. OBLIGATIONS
A. In General
1.
Definition
Art. 1156. An obligation is a juridical necessity to give, to do or not to do.
What is the definition of an obligation? It is best defined by Arias Ramos which reads as follows, “an OBLIGATION is a juridical
relation whereby a person (called the creditor) may demand from another (called the debtor) the observance of a
determinate conduct, and, in case of breach, may obtain satisfaction from the assets of the latter”. This means that where
there is a right or power to demand, there is a correlative obligation or an imposition upon a person of a definite conduct.
What are the elements of obligation? It has four definite elements as follows:
1. an active subject, who has the power to demand the prestation, known as the oblige or creditor;
2. a passive subject, who is bound to perform the prestation, known as the obligor or debtor;
a. These two, the active and passive subjects are considered as the personal elements of an obligation.
b. They could be an individual person or juridical persons.
c. They must be determinable in some manner. Exceptions are the following examples: (1) negotiable instrument
payable to bearer, (2) promise of a prize or a reward for anyone performing a certain act.
3. an object or the prestation;
a. This may pertain not to a thing but to a particular conduct of the debtor; hence, a prestation which may consist
in giving (prestation consists in the delivery of a movable or immovable thing) or doing (all kinds of services)
or not doing (abstaining from some act, may include not to give) something, e.g. it is not the thing which the
vendor must deliver, but the necessary conduct to produce the effects of the sale that is the object.
4. the efficient cause or the juridical tie (vinculum juris) between the two subjects by reason of which the debtor is bound
in favor of the creditor to perform the prestation.
a. This pertains to the juridical or legal tie, which is the vinculum, that may either be a relation established by the
following:
i. Law (relation to give support)
ii. Bilateral acts (contracts giving rise to obligation)
iii. Unilateral acts (crimes and quasi-delict)
What are the requisites of a prestation?
1. must be possible, physically and juridically;
2. must be determinable or at least determinable according to pre-established elements or criteria; and
3. must have a possible equivalent in money (need not be for one of the parties because it could be for the benefit of third
persons; the criterion to determine whether the obligation has a pecuniary value is not limited to the object or
prestation thereof, but extends to the sanction which corresponds to the juridical duty; this is differentiated with
creditor’s interest because the latter need not be economic or patrimonial since it may be sentimental or ideal but the
object of prestation must have an economic value or in case of nonfulfillment, be susceptible of substitution in money or
something of patrimonial value)
Characteristics of an Obligation:
1. It represents an exclusively private interest
2. It creates ties that are by nature transitory
3. It involves the power to make the juridical tie effective in case of non-fulfillment through an economic equivalent
obtained from the debtor's patrimony.
Essential Elements of an Obligation:
(1) Active Subject – This refers to the creditor or the obligee.
 A creditor generally used in an obligation to give
 while obligee is used in an obligation to do
(2) Passive Subject – This refers to the debtor or the obligor.
 debtor is used in an obligation to give
 while obligor is used in an obligation to do
The first two elements must be determinate or determinable. The following are possible combinations:

Both parties are determined at the time of the execution of the obligation.


one party is determined at the constitution of the obligation & the other to be determined subsequently in accordance
with a criteria that is previously established.
the subject is determined in accordance with his relation to a thing & therefore it changes where the thing passes from
one person to another. This is a property-linked obligation.
(3) Object of the obligation - the conduct or activity that must be observed by the debtor, this is always an activity or conduct, the
prestation.
Requisites of an object:
 It must be licit.
 It must be possible.
 It must be determinate or determinable.
 It must have pecuniary value so that if not performed it is converted into damages.
(4) Vinculum juris- the legal tie, whereby upon default or refusal of the debtor to perform, the creditor can go to court.
 When a person says "I promise to pay you when I like to," there is no obligation here because there is no vinculum
juris.
 Juridical tie, the efficient cause established by the various sources of OBLIGATIONS
> by virtue of which the debtor is bound in favor of the creditor to perform the prestation.
Efficient cause / vinculum  may either be relation established by:
1. Law (e.g. marital relation giving rise to OBLIGATION for support;
2. Bilateral acts (e.g. contracts give rise to the OBLIGATIONs stipulated therein)
3. Unilateral acts (e.g. crimes and quasi-delicts)
2. KINDS OF OBLIGATIONS AS TO BASIS & ENFORCEABILITY
(a) NATURAL OBLIGATIONS
(Arts. 1423 – 1430  not exclusive enumeration; some others can be)
H. NATURAL OBLIGATIONS – ARTS. 1423-1430. 1155
Article 1423. Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural
obligations, not being based on positive law but on equity & natural law, do not grant a right of action to enforce their
performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or rendered
by reason thereof. Some natural obligations are set forth in the following articles.
Article 1424. When a right to sue upon a civil obligation has lapsed by extinctive prescription, the obligor who voluntarily
performs the contract cannot recover what he has delivered or the value of the service he has rendered.
Article 1425. When without the knowledge or against the will of the debtor, a third person pays a debt which the obligor is not
legally bound to pay because the action thereon has prescribed, but the debtor later voluntarily reimburses the third person,
the obligor cannot recover what he has paid.
Article 1426. When a minor between 18 and 21 years of age who has entered into a contract without the consent of the parents
or guardian, after the annulment of the contract voluntarily returns the whole thing or price received, notwithstanding the
fact that he has not been benefited thereby, there is no right to demand the thing or price thus returned.
Illustrations:
1. A filed an action to compel B to fulfill the latter’s obligation to the former, will the action prosper? Not necessarily because
in natural obligations no court action can compel performance because it is an action based on equity, conscience and natural
justice. Natural obligations are midway between civil obligations and the purely moral obligations. In order that there may be a
natural obligation, there must exist a juridical tie (vinculum juris) which is not prohibited by law and which in itself could give
a cause of action, but because of some special circumstances is actually without such legal sanction or means of enforcing
compliance by invoking the intervention of the court.
Basis: Art. 1423 Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural
obligations, not being based on positive law but on equity performance, but after voluntary fulfillment by the obligor, they
authorize the retention of what has been delivered or rendered by reason thereof. Some natural obligations are set forth in the
following articles.
Article 1427. When a minor between 18 and 21 years of age, who has entered into a contract without the consent of the parent
or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the obligation, there shall be no right
to recover the same from the obligee who has spent or consumed it in good faith.
Note: It is not the voluntary payment that prevents recovery under this article, but the fact that the obligee has consumed or
spent the thing or money in GOOD FAITH. Although it is true that the contract can be annulled, but until it is so annulled, it
exists as a civil obligation.
General rule: Upon the annulment of the contract, the party who contracted with the minor must return whatever he may
have received under the contract.
Exception: If the payment was made although by the minor, but the thing or money paid was consumed or spent in good faith
(belief that the debtor has the capacity to deliver the object; must exist at the time that the thing was consumed or money was
spent; can be recovered still by the debtor if the good faith, even if it existed at the time of the delivery, has ceased to exist at
the time of consumption or spending).
Is the thing here always have to be consummable? No, because although non-consummable, the debtor cannot recover, if the
think is no longer in the possession of the creditor who has acted in good faith, either he has alienated it or it has been lost,
without his fault.
Article 1428. When, after an action to enforce a civil obligation has failed, the defendant voluntarily performs the obligation,
he cannot demand the return of what he has delivered or the payment of the value of the service he has rendered.
Article 1429. When a testate or intestate heir voluntarily pays a debt of the decedent exceeding the value of the property which
he received by will or by the law of intestacy from the estate of the deceased, the payment is valid & cannot be rescinded by
the payer.
Article 1430. When a will is declared void because it has not been executed in accordance with the formalities required by law,
but one of the intestate heirs, after the settlement of the debts of the deceased, pays a legacy in compliance with a clause in the
defective will, the payment is effective & irrevocable.
Note: This article includes ever licit obligation which is unenforceable because of the lack of proper formalities.
Article 1960. If the borrower pays interest when there has been no stipulation therefor, the provisions of this Code concerning
solutio indebiti, or natural obligations, shall be applied, as the case may be.
Article 1956. No interest shall be due unless it has been expressly stipulated in writing.
Why would this Natural Obligation be allowed in our jurisdiction? Itr It is because equality, morality and natural justice as the
foundations of a positive law makes wisdom to this obligation so as the so-called moral obligation.
What is the basis of natural obligation? It is from the nature of man and of things, as well as from law and reason, there arises a
natural law, which is immutable and independent of all human regulations; as sometimes called as rational law.
What are the types of obligations?
In juridical science, four types of which include the following:
1. Moral obligation- duties of conscience completely outside of the field of law
2. Natural obligation- not sanctioned by any action but have relative juridical effect
3. Civil obligation- juridical obligations which apparently in conformity with positive law but are contrary to juridical
principles and susceptible of being annulled
4. Mixed obligation- have full juridical effect
However, jurisprudence makes only two classifications, as follows:
1. Natural obligation
2. Civil obligation
Requisites of Natural OBLIGATION:
1. there is a juridical tie between two persons (distinguishes it from moral obligation)
2. the tie is not given effect by law (distinguishes it from civil obligation)

an OBLIGATION without a sanction, susceptible of voluntary performance, but not through compulsion by
legal means.
Voluntary fulfillment – may be understood as spontaneous, free from fraud or coercion or it may be understood as meaning
without knowledge or free from error;
-with knowledge that he cannot be compelled to pay OBLIGATION;
RATIO: “reputation” (clan)
-this is being distinguished from payment by mistake (solution indebiti) which constitutes quasi-contract because
payment by mistake is not voluntary and hence may be recovered.
-payment here is voluntary when the debtor knew of the obligation to be a natural one.
Natural OBLIGATION
Juridical tie
Performance by
debtor
Basis of existence
of OBLIGATION
Enforceability
vs.
Moral OBLIGATION:
Natural
Moral
OBLIGATION
OBLIGATION
Exists
None
legal fulfillment of act
of
pure
an OBLIGATION liberality
which
springs from blood,
affection
or
benevolence
Within the domain entirely domain of
of law
morals
The juridical tie moral
duty
is
itself
produces inexistent in the
certain
civil juridical point of
effects;
True view
OBLIGATION
but for certain
causes cannot be
enforced by law
Examples of natural OBLIGATIONS:

Support of a natural child

Indemnification of a woman seduced

Support of relatives, by consanguinity or affinity
CIVIL
OBLIGATIONS
Source of binding
force & effect
From positive law
Enforceability
can be enforced by
court action or the
coercive power of
public authority
NATURAL
OBLIGATIONS
from equity and
natural justice
cannot be compelled
by court action but
depends upon good
conscience of the
debtor
When can you convert a natural obligation to civil one? This can made through; (1) novation: (2) confirmation or ratification
unless contrary to law, morals or public order.
Can you guarantee a natural obligation? In principle, no. because the liability of the guarantor presupposes that there must be a
prior exhaustion of the property of the principal debtor, and that the guarantor after paying can recover from the principal debtor—
and both of these cannot be legally done when the obligation is natural. The legal consequence of having a guaranty for a natural
obligation is to convert the same to a civil obligation because that guaranty will now be subject to some coercive remedies to be
enforced against it.
Illicit OBLIGATIONS  OBLIGATIONS which are contrary to morals and good customs do not constitute natural
OBLIGATIONS, whatever is paid under such OBLIGATIONS can be recovered, without prejudice to the provisions of Articles
1411 and 1412, but Article 1414 may apply.
PRESCRIPTION OF ACTIONS
What is “prescription of actions” means? It is also known as the limitation of actions which refers to the time within which an
action may be brought, or some act done, to preserve a right.
What are “Statutes of Limitation”? These are the acts limiting the time within which actions shall be brought. They do not confer
any right of action but are enacted to restrict the period within which the right might be asserted. They can be available as defenses
but not matters of substantive right. The purpose is to protect the diligent and vigilant not those who sleep on their rights. They are
statutes of repose, the object of which is to suppress fraudulent and stale claims from springing up at great distances of time and
surprising the parties or their representatives when all the proper vouchers and evidence are lost or the facts have become obscure
from the lapse of time or the defect memory or death or removal of witnesses. These contemplate civil actions not criminal actions.
What is the difference between laches and prescription? Laches is concerned with the effect of delay while prescription is concerned
with the fact of delay. Laches is principally the question of inequity of permitting a claim to be enforced while prescription is a
matter of time. Laches applies to equity while prescription is statutory/law.
Article 1139. Actions prescribed by the mere lapse of time fixed by law.
Note: For example, in computing the prescriptive period if it is a leap year, February 28 and 29 are two separate days.
What is the effect of lapse of time? It has the effect of extinguishing the action. However, this to be availed of as a defense should
be pleaded in the answer. The right of prescription however can be waived or renounced. It is deemed waived if not timely
raised or pleaded before or during trial. Exception if it is apparent in the pleading itself.
Case: Development Bank of the Philippines vs. Spouses Patricio Confessor
Facts: On February 10, 1940 spouses Patricio Confesor and Jovita Villafuerte obtained an agricultural loan from the Agricultural and Industrial
Bank (AIB), now the Development of the Philippines (DBP), in the sum of P2,000.00, Philippine Currency, as evidenced by a promissory note of
said date whereby they bound themselves jointly and severally to pay the account in ten (10) equal yearly amortizations. As the obligation remained
outstanding and unpaid even after the lapse of the aforesaid ten-year period, Confesor, who was by then a member of the Congress of the Philippines,
executed a second promissory note on April 11, 1961 expressly acknowledging said loan and promising to pay the same on or before June 15, 1961.
Said spouses not having paid the obligation on the specified date, the DBP filed a complaint dated September 11, 1970 in the City Court of Iloilo
City against the spouses for the payment of the loan.
Issue: Whether the validity of a promissory note which was executed in consideration of a previous promissory note, the enforcement of which is
barred by prescription may still be demandable.
Held: Yes. The right to prescription may be waived or renounced. Article 1112 of Civil Code provides:
Art. 1112. Persons with capacity to alienate property may renounce prescription already obtained, but not the right to prescribe in the future.
Prescription is deemed to have been tacitly renounced when the renunciation results from acts which imply the abandonment of the right
acquired.
There is no doubt that prescription has set in as to the first promissory note of February 10, 1940. However, when respondent Confesor executed
the second promissory note on April 11, 1961 whereby he promised to pay the amount covered by the previous promissory note on or
before June 15, 1961, and upon failure to do so, agreed to the foreclosure of the mortgage, said respondent thereby effectively and expressly
renounced and waived his right to the prescription of the action covering the first promissory note.
This Court had ruled in a similar case that –
... when a debt is already barred by prescription, it cannot be enforced by the creditor. But a new contract recognizing and assuming the prescribed
debt would be valid and enforceable ... .
Thus, it has been held —
Where, therefore, a party acknowledges the correctness of a debt and promises to pay it after the same has prescribed and with full knowledge of
the prescription he thereby waives the benefit of prescription.
This is not a mere case of acknowledgment of a debt that has prescribed but a new promise to pay the debt. The consideration of the new
promissory note is the pre-existing obligation under the first promissory note. The statutory limitation bars the remedy but does not
discharge the debt.
A new express promise to pay a debt barred ... will take the case from the operation of the statute of limitations as this proceeds upon the ground
that as a statutory limitation merely bars the remedy and does not discharge the debt, there is something more than a mere moral obligation to
support a promise, to wit a – pre-existing debt which is a sufficient consideration for the new the new promise; upon this sufficient consideration
constitutes, in fact, a new cause of action.
... It is this new promise, either made in express terms or deduced from an acknowledgement as a legal implication, which is to be regarded as
reanimating the old promise, or as imparting vitality to the remedy (which by lapse of time had become extinct) and thus enabling the creditor to
recover upon his original contract.
Under Article 165 of the Civil Code, the husband is the administrator of the conjugal partnership. As such administrator, all debts and obligations
contracted by the husband for the benefit of the conjugal partnership, are chargeable to the conjugal partnership. 5No doubt, in this case,
respondent Confesor signed the second promissory note for the benefit of the conjugal partnership. Hence the conjugal partnership is liable for this
obligation.
Article 1140. Actions to recover movables shall prescribe 8 years from the time the possession thereof is lost, unless the possessor has acquired
the ownership by prescription for a less period, according to Article 1132 and without prejudice to Articles 559, 1505 and 1133.
Article 1132. The ownership of movables prescribes through uninterrupted possession for four years in good faith.
The ownership of personal property also prescribed through uninterrupted possession for 8 years, without need of any other condition.
With regard to the right of the owner to recover personal property lost or of which he has been illegally deprived, as well as with respect to movables
acquired in a public sale, fair, or market, or from a merchant’s store, the provisions of Article 559 and 1505 shall be observed.
Article 1141. Real actions over immovables prescribe after 30 years. This provision is without prejudice to what is established for the acquisition
of ownership and other real rights by prescription.
Note: While an action for reformation of instrument, such as a contract of sale with pacto de retro alleged to be merely an equitable
mortgage, is an action based upon a written contract which must be brought within 10 years form the time the right of action accrues
(Article 1144), where however, the accrual of such right could not be established it is more logical to apply this provision, Article
1141 because in reality the action seeks to reassert one’s title of ownership over the real property, not to recover the same.
Article 1142. A mortgage action prescribes after 10 years.
Note: The fact that the mortgage is registered does not make its action to foreclose imprescriptible.
Article 1143. The following rights, among others specified elsewhere in this Code, are not extinguished by prescription:
1. To demand a right of way, regulated in Article 649;
2. To bring action to abate a public or private nuisance.
Note: Also included in the list is that provided for in Article 494 of the Civil Code which allows no prescription to run in favor of
a co-owner or co-heir against co-owners or co-heirs so long as he expressly or impliedly recognize the co-ownership because the
possession of each of the co-owner or co-heir is in the nature of a subsisting trust and considered to be in the name of the other.
Exception: It will prescribe if the co-owner or co-heir has possessed the property as exclusive owner for a period sufficient to
acquire the property by prescription.
Other imprescriptible actions:
1. Action by the government or a governmental entity;
2. Action for mandamus;
3. Action to enforce an express trust as long as the trustee does not repudiate the trust;
4. Action to quiet title of the property in one’s possession;
5. Action or defense to declare a contract or judgment void ab initio;
6. Action of the registered owner to recover his land.
Article 1144. The following actions must be brought within 10 years from the time the right of action accrues:
1. Upon a written contract;
2. Upon an obligation created by law; and
3. Upon a judgment.
Note: Remember that the action for reconveyance of the title to the rightful owner prescribes in 10 years from the issuance of the
title. But is fraud has been committed, and this is the basis of action, not implied trust, the action will be barred after four years
from the discovery of the fraudulent act.
Article 1145. The following actions must be commenced within 6 years:
1. Upon an oral contract;
2. Upon a quasi-contract.
Article 1146. The following actions must be instituted within 4 years:
1. Upon an injury to the rights of the plaintiff;
2. Upon a tort or quasi-delict.
*An action based on fraud.
Note: Example of injury to the rights of the plaintiff is when there is an unjustified separation from employment. Example of
actions of tort or quasi-delict is; where real property belongs in ownership to D and over which he was and has always been in
possession but by mistake of the cadastral clerk came to be titled in 1935 in the name of L, who had never claimed it and knew all
along that he was not the owner but only had a paper title thereto, never bothered to disturb the possession of D until 1948 when
he sought to do so, thereafter filing his reinvindicatory action to recover the land from D in 1949, the counterclaim for reconveyance
contained in the answer of D has been filed within the period to recover on a quasi-delict.
Article 1147. The following actions must be filed within one year:
1. For forcible entry and detainer;
2. For defamation.
Article 1148. The limitations of actions mentioned in Articles 1140 to 1142 and 1144 and 1147 are without prejudice to those specified in other
parts of this Code, in the Code of Commerce, and in special laws.
Article 1149. All other actions whose periods are not fixed in this Code or in other laws must be brought within 5 years from the time the right of
action accrues.
Note: The right to collect taxes is imprescriptible.
Article 1150. The time for prescription for all kinds of actions, when there is no special provision which ordains otherwise, shall be counted from
the day they may be brought.
Note: It is to be computed from the day on which the corresponding action could have been instituted. It is the legal possibility of
bringing the action which determined the starting point for the computation of the period. The period should not be made to
retroact to the date of execution of contract.
The commencement of cause of actions:
1. Closing of windows- the period of prescription for the action to close must be counted from the day they were opened.
2. Obligation to pay upon receipt of an inheritance by the debtor- from the date of such receipt because when the obligation
is subject to a suspensive condition, prescription begins to run from the happening of the condition.
3. Obligation without maturity date or note payable on demand- from the date of the note or obligation NOT from demand.
4. Unpaid balance of a subscription to shares of a corporation- from the date of call or demand.
5. Payment of money within a year but with privilege of extension- from the end of the first year.
6. Action based on fraud- from the discovery of fraud.
7. Quasi-delict- from the day the quasi-delict accrued or was committed.
8. Action for partition and reconveyance based on implied or constructive trust- from the date of issuance of the original
certificate of title because registration is notice to the world.
9. Period to claim inheritance- until a 3rd person claims a right under such instrument.
10. To set aside simulated written deed of pacto de retro sale- when the alleged vendees made known their intention by overt
acts not to abide by the true agreement NOT from the date of execution of contract.
Article 1151. The time for the prescription of actions which have for their object the enforcement of obligations to pay principal with interest or
annuity runs from the last payment of the annuity or of the interest.
Note: This is applicable only when the principal debt is already due. But where there exist a past due mortgage which was
recognized by payments of interest, prescription ran only from the past payment of interest.
Article 1152. The period for prescription of actions to demand the fulfillment of obligations declared by a judgment commences from the time the
judgment became final.
Note: Judgment will only become final upon the expiration of the period for appeal in the trial court. But in the SC or CA, the true
judgment is that entered by the Clerk of that Court pursuant to the dispositive portion of its decision. The period is 10 years from
such entry or period under Article 1144.
Article 1153. The period for prescription of actions to demand accounting runs from the day the persons who should render the same cease in
their functions. The period for the action arising from the result of the accounting runs from the date when said result was recognized by
agreement of the interested parties.
Note: The period of prescription begins to run in an action to compel an accounting by a joint account partner, from the date of the
retirement of the members. For accounts, the following rules apply:
1. For mutual current accounts, it begins to run on the date of the last item, no matter how far back the account commenced.
2. For simple current open accounts, it begins to run from the date of each particular item.
3. Current account guaranteed by mortgage executed in a public instrument, it begins to run from the date of the last
payment.
4. When the accounting has been made between the parties in their current account dealings, the right of action, and
prescription begins to run on the date when the last balance of prescription was struck and NOT when the business
relations terminated.
Article 1154. The period during which the obligee was prevented by a fortuitous event from enforcing his right is not reckoned against him.
Note: There is only interruption of the running of prescription when the courts cannot be kept open and are not within the reach of
the people. The Statute of Limitations does not operate against the Government. An example of interruption is the destruction of
records of the case.
Article 1155. The prescription of actions is interrupted (1) when they are filed before the court, (2) when there is written extra-judicial demand
by the creditors, and (3) when there is any written acknowledgment of the debt by the debtor.
Note: For the first interruption, it lasts during the pendency of the action and runs anew after the dismissal of the first action to
revive judgment. When interruption of action is legally commenced? It is from the time the complaint is docketed in Court. How
about if the prescription is interrupted by a judicial demand? The full period for the prescription must be reckoned from the cessation
of the interruption.
When there is no suspension in filing of action in court?
1. When the plaintiff desist
2. Amendment of the complaint with new or different cause of action
3. New or additional defendants
For the second interruption, it is so because since the extinctive prescription is based on presumed abandonment of a right, it is
obvious that the running of the period should be interrupted when a demand is made by the creditor upon the debtor before the
lapse of the period fixed by law, with the burden of proof on the former. It must also be written.
For the third interruption, it is so if the acknowledgment is in writing. Does it always have to be express? Not so because it can be
implied therein, provided it is written and must apply to a particular or specific debt. Examples are the following:
1. A promise to pay a debt.
2. Listing of mortgage indebtedness by the debtor in his schedule of liabilities filed in insolvency proceedings.
3. Statement by one of the maker of a PN that he supposed he would have to pay it, if the amount could not be gotten out
of the estate of other drawer.
4. Notation in the handwriting of the maker to the effect that such note was renewed.
* Can be made even by a legal representative.
Instances that there is no acknowledgment of debt
1. Mere offer to compromise a suit upon a supposed debt.
2. Debtor acknowledging receipt of a statement of account but declines to recognize the correctness of the account being
exorbitant.
3. Acknowledgment of the obligation after it has already prescribed. There must be a new and positive promise to pay in
order to nullify prescription.
4. Part payment of debt.
5. The death of the debtor.
6. The transfer of right to another.
7. The institution of criminal action cannot have the effect of interruption the institution of civil action based on quasidelict.
8. Order to stay execution of judgment.
9. Confinement in jail.
What is the effect of acknowledgment? It will renew the obligation of the debtor and interrupts the prescription and make it run
only from such acknowledgment. Example, if the decedent makes a will but invalid as to its form but in there he acknowledge the
debt in favor of A, the prescription runs against the claim from the date of the making of invalid will and NOT from the date of
death.
(b) CIVIL OBLIGATIONS:
Article 1157. Obligations arise from:
(1) Law; (OBLIGATIONS ex lege)
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.
SOURCES OF OBLIGATIONS:
1. LAW:
Article 1158. Obligations derived from law are not presumed. Only those expressly determined in this Code or in special laws are
demandable, and shall be regulated by the precepts of the law which establishes them; and as to what has not been foreseen, by the
provisions of this Book.

an agreement is not necessary in order that a party may demand from another the fulfillment of an
OBLIGATION arising from the application of a law in the circumstances;
Balane: Law as a source of obligation – It is my opinion that there is an overlap in the enumeration because all obligations arise
from law. Law is the only source of obligation, in the ultimate sense. But, as a proximate source, there are five sources of
obligations. Law is both the ultimate & a proximate source of obligations.
Sources of Obligations according to Sanchez Roman.
Law & Acts. The latter are further classified, as follows:
(1) licit acts created by concurrence of wills (contracts);
(2) licit acts either voluntary or involuntary without concurrence of wills (quasi-contract);
(3) illicit acts of civil character which are not punishable, voluntary or involuntary (torts & all damages arising from delay);
(4) illicit acts which are voluntary & are punishable by law (crimes)
Baviera: When the source of the obligation is Law, there is no need for an act or omission for the obligation to arise.
2. CONTRACTS:
Article 1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in
good faith.
Article 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give
something or to render some service.
Negotiation of contract is initiated by an OFFER;
Autonomy of Contract  supposing the contract is valid and enforceable, the terms of contract not contrary to law, morals, GC,
PP or PO, the stipulations therewith should be given effect. (One of fundamental principles of contracts)
Balane: There are two parts in Article 1159.
 Obligations derived from contract has the force of law between the contracting parties (jus civili )
 There must be compliance in good faith (jus gentium.)
3. QUASI-CONTRACTS:
Article 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter 1, Title XVII, of this Book.
QUASI-CONTRACT is a juridical relation which arises from certain unlawful, voluntary and unilateral acts to the end that no
one may be unjustly enriched or benefited at the expense of another.
The act must be:
(1) Lawful – thus different from delict which is unlawful;
(2) Voluntary – thus different from quasi-delict which is based on fault or negligence or lack of foresight;
(3) Unilateral – thus different from contract, in which parties agree.
e.g. in Negotiorum Gestio:
 Benefits Conferred Voluntarily
 For preservation of Property or Business
EXTRA-CONTRACTUAL OBLIGATIONS
(OBLIGATIONS without an agreement / based in IMPLIED CONSENT)
Q: HOW MANY?
A: In NCC, 2, nominate and “some” innominate Quasi Contract.
a. Quasi-contracts
Article 2142. Certain lawful, voluntary and unilateral acts give rise to the juridical relation of quasi-contract to the end that no one
shall be unjustly enriched or benefited at the expense of another.
Article 2143. The provisions for quasi-contracts in this Chapter do not exclude other quasi-contracts which may come within the purview
of the preceding article.
b. Negotiorum Gestio
Article 2144. Whoever voluntarily takes charge of the agency or management of the business or property of another, without any power
from the latter, is obliged to continue the same until the termination of the affair and its incidents, or to require the person concerned to
substitute him, if the owner is in a position to do so.
This juridical relation does not arise in either of these instances: ELEMENTS –
(1) When the property or business is not neglected or abandoned;
(2) If in fact the manager has been tacitly authorized by the owner.
In the first case, the provisions of articles 1317, 1403, No. 1, and 1404 regarding unauthorized contracts shall govern.
In the second case, the rules on agency in Title X of this Book shall be applicable.

NEGOTIORUM GESTIO – juridical relation which arises whenever a person voluntarily takes charge of an agency or
management of the business or property of another without any power or authority from the latter.
Illustration:
1. Scenario: Lumubog na barko, what if this one of the missing persons landed on a remote island and only one resident is present there or only
one family is living there in the island. Anyway this resident found the dead body of the missing person, and he found it necessary to bury the
dead and he spent a sum of money of 400php. At any rate this resident, met the aunt of the decease, and demanded reimbursement for the burial,
is the resident’s demand valid? Well if you read the provisions of the quasi-contract, there is an obligation to reimburse the person. In other
words, you have the obligation to reimburse. But back to the question, is there a valid demand? NO. if you know, because the law on quasicontract would tell you that he has the right to seek reimbursement from anyone who is oblige to give support and an aunt Is not oblige under the
law to give support. There’s no civil obligation to give support.
c. Solutio indebiti
Article 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake, the obligation
to return it arises.

SOLUTIO INDEBITI – juridical relation which arise whenever person unduly delivers a thing through or by mistake
of another who has no right to demand it.
4. ACTS OR OMISSIONS PUNISHED BY LAW (DELICT or CRIMES  but not Felony which is limited only to those
punished under RPC)
Article 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost. This same rule shall be observed
if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been poorly done be undone.
Balane: Crime as a source of obligation – There are many crimes from which, civil liability arises in their commission, in addition
to the criminal penalty attached to them. This underlines the two aspects in a crime: one, as an offense against the state, & two as
an offense against the victim. It is in the latter case that civil liability is recoverable.

As far as crime is concerned, civil law is not concerned with the penal liability but only with the civil liability.
Performance at debtor’s cost  non-compliance with OBLIGATION to do, creditor may do it himself or get a 3 rd person at the
expense of the debtor;

when OBLIGATION to do can only be performed by debtor he cannot compelled to do so by force, the only remedy is
damages;
Article 2177. Responsibility for fault or negligence under the preceding article is entirely separate and distinct from the civil liability
arising from negligence under the Penal Code. But the plaintiff cannot recover damages twice for the same act or omission of the
defendant.
TITLE V - Civil Liability, RPC: CHAPTER ONE - Persons Civilly Liable for Felonies
Article 100. Civil liability of a person guilty of felony. - Every person criminally liable for a felony is also civilly liable.
[CHAPTER 2, RPC: What Civil Liability Includes]
Article 104. What is included in civil liability. – The civil liability established in articles 100, 101, 102, and 103 of this Code includes:
1. Restitution;
2. Reparation of the damage caused;
3. Indemnification for consequential damages.
Baviera: Requisites of enforcing the subsidiary obligation of the employer under the RPC:
-criminal case was filed against the employee
-the act or negligence arose during or in connection with the performance of the latter’s employment
-the employee is found guilty of criminal negligence
-a writ of execution has been returned unsatisfied, i.e. employee has been found to be insolvent.
There is no res judicata as regards the Employer as there is a difference in the Cause of Action. Quasi-delict (QD) differs from an
action based on delict on the following grounds:
QUASI DELICT
it is subsidiary (imputed)
Diligence of good father of the family
may be set up by the ER as a defense
DELICT
ER’s liability is primary in RPC
In RPC, such defense of GFF is not
available
A person while not criminally liable may still be civilly liable  Failure of the plaintiff to reserve in the criminal case his right
to file a separate civil action is not fatal to the civil action after the acquittal of the accused.

When the acquittal is based on ground that the guilt of the accused has not been proved beyond reasonable doubt, plaintiff
has the right to institute a civil action for damages (culpa aquiliana).
5. QUASI-DELICTS: (culpa aquiliana / negligence / torts*)
[NCC, CHAPTER 2 - Quasi-delicts]
Article 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict and is
governed by the provisions of this Chapter. (memorize!)
Article 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter 2, Title XVII of this Book,
and by special laws.
* Torts is seldom used by SC in this jurisdiction, it is broader term for actionable wrong which may not be negligence, may be
malicious tortuous act which is not anymore Quasi Delict.

QUASI-DELICTS – the fault or negligence of a person who, by his act or omission connected or not with, but
independent from any contractual relation, causes damage to another person;

The omission to do something which ordinarily reasonable men guided by those considerations which ordinarily regulate
the conduct of human affairs, would do; or doing something which prudent and reasonable men would not do.
Liability on Quasi Delict is based on equity, man is responsible not only for acts conscious and intentional acts but also for
his lack of foresight, care and diligence which may cause harm to another.
ELEMENTS:
(1) A duty on the part of the defendant to protect the plaintiff from the injury of which the latter complains;
(2) A failure to perform that duty, and
(3) An injury to the plaintiff through such failure.



TEST OF NEGLIGENCE: Would a prudent man, in the position of the person on who negligence is attributed, foresee
harm to the person injured as a reasonable consequence of the course about to be pursued?

KINDS OF NEGLIGENCE:
(1) Culpa aquiliana, also known as culpa extra-contractual, or negligence as a source of OBLIGATION, QUASIDELICT;
 Governed by Arts. 2176-2194
 NO contractual relation at all
(2) Culpa contractual, or negligence in the performance of a contractual OBLIGATION.
 Governed by Article 1179 (common carrier), & all on contracts

PERSONS LIABLE: (IMPUTED/vicarious LIABILITY, 2180)
1. father / mother
2. guardians
3. owners/managers
4. employers
5. the State
6. teachers
The responsibility shall cease if they can prove that they have observed diligence of good father of the family to
prevent damage;

REQUISITES OF LIABILITY (IMPUTED):
1. the fault of negligence of the defendant
2. the damage suffered or incurred by the plaintiff
3. the relation of the fault or negligence and damage incurred by the plaintiff
Balane:
The Code Commission did not choose to use tort. This is because tort does not exactly have the same meaning as quasi-delict. Tort
[BROADER] covers intentional torts which in quasi-delict is considered as civil liability arising from acts or omissions punishable
by law. There are some QD which are not covered by tort. Dean Bocobo suggested the ancient term culpa aquiliana. But this did not
merit the approval of the Code Commission.
A TORT is a civil wrong (an actionable wrong) consisting of a violation of a right or a breach of duty for which the law grants a
remedy in damages or other relief. The right is created by law in favor of a person called a creditor to compel another called a
debtor to observe duty or a prestation either to render what is due him or to refrain from causing him injury.
Classes of Torts According to Manner of Commission
1. Intentional Torts
a. tortfeasor desires to cause the consequences of his act, or
b. tortfeasor believes that the consequences are substantially certain to result from it
c. ex. Article 26, 32 & 33 (CC)
2. Negligent Torts:
d. tortfeasor’s conduct merely creates a forseeable risk of harm which may or may not occur
e. Article 2176 (CC)
3. Strict Liability Torts:
f. Ex. Article 2183 & 2187 (CC)
Q: If there is a contract between the parties, can there be a quasi-delict committed by one against the other regarding the area covered
by the contract?
A: If you look at Article 2176, you get the impression that if there is a contract between the parties, they cannot be liable for quasidelict on an area covered by the contract. The case of Cangco has not really resolve this controversy.
Nature of Act
Gives
rise
OBLIGATION
to


As to nature of Right
violated
Is a Wrong against
Criminal Intent
Legal Basis for
liability
Liability for Damages
Form of Redress
Quantum of Evidence
Compromise
FRAUD
dolo
involves willfulness or
deliberate intent to
cause damage or injury
to another
the act itself
NEGLIGENCE
Culpa
mere want of care or
diligence, not voluntary
act or omission
the want or care or
diligence
A single act may be a crime and a QD at the same time; (Article 100, RPC)
Injured party cannot recover damages twice for the same act or omission of defendant; (must choose 1
Remedy)
QUASI-DELICT
private right
CRIME
public right
the individual
not needed
Broad
the State
Necessary
penal law necessary
every QD gives rise to
liability for damages
reparation for injury
suffered/indemnification/co
mpensation
Preponderance
can be compromised
there are crimes without civil
liability
punishment/fine/imprisonment
Beyond reasonable doubt
criminal liability can never be
compromised
REQUISITES FOR LIABILITY: (onus)
(1) Wrongful act or omission imputable to the defendant by reason of his fault or negligence;
(2) Damage or injury proven by the person claiming recovery;
(3) A direct causal connection between the negligent act and the injury.
DOCTRINE OF PROXIMATE CAUSE  is that which, in natural and continuous sequence, unbroken by any efficient
intervening cause, produces injury and without which the result would not have occurred.
C. COMPLIANCE WITH OBLIGATIONS:
Article 19. Every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his
due, and observe honesty and good faith.
Article 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 the stipulation of the parties requires another standard of care.
Article 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 right over it until the same has been delivered to him.
Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170,
may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be
responsible for any fortuitous event until he has effected the delivery.
Article 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though
they may not have been mentioned.
According to Balane:
Three types of obligations- (1) obligation to give; (2) obligation to do; & (3) obligation not to do.
I. Obligation to give
A. Specific thing
B. Generic thing
II. To do
III. Not to do (this includes all negative obligations like obligation not to give.)
Kinds of performance.-1. specific performance - performance by the debtor himself (applies only to OBLIGATION to give )
2. substitute performance - performance at the expense of the debtor
3. equivalent performance - grant of damages
Articles 1163 - 1166 cover obligation to give.
Three Accessory Obligations:
1. Article 1163- To take care of the thing with the diligence of a good father of a family until actual delivery.
2. Article 1164- To deliver the fruits to the creditor (fruits produced after obligation to deliver arises.)
3. Article 1166- To deliver accessions & accessories.
Balane:
 From the time the obligation arises, the creditor has a personal right against the debtor as to the fruits. But he has no real
right over them until actual delivery.
 Real right is a right which is enforceable against the whole world. He has only the personal right against the debtor
with regard to the undelivered fruits.
 This is because of the principle Non nudis pactis, sed traditione, dominia rerum transferentur (It is not by mere
agreement, but by delivery, is ownership transferred.)
 Personal right arises from the time the obligation to deliver arises whereas the real right does not arise until actual delivery.
Articles 1165 – 1167- Remedies Available to the Creditor (specific performance, substitute performance, equivalent performance.)
A. In obligations to give
1. A determinate thing
a. Specific performance
b. Equivalent performance
2. A generic thing, all remedies are available
B. In an obligation to do, make a distinction:
In obligation to do, which is purely personal  only equivalent performance is available
In an obligation to do which is not personal:
a. substitute performance
b. equivalent performance
Note: In obligations to do, specific performance is not available.  The reason for this is that specific performance will give rise
to involuntary servitude.
C. Obligation not to do
1. substitute performance
2. equivalent performance.

In all these cases, the creditor has the option of resolution or rescission under Article 1191. In addition, he can also claim
damages.
Article 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value as,
or more valuable than that which is due.
In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee's will.
Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be governed by
the law of sales.
Article 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and circumstances have not
been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose
of the obligation and other circumstances shall be taken into consideration.
Article 1460. A thing is determinate when it is particularly designated or physical segregated from all others of the same class.
The requisite that a thing be determinate is satisfied if at the time the contract is entered into, the thing is capable of being made determinate
without the necessity of a new or further agreement between the parties
Article 442. Natural fruits are the spontaneous products of the soil, and the young and other products of animals.
Industrial fruits are those produced by lands of any kind through cultivation or labor.
Civil fruits are the rents of buildings, the price of leases of lands and other property and the amount of perpetual or life annuities or other
similar income
NATURE AND EFFECTS OF OBLIGATIONS
OBJECT OF THE OBLIGATION:
1. to give  real OBLIGATION  determinate (specific) or indeterminate (generic)
2. to do 
3. not to do  personal OBLIGATION  positive (to do) or negative (not to do)
REAL OBLIGATION:
a. DETERMINATE OBLIGATION – particularly designated from a particular class;
PRINCIPAL OBLIGATION – to give (to deliver) a determinate thing;
ACCESSORY OBLIGATION – exists even when not expressly stipulated;
(1) Article 1163 – to take care of the thing with proper diligence of a good father of the family;
(2) Article 1164 – to deliver the fruits;
(441)  natural / industrial / civil
 the OBLIGATION to deliver arises only if the
creditor is entitled;
(3) Article 1166 – delivery of the accessions and of the accessories (Art 440);
b. GENERIC THING  is one that is indicated only by its kinds, without being distinguished from others of the same kind.
(indeterminate)
 In an OBLIGATION to deliver a generic thing, the object is determinable; when delivered it becomes determinate.
DELIMITED GENERIC  not totally generic nor specific; obligation to deliver one of SEVERAL things; does not have
designation nor physical segregation; Rule re Fortuitous Events still apply.
DETERMINATION OF DILIGENCE REQUIRED:
(1) LAW  e.g. extra ordinary diligence required in Common carriers
(2) Stipulation of Parties
(3) Presumed: diligence of a Good father of the Family if none is specified/expressed by law or agreement.
REAL RIGHT  is the power by a person over a specific thing, susceptible of being exercised against the whole world.
PERSONAL RIGHT  belongs to a person who may demand from another, as a definite passive subject, the fulfillment of a
prestation.
 From the moment the OBLIGATION to deliver a determinate thing arises, the creditors earns a personal right over the
thing and its fruits, but only delivery or tradition transfers ownership that is a real right over the thing against the
whole world.
 For failure to deliver, the creditor’s remedy is not reivindicacion but specific performance.
[CHAPTER 2: Right of Accession – GENERAL PROVISIONS]
Article 440. The ownership of property gives the right by accession to everything which is produced thereby, or which is incorporated
or attached thereto, either naturally or artificially.
Kinds of Fruits;
1) CIVIL – derived by virtue of juridical relation
2) Natural – spontaneous products of the soil and the young and other products of animals;
3) Industrial – produced by lands of any kind through cultivation or labor or by reason of human labor.
D. KINDS OF CIVIL OBLIGATIONS:
1. AS TO PERFECTION & EXTINGUISHMENT:
a. PURE
SECTION 1 - Pure and Conditional OBLIGATIONS
Article 1179. Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to
the parties, is demandable at once.
Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of
the event.
Article 1197. 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 court may fix the duration thereof.
The court shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the court shall determine such period as may under the circumstances have been probably contemplated by the parties.
Once fixed by the court, the period cannot be changed by them.

A pure obligation is one which is not subject to a condition or a term and it is immediately demandable that there is nothing
to exempt the debtor from compliance therewith. (Floriano vs. Delgado)
What is a demand note? It is subject to neither a suspensive condition nor a suspensive period. The demand is not a condition
precedent , since the effectivity and binding effect of the note does not depend upon the making of the demand: the note is binding
even before the demand is made. Neither does the demand constitute an implied suspensive period since there is nothing to prevent
the creditor from making a demand
Q: Does the happening of a condition give rise to the OBLIGATION?
A: Not necessarily, only if suspensive condition; if resolutory condition, the happening extinguishes the OBLIGATION;
Q: In an OBLIGATION with a TERM will the answer above be the same?
A: Yes.
b. CONDITIONAL
Article 1181. In conditional OBLIGATIONS, the acquisition of rights, as well as the extinguishment or loss of those already acquired,
shall depend upon the happening of the event which constitutes the condition.
Article 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void.
If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code.
Balane:  We are talking here of a suspensive condition.
First sentence of Article 1182.
 The condition must be suspensive, potestative & depends on the sole will of the debtor.
EXAMPLE: "I promise to sell you my car for P1.00 whenever I like."
Q: Why does it make the obligation void?
A: Because such an obligation lacks one of the essential elements of an obligation, the vinculum juris, the binding force- the means
by which it is enforceable in couright In this case, there is no binding force. There is no obligation. It is a joke.
Potestative Condition  is one which depends solely on the will of either one party.
EXAMPLE: "I will give you my plantation in Davao provided you reside in Davao permanently."
Casual Condition  is one where the condition is made to depend upon a third person or upon chance.
EXAMPLE: "I will give you my land in Floridablanca if Mt. Pinatubo erupts this year."
Mixed Condition  is one which depends partly upon the will of one of the parties & partly on either chance or the will of a third
person.
Q: What if the condition is suspensive, potestative & depends solely on the will of the creditor, is the conditional obligation
valid?
A: Yes. In fact, the obligation is not even a condition obligation. It is a pure obligation, binding at once.
Article 1183. Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the
obligation which depends upon them. If the obligation is divisible, that part thereof which 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.
Balane:
This refers to a suspensive condition.
There are 2 classes of impossible conditions:
1.
Impossible in fact
EXAMPLE: "I promise to sell my car to Mr. M for P2 if he can swim across the Pacific Ocean for 2 hours."
2.
Impossible in law  or one which attaches an illegal condition
EXAMPLE: "I promise to sell my car to Mr. M for P2 on condition that he burns the College of Law."
Effect of Impossible Condition  It annuls the obligation which depends upon them.
 The entire juridical tie is tainted by the impossible condition. Correlate this with Articles 727 & 873.
Article 727. Illegal or impossible conditions in simple & remuneratory donations shall be considered as not imposed.
Article 873. Impossible conditions & those contrary to law or good customs shall be considered as not imposed & shall in no
manner prejudice the heir, even if the testator should otherwise provide.
Tolentino:
 In contracts, an impossible condition annuls the contract.
 In gratuitous dispositions, the impossible condition is simply disregarded.
Balane: The first statement is inaccurate because donation is a contract & in a donation, the impossible condition does not annul the
contract. It is simply disregarded. The proper way to say it is that:
 In an onerous transaction, an impossible condition annuls the condition obligation.
 In a gratuitous disposition, as in a donation or testamentary disposition, an impossible condition attached to the
disposition is simply considered as not imposed.
Q: Why is there a difference?
A: Because in a donation as well as in a testamentary disposition, the causa or consideration is the liberality of the donor or testator,
as the case may be. Even if you take away the impossible condition, there is still a reason for the disposition to exist- liberality. They
(donation & testamentary disposition) have both their underpinnings, liberality. But in an onerous transaction, since an onerous
prestation which is reciprocal requires concomitant performances, that impossible condition becomes part of the causa. Therefore, if
the condition is impossible, there is failure of causa. In no causa, there is also no contract.
Paras:



Positive suspensive condition to do an impossible/ illegal thing  The obligation is void (Article 1183, par. 1.)
A negative condition (not to do an impossible thing)  Just disregard the condition (Article 1183, par. 2.)
A condition not to do an illegal thing (negative)  This is not expressly provided for in the provision but is implied. The
obligation is valid.
EXAMPLE: "I will sell you a piece of land provided you do not plant marijuana on it."
Article 1184. The condition that some event happen at a determinate time shall extinguish the obligation as soon as the time expires or if
it has become indubitable that the event will not take place.
Balane: This article refers to suspensive conditions. If the condition is resolutory, the effect is the opposite.
Article 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 the obligation.
Balane: This article refers to a suspensive condition.
Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.
Balane: This article refers to a suspensive condition.
Doctrine of Constructive Compliance  There are three requisites in order that this article may apply:
1. Intent on the part of the obligor to prevent fulfillment of the condition. The intent does not have to be malicious.
2. Actual prevention of compliance (by the obligor)
3. Constructive compliance can have application only if the condition is potestative. It can also apply to mixed condition as to
that part which the obligor should perform.
Kinds of Conditional OBLIGATIONS:
a. Suspensive Condition (Condition precedent)
Article 1187. The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution
of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the
pendency of the condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate
the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person
constituting the same was different.

In OBLIGATIONS to do and not to do, the court shall determine, in each case, the retroactive effect of the
condition that has been complied with.
Balane:
This article refers to suspensive condition. This article sets forth the rule of retroactivity in an obligation to give. This rule is logical
but impractical. Many modern Civil Codes have discarded it.
No Retroactivity as to the Fruits  Notice that there is no retroactivity with respect to the fruits. The fruits are deemed to cancel out
each other. If only one of the thing produces fruits, there is no obligation to deliver the fruits.
Article 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservation of his right.
The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition.
Balane: This article refers to suspensive conditions.
Bring the appropriate actions  According to JBL Reyes, the phrase "may xxx bring the appropriate actions" is inaccurate. To
bring action is to file a suit. But the creditor is not restricted to filing a suit.
The proper verb is not "bring" but "take." For example, in a sale of land subject to suspensive condition, the creditor should have the
suspensive condition annotated on the title of the land. This is not bringing an appropriate action but taking an appropriate action.
The principle in this article is: Vigilantibus et non dormientibus jura subveniunt  which means that the laws aid those who are
vigilant, not those who sleep upon their rights.
Q: Why does Article 1188 give the creditor a recourse although technically the creditor still have no right?
A: Because as a matter of fact, although technically the creditor still have no right, he is already expecting a right. You cannot let the
creditor sit & fold his arms & wait for his right of expectancy to be rendered illusory.
Article 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules
shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it
perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment,
with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. (1122)
(b) Resolutory Condition (Condition subsequent)
Balane: Article 1190 refers to resolutory conditions. This is just the opposite of Article 1189.
Article 1190. When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of
said conditions, shall return to each other what they have received.
In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the
preceding article shall be applied to the party who is bound to return.
As for the OBLIGATIONS to do and not to do, the provisions of the second paragraph of article 1187 shall be observed as regards the
effect of the extinguishment of the obligation.
Balane: A condition is a future & uncertain event upon which an obligation or provision is made to depend.
Tolentino: Futurity & uncertainty must concur as characteristics of the event.

A past thing can never be a condition. A condition is always future & uncertain.
Past event unknown to the parties  It is really the knowledge of the event which constitutes the future. It is the knowledge which
is future & uncertain.
EXAMPLE: "I will treat you for lunch if you get the highest score in the Civil Law Final Exams (on the assumption that
Prof. Balane has already finished checking the papers.)" Here, the event (getting the highest score) is already a past event,
yet the knowledge is future & uncertain.
Condition compared to a term 
As to element of
futurity
in the aspect
certainty
of
Condition
Same, may be past
event unknown to
parties
uncertain
Term
Same, always future
certain
Conditions can either be:
1. Suspensive condition (condition precedent) wherein the happening of the event gives birth to an obligation
2. Resolutory condition (condition subsequent) wherein the happening of the event will extinguish the obligation.
. WITH A TERM OR PERIOD:
Article 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with
a period, subject to the provisions of article 1197.
Balane: A term is a future and certain event upon which the demandability (or extinguishment) of an obligation depends.
Tolentino: Period must be (1) future (2) certain and (3) possible.
A term can either be:
1. Suspensive term (ex die- from the day) or one the arrival of which will make the obligation demandable;
2. Resolutory term (in die- into the day) or one the arrival of which will extinguish the obligation. The period after which the
performance must terminate.
Terms classified according to source;
1. Legal, period fixed by law
2. voluntary, stipulated by parties
3. judicial, fixed/allowed by court
May also be, (a) express, specified
(b) tacit, e.g. stipulated to do some work which may only be done at a particular season.
Or,
1. Original period
2. Grace period, extension fixed by parties
Or
a. definite, fixed known date or time,
b. indefinite, event will happen but not known when
Effect of Period: OBLIGATION with term are demandable only when day fixed for performance arrive; right of action arises
only when date fixed arrives;
\Article 1193. OBLIGATIONS for whose fulfillment a day certain has been fixed, shall be demandable only when that day comes.
OBLIGATIONS with a resolutory period take effect at once, but terminate upon arrival of the day certain.
A day certain is understood to be that which must necessarily come, although it may not be known when.
If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the
preceding Section.
MANRESA: A term or period is an interval of time, which, exerting an influence on an obligation as a consequence of a juridical act,
either suspends its demandability or produces its extinguishment.
Distinguished from Condition:
CONDITION
uncertain event
As to fulfillment
As to influence on the
obligation
Effect
As to time
As to will of debtor
a condition gives rise to
an
obligation
or
extinguishes one already
existing
May have retroactive
effect
may refer to a past event
unknown to the parties
a
condition
which
depends exclusively on
the will of the debtor
annuls the obligation
TERM / PERIOD
an event that must necessarily come, whether on
a date known before hand or at a time which
cannot be predetermined
has no effect upon the existence of
OBLIGATIONS, but only their demandability
or performance
NO retroactive effect, except when there is a
special agreement
always refer to the future
a period left to the debtor's will merely
empowers the court to fix such period
Balane: In a (suspensive) term, the obligation has already arisen except that it is not yet demandable.
Article 1194. In case of loss, deterioration or improvement of the thing before the arrival of the day certain, the rules in article 1189 shall be
observed.
Balane:
1.
2.
3.
4.
There are three requisites in order for Article 1189 to apply-There is loss, deterioration or delay
There is an obligation to deliver a determinate thing (on the part of the debtor)
There is loss, deterioration or improvement before the happening of the condition.
The condition happens.
Article 1195. 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.

Article 1195 applies only in OBLIGATION to give;
Balane:
Mistaken Premature Delivery  This article assumes 2 things:
(1) the delivery was by mistake;
(2) the mistake was discovered before the term arrives.

Both the things & the fruits can be recovered.
If the term has already arrived, the question is moot & academic. But can he recover the fruits produced during the meantime? It
depends on what school of thought you follow:
Tolentino: According to one school of thought, the debtor is entitled to the fruits produced in the meantime.
Caguioa: According to another school of thought, all the fruits received during the pendency of the term belong to the creditor.
When fruits & interests cannot be recovered notwithstanding premature delivery:
1. When the obligation is reciprocal & there has been premature performance (by both parties);
2. When the obligation is a loan in which the debtor is bound to pay interest;
3. When the period is for the creditor's exclusive benefit;
4. When the debtor is aware of the period & pays anyway. (Knowledge, tacit waiver of benefit of term)
2. Presumed for whose benefit: BOTH
Article 1196. Whenever in an obligation 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.
Balane:
General rule: If a period is attached in an obligation, the presumption is that it is for the benefit of both parties.

The consequence is that the creditor cannot compel the performance before the arrival of the term; the debtor cannot compel
acceptance before the arrival of the term.
If the term is for the benefit of the creditor  The creditor can demand performance anytime; but the debtor cannot insist on payment
before the period.
If the term is for the benefit of the debtor  The creditor cannot demand performance anytime; but the debtor can insist on
performance anytime.
EXAMPLE:
"I promise to pay within 60 days." This is a term for the benefit of the debtor.
"I promise to pay Clara the sum of P100, 000 on or before Oct. 31, 1996." This is a term for the benefit of the debtor.
-In contract of Loan, without interest, term is usually for benefit of debtor, thus he may pay in advance;
-If there is stipulation as to interest, period is generally for both parties, debtor cannot pay in advance vs. will of creditor; unless he also
pays interest in full.
3. When NO period is fixed
Balane:
Cases where the Court may fix a period 
1. Article 1197, par. 1
Article 1197. 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 court may fix the duration thereof.
The court shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the court shall determine such period as may under the circumstances have been probably contemplated by the parties.
Once fixed by the court, the period cannot be changed by them.
Exceptions:
Article 1682. The lease of a piece of rural land, when its duration has not been fixed, is understood to have been made for all
the time necessary for the gathering of the fruits which the whole estate leased may yield in one year, or which it may yield
once, although two or more years may have to elapse for the purpose.
Article 1687. If the period for the lease has not been fixed, it is understood to be from year to year, if the rent agreed upon is
annual; from month to month, if it is monthly; from week to week, if the rent is weekly; & from day to day, if the rent is to be
paid daily. xxx
Article 1606 in pacto de retro sale where the period is not specified by the parties
Article 1606. The right referred to in article 1601 (the right of conventional redemption on the part of the vendor a retro), in
the absence of an express agreement, shall last four years from the date of the contract.
XXX

contract of services for an indefinite term (because fixing of a period by the court may amount to involuntary servitude)
Article 1197. Xxx
The court shall also fix the duration of the period when it depends upon the will of the debtor.
Article 1191. Xxx
the court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
Article 1687. xxx
However, even though a monthly rent is paid, & no period for the lease has been set, the court may fix a longer term for the
lease after the lessee has occupied the premises for over one year. If the rent is weekly, the court may likewise determine a
longer period after the lessee has been in possession for over six months. In case of daily rent, the court may also fix a longer
period after the lessee has stayed in the place for over one month.
Article 1180. When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be
one with a period, subject to the provisions of article 1197.
4. When debtor loses the benefit of period
Article 1198. The debtor shall lose every right to make use of the period:
(1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt;
(2) When he does not furnish to the creditor the guaranties or securities which he has promised;
(3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event
they disappear, unless he immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period;
(5) When the debtor attempts to abscond.
(6) Article 2109 - If the creditor is deceived on the substance or quality of the thing pledged, he may either claim another thing
in its stead, or demand immediate payment of the principal obligation. (The sixth ground was added by Prof. Balane.)
Effects of Loss of Term (Article 1198):

OBLIGATION becomes immediately due & demandable even if period has not yet expired.

OBLIGATION is converted to a pure OBLIGATION

Insolvency of DEBTOR – need not be judicially declared; state of financial difficulty is enough.
Balane: In number one, factual insolvency is enough. A judicial declaration of insolvency is not required.
Summary of the Different Kinds of OBLIGATIONS As to Perfection and Extinguishment
DIFFERENT KINDS OF OBLIGATIONS:
PURE AND CONDITIONAL OBLIGATIONS – when the OBLIGATION contains no terms or conditions;
CONDITIONAL OBLIGATIONS – one which is subject to condition;
CONDITION – every future and uncertain event upon which an OBLIGATION or provision is made to depend;
FUTURE & UNCERTAIN EVENT – the acquisition or resolution of the rights is made to depend by those who execute the
juridical act;
CLASSIFICATION OF CONDITIONS:
1. SUSPENSIVE – the happening of the former gives rise to an OBLIGATION;
2. RESOLUTORY – the happening of the latter extinguishes rights already existing.
PAST BUT UNKNOWN – a condition may refer to past event unknown to the parties;
IMPOSSIBLE CONDITION:
1. PHYSICALLY IMPOSSIBLE – when it is contrary to law of nature;
2.
JUDICIALLY IMPOSSIBLE – when contrary to law, morals, good customs and public safety
PURE OBLIGATIONS  when it is not subject to a term, period and no condition;
- demandable at once
- it is immediate demandability, give time for debtor to comply
PERIOD- is an event that is future but certain (just a matter of time); e.g. passing this class (Civil law Review 2)
PAST EVENT – cannot be future event, cannot be considered uncertain;
SUSPENSIVE CONDITION:
*rights are acquired, upon the happening of a condition.
Article 1181 – OBLIGATION created upon the happening of a condition
RESOLUTORY- extinguished, or loss of existing rights, upon the happening of a condition
*Thus a contract may be perfected but its demandability suspended.
Article 1186 – deemed constructively fulfilled; applied only to suspensive not to resolutory condition
Article 1187 – effects of conditional OBLIGATION to give;
E.g. A sold a house & lot to B, 1M
Condition: if B will pass the bar exam
Term: effect retroacts after the passing is announced on April;
Jan.2004 Sept. 2004
perfection
Oct.04
Apr.05
(without condition/ condition
Pure)
[1544]
Retroactive effect
Article 1188 – preserve his interest
PROTECT HIS EXPECTANCY
1. Register with the Registry of Property
2. witness
3. possession in good faith
4. Injunction  if the sell was not consummated or not for sale
RESOLUTORY CONDITION
Article 1190 – no exception, nothing will be left.
SUSPENSIVE CONDITION – upon the happening of the condition, the OBLIGATION exists (“existence of OBLIGATION
is affected”)
CLASSIFICATION OF CONDITION:
1. POTESTATIVE – when the fulfillment of the condition depends upon the will of the party to the OBLIGATION;
2. CAUSAL – depends upon chance 2nd or 3rd person
3. MIXED – depends partly upon the will of the party & partly upon chance or a 3 rd person
Article 1182: Potestative – sole will of the debtor
 Potestative suspensive is VOID.
Example. A will give 5% commission to B, but it depends on the will of A, void;
 All other potestative conditions, valid.
Article 1183 – impossible condition
1. physical impossibility
2. legal impossibility
Article 873 – impossible testamentary conditions
 disregard
Ex. Article 727 – donation
CONDITION
PERIOD / TERM
1. future & uncertain event
2. suspensive condition
3. resolutory condition
1. future &certain
2.suspensive
period/“demandability”
3. resolutory period
SUSPENSIVE PERIOD – prior to the period, there is already an OBLIGATION, but it is suspensive by the period;
Article 1164- the OBLIGATION to deliver arises upon the perfection of the contract if subject to suspensive period & not
suspensive condition
RESOLUTORY PERIOD – “terminated” but the effects that accrued in the past will remain;
RESOLUTORY CONDITION – “extinguishes” as if nothing happens; retroactive effect of OBLIGATION;
EFFECTS OF FORTUITOUS EVENT IN PERIOD / TERM:
-the contract shall be deemed suspended but the Fortuitous Event shall not stop the running of the term or period agreed upon;
Article 1195 – advanced payment
Article 1196 – benefit of period
Presumption – if the period is designated, the benefit is for both the creditor & debtor
Exception: the tenor of the same or other circumstances, it should appear that the period has been established in favor of one or
the other;
Article 1197 – 3 reasons why the court will fix the period:
1. if the OBLIGATION does not fix a period, but from its nature & circumstances it can be inferred that a period was
intended by the parties;
2. in the duration of the time depends upon the will of the debtor
3. if the debtor binds himself to pay when his means permit him to do so
Article 1198 – memorize!
Article 1198. The debtor shall lose every right to make use of the period WHEN:
(1) after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt;
(2) he does not furnish to the creditor the guaranties or securities which he has promised;
(3) by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they
disappear, unless he immediately gives new ones equally satisfactory;
(4) the debtor violates any undertaking, in consideration of which the creditor agreed to the period;
(5) the debtor attempts to abscond.
Q: How could there be guaranty when debtor is insolvent?
A: 3rd person (surety)
Q: when is OBLIGATION due & demandable even if period has expired?
A: if debtor has lost right to make use of such period (Article 1198)
(2) OBLIGATIONS according to plurality of objects:
A. Simple
B. Multiple
C. Conjunctive  where the debtor must perform more than one prestation
Q: A promised to deliver to B his carabao, dog & goat. What kind of OBLIGATION is this?
A: conjunctive obligation.
D. Alternative OBLIGATIONS  where the debtor must perform any of several prestations, when several objects due, the
fulfillment of one is sufficient, generally the debtor chooses which one.
E. Facultative  where only one thing is due but the debtor has reserved the right to substitute it with another (Article 1206)
-election here is never granted to creditor
Q: In conjunctive, right to choose is always with debtor?
A: NO. No right to choose because all must be performed.
Q: In Alternative, right to choose can be given to 3rd person?
A: YES. (Article 1000) as long as it is not contrary to law, morals, public order, public policy and etc.
Q: In an agreement where there is no stipulation as to who has right to choose?
A: It depends. If Alternative, generally debtor chooses; if facultative, only with debtor
Q: What if debtor has right to choose and he delays?
A: right is not lost by mere delay; (before creditor files his action)
(b) Alternative OBLIGATIONS
Article 1199. A person alternatively bound by different prestations shall completely perform one of them.
The creditor cannot be compelled to receive part of one & part of the other undertaking.
Tolentino: The characteristic of alternative OBLIGATIONS is that, several objects being due, the fulfillment of one is sufficient xxx.
Article 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the creditor.
The debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have been the
object of the obligation.
Balane:
Q: To whom does the right of choice belong?
A: General rule: To the debtor (Article 1200)
Exception: When expressly granted to the creditor (cannot be implied).
* There is a third possibility where the choice may be made by a third person upon agreement of the parties. (expressed)
Q: What is the technical term of the act of making a choice in alternative OBLIGATIONS?
A: Concentration.

The right to choose is indivisible  debtor can’t choose part of one prestation and part of another;

Here, plaintiff’s action must be in alternative form;
Article 1201. The choice shall produce no effect except from the time it has been communicated.
Balane:
Requirement of Communication of choice  If the choice belongs to the creditor, of course, he has to communicate his choice to the
debtor. The debtor is not a prophet.
No required form  may be ORAL, IN WRITING, TACITLY, OR OTHER UNEQUIVOCAL MEANS.
Q: If the choice belongs to the debtor, why require communication before performance if the choice belongs to him anyway?
A: To give the creditor an opportunity to consent to the choice or impugn it. (Ong v. Sempio-Dy, 46 P 592.)
BUT how can the creditor impugn it if the choice belongs to the debtor? The better reason would be to give the creditor a chance to
prepare for the performance.
Not CONSENT: Only declaration of choice made, communicated to the other party, unilateral declaration will;
Articles 1202 to 1205 talk of the loss of some of the prestations before performance.
1. If the choice is to the debtor's
a. When only one prestation is left (whether or not the rest of the prestations have been lost through fortuitous event or through the
fault of the debtor), the debtor may perform the one that is left.- Article 1202.
Article 1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one
is practicable.
b. If the choice is limited through the creditor's own acts, the debtor can ask for resolution plus damages.
Article 1203. 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.
c. If everything is lost through the debtor's fault, the latter is liable to indemnify the creditor for damages.
Article 1204. The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the things
which are alternatively the object of the obligation have been lost, or the compliance of the obligation has become impossible.
The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that of the service which last
became impossible.
Damages other than the value of the last thing or service may also be awarded.
d. If some things are lost through the debtor's fault, the debtor can still choose from those remaining.
e. If all are lost through fortuitous event, the obligation is extinguished.
f. If all prestations but one are lost through fortuitous event, & the remaining prestation was lost through the debtor's fault,
the latter is liable to indemnify the creditor for damages.
g. If all but one are lost through the fault of the debtor & the last one was lost through fortuitous event, the obligation is
extinguished.
2. Choice is the creditor's
Article 1205. When the choice has been expressly given to the creditor, the obligation shall cease to be alternative from the day
when the selection has been communicated to the debtor.
Until then the responsibility of the debtor shall be governed by the following rules:
(1) If one of the things is lost through a fortuitous event, he shall perform the obligation by delivering that which the creditor
should choose from among the remainder, or that which remains if only one subsists;
(2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting, or the
price of that which, through the fault of the former, has disappeared, with a right to damages;
(3) If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any one of
them, also with indemnity for damages.
The same rules shall be applied to OBLIGATIONS to do or not to do in case one, some or all of the prestations should become
impossible.
a. If one or some are lost through fortuitous event, the creditor may choose from those remaining.- Article 1205 (1)
b. If one or some are lost through the debtor's fault, the creditor has choice from the remainder or the value of the things lost plus
damages.- Article 1205 (2), supra.
c. If all are lost through the debtor's fault, the choice of the creditor shall fall upon the price of any of them, with indemnity for
damages.-- Article 1205 (3), supra.
d. If some are lost through the creditor's fault, the creditor may choose from the remainder.
e. If all are lost through fortuitous event, the obligation is extinguished.
f. If all are lost through the creditor's fault, the obligation is extinguished.
Distinguished from Facultative OBLIGATIONS:
Article 1206. When only one prestation has been agreed upon, but the obligor may render another in substitution, the
obligation is called facultative.
The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor, does not render him liable.
But once the substitution has been made, the obligor is liable for the loss of the substitute on account of his delay, negligence
or fraud.
Tolentino: Facultative vs. Alternative As to contents of the
obligation
As to nullity
As to choice
As to effect of loss
Alternative OBLIGATION
there are various prestations all
of which constitute parts of the
obligation
the nullity of one prestation
does not invalidate the
obligation, which is still in
force with respect to those
which have no vice
the right to choose may be
given to the creditor
only the impossibility of all
the prestations due without
fault of the debtor extinguishes
the obligation
Facultative OBLIGATION
only ONE principal prestation
constitutes the obligation, the
accessory being only a means
to facilitate payment.
the nullity of the principal
prestation invalidates the
obligation & the creditor
cannot demand the substitute
even when this is valid
only the debtor can choose the
substitute prestation.
the impossibility of the
principal prestation is
sufficient to extinguish the
obligation, even if the
substitute is possible
Balane:
Facultative OBLIGATIONS always involve choice by the debtor.
 In theory, it is easy to distinguish a facultative obligation from an alternative one. But in practice, it is difficult to distinguish
the two. You just have to find out what the parties really intended.
 Only One prestation is DUE and enforceable by the creditor at the time of choice; if the substitute becomes impossible d/t
fault of debtor the OBLIGATION is not affected, thus no damages;
 If after choosing the substitute and choice is communicated to creditor, the principal prestation becomes impossible,
OBLIGATION is not extinguished but has become a simple OBLIGATION that must be performed; and he will be liable
for damages in delay, neglect or bad faith.
 If principal OBLIGATION becomes impossible by fault or negligence of creditor, debtor cannot be compelled to perform
the substitute (no more substitute, becomes simple) – extinguished.
. AS TO RIGHTS & OBLIGATIONS OF MULTIPLE PARTIES:
[Joint & Solidary OBLIGATIONS, Articles 1207-1222]
a. Joint OBLIGATIONS
Balane: A joint obligation is one in which each of the debtors is liable only for a proportionate part of the debt or each creditor is
entitled only to a proportionate part of the credit. In joint OBLIGATIONS, there are as many OBLIGATIONS as there are debtors
multiplied by the number of creditors.
There are three kinds of joint OBLIGATIONS:
1) Active joint  where the obligation is joint on the creditor's side;
2) Passive joint  where the obligation is joint on the debtor's side; &
3) Multiple Joint  where there are multiple parties on each side of a joint obligation.
Tolentino:
The joint obligation has been variously termed mancomunada or mancomunada simple or pro rata;
In the PROMISSORY NOTE the phrase "We promise to pay," used by 2 or more signers, creates a pro rata liability (JOINT);
While “I promise to pay” followed by signatures of 2 or more persons – solidary; individually and collectively; individually and jointly.
JOINT character is PRESUMED: WHEN no stipulation as to liability of several debtors, presumption is joint, and each is liable
only for his proportionate part of the OBLIGATION;
J/FO of court as to several defendants when solidarity has not been specified, the liability of the defendants is joint; court cannot
amend.
Effects of Joint Liability:
1. The demand by one creditor upon one debtor, produces the effects of default only with respect to the creditor who demanded
& the debtor on whom the demand was made, but not with respect to the others;
2. The interruption of prescription by the judicial demand of one creditor upon a debtor does not benefit the other creditors nor
interrupt the prescription as to other debtors. On the same principle, a partial payment or acknowledgement made by one of
several joint debtors does not stop the running of the statute of limitations as to the others;
3. The vices of each obligation arising from the personal defect of a particular debtor or creditor does not affect the obligation
or rights of the others;
4. The insolvency of a debtor does not increase the responsibility of his co-debtors, nor does it authorize a creditor to demand
anything from his co-creditors;
5. In the joint divisible obligation, the defense of res judicata is not extended from one debtor to another. (Manresa)
Article 1208. If from the law, or the nature or the wording of the OBLIGATIONS to which the preceding article refers the
contrary does not appear, the credit or debt shall be presumed to be divided into as many equal shares as there are creditors
or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the
multiplicity of suits.
Disjunctive OBLIGATION: This is not covered by New Civil Code; there are 2 or more creditors and 2 or more debtors but they are
named disjunctively as debtors and creditors in the alternative.
*The rules on solidary OBLIGATIONS must apply  because if rules on alternative OBLIGATIONS will be applied then the debtor
will generally be given the choice to whom shall he give payment.
Example: A binds himself to pay P100 either to X or Y  A or B will pay 100 to X.
b. Indivisible OBLIGATIONS
Article 1209. If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, & the debt
can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the other shall not be liable
for his share.
Article 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply
indivisibility.
 The OBLIGATION here is joint, even if the performance is indivisible;
Joint Indivisible OBLIGATION: There are several debtors or creditors but the prestation is indivisible  Example: Delivery of a
house or a determinate thing;
 Fulfillment requires the concurrence of ALL debtors, although they are each for his part; and on side of creditors, collective action
required for acts which may be prejudicial;
 Consent required, must still communicate choice after consensus.
Effects to
creditors
Joint
Effects
debtors
joint
to
INDIVISIBILITY
SOLIDARITY
Refers
to
the
prestation, which is
not
capable
of
partial performance
Refers to the legal tie or vinculum
defining the extent of liability
Each
cannot
demand more than
his share
Each may demand the full prestation
Each is not liable for
more than his share
Each has the duty to comply with entire
prestation
Article 1224. A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not
comply with his undertaking. The debtors who may have been ready to fulfill their 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.
If there is plurality of creditors to only one debtor, the OBLIGATION can be performed by delivery of the object to all the creditors
jointly;

Delivery to only one creditor makes the debtor liable for damages to the other debtors for non-performance, unless they have
authorized this one creditor to collect in their behalf;

If only one or some, not all creditors demand fulfillment the debtor may refuse to deliver and insist that all the creditors
together receive the thing, if not consignation to the court may be had;

In non-performance, debtor is liable for damages  here with respect to damages, the prestation becomes divisible, each
creditor may recover proportionately.
Q: Is an OBLIGATION-not do divisible or not?
A: No (Tolentino)
A: OBLIGATION-not do when there are several debtors, is a joint indivisible OBLIGATION.
c. Solidary OBLIGATIONS
Balane:
A solidary obligation is one in which the debtor is liable for the entire obligation or each creditor is entitled to demand the whole
obligation. If there is only one obligation, it is a solidary obligation.
There are three kinds of solidarity:
(1) Active solidarity where there are several creditors with one debtor in a solidary obligation;
(2) Passive solidarity where there is one creditor with several debtors solidary bound;
(3) Mixed Solidarity where there are several creditors & several debtors in a solidary obligation.
According to Tolentino:
 Solidary OBLIGATIONS may also be referred to as mancomunada solidaria or joint & several or in solidum.
 It has also been held that the terms "juntos o separadamente" in a promissory note creates a solidary responsibility;
 Where there are no words used to indicate the character of a liability, the phrase "I promise to pay," followed by the signatures of
2 or more persons, gives rise to an individual or solidary responsibility.
 The words "individually & collectively" also create a solidary liability. So does an agreement to be "individually liable" or
"individually & jointly liable."
c.1. Active Solidarity
Article 1211. Solidarity may exist although the creditors & the debtors may not be bound in the same manner & by the same
periods & conditions.
Article 1207. The concurrence of two or more creditors or of two or more debtors in one & the same obligation does not imply
that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the
prestation. There is solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation
requires solidarity.
Balane:
Q: When is an obligation with several parties on either side Joint or Solidary?
A: The presumption is that an obligation is joint because a joint obligation is less onerous that a solidary one.
There is solidary obligation in the following::
(1) When the obligation expressly so states – stipulation by parties;
(2) When a will expressly makes charging or a condition in solidum;
(3) When the law requires  crimes, conspiracy, act or one is act of all; in torts – joint tortfeasors

The liability of joint tortfeasors, which include all persons who command, instigate, promote, encourage, advise, countenance,
cooperate in, aid or abet the commission of a tort, or who approve of it, after it is done, if done for their benefit. (Tolentino)
(4) nature of the obligation requires solidarity – Article 19-22, NCC;
 A moral wrong cannot be divided into parts, thus must be solidary; akin to Quasi Delicts/ Quasi Contracts (Articles 2183
& 2187)


Liability may arise from the provisions of Articles 19 to 22 of the NCC. If 2 or more persons acting jointly become liable under
these provisions, their liability should be solidary because of the nature of the obligation. xxx The acts giving rise to liability
under these articles have a common element- they are morally wrong.
Article 10, RPC; Article 2194, & Article 2157, NCC
Art. 10. Offenses not subject to the provisions of this Code. — Offenses which are or in the future may be punishable under special laws are not
subject to the provisions of this Code. This Code shall be supplementary to such laws, unless the latter should specially provide the contrary.
Article 2194. The responsibility of two or more persons who are liable for quasi-delict is solidary.
Art. 2157. The responsibility of two or more payees, when there has been payment of what is not due, is solidary. (n)
(5)
Imposed by final judgment upon several defendants – must be expressed in the judgement for the obligation, cannot be
amended after finality.
Characteristics of Active Solidarity (solidary creditors): (Tolentino)
ESSENCE  Mutual agency, or mutual representation, which consists in the authority of each creditor to claim & enforce the rights.
Of all, with the resulting OBLIGATION to pay each one what belongs to him.
1. Since it is a reciprocal agency, the death of a solidary creditor does not transmit the solidarity to each of his heirs but to all
of them taken together;

(Similar to Article 1005 where brothers & sisters of decedent inherit in their own right per capita while nephews
& nieces, per stirpes by right of representation.)
2. Each creditor represents others in the act of requiring payment, & in all other acts which tend to secure the credit or make
it more advantageous. Hence, if he receives only a partial payment, he must divide it among the other creditors. He can
interrupt the period of prescription or render the debtor in default, for the benefit of all other creditors;
3. A credit once paid is shared equally among the creditors unless a different intention appears;
4. Debtor may pay any of the creditors but if any demand, judicial or extrajudicial is made on him, he must pay only to the one
demanding payment (Article 1214);
5. One creditor does not represent the others in such acts as novation, compensation & remission (even if the credit becomes
more advantageous). In these cases, even if the debtor is released, the other creditors can still enforce their rights against the
creditor who made the novation, compensation or remission;
6. Each creditor may renounce his right even against the will of the debtor, & the latter need not thereafter pay the obligation
to the former.
Characteristics of Passive Solidarity (solidary debtors)
ESSENCE  each debtor can be made to answer for the others, with resulting right to the debtor-payor to recover from others their
respective shares, akin to mutual guaranty (Manresa):
1. Each debtor may be required to pay the entire obligation but after payment, he can recover from the co-debtors their
respective shares (this is something similar to subrogation);
2. Interruption of prescription as to one debtor affects all the others; but the renunciation by one debtor of prescription already
had does not prejudice the others, because the extinguishment of the obligation by prescription extinguishes also the
mutual representation among the solidary debtors.
3. The debtor who is required to pay may set up by way of compensation his own claim against the creditor, in this case, the
effect is the same as that of payment;
4. The total remission of the debt in favor of a debtor releases all the debtors; but when this remission affects only the share of
one debtor, the other debtors are still liable for the balance of the obligation.
5. All the debtors are liable for the loss of the thing due, even if such loss is caused by the fault of only one of them, or by
fortuitous event after one of the debtors has incurred in delay;
6. The interests due by reason of the delay of one of the debtors are borne by all of them.
Legal Bonds in solidarity may be uniform or varied:
Uniform  when debtors are bound by same conditions and clauses;
Varied  where obligors, although liable for the same prestation, are nevertheless not subject to same terms and conditions;
before fulfillment of such condition or arrival of such term, an action may be brought against such debtor or any other
solidary debtor for recovery of the entire OBLIGATION, minus the portion corresponding to the debtor affected by the
varied condition or term; upon happening however, this portion may be claimed by creditor from any of the debtors.
 When one of solidary debtors is bound by varied terms and conditions, for instance a suspensive condition or a suspensive
period, creditors may still demand for fulfillment of the whole prestation prior to the happening of the condition or arrival
of the term, minus the share of this debtor bound by varied condition/term. This latter portion may be demanded from
anyone of the debtors soon as the term arrives or condition happens.
 Example: Is sureties who are solidarily liable without their debtors but binds themselves to varied conditions distinct from the
principal debtors; BUT, the OBLIGATION of surety may not be greater than that of ea principal debtor, nor more
burdensome.
 An OBLIGATION to pay sum of money is not novated in a new instrument wherein the old is ratified, by changing only
the terms of payment and adding other OBLIGATIONS not incompatible with the old one.
Article 1212. Each one of the solidary creditors may do whatever may be useful to the others, but not anything which may be
prejudicial to the latter.
Acts beneficial: each solidary debtor may,

interrupt prescription,

constitute a debtor in default,

bring suit so that OBLIGATION may produce interest
Acts prejudicial: Solidary creditor cannot do anything prejudicial to the others, like remission, novation, compensation, merger or
confusion  but such provision in Article 1212 conflicts with Article 1215;
Tolentino: What will be done then? Harmonize Articles 1212 & 1215 by  such acts of extinguishment, which is prejudicial to cocreditors, will be valid so as to extinguish the claim against the debtors, but not with respect to the rights of co-creditors which subsists
and may be enforced against such creditor who performed the act alone.
Balane:
There is an apparent conflict between Article 1212 & 1215.
Article 1212 states that the agency extends only to things which will benefit all co-creditors. But not anything which is prejudicial to
the latter. In Article 1215, he can do an acts prejudicial to the other creditors, like remission for instance.
Article 1213. A solidary creditor cannot assign his rights without the consent of the others.
Article 1214. The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has been
made by one of them, payment should be made to him.
Tolentino: This is in line with the concept of Mutual agency which is the essence of active solidarity, implies mutual confidence,
thus one creditor cannot assign/transfer his rights to another without consent of the others.
Effects of Unauthorized Transfer: No effect, no rights transferred; assignee does not become solidary creditor, co-creditors and
debtor/s not bound by such transfer;

Payment made by this assignee will not extinguish OBLIGATION; suit filed by him may not interrupt the rights.

EXCEPT, if the assignee is also one of the co-creditors, because mutual confidence is incumbent.
Justice JBL REYES: Article 1213 places unjustifiable and unnecessary burden on the rights of solidary creditors upon his own share.
The article should have read as:

A solidary creditor who assigns his rights without the consent of his co-creditors shall answer subsidiarily for any prejudice
caused by the assignee in connection with d credit assigned.

Liability was compared to agent & principal.
Balane:
General Rule  A debtor may pay any of the solidary creditors.
Exception  If demand is made by one creditor upon the debtor, in which case the latter must pay the demanding creditor only.
Tolentino:
Judicial Demand  when such is made by one of solidary creditors, tacit mutual representation is deemed revoked.

Defendant-debtor should pay to the plaintiff-creditor to effect extinguishment; payment to any of other creditors who did not
sue would be deemed payment to a 3rd person.

Plaintiff-creditor merely consolidates in himself the representation of all the others, but the essence of solidarity of creditors
should not be nullified;
Extra-judicial Demand  same as above; demand by several creditors separately, debtor should pay the one who notified him 1st ;
if they demand at d same time, or collectively, debtor may choose to whom to pay.
Other Instances:
Debtor upon whom demand was made pays to a creditor other than the one who made the demand in violation of Article 1214
 This is considered payment to a third person (Article 1241, par. 2) & the debtor can still be made to pay the debt. The only
concession given to the debtor is that he is allowed to deduct the share of the receiving creditor from the total amount due even if
he paid the entire amount due to that creditor.
Creditor A makes demand on debtor Y  Does it mean that he cannot pay the share pertaining to creditor B?
A: According to commentators he can. But this is dangerous because there may already be an agreement on the part of the creditors.
-Tolentino warns that to make the debtors pay for the whole amount to the demanding creditor even if partial payment has already
been made to another creditor might amount to unjust enrichment. This rule/restriction has already been scrapped in some
modern civil codes allowing freedom of choice to the debtor even after demand.
Article 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any
of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of article 1219.
The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the
share in the obligation corresponding to them.
Article 1219. 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 had been totally paid by anyone of them before the
remission was effected.
Article 1915. If two or more persons have appointed an agent for a common transaction or undertaking, they shall be solidarily
liable to the agent for all the consequences of the agency.
Tolentino:
Novation  A solidary debtor binds himself alone, assumes the debt, releases the other debtors. But this debtor cannot bind himself
to a new debt without the consent of others.
-If creditor makes the novation without the debtor and does not secure consent of other debtors, the latter is released. The new contract
binds only the debtor who secured the novation.
-Mere extension of time given by creditor to a solidary debtor does not release others from the OBLIGATION  no novation here.
Dation in payment by one debtor extinguishes as in payment if made immediately, otherwise if promised only, this is a novation.
When merger & compensation, there is total extinguishment of the OBLIGATIONS; only reimbursements remain; if partial, then
application of payments should govern;
A surety who is bound in solidum will be released by any material alteration in the principal contract made without knowledge &
consent of surety, e.g. extension of time, unless surety’s liability is varied, as in installment payments.
When 1 creditor makes a remission, the extent of that particular OBLIGATION is extinguish, this creditor is liable to co-creditors for
their shares.
When remission favors only one debtor, in full share, this debtor is released fr solidary OBLIGATION, if partial, he retains the solidary
OBLIGATION & becomes a surety of the whole OBLIGATION;
Factors to consider in effects of acts under Article 1215:
1. the relation between Creditors and that of debtors;
2. the relation among co-debtors themselves.
Baviera:

Principals are always liable solidarily;

Agents are not liable solidarily unless expressly stipulated (res inter alios acta)
b. Passive Solidarity
Article 1216. The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The
demand made against one 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.
Q: If a judgment made in an action brought by a solidary creditor against a solidary debtor will it be res judicata against the codebtors?
A: A favorable judgment that inures to the benefit of the co-creditors will be res judicata as to the latter;
An adverse judgment would have the same effect if the action of the plaintiff-creditor is not founded on a cause personal to him, but
actually consolidates in him all the rights as well of his co-creditors. (Tolentino)  similarly translated as to co-debtors;

Since in solidarity, there is unity of legal tie, notwithstanding plurality of subjects;

A judgment that declares the OBLIGATION does not exist extinguished the OBLIGATION the defendant-debtor, and such
decision inures to the benefit of co-debtors, unless the cause is personal to the def-debtor.
Extent of Liability
PASSIVE
SOLIDARITY
Solidary debtors
whole OBLIGATION
Liability
Effects of Extension of
time granted by creditor
Primary
solidary OBLIGATION
remains
SURETY
solidary guaranty
only to the extent of contract stipulations/as
expressed
Subsidiary
releases the surety
Tolentino: Passive Solidarity vs. Suretyship
Similarity:
(1) both stands for some other person;
(2) both may require reimbursement

If surety binds itself in solidum, creditor may go against anyone of them.
Distinctions
Extension of Time given
by creditor
Passive Solidarity
Solidary debtor is liable
for
his
own
OBLIGATION & that of
his co-debtors’
Primary liability
does not release a
solidary
debtor
(novation)
Suretyship
liable only as to his own OBLIGATION
Subsidiary liability
releases a solidary guarantor or surety
(extinguishment)
Article 1217. 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 the 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.
Article 1218. 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.
Article 1219. 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 effected.
Tolentino: Payment by one solidary debtor in whole – extinguishes the OBLIGATION and releases the credit  gives rise to a new
OBLIGATION for reimbursement by the other debtors to this one debtor who paid (JOINT OBLIGATION); plaintiff creditor may be
properly substituted by the debtor who paid;
EXCEPT: If payment was made after the OBLIGATION prescribed or become illegal (mistake or not). (Article 1218)

After the OBLIGATION has prescribed or becomes illegal, it is no longer due & demandable. None of the solidary debtors
can be compelled by the creditors to pay.

Thus, if one debtor pays, he cannot reimburse from his co-debtors because his action will not revive the inexistent
OBLIGATION;

Generally, neither could he recover from the creditor to whom he paid (Article 1424); except perhaps under solutio indebiti.
Balane:
Effect of Remission.
Problem: Solidary debtors W, X, Y & Z are indebted to A for P12,000. A remits the share of Y (P3,000).
Q: Can Y be sued?
A: Yes, for the P9,000 (P12,000 less P3,000 share of Y) his share was remitted but not the solidary OBLIGATION.
Q: Supposing X is insolvent?
A: Y can still be made to contribute. Remission will benefit Y only in so far as his share is concerned. His liability in case of insolvency
of one co-creditor is not affected.
Q: Can A demand the P9,000 from Y?
A: Yes. But he can recover the same from W, X & Z.
Q: If W paid the whole debt before A remits Y’s share, may W still demand reimbursement of Y’s share?
A: Yes, Article 1219, Y will not be released from his solidary OBLIGATION. Upon W’s full payment the entire OBLIGATION was
extinguished, there’s nothing more to remit in Y’s favor.
Q: After A remits share of Y, W pays in full the remaining 12,000. X then becomes insolvent. May Y be compelled to
contribute to the share of X?
A: Yes (Manresa and Tolentino), gratuitous acts should be construed restrictively as to permit the least transmission of rights
(Article1378). Thus, if W paid 9,000 and X and Z were suppose to reimburse him 3000 each, Y could be compelled to contribute
1000 as to the insolvency of X.
Article 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle him to
reimbursement from his co-debtors.
Article 1221. If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the
obligation shall be extinguished.
If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price & the payment of damages
& interest, without prejudice to their action against the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the performance has become impossible after one of the solidary debtors has
incurred in delay through the judicial or extrajudicial demand upon him by the creditor, the provisions of the preceding
paragraph shall apply.
Article 1895. If solidarity has been agreed upon, each of the agents is responsible for the non-fulfillment of the agency, & for
the fault or negligence of his fellow agents, except in the latter case when the fellow agents acted beyond the scope of their
authority.
Article 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the
nature of the obligation & 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.
Effects of Article 1221 is limited to non-performance because of loss of the thing or impossibility of prestation that is due  if such is
anchored with a fortuitous event, without fault or delay on any debtor, then OBLIGATION is extinguished; no debtor is liable.

If debtor is at fault on the loss/impossibility; Or if in delay even before the loss/impossibility  the OBLIGATION is
converted to indemnification (of the price, damages & interests).

If guilty debtor is made to pay by demand of creditor, he cannot recover from his co-debtors (if there was loss/imp), he will
shoulder the whole amount of the loss thing + indemnity;

If another co-debtor pays the whole amount he could recover fr his co-debtors;

In case of non-performance without loss of the thing/has not become impossible: but there is delay, fraud, fault or
negligence, or some other breach of OBLIGATION, creditor may also recover damages; here, if guilty debtor pays, he will
not shoulder the whole amount, his co-debtors will pay him their equivalent share in the original OBLIGATION. Guilty
debtor shoulders the amount of damages though.
Balane:
Three Defenses of Solidary Debtor:
1.
2.
3.
Those derived from the nature of the obligation is a total defense;
e.g., prescription, illegality of obligation (illicit object); vitiated consent; unenforceability under the Statute of Frauds; nonhappening of condition; arrival of resolutory period; extinguished OBLIGATION d/t payment, remission;
Those defenses personal to the debtor-defendant;
e.g., insanity  If it involves vitiation of consent, total defense. If it involves a special term or a condition, a partial defense.
Those defenses personal to other co-debtors;
e.g., defense as to the share corresponding to other debtors is a partial defense, i.e. suspensive condition or period as to the
OBLIGATION of one co-debtor.
4. AS TO PERFORMANCE OF PRESTATION
a. Divisible OBLIGATIONS
Article 1223. The divisibility or indivisibility of the things that are the object of OBLIGATIONS in which there is only one
debtor & only one creditor does not alter or modify the provisions of Chapter 2 of this Title (Nature & Effect of
OBLIGATIONS).
Balane:

This kind of OBLIGATIONS has something to do with the performance of the prestation, & not to the thing.

The thing may be divisible but the OBLIGATION may still be indivisible, e.g. OBLIGATION to deliver 100 sacks of
jasmine rice found in Warehouse of specific address on a fixed date (determinate OBLIGATION);

Or thing is indivisible but performance is divisible, i.e. stage-by-stage construction of a public road where obligor may
deliver every 15% of work done and collect its proportionate cost from government agency concerned, performance bonds
here may also be termed as such.
Divisible obligation is one susceptible of partial performance.
An indivisible obligation is one that must be performed in one act.
Test of Divisibility: Whether or not it is susceptible of partial performance.
General rule: Obligation is indivisible which means that it has to be performed in one act singly.
Why? Because the law provides so: Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to
receive the prestations in which the obligation consists. Neither may the debtor be required to make partial payments. xxx (Article
1248, par. 1.)
Tolentino:

When division would diminish the value of the whole

QUALITATIVE, when the thing is not really homogeneous, i.e. inheritance;

QUANTITATIVE, when the thing divided is homogeneous and may be separated into parts if movable, or limits may be
set if immovable;

IDEAL, when parts are not separated materially, but assigned to several persons, as in pro-indiviso co-owners;
Three Exceptions to the Rule on Indivisibility:
1. When the parties so provide. (Article 1248, par. 1.)
2. When the nature of the obligation necessarily entails performance in parts.
3. Where the law provides otherwise.
Divisibility of Obligation distinguished from divisibility of object:

Divisibility of obligation or prestation does not necessarily mean a divisible obligation.

Divisibility of object is not the same as divisibility of obligation.

But the reverse is not the same. Indivisibility of object means an indivisible obligation.
Article 1224. A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not
comply with his undertaking. The debtors who may have been ready to fulfill their promises shall not contribute to the
indemnity beyond the corresponding portion of the piece of the thing or of the value of the service in which the obligation
consists.
Article 1225. For the purposes of the preceding articles, OBLIGATIONS to give definite things & those which are not
susceptible of partial performance shall be deemed to be indivisible.
When the obligation has for its object the execution of a certain number of days of work, the accomplishment of work by
metrical units, or analogous things which by their nature are susceptible of partial performance, it shall be divisible.
However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or
intended by the parties.
In OBLIGATIONS not to do, divisibility or indivisibility shall be determined by the character of the prestation in each
particular case.
TOLENTINO: To enforce a Joint Indivisible OBLIGATION, Article 1209 has established the necessity of COLLECTIVE
FULFILLMENT and the action must be against all the debtors.
 In case of non-performance by any of the debtors, the OBLIGATION is converted into liability for losses & damages =
DIVISIBLE.
 THUS, if one debtor is insolvent, or fails to pay his share, the other debtors will no longer be liable for his share. The
entire liability for all damages is shouldered by the defaulting debtor.
Solidarity vs. Indivisibility
Solidarity
Refers to vinculum, and principally to
the subjects of OBLIGATION
Requires plurality of subjects
Solidarity remains even in case of
breach of one, they all remain liable
for indemnity
Death of debtor terminates solidarity
Indivisibility
refers to the prestation or the object of the
OBLIGATION
plurality not required
when OBLIGATION is converted to liability for
damages, the indivisibility ceases to exist, each debtor
becomes liable for his part of indemnity
indivisibility affects the heirs of a decedent debtor, they
remain to be bound to perform the same prestation
Factors to Determine Whether OBLIGATION is Divisible or not
1. will or intention of the parties, which may be expressed or presumed;
2. objective or purpose of stipulated prestation;
3. nature of the thing;
4. provisions of law affecting the prestation

In OBLIGATIONS to give, indivisibility is presumed; except:
1. when work is agreed to be by units of time or measure;
2. or otherwise susceptible of partial performance = divisible
 In indivisible OBLIGATION, partial performance is equal to non-performance. Thus, partial payment based on quantum
meruit is not availed. (Articles 1233 and 1248 forbids partial fulfillment) “Work half done is worst than work undone!”
Exceptions:
(1) OBLIGATION has been substantially performed in good faith  debtor may recover as if there had been complete
performance, minus the damages suffered by creditor;
(2) Creditor accepts, despite partial performance, with knowledge of incompleteness, without protest  OBLIGATION is
deemed fully performed.
Consideration
Prestation/s
When a part is illegal
ENTIRE contract
single
One void undertaking
whole contract
unenforceable
void contract
Viz. Statute of Frauds
must be in writing
SEVERABLE contract
apportioned (expressly/implied)
several, distinct, separate items
partly enforceable
if not illegal, then valid covenants may be
enforced
if separate chattels may be sold below
limits set by Statute of Frauds, even when
the sum total exceeds, contract not affected
b. Indivisible OBLIGATIONS
Article 1209. If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, & 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.
Article 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply
indivisibility.
Examples of Indivisible OBLIGATIONS:
(1) By virtue of its object
Article 618. Easements are indivisible. If the servient estate is divided between two or more persons, the easement is not
modified, & each of them must bear it on the part which corresponds to him.
If it is the dominant estate that is divided between two or more persons, each of them may use the easement in its entirety,
without changing the place of its use, or making it more burdensome in any other way.
(2) Express provision of law
Article 2089. A pledge or mortgage is indivisible, even though the debt may be divided among the successors in interest of the
debtor or of the creditor.
Therefore, the debtor's heir who has paid a part of the debt cannot ask for the proportionate extinguishment of the pledge or
mortgage as long as the debt is not completely satisfied.
Neither can the creditor's heir who received his share of the debt return the pledge or cancel the mortgage, to the prejudice of
the other heirs who have not been paid.
From these provisions, it is expected the case in which, there being several things given in mortgage or pledge, each one of them
guarantees only a determinate portion of the credit.
The debtor, in this case, shall have a right to the extinguishment of the pledge or mortgage as the portion of the debt for which
each thing is specially answerable is satisfied.
Article 2090. The indivisibility of a pledge or mortgage is not affected by the fact that the debtors are not solidarily liable.
Article 1612. If several persons, jointly & in the same contract, should sell an undivided immovable with a right of repurchase,
none of them may exercise this right for more than his respective share.
The same rule shall apply if the person who sold an immovable alone has left several heirs, in which case each of the latter may
only redeem the part which he may have acquired.
Article 1613. In the case of the preceding article, the vendee may demand of all the vendors or co-heirs that they come to an
agreement upon the repurchase of the whole thing sold; and should they fail to do so, the vendee cannot be compelled to consent
to a partial redemption.
Article 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the
prestations in which the obligation consists. Neither may the debtor be required to make partial payments.
However, when the debt is in part liquidated & in part unliquidated, the creditor may demand & the debtor may effect the
payment of the former without waiting for the liquidation of the latter.
Article 1583. Unless otherwise agreed, the buyer of goods is not bound to accept delivery thereof by installments.
Where there is a contract of sale of goods to be delivered by stated installments, which are to be separately paid for, & the
seller makes defective deliveries in respect of one or more installments, or the buyer neglects or refuses without just cause to
take delivery of or pay for one or more installments, it depends in each case on the terms of the contract & the circumstances
of the case, whether the breach of contract is so material as to justify the injured party in refusing to proceed further & suing
for damages for breach of the entire contract, or whether the breach is severable, giving rise to a claim for compensation but
not to a right to treat the whole contract as broken.
(3) Express agreement
Article 1714. If the contractor agrees to produce the work from material furnished by him, he shall deliver the thing produced to the employer &
transfer dominion over the thing. This contract shall be governed by the following articles as well as by the pertinent provisions on warranty of
title & against hidden defects & the payment of price in a contract of sale
5. AS TO THE PRESENCE OF AN ACCESSORY UNDERTAKING IN CASE OF BREACH
a. OBLIGATIONS with a Penal Clause
Article 1226. In OBLIGATIONS with a penal clause, the penalty shall substitute the indemnity for damages & the payment
of interests in case of non-compliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the
obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.
Balane: Articles 1226 to 1230 on obligation with a penal clause is the same as liquidated damages found in Articles 2226 to 2228
by authority of Lambert v. Fox, 26 Phil. 588.
(Tolentino) Penal Clause- A penal clause is an accessory undertaking to assume greater liability in case of breach. The purpose is to
strengthen the coercive force of the obligation. When a penal clause is present, damages do not have to be proved.
Thus, DUAL FUNCTION OF PENAL CLAUSE:
(1) To provide for liquidated damages
(2) To strengthen the coercive force of the OBLIGATION by threat of greater responsibility in case of breach.
Characteristics of Penal Clause:
1. Subsidiary (also called alternative)  upon non-performance, only the penalty may be demanded.
Exception: Where penalty is joint (cumulative), where both the principal undertaking & penalty may be demanded under Article
1227, second sentence: "xxx unless this right has been clearly granted him."
Notice the word clearly (not explicitly) which means that the right can be clearly granted by implication.
2. Exclusive  penal clause is for reparation. It takes the place of damages.
Exception: When it is for punishment  in which case both penalty & damages may be demanded, namely- If there is a stipulation that both penalty & damages are recoverable in case of breach
 If the obligor refuses to pay the penalty
 If the obligor is guilty of fraud in the fulfillment of his obligation.
Article 1227. 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 the fulfillment of the obligation & 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.
 General Rule: Debtor cannot avoid performance by paying the penalty; except when expressly granted to debtor.
 General Rule as to creditor: may not demand both fulfillment and payment of penalty at the same time; except if such right
is granted clearly.
 As to the last sentence, when it becomes impossible without creditor’s fault  it will happen only if through debtor’s fault
or delay, for penalty to become enforceable; because if through fortuitous event without creditor’s nor debtor’s fault, principal
OBLIGATION would be extinguished and so will the penal clause.
Article 1228. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded.
Baviera: Courts can enforce contracts according to their terms.
Article 1229. 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 court if it is
iniquitous or unconscionable.
Article 1230. 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.
Partial Performance  refers to extent or quantity of fulfillment
Irregular Performance  refers to the form

Doctrine of Strict Construction will apply as against the enforcement of the penalty in its entirety, when the clause is
clearly punitive, not when it is impliedly intended as liquidated damages;

Thus penalty is mitigated in:
1. partial or irregular performance
2. iniquitous or unconscionable penalty
1. Distinguished from OBLIGATION with suspensive condition:

Happening of the condition gives rise to the OBLIGATION; in penal there is already a principal OBLIGATION

The principal OBLIGATION itself is dependent upon a future and uncertain event; in penal, only the accessory
OBLIGATION (the penalty) depends upon non-performance or breach.
2. Distinguished from alternative OBLIGATIONS
Article 1227. The debtor cannot exempt himself from the performance of the obligation by paying the penalty, save in the case
where his right has been expressly reserved for him. Neither can the creditor demand the fulfillment of the obligation & 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.
Article 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the creditor.
The debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have been the
object of the obligation.
ALTERNATIVE OBLIGATION
2 or more OBLIGATIONS are due but
performance of 1 is enough
Impossibility
of
one
of
OBLIGATIONS, the other/s subsists
Debtor can choose which prestation to
fulfill
X obliged to deliver a horse to Y or pay
him P500
OBLIGATION WITHPENAL CLAUSE
there’s only 1 principal OBLIGATION, only in case of nonperformance shall the penal clause be enforceable
impossibility of principal OBLIGATION, penal clause
extinguished
debtor cannot choose to pay penalty to avoid performance, unless
expressed
X obliged to deliver a horse to Y. if he fails he will pay him P500
2. Distinguished from Facultative OBLIGATIONS
Article 1206. When only one prestation has been agreed upon, but the obligor may render another in substitution, the
obligation is called facultative.
The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor does not render him liable.
But once the substitution has been made, the obligor is liable for the loss of the substitute on account of his delay, negligence
or fraud.
Article 1227. 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 the fulfillment of the obligation & 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.
FACULTATIVE OBLIGATION
Debtor has power to make substitution
Creditor cannot demand both
prestations
OBLIGATION with PENAL CLAUSE
General Rule, none; except when expressed
such right to demand both may be given
GUARANTY
Is a contract by which virtue, a 3rd
person (guarantor) obliged himself to
fulfill prestation in lieu of debtor’s nonperformance
Intended to insure performance of
principal OBLIGATION
Accessory
&
subsidiary
OBLIGATION
Principal debtor cannot be guarantor
Subsists even when principal
OBLIGATION is voidable or
unenforceable
OBLIGATION with PENAL CLAUSE
OBLIGATION to pay penalty is different from the principal
OBLIGATION, but also paid in lieu of debtor’s nonperformance
Intended to insure performance of principal OBLIGATION
Accessory & subsidiary OBLIGATION
both OBLIGATIONS can be assumed by one person
penalty is extinguished in such case, unless assumed by 3rd
person
Q: When does delay set in?
A: Delay sets-in in the following manner:
1. For Reciprocal simultaneous OBLIGATIONS
 By the readiness of one of the parties to perform & his letting the other party know; & the other party is not ready to comply in a
proper manner with what is incumbent upon him.
2. For Reciprocal OBLIGATIONS which are not simultaneous
 General Rule: Demand is necessary (Article 1169, par.
(1) This is called mora solvendi ex persona.
Exception: When demand is not necessary (the exceptions are found in Article 11 69, par. 2.) This is called mora solvendi ex re.
Q: What kind of demand is necessary?
A: Judicial or extra-judicial
Exceptions:
When the obligation or the law expressly so declare. When the contract says that without the necessity of demand, default sets in upon
the failure of the obligor to perform on due date. There must be something in the contract which explicitly states that the demand
is not necessary in order that delay may set in.
When from the nature & the circumstances of the obligation it appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive for the establishment of the contract.
Illustration: Bong Baylon is getting married in Valentines '96. Inno Sotto was supposed to make Ella's (the bride) wedding gown.
Feb. 14 comes, no gown was delivered. Ella gets married in blue jeans & T-shirt. Finally, on Feb. 15, Inno delivers the gown. xxx
Ella sues Inno for breach. Inno says there was no demand. In this case, demand is not necessary in order that delay may exist.
E. BREACH OF OBLIGATIONS (ARTICLE 1170)
Article 1170. Those who in the performance of their obligation are guilty of fraud, negligence or delay, & those who in any
manner contravene the tenor thereof, are liable for damages.
Irregularity of Performance [Articles 1169 - 1174]
Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
When the obligation or the law expressly so declare;
When from the nature & the circumstances of the obligation it appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive for the establishment of the contract;
When demand would be useless, as when the obligor has rendered it beyond his power to perform.
In reciprocal OBLIGATIONS, neither party incurs in delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.
MANNER OF BREACH
(1) Fraud
Article 1171. Responsibility arising from fraud is demandable in all OBLIGATIONS. Any waiver of an action for future fraud
is void.
Article 1338. There is fraud when, through insidious words or machinations of one of the contracting parties, the other is induced to
enter into a contract which, without them, he would not have agreed to.
Article 1344. In order that fraud may make a contract voidable, it should be serious and should not have been employed by both
contracting parties.
Incidental fraud only obliges the person employing it to pay damages.
Fraud as used in Article 1170 is different from fraud as a cause for vitiation of consent in contracts (more properly called deceit which
prevents the contract from arising; this is found in Article 1380, et seq.)
 Fraud as referred here is the deliberate and intentional evasion of normal fulfillment of OBLIGATIONS; thus, as ground for
damages from this article, implies some kind of malice or dishonesty, which does not cover mistake, errors of judgment made in
good faith.
 Evasion of a legitimate OBLIGATION for benefits admittedly received constitutes unjust enrichment.
Q: What is a synonym for fraud as used in Article 1170?
A: Malice.
Effects of Fraud:
1. Creditor may insist on performance, specific or substitute (Article 1233.)
2. Creditor may resolve/ rescind (Article 1191.)
3. Damages in either case (Article 1170.)
(2) Negligence
Article 1171. Responsibility arising from fraud is demandable in all OBLIGATIONS. Any waiver of an action for future
fraud is void.
Article 1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but
such liability shall may be regulated by the courts, according to the circumstances.
Article 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of
the obligation & corresponds with the circumstances of the persons, of the time & of the place. When negligence shows bad
faith, the provisions of articles 1171 & 2201, paragraph 2, shall apply.

Negligence is the absence of something that should be there  due diligence.
Measure of Due Diligence
There are two guides:
1. Diligence demanded by circumstances of person, place & time
2. Care required of a good father of a family (fictional bonus pater familias who was the embodiment of care, caution &
protection in Roman law.)
In common law, the degree of care required is the diligence of a prudent businessman. This is actually the same as the diligence of
a good father of a family.
Effects of Negligence:
1. Creditor may insist on performance, specific or substitute (Article 1233.)
2. Creditor may resolve/ rescind (Article 1191.)
3. Damages in either case (Article 1170.)
 From 1173 = culpa contractual
 from 2176 = culpa aquiliana or extra-contractual
** In both cases, for liability to attach, such negligence must be the proximate cause of the injury to plaintiff.
(3) Delay
 See Article 1169.
= default / mora, in the fulfillment of OBLIGATIONS;
REQUISITES to be in Default:
OBLIGATION is demandable and liquidated
debtor delays performance
creditor requires performance, judicial or extrajudicial demand
Article 1165. xxx. If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have
the same interest, he shall be responsible for any fortuitous event until he has effected the delivery.
Article 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto.
He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may have contributed to
the partnership, in the same cases and in the same manner as the vendor is bound with respect to the vendee. He shall also be liable for
the fruits thereof from the time they should have been delivered, without the need of any demand.
Article 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and
damages from the time he should have complied with his obligation.
The same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin from the time he
converted the amount to his own use.
Article 1896. The agent owes interest on the sums he has applied to his own use from the day on which he did so, and on those
which he still owes after the extinguishment of the agency.
Article 1942. The bailee is liable for the loss of the thing, even if it should be through a fortuitous event:
(1) If he devotes the thing to any purpose different from that for which it has been loaned;
(2) If he keeps it longer than the period stipulated, or after the accomplishment of the use for which the commodatum has been
constituted;
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from
responsibility in case of a fortuitous event;
(4) If he lends or leases the thing to a third person, who is not a member of his household;
(5) If, being able to save either the thing borrowed or his own thing, he chose to save the latter. (OBLIGATIONS OF THE
BAILEE)
Delay is the non-fulfillment of the obligation with respect to time.
Kinds of Delay:
1. Mora Solvendi- delay in the performance (on the part of the debtor);
2. Mora Accipiendi- delay in the acceptance (on the part of the creditor);
3. Compensation Morae- mutual delay
Article 2201. xxx
(2) In contracts & quasi-contracts, the damages for which the obligor who acted in good faith is liable shall be those that are
the natural & probable consequences of the breach of the obligation, & which the parties have foreseen or could have
reasonably foreseen at the time the obligation was constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be reasonably
attributed to the non-performance of the obligation.
(4) ANY OTHER MANNER OF CONTRAVENTION:
 Includes any illicit acts which impair the strict and faithful fulfillment of OBLIGATION, or every kind of defective performance;
EXCUSE FOR NON-PERFORMANCE
1. Loss due to Fortuitous Events
Article 1174. Except in cases expressly specified by law, or when it otherwise declared by stipulation, or when the nature of
the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or
which , though foreseen, were inevitable.
To constitute a caso fortuito that will exempt a person from responsibility, it is necessary that: [Austria vs. Abad, June 10, 1971]
1. the event must be independent of human will;
2. the occurrence must render it impossible for the debtor to fulfill the obligation in a normal manner;
3. that the obligor must be free of participation in, or aggravation of, the injury to the creditor.
Balane:
General Rule: The happening of a fortuitous event exonerates the debtor from liability.
EXEMPTIONS FROM APPLICATION OF General Rule ON Fortuitous Event:
1. When the law so specifies. E.g., if the debtor is already in delay (Article 1165, par. 3.)
2. When the parties so agree
3. When the nature of the obligation requires the assumption of risk, e.g., an insurance contract.
EXAMPLES OF By Express Provision of Law:
 IN Depositary
Article 1979. The depositary is liable for the loss of the thing through a fortuitous event:
(1) If it is so stipulated;
(2) If he uses the thing without the depositor's permission;
(3) If he delays its return;
(4) If he allows others to use it, even though he himself may have been authorized to use the same.
Q: What if a depositor was in the premises of the bank & was robbed of his money which he was about to deposit?
A: Bank cannot be held liable for fortuitous event (robbery) especially in case where the money has not yet been actually deposited.
Article 1979 provides for instances wherein depositary is still liable even in cases of fortuitous event.
Q: What kind of diligence is required of a depositary?
A: Ordinary Diligence.
*Safety Deposit Box: If the jewelry inside a Safety Deposit Box was stolen, rules on deposit will not apply because the contract
governing the transaction is LEASE of safety deposit box.
Bailee in Commodatum
Article 1942. The bailee is liable for the loss of the thing, even if it should be through a fortuitous event:
(1) If he devotes the thing to any purpose different from that for which it has been loaned;
(2) If he keeps it longer than the period stipulated, or after the accomplishment of the use for which the commodatum has been
constituted;
If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from
responsibility in case of a fortuitous event;
If he lends or leases the thing to a third person, who is not a member of his household;
(5) If, being able to save either the thing borrowed or his own thing, he chooses to save the latter.
In Negotiorum Gestio
Article 2147. The officious manager shall be liable for any fortuitous event:
(1) If he undertakes risky operations which the owner was not accustomed to embark upon;
(2) If he has preferred his own interest to that of the owner;
(3) If he fails to return the property or business after demand by the owner;
(4) If he assumed the management in bad faith.
Article 2148. Except when the management was assumed to save the property or business from imminent danger, the officious
manager shall be liable for fortuitous events:
(1) If he is manifestly unfit to carry on the management;
(2) If by his intervention he prevented a more competent person from taking up the management.
Payee in Solutio Indebiti
Article 2159. Whoever in bad faith accepts an undue payment, shall pay legal interest if a sum of money is involved, or shall
be liable for fruits received or which should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss or impairment of the thing from any cause, & for damages to the person who
delivered the thing, until it is recovered.
Lessee
Article 1648. Every lease of real estate may be recorded in the Registry of Property. Unless a lease is recorded, it shall not be
binding upon third persons.
Article 1671. If the lessee continues enjoying the thing after the expiration of the contract, over the lessor's objection, the former
shall be subject to the responsibilities of a possessor in bad faith.
Article 552. xxx.
A possessor in bad faith shall be liable for deterioration or loss in every case, even if caused by a fortuitous event.
Independent Contractor
Article 1727. The contractor is responsible for the work done by persons employed by him.
Article 1728. The contractor is liable for all the claims of laborers & others employed by him, & of third persons for death or
physical injuries during the construction.
Common Carrier
Article 1763. A common carrier is responsible for injuries suffered by a passenger on account of the willful acts or negligence
of other passengers or of strangers, if the common carrier's employees through the exercise of the diligence of a good father of
a family could have prevented or stopped the act or omission.
(2) “when it is otherwise declared by stipulation” (Article 1174)
Express agreement
Article 1306. The contracting parties may establish such stipulations, clauses, terms & conditions as they may deem convenient, provided
they are not contrary to law, morals, good customs, public order, or public policy.
(3) “when the nature of the OBLIGATION requires the assumption of risks”
Aleatory Contract
Article 2010. By an aleatory contract, one of the parties or both reciprocally bind themselves to give or to do something in
consideration of what the other shall give or do upon the happening of an event which is uncertain, or which is to occur at an
indeterminate time.
Article 1175. Usurious transactions shall be governed by special laws.
Tolentino:
Usury is the contracting for or receiving something in excess of the amount allowed by law for the loan or forbearance or money,
goods or chattels.
Special law on usury
-The Usury Law was Act No. 2655. This law was repealed during the period of martial law, leaving parties free to stipulate higher
rates.
F. REMEDIES FOR BREACH OF OBLIGATIONS:
Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article 1170, may compel
the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he shall be responsible
for any fortuitous event until he has effected the delivery.
Article 1166. The obligation to give a determinate thing includes that of delivering all its accessions and accessories, even though they may
not have been mentioned.
Article 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.
This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be decreed that what has been
poorly done be undone.
Article 1168. When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall also be undone at his
expense.
Article 1170. Those who in the performance of their OBLIGATIONS are guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.
Article 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and
bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the
debtor may have done to defraud them.
Article 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no stipulation to the contrary.
Article 1191. The power to rescind OBLIGATIONS is implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may
also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388
and the Mortgage Law.
Article 1192. In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by
the court. If it cannot be determined which of the parties first violated the contract, the same shall be deemed extinguished, and each shall bear
his own damages.
Article 2236. The debtor is liable with all his property, present and future, for the fulfillment of his OBLIGATIONS, subject to the exemptions
provided by law. (Concurrence and Preference of Credits)
Article 302. Neither the right to receive legal support nor any money or property obtained as such support or any pension or gratuity from the
government is subject to attachment or execution. (Support)
Article 1708. The laborer's wages shall not be subject to execution or attachment, except for debts incurred for food, shelter, clothing and
medical attendance. (Contract Labor)
FAMILY CODE:
Article 153. The family home is deemed constituted on a house and lot from the time it is occupied as a family residence. From the time of
its constitution and so long as any of its beneficiaries actually resides therein, the family home continues to be such and is exempt from
execution, forced sale or attachment except as hereinafter provided and to the extent of the value allowed by law.
Article 155. The family home shall be exempt from execution, forced sale or attachment except:
(1) For nonpayment of taxes;
(2) For debts incurred prior to the constitution of the family home;
(3) For debts secured by mortgages on the premises before or after such constitution; and
(4) For debts due to laborers, mechanics, architects, builders, materialmen and others who have rendered service or
furnished material for the construction of the building.
Rules of Court- RULE 39, SEC. 13:
Section 13. Property exempt from execution.
Except as otherwise expressly provided by law, the following property, and no other, shall be exempt from execution:
FOCAUPLBELASE
 The judgment obligor's Family home as provided by law, or the homestead in which he resides, and land necessarily used in connection
therewith;
 Ordinary tools and implements personally used by him in his trade, employment, or livelihood;
 Three horses, or three cows, or three Carabaos, or other beasts of burden, such as the judgment obligor may select necessarily used by
him in his ordinary occupation;
 His necessary clothing and Articles for ordinary personal use, excluding jewelry;
 Household furniture and Utensils necessary for housekeeping, and used for that purpose by the judgment obligor and his family, such
as the judgment obligor may select, of a value not exceeding one hundred thousand pesos;
 Provisions for individual or family use sufficient for four months;
 The professional Libraries and equipment of judges, lawyers, physicians, pharmacists, dentists, engineers, surveyors, clergymen,
teachers, and other professionals, not exceeding three hundred thousand pesos in value;
 One fishing Boat and accessories not exceeding the total value of one hundred thousand pesos owned by a fisherman and by the lawful
use of which he earns his livelihood;
 So much of the salaries, wages, or Earnings of the judgment obligor for his personal services within the four months preceding the levy
as are necessary for the support of his family;
 Lettered gravestones;
 Monies, benefits, privileges, or Annuities accruing or in any manner growing out of any life insurance;
 The right to receive legal Support, or money or property obtained as such support, or any pension or gratuity from the Government;
 Properties specially Exempted by law.
But no article or species of property mentioned in this section shall be exempt from execution issued upon a judgment recovered for its price
or upon a judgment of foreclosure of a mortgage thereon.
Tolentino:
Remedy under Article 1165  REMEDIES OF CREDITOR: For failure of debtor to comply,
1. SPECIFIC PERFORMANCE, to obtain compliance of the prestations, whether determinate or generic; this action
implies a contractual relation;
2. TO RESCIND OR RESOLVE THE OBLIGATION
3. AN ACTION FOR DAMAGES exclusively or in addition to 1 and 2.
 Constitutional prohibition vs. imprisonment for debt applies, except in subsidiary imprisonment when civil liability arising
from crime is not paid; or in contempt;
 Exception to exception on the General rule under Fortuitous Event: Debtor in default may still prove that he is not liable
for fortuitous event because even if he had not performed, the loss would still have occurred in the same manner.
Remedy under Article 1167  Performance of OBLIGATION by another at creditor’s choice and at debtor’s cost – court
may not by discretion merely award damages to creditor when the OBLIGATION may be done in spite of debtor’s refusal to do
so;
But, law may not compel or force debtor to comply with OBLIGATION, if to do so, would amount to involuntary servitude,
and since worthy is the rule that if there is debt, then there is no imprisonment. If OBLIGATION can only be done by debtor, then
the only remedy is to ask for damages.
Remedy under Article 1168 OBLIGATION NOT TO DO was done  may compel debtor to UNDO what he has done; but if
impossible to undo so, the remedy is to ask for damages.
Remedy under Article 1170  RECOVERABLE DAMAGES = when the OBLIGATION is to do something other than the
payment of money;
If OBLIGATION is payment of money, Article 2209 is the rule in relation to damages  when debtors incurs in delay, there is
payment of interest if without stipulation to the contrary, as agreed upon, or if no agreement, the legal interest will do.
Remedy under Article 1177  RIGHTS OF CREDITORS:
1. To levy by attachment and execution upon all the property of debtor except if exempt by law;
2. To exercise all the rights and actions of the debtor, except those inherently personal to him; accion subrogatoria; prior
court approval is not required.
This should concur with the following: requisites:
a. Creditor has interest in the right or action not only because of his credit but that of the insolvency of debtor;
b. Malicious or negligent inaction of debtor at level which endanger the claim of Creditor;
c. Debtor’s right against 3rd person must be patrimonial, or susceptible of being transformed to patrimonial value.
3. Ask for rescission of contracts made by debtor in fraud of Creditor’s rights.
Balane:
Q: Against what can the obligee demand performance?
A: Against non-exempt properties of the debtor. -- The debtor is liable with all his property, present and future, for the fulfillment of
his OBLIGATIONS, subject to the exemptions provided by law. (Article 2236)
If number one is not enough, the creditor goes to any claims which the debtor may have against third persons. This is called accion
subrogatoria, wherein the creditor is subrogated in the rights of the debtor.
Personal rights of the debtor:
1. Right to subsistence, support he receives are exempt
2. Public rights;
3. Rights pertaining to honor
4. Right to use remaining powers available to him, e.g. SPA of agency or deposit; administrator; to accept a contract
5. Non-patrimonial rights – establish status, legitimate or illegitimate child; annulment of marriage, legal separation, those
arising from Persons and Family Relations;
6. Personal rights arising from patrimonial source, e.g. to revoke a donation due to ingratitude, to demand exclusion of an
unworthy heir;
Accion pauliana (Articles 1380-89) -- This is the right of creditors to set aside fraudulent transfers which the debtor made so much of
it as is necessary to pay the debts.
 pertains to acts which debtor may have done in fraud of creditor E.g. alienation of property, renunciation of inheritance or right of
usufruct, assignment of credit, remission of debts.
(1) EXTRAJUDICIAL REMEDIES:
(a) EXPRESSLY GRANTED BY LAW
(b) STIPULATED BY THE PARTIES
(a) EXPRESSLY GRANTED BY LAW, extrajudicial remedies
(In OBLIGATIONS of the Partners)
Article 1786. Every partner is a debtor of the partnership for whatever he may have promised to contribute thereto.
He shall also be bound for warranty in case of eviction with regard to specific and determinate things which he may have contributed to the
partnership, in the same cases and in the same manner as the vendor is bound with respect to the vendee. He shall also be liable for the fruits
thereof from the time they should have been delivered, without the need of any demand.
Article 1788. A partner who has undertaken to contribute a sum of money and fails to do so becomes a debtor for the interest and damages
from the time he should have complied with his obligation.
The same rule applies to any amount he may have taken from the partnership coffers, and his liability shall begin from the time he converted
the amount to his own use.
(In Delivery of the Thing Sold)
Article 1526. Subject to the provisions of this Title, notwithstanding that the ownership in the goods may have passed to the buyer, the unpaid
seller of goods, as such, has:
(1) A lien on the goods or right to retain them for the price while he is in possession of them;
(2) In case of the insolvency of the buyer, a right of stopping the goods in transitu after he has parted with the possession of them;
(3) A right of resale as limited by this Title;
(4) A right to rescind the sale as likewise limited by this Title.
Where the ownership in the goods has not passed to the buyer, the unpaid seller has, in addition to his other remedies a right of withholding
delivery similar to and coextensive with his rights of lien and stoppage in transitu where the ownership has passed to the buyer.
(2) JUDICIAL REMEDIES:
(a) PRINCIPAL REMEDY  Article 1191 or Article 1170
(b) SUBSIDIARY REM  Articles 1380 /1177
(c) ANCILLARY REM  Rules of Court
(a) PRINCIPAL REMEDY  1191 / 1170
Article 1191. The power to rescind OBLIGATIONS is implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may
also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388
and the Mortgage Law.
Notes:
Two remedies are alternative and not cumulative, subject to the exception in par. 2 where he may also seek rescission even
after he has chosen fulfillment if the latter should become impossible
Article 1170. Those who in the performance of their obligation are guilty of fraud, negligence or delay, and those who in any
manner contravene the tenor thereof, are liable for damages.
(b) SUBSIDIARY REM  Articles 1380 /1177
Article 1380. Contracts validly agreed upon may be rescinded in the cases established by law. (Rescissible Contracts)
Article 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise all the rights and
bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may also impugn the acts which the
debtor may have done to defraud them.
Note:
Rescission in reciprocal OBLIGATION in Article 1191 is not identical to Rescission of contracts in Article 1380 and the
succeeding provisions thereto.
Requisites of Rescission of a contract under Article 1380:
A rescissible contract provided for under Article 1381 and 1382;
No other legal means to obtain reparation for damages (Article 1383);
The person demanding rescission must be able to return whatever he may be obliged to restore if rescission be granted (Article
1385);
The objects of contract must not have passed legally to the possession of a of 3rd person in good faith (Article 1385);
Actions for rescission must be brought within 4 years (Article 1389).
 Rescindable contracts are valid until voided and can’t be attacked collaterally as in a land registration proceeding. Direct proceeding
is therefore necessary.
 Rescission only for legal cause, as those in Article 1381 and 1382.
“Lesion” under Article 1381 par. 1 and 2, for those to give rise to rescission, must be known or could have been known at the time of
making the contract, and not due to circumstances subsequent thereto or unknown to the parties.
Accion Pauliana: Actions to set aside contracts in fraud of Creditors (Article 1381 par. 3)
Requisites for Accion Pauliana:
1. Plaintiff: Asking for rescission has a credit prior to alienation, though demandable later;
2. Debtor has made a subsequent contract conveying a patrimonial benefit to 3rd person;
3. Creditor-Plaintiff has no other legal remedy to satisfy his claim;
4. Act being impugned is fraudulent;
5. The 3rd person who received property, if by onerous title, is accomplice in the fraud.
Rescission is a subsidiary action, which presupposes that the Creditor has exhausted the properties of the debtor. And that
fraudulent conveyance must be shown.
Test: WON conveyance by debtor a bona fide transmission.
Badges/ Signs of Fraud:
1. consideration of conveyance is inadequate
2. transfer made by Debtor after suit has begun and while pending action against him
3. a sale upon credit by insolvent Debtor
4. evidence of large indebtedness or complete insolvency
5. transfer of all or nearly all of property of Debtor who is insolvent or greatly embarrassed financially
6. transfer is made between father and son
7. failure of vendee to take exclusive possession of property
8. If alienation is gratuitous, good faith of transferee does NOT protect him over the owner; otherwise that amounts to Unjust
enrichment
9. If alienation is by onerous title, transferee must be a party to the fraud, to have rescission
As a rule, Rescission benefits only Creditor who obtained Rescission. And the extent of revocation is only to the amount of prejudice
suffered by Creditor. As to the excess, the alienation is maintained.
Actions for Rescission may be brought by:
(1) the person injured by the rescission of the contract;
(2) heirs of this person, and
(3) their Creditors by virtue of right granted under Article 1177.
Notes:




Right of transferee to retain property depends upon the nature of the transfer and upon the complicity of the former in the
fraud.
When contract can’t be rescinded because 3rd person who is in good faith, the party who caused the loss is liable for the
damages.
Badges of fraud, and Article 1387: Presumptions. May be rebutted by satisfactory and convincing evidence.
Article 1388: Creditor with action only against subsequent transferees only when an action lies against the 1st transferee. If
1st Transferee is in Good Faith, there is no liability. But if the 1st Transferee is in Bad Faith, the rescissible character of 2nd
alienation depends upon how 2nd Transferee acquired the thing.
Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the obligation with the payment of damages in
either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
The creditor shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with
Articles. 1385 and 1388 and the Mortgage Law.
Article 1192. In case both parties have committed a breach of the obligation, the liability of the 1st infractor shall be equally
tempered bye the creditors. If it cannot be determined which of the parties 1st violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages.
According to Tolentino:
Similarities between Rescission under Article 1191 and Article 1380 include the following:
(1) both presuppose contracts validly entered into and existing, and
(2) both require mutual restitution when declared proper.
Differences:
(1) Rescission under Article 1191 may be demanded only by party to the contract, while under Article 1380 by 3rd person prejudiced
by the contract;
(2) Rescission under Article 1191 may be denied when there is sufficient reason to justify extension of time to perform, while under
Article 1380 such reason does NOT affect right to ask for rescission;
(3) Non-performance is the only ground for rescission under Article 1191 while there are various reasons of equity as grounds under
Article 1191 applies only to reciprocal obligations where one party has not performed, while under Article 1380, OBLIGATION may
be unilateral or reciprocal and even when contract has been fulfilled.
G. MODES OF EXTINGUISHMENT OF OBLIGATIONS
Article 1231. Obligations are extinguished BY:
(1) Payment or Performance;
(2) Loss of the thing due;
(3) Condonation or Remission of the debt;
(4) Confusion or Merger of the rights of creditor and debtor;
(5) Compensation;
(6) Novation.
Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutory condition, and
prescription are governed elsewhere in this Code.
Balane:
Article 1231 gives us ten modes of extinguishing an obligation. One of the modes mentioned is rescission. But it does not tell us
whether this is rescission under Article 1191 (resolution) or rescission under
Article 1380, et. seq. If it means both, then we have eleven modes of extinguishing an obligation under Article 1231. (Similar to
Tolentino’s)

This enumeration is not exclusive.
Other modes of extinguishing an obligation are the following:
1. Death  particularly where the obligation is purely personal, e.g., death of one partner dissolves the partnership/agency;
2. Renunciation by the creditor
3. Compromise
4. Arrival of Resolutory Term / fulfillment of resolutory condition
5. Mutual Desistance or mutuo disenso (Saura v. DEBTORP)
6. In some cases, Unilateral Withdrawal, e.g., in partnership, any partner can withdraw any time from the partnership.
7. In some cases, change of civil status, e.g., if marriage is annulled, it extinguishes obligations like the obligation to give
support, among others.
8. Unforeseen Events  (rebus sic stantibus) (Article 1267.)
9. Want of Interest  GR: No, but there are certain cases:

If it is equitable to deem the OBLIGATION extinguished due to want of interest of creditor in the fulfillment of such
OBLIGATION.
10. Abandonment of the thing  as in Article 662, party wall; or abandonment of a vessel under Code of Comm.
11. Insolvency of debtor judicially declared and discharged.
Illustration: Carale owns a restaurant. He hires Molina as a chef. In the contract of employment, there was a stipulation that if Molina
resigns from Carale's restaurant, he cannot seek employment from another restaurant for a period of five years. Subsequently, Molina
resigns from Carale's restaurant and wants to apply to Mildo's House of Chicken. In this case, Molina cannot work with Mildo's because
of the stipulation in the contract he signed with Carale. Suppose, however, Carale, closes down his restaurant and engages in a totally
different business, a construction business, for example, Molina can apply for work at Mildo's even before the lapse of the five year
prohibitive period. In this case, Molina can make out a case of extinguishment of obligation on the ground of want of interest.
The obvious purpose of the stipulation is to prevent unfair competition.
A. Payment or Performance
PERTINENT PROVISIONS/ reading matters:
Article 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an obligation.
Article 1233. A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has
been completely delivered or rendered, as the case may be.
Article 1234. 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 obligee.
Article 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing
any protest or objection, the obligation is deemed fully complied with.
Article 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the
fulfillment of the obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or
against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.
Article 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot compel the
creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or penalty.
Article 1238. 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 has accepted it.
Article 1239. In obligations to give, payment made by one who does not have the free disposal of the thing due and capacity to
alienate it shall not be valid, without prejudice to the provisions of article 1427 under the Title on "Natural Obligations."
Article 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in
interest, or any person authorized to receive it.
Article 1241. 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. Such benefit to
the creditor need not be proved in the following cases:
If after the payment, the third persons acquires the creditor's rights;
If 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.
Article 1242. Payment made in good faith to any person in possession of the credit shall release the debtor.
Article 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall
not be valid.
Article 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the
same value as, or more valuable than that which is due.
In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee's
will.
Article 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and
circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a
thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration.
Article 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for the account of
the debtor. With regard to judicial costs, the Rules of Court shall govern.
Article 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the
prestations in which the obligation consists. Neither may the debtor be required to make partial payments.
However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may effect the
payment of the former without waiting for the liquidation of the latter.
Article 1249. 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.
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.
In the meantime, the action derived from the original obligation shall be held in abeyance.
Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the
currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the
contrary.
Article 1251. Payment shall be made in the place designated in the obligation.
There being no express stipulation and if the undertaking is to deliver a determinate thing, the payment shall be made wherever
the thing might be at the moment the obligation was constituted.
In any other case the place of payment shall be the domicile of the debtor.
If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him.
These provisions are without prejudice to venue under the Rules of Court.
Article 1302. It is presumed that there is legal subrogation:
1) When a creditor pays another creditor who is preferred, even without the debtor's knowledge;
2) When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor;
3) 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
Republic Act No. 529, as amended by R.A. No. 4100, provides:
SECTION 1. Every provision contained in, or made with respect to, any domestic obligation to wit, any obligation contracted in the Philippines
which provision purports to give the obligee the right to require payment in gold or in a particular kind of coin or currency other than Philippine
currency or in an amount of money of the Philippines measured thereby, be as it is hereby declared against public policy, and null, void, and
of no effect, and no such provision shall be contained in, or made with respect to, any obligation hereafter incurred.
The above prohibition shall not apply to
(a) transactions where the funds involved are the proceeds of loans or investments made directly or indirectly, through bona fide
intermediaries or agents, by foreign governments, their agencies and instrumentalities, and international financial banking institutions
so long as the funds are identifiable, as having emanated from the sources enumerated above;
(b) transactions affecting high-priority economic projects for agricultural, industrial and power development as may be determined by
the National Economic Council which are financed by or through foreign funds;
(c) forward exchange transactions entered into between banks or between banks and individuals or juridical persons;
(d) import-export and other international banking, financial investment and industrial transactions.
With the exception of the cases enumerated in items (a), (b), (c) and (d) in the foregoing provision, in which cases the terms of the parties’
agreement shall apply, every other domestic obligation heretofore or hereafter incurred, whether or not any such provision as to payment is
contained therein or made with respect thereto, shall be discharged upon payment in any coin or currency which at the time of payment is legal
tender for public and private debts.
Provided, That if the obligation was incurred prior to the enactment of this Act and required payment in a particular kind of coin or currency
other than Philippine currency, it shall be discharged in Philippine currency, measured at the prevailing rates of exchange at the time the
obligation was incurred, except in case of a loan made in a foreign currency stipulated to be payable in the same currency in which case the
rate of exchange prevailing at the time of the stipulated date of payment shall prevail. All coin and currency, including Central Bank notes,
heretofore or hereafter issued and declared by the Government of the Philippines shall be legal tender for all debts, public and private.
Pertinent portion of Republic Act No. 8183 states:
SECTION 1. All monetary obligations shall be settled in the Philippine currency which is legal tender in the Philippines. However, the parties
may agree that the obligation or transaction shall be settled in any other currency at the time of payment.
SEC. 2. R.A. No. 529, as amended, entitled "An Act to Assure the Uniform Value of Philippine Coin and Currency" is hereby repealed.
(Approved on June 11, 1996)

The repeal of R.A. No. 529 by R.A. No. 8183 has the effect of removing the prohibition on the stipulation of currency other than
Philippine currency, such that obligations or transactions may now be paid in the currency agreed upon by the parties.

Just like R.A. No. 529, however, the new law does not provide for the applicable rate of exchange for the conversion of foreign
currency  incurred obligations in their peso equivalent.

It follows, therefore, that the jurisprudence established in R.A. No. 529 regarding the rate of conversion remains applicable. Thus, in
Asia World Recruitment, Inc. v. National Labor Relations Commission, the Court, applying R.A. No. 8183, sustained the ruling of the
NLRC that obligations in foreign currency may be discharged in Philippine currency based on the prevailing rate at the time of
payment.
CONCEPT OF PAYMENT
Article 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an obligation.
It is the fulfillment of the prestation due which extinguishes the OBLIGATION by the realization of the purposes for which it
was constituted.
It is a juridical act which is voluntary, licit and made with the intent to extinguish the OBLIGATION;
It is made not only by 1 who owes money but also by 1 bound to do something or to refrain from doing

Thus, Payment is identical with Fulfillment.
Requisites of Payment or Performance:
[TOLENTINO]
1. the person who pays  must have requisite capacity
2. the person to whom payment is made
3. the thing to be paid  in accordance with the OBLIGATION
4. the manner, time and place of payment, etc.
 payment should be made by the debtor to the creditor at the right time and place.
KINDS:
1. NORMAL  when Debtor voluntarily performs
2. ABNORMAL  when Debtor is forced by judicial proceeding
Balane:
Payment or Performance is used interchangeably.
But technically,
Payment  in obligations to give,
Performance  in obligations to do.
Payment/ performance is the paradigmatic mode of extinguishment of an obligation.

It is the only normal way of extinguishing an obligation.
Article 1233. A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has
been completely delivered or rendered, as the case may be.
Tolentino: This Article States two requisites for Payment:
(1) Identity, of the prestation, and  the very thing or service due must be delivered or released;
(2) Its integrity  prestation must be fulfilled completely.
For BALANE: Article 1233 states these requisites of payment:
I. Re: The prestation
1. Identity
2. Integrity
3. Indivisibility
II. Re: The parties
1. Payor/ obligor/ debtor
2. Payee/ obligee/ creditor
III. Re: Time and place
Discussions:
I. With respect to prestation:
1. Identity

If specific prestation, this requisite means that the very thing or service must be delivered. (Article 1244.)

If generic, the requisite requires the delivery of something of neither inferior nor superior quality (Article 1246). It must be
something in the middle. In case of money, there are special rules:
Governing rule: RA 529 as amended by RA 4100

In case of money debts, you will have to pay in legal tender in the Philippines. This law supersedes Article 1249.

If the parties stipulate that payment will be made in foreign currency, the obligation to pay is valid but the
obligation to pay in foreign currency is void. Payment will be made in Phil. currency.
LEGAL TENDER – means such currency which in a given jurisdiction can be used for payment of debts public and private, and
which cannot be refused by Creditor.
In the Republic of the Philippines, the ff. are legal tender: (Sec. 54, RA 265)
1. RP silver peso and half peso for debts of any amount, RP subsidiary silver coins 20 ¢and 10 ¢ for up to P20 debts, and RP
minor nickel and copper coins for up to P2.00 debts;
2. RP Treasury certificates, new Victory series (EO 25, s. 1944, already withdrawn from circulation)
3. All notes and coins issued by CB.
Q: How do you convert?
A: In case of an obligation which is not a loan in foreign currency, if incurred before RA 529, conversion must be as of the time the
obligation was incurred. If incurred after RA 529 became effective, the conversion must be as of the time the obligation was incurred
(Kalalo v. Luz) If the loan is in foreign currency, the conversion is as of the time of payment. (RA 529)
Payment in negotiable paper  This may be refused by the creditor. Payment in manager's check or certified check is not payment
in legal tender. The ruling in Seneris has been reversed in the case of Bishop of Malolos. The Malolos ruling is better. I found it
hard to accept that manager's check or certified check is good as legal tender. There are always risks to which cashier's checks are
subject. What if after having issued a cashier's check, the drawee-bank closes, what happens to your cashier's check?
 In any event, payment by check can be refused by the creditor. And even if payment by check is accepted by the creditor, the
acceptance is only a provisional payment until the check is
(a) encashed or
(b) when through the fault of the creditor they have been impaired.
The case of Namarco v. Federation, 49 SCRA 238, interprets the phrase "when through the fault of the creditor, they have been
impaired" as to apply only to a check used in payment if issued by a person other than the debtor.
Why? It is because if the check was issued by the debtor himself, all that the debtor have to do is to issue another check.
Revaluation in case of extraordinary inflation or deflation (Article 1250)
 This rule has never been used. It was only during the Japanese occupation that there was a recognition of extraordinary inflation in
this country.
Exceptions to the requirement of identity
(i) Dacion en pago (Article 1245)
(ii) Novation
In both cases, there is a voluntary change in the object.
2. Integrity  There must be delivery of the entire prestation due. (Article 1233) or completely fulfilled;
The exceptions to the requirement of integrity are:
1. In case of substantial performance in good faith (Article 1234.) This is an equity rule.
2. In case of waiver of obligee/ creditor (Article 1235.)
3. In case of application of payments if several debts are equally onerous (Article 1254, par. 2.)
3. Indivisibility  This means that the obligor must perform the prestation in one act and not in parts. (Article 1248)
There are several exceptions to this requirement:
1. In case or express stipulation. (Article 1248.)
2. In case of prestations which necessarily entail partial performance. (Article 1225, par. 2)
3. If the debt is liquidated in part and unliquidated in part (Article 1248.)
4. In case of joint divisible obligations (Article 1208.)
5. In solidary obligations when the debtors are bound under different terms and conditions. (Article 1211.)
6. In compensation when a balance is left. (Article 1290.)
7. If the work is to be delivered partially, the price or compensation for each part having been fixed. (Article 1720.)
8. In case of several guarantors who demand the right of division. (Article 2065.)
9. In case of impossibility or extreme difficulty of single performance.
II. With respect to the parties
There are two parties involved:
1. Payor/ obligor/ debtor
2. Payee/ obligee/ creditor
Requirements:
1. Article 1226 - 1238. Who should the payor be:
a. Without need of the creditor's consent
1. The debtor himself
2. His heirs or assigns
3. His agent
4. Anyone interested in the fulfillment of the obligation, e.g., a guarantor
b. With the creditor's consent -- Anyone.
 This is a departure from the rule in the Old Civil Code which did not require consent on the part of the creditor.
c. Effect of payment by a third person:
1. If the payment was with the debtor's consent, he becomes the agent of the debtor. The effect is subrogation (Articles
1236-1237)
(1) Exception: If the person paying intended it to be a donation. (Article 1238.)
2. If payment was without the debtor's consent, the third person may demand repayment to the extent that the debtor has
been benefited. (Article 1236, par. 2.)
2. Who may be the payee?
1. The obligee proper (Articles 1240, 1626.)
2.
3.
4.
5.
His successor or transferee (Article 1240.)
His agent (ibid.)
Any third person subject to the following qualifications:
a. Provided it redounded to the obligee's benefit and only to the extent of such benefit. (Article 1241, par. 2.)
b. If it falls under Article 1241, par. 2 nos. 1, 2 and 3, benefit is deemed to be total.
Anyone in possession of the credit. (Article 1242.)
 In all these five (5) cases, it is required that the debt should not have been garnished. (Article 1243)
III. With respect to the time and place of payment:
1. When payment to be made: When due
2. Place (Article 1251.)
Primary rule: As stipulated.
Secondary rule: Place where the thing was at the time the obligation was constituted if the obligation is to deliver a determinate thing.
Tertiary rule: At the debtor's domicile.
Balane:
** Payment and Performance are used interchangeably.
 But technically, payment is used in obligations to give whereas performance is used in obligations to do. Payment/ performance is
the paradigmatic mode of extinguishment of an obligation. It is the only normal way of extinguishing an obligation.
Article 1234. 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 obligee.
Substantial Performance:
1. an attempt in GF to perform, without any willful or intentional departure from it;
2. deviation from performance of OBLIGATION must be slight, and omission or defect must be so technical and unimportant,
and must not pervade the whole, must not be so material to the achievement of the very purpose of the parties;
3. party claiming substantial performance must show attempt in good faith.
Article 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing
any protest or objection, the obligation is deemed fully complied with.
1. To whom payment should be made
Article 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in
interest, or any person authorized to receive it.
*** It is elementary that payment made by a judgment debtor to a wrong party cannot extinguish the judgment obligation of such debtor to
its creditor. xxx
A payment in order to be effective to discharge an obligation must be made to the proper parties.-In general, a payment, in order to be effective to discharge an obligation, must be made to the proper person. Thus, payment must be
made to the obligee himself or to an agent having authority, express or implied, to receive the particular payment.
Payment made to one having apparent authority to receive the money will, as a rule, be treated as though actual authority had
been given for its receipt.
Likewise, if payment is made to one who by law is authorized to act for the creditor, it will work a discharge. The receipt of money
due on a judgment by an officer authorized by law to accept it will, therefore satisfy the debt.
xxx The theory is where a payment is made to a person authorized and recognized by the creditor, the payment to
such a person so authorized is deemed payment to the creditor. xxx
Unless authorized by law or by consent of the obligee, a public officer has no authority to accept anything other than money in
payment of an obligation under a judgment being executed.
In the absence of an agreement, either express or implied, payment means the discharge of a debt or obligation in money and unless
the parties so agree, a debtor has no rights, except at his own peril, to substitute something in lieu of cash as medium of payment of his
debt. Consequently, unless authorized by law or by consent of the obligee, a public officer has no authority to accept anything other
than money in payment of an obligation under a judgment being executed. Strictly speaking, the acceptance by the sheriff of the
petitioner's checks, in the case at bar, does not, per se, operate as a discharge of the judgment debt. [PAL V. CA (181 S 557)]
Tolentino:
Authority to receive: LEGAL or CONVENTIONAL
(1) Legal: conferred by law, such as authority of guardian to include creditor (Cr), or the administrator of estate
(2) Conventional: authority from Creditor himself, as when agent is appointed to collect from Debtor.

Payment to wrong party does NOT extinguish obligation to Creditor, if there is no fault or negligence which can be
imputed to the latter, even when Debtor acted in utmost Good Faith and by mistake as to the person of his Creditor, or
through error induced by fraud of 3rd Person, EXCEPT AS PROVIDED IN ARTICLE 1241.

Deposit by Debtor in bank, in the name of and to the credit of Cr, without latter’s authority does NOT constitute
payment; but when the Creditor cannot be found in the place of payment, such deposit may be a valid excuse for not holding
the Debtor in default
General Rule: Consignation in court of thing or amount due, when properly made will extinguish the obligation.
Article 1241. 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. Such benefit to
the creditor need not be proved in the following cases:
1. If after the payment, the third persons acquire the creditor's rights;
2. If the creditor ratifies the payment to the third person;
3. If by the creditor's conduct, the debtor has been led to believe that the third person had authority to receive the
payment.
Baviera: Number three is Estoppel in Pais.
Tolentino:
1. When Creditor is incapacitated, payment must be made to his legal representative or deliver the thing to court for consignation
ff. Article 1256.
2. Payment to Incapacitated Creditor shall be valid only insofar as it accrued to his benefit. Absence of benefit, Debtor may be
made to pay again by Creditor when he attains capacity, or his legal representative during the incapacity.
3. Same principles are applicable to payment made to 3rd Person, but person who paid has right to recover from 3rd Person.
4. In ff. Cases, payment to 3rd Person releases Debtor:
(a) when without notice to assngment of credit, he pays to original Creditor [Article 1626] and
(b) when in Good Faith he pays to one in possession of credit [Article 1242]
5. If mistake of Debtor due to fault of Creditor, then Creditor cannot demand anew.
Article 1242. Payment made in good faith to any person in possession of the credit shall release the debtor.
(Assignment of Credits and Other Incorporeal Rights)
Article 1626. The debtor who, before having knowledge of the assignment, pays his creditor shall be released from the
obligation.
2. Who shall make payment?
Article 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the
fulfillment of the obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or
against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.
Article 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot compel the
creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or penalty.
Article 1238. 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 has accepted it.
Article 2173. When a third person, without the knowledge of the debtor, pays the debt, the rights of the former are governed
by articles 1236 and 1237. (Other Quasi-Contracts)
Article 1239. In obligations to give, payment made by one who does not have the free disposal of the thing due and capacity to
alienate it shall not be valid, without prejudice to the provisions of article 1427 under the Title on "Natural Obligations."
Article 1427. When a minor between eighteen and twenty-one years of age, who has entered into a contract without the consent
of the parent or guardian, voluntarily pays a sum of money or delivers a fungible thing in fulfillment of the obligation, there
shall be no right to recover the same from the obligee who has spent or consumed it in good faith.

NOTE: Age of majority is now 18.
Tolentino:

Where the person paying has no capacity to make the payment, the Creditor cannot be compelled to accept it. Consignation
will not be proper.

In case Creditor accepts, the payment will not be valid, except in the case provided in Article 1427.
Article 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall
not be valid.
Tolentino:

Payment to Creditor after the credit has been attached or garnished is void as to the party who obtained the attachment
or garnishment, to the extent of the amount of judgment in his favor;

Debtor can therefor be made to pay again to the party who secured the attachment or garnishment, but he can recover the
same to the extent of what he has paid to his Creditor.
Article 1244. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the
same value as, or more valuable than that which is due.
In obligations to do or not to do, an act or forbearance cannot be substituted by another act or forbearance against the obligee's
will.
Tolentino:
Defects of the thing delivered may be waived by the Creditor, if he expressly so declares, or if, with knowledge thereof, he accepts the
thing without protest or disposes of it or consumes it
Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be
governed by the law of sales.
Article 1246. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and
circumstances have not been stated, the creditor cannot demand a thing of superior quality. Neither can the debtor deliver a
thing of inferior quality. The purpose of the obligation and other circumstances shall be taken into consideration.
Tolentino:

Creditor or Debtor may waive the benefit of this Article;

Creditor may require a thing of inferior quality and Debtor may deliver a thing of superior quality, unless the price to be pd
in the latter case is dependent upon the quality.
Article 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment shall be for the account of
the debtor. With regard to judicial costs, the Rules of Court shall govern.
Article 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled partially to receive the
prestations in which the obligation consists. Neither may the debtor be required to make partial payments.
However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and the debtor may effect the
payment of the former without waiting for the liquidation of the latter.
BALANE CASE:
Article 1249. 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.
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.
In the meantime, the action derived from the original obligation shall be held in abeyance.



Legal tender: such currency which in a given jurisdiction can be used for the payments of debts, public and private, and
which cannot be refused by the Creditor.
Since payment must be in money that is legal tender, payment in check even when good may be validly refused by Creditor
Payment by Check: WON Manager’s check or ordinary is NOT a valid tender of payment
Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the
currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the
contrary.
Baviera: This article applies to contracts only. EXTRAORDINARY means unusual or beyond the common fluctuation, not foreseen.
Tolentino: Does NOT apply where obligation to pay arises from law, independent of contracts, like the taking of private property by
the goverment in the exercise of its power of eminent domain
Article 1251. Payment shall be made in the place designated in the obligation.
There being no express stipulation and if the undertaking is to deliver a determinate thing, the payment shall be made wherever
the thing might be at the moment the obligation was constituted.
In any other case the place of payment shall be the domicile of the debtor.
If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional expenses shall be borne by him.
These provisions are without prejudice to venue under the Rules of Court.
Four Special Kinds of Payments:
1. Dacion en pago (Article 1245.)
2. Application of payments (Subsection 1.)
3. Payment by cession (Subsection 2.)
4. Consignation (Subsection 3.)
Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt in money, shall be
governed by the law of sales.
[Tolentino]
Dation in payment is the delivery and transmission of ownership of a thing by the Debtor to the Creditor as an accepted equivalent
of performance of OBLIGATION;
 It may be a thing or a real right (i.e. usufruct), or of a credit against a 3rd Person;
Example: Assignment by an heir-Debtor of his interests in the succession to the Creditor, made after the death of decedent, extinguishes
the OBLIGATION.
Effect on OBLIGATION  extinguished to the extent of the value of thing delivered
 Debtor does not have to be insolvent, agreement only between the parties makes dation possible.
When personal property is delivered it is PLEDGE, not dation, unless parties clearly stipulate, but in doubt, the presumption is
pledge, with lesser transmission of rights.
Warranties of Debtor  Dation is an onerous transmission or contract of alienation, provision in Sales Re warranty against eviction
and against hidden defects of the thing applies, Debtor is vendor, Creditor is vendee;

If Creditor is evicted, original OBLIGATION is not revived, but Creditor is entitled to recover from breach of warranty in
Article 1555.
[Balane]

Dacion en pago, in Roman law, called "datio in solutum", in French, "dation en paiement," in Spanish, "dacion en pago.")

Dation in payment is possible only if there is a debt in money. Instead of money, a thing is delivered in satisfaction of
the debt in money. (Dation en pago is explained in the case of Filinvest v. Phil Acetylene).
There are two ways at looking at dacion en pago:
1. Classical way  where dacion en pago is treated as a sale.
2. Modern concept  which treats dacion en pago as a novation.
Castan has another view  Both are wrong.
* A dacion en pago is not a sale because there is no intention to enter into a contract of sale.
* It is not also a novation because in novation, the old obligation is extinguished and a new obligation takes its place.
** But here, the old obligation is extinguished. What takes its place? Nothing. So what is it? It is a special form of payment
which resembles a sale.
There are two more things to remember in the cases of Filinvest v. Phil. Acetylene, supra. and Lopez v. CA, 114 SCRA 671:

Dacion en pago can take place only if both parties consent.
Q: To what extent is the obligation extinguished?
Answer: Up to the value of the thing given (the thing must be appraised) unless the parties agree on a total extinguishment. (Lopez.
v. CA, supra.)
Dacion en pago, according to Manresa, is the transmission of the ownership of a thing by the debtor to the creditor as an accepted
equivalent of the performance of an obligation.

In dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor who accepts it as equivalent
of payment of an outstanding debt.
Dacion en pago in the nature of sale. The undertaking really partakes in one sense of the nature of sale, that is, the creditor is really
buying the thing or property of the debtor, payment for which is to be charged against the debtor's debt.

As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or consideration must be
present.
Dacion en pago in its modern concept. In its modern concept, what actually takes place in dacion en pago is an objective novation
of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is considered as the object of
the contract of sale, while the debt is considered as the purchase price. In any case, common consent is an essential prerequisite, be
it sale or novation, to have the effect of totally extinguishing the debt or obligation.
2ND SPECIAL KIND OF PAYMENT: Application of Payment
[Balane]
Application of payment (Imputacion in Spanish) is the designation of a debt which is being paid by the debtor who has several
obligations of the same kind in favor of the creditor to whom the payment is made.
Rules where the amount sent by the debtor to the creditor is less than all that is due:
No.1:
Apply in accordance with the agreement.
No.2:
Debtor may apply the amount (an obvious limitation because of the principles of indivisibility and integrity) where there
would be partial payment.
No.3:
Creditor can make the application.
No.4:
Apply to the most onerous debt. (Article 1252, par. 1.)
Q; What are the rules to determine which is the most onerous debt?
A: (Article 1252)
1. If one is interest paying and the other is not, the debt which is interest paying is more onerous.
2. If one is a secured debt and the other is not, the secured debt is more onerous
3. If both are interest free, one is older than the first, the newer one is more onerous because prescription will take longer with
respect to the newer debt.
5th Rule: Proportional application if the debts are equally onerous.
Article 1252. He who has various debts of the same kind in favor of one and the same creditor, may declare at the time of
making the payment, to which of them the same must be applied. Unless the parties so stipulate, or when the application of
payment is made by the party for whose benefit the term has been constituted, application shall not be made as to debts which
are not yet due.
If the debtor accepts from the creditor a receipt in which an application of the payment is made, the former cannot complain
of the same, unless there is a cause for invalidating the contract.
[Tolentino]

Necessary that OBLIGATION must all be due.

Only in case of mutual agreement, or upon consent of the party in whose favor the term was establish, that payments may
be applied to OBLIGATION which have not yet matured.
Article 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the interests
have been covered.
Article 1254. When the payment cannot be applied in accordance with the preceding rules, or if application can not be inferred
from other circumstances, the debt which is most onerous to the debtor, among those due, shall be deemed to have been
satisfied.
If the debts due are of the same nature and burden, the payment shall be applied to all of them proportionately.
[Baviera]
The ff. are the rules for application of payments:
1 - The first choice belongs to the Debtor;
2 - If the Debtor did not choose, the Creditor may choose, which he will manifest in a receipt.
3 - If neither specified the application, payment shall be made to the most onerous debt.
3rd SPECIAL FORM OF Payment – by Cession
[Balane]

Property is turned over by the debtor to the creditor who acquires the right to sell it and divide the net proceeds among
themselves.
Q: Why is payment by cession a special form of payment?
A: Because there is no completeness of performance (re: integrity.)
In most cases, there will be a balance due.
Q: Difference between dacion en pago and payment by cession:
In dacion en pago, there is a transfer of ownership from the debtor to the creditor.
In payment by cession, there is no transfer of ownership. The creditors simply acquire the right to sell the properties of the debtor and
apply the proceeds of the sale to the satisfaction of their credit.
Q: Does payment by cession terminate all debts due?
A: Generally, NO, only to the extent of the net proceeds. The extinguishment of the obligation is pro tanto.

Execution in Legal cession where the extinguishment of the obligation is total. Legal cession is governed by the Insolvency
Law.
Article 1255. The debtor may cede or assign his property to his creditors in payment of his debts. This cession, unless there is
stipulation to the contrary, shall only release the debtor from responsibility for the net proceeds of the thing assigned. The
agreements which, on the effect of the cession, are made between the debtor and his creditors shall be governed by special laws.
4th SPECIAL FORM OF PAYMENT:
Tender of Payment and Consignation
Article 1256. If the creditor to whom tender of payment has been made refuses without just cause to accept it, the debtor shall
be released from responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:
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.
[Balane]
“Subsection 3.-- Tender of Payment and Consignation”
The title of the subsection is wrong. It should have been Consignation only because that is the special mode of payment and not the
tender of payment.

It is a special mode of payment because payment is made not to the creditor but to the court.

Consignation is an option on the part of the debtor because consignation assumes that the creditor was in mora accipiendi
(when the creditor without just cause, refuses to accept payment.)
Consequence when the creditor without just cause, refuses to accept payment The debtor may just delay payment. But
something still hangs above his head. He is therefore, given the option to consignation. Distinguish this from BGB (German Civil
Code) which states that mora accipiendi extinguishes the obligation.
[Tolentino]
 Tender of payment before consignation is required by the present Article but only in case where the Creditor refuses to accept
it without just cause.
Effect on INTEREST: When tender is made in a form that Creditor could have immediately realized payment (cash), followed by a
prompt attempt of the Debtor to make consignation, the accrual of interest will be suspended from the date of such tender.
But when tender is not accompanied by means of pmt, and the Debtor did not take any immediate step to consign, then interest is not
suspended from the time of such tender.
Consignation Defined:

Consignation is the act of depositing the thing due with the court or judicial authorities whenever the creditor (1) cannot
accept or (2) refuses to accept payment, and it generally requires a prior tender of payment.
Requisites of Valid Consignation:
In order that consignation may be effective, the debtor must first comply with certain requirements prescribed by law. The debtor must show
1.
2.
3.
4.
5.







that there was a debt due;
that the consignation of the obligation had been made because the creditor to whom tender of payment was made
refused to accept it, or because he was absent or incapacitated, or because several persons claimed to be entitled
to receive the amount due (Article 1176,NCC);
that previous notice of the consignation had been given to the person interested in the performance of the
obligation (Article 1177,NCC);
that the amount due was placed at the disposal of the court (Article 1178,NCC); and
that after the consignation had been made the person interested was notified thereof (Article 1178,NCC).
Failure in any of these requirements is enough ground to render a consignation ineffective. (Jose Ponce de Leon vs. Santiago Syjuco,
Inc., 90 Phil. 311).
Without prior notice, a consignation is void as payment. (Limkako vs. Teodoro, 74 Phil 313)
In order to be valid, the tender of payment must be made in lawful currency. While payment in check by the debtor may be
acceptable as valid, if no prompt objection to said payment is made (Desbarats vs. Vda. de Mortera, L-4915, May 25, 1956)
The fact that in previous years payment in check was accepted does not place its creditor in estoppel from requiring the debtor
to pay his obligation in cash (Sy vs. Eufemio, L-10572, Sept. 30, 1958).
Thus, the tender of a check to pay for an obligation is not a valid tender of payment thereof (Desbarats vs. Vda. de Mortera,
supra).
Tender of payment must be distinguished from consignation
Tender is the antecedent of consignation, that is, an act preparatory to the consignation, which is the principal, and from which are
derived the immediate consequences which the debtor desires or seeks to obtain.
Tender of payment is extrajudicial, while consignation is necessarily judicial, and the priority of the first is the attempt to make a
private settlement before proceeding to the solemnities of consignation. (8 Manresa 325).
Article 1257. In order that the consignation of the thing due may release the obligor, it must first be announced to the persons
interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which regulate payment.
Article 1258. Consignation shall be made by depositing the things due at the disposal of judicial authority, before whom the
tender of payment shall be proved, in a proper case, and the announcement of the consignation in other cases.
The consignation having been made, the interested parties shall also be notified thereof.
[Tolentino]

Notice: The requirement is fulfilled by the service of summons upon the Defendant together with copy of complaint.
Article 1259. The expenses of consignation, when properly made, shall be charged against the creditor.
[Tolentino] Proper when 
1. Creditor accepts consignation after deposit without protest though Debtor failed to comply with requisites or;
2. Court declares consignation as validly made.
Article 1260. Once the consignation has been duly made, the debtor may ask the judge to order the cancellation of the
obligation.
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.
[Tolentino]
Effects of Consignation:
1. Debtor is released in the same manner as if he had performed the obligation.
2. Accrual of INTEREST is suspended.
3. Deterioration or loss of thing or amount consigned without fault of Debtor must be borne by Creditor.
4. Any increment or increase in value of thing inures to the benefit of Creditor.
SC:

When money is deposited in court under the provisions of the law on consignation, it is in custodia legis and therefore
exempt from Attachment and execution (Manejero v. Lampa)
Article 1261. If, the consignation having been made, the creditor should authorize the debtor to withdraw the same, he shall
lose every preference which he may have over the thing. The co-debtors, guarantors and sureties shall be released.
[Baviera]
Q: When is there a need to tender payment?
A: (a) upon demand and (b) when debt is due
Q: There are 2 or more claims. What will Debtor do after consignation?
A: File INTERPLEADER.
Q: Why tender first?
A: It is because there is no need to consign if Creditor accepts payment. We can only know this through tender. (EXHAUSTION OF
EXTRAJUDICIAL MEANS)
Q: Before and after consignation, there is a need to notify the Creditor. Why is this?
A: So that the Creditor can get the money from the Clerk of court and avoid costs of litigation.
Q: Debtor consigns. Hearing…Before the court could approve, the City Hall burned + money. Should Debtor pay again?
A: No. When money is consigned, it is no longer generic. It becomes specific. Creditor bears the loss because although it was due to a
fortuitous event, there was delay on his part when he refused to accept payment.
Q: In a Contract of Sale with pacto de retro. The vendor tendered payment within the 3-yr pd but vendee refused to accept.
Action for specific performance by Vendor. According to Vendee, since money was not consigned, Vendor cannot claim right
of repurchase. Tenable argument?
A: No. As long as there was tender, no need to consign.
But in one case of a co-owner wanting to redeem at reasonable price (was exorbitant), the court held that reasonable price is determined
according to the circumstances. So if you want to redeem, consign the full amount in cout and ask it to fix the reasonable compensation.
LAURO IMMACULATA VS. HON. NAVARRO AND HEIRS OF JUANITO VICTORIA [160 SCRA 211] We hereby grant said alternative
cause of action or prayer. While the sale was originally executed in Dec. 1969, it was only on Feb. 3, 1974 when, as prayed for by private respondent,
and as ordered by the court a quo, a deed of conveyance was formally executed. Since the offer to redeem was made on 3/24/75, this was clearly within
the 5-yr. period of legal redemption allowed by the Public Land Act.
FACTS: A previous complaint, for annulment of judgment and deed of sale with reconveyance of real property alleged that Juanito Victoria, with
the cooperation of defendant Juanita Naval and others succeeded in causing plaintiff Lauro Immaculata, petitioner herein, to execute a Deed of
Absolute Sale in favor of Juanito Victoria, by unduly taking advantage of the mental illness and/or weakness of petitioner and through deceit and
fraudulent means, purportedly disposed of by way of absolute sale, a 5,000-sq.m.parcel of land with TCT, for P58K, which petitioner supposedly
received, but in truth and in fact did not; Jurisdiction of the court over the person of the defendant was also questioned but such was upheld through
valid service of summons to the guardian ad litem and also later through voluntary appearance in lieu of pleadings asking for exercise of jus by the
same court. Accordingly, respondent Court directed the respondent Sheriff to execute the deed of conveyance prayed for by Juanito Victoria, by
reason of which, without the knowledge and consent of petitioner, a new TCT was issued in favor of Juanito Victoria; that the said TCT is null and
void having been based on void proceedings;
*** that, in the alternative, petitioner prays that he be allowed to repurchase the property within five (5) years from the time judgment is
rendered by the respondent court upholding the validity of the proceedings and the sale since the land in question was originally covered by a Free
Patent title;
Respondent Court dismissed the complaint on the ground of res judicata. In this present MR, the petitioner merely asks of this Court to consider a
point inadvertently missed – the matter of LEGAL REDEMPTION, which has remained unresolved. The bar of res judicate is as to questions on
the validity of the sale.
An offer to redeem was made clearly within the 5-yr-period allowed by law, Public Land Act. (Sec. 119, CA No. 141)
ISSUE: WON offer to redeem was insincere in the absence of consignation of such amount in Court?
HELD: NO. The right to redeem is a RIGHT NOT AN OBLIGATION, thus no consignation is required.
To preserve the right to redeem, consignation is not required. But to actually redeem, there must of course be payment or consignation (deposit)
itself.
(2nd MODE OF EXTINGUISHEMENT)
LOSS OF THE THING DUE OR IMPOSSIBILITY OF PERFORMANCE
Article 1262. An obligation which consists in the delivery of a determinate thing shall be extinguished if it should be lost or
destroyed without the fault of the debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does not extinguish the
obligation, and he shall be responsible for damages. The same rule applies when the nature of the obligation requires the
assumption of risk.
Balane:
Article 1262 is the same as fortuitous event in Article 1174.
The effect is the same:
 The OBLIGATION is extinguished if the OBLIGATION is to deliver a determinate thing. If the OBLIGATION is to deliver a
generic thing, the OBLIGATION is not extinguished.
[General Rule] Genus nunquam perit ("Genus never perishes.")
But what is not covered by this rule is an OBLIGATION to deliver a limited generic – something in between specific and generic
thing,
e.g., "For P3,000, I promise to deliver to you one of my watches." This OBLIGATION does not really fall under either Article 1262
or Article 1263. But this OBLIGATION really falls under Article 1262. In this case, the OBLIGATION may be extinguished by the
loss of all the thing through Fortuitous Event.
Article 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not extinguish
the obligation.
Article 1264. The courts shall determine, whether, under the circumstances, the partial loss of the object of the obligation is
so important as to extinguish the obligation.
Article 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that the loss was due to his fault,
unless there is proof to the contrary, and without prejudice to the provisions of article 1165. This presumption does not apply
in case of earthquake, flood, storm, or other natural calamity.
Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article
1170, may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he
shall be responsible for any fortuitous event until he has effected the delivery.
Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof are liable for damages.
Article 1266. The debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible
without the fault of the obligor.
[Balane]
Objective and Subjective Impossibility:
 In objective impossibility, the act cannot be done by anyone. The effect of objective impossibility is to extinguish the
OBLIGATION.
 In subjective impossibility, the OBLIGATION becomes impossible only with respect to the obligor.
There are 3 views as to the effect of a subjective impossibility:
1. One view holds that the OBLIGATION is not extinguished. The obligor should ask another to do the OBLIGATION.
2. Another view holds that the OBLIGATION is extinguished.
A third view distinguishes one prestation which is very personal and one which are not personal such that subjective impossibility is a
cause for extinguishes a very personal OBLIGATION, but not an OBLIGATION which is not very personal
NOTES:

Liability of Sureties on a bail bond is conditioned upon appearance of accused from the time set for arraignment or trial or
any other time as fixed by court, the bondsman being the jailer of the accused and absolutely responsible for his custody,
with duty at all times to keep him under surveillance.

Surety will be exonerated where the performance of condition of bail bond is rendered impossible by act of God (e.g. death
of accused), of the obligee (arrested by government), or the law (law punishing him is repealed) or also under Rule 114,
sec. 16.
Article 1267. 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.
[Baviera]
Ordinarily, on a contract for a piece of work, an increase in prices will not relieve the contractor because such circumstances
was already considered by the parties when they entered into the contract.
BAR Q: What if the prices rose so high as to be beyond the contemplation of the parties due to the oil crisis?
Answer: Released.
Balane:
Rebus sic stantibus. Literally means "things as they stand."
It is short for clausula rebus sic stantibus ("agreement of things as they stand.")
This is a principle of international law which holds that when 2 countries enter into a treaty, they enter taking into account the
circumstances at the time it was entered into and should the circumstances change as to make the fulfillment of the treaty very difficult,
one may ask for a termination of the treaty. This principle of international law has spilled over into Civil law.
This doctrine is also called the doctrine of extreme difficulty and frustration of commercial object.
It has four (4) requisites:
1. The event or change could not have been foreseen at the time of the execution of the contract;
2. The event or change makes the performance extremely difficult but not impossible;
3. The event must not be due to an act of either party;
The contract is for a future prestation. If the contract is of immediate fulfillment, the gross inequality of the reciprocal prestation may
involve lesion or want of cause.
Article 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be
exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been offered by him
to the person who should receive it, the latter refused without justification to accept it.
Article 1269. The obligation having been extinguished by the loss of the thing, the creditor shall have all the rights of action
which the debtor may have against third persons by reason of the loss.
[Tolentino]
When Debtor tenders payment and Creditor refuses to accept without just cause, Debtor has 2 alternatives:
(1) to consign or
(2) to just keep the thing in his possession, with the obligation to use due diligence, subject to the general rules of OBLIGATION,
but no longer to the special liability under Article 1268.
ARTICLE 1189, 1174, 1165, 1268, 1942, 1979, 2159:
Article 1189. When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the
following rules shall be observed in case of the improvement, loss or deterioration of the thing during the pendency of the
condition.
If the thing is lost without the fault of the debtor, the obligation shall be extinguished;
If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost
when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered;
When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor;
If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its
fulfillment, with indemnity for damages in either case:
If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor;
If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary.
[Balane]
There are three requisites in order for Article 1189 to apply:
1. There is loss, deterioration or improvement before the happening of the condition.
2. There is an obligation to deliver a determinate thing (on the part of the debtor)
3. The condition happens.
Article 1174. Except in cases expressly specified by law, or when it otherwise declared by stipulation, or when the nature of
the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or
which, though foreseen, were inevitable.
Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right granted him by article
1170, may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be complied with at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or more persons who do not have the same interest, he
shall be responsible for any fortuitous event until he has effected the delivery.
Article 1268. When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not be
exempted from the payment of its price, whatever may be the cause for the loss, unless the thing having been offered by him
to the person who should receive it, the latter refused without justification to accept it.
Article 1942. The bailee is liable for the loss of the thing, even if it should be through a fortuitous event:
If he devotes the thing to any purpose different from that for which it has been loaned;
If he keeps it longer than the period stipulated, or after the accomplishment of the use for which the commodatum has been
constituted;
If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from
responsibility in case of a fortuitous event;
If he lends or leases the thing to a third person, who is not a member of his household;
If, being able to save either the thing borrowed or his own thing, he chooses to save the latter.
Article 1979. The depositary is liable for the loss of the thing through a fortuitous event:
(1) If it is so stipulated;
(2) If he uses the thing without the depositor's permission;
(3) If he delays its return;
(4) If he allows others to use it, even though he himself may have been authorized to use the same.
Q: What if a depositor was in the premises of the bank and was robbed of his money which he was about to deposit?
A: Bank cannot be held liable for fortuitous event (robbery) especially in the case of a bank where the money has not yet been actually
deposited.

Article 1979 provides for instances wherein depositary is still liable even in cases of fortuitous event.
Q: What kind of diligence is required of a depositary?
A: Ordinary Diligence.
*Safety Deposit Box: If the jewelry inside a Safety Deposit Box was stolen, rules on deposit will not apply because the contract
governing the transaction is LEASE of safety deposit box.
In Negotiorum Gestio
Article 2147. The officious manager shall be liable for any fortuitous event:
(1) If he undertakes risky operations which the owner was not accustomed to embark upon;
(2) If he has preferred his own interest to that of the owner;
(3) If he fails to return the property or business after demand by the owner;
(4) If he assumed the management in bad faith.
Payee in Solutio Indebiti
Article 2159. Whoever in bad faith accepts an undue payment, shall pay legal interest if a sum of money is involved, or shall
be liable for fruits received or which should have been received if the thing produces fruits.
He shall furthermore be answerable for any loss or impairment of the thing from any cause, and for damages to the person
who delivered the thing, until it is recovered.
3rd MODE OF EXTINGUISHMENT OF OBLIGATION:
CONDONATION OF REMISSION OF THE DEBT
[Balane]

Condonation or remission is an act of liberality by virtue of which, without receiving any equivalent, the creditor
renounces enforcement of an obligation which is extinguished in whole or in part.
This has four (4) requisites:
1. Debt that is existing. You can remit a debt even before it is due.
2. Renunciation must be gratuitous. If renunciation is for a consideration, the mode of extinguishment may be something
else. It may be novation, compromise of dacion en pago.
3. Acceptance by the debtor.
4. Capacity of the parties.
The form of donation must be observed. If the condonation involves movables, apply Article 748. If it involves immovables, apply
Article 749.
But note that the creditor may just refuse to collect (without observing any form.) In this case, the OBLIGATION will be extinguished
not by virtue of condonation but by waiver under Article 6.
Article 1270. Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It may be made
expressly or impliedly.
One and the other kind shall be subject to the rules which govern inofficious donations. Express condonation shall,
furthermore, comply with the forms of donation.
FORMS of Condonation:
a. By a Will
Article 935. The legacy of a credit against a third person or of the remission or release of a debt of the legatee shall be effective
only as regards that part of the credit or debt existing at the time of the death of the testator.
In the first case, the estate shall comply with the legacy by assigning to the legatee all rights of action it may have against the
debtor. In the second case, by giving the legatee an acquittance, should he request one.
In both cases, the legacy shall comprise all interests on the credit or debt which may be due the testator at the time of his death.
Article 936. The legacy referred to in the preceding article shall lapse if the testator, after having made it, should bring an
action against the debtor for payment of his debt, even if such payment should not have been effected at the time of his death.
The legacy to the debtor of the thing pledged by him is understood to discharge only the right of pledge.
b. By Agreement
Article 1270. Condonation or remission is essentially gratuitous, and requires the acceptance by the obligor. It may be made
expressly or impliedly.
One and the other kind shall be subject to the rules which govern inofficious donations. Express condonation shall,
furthermore, comply with the forms of donation.
Article 746. Acceptance must be made during the lifetime of the donor and of the donee.
Article 752. The provision of article 750 notwithstanding, no person may give or receive, by way of donation, more than he
may give or receive by will.
The donation shall be inofficious in all that it may exceed this limitation.
Article 750. The donation may comprehend all the present property of the donor, or part thereof, provided he reserves, in full
ownership or in usufruct, sufficient means for the support of himself, and of all relatives who, at the time of the acceptance of
the donation are by law entitled to be supported by the donor. Without such reservation, the donation shall be reduced on
petition of any person affected.
Article 748. The donation of a movable may be made orally or in writing.
An oral donation requires the simultaneous delivery of the thing or of the document representing the right donated.
If the value of the personal property donated exceeds five thousand pesos, the donation and the acceptance shall be made in
writing. Otherwise, the donation shall be void.
Article 749. In order that the donation of an immovable may be valid, it must be made in a public document, specifying therein
the property donated and the value of the charges which the donee must satisfy.
The acceptance may be made in the same deed of donation or in a separate public document, but it shall not take effect unless
it is done during the lifetime of the donor.
If the acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic form, and this step shall
be noted in both instruments.
Presumption in Condonation:
Article 1271. 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.
If in order to nullify this waiver it should be claimed to be inofficious, the debtor and his heirs may uphold it by providing that
the delivery of the document was made in virtue of payment of the debt.
[Balane:] Articles 1271 and 1272 refer to a kind of implied renunciation when the creditor divests himself of the proof credit. According to De Diego,
this provision is absurd and immoral in that it authorizes the debtor and his heirs to prove that they paid the debt, when the provision itself assumes
that there has been a remission, which is gratuitous. [Tolentino]
This is Limited to Private Document  Article 1271 has no application to public documents because there is always a copy in the archives which can
be used to prove the credit.
 Private document refers to the original in order for Article 1271 to apply.
Article 1272. Whenever the private document in which the debt appears is found in the possession of the debtor, it shall be
presumed that the creditor delivered it voluntarily, unless the contrary is proved.
Rule 131, Sec. 5 (b), (j), (k), Rules of Court, Disputable presumptions. The following presumptions are satisfactory if
uncontradicted, but may be contradicted and overcome by other evidence:
xxx
(b) That an unlawful act was done with an unlawful intent;
xxx
(j) That a person found in possession of a thing taken in the doing of a wrongful act is the taker and doer of the whole act;
otherwise, that things which a person possesses, or exercises acts of ownership over, are owned by him;
(k) That a person in possession of an order on himself for the payment of money, or the delivery of anything, has paid the
money or delivered the thing accordingly;
xxx
Under the 1985 Rules of Court, as amended: Rule 131, Sec. 3. Disputable presumptions.-- The following presumptions are
satisfactory if uncontradicted, but may be contradicted and overcome by other evidence:
xxx
(c) That a person intends the ordinary consequences of his voluntary act;
xxx
(f) That money paid by one to another was due to the latter;
(g) That a thing delivered by one to another belonged to the latter;
(h) That an obligation delivered up to the debtor has been paid;
(i) That prior rents or installments had been paid when a receipt for the later ones is produced;
(k) That a person in possession of an order on himself for the payment of they money, or the delivery of anything, has paid the
money or delivered the thing accordingly;
xxx
Effect of Partial Remission:
Article 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall
leave the former in force.
Article 2076. The obligation of the guarantor is extinguished at the same time as that of the debtor, and for the same causes as
all other obligations.
Article 2080. The guarantors, even though they be solidary, are released from their obligation whenever by some act of the
creditor they cannot be subrogated to the rights, mortgages, and preferences of the latter.
(Provisions Common to Pledge and Mortgage)
Article 2085. The following requisites are essential to the contracts of pledge and mortgage:
(1) That they be constituted to secure the fulfillment of a principal obligation;
xxx
Article 1274. It is presumed that the accessory obligation of pledge has been remitted when the thing pledged, after its delivery
to the creditor, is found in the possession of the debtor, or of a third person who owns the thing.
[Balane]
The accesory obligation of pledge is extinguished because pledge is a possessory lien.

The presumption in this case is that the pledgee has surrendered the thing pledged to the pledgor. This is not a conclusive
presumption according to Article 2110, par. 2.
Article 2093. In addition to the requisites prescribed in article 2085, it is necessary, in order to constitute the contract of pledge,
that the thing pledged be placed in the possession of the creditor, or of a third person by common agreement.
Article 2105. The debtor cannot ask for the return of the thing pledged against the will of the creditor, unless and until he has
paid the debt and its interest, with expenses in a proper case.
4TH MODE OF EXTINGUISHMENT:
Confusion or Merger of Rights
Article 1275. The obligation is extinguished from the time the characters of creditor and debtor are merged in the same person.
[Balane]

Confusion is the meeting in one person of the qualities of the creditor and debtor with respect to the same obligation.
There are two (2) requisites:
1. It must take place between the creditor and the principle debtor (Article 1276.)
2. The very same obligation must be involved.
Rationale  You become your own creditor or you become your own debtor. So how can you sue yourself?
What may cause a merger or confusion?
(1) Succession, whether compulsory, testamentary or intestate;
(2) Donation;
(3) Negotiation of a negotiable instrument.

Because of its nature, confusion/ merger may overlap with other causes of extinguishment.
For example, I owe Ms. Olores P100,000. She bequeath to me that credit. And then she died. In this case, there is extinguishment
both by merger. But in this case, merger could overlap with payment.
Article 1276 (below) is perfectly in consonance with Article 1275.
a. Principal Parties
Article 1276. Merger which takes place in the person of the principal debtor or creditor benefits the guarantors. Confusion
which takes place in the person of any of the latter does not extinguish the obligation.
[Tolentino]

Extinguishment of the principal obligation through confusion releases the guarantors, whose obligation is merely accessory.

When merger takes place in the person of the guarantor, obligation is NOT extinguished.
b. Among guarantors
(Effects of Guaranty as Between Co-Guarantors)
Article 2073. When there are two or more guarantors of the same debtor and for the same debt, the one among them who has
paid may demand of each of the others the share which is proportionally owing from him.
If any of the guarantors should be insolvent, his share shall be borne by the others, including the payer, in the same proportion.
The provisions of this article shall not be applicable, unless the payment has been made in virtue of a judicial demand or unless
the principal debtor is insolvent.
c. Joint Obligations
Article 1277. Confusion does not extinguish a joint obligation except as regards the share corresponding to the creditor or
debtor in whom the two characters concur.
d. Solidary Obligations
Article 1215. Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any
of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of article 1219.
The creditor who may have executed any of these acts, as well as he who collects the debt, shall be liable to the others for the
share in the obligation corresponding to them.
Article 1219. 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 had been totally paid by anyone of them before the
remission was effected.
Article 1216. The creditor may proceed against any of one of the solidary debtors or some or all of them simultaneously. The
demand made against one 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.
Article 1217. 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 the 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.
e. Indivisible Obligations
Article 1209. 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.
Article 1224. A joint indivisible gives rise to indemnity for damages from the time anyone of the debtors does no 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.
5TH MODE OF EXTINGUISHMENT:
Compensation
Article 1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of each other.
[Balane]

Compensation is a mode of extinguishing, to the concurrent amount, the obligations of those persons who in their own right
are reciprocally debtors and creditors of each other. [Castan]

Perhaps, next to payment, compensation is the most common mode of extinguishing an obligation.
Distinguished from Confusion  In compensation, there are 2 parties and 2 debts, whereas in confusion, there are 2 debts and only
1 party.
Article 1286. Compensation takes place by operation of law, even though the debts may be payable at different places, but
there shall be an indemnity for expenses of exchange or transportation to the place of payment.
A. Different Kinds of Compensation:
Legal Compensation (Articles 1279, 1290) which takes place automatically by operation of law once all the requisites are present.
Article 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the
same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there by any retention or controversy, commenced by third persons and communicated in due
time to the debtor.
[Balane]
Requisites under Article 1279:
1. Mutual Debtors and Creditors  The parties must be mutually debtors and creditors (1) in their own right, and (2) as
principals. There can be no compensation if 1 party occupies only a representative capacity. Likewise, there can be no
compensation if in one obligation, a party is a principal obligor and in another obligation, he is a guarantor.
2. Fungible Things Due  The word consumable is wrong. Under Article 418, consumable things are those which cannot be
used in a manner appropriate to their nature without their being consumed. In a reciprocal obligation to deliver horses, the
3.
4.
things due are not consumable; yet there can be compensation. (Tolentino) The proper terminology is "fungible" which
refers to things of the same kind which in payment can be substituted for another.
Maturity of Debts  Both debts must be due to permit compensation.
Demandable and Liquidated Debts  Tolentino: Demandable means that the debts are enforceable in court, there being
no apparent defenses inherent in them. The obligations must be civil obligations, excluding those that are purely natural.
xxx Before a judicial decree of rescission or annulment, a rescissible or voidable debt is valid and demandable; hence, it
can be compensated.
A debt is liquidated when its existence and amount are determined. xxx And a debt is considered liquidated, not only when it is
expressed already in definite figures which do not require verification, but also when the determination of the exact amount depends
only on a simple arithmetical operation. xxx

The debt must not have been garnished. (additional requirement)
Compensation is not prohibited by any provision of law like Articles 1287, 1288 and 1794.
Article 1287. Compensation shall not be proper when one of the debts arises from a depositum or from the obligations of a
depositary or of a bailee in commodatum.
Neither can compensation be set up against a creditor who has a claim for support due by gratuitous title, without prejudice
to the provisions of paragraph 2 of article 301.
Article 1288. Neither shall there be compensation if one of the debts consists in civil liability arising from a penal offense.
Article 1794. Every partner is responsible to the partnership for damages suffered by it through his fault, and he cannot
compensate them with the profits and benefits which he may have earned for the partnership by his industry. However, the
courts may equitably lessen this responsibility if through the partner's extraordinary efforts in other activities of the
partnership, unusual profits have been realized.
Article 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up compensation as regards what
the creditor may owe the principal debtor.
Article 1283. If one of the parties to a suit over an obligation has a claim for damages against the other, the former may set it
off by proving his right to said damages and the amount thereof.
Effect of Legal Compensation:
Article 1289. If a person should have against him several debts which are susceptible of compensation, the rules on the
application of payments shall apply to the order of the compensation.
Article 1290. When all the requisites mentioned in article 1279 are present, compensation takes effect by operation of law, and
extinguishes both debts to the concurrent amount, even though the creditors and debtors are not aware of the compensation.
Article 1279. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the
same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there by any retention or controversy, commenced by third persons and communicated in due
time to the debtor.
Facultative Compensation which takes place when compensation is claimable by only one of the parties but not of the other, e.g.,
Articles 1287, 1288.
Article 1287. Compensation shall not be proper when one of the debts arises from a depositum or from the obligations of a
depositary or of a bailee in commodatum.
Neither can compensation be set up against a creditor who has a claim for support due by gratuitous title, without prejudice
to the provisions of paragraph 2 of article 301.
Article 301. The right to receive support cannot be renounced; nor can it be transmitted to a third person. Neither can it be
compensated with what the recipient owes the obligor.
However, support in arrears may be compensated and renounced, and the right to demand the same may be transmitted by
onerous or gratuitous title.
[Baviera]
Note that Article 301 of the NCC is not found in Family Code.
Future support cannot be compensated.
Thus, a father who paid damages for son’s quasi-delict cannot claim compensation by not giving support to his son. However
under Article 301, support IN ARREARS may be compensated and renounced and the right to demand the same may be
transmitted by onerous or gratuitous title.
[Balane]

The depositary cannot set up compensation with respect to the things deposited to him.

But the depositor can set up the compensation.
Article 1288. Neither shall there be compensation if one of the debts consists in civil liability arising from a penal offense.
[Baviera]
The obligation of the depositary to return a specific thing cannot be compensated or substituted by delivery of a thing of the
same kind.
Q: If there is an obligation of the depositary to the depositor for damages (already liquidated and demandable) in case of
negligence and if the depositor owes the depositary a sum of money, can there be set-off?
A: No, since it arose out of a deposit. Not allowed by law. But it could be a way of creditor to collect a bad debt.
Article 1794. Every partner is responsible to the partnership for damaged suffered by it through his fault, and he cannot
compensate them with the profits and benefits which he may have earned for the partnership by his industry. However, the
courts may equitably lessen this responsibility if through the partner’s extraordinary efforts in other activities of the
partnership, unusual profits have been realized.
Contractual/ Conventional compensation which takes place when parties agree to set-off even if the requisites of legal compensation
are not present, e.g., Article 1282. (Baviera OL: F. Comp 1. Kinds a. Voluntary)
Article 1282. The parties may agree upon the compensation of debts which are not yet due.
[Tolentino]
1. Voluntary Compensation is not limited to obligations which are not yet due. The parties may compensate by agreement any
obligations, in which the objective requisites provided for legal compensation are not present. xx
2. Judicial Compensation when decreed by the court in a case where there is a counterclaim, such as that provided in Article
1283. (Baviera OL: F. Comp 1. Kinds b. Judicial)
Article 1283. If one of the parties to a suit over an obligation has a claim for damages against the other, the former may set it
off by proving his right to said damages and the amount thereof.
[Baviera] What is the idea behind legal compensation?
It is to facilitate collection of money or for expediency.
Effect of Assignment of Credit:
Article 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a third person, cannot
set up against the assignee the compensation which would pertain to him against the assignor, unless the assignor was notified
by the debtor at the time he gave his consent, that he reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may set up the compensation
of debts previous to the cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may set up the compensation of all credits prior to the same
and also later ones until he had knowledge of the assignment.
[Balane]
There are 3 situations covered in this Article:
1. Assignment with the debtor's consent;
2. Assignment with the debtor's knowledge but without his consent; and
3. Assignment without the debtor's knowledge (and obviously without his consent.)
Rules:
Assignment with the debtor's consent  Debtor cannot set up compensation at all unless the right is reserved.
Assignment with the debtor's knowledge but without his consent  The debtor can set up compensation with a credit already
existing at the time of the assignment.
Assignment without the debtor's knowledge  Debtor can set up as compensation any credit existing at the time he acquired
knowledge even if it arose after the actual assignment.
Article 1284. When one or both debts are rescissible or voidable, they may be compensated against each other before they are
judicially rescinded or avoided.
6TH MODE OF EXTINGUISHMENT:
Novation
Article 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor.
[TOLENTINO]
Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which extinguishes
or modifies the first, either by changing the object of principal conditions, or by substituting the person of the debtor, or by subrogating
a third person in the rights of the creditor. (Manresa)
 Novation is the most unusual mode of extinguishing an obligation.
 It is the only mode whereby an obligation is extinguished and a new obligation is created to take its place.
The other modes of extinguishing an obligation are absolute in the sense that the extinguishment of the obligation is total (with the
exception of compromise.)
Novation, on the other hand, is a relative mode of extinguishing an obligation.
Classification of Novation:
1. Subjective (Personal) or novation by a change of subject
2. Active subjective or a change of creditor; also known as subrogation.
3. Passive subjective or a change of debtor
4. Objective (Real) or novation by change in the object or in the principal conditions.

Novation by a change in the principal conditions is the most problematic kind of novation because you have to
determine whether or not the change in the conditions is principal or merely incidental.

For example, a change from straight terms to installment terms and a change from non-interest bearing obligation
to an interest bearing one are changes in the principal conditions.
5. Mixed novation which is a combination of both subjective and objective novation.
Requisites of Novation:
1. There must be a previous valid obligation;
2. Agreement of the parties to create the new obligation;
3. Extinguishment of the old obligation. (I would consider this an effect, rather than a requisite of novation-- Balane);
4. Validity of the new obligation. (Tiu Siuco v. Habana, 45 P 707.)
5. There must be CONSENT of all the parties to the substitution, resulting in the extinction of the old obligation and the creation
of a valid one.
Article 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that it be
so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other.
[TOLENTINO]

Novation is NEVER presumed.
It must be established that 
1. the old and the new contracts are incompatible in all points,
2. or that the will to novate appear by express agreement of the parties
3. or in acts of equivalent import.
IMPLIED NOVATION  There is no specific form required for an implied novation. All that is required is INCOMPATIBILITY
between the original and the subsequent contracts.

A mere extension of the term of payment does not result in novation, for the period affects only the performance, not the
creation of the obligation
b. FORMS OF NOVATION:
Article 1281. Compensation may be total or partial. When the two debts are of the same amount, there is a total compensation.
(Classmates, I think there was a typo error in Ma’am Bubbles’ outline. I think this should have been Article 1291, reproduced
below)
1. Substitution of debtor-Article 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the
fulfillment of the obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the
knowledge or against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.
Article 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot compel the
creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or penalty.
Article 1835 second paragraph
A partner is discharged from any existing liability upon dissolution of the partnership by an agreement to that effect between
himself, the partnership creditor and the person or partnership continuing the business; and such agreement may be inferred
from the course of dealing between the creditor having knowledge of the dissolution and the person or partnership continuing
the business.
Effect of insolvency of new debtor-Article 1294. If the substitution is without the knowledge or against the will of the debtor, the debtor’s insolvency or nonfulfillment of the obligation shall not give rise to any liability on the part of the original debtor.
Article 1295. The insolvency of the new debtor, who has been proposed by the original debtor and accepted by the creditor,
shall not revive the action of the latter against the original obligor, except when said insolvency was already existing and of
public knowledge, or known to the debtor, when he delegated his debt.
2. Change of Principal Condition or Object
3. Subrogation/Subjective Novation
a. In case of active subjective novation
Article 1300. Subrogation of a third person in the rights of the creditor is either legal or conventional. The former is not
presumed, except in cases expressly mentioned in this Code; the latter must be clearly established in or order that it may take
effect.
Legal (Article 1302)  In all cases of Article 1302, subrogation takes place by operation of law.
Article 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor;
(3) 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;
Conventional/ Contractual (Article 1301)  Consent of the 3 parties (old creditor, debtor and new creditor) are required.
Article 1301. Conventional subrogation of a third person requires the consent of the original parties and of the third person.
Q: Is it possible for a creditor to transfer his credit without consent of the debtor?
A: Yes. But this is not novation but an assignment of rights under Article 1624.

Assignment is also a novation but much simpler. But is not subrogation.

KINDS OF NOVATION:
a. Legal
Article 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor;
(3) 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;
Article 1177. The creditors, after having pursued the property in possession of the debtor to satisfy their claims, may exercise
all the rights and bring all the actions of the latter for the same purpose, save those which are inherent in his person; they may
also impugn the acts which the debtor may have done to defraud them.
(Conventional Redemption)
Article 1610. The creditors of the vendor cannot make use of the right of redemption against the vendee, until after they have
exhausted the property of the vendor.
Article 1729. Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an
action against the owner up to the amount owing from the latter to the contractor at the time the claim is made. However, the
following shall not prejudice the laborers, employees and furnishers of materials:
(1) Payments made by the owner to the contractor before they are due;
(2) Renunciation by the contractor of any amount due him from the owner.
This article is subject to the provisions of special laws:
(Assignment of Credits and Other Incorporeal Rights)
Article 1629. In case the assignor in good faith should have made himself responsible for the solvency of the debtor, and the
contracting parties should not have agreed upon the duration of the liability, it shall last for one year only, from the time of the
assignment if the period had already expired.
If the credit should be payable within a term or period which has not yet expired, the liability shall cease one year after the
maturity.
Article 2207. If the plaintiff's property has been insured, and he has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract complained of, the insurance company shall be subrogated to the
rights of the insured against the wrongdoer or the person who has violated the contract. If the amount paid by the insurance
company does not fully cover the injury or loss, the aggrieved party shall be entitled to recover the deficiency from the person
causing the loss or injury.
2. Effect:
Article 1304. 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.
Article 1303. Subrogation transfers to the person subrogated the credit with all the rights thereto appertaining, either against
the debtor or against third persons, be they guarantors or possessors of mortgages, subject to stipulation in a conventional
subrogation.
b. Passive Subjective Novation
(Substitution of the debtor)
Article 1293. Novation which consists in substituting a new debtor in the place of the original one, may be made even without
the knowledge or against the will of the latter, but not without the consent of the creditor. Payment by the new debtor gives
him the rights mentioned in articles 1236 and 1237.
Article 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the
fulfillment of the obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or
against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.
Article 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot compel the
creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty or penalty.
Article 1835. xxx
A partnership is discharged from any existing liability upon dissolution of the partnership by an agreement to that effect
between himself, the partnership creditor and the person or partnership continuing the business; and such agreement may be
inferred from the course of dealing between the creditor having knowledge of the dissolution and the person or partnership
continuing the business.
[Balane]
Passive Subjective Novation-- Articles 1293 and 1295

Article 1293 talks of expromission (not upon the old debtor's initiative. It could be upon the initiative of the creditor or of
the new debtor.)

Article 1295 talks of delegacion (change at the old debtor's initiative.)

In expromission, the change in the person of the debtor is not upon the initiative of the old debtor, whether or not he gave
his consent. As soon as a new debtor and creditor agree, novation takes place.

In both cases, the intent of the parties must be to release the old debtor.
What is the difference in effect between expromission and delegacion?

In expromission, the release of the old debtor is absolute (even if it turns out that the new debtor is insolvent.)

In delegacion, the release of the old debtor is not absolute. He may be held liable (1) if the new debtor was already insolvent
at the time of the delegacion; and (2) such insolvency was either known to the old debtor or of public knowledge.
Cases of expromission are quite rare.
Effect of Novation
Article 1296. When the principal obligation is extinguished in consequence of a novation, accessory obligations may subsist
only insofar as they may benefit third persons who did not give their consent.
[Balane]
Effect of novation as to accessory obligations Accessory obligations may subsist only insofar as they may benefit third persons
who did not give their consent, e.g., stipulation pour atrui
General rule: In a novation, the accesory obligation is extinguished.
Exception: In an active subjective novation, the guarantors, pledgors, mortgagors are not released.
Look at Article 1303, accessory obligations are not extinguished. So there is a conflict.
How do you resolve? According to commentators, Article 1303 is an exception to Article 1296.
Article 1297. If the new obligation is void, the original one shall subsist, unless the parties intended that the former relation
should be extinguished in any event.
Article 1298. The novation is void if the original obligation was void, except when annulment may be claimed only by the
debtor, or when ratification validates acts which are voidable.
Article 1299. 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.
Illustrations:
1.
Special forms of payment:
a. Dation
b. Application – Before the courts do not consider application as special form of payment.
c.
Tender of payment and consignation – Tender of payment is not a form of payment consignation is a special form of payment.
d. Cession
2.
Distinguish one from the other or the rest:
a. Consent: is consent of both parties required in this special form of payment? There is no question that as to debtors consent
is obviously there because he is the one offering to pay, so if he is the one offering to pay then there must be consent, but as to
creditor?
i. Dation in payment – the creditor has to accept the delivery of a thing instead of the other prestation for the satisfaction
of the debt, if there is no consent on the part of the creditor, there can be no dation in payment. CASE: Filinvest v.
Phil. Acetelyn
ii. Application of payment – As a rule the consent of the creditor is not required, it is only under certain circumstances
that the consent of the creditor will be present.
iii. Payment by cession – Definitely the consent of the creditor is required, if the creditor would not agree that the debtor
would abandon the properties for the creditors to sell, there can be no payment by cession.
iv.
3.
Consignation – The consent of the creditor is not required even if the creditor refuses to accept the thing delivered by
the debtor to the court by way of consignation, the court may declare the consignation to be valid.
b.
As to the effect of the delivery of the thing from the debtor to the creditor or from the debtor to the court is there transfer
of ownership?
i. Dation in payment – yes there is transfer of ownership, because that thing is being delivered and the ownership thereof
is being transferred in satisfaction of his debt.
ii. Application of payment – Yes there is transfer of ownership. If money is delivered by the debtor to the creditor
ownership passes to the creditor. The only question here in this form of payment is to which debt the payment will
apply? This is the issue in this kind of payment, but as to ownership it passes immediately to the creditor.
iii. Cession - Ownership does not pass because the creditor upon delivery because the creditors just accept the things or
those things to be sold and the proceeds thereof to be applied to the indebtedness.
iv. Consignation – Upon the delivery of the thing to the court ownership does not automatically pass to the creditors
because the consignation may be void, if it is void, then ownership does not pass to the creditor. However, if the creditor
will accept thereafter, may be months or years thereafter, or maybe the court declares the consignation valid, then the
ownership passes, however, by law the effect of acceptance or the declaration by the court that the consignation
is valid retroacts to the time of the delivery of the court as if the creditor is already the owner of the thing at the
time of the delivery.
c.
Extent of Extinguishment: May there be total extinguishment of the debt?
i. Application of payment – No, there can never be total extinguishment, precisely because there is a need to determine
to which debt the payment is to be applied. Because the amount paid is not sufficient to cover all the debts, because
you will no longer have a problem is the amount is sufficient to cover all the debts you just have to invoke the rules on
application on payments. Necessarily there is no total extinguishment of the debts under the rules on application of
payment.
ii. Cession – the extinguishment will only be to the extent of the net profits of the sale, unless the parties agree that the
abandonment will result to the extinguishment of the entire debt. So here, the net proceeds is the basis of the extent of
the extinguishment of the debt.
iii. Consignation – Because this is a special form of payment it follows the rule in payment, thus as a rule “partial
performance is non performance” therefore if the debtor delivers only a portion of his debt, then the consignation is
null and void. The exception will only be if the creditor would agree to the delivery of partial amount, then to
that extent there will be partial extinguishment.
iv. Dation in payment – There are authors who will take the position that if there is Dation in payment then the obligation
is totally extinguished unless it is clear in the intention of the parties that it will result only to partial extinguishment.
But is this the better rule? For example if A is the debtor of B in the amount of 1M and A delivered to B a car stating
that it is to be applied to the amount that B owes A, the value of the car is 150K, if the creditor accepted the car, does
that mean that the entire obligation is extinguished? This rule does not seem to be equitable, the BETTER RULE:
As a rule the extinguishment is only to the extent of the value of the thing delivered unless it is clear from the
agreement of the parties that the delivery of a thing, no matter the value, is equivalent to the amount of the
obligation.
Specific Rules:
a. Dation in payment – Again in Dation a thing is delivered and ownership thereof is delivered by the debtor to the creditor in
satisfaction of his debt. Dation apparently will only apply to the delivery of the thing THIS IS NOT TRUE. The SC has ruled
that even rights can be the subject of Dation for example: if hereditary right is already vested to the debtor, the debtor can
deliver his rights to his creditor for the satisfaction of his debt. Also, in one case, a credit owing to the debtor may be
delivered by him to his creditor for the satisfaction of his debt. But just like the other modes of payment, in order that there be
Dation there has to be an obligation to be extinguished (CASE: Citizen’s Surety v. CA: Perez was claiming that with the execution
of deed of assignment that practically extinguishes his obligation under the indemnity agreement by way of Dation, the scenario
here was: a contract of sale was entered into, payable by installment, the buyer is Pascual enterprises, to secure the fulfillment of
his obligation, a surety bond was executed in favor of the seller, not citizen’s surety executed an indemnity agreement just in case
it will be held liable under the bond, Pascual Perez and his wife being the party thereto, Citizen’s also had Perez execute a deed of
assignment over certain stocks. The surety obviously was held liable under the bond, the surety went after Perez under the
indemnity agreement. Perez claimed that the execution of deed of assignment was a form of Dation, but the facts showed
that at the time the deed of assignment was executed there was no obligation under the indemnity agreement nor under
the surety bond. Why? Because the contract were all dated earlier than the time he was made liable, therefore there was
no obligation yet. So what is really the nature of deed of assignment? It was a form of security arrangement. Other facts
relied upon by the SC in ruling that the deed of assignment was not Dation in payment was that after the deed of assignment
was executed, Perez also executed a real estate mortgage, so why would he execute a real estate mortgage if his obligation
was already extinguished by Dation. Also, in deed of assignment, there were partial payments made, if there was Dation
then he would not have made the payments.)
What is the law governing Dation? Others would say that this is governed by the law of sales. If you will read 1245, it
would appear that Dation is governed by law of sales, but reading it more closely; the law on sales will only apply if the
obligation is in money. For instance, A owes B 20K, instead of paying cash, A offered his cell phone to B in satisfaction of the
obligation, there is here Dation and this will be governed by the law on sales as provided for in 1245. Tolentino criticized this
provision, considering that the trend worldwide is to consider this as a form of novation because practically there is a
change in the object, from money to a thing. REMEMBER! 1245 will not apply if the pre-existing obligation is not in money.
For example: A is obliged to deliver to B a horse, so instead of delivering a horse he delivered a car to B. 1245 will not apply
here because the pre-existing obligation is not in money, but it is to deliver a horse. So in this case Novation shall apply
because there was a changed in the object of the obligation, from horse to car. Again, going back to Tolentino’s criticism, he
said that regardless of pre-existing obligation whether money or thing, still the law that will apply is the law of novation. Atty.
Uribe: I find wisdom in 1245 because, instead of paying in cash, (refer to the cell phone example) the debtor paid by giving his
phone to the creditor, but is this not almost similar to the scenario where the debtor paid in cash and the creditor used the
cash to buy the cell phone? And therefore the law on sales will govern. I think 1245 will do.
b.
Application of payment – the only question relevant in this rule is “to which debt will the payment be applied?” the premise
of this question is a debtor has two or more debts to one creditor but may the rules on application of payments be invoked if
the debtor has two or more creditors? Yes. As long as as to one creditor he has two or more debts. The law does not require
that the debtor should only have one creditor. For example: A’s creditors are XYZ, for the rules to be invoked, he must have two
debts to one creditor. Let us say A owes X 100K, 50K, and 20K, now if A delivers to X 30K, the question here is to which debt will
the payment apply? 1. AS A RULE: The debt designated by the debtor, so under the law, the debtor has the right to designate
to which debt the payment will apply. So here, A can designate the 30K to apply to 100K or to 50K or to 20K or 30K. But
having said that, if A instructed the creditor to apply the 30K to 50K, can the creditor be compelled to apply the payment to the
50K debt? AS A RULE THE ANSWER IS NO because this is a special form of payment, the rules of payment shall apply, the
creditor cannot be compelled to accept partial payment, nor the debtor be compelled to perform partial payment. Therefore, unless
there is a stipulation giving the debtor a right to designate to a debt that will constitute partial payment, he cannot designate payment
to which the payment should be applied. In the first place why would he designate it to the 50K? The 50K may be interest
bearing. THEREFORE, THE RIGHT OF THE DEBTOR TO DESIGNATE TO WHICH PAYMENT SHALL APPLY IS
NOT ABSOULTE, ONE OF THE EXCEPTIONS IS AS TO PARTIAL PAYMENT. SECOND LIMITATION, A delivered
the 30K, he designated it for the payment of the 30K debt, however, the 30K debt is interest bearing, can he compel the creditor
to apply the payment to the principal first, then he will just pay the interest later? NO BY EXPRESS PROVISION OF THE
LAW, PAYMENT SHOULD ALWAYS BE APPLIED TO INTEREST FIRST, IF THERE ARE EXCESS THEN THAT
WILL BE THE AMOUNT APPLIED TO THE PRINCIPAL. THIRD LIMITATION: A designated the 30K for the payment
of the 30K debt, but the 30K debt is not yet due. THE LAW REQUIRES THAT THE DEBT IS ALREADY DUE IN ORDER
THAT THE DEBTOR WOULD HAVE THE RIGHT TO DESGINATE SUCH PAYMENT TO THE DEBT. What is the
meaning of due here? The period must be fixed for the benefit of the creditor or for both of them. If it is not yet due, but the period
is fixed solely for the benefit of the debtor it does not matter the debtor can designate such debt because the period is for his
benefit. But also he cannot vary an agreement which they had as to which debt the payment to be applied.
PROBLEM: What if A entrusted X to apply the 30K to 30K debt, but the debt is secured by a mortgage, as instructed X
applied the payment, he issued a receipt stating that the 30K is applied to the 30K debt, however, days thereafter, A asked X to
apply the amount to another debt, the 50K, though the creditor cannot be compelled to accept, he may accept if he wants to.
So, if X agrees, and he applied the payment of the 50K debt instead of the 30K, thereafter A was not able to pay X as to
the 30K debt, can X foreclose the mortgage? NOT ANYMORE! A already paid the 30K, although it was revived (when
he chose that the payment be applied to 50K instead) the mortgage was not revived (mortgage is not revived without the
consent of the mortgagor).
SECOND RULE: What if the debtor did not designate the debt to which the payment shall apply? The debt designated
by the creditor. He would have the right to designate to which debt the payment shall apply. However, is the debtor’s consent
required in the designation made by the creditor? Yes! By express provision of the law, if in the receipt the debtor sees that the
payment was applied to a particular debt, and the debtor does not agree to such application, he may refuse to accept the
application.
THIRD RULE: Neither the debtor nor the creditor made the designation. Scenario: the debtor made payment; the creditor
accepted and issued a receipt without designating the particular debt, so to which debt the payment shall apply? IT WILL
DEPEND ON WHETHER THE DEBT OF THE SAME NATURE AND BURDEN OR WHETHER THE DEBT IS
MOST ONEROUS OF THEM ALL. If all the debts are of the same nature and burden, the law requires proportional
application. As regards to the most onerous debt, apply the payment to the most onerous obligation. TAKE NOTE! That
you should only go into these rules if the law would not guide you as to which debt the payment should be applied, there are
guides like partial payment, interest bearing, and the circumstances which may show the intention of the parties, if these guides
are not present, then that is the time you go into the rules considering the nature and burden of the debts. IN
DETERMINING WHICH DEBT IS THE MOST ONEROUS: is there a particular rule? None. The SC held that there is no
hard and fast rule! This is because each debt has its own features, for example, there are debts which consist of bigger amount
the other smaller amount but interest bearing, the other one secured. For example one debt is secured by real estate mortgage and
another debt is secured by pledge, what is more burdensome? The debt secured by a real estate mortgage. However, real
estate mortgage may be constituted by one real estate, so consider if the real estate mortgage constitutes a small lot and the
pledge constitutes ships, which is more onerous? Obviously the debt secured by pledge constituting ships. TAKE NOTE
THAT ALL FACTORS ARE CONSIDERED IN DETERMINING WHICH IS MORE ONEROUS. If for instance in one
debt the debtor is merely the guarantor and other debt he is the principal, apparently the debt in which he is the principal debtor
is more onerous, but the common reason given by few authors is because in this debt where he is a guarantor, his liability is only
subsidiary, in fact inchoate, he may or may not be held liable because the principal debtor should first be held in default then his
properties dissolved before the guarantor may be held liable, BUT THIS IS A WRONG REASON WHY? If the rules on
applications of payment are to be invoked, it presupposes as to the two debts he is already liable, his liability is not merely
inchoate, and even if it is only subsidiary, he is already liable, in other words in this scenario for the rules to be applied, the
principal debtor should have defaulted and his properties exhausted that is why the guarantor is liable, if he is not yet liable there
is no reason to apply the rules on application of payment because there is only one debt, which is the debt to which he is the
principal debtor. But even considering that in the contract of guaranty the guarantor is already liable, which is more onerous,
Atty. Uribe: the debt more onerous is the debt to which the debtor is a principal, because in guaranty the guarantor may be able
to recover what he paid to the creditor from the debtor, in the debt to which he is a principal, he cannot recover anything by way
of reimbursement. One author would claim: bigger amount is more onerous than smaller amount. Is there any basis for this
claim? Atty. Uribe: I beg to disagree to this claim, first, if the debt is one peso or two pesos or even one thousand pesos bigger
in amount, does that really matter in this country? But if you go by the rules, if you follow this claim, then what will happen to
the rule that there are debts of the same nature and burden because if the debts would have 1 peso difference, then that debt is
already more onerous, since the law provides that proportional application to debts, presupposes that the debts are of
different amounts. OBVIOUSLY THIS IS WRONG. Example this is 1M the other debt is 10K, you think 1M is more
onerous, not necessarily, let’s say the debt is only 10K but it is interest bearing, what should I pay first? Of course the 10K
interest bearing. Who cares about the 1M, after 2 years it is still 1M! Again the amount is irrelevant. Another, OLDER DEBT
IS MORE ONEROUS. There is no basis to this claim. In fact, older debts may be less onerous why? Because it is about to
prescribe.
c.
d.
Cession or assignment – Here the debtor would abandon or assign all his properties to the creditor which properties will have
to be sold by the creditor the net proceeds shall be applied to the credit. FIRST ISSUE: All the properties of the debtor shall be
delivered? No there are properties which are exempt from execution. But can the debtor deliver to the creditor properties which
are exempt from execution? Yes! Because that is a right which the debtor can waive, though he cannot be compelled he may
abandon those properties to the creditor. However, there are certain properties which cannot be the subject of the claim of the
creditor even with the consent of the debtor LIKE THE FAMILY HOME, of course there are beneficiaries of the family
home who can object to the sale thereof.
What if the debtor is willing to abandon all his properties and the creditors would refuse, what is the remedy of the
debtor? Authors would say that the best remedy of the debtor is to file an action for insolvency. In a way insolvency
proceeding has its advantages, however, here in the Philippines businessmen are really not keen on filing an insolvency
proceedings.
What if the creditors did agree for this kind of payment but they failed to agree as to how they will
partition/distribution the proceeds? Atty. Uribe agrees that the rules on concurrence and preference of credits because in
these rules there are preferred debts and those debts which are not preferred they shall be paid proportionately.
Alleged requirement of few authors that in this form of payment, the debtor is insolvent. In other words, there can be
no cession if the debtor is not insolvent. Atty. Uribe CANNOT AGREE TO THIS REQUIREMENT because if you read 1265 there is
no requirement that the debtor must be insolvent for payment of cession to take place. Another important reason is the fact
that this is by agreement of parties, there can only be payment of cession because the creditor agreed, as long as the debtor is
willing to abandon the properties and the creditors agree and the proceeds shall be applied to the debt, there is cession. Other
authors claim that the debtor should be partially insolvent, is there any basis to this? NONE! Once a debtor failed to comply
with his obligations and xxx is insolvent. There is no such thing as partial insolvent. The statement of Professor Sta. Maria is a
better statement “this mode of extinguishing obligation would normally be resorted to by debtors who are in a financially
difficult position.”
Tender of payment and consignation – Fist, let us go to the claim of Prof. Jurado, as a rule tender of payment is necessary
for consignation to be valid, correct? Reading 1256, there are how many grounds or causes for consignation wherein the law
expressly provides that tender of payment is not required. In 1256 there are about 5 grounds, where the law provides that in those
grounds tender of payment is not required, obvious because in those grounds the creditor is not present. So in those causes, there
is no tender of payment but the consignation is valid. What are the grounds or causes for consignation where tender of
payment is necessary under the law? Where the creditor refuses to accept without just cause. Therefore going back to the
statement tender of payment is required for consignation to be valid, it seems wrong. AS A RULE TENDER OF
PAYMENT IS NOT REQUIRED, THE ONLY EXCEPTION TO THAT RULE IS WHEN THE GROUND FOR
CONSIGNATION IS THAT THE CREDITOR REFUSES TO ACCEPT WITHOUT JUST CAUSE.
On the other hand, Jurado is very much correct in his statement that “tender of payment by its very nature is
extrajudicial” as you have read in the case of Soco v. Milintante, tender of payment is made during the pendency of the
action, that consignation is void. Tender of payment should be made prior to consignation not during the pendency of the
action. SO IT IS BY ITS VERY NATURE EXTRAJUDICIAL IN CHARACTER.
Now, if the ground for consignation requires tender of payment and the debtor sent probably three letters to the
creditor informing the creditor that “I am willing to pay my debt xxx” is this a valid tender of payment? NO! In order for
tender of payment to be a valid tender of payment, you have to actually offer the amount to the creditor; IT IS THE ACT OF
OFFERING THE AMOUNT WHICH CONSTITUTES A VALID TENDER OF PAYMENT.
In to the requisites of a valid consignation:
i.
There must be a debt to be extinguished – a sum of money is delivered not to extinguish a debt but to exercise a
right, like the right of redemption, if the other party refuses to accept the money, then the person who has the right is
not required to deliver to the court the amount by way of consignation because he is not intending to extinguish an
obligation. Example: A had the right to redeem, he offered to redeem, the other party refused to accept, when the
action was filed the defendant claimed that the action should be dismissed because the redemptioner was not
sincere in redeeming the property because if the redemptioner was sincere, when I refused to accept the money
he should have deliver the money to the court by way of consignation. The SC: the claim is erroneous, because
the redemptioner is exercising a right, and in the exercise thereof there was refusal without just cause, there is
no need for consignation. But if the intention is to extinguish an obligation and the money was refused, that is
when the debtor has to go to the court and deliver the money by way of consignation.
ii.
The consignation must be based on a ground provided by law – Is the enumeration under 1256 an exclusive
enumeration? Atty. Uribe agrees with the position that the enumeration does not have to be exclusive because as long
as it would be more burdensome to the debtor if he will not be allowed to deliver the thing or the money to the court,
consignation should be allowed. Some of the grounds are:
a. When without just cause the creditor refuses to issue a receipt – is the issuance of the receipt the
operative fact which extinguishes the obligation? NO! in our jurisdiction PAYMENT IS THE MODE OF
EXTINGUISHMENT, THE RECEIPT IS MERELY AN EVIDENCE. But if the creditor refuses to issue a
receipt or does not want to issue a receipt, it is better that the debtor does not give the payment to him,
because he can easily deny that the debtor did not pay. Actually, in other jurisdiction, it is the issuance of
the receipt that extinguishes the obligation, this rule seems to have an advantage because it would minimize
the litigation involving issues as to payment.
b. When two or more persons claim the same right to collect – A good example is an obligation to deliver
a carabao, in this obligations three creditors are claiming from the debtor, because three persons are
claiming to the carabao that will give the person a right to deliver the carabao to the court by way of
consignation? Not necessarily. The SC held that the debtor should determine for himself the person who
has the right over the thing or the money.
iii.
Notices required for consignation to be valid: AT LEAST TWO: Why? Because if the obligation pertain to an
obligation to pay on a monthly basis, like rental, the SC as rule in the case of SOCO, THERE MUST BE AT LEAST
TWO NOTICES FOR EACH AMOUNT WHICH BECAME DUE (so every month that the payment is not
accepted sent notice prior the consignation). But if there is only one debt, there should be two notices required, is it
required that both notices should come from the debtor? NO! But the first notice should come from the debtor prior the
consignation and the second notice may come into the form of summons. Is notice really an essential requisite for
the validity? TOLENTINO DOES NOT AGREE WITH THIS VIEW, he thinks that even without such notice the
consignation may still be considered as valid. But it can be the basis of holding the debtor liable, this rule is better but
THIS IS NOT THE RULE LAID DOWN BY THE SUPREME COURT. SECOND: if the payment is monthly and
the creditor already refused to accept the payment in the first month the defendant will question the necessity of second
notices, since the creditor already knows that the debtor will again deliver to the court the payment by way of
consignation RATIONALE: THIS IS TO GIVE THE CREDITOR THE OPPORTUNITY TO CHANGE HIS
MIND. Which is very true, the bigger the amount the more difficult to refuse.
There are only two questions in consignation: After the delivery of the money or the thing with the court, what if
thereafter the money was withdrawn from the court, thereafter the debtor failed to pay the creditor, can the creditor still
go after those who are subsidiarily liable for the debt (like the mortgagor)? PREMISE HERE IS: A is indebted to B, A
delivered a sum of money to the court by way of consignation however, A withdrew the money, the debt is secured by a
mortgage, thereafter A failed to pay the creditor, can the creditor foreclose the mortgage? It depend on the manner how A
was able to withdraw the money from the court. IF A WITHDREW THE MONEY AS A MATTER OF RIGHT (when even the court
cannot refuse the withdrawal, and this can happen if the creditor has not yet accepted and the court has not yet declared
the consignation to be valid, in this scenario, the debtor can still withdraw the money as a matter of right at anytime),
THUS, NO DEBT HAS BEEN EXTINGUISHED, BECAUSE IN CONSIGNATION THE DEBT WILL ONLY BE EXTINGUISHED EITHER
BECAUSE THE CREDITOR HAS ALREADY ACCEPTED OR THE COURT HAS ALREADY DECLARED THAT THE CONSIGNATION IS
VALID, ABSENCE OF THE TWO NO OBLIGATION IS EXTINGUISHED, THEREFORE NO OBLIGATION IS REVIVED, THEREFORE IF THE
DEBTOR WITHDREW UNDER THIS SCENARIO AND FAILED TO PAY, THE CREDITOR MAY STILL FORECLOSE THE MORTGAGE,
BECAUSE THE OBLIGATION WAS NEVER EXTINGUISHED. HOWEVER, IF THE WITHDRAWAL IS NOT AS A MATTER OF RIGHT,
THEREFORE HE WAS ONLY ABLE TO WITHDRAW WITH THE CONSENT OF THE CREDITOR (this may happen either when the
withdrawal was made after the acceptance or the withdrawal was made after the declaration by the court that the
consignation was valid.) IN THIS CASE, THE CREDITOR CONSENTED TO THE WITHDRAWAL. WHAT HAPPENS TO THE
OBLIGATION, UPON THE ACCEPTANCE BY THE CREDITOR OR DECLARATION BY THE COURT THAT THE CONSIGNATION IS
VALID, THE OBLIGATION IS EXTINGUISHED, AND THEREFORE, WHEN THE AMOUNT WAS WITHDREW BY THE DEBTOR THE
OBLIGAITON WAS REVIVED, UPON REVIVAL THE DEBTOR FAILED TO PAY, THE CREDITOR CAN NO LONGER FORECLOSE THE
MORTGAGE, WITH THE EXTINGUISHMENT OF PRINCIPAL OBLIGAITON THE ACCESSORY CONTRACTS ARE ALSO
EXTINGUISHED.
Liability to pay interest: Let us assume that the obligation became due on 1. Jan. 1, 2002, 2. tender of payment was
made Jan. 1, 2003 which is the due date, and 3. consignation was made January 2, 2006 three years after the tender. 4.
Thereafter the court’s decision was released January 2, 2008, QUESTION: can the debtor be held liable from period 3 to
period 4? If the court declared the consignation to be VOID there is no question that the debtor is liable to pay interests, on
the premise that there was demand and that demand was necessary for the debtor to incur in delay. However, what if the
court declared the consignation to be valid? Is he liable for interest? Is he liable from period 2 to 4? Obviously he is liable
because he made the tender of payment only period number two, but from the time of consignation to the time the
declaration of decision of the court is he liable for interest? NO! because the effect of the declaration retroact to the time of
the delivery of the amount to the court as if the obligation was extinguished at the time the consignation was made,
therefore there will be no obligation to pay the interest. The problem is in period of tender of payment to the consignation,
can he be made liable for payment of interest? Juridically speaking, there is basis to the SC ruling that the debtor is still liable
because the effect of consignation will only be from the time the thing is delivered to the court, so until the obligation is
extinguished the debtor should still be held liable for interest. However, in the recent cases of the SC, it was held that from
the time tender of payment was made the debtor is no longer required to pay interest, here, the law requires that if the
creditor refuses acceptance, the debtor should immediately go to court, otherwise the debtor will have no reason to go to
the court because he no longer has liability for interest. However, in the recent ruling of the SC, it held that BY REASON OF
JUSTICE AND EQUITY, why? Because here as the consignation is valid it means that the creditor refused to accept without
just cause, if the creditor accepted it would there be liability on the part of the debtor to pay interest? None! So, under the
principle of justice and equity the debtor should no longer be held liable to pay interest from the time tender of payment
was made up to the time of consignation even if the consignation was made years after. ATTY. URIBE: This is quite
inconsistent with consignation, there is a much better basis than justice and equity, if you remember our discussion in
period, in periods two to three the debtor is liable for interest, but when the creditor refused to accept without just cause,
is it not that he is also in delay which is known as mora xxx so if both parties are already in delay, following the ruling of
the SC in Agcaoili v. GSIS, in contemplation of law, no one is in delay and if no one is in delay could there be liability to pay
interest? None. Without invoking justice and equity, this decision seems to be more correct.
4.
5.
LOSS OF A THING DUE – Can this mode of extinguishment be invoked in all kinds of obligations meaning obligations to do? It does not
seem like it because it says loss of the thing. If you will read the provisions under this mode, loss of the thing due, there are provisions
pertaining to obligation to do, thus, authors would consider a better name for this mode, instead of loss of the thing due a better name would
be Impossibility of Performance. In impossibility of performance it would already include even obligations to give or to deliver, in case of
obligations to give it will be impossible to perform because the thing to be delivered is lost.
a.
May this mode apply to obligations to deliver generic thing? YES. If you remember the doctrine genus non quam peruit this
applies to a scenario where the loss or destruction of anything of the same kind does not extinguish the obligation. EXAMPLE:
there is an obligation to deliver a brand new 2009 Toyota camry, just because the brand new Toyota camry was lost does
not mean that the obligation is extinguished under this doctrine. GOING BACK TO THE ORIGINAL QUESTION: May
an obligation to deliver a generic thing be extinguished because the obligation became impossible to perform? YES! As the law
would define loss it is a scenario where the thing goes out of commerce, so if the thing went out of commerce there is nothing to
deliver. Another scenario, is when it became legally impossible to perform, impossibility of performance may either be physical
impossibility or legal impossibility. Pesigan v. Angeles Delivery of carabao from one province to another, along the way the
carabaos were confiscated because a law became effective during the pendency of the obligation, therefore the obligation was
considered legally impossible to perform. TAKE NOTE THAT when the law became effective, there must already be an
obligation which will become impossible to perform because if the law became effective before the obligation was instituted
in the first place the obligation is void and there is nothing to be extinguished.
b.
Obligations to deliver a determinate thing: if the thing to be delivered was lost or destroyed, is the obligation extinguished? If you
will read 1262 literally, it will depend on the cause of the loss. If the cause of the loss was due to the fault of the debtor then the
obligation is not extinguished 1263 provides that if the thing is lost or destroyed without the fault of the debtor, the obligation is
extinguished, therefore, if the loss is caused by the debtor the obligations is not extinguished. However, Prof. Tolentino opines
even if the loss is due to the fault of the debtor, what will be delivered? None, so here, there is physical impossibility, and
therefore the obligation should be deemed to be extinguished without prejudice to his liability to pay damages because the
loss is due to his fault. Nonetheless if you want stick with the opinion of Tolentino you can always cite 1262 as the basis but
this does not seem to be correct. BUT ULTIMATELY IN CASES DECIDED BY THE SUPREME COURT: As to the thing
to be delivered is lost or destroyed, what is the issue that is always mentioned in the case, is it “won the obligation was
extinguished?” No, the ISSUE IS WHEHTER THE DEBTOR CAN BE HELD FOR DAMAGES in other words it does not
matter whether the obligation was extinguished or not, what matters is is the debtor liable for the damages caused by the loss of
the thing. If the loss was due to his fault he is liable for damages, otherwise he cannot be held liable for damages. In fact Sta.
Maria also take this position, Sta. Maria will not state whether the obligation is extinguished or not, the issue that will be posted is
that whether or not the obligation to deliver a thing is converted to an obligation to pay a sum of money. However, if this is
your position, you actually take the position that there was extinguishment. If you remember in prescription, prescription is a mode
of extinguishing an obligation because it converts the civil obligation to natural obligation, there is a change in the obligation
therefore there is extinguishment, in the same manner if the obligation to deliver is converted to a monetary obligation then there
is an extinguishment of an obligation.
Who has the burden of proving as to the cause of the loss? The creditor or the one claiming that it was the
debtor’s fault who caused the loss. Reasonable, because this follows the rule that whoever alleges the fact must prove the fact.
However, in certain circumstances, the creditor or the plaintiff may not have the burden, because the law provides for a
presumption that the cause of the loss was due to the debtor, when will this happen? If at the time of the loss the thing is in the
possession of the debtor. But take note that the presumption is not an absolute presumption because the debtor can
always post a defense that even if the thing was in his possession the loss was due to the fault of somebody else. However,
even if a thing is lost while in his possession is it possible that there is no presumption that it was due to his fault? Yes if the loss
happened during a calamity or on the occasion of a calamity. Because even if the thing was lost even if in the possession
of the debtor but it was during a calamity, more often than not, the calamity is the cause of the loss and not the fault of
the debtor, therefore the burden again will be shifted to the creditor or plaintiff if he would claim that the loss was caused
by the debtor.
We have already discussed that even if the loss was caused during fortuitous event that will not necessarily exempt
the debtor from liability. That may be the general rule under 1174 but there are EXCEPTIONS APPLICABLE TO
OBLIGAITONS TO DELIVER A DETERMINATE THING: stipulation of the party that the debtor will be liable whatever
may be the cause of the loss, or may be the law provides for liability even if the loss was caused by a fortuitous event.
Occenia v. Jobson when the performance has become so difficult as to be manifestly beyond the contemplation of
the parties, the obligor may also be released in whole or in part. THE LAW GRANTS THE COURT THE POWER TO
RELEASE THE DEBTOR IN WHOLE OR IN PART BUT IT DID NOT VEST THE COURT THE POWER TO
CHANGE THE TERMS AND CONDITIONS AGREED UPON BY THE PARTIES. Requirements:
i. The performance of the obligation has become so difficult. This should not be confused with impossible; if the
obligation has become impossible to perform then 1267 will not apply in fact as a rule the obligation will be considered
extinguished.
ii. The difficulty to perform must be due to a fortuitous event or beyond the contemplation of the parties.
Effect of partial loss. A scenario could be an obligation to deliver a cell phone with housing, what if the cell
phone was lost but the housing is still available, is the obligation totally extinguished, can the debtor still be compelled to
deliver the housing? The answer depends on the intention of the parties as to really what was the principal motivation in
entering the transaction. But is it possible that the housing is more valuable than the cell phone? Yes it is possible for
instance it has diamonds. So if the delivery of the housing was the intention, apparently the buyer cannot be compelled to
accept the cell phone.
Condonation or Remission of the debt or a.k.a donation of credit – As to the kinds of condonation:
a.
b.
Extent of extinguishment whether total or partial: Condonation may be partial. PARTIAL: the principal amount may not even
be reduced and the creditor will only condone the interest or the principal amount nor the interest will not be condoned but the
accessory obligations will be condoned and therefore it will result to partial condonation.
Whether Condonation is express or implied: if the condonation is EXPRESS you should consider the rules as to formalities
of donation. BAR QUESTION: The son is indebted to his father 500K, the son paid 300K through a check, thereafter the father
died, the executor demanded for the payment of the balance 200K, the son claimed that the 200K was condoned by his father as
can be seen from the writing at the back of the check stating that the check is for the full payment of the debt, was there
extinguishment by condonation? U.P. LAW CENTER: the effect of the writing on the check will depend on who wrote the same,
if the son is the one who wrote the writing the obligation was not totally extinguished, if the father was the one who wrote was
there a valid condonation? Yes because this is a form of implied condonation and therefore the law does not require a particular
form nor acceptance is required, Do you agree to this? ATTY URIBE: I do not agree to this answer, I agree more to the alternative
answer that as can be seen from the facts, what could be more express than that? How express can this be? And therefore if this is
an express condonation this has to comply to the formalities of law as to donation, this is a donation of credit and therefore under
the law, if the credit is more than 5K, the condonation must be in writing and that there must be acceptance in writing, so there
was a condonation in writing, but there was no acceptance in writing, hence, there was no valid condonation. IMPLIED
CONDONATION, WHEN WILL THIS HAPPEN? If the debt is evidenced by a promissory note, and the promissory note
after having been delivered to the creditor was found in the possession of the debtor was the obligation extinguished? At
best there was only a presumption, a presumption that the promissory note was voluntarily returned to the debtor. If it is
voluntarily returned the effect is that the obligation is extinguished. Then when would the presumption arise that the
delivery was a voluntary delivery? It will only arise if the document is a private document, but if it is a public instrument, there
is no such presumption because a public document has several copies in custody of several people. At any rate, the presumption
here is only a disputable presumption. But ultimately if it was voluntarily returned to the debtor, how was the obligation
extinguished? DE LEON: Not by condonation but by payment. Thus, it was voluntarily returned because there was
payment, however, if the debtor cannot prove that payment, like for instance he does not have a receipt, maybe he can
invoke the presumption of the law that there was a condonation, but again, the presumption is disputable. LAST RULE: A
debtor of B, a ring was delivered to B as a security, ordinarily this will be a pledge, now, after the perfection of the pledge,
the thing again was found in the possession of A the debtor, is the obligation of A to B extinguished? NO! Is there a
presumption that this obligation is extinguished if there is a presumption under the law it will pertain to the pledge. If the thing to
be delivered by way of pledge is thereafter found in the possession of the debtor there may arise a presumption that it was
voluntarily delivered and therefore the pledge was extinguished. “PRESUMPTION MAY ARISE” because the presumption may
not arise, why? The law requires that after the perfection of the pledge, the thing must be found in the possession of the
owner of the thing pledged. Is the debtor necessarily the owner of the thing pledged? No because pledge may be constituted
by a third person, so if it was found in the possession of the debtor, then no presumption will arise, the presumption of voluntarily
returned if thereafter it is found in the possession of the owner of the thing pledged. Again, this presumption is disputable
presumption, because there are hundred and one reasons why the debtor would return the thing to the owner, one of the reasons
may be for safe keeping. So again it is a DISPUTABLE PRESUMPTION.
6.
CONFUSION OR MERGER OF RIGHTS – this mode can easily be understood by just imagining the merger of banks in the past few
years. Now, it is common that before the merger, one of the banks is indebted to the other banks and therefore instead of xxx the creditor may
agree to just buy the debtor bank. Obviously this is by agreement of the parties. Can there be confusion by operation of law? Yes if the
creditor for example died and the only heir is the debtor, of course the heir will inherit the credit, the heir now who is the debtor will
now become the creditor, therefore there will be a meeting in one person of the character of the debtor and creditor and therefore
the obligation will be extinguished. What if the decedent is the debtor and the heir is the creditor, will the obligation be extinguished? It
seems like it will not be extinguished because the heir will not accept the obligation. So the creditor will normally demand from the executor
payment. Can a guarantor invoke a merger or confusion? YES! But he may invoke merger and confusion as to the character of debtor and
creditor because if the principal obligation is extinguished then the guaranty will also be extinguished, the guarantors will benefit with the
confusion of the character of the principal debtor and the creditor, but if the confusion was between the guarantor and the debtor will the
principal obligation be extinguished? NO! What will happen here is that there will no longer be security because the debtor and the
guarantor will be one. CAN THERE BE A PARTIAL EXTINGUISHMENT IN CONFUSION OR MERGER? YES! By express
provision of law, in joint obligations and there was a confusion pertaining to one of the joint debtors in the person of the creditor, the
extinguishment will only be to the extent of the debt of the joint debtor. This is different of course if the obligation is solidary, if there
is confusion between the creditor and one of the solidary creditor the obligation is totally extinguished. PROBLEM: THE
OBLIGATION BECAME OVERDUE IN 1992, THE OBLIGATION IS 1M PESOS AND THERE WAS MEREGER IN 1999
BETWEEN THE DEBTOR AND THE CREDITOR, BUT JUST LIKE ANY OTHER AGREEMENT THE AGREEMENT MAY BE
RESCINDED, AND ASSUMING THAT THE CONTRACT WAS RESCINDED IN 2007, 2008 B FILED AN ACTION AGAINST
A TO RECOVER THE 1M, WHY? In rescission the effect is restitution, the parties will be reverted back to their status prior to the merger,
so as if A owes B 1M, so B files an action today against A to recover the 1M, may the action prosper? It seems that not anymore the action
already prescribed, the obligation was due in 1992 and the action was filed only in 2008, 16 years after. BUT THE SC HELD THAT IT
YES IT WILL PROSPER, THE TIME OF THE MERGER TO THE TIME OF RESCISSION SHOULD NOT BE INCLUDED IN
THE COMPUTATION OF THE PRESCRIPTIVE PERIOD. This a very good decision because creditor and the debtor are one at
that time. Therefore only 8 years has lapsed so the action has not yet prescribed.
7.
COMPENSATION – By express provision of law, compensation may be total or partial. With partial compensation may there be two
or ten debts extinguished as partial compensation? Yes, there can be two or 100 debts extinguished by compensation but it is still partial
compensation why? As long as the debts of one are not equal to the debts of the other the compensation will only be to the concurrent amount
and there will be no total extinguishment. Total extinguishment will only take place when the debts are totally equal for instance if the
debt is 1M and the other is 1M. Scenario: A owes B 100K, but B has several debts to A 2K, 1K, 5K, 20K but if you add it all up it is only
80K, with compensation, all the debts will be totally extinguished, because the extinguishment is for the concurrent amount, the 80K will be
totally extinguished, but A would still owe B 20K, why is this so important? This is important as to the liability to pay interest or as to
whether or not there can be valid foreclosure etc. EXAMPLE: A obligation to B, B has obligation to A, A’s obligation is interest bearing,
after compensation can B still collect interest can A be held liable for interest? It will depend on the amount involved, if B’s debt is
smaller may be 50K, A’s debt is 100K, can be collect interest? Not anymore because the debt will be totally extinguished, the 100K will be
reduced by 50K to the concurrent amount. On the other hand what if the 100K is secured by a mortgage after compensation may A
foreclose the mortgage? Yes! because there will still be a balance of 50K, a mortgage is an indivisible contract, until the obligation is not
extinguished the mortgage will remain in force. And therefore if B failed to pay A the fifty thousand A can still foreclose the mortgage. BAR
EXAM QUESTION: A opened a savings account with Y bank in the amount of 1M, thereafter A borrowed money from the same bank
800K, thereafter A wanted to withdraw the 1M, the bank said no you cannot withdraw the 1M because your obligation to pay the 800K is
already due we are invoking compensation, you can only withdraw 200K less the charges, A claimed you cannot do that because under 1287
there can be no compensation when one of the debts arises from a deposit. WHO IS CORRECT? The bank was correct because a savings
account deposit is not a deposit it is a contract of loan, that is why 1287 (compensation will not be proper if one of the obligations arises from
depositum) will not apply. So if both are simple loan there can be compensation. 1287 provides that there can be no compensation when 1 of
the obligations is arises from a deposit, this is known as, as some authors would name it, a facultative obligation. However, other authors
does not see this as independent obligation, this is just treated as a modification of the other kinds of compensation recognized by law which
is a facultative or conventional compensation the third one is judicial compensation the first obviously is legal compensation. Legal
compensation is considered as the xxx if the examiner does not mention any kind of compensation he is referring to LEGAL
COMPENSATION. Voluntary compensation: the consent of both parties is required. In facultative: it is only the consent of one of the
parties which is required. Judicial: this would normally happen when a case is filed for a sum of money but what would normally happen in
cases, the defendant will have counterclaim, usually the counterclaim is bigger, so in the end the plaintiff becomes liable on the premise that
the claim of plaintiff is valid and was granted and the court also granted the counterclaim it is compensated up to the concurrent amount. The
obligations which are not yet liquidated at the time of the filing of the action, they can be liquidated during the proceedings. In compensation
it is also called as set off or counterclaim but it seems that this word is proper in judicial compensation because counterclaim is usually
used in the court.
a. VOLUNTARY COMPENSATION – this is by agreement of the parties, even if not all of the requirements for legal compensation
are present it does not matter the obligations will be extinguished by agreement of the parties. For example: the debts are not yet
due and they want to compensate, what can we do? The parties already agreed. Also, probably one of the debts pertain to a carabao
and the other to a car, we cannot do anything about it. In fact in lay man’s term we call this “quits”.
b. FACULTATIVE COMPENSATION it occurs in depositum, commodatum, gratuitous support, and civil liability arising
from crime- this will arise if one of the debts arises from a depositum, in a depositum a thing is delivered to the depositary for
safekeeping, this can happen even also with a bank. If a person for example would deliver 1M pesos to the bank only for
safekeeping, this will be a DEPOSITUM What if A deposited 1M not as a savings account but in the safety deposit box, and A
borrowed 800K, now if A would want to withdraw the 1M from the safety deposit box can the bank invoke compensation? The
depositary cannot invoke compensation but the DEPOSITOR CAN! Aside from depositum, mentioned COMMODATUM
when one of the debts arises from commodatum xxx in this obligation the thing has to be returned upon demand however here,
the bailor can invoke consignation but not the bailee. SUPPORT should be gratuitous support and not contractual support
why? if this is legal support, a person needs this to survive thus, it cannot be subject to compensation. But if it is support in arrears
compensation may take place. CIVIL LIABILITY ARISING FROM CRIME – probably the scenario here is A is indebted to
B 100K when B tried to collect A cannot be so he stabbed A, so B was held criminally liable, then there was a monetary award,
what if the award to A is 120K, if A demands for 100K from B can B invoke compensation? NO! The convict cannot invoke
compensation but the aggrieved party can invoke compensation.
c.
LEGAL COMPENSATION, THIS IS BY OPERATION BY LAW – From the moment all the essential requisites are present
compensation takes place even without the knowledge of the parties, even before they invoke compensation . SCENARIO: A
owes B due 1992, B owes A due in 1999, possible that it’s both 1M based on different transaction, A filed an action against B the
defense of B is compensation, however, A may claim that no you cannot invoke compensation because you credit has already
prescribed since my debt has become due in 1992 is A correct? NO!!! in 1999 even without their knowledge when the debts
become due and demandable compensation took place. REQUIREMENTS OF LEGAL COMPENSATION:
i. THEY MUST BE MUTUAL CREDITORS AND DEBTORS - but if you have read one case and a few authors
would consider this instead of mutual they would use reciprocal creditors ATTY. URIBE: I would not encourage
you to use reciprocal creditors, if reciprocal debtors and creditors it will imply reciprocal obligations, if it is reciprocal
obligations then this obligations arose from the same transactions if this is the case one of the requisites for legal
compensation to take place will never be complied with. CASE: Francia vs. IAC was there legal compensation?
NONE because in the case Francia was indebted to the city government of pasay because of xxx however, Francia was
invoking legal compensation because he was the creditor of an expropriation proceedings, it just so happen that the city
government did not expropriate his property the national government did since the requirement no. 1 is not present
there is no legal compensation. CASE: PNB v. ACERO: PNB was debtor of Isabela, this is simple loan, so PNB owed
Isabela, however ACERO was the judgment debtor of isabela who wants to have the savings of Isabela garnished,
however PNB claimed that they invoked compensation because Isabela was also their debtor, who is correct? No claim
is correct, although PNB is the debtor of Isabela, there was no proof that Isabela is the debtor of PNB.
ii. BOTH DEBTS MUST BE IN SUMS OF MONEY OR IF THEY PERTAIN TO GOODS THEY MUST BE OF
THE SAME KIND AND QUALITY – in other words may the obligations be both in sums of money if they are
reciprocal obligations? It cannot happen. In reciprocal obligations there are different prestations one is delivery
and the other monetary, it can never be both sums of money. Reading several cases it might appear that this
compensation may occur only when the obligation arise from contracts, is this correct, will there be legal
compensation only if the debt in money arose from contract? NOT TRUE! Even if the obligation arose from other
sources there can be compensation. In fact if you read the CASES: Mindanao Portland xxx in these two cases the
amounts which are the subject of compensation were attorney’s fees, these fees did not arise from contract. Mindanao
Portland is unlikely, company A filed a case against company B, one of them won and the court awarded attorney’s
fees, in another case the other company won and attorney’s fees were also awarded, so the award is of the same
amount, the obligation is of the same nature, COMPENSATION TOOK PLACE. Ultimately the QUESTION
HERE IS: Does it mean that all monetary obligations may be the subject of legal compensation? No! If you have
iii.
iv.
v.
vi.
vii.
d.
read the case of Francia v. IAC certain monetary obligations cannot be subject of legal compensation like payment of
taxes, customs duties, tariff etc.
BOTH PARTIES MUST BE PRINCIPALLY BOUND – Principally bound because in a scenario where A is
indebted to B and this obligation is secured by a guarantor G on the other hand B is the debtor of G in this obligation,
if G demands payment from G Can he claim that G is also indebted to him because he is a guarantor in B’s
obligation to A? In its face NO, because the guarantor is not principally bound but take note the moment A
defaults and his properties are already exhausted, the GUARANTOR WILL NOW BE LIABLE TO B AND
FROM THEN ON COMPENSATION WILL TAKE PLACE.
THEY MUST BE CREDITORS AND DEBTORS OF EACH OTHER IN THEIR OWN RIGHT: SYCIP v. CA:
the owner of the shares of stocks authorized Lapuz to sell the shares of stock, lapuz on then authorized Sycip to sell the
shares of stock, the latter was able to sell the shares of stock (5K), however, despite the demand to Sycip to remit the
proceeds of the sale he refused to do so. A complaint for estafa was filed against Sycip, he was convicted in the lower
court, on appeal Sycip claimed that Lapuz owed him (5K) so compensation took place, therefore he cannot be liable
for estafa, is Sycip’s contention correct? NO, even assuming that Lapuz is indebted to Sycip, the latter is really
not indebted to Lapuz in his own right. The real creditor of Lapuz is the buyer of the shares.
BOTH DEBTS MUST ALREADY BE DUE AND DEMANDABLE – The MOST COMMON MISTAKE WHEN
ASKED WHY IS THERE NO LEGAL COMPENSATION IS BECAUSE THE OBLIGAITON HAS NOT YET
BECOME DUE AT THE SAME TIME. REMEMBER: the requirement of the law is that both debts are due and
it is not required that the debts are due at the same time. But if one debt became due 3 years ago and the other debt
became due today, compensation will only take place today, but there can be compensation. ANOTHER COMMON
MISTAKE: EXAMPLE: A borrowed money, the other one bought on credit, so they are debtors and creditors of
each other, however, they say that there can be no legal compensation because the obligations do not pertain to
sums of money, one is money the other one car. HERE THE OBLIGATION OF THE BUYER IS TO PAY THE
PRICE SO IT IS ALSO MONETARY LEGAL COMPENSATION WILL TAKE PLACE.
THE DEBTS MUST BE LIQUIDATED AND DEMANDABLE – In other words there should be no claim by a third
person over this right or credit, because if the claim is subject of legal proceeding, there can be no legal compensation.
Example: International Corporate Bank v. IAC: Fajardo borrowed money from ICB 50M the bank released only
20M to secure this obligation, Fajardo mortgaged properties amounting to 110M, thereafter she also delivered 1M to
the bank for money market investment, so just like any other investments it matured, so she demanded for the return of
the 1M, the bank claimed that she has nothing to recover from the bank because as to her loan which she failed to pay,
when the foreclosed the mortgage she still has deficiency of 6M, so compensation took place, however Fajardo
questioned the mortgage the SC HELD: there can be no legal compensation because one of the claims is still being
litigated.
ONE OF THE DEBTS MUST NOT ARISE FROM 1287 AND 1288 Because in such cases legal compensation will
not take place since in depositum the depositor or the bailor must invoke legal compensation.
EFFECT OF ASSIGNMENT OF A CREDIT AS TO THE RIGHT TO INVOKE COMPENSATION – Scenario: A was
indebted to B 50K, 30K, and 20K, B on the other hand is indebted to A 100K, A assigned his credit to X, X demanded payment
from B, how much can X demand from B? Questions on assignment the first thing to look at is the DATE OF ASSIGNMENT!
If the date of assignment took place long after the deed of assignment took place, For example: 50K June 15, 2002, 30K
Oct. 15, 2002, 20K Dec. 15 2002, the 100K due November 15, 2002, if the assignment was made, Jan. 15, 2003, how much
can X demand from B? 10,000 Pesos only as of Dec. 15, 2002, compensation took place as to the extent of 90K pesos.
PROBLEM: Let us assume the 100K obligation became due on November 15, 2002, this obligation may be assigned even in
March of the same year, so it was assigned in March 2002, if the demand was made Oct. 1, 2002, how much can X demand
from B? NONE!!! Because the obligation is not yet due! PROBLEM: Due date, November 15, 2002, assignment July 2002,
as of November 15, the X demanded from B, how much can B be compelled to pay? The first factor you have to consider:
WHETHER THE ASSIGNMENT WAS WITH THE KNOWLEDGE OF B OR WITHOUT KNOWLEDGE: IF WITH
KNOWLEDGE, YOU HAVE TO DETERMINE WHETHER OR NOT THERE WAS CONSENT TO THE ASSIGMENT
OR NONE: IF CONSENT IS GIVEN, YOU HAVE TO DETERMINE WHETHER OR NOT HE MADE A
RESERVATION OR NO RESERVATION: (so the scenario here is A and X advised B that A is assigning the credit to X, B
consented but he reserved his right to invoke compensation) IF B RESERVED, HOW MUCH CAN X COLLECT FROM B?
ONLY 50K BECAUSE AS OF THE DATE OF THE ASSIGNMENT WHICH WAS WITH THE KNOWLEDGE OF B, THE
DEBT IN JUNE 15 IS ALREADY DUE, AS TO DEBTS OWING TO B WHICH ARE ALREADY DUE HE CAN INVOKE
COMPENSATION OR AT LEAST RESERVE COMPENSAITON BECAUSE COMPENSATION WILL TAKE PLACE ONLY
NOV. 15, SO AS TO 30K AND 10K B CANNOT INVOKE COMPENSATION, AT THE TIME OF ASSIGNMENT JULY 15,
THE CREDITS ARE NOT YET DUE TO HIM. NO RESERVATION HOW MUCH CAN X DEMAND FROM B? 100K
BECAUSE BY AGREEING WITHOUT RESERVATION HE WAIVED HIS RIGHT TO COMPENSATION, B’S REMEDY
HERE IS TO DEMAND THE PAYMENT OF THE DEBTS FROM A. WITHOUT KNOWLEDGE: X demanded from B in
December, how much can B be compelled to pay? 10K he can invoke compensation to those debts which became due if the
assignment is without his knowledge.