The totality of the norms of good and right conduct
INTRODUCTION TO LAW
MEANING OF LAW IN GENERAL
Any rule of action or any system of uniformity.
GENERAL DIVISIONS OF LAW
1. Law (in the strict legal sense) –
promulgated/enforced by the state.
2. Law (in the non-legal sense) – NOT
promulgated/enforced by the state.
SUBJECTS OF LAW
State law, divine law, natural law, and moral law are
comprised in the definition of law as RULE OF ACTION =
Apply to men as rational beings only.
Physical law OPERATES on ALL THINGS.
DIVINE LAW
Law of religion and faith which concerns itself with the
concept of sin and salvation.
1. Source – formally promulgated by God and revealed
by means of direct revelation.
a. Old Testament: Embodied in the Ten
Commandments.
b. Mohammedans: Embodied in the Muslim
Quoran.
2. Sanction – lies in the assurance of certain rewards
and punishments in the present life or in the life to
come.
NATURAL LAW
The divine inspiration in man of the sense of justice,
fairness, and righteousness, NOT by divine revelation
BUT by internal dictates of reason alone.
1. Binding force – ever present and binding on all men
everywhere and at all times.
2. Compared to divine law – natural law is said to be
impressed in man as the core of his higher self.
3. Place in state law – natural law as the REASONABLE
BASIS of state law.
MORAL LAW
growing out of the collective sense of right and wrong
of every community.
1. Determination of what is right and wrong.
2. Sanction – no definite legal sanction for violation of
purely moral law.
3. Binding force – moral law is NOT absolute = varies
with changing times, conditions or convictions of
the people.
4. Place in state law – moral law INFLUENCES OR
SHAPES STATE LAW.
PHYSICAL LAW
Uniformities of actions and orders of sequence which
are the physical phenomena that we sense and feel.
Also known as the LAWS OF PHYSICAL SCIENCE.
1. Order or regularity in nature.
2. Called law only by analogy.
STATE LAW
The law that is promulgated and enforced by the state.
1. Other terms used – positive law, municipal law, civil
law, or imperative law.
2. Binding force – it is enforced by the state.
3. Concern of state law – it does not concern with the
latter laws unless they also constitute violations of
its commands.
CONCEPTS OF (STATE) LAW
1. In its general or abstract sense, it refers to all the
laws taken together. Examples: law of the land,
equality before the law.
2. In its specific or material sense, it is a rule of
conduct, just, obligatory, promulgated by legitimate
authority, and of common observance and benefit.
Example: the law on obligations and contracts.
CHARACTERISTICS OF LAW
1. It is a rule of conduct.
2. It is obligatory.
3. It is promulgated by legitimate authority.
4. It is of common observance and benefit.
NECESSITY AND FUNCTIONS OF LAW  Schools  Host of others
The need for internal order is as constant as the need
LAW COMPARED WITH OTHER MEANS OF SOCIAL
for external defense.
CONTROL
Law secures justice, resolves social conflict, orders
LAW OTHER MEANS OF SOCIAL
society, protects interests, and controls social relations.
CONTROL
Every citizen should have some understanding of law Act in behalf of the entire Act only for their
and observe it for the common good. citizenry. members.
Only legal institutions can The rules govern only
make such with which the limited numbers.
SOURCES OF LAW entire citizenry must
comply.
1. Constitution – the written instrument by which the Citizens cannot free People can ordinarily
fundamental powers of the government are themselves unless they terminate their
choose to leave the relationship and free
established, limited, and defined. Often referred as geographical area. themselves from the
the fundamental law or the supreme law or highest impact of rules and
regulations.
law on land. Sanctions and techniques Expulsion is usually the
2. Legislation – it consists in the declaration of legal are more varied and most powerful technique
complex. available.
rules by a competent authority. Acts passed = “due process” of law Usually not required to
enacted or statute law. comply with such
procedures unless there is
3. Administrative or executive orders, regulations, rule.
and rulings – intended to clarify or explain the law
and valid when they are not contrary to the law ORGANIZATION OF COURTS

and Constitution. Vested in one Supreme Court and in such lower courts

4. Judicial decisions or jurisprudence – the decisions as may be established by laws.

of the courts. This is called the doctrine of 1. Regular courts – Supreme Court at apex. Other

precedent or stare decisis. courts: (a) one Court of Appeals, (b) Regional Trial

5. Customs – the habits and practices which have Court, (c) Metropolitan Trial Courts; Municipal Trial

become acknowledged and approved by society as Courts; and Municipal Circuit Trial Courts.

binding rules of conduct. COURTS OF GENERAL/SUPERIOR JURISDICTION –

6. Other sources – principles of justice and equity, Supreme Court, Court of Appeals, and Regional

decisions of foreign tribunals, opinions of Trial Court.

textwriters, and religion. NOT binding on the 2. Special courts – Sandiganbayan (a special anti-graft

courts. court), and Court of Tax Appeals (a special tax

court created by law).

RULE IN CASE OF DOUBT IN INTERPRETATION OR 3. Quasi-judicial agencies – National Labor Relations

APPLICATION OF LAWS Commission, Securities and Exchange Commission,

It is presumed that the lawmaking body intended right Land Transportation Franchising and Regulatory

and justice to prevail. Board, Insurance Commission etc., and the

The ultimate end of the law is JUSTICE. independent Constitutional Commissions.

ORGANS OF SOCIAL CONTROL CLASSIFICATIONS OF LAW

 Churches  Labor unions 1. As to its purpose:

 Corporations  Professional a. Substantive law – that portion of the body
organizations
 Political parties  Social clubs of law creating, defining, and regulating
 Trade associations  Families
 rights and duties which may be public or
private.
b. Adjective law – that portion of the body
of law prescribing the manner/procedure
by which rights may be enforced or their
violations redressed.
2. As to its subject matter:
a. Public law – the body of legal rules which
regulates the right and duties arising from
the relationship of the state and the
people.
CRIMINAL LAW
INTERNATIONAL LAW
CONSTITUTIONAL LAW
ADMINISTRATIVE LAW
CRIMINAL PROCEDURE
b. Private law – the body of rules which
regulates the relations of individuals with
one another for purely private ends.
CIVIL LAW
COMMERCIAL/MERCANTILE LAW
CIVIL PROCEDURE
LAW ON OBLIGATIONS AND CONTRACTS DEFINED
The body of rules which deals with the nature and
sources of obligations and the rights and duties arising
from agreements and the particular contracts.
CIVIL CODE OF THE PHILIPPINES
Republic Act No. 386. Civil law = law found in Civil Code.
Based: Civil Code of Spain
Approved: June 18, 1949
Took effect: August 30, 1950
CIVIL CODE PROVISIONS ON OBLIGATIONS AND
CONTRACTS
Book IV of CC. The general provisions on
Obligations: Title I, Articles 1156-1304
Contracts: Title II, Articles 1305-1422
New provisions dealing with natural obligations: Title III,
Articles 1423-1430.
CONCLUSIVE PRESUMPTION OF KNOWLEDGE OF LAW
Ignorance of law excuses no one from compliance
therewith. Reasons:
1. Most laws cannot be enforced due to their being
unknown to many.
2. Almost impossible to prove the contrary if a person
claims ignorance.
3. It is absurd to absolve those who don’t know the
law.
4. We carry norms of right and wrong and a sense of
duty. Lawyers can be consulted also.
5. Evasion of the law would be facilitated and
administration of justice defeated.
TITLE I
OBLIGATIONS
(Arts. 1156-1304, Civil Code)
CHAPTER 1
GENERAL PROVISIONS
ART. 1156
MEANING OF OBLIGATION
Derived from the Latin word obligatio – tying or
binding.
 It is a tie or bond recognized by law by virtue of
which one is bound in favor of another to render
something – and this may consist in giving a thing,
doing a certain act, or NOT doing a certain act.
CIVIL CODE DEFINITION
Statutory meaning and in its passive aspect:
 An obligation is a juridical necessity to give, to do or
not to do.
MEANING OF JURIDICAL NECESSITY
In case of noncompliance of the obligation, the courts
of justice may be called upon by the aggrieved party to
enforce its fulfillment, or in default thereof, the
economic value that it represents. Debtor/obligor may
be made liable for:
DAMAGES – represents the sum of money given as a part of debtor/obligor/defendant.
3. An act or omission by the latter in
compensation for the injury or harm suffered by the
violation of the right with resulting
creditor/obligee. injury/damage to the former.

KINDS OF OBLIGATION ACCORDING TO THE SUBJECT

NATURE OF OBLIGATIONS UNDER THE CIVIL CODE
MATTER
CIVIL OBLIGATIONS NATURAL OBLIGATIONS
Obligations which give to Obligations based on 1. Real obligation (obligation to give) – the subject
the creditor/obligee a right equity and natural law, do
matter is a THING.
under the law to enforce not grant a right of action
their performance in to enforce their 2. Personal obligation (obligation to do or not to do)
courts of justice. performance although in
– the subject matter is an ACT. Two kinds:
case of voluntary
fulfillment by the debtor, a. Positive personal obligation – obligation TO DO.
the latter may NOT
b. Negative personal obligation – obligation NOT TO
recover what has been
delivered or rendered by DO.
reason thereof.
ART. 1157
SOURCES OF OBLIGATIONS
ESSENTIAL REQUISITES OF AN OBLIGATION
1. Law – imposed by law.
1. A passive subject (debtor/obligor) – he who has a
2. Contracts – arise from the stipulation of the
DUTY.
parties.
2. An active subject (creditor/obligee) – he who has
3. Quasi-contracts – arise from lawful, voluntary and
the RIGHT.
unilateral acts which are enforceable to the end
3. Object or prestation (subject matter of the
that no one shall be unjustly enriched/benefited at
obligation) – the conduct required to be observed
the expense of another.
by the debtor. Vinculum Juris.
4. Crimes or acts or omissions punished by law(delict)
4. A juridical or legal tie (efficient cause) – binds or
– arise from civil liability.
connects the parties to the obligation.
5. Quasi-delicts or torts – arise from damage caused
to another through an act or omission there being
FORM OF OBLIGATION
fault or negligence, but no contractual relation
Refers to the manner in which an obligation is
exists between the parties.
manifested or incurred.
1. ORAL
SOURCES CLASSIFIED
2. IN WRITING
1. Those emanating from law; and
3. PARTLY ORAL AND PARTLY WRITING
2. Those emanating from private acts
a. Those arising from licit acts e.g. contracts and
OBLIGATION The act or performance which the law
will enforce. quasi-contracts.
RIGHT The power which a person has under b. Those arising from illicit acts e.g. delicts and
the law, to demand from another any
prestation. quasi-delicts.
WRONG (Cause of action) an act or omission of ART. 1158
one party in violation of the legal
right(s) of another. LEGAL OBLIGATIONS
INJURY – refer to the wrongful violation They are not presumed because they are considered a
of the legal right of another.
burden upon the obligor.
ESSENTIAL ELEMENTS OF A LEGAL SPECIAL LAWS – refer to all other laws NOT contained in
WRONG/INJURY:
1. A legal right in favor of the Civil Code. Examples:
creditor/obligee/plaintiff.
 Corporation Code  National Internal
2. A correlative legal obligation on the
 Revenue Code 2. In crimes which cause no material damage , there
 Negotiable Instruments  Revised Penal Code is no civil liability to be enforced BUT a person NOT
Law
 Insurance Code  Labor Code criminally responsible may still be liable civilly.

ART. 1159 SCOPE OF CIVIL LIABILITY

CONTRACTUAL OBLIGATIONS
Contract – a meeting of minds between two persons
whereby one binds himself, with respect to the other,
to give something or to render some service.
1. Binding force – force of law between the
contracting parties
2. Requirement of a valid contract – if it is NOT
contrary to law, morals, good customs, public
order, and public policy.
3. Breach of contract – in whole or in part.
1. Restitution;
2. Reparation for the damage caused; and
3. Indemnification for consequential damages.
ART. 1162
OBLIGATIONS ARISING FROM QUASI-DELICTS
An act or omission by a person (tort-feasor) which
causes damage to another in his person, property or
rights there being fault or negligence, but no pre-
existing contractual relation between the parties.

COMPLIANCE IN GOOD FAITH REQUISITES OF QUASI-DELICT

Compliance or performance in accordance with the 1. There must be an act or omission;
stipulations or terms of the contract or agreement. 2. There must be fault or negligence;
SINCERITY and HONESTY must be observed. 3. There must be damage caused;
4. There must be a direct relation or connection of
ART. 1160 cause and effect between the act or omission and
QUASI-CONTRACTUAL OBLIGATIONS the damage;
Not a properly a contract at all. 5. There is no pre-existing contractual relation
between the parties.
KINDS OF QUASI-CONTRACTS
1. Negotiorumgestio – the voluntary management of CRIME DISTINGUISHED FROM QUASI-DELICT
the property or affairs of another without the CRIME QUASI-DELICT
knowledge or consent of the latter. There is criminal/malicious Only negligence.
intent or criminal
2. Solutioindebiti – the juridical relation which is negligence.
created when something is received when there is The purpose is The purpose is
punishment. indemnification of the
NO right to demand it and it was unduly delivered offended party.
through mistake. Requisites: Affects public interest. Concerns private interest.
Liabilities: Criminal and Liability: Civil.
a. There is no right to receive the thing delivered.
civil.
b. The thing was delivered through mistake. Criminal liability cannot be Can be compromised as
compromised or settled by any other civil liability.
3. Other examples of quasi-contracts – Article 2164-
the parties themselves.
2175. The guilt of the accused The fault/negligence need
must be proved beyond only be proved by
ART. 1161
reasonable doubt. preponderance of
CIVIL LIABILITY ARISING FROM CRIMES OR DELICTS evidence.
1. Oftentimes, the commission of a crime causes NOT
only moral evil BUT ALSO material damage. Every
CHAPTER 2
person criminally liable for an act or omission is
NATURE AND EFFECT OF OBLIGATIONS
also civilly liable for damages.
ART. 1163
MEANING OF SPECIFIC OR DETERMINATE THING
A thing is said to be specific or determinate particularly
designated or physically segregated others of the same
class.
MEANING OF GENERIC OR INDETERMINATE THING
A thing is generic or indeterminate when it refers only
to a class or genus to which it pertains and cannot be
pointed out with particularity.
SPECIFIC THING AND GENERIC THING DISTINGUISHED
A determinate thing is identified by its individuality.
A generic thing is identified only by its specie.
DUTIES OF DEBTOR IN OBLIGATION TO GIVE A
DETERMINATE THING
1. Preserve the thing
a. Diligence of a good father of a family.
b. Another standard of care.
c. Factors to be considered.
d. Reason for debtor’s obligation.
1. Deliver the fruits of the thing.
2. Deliver the accession and accessories.
3. Deliver the thing itself.
4. Answer for damages in case of non-fulfillment
or breach
DUTIES OF DEBTOR IN OBLIGATION TO DELIVER A
GENERIC THING
To deliver a thing which is of the quality intended by the
parties taking into consideration the purpose of the
obligation and other circumstances.
To be liable for damages in case of fraud, negligence, or
delay, in the performance of his obligation, or
contravention of the tenor thereof.
ART. 1164
DIFFERENT KINDS OF FRUITS
Natural fruits
Industrial fruits
Civil fruits
RIGHT OF CREDITOR TO THE FRUITS
The creditor is entitled to the fruits of the thing from
the time obligation to deliver it arises. The intention of
the law is to protect the interest of the obligee.
WHEN OBLIGATION TO DELIVER FRUITS ARISES
1. Generally, the obligation to deliver the thing due
and the fruits thereof arises from the “perfection of
the contract.”
2. If the obligation is subject to a suspensive condition
or period, it arises upon the fulfillment of the
condition or arrival of the term.
3. In a contract of sale, the obligation arises from the
perfection of the contract even if the obligation is
subject to a suspensive condition or period where
the price has been paid.
4. In obligations to give arising from the law, quasi-
contracts, delicts, and quasi- delicts, the time of
performance is determined by the specific
provisions of the law.
MEANING OF PERSONAL RIGHT AND REAL RIGHT
Personal right is the right or power of a person to
demand from another , as a definite passive subject, the
fulfillment of the latter’s obligation to give, to do, or not
to do.
Real right is the right or interest of a person over a
specific thing, without a definite passive subject against
whom the right may be personally enforced.
PERSONAL RIGHT AND REAL RIGHT DISTINGUISHED.
PERSONAL REAL
RIGHT RIGHT
Definitive active subject Yes Yes
Definite passive subject Yes No
Binding against Person World
OWNERSHIP ACQUIRED BY DELIVERY
Ownership and other real rights over property are
acquired and transmitted in consequence of certain
contracts by tradition or delivery.
ART. 1165
REMEDIES OF CREDITOR IN REAL OBLIGATION
1. In a specific real obligation, the creditor may:
 a. demand specific performance or fulfillment of
the obligation with a right to indemnity for
damages;
b. demand rescission or cancellation of the
obligation also with a right to recover damages;
c. demand payment of damages only, where it is
the only feasible remedy.
2. A generic real obligation can be performed by a third
person since the object is expressed only according to
its family or genus.
WHERE DEBTOR DELAYS OR HAS PROMISED DELIVERY
TO SEPARATE CREDITORS.
Two instances when a fortuitous event does not exempt
the debtor from responsibility. A determinate thing. An
indeterminate thing cannot be the object of destruction
because genus never perishes.
ART. 1166
MEANING OF ACCESSIONS AND ACCESSORIES
Accessions are the fruits of a thing or additions to or
improvements upon a thing (the principal).
Accessories are things joined to or included with the
principal thing for the latter’s embellishment, better
use, or completion.
RIGHT OF CREDITOR TO ACCESSIONS AND ACCESSORIES
All accessions and accessories are considered included
in the obligation to deliver a determinate thing although
they may not have been mentioned.
ART. 1167
SITUATIONS CONTEMPLATED IN ARTICLE 1167
1. The debtor fails to perform an obligation to do;
2. The debtor performs an obligation to do but
contrary to the terms thereof;
3. The debtor performs an obligation to do but in a
poor manner.
REMEDIES OF CREDITOR IN POSITIVE PERSONAL
OBLIGATION
1. If the debtor fails to comply with his obligation
to do, the creditor has the right: (a) to have the
obligation performed by himself, or by another,
unless personal considerations are involved, at
the debtor’s expense; and (b) to recover
damages.
2. In case the obligation is done in contravention
of the terms of the same or is poorly done, it
may be ordered that it be undone if it is
possible.
PERFORMANCE BY A THIRD PERSON
Debtor can be compelled to make the delivery of a
SPECIFIC THING, a SPECIFIC PERFORMANCE CANNOT be
ordered in a personal obligation because this may
amount to involuntary servitude which is prohibited.
The PERSONAL QUALIFICATIONS of the debtor are the
determining motive for the obligation contracted. The
only feasible remedy of the creditor is
INDEMNIFICATION FOR DAMAGES.
ART. 1168
REMEDIES OF CREDITOR IN NEGATIVE PERSONAL
OBLIGATION
The duty of the OBLIGOR is to abstain from an act.
There is no specific performance. The debtor cannot be
guilty of delay. The remedy of the OBLIGEE is the
undoing of the forbidden thing plus damages. If it is not
possible, his remedy is an action for the damages
caused by the debtor’ violation of his obligation.
ART. 1169
MEANING OF DELAY
Ordinary delay – merely the failure to perform an
obligation on time.
Legal delay or default or mora – the failure to perform
an obligation on time which failure constitutes a breach
of the obligation.
KINDS OF DELAY OR DEFAULT
1. Mora solvendi or the delay on the part of the
DEBTOR to fulfill his obligation;
2. Mora accipiendi or the delay on the part of the
CREDITOR to accept the performance of the
obligation; and
3. Compensatiomorae or the delay of the obligors in
reciprocal obligations.
NO DELAY IN NEGATIVE PERSONAL OBLIGATION for the 1. Fraud (deceit or dolo) – the deliberate or
debtor fulfills by not doing what has been forbidden intententional evasion of normal fulfillment of
him. obligation.
a. Incidental fraud (doloincidente) –
REQUISITES OF DELAY OR DEFAULT BY THE DEBTOR committed in the performance of an
1. Failure of the debtor to perform his obligation on obligation already existing.
the date agreed upon; b. Causal fraud (dolocausante) – fraud
2. Demand made by the creditor upon the debtor to employed in the execution of a contract
comply with his obligation which demand may be which vitiates consent.
either JUDICIAL or EXTRAJUDICIAL; and 2. Negligence (fault or culpa) – any voluntary act or
3. Failure of the debtor to comply with such demand. omission, there being no malice, which prevents
the normal fulfillment of an obligation.
EFFECTS OF DELAY 3. Delay (mora)
1. Mora solvendi – 4. Contravention of the terms of the obligation. –
a. Debtor is guilty of breach/violation of the violation of the terms and conditions stipulated in
obligation. the obligation AND MUST NOT be due to a
b. Liable to the creditor for interest or damages. fortuitous event.
c. Liable even for a fortuitous event when the Fraud Negligence
Intention Deliberate None
obligation is to deliver a determinate thing. For
Waiver For future fraud Allowed
a generic thing, the debtor is NOT relieved is void.
from liability for loss. Proved Clearly Presumed from
the violation of
2. Mora accipiendi – a contractual
a. Creditor is guilty of breach of obligation; obligation.
Liability Cannot be May be
b. Liable for damages suffered by the debtor; mitigated. reduced
c. Bears the risk of loss of the thing due; according to
circumstances.
d. Where the obligation is to pay money, the ART. 1171
debtor is not liable for interest; RESPONSIBILITY ARISING FROM FRAUD DEMANDABLE
e. The debtor may release himself from the This refers to incidental fraud. There is RESPONSIBILITY
obligation by the consignation or deposit in to all kinds of obligation.
court of the thing or sum due.
3. Compensatiomorae – there is no default or delay on WAIVER OF ACTION FOR FUTURE FRAUD VOID
the part of both parties. According to the time of commission, fraud may be:
PAST – fraud valid because the waiver can be
WHEN DEMAND IS NOT NECESSARY TO PUT DEBTOR IN considered as an act of generosity and magnanimity.
DELAY FUTURE – fraud is void for it is against the law and
1. When the obligation so provides. public policy. Makes the obligation ILLUSORY.
2. When the law so provides.
3. When time is of the essence. Law PROHIBITS:
4. When the demand would be useless. 1. Waiver anterior to the fraud;
5. When there is performance by a party in 2. The knowledge thereof by the aggrieved party.
reciprocal obligation. ART. 1172
ART. 1170 Responsibility arising from negligence demandable.
GROUNDS FOR LIABILITY
VALIDITY OF WAIVER OF ACTION ARISING FROM To be entitled to damages, it is NOT required that the
NEGLIGENCE negligence of the defendant should be the sole cause of
1. An action for future negligence may be renounced the damages.
except where the nature of the obligation requires ART. 1173
the exercise of extraordinary as in the case of MEANING OF FAULT OR NEGLIGENCE
common carriers. Failure to observe for the protection of the interests of
2. Where negligence shows bad faith it is considered another person, the degree of care, precaution and
equivalent to fraud. vigilance which the circumstances justly demand,
3. KINDS OF NEGLIGENCE ACCORDING TO SOURCE OF whereby such other person suffers injury.
OBLIGATION.
Points of Contractual Civil Criminal FACTORS TO BE CONSIDERED
Comparison Negligence Negligence Negligence
1. Nature of the obligation.
Latin and Culpa Culpa Culpa
other terms contractual aquiliana, criminal 2. Circumstances of the person.
Tort,
3. Circumstances of time
Quasi-
delict 4. Circumstances of the place.
Meaning Result to Source of Resulting to
breach of an a
contract. obligation commission MEASURE OF LIABILITY FOR DAMAGES
between of a crime. Damages signify the money compensation awarded to a
unrelated
parties. party for loss injury resulting from breach of
Commission Merely Direct, Direct, contract/obligation. The PURPOSE of awarding damages
of Negligence incidental to substantive substantive
as a source of the and and is to place the innocent party in THE SAME POSITION he
obligation performanc independe independen would have occupied if the contract or obligation had
e of an nt of a t of a
obligation contract. contract. been performed.
already
existing
because of a KINDS OF DILIGENCE REQUIRED
contract. 1. that agreed upon by the parties, orally or in writing;
Source of Contract Law Law
obligation 2. in the absence of stipulation, that required by law in
Pre-existing There is pre- No pre- NONE the particular case;
obligation existing existing except the
obligation obligation duty not to 3. if both contract and law are silent, then the
contract, except the harm diligence expected of a good father of a family.
either duty to be others.
expressed careful in ART. 1174
or implied. all human MEANING OF FORTUITOUS EVENT
actuation.
Proof needed Prepondera Preponder Prove of Any event which cannot be foreseen, or which, though
re-evidence nce of ance of guilt beyond foreseen, is inevitable. The ESSENCE of it consist of
evidence. evidence. reasonable
doubt. being a happening independent of the will of the debtor
and makes the fulfillment of the obligation impossible.
EFFECT OF NEGLIGENCE ON THE PART OF THE INJURED May be:
PARTY ACTS OF MAN – war, fire, robbery, murder etc.
When plaintiff’s own negligence was IMMEDIATE AND ACTS OF GOD – earthquake, flood, rain, lightning etc.
PROXIMATE CAUSE of his injury, he CANNOT RECOVER
DAMAGES but if negligence is CONTRIBUTORY, courts Fortuitous event and force majeure are IDENTICAL in so
shall mitigate the damages. far as THEY EXEMPT AN OBLIGOR FROM LIABILITY.
KINDS OF FORTUITOUS EVENTS
1. Ordinary fortuitous events – events which are
common and could reasonably foresee.
2. Extra-ordinary fortuitous events – events which are
uncommon and could not have reasonably foresee.
REQUISITES OF A FORTUITOUS EVENT
1. The event must be independent of the human will
or debtor’s will;
2. The event could not be foreseen, or if foreseen, is
inevitable;
3. The event must be of such character as to render it
impossible for the debtor to comply the obligation;
4. The debtor must be free from any participation in,
or the aggravation of, the injury to the creditor,
that is, there is no concurrent negligence on his
part.
Any absence of ANY of the above requisites would
prevent the obligor from being exempt from liability.
RULES AS TO LIABILITY IN CASE OF FORTUITOUS EVENT
A person is NOT responsible for loss/damage due to
fortuitous event EXCEPT:
1. When expressly specified by law.
a. the debtor is guilty of fraud, negligence,
delay, or contravention of the tenor of the
obligation.
b. the debtor has promised to deliver the same
(specific) thing to two or more persons who
do not have the same interest.
c. the obligation to deliver a specific thing arises
from a crime.
d. the thing to be delivered is generic.
2. When declared by stipulation.
3. When the nature of the obligation requires
assumption of risk.
ART. 1175
MEANING OF SIMPLE LOAN OR MUTUUM
A contract whereby one of the parties delivers to
another upon the condition that the same amount of
the same kind and quality shall be paid.
MEANING OF USURY
Contracting for or receiving interest in excess of the
amount allowed by law for the loan or use of money,
goods, chattels or credits.
REQUISITES FOR RECOVERY OF INTEREST
1. The payment of interest must be expressly
stipulated.
2. The agreement must be in writing.
3. The interest must be lawful.
ART. 1176
MEANING OF PRESUMPTION
The inference of a fact NOT actually known arising from
its usual connection with another which is known or
proved.
TWO KINDS OF PRESUMPTION
1. Conclusive presumption – one which CANNOT BE
contradicted.
2. Disputable (or rebuttable) presumption – one
which can be contradicted or rebutted by
presenting proof to the contrary.
WHEN PRESUMPTIONS IN ARTICLE 1176 DO NOT APPLY
1. With reservation as the interest.
2. Receipt without indication of particular
installment paid.
3. Receipt for a part of the principal.
4. Payment of taxes.
5. Nonpayment proven.
ART. 1177
REMEDIES AVAILABLE TO CREDITORS FOR THE
SATISFACTION OF THEIR CLAIMS
1. Exact fulfillment with the right of damages.
2. Pursue the leviable property of the debtor.
3. Exercise all the rights and bring all actions of the
debtor (ACCION SUBROGATORIA).
4. Ask the court to rescind or impugn acts/contracts
which the debtor may have done to defraud him
(ACCION PAULIANA).
ART. 1178 Two principal kinds of condition
1.Suspensive condition (condition precedent or
TRANSMISSIBILITY OF RIGHTS
condition antecedent)
All rights acquired in virtue of an obligation are - The fulfillment of which will give rise to an
obligation (or right).
generally transmissible or assignable EXCEPT:
2. Resolutory condition (condition subsequent)
1. Prohibited by law. By the contract of: - The fulfillment of which extinguishes the
obligation (or right) already existing.
a. PARTNERSHIP
b. AGENCY Distinctions between suspensive and resolutory
conditions
c. COMMODATUM
1. If the suspensive condition is fulfilled, the obligation
2. Prohibited by stipulation of the parties. arises, while if it is resolutory condition that is fulfilled,
the obligation is extinguished.
2. If the first does not take place, the tie of the law does
not appear, while if it is the other, the tie of the law is
consolidated; and
3. Until the first takes place, the existence of the
obligation is a mere hope, while in the second, its
effects flow, but over it hovers the possibility of
Chapter 3 DIFFERENT KINDS OF OBLIGATIONS
termination.
Classifications of obligations
When obligation is demandable at once
1.When it is pure
Primary classification of obligations under the Civil
2.When it is subject to a resolutory condition; or
Code:
3.When it is subject to a resolutory period.
a. Pure and conditional obligations
b. Obligations with a period
Past event unknown to parties
c. Alternative and facultative obligations
- a past event cannot be said to be a condition
d. Joint and solidary obligations
e. Divisible and indivisible obligations
ARTICLE 1180
f. Obligations with a penal clause
When duration of the period depends upon the will of
Secondary classification of obligations under the Civil
the debtor
Code:
- a period is a future and certain event upon the arrival
a. Unilateral and bilateral obligations
of which the obligation subject to it either arises or is
b. Real and personal obligations
extinguished.
c. Determinate and generic obligations
1. The debtor promises to pay when his means permit
d. Civil and natural obligations
him to do so
e. Legal, conventional, and penal obligations
2. Other cases
a. little by little
Section 1- Pure and Conditional Obligations
b. as soon as possible
c. from time to time
Meaning of pure obligation
d. at any time i have the money
A pure obligation is one which is not subject to
e. in partial payments
any condition and no specific date is mentioned for its
f. when I can afford it
fulfillment and is immediately demandable.
ARTICLE 1181
Meaning of conditional obligation
A conditional obligation is one whose
Effect of happening of condition
consequences are subject to any way or another to the
1.Acquisition of rights
fulfillment of a condition.
2. Loss of rights already acquired
Meaning of condition
ARTICLE 1182
Condition is a future and uncertain event, upon
the happening of which, the effectivity or
Classification of conditions
extinguishment of an obligation subject to it depends.
1. As to effect:
a. Suspensive- gives rise to the obligation
Characteristics of a condition
b. Resolutory- extinguishes the obligation
1.Future and uncertain
2. As to form:
2. Past but unknown
a. Express- clearly stated
b. Implied- merely inferred
3. As to possibility:
a. Possible- condition is capable of fulfillment, legally
and physically
b. Impossible- condition is not capable of fulfillment,
legally or physically
4. As to cause or origin:
a. Potestative- condition depends upon the will of one
of the contracting parties
b. Casual- condition depends upon chance or will of a
third person
c. Mixed- condition depends partly upon chance and
upon the will of a third person
5. As to mode:
a. Positive- condition consists in the performance of an
act
b. Negative- condition consists in the omission of an act
6. As to numbers:
a. Conjunctive- there are several conditions and all must
be fulfilled
b. Disjunctive- there are several conditions and only one
or some of them must be fulfilled
7. As to divisibility:
a. Divisible- condition is susceptible of partial
performance
b. Indivisible- condition is nit susceptible of partial
performance
Postestative condition (condicionpotestativa/
facultative)
- a condition suspensive in nature and which depends
upon the sole will of one of the contracting parties.
Where suspensive condition depends upon the will of
debtor
1. Conditional obligation void
- the validity and compliance is left to the will of the
debtor and cannot easily be demanded
2. Only the condition void
- the condition is imposed not on the birth of the
obligation but on its fulfillment
 If the condition is depends exclusively upon the
will of the creditor, the obligation is valid.
Where resolutory condition depends upon will of
debtor
- the position of the debtor when condition is resolutory
is the same as that of creditor when the condition is
suspensive.
Casual condition
- if the suspensive condition depends upon chance or
upon the will of a third person, the obligation subject to
it is valid.
Mixed condition
- the obligation is valid if the suspensive condition
depends partly upon chance and upon the will of a third
person.
ARTICLE 1183
Two kinds of impossible conditions
1. Physically impossible conditions- cannot exist or
cannot be done
2. Legally impossible conditions- when they are contrary
to law, morals, good customs, public order or public
policy.
Effect of impossible conditions
1. Conditional obligation void- impossible conditions
annul the obligation which depends upon them. Both
the obligation and the condition are void.
2. Conditional obligation valid- condition is always
fulfilled when it is not to do an impossible thing so that
it is the same as if there was no condition.
3. Only the affected obligation void- if the obligation is
divisible, the part thereof not affected by the impossible
condition shall be valid.
4. Only the condition void - if the obligation is a pre-
existing obligation, does not depend upon the
fulfillment of the conditions, only the condition is void.
ARTICLE 1184
Positive condition
- refers to positive (suspensive) condition happening at
a determinate time; extinguished at:
1. as soon as the time expires without the event taking
place; or
2. as soon as it has become indubitable at the event will
not take place although the time specified has not
expired.
ARTICLE 1185
Negative condition
- an event will not happen at a determinate time; shall
become effective and binding:
1. from the moment the time indicated has elapsed
without the event taking place; or
2. from the moment it has become evident that the
event cannot occur, although the time indicated has not
yet elapsed.
ARTICLE 1186
Constructive fulfillment of suspensive condition
Requisites:
1. The condition is suspensive
2. The obligor actually prevents the fulfillment of the
condition; and
3. He acts voluntarily
Constructive fulfillment of resolutory condition
- with respect to the debtor who is bound to return
what he has received upon the fulfillment of the
condition.
ARTICLE 1187
Retroactive effects of fulfillment of suspensive
condition
1. In obligation to give- becomes demandable only upon
the fulfillment of the condition. Once condition is
fulfilled, its effect shall retroact to the day when the
obligation was constituted.
2. In obligations to do or not to do- no fixed rule is
provided.
Retroactive effects as to fruits and interests in
obligations to give
1. In reciprocal obligations- there is no retroactivity
because the fruits and interests are deemed to have
mutually compensated.
2. In unilateral obligations- there is usually no
retroactive effect because they are gratuitous.
ARTICLE 1188
Rights pending fulfillment of suspensive condition
1. Rights of creditor- he may take or bring appropriate
actions for the preservation of his right, as well as the
debtor may render nugatory the obligation upon the
happening of the condition.
2. Rights of debtor- he is entitled to recover what he has
paid by mistake or prior to the happening of the
suspensive condition.
ARTICLE 1189
Requisites for application of Article 1189
1. The obligation is a real obligation
2. The object is a specific or determinate thing
3. The obligation is subject to a suspensive condition
4. The condition is fulfilled
5. There is loss, deterioration, or improvement of the
thing during the pendency of the condition.
Kinds of loss
1. Physical loss- when a thing perishes
2. Legal loss- when a thing goes out in commerce or
becomes illegal
3. Civil loss- when a thing disappears in such a way that
its existence is unknown, or even if known, cannot be
recovered, whether as a matter of fact or law.
Rules in case of loss, deterioration, or improvement of
thing during pendency of condition
1. Loss of thing without debtor's fault- obligation shall
be extinguished.
2. Loss of thing through debtor's fault- he shall be
obliged to pay damages.
3. Deterioration of thing without debtor's fault- the
impairment is to be borne by the creditor.
4. Deterioration of thing through debtor's fault- the
creditor may choose between the rescission of the
obligation and it fulfillment, with indemnity for
damages
5. Improvement of thing by nature or by time- the
improvement shall inure to the benefit of the creditor.
6. Improvement of thing at expense of debtor- he shall
have no other right than that granted to the
usufructuary.
 Usufruct- the right to enjoy the use and fruits of
a thing belonging to others
ARTICLE 1190
Effects of fulfillment of resolutory condition
1. In obligation to give- obligation is extinguished and
the parties are obliged to return to each other what
they have received.
2. In obligations to do or not to do- the courts shall
determine the retroactive effect of the fulfillment of the
resolutory condition as in the case where the condition
is suspensive.
ARTICLE 1191
Kinds if obligations according to the person obliged
1. Unilateral- only one party is obliged to comply with a
prestation.
2. Bilateral- both parties are mutually bound to each
other.
a. Reciprocal obligations- arise from the same cause and
in which each party is a debtor and creditor of the
other, such that performance is equivalent of the other.
b. Non-reciprocal obligations- which do not impose
simultaneous and correlative performance on both
parties.
Remedies in reciprocal obligations
1. Choice of remedies
a. action for specific performance of the obligation with
damages; or
b. action for rescission of the obligation also with
damages
2. Remedy of rescission for non-compliance- granted for
breach by the other party that violates the reciprocity
between them.
Court may grant guilty party term for performance
- applies only where the guilty party is willing to comply
with his obligation but needs time to do so and not
where he refuses to perform.
Remedies are alternative
- the remedies of the injured or aggrieved party are
alternative and not cumulative, he is privileged to
choose only one of the remedies
- he may also seek rescission, but after choosing it he
cannot demand its compliance.
Limitations on right to demand rescission
1. Resort to the courts
2. Power of court to fix period
3.Right of third person
4.Substantial violation
5. Waiver of right
Rescission without previous judicial decree
1.Where automatic rescission expressly stipulated
2. Where contract is still executory
ARTICLE 1192
Where both parties are guilty of breach (In Pari Delicto)
1. First infractor known- one party violated his
obligation; subsequently, the other also violated his
part of the obligation. In this case, the liability of the
first infractor should be equitably reduced.
2. First infractor cannot be determined- contract shall
be deemed extinguished and each shall bear his own
damages.

Section 2- Obligations with a Period
ARTICLE 1193
Meaning of obligation with a period
An obligation with a period is one whose effects
or consequences are subjected in one way or another to
the expiration or arrival of said period or term.
Meaning of period or term
A period is a future and certain event upon the
arrival of which the obligation subject to it either arises
or is terminated.
Period and condition distinguished
1. As to fulfillment- a period is a certain event which
must happen sooner or later at a date known
beforehand, while a condition is an uncertain event.
2. As to time- a period refers only to the future, while a
condition may refer also to a past event unknown to the
parties
3. As to influence on the obligation- a period merely
fixes the time for its efficaciousness of the obligation,
on the other hand, a condition causes an obligation
either to arise or to cease
4. As to effect, when left to debtor's will- a period
empowers the court to fix the duration thereof, while a
condition invalidates the obligation.
5. As to retroactivity of effects- unless there is an
agreement to the contrary, the arrival of a period does
not have any retroactive effect, while the happening of
a condition has retroactive effect.
Kinds of period or term
1. According to effect:
a. Suspensive period (ex die) - the obligation begins only
from a day certain upon the arrival of period
b. Resolutory period (in diem) - the obligation is valid up
to a day certain and terminates upon the arrival of the
period.
2. According to source:
a. Legal period- when it is provided for by laws
b. Conventional or voluntary period- when it is agreed
to by the parties
c. Judicial period- when it is fixed by the court
3. According to definiteness:
a. Definite period- when it is fixed or it is known when it
will come
b. Indefinite period- when it is not fixed or it is not
known when it will come.
ARTICLE 1194
Effect of loss, deterioration, or improvement before
arrival of period
- the rules in Article 1189 shall be observed
ARTICLE 1195
Payment before arrival of period
- applies only to obligation to give
- allows the recovery of what has been paid by mistake
before the fulfillment of a suspensive condition
- the creditor cannot unjustly enrich himself by retaining
the thing or money received before the arrival of the
period.
Debtor presumed aware of period
- has the burden of proving that he was unaware of the
period.
- where the duration of the period depends upon the
will of the debtor, payment by him amounts to his
determination of the arrival of the period.
- the obligor may no longer recover the thing or money
once the period has arrived but he can recover the
fruits or interests thereof from the date of premature
performance to date of maturity of the obligation.
No recovery in personal obligations
- it is physically impossible to recover the service
rendered and he cannot recover what he has not done.
ARTICLE 1196
Presumption as to benefit of period
- established for the benefit of both creditor and
debtor.
- it means that before the expiration of the period, the
debtor may not fulfill the obligation and neither may
the creditor demand its fulfillment without the consent
of the other.
- presumption is rebuttable.
Exceptions to the general rule
1. Term is for the benefit of the debtor alone
- he cannot be compelled to pay prematurely, but he
can if he desires to do so.
2. Term is for the benefit of the creditor
- he may demand fulfillment even before the arrival of
the term but the debtor cannot require him to accept
payment before the expiration of the stipulated period.
Computation of term or period
1. The Administrative Code of 1987
Legal Periods: Years- 12 calendar months
Month- 30 days, unless it refers to a specific calendar
month
Day- 24 hours
Night- from sunset to sunrise
2. A calendar month is a month designated in the
calendar without regard to the number of days it may
contain.
ARTICLE 1197
Court generally without power to fix a period
- if the obligation does not state a period and no period
is intended, the court is not authorized to fix a period.
Exceptions to the general rule
1. No period is fixed but a period was intended
2. Duration of the period depends upon the will of the
debtor.
Legal effect where suspensive period/condition
depends upon the will of the debtor
1. The existence of the obligation is not affected
although the period depends upon the sole will of the
debtor. It is only the performance with respect to time
that is left to the will of the debtor.
2. The conditional obligation is void because in such
case, it is actually the fulfillment of the obligation that
depends upon the will of the debtor.
Period fixed cannot be changed by the courts
1. If there is a period agreed upon and it has already
lapsed, the court cannot fix another period.
2. From the very moment the parties give their
acceptance and consent to the period fixed by the
court, it becomes a law governing their contract.
However, the parties may modify the term by a new
agreement.
ARTICLE 1198
When obligation can be demanded before lapse of
period
1.When the debtor becomes insolvent
2. When the debtor does not furnish guaranties or
securities promised
3. When guaranties and securities given have been
impaired or have disappeared
4. When the debtor violates an undertaking
5. When the debtor attempts to abscond
Section 3- Alternative Obligations
ARTICLE 1199
Kinds of obligation according to object
1. Simple obligation- where there is only one (1)
prestation.
2. Compound obligation- where there are two (2) or
more prestations.
a. Conjunctive obligation- where there are several
prestations and all of them are due
b. Distributive obligation- where two (2) or more of the
prestations are due. It may be:
1. Alternative obligation- several prestations are
due but the performance of one is sufficient.
2. Facultative obligation- one prestation is due but
the debtor may substitute another.
Meaning of alternative obligation
An alternative obligation is one wherein various
prestations are due but the performance of one of them
is sufficient as determined by the choice, belongs to the
debtor.
ARTICLE 1200
Right of choice, as a rule, given to debtor
- as a general rule, the right to choose the prestation
belongs to the debtor.
- it may be exercised by the creditor but only when
expressly granted to him, or by a third person when the
right is given to him by common agreement.
Right of choice of debtor, not absolute
1. The debtor cannot choose those prestations which
are:
a. impossible
b. unlawful; or
c. which could not have been the object of the
obligation
2. The debtor has no more right of choice when only
one is predictable
3. The debtor cannot choose part of one prestation and
part of another prestation.
ARTICLE 1201
Communication of notice that choice has been made
1. Effect of notice- until a choice is made and
communicated, obligation remains alternative.
a. Once the notice of election has been given to the
creditor, the obligation ceases to be alternative and
becomes simple.
b. Such choice once properly made and communicated
is irrevocable and cannot be changed by either party
without the consent of the other.
2. Proof and form of notice- made upon him who made
the choice. May be made orally or in writing, expressly
or impliedly.
ARTICLE 1202
Effect when only one prestation is practicable
- if only one is practicable, the obligationis converted
into a simple one.
ARTICLE 1203
When debtor may rescind contract
- the right given to the debtor to rescind the contract
and recover damages if, through the creditor's fault, he
cannot make a choice according to the terms of the
obligation
- the debtor is not bound to rescind
ARTICLE 1204
Effects of loss of objects of obligation
1. Some of the objects- the debtor is not liable since he
has the right of choice and the obligation can still be
performed.
2. All of the objects- the creditor shall have the right to
indemnity for damages since the obligation can no
longer be complied with.
Basis of indemnity
- the value of the last thing which disappeared (in
obligation to give) or that of the service which last
became impossible (in obligation to do).
- in case of disagreement, it is incumbent upon the
creditor to prove such value or which thing last
disappeared or which service last became impossible.
- other damages may also be awarded.
ARTICLE 1205
When right of choice belongs to creditor
- the provisions with respect to the debtor are laid
down in the preceding articles shall be applicable to the
creditor when the right of choice is given to him
Kinds of obligations according to the number of parties:
- before the creditor makes the selection, the debtor
cannot incur delay.
Rules in case of loss before creditor has made choice
1. When a thing is lost through a fortuitous event- 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. When a thing is lost through debtor's fault- the
creditor may claim any of those subsisting, or the price
of that which has disappeared, with right to damages
3. When all the things are lost through debtor's fault-
choice by the creditor shall fall upon the price of any
one of them, also with indemnity for damages.
4. When all the things are lost through a fortuitous
event- Article 1174 shall apply.
Rules applicable to personal obligations
- the responsibility of debtor for damages depends
upon whether the cause which has rendered the
obligation impossible was due to his fault or not.
Collective obligation is presumed joint since solidary
 Individual Obligation- 1 where there is only 1
debtor/creditor.
 Collective Obligation- 1 where there are 2 or more
debtors/creditors.
 Joint Obligation- obligation is
proportionately fulfilled by debtors and/or
proportionately demanded by creditors.
Ex. Mancomanada, mancomunadamente, pro
rata, proportionatelt, “We promise to pay”
 Solidary Obligation- 1 where each debtor is
bound to render, and each creditor has
right to demand, entire compliance of
obligation.
Ex.Joint and/ or severally, in solidium, solidaria,
juntos o separadamente, together and/or
separately, “I promise to pay”

ARTICLE 1206 obligations are burdensomefor they create unusual

rights and liabilities.
Meaning of facultative obligation
A facultative obligation is one where only one
prestation has been agreed upon but the obligor may Obligation becomes solidary if:
render another in substitution.
A. Obligation expressly states
Effect of loss B. Law requires solidarity
C. Nature of obligation requires solidarity
1. Before substitution- the loss of the thing intended as
a substitute with or without the fault of the debtor does
not render him liable; the thing intended is not due. Kinds of Solidarity:
2. After substitution- the liability of the debtor depends
upon whether or not the loss is due to his fault; 1.) According to parties bound:
substitution becomes effective from the time it has  Passive Solidarity (mutual guaranty)
been communicated.  Active Solidarity (mutual representation)
 Mixed Solidarity- both sides
Alternative and facultative obligations distinguished 2.) According to source:
1. Number of prestations- In the first, several  Conventional Solidarity- agreed by parties
prestations are due but compliance with one is  Legal Solidarity- imposed by law
sufficient, while in the second, only one prestation is  Real Solidarity- imposed by nature of obligation
due although the debtor is allowed to substitute it.
2. Right of choice- In the first, the right of choice may be Joint Indivisible Obligation-Joint to liabilities/ right,
given to the creditor or third person, while in the
second, the right to make the substitution is given only indivisible to compliance.
to the debtor.
3. Loss through a fortuitous event- In the first, it does
not extinguish the obligation, while in the second, INDIVISIBILITY VS. SOLIDARITY
extinguishes the obligation. Refers to prestation Refers to legal tie
4. Loss through debtor's fault Only the guilty All debtors are liable
a. In the first, the loss of one does not render the debtor debtor is liable for
liable, while in the second the loss of the thing due damage
through his fault makes him liable. Can exist with only At least 2/ more
b. In the first, where the choice belongs to the creditor, one debtor & debtors/ creditors
loss of one alternative through the fault of debtor gives creditor
rise to liability, while in the second, it does not render Others aren’t liable Liable for insolvency
the debtor liable. for insolvency of 1 of 1 debtor
debtor
Section 4- Joint & Solidary Obligations
Kinds of solidary obligation according to legal tie
 Uniform- parties are bound by same
stipulations.
 Non-uniform- Not subject to same stipulations.
Solidarity is not affected by diverse stipulations.
Rule: creditor may bring action against any solidarity
debtor LESS shares of other debtors with unexpired
terms.
THE SOLIDARY CREDITOR
 He may do useful acts, but not prejudicial ones.
“Theory of mutual agency”
 He can’t assign his rights to a 3rd person unless
there is consent; he may assign to co-creditor w/o
consent.
 Payment may be made to any solidary creditor
unless there is judicial/ extrajudicial demand of
one creditor.
(He has right to proceed against any debtor.)
 He is liable for corresponding shares of other
creditors in case of: novation, compensation,
confusion and remission.
Novation, etc. doesn’t extinguish obligation in “joint”
because only the proportionate creditor is affected.
Effects of payment by solidary creditors:
1.) Between solidary debtors & creditors-
extinguishment of obligation.
2.) Among solidary debtors- payee can demand
reimbursement from co-debtors.
3.) Among solidary creditors- receiving creditor is
jointly liable for corresponding shares.
Effect of payment after obligation has (1) prescribed/
become (2) illegal: Solidary debtor can’t get
reimbursement since obligation is extinguished.
Effect of remission of share:
i. Payment before remission: no effect since
obligation is already extinguished.
ii. Payment after remission: solutioindebiti
arises.
Note: Remission of whole obligation obtained by 1
debtor doesn’t entitle him to reimbursement from co-
debtors, since it is gratuitous, except in cases of
novation, compensation, or confusion.
Rules in case thing has been lost/ prestation became
impossible:
a. Loss is w/o fault and before delay-
extinguishment of obligation.
b. Loss is w/o fault and after delay- Creditor can
recover damages even if with fortuitous event.
(All debtors are liable)
c. Loss Is due to fault on the part of a solidary
debtor- Debtors areresponsible for price +
damages (mutual agency).
Defenses available to a solidary debtor:
 Defenses derived from nature of obligation.
(Fraud, prescription, remission, illegality, res
judicata, non-performance of suspensive
condition)
 Defenses personal to, or w/c pertain to share of
debtor sued. (insanity, incapacity, mistake,
violence, minority)
 Defenses personal to other solidary debtors.
Section 5- Divisible and Indivisible Obligations
o Divisible obligation- 1 the object of w/c, in its
delivery/performance, is capable to partial
fulfillment.
o Indivisible obligation- 1 the object of w/c, in its
delivery/performance, is NOT capable to partial
fulfillment.
Determining if obligation is divisible/ indivisible
depends on intention of parties; but if, object is
physically indivisible, then it is deemed an indivisible
obligation despite the intention.
Kinds of division:
 Qualitative division-based on quantity
 Quantitative division-based on quality
 Ideal/ Intellectual division-exists only in the minds
of the parties
Kinds of indivisibility:
 Legal indivisibility- declared by law
 Conventional indivisibility- declared by will of
parties
 Natural indivisibility- nature of object doesn’t
admit division
Effect of non-compliance by a debtor in a joint
indivisible obligation:
Obligation is converted into one for damages,
not rescission/ specific performance since there is no
cause of action against other willing debtors.
Obligations deemed INDIVISIBLE:
 1) Obligations to give definite things.
2) Obligations, which are not susceptible of partial
performance.
3) Obligations provided by law to be indivisible
even if thing/service is physically divisible.
4) Obligations intended by the parties to be
indivisible even if thing/service is physically
divisible.
Obligations deemed DIVISIBLE:
1) Obligations, which have for their object the
execution of a certain number of days of work.
2) Obligations, which have for their object the
accomplishment of work by metrical units.
3) Obligations, which have for their nature, are
susceptible of partial performance.
In Negative obligations: Character of prestation
determines divisibility/indivisibility.
Ex. Indivisible- forbearance is continuous
Divisible- forbearance not continuous
Note: Personal obligations are generally indivisible,
except the ones stated on Art. 1225.
Section 6- Obligation with a penal clause
-Is an obligation w/ an accessory
undertaking to pay a previously stipulated indemnity in
case of breach.
o Principal obligation- one w/c can stand alone,
doesn’t depend its validity on another
obligation.
o Accessory obligation- one w/c is attached in a
principal obligation.
Penal clause: An accessory undertaking attached to an
obligation to assumer greater liability in case of breach.
Purposes of penal clause:
1. To insure performance by creating an effective
deterrent against breach.
2. To substitute penalty for the indemnity for
damages (reparation).
3. To punish debtor for non-fulfillment of obligation
(punishment).
Penal clause vs. Condition
Constitutes an xxx
obligation
Demandable Never Demandable
Kinds of Penal clause:
1.) As to origin:
 Legal – provided by law.
 Conventional- provided by parties.
2.) As to purpose:
 Compensatory- when penalty substitutes
damage.
 Punitive- when penalty is imposed for
punishment.
3.) As to effect:
 Subsidiary- when only penalty can be enforced.
 Joint- when penalty and principal obligation
can be enforced.
General rule: Penalty substitutes damage and interest.
Proof of actual damage suffered is not necessary.
Creditor may recover damages, w/ penalty:
A. When stipulated by parties
B. When obligor refuses to pay penalty, in w/c
case creditor may recover legal interest
thereon.
C. When obligor is guilty of fraud in the fulfillment
of the obligation
PENALTY
 It is enforced only when demandable; if there is
breach or is contrary to a valid contract. Proof of
actual damage not needed.
 May be reduced by court if it is (1) iniquitous/
unconscionable, or in case there is (2) partial/
irregular performance.
 It doesn’t substitute for performance unless right
has been expressly given to debtor.
 It is presumed subsidiary. Creditor can’t demand
performance and penalty at the same time;
remedies are alternative, unless stated as joint
penal clause giving right to the creditor.
 On Joint penal clause, it is enough that right has
been clearly granted to creditor, implied grant is
sufficient.
Effect Of Nullity Of Nullity Of
Principal Penal
obligation: Clause:
Obligation VOID VALID
Penal Clause VALID VOID
If nullity is due to debtor: penalty may be enforced.
Extinguishment of obligations
Causes of extinguishment of obligation:
(1.) Payment/ performance
(2.) Loss of thing due
(3.) Condonation/ remission of debt
(4.) Confusion/ merger of rights
(5.) Novation
(6.) Death in obligation for service
(7.) Mutual Desistance/ withdrawal
(8.) Arrival of resolutory period.
(9.) Compromise
(10.) Impossibility of fulfillment
(11.) Happening of a fortuitous event
Section 1- Payment/ Performance
 -Is the delivery of money, to give, to do or not
to do.
Debt is considered paid when:
o There is complete performance.
o The very prestation due must be delivered/
performed.
EXCEPTIONS:
1.) Recovery of obligor allowed when there is
substantial performance and obligor is in good
faith. (Doctrine of substantial performance)
2.) If payment is incomplete, creditor may reject
it, in case of acceptance, obligation is
extinguished (Principle of Estoppel)
 Obligee is aware of incompleteness
 He accepts performance w/o objection.
Creditor is bound to accept payment from the ff:
 Debtor
 Anyone having interest in the obligation
 3rd person w/ no interest, but there is stipulation
that he can make payment
Note: creditor may refuse payment of 3rd person for
personal reasons.
Effect of payment by 3rd person:
1. Made w/o knowledge/ against will of debtor-
recovery from debtor only insofar as payment
benefitted the latter.
2. Made w/ knowledge of debtor- payer has right
of reimbursement & subrogation to the
accessory obligation such as mortgage,
guaranty or penalty.
Subrogation vs. Reimbursement
3rd person Has only right to
acquires be refunded
creditor’s right,
plus
reimbursement
No extinction of Extinguishment
obligation of obligation
If 3rd person doesn’t intend to be reimbursed:
It is deemed as donation, w/c requires debtor’s
consent to be valid, but if creditor accepts payment, it is
as valid as to him and payer.
General rule: In obligation to give, payment by one who
does not have the free disposal of the thing due and
capacity to alienate is not valid. Payment can be
recovered.
o Free disposal of the thing due- thing to be
delivered must not be subject to any claim.
o Capacity to alienate – person isn’t incapacitated
to enter into contracts.
Payment shall be made to:
 Creditor
 His successor in interest
 Any person authorized to receive it- included
people authorized by law: guardian, executor,
liquidator, etc.
Article 1241
 Effect of payment to an incapacitated person
- NOT VALID, unless he kept the thing paid or
delivered or was benefited by the payment.
- In the absence of such benefit, debtor may be
made to pay again by the creditor’s guardian or
by the incapacitated person himself.
- Proofis incumbent upon the debtor who paid.
 Effect of payment to a third person
- NOT VALID, except insofar it has redounded to
the benefit of the creditor
- That the creditor was benefited by the payment
made by the debtor to a third person is NOT
PRESUMED and must be satisfactorily
established by the person interested in proving
this fact.
- In the absence of proof, the payment will not
deprive the creditor of his right to demand
payment.
 When benefit to the creditor need not be proved by
the debtor
- debtor is relieved from proving benefit to the
creditor in case of:
1) Subrogation of the payer in the creditor’s
rights
2) Ratification by the creditor
3) Estoppel on the part of the creditor
- Admission or representation is rendered
conclusive upon the person making it and
cannot be denied or disproved against the
person relying to it.
*benefit to the creditor is to be presumed.
Article 1242
 Payment to a third person in possession of credit
- VALID
- “Possession” of the credit itself not merely of
the document or instrument evidencing the
credit.
 - Mere possession of the instrument does not
entitle the holder to payment nor does
payment release the debtor.
- The payer must act in good faith, making a valid
payment and that the payee is the owner of the
credit.
Article 1243
 When payment to creditor not valid
- Action against the debtor who is a creditor of
another, the debtor-stranger during the
pendency case may be ordered by the court to
retain the debt until the right of the creditor in
the main litigation is resolved.
- Payment made subsequently by the debtor-
stranger shall NOT BE VALID.
Article 1244
 Very prestation due must be complied with
1) A thing different from that due cannot be
offered or demanded against the will of the
creditor or debtor, as the case may be.
(SPECIFIC)
2) The act to be performed or the act prohibited
CANNOT BE SUSTITUTED against the obligee’s
will. (PERSNAL OBLIGATIONS)
 When prestation may be substituted
- if the oblige consents
- Facultative obligations, debtor is given the right
to render another prestation in substitution.
- Waiver by the creditor or substitution is allowed
by stipulation with the consent of the creditor.
Article 1245
 Special forms of payment
1. Dation in payment
2. Application of payments
3. Payment by cession
4. Tender of payment and consignation
*application of payments is not a special form
of special payment
 Meaning of dation in payment
- adjudication or dacion en pago
- Conveyance of ownership of a thing as an
accepted equivalent of performance.
- Special form because debt in money is satisfied
by the alienation of property.
- Governing Law
- law of sales
- dation in payment may be considered specie of
sale, the amount of the money debt becomes
the price of the thing alienated.
Article 1246
 Rule of the medium quality
- obligation to deliver a specific thing, the very
thing due must be delivered
- obligation to deliver a generic thing, the
PURPOSE of the obligation and other
circumstances shall be taken into consideration
to determine the quality or kind of the thing to
be delivered
- A principle of equity (Art. 1246) that supplies
justice in case there is lack of precise
declaration of obligation.
- If there is disagreement, the law steps in.
- benefit may be waived by the creditor,
accepting a thing of inferior or superior quality.
Article 1247
 Debtor pays for extrajudicial expenses
- for the account of the debtor
- Reason: obligation is extinguished when
payment is made and the debtor is primarily
benefited.
- but if parties made a stipulation as to who will
bear the expenses, stipulation is followed
- Does not apply to expenses incurred by the
creditor in going to the debtor's domicile to
collect.
 Losing party generally pays judicial costs
- Judicial costs are statutory amount allowed to a
party to an action for his expense incurred in
the action.
- A rule under the Rules of Court, losing party
must pay.
- the court may adjudge that either party shall
pay the cost or the same is divided as may be
equitable
- NO COST IS allowed against the GOVERNMENT,
unless otherwise provide by law.
Article 1248
 Performance of obligation should be complete
- Obligation with one creditor and one debtor.
- Payment may extinguish an obligation there
must be COMPLETE performance of the
prestation.
- creditor may accept but cannot be compelled to
accept partial performance
 When partial performance is allowed
- partial performance may be either required or
insisted:
1. When there is an express stipulation to that
effect
2. When debt is in par liquidated and in part
unliquidated.
 3. When the different prestation in which the
obligation consists are subject to different
terms or condition which affect some of
them.
Article 1249
 Meaning of legal tender
- currency which if offered by the debtor in the
right amount, the creditor must accept in
payment of a debt in money
 Legal tender in the Philippines
- All coins and notes issued by
BangkoSentralngPilipinas (BSP) for all debts,
public or private.
- Unless fixed by the Monetary Board, legal
tender for amount not extending- coins: 50Php
for the denomination of 0.25Php and above,
20Php for denominations of 0.10Php or less.
 Payment by means of instruments of credits
1) Rights of creditor to refuse or accept
-CANNOT BE COMPELLED to accept: promissory
notes, checks, bills of exchange, other commercial
documents because these are not legal tender
a) Creditor may accept them, without the
acceptance producing the effect of
payment. DEMANDABILITY of original
obligation SUSPENDED
b) Creditor must cash the instrument, can
bring an action for non-payment when it is
DISHONORED
2) Effect on obligation
-payment by means of mercantile documents DOES
NOT extinguish THE OBLIGATION:
a) Until they have been cashed
b) Unless they have been impaired through
the fault of the creditor
Article 1250
 Meaning of inflation and deflation
1. Inflation- sharp sudden increase of money or
credit or both without corresponding increase
in business transactions.
2. Deflation- reduction in volume and circulation
of the available money or credit, resulting in a
decline of the general price level
 Basis of payment in case of extraordinary inflation
or deflation
- the basis of payment is the PURCHASING VALUE
of the currency at the time of the establishment
of the obligation
- However, this is subject to the agreement of the
parties to the contrary.
Article 1251
 Place where obligation shall be paid
1. If there is stipulation: in the place designated
2. If there is stipulation AND specific thing is to be
delivered: at the place where the thing was at
the perfection of the contract.
3. NO STIPULATION and GENERIC Thing is to be
delivered: domicile of the debtor.
-order is successive AND exclusive
Subsection 1- Application of payments
Article 1252
 Meaning of application of payments
- Designation of the debt to which should be
applied the payment made by a debtor who has
various debts of the same kind in favor of 1 and
the same creditor.
 Requisites of application of payments
1. There must be 1 debtor and 1 creditor
2. There must be 2 or more debts
3. The debts must be of the same kind
4. The debts to which the payment made by the
debtor has been applied must be due.
5. Payment made must not be sufficient to cover
all the debts.
 Application as to debts not yet due
- cannot be made unless:
1. There is stipulation that the debtor may so
apply
2. Made by the debtor or creditor, for whose
benefit the period has been constituted.
 Rules on application of payments
1. The DEBTOR has the first choice
-he must indicate at the time of payment which
particular debt is paid and he cannot later claim
that it should be applied to another debt.
2. The right to make the application once
exercised is IRREVOCABLE unless the creditor
consents the change.
3. Debtor does not apply payment; the creditor
may make the designation by specifying in the
receipt which debt is being paid.
4. Creditor does not also make the application or
the application is not valid, the debt, which is
most onerous to the debtor among those due,
shall be deemed SATISFIED
 5. Debts due are of the same nature and burden,
payment shall be applied proportionately.
Article 1253
 Interest earned paid ahead of principal
- MANDATORY RULE: payment of the principal
shall not be deemed to have been made until
the interests have been covered.
- rule is subject to any agreement between the
parties, or to waiver by the creditor (art
1253=directory)
Article 1254
 Application of payment to most onerous debt.
- In case no application of payment is made by
the debtor and creditor.
- if debts are of the same nature and burden,
application is to all of them proportionately
 When a debt is more onerous than another
- When it is more burdensome to the debtor.
- NO FIXED RULE in determining
- Supreme Court rules to be followed:
1. Interest-bearing debt > non-interest-bearing
debt
2. Debt as sole debtor >as solidary debtor
3. Debts secured by mortgage/pledge > unsecured
debts
4. Higher rate interest-bearing > lower rate
5. Obligation with penal clause > one without
 Where debts are subject to different burdens
- to all of them PROPORTIONATELY
Subsection 2- Payment by Cession
Article 1255
 Meaning of payment by cession
- The assignment or abandonment of all the
properties of the debtor for the benefit of his
creditors to sell the same and apply the
proceeds as the satisfaction of their credits.
 Requisites of payment by cession
1. There must be 2 or more creditors
2. Debtor must be (partially) insolvent
3. Assignment must involve all properties of the
debtor
4. Cession must be accepted by the creditors
 Effect of payment by cession
- does not make the creditors the owners of the
property of the debtor
- debtor is released only up to the net proceeds
of the sale of the property assigned, still liable if
there is balance
-
 Dation in payment and cession distinguished:
Dation Cession
1 creditor Several creditors
Does not presuppose Debtor is insolvent at the
insolvency of debtor time of assignment
Not all property is All property of the debtor
involved subject to execution
Creditor becomes the new Creditor acquires only the
owner right to sell
An act of novation Not an act of novation
Subsection 3-Tender of payment and Consignation
Article 1256
 Meaning of tender of payment and consignation
1. Tender of payment- the act on the part of the
debtor of offering to the creditor the thing or
amount due.
2. Consignation- is the act of depositing the thing
or amount due with the proper court when the
creditor does not desire or cannot receive it,
after complying with the formalities required by
law.
 Requisites of a valid consignation
1. Existence of a valid debt which is due
2. Tender of payment by debtor and refusal to
accept without justifiable reason by creditor
3. Previous notice of consignation to persons
interested in the fulfillment of the
obligation
4. Consignation of the thing or the sum due
5. Subsequent notice of consignation made to
the interested parties
 When tender of payment not required
- tender of payment is not necessary before the
debtor can consign
1. When the creditor is absent or unknown, or
does not appear at the place of payment
2. When he is incapacitated to receive the
payment at the time it is due
3. When without just causes, he refuses to give a
receipt
4. When 2 or more persons claims the same right
to collect
5. When the title of the obligation has been lost
- debtor does not incur default by failing to make
a fruitless tender after notification from the
creditor that the money will not be received.
 Requirements for a valid tender of payment
 1. Must comply with the rules on payment or with
the terms required by the contract in making
such tender
2. Must be unconditional and for the whole
amount due and in legal tender
3. Must be actually made.
Article 1257
 Prior notice to persons interested required
- In the absence of notice, consignation as
payment is VOID.
- Purpose of notice: give the creditor a chance to
reflect on his previous refusal to accept
payment, he shall bear the expenses of the
consignation or if the consigned thing is lost, he
shall bear the risk.
 Consignation must comply with provisions in
payment
- payment should be made in legal tender
- General rule: offer of a bank check for the
amount due is not a good tender, even if
certified. EXCEPT where no objection is made
on that ground
Article 1258
 Consignation must be with proper judicial authority
- by depositing the things due at the disposal of
judicial authority to effect payment
- Tender of payment must precede consignation;
tender must be proved by the debtor in the
proper case and prior notice in other cases.
 Notice to be given to interested parties of the
consignation made.
- After the consignation is made, interested
parties shall also be notified.
- purpose of second notice: to enable the
creditor to withdraw the thing or sum
deposited in case he accepts consignation
Article 1259
 Creditor bears expenses of consignation
- Consignation is made due of the fault or unjust
refusal of creditor to accept payment.
- Only if the consignation is properly made.
 When consignation deemed properly made
1. Creditor accepts the thing or sum deposited
without objection as payment of the obligation
2. Creditor questions the validity of the
consignation and that the court declares it has
been properly made
3. Creditor neither accepts nor questions the
validity of the consignation and the court orders
cancellation of the obligation.
Article 1260
 Withdrawal by debtor of thing or sum deposited
- a matter of right the thing or sum deposited
1. Before creditor has accepted the consignation
2. Before a judicial declaration that the
consignation has been properly made
- Obligation shall then remain in force. All
expenses are paid by the debtor.
Article 1261
 Effect of withdrawal with authority of creditor
- the creditor shall lose every preference which
he may have over the thing
- Co-debtors, guarantors and sureties shall be
released.
Section 2- Loss of the thing due
Article 1262
 When a thing is considered 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
- equivalent to impossibility of performance
- Extends to both obligations to give and to do.
 When loss of thing will extinguish an obligation to
give
- requisites:
1. Obligation is to deliver a specific or determinate
thing
2. Loss of the thing occurs without the fault of the
debtor
3. Debtor is not guilty of delay
 When loss of thing will NOT extinguish the liability
1. When the law so provides
2. When the stipulation so provides
3. When the nature of the obligation
requires the assumption of risk
4. When the obligation to deliver a
specific thing arises from a crime
Article 1263
 Effect of loss of a generic thing
- debtor is still liable even for a fortuitous event
because the law says so
- principle: generic thing never perishes
- creditor cannot demand a thing lf superior
or debtor to deliver inferior quality
Article 1264
 Effect of partial loss of a specific thing
- partial loss: only a portion of the thing is lost or
it suffers depreciation or deterioration;
equivalent of difficulty of performance in
obligations to do
- court will decide whether the partial loss is
equivalent to complete or total loss.
Article 1265
 Presumption of fault in case of loss of thing in
possession of debtor
- presumption: thing was loss due to the fault of
debtor unless there is proof to the contrary
- Obligor not at fault is still liable in case he is
guilty of delay or has promised to deliver the
same to 2 or m0ore persons who do not have
the same interests.
 When presumption is not applicable
- Does not apply in case of earthquake, flood,
storm, or other natural calamity.
Article 1266
 Effect of impossibility of performance
- will extinguish obligation
- in cases without the debtors fault
- if impossible from the beginning, obligation is
VOID
 Kinds of impossibility:
1. Physical impossibility- when personal
qualifications of obligor are involved
2. Legal impossibility- rendered impossible by
provision of law
*refers to obligations to do or personal obligation
Article 1267
 Effect of difficulty of performance
- general rule: impossibility of performance
RELEASES the obligor
- Performance of service become so difficult as to
be manifestly beyond the contemplation of
both parties, obligor is RELEASED, in whole or in
part.
- applicable also to obligations to give or deliver
Article 1268
 Effect of fortuitous event where obligation
proceeds from a criminal offense
- does NOT EXEMPT the debtor from liability
- EXCEPT when the creditor refused to accept the
thing without justification.
Article 1269
 Right of creditor to proceed against third persons
- creditor is given the right to proceed against the
third person responsible for the loss
- rights of action of debtor transferred to the
creditor from the moment the obligation is
extinguished/
Section3- condonation or remission of debt
Article 1270
 Meaning of condonation or remission
- Gratuitous abandonment by the creditor of his
right against the debtor.
- a form of donation
 -Requisites:
1. Must be gratuitous
2. Must be accepted by the obligor
3. The parties must have capacity
4. Must not be inofficious
5. If made expressly, it must comply with the
forms of donations
 Kinds of remission:
1. As to its EXTENT
a. Complete- covers the entire obligation
b. Partial- does not cover the entire
obligation
2. As to its FORM
a. Express- made either verbally or in
writing
b. Implied- can only be inferred from
conduct
3. As to its date of effectivity
a. Inter vivos- take effect during the
lifetime of the donor
b. Mortis causa- effective upon the death
of the donor
 Effect of inofficious remission
- excess shall be inofficious and shall be reduced
by the court
- rule: testamentary dispositions which impair
the legitimeshall be reduced on petition of the
heirs as they are excessive
Article 1271
 Presumption in case of voluntary delivery of
document of indebtedness by creditor
1. Presumption of implied remission-
2. Contrary evidence- prima facie or rebuttable by
contrary evidence.
3. Extent of remission- joint: share of debtor only;
solidary: total obligation
4. Presumption applicable only to private
document
 Payment, not remission of debt
- remission becomes null and void upon proof
that it is inofficious
- delivery of document was made in virtue of
payment not of remission
Article 1272
 Presumption in case document found in possession
of debtor
- resumption: creditor delivered it voluntarily,
gives rise to the presumption of remission [not
known how]
- presumption of voluntary delivery should give
rise to presumption of payment [known how]
Article 1273
 Effect of renunciation of the principal debt of the
accessory obligation
- rule: accessory follows the principal
Article 1274
 Presumption in case thing pledged found in
possession of debtor
- debtor shall continue to be indebted but he
does not have to return the thing pledged
SECTION 4. – Confusion or Merger of Rights
ART. 1275
Confusion or Merger is the meeting in one (1) person of
the qualities of creditor and debtor with respect to the
same obligation.
Reason or basis for Confusion
(1) The law treats confusion or merger as a mode
of extinguishing obligations because if a debtor
is his own creditor, enforcement of the
obligation becomes absurd since a person
cannot claim payment from himself.
(2) When there is a confusion of rights, the
purposes for which the obligation may have
been created are deemed realized.
SECTION 5. – Compensation
ART. 1278
Compensation is the extinguishment to the concurrent
amount of the debts of two persons who, in their own
right, are debtors and creditors of each other.
- It involves the simultaneous balancing of two
obligations in order to extinguish them to the
extent in which the amount of one is covered by
that of the other.

The object of compensation is the prevention of

Requisites of Confusion unnecessary litigations and payments.
(1) It must take place between the principal debt - This is accomplished through the mutual
and creditor. extinguishment by operation of law of
(2) It must be complete. concurring debts of two (2) persons.
- Compensation is often called simplified
payment.
ART. 1276
Merger which takes place in the person of the principal
DISTINGUISHMENT COMPENSATION CONFUSION
debtor or creditor benefits the guarantors and
Persons Involved Two (2) persons: Only one (1)
extinguishes the obligation. Each of whom is person:
a debtor and a Creditor and
Effects:
creditor of the debtor of
- The accessory obligation of guaranty is also other himself
extinguished in accordance with the principle Number of Two (2) One (1)
that the accessory follows the principal. obligation(s)
- The extinguishment of the accessory obligation Payment Indirect payment Impossibility
does not carry with it that of the principal of payment
obligation.
- Merger, which takes place in the person of the Kinds of Compensation
guarantor, while it extinguishes the guaranty,
(1) By its effect or extent:
leaves the principal obligation in force.
a. Total – when both obligations are of the
same amount and are entirely
extinguished.
ART. 1277
b. Partial – when the two (2) obligations
Confusion which takes place in the person of any of the are of different amounts and a balance
latter does not extinguish the obligation. remains.
(2) By its cause or origin:
Confusion in a joint obligation a. Legal – when it takes place by operation
- Confusion taking place in the person of any of law even without the knowledge of
debtor or creditor does not affect the others. the parties.
- The confusion will extinguish only the share b. Voluntary – when it takes place by
corresponding to the creditor or debtor in agreement of the parties.
whom the two characters concur. c. Judicial – when it takes place by order
from a court in a litigation.
Confusion in a solidary obligation d. Facultative – when it can be set up only
- Merger in the person of one of the solidary by one of the parties.
debtors shall extinguish the entire obligation
because it is also a merge in the other solidary
debtors. ART. 1279
- He who makes payment may claim Requisites of Legal Compensation
reimbursement from his co-debtors for the
shares which correspond to them.
 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 (2) debts are due or demandable.
4. The two (2) debts are liquidated.
5. No retention or controversy commenced by a
third person.
ART. 1280
Notwithstanding the provisions of the preceding article,
the guarantor may set up compensation as regards
what the creditor may owe the principal debtor.
- This is an exception to the general rule that only
the principal debtor can set up against his
creditor what the latter owes him.
- The guarantor is given the right to set up
compensation.
Reason: The extinguishment of the principal obligation
as a consequence of compensation carries with it the
accessory obligations such as guaranty.
ART. 1281
Compensation may be total or partial. When the two
debts are of the same amount, there is a total
compensation.
- Total compensation results when the two (2)
debts are of the same amount.
- If they are of different amounts, compensation
is total as regards the smaller debt, and partial
only with respect to the larger debt.
ART. 1282
Voluntary Compensation (Conventional Compensation)
- This provision of law is an exception to the
general rule that only debts which are due and
demandable can be compensated.
- This includes any compensation which takes
place by agreement of the parties even if all the
requisites for legal compensation are not
present.
ART. 1283
Judicial Compensation
- Compensation may also take place when so
declared by a final judgment of a court in a suit.
- A party may set off his claim for damages
against his obligation to the other party by
proving his right to said damages and the
amount thereof.
ART. 1284
Compensation of rescissibleorvoidable debts
- Rescissible and voidable obligations are valid
until they are judicially rescind or avoided.
- Prior to rescission or annulment, the debts may
be compensated against each other.
ART. 1285
Where compensation has taken place before
assignment
- When compensation takes effect by operation
of law or automatically, the debts are
extinguished to the concurrent amount.
- 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.
- The remedy of the assignee is against the
assignor.
- The right of the compensation may be waived
by the debtor before or after the assignment.
Where compensation has taken place after assignment
Three (3) cases:
1. Assignment with the consent of debtor.
2. Assignment with the knowledge but without
the consent of debtor.
3. Assignment without the knowledge of the
debtor.
ART. 1286
Compensation where debt payable at different places
- This applies to legal compensation.
- The indemnity contemplated above refer to the
1. Expenses of monetary exchange (in case of
money debts)
2. Expenses of transportation (in case of
things to be delivered)
Once these expenses are liquidated, the debts
also become compensable.
- The indemnity shall be paid by the person who
raises the defense of compensation.
Foreign exchange – the conversion of an amount of
money or currency of one (1) country into an equivalent
amount of money or currency of another.
Exchange rate – the price of one currency expressed or
quoted in relation to another currency.
ART. 1287
Compensation shall not be proper when one of the
debts arises from a depositumor from the obligations of
a depository 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.
ART. 1288
Instances when legal compensation is not allowed by
law
(1) Where one of the debts arises from a
depositum.
- A deposit is constituted from the moment a
person receives a thing belonging to another
with the obligation of safely keeping it and of
retuning the same.
(2) Where one of the debts arises from a
commodatum.
- Commodatum is a gratuitous contract whereby
one of the parties delivers to another
something not consumable so that the latter
may use the same for a certain time and return
it.
(3) Where one of the debts arises from a claim for
support due by gratuitous title.
- Support comprises everything that is
indispensable for sustenance, dwelling,
clothing, medical attendance, education and
transportation, in keeping with the financial
capacity of the family.
(4) Where one of the debts consists in civil liability
arising from a penal offense.
- If one of the debts consists in civil liability
arising from a criminal offense, compensation
would be improper and inadvisable because
satisfaction of such obligation is imperative.
ART. 1289
Rules on application of payments apply to order of
compensation.
- Compensation is similar to payment.
- If a debtor has various debts which are
susceptible of compensation, he must inform
the creditor which of them shall be the object
of compensation.
- In case he fails to do so, then the compensation
shall be applied to the most onerous obligation.
ART. 1290
Consent of parties not requires in legal compensation
(1) Compensation takes place automatically by
mere operation of law.
(2) Full legal capacity of parties not required.
SECTION 6. – Novation
ART. 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 I the rights of the
creditor.
Novation is the total or partial extinction of an
obligation through the creation of a new one which
substitutes it.
- Dual function of novation:
1. To extinguish or modify an existing
obligation.
2. To substitute a new one in its place.
Kinds of novation
(1) According to origin:
a. Legal – that which takes place by operation
of law.
b. Conventional – that which takes place by
agreement of the parties.
(2) According to how it is constituted:
a. Express – when it is so 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 – when the old
obligation is completely extinguished.
b. Partial or modificatory – when the old
obligation is merely modified.
(4) According to the subject:
a. Real or objective – when the object (or
cause) or principal conditions of the
obligation are changed.
b. Personal or subjective – when the person
of the debtor is substituted and/or when a
third person is subrogated in the rights of
the creditor.
c. Mixed – when the object and/or principal
conditions of the obligation and the debtor
or the creditor, or both the parties, are
changed.
ART. 1292
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 valid obligation.
Novation is not presumed
- Novation is never presumed.
- It must be clearly and unmistakably established
either by the express agreement of the parties
or acts of equivalent import or by the
incompatibility of the two (2) obligations with
each other in ever material respect.
Test of incompatibility between two obligations or
contracts
- The test whether they can stand together, each
one having an independent existence.
- If they cannot, they are incompatible, and the
subsequent obligation novates the first.
ART. 1293
Kinds of personal novation
1. Substitution – when the person of the debtor is
substituted.
2. Subrogation – when a third person is
subrogated in the rights of the creditor.
Kinds of substitution
1. Expromision
2. Delegacion
- The consent of the creditor is an indispensable
requirement.
Right of new debtor who pays
1. In expromision, payment by the new debtor
gives him the right to beneficial reimbursement.
2. If the payment was made with the consent of
the original debtor or on his own initiative
(delegacion), the new debtor is entitled to
reimbursement and subrogation.
ART. 1294
Effect of new debtor’s insolvency or non-fulfillment of
the obligation in expromision
- This will not revive the action of the creditor
against the old debtor whose obligation is
extinguished by the assumption of the debt by
the new debtor.
- In expromision, the replacement of the old
debtor is not made at his own initiative.
ART. 1295
Effect of new debtor’s insolvency or non-fulfillment of
the obligation indelegacion
- If the non-fulfillment of the obligation is due to
other causes, the old debtor is not liable.
- The general rule is that the old debtor is not
liable to the creditor in case of the insolvency of
the new debtor. The exceptions are:
1. The said insolvency was already existing and
of public knowledge at the time of the
delegacion.
2. The insolvency was already existing and
known to the debtor at the time of the
delegacion.
ART. 1296
Effect of novation on accessory obligation
- The extinguishment of the principal obligation
carries with it that of the accessory obligations.
Exception:
In the case of an accessory obligation created in
favor of a third person which remains in force
unless said third person gives his consent to the
novation.
ART. 1297
Effect where the new obligation void
- There is no novation if the new obligation is
void and, therefore, the original one shall
subsist for the reason that the second
obligation being inexistent, it cannot extinguish
or modify the first.
Effect where the new obligation voidable
- If the new obligation is only voidable, novation
can take place.
ART. 1298
Effect where the new obligation void or voidable
- A void obligation cannot be novated because
there is nothing to novate.
- If the original obligation is only voidable or if
the voidable obligation is validated by
ratification, the novation is valid.
ART. 1299
Presumption where original obligation subject to a
condition
- If the first obligation is subject to a suspensive
or resolutory condition, the second obligation is
deemed subject to the same condition unless
the contrary is stipulated by the parties in their
contract.
ART. 1300
Subrogation is the substitution of one (1) person
(subrogee) in the place of a creditor (subroger) with
reference to a lawful claim or right, giving the former all
the rights of the latte, including the right to employ all
remedies to enforce payment.
Kinds of subrogation
1. Conventional – when it takes place by express
agreement of the original parties.
2. Legal – when it takes place without agreement
but by operation of law.

ART. 1301
Consent of all parties required in conventional
subrogation
1. Debtor – because he becomes liable under the
new obligation to a new creditor.
2. Old creditor – because his right against the
debtor is extinguished.
3. New creditor – because he may dislike or
distrust the debtor.

ART. 1302
Cases of legal subrogation
1. When a creditor pays another creditor who is
preferred.
2. When a third person without interest in the
obligation pays with the approval of the debtor.
3. When a third person with interest in the
obligation pays even without the knowledge of
the debtor.

ART. 1303
Effect of legal subrogation
- To transfer to the new creditor the credit and
all the rights and actions that could have been
exercised by the former creditor either against
the debtor or against third persons, be they
guarantors or mortgagors.

ART. 1304
Effect of partial subrogation
- 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.