Regulatory Framework for Business Transactions
Law on Obligations
Law ‐ Sanchez Roman, a Spanish lawyer and commentator, defines law as “a
rule of conduct, just, obligatory, promulgated by competent authority for the
common good of people or nation, which constitutes an obligatory rule of
conduct for all its members.”
General Principles
1. Civil Obligation ‐ Obligation is a juridical necessity to give, to do, or not to
do. This refers to civil obligation which can be enforced in courts of law,
based on positive law, and gives a right of action to compel their
performance.
2. Obligations with no juridical necessity
a.
Moral Obligation ‐ refers to a duty that a person feels they should do
based on their conscience and good conduct recognized by
community or society. It is a sense of responsibility to do what is
right, even if there is no legal requirement to do so.
b. Divine Obligation ‐ refers to obligation imposed in religious teachings
(i.e, ten commandments).
c.
Natural Obligation
3. Requisites of an obligation (APOL)
a.
Active subject/Obligee/Creditor ‐ the person who has the right.
b. Passive subject/Obligor/Debtor ‐ the person who has the obligation.
c.
Prestation/Object ‐ the subject matter of the obligation. It consists of
the act of giving, doing or not doing.
Example: A obliged to construct a house. To construct (to do) is the
prestation while house is the object.
d. Juridical/Legal tie/Efficient cause/Vinculum juris ‐ the source of
obligation that binds the parties.
4. Sources of obligation
a.
Law
b. Contract
c.
Quasi‐contract
d. Quasi delict
e.
Acts or omissions punished by law/delict
5. Legal Obligation ‐ Obligations arising from law are not presumed. Only
those expressly determined in the Civil Code or in special laws are
demandable. Examples of legal obligation are obligation to pay taxes and
to give support.
6. Contractual Obligation ‐ Obligations from contracts have the force of law
between contracting parties and should be complied with in good faith.
7. Extra‐contractual Obligations
a.
Quasi‐contract
b. Quasi‐delict
8. Quasi‐contract
a.
Concept ‐ Those juridical relations arising from lawful, voluntary and
unilateral acts, based on the principle that no one shall be unjustly
enriched or benefited at the expense of another.
b. Kinds of Quasi‐contract
1) Negotiorum gestio (undue management)
2) Solutio indebiti (payment/delivery by mistake)
3) Other quasi‐contracts
c.
Negotiorum gestio (undue management) ‐ 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:
1) When the property or business is not neglected or abandoned;
NOTE: Rules on unauthorized contract/unenforceable contract
will govern.
2) If in fact the manager has been tacitly authorized by the owner.
NOTE: Law on agency will apply in this case.
d. Solutio indebiti (payment/delivery by mistake) ‐ Arises when a
person unduly delivers a thing through mistake to another who has
no right to demand it.
NOTE: It is presumed that there was a mistake in the payment if
something which had never been due or had already been paid was
delivered; but he from whom the return is claimed may prove that
the delivery was made out of liberality or for any other just cause.
A. Sanchez
e.
Examples of Other quasi‐contracts:
1) Support given by a stranger, without the knowledge of the
person obliged to give support.
2) Treatment or help to a person involved in an accident or
becomes seriously ill while he is not in a condition to give
consent to a contract.
3) Just compensation for property saved from destruction during
fire, flood, storm, or other calamity.
9. Principle of Unjust Enrichment
a.
Concept ‐ Every person who through an act of performance by
another, or any other means, acquires or comes into possession of
something at the expense of the latter without just or legal ground,
shall return the same to him. The action contemplated here is accion
in rem verso which is an action to recover what has been paid
without just cause.
b. Solutio Indebiti vs Accion in Rem Verso
Solutio Indebiti
Accion in Rem Verso
Mistake is an essential
Mistake is not required.
requisite.
Source of obligation is quasi‐
Source of obligation is law.
contract.
Main or principal action.
Merely an auxiliary action,
available only when there is no
other remedy on contract,
quasi‐contract, crime, and
quasi‐delict.
c.
Injury without Fault ‐ Even when an act or event causing damage to
another's property was not due to the fault or negligence of the
defendant, the latter shall be liable for indemnity if through the act
or event he was benefited.
10. Principle of Abuse of Right ‐ 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.
NOTE: Every person who, contrary to law, willfully or negligently causes
damage to another, shall indemnify the latter for the same.
11. Contra Bonos Mores ‐ Any person who willfully causes loss or injury to
another in manner that is contrary to morals, good customs or public
policy shall compensate the latter for the damage.
12. Quasi‐delict/tort /culpa aquiliana
a.
Concept ‐ Those acts or omissions that cause damage to another,
there being fault or negligence but without pre‐existing contractual
relation between the parties.
b. Elements of Quasi‐delict
1) An act or omission;
2) The presence of fault or negligence in the performance or non‐
performance of the act;
3) Injury;
4) A causal connection between the negligent act and the injury
(proximate causation); and
5) No pre‐existing contractual relation.
NOTE: This is not absolute requirement. A party in a contract
can still sue under quasi‐delict if the act or omission causing
injury is tortious/wrongful.
c.
Defense available to the defendant ‐ exercise of proper diligence.
d. Vicarious liability or Second‐hand liability ‐ The obligation imposed
in quasi‐delict is demandable not only for one's own acts or
omissions, but also for those of persons for whom one is responsible.
1) The father and the mother are responsible for the damages
caused by the minor children who live in their company.
2) Guardians are liable for damages caused by the minors or
incapacitated persons who are under their authority and live in
their company.
3) The owners and managers of an establishment or enterprise
are likewise responsible for damages caused by their
employees in the service of the branches in which the latter are
employed or on the occasion of their functions.
4) Employers shall be liable for the damages caused by their
employees and household helpers acting within the scope of
their assigned tasks, even though the former are not engaged
in any business or industry.
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Law on Obligations
The State is responsible in like manner when it acts through a
special agent; but not when the damage has been caused by
the official to whom the task done properly pertains.
6) Teachers or heads of establishments of arts and trades shall be
liable for damages caused by their pupils and students or
apprentices, so long as they remain in their custody.
e.
Res Ipsa loquitur (the thing speaks for itself) ‐ It is the rule that the
fact of the occurrence of an injury, taken with the surrounding
circumstances, may permit an inference or raise a presumption of
negligence, or make out a plaintiff’s prima facie case, and present a
question of fact for defendant to meet with an explanation.
The requisite for the application of Res Ipsa Loquitur are:
1) The occurrence of an injury;
2) The thing which caused the injury was under the control and
management of the defendant;
NOTE: This is the most important requisite.
3) The occurrence was such that in the ordinary course of things,
would not have happened if those who had control or
management used proper care; and
4) The absence of explanation by the defendant.
f.
Strict Tort Liability or Absolute Liability or Liability without Fault
1) Against possessor of animal
2) Against manufacturers and processors
3) Against LGUs
4) Against building owner
5) Against engineers and architects
13. Acts or omissions punished by law/delict
a.
Civil aspect of a crime ‐ Generally, persons who are criminally liable
are also civilly liable. Civil obligations arising from crimes are as
follows:
1) Restitution
2) Reparation of damages caused
3) Indemnification of consequential damages
b. Same act resulting to both quasi‐delict and delict ‐ Responsibility for
fault or negligence under quasi‐delict 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.
NOTE: Quasi‐delict is only a civil case.
c.
Burden of proof ‐ is the duty of a party to present evidence on the
facts in issue necessary to establish his claim or defense by the
amount of evidence required by law. In criminal liability, the burden
of proof is guilt beyond reasonable doubt while in civil obligation,
mere preponderance of evidence (greater weight of evidence) is
sufficient.
NOTE: Beyond reasonable doubt requires moral certainty only (not
absolute certainty), or that degree of proof which produces
conviction in an unprejudiced mind.
14. Natural Obligation
a. Concept ‐ Not enforceable in courts, based on equity and natural
law. Do not grant a right of action to enforce their performance.
Arise from equity and moral justice such that if the debtor
voluntarily performs it, he can no longer recover what he has given.
b. Examples of natural obligations
1) Payment of prescribed debt.
NOTE: Obligation based on (a) oral contract prescribes in 6
years; (b) written contract in 10 years; (c) quasi‐contract or
quasi delict in 4 years.
2) Reimbursement of a third person for a debt that has
prescribed.
3) Payment of predecessor’s debt beyond the value of inheritance
received.
4) Payment of legacy after will have been declared void.
5) Performance after action to enforce civil obligation has failed.
15. Civil Obligation vs Other Obligations
a.
Divine and Moral obligations have no juridical tie.
b. Natural obligations used to have juridical tie but lost its effectivity
due to equitable reasons.
c.
Civil obligations have legal and enforceable juridical tie.
1)
5)
Nature and Effect of Obligation
16. Kinds of obligation as to prestation
a.
Real Obligation ‐ obligation to give
17.
18.
19.
20.
Specific or determinate ‐ particularly designated or physically
segregated from all others of the same class (i.e, Toyota Vios
with plate number ABC123; the dog named bantay).
2) Generic or indeterminate ‐ not particularly segregated (i.e,
2022 red Toyota Vios; payment of P10,000.00).
3) Limited generic or determinable ‐ (i.e, one of his houses)
b. Personal Obligation ‐ obligation to do/ not to do
1) Positive Personal Obligation ‐ performance of an act.
2) Negative Personal Obligation‐ forbearance of action (i.e, non‐
disclosure agreement).
Obligations of debtor in obligation to give SPECIFIC thing
a.
To take good care of the thing with the Diligence of a Good Father of
a Family (DGFF) UNLESS the law or agreement of parties requires
another standard of care (i.e, in common carrier, the law requires
extra‐ordinary diligence).
NOTE: DGFF is the ordinary diligence of an average person.
b. To deliver the thing and its fruits
1) Kinds of fruits
a) Natural ‐ spontaneous products of the soil, the young and
other products of animals.
b) Industrial ‐ Those produced by lands of any kind through
cultivation and labor.
c)
Civil ‐ Rent of buildings, price of leases of lands, and
others (i.e, interest and dividends).
2) The creditor has the right to the fruits from the time the
obligation to deliver it arises. When the obligation is pure (no
condition nor period), the obligation to deliver arises from the
perfection of the contract. But if the obligation is subject to
suspensive condition or suspensive period, the obligation to
deliver arises from the fulfillment of the condition or arrival of
the period.
NOTE: In contract of sale, the buyer is entitled to the fruits
from the perfection of the contract if the buyer ALREADY PAID
the purchase price, unless there is contrary stipulation.
3) The Creditor (CR) shall acquire no real right (meaning, only
personal right) over it until the thing has been delivered to him.
Personal Right (jus in
Real Right (jus in re)
personam or jus ad rem)
After the time the
Upon actual delivery
obligation to deliver arises
but BEFORE actual delivery
Right enforceable against a
Right enforceable against
definite passive subject (i.e,
the whole world (i.e,
right to compel the debtor)
ownership; possession, real
mortgage, usufruct)
c.
To deliver its accessions and accessories
1) Accessions ‐ include everything that is produced by a thing or is
incorporated or attached thereto either naturally or artificially.
a) Accession Discreta ‐ the right pertaining to the owner of a
thing over everything that is produced by a thing (i.e,
fruits).
b) Accession Continua ‐ the right pertaining to the owner of
a thing over everything that is incorporated or attached
thereto either naturally or artificially.
2) Accessories ‐ those joined to or included with the principal for
the latter’s better use, perfection or enjoyment. Necessary for
its ordinary use (i.e, charger of a cellphone, key of a car).
d. To be liable for damages in cases of breach of the obligation by
reason of delay, fraud, negligence or contravention of the tenor
thereof.
Obligations of debtor in obligation to give GENERIC thing
a.
To deliver the thing which is neither of superior nor inferior in
quality.
b. To be liable for damages in cases of breach.
Rights of creditor in obligation to give SPECIFIC thing
a.
To COMPEL specific performance ‐ the object in this obligation is
unique, hence the debtor can be compelled.
b. To demand damages exclusive or in addition to a specific
performance in case of breach.
c.
To be entitled to fruits or interest from the time the obligation to
deliver arises.
Rights of creditor in obligation to give GENERIC thing
a.
To ASK for specific performance of obligation ‐ the object in this
obligation is generic, hence substituted performance by another
person is possible.
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Law on Obligations
b.
21.
22.
23.
24.
25.
26.
To ask that the obligation be complied with at the expense of the
debtor.
c.
To demand damages in case of breach.
Rights of creditor in personal POSITIVE obligation
a.
To ASK specific performance.
NOTE: The creditor cannot compel the debtor to perform an act
against the latter’s will because of the constitutional right against
involuntary servitude. However, ministerial acts in some cases may
be compelled thru Petition for Mandamus.
b. To have the obligation performed or executed at the expense of the
obligor unless the service is the compelling reason of the creditor for
entering the contract.
c.
To ask that what has been poorly done be undone.
d. Recover damages because of breach of the obligation.
Rights of creditor in personal NEGATIVE obligation
a.
To have the obligation undone at the expense of the obligor.
b. To ask damages.
Breach of obligations
a.
Voluntary ‐ debtor is liable for damages
1) Default (mora)
2) Fraud (dolo)
3) Negligence (culpa)
4) Contravention of the tenor of obligation
b. Involuntary ‐ debtor is unable to comply with his obligation because
of fortuitous event. As a general rule, debtor is not liable for damages.
Damage vs Damages
a.
Concept ‐ Damage refers to the injury sustained or harm done, while
damages refer to money to be recovered.
b. Kinds of damages: (MENTAL)
1) Moral damages ‐ includes physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation and similar injury.
2) Exemplary or corrective damages ‐ imposed to set an example
or correction for the public good.
3) Nominal damages ‐ vindication or recognition of plaintiff’s
rights. Not for the purpose of indemnifying the plaintiff for any
loss suffered by him.
4) Temperate or moderate damages ‐ more than nominal but less
than compensatory.
5) Actual or compensatory damages ‐ actual pecuniary loss (i.e,
value of the thing, loss of earning capacity).
6) Liquidated damages ‐ those agreed upon by the parties.
Default or delay or mora
a.
Concept ‐ non‐fulfillment of the obligation within the time
prescribed.
b. GR: When there is no demand (either judicial or extra‐judicial), there
is no delay. Ratio: the creditor gives grace period to the debtor.
Exceptions: (LOTU)
1) When the Law so provides
2) When the Obligation expressly so declares
3) When Time is of the essence ‐ debtor is aware of the purpose
of the creditor.
4) When demand would be Useless (i.e, the thing lost due to his
fault or delivered to another person)
c.
Kinds of delay
1) Mora solvendi ‐ delay on the part of debtor.
a) Mora solvendi ex re ‐ delay in real obligation.
b) Mora solvendi ex persona ‐ delay in positive personal
obligation.
2) Mora accipiendi ‐ delay on the part of creditor.
3) Compensatio morae ‐ delay of one party in reciprocal.
obligation begins when the other party is ready to perform his
obligation.
NOTE: There is no delay in negative personal obligation.
Fraud or Dolo
a.
Concept ‐ deliberate or intentional evasion by the debtor of the
normal compliance of his obligation.
b. Kinds of fraud:
1) Causal fraud/dolo causante ‐ fraud in the perfection of
contract; necessary to obtain consent. Contract is voidable and
a ground for annulment of contract.
2) Incidental fraud in the execution ‐ Committed after perfection
of contract and during the execution. Liable for damages.
c.
Comparison:
Incidental fraud (Dolo Incidente)
Present during the performance
of a pre‐existing obligation
Purpose is to evade the normal
fulfillment of the obligation.
27.
28.
29.
30.
31.
Causal fraud (Dolo Causante)
Present during the time of birth
of the obligation.
Purpose is to secure the consent
of the other to enter into a
contract.
Result in the vitiation of consent.
Result is non‐fulfillment or
breach of the obligation.
Gives rise to a right of the
Gives rise to a right of an
creditor to recover damages
innocent party to annul the
from the debtor.
contract.
d. Waiver of future fraud is VOID but waiver of past fraud is VALID.
Negligence or Culpa
a.
Concept ‐ omission of diligence required; lack of precaution;
deficiency of perception; failure in advertence.
b. Kinds of negligence:
1) Culpa acquiliana/civil negligence/quasi‐delict ‐ Master‐servant
rule will not apply. The act of the employee (agent) is not the
act of the employer (principal). Exercise of DGFF is a valid
defense. Please see rules in quasi‐delict (i.e, damage, fault, no‐
pre‐existing contractual relation).
2) Culpa contractual/contractual negligence ‐ Master‐servant rule
will apply. The negligence of the employee is the negligence of
the employer. The employer cannot set up the defense of
exercising DGFF. Proof of negligence is not needed. Mere
breach of contract is enough to claim damages.
3) Culpa criminal/criminal negligence ‐ mode of committing crime.
NOTE: A party may recover damages either from quai‐delict or
delict but not both.
c.
Waiver of past or future negligence is VALID.
Fortuitous event
a.
Concept ‐ events that could not be foreseen, or which though
foreseen, are inevitable.
b. Elements:
1) The cause must be independent of the debtor’s will.
2) There must be impossibility of foreseeing the event or of
avoiding it even if it can be foreseen.
3) The occurrence of the event must be of such character as to
render it impossible for the debtor to perform his obligation in
a normal manner.
c.
GR: No one shall be liable for fortuitous events.
Exceptions: (GLAD‐CPA)
1) When the Law expressly provides.
2) Agreement of the parties.
3) The nature of the obligation requires Assumption of risk.
4) When the thing lost is Generic.
5) When the obligor is in Default or has Promised to deliver the
same thing to different person.
6) When the obligation proceeds from a Criminal offense (unless
the CR refused to receive it without just cause).
Presumption
a.
Kinds of presumption:
1) Conclusive ‐ always true (i.e, CGT on capital real property,
ignorance of the law excuses no one, delivery of complete NI in
the hands of HDC).
2) Rebuttable/disputable/prima facie ‐ May be rebutted by the
presentation of evidence.
b. The receipt of the principal without reservation as to interest shall
give rise to the (rebuttable) presumption that the interest has been
paid.
c.
The receipt of a later installment without reservation as to prior
installments, shall give rise to the (rebuttable) presumption that such
prior installments have been paid.
Remedies of creditor in case of breach
a.
Exhaustion of debtor’s property (i.e, attachment and garnishment).
b. Accion subrogatoria ‐ to be subrogated to all the rights and actions
of the debtor save those which are inherent in his person (i.e,
receivables of the judgment debtor may be directed to be paid to
judgment creditor).
c.
Accion pauliana ‐ impugn all the acts which the debtor may have
done to defraud them (i.e, rescissible contract).
NOTE: Second and third remedies are subsidiary to the first.
Transmissibility of rights
a.
GR: Rights acquired by virtue of an obligation are transmissible in
character.
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Law on Obligations
b.
Exceptions:
1) When they are not transmissible by their very nature, (e.g.,
purely personal right like being a partner)
2) When there is a stipulation of the parties that they are not
transmissible.
3) Not transmissible by operation of law (i.e, right to public office,
interest in non‐life insurance).
Kinds of obligations
32. Pure vs Conditional Obligation
a.
Pure obligation ‐ one without a term or condition and is demandable
at once.
b. Conditional obligation ‐ one whose efficacy (suspensive condition)
or extinguishment (resolutory condition) depends upon the
happening of a condition.
c.
Classification of Condition
1) Suspensive (condition antecedent /precedent) and resolutory
(condition subsequent)
2) Potestative, casual and mixed
3) Possible and impossible
4) Positive and negative
5) Divisible and indivisible
d. Suspensive and Resolutory Condition
1) Suspensive condition ‐ fulfillment of the condition results in the
acquisition of rights arising out of the obligation.
2) Resolutory ‐ fulfillment of the condition results in the
extinguishment of right arising out of the obligation.
e. Rules if there is period of time for the fulfillment of condition
1) 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.
2) 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.
3) 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.
f.
Effects of suspensive condition
1) Before fulfillment of the condition, the demandability as well as
the acquisition or effectivity of the rights arising from the
obligation is suspended.
2) After the fulfillment of the condition, the obligation arises or
becomes effective.
3) 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.
4) When the obligation imposes reciprocal prestations upon the
parties, the fruits and interests shall be deemed to have been
mutually compensated.
5) If the obligation is unilateral (i.e, donation), the debtor shall
appropriate the fruits and interests received, unless from the
nature and circumstances it should be inferred that the
intention of the persons constituting the same was different.
6) In obligations to do and not to do, the courts shall determine,
in each case, the retroactive effect of the condition that has
been complied with.
g.
Constructive Fulfillment of Suspensive Condition ‐ The condition
shall be deemed fulfilled when the obligor prevents its fulfillment.
h. Effects of resolutory condition
1) Before the fulfillment of the condition, the right which the
creditor has already acquired by virtue of the obligation is
subject to a threat of extinction.
2) Upon the fulfillment of the condition, the parties shall return to
each other what they received.
i.
Rights of parties before fulfillment of condition
1) CR ‐ Bring appropriate actions to preserve his right.
2) DR ‐ Recover what he has paid by mistake (solution indebiti).
Exercise all rights of ownership hence the DR may sell the
object but the vendee’s ownership is subject to condition.
j.
Rules in case of improvement, loss or deterioration of the thing
during the pendency of the condition
Scenario before fulfillment
Effect to obligation
Loss of the thing w/out DR fault
Extinguished
Loss of the thing w/ DR fault
DR liable for damages
Deteriorate w/out DR fault
Impairment will be borne by
CR
Deteriorate w/ DR fault
CR may choose either (1)
rescission with damages or
(2) specific performance with
damages
Improvement by nature/time
Benefit will inure to the CR
Improvement thru DR expense
DR will have the right of
usufructuary
NOTE: The rules above also apply to obligation with a period.
k.
Potestative, Casual and Mixed Condition
1) Potestative ‐ fulfillment of the condition depends upon the will
of a party to the obligation.
NOTE: If the fulfillment of a Suspensive Potestative condition
depends upon the will of the debtor, the condition as well the
obligation itself is void.
2) Casual ‐ fulfillment of the condition depends upon chance
and/or upon the will of a third person.
3) Mixed‐ fulfillment of the condition depends partly upon chance
and/or the will of a person.
l.
Possible and Impossible Condition
1) Possible ‐ condition is susceptible of happening.
2) Impossible ‐ condition is not susceptible of happening or
against Law, Morals, Good Custom, Public Order and Public
Policy.
3) GR: In impossible obligation, the obligation as well as the
condition is void.
Exceptions: the obligation is still valid and only the condition is
void in the following cases:
a.
Pre‐existing obligation
b. If obligation is divisible
c.
In case of condition not to do an impossible thing
m. Positive and Negative Condition
1) Positive ‐ condition involves the performance of an act.
2) Negative‐ condition involves the omission of an act.
NOTE: IMPOSSIBLE NEGATIVE CONDITION will be disregarded
as if there was no condition.
n. Divisible and Indivisible Condition
1) Divisible ‐ condition capable of partial fulfillment
2) Indivisible ‐ condition not capable of partial fulfillment
33. Reciprocal Obligations
a.
Concept ‐ Those which arise from the same cause, and which result
to mutual relationships of creditor and debtor between the parties
(i.e, contract of sale).
b. Remedies of injured party in case of non‐performance:
1) Specific performance with damages; or
2) Rescission/Resolution (cancellation) with damages
NOTE: The remedy of rescission and fulfillment are alternative,
not cumulative. Rescission will be ordered only where the
breach is substantial as to defeat the object of the parties in
entering into the agreement.
3) GR: The right to rescind needs judicial approval.
Exceptions:
a) If there is an express stipulation of automatic rescission.
b) When the DR voluntarily returned the thing.
34. Obligation with a period
a.
Concept ‐ Those whose demandability (suspensive period) or
extinguishment (resolutory period) is subject to the expiration or
lapse of a term or period or a day certain. A day certain must
necessarily come although it may not be known when.
b. Kinds of period
1) Suspensive (Ex die) ‐ obligation will arise upon the arrival of the
period.
2) Resolutory (In diem) ‐ obligation will be extinguished upon the
arrival of the period.
3) Legal ‐ period fixed by law.
4) Voluntary ‐ period agreed by the parties.
5) Judicial ‐ period fixed by the court (see below).
6) Definite ‐ period with exact date.
7) Indefinite ‐ period without exact date (i.e, when Mr. X dies or
when DR’s means permit him to do so).
c.
Benefit of the period
GR: Period is established for the benefit of BOTH CR and DR.
Exception: When it appears from the tenor of the period or other
circumstances that it is established in favor of one or the other.
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d.
When the court may fix the period
1) If the obligation does not fix a period, but from its nature and
circumstances it can be inferred that a period was intended by
the parties but failed to do so.
2) If the duration of the period depends upon the sole will of the
debtor. Potestative suspensive period is VALID. (i.e, if the
debtor binds himself when his means permit him to do so).
e. When debtor loses right to make use of the period (IFIVA)
1) When after the obligation has been contracted, he become
Insolvent, unless he gives guaranties or securities for the debt
(the insolvency need not be judicially declared).
2) When he does not Furnish to the CR the guaranties or
securities he promised.
3) When by his own act he has Impaired said guaranties or
securities after their establishment, and when through
fortuitous event they disappear, unless he gives new ones
equally satisfactory.
4) When DR Violates any undertaking, in consideration of which
the creditor agreed to the period (i.e, acceleration clause)
5) When the DR attempts to Abscond.
f.
Obligations demandable at one
1) Pure obligation
2) Obligation subject to resolutory condition
3) Obligation with resolutory period
4) Obligation with impossible negative condition
g.
Condition vs Period
Condition
Period
Future event or unknown past
Interval of time which is always
event
future
May or may not come
Must necessarily come although it
may not be known when
Has retroactive effect
Does not have any retroactive
effect unless there is an agreement
to the contrary
When it is left exclusively to the
When it is left exclusively to the
will of the DR, the existence of
will of the debtor, the existence of
the obligation is affected.
the obligation is not affected.
(Potestative suspensive
(Potestative suspensive period is
condition is VOID)
VALID)
35. Kinds of obligations as to the number of prestations
a.
Simple ‐ there is only one prestation to be delivered or performed.
b. Conjuctive ‐ there are several prestations and all of them can be
performed separately.
c.
Disjunctive Obligation ‐ only one of the several prestations can be
performed.
1) Alternative
2) Facultative
36. Alternative Obligatopn
a.
Concept ‐ Alternative obligation is one where several prestations are
due but the complete performance of one of them is sufficient to
extinguish the obligation.
b. Right of choice ‐ belongs to debtor unless it has been expressly given
to the creditor.
c.
When alternative obligation become simple:
1) When the debtor communicated his choice.
2) When only one prestation is practicable.
3) When the creditor communicated his choice when he has the
right of choice.
d. Rules in case of loss of the thing in alternative obligation
1) Debtor has the right of choice:
a) If all are lost due to fortuitous event ‐ obligation
extinguished.
b) If some but not all lost due to fortuitous event or debtor’s
fault ‐ deliver any of the remainder.
c)
If all are lost due to debtor’s fault ‐ liable for the value of
the last thing lost plus damages.
2) Creditor has the right of choice:
a) If all are lost due to fortuitous event ‐ obligation
extinguished.
b) If some but not all lost due to fortuitous event ‐ deliver
that which the creditor should choose from any of the
remainder.
c)
If some but not all lost due to debtor’s fault ‐ creditor
may choose from any of the remainder; or the price of
the thing lost plus damages.
d)
If all are lost due to debtor’s fault ‐ creditor may claim the
price of any of the thing lost plus damages.
37. Facultative Obligation
a.
Concept ‐ one where only one prestation is due but the debtor may
render another in substitution.
b. Right of choice ‐ belongs to debtor only.
c.
Rules in case of loss of the thing in facultative obligation
1) Before substitution
a) Loss of the principal thing due to fortuitous event ‐
obligation extinguished.
b) Loss of the principal thing due to debtor’s fault ‐ liable for
damages.
c)
Loss of the substitute thing whether due to fortuitous
event or debtor’s fault ‐ no additional obligation.
2) After substitution
a) Loss of the substitute thing due to fortuitous event ‐
obligation extinguished.
b) Loss of the substitute thing due to debtor’s fault ‐ liable
for damages.
c)
Loss of the principal thing whether due to fortuitous
event or debtor’s fault ‐ no additional obligation.
d. Alternative vs Facultative Obligation:
Alternative
Facultative
Several objects or prestations
Only one object or prestation
are due but may be complied
is due but it may be
with by the delivery of only
substituted by the delivery of
one of them
another object
Right of choice belongs to DR
Right of choice belongs only to
unless expressly given to CR
DR
If all prestations are impossible If the principal object is
or illegal, obligation is
impossible or illegal, the DR is
extinguished but if one is still
not required to deliver the
possible, the DR is required to
substitute
deliver that possible object
38. Kinds of obligations as to the number of subjects
a.
Solidary Obligation
b. Joint Obligation
39. Joint and Solidary Obligation
a.
Joint obligation ‐ each debtor is liable (each creditor is entitled) only
for a proportionate part of the debt. There are as many debts as the
joint debtors/creditors.
NOTE: The DR or CR may not have equal share of the debt.
b. Solidary obligation ‐ each debtor is liable (each creditor is entitled)
for the whole debt subject to reimbursement. There is only one
debt.
c.
Examples: A, B and C are debtors for P12,000, while X and Y are the
creditors.
1) Passive Solidarity (meaning, the DRs are solidarily liable) ‐ there
are 2 distinct debts (1 DR x 2 CRs). CRs are presumed joint
because the case is silent.
2) Active Solidarity ‐ there are 3 distinct debts (3 DRs x 1 CR).
3) Mixed Solidarity ‐ there is only 1 debt (1 DR x 1 DR).
4) Joint DR and Joint CR ‐ there are 6 distinct debts (3 DRs x 2 CRs)
d. GR: The obligation is presumed joint.
Exceptions:
1) When the obligation expressly so states
2) When the law requires solidarity (i.e, obligation arising from
quasi delicts and crime)
3) When the nature of the obligation requires solidarity
e. Use of words
1) Joint ‐ proportionately, pro rata, mancomunada; “We promise
to pay and signed by two or more debtors”
2) Solidary ‐ jointly and severally, individually and collectively, in
solidum, mancomunada solidaria, juntos o separadamente, “I
promise to pay and signed by two or more debtors”
f.
Rules in solidary obligation:
1. Solidarity may exist although the creditors and the debtors may
not be bound in the same manner and by the same periods and
conditions.
2. 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.
3. A solidary creditor cannot assign his rights without the consent
of the others.
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4.
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.
5. 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.
g.
Insolvency of a co‐debtor
1) Joint ‐ If one of the debtors should be insolvent, the others
shall not be liable for his share.
2) Solidary ‐ 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.
h. Payment of interest to paying solidary debtor ‐ 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. Example: A, B, C are
solidary debtors with obligation due on Oct 1. A paid the entire debt
on Sep 1. B reimbursed A on Nov 1. In this case, A is not entitled for
the interest during the intervening period (i.e, Sep 1 to Oct 1). A is
entitled only for interest from actual date of payment, or from due
date (if payment was made prior to due date).
i.
Defense in solidary obligation
1) Real defense ‐ derived from the nature of the obligation (i.e,
void obligation, prescription, already fully paid)
2) Personal defense of the debtor (i.e, minority)
3) Personal defense of co‐debtor but only as regards that part of
the debt for which the latter are responsible.
j.
Solidarity vs. Indivisibility
1) The indivisibility of an obligation does not necessarily give rise
to solidarity. Nor does solidarity of itself imply indivisibility.
2) Solidarity pertains to the subject (DR or CR) while indivisibility
pertains to object.
k.
Breach of Obligation
1) Joint ‐ 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.
NOTE: 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.
2) Solidary ‐ If there was fault (or delay) on the part of any one of
them, all shall be responsible to the creditor, for the price and
the payment of damages and interest, without prejudice to
their action against the guilty or negligent debtor.
l.
Special rules in extinguishment of solidary obligation
1) 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.
2) Novation, compensation, confusion or remission of the debt,
made by any of the solidary creditors with any of the solidary
debtors, shall extinguish the obligation, without prejudice to
the rules in number 3.
3) 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.
4) The remission of the whole obligation, obtained by one of the
solidary debtors, does not entitle him to reimbursement from
his co‐debtors.
5) 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.
40. Divisible and indivisible obligation
a.
Divisible obligation ‐ susceptible of partial performance
Example: When the obligation has for its object
1) the execution of a certain number of days of work
2) the accomplishment of work by metrical units
3)
analogous things which by their nature are susceptible of
partial performance
b. Indivisible obligation ‐ not susceptible of partial performance
Example: When the obligation has for its object
1) Definite things and things not susceptible of division (i.e,
singing of a song, delivery of a car)
2) Things that may be physically divisible but the law so provides
to be indivisible (i.e, payment of taxes)
3) Things that may be physically divisible but intended by the
parties to be indivisible (i.e, payment of cash in lump‐sum)
c.
Rules on joint indivisible obligation (i.e, A and B obliged to deliver a
specific car to Mr. X):
1) The CR should proceed against all joint debtors.
2) The DR at fault shall be liable for his proportionate share plus
damages.
3) The DR who is ready shall be liable for his proportionate share
only.
4) If any DR shall be insolvent, the others shall not be liable for his
share.
d. Comparison:
Joint indivisible obligation
Solidary indivisible obligation
CR should demand from all DRs
CR may demand from one DR
If one DR failed to comply (or
If one DR failed to comply (or the
the thing is lost due to such DR),
thing is lost due to such DR), the
the obligation will be converted
CR may still proceed from any DR
to monetary obligation and the
(including the innocent DRs) for
DR at fault shall be liable for
specific performance or for the
damages.
value of the thing plus damages
subject to reimbursement from
the DR at fault.
DRs should not be liable for the
DRs should be liable for the
insolvency of their co‐DRs
insolvency of their co‐DRs
41. Obligation with a penal clause
a.
Concept ‐ An obligation to which an accessory obligation was
attached for the purpose of insuring its performance by virtue of
which the debtor is bound to pay a greater liability or additional
liability.
b. General rules:
1) Proof of actual damages suffered by the creditor is not
necessary in order that the penalty may be demanded.
2) 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.
3) 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.
4) Neither can the creditor demand the fulfillment of the
obligation and the satisfaction of the penalty at the same time,
unless this right has been clearly granted him. However, if after
the creditor has decided to require the fulfillment of the
obligation, the performance thereof should become impossible
without his fault, the penalty may be enforced.
c.
Purpose of penal clause:
1) To insure the performance of the obligation
2) To liquidate the amount of damages to be awarded to the CR in
case of breach of the principal obligation.
3) To punish the obligor in case of breach of the principal
obligation.
d. GR: In obligations with a penal clause, the penalty shall substitute
the indemnity for damages and the payment of interests in case of
noncompliance.
Exceptions: (penalty and damages/interest may be awarded at the
same time)
1) Stipulation by the parties
2) Obligor refuses to pay the penalty
3) Obligor is guilty of fraud in the fulfil lment of the obligation
e. When penalty may be reduced
1) If the principal obligation has been partly complied with.
2) If the principal obligation has been irregularly complied with.
3) If the penalty is iniquitous or unconscionable even if there has
been no performance.
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Extinguishment of Obligations
42. Payment or Performance ‐ Means not only the delivery of money but also
the performance in any other manner of an obligation.
43. Requisites of valid payment
a.
Capacity of the payor ‐ Payment made by one who does not have the
free disposal of the thing due and capacity to alienate it shall not be
valid (should be voidable).
b. Capacity of the payee ‐ 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.
c.
Acceptance by the creditor
d. Complete delivery of the very thing or object/prestation
e.
Manner of payment ‐ Observes requirement of law/court/parties as
to time, place and manner of payment (i.e, payment made to the
creditor by the debtor after the latter has been judicially ordered to
retain the debt shall not be valid)
NOTE: 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.
44. Characteristics of payment
a. Integrity of payment
1) GR: 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.
2) Exceptions:
a) 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.
b) Estoppel ‐ 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.
b. Identity of payment
1) GR: 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. 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.
2) Exceptions:
a) Dation in payment
b) Novation
c)
Facultative obligation
c.
Indivisibility of payment
1) GR: The creditor cannot be compelled partially to receive the
prestation in which the obligation consists. Neither may the
debtor be required to make partial payments.
2) Exceptions:
a) Stipulation of the parties
b) 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.
NOTE: Comparison of Integrity and Indivisibility ‐ Integrity
refers to the status of the debt whether it has been paid or not.
On the other hand, indivisibility refers to the power of the
debtor to compel creditor to accept partial
payment/performance.
45. Who shall make the payment
a.
The debtor himself or his legal representative
b. Any third person
46. Payment made by Third Person
GR: CR is not bound to accept payment or performance by a third person.
Exceptions:
a.
When made by a third person who has an interest in the fulfillment
of the obligation (i.e, guarantor, mortgagor, etc).
b. Stipulation to the contrary
47. Rights of a 3rd person who paid the obligation
a.
If payment was with knowledge and consent of the debtor
(delegacion):
1) Can recover what he has paid (absolute reimbursement)
2)
48.
49.
50.
51.
52.
Can be subrogated to all the rights of the creditor (i.e,
mortgage, guaranty, penalty, etc)
b. If payment was without knowledge or against the will of the debtor
(expromission):
1) Can recover only insofar as payment has been beneficial to the
debtor
2) Right of reimbursement only
c.
If payment was made by a third person who does not intend to be
reimbursed:
1) Deemed as donation
2) Requires debtor's consent
3) Payment is valid as to the creditor who has accepted it
To whom payment should be made
a.
The person whose favor the obligation has been constituted
b. His successor in interest
c.
Any person authorized to receive it.
Payment to Third Person
GR: If payment is made to a third person other than those enumerated
above, it shall not be valid.
Exceptions:
a.
Payment made to the possessor of the credit, provided that it was
made in good faith.
b. Payment made to a third person, provided that 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 person acquires 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.
Rules on mode of payment
a. 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.
b. Legal tender ‐ money or currency which the debtor may compel the
creditor to receive as payment.
NOTE: Negotiable instruments including manager’s check, although
good as cash, is not legal tender.
NOTE: Current legal tender in the Philippines under BSP Circular No.
1162, Series of 2022:
1) P2,000.00 for coins of P1.00, P5.00, P10.00 and P20.00
2) P200 for coins of P.01, P.05, P.10 and P.25
3) All bills
c.
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.
d. 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
NOTE: The Court should declare for the existence of extra‐ordinary
inflation or deflation before applying this rule.
Where payment shall be made
a.
Payment shall be made in the place designated in the obligation.
b. If no place designated:
1) 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.
2) 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.
Special Forms of Payment
a.
Dation in payment/Dation en pago ‐ Property is alienated to the
creditor in satisfaction of a debt in money, shall be governed by the
law of sales. This is in effect a novation of contract that requires
consent of the parties.
b. Payment by cession ‐ 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.
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c.
d.
Comparison:
Dation in payment
Payment by cession
There is a pre‐existing obligation
One creditor
Plurality of creditors
Not necessarily in state of
Debtor must be partially
financial difficulty
relatively insolvent
Thing delivered is
The cession, unless there is
considered as equivalent of
stipulation to the contrary, shall
performance
only release the debtor from
responsibility for the net
proceeds of the thing assigned
The transferee became the
The creditors did not become the
owner of the property
owner of the property
Law on sales will apply
Special laws will apply
Application of payment
1) Concept ‐ 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.
2) Requisites of application of payment:
a) There must be only one debtor and only one creditor.
b) There must be two or more debts of the same kind.
c)
Amount paid by the debtor must not be sufficient to
cover the total amount of all the debts.
d) All of debts must be due.
Exceptions:
a) Unless the parties so stipulate
b) When the application of payment is made by the
party for whose benefit the term has been
constituted.
3) Rules in application of payment:
a) GR: The right to designate the debt to which the payment
shall be applied primarily belongs to the debtor.
b) Exception: If the debtor shall not avail of such right and
the debtor accepts from the creditor a receipt in which
the application was made. In such case, the debtor
cannot complain of the same, unless there is a cause for
invalidating the contract.
4) Additional provisions:
If the creditor also fails to issue receipt or if application cannot
be inferred from other circumstances, the payment shall be
applied to
a) The debt most onerous to the debtor shall be deemed
satisfied (i.e, with interest, acceleration/penal clause)
b) If the debts due are of the same nature and burden,
payment shall be applied to all proportionately.
NOTE: If the debt produces interest, payment of the principal
shall not be deemed to have been made until the interests
have been covered.
Tender of payment and consignation:
1) Tender of payment ‐ Manifestation of the debtor to the
creditor of his decision to comply immediately with his
obligation.
2) Consignation ‐ Deposit of the object of the obligation in a
competent court in accordance with the rules prescribed by
law after refusal or inability of the creditor to accept the tender
of payment.
NOTE: It is the consignation which constitutes a form of
payment and must follow, supplement or complete the tender
of payment in order to discharge the obligation.
3) Requisites of consignation:
a) The debt sought to be paid must be due.
b) There must be a valid and unconditional tender of
payment or any of the causes stated by law for effective
consignation without previous tender of payment exists.
c)
The consignation of the thing due must first be
announced to the persons interested in the fulfillment of
the obligation. (1st notice)
d) Consignation shall be made by depositing the things due
at the disposal of judicial authority.
e) The consignation having been made, the interested
parties shall also be notified thereof. (2nd notice)
4) Rules in consignation:
a) Once the consignation has been duly made, the debtor
may ask the judge to order the cancellation of the
obligation.
b)
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.
c)
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.
d) The expenses of consignation, when properly made, shall
be charged against the creditor.
5) Cases without need of tender of payment:
GR: Consignation shall produce effects of payment only if there
is a valid tender of payment.
Exceptions: (consignation alone is valid, even without tender of
payment) in the following cases: (TRAIL)
a) When Two or more persons claim the same right to
collect
b) When, without just cause, he Refuses to give a receipt
c)
When the creditor is Absent or unknown, or does not
appear at the place of payment
d) When he is Incapacitated to receive the payment at the
time it is due
e) When the title of the obligation has been Lost
53. Loss of the thing due
a.
Concept ‐ 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.
NOTE: The creditor shall have all the rights of action which the
debtor may have against third persons by reason of the loss.
b. Loss in personal obligation
1) The debtor in obligations to do shall be released when the
prestation becomes legally or physically impossible without the
fault of the obligor.
2) 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.
c.
Partial loss ‐ 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.
d. Extinguishment of obligation due to loss of the thing
GR: If the thing is lost, the obligation is extinguished.
Exceptions:
a) When the law expressly provides
b) Agreement of the parties
c)
The nature of the obligation requires assumption of risk
d) When the thing lost is generic (genus nunquam pereat/generic
things never perish)
e) When the obligor is in default or has promised to deliver the
same thing to different person
f)
When the obligation proceeds from a criminal offense (unless
the CR refused to receive it without just cause)
g) When the thing is lost due to the fault of the debtor. 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. This presumption does not apply in case
of earthquake, flood, storm, or other natural calamity.
54. Condonation or remission
a.
Concept ‐ forgiveness of debt. Essentially gratuitous and requires the
acceptance by the obligor. Subject to the rules which govern
inofficious donations.
b. Kinds of condonation
1) Express condonation ‐ shall comply with the forms of donation
(i.e, must be in public instrument for real property, etc.)
2) Implied condonation ‐ inferred from the action of the parties.
a) Delivery of a private document evidencing a credit, made
voluntarily by the creditor to the debtor. 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.
NOTE: If public document, there is no such presumption
of implied condonation.
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b)
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.
55. Confusion or merger of rights
a.
Concept ‐ The obligation is extinguished from the time the
characters of CR and DR are merged in the same and one person.
b. Merger in accessory obligation ‐ Merger which takes place in the
person of the principal DR or CR benefits the guarantors (principal
and accessory obligation are extinguished). Confusion which takes
place in the person of any of the latter (guarantor) does not
extinguish the principal obligation but only the accessory.
c.
Merger in joint obligation ‐ Does not extinguish a joint obligation
except as regards the share corresponding to the creditor or debtor
in whom the two characters concur.
d. Merger in solidary obligation ‐ Extinguish the whole solidary
obligation. The DR who made the compensation may claim
reimbursement from his co‐debtors. The creditor, on the other hand,
shall be liable to his co‐creditors for their share in the obligation
corresponding to them.
56. Compensation
a.
Concept ‐ Compensation shall take place when two persons, in their
own right, are creditors and debtors of each other.
NOTE: When one or both debts are rescissible or voidable, they may
be compensated against each other before they are judicially
rescinded or avoided.
NOTE: 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.
b. Kinds of compensation
1) As to cause
a) Legal ‐ takes place by operation of law and extinguishes
both debts to the concurrent amount, even though the
creditors and debtors are not aware of the compensation.
b) Voluntary or conventional ‐ takes place by agreement of
contracting parties. The parties may even agree upon the
compensation of debts which are not yet due.
c)
Judicial ‐ takes place by the order of the court (i.e, 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).
d) Facultative ‐ takes place at the instance of one of the
contracting parties only.
1. When one of the debts arises from a depositum.
The depositor may claim compensation.
NOTE: Deposit in bank is not facultative
compensation because there is debtor‐creditor
relationship. Banks deposits may be the subject of
legal compensation.
2. When one of the debts arises from the obligation of
a bailee in commodatum. The lender or bailor of the
thing may claim compensation.
3. When one of the debts arises from a claim for
support due by gratuitous title. The party entitled
for support may claim compensation.
NOTE: The support referred here is future support
and not support in arrears or unpaid support.
4. When one of the debts consists in civil liability
arising from a penal offense. The offended party
may claim compensation.
5. Obligation in favor of government (i.e, taxes). The
government may claim compensation.
2) As to extent
a) Total ‐ When the 2 debts are of the same amount.
b) Partial ‐ When the 2 debts are not of the same amount.
c.
Requisites of Legal Compensation
1) That each one of the obligors be bound principally, and that he
be at the same time a principal creditor of the other.
NOTE: The guarantor may set up compensation as regards
what the creditor may owe the principal debtor.
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)
4)
5)
That the two debts be due
That they be liquidated and demandable
That over neither of them there be any retention or
controversy, commenced by third persons and communicated
in due time to the debtor
NOTE: 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.
d. Compensation vs Confusion
Compensation
Confusion
Two persons who are mutual
One person where qualities
debtors and creditors of each
of debtor and creditor are
other
merged
There must be at least two
Only one obligation
obligations
e. Compensation when CR assigned the debt
1) Debtor consented to the assignment ‐ 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.
2) Debtor has knowledge but did not consent to the assignment ‐
May set up the compensation of debts previous to the
assignment, but not of subsequent ones.
3) Debtor without knowledge of assignment ‐ May set up the
compensation of all credits prior to the same and also later
ones until he had knowledge of the assignment
57. Novation
a.
Concept ‐ extinguishing an obligation by substituting new obligation.
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
b. Kinds of novation:
1) According to form
a) Express ‐ so declared in unequivocal terms
b) Implied ‐ the old and the new obligations be on every
point incompatible with each other
2) According to purpose
a) Real or objective ‐ refers to the change either in the
cause, object or principal condition of the obligations.
b) Personal or subjective ‐ refers to the substitution of the
debtor or to the subrogation of a third person in the
rights of the creditors.
c)
Mixed ‐ Both real and personal novation.
c.
Requisites of novation:
1) A previous valid obligation ‐ The novation is void if the original
obligation was void. If the original obligation is only voidable,
novation is valid. Whatever defect in the original voidable
contract will be cured by the novation.
2) Agreement of the parties to the new obligation
3) Extinguishment of the old obligation
4) Validity of the new obligation ‐ 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.
NOTE: 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.
d. Kinds of substitution
1) Expromission ‐ effected with the consent of the creditor at the
instance of the new debtor even without the consent or even
against the will of the old debtor.
Effects of expromission:
a) Payment by the new debtor gives him the right for
reimbursement only (up to the amount beneficial to the
original debtor)
b) The new debtor's insolvency or non‐fulfillment of the
obligations shall not give rise to any liability on the part of
the original debtor.
2) Delegacion ‐ effected with the consent of the creditor at the
instance of the old debtor, with the concurrence of the new
debtor.
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Effects of delegacion:
a) Payment by the new debtor gives him the right for
subrogation (even to the amount not beneficial to the
original debtor)
b) In case of insolvency, shall not revive the action of the CR
against the original DR, except when said insolvency
already existed and of public knowledge, or known to the
original DR, when he delegated his debt.
e.
Effect of subrogation: Subrogation transfers to the persons
subrogated the credit with all the rights thereto appertaining, either
against the original debtor or against third person, be they
guarantors or possessors of mortgages, subject to stipulation in a
conventional subrogation.
f.
Kinds of subrogation
1) Conventional ‐ agreement of parties. Requires the consent of
the original parties and of the third person.
2) Legal ‐ operation of law.
GR: Legal subrogation is not presumed.
Exceptions:
a) When a creditor pays another creditor who is preferred,
even without the debtor's knowledge
b) When a third person, not interested in the obligation,
pays with the express or tacit approval of the debtor
(delegacion)
c)
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 (i.e, guarantor)
g.
Preference of original creditor ‐ 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.
h. Effect of novation to accessory obligation:
GR: accessory obligation is also extinguished. Accessory follows the
principal.
Exceptions:
1) Stipulation of the parties
2) Accessory obligations may subsist insofar as they may benefit
third persons who did not give their consent to the novation.
3) Third person is subrogated (i.e, guaranty is not extinguished)
58. Other modes of extinguishment
a.
Annulment ‐ please refer to voidable contracts
b. Rescission ‐ please refer to rescissible contracts
c.
Fulfillment of resolutory condition ‐ please see conditional obligation
above
d. Prescription ‐ lapse of time that will extinguish the right to sue an
action to enforce an obligation. It will convert a civil obligation to
natural obligation. Prescription to bring an action based on oral
contract is 6 years while on written contract is 10 years.
e.
Other causes (i.e, mutual desistance; death of the DR, etc)
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Law on Obligations