Santiago City, Philippines
Jimmy I. Peru, Juris Doctor,MBM,MICB,CPA
OBLIGATIONS AND CONTRACTS
LECTURE NOTES
OBLIGATION
OBLIGATION – originate from the latin word
obligatio means tying or binding.
Civil obligation – is a juridical necessity to give, to
do or not to do. It gives a right of action to compel
their performance
Art 1156. An obligation is a juridical necessity
to give, to do or not to do
➢ Right of action to compel their performance
➢ Right to enforce the obligation against the
obligor in a court of law in case of breach
Elements:
1. Active subject
(obligee/creditor/lender/plaintiff/he who has
the right) – the one in whose favor the
obligation is constituted.
2. Passive subject
(obligor/debtor/defendant/he who has the
obligation) – the one has the duty of giving,
doing or not doing.
3. Object – prestation; the conduct which has
to be observed by the debtor/obligor.
4. Vinculum Juris/juridical tie/legal tie/causa
debendi – This arises from law, contract,
quasi contract, delict and quasi delict.
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, but
after voluntary fulfillment by the obligor, they
authorize the retention of what has been delivered
or rendered by reason thereof. Some natural
obligations are set forth in the following articles.
(Art. 1423)
➢ Based on equity and natural law.
➢ Duty not to recover what voluntary has been
paid although payment was no longer required.
➢ Basic understanding of right and wrong based
on an understanding of right and wrong.
➢ Based on conscience
Illustration of Natural obligation
➢ When a right to sue upon a civil obligation has
lapsed by extinctive prescription, the obligor
who voluntarily performs the contract cannot
recover what he has deliver or the value of the
service he has rendered.(1424)
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➢ When without the knowledge or against the will
of the debtor, a third person to pays a debt
which the obligor is not legally bound to pay
because the action thereon has prescribed, but
the debtor later voluntarily reimburses the
third person the obligor cannot recover what
he has paid. (1425)
➢ When minor between eighteen and twenty-one
years of age who has entered into a contract
without the consent of the parent or guardian,
after the annulment of the contract voluntarily
returns the whole thing or price received,
notwithstanding the fact the he has not been
benefited thereby, there is no right to demand
the thing or price thus returned. (1926)
➢ When a minor between eighteen and twenty-
one years of age, who has entered into a
contract without the consent of the parent or
guardian, voluntarily pays a sum of many or
delivers a fungible thing in fulfillment of the
obligation, there shall be no right to recover
the same from the oblige what has spent or
consumed it in good faith.(1427)
➢ When, after an action to enforce a civil
obligation has failed the defendant voluntarily
performs he obligation he cannot demand the
return of what he delivered or the payment of
the value of the service he has rendered.
(1428)
➢ When a restate or intestate heir voluntarily
pays a debt of the decedent exceeding the
value of the property which he received by will
or by the law of intestacy from the estate of
the deceased, the payment id valid and cannot
rescinded by the payer. (1429)
➢ When a will is declared void because it has not
been executed in accordance with the
formalities required by law, but one of the
intestate heirs, after the settlement of the
debts of the deceased, pays a legacy in
compliance with a clause in the defective will,
the payment is effective and irrevocable.
(1430)
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Sources of obligation (1157)
1. Law ( obligation ex lege ) – not presumed
(1158)
• Taxes, duty of husband and wife to
support family, minimum wage, workmen
compensation act.
2. Contract (obligation ex contractus) - Meeting
of mind between 2 parties whereby one binds
himself with respect to another to give something
or render some service. (1306) it has a force be
complied with in good faith (1159)
3. Quasi contract ( obligation ex quasi contractu)
(Chapter 1, Title XVII) – juridical relation resulting
from lawful, voluntary and unilateral act to the
end that no one shall be unjustly enriched or
benefited at the expense of another.
Rule: No meeting of the hence consent of the
parties are not required. It is quasi contract not an
implied contract.
1. Nominate quasi contract
a. Solutio indebiti – Something is
received when there is no right to
demand it, and it was unduly
delivered thru mistake, the recipient
has the duty to return it.
b.
c. Negotiorum gestio –When a person
voluntary takes charge of another’s
abandoned business or property
without the owner’s authority where
reimbursement must be made for
necessary and useful expenses.
a.) Property or business is
abandoned or neglected
b.) The manger is unauthorized
(express or implied)
c.) The unauthorized manger
voluntary take charge the
abandoned property.
2. Innominate quasi contract
• Art. 2164. When, without the knowledge
of the person obliged to give support, it
is given by stranger, the latter shall have
a right to claim the same from the
former, unless it appears that he gave it
out of piety and without intention of
being repaid.
• Art. 2165. When funeral expense s are
borne by third person, without the
knowledge of those relatives who were
obliged to give support to the deceased,
said relatives shall reimburse the third
person, should the latter claim
reimbursement.
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• Art. 2166. When the person obliged to
support an orphan, or an insane or other
indigent person unjustly refuses to give
support to the latter, any third party
may furnish support to the needy
individual, with right of reimbursement
from the person obliged to give support.
The provisions of his article apply when
the father or mother of a child under
eighteen years of age unjustly refuses to
support.
• Art. 2167. When through an accident or
other cause a person is injured or
becomes seriously ill, and he is treated
or helped while he is not in a condition to
give consent to a contract, he shall be
liable to pay for the services of the
physician or other person aiding him,
unless the service has been rendered out
of pure generosity.
• Art. 2168. When during a fire, flood,
storm, or other calamity, property is
saved form destruction by another
person without the knowledge of the
owner; the latter is bound to pay the
former just compensation.
• Art. 2169. When the government, upon
the failure of any person to comply with
health or safety regulations concerning
property, undertakes to do the necessary
work, even over his objection, he shall
be liable to pay the expenses.
• Art. 2170. When by accident or other
fortuitous event, movables separately
pertaining to two or more persons are
commingled or confused, the rules on
co-ownership shall be applicable.
• Art. 2171. The rights and obligations of
the finder of lost personal property shall
be governed by articles 719 and 720.
• Art. 2172. The right of every possessor
in good faith to reimbursement for
necessary and useful expenses is
governed by article 546.
• Art. 2173. When a third person, without
the knowledge of the debtor, pays the
debt, the rights of the former are
governed by articles 1236 and 1237.
• Art. 2174. When in a small community a
nationality of the inhabitants of age
decided upon a measure for protection
against lawlessness, fire, flood, storm or
other calamity, anyone who objects to
the plan and refuses to contribute to the
expenses but is benefited by the project
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 as executed shall be liable to pay his
share of said expenses.
• Art. 1275. Any person who is constrained
to pay the taxes of another shall be
entitled to reimbursement from the
latter.
4. Delict (obligation ex maleficio or delicto)
Governing rules:
1. Pertinent provisions of the RPC and other
penal laws subject to Art 2177 Civil Code
• Art 100, RPC – Every person
criminally liable for a felony is also
civilly liable
2. Chapter 2, Preliminary title, on Human
Relations (Civil Code )
3. Title 18 of Book IV of the Civil Code -
on damages
Civil liability arising from crime includes:
1. Restitution – The thing itself must be
returned or restored.
2. Reparation – The court shall determine
the amount of damage, taking into
consideration the price on the thing,
whenever possible, and its special
sentimental value to the injured party.
3. Indemnification – Indemnification for
consequential damages shall include not
only those caused the injured party, but
also those suffered by his family or by a
third person by reason of the crime.
Effect of acquittal in criminal case:
• When acquittal is due to reasonable
doubt – no civil liability
• When acquittal is due to exempting
circumstances – there is civil liability
• When there is preponderance of
evidence - there is civil liability
5. Quasi delict (obligation ex quasi maleficio or
quasi delicto) (Chapter 2, Title XVII and special
law) – Act or omission causes damage to another,
here being fault or negligence, is obliged to pay
existing contractual relation between the parties.
Elements:
a. There must be fault or negligence
attributable to the person charged.
b. There must be damage or injury.
c. There must be direct relation of
cause and effect between the fault or
negligence on the one hand and the
damage or injury on the other hand
(proximate cause).
➢ Culpa aquiliana ( not synonymous
with tort)
Obligation expressly arising from Quasi delict
1. The father and, in case of his death or
incapacity, the mother, are responsible for
the damages caused by the minor children
who live in their company.
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2. Guardians are liable for damages caused by
the minors or incapacitated persons who are
under their authority and live in their
company.
3. The owners and managers of an
establishment or enterprise are likewise
responsible for damages caused by their
employees in the service of the branches in
which the latter are employed or on the
occasion of their functions.
4. Employers shall be liable for the damages
caused by their employees and household
helpers acting within the scope of their
assigned tasks, even though the former are
not engaged in any business or industry.
5. The state is responsible when acts through a
special agent; but not when the damage has
been caused by the official to whom the task
done properly pertains.
6. Teachers or heads of establishments of arts
and trades shall be liable for damages
caused by their pupils and students or
apprentices, so long as they remain in their
custody.
7. The possessor of an animal or whoever may
make use of the same is responsible for the
damage which it may cause although it may
escape or be lost. This responsibility shall
cease only in case the damage should come
from force majeure or from the fault of the
person who has suffered damage.(2183)
Kinds of obligation according to subject
matter
1. Real obligation
a. Specific or determinate object -
particularly designated or physically
segregated from all others of the same
class.
b. Generic or indeterminate – thing refers
to a class, to a genus and cannot be
pointed put with particularly.
Loss of the object without fault of the
debtor – obligation remain. Genus
nunquam (Generic never perishes).
2. Personal obligation
a. Positive personal obligation (to do)
b. Negative personal obligation (not to do)
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 Duty of debtor to deliver specific thing
1. Preserve the thing (1163)
Rule: Diligence of good father of a family
(ordinary diligence)
Except:
a. Law (ex: common carrier)
b. Stipulation
2. Deliver the fruits ( 1164)
➢ Natural fruit - spontaneous product of the
soil and the young and other products of
animals. ( No human intervention)
➢ Industrial fruit - produce by lands of any
kind through cultivation or labor.
➢ Civil fruit - rents of building, price of lease of
lands and other property and the amount of
perpetual or life annuities or other similar
income.
Rule: The creditor has the right to the fruits
of the thing from the time the thing to deliver
arises.
Exception: Obligation to deliver the fruits
arises from:
a. Suspensive condition – fulfillment of the
condition
b. Suspensive period – arrival of the period
c. Arise from law, quasi contract, delict,
quasi delict – provision of law
3. Deliver of accessions and accessories (1166)
➢ Accessions - fruits of a thing/ addition/
improvement upon a thing. (i.e. House/trees
on a land)
➢ Accessories - thing joined with the principal
for embellishment, better use or completion
(i.e. Key of house, bracelet of a watch)
5. Damages in case of breach
With the fault of the debtor (1170)
I. Fraud (dolo)
a. Dolo causante (consent defective -
voidable)
b. Dolo incidente (fraud in performance –
damages)
Period:
a. Future fraud – Responsibility arising
from fraud is demandable in all
obligations. Any waiver of an action
for future fraud is void. (1171) same
rule in case of negligence which shows
bad faith. (1173)
b. Past fraud – can be waived.
II. Negligence (culpa) – Omission of
diligence required by the nature of the
obligation and time and place. (1173) It is
also demandable in every kind of
obligation but such liability may be
regulated by the courts according to the
circumstances. (1172)
a. Culpa contractual – performance
of the contract
b. Culpa criminal – Result from
criminal act
c. Culpa aquiliana – No pre existing
contract
Degrees of Culpa under the Roman Law are
as follows:
1.) Culpa lata – grave negligence
2.) Culpa levis - ordinary negligence
3.) Culpa levissima – slight negligence

4. Deliver the thing itself FRAUD DISTINGUISHED FROM NEGLIGENCE

➢ Actual
➢ Constructive FRAUD NEGLIGENCE
a. Traditio symbolica – delivery of key There is deliberate There is no deliberate intention
intention to cause to cause damage
b. Traditio brevi manu – a possessor as damage
owner ( i.e. Lessor sells the thing Liability cannot be Liability nay be mitigated
leased to the lessee) mitigated.
c. Tradition longa manu – mere consent Waiver for future fraud Waiver for future negligence
is void may be allowed in certain
or agreement of the parties. (pointing cases:
out the object) a. Gross – can never be
d. Tradition constitution possessorium – excused in advanced;
a possessor of a thing as an owner against public policy
b. Simple – may be
retains possession no longer as an excused in certain
owner, but in some other capacity. cases
This is the opposite of tradition brevi
manu (i.e. A possessor vendor stay as
tenant on the vendee) III. Delay (mora)
e. Execution of a public instrument a. Ordinary delay – Failure to pay on the
period fixed by the parties without
Rule: demand judicial pr extrajudicial
a. Before delivery of the thing - Creditor has b. Legal delay – Failure to pay after
personal right. (1164) demand by the creditor
b. Creditor acquires real right only at the (judicial/extrajudicial)
time of delivery 1. Mora solvendi – Delay of
debtor

Page 4 of 16 BL-Obligations
 1.1 Mora solvendi ex re – Debtor
delay/default in real obligation
1.2 Mora solvendi ex persona –
Debtor delay/ fault in personal
obligation
2. Mora accipiendi – default on part of
creditor; Creditor is guilty of default
when he unjustifiably refuses to accept
payment or performance at the time
payment/ performance can be done.
3. Compensation morae – both parties
(debtor and creditor) are in default (in
reciprocal obligations).
Elements of legal delay:
(1) The obligation must be due,
enforceable and already liquidated or
determinate in amount,
(2) There must be non-performance.
(3) There must be a demand, unless
demand is not required.
Effects of legal delay:
a. If determinate thing – debtor bears risk
of lose (even when there is fortuitous
event)
b. Debtor liable for damages/interest
c. Resolution (Art 1170, in proper cases)
Rule: No demand (judicial or
extrajudicial) no delay (1169)
Exception:
1. Law
2. Stipulation
3. Time is of essence
4. Demand would be useless
5. Performance of one party in case of
reciprocal obligation
IV. Contravention of tenor of obligation
Without the fault of the debtor
Requisites of fortuitous event (Napkil & Son vs.
CA):
1. The cause of the breach of the obligation
must be independent of the will of the
debtor
2. The event must be either unforeseeable or
unavoidable
3. The event must ne such as to render it
impossible for the debtor to fulfill his
obligation in a normal manner
4. The debtor must be free from any
participation in, aggravation of injury to the
creditor.
Rule: Not liable in case of Fortuitous event
(1174)
Exception:
1. Law
a. Delay
b. Promised to deliver the same thing to
2 or more person who do not have
the same interest
c. Lost of generic thing
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d. Obligation arising from crime
2. Stipulation
3. Assumption
Duty of debtor (Generic thing)
1. Deliver the thing based on quality
intended by the parties
2. Damages in case of breach
Duty of debtor to do (Positive personal
obligation)
➢ 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 of he does
it in contravention of the tenor of the
obligation. Furthermore, it may be decreed
that what has been poorly done be undone.
(1167)
Duty of debtor not to do (Negative
personal obligation)
➢ When the obligation consists in not doing,
and the obligor does what has been forbidden
him, it shall also be undone at his
expense.(1168)
3 Kinds of Performance:
1. SPECIFIC PERFORMANCE - performance of
the prestation itself
2. SUBSTITUTE PERFORMANCE – someone else
performs or something else is performed at
the expense of debtor
3. EQUIVALENT PERFORMANCE – damages
Damages (MENTAL)
1. Moral – Include pg\physical suffering,
mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings,
moral shock, social humiliation and similar
injury.
2. Exemplary or corrective – imposed by way
of example or correction for the public
good. It may be awarded if the defendant
acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner (bad
faith).
3. Nominal – adjudicated in order that a right
of the plaintiff, which has been violated or
invaded by the defendant, may be
vindicated or recognized and not for the
purpose of indemnifying the plaintiff for any
loss suffered by him. Awarded in every case
where any property right has been invaded.
(Damages awarded to vindicate a right)
4. Temperate – more than nominal but less
than actual. Awarded when some pecuniary
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 loss have been suffered but its amount
cannot, from the nature of the case be
proved with certainty. (Exact amount of
damage cannot be ascertained)
5. Actual or compensatory – value of loss
suffered but also include profits s\which the
creditor failed to obtain. Pecuniary loss
must be duly proved.
6. Liquidated – those agreed upon by the
parties to a contract to be paid in case of
breach. (Damage predetermined before
hand)
➢ Usurious transaction shall be governed by
special law. (1175).
➢ Presumption (1176)
a. Receipt of principal without reservation
as to interest - interest is already paid.
b. Receipt of a later installment of debt
without reservation as to prior
installment – later installment has been
paid.
Remedies of creditor – generally
transmissible (except: law, stipulation, personal
obligation):
1. Exact performance - specific, substitute,
equivalent
2. Attach and execute debtor’s property which
is not exempt (Art 2236)
3. Accion subrogatoria – exercise all rights and
actions except those inherent in the person
(parental authority, hold office, carry out
agency
Requisites:
a. Creditor must have right of return
against debtor
b. The debt is due and demandable
c. There is a failure of the debtor to collect
his own debt from 3rd persons either
through own malice or negligence
d. Debtor’s assets are sufficient
e. The right of account is not purely
personal
4. Accion pauliana – (impugn or rescind acts
or contracts done by the debtor to defraud
the creditors.
Requisites:
a. There is a credit in favor of plaintiff
b. The debtor has performed an act
subsequent to the contract, going
advantage to other persons
c. The creditor is prejudiced by the
debtor’s ac which are in favor of 3rd
parties and rescissions will benefit
the creditor.
d. The creditor has no other legal
remedy
e. The debtor’s act are fraudulent
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➢ All right by virtue of obligation are
transmissible (1178)
Exemption: Law and stipulation
CLASSIFICATION OF OBLIGATION
1. Pure – without condition and period
➢ Immediately demandable
2. Conditional
a. Effect
➢ Suspensive – give rise to
obligation
➢ Resolutory – extinguish the
obligation
b. Form
➢ Express – clearly stated
➢ Implied – merely inferred
c. Possibility
➢ Possible – capable of fulfillment
➢ Impossible (1183)
d. Cause or origin
➢ Potestatiive - depend upon will
of one of the contracting parties
(debtor/creditor) (1182)
➢ Casual – depend upon chance or
will of a third person
➢ Mixed – partly upon chance upon
will of third person
e.) Mode
➢ Positive – performance
➢ Negative – omission
f.) Numbers
➢ Conjunctive – several conditions,
all must be complied with
➢ Disjunctive – several conditions,
one or some must be complied with
g.) Divisibility
➢ Divisible – susceptible of partial
performance
➢ Indivisible – not susceptible of
partial performance
Conditional obligation
➢ Future and uncertain event or past event
unknown to parties(1179)
➢ Resolutory condition immediately
demandable
➢ When debtor binds himself to pay have his
means permit him to do so, the obligation
shall be deemed to be one with period.
(1180)
➢ Acquisition or extinguishment of obligation
depend upon the happening of the
condition (1181)
➢ Positive condition + determinate time =
extinguish as soon as the time expire or
become indubitable that the event will not
take place (1184)
➢ Negative condition + determinate =
Effective form the time indicated elapsed
or evident that event cannot occur. (1185)
➢ Constructive fulfillment – the condition
shall deem fulfilled when the obligor
voluntarily prevents its fulfillment. (1186)
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 ➢ Retroactivity of the conditional obligation.
(1187) (1) If the thing is lost without the fault of
a. Reciprocal – fruit and inters deemed the debtor, the obligation shall be
mutually compensated extinguished;
b. Unilateral – debtor appropriate the (2) If the this is lost through the fault of the
fruits an interest except Nature and debtor, he shall be obliged to pay
circumstances of obligation the damages; it is understood that the thing
intention of the person constituting the is lost when it perishes, or goes out of
same was different. commerce, or disappears I such a way
c. Obligation to or not to do – court shall that its existence id unknown or it
determine the retro activity. cannot be recovered;
➢ Before condition id fulfilled (1188) (3) When the thing deteriorates without the
a. Creditor bring action for the fault of the debtor, the impairment is to
preservation of his right be borne by the creditor;
b. Debtor may recover payment by (4) If it deteriorates through the fault of the
mistake debtor, the creditor may choose
➢ Loss, deterioration, improvement before between the rescission of the obligation
Condition id fulfilled and its fulfillment, with indemnity fir
damages in either case;
Without With fault (5) If the time is improved by its nature, or
fault(Debtor) (Debtor)
by time, the improvement shall inure to
Loss Extinguish Damages
the benefit of the creditor;
(6) If it is improved at the expense of the
Deterioration
Impairment borne
Rescission or debtor, he shall have no other right
fulfillment + than that granted to the usufructuary.
by the creditor
damages

Expense of the 3. With a period – future and certain. If

Nature or Time uncertain it is conditional.(1193)
debtor
a. Effect
Improvement Benefit of the Right only of a 1. Suspensive (Ex die) – arrival – give
creditor usufruct
rise to obligation. Before arrival of
the period no right to demand.
➢ Condition for purpose of extinguishing (1193)
obligation (resolutory) – return to each ➢ Payment before arrival of the
other what they have received. In case of period (Payment made by
loss ,deterioration or improvement – same mistake), the debtor is unaware of
rule above to the party bound to return the period – may recover with the
(1190) fruits and interests. (1195)
➢ Loss, deterioration, improvement
➢ Power to rescind is implied in reciprocal before arrival if the period. Apply
obligation in case one of the obligor should Art 1189
not comply with what is incumbent upon 2. Resolutory (in diem) - arrival -
him. (1191) extinguish the obligation. The
a. Injured party may choose fulfillment or obligation of immediately
Rescission + damages. demandable.
b. Court decree the rescission unless b. Source
there is just cause authorizing the 1. Legal – provided by law
fixing of a period. 2. Conventional/voluntary – by
agreement
➢ Both parties committed a breach(1992) 3. Judicial – fixed by the court
a. First infractor shall be equitably c. Definiteness
tempered 1. Definite – fixed or known when it
b. If cannot determined the first infractor will come
– obligation extinguish and each shall 2. Indefinite – not fixed or not known
bear own damages. when it will come.

Art. 1189 When the conditions have been
imposed with the intention of suspending
the efficacy of 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:
General Rule: The court is not authorized to
fix a period: (Reason: The court makes a
contract for the parties)
Exception: Court authorizes to fix period.
(1197)
a. No period fixed but period was intended
(nature and circumstances)

Page 7 of 16 BL-Obligations
 b. Period depend upon the sole will of the
debtor.
➢ Court shall determine such period as
probably contemplated by the parties.
Once fixed by the courts, the period
cannot change by them. (by the court not
party)
General Rule:
Whenever period is designated, it is presumed
for the benefit of both creditor and debtor
except when expressly provided otherwise.
(1196)
Hence, neither the creditor can demand
performance not the debtor pay before arrival
of the period.
Exception:
The debtor shall lose every right to make use
of the period: (1198) Hence, immediately
demandable.
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 disappears unless he
immediately gives be wines 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.
4. Alternative obligation
a. Simple – only one prestation is due
b. Compound
1. Conjunctive – several prestation and all
are due.
2. Distributive – 2 or more prestations is
due
a. Alternative – several prestations are
due but performance of one id
sufficient.
b. Facultative – only one is due but
debtor may substitute
General Rule: Right of choice belong to the
debtor (1200) except when expressly granted to
the creditor.
Limitation on the right of choice:
a. Impossible
b. Unlawful
c. Not the object of obligation
d. Only one is practicable (1202). In this case
the debtor loss the right of choice and the
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alternative obligation is converted into a
simple obligation.
➢ Choice produces no effect except from the
time it has been communicated.(1201)
➢ Communication of choice convert
alternative obligation to a simple obligation.
(1205)
➢ Creditor fault, the debtor cannot make a
choice = rescind the contract + damages
(1203)
➢ All objects loss- debtor id liable for
damages(last object)
Right of choice: General rule: right of choice
belongs to debtor
a. The choice is with debtor
(1) If only 1 is left either because of
fortuitous events or due to debtor’s acts,
perform what is left. The effect is that
the debtor loses the right of choice
(2) If the choice is limited because of the
creditor’s acts, the debtor has the right
of resolution and damages
(3) If all are lost due to debtor, the creditor
is entitled to damages
(4) If some arte lose m the debtor can
debtor can choose from the remaining.
b. The choice is with creditor
(1)If one or some are lost due to fortuitous
event, the creditor chooses the
remainder
(2) If one or some is lost because of the
fault of debtor, the creditor may choose
either the remainder or the value of any
which disappeared, and damages in
either case.
(3) If all is lost due to the debtor’s fault,
the creditor may choose the value of any
if some is lost due to debtor’s fault, the
creditor chooses the remainder.
(4)If all lost due to fortuitous event,
obligation is extinguished
(5) If all is lost due to creditor’s fault, the
obligation is extinguished.
Summary: Rule on Loss
1. Debtor choice – last item lost
2. Creditor’s choice - any item lost through
the fault of the debtor.
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;
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 (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
pride of that which, through the fault of the
former has disappeared, with a right to
manages;
(3) If all the things are lost through the fault of
the debtor, the choice by the creditor shall
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. (1136a)
5. Facultative - when only one prestation has
been agreed upon, but the obligor may render
another in substitution (1206)
Before substitution
➢ Loss of the object without fault – not liable
➢ Loss of the object fault of the debtor – liable
➢ Loss/deterioration of the substitute with or
without fault of the debtor – not liable
After substitution
➢ Loss of the object with or without fault - not
liable
➢ Loss of the substitute with fault of the debtor
– liable
➢ Loss of the substitute without fault – not
liable
Rule:
➢ Right of choice always to debtor
➢ Only one prestation is due but the debtor
may substitute
6. Joint/Solidary
a.) Individual – one debtor and one creditor
b.) Collective – Two or more debtor and two or
more creditors
1. Joint – 2 or more debts/credits as there
are debtor/creditor (mancomunada,
mancomunadamente, pro rate,
proportionately, we promise to pay
signed by 2 or more person)
2. Solidarity – Each debtor/creditor is
bound to pay/right to demand payment
the entire compliance of the obligation
(Joint and/or collectively, I promise to
pay signed by 2 or more persons, each
will pay the whole value)
Gen. Rule: Joint obligation
Exception:
a. Law
b. Stipulation
c. Nature of obligation requires solidarity(real
solidarity)
Page 9 of 16
Solidarity imposed by law (under the New
Civil Code)
1. 2 or more heirs take possession of the estate –
loss or destruction of a thing devised or
bequeathed, even through only one of them
should have been negligent. (Art. 927)
2. Death or injury is due to the negligence of a
fellow worker, the latter and the employer shall
be solidarily liable for compensation. (Art. 1721)
3. The collapse of building or structure within
fifteen years (15) from completion of the
structure, the engineer or architect who
supervises the construction shall solidarily liable
with the contractor. (Art. 1723)
4. Any wrongful act or omission of any partner
acting in the ordinary course of the business if
the partnership or with the authority of co-
partners, loss or injury us caused any person
(Art. 1822 and 1824)
5. Partner received money or property from 3 rd
person and misapplies it or partnership received
money or property of a 3rd person and such
property was misapplied by any partner while in
partnership custody. (Art. 1823 and 1824)
6. Even when the agent has exceeded his authority,
the principal is solidarily liable with the agent if
the former allowed the latter to act as though he
had full powers. (Art. 1911)
7. Two or more persons have appointed an agent
for a common transaction or undertaking, -
Liable to the agent for all the consequences of
the agency. (Art. 1915)
8. Two or more bailees (Commodatum) to whom a
thing is loaned in the same contract (1945)
9. The responsibility of two or more officious
managers (negotiorum gestio) shall be solidary,
unless the management was assumed to save
the thing or business from imminent danger.
(Art. 2146)
10. The owner and his driver in a motor vehicle
mishap, if the former, who was in the vehicle,
could have, by the use of the due diligence,
prevented the misfortune. (Art. 2184)
11. The responsibility of two or more persons who
are liable for quasi-delict. (Art. 2194)
Solidarity under special Law (related law only)
1. Spouses for the unpaid balance with their
separate properties if the community property or
conjugal property is insufficient to pay charges
against absolute community or conjugal
partnership (Art. 94 and 121, EO 209, Family
Code)
2. Special parental authority and responsibility
(school, its administrators and teachers, or the
individual, entity or institution engaged in child)
– for damages caused by the acts or omissions
of the unemancipated minor. (Art. 218-219, FC)
3. Liability of directors for watered socks. (Sec.
65, BP 68)
4. When the director or trustee who willfully and
knowingly vote for or assent to patently unlawful
acts of the corporation or who are guilty of gross
negligence or bad faith in directing the affairs of
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 the corporation or acquire any personal or
pecuniary interest in conflict with their duty (Sec
31 BP 68)
5. Workmen compensation act
6. Where an instrument containing the word “I
promise to pay” is signed by two or more
persons, they are deemed to be jointly and
severally liable thereon. (Sec 17, g, Act 2031)
7. Joint payees or joint indorsees who indorse are
deemed to indorse jointly and severally. (Sec 68,
Act 2031)
Kinds of solidarity
1. Parties bound
a. Passive solidarity – Debtor
b. Active solidarity – Creditor
c. Mixed solidarity – both creditor and debtor
2. Source
a. Conventional – by agreement
b. Legal solidarity – imposed by law
c. Real solidarity – nature of the obligation
3. Legal tie
a. Uniform – bound by the same stipulation
b. Non- uniform or varied - not subject to the
same stipulation.
Invisibility vs. solidarity
1. Prestation vs. juridical tie or legal tie
2. Debtor guilty of breach is only liable vs. all
debtor are liable
3. Exist even only 1 debtor and 1 creditor vs. at
least 2 debtor/creditor
4. Other debtor not liable in case of insolvency
of one debtor vs. other debtor are
proportionately liable
Solidarity creditor
➢ Can do useful to but not prejudicial to other
solidary creditor.
➢ Cannot assign without the consent of the other
solidary creditor.
➢ Novation, compensation, confusion or remission
by solidary creditor extinguish the obligation but
liable to the other solidary creditor.
➢ Debtor may pay any one of the solidary
creditors. Except when one of the solidary
creditors demands judicial or extrajudicial
payment must be made to him.
Solidary debtor
➢ Creditor can proceed to any solidary debtor as
long as the debt has not been fully collected
➢ Payment by one of solidary debtor extinguishes
the obligation. If 2 or more debtor offers, the
creditor may choose which offer to accept.
➢ Solidary debtor who pay, may claim from his co-
debtor + interest from the date of payment
(except when not yet due, no interest for
intervening period)
➢ Insolvency of one solidary debtor - to be borne
by all his co-debtor in proportion to the debt of
each. Payment by solidary debtor after the
obligation has prescribed or become illegal – not
entitled to reimbursement.
Page 10 of 16
➢ Remission made by the creditor of the share of
one of the solidary debtor – Does not release
such solidary debtor toward other co-debtor
when the debt was totally paid before remission.
➢ Remission of whole obligation obtained by one of
the solidary debtors - not entitled for
reimbursement
➢ Loss without fault of any debtor - obligation
extinguished
➢ Loss with fault of any debtor – all debtors are
liable without prejudice to the action against
guilty or negligent debtor.
➢ Loss due to fortuitous event after delay by any if
the solidary debtor – same all debtors are liable.
➢ Claim for compensation under Workmen’s
compensation law. (Sec 2, workmen
compensation law)
➢ Article 19, 20, 21, 22 of the Civil code (Human
relations)
Defense of solidary debtor
a. Nature of the obligation – payment,
fraud, prescription, remission, illegality, absence
of consideration, res judicata, non performance
of suspensive condition.
b. Those personal to him – incapacity, mistake,
violence, minority. (personal or complete
defense)
c. Those personal to the other.
7. Divisible – Capable of partial fulfillment
8. Indivisible – Not capable of partial fulfillment
Kinds of Division
a. Qualitative division – based on quality
b. Quantitative division – based on quantity
c. Ideal or intellectual division – exist only in mind
of the parties
Kinds of indivisibility
a. Legal indivisibility – by law
b. Conventional indivisibility – by agreement
c. Absolute or natural indivisibility – nature of
the object/prestation.
➢ Divisibility or indivisibility is determined by the
purpose or intention of the parties not the
possibility or impossibility of partial performance.
(except of nature indivisibility)
➢ Divisible or indivisible refer to the object of the
obligation not on the cause or legal tie.
➢ Joint indivisible obligation give rise to indemnity
for damages – one debtor does not comply with
his undertaking.
a. Effect – obligation is converted into one for
damages. Specific performance or rescission
is not a remedy because the other debtors
are willing to fulfill.
➢ Obligation to give definite thing and not
susceptible of partial performance – Indivisible
➢ Object the execution of a certain number of days
of works – Divisible
➢ Accomplishment of work by metrical units or
analogous things.
BL-Obligations
➢ Nature are susceptible of partial performance -
Divisible
➢ Obligation not to do – Determined by the
character of the prestation in each particular
case.
9. Obligation with a penal clause – penalty shall
substitute the indemnity for damages and the
payment of interests in case of non-compliance
(absence of agreement).
a. Principal
b. Accessory
Kinds of penal clause
a. Origin
1. Legal penal clause - by law
2. Conventional penal clause – by agreement
b. Purpose
1. Compensatory penal clause – take the place
of damages (1126)
2. Punitive penal clause - imposed as
punishment for breach
c. Demandability or effect
1.) Subsidiary or alternative penal clause – only
penal clause can be enforced.
2.) Joint or cumulative – both principal and
penal clause can be enforce.
➢ The penal clause shall substitute the
indemnity for damages and the payment of
interest in case of non compliance. (1226)
However, Penalty may be enforced only
when it is demandable.
➢ Proof of actual damages suffered by the
creditor not necessary to enforce the
penalty. (1228)
Damages shall be paid
a. There is stipulation
b. Obligor refuses to pay the penalty
c. Guilty of fraud in the fulfillment of the
obligation.
➢ Debtor cannot exempt himself from
performance and to pay only the penalty
(except when expressly granted to 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. (1227) However, if creditor
choose performance but become impossible
without his fault, the penalty may be
imposed.
➢ Causes for reduction of penalty:
a. Principal obligation has been partly or
irregular complied with;
b. Penalty is iniquitous or unconscionable
➢ Nullity of the penal clause does not carry
of the principal obligation but the nullity of the
principal carries with that of the penal clause.
(Rule: Accessory follows the principal)
Page 11 of 16
Extinguishment of Obligation
1. Payment or performance - not only
delivery of money but also the performance
in any manner of an obligation. (1232)
Gen. Rule: There must be total
performance. Partial or irregular
performance does not extinguish obligation
(1233)
Exception:
a. Substantial performance in good faith.
(1235)
Requisites of Substantial Performance
1. Attempt in good faith to perform
without willful or intentional departure
2. Deviation is slight
3. Omission/Defect is technical or
unimportant
4. Must not be so material that intention
of parties is not attained
Effect of Substantial performance in good
faith
1. Obligor may recover as though there
has been strict and complete fulfillment,
less damages suffered by the obligee.
2. Right to rescind cannot be used for
slight breach
b. Creditor accepts performance knowing
incompleteness or irregularity without
expression of protest. (principle of
estoppels) (1235)
➢ Creditor may refuse to accept payment
1. Payment by 3rd person
2. Partial performance
3. When the debtor has no capacity to
alienate or free disposal of the thing
➢ Gen. Rule: Creditor not bound to accept
performance by 3rd person. (1236) The
creditor is bound to accept payment
only by:
1. Debtor
2. Has interest in the performance of
obligation (guarantor, surety)
3. 3rd person if there is stipulation
But the payment in any case valid if the
creditor accepts. The option to accept is
granted to the creditor.
➢ Payment by 3rd person to creditor may
recover to the debtor
a.) With knowledge of the debtor – right
of reimbursement (amount paid, not
amount of debt) + subrogation
(acquire all the right of the creditor)
(1236 par 2)
b.) Without knowledge /against the will
of the debtor – only benefit to the
debtor. 3rd person cannot compel the
creditor to subrogate in his rights
such as those arising from mortgage,
guaranty or penalty. (1237)
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 c.) No recovery – Payment by 3rd person
who does not intend to be
reimbursed is deemed donation
which requires debtor’s consent.
➢ Payment by one who does not have free
disposal of the thing due and capacity to
alienate - not valid without prejudice to
natural obligation. (1239)
➢ Payment must be to the person in
whose favor the obligation has been
constituted. (creditor, creditor successor
in interest, any person authorized to
receive payment) (1240)
a. 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.
b. Payment to 3rd person shall also be
valid insofar as it has redounded to
the benefit of the creditor. (1241)
Payment to 3rd person; Presumed that it
redounded to the benefit of the creditor:
a. 3rd person acquires the creditor’s right
(subrogation)
b. Creditor ratifies the payment to the 3rd
person (ratification)
c. Creditors’ led to believe that the 3rd person
had authority to receive the payment
(Estoppels)
➢ Payment made in good faith to any person
in possession of the credit shall release the
debtor. (1242)
Requisites:
1. Payment by debtor must be in good faith
2. Creditor must be in possession of the
credit and not merely the evidence of
indebtedness
➢ Payment made to the creditor by the debtor
after the latter has been judicially ordered
to retain the debt shall not valid. (1243)
➢ Debtor cannot compel the creditor to
receive a different one although of the
same value or more valuable than that
which is due. (1244)
➢ Obligation to do or not to do, an act or
forbearance cannot be subtitled by another
act or forbearance against the obligee’s
will. (1242 par 2)
➢ Obligation to deliver an indeterminate or
generic thing whose quality and
circumstances has not been stated. (1246)
a. Creditor cannot demand a thing of
superior quality.
b. Debtor cannot deliver a thing of inferior
quality.
➢ Extrajudicial expense – account of the
debtor
➢ Judicial expense - The Rules of Court apply.
Judicial expense is shouldered by the losing
party.
Page 12 of 16
Place of payment (1251)
1. Place designated in the obligation
2. No express stipulation
a. Determinate thing – place where the
thing was, at the perfection of the
contract
b. Generic thing – Domicile of the debtor.
Gen. Rule: the creditor cannot be complied to
receive partial performance. Neither may the
debtor be required to make partial payment.
(1248)
Exception:
1. Express stipulation
2. Debt is part liquidated and in part
unliquidated.
3. Different prestations are subject to different
terms or conditions which affect some of
them.
➢ Payment of debts in money shall be made in
the currency stipulated, and if it is not
possible to deliver such currency, then ion the
currency which is legal tender in the
Philippines. (1249)
➢ 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 shall be held in the abeyance.
➢ 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
(1250)
Nota Bene:
Section 52. Legal Tender Power – all note and
coins issued by the Bangko Sentral shall be fully
guaranteed by the government of the Philippines
and shall be tender in the Philippines for all debts,
both public and private: Provided, however, that,
unless otherwise fixed by the Monetary Board,
coins shall legal tender in amounts not exceeding
Fifty pesos (P50.00) for denominations of Twenty-
five centavos and above, and in amounts not
exceeding Twenty pesos (P20.00) for
denominations of Ten centavos or less. (R.A. 7653)
Hence, Philippine currency note have no limit to
their legal tender power, However, pursuant to
BSP Circular No. 537, Series 2006 (Dated: July 18,
2006), coins in denomination of 1-5 – and 10 piso
shall be legal tender in amounts not exceeding
P1,000.00 while coins in denomination of 1-,5- and
10 – and 25 sentimo shall be legal tender in
amounts not exceeding P100.00.
BL-Obligations
Special forms of payment
a. Dation in payment / Adjudication or
dacion en pago – governed by law on sales.
➢ Property is alienated to the creditor in
satisfaction of debt in money
b. Application of payment
1. One debtor and one creditor
2. Two or more debts
3. Debt must be of the same kind
4. The payment for the debt applied must be
due
5. Payment must not sufficient to cover all
the debts
Note: Not really special form of payment
➢ Debtor has the 1st choice – must indicate at
the time of payment
➢ If the debtor does not apply, the creditor
may make the designation. Specify in the
receipt which debt is being paid
➢ In the absence of above, debt which is
most onerous to the debtor
➢ If the same nature and burden –applied to
all of them proportionately.
➢ Payment applies to interest, then to
principal
3.
c. Payment by cession
1. Two or more creditors
2. Debtor must be partially insolvent
3. Assignment/cession must be accepted by
the creditors.
d. Tender of payment (extrajudicial) and
consignation (judicial) – Creditor refuse to
accept payment without just cause.
➢ Must comply with the rules on payment
(must be total)
➢ Unconditional and total
➢ Actual. Manifestation of a desire or
intention to pay is enough
➢ The debtor must show possession of the
thing at the time of the offer (tender)
➢ Before creditor accepts the consignation or
before judicial declaration, the debtor may
withdraw the thing deposited.
➢ Should the creditor authorize to withdraw
the thing consigned - He lose every
preference over the thing (co-debtor,
guarantors and sureties are released)
Tender of payment alone cannot extinguish
valid debt. However, consignation alone
when allowed extinguished obligation.
Requisites:
1. Existence of valid debt which is due and
demandable
2. Tender of payment by the debtor
3. Refusal without justifiable reason by the
creditor to accept it.
4. Previous notice of consignation to persons
interested in the fulfillment of the
obligation. (guarantor, mortgagee, solidary
debtors, solidary creditors).
Page 13 of 16
5. Consignation of the thing
6. Subsequent notice consignation to in
interested parties.
When tender of payment not required
1. Creditor is absent or unknown or does not
appear in the place of payment
2. Creditor is incapacitated at the time of
payment
3. Creditor refuse to give receipt without just
cause
4. Two or more persons claim the same right
to collect
5. Title of the obligation has been lost
Dation in payment vs. Payment by cession
1. One creditor vs. several creditors
2. Debtor not insolvent vs. debtor insolvent
3. Not all property of the debtor vs. all
property of the debtor
4. Creditor become the owner vs. debtor
acquire only the right to dispose the thing
and apply the proceeds to their credit
proportionately.
5. Act of novation vs. not act of novation
Loss of determinate thing
Kinds of loss
a. Physical loss – perishes
b. Legal loss – goes out of commerce
c. Civil loss – thing disappears in such a way
that is existence is unknown.
Loss of a thing due
1. Obligation to give specific thing
a. Total loss
1. Loss with the fault of the debtor-
(liable)
2. Loss without the fault of the debtor –
Fortuitous event (not liable)
Exception:
1. Law
a. Delay
b. Promised to deliver the same
thing to 2 or more person who
do not have the same interest
c. Loss of generic thing
d. Obligation to deliver a specific
thing arises from crime. (1268)
2. Stipulation
3. Assumption of risk
b. Partial loss – Court shall determine under
the circumstances (importance of the
partial loss of the object) whether partial
loss is as to be equivalent to a complete
or total loss. (i.e. broken leg – horse for
race or horse to be slaughtered)
2. Obligation to do
➢ The debtor in obligations to do shall also
be released when the prestation
becomes legally or physically
BL-Obligations
 impossible without the fault of the If in order to nullify this waiver it should be
obligor. ( 1266) claimed to be inofficious, the debtor and his
a. Impossibility at the beginning - heirs may uphold it by providing that the
void delivery of the document was made in virtue
b. Impossibility after the constitution of payment of the debt. (1271)
of the obligation ➢ Whenever the private document in which the
➢ When the service has become so debt appears is found in the possession of
difficult as to be manifestly beyond the the debtor, it shall be presumed that the
contemplation of the parties, the creditor delivered it voluntarily, unless
obligor may also be released contrary is proved. (1272)
therefrom, in whole or in part. (1267) ➢ The renunciation of the principal debt shall
extinguish the accessory obligation; but the
Kinds of impossibility waiver of the latter shall leave the former in
➢ Physical impossibility – (Accident/death) force. (1273) (accessory follows the
➢ Legal impossibility – Ordinance principal)
declaring an area residential zone (i.e. ➢ It is presumed that the accessory obligation
obligation to construct commercial of pledge has been remitted when the thing
building; lawyer appointed as judge) pledge, after its delivery to the creditor, is
found in the possession of the debtor, or of
General rule: When a thing is loss in a third person who owns the thing. (1274)
possession of the debtor it is presumed that it
was loss due to his fault. (1265) 4. Merger/confusion – The character of creditor
Exception: and debtor are merged in the same person.
1. Earthquake (1275)
2. Flood ➢ Merger which takes place in the person of
3. Storm the principal debtor or creditor benefits the
4. Other natural calamity guarantors. (principal obligation is
➢ The obligation having been extinguished extinguish as well as accessory obligation)
by the loss of the thing, the creditor Confusion which takes place in the person of
shall have all the rights of action which any of the later does not extinguish the
the debtor may have against third obligation. (Only accessory obligation is
person by reason of the loss. (1269) extinguish) ( 1276)
➢ Confusion does not extinguish a joint
3. Condonation/remission of debt - obligation except as regards the share
Condonation or remission is essentially corresponding to the creditor in whom the
gratuitous, and requires the acceptance by two characters concur. (1277)
the obligor. It may be made expressly or
impliedly. One and the other kind shall be 5. Compensation – When two person, in their own
subject to the rules which govern inofficious right, are creditors and debtors of each other,
donations. Express condonation shall, (1278)
furthermore, comply with the forms of Confusion vs. Compensation
condonation. (1270) 1. Only one person who is a debtor and
creditor of himself vs. two person involved,
Kinds of remission each of whom is a debtor and a creditor of
a. Extent the other
1. Complete – cover the entire obligation 2. Only one obligation vs. 2 obligation
2. Partial – Not cover the entire obligation 3. Impossibility of payment vs. indirect
b. Form payment
1. Express – vernal or in writing
2. Implied 0 inferred from conduct Kinds of Compensation
Voluntary delivery of private document 1. Effect or extent
evidencing the credit by the creditor to the a. Total – Both obligations are of the same
debtor (Art. 1271) amount
c. Date of affectivity b. Partial – Two obligations are of different
1. Intervivos - take effect lifetime of the amount
donor 2. Cause or origin
2. Mortis cause – effect upon death of the a. Legal – Takes place by operation of law.
donor b. Voluntary- by agreement
c. Judicial – takes place by order from a
➢ The delivery of a private document court in a litigation.
evidencing a credit, made voluntarily by the d. Facultative – can be set up only one of
creditor to the debtor, implies the the parties.
renunciation of the action which the former
ha against the latter.
Page 14 of 16 BL-Obligations
Art. 1279. In order that compensation may be
proper, it is necessary: (Legal compensation)
1.) That each one of the obligors be bound
principally, and that he be at the same time a
principal creditor of the other;
2.) That both debts consist in a sum of money,
or if the things due are consumable, they be of
the same kind, and also of the same quality if
the latter has been stated;
3.) That the two debts be due;
4.) That they be liquidated and demandable;
5.) That over neither of them there be any
retention or controversy, commenced by third
persons and communicated in due time to the
debtor. (1196)
➢ The parties may agree upon the compensation of
debts which are not yet due. (1282)
➢ If one of the parties to suit over an obligation has
a claim for damages against that other, the
former may set it off by providing his right to said
damages and the amount thereof. (1283)
➢ When one or both debts are rescissible or
voidable, they may be compensated against
each other before they are judicially
rescinded or voided. (1284)
➢ The debtor who has consented to the
assignment of rights made by 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. (1285)
➢ If the creditor communicated 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 subsequent
ones.
➢ If the assignment is made without the
knowledge of the debtor, he may set up the
compensation of all credits prior to the same
and also later ones until he had knowledge
of the assignment. (1198a)
➢ Compensation takes place by operation by
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.
(1286)
➢ If a person should have against him several
debts which susceptible of compensation,
the rules on the application of payments
shall apply to the order of the compensation.
(1289)
Art. 1287. Compensation shall not be proper
when one of the debts arises from a depositum
or from the obligations of a depository 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
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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. (n)
6. Novation – obligations may be modified by: (1)
Changing their object or principal conditions;
(2) Substituting the person of the debtor; (3)
Subrogating a third person in the rights of the
creditor. (1291)
Kinds of novation
1. Origin
a. Legal – operation of law
b. Conventional - agreement of the parties
2. How it is constituted
a. Express – Declared in unequivocal term
b. Implied – Old and new obligation are
essentially incompatible with each other
3. Extent or effect
a. Total or extinctive – Old obligation is
completely extinguished
b. Partial or modificatory – old obligation is
merely modified.
4. Subject
a. Real or objective – objective or principal
condition are changed
b. Personal or subjective – person of
the debtor id substituted/ or when a third
person is subrogated in the right of the
creditor.
1. Substitution – Person of the debtor is
substituted
1.1 Expromision – 3rd person on his
own initiative and without the e
knowledge or against the will of the
original debtor assumes the latter’s
obligation with the consent of the
creditor. (Only the consent of the
creditor and 3rd person is made)
1.2 Delegacion –Creditor accepts a
third person to take the place of
the debtor at the instance of the
latter. It requires that the old
debtor be release from the old
obligation. ( all parties, old debtor,
new debtor and the creditor must
agree)
2. Subrogation – Third person is subrogated
in the rights of the creditor.
c. Mixed – Combination of real and personal
novation.
➢ Novation is never presumed.
➢ Test: Is the old and new obligation having
an independent existence. Positive –
compatible (No novation): Negative –
incompatible – Novation.
Conventional subrogation be clearly
establish (1300) and it requires the consent
of the original parties and of the third
person. (1301)
BL-Obligations
 ➢ When the principal obligation is
extinguished in consequence of a novation,
accessory obligations may subsist only
insofar as they may benefit third persons
who did not give their consent. (1296)
➢ If the new obligation is void, the original
one shall subsist, unless the parties
intended that the former relation should be
extinguished in any event. (1297)
➢ The novation is void if the original
obligation was void, except when
annulment may be claimed only by the
debtor or when ratification validated acts
which are voidable. (1298)
➢ If the original obligation was subject to a
suspensive or resolutory condition, the new
obligation shall be under the same
condition, unless it is otherwise stipulated.
(1299)
➢ Subrogation transfers to the persons
subrogated the credit with all the rights
thereto appertaining, either against the
debtor or against third person, be they
guarantors or possessors of mortgages,
subject to stipulation in a conventional
subrogation. (1303)
➢ A creditor, to whom partial payment has
been made, may exercise his right for the
remainder, and he shall be preferred to the
person who has been subrogated in his
place in virtue of the partial payment of the
same credit. (1304)

Art. 1302. It is presumed that h there is legal

subrogation:
(1) When a creditor pays another creditor who
is preferred, even the debtors’ knowledge;
(2) When a third person, not interested in the
obligation, pays with the express or tacit
approval of the debtor;
(3) When, even without the knowledge of the
debtor, a person interested on the
fulfillment of the obligation pays, without
prejudice to the effects of confusion as to
the latter’s share. (1210a)

Other causes of extinguishing an obligation

a. Annulment
b. Rescission
c.Fulfillment of a resolutory condition
d. Prescription
e. Arrival of resolutory period
f. Death of the party
g. Mutual desistance/withdrawal
h. Compromise
i. Impossibility of performance
j. Happening of a fortuitous event

END OF MODULE

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