Introduction to Law 3.

Moral Law
Law – any rule of action or any system of - Totality of the norms of good and right
uniformity conduct growing out of the collective
- Determines the activities of men as sense of right and wrong of every
rational beings and the movements or community (field of ethics)
motions of all objects or creation - The mores or way of life were then
evolved which where always considered
General Divisions of Law
right and correct, and obedience to
 Law in the strict legal sense
them was demanded by the group
- Promulgated and enforced by the state
- (Sanction) No definite legal sanction.
- State law
Only social reaction is produced. Public
 Law in the non-strict legal sense
displeasure or approval.
- Which is not promulgated and enforced
- (Binding force) It is not absolute.
by the state
Example: women’s fashion before and
- Divine. Natural, moral and physical law
today
Subjects of Law - Influences or shapes state law
1. Divine Law – is the law of religion and faith
4. Physical Law
(field of philosophical theology)
- Uniformities of actions & orders of
- Concerns itself with the concept of sin
sequence (field of physics)
- (Source) Formally promulgated by God
- Addressed to objects which have no
- Revealed or divulged to mankind by
power to disobey
means of direct revelation
- Order or regularity in nature which
- Embodied in the 10 commandments
certain results follow certain causes
- Embodied in the Muslim Quoran
- Is called law only by analogy
- (Sanction) certain rewards and
punishments in the present life or in the 5. State Law
life to come - Positive law, municipal law, civil law or
imperative law
2. Natural Law – divine inspiration in man of
- (Binding force) Enforced by the state
the sense of justice, fairness and
- Does not concern itself with violations
righteousness (field of metaphysics)
of the latter rules of action unless they
- Internal dictates of reason alone
also constitute violations of its
- Ever present and binding on all men
commands.
everywhere and at all times
- A basic understanding of right and
Concepts of State Law
wrong
1. General or abstract sense
- There are acts or conduct which man
- term refers to all the laws taken
knows in his heart and his conscience,
together
not by theorizing but by dictates of his
- the mass of obligatory rules established
moral nature, are simply good or bad or
for the purpose of governing the
evil
relations of persons in society
- Reasonable basis of state law
2. Specific or Material Sense
- The term has been defined as “a rule of
conduct, just, obligatory, promulgated
by legitimate authority, and of common
observance and benefit.”
Characteristics of Law
1. It is a rule of conduct.
2. It is obligatory.
3. It is promulgated by legitimate authority.
4. It is of common observance and benefit.
What does Law do?
1. Secures justice
2. Resolves social conflict
3. Orders society
4. Protects interests
5. Controls social relations
Sources of Law
1. Constitution
- Fundamental law or supreme law or
highest law of the land
- Law to which all other laws enacted by
the legislature must conform
2. Legislation
- Declaration of legal rules by a
competent authority
- Preponderant source of law in the
Philippines
- Enacted Law or Statute Law is the act
passed by the legislature
- Includes ordinances enacted by local
government units
3. Administrative rules and regulations
- Issued by administrative officials under
legislative authority
- Are intended to clarify or explain the
law and carry into effect its general
provisions
4. Judicial decisions
- The decisions of the court, particularly
the supreme court
- Applying or interpreting the laws or the
constitution form part of the legal
system of the Philippines
- Doctrine of Precedent or Stare Decisis
is the decision of a superior court on a
point of law, binding on all subordinate
courts
5. Customs
- Habits and practices which through long
and uninterrupted usage have become
acknowledged and approved by society
as binding rules of conduct
- It has the force of law when recognized
and enforced by the state
- Must be proved as a fact according to
the rules of evidence
- It may be applied by the courts in the
absence of law
6. Others
- Principles of justice and equity, decision
of foreign tribunals, opinion of
textwriters and religion
- Only supplementary
- Resorted to by the courts in the
absence of all the other sources
- Not binding on the courts
Rules in case of doubt in interpretation or
application of laws
 No judge or court shall decline to render
judgment by reason of silence, obscurity or
insufficiency of the laws
 In case of doubt in the interpretation or
applications of laws, it is presumed that the
lawmaking body intended right and justice
to prevail
Other organs of social control
 Churches
 Corporations
 Political parties
 Schools
 Professional organizations
 Families
Law compared with other means of social
control
1. Laws are made and administered by the
only institutions in society authorized to act
in behalf of the entire citizenry. Other
means of social control act only for their
members.
2. Only the legal institutions within the society
can make rules, regulations and orders in
which the entire citizenry must comply.
Other means of social control govern only
limited members.
3. People associated with other means of
social control can ordinarily terminate their
relationship and thereby free themselves
from the impact of its rules and regulations.
Citizens of a state cannot do this unless
they choose to leave the geographical area
which the state sovereign.
4. The sanction through law are more varied
and complex than the sanctions available to
the other means of social control.
5. Before the law operates against an
individual, various procedural steps are
required. Members of other means of social
control are generally not required to
comply with such procedures.
Organizations of courts
1. Regular Courts
1.1 Court of appeals
1.2 Regional Trial Courts (province & cities)
1.3 Metropolitan Trial Courts (metropolitan
areas)
1.4 Municipal Trial Courts
1.5 Municipal Circuit Trial Courts
The Supreme Court, the Court of Appeals and
the Regional Trial courts are considered courts
of general or superior jurisdiction.
2. Special Courts
2.1 Sandiganbayan – an anti-graft court
2.2 Court of Tax Appeals – tax court
3. Quasi-Judicial Agencies
- Administrative bodies under the
executive branch performing quasi-
judicial functions
3.1 Securities and Exchange Commission
3.2 Land Transportation Franchising and
Regulatory Board
Classifications of Law
1. As to its purpose
1.1 Substantive Law – law creating,
defining and regulating rights and
duties.
1.2 Adjective Law – law prescribing the
manner or procedure by which rights
may be enforced or their violations
redressed.
- Remedial law or procedural law
- Governed by the Rules of Court
promulgated by the Supreme Court and
by special laws
2. As to its subject matter
2.1 Public Law – the body of legal rules
which regulates the rights and duties
arising from the relationship of the
state to the people.
2.1.1 Criminal Law – law which
defines crimes and provides for
their punishment
 2.1.2 International Law – law which
governs the relations among
nations or states
2.1.3 Constitutional Law – law which
governs the relations between
the state and its citizens. It
establishes the fundamental
powers of the government
2.1.4 Administrative Law – governs
the methods by which the
functions of administrative
authorities are to be performed
2.1.5 Criminal Procedure – governs
the methods of trial and
punishment in criminal cases
2.2 Private Law
- the body of rules which regulates the
relations of individuals with one
another for purely private ends
- Law on Obligations and Contracts
comes under this heading because it
deals with the rights and obligations of
the contracting parties only
- The STATE is also involved in Private
Law but simply as an arbiter and not as
a party
- Civil law, commercial or mercantile law
and civil procedure
2.2.1 Civil Procedure – is the branch
of private law which provides
for the means by which private
rights may be enforced
“The law on obligations and contracts is the body
of rules which deals with the nature and sources
of obligations and the rights and duties arising
from agreements and the particular contracts.”
Civil Code of the Philippines (Republic Act No.
386) – Law on Obligations & Contracts can be
found
- Based mainly on Civil Code of Spain
- Civil Law is law found in our Civil Code
Conclusive presumption of knowledge of law
“Ignorance of law excuses no one from
compliance therewith.” “Everyone, therefore, is
conclusively presumed to know the law.”
The following reason for this presumption:
1. If laws will not be binding until they are
actually known, then social life will be
impossible, because most laws cannot be
enforced due to their being unknown to
many.
2. It is impossible to prove the contrary when
a person claims ignorance of the law.
3. It is absurd to absolve those who do not
know the law and increase the obligations
of those who know it.
4. In our conscience, we carry norms of right
and wrong, and sense of duty, so that our
reason indicates many times what we have
to do and in more complicated juridical
relations, there are lawyers who should be
consulted.
5. Evasion of the law would be facilitated and
the administration of Justice would be
defeated if persons could successfully plead
ignorance of the law to escape the legal
consequences of their acts, or to excuse
non-performance of their legal duties. The
rule, therefore, is dictated not only by
expediency but also by necessity.
CHAPTER 1: GENERAL PROVISIONS
ARTICLE 1156. An obligation is a juridical
necessity to give, to do or not to do.
Obligation
- Derived from the Latin word obligatio
which means tying or binding
- It is a tie or bond recognized by law by
virtue of which one is bound in favor of
another to render something
Juridical necessity
- The debtor must comply with his
obligation whether he likes it or not,
otherwise, his failure will have
undesirable consequences
NATURE OF OBLIGATIONS UNDER THE CIVIL
CODE
1. Civil Obligations – obligations which give to
the creditor or oblige a right under the law
to enforce their performance in courts of
justice
2. Natural Obligations – not being based on
positive law but on equity and natural law
- Do not grant a right of action to enforce
their performance although in case of
voluntary fulfillment by the debtor, the
latter may not recover what has been
delivered or rendered by reason
thereof.
ESSENTIAL REQUISITES OF AN OBLIGATION
1. Passive subject (debtor or obligor)
- The person who is bound to the fulfillment
of the obligation
- He who has a duty
2. An active subject (creditor or obligee)
- The person who is entitled to demand
the fulfillment of the obligation
- He who has a right
3. Object or prestation (subject matter of the
obligation)
- the conduct required to be observed by
the debtor
- It may consist in giving, doing, or not
doing
4. Juridical or legal tie (efficient cause)
- Binds or connects the parties to the
obligation
- The tie in an obligation can easily be
determined by knowing the source of
the obligation
Form of an obligation
- Refers to the manner in which an
obligation is manifested or incurred
- May be oral, or in writing, or partly oral
and partly in writing
1. The law does not require any form in
obligations arising from contracts for
their validity or binding force.
2. Obligations arising from other sources
do not have any form at all.
Obligation – is the act or performance which
the law will enforce
Right – is the power which a person has under
the law, to demand from another any
prestation
Wrong – is an act or omission of one party in
violation of the legal right or rights
- The term injury is also used to refer to
the wrongful violation of the legal right
of another
- A wrong or cause of action only arises
at the moment a right has been
transgressed or violated
- The essential elements of a legal
wrong or injury:
1. A legal right in favor of a person
2. A correlative legal obligation on
the part of another
3. An act or omission by the latter
in violation of said right with
resulting injury or damage to
the former
KINDS OF OBLIGATION ACCORDING TO THE
SUBJECT MATTER
1. Real Obligation
- Obligation to give
- The subject matter is a thing which the
obligor must deliver to the oblige
2. Personal Obligation
- Obligation to do or not to do
- The subject matter is an act to be done
or not to be done
2.1 Positive Personal Obligation – to do or
to render service
2.2 Negative Personal Obligation – not to
do or not to give
SOURCES OF OBLIGATIONS
1. Law – imposed by law (ex: tax)
2. Contracts – stipulation (ex: repay loan)
3. Quasi-contracts – arise from lawful,
voluntary and unilateral acts
4. Crimes, or Acts or Omission punished by
law – arise from civil liability which is the
consequence of the criminal offense
5. Quasi-delicts or torts – faults or negligence
but no contractual relation exists between
the parties
CLASSIFICATION OF SOURCES OF OBLIGATIONS
1. Emanating from law
2. Emanating from Private Acts
2.1 Licit acts – contracts & quasi contracts
2.2 Illicit acts – crimes & quasi delicts
ART. 1158. Obligations derived from law are not
presumed. Only those expressly determined in
this Code or in special laws are demandable,
and shall be regulated by the precepts of the
law which establishes them; and as to what has
not been foreseen, by the provisions of this
Book.
ART. 1159. Obligations arising from contracts
have the force of law between the contracting
parties and should be complied with in good
faith.
Contract
- Is a meeting of mind between two
persons whereby one binds himself,
with respect to the other to give
something or to render some service
- As a source of enforceable obligation,
contract must be valid and it cannot be
valid if it’s against the law
- A contract is valid if it is not contrary to
law, morals, goo customs, public order
and public policy
- A void contract does not exist, meaning,
no obligations will arise.
- A breach of contract takes place when
a party fails or refuses to comply
without legal reason, with his obligation
under the contract as promised.
Compliance in good faith
- Performance in accordance with the
stipulations or terms of the contract or
agreement
- Sincerity and honesty must be observed
to prevent one party from taking unfair
advantage over the other
ART. 1160. Obligations derived from quasi-
contracts shall be subject to the provisions of
Chapter 1, Title XVII, of this Book.
Quasi-contract
- Juridical relation resulting from lawful,
voluntary and unilateral acts by virtue
of which the parties become bound to
each other to the end that no one will
be unjustly enriched or benefited at the
expense of another.
- Not properly a contract at all because
there is no consent of both parties
KINDS OF QUASI-CONTRACTS Quasi-delict
1. Negotiorum gestio – is the voluntary - Is an act or omission by a person which
management of the property of another causes damage to another in his
without the knowledge or consent of the person, property, or rights giving rise to
latter obligation to pay for the damage done,
there being fault or negligence but
2. Solutio indebiti – is the juridical relation
there is no pre-existing contractual
which is created when something is
relation between the parties
received when there is no right to demand
it and it was unduly delivered through REQUISITES OF QUASI-DELICT
mistake 1. There must be an act or omission
2. There must be fault or negligence
ART. 1161. Civil obligations arising from
3. There must be damage caused
criminal offenses shall be governed by the
4. There must be a direct relation or
penal laws, subject to the provisions of Article
connection of cause and effect between the
2177, and of the pertinent provisions of Chapter
act or omission and the damage
2, Preliminary Title on Human Relations,16 and
5. There is no pre-existing contractual relation
of Title XVIII of this Book, regulating damages.
between the parties
1. Every person criminally liable for an act or
CRIMES DISTINGUISHED FROM QUASI-DELICT
omission is also civilly liable for damages.
There is criminal or There is only
2. A person not criminally responsible may still
malicious intent or negligence.
be liable civilly. Such as failure to pay criminal negligence.
contractual debt, causing damage to Affects public Concerns
another’s property without criminal intent interest. private interest.
or negligence. Criminal and civil There is only civil
liability. liability.
SCOPE OF CIVIL LIABILITY The purpose is Indemnification of
Civil liability arising from crimes is governed by punishment. the offended party.
the Revised Penal Code and the Civil Code. Criminal liability The liability for quasi-
1. Restitution – return or pay the value cannot be delict can be
compromised or compromised as any
2. Reparation for the damage caused
settled by other civil liability.
3. Indemnification for consequential
the parties
damages – to pay the damages suffered by themselves.
the other party The guilt of the The fault or
(Indemnify – to secure against loss or damage. accused must be negligence of the
Other term: compensate, reparation, restitute) proved beyond defendant
reasonable need only be proved
Doubt. by preponderance of
ART. 1162. Obligations derived from quasi-
evidence.
delicts shall be governed by the provisions of
Chapter 2, Title XVII of this Book, and by special
laws.
CHAP 2: NATURE & EFFECTS OF OBLIGATIONS
ART. 1163. Every person obliged to give
something is also obliged to take care of it with
the proper diligence of a good father of a family,
unless the law or the stipulation of the parties
requires another standard of care.
(Refers to an obligation determinate thing)
Specific or Determinate thing
- Particularly designated or physically
segregated others of the same class
- Identified by its individuality
- The debtor cannot substitute it with
another although the latter is of the
same kind and quality without the
consent of the creditor
Generic or Indeterminate thing
- When it refers only to a class or genus
to which it pertains and cannot be
pointed out with particularly
- Identified only by its specie
- The debtor can give anything of the
same class as long as it is of the same
kind
DUTIES OF THE DEBTOR IN OBLIGATION TO
GIVE A SPECIFIC OR DETERMINATE THING
1. Preserve the thing
a. Diligence of a good father – ordinary
care
b. Another standard of care-
extraordinary care (diligence of a very
cautious person) ex. Common carrier
2. Deliver the fruits of the thing
3. Deliver the accessions and accessories
4. Deliver the thing itself
5. Answer for damages in case of non-
fulfillment or breach
DUTIES OF THE DEBTOR IN OBLIGATION TO
GIVE A GENERIC THING
1. To deliver a thing which is of the quality
intended by the parties taking into
consideration the purpose of the obligation
and other circumstances
2. To be liable for damages in case of fraud,
negligence, or delay, in the performance of
his obligation, or contravention of the tenor
thereof.
ART. 1164. The creditor has a right to the fruits
of the thing from the time the obligation to
deliver it arises. However, he shall acquire no
real right over it until the same has been
delivered to him.
DIFFERENT KIND OF FRUITS
1. Natural fruits – spontaneous products of
the soil, and the young and other products
of the animals (grass, trees and plants)
2. Industrial fruits – those produced by lands
of any kind through cultivation of labor
(sugar cane, rice)
3. Civil fruits – are those derived by virtue of a
juridical relation (rents of buildings)
RIGHT OF CREDITOR TO THE FRUITS
 The creditor is entitled to the fruits of the
thing to be delivered from the time the
obligation to make delivery arises.
- Generally, the obligation to deliver
the thing and the fruits arises from
the time of the ‘perfection of the
contract’
- If the obligation is subject to a
suspensive condition, the obligation
to deliver the thing and the fruits
arises from the fulfillment of the
condition.
- In a contract of sale, he obligation
to deliver the thing and the fruits
 arises from the perfection of
contract even if the obligation is
subject to a suspensive condition.
Personal Right
- Is the right or power of creditor to
demand from the debtor the fulfillment
of the latter’s obligation to give, to do,
or not to do.
- There is a definite active subject and a
definite passive subject
- Binding or enforceable only against a
particular person
Real Right
- The right or interest of a person over a
specific thing
- There is only a definitive active subject
- Directed against the world
ART. 1165. When what is to be delivered is a
determinate thing, the creditor, in addition to
the right granted him by Article 1170, may
compel the debtor to make the delivery.
If the thing is indeterminate or generic,
he may ask that the obligation be complied with
at the expense of the debtor.
If the obligor delays, or has promised to
deliver the same thing to two or more persons
who do not have the same interest, he shall be
responsible for any fortuitous event until he has
effected the delivery.
REMEDIES OF CREDITOR IN REAL OBLIGATION
 In a SEPECIFIC REAL OBLIGATION, the
creditor may exercise the following rights
in case the debtor fails to comply with his
obligation
1. Demand specific performance or
fulfillment (the very thing itself must be
delivered) of the obligation with a right
to indemnity for damages
2. Demand rescission or cancellation of
the obligation also with a right to
recover damages
3. Demand payment for damages only
where it is the only feasible remedy
 In a GENERIC REAL OBLIGATION, the
creditor may exercise the following rights
in case the debtor fails to comply with his
obligation
1. The obligation can be performed by a
third person since the object is
expressed only according to its family or
genus
2. It is not necessary for the creditor to
compel the debtor to make the delivery
3. The creditor has the right to recover
damages
WHEN THE FORTUITOUS EVENT DOES NOT
EXEMPT THE DEBTOR FROM RESPONSIBILITY
1. If the obligor delays
2. If the obligor has promised delivery to
different creditors.
 The debtor shall be responsible for any
fortuitous event until he has effected the
delivery. (refers to determinate thing)
 An indeterminate thing cannot be the
object of destruction by a fortuitous event
because genus never perishes.
ART. 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
- are the fruits of a thing or additions to
or improvements upon a thing
- not necessary to the principal thing
- is also used in the sense of a right
Accessories
- are things joined to or included with the
principal thing for the latter’s
embellishment, better use or
completion
- must go together with the principal
RIGHT OF CREDITOR TO ACCESSIONS AND
ACCESSORIES
 The general rule is that all accessions and
accessories are considered included in an
obligation to deliver a determinate thing.
ART. 1167. If a person obliged to do something
fails to do it, the same shall be executed at his
cost. This same rule shall be observed if he does
it in contravention of the tenor of the
obligation. Furthermore, it may be decreed that
what has been poorly done be undone.
(Refers to an obligation to do)
SITUATIONS CONTEMPLATED IN ARTICLE 1167
1. The debtor fails to perform an obligation to
do
2. The debtor performs an obligation to do but
contrary to the terms
3. The debtor performs an obligation to do but
in poor manner
REMEDIES OR RIGHTS OF CREDITOR IN
POSITIVE REAL OBLIGATION
1. If the debtor fails to perform an obligation
to do, the creditor has the right to
a. To have the obligation performed by
himself or by another, unless personal
considerations are involved at the
debtor’s expense
b. To recover damages
2. If the debtor performs an obligation to do
but contrary to the terms or if the debtor
performs an obligation to do but in poor
manner
a. It may be ordered that it be undone if it
is still possible to undo what was done
ART. 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.
 In an obligation not to do, the duty of the
obligor is to abstain from an act
 The very obligation is fulfilled in not doing
what is forbidden
 In this kind of obligation, the debtor cannot
be guilty of delay
 The remedy of the creditor is the undoing
of the forbidden thing plus damages
 If it cannot be undone, the remedy of the
creditor is an action for damages caused by
debtor’s violation of his obligation
ART. 1169. Those obliged to deliver or to do
something incur in delay from the time the
obligee judicially or extra-judicially demands
from them the fulfillment of their obligation.
However, the demand by the creditor
shall not be necessary in order that delay may
exist:
(1) When the obligation or the law expressly so
declares; or
(2) When from the nature and the
circumstances of the obligation it appears that
the designation of the time when the thing is to
be delivered or the service is to be rendered
was a controlling motive for the establishment
of the contract; or
(3) When demand would be useless, as when
the obligor has rendered it beyond his power to
perform.
In reciprocal obligations, neither party
incurs in delay if the other does not comply or
is not ready to comply in a proper manner with
what is incumbent upon him. From the moment
one of the parties fulfills his obligation, delay by
the other begins.
Ordinary delay
- is merely the fault to perform an
obligation on time
Legal delay or default or mora
- The failure to perform an obligation on
time which failure constitutes a breach
of the obligation
KINDS OF DELAY OR FAULT
1. MORA SOLVENDI – the delay on the part of
the debtor (to give or to do)
2. MORA ACCIPIENDI – the delay on the part
of the creditor to accept the performance
of the obligation
3. COMPENSATIO MORAE – the delay of the
obligors in reciprocal obligations
REQUISITES OF DELAY OR DEFAULT BY THE
DEBTOR
Three conditions must be present before mora
solvendi can exist or its effect may arise:
1. Failure of the debtor to perform his
obligation on the date agreed upon
2. Demand made by the creditor upon the
debtor to comply with his obligation
3. Failure of the debtor to comply with such
demand
EFFECTS OF DELAY - MORA SOLVENDI
1. The debtor is guilty of breach or violation of
the obligation
2. The debtor is liable for interest or damages
3. The debtor is liable even for a fortuitous
event when the obligation is to deliver a
determinate thing
EFFECTS OF DELAY – MORA ACCIPIENDI
1. The creditor is guilty of breach of obligation
2. The creditor is liable for damages suffered
by the debtor
3. The creditor bears the risk of los of the
thing due
4. When the obligation is to pay money, the
debtor is not liable for interest from the
time of creditor’s delay
5. The debtor may release himself from the
obligation by the consignation or deposit in
court of the thing or sum due
EFFECTS OF DELAY – COMPENSATIO MORAE
1. There is no default or delay in the part of
both parties
2. The liability of the first infractor shall be
equitably tempered or balanced by the
court
3. If cannot be determined which of the
parties is guilty of delay, the contract shall
be deemed extinguished and shall bear his
own damages
WHEN DEMAND IS NECESSARY TO PUT
DEBTOR IN DELAY
General rule: Delay by the debtor begins only
from the moment a demand is made by the
creditor.
1. When the obligation so provides
2. When the law so provides
3. When time is of the essence
4. When demand would be useless
5. When there is a performance by a party in
reciprocal obligations (compensation
morae)
ART. 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.
GROUNDS FOR LIABILITY
There is a breach when a person fails or
refuses to perform his obligation without legal
justification.
1. Fraud (Deceit or dolo) contractual
- It is the deliberate or intentional obligation
evasion of the normal fulfillment of an Liability for fraud Liability for
obligation cannot be mitigated negligence may be
- It implies some kind of malice or or reduced by courts reduced according to
dishonesty the circumstances.
- It cannot cover cases of mistake and
errors of judgement made in good faith ART. 1171. Responsibility arising from fraud is
- Synonyms to bad faith because it demandable in all obligations. Any waiver of an
involves a design to mislead or deceive action for future fraud is void. (1102a)
another  This refers to incidental fraud which is
1.1 INCIDENTAL FRAUD (DOLO employed in the fulfillment of an obligation
INCIDENTE)  Responsibility arising from fraud can be
- committed in the performance demanded with respect to all kinds of
of an obligation already existing obligation
because of contract  The court is not given the power to mitigate
1.2 CAUSAL FRAUD (DOLO
or reduce the damages to be awarded
CAUSANTE)
- Fraud employed in the  Fraud may be past or future
execution of a contract which  Waiver for future fraud is void. It is against
vitiates consent the law and public policy.
2. NEGLIGENCE (FAULT OR CULPA)  A past fraud can be the subject of a valid
- Any voluntary act or omission, there waiver.
being no bad faith or malice, which - Considered as an act of generosity and
prevents the normal fulfillment of an magnanimity on the part of the party
obligation who is the victim of the fraud
3. Delay (Mora)
ART. 1172. Responsibility arising from
4. Contravention of the terms of the
negligence in the performance of every kind of
obligations obligation is also demandable, but such liability
- This is the violation of the terms and may be regulated by the courts, according to
conditions stipulated in the obligation the circumstances.
- The contravention must not be due to a  The debtor is liable for damages resulting
fortuitous event or force majeure from his negligence
 The courts are given wide discretion in
FRAUD NEGLIGENCE fixing the measure of damages
There is a deliberate There is no such
 When both parties to a contract are
intention to cause intention negligent in the performance of their
damage or injury respective obligations, the fault of one may
Waiver for future Such waiver may be cancel or neutralize the negligence of the
fraud is void allowed in negligence other.
Fraud must be clearly Negligence is
proved presumed from the
violation of a
VALIDITY OF WAIVER OF ACTION ARISING
FROM NEGLIGENCE
1. An action of future negligence may be
renounced except when the nature of the
obligation requires the exercise of
extraordinary diligence as in the case of
common courier.
2. Where negligence shows bad faith, it is
considered a fraud. Therefore, any future
waiver is void.
KIND OF NEGLIGENCE ACCORDING TO SOURCE
OF OBLIGATION
1. Contractual Negligence (Culpa Contractual)
- Negligence in contracts resulting in
their breach
- Not a source of obligation
- Merely makes the debtor liable for
damages in view of his negligence in the
fulfillment of a pre-existing obligation
2. Civil Negligence (Culpa Aquiliana)
- Negligence which by itself is the source
of obligation between the parties not
related before by any preexisting
contract
- Also called tort or quasi-delict
3. Criminal Negligence
- Negligence resulting in the commission
of a crime
EFFECTS OF NEGLIGENCE ON THE PART OF THE
INJURED PARTY
 When the plaintiff’s own negligence was
the immediate and proximate cause of his
injury, he cannot recover damages
 If the plaintiff’s negligence was only
contributory, the immediate and proximate
cause of the injury being the defendant’s
lack of due care, the plaintiff may recover
damages, but the courts shall mitigate the
damages to be awarded
ART. 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 the time and of the place. When
negligence shows bad faith, the provisions of
Articles 1171 and 2201, paragraph 2, shall
apply.
If the law or contract does not state the
diligence which is to be observed in the
performance, that which is expected of a good
father of a family shall be required.
Fault or Negligence
- Is the failure to observe for the
protection of the interests of another
person, that degree of care, precaution
and vigilance with the circumstance
justly demand, whereby such other
person suffers injury
- Question of fact
FACTORS TO BE CONSIDERED
1. Nature of obligation
2. Circumstances of the person
3. Circumstances of time
4. Circumstances of the place
Damages
- Signify the money compensation
awarded to a party for loss or injury
resulting from breach of contract or
obligation by the other
- The purpose of awarding damages is to
place the innocent party in the same
position he would have occupied if the
contract or obligation had been
performed according to its terms
KINDS OF DILLIGENCE REQUIRED
1. That agreed upon by parties, orally or in
writing
2. In the absence of stipulation, that required
by law in particular case (like extraordinary
diligence required for common carriers)
3. If both the contract and law are silent, then
the diligence expected of a good father of a
family (ordinary care)
ART. 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
- It is an event either impossible to
foresee or impossible to avoid
- A happening independent of the will of
the debtor and which happening makes
the normal fulfillment of the obligation
impossible
ACTS OF MAN
- Fortuitous event that is independent on
the will of the obligor but not of other
human wills
- War, robbery, murder
ACTS OF GOD or FORCE MAJEURE
- Events which are totally independent
will of every human being
- Earthquake, flood, rain, lightning
KINDS OF FORTUITOUS EVENTS
1. Ordinary fortuitous events
- Those events which are common and
which the contracting parties could
reasonably foresee (ex. Rain)
2. Extra-ordinary fortuitous events
- Those events which are uncommon and
which the contracting parties could not
have reasonably foreseen (ex.
Earthquake, fire)
REQUISITES OF A FORTUITOUS EVENT
1. The event must be independent of the
human will or at least of the debtor’s will
2. The event could not be foreseen, or if
foreseen, is inevitable
3. The event must be of such a character as to
render it impossible for the debtor to
comply with his obligation in a normal
manner
4. The debtor must be free from any
participation in or the aggravation of, the
injury to the creditor, that is, there is no
concurrent negligence on his part
RULES AS TO LIABILITY IN CASE OF
FORTUITOUS EVENT
A person is not responsible for loss or damage
resulting from the non-performance of his
obligation due to fortuitous event. The
exceptions:
1. When expressly specified by law
1.1 Debtor is guilty of fraud, negligence or
delay
1.2 Debtor has promised to deliver the
same specific thing to two or more
persons
1.3 The obligation to deliver a specific thing
arises from crime
1.4 The thing to be delivered is generic
2. When declared by stipulation
3. When the nature of obligation requires the
assumption of risk
ART. 1175. Usurious transactions shall be
governed by special laws.
Simple loan or mutuum
- Is a contract whereby one of the parties
delivers to another, money or other
consumable thing, upon the condition
that the same amount of the same kind
and quality shall be paid
Usury
- is contracting for or receiving interest in
excess of the amount allowed by law
 for the load or use of money, goods,
chattels or credits.
REQUISITES FOR RECOVERY OF INTEREST
1. The payment of interest must be expressly
stipulated
2. The agreement must be in writing
3. The interest must be lawful
 The rate interest and other charges on a
loan or any kind shall not be subject to any
ceiling prescribed under Usury Law
 Usury is now legally non-existent
 Parties are now free to stipulate any
amount of interest
 However, it does not give absolute right to
the creditor to charge the debtor interest
that is ‘iniquitous or unconscionable’
(unconscionable = excessive)
ART. 1176. The receipt of the principal by the
creditor, without reservation with respect to
the interest, shall give rise to the presumption
that said interest has been paid.
The receipt of a later installment of a
debt without reservation as to prior
installments, shall likewise raise the
presumption that such installments have been
paid.
Presumption
- Is meant the interference of a fact not
actually known arising from its usual
connection with another which is
known or proved
TWO KINDS OF PRESUMPTION
1. Conclusive Presumption
- One which cannot be contradicted
2. Disputable Presumption
- One which can be contradicted or
rebutted by presenting proof to the
contrary
WHEN PRESUMPTIONS IN ARTICLE 1176 DO
NOT APPLY
1. With reservation as the interest
2. Receipt without indication of particular
installment paid
3. Receipt for a part of the principal
4. Payment of taxes
5. Non-payment proven
ART. 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 TH
SATISFACTION OF THEIR CLAIMS
1. Exact fulfillment with the right to damages
2. Pursue the leviable property of the debtor
3. After having pursued the property in the
possession of the debtor, exercise all the
rights and bring all the actions of the debtor
4. Ask the court to rescind or impugn acts or
contracts which the debtor may have done
to defraud him when we cannot in any
other manner recover his claim
ART. 1178. Subject to the laws, all rights
acquired in virtue of an obligation are
transmissible, if there has been no stipulation
to the contrary.
The exceptions to this rule
1. Prohibited by the law
1.1 By the contract of partnership
1.2 By the contract of agency
1.3 By the contract of commodatum
2. Prohibited by stipulation of parties
CHAPTER 3: DIFFERENT KIND OF OBLIGATIONS SUSPENSIVE RESOLUTORY
SECTION 1. — Pure & Conditional Obligations CONDITION CONDITION
ART. 1179. Every obligation whose If fulfilled, the
If fulfilled, the
performance does not depend upon a future or obligation is
obligation arises
uncertain event, or upon a past event unknown extinguished
to the parties, is demandable at once. If it does not take If it does not take
Every obligation which contains a place, the tie of the place, the tie of law
resolutory condition shall also be demandable, law does not appear is consolidated
without prejudice to the effects of the
happening of the event. Until it takes place,
Until it takes place, its effects flow, but
Pure obligation the existence of the over it hovers the
- Is one which is not subject to any condition law is a mere hope possibility of
termination
- No specific date is mentioned for its
fulfillment therefore, immediately WHEN OBLIGATION IS DEMANDABLE AT ONCE
demandable 1. When it is pure
2. When it is subject to a resolutory condition
Conditional obligation
3. When it is subject to a resolutory period
- Is one whose consequences are subject in
4. Obligation not to do
one way or another to the fulfillment of a
condition ART. 1180. When the debtor binds himself to
pay when his means permit him to do so, the
Condition
obligation shall be deemed to be one with a
- Is a future and uncertain event, upon the period, subject to the provisions of Article 1197.
happening of which, the effectivity or
extinguishment of an obligation subject to it Period
depends - Is a future and certain event upon the
arrival of which the obligation subject to it
CHARACTERISTICS OF CONDITION either arises or is extinguished
1. Future and uncertain
2. Past but unknown WHERE DURATION OF PERIOD DEPENDS UPON
THE WILL OF DEBTOR
PRINCIPAL KINDS OF CONDITION 1. The debtor promises to pay when his means
1. Suspensive condition permit him to do so
- Condition precedent / condition antecedent 2. Other cases as when the debtor binds
- The fulfillment of which will give rise to an himself to pay
obligation 2.1 little by little
- The demandability of the obligation is 2.2 as soon as possible
suspended until the happening of the 2.3 from time to time
uncertain event which constitutes the 2.4 at any time I have money
condition 2.5 in partial payments
2. Resolutory condition Condition subsequent 2.6 when I am in a position to pay
- The fulfillment of which will extinguish an
obligation already existing
ART. 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.
EFFECTS OF HAPPENING OF CONDITION
1. Acquisition of rights
2. Loss of rights already acquired
ART. 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.
CLASSIFICATIONS OF CONDITIONS
1. As to effect
1.1 Suspensive – the happening of which
gives rise to the obligation
1.2 Resolutory – the happening of which
extinguishes the obligation
2. As to form
2.1 Express – the condition is clearly stated
2.2 Implied – the condition is merely
inferred
3. As to possibility
3.1 Possible – the condition is capable of
fulfillment, legally & physically
3.2 Impossible – the condition is not
capable of fulfillment, legally &
physically
4. As to cause or origin
4.1 Potestative – the condition depends
upon the will of one of the conracting
parties
4.2 Causal – the condition depends upon
chance or upon the will of a third
person
4.3 Mixed - the condition depends partly
upon chance and partly upon the will of
a third person.
5. As to mode
5.1 Positive – the condition consists in the
performance of an act
5.2 Negative – the condition consists in the
omission of an act
6. As to number
6.1 Conjunctive – there are several
conditions and all must be fulfilled
6.2 Disjunctive – there are several
conditions and only one or some of
them must be fulfilled
7. As to divisibility
7.1 Divisible – the condition is susceptible
of partial performance
7.2 Indivisible – the condition is not
susceptible of partial performance
Potestative condition
- A condition suspensive in nature
- Which depends upon the sole will of one of
the contracting parties
WHERE SUSPENSIVE CONDITION DEPENDS
UPON WILL OF DEBTOR
1. Conditional obligation is void
- Compliance is left to the will of debtor,
therefore it cannot be easily demanded
2. Only the condition is void
- If the obligation is a pre-existing one and,
therefore does not depend for its existence
upon the fulfillment
WHERE SUSPENSIVE CONDITION DEPENDS
UPON WILL OF CREDITOR
• The obligation is valid.
WHERE RESOLUTORY CONDITION DEPENDS
UPON WILL OF DEBTOR
• The obligation is valid although its
fulfillment depends upon the will of the
debtor
CAUSAL CONDITION
• If the suspensive condition depends upon a
chance or upon the will of a third person,
the obligation subject to it is valid
MIXED CONDITION
• If the suspensive condition depends partly
upon chance or upon the will of a third
person, the obligation subject to it is valid
ART. 1183. Impossible conditions, those
contrary to good customs or public policy and
those prohibited by law shall annul the
obligation which depends upon them. If the
obligation is divisible, that part thereof which is
not affected by the impossible or unlawful
condition shall be valid.
The condition not to do an impossible
thing shall be considered as not having been
agreed upon.
• Refers to suspensive conditions
• It applies only to cases where the
impossibility already existed at the time the
obligation was constituted
TWO KINDS OF IMPOSSIBLE CONDITIONS
1. Physically impossible conditions
2. Legally impossible conditions
EFFECTS OF IMPOSSIBLE CONDITIONS
1. Conditional obligation is void
- Both the obligation & the condition are void
2. Conditional obligation valid
- If the condition is negative, that is, not to
do an impossible thing
3. Only the affected obligation void
- If the obligation is divisible, the part not
affected by the impossible condition shall
be valid
4. Only the condition void
- If the obligation is a pre-existing obligation
and therefore, does not depend upon the
fulfillment of the condition
ART. 1184. The condition that some event
happen at a determinate time shall extinguish
the obligation as soon as the time expires or if
it has become indubitable that the event will
not take place.
• Refers to positive (suspensive) condition
which is the happening of an event at a
determinate time
IN POSITIVE CONDITION, THE OBLIGATION IS
EXTINGUISHED
1. As soon as the time expires without the
event taking place
2. As soon as it has become indubitable that
the event will not take place although the
time specified has not expired
ART. 1185. The condition that some event will
not happen at a determinate time shall render
the obligation effective from the moment the
time indicated has elapsed, or if it has become
evident that the event cannot occur.
If no time has been fixed, the condition
shall be deemed fulfilled at such time as may
have probably been contemplated, bearing in
mind the nature of the obligation.
• Refers to a negative condition that an event
will not happen at a determinate time.
IN NEGATIVE CONDITION, THE OBLIGATION
SHALL BECOME EFFECTIVE AND BINDING
1. From the moment the time indicated has
elapsed without the event taking place
2. From the moment it has become evident
that the event cannot occur, although the
time indicated has not yet elapsed
ART. 1186. The condition shall be deemed
fulfilled when the obligor voluntarily prevents
its fulfillment.
CONSTRUCTIVE FULFILLMENT OF
SUSPENSIVE/RESOLUTORY CONDITION
1. The condition is suspensive
2. The obligor actually prevents the fulfillment
of the condition
3. The debtor acts voluntarily
ART. 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.
RETROACTIVE EFFECTS OF FUFILLMENT OF
SUSPENSIVE CONDITION
1. In obligations to give
- Becomes demandable only upon the
fulfillment of the condition
- Once the condition is fulfilled, its effects
shall retroact to the day when the
obligation was constituted
2. In obligations to do or not to do
- No fixed rule is provided
- The court has the power to decide that the
fulfillment of the condition shall have no
retroactive effect or from what date such
retroactive effect shall take place
RETROACTIVE EFFECTS AS TO FRUITS AND
INTERESTS IN OBLIGATIONS TO GIVE
1. In reciprocal obligations
- No retroactivity because the fruits &
interests received during the pendency of
the condition are deemed to have been
mutually compensated
2. In unilateral obligations
- There is usually no retroactive effect
because they are gratuitous
- The debtor receives nothing from the
creditor thus, fruits and interests belong to
the debtor unless from the nature and
circumstances
ART. 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.
RIGHTS PENDING FULFILLMENT OF
SUSPENSIVE CONDITION
1. RIGHTS OF THE CREDITOR
• He may take or bring appropriate actions
for the preservation of his right, as the
debtor may render nugatory the obligation
upon the happening of the condition
• He may go to court to prevent the
alienation or concealment of the property
the debtor has bound himself to deliver
2. RIGHTS OF THE DEBTOR
• He is entitled to recover what he has paid
by mistake prior to the happening of the
suspensive condition
Solution indebiti – is based on the principle that
no one shall enrich himself at the expense of
the other
ART. 1189. When the conditions have been
imposed with the intention of suspending the
efficacy of an obligation to give, the following
rules shall be observed in case of the
improvement, loss or deterioration of the thing
during the pendency of the condition:
(1) If the thing is lost without the fault of the
debtor, the obligation shall be extinguished;
(2) If the thing is lost through the fault of the
debtor, he shall be obliged to pay damages; it is
understood that the thing is lost when it
perishes, or goes out of commerce, or
disappears in such a way that its existence is
unknown or it cannot be recovered;
(3) When the thing deteriorates without the
fault of the debtor, the impairment is to be
borne by the creditor;
(4) If it deteriorates through the fault of the
debtor, the creditor may choose between the
rescission of the obligation and its fulfillment,
with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by
time, the improvement shall inure to the
benefit of the creditor;
(6) If it is improved at the expense of the debtor,
he shall have no other right than that granted
to the usufructuary.
REQUISITES FOR APPLICATION OF ART. 1189
1. The obligation is a real obligation
2. The object is a specific or determinate thing
3. The obligation is subject to a suspensive
conditions
4. The condition is fulfilled
5. There is a loss, deterioration or
improvement of the thing during the
pendency of the condition
KINDS OF LOSS
1. Physical loss
2. Legal loss
3. Civil loss
RULES IN CASE OF LOSS, DETERIORATION OR
IMPROVEMENT OF THING DURING PENDENCY
OF SUSPENSIVE CONDITION
1. Loss of thing without debtor’s fault
- The obligation is extinguished
2. Loss of thing through debtor’s fault
- Creditor will be entitled to demand
damages plus incidental damages
3. Deterioration of thing without debtor’s
fault
- The creditor will have to suffer the
deterioration of the amount said
4. Deterioration of thing through debtor’s
fault
- Creditor may choose rescission or
cancellation of the obligation plus damags
- Creditor may choose for the debtor to fulfill
the obligation plus damages
5. Improvement of thing by nature or by time
- The improvement must be benefited by the
creditor
6. Improvement of thing at expense of debtor
- The debtor will have the right on the
improvement made
Usufruct – is the right to enjoy the use and
fruits of a thing belonging to another
ART. 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 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.
EFFECTS OF FULFILLMENT OF RESOLUTORY
CONDITION
1. In obligations to give
- The obligation is extinguished
- Parties are obliged to return to each other
what they have received under the
obligation
2. In obligations to do or not to do
- The courts shall determine the retroactive
effect of the fulfillment of resolutory
condition
ART. 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.
KINDS OF OBLIGATION ACCORDING TO THE
PERSON OBLIGED
1. Unilateral
- when only one party is obliged to comply
with prestation
2. Bilateral
- when both parties are mutually bound to
each other
- Both parties and debtors and creditors of
each other
2.1 Reciprocal obligations
- Those which arise from the same cause
- Each party is a debtor and creditor of
the other
- Performance of one is designed to be
the equivalent and the condition for the
performance of each other
2.2 Non-reciprocal obligations
- Those which do not impose
simultaneous and correlative
performance on both parties
- The performance of one party is not
dependent upon the simultaneous
performance of the other
REMEDIES IN RECIPROCAL OBLIGATIONS
(alternative not cumulative)
1. Choice of remedies – the aggrieved party
may choose between:
1.1 action for specific performance of the
obligation plus damages
1.2 action for rescission of the obligation
plus damages
2. Remedy of rescission for non-compliance –
breach by the other contracting party
LIMITATIONS ON RIGHT TO DEMAND
RECISSION
1. Resort to the courts – the injured party has
to resort to the courts to assert his right
judicially
2. Power of the court to fix period
3. Right of a third person – if the thing is in
the hands of a third person who acted in
good faith, rescission is not available as a
remedy
4. Substantial violation – rescission will not be
granted for slight breaches of contract
5. Waiver of right
RESCISSION WITHOUT PREVIOUS JUDICIAL
DECREE
1. Where automatic rescission expressly
stipulated – the parties may validly enter
into an agreement that violation of the
terms of the contract would cause
cancellation
2. Where contract still executory – where
there is no performance by both parties,
but one is ready and willing to comply and
the other is not
ART. 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.
SECTION 2. — Obligations with a Period As to effect, Empowers the Invalidates
ART. 1193. Obligations for whose fulfillment a when left to court to fix the the
day certain has been fixed, shall be demandable debtor’s duration thereof obligation
only when that day comes. will
Obligations with a resolutory period As to The arrival of a The
take effect at once, but, terminate upon arrival retroactivity period doesn’t happening
of the day certain. effects have a retroactive of a
A day certain is understood to be that effect condition
which must necessarily come, although it may has a
not be known when. retroactive
If the uncertainty consists in whether effect
the day will come or not, the obligation is
conditional, and it shall be regulated by the KINDS OF PERIOD OR TERM
rules of the preceding section. 1. According to effect
1.1 Suspensive period – the obligations
Obligation with a period
begin only from a day certain upon the
- Is one whose effects or consequences are
arrival of period
subjected in one way or another to the
1.2 Resolutory period – the obligation is
expiration or arrival of said period or term
valid up to a day certain and terminates
Period upon arrival of the period
- Is a future and certain event upon the arrival
2. According to source
of which the obligation subject to it either
2.1 Legal period – when it is provided for
arises or terminated
by the laws
- It is a day certain which must necessarily
2.2 Conventional or voluntary period –
come
when it is agreed by both parties
PERIOD CONDITION 2.3 Judicial period – when it is fixed by the
As to A certain event Is an court
fulfillment which must uncertain
happen at a date event 3. According to definiteness
known 3.1 Definite period – when it is fixed or its
beforehand or known when it will come
not
3.2 Indefinite period – when it is not fixed
As to time Refers only to Past and
future future or it is not known when it will come
As to Merely fixes the Causes - Where the period is not fixed but a
influence on time for obligation period is intended, the courts are
the efficaciousness of to either usually empowered by law to fix the
obligation the obligation. arise or same
If suspensive – it cease
cant prevent the
ART. 1194. In case of loss, deterioration or
birth of the
improvement of the thing before the arrival of
obligation
the day certain, the rules in Article 1189 shall be
If resolutory –
observed.
cannot invalidate
the fact that the
obligation existed
ART. 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.
• Applies only to obligation to give
• Allows the recovery of what has been paid
by mistake before the fulfillment of a
suspensive condition
• Has no application to obligations to do or
not to do
ART. 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.
• The period is presumed to have been
established for the benefit of both the
creditor and debtor
• It means before the expiration of the
period, the debtor may not fulfill the
obligation and neither the creditor may
demand its fulfillment
EXCEPTIONS TO THE GENERAL RULE
1. Term is for the benefit of the debtor alone
2. Term is for the benefit of the creditor alone
COMPUTATION OF TERM OR PERIOD
1. Legal periods
• Year = 12 calendar months
• Month = 30 days
• Day = 24 hours
• Night = sunset to sunrise
2. Calendar month
• 1 calendar month from Jan 31 = Feb 1 – 28
ART. 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.
• If the obligation does not state a period and
no period is intended, the court is not
authorized to fix a period
• The courts have no right to make contracts
for the parties
EXCEPTIONS TO THE GENERAL RULE
1. No period is fixed but a period was
intended
2. Duration of the period depends upon the
will of the debtor
LEGAL EFFECT WHERE SUSPENSIVE
PERIOD/CONDITION DEPENDS UPON THE WILL
OF DEBTOR
1. The existence of the obligation is not
affected. Only the performance with
respect to time that is left to the will of the
debtor
2. The conditional obligation is void
ART. 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.
WHEN OBLIGATION CAN BE DEMANDED
BEFORE LAPSE OF PERIOD
1. When debtor becomes insolvent
2. When debtor does no furnish guaranties or
securities promised
3. When guaranties or securities given have
been impaired or have disappeared
4. When debtor violates an undertaking
5. When debtor attempts to abscond
SECTION 3. — Alternative Obligations
ART. 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.
KINDS OF OBLIGATION ACCORDING TO OBJECT
1. Simple obligation – one where there is only
one prestation
2. Compound obligation – one where there
are two or more prestations
2.1 Conjunctive obligation – there are
several prestations & all of them are
due
2.2 Distributive obligation – where two or
more of the prestations are due
2.2.1 Alternative obligation – several
prestations are due but
performance of 1 is sufficient.
The choice belongs to the
debtor
2.2.2 Facultative obligation – one
where only one prestation is
due but the debtor may
substitute another
ART. 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.
RIGHT OF CHOICE OF DEBTOR IS NOT
ABSOLUTE
The right of choice of the debtor is subject to
limitations:
1. The debtor cannot choose those prestations
which are
1.1 Impossible
1.2 Unlawful
1.3 Which could not have been the object
of the obligation
2. The debtor has no more right of choice
when among the prestations, only one is
practicable. The obligation become simple.
The right of choice does not pass to the
creditor, nor may it be exercised by one,
unless stipulated.
3. The debtor cannot choose part of one
prestation and part of another prestaton
ART. 1201. The choice shall produce no effect
except from the time it has been
communicated.
• The obligation remains alternative until the
choice is made and communicated
• Once the notice of election/choice has been
given to the creditor, the obligation ceases
to be alternative and becomes simple
• Choice made and communicated is
irrevocable, therefore, cannot be changed
by either party without the consent of the
other
• The burden of proving that such
communication has been made is upon him
who made the choice. The law does not
require any particular form regarding the
notice.
ART. 1202. The debtor shall lose the right of
choice when among the prestations whereby he
is alternatively bound, only one is practicable.
• If only one is practicable, the obligation is
converted into a simple one
ART. 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.
• Rescission – creates the obligation to return
the things which were the object of the
contract together with their fruits, and the
price with its interest
• The nature of an alternative obligation is
that the debtor can make his choice without
the consent of the creditor
• The debtor has the right to rescind the
contract and recover damages if he cannot
make a choice because of the creditor’s
fault
ART. 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.
EFFECTS OF LOSS OF OBLIGATION
1. Some of the objects have been lost
• With or without the fault of the debtor,
the debtor is not liable and he still has
the right of choice and the obligation
can still be performed
2. All of the objects have been lost
• If through fortuitous event, the
obligation is extinguished
• If through the debtor’s fault, the
creditor has the right to indemnity
BASIS OF INDEMNITY
• The value of the last thing which
disappeared (referring to obligations to
give)
• The service which last became impossible
(referring to obligations to do)
ART. 1205. When the choice has been expressly
given to the creditor, the obligation shall cease
to be alternative from the day when the
selection has been communicated to the
debtor.
Until then the responsibility of the
debtor shall be governed by the following rules:
(1) If one of the things is lost through a
fortuitous event, he shall perform the
obligation by delivering that which the creditor
should choose from among the remainder, or
that which remains if only one subsists;
(2) If the loss of one of the things occurs through
the fault of the debtor, the creditor may claim
any of those subsisting, or the price of that
which, through the fault of the former, has
disappeared, with a right to damages;
(3) If all the things are lost through the fault of
the debtor, the choice by the creditor shall fall
upon the price of any one of them, also with
indemnity for damages.
The same rules shall be applied to
obligations to do or not to do in case one, some
or all of the prestations should become
impossible.
RULES IN CASE OF LOSS BEFORE CREDITOR HAS
MADE CHOICE
1. When a thing is lost through a fortuitous
event, the creditor can choose from among
the remainder
2. When a thing is lost through debtor’s fault,
the creditor can choose from among the
remainder with a right to damages
3. When all things are lost through debtor’s • If the substitute is loss, the liability of the
fault, the creditor can demand payment of debtor depends upon whether or not the
the price of any one of the choices with loss is due to his fault
right to indemnify damages
4. When all things are lost through a ALTERNATIVE FACULTATIVE
fortuitous event the obligation of the Several Only one
prestations are prestation is due

# of prestations
debtor shall be extinguished and article
1174 shall apply due but although the
compliance with debtor is allowed
ART. 1206. When only one prestation has been one is sufficient. to substitute it.
agreed upon, but the obligor may render
another in substitution, the obligation is called
facultative.
The loss or deterioration of the thing
The right of The right to make
intended as a substitute, through the
negligence of the obligor, does not render him choice may be substitution is

Right of choice
liable. But once the substitution has been given to the given only to the
made, the obligor is liable for the loss of the creditor or third debtor.
substitute on account of his delay, negligence or person.
fraud.
Facultative obligation
• Is one where only one prestation has been
The loss of one The loss of the
agreed upon but the obligor may render
or more of the thing due
Loss through a fortuitous

another in substitution
alternatives extinguishes the
• Once the substitution is made, the
does not obligation.
obligation is converted into a simple one
extinguish the
• Substitution becomes effective from the
obligation.
time it has been communicated
event

EFFECT OF LOSS
1. Before substitution
• If the principal thing is lost through a
fortuitous event, the obligation is
1) The lost of 1) The loss of the
extinguished. If not, the debtor is liable for one of the thing due, makes
damages alternative, the debtor liable
• The loss of the thing intended as a doesn’t render
2) The loss of the
Loss through a fault of

substitute with or without the fault of the the debtor

liable. substitute before
debtor, does not render him liable
2) If the choice the substitution,
2. After substitution belongs to the doesn’t render him
• If the principal thing is lost, the debtor is creditor, the liable
debtor

not liable because it is no longer due loss of

alternative gives
rise to liability
SECTION 4. — Joint and Solidary Obligations
ART. 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 prestations. There is a
solidary liability only when the obligation
expressly so states, or when the law or the
nature of the obligation requires solidarity.
ART. 1208. If from the law, or the nature or the
wording of the obligations to which the
preceding article refers the contrary does not
appear, the credit or debt shall be presumed to
be divided into as many equal shares as there
are creditors or debtors, the credits or debts
being considered distinct from one another,
subject to the Rules of Court governing the
multiplicity of suits.
KINDS OF OBLIGATIONS ACCORDING TO THE
NUMBER OF PARTIES
1. Individual obligation – one where there is
only one obligor or one oblige
2. Collective obligation – one where there are
two or more debtors and/or two or more
creditors. It may be joint or solidary.
JOINT OBLIATION
• Where the whole obligation is to be paid or
fulfilled proportionately by the different
debtors and/or is to be demanded
proportionately by the creditors
• Words used to indicate joint liability:
1. Mancomunada
2. Mancomunadamente
3. Pro rata
4. Proportionately
5. “We promise to pay.” signed by 2 or
more persons
WHERE COLLECTIVE OBLIGATION PRESUMED
TO BE JOINT
1. If the debtor is liable for a certain amount
to the creditor
2. Where there is a plurality of parties and the
share of each in the obligation is specified,
the correlative rights and obligations of the
parties are known
3. Where the share of each debtor is not
specified, the presumption is that the
obligation is joint
CONSEQUENCE OF THE PRESUMPTION THAT
THE OBLIGATION IS JOINT
1. There are as many debts as there as debtors
2. There are as many credits as there are
creditors
3. The debts and/or credits are considered
distinct and separate from one another
4. Each debtor is liable only for a
proportionate part of the debt
5. Each creditor is entitled only to a
proportionate part of the credit
SOLIDARY OBLIGATIONS
• Where each one of the debtors is bound to
render and/or each one of the creditors has
a right to demand from any of the debtors,
entire compliance with the prestation
• Words used to indicate solidarity are:
1. Jointly and/or severally
2. Solidaria
3. In solidum
4. Together and/or separately
5. Individually or collectively
6. Juntos o separadamente
7. “I promise to pay.” Signed by two or
more persons
WHEN COLLECTIVE OBLIGATION IS SOLIDARY
1. When the obligation expressly so states
2. When the law requires solidarity
3. When the nature of the obligation requires
solidarity
4. When it is imposed in a final judgement
against several defendants
KINDS OF SOLIDARITY
1. According to the parties bound
1.1 Passive solidarity – solidarity on the
part of the debtors, where any one of
them can be made liable for the
fulfillment of the entire obligation
- It is in the nature of a mutual
guaranty
- The creditor may demand payment
from either of the debtors, or both
of the debtors
1.2 Active solidarity – solidarity on the part
of the creditors, where any of them can
demand the fulfillment of the entire
obligation
- Its essential feature is that of
mutual representation among the
solidary creditors with powers to
exercise the rights of others in the
same manner as their rights
- A debtor may pay either of the
creditors or both.
- If not yet paid, any of the creditor
can demand the payment from the
debtor
1.3 Mixed solidarity – solidarity on the part
of the debtors and creditors
- Each one of the debtors is liable to
render and each one of the
creditors has a right to demand
- The agreement between debtors
has nothing to do with the
agreement of the creditors
2. According to source
2.1 Conventional solidarity – where
solidarity is agreed upon by the parties
- If nothing is mentioned in the
contract relating to solidarity, the
obligation is joint
2.2 Legal solidarity – where solidarity is
imposed by the law
2.3 Real solidarity – where solidarity is
imposed by the nature of the obligation
ART. 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.
• Refers to a joint indivisible obligation
• The obligation is joint because the parties
are merely proportionately liable
• It is joint as to liabilities of the debtors or
rights of the creditors but indivisible as to
compliance
• The unwilling debtor shall be liable for
damages to creditor for having violated the
obligation
• If Debtor X and Debtor Y suffered damages
by reason of the non-fulfillment of Debtor
Z, they may recover from Debtor Z
• Should anyone of the debtors be insolvent,
the others shall not be liable for their
share
ART. 1210. The indivisibility of an obligation
does not necessarily give rise to solidarity. Nor
does solidarity of itself imply indivisibility.
• Liability in an indivisible obligation may be
either joint or solidary
• In a solidary obligation, the subject matter
may be divisible or indivisible
Indivisibility Solidarity
Refers to the Refers to the juridical
prestation or legal tie
Only the debtor All of the debtors are
guilty of breach of liable for the breach
obligation is liable for of the obligation
damages committed by one
Can exist even if There must be at
there is only 1 debtor least 2 debtors & 2
& 1 creditor creditors
The others are not The other debtors
liable in case of are proportionately
solvency of 1 debtor liable
ART. 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.
KINDS OF SOLIDARY OBLIGATION ACCORDING
TO THE LEGAL TIE
1. Uniform – when the parties are bound by
the same stipulations
2. Non-uniform or varied – when the parties
are not subject to the same stipulations
SOLIDARITY NOT AFFECTED BY DIVERSE
STIPULATIONS
• The essence of solidarity exists in the right
of each creditor to enforce the rights of all
and the liability of each debtor to answer
for the liabilities to all.
• There may be a solidary obligation although
the parties may not be bound to same
manner and by the same periods and
conditions
ART. 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.
ART. 1213. A solidary creditor cannot assign his
rights without the consent of the others.
• In the absence of consent, a solidary
creditor cannot assign his rights to a third
person
• If the assignment is made to a co-creditor,
the consent of the other creditors is not
necessary
ART. 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 upon whom no demand has
been made, may pay any one of the solidary
creditors
ART. 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 Art. 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.
• Creditor who executed any of the said acts
should be liable to the others for their
corresponding shares considering that such
acts are prejudicial to them. (solidary)
• Any of the said acts does extinguish or
modify the obligation except with respect
to the creditor or debtor affected, without
extending its operation to any other debts
or credits
(novation is a substitution of new legal
obligation for an old one)
ART. 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.
ART. 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.
EFFECTS OF PAYMENT BY A SOLIDARY DEBTOR
1. Full payment by one of the solidary debtors
extinguishes the obligation
2. The paying solidary debtor can demand
reimbursement from his co-debtors
3. The receiving creditor is jointly liable to the
others for their corresponding shares.
ART. 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.
CASES WHEN THE PAYING DEBTOR CANNOT
GET ANY REIMBURSEMENT
1. When the obligation has already
prescribed
2. When the obligation become illegal
Prescription – one acquires ownership and
other rights through the lapse of time in the
manner and under the conditions laid down by
law
The following actions must be brought within
10 years from the time the right of action
accrues
1. Upon a written contract
2. Upon an obligation created by law
3. Upon a judgment
The following actions must be commenced
within 6 years
1. Upon an oral contract
2. Upon a quasi-contract
The following actions must be instituted within
4 years
1. Upon an injury to the rights of the plaintiff
2. Upon a quasi-delict
• The statue of limitations may be modified
by a contract between the parties
ART. 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.
• If payment is made first, the remission or
waiver is no effect
• If remission is made previous to the
payment and payment is made, solution
indebiti rises
• The purpose of this article is to forestall
fraud
• This article also secures equality and justice
to the paying debtor
ART. 1220. The remission of the whole
obligation, obtained by one of the solidary
debtors, does not entitle him to reimbursement
from his co-debtors.
ART. 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 extra-
judicial demand upon him by the creditor, the
provisions of the preceding paragraph shall
apply.
RULES IN CASE THING HAS BEEN LOST OR
PRESTATION HAS BECOME IMPOSSIBLE
• If the thing is lost or destroyed through a
fortuitous event without the fault of any of
the debtors, and before they have incurred
delay, the obligation shall be extinguished.
• If the loss is due to fault on the part of a
solidary debtor, all debtors shall be
responsible with damages.
• If the loss is without fault but after delay, all
debtors shall be responsible for the price
plus damages.
ART. 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 AVAILABLE TO A SOLIDARY DEBTOR
1. Defenses derived from the nature of
obligation
- Complete defense
- fraud, prescription, remission,
illegality, non-performance of a
suspensive condition
2. Defenses personal to, or which pertain to
share of, debtor sued
- Incapacity, mistake, violence,
minority
3. Defenses personal to other solidary
debtors
SECTION 5. Divisible and Indivisible Obligations
ART. 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.
DIVISIBLE OBLIGATION – is one the object of
which, in its delivery or performance, is capable
of partial fulfillment
INIDIVISIBLE OBLIGATION – is one the object of
which, in its delivery or performance, is not
capable of partial fulfillment
• In determining whether an obligation is
divisible or not, the controlling
circumstance is the purpose of the
obligation or the intention of the parties.
• If the object is not physically divisible, or
the service is not susceptible of partial
performance, the obligation is always
indivisible
• An obligation is presumed indivisible where
there is only one creditor and only one
debtor
KINDS OF DIVISION
1. Qualitative division
2. Quantitative division
3. Ideal or intellectual division – they are
merely co-owners and neither one of them
can say that he is the absolute owner of a
specific portion thereof
KINDS OF INDIVISIBIITY
1. Legal indivisibility – where a specific
provision of law declares as indivisible,
obligations which, by their nature, are
divisible.
2. Conventional indivisibility – where the will
of the parties makes as indivisible,
obligations which, by their nature, are
divisible
3. Natural indivisibility – where the nature of
the object or prestation does not admit of
division
ART. 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.
EFFECT OF NON-COMPLIANCE BY A DEBTOR IN
A JOINT INDIVISIBLE OBLIGATION
• If any one of the debtors does not comply
with his undertaking in joint indivisible
obligation, the obligation is converted into
one for damages
• The creditor cannot ask for specific
performance or rescission because there is
no cause of action against the other debtors
who are willing to fulfil their promises
ART. 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.
OBLIGATIONS DEEMED INDIVISIBLE
1. Obligations to give definite things
2. Obligations which are not susceptible of
partial performance
3. Obligations provided by law to be indivisible
even if thing or service is physically divisible
4. Obligations intended by the parties to be
indivisible even if thing or service is
physically divisible
OBLIGATIONS DEEMED DIVISIBLE
1. Obligations which have for their object the
execution of a certain number of days of
work
2. Obligations which have for their object to
accomplishment of work by metrical units
3. Obligations which by their nature are
susceptible of partial performance
DIVISIBILITY OR INDIVISIBILITY IN
OBLIGATIONS NOT TO DO
1. Indivisible obligations – the obligation
should be fulfilled continuously during a
certain period
2. Divisible obligations – the obligation is
divisible if the forbearance is not
continuous
• Obligations ‘to give and ‘not to do’ are
generally indivisible
• Obligations to do are generally divisible
SECTION 6. — Obligations with a Penal Clause
ART. 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.
Principal obligation
• Is one which can stand by itself
• Does not depend for its validity and
existence upon another obligation
Accessory obligation
• Is one which is attached to a principal
obligation and therefore cannot stand alone
Penal clause
• Is an accessory undertaking attached to an
obligation to assume greater liability in case
of breach
PURPOSE OF PENAL CLAUSE
1. To insure their performance by creating an
effective deterrent against breach, making
the consequences of such breach as
onerous as it may be possible (reparation)
2. To substitute a penalty for the indemnity
for damages and the payment of interests
in case of non-compliance; or to punish the
debtor for the non-fulfillment or violation of
his obligation (punishment)
PENAL CLAUSE CONDITION
Constitutes an Does not constitute
obligation an obligation
The former may Is never demandable
become demandable
in default of the
unperformed
obligation
KINDS OF PENAL CLAUSE
1. As to its origin
1.1 Legal penal clause – when it is provided
by law
1.2 Conventional penal clause – when it is
provided for by stipulation of the
parties
2. As to its purpose
2.1 Compensatory penal clause – when the
penalty takes the place of damages
2.2 Punitive penal clause – when the
penalty is imposed merely as
punishment for breach
3. As to its demandability or effect
3.1 Subsidiary or alternative penal clause –
when only the penalty can be enforced
3.2 Joint or cumulative penal clause –
when both the principal obligation and
the penal clause can be enforced
WHEN CREDITOR MAY RECOVER DAMAGES
1. When so stipulated by the parties
2. When the obligor refuses to pay the
penalty, in which case the creditor may
recover legal interest thereon
3. When the obligor is guilty of fraud in the
fulfillment of the obligation
WHEN PENALTY MAY BE ENFORCED
1. The penalty may be enforced only when it is
demandable in accordance with the
provisions of the Civil Code
- Demandable only if there is a
breach of the obligation and it is
not contrary to laws
2. The penalty is not demandable if the
obligation cannot be fulfilled due to a
fortuitous event
3. The penalty may be reduced if it is
iniquitous or unconscionable or in case
there is partial or irregular fulfillment
ART. 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.
• The debtor cannot just pay the penalty
instead of performing the obligation
• The debtor can exempt himself from the
non-fulfillment of the obligation only when
there is a right that has been expressly
reserved for him
PENAL CLAUSE PRESUMED SUBSIDIARY
• The creditor cannot demand the fulfilment
of the obligation and satisfaction of the
penalty at the same time
• When the obligation is fulfilled, there is no
need for the creditor to demand penalty.
The exception arises when ‘this right has
been clearly granted’ the creditor. The
general rule is that a penal clause is
subsidiary and not joint.
• In case of non-compliance, the creditor may
ask for the penalty or require specific
performance. The remedies are alternative
not cumulative.
• If there was a fraud on part of the debtor,
the creditor may recover the penalty as well
as damages for non-fulfillment
WHEN PENAL CLAUSE JOINT
• The debtor has the right to pay penalty in
lieu of performance only when this right has
been expressly reserved for him
• The creditor has the right to demand
performance and payment of penalty jointly
when this right has been clearly granted
him. (not required that the right is expressly
reserved for him)
• When a penalty is stipulated for default in
an obligation to pay a sum of money, the
creditor can demand both the principal and
the penalty with legal interest
ART. 1228. Proof of actual damages suffered by
the creditor is not necessary in order that the
penalty may be demanded.
• All that the creditor has to prove, to
enforce the penalty, is the violation of
the obligation by the debtor
• The creditor cannot recover more than
the stipulated penalty even if he proves
that the amount of his damages
exceeds the penalty
• Article 1228 applies only where the
penalty is fixed by the parties to
substitute the indemnity for damages.
ART. 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.
WHEN PENALTY MAY BE REDUCED BY THE
COURTS
1. When there is a partial or irregular
performance
2. When the penalty agreed upon is iniquitous
or unconscionable
ART. 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.
EFFECT OF NULITY OF THE PENAL CLAUSE
1. The principal obligation remains valid and
demandable
2. The injured party may recover indemnity
for damages in case of non-performance of
the obligation as if no penalty had been
stipulated
EFFECT OF NULITY OF THE PRINCIPAL
OBLIGATION
1. If the principal obligation is void, the penal
clause is likewise void
2. If the nullity of principal obligation is due to
the fault of the debtor, who acted in bad
faith, in which the creditor suffered
damages, the penalty may be enforced
CHAPTER 4: EXTINGUISHMENT OF
OBLIGATIONS – GENERAL PROVISIONS
ART. 1231. Obligations are extinguished:
(1) By payment or performance
(2) By the loss of the thing due
(3) By the condonation or remission of the debt
(4) By the confusion or merger of the rights of
creditor and debtor
(5) By compensation
(6) 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.
OTHER CAUSES OF EXTINGUISHMENT OF
OBLIGATIONS:
1. Death of a party in case of an obligation
requiring personal service
2. Mutual desistance or withdrawal
3. Arrival of resolutory period
4. Compromise
5. Impossibility of fulfillment
6. Happening of a fortuitous event
SECTION 1. — Payment or Performance
ART. 1232. Payment means not only the
delivery of money but also the performance, in
any other manner, of an obligation.
Payment
- Refers to the delivery of money
- May consist of giving a thing, the doing
of an act or not doing of an act
- In law, payment and performance are
synonymous
ART. 1233. A debt shall not be understood to
have been paid unless the thing or service in
which the obligation consists has been
completely delivered or rendered, as the case
may be.
WHEN DEBT IS CONSIDERED PAID
1. Integrity of prestation
- A debt to deliver a thing or to render
service is not understood to have been
paid unless the thing or service has
been completely delivered or rendered
- Partial or regular performance will not
produce the extinguishment of an
obligation as a general rule
2. Identity of the prestation
- Means that the very prestation due
must be delivered or performed
- The burden of proving extinguishment
by payment devolves upon the debtor
who claims payment
ART. 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 case of substantial performance, the
obligor should be allowed to recover as if
there had been a strict and complete
fulfillment less damages suffered by obligee
REQUISITES FOR THE APPLICATION OF ART.
1234
1. There must be a substantial performance
2. The obligor must be in good faith.
(Good faith is always presumed in the
absence of proof to the contrary.)
ART. 1235. When the obligee accepts the
performance, knowing its incompleteness or
irregularity, and without expressing any protest
or objection, the obligation is deemed fully
complied with.
• Article 1235 is the other exception to Article
1233
• If the payment is incomplete or irregular,
the creditor may properly reject it
• In case of acceptance, the law considers
that he waives his right. The whole
obligation is extinguished
REQUISITES FOR ARTICLE 1235
1. The oblige knows that the performance is
incomplete or irregular
2. The oblige accepts the performance
without expressing any protest or objection
ART. 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.
• Under the Civil Code, the creditor cannot
refuse payment by a third person
• The Commission believes that the creditor
should have a right to insist on liability of
the debtor
• The creditor should not be compelled to
accept payment from a third person whom
he may distrust
PERSONS FROM WHOM THE CREDITOR MUST
ACCEPT PAYMENT
1. The debtor
2. Any person who has an interest in the
obligation (like a guarantor)
3. A third person who has no interest in the
obligation when there is a stipulation that
he can make payment
EFFECT OF PAYMENT BY A THIRD PERSON
1. If made without the knowledge or against
the will of the debtor:
1.1 The payer can recover from the debtor
only the payment that has been
beneficial to the latter
1.2 The recovery is only up to the extent or
amount of the debt at the time of
payment
2. If made with knowledge of the debtor
2.1 The payer hall have the rights of
reimbursements and subrogation, to
recover what he has paid and to acquire
all the rights of the creditor
ART. 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.
• The third person cannot compel the
creditor to subrogate him, even if the
creditor willingly permits
• Article 1237 is for the benefit of the debtor,
so the subrogation can only take place with
his consent
SUBROGATION REIMBERSEMENT
The person who pays for the The third person
debtor is put in the shoes of entitled by reason of
the creditor. payment has merely the
The payor acquires not only bare right to be
the right to be reimbursed refunded to the extent
provided in the 2nd
for he has paid but also all
paragraph of Art. 1236
other rights which the
creditor could have without the right to
exercised pertaining to the guarantees and
credit against the debtor or securities of the original
against third persons, be obligation
they guarantors or
possessor of mortgages.
There is no real extinction of
the obligation, but only a
change of creditor
ART. 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 valid, without prejudice
to the provisions of Article 1427 under the Title
on “Natural Obligations.’’
• As a general rule, in obligations to give,
payment by one who does not have the
free disposition of the thing due & capacity
to alienate is not valid. This means that the
thing paid can be recovered.
• Free disposal of the thing due
- Means that the thing to be delivered must
not be subject to any claim or lien or
encumbrance of a third person
• Capacity to alienate
- Means that the person is not incapacitated
to enter into contracts and for the matter,
to make a disposition of the thing due
ART. 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.
PERSON TO WHOM PAYMENT SHALL BE MADE
1. The creditor or obligee
- Must be the creditor at the time the
payment is to be made, not at the
constitution of the obligation
- If a person is subrogated to the right of the
creditor, payment should be made to the
new creditor
2. Creditor’s successor in interest
3. Any person authorized to receive it
- Not only a person authorized by the
creditor but also a person authorized by the
law to receive a payment
ART. 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.
EFFECT OF PAYMENT TO AN INCAPACITATED
PERSON
• The payment is not valid unless such
incapacitated person kept the thing paid or
delivered, or was benefited by the
payment.
• In the absence of the benefit, the debtor
may be made to pay again by the creditor’s
guardian or by the incapacitated person
himself when he acquires or recovers his
capacity
• Proof of such benefit is incumbent upon the
debtor who paid
EFFECT OF PAYMENT TO A THIRD PERSON
• Payment to a third person or wrong party is
not valid except insofar as it has redounded
to the benefit of the creditor
• The payment made by the debtor to a third
person is not presumed and must be
satisfactorily established by the person
interested in proving the fact that the
creditor was benefited
• In the absence of such proof, the payment
thereof in error and in good faith will not
deprive the creditor of his right to demand
payment
WHEN BENEFIT TO CREDITOR NEED NOT TO BE
PROVED BY DEBTOR
1. Subrogation of the payer in the creditor’s
rights
2. Ratification by the creditor
3. Estoppel on the part of the creditor
Estoppel – an admission or representation
is rendered conclusive upon the person
making it and cannot be denied or
disproved as against the person relying
thereon
ART. 1242. Payment made in good faith to any
person in possession of the credit shall release
the debtor.
• Gives another instance when there is valid
payment to a third person
• The ‘possession’ referred to under Article
1242 is possession of the credit itself and
not merely of the document or instrument
evidencing the credit
• Mere possession of the instrument does not
entitle the holder to payment nor does
payment release the debtor
• The payer must act in good faith in the
honest belief that he is making a valid
payment and that the payee is the owner of
the credit. Good faith is presumed
ART. 1243. Payment made to the creditor by the
debtor after the latter has been judicially
ordered to retain the debt shall not be valid.
ART. 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.
VERY PRESTATION DUE MUST BE COMPLIED
WITH
• The 1st paragraph refers to a real obligation
to deliver a specific thing
- A thing different from that due cannot be
offered or demanded against the will f the
creditor or debtor
• The 2nd paragraph refers to personal
(positive & negative) obligations
- The act to be performed or the act
prohibited cannot be substituted against
the obligee’s will
WHEN PRESTATION MAY BE SUBSTITUTED
• Substitution can be made if the obligee
consents
• Art 1244 will not apply in case of waiver by
the creditor
ART. 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.
SPECIAL FORMS OF PAYMENT
1. Dation in payment
2. Application of payments (not a special form
of payment) (ART 1252)
3. Payment by cession (ART 1255)
4. Tender of payment and consignation (1256)
Dation in payment-adjudication/dacio en pago
- Is the conveyance of ownership of a thing as
an accepted equivalent of performance
- It is a special form of payment because it is
not the ordinary way of extinguishing an
obligation
- An existing debt in money is satisfied, not
by payment of money but by alienation of
property
- The law of sales governs because dation in
payment may be considered a specie of sale
in which the amount of money debts
becomes the price of the thing alienated
ART. 1246. When the obligation consists in the
delivery of an indeterminate or generic thing,
whose quality and circumstances have not been
stated, the creditor cannot demand a thing of
superior quality. Neither can the debtor deliver
a thing of inferior quality. The purpose of the
obligation and other circumstances shall be
taken into consideration.
• Article 1246 is a principle of equity in that it
supplies justice in cases where there is lack
of precise declaration in the obligation
• If there is a disagreement between the
parties, the law steps in and determines
whether the contract has been complied
with or not according to the circumstances
• The benefit of this article may be waived by
the creditor or by accepting a thing of
inferior quality, and by the debtor by
delivering a thing of superior quality
RULE OF MEDIUM QUALITY
1. If the obligation consists in the delivery of a
specific thing, the very thing due must be
delivered
2. If the obligation is to deliver a generic thing,
the purpose of the obligation and other
circumstances shall be taken into
consideration to determine the quality or
kind of thing to be delivered
ART. 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.
• The extrajudicial expenses of payment are
for the account of the debtor because when
the obligation is extinguished when
payment is made, the debtor is the one
who is primarily benefited
• If the parties have made a stipulation as to
who will bear the expenses, then their
stipulation shall be followed
Judicial costs
- Are the statutory amounts allowed to a
party to an action for his expenses incurred
in the action
- The costs of an action shall, as a rule be
paid by the losing party
- The court may however adjudge that either
party shall pay the costs or that the same
be divided as may be equitable
- No costs are allowed against government,
unless otherwise provided by law
ART. 1248. Unless there is an express
stipulation to that effect, the creditor cannot be
compelled partially to receive the prestations in
which the obligation consists. Neither may the
debtor be required to make partial payments.
However, when the debt is in part
liquidated and in part unliquidated, the creditor
may demand and the debtor may effect the
payment of the former without waiting for the
liquidation of the latter.
• Article 1248 contemplates obligations
where there is only one creditor and only
one debtor
• In order that payment may extinguish an
obligation, it is necessary that there, be
complete performance of the prestation
• The creditor may accept but he cannot be
compelled to accept partial performance
• The debtor has the duty to comply with the
whole of the obligation but he cannot be
required to make partial payments if he
does not wish to do so
WHEN PARTIAL PERFORMANCE IS ALLOWED
1. When there is an express stipulation to that
effect
2. When the debt is in part liquidated and in
part unliquidated
3. When the different prestations in which the
obligation consists are subject to different
terms or conditions which affect some of
them
ART. 1249. The payment of debts in money shall
be made in the currency stipulated, and if it is
not possible to deliver such currency, then in
the currency which is legal tender in the
Philippines.
The delivery of promissory notes
payable to order, or bills of exchange or other
mercantile documents shall produce the effect
of payment only when they have been cashed,
or when through the fault of the creditor they
have been impaired.
In the meantime, the action derived
from the original obligation shall be held in
abeyance.
Legal tender – is that currency which if offered
by the debtor in the right amount, the creditor
must accept in payment of a debt in money
LEGAL TENDER IN THE PHILIPPINES
• Debts in money shall be paid in the
currency stipulated
• If it is not possible to deliver such currency
or in the absence of any stipulation, then
the payment shall be made in the currency
which is legal tender in the Philippines
• In the Philippines, all coins and notes issued
by the BSP, constitute legal tender for all
debts, both public and private
• Legal tender for amounts NOT EXCEEDING
50Php for denominations of 0.25Php and
above
• Legal tender for amounts NOT EXCEEDING
20Php for denominations of 0.10Php or
less
• All coins and bills above 1.00Php are,
therefore, valid legal tenders for any
amount
PAYMENT BY MEANS OF INSTRUMENTS OF
CREDITS
• Right of creditor to refuse or accept
- Promissory notes, check, bills of exchange
and other commercial documents are not
legal tender and, therefore, the creditor
cannot be compelled to accept them
- The creditor, however, if he chooses, may
accept them, without acceptance producing
the effect of payment. In the meantime, the
demandability of the original obligation is
suspended
- The creditor must cash the instrument, and
only when it is dishonored that he can bring
an action for non-payment of the debt
• Effect of an obligation
- Payment by means of mercantile
documents does not extinguish the
obligation until they have been cashed or
unless they have been impaired through
the fault of the debtor
ART. 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.
Inflation
- Is a sharp sudden increase of money or
credit or both without a corresponding
increase in business transactions
- Cause a drop in the value of money,
resulting in the rise of the general price
level
Deflation
- Is the reduction in volume and circulation of
the available money or credit, resulting in a
decline of the general price level
BASIS OF PAYMENT IN CASE OF
EXTRAORDINARY INFLATION OR DEFLATION
• The purchasing value of the currency at the
time of the establishment of the obligation
shall be the basis of payment, in case of any
extraordinary increase or decrease in the
 purchasing power of the currency which the
parties could not have reasonably foreseen
• It does not apply where the obligation to
pay arises from a source independent of
contract or agreement, such as law, quasi
contract, crime or tort
ART. 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.
Venue
- is the place where a court suit or action
must be filed or instituted
Domicile (legal residence)
- Is the place of a person’s habitual residence
- The place where he has his true fixed
permanent home and to which place he,
whenever he is absent, has the intention of
returning
- Requires bodily presence in that place and
also an intention to make it one’s domicile
Residence
- Is only an element of domicile
- It simply requires bodily presence as an
inhabitant in a given place
PLACE WHERE OBLIGATION SHALL BE PAID
1. If there is a stipulation, the payment shall
be made in the place designated
2. If there is a stipulation and the thing to be
delivered is specific, the payment shall be
made at the place where the thing was, at
the perfection of the contract
3. If there is no stipulation and the things to
be delivered is generic, the place of
payment shall be the domicile of the debtor
SUBSECTION 1 – APPLICATION OF PAYMENTS
ART. 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.
Application of payments
- Is the designation of the debt to which
should be applied the payment by a debtor
who has various debts of the same kind in
favor of one and the same creditor
REQUISITES OF APPLICATION OF PAYMENTS
1. There must be 1 debtor and 1 creditor
2. There must be 2 or more debts
3. The debts must be of the same kind
4. The debts to which payment made by the
debtor has been applied must be due
5. The payment made must not be sufficient
to cover all debts
APPLICATION AS TO DEBTS NOT YET DUE
The application of payments as to debts not yet
due cannot be made unless:
1. There is a stipulation that the debtor may
so apply
2. It is made by the debtor or creditor, as the
case may be, for whose benefit the period
has been constituted
RULES ON APPLICATION OF PAYMENTS
A debtor who has several different debts may
make part payment. As to which debt is paid,
the rules are as follows:
1. The debtor has the first choice
1.1 He must indicate at the time of making
payment and not afterwards, which
particular debt is being paid
1.2 If, in making use of his right, the debtor
applied the payment to a debt, he
cannot later claim that it should be
applied to another debt
2. The right to make the application once
exercised is irrevocable unless the creditor
consents to the change
3. If the debtor does not apply payment, the
creditor may make the designation by
specifying in the receipt which debt is being
paid
4. If the creditor has not also made the
application, or if the application is not valid,
the debt, which is most onerous to the
debtor among those due, shall be deemed
to have been satisfied
5. If the debts due are of the same nature and
burden, the payment shall be applied to al
of them proportionately
ART. 1253. If the debt produces interest,
payment of the principal shall not be deemed to
have been made until the interests have been
covered.
• The payment must be applied to the
interest and whatever balance is left can be
credited to the principal
ART. 1254. When the payment cannot be
applied in accordance with the preceding rules,
or if application cannot 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.
WHEN A DEBT IS MORE ONEROUS THAN
ANOTHER
• A debt is more onerous than another when
it is more burdensome to the debtor
• No fixed rule can be laid down in
determining which debt is more onerous
• Rules to be followed in determining
whether 1 debt is more burdensome than
another (decisions given by Supreme Court)
1. An interest bearing debt is more onerous
that a non-interest-bearing debt even if
the latter is an older one
2. A debt as a sole debtor is more onerous
that as a solidary debtor
3. Debts secured by a mortgage or by pledge
are more onerous than unsecured debts
4. Of 2 interest bearing debts, the one with a
higher rate is more onerous
5. An obligation with penalty clause is more
burdensome than one without penalty
clause
• When debts are subject to different
burdens (1 debt security and one with a
penalty clause,) the payment should be
applied to all of them proportionately
SUBSECTION 2 – PAYMENT BY CESSION
ART. 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.
Payment by cession SUBSECTION 3 – TENDER OF PAYMENT AND
- Another special form of payment CONSIGNATION
- It is the assignment or abandonment of all ART. 1256. If the creditor to whom tender of
payment has been made refuses without just
properties of the debtor for the benefit of
cause to accept it, the debtor shall be released
his creditors in order that the latter may sell from responsibility by the consignation of the
the same and apply the proceeds thereof to thing or sum due.
the satisfaction of their credits Consignation alone shall produce the
same effect in the following cases:
REQUISITES OF PAYMENT BY CESSION (1) When the creditor is absent or unknown, or
1. There must be 2 or more creditors does not appear at the place of payment;
2. The debtor must be partially insolvent (2) When he is incapacitated to receive the
3. The assignment must involve all the payment at the time it is due;
properties of the debtor (3) When, without just cause, he refuses to
give a receipt;
4. The cession must be accepted by the
(4) When two or more persons claim the same
creditors
right to collect;
(5) When the title of the obligation has been
EFFECT OF PAYMENT BY CESSION
lost.
• Unless there is a stipulation to the contrary,
the assignment does not make the creditors Tender of payment
the owners of the property of the debtor - Is the act, on the part of the debtor, of
• The debtor is released from his obligation offering to the creditor the thing or amount
only up to the net proceeds of the sale of due
the property assigned - The debtor must show that he has in his
• The debtor is still liable if there is a balance possession the thing or money to be
delivered at the time of offer
Dation in Payment Cession
Consignation
There is usually 1 There are several
- Is the act of depositing the thing or amount
creditor creditors
Does not presuppose The debtor is due with the proper court when the
the insolvency of the insolvent at the time creditor does not desire or cannot receive
debtor of assignment it, after complying with the formalities
Dation does not Extends to all the required by law
involve all the property of the - Is applicable when there is debt or an
property of the debtor obligation to pay
debtor
- It is always judicial and it generally requires
The creditor The creditors only
a prior tender of payment which is, by its
becomes the owner acquire the right to
of the thing given by sell the thing and very nature, extrajudicial
the debtor apply the proceeds
to their credits
proportionately
An act of novation Not an act of
novation
Substitute forms of payment or performance
REQUISITES OF VALID CONSIGNATION
For the debtor to be released from his
obligation by the consignation of the thing or
sum due, the following requisites must be
observed:
1. Existence of a valid debt which is due
2. Tender of payment by the debtor and
refusal without justifiable reason by the
creditor to accept it
3. Previous notice of consignation to persons
interested in the fulfillment of the
obligation
4. Consignation of the thing or sum due
5. Subsequent notice of consignation made
to the interested parties
WHEN TENDER OF PAYMENT IS NOT REQUIRED
• Tender of payment is not necessary before
the debtor can consign the thing due with
the court
REQUIREMENTS OF VALID TENDER OF
PAYMENT
1. Tender of payment must comply with the
rules on payment or with terms required by
the contract in making such tender
1.1 The tender, even if valid, does not
justify itself produce legal payment,
unless it is completed by consignation
2. It must be unconditional and for the whole
amount due and in legal tender
3. It must be actually made
3.1 The manifestation of a mere desire or
intention to pay is not enough
3.2 The debtor must show present ability to
perform by an actual offer of the thing
or money due
ART. 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.
• In the absence of prior notice, the
consignation, as payment, shall be void.
• Consignation, to amount as a valid
payment, must also comply with the
provisions which regulate payment.
• The payment should be made in legal
tender.
ART. 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.
CONSIGNATION MUST BE WITH PROPER
JUDICIAL AUTHORITY
• Consignation, by depositing the thing or
sum due with the proper judicial authority,
is necessary to effect payment
• As tender of payment must precede
consignation, the tender must be proved by
the debtor in the proper case
• In other cases when tender is not required,
only prior notice to interested persons of
the consignations needs to be proved
NOTICE TO BE GIVEN TO INTERESTED PARTIES
OF THE CONSIGNATION MADE
1. Prior notice
2. After the consignation, the interested
partied must also be notified.
- The purpose of the 2nd notice is to enable the
creditor to withdraw the thing or sum deposited
in case he accepts the consignation
ART. 1259. The expenses of consignation, when
properly made, shall be charged against the
creditor.
• The consignation is made necessary
because of the fault or unjust refusal of the
creditor to accept payment. So it is charged
to the creditor.
• The expenses are chargeable to the debtor
if the consignation is not properly made
WHEN CONSIGNATION DEEMED PROPERLY
MADE
1. When the creditor accepts the thing or sum
deposited, without objection, as payment
of the obligation
2. When the creditor questions the validity of
the consignation, and the court, after
hearing, declares that it has been properly
made
3. When the creditor neither accepts nor
questions the validity of the consignation,
and the court after hearing, orders the
cancellation of the obligation
ART. 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)
EFFECT OF WITHDRAWAL WITH AUTHORITY OF
CREDITOR
1. The creditor may authorize the debtor to
withdraw the deposit after he has accepted
the same of after the court has issued an
order cancelling the obligation
2. The relation of the debtor and creditor will
remain as they were before acceptance or
cancellation
3. The creditor shall lose every preference
which he may have over the thing
4. The co-debtors, guarantors and sureties
shall be released

ART. 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.
SECTION 2. — Loss of the Thing Due
ART. 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.
(1182a)
A thing is lost
- When it perishes
- Goes out of commerce
- Disappears in such a way that its existence
is unknown
- It cannot be recovered
WHEN LOSS OF THING WILL EXTINGUISH AN
OBLIGATION TO GIVE
1. The obligation is to deliver a specific or
determinate thing
2. The loss of the thing occurs without the
fault of the debtor
3. The debtor is not guilty of delay
WHEN LOSS OF THING WILL NOT EXTINGUISH
LIABILITY
1. When the law so provides
2. When the stipulation so provides
3. When the nature of the obligation requires
the assumption of risk
4. When the obligation to deliver a specific
thing arises from crime
ART. 1263. In an obligation to deliver a generic
thing, the loss or destruction of anything of the
same kind does not extinguish the obligation.
• Based on a principle that a generic thing
never perishes
ART. 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.
EFFECTS OF PARTIAL LOSS OF A SPECIFIC THING
• There is a partial loss when only a portion of
the thing is lost or destroyed or when it
suffers depreciation or deterioration
• Partial loss is the equivalent of difficulty of
performance in obligations to do
• In case of partial loss, the court is given the
discretion in case of disagreement between
parties
• The court will decide whether the partial
loss is such as to be equivalent to a
complete or total loss
ART. 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.
• The article establishes a disputable
presumption of fault whenever the thing to
be delivered is lost in the possession of the
debtor
• The obligor who is not at fault is still liable
in case he is guilty of delay or has promised
to deliver the same thing to two or more
persons who do not have the same interest
• The presumption of fault does not apply in
case of natural calamities
ART. 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.
EFFECT OF IMPOSSIBILITY OF PERFORMANCE
• Without the debtor’s fault, the obligation
becomes legally or physically impossible
• The impossibility of performance will result EFFECT OF FORTUITOUS EVENT WHERE
in the extinction of the obligation OBLIGATION PROCEEDS FROM A CRIMINAL
• The impossibility must take place after the OFFENSE
constitution of the obligation • Under Article 1268, a fortuitous event does
• If the obligation is impossible from the very not exempt the debtor from liability
beginning, the obligation is void • The obligation subsists except when the
creditor refused to accept it without
KINDS OF IMPOSSIBILITY justification
1. PHYSICAL IMPOSSIBILITY
• Consignation is not necessary
- Applicable in purely personal obligations,
• The debtor must still exercise due diligence
when the personal qualifications of the
obligor are involved ART. 1269. The obligation having been
- For example, when the obligor dies or extinguished by the loss of the thing, the
becomes physically incapacitated to creditor shall have all the rights of action which
perform the obligation the debtor may have against third person by
reason of the loss.
2. LEGAL IMPOSSIBILITY
RIGHT OF CREDITOR TO PROCEED AGAINST
- Occurs when the obligation cannot be
THIRD PERSONS
performed because it is rendered
• The rights of action of the debtor are
impossible by provision of law
transferred to the creditor from the
- The promisor shall be released from his
moment the obligation is extinguished
obligation if performance is rendered
• There is no need for an assignment by the
impossible by law
debtor
ART. 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.
EFFECT OF DIFFICULTY OF PERFORMANCE
• The general rule is that the impossibility of
performance releases the obligor
• When the performance/service has become
so difficult, the court is authorized to
release the obligor in whole or in part
• Article 1267 is applicable to obligations to
do and obligation to give
ART. 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.
SECTION 3. Condonation/Remission of the Debt
ART. 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.
Condonation or remission
- Is the gratuitous abandonment by the
creditor of his right against the debtor
- A form of donation
REQUISITES FOR CONDONATION OR
REMISSION
1. It must be gratuitous
2. It must be accepted by the obligor
3. The parties must have capacity
4. It must be inofficious
5. If made expressly, it must comply with the
forms of donations
KINDS OF REMISSION
1. As to its extent
1.1 Complete – when it covers the entire
obligation
1.2 Partial – when it does not cover the
entire obligation
2 As to its form
2.1 Express – verbally or in writing
2.2 Implied – when it can only be inferred
from conduct
3 As to its date of effectivity
3.1 Inter vivos – when it will take effect
during the lifetime of the donor
3.2 Mortis causa – when it will become
effective upon death of the donor. It
must comply with the formalities of a
will
EFFECT OF INOFFICIOUS REMISSION
• No one can give more than that which he
can give by will. Otherwise, the excess shall
be reduced by the court
• Testamentary dispositions which impair the
legitime shall be reduced on petition to
their heirs insofar they are excessive
Legitime
- Part of the testator’s property which he
cannot dispose of because the law has
reserved it for certain heirs called
compulsory heirs
ART. 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)
PRESUMPTION IN CASE OF VOLUNTARY
DELIVERY OF DOCUMENT OF INDEBTEDNES BY
CREDITOR
1. Presumption of implied remission
• This article gives an example of implied or
tacit remission
• If the debt is not yet paid, the creditor
would need the document to enforce
payment
• If the creditor voluntarily delivers it to the
debtor, the only logical inference is that he
is renouncing his right
2. Contrary evidence
• The presumption is prima facie or
rebuttable by contrary evidence
3. Extent of remission
• If the obligation is joint, the presumption of
remission pertains only to the share of the
 debtor who is in possession of the • A third person who is not a party to the
document principal obligation may secure the latter by
• If the obligation is solidary, the presumption pledging his own property
of remission pertains to the total obligation • If the thing pledged is later found in the
4. Presumption applicable only to private hands of the debtor or the third person
document only the accessory obligation of pledge is
presumed remitted, not the obligation
PAYMENT, NOT REMISSION OF DEBT
itself
• The remission becomes null and void upon
• The debtor shall continue to be indebted
proof that the waiver is inofficious
but he does not have to return the thing
• The debtor or his heirs may prove that the pledged
deliver of the document was really made in
• The presumption yields to contrary
virtue of payment of the debt not of
evidence. It does not arise if the third
remission
person in possession of the thing pledged
ART. 1272. Whenever the private document in does not own the same
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.
• This presumption of voluntary delivery,
gives rise to the presumption of remission
• The presumption of voluntary delivery
should give rise to the presumption of
payment
• Only when it is known that indeed there is
no payment should there be a presumption
of remission
ART. 1273. The renunciation of the principal
debt shall extinguish the accessory obligations;
but the waiver of the latter shall leave the
former in force.
ART. 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.
PRESUMPTION IN CASE THING PLEDGED
FOUND IN POSSESSION OF DEBTOR
• In contract of pledge, it is necessary that
the thing pledged be placed in the
possession of the creditor or of a third
person by common agreement
SECTION 4. — Confusion or Merger of Rights ART. 1277. Confusion does not extinguish a
ART. 1275. The obligation is extinguished from joint obligation except as regards the share
the time the characters of creditor and debtor corresponding to the creditor or debtor in
are merged in the same person. whom the two characters concur.
Confusion or merger
CONFUSION IN A JOINT OBLIGATION
- Is the meeting in one person of the qualities
• Each debtor has his own creditor to whom
of creditor and debtor with respect to the
he is liable and confusion taking place in the
same obligation
person of any debtor or creditor does not
REASON OR BASIS FOR CONFUSION
affect the others
1. The law treats confusion or merger as a
• The confusion will extinguish only the
mode of extinguishing obligations because
share corresponding to the creditor or
if a debtor is his own creditor, enforcement
debtor in whom the two characters concur
of the obligation becomes absurd since a
person cannot claim payment from himself
CONFUSION IN A SOLIDARY OBLIGATION
2. When there is a confusion of rights, the • Merger in the person of one of the solidary
purposes for which the obligation may have debtors shall extinguish the entire
been created are deemed realized obligation because it is also a merger in the
REQUISITES FOR CONFUSION other solidary debtors
1. It must take place between principal debt • Because in solidary obligation, there is only
and creditor one obligation and every debtor is
2. It must be complete individually responsible for the payment of
the whole obligation
ART. 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.
• Merger in the person of the principal debtor
or creditor extinguishes the obligation
• The accessory obligation of guaranty is also
extinguished in accordance with the
principle that the accessory follows the
principal

EFFECT OF MERGER IN THE PERSON OF

GUARANTOR
• The extinguishment of the accessory
obligation does not carry with it that kind of
the principal obligation
• Merger which takes place in the person of
the guarantor, extinguishes the guaranty
but leaves the principal obligation in force
SECTION 5. — Compensation KINDS OF COMPENSATION
ART. 1278. Compensation shall take place 1. By its effect or extent
when two persons, in their own right, are 1.1 Total – when both obligations are of the
creditors and debtors of each other. same amount and are entirely
extinguished
Compensation 1.2 Partial – when the 2 obligations are of
- Is the extinguishment to the concurrent
different amounts and balance remains.
amount of the debts of two person who, in
The extinctive effect of compensation
their own right, are debtors and creditors of
will be partial only as regards the larger
each other
debt
- Involves the simultaneous balancing of two
2. By its cause or origin
obligations in order to extinguish them to
2.1 Legal – when it takes place by operation
the extent in which the amount of one is
of law even without knowledge of the
covered by that of the other
parties
- Is often called simplified payment because
2.2 Voluntary – when it takes place by
it provides more convenient and less
agreement
expensive effectuation of payments
2.3 Judicial – when it takes place by order
between two persons who are reciprocally
from a court in litigation
creditors and debtors
2.4 Facultative – when it can be set up only
OBJECT OF COMPENSATION by one of the parties
• The object of compensation is the ART. 1279. In order that compensation may be
prevention of unnecessary litigations and proper, it is necessary:
payments (1) That each one of the obligors be bound
principally, and that he be at the same time a
CONFUSION COMPENSATION principal creditor of the other;
There is only one There are two (2) That both debts consist in a sum of money,
or if the things due are consumable, they be of
person who is a persons involved,
the same kind, and also of the same quality if
creditor and debtor each of whom is a the latter has been stated;
of himself debtor and a creditor (3) That the two debts be due;
of the other (4) That they be liquidated and demandable;
There is 1 obligation There are two (5) That over neither of them there be any
obligations retention or controversy, commenced by third
persons and communicated in due time to the
There is impossibility There is indirect
debtor.
of payment payment
REQUISITES FOR LEGAL COMPENSATION
There may be
1. The parties are principal creditors &
compensation in
principal debtors of each other
joint and solidary
2. Both debts consists in a sum of money, or
obligation
of a consumable things of the same kind
and quality
3. The two debts are due or demandable
4. The two debts are liquidated
5. No retention or controversy commenced
by a third person
Retention – when the credit of one of the
parties is subject to the satisfaction of the
claims of a third person
Controversy – exists when a third person claims
he is the creditor of one of the parties
ART. 1280. Notwithstanding the provisions of
the preceding article, the guarantor may set up
compensation as regards what the creditor may
owe the principal debtor.
• This is an exception to the general rule that
only the principal debtor can set up against
the creditor what the latter owes him
• Although the guarantor is only subsidiary,
not principally bound, he is given the right
to set up compensation
ART. 1281. Compensation may be total or
partial. When the two debts are of the same
amount, there is a total compensation.
• Total or partial compensation applies to all
the different kinds of compensation
• Total compensation – results when the 2
debts are of the same amount
ART. 1282. The parties may agree upon the
compensation of debts which are not yet due.
• This article is an exception to the general
rule that only debts which are due and
demandable can be compensated
• Voluntary or conventional compensation
includes any compensation which takes
place by agreement of the parties even if all
requisites for legal compensation are not
present
• This kind of compensation has no special
requisites.
ART. 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.
• Judicial compensation – take place when so
declared by a final judgement of court in a
suit
• A party may set off his claim for damages
against his obligation to the other party by
proving his right to said damages and the
amount there of
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.
• Rescissible and voidable obligations are
valid until they are judicially rescided or
avoided.
• Prior to recission or annulment, the debts
may be compensated against each other
ART. 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 thedebtor, he may set up the
compensation of all credits prior to the same
and also later ones until he had knowledge of
the assignment.
• When compensation takes effect by
operation of law or automatically, the debts
are extinguished to the concurrent amount
3 CASES WHERE COMPENSATION HAS TAKEN
PLACE AFTER ASSIGNMENT
1. Assignment with the consent of the debtor
2. Assignment with the knowledge but
without the consent of the debtor
3. Assignment without the knowledge of the
debtor
ART. 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.
• This article applies to legal compensation
• The indemnity contemplated refers to the
expenses of monetary exchange and
expenses of transportation
• Once the expenses are liquidated, the debs
also become compensable
• The indemnity shall be paid by the person
who raises the defense of compensation
Foreign exchange – the conversion of an
amount of money or currency of one country
into an equivalent amount of money or
currency of another
Exchange rate – is the price of one currency
expressed or quoted in relation to another
currency
ART. 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)
ART. 1288. Neither shall there be compensation
if one of the debts consists in civil liability
arising from a penal offense.
INSTANCES WHEN LEGAL COMPENSATION IS
NOT ALLOWED BY LAW
1. Where one of the debts arises from
depositum
2. Where one of the debts arises from
commodatum
3. Where one of the debts arises from a claim
for support due by gratuitous title
4. Where one of the debts consists in civil
liability arising from a penal offense
Commodatum – is a gratuitous contract where
by one of the parties delivers to another
something not consumable so that the latter
may use the same for a certain time and return
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.
• Compensation is similar to payment
• If a debtor has various debts which are
susceptible of compensation, he must
inform the creditor which of them shall be
the object of compensation
• In case the debtor fails to do so, then the
compensation shall be applied to the most
onerous obligation
ART. 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.
CONSENT OF PARTIES NOT REQUIRED IN LEGAL
COMPENSATION
1. Compensation takes place automatically by
mere operation of law
2. Full legal capacity of parties not required