TITLE I

OBLIGATIONS
(Arts. 1156-
1304 Civil
Code.) &
TITLE III
OBLIGATIONS NATURAL
OBLIGATIONS
AND (ARTICLES
1423-1430,
CONTRACTS CIVIL CODE)

Data Bank – Law 20013

Group 7

BSMA 1-7

BELDAD, Eriza Mae B.

CORONACION, Drew P.
MERIN, John Patrick H.
PARCAREY, Krizia Mae O.
REYES, Althea Lyn R.
Atty. Paul Braga SUCGANG, Marielle
Professor VILLAS, Princess Laine R.
 (2) Active subject (called creditor or
Chapter 1 obligee) - the person entitled to
demand the fulfillment of the
GENERAL PROVISIONS obligation; he who has the right
(3) Object or prestation (subject
matter of the obligation) - the
ARTICLE 1156. An Obligation is a juridical
conduct required to be observed by
necessity to give, to do, or not to do. (n)
the debtor. It may consist of giving,
doing, or not doing.
This stresses the duty under the law of the
(4) Juridical or legal tie (also called
debtor or obligor (he who has the duty of giving,
efficient cause) - which binds or
doing, or not doing) when it speaks of obligation
connects the parties to the
as a juridical necessity.
obligation.
OBLIGATION.
FORMS OF OBLIGATIONS.
Derived from the Latin word obligatio
Refers to the manner in which an
which means tying or binding. This may consist in
obligation is manifested or incurred. It may be oral,
giving a thing, doing a certain act, or not doing
or in writing, or partly oral and partly in writing.
a certain act.

RIGHT.
JURIDICAL NECESSITY.
The power which a person has under the
Obligation is a juridical necessity because
law, to demand from another any prestation.
in case of noncompliance of obligation, the courts
of justice may be called upon by the aggrieved
WRONG. (cause of action)
party to enforce its fulfillment, or in default thereof,
(Legal meaning) Is an act or omission of
the economic value it represents.
one party in violation of the legal right or rights of
another. In law, the term injury is also used to refer
CIVIL OBLIGATIONS.
to the wrongful violation of the legal right of
Obligations which give to the creditor or
another.
obligee a right under the law to enforce their
performance in courts of justice. Based on positive
ESSENTIAL ELEMENTS OF A LEGAL WRONG
law.
OR INJURY:
(a) A legal right in favor of a person (creditor /
NATURAL OBLIGATIONS. (discussed under the
obligee / plaintiff)
Title dealing with “Natural Obligations.”)
(b) A correlative legal obligation on the part of
Based on equity and natural law. Do not
another (debtor / obligor / defendant)
grant a right of action to enforce their performance
(c) An act or omission by the latter in violation
although in case of voluntary fulfillment by the
of said right with resulting injury or damage
debtor, the latter may not recover what has been
to the former.
delivered or rendered by reason thereof. (Art.
1423).
KINDS OF OBLIGATION ACCORDING TO THE
SUBJECT MATTER.
ESSENTIAL REQUISITES OF AN
(1) Real obligation (obligation to give) - the
OBLIGATIONS
subject matter is a thing which the obligor
(1) Passive subject (called debtor or
must deliver to the obligee.
obligor) - the person who is bound
(2) Personal obligation (obligation to do or not
to the fulfillment of the obligation;
to do) - the subject matter is an act to be
he who has a duty
done or not to be done.
 (a) Positive personal obligation - ARTICLE 1158. Obligations derived from law
obligation to do or to render service are not presumed. Only those expressly
(Art. 1167) determined in this Code or in special laws are
(b) Negative personal obligation - is demandable, and shall be regulated by the
obligation not to do (naturally precepts of the law which establishes them;
includes obligations “not to give”) and as to what has not been foreseen, by the
(Art. 1168) provisions of this Book. (1090)

ARTICLE 1157. Obligations arise from: LEGAL OBLIGATIONS.

1. Law; Refers to the legal obligations or
2. Contracts; obligations arising from law. They are not
3. Quasi-contracts; presumed because they are considered a burden
4. Acts or omissions punished by law; upon the obligor. They are the exception, not the
and rule. To be demandable, they must be clearly set
5. Quasi-delicts. (1089a) forth in the law, i.e., the Civil Code or special laws.

SOURCES OF OBLIGATIONS. ARTICLE 1159. Obligations arising from

1. Law - when they are imposed by law itself contracts have the force of law between the
2. Contracts - when they arise from the contracting parties and should be complied
stipulation of the parties (Art. 1306) with in good faith. (1091a)
3. Quasi-contracts - when they arise from
lawful, voluntary, and unilateral acts which CONTRACTUAL OBLIGATIONS.
are enforceable to the end that no one
shall be unjustly enriched or benefited at CONTRACT.
the expense of another. (Art. 2142) Meeting of minds between two (2) (or
4. Crimes or acts or omissions punished by more) persons whereby one binds himself, with
law - when they arise from civil liability respect to the other, to give something or to render
which is the consequence of a criminal some service. (Art. 1305)
offense. (Art. 1161)
5. Quasi-delicts or torts - when they arise (1) BINDING FORCE
from damage caused to another through ❖ Obligations arising from contracts
an act or omission, there being fault or have the force of law between the
negligence, but no contractual relation contracting parties.
exists between the parties. (Art. 2176) ❖ As a source of enforceable
obligation, a contract must be valid
SOURCES CLASSIFIED. and it cannot be valid if it is against
1. Those emanating from law the law.
2. Those emanating from private acts which
may be further subdivided into: (2) REQUIREMENT OF A VALID CONTRACT
➢ Those arising from licit acts, in the Assuming all essential elements are
case of contracts and quasi- present; Article 1318
contracts ❖ A contract is valid if it is not contrary
➢ Those arising from illicit acts, which to law, morals, good customs, public
may be either punishable in the order, and public policy.
case of delicts or crimes, or not ❖ It is invalid or void if it is contrary to
punishable in the case of quasi- law, morals, good customs, public
delicts or torts. order, or public policy. (Art. 1306)
ADDITIONAL: received when there is no right to demand
● In the eyes of the law, a void contract does it and it was unduly delivered through
not exist. (Art. 1409) mistake. (Art. 2154.)
● Consequently, no obligations will arise.
● A contract may be valid but cannot be
enforced. This is true in the case of ARTICLE 1161. Civil obligations arising
unenforceable contracts. (Art. 1317, 1403) from criminal offenses shall be governed
by the penal laws,14 subject to the
(3) BREACH OF CONTRACT provisions of Article 2177,15 and of the
❖ A contract may be breached or pertinent provisions of Chapter 2,
violated by a party in whole or in part. Preliminary Title on Human Relations,16
❖ A breach of contract takes place and of Title XVIII of this Book, regulating
when a party fails or refuses to damages. (1092a)
comply, without legal reason or
justification, with his obligation under CRIMES OR DELICTS.
the contract as promised. Acts or omissions punishable by law.

COMPLIANCE IN GOOD FAITH. CIVIL LIABILITY ARISING FROM CRIMES OR

Means compliance or performance in DELICTS.
accordance with the stipulations or terms of the
contract or agreement. Sincerity and honesty ● CIVIL LIABILITY IN ADDITION TO
must be observed to prevent one party from taking CRIMINAL LIABILITY - Oftentimes, the
unfair advantage over the other. commission of a crime causes not only
moral evil but also material damage.
ARTICLE 1160. Obligations derived from ● CRIMINAL LIABILITY WITHOUT CIVIL
quasi-contracts shall be subject to the LIABILITY - In crimes, however, which
provisions of Chapter 1, Title XVII, of this cause no material damage, there is no civil
Book. (n) liability to be enforced.
● CIVIL LIABILITY WITHOUT CRIMINAL
LIABILITY - A person not criminally
QUASI-CONTRACTUAL OBLIGATIONS responsible may still be liable civilly.
A quasi-contract is that juridical relation
resulting from certain lawful, voluntary and
unilateral acts by virtue of which the parties SCOPE OF CIVIL LIABILITY.
become bound to each other to the end that no (1) Restitution;
one will be unjustly enriched or benefited at the (2) Reparation for the damage caused; and
expense of another. (Art. 2142.) (3) Indemnification for consequential
It is not, properly, a contract at all (because damages. (Art. 104, Revised Penal Code.)
there’s no meeting of minds). In a quasi-contract,
there is no consent but the same is supplied by
ARTICLE 1162. Obligations derived from
fiction of law.
quasi-delicts shall be governed by the
provisions of Chapter 2, Title XVII of this
KINDS OF QUASI-CONTRACTS
Book, and by special laws. (1093a)
(1) Negotiorum gestio - is the voluntary
management of the property or affairs of
another without the knowledge or consent
OBLIGATIONS ARISING FROM QUASI-
of the latter. (Art. 2144.)
DELICTS
(2) Solutio indebiti - is the juridical relation
which is created when something is QUASI-DELICT
 Is an act or omission by a person
(tortfeasor) which causes damage to another in Chapter 2
his person, property, or rights giving rise to an
obligation to pay for the damage done, there NATURE AND EFFECT OF
being fault or negligence but there is no pre-
existing contractual relation between the OBLIGATIONS
parties.21 (Art. 2176.)
Specific or Determinate thing.
Particularly designated or physically
REQUISITES OF QUASI-DELICT. segregated of others of the same kind. Identified
(1) There must be an act or omission by the by its individuality. Cannot be substituted without
defendant; the consent of the creditor.
(2) There must be fault or negligence of the
defendant; Generic or Indeterminate thing.
(3) There must be damage caused to the Refers only to a class or genus to which it
plaintiff; pertains. Identified only by its specie. Debtor can
(4) There must be a direct relation or give anything as long as it is of the same kind.
connection of cause and effect between
the act or omission and the damage; and ARTICLE 1163. Every person obliged to give
(5) There is no pre-existing contractual something is also obliged to take care of it
relation between the parties. with the proper diligence of a good father of a
family, unless the law or the stipulation of the
parties requires another standard of care.
(1094a)
CRIME DISTINGUISHED FROM QUASI-
DELICT. Diligence
● As required by law
Crime / Delict Quasi-delict ● As stipulated by parties
Criminal negligence Negligence ● Absence of 1 & 2, diligence of a good
Affects public interest Concerns private father of a family = ordinary diligence
● Refers to an obligation to deliver a
interests
specific thing
Generally 2 liabilities: Only civil liability
criminal and civil Duties of debtor in obligation to give a
Purpose is punishment Purpose is determinate thing.
indemnification of the 1. Preserve the thing
● Ordinary diligence
offended party
● Extraordinary diligence - if the law
Cannot be compromised Can be compromised
provides or the stipulations of the
the parties themselves as any other civil parties require another standard of
liability care
Guilt must be proved Fault or negligence 2. Deliver the fruits of the thing
3. Deliver the accessions and accessories
beyond reasonable doubt need only be proved by
4. Deliver the thing itself
preponderance of
5. Answer for damages in case of non-
evidence fulfillment or breach
Liability of the person is Liability is direct and
subsidiary primary
Duties of debtor in obligation to deliver a 4. In obligations to give arising from the
generic thing. sources of obligation, the time of
1. Deliver a thing which is of the quality performance is determined by the specific
intended by the parties provisions of law.
2. Be liable for damages in case of fraud,
negligence, or delay, in the performance of Meaning of personal right and real right.
the obligation, or contravention of tenor 1. Personal right - right of a person to
(violation of terms and conditions) demand from another, as a definite
passive subject, the fulfillment of the
ARTICLE 1164. The creditor has a right to the obligation to give, to do, or not to do.
fruits of the thing from the time the obligation > there is a definite active subject
to deliver it arises. However, he shall acquire and a definite passive subject
no real right over it until the same has been > enforceable only to a particular
delivered to him. (1095) person
2. Real right - right of a person over a specific
Natural Fruits. thing, without a definite passive subject
Spontaneous products of the soil, the whom the right may be enforced.
young, and other products of animals. Without > there is only a definite active
intervention of human labor subject
> directed against the whole world
Industrial Fruits.
Produced by lands of any kind through Ownership acquired by delivery.
cultivation or labor. Products brought about by Ownership and other real rights over a
reason of human labor. property are acquired in consequence of certain
contracts by tradition or delivery. Creditor does not
Civil Fruits. become the owner until the thing has been
Derived by virtue of a juridical relation. delivered to him

Rights of creditors to fruits. Article 1165. When what is to be delivered is a

● Creditor is entitled to the fruits of the thing determinate thing, the creditor, in addition to
from the time the obligation to deliver the right granted him by article 1170, may
arises. compel the debtor to make the delivery.
● The law’s intention is to protect the interest If the thing is indeterminate or generic,
of the obligee if the obligor commits delay he may ask that the obligation be complied
in the fulfillment of the obligation. with at the expense of the debtor.
If the obligor delays, or has promised to
When obligation to deliver arises. deliver the same thing to two or more persons
1. From the time of the “perfection of the who do not have the same interest, he shall be
contract” -- meeting of minds between the responsible for any fortuitous event until he
parties. has effected the delivery. (1096)
2. If subject to a suspensive condition or
period, it arises upon fulfillment of Remedies of creditor in real obligation.
condition or arrival of period. 1. In a specific real obligation (obligation to
3. In a contract of sale, obligation arises from deliver a determinate thing), remedies
the time of perfection of contract even if it may be exercised in case the debtor fails
is subject to a suspensive condition or to comply with his obligation:
period where the price has been paid. a. Demand specific performance or
fulfillment (if possible) of obligation
 with a right to indemnity for damages; Right of creditor to accessions and
or accessories
b. Demand rescission or cancellation of GENERAL RULE. All accessions and
the obligation also with a right to accessories are considered included in the
recover damages (Art. 1170); or obligation to deliver a determinate thing although
c. Demand payment of damages only, they may not have been mentioned. (Based on
where it is the only feasible remedy principle of law - accessory follows the principal)
● Only the debtor can comply with the
obligation -- it is the reason why the ● In order to be excluded, there must be a
creditor is granted the right to compel the stipulation.
debtor to make the delivery.
● However, the law does not mean that the Article 1167. If a person obliged to do
creditor can use violence or force upon the something fails to do it, the same shall be
debtor. executed at his cost.
This same rule shall be observed if he
2. A generic real obligation (obligation to does it in contravention of the tenor of the
deliver a generic thing) can be performed obligation. Furthermore, it may be decreed
by a third person since the object is that what has been poorly done be undone.
expressed only according to its family or (1098)
genus. In any case, the creditor has the
right to recover damages under Article It contemplates three situations:
1170 in case of breach or violation of the 1. The debtor fails to perform an obligation to
obligation. do;
2. The debtor performs an obligation to do
When debtor delays or has promised delivery but contrary to the terms thereof; or
to separate creditors. 3. The debtor performs an obligation to do
It refers to a determinate thing. A fortuitous but in poor manner.
event does not exempt the debtor from
responsibility. Remedies of creditor in positive personal
An indeterminate thing cannot be the obligation.
object of destruction by a fortuitous event because 1. If debtor fails to comply with obligation to
genus nunquam perit (genus never perishes). do, the creditor has the right:
a. To have the obligation performed by
Article 1166. The obligation to give a himself, or by another, unless
determinate thing includes that of delivering personal considerations are involved,
all its accessions and accessories, even at debtor’s expense; and
though they may not have been mentioned. b. To recover damages (Art. 1170)
(1097a). 2. In case it is done in contravention of the
terms or is poorly done, it may be ordered
Meaning of accessions and accessories. (by court upon complaint) that it may be
1. Accessions - fruits of a thing / addition / undone if it is still possible
improvements upon a thing (principal)
2. Accessories - things included with the Performance by a third person.
principal thing for better use or completion A personal obligation (to do) can be
performed by a third person.
NOTE: Accessions are not necessary to the A specific performance cannot be ordered
principal thing but accessories and principal thing in personal obligation because this may amount to
must go together.
involuntary servitude which is prohibited under our (3) When demand would be useless, as
Constitution. (Art. III, Sec. 18[2]) when the obligor has rendered it beyond his
Where, the personal qualifications of the power to perform.
debtor are the determining motive for the In reciprocal obligations, neither party
obligation contracted, the performance of the incurs in delay if the other does not comply or
same would be impossible / would be so different is not ready to comply in a proper manner with
that the obligation could not be considered what is incumbent upon him. From the
performed. The only feasible remedy is moment one of the parties fulfills his
indemnification for damages. But if obligation can obligation, delay by the other begins. (1100a)
still be performed notwithstanding his failure or
refusal, the court is not authorized to merely grant Meaning of delay.
damages to the creditor. 1. Ordinary delay - the failure to perform an
obligation on time.
Article 1168. When the obligation consists in 2. Legal delay or default or mora - failure to
not doing, and the obligor does what has been perform an obligation on time which failure
forbidden him, it shall also be undone at his constitutes a breach of the obligation.
expense. (1099a)
Kinds of delay or default.
In an obligation not to do, the duty of the 1. Mora solvendi - delay on the part of the
obligor is to abstain from an act. The debtor debtor to fulfill his obligation (to give or to
cannot be guilty of delay. (Art. 1169) do);
2. Mora accipiendi - delay on the part of the
Remedies of creditor in negative personal creditor to accept the performance of the
obligation. obligation;
● Remedy of obligee is the undoing of the 3. Compensatio morae - delay of obligors in
forbidden thing plus damages. reciprocal obligations. There is no
● If impossible to undo, either physically or actionable default on the part of both
legally, or because of the rights acquired parties.
by third persons who acted in good faith,
or for some other reason, remedy is an No delay in negative personal obligation.
action for damages caused by the debtor’s In an obligation not to do, non-fulfillment
violation of his obligation. may take place but delay is impossible.

Article 1169. Those obliged to deliver or to do Requisites of delay or default by the debtor.
something incur in delay from the time the 3 conditions must be present before mora
obligee judicially or extrajudicially demands solvendi can exist:
from them the fulfillment of their obligation. 1. Failure of the debtor to perform his
However, the demand by the creditor (positive) obligation on the date agreed
shall not be necessary in order that delay may upon;
exist: 2. Demand made by the creditor upon the
(1) When the obligation or the law debtor to comply with his obligation, may be
expressly so declare; or either judicial (complaint filed in court) or
(2) When from the nature and the extrajudicial (made outside of court, orally
circumstances of the obligation it appears that or in writing); and
the designation of the time when the thing is 3. Failure of the debtor to comply with such
to be delivered or the service is to be rendered demand
was a controlling motive for the establishment The creditor has the burden of proving that
of the contract; or demand has been made and the debtor must
prove that the delay was not caused by his fault to GENERAL RULE. Delay by the debtor begins
relieve himself from liability. only from the moment a demand, judicial or
extrajudicial, for fulfillment is made by the creditor.
Effects of delay. Exceptions:
1. Mora solvendi 1. When the obligation so provides.
a. The debtor is guilty of breach or 2. When the law so provides.
violation of the obligation; 3. When time is of the essence.
b. He is liable to the creditor for interest - Debtor is fully aware that the
or damages. In the absence of performance of the obligation from
extrajudicial demand, the interest the designated time would no
shall commence from the filing of longer benefit the creditor.
complaint; and 4. When demand would be useless.
c. He is liable for a fortuitous event 5. When there is performance by the
when the obligation is to deliver a party in reciprocal obligations.
determinate thing. If the debtor can
prove that the loss would have Article 1170. Those who in the performance of
resulted just the same even if he had their obligations are guilty of fraud,
not been in default, the court may negligence, or delay, and those who in any
reduce the damages. manner contravene the tenor thereof, are
● In obligation to give a generic thing, the liable for damages. (1101)
debtor is not relieved from liability for loss
due to a fortuitous event. He can still be Grounds for liability.
compelled to deliver the thing or held liable 1. Fraud (deceit or dolo) - intentional evasion
for damages (Art. 1170). of the normal fulfillment of the obligation. It
2. Mora accipiendi is synonymous to bad faith; it involves a
a. The creditor is guilty of breach of design to mislead or deceive another.
obligation; ● Incidental fraud (dolo incidente) -
b. He is liable for damages suffered, if referred to in Art. 1170. Committed in
any, by the debtor the performance of an obligation
c. He bears risk for loss of the thing due already existing because of a
(see Art. 1262) contract.
d. Where the obligation is to pay money, ● Causal fraud (dolo causante) - fraud
the debtor is not liable for interest employed in the execution of a
from the time of creditor’s delay; and contract under Article 1388, which
e. The debtor may release himself from vitiates consent.
the obligation by the consignation or 2. Negligence (fault or culpa) - any voluntary
deposit in court of the thing or sum act or omission which prevents the normal
due (see Art. 1256) fulfillment of obligation. Failure to observe
3. Compensatio morae the standard of care.
● Delay of obligor cancels the delay 3. Delay (mora) - failure to perform an
of the obligee and vice versa. obligation on time which failure constitutes
● Legally speaking, there is no fault a breach of the obligation.
or delay on the part of both parties. 4. Contravention of the terms of the
obligation - Violation of the terms and
When demand is not necessary to put debtor conditions stipulated in the obligation. The
in delay. contravention must not be due to a
fortuitous event or force majeure.
Fraud and negligence distinguished. Responsibility arising from negligence is
(1) In fraud, there is deliberate intention to demandable.
cause damage or injury, while in In the performance of every kind of
negligence, there is no such intention; obligation, the debtor is also liable for damages
(2) Waiver of the liability for future fraud is arising from his negligence. The court may
void, while waiver may be allowed in increase or decrease the damages recoverable.
negligence (Art. 1172)
(3) Fraud must be clearly proved, while Validity of waiver of action arising from
negligence is presumed from the violation negligence.
of a contractual obligation; and 1. An action for future negligence may be
(4) Liability for fraud cannot be mitigated or renounced except where the nature of the
reduced by the courts, while liability for obligation requires extraordinary diligence.
negligence may be reduced according to 2. Where negligence shows bad faith, it is
the circumstances (Art. 1173) considered equivalent to fraud. Any waiver
for future negligence of this kind is void.
Article 1171. Responsibility arising from fraud
is demandable in all obligations. Any waiver of Kinds of negligence according to the source
an action for future fraud is void. (1102a) of obligation.
1. Contractual negligence (culpa contractual) -
Responsibility arising from fraud is negligence in contract resulting in their
demandable. breach. It makes the debtor liable for
Responsibility arising from fraud can be damages in view of his negligence in the
demanded with respect to all kinds of obligation fulfillment of a pre-existing obligation.
and the court is not given the power to mitigate or 2. Civil negligence (culpa aquiliana) - source of
reduce the damages to be awarded. an obligation between parties not so related
before by any pre-existing contract, also
Waiver of action for future fraud void. called tort or quasi delict.
A waiver of an action for future fraud is 3. Criminal negligence (culpa criminal) -
void as being against law and public policy. A negligence resulting in the commission of a
contrary rule would encourage the perpetration of crime.
fraud because the obligor knows that even if he
should commit fraud, he would not be liable for it, Effect of negligence on the part of the injured
making the obligation illusory. party.
To be entitled to damages, it is not
Waiver of action for past fraud valid. required that the negligence of the defendant
A past fraud can be the subject of a valid should be the sole cause of the damage.
waiver because the waiver can be considered as
an act of generosity and magnanimity on the part Article 1173. The fault or negligence of the
of the party who is the victim of the fraud. The obligor consists in the omission of that
waiver must be expressed in clear language which diligence which is required by the nature of the
leaves no doubt as to the intention of the obligee obligation and corresponds with the
to give up his right against the obligor. circumstances of the persons, of the time and
of the place. When negligence shows bad
Article 1172. Responsibility arising from faith, the provisions of articles 1171 and 2201,
negligence in the performance of every kind of paragraph 2, shall apply.
obligation is also demandable, but such If the law or contract does not state the
liability may be regulated by the courts, diligence which is to be observed in the
according to the circumstances. (1103)
performance, that which is expected of a good Fortuitous may be an act of man or an act of
father of a family shall be required. (1104a) God.
1. Acts of man - event independent of the will
Fault or negligence. of the obligor but not other human wills.
Defined in the first paragraph of Article 2. Acts of God - called majeure or those
1173. According to the supreme court “negligence events which are totally independent will of
is the failure to observe for the protection of the every human being
interests of another person, that degree of care,
precaution, and vigilance which the Kinds of fortuitous events.
circumstances justly demand, whereby such other 1. Ordinary fortuitous events - events which
person suffers injury.” are common and which the contracting
parties could reasonably foresee
Factors to be considered in determining the 2. Extra-ordinary fortuitous events - events
issue of negligence. which are uncommon and which the
1. Nature of the obligation contracting parties could not have
2. Circumstances of the person reasonably foreseen
3. Circumstances of time
4. Circumstances of the place. Requisites of a fortuitous event.
(1) The event must be independent of the
Measure of liability for damages. human will or at least of the debtor’s will;
Damages - money compensation (2) The event could not be foreseen, or if
awarded to a party for loss or injury resulting from foreseen, is inevitable;
breach of contract or obligation by the other. (3) The event must be of such character as to
RULE. The purpose of awarding damages is to render it impossible for the debtor to comply
place the innocent party in the same position he with his obligation in a normal manner; and
would have occupied if the contract or obligation (4) The debtor must be free from any
had been performed according to its terms. participation in, or the aggravation of, the
injury to the creditor, that is, there is no
Kinds of diligence required. concurrent negligence on his part.
(1) That agreed upon by the parties, orally or in
writing; The absence of any of the requisites would
(2) In the absence of stipulation, that required by prevent the obligor from being exempt from
the law in the particular case liability.
(3) If both the contract and law are silent, then the
diligence expected of a good father of a family. RULE. A person is not liable for loss or damage to
another resulting from non-fulfillment of the
Article 1174. Except in cases expressly obligation due to a fortuitous event. - the obligation
specified by the law, or when it is otherwise is extinguished.
declared by stipulation, or when the nature of Exceptions:
the obligation requires the assumption of risk, 1. When specified by law
no person shall be responsible for those a. The debtor is guilty of fraud,
events which could not be foreseen, or which, negligence, or delay, or
though foreseen, were inevitable. (1105a) contravention of the tenor of the
obligation
Fortuitous event. b. The debtor has promised to
A fortuitous event is any event which deliver the same specific thing to
cannot be foreseen, or which, though foreseen, is two or more persons who do not
inevitable. have the same interest
 c. The obligation to deliver a Presumption.
specific thing arises from a crime Inference of a fact not actually known
d. The thing to be delivered is a arising from its usual connection with another
generic thing which is known or proved.
2. When declared by the stipulation - the
basis for this exception lies upon the Two kinds of presumption.
freedom of contract 1. Conclusive presumption - cannot be
3. When the nature of the obligation contradicted
requires the assumption of the risk - 2. Disputable / rebuttable presumption – can
here, the debtor has the knowledge be contradicted or rebutted by presenting
that the obligation could possibly proof to the contrary
result to injury or damage
When presumptions in Article 1176 do not
Article 1175. Usurious transactions shall be apply.
governed by special laws. (n)
(1) With reservation as the interest -
presumptions in Art. 1176 do not arise where
Simple loan or mutuum.
there is reservation that no payment has
Contract whereby one of the parties
been made as to interest or prior
delivers to another, money or consumable thing,
installments. The reservation may be in
upon the condition that the same amount of the
writing or verbally.
same kind and quality shall be paid.
(2) Receipt without indication of particular
It may be gratuitous (not necessary) or
installment paid - presumption is not
with a stipulation to pay interest.
applicable if the receipt does not recite that it
was issued for a particular installment due as
Usury.
when the receipt is only dated.
Contracting for or receiving interest in
(3) Receipt for a part of the principal - such a
excess of the amount allowed by law for the loan
receipt, without mentioning the interest,
or use of money, goods, chattels, or credits.
implies that the creditor waives his right to
apply the payment first to the interest and
Requisites for recovery of interest.
then to the principal as permitted by Article
(1) The payment of interest must be expressly
1253.
stipulated (Art. 1956);
(4) Payment of taxes - there is no presumption
(2) The agreement must be in writing; and
that previous taxes have been paid by the
(3) The interest must be lawful. (Art. 1957)
payment of the later ones.
(5) Non-payment proven - not applicable where
Stipulation for payment of usurious interest is
the nonpayment of prior obligations has
void, as if there is no stipulation as to interest.
been proven. A presumption cannot prevail
over a proven fact.
Article 1176. The receipt of the principal by the
creditor, without reservation with respect to
Article 1177. The creditors, after having
the interest, shall give rise to the presumption
pursued the property in possession of the
that said interest has been paid.
debtor to satisfy their claims, may exercise all
The receipt of a later installment of a
the rights and bring all the actions of the
debt without reservation as to prior
latter for the same purpose, save those which
installments, shall likewise raise the
are inherent in his person; they may also
presumption that such installments have been
impugn the acts which the debtor may have
paid. (1110a)
done to defraud them. (1111)
Remedies available to creditors for the
satisfaction of their claims. Chapter 3
In case debtor does not comply with his
obligation, creditor may avail himself the following DIFFERENT KINDS OF
remedies:
(1) Exact fulfillment with the right to damages; OBLIGATIONS
(2) Pursue the leviable property of the debtor;
(3) Exercise all the rights and bring all actions of Classifications of Obligations
the debtor except those inherent in or (1) PRIMARY classifications of obligations
personal to the person; and under the CIVIL CODE
(4) Ask the court to rescind or impugn acts or (a) Pure and Conditional Obligations
contracts which the debtor may have done to (Arts. 1179-1192)
defraud him when he cannot recover his (b) Obligations with a period (Arts. 1193-
claim 1198)
(c) Alternatives (Arts. 1199-1205) and
Article 1178. Subject to the laws, all rights facultative obligations (Art. 1206)
acquired in virtue of an obligation are (d) Joint and Solidary Obligations (Arts.
transmissible, if there has been no stipulation 1207-1222)
to the contrary. (1112) (e) Divisible and Indivisible Obligations
(Arts. 1223-1225)
Transmissible. (f) Obligations with a Penal Clause
Able to be passed on from one person to (Arts. 1226-1230)
another.
(2) SECONDARY classifications of obligation
All rights acquired in virtue of an obligation under the CIVIL CODE
are generally transmissible. (a) Unilateral & Bilateral Obligations
Exceptions: (Arts. 1169-1191)
(1) Prohibited by law (b) Real and Personal Obligations (Arts.
a. By contract of partnership, two or 1163-1168)
more persons bind themselves to (c) Determinate and Generic Obligations
contribute to a common fund, with the (Art. 1165)
intention of dividing profits. (d) Civil and Natural Obligations (Art.
b. By the contract of agency, a person 1423)
binds himself to render service or to (e) Legal, Conventional, and Penal
do something on behalf of another. Obligations (Arts. 1157, 1159, 1161)
c. By the contract of commodatum, one
of the parties delivers to another
something not consumable so that
they may use the same for a certain SECTION 1. — Pure and
time and return it.
(2) Prohibited by stipulation of the parties - Conditional Obligations
Obligation is extinguished when
transmissibility of rights is prohibited by the
Article 1179. Every obligation whose
stipulation of the parties.
performance does not depend upon a future or
uncertain event, or upon a past event
unknown to the parties, is demandable at
once.
 Every obligation which contains a What is really contemplated by the law is
resolutory condition shall also be the knowledge to be acquired in the future of past
demandable, without prejudice to the effects events which at the moment is unknown to the
of the happening of the event. (1113) parties interested, for it is only in that sense that
the event can be deemed uncertain. This
Pure Obligation. knowledge determines whether the obligation will
Not subject to any condition. No specific arise or not.
date for its fulfillment. Immediately demandable.
Article 1180. When the debtor binds himself to
Conditional Obligation. pay when his means permit him to do so, the
One whose consequences are subject in obligation shall be deemed to be one with a
one way or another to the fulfillment of condition. period, subject to the provisions of article
1197. (n)
Condition.
Future and uncertain events. Upon the Period.
happening of which, the effectivity or Future and certain events. Upon the arrival
extinguishment of an obligation. the obligation subject to it either arises or is
extinguished.
Characteristics of a Condition.
(1) Future and uncertain. - to constitute an event Where Duration of Period Depends Upon the
as a condition, it should be future and should Will of Debtor
also be uncertain. (1) The debtor promises to pay when his
(2) Past but unknown. - It refers to a future means permit him to do so.
event, both its very occurrence and the time - The obligation shall be deemed to be
of such occurrence must be uncertain; one with a period.
otherwise, it is not a CONDITION. A - What depends upon the debtor’s will
condition must not be impossible. is not whether he should pay or not
for indeed he binds himself to pay.
Two Principal Kinds of Condition. - What is left only to his will is the
(1) Suspensive Condition. (condition duration of the period.
precedent or condition antecedent) (2) Other cases.
- The fulfillment of which will give rise - As when the debtor binds himself to
to an obligation. pay:
a. “little by little” (Scone vs.
(2) Resolutory Condition. (condition Francisco, 24 Phil. 309.);
subsequent) b. “as soon as possible” (Gonzales
- The fulfillment of which will extinguish vs. Jose, 66 Phil. 369.);
an obligation already existing. c. “from time to time”;
d. “at any time I have the money”
An Obligation is demandable at once; (Soriano vs. Abalos, 84 Phil.
(1) When it is pure (Art. 1179, par 1.); 206.);
(2) When it is subject to a resolutory condition e. “in partial payments” (Levy
(Ibid., par 2.) or Hermanos vs. Paterno, 18 Phil.
(3) When it is subject to a resolutory period. 353)
(Art. 1193, par 2.) f. “when I am in a position to pay.”
(see Luding Hahn vs. Lazatin,
Past event unknown to the parties. [unrep.] 105 Phil. 1358.)
Article 1181. In conditional obligations, the (3) As to possibility: (the condition is)
acquisition of rights, as well as the a. Possible - capable of fulfillment,
extinguishment or loss of those already legally and physically
acquired, shall depend upon the happening of b. Impossible - not capable of
the event which constitutes the condition. fulfillment, legally or physically
(1114) (4) As to cause or origin: (the condition is)
a. Potestative - depends upon the will
Effect of Happening of Condition. of one of the contracting parties
(1) Acquisition of rights. (Subject to a b. Casual - depends upon chance or
suspensive condition) upon the will of a third
- The acquisition of rights by the c. Mixed - depends partly upon
creditor depends upon the happening chance or partly upon the will of a
of the event which constitutes the third person
condition. (5) As to mode: (the condition is)
- Its efficacy or obligatory force (as a. Positive - consists in the
distinguished from its demandability) performance of an act
is subordinate to the happening of a b. Negative - consists in the omission
future and uncertain event. of an act.
- It follows that if the suspensive (6) As to numbers: (there are several
condition does not take place and it is conditions)
certain that it will not be fulfilled, the a. Conjunctive - all must be fulfilled
parties would stand as if the b. Disjunctive - only one or some of
conditional obligation had never them must be fulfilled
existed. (7) As to divisibility: (the condition is)
(2) Loss of rights already acquired. (Subject to a. Divisible - susceptible of partial
resolutory condition) performance
- The happening of the event which b. Indivisible - not susceptible of
constitutes the condition produces partial performance
the extinguishment or loss of rights
already acquired. Potestative Condition.
A condition suspensive in nature and
Article 1182. When the fulfillment of the which depends upon the sole will of one of the
condition depends upon the sole will of the contracting parties.
debtor, the conditional obligation shall be
void. If it depends upon chance or upon the Where Suspensive Condition Depends Upon
will of a third person, the obligation shall take Will of Debtor
effect in conformity with the provisions of this (1) Conditional Obligation Void.
Code. (1115) - Where the condition depends solely
upon the will of the debtor, the
Classifications of Conditions. conditional obligation shall be void
(1) As to effect: (the happening of which) because its validity and compliance is
a. Suspensive - gives rise to the left to the will of the debtor.
obligation - Cannot be easily demanded
b. Resolutory - extinguishes the - In order to not be liable, the debtor will
obligation not just fulfill the condition
(2) As to form: (the condition is) - There is no burden on the debtor and
a. Express - clearly stated consequently, no juridical tie is
b. Implied - merely inferred created.
 (2) Only the condition is void. ❖ As it is within his power to comply or not to
- If the obligation is a pre-existing one comply with the same.
- Does not depend for its existence upon
the fulfillment by the debtor of the Article 1183. Impossible conditions, those
potestative condition contrary to good customs or public policy and
- Here, the condition is imposed not on those prohibited by law shall annul the
the birth of the obligation but on its obligation which depends upon them. If the
fulfillment. obligation is divisible, that part thereof which
is not affected by the impossible or unlawful
Where Suspensive Condition Depends Upon condition shall be valid.
Will of Creditor The condition not to do an impossible
If the condition depends exclusively upon thing shall be considered as not having been
the will of the creditor, the obligation is VALID. agreed upon. (1116a)

Where Resolutory Condition Depends Upon ➔ Article 1183 refers to suspensive conditions.
Will of Debtor ➔ Applies only to cases where the impossibility
The obligation is VALID although its already existed at the time the obligation was
fulfillment depends upon the sole will of the debtor constituted.
(seller). The fulfillment of the condition merely
causes extinguishment of rights already acquired. Two Kinds of Impossible Conditions.
The debtor is naturally interested in its fulfillment. (1) Physically Impossible Conditions.
- Nature of things, cannot exist or
❖ the position of the debtor when the condition cannot be done.
is resolutory = the position of the creditor (2) Legally Impossible Conditions.
when the condition is suspensive. - Contrary to law, morals, good
customs, public order, or public
Casual Condition. policy.
If the suspensive condition depends upon
chance or upon the will of a third person. [VALID Effects of Impossible Conditions.
OBLIGATION] (1) Conditional Obligation Void.
- Impossible conditions annul the
Mixed Condition. obligation which depends upon them.
If the suspensive condition depends partly Both condition and obligation are void
upon chance or partly upon the will of a third because the obligor knows his
person. [VALID OBLIGATION] obligation cannot be fulfilled. He has
no intention to comply with his
Where Suspensive Condition Depends partly obligation.
upon will of debtor. (2) Conditional Obligation Valid.
The word “exclusive” or sole makes it clear - If the condition is negative, that is, not
that conditional obligations are valid. Whose to do an impossible thing, it is
fulfillment depends partly upon the will or chance disregarded and the obligation is
of the debtor or the third person. rendered pure and valid. Demandable
at once.
❖ However, if the compliance with the (3) Only the Affected Obligation Void.
obligation still depends upon that part of the - If the obligation is divisible. The part
condition whose fulfillment depends upon thereof not affected by the impossible
the will of the debtor, the obligation is VOID. condition shall be valid.
(4) Only the Condition Void.
 - If the obligation is a pre-existing the parties. This rule may also be applied
obligation. Therefore, it does not depend to positive conditions.
upon the fulfillment of the condition
which is impossible for its existence. Article 1186. The condition shall be deemed
Only the condition is VOID. fulfilled when the obligor voluntarily prevents
its fulfillment. (1119)
Article 1184. The condition that some event Constructive Fulfillment of Suspensive
happen at a determinate time shall extinguish Condition.
the obligation as soon as the time expires or if ➔ There are 3 requisites for the application
it has become indubitable that the event will of this article:
not take place. (1117) (1) The condition is suspensive;
(2) The obligor actually prevents the
fulfillment of the condition;
Positive Condition.
(3) He acts voluntarily.
The above article refers to positive ➔ The law does not require that the obligor
(suspensive) conditions - the happening of an acts with malice or fraud as long as his
event at a determinate time. purpose is to prevent the fulfillment of the
The obligation is extinguished: condition.
(1) As soon as the time expires without the ➔ He should not be allowed to profit from his
event taking place; own fault.
(2) As soon as it has become indubitable that
Constructive Fulfillment of Resolutory
the event will not take place although the Condition.
time specified has not expired. ➔ Article 1186 also applies to an obligation
subject to a resolutory condition with
Article 1185. The condition that some event respect to the debtor who is bound to
will not happen at a determinate time shall return what he has received upon the
render the obligation effective from the fulfillment of the condition. (Art 1190)
moment the time indicated has elapsed, or if it
has become evident that the event cannot Article 1187. The effects of a conditional
occur. obligation to give, once the condition has been
If no time has been fixed, the condition fulfilled, shall retroact to the day of the
shall be deemed fulfilled at such time as may constitution of the obligation. Nevertheless,
have probably been contemplated, bearing in when the obligation imposes reciprocal
mind the nature of the obligation. (1118) prestations upon the parties, the fruits and
interests during the pendency of the condition
shall be deemed to have been mutually
Negative Condition. compensated. If the obligation is unilateral,
The above provision speaks to negative the debtor shall appropriate the fruits and
conditions - that an event will not happen at a interests received, unless from the nature and
determinate time. circumstances of the obligation it should be
The obligation shall become effective inferred that the intention of the person
and binding: constituting the same was different.
In obligations to do and not to do, the
(1) From the moment the time courts shall determine, in each case, the
indicated has elapsed without the retroactive effect of the condition that has
event taking place been complied with. (1120)
(2) From the moment it has become
evident that the event cannot Retroactive Effects of Fulfillment of
occur, although the time indicated Suspensive Condition.
(1) In obligation to give.
has not yet elapsed.
- An obligation to give subject to a
➔ If no time is fixed, the circumstances shall suspensive condition becomes
be considered to arrive at the intention of demandable only upon the fulfillment
 of the condition. However, once the have his right annotated on the title to
condition is fulfilled, its effects shall the property in the registry of deeds.
retroact to the day the obligation was (2) Rights of Debtor.
constituted because the condition is ● Entitled to recover what he has paid
only an accidental element of a by mistake prior to the happening of
contract. An obligation can exist the suspensive condition. (This right
without being subject to a condition. is granted to the debtor because the
(2) In obligation to do or not to do. creditor may not be able to fulfill the
- No fixed rule is provided. The court is condition imposed, hence it is not
empowered to determine in each certain that the obligation will arise =
case the retroactive part of a a case of solutio indebiti)
suspensive condition that has been ➔ The payment must be by mistake before
complied with. Includes the power to the fulfillment of the condition otherwise
decide that the fulfillment of the the debtor is deemed to have impliedly
condition shall have no retroactive waived the condition.
effect or from what date such
retroactive shall take effect. Article 1189. When the conditions have been
imposed with the intention of suspending the
Retroactive Effects as to Fruits and Interests efficacy of an obligation to give, the following
in Obligation to Give. rules shall be observed in case of the
(1) In reciprocal Obligations. improvement, loss or deterioration of the thing
● There is no retroactivity, because during the pendency of the condition:
the fruits and interests received
during the pendency of the (1) If the thing is lost without the fault of
condition are deemed to have been the debtor, the obligation shall be
mutually compensated. extinguished;
● Does not have to render mutual (2) If the thing is lost through the fault of
accounting of what they have the debtor, he shall be obliged to pay
received. damages; it is understood that the
● The fruits here may be natural, thing is lost when it perishes, or goes
industrial, or civil fruits. out of commerce, or disappears in such
a way that its existence is unknown or
(2) In Unilateral Obligations. it cannot be recovered
● Usually no retroactive effect (3) When the thing deteriorates without the
because they are gratuitous. fault of the debtor, the impairment is to
● Debtor receives nothing from the be borne by the creditor;
creditor. (4) If it deteriorates through the fault of the
debtor, the creditor may choose
Article 1188. The creditor may, before the between the rescission of the
fulfillment of the condition, bring the obligation and its fulfillment, with
appropriate actions for the preservation of his indemnity for damages in either case;
right. (5) If the thing is improved by its nature, or
The debtor may recover what during by time, the improvement shall inure to
the same time he has paid by mistake in case the benefit of the creditor;
of a suspensive condition. (1121a) (6) If it is improved at the expense of the
debtor, he shall have no other right
Rights of Pending Fulfillment of Suspensive than that granted to the usufructuary.
Condition. (1122)
(1) Rights of Creditor.
● May take or bring appropriate actions Requisites for Application of Article 1189.
for his right, as the debtor may render ● It applies only if:
nugatory the obligation upon the (1) The obligation is real obligation;
happening of the condition. May go to (2) The object is specific or a
court to prevent alienation or determinate thing;
concealment of the property. May (3) The obligation is subject to a
 suspensive condition; In the case, B may choose between:
(4) The condition is fulfilled;
(5) There is loss, deterioration, or (a) Rescission (or cancellation) of the
improvement of the thing during the obligation with damages; in this case, X is
pendency of the condition. liable to pay Y P100,000, the value of the
car before its deterioration plus incidental
Kinds of Loss. damages, if any;or
(1) Physical loss - when a thing perishes (b) Fulfillment of the obligation also with
(2) Legal loss - when a thing goes out of damages. (see Art. 1191.) In the case, X is
commerce or when a thing heretofore legal bound to Y to give the car and pay
becomes illegal P10,000 plus incidental damages, if any.
(3) Civil loss - when a thing disappears i such a
way that its existence is unknown or even if (5) Improvement of thing by nature or by time.
know, it cannot be recovered, whether as a ● A thing is improved if the value is
matter of fact or of law increased by time or at the
expense of the debtor or creditor.
Rules in Case of Loss, Deterioration, or
Improvement of Things During Pendency of EXAMPLE:
Suspensive Condition. Suppose the market value of the car
increased, who gets the benefit?
(1) Loss of thing without debtor’s fault. The improvement shall insure to the
benefit of Y. Inasmuch as Y would suffer in case
EXAMPLE: of deterioration of the car through a fortuitous
X obliged himself to give Y his car worth event, it is but fair that he should be compensated
P100,000 if Y will sell X's property. The car was in case of improvement of the car instead.
lost without the fruits of X.
The obligation is extinguished and X is not (6) Improvement of thing at the expense of the
liable to Y even if Y sells the property. A person, debtor.
as a general rule, is not liable for a fortuitous
event. (Art. 1174.) EXAMPLE:
During the pendency of the condition, X
(2) Loss of thing through debtor’s fault. had the car painted and its seat cover changed at
his expense.
EXAMPLE: In this case, X will have the right granted
In the same example, if the loss occurred to a usufructuary with respect to improvements
because of the negligence of X, Y will be entitled made on the thing held in usufruct.
to demand damages (Art.1170.), i.e., P100,000
plus incidental damages, if any. (usufruct - is the right to enjoy the use and fruits
of a thing belonging to another)
(3) Deterioration of thing without debtor’s fault.
● A thing deteriorates when its value The rights granted to the usufructuary are:
is reduced with or without the fault "The usufructuary may make on the
of the debtor. property held in usufruct such useful
improvements or expenses for mere pleasure as
EXAMPLE: he may deem proper provided he does not alter
If the car figured in an accident, as a result its form or substance; but he shall have no right
of which its windshield was broken and some of to be indemnified therefore. He may, however,
its paint were scratched away without the fault of remove such improvements should it be possible
X, thereby reducing its value to P90,000, Y will to do so without damage to the property." (Art.
have to suffer the deterioration or impairment in 579.)
the amount of P10,000. (Art. 1174.) "The usufructuary may set off the
improvements he may have made on the
(4) Deterioration of thing through debtor’s fault. property against any damages to the same." (Art.
580.)
EXAMPLE:
Article 1190. When the conditions have for the fulfillment and the rescission of the
their purpose the extinguishment of an obligation, with the payment of damages in
obligation to give, the parties, upon the either case. He may also seek rescission, even
fulfillment of said conditions, shall return to after he has chosen fulfillment, if the latter
each other what they have received. should become impossible.
In case of the loss, deterioration or The court shall decree the rescission
improvement of the thing, the provisions claimed, unless there be just cause
which, with respect to the debtor, are laid authorizing the fixing of a period.
down in the preceding article shall be applied This is understood to be without
to the party who is bound to return. prejudice to the rights of third persons who
As for obligations to do and not to do, have acquired the thing, in accordance with
the provisions of the second paragraph of Articles 1385 and 1388 and the Mortgage Law.
article 1187 shall be observed as regards the (1124)
effect of the extinguishment of the obligation.
(1123) Kinds of Obligation According to the Person
Obliged.
Effects of Fulfillment of Resolutory Condition. (1) Unilateral - when the only one party is
(1) In obligation to give. obliged to comply with a prestation.
● When the resolutory condition in an (2) Bilateral - when both parties are mutually
obligation to give is fulfilled, the bound to each other.
obligation is extinguished and the - Both parties are debtors and
parties are obliged to return to each creditors of each other.
other what they have received under - May be reciprocal or non-reciprocal.
the obligation. (a) Reciprocal Obligations.
(a) There is a return to the status - Those which arise from the
quo. In other words, the effect of same cause. Each party is
the fulfillment of the condition is a debtor and creditor of the
retroactive. other.
(b) In case the thing to be returned (b) Non-reciprocal Obligations.
is legally in the possession of a - Those which do not impose
third person who did not act in simultaneous and
bad faith (see Art. 1387, par. 2.), correlative performance on
the remedy of the party entitled both parties.
to restitution is against the order.
(c) The obligation of mutual Remedies in Reciprocal Obligations.
restitution is absolute. It applies (1) Choice of Remedies.
not only to the thing received but - The aggrieved party may choose
also to the fruits and interests. between two remedies:
(d) In obligations to give subject to (a) Action for specific
suspensive conditions, the performance (fulfillment) of
retroactivity admits exceptions the obligation with
according as the obligation is damages
bilateral or unilateral. (see Art. (b) Action for rescission of the
1187.) obligation also with
(2) In obligation to do or not to do. damages.
● The courts in the exercise of (2) Remedy of Rescission for Non-
discretion may even disallow compliance.
retroactivity, taking into account the - The principal action for rescission
circumstances at each case. for non-performance under Art.
1191 must be distinguished from
Article 1191. The power to rescind obligations the subsidiary action for rescission
is implied in reciprocal ones, in case one of the by reason of lesion or damage
obligors should not comply with what is under Art. 1381.
incumbent upon him.
The injured party may choose between Court may grant a guilty party term for
performance. Article 1192. In case both parties have
The court shall order the rescission committed a breach of the obligation, the
claimed unless there should be just cause for liability of the first infractor shall be equitably
granting the party in default a term or period for tempered by the courts. If it cannot be
the performance of his obligation. (par. 3.) determined which of the parties first violated
Obviously, this exception applies only the contract, the same shall be deemed
where the guilty party is willing to comply with his extinguished, and each shall bear his own
obligation but needs time to do so and not where damages. (n)
he refuses to perform.
Where both parties are guilty of breach.
Remedies are alternative. ● 2 situations:
● He is privileged to choose only one of the (1) First infractor known. - one party
remedies and not both. violated his obligation;
● He may also seek rescission even after he subsequently, the other also
has chosen fulfillment if the latter should violated. In this case, the liability of
become impossible. the first infractor should be
equitably reduced.
Limitations on right to demand. (2) First infractor cannot be
● The right to be rescind by the injured determined. - the contract shall be
party is not absolute. deemed extinguished and each
(1) Resort to the courts - the injured party shall bear his own damages.
has to resort to the courts to assert his
rights judicially
(2) Power of court to fix period - the court
has discretionary power to allow a SECTION 2. —
period within which a person in default
may be permitted to perform his
Obligations with a Period
obligation.
(3) Right of third person - if the subject
matter of the obligation is in the hands ARTICLE 1193. Obligations for whose
of a third person who acted in good fulfillment a day certain has been fixed, shall
faith, rescission is not available as a be demandable only when that day comes.
remedy. Obligations with a resolutory period
(4) Substantial - rescission will not be
take effect at once, but terminate upon arrival
granted for slight breaches of
contract; the violation should be of the day certain.
substantial as to defeat the object of A day certain is understood to be that
the parties in making the agreement. which must necessarily come, although it may
(5) Waiver of right - the right to rescind not be known when.
may be waived, expressly or If the uncertainty consists in whether
impliedly. the day will come or not, the obligation is
Rescission without previous judicial decree. conditional, and it shall be regulated by the
(1) Where automatic rescission expressly rules of the preceding Section. (1125a)
stipulated. - parties may validly enter into
an agreement that violation of the terms of Obligation with a period.
the contract would cause cancellation An obligation with a period is one whose
thereof even without judicial intervention consequences are subjected in one way or
or permission.
another to the expiration of said period or term.
(2) Where the contract is still executory. -
there is no performance yet by both
parties, but one is ready and willing to Period or term.
comply with what is incumbent upon him A period is a future and certain event upon
and the other is not. the arrival of which the obligation (or right) subject
to it either arises or is terminated
 period is not fixed but a period is intended, the
Period and condition distinguished. courts are usually empowered by law to fix the
(1) As to fulfillment. — A period is a same.
certain event which must happen sooner or later
at a date known beforehand, or at a time which ARTICLE 1194. In case of loss, deterioration or
cannot be determined, while a condition is an improvement of the thing before the arrival of
uncertain event; the day certain, the rules in Article 1189 shall
(2) As to time. — A period refers only be observed.
to the future, while a condition may refer also to a
past event unknown to the parties; ARTICLE 1195. Anything paid or delivered
(3) As to influence on the obligation. — before the arrival of the period, the obligor
A period merely fixes the time for the being unaware of the period or believing that
efficaciousness of the obligation. If suspensive, it the obligation has become due and
cannot prevent the birth of the obligation in due demandable, may be recovered, with the fruits
time; if resolutory, it does not annul, even in fiction, and interests.
the fact of its existence. On the other hand, a
condition causes an obligation to arise or to Payment before arrival of period.
cease. Allows the recovery of what has been paid
(4) As to effect, when left to debtor’s by mistake before the fulfillment of a suspensive
will. — A period which depends upon the will of condition.
the debtor empowers the court to fix the duration
thereof. Debtor presumed aware of period.
(5) As to retroactivity of effects. — The presumption, however, is that the
Unless there is an agreement to the contrary, the debtor knew that the debt was not yet due. The
arrival of a period does not have any retroactive obligor may no longer recover the thing or money
effect, while the happening of a condition has once the period has arrived but he can recover the
retroactive effect. fruits or interests thereof from the date of
premature performance to the date of maturity of
Kinds of period or term. the obligation.
(1) According to effect:
(a) Suspensive period (ex die). — The No recovery in personal obligations.
obligation begins only from a day certain upon the It is physically impossible to recover the
arrival of the period service rendered, and as to the latter, as the
(b) Resolutory period (in diem). — The obligor performs by not doing, he cannot, of
obligation is valid up to a day certain and course, recover what he has not done.
terminates upon the arrival of the period.
(2) According to source: ARTICLE 1196. Whenever in an obligation a
(a) Legal period. — When it is provided for period is designated, it is presumed to have
by law; been established for the benefit of both the
(b) Conventional or voluntary period. — creditor and the debtor, unless from the tenor
When it is agreed to by the parties of the same or other circumstances it should
(c) Judicial period. — When it is fixed by appear that the period has been established in
the court. favor of one or of the other. (1127)
(3) According to definiteness:
(a) Definite period. — When it is fixed or it Presumption as to the benefit of period.
is known when it will come This means that before the expiration of
(b) Indefinite period. — When it is not fixed the period, the debtor may not fulfill the obligation
or it is not known when it will come. Where the
and neither may the creditor demand its fulfillment The period mentioned in the above
without the consent of the other, provision refers to a judicial period as
distinguished from the period fixed by the parties
Exceptions to the general rule. in their contract which is known as contractual
(1) Term is for the benefit of the debtor period.
alone. — He cannot be compelled to pay
prematurely, but he can, if he desires, do so. Exceptions to the general rule.
(2) Term is for the benefit of the (1) No period is fixed but a period was
creditor. — He may demand fulfillment even intended.
before the arrival of the term but the debtor cannot - If the obligation does not fix a
require him to accept payment before the period but it can be inferred from its
expiration of the stipulated period. nature and the circumstances that
a period was intended by the
Computation of term or period. parties, the court may fix the
(1) The Civil Code provides: period.
- In computing a period, the first day (2) Duration of period depends upon the will of
shall be excluded, and the last day the debtor.
included. - A contract whereby the proceeds
(2) The Administrative Code of 1987 of the sale of goods should be
(Exec. Order No. 292.), however, provides: turned over to the principal by the
“Legal Periods — “Year’’ shall be understood to agent “as soon [they were] sold”
be twelve calendar months; “month’’ of thirty days, makes the obligation immediately
unless it refers to a specific calendar month in demandable as soon as the goods
which case it shall be computed according to the are disposed of; hence, Article
number of days the specific month contains; 1197 is not applicable.
“day,’’ to a day of twenty-four hours; and “night’’
from sunset to sunrise. Legal effect where suspensive period/
(3) A calendar month is “a month condition depends upon will of debtor.
designated in the calendar without regard to the (1) The existence of the obligation is
number of days it may contain. “ not affected although the period depends upon the
sole will of the debtor.
ARTICLE 1197. If the obligation does not fix a (2) If the obligation is subject to a
period, but from its nature and the condition which depends upon the will of the
circumstances it can be inferred that a period debtor, the conditional obligation is void
was intended, the courts may fix the duration
thereof. Period fixed cannot be changed by the courts.
The courts shall also fix the duration of (1) If there is a period agreed upon by
the period when it depends upon the will of the the parties and it has already lapsed or expired,
debtor. the court cannot fix another period.
In every case, the courts shall (2) The period fixed in a final judgment
determine such period as may under the is res judicata and as such forms an integral part
circumstances have been probably of the imperfect contract which gave rise to its
contemplated by the parties. Once fixed by the designation by the court, and thence, forward part
courts, the period cannot be changed by them. of a perfect and binding contract.
(1128a)
ARTICLE. 1198. The debtor shall lose every
Court generally without power to fix a period. right to make use of the period:
 (1) When after the obligation has been Kinds of obligation according to object.
contracted, he becomes insolvent, unless he 1. Simple Obligation - there is only one (1)
gives a guaranty or security for the debt; prestation
(2) When he does not furnish to the 2. Compound Obligation - there are two or
creditor the guaranties or securities which he more prestations. It may be:
has promised; a. Conjunctive - there are several
(3) When by his own acts he has prestations and ALL of them are due
impaired said guaranties or securities after b. Distributive - two (2) or more of the
their establishment, and when through a prestations are due. It may be:
fortuitous event they disappear, unless he i. Alternative Obligation - several
immediately gives new ones equally prestations are due but the
satisfactory; performance of one is sufficient (Art.
(4) When the debtor violates any 1199)
undertaking, in consideration of which the ii. Facultative Obligation - only one (1)
creditor agreed to the period; prestation is due but the debtor may
(5) When the debtor attempts to substitute another (Art. 1206)
abscond.
ALTERNATIVE OBLIGATION.
When obligation can be demanded before An obligation where various prestations
lapse of period. are due but the performance of one of them is
GENERAL RULE. Obligation is not demandable enough.
before the lapse of the period Note: A debtor can fulfill his obligation by giving
The exceptions are based on the fact that alternative prestations (product or service) of his
the debtor might not be able to comply with his choice.
obligation.
(1) When debtor becomes insolvent ARTICLE 1200. The right of choice belongs to
(2) When debtor does no furnish the debtor, unless it has been expressly
guaranties or securities promised granted to the creditor.
(3) When guaranties or securities The debtor shall have no right to
given have been impaired or have choose those prestations which are
disappeared impossible, unlawful, or which could not have
(4) When debtor violates an been the object of the obligation.
undertaking
(5) When debtor attempts to abscond Right of choice, as a rule, given to the debtor.
GENERAL RULE: The right to choose the
prestation belongs to the debtor.
SECTION 3. — EXCEPTION TO
GENERAL RULE: Creditor may exercise the right
ALTERNATIVE to choose when it is expressly granted to him or
by a third person when the right is given to him by
OBLIGATIONS a common agreement

ART. 1199. A person alternatively bound by Right of choice of debtor NOT absolute.
different prestations shall completely perform 1. The debtor CANNOT choose those
one of them. prestations which are:
The creditor cannot be compelled to a. Impossible
receive part of one and part of the other b. Unlawful
undertaking. (1131)
 c. Which could not have been the object together with their fruits, and the price with
of the obligation interest. (par. 1, Art 1385)
2. The debtor loses his right of choice when It is the very nature of an alternative
among the prestations, only one is obligation that the debtor can make his choice
practicable. The obligation becomes simple without the consent of the creditor. Hence, the
since there is only one prestation. right given to the debtor to rescind the contract
3. The debtor cannot choose part of one and recover damages, if through the creditor’s
prestation and part of another prestation. fault, he cannot make a choice according to the
*Performance must be COMPLETE (Art. 1199 terms of the obligation.
par. 1) * The debtor, however, is not bound to
rescind.
ARTICLE 1201. The choice shall produce no *Rescission is only an option.*
effect except from the time it has been
communicated. (1133) ARTICLE 1204. The creditor shall have a right
to indemnity for damages when, through the
Communication of notice that choice has been fault of the debtor, all the things which are
made. alternatively the object of the obligation have
1. Effect of notice - Until the choice is made been lost, or the compliance of the obligation
and communicated, the obligation remains has become impossible.
alternative. The indemnity shall be fixed taking as a
2. Proof and Form of Notice - The burden of basis the value of the last thing which
proving that such communication has disappeared, or that of the service which last
been made is upon him who made the became impossible.
choice. Law does not require any Damages other than the value of the
particular form regarding the giving of last thing or service may be awarded. (1135a)
notice. It may, therefore, be made orally or
in writing, expressly or impliedly. Effect of loss of objects of obligation.
1. Some of the objects - If some of the objects
ARTICLE 1202. The debtor shall lose the right of the obligation have been lost or have
of choice when among the prestations become impossible even through the fault of
whereby he is alternatively bound, only one is the debtor, the latter is NOT LIABLE since he
practicable. (1134) has the right of choice and the obligation can
still be performed.
Effect when only one prestation is practicable. 2. All of the objects - If all of them have been
If more than one is practicable, it is Article lost or have become impossible through his
1200 that will apply. The obligation is still fault, the creditor shall have the right to
alternative because the debtor still has the right of indemnity for damages since the obligation
choice. If only one is practicable, the obligation is can no longer be complied with. If the cause
converted into a simple one. of the loss is fortuitous event, the obligation
is extinguished.
ARTICLE 1203. If through the creditor’s acts, Note: If all items are lost through his (Debtor)
the debtor cannot make a choice according to fault, liability will attach; if through a fortuitous
the terms of the obligation, the latter may event, the obligation will be extinguished.
rescind the contract with damages.
Basis of indemnity.
When debtor may rescind contract. The indemnity shall be fixed taking as a
Rescission creates the obligation to return basis the value of the last thing which disappeared
the things which were the object of the contract (obligations to give) or that service which last
became impossible (obligations to do). In case of Rules in case of loss before creditor has made
disagreement, it is incumbent upon the creditor to choice.
prove such value or which thing last disappeared 1. When a thing is lost through a fortuitous
or which service last became impossible. event - creditor can choose from among
Note: Last item/service is always the basis of the remaining items
indemnity. If last item is lost through fortuitous 2. When a thing is lost through debtor’s fault
event = obligation extinguished; If last item is lost - creditor may choose from the remaining
through debtor’s fault = he is liable. items with damages OR demand the
price/value of the lost item also with a right
ARTICLE 1205. When the choice has been to damages
expressly given to the creditor, the obligation 3. When all the things are lost through
shall cease to be alternative from the day when debtor’s fault - creditor can demand the
the selection has been communicated to the payment of the price/value of any of the
debtor. items with a right to damages
Until then the responsibility of the 4. When all the things are lost through a
debtor shall be governed by the following fortuitous event - Article 1174 shall apply.
rules: Obligation is extinguished.
1. If one of the things is lost through a
fortuitous event, he shall perform the ARTICLE 1206. When only one prestation has
obligation by delivering that which the been agreed upon, but the obligor may render
creditor should choose from among the another in substitution, the obligation is called
remainder, or that which remains if only facultative.
one subsists; The loss or deterioration of the thing
2. If the loss of one of the things occurs intended as a substitute, through the
through the fault of the debtor, the negligence of the obligor, does not render him
creditor may claim any of those liable. But once the substitution has been
subsisting, or the price of that which, made, the obligor is liable for the loss of the
through the fault of the former, has substitution on account of his delay,
disappeared, with a right to damages; negligence or fraud.
3. If all the things are lost through the fault
of the debtor, the choice by the creditor FACULTATIVE OBLIGATION.
shall fall upon the price of any one of An obligation where only one prestation
them, also with indemnity for damages. has been agreed upon but the obligor may render
The same rules shall be applied to another in substitution.
obligations to do or not to do in case one,
some or all of the prestations become Effect of loss.
impossible. (1136a) ● Before substitution - If the principal thing
(what is due) is lost through a fortuitous
When right of choice belongs to creditor. event, the obligation is extinguished;
As an exception to the general rule, the otherwise, the debtor is liable for
creditor may have the right of choice if the debtor damages.
expressly gives it to him. In such a case, the ● After substitution - If the principal thing is
provisions with respect to the debtor as laid down lost (whether through his fault or a
in the preceding articles shall be applicable to the fortuitous event), the debtor is NOT liable
creditor when the right of choice is given to him. because it is no longer due. If the
Before the creditor makes the selection, substitute is lost, the liability of the debtor
the debtor cannot incur in delay. depends upon whether or not the loss is
due to his fault.
Note: If the thing due is lost through a fortuitous to render, entire compliance with the
event = obligation extinguished; if through prestation. There is a solidary liability only
debtor’s fault = liable for damages. when the obligation expressly so states, or
when the law or the nature of the obligation
Alternative and Facultative obligations requires solidarity. (1137a)
distinguished.
(1) As to Number of Prestations ARTICLE 1208. If from the law, or the nature
● Alternative - several prestations or the wording of the obligations to which the
are due but compliance with one preceding article refers, the contrary does not
is sufficient appear, the credit or debt shall be presumed to
● Facultative - only one prestation is be divided into as many equal shares as there
due although the debtor is allowed are creditors or debtors, the credits or debts
to substitute it being considered distinct from one another,
(2) As to Right of Choice subject to the Rules of Court governing the
● Alternative - general rule: to the multiplicity of suits. (1138a)
debtor; exception: creditor and third
person can have the right of choice Kinds of obligations according to the number
when expressly granted to him of parties.
● Facultative - only the debtor has the 1. Individual Obligation - there is only one (1)
right to make the substitution obligor or only one (1) obligee
(3) When loss through a Fortuitous Event 2. Collective Obligation - there are two (2) or
● Alternative - obligation not more debtors and / or two (2) or more
extinguished since debtor has the creditors; may be JOINT or SOLIDARY
right of choice and obligation can still
be performed JOINT and SOLIDARY Obligations.
● Facultative - obligation extinguished 1. Joint Obligation - the whole obligation is to
(4) When loss through Fault of Debtor be paid or fulfilled proportionately by the
● Alternative - loss of ONE, debtor NOT debtors and / or is to be demanded
liable (he has the right of choice). proportionately by the different creditors.
When creditor has the right of choice, (Art. 1208)
loss through fault of debtor, debtor is - performance of a debtor shall be
liable separate and distinct from that of
● Facultative - loss of thing due, debtor the other obligors
LIABLE. Loss of substitute thing - “to each his own”; a debtor is only
before substitution, debtor NOT liable liable for his part of the obligation
and a creditor can only demand for
his part of the obligation
SECTION 4. - JOINT AND 2. Solidary Obligation - each one of the
debtors is bound to render, and / or each
SOLIDARY one of the creditors has a right to demand
from any of the debtors ENTIRE
OBLIGATIONS COMPLIANCE with the prestation (Art
1207)
ARTICLE 1207. The concurrence of two or - the whole obligation can be
more creditors or of two or more debtors in performed by either of the obligors
one and the same obligation does not imply - “all for one, one for all”; any of the
that each one of the former has a right to debtors has an obligation to render
demand, or that each one of the latter is bound entire compliance and a creditor
 can demand entire compliance Solidary liability also exists when it is
from any debtor imposed in a final judgement against several
defendants.
Collective Obligation Presumed to be JOINT.
GENERAL RULE: Collective Obligation is Words used to indicate SOLIDARY liability.
presumed to be JOINT unless solidarity is ● Jointly and / or severally
expressly stated. ● Solidaria
● Where there is a plurality of parties (2 or ● In solidum
more debtors and / or 2 or more creditors) ● Together and / or separately
and the share of each in the obligation is ● Individually and / or collectively
specified, the correlative rights and ● Juntos o separadamente
obligations of the parties are known. ● Mancomunada solidaria
● If the share of the debtors (or creditors if
there are many) are not specified, the Kinds of solidarity.
presumption is that the obligation is
JOINT. As a result: 1. According to parties bound:
○ There are as many debts as there a. Passive Solidarity - solidarity on the
are debtors part of the debtors, where any one of
○ There are as many credits as there them can be made liable for the
are creditors fulfillment of the entire obligation. It is
○ The debts and / or credits are in the nature of a mutual guaranty.
considered distinct and separate Note: Any of the debtors will render
from one another ENTIRE COMPLIANCE
○ Each debtor is only liable only to a b. Active Solidarity - solidarity on the part
proportionate part of the debt of the creditors, where any of them can
○ Each creditor is entitled only to a demand the fulfillment of the entire
proportionate part of the credit obligation
!! The debt / credit will be equally divided to Note: Any of the creditors can demand
the number of debtors and creditors ENTIRE COMPLIANCE
c. Mixed Solidarity - solidarity on part of
Words used to indicate JOINT liability. the debtors and creditors, where each
● Jointly one of the debtors is liable to render,
● Conjoint and each one of the creditors has the
● Mancomunada right to demand ENTIRE compliance
● Mancomunadamente with the obligation
● Pro rata Note: Any of the debtors can render
● Proportionately ENTIRELY to any of the creditors
● “We promise to pay” signed by two or more
persons EXAMPLES:

When obligation solidary. a. Passive Solidarity:

Solidary liability is not lightly inferred. Art.
1207 states that there is solidary liability only Solidary debtors A, B, and C are bound to
when: pay creditors X, Y, and Z P12,000.
● the obligation expressly so states
● the law requires Debtors - A, B, C are solidary
● the nature of the obligation Creditors - X, Y, and Z are joint (presumed since
requires solidarity is not stated)
 c. Real Solidarity - solidarity is imposed
Either A, B, or C are liable to pay P12,000 as they by the nature of the obligation
are solidary debtors.
Each of the creditors (X, Y, and Z) can only collect Solidarity NOT presumed.
their share of the obligation. (Joint creditors; The presumption where there are two (2)
P4,000 each) or more persons in the same obligation is that it is
In this example, creditors X, Y, and Z can demand JOINT.
fulfillment from any of the debtors. ( X, Y, Z
demands payment of P4,000 each from B only for REASON: Solidary Obligations are very
the total of P12,000. B on the other hand has the burdensome for they create unusual rights and
right to reimburse from co-debtors A and C what liabilities. (Solidarity between debtors: increase
he had fully paid to the creditors.) responsibility; Solidarity between creditors:
increases right of each creditor.)
b. Active Solidarity: The law tends to favor the debtors in
presuming that they are bound jointly and not
A and B are liable for P10,000 in favor of solidarily.
solidary creditors C and D.
ARTICLE 1209. If the division is impossible,
Debtors A and B are joint (presumed since the right of the creditors may be prejudiced
solidarity is not stated) only by their collective acts, and the debt can
Creditors C and B are solidary be enforced only by proceeding against all the
debtors. If one of the latter should be
Either C or D can collect payments from A and B insolvent, the others shall not be liable for his
(P5,000 each, total of P10,000) and the creditor share.
who’ll collect the payments should reimburse to
the other his share of the obligation. Joint Indivisible Obligation.
The obligation is joint because the parties
c. Mixed Solidarity: are merely proportionately liable. It is indivisible
because the object or subject matter is not
A, B, and C are jointly and severally liable physically divisible into different parts.
to solidary creditors X, Y, and Z for P15,000. It is joint as to liabilities of debtors or rights
of the creditors but indivisible as to compliance.
Any from debtors A, B, C can pay P15,000 fully to
any of creditors X, Y, and Z. ARTICLE 1210. The indivisibility of an
The debtor who will pay on behalf of the others obligation does not necessarily give rise to
can have the right to reimburse what he has fully solidarity. Nor does solidarity of itself imply
paid. The same is true with the creditor who indivisibility.
collected the payment on behalf of the other
creditors. He has the obligation to give the share Indivisibility and Solidarity distinguished.
of the others. 1. Indivisibility refers to the prestation;
Solidarity refers to the juridical or legal tie
2. According to sources: 2. In indivisible obligations, only the debtor
a. Conventional Solidarity - where guilty of breach of obligation is liable for
solidarity is agreed upon by the parties; damages; in solidary obligations, ALL
if solidarity is not mentioned in the debtors are liable for the breach committed
contract, obligation is only joint by one of them
b. Legal Solidarity - solidarity is imposed 3. Indivisibility can exist although there is only
by law one (1) debtor and one (1) creditor; in
 solidarity, there must be at least two (2) ARTICLE 1211. Solidarity may exist although
debtors or two (2) creditors the creditors and debtors may not be bound in
4. In indivisible obligations, the others are not the same manner and by the same periods and
liable in case of insolvency of one (1) debtor; conditions. (1140)
in solidary obligations, the other debtors are
proportionately liable. Kinds of solidary obligation according to the
legal tie.
EXAMPLES: 1. Uniform - parties are bound by the SAME
stipulations
a. Joint Indivisible Obligation: 2. Non-uniform or varied - parties are NOT
SUBJECT to same stipulations
A and B are jointly liable to deliver to C a
particular car. Solidarity NOT affected by diverse
stipulations.
The obligation of A and B is joint, meaning both of 1. Essence of solidarity - consists in the right
them must comply with their parts. However, the of each creditor to enforce the rights of all
prestation (car) is indivisible because a car can’t and the liability of each debtor to answer
be delivered to C in different parts. for the liabilities to all.
2. Action against any of the solidary debtors
b. Solidary Indivisible Obligation: - the creditor may bring his action in toto
(all together) against any of the solidary
A and B obliged themselves to solidarily debtors less the share of the other debtors
give C a yacht. with unexpired terms or unfulfilled
conditions. He can only demand for the
The obligation is indivisible because again the payment of those upon the expiration of
yacht can’t be delivered to C in divided parts. But term or the fulfillment of the condition.
the liability of A and B is solidary, meaning any of 3. Liability of any solidary debtor for entire
them can deliver the object to C. obligation - the parties may stipulate that
any solidary debtor already bound may be
c. Solidary Divisible Obligation: liable for the entire obligation

Y and Z promised in solidium to pay C ARTICLE 1212. Each one of the solidary
P20,000. creditors may do whatever may be useful to
the others, but not anything which may be
Solidary, anyone can comply with the obligation. prejudicial to the latter. (1141a)
Divisible because payment can be made partially
as money is divisible. (ex. Any one from the Act of solidary creditor useful/prejudicial to
debtors can pay a partial amount of P10,000 and others.
the balance will be paid some other time) A solidary creditor may do any act
beneficial or useful to the others (ex. demand
d. Joint Divisible Obligation: fulfillment from debtors) but he cannot perform
any act prejudicial (unfavorable) to them.
Y and Z are jointly liable to pay C P2,000. If he performs such act (ex. Remission,
condonation) and as a result the obligation is
In this case, each debtor (Y and Z) shall pay their extinguished, he shall be responsible to the others
part of the obligation (P1,000 each) for damages.
*Object (money) is divisible.*
RULE: theory of mutual agency (i.e., right of one ARTICLE 1215. Novation, compensation,
to act for and in the name of the others/ right to act confusion or remission of the debt, made by
on behalf of the others) among the solidary any of the solidary creditors or with any of the
creditors solidary debtors, shall extinguish the
obligation, without prejudice to the provisions
EXAMPLE: of Article 1219.
The creditor who may have executed
A owes solidary creditors Y and Z the sum any of these acts, as well as he who collects
of P8,000. the debt, shall be liable to the others for the
share in the obligation corresponding to them.
Y (or Z) may demand for the fulfillment of the (1143)
obligation since such act will benefit Z (or Y).
In case of remission or condonation (cancelation Liability of solidary creditor in case of
of debt) effected by either of the creditors, the NOVATION, COMPENSATION, CONFUSION,
obligation will be extinguished but the one who or REMISSION.
effected the act will have to reimburse the other’s Novation (Art. 1291), compensation (Art.
share. 1278), confusion (Art. 1275), and remission (Art.
1270) are modes or causes of extinguishment of
ARTICLE 1213. A solidary creditor cannot obligations. (Art 1231.)
assign his rights without the consent of the It is but logical that the creditor who
others. executed any of these acts should be liable to the
others for their corresponding shares considering
Assignment by solidary creditor of his rights. that such acts are prejudicial to them. (Art. 1212)
Without the consent given by the others, a
solidary creditor CANNOT assign his rights to a NOTE:
third person. Novation - substitution or change of an obligation
REASON: Each creditor represents the others by another (Art. 1291)
and the assignee may not have the confidence of Confusion - characters of creditor and debtor are
the original solidary creditors considering that the merged in the same person (Art 1275)
assignee may not give the shares of the others Condonation or remission - when creditor
after receiving payment. abandons or gives up his right against the debtor
Note: If the assignment is made to a co-creditor, (Art. 1270)
consent of other creditors is not necessary.
EXAMPLE:
ARTICLE 1214. The debtor may pay any one
of the solidary creditors; but if any demand, A is liable to solidary creditors X, Y, and Z
judicial or extrajudicial, has been made by one in the amount of P30,000. If Y (one of the solidary
of them, payment should be made to him. creditors) validly condones the debt in the amount
(1142a) of P18,000, he shall be liable for P6,000 each to
X and Z.
Payment to any of the solidary creditors.
RULE: Debtor may pay any one of the solidary NOTE: Following the condonation of P18,000
creditors. made by creditor Y, leaves A liable to pay the
EXCEPTION TO RULE: When one of the remaining amount of P12,000 to fully satisfy his
creditors made a demand (judicial or obligation. As solidary creditors, each is entitled to
extrajudicial), payment should be made to him. collect P10,000. Given that A is now only liable for
P12,000, creditor Y must pay an additional P6,000
each to creditors X and Z to satisfy their claims.
 before the debt is due, no interest for the
!! P12,000 / 3 = P4,000; X and Z are intervening period may be demanded.
P6,000 short. Y then will have to reimburse them When one of the debtors cannot,
the deficit (P6,000 each). because of his insolvency, reimburse his
share to the debtor paying the obligation, such
Effect of Novation, etc. where obligation joint. share shall be borne by all his co-debtors, in
In a joint obligation, causes of modification proportion to the debt of each.
or extinction DOES NOT extinguish or modify the
obligation except with the respect to the creditor Effect of payment by a solidary debtor.
or debtor affected, without extending its operation 1. Between the solidary debtors and creditor(s)
to any other part of the debt or the credit. - Payment made by one of the solidary
debtors extinguishes the obligation.
ARTICLE 1216. The creditor may proceed (payment must be full)
against any one of the solidary debtors or - If two or more solidary debtors offer to
some or all of them simultaneously. The pay the entire obligation, it is up to the
demand made against one of them shall not be creditor to choose which offer to
an obstacle to those which may subsequently accept.
be directed against the others, so long as the 2. Among the solidary debtors
debt has not been fully collected. - After paying the debt, the solidary
debtor who paid on behalf of the others
Right of creditor to proceed against any can demand reimbursement from his
solidary debtor. co-debtors for their proportionate
- The above provision DOES NOT apply to a shares with (legal) interest only from
joint obligation. the time of the payment.
- It reiterates the rule that in a solidary - The payment by one of the debtors
obligation (passive solidarity), any one or creates a joint obligation of
some or all the solidary debtors reimbursement on the part of the co-
simultaneously may be made to pay the debt debtors.
so long as it has not been fully collected. - In case of insolvency of any of the
- It is up to the solidary creditor to determine solidary debtors, the others assume
against whom he will demand payment. the share of the insolvent pro rata.
- If creditor made a demand against any of the 3. Among the solidary creditors
debtors, the one demanded performance - The solidary creditor who collected the
cannot require the creditor to also make a payment on behalf of the others is
demand on his co-debtor or to include them jointly liable to give the latter’s
as party defendants. Creditor has the right to corresponding shares.
proceed against any one of them.
- The paying debtor is entitled to ARTICLE 1218. Payment by a solidary debtor
reimbursement from his co-debtors shall not entitle him to reimbursement from his
co-debtors if such payment is made after the
ARTICLE 1217. Payment made by one of the obligation has prescribed or become illegal.
solidary debtors extinguishes the obligation. If
two or more solidary debtors offer to pay, the Effect of payment after obligation has
creditor may choose which offer to accept. prescribed or become illegal.
He who made the payment may claim GENERAL RULE: Solidary debtor who paid the
from his co-debtors only the share which entire obligation is entitled to reimbursement from
corresponds to each, with the interest for the his co-debtors.
payment already made. If the payment is made
EXCEPTION: There are two (2) cases wherein
the paying debtor CANNOT get any Y and Z are liable in solidum to W in the
reimbursement: amount of P2,000.
a. The obligation has already prescribed
b. The obligation has become illegal If W remitted Y’s share and subsequently, Z paid
the whole amount of P2,000, Z is not entitled to a
EXAMPLE: reimbursement from Y. Why? Because the
remission already extinguished the obligation with
1. A and B are solidary debtors of J in the respect to Y’s share. Z, on the other hand, can
amount of P100,000. The debt prescribed. demand the return of P1,000 from W under the
If A, knowing that the debt has prescribed, still principle of solutio indebiti.
paid the whole amount of P100,000 to J, he
cannot collect from B his corresponding share If Z paid the whole amount of P2,000 before W
from the obligation because the payment was decided to remit Y’s share, Y is liable to Z because
made after the debt has prescribed. the remission is without effect.The obligation was
REASON: “When a right to sue upon a civil extinguished by the payment.
obligation has lapsed by extinctive prescription,
the obligor (debtor) cannot recover what he has ARTICLE 1220. The remission of the whole
delivered or the value of the services he has obligation obtained by one of the solidary
rendered.” (Art. 1424.) debtors, does not entitle him to
reimbursement from his co-debtors.
Prescriptive periods of actions.
“By prescription, one acquires ownership No right to reimbursement in case of
and other rights through the lapse of time in the remission.
manner and under the conditions laid down by The debtor WHO obtains remission pays
law. In the same way, rights and actions are lost nothing to the creditor.
by prescription.” (Art. 1106) In case of novation, compensation, or
confusion (Art. 1215), the debtor with whom it is
ARTICLE 1219. The remission made by the effected is entitled to recover from his co-debtors
creditor of the share which affects one of the their corresponding shares of the obligation.
solidary debtors does not release the latter
from his responsibility towards the co- ARTICLE 1221. If the thing has been lost or
debtors, in case the debt had been totally paid if the prestation has become impossible
by anyone of them before the remission was without the fault of the solidary debtors, the
effected. obligation shall be extinguished.
If there was fault on the part of any one
Effect of remission of share after payment. of them, all shall be responsible to the
If the payment is made first, the remission creditor, for the price and the payment of
or waiver is of no effect. Paying debtor will have damages and interest, without prejudice to
the right to reimbursement from other debtor(s) their action against the guilty or negligent
affected by the remission. debtor.
If remission is made before the payment, If through a fortuitous event, the thing
the paying solidary debtor will not be entitled to is lost or the performance has become
reimbursement. He can however ask the creditor impossible after one of the solidary debtors
to return the share of the other debtor under the has incurred in delay through the judicial or
principle of solutio indebiti. extrajudicial demand upon him by the creditor,
the provisions of the preceding paragraph
EXAMPLES: shall apply. (1147a)
 - If the action by C is against B who was
Rules in case thing has been lost or prestation insane at the time the obligation was
has become impossible. contracted, B can put up the defense of
If the thing is lost or the prestation insanity with respect to the entire
becomes impossible, the liability of the solidary obligation. The said defense is personal
debtors depends upon whether or not there is fault to B alone and it is a complete defense.
or delay. - If for example, the portion of the
1. Loss is WITHOUT fault and before delay obligation affecting B is subject to a
- The obligation shall be suspensive condition which has not yet
EXTINGUISHED happened, the non-fulfillment of the
2. Loss is due to fault on the part of a solidary condition is a partial defense as it can be
debtor set up by B only with respect to his
- All shall be responsible to the share. C can demand from B the portion
creditor for the price and payment of the obligation pertaining to A’s share
of damages and interest. Co- as they are solidary debtors.
debtors are entitled to reimburse 3. Defenses personal to other solidary debtors.
from the guilty debtor. - In the two preceding examples, only B
3. Loss is without fault but AFTER delay can be exempt from his liability because
- Same rule with situation 2 of the defense of insanity or non-
fulfillment of the suspensive condition.
ARTICLE 1222. A solidary debtor may, in A, on the other hand, can set up a partial
actions filed by the creditor, avail himself of all defense as regards the proportionate
defenses which are derived from the nature of share of B who was insane the time the
the obligation and of those which are personal obligation was contracted. As a result,
to him, or pertain to his own share. With he shall only be liable for his share
respect to those which personally belong to (P5,000).
the others, he may avail himself thereof only
as regards that part of the debt for which the
latter are responsible. (1148a) SECTION 5. — Divisible
Defenses available to a solidary debtor. and Indivisible Obligations
1. Defenses derived from the nature of the
obligation. ARTICLE 1223. The divisibility or indivisibility
- Defense derived from the nature of the of the things that are the object of obligations
obligation is a complete defense as it in which there is only one debtor and only one
nullifies the obligation or renders it creditor does not alter.
ineffective.
EXAMPLE: Divisible and indivisible obligations.
- A and B are solidarily liable to C in the (1) A divisible obligation is one the object of
amount of P10,000. The entire debt was which, in its delivery or performance, is
paid by J (a third person). If C filed an capable of partial fulfillment.
action against A, the latter can raise the (2) An indivisible obligation is one the object of
defense of payment by virtue of which the which, in its delivery or performance, is not
obligation was extinguished. capable of partial fulfillment.

2. Defenses personal to, or which pertain to Kinds of division.

share of, debtor sued.
 (1) Qualitative division or one based However, even though the object or
on quality, not on number or quantity of the things service may be physically divisible, an
that are the object of the obligation. obligation is indivisible if so provided by law
(2) Quantitative division or one based or intended by the parties. In obligations not
on quantity rather than on quality to do, divisibility or indivisibility shall be
(3) Ideal or intellectual division or one determined by the character of the prestation
which exists only in the minds of the parties. in each particular case. (1151a)

Kinds of indivisibility Obligations deemed indivisible.

(1) Legal indivisibility. — where a The purpose of the obligation is the
specific provision of law declares as indivisible, controlling circumstance. This rule applies not
obligations which, by their nature, are divisible only to obligations to give but also to those of
(2) Conventional indivisibility. — doing or not doing.
where the will of the parties makes as indivisible, (1) Obligations to give definite things
obligations which, by their nature, are divisible (2) Obligations which are not
(Ibid.); and susceptible of partial performance
(3) Natural indivisibility. — where the (3) Obligations provided by law to be
nature of the object or prestation does not admit indivisible even if thing or service is physically
of division, divisible
(4) Obligations intended by the parties
ARTICLE 1224. A joint indivisible obligation to be indivisible even if thing or service is
gives rise to indemnity for damages from the physically divisible
time anyone of the debtors does not comply
with his undertaking. The debtors who may Obligations deemed divisible.
have been ready to fulfill their promises shall (1) Obligations which have for their object the
not contribute to the indemnity beyond the execution of a certain number of days of
corresponding portion of the price of the thing work
or of the value of the service in which the (2) Obligations which have for their object the
obligation consists. (1150) accomplishment of work by metrical units
(3) Obligations which by their nature are
Effect of non-compliance by a debtor in a joint susceptible of partial performance
indivisible obligation.
If any one of the debtors does not comply Divisibility or indivisibility in obligations not to
with his undertaking in a joint indivisible obligation, do.
the obligation is transformed into one for In negative obligations not to do, the
damages, character of the prestation in each particular case
shall determine their divisibility or indivisibility.
ARTICLE 1225. For the purposes of the (1) Indivisible obligation. — X obliged
preceding articles, obligations to give definite himself to Y not to sell cigarettes in his store for
things and those which are not susceptible of one year. Here, the obligation should be fulfilled
partial performance shall be deemed to be continuously during a certain period
indivisible. (2) Divisible obligation. — If the obligation
When the obligation has for its object of X is not to sell cigarettes in his stores only
the execution of a certain number of days of during Sundays and holidays, the obligation is
work, the accomplishment of work by metrical divisible because the forbearance is not
units, or analogous things which by their continuous.
nature are susceptible of partial performance,
it shall be divisible.
 Obligations “to do” and “not to do” are the consequences of such breach as
generally indivisible. onerous as it may be possible.
- the purpose is reparation
(2) To substitute a penalty for the indemnity for
Section 6. — Obligations damages and the payment of interest in case
of non-compliance or to punish the debtor for
with a Penal Clause the non-fulfillment or violation of his
obligation
- the purpose is punishment
ARTICLE 1226. In obligation with a penal
clause, the penalty shall substitute the
Penal clause and condition distinguish.
indemnity for damages and the payment of
(1) The penal clause constitutes an obligation
interest in case of noncompliance, if there is
although accessory, while the condition does not.
no stipulation to the contrary. Nevertheless,
(2) The penal clause may become
damages shall be paid if the obligor refuses to
demandable in default of the unperformed
pay the penalty or is guilty of fraud in the
obligation and sometimes jointly with it, while the
fulfillment of the obligation.
condition is never demandable.
The penalty may be enforced only when
it is demandable in accordance with the
Kinds of penal clause.
provisions of this code. (1152a)
(1) As to its origin;
(a) Legal penal clause - penalty imposed
PRINCIPAL and ACCESSORY obligations.
by law
(1) Principal Obligation- is one which can stand
(b) Conventional penal clause - when it is
by itself and does not depend for its validity
provided for by the agreement of the
and existence upon another obligation.
parties.
(2) Accessory Obligation- is one which is
(2) As to its purpose;
attached to a principal obligation and,
(a) Compensatory penal clause - it is set
therefore, cannot stand alone.
for the purpose of indemnifying the
damages suffered by one party.
Obligation with a penal clause.
(b) Punitive penal clause - as punishment
Is one which contains an accessory
in case of breach.
undertaking to compel the parties to perform what
(3) As to its effect;
is incumbent upon them in case of breach of the
(a) Subsidiary or alternative penal clause -
principal prestation, intended primarily to induce
if only the penalty will be enforced in
its fulfillment.
case of breach.
(b) Joint or cumulative penal clause - both
Meaning of penal clause.
the principal and obligation should be
A penal clause is an accessory
performed in case of breach.
undertaking to assume greater liability in case of
breach, to insure performance of the obligation. It
Penalty substitutes for damages and interest.
is a form of guaranty for the fulfillment of an
The general rule is that, the penalty serves
obligation by establishing an aggravation of
as a substitute for the indemnity for damages and
responsibility.
the payment of interest in case of non-compliance.
(Art. 1226.) Proof of actual damages is not
Purposes of penal clause.
necessary. The penalty itself constitutes the
(1) The general purpose of a penal clause is to
damage, thus as long as it has been agreed upon,
insure their performance by creating an
the proof of damage is not needed. (Art. 1228).
effective deterrent against breach, making
When creditor may recover damages. obligation. The purpose of the penalty is to secure
The creditor, in addition to penalty, may compliance with his obligation.
recover damages and interest: The debtor can exempt himself from the
(1) When there is a stipulation to the non-fulfillment of the obligation an only when “the
contrary; right has been expressly reserved for him”
(2) When the obligor is sued for refusal to
pay the agreed penalty; EXAMPLE:
(3) When the obligor is guilty of fraud. The Juan promises to finish the house of Anna
obligee can recover from the former not only the within a stipulated period of 8 months. The
penalty, but also other damages resulting from the contract stipulates that in case he does not build
non-fulfillment of the obligation. the house at all, he is supposed to forfeit the sum
of 100,000 pesos.
When penalty may be enforced. In this case, as a general rule, Juan as the
The penalty may be enforced only when it contractor cannot just give the sum of 100,000 to
is demandable in accordance with the provisions Anna as the substitute for the non-performance of
of the Civil Code. It means that the penalty, as for the obligation. The exemption is when Juan is
agreement, is demandable only if there is a expressly given the right by Anna to do so.
breach of the obligation and is not contrary to law,
morals, good custom, public order, or public Penal clause presumed subsidiary.
policy. (Art. 1306) As a general rule, the creditor cannot
Thus, if the obligation cannot be fulfilled demand the penalty and the fulfillment of the
due to a fortuitous event, the penalty is not obligation at the same time. The primary purpose
demandable. The penalty may be reduced if it is of the penalty is to urge the debtor to the
unfair and morally wrong or in case there is a performance of the main obligation.
partial or irregular fulfillment. (1) When there is performance- Once the
obligation is fulfilled, this purpose is attained and,
ARTICLE 1227. The debtor cannot exempt therefore, there is no need for demanding the
himself from the performance of the obligation penalty. The exception arises when “this right has
by paying the penalty, save in the case where been clearly granted” the creditor. As the general
this right has been expressly reserved for him. rule, the penal clause is subsidiary and not joint.
Neither can the creditor demand the fulfillment (2) Where there is no performance- If the
of the obligation and the satisfaction of the debtor fails in the performance of his obligation,
penalty at the same time, unless this right has (non-performance, inadequate performance, late
been clearly granted him. However, if after the or incomplete performance) the creditor can
creditor has decided to require the fulfillment request performance of that obligation or claim
of the obligation, the performance thereof compensation. The remedies are alternative and
should become impossible without his fault, not cumulative nor successive, subject to the
the penalty may be enforced. (1153a) exception that the penalty may be enforced if after
the creditor has decided to require fulfillment, the
Penalty is not a substitute for performance. same should become impossible without his fault.
The debtor who failed to perform the The creditor may recover the penalty as well as
obligation which is incumbent upon him cannot damages for non-fulfillment if there was a fraud on
exculpate himself from the performance of the the part of the debtor.
main obligation by the payment of the penalty
provided by the penal clause except when the When penal clause joint.
agreement so specifically provides that said The debtor has the right to pay penalty in
payment will actually extinguish the main lieu of performance only when this right has been
expressly reserved for him. (supra (1) When there is partial or irregular
compensatory). performance- The first refers to the extent of the
With respect to the creditor, he has the fulfillment, the latter, to the manner. The penalty
right to demand performance and payment of should be more or less proportionate with the
penalty jointly when the right has been clearly extent of the breach of contract or of the damage
granted by him. Therefore, it is not required that suffered.
this right be expressly reserved for him. Thus, (2) When penalty agreed upon is
when a penalty is stipulated for default in an iniquitous or unconscionable - Here, the penalty
obligation to pay a sum of money, the creditor can may be reduced even if there is no performance
demand both the principal obligation and the at all. Even if iniquitous or unconscionable,
penalty with legal interest on the amount of the liquidated damages, whether intended as an
penalty from the date of demand where the debtor indemnity or as a penalty, are not void, but subject
refuses to pay the penalty. merely to equitable reduction.

ARTICLE 1228. Proof of actual damages ARTICLE 1230. The nullity of the penal clause
suffered by the creditor is not necessary in does not carry with it that of the principal
order that the penalty may be demanded. (n) obligation.
The nullity of the principal obligation
Penalty demandable without proof of actual carries with it that of the penal clause. (1155)
damages.
In an obligation with a penal clause all that Effect of nullity of the penal clause.
the creditor has to prove, to enforce the penalty, The general principle that the accessory
the violation of the obligation by the debtor. There follows the principal and not vice versa is
is no need to prove that there was actual damages illustrated in the above article.
and losses suffered by the creditor as it is enough When the penal clause is declared or
that there is a stipulation in the contract. One of becomes unlawful, the principal obligation is the
the reasons of fixing the penalty is to avoid such one that turns out to be null and void, the penal
necessity and other difficulties involved in clause goes with it.
litigations.
As a result, the creditor may enforce the Effect of nullity of the principal obligation.
penalty whether he suffered damages or not. If the principal obligation is void, the penal
However, he cannot recover more than the clause is also void. The reason is that the clause
stipulated penalty and in addition, he must prove cannot stand alone.
the amount of such damages which he actually But if the nullity of the principal obligation is due to
suffered resulting from the breach of the principal the fault of the debtor, who acted in bad faith, by
obligation. reason of which the creditor suffered damages, on
equitable grounds, the penalty may be enforced.
ARTICLE 1229. The judge shall equitably
reduce the penalty when the principal
obligation has been partly or irregularly Chapter 4
complied with by the debtor. Even if there has
been no performance, the penalty may also be
reduced by the courts if it is iniquitous or
EXTINGUISHMENT
unconscionable.
OF OBLIGATIONS
When the penalty may be reduced by the
courts.
GENERAL PROVISIONS
 ARTICLE 1233. A debt shall not be understood
ARTICLE 1231. Obligations are extinguished: to have been paid unless the thing or service
(1) By payment or performance; in which the obligation consists has been
(2) By the loss of the thing due; completely delivered or rendered, as the case
(3) By the condonation or remission of may be. (1157)
the debt;
(4) By the confusion or merger of the When debt is considered paid.
rights of creditor and debtor; A debt may refer to an obligation to deliver
(5) By compensation; money, to deliver a thing (other than money), to
(6) By novation. do an act, or not to do an act.
Other causes of extinguishment of (1) Integrity of prestation - A debt to deliver a
obligations, such as annulment, rescission, thing (including money) or to render
fulfillment of a resolutory condition, and service is not understood to be paid unless
prescription, are governed elsewhere in this the thing or service in which the obligation
Code. (1156a) consists has been completely delivered or
rendered, as the case may be. Partial or
Causes of extinguishment of obligations. irregular performance will not produce
In addition to those enumerated in Article the extinguishment of an obligation as a
1231, other causes are: general rule.
(1) Death of a party in case of an obligation (2) Identity of the prestation - The prestation
requiring personal service (Art. 1311, par. must be fulfilled and complete.
1.); When the existence of a debt is
(2) Mutual desistance or withdrawal. admitted by the debtor or established by
(3) Arrival of resolutory period (Art. 1193, par. the evidence of the creditor, the burden of
2.); proving extinguishment by payment
(4) Compromise (Art. 1266); and, devolves upon the debtor who claims
(5) Happening of a fortuitous event. (Art. 1174.) payment.

ARTICLE 1234. If the obligation has been

SECTION 1. - Payment or substantially performed in good faith, the
obligor may recover as though there had been
Performance a strict and complete fulfillment, less damages
suffered by the obligee.

ARTICLE 1232. Payment means not only the

Recovery allowed in case of substantial
delivery of money but also the performance, in
performance in good faith.
any other manner, of an obligation.
Article 1234 is the first exception to the rule
laid down in Article 1233. The reason for the
Meaning of payment.
exception given by the Code Commission is as
(1) In ordinary parlance, payment refers only
follows:
to the delivery of money.
The above rule (Art. 1234) is adopted from
(2) Payment may consist of not only in the
American Law. Its fairness is evident. In case of
delivery of money but also the giving of a
substantial performance, the obligee is benefited.
thing (other than money), the doing of an
So the obligor should be allowed to recover as if
act, or not doing of an act.
there had been a strict and complete fulfillment
less damages suffered by the obligee. This last
In law, payment and performance are
condition affords a just compensation for the
synonymous.
relative breach committed by the obligor.” (Report (2) In case of acceptance, the law considers that
of the Code Commission, p.131). he waives his right. The whole obligation is
- When there is substantial extinguished.
compliance in good faith, the law
considers the debt as paid. Requisites for the application of Article 1235.
(1) The obligee (creditor) knows that the
Requisites for the application Article 1234. performance is incomplete or irregular;
The requisites are: and
(1) There must be substantial (2) He accepts the performance without
performance; expressing any protest or objection.
- Substantial performance means
fulfilment of the obligations agreed ARTICLE 1236. The creditor is not bound to
to in a contract, with only slight accept payment or performance by a third
variances from the exact terms person who has no interest in the fulfillment of
and/or performance unimportance the obligation, unless there is a stipulation to
omission or minor defects. the contrary.
- The contract is subject to
rescission or cancellation. Whoever pays for another may demand from
(2) The obligor must be in good faith the debtor what he has paid, except that if he
- Allows only a proportionate paid without the knowledge or against the will
reduction in the amount of the debtor, he can recover only insofar as
recoverable by the obligor. the payment has been beneficial to the debtor.

Good faith is always presumed in the Persons from whom the creditor must accept
absence of proof to the contrary. payment.
The creditor is bound to accept payment or
ARTICLE 1235. When the obligee accepts the performance from the following:
performance knowing its incompleteness or (1) The debtor;
irregularity, and without expressing any (2) Any person who has an interest in the
protest or objection, the obligation is deemed obligation
fully complied with. (3) A third person who has no interest in
the obligation when there is stipulation
Recover allowed when Incomplete or irregular that he can make payment.
performance is waived.
The above provision is the other exception Creditor may refuse payment by a third
to article 1233. It is founded on the principle of person.
estoppel. The creditor, generally, cannot be
compelled to accept payment made by a person
Estoppel. outside the agreement, who is not a co-debtor,
A judicial doctrine that exists in various guarantor or joint debtor or who is otherwise not
common law jurisdictions. Its purpose is to interested in the fulfillment of the obligation. The
achieve equity in contractual matters by creditor can also reject the payment if he may not
preventing (estopping) a person from going back have confidence in the honesty of the third person
on their word. who might deliver a defective thing or pay with a
(1) The creditor may properly reject if the check which may not be honored.
payment is incomplete or irregular.
Effect of payment by a third person.
 The second paragraph of Article 1236 they may be guarantors or possessor of
recognizes that payment or performance may be mortgages.
made by any person not incapacitated, even - There is no real extinction of the
without the knowledge or against the will of the obligation, but only a change of
debtor, and although he has absolutely no interest creditor.
in the obligation. (2) Reimbursement- The third person entitled
(1) If made without the knowledge or against by reason of payment has merely the bare
the will of the debtor right to be refunded to the extent provided
- The payer can recover from the in the second paragraph of Article 1236
debtor only insofar as the payment without the right to the guarantees and
has been beneficial to the latter. securities of the original obligation.
- In other words, the recovery is only
up to the extent or amount of the ARTICLE 1238. Payment made by a third
debt at the time of payment. person who does not intend to be reimbursed
(2) If made with the knowledge of the debtor - by the debtor is deemed to be a donation,
The payer shall have the rights of which requires the debtor's consent. But the
reimbursement and subrogation, that is, to payment is in any case valid as to the creditor
recover what he has paid (not necessarily who has accepted it.
the amount of the debt) and to acquire all
the rights of the creditor. Payment by a third person who does not
intend to be reimbursed.
ARTICLE 1237. Whoever pays on behalf of the The article 1238 embodies the idea that no
debtor without the knowledge or against the one should be compelled to accept the
will of the latter, cannot compel the creditor to generosity of another. If the paying third person
subrogate him in his rights, such as those does not intend to be reimbursed, the payment is
arising from a mortgage, guaranty, or penalty. deemed a donation which requires the debtor’s
(1159a) consent to be valid.
However, if the creditor accepts the
Right of third person to subrogation. payment, it shall be valid as to him and the payor
Whoever pays on behalf of the debtor is although the debtor did not give his consent to the
entitled to subrogation if the payment is with the donation.
consent of the latter. (Art. 1237, 1302 [2]). If the
payment is without the knowledge or against the ARTICLE 1239. In obligations to give, payment
will of the debtor, the third person cannot compel made by one who does not have the free
the creditor to subrogate him in the latter’s disposal of the thing due and capacity to
accessory rights of mortgage, guaranty, or alienate it shall not be valid, without prejudice
penalty. to the provisions of article 1427 under the Title
on "Natural Obligations." (1160a)
Subrogation and reimbursement
distinguished. Meaning of “free disposal of the thing due”
(1) Subrogation- The person who pays for the and “capacity to alienate”
debtor is put into the shoes of the creditor. (1) Free disposal of the thing due - means that
The payor acquires not only the right to be the thing to be delivered must not be
reimbursed for he has paid but also all subject to any claim or lien or
other rights which the creditor could have encumbrance.
exercised pertaining to the credit either (2) Capacity to alienate - means that the
against the debtor or against third persons, person is not incapacitated to eneter into
 contracts and for that matter, to make a ARTICLE 1241. Payment to a person who is
disposition of the thing due. incapacitated to administer his property shall
be valid if he has kept the thing delivered, or
Free disposal of thing due and capacity to insofar as the payment has been beneficial to
alienate required. him.
As a general rule, in obligations to give, Payment made to a third person shall
payment by one who does not have the free also be valid insofar as it has redounded to the
disposition of the thing dues and capacity to benefit of the creditor. Such benefit to the
alienate it is not valid. This means that the thing creditor need not be proved in the following
paid can be recovered. cases:
The exception is provided in Article 1427.
The creditor cannot be compelled to accept (1) If after the payment, the third person
payment where the person paving has no capacity acquires the creditor’s rights;
to make it. (2) If the creditor ratifies the payment to
the third person;
ARTICLE 1240. Payment shall be made to the (3) If by the creditor’s conduct, the debtor
person in whose favor the obligation has been has been led to believe that the third
constituted, or his successor in interest, or person has authority to receive the
any person authorized to receive it. (1162a) payment. (1163a)
Effect of payment to an incapacitated person.
Person to whom payment shall be made. Payment to a person incapacitated to
Payment shall be made to: administer or manage his property is not valid
(1) The creditor at the time of the payment. unless such incapacitated person kept the thing
This refers to in the phrase “to the person paid or delivered (so that it is not necessary that it
in whose favor the obligation has been should have been invested in some profitable
constituted. venture), or was benefited by the payment.
(2) To the successor-in-interest of the In the absence of this benefit, the debtor
creditor. may be made to pay again by the creditor’s
(3) To any person who bears the authority to guardian or by the incapacitated person himself
receive such payment. A person acquires when he acquires or recovers his capacity. Proof
authority to receive payment by virtue of of such benefit is incumbent upon the debtor who
an agreement or by law or any person paid.
authorized to receive it.
Effect of payment to a third person.
Meaning of “any person authorized to receive Payment to a third person or wrong party
it” is not valid except insofar as it has redounded to
It means not only a person authorized by the benefit of the creditor.
the creditor, but also a person authorized by law That the creditor was benefited by the
to receive the payment, such as a guardian, payment made by the debtor to a third person is
executor or administrator of the state of a not presumed and must, therefore, be
deceased, and assignee or liquidator of a satisfactorily established by the person interested
partnership or corporation as well as any other in proving this fact. In the absence of such proof,
person who may be authorized to do so by law. the payment thereof in error and in good faith will
Payment in good faith to any person in not deprive the creditor of his right to demand
possession of the credit is valid although such payment.
person may not be authorized to receive the
payment. When benefit to creditor need not be proved
by debtor.
 But the debtor is relieved from proving by the court (or by any competent authority though
benefit to the creditor in case of: it be administrative) to retain the debt until the right
(1) Subrogation of the prayer in the creditor’s of the plaintiff, the creditor in the main litigation, is
rights; resolved.
(2) Ratification by the creditor; or Payment made subsequently by the
- Ratification means to approve or debtor-stranger shall not be valid if the plaintiff
enact a legally binding act that wins the case and cannot collect from the debtor
would not otherwise be binding in to whom the payment is made. Such payment is
the absence of such approval. considered as made in bad faith.
(3) Estoppel on the part of the creditor The benefit granted by Article 1243 can
The benefit to the creditor is to only be invoked by the creditor who secures the
presumed. Through estoppel, an order of retention.
admission or representation is rendered
conclusive upon the person making it and Garnishment of debtor’s credit.
cannot be denied or disapproved as Garnishment means the proceeding by
against the person relying thereon. which a debtor’s creditor is subjected to the
payment of his own debt to another.
ARTICLE 1242. Payment made in good faith to
any person in possession of the credit shall ARTICLE 1244. The debtor of a thing cannot
release the debtor. (1164) compel the creditor to receive a different one,
although the latter may be of the same value
Payment to third person is possession of as, or more valuable than that which is due.
credit. In obligations to do or not to do, an act
This article gives another instance when or forbearance cannot be substituted by
there is valid payment to a third person. another act or forbearance against the
It must be observed that the “possession” obligee’s will. (1166a)
referred to under the above provision is
possession of the credit itself and not merely of Very prestation due must be complied with.
the document or instrument evidencing the credit. (1) The first paragraph refers to a real
Possession of credit does not refer to the real obligation to deliver a specific thing. A thing
creditor or his heirs, or the person authorized by different from that due cannot be offered or
him or by law under Article 1240. It refers to the demanded against the will of the creditor or
person who has the appearance of the creditor but debtor, as the case may be.
who actually is not. (2) The second paragraph refers to
Furthermore, the payer must act in good personal (positive and negative) obligations.
faith, that is, in the honest belief that he is making The act to be performed or the act prohibited
a valid payment and that the payee is the owner cannot be substituted against the obligee’s will.
of the credit. Good faith, however, is presumed (see Art. 1167.)

ARTICLE 1243. Payment made to the creditor When prestation may be substituted.
by the debtor after the latter has been Substitution can be made if the obligee
judicially ordered to retain the debt shall not consents. In facultative obligations, the debtor is
be valid. (1165) given the right to render another prestation in
substitution. (Art. 1206.)
When payment to creditor is not valid. Article 1244 will not also apply in case of
In an action against the debtor who is the waiver by the creditor or substitution is allowed by
creditor of another, the latter (the debtor-stranger), stipulation with the consent of the creditor.
during the pendency of the case, may be ordered
ARTICLE 1245. Dation in payment, whereby purpose of the obligation and other
property is alienated to the creditor in circumstances shall be taken into
satisfaction of a debt in money, shall be consideration. (1167a)
governed by the law of sales. (n)
Rule of the medium quality.
Specific forms of payment. If the obligation consists in the delivery of
There are four special forms of payment a specific thing, the very thing due must be
under the Civil Code, namely: delivered. However, if the obligation is to deliver a
(1) dation in payment (Art. 1245.); generic thing, the purpose of the obligation and
(2) application of payments (Art. other circumstances shall be taken into
1253.); consideration to determine the quality or kind of
(3) payment by cession (Art. thing to be delivered.
1255.); and
(4) tender of payment and ARTICLE 1247. Unless it is otherwise
consignation. (Arts. 1256-1261.) stipulated, the extrajudicial expenses required
Strictly speaking, application of payments by the payment shall be for the account of the
is not a special form of payment. debtor. With regard to judicial costs, the Rules
of Court shall govern. (1168a)
Meaning of dation in payment.
Dation in payment (adjudication or dacion General rule: The debtor has to pay for the
en pago) means a mode of discharging a debt or extrajudicial expenses incurred during the
claim by the debtor's giving to the creditor with the payment. It is the debtor who benefits primarily,
latter's consent something in full satisfaction of the since his obligation is thus extinguished.
obligation but of a character different from that Exception: When there is a stipulation to the
originally called for by the obligation. It is a special contrary.
form of payment because it is not the ordinary way
of extinguishing an obligation. Debtor pays for extrajudicial expenses.
The extrajudicial expenses of payment are
Governing law. for the account of the debtor. The reason is that
The law of sales governs because dation the obligation is extinguished when payment is
in payment may be considered a species of sale made and it is, therefore, the debtor who is
in which the amount of the money debt becomes primarily benefited.
the price of the thing alienated. (see Art. 1619.) If the parties have made a stipulation as to
In its modern concept, what actually takes who will bear the expenses, then their stipulation
place in dacion en pago is an objective novation shall be followed. Article 1247 does not apply to
of the obligation (see Art. 1291[1].) where the expenses incurred by the creditor in going to the
thing offered as an accepted equivalent of the debtor’s domicile to collect. (Art. 1251.)
performance of an obligation is considered as the
object of the contract of sale, while the debt is Losing party generally pays judicial costs.
considered as the purchase price. In any case, Judicial costs are the statutory amounts
common consent. allowed to a party to an action for his expenses
incurred in the action. Under the Rules of Court
ARTICLE 1246. When the obligation consists (Sec. 1, Rule 142.), the costs of an action shall, as
in the delivery of an indeterminate or generic a rule, be paid by the losing party. The court may,
thing, whose quality and circumstances have however, for special reasons, adjudge that either
not been stated, the creditor cannot demand a party shall pay the costs, or that the same be
thing of superior quality. Neither can the divided, as may be equitable.
debtor deliver a thing of inferior quality. The
 No costs are allowed against the executed simultaneously but each successive
Government, unless otherwise provided by law. execution thereof must be complete.

ARTICLE 1248. Unless there is an express ARTICLE 1249. The payment of debts in
stipulation to that effect, the creditor cannot money shall be made in the currency
be compelled partially to receive the stipulated, and if it is not possible to deliver
prestations in which the obligation consists. such currency, then in the currency which is
Neither may the debtor be required to make legal tender in the Philippines. The delivery of
partial payments. promissory notes payable to order, or bills of
However, when the debt is in part exchange or other mercantile documents shall
liquidated and in part unliquidated, the produce the effect of payment only when they
creditor may demand and the debtor may have been cashed, or when through the fault
effect the payment of the former without of the creditor they have been impaired.
waiting for the liquidation of the latter. (1169a) In the meantime, the action derived
from the original obligation shall be held in
Performance of obligation should be abeyance. (1170)
complete.
The above provision contemplates Legal tender.
obligations where there is only one creditor and Legal Tender means it is that which a
only one debtor. Joint and several obligations are debtor may compel a creditor to accept in
governed by Articles 1207 to 1222. (Chap. 3.) The payment of the debt (whether public or private)
prestation, i.e., the object of the obligation, must
be performed in one act, not in parts. Legal tender in the Philippines.
In order that payment may extinguish an Debts in money shall be paid in the
obligation, it is necessary that there be complete
currency stipulated. In the Philippines, all coins
performance of the prestation. (Art. 1233.) The and notes issued by the Bangko Sentral ng
creditor may accept but he cannot be compelled Pilipinas constitute legal tender for all debts, both
to accept partial payment or performance. The
public or private.
debtor has the duty to comply with the whole of
the obligation but he cannot be required to make Payment by means of instruments of credits.
partial payments if he does not wish to do so. (1) Right of creditor to refuse or accept. —
Promissory notes, checks, bills of exchange and
When partial performance allowed.
other commercial documents are not legal tender
There are cases, however, when partial and, therefore, the creditor cannot be compelled
performance may be either required or insisted. to accept them. This is true even though the check
Among these cases are: is certified (see Negotiable Instruments Law [Act
(1) The debtor cannot make a partial No. 2031], Sec. 189.), or is a manager’s check.
payment or partial performance to the creditor (a) The creditor, if he chooses, may accept
unless there is an express agreement to that them, without the acceptance producing the effect
effect. of payment. In the meantime, the demandability of
(2) When the debt is in part liquidated the original obligation is suspended until the
(definitely determined or determinable) and in part payment by the commercial document is actually
unliquidated; realized. The creditor must cash the instrument,
(3) When the different prestations in which and it is only when it is dishonored, that he can
the obligation consists are subject to different bring an action for non-payment of the debt. (par.
terms or conditions which affect some of them. It
3.)
is evident that the prestations need not be (b) The Civil Code provisions on payment
of obligations, particularly Article 1245, are
applicable where what is involved is the payment bad faith or after he has incurred in delay, the
of a judgment obligation. additional expenses shall be borne by him.
(2) Effect on obligation- Payment by means of These provisions are without prejudice
mercantile documents does not extinguish the to venue under the Rules of Court. (1171a)
obligation
(a) until they have been cashed; Price where obligation shall be paid.
(b) unless they have been impaired Article 1251 gives the rules regarding the
through the fault of the creditor. (par. 2.) place for the payment of an obligation without
prejudice to venue under the Rules of Court.
ARTICLE 1250. In case an extraordinary (1) If there is a stipulation, the payment
inflation or deflation of the currency stipulated shall be made in the place designated;
should supervene, the value of the currency at (2) If there is no stipulation and the thing to
the time of the establishment of the obligation be delivered is specific, the payment shall be
shall be the basis of payment, unless there is made at the place where the thing was, at the
an agreement to the contrary. (n) perfection of the contract;
(3) If there is no stipulation and the thing to
Inflation and deflation. be delivered is generic, the place of payment shall
(1) Inflation - is a sharp sudden increase of be the domicile of the debtor. In this case, the
money or credit or both without a corresponding creditor bears the expenses in going to the
increase in business transaction. Inflation causes debtor’s place to accept payment subject to the
a drop in the value of money, resulting in rise of rule in paragraph 5.
the general price level. Note: Venue is the place where a court
(2) Deflation - is the reduction in volume suit or action must be filed or instituted.
and circulation of the available money or credit,
resulting in a decline of the general price level; it
is the opposite of inflation.
SUBSECTION 1 -
Basis of payment in case of extraordinary
inflation or deflation. APPLICATION OF
Under Article 1250, the purchasing value
of the currency at the time of the establishment of
PAYMENTS
the obligation shall be the basis of payment, in .
case of any extraordinary increase or decrease in ARTICLE 1252. He who has various debts of
the purchasing power of the currency which the the same kind in favor of one and the same
parties could not have reasonably foreseen. This creditor, may declare at the time of making the
is, however, subject to the agreement of the payment, to which of them the same must be
parties to the contrary. applied. Unless the parties so stipulate, or
when the application of payment is made by
ARTICLE 1251. Payment shall be made in the the party for whose benefit the term has been
place designated in the obligation. constituted, application shall not be made as
There being no express stipulation and to debts which are not yet due.
if the undertaking is to deliver a determinate If the debtor accepts from the creditor a
thing, the payment shall be made wherever the receipt in which an application of the payment
thing might be at the moment the obligation is made, the former cannot complain of the
was constituted. same, unless there is a cause for invalidating
In any other case the place of payment the contract. (1172a)
shall be the domicile of the debtor.
If the debtor changes his domicile in
MEANING OF APPLICATION OF PAYMENTS.
 It is the designation of the debt to which (5) If the debts due are of the same nature and
should be applied the payment made by a debtor burden, the payment shall be applied to all
who has various debts of the same kind in favor of of them proportionately.
one and the same creditor. (Art. 1252, par. 1.)
ARTICLE 1253. If the debt produces
REQUISITES OF APPLICATION OF interest, payment of the principal shall
PAYMENTS. not be deemed to have been made until
❖ There must be one debtor and one the interests have been covered. (1173)
creditor;
❖ There must be two or more debts; INTEREST EARNED PAID AHEAD OF
❖ The debts must be of the same kind; PRINCIPAL
❖ The debts to which payment made by ● RULE IN ARTICLE 1253 MANDATORY
the debtor has been applied must be ❖ The rule laid down in the article is
due; and mandatory. Hence, the debtor cannot
❖ The payment made must not be choose to credit his payment to the
sufficient to cover all the debts. principal before the interest is paid.
❖ The payment must be applied first to
APPLICATION AS TO DEBTS NOT YET DUE. the interest and whatever balance is
The application of payments as to debts left can be credited to the principal.
not yet due cannot be made unless: ❖ The creditor can refuse an application
(1) there is a stipulation that the debtor may of the debtor made contrary to the
so apply; or provision of the Article 1253.
(2) it is made by the debtor or creditor, as the ● RULE SUBJECT TO AGREEMENT OR
case may be, for whose benefit the period VIEWER
has been constituted. (see Art. 1196; also ❖ The rule is subject, however, to any
Art. 179210.) agreement between the parties, or to
waiver by the creditor.
RULES ON APPLICATION OF PAYMENTS.
ARTICLE 1254. When the payment cannot be
(1) The debtor has the first choice; he must applied in accordance with the preceding
indicate at the time of making payment, and rules, or if application cannot be inferred from
not afterwards, which particular debt is other circumstances, the debt which is most
being paid. If, in making use of his right, the onerous to the debtor, among those due, shall
debtor applied the payment to a debt, he be deemed to have been satisfied.
cannot later claim that it should be applied If the debts due are of the same nature
to another debt. and burden, the payment shall be applied to all
(2) The right to make the application once of them proportionately. (1174a)
exercised is irrevocable unless the creditor
consents to the change. APPLICATION OF PAYMENT TO MORE
(3) If the debtor does not apply payment, the ONEROUS DEBTS.
creditor may make the designation by In case no application of payment has
specifying in the receipt which debt is being been made by the debtor and the creditor, then
paid; the payment shall be applied to the most onerous
(4) If the creditor has not also made the debt, and if the debts are of the same nature and
application, or if the application is not valid, burden, to all of them proportionately.
the debt, which is most onerous to the
debtor among those due, shall be deemed WHEN A DEBT MORE ONEROUS THAN
to have been satisfied. ANOTHER.
● A debt is more onerous than another when it cession, are made be- tween the debtor and
is more burdensome to the debtor. his creditors shall be governed by special
● No fixed rule can be laid down in determining laws. (1175a)
which debt is more onerous to the debtor
since the condition of being more
PAYMENT BY CESSION
burdensome is a question of relative
appreciation. It is another special form of payment. It is
● The Supreme Court, however, in various the assignment or abandonment of all the
decisions has given some rules which can properties of the debtor for the benefit of his
be: creditors in order that the latter may sell the
(1) An interest-bearing debt is more same and apply the proceeds thereof to the
onerous than a non-interest bearing satisfaction of their credits.
debt even if the latter is an older
one. REQUISITES OF PAYMENT BY CESSION.
(2) A debt as a sole debtor is more ● There must be two or more creditors;
onerous than as a solidary debtor. ● The debtor must be (partially) insolvent;
(3) Debts secured by a mortgage or by ● The assignment must involve all the
pledge are more onerous than properties of the debtor; and
unsecured debts. ● The cession must be accepted by the
(4) Of two interest-bearing debts, the creditors.
one with a higher rate is more
onerous. EFFECT OF PAYMENT BY CESSION.
(5) An obligation with a penalty clause ● Unless there is a stipulation to the
is more burdensome than one contrary, the assignment does not make
without a penalty clause. the creditors the owners of the property of
the debtor and the debtor is released
WHERE DEBTS SUBJECT TO DIFFERENT from his obligation only up to the net
BURDENS. proceeds of the sale of the property
assigned. In other words, the debtor is
Suppose the debts are subject to
still liable if there is a balance.
different burdens (like one debt secured by a
mortgage and the other with a penalty clause)
DATION IN PAYMENT AND CESSION
that it cannot be definitely determined which
DISTINGUISHED.
debt is most onerous to the debtor. To what debt
● Dation in payment or dacion en pago is a
should the payment be applied? To all of them
special form of payment whereby another
proportionately.
thing is alienated by the debtor to the
creditor who accepts it as equivalent of
payment of an existing debt in money.
SUBSECTION 2 - The differences are:
PAYMENT BY CESSION ❖ In dation (see Art. 1245.), there is
. usually only one creditor, while in
cession, there are several creditors;
ARTICLE 1255. The debtor may cede or
❖ Dation does not presuppose the
assign his property to his creditors in
insolvency of the debtor or a situation
payment of his debts. This cession, unless
of financial difficulties, while in
there is stipulation to the contrary, shall only
cession, the debtor is insolvent at the
release the debtor from responsibility for the
time of assignment;
net proceeds of the thing assigned. The
agreements which, on the effect of the
 ❖ Dation does not involve all the his possession the thing or money to be delivered
property of the debtor, while cession at the time of the offer.
extends to all the property of the Consignation is the act of depositing the
debtor subject to execution; thing or amount due with the proper court when
❖ In dation, the creditor becomes the the creditor does not desire or cannot receive it,
owner of the thing given by the after complying with the formalities required by
debtor, while in cession, the creditors law.
only acquire the right to sell the thing
and apply the proceeds to their REQUISITES OF A VALID CONSIGNATION.
credits pro rata; and ● In order that the debtor may be released from
❖ Dation is really an act of novation his obligation by the consignation of the thing
(Art. 1291[1].), while cession is not an or sum due, the following requisites must be
act of novation. observed:
Both are substitute forms of (1) existence of a valid debt which is due
payment or performance. They (2) tender of payment by the debtor and
are governed by the law on sales. refusal without justifiable reason by the
creditor to accept it
(3) previous notice of consignation to
SUBSECTION 3 - persons interested in the fulfillment of the
obligation
TENDER OF PAYMENT (4) consignation of the thing or sum due; and
(5) subsequent notice of consignation made
AND CONSIGNATION to the interested parties.
.
WHEN TENDER PAYMENT IS NOT
ARTICLE 1256. If the creditor to whom tender
REQUIRED.
of payment has been made refuses without
just cause to accept it, the debtor shall be ● Tender of payment is not necessary
released from responsibility by the before the debtor can consign the thing due
consignation of the thing or sum due. with the court. It has been held that a
Consignation alone shall produce the creditor who, without legal justification,
same effect in the following cases: informs his debtor that payment of a debt
(1) When the creditor is absent or will not be accepted thereby waives
unknown, or does not appear at the payment on the date when the payment will
place of payment; be due; and as a consequence the debtor
(2) When he is incapacitated to receive is excused from making a formal tender of
the payment at the time it is due; the money on such date.
(3) When, without just cause, he ● A debtor does not incur default by failing to
refuses to give a receipt; make a fruitless tender after notification
(4) When two or more persons claim from the creditor that the money will not be
the same right to collect; received.
(5) When the title of the obligation has
been lost. (1176a) REQUIREMENTS FOR VALID TENDER OF
PAYMENT.
MEANING OF TENDER OF PAYMENT AND ● Tender of payment must comply with the
CONSIGNATION. rules on payment. (Arts. 1256-1258.) or with
Tender of payment is the act, on the part the terms required by the contract in making
of the debtor, of offering to the creditor the thing or such tender.
amount due. The debtor must show that he has in
 ○ The tender, even if valid, does not by The consignation having been
itself produce legal payment, unless it is made, the interested parties shall also be
completed by consignation. notified thereof. (1178)
● It must be unconditional and for the whole
amount due and in legal tender; and CONSIGNATION MUST BE WITH PROPER
● It must be actually made. JUDICIAL AUTHORITY.
○ The manifestation of a mere desire or Consignation, by depositing the thing or
intention to pay is not enough. sum due with the proper judicial authority (i.e.,
○ The debtor must show present ability to court), is necessary to effect payment.
perform by an actual offer of the thing or
money due. NOTICE TO BE GIVEN TO INTERESTED
PARTIES OF CONSIGNATION MADE.
ARTICLE 1257. In order that the consignation After the consignation has been made, the
of the thing due may release the obligor, it interested parties must also be notified thereof.
must first be announced to the per- sons
interested in the fulfillment of the obligation. ARTICLE 1259. The expenses of consignation,
The consignation shall be ineffectual if when properly made, shall be charged against
it is not made strictly in consonance with the the creditor. (1179)
provisions which regulate payment. (1177)
LIABILITY OF CREDITOR FOR EXPENSES OF
PRIOR NOTICE TO PERSONS INTERESTED CONSIGNATION.
REQUIRED. The consignation is made necessary
In the absence of prior notice to the because of the fault or unjust refusal of the
persons interested in the fulfillment of the creditor to accept payment. The expenses are
obligation, the consignation, as payment, shall be chargeable to the debtor if the consignation is not
void. properly made.

CONSIGNATION MUST COMPLY WITH WHEN CONSIGNATION DEEMED PROPERLY

PROVISIONS ON PAYMENT. MADE.
● Consignation, to amount to a valid In any of the following cases:
payment, must also comply with the (1) When the creditor accepts the thing
provisions which regulate payment. or sum deposited, without
● One of the rules is that payment should objection, as payment of the
be made in legal tender. obligation;
GENERAL RULE: An offer of a bank check for (2) When the creditor questions the
the amount due is not a good tender and this is validity of the consignation, and the
true even though the check is certified or is a court, after hearing, declares that it
manager’s check, except where no objection is has been properly made; and
made on that ground. (3) When the creditor neither accepts
nor questions the validity of the
ARTICLE 1258. Consignation shall be
consignation, and the court after
made by depositing the things due at the
hearing, orders the cancellation of
disposal of judicial authority, before
the obligation.
whom the tender of payment shall be
proved, in a proper case, and the
ARTICLE 1260. Once the consignation has
announcement of the consignation in been duly made, the debtor may ask the judge
other cases. to order the cancellation of the obligation.
 Before the creditor has accepted the
consignation, or be- fore a judicial declaration
SECTION 2 - LOSS OF
that the consignation has been properly made,
the debtor may withdraw the thing or the sum
THE THINGS DUE
deposited, allowing the obligation to remain in
force. (1180) ARTICLE 1262. An obligation which consists
in the delivery of a determinate thing shall be
WITHDRAWAL BY DEBTOR OF THING OR extinguished if it should be lost or destroyed
SUM DEPOSITED. without the fault of the debtor, and before he
● The debtor may withdraw as a matter of has incurred in delay.
right the thing or sum deposited When by law or stipulation, the obligor
(1) before the creditor has accepted is liable even for fortuitous event the loss for
the consignation or the thing does not extinguish the obligation,
(2) before a judicial declaration that and he shall be responsible for damages. The
the consignation has been properly same rule applies when the nature of the
made, as he is still the owner of the obligation requires the assumption of risk.
same.
● In such a case, the obligation shall When a thing is considered lost.
continue to remain in force. All expenses ● When an object perishes or it is physically
are paid by the debtor. destroyed.
● If the withdrawal is with the consent of the ● When it goes out of commerce.
creditor, Article 1261 applies. ● When it disappears in such a way that its
existence is unknown, or it cannot be
ARTICLE 1261. If, the consignation having recovered.
been made, the creditor should authorize the
debtor to withdraw the same, he shall lose When loss of thing will extinguish an
every preference which he may have over the obligation to give.
thing. The co-debtors, guarantors and sureties ● The obligation is to deliver a specific or
shall be released. (1181a) determinate thing;
● The loss of the thing occurs without the
EFFECT OF WITHDRAWAL WITH AUTHORITY fault of the debtor; and
OF CREDITOR. ● The debtor is not guilty of delay.
As far as the debtor and the creditor are
concerned, their relations will remain as they When loss of thing will not extinguish liability.
were before acceptance or cancellation. ● When the law so provides;
However, the creditor shall lose every ○ The debtor is guilty of fraud,
preference which he may have over the thing, negligence, or delay, or
and the co-debtors (referring to solidary contravention of the tenor of the
debtors), guarantors, and sureties shall be obligation. (Article 1170)
released. ○ The debtor is in bad faith or has
promised to deliver the same
The solidary debtors are released only
(specific) to two or more persons who
from their solidary liability, but not from their
do not have the same interest.
shares of the obligation, since unlike guarantors
(Article 1165)
and sureties, they are also principal debtors.
○ The thing to be delivered is generic
(Article 1263) in accordance with the
principle genus never perishes.
● When the stipulation so provides;
 ● When the nature of the obligation requires presumed that the loss was due to his fault,
the assumption of risk; unless there is proof to the contrary, and
● When the obligation to deliver a specific without prejudice to the provisions of Article
thing arises from a crime. 1165. This presumption does not apply in case
of earthquake, flood, storm, or other natural
ARTICLE 1263. In an obligation to deliver a calamity. (1183a)
generic thing, the loss or destruction of
anything of the same kind does not extinguish Presumption of fault in case of loss of thing in
the obligation. (n) possession of the debtor.
● The article establishes a disputable
Effects of loss of a generic thing. presumption of fault whenever the thing to
GENERAL RULE (Article 1263). be delivered is lost in the possession of the
○ The debtor is liable even for a fortuitous debtor. This presumption is reasonable
event because the law provides so. It is because the debtor who has the custody
based on the principle that the generic thing and care of the thing can easily explain the
never perishes (genus nunquam perit). The circumstances of the loss. The creditor has
debtor can still be compelled to deliver a no duty to show that debtor was at fault. It
thing of the same kind. The creditor, is the debtor who must prove that he was
however, cannot demand a thing of not at fault.
superior quality and neither can the debtor
deliver a thing of inferior quality When presumption is not applicable.
● EXCEPTION In case of a natural calamities, the
○ Delimited generic thing presumption of fault does not apply.
1. If the generic thing is
delimited. ARTICLE 1266. The debtor in obligation to do
○ Segregated generic thing shall also be released when the prestation
2. If the generic thing has becomes legally or physically impossible
already been segregated without the fault of the obligor. (1184a)
or set aside.
Effect of impossibility of performance.
ARTICLE 1264. The courts shall determine It refers to a case when, without the
whether, under the circumstances the partial obligor’s fault, an obligation to do becomes legally
loss of the object of the obligation is so as to or physically impossible. The supervening
extinguish the obligation. (n) impossibility of performance will result in the
extinction of the debtor’s obligation after restitution
Effects of partial loss of a specific thing. he may have received, if any, in advance from the
There is a partial loss when only a portion other contracting party. The debtor incurs no
of thing is lost or destroyed or when it suffers liability for his inability to perform.
depreciation or deterioration. In personal
obligations, partial loss is equivalent to difficulty of Kind of Impossibility.
performance. The court shall determine, in case A. PHYSICAL IMPOSSIBILITY
of disagreement between the parties, whether ● Occurs in purely personal obligations
under the circumstances, the partial loss of an when the personal qualification of the
object is so important in relation to the whole as to obligor is involved, the obligor dies or
extinguished obligations. becomes physically incapacitated to
perform the obligation.
ARTICLE 1265. Whenever the thing is lost in B. LEGALLY IMPOSSIBILITY
the possession of the debtor, it shall be
 ● Occurs when the obligation cannot be Effect of fortuitous event where obligation
performed because it is rendered proceeds from a criminal offense.
impossible by provision of law, The obligation subsists except when the
although physically it may be possible creditor refused to accept the thing, without
to perform. justification, after it had been offered to him. In
● It may be directly caused as when such case, the creditor is in mora accipiendi.
prohibited by law, or indirectly caused Consignation is not necessary. The debtor,
as when the debtor is required to enter however, must still exercise due diligence. He is
a military draft. liable for damages if the loss is due to his fault.

Effects of loss in personal obligations or ARTICLE 1269. The obligation having been
impossibility of performance. extinguished by the loss of the thing, the
The debtor from personal obligations shall creditor shall have all the rights of action
be released from the obligation when the which the debtor may have been against a
prestation becomes legally or physically third person by reason of the loss. (1186)
impossible without the fault of the obligor. The
impossibility must take place after the constitution Right of creditor to proceed against third
of the obligation. If the obligation is very person.
impossible from the very beginning, the obligation The creditor is given the right to proceed
is void. In such case, there is no obligation to be against the third person responsible for the loss.
extinguished. There is no need for an assignment by the debtor.
The rights of action of the debtor are transferred
ARTICLE 1267. When the service has become to the creditor from the moment the obligation is
so difficult as to be manifestly beyond the extinguished, by operation of law to protect the
contemplation of the parties, the obligor may interest of the latter by reason of the loss.
also be released therefrom, in whole or in part.
(n)
SECTION 3. —
Effect of difficulty of performance.
GENERAL RULE: Moral impossibility releases CONDONATION OR
the obligor.
- When there is moral impossibility, the
REMISSION OF DEBT
court is authorized to release the obligor in
whole or in part.
- The article applies not only to personal ARTICLE 1270. Condonation or remission is
obligation but also to real obligations. essentially gratuitous, and requires the
acceptance by the obligor. It may be made
ARTICLE 1268. When the debt of a thing is expressly or impliedly.
certain and determinate proceeds from a One and the other kind shall be subject
criminal offense, the debtor shall not be to the rules which govern inofficious
exempted from the payment of its price, donations. Express condonation shall,
whatever may be the cause for the loss, unless furthermore, comply with the forms of
the thing having been offered by him to the donation. (1187)
person who should receive it, the latter
refused without justification to accept it. Condonation or remission.
(1185) Condonation or remission is the gratuitous
abandonment by the creditor of his right against
the debtor. It is thus a form of donation.
Requisites of condonation or remission. If in order to nullify this waiver it should
➔ It must be gratuitous be claimed to be inofficious, the debtor and his
➔ It must be accepted by the obligor heirs may uphold it by proving that the
➔ The parties must have capacity delivery of the document was made in virtue of
➔ It must not be inofficious payment of the debt.
➔ If made expressly, it must comply with the
forms of donations Payment in case of voluntary delivery of
document of indebtedness by creditor.
Kinds of remission. 1. Presumption of implied remission - If the debt
1. As to its extent: was not yet paid, the creditor would need the
a. Complete - it covers the ENTIRE document to enforce payment. If he
obligation voluntarily delivers the said document to the
b. Partial - it DOES NOT cover the entire debtor, the only logical inference is that he is
obligation renouncing his right.
2. As to its form: NOTE: This presumption is prima facie or
a. Express - when made either verbally or rebuttable by contrary evidence.
in writing 2. Contrary evidence - Evidence is admissible
b. Implied - when can only be inferred to show otherwise, as when a receipt signed
from conduct by the creditor was delivered only for
3. As to its date of effectivity: examination by the debtor client (lawyer) of
a. Inter vivos - it will take effect during the the amount of attorney’s fees to be paid by
lifetime of the donor the latter.
b. Mortis causa - will only become 3. Extent of remission - If the obligation is joint,
effective upon the death of the donor the presumption of remission only applies to
and must comply with the formalities of the share of the debtor who is in possession
a will of the document; if solidary, to the total/entire
obligation
Effect of inofficious remission. 4. Presumption applicable only to private
While a person may make donations, no document - Article 1271 speaks of a private
one can give more than that which he can give by document. The legal presumption DOES
will; otherwise the excess shall be inofficious and NOT apply to a public document as it is easy
shall be reduced by the court accordingly. to obtain a copy of the same, being a public
As a rule, testamentary dispositions which record.
impair the legitime shall be reduced on petition of
the heirs insofar as they are inofficious or Payment, not remission of debt.
excessive. Remission becomes null and void upon
proof that it is inofficious. The debtor or his heirs
LEGITIME is the part of the testator’s may prove that the delivery of the document was
property that is reserved by law for certain heirs really made in virtue of payment of the debt and
(compulsory heirs). So the said testator cannot not of remission.
dispose or donate it.
ARTICLE 1272. Whenever the private
ARTICLE 1271. The delivery of a private document in which the debt appears is found
document evidencing a credit, made in the possession of the debtor, it shall be
voluntarily by the creditor to the debtor, presumed that the creditor delivered it
implies the renunciation of the action which voluntarily, unless the contrary is proved.
the former had against the latter. (1189)
Presumption in case document found in ● The debtor shall continue to be indebted but
possession of debtor. he does not have to return the thing pledged.
● The document evidencing the debt is in the ● The presumption yields to contrary evidence.
possession of the creditor. ● Does not arise if the third person in
● If the document is later found in the hands of possession of the thing pledged does not
the debtor and it is not known how he came own the same.
into possession of the same, the
presumption is that it was voluntarily
delivered by the creditor. SECTION 4. —
● Voluntary delivery, gives rise to the
presumption of remission.
CONFUSION OR
● The presumption of voluntary delivery should MERGER OF RIGHTS
give rise to the presumption of payment and
only when it is known that indeed there is no
payment should there be a presumption of
ARTICLE 1275. The obligation is
remission.
extinguished from the time the
characters of creditor and debtor are
Article 1272. The renunciation of the principal
merged in the same person. (1192a)
debt shall extinguish the accessory
obligations; but the waiver of the latter shall
CONFUSION OR MERGER.
leave the former in force.
Is the meeting in one person of the
qualities of creditor and debtor with respect to the
Effect of renunciation of the principal debt of
same obligation.
the accessory obligation.
Accessory follows the principal. Accessory
REASON OR BASIS FOR CONFUSION.
obligations cannot exist without the principal
● The law treats confusion or merger as a
obligation; the latter may exist without the former.
mode of extinguishing obligations because
if a debtor is his own creditor, enforcement
Article 1274. It is presumed that the accessory
of the obligation becomes absurd since a
obligation of pledge has been remitted when
person cannot claim payment from himself.
the thing pledged, after its delivery to the
● Furthermore, when there is a confusion of
creditor, is found in the possession of the
rights, the purposes for which the obligation
debtor, or of a third person who owns the
may have been created are deemed
thing.
realized.

Presumption in case thing pledged found in

possession of debtor. REQUISITES OF CONFUSION.
● It is necessary that the thing pledged in the (1) It must take place between the principal
possession of the creditor, or of the creditor debtor and creditor; and
or of a third person by common agreement. (2) It must be complete and definite.
● A third person who is not a party of the
principal obligation may secure the latter by ARTICLE 1276. Merger which takes place in
pledging his own property. the person of the principal debtor or creditor
● If the thing pledged is later found in the benefits the guarantors. Confusion which
hands of the debtor or the third person only takes place in the person of any of the latter
the accessory obligation of pledged is does not extinguish the obligation. (1193)
presumed remitted, not the obligation itself.
EFFECT OF MERGER IN THE PERSON OF
PRINCIPAL DEBTOR OR CREDITOR.
SECTION 5 -
Merger in the person of the principal
debtor or creditor extinguishes the obligation. The
COMPENSATION
accessory obligation of guarantee is also
extinguished in accordance with the principle that ARTICLE 1278. Compensation shall take place
the accessory follows the principal. when two persons, in their own right, are
creditors and debtors of each other. (1195)
EFFECT OF MERGER IN THE PERSON OF
GUARANTOR. Compensation.
The extinguishment of the accessory Compensation is the extinguishment to the
obligation does not carry with it that of the principal concurrent amount of debts of two persons who,
obligation. Merger which takes place in the person in their own right, are reciprocally principal debtors
of the guarantor, while it extinguishes the and creditors of each other.
guaranty, leaves the principal obligation in force.
Kinds of Compensation.
ARTICLE 1277. Confusion does not (1) By its effect or extent:
extinguish a joint obligation except as ● Total Compensation
regards the share corresponding to the ○ when both obligations are of the
creditor or debtor in whom the two same amount and are entirely
characters concur. (1194) extinguished
● Partial Compensation
CONFUSION IN A JOINT OBLIGATION. ○ When the two are of different
● In a joint obligation, there are as many amounts and balance remains.
debts as there are debtors and as many The extinctive effect of
credits as there are creditors, the debts compensation will be partial only
and/or credits being considered distinct and as regards the larger debt or in
separate from one another. other words, there is partial
● Each debtor has his own creditor to whom compensation in larger debts.
he is liable and confusion taking place in (2) By its cause or origin:
the person of any debtor or creditor does ● Legal Compensation
not affect the others. ○ When it takes place by operation
● The confusion will extinguish only the share of law even without the
corresponding to the creditor or debtor in knowledge of the parties.
whom the two characters concur. ● Conventional or Voluntary
Compensation
CONFUSION IN A SOLIDARY OBLIGATION. ○ When it takes places by the
● Merger in the person of one of the solidary agreement of the parties.
debtors shall extinguish the entire ● Judicial
obligation because it is also a merger in the ○ When it takes place by order
other solidary debtors. from a court in litigation. Strictly
● Remember that in a solidary obligation speaking, judicial compensation
there is only one obligation and every is merely a form of legal or
debtor is individually responsible for the voluntary compensation when
payment of the whole obligation. declared by the courts by virtue
● He who makes payment may claim of an action by one parties, who
reimbursement from his co-debtors for the invokes it, and by the defense of
shares which correspond to them. the other who refuses to admit it.
 ○ A party may set off his claim for cannot be compensated unless the
damages against his obligation compensation has taken place
to the other party by proving his before the lapse of the period of
right to said damages and the prescription.
amount thereof. (c) Natural obligations are not legally
○ This must be placed and proven; demandable.
it can be made effective only by (4) The two debts are liquidated
an order from the court. (a) Proof of the liquidation of a claim in
● Facultative Compensation order that there be compensation of
○ When it can be set up only by debts, is necessary if such claim is
one of the parties. One of the disputed.
parties has the choice of (b) If the claim is undisputed, the
claiming the compensation or of statement is sufficient and no other
opposing compensation. proof may be required.
(5) No retention or controversy commenced by
ARTICLE 1279. In order that compensation third person
may be proper, it is necessary: (a) This is a negative requisite. The
(1) That each one of the obligor be other such is that the compensation
bound principally, and that he be at the is not prohibited by law. Of course,
same time a principal creditor of the compensation will not take place
other; where there is waiver.
(2) That both debts consist in a sum of
money, or if the things due are Compensation against the government.
consumable, they be of the same kind, (1) Taxes
and also of the same quality if the latter (2) Contractual Obligations
has been suited; (3) Payment of Surcharge mandatory
(3) That the two debts be due; (4) Remedy of Taxpayers
(4) That they be liquidated and
demandable; ARTICLE 1280. Notwithstanding the provision
(5) That over neither of them there be of the preceding article, the guarantor may set
any retention or controversy, up compensation as regards what the creditor
commenced by third person and may owe the principal debtor. (1197)
communicated in due time to the
debtor. (1196) Compensation benefits guarantor.
This is an exception to the general rule that
Requisites of legal compensation. only principal debtor can set up as against his
(1) The parties are principal creditors and creditor what the latter owes him. Although the
principal debtors of each other. guarantor is only subsidiarily liable, not principally
(2) Both debts consist of a sum of money, or of bound, he is given the right to set up
consumable thing of the same kind and compensation. The reason is that the
quality. extinguishment of the principal obligation as a
(3) The two debts are due or demandable consequence of compensation carries with it
(a) When the obligation is payable on accessory obligations such as guaranty.
demand, the obligation is not yet
due where no demand has not been ARTICLE 1281. Compensation may be total or
made. portal. When the two debts are of the same
(b) A debt prescribed is no longer amount, there is a total compensation. (n)
demandable and consequently,
Total and Partial Compensation Rescissible and voidable obligations are
Total and partial compensation applies to valid until they are judicially rescinded or voided.
all different kinds of compensation. Total Prior to rescission or annulment, the debts may be
compensation results when the two debts are of compensated against each other.
the same amount. If they are different amounts,
compensation total as regards the smaller debts, ARTICLE 1285. The debtor who has consented
and partial only with respect to the larger debt. to the assignment of rights made by a creditor
favor of a third person, cannot set up against
ARTICLE 1282. The parties may agree upon the assignee the compensation which would
the compensation of debts which are not yet pertain to him against the assignor, unless the
due. (n) assignor was notified by the debtor at the time
he gave his consent, that the reserved his right
Voluntary Compensation. to the compensation.
This provision of law is an exception to the If the creditor communicated the
general rule that only debts which are due and cession to him but the debtor did not consent
demandable can be compensated. It includes any thereto, the latter may set up the
compensation which takes place by the communication of debts previous to the
agreement of the parties even if all the requisites cession, but not of subsequent ones.
for legal compensation is not present. If the assignment is made without the
● The only requisites are: knowledge of the debtor, he may set up the
○ Each of the parties has the right of to compensation of all credits prior to the same
dispose of the credit he seeks and also later ones until he had knowledge of
compensable; the assignment. (1198a)
○ They agree to the mutual
extinguishment of their credit. Where the compensation has taken place
before the assignment.
ARTICLE 1283. If one of the parties to a suit ● When compensation takes effect by
over an obligation has a claim for damages operation of law or automatically, the debts
against the other, the former may set it off by are extinguished to the concurrent
providing his right to said damages and the amount.
amount thereof. (n) ● The remedy of the assignee is against the
assignor. Of course, the right to the
Judicial Compensation. compensation may be waived by the
Compensation may also take place when debtor before or after the assignment.
so declared by a final judgement of a court. A party
may set of his claim for damages against his Where compensation has taken place after
obligation to the other party by proving his right to assignment.
said damages and the amount thereof. Both (1) Where the assignment is made with the
parties must prove their respective claims. consent of the debtor;
(2) The assignment is made without the
ARTICLE1284. When one or both debts are consent but with the knowledge of the
rescissible or voidable, they may be debtor;
compensated against each other before they (3) The assignment is without the knowledge
are juridically rescinded or avoided. (n) of the debtor.

Compensation of rescissible or voidable ARTICLE 1286. Compensation takes place by

debts. operation of law, even though the debts may
be payable at different places, but there shall
be an indemnity for expenses of exchange or dwelling, clothing, medical
transportation to the place of payment. (1199a) attendance, education, and
transportation, in keeping with the
Compensation where debts payable at financial capacity of the family.
different places. (4) Where one of the debts consists in civil
This article applies to a legal liability arising from a penal offense.
compensation. The indemnity contemplated ● If one of the debts consists in civil
above does not refer to the difference in the value liability arising from a criminal
of the things in their respective places but to the offense, compensation would be
expenses of monetary exchange and expenses of improper and inadvisable because
transportation. Once these expenses are the satisfaction of such obligation is
liquidated, the debts also become compensable. imperative.
The indemnity shall be paid by the person who
raises the defense of compensation. ARTICLE 1289. If a person should have against
him several debts in which are susceptible of
ARTICLE 1287. Compensation shall not be compensation, the debts rules on the
proper when one of the debts arises from a application of payments shall apply to the
deposition or from the obligations of a order of the compensation. (1201)
depository or of a bailee in commodatum.
Neither can compensation be set up Rules on application of payments applicable
against a creditor who has a claim for support to order of compensation.
due by gratuitous title, without prejudice to the Compensation is similar to payment. If a
provisions of paragraph 2 of Article 301. debtor has various debts which are susceptible of
(1200a) compensation, he must inform the creditor which
of them shall be the object of compensation. In
ARTICLE 1288. Neither shall there be case he fails to do so, then the compensation shall
compensation if one of the debts consists in be applied to the most onerous obligation.
civil liability arising from a penal offense. (n)
Instances when legal compensation is not ARTICLE 1290. When all the requisites
allowed by law. mentioned in Article 1279 are present,
(1) Where one of the debts arises from a compensation takes effect by operation of law,
depositum. and extinguishes both debts to the concurrent
● A deposit is constituted from the amount, even though the creditors and
moment a person receives a thing debtors are not aware of the compensation.
belonging to another with the (1202a)
obligation of safely keeping it and
returning the same. Consent of parties not required in legal
(2) Where one of the debts arises from compensation.
commodatum. (1) Compensation occurs automatically by mere
● Commodatum is a gratuitous contract operation of law.
whereby one of the parties delivers to ● Legal compensation take place
another something not consumable automatically even in their absence of
so that the latter may use the same agreement between the parties and
for a certain time and return it. even against their will, and extinguishes
(3) Where one of the debts arises from a claim reciprocally both debts as soon as they
for support due by gratuitous title. exist simultaneously, to the amount of
● Support compromises everything that their respective sums. It takes place ipso
is indispensable for sustenance, jure from the day all the necessary
 requisites concur, without need of any equivalent import or by incompatibility of the two
conscious intent on the part of the obligations with each other.
parties and even without their Novation is a contract containing two
knowledge, at the time of the co- stipulations: one to extinguish or modify an
existence of such cross debts existing obligation, and to substitute a new one in
● The passage of subsequent law will not its place.
forestall legal compensation that had
taken place before its effectivity. In fact, KINDS OF NOVATION.
it takes place even against the will of the (1) According to origin:
interested parties. a. Legal. — that which takes place by
(2) Full legal capacity of parties not required. operation of law
● As it takes place by mere operation of b. Conventional. — that which takes
law, and without any act of the parties, it place by agreement of the parties
is not required that the parties have full (2) According to how it is constituted:
legal capacity to give or to receive, as a. Express. — when it is so declared in
the case may be. On the other hand, in unequivocal terms
order that there may be valid payment, b. Implied. — when the old and the new
the parties must have the free disposal obligations are essentially
of the thing due and capacity to alienate incompatible with each other
it and to receive payment, as the case (3) According to extent or effect:
may be. a. Total or extinctive. — when the old
obligation is completely extinguished
Compensation, a matter of defense. b. Partial or modificatory. — when the old
Although compensation is produced by obligation is merely modified
operation of law, it is usually necessary to set it up (4) According to the subject:
as a defense in an action demanding a. Real or objective. — when the object
performance. Once proved, its effect retroacts or or principal conditions of the obligation
relate back to the very day on which all the are changed
requisites mentioned by law concurred or are b. Personal or subjective. — when the
fulfilled. person of the debtor is substituted
and/or when a third person is
subrogated in the rights of the creditor
Section 6. — NOVATION c. Mixed. — it is a combination of real and
personal novations.
ARTICLE 1291. Obligations may be modified
by: ARTICLE 1292. In order that an obligation may
(1) Changing their object or principal be extinguished by another which substitutes
conditions; the same, it is imperative that it be so declared
(2) Substituting the person of the debtor; in unequivocal terms, or that the old and the
(3) Subrogating a third person in the rights new obligations be on every point
of the creditor. (1203) incompatible with each other. (1204)

NOVATION. 4 REQUISITES OF NOVATION.

Total or partial extinction of an obligation (1) existence of a previous valid obligation;
through the creation of a new one which (2) intention or agreement and capacity of the
substitutes it. It must be clearly and unmistakably parties to extinguish or modify the
established by express agreement or acts of obligation;
 (3) extinguishment or modification of the ARTICLE 1295. The insolvency of the new
obligation; and debtor, who has been proposed by the original
(4) creation or birth of a valid new obligation debtor and accepted by the creditor, shall not
revive the action of the latter against the
ARTICLE 1293. Novation which consists in original obligor, except when said insolvency
substituting a new debtor in the place of the was already existing and of public knowledge,
original one, may be made even without the or known to the debtor, when he delegated his
knowledge or against the will of the latter, but debt. (1206a)
not without the consent of the creditor.
Payment by the new debtor gives him the GENERAL RULE. The old debtor is not liable to
rights mentioned in Articles 1236 and 1237. the creditor in case of the insolvency of the new
(1205a) debtor.
EXCEPTIONS:
KINDS OF PERSONAL NOVATION. (1) Insolvency was already existing and of
(1) Substitution. — when the person of the public knowledge (although not known to
debtor is substituted the old debtor) at the time of delegacion;
(2) Subrogation. — when a third person is or
subrogated in the rights of the creditor (2) Insolvency was already existing and
known to the debtor (although not of
KINDS OF SUBSTITUTION. public knowledge) at the time of
(1) Expromision. — requires consent of the delegacion.
third person and the creditor and it is
essential that the original debtor be ARTICLE 1296. When the principal obligation
released from his obligation. Payment by is extinguished in consequence of a novation,
the new debtor gives him the right to accessory obligations may subsist only
beneficial reimbursement. insofar as they may benefit third persons who
(2) Delegacion. — creditor accepts a third did not give their consent. (1207)
person to take the place of the debtor, and
all parties must agree: old debtor, new GENERAL RULE. Extinguishment of the principal
debtor, and the creditor. The new debtor is obligation carries with it that of the accessory
entitled to reimbursement and obligation.
subrogation. EXCEPTION: An accessory obligation created in
favor of a third person remains in force unless the
ARTICLE 1294. If the substitution is without third person gives his consent to the novation.
the knowledge or against the will of the debtor,
the new debtor’s insolvency or non-fulfillment ARTICLE 1297. If the new obligation is void,
of the obligation shall not give rise to any the original one shall subsist, unless the
liability on the part of the original debtor. (n) parties intended that the former relation
should be extinguished in any event. (n)
In expromision, when without the
knowledge of the old debtor, the non-fulfillment of GENERAL RULE. There is no novation if the new
the obligation will not revive the action of the obligation is void, and, therefore, the original one
creditor against the old debtor. The old debtor will shall subsist for the reason that the second
not be liable in case of insolvency; note that in obligation being inexistent, it cannot extinguish or
expromision, the replacement of the old debtor is modify the first.
not made at his own initiative. EXCEPTION. When the parties intended that the
old obligation should be extinguished.
ARTICLE 1298. The novation is void if the Contraventional subrogation requires consent
original obligation was void, except when of all parties.
annulment may be claimed only by the debtor, (1) the debtor - because he becomes liable
or when ratification validates acts which are under the new obligation to a new creditor
voidable. (1208a) (2) the old creditor - because his right against
the debtor is extinguished
NOTE. Voidable obligation is valid until it is (3) the new creditor - because he may dislike
annulled by the court. If the voidable obligation is or distrust the debtor
validated by ratification, the novation is valid. Yet,
a void obligation cannot be novated because there ARTICLE 1302. It is presumed that there is
is nothing to novate. legal subrogation:
(1) When a creditor pays another creditor
ARTICLE 1299. If the original obligation was who is preferred, even without the
subject to a suspensive or resolutory debtor’s knowledge;
condition, the new obligation shall be under (2) When a third person, not interested in
the same condition, unless it is otherwise the obligation, pays with the express or
stipulated. (n) tacit approval of the debtor;
(3) When, even without the knowledge of
If the first obligation is subject to a the debtor, a person interested in the
suspensive or resolutory condition, the second fulfillment of the obligation pays,
obligation is deemed subject to the same without prejudice to the effects of
condition unless the contrary is stipulated by the confusion as to the latter’s share.
parties. (1210a)

ARTICLE. 1300. Subrogation of a third person ARTICLE. 1303. Subrogation transfers to the
in the rights of the creditor is either legal or person subrogated the credit with all the rights
conventional. The former is not presumed, thereto appertaining, either against the debtor
except in cases expressly mentioned in this or against third persons, be they guarantors or
Code; the latter must be clearly established in possessors of mortgages, subject to
order that it may take effect. (1209a) stipulation in a conventional subrogation.
(1212a)
SUBROGATION.
It is the substitution of one person The effect of legal subrogation is to
(subrogee) in the place of a creditor (subroger). transfer to the new creditor the credit and the
rights and actions that could have been exercised
KINDS OF SUBROGATION. by the former creditor against the debtor or
(1) Conventional - it takes place by express against the third person.
agreement of the original parties and the
third person. It must be clearly established ART. 1304. A creditor, to whom partial
in order to take place. payment has been made, may exercise his
(2) Legal - takes place without agreement but right for the remainder, and he shall be
by operation of law. It is not presumed preferred to the person who has been
except in cases provided by law. subrogated in his place in virtue of the partial
payment of the same credit. (1213)
ARTICLE. 1301. Conventional subrogation of a
third person requires the consent of the The creditor to whom partial payment has
original parties and of the third person. (n) been made by the new creditor remains a creditor
to the extent of the balance of the debt.
 prescription, the obligor who voluntarily
TITLE III performs the contract cannot recover what he
has delivered or the value of the service he has
NATURAL rendered.

OBLIGATIONS Performance after civil obligation has

prescribed.

(ARTICLES 1423- By prescription (acquisitive), one acquires

ownership and real rights through the lapse of
time in the manner and conditions of law. In the
1430, CIVIL CODE) same way, rights and actions are lost by
prescription (extinctive).

ARTICLE 1423. Obligations are civil or natural. ARTICLE 1425. When without the knowledge
Civil obligations give a right of action to or against the will of the debtor, a third person
compel their performance. Natural pays a debt which the obligor is not legally
obligations, not being based on positive law bound to pay because the action thereon has
but on equity and natural law, do not grant a prescribed, but the debtor later voluntarily
right of action to enforce their performance, reimburses the third person, the obligor
but after voluntary fulfillment by the obligor, cannot recover what he has paid.
they authorize the retention of what has been
delivered or rendered by reason thereof. Some REIMBURSEMENT OF THIRD PERSON FOR
natural obligations are set forth in the DEBT THAT HAS PRESCRIBED.
following articles. If a third person pays the prescribed debt
of the debtor without his knowledge or against his
CONCEPT OF NATURAL OBLIGATIONS. will, the latter is not legally bound to pay him. But
Natural obligations originated in the the debtor cannot recover what he has paid, in
Roman law where they grew in importance in case he voluntarily reimburses the third person
order to temper with equity and justice the severity
of the jus civile. In that ancient system of law, there ARTICLE 1426. When a minor between
were two kinds of obligations: the civil and the eighteen and twenty-one years of age who has
natural. entered into a contract without the consent of
the parent or guardian, after the annulment of
Civil obligations and natural obligations the contract voluntarily returns the whole
distinguished. thing or price received, notwithstanding the
(1) Civil obligations arise from law, contracts, fact that he has not been benefited thereby,
quasi-contracts, delicts, and quasi-delicts, there is no right to demand the thing or price
while natural obligations are based not on thus returned.
positive law but on equity and natural law;
and Restitution by minor after annulment of
(2) Civil obligations give a right of action in contract.
courts of justice to compel their fulfillment A minor is NOT OBLIGED to make any
or performance, while natural obligations restitution except insofar he has been benefited by
do not grant such right of action to enforce the thing or price received by him. If he voluntarily
their performance. returns the thing or price, he cannot recover what
he has returned.
ARTICLE 1424. When a right to sue upon a civil
obligation has lapsed by extinctive
NOTE: This only applies if the minor who entered have considered it his moral duty to fulfill his
a contract without the consent of his parent is obligation.
aged between 18 to 21 years old.
ARTICLE 1429. When a testate or intestate heir
ARTICLE 1427. When a minor between voluntarily pays a debt of the decedent
eighteen and twenty-one years of age, who exceeding the value of the property which he
has entered into a contract without the received by will or by the law of intestacy from
consent of the parent or guardian, voluntarily the estate of the deceased, the payment is
pays a sum of money or delivers a fungible valid and cannot be rescinded by the payer.
thing in fulfillment of the obligation, there shall
be no right to recover the same from the Payment by heir of debt exceeding value of
obligee who has spent or consumed it in good property inherited.
faith. (1160a) The heir is NOT personally liable beyond
the value of the property he received from the
Delivery by minor of money or fungible thing decedent. However, if he voluntarily pays the
in fulfillment of obligation. difference, the payment made is considered valid
GENERAL RULE: Parties are obliged to make and therefore cannot be rescinded by him. An heir
mutual restitution by the decree of annulment. has a moral duty to perform or pay obligation
EXCEPTION: The obligee who has spent or legally contracted by his dead relatives.
consumed in good faith the money or consumable NOTE: Moral duty, meaning it’s up to the heir if he
thing voluntarily paid or delivered by the minor, is will perform or pay the obligation of his dead
not bound to make restitution. relatives.
NOTE: This article also applies to non-
consumable things when they have been lost ARTICLE 1430. When a will is declared void
without the fault of the obligee or in case of because it has not been executed in
alienation by him to a third person who did not act accordance with the formalities required by
in good faith. Obligee shall be liable for damages law, but one of the intestate heirs, after the
if he is guilty of fault or bad faith at the time of settlement of the debts of the deceased, pays
spending/ consumption. a legacy in compliance with a clause in the
defective will, the payment is effective and
ARTICLE 1428. When after an action to enforce irrevocable
a civil obligation has failed, the defendant
voluntarily performs the obligation, he cannot Payment of legacy after will has been declared
demand the return of what he has delivered or void.
the payment of the value of the service he has Legacy is a clause in a will which basically
rendered. is like a gift, donation, etc. for a definite purpose
If a will is disallowed for non-compliance
Performance after action to enforce civil with the formalities prescribed by law, the legacy
obligation has failed. included in the will is likewise void. Therefore, the
This article contemplates a situation where intestate heirs are not legally required to pay the
a debtor, who has failed to pay his obligation, is legacy. However, if an intestate heir still voluntarily
sued by the creditor and instead of losing the pays the legacy, the payment will be considered
case, he has won it. If, notwithstanding this fact, effective and irrevocable. The heir has a moral
the debtor voluntarily performs his obligation, he duty to carry out the intention of the testator to give
cannot demand the return of what he has a legacy.
delivered or the payment of the value of the
service he has rendered. He must be deemed to
References:
Law on Obligations and Contracts,
Hector S. De Leon and Hector M. De Leon Jr.
Code of the Philippines Republic Act
No. 386 | Official Gazette of the Republic of the
Philippines