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Dokumen - Tips Reviewer On Law On Obligations
Dokumen - Tips Reviewer On Law On Obligations
The law on obligations and contracts is the body of rules which deals with the nature and resources
of obligations and rights and duties arising from agreements and contracts.
2. Source of the Law on Obligations and Contracts is the Civil Code of the Philippines (Republic Act No.
388)
which took effect August 30, 1950. The Civil Code is derived from the Civil Code of Spain of 1889.
3. Meaning of obligation:
Code basis Article 1158 – obligation is juridical necessity to give to do or not to do.
It views obligation from the debit side. There is no debt with credit and the credit is an asset in the
patrimony of the creditor just as the debt is the liability of the obligor.
Better definition: the one given by Arias Ramos, one of the commentators of the Civil Code:
An obligation is a juridical relation whereby a person (called creditor) may demand from
another (called debtor) the observance of a determinative conduct (the giving, doing or not doing)
and in case of breach, may demand satisfaction from assets of the latter.
1. Active Subject – the obligee or creditor – one who has the right and power to demand
the performance of the obligation.
2. Passive Subject – the obligor or debtor – one who is obliged to perform the obligation.
3. Object or Prestation – subject matter of the obligation that consists of the prestation to give, to
or not to do. The objects of contract are things, right or services.
4. Juridical or Legal Tie – It is also known as “efficient cause”, which binds the parties to the
obligation. Another name is VINCULUM JURIS.
Obligation is a juridical necessity because in case of non-compliance, the courts of justice may be
called upon to enforce its fulfillment or in default thereof, the economic value that it represents. In a
proper case, the debtor may be made liable for damages for the injury or harm suffered by the creditor
for the violation of the latter’s right.
8. Other Significant terms:
a) Obligation – the act or performance that the law will enforce.
b) Right – The power which a person has under the law to demand from another any prestation.
c) Wrong – (cause of action) an act or omission of one party in violation of the legal right
(a right recognized by law) of another. It is also known as INJURY
I. By virtue of a contract, D obliged himself to ship the goods of C from Manila to Cebu for P10, 000.
D is the passive subject while C is the active subject. The shipping of goods to Cebu is the
prestation; the contract between D and C is the efficient cause or vinculum juris.
9. Kinds of Obligations:
1. Viewpoint of sanctions:
2. Viewpoint of performance
a. Positive – to give or to do
b. Negative – not to do
b) Obligations arising from law are not presumed. To be demandable and enforceable, the
obligation must be stayed by the law, which created the obligation. Such being the case the
agreement of the parties under this obligation is no longer necessary because it is the law, which
governs their obligation.
c) Law governing obligations derived from law. Obligations derived from law shall be governed by the
law, which establishes them. In case of insufficiency, the provisions of the Civil Code shall
supplement the same.
Examples:
a. The obligation of husband and wife to support each other. (Art.195, Civil Code)
b. The obligation of a taxpayer to file his income tax return. (Title VI. Section 44, NLRC)
c. The obligation of the legitimate ascendants and descendants to support each other.(Art 195, Civil
Code)
ILLUSTRATIVE CASE.
SG, while employed as a guard of a movie house by O, shot and killed a gatecrasher, X who
attacked SG with a knife after having been refused entrance without first providing himself with a
ticket. SG was criminally charged with homicide but the trial court dismissed the case. For the
expense incurred in his defense, SG demanded reimbursement from the owner. When the owner
refused, he filed his action for the recovery of the amount paid to his lawyer plus moral damages.
Held: The owner “O” is not liable because the giving legal assistance to the employee is not a legal
obligation.
While is may be true it may be considered as a moral obligation. It does not at present, count
with the legal sanction of any man-made law. If the owner with is not legally obliged to give legal
assistance to the employee, then the latter cannot recover the amount paid cannot be presumed,
it must be stated before it become obligatory.
a) Validity of Contract.
In contract as to their general formation this is what we call freedom to contract or autonomy of
will, the “contract” entered into between the parties shall have the force of law between the
parties. Any violation by either party shall produce a cause of action against the violator.
However, in order for a contract to be valid and enforceable it must not be contrary to law,
morals, good customs, public order or public policy, otherwise the contract is void. (Art.1306,
1409, Civil Code)
1) Art 2144, whoever voluntarily takes charge of the agency or management of the business or
property of another, without any power from the latter is obliged to continue the same until the
termination of the affair and its incidents or to require the person concerned to substitute him. If the
owner is in a position to do so.
Examples of Quasi-Contracts:
1. A merchant-farmer and owner of a ten-hectare agricultural land left for USA on a pleasure trip.
While enroute to USA typhoon “dading” devastated the entire Philippines including the land owned
by D. Before the typhoon reached our area of responsibility C, a neighbor of D employed six (6)
farmers to harvest the palay planted on the obligation of D upon arrival is to reimburse C P600
because he must not be enriched at the expense of another.
2) Art.2154. If something is received when there is no right to demand it and it was unduly delivered
through mistake he obligation to return it arises.
3) Art. 2164. When, without the knowledge of the person obliged to give support, it is given by a
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.
4) Art. 2167. When, through an accident or other cause, a person is injured or become 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.
5) Art. 2168. When, during a fire, flood, storm, or other calamity, property is saved from destruction
by another person without knowledge of the owner, the latter is bound to pay the former just
compensation.
6) Art. 2174. When, in a small community a majority 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 shall be liable to pay his share of said expenses.
a) Felony or crime: It is an act or omission punishable by law. A violation of the Revised Penal Code
is called a felony while violation of any penal statutes including the Revised Penal Code is called a
crime.
1) Philippine revised Penal code and other penal laws subject to the provisions of Article 2177 of the
Civil Code.
2) Chapter II, Preliminary Title, on Human Relations of the Civil Code.
3) Civil Code on damages, Title 18 of Book IV
Every person who is criminally liable is also civilly liable under Art. 100 of the Revised Penal
Code. If a person therefore is guilty of the crime charged he must not only be imprisoned but he
shall also answer for damages as a civil obligation. Such civil obligation is a necessary
consequence of a criminal responsibility and it to be declared and enforced in the same criminal
proceeding except when the injured party reserved his right to file the civil action independently
from the criminal action. (Sec. I, Rule III, Revised Rules of Court)
Ordinarily, when the offended party files the criminal action, he is deemed to have filed
simultaneously the civil action for the civil liability of the offender unless he reserves his right to
institute a separate civil action of the civil liability of the offender. Meaning the civil liability shall
be heard separately from the criminal action.
One which causes damage to another, there being fault or negligence, but there is no pre-existing
contractual relation between the parties. (Art. 1162)
A) Meaning of Culpa – Negligence (Culpa Aqulliana, torts) – omission of that diligence required by
the circumstances of person, place and time. Negligence is a question of FACT.
The failure of a person to exercise or observe for the protection of the interests of another
person the degree of care, precaution & vigilance which circumstances justify demand whereby
such person suffers injury.
B.) Requisites of Quasi-Delicts
C.) Meaning of Proximate Cause: Adequate and efficient cause which in the natural order of events
necessarily produces the damage or injury complained of
Article 1163 provides, “every person obliged to give something is obliged to take care of it
with the proper diligence of a good father of a family, unless the law or the stipulation of the parties
requires another standard of care.”
2nd paragraph of Article 1173 also provides, “if the law or contract does not state the diligence
which is to be observed in the performance, that which is expected of a good father of family shall be
required.”
a. That which is required by the nature of the obligation and corresponds with the
circumstances of person, time and place (Art. 1173, Civil Code). This is also called as
Ordinary Diligence or Diligence of a Good Father of the family or Diligence of a
Prudent Man.
b. However, if the law or contract provides for a different standard of care, said law or
stipulation must prevail (Art. 1163)
Example of a case where the law requires extraordinary care (not merely that of a prudent
man):
“A common carrier is bound to carry the passengers safely as far as human care and foresight
can provide, using the utmost diligence of a very cautious persons, with due regard for all the
circumstances.” Art. 1755 of the Civil Code.
Liability:
To be liable for damages in case of fraud, negligence or delay, in the performance of his
obligation or contravention of the tenor thereof (Art. 1170)
2. Duty to deliver the thing and the fruits of the said thing to be delivered. (Article 1164)
In Article 1537 specifically in a contract of law, the right to the fruits begins “ from the
day on which the contract was perfected”. It clearly defined the meaning of obligation to
deliver arises as far as the contract of sale is involved.
The vendor is bound to deliver the thing sold and its accessions and accessories in the
condition in which they were upon the perfection of the contract.
All the fruits shall pertain to the vendee from the day on which the contract was
perfected.
c. Personal right (jus in personam) – power demandable by one [person to another – to give,
to do or not to do.
d. Real right (jus in re) – power over a specific thing.
Kinds of fruits:
a. Natural fruits – spontaneous product of nature without human intervention.
b. Civil fruits (like rents) a result of civilization arising from juridical transactions.
c. Industrial fruit – products of nature bolstered with human intervention.
3. Duty to deliver the accessories and accessions (Art. 1166) – The obligation to give a determine
thing includes:
a) Accessories- Those joined to or included with the principal for the latter’s better use,
perfection, or enjoyment.
b) Accessions – additions to or improvements upon a thing.
As a rule, accessories and accessions are included in the delivery of the thing even if they are
not mentioned.
Effect of stipulation: If there is a stipulation and accessories are not included, such stipulations
are valid and binding upon the parties.
Kinds of Delivery:
Under the Civil Code, what are the different acts or omissions of the obligor or debtor that will
result in the breach of the obligation for he can be held liable for damages?
a. Default (Mora) – delay on the part of the debtor ( See discussions of mora
below)
Kind of Dolo:
Note: The law refers to incidental fraud only as reiterated in Article 1344,
2nd paragraph, “incidental fraud obliges the person employing it to pay
damages.”
Illustration
D is obliged to deliver 5 bags of powder soap to C 7 days from their agreement. On due date, D delivered
5 bags of powder soap mixed with chalk. What is the status of the agreement between D and C?
* The agreement is valid. The fraud was committed during the performance of the obligation
and not during the agreement of the parties. This is a case of incidental fraud (dolo incidente) not causal
fraud (dolo causante).
c. Negligence (Culpa)
KINDS OF DAMAGES
In contracts and quasi-contracts, the damages fir which the obligor who acted in good faith is
liable shall be those that are the natural and probable consequences of the breach of obligation and
which the parties have foreseen or could have reasonably foreseen at the time obligation was
constituted.
In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all
damages which may be reasonably attributed to the non-performance of the obligation.
In obligations to give what are the different rights, which are available to the creditor?
If debtor performs it but in contravention of the tenor of the obligation or done in a poor manner,
creditor may:
a. Have the same be undone at the debtor’s expense (Art. 1167) and
b. Demand damages from the debtor (Art. 1170)
Under Article 1169 of the Civil Code, demand (judicial or extra-judicial) is required before a
debtor is considered in legal delay or mora.
Default or mora signifies the idea of delay in the fulfillment of an obligation. In other words, it is
the non-fulfillment of an obligation with respect to time.
A. Mora solvendi – or delay of the obligator or debtor to perform his obligation. This delay is called
mora solvendi ex re when the obligation is an obligation to give or mora solvendi ex persons
when the obligation is an obligation to do.
B. Mora Accipiendi – or delay of the obligee or creditor to accept the delivery of the thing, which is
the object of the obligation.
C. Compensatio Morae, or delay of the parties or obligors or debtor incur in delay.
In obligations to give or to do, when does the obligor or debtor incur in delay?
The debtor incurs in delay from the time the creditor judicially or extra judicially demands from
him the fulfillment of the obligation. And in spite of demand, he is unable to observe the obligation.
(Art. 1189 par. 1, CC)
When is demand by the creditor not necessary in order that delay may exist?
In reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. From the time one of
the parties fulfills his obligation, delay by the other begins. (Art 1169, par 3)
There is however a technical difference. “Force majeure” is a term that is applicable only
to those fortuitous events which are dependent upon human intervention, such as wars, strikes,
riots, etc., while fortuitous event” is the general term that is applicable regardless of whether
the event is independent of or dependent upon human intervention.
GENERAL RULE: No liability for FORTUITOUS EVENT (CASO FORTUITO, ACT OF GOD,
FORCE MAJEURE & UNAVIODABLE ACCIDENT) if obligation refers to give a determinate thing
and debtor acted without fault.
Exceptions:
- When expressly declared by stipulation or contract;
- When the nature of the obligation requires the assumption of risk (the doctrine of
Created Risk)
- When the law expressly provides:
a. When the object of the obligation is lost and the loss occurs after the debtor has
incurred in delay. (Art. 1165)
b. When the debtor promises to deliver the same thing to two or more persons at the
same time who do not have common interest; (Art. 1165)
c. When debtor is guilty of fraud, negligence, delay and contravention of the tenor of
the obligation ( Article 1170)
d. When the obligation to deliver arises from a criminal offense ( Article 1268); and
e. When the obligation is generic (Art. 1263)
The law governing usurious transactions is Act No. 2655 otherwise known as the Usury
Law as amended by Act Nos. 3291, 3998, 4070, Commonwealth Act No. 339. However, the
Monetary Board of the Central Bank is empowered to change the rates of interest from time to
time “whenever economic and social conditions warrant or may eliminate, exempt or suspend
the same. The ceiling of interest may not be uniform.
Central Bank circular 905-A dated December 10, 1982, suspended application of the
Usury law when it provided that rate of interest and other charges in loan or forbearance of money,
goods or credits, regardless of maturity and whether secured or unsecured, that may be charged or
collected shall not be subject to any ceiling prescribed under the Usury law.
Note: Usury law has not been repealed but merely suspended. Only Congress can repeal laws.
The rule is “no interest” shall be due unless it has been expressly stipulated in writing.
There being a stipulation as to interest but the rate is not fixed, then the creditor may only
recover the legal rate.
Meaning of legal Rate: Legal rate of interest is that rate which will prevail in the absence of any
special agreement as to the rate of interest between the parties to a contract.
Previously the Monetary Board of the Central Bank issued December 3, 1982, Circular No. 905,
fixing the rates of interest on loans or forbearance of money goods or credit. Section 1 of the
circular provides as follows:
“The rate of interest, including commissions, premiums, fees and other charges on a loan or
forbearance of any money, goods or credits, regardless of maturity and whether secured or unsecured
that may be charged or collected by any person, whether natural or juridical shall not be subject to any
ceiling prescribed under or pursuant to the Usury Law as amended.”
Applicable Presumptions:
Presumptions:
A. Receipt of the Principal without Reservation would give rise to a presumption
that interest has been paid. (Art. 1176)
B. Receipt of the later installment without reservation as to prior installment
shall likewise raise the presumption that the prior installments have been
paid. (1176)
Remedies which are available to the creditors in order to protect his rights against the debtor act
defrauding the former: (Art. 1177)
d) To ask the court to rescind or impugn all acts which the debtor may have done to defraud the
creditor (accion pauliana)
General Rule:
Subject to the laws, all rights acquired in virtue of an obligation are transmissible if there has been
no stipulation to the contrary.
Principle of Transmissibility of Rights to be read together with Article 1311 on the Principle of
Relativity of Contracts. (“Contracts bind only the contracting parties, their heirs and assigns”)
PURE OBLIGATION
Pure Obligation is defined as one whose performance does not depend on a future or
uncertain event, or upon a past event unknown to the parties, hence demandable at once.
(Art.1179) In other words, this is one, which contains neither period nor a condition; hence the
obligation is effective immediately.
Examples:
“I’ll pay you P20,000 on demand.”
“I’ll pay you P20,000.”
CONDITIONAL OBLIGATION
Characteristics of condition:
A. It refers to future and uncertain event.
B. It may also refer to past event but unknown to the parties.
A condition is either:
Therefore, there are three (3) instances when an obligation and demandable at once thus:
a) When it is a pure obligation and
b) When the obligation has a resolutory condition.
c) When the obligation is subject to a resolutory period.
CLASSIFICATION OF CONDITIONS
As to effect:
As to cause or origin:
1. Potestative – depends upon the will of the one of the contracting parties.
a) If it is suspensive and dependent on the will of the debtor
(Example: I’ll sell you my car if I like), both the condition and obligation are VOID.
(Article
1182)
b) Where the condition depends upon will of creditor, obligation is valid.
Example: I will pay you upon your demand.
c) Where resolutory condition depends upon the will of the debtor, the obligation is
valid.
Example is pacto de retro sale. The position of the debtor when the condition is
resolutory is exactly the same as of the creditor when the condition is
suspensive.
2. Casual – depends on chance or hazard or the will of third person – VALID
Example; I’ll give you P 10,000 if I win 1 st prize in the lotto.
3. Mixed – depends party on the will of one of the parties and party on chance or will
of the 3rd person (If I pass the bar) VALID
Example: I will give you P 10,000 if you marry Miss Black or if I win the lotto.
As to divisibility:
As to mode:
As to form:
As to possibility:
As to numbers:
If the debtor prevents voluntarily the fulfillment of the condition the said act would result to
CONSTRUCTIVE FULFILLMENT SAID CONDITION UNDER Art. 1186.
Note: It is not even required that debtor is in bad faith. It is sufficient that he prevented the
happening of the condition.
If obligation is reciprocal, there is no retroactivity because the fruits and interests received
during the pendency of the condition are deemed to have been mutually compensated.
In unilateral obligation, there is usually no retroactive effect because they are gratuitous. The
debtor receives nothing from the creditor unless from the nature and other circumstances it can be
inferred that the intention is to apply retroactivity.
In obligation to do or not to do, the courts shall determine, in each case, the retroactive effect of
the condition that has been complied with. (Article 1187)
Debtor may recover what has been paid by mistake in case of a suspensive condition. (Article
1188)
If subject to a period and there is payment by mistake Article 1195 provides that aside from
recovery of what was paid by mistake, debtor can also recover fruits and interests, if any.
(The same rule applies for both obligations with suspensive and resolutory condition and obligation
with a period) Article 1189
The power to rescind obligations implied in reciprocal ones, in case one of the obligors should
not comply what is incumbent upon him. (Art. 1181, par. 1)
The above remedies are alternative. He may however choose rescission if after he has
chosen fulfillment, the latter become impossible.
Further, the court in some instance may instead grant the party a term for performance
instead of ordering rescission such as in case when the breach is slight or when right of third
person is affected. Hence court may deny rescission.
When it is the court rescinds the obligation, this is known as JUDICIAL RESCISSION,
which is initiated upon the filing of complaint in court by the injured party.
An action for rescission can proceed from either Article 1191 or Article 1381. It has been held
that Article 1191 speaks of rescission in reciprocal obligations within the context of Article 1124 of the
Old Civil Code which uses the term “resolution.” Resolution applies only to reciprocal obligations such
that a breach on the part of one party constitutes an implied resolutory condition which entitles the
other party to rescission. Resolution grants the injured party the option to pursue, as principal actions,
either a rescission or specific performance of the obligation, with payment of damages in either case.
Rescission under Article 1381, on the other hand, was taken from Article 1291 of the Old Civil
Code, which is a subsidiary action, not based on a party’s breach of obligation. [4]The four-year
prescriptive period provided in Article 1389 applies to rescissions under Article 1381.
Art. 1192. In case both parties have committed a breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties
first violated the contract, the same shall be deemed extinguished, and each shall bear his own
damages. Application of the “pari delicto rule”
A space of time which has an influence on obligations as a consequence of a juridical act and
either suspends their demandability or produces their extinguishment.
It is one that arises upon the arrival of the term or period agreed upon, hence demandable only
on that instance.
Term or Period is that time or event which necessarily must come, whether the parties know
when it would happen/come or not
Day certain – means one, which must necessarily come although it may not be known when.
Examples:
1) “I’ll pay you P20,000 on the 25 th of December next year.”
2) “I’ll pay you P20,000 if Imelda Marcos dies”. Death is certain even if we cannot
really ascertain when it will come.
“I’ll pay you P20,000 if Imelda Marcos dies of malaria “ Reason: She might die of
“bangungot”.
NOTE: When the debtor binds himself to pay when his means permit him to do so, the
obligation is deemed to be one with a Term or Period (Article 1180).
Kinds of Period-
1) Legal – period fixed by law
2) Voluntary – Fixed by the parties
3) Judicial – period imposed or fixed by the court
Other classifications
1) Ex die (suspensive) – a period which must lapse before the obligation can be
demanded
2) In diem (resolutory)- a period when it arrives extinguishes the obligation.
Period Condition
As to fulfillment
Fixes the time of efficaciousness of an obligation. Causes the obligation to arise or to cease.
As to time:
Period is generally for the benefit of both parties, unless otherwise stipulated
(Art.1196)
Meaning: The debtor cannot pay prematurely and the creditor cannot demand prematurely.
If term is for the benefit of the debtor alone. He may only be required to pay only at the end of
the term, but he may pay even before the period.
If term is for the benefit of the creditor. Creditor can demand anytime even before the
expiration of the period and he cannot be compelled by the debtor to accept payment before
the term.
Instances wherein the debtor losses his right to make use of the period. Art 1198
Right of Choice:
Generally belongs to the DEBTOR. (Art. 1200) UNLESS expressly agreement granted to the
creditor (Art.1200)
Debtor cannot choose those prestations which are impossible, unlawful or which cannot be an
object of obligation.
- It becomes effective from the time selection was communicated to the creditor the said
time is the reckoning date of determining when legal effects are produced.
- If debtor has no choice as there is only one choice left, the obligation is converted to simple
obligation. (Art. 1202)
- If the debtor cannot choose through the acts of the creditor, he may rescind the contract
with damages. (Art.1203)
If the choice is given to the debtor, the loss of the thing is governed as follows:
a) Loss of all – obligation is extinguished provided debtor is without fault
b) Loss of some – the debtor may deliver any of the remainder or that which remains if
only one subsists, without obligation to pay damages. (If debtor is
without fault)
Loss of all – debtor shall pay the value of the last thing lost, plus damages.
However if all of them were lost at the same time, the debtor may choose
the value of any of them, plus damages.
Loss of some – debtor may, without incurring any liability to pay damages, deliver
any of the remainder, or that which remains if only one subjects.
Loss of some due to debtor’s fault and the last thing due to fortuitous event.
From and after the lost except one of the various things, whether due to fortuitous
event or the debtor’s fault, the debtor shall loss the right of choice. (Art.1202) and
the obligation is converted to a simple obligation. Hence, the loss of the last
subsisting prestation due to fortuitous event extinguishes the obligation.
Illustration:
D is obliged to give C a specific watch, a specific ring or a specific bracelet. The parties agreed that C will
have the right to choose the thing which will be given to him. Before C could make his choice, the watch
and the ring are lost through D’s fault, successively. What is the right of C?
* C may choose the delivery to him of the bracelet, or the price of the watch or the price of the
ring plus damages.
FACULTATIVE OBLIGATION – obligation where only one prestation has been agreed upon but
the debtor may ender another substitution.
Example : D obliged himself to give C a specific Rolex watch with the understanding that D
could give a diamond ring as a substitute
Joint obligation – each of the debtors is liable only for a proportionate part of the debt and
each creditor is entitled to a proportionate part of the credit.
NOTE:
In the absence of stipulation, when there are multiplicity of parties or collective obligation,
said obligation is presumed JOINT. Meaning, the share in the obligation is specified, the correlative
rights and obligation of the parties are known.
Implications:
a)There are as many debts as there are debtors;
b) There are as many credits as there are creditors;
c) The debts/credits are considered distinct and separate from one another.
d) Each creditor is entitled only for a proportionate part of the credit.
e) Each debtor is liable only for his proportionate part of the debt.
Examples:
Joint obligation
Sgd. A, B and C
Solidary obligation – each debtor is liable for the entire obligation and each creditor is
entitled to demand the whole obligation.
As a general rule, the mere concurrence of two or more creditors or two or more
debtors in one and the same obligation does not imply solidarity. By presumption of the law,
the obligation is joint, unless:
Kinds of Solidarity
Example:
1.
2. A, B and C joint debtors are obliged to give x, Y and Z, solidary creditors of P 18,000. How much
can X collect and from whom? X being a solidary creditor can entirely collect P 18,000. But since A,
B and c are joint debtors, X may collect only P 6,000 from each of them. After collecting the sum of P
18,000, X must give Y and Z’s share of P 6,000.
3. A, B and C solidary debtor are obliged to give X,Y and Z joint creditors of P 18,000. How much
may A be made liable? A being a solidary debtor may be held liable for P 18,000. But since the
creditors are merely joint ones, each one of them can collect from A up to P 6,000.
If the obligation of the debtors is joint and the right of the creditors is solidary, or if the obligation of the
debtors is solidary and right of creditors is joint, the rules on joint and solidary obligation shall be applied
in determining the liabilities and rights of the debtors and creditors as the case maybe.
Illustrations:
1. A, B, C and D are obliged to give X, Y and Z P12,000. X may collect from A how much?
* P1,000. When the obligation is silent, it is presumed joint.
2. A, B, C and D, joint debtors are obliged to give X, Y, and Z, solidary creditors, P12,000. How much may
X collect from A?
* P 3,000. As a solidary creditor, X may collect the whole amount owed by the joint debtor A.
3. A, B, C and D, solidary debtors, are obliged to give X, Y and Z, joint creditors, P12,000. How much may
X collect from A?
* P4,000. As a joint debtor X is entitled only to his proportionate share, and A being a solidary
debtor may be required to pay the said amount.
4. A, B, C and D, solidary debtors, are obliged to give X, Y and Z, solidary creditors, P12,000. How much
may X collect from A?
* P12,000. X being a solidarity creditor may ask for the payment of the whole amount in behalf
of his co-creditors subject to a responsibility of X to give the latter their corresponding shares. Similarly,
A as a solidary debtor may be required to pay the whole amount of the obligation subject to
reimbursement from his co-debtors.
5. A and B are indebted to X and Y for P10,000. A and B share in the debt in the ratio of 1:3 while X and Y
share in the credit in the ratio of 2:3.
a. How much may X collect from A if the debtors are joint debtors, while the creditors are joint
creditors?
* P1,000. The obligation is joint on both the debtor and creditor, therefore there are as
many debts (credits) as debtors (creditors).
COMPUTATION:
Proportionate Share of A:
¼ x P10,000 = P 2,500
COMPUTATION:
Proportionate Share of X in the credit:
2/5 x P10,000 = P 4,000
A and B owe X and Y P 20,000.00. The share of A in the debt is one-fourth (1/4), while that of B
is three-fourths (3/4). The share of X in the credit is two-fifths (2/5), while that of Y is three-fifths,
a. Joint debtors and creditors
A can be held liable for not more than P 5,000.00 (1/4 of P 20,000) while B not
more than P 15,000 (3/4 of P 20,000). X can collect not more than P 8,000 (2/5
of P 20,000) while & not more than P 12,000 (3/5 of P 20,000)
The debt can be enforced by the collective acts of the debtors or creditors in view of the
indivisibility of the object. Like in the case of the joint debtors the creditor has to proceed
against all of them, otherwise, failure of the other debtors to comply the obligation would call
for the conversion of the obligation to its monetary value or indemnity for damages plus
payment of damages as to defaulting debtors. The same rule applies to joint creditors they have
to proceed to the debtor jointly to ensure the fulfillment of the obligation.
Illustration:
A, B and C are obliged to deliver a specific horse to X, Y and Z. What would be the legal effect when C
cannot comply with his obligation?
*This is a case of a jointly-indivisible obligation. Assuming there was a valid demand made
against all the debtors and since C could not comply with his part of the obligation, the obligation is
converted into a monetary obligation to pay the value of the horse plus damages. (1224)
Solidarity does not imply indivisibility. An obligation may be divisible even if it is solidary.
Indivisibility does not imply solidarity. It is the intention of the parties that provides for the
nature of obligation (Art. 1210)
Solidarity may exist although the creditor and debtor may not be bound in the same manner
same period and conditions. ( Art. 1211)
Each one of the solidary creditors may do whatever may be useful to others but not anything that is
prejudicial to the others ( Art. 1212). A solidary creditor cannot assign his rights without the
consent of the others (Art. 1213) – Essential feature is Mutual Agency.
The debtor may pay any one of the solidary creditors; but if any demand, judicial or extrajudicial, has
been made by one of them, payment should be made to him. (Article 1214)
Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or
with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of
Article 1219. The creditor who may have executed any of these acts, as well as he who collects the debt,
shall be liable to the others for the share in the obligation corresponding to them. ( Article 1215)
Illustrations: Renunciation
1. A, B and C are solidary debtors of X, Y and Z, solidary creditors, in the amount of P2,700. X renounces
the whole obligation without the consent of Y and Z. The debtors accepted the renunciation. What is the
legal effect of the renunciation?
* The whole obligation is extinguished, however X shall be liable to the corresponding shares of
the other co-creditors as they have agreed upon.
2. A, B and C are solidary debtors of X in the amount of P3,000. X renounces the share of A and A
accepts the renunciation. Thereafter B becomes insolvent. What is the legal effect of the renunciation?
* A will be liable for P500, while C will be liable for P1,500 (P1,000 + P500). Since the remaining
obligation is P2,000 after the renunciation of A’s share, and thereafter B becomes insolvent, A and C
would have to absorb the debt corresponding to B in the amount of P1,000. This shall be divided equally
by A and C.
Solidary creditors can collect from some or all of the debtors at one given time. If the creditor fails to
collect from one debtor, he can go against the other or others, until the whole obligation is paid. It was
held that the creditor may sue any of the solidary debtors or all of them simultaneously. An action
instituted against one shall not a bar to those, which may be subsequently brought against others, as
long as the debt has not been entirely satisfied (Article 1216)
Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary
debtors offer to pay, the creditor may choose which offer to accept.
He who made the payment may claim from his co-debtors only the share which corresponds to each,
with the interest for the payment already made. If the payment is made before the debt is due, no
interest for the intervening period may be demanded.
When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor
paying the obligation, such share shall be borne by all his co-debtors, in proportion to the debt of
each. ( Article 1217)
Note:
In action filed by the creditors, a solidary debtor may avail of the following defenses:
Defenses derived from the nature of the obligation which constitute total defenses,
such as
- absolute simulated contract
- illegal cause or consideration
- illegal object or subject matter
- non-fulfillment of the suspensive conditions
- other defenses which will nullify the contract which is the basis of creditor’s action.
Defenses personal to the other co-debtors – which will constitute a partial defense for
the solidary debtor being sued, thus exempting him from paying the proportionate
share of the co-debtor whose personal defense he is invoking. He is exempted to pay
the proportionate share of the invoking co-debtor but is still liable of his share and of
those co-debtors whose shares are not in question.
Illustration:
A, B and C are solidary debtors of X in the amount of P30,000. C was insane at the time the obligation
was constituted. What is the legal effect?
* X may collect from either A or C P20,000. Art. 1222 provides that a solidary debtor may avail
himself of the partial defense of the insanity of C. Such defense is personal to C and would therefore
affect only the part of the debt to which C may be responsible.
Penal clause –
An accessory undertaking to assume greater liability in case of breach.
Purpose:
a. To ensure performance of the obligation by creating an effective deterrent against breach,
making the consequences of such breach as onerous as it may be possible.
b. To substitute a penalty for indemnity for damages and the payment of interests in case of non-
compliance (art. 1226); or to punish the debtor for non-fulfillment or violation of his obligation.
In the first case, the purpose is reparation; in the second, punishment.
Rules:
a. Penalty is not a substitute for performance except only when this right has been expressly
reserved for him.
b. Penalty clause is presumed subsidiary. Penal clause is joint or the debtor has the right to pay
penalty in lieu of performance only when this right has been expressly reserved for him.
According to source:
a) Legal- penalty imposed by law
b) Conventional – penalty agreed upon by parties
Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be
demanded (Art. 1228)
The penalty shall substitute the indemnity for damages, and interest in case the obligation is not
fulfilled. Hence as a general rule, the creditor cannot demand damages and interests in addition to
the penalty except:
1. Obligations are extinguished by: (Enumeration under Article 1231 of the Civil Code)
a) Payment or performance
b) Loss of the thing due
c) Condonation or remission
d) Confusion or merger of rights of the creditor and debtor
e) Compensation
f) Novation
Other causes of extinguishment of obligations are (h) annulment, (I) rescission, (j) fulfillment of a
resolutory condition and (k) prescription. The following are found in other chapters of the Civil
Code.
PAYMENT OR PERFORMANCE
Payment (ART.1232-1261) – means not only the delivery of money but also the performance, in any
other manner, of an obligation. (Art.1232)
Exceptions:
a.Recovery allowed in case of substantial performance in good faith. (Art. 1234)
b.Recovery allowed when incomplete or irregular performance is waived. (Art.1235)
c. Instances when partial performances are allowed. (art. 1248)
- when there is an express stipulation to that effect.
- When the debt is part liquidated (definitely and determined or computed) and in
part liquidated.
- When the prestations in which the obligation consists are subject to different terms
or conditions which affect some of them.
3. Third person cannot compel the creditor to accept payment or performance of an obligation except:
a) When it is made by a third person who has interest in the fulfillment of the
obligation;
b) When there is a stipulation to the contrary (Art.1236, CC). In this case, the creditor
waives his right to refuse to deal with strangers to the obligations
Illustration:
D borrowed P10,000 from C with G as guarantor. Subsequently, D paid C P 2,000. Unknown to D, T a
third person paid C P10,000 believing that D still owed C such amount. What is the legal effect of the
payment by T?
* T can recover P8,000 from D, the law provides that only the amount to which the creditor has
benefited could be reimbursed to the third person paying if the payment was without knowledge of the
creditor. If D cannot pay, T cannot go after G to collect. (1236)
4. If a third person pays an obligation with the knowledge and consent of the debtor he can recover
from the debtor the entire amount, which he has paid (reimbursement) and he is subrogated of all
the rights of the creditor. Subrogation of the rights, such as those arising from a mortgage, guaranty
or penalty (Art. 1237). If payment was made without the consent of the debtor, he can recover only
insofar as the payment has been beneficial to the debtor.
5. Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to
be a donation, which requires the debtor's consent. But the payment is in any case valid as to the
creditor who has accepted it. (Art. 1238)
D owes C P10,000. T offers to pay D’s obligation and tells D that D need not reimburse him. However, D
does not give his consent to T’s offer not to be reimbursed. C, nonetheless, accepts the payment from T.
Was the payment valid?
* The payment is valid insofar as C is concerned. The case is deemed to be a donation, however
to be constituted as such D’s consent is necessary. (1238)
6. Art. 1239. In obligations to give, payment made by one who does not have the free disposal of the
thing due and capacity to alienate it shall not be valid, without prejudice to the provisions of Article
1427 under the Title on "Natural Obligations."
a. Free disposal of the thing due means that the thing to be delivered must not be subject to any
claim or lien or encumbrance of a third person.
b. Capacity to alienate means that the person is not incapacitated to enter into a contract and for
that reason, to make a disposition of the thing due.
7. Art. 1240. Payment shall be made to the person in whose favor the obligation has been constituted,
or his successor in interest, or any person authorized to receive it.
a. Creditor
b. His successor in interest
c. Person authorized to receive it. It refers to both authorized by the creditor or authorized
by the court such as the guardian, executor or administrator of the estate)
5. Payment to an incapacitated person is valid only if the latter kept the thing delivered or insofar as the
payment has been beneficial to him. Payment made to third person shall be valid insofar as it
redounded to the benefit of the creditor. It is presumed in the following:
a) If after the payment, the third person acquires the creditor’s rights (Subrogation of
the payer in the creditor’s right).
b) If the creditor ratifies the payment to the third person (Ratification by the creditor).
c) If by the creditor’s conduct, the debtor has been led to believe that the third person
had authority to receive payment. (Estoppel on the part of the creditor) (Art.1241
par.2)
D obtained a loan of P10,000 from C who was in his right mind at the time he granted the loan. On due
date, D paid his obligation of P10,000 to C who had since become insane. C lost P4,000 of the amount he
received and spent P6,000 for his food and other necessary expenses. Was the obligation extinguished?
* The obligation is extinguished up to P6,000 only. Payment of an obligation to an
incapacitated person shall be valid when the person has kept the thing delivered and only
insofar as the payment has been beneficial to him. (1241)
6. Art. 1242. Payment made in good faith to any person in possession of the credit shall release the
debtor.
7. Art. 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered
to retain the debt shall not be valid.
8. Art. 1244. The debtor of a thing cannot compel the creditor to receive a different one, although
the latter may be of the same value as, or more valuable than that which is due. In obligations to
do or not to do, an act or forbearance cannot be substituted by another act or forbearance
against the obligee's will.
9. Payment of debts in money shall be made only in the Philippine currency which the legal tender
pursuant to Art. 1249 of the Civil Code in relation to Republic Act No. 8183. Obligation shall now be
payable in the legal tender in the Philippines. Legal tender means the currency which the debtor
may compel his creditor to accept payment of his debt. However, the parties may stipulate that the
payment may be made in currency under than the legal tender of Philippines at the time of
payment. ( R.A. No. 8183)
Previously coins are legal tender under the New Central Bank Act:
a. Centavo (0.25) and above is legal tender up to P 50.00
b. Centavo (0.10) and below is legal tender up to P 20.00
c. All coins P 1.00 and above including bills are legal tender up to any amount
But pursuant to Section 52 of Republic Act No.. 7653 (The New Central Bank Act), "Legal Tender
Power - All notes and coins issued by the Bank shall be fully guaranteed by the Government of
the Republic of the Philippines and shall be legal tender in the Philippines for all debts, both
public and private. " This might mean, all notes and coins being served or issued by the Central
Bank of the Philippines When Offered in payment extinguishes the debt is legal tender.
One Peso coin is no longer valid tender of payment to any amount.
According to BSP Circular No.. 537 issued by the Central Bank of the Philippines on July 18, 2006,
pursuant to Section 52 of RA 7653 (New Central Bank Act) and the Monetary Board Resolution
No.. 862 dated 6 July 2006, "the maximum amount of coins to be considered as legal tender is
adjusted as Follows:
1. One thousand pesos (P1, 000.00) for denominations of 1, Piso, Piso 5, and 10 pesos coins; and
2. One hundred pesos (P100.00) for denominations of 1-cent, 5-cent, 10-cent, 25-cent coins.
10. In case of extraordinary inflation and deflation of the Philippine currency should supervene the
basis of the value of the currency for payment shall be the value of the currency at the time of the
establishment of the obligation. Unless there is a stipulation to the contrary (Art. 1250)
Value of the currency at the time of the establishment of the obligation is computed by using the
following formula.
Example:
D borrowed P 1 Million from c payable at the end of 10 years. Suppose that before maturity of the
loan, an extraordinary inflation supervened causing the value of the debt to fall to P 500,000 on the
date of maturity. Following the above formula:
A = ( 1 million/500,000.00) x P 1Million
=2xP1M
= P 2 Million is the equivalent value of P 1 M in the date of maturity
Suppose that before maturity of the loan, an extra-ordinary deflation supervened causing the value
of the debt to rise to P 4 Million on the date of the maturity of the loan, how much must D pay C on
maturity?
A = ( 1M/4 M) x 1 M
= P 250,000 equivalent value of P 1 M on the date of maturity
12. Dation in Payment of Dacion en pago, adjudicacion en pago or datio in solutum is a special form of
payment where the debtor conveys to the creditor ownership a thing belonging to him as accepted
equivalent to payment or performance of the obligation.
Dation in payment is governed by the law on sales.
Requisites:
a) There must be only one debtor and only one creditor;
b) There must be two or more debts of the same kind;
c) All debts must be due;
d) The amount paid by the debtor must not be sufficient to cover the total amount of all the
debts.
The right to make an application of payment belongs to the debtor. However if he does not
avail himself of this right, the creditor may wrest the initiative from him by giving to him a receipt
designating the debt to which the payment shall applied. But even this does not really constitute an
exception because the debtor may either accept or reject the application. (See Art. 1252)
Examples.
- Where there are various debts, which are due and they were incurred at different
dates the oldest are more onerous.
- Where there are various debts, which are due and they were incurred at different
dates the oldest are more onerous.
- Where one bears interest and the other does not, the former is more onerous
- Where one s secured the other is not, the former is more onerous
- Where the debtor is bound as principal in one and as guarantor or surety in another,
the former is more onerous
- Where the debtor is bound as solidary debtor in one and as a sole debtor in
another, the former is more onerous.
b) If the debts due are of the same nature and burden, the payment shall be applied to all of
them proportionately
Illustrations:
1. D owes C the following debts: P4,000 due on May 1; P4,000 due on May 8; P4,000 due on May 15;
P4,000 due on May 22; P4,000 due on May 29; and P4,000 due on June 5. The debts represented the
price of magazines which were delivered to D on a weekly basis. Of the six debts, the one due on May 22
is secured by a pledge of D’s ring. By agreement of the parties, C may demand payment even before the
due date of the debt. As of May 31, D had not paid any of the six debts. On May 31, D wanted to make
payment but he had only P4,000. How is the payment to be applied?
* Since no agreement as to which debts should be settled first and absent the fact that the
creditor has not issued any receipt applying the amount to any of the debts to which the debtor has not
protested and there was no cause of invalidating the same, and the period is for the benefit of the
creditor then the P4,000 should be applied to the one due on May 22 since it is most burdensome.
2. Refer to no. 1, Assuming that D did not designate the debt to be paid when he remitted the amount of
P4,000 to C on May 31. C issued a receipt for the payment he received from D but he did not also
designate the debt that was being paid. How would the payment be applied?
* The payment shall be applied to the debt due on May 22 since it is the most onerous.
14. Payment by Cession or Assignment – it is a special form of payment whereby the debtor
abandons all of his property for the benefit of his
creditor in order that from the proceeds
thereof the latter may obtain payment of their
credits. Also known as voluntary cession or
insolvency.
There is no transfer of ownership but merely grants the creditors of a debtor to sell properties of
said insolvent debtor and apply the proceeds to their respective credit. Debtor is released only up
to the net proceeds of the sale. He remains liable to the creditor as to the remaining balance unless
otherwise agreed to release him to his entire obligation.
Compare Cession from Insolvency under FRIA. Cession has no court intervention while Fria
whether rehabilitation or Insolvency (Voluntary or Involuntary or whether court supervised or not)
requires court intervention.
DISTINCTIONS:
15. Meaning of Tender of payment – consists in the manifestation made by the debtor to the creditor of
his decision to comply immediately with the obligation.
Meaning of Consignation: refers to the deposit of the object of the obligation in a competent court
in accordance with the rules prescribed by law after refusal or inability of the creditor to accept
tender of payment.
As a rule, there must be tender of payment first before consignation can be effected.
Tender of payment is antecedent of consignation; in order words, while the first is preparatory act,
the second is the principal act, which will produce the effects of payment.
Tender of payment is by its very nature extra judicial in character, wile consignation is judicial.
Even without Tender of Payment, Consignation may be validly pursued in the following:
a) When the creditor is absent or unknown or does not appear at the place of payment;
b) When he is incapacitated to receive the payment at the time it is due;
c) When without just cause he refuses to give a receipt;
d) When two or more persons claim the right to collect and;
e) When the title of the obligation has been lost. (Art.1256)
Debtor can withdraw the thing deposited as a matter of right before the creditor accepts or before a
judicial declaration is made by the court. In effect, obligation remains (Art. 1260). If the
consignation has been made properly, creditor should authorize the debtor to withdraw the same
and he shall lose every preference which he may have over the thing. The co-debtor, guarantors
and sureties shall be released. ( Art. 1261)
16. LOSS OF THE THING DUE (Arts. 1262-1269) – means that the thing which constitutes the object of
the obligation perishes, or goes out of the commerce of man or disappears in such a way that its
existence is unknown or it cannot be recovered. (Art. 1189. NO. 2) In its broad sense, it means
impossibility of compliance or performance with the obligation through any cause.
Kinds of Loss
a. Physical loss – when a thing perishes as when the house is burned and reduced to ashes.
b. Legal loss – when the thing goes out of commerce.
c. Civil loss –when the thing disappears in such a way that its existence is unknown or even if
known, it cannot be recovered, whether as a matter of fact or of law.
d. Physical or legal impossibility
Art. 1266. The debtor in obligations to do shall also be released when the prestation becomes
legally or physically impossible without the fault of the obligor.
e. Difficulty of performance
Art. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in part
In order that an obligation shall be extinguished by the loss or destruction of the thing if is
essential that the following requisites must concur:
a) The thing, which is lost, is specific or determinate
b) The thing is loss without any fault of the debtor if that thing is lost through the fault of the debtor
the obligation is transformed into an obligation to indemnify the obligee or creditor for damages.
c) The debtor is not guilty of delay
a) When by law the obligor is liable for fortuitous events (Arts. 1174 and 1262 par 2)
b) When by stipulation the obligor is liable even for fortuitous events. (Arts 1174 and 1262
par 2)
c) When the nature of the obligation requires the assumption of risk. (Arts. 1174 and 1262
par 2)
d) When the loss of the thing is due party to the fault of the debtor (Art 1262 par 1 CC)
e) When the loss of the thing occurs after the debtor has incurred in delay. (Art 1262 par.1
and Art 1135 par. 3)
f) When debtor promised to deliver the same thing to two or more persons who do not
have the same interest (Art. 1165 par 3)
g) When the obligation is generic (Art.1263)
h) When the debt of a certain and determinate thing proceeds from a criminal offense (Art
1268)
Art. 1265 provides that “whenever the thing is lost in the possession of the debtor, it shall be presumed
that the loss was due to his fault, unless there is proof to the contrary, and without prejudice to the
provisions of article 1165. This presumption does not apply in case of earthquake, flood, storm, or
other natural calamity.
Art. 1269 provides that “the obligation having been extinguished by the loss of the thing, the creditor
shall have all the rights of action which the debtor may have against third persons by reason of the
loss. This right is transferred by operation of law.
17. CONDONATION AND REMISSION (Arts. 1270 – 1274) – Is an act of liberality by virtue of which the
obligee, without receiving any price or equivalent, renounces the enforcement of the obligation as a
result of which it is extinguished in its entirely or in that part or aspect of the same to which the
remission refers. It is gratuitous abandonment by the creditor of his right.
Requisites:
a) It must be gratuitous
b) It must be accepted by the obligor
c) The parties must have capacity.
d) It must not be Inofficious; and
e) If made expressly, it must comply with the forms of donations. Otherwise, remission or
condonation
is not valid.
Example:
1. While a person may make donations, no one can give more than which he
can give by will; otherwise, the excess shall be Inofficious and shall be
reduced by the Court as it may impair the legitime of the compulsory heirs
of the donor.
2. The delivery of a private document evidencing credit made voluntarily by
the creditor gives a disputable presumption that there is a renunciation of
the action which the creditor has against the debtor. (Art. 1271) Example
of implied remission
3. Whenever the private document is found in possession of the debtor, it is
presumed that the creditor delivered the document voluntarily. (Art.
1272).
4. If the thing pledged is found in the possession of the debtor, there is a
disputable presumption that the contract of pledge has been renounced.
This however does not extend to the principal contract. Example of
Implied remission
18. CONFUSION OR MERGER (Arts. 1275-1277) - Merger of the characters of creditor and debtor in the
same person by virtue of which the obligation is extinguished. Meeting in the same person of the
qualities of the creditor and the debtor with respect to one and the same obligation.
Requisites:
a) That the merger of the characters of the creditor and debtor must be in the same
person. (Art.1275)
b) That it must take place in the person of either the principal creditor or principal debtor
(Art.1276)
c) That it must be complete and definite.
Notes:
Merger in the person of the guarantor does not extinguish the obligation. Only the contract of
guaranty is extinguished. There is in fact a novation where the guarantor now becomes the new
creditor of the debtor.
Merger in the person of one of the solidary debtor shall extinguish the entire obligation because
it is also merger in the other solidary debtors. Merger in joint obligation pertains only to the share
of the debtor to which merger takes place. Only the share corresponding to the creditor or debtor
in whom the characters concur. The creditor or debtor whose share was subject to confusion
actually becomes the new creditor of the other joint debtors pertaining to their share in the original
obligation.
D owes C P20,000 with G as Guarantor. C, on the other hand, owes D, P15,000. Both debts are already
due but D is insolvent. Can compensation take place?
* Yes. A guarantor can set up compensation as regards what the creditor may owe the principal
debtor. However, C may still collect from G P5,000.
Illustration/Exception:
Francis, husband and Mitch, wife are legally separated. By order of the court which decreed the legal
separation, Francis is obliged to give a monthly support of P20,000 to Mitch payable in advance within
the first five days of the month. Mitch owes Francis P20,000 by way of loan. On the other hand, Francis
has not yet given Mitch’s support for P20,000 for the preceding month and another P20,000 for the
present month. All the debts are due. Can compensation take place?
* Yes. If Mitch demands her support for the current month, Francis may claim compensation as
regards the loan that Mitch owes him.
In contract of deposit, the depositary cannot set up compensation against the depositor if he fails to
return the object of deposit as against any amount which the depositor owes the depositary.
In contract of commodatum, the bailee cannot set up compensation but the bailor can.
Reason: This is because it would violate the fiduciary character of the contract of deposit or
commodatum. But the depositor or bailor can set up by way of compensation against the
depositary’s or bailee’s credit. Here, only one party can set up compensation. (Art. 1287)
Person obliged to give support cannot also set up compensation unless support has developed into
arrears. In such case, compensation is possible.(Art. 1287)
Neither shall there be compensation if one of the debts consists in civil liability arising of a crime.
The one whose obligation arose from said liability cannot set up compensation against the other but
the latter can. (Art. 1288)
Art. 1285. The debtor who has consented to the assignment of rights made by a creditor in favor of a
third person, cannot set up against the assignee the compensation which would pertain to him
against the assignor, unless the assignor was notified by the debtor at the time he gave his consent,
that he reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not consent thereto, the latter
may set up the compensation of debts previous to the cession, but not of subsequent ones.
If the assignment is made without the knowledge of 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.
Illustrations:
1. D owes C P20,000 due on June 20. C owes D P14,000 due on June 15. On June 12, C assigned his right
to X. D consented to such assignment without any reservation of his right to the compensation. On June
20, how much may X collect from D?
* P20,000. No compensation shall take place since there was no reservation of such right by D
upon the assignment of the credit. (1285 par 1)
2. D owes C P30,000 due on June 20. C owes D the following debts: P15,000 due on June 2; P4,000 due
on June 14; P6,000 due on June 16; and P3,000 due on June 18. On June 17, C assigned his right to X. C
notified D of the assignment but D did not give his consent thereto. How much may X collect from D on
June 20?
* P5,000. Since the assignment, although with knowledge, is without consent of D therefore
compensation shall take place but only to the debts prior to the assignment. (1285 par 2)
3. Refer to no. 2. Assume the same facts except that when C made the assignment of his credit to X, C
did not notify D about it. It was only on June 20 when X went to D to collect that D learned of the
assignment. How much may X collect from D?
* P2,000. The assignment is without knowledge of D, therefore the latter may set up
compensation of all credits prior to the same and also later ones until he had knowledge of the
assignment. (1285 par 3)
Art. 1286. Compensation takes place by operation of law, even though the debts may be payable at
different places, but there shall be an indemnity for expenses of exchange or transportation to the
place of payment.
AS TO EFFECT:
Art. 1289. If a person should have against him several debts which are susceptible of compensation, the
rules on the application of payments shall apply to the order of the compensation.
Classification of Novation:
a) Objective or real – refers to the change either in the cause object or principal conditions
of the obligation
b) Subjective or personal – refers to the substitution of another person of the debtor
(passive) or subrogating a third person of the rights of the creditor (active). (Arts. 1291, Nos. 2
and 3)
c) Mixed – refers to the combination of objective and subjective novation.
Requisites of Novation:
a) A previous valid obligation;
b) Agreement of the parties to the new obligation;
c) Extinguishment of the old obligation and
d) Validity of a new obligation
NOVATION is not presumed. If must be clearly and unmistakably established either by the
express agreement of the parties or acts of equivalent import.
Kinds of Novation:
According to origin:
1. Real or objective- when the object (or cause) or the principal conditions of the obligation
are changed.
2. Personal or subjective- when the person of the debtor is substituted and/or when a third
person is subrogated in the rights of the creditor.
3. Mixed –when the object and/or principal conditions of the obligation and the debtor or
the creditor, or both the parties, are changed. It is a combination of real and personal
novations.
Kinds of substitution:
A. Expromission – or that which takes place when a third person of his own initiative
and without the knowledge or against the will of the original debtor assumes the
latter’s obligation with the consent of the creditor.
Effect – the new debtor’s insolvency or non-fulfillment of the obligation will not
revive the action of the creditor against the old debtor whose obligation is
extinguished by the assumption of the debt by the new debtor. If the new debtor
pays the creditor, he is not subrogated with the rights of the creditor; he is only
entitled to be beneficial reimbursement.
B. Delegation – one which takes place when the creditor accepts a third person to
take place of the debtor at the instance of the latter. The creditor may withhold
approval. (art. 1295) In delegacion, all the parties the old debtor, the new debtor and
the creditor must agree. If the payment was made with the consent of the original
debtor or on his own initiative (delegacion), the new debtor is entitled to
reimbursement and subrogation under Art.1237
General Rule: Original debtor is not liable to the creditor in case of insolvency of the
new debtor. The exceptions are:
a) The said insolvency was already existing and of public knowledge (although it was not
known to the old debtor) at the time of the delegacion; or
b) The insolvency was already existing and known to the debtor (although it was not of
public knowledge) at the time of the delegacion.
The exceptions are intended to prevent fraud on the part of the old debtor.
Illustration:
D owes C P50,000. Subsequently, D proposed to C that T will assume his (D’s) debt. C accepted the
proposal of D. On due date, T could not pay because of his insolvency which was in fact existing but was
not known to D or of public knowledge at the time that he delegated his debt. Can C hold D liable?
*C cannot hold D liable because his (D’s) obligation was extinguished when he was substituted
by T. (1295)
Art. 1296. 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. Referring to Stipulation Pour Autrui.
Art. 1297. 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.
Art. 1298. The novation is void if the original obligation was void, except when annulment may be
claimed only by the debtor or when ratification validates acts which are voidable.
Art. 1299. 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. (n)
Conventional Subrogation requires consent of all of the parties, to wit, the debtor, the old
creditor and the new creditor.
Legal Subrogation– when it takes place without agreement but by operation by law
The creditor to whom partial the new creditor has made payment remains a creditor to the
extent of the balance of the debt. In case of insolvency of the debtor, old creditor is given
preferential right to recover the remainder as against the new creditor. (Art, 1304)
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