his co-debtors only the share which
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.
When one of the solidary debtors cannot, because of his insolvency, reimburse his share
to the debtor paying the obligation, such share shall be borne by all his co-debtors, in
proportion to the debt of each.
Payment made by one of the solidary debtors extinguishes the obligation.
He who made the payment may claim from his co-debtors only the share which
corresponds to each, with the interests for the payment already made.
When one of the solidary debtors cannot reimburse his share due to his insolvency,
such share shall be borne by all his co-debtors, in proportion to the debt of each.
(Insolvency of one should be shouldered by the rest.)
Payment one of the ways which an obligation is extinguished; consists in the delivery
of the thing or the rendition of the service which is the object of obligation
Summary to whom shall the solidary debtor pay:

Any of the solidary creditor

If there was a demand to the demanding creditor only

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If there were 2 or more demands to the first who demanded (priority in time is
priority in right)
If there were 2 or more demands at the same time select form any who
demanded

Article 1218. Payment by a solidary debtor shall not entitle him to reimbursement from
his co-debtors if such payment is made after the obligation has prescribed or become
illegal.
Payment by a solidary debtor shall not entitle him to reimbursement from his codebtors if such payment is made after the obligation has prescribed or become illegal.
- Example: If debtor A paid C without knowing that the debt had prescribed, A can
recover from C on the basis of solution indebiti.
Prescription one of the modes of extinguishing obligation. (prescriptive period for the
creditor to collect)
Article 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 codebtors, in case the debt had been totally paid by anyone of them before the remission
was effected.
The remission (or condonation) made by the creditor of the share which affects one of
the solidary debtors does not release the latter from his responsibility towards the codebtors, in case the debt had been totally paid by anyone of them before the remission
was effected.
Reason: Since payment extinguishes the obligation, there is nothing more to remit!
For this to be valid there should be an acceptance of the debtor-donee (if you did not
accept the donation through remission, then your obligation is not extinguished.)
Article 1220. The remission of the whole obligation, obtained by one of the solidary
debtors, does not entitle him to reimbursement from his co-debtors.
The remission of the whole obligation, obtained by one of the solidary debtor, does not
entitle him to reimbursement from his co-debtors.
Reason: There is nothing to reimburse because the debtor himself who offered
payment did not really pay anything at all.
* in case of fortuitous event (Art. 1221)
Article 1221. If the thing has been lost or if the prestation has become impossible
without the fault of the solidary debtors, the obligation shall be extinguished.
If there was fault on the part of any one of them, all shall be responsible to the creditor,
for the price and the payment of damages and interest, without prejudice to their action
against the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the performance has become impossible
after one of the solidary debtors has incurred in delay through the judicial or
extrajudicial demand upon him by the creditor, the provisions of the preceding
paragraph shall apply.
Contemplates on effect of loss or impossibility:

If without fault of solidary debtors no liability, obligation is extinguished

If with fault obligation is converted into an obligation of indemnity for


damages, but the solidary character of the obligation remains; there is liability
for all debtors but subject for reimbursement of the payment of damages from
the debtor who is at fault (also for damages and interest)

Loss because of a fortuitous event after default obligation is converted into an


obligation of indemnity for damages, but the solidary character of the obligation
remains; there will be liability because of the default (same provision of second
situation)
c. Defenses available to a solidary debtor against the creditor (Art. 1222)
Article 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses
which are derived from the nature of the obligation and of those which are 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 which the latter are responsible.
1. Types
i. those derived from the nature of the obligation
ii. personal defenses
iii. defenses pertaining to his share
iv. those personally belonging to the other co-debtors
2. Effects

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- Defenses may be a complete defense for all debtors unless such defense is personal
thus applicable only to one or few.
- Complete defense
Derived from the nature of the obligation
Personal to the debtor
- Partial defense

Personal defense of his co-debtor


C. Joint Indivisible Obligations
1. Concept
- midway between joint an solidary obligation
- joint with respect to the parties and indivisible with respect to the fulfillment of the obligation
2. Indivisibility distinguished from solidarity (Art. 1210)
Article 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does
solidarity of itself imply indivisibility.

1. As to nature
2. As to requisites
3. As to effect of
breach

Indivisibility
Prestation which constitutes the object
of the obligation
Plurality of objects is not required
Obligation is converted into one of
indemnity for damages because of
breach, indivisibility of the obligation is
terminated

Solidarity
Refers to the legal tie or vinculum, and
consequently, to the subjects or parties
of the obligation
Its indispensable
When there is liability on the part of the
debtors because of breach, the
solidarity among the debtors remains

3. Effects (Art. 1209)


Article 1209. If the division is impossible, the right of the creditors may be prejudiced only by their
collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the latter
should be insolvent, the others shall not be liable for his share.
Effect of breach: Obligation can no longer be fulfilled or performed. Consequently, it is converted into
one of indemnity for damages.
Effect of insolvency of a debtor: Other shall not be liable for his share.
- liability for damages in case of breach (Art. 1224)
Article 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 been ready to fulfill their
promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing
or of the value of the service in which the obligation consists.
Effect of noncompliance:

If joint indivisible: The obligation is converted into a monetary one for indemnity.
- The kind of obligation can be enforced only by proceeding against all of the debtors. If anyone of
the debtors should fail or refuse to comply with the obligation, it is converted into one of
indemnity for damages
- Take note: The person who is ready to pay is not liable for damages.

If solidary indivisible: One of the debtors is liable to pay everything and can later recover
reimbursement from co-debtor.
General rule: The creditor cannot be compelled to receive partial payments and debtor to pay partial
payment.
Exceptions:
1) When the obligation expressly stipulates the contrary
2) When the different prestations constituting the objects of the obligation arte subject to different
terms and conditions
3) When the oblation is in part liquidated and in part unliquidated
V. Divisible and Indivisible Obligations
A. Divisible Obligations
1. Concept
* Divisible obligations those which have as their object or prestation which is susceptible of partial
performance without the essence of the obligation being changed
* Kinds of Division:

Quantitative division depends on quantity

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Qualitative division depends on quality, irrespective of quantity (Ex: One child inherits land, the
other inherits cash.)
Intellectual or Moral division one that exists merely in the mind, and not in physical reality (Ex.
Sisters owning a common car, the half share is only in the mind.)

2. Effects (Art. 1223, 1233)


Article 1223. The divisibility or indivisibility of the things that are the object of obligations in which there is
only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this Title.
Article 1233. A debt shall not be understood to have been paid unless the thing or service in which the
obligation consists has been completely delivered or rendered, as the case may be.
B. Indivisible Obligations
1. Concept
* Indivisible obligations those which have as their object or prestation which is not susceptible of partial
performance, because, otherwise, the essence of the obligation will be changed
a. distinguished from solidary obligations
Indivisibility
Solidarity
1. Refers to the nature of obligation
1. Refers to tie between the parties
2. May exist even if there is only one debtor 2. Needs at least two debtors or creditors
and only one creditor
3. the fault of one is not the fault of the other 3. The fault of one is the fault of others
(can be a joint)
2. Kinds
Article 1225. For the purposes of the preceding articles, obligations to give definite things and those
which are not susceptible of partial performance shall be deemed to be indivisible.
When the obligation has for its object the execution of a certain number of days of work, the
accomplishment of work by metrical units, or analogous things which by their nature are susceptible of
partial performance, it shall be divisible.
However, even though the object or service may be physically divisible, an obligation is indivisible if so
provided by law or intended by the parties.
In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation in
each particular case.
a. natural (Art. 1225[1])
it is due to the nature of the object of undertaking
b. legal (Art. 1225[3])
provided by law
c. conventional (Art. 1225[3])
made by common agreement; stipulated by the parties
3. Presumptions
a. of indivisibility (Art. 1225[1])
- obligations that are deemed indivisible:

Obligations to give definite things

Those which are not susceptible of partial performance (ex. Conduct a performance
concert)

Even if physically divisible, yet the law provides it to be indivisible

Even if physically divisible, but the parties intended it to be indivisible


b. of divisibility (Art. 1225[2])
- obligations that are deemed divisible:

If it is the execution of a certain number of days of work

If it is the accomplishment of work by metrical units

If obligation is to pay a certain amount in installments

If it is the accomplishment of work susceptible of partial performance


4. Divisibility and indivisibility of obligations no to do (Art. 1225[3])

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- Whether it is divisible or indivisible shall depend upon the character of the prestation in each particular
case. The determination of the character will depend upon the sound discretion of the court.
5. Effects (Arts. 1223, 1233, 1224)
Article 1223. The divisibility or indivisibility of the things that are the object of obligations in which there is
only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this Title.
Article 1233. A debt shall not be understood to have been paid unless the thing or service in which the
obligation consists has been completely delivered or rendered, as the case may be.
Article 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 been ready to fulfill their
promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing
or of the value of the service in which the obligation consists.
6. Cessation of indivisibility
VI. Obligations with a Penal Clause
- one to which an accessory undertaking is attached for the purpose of insuring its performance by virtue of which the
obligor is bound to pay a stipulated indemnity or perform a stipulated prestation in case of breach
- an accessory obligation attached to the principal obligation
* Purpose of penalty:

Funcion coercitiva o de garantia to insure the performance of the obligation

Funcion liquidatoria to liquidate the amount of damages to be awarded to the injure party in case of breach of the
principal obligation

Funcion estrictamente penal to punish the obligor in case of breach of the principal obligation
A. Concept
1. Principal vs. Accessory Obligation
2. Distinguished from Conditional Obligations
3. Distinguished from Alternative Obligations
4. Distinguished from Facultative Obligations
5. Distinguished from Guaranty
B. Kinds of Penal Clause
1. As to effect
a. subsidiary when only the penalty may be demanded in case of breach of the obligation
b. complementary (or joint) when the injured party may demand the enforcement of both the
penalty and principal obligation
2. As to source
a. conventional when it is constituted by agreement of the parties
b. legal when it is constituted by law

breach of obligation

3. As to purpose
a. punitive when it is established for the purpose of punishing the obligor or debtor in case of
b. reparatory (or compensatory) when it is established for the purpose of indemnifying the
damages suffered by the obligee or creditor in case of breach of the obligation

C. Demandability of Penalty (Art. 1226, par. 2)


Code.

Article 1226(2). The penalty may be enforced only when it is demandable in accordance with the provisions of this
- Consequently, the penalty stipulated becomes demandable, provided that it is not contrary to law, morals, good
customs, public order or public policy.
D. Effects of Penal Clause
Article 1266. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the
payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages
shall be paid if the obligor refuses to pay the 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 provisions of this Code.
Article 1227. The debtor cannot exempt himself from the performance of the obligation by 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.

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1. Substitute for indemnity for damages and payment of interest


2. Not exempt debtor from performance (Art. 1227)
- The debtor cannot exempt himself from performance of the principal obligation by paying the stipulated
penalty.
a. Exception (Art. 1227)
- When the right has been expressly reserved for him.
3. Creditor cannot demand both performance and penalty at the same time (Art. 1227)
- The creditor cannot demand the fulfilment of the principal obligation and the satisfaction of the stipulated
penalty at the same time, unless this right has been clearly granted to him.
4. Creditor cannot collect other damages in addition to penalty (Art. 1226)
a. Exceptions (Art. 1226)

When there is a stipulation to the contrary

When the obligor is sued for refusal to pay the agreed penalty

When the obligor is guilty of fraud


E. When penalty shall be equitably reduced (Art. 1229)
Article 1228. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be
demanded.
Article 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced
by the courts if it is iniquitous or unconscionable.
1) If the principal obligation has been partly complied with
2) If the principal obligation has been irregularly complied with
3) If the penalty is iniquitous or unconscionable even if there has been no performance
F. Nullity of Principal Obligation or Penal Clause
1. Effects (Art. 1230)
Article 1230. The nullity of the penal clause does not carry with it that of the principal obligation.
The nullity of the principal obligation carries with it that of the penal clause.
- If the principal obligation is void, it necessarily follows that the penal clause shall also be void.
- However, if the penal clause is void, the validity of the principal obligation is not affected, since the
efficacy of such obligation is not dependent upon the efficacy of the penal clause.
2. Rationale
- This is based on the principle that the accessory follows the principal and not the other way around.
- Reason: The penal clause is merely an accessory.
CHAPTER IV. Extinguishment of Obligations
I. Modes of Extinguishment
a. Payment/Performance means not only the delivery of money, but also the performance, in any other
manner, of an obligation
b. Loss/Impossibility of the thing due the thing which constitutes the object of the obligation perishes, or
goes out of commerce of man, or disappears in such a way that its existence is unknown or it cannot be recovered
c. Condonation/Remission - act of pure liberality by virtue of which the obligee, without receiving any price or
equivalent, renounces the enforcement of the obligation, as a result of which it is extinguished in its entirety or in
that part or aspect of the same to which the remission refers
d. Confusion/Merger merger of the characters of creditor and debtor in one and the same person by virtue of
which the obligation is extinguished
e. Compensation - figurative operation of weighing 2 obligations simultaneously in order to extinguish them to the
extent that the amount of one is covered by the amount of the other
f. Novation - change of substitution of an obligation by another, resulting in its extinguishment or modification
g. Other Causes
- Ordinary classification of this Code:

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- Other

- Other

Payment or performance
Loss of the thing due
Condonation or remission of the debt
Confusion or merger
Compensation
Novation
causes mentioned but governed by other chapters of the Code:
Rescission
Annulment
Fulfillment of resolutory condition
Prescription
contemplated causes;
Death of a party in case the obligation is personal
Resolutory term obligation ceases upon arrival of term
Change of civil status
Compromises
Mutual dissent both parties refuse to go ahead with the contract
Impossibility of fulfillment
Fortuitous event

II. Payment or Performance


a. Concept (Art. 1232)
Article 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an
obligation.
- Mode of extinguishing obligations which consists of:

Delivery of money

Performance in any other manner of an obligation (ex. Rendition of required service)


- This embraces all performance of an obligation, regardless of whether the obligation is real or personal
- Note: A person pays a pre-existing obligation. If no such obligation exists, strictly speaking there is no payment.
- For a payment to properly exist, the creditor has to accept the same, expressly or impliedly.
- Effect of payment made under a void judgment: payment made thereunder is also void.
b. Requisites
1. Who can pay?

The debtor himself or his legal representative


Any third person

2. To whom payment may be made


a. in general (Art. 1240)
Article 1240. Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive it.

the person in whose favor the obligation has been constituted, or

his successor in interest, or

any person authorized to receive it


- Exceptions:

payment made to a 3rd person, provided that it has redounded to the benefit of the
creditor

payment made to the possessor of the credit, provided that it was made in good faith
b. incapacitated person (Art. 1241, par. 1)
Article 1241(1). Payment to a person who is incapacitated to administer his property shall be
valid if he has kept the thing delivered, or insofar as the payment has been beneficial to him.
- Payment is considered valid if:

he has kept the thing paid or delivered, or

insofar as the payment has been beneficial to him


- The payment is beneficial to him when that which has been paid or delivered is applied or spent
some rational, necessary or useful purpose for his benefit.

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c. third person (Art. 1241, par. 2)


Article 1241(2). Payment made to a third person shall also be valid insofar as it has redounded to
the benefit of the creditor.
1. requisites

It has redounded to the benefit of the creditor

2. when proof of benefit not required (Art. 1241 par. 3 & Art. 1242)
Article 1241(3). Such benefit to the creditor need not be proved in the following cases:
(1) If after the payment, the third person acquires the creditor's rights;
(2) If the creditor ratifies the payment to the third person;
(3) If by the creditor's conduct, the debtor has been led to believe that the third person
had authority to receive the payment.
- Note: The one who made the payment has the burden of proving that it benefited the
incapacitated payee. Follow the rules of evidence in proving (governed by the Rules of
Court)
- Benefit may be financial, moral or intellectual, but it must be proved.
- It only applies to obligation to give.
Article 1242. Payment made in good faith to any person in possession of the credit shall
release the debtor.

- Speaks of an extinguishment by payment where payment was not made on the people
contemplated in 1240, rather to the person in possession in credit.
- Requisites:

Payment made by payor must be made in good faith (this is presumed)

The payee must be in possession of credit itself (not merely the document
evidencing the credit)
d. in case of active solidarity (Art. 1214)
Article 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or
extrajudicial, has been made by one of them, payment should be made to him.
- Note: If one of the creditors already sued for action, it is essential that the first action be first
terminated before other creditors could demand. However, if the first action was just an
extrajudicial demand and the debtor does not pay, the other creditor may now file a judicial
demand.
3. What is to be paid (identity)
a. in general (Art. 1233)
Article 1233. A debt shall not be understood to have been paid unless the thing or service in
which the obligation consists has been completely delivered or rendered, as the case may be.
- Contemplates on the requisites for a valid payment:

The very thing or service contemplated should be paid

Fulfillment must be complete


- Payment or performance must be complete to result to extinguishment
- Partial payment of debtor may be a ground for the creditor to refuse such payment
b. in obligations to:
1. give a specific thing (Art. 1244)
Article 1244. The debtor of a thing cannot compel the creditor to receive a different
one, although the latter may be of the same value as, or more valuable than that which
is due.
In obligations to do or not to do, an act or forbearance cannot be substituted by another
act or forbearance against the obligee's will.
- Only applies to determinate objects.
- Debtor cannot compel creditor to accept a different object although such object is of
the same value or higher.
- Exceptions (inapplicability of Article 1244):

In case of FACULTATIVE obligations

In case there is another agreement resulting in either DATION of payment or


NOVATION

In case of WAIVER by the creditor


2. give a generic thing (Art. 1246)

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Article 1246. When the obligation consists in the delivery of an indeterminate or generic
thing, whose quality and circumstances have not been stated, the creditor cannot
demand a thing of superior quality. Neither can the debtor deliver a thing of inferior
quality. The purpose of the obligation and other circumstances shall be taken into
consideration.
- Contemplates on an obligation to give a generic thing.
- If the contract does not specify the quality:

Creditor cannot demand a thing of superior quality (but if he desires, he may


demand and accept one of inferior quality)

Debtor cannot deliver a thing of inferior quality, but if he so desires, he may


deliver one of superior quality (provided it is not of a different kind)
- Give the ordinary quality.
3. pay money (Art. 1249, 1250; R.A. 529, R.A. 4100)
Article 1249. The payment of debts in money shall be made in the currency stipulated,
and if it is not possible to deliver such currency, then in the currency which is legal
tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other
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.
In the meantime, the action derived from the original obligation shall be held in the
abeyance.
- Under this article payment may be either in the (1) currency stipulated or (2) if it is not
possible to deliver such currency, then in Philippine legal tender.
- RA 529: All that the creditor can demand is payment in Philippine legal tender
measured at the exchange rate prevailing at the time of contracting or incurring the
debt; illegal to demand monetary debts of currency other than that of legal tender
(money is circulation).
- This article is now modified by RA 4100 which states that the parties agreement as to
currency in which an obligation will be paid is binding. Further, that the conversion rate
at the time of payment of satisfaction of the Judgment is what is applicable.
- What is important here is the second paragraph: You cannot compel a person to accept
a check because payment of monetary obligations should be in legal tender. A check is
not a legal tender. It only becomes one when it is already in cashed
* Legal Tender that which a debtor may compel a creditor to accept in payment of the
debt
Article 1250. In case an extraordinary inflation or deflation of the currency stipulated
should supervene, the value of the currency at the time of the establishment of the
obligation shall be the basis of payment, unless there is an agreement to the contrary.
- In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the obligation
shall be the basis of payment, unless there is an agreement to the contrary
- It talks about a debt to be paid by a different currency; If that is the case the exchange
rate would be the
prevailing rate during the time when the obligation was constituted
(in case of extraordinary inflation)
* Inflation sharp sudden increase of money or credit or both without a corresponding
increase in business transaction. (value of money tends to decrease)
* Deflation opposite of inflation.
c. payment of interest (Art. 1956)
Article 1956. No interest shall be due unless it has been expressly stipulated in writing.
4. How payment to be made (integrity)
a. in general (Art. 1233)
Article 1233. A debt shall not be understood to have been paid unless the thing or service in
which the obligation consists has been completely delivered or rendered, as the case may be.
- Contemplates on the requisites for a valid payment:

The very thing or service contemplated should be paid

Fulfillment must be complete


- Payment or performance must be complete to result to extinguishment.
- Partial payment of debtor may be a ground for the creditor to refuse such payment.
* General Rule: Partial payment is not allowed (Art. 1248)
Article 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
may the debtor be required to make partial payments.

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However, when the debt is in part liquidated and in part unliquidated, the creditor may
demand and the debtor may effect the payment of the former without waiting for the
liquidation of the latter.
* Exceptions: (Art. 1248)

When there is stipulation to this effect

When the different prestations are subject to different terms and conditions

When a debt is in partial liquidated and in partial unliquidated, in which case


performance of the liquidated part may be insisted upon either by the debtor or
creditor (ex. 3M plus damages)

When a joint debtor pays his share or the creditor demands the same

When a solidary debtor pays only the part demandable

In case of compensation, when one debt is larger than the other, it follows that
a balance is left

When work is to be done by parts


b. substantial performance in good faith (Art. 1234)
Article 1234. If the obligation has been substantially performed in good faith, the obligor may
recover as though there had been a strict and complete fulfillment, less damages suffered by the
obligee.
- Substantial performance or compliance is, in a sense, a performance according to the fair intent
of the contract, with an attempt in good faith to perform.
- Such rule is adopted from the American law: in case of substantial performance, the obligee is
benefited.
- Note: The liability of the debtor for damages suffered by the creditor in case of substantial
performance does not arise under the conditions set forth in Article 1235.
c. estoppel (Art. 1235)
Article 1235. When the obligee accepts the performance, knowing its incompleteness or
irregularity, and without expressing any protest or objection, the obligation is deemed fully
complied with.
- Contemplates on qualified acceptance of incomplete or irregular payment.
- When the obligee accepts the performance, knowing its incompleteness or irregularity, and
without expressing any protests or objection, the obligation is deemed fully complied with.
- Reason behind Provision: the presence of waiver and estoppel on the creditors part.
d. presumptions in payment of interests and installments (Art. 1176)
Article 1176. The receipt of the principal by the creditor without reservation with respect to the
interest, shall give rise to the presumption that said interest has been paid.
The receipt of a later installment of a debt without reservation as to prior installments, shall
likewise raise the presumption that such installments have been paid.
* 1st paragraph of 1176:
- tackles presumption in payments of interests
- the first payment is that of the interest and the balance will be on the principal
Take note:
- The creditor can rebut such claim wherein the lessee will say that he has already paid the
interest for the receipt shows payment for principal; however the burden of proof is that of the
creditor.
- The creditor can specify in the receipt a reservation with regards to the interest so that even
though it is specified in the receipt that payment is for the principal amount, there will be no
presumption that the interest has already been paid.
* 2nd paragraph of 1176:
- tackles presumptions in payments of installments
- ex: A receipt acknowledging the payment of rentals of March gives the presumption that rentals
for January and February is paid
- you can likewise, as a lessor, note the reservation
5. When payment is to be made
a. in general (Art. 1169)
Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the designation
of the time when the thing is to be delivered or the service is to be rendered was a controlling
motive for the establishment of the contract; or

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perform.

(3) When demand would be useless, as when the obligor has rendered it beyond his power to

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready
to comply in a proper manner with what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other begins.
b. See Chapter 2: Delay
- 3 kinds of delay/mora:

Mora solvendi delay of the debtor or obligor in the performance of his obligation

Mora solvendi ex re obligation is obligation to give

Mora solvendi ex persona obligation is obligation to do

Mora accipiendi delay of the creditor or obligee to accept of the delivery or the thing
which is the object of the obligation

Compensation morae delay of the parties or obligors in reciprocal obligations


default:

- 3 requisites which should be present in order that the obligor or debtor may be considered in

The obligation is demandable and already liquidated.


The obligor or debtor delays performance.
The creditor requires the performance judicially or extra-judicially.

- when demand not necessary:

When the obligation or the law expressly so declares.

When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the contract.

When demand would be useless, as when the obligor has rendered it beyond his power
to perform.
6. Where payment is to be made (Art. 1251, par.1)
Article 1251(1). Payment shall be made in the place designated in the obligation.
- It talks about the place of payment.
- Where payment must be made: If there is a stipulation in the place designated.
a. if no place is expressly designated (Art. 1251, par. 2 to par. 4)
Article 1252(2 to 4). There being no express stipulation and if the undertaking is to deliver a
determinate thing, the payment shall be made wherever the thing might be at the moment the
obligation was constituted.
In any other case the place of payment shall be the domicile of the debtor.
If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional
expenses shall be borne by him.
- Where payment must be made: If there is no stipulation
To deliver a specific thing: in the place where the thing might be (usually or habitually) at the
time of the obligation was constituted (if temporarily there, payment should be at the domicile of
the debtor).
If generic: delivery must be made at the domicile of the debtor.
* Note: Payment not at the designated place but only to the mere depository of the creditors
funds is not considered as valid.
7. Expenses of making payment (Art. 1247)
Article 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be
for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern.
- General rule: The debtor has to pay for the extrajudicial expense incurred during the payment.
- Reason for the law: It is the debtor who benefits primarily, since his obligation is thus extinguished.
- Generally, costs shall be awarded to the winning party.
- Generally, no costs against the government, unless otherwise provided by law.
c. Application of Payments
1. Concept (Art. 1252)
Article 1252.
He who has various debts of the same kind in favor of one and the same creditor, may declare at the time
of making the payment, to which of them the same must be applied. Unless the parties so stipulate, or
when the application of payment is made by the party for whose benefit the term has been constituted,
application shall not be made as to debts which are not yet due.

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If the debtor accepts from the creditor a receipt in which an application of the payment is made, the
former cannot complain of the same, unless there is a cause for invalidating the contract.
* Application of payment designation of the debt to which the payment must be applied when the debtor
has several obligation of the same kind in favor of the same creditor
2. Requisites:

There must be only 1 debtor and 1 creditor

There must be 2 or more debts of the same kind

All of the debts must be due


~ Exceptions:
o
When there is a stipulation to the contrary; and
o
The application of payment is made by the party whose benefit the term or period has
been constituted

The amount paid by the debtor must not be sufficient to cover the total amount of all the debts
3. Rules in application of payments (Art. 1252, 1253)
Article 1253. If the debt produces interest, payment of the principal shall not be deemed to have been
made until the interests have been covered.
- applies only in the absence of a verbal or written agreement to the contrary
- merely directory, not mandatory
a. if rules inapplicable and application cannot be inferred (Art. 1254)
Article 1254. When the payment cannot be applied in accordance with the preceding rules, or if
application can not be inferred from other circumstances, the debt which is most onerous to the
debtor, among those due, shall be deemed to have been satisfied.
If the debts due are of the same nature and burden, the payment shall be applied to all of them
proportionately.
* Legal application of payment: This article applies only when payment cannot be applied in
accordance with the rules previously stated, or if application can not be inferred from other
circumstances.
* When debts are not of same burden: The debt which is most onerous to the debtor shall be
deemed to have been satisfied.
* When debts are of same burden: The payment shall be applied to all of them pro rata or
proportionately. (This also applies to a case in which it is fairly impossible to determine which of
the debts which are due is the most onerous or burdensome to the debtor.)
i. meaning of most onerous to debtor
This is a question of fact.
e.g.:

If there are various debts, oldest ones are more onerous.


One bears interest, the others does not, the debt which bears interest is more
onerous.
If 2 debts bear interest, the debt with a higher interest is more onerous.
One is bound as a principal, and in the other bound as surety or guarantor,
more onerous is the first (bound as principal).
One debtor is bound as a solidary debtor, and the other as a sole debtor, the
solidary debtor is more onerous.
Within a solidary obligation, the share which corresponds to a solidary debtor
would be most onerous to him.
Where one obligation is for indemnity and the other is by ways of penalty, the
former (for indemnity) is more onerous to the debtor.
Where one debt is liquidated and the other is not, the former (liquidated) is
more onerous to the debtor.

4. Payment by Cession
1. Concept (Art. 1255)
Article 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 debtor from
responsibility for the net proceeds of the thing assigned. The agreements which, on the effect of
the cession, are made between the debtor and his creditors shall be governed by special laws.
* Cession a special form of payment whereby the debtor abandons all of his property for the
benefit of his creditors in order that from the proceeds thereof the latter may obtain payment of
their credits
2. Requisites:

Plurality of debts

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Partial or relative insolvency of the debtor


Acceptance of the cession by the creditors

3. Effects
- the assignment or abandonment by the debtor of all his property to the creditors shall only
release him from responsibility from the net proceeds if the property
- the extinguishment of his obligation will only be partial
- what is transmitted to the creditor is only the possession of such things or objects including their
administration so that they can proceed with the sale and from the proceeds thereof their
respective credits are then paid
5. Dation in Payment
1. Concept (Art. 1245)
Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a
debt in money, shall be governed by the law of sales.
* Dation in Payment mode of extinguishing an obligation whereby the debtor alienates in favor
of the creditor, property for the satisfaction of monetary benefits (giving of a particular object in
payment of a debt which is monetary)
- delivery and transmission of ownership of a thing by the debtor and to the creditor as an
accepted equivalent of the performance of the obligation
a. Distinguished from Payment by Cession
Dacion En Pago
Does not affect ALL the properties
There may be only 1 creditor
Debtor is not necessarily in a state of
financial difficulty
What is delivered by the debtor is merely
a thing to be considered as the
equivalent of the performance of the
obligation
The payment extinguishes the obligation
to the extent of the value of the thing
An act of novation

Cession
In general, affects ALL the properties of
the debtor
Plurality of creditors is essential
Debtor is in a state of partial or relative
insolvency
What is ceded by the debtor is the
universality of all his property
The effect is merely to release the debtor
for the net proceeds of the things ceded
or assigned
Not an act of novation

2. Requisites:

Consent of creditor

Dation will not prejudice other creditors

Debtor is not declared judicially insolvent

Not a pactum commissorium (a stipulation entitling the creditor to appropriate


automatically the thing given as a security in case debtor fails to pay)
3. Effects
- Extinguishes payment to the extent of the value at the thing to be delivered, either as agreed
upon by the parties, or may be proved, unless the parties by agreement expressly or impliedly or
by their silence, consider the thing as equal to the obligation in which case the obligation is totally
extinguished.
- If property delivered to the creditor assumption that it is a pledge, as it involves less
transmission of rights unless it is clearly the intention of the parties.
6. Tender of Payment and Consignation
1. Tender of Payment
a. Concept
* Tender of payment consists in the manifestation made by the debtor to the creditor of
his decision to comply immediately with his obligation
b. Requisites:

Made in a lawful currency

Should include interest due

Must be unconditional; but the creditor cannot vary the terms of a tender
accepted by him

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Unaccepted offer in writing to pay is equivalent to actual production and tender


of money or property

2. Consignation
a. Concept
* Consignation refers to the deposit of the object of the obligation in a competent court
in accordance with the rules prescribed by law after refusal or inability of the creditor to
accept the tender of payment
i. Purpose
- to avoid performance of an obligation becoming more onerous to the debtor
by reasons not imputable to him
b. Requisites:

That there is a debt due

The consignation has been made either because the creditor to whom tender of
payment was made refused to accept the payment without just cause, or
because any of the causes stated bylaw for effective consignation without
previous tender of payment exists

That previous notice of the consignation had been given to the persons
interested in the fulfillment of the obligation

That the thing or amount due had been placed at the disposal of judicial
authority

That after the consignation had been made, the persons interested in the
fulfillment of the obligation had been notified thereof
i. when tender and refusal not required (Art. 1256, par. 2)
following cases:

Article 1256, par. 2. Consignation alone shall produce the same effect in the
(1)
payment;
(2)
(3)
(4)
(5)

When the creditor is absent or unknown, or does not appear at the place of
When he is incapacitated to receive the payment at the time it is due;
When, without just cause, he refuses to give a receipt;
When two or more persons claim the same right to collect;
When the title of the obligation has been lost.

ii. two notice requirement (Art. 1257, par. 1; 1258, par.2)


Article 1257, par. 1. In order that the consignation of the thing due may release
the obligor, it must first be announced to the persons interested in the
fulfillment of the obligation.
Article 1258, par. 2. The consignation having been made, the interested parties
shall also be notified thereof.
-effects of non-compliance (Art. 1257, par. 2)
Article 1257, par. 2. The consignation shall be ineffectual if it is not
made strictly in consonance with the provisions which regulate
payment.
c. Effects (Art. 1260, par. 1)
Article 1260, par. 1. Once the consignation has been duly made, the debtor may ask the
judge to order the cancellation of the obligation.

If the creditor accepts the thing or amount deposited without contesting the
validity or efficacy of the consignation, it is logical that the obligation is
cancelled or extinguished.

If the creditor contests the validity or efficacy of the consignation, the result is
litigation.
d. Withdrawal by debtor before acceptance by creditor or approval by court; effects (Art.
1260, par. 2)
Article 1260, par. 2. Before the creditor has accepted the consignation, or before a
judicial declaration that the consignation has been properly made, the debtor may
withdraw the thing or the sum deposited, allowing the obligation to remain in force.
* Withdrawal by the debtor before acceptance by the creditor obligation remains in
force

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* Withdrawal by the debtor before approval of the court the creditor loses every
preference which he may have over the thing; solidary co-debtors, guarantors and
sureties, however, shall be released.
e. Withdrawal by debtor after proper consignation (Art. 1261)
Article 1261. If, the consignation having been made, the creditor should authorize the
debtor to withdraw the same, he shall lose every preference which he may have over the
thing. The co-debtors, guarantors and sureties shall be released.
i. with creditors approval; effects
revival of the obligation and relationship between the creditor and debtor is
restored to the condition in which it was before the consignation
ii. without creditors approval; effects
cannot be enforced
f. Expenses for consignation
when properly made, shall be charged against the creditor
III. Loss or Impossibility
A. Loss of the Thing Due
1. Concept (Art. 1189 par. 2)
Article 1189(2). If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is
understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way
that its existence is unknown or it cannot be recovered
- impossibility of performance
2. Kinds
a. As to extent
i. total
ii. partial
3. Requisites (Art. 1262)
Article 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it
should be lost or destroyed without the fault of the debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not
extinguish the obligation, and he shall be responsible for damages. The same rule applies when the nature
of the obligation requires the assumption of risk.

The thing which is lost must be determinate.


The thing is lost without any fault of the debtor.
The thing is lost before the debtor has incurred in delay.

4. Presumption (Art. 1265, 1165)


Article 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss
was due to his fault, unless there is proof to the contrary, and without prejudice to the provisions of article
1165. This presumption does not apply in case of earthquake, flood, storm, or other natural calamity.
- burden of explaining the loss of the thing in the possession of the debtor rests upon him
Article 1165
When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by
Article 1170, may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of
the debtor.
If the obligor delays, or has promised to deliver the same 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.
- action for specific performance or substituted performance
a. when not applicable

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in case of any fortuitous event/calamity


5. Effects
a. in obligation to give a specific thing (Art. 1262, 1268)
- Article 1262 obligation will be extinguished if the thing should be lost or destroyed without the
fault of the debtor and before he has incurred in delay
Article 1268. When the debt of a thing certain and determinate proceeds from a criminal offense,
the debtor shall not be exempted from the payment of its price, whatever may be the cause for
the loss, unless the thing having been offered by him to the person who should receive it, the
latter refused without justification to accept it.
- Exceptions to the rule that the debtor cannot be held liable if the thing constitutes the object of
the obligation is lost or destroyed through a fortuitous event:

When by law, the debtor is liable even for fortuitous event

When by stipulation of the parties, the debtor is liable even for fortuitous events

When the nature of the obligation requires assumption of risk

When the loss of the thing is due partly to the fault of the debtor

When the loss of the thing occurs after the debtor has incurred in delay

When the debtor promised to deliver the same thing to 2 or more persons who do not
have the same interest

When the obligation to deliver arises from a criminal offense

When the obligation is generic


b. in obligation to give a generic thing (Art. 1263)
Article 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the
same kind does not extinguish the obligation.
the loss or destruction of anything of the same kind even without the debtors fault and before
he has incurred in delay will not have an effect of extinguishing the obligation
genus nunquam peruit genus of a thing can never perish
c. in case of partial loss (Art. 1264)
Article 1264. The courts shall determine whether, under the circumstances, the partial loss of the
object of the obligation is so important as to extinguish the obligation.
whether or not the partial loss or destruction of the things is of such importance that it would
be tantamount to a compete loss or destruction, shall depend upon the sound discretion of the
court
d. action against third persons (Art. 1269)
Article 1269. The obligation having been extinguished by the loss of the thing, the creditor shall
have all the rights of action which the debtor may have against third persons by reason of the
loss.
all of the rights of action which the debtor may have against 3 rd persons by reason of the less
are transmitted by operation of law to the creditor
such transmission is made from the moment of the extinguish of the obligation
refers not only to the rights and actions which the debtor may have against 3 rd persons but also
to any indemnity which the debtor may have already received
B. Impossibility of Performance
1. Concept (Art. 1266, 1267)
Article 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.
refers to subsequent impossibility; arises after the obligation has been constituted
prestation constituting the object of the obligation must have become legally or physically impossible of
compliance without the fault of the obligor and before he has incurred in delay
impossibility must have occurred after the constitution of the obligation
Article 1267. When the service has become so difficult as to be manifestly beyond the contemplation of
the parties, the obligor may also be released therefrom, in whole or in part.
Doctrine of Unforeseen Events, rebus sic stantibus: the parties stipulate in the light of certain
conditions, and one of these conditions cease to exist, the contract also ceases to exist

Requisites for application of Art. 1267:

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Event or change in circumstances could not have been foreseen at the time of the execution of
the contract
Makes the performance of the contract extremely difficult but not impossible
Event must not be due to the act of any of the parties
Contract is for a future prestation

2. Kinds
a. As to extent
i. total
ii. partial
b. As to source
i. legal

Direct prohibited by law

Indirect prevented by supervening legal duty such as military service


ii. physical by reason of its nature, cannot be accomplished
3. Requisites: (Art. 1266)

Obligation used to be possible at the constitution of the obligation

Subsequent impossibility

Without the fault of the debtor


4. Effects
a. in obligations to do (Art. 1266, 1267, 1262 par. 2 [by analogy])
Art. 1266: releases the debtor from obligation if prestations has become legally or physically

impossible

Art. 1267: releases the debtor if performance has become so difficult to be so manifestly
beyond the contemplation of the parties
Art. 1262(2): impossibility due to fortuitous events does not extinguish obligation if:

By law

By stipulation

Nature of the obligation requires assumption of risk


i. impossibility distinguished from difficulty
manifest disequilibrium in the prestations, such that one party would be place at a
disadvantage by the unforeseen events
b. in case of partial impossibility (Art. 1264)
whether or not the partial loss or destruction of the things is of such importance that it would
be tantamount to a compete loss or destruction, shall depend upon the sound discretion of the
court

IV. Condonation or Remission


A. Concept
* Remission an act of liberality by virtue of which the obligee, without receiving any price or equivalent, renounce
the enforcement of the obligation, as a result of which it is extinguished in its entirety or that in part or aspect of
the same to which the remission refers
Requisites in order that there will be a remission or condonation which will result in the total or partial
extinguishment of the obligation:

It must be gratuitous

It must be accepted by the obligor

The obligation must be demandable


B. Kinds
1. As to extent
a. total when the entire obligation is extinguished
b. partial when it refers only to the principal or to the accessory obligation or to an aspect
thereof which affects the debtor

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2. As to form (Art. 1270 [1])


Article 1270(1). Condonation or remission is essentially gratuitous, and requires the acceptance by the
obligor. It may be made expressly or impliedly.
a. express when it is made in accordance with the formalities prescribed by law for donations
b. implied it can be deduced from the acts of the obligee or creditor
C. Requisites:

Debts must be existing and demandable at the time the remission is made

The renunciation of the debt must be gratuitous or without any equivalent or consideration

Debtor must accept the remission


a. when formalities required (Art. 1270 par. 2)
Article 1270(2). One and the other kind shall be subject to the rules which govern inofficious donations.
Express condonation shall, furthermore, comply with the forms of donation.
- bilateral acts which requires acceptance by the debtor
- subject to rules on donations with respect to acceptance, amount and revocation
- formalities of a donation are required in the case of an express remission
D. Presumptions (Arts. 1271, 1272, 1274)
Article 1271.
The delivery of a private document evidencing a credit, made voluntarily by the creditor to the debtor, implies the
renunciation of the action which the former had against the latter.
If in order to nullify this waiver it should be claimed to be inofficious, the debtor and his heirs may uphold it by
proving that the delivery of the document was made in virtue of payment of the debt.
implies the renunciation of the action
not applicable to public documents
surrender of weapon of enforcement of rights
Article 1272.
Whenever the private document in which the debt appears is found in the possession of the debtor, it shall be
presumed that the creditor delivered it voluntarily, unless the contrary is proved.
only prima facie evidence may be overcome by contrary evidence to show that notwithstanding the possession
by the debtor of the private document of credit, it has not been paid.
Article 1274.
It is presumed that the accessory obligation of pledge has been remitted when the thing pledged, after its delivery
to the creditor, is found in the possession of the debtor, or of a third person who owns the thing.
presumed that it has been remitted if found of the possession of the debtor or a 3 rd persons who owns the thing
E. Effects
1. in general extinguishes either totally or partially

the remission was given

2. in case of joint or solidary obligations affects the share corresponding to the debtor in whose benefit

F. Governing Rules (Art. 1270)


Article 1270
Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It may be made
expressly or impliedly.
One and the other kind shall be subject to the rules which govern inofficious donations. Express condonation shall,
furthermore, comply with the forms of donation.
- rules in inofficious donations
G. Renunciation of Principal or Accessory Obligation
1. Effects (Art. 1273)
Article 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the
waiver of the latter shall leave the former in force.
- Why? Because accessory merely follows the principal.
2. Rationale
if the remission refers to the principal obligation, all the accessory obligations are extinguished

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it the remission refers to the accessory obligation, the principal obligation continues to subsist

V. Confusion or Merger of Rights


A. Concept
* Confusion merger of the characters of creditor and debtor in one and the same person by virtue of which the
obligation is extinguished
- meeting in one and the same person of the qualities of the creditor and debtor with respect to one and
the same obligation
B. Requisites:

That merger of the characters of creditor and debtor must be in the same person

That is must take place in the person of either the principal creditor or principal debtor

It must be complete and definite (it must be of such character that there will be a complete and definite
meeting of all of the qualities of creditor and debtor in the obligation or in the part or aspect thereof which
is affected by the merger)
C. Effects
1. in general (Art. 1275)
Article 1275. The obligation is extinguished from the time the characters of creditor and debtor are
merged in the same person.
extinguishes the obligation
2. in case of joint (Art. 1277) or solidary obligations
Article 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.
does not extinguish the obligation
except as regards the share corresponding to the creditor or debtor in who the two characters concur
D. Confusion in Principal or Accessory Obligation (Art. 1276)
Article 1276. Merger which takes place in the person of the principal debtor or creditor benefits the guarantors.
Confusion which takes place in the person of any of the latter does not extinguish the obligation.
merger merely releases the guarantor because they are merely accessory obligations
guarantor acquires the credit, his obligation as guarantor is extinguished, but the principal obligation subsists
which he can enforce against the debtor and other co-guarantors
when mortgaged property belongs to a 3rd person, mortgage acquires a part of the property, the same is released
from encumbrance; the obligation merely becomes a partly (if the acquisition is not total) unsecured obligation
VI. Compensation
A. Concept (Art. 1278)

each other.

Article 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of
* Compensation a mode of extinguishing in the concurrent amount those obligations of persons who in their own
right are creditors and debtors of each other
1. Distinguished from Confusion

Compensation
* there must be 2 persons, who, in their
own right, are creditors and debtors of
each other
* there must be at least 2 obligations

Confusion
* there is only 1 person in whom is
merged the qualities of creditor and
debtor
* there is only 1

B. Kinds
1. As to extent
a. total when the debts to be compensated are equal in amount
b. partial when the debts to be compensated are not equal in amount

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2. As to origin
a. legal when it takes effect by operation of law from the moment all of the requisites are

present

b. conventional (Art. 1279 inapplicable, 1282) when the parties who are mutually creditors and
debtors agree to compensate their respective obligations, even though all of the requisites for
compensation may not then be present
Article 1282. The parties may agree upon the compensation of debts which are not yet due.
c. judicial (Art. 1283) when it takes effect by judicial decree
d. facultative which is effected by a party who is entitled to oppose the compensation because
he would be prejudiced thereby
C. Legal Compensation
1. Requisites (Art. 1279, 1280)
Article 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor
of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.

There must be 2 parties, who, in their right are principal creditors and principal debtors of each
other
Both debts must consist in money; if fungibles (or consumables), they must be of the same kind
and quality
Both debts must be due
Both debts must be liquidated and demandable
There must be no retention or controversy commences by 3 rd persons over either debts and
communicated in due time to the debtor
The compensation must be prohibited by law

Article 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up
compensation as regards what the creditor may owe the principal debtor.
a. due distinguished from demandable
- due payable
- demandable enforceable in court
2. Effects (Art. 1290, 1289)
Article 1289. If a person should have against him several debts which are susceptible of compensation,
the rules on the application of payments shall apply to the order of the compensation.
Article 1290. When all the requisites mentioned in Article 1279 are present, compensation 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.
- it extinguishes both debts to the extent that the amount of one is covered by the amount of the other
- since the principal obligations to which they are subordinated are extinguished, it follows that such
accessory obligation are also extinguished
D. When compensation is not allowed (Art. 1287, 1288)
Article 1287. Compensation shall not be proper when one of the debts arises from a depositum or from the
obligations of a depositary or of a bailee in commodatum.
Neither can compensation be set up against a creditor who has a claim for support due by gratuitous title, without
prejudice to the provisions of paragraph 2 of Article 301.
Article 1288. Neither shall there be compensation if one of the debts consists in civil liability arising from a penal
offense.

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Debts arising from contracts of depositum


Debts arising from contracts of commodatum
Claims for support due by gratuitous title
Obligation arising from criminal offenses
Certain obligations in favor of the government, such as taxes, fees, duties and other of a similar nature

E. Compensation of Debts payable in Different Places (Art. 1286)


Article 1286. Compensation takes place by operation of law, even though the debts may be payable at different
places, but there shall be an indemnity for expenses of exchange or transportation to the place of payment.
F. Effect of Nullity of Debts to be Compensated (Art. 1284)
Article 1284. When one or both debts are rescissible or voidable, they may be compensated against each other
before they are judicially rescinded or avoided.
- if the action for rescission or annulment is not exercised, or is renounced, or if the debts or debts are ratified the
obligation or obligations are susceptible of compensation
G. Effects of Assignment of Credit
1. with consent of debtor (Art. 1285, par. 1)
Article 1285(1). 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 would pertain to him against
the assignor, unless the assignor was notified by the debtor at the time he gave his consent, that he
reserved his right to the compensation.
the debtor cannot set up against the assignee the compensation which would have pertained to him
against the assignor (creditor)
if the debtor notified the assignor, at the time he gave his consent, that he is reserving his right to the
compensation, he can still set up the defense of compensation against the assignee in case the latter
demands the payment of the assigned credit
2. with knowledge but without consent of debtor (Art. 1285, par. 2)
Article 1285(2). If the creditor communicated the cession to him but the debtor did not consent thereto,
the latter may set up the compensation of debts previous to the cession, but not of subsequent ones.
the debtor may set up the defense of compensation of debts prior to the assignment, but not of
subsequent ones
3. without knowledge of debtor (Art. 1285, par. 3)
Article 1285(3). If the assignment is made without the knowledge of the debtor, he may set up the
compensation of all credits prior to the same and also later ones until he had knowledge of the
assignment.
the debtor may set up the defense of compensation of all credits which he may have against the
assignor and which may have become demandable, before he was notified of the assignment
a. rationale: As far as the debtor is concerned, the assignment does not take effect except from the time
he is notified thereof.
VII. Novation
A. Concept (Art. 1291)
Article 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor.
* Novation the substitution or change of an obligation by another, resulting in its extinguishment or modification,
either by changing it object or principal conditions, or by substituting another in place of the debtor, or
subgrogating a 3rd person in the rights of the creditor
B. Kinds
1. As to form
a. express when it is declared in unequivocal terms that the old obligation is extinguished by a
new one which substitutes the same

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b. implied when the old and the new obligations are incompatible with each other on every point
2. As to origin
a. conventional stipulated by the parties
b. legal by law
3. As to object
a. objective or real refers to the change either in the cause, object or principal conditions of the
obligations

b. subjective or personal refers to the substitution of the person of the debtor or to the
subrogation of a 3rd person in the rights of the creditor
C. Requisites (Art. 1292)
Article 1292. In order that an obligation may be extinguished by another which substitute the same, it is
imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point
incompatible with each other.
1)A previous valid obligation
3)Extinguishment of the old
2)Agreement of the parties to the
obligation
new obligation
4)Validity of the new obligation
5)
D. Effects
6)
7)
1. in general (Art. 1296)
8)
9)
Article 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 not give their
consent.
10)
extinguishment of the original obligation and creation of a new one
11)
12)
2. when accessory obligation may subsist (Art. 1296)
13)
only insofar as they may benefit 3rd person who did not give consent
to the novation
14)
15)
E. Effect of the Status of the Original or New Obligation
16)
17)
1. nullity or voidability of original obligation (Art. 1298)
18)
19)
Article 1298. The novation is void if the original obligation was void, except when annulment
may be claimed only by the debtor or when ratification validates acts which are voidable.
20)
there is nothing to novate; new obligation cannot produce any effect
21)
22)
2. nullity or voidability of new obligation (Art. 1297)
23)
24)
Article 1297. If the new obligation is void, the original one shall subsist, unless the parties
intended that the former relation should be extinguished in any event.
25)
there is no new obligation which is supposed to be the substitute for
the old obligation
26)
such old obligation shall still subsist, unless the parties intended that
the former relation should be extinguish in any event
27)
28)
F. Objective Novation
29)
change in the object of prestations
30)
31)
1. meaning of principal conditions * principal conditions principal conditions or terms
32)
33)
G. Subjective Novation
34)
consent of creditor is required
35)
36)
1. By change of debtor
37)
38)
a. Expromision the substitution of debtors is affected with the consent of the creditor
at the instance of the new debtor even without the knowledge or against the will of the old debtor
39)
40)
i. requisites (Art. 1293)
41)
42)
Article 1293. Novation which consists in substituting a new debtor in the place
of the original one, may be made even without the knowledge or against the will of the
latter, but not without the consent of the creditor. Payment by the new debtor gives him
the rights mentioned in Articles 1236 and 1237.

Initiative for the substitution must emanate from the new debtor

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Consent of the creditor to the new substitution

43)
44)
45)

ii. effects (Art. 1294)


46)
Article 1294. If the substitution is without the knowledge or against the will of
the debtor, the new debtor's insolvency or non-fulfillment of the obligations shall not
give rise to any liability on the part of the original debtor.

Debtor is released from the obligation

Creditor generally cannot recourse from the old debtor if the new debtor is
insolvent

If substitution is without his knowledge or consent old debtor is not liable for
the insolvency or nonfulfillment of the new debtor

If substitution is with knowledge and consent new debtor is entitled to full


reimbursement of the amount paid and subrogation

47)

48)
b. Delegacion
49)
the substitution of the debtors is effected with the consent of the creditor at the
instance of the old debtor with the concurrence of the new debtor
50)
substitution of debtors effected when the original debtor offers and the creditor
accepts a 3rd person who consents to the substitution

51)
52)

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i. requisites (vs. Art. 1293)


Initiative for the substitution must emanate from the old debtor
Consent of the new debtor
Acceptance by the creditor

Page 42

ii. effects (Art. 1295)

Article 1295. The insolvency of the new debtor, who has been proposed by the
original 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 knowledge, or known to the debtor, when the delegated his debt.

Original debtor is released from obligation

The new debtor is subrogated in the rights of the creditor; he may demand from
the old debtor the entire amount he has paid for the obligation

GR: old debtor is not liable for the insolvency or nonfulfillment of the new debtor

EXC: he is aware of the insolvency at the time he delegated his debt; at the
time of the delegation, the new debtors insolvency is already existing and of
public knowledge

2. By change of creditor: subrogation of a third person in the rights of the creditor (Art. 1300)

Article 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 Code; the latter
must be clearly established in order that it may take effect.

novation by subrogation

a. conventional subrogation

takes place by the agreement of the


original creditor, the 3rd person substituting the original creditor, and the debtor

i. requisites (Art. 1301)

Article 1301. Conventional subrogation of a third person requires the consent


of the original parties and of the third person.

Consent of the original debtor

Consent of the 3rd person who is subrogated to the right s of the original creditor

Consent of the debtor

ii. distinguished from Assignment of Credit

iii. effects (Art. 1303, 1304)

Article 1303. Subrogation transfers to the persons subrogated the credit with
all the rights thereto appertaining, either against the debtor or against third person, be
they guarantors or possessors of mortgages, subject to stipulation in a conventional
subrogation.

transfers to the person subrogated all the rights

Article 1304. A creditor, to whom partial payment has been made, may
exercise his right for the remainder, and he shall be preferred to the person who has
been subrogated in his place in virtue of the partial payment of the same credit.

partial payment, right for the


remainder, preferred to the person who has been subrogated

b. legal subrogation

takes place by operation of law

i. requisites

ii. when presumed (Art. 1302)

Article 1302. It is presumed that


there is legal subrogation:

(1) When a creditor pays another creditor who is preferred, even without the
debtor's knowledge;

(2) When a third person, not interested in the obligation, pays with the express
or tacit approval of the debtor;

(3) When, even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays, without prejudice to the effects of confusion as to the
latter's share.

iii. effects (Art. 1303, 1304)

partial payment, right for the


remainder, preferred to the person who has been subrogated
transfers to the person subrogated all the rights