Obligations and Contracts A t t y.

G r a v a d o r

Different Kinds of Obligation As to Period/Term Condition

PURE AND CONDITIONAL Will of the If dependent on will of debtor, merely If dependent on will of
debtor empowers court to fix such period debtor, ANNUL
ART. 1179. Par. 1 — Every obligation whose performance does not depend
upon a future or uncertain event, or upon a past event unknown to the
parties, is demandable at once. KINDS OF CONDITIONS
As to effect on obligation
PURE OBLIGATION Article 1181. “The acquisition of rights, as well as the extinguishment or
- Pure obligation is demandable at once and is not loss of those already acquired”
subject to any condition.
- When you say demandable at once, is it equivalent to i. SUSPENSIVE (CONDITION PRECEDENT)
saying that you can dispense from the requirement - suspends the happening of the obligation
on demand? Does it not constitute delay anymore? - the obligation arises, but if the condition does not
happen, obligation does not come into existence
General Rule: There is a need for demand. This does
not mean that demand can just be dispensed with. Article 1187. The effects of a conditional obligation to give, once the
— EXCEPTION: If it falls under the exceptions of condition has been fulfilled, shall retroact to the day of the constitution of
those demands; provided by law the obligation. Nevertheless, when the obligation imposes reciprocal
prestations upon the parties, the fruits and interests during the pendency
of the condition shall be deemed to have been mutually compensated. If
• It is called a pure obligation because its compliance the obligation is unilateral, the debtor shall appropriate the fruits and
is not dependent on the happening of an event. interests received, unless from the nature and circumstances of the
That is different from the requirement of a demand. obligation it should be inferred that the intention of the person constituting
the same was different.
In obligations to do and not to do, the courts shall determine, in each case,
☞EXAMPLE: I let my brother borrow 5k then I did not the retroactive effect of the condition that has been complied with.
say anything about the period or time when I will
collect the money but I will just say that you will just
have to return it to me. No specific date or time of its • Until the fulfillment of suspensive condition, creditor
fulfillment. cannot enforce the obligation as his right then was
merely an expectancy. However, upon happening,
✏ Q: So how would you word the promissory note for
the debtor can be compelled to perform.
a pure obligation?
‣ A: I will lend to you 5k and if demanded, return
the amount immediately. (no specific date) RETROACTIVE EFFECT WHEN SUSPENSIVE
‣ Sir: I will lend to you 5k payable upon demand. CONDITION IS FULFILLED
Signed by the debtor. - the binding tie of conditional obligation is produced
from the time of perfection, not happening of
condition
Article 1181. In conditional obligations, the acquisition of rights, as well as
the extinguishment or loss of those already acquired, shall depend upon - Can also be seen as Rights of creditor and debtor
the happening of the event which constitutes the condition. after fulfillment of the condition

CONDITIONAL OBLIGATION Reason for Retroactivity: Condition is only accidental

and not an essential element of the obligation. The
- subject to conditions before they are demandable; one
whose consequences are subject in one way or obligation is constituted when the essential elements
another to the fulfillment of a condition which give rise there to concur.
- one whose consequences are subject in one way or
another to the fulfillment of a condition. ☞EXAMPLE: Your brother will graduate.
✏ Q: When did the obligation take effect?
- the fulfillment of the obligation is subject to a condition.
‣ A: Upon the graduation of my brother.

☞EXAMPLE: I promise to give my brother 1 million if he ✏ Q: What is the effect if the obligation is fulfilled?
finish his course on architecture. ‣ A:It retroacts to the constitution of the
obligation.
CONDITION
- Condition is a future and uncertain event. ✏ Q: So is it still correct to say that the obligation took
effect when the condition happens?
- uncertain but possible
☞EXAMPLE: I will say, I promise to give you a parcel
- must be imposed by the will of a party and NOT a of land when you graduate and become a
necessary legal requisite of the act
lawyer. You will still take time right? Around five
☞EXAMPLE: PASSING THE BAR! years. So in 2021. Many will happen, the land
that I promised became a swampy area or many
buildings were built already. Or became in
As to Period/Term Condition accretion (land beside a river, and there was
expansion)?
Event must necessarily come, whether
Fulfillment known before hand OR at a time Event is uncertain - So am I bound to comply after you pass the bar?
which cannot be predetermined YES.
No effect on the existence, but only Gives rise to an obligation
Influence on on their demandability or • In the case of your brother, for the meantime, you
or extinguishes one
the obligation performance, HENCE, does not carry
with it any retroactive effect already existing deposited the money. How about the interest? Will
you exclude it since you only promised 1 million? In
May refer to past event this case you are bound to deliver the determinate
Time Always to the future not know to the parties thing including its accessions and accessories and

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Obligations and Contracts A t t y. G r a v a d o r

fruits right? And interest is a civil fruit right? So who it goes back to 2016. So if sold in 2017, you can tell
owns the fruit? Your brother. (Retroactivity principle) the buyer that since you bought it in 2017, the law
• Since there is that retroactivity principle, it retroacts to says that it retroacts, so my right ripened in 2016.
the date of the constitution of the obligation. Of
course, pending the compliance of the condition. • The simple act of recording, you are not asking for
• In your example, in that case, your brother does not compliance (so no objection can be introduced) you
have the right to demand because his right was are merely recording. Debtor cannot say “nganong
suspended. ga record2 man ka?”

RIGHTS OF CREDITOR AND DEBTOR BEFORE • The law provides that the creditor upon the
FULFILLMENT OF CONDITION fulfillment of the obligation may bring on all actions
Article 1188. The creditor may, before the fulfillment of the condition, bring in the protection of his rights.
the appropriate actions for the preservation of his right. The debtor may As to cause or origin
recover what during the same time he has paid by mistake in case of a
suspensive condition. Article 1182. When the fulfillment of the condition depends upon the sole
will of the debtor, the conditional obligation shall be void. If it
- No preference of credit is granted to the creditor but depends upon chance or upon the will of a third person, the obligation
only allows him to bring proper action for the shall take effect in conformity with the provisions of this Code.
preservation of his rights.
☞EXAMPLE: I will give you this piece of land but you i. POTESTATIVE
must first pass oblicon - condition suspensive in nature and which depends
upon the sole will of one of the contracting parties
PAYMENT BEFORE HAPPENING OF CONDITION: - One which depends upon the will of one of the
Debtor may only recover what he paid by mistake contracting parties; in the power of one of the parties
before happening of suspensive condition, hence if to realize or prevent
condition has been fulfilled, he can no longer claim
because of retroactivity of the condition. ✏ Q: What is the effect if obligation is dependent on sole
will of the debtor?
ii. RESOLUTORY CONDITION ‣ A: It is void
- obligation is extinguished when the condition
happens. ☞EXAMPLE: I owe you money, 1M. then you ask me to
reduce that into writing. When I say I will pay you
ART. 1179. Par. 2 — Every obligation which contains a resolutory condition when I like paying you. = depends upon the will of
shall also be demandable, without prejudice to the effects of the the debtor. Potestative.
happening of the event.
Effect — VOID. So I cannot be obliged anymore to pay?
- Obligation is what is void according to the provision.
General Rule: There must be a revocation first before
selling the property to another (or second transaction)
Take Note: Bearing on performance of obligation, not
perfection. Nothing wrong with the obligation in this
✏ Q: What if it was sold prior to the revocation, assuming example. The potestative condition only comes at the
the condition is not fulfilled? time of performance.
‣ A: Subsequent sale can be ratified
☞EXAMPLE: I will give you money when I like to give
you or when my mood dictates me so. Something to
☞EXAMPLE: If I promise to give my brother 1k per week do with perfection. In this, no question about
until he graduates. So when he graduates, it perfection, but on performance. And this has no
terminates my obligation. application. Take note about the purpose. Avoid
- Is it safe to say that a condition with a resolutory situation where we are sanctioning a usury
condition is readily demandable? Yes, obligation. If creditor, valid.
immediately demandable.
Reason why void: its validity and compliance is left to to
☞EXAMPLE: Let us say I will give you a parcel of land will of the debtors the condition is abhorrent because of
(object) when you pass the bar exam. As I said, it the principle that a contract must be binding between
would be by 2021 that you can demand. What can both contracting parties.
you do in the meantime so your rights of expectancy
can be protected? While still waiting for 2021. ✏ Q: What if A loan to B a certain amount of money, he
- In the meantime sir, I will annotate my rights. It may executed an acknowledgment of the load with a
be in a document, writ of conditional donation or condition that he will pay when he feels like paying.
whatsoever. Where do you annotate it? Back of Can B file a collection suit? Is this potestative?
the title. ‣ A: YES. Be cannot file collection suit because
- It is important to know whether or not you have obligationn is VOID.
rights. Remember that if the condition is not yet
fulfilled you have no rights to demand so 1. Only void if potestative condition is factor in birth or
technically, there is no legal impediment on the perfection of obligation. No delivery yet, we’re just
part of the creditor to sell the property. You agreeing.
cannot just say “You don’t have the right to sell it
2. If obligation is already pre-existing, being potestative
because I feel like I will become a lawyer.” does not have any effect.

• You have to remember that there is a retroactivity ■ Impossible Condition — those conditions which
principle. That is the purpose of recording your right. cannot be possibly done. Prohibited by law, good
That is to let prospective buyers to know that that is
customs.
subjected to an expected right that may be enforced.
So when you pass the bar, it is as if the obligation ☞EXAMPLE: I will give you money when you allow
took effect upon the constitution of the obligation. So me to sleep with you.

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Obligations and Contracts A t t y. G r a v a d o r

Roman Catholic Case ii. NEGATIVE

The done shall not encumber or dispose of donated Article 1185. The condition that some event will not happen at a
property before 100 years. Contrary, the done sold it. determinate time shall render the obligation effective from the moment
What the donor did was to revoke the condition because the time indicated has elapsed, or if it has become evident that the event
of the violation. cannot occur.
NO cause of action. Because the condition is If no time has been fixed, the condition shall be deemed fulfilled at such
IMPOSSIBLE – public policy, morals. time as may have probably been contemplated, bearing in mind the nature
SC: Contrary to public policy – we must allow properties of the obligation.
to circulate.
LOSS, DETERIORATION, OR IMPROVEMENT
Civil code – I will give this to you but do not sell this PENDING HAPPENING OF THE CONDITION
within 50 years. (Cannot be, maximum period 20 years) Article 1189. When the conditions have been imposed with the intention of
So if 21st years, not yet subject to revocation. suspending the efficacy of an obligation to give, the following rules
shall be observed in case of the improvement, loss or deterioration of the
Co-owners – partition. It is your right as a co-owner to thing during the pendency of the condition:
have a partition of land for example, ANYTIME. Naa (1) If the thing is lost without the fault of the debtor, the obligation shall be
gyuy limit ang prohibition so if you incorporate a extinguished;
prohibition to sell for 100 years, that is not allowed. (2) If the thing is lost through the fault of the debtor, he shall be obliged to
pay damages; it is understood that the thing is lost when it perishes,
DEBTOR’S PROMISE TO PAY WHEN HE CAN IS NOT A or goes out of commerce, or disappears in such a way that its existence
CONDITIONAL OBLIGATION is unknown or it cannot be recovered;
Article 1180. When the debtor binds himself to pay when his means permit (3) When the thing deteriorates without the fault of the debtor, the
him to do so, the obligation shall be deemed to be one with a period, impairment is to be borne by the creditor;
subject to the provisions of article 1197. (4) If it deteriorates through the fault of the debtor, the creditor may
choose between the rescission of the obligation and its fulfillment,
- Creditor will have to ask the court to fix a period with indemnity for damages in either case;
because an immediate action to enforce the
(5) If the thing is improved by its nature, or by time, the improvement shall
obligation would be premature. inure to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other
“I will pay you if I can sell my house” — valid because it right than that granted to the usufructuary.
does not solely depend on debtor’s will but also other
factors; obligation here is valid from text of agreement, - Applicable only to obligations to deliver a determinate
but specific period of compliance is not there. or specific thing. NO application to generic objects
(genus never perishes).
✏ Q: What will you do as a creditor? - Apply only in case suspensive condition is fulfilled.
‣ A: Go to court to FIX THE PERIOD when it should
be demanded. ■ Loss — when it perishes, or goes out of commerce, or
disappears in such a way that its existence is
General Rule: Fix the period first before you cam file for unknown or it cannot be recovered
specific performance. ■ Deterioration — any reduction or impairment in the
Mutuality of Contracts Principle — contract must bind substance or value of a thing which does not amount
both parties, not only one. to a loss. The thing still exists at the time the
• If potestative, obligation is dependent on one. But condition is fulfilled, but it is no longer intact, OR is
be careful in saying that if dependent on one, less than what it was when the obligation was
void automatically constituted.
• If potestative on part of creditor, valid. ■ Improvements — anything added to, incorporated in,
or attached to the thing that is due
■ Usufructuary — right to enjoy the property of another
ii. CASUAL with the obligation of preserving its form and
- depends exclusively upon chance, will of a third substance
person or other factors, and not upon the will of the — UNLESS: the title constituting it or the law
contracting parties otherwise provides
iii. MIXED
- depends upon the will of one of the contracting parties • During pendency of condition, debtor improved the
and other circumstances, including the will of third land, made some constructions and augmented
persons value of land.
✏ Q: When condition happens, can he be reimbursed?
As to Possibility ‣ A: No. Only has right to usufruct.
Article 1183. Impossible conditions, those contrary to good customs or
public policy and those prohibited by law shall annul the obligation which
depends upon them. If the obligation is divisible, that part thereof which Article 1190. When the conditions have for their purpose the extinguishment
is not affected by the impossible or unlawful condition shall be valid. of an obligation to give, the parties, upon the fulfillment of said
conditions, shall return to each other what they have received.
The condition not to do an impossible thing shall be considered as not
having been agreed upon. In case of the loss, deterioration or improvement of the thing, the
provisions which, with respect to the debtor, are laid down in the preceding
article shall be applied to the party who is bound to return.
As to Mode As for the obligations to do and not to do, the provisions of the second
i. POSITIVE (SUSPENSIVE) paragraph of article 1187 shall be observed as regards the effect of the
extinguishment of the obligation.
Article 1184. The condition that some event happen at a determinate time
shall extinguish the obligation as soon as the time expires or if it has
become indubitable that the event will not take place EFFECTS OF LOSS OR DETERIORATION
Loss Deterioration
Without Extinguished, unless there is a Not liable for damage, creditor
debtor’s fault stipulation to the contrary. (Art must accept the thing in
1262 Par 1) impaired condition

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Obligations and Contracts A t t y. G r a v a d o r

Article 1192. In case both parties have committed a breach of the

Loss Deterioration obligation, the liability of the first infractor shall be equitably tempered
May demand the thing OR ask by the courts. If it cannot be determined which of the parties first violated
With debtor’s Liable to damages upon for rescission, in either case, the contract, the same shall be deemed extinguished, and each shall bear
fault fulfillment of condition creditor may recover damages his own damages.

ALTERNATIVE REMEDIES OF INJURED PARTY IN

EFFECTS OF IMPROVEMENT CASE OF BREACH
By Nature or Time At the Debtor’s Expense
Song Fo Case
Only usufructuary rights; Governed by Art Doctrine here: Nature of noncompliance must be a
Inures to the benefit of the creditor by 579 (useful improvements or for mere
pleasure, remove if possible to remove S U B S TA N T I A L B R E A C H o f c o n t r a c t f o r t h e
virtue of principle of retroactivity of
conditional obligations without damage to property) and Art aggrieved part to invoke rescission.
580 (set off the improvements he may
have made against any damage) - If there is non-compliance but not substantial enough
to warrant rescission, the court will fix a period for
the compliance.
EFFECT OF PREVENTION OF THE FULFILLMENT OF
THE CONDITION BY THE OBLIGOR ✏ Q: Is it necessary that for rescission to be effective, it
Article 1186. The condition shall be deemed fulfilled when the obligor always has to be in pursuance of a judicial order?
voluntarily prevents its fulfillment. General Rule: Need declaratory judgment; cannot take
law into your own hands
RECIPROCAL OBLIGATIONS — EXCEPTION: In case there is a violation, one
Article 1191. The power to rescind obligations is implied in reciprocal ones, party is entitled to extrajudicially rescind if it is
in case one of the obligors should not comply with what is incumbent provided for in their contract, except if the
upon him. defendant questions the extrajudicial rescission
The injured party may choose between the fulfillment and the rescission of then the Court will have to determine
the obligation, with the payment of damages in either case. He may also
seek rescission, even after he has chosen fulfillment, if the latter should
become impossible. • There is nothing in the law that prevents the parties
The court shall decree the rescission claimed, unless there be just cause from agreeing that they can extrajudicially rescind
authorizing the fixing of a period. the contract
This is understood to be without prejudice to the rights of third persons who • Rescission of a contract is NOT NECESSARY if the
have acquired the thing, in accordance with articles 1385 and 1388 and the contract PROVIDES that it may be revoked and
Mortgage Law. cancelled for violation of any of its terms and
conditions.
RECIPROCITY — arises from identity of cause and
necessarily, two obligations are created at the same ✏ Q: What is effect of extrajudicial rescission?
time. Each party is a creditor and debtor of the other ‣ A: Justified by SC that there is nothing in law that
and they are to perform simultaneously. prevents; but refutation is that this is giving other
party the power to take law into his own hands;
☞EXAMPLE: Contract of sale SC held this as valid
- the seller is obliged to deliver and buyer is obliged
to pay in the same transaction ✏ Q: What are probable grounds that questioning party
may raise before the court?
☞SITUATION: In one transaction: A loaned B then in ‣ A: Party may question and say yes that is admitted
another transaction, B loaned to A that rescission may be exercised but not here
- this is not reciprocal since this does not arise because degree of noncompliance is not
from same transaction though this is a mode of substantial enough. And it is not automatic that
extinguishment known as compensation rescission will be done; it is not ministerial. The
- If buyer cannot pay, party can rescind. right of revolting party is to ask Court to fix period
for compliance. If court allows this, court is not
sustaining rescission.
☞ SITUATION: Assuming seller has not delivered title ‣ Debtor was prevented by fortuitous event
yet, or either buyer or seller has complied yet, is ‣ There was no demand, or demand was defective
there a necessity for seller to rescind contract, or
he can just offer the property to another buyer?
‣ A: There is a need to rescind the contract first. • Maceda Law: If you have already paid at least two
years installments, you are entitled to 30 days per
year that you haven’t paid before rescission can be
☞SITUATION: Why? What's the whole point of made
rescinding before you enter another transaction?
‣ A: To treat contract as if it did not exist — to put
RISK INVOLVED IN EXTRAJUDICIAL RESCISSION
the parties to their original position before the
transaction. ☞SITUATION: If you are second buyer and contract
‣ You cannot take the law into your own hands. It has been extrajudicially rescinded (seller may be
is not for you to determine whether rescission justified in selling again property). Then here you are
is properly exercised or not. as a prospective buyer then the first questioned the
rescission. What if Court sustains the objection of the
‣ You need first declaratory judgement that it was
first buyer?
rescinded because the judgement is a license for ‣ A: The risk is on part of second buyer. Other risk
you to enter into another transaction
which pertains to seller is that he might be liable
for damages because rescission may be
improperly exercised.

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Obligations and Contracts A t t y. G r a v a d o r

• It is true that extrajudicial rescission is valid, but this ‣ A: Here, debtor can choose any day even before
can be a problem. But it is always better, like Jan 31 because it is on or before.
contract of lease, if you want to be justified in ‣ Here, there is no benefit to creditor
retaking possession, there must always be an ‣ Benefit we refer to is the interest
express stipulation there that retaking is allowed ‣ So if on or before, this is for benefit of debtor only
sans any court intervention.
because debtor can always choose to cut short
accrual of interest
• If there is none, you are not allowed to rescind.
‣ Remedy: Go to COURT.
• Debtor has the right to make use of the period.

EFFECT OF RESCISSION HE LOSES THE RIGHT TO MAKE USE OF THE PERIOD:

• If the Contract is rescinded — obligation of the parties - when the obligation becomes due and demandable
is MUTUAL RESTITUTION.
1. When he becomes insolvent
2. Failure to furnish securities
■ Mutual Restitution — to return what you received in
3. Debtor impaired the existing guarantees
the contract; this is the effect of rescission
☞EXAMPLE: Debtor applied for a loan; secured
■ Termination/Cancellation — contract is given a
partial effect, example asking for back rentals. with 2 parcels of land; owner lost in a case
where he lost ownership of one the land. This
Source of your right here is the lease contract. So this
is an example of impairing the security. But
cannot be rescission because it will treat contract as
bank can give a certain period of time within
if it did not exist (read Pryce vs PAGCOR)
which to furnish a new set of securities.
Makes obligation due and demandable.
CONSTRUCTIVE (ACTUAL) FULFILLMENT OF A - To be distinguished from the loss of fortuitous
SUSPENSIVE CONDITION event because security is only an accessory
- when the obligor is responsible for non-compliance of undertaking. Debtor is not precluded from
obligation; it is as if condition is deemed to have furnishing a new set of securities.
been complied already 4. Debtor violates any undertaking
- It is an unlawful stipulation for the creditor to
☞EXAMPLE: I sell to you a parcel of land at discounted become owner of the security when the
price but there is condition that you will improve the debtor fails to pay.
road which is adjacent to that parcel of land I sold. I - It is also unlawful for the creditor to prohibit the
also own the land where road is constructed. In this debtor from selling the security. But creditor
transaction of selling, in so far as delivery of land is may ask the debtor to inform the former of
concerned, I am the obligor, from aspect of his intention to sell.
obligation to deliver land. And this obligation is ✏ QUESTION: Doesn’t selling the property
subject to condition that you will improve the land by
impair the obligation?
putting a road. But before you had chance, what I
did was I sold the land so you cannot anymore
comply with putting road because I voluntarily Gaite vs. Fonacier
prevented you from complying ✏ Q: Do you concur that the issue in this case was a
‣ Effect: Condition is deemed complied. Therefore, if controversy whether the event is a term or condition?
I cannot comply with deliver for property, I will be Why?
liable for: ‣ A: Yes. Because the case is about the delivery of
□ Rescission, damages, specific performance the irons so there was a demand of payment
□ I cannot disclaim liability because I was the already and when it was demanded… In this
one responsible case, F owns the _ group, and Gaite was
appointed to assist as an atty-in-fact. And there
OBLIGATIONS WITH A PERIOD was a contract between them that if Gaite will be
able to sell the iron and he gets a part of the
Term or Period share. Later, F revoked the authority granted to
- Future and certain event Gaite. So for F to fulfil his obligation, he issued a
- not demandable pending the arrival of the period surety bond. G was not satisfied with the first
surety bond so there was a second surety bond
- It does not refer to a past event. This is a question of made. The liability of the surety company would
when. There is no question if it will happen because have been attached only…
it would really happen.

I understand that F was obliged to pay a sum of money

☞EXAMPLE: Death. Pending the arrival of the term, the to Gaite for a sum of 65k, 10k was already paid. And
creditor has certain rights, he may also record his 65k was payable. Subject to one event. That the iron
right should be sold. So is the 65k immediately
☞EXAMPLE: You are bound to pay an amount of money demandable?
in a certain date. That is an obligation with a term. In - No. Because there was a condition that if it will be sold
the arrival of the term, the creditor may demand. however they did not fix the term. (it was clear that
the payment of the 65k will only be demandable
✏ Q: Why the creditor may refuse to accept payment upon the sale of the irons)
before arrival of period?
1. Accrual of interest So now, there is a controversy referring to the event.
2. For security of investment The debtor contended that he does not have the
obligation to pay because the condition was not fulfilled
✏ Q: What if “on or before Jan 31”, is this still for benefit (irons not sold.) so what is this?
of both? - Take note, that in condition, there is NO obligation
when the condition will not happen.

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- Gaite contended that this is not a condition. So if this is an extension of the term of the contract. Force
not a condition, then F is wrong. IOW, this is an majeure cannot be deducted from the period
obligation with a term. stipulated.
• MORATORIUM LAWS: postponement of the fulfillment
SC: Because they had already a background that a of an obligation, an extension of the period for the
specific there will be a payment. So there is no more performance of the obligation, decreed by the
issue on whether to pay or not. Because they already s t a t u t e . H o w e v e r, t o m e e t c o n s t i t u t i o n a l
agreed about the payment thus, there is already a requirements: The suspension should be definite and
DETERMINATION TO PAY. It is just a question of when. reasonable
Just like “I will pay you if I feel like paying you” – is this
enforceable? You are entering here into a usury RESOLUTORY (IN DIEM)
obligation. Article 1193. Par 2 — Obligations with a resolutory period take effect at
once, but terminate upon arrival of the day certain.
✏ Q: But if I’ll say “I will pay you as soon as possible/
when I can sell my house.” — is this enforceable? • Period after which the performance must terminate
‣ A: YES! Because there is already a determination • Think: expiry date
to pay. It is just a question of WHEN. So this is an
obligation with a TERM.
AS TO EXPRESSION
‣ So if it is already an obligation with a term, (the
a. Express — when specifically stated
right to demand for the obligation is based on the
term agreed). This is enforceable. b. Implied — when parties intended a period

✏ Q: So in this case it says, we made from whatever AS TO DEFINITENESS

proceeds that may be derived from the iron sale. So a. Definite — refers to a fixed known date or time
how shall we enforce the obligation? b. Indefinite — event which will necessarily happen but
‣ A: If was made to pay the obligation because the the date of its happening is unknown
obligation to pay has already become due and
demandable. Meaning there was already to AS TO SOURCE
proceeds from the sale? Yes.
a. Voluntary/Conventional — stipulated by parties
b. Legal — period is fixed by law
✏ Q: What was the basis of the court? Considering walay
halin c. Judicial — set by the courts in case of implied and
‣ A: The contract. There was already a determination indefinite periods
to pay however the date of the payment was not
agreed upon. IN CASE OF LOSS, DETERIORATION, OR
IMPROVEMENT BEFORE ARRIVAL
✏ Q: What was the relevance of the surety bonds? Article 1194. In case of loss, deterioration or improvement of the thing before
the arrival of the day certain, the rules in article 1189 shall be observed
‣ A: It binds F to pay G

EFFECTS OF LOSS OR DETERIORATION

• Necessity — to establish an agreement between them
• Purpose — to let F comply pending the arrival of the Loss Deterioration
term Extinguished, unless there is a Not liable for damage, creditor
Without
debtor’s fault stipulation to the contrary. must accept the thing in
(Art 1262 Par 1) impaired condition
☞Situation: This is just like asking a loan from the bank.
5 years. What does the bank do to make sure that May demand the thing OR ask for
With debtor’s Liable to damages upon
you will pay during the maturity date? rescission, in either case, creditor
fault fulfillment of condition may recover damages
‣ A: It will ask for security. Let us say, mortgage. That
is an obligation. That is what happens here. EFFECTS OF IMPROVEMENTS
By Nature or TIme At the Debtor’s Expense
Normal creditor would really ask for a security. Then
there is an obligation on the part of the debtor to Only usufructuary rights; Governed by Art 579
maintain that security. You must not let the security Inures to the benefit of the (useful improvements or for mere pleasure,
creditor by virtue of principle remove if possible to remove without damage to
deteriorate. If it will, what will happen? What happened of retroactivity of conditional property) and Art 580 (set off the improvements he
to the bond on the case? obligations may have made against any damage)
- The value deteriorated. So G said, pulihi ni. So creditor
has the right to make the obligation due and
demandable. So that is why due and demandable EFFECT OF PAYMENT IN ADVANCE
and utang ni F. So therefore, this is not a condition. Article 1195. Anything paid or delivered before the arrival of the period,
This is a TERM. the obligor being unaware of the period or believing that the obligation
has become due and demandable, may be recovered, with the fruits and
interests.
KINDS OF PERIOD/TERM • Only applies to obligations to give
AS TO EFFECT
• The action only lies before the arrival of the day
SUSPENSIVE (EX DIE) certain, when the day certain comes cannot recover
Article 1193. Par 1 — Obligations for whose fulfillment a day certain has
been fixed, shall be demandable only when that day comes.
• Manresa: Good faith/bad faith of the creditor in
accepting the premature payment is immaterial
• SUSPENSION OF PERIOD: If a fortuitous event
supervenes, the obligor is merely relieved of the • Tolentino: In accordance with solutio indebiti, good
obligation to fulfill at that time, and does not stop the faith of creditor makes him liable to restore the fruits
and interests insofar as it benefited him
running of the period because in effect that would be

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Obligations and Contracts A t t y. G r a v a d o r

BENEFIT OF PERIOD consideration of which the creditor agreed to

FOR WHOSE BENEFIT the period debtor attempts to abscond
✏ Q: For whose benefit is the period?
‣ A: For both debtor and creditor ✏ Q: How about if creditor wants to enforce compliance
but period did not arrive yet. Is there a way to stop
creditor from enforcing early?
CREDITOR’S BENEFIT ‣ A: Furnish guaranties, securities; but there is still
- May demand performance anytime, but not compelled possibility that creditor asks for additional
to accept before period expires securities
☞EXAMPLE: payment of interest ☞Example: Nai nangutang nimo, you can always
demand for security to ensure compliance
DEBTOR’S BENEFIT with debt. If he cannot comply, obligation will
- May oppose a premature demand, but may validly pay be enforced
any time before period expires
- No action can be filed against you in the meantime REAL ESTATE MORTGAGE
when the date does not arrive yet - if your mortgage your property, you can still sell
☞EXAMPLE: time to raise money property. If in the mortgage, there is stipulation that
property cannot be sold, that is illegal
BOTH - Take note: If you sell, you are in effect impairing the
security. If your impair security, bank will be
- Presumption in absence of stipulation or in case of justified in enforcing obligation even before arrival of
doubt
period; an instance where debtor loses right to make
- Creditor must give consent first before debtor may pay use of period
in advance especially when creditor receives other
benefits by reason of the term
✏ Q: Is there a case where only cause of action is to fix
period? Yes.
PRESUMPTION
Article 1196. Whenever in an obligation a period is designated, it is
presumed to have been established for the benefit of both the creditor
✏ Q: Would it make sense if you file fixing of period then
and the debtor, UNLESS from the tenor of the same or other circumstances specific performance? Would this violate multiplicity
it should appear that the period has been established in favor of one or of of suits principle?
the other. ‣ A: Recall case of CPU that court may not fix a
period anymore because from the
WHEN DEBTOR LOSES THE RIGHT TO MAKE USE circumstances of case that prerogative to ask
OF THE PERIOD period is a mere technicality; serve no other
Article 1198. The debtor shall lose every right to make use of the period: purpose than to delay. More than sufficient time
(1) When after the obligation has been contracted, he becomes insolvent, has been given. This is dependent on
unless he gives a guaranty or security for the debt; circumstances
(2) When he does not furnish to the creditor the guaranties or securities
which he has promised; WHEN COURT MAY FIX PERIOD
(3) When by his own acts he has impaired said guaranties or securities Article 1197. If the obligation does not fix a period, but from its nature and
after their establishment, and when through a fortuitous event they the circumstances it can be inferred that a period was intended, the courts
disappear, unless he immediately gives new ones equally may fix the duration thereof.
satisfactory;
The courts shall also fix the duration of the period when it depends upon the
(4) When the debtor violates any undertaking, in consideration of will of the debtor.
which the creditor agreed to the period;
In every case, the courts shall determine such period as may under the
(5) When the debtor attempts to abscond. circumstances have been probably contemplated by the parties. Once
fixed by the courts, the period cannot be changed by them.
■ Insolvency — Need not be declared in an insolvency
proceeding, enough that he is in a state of financial
difficulty that he is unable to pay his debts ALTERNATIVE OBLIGATIONS
■ Impaired — need not be total ART. 1199. A person alternatively bound by different prestations shall
completely perform one of them.
✏ Q: When can creditor demand for the fulfillment of the The creditor cannot be compelled to receive part of one and part of the other
obligation even when the period has not yet arrived/ undertaking.
expired? (1198)
‣ A: Debtor shall lose every right to make use of the Alternative Obligations
period — creditor is justified in filing case in court - various prestations are due but the performance of
one of them is sufficiently determined by the choice
• After the obligation has been contracted, he became which, as a general rule, belongs to the debtor.
insolvent — there is a proceeding for declaration of - Several prestations in an obligation
insolvency; resorted to by shrewd debtors; prove you - compliance with one prestation is enough;
really are insolvent and a court declaration is made
absolving you from debt - integrity of payment: compliance must be complete
• BUT HERE, insolvency does not need prior court
declaration when he does not furnish to the creditor RIGHT OF CHOICE
the guaranties and securities in his own acts, he has ART. 1200. The right of choice belongs to the debtor, unless it has been
impaired said guaranties or securities after their expressly granted to the creditor.
establishment and when through a fortuitous even The debtor shall have no right to choose those prestations which are
they disappear impossible, unlawful or which could not have been the object of the
obligation.
— UNLESS: He can give new ones equally
satisfactory debtor violates any undertaking, in

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Obligations and Contracts A t t y. G r a v a d o r

GENERAL RULE: The right to choose the prestation ART. 1205. When the choice has been expressly given to the creditor, the
belongs to the debtor. obligation shall cease to be alternative from the day when the selection has
been communicated to the debtor.
— EXCEPTION: Until then the responsibility of the debtor shall be governed by the ff rules:
1. Creditor cannot be compelled to accept part of 1 (1) If one of the things is lost through a fortuitous event, he shall perform
and part of the other. the obligation by delivering that which the creditor should choose from
2. Debtor cannot choose the option which is among the remainder, or that which remains if only one subsists;
unlawful, impossible or not part of the subject of (2) If the loss of one of the things occurs through the fault of the debtor,
the prestation the creditor may claim any of those subsisting, or the price of that
which, through the fault of the former, has disappeared, with a right to
damages;
☞EXAMPLE: Insurance policy. You have a vehicle you (3) If all the things are lost through the fault of the debtor, the choice by
insured. So in case you sustained damages, the the creditor shall fall upon the price of any one of them, also with
insurance pays you or repairs the damage or indemnity for damages.
procures a new unit. The same rules shall be applied to obligations to do or not to do in case one,
some or all of the prestations should become impossible.
EFFECT OF THE NOTICE OF CHOICE
ART. 1201. The choice shall produce no effect except from the time it has been FORTUITOUS EVENT
communicated.
1. The obligation is extinguished – since it became
pure obligation, the rule is that if the lost is due to
GENERAL RULE: The moment the debtor makes his fortuitous event – obligation is extinguished
choice, it will be converted into a simple obligation
2. There are still other prestations – since there are
✏ Q: When will choice be EFFECTIVE? still other prestations existing, if still possible to be
- Creditor cannot be left in limbo. delivered, the debtor shall choose which to deliver.
- Choice must be COMMUNICATED to the creditor.
- Not required that the creditor must give his consent What if debtor destroys intentionally the objects but
- Choice made by the debtor is irrevocable leaves 1 object available. But the last object is
subsequently lost due to fortuitous event. Is the debtor
liable? On what legal basis?
Note: Only communicated. Creditor does not need to
give his consent. Form of communication is not - One school of thought says, obligation is
extinguished because when the thing was
specified — may be notarized, written, oral, or implied.
destroyed, the obligation becomes simple. And the
rule is if the determinate thing is lost thru fortuitous
๏ Novation - right of choice is not required; consent of event, the obligation is extinguished.
creditor is needed when subject matter is changed. - Another school of thought: When the debtor
๏ Alternative - right of choice belongs to the debtor and intentionally destroyed all the prestations except
not required consent of the creditor one, he in effect diminishes the possibility of
performance. So how do we deal with the fortuitous
EFFECT OF LOSS OR IMPOSSIBILITY event? We cannot close our eyes to the concurring
ART. 1202. The debtor shall lose the right of choice when among the fault/negligence of the debtor. And when there is
prestations whereby he is alternatively bound, only one is practicable. concurring negligence, obligation is not extinguished
even if lost thru fortuitous event. (sir believes in this
- Converted into a simple and pure obligation. because justice and equity!)
- Creditor cannot claim damages because it’s the
debtor’s call
FACULTATIVE OBLIGATION
ART. 1203. If through the creditor’s acts the debtor cannot make a choice ART. 1206. When only one prestation has been agreed upon, but the obligor
according to the terms of the obligation, the latter may rescind the may render another in substitution, the obligation is called facultative.
contract with damages. The loss or deterioration of the thing intended as a substitute, through the
negligence of the obligor, does not render him liable. But once the
- Impossibility due to the creditor substitution has been made, the obligor is liable for the loss of the
substitute on account of his delay, negligence or fraud.
ART. 1204. The creditor shall have a right to indemnity for damages when,
through the fault of the debtor, all the things which are alternatively
the object of the obligation have been lost, or the compliance of the Facultative Obligations
obligation has become impossible. - only one prestation has been agreed upon but the
The indemnity shall be fixed taking as a basis the value of the last thing which obligor may render another in substitution
disappeared, or that of the service which last became impossible. - only 1 prestation but debtor is given the right to
Damages other than the value of the last thing or service may also be awarded. substitute the principal prestation
- Applies to the cases where the debtor has the right
to choose Principle of “Accessory always follow the principal”
- Remedy when all the things which debtor is bound
to deliver due to his fault: — Debtor is liable for the CHOICE BY THE DEBTOR
last thing that disappeared. (Art 1204)
✏ Q: Why is it not a right of the creditor?
‣ A: Law favors the debtor in an obligation

If there is already a choice — it will become SIMPLE.

• Can the debtor be compelled to deliver the substitute

considering that he intentionally destroyed? No.
• Can the debtor choose to deliver the substitute
considering that he intentionally destroyed? Yes.

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Obligations and Contracts A t t y. G r a v a d o r

• But what if the debtor opts to deliver the substitute?

Can he do that? Yes. He has the option.

EFFECT OF SUBSTITUTION
• BEFORE substitution is effected — substitute is not
the prestation due
• Substitute prestation becomes IMPOSSIBLE due to
FAULT or negligence of debtor — obligation is NOT
AFFECTED, cannot be held for damages
• From the time the debtor communicates to the creditor
that he elects to perform substitute prestation —
substitute is effective

NO CHOICE YET — BEFORE SUBSTITUTION

• If lost through a fortuitous event, the obligation is
extinguished
• if item 1 is lost through the fault of debtor, he is liable
for damages
• if item 2 is lost with/without the fault of debtor, he is still
liable to deliver item 1; he is not liable for damage for
the loss of item 2 as it is not due

THERE IS A CHOICE — AFTER SUBSTITUTION

• If item 1 is lost with or without the fault of debtor, he is
not liable for its loss since his obligation is to deliver
item 2
• if item 2 is lost through a fortuitous event, the
obligation of debtor is extinguished
• if item two is lost through the fault of debtor, debtor is
liable for damages

DISTINGUISH ALTERNATIVE AND FACULTATIVE

As to Alternative Facultative

Content of Various prestations which Only the principal constitutes

obligation constitutes part of the obligation the obligation, accessory only
means to facilitate payment

Does not invalidate the obligation Nullity of principal prestation —

Nullity of Invalidates the obligation
Prestation Creditor can choose from the
remainder Creditor cannot demand a
substitute even if valid

Choice Originally from the debtor, but Only debtor can choose the
may be given to the creditor substitute prestation

Impossibility of principal
Impossibility of ALL prestations prestation — sufficient to
Effect of Loss extinguish obligation
without fault of debtor —
(Fortuitous) extinguishes the obligation Loss does not make debtor
liable, unless substitution has
been made
Debtor not liable if other Debtor is liable
Effect of Loss prestations are available
(through Loss of substitute before
FAULT) If choice belongs to creditor, loss substation does not render the
of one gives rise to liability debtor liable

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Obligations and Contracts A t t y. G r a v a d o r

JOINT AND SOLIDARY OBLIGATIONS SOLIDARY OBLIGATION

Irrelevant when there is only one debtor or when creditor. Article 1207. The concurrence of two or more creditors or of two or more
debtors in one and the same obligation does not imply that each one of
- Premise: there are more than 1 debtor or creditor the former has a right to demand, or that each one of the latter is bound to
render, entire compliance with the prestation. There is a solidary liability
Relevant only when only when the obligation expressly so states, or when the law or the nature
of the obligation requires solidarity.
• 1 creditor - 2 debtors; or
• 2 creditors - 1 debtor; or
SOLIDARY OBLIGATIONS
• 2 creditors - 2 debtors
- one where each one of the debtors is bound to render,
and/or each one of the creditors has a right to
Problems that arise when there are 2 or more debtors or demand entire compliance with the prestation
creditors: - when the debtor can be compelled to comply entire
1. Whom to pay compliance
2. Who shall be impleaded - one for all, all for one
- The question on who to file a case — would depend
REQUISITES
Default Rule: If obligation is silent, the obligation is joint. - must be stipulated in the contract that it is Solidary,
— UNLESS: When contract or stipulation provides by the law, and by its nature
otherwise.
WORDS USED— INDICATE SOLIDARY OBLIGATIONS
Solidary Joint • Joint and/or Several
• Severally
Only 1 Everyone is an indispensable party
• Solidaria
All for one, one for alll Ija, ija, aho, aho
• In solidum
Any one of the creditors can collect the Credit is divided as to many creditors, • Solidarily
whole amount Equally, compartmentalized
• Together and/or separately
• Individually and/or collectively
JOINT OBLIGATION • Juntos o suparadamente
Article 1208. If from the law, or the nature or the wording of the obligations to • “I promise to pay”
which the preceding article refers the contrary does not appear, the credit or
debt shall be presumed to be divided into as many shares as there are
creditors or debtors, the credits or debts being considered distinct from one RATIONALE:
another, subject to the Rules of Court governing the multiplicity of suits. The relationship among them is characterized by mutual
representation. IOW, one is deemed authorized to
JOINT OBLIGATIONS represent by others.
- the whole obligation is to be paid or fulfilled
proportionately by the different debtors and/or is to ■ Mutual representation — means that debtor can
be demanded proportionately by the different represent the other solidary debtors or the one
creditors (Art. 1208) solidary debtor can fulfill the entire obligation.
- extent the liability is only divided into as many shares
as there are debtors ✏ Q: What is effect if one solidary creditor will renounce
- “ija ija, aho aho” entire obligation even without consent of other
- the default in the stipulation of the contract solidary creditors? Would it extinguish obligation?
‣ A: Yes. Any act that they commit whether for

☞You and sir are co-creditors of Dean Largo for Php 1M. benefit or disadvantage to other co-creditors
affects them all, even if without consent, there is
✏ Q: Joint creditors — How much can you collect
effect in so far as debtor is concerned, his
from Dean Largo? obligation is extinguished.
‣ A: Only 500,000 too. Same principle.
✏ Q: Solidary – How much can Dean Largo collect
• But the problem has to be resolved among the solidary
from the two of us? creditors (new controversy); ask that they be given
‣ A: She can ask 1M from either one.
share of the credit;
• The renouncing solidary creditor must reimburse the
Assuming that dean will file a case but now, she only others for their corresponding share
filed a case against you. You are advised by your
lawyer that I should be impleaded as well in order for
NOT PRESUMED
the case to prosper. Is he correct?
‣ A: NO. Because any of the debtor may be Solidarity is not presumed. In absence of specific
impleaded by the creditor. stipulation in agreement, you cannot presume that
debtor is solidarily liable. You can only be solidary
✏ Q: So does that mean that the creditor is not required
debtor when provided by law, stipulation, or nature of
to implead everyone, the case will prosper? obligation provides otherwise 

‣ A: Yes, his choice
✏ Q: What are instances by law which impose solidary
CASE: Jaucian v. Querol liability?
The SC decided that a creditor may sue any of the ‣ A: Tort/Culpa Aquiliana between for example
joint and several debtors or all of them operator and driver; co-perpetrators of felonies
simultaneously so it does not require that all debtors (conspiracy)
should be impleaded. So it is enough that the
creditor will file against only one.

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KINDS OF SOLIDARY OBLIGATIONS NOVATION, COMPENSATION, CONFUSION

AS TO SOURCES ART. 1215 — Novation, compensation, confusion or remission of the
ART. 1208. If from the law, or the nature or the wording of the obligations… debt, made by any of the solidary creditors or with any of the solidary
debtors, shall extinguish the obligation, without prejudice to the
provisions of article 1219.
i. LEGAL — by operation of law The creditor who may have executed any of these acts, as well as he who
Art 1915 — Two or more principals appointed an collects the debt, shall be liable to the others for the share in the
agent for common transaction, obligation corresponding to them.
solidarily liable to agent
Art 1945 — Two or more bailees to whom a thing - Extinguishes the obligation without prejudice to the
is loaned in the same contracts responsibility of a solidary co-debtor with respect to
(commodatum) reimbursement prior to his remission (Art 1215 Par 1)
Art 2194 — Joint tortfeasors
Art 2146 — Joint officious management, two or NOVATION
more managers - Extinguish obligation but give rise to a new obligation.
Art 2157 — Joint payees in solutio indebiti ☞Example: You loan and you really cannot pay, but
(payment is not due) you have property. Then creditor accepts, you
Art 119, RPC make a new agreement now based on property.
ii. CONVENTIONAL — by stipulation of parties Obligation 1 is extinguished but it gives rise to
obligation 2. It may be change in subject matter,
iii. REAL — simultaneously active and passive
or change in personality of creditors

AS TO PARTIES BOUND
COMPENSATION
i. ACTIVE — solidarity of creditors; each has right to
collect the whole of the prestation from the common - many transactions, in one I am debtor and you are
creditor, then in another you are debtor I am creditor,
debtor pa-utangay ta; so we have concept of mutual set-off/
ii. PASSIVE — solidarity of debtors; each is liable to pay compensation.
the whole to the common creditor
☞Example: Outstanding loans in banks. Absurd if
iii. MIXED — simultaneously active and passive you withdraw from bank then you deposit again
to pay them. It extinguishes obligation of debtor,
AS TO UNIFORMITY but other debtors have to be compensated
ART. 1211. Solidarity may exist although the creditors and the debtors may not
be bound in the same manner and by the same periods and conditions. CONFUSION
☞Example: Promissory notes which are negotiable.
i. UNIFORM — when the parties are bound by the I pay to the order of A. A can endorse and say
same stipulations or clauses pay to the order of B as payment of his own
ii. VARIED/NON-UNIFORM — when the parties are not obligation. Then B can endorse again, pay to the
subject to the same stipulations or clauses order of C. C then endorses again, then it
happens that it becomes “pay to the order of A”.
The last negotiation is pay to the order of make of
SOLIDARY CREDITORS instrument through subsequent negotiation. He
So what if solidary creditor? He can also collect on behalf cannot pay himself. Personality of debtor and
of the others without SPA or authority of the others? Is creditor is merged in one
that the essence mutual representation? ☞Example: Right of way; you are given right to
- Yes, unity of object. As long as it is not prejudicial. pass through portion of land which does not
Meaning, it does not adversely affect the rights of the belong to you. If you who asked right of way can
other creditors. establish that you have no other way to access a
public highway, you can compel owners of
ART. 1212. Each one of the solidary creditors may do whatever may be surroundings to grant you right of way. However,
useful to the others, but not anything which may be prejudicial to the you are not owner, only a privilege to pass
latter. through. You are in effect the creditor. The other
one compelled to grant right of way is debtor.
☞Example: (Act is prejudicial, co-solidary creditors not Then the debtor decides to sell the lot because
bound by the obligation) he can get bigger profit, so you buy the lot. This
We are co-solidary creditors, I decided that I will is not right of way anymore since you are already
assign my rights to Atty. Galeon. Is that prejudicial? owner. You are not creditor here anymore. The
The mere act of assigning my rights? personalities are gone and merged into one in
‣ A: YES, law provides so that the solidary creditor you.
cannot assign his rights to a third person without
the authority of other creditors. But this is not an ☞Situation: Ms. Eyas is indebted to Atty. Gravs and Ms.
example where an act is prejudicial. (NOT X. We are solidary creditors. To whom shall Ms. Eyas
PREJUDICIAL, LAW SAYS SO) pay?
‣ A: To the creditor who demanded, judicial or
extrajudicial, the debt first.
IN THE CASE OF REMISSION
• I have the right to demand the entire compliance or
waive the entire credit. ✏ Question: What if the creditors simultaneously asked
• Meaning, whatever waiver that I will do, I cannot do for the debt?
‣ A: The debtor may choose whom to pay. Right of
that because that is prejudicial.
choice belongs to the debtor.

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• Although incidentally, we have a rule on procedures. ■ When one of the solidary debtors is insolvent and
The debtor can file an inter-pleader where the cannot reimburse, his share will be borne by all his
creditors can prove their claim in court. co-debtors in proportion to the debt of each. (Art
1217, Par 3)
✏ Q: What if one of the debtors becomes insolvent? How
much can the creditor ask from the co-debtors? • Each one of solidary debtors may do what is useful to
‣ A: The full amount, given that the relationship is others but not prejudicial to other
solidary. Then the co-debtors can ask for - Qualified: good rule in so far as creditors or
reimbursement from the insolvent debtor should debtors are concerned; do not affect other side
he regain his financial stability.
■ If one of the solidary debtors cannot, because of his
✏ Q: What if the relationship is joint? insolvency to the debtor paying the obligation, such
‣ A: The creditor can only ask from the co-debtors share shall be borne by other solidary co-debtors
their share in the debt.
Article 1218. Payment by a solidary debtor shall not entitle him to
✏ Q: What is the remedy of the creditor with regards to reimbursement from his co-debtors if such payment is made after the
obligation has prescribed or become illegal
the insolvent debtor?
‣ A: __
■ Payment by co-debtor does not entitle him to
reimburse from co-debtors if such payment is made
Note: There is such a thing as de facto insolvency. Not after the obligation has prescribed or become illegal.
all insolvency is by formal court declaration. (Art 1218)

GENERAL RULE: When the relationship is solidary, all ✏ TWO CONFLICTING PROVISIONS:
acts of one creditor affects all the other creditors. All
acts are valid, as far as the debtors are concerned. “no solidary creditor may do something “…which is performed by solidary
that will prejudice other creditors” creditor will extinguish obligation”

• But as far as the creditors are concerned, the creditor

responsible for the act is answerable to the co- ✏ HARMONIZE:
solidary creditors. In so far as debtor is concerned, obligation is
extinguished; that creditor must be held answerable
GENERAL RULE: When the relationship is joint, the acts to his co-solidary creditors
of the creditors are compartmentalized. And the
insolvency of one debtor does not affect the debt of the If one solidary debtor becomes insolvent — his share
other debtors. of the obligation will be shouldered by other debtors —-
to pay in proportionate share; increase liability of other
• Solidary creditor cannot assign his rights without solidary debtors
consent of the others
- No problem here if source of right is contract IN CASE OF FORTUITOUS EVENT
because you can stipulate ART. 1221. If the thing has been lost or if the prestation has become
- But if it does not arise from contract, such as culpa IMPOSSIBLE without the fault of the solidary debtors, the obligation shall
aquiliana case, will I be prohibited from be extinguished.
assigning my rights to you? Okay for contract. If there was fault on the part of any one of them, all shall be responsible to
But not here without consent because in solidary, the creditor, for the price and the payment of damages and interest, without
there is closer intimacy among creditors. prejudice to their action against the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the performance has
become impossible after one of the solidary debtors has incurred in delay
Article 1217. Payment made by one of the solidary debtors extinguishes the through the judicial or extra-judicial demand upon him by the creditor, the
obligation. If two or more solidary debtors offer to pay, the creditor may provisions of the preceding paragraph shall apply.
choose which offer to accept.
He who made the payment may claim from his co-debtors only the share
which corresponds to each, with the interest for the payment already made. • If thing is lost or prestation has become impossible
If the payment is made before the debt is due, no interest for the WITHOUT FAULT OF THE SOLIDARY DEBTORS,
intervening period may be demanded. obligation is extinguished.
When one of the solidary debtors cannot, because of his insolvency,
reimburse his share to the debtor paying the obligation, such share shall
be borne by all his co-debtors, in proportion to the debt of each. • If THERE IS FAULT on part of any one of them, ALL
shall be responsible
☞Example: You are obliged to deliver specific thing
SOLIDARY DEBTORS with the others; one solidary debtor does not
■ Payment by one of the solidar y co-debtors contribute and the obligation cannot be
extinguishes the obligation. (Art 1217, Par 1) performed. You are adversely affected. You can
■ Solidary co-debtor who paid may reimburse from his be liable for the value of thing and damages. All
co-debtors only the share which corresponds to of you will shoulder damages but the non-guilty
each, with the interest for the payment already made, have a cause against the guilty
but if the payment is made before debt is due, no
interest for the intervening period may be demanded. DEFENSES AVAILABLE TO A SOLIDARY DEBTOR
(Art 1217, Par 3)
AGAINST THE CREDITOR
- Converted into a Joint Obligation as to co-debtors, ART. 1222. A solidary debtor may, in actions filed by the creditor, avail himself
but no real case of subrogation because the old of all defenses which are derived from the nature of the obligation and
one is extinguished and the new one is created of those which are personal to him, or pertain to his own share. With
- Partial payment: may recover only insofar as the respect to those which personally belong to the others, he may avail
payment exceeded his share of the obligation himself thereof only as regards that part of the debt for which the latter are
responsible.

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Obligations and Contracts A t t y. G r a v a d o r

• If solidary debtor is sued and as long as debt is not Ynchausti vs Yulo

fully paid, you can be liable; not a defense to say you D o e s d e f e n s e h e r e h ave e f f e c t o f m o d i f y i n g
paid more than your share o bl i g at i o n ? T h e re w a s p a r t i a l d e f e n s e. W hy ?
Because it did not totally ABSOLVE the
• DEFENSES to avoid liability: debtors. It merely reduced the obligation.
Partial defense because the extension given may be
a. total defense — total extinguishment of liability invoked by debtor whom demand was made
will result
- contract is founded on illegal consideration; or Quiombing case
obligation is unenforceable (total defect)
There is question on procedure but in resolving this
b. partial defense — personal to one of solidary issue, the SC has to discuss the nature of solidary
debtors; only to reduce liability liability
- one of solidary debtors is minor. Contract
entered into by minor is voidable.
Indispensable party — a party who should be included
- There must be court declaration that contract in the case so that there would be complete and final
is void (valid till annulled) determination of the case.
- one of solidary debtors is insane — effect of
reducing liability General rule: All persons who would be affected should
be included as parties to the case. If you are not
TYPES OF DEFENSES included, that would violate right to due process. If
i. Those derived from the nature of the obligation there is judgment and you will be bound without you
- Connected with the obligation and derived from its knowing, due process violated. Also, so that persons
nature will be bound and there will be complete determination
- Constitutes a total defense for it nullifies the
obligation or renders it ineffective • As regards to solidary co-creditor, he is affected no
doubt. But because there is a law that solidary
creditor can do anything that is beneficial to others, it
☞ Example: Deliver 1 kilo of shabu - illegal
is not necessary to implead him in the case
considerations, fraud, prescription, remission,
because one for all, all for one. Whatever judgment
res judicata, non-performance of a suspensive
would benefit you who is not impleaded. And if there
condition, payment is adverse judgment, you are also affected. You can
file the case alone
- There are contracts that need to be written like
sale of land. It needs to be in writing. Otherwise,
it would be unenforceable. JOINT INDIVISIBLE OBLIGATIONS
ART. 1209. If the division is impossible, the right of the creditors may be
- EXCEPT: when the contract is already executed prejudiced only by their collective acts, and the debt can be enforced
like the payment of downpayment. only by proceeding against all the debtors. If one of the latter should be
insolvent, the others shall not be liable for his share.
ii. Personal Defenses of the debtor
• Total Defense • Several creditors or debtors but the prestation is
- if case filed directly to the minor indivisible, obligation is joint unless solidary has
☞ Example: his consent is vitiated; minority, been stipulated
insanity, fraud, violence, intimidation
(sufficient causes to annul consent) • Indivisible obligation: by very nature of the thing, such
as car
• Partial Defense • If contract is silent, from very nature of thing, may be
- Other co-debtor invokes the other’s defense divisible or indivisible
☞ Example: special terms or conditions affecting
his part of the obligation ✏ Q: If one of the obligors not ready to comply, you are
creditor, are you going to sue all of them?
‣ A: Additional damages may be imposed on guilty
iii. Personal Defenses belonging to other the co-
debtors debtor
• Partial Defense
☞Example: A and B is indebted to C. A’s REMEDY IF ONE OF JOINT DEBTORS DOES NOT
consent was vitiated. C brought a suit COMPLY
against B. B could bring as a defense A’s • Remedy of creditor — indemnification of damages;
consent being vitiated. This is only a partial - This becomes a forced novation. Instead na thing
defense cos d man kang B na consent ang ideliver, compute nalang nalang ang value of the
na vitiate. He can still be compelled to pay thing then divide among them the value, then the
his share of the debt less the share of A guilty debtor bears the damages

EFFECTS OF THE DEFENSES • Joint — parties are merely proportionately liable

1. If derived from the nature: all the solidary co-debtors • Indivisible — object or subject matter is not physically
are benefited divisible into parts
2. If personal one: only him benefited (exclusively)
3. If personally to the co-debtor: partial defense - Their tie is joint, but the performance is indivisible.
- One in which the object of the object or prestation is
indivisible, not susceptible of division; while the tie
between the parties is joint, that is liable only to a
proportionate share

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Note: Even if the nature of the object is physically

INDIVISIBILITY DISTINGUISHED FROM SOLIDARITY divisible, the obligation may be indivisible.
ART. 1210. The indivisibility of an obligation does not necessarily give rise to
solidarity. Nor does solidarity of itself imply indivisibility. EFFECTS
Article 1223. The divisibility or indivisibility of the things that are the
object of obligations in which there is only one debtor and only one creditor
Indivisibility Solidarity does not alter or modify the provisions of Chapter 2 of this Title.
Article 1233. A debt shall not be understood to have been paid unless the
Each creditor cannot demand more Each creditor may demand the full
than his share and each debtor is not prestation and each debtor has the duty thing or service in which the obligation consists has been completely
liable for more than his share to comply with the entire prestation delivered or rendered as the case may be.

Prestation that is not capable of The legal tie or vinculum defining the
partial performance extent of liability INDIVISIBLE OBLIGATIONS
- not capable of being partially performed
Only the debtor guilty of breach of All of the debtors is liable for the
obligation is liable for damages, thereby breach of obligation committed by any - all or nothing
terminating the agency one of the debtors

Can only exist when there is at least 2 KINDS OF INDIVISIBLE OBLIGATIONS

Can exist even if there is only one creditor or debtors (requires plurality a. Natural
debtor or only one creditor of subjects)
Article 1225 Par 1. — For the purposes of the preceding articles, obligations
to give definite things and those which are not susceptible of partial
The other debtors are proportionately
The other debtors are not liable in case liable in case of insolvency of one performance shall be deemed to be indivisible.
of insolvency of one debtor debtor 1. Obligation to give definite things
2. Not susceptible of partial performance
EFFECTS OF JOINT INDIVISIBLE OBLIGATION
Article 1225 Par 3. — However, even though the object or service may be
Article 1209. If the division is impossible, the right of the creditors may be
physically divisible, an obligation is indivisible if so provided by law or
prejudiced only by their collective acts, and the debt can be enforced only by intended by the parties.
proceeding against all the debtors. If one of the latter should be insolvent,
the others shall not be liable for his share. b. Legal — provided by law
c. Conventional — provided by intended parties
1. Creditors prejudiced only by their collective acts
2. Co-debtors not liable for the share of the insolvent PRESUMPTIONS
debtor a. Of Indivisibility
3. Creditor must proceed against all the joint debtors, Article 1225 Par 1. — For the purposes of the preceding articles, obligations to
because the compliance of the obligation is give definite things and those which are not susceptible of partial
possible only if all the joint debtors would act performance shall be deemed to be indivisible.
together.
4. If one of the debtors cannot comply, the obligation is b. Of divisibility
converted into monetary consideration (liability for Article 1225 Par 2 — When the obligation has for its object the execution of a
losses and damages). One who is ready and willing certain number of days of work, the accomplishment of work by metrical
to comply will pay his proportionate share plus units, or analogous things which by their nature are susceptible of partial
damages when his financial condition improves. performance, it shall be divisible.
5. Debtor must deliver to all the creditors. If he delivers
to only one, liable for non-performance as to other OBLIGATIONS NOT TO DO
Article 1225 Par 3. — In obligations not to do, divisibility or indivisibility
shall be determined by the character of the prestation in each
LIABILITY FOR DAMAGES IN CASE OF BREACH particular case.
ART. 1224. A joint indivisible obligation gives rise to indemnity for
damages from the time anyone of the debtors does not comply with his
undertaking. The debtors who may have been ready to fulfill their EFFECTS
promises shall not contribute to the indemnity beyond the corresponding 1) Article 1223. The divisibility or indivisibility of the things that are the
portion of the price of the thing or of the value of the service in which the object of obligations in which there is only one debtor and only one
obligation consists. creditor does not alter or modify the provisions of Chapter 2 of this
Title.
1. Gives rise to indemnity for damages, non-compliance 2) Article 1233. A debt shall not be understood to have been paid unless
with undertaking the thing or service in which the obligation consists has been
completely delivered or rendered as the case may be.
2. Debtors ready to fulfill shall not be liable
— EXCEPTIONS:
a. Obligation has been substantially performed
DIVISIBLE AND
 in good faith (Art 1234)
b. When the creditor accepts performance,
INDIVISIBLE OBLIGATIONS knowing its completeness, and without
protest, the obligation is deemed fully
- performance of the prestation and not to the thing performed (Art 1235)
which is the object thereof
3) Art 1224. A joint indivisible obligation gives rise to indemnity for
damages from the time anyone of the debtors does not comply with
DIVISIBLE OBLIGATIONS his undertaking. The debtors who may have been ready to fulfill their
- susceptible of partial performance because of its promises shall not contribute to the indemnity beyond the
corresponding portion of the price of the thing or of the value of the
nature service which the obligation consists.
- debtor can legally perform the obligation by parts and 4) See Joint Indivisible Obligations
the creditor cannot demand a single performance of
the entire obligation
CESSATION OF INDIVISIBILITY
a) Natural Indivisibility: conversion of the obligation to
☞EXAMPLE: Construction Contracts - divisible pay damages

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b) Conventional/Legal Indivisibility: novation, death of • Parties do not need to prove amount of damages.
creditor (division among heirs) Because the amount of damages still needs to be
proved in court with evidence and stuff like that. Very
inconvenient.
REMEDY OF CREDITOR
Question: What is the remedy of the creditor when one of
the debtors of an essentially indivisible obligation PENALTY SUBSTITUTES INDEMNITY FOR DAMAGES
refuses to comply with his undertaking? - if you prove damages like actual damages, not easy
‣ A: Convert to monetary valuation/indemnity for matter to prove; prove actual damages by receipts
damages. (Art.1224) - also allowed to prove loss of earning capacity
(expected income, etc.)
Note: If the parties agree to some other form of - if there is a penal clause, you will do away with all
settlement, the agreement prevails. those things because it substitutes UNLESS there is
— EXCEPT: Those that are inherently void 
 a contrary stipulation
(e.g. future fraud, when the stipulation is that the - so if contract says without prejudice to damages, you
creditor automatically own the security upon are liable for both penalty and damages
non-payment, etc.) - the penalty has to be liquidated: accounted already;
specified
• If the obligation is JOINT — Debtor can only be
compelled to pay his share of the debt. DEBTOR IS NOT EXEMPT FROM PERFORMANCE
• If SOLIDARY — The co-debtors can be compelled to OF OBLIGATION BY PAYING THE PENALTY
pay for the whole debt, including the share of the • Not allowed because hat will defeat the purpose of the
debtor who was not willing to comply with his penalty (two-fold purpose)
undertaking. • Neither can creditor demand fulfillment of obligation
and satisfaction of penalty at same time
☞Situation: If the husband dies, and you are the creditor
(bank), and the obligation is solidary, the bank can ☞EXAMPLE: Contract of lease says that failure to pay
proceed against the surviving spouse-debtor even any monthly rental due shall subject the lessee to a
without impleading the other debtor. Is this penalty of 2 M. On 3rd year of lease contract, no
procedurally correct? monthly rental was made. Because of violation,
‣ A: No. The recourse of the creditor is to file a claim contract is cancelled. Also because of violation,
in the settlement proceeding of the estate of the lessor entitled to collect the penalty of 2 M. But aside
deceased. from 2 M, lessor also wants to collect rentals
corresponding to 2 year period (na wala nabayran).
Note: This is only applicable if the solidary debtors are This is not allowed because this is in effect a
husband and wife. If not, then what the bank did is still demand to fulfill obligation. Creditor cannot demand
procedurally correct. fulfillment of obligation and satisfaction of penalty
UNLESS this right has been expressly granted to
him
OBLIGATIONS WITH 

A PENAL CLAUSE Note: The debtor cannot just choose to pay the penalty
to do away with complying with the principal obligation.
Article 1226 Par. 1 — In obligations with a penal clause, the penalty shall IOW, you are penalized and the contract is also
substitute the indemnity for damages and the payment of interests rescinded.
in case of noncompliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay the
penalty or is guilty of fraud in the fulfillment of the obligation. DEMANDABILITY OF PENALTY
Art. 1226 Par. 2 — The penalty may be enforced only when it is demandable
in accordance with the provisions of this Code.
OBLIGATIONS WITH A PENAL CLAUSE (1) When the non-performance is due to the fault or
- an obligation where there is an accessory undertaking fraud of the debtor
- a kind of obligation with an accessory provision that in (2) Non-performance gives rise to the presumption of
case a party to an obligation fails to perform the fault creditor does not need to prove the fault of
prestation which he is bound to comply, there is the debtor. Burden of proof for the excuse on the
already a pre-agreed penalty debtor. (Art 1228)
- if you contravene a contract by fraud, negligence, (3) When creditor elected fulfillment but the same has
contravention of tenor, etc., you are liable for become impossible (Art 1227)
damages
RIGHTS OF AN AGGRIEVED PARTY
2 FOLD PURPOSE: Article 1227. The debtor cannot exempt himself from the performance of
1. To give coercive power to the contract or to insure the obligation by paying the penalty, save in the case where this right has
compliance been expressly reserved for him. Neither can the creditor demand the
2. For convenience of the parties or to do away with the fulfillment of the obligation and the satisfaction of the penalty at the same
time, unless this right has been clearly granted him. However, if after the
hassle of proving damages creditor has decided to require the fulfillment of the obligation, the
performance thereof should become impossible without his fault, the
PROOF OF ACTUAL DAMAGES NOT NECESSARY penalty may be enforced.
Article 1228. Proof of actual damages suffered by the creditor is not Article 1226 — The penalty shall substitute the indemnity for damages
necessary in order that the penalty may be demanded. and the payment of interests in case of noncompliance

• When you are the aggrieved party, you only need to 1. Substitute for indemnity for damages and payment of
prove violation of the agreement so you can claim interest (Art 1226)
the penalty. No need to prove damages. — UNLESS: There is a stipulation to the contrary
e.g. becomes a facultative obligation

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‣ A: It does not affect the principal obligation.

Article 1227. The debtor cannot exempt himself from the Because the penal clause is only an accessory
performance of the obligation by paying the penalty obligation.
2. Not exempt debtor from performance penalty is not ‣ But if the principal obligation is void, it affects the
a defense for leaving obligation unfulfilled penal clause.
☞EXAMPLE: In rescission, there is duty to mutually
restitute. So put there a forfeiture clause; in case PRINCIPAL VS. ACCESSORY OBLIGATION
of violation the other cannot get back. This is
example of right expressly granted Principal Accessory
Can stand alone, independent of other Attached to the principal in order to
Article 1227. Neither can the creditor demand the fulfillment of the obligations complete it or take their place in case of
obligation and the satisfaction of the penalty at the same time breach
3. Creditor cannot demand BOTH performance and
penalty at the same time WITH CONDITIONAL OBLIGATIONS
— EXCEPT: When the right is expressly provided in
the contract. Obligations with a Penal Clause Conditional
☞EXAMPLE: In a construction contract, you are the
No obligation before the suspensive
owner of the building and the contractor did not There is already an existing obligation (the condition happens, it is the fulfillment
finish the construction on the date agreed. principal) from the very beginning of the condition that gives rise to the
‣ The creditor cannot demand penalty and obligation
performance at the same time. Accessory obligation (penalty) is Principal obligation itself is dependent
dependent upon non-performance of the upon an uncertain event
principal obligation
Article 1226 — The penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance
4. Creditor cannot collect other damages in addition to
WITH ALTERNATIVE OBLIGATIONS
penalty
— EXCEPT: Obligations with a Penal Clause Conditional
(1) There is an express provision to that effect
Only one prestation and it is only when Two or more obligations are due, but
(2) Debtor refuses to pay the penalty this is not performed that the penal fulfillment of one of them is sufficient
(3) Debtor is guilty of fraud in the non-fulfillment clause is enforceable
of the obligation 

Impossibility of one of the obligations,
Impossibility of the principal obligation without the fault of the debtor, still
WHEN PENALTY SHALL BE EQUITABLY REDUCED also extinguishes the penalty leaves the other subsisting
Article 1229. The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by the He cannot choose to pay the penalty to
debtor. Even if there has been no performance, the penalty may also be relieve himself of the principal The debtor can choose which prestation
obligation, unless that right is expressly to fulfill
reduced by the courts if it is iniquitous or unconscionable. granted to him

General Rule: Court will not interfere with private

individual’s right to freedom to contract (unless you are WITH FACULTATIVE OBLIGATIONS
in civil interdiction) including the fixing of penalty, but
court has reserved power to reduce Obligations with a Penal Clause Conditional

Payment of the penalty in lieu of the

GENERAL RULE: Parties are given a leeway on the Power of the debtor to make
principal can be made only by express substitution is absolute
amount of the penalty. stipulation

Creditor may demand both prestation as Creditor can never demand both
✏ Q: Is there a restriction? long as such right is granted to him (i.e.
complementary penalty) prestations
‣ A: The courts may lower if the amount is already
UNCONSCIONABLE.

✏ Q: What is unconscionable?
‣ A: Addressed to discretion of judge; 3.5% / mo is Extinguishment of Obligations
exorbitant
MODES OF EXTINGUISHMENT
• Case on imposition of interest on credit card debts
- usury law is suspended. 12% only comes when ART. 1231. Obligations are extinguished:
there is not agreement. Parties can stipulate (1) By payment or performance;
more than 12% interest; but this would not mean (2) By the loss of the thing due;
you stipulate big amounts like 30% interest. To (3) By the condonation or remission of the debt;
avoid abuse, Court has reserved power (4) By the confusion or merger of the rights of creditor and debtor;
especially when there has been already partial (5) By compensation;
performance (a defense) (6) By novation
Other causes of extinguishment of obligations, such as annulment, rescission,
EFFECT IF PENAL CLAUSE IS VOID fulfillment of a resolutory condition, and prescription, are governed
Article 1230. The nullity of the penal clause does not carry with it that of the elsewhere in this Code.
principal obligation. The nullity of the principal obligation carries with it
that of the penal clause. If you are a counsel for the defendant in a collection suit,
you may file a motion to dismiss the case invoking the
✏ Q: What is the effect if the penal clause is void? ground of the obligation being extinguished.

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(1) Payment/Performance
- Payment is not just delivery of money but also ✏ Q: What if the object of the obligation is GENERIC?
performance of an obligation to do. ‣ A: Art. 1246... creditor cannot demand a thing
- To whom payment shall be made of superior quality. Neither can the debtor
- Who shall pay deliver a thing of inferior quality. The purpose
- Special forms of payment –- there are special rules of the obligation and other circumstances
governing this form of payment (e.g. dacion en shall be taken into consideration.
pago, tender of payment and consignation,
application of payment) 2. INTEGRITY OF PAYMENT
(2) Loss of the thing due - partial performance will not produce the
(3) Condonation/ Remission of the Debt extinguishment of an obligation as a general rule
- write-off of your debt - debt is understood to have been paid only when
there is complete payment or performance
- there is a problem when the creditor has
compulsory heirs
- Legitime- portion of the net estate that cannot be — EXCEPTION:
disposed of gratuitously by the deceased a. Express stipulation (Article 1248, par 1)
(4) Confusion/ Merger of the Rights of Creditor and b. When debt is party liquidated and party
Debtor unliquidated (Art. 1248, par 2)
- e.g. promissory note, other negotiable instruments, Liquidated — when the amount is already
debt to your boyfriend and then you married the determined or specified
boyfriend c. Substantial performance in good faith (Art. 1234)
(5) Compensation - slight breach — court may extend the period
- mutual set off of obligations
- arises by operation of law REQUISITES OF PAYMENT
(6) Novation 1. Who can pay
- extinguishing an obligation because a new 2. To whom payment is made
obligation arises 3. What is to be paid
4. How payment is made
OTHER MODES OF EXTINGUISHMENT: 5. When payment is to be made
1. Annulment of contract 6. Where payment is to be made
2. Fulfillment of a resolutory condition 7. Expenses of making payment
3. Prescription
- involves a passage of time WHO CAN PAY
- Instinctive — gives you a right 1. DEBTOR
- Extinctive — you are barred from filing a case 2. THIRD PERSON WHO HAS TOTALLY NO INTEREST
4. Death IN THE OBLIGATION
- in obligation to do when personal qualifications are ✏ Q: May the 3rd person be reimbursed; step into the
involved shoes of the creditor?
5. Fortuitous Event ‣ A: (a) If without consent, cannot be subrogated
6. Insolvency to the rights of the creditor. He may only be
reimbursed to the extent of what is beneficial
to the debtor.

PAYMENT OR PERFORMANCE (b) If with consent, 3rd person may be
reimbursed and subrogated the rights of a
ART. 1232. Payment means not only the delivery of money but also the creditor
performance, in any other manner, of an obligation.
■ Legal subrogation — by operation of law, the 3rd
person may exercise the rights to pursue
Payment — Fulfillment of the prestation due, a fulfillment
that extinguishes the obligation by the realization of the Art 1302 (2) — When a third person, not interested in the obligations,
purposes for which it was constituted. pays with the express or tacit approval of the creditor.
Art 1236 Par 1 — The creditor is not bound to accept payment or
✏ Q: When is there payment? performance by a third person who has no interest in the fulfillment
‣ A: There is payment when there is delivery of of the obligation, unless there is a stipulation to the contrary.
money or performance of any obligation.
EFFECTS of Payment by 3rd person NOT
RULES FOR AN EFFECTIVE PAYMENT: INTERESTED but WITH DEBTOR’S CONSENT
1. IDENTITY OF THE PRESTATION 1) 3rd person is entitled to full reimbursement
- The very thing due must be delivered or - Demand from the debtor what he has paid
performed. 2) Legal subrogation (novation) — 3rd person is
subrogated/steps into the shoes of creditor
- Creditor cannot be compelled to receive a
different object. - Payor can exercise all the rights of the creditor
arising from the very obligation itself, whether
against the debtor or third person
— EXCEPTION: Dacion en pago. (Art.1245) 3) Creditor may refuse to accept payment
Art 1245. Dation in payment, whereby property is alienated to the
creditor in satisfaction of a debt in money, shall be governed by
the law of sales.
- when you give a thing instead of money
- under the law of sales, there are rules of
warranty between seller and buyer.

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Art 1236 Par 2 — Whoever pays for another may demand from the THIRD PERSONS
debtor what he has paid, EXCEPT that if he paid WITHOUT the Art. 1241 Par. 2 — Payment made to a third person shall also be valid
knowledge or against the will of the debtor, he can recover only insofar as it has redounded to the benefit of the creditor. Such benefit to the
insofar as the payment has been beneficial to the debtor. creditor need not be proved in the following cases:
Art 1237 — Whoever pays on behalf of the debtor WITHOUT the (1) If after the payment, the third person acquires the creditor’s rights;
knowledge or against the will of the latter, cannot compel the
creditor to subrogate him in his rights, such as those arising from a (2) If the creditor ratifies the payment to the third person;
mortgage, guaranty or penalty. (3) If by the creditor's conduct, the debtor has been led to believe that
the third person had authority to receive the payment.

EFFECTS of Payment by 3rd person NOT

INTERESTED but WITHOUT DEBTOR’S WHEN PROOF OF BENEFIT NOT REQUIRED
CONSENT or AGAINST HIS WILL Art 1241. Par 3 — If by the creditor's conduct, the debtor has been led to
believe that the third person had authority to receive the payment.
1) 3rd person can only be reimbursed insofar as
Art 1242. Payment made in good faith to any person in possession of the
payment has been beneficial to debtor credit shall release the debtor
- Burden of proof of payment on the 3rd person
- Benefit to the creditor need not be proved in IN CASE OF ACTIVE SOLIDARY
the following cases: Art 1214. The debtor may pay any one of the solidary creditors; but if any
(a) If after the payment, the third person demand, judicial or extrajudicial, has been made by one of them, payment
acquires the creditor’s right should be made to him
(b) If the creditor ratifies the payment to
the third person WHAT IS TO BE PAID (“IDENTITY”)
(c) If by the creditor’s conduct, the debtor Article 1233. A debt shall not be understood to have been paid unless the
has been led to believe that the third thing or service in which the obligation consists has been completely
person had authority to receive the delivered or rendered, as the case may be.
payment
(d) Assignment of credit without notice to GIVE A SPECIFIC THING
debtor (Art 1626) Article 1244. Par 1 — The debtor of a thing cannot compel the creditor to
2) 3rd person cannot compel creditor to subrogate receive a different one, although the latter may be of the same value as, or
him in the latter s rights more valuable than that which is due.
1. Give specific things itself
Art 1302 (3) — When even without the knowledge of the debtor, a 2. Accessions and accessories
person interested in the fulfillment of the obligation pays, without 3. If with loss, improvements, deterioration
prejudice to the effects of confusion as to the latter s share.

GIVE A GENERIC THING

3. THIRD PERSON WHO HAS AN INTEREST IN THE Article 1246. When the obligation consists in the delivery of an
OBLIGATION indeterminate or generic thing, whose quality and circumstances have
☞Example: Co-debtors; Guarantors; Sureties; not been stated, the creditor cannot demand a thing of superior quality.
Owners of mortgaged property or pledge Neither can the debtor deliver a thing of inferior quality. The purpose of the
- have rights of subrogation: “step into the shoes of obligation and other circumstances shall be taken into consideration.
the creditor”
☞i.e. foreclose the mortgage, ask for payment General Rule: Creditor cannot demand a superior
quality; Debtor cannot deliver a thing of inferior quality
EFFECTS of Payment by 3rd person WITH INTEREST — Unless: Quality and circumstances have been
stated, purpose and other circumstances of
1. Valid payment; obligation extinguished obligation considered.
2. Debtor to reimburse fully 3rd person interested
3. 3rd person subrogated to the rights of the creditor PAY MONEY
Article 1249. The payment of debts in money shall be made in the currency
TO WHOM PAYMENT MAY BE MADE stipulated, and if it is NOT POSSIBLE to deliver such currency, then in the
ART. 1240. Payment shall be made to the person in whose favor the currency which is legal tender in the Philippines.
obligation has been constituted, or his successor in interest, or any The delivery of promissory notes payable to order, or bills of exchange or
person authorized to receive it. other mercantile documents shall produce the effect of payment only when
they have been cashed, or when through the fault of the creditor they
have been impaired.
1. Creditor In the meantime, the action derived from the original obligation shall be held
2. His successor in interest in the abeyance
3. Any person authorized to receive it
ORDER OF GARNISHMENT
• Burden of proof — the person who asserts the Article 1243. Payment made to the creditor by the debtor after the latter has
affirmative fact been judicially ordered to retain the debt shall not be valid
• Acceptable proof of payment — receipts - Subjects the debtor’s credit to the payment of his debt
• Possessor of Credit - *he gave an example about to another
assignment of credit* ☞Example: Deposit in the bank may be held from
withdrawal while awaiting decision of a case
INCAPACITATED PERSONS
ART. 1241. Payment to a person who is incapacitated to administer his LEGAL TENDER
property shall be valid if he has kept the thing delivered, or insofar as - If that is made as a form of payment, creditor may be
the payment has been beneficial to him. COMPELLED to receive it
a. Payment in foreign currency — allowed
b. Payment in checks — not legal tender (even if
manager’s check; even if certified)
- produces effect of payment only upon encashment

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Note: If a check is used to pay something that is not a WHEN PAYMENT IS TO BE MADE
payment of an obligation, it may produce legal effect. Article 1169. Those obliged to deliver or to do something incur in delay from
☞Example: If your land is foreclosed, you have a the time the obligee judicially or extrajudicially demands from them the
year to redeem your land from the time of the fulfillment of their obligation.
registration of the certificate of sale. The act of However, the demand by the creditor shall not be necessary in order that delay
redeeming is not discharging an obligation but may exist:
an exercise of a privilege. (1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be
• The act of issuance of a check to redeem your delivered or the service is to be rendered was a controlling motive for
property, PRESERVES your right of redemption. (Co the establishment of the contract; or
vs PNP 06.29.92) (3) When demand would be useless, as when the obligor has rendered it
beyond his power to perform.
OBLIGATION TO DO OR NOT TO DO In reciprocal obligations, neither party incurs in delay if the other does not
Article 1244. Par 2 — In obligations to do or not to do, an act or comply or is not ready to comply in a proper manner with what is
forbearance cannot be substituted by another act or forbearance against incumbent upon him. From the moment one of the parties fulfills his
the obligee's will. obligation, delay by the other begins.
- Substitution cannot be done against the will of creditor
• When obligation is due and demandable but debtor
may pay before due date if period is for the benefit of
PAYMENT OF INTEREST debtor. If for the benefit of both the debtor and
Article 1956. No interest shall be due unless it has been expressly
creditor, debtor may only prior to the due date if
stipulated in writing.
creditor consents thereto.

WHERE PAYMENT IS TO BE MADE

HOW PAYMENT TO BE MADE (“INTEGRITY”) Article 1251. Par 1 — Payment shall be made in the place designated in the
Article 1233. A debt shall not be understood to have been paid unless the obligation.
thing or service in which the obligation consists has been completely
delivered or rendered, as the case may be. 1. Made in the place designated in the obligation.
2. If no stipulation and the object is determinate, where
Article 1248. Unless there is an express stipulation to that effect, the creditor the thing may be at the moment the obligation was
cannot be compelled partially to receive the prestations in which the constituted.
obligation consists. Neither may the debtor be required to make partial 3. In any other case, domicile of the debtor.
payments.
However, when the debt is in part liquidated and in part unliquidated, the NO PLACE IS EXPRESSLY DESIGNATED
creditor may demand and the debtor may effect the payment of the former
without waiting for the liquidation of the latter. Article 1251. Par 2 — There being no express stipulation and if the
undertaking is to deliver a determinate thing, the payment shall be made
wherever the thing might be at the moment the obligation was constituted.
SUBSTANTIAL PERFORMANCE IN GOOD FAITH In any other case the place of payment shall be the domicile of the debtor.
Article 1234. If the obligation has been substantially performed in good faith, If the debtor changes his domicile in bad faith or after he has incurred in delay,
the obligor may recover as though there had been a strict and complete the additional expenses shall be borne by him.
fulfillment, less damages suffered by the obligee. These provisions are without prejudice to venue under the Rules of Court.
• Requisites of Substantial Performance
1) Attempt in good faith to perform, without any
willful or intentional departure APPLICATION OF PAYMENTS
Article 1252. He who has various debts of the same kind in favor of one and
2) Deviation from the obligation must be slight the same creditor, may declare at the time of making the payment, to which
3) Omission or defect is unimportant and technical of them the same must be applied. Unless the parties so stipulate, or when
4) Must not be so material that intention of the the application of payment is made by the party for whose benefit the term
has been constituted, application shall not be made as to debts which are
parties is not attained not yet due.
If the debtor accepts from the creditor a receipt in which an application of the
ESTOPPEL payment is made, the former cannot complain of the same, unless there is a
Article 1235. When the obligee accepts the performance, knowing its cause for invalidating the contract.
incompleteness or irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied with.
- relaxing the rule on integrity of payment
- Constitutes a waiver of defect in performance there - the money you have is not enough to pay your various
must however be an intentional relinquishment of a obligations; need to allocate
known right. Waiver will not result from mere failure to
assert a claim for defective performance when the
thing or work is received REQUISITES
1) One debtor; one creditor
PRESUMPTIONS IN PAYMENT OF PAYMENT OF 2) 2 or more debts
INTERESTS AND INSTALLMENTS 3) Debts are of the same kind
Article 1176. The receipt of the principal by the creditor without reservation 4) Debt paid must be due
with respect to the interest, shall give rise to the presumption that said
interest has been paid. 5) Payment not sufficient to cover all debts
The receipt of a later installment of a debt without reservation as to prior
installments, shall likewise raise the presumption that such installments • Debtor has the 1st choice to which debt the payment
have been paid. should be applied.
• If principal amount is received without reservation
as to interest RULES IN APPLICATION OF PAYMENTS
- interest is presumed to have been paid Article 1253. If the debt produces interest, payment of the principal shall not
be deemed to have been made until the interests have been covered.

• The right of the debtor is not absolute in that

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- It must comply on the rule of complete payment. • Assignment of the debtor to his creditors the
- (Art 1253) Pay interest first; then principal. administration of his property to be sold and apply
the proceeds thereof to the satisfaction of the credit
- Payment to liquidated before unliquidated
- No application to debts which are not yet due
(Paculdo vs Regalado) REQUISITES FOR PAYMENT BY CESSION
1. Plurality of debts
Paculdo vs Regalado 2. Plurality of creditors
- ejectment case 3. Complete or partial insolvency of the debtor
- instead of the payment be applied to the monthly 4. Abandonment of all debtor s property not subject to
rentals, it was applied to another debt execution
- so in effect, it’s as if he defaulted payment of the 5. Acceptance or consent on the part of the creditors
monthly rentals.
- creditor: “i gave you a letter but you did not reply, EFFECTS OF PAYMENT BY CESSION
bes”
1. Creditors do not become the owner; they are merely
assignees with authority to sell
✏ Q: Is there agreement by silence in the part of the
debtor? 2. Debtor is released up to the amount of the net
‣ A: SC: NO. The act of the creditor of applying the proceeds of the sale, unless there is a stipulation to
the contrary not total extinguishment
payment without the consent of the debtor is not
valid. Because there is no approval by silence. 3. Creditor will collect credits in the order of preference
(No such thing as silence means yes.) agreed upon, or in default of agreement, in order
ordinarily established by law.
• If debtor makes the application, it is not subject to the
approval of the creditor. Cession Dacion in Payment
• But if the creditor makes the application, approval of
the debtor is needed. several creditors one ceditor

debtor is insolvent at the time of doesn't presuppose the insolvency of

✏ Q: How shall the approval of the debtor be asignment the debtor
manifested?
‣ A: ___ basta di pwede silence) does not involve all the property of
extends to all the property of debtor debtor

IF RULES INAPPLICABLE AND APPLICATION not an act of novation an act of novation

CANNOT BE INFERRED
Both are substitutes forms of payment
Article 1254. When the payment cannot be applied in accordance with the
preceding rules, or if application cannot be inferred from other
circumstances, the debt which is most onerous to the debtor, among those Governed by the law on sales
due, shall be deemed to have been satisfied.
If the debts due are of the same nature and burden, the payment shall be
applied to all of them proportionately DATION IN PAYMENT
- violates the rule of identity of payment
1. Right to apply must be exercised at the time of the - you are indebted in money but you allowed to pay in
payment (Art 1252) kind
2. Creditor may undertake application, subject to the - presupposes agreement of creditor
debtor s approval. Once the latter accepts receipt of 
 • If accepted by the creditor, debt is extinguished
application, he cannot complain UNLESS there is a
cause for invalidating the contract. (Art 1252)
DACION IN PAYMENT
3. Apply to interest first. BOTH (1) interest stipulated and
(2) interest due because of debtors delay - conveyance of ownership of a thing by the debtor to
the creditor as an accepted equivalent of
Art 1253 If debt produces interest, payment of the principal shall not be
deemed to have been made until the interest are covered. performance of a monetary obligation
- delivery and transmission of ownership of a thing by
the debtor and to the creditor as an accepted
MOST ONEROUS TO DEBTOR equivalent of the performance of the obligation
1. Younger vs older debt
2. Secured vs unsecured REQUISITES FOR DATION IN PAYMENT
3. With penal clause or without penal clause 1. Consent of creditor sale presupposes the consent of
4. Sole debt or solidary debtors both parties
5. Interest-bearing debt vs Non-interest solidary debts 2. Dacion will not prejudice of other creditors
6. Unpaid balance of rent vs Price of Provisional Sale 3. Debtor is not declared judicially insolvent
7. If two-interest bearing debts, one rate higher 4. Not a pactum commissorium (a stipulation entitling
the creditor to appropriate automatically the thing
PAYMENT BY CESSION given as security in case debtor fails to pay)
Article 1255. The debtor may cede or assign his property to his creditors in
payment of his debts. This cession, unless there is stipulation to the EFFECTS
contrary, shall only release the debtor from responsibility for the net
1. Extinguishes payment to the extent of the value at the
proceeds of the thing assigned. The agreements which, on the effect of the
cession, are made between the debtor and his creditors shall be governed thing to be delivered, either as agreed upon by the
by special laws. parties, or as may be proved, unless the parties by
- when you seed all the properties you have, allocating agreement expressly or impliedly or by their silence,
your creditor as administrator of your properties to consider the thing as equivalent to the obligation in
sell them which case the obligation is totally extinguished.

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Obligations and Contracts A t t y. G r a v a d o r

2. If property delivered to the creditor assumption that it REQUISITES OF CONSIGNATION

is a PLEDGE, as it involves less transmission of 1) There is a debt due
rights unless it is clearly the intention of parties 2) The consignation of the obligation was made because
of some legal cause
Tan Shui vs Maulawi Case ! STANDING RULE! - Previous valid tender was unjustly refused
• Dation in payment extinguishes the obligation to the - Other circumstances making previous tender
extent of the value of the thing unless there is exempt
express stipulation of total extinguishment. 3) Prior notice of consignation had been given to the
person interested in the obligation (1st notice)
Dacion in Payment Sale 4) Actual deposit/consignation with proper judicial
authority
there is a pre-existing credit no pre-existing credit 5) Subsequent notice of consignation (2nd notice)
- May be complied with by the service of summons
obligations are extinguised obligation are created upon the defendant creditor together with a copy
of the complaint
extinguishment of the debt from cause of price paid from viewpoint of
viewpoint of the debtor; or acquisition of seller; or acquisition of thing sold from - Given to all interested in the performance of
object in lieu of credit from viewpoint of obligations: passive (co-debtors, guarantors,
creditor viewpoint of the buyer
sureties) or active (solidary co-creditors,
no freedom/not much more freedom in fixing the price possible litigants)

payment is received before contract is buyer still has to pay the price INSTANCES WHEN CONSIGNATION ALONE IS
perfected
SUFFICIENT
debtor and creditor buyer and seller a. Creditor is absent
b. Creditor is incapacitated at the time when it is due
c. Creditor refuses to give a receipt
TENDER OF PAYMENT OR d. 2 or more persons claim the same right to collect
CONSIGNATION (let them file an interpleader)
TENDER OF PAYMENT e. Title of the obligation has been lost
- the act of offering the creditor what is due him together
with a demand that the creditor accept the same DUTIES OF PLAINTIFF:
- when the creditor unjustly refuses the payment 1) Valid tender of payment
- act of the debtor of offering to the creditor the think or 2) Prove that the refusal of the creditor is unjust
amount due.
3) Inform the creditor of the consignation
- to give the creditor to think twice about his refusal 4) Inform again the creditor when there is already
valid consignation; also persons interested in
JUST CAUSES WHEN CREDITOR MAY REFUSE the obligation
PAYMENT
1. debt is not due Note: Tender of payment and consignation applies only
2. payment is made by a 3rd person not interested, for payments of obligations; not privileges.
without consent
3. not of legal tender • Debtor may withdraw before valid consignation is
4. integrity of payment is violated made. If creditor accepts, he loses the right of
5. identity of payment is violated preference to the thing.

Objective: For you to be discharged of your debt thru an

order of the court
LOSS OR IMPOSSIBILITY
LOSS OF THE THING DUE
Soco vs Militante Art 1189 (2) If the thing is lost through the fault of the debtor, he shall be
Rules on tender of payment and consignation must be obliged to pay damages; it is understood that the thing is lost when it
strictly applied; ineffectual, OW. perishes, or goes out of commerce, or disappears in such a way that its
existence is unknown or it cannot be recovered;
CONSIGNATION - not limited to obligations to give but extends to those
which are personal, embracing therefore all causes
- the act of depositing the thing due with the court or which may render impossible performance of the
judicial authorities whenever the creditor cannot prestation
accept or refuses to accept payment
- when the thing perishes or when it goes out of
- deposit to the clerk of court or by direction of court, to commerce
an authorized bank the thing or amount due
- requires a prior tender of payment
☞Example: Regalian doctrine — property near the
seashore
1. Must comply with the rules of payment
2. Must be conditional and for the whole amount • If the object is a determinate thing, loss of the thing
3. Must be actually made without the fault of the debtor, obligation is
extinguished.
• A valid of tender of payment stops the running of the • In obligations to do, the obligation extinguishes when
interest. But total extinguishment requires the prestation becomes legally or physically
subsequent consignation impossible. (Art 1266)

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• When the service has become so difficult as to be CONDONATION OR REMISSION

manifestly beyond the contemplation of the parties,
obligor may be released from the obligation. - an act of liberality by virtue of which, without receiving
• But the respondent may assert that the situation is not any equivalent, the creditor renounces the
beyond the contemplation but is expected. enforcement of obligation, which is extinguished in
its entirety or in that part or aspect of the same to
In Naga Telephone Co., Inc. Vs CA, Art 1267 is which the remission refers.
applicable to obligations to do and to give. - it is an essential characteristic of remission that it be
gratuitous , that there is no equivalent received for
the benefit given; once such equivalent exists, the
REQUISITES OF LOSS OF THE THING DUE nature of the act changes
Art 1262 In order to extinguish obligation:
- You must accept and it must be EXPRESS. If there is
1. Loss or destroyed without the fault of the debtor no acceptance, there is no effective transfer.
2. Before the debtor incurs in delay (applicable in immovable *must be notarized, but if
3. After the obligation is constituted 
 movable, only requires simultaneous acceptance but
if more than 5k, must be in writing)
PRESUMPTION IN LOSS OF THE THING DUE - If you debt is condoned, this is governed by rules on
Art 1265. Whenever the thing is lost in the possession of the debtor, it shall donation.
be presumed that the loss was DUE TO HIS FAULT, UNLESS there is proof to
the contrary, and without prejudice to the provisions of Art 1165.
• Dation in payment — receive a thing different from that
- Burden of explaining the loss of the thing in the stipulated
possession of the debtor, rest upon him.
• Novation — object or principal conditions of the
obligation should be changed
Art 1165. Action for specific performance or substituted performance
• Compromise — when the matter renounced is in
- When not applicable In case of earthquake, flood, litigation or dispute and in exchange of some
storm or other natural calamity. concession which the creditor receives

RULES ON DONATION
IMPOSSIBILITY OF PERFORMANCE 1. Must accept the donation personally, or an authority
Art 1266. The debtor in obligations to do shall also be released when the with Special Power of Attorney authorizing him to
prestation becomes legally or physically impossible without the fault of the accept the donation
obligor.
2. Made during the lifetime of the donor (made known to
- Refers to SUBSEQUENT IMPOSSIBILITY arises the donor during his lifetime)
AFTER the obligation has been constituted.
- If existing BEFORE, the obligation constituted is under NO DONATION IF NO PUBLIC DOCUMENT
VOID contracts
• If donor has compulsory heirs and that is the only
property, it is RESCISSIBLE. Impairs the legitime.
Art 1267 When the service has become so difficult as to be manifestly beyond
the contemplation of the parties, the obligor may also be released • Defense: if there are other properties, it subsists as
therefrom, in whole or in part. long as the legitime of the heirs remain undisturbed.
- “Doctrine of unforeseen events” rebus sic stantibus
- the parties stipulate in the light of certain REQUISITES
prevailing conditions, and once these 1. Dust be gratuitous
conditions cease to exist, the contract also 2. Accepted by the obligor
ceases to exist. 3. Parties must have capacity
4. Must not be inofficious
REQUISITES OF IMPOSSIBILITY 5. If made expressly, it must comply with forms of
1. Obligation used to be possible at the constitution donation
of obligation
2. Subsequent impossibility
IMPLIED ACTS:
3. Without the fault of the debtor
1. Delivery of private document evidencing credit.
- If nangutatang ko, niissue kag promissory note nako, if
EFFECTS I give it back to you, it is implied act of condonation.
In obligations to do
• Art 1266 — releases debtor from obligation if KINDS OF REMISSION
prestations has become legally or physically 1. Extent
impossible
a. Complete — entire
• Art 1267 — releases debtor if performance has
become so difficult to be so manifestly beyond the b. Partial – only a part
contemplation of the parties 2. Form
• Art 1262 Par 2 (by analogy) — Impossibility due to a. Express — verbally/writing
fortuitous events does not extinguish obligation if: b. Implied — inferred by conduct
- By law 3. Date of effectivity
- By stipulation a. Inter vivos — take effect during lifetime of donor
- Nature of the obligation requires assumption of risk b. Mortis causa — after death\

In case of partial performance by the debtor: • Inofficious – gave more than which he can give by will,
- In case of partial performance by the debtor: creditor will be reduced by the courts.
must pay the part done so long as he benefits from • Obligation continues to be demandable
such partial compliance.

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Obligations and Contracts A t t y. G r a v a d o r

• Evidence must be CLEAR and CONVINCING than ■ Joint obligations — Art 1277 Confusion does not
what is required in payment extinguish a joint obligation EXCEPT as regards
• Must not be based on the sole testimony of the debtor the share corresponding to the creditor or debtor
• There must be no equivalent received for the in whom the two characters concur.
benefit given, it might result to dation in payment, ■ Solidary obligations — Art 1215 confusion made
cession, or novation, or compromise by any of the solidary creditors or with any of the
• It is a bilateral act. Art 1270 requires its acceptance by solidary debtors shall extinguish the obligation,
the debtor without prejudice to the provisions of Art 1219.
(Solidary co-debtor who has been remitted is still
• Write-off is not condonation (only creditor’s
liable to co-debtors if one of the had paid the
prerogative, not approval of debtor)
obligation in full prior the remission)
• Creditor may renounce his credit “waiver”
CONFUSION IN PRINCIPAL OR ACCESSORY
PRESUMPTIONS IN CONDONATION OBLIGATION
Art 1271. The DELIVERY of a private document evidencing a credit, made Art 1276. Merger which takes place in the person of the principal debtor or
voluntarily by a creditor to the debtor, IMPLIES the renunciation of the creditor benefits the guarantors. Confusion which takes place in the person
action which the former had against the latter. of any of the latter does not extinguish the obligation
- Not applicable to public documents because there is
always a copy in the archives which can be used to
prove the credit. COMPENSATION
- Surrender of weapon of enforcement of his rights
Article 1278. Compensation shall take place when two persons, in their own
right, are creditors and debtors of each other
Art 1272. Whenever the private document in which the debt appears is found
in the POSSESSION of the debtor, it shall be presumed that the creditor
delivered it voluntarily, unless the contrary is proved. Compensation
- Only prima facie and may be overcome by contrary - takes place when in their own right
evidence to show that notwithstanding the - extinguishment to the concurrent amount of the debts
possession by the debtor of the private document of of two persons who, in their own right, are
credit, it has not been paid. reciprocally principal debtors and creditors of each
other
Art 1274. It is presumed that the accessory obligations of pledge has been
REMITTED when the thing pledged, after its delivery to the creditor, is found
in the possession of the debtor, or a third person who owns the thing. Compensation Counterclaim

takes place by operation of law must be pleaded to be effectual

EFFECTS OF CONDONATION
1. In general — Extinguishes either totally or partially
2. In case of joint or solidary — obligations affects the BPI VS REYES
share corresponding to the debtor in whose benefit Compensation takes place ipso jure; its effects arise on
the remission was given the very date

CONFUSION OR MERGER OF RIGHTS KINDS OF COMPENSATION

As to extent
CONFUSION a. TOTAL — when two obligations are of the same
- is the meeting in one person of the qualities of the amount
creditor and the debtor with respect to the same Article 1281. Compensation may be total or partial. When the two debts
obligation are of the same amount, there is a total compensation.
- absurd situation to be both creditor and debtor to self. b. PARTIAL — when amounts are not equal
Cannot claim payment from himself.
As to origin
REQUISITES a. LEGAL — takes place by operation of law; ALL
1. Must take place between the creditor and the requisites must be present
principal debtor (Art 1276) b. C O N V E N T I O N A L — p a r t i e s a g r e e t o
2. Very same obligation must be involved, for if the compensate their mutual obligations
debtor acquires rights from the creditor, but not Article 1282. The parties may agree upon the compensation of debts
particular obligation in question, there will be no which are not yet due.
merger • Parties may agree upon the compensation of
3. Confusion must be total or as regards the entire debts which are not yet due. (Art. 1282)
obligation • Voluntary compensation –- takes place by
agreement of parties even if all requisites for
☞Example: Marrying your girlfriend to extinguish compensation are not present.
obligation. • Requisites: 1) parties has right to dispose of
☞Example: In right of way. If you agi with the land, you credit he seeks to compensate 2) they agree
are only given the privilege to traverse the land. If the to the mutual extinguishment of their credits
owner says buy it nalang. If paliton nimo, that
becomes your land. So na merge ang personality sa c. JUDICIAL — decreed by the court; counterclaim
owner. • Judicial compensation –- when declared by a
final judgment of a court in a suit.
EFFECTS OF CONFUSION • Party may set off his claim for damages
• In general — extinguish the obligation against the other, the former may set if off by
• In case of proving his right to said damages and the
amount.

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Obligations and Contracts A t t y. G r a v a d o r

• Both parties must prove -> if not, offsetting is d. Party may set up unliquidated debts or
improper damages as counter claim in his answer to
• Set-off or counterclaim is different from the other party’s claim.
compensation (pleaded v. Operation of law)
Article 1283. If one of the parties to a suit over an obligation has a claim 5. Neither of the debts are subject to any retention or
for damages against the other, the former may set it off by proving his controversy, commenced by third person and
right to said damages and the amount thereof. communicated in due time
☞Example: I will claim that you have credit to me
d. FACULTATIVE — then I have credit to you. But there is a contest
Article 1287 Par 1 — Compensation shall not be proper when one of the o n t h e c re d i t t h a t I h a v e . C a n n o t d o
debts arises from a depositum or from the obligations of a depositary compensation — credit should be resolved
or of a bailee in commodatum muna.
☞Example: Share of stock in a corporation. When
LEGAL COMPENSATION you are a share holder, you are part owner San
Article 1279. In order that compensation may be proper, it is necessary: Miguel, but you are not a creditor of the
(1) That each one of the obligors be bound principally, and that he be at the corporation, so if you have a loan in the
same time a principal creditor of the other; corporation then you are at the same time share
(2) That both debts consist in a sum of money, or if the things due are holder, so you cannot invoke compensation if you
consumable, they be of the same kind, and also of the same quality if are demanded for the loan. Because the
the latter has been stated; corporation is NOT your debtor.
(3) That the two debts be due; ‣ Only CIVIL obligation can be subject of
(4) That they be liquidated and demandable; compensation.
(5) That over neither of them there be any retention or controversy, ‣ State of suspension of payment — you have utang
commenced by third persons and communicated in due time to the to me, di pa ko kacollect from you. This is a
debtor.
special proceeding filed by a corpo, objective is,
the corpo is asking the court to temporarily
Applicable only when you are filed with a case suspend the collection of the creditors from the
You can use compensation as a defense corpo. Because the nahibilin nga asset will be
rehabilitated, invest and pay you. So if there is
t h a t o r d e r, i t m a y b e D U E b u t N O T
REQUISITES
DEMANDABLE.
1. Each one of the obligors are bound principally and
☞Example: Obligation is subject to a suspensive
at the same time a principal creditor condition. No compensation in the mean time.
☞Example: Share of stock in a corporation — you No demandable obligation yet
cannot invoke compensation because
corporation is not your debtor
PNB v. Uy
2. Both debts consists in a sum of money, or if the
The 3 rd person should communicate in due time his
things due are consumable, they be of same kind claim to the debtor. Period before legal compensation is
and same quality to take place. Before invocation.
☞Example: 2 different kinds of bananas, A cannot
set up compensation if opposed by B. This is an
example of facultative compensation BPI v CA
His mother was a retiree and receving benefits from US.
- They can agree to pursue if in case two things are Deposited thru BPI. BPI was made the collecting bank.
of different kinds. But the benefit is subject to the condition nga buhi pa
3. Two debts must all be due and demandable ang beneficiary. The son also has a deposit in the bank.
‣ If debt is not yet due and demandable, you cannot Namatay and mother, but sige gihapon siyag collect. US
invoke legal compensation knew the debts and asked him to return. Ig balik, ma
deductan ang BPI.
‣ Not yet due when no demand is made
Is that a valid compensation? YES.
‣ Debt that has prescribed is no longer demandable,
SC: Elements are ALL present. (R: 42)
cannot be confiscated, unless made before
Respondent: Bank deposit was joint account of him and
prescription. wife.
‣ Natural obligations are not legally demandable
SC: we hold that the presence of private respondent’s
‣ Compensation cannot take place as the debts are wife does not negate the mutuality of parties.
not on the same date, but if A has not yet paid on
the date that the obligation of B becomes due, Gan Tion v CA
there will be compensation on that date. Attorney’s fees thing. — belongs to the client.
‣ Debt of B is subject to a suspensive condition that
Labor case — 10% attorney’s fees.
has not yet happened, no compensation.
‣ If my utang is not yet due and I want to collect from
you, you cannot invoke compensation. But there’s COMPENSATION AGAINST THE GOVERNMENT
no harm if we do conventional compensation. 1. Taxes
4. Liquidated and Demandable General Rule: Not subject to set-off or compensation
‣ Liquidated — amount is specified; when it is known — Exception: Where both claims of the government
‣ Demandable — not subject to any condition and taxpayer against each other have already
become due and demandable as well as
a. Must not be disputed -> if so, proof of liquidated
liquidation needed
2. Contractual Obligation — both claims must involve
b. If claim is undisputed -> statement is
same office
sufficient and no other proof may be
required. Article 1280. Notwithstanding the provisions of the preceding article, the
guarantor may set up compensation as regards what the creditor may owe
c. If acknowledged by debtor, although not in the principal debtor.
writing, claim must be treated as liquidated.

(SandeeSuan) You can do it! Page 24 of 25

Obligations and Contracts A t t y. G r a v a d o r

COMPENSATION BENEFITS GUARANTOR Article 1285. Par 1 — The debtor who has consented to the assignment of
rights made by a creditor in favor of a third person, cannot set up against
• The guarantor may set up compensation as regards the assignee the compensation which would pertain to him against the
what the creditor may owe the principal debtor. assignor, unless the assignor was notified by the debtor at the time he gave
• Exception to the GR that only the principal debtor can his consent, that he reserved his right to the compensation
set up against his creditor what the latter owes him.
• Total or partial compensation applies to the different 2. With knowledge but without consent of debtor
kinds of compensation. (Art. 1281) ‣ All debts that mature before you are notified, you can
use compensation, but after, you cannot.
COUNTERCLAIM – defending party may also have a Article 1285. Par 2 — If the creditor communicated the cession to him but the
claim against you and you to him. You have to ALLEGE debtor did not consent thereto, the latter may set up the compensation of
that in the complaint, bc if not, it is deemed waived. If debts previous to the cession, but not of subsequent ones
compulsory, you will be barred from pursuing the case.
Must be pleaded to be effectual. Compensation is only 3. Without knowledge of debtor
by operation of law. ‣ All debts that matured before you had knowledge can
be compensated
☞Example: Ejectment case — you are ejected and the ‣ Only those debts after matured cannot be subject to
one who sued you, you also have a claim because of compensation
the improvements and you were promised Article 1285. Par 3 — If the assignment is made without the knowledge of the
reimbursement. So it seems like compensation too debtor, he may set up the compensation of all credits prior to the same and
right. also later ones until he had knowledge of the assignment.

BPI v CA WHEN COMPENSATION IS NOT ALLOWED

SC said, legal compensation operates even against or 1. Depositum
without the consent of the concerned parties. Ipso jure. ■ Deposit — person receives a thing belonging to
another for safekeeping and returning the same;
EFFECTS no right to use
Article 1289. If a person should have against him several debts which are - does not allow when there is a breach of trust and
susceptible of compensation, the rules on the application of payments shall confidence of the owner
apply to the order of the compensation.
2. Bailee in a Commodatum
• First, debtor must inform creditor which should be ■ Commodatum — a gratuitous contract whereby
compensated, if not: one of the parties delivers it to another something
- Apply to the most onerous obligation consumable so that the latter may use the same
• When should compensation be relevant? for a certain time and return it.
- When a suit is filed against you. Can be put up as - Where one of the debts arises from a claim for
a defense. support due by gratuitous title
- Can be renounced expressly/impliedly (consent of - Where one of the debts consists in civil liability
assignment of credit, you do not set it up as arising from a penal offense
defense)
☞Example: You joyride with my car I left to you for safe
Article 1290. When all the requisites mentioned in article 1279 are present, keeping and it incurred damages. In a separate
compensation takes effect by operation of law, and extinguishes both debts transaction, I have utang from you. So in the case,
to the concurrent amount, even though the creditors and debtors are not
you invoked compensation. Cannot be done
aware of the compensation
because like in “bailee in a commodatum”, you are
• Compensation occurs automatically by mere operation held liable for damages. “BREACH OF TRUST”. Can
of law, extinguishes both debts to the concurrent be invoked by depositor/aggrieved party.
amount even though the creditors and debtors are
not aware of the compensation.
3. Support due Gratuitous Title
• Full legal capacity of parties not required.
• As a defense: in action demanding performance. If 4. Civil Liability arising from a Penal Offense
proven, it retroacts or relate back to the very day on
which all the requisites mentioned by law concurred Article 1287. Compensation shall not be proper when one of the debts
and are fulfilled. arises from a depositum or from the obligations of a depositary or of a
bailee in commodatum.
Neither can compensation be set up against a creditor who has a claim for
Article 1288. Neither shall there be compensation if one of the debts consists support due by gratuitous title, without prejudice to the provisions of
in civil liability arising from a penal offense. paragraph 2 of article 301.

COMPENSATION OF DEBTS PAYABLE IN DIFFERENT COMPENSATION MAY BE RENOUNCED

PLACES
- may be renounced expressly or impliedly
Article 1286. Compensation takes place by operation of law, even though the
‣ When you consent it to another
debts may be payable at different places, but there shall be an indemnity
for expenses of exchange or transportation to the place of payment. ‣ Pay the debt voluntarily

EFFECT OF NULLITY OF DEBTS TO BE COMPENSATED

Article 1284. When one or both debts are rescissible or voidable, they may be
compensated against each other before they are judicially rescinded or
avoided.

EFFECTS OF ASSIGNMENT OF CREDIT

1. With consent of debtor
‣ If the debtor agreed to the assignment, you are waiving
your right to compensation

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