Classification of Obligations

CIVIL vs. NATURAL OBLIGATIONS

CIVIL OBLIGATIONS
-Give a right of action to compel performance
-Provides for a legal sanction in case of its breach
-Example: The creditor is authorized to invoke the power of the State, through the courts, either to compel its performance or to
demand any other alternative relief

NATURAL OBLIGATIONS
-Based on equity
-Does not grant a right of action to enforce the performance
-Does not provide for a legal sanction in case of non-performance
-Example: The debtor may not be compelled by the State, through the courts, to perform the obligation as the performance depends
upon his conscience.
-After voluntary fulfillment, the creditor has the right to retain what has been delivered, and the debtor cannot change his mind, and
recover what he has paid or delivered.

INSTANCES OF NATURAL OBLIGATIONS

When debt has prescribed

-Example: When a third person pays a debt which has already prescribed (meaning, creditor failed to institute action against debtor to
collect payment 4 within ten year from the timer the right of action accrues as required by law under Art. 1144, ), third person payor
cannot demand reimbursement from the debtor since said payment is no longer beneficial to him. But if the debtor voluntarily
reimburses the third person, he cannot recover what he has paid.

-​When the action to enforce obligation has failed

Example: If the defendant (party sued in court for the fulfillment of the obligation) voluntarily performs the obligation after the action
for its enforcement has failed, he cannot demand the return of what he has delivered or the payment of the value of the service he has
rendered.

-When payment of deceased debt’s exceed inheritance

Example: As a rule, the heir is liable to pay the debts of the decedent (one who died) only up to the extent of the value of the inherited
property that he received from the said decedent. Hence, the obligation to pay the excess is only a natural obligation. If the heir
voluntarily pays the debt of the decedent exceeding the value of the property which he inherited, he can no longer recovered what he
has paid.

-Payment of legacy in void will

Example: A will is void and shall be disallowed if the formalities required by law have not been complied with. Thus, if the heir pays a
legacy (a gift of money or other personal property allocated by the decedent in his will to a certain person payable from his estate) in
compliance with the clause in the said will, he can no longer recovered what he had paid to the said person even if the will is void.

-Payment of interest which is not due

Example: As a rule, no interest shall be due unless it is expressly stipulated in writing. Hence, if the debtor with full knowledge that he
cannot be compelled to pay the interest, and yet he chooses to do, then the payment of the interest becomes a case of natural obligation,
and the creditor will be authorized to retain the said payment.

REAL vs. PERSONAL OBLIGATIONS

REAL
-The obligation is real if it consists in giving
-Obligation to give involves the delivery of a movable or an immovable property
-May either be: (a) specific (determinate) , or a (b)generic (indeterminate)
-Example of ​Specific Obligation​: If the debtor committed to deliver a car, specifying the engine and plate number
-Example of ​Generic Obligation​: If the debtor committed to deliver a car
ACCESSORY OBLIGATIONS IN SPECIFIC (DETERMINATE) OBLIGATIONS

-PRINCIPAL OBLIGATION
Deliver the specific thing due

ACCESSORY OBLIGATIONS
-Preserve the thing to be delivered (Diligence of a good father of family – diligence required of a reasonably prudent person)
-Deliver the fruits when creditor acquires rights over the fruits of the object (ex. All fruits pertain to the vendee from the day the
contract was perfected), and when creditor acquires real right or ownership of the object(ex. Upon delivery of the object subject of sale)
-Deliver the accessions (Natural [ex. Alluvium – sand deposits) and industrial [ex. Building]) and accessories (ex. In a factory, the
machines are the accessories; In case of a House, the keys)
PERSONAL
-The obligation is personal if it involves obligations to do or not to do
-May either be: (a) positive (obligation to do), or (b) negative (obligation not to do)

REMEDIES OF CREDITORS IN CASE OF BREACH OF OBLIGATION

SPECIFIC/DETERMINATE OBLIGATIONS
-File an action in court for Specific Performance to: (a) compel delivery of the specific thing due, and (b) recover damages
-If the determinate thing is already in the possession of a third person who did not act in bad faith, the action that can be filed by the
creditor against the debtor is only for recovery of damages
-If the source of the obligation is contact, the creditor has an alternative remedy to file an action in cause for Rescission of Contracts, in
addition to his right to recover damages

GENERIC/INDETERMINATE OBLIGATIONS
-File an action in court for Specific Performance to: (a) compel delivery of the generic thing due, even what is to be delivered is not
one of those which the debtor owns or possesses, and (b) recover damages

POSITIVE PERSONAL OBLIGATIONS

-There is breach when: (a) obligation to do is not performed; (b) poorly performed; and (c) in contravention to the tenor of the
obligation
-Either case, the debtor cannot be compelled, against his will, to execute the act which he bound himself to do as this will amount to
involuntary servitude which is prohibited by the Constitution. Hence, the creditor is authorized by law to: (a) have the act executed by
himself or by another person at the expense of the debtor, and (b) recover damages
-If the obligation was done poorly or in contravention to the tenor of the obligation, the creditor may: (a) demand for the undoing of
what has been done at the expense of the debtor, and (b) recover damages
-When the personal qualifications of the debtor are the determining factors in the constitution of the obligation, the only remedy is an
action for damages

RULE ON LIABILITY FOR DAMAGES

-​If the non-fulfillment of the obligation is not due to the debtor’s fault buy by reason of a fortuitous event, the debtor, as a rule, not
liable for damages
-If the non-fulfillment of the obligation is due to the fault of the debtor because he is guilty of delay, fraud, negligence, or he
contravenes in any manner the tenor thereof, he becomes liable to the creditor for damages

DELAY or DEFAULT (Mora)

-​ Delay or Default – non-fulfillment of the obligation with respect to time

Three (3) kinds of Mora

(a) ​Mora Solvendi​ – default on the part of the debtor, or because of malice or negligence
(a.1) ​Mora Solvendi Ex Re​ – refer to obligations to give
(a.2) ​Mora Solvendi Ex Persona​ – refer to obligations to do
(b) ​Mora Accipiendi​ – default on the part of the creditor to receive
(c) ​Compensatio Morae​ – default of both parties in reciprocal obligations

MORA SOLVENDI
-Requisites:​ (a) Obligation is demandable and liquidated;
(b) Debtor delays performance
(c)Creditor requires performance judicially or extrajudicially
-Once a creditor makes a demand (oral or written), the debtor incurs delay
-Absent any demand, obligor does not incur delay

Exceptions to Requirement of Demand

(1) ​When the obligation expressly so declares
Example: Parties fix a date of performance, and state expressly that after the period lapses, default will commence
(2) ​When the law expressly so declares
Example: A partner who has undertaken to contribute a sum of money and fails to do so; the law expressly says that the partner
becomes a debtor of the partnership from the time he should have complied with his obligation
(3) ​When from the nature and circumstances of the obligation​, it appears that the designation of the time when the thing to be delivered
or the service is to be rendered was a controlling motive for the establishment of the contract
Example: Stock Exchange Contracts – time is of the essence in this contract because of the fluctuating value of stocks
(4) ​When demand would be useless​, as when the obligor has rendered it beyond his power to perform
Example: If seller sold the same thing to two persons and delivered it to the 2nd buyer who acted in good faith, seller shall incur delay
immediately after the lapse of the agreed delivery period to the first buyer even without demand as said demand would be useless since
the seller can no longer deliver it to the first buyer having given it to the 2nd buyer

EFFECTS OF MORA SOLVENDI

-​The debtor is liable to the creditor for damages in case of default
-If the obligation consists in the payment of sum of money, and the debtor incurs delay, ​the indemnity for damages shall be​:​ (a)
payment of interest agreed upon by the parties; or (b) absence of stipulation, the legal interest, which is 6% per annum
-In addition, debtor is liable for the loss of the thing due after he has incurred delay even if same was without his fault or by reason of a
fortuitous event

MORA ACCIPIENDI
-Delay on the part of the creditor or obligee in accepting the performance of the obligation by the obligor
-​Requisites:​ ​(a)​ an offer of performance by the debtor who has the required capacity; ​(b)​ the offer must be to comply with the
prestation as it should be performed; and ​(c)​ the creditor refuses the performance without just cause

COMPENSATIO MORAE
-Mutual inaction of the parties gives rise to compensatio morae, where the mutual delay of the parties cancels out the effects of default,
such that it is as if no one is guilty of delay
-In reciprocal obligations, neither party incurs delay if the other does not comply or is not ready to comply in a manner with what is
incumbent upon him

DELAY DUE TO FRAUD

-Fraud – deliberate and intentional evasion of the normal fulfillment of obligation
-Remedy – Action for damages

DELAY DUE TO NEGLIGENCE

-​Negligence - Omission of the diligence required by the nature of the obligation and that which corresponds with the circumstances of
the persons, of the time, and of the place
-Remedy – Action for damages

IMPOSSIBILITY OF PERFORMANCE
-​Impossibility of performing the obligation may provide the debtor with a legal excuse for his non-performance, if the same occurs
without his fault and prior to him incurring delay.
-​Two ways:​ ​(a) specific thing to be delivered in an obligation to give is lost or destroyed, or (b) the prestation in an obligation to do
becomes physically or legally impossible, both by reason of a fortuitous event

FORTUITOUS EVENT
-​Fortuitous event – events that could not be foreseen, or which, though foreseen, were inevitable
-No person shall be responsible for a fortuitous event which covers both:​ (a) Acts of God (Fortuitous event proper – ex. Floods,
typhoons); and Acts of Man (Force Majeure – ex. Riots, strikes, or wars)
-​Requisites to exempt obligor from breach​:​ (a) cause of breach independent of the will do the debtor; (b) event is either
unforeseeable or unavoidable; (c) event must be of such to render it impossible for the debtor to fulfill his obligation in a normal
manner; and (d) debtor must be free from participation in or aggravation of injury of the creditor.

EXCEPTIONS TO THE RULE OF NON-LIABILITY OF FORTUITOUS EVENT

-​Exceptions
When the law expressly provides for liability
(1) Obligor delays or has promised to deliver the same thing to two or more persons who do not have the same interest
(2) The possessor in bad faith in every case
(3)If the common carries negligently incurs delay in transporting goods
(4)Borrower who uses the thing borrowed for a purpose different from that intended, delays its return, receives the thing under
appraisal, lends it to another person, or saves his property instead of the thing borrowed
(5)The depositary who using the thing without the depositor’s permission, delays its return, or allows others to use it
(6)The negotiorum gestor who undertakes risky transactions, prefers his interest to that of the owner, fails to return the property after
demand by the owner, or assumes management in bad faith
(7)When the obligation to deliver a determinate thing proceeds from a criminal offense

EXCEPTIONS TO THE RULE OF NON-LIABILITY OF FORTUITOUS EVENT

-​Express stipulation of the parties (ex. Parties provide for liability even for fortuitous event
-Nature of the obligation requires the assumption of Risks (ex. A’s car was carnapped while in possession the owner of the car repair
shop. In here, owner of the repair shop is liable for the loss of the car because carnapping is a business risk for those engaged in the
repair of motor vehicles)

PRESUMPTIONS ON RECEIPT OF PAYMENT OF PRINCIPAL AND LATER INSTALLMENT

-​Two (2) Presumptions:
- ​The interest has been paid​ - if the payment of the principal is received by the creditor without reservation with respect to the
interest; and
- ​The prior installments have been paid​ – if the payment of a later installment is received by the creditor without reservation as to
prior installments
-May be rebutted by competent evidence

CLASSIFICATION OF OBLIGATIONS (Part 2)

PURE OBLIGATION vs CONDITIONAL OBLIGATION

Pure Obligation
- Is one where the performance does not depend upon a condition, and is not subjected to a term or period
- Immediately demandable
Conditional Obligation
- Is one where the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the
happening of the event

CLASSIFICATION OF CONDITIONS
SUSPENSIVE
- Happening gives rise to an obligation
(example: In a contract to sell, the title of the property remains with the seller until the buyer’s full payment of the purchase
price. Hence, upon full payment by the buyer, the creditor has the obligation to execute the deed of absolute to transfer the property to
the buyer)
RESOLUTORY
- Happening results in the extinguishment of the obligation
POTESTATIVE
- Fulfillment depends upon the exclusive will of either parties to the juridical relation (ex. “payment shall be made if he decides
to sell his house”)
- Void

CASUAL
- Fulfillment depends upon chance or the will of a third person
MIXED
- Fulfillment depends partly upon the will of either parties and partly upon chance or the will of third person. (ex. ”payment shall
be made as soon as he receives the funds derived from the sale of his property”)
IMPOSSIBLE
- The condition cannot be fulfilled either due to physical or legal impossibility
POSSIBLE
- The condition can be fulfilled
DIVISIBLE
- The condition can be performed in parts
INDIVISIBLE
- The condition cannot be performed in part​s
CONJUNCTIVE
- If there are several conditions, all of them are required to be perform
ALTERNATIVE
- If there are several conditions, only one is required to be perform
EXPRESS
- The condition is stated
IMPLIED
- The condition is merely inferred

DOCTRINE OF CONSTRUCTIVE FULFILLMENT OF SUSPENSIVE CONDITION

- The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment

DOCTRINE OF CONSTRUCTIVE FULFILLMENT OF MIXED CONDITIONAL OBLIGATION

- When the condition was not fulfilled but the obligor did all in his power to comply with the obligation, the condition should be
deemed satisfied.

IMPOSSIBLE CONDITIONS

PHYSICALLY IMPOSSIBLE
- Incompatible with or contrary to nature

LEGALLY IMPOSSIBLE
- Contrary to good customs, public policy or those prohibited by law
* Obligation is void if it depends upon an impossible condition.
* But if the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid.

POSITIVE CONDITIONS
- Positive Conditions – those which require the happening of an event
(ex. “I will give B a car if he becomes a lawyer”)
- If the condition is both positive and suspensive, the unhappening of the event which constitutes the condition shall prevent the
obligation from coming into existence
(ex. ”I will give B a car if he becomes a lawyer before he turns 25”)
 - If the condition is both positive and resolutory, the non-happening of the event which constitutes as the condition shall result in
consolidation of rights that have already been acquired by the creditor
(ex. I am giving B my law books, but if my son C, becomes a lawyer when he turns 25. those law books will have to be
given back to C”).
NEGATIVE CONDITIONS
- Negative Conditions – 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 it has become evident that the event cannot occur.
(example: I promise to give B a Rolex watch is she does not marry C before she turns 25).
SUSPENSIVE CONDITIONS
EFFECTS
- Fulfillment of Suspensive Condition – retroact to the day on which the obligation was constituted
- Loss or Destruction During Pendency of Condition
(a) ​Obligation to Deliver a Generic Thing​ – obligation is not extinguished even if without debtor’s fault and before incurred delay.
Remedy: Replace the thing with the same class or genus
(b) ​Obligation to Deliver a Specific Thing​ – obligation is converted into payment of damages

* Loss – ​(a) perishes​ – ex. Dies, rots;

​(b) goes out of commerce​ – ex. possession becomes unlawful – ex. used as an instrument in crime;
​(c) disappears in such a way that it is unknown​ – ex. escaped animal; and
​(d) cannot be recovered​ – ex. sink which sunk in the sea

EFFECTS
- Deterioration of Specific Thing During Pendency of Condition
(a)​Without the Fault of Debtor​ – Deterioration is suffered by the credito who bears the risk
(d)​Through the Fault of Debtor​ – Creditor may choose between: (1) Rescission of Obligation with indemnity for damages; or (2)
Fulfillment of the Obligation with indemnity for damages

EFFECTS
- Improvement of Specific Thing Due During Pendency of Condition
(a)​If the thing improves by nature without the intervention of the debtor​ – improvement inures to the benefit of the credito
(b)​If the thing is improved at the debtor’s expense​ - the debtor is only granted the rights of usufructuary (use) of the improvements; but,
he have a right to remove the improvements if the removal will not cause injury to the property, or set off his liability for damages
caused to the property with the value of said improvement

RESOLUTORY CONDITIONS
- The obligation is immediately demandable
- Once resolutory condition is fulfilled, the obligation is extinguished and the parties are required to return to each other what
they have received
TACIT RESOLUTORY CONDITION IN RECIPROCAL OBLIGATIONS
- In reciprocal obligations, a party incurs delay once the other party has performed his part of the contract; hence, the party who
has performed or is ready and willing to perform may rescind obligation if the other does not perform, or is not ready or willing
to perform
- Example: A contract of sale, creates a reciprocal obligation – the seller, obligates itself to transfer the ownership and deliver a
determinate thing, and the buyer, obligates itself to pay therefor a price certain in money or its equivalent.

* The non-payment of the price by the buyer is a resolutory condition which extinguishes the transaction that for a time
existed, and discharges the obligations created thereunder.

REMEDIES IN CASE OF BREACH OF RECIPROCAL OBLIGATIONS

ALTERNATIVE REMEDIES FOR THE INJURED PARTY

- SPECIFIC PERFORMANCE (with payment for damages)​ – requiring exact performance of a contract in the specific form
in which it was made, or according to the precise terms agreed upon
- RESCISSION (with payment for damages) ​– abrogates the contract from its inception and restores the parties to their
original positions as if no contract has been made (mutual restitution)
● General Rule:​ Injured Party should apply to court for a decree of rescission, and cannot unilaterally rescind a contract
● Exception:​ Parties may stipulate that a violation of the contract would cause its cancellation even without judicial intervention

RULE WHEN BOTH PARTIES COMMITTED INFRACTIONS

- None of them can seek judicial redress for the cancellation or resolution of their contract and they are bound to their respective
obligations thereunder
- As to the liability for damages to each other, that will depend on whether it can be determined which of them first violated the
contacts
(a) ​If it cannot be determined​ – each of them bear its own damage
(b) ​if it can be determined​ – the first infractor shall be liable, but liability shall be equitably tempered by the courts, meaning,
the damages to be awarded to the second infractor shall be mitigated or lessened
OBLIGATIONS WITH A TERM OR PERIOD
- Obligations with a Term or Period – those whose consequences or effects are subjected in one way or another to the expiration
of said term or period
- Condition vs. Tem
(a) ​Condition​ – happening of the event is uncertain
(ex. An obligation that is made to depend upon the obtainment of a loan)
(b) ​Term (Day Certain)​ – happening of the event is certain to happen, although it may not be known when
(ex. An obligation that is made to depend upon the death of A).

CLASSIFICATION OF TERM
- Suspensive​ – must necessarily come before the performance of the obligation can be demanded
- Resolutory​ - results in the termination of the obligation upon its arrival

EFFECTS OF SUSPENSIVE PERIODS

- If the term or period is suspensive, the obligations becomes demandable only when the day certain arrives
- If the delivery or payment has been made by mistake prior to the arrival of the day certain - the debtor can recover by
instituting an action prior to the day certain what has been delivered prematurely, together with the fruits and interest
(a) ​Sum of money​ – recover sum paid plus interest at 6% per annum
(b) ​Generic thing​ – recover thing and fruits
(c) ​Specific thing​ – recover thing and fruits

BENEFIT OF PERIOD
- If it does not appear that the designated period has been established for the benefit of one of the parties only, it is presumed to
have been established for the benefit of both the creditor and the debtor; hence, prior to the arrival of the stipulated period, the
creditor cannot demand payment, and the debtor cannot make an effective payment (ex. Contracts of Loan with Interest - the
term benefits the debtor by the use of money, and the creditor by the interest, hence, debtor has no right to pay the loan before
the lapse of the period without the consent of the creditor)
- If the period is for the benefit of the debtor only, he may pay any time before the period, but oppose a premature demand for
payment
- If the period is for the benefit of the creditor only, he may demand performance at any time, but the debtor cannot compel him
to accept payment before the period expires
WHEN DEBTOR LOSES BENEFIT OF PERIOD
Obligation is converted into a pure obligation, and becomes immediately due and demandable, even if the period has not expired when:

(a) Insolvency – debtor is in a state of financial difficulty or that he is unable to pay his debts in the ordinary course of business
(no need for judicial declaration)
(b) Failure to Furnish Security or Guaranty the debtor promised
(c) Impairment or Loss of Security
(d) Other Grounds – violates undertaking, in consideration of which the creditor agreed to the period, and when the debtor attempts
to abscond

INSTANCES WHEN COURTS ARE AUTHORIZED TO FIX PERIOD

- When a period is Intended but no period was fixed
(ex. In an obligation to construct a house)
- When the duration of period depends upon debtor’s will
(ex. When the debtor binds himself to pay when his means permit him to do so)
- In case of breach of reciprocal obligation, the court may refuse rescission if there is a just cause for fixing of a period
- In lease of urban land, and the lessee has occupied the premises for more than one month, or more than six months, or more
than a year, the courts may fix a longer period

KINDS OF OBLIGATIONS (PART IV)

Classification of Obligations into Divisible and Indivisible
-Applies only when the creditors and debtors are several
-Not apply when there is only one creditor and one debtor
DIVISIBLE OBLIGATION
-That which has for its object a thing or an act which in its delivery or performance is susceptible of division
-Basis: Whether or not the obligation is susceptible of partial fulfilment according to the purpose of the said obligation
KIND OF DIVISION
1. QUALITATIVE​ – When the things separated do not form a homogenous whole (e.g. inheritance)
2. QUANTITATIVE​ – When a homogenous whole is divided either by separating into parts (e.g. movables such as cash
deposits) or by fixing their limits (e.g. immovables such as land)
3. IDEAL​ – When the thing is not materially divided but an ideal or fraction is given to each person as in the case of
co-ownership (e.g. house)
INDIVISIBLE OBLIGATION
-That which does not admit of division
-Or even though it does, neither the nature of contract nor the intention of the parties permits it to be fulfilled by parts

TEST IN DETERMINING DIVISIBILITY OR INDIVISIBILITY OF OBLIGATION

 1. The nature of the object
2. The provision of law affecting the prestation
3. The will or the intention of the parties, either express or tacit
4. The end purpose of the obligation

Nature of the Object

TWO KINDS:
1. Absolute ​– when the nature of the object does not admit its division (e.g. In obligations to give such as the delivery of certain
objects, like an animal or chair)
2. Relative​ – although the prestation is susceptible of division, it is considered an integral, indivisible amount (e.g. construction
of house – since while the works may be done by separate contractors, there will be no unity of object if the work of others is
not considered)

PROVISION OF LAW OR WILL OF PARTIES

-Even though the object or service may be physically divisible, an obligation is indivisible, if so provided by law or intended by the
parties

OBLIGATIONS WITH A PENAL CLAUSE

-Accessory obligation which the parties attach to a principal obligation for the purpose of insuring the performance thereof by imposing
on the debtor a special prestation (generally consisting in the payment of a sum of money) in case the obligation is not fulfilled or is
irregularly or inadequately fulfilled
-Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded in case of breach
-Penalty may be equitably reduced by the Courts if: ​(a) ​the principal obligation has been party or irregularly complied with; ​(b)​ even if
there has been no compliance if the penalty is iniquitous or unconscionable
-The nullity of the penal clause does not carry with it that of the principal obligation, but the nullity of the principal obligation carries
with it that of the penal clause

PENALTY CLAUSE
-Takes the place of indemnity for the damages and payment of interest in case of total non-compliance or fulfillment with the
obligation or the defective fulfillment is chargeable to the fault of the debtor.
Exceptions:​ Damages and interests may still be recovered on top of the penalty
(a) When there is a stipulation to that effect;
(b) When having failed to comply with the principal obligation also refuses to pay the penalty, in which case the creditor is entitled
to interest in the amount of the penalty; or
(c) When the obligor is guilty of fraud in the fulfillment of the obligation.
RIGHTS OF PARTIES IN CASE OF TOTAL NON-FULFILLMENT
(A) RIGHT OF DEBTOR
-Debtor cannot exempt himself from the performance of the principal obligation by paying the penalty
​Exception:​ If such right has been expressly reserved for him by the parties
(B) RIGHT OF CREDITOR
-Creditor cannot demand the fulfillment of the principal obligation and satisfaction of the penalty at the same time
Exception:​ If such right has been clearly granted to him though not expressly agreed upon (e.g. In obligations for payment of a sum
of money, when a penalty is stipulated for default, both the principal obligation and penalty may be demanded)
KINDS OF OBLIGATION(Part 3)
ALTERNATIVE OBLIGATION
-Concept
In an alternative obligation, there is more than one object (prestation), and the fulfillment of one is sufficient, determined by the choice
of the debtor who generally has the right of election.
-Right of Choice
In the absence of a contrary agreement, it is the debtor who has the right of choice which of the available prestations he is to perform.
However, the parties may expressly agree to grant the right of choice to the CREDITOR or to a THIRD PARTY.
-When the Choice or Election Becomes Effective
From the moment the choice or election has been communicated to the other party (mere notice, not consent).
If the right of choice has been expressly granted to a THIRD PARTY, both creditor and debtor must be duly notified of the choice or
election made by said THIRD PARTY.
-Effect of Choice
Obligation ceased to be alternative, and parties are bound by the choice.
-Limitations on Right of Choice
No right to choose those prestations which are impossible, unlawful, or which could not have been the object of the obligation.
Effect of Loss of Object (Prestation)
-​Loss Due to Fortuitous Event
(a)One of some of the prestations are lost – alternative character of the obligation is retained if there are still two or more prestations
which subsist
(b)Only one prestation subsist – alternative character of the obligation ceases and obligation become a simple one
(c)All prestations are lost – obligation is deemed extinguished provided that the loss occurs the party has incurred delay
-Loss is Due to Debtor’s Fault
(a)Loss of ONE of things and the right of choice belongs to the CREDITOR – claim any of those subsisting without the right to recover
damages, or the price of that which has disappeared with a right to recover damages
(b)Loss of ONE of the things and the right of choice belongs to the DEBTOR – choose from among the remainder, or he may still
perform that which remains if only one subsists
(c)Loss of ALL the things and the right belongs to the CREDITOR – the choice of the creditor shall fall upon the price of any one of
them, with indemnity for damages
(d)Loss of ALL the things and the right belongs to the DEBTOR – the creditor shall be entitled to recover the value of the last thing
which disappeared or that of the service which became impossible, with a right to recover damages
-Loss is Due to Creditor’s Fault
(a)Loss of ONE of things and the right of choice belongs to the DEBTOR – rescind the contract with damages, or choose from among
the remainder, if several prestations still subsist, or perform that which remains if one only subsists
(b)Loss of ONE of the things and the right of choice belongs to the CREDITOR – choose from among the remainder, or he may still
perform that which remains if only one subsists
(c)Loss of ALL the prestations– the obligation of the debtor is extinguished provided that the things be lost before the debtor has
incurred delay
-Loss after Election
(a)Lost was the chosen prestation – the obligation is considered extinguished if lost without debtor’s fault, and before incurred delay. If
with fault, obligation is converted into indemnification for damages.
(b)Lost was not the chosen prestation – the same does not affect the obligation

FACULTATIVE OBLIGATION
-Concept
One where only one prestation has been agreed upon but the obligor may render another in substitution
-Right of Choice
The right to choose as to which prestation is to be performed, whether the original or the substitute , ALWAYS belongs to the
DEBTOR
-Effectivity of Choice or Election to Perform the Substitute Prestation
Upon communication to the creditor his decision to perform the other prestation
-Effect of Loss of Substitute Prestation
(a)No communication that he would perform the substitute prestation – not affect the obligation to perform the original obligation.
(b)Communication to preform the substitute prestation – the debtor is liable for loss, except if the same is lost without his fault and
prior to incurrence of delay, as in the latter case, the obligation is extinguished

JOINT OBLIGATION
-Concept
An obligation where there is concurrence of several creditors, or of several debtors, or of several creditors and debtors, by virtue of
which each of the creditors has a right to demand, and each of the debtors is bound to render, compliance with his proportionate part of
the prestation which constitutes the object of the obligation.

Each creditor can only recover his share of the obligation, and each debtor can be made only to pay his part
- EXAMPLE: A,B, and C executed a promissory note where they say: “We bind ourselves or We promise to pay Php 600,000 to
X”

Here, the obligation is presumed joint because it does not expressly provide for solidarity. As a consequence, none of the 3 debtors may
be obliged to pay the entire debt, as each is liable only to pay his share.

If the law or the agreement is silent as to how the debt shall be divided, the same shall be divided into equal shares. Thus, in the case
above, each of the debtor shall only be liable for Php 200,000 each.

-Consequences or Effects of Joint Character of Obligation

(a)The credit or debt shall be presumed, in the absence of any law or stipulation to the contrary, to be divided into as many shares as
there are creditors and debtors, the credits or debts being considered distinct from one another.
(b)A joint creditor cannot act in representation of the other creditors, neither can a joint debtor be compelled to answer for the liability
of the other debtors.
(c)The extinction of the debt of one of the various debtors does not necessarily affect, extinguish or modify the debts of the other
debtors, except with respect to the creditor or debtor affected.
SOLIDARY (JOINT AND SEVERAL OBLIGATION)
-Concept
One in which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation.
Each creditor may enforce the entire obligation, and each debtor may be obliged to pay it in full.
-When Solidarity Liability Exists
(a)Express Stipulation – when the obligation expressly states using the words “solidary”, “jointly and severally liable”, “individually
and collectively”, “individually and jointly”, or “I promise to pay, signed by two or more persons”
(b)Imposed by Law – (i.e. principal is solidarily liable with the agent)
(c)Nature of the Obligation – (i.e. civil liability of the principals, accomplices, and accessories in the commission of a crime)
-Kinds of Solidarity
(a)Active Solidarity – is one that exists only among the creditors
(b)Passive Solidarity – is one that exists only among the debtors
(c)Mixed Solidarity – is one which exists among the creditors and debtors
-Active Solidarity
(a)Mutual Agency – every creditor is considered an agent of the other creditors and has the power to claim and exercise the rights of all
of them in relation to their debtor or debtors. As a consequence, each creditor is entitled to demand the whole obligation.
(b)Unauthorized Assignment of Right – prohibits assignment of rights of a solidary creditor to a third person without the consent of the
others. Any payment made by the debtor or debtors to an assignee is invalid, but debtor may recover payment from the latter
(c)Demand by a Solidary Creditor – if any demand has been made by any of the solidary creditors, payment should be made to him.
Therefore, any payment to any other creditor is not valid, and the demanding creditor can require the debtor to pay again. Remedy of
the debtor is to recover erroneous payment from the other creditor to whom such payment was made.
(d)Extinguishment of Obligation – any solidary creditor may extinguish the obligation, but the creditor shall be liable to the other
creditors for the share in the obligation corresponding to them.
-Passive Solidarity
(a)Mutual Guaranty – each solidary debtor can be made to answer for the shares of the other debtors. However, a solidary debtor
acquires the right to demand reimbursement from the other debtors for their corresponding shares once the entire obligation has been
made.
(b)Remedies against Solidary Debtors – the creditor may proceed against any one of the solidary debtors or some of all of the
simultaneously. The choice is left to the solidary debtor.
(c)Effect of Payment by Solidary Debtor
(c.1) Full Payment – extinguishment of obligation
(c.2) Full Payment prior to prescription of obligation or become illegal – demand reimbursement from his co-debtors for their
respective shares, plus interest from payment until reimbursed (if debt is due)
(c.3) Full payment after prescription of obligation or become illegal – not entitle to reimbursement
(c.4) Partial payment – recover reimbursement insofar as his payment exceeded his share
-Effects of Remission in Passive Solidarity
(a)Remission of Whole Obligation – (1) extinguishment of obligation; (2) solidary debtor is not entitled to reimbursement from his
co-debtors because remission is gratuitous
(b)Remission of Solidary Debtor’s Share – (1) Full Share – balance of debt may not be collected from him by any one of the solidary
creditors, except if solidary relation has been expressly reserved, in which case he will be surety for the debtor; (2) Partial Share –
balance of the debt can still be collected from him by any one of the solidary debtors
-Effect of Loss of Thing or Supervening Impossibility of Performance
(a)Without the fault of the solidary debtors – obligation is extinguished
(b)Occurred after one of the solidary debtors incurred delay or by reason of fault of any of the former – all solidary debtors responsible
to the creditor for the price and payment of damages and interest, without prejudice to their action against the guilty or negligent
debtor.
-Defenses Available to Solidary Debtors in Actions Filed by the Creditor
(a)Arising from nature of obligation – (1) non-existence of the obligation because of lack of an essential requisite or because of illicit
cause or object; (2) nullity due to incapacity to give valid consent or vitiation of consent of all debtors; (3) unenforceability; (4)
extinguishment of obligation; (5) non-performance of suspensive conditions; and (6) invalidity of the original contract due to
prescription, etc.
(b)Personal to debtor being sued – (1) those affecting capacity or consent of debtor; (2) those referring particularly to his portion of the
obligation, such as special terms or conditions
(c)Personal to other debtors
MODES OF EXTINGUISHMENT OF OBLIGATIONS
I. Payment or Performance
Payment – is the performance, in any other manner, of any kind of obligation, be it an obligation to give, to do, or not to do
-​Rules for Valid Payment:
A. Integrity of Payment
General Rule: Payment must be COMPLETE or FULL or the prestation must be fulfilled completely.
Creditor cannot be compelled to accept partial payment, and his refusal to do so is justified.
Creditor cannot compel debtor also to make partial payment.
Exceptions:
(1) Express stipulation to that effect;
(2) Obligation is partly liquidated and party unliquidated; and
(3) Different prestations are subject to different conditions or terms
-Creditor is not prohibited from accepting partial payments. The same, however, is not equivalent to extinguishment of obligation,
unless, the creditor considers it as such and renounce his claim thereafter.
Exceptions to the General Rule of Complete Payment
-Obligation may be extinguished even when the thing or service in which the obligations exists has not been completely delivered or
rendered when: ​(1) ​the obligation has been substantially performed in good faith, the debtor may recover less damages suffered by the
creditor; and ​(2) ​when the creditor accepts performance knowing its incompleteness and irregularity, and without expressing any
protest or objection
Principle of Substantial Performance
-The obligation is deemed extinguished under the principle of substantial performance when the obligation has been substantially
performed and the debtor performed the obligation in good faith
-The breach referred here is an omission or deviation that is slight, technical and unimportant, and does not affect the real purpose of
the contract.
-When the incomplete performance constitutes, however, a material breach of the contract that adversely affect the nature of the
obligation and defeated the purpose of the contract, the principle of substantial performance is inappropriate
Principle of Waiver and Estoppel
-The obligation is deemed fully complied with when the obligee accepts the performance knowing its incompleteness or irregularity
 B. Who Make Payment
-The creditor cannot be compelled to accept payment from any person
-The following persons can compel the creditor to accept payment or performance:
(1)The debtor, his heirs, assignees, or duly authorized representative;
(2)The person authorized by stipulation to make payment;
(3)A third person interested in the fulfillment of the obligation
-If the creditor refuses to accept payment made by any of these three persons, such refusal is without just cause and entitles the debtor
to resort to consignation
-In obligations to do, however, where the qualification and circumstances of the person of the debtor have been taken into account in
establishing the obligation, the creditor is not bound to accept payment or performance by a third person even when the latter has
interest in the fulfillment of the obligation.
Interest in the Fulfillment of the Obligation
-Interest – pecuniary or material interest in the fulfillment of the obligation, and not merely social or friendly interest
-Has interest in the extinguishment of the debtor’s obligation because it’s non-fufillment will make him or his property liable for its
payment
E.g. guarantor, surety, accommodation mortgagor
Effect of Payment by Third Person
Extinguishment of Obligation
-The creditor is not bound to accept payment by a third person who has no interest in the fulfillment of the obligation, unless, there is a
stipulation to the contrary.
-He may, nonetheless, choose to accept payment.
Right to Reimbursement
(a) Third Person has Intention to be Reimbursed
(1) ​With knowledge and consent of the debtor​ – third person is entitled to recover what he has paid and subrogated to the rights of the
creditor
(2) ​Without the knowledge or against the will of the debtor​ – third person can only recover payment insofar as the payment has been
beneficial to the debtor. Thus, if the debt has been previously remitted, paid, compensated, or prescribed, the third person may not
recover from the debtor what he has paid to the creditor. Remedy is against the person who received the payment (accion in rem verso).
(b) Third Person has No Intention to be Reimbursed
-Creditor’s consent is necessary, while the debtor’s consent is immaterial, when the payment is made by a third person who has no
interest in the fulfillment of the obligation.
-However, when the paying third person has no intention of being reimbursed, the law requires debtor’s consent because the payment is
deemed to be a DONATION.
-If such consent is given by the debtor, a perfected donation exists between the debtor and third person, and the latter cannot thereafter
change his mind and demand reimbursement from the former.
-If the debtor’s consent is not obtained, the third person may still change his mind and recovered from the debtor.
-If the debtor opposed both donation and payment, by the third person, the latter can recover from former only insofar as the payment
has been beneficial to the debtor.
-If the debtor oppose only the donation but consented to the payment, the third person is subrogated to the rights of the creditor.
Right to Subrogation
Subrogation​ – transfer of all rights of the creditor to a third person, who thereby acquires all his rights against the debtor or against
thirds persons
Capacity to Make Payment
-In order for payment to be valid in obligations to give, it must be made by a person having the free disposal of the thing due and
capacity or alienate it.
-The payor must be the owner of the things which he delivers in payment, and must have the capacity to alienate it. Otherwise, the
creditor can refuse payment from said person
C. To Whom Must Payment Be Made
-A payment in order to be effective to discharge an obligation, must be made to the proper person.
-Persons to payment to extinguish an obligation should be made:
(1) the person in whose favor the obligation has been constituted (e.g. original creditor, or the creditor at the time the obligation was
constituted);
(2) his successor in interest (e.g. to whom the original credit has been transferred, such as the assignees, heirs of the original
creditor, and subrogated creditors); or
(3) any person authorized to receive it (e.g. person authorized by the creditor, and person authorized by law such as guardian, executor,
or administrator of estate, assignee or liquidator of a partnership or corporation).

Effect of Payment to Wrong Person

-Payment made by the debtor to the wrong party does not extinguish obligation.
-Creditor is not deprived of his right to demand payment.
-Loss resulting from wrong payment shall be borne by the debtor unless there is a stipulation to the contrary or the creditor himself is
responsible for the wrongful payment
Exceptions to Rule: When Payment to Wrong Party Considered Valid
(a) When the payment redounds to the benefit of the creditor
-Burden of proving payment redounded to the benefit of the creditor: Debtor
-Cases when debtor no longer has the duty to prove the benefit of the creditor because law itself presumes the existence of such benefit:
(1) If after payment, the third person acquires the creditor’s rights; (2) Creditor ratifies the payment to the third person; and (3) If by the
creditor’s conduct, the debtor has been led to believe that the third person had authority to receive payment
(b) Payment to Possessor of Credit in Good Faith
Example: If the promissory note executed by the debtor in favor of his creditor is ”payable to bearer”, the payment made in good faith
by the debtor to the holder of the promissory note, even if he is not the creditor, shall release him from obligation, except, if the debtor
has knowledge that the holder thereof has stolen the same or for any other cause which does not give the holder the character of a
legitimate creditor or representative of the latter.
(c) Payment in Good Faith to Assignor of Credit
-Assignment of Credit – agreement by virtue of which the owner of a credit by a legal cause such as sale, dation in payment or
exchange or donation – and without the need of debtor‘s consent, transfers that credit and its accessory rights to another, who acquires
the power to enforce it, to the same extent as the assignor could have enforced it against the debtor
-In assignment of credit, debtor‘s consent is not essential, only notice to inform him that from the date of assignment, payment should
be made already to the assignee.
Capacity of Payee
-In order that payment may be valid, the person to whom it is made must have the capacity to receive it, meaning, he must have the
capacity to manage or administer his property.
-Otherwise, payment is invalid, unless: (a) if he has kept the thing delivered, or (b) If the payment has been beneficial to him.
Effect of Court Order to Retain Debt
-Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt shall not be valid.
-The phrase “after the latter has been judicially ordered” refers to the date of receipt of the notice of the judicial order and not on the
date of its issuance by the court.
D. Identity of Prestation
Identity of the prestation, which means that the very thing due must be delivered or released.
What Must Be Paid
(a) Determinate Obligation – the specific thing
(b) Indeterminate Obligation – thing belonging to the same genus
* Delivery must be in accordance with the quality and circumstance agreed upon
* Absence of such agreement, the creditor cannot demand a thing of superior quality and neither can the debtor deliver a thing of
inferior quality
(c) Personal Obligation – cannot be substituted by another act or forbearance
Payment of Debts in Money
-Payment shall be made in the currency stipulated.
-If not possible or in the absence of such stipulation, the payment must be in the currency which is legal tender in the Philippines.
Legal Tender ​– all notes and coins issued by BSP
Check​ – not legal tender, and a creditor may validly refuse payment by check, whether it be a manager’s, cashier’s, or personal check
(Note: applicable only to payment of obligation)
Check and similar instrument​ – operates as payment only when they have been encashed, or they have been impaired through the fault
of the creditor
-Creditor has the option and the discretion of refusing or accepting the check. If the creditor accepts a fully funded check, he is
estopped from later on denouncing the efficacy of such tender of payment
Extraordinary Inflation and Deflation
-The value of the currency at the time of the establishment of the obligation shall be the basis of payment.
-It is only when there is agreement to the contrary that the extraordinary inflation will make the value at the time of payment the basis
for payment.
-Inflation​ – sharp increase of money or credit, or both, without a corresponding increase in business transaction.
-Extraordinary inflation​ – exists when there is a decrease or increase in the purchasing power of the Philippine currency which is
unusual or beyond the common fluctuation in the value of said currency, and such increase or decrease could not have been reasonably
foreseen or was manifestly beyond the contemplation of the parties at the time of the establishment of the obligation.
-​Extraordinary deflation​ –involves an inverse situation
For extraordinary inflation or deflation to affect an obligation, the following requisites must be proven: ​(1)​ that there was an official
declaration of extraordinary inflation from the BSP; ​(2)​ that the obligation was contractual; and ​(3) ​that the parties expressly agreed to
consider its effects.
Dation in Payment (Dacion en Pago)
Dation in Payment – alienation of property (e.g. corporeal thing, real right, credit)to the creditor in satisfaction of a debt in money.
Here, the debtor delivers and transmits to the creditor the former’s ownership over a thing as an accepted equivalent of the payment or
performance of an outstanding debt.
-In such case, law on sales shall apply since the creditor is really buying the thing or property, the payment of which is to be charged
against the debtor’s obligation.
-However, since the original obligation is to pay a sum of money, creditor cannot be compelled to accept an alienation of a property as
substitute for the payment of a debt in money.
-Dation in payment extinguishes the obligation to the extent of the value of the thing delivered, either as agreed by the parties or as
proved, unless the parties by agreement, express or implied, consider the thing as equivalent to the obligation.
Payment by Cession
-Payment by cession – contemplates a situation where the debtor in indebted to several creditors but he is under a state of insolvency,
or the debtor is generally unable to pay his liabilities as they fall due in the ordinary course of business or has liabilities that are greater
than the assets.
-In cession, the debtor ABANDONS all his properties or assets to his creditors so that the latter may sell the same and apply the
proceeds to the satisfaction of their credits.
-Releases the debtor from responsibility only up to the extent of the net proceeds of the sale.
Voluntary and Legal Assignment
-Legal Assignment – governed by ​R.A. No. 10142, or the “Financial Rehabilitation and Insolvency Act (FRIA) of 2010)
-Under the provisions of the ​FRIA of 2010​, an individual debtor those properties are not sufficient to cover his liabilities, and owing
debts exceeding Five Hundred Thousand Pesos (Php 500,000.00) may apply to be discharged from his debts and liabilities by filing a
petition with the court of the province or city in which he has resided for 6 months prior to the filing. He shall attach to his petition a
schedule of debts and liabilities and an inventory of assets. The filing is an act of insolvency , or a case of Voluntary Liquidation.
-Likewise, any creditor or group of creditors with a claim of, or with claims aggregating at least Php 500,000.000 may file a verified
petition for liquidation with the court of the province or city in which the individual debtor resides. This is a case of Involuntary
Liquidation.
Expenses Required by Payment
(a)Extrajudicial Expenses – refer to expenses which arise out of, or in connection with, the normal fulfillment of the obligation.
-Parties may freely stipulate as to who shall bear said expenses.
-In the absence of stipulation, said expenses shall be for the account of the debtor.
(b) Judicial Expenses – consequence of judicial proceeding
E. Proper Place of Payment
-The creditor cannot be compelled to accept payment if the same if the same is made in a place other than the proper place of payment.
-If the place is designate in the obligation, payment shall be made in said place.
-In the absence of stipulation and the obligation is to deliver a determinate thing, the payment shall be made in the place where the
thing might be at the time of the constitution of the obligation.
-In any other case, the place of payment shall be the place of the domicile of the debtor.
(a) Change in debtor’s domicile – place of payment shall be the debtor’s new domicile
(b) Change done in bad faith or after delay – additional expenses incurred by the creditor in going to the new domicile shall be borne
by the debtor
(c) Change done in good faith or before delay – additional expenses incurred by the creditor in going to the new domicile shall be
borne by the creditor
Application of Payments
-Application of Payments – designation of the debt to which should be applied the payment made by a debtor who owes several debts
to the same creditor.
-Right to make application of payments – belongs to the debtor, and must be exercised at the time of payment.
-Once the right has been exercised, the debtor has no right to change the application of payment previously made.
-When the debtor does not elect to do, his right is waived, and is granted to the creditor if he agrees.
-Thereafter, the creditor shall propose an application of payment by issuing a receipt in which application of payment is made, which
does not bind the debtor, unless, he accepts the same without protest.
Limitation upon Right to Apply Payment
-Right of debtor to make an application of payment is not absolute.
-Limitations: The debtor cannot make an application of payment that will:
(a)Violate the agreement as to the debts which are to be paid first;
(b)Compel his creditor to accept partial payment; and
(c)Apply the payment to the principal because the law requires that the interest should be paid first.
Presumptions of Payment of Interest
-If the debt produces interest (both stipulated monetary interest and interest for default or compensatory), payment of the principal shall
not be deemed to have been made until the interests have been covered.
-Payments shall first be applied to the interest and not to the principal.
-Exception: When the creditor waives payment.
-Presumption of waiver: Creditors accept the payment of the principal without reservation with respect to the interest.
Application of Payment by Operation of Law
-When no application was made by parties, payment should be made in accordance with the following rules:
-The debt which is more onerous to the debtor, among those due, shall be deemed to have been satisfied; and
-If the debts due are of the same nature and burden, the payment should be applied to all of them proportionately.
Debt More Onerous to Debtor
1.Debts covered by a guaranty more onerous than the simple obligation
2.When a person has 2 debts, one as sole debtor and another as solidary co-debtor, debt as sole debtor more onerous
3.Where there are various debts, the oldest ones are more burdensome
4.Where one debt bears interest and the other does not, even if the latter should be the older generation, the former is considered more
onerous
5.Debts with a penal clause are more onerous that those without one
Tender of Payment and Consignation
-Tender of Payment – offering the creditor what is due him or her (with payment), together with the demand that the creditor accepts
the same
-Tender of payment, without more, produces no effect.
-To produce the effect of payment and extinguish an obligation, tender of payment must be followed by a valid consignation of the
amount due in court which amount would thereafter be deposited by the Clerk of Court in a bank and earn interest to which the creditor
would be entitled
-Effect of valid tender of payment which the creditor refuses to accept:
(a)Exempt the debtor from payment of compensatory interest (penalty or indemnity for damages imposed by law or by the courts)
and/or damages;
(b)Remains liable for monetary interest (compensation set by parties for the use or forbearance of money); and
(c)Risk of the loss of the thing is shifted to the creditor
-Consignation – act of depositing the thing due with the court or judicial authorities whenever the creditor cannot accept or refuses to
accept payment and it generally requires a prior tender of payment.
-Requisites for a Valid Consignation
(a)There must be a debt due – means for payment or discharge of a debt. It does not apply to preserve option to buy, or right to redeem
or repurchase
(b)Unjust Refusal to Accept
-Instance where prior tender of payment is excused: (1) when the creditor is absent or unknown or does not appear at the place of
payment; (2) when the creditor is incapacitated to receive the payment at the time it is due; (3) when, without just cause, the creditor
refuses to give a receipt; (4) when 2 or more persons claim the same right to collect; and (5) when the title of the obligation has been
lost.
-If the creditor refuses with reason, the debtor will not be relieved from his liability by the consignation and the loss or deterioration in
value of the thing due or deposited shall be borne by the debtor.
(c) Two Notices Required
(1) Prior Notice – debtor should inform the creditor or the persons interested in the fulfillment of the obligation that should the latter
fail to accept payment, the former would consign the amount.
(2) Post Notice – debtor should inform the creditor or the persons interested in the fulfillment of the obligation that the consignation
was made
(d) Deposit of Payment in Court
Effects of Consignation
(a)Right of Debtor to Withdraw Deposit
The debtor may withdraw, as a matter of right, the thing or amount deposited on consignation in the following instances: (1) before the
creditor has accepted the consignation; or (2) before a judicial declaration that the consignation has been properly made. Here, the
withdrawal may be made without the knowledge and consent of the creditor.
-After the creditor has accepted the consignation, or after the court has declared the consignation to be properly made, the debtor can
no longer withdraw the thing or amount deposited without the authorization of the creditor.
(b) Right of Creditor to Withdraw Deposit ​– Creditor, upon notice of the consignation, may choose to accept the same unconditionally
and without reservations, thus, extinguishing the obligation.
(c) Retroactive Effect of Consignation
-Consignation is completed at the time the creditor accepts the same without objections, or, if he objects, at the time the court declares
that it has been validly made in accordance with law.
-Upon completion, payment is deemed to have been made at the time of the deposit of the thing in court, or when it was placed at the
disposal of the judicial authority.
(d) Expenses of Consignation​ – The same shall be charged against the creditor. If the consignation is declared invalid, expenses shall
be for the account of the debtor.
* Extrajudicial expenses required by the payment shall be for the account of the debtor, unless, there is a stipulation to the contrary.
II. Loss of the Thing Due
-This mode of extinguishment is applicable only to deliver a DETERMINATE thing (particularly designated or physically segregated
from all others of the same class), and does not apply to GENERIC thing (designation merely by its class or genus e.g. horse, chair)
-Loss – it perishes (dies, or rots), or goes out of commerce (possession becomes unlawful or has been expropriated), or disappears in
such a way that its existence is unknown (escaped and cannot be found), or it cannot be recovered (e.g. sunk ship)
Effect of Loss of Determinate Thing
In order that the loss will extinguish the obligation and exempt the obligor from any further liability, the following requisites must
concur:
(a)The loss occurs without the fault of the debtor;
(b)The loss occurs prior to the debtor incurring delay;
(c)There is no law or stipulation holding the debtor liable even in case of fortuitous event, or that the nature of the obligation does not
require the assumption of risk.
-If the foregoing requisites are not present, the debtor’s obligation is not extinguished, and is converted into payment of damages.
-Before delivery, risk of loss is borne by the seller who is still the owner
-If there is partial loss, the courts may declare the extinguishment of the obligation if the partial loss is so important
Presumption that Loss is Due to Debtor’s Fault
-According to court, this presumption is reasonable since he who has the custody and care of the thing can easily explain the
circumstances of the loss.
-The presumption does not apply, however, in the following instances: (1) when there is proof to the contrary; or (2) when the loss
occurs during an earthquake, flood, storm or other natural calamity.
Impossibility of Performance
-The impossibility of performance releases the debtor from his obligation provided that there is no fault on the part of the debtor.
-The impossibility referred to is either physical or legal impossibility.
-Physical Impossibility – when the act by reason of its nature cannot be accomplished (e.g. death of the obligor, in an obligations of a
most personal character to him)
-Legal Impossibility – when the act by reason of a subsequent law is prohibited (e.g. when the contract involved child labor and a law
is subsequently passed prohibiting the same)
Doctrine of Unforeseen Events
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
Obligation to Deliver a Determinate Thing Arising From a Crime
-In this instance, the loss of the thing due for any cause, whether through the fault of the debtor, or, through fortuitous event, does not
extinguish the obligation.
-Here, the obligation of the debtor is converted into payment of the value of the thing lost.
-However, if the return was unjustly refused, and the thing is thereafter lost through fortuitous event without the fault of the debtor, and
before he has incurred delay, the obligation is deemed extinguished.
-Two remedies of debtor in case of unjustified refusal: (a) Consign the thing and relieve himself from responsibility, or (2) Keep the
thing in his possession, with the obligation to exercise due diligence
III. Condonation or Remission of Debt
Remission – act of liberality by which the creditor, who receives no price or equivalent thereof, releases the debtor from obligation ,
either in whole or in part, upon the latter’s consent.
-Can be done either by way of an act inter vivos (remission is intended to be effective during the creditor’s lifetime – comply with the
forms of donation) or an act mortis causa (remission to be effective only after the creditor’s death – comply with the formalities of a
will)
-In either case, debtor’s consent is necessary
Kinds of Remission
(1)Express – consent is given explicitly
(2)Implied – consent can be inferred from the acts of the parties
(3)Total – remission involves entire obligation
(4)Partial - remission of a part of the amount, or a part of the obligation (such as the accessory obligation), or an aspect of the
obligation (such as solidarity)
(5)Inter vivos
(6)Mortis causa
-If the debtor does not wish to accept the remission and tenders his payment and creditor refuses to accept the same, the remedy of the
debtor is to resort to CONSIGNATION.
-If the private document evidencing the credit is found in possession of the debtor, it will give rise to a presumption that the creditor
voluntarily delivered such document constituting remission of the debt. This may be rebutted by proof that he had no part in the
delivery, or he acted without knowledge or freedom.
-Remission of the principal debt results in the extinguishment of the accessory obligation, but the remission of the latter does not affect
the former. Example: If the loan is secured by a pledge of a thing belonging to the debtor, the remission of the loan will result in the
extinguishment of the pledge (accessory obligation)

IV. Confusion or Merger of Rights

-Confusion or merger – is the meeting in one person of the qualities of creditor and debtor with respect to the same obligation. It takes
place when the debtor finds himself to be the creditor of the same obligation.
Example: ​A executes a promissory note payable to the order of B. B uses the same promissory not to pay C, and he endorses and
delivers the note to the latter. C, in turn, negotiated the instrument back to A. A will then find himself to be the creditor of his own
debt. Hence, his obligation is extinguished by reason of merger or confusion.
1.Effect of Merger Upon Guarantors
-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 guarantors does not extinguish the obligation
-Any merger involving the persons of the guarantor and principal creditor will only result in the extinguishment of the accessory
obligation but the principal obligation shall remain.
2.Effect of Merger
Joint Obligation​ – extinction of the debt of one of the various debtors does not necessarily affect the debts of the others. It does not
extinguish obligation except as regards the share corresponding to the creditor and debtor in whom the two characters concur.
Solidary Obligation​ – has the effect of extinguishing the obligation if the confusion affects the entire obligation. The solidary debtor in
whose favor the characters of the creditor and debtor meets has the obligation to reimburse the other creditors of the respective shares
in the credit. The solidary debtor in whose favor the character of the debtor and creditor meets can demand reimbursement from his
co-debtors corresponding to the shares of the latter in the obligation.

V. Compensation
Compensation – mode of extinguishing to the concurrent amount the obligations of persons who in their own right and as principals are
reciprocally debtors and creditors of each other.
Kinds of Compensation:
(a)Total – 2 obligations are of the same amounts
(b)Partial – 2 obligations are of different amounts and a balance remain
(c)Legal – takes place by operation of law when all the requisites are present, and the effects retroact to the date when its requisites are
fulfilled
(d)Voluntary or Conventional – takes place when the parties agree to compensate their mutual obligations in the absence of some
requisites
(e)Judicial – takes place by virtue of an order of the court where the counterclaim of the defendant is allowed to be set-off against the
claim of the plaintiff
(f)Facultative – it can be claimed by the party who can oppose it and who is the only party prejudiced by the compensation, as happens
when one of the obligations has a period for the benefit of one party alone, and the latter renounces the period with the effect of making
the obligation due and compensable.
Requisites of Legal Compensation
Requisites:
1.The parties are mutually creditors and debtors of each other, in their own right and as principals;
Example:​ Bank and depositor. (The collecting bank has a right to debit a client’s account for the value of a dishonored check that has
previously been credited)
”In their own right” ​– in their personal capacity, and not in representative capacity
”As Principals”​ – not as mere guarantors
2.Both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of the same quality if
the latter has been stated;
Not applicable ​– delivery of specific or determinate things
3.Both debts be due;
Not applicable​ – obligations with suspensive conditions, or payable upon demand
4.Both debts be liquidated and demandable;
A debt is liquidated​ – when is existence and amount are determined, or when the amount is determinable by inspection of the terms and
conditions of relevant documents.
Not applicable​ – unliquidated or disputed claim
5. Over neither or them there be any retention or controversy, commenced by third persons and communicated in due time to the debtor
Debts Payable at Different Places
-Compensation shall take place by operation of law though the debts may be payable at different places.
-There shall, however, be an indemnity for expenses of exchange or transportation to the place of payment, which shall be paid by the
party claiming the compensation.
Effect of Assignment of Credit upon Compensation
Assignment After Compensation
-Does not affect debtor because the latter’s obligation had already been extinguished, except, if debtor consented to assignment and
failed to reserve his right to the compensation, thus waiving his right to the compensation
-Remedy of Assignee: File an action against assignor for eviction or damages due to fraud
Assignment before Compensation
-​When Debtor Consented to Assignment
-He cannot set up against the assignee the compensation unless he has reserve his right to the compensation
When Debtor Did Not Consent to the Assignment
-He can set up compensation of debts previous to assignment but not of subsequent ones
Without Knowledge of Debtor
-He may set up the compensation of all credits prior to the same and also later ones until he had knowledge of the assignment.
Debts which cannot be Compensated
1.Debts arising from contracts of depositum
2.Debts arising from contracts of commodatum
3.Claims for support due by gratuitous title
4.Debts consisting of civil liability arising from a penal offense
-The creditor in any of the foregoing obligations can demand for the performance of the obligation even if he is also indebted to the
debtor and all requisites of legal compensation are present.
-However, it is only the debtor in the said obligations who is not allowed to set up compensation. The creditor may set up
compensation with respect to debts that he owed to the debtor.

VI. Novation
Novation – extinguishes an obligation and creates a new one in lieu of the old by:
1.Changing the object or principal conditions;
2.Substituting the person of the debtor;
3.Subrogating a third person in the rights of the creditor.
Kinds of Novation:
1.Extinctive or Total – old obligation is terminated by the creation of a new one that takes the place of the former
2.Modificatory or Partial – old obligation subsist to the extent that it remains compatible with the amendatory agreement
3.Objective or Real – change of object, cause, or principal conditions
4.Subjective or Personal – change of either the person of the debtor or the creditor
5.Express – new obligation declares in unequivocal terms that the old obligation is extinguished
6.Implied – new obligation is incompatible with the old one on every point
Requisites of Novation
1.Previous Valid Obligation
-Does not mean that the obligation is not suffering from any defect
-It is only when the original obligation is void, that the novation also becomes void
2.Agreement of the Parties to a New Contract
-Extinguishment of Old Obligation or Contract
-Validity of New Obligation or Contract
-If the new obligation is void, the original one shall subsist, unless, the parties intended that the former relation shall be extinguished in
any event.
Substitution of Debtor
1.Expromision – the initiative for the change does not emanate from the old debtor, and it may even be made without his knowledge, or
consent, since it consists in a third person assuming his obligation.
(a) ​With knowledge and consent of old debtor​ – the new debtor is entitled to recover what he has paid, and to the right of subrogation
(b) ​Without knowledge or against the will of the old debtor​– the new debtor can recover insofar as the payment has been beneficial, but
not entitled to subrogation
2.Delegacion– the debtor offers and the creditor accepts a third person who consents to the substitution so that the intervention and
consent of these three persons are necessary. The consent need not be given simultaneously and may be given afterwards.
Release of Original Debtor
-Novation is never presumed. Without the express release of the debtor from the obligation, any third party who may assume the
obligation shall be considered merely as co-debtor or surety. If there is no agreement as to solidarity, the first and new debtors are
considered obligated jointly.
Consent of Creditor
-Consent of creditor is indispensable both in expromission and delegation.
-Creditor’s consent may be inferred form his acts.
Effect of Non-fulfillment or Insolvency of new Debtor
1.Release of Debtor from the obligation
2.Delegacion case, the action can be revived against the old debtor if: (a) insolvency of new debtor was already existing and of public
knowledge at the time of delegation; or (b) insolvency was already existing and known to the old debtor at the time of delegation.
Effect of Novation
1.Accessory Obligations
When the principal obligation is extinguished, accessory obligations (e.g. pledges, mortgages, guarantors and sureties) are also
extinguished
Exceptions:​ (a) accessory obligation is for the benefit of a third person, and the latter did not consent; (b)when the guarantors and
sureties agree to be bound in the new obligation
2.Conditional Obligations
If the original obligation is subject to a suspensive or resolutory condition, the new obligation must also be subject to the same
condition.
Exception: ​Parties intend to do away with the condition and substitute it with a pure one
3.Both Obligations are Conditional
If both the old and new obligations are subject to different conditions: (a) all conditions must be fulfilled if conditions can stand
together; or (b) only the conditions in the new obligation must be fulfilled if conditions are incompatible
Conventional and Legal Subrogation
Conventional Subrogation ​– takes place by agreement of the parties, the original creditor, the debtor, and the new creditor
Legal Subrogation​ – takes place by operation of law because of certain acts, viz:
-When a creditor pays another creditor who is preferred, even without the debtor’s knowledge;
-When a third person, not interested in the obligation, pays with the express or tacit approval of the debtor; and
-When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation pays, without prejudice to the
effects of confusion as to the latter’s share.
Effects of Subrogation
Total Subrogation​ Extinguishes the old obligation giving rise to a new one
Partial Subrogation​ Creditor may exercise his right with respect to the remainder of the debt
- In the event that the assets of the debtor will no longer be sufficient to pay both creditors, the original creditor shall be preferred to the
person who has subrogated in his place in virtue of the partial payment of the same credit.