Chapter 1:

GENERAL PROVISIONS
Obligation is a tie or bond
recognized by law/ virtue which
one is bound in favor of another to
render something and may consist
in the ff:
1. giving a thing,
2. doing a certain act
3. NOT doing a certain act.
Under the Civil Code
Meaning of obligation
-Juridical Necessity
Nature of obligation
ESSENTIAL REQUISITES OF AN
OBLIGATION
1.
2.
3.
4.

Passive subject
Active subject
Object or prestation
Juridical or legal tie

FORMS OF AN OBLIGATION
1. Oral
2. Writing
3. Partly oral and partly
writing
*General Rule: law does not
require any form in obligations
arising from contracts for their
validity.
**Obligations arising from
other sources DO NOT HAVE
ANY FORM at all.
Obligatio
n
Right
Wrong
(cause of
action)

Act enforced by law

Power that a person
has under law
An act of omission /
violation of the
legal right(s)

The Essential elements of a

legal wrong/ injury are the ff:
1. Legal right in favor of a
person
2. Correlative legal obligation
on the part of another; to
respect or not to violate the
said right.
3. An act or omission by the
latter violation of the said right
with resulting injury or damage
to the former
**legal right defined
*Injury wrongful violation of
the legal right of another.

Kinds of Obligation according

to SUBJECT MATTER
Real
To give/ deliver a
Obligation
thing
Personal
Obligation
a. Positive
b. Negative

To do/ not to do
To do or render
service
To not do or not
give

SOURCES OF OBLIGATION
Classificati General
on
sources
Law
from law
LAW
Contract
Contract
from
s
s
private acts
QuasiLAW
arising from
contract
LICIT acts
s
Delicts**
from
Quasiprivate acts
delicts
arising from
ILLICIT

acts
**Delicts/ Crimes/acts or
omissions punished by law.
Legal Obligations obligations
arising from law
Contractual obligation
obligations arising from contracts
or voluntary agreements
Contract - is a meeting of minds
between two (2) persons whereby
one binds himself, with respect to
the other, to give something or to
render some service.
Binding Force law
Requirement of a valid contract
In addition to the essential
elements, it is valid if it is not
contrary to law, morals, good
customs, public order, and public
policy. Otherwise, it is INVALID or
VOID.
Breach of contract violation or
failure by a party to comply in
whole or partly without legal
reason with his obligation under
the contract
Compliance in good faith
compliance or performance in
accordance with the stipulations or
terms the contract
Quasi- Contractual Obligations
Kinds of Quasi-Contracts
1. Negotorium gestio
2. Solutio indebiti
3. Other quasi-contracts
Civil Liability arising from
crimes or delicts
Rule: Every person criminally
liable is also civilly liable.

HOWEVER, in crimes with no

material damage, there is no
civil liability.
SCOPE OF CIVIL LIABILITY
1. Restitution
2. Reparation for the
damaged cause
3. Indemnification for
consequential damages

TYPES OF DAMAGES (MENTAL)

Damages for
physical
suffering,
mental anguish,
fright, serious
anxiety,
Moral
besmirched
damages
reputation,
wounded
feelings, moral
shock, social
humiliation and
similar injury.
Damages that
are imposed by
way of
correction for
Exemplary /
the public good.
corrective
In addition to
moral, nominal,
moderate, and
liquidated
damages
Damages that
are adjudicated
in order for the
right of the
Nominal
plaintiff (which
was violated)
may be
vindicated.
Temperate/
Pecuniary loss
moderate
has been

Actual/
compensatory

Liquidated

suffered but its

amount cannot
from the nature
of the case be
proved certainty.
Compensation
only for
pecuniary loss
suffered
Damages paid
as agreed by the
parties in case
of breach

Obligations arising from quasidelicts

The requisites to be liable for
quasi-delict are the ff:
1. There must be an act/
omission
2. There must be fault or
negligence
3. There must be damaged
caused
4. There must be direct
relation of cause and
effect between the act or
omission and the damage.
5. There is no pre-existing
contractual relation
between parties.
CRIME AND QUASIDELICT
DISTINGUISHED
CRIME
QUASIDELICT
In
Criminal/
Negligence
general
malicious
intent
Purpose punishmen Indemnificati
t
on of the
offended
party
Interest
Public
Private
interest
interest
Liability Criminal
Civil liability
and civil
liability

Settlem
ent of
liability

CANNOT
be settled
by the
parties

Evidence Must be
proved
beyond
reasonable
doubt

Can be
compromised
/ settled
between the
parties
Need only be
proved by
preponderan
ce of
evidence

Effects of merger in the person

of principal debtor or creditor
-

the accessory obligation is

Extinguished.

Effects of merger in the person

of guarantor
-

the principal obligation

remains.

Confusion in Joint and solidary

obligations
Joint obligation -Extinguish
only the share
in the
obligation of
the
creditor/debtor
that confusion
occurred.
Solidary obligation -Merger in
one of the
debtors
EXTINGUISHES
the entire
obligation

SECTION 4 Confusion
or Merger of Rights
Confusion or Merger of rights
-the creditor becomes the debtor
with respect to the same
obligation.
Requisites of Confusion
1. It must take place
between the principal
debt and creditor.
2. It must be complete
Effects to the obligation
Extinguished

Compensation (simplified
payment) the extinguishment to
the concurrent amount of the debts
of two persons who, in their own
right are debtors and creditors of
each other
Object of compensation
prevention of unnecessary
litigations and payments.
Kinds of compensation
1. By its effect/extent:
- Total
- Partial
2. By its cause of origin:
- Legal
- Voluntary
- Judicial
- Facultative

Requisites of legal
compensation
1. Parties are principal
creditors and principal
debtors of each other.
2. Both debts consist in a
sum of money, of
consumable things of the
same kind.
3. Both debts are due and
demandable
4. Both debts are liquidated
5. No retention or
controversy commenced
by a third person.
Compensation VS Confusion
Compensation
Confusion
2 persons: 1
1 person is
creditor and 1 both the
debtor
creditor and
debtor
2 obligations
1 obligation
Indirect
Impossibility
payment
of payment
Compensation benefits the
guarantor
Judicial compensation
Compensation of voidable
debts

Novation the total or partial

extinguishment of an obligation by
creating a new one to substitute it.
Note: Novation is never
presumed

Test of in compatibility
between two parties

COMPATIBLE -Can stand together,

each one having an independent
existence.
INCOMPATIBILITY occurs in
when obligations are modified.
Obligations may be
modified by
1.

2.
3.

changing their
subject or principal
conditions,
substituting the
person of the debtor,
subrogating a third
person in the rights
of the creditor.

KINDS OF NOVATION
Accordin
Classification
g to:
Convention
Origin
Legal
al
How it is
Expre
constitut
Implied
ss
ed
Extent
Total
Partial
Person mixe
Subject
real
al*
d
*Personal novation
a. substitution
i.) Expromision a
third person in his own
initiative and without
the knowledge/ against
the will of the original
debtor assumes the
latters obligation.
ii.)Delegacion the
creditor accepts a third
person to take place of
the debtor.
b. subrogation the
substitution of one person in
the place of a creditor.

i.) legal** without

agreement but by
operation by law.
ii.) Conventional
when expressed by the
parties

**legal subrogation is
presumed when:
1. A creditor pays another
creditor who is preferred.
2. A third person without
interest in the obligation pays
with the approval of the
debtor.
3. A third person with interest in
the obligation pays even
without the knowledge of the
debtor.
EFFECTS of legal
subrogation- the obligation
subsists
EFFECTS of partial
subrogation- the new creditor
remains a creditor to the extent
of the balance of the debt.
Requisites of novation
1. A previous valid
obligation
2. Capacity and intention of
the parties to modify or
extinguish the obligation
3. The modification or
extinguishment of the
obligation
4. The creation of a new
obligation

SECTION 5
Compensation

Compensation or simplified
payment is the extinguishment
of concurring debts of two persons
who are debtors and creditors of
each other

COMPENSATION AND MERGER

DISTINGUISHED
Merger
Compensati
on
Persons One who is Two people
involved
both
who are
creditor
reciprocal
and debtor debtors and
creditors
Number
One
Two
of debts
What
Impossibili
Indirect
happens
ty of
payment
to
payment
through
paymen
set-off
t

KINDS OF COMPENSATION:
1. By its effect or extent:

a. Total when both

obligations are entirely
extinguished
b. Partial when there is
still a balance due after
compensation (only partial
extinguishment)
2. By its cause or origin:
a. Legal by operation of
law
b. Voluntary by
agreement of the parties;
c. Judicial by a court order
d. Facultative when it can
be set up only by one of
the parties.

REQUISITES OF LEGAL
COMPENSATION
1. The parties are principal
creditors and principal
debtors of each other.
2. Both debts consist in a sum
of money, or of consumable
things of the same kind and
quality.
3. The two debts are due.
4. The two debts are liquidated
5. No retention or controversy
commenced by a third
person.
Guarantor may set up
compensation regards as to what
the debtor owes the principal
creditor
Total or partial compensation
applies to all the different kinds of
compensation.
If parties agree for compensation of
debts not yet due, the
compensation is valid.
Judicial compensation:

If one party who has an

obligation also has a right for

damages, he may set off his

right for damages with his
obligation
Compensation of rescissible or
voidable debts: are valid until
they are judicially rescinded or
avoided.
IN CASE OF ASSIGNMENT OF
RIGHTS BY CREDITOR TO THIRD
PERSON:

Where compensation has

taken place before
assignment:
1. When compensation takes
effect by operation of law,
the debts are extinguished
to the concurrent amount.
2. If subsequently, the
extinguished debt is
assigned by the creditor to
a third person, the debtor
can raise the defense of
compensation with
respect to the debt.
3. The remedy of the
assignee is against the
assignor.

CASES WHERE COMPENSATION

TAKES PLACE AFTER
ASSIGNMENT:
1. With the consent of debtor.
Compensation against
assignee is not allowed,
unless the right is
reserved
2. With the knowledge but
without the consent of
debtor.
Compensation may be
done previous to
assignment, but not after
3. Assignment without the
knowledge of the debtor.

Compensation allowed for

all debts until he has
knowledge of assignment

Compensation takes place by

operation of law (legal
compensation) even though the
debts are payable at different
places.
Rule: There is still indemnity for
expenses* of:
1. Exchange (foreign exchange)
2. Transportation to the place of
payment
*Does not refer to difference in
value of things in their respective
places
*Once these expenses are
liquidated, the debts also become
compensable.
*The indemnity shall be paid by the
person who raises the defense of
compensation.

contract to deliver a nonconsumable item which will

be returned later on)
3. Where one of the debts
arises from a claim for
support due by gratuitous
title.
4. Where one of the debts
consists in civil liability
arising from a penal
offense.
Compensation is similar to
payment.
Rules of application of payment
apply in cases where several debts
are susceptible of compensation
Consent of parties not required
in legal compensation:

Compensation takes place

automatically by mere
operation of law
Full legal capacity of parties
not required

Foreign exchange conversion of

an amount of money or currency of
one country into an equivalent
amount of money or currency of
another.

Instances when legal

compensation is not allowed by
law:
1. Where one of the debts
arises from a depositum.
2. Where one of the debts
arises from a
commodatum (gratuitous

SECTION 6 Novation
Novation total or partial
extinction of an obligation by

creating a new one which

substitutes the old

b. Personal or subjective
when persons are
changed
c. Mixed combination of
real and personal novation

Obligations may be modified

by:
1. Changing their object or
principal conditions;
2. Substituting the persons of
the debtor;
3. Subrogating a third person in
the rights of the creditor.
Dual function of novation:
1. To extinguish or modify an
existing obligation
2. To substitute a new one in its
place
It is actually a modification of
obligation.
KINDS OF NOVATION:
1. According to origin:
a. Legal takes place by
operation of law
b. Conventional takes
place by agreement
2. According to how it is
constituted:
a. Express when it is
declared in unequivocal
terms;
b. Implied when the old
and the new obligations
are essentially
incompatible with each
other.
3. According to extent or effect:
a. Total or extinctive
complete extinguishment
of old obligation
b. Partial or modificatory
when old obligation is
merely modified
4. According to the subject:
a. Real or objective
changes made to object or
principal conditions

REQUISITES OF NOVATION
1. A previous valid obligation;
2. Capacity and intention of the
parties to modify or
extinguish the obligation;
3. The modification or
extinguishment of the
obligation;
4. The creation of a new
obligation.
Note: Novation is never
presumed.
Test of incompatibility between
two obligations or contracts:

Each one having an

independent existence, can
they stand together?
If they cannot, they are
incompatible. The new
obligation novates the first.

KINDS OF PERSONAL
NOVATION:
1. Substitution when the
person of the debtor is
substituted;
2. Subrogation when a third
person becomes the creditor
KINDS OF SUBSTITUTION:
1. Expromision a third
person assumes the debtors
obligation without his
knowledge or consent but
with the creditors consent.
The old debtor is released.
2. Delegacion a third person
assumes the obligation with
the debtors knowledge or

consent. All the parties must

agree.
Note: consent of creditor is
necessary in both cases

debtor at the time of the

delegacion.
Reason for exception: prevent
fraud on the part of the old debtor
Effect of novation on accessory
obligations:

If third persons did not give

their consent, accessory
obligations will subsist
Based on principle that no
one should be prejudiced

Right of new debtor who pays:

1. In expromision, the right is
reimbursement to the extent
the payment is beneficial to
the debtor
2. In delegacion, the rights are
reimbursement and
subrogation
Effect of new debtors insolvency or
non-fulfillment of the obligation in
expromision:

Action of the creditor against

old debtor is not revived
Old person will no longer be
liable to the creditor in case
of insolvency or nonfulfillment by the third person

Note: The replacement of the old

debtor is not made at his own
initiative.

Effect where the new

obligation void:

Exception: when parties intend the

old obligation be extinguished in
any event
Effect where the new
obligation voidable:

Effect of new debtors insolvency or

non-fulfillment of the obligation in
delegacion:

General rule: the old debtor

is not liable to the creditor
Exceptions to general rule:
1. Insolvency was already
existing and of public
knowledge at the time of
the delegacion; or
2. Insolvency was already
existing and known to the

There is no novation
No obligation replaces the old
The old obligation subsists

Novation can take place.

The moment the new debt is
annulled, the old debt
becomes effective again,
unless parties intend
otherwise
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.

Effect where the old obligation

void or voidable:

No novation happens if old

obligation is void

If old obligation is only

voidable, novation is valid

Presumption where original

obligation subject to a
condition:

The new obligation is subject

to the same conditions unless
stipulations provide
otherwise

Reason: Efficacy of old obligation

depends on whether the condition
is fulfilled or not
Subrogation the substitution of
one person (subrogee) in the place
of a creditor (subroger) where the
subrogee becomes the new
creditor

Legal subrogation is presumed

when there is payment:
1. By a creditor to another
creditor who is preferred
2. By a third person without
interest in the obligation with
the debtors approval
3. By a third person with
interest in the obligation
Effect of legal subrogation:
1. The new creditor gains all the
rights, including rights
towards third persons, of the
old creditor
2. Legal subrogation may not be
modified by agreement
Effect of conventional
subrogation:

Governed by the stipulation

of the parties.

Effect of partial subrogation:

KINDS OF SUBROGATION:
1. Conventional where there
is express agreement by the
old parties and the third
person
2. Legal when it takes pace
by operation of law. Not
presumed but only in cases
expressly provided by law
Consent of all the parties is an
essential requirement in
conventional subrogation:
1. The debtor because he is
still liable
2. The old creditor because his
right against the debtor is
extinguished.
3. The new creditor because
he may dislike or distrust the
debtor.

The creditor to whom partial

payment has been made by
the new creditor remains a
creditor to the extent of the
balance of the debt.
In case of insolvency of the
debtor he is given a
preferential right to recover
the remainder as against the
new creditor.