GENERAL PROVISIONS
Obligation
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Obligation is a juridical necessity to give, to do, or not to do (art. 1156)
Juridical necessity means that the courts may be called upon by the aggrieved/injured party to
enforce the obligation
Requisites:
o Active subject – creditor/oblige
o Passive subject – debtor/obligor
o Juridical tie/legal tie
o Prestation
Obligations may be civil or natural
o Obligations provided by law are civil obligations
o Natural obligation is not enforceable and the same do not grant right of action for the
performance. Based on equity
Sources of obligations (art. 1157):
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Law
Contracts
Quasi-contracts
o Solution indebiti
o Negotiorum gestio
Delicts
Quasi-delicts
NATURE AND EFFECTS OF OBLIGATION
Obligation to give
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There is an object that a party is bound to give something to another party
Required by law to observe diligence of a good father of a family
Art. 1163. Every person obliged to give something is also obliged to take care of it with the
proper diligence of a good father of a family, unless the law or stipulation of the parties requires
another standard of care
Fruits of the thing
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Art. 1164. The creditor has a right to the fruits of the thing from the time the obligation to
deliver it arises. However, he shall acquire no real rights over it until the same has been
delivered to him
Generally, the creditor has the right to the fruits of the thing from the time to deliver it arises
The real right over the fruits will arises upon delivery
Determinate thing
Generic thing
Compel delivery of the thing and all its accessions Ask that obligation be complied with the expense
and accessories
of the debtor
If not delivered, remedy is recission
If not delivered, remedy is recission
Recover damages for breach of the obligation
Recover damages for breach of the obligation
If lost or destroyed without the fault of the
If the loss or destruction of anything of the same
debtor before he has incurred in delay, obligation kind does not extinguish the obligation
is extinguished
- Extinguishment of obligation on generic thing upon loss or destruction is based upon the
principle that genus never perish
Obligation to do
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Failure to do it – the same shall be executed at his cost, plus damages
In contravention of the tenor of the obligation – the same shall be undone/executed at his cost.
Furthermore, it may be decreed that what has been poorly done be undone. The creditor may
also demand damages.
Obligation not to do
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The thing done shall be undone at the expense of the debtor. Damages may also be claimed
Art. 1170
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Those who are in the performance of obligation are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof, are liable for damages.
Fraud
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2 kinds of fraud:
o Dolo causante – fraud employed to secure a consent (serious in character)
o Dolo incidente – fraud incident to the performance of obligation (not serious in
character)
Responsibility arising from fraud is demandable in all obligations
Any waiver of an action for future fraud is void
Negligence
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Omission of that diligence which is required by law by the nature of the obligation and
corresponds with the circumstances of the persons, of the time, and of the place
General rule: always apply diligence of a good father of a family or the standard diligence
Test of negligence:
o Did the defendant in doing the alleged negligent act use that person would have used in
the same situation? If not, then he is guilty of negligence
Kinds of negligence:
o Culpa contractual – negligence in the performance of the contract
o Culpa aquiliana (quasi-delict) – acts or omissions that cause damage to another, there
being no contractual relation between parties
o Culpa criminal (reckless imprudence/delict/crime) – negligence that results in the
commission of a crime
Mora
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Non-fulfillment of an obligation on time
Even if the cause of delay is fortuitous event, if the debtor is already in delay, he is still liable for
damages
Kinds of delay:
o Mora solvendi – delay on part of the debtor
o Mora accipiendi – delay on part of the creditor
o Compensation morae – delay on both parties
When the debtor is considered in delay?
o General rule, there will be no delay if no demand happens.
o Those obliged to deliver or to do something incur in delay from the time the oblige
judicially or extrajudicially demands from them the fulfillment of the obligation
o No delay on obligation not to do
o Exceptions to the general rule:
 When the lay says so
 When there is an express stipulation
 Time is of the essence
 Demand would be useless
 In reciprocal obligations, where the obligations arise out of the same cause and
must be fulfilled at the same time, from the moment one of the parties fulfills
his obligations, delay by the other begins notwithstanding the absence of
demand.
Fortuitous event
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Those events that could not be foreseen, or which, thought foreseen, are inevitable (art. 1174)
General rule, no one shall be liable for fortuitous event
Elements:
o The cause must be independent of the debtors will
o There must be impossibility of foreseeing the event or of avoiding it even if it can be
foreseen
o The occurrence of the event must be of such character as to render it impossible for the
debtor to perform his obligation in a normal manner
o The debtor did not contribute or had no participation in the aggravation of the damage
Exception to the general rule:
o When the law expressly provides
o Express stipulation
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o Nature of the obligation requires the assumption of risk
Other exceptions:
o When the loss is partly due to the fault of the debtor
o When the debtor promised the same thing to two or more people who does not have
the same interest
o When the thing to be delivered is generic
o When the debtor is in delay
o When the liability proceeds from a criminal loss
The power to Rescind (cancel) and obligation
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The power to rescind obligation is implied in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him
Remedy:
o The injured party may choose between fulfillment and the recission with payment of
damages in either case
 Recission + damages, or fulfillment + damages
o He may also seek recission, even after he has chosen fulfillment, if the latter should
become impossible
The court shall decree the recission claimed, unless there be just cause authorizing the fixing of
a period (art. 1191)
Presumption on receipt of interest or of later installment
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Art. 1176. The receipt of the principal by the creditor without reservation with respect to the
interest, shall give rise to the presumption that said interest has been paid --- the receipt of a
later installment of a debt without reservation as to prior installments, shall likewise raise the
presumption that such installments have been paid.
o The issuance of creditor of receipt of the principal has the presumption that the interest
has already been paid.
o The issuance of creditor of receipt of installment without reservation to previous
installments, the same has the presumption that it is already paid.
o However, the other party can still present evidence to contradict the said presumptions.
Remedy of a creditor to enforce payment of his claims against the debtor
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Exact performance
Exhaust the assets in possession of the debtor, except those exempted by law
Accion subbragatoria – the creditor may subrogate the debtors of the debtor
Accion pauliana – the creditor may file an action in court for the recission of the contract which
was made to defraud the creditor
o To apply accion pauliana, the creditor must exhaust all available remedies mentioned
above
Transmissibility of rights
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General rule: all rights are transmissible
Exceptions to general rule:
o If the law prohibits the transmission of rights
o If there is an express stipulation prohibiting transmission
o If the right is by nature not transmissible
KINDS OF OBLIGATIONS
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Pure obligation
Conditional obligation
Obligation with a period
Alternative obligation
Facultative obligation
Joint obligation
Solidary obligation
Divisible obligation
Indivisible obligation
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Obligation with a penal cause
Pure Obligation and Conditional Obligation
Pure obligation
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One without a term or condition and is demandable at once
Conditional obligation
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The acquisition of rights, as well as the extinguishment or loss of those already acquired, shall
depend upon the happening of the event which constitute the condition
Kinds of conditional obligation:
 Suspensive condition – the happening of the event give ruse to the obligation
 Resolutory condition – demandable at once, the happening of the event
extinguish the obligation
 Potestative condition – condition that depends upon the will of one of the
contracting parties
 On the part of the debtor:
o If suspensive – void
o If resolutory – valid
 On the part of the creditor – valid whether suspensive or resolutory
 Casual – depends upon the chance or will of a third person
 Mixed – depends partly upon the will of the parties and partly upon the chance
or upon the will of a third person
o Impossible condition
 Art. 1183. Impossible conditions, those contrary to good customs, or public
policy and those prohibited by law shall annul the obligation which depends
upon them
 If the obligation is divisible, that part thereof which is not affected by the
impossible or unlawful condition shall be valid
 The condition not to do an impossible thing shall be considered as not having
been agreed upon
o Positive condition (positive suspensive)
 Art. 1184. The condition that some event happen at a determinate time shall
extinguish the obligation as soon as the time expires or if it has become
indubitable that the event will not take place.
 Here, art. 1184 applies when the obligation is subject to a positive
condition which will be extinguished as soon as the time expires or as
soon as it has become indubitable that the event will not take place
although the time specified has not yet expired.
o Negative condition (negative suspensive)
 Art. 1185. The condition that some event will not happen at a determinate time
shall render the obligation effective from the moment the time indicated has
elapsed, or if it has become evident that the event cannot occur ---- if no time
has been fixed, the condition shall be deemed fulfilled at such time as may have
probably been contemplated, bearing in mind the nature of obligation.
 Art. 1185 applies if the condition is negative.
 The obligation shall render effective once the from the moment the
time indicated has lapse of it has become evident that the event cannot
occur.
Rights of the parties before the fulfillment of condition
o The creditor may, before the fulfillment of the condition, bring the appropriate actions
for the preservation of his right
o The debtor may recover what during the same time he has paid by mistake in case of a
suspensive condition (art . 1188)
o The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment (art. 1186)
Effect of fulfillment of condition
o General rule: the effects of conditional obligation to give, once the condition has been
fulfilled, shall retroact to the day of the constitution of the obligation
o Exceptions to the general rule: there shall be no retroactive effect with respect to the
fruits and interests as follows:
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In reciprocal obligations, the fruits and interests during the pendency of the
condition shall be deemed to have mutually compensated
 In unilateral obligations, the debtor keeps the fruits and interests received
before the fulfillment of the condition
Rules in in case of loss, deterioration or improvement of determinate thing before the
fulfillment of the condition
 Loss of the thing
 Without the debtor’s fault – obligation is extinguished
 Through the debtor’s fault – debtor is obliged to pay damages
 Deterioration of the thing
 Without the debtor’s fault – the impairment shall be borne by the
creditor
 With the debtor’s fault – the creditor may choose between:
o Recission + damages
o Fulfillment + damages
 Improvement of the thing
 By nature of by time, the improvement shall inure to the benefit of the
creditor
 At the expense of the debtor – he shall have no other rights than the
granted to the usufructuary
Rules in case of fulfillment of resolutory condition
 Upon the fulfillment of the resolutory condition, the obligation is extinguished
 The parties shall return to each other what they have received
 In case of loss, the deterioration or improvement of the thing, the provision in
the above rule, which pertain to the debtor shall be applied to the party who is
bound to return
Obligations with a period
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An obligation with a period is one whose demandability or extinguishment is subjected to the
expiration of the term which must necessarily come.
Obligation with a resolutory period take effect once, but terminate upon arrival of the day
certain (termination upon the arrival of the day certain means fulfillment of the resolutory
condition)
o a day certain is understood to be that which must necessarily come, although it may not
be known when (art .1193)
In case of loss, deterioration or improvement of the thing before the arrival of the day certain,
rules in art. 1189 shall be observed (art. 1194)
Whenever in an obligation with a period is designated, it is presumed to have been established
for the benefit of both the creditor and the debtor, unless from the tenor of the same or other
circumstances it should appear that the period has been established in favor of one or of the
other (art. 1196)
Anything paid or delivered before the arrival of the period, the obligor being unaware of the
period or believing that the obligation has become due and demandable, may be recovered,
with the fruits and interests (art. 1195)
“when my means permits me to do so” - the obligation shall be deemed to be with a period
If the obligation does not fix a period, but from its nature and the circumstances, it can be
inferred that a period was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor
In every case, the courts shall determine such period as may under the circumstances have been
probably contemplated by the parties. Once fixed by the courts, the period cannot be changed
by them (art. 1197)
When the debtor loses his right to make use of the period
o When:
 He becomes insolvent, except when he gives guaranty or security for the debt
 He does not furnish to the creditor the guarantees or securities which he
promised
 In his own acts, he impaired the said guaranties or securities after their
establishment. When through fortuitous event, they disappear, unless he
immediately gives new ones equally satisfactory
 When the debtor violates any undertaking, in consideration of which the
creditor agreed to the period
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When the debtor attempts to abscond
Alternative obligation
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One where several prestations are due by the complete performance of one of them is sufficient
to extinguish the obligation
o The creditor cannot be compelled to receive part of one and part of the other
undertaking
The debtor has the right to choose, unless it has been expressly granted to the creditor
o The debtor shall have no rights to choose prestations which are impossible, unlawful, or
which could not have been the object of obligation
o If through the creditor’s acts the debtor cannot make a choice according to the terms of
the obligation, the latter may rescind the contract with damages
When obligation ceases to be alternative and becomes a simple obligation
o When the debtor has communicated his choice to the creditor
o When among the prestations whereby the debtor is alternatively bound, only one is
practicable
o When the creditor was given the right to choose and he has communicated his choice
the debtor
Rules in case of loss of things which are alternatively the object of the obligation have been lost,
or the compliance of the obligation has become impossible
o If the right of choice is with the debtor
 If only one or some was lost through fortuitous event or through the debtor’s
fault, the debtor may deliver any of the remainder, or that which remains if only
one subsists
 Of all are lost due to fortuitous event, the debtor’s obligation is extinguished
 If all are lost through the debtor’s fault, the debtor shall pay the value of the last
thing that was lost plus damages
o If the right of choice is with the creditor
 If only one or some was lost through fortuitous event, the debtor shall deliver
that which the creditor should choose among the remainder, or what which
remains if only one subsists
 If only one or some are lost through the debtor’s fault, the creditor may claim
any of those subsisting or the price of those which were lost through the
debtor’s fault plus damages
 If all are lost through fortuitous event, the debtor’s obligations is extinguished
 If all are lost through the debtor’s fault, the creditor may claim the price of any
of them plus damages
Facultative obligation
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When only one prestation has been agreed upon, but the obligor may render another in
substitution
Rules in case of loss of principal thing and substitute
o Before the substitution
 If the principal thing is lost through fortuitous event, the obligation is
extinguished
 If the principal thing is lost due to debtor’s fault, the debtor shall be liable for
damages
 If the substitute is lost, regardless of cause, the debtor is not liable
o After substitution
 If the principal thing is lost, regardless of cause, the debtor is not liable
 If the substitute is lost through the fortuitous event, the obligation is
extinguished
 if the substitute is lost due to debtor’s fault, the debtor shall be liable for
damages
Joint and Solidary obligations
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Joint obligation
o one where the credit or debt shall be presumed to be divided into as many equal shares
as there are creditors or debtors, the credit or debts being considered distinct from one
another. Each debtor is liable only for a proportionate part of the debt and each creditor
to his proportionate share to the credit
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proportionately, prorate, mancumonada ---Solidary Obligation
o it is where each of the debtors obliges to pay the entire obligation while each one of the
creditors has the right to demand from any of the debtors, the payment or fulfillment of
the entire obligation
when there is concurrence of two or more debtors and/or two or more creditors in one and
same obligation
jointly and severally, individually and collectively, in solidum --General rule: Joint obligation
o Exception to the general rule:
 When the obligation expressly so states
 When the law requires solidarity
 When the nature of the obligation requires solidarity
Kinds of solidarity
o Passive – solidarity on the part of the debtor
o Active – solidarity on the part of the creditor
o Mixed – solidarity on both parties
Solidarity may exist although the creditors and debtors may not be bound in the same manner
and by the same periods and conditions (art. 1211)
Rules in solidarity:
o As to debtors
 Any of the solidary debtor may be required to pay the whole obligation; there is
mutual guaranty among solidary debtors
 The debtor may pay any one of the solidary creditors; but if any demand,
judicial or extrajudicial, has been made by any one of them, payment should be
made to him (art. 1214)
 Payment made by one of the solidary debtors extinguishes the obligation. If two
or more solidary debtors offer to pay, the creditor may choose which offer to
accept.
He who made the payment may claim from his co-debtors only the
share which corresponds to each, with the interest for the payment
already made. If the payment is made before the debt is due, no
interest for intervening period may be demanded.
When one of the solidary debtors cannot because of his insolvency,
reimburse his share to the debtor paying the obligation, such share shall
be borne by all his co-debtors, in proportion to the debt of each.
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Payment by a solidary debtor shall not entitle him to reimbursement from his
co-debtors if such payment is made after the obligation has prescribed or
become illegal (art. 1218)
 The remission made by the creditor of the share which affects one of the
solidary debtors does not release the latter from his responsibility towards the
co-debtors, in case the debt has been totally paid by anyone of them before the
remission was affected (art. 1219)
 The remission of the whole obligation, obtained by one of the solidary debtors,
does not entitle him to reimbursement from his co-debtors (art. 1220)
 A solidary debtor may, in actions filed by the creditor, avail himself of all
defenses which are derived from the nature of the obligation and of those
which are personal to him, or pertain to his own share. With respect to those
which personally belong to the others, he may avail himself thereof only as
regards that part of the debt for which the latter are responsible (art. 1222)
As to creditors
 Anyone of the solidary creditors may collect or demand payment of the whole
obligation; there is mutual agency among solidary debtors
 The creditor may proceed against anyone of the solidary debtors or some or all
of them simultaneously. the demand made against of them shall not be an
obstacle to those which may subsequently be directed against the others, so
long as the debt has not been fully collected (art. 1216)
 Each of the solidary creditors may do whatever may be useful to the others but
not anything prejudicial to them (art. 1212); however, any novation,
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compensation, confusion or remission of debt made by any solidary creditors or
with any of the solidary debtors shall extinguish the obligation without
prejudice to his liability for the shares of solidary creditors (art. 1215 and 1219)
 A solidary creditor cannot assign his rights without the consent of the others
(art. 1213)
Rules in case of loss of thing or if the prestation becomes impossible
o If without the fault of the debtor
 Obligation is extinguished
o If there was fault on the part of any one of them
 All shall be responsible to the creditor, for the price and the payment of
damages and interest, without prejudice to their action against the guilty or
negligent debtor
o Of through fortuitous event
 If any or all of the solidary debtors are in delay, all of them shall be responsible
to the creditor for the price and the payment of damages and interest, without
prejudice to their action against the guilty or negligent debtor
 If there is no delay, the obligation is extinguished
Solidary and indivisibility
o The indivisibility of an obligation does not necessarily give rise to solidarity. Not does
solidarity itself imply indivisibility (art. 1210)
o Indivisibility refers to the subject matter or object not being susceptible of partial
performance. On the other hand, solidarity refers to tie between the parties.
o If the division is impossible, the right of the creditors may be prejudiced only by their
collective acts, and the debt can be enforced only by proceeding against all the debtors.
If one of the latter should be insolvent, the others shall not be liable for his share.
Divisible and Indivisible obligations
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Divisible obligation
o An obligation which is capable of partial performance
Indivisible obligation
o An obligation which is incapable of partial performance
Even though the object or service may be physically divisible, an obligation is indivisible if so
provided by law or intended by parties (art. 1225)
Joint indivisible obligation
o It gives rise to indemnity for damages from the time anyone of the debtors does not
comply with his undertaking. The debtors who may have been ready to fulfill their
promises shall not contribute to the indemnity beyond the corresponding portion of the
price of the thing or of the value of the service in which the obligation consists (art.
1224)
Obligations with penal clause
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the penalty shall substitute the indemnity for damages and payment of interests in case of noncompliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid of the obligor refuses to pay the penalty or is guilty of fraud
in the fulfillment of the obligation (art. 1226)
The debtor cannot exempt himself from the performance of the obligation by paying the
penalty, save in the case where this right has been expressly reserved for him.
Neither can the creditor demand fulfillment of the obligation and the satisfaction of the penalty
at the same time, unless this right has been clearly granted him
However, if after the creditor has decided to require the fulfillment of the obligation, the
performance thereof should become impossible without his fault, the penalty may be enforced
(art. 1227)
The proof of actual damages suffered by the creditor is not necessary in order that the penalty
may be demanded (art. 1228)
The judge shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has been no performance, the penalty
may also be reduced by the courts if it is iniquitous or unconscionable (art. 1229)
The nullity of the penal clause does not carry with it that of the principal obligation. The nullity
of the principal obligation carries with it that of the penal clause (art. 1230)
EXTINGUISHMENT OF OBLIGATION
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Payment or performance
Loss of the thing due
Condonation or remission of debt
Confusion or merger of the rights of creditor and debtor
Compensation
Novation
Prescription
Annulment
Recission
Fulfillment of resolutory condition
Payment or performance
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Payment is the fulfillment of the obligation by the realization of the purpose for which it was
constituted
Payment may consist not only in the delivery of money, but also giving of a thing other than
money, doing of an act, or not doing of an act (art. 1232)
Characteristics:
o Integrity – payment of the obligation must be completely made
 General rule: payment of performance must be complete
 Exception:
 If the obligation has been substantially performed in good faith, the
obligor may recover as though there had been a strict and complete
fulfillment, less damages suffered by the oblige.
 When the oblige accepts the performance, knowing its incompleteness
or irregularity, and without expressing any protest or objection, the
obligation is deemed fully complied with
o Identity – payment of the obligation must consist the performance of the very thing due
o Indivisibility – payment of the obligation must be in its entirety
 General rule: the debtor cannot be compelled by the creditor to perform
obligation in parts and neither can the debtor compel the creditor to accept
obligation in parts
 Exception:
 Partial performance has been agreed upon
 Part of the obligation is liquidated and part is unliquidated
 To require the debtor to perform in his full is impractical
If the obligation is a monetary obligation, the payment must be in legal tender
o The payment of debts in money shall be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency which is legal tender in the
Philippines
o The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor, they have been impaired
o In the meantime, the action derived from the original obligation shall be held in the
abeyance (art. 1249)
In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of establishment of the obligation shall
be the basis of payment, unless there is an agreement to the contrary (art. 1250)
As to place of payment
o In the place designated in the obligation
o If there is no stipulation as to place of payment:
 If the undertaking is to deliver a determinate thing – the payment shall be made
wherever the thing might be at the moment the obligation was constituted
 In any other case the place of payment shall be the domicile of the debtor
Payment of the third persons
o General rule: creditor is not bound to accept payment or performance by a third person
o Exceptions:
 When made by a third person who has interest in the fulfillment of the
obligation
 In this case, the third party who has interest in the fulfillment of the
obligation can still exercise his rights even if the payment was made
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without the consent of the debtor (reimbursement and right to
subrogation)
 Contrary to the obligation (art. 1236)
Rights of the third person who made the payment
 If the payment was made with knowledge and consent of the debtor
 Total reimbursement of what he has paid
 Right of subrogation to all the rights of the creditor
 If the payment was made without the knowledge or consent of the debtor
 Can only recover only insofar as payment has been beneficial to the
debtor
 No right of subrogation
Payment made by a third person who does not intend to be reimbursed by the
debtor is deemed to be a donation, which requires the debtor’s consent. But
the payment is in any case valid as to the creditor who accepted it (art. 1238)
Payment to whom payment is made
o Persons entitled to receive the payment
 The person in whose favor the obligation has been constituted
 His successor in interest
 Any person authorized to receive it (art. 1240)
o General rule:
 Payment to unauthorized person is not a valid payment
 Exceptions:
 Payment to a person who is incapacitated to administer his property
shall be valid if he has kept the thing delivered, or insofar as the
payment has been beneficial to him
 Payment made to a third person shall also be valid insofar as it has
redounded to the benefit of the creditor
o Benefit to the creditor need not be proved:
 If after the payment, the third person acquires the
creditor’s rights;
 If after the creditor ratifies the payment to the third
person
 If by the creditor’s conduct, the debtor has been led to
believe that the third person had authority to receive
the payment
 Payment in good faith to the possessor of credit (art. 1242)
o Note: the payment made to the creditor by the debtor after the
latter has been judicially ordered to retain the debt shall not be
valid
Special forms of payment
o Dation in payment
 Alienation by the debtor of a particular property in favor of his creditor, with the
latter’s consent, for the satisfaction of the former’s money obligation to the
latter, with the effect of extinguishing the said money obligation
 Requisites:
 Existence of money obligation
 The alienation to the creditor of a property by the debtor with the
consent of the former
 The satisfaction of the money obligation of the debtor
o Application of payment
 Designation of the particular debt being paid by the debtor who has two or
more debts or obligations of the same kind in favor of the same creditor to
whom payment is made
 Requisites:
 There is only one debtor and creditor
 The debtor owes the creditor two or more debts
 Debts are of the same kind or identical nature
 All debts are due and demandable except:
o When there are mutual agreements between the parties
o
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The application is made by the party for whose benefit the term
has been constituted
 The payment made is not sufficient to cover all obligation
 Rules in application of payment
 The debtor is given the preferential right to apply the payment and
designate the debt to be paid
 If the debtor does not make the designation, the creditor will apply the
payment
 If neither of the debtor nor the creditor makes the designation, the
following rules shall apply:
o Payment shall be applied to the most onerous debt
o If the debts are of the same nature, burden, payment shall be
applied to all debts proportionately
Payment by cession
 Debtor cedes his property to his creditors so the latter may sell the same and
the proceeds realized applied to the debts of the debtor
 Requisites:
 Plurality of debts
 Partial or relative insolvency of the debtor
 The debtor abandons all his properties except those which are except
from execution
 Acceptance of the cession by the creditors
Tender of payment
 Voluntary act of the debtor whereby he offers to the creditor for acceptance the
immediate performance of the former’s obligation to the latter
Consignation
 Act of depositing the object of the obligation with the court or competent
authority after the creditor has unjustifiably refused to accept the same or is not
in a position to accept it due to certain reasons or circumstances


Requisites for tender of payment and consignation to extinguish the obligation:
 there is a valid tender of payment
 the creditor refuses without just cause to receive the payment
 the persons interested in the fulfillment of the obligation must be
notified by the debtor of his intention to deposit the sum or thing due
with the judicial authorities
 the sum or thing due is deposited with judicial authorities
 the persons interested in the fulfillment of the obligation must again be
notified by the debtor that the consignation has been made
o Once the consignation has been duly made, the debtor may ask
the judge to order the cancellation of the obligation
o Before the creditor has accepted the consignation, or before a
judicial declaration that the consignation has been properly
made, the debtor may withdraw the thing or the sum
deposited, allowing the obligation to remain in force.
When consignation, without a previous tender of payment will produce the
same effect
 When the creditor is absent or unknown or does not appear at the place
of payment
 When he is incapacitated to receive the payment at the time it is due
 When, without just cause, he refuses to give a receipt
 When two or more persons claim the same right to collect
 When the title of the obligation has been lost
Los of the thing due
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A thing is lost when it perishes, or goes out of commerce, or disappears in such a wat that its
existence is unknown or it cannot be recovered.
Loss of a determinate thing – obligation is extinguished
Exceptions:
o
o
o
o
o
o
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Loss is due to fault of the debtor
Debtor is in delay
When law provides
There is an express stipulation
Nature of the obligation requires the assumption of risk
The debt proceeds from a criminal offense (unless the person who should receive it
refuses to accept it without just cause)
Loss of generic thing: obligation is not extinguished; genus never perishes
The debtor in obligation to do shall also be released when the prestation becomes legally or
physically impossible without the fault of the obligor (art. 1266)
When the service has become so difficult as to be manifestly beyond the contemplation of the
parties, the obligor may also be released therefrom, in whole or in part (art. 1267)
If the obligation has been extinguished by the loss of the thing, the creditor shall have all rights
of action which the debtor may have against third persons by reason of loss (art. 1269)
Condonation or remission
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An act of liberality by virtue of which the creditor, without receiving any price or equivalent,
renounces the enforcement of the obligation, as a result of which it is extinguished in its entirety
or in that part or aspect of the same to which the condonation or remission refers.
Requisites of condonation
o Must be gratuitous
o Acceptance by the debtor
o Must not be inofficious
o Formalities provided by law on donations must be complied with if condonation is
express
o An existing demandable debt at the time the remission is made
The delivery of a private document evidencing a credit, made voluntarily by the creditor to the
debtor, implies the renunciation of the action which the former had against the latter (art. 1271)
Whenever the private document in which the debt appears is found in the possession of the
debtor, it shall be presumed that the creditor delivered it voluntarily, unless the contrary is
proved (art. 1272)
The renunciation of the principal debt shall extinguish the accessory obligations, but the waiver
of the latter shall leave the former in force.
Merger or confusion
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there is a confusion when there is a meeting in one person of the qualities of a creditor and
debtor of the same obligation
requisites:
o it must take place between the creditor and the principal debtor (art. 1276)
o the very same obligation must be involved (for if the debtor acquires rights from the
creditor, but no the particular obligation in question, there will be no merger)
o the confusion must be total or as regards to the entire obligation
Effect of merger confusion or merger of rights
o The creditor and debtor become the same person involving the same obligation. Hence,
the obligation is extinguished (art. 1275)
o Merger which takes place in the person of the principal debtor or creditor benefits the
guarantors.
o Confusion which takes place in the person of any of the latter does not extinguish the
obligation
Merger in a joint obligation
o Confusion does not extinguish a joint obligation except as regards to the share
corresponding to the creditor or debtor in whom the two characters concur.
Merger in solidary obligation
o Merger in one of the solidary debtors or solidary creditors extinguishes the whole
obligation
Compensation
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Compensation is a mode of extinguishing obligations that take place when two persons, in their
own right, are creditors and debtors of each other
Requisites:
o
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Each one of the obligors must be bound principally, and that he be at the same time a
principal creditor of the other except guarantor who may set up compensation as
regards what the creditor may owe the principal
o Both debts consist in sum of money, or if the things due are consumable, they be of the
same kind and also of the same quality of the latter has been stated
o Both debts are due
o Both debts are liquidated and demandable
o Neither debt must be retained in a controversy commenced by third person and
communicated in due time to the debtor (neither debt is garnished) (art. 1279)
o Compensation must not be prohibited by law (art. 1290)
Debts or obligation not subject to compensation
o Debts or obligations arising from contracts of depositum (art. 1287)
o Debts arising from obligations of a depositary
o Debts arising from obligations of a bailee in commudatum
o Claims for support due by gratuitous title
o Obligations arising from criminal offenses
o Certain obligations in favor of the government
Kinds of compensation
o Legal compensation – operated by law
o Conventional obligation – agreement of the parties
o Judicial (set-off) – by judgement of the court when there is a counterclaim duly pleaded,
and the compensation decreed
o Facultative – may be claimed or opposed by one of the parties
 Obligations subject to facultative compensation. When debt arises from:
 Depositum
 Obligations of a depositary
 Obligations in commudatum
 Support
o General rule: claim of support due to gratuitous title
o Exceptions:
 Future support
o Civil liability from a crime
Novation
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It is the substitution or change of an obligation by another, resulting in its extinguishment or
modification, either by changing the object or principal conditions, or by substituting another in
the place of the debtor or by subrogating a third person to the rights of the creditor
Requisites:
o Valid old obligation
o Agreement between the parties or to modify the old obligation
 Exceptions:
 When a person of the debtor is changed which can be made even if it is
against the will of the debtor
 When another person is subrogated in the place of the creditor
o Extinguishment of the old obligation
o Valid new obligation
Kinds of novation
o According to object or purpose
 Real/objective – changing the object or principal condition
 Personal/subjective – change of the parties
 Substituting the person of the debtor (always with the creditor’s
consent)
o Expromission – third person initiates the substitution and
assumes the obligation even without the knowledge or against
the will of the debtor
o Delegacion – the debtor initiates the substitution, which
requires the consent of all parties
 Subrogating a third person in the rights of the creditor
o Conventional – change of creditor by the agreement of the
parties
o Legal – subrogation by operation of law

It is presumed that there is legal subrogation when:
 When a creditor pays another creditor who is
preferred, even without the debtor’s
knowledge
 When a third person, not interested in the
obligation pays with the express or tacit
approval of the debtor
 When, even without the knowledge of the
debtor, a person interested in the fulfillment of
the obligation pays without prejudice to the
effects of confusion as to the latter’s share
Mixed – change of object and parties to the obligation
o
According to form
 Express – novation declared in unequivocal terms
 Implied – when the old and new obligation are on every point incompatible with
each other
Effect of novation on accessory obligations
o When the principal obligation is extinguished in consequence of a novation, accessory
obligations shall also be extinguished except in the following cases:
 When the accessory obligation was established for the benefit of third persons
who did not give their consent (art. 1296)
 When there was a stipulation that the accessory obligation will subsist
notwithstanding the novation
 When the novation is one where a third person is subrogated in the rights of the
creditor
o Note:
 If the new obligation is void, the original one shall subsist as there is no
novation. However, even if the new obligation turns out to be void, the original
obligation does not subsist if the parties clearly intended that the former
relation should be extinguished in any event (art. 1297)
Effect if original obligation is subject to suspensive or resolutory condition
o If the original obligation was subject to a suspensive or resolutory condition, the new
obligation shall be under the same condition, unless it is otherwise stipulated (art. 1299)
Preference to creditor in case of partial payment
o A creditor, to whom partial payment has been made, may exercise his right for the
remainder, and he shall be preferred to the person who has been subrogated in his
place in virtue of the partial payment of the same credit (art. 1304)
o
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