TITLE I – OBLIGATIONS

CHAPTER 1
GENERAL PROVISIONS

1156. An obligation is a juridical necessity to give, to do, or not to do.

JURIDICAL NECESSITY – juridical tie; connotes that in case of noncompliance, there will be legal sanctions.

• An obligation is nothing more than the duty of a person (obligor) to satisfy a specific demandable claim of another person
(obligee) which, if breached, is enforceable in court.

• A contract necessarily gives rise to an obligation, but an obligation does not always need to have a contract.

KINDS OF OBLIGATION
A. From the viewpoint of “sanction” - (a)CIVIL OBLIGATION – that defined in Article 1156; an obligation, if not fulfilled when it
becomes due and demandable, may be enforced in court through action; based on law; the sanction is judicial due process

(b)NATURAL OBLIGATION – defined in Article 1423; a special kind of obligation which cannot be enforced in court, but
which authorizes the retention of the voluntary payment or performance made by the debtor; based on equity and
natural law. (i.e. when there is prescription of duty to pay, still, the obligor paid his dues to the obligee – the obligor
cannot recover his payment even there is prescription) the sanction is the law, but only conscience had originally
motivated the payment.
(c) MORAL OBLIGATION – the sanction is conscience or morality, or the law of the church. (Note: If a Catholic promise to
hear mass for 10 consecutive Sundays in order to receive P1,000, this obligation becomes a civil one.)
B. From the viewpoint of subject matter -
(a) REAL OBLIGATION – the obligation to give
(b) PERSONAL OBLIGATION – the obligation to do or not to do (e.g. the duty to paint a house, or to refrain from
committing a nuisance)
C. From the affirmativeness and negativeness of the obligation -
(a) POSITIVE OR AFFIRMATIVE OBLIGATION – the obligation to give or to do
(b) NEGATIVE OBLIGATION – the obligation not to do (which naturally inludes not to give)
D. From the viewpoint of persons obliged - “sanction” -
(a) UNILATERAL – where only one of the parties is bound (e.g. Plato owes Socrates P1,000. Plato must pay
Socrates.)
(b) BILATERAL – where both parties are bound (e.g. In a contract of sale, the buyer is obliged to deliver) - may
be:
(b.1) reciprocal
(b.2) non-reciprocal – where performance by one is non-dependent upon performance by the other

ELEMENTS OF OBLIGATION
a) ACTIVE SUBJECT – (Creditor / Obligee) the person who is demanding the performance of the obligation;
b) PASSIVE SUBJECT – (Debtor / Obligor) the one bound to perform the prestation or to fulfill the obligation or duty;
c) PRESTATION – (to give, to do, or not to do) object; subject matter of the obligation; conduct required to be observed by the
debtor;
d) EFFICIENT CAUSE – the JURIDICAL TIE which binds the parties to the obligation; source of the obligation.

PRESTATION (Object)
1. TO GIVE – delivery of a thing to the creditor (in sale, deposit, pledge, donation);
2. TO DO – covers all kinds of works or services (contract for professional services);
3. NOT TO DO – consists of refraining from doing some acts (in following rules and regulations).

Requisites of Prestation / Object:

1) licit (if illicit, it is void)
2) possible (if impossible, it is void)
3) determinate or determinable (or else, void)
4) pecuniary value

• INJURY – wrongful act or omission which causes loss or harm to another

• DAMAGE – result of injury (loss, hurt, harm)
1157. Obligation arises from – (1) law; (2) contracts; (3) quasi-contracts; (4) acts or omissions punished by law; (5)
quasi-delicts.

(1) LAW (Obligation ex lege) – imposed by law itself; must be expressly or impliedly set forth and cannot be presumed -
[See Article 1158]

(2) CONTRACTS (Obligation ex contractu) – arise from stipulations of the parties: meeting of the minds / formal
agreement - must be complied with in good faith because it is the “law” between parties; neither party may unilaterally evade
his obligation in the contract, unless:
a) contract authorizes it
b) other party assents

Note:
Parties may freely enter into any stipulations, provided they are not contrary to law, morals, good customs, public order or public
policy
- [See Article 1159]

(3) QUASI-CONTRACTS (Obligation ex quasi-contractu) – arise from lawful, voluntary and unilateral acts and which are
enforceable to the end that no one shall be unjustly enriched or benefited at the expense of another - 2 kinds:

a. Negotiorum gestio - unauthorized management; This takes place when a person voluntarily takes charge of
another’s abandoned business or property without the owner’s authority

b. Solutio indebiti - undue payment; This takes place when something is received when there is no right to demand
it, and it was unduly delivered thru mistake - [See Article 1160]

(4) DELICTS (Obligation ex maleficio or ex delicto) – arise from civil liability which is the consequence of a criminal
offense - Governing rules:
1. Pertinent provisions of the RPC and other penal laws subject to Art 2177 Civil
Code [Art 100, RPC – Every person criminally liable for a felony is also civilly liable]
2. Chapter 2, Preliminary title, on Human Relations ( Civil Code )
3. Title 18 of Book IV of the Civil Code – on damages - [See Article 1161]

(5) QUASI-DELICTS / TORTS (Obligation ex quasi-delicto or ex quasi-maleficio) – arise from damage caused to another
through an act or omission, there being no fault or negligence, but no contractual relation exists between the parties
- [See Article 1162]

1158. Obligations from law are not presumed. Only those (1) expressly determined in this code or (2) 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 code.

• Unless such obligations are EXPRESSLY provided by law, they are not demandable and enforceable, and cannot be
presumed to exist.
• The Civil Code can be applicable suppletorily to obligations arising from laws other than the Civil Code itself.
• Special laws – refer to all other laws not contained in the Civil Code.

1159. Obligations arising from contracts have the force of law between the contracting parties and should be complied
with in good faith.

CONTRACT – meeting of minds between two persons whereby one binds himself, with respect to the other, to give, to do something
or to render some service; governed primarily by the agreement of the contracting parties.

VALID CONTRACT – it should not be against the law, contrary to morals, good customs, public order, and public policy.

• In the eyes of law, a void contract does not exist and no obligation will arise from it.

OBLIGATIONS ARISING FROM CONTRACTS – primarily governed by the stipulations, clauses, terms and conditions of their
agreements.

• If a contract’s prestation is unconscionable (unfair) or unreasonable, even if it does not violate morals, law, etc., it may not
be enforced totally.

• Interpretation of contract involves a question of law.

COMPLIANCE IN GOOD FAITH – compliance or performance in accordance with the stipulations or terms of the contract or
agreement.

FALSIFICATION OF A VALID CONTRACT – only the unauthorized insertions will be disregarded; the original terms and stipulations
should be considered valid and subsisting for the partied to fulfill.

1160. Obligations derived from quasi-contracts shall be subject to the provisions of chapter 1, title 17 of this book.

QUASI-CONTRACT – juridical relation resulting from lawful, voluntary and unilateral acts by virtue of which, both parties become
bound to each other, to the end that no one will be unjustly enriched or benefited at the expense of the other. (See Article 2142)

(1) NEGOTIORUM GESTIO – juridical relation which takes place when somebody voluntarily manages the property
affairs of another without the knowledge or consent of the latter; owner shall reimburse the gestor for necessary
and useful expenses incurred by the latter for the performance of his function as gestor.
(2) SOLUTIO INDEBITI – something is received when there is no right to demand it and it was unduly delivered
through mistake; obligation to return the thing arises on the part of the recipient. (e.g. If I let a storekeeper
change my P500 bill and by error he gives me P560, I have the duty to return the extra P60)

1161. Civil obligations arising from criminal offenses shall be governed by the penal laws, subject to the provisions of
Article 2177, and of the pertinent provisions of Chapter 2, Preliminary in Human Relations, and of Title 18 of this
book, regulating damages.

Governing rules:
1. Pertinent provisions of the RPC and other penal laws subject to Art 2177 Civil Code [Art 100, RPC – Every person
criminally liable for a felony is also civilly liable]
2. Chapter 2, Preliminary title, on Human Relations ( Civil Code )
3. Title 18 of Book IV of the Civil Code – on damages

• Every person criminally liable for a felony is also criminally liable (art. 100, RPC)

CRIMINAL LIABILITY INCLUDES:

(a) RESTITUTION – restoration of property previously taken away; the thing itself shall be restored, even though it be
found in the possession of a third person who has acquired it by lawful means, saving to the latter his action
against the proper person who may be liable to him.
(b) REPARATION OF THE DAMAGE CAUSED – court determines the amount of damage: price of a thing, sentimental
value, etc.
(c) INDEMNIFICATION FOR CONSEQUENTIAL DAMAGES – includes damages suffered by the family of the injured party
or by a third person by reason of the crime.

Effect of acquittal in criminal case:

a. when acquittal is due to reasonable doubt – no civil liability
b. when acquittal is due to exempting circumstances – there is civil liability
c. when there is preponderance of evidence – there is civil liability
1162. Obligations derived from quasi-delicts shall be governed by the provisions of chapter 2, title 17 of this book,
and by special laws.

QUASI-DELICT (culpa aquiliana) – an act or omission by a person which causes damage to another giving rise to an obligation to pay
for the damage done, there being fault or negligence but there is no pre-existing contractual relation between parties. (See Article
2176)

REQUISITES:
a. omission
b. negligence
c. damage caused to the plaintiff
d. direct relation of omission, being the cause, and the damage, being the effect
e. no pre-existing contractual relations between parties

Fault or Negligence – consists in the omission of that diligence which is required by the nature of the obligation and corresponds with
the circumstances of the person, time, and of the place.
BASIS DELICTS QUASI-DELICTS
1. INTENT Criminal / malicious Negligence
2. INTEREST Affects PUBLIC interest Affects PRIVATE interest
3. LIABILITY Criminal and civil liabilities Civil liability
4. PURPOSE Purpose – punishment Indemnification
 5.COMPROMISE Cannot be compromised Can be compromised
6. GUILT Proved beyond reasonable doubt Preponderance of evidence

CHAPTER 2
NATURE AND EFFECT OF OBLIGATIONS

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.

• Speaks of an obligation to care of a DETERMINATE thing (that is one which is specific; a thing identified by its
individuality) which an obligor is supposed to deliver to another. • Reason: the obligor cannot take care of the
whole class/genus

DUTIES OF DEBTOR:

• Preserve or take care of the things due.

 DILIGENCE OF A GOOD FATHER – a good father does not abandon his family, he is always ready to provide and
protect his family; ordinary care which an average and reasonably prudent man would do. - Defined in the
negative in Article 1173
 ANOTHER STANDARD OF CARE – extraordinary diligence provided in the stipulation of parties.
 FACTORS TO BE CONSIDERED – diligence depends on the nature of obligation and corresponds with the circumstances of
the person, time, and place.

** Debtor is not liable if his failure to deliver the thing is due to fortuitous events or force majeure… without negligence or fault in his
part.

• Deliver the fruits of a thing

• Deliver the accessions/accessories
• Deliver the thing itself
• Answer for damages in case of non-fulfillment or breach

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.

REAL RIGHT (jus in re) – right pertaining to person over a specific thing, without a passive subject individually determined
against whom such right may be personally enforced. − a right enforceable against the whole world

PERSONAL RIGHT (jus ad rem) – a right pertaining to a person to demand from another, as a definite passive subject, the fulfillment
of a prestation to give, to do or not to do.
− a right enforceable only against a definite person or group of persons.

• Before the delivery, the creditor, in obligations to give, has merely a personal right against the debtor – a right to ask for
delivery of the thing and the fruits thereof.
• Once the thing and the fruits are delivered, then he acquires a real right over them.
• Ownership is transferred by delivery which could be either actual or constructive. (Art. 1477)
• The remedy of the buyer when there is no delivery despite demand is to file a complaint for “SPECIFIC PERFORMANCE AND
DELIVERY” because he is not yet the owner of the property before the delivery.

ACTUAL DELIVERY – actual delivery of a thing from the hand of the grantor to the hand of the grantee (presonally), or manifested
by certain possessory acts executed by the grantee with the consent of the grantor (realty).

FRUITS:
1. NATURAL – spontaneous products of the soil, the young and other products of animals; 2.
INDUSTRIAL – produced by lands of any cultivation or labor;
3. CIVIL – those derived by virtue of juridical relation.

** SEE Article 1164 (retroactivity of the effects of conditional obligation to give once the condition has been fulfilled)

1165. When what is to be delivered is a determinate thing, the creditor … may compel the debtor to make 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 ting 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.

*This provision applies to an obligation to give.

DETERMINATE THING
 something which is susceptible of particular designation or specification; 
obligation is extinguished if the thing is lost due to fortuitous events.
 Article 1460: a thing is determinate when it is particularly designated and physically segregated from all others of the same
class.
INDETERMINATE THING
 something that has reference only to a class or genus;
 obligation to deliver is not so extinguished by fortuitous events.

REMEDIES FOR FAILURE OF DELIVERY (determinate thing)

1. Complaint for specific performance – an action to compel the fulfillment of the obligation.
2. Complaint for rescission of the obligation – action to rescind
3. Complaint for damages – action to claim for compensation of damages suffered

• As a general rule, “no person shall be responsible for those events which could not be foreseen, or which, though foreseen,
are inevitable, except:
1. in cases expressly specified by the law
2. when it is stipulated by the parties
3. when the nature of the obligation requires assumption of risk
• An indeterminate thing cannot be object of destruction by a fortuitous event because genus never perishes.
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.

ACCESSIONS – fruits of the thing or additions to or improvements upon the principal

− those which are naturally or artificially attached to the thing

ACCESSORIES – things included with the principal for the latter’s embellishment, better use, or completion

When does right to fruits arise? – from the time the obligation to deliver arises
 Conditional – from the moment the condition happens
 With a term/period – upon the expiration of the term/period
 Simple – from the perfection of the contract

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 … it may be decreed that what has been poorly
done be undone.

* This provision applies to an obligation to do.

THREE SITUATIONS:
a) Debtor’s failure to perform an obligation
 creditor may do the obligation, or by another, at the expense of the debtor;
 recover damages
b) Performance was contrary to the terms agreed upon
 order of the court to undo the same at the expense of the debtor
c) Performance in a poor manner
 order of the court to undo the same at the expense of the debtor

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.

* This provision applies to an obligation not to do.

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 exists:

• When the law or obligation so expressly declares;

• When from the nature of the contract, time us the essence and motivating factor for its establishment;
• When demand would be useless (prestation is impossible);
• In reciprocal obligations, from the moment one of the parties fulfills his obligation;
• When the debtor admits he is in default

ORDINARY DELAY – mere failure to perform an obligation at the appointed time.

LEGAL DELAY (DEFAULT) – tantamount to non-fulfillment of the obligation and arises after an extrajudicial or judicial demand was
made upon the debtor.

KINDS OF DEFAULT :

a) MORA SOLVENDI – delay on the part of the debtor to fulfill his obligation;
REQUISITES:
1. failure of the obligor to perform obligation on the DATE agreed upon;

2. demand (judicial/extrajudicial) by the creditor;

3. failure to comply with such demand

EFFECTS:
1) debtor – liable for damages and interests
2) debtor – liable for the loss of a thing due to a fortuitous event

KINDS:
1) mora solvendi ex re – default in real obligations (to give)
2) mora solvendi ex persona – default in personal obligations (to do)

b) MORA ACCIPIENDI – delay on the part of the creditor to accept the performance of the obligation;
Effects:
1. creditor – liable for damages
2. creditor – bears the risk of loss of the thing
3. debtor – not liable for interest from the time of creditor’s delay
4. debtor – release himself from the obligation

c) COMPENSATIO MORAE – delay of the obligors in reciprocal obligation.

Effect: the default of one compensates the default of the other; their respective liabilities shall be offset equitable.

 Default / Delay in negative obligation is not possible. (In negative obligation, only fulfillment and violation are possible)

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.

FRAUD (dolo) – deliberate intentional evasion of the faithful fulfillment of an obligation;

NEGLIGENCE (culpa or fault) – voluntary act or omission of diligence, there being no malice, which prevents the normal fulfillment of
an obligation;
DELAY (mora) – default or tardiness in the performance of an obligation after it has been due and demandable;
CONTRAVENTION OF TERMS OF OBLIGATION (violation)– violation of terms and conditions stipulated in the obligation; this must not
be due to a fortuitous event.

1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an action for future fraud is
void.

• To allow such waiver will necessarily render the obligatory force of contracts illusory.
• The law does not prohibit waiver of an action for damages based on fraud already committed.
• Any deliberate deviation from the normal way of fulfilling the obligation may be a proper basis for claim for damages against
the guilty party.

INCIDENTAL FRAUD (applicable provisions are Arts. 1170 & 1344) – committed in the performance of an obligation already existing
because of a contract; incidental fraud obliges the person employing it to pay damages.
CAUSAL FRAUD – (Art. 1338) employed in the execution of contract in order to secure consent; remedy is annulment because of
vitiation of consent.
1172. Responsibility arising from negligence in the performance of every kind of obligation is also demandable, but
such liability may be regulated by the courts, according to circumstances.

Court’s discretion because:

(a) negligence depends upon the circumstances of a case – good or bad faith of the obligor may be considered as
well as the conduct or misconduct of the obligee; (b) it is not as serious as fraud.

Negligence – lack of foresight or knowledge

Imprudence – lack of skill or precaution

TEST OF NEGLIGENCE
Did the defendant, in doing the alleged negligent act, use the reasonable care and caution which an ordinary prudent man would
have used in the same situation?
TWO TYPES OF NEGLIGENCE:
Basis 1. Culpa Aquiliana (Quasi- 2. Culpa Contractual
delict) (Breach of contract)
DEFINITION Negligence between parties not so Negligence in the performance of contractual
related by pre-existing contract obligation
NATURE OF NEGLIGENCE Direct, substantive and independent Incidental to the performance of the obligation.
GOOD FATHER OF THE Complete and proper defense (parents, Not complete and proper defense in the selection
FAMILY DEFENSE guardian, employers) of employees.
PRESUMPTION OF No presumption – injured party must There is presumption – defendant must prove
NEGLIGENCE prove negligence of the defendant. that there was no negligence in the carrying out
of the terms of the contract.
1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature
of the obligation and corresponds with the circumstances of the persons, of he time and of the place… If the law or
contract does not state the diligence which is to be observed in the performance, that which is expected if a good
father of a family shall be required.
- This provision provides for a negative definition of “proper diligence of a good father of a family”

FRAUD distinguished from NEGLIGENCE

FRAUD NEGLIGENCE
There is deliberate intention to cause damage. There is no deliberate intention to cause damage.
Liability cannot be mitigated. Liability may be mitigated.
Waiver for future fraud is void. Waiver for future negligence may be allowed in certain cases:
DILIGENCE – the attention and care required of a person in a given situation and is opposite of negligence.

NEGLIGENCE – consists in the omission of that diligence which is required by the nature of the particular obligation and corresponds
with the circumstances of the persons, of the time, and of the place.

KINDS of DILIGENCE:
1. DILIGENCE OF A GOOD FATHER – a good father does not abandon his family, he is always ready to provide and protect
his family; ordinary care which an average and reasonably prudent man would do.
2. Diligence required by the law governing the particular obligation
3. Diligence stipulated by the parties

1174. Except in cases expressly specified by the law, or when it is 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.

FORTUITOUS EVENT – an occurrence or happening which could not be foreseen or even if foreseen, is inevitable; absolutely
independent of human intervention; act of God.

FORCE MAJEURE - an event caused by the legitimate or illegitimate acts of persons other than the obligor; there is human
intervention.

REQUISITES OF FORTUITOUS EVENT: [IU-IF]

1. Independent of the human will (or at least of the obligor’s)

2. Unforeseen or unavoidable

3. Of such character as to render it impossible for the obligor to comply with his obligation in a normal manner 4. Obligor
– free from any participation/aggravation of the injury to the obligee (no negligence or imprudence)
EXEPTIONS:
1. When it is expressly stipulated that he shall be liable even if non-performance of the obligation is due to fortuitous events;
2. When the nature of the obligation requires the assumption of risk;
3. When the obligor is in delay;
4. When the obligor has promised the same thing to two or more persons who do not have the same interest; 5. When
the possessor is in bad faith and the thing lost or deteriorated due to fortuitous event;
6. When the obligor contributed to the loss of the thing.

1175. Usurious transactions shall be governed by special laws.* see Article 1413

USURY – contracting for or receiving interest in excess of the amount allowed by law for the loan or use of money, goods, etc.

USURY LAW – makes the usurers criminally liable if the interest charged on loans are more that the limit prescribed by law.
• This law is repealed – Circular No. 905 of the Central Bank has expressly removed the interest ceilings prescribed by the
USURY LAW.

1176. The receipt of the principal by the creditor without reservation with respect to the interest, shall give rise to
the presumption that said interest has been paid.
The receipt of a later installment of a debt without reservation as to prior installments, shall likewise raise the
presumption that such installments have been paid.

• These are mere presumptions.

• To be sure – write the interest and the dates covered by such payment in the receipt.

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.

REMEDIES AVAILABLE TO CREDITORS FOR THE SATISFACTION OF THEIR CLAIMS:

1. Exact fulfillment with right to damages
2. Exhaustion of the debtor’s properties still in his possession – writ of attachment (before judgment) or writ of execution (for
final judgment not yet executed)
3. ACCION SUBROGATORIA – an action where the creditor whose claims had not been fully satisfied, may go after the debtors
(3rd person) of the defendant debtor.
4. ACCION PAULIANA – an action where the creditor files an action in court for the RESCISSION of acts or contracts entered
into by the debtor designed to defraud the former.

1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if there has been no
stipulation to the contrary.

EXCEPTIONS:
a) Those not transmissible by their nature like purely personal rights;
b) Those not transmissible by provision of law;
c) Those not transmissible by stipulation of parties.

CHAPTER 3
DIFFERENT KINDS OF OBLIGATIONS

Section 1 – Pure and Conditional Obligations

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.

PURE OBLIGATION – an obligation which does not contain any condition or term upon which the fulfillment is made to depend;
immediately demandable by the creditors and the debtor cannot be excused from not complying with his
prestation.

CONDITIONAL OBLIGATION – an obligation which depends upon a future or uncertain event, or upon a past event
unknown to the contracting parties.
– an obligation subject to a condition.

a) Suspensive Obligation – its fulfillment gives rise to an obligation; the demandability of the obligation
or the effectivity of the contract can take place only after the condition has been fulfilled.

b) Resolutory Obligation – its happening extinguishes the obligation which is already existing;

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.

PERIOD – a future and certain event upon the arrival of which, the obligation subject to it either arises or is
extinguished.

INDICATIONS OF A TERM OR PERIOD:

When the debtor binds
himself to pay – • when
his means permit him to
do so
• little by little
• as soon as possible
• from time to time
• as soon as I have the money
• in partial payment
• when in the position to pay

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.

Suspensive Condition – the acquisition of rights by the creditor depends upon the happening of the event which
constitutes the condition; if such condition does not take place, it would be as of the conditional obligation had
never existed. (e.g. promise to give a car after graduating from law school as cum laude)

Resolutory Condition – the rights and obligations already existing are under threat of extinction upon the
happening or fulfillment of such condition.
(e.g. donation by reason of marriage – the celebration of marriage is a resolutory condition; if the marriage did not
push through, the donation may be revoked)

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.

• Applies only to suspensive conditions.

3 KINDS OF CONDITIONS UNDER THIS ARTICLE:

1. POTESTATIVE – a suspensive condition which depends upon the will of one of the contracting
parties = if at the sole will of the debtor, it is void; if at the creditor’s, still valid. this is to prevent
the establishment of illusory obligations. 2. CASUAL – the condition depends upon chance or the will
of a third person;(e.g. cellphone warranty)
3. MIXED – the condition depends partly upon the will of the parties and partly upon chance or the
will of a third person; (example ni Atty. De Chavez: passing the bar)

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.
POSSIBLE CONDITION – if it is capable of realization or actualization according to nature, law, public policy or good
customs.

2 KINDS OF IMPOSSIBLE CONDITIONS:

1. Physically Impossible – cannot exist or cannot be
done in its nature; 2. Legally Impossible – contrary to
law, good customs, or public policy.

Only the affected obligation is void, if the obligation is divisible, and the part thereof not affected by the impossible
condition is valid.

Only the condition is void if there is already a pre-existing obligation and it does not depend upon the fulfillment of
the condition which is impossible.

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.

Positive condition – refers to the fulfillment of an event or performance of an act

Negative condition – refers to the non-fulfillment or non-performance of an act.

POSITIVE SUSPENSIVE CONDITION

The obligation is extinguished:
1. As soon as the TIME EXPIRES without the event taking place;
2. As soon as it has become certain that the EVENT WILL NOT TAKE PLACE although the time specified has not
yet expired.

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.

** This is a condition of non-happening of a future event.

The obligation shall become effective and binding:

a) From the moment the time indicated has elapsed without the event taking place;
b) From the moment it has become evident that the event cannot occur, although the time indicated has not
yet elapsed.

1184 -vs- 1185

1184 1185
(POSITIVE SUSPENSIVE) (NEGATIVE SUSPENSIVE)
Jose obliges himself to give the pregnant woman Maria P5000 Jose obliges himself to give the pregnant woman Maria
if she would give birth on or before December 30. P5000 if she would NOT give birth on December 30.
a. Jose is LIABLE if Maria gives birth on or before December a. Jose is NOT LIABLE if Maria gives birth on December 30.
30.
b. Jose is NOT LIABLE if Maria gives birth after December 30.b. Jose is LIABLE if Maria DID NOT give birth on December
30 – if Maria gives birth BEFORE or AFTER December 30.
c. If Maria would have a miscarriage before December 30, the c. If Maria would have a miscarriage before December 30,
obligation is EXTINGUISHED. the obligation is deemed FULFILLED.
1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.
− This provision speaks of the DOCTRINE OF CONSTRUCTIVE
FULFILLMENT − Compare with Art. 1203

- REQUISITES:
1. The condition is SUSPENSIVE;
2. The obligor ACTUALLY PREVENTS the fulfillment of the condition; 3. He acts
VOLUNTARILY.
• Malice or fraud is not required, as long as his purpose is to prevent the fulfillment of the condition.
• No person shall profit by his own wrong.

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 courts shall determine, in each case, the retroactive effect of the
condition that has been complied with.

• Applies only to fulfilled suspensive conditions.

• Retroactive statute
• The effects of the obligation is deemed to commence not from the fulfillment of the obligation but from
the day of its constitution (similar to the legitimation of a natural child)
• When the obligation is unilateral, the debtor shall appropriate the fruits and interests received because he
does not receive any equivalent or valuable consideration from the obligee.

• The article does not require the delivery of fruits or payment of interests accruing (accumulating) before
the fulfillment of the suspensive condition.

• Obligations to do or not to do – the retroactive effect shall be determined by the court using its sound
discretion without disregarding the intentions of the parties.

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.

Actions available to the creditor:

 Action for prohibition restraining the alienation of the thing pending the happening of the suspensive
condition;
 Action to demand security if the debtor has become insolvent;
 Action to set aside alienations made by the debtor in fraud of
creditors;  Actions against adverse possessors to interrupt the
running prescriptive period.
 To have his rights annotated in the registry.

Rights of the DEBTOR – entitled to recover what has been paid by mistake prior to the happening of the suspensive
condition.

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:

LOSS
(1) debtor without fault – obligation is extinguished
(2) debtor with fault – obligation to pay damages

DETERIORATION
(1) debtor without fault – impairment is to be borne by the creditor
(2) debtor with fault – creditor chooses: rescission of obligation, fulfillment, indemnity

IMPROVEMENT
(1) by nature or time – improvement: inure to the benefit of the creditor
(2) at the expense of the debtor – granted to the usufructuary

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.
 • Refers to the fulfillment of a resolutory condition.
• When the resolutory condition happened, the obligation is considered as if it did not exist.
• The parties are bound to return or restore whatever they have received from each other – “reciprocal
restitution” • Donation by reason of marriage – if the marriage does not happen, such donation
should be returned to the donor.
• Loss, deterioration and improvement – governed by 1189.
• 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.

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.

* This remedy should be termed as “resolution,” not rescission (Paras).

* This provision is not applicable to contracts of partnership (governed by Arts. 1786 & 1788), and sales of real
and personal properties by installments (governed by Maceda and Recto laws)

RECIPROCAL – each is a debtor and creditor of the other

RESCISSION – resolution or cancellation of the contract

• Applies only to reciprocal obligations where two parties are mutually debtor and creditor of each other in
the same transaction. The cause must be identical ad the obligations must arise simultaneously.
• The party who can demand rescission should be the party who is ready, willing, and able to comply with
his own obligations while the other is not capable to perform his own.

REMEDIES:
1. Specific performance or fulfillment of obligation with damages;
2. Rescission of contract with damages.

Effect of rescission: the parties must surrender whatever they have received from the other, and the obligation to
pay is extinguished.

If there is an express stipulation of automatic rescission between parties – such resolution shall take place only
after the creditor has notified the debtor of his choice of rescission subject to judicial scrutiny.

1192. In case both parties have committed a breach of the obligation, the liability of the first infractor
shall be equitably tempered by the courts. 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.

FIRST INFRACTOR KNOWN The liability of the first infractor should be equitably
reduced. – equitably offset each other’s damages.

FIRST INFRACTOR CANNOT BE DETERMINED

The court shall declare the extinguishment of the obligation and each shall bear his own damages.

Section 2 – Obligations with a Period

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.
PERIOD / TERM – consists in a space or length of time upon the arrival of which, the demandability or the
extinguishment of an obligation is determined; it may be definite (exact date or time is known) or indefinite
(arrival of date is unknown but sure to come).
- Future + Certain event

GENERAL CLASSIFICATIONS:
a) EX DIE / SUSPENSIVE PERIOD – from a day certain give rise to the obligation; suspensive effect.
b) IN DIEM / RESOLUTORY PERIOD – arrival of a term certain terminated the obligation; resolutory
effect.

Term – length of time sure to come

Condition – fact or event uncertain to come
Basis Period/Term Condition
1. TIME Always refers to FUTURE Can refer to past events unknown to the
parties
2. FULFILLMENT Sure to happen at an exact date or May or may not happen.
indefinite time but sure to come.
3. INFLUENCE Merely fixes the time for the May cause the arising or cessation of the
demandability or performance of obligation.
obligation.
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.

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.

 If he was not aware of the period or he believes that the obligation has become due and
demandable – he can recover what he paid or delivered including fruits and interests;
 If he was aware and he paid voluntarily – he cannot recover the delivery made; it is deemed a
waiver of the benefit of the term and the obligation is considered already matured.

• The presumption is that the debtor knew that the debt was not yet due. He has the burden of proving that
he was unaware of the period.

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.

• PRESUMPTION: Obligation with a period is for the benefit of both the creditor and debtor.
• EXCEPTION: when it appears that the period is for the benefit of one or the other

• The benefit of the term may be the subject of stipulation of the parties.

1. Term is for the benefit of the debtor alone – he cannot be compelled to pay prematurely, but he
can if he desires to do so.
- Example: A obliges himself to pay B within 5 years. A cannot be compelled to pay prematurely, but he can
pay anytime within 5 years (A will benefit because he can pay anytime he wants as long as it is within 5 years; B
will not benefit from the interests if A decides to pay early).

2. Term is for the benefit of the creditor – He may demand fulfillment even before the arrival of the
term but the debtor cannot require him to accept payment before the expiration of the stipulated
period.
- Example: A borrows money from B and is obliged to make the payment on December 5. B may compel A
to make the payment before December 5, but A may not compel B to receive the payment before December 5 (B
will benefit from the interests that will accrue before December 5).

• The creditor may have reasons other than the maturity of interest, that’s why, unless the creditor
consents, the debtor has no right to accelerate the time of payment even if the premature tender includes
an offer to pay the principal and interest in full.
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 courts may fix the duration thereof.
The courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as may under the circumstances have been
probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them.

JUDICIAL PERIOD – period designated by the court.

CONTRACTUAL PERIOD – period fixed by the parties in their contract.

Court will fix a period:

1. When no period is mentioned, but it is inferable from the nature and circumstances of the obligation that a
period was intended by the parties.
2. When the period is dependent upon the will of the debtor.

• If the obligation does not state and intend a period, the court is not authorized to fix a period.
• The court must fix the duration of the period to prevent the possibility that the obligation may never be
fulfilled or to cure a defect in a contract whereby it is made to depend solely upon the will of one of the
parties.

Court cannot fix the period:

1. If there is a period agreed upon by the parties and it has already lapsed or expired.
2. From the very moment the parties give their acceptance and consent to the period fixed by the
court, it becomes a law governing their contract.

3.

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.

The period is disregarded and the obligation becomes pure and immediately demandable: [IGIVA]

• [I] When debtor becomes i nsolvent ;

• The insolvency need not be judicially declared. It is sufficient that debtor could not pay his debts due to lack of
money or funds.

• [G] When the debtor does not furnish g uaranties or securities;

• [I] When guaranties or securities given have been i mpaired or have disappeared ;
 If security was lost through debtor’s fault - impairment
 If security was lost through fortuitous event - disappearance

• [V] When debtor v iolates an undertaking ;

If such undertaking is the reason for the creditor to agree with such period.

• [A] When debtor attempts to a bscond (escape).

Mere attempt to abscond is sufficient. It is an indication of bad faith.

Section 3 – Alternative Obligations

1199. A person alternatively bound by different prestations shall completely perform one of them. The
creditor cannot be compelled to receive part of one and part of the other undertaking.

OBLIGATIONS WITH PLURAL PRESTATIONS:

1. CONJUNCTIVE/COMPOUND OBLIGATION - an obligation where the debtor has to perform ALL the several
prestations in the contract to extinguish the obligation.
 2. ALTERNATIVE OBLIGATION – an obligation where the debtor is required to fulfill ONLY ONE of the several
prestations to extinguish the obligation.
3. FACULTATIVE OBLIGATION – an obligation where the debtor is bound to perform ONLY ONE prestation,
with a reserved right to choose another prestation as SUBSTITUTE for the principal.

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.

Implied grant to the creditor is not allowed. If it does not appear on the agreement as to whom among them has
the right to choose, it is the debtor who can choose.

1201. The choice shall produce no effect except from the time it has been communicated.

 The choice shall not produce any legal effect until it has been duly communicated
to the other party.
 It can be done in writing, verbally, impliedly, or any unequivocal means.  Once
the choice has been communicated to the other party:
1. The obligation is now LIMITED only to the PRESTATION CHOSEN, with all the natural consequences
flowing therefrom;
2. The choice is IRREVOCABLE.

• The performance of prestation without announcing the choice to the creditor is NOT BINDING.
• The consent of the other party is NOT REQUIRED in making the choice – that will in effect frustrate the
clear intention of the law and the nature of the alternative obligation.
• If there is delay in the making of choice – punish the one who is supposed to exercise the right of choice
for the delay he caused – court may order the debtor to make a choice, or creditor to make the choice
within certain period, or court makes the choice.

1202. The debtor shall lose the right of choice when among the prestations whereby he is alternatively
bound, only one is practicable.

 There being but one prestation available, this prestation becomes a simple obligation.

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.

(1) If the debtor could not make a choice due to the creditor’s act of making the prestations
impossible, debtor may RESCIND the contract with damages - rescission takes place at the
initiative of the debtor.
(2) If the debtor is being prevented to choose only a particular prestation, and there are others
available, he is free to choose from them, after notifying the creditor of his decision.

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.

 If the impossibility of all the objects of the alternative obligation is caused by the debtor, the creditor is
entitled to damages.
 If such impossibility is caused by a fortuitous event, the obligation is extinguished and the debtor is released
from responsibility, unless the contrary is stipulated by the parties.
 The creditor cannot claim for damages if the debtor can still perform the remaining prestations.
 The damages that may be recovered is based on the last thing which disappeared or the service which
became impossible. This last one is converted into a simple obligation.

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:
 A. only one thing lost – fortuitous event – creditor chooses from the remainder – debtor delivers the choice
to creditor; B. only one remains – debtor delivers the same to the creditor;

C. only one thing lost – fault of the debtor

1. creditor may choose any one of the remainders;
2. creditor may choose the price or value of the one which was lost;
3. may choose 1 or 2 plus damages
D. all things lost – fault of the debtor – creditor may choose the price of ANYONE of the things, with damages if
warranted.

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.

 This article applies only when the right of choice has been expressly granted to the creditor.

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.

 If loss or deterioration happened before substitution is made, obligor is not liable; after substitution is
communicated, he is liable for loss (through delay, negligence or fraud)

Section 4 – Joint and Solidary Obligations

1207. The concurrence of two or more creditors or of two or more debtors in one and the same
obligation does not imply that each one of the former has a right to demand, or that each one of the
latter is bound to render, entire compliance with the prestation. There is a solidary liability only when
the obligation expressly so states, or when the law or the nature of the obligation requires solidarity.

* In case of concurrence of two or more creditors or two or more debtors in one obligation, the presumption is that
the obligation is joint, and not solidary.

INDIVIDUAL OBLIGATION – one debtor and one creditor

COLLECTIVE OBLIGATION – two or more debtors and two or more creditors

1. JOINT – entire obligation is to be paid or performed proportionately by the debtors;

2. SOLIDARY – each one of the debtors are obliged to pay the entire obligation, each one of the
creditors has the right to demand from any of the debtors, the fulfillment of the entire obligation;
A. Passive Solidarity – solidarity on the part of the DEBTORS
B. Active Solidarity – solidarity on the part of the CREDITORS.
 SOLIDARITY SHOULD BE EXPRESSED – law, stipulation, nature of
obligation.  When the obligation is ambiguous, it must be
considered as joint obligation.

CONSEQUENCES OF SOLIDARITY:

1. Passive Solidarity – full payment made by anyone of the solidary debtors extinguishes the obligation. The
one who paid can claim reimbursement from his co-debtors as regards their corresponding shares in the
obligation.
A, B, & C are solidary debtors of D in the sum of P900.
D can demand payment of the entire obligation when it becomes due, from any one of the debtors or from all of
them at the same time.
If C paid the whole P900 to D, he may claim reimbursement from A and B.
 2. Active Solidarity – full payment to any of the creditors extinguishes the obligation. The creditor who
received the entire amount will be liable to pay the corresponding shares of his co-creditors in accordance
with their internal agreement.
Garfield owes the sum of P40,000 to Mickey, Minnie, Donald, and Pluto, who are solidary creditors. Garfield can pay
anyone of them. If Mickey received the P40,000, he is liable to pay the corresponding shares of his co-creditors.

MIXED SOLIDARITY

a. Solidary Debtors, Joint Creditors

 P9,000.00 – total debt
Debtors (Solidary) Creditors (Joint)
Aida pays P4,500.00 John = P 4,500.00
Lorna pays P4,500.00 Marsha P 4,500.00
Fe

b. Joint Debtors, Solidary Creditors  P 9,000.00 – total debt

Debtors (Joint) Creditors (Solidary)
Aida (P 3,000.00) John (can claim from debtors)
Lorna (P 3,000.00) Marsha (-same-)
Fe (P 3,000.00)

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 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.

 This provision speaks of JOINT DIVISIBLE OBLIGATION.

 When there is a concurrence of several creditors or of several debtors in one and in the same obligation,
there is a presumption that the obligation is joint.
 Each of the creditors shall be entitled to demand only the payment of his proportionate share of the credit.
 Each of the debtors may be compelled to pay only his proportionate share
of the debt.  The credits or debts shall be considered distinct from one
another.

CONSEQUENCES OF JOINT OBLIGATION:

1. Each debtor – liable for a proportionate part of the entire debt;
Thales, Socrates, Plato, & Aristotle owe P100 to Bruce Lee
= 4 debtors and 1 creditor
Each of them owes Bruce Lee P25
Bruce Lee cannot collect the entire P100 from any one of them.
2. Each creditor – entitled to a proportionate part of the credit;
Piggy owes P100 to Froggy and Fishy
= 1 debtor and 2 creditors
Froggy can only collect 50 from Piggy,
Same with Fishy
3. Demand made by one creditor upon one debtor produces the effects of default only as between them, but
not with respect to the others;
Bubbles demanded payment from Buttercup; Buttercup was in default. This does not mean that the others are in
default too because Bubbles did not demand from them.
4. The interruption of prescription caused by the demand made by one creditor upon one debtor will not
benefit the cocreditors;
Wittgenstein extended the period in which Tarski should have paid his debt to him. This does not mean that the
same extension applies to Tarski's debt to Davidson.
5. The insolvency of one debtor will not increase the liability of his co-debtors, nor will it allow a creditor to
demand anything from the co-creditors.
If Husserl and Merleau-Ponty are debtors of Sartre for P1,000,000.00 and Husserl becomes insolvent, the liability
of MerleauPonty will only be P500,000.00 representing his proportional share of ½ in the whole obligation.
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.

JOINT INDIVISIBLE OBLIGATION – an obligation where solidarity is not provided and the prestation or object is not
susceptible of division; its fulfillment requires the concurrence of all debtors, while doing each one’s parts.

Batman and Robin jointly obliged themselves to deliver a brand new Toyota Fortuner worth P1,500,000.00 to
Superman. The object, a vehicle, is indivisible. They must deliver the thing jointly. In case of breach, the obligation
is converted into monetary obligation for indemnity for damages. Batman and Robin will be liable only for P
750,000.00 each.

 The act of one is not binding (others must concur)

1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity
of itself imply indivisibility.

 Solidarity is expressed in the stipulations of the party, law governing the obligation, or the nature of the
obligation.

INDIVISIBLE OBLIGATION – an obligation where the prestation or object to be delivered cannot be performed by
parts without altering its essence or substance.
Basis Indivisibility Solidarity
1. Nature Refers to the prestation of the contract Refers to the tie existing between parties
of the obligation (who is liable)
2. Number of Does not require plurality of parties Requires plurality of parties
subjects / parties
3. Effect of breach Obligation is converted into monetary The liability, even if converted into
of obligation obligation for indemnity for damages – indemnity for damages, remains solidary.
each debtor is liable only for his part in
the indemnity.
1211. Solidarity may exist although the creditors and the debtors may not be bound in the same
manner and by the same periods and conditions.

 The solidarity of the debtors is not affected even if different terms and conditions are made applicable to
them.
 Enforcement of the terms and conditions may be made at different times. The obligations which have
matured can be enforced while those still undue will have to be awaited. Enforcement can be made
against any one of the solidary debtors although it can happen that a particular obligation chargeable to a
particular debtor is not yet due. He will be answerable for all the prestations which fall due although
chargeable to the other co-debtors.
Sad Face, Happy, and Fanny got a loan of P150 from Smiley. They signed a promissory note solidarily binding themselves to pay
Smiley under the following terms:
Sad Face will pay P50 with 3% on December 30, 2006
Happy will pay P50 with 4% on December 30, 2007
Fanny will pay P50 with 5% on December 30, 2008
On December 31, 2006, Smiley can collect his P50 with 3% from any one of the debtors, but not the whole P150 because it is not
yet entirely due. The maturity of the other amounts should still be awaited. If maturity comes, Smiley can collect from any of the
debtors, because they are expressly solidary in liabilities, and not affected by the secondary stipulations.

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.

 Every solidary creditor is benefited by the useful acts of any one of them.
 If a solidary creditor performs an act which is not fair to his co-creditors, the act may have valid legal effects
or the obligation of the debtor due to them may be extinguished, but the performing creditor shall be
liable to his co-creditors.

 Question: May solidary creditors perform an act that is beneficial to others?

1213. A solidary creditor cannot assign his rights without the consent of the others.
Assign – transfer of right
 The assignee does not become a solidary creditor, and any payment made upon him by the debtor does not
extinguish the obligation. He is considered a STRANGER, and his acts are not binding to the solidarity.
DOCTRINE OF MUTUAL AGENCY - In solidary obligations, the act of one is act of the others.

 Exceptions to the doctrine:
1. Art. 1212 – a creditor may not perform an act prejudicial to other creditors

2. Art. 1213 – a creditor cannot transfer his right without consent

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.

 The debtor can pay any one of the solidary creditors. Such payment when accepted by any of the solidary
creditors will extinguish the obligation.
 To avoid confusion on the payment of the obligation, the debtor is required to ay only to the demanding
creditor and that payment is sufficient to effect the extinguishment of the obligation.
 In case two or more demands made by the other creditors, the first demand must be given priority.

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.

NOVATION – obligations are modified by:

1. Changing their object or principal conditions;
2. Substituting the person of the debtor; and
3. Subrogating (placing) a third person in the rights of the creditor. [Art. 1291]

COMPENSATION – takes place when two persons, in their own right, become creditors and debtors
of each other − the amount of one is covered by the amount of the other
Erap borrowed P100 from Fernando.
Fernando borrowed P75 from Erap.
Erap’s obligation to Fernando is now P25 only, because the original obligation was offset by Fernando’s supposed-
to-be obligation to Erap.

CONFUSION – takes place when the characters of creditor and debtor are merged in the same person.
Tito pays his debt to Vic with a check payable to “cash”.
Vic paid his debt to Joey with the same check.
Joey paid his debt to Tito, with the same check Tito issued to Vic.
Tito becomes paid by his own check. He becomes the debtor and the creditor of himself at the same time.

REMISSION – the gratuitous abandonment by the creditor of his right; acceptance of the obligor is necessary.
 These 4 modes of extinguishing obligations are acts prejudicial to the other solidary co-creditors because
these have the effect of extinguishing the debt or obligation which is due to all of them.
 The only recourse of the co-creditors is to let the one who executed any of those acts be liable for the shares
corresponding to all his co-creditors (in their internal agreement).

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.

 When there is passive solidarity, the creditor can proceed against:

 Any of the solidary debtors;
 Some of the solidary debtors;
 All of the solidary debtors, simultaneously.

Extrajudicial demands - first demand shall not prevent subsequent demands on the other co-debtors, if co-debtor
first to have been required to fulfill obligation did not act on it.

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.

Payment – consists in the delivery of the thing or the rendition (rendering) of the service whish is the object of the
obligation.

Interest – compensation for the use of borrowed money

Partial payment – the solidary debtor who made the partial payment is entitles to be reimbursed only for such
amount of money which he had paid and which exceeds his own share in the obligation.

If one of the debtors is insolvent and could not pay his share in the obligation, all solidary debtors including the
paying debtor shall share proportionately in the settlement of the corresponding share of the insolvent debtor. [In
short, his co-debtors will save his ass.]

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.

No reimbursement if:

1. Obligation PRESCRIBES
 The creditor did not make any demand for more than 10 years.
2. Obligation becomes ILLEGAL
 Law has been passed, making such prestation illegal.

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.

 Atty De Chavez: Ito ay provision sa tanga... (siyempre, 'pag nagbayad na, wala nang obligation, wala na
ding ireremit...)

 Any belated (delayed) remission by the creditor of the share of any of the debtor has no effect on the
internal relationship of the co-debtors.
Payment before remission: A, B, and C solidarily owe D P1,500.00. B paid the entire obligation. After which, D
remitted the share of C. B can collect P500.00 each from A and C even if the share of C in the obligation had been
remitted.

Remission before payment: A, B, and C solidarily owe D P1,500.00. D remitted the share of C. Thereafter, B paid
the entire obligation. B can collect P500.00 from A but not from C. However, B may ask D to give back P500, which
is the supposed-to-be share of C.

 After the prior payment of the entire obligation, there is nothing to remit because the obligation had been
extinguished.

1220. The remission of the whole obligation, obtained by one of the solidary debtors, does not entitle
him to reimbursement from his co-debtors.

 There is nothing to be reimbursed because he did not spend any money, the remission being a gratuitous
act.

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
and the payment of damages and 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.
Loss of the thing or impossibility of prestation –
1. NO FAULT – solidary debtors – obligation is extinguished
2. FAULT of any one of them – all are liable because of their mutual agency
3. FORTUITOUS EVENT – delay on the part of the debtors – all will be liable

 If the thing due was not lost, but there is merely a delay, fraud or negligence on the part of one of the
solidary debtors, all (including the innocent) debtors will share in the payment of the PRINCIPAL
prestation. The damages and interest imposed will be borne by the guilty debtor.
 Obligation to deliver is converted into an obligation to pay indemnity when there us loss or impossibility of
performance.

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 and of those which are personal to him, or pertain to his own
share. With respect to those which personally belong to the others, he may avail himself thereof only
as regards that part of the debt for which the latter are responsible.

DEFENSES OF A SOLIDARY DEBTOR:

1. Defense arising from the nature of the obligation – such as payment, prescription, remission, statute of
frauds, presence of vices of consent, etc.
2. Defenses which are personal to him or which pertains to his own share alone – such as minority, insanity
and others purely personal to him.
3. Defenses personal to the other solidary creditors but only as regards that part of the debt for which the
other creditors are liable.

Section 5 – Divisible and Indivisible Obligations

1223. The divisibility or indivisibility of the things that are the object of obligations in which there is
only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this Title.

DIVISIBILITY – refers to the susceptibility of an obligation to be performed partially.

 Obligation to deliver 100 sacks of rice or a particular type
INDIVISIBILITY – refers to the non-susceptibility of an obligation to partial performance.
 Obligation to deliver a particular computer set

If a thing could be divided into parts and as divided, its value is impaired disproportionately, that thing is
INDIVISIBLE.
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.

* Relate this provision to Articles 1165, 1208 and 1209.

JOINT INDIVISIBLE OBLIGATION – the object is indivisible but the liability of the parties is joint.

 The unfulfilled undertaking (duty) is converted into a monetary obligation which is not divisible.
 The guilty debtor is liable for damages.

1225. For the purposes of the preceding articles, obligations to give definite things and 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.

The following are considered INDIVISIBLE obligations:

1. Obligation to give definite things
2. Obligations which are not susceptible of partial performance
3. Even though the object or service may be physically divisible, it is indivisible if:
 a. the law so provides
b. when the parties intended it to be indivisible

The following obligations are deemed DIVISIBLE:

1. When the object of the obligation is the execution of a certain number of days of work
2. When the object of the obligation is the accomplishment of work measured in units
3. When the object of the obligation is susceptible of partial compliance
4. When the object of the obligation is such that the debtor is required to pay in installments

 If the contract is divisible, and a part of it is illegal, the illegal part is void, and the rest shall be valid and
enforceable.
 If the contract is indivisible, and a part of it is illegal, the entire contract is void.
 Partial performance of an indivisible obligation is tantamount to non-performance.

Section 6 – Obligations with a Penal Clause

1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and
the payment of interests in case of noncompliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the
fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of this
Code.

* An obligation with a penal clause may be defined as one to which an accessory undertaking is attached for the
purpose of insuring its performance by virtue of which the obligor is bound to pay a stipulated indemnity or
perform a stipulated prestation in case of breach.

 Purposes:

1. Funcion coercitiva o de garantia – to insure the performance of the obligation

2. Funcion liquidatoria – to liquidate the amount of damages to be awarded to the injured party in
case of breach of the principal obligation; and

3. Funcion estrictamente penal – in certain exceptional cases, to punish the obligor in case of
breach of the
principal obligation.

 This is an accessory obligation attached to the principal obligation, which imposes an additional liability in
case of breach of the principal obligation.
 It pushes the debtor to perform his obligation faithfully and without delay – within the period agreed upon,
or else, he suffers a fixed civil penalty without need of proving the damages of the other party.

The penalty imposable is a substitute for the indemnity for:

a. damages
b. payment of interest in case of breach of obligation -unless the contrary is
stipulated!

EXCEPTIONS – additional damages may be recovered from the

following acts:  If the debtor refuses to pay
the penalty
 If the debtor is guilty of fraud in the fulfillment of the obligation
 If there is express stipulation that the other damages or interests are demandable to the penalty
in the penal clause

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 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.
  A debtor cannot evade from payment of his principal obligation by choosing to pay the penalty stipulated,
except when the debtor is EXPRESSLY granted with the right to substitute the penalty for the principal
obligation. – an obligation with penalty clause cannot be turned to facultative obligation unless expressly
stipulated in the contract.
 The creditor cannot demand the stipulated fulfillment of the principal obligation and the penalty at the same
time, except
a. when the creditor was clearly given the right to enforce both the principal obligation and penalty;
b. when the creditor has demanded fulfillment of the obligation but cannot be fulfilled due to the
1. debtor’s fault – creditor may demand for penalty
2. creditor’s fault – he cannot claim the penalty
3. fortuitous event – principal obligation and penalty are extinguished

1228. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may
be demanded.

• As long as the agreement or contract is breached.

• The mere non-fulfillment of the principal obligation entitles the creditor to the penalty stipulated.
• The purpose of the penalty clause is precisely to avoid proving damages.

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 courts if it is iniquitous or unconscionable.

JUDICIAL REDUCTION OF PENALTY

 Principal obligation – partly complied with by the debtor (but not in indivisible obligation, because it is
tantamount to non-compliance)
 Principal obligation – complied not in accordance with the tenor of the agreement (refers to irregular
performance)  Penalty – iniquitous or unconscionable

 Judge’s power to reduce penalties are limited to private contracts.

INIQUITOUS OR UNCONSCIONABLE – when it is revolting to the conscience or common sense; grossly

disproportionate to the damages suffered.

PENALTY NOT ENFORCEABLE:

1. Impossible performance of principal obligation due to fortuitous events
2. Creditor prevented the debtor from fulfilling the obligation
3. Penalty is contrary to good morals or good customs
4. Both parties are guilty of breach of contract
5. Breach of contract by the creditor
6. None of the parties committed any willful or culpable violation of the agreement

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.

Because the penal clause is only an accessory to the principal obligation, it

cannot exist alone. If the penal clause is void, the principal obligation remains
enforceable.

The nullity of penal clause does not mean the nullity of

the principal. For example:
In case of non-payment of P10,000, P1,000 per day as penalty shall be imposed. It is a void contract but it is not
an excuse that you don't have to pay the principal which is P10,000.

CHAPTER 4
EXTINHGUISHMENT OF OBLIGATIONS

GENERAL PROVISIONS

1231. Obligations are extinguished:

5. by payment or performance
6. by loss of the thing due
7. by condonation or remission
 8. by confusion or merger of the rights of creditor and debtor
9. by compensation
10. by novation
Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a
resolutory condition, and prescription, are governed elsewhere in this Code.

1232. Payment means not only the delivery of money but also the performance, in any other manner of
an obligation.

Payment means not only delivery of money but also the performance.

• It is the fulfillment of the prestation due that 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 an obligation
• Requisites:
1. person who pays
2. the person to whom payment is made
3. the thing to be paid
4. the manner, time and place of payment etc
• The paying as well as the one receiving should have the requisite capacity
• Kinds:
1. normal –when the debtor voluntarily performs the prestation stipulated

2. abnormal – when he is forced by means of a judicial proceeding either to comply with prestation or to pay
indemnity

1233. A debt shall not be understood to have been paid unless the thing or service in which the
oligatoin consists has been completely delivered or rendered, as the case may be.
• States 2 requisites of payment:
a.) identity of prestation - the very thing or service due must be delivered or released
b.) integrity – prestation must be fulfilled completely
• Time of payment – the payment or performance must be on the date stipulated (may be made even on
Sundays or on
any holiday, although some, like the Negotiable Instruments Law, states that payment in such case may
be made on the next succeeding business day)
• The burden of proving that the obligation has been extinguished by payment devolves upon the debtor
who offers such a defense to the claim of the plaintiff creditor
• The issuance of a receipt is a consequence of usage and good faith which must be observed (although our
Code has no provision on this) and the refusal of the creditor to issue a receipt without just cause is a
ground for consignation under Art 1256 ( if a receipt has been issued by payee, the testimony alone of
payer would be insufficient to prove alleged payments)

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.
• In order that there may be substantial performance of an obligation, there must have been an attempt in
good faith to perform, without any willful or intentional departure therefrom
• The non-performance of a material part of a contract will prevent the performance from amounting to a
substantial compliance
• A party who knowingly and willfully fails to perform his contract in any respect, or omits to perform a
material part of it cannot be permitted under the protection of this rule to compel the other party to
perform; and the trend of the more recent decisions is to hold that the percentage of omitted or irregular
performance may in and of itself be sufficient to show that there has not been a substantial performance
• The party who has substantially performed may enforce specific performance of the obligation of the other
party or may recover damages for their breach upon an allegation of performance, without proof of
complete fulfillment.
• The other party, on the other hand, may by an independent action before he is sued, or by a counterclaim
after commencement of a suit against him, recover from the first party the damages which he has
sustained by the latter’s failure to completely fulfill his obligation

1235 – When the oblige accepts the performance, knowing its incompleteness or irregularity, and
without expressing any protest or objection, the obligation is deemed fully complied with
  A person entering into a contract has a right to insist on its performance in all particulars, according to its
meaning and spirit. But if he chooses to waive any of the terms introduced for his own benefit, he may do
so.
 But he is not obliged to accept anything else in place of that which he has contracted for and if he does not
waive this right, the other party cannot recover against him without performing all the stipulations on is
part
 To constitute a waiver, there must be an intentional relinquishment of a known right. A waiver will not result
from a mere failure to assert a claim for defective performance/payment. There must have been
acceptance of the defective performance with actual knowledge if the incompleteness or defect, under
circumstances that would indicate an intention to consider the performance as complete and renounce any
claim arising from the defect
 A creditor cannot object because of defects in performance resulting from his own acts or directions

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
 Reason for this article: whenever a third person pays there is a modification of the prestation that is due.
 Generally, the 3rd person who paid another’s debt is entitled to recover the full amount he paid. The law, however
limits his recovery to the amount by which the debtor has been benefited, if the debtor has no knowledge of, or has
expressed his opposition to such payment
 If the debt has been remitted, paid compensated or prescribed, a payment by a third person would constitute a
payment of what is not due; his remedy would be against the person who received the payment under such conditions
and not against the debtor who did not benefit from the payment
 payment against debtor’s will – even if payment of the third party is against the will of the debtor, upon payment by
the third party, the obligation between the debtor and creditor is already extinguished
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
• This article gives to the third person who paid only a simple personal action for reimbursement, without the
securities, guaranties and other rights recognized in the creditor, which are extinguished by the payment
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
ART 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 valied, without prejudice to the provisions of article
1427 under the Title on
“Natural Obligations”
 consignation will not be proper here. In case the creditor accepts the payment, the payment will not be valid
except in the case provided in article 1427

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
 the authority of a person to receive payment for the creditor may be
a.) legal – conferred by law (e.g.,guardian of the incapacitated, administrator of the estate of the deceased)
b.) conventional – when the authority has been given by the creditor himself (e.g., agent who is appointed to
collect from the debtor
• payment made by the debtor to a wrong party does not extinguish the obligation as to the creditor (void), if
there is no fault or negligence which can be imputed to the latter (even when the debtor acted in utmost
good faith, or through error induced by the fraud of the 3rd person). It does not prejudice the creditor and
the accrual of interest is not suspended by
it

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 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. (1163a)
  payment shall be considered as having benefited the incapacitated person if he made an intelligent and
reasonable use thereof, for purposes necessary or useful to him, such as that which his legal
representative would have or could have done under similar circumstances, even if at the time of the
complaint the effect of such use no longer exists (e.g., taxes on creditor’s property, money to extinguish a
mortgage on creditor’s property)
 the debtor is not released from liability by a payment to one who is not the creditor nor one authorized to
receive the payment, even if the debtor believed in good faith that he is the creditor, except to the extent
that the payment inured to the benefit of the creditor
 in addition to those mentioned above, payment to a third person releases the debtor:
a.) when, without notice of the assignment of credit, he pays to the original creditor
b.) when in good faith he pays to one in possession of the credit
 even when the creditor receives no benefit from the payment to a third person, he cannot demand payment
anew, if the mistake of the debtor was due to the fault of the creditor

1242. Payment made in good faith to any person in possession of the credit shall release the debtor.
(1164)
 the person in possession of the credit is neither the creditor nor one authorized by him to receive payment,
but appears under the circumstances of the case, to be the creditor. He appears to be the owner of the
credit, although in reality, he may not be the owner (e.g., an heir who enters upon the hereditary estate
and collects the credits thereof, but who is later deprived of the inheritance because of incapacity to
succeed)
 it is necessary not only that the possession of the credit be legal, but also that the payment be in good faith

1243. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain
the debt shall not be valid. (1165)
• the payment to the 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 the judgment in his favor.
• The debtor upon whom garnishment order is served can always deposit the money in court by way of
consignation and thus relieve himself from further liability
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. (1166a)
• Upon agreement of consent of the creditor, the debtor may deliver a different thing or perform a different
prestation in lieu of that stipulated. In this case there may be dation in payment or novation
• The 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

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. (n)
• This is the delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted
equivalent of the performance of the obligation.
• The property given may consist not only of a thing but also of a real right (such as a usufruct)
• Considered as a novation by change of the object
• Where the debt is money, the law on sale shall govern; in this case, the act is deemed to be a sale with
the amount of the obligation to the extent that it is extinguished being considered as price
• Difference between Dation and Cession (see Art. 1255)

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. (1167a)
 If there is disagreement between the debtor and the creditor as to the quality of the thing delivered, the
court should decide whether it complies with the obligation, taking into consideration the purpose and
other circumstances of the obligation
 Both the creditor and the debtor may waive the benefit of
this article  see Art. 1244

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. (1168a)
  This is because the payment is the debtor’s duty and it inures to his benefit in that he is discharged from the
burden of the obligation

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.
(1169a)
 The creditor who refuses to accept partial prestations does not incur delay except when there is abuse of
right or if good faith requires acceptance
 This article does not apply to obligations where there are several subjects or where the various parties are
bound under different terms and conditions

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 the abeyance. (1170)
 LEGAL TENDER - means such currency which in a given jurisdiction can be used for the payment of debts,
public and private, and which cannot be refused by the creditor
- That which a debtor may compel a creditor to accept in payment of debt.
 so long as the notes were legal tender at the time they were paid or delivered, the person accepting them
must suffer the loss if thereafter they became valueless
 the provisions of the present article have been modified by RA No. 529 which states that payments of all
monetary obligations should now be made in currency which is legal tender in the Phils. A stipulation
providing payment in a foreign currency is null and void but it does not invalidate the entire contract, and
R.A. 4100.
 A check, whether a manager’s check or an ordinary check is not legal tender and an offer of the check in
payment of debt is not a valid tender of payment

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. (n)
• Applies only where a contract or agreement is involved. It does not apply where the obligation to pay
arises from law, independent of contracts
• Extraordinary inflation of deflation may be said to be that which is unusual or beyond the common
fluctuations in the value of the currency, which parties could not have reasonably foreseen or which was
manifestly beyond their contemplation at the time when the obligation was constituted

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.(1171a)
• Since the law fixes the place of payment at the domicile of the debtor, it is the duty of the creditor to go
there and receive payment; he should bear the expenses in this case because the debtor cannot be made
to shoulder the expenses which the creditor incurs in performing a duty imposed by law and which is for
his benefit.
• But if the debtor changes his domicile in bad faith or after he has incurred in delay, then the additional
expenses shall be borne by him
• When the debtor has been required to remit money to the creditor, the latter bears the risks and the
expenses of the transmission. In cases however where the debtor chooses this means of payment, he
bears the risk of loss.

SUBSECTION 1
APPLICATION OF PAYMENTS
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. (1172a)
• Requisites:
1. 1 debtor and 1 creditor only
2. 2 or more debts of the same kind
3. all debts must be due
4. amount paid by the debtor must not be sufficient to cover the total amount of all the debts
• It is necessary that the obligations must all be due. Exceptions: (1) whe there is a stipulation to the
contrary; and (2) the application of payment is made by the party for whose benefit the term or period
has been constituted (relate to Art. 1196).
• It is also necessary that all the debts be for the same kind, generally of a monetary character. This
includes obligations which were not originally of a monetary character, but at the time of application of
payment, had been converted into an obligation to pay damages by reason of breach or nonperformance.
• If the debtor makes a proper application of payment but the creditor refuses to accept it because he
wants to apply it to another debt, such creditor will incur in delay
• RIGHT OF DEBTOR TO MAKE APPLICATION. If at the time of payment, the debtor does not exercise his
right to apply it to any of his debts, the application shall be understood as provided by law, unless the
creditor makes the application and his decision is accepted by the debtor. This application of payment can
be made by the creditor only in the receipt issued at the time of payment (although the application made
by creditor may be contested by the debtor if the latter’s assent to such application was vitiated by such
causes as mistake, violence, intimidation, fraud, etc)
• The debtor and the creditor by agreement, can validly change the application of payment already made
without prejudice to the rights of third persons acquired before such agreement
1253. If the debt produces interest, payment of the principal shall not be deemed to have been made
until the interests have been covered. (1173)
• Interest paid first before principal
• Applies both to compensatory interest (that stipulated as earnings of the amount due under the
obligation) and to interest due because of delay or mora on the part of the debtor
• SC held that this provision applies only in the absence of a verbal or written agreement to the contrary
(merely directory, not mandatory)

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. (1174a)
 As to which of 2 debts is more onerous is fundamentally a question of fact, which courts must determine on the basis
of the circumstances of each case
 Debts are not of the same burden (1st par.)– Rules:
1. Oldest are more onerous than new ones
2. One bearing interest more onerous than one that does not
3. secured debt more onerous than unsecured one
4. principal debt more onerous than guaranty
5. solidary debtor more onerous than sole debtor
6. share in a solidary obligation more onerous to a solidary debtor
7. liquidated debt more onerous than unliquidated
 Debts are of the same burden (2nd par.)– the payment shall be applied to all of them pro rata or proportionately.
 Example: debtor owes his creditor several debts, all of them due, to wit: (1) unsecured debt, (2) a debt secured with
mortgage of the debtor's property, (3) a debt with interest, (4) a debt in which the debtor is solidarily liable with
another.
Partial payment was made by the debtor, without specification as to which the payment should be applied.
The most onerous is (4), followed by (2), then (3), then (1). Consequently, payment shall be made in that order.
SUBSECTION 2
PAYMENT BY CESSION

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. (1175a)
• Cession is a special form of payment whereby the debtor abandons or assigns all of his property for the
benefit of his creditors so that the latter may obtain payment of their credits from the proceeds of the
property.
• Requisites:
1. plurality of debts
2. partial or relative insolvency of the debtor
3. acceptance of cession by the creditors
• Kinds of Cession:
1. Contractual (Art. 1255)
2. Judicial (Insolvency Law)
• Must be initiated by debtors
• Requires two or more creditors, debtors insolvent, cession accepted by creditors
• Such assignment does not have the effect of making the creditors the owners of the property of the
debtor unless there is an agreement to that effect

• Difference between Dation and Cession

DATION CESSION
may be 1 creditor many creditors
does not require insolvency requires partial or relative insolvency
delivery of a thing delivery of all the property
transfer of ownership of the property no transfer of ownership (only of possession and
administration)
a novation

payment extinguishes obligation (to the extent of the effect is merely to release debtor from the net proceeds
the value of the thing delivered) of the property; hence, partial extinguishment of obligation.

SUBSECTION 3
TENDER OF PAYMENT AND CONSIGNATION

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:
(1) When the creditor is absent or unknown, or does not appear at the place of payment;
(2) When he is incapacitated to receive the payment at the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. (1176a)
• Tender of payment : manifestation made by the debtor to the creditor of his desire to comply with his
obligation; The act of the debtor of offering to the creditor the thing or amount due
• Consignation : Deposit of the object or the amount due with the proper court after refusal or inability of
the creditor to accept the tender of payment
• Tender of payment by certified check is valid; a mere check would also be valid for tender of payment if
the creditor makes no prompt objection, but this does not estop the latter from later demanding payment
in cash
• When a tender of payment is made in such a form that the creditor could have immediately realized
payment if he had accepted the tender, followed by a prompt attempt of the debtor to deposit the means
of payment in court by way of consignation, the accrual of interest on the obligation will be suspended
from the date of such tender. But when the tender of payment is not accompanied by the means of
payment, and the debtor did not take any immediate step to make a consignation, then the interest is not
suspended from the time of such tender.

 GENERAL REQUISITES OF VALID CONSIGNATION vs SPECIAL REQUISITES

General Req : relative to payment (Arts. 1232 - 1251)
 Special Req : very nature of consignation (Arts. 1256 – 1258)

 Special Requisites of consignation: [DLN-DN]

1. [D] There was a debt due

2. [L] The consignation of the obligation was made because of some legal cause provided in the present
article

3. [N] That previous notice of the consignation has been given to persons interested in the performance of
the obligation

4. [D] The amount or thing due was placed at the disposal of the court

5. [N] After the consignation had been made the persons interested had been notified thereof

 If the reason for consignation is the unjust refusal of the creditor to accept payment, it must be shown:
1. That there was previous tender of payment, without which the consignation is ineffective
2. That the tender of payment was of the very thing due, or in case of money obligations that legal tender
currency was offered
3. That the tender of payment was unconditional and
4. That the creditor refused to accept payment without just cause

 Exception to requirement for tender of payment: [AIR-TT]

1. [A] When creditor is absent or unknown or does not appear at place of payment
2. [I] When he is incapacitated to receive payment

3. [R] When he refuses to give receipt, without just cause

4. [T] When two or more persons claim same right to collect

5. [T] When title of the obligation has been lost

 The 1st and 2nd Special Requisites of Consignation are embodied in Article 1256.
 As to the 2 nd requisite ([L] – legal cause) the following musst be present:

(a)the tender of payment must have been made prior to the consignation
(b)that it must have been unconditional [e.g. where the debtor tendered a check for P3,250 to the creditor as
payment of a debt conditioned upon the signing by the latter of a motion to dismiss a complaint for legal
separation, such tender of payment is invalid.]

(c) that the creditor must have refused to accept the payment without just cause [it is not necessary for the
court where the thing or the amount is deposited to determine whether the refusal of the creditor to
accept the same was with or without just cause. The question will be resolved anyway in a subsequent
proceeding. Hence, the mere refusal of the creditor to accept the tender of payment will be sufficient
(Manresa)]

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. (1177)
• The lack of notice does not invalidate the consignation but simply makes the debtor liable for the
expenses
• The tender of payment and the notice of consignation sent to the creditor may be made in the same act.
In case of absent or unknown creditors, the notice may be made by publication

• 1st paragraph of this article – pertains to the 3 rd Special Requisite of Consignation ([N] Previous Notice)
- Tender of Payment vs Previous Notice : the former is a friendly and private act manifested only to the
creditor; the latter is manifested also to other persons interested in the fulfillment of the obligation.
• 2nd paragraph of this article – pertains to the General Requisites of Consignation (Arts. 1232-1251), which
must be complied with
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. (1178)
 1st paragraph hereof - 4 th Special Requisite of Consignation ([D] Disposal of the Court)
- this is complied with if the debtor depostis the thing or amount with the Clerk of Court
 2nd paragraph hereof - 5 th Special Requisite of Consignation ([N]
Subsequent Notice) - this is to enable the creditor to withdraw the
goods or money deposited.

1259. The expenses of consignation, when properly made, shall be charged against the creditor.
(1179)
• The consignation is properly made when:
1.) after the thing has been deposited in court, the creditor accepts the consignation without objection and
without any reservation of his right to contest it because of failure to comply with any of the requisites for
consignation; and
2.) when the creditor objects to the consignation but the court, after proper hearing, declares that the
consignation has been validly made

*in these cases, the creditor bears the expenses of the consignation

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. (1180)
• Consignation has a retroactive effect and the payment is deemed to have been made at the time of the
deposit of the thing in court or when it was placed at the disposal of the judicial authority
• The effects of consignation are: 1.) the debtor is released in the same manner as if he had performed the
obligation at the time of the consignation because this produces the same effect as a valid payment, 2.)
the accrual of interest on the obligation is suspended from the moment of consignation, 3.) the
deteriorations or loss of the thing or amount consigned occurring without fault of the debtor must be
borne by the creditor, because the risks of the thing are transferred to the creditor from the moment of
deposit 4.) any increment or increase in value of the thing after the consignation inures to the benefit of
the creditor.
• When the amount consigned does not cover the entire obligation, the creditor may accept it, reserving his
right to the balance. If no reservations are made, the acceptance by the creditor of the amount consigned
may be regarded as a waiver of further claims under the contract

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. (1181a)
 When the consignation has already been made and the creditor has accepted it or it has been judicially
declared as proper, the debtor cannot withdraw the thing or amount deposited unless the creditor
consents thereto. If the creditor authorizes the debtor to withdraw the same, there is a revival of the
obligation, which has already been extinguished by the consignation, and the relationship of debtor and
creditor is restored to the condition in which it was before the consignation. But third persons, solidary co-
debtors, guarantors and sureties who are benefited by the consignation are not prejudiced by the revival
of the obligation between the debtor and the creditor

SECTION 2
LOSS OF THE THING DUE

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.

1263: In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind
does not extinguish the obligation. (n)
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. (n)

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. (1183a)

 3rd paragraph of Art. 1165: whe 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 liable for any fortuitious event until he has
effected the delivery
 Hence, in cases where Art. 1165, par. 3 is applicable, even if the debtor can prove that the loss of the thing
in his possession was not through his fault or that it was through a fortuitous event, he shall still be liable
to the creditor for damages.

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. (1184a)

LEGAL IMPOSSIBILITY : may either be -

1. direct (when the law prohibits the performance or execution of the work agreed upon, i.e. when it is
immoral or dangerous)
2. indirect (the law imposes duties of a superior character upon the obligor which are incompatible with the
work agreed upon, although the latter may be perfectly licit, as where the obligor is drafted for military
service or for a civil function)

PHYSICAL IMPOSSIBILTY : examples – death of the debtor; when there is an accident...

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. (n)
DOCTRINE OF UNFORESEEN EVENT / DOCTRINE OF RELATIVE IMPOSSIBILITY
(rebus sic stantibus)
It refers to obligation "to do" (personal obligation)
Parties are presumed to have the risk
It does not apply to aleatory contracts (insurance contract)
Excludes highly speculative business (stock exchange)
Monatory obligations are also excluded (governed by 1357)

Requisites:
1. event or change in the circumstances could have been foreseen of the time of the execution contract
2. it makes the performance of the contract extremely difficult but not impossible
3. the event must not be due to the act of any of the parties
4. the contract is for a future prestation. If the contract is of immediate fulfillment, the gross inequality of
the reciprocal prestations may be involve desion or want of cause.

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. (1185)

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. (1186)

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. (1187)

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 proving that the delivery of the document was made in virtue of payment of the debt.
(1188)
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. (1189)

1273. The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver
of the latter shall leave the former in force. (1190)

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. (1191a) * Aticles 1271 – 1274: examples of implied remission

SECTION 4
CONFUSION OR MERGER OF RIGHTS

1275. The obligation is extinguished from the time the characters of creditor and debtor are merged in
the same person. (1192a)
• Merger or confusion is the meeting in one person of the qualities of creator and debtor with respect to the
same obligation. It erases the plurality of subjects of the obligation. Further, the purposes for which the
obligation may have been created are considered as fully realized by the merger of the qualities of debtor
and creditor in the same person.
• Requisites of merger or confusion are:
(1) It must take place between the creditor and the principal debtor,
(2) the very same obligation must be involved, for if the debtor acquires rights from the creditor, but not
the particular obligation in question in question there will be no merger, (3) the confusion must be
total or as regards the entire obligation.
• The effect of merger is to extinguish the obligation.
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. (1193)
• The extinguishment of the principal obligation through confusion releases the guarantor’s because the
obligation of the latter is merely accessory. When the merger takes place in the person of a guarantor, the
obligation is not extinguished.

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. (1194)

SECTION 5
COMPENSATION

1278. Compensation shall take place when two persons, in their own right, are creditors and debtors of
each other.
(1195)
 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. It is the offsetting of two obligations
which are reciprocally extinguished if they are of equal value. Or extinguished to the concurrent amount if
of different values.
• Kinds of Compensation:
• As to their effects
• compensation may be total (when the two obligations are of the same amount); or
• partial (when the amounts are not equal).
• As to origin
1. it may be legal;
2. facultative;
3. conventional; 4. or judicial.
■ It is legal when it takes place by operation of law because all requisites are present.
■ It is facultative when it can be claimed by one of the parties, who, however, has the right to
object to it, such as when one of the obligations has a period for the benefit of one party alone
and who renounces that period so as to make the obligation due.
 ■ It is conventional when the parties agree to compensate their mutual obligations even if some
requisite is lacking.
■ It is judicial when decreed by the court in a case where there is a counterclaim.

Compensation vs. Payment: In compensation, there can be partial extinguishment of the obligation; in payment,
the performance must be completer, unless waived by the creditor. Payment involves delivery of action, while
compensation (legal compensation) takes place by operation of law without simultaneous delivery.
Compensation vs. Merger: In compensation, there are at least two persons who stand as principal creditors and
debtor of each other, in merger, there is only one person involved in whom the characters of creditor and debtor
are merged. In merger, there is only one obligation, while in compensation, there are two obligations involved.

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 be any retention or controversy, commenced by third persons and
communicated in due time to the debtor. (1196)
 For compensation to take place, the parties must be mutually debtors and creditors (1) in their own right,
and (2) as principals. Where there is no relationship of mutual creditors and debtors, there can be no
compensation. Because the 1st requirement that the parties be mutually debtors and creditors in their
own right, there can be no compensation when one party is occupying a representative capacity, such as
a guardian or an administrator. The 2nd requirement is that the parties should be mutually debtors and
creditors as principals. This means that there can be no compensation when one party is a principal
creditor in one obligation but is only a surety or guarantor in the other.
 The things due in both obligations must be fungible, or things which can be substituted for each other.
 Both debts must be due to permit compensation.
 Demandable means that the debts are enforceable in court, there being no apparent defenses inherent in
them. The obligations must be civil obligations, including those that are purely natural. An obligation is
not demandable, therefore, and not subject to compensation, in the following cases: (1) when there is a
period which has not yet arrived, including the cases when one party is in a state of suspension of
payments; (2) when there is a suspensive condition that has not yet happened; (3) when the obligation
cannot be sued upon, as in natural obligation.
 A debt is liquidated when its existence and amount is determined. Compensation can only take place
between certain and liquidated debts.

* The five requisites of a legal compensation are enumerated in the Article. All requisites must be present
before compensation can be effectual.
1. That each of the obligators be bound principally and that he be at the same time a principal creditor
of the other. The parties must be mutual creditor and debtor of each other and their relationship is a
principal one, that is, they are principal debtor and creditor of each other.
2. That both debts consist in such 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. >>When the debts consist of
money, there is not much of a problem when it comes to compensation to the concurrent amount. It
is a matter of mathematical computation. When the debt consist of things, it is necessary that the
things are consumable which must be understood as ‘fungible’ and therefore susceptible of
substitution. More than that they must be of the same kind. If the quality has been states, the things
must be of the same quality.
3. That the two debts are due. >> A debt is ‘due’ when its period of performance has arrived. If it is a
subject to a condition, the condition must have already been fulfilled. However, in voluntary
compensation, the parties may agree upon the compensation of debts which are not yet due.
4. That they be liquidated and demandable. >> A debt is considered ‘liquidated’ when its amount is
clearly fixed. Of if it is not yet specially fixed, a simple mathematical computation will determine its
amount or value. It is ‘unliquidated’ when the amount is not fixed because it is still subject to a
dispute or to certain condition. It is not enough that the debts be liquidated. It is also essential that
the same be demandable. A debt is demandable if it is not yet barred by prescription and it is not
illegal or invalid.
5. That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor. >> A debt of a thing cannot be a subject of compensation if
 the same had been subject of a garnishment of which the debtor was timely notified. When a credit or
property had been properly garnished of attached, it cannot be disposed of without the approval of
the court.

1280. Notwithstanding the provisions of the preceding article, the guarantor may set up compensation
as regards what the creditor may owe the principal debtor. (1197)
 The liability of the guarantor is only subsidiary; it is accessory to the principal obligation of the debtor. If the
principal debtor has a credit against the creditor, which can be compensated, it would mean the
extinguishment of the guaranteed debt, either totally or partially. This extinguishment benefits the
guarantor, for he can be held liable only to the same extent as the debtor.

Exception to the Rule On Compensation: Right of Guarantor to Invoke Compensation Against Creditor. The
general rule is that for compensation to operate, the parties must be related reciprocally as principal creditors and
debtors of each other. Under the present Article, the guarantor is allowed to set up compensation against the
creditor.

1281. Compensation may be total or partial. When the two debts are of the same amount, there is a
total compensation. (n)
• Total Compensation—debts are of the same amount.
• Partial Compensation—Debts are not of the same amount; operative only up to the concurrent amount.

1282. The parties may agree upon the compensation of debts which are not yet due. (n)
• 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. It is necessary, however, that the parties should have the capacity to dispose of the credits which
they compensate, because the extinguishment of the obligations in this case arises from their wills and
not from law.
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. (n)
Art. 1284. When one or both debts are rescissible or voidable, they may be compensated against each
other before they are judicially rescinded or avoided. (n)
• Although a rescissible or voidable debt can be compensated before it is rescinded or annulled, the moment
it is rescinded or annulled, the decree of rescission or annulment is retroactive, and the compensation
must be considered as cancelled. Recission of annulment requires mutual restitution; the party whose
obligation is annulled or rescinded can thus recover to the extent that his credit was extinguished by the
compensation, because to that extent he is deemed to have made a payment.

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. (1198a)
• Assignment after Compensation:
When compensation has already taken place before the assignment, inasmuch as it takes place ipso jure,
there has already been an extinguishment of one of the other of the obligations. A subsequent assignment
of an extinguished obligation cannot produce any effect against the debtor. The only exception to this rule
is when the debtor consents to the assignment of the credit; his consent constitutes a waiver of the
compensation, unless at the time he gives consent, he informs the assignor that he reserved his right to
the compensation.
• Assignment before compensation.
The assignment may be made before compensation has taken place, either because at the time of
assignment one of the debts is not yet due or liquidated, or because of some other cause which impedes
the compensation. As far as the debtor is concerned, the assignment does not take effect except from the
time he is notified thereof. If the notice of assignment is simultaneous to the transfer, he can set up
compensation of debts prior to the assignment. If notice was given to him before the assignment, this
takes effect at the time of the assignment; therefore the same rule applies. If he consents to the
assignment, he waives compensation even of debts already due, unless he makes a reservation.
 • But if the debtor was notified of the assignment, but he did not consent, and the credit assigned to a third
person matures after that which pertains to the debtor, the latter may set up compensation when the
assignee attempts to enforce the assigned credit, provided that the credit of the debtor became due
before the assignment. But it f the assigned credit matures earlier than that of the debtor, the assignee
may immediately enforce it, and the debtor cannot set up compensation, because the credit is not yet
due.
• If the debtor did not have knowledge of the assignment, he may set up by way of compensation all credits
maturing before he is notified thereof. Hence, if the assignment is concealed, and the assignor still
contracts new obligation in favor of the debtor, such obligation maturing before the latter learns of the
assignment will still be allowable by way of compensation. The assignee in such case would have a
personal action against the assignor.

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. (1199a)  This article applies to legal compensation and not to voluntary
compensation.

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. (1200a)
E. The prohibition of compensation when one of the debts arises from a depositum (a contract by virtue of
which a person [depositary] receives personal property belonging to another [depositor], with the
obligation of safely keeping it and returning the same) or commodatum (a gratuitous contract by virtue of
which one of the parties delivers to the other a non-consumable personal property so that the latter may
use it for a certain time and return it) is based on justice. A deposit of commodatum is given on the basis
of confidence in the depositary of the borrower. It is therefore, a matter of morality, the depositary or
borrower performs his obligation.
• With respect to future support, to allow its extinguishment by compensation would defeat its exemption
from attachment and execution. , and may expose the recipient to misery and starvation. Common
humanity and public policy forbid this consequence. Support under this provision should be understood,
not only referring to legal support, to include all rights which have for their purpose the subsistence of the
debtor, such as pensions and gratuities.

1288. Neither shall there be compensation if one of the debts consists in civil liability arising from a
penal offense.
(n)
 If one of the debts consists in civil liability arising from a penal offense, compensation would be improper and
inadvisable because the satisfaction of such obligation is imperative.
• The person who has the civil liability arising from crime is the only party who cannot set up the
compensation; but the offended party entitled to the indemnity can set up his claim in compensation of
his debt.
Art. 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. (1201)
• It can happen that a debtor may have several debts to a creditor. And vice versa. Under these
circumstances, Articles 1252 to 1254 shall apply.

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.
• Legal compensation takes place from the moment that the requisites of the articles 1278 and 1270 co-
exist; its effects arise on the very day which all its requisites concur.
• Voluntary of conventional compensation takes effect upon the agreement of the parties.
• Facultative compensation takes place when the creditor declares his option to set it up.
• Judicial compensation takes place upon final judgment.
• Effects of Compensation:
(1) Both debts are extinguished to the concurrent amount;
(2) interests stop accruing on the extinguished obligation of the part extinguished;
(3) the period of prescription stops with respect to the obligation or part extinguished;
(4) all accessory obligations of the principal obligation which has been extinguished are also extinguished.
 • Renunciation of Compensation. Compensation can be renounces, either at the time an obligation is
contracted or afterwards. Compensation rests upon a potestative right, and a unilateral decision of the
debtor would be sufficient renunciation. Compensation can be renounced expressly of impliedly.
• No Compensation. Even when all the requisites for compensation occur, the compensation may not take
place in the following cases: (1) When there is renunciation of the effects of compensation by a party; and
(2) when the law prohibits compensation.
(Unless otherwise indicated, commentaries are sourced from the Civil Code book IV by Tolentino).

SECTION 6
NOVATION
HOW OBLIGATIONS ARE MODIFIED

1291. Obligations may be modified by:

(1) Changing their object or principal condition
(2) Substituting the person of the debtor
(3) Subrogating a third person in the rights of a creditor
• Novation is the extinguishment of an obligation by a substitution or change of the obligation by a
subsequent one which extinguishes or modifies the first either by:
1. changing the object or principal conditions
2. by substituting the person of the debtor
3. subrogating a third person in the rights of the creditor
 Novation is a juridical act of dual function. At the time it extinguishes an obligation it creates a new one in
lieu of the old • Classification of Novation
• as to nature
1. Subjective or personal – either passive or active. Passive if there is substitution of the
debtor. Active if a third person is subrogated in the rights of the creditor.
2. Objective or real – substitution of the object with another or changing the principal
conditions
3. Mixed – Combination of subjective and objective
• as to form
• Express – parties declare that the old obligation is substituted by the new
• Implied – an incompatibility exists between the old and the new obligation that cannot stand together
• as to effect
1. Partial – when there is only a modification or change in some principal conditions of the
obligation
2. Total – when the old obligation is completely extinguished
• Requisites of Novation:

1. A previous valid obligation

2. Agreement of all parties

3. Extinguishment of the old contract – may be express of implied 4. Validity of the new one