OBLICON VIDEO 1

Concept of the Law on Obligation and Contracts

– The law on obligations and contracts is the body of rules which deals with the nature
and sources of obligations and rights and duties arising from agreements and
contracts.

I. Definition
Article 1156. An obligation is a juridical necessity to give, to do or not to do.
A. 1156 is more on the point of view of the debtor. A more complete definition should also
include the point of view of the creditor.
Better definition: It is a juridical relation whereby a person (creditor) may demand from
another (debtor) the observance of a determinative conduct (giving, doing, or not doing),
and in case of breach, may demand satisfaction from the assets of the latter. (Arias Ramos)

II. Elements of an Obligation

a. Passive Subject- (called debtor or obligor) or the person who is bound to the
fulfillment of the obligation; he who has a duty; bound to perform the prestation

b. Active subject-(called creditor or obligee) or the person who is entitled to

demand the fulfillment of the obligation; he who has a right; power to demand the
prestation

c. Object or prestation- (subject matter of the obligation) or the conduct required

to be observed by the debtor. It may consist in giving, doing, or not doing. (see Art.
1232.) Without the prestation there is nothing to perform. In bilateral obligations (see Art.
1191.), the parties are reciprocally debtors and creditors; and; not a thing but a
particular conduct of the debtor, but always a prestation

d. Juridical or legal tie- vinculum juris; It is the efficient cause or juridical tie by virtue
of which the debtor has become bound to perform the prestation. (also called efficient
cause) or that which binds or connects the parties to the obligation. The tie in an
obligation can easily be determined by knowing the source of the obligation. (Art.
1157.)

III. Different Kinds of Prestations

a. TO GIVE – consists in the delivery of a movable or an immovable thing in order to create
a real right or for the use of the recipient or for its simple possession or in order to return
to its owner;
b. TO DO – all kinds of work or services, whether mental or physical
c. NOT TO DO – consists in abstaining from some act, includes “not to give”, both being
negative obligations
Why is the obligation not to give not included in the definition of obligation? This is
because the concept of not to give is really an obligation not to do
NOTE: In obligations it can either be real or personal obligation. An obligation to give is
a real obligation while an obligation to do or an obligation not to do is a personal
obligation.
 If it is an obligation to do, it is also called a positive personal obligation while an
obligation not to do is a negative personal obligation

IV. Classification of Obligations

Nature of obligations under Civil Code
A. 1156 of the NCC defines civil obligation
Civil Obligations Natural Obligations 1423
Obligations which give to the Do not grant a right of action to
creditor or obligee a right of action enforce their performance
in courts of -justice to enforce their although in case of voluntary
performance fulfillment by the debtor, the latter
may not recover what has been
delivered or rendered by reason
thereof.
Based on positive law- it is
enforceable by court action Based on equity and natural law
(Juridical necessity under 1156)

Examples; 1424 to 1423

Moral Obligation Natural Obligation

It is a duty which one owes and
which one he oath to perform but
which is not legally bound to fulfill

V. Sources of Obligations – Arts. 1156-7

1. Law (Article 1158)
2. Contracts (Arts. 1159, 1305)
3. Quasi-contracts (Arts. 1160, 2142)
4. Delicts or Crime (Art. 1161)
5. Quasi-delicts (Art. 1162, 2176)

A. A single act or omission can give rise to different causes of Action

Art. 1157

From Law
ART.1158.Obligations derived from law are not presumed. Only those expressly determined in
this Code or in special laws are demandable, and shall be regulated by the precepts of the
law which establishes them; and as to what has not been foreseen, by the provisions of this
Book.
Law is a rule of conduct passed by common authority for common observance and for
common benefit. In order for it to be a source of obligation. It must be expressly or impliedly
set forth and it cannot be presumed.

From Contracts
ARTICLE 1159. Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith.
A contract is a meeting of minds between two persons whereby one binds himself, with
respect to the other, to give something or to render some service. It is the formal expression by
the parties of their rights and obligations they have agreed upon with respect to each other.

Obligation ex contractu- it must be complied with good faith. It is the law between the
partiesa and neither party may unilaterally evade its obligation of the contract
unless the contract authorizes it or the other party assents.

Note that in contracts, the parties may freely enter into any stipulations provided they
are not contrary to law, morals, good customs, public order or public policy.

From Quasi-Contracts
Are also called obligation quasi ex contractu
● A quasi-contract is that juridical relation resulting from certain lawful, voluntary
and unilateral acts by virtue of which the parties become bound to each other to the end
that no one will be unjustly enriched or benefited at the expense of another. (Art. 2142.)

*Quasi-contract is distinguished from other sources of obligations

KINDS OF QUASI CONTRACT

● The most important of these juridical relations which are recognized and
regulated by the Civil Code are negotiorum gestio and solution indebiti.
1. Negotiorum gestio unauthorized management; arises whenever a person voluntarily
takes charge of the agency or management of another’s abandoned business or
property without the latter’s authority.
2. Solutio indebiti, undue payment; Arises when a person unduly delivers a thing through
mistake to another who has no right to demand it (must not be through liberality or some
other cause)

From Acts or Omissions punished by Law(Delicts)

Also called Obligation ex malificio or obligation ex delicto
In relation to Article 100 of RPC:
Article 100. Civil liability of a person guilty of felony. - Every person criminally liable
for a felony is also civilly liable.

The scope of civil liability are the following:

1. Restitution
2. Reparation for damage caused
3. Indeminity for consequential damages

From Quasi delict

Obligation ex quasi delicto, ex quasi malificio
It is an act or omission arising from fault or negligence which causes damage
to another there being no pre-existing contractual relation between the parties
The elements of quasi-delict or torts are the following:
1. There must be an act or omission
2. There must be fault or negligence attributable to the person charge
3. Damage or injury
4. Direct relation of cause and effect between the act arising from fault or negligence
and the damage or injury (proximate cause)
5. There is no preexisting contractual relation between the parties

Negligence is a failure to observe for the protection of interest of another person that
the degree of care precaution and negligence which the circumstances justly
demand whereby such other person suffers injury

OBLICON 2
obligations and contracts lecture two.
let's go to the effects of obligations or the duties of the debtor in an obligation to give
to do or an obligation not to do.
With respect to an obligation to give, we have to first determine the object of what is to
be given. If it is a determinate thing or an indeterminate thing.
What is a determinate thing? it is one which is specifically designated and physically
separated from all the members of the same class while a generic thing is one
which refers only to a class or genus and cannot be identified with particularity. A
determinate thing is identified only by its individuality while a generic thing is
identified only by its species.
So if it is an obligation to give a specific thing the following are the duties of the debtor:
1. to preserve the thing;
2. to deliver the accessions and accessories
3. to deliver the fruits; and
4. to deliver the thing itself.

with respect to the obligation to preserve the thing, this is the obligation to take care of
the thing with the diligence of a good father of a family. 1163 of the Civil Code
provides the standard of diligence that must be observed in order to preserve the
thing to the to be delivered. So, 1163 provides every person obliged to give
something is also obliged to take care of it with the proper diligence of a good
father of a family unless the law or the stipulation of the parties requires another
standard of care. Therefore, in the obligation to preserve or take care of the thing
with the due diligence of a good father of a family the standard of care that must
be observed is that one or first the that which the law requires. If the law does not
provide what standard of care to observe then the standard of care to be
observed is that stipulated by the parties in the absence of the two 1163 provides
that the standard of care should be the diligence of the good father of a family
the diligence of a good father of a family is ordinary care or that diligence which
an average or reasonable prudent person would exercise over his own property.
The next obligation of the debtor in an obligation to give a specific thing is to deliver
the fruits 1164 of the Civil Code states, the creditor has a right to the fruits of the
thing from the time the obligation to deliver it arises however, he shall require no
real right over it until the same has been delivered to him.
So the creditor has a right to the fruits of the thing from the time the obligation to deliver
arises. The obligation arises from the time it becomes binding in contrast that is
 from the perfection of the contract. Hence, the creditor is entitled to the fruits of
the thing promised from the time the debtor became bound and not from the
time stipulated for delivery this is in relation to Article 1537 and 1589.
Article 1537 states the vendor is bound to deliver the things 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.
Article 1589 the vendee shall owe interest for the period between the delivery of the
thing and the payment of the price in the following three cases number two states
should the things sold and delivered produce fruits or income.
The rule does not apply to obligations under a suspensive condition where the fruits
remain with the debtor by special provision of law this is Article 1189.
the next obligation, is to deliver its accessions and accessories even if nothing is
mentioned in the contract. 1166 the obligation to give a determinate thing
includes that of delivering all its accessions and accessories even though they
may not have been mentioned.
So those are the obligations to preserve the thing, to deliver the accessions and
accessories, to deliver the fruits and to deliver the thing itself.
If on the other hand, it is a generic thing the obligation of the debtor his principal
obligation is that the debtor must deliver a thing of the qualities specified if none
was fixed he cannot deliver a thing of inferior quality this is pursuant to Article 1246.
1246 states when the obligation consists in the delivery of an indeterminate or
generic thing whose quality and circumstances have not been stated the
creditor cannot demand a thing of superior quality neither can the debtor deliver
a thing of inferior quality the purpose of the obligation and other circumstances
shall be taken into consideration.
If the obligation is on the other hand an obligation to do the debtor must perform the
act as promise and cannot substitute another act or forbearance.
Article 1244 unless the creditor agrees or the right is reserved in case of facultative
obligation. So 1244 provides the debtor of the 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 obligation to do or not to do an act or forbearance cannot be substituted by another

act or forbearance against the obliges will.
In an obligation to do to do performance by an agent is permitted unless the obligation
is strictly personal.
In an obligation not to do what is the duty of the debtor or obligor the debtor must
himself abstain from the conduct prohibited he may not substitute another
forbearance nor the forbearance of another unless the creditor consents.
Performance here cannot be by a delegate or an agent there is no legal
accessory obligation that arises unlike in obligations to give.
Note: that in obligations to give we should add that, if the debtor fails to comply with
this obligation to take care of the thing to deliver this specific thing or to deliver its
accessions and accessories another obligation of the debtor is to pay damages

C. Breaches of Obligations
An obligation may be breached either voluntarily or involuntarily by the debtor. It is
voluntary if the debtor in the performance of the obligation is guilty of the
following: Fraud, Negligence, Delay or Contravention of the tenor of the
obligation. Under any of these instances, the deb0074or is liable for damages.

The breach of the obligation by the debtor can also be involuntary. The debtor is unable
to comply with his obligation due to a fortuitous event under this instance the
debtor is not liable for damages.

Different ways by which the obligation is breached voluntarily by the debtor.

1. FRAUD or DOLO (Art. 1171) - Fraud is defined as the deliberate or intentional evasion
of the normal fulfillment of an obligation. It implies some kind of malice or
dishonesty and it cannot cover cases of mistake and errors of judgment made in
good faith. It is synonymous to bad faith.

Fraud, however in the breach of an obligation, should be distinguished from the two
other kinds of fraud referred to in the civil code.

There are three kinds of fraud and their difference:

Fraud in the Casual fraud Incidental fraud
performance (Art. 1338) (Art. 1344)
of the
obligation
(Art. 1170)
it is present during it is present but it is present during
the during the the
performance perfection perfection
of a pre- of a of a
existing contract contract
obligation

the purpose is to the purpose is to its purpose is to

evade the secure the secure the
normal consent consent of
fulfillment of of another the other
the to enter party but
obligation into the the fraud
contract was not the
principal
inducement
in making
the
contract

the result of the the result is it does not result in

fraud is the individual division of
breach of invitation consent
 the of
obligation consent is
that the
contract
entered
into is
avoidable
contract

it gives rise to a right it gives rise the it gives rise to a

in favor of right of an right of an
the creditor innocent innocent
to recover party to party to
damages annul the claim for
contract damages

NOTE: The fraud under breach of obligation is the fraud referred to under Art. 1170, fraud
in the performance of the obligation.
Future fraud cannot be waived, however the law does not prohibit renunciation of the
action for damages on the ground of fraud already committed.

Remedies of the creditor

The remedies of the aggrieved party where the debtor or obligor fails to comply
with this obligation by reason of fraud:
1. Insist on the performance of the obligation/Specific performance provided for under
Article 1233;
2. He can resolve instead the contract under Article 1191;
3. Claim damages in either case - insisting the performance of the obligation plus
damages or resolve the contract plus damages.

Liability for Malice

Malice or bad faith or fraud is the awareness that once a conduct is improper and
violates the rights of others and persistence in such conduct, then there is fraud.

Under Article 1171, it provides that liability for malice is demandable in all obligations
and cannot be renounced in advance. Any waiver of an action for future fraud
is void. Article 2232 of the civil code likewise provides that malice leads to liability
for aggravated damages or exemplary damages.

2. NEGLIGENCE/Fault/Culpa (Article 1172, 1173) - negligence on the part of the debtor

or obligor.
Negligence or fault or culpa negligence is the failure to observe the care or diligence
that the law requires to be observed.

Under 1173, the fault or negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and corresponds with
the circumstances of the persons of the time and of the place. When negligence
 shows bad faith the provisions of Articles 1171 and 2201, paragraph 2 shall apply.
If the law or contract does not state the diligence which is to be observed in the
performance of an obligation that which is expected of a good father of a family
shall be required.

The diligence to be observed is first, that provided for by law. In the absence, second,
is that stipulated by the parties and in the absence of the two, then third, the
diligence of a good father of a family or ordinary diligence.

Kinds of negligence
1. Culpa Contractual/ contractual Negligence - is the negligence in the performance of a
pre-existing contractual obligation resulting in breach of the obligation or breach of
contract for reasons that the debtor could and should have foreseen.
2. Culpa Aquiliana/ Extracontractual Negligence - is the failure to observe the care required
by law with respect to other persons who were not connected or bound by contract with
the actor.

Distinctions between Culpa contractual and Culpa aquiliana

1. In culpa contractual, damages may be claimed only by heirs and privies. in culpa
aquiliana, they may be claimed by a stranger, relatives, and dependents. (Article 2206)
2. In culpa contractual, the law presumes negligence from the fact that the contract is not
performed. In culpa aquiliana, the plaintiff must prove the existence of the negligence as
cause of the damages.
3. Moral damages are not generally recoverable in cases of culpa contractual but they are
recoverable in cases of culpa aquiliana.
4. In culpa contractual, interest is due as damages from breach but in culpa aquiliana, the
award of interest is discretionary in the court. (Article 2211)
5. In culpa aquiliana, the master may evade responsibility upon proof of the exercise of due
diligence to prevent the injury (Article 2177). This defense ,however, is not available in culpa
contractual.
6. Under 1172 of the civil code, courts may mitigate liability in culpa contractual but not in
culpa aquiliana.
Standard of Diligence
Remember that when it comes to the standard of diligence required in an obligation,
the general rule is that if the law or contract does not state the diligence which is
to be observed that which is expected of the good father of the family is required.
(Article 1173)

“Bonus pater familias” or good father of a family corresponds in concept to the ordinary
businessman or reasonable and prudent man. Occasionally, however, the law
requires a higher degree of diligence as for instance in the case of common
carriers of passengers and freight, the diligence that must be observed is
extraordinary diligence. (Article 1733)

Common carriers from the nature of their business and for reasons of public policy
are bound to observe extraordinary diligence in the vigilance over the goods and for
the safety of the passengers transported by them according to all the circumstances of
 each case. Article 1755 provides a common carrier is bound to carry the passengers
safely as far as human care and foresight can provide using the utmost diligence of very
cautious persons with a due regard to all the circumstances.

Article 2000, the responsibility referred to in the two preceding articles shall include
the loss of or injury to the personal property of the guests caused by the servants or
employees of the keepers of hotels or inns as well as by strangers but not that which
may proceed from any force major. The fact that travelers are constrained to rely on
the vigilance of the keeper of the hotel or in shall be considered in determining the
degree of care required of him.

The standard of diligence can also be specified by the parties okay so the
stipulation of the parties may vary the degree of diligence required except of course
where the law provides such stipulations as in the case of inn keepers.

DOLO v. CULPA
1. Dolo is malice or bad faith while culpa is negligence.
2. In Dolo, the guilty party is actually aware that his conduct will prejudice the other or intends
to cause such prejudice. In Culpa or negligence the guilty party is not but should be aware
of prejudice or injury resulting from his conduct.
3. In Dolo, the party answers for all damages or consequences derived from his acts whether
foreseeable or not. In culpa or negligence, the party answers only for damages
foreseeable when the obligation arose. (Article 2201)
4. In contracts and quasi contracts, the damages for which the obligor who acted in good
faith is liable shall be those that are the natural and probable consequences of the breach
of the obligation and which the parties have foreseen or could have reasonably foreseen
at the time the 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 per non-performance of the obligation. Article 2202, on the other hand,
provides in crimes and quasi-delicts, the defendant shall be liable for all damages which
are the natural and probable consequences of the act or omission complained of it is not
necessary that such damage have been foreseen or could have reasonably been
foreseen by the defendant.
5. In Dolo, the liability of the guilty party cannot be waived in advance as provided in Article
1171. In Culpa, it can be waived unless public policy prohibits the waiver.
6. Dolo is never presumed while culpa is presumed in breach of contract but negligence may
be so gross as to show bad faith or malice. (Article 1173)

OBLICON 4

Another reason why an obligation may be breached is by reason of delay

What is delay or also called mora

Article 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their
obligation.
 However, the demand by the creditor shall not be necessary in order that delay may
exist:
(1) when the obligation or the law expressly so declare; or
(2) when from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be
rendered was a controlling motive for the establishment of the contract; or
(3) when demand would be useless, as when the obligor has rendered it beyond his
power to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him. From
the moment one of the parties fulfills his obligation, delay by the other begins.
(1100a)

Mora or delay is the failure to perform the obligation in due time and the requisites for
delay to take place is:
1. Obligation must be due and demandable and liquidated
2. The debtor fails to perform his positive obligation on the date agreed upon
3. A demand not merely a reminder or notice judicial or extrajudicial is made by the
creditor upon the debtor to pull to fulfill perform or comply with his obligation otherwise
he will be considered in default and
4. The failure of the debtor to comply with such demand

Three kinds of delay are the following:

1. More solvendi - which is default or delay on the part of the debtor
2. Mora accipiende - delay on the part of the creditor
3. Compensatio morae

The first kind of delay mora solvende - default on the part of the debtor

Default on the part of the debtor can either be mora solvende ex re or default in real
obligations, the other one is mora sulvend ex persona or default in personal
obligations

In order for there to be mora solvente or default on the part of the debtor the
1. obligation must be due enforceable and already liquidated or determinate in amount
2. There must be none performance on the part of the debtor
3. There must be a demand whether judicial or extrajudicial unless demand is not required

General rule is that those obliged to deliver or to do something incur in delay from the
time the obligee judicially or extrajudicially demands from them the fulfillment of
their obligation.

1169 however provides exceptions where there is no need for a demand in order to put
the debtor in default or in mora.

Exceptions:
1. When the obligation or the law expressly so declares
2. When the nature and circumstances of the obligation it appears that the designation
of the time when the thing is to be delivered or the service is to be rendered was a
controlling motive for the establishment of the contract or where time is of the essence
3. When demand would be useless as when the obligor has rendered it beyond his power
to perform and
4. In reciprocal obligations where delay begins only from the moment the other party fulfills
or tenders fulfillment of his obligation in a proper manner

What are the effects if debtor or the obligor is in delay?

The debtor is guilty of breach of the obligation. His liability if the obligation is to pay
money must be to pay also interest. If no extra judicial demand was made interest
runs from the filing of the complaint, in other obligations he has to pay damages.
In an obligation to deliver a determinate thing the debtor is liable for a fortuitous event.
If the debtor can prove that loss would have resulted even if he had not been in
default the court may equitably mitigate the damages

Article 2215. In contracts, quasi-contracts, and quasi-delicts, the court may equitably
mitigate the damages under circumstances other than the case referred to in the
preceding article, as in the following instances:
(1) that the plaintiff himself has contravened the terms of the contract;
(2) that the plaintiff has derived some benefit as a result of the contract;
(3) in cases where exemplary damages are to be awarded, that the defendant acted
upon the advice of counsel;
(4) that the loss would have resulted in any event;
(5) that since the filing of the action, the defendant has done his best to lessen the
plaintiff's loss or injury.

Art. 2215 (4) or the creditor can ask for resolution in proper cases.

So this is the delay or default on the part of the debtor.

Take note here that the delay is not merely the non-performance of the obligation on
the date stipulated. To put the debtor or obligor in delay or default and for the
consequences for this breach of the obligation to apply, there must have been a
judicial or extrajudicial demand by the creditor upon the debtor to fulfill the
obligation. That is the only time that there is default or delay

The next kind of delay is the mora accipiende

It is default on the part of the creditor and this takes place when the creditor unjustifiably
refuses to accept the performance of the obligation.

The requisites for mora accidenta are the following:

1. There must be offer of performance by the debtor
2. The offer must be to comply with the prestation as it should be performed
3. The creditor refuses the performance without just cause

What are the effects in cases of mora accipiende

1. The responsibility of the debtor is limited only to fraud and gross negligence
2. The debtor is exempted from risk of loss of the thing and the creditor bears the risk of loss
3. Where it is the creditor in delay or mora the expenses by the debtor for the preservation
of the thing after delay is chargeable to the creditor
4. If the obligation bears interest the debtor does not have to pay from the time of delay
5. The creditor is liable for damages suffered by the debtor and
6. The debtor may relieve himself of the obligation by consigning the thing

The third kind of delay is like we said earlier compensation morae where both parties
are in default
There is no actionable default on the part of both parties. The rule in reciprocal
obligations is that neither party incurs in delay if the other party does not comply
or is not ready to comply in a proper manner with what is incumbent upon him.
From the moment one of the parties fulfills his obligation delay by the other begins.

Performance must be simultaneous unless different dates for the performance of the
obligation were fixed by the parties. This is for purposes of compensation morae.

So delay as an instance where there is breach in the performance of the obligation

Another concept that we must take into consideration in the non-performance of the
obligation is the happening of a fortuitous event. Earlier we discussed that the
breach in the performance of an obligation can either be by reason of a
voluntary act on the part of the death or involuntary acts.

Voluntary acts of the debtor that causes the breach of the obligation are in cases of
delay, in cases of dolo, in cases of culpa

Involuntary is where the obligation cannot be performed by reason of a fortuitous event

and the consequence is that the obligation is extinguished your debtor cannot
be held liable for damages.

So what is this fortuitous? It is an event which could not breach the obligation.
Under this instance the requirements for a fortuitous event, the happening of a fortuitous
event is that
● The cause of the breach of the obligation must be independent of the will of the debtor.
● The event must be either unforeseeable or unavoidable
● The event must be of such as to render it impossible for the debtor to fulfill his obligation
in a normal manner
● The debtor must be free from any participation in or aggravation of injury to the creditor

To be able to raise the defense of fortuitous event in order that the debtor or obligor will
not be held liable for damages for the non-performance of the obligation,
● The event must be independent of the human will or of the will of the debtor.
● The event must be impossible to foresee it is unforeseeable not merely unforeseen or if
it can be foreseen it must be impossible to avoid
 Fortuitous event includes caso fortuito both accident and force majeur, force majeur
means act of god.

The occurrence must render it impossible for the debtor to fulfill the obligation in a
normal manner and the obligor or debtor must be free of participation in the
aggravation of the injury to the creditor, meaning there must be no concurrent
fault on the part of the debtor.

Where the injury is partly due to fortuitous event and partly to dolo or culpa of the
debtor, the debtor remains liable.
The debtor is also liable if he was already in default or was already in mora when the
fortuitous event took place.

So under article 1174 it provides the general rule with respect to fortuitous event

Article 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which could not
be foreseen, or which, though foreseen, were inevitable. (1105a)

So you have here fortuitous event, and the rule is provided under article 1174.
So no one can be held liable for the happening of a fortuitous event. The obligation is
extinguished and the debtor cannot be held liable.

The exceptions however where the debtor answers despite the loss of the thing or the
non-performance of the obligation due to fortuitous events are the following
instances:
So what are the instances where the dr remains liable despite the happening of a
fortuitous event:
1. Where it is expressly specified by law.
For instance you have article 1942.

Article 1942. The bailee is liable for the loss of the thing, even if it should be through a
fortuitous event:
(1) if he devotes the thing to any purpose different from that for which it has been
loaned;
(2) if he keeps it longer than the period stipulated, or after the accomplishment of the
use for which the commodatum has been constituted;
(3) if the thing loaned has been delivered with appraisal of its value, unless there is a
stipulation exempting the bailee from responsibility in case of a fortuitous event;
(4) if he lends or leases the thing to a third person, who is not a member of his household;
(5) if, being able to save either the thing borrowed or his own thing, he chose to save
the latter. (1744a and 1745)

Another instance where the law expressly provides that the debtor is liable despite the
happening of a fortuitous event is in article 2001.
Article 2001. The act of a thief or robber, who has entered the hotel is not deemed force
majeure, unless it is done with the use of arms or through an irresistible force. (n)

We have also article 2147.

Article 2147. The officious manager shall be liable for any fortuitous event:
(1) if he undertakes risky operations which the owner was not accustomed to embark
upon;
(2) if he has preferred his own interest to that of the owner;
(3) if he fails to return the property or business after demand by the owner;
(4) if he assumed the management in bad faith. (1891a)

So these are instances where the law specifically or expressly provides that the debtor
remains liable despite the happening of a fortuitous event.

The debtor also answers despite the happening of a fortuitous event

1. Where it is aggrieved upon by the parties or
2. Where there is a stipulation by the parties

When expressly declared by stipulation, meaning there's a waiver of fortune's

event as a defense
3. The third instance is where the nature of the stipulation requires the assumption of

An instance or an example where the nature of the obligation requires the assumption
of risks is under article 1717 of the civil code, also article you have also article 1724

Article 1717. If the contractor bound himself to furnish the material, he shall suffer the
loss if the work should be destroyed before its delivery, save when there has been
delay in receiving it. (1589)

Article 1724. The contractor who undertakes to build a structure or any other work for a
stipulated price, in conformity with plans and specifications agreed upon with the
land-owner, can neither withdraw from the contract nor demand an increase in
the price on account of the higher cost of labor or materials, save when there has
been a change in the plans and specifications, provided:
(1) such change has been authorized by the proprietor in writing; and
(2) the additional price to be paid to the contractor has been determined in writing by
both parties. (1593a)

So these are obligations which requires the assumption of risk.

4. Then the next instance where the happening of a fortuitous event will not exempt
the debtor from liability is where the debtor is in mora or default. Not ordinary delay
but already in default by reason of the demand made by the creditor on the debtor,
whether a judicial or extrajudicial demand.

5. When the debtor is guilty also of malice or dolo or fraud as when he promises the
same thing to two different persons this is under article 1165 paragraph 3
 Article 1165. When what is to be delivered is a determinate thing, the creditor, in
addition to the right granted him by article 1170, may compel the debtor to make
the delivery.
If the thing is indeterminate or generic, he may ask that the obligation be complied with
at the expense of the debtor.
If the obligor delays, or has promised to deliver the same thing to two or more persons
who do not have the same interest, he shall be responsible for any fortuitous event
until he has effected the delivery. (1096)

6. When the debtor is guilty of concurrent negligence. So whether it's concurrent

negligence on the part of the debtor or fault in producing the loss of the breach
7. When the liability arises from a criminal act

Article 1268. When the debt of a thing certain and determinate proceeds from a
criminal offense, the debtor shall not be exempted from the payment of its price,
whatever may be the cause for the loss, unless the thing having been offered by
him to the person who should receive it, the latter refused without justification to
accept it. (1185)

The defense or excuse fortuitous event can be waived in advance. The debtor is then
said to be an insurer of the performance of the obligation.

So the general rule when it comes to fortuitous event is that no person can be held liable
for the happening of a fortuitous event, and in an obligation to give a
determination if the thing is lost ready fortuitous event the obligation is
extinguished and the debtor is not held liable.

Note however that if it is an obligation to give a generic thing the obligation is not
extinguished based on the rule that genus never perishes.

The exceptions where despite the happening of a fortuitous event the debtor remains
liable:
1. When expressed expressly declared by law
2. When expressly declared by stipulation or contract
3. When the nature of the obligation requires the assumption of risks
4. When the obligor is in default or has promised to deliver the same thing to two or more
persons who do not have the same interests

Article 1165. When what is to be delivered is a determinate thing, the creditor, in

addition to the right granted him by article 1170, may compel the debtor to make
the delivery.

If the thing is indeterminate or generic, he may ask that the obligation be complied with
at the expense of the debtor.
 If the obligor delays, or has promised to deliver the same thing to two or more persons
who do not have the same interest, he shall be responsible for any fortuitous event
until he has effected the delivery. (1096)

5. When the debtor is guilty of concurrent negligence and

6. When the liability arises from a criminal act pursuant to article 1268

These are the circumstances that causes the breach of an obligation. We will continue
from there the next lecture will involve the remedies available to the creditor for
the satisfaction of their claims

OBLICON 5

Okay so the last lecture where we discussed the remedies or we discussed the what you
call this the reasons for the breach of the obligations, the non-performance of the
obligation such as dolo, culpa, in cases of delay there is the non-performance by
the debtor of the obligation so if there is the non-performance of the obligation
or let us say how can the creditor now ensure the fulfillment of the obligation or
the remedies that are available to the creditor in order to ensure the satisfaction
of their claims in order to enforce the obligation of the debtor the obligation of
the debtor either being an obligation to give to do or not to do so that is either a
personal obligation:
a) personal obligation is an obligation to do or not to do; or
b) a real obligation which is an obligation to give in an obligation
So, let's go first to the first obligation now. In an obligation to give what can the creditor
do in order to ensure the fulfillment of the obligation?
First, we have to determine what is to be given. Is the thing that is going to be given a
specific or determinate thing or is it a generic thing because the remedy now
here is different if the obligation is to give a specific thing.
In an obligation to give and what is to be given is a determinate thing, what now is the
option of the creditor?
He can ask or he can file an action to compel specific performance. So in an obligation
to give a determinate thing a specific thing the creditor can file an action to
compel specific performance or an action for damages because an action for
damages is equivalent to performance.
What is the basis for this you have article 1165 as well as article 1117.
So, article 1165 provides when what is to be delivered is a determinate thing, the creditor
in addition to the right granted him by article 1170 and what is that right granted
to him under article 1170, it is the right to ask for damages, he may compel the
debtor to make delivery so an action for specific performance in an obligation to
give a determinate thing or an action for damages.
If the obligation on the other hand is to give a generic thing, if what is to be delivered
now is a generic thing, under 1165 paragraph 2, an action for substituted
performance is given the creditor. So this is 1165 paragraph 2 which says if the
thing is indeterminate or generic, the creditor may ask that the obligation be
complied with at the expense of the debtor, so substituted performance.
Another remedy of the creditor to ensure satisfaction of his claim is to ask for damages.
So an obligation to give generic thing your creditor can ask for substituted
 performance pursuant to article 1165 paragraph 2 or an action for damages
which is equivalent to performance.
If let's say it is an obligation to do okay an obligation to do, Article 1167 provides now
the legal basis of the remedy of the creditor. If a person obliged to do something
fails to do it, the same shall be executed at his cost. The same rules shall be
observed if he does it in contravention of the tenor of the obligation, furthermore,
it may be decreed that what has been poorly done be undone. So, in an
obligation to do if a person obliged to do something fails to do it, the same shall
be executed at his cost. Another remedy of the creditor if he does not want to
avail of this first remedy is an action for damages. In addition, pursuant to article
1167 paragraph 2, if what was supposed to be done was improperly executed
meaning, if it is done in contravention of the tenor of the obligation the creditor
may ask the court that what was poorly done be undone at the debtor's cost or
at the expense of the debtor.
Why is it that in an obligation to do, the remedy of specific performance is not available
to the creditor unlike in an obligation to give, you notice that in an obligation to
give the creditor can file an action for specific performance to compel the debtor
to deliver this specific thing but in obligations to do the creditor does not have the
remedy of specific performance. In personal obligation the remedy of specific
performance is not available because that would be tantamount to involuntary
servitude in an obligation to do. So what then is his remedy, if he fails to do it or if
he refuses to do it, the same can be done at the expense of the debtor meaning
someone else can be made to do it provided of course that the personal qualities
of the debtor were not the moving factor in entering into this obligation.
For instance, let's say it is your wedding and you're planning for your wedding and
because you want it to be special you and your future husband or wife enter into
a contract with Martin Nievera so that he will sing during the wedding ceremony.
Suddenly let's say this famous singer that you contracted to does not want to fulfill
his obligation to sing at your wedding, can you instead get April boy to sing? It
might not satisfy your obligation because the personal qualities of this famous
singer was taken into consideration, if the qualities of the debtor are not the
moving factor in entering into this obligation to do then someone else can be
made to do it but who is going to pay for that? It will be paid by the debtor who
refused to perform this obligation to do.
For instance, let us say it is to construct your house and any other architect or engineer
can be the one to do it now, the engineer you contracted to or the contractor
you contracted to refuses to do it, you can ask another contractor to do it at the
expense of this debtor contractor.
If the creditor does not want to avail of this remedy, he has another action, he can file
an action for damages because an action for damages is always equivalent
performance, it is considered as an equivalent performance. In addition if
improperly executed we said it can be undone at the expense of the debtor.
The next kind of obligation is an obligation not to do, what is the remedy of the creditor
to ensure satisfaction of his claim? There can be no specific or substituted
performance, if it is an obligation not to do, it is only the debtor who must comply
with this obligation. It cannot be complied with by someone else so there can be
no substituted performance in an obligation not to do. The creditor pursuant to
article 1168 of the civil code also gives the creditor the remedy of damages and
 if the obligor does what is forbidden of him it shall be undone at the expense of
that debtor. So, article 1168 is another remedy of the creditor in an obligation not
to do.
So those are the remedies of the creditor however the law also provides other remedies
of the creditor in certain obligations. Let's say it is an obligation to give, an
obligation to give whereby the debtor promised to pay the creditor 1.5 million
pesos. So here you have now the debtor who owes 1.5 million pesos to the
creditor, the remedy of the creditor is to compel specific performance because
this is an obligation to give and it is an obligation to give a generic thing now, so
he asks now the debtor to pay the 1.5 million pesos. If the debtor does not have
the cash of 1.5 million pesos, what is the remedy of your creditor? Pursuant to the
law article 2236, under article 2236 of the civil code, it provides that the debtor is
liable with all his property present and future for the fulfillment of his obligation
subject to the exemptions provided for by law. So if it is an obligation to pay an
amount of money and the debtor does not have the money to pay but he has
other assets now he has other properties, can the creditor go after these
properties? Yes pursuant to article 2236, the debtor is liable with all his property
and not only present property, the law even goes further and says future property
for the fulfillment of his obligation subject of course to the exemptions provided
for by law because there are properties of a person of a debtor that are exempt
from execution, exempt from sale. So if they're not among these exemptions your
creditor can avail or can go after this properties.
What is another remedy that is available to the creditor? Let us say he tried he filed a
case for specific performance but the debtor does not have the money to pay
that 1.5 million pesos so he tries to go after the properties or other properties of
the debtor but the debtor does not have any other properties, he has no land, he
has no car, so the creditor cannot attach any of these properties. Does that mean
that the creditor is left with an empty bag? No because the law now here
provides what we call subsidiary remedies of the creditor.
So subsidiary remedies of your creditor and what is this first subsidiary remedy provided.
The first one is the action in subrogation or action subragatoria. What is an action
sobragatoria? An action subragatoria is that instance where under article 1188,
creditors after exhausting the property in possession of the debt or to satisfy their
claims may exercise all the rights and bring all the actions of the debtor for the
same purpose, meaning to obtain satisfaction except those which are inherent in
the person of the debtor. This means that if the debtor has no property, has no
money, but he has a credit, your creditor can be the one to file an action to
enforce the satisfaction of that credit.
For instance you have the creditor here who is entitled to be paid 1.5 million pesos. So
you have the debtor indebted in the amount of 1.5 million pesos, your debtor has
no money, your debtor also has no properties to pay the 1.5 million pesos but your
debtor here is the creditor of x to the amount of 1.5 million pesos. The obligation
of x to the debtor here is already due and demandable but he does not file any
action or does not do anything to collect his credit of 1.5 million pesos from his
debtor x. So, what can C do in this case? The law allows an action subragatoria,
but in order for C to avail of this remedy it must be that he first exhausted all the
properties in possession of the debtor, it is only when the debtor has no property
to answer for his obligation to his creditor that the creditor now can avail of this
 action subragatoria. The creditor should file an action against x in order to collect
the 1.5 million pesos credit. However since this is only a subrogatory action, C
cannot file it directly against x, C must file it in representation of the debtor, it is
merely a subrogatory action so he must file it in representation of x here. What is
the basis that C is given the right to file an action against the debtor of his debtor
in order to collect that credit? The basis here is the debtor of my debtor is also my
debtor. The basis or the reason why a creditor is given this subbrigatory action or
action subbrigatoria to file a case in representation of the debtor against the
debtor of the debtor is because the debtor of my debtor is also my debtor.
Take note however that the following requisites must be available in order that the
creditor may be able to exercise this action subragatoria. So, what are those
requisites in order to avail of action sobragatoria?
1. the debtor to whom the right of action properly pertains must be indebted to the
creditor, okay so there must be the interest of the creditor the debtor or something to
the creditor.
2. the inaction of the debtor whether it is willful or not meaning his failure whether willfully
or unwilfully he refuses, he does not do anything to collect his credit from his debtor
3. there must be the existence of the credit even if it is not liquidated and the credit must
be due and demandable meaning the credit of the debtor to his debtor now it must be
due and demandable but the debtor does not do anything to collect that credit and
therefore your creditor here who has exhausted all the available properties of his debtor
but there are no available properties can now file this subrogatory action.
In filing the subrogatory action, what are the effects? First the debtor's credit if collected
will now be applied to the payment of the creditor, the creditor who exercised
this subrogatory action. So if c here was able to collect the 1.5 million pesos in
representation of d against this debtor who is x here, that 1.5 now will be applied
to the obligation of d to c. The creditor here must remember that he must sue in
the name of the debtor in representation of the debtor. Take note however that
when c here files an action in representation of d against x, x can set up all
defenses available against the debtor, against d here. So let us say, C here filed
in representation of d against x for collection of 1.5 million pesos, however x here
has a note whereby d had already condoned the 1.5 million pesos, therefore x
here now can avail of this defense in the action filed by x against him, so the
action is subject to all defenses available against the debtor himself. If the creditor
obtain a judgment for an amount let's say greater than his own credit so instead
of 1.5 million pesos only he was able to get 2 million pesos, in this case now he is
only entitled to the 1.5 and must return the excess to the debtor. So those are the
effects in cases of a subrogatory action, he is merely subrogated in the shoes of
the debtor.
By way of an exception to the subrogatory action we have what we call a direct action
or action directa. An action directa, this is where the debtor unable to pay and
after the creditor has tried to exhaust all the available properties of the debtor
and there are none, the creditor is aware that x here owes d an amount of
money. So, he files now a direct action meaning he does not file it in
representation but he files a direct action, c versus x, not c in representation of x.
Now what are these instances where the law allows this direct action or this action
directa. You have in cases of article 1652, what is article 1652, this refers to a lessor
 against a sub lessee. So, let's say you have your lessor and you have the lessee, it
is the obligation of the lessee to pay the monthly rent to the lessor. Now the lessee
now here subleases it in favor of w, so in this sublease w has an obligation to pay
his rent to the lessee. If the lessee does not pay the lessor the rental now if it is
monthly or yearly rental but he has sublease it to w, the law allows now the lessor
here who is the creditor to file a direct action against the sub lessee to collect the
rent in that sublease. So, he does not file it here in representation of the lessee, he
files a case directly against the sublessee, so lessor versus sublessee, now here that
is a direct action.
Another direct action is provided under article 1729. What happens now in article 1729,
in here, under article 1729, it refers to the laborers of the independent contractor
against the owner. So here let's say you have the owner, you have the contractor,
and you have the laborers. The owner now contracted with C to build a house in
order for C to build the house, he has his laborers but C here must pay the salaries
of the laborers, C does not pay the salary of the laborers but C is getting paid or
will be paid by the owner for the obligation to build that house now. Who is the
creditor here? L or the laborers are the creditors in this case, the law now allows
them to file a direct action, the laborers now will file a direct action against the
owner of the building which C was contracted to build now here, in order to satisfy
their claim against their debtor C in this case, so it is a direct action.
So occasionally the law confers now on the creditor a direct and not a subrogatory
action against the debtors of his debtor. You have article 1652 lesser against the
sublessee and you have article 1729 the laborers of the independent contractor
against the owner.
Another remedy given to the creditor now here in order to satisfy his claim against his
debtor is what we call an action pauliana, okay this is a recissory action. Action
pauliana is that provided for under article 1177. Artcile 1177 provides the creditors
having pursued the property and possession of the debtor to satisfy their claims
may exercise all the rights and bring all the actions of the latter for the same
purpose save those which are inherent in his persons, that is your action
sobragatoria. The action pauliana is the next sentence, okay, they may also
impugn the acts which the debtor may have done to defraud them. Okay so that
last sentence is your action pauliana, the creditor having pursued the property in
the possession of the debtor may also impugn the acts which the debtor may
have done to defraud them. The requisites in order for the creditor to be able to
exercise this rescissory action or action pauliana are the following:
1. there must be the prior existence of the credit, it must be anterior to the fraudulent act
2. the credit must be due and demandable
3. there must have been the exhaustion or insufficiency of the assets in the hands of the
debtor (so he tried to go after all the properties of the debtor but the debtor has no
properties)
4. there is that fraudulent intention of the debtor when he enters into a contract with a
third person.
Example here when is there fraud, an example of fraud is article 1387, it says fraud is
presumed in certain cases. When can you show that there is fraud here, it is
presumed in certain cases, where a judgment has been rendered or an
attachment has been issued against the debtor who caused the alienation of his
 property. So what is an example of this, you have again the creditor and you have
the debtor who owes the creditor 5 million pesos, the debtor cannot pay the 5
million pesos, your creditor filed an action now but he cannot pay 5 million pesos,
there are no properties of the debtor to satisfy that 5 million pesos. However after
the debtor borrowed 5 million pesos from the creditor, prior to the obligation
becoming due and demandable, the debtor now here donates his only property
worth five million pesos in favor of x. So it is after entering into that obligation that
he donates his only property left in favor of x. C now here can file an action to
declare null and void, to set aside this because it is done in fraud of creditors,
there is that fraudulent act on the part of the debtor in donating the property so
that the creditor has nothing to get any more from debtor. So an actual pauliana
and another remedy of the creditor here is an action to declare the nullity of
absolutely simulated transfers by the debtor. This should be differentiated from a
rescissory action, which is an action to rescind a contract entered into by the
debtor, that is different from an action to declare null and void a transaction
entered into by the debtor because here if it is an action to declare null and void,
that means the transaction or contract entered into by the debtor with someone
else is fictitious. If it is fictitious it is null and void, in rescissory actions the contract
entered into by the debtor is not a fictitious contract however there is pecuniary
injury to the creditor. We will discuss that later the difference between a rescissory
action and an action for the resolution of a contract.
So that is another action that is available to the debtor. An action to declare the nullity
of absolutely simulated transactions. Aside from the subsidiary remedies of the
creditor, we have also what we call ancillary remedies of the creditor. What are
these ancillary remedies of the creditor? These are remedies to ensure collection
of judgment, your creditor may file an action - an action paulianna, an action for
collection of sums of money, specific performance now - but even if he wins it
may happen that he gets nothing, so this is an ancillary remedy given to the
creditor. Example of an ancillary remedy, an attachment together with the
principal action the creditor attaches the properties of the debtor. Another is
replevin, attachment is real property while replevin is personal properties. In order
to ensure that if your creditor, properties of the debtor can be sold to satisfy the
obligation or a receivership now.
Okay so ancillary remedies of the creditor attachment, replevin and receivership. Are
those the only actions that are available or remedies available to the creditors in
order to ensure the fulfillment of the obligation? We have the last one, it is a
special remedy of the creditor and what is that special remedy? A judicial
declaration of the debtor’s insolvency, so together with the other creditors, the
creditors now can file a petition in court to declare the debtor as insolvent, that is
a special remedy, this is to ensure the equitable distribution of the debtor's assets
among his creditors even if they cannot all be paid in full but at least there is the
equitable distribution of whatever assets the debtor may have left.
So those are the remedies of the creditor depending on the obligation, what are his
remedy, either to file a specific performance or substituted performance with or
to decide instead to file damages. Then you have now the subsidiary remedies of
the creditor after exhausting all the properties and it is not sufficient, they can
either file an action subrogatoria, an exception to action subrogatoria is what an
action directa. They can also file an action pauliana, another remedy is to
 declare the nullity of absolutely simulated transactions entered by the debtor and
in order to ensure satisfaction, there is the ancillary remedy of attachment,
replevin or receivership. And finally, the special remedy of the judicial declaration
of the debtor's insolvency.
Okay so those are the remedies of the creditor, the next discussion will involve the
different kinds of obligations okay depending on demandability, plurality of
object, plurality of the subject matter, or the performance and that will be
discussed during the week.

OBLICON LECTURE 6
Let us discuss the different kinds of obligations under the civil code. First, we have the
classification of the obligation based on (A) demandability. These are the (1)pure obligations,
(2) conditional obligations, and (3) obligation with a period.
Next, we have also the (B) plurality of object. The obligation here can be a (1) simple
obligation, an (2) alternative obligation or a (3) facultative obligation.
Based on the (C) subject an obligation may be a (1)simple obligation, a (2) joint or a (3)
solidary obligation.
Also based on (D) performance the obligation may be a (1) divisible obligation or an (2)
indivisible obligation.
The other classification is based on (E) the sanctions for the breach of the obligation so under
this we have an (1) obligation with a penal clause and an (2) obligation without a penal
clause.
Let's discuss the first based on demandability. There are three kinds of obligation, either have
the pure obligation, an obligation subject to a condition, and an obligation subject to a
period.
What do we mean by a pure obligation?
A pure obligation is one without a condition or a term hence it is demandable at once. So,
we have now here we have the pure obligations and they are demandable immediately
because they are not subject to a condition or a term.
Obligation subject to a condition
What is a condition? It is an uncertain event which wields an influence on a legal relationship.
A condition is a future and uncertain event upon the happening of which depends the
demand ability or extinguishment of an obligation. Note here that the event must be both
future and uncertain not future or certain. So, in a condition this refers to a future and take
note and uncertain event.
The death of a person is considered as one that is a period and not a condition. It is future but
it is not uncertain and therefore it is not a condition but a period. You have also a condition
which refers to a past event unknown to the parties, however, this cannot be a condition for
the knowledge of the parties cannot prevent the obligation from being demandable if the
past event did not happen or from being unenforceable if the past event did not happen.
Obligation that is subject to a period
What do we mean by a period?
That which necessarily must come whether the parties know when it will happen or not. Like I
said, death is a period it is certain to take place.
When is an obligation demandable at once?
An obligation is demandable at once when it is pure or when it has a resolutory condition.
The classes of conditions are the following:
Potestative condition- one which is dependent on the soul act or decision or will of a party.
Casual condition- which depends upon chance or the will of a stranger.
Mix- depends partly on the will of a party and partly on chance or the will of a stranger.
Note that the debtors promise to pay when he can or when his means permit him to do so is
not considered a conditional obligation but one with a period to be fixed by the court.
Another kind of classification condition is based on the manner of the happening.
1. Positive-which consists in the happening of an event.
2. Negative condition consists in the non-happening of an event.
Another kind of classification is the validity or legality of the condition.
1. Listed or illicit
2. Legal or illegal
3. Moral or immoral or
4. Possible or impossible conditions; and
5. Impossible conditions and those contrary to good customs or public policy or prohibited
by law are now the obligation dependent upon them.
This means that if an obligation is subject to an impossible condition the one that is contrary to
good customs or public policy or prohibited by law, the obligation is considered as void. But
in unilateral and lucrative transactions such as donations and testaments, an unlawful or
impossible condition is considered not written and the transaction is not annulled. This is
pursuant to article 873, but it is considered unconditional now.
A condition not to do an impossible thing is considered not agreed upon, article 1183
paragraph 2. Hence, the obligation is not conditional.
A suspensive condition is exclusively potestative depending on the sole will of the debtor
avoids the obligation, article 1182. But not if the condition is resolutory, in which case both the
obligation and the condition are valid. For example, when a person undertakes to pay for
subscriptions to shares of corporate stock after she had harvested fish the obligation is subject
to a suspensive condition dependent upon her sole will and therefore the obligation is
considered as void.
Another classification of the condition is the effect on the object obligation.
1. Suspensive condition also called a condition precedent –
Here, the effectiveness of the obligation and the acquisition of the creditor’s rights depend
upon the fulfillment of the condition, article 1181. Under an obligation subject to a suspensive
condition, the creditor may be for the fulfillment of the condition bring the appropriate action
for the preservation of his rights. For instance, he may demand a security or the recording of
the contract. Here he cannot yet demand the fulfillment of the obligation since they have to
await whether the condition will take place or not. But prior to that, the creditor is given the
right to bring the appropriate actions for the preservation of his rights.
On the other hand, the debtor may recover what during the same time he has paid by
mistake. Meaning, if the condition has not yet taken place, the debtor cannot be made to
comply with the obligation if he complied with the obligation. When the condition has not yet
taken place, he may recover the same since it was paid by mistake, article 1188.
Note however that the debtor is not entitled to the fruits and interest. He cannot recover the
fruits or interests, there is a different rule with respect to periods under article 1195. Article 1195
states, anything paid or delivered before the arrival of the period the obligor being unaware
of the period or believing that the obligation has become due and demandable may be
recovered with the fruits and interests. This is not the case if it is a condition, if the obligation is
subject to a condition.
2. Resolutory condition also called a conditioned subsequent-
This is where the obligation is immediately effective but its subsistence and extinguishment
depend upon the fulfillment of the condition.
What are the distinctions between the effects of a suspensive and resolutory condition on the
obligation?
They are the following:
1. Before fulfillment if the obligation is subject to a suspensive condition the obligation is
not effective. The creditor may only take steps to preserve his eventual rights should the
condition take place. The debtor may recover what he has paid by the stake, but not the fruits
and interests.
If the obligation however is subject to a resolutory condition the obligation is effective
immediately or at once.
What happens upon the fulfillment of the condition if the suspensive condition takes place?
2. The obligation is effective and demandable as of the day the obligation was
constituted. It retroacts through the date of the constitution of the obligation.
If the obligation is subject to a resolutory condition on the other hand, the obligation is
extinguished and the parties must return to each other what they receive.
What happens upon the failure of the condition if the obligation is subject to a suspensive
condition and the condition does not take place?
3. Then no obligation is created if on the other hand the obligation is subject to a resolutory
condition and the condition does not take place the obligation is consolidated permanently.

Article 1182 gives another classification of condition. It provides when the fulfillment of the
condition depends upon the sole will of the debtor the conditional obligation shall be void. If
it depends upon chance or upon the will of a third person the obligation shall take effect in
conformity with the provisions of this code. So, what we have here now are potestative
condition, casual conditions, or mixed conditions.
1. Potestative- if it depends on the exclusive will of one of the parties. This is also called
facultative condition.
2. Casual condition- depends on chance or upon the will of a third person.
3. Mixed condition - is one that depends on chance or upon the will of a third person and
the will of one of the parties.
What happens if the obligation is subject to a potestative condition?
If it is potestative on the part of the debtor, and the condition is suspensive, so what you have
here is a suspensive condition, potestative on the part of the debtor. The consequence is that,
both the condition and the obligation are void for the obligation here is really illusory. An
obligation subject to a suspensive condition solely dependent on the will of the debtor renders
the obligation void.
On the other hand, if the obligation is subject to a resolutory condition, the obligation is
considered as valid even if it is solely dependent on the will of one of the parties to that
obligation. If the obligation is potestative on the part of the creditor, meaning the obligation
is solely dependent or the condition is solely dependent on the will of the creditor the
obligation is valid. Remember that it is only when the obligation is subject to a suspensive
condition- solely dependent on the will of the death or the obligation is considered as a void
obligation.
Article 1183 provides the obligations that are subject to an impossible and illegal condition. It
states in impossible conditions, those contrary to good customs or public policy, and those
prohibited by law shall annul the obligation which depends upon them. If the obligation is
divisible that part thereof which is not affected by the impossible or unlawful condition shall
be valid. The condition not to do an impossible thing shall be considered as not having been
agreed upon.
If the condition is to do an impossible or illegal thing, both the condition and the obligation
are void. If the condition is negative-- that is not to do the impossible then merely disregard
the condition the obligation remains valid. If the condition is negative, for instance not to do
an illegal thing, both the condition and the obligation are considered as valid.
Under article 1184, it provides the condition that some event happen at a determinate time
shall extinguish the obligation as soon as the time expires or it has become indubitable that
the event will not take place. So, these are the rules of fulfillment of condition with respect to
time where the date of fulfillment is stipulated, where the date of the fulfillment is stipulated if
it is a positive, the condition must be fulfilled within the period stipulated but the obligation is
extinguished as soon as the time expires or it becomes indubitable that the event will not take
place. If the condition however is negative the obligation becomes effective from the
moment the time or indicated has elapsed or it becomes evident that the event cannot
occur, 1185.
Where no date of fulfillment is stipulated the condition must be fulfilled within a reasonable
time or within the time probably contemplated according to the nature of the obligations. So,
as a recap on the rules of fulfillment depending on time, if the event happens within the period
fixed and the obligation is subject to a suspensive condition-- the obligation is effective. If it is
subject to a negative condition-- the obligation is extinguished. If on the other hand, the
obligation is subject to a resolutory condition and it is subject to a positive condition, if the
event happens within the period fixed the obligation is extinguished. If the event happens
within the period fixed and it is subject to a negative resolutory condition-- the obligation
subsists. If the time fix expires without the event happening or it becomes indubitable that the
condition will not take place if the obligation is subject to a suspensive condition-- the
obligation is extinguished. If the obligation however is subject to a negative condition-- the
obligation is effective. If the obligation is subject to a resolutory condition-- the obligation
subsists if the time fix expires without the event happening. If it is subject to a negative
resolutory condition and the time fix expires without the event happening-- the obligation is
extinguished.
Article 1186 states that the condition shall be deemed fulfilled when the obligor voluntarily
prevents its fulfillment. So, where the debtor or voluntary prevents the fulfillment of the
condition there is the constructive or presumed fulfillment of the obligation. The reason behind
this is that one must not profit by his own fault. So, where the debtor or voluntarily prevents the
fulfillment of the condition then the condition shall be deemed fulfilled.
Article 1187 provides the effects of a conditional obligation to give once the condition has
been fulfilled shall retroact to the day of the constitution of the obligation. Nevertheless, when
the fruits and interests during dependency of the condition shall be deemed to have been
mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits
and interests received unless from the nature and circumstances of the obligation, it should
be inferred that the intention of the person constituting the same was different. In obligations
to do and not to do the court shall determine in each case the retroactive effect of the
condition that has been complied with. So, article 1187 provides the effects of the fulfillment
of a suspensive condition. What is the effect? Upon the happening of the suspensive condition
the obligation becomes effective, but this retroacts as a general rule it retroacts to the day
the obligation was constituted there shall be no retroactivity only with respect to the fruits or
interests under 1187 no retroactive effect with respect to the fruits and interests.
In a unilateral obligation therefore, the debtor gets the fruits and interest unless there is a
contrary intent. Meaning that upon the happening of the condition the obligation is deemed
to be effective as of the time they entered into that obligation. But with respect to the fruits
and interests the debtor gets the fruits and interest unless there is a contrary intent if it is a
unilateral obligation.
If it is on the other hand a reciprocal obligation the fruits and interests during dependency of
the condition shall be deemed compensated for each. Fruits here refer to natural, industrial,
and to civil fruits.
Article 1189 provides that when the conditions have been imposed with the intention of
suspending the efficacy of an obligation to give. The following rules shall be observed in case
of the improvement, loss, or deterioration of the thing during the pendency of the condition.
So, this refers to an obligation to give in an obligation subject to a suspensive condition. Prior
to the happening of the condition the thing may be lost, the thing may improve by nature or
on its own, or the debtor may improve the thing.
The rules here is:
In an obligation subject to a suspensive condition or the obligation is to give a specific thing,
a determinate thing, and not a generic thing-- What are the rules if the thing is lost? If the thing
prior to the happening of the condition is loss and the thing is lost when it perishes, when it
goes out of commerce, or when it disappears in such a way that its existence is unknown or it
disappears in such a way that it cannot be recovered the thing now is considered as loss.
What happens now what is the rule if the thing is lost?
If the determinate thing to the to be delivered is lost without the fault of the debtor, the
obligation is extinguished. If however the thing is lost through the fault of the debtor, the debtor
shall be obliged to pay for the damages.
What if the thing prior to the happening of the suspensive condition deteriorates and the
deterioration may be by reason of the fault of the debtor through no fault of the debtor?
In this case if the deterioration of the determinate is without the fault of the debtor the
impairment is to be borne by the creditor. If the deterioration however is through the fault of
the debtor the creditor may choose either rescission with damages or fulfillment with
damages.
Another thing that can happen to the determinate thing now in an obligation subject to a
suspensive condition is that it may and it may improve by nature, by time or it is improved by
the debtor himself. The rule is that, if the thing is improved by nature or by time the
improvement benefits the creditor. Meaning the creditor takes the thing in its improved state
without need of any reimbursement or payment because it was improved by nature or by
time. If it is improved at the expense of the debtor, he shall have only the rights of a
usufructuary that is to remove the improvement without loss or damage to the principal thing
or set off its value against the damages cause. So, this is the rule under article 1189 in an
obligation to give a determinate thing subject to a suspensive condition.
Finally, Article 1190 states that when the conditions have for their purpose the extinguishment
of an obligation to give the parties upon the fulfillment of set conditions, shall return to each
other what they have received. In case of the loss deterioration or improvement of the thing
the provisions which with respect to the death or are laid down in the preceding article shall
be applied to the party who is bound to return. As for obligations to do and not to do, the
provisions of the second paragraph of article 1187 shall be observed as regards the effect of
the extinguishment of the obligation. So the effects when a resolutory condition is fulfilled it
provides that the obligation is extinguished, because the obligation is extinguished, and
considered to have had no effect the parties should restore to each other what they have
received the rules given in article 1189 will also apply to whoever has the duty to return in case
of the loss, deterioration, or improvement of the thing. The courts are given power to determine
the retroactivity of the fulfillment of the resolutory condition.

OBLICON 7

This lecture will focus solely on article 1191 which refers to a reciprocal obligation

What is a reciprocal obligation? It is an obligation where two parties are reciprocally obligated
to do or give something.

Example a contract of sale, the costs must be identical and the obligations of the parties
should arise simultaneously in reciprocal contracts or transactions. The obligation or promise
of each party is the cause or consideration for the obligation or promise of the other.

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with
the payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing
of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the
thing, in accordance with articles 1385 and 1388 and the mortgage law. (1124)

1191 refers only to a reciprocal obligation. In order for article 1191 to apply the following must
exist:
• It exists only in a reciprocal obligation
• It can be demanded only if the plaintiff is ready, willing and able to comply with his own
obligation and the other party is not, otherwise if neither is ready neither can ask for the
resolution of the obligation. The guilty party cannot ask for rescission this is based on deducting
that he who comes to equity must come with clean hands
• The right to rescind is not absolute meaning that trivial causes or slight breaches will not
cause rescission of the contract. The court may refuse the decision when there was merely a
short delay in the payment of the obligation of the other party. Rescission may be had only for
such breaches that are so substantial and fundamental as to defeat the object of the parties
in making the agreement. Take note that the right to rescind needs judicial approval in certain
cases but in others there is no need for such judicial approval. Judicial approval is needed
when there has already been delivery of the object unless there is a voluntary returning. This
was the ruling of the supreme court in the case of guevarra v. Pascual. Judicial approval is not
needed when there has been no delivery yet

The right to rescind is implied meaning it is presumed to exist and need not be expressly
stipulated upon by the parties; and the right to rescind may be waived expressly or impliedly
In a reciprocal obligation where the plaintiff is ready and willing to comply with his obligation
and the other party cannot or does not comply with his obligation the injured party may
choose the following remedies:
• He may choose between fulfillment meaning specific performance plus damages or
• Rescission plus damages

The right here is alternative. The right is not conjunctive that means the plaintiff cannot ask for
both fulfillment and rescission.

Injured party who has elected fulfillment may however if fulfillment be impossible still ask for
rescission provided that precision is otherwise proper. If an action is brought for specific
performance the damages sought must be asked in the same action otherwise the damages
are deemed waived.

Earlier we said that the rescission for the breach of this reciprocal obligation must be asked by
the injured party and it must be decreed by the court. However mere notice of rescission is
insufficient not conclusive on the rights of the parties

There are instances now okay where it did not be decreed by the court, for instance under
article 1533 or 1534 in the case of resale or rescission by an unpaid seller there is no need to
resort to a court action. 1533 provides where the goods are of perishable nature or the seller
expressly reserves the right of resale in case the buyer should make default or where the buyer
has been in default in the payment of the price for an unreasonable time, an unpaid seller
having a right of lien or having stopped the goods in transit may resell the goods he shall not
thereafter be liable to the original buyer upon the contract of sale or for any profit made by
such resale but may recover the buyer damages for any loss occasioned by the breach of
the contract of sale.

Article 1534 on the other hand provides an unpaid seller having the right of lien or having
stopped the goods in transit may rescind the transfer of title and resume the ownership in the
goods where he expressly reserved the right to do so in case the buyer should make default
over the buyer has been in default in the payment of the price for an unreasonable time. The
seller shall not thereafter be liable to the buyer upon the contract of sale but may recover
from the buyer damages for any loss location by the breach of the contract

There are also other special rules, article 1592 provides the demand for rescission must be
judicial or notarial.

Article 1592. In the sale of immovable property, even though it may have been stipulated that
upon failure to pay the price at the time agreed upon the rescission of the contract shall of
right take place, the vendee may pay, even after the expiration of the period, as long as no
demand for rescission of the contract has been made upon him either judicially or by a
notarial act. After the demand, the court may not grant him a new term. (1504a)

Earlier we stated that resolution is not granted or the rescission will not be granted for slight or
casual breach if or if there has been substantial performance the court shall decree the
rescission claimed unless there be just cause authorizing the fixing of a period for performing
the obligation so the court may deny the decision and grant the defendant a period of time
to perform his or her obligation.

1191 uses the term rescission however this rescission should be differentiated from that
provided for under article 1380. In fact, under 1191 although it uses the term rescission in
reciprocal obligations, the proper word really is resolution

1191 the proper term there should be resolution and not rescission. Rescission is that referred
to in article 1380, refers to the remedy of rescission. If we go to article 1380 it provides now
contracts validly agreed upon may be rescinded in the cases established by law article.

1381 now provides the rescissible contracts. So article 1381 enumerates the receivable
contracts and what are the receivable contracts?

Article 1381. The following contracts are rescissible:

(1) those which are entered into by guardians whenever the wards whom they represent suffer
lesion by more than one-fourth of the value of the things which are the object thereof;
(2) those agreed upon in representation of absentees, if the latter suffer the lesion stated in
the preceding number;
(3) those undertaken in fraud of creditors when the latter cannot in any other manner collect
the claims due them;
(4) those which refer to things under litigation if they have been entered into by the defendant
without the knowledge and approval of the litigants or of competent judicial authority;
(5) all other contracts specially declared by law to be subject to rescission. (1291a)

So article 1380 in relation to article 1381 refers to the remedy of rescission and it refers or
enumerates the rescissible contracts.

1191 on the other hand refers not to the remedy of rescission but to the remedy of resolution.
The proper term here is resolution where in a reciprocal obligation the party, one party is ready
and willing to comply with his obligation and the other party is unwilling or cannot comply with
his obligation, the injured party can go to court and ask for the resolution of the contract.

What are the difference or distinctions between the resolution under article 1191 and rescission
under article 1318. The following are the distinctions:

1191 1380
Refers to the remedy of resolution
Reason: mutuality or condition
What is mutuality here where the
parties agree to cancel their
obligation or their contract by
agreement of the parties they
mutually agree to cancel their
obligation or condition
What is the condition it is that
provided under 1191 where in a
reciprocal obligation one of the
parties is ready and willing to
comply with his obligation and the
other party cannot the injured party
can ask for the resolution of the
obligation so there is a condition
here that one party is ready and
willing but the other party cannot or
refuses to comply with his obligation
Remedy of rescission;
1381 enumerating the only recessible
contracts under the law
In rescission on the other hand
condition and in an obligation which
is rescissible pursuant to article 1380
the reason for the remedy of
rescission is the economic injury
caused to one of the parties or what
we call pecuniary injury
So under article 1381 in cases where
the ward suffers lesion by more than
one-fourth of the value of the things
which are the object thereof.
Paragraph 2 refers to agreements
entered into representation of
absentees and the absentee suffer
also lesion by more than one-fourth
of the value of the things subject of
that agreement, and then you have
paragraph 3 those contracts
entered into infraud of creditors
So all of these refer to a pecuniary
injury or an economic injury suffered
by the plaintiff he suffered by a party
Character of the remedy: primary
Under 1191 in reciprocal obligations
where one part is willing and ready
to comply with this obligation and
the other party cannot or is
unwilling, the injured party can
immediately go to court and ask for
the resolution of the contract or
obligation entered into
Under article 1191 the injured party
goes to court to ask for the
cancellation or properly called
resolution of the contra but the
court may refuse if the breach is not
substantial
Implied resolutions presupposes a
breach by one party. It implies a
breach by one party remember
under 1191 it says that where one
party is ready and willing and the
other party does not perform his
obligation there is a breach by one
party of his obligation
Character of the remedy: subsidiary
Under 1380 or your contracts that are
rescissible, it is merely a subsidiary
remedy meaning the creditor or the
injured party can file the action if
there are no other remedies
available to him, so it is merely
subsidiary
The court may refuse if the breach is
not substantial okay take note that
however under article 1380 if the
contract is a rescissible contract the
court cannot refuse to grant the
rescission provided it is one of the
contracts under article 1381 and all
the requisites are present
Article 1380 under rescissible
contract there is no breach required
a breach of the contract is not a
requisite to ask for the decision of the
contract
The plaintiff must be a party or a
successor of a party in the
agreement the plaintiff here must
be one of the parties to that
reciprocal obligation or the
successor of a party to the
agreement
Under rescissible contracts under
1381 the plaintiff may be a third
person example is under article 1381
paragraph 3 it provides those
undertaken in fraud of creditors
when the latter cannot in any other
manner collect the claims due them.
So the creditor here can ask for the
rescission of a contract entered into
by his debtor with a third person. He
is not privy or he is not a party to the
contract but the law grants him the
right of rescission. This however is not
available under article 1191
because 1191 provides that only the
injured party to the contract may file
an action for the resolution of the
obligation

Note: when we use the word rescission it refers to 1380 and 1381; 1191 the remedy is not
rescission but resolution or the cancellation of the contract.

OBLIGATIONS WITH A PERIOD

The period or term will be differentiated from what we discussed earlier which is a
condition. We will discuss:
The kinds of period as to its effects
Suspensive period or resolutory period
When is a period expressed and when is it implied
The definiteness or indefiniteness of the period
The source of the period
Rules in case of loss, deterioration, or improvement before the arrival of the period
Effect of payment in advance
Benefit of the period
For whose benefit is the period
When the debtor loses the right to make use of the period
Q: What is a period?
A: A period is a space of time which has an influence on an obligation as a result of a
juridical act and either suspends their demandability or produces their extinction. A period is
also defined as a certain length of time which determines the effectivity or the extinguishment
of obligations.
The period should be distinguished from a condition and the following are their
distinctions:
 1. With respect to their fulfilment - a condition is an uncertain event but a period is an
event which must happen sooner or later at a date known beforehand or a time which cannot
be determined. So condition is uncertain but a period is an event which is sure to happen,
although the parties may not know when it will happen.
2. With respect to time - a period always refers to the future, while a condition may
under the law, refer even to a past event.
3. As to the influence on the obligation - a condition causes an obligation to arise or to
cease but a period merely fixes the time or the efficaciousness of an obligation. A period may
have a suspensive or resolutory effect but in the former, it cannot prevent the birth of the
obligation in due time and in the latter it does not militate against its existence.
Q: What are the different kinds of terms or periods?
A: 1) i. Definite - there is an exact date or time which is known and given by the parties.
ii. Indefinite - something that will surely happen but the date of happening is unknown,
for instance the death of a person. The death of a person is certain although we may not know
or we do not know when the person is going to die.
2) i. legal - when a period is granted under the provisions of the law
ii. conventional or voluntary - if the period is agreed upon or stipulated by the parties
iii. judicial if the period or term is fixed by the courts for the performance of an obligation
or for its termination.
3) i. ex die - if a period is with a suspensive effect. The obligation begins only from a day
certain up or upon the arrival of the period.
ii. in diem - one is with a resolutory effect. Meaning, it is up to a certain time the
obligation remains valid but upon the arrival of the said period, the obligation terminates.
Example of a period ex die - A obligates to support B starting on the first day of 2022.
Here the obligation only becomes effective on the day stipulated on the arrival of the first day
of the year 2022.
In diem - A obligates to support B until January of 2022. Here the obligation of A to
support B is immediately demandable but will end only on January 1st of 2022 so it is an
obligation with a period in diem.

Q: What do we mean by a day certain?

A: 1193 provides, “obligations for whose fulfillment a day certain has been fixed shall be
demandable only when that day comes”. A day certain is understood to be that which must
necessarily come although it may not be known when.
Article 1194 states that in case of loss, deterioration or improvement of the thing before
the arrival of the day certain the rules in article 1191 shall be observed. So in case of loss,
deterioration or improvement the obligation subject to a resolutory period upon the arrival of
the period or prior to the arrival of the period, we follow the rules under 1189.
1195 - anything paid or delivered before the arrival of the period, the obligor being
unaware of the period or believing that the obligation has become due and demandable,
may be recovered with the fruits and interests .
So in case of payment in advance, if the obligor was unaware of the period or believes
erroneously that the obligation was already due and demandable, the thing paid or
delivered may be recalled recovered together with the fruits and interests. These fruits and
interests must however be re-delivered when the suspensive period or due date arrives.
Advanced payments, however, cannot be recovered:
1) If the debtor was not unaware of the period;
2) If the obligation is reciprocal and both sides made advance payment ;
 3) If the payment is only of interest credited to the proper month, in case of interest
bearing obligations. The creditor may reject payment in advance unless the period was for
the benefit of the debtor alone.
Q: When an obligation is subject to a period, for whose benefit is the period?
A: Article 11 1196 states, “when in an obligation a period is designated, it is presumed to
have been established for the benefit of both the creditor and the debtor, unless from the
tenor of the same or other circumstances it should appear that the period has been
established in favor of one or of the other. The general rule under this provision of the law 1196
is that the term is for the benefit of the debtor and the creditor meaning the debtor cannot
pay prematurely and the creditor cannot demand also prematurely. Prior to the arrival of the
period the creditor cannot demand payment because the period is constituted for the benefit
also of the debtor . The debtor also cannot make advance payment and insist that the
creditor receive it if the creditor does not wish to because there is a period and the constitution
of the period or an agreement with respect to the period is also for the benefit of the creditor.
XPT: When the term is for the benefit of the debtor alone. Here, he is required to pay
only at the end but he may but he may pay even before. If the obligation is with a period
constituted for the benefit only of the debtor, the debtor can pay prior to the arrival of the
period but the creditor cannot demand payment prior to other to the arrival of the period.
The the term can also be constituted for the benefit of the creditor alone if the term or
period has been constituted for the benefit of the creditor alone, then the creditor can
demand at any time even before the term expires and he cannot be compelled to accept
payment from the debtor prior to the stipulated period.
The circumstances where we can determine whether the period is for the benefit of
both parties - when there is interest stipulated. When there is interest agreed upon by the
parties, the period or the term is deemed to be for the benefit of both the debtor and the
creditor. The reason here is that the creditor is interested in the term because of the interest
that would be earned while the debtor is interested also in the term because he is given
enough time to pay (Sarmiento v. Villasenor).
When the creditor is interested in keeping his money safely invested, or when the
creditor wants to protect himself from the dangers of currency depreciation then the
agreement to a term or period is for the benefit also of the creditor. The term or period is
deemed for the benefit of the debtor when the loan is without interest or when the payment
is to be made within a certain period from the date of the contract, then the period is deemed
for the benefit solely of the debtor.
The period or the term is for the benefit solely of the creditor usually exists if there is a
stipulation to this effect, as when the contract provides that no payment should be made till
after a certain given period then by this stipulation, the period is deemed for the benefit only
of the creditor.
1197 - If the obligation does not fix a period but from its nature and the circumstances
it can be inferred that the period was intended, the courts may fix the duration thereof. The
court shall also fix the duration of the period when it depends upon the will of the debtor. In
every case the court shall determine such period as may under the circumstances have been
probably contemplated by the parties. Once fixed by the courts the period cannot be
changed by them.
Q: When can the court fix a period?
A: The court can fix the period when the duration depends upon the will of the debtor.
For instance, pursuant to Article 1180 where the debtor provides that he will comply with his
obligation when his means permits him to do so or he will pay little by little, or as soon as possible
or the debtor says he will pay when he has money .In these cases is now, the performance of
the obligation by the debtor is solely dependent upon him. But pursuant to 1180, the court
may fix a period. The creditor must go to court and ask the court to fix the period.
Another instance when the court may fix a period is when although the obligation does
not fix a period, it can be inferred that a period was intended by the parties. Example in a
contract to construct a house where the parties did not provide a period or it was not stated,
then the parties can go to court to ask the court to fix a period because it can be inferred that
a period was intended.
The court may not fix the period or the term when no term was specified by the parties
because no term was even intended. In which case, the obligation is really a pure one and is
demandable at once. So the court should not fix a period. When the obligation or not is
payable on demand the court may not fix the term within which the obligation should be
complied with or when specific periods are provided for by law for ins for instance
employment contracts. Where no period was agreed upon, the time of employment
depends upon the time for payment of the salary. So the court is not called upon to fix the
period.
1198 is very important. 1198 provides that the debtor shall lose every right to make use
of the period under the following instances:
1) When after the obligation has been contracted he becomes insolvent, unless he gives
a guarantee or security for the debt. For instance A owes B 1 million pesos due and
demandable on December 1st 2022. It is only

January 2021. If on April 2021 the debtor becomes insolvent, the creditor can demand the
fulfillment of the obligation immediately because the debtor here has lost the benefit of the
period. The insolvency referred to under 1198 does not have to be judicially declared, it is
sufficient that the debtor is having a hard time paying off his obligations because of financial
reverses that have made his assets less than his liabilities.
2) When the debtor does not furnish to the creditor the guarantees or securities which
he has promised. The debtor loses the right to the period and the creditor can demand the
fulfillment of the obligation immediately or even prior to the arrival of the period.
3) When by his own acts the debtor has impaired said guarantees or securities after their
establishment and when through a fortuitous event, they disappear unless he immediately
gives new ones equally satisfactory.
4) When the debtor violates any undertaking in consideration of which the creditor
agreed to the period
5) When the debtor attempts to abscond.
Under all of these instances or any of these instances the debtor loses the right to the
period and the obligation becomes immediately demandable the creditor can demand the
fulfillment of the obligation without waiting for the arrival of the term or of the period.

ALTERNATIVE OBLIGATIONS

Three kinds of obligation when it comes to depression:

1. Simple obligation
- there is only one prestation that is due that must be given or performed in order for there to
be the fulfillment of the obligation.
A obligates to give to B a car, a house, one million pesos and to teach him how to dance the
Zumba. So in order for there to be complete performance of the obligation all four prestations
must be delivered and performed.

2. Conjunctive obligation
- there are several prestation’s that are due.

3. Alternative obligation
- there are several prestations but not all these prestations are due meaning that the
prestations is temporarily undetermined. A choice has to be made here.

The problem in an alternative obligation is to make that alternative obligation into a simple
obligation. So in an alternative obligation, there are several prestations but they are not all
due.
Example: A obligates to give a car ,one million pesos, a parcel of land that is also valued at
one million pesos, or to teach A here to dance the Zumba. So it is alternative. It is disjunctive
now. The debtor is not obligated to give all of this. The problem in alternative is to make it a
simple obligation because only one thing is due in an alternative obligation. So a choice must
be made which among this prestation is going to be delivered.
who makes the choice in cases of an alternative obligation?
- the choice here will be made by the debtor.
In an alternative obligation, it is the debtor who has the right to make the choice among
depreciation that are alternatively due. The debtor chooses which one is going to be given.
Can the creditor also make the choice?
- Yes the creditor is also given the right to make the choice but for the creditor to make the
choice he must be expressly agreed upon that it is the creditor who will make the choice
among depression that are alternatively due. if nothing is stated. It is the debtor who makes
the choice. The creditor is only given the right if it is expressly granted or agreed upon by the
parties.
who else can make the choice among the prestations that are alternatively do?
It can also be a third person. Even a third person can be the one to make the choice but in
order again for a third person to be the one to make the choice in an alternative obligation it
must be expressly agreed upon by the parties.

If nothing is stated, it is the debtor who must choose. If the creditor is to choose, it must be
expressly agreed upon. If a third person will make the choice, it must be also expressly agreed
upon by the parties.
So let us say now that it is the debtor is to make the choice now. How is the choice made it ?
1. The debtor expressly makes the choice.
How does he expressly make the choice?
- by communicating which of those that are alternatively due he has chosen to give to the
creditor .

If the obligation of the debtor is to give 1 million pesos or a house and not also worth one
million pesos or a parcel of land which is also valued at one million pesos. He now makes the
choice expressly and tells the creditor ‘’I will give to you the one million pesos’’. So expressly
he makes the choice expressly.
2. Impliedly
 when is it impliedly?
-The choices impliedly made when out of several that are due only one is possible to be given.
Let us say, what is to be given is a, b, c ,or d and they're all determinate. objects but all of
them are destroyed except for the last one and therefore since all are destroyed then the
choice now here is left to the one to the last one that was not destroyed whether it is destroyed
by the debtor intentionally or not. He has made his choice where there is only one left and
that is the one that is supposed to be delivered.

3. Constructive
How can there be constructive choice?
In case of where the choice belongs to the creditor. Where the choice belongs to the creditor,
the debtor here cannot deliver any of the thing alternatively do until the creditor makes his
choice.

Let us say that the debtor gives object c even without creditor making yet any choice and
when he delivers it to the creditor, the creditor accepts it and does not make any objection.
Therefore, there is already a constructive exercise of the choice made by the creditor.

So a choice can be made expressly, impliedly or constructively.

What is the limitation when it comes to making the choice?

The limitations is one that which is provided under 1199. What does article 1199, paragraph 2
provides?
1. the creditor cannot be compelled to receive part of one and part of the other
undertaking. (Art. 1199, par. 2)
let us the creditor cannot be compelled to accept part of one and part of another
undertaking . let us say in our example the things that are alternatively do is let's say 100 million
pesos or 50 sacks of grade a rice that is in the bodega of the debtor or another thing. The
debtor now has the right to choose and he chooses instead to give instead of one million
pesos he gives 500 000 pesos, and half of the cavans of rice. The creditor cannot be
compelled to receive part of one and part of the other.
2. The debtor cannot choose any of the prestation that are illegal and lawful or that we're
not the object of the obligation entered into. So any prestation that is impossible. Any
prestation that is illegal. Any prestation that was not the object of the obligation.

The debtor cannot choose that goes the same way for the creditor if it is the creditor who has
the right to make the choice. He can only choose that those that are possible legal and the
object of the obligation.

If the debtor or even the creditor has the right to make the choice, when does the choice
become effective?
-It becomes effective or it produces its attack only from the time that it is communicated
to the other party. Pursuant to article 1201, the choice shall produce no effect except from
the time it has been communicated. So if the person or the party who has the right to make
the choice is the debtor, his choice will produce an effect only from the time that he
communicates it to the creditor. When he tells the creditor that, ‘’i will deliver to you the 1
million pesos’’.
 If it is the creditor has the right to make the choice it is the same. The choice becomes
irrevocable only and it is converted into a simple obligation only upon its communication to
the other party. Once there is communication to the other party, it becomes irrevocable. The
choice has been made it can no longer be changed. In article 1201, the choice shall
produce no effect except from the time it has been communicated.
What happens prior to making the choice?
- Something can happen to the things that are alternatively do. let us say, he is supposed
to deliver a car, a specific car or a house and lot . All of these are determinate or specific
objects, house and lot or a parcel of land located in Baguio City. So he has several prestations
which are alternative. Let's say that the person who will exercise the right to choose is the
debtor. The debtor now here prior to making his choice destroys the car. So if he destroys the
car can he be held liable by the creditor? He cannot be held liable by the creditor because
he is the one who has the right to choose so he can still choose the house and lot or the parcel
of land now. He can destroy all of it for as long as he leaves one.

let us say he destroys the car , he destroys the house and lot and what is only left is the parcel
of land. Can he be held liable? He will not be held liable because it simply means that he has
so chosen to give the parcel of land here. However if let us say prior to making his choice all
of the things are destroyed. All the things that are determinate in this alternative obligation are
destroyed through a fortuitous event then the obligation is extinguished. Your debtor does not
is not held liable okay. Where all the things are destroyed for which event through no fault of
the debtor the obligation is distinguished. if the debtor now destroys everything but leaves
one, he will not be held liable. His obligation is already converted into a simple obligation and
he will merely deliver that which is left among those that are alternatively do

what about if it is now the creditor who has the right to make the choice?
If it is the creditor who has the right to make the choice ,prior to making the choice now let us
say that the car is destroyed through a fortuitous event so he cannot choose that anymore,
he has to choose between those that are existing, but if the car is destroyed by the debtor
through fault of the debtor now the right of the creditor here is to choose whatever is left. The
house and lot or the parcel of land or the value of the car plus damages. This is to punish the
debtor for destroying that car.
Where it is the creditor who has the right to make the choice and one of the things that is
alternatively do is destroyed by reason of the fault of the debtor, the creditor can choose any
of that which is left or the value of what was destroyed by the debtor to the fault or negligence
of the debtor plus damages.
If everything is destroyed to the fault of the debtor your creditor can still choose any of the
thing that was due the value of any of that of the prestations that will that are were
alternatively due plus damages. The creditor now here will choose the value of any that was
destroyed plus with damages.
This is the alternative obligation it is to make it into a simple obligation by choosing one okay
it becomes now a simple obligation.

the next thing that is important to note now here when it comes to an alternative obligation is
that provided under article 1206 okay what is 1206 . It refers to what we call a facultative
obligation.

Facultative obligation
When only one prestation has been agreed upon but the obligor may render another in
substitution the obligation is called a faculty obligation. There is only one prestation that is
due. The agreement is for the debtor to deliver or perform only one act that was agreed upon
or to deliver what was agreed upon.
Let us say the debtor is supposed to deliver 1.5 million pesos, that is what was agreed upon
but the debtor here reserves the right to give a substitute instead, that he will give a parcel of
land that is valued also at 1.5 million pesos. Unlike in an alternative obligation at the start of
the obligation there are several prestations but not all of those are due The debtor will choose
which he will deliver.
In facultative, there is only one prestation that was agreed upon to be performed or to be
delivered. The debtor however reserves the right to give a substitute. So in a facultative
obligation, even if the debtor reserve the right to give a substitute and he destroys that
substitute, he cannot be held liable because the obligation really is to give that which was
agreed upon, so he can destroy the substitute and he will not be held liable.
However, if he has communicated that he will give the substitute instead and the substitute
thing to be delivered is destroyed through the fault of the debtor that is the time that the
debtor becomes liable only when he now informs the creditor that he will give the substitute
instead will he become liable but prior to that if he has not chosen to give the substitute even
if he destroys this substitute thing he cannot be held liable.
Note that if the thing the principal thing to be delivered in this facultative obligation is illegal
or immoral, even if the substitute is legal, even if the substitute is let us say possible and not
impossible, the creditor cannot compel the debtor to give the substitute instead because it is
merely a substitute if the principle is void, the substitute would also cannot have any standing.
He cannot be made to deliver the substitute now.

Distinctions between alternative obligation and a faculty obligation:

1. In alternative obligation, there are several prestations to choose from. In a facultative

obligation, there is only one prestation.
2. In an alternative obligation the loss of one alternative prestation due to the debtor's
fault renders him liable if the choice is by the creditor. In an alternative obligation, if it is the
creditor who has the right of choice and there is the loss of one of the prestigations due to the
fault fault of the debtor, the debtor is liable but, in a facultative obligation the loss of the
substitute due to the debtor's fault does not render him liable for damages if he has not made
the choice to give the substitute instead.
3. In an alternative obligation, the right to make the choice belongs to the debtor but it
may be granted to the creditor by express agreement of the parties or even to a third person
but in a facultative obligation the right to make the choice now whether to give the principal
or the substitute pertains only in favor of the debtor. It can never be granted in favor of the
creditor otherwise that would not be considered as a faculty obligation
Distinction between alternative obligation and Dacion en Pago:
1. In a facultative obligation, there is only one prestation that is due. In the dacion en pago
there is also only one prestation that is due. However, in a facultative obligation the debtor
reserves the right to give a substitute at the time of the constitution of the obligation the debtor
already researched the right to give a substitute. Here the debtor is obligated to give 1.5 million
pesos that is the principal obligation but the debtor reserves the right to give a parcel of land
worth 1.5 million pesos if he decides s to give instead this substitute now but in the dacion en
pago there is no reservation. The debtor is supposed to give now let's say 1.5 million pesos to
pay 1.5 million pesos, there is no reservation;

2. In a facultative obligation, the debtor here does not need the consent of the creditor,
if he chooses to give this substitute instead. In a facultative obligation, should the debtor
choose to give the substitute instead of the principal he does not need to secure the consent
of the creditor all he has to do is give this substitute but in dacion and pago the creditor needs
to secure the consent of the creditor unless the creditor consents, the debtor cannot give a
thing different from that which was agreed upon.

So remember the distinctions between an alternative obligation from a facultative obligation.

Dacion en pago from alternative obligations.
Let's go to the next kind of obligation. The next kind of obligation here refers now to the
relationship of the parties either with respect to the relationship of the parties. You can either
have a joint obligation or a solidary obligation.
When is an obligation considered as a joint obligation and when is an obligation a solidary
obligation?

In a joint obligation or a solidary obligation there are several debtors or several creditors. So
here, there is the concurrence of two or more debtors or two or more creditors whether it is a
joint obligation or a solidary obligation. There is the concurrence of two or more debtors or two
or more creditors. So you have on the side of the debtor you can have debtor one ,debtor
two, or debtor three. On the side of the creditor, you can have creditor one, two, and three.
Or you can have one debtor and three creditors or you can have three creditors and one or
you can have three debtors three creditors. There is what we call the concurrence of several
debtors or several creditors or several debtors and several creditors. If there is no statement in
the obligation the presumption is that an obligation is joined. The concurrence of two or more
debtors or two or more creditors in one and the same obligation will not make it a solidary
obligation. It will be presumed to be a joint obligation. The only time that an obligation is
considered a solidary obligation is if there is an agreement between the parties. if by
agreement of the parties the parties are solidarily bound. In cases where the law itself provides
solidarity and because of the nature of the obligation, it is a solidary obligation without that it
is only a joint obligation.
Why is it only a joint obligation?
It is because you will see later that when it comes to a joint obligation, there is no
representation unlike in a solidary obligation there is representation. Likewise in a solidary
obligation, on the part of the debtors, there is what we call aggravated liability.
In a solidary obligation on the side of the debtors where there are several solidarity debtors.
there is aggravated liability but if it is merely a joint obligation, there is no representation and
there is no aggravated liability.
Solidarity obligation takes place only if there is an agreement by the parties, if the law expressly
provides for solidarity liability, or if the nature of the obligation provides provides for solidarity
liability now
So what are the rules when it comes to joint obligation and that is what we will discuss
tomorrow.

JOINT & SOLIDARY OBLIGATIONS

The Joint and Solidarity obligations starts under Article 1207 of the Civil Code.

Q: What do we mean by a joint obligation or a solidary obligation?

This refers to the relationship of the parties in that obligation. Meaning, that there are either several
debtors or several creditors in that obligation. You can have one debtor and several creditors, or you
can have several debtors and one creditor, or you can have several debtors and several creditors. So
if there are several creditors, you have what we call an active obligation okay. An active joint or solidarity
obligation. Passive would refer to the debtors here so there are several passive debtors you have in a
solidary obligation what is the relationship to one another. It is mixed when you have several debtors
and several creditors in that obligation.

Q: Where there are several debtors and several creditors, what is their relationship to one
another?

Article 1207 now provides that, the concurrence of two or more creditors or of two or more debtors, in
one and the same obligation does not imply that, each one of the former has a right to demand or that
each one of the latter is bound to render entire compliance with the prestation. Meaning that despite
the presence of several debtors, or several creditors in one and the same obligation, the obligation is
not considered as a solidary obligation. The general rule is that it is only a joint obligation okay. Solidarity
obligation takes place only when the parties agree to a solidary obligation. So if there is the stipulation
of the parties case so solidarity obligations only in cases of an agreement by the parties.

In cases where there are several debtors or several creditors, the obligation is merely a joint obligation.
There can only be solidarity obligation if it is by agreement of the parties, by stipulation of the parties.
There can only be a solidary obligation if the law provides for solidarity obligation and the third instance
when the obligation is a solidary obligation is if by the nature of the obligation it has to be a solidary
obligation.

Q: With respect to the law, what are the instances where the law provides for a solidary
obligation?

In cases where you have joint tortfeasors, where there are several tortfeasors the liability is a solidary
liability. In cases of quasi contracts, it is a solidarity liability. Where there are several bailees in a
commodatum, the liability of the bailees is solidary. In a criminal case, where there are several
principals, their liability is solidary in that same crime. Now if you have several accomplices, the liability
of these accomplices are solidary and also where there are several accessories their liability is likewise
solidary. So, unless the parties agree, unless the law so provides or unless the nature of the law
obligation requires solidary, the obligation of the parties are merely a joint liability. Why is it that the
general rule is that where there is a concurrence of two or more debtors or two or more creditors the
liability is only a joint liability? This is because in cases of a solidary obligation on the part of your
creditors, we have what we call mutual representation or mutual confidence here. Where there are
several creditors who agree to be solidarily bound, there is mutual agency, there is mutual
representation, there is mutual confidence on the part of the debtors, you have a mutual guarantee or
aggravated liability. But in a joint obligation, there is no mutual representation, there is no mutual
guarantee and neither is there any aggravated liability with respect now to the debtors.

So let's discuss first joint obligations. In cases of joint obligation, where we have a joint obligation what
does the law provide now? In joint obligation, it provides that the debt is divided equally into as many
debtors as there are and into as many creditors as there are now.

So let us say here that you have A, B and C (debtors) and you have X, Y and Z (creditors).

In this obligation, A, B and C (debtors) borrowed the amount of 3 million pesos with a promissory note
which provides “We A, B and C promise to pay X, Y, and Z the amount of 3 million pesos.

Q: What is the liability or what is the relationship of A, B and C with respect to X, Y and Z?

The liability is merely a joint obligation or joint liability. It cannot be a solidary obligation because there
is no express agreement that they will be solidarily bound, and the law says that the presence or
concurrence of two or more debtors or two or more creditors and in one and the same obligation does
not make it a solidary obligation unless there is the stipulation by the parties, unless the law provides
or unless the nature of the obligation requires solidarity. So, here the only statement in that agreement
between the parties is that “We A, B and C promise to pay X, Y and Z the amount of three million
pesos”. So, their obligation is merely a joint obligation okay.

Q: What does it mean now then when the law says here that unless the parties so agree?

So when when can we say that they have agreed to a solidary obligation or merely a joint
obligation?

If the promissory note or the agreement between the parties is worded in the way, in the example I
gave you “We A, B and C promise to pay X, Y and Z three million pesos” that is merely a joint obligation.
However, if it is worded in the following manner “I promised to pay three million pesos to X, Y and Z”
signed A, B, and C, what is the liability of A, B and C or what is the relationship of A, B, and C to X, Y
and Z? It is a solidary obligation because of the use of that word “I” and then signed by A, B and C. It
is a solidary obligation. meaning now that in order to be solidarily bound, the parties do not have to use
the word solidary liability okay. What words then, can show that they have agreed to be solidarily
bound?

If they use the words joint and severally, joint and severely means a solidary liability. In solidum, mon
como nada solidaria juntos o separadamente, individually and collectively, it will pay the whole value.
All of this means that they have agreed to be bound solidarily, jointly and severally in solidum,
individually and collectively, means a solidary obligation.

But if the parties now use the words ``We promise to pay X, Y and Z and they sign it, that is a joint
obligation. Mancomunado proportionate pro rata means it is merely a joint obligation okay.

So let's say it is a joint obligation now that they have entered into what we have now A, B and C who
are your passive parties in this obligation, X, Y, and Z, they are your creditors the active subject now.
3 million pesos.

The law provides that the credit or the debt is divided into as many creditors as there are and into as
many debtors as there are now. And each debt or each credit is distinct from one another. Article 1208
now provides the rule when it comes to a joint obligation, divide the debt into as many debtors as there
are or into as many credits as there are and the law specifically provides that these credits or debts are
distinct from one another.

Q: Now so what does it mean when they are distinct from one another?

Let us say that in this joint obligation X now makes a demand on A for the payment of the obligation. If
X makes a demand on A for the payment of the obligation, how much is a liable for? Is A liable to pay
the entire 3 million pesos? The law provides divided debt into as many debtors as there are, so the
debt should be divided into three. So A is only liable for his proportionate share of one million pesos.
Divide the credit into as many creditors as there are, and each one is only entitled to that portion. So in
this case, X here is only entitled to 1 million pesos, Y is only entitled to 1 million and Z is only entitled
to 1 million. A is liable only in this joint obligation for how much? only 1 million pesos. B here is only
liable for one million and C is also only liable for one million pesos. Divided into as many debtors and
as many creditors as there are now okay.

Q: When X makes a demand on A for the payment of his proportionate share of three million
pesos, there is now what we call an extrajudicial demand and what is the effect when there is
an extrajudicial demand of the payment?

A demand whether judicial or extrajudicial puts the debtor in default. Okay so your debtor now is
considered as in default, so where the debtor is in default, it also now stops the running of the
prescriptive period. Okay, it stops the running of the period. Now here, so where A, B and C, X, Y and
Z.

If X demands from A for the payment of his proportionate share, A is now in default or in mora. It also
stops the running of the prescriptive period.

If 10 years or 20 years has lapsed since the time that X now demands from A the payment of his
share and no demand is made on B and C, can B and C still pay for their liability?

For their proportionate share, no because a demand on A in a joint obligation is not a demand on B
neither is it a demand on C. So the failure to make a separate demand on B and C will not put B and C
in default or in mora. And neither will it stop the running of the prescriptive period with respect to B and
C. Because pursuant to 1208, it says that they are distinct from one another okay . They are distinct
from one another.

In a joint obligation it is to each his own, in a solidary obligation it is one for all, all for one. So when we
say joint obligation to each his own, so what happens to A cannot affect B or C. A demand made on A
is not a demand on B and C. A demand on A only puts A in default but does not put B and C in default
okay. A demand on A will not stop the running of the prescriptive period with respect to B and C but
only with respect to A now okay. Since X now demands on A, his payment of the obligation, he can
only get from him one million pesos. If he does not pay, he cannot demand it from B and C here.

Let us say now that this is an obligation to deliver a determinate thing, a specific thing.

Let's say it is to get a car. A, B, and C are obligated to give to X, Y and Z a car which is worth one
million pesos. This is what we call the prestation here is indivisible. But since the agreement of A, B
and C here does not provide that they are solidarily liable, it is still a joint obligation. So in this case
what you have here is an indivisible but joint obligation okay. An indivisible but a joint obligation. In
order for A, B and C to comply with their obligation, X Y and Z, since there are several creditors here,
X, Y and Z should act collectively. Meaning that X, Y and Z must demand from A, B, and C the
performance of their obligation to deliver this indivisible thing. X alone cannot demand from A the
fulfillment of this obligation, because A here is only liable for his proportionate share. Even if what is to
be delivered is an indivisible thing, their obligation is still joined so A is still liable only for his
proportionate share. So X, Y and Z must act collectively since the relationship is a joint obligation and
all of them may demand not only from A not only from A and B but from all the joint debtors the fulfillment
of this individual indivisible joint obligation.

Q: What happens now if, let us say A and B are ready and willing to comply with their obligation
but C here cannot comply with this obligation.?

Meaning that A, B and C have the money the proportionate share the amount in order to buy this
specific car that they promised to give X, Y and Z.

What will happen in this case?

Since A and B are ready and willing to comply with their obligation, but C here cannot or is unwilling to
comply with their obligation, there is a breach of the obligation. What will happen now is this indivisible
joint obligation now becomes an obligation for indemnity. An obligation for indemnity meaning that since
they cannot anymore deliver that car, that the that specific car here to X, Y and Z, the value of the car
is one million pesos is what is going to be delivered to X, Y and Z here. But since there's a breach of
the obligation, there is also the right to damages. So X, Y and Z are also entitled to the value of the car
plus damages.

Q: Who now will pay for the damages?

In a joint obligation where it is also an indivisible obligation, the debtor or the joint debtor who is or who
was unwilling or unable to perform his obligation is always the one only liable to pay for the damages.
So A here is liable to pay only his proportionate share of the value of that car. B is only liable to pay his
proportionate share of that car. C here is liable to pay his proportionate share plus damages. A and B
cannot be held liable to pay for the damages since it is not their fault that they could not deliver that car
now. With respect to X, Y and Z since it is still a joint obligation, they will now be entitled also only to
their proportionate share. So that is your joint obligation.

Q: What about in cases of a solidary obligation?

What happens if the obligation is a solidary obligation? in a solidary obligation you have mutual agency
with respect to the creditors. In a solidary obligation, you have here where the creditors enjoying mutual
agency, the creditors here enjoy mutual confidence.On the part of the debtors where they are solidarily
bound also, there is what we call mutual guarantee. Each guarantees the fulfillment of the obligation,
not only with respect to his proportionate share but he guarantees the fulfillment of the entire obligation.

Q: On the side of your creditors mutual agencies, what do we mean by mutual agency?

This means that in mutual agency, any of the creditor can demand performance of the obligation. Can
demand the performance of the entire obligation. So if A, B, and C are your solidarity debtors and you
have X, Y and Z who are your solidarity creditors, any of the solidarity creditors here can make a
demand on any of the solidary debtors. So X here can demand from A, he can demand from A and B,
he can demand from C. Y here can also make the demand to offer with any of the solidarity debtors
now. That is the mutual representation. Each one asks for the other and in behalf of the other creditors
here. Mutual agency, mutual representation and there's also mutual confidence.

But because there is mutual confidence here, the Civil Code provides that a solidarity creditor cannot
assign his right in the solidarity obligation without the consent of the other solidarity creditors.
If X now wants to assign his right in favor of M, he cannot do that without seeking the consent of Y and
Z.

Q: Why is it?

Because of that mutual confidence between solidarity creditors now. Does that mean that if X here
assign his right in favor of M and he did not ask permission from Y and Z, the assignment is void? That
is not what it means, because that is a right that still can be transmitted. X can assign his right in favor
of another person, but when he does not secure the consent of the other solidarity creditors in this case,
he is liable to them okay. He becomes liable to Y and Z. He's also liable to them if let's say, M here now
who enters into this obligation, demands from A the entire obligation and runs away with that money
now. X is subsidiarily liable to Y and Z, because he now assigned his right in the solidarity obligation
without securing the consent of Y and Z okay.

Another reason why in cases of a solidary obligation and it is solidary on the part of the creditor is this
mutual confidence. It is shown in the fact that the law provides none of your solidary creditors can do
anything that is prejudicial to the other solidary creditors now. The law prohibits now, it says none of
the solidarity creditors should do anything that is prejudicial to the other solidarity creditors. So it
prohibits, says that you cannot assign unless you secure the consent of the other solidarity creditors. If
you do that, you become liable should the solidarity creditors suffer or are injured by reason of the
assignment.

However, let's say that X now here in the solidary obligation is also indebted to A, okay the obligation
of A, B and C to X, Y and Z is for the amount of 1.5 million pesos. So any of them A, B and C can be
made to pay the 1.5 million pesos. But in this obligation, X here also owes A 1.5 million pesos based
on another obligation. So what happens here or what transpires in this case, the obligation of A to X
and the obligation of X to A in the amount of 1.5 million pesos is deemed mutually compensated. So
both obligations are extinguished. So both obligations are completely extinguished. But you will notice
here that compensation that took place is considered as prejudicial to the other solidarity creditors. So
can there be this compensation? Can the compensation take place? Yes. Compensation can still take
place because in fact under compensation it provides for as long as all the requisites for compensation
are present, it is automatically extinguished even without the parties knowing it now. However if you
will go to article 1215 of the Civil Code, it says novation, compensation, confusion, or remission of the
debt made by one of the solidary creditors or with any of the solidary debtors shall extinguish the
obligation but without prejudice to the provisions of Article 1219 okay.

Now 1212 on the other hand states each one of the solidarity creditors may do whatever may be useful
to the others but not anything which may be prejudicial to the latter.

Q:Will there now be an inconsistency between 1212 and 1215?

Because when novation takes place where compensation, confusion, or remission takes place, that is
considered as prejudicial to the other creditors. In a solidary obligation, the creditors now here can do
anything that is beneficial to the other called creditors.

What is a beneficial act now?

Okay where a solidary creditor makes a demand on a solidary debtor, that is beneficial to the other
solidary creditors.

Why?
Because a demand on one solidarity debtor is already a demand on all the solidary debtors. A demand
on one puts all the other solidary debtors in default. Even without any demand being made on B and
C. So that act of X in making a demand on A is beneficial to X, Y and Z based on mutual agency, based
on mutual confidence.

1212 however says but you cannot do anything which is prejudicial to the latter. Let us say here X now
here condones or remits the entire obligation in favor of A. By condoning, by remitting, by nominating,
or by compensation those acts are prejudicial to the other solidarity creditors.

Q: So is the act now of remission, confusion, compensation, valid despite the fact that it is
prejudicial to the other solidary creditors?

It is still considered as valid with respect to the creditor. The act of novation, the act of remission,
compensation is considered as valid. So X here where he remitted the entire obligation, he goes to A
and says “I remit the entire obligation”.

Q: Is the remission valid?

Yes. It is a valid remission and therefore the obligation of A, B and C is extinguished this solidary
obligation is extinguished. But that act of remission made by X is prejudicial to Y and Z. What will
happen now with respect to Y and Z? X remains liable, the remission is valid but he has now to answer
for the share of Y and Z. He has to pay Y and Z their proportionate share. So in our very first example,
where A is liable to pay 1.5 million pesos to X by reason of the solidary obligation, but X also owes A
in another obligation 1.5 million pesos. By virtue of compensation, the obligations are automatically
extinguished. Since they are extinguished now, what happens now to the right of Y and Z? X now will
have to give Y and Z their proportionate share in this application. So even if the act of remission,
compensation, novation or condemnation are prejudicial acts with respect to the debtors, they are valid.
The creditor who made that remission the creditor, who made that novation, the creditor who made the
condemnation, will have to answer with the other solidary creditors now. So that is how we reconcile
1212 and 1215 and that explains the mutual agency, mutual confidence with respect to solidarity
creditors.

On the part of your debtor in a solidary obligation where you have several debtors and they have agreed
to be solidarily bound by agreement, they have agreed to be solidarily bound. On their part there is
what we have what we call mutual guarantee a mutual guarantee.

Why mutual guarantee? How to explain mutual guarantee here?

There is mutual guarantee because the obligation can be paid in full by any of the debtors here. X can
demand from a the fulfillment of the entire obligation. A cannot put up the defense that since there are
three of them in this obligation, he will be only liable for his proportionate share. That is only in a joint
obligation, in a solidary obligation, each solidary debtor is liable to fulfill the entire obligation. So that
guarantees the payment of the entire obligation, the fulfillment of the obligation. Mutual guarantee. X
can go after A. If A doesn't pay, X can go after B, X can go after C. If b only paid half, X can still go after
A or C for as long as the obligation has not yet been complied with.

Aggravated liability on the part of your debtors

Why aggravated liability?

Because a demand on one is a demand on all. If X makes a demand on A, B cannot say “I am not in
default because no demand was made on me”. In a solidary obligation, there is aggravated liability. A
demand on one is a demand and all. It puts all in default or in mora, a demand on A stops the running
of the prescriptive period not with respect only to A, but also with respect to B, and with respect to C. It
is aggravated liability because each of your solidarity debtors is liable to the fulfillment of the entire
obligation. So X now can demand from a the fulfillment of the entire obligation. A cannot say “I will only
pay my proportionate share” okay.

X makes a demand on A. If X makes a demand on A, can A pay instead Y? Say he “doesn't like the
face of X so he says i'll pay instead to Y, anyway this is a solidarity obligation” can he do that?

The law is very express and it is very clear when it says payment by in a solidary obligation should be
made to the demanding creditor. Payment should be made to the demanding creditor. So if X made
the demand on A, A should pay X and not pay the other solidary creditors who did not make the demand
now. Payment now here can be made by A, B, or C, and if it is not paid by A, X can go after B, X can
go after C in the solidary obligation.

Q: So what happens also if x makes a demand on a for the payment of 1.5 million pesos? What
are the defenses that A can raise?

Definitely, he cannot raise the defense that he is liable only for his proportionate share. But the law
allows him also other defenses where he is made to pay, where one solidary debtor is made to pay.

What are those defenses?

1) The defense with respect to the obligation itself okay. Because of the nature of the obligation. Let us
say that the obligation is illegal delivery of shabu, he can put up the defense of the illegality if a demand
is made on A. A’s defense in order not to comply with the obligation is that the by the nature of the
obligation itself or let us say that the obligation is already prescribed, it has already been 20 years. That
is only when one of your solidarity debt or creditors makes a demand. So A can set up the defense of
prescription.

What else can he set up he can set up a defense that is personal to him. Okay, a defense that is
personal to him. What is a defense that is personal to him?

2) Now let us say that at the time he entered into this obligation,

3) he was a minor or his consent was secured through fraud, intimidation or violence now okay.

So those are defenses that are personal to him and he can set that up against the creditor who demands
fulfillment from him, and with respect to this it is a total defense. Meaning, he cannot be made to fulfill
the obligation if it is a personal defense. Now, if there was vitiated consent on his part, if let us say he
was a minor at the time the obligation was entered into. Another defense that asolidary debtor can set
up, if a demand is made upon him to fulfill the obligation is also a defense that is personal to the other
solidary debtors but only with respect to the share of that solidary creditor.

In a solidary obligation, it can be uniform or it can be mixed.

It is uniform if the debtors are bound by the same terms and condition. It is mixed if the debtors are not
bound by the same terms and conditions now okay. So let's say that in this obligation, A, B and C
solidarily bound themselves to pay 1.5 million pesos to X, Y and Z, who are solidarity creditors.
However, the agreement was that A will pay only on December 25 2021. It is on only January 2021. So
he can set that up now that there is a period with respect to A. With respect to B, the agreement was
that B can be made to pay when he passes the bar exam. So his is subject to a condition. C here can
be made to pay only six months from the constitution of the obligation. So if X now makes a demand
on A, and it is only January 2021, how much can A be made to pay here? A can set up that “I will not
pay yet my share because with respect to me, it is subject to a term only. I can be made to pay only on
December 2021. I cannot also be made to pay yet the share of B because the condition has not yet
taken place, and with respect to C, I cannot also be made yet to pay the share of C because here it is
subject to a period and that period also has not yet taken place okay. So he cannot be made to pay
any of the pay the obligation yet. But let's say it is already six months from the time the obligation is
constituted, here A now will have to pay the proportionate share of C, X can later go on and go after A
again when the period with respect to A has arrived, December 2020. And if B passes the bar, X can
still go after for the share of B now. So, in a solidary obligation the parties do not have to be necessarily
bound by the same terms and conditions. There can be several, one can be subject to a condition, one
can be subject to a term now. And thus the debtor who is made to pay can set up these defenses. The
period has not yet arrived or the condition has not yet taken place.

Q: What happens now if let's say A now pays the entire 1.5 million pesos?

Where A now pays the entire 1.5 million pesos, since this is a solidary obligation, the obligation now is
extinguished. However since a paid the entire 1.5 million pesos, he has a right now to ask for the
proportionate share of B and C. So the obligation here is extinguished but there is now an obligation of
B and C to make reimbursement. To reimburse A their share in this solidarity obligation. On the side of
the creditors, where X made that demand and A paid X the entire 1.5 million pesos, there is now also
here on the side mutual accounting. X received the entire 1.5 million pesos and therefore X now must
make that uh accounting mutual accounting. And he must give the share of Y and Z. That's why it is
very important that in a solidary obligation there is this mutual confidence because any of your creditors
can be paid the entire amount but he must make an accounting to the other creditors. So mutual
confidence between them okay.

Joint; Solidary; Divisible Indivisible;

A, B and C (debtors) promised to pay X, Y and Z (creditors) the amount of 3 Million pesos.

Under Article 1207, it provides that the concurrence of one or more debtors or one or more
creditors in one and the same obligation does not mean that the relationship of the
parties to one another is a solidary obligation because solidary obligation arises only
where the parties agree to be solidarily bound where the law provides for solidarity or in
case that the nature of the obligation provides for a solidary obligation.

So in this case, A, B and C is merely jointly liable to X, Y and Z for the amount of 3 million pesos,
but the 3 million pesos will be divided equally into as many debtors as there are and into
as many creditors as there are.

Meaning in this joint obligation, X here can demand from A only the proportionate share of A
in this joint obligation which is the amount of (in this case) 1 million pesos.

A is liable only for 1 million pesos and X is only entitled to 1 million pesos, in the same way that
B is also liable for only 1 million pesos, and C is only liable for 1 million pesos.
A demand on A here puts A in default but does not put B and C in default because this is a
joint obligation and they are distinct from one another. A demand on A stops the
running of the prescriptive period with respect to share, but not with respect to the share
of B and C, they are distinct from one another.

Let us say that in instead of the payment of 3 million pesos, A, B and C obligated to give to X
Y and Z a car. In this case now, we have here a prestation which is indivisible.

But since A B and C did not agree to be solidarily bound, the

obligation is merely a joint indivisible obligation. Therefore, being a joint indivisible
obligation, A is only liable for his proportionate share, likewise B is only liable for his
proportionate share, and C is liable for his proportionate share.

X is only entitled to his share. Y is only entitled to share. Z is only entitled

to his share and not the entire car.

So in this case, in order for there to be compliance of this joint

indivisible obligation, X Y and Z must collectively act - that they must all make a
demand on A B and C on all debtors for the fulfillment of this joint indivisible
obligation. A B and C now being merely joint debtors in this case must act
collectively in order to be able to fulfill the joint indivisible obligation. Meaning
they must now give the proportionate share in order to get or purchase a car
which they will deliver to X Y and Z.

If let us say, A here is unable to pay or give his share to be able to

purchase this car to be delivered to X Y and Z, what happens here is that the joint
indivisible obligation is converted into an obligation for indemnity.

Meaning, that A B and C will now pay X Y and Z here the damages for the
failure to comply with this joint indivisible obligation.

Let's say the value of the car that they were supposed to deliver is 3 million
pesos. This being converted now to an obligation for indemnity, A here is
liable only for his share of one million pesos, if A here is not the one who
caused the non-fulfillment of this joint indivisible obligation, A is liable only
for 1 million. B here if he's not the one responsible or at fault, is only liable for
1 million pesos and if it is C here who is the one who is liable for the non-
fulfillment of this joint indivisible obligation, C is liable for his proportionate
share of one million pesos plus damages. A and B who are not responsible
or at fault cannot be held liable for damages. Only C is liable for damages.
The reason here being that this is still only a joint obligation involving a
prestation that is indivisible.
Solidary obligation

A B and C are obligated in solidum to pay X Y and Z the amount of 3 million pesos.

Since this is a solidary obligation the law provides that X Y or Z, any of the creditors here can
proceed against one, some, or all of the solidarity debtors for the fulfillment of the entire
obligation. The credit is not divided into as many creditors as there are, nor is it divided
into as many debtors as there are. This is because it is a solidary obligation.

So X can proceed against A for the payment of the entire 3 million pesos. A cannot set up the
defense that he is only liable for his proportionate share of 1 million pesos. X can proceed
against A, or against A and B, or against A B and C.

A here has to pay the 3 million pesos. Since X makes a demand on A for the fulfillment of this
solidary obligation, the demand made on A puts A in default or mora as well as B and
C, even if B and C were not given any demand by X. The reason is the solidarity liability
of this obligation (one for all, all for one).

It also stops the running of the prescriptive period with respect to all of the debtors.

So, let us say that a demand is made on A, A pays the 3 million pesos. Upon payment of the 3
million pesos, B and C now here are liable to A, to reimburse A their proportionate share
in this obligation. X now having received the entire 3 million pesos is liable also or must
make an accounting, and must give Y and Z the other solidary creditors their
proportionate share.

In a solidary obligation, the debtor to whom demand was made can set up the following
defenses:
1. A defense by reason of the nature of the obligation or from the obligation
itself.

Let us say, the obligation is void, the obligation has already prescribed, the
obligation has already been paid, and therefore he can set that up.

He can also set up a defense that is personal to him. Let us say that it was
agreed that he can be only made to pay based on a term, and a term was
agreed upon, or a period, or on a condition, therefore he can set that up
or let us say that his consent in this obligation was vitiated or was obtained
through force, he can also set that up if a demand is made on him.
 With respect to the shares of B and C, the defenses personal to B and C
can also be set up by the debtor to whom a demand was made but with
respect only to their share. So let us say B here, it was agreed that B can be
made to pay only 1 year from the constitution of the obligation. A can set
that up with respect to the proportionate share of B, or if B here was a minor
he can also set that up.

But once payment is made, if A makes payment, he is entitled to

reimbursement. So in a solidary obligation you have here on the side of the
creditors, mutual representation and mutual agency, they can represent
one another with respect to the debtors, there is here mutual guarantee -
each debtor guarantees the complete performance of the obligation. That
is the reason why on the part of the debtors, this is also called an
aggravated liability. So that is your joint obligation, the solidarity obligation
as well as a joint indivisible obligation.

Another classification of an obligation is based now on the prestation:

Here we have the divisible and indivisible obligations.

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

Divisible obligation: A divisible obligation is one the object of which in its delivery or
performance is capable of partial performance.

Indivisible obligation: Is one the object of which in its delivery or performance is not capable
of partial performance.

Q: What is the true test in determining whether an obligation is divisible or indivisible?

The true test is the purpose of the obligation or the intention of the parties. It is not the possibility
or impossibility of partial performance, even though the object or service may be
physically divisible, the obligation is indivisible if intended by the parties or provided for
by law. However, if the object is not physically divisible or the service is not susceptible
of partial performance, the obligation is indivisible notwithstanding the contrary
intention of the parties.

Q: When then may an obligation be presumed indivisible?

When there is only one debtor and one creditor the former has to perform the obligation in its
totality, whether or not the prestation is divisible and the creditor cannot be compelled
 to receive partially the prestation in which the obligation consists, unless there is a
stipulation to the contrary.

Q: In a joint indivisible obligation, what is the effect if one of the joint debtors does not comply
with his undertaking?

Pursuant to Article 1224 of the Civil Code, the obligation is converted into an obligation to pay
damages. The debtors who may have been ready to fulfill their promises shall be liable
only for their proportionate share of the price of the thing, or of the value of the service
in which the obligation consists, while the debtor who did not comply shall be liable for
his proportionate share of the price of the thing or the value of the service, and
damages.

Note that in a divisible obligation the following would mean that the obligation is divisible:

Under Article 1225,

1. Obligations having for their object, the execution of a certain number of
days of work, or
2. The accomplishment of work by metrical units or
3. Analogous things which by their nature are susceptible of partial
performance.

Q: Which obligation are deemed by law to be indivisible?

Pursuant to Article 1225 of the Civil Code, the law provides that obligations to give definite
things and those which are not susceptible of partial performance are considered as
indivisible obligations.

Q: what about in an obligation not to do?

In an obligation not to do, the character of the prestation in each particular case shall
determine their divisibility or indivisibility.

Classification of an obligation based on an additional obligation agreed upon by the parties:

This refers to the obligations with the penal clause or an obligation without a penal clause.

A. Obligation with a penal clause is one to which is attached an

accessory undertaking to pay a previously stipulated penalty in case of breach.
A penal clause is an accessory undertaking to assume greater liability in case of
breach of the obligation. So the penal clause is merely an accessory undertaking.

Distinguish Penal clause from a Condition:

i. A Penal Clause is an obligation although accessory,
while a Condition is not an obligation.
ii. A Penal Clause is demandable, while a Condition is not
demandable.

Q: Why do the parties agree upon a penal clause or what is the

purpose of a penal clause?
The purpose is to ensure the performance of the obligation. It is also to
repair the damage done in which case the Penal Clause takes the place
of damages and the payment of interest in case of non-compliance of the
obligation. Its purpose is to punish the debtor for the non-fulfillment of the
obligation.

2 Kinds of Penal Clause:

1. Subsidiary Penal Clause: a subsidiary penal clause is when only the
penalty can be enforced in case of non-fulfillment by the debtor of
his obligation.
2. Joint Penal Clause: is when both the principal obligation and the
penal clause can be enforced. This must be agreed upon by the
parties.

Q: As a general rule in obligations with penal clause, can the creditor

recover not only the penal clause, but in addition indemnity for damages and the
payment of interest in case of non-compliance of the obligation?
Article 1226 provides, as a general rule in obligations with a penal clause,
the penal clause or penalty takes place of indemnity for damages and the
payment of interest in case of non-compliance; hence, the creditor cannot
recover the penalty and indemnity for damages and the payment of
interest.

Q: Must the creditor prove the actual damages suffered in order that
the penalty may be enforced?
There is no need anymore. Such proof of actual damages suffered by the
creditor is no longer necessary.

Q: When may then the creditor in addition to the penalty recover

damages and interests?
 Article 1226 provides, when the parties have so stipulated, when the obligor
refuses to pay the penalty, or when the obligor is guilty of fraud in the
fulfillment of the obligation. To recover damages in addition to penalty
proof for fraud and the existence and the amount of damages is required,
but proof of fraud is not needed to recover the penal clause. The penalty
may be enforced only when it is demandable in accordance with the
provisions of the Code, that is if there is a breach of the obligation and it is
not contrary to laws, morals, good customs, public order, and public policy.

Q: Can the debtor choose to pay the penalty instead of performing

the obligation?
No, precisely the object of the penal clause or the penalty agreed upon is
to secure compliance with the obligation.

Q: When can however the debtor exempt himself from the non-
fulfillment of the obligation by just paying the penalty?
This can be done and the debtor can do so if such right has been expressly
reserved for him.

Q: In the case of the creditor can the creditor demand both the
fulfillment of the obligation and the payment of the penalty?
Earlier we said that the general rule is NO because the primary purpose of
the penalty is to compel the debtor to perform his obligation and once this
purpose is attained there is no need for the penalty.

Q: So when can the creditor demand both the fulfillment of the

obligation and the penalty?
Pursuant to Article 1227, the creditor can do so if such right has been
expressly and clearly granted to the creditor. Further, the same article
provides that if after the creditor has required the fulfillment of the
obligation, the performance thereof should become impossible without his
fault, the creditor can still demand the penalty.

Q: In case of non-compliance of the obligation by the debtor, must

the creditor show proof of the actual damages he suffered in order that the
penalty is recoverable?
There is no need pursuant to Article 1228, all that the creditor has to show is
the violation of the obligation by the debtor.

Q: In case of non-compliance with the obligation is the creditor

entitled to the full amount of the penalty agreed upon?
 Article 1229 provides the judge shall equitably reduce the penalty under
the following circumstances:
1. when the principal obligation has been partly or irregularly
complied with by the debtor, or
2. if the penalty is iniquitous or unconscionable even if there has
been no compliance of the obligation.

Q: What is the effect of the nullity of the penal clause upon the
principal obligation?
Article 1230 provides the nullity of the penal clause does not carry with it
that of the principal obligation. This is because the penal clause is merely
an accessory obligation agreed upon by the parties.

Q: What is the effect of the nullity of the principal obligation upon the
penal clause?
The nullity of the principal obligation carries with it that of the penal clause.
If the principal obligation is void, the penal clause is likewise void. The
reason is that the penal clause being merely an accessory cannot stand
alone. It needs a principal obligation to which it is subordinated. (Article
1230 of the Civil Code).

Remember, the characteristics of the penal clause is that it is subsidiary. As a general rule, only
penalty can be demanded, the principle cannot be demanded; except if the penalty is joint
or cumulative. In obligations with a penal clause, the penalty shall substitute the indemnity for
damages, and the payment of interest in case of non-compliance if there is no stipulation to
the contrary. Nevertheless damages shall be paid if the obligor refuses to pay the penalty or
is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced only when it
is demandable in accordance with the provisions of this Code.

The penal clause is exclusive, it takes the place of damage, and damage can only be
demanded in the following cases:
a. if there is a stipulation granting the right,
b. if there is refusal to pay the penalty by the debtor, or
c. if the debt of the debtor is guilty of fraud.

Article 1227 provides that the debtor cannot exempt himself from the performance of the
obligation by paying the penalty, save in the case where the right has been expressly reserved
for him. Neither can the creditor demand the fulfillment of the obligation and the satisfaction
of the penalty at the same time, unless this right has been clearly granted him. However, if
after the creditor has decided to require the fulfillment of the obligation, the performance
thereof should become impossible without his fault, the penalty may be enforced.
Article 1228 provides that proof of actual damages suffered by the creditor is not necessary in
order that the penalty may be demanded.

Remember that the causes for reduction of the penalty is in case of where there has been
partial or irregular performance or that the penalty provided is iniquitous or unconscionable.

Payment or Performance (Part 1)

Extinguishment of obligations particularly payment as a mode of extinguishing an obligation.

So under article 1231, it states now or it enumerates the modes by which an obligation is
extinguished. So here, it lists now the following as the modes by which an obligation is
extinguished. So you have 1231, in the modes of extinguishing an obligation, you have:

(a) Payment

(b) Condonation

(c) Loss of the thing due

(d) Confusion

(e) Compensation

(f) Novation

So these are the modes by which an obligation is extinguished under article 1231, but these
are not the only ways by which an obligation is extinguished. It is also extinguished by the
annulment of the obligation, in case of recession, resolution, extinguishment of the obligation
by the fulfillment of a resolutory condition and you have also the extinguishment of an
obligation by the arrival of a resolutory period. Also, another mode by which an obligation is
extinguished is in cases of the death. Let us say of the debtor especially if the obligation here
or the performance of the obligation by the debtor is purely personal and only he can perform
the obligation. Therefore, the death of the debtor or the obligor will extinguish the obligation.

A. PAYMENT

Article 1232 defines now what payment is and payment is not how the ordinary or the layman
understands payment now which is the delivery of money because under article 1232
payment means not only the delivery of money but also the performance in any other manner
of an obligation. So an obligation is extinguished by way of payment or the performance of
that obligation.

If it is an obligation to do or an obligation not to do, it is not simply the performance of that

obligation or the delivery of the money that will extinguish the obligation by reason of payment
under payment. We have to go first to the payor in order for there to be the valid
extinguishment of the obligation by reason of payment. There must be payment must be
made by the payor. Who is the payor here or who is the debtor or obligor who should perform
the obligation?

First, the (1) debtor himself or the obligor himself must perform the obligation in order for it to
be deemed as fulfilled.

(2) If it is an obligation to give, the duly authorized agent of the debtor. Payment by the debtor
or payment by the agent of the debtor made known to the creditor would be considered as
a valid payment.

Who else can make payment? Now you have under article 1236, it also provides the (3)
debtor’s heirs or (4) the successors in interest of the debtor. Payment by the debtor’s heirs or
the successors in interest is valid payment because the debtor’s heirs or the successors in
interests are considered as privy to the contract or obligation entered into by the debtor with
the creditor.

The next one, who can make payment or performance of the obligation is (5) any person
interested in the performance of the obligation. Any person interested in the performance of
the obligation can make payment and there would be valid payment. Who are persons
interested in the performance of the obligation? Persons interested in the performance of the
obligation. You have now a co-debtor. A co-debtor is one who is interested in the
performance of an obligation. You may have here a joint debtor. A joint debtor is interested
in the fulfillment of the obligation where the joint debtor pays his proportionate share, that
portion of the obligation is deemed extinguished if he decides to pay the entire obligation.
The obligation is also extinguished by another person interested in the performance of the
obligation: a guarantor. A guarantor is a person interested in the performance of the
obligation because in the event that the principal debtor cannot perform the obligation or
fulfill the obligation, the creditor can always go against the guarantor for the fulfillment of the
obligation. So the guarantor is also liable in this obligation and therefore he is considered as a
person interested in the performance of the obligation. So where a guarantor pays the
obligation ahead of the principal debtor, that would still be a valid payment because the
guarantor is interested in the performance of the obligation. Another person interested in the
performance of the obligation is someone who we call the junior creditor. A junior creditor is
one who is interested in the performance of the obligation and his performance or fulfillment
of the obligation is considered as valid.

Illustration (junior creditor): A borrows from B the amount of P3Million. In order for B to allow or
to give the P3Million, he requires a security from the debtor and therefore, A now constitutes
a real estate mortgage on his parcel of land and of course to protect B, he now causes the
registration of this real estate mortgage in the title with the register of deeds. So in the title now
there is the annotation of this real estate mortgage. Subsequent to that A borrows from C an
amount of 2 million pesos but C also requires a security. Real estate mortgage A now here
constitutes a second real estate mortgage on the same parcel of plan. So you have the first
real estate mortgage and the second real estate mortgage. We know that where the property
is subject of a mortgage that is duly annotated and registered with the register of deeds, it is
the mortgagee here who has a right to foreclose that property. He has a right to foreclose it
against all other persons but since there is a second real estate mortgage, Can the second
creditor also now cause the foreclosure of the property in case of non-fulfillment of the
obligation?

Answer: C cannot do that because his mortgage is only a second mortgage. It came after
the registration of the mortgage in favor of B.

Q2: So what can C do here?

Answer: C is a creditor of A. B is a creditor also of A. C now here decides to pay the 3 million
pesos that A owes to B and by paying the three million pesos now he can now cause the
cancellation of the first mortgage in the register of deeds and by canceling that first
mortgage, it is his mortgage now that becomes the preferred. He becomes the preferred
creditor with respect to the property that is subject of that security. So you’ll notice here that
C is a creditor of A and B is also a creditor of A but since C only has a second mortgage here,
he is considered as a junior creditor. His payment of the obligation of A to the first creditor now
is considered as a valid payment and will constitute a valid extinguishment of the obligation.
So a junior creditor is a person interested in the fulfillment of the obligation.

A guarantor is another example of a person who is interested in the performance of the

obligation. So you have the fourth who can pay make payment or who can be a payor. Even
one who is not interested in the fulfillment of the obligation can make payment now here.

But for a person who is not interested in the fulfillment of the obligation, he’s not privy to that
contract he’s not a debtor; he’s not a guarantor; he’s not one interested in the obligation, for
him to make payment and for the payment to be valid, article 1236 provides now that the
creditor is not bound to accept payment or performance by a third person who has no interest
in the fulfillment of the obligation unless there is a stipulation to the contrary. So for a third
person not interested in fulfillment of the obligation who makes payment now, the creditor
can validly refuse because 1236 provides that the creditor can validly refuse to accept
payment from one who is not interested in the performance of the obligation. However, if the
creditor accepts payment from one who is not interested in the performance of the obligation,
it is considered as a valid payment.

Illustration: So in our example, let us say A borrows from B 3 million pesos and let us say now X
here who is not privy to this contract and who is not the person interested in the performance
of this obligation goes to B and says “I will pay the three million that A owes you”. B can validly
refuse pursuant to article 1236 but if B accepts payment from X, the payment made by X to B
is considered as valid and it will extinguish the obligation.

So even payment by a person not interested in the performance of the obligation is valid only
when the creditor accepts the payment from this third person.

What happens if payment is made by a third person who is not interested in the fulfillment of
the obligation and it is

accepted by the creditor?

We said it will extinguish the obligation.

What are the rights now of this third person who pays?

Let us say A here owes B the amount of 1 million pesos. X here who is a person not interested
in the performance of the obligation makes payment to B. For it to be valid, B must accept.
The creditor must accept or consents. Where B consents, the obligation of A to B is
extinguished. What are the rights now of X when he paid the one million pesos? He either has
the right of reimbursement plus subrogation or only reimbursement.

When is a third person entitled to reimbursement plus subrogation or only reimbursement?

This will depend on the knowledge or consent of the debtor. Where a third person makes
payment of the obligation. So here where A owes B 1 million pesos and X now pays B the 1
million pesos with the consent of B, the obligation of A to B is extinguished. Can X go to A for
reimbursement? It depends if A here gave his consent for X to pay his obligation to B or if he
refused now or he had knowledge and he refused and whether A refused or accepted now
that X will pay the obligation. So it depends now on A on the debt or here if A, the debtor was
not aware that X made payment or even if A is aware but did not consent to X making
payment of A’s obligation to B, it will have an effect on this rights of X. If A did not consent or
was not aware then X is only entitled to reimbursement but reimbursement to the amount that
the debtor was benefited.

Illustration: If A owes B 1 million pesos and then later on, B condones 50% of the obligation. X
now here is not aware that the creditor condoned 50% of the obligation of A to him. X now
here without informing A pays 1 million pesos to B which B accepts. Now, the obligation of A
to B is extinguished. X now goes to A for reimbursement. How much can A return to X in this
case? Since it was without the knowledge of A, here he will only pay X 500 000 pesos because
he was only benefited to the amount of 500 000 pesos. So reimbursement is only to the amount
that the debtor is benefited. Where the debtor did not give his consent or did not have
knowledge that the third person not interested in the performance of the obligation performs
it with the consent of the creditor, only to the extent that the debtor has been benefited.

Illustration: In the same obligation, the obligation of A to B is secured by a real estate mortgage
or there is a guarantee or let’s say there is a penal clause. X now here pays the obligation
again of A without informing A. He goes to B and pays the 1 million pesos. In this case, how
much is X entitled to recover from A? Here, the law says he’s only entitled to reimbursement
to the amount that A was benefited. What about the real estate mortgage that was
constituted in this obligation of A to B? If A cannot reimburse X the 1 million pesos, can X
foreclose on this real estate mortgage? Can X go after the guarantor if a guarantor was
constituted in this obligation of A to B? If there was an agreement as to a penal clause, can X
now go after or enforce the penal clause?
Now, where an obligation is paid by a third person not interested in the performance of the
obligation, the third person cannot compel the creditor to subrogate him with respect to any
mortgage constituted in that obligation, with respect to the guarantee or with respect to the
penal clause. This means now that since X now here paid without the knowledge of A or
without the consent of A where A cannot pay the 1 million pesos or reimburse X for paying the
1 million pesos, X cannot foreclose on that mortgage. X cannot go after the guarantor. X
cannot enforce the penal clause all that he’s entitled to is reimbursement to the amount that
the debtor was benefited. If A consented that payment will be made by X who is not interested
in the performance of the obligation then X is entitled to full reimbursement of whatever he
paid. He is also entitled to any mortgage guarantee or penal clause that was agreed upon in
this obligation of A to B but that is only if the payment by a third person is with the consent or
with the knowledge of the debtor. So a third person not interested in the fulfillment of the
obligation can also extinguish the obligation.

The next thing to remember also with respect to the payor is the capacity of the payor. The
payor must have the capacity to enter into the contract at the time not only when he enters
into the contract but also at the time that payment is made.

Illustration: A borrows from B an amount of 1 million pesos at the time that the obligation is due
and demandable. A is insane. At the time that payment is to be made, A becomes insane,
what happens now to this obligation? Article

1239 provides now that in obligations to give, payment by one who does not have the free
disposal of the thing due and capacity to alienate, it shall not be valid in an obligation to give.
So let us say, A makes payment of the 1 million pesos at the time that he is insane, is the
payment valid? It is not considered as valid. The payor must have the capacity to enter into
the contract at the time the contract was entered into as well as the time that payment or
performance is to be made. If at the time of payment or performance he does not have the
capacity, the payment is not considered as valid.

Note, however, that there is an exception to this and this is under article 1427. Under article
1427, it says that payment that is voluntarily made by a minor 18 to 21 years of age without the
consent of his parent or guardian of a fungible thing, he does not entitle him to recover the
payment made if the creditor spent or consumed it in good faith. So this is an exception. 1427
is an exception where the payor is incapacitated at the time he makes payment or delivers
the fungible thing. The payment would be considered as valid. The incapacitated person or
the guardians cannot recover what has been given.

The payee, in order for there to be a valid performance or payment of the obligation and in
order that the obligation will be extinguished, we have also to go into to whom payment
should be made. Payment should be made first to the person in whose favor the obligation is
constituted. Take note of the words of the law. The law does not say payment should be made
to the creditor. It says payments should be made to the person in whose favor the obligation
is constituted. This refers to the creditor at the time of payment, not the creditor at the time of
the constitution of the obligation. So payment should be made in favor of the person for whom
the obligation was constituted.

Who else to whom should payment be made? Payment should be made to the successor in
interest of the creditor. If the creditor at the time of the constitution of the obligation is also the
creditor at the time, the payment should be made to him and let’s say he dies then the
successor in interest becomes the payee. The debtor should make payment or performance
to the successor in interest. Next, any person authorized to receive payment, 1241, whether it
is a person authorized by law or authorized by stipulation of the parties, payment to that person
is considered as valid. Next you have under article 1242. It also says payment to a person not
authorized. Payment to a person not authorized will also be considered as valid provided that
the creditor is benefited by reason of that payment. So payment to one who is not authorized
but the payor here has to prove that the creditor benefited to a person who is not authorized.
Now under article 1242, it also provides an exception where there is no need to prove the
benefit to the creditor. Where payment was made to a person who was not authorized to
receive payment and there are three

Instances: (1) if after payment the payee acquires the rights of the creditor; (2)if the creditor
ratifies the payment and (3) if the creditor is in estoppel. When is he in estoppel? Where the
creditor by his conduct leads the debtor to believe that the payee had authority to receive
payment 1241. He is now in estoppel and therefore payment to this third person is considered
as valid and there is no need to prove the benefit in favor of the payee.

With respect to the capacity of the payee: Payment to a person incapacitated to administer
his property is valid only if the payee has kept the thing delivered or insofar as payment has
been beneficial to him article 1241 par. 2. The benefit here can be any kind of benefit. Let’s
say, intellectual, moral but it must be proved by the payor because benefit is never presumed.
Let us say that the payee at the time that the debtor made payment to the payee, the payee
here is insane, is payment valid? It will not be considered as a valid payment unless the payor
can prove that when he paid the 1 million pesos this insane person or in say the creditor now
here who became insane used the money to buy his medicine or the money was used now
for his hospitalization and therefore it benefited the payee although the payee was not
capacitated at the time he received the payment. The payment would be considered as a
valid payment.

Let’s go to another thing that must be taken into consideration in order that payment is valid
is with respect to the object of the obligation or the prestation in an obligation to give to do
or not to do. First, owe go into the identity. This is the requisite; the identity now here and 1244
now provides that there should be no substitution. 1244 provides that the very thing agreed
upon must be the one that is delivered. 1244. The debtor of the 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 do.
Illustration: Let us say A now here obligates to give to B a car but when he fulfills his obligation
instead of giving the car that was agreed upon, he tells the creditor “I will give you another
car instead and the car here is more expensive than that agreed upon”. Is there valid
payment or performance of the obligation? It would not constitute valid performance
because here it does not comply with the requisite of identity with respect to the object. It
must be the very object that was agreed upon. It must be the very forbearance or act that
must be performed. It cannot be substituted with another act or for forbearance. It cannot be
substituted with another object even if that object is more valuable than that which was
agreed upon. There should be no substitution. 1244 provides that the debtor of a thing cannot
compel the creditor to receive a different one. It must be the very one that was agreed upon.

Exception to identity where the debtor now can give a different one than that which was
agreed upon at the time the obligation was entered into. First exception is if it is a facultative
obligation. A facultative obligation is where at the time the obligation was entered into, there’s
only one thing agreed upon that would be performed or delivered but the debtor reserves
the right to give a substitute and therefore in an obligation that is facultative in nature, the
debtor can decide to give the substitute instead of that which was agreed upon. So this is an
exception to identity or to the to the requisite of identity of the object in order to constitute
valid payment.

The second exception is in case if the creditor agrees that the payment in the would be of a
different kind. Illustration: Let us say here A owes B the amount of 1.5 million pesos and at the
time that the obligation is due and demandable, A goes to B and tells B “instead of giving you
1.5 million pesos, I will give you instead a parcel of land that is also worth 1.5 million pesos”. Of
course, B cannot now be compelled to accept this land instead of the 1.5 million pesos
because that will not comply with the requisite of identity in cases of payment or performance.
However, if B agrees that instead of A paying the 1.5 that A will give instead a parcel of land
which is also

worth 1.5 million pesos, the obligation is deemed extinguished. Note here that the obligation
is not extinguished by reason of payment the obligation is extinguished because this is now
what we call dation in payment. Dation in payment or dation in solutum governed by article
1245. An obligation to pay an amount of money where the creditor

accepts instead a different kind instead of the money, it will constitute dation in payment. It
will constitute the

performance of the obligation.

Next thing with respect to object, what about if the object in an obligation to give is a generic
thing? If it is a determinate thing, the law provides that the very thing agreed upon must be
the one that will be delivered and not one that is more or even if it is more expensive, the
creditor cannot be compelled to accept that. But what if it is an obligation to give a generic
thing, what is the rule now? The rule provides here that the thing paid must be of the quantity
and the quality specified in an obligation to give a generic thing. If no quality is specified, then
what should be given? Illustration: Let us say A now here obligated to give to B five sacks of
rice but they did not state the quality of the rice to be given. Can the creditor now demand
a thing of the same genus but of a superior quality? The answer is provided under article 12 46
and under article 1246, it states now that when the obligation consists in the delivery of an
indeterminate or generic thing whose quality and circumstances have not been stated, the
creditor cannot demand a thing of superior quality Neither can the debtor deliver a thing of
inferior quality the purpose of the obligation and other circumstances shall be taken into
consideration. So with respect now to the equality, if it is not agreed upon or if the parties did
not state the quality of the generic thing to be delivered, then it should be the average the
quality that should be delivered. It should be the average. The creditor cannot demand one
of superior quality. However, the creditor can demand or can ask for one of inferior quality.
The debtor cannot deliver one of inferior quality, but he can deliver one of superior quality.
Where they do not agree as to the quality or there was no agreement, then it is the average
that must be delivered. The purpose of the obligation and other circumstances shall be taken
into consideration.

What about if it is the quantity that that was not agreed upon by the parties? So in an
obligation to deliver a generic thing and the quality has not been or the parties fail to state
the quality of the generic thing to be delivered, 12 46 provides the answer and that it is the
average—not of superior quality; not of inferior quality. What about if the quantity has not
been agreed upon, you have article 13 49 and article 1349. 1349 provides that the object of
every contract must be determinate as to its kind. The fact that the quantity is not determinate
shall not be an obstacle to the existence of the contract provided it is possible to determine
the same without the need of a new contract between the parties. So how do we explain
that?

Illustration: If A now here obligates to give to B sacks of rice. He says “I will give to you sacks of
rice” without specifying the quality of the sack of rice he will deliver. So what is the quality that
should be given? 1246 provides that the average quality is what will be given. B cannot
demand one of superior quality. A cannot deliver one of inferior quality but in our example,
he did not say or there was no agreement as to the quantity. How many sacks of price is A
supposed to deliver to B? 13 49 on the other hand provides that there is no problem if the
parties failed to stipulate as to the quantity of what is to be delivered provided it can be
determined. It can be determined without need of the parties here entering into a new
agreement. In our example where A obligates to give B sacks of rice, is the agreement valid
here? We cannot determine the quantity the number of sacks of rice that A is going to give
to B. A and B would have to enter into a new agreement or a supplemental agreement in
order to determine the sacks of rice and therefore it violates article 1349. The obligation of A
to deliver sacks of rice to B is considered as void because they will have to enter into a new
agreement. If on the other hand, the agreement between A and B goes this way: A obligates
to give to B sacks of rice which the family of B can consume for one month. So there is no
agreement as to the specific number but from the agreement of the parties, we can
determine how many sacks of rice B will need because it says sacks of rice that B’s family can
consume in one month. There is no need to enter into a subsequent agreement to determine
the quantity. So when it comes to generic thing, in order to be valid performance of the
obligation, we have to follow the rule on quality as well as the rule on quantity provided under
article 13 49.
In an obligation to give a generic thing now here, you have also the rule with respect to an
obligation to pay money. What does it provide here? It says now here that when it is an
obligation to pay money in the Philippines, we have to comply with the rule of legal tender,
and we’ll discuss this in the next lecture.

SPECIAL MODES OF PAYMENT

Who should make payment to whom should payment be made?

What should be paid or what should be performed? The manner of payment as well as the
time of the payment and this must all be complied with in order for the obligation to be
deemed fully performed or paid under the provisions on payment.

Four kinds of special payments (Article 1252)

One kind of 1252 under special forms of payment and 1252 refers to (a) application of
payments, which is also called imputation. The other kind of special payment is (b) dacion in
payment or adjudication en pago as defined under article 1245. The third kind of special
payment is (c) cession and this is defined under article 1255. Then you have the final special
form of payment 1256 which is (d) tender of payment and consignation.

A. Application of payments or Imputation (Art. 1252) --application of payment it is the

designation of the debt to which should be applied a payment made by a debtor who owes
several debts in favor of the same creditor. The application of payment here is the designation
of the debt to which should be applied a payment made by a debtor who owes several debts
to the same creditor. So that's designation, application, or imputation of the debt which should
be applied.

Requisites:

1. That there must be several debts of the same kind.

2. That there is the same debtor;

3. Same creditor.

Meaning there is one debtor and there is one creditor and this debtor owes the creditor several
debts of the same kind.

4. All the debts must be due.

5. That the debts are of the same kind; and

6. That the payment made is not sufficient so payment is being made but it is not sufficient
to cover all of the obligations.
How do we illustrate that now?

A owes B the amount of 100,000 pesos; he borrowed again from b the amount of 200,000
pesos; later he borrowed 1.5 million pesos; and later he borrowed the amount of 500,000 pesos.
So there is only one debtor and only one creditor in this obligation. One debtor and one
creditor, and the debtor owes the creditors several debts. The credits must be of the same
kind and they must be all due and demandable.

Exceptions:

(a) Where application of payment will still be applicable or can still apply despite the fact that
there are some debts that are not yet due and demandable is one when the party so stipulate,
where the parties agree that even if one of the obligations is not due and demandable an
application of payment can be made.

(b) When the application of payment is made by the party to whose benefit the term has
been constituted. So if the term has been constituted in favor of the debtor, that means that
even if this debt, if one of the debts is not yet due and demandable he can make now an
application of the payment; he can make payment with that because the period has been
made for the benefit of this debtor.

(c) Where the payment is not enough to extinguish the debts.

A owes B the amount of 100,000 pesos; he borrowed again from b the amount of 200,000
pesos; later he borrowed 1.5 million pesos; and later he borrowed the amount of 500,000 pesos.
Let's say he is going to pay the amount of 50,000 pesos. He has 50,000 pesos to pay.

Where will we apply this 50,000 pesos? The application now is made by the debtor. The debtor
makes the designation; the debtor here now is the one who makes the imputation where it
should be applied. He can say it will be applied to the debt that is to the first debt 100,000
pesos such that this will now be reduced to 50,000 pesos. The limitation where the debtor
cannot make an imputation an exception where the debt or cannot make an imputation is
that provided under article 1235---payment first must be made of the interest before the
principal. If an obligation is also with interest, payment of the principal amount plus interest the
debt or cannot make an application first to the payment of the interest unless the payment of
the principal has first been made. Another limitation is that provided under article 1792---this
refers now to the debt to a partner and to the partnership. If the debtor here owes a partner
as well as the partnership and it is not sufficient to pay both obligations, it shall be paid
proportionately. He cannot choose that it will be paid to the personal loan of the debtor now.
So those are the exception when it comes now to the right of the debtor to make the
designation. The right to make application is granted to the debtor and it is not granted to the
creditor.

However if A now has this 50,000 pesos and he makes payment and gives it to B without
making the designation; without telling the creditor where the 50 000 will apply and B now has
applied it to the debt for 1.5 pesos. Because of A’s failure to make that imputation; he has
already waived the right to make that imputation. When the creditor now issues a receipt
and has made the designation or imputation, it will now be applied to that where the creditor
made the imputation. The only time the debtor can question the imputation or designation
made by the creditor in that receipt, is if the creditor now imputed or designated the payment
of the 50 000 pesos to a debt that is void, a debt that already prescribed. So only under those
instances can he question the imputation made by the creditor. He cannot question it on the
ground that he has the right to make it because the right of the debtor to make the
designation to make the declaration as to which debt the payment will be applied should be
made at the time that he makes payment; not after where he fails to do that, he has waived
the right or he loses the right to make the imputation.

What happens if neither the debtor nor the creditor in this case makes any application?

If neither the debtor nor the creditor has made the application or let's say the application is
not valid then the application is made by operation of law. So when we say by operation of
law, it will be applied to the most onerous obligation of several obligations that are due. So if
A owes B the amount now of 100,000 pesos and then another debt of 150 000 which is subject
to a pledge; then you have another where A is a solidary debtor with X and Y also in favor of
B. another with a penal clause now. So we have to determine which is the most onerous. When
it comes to the determination of the most onerous; there really is no hard and fast rule in this
determination. It will depend on the circumstances but between a loan of 100,000 and
another loan of 150,000 where both of them are not subject to interest; it is not uh secured; it
is not a solidary obligation; it is just a payment of the principal; the older obligation would be
considered as more onerous between one that is payment merely of the principal and
another obligation that is payment of principal with interest, which would be considered as
more onerous? Definitely the one that has running interest. Where one is payment merely of
the amount borrowed and another obligation is subject to a pledge or a mortgage; the debt
secured by mortgage is more onerous as against an unsecured debt. A debt guaranteed is
more onerous than a debt that is not guaranteed. It will depend on which is more onerous.
What do we mean what is more onerous? That debt which is more burdensome to the debtor
would be considered as more onerous and where the debtor has not made an application,
an imputation of the debt to which the payment will be applied and neither has the creditor
issued a receipt making the imputation where the debtor failed to make the imputation, we
follow the rule of the more onerous obligation.

In case that all the debts are of the same nature and burden then article 1245(2) provides the
payment here shall be applied to all in proportion--only if all the debts are of the same nature
and of the same burden. So one obligation is not more onerous than the other obligation so
that's the rule when it comes to application of debts. Only the debtor should make the
application but it should be made at the time payment is being tendered; if he fails to exercise
this right and the creditor issues a receipt where he indicates to which that the payment shall
apply then it shall apply to that debt. The debtor can object only if there are grounds for
invalidating the application or the debt to which it is applied.

B. Dacion in payment

Where the debtor owes the creditor a sum of money but he now asks permission from the
creditor if he can pay it with something instead of the money; property instead of the money
for it to extinguish the obligation the creditor must consent. Under article 1245--- it provides the
dacion in payment is whereby property is alienated to the creditor in satisfaction of the debt
in money and it shall be governed by the law in sales. It is a mode of extinguishing an obligation
where the debtor alienates in favor of the creditor property for the satisfaction of a monetary
debt.
Other synonyms of dacion in payment dacio in solutom, and adjudication en pago. So let us
say here in dacion payment, A borrows from B the amount of 1.5 million pesos and when the
obligation is due and demandable he goes to B and says instead of paying you 1.5 million
pesos, Can I pay you instead a parcel of land which is also valued at 1.5 million pesos. B can
validly refuse because under the rules of payment the very thing due is what should be
tendered or what should be given, the creditor cannot be compelled to accept a substitute
unless it is a facultative obligation. So in this case now B can validly refuse, but if B consents
then you have the extinguishment of the obligation through dacion en pago.

Now dacion en pago is governed by the law of sales. It is governed by the law of sales
because here it really partakes of the nature of a sale. The creditor is really buying some
property of the debtor the payment of which is to be charged against the debtor's debt so by
consenting that he be he will accept instead this parcel of land now it is he is buying this parcel
of land and his payment is what the debtor owes him. Dacion en pago the creditor must
consent for in a sale it presupposes the consent of both parties you cannot have a sale unless
the buyer and the seller consent to the sale.

If the dacion en payment will prejudice other creditors, it will not be valid because the debtor
can connive with one of his creditors in order to defraud his other creditors. The other limitation
in cases of dacion en payment is that if the debtor should not be judicially declared insolvent
because if he is judicially declared insolvent his property is supposed to be administered by
the assignee. So those are the three limitations when it comes to the Dacion en payment.

C. Payment by Assignment

1255 provides the debtor may cede or assign his property to his creditors in payment of his
debts. This cession unless there is a stipulation to the contrary shall only release the debtor from
responsibility for the net proceeds of the thing assigned. The agreements of which on the
effect of decision are made between the debtor and his creditors shall be governed by
special laws.

Under session or assignment, this is the process by which the debtor transfers all the properties
that are not exempt from execution in favor of his creditors so that the creditors may sell them
and then apply the proceeds to their credits. In session which is different from dacion in
payment.

You have here only one debtor and he has several creditors; creditor X,Y, Z, and W and he is
completely or partially insolvent. By the way there are two kinds of assignment or cession----
(a) the legal and (b) the conventional or voluntary. Legal--- this is governed by the insolvency
law; voluntary is what is referred to under article 1255 of the civil code. Under 1255 this is
payment by cession is voluntary---meaning your debtor who owes several creditors now here;
and he is partially insolvent or completely insolvent but not judicially declared insolvent. He
now asks his creditors that he will now give all his properties that are not exempt from execution
to his creditors, the creditors here do not become the owner of the properties of the debtor
when he assigns it to them. The only rights of the creditors here is to sell the properties of the
debtor and the net proceeds from the sale now here is what will be now distributed among
the creditors. For payment by cession to apply the creditors must consent. Only the creditors
who consent will they will uh participate because you cannot compel a creditor to accept a
different kind of payment. Where X,Y, Z all agree and A now transfers or assigns all his property
in favor of X, Y, Z but there is no transfer of ownership in favor of these creditors; the properties
of your debtor are merely given to the creditors so they can sell them and whatever is the net
proceed of the sale that is what is going to be divided; that is going to be apportioned to the
creditors.

How will it be apportioned? It is apportioned based on the agreement of the creditors. If there
is no agreement of the creditors then the proportionate sharing of the net proceeds is that
provided for under the law.

What are the distinctions between dacion en pago and cession?

1. In Dacion en pago, it does not affect all the properties of the debtor but in assignment
or in cession, in general it affects all the properties of the debtor that are not exempt from
execution.

2. In dacion en pago, this does not require plurality of creditors. One debtor and one
creditor. But in cession, it requires more than one creditor.

3. In dacion en pago, only a specific or concerned creditors’ consent is required; the

creditor in here must give his consent because it is a novation of the obligation entered into.
In cession it requires the consent of all the creditors all creditors.

4. In dacion en pago, this may take place during the solvency of the debtor; the debtor
need not be insolvent; he merely decides if he can pay his monetary obligation by way of a
property and the creditor agrees now. In cession, it requires full or partial insolvency.

5. In dacion en pago, there is transfer of ownership upon delivery where the creditor
consents to the substitution of what will be paid instead of money, he accepts a property there
is transfer of ownership here upon delivery. But in cession there is no transfer of ownership, the
property of the debtor is merely given to the creditors for them to sell.

6. In dacion en pago, it is an act of novation because there is a change in the object of

the obligation; but in cession it is not considered as an act of novation.

D. Tender of payment and Consignation

Tender of payment is defined as the declaration of intention by the debtor, manifesting his
firm decision to pay coupled with a demand upon a creditor to accept immediate
performance and there is the unjustified refusal by the creditor and therefore consignation
should follow.

Tender of payment is different from consignation.

Consignation is the deposit of the thing due made by the debtor in lawful form whenever the
creditor refuses or cannot accept payment. It is the deposit of the thing with the court or with
the judicial office with judicial authority where the creditor unjustly refuses or cannot accept
payment.

What is the purpose of consignation?

The purpose of consignation here is to avoid mora; it is to avoid delay.

Where the creditor unjustly--- meaning without any justifiable reason refuses to accept
performance from debtor; that will not extinguish the obligation. Mere refusal of the creditor
to accept performance of the obligation will not extinguish the obligation. For there to be
proper extinguishment of the obligation, where the creditor unjustly refuses to accept
performance, there must be the consignation.

What is the need for the consignation?

It is to avoid mora or delay. Tender without consignation is not valid as payment and it will not
stop the running of the agreed interest if there was an agreement as to the payment of
interest.

The very first thing is that the debtor should make a tender and when he makes a tender it
must be in strict compliance with the rules on payment. In the lecture I said that when it comes
to payment the requisites must be followed; who should pay; to whom payments should be
paid; what should be paid; the manner of payment; and when payment should be made. So,
when tender now is being made by the debtor it must be in strict compliance with the
provisions on payment.

Example: A here owes B the amount of 5 million pesos and when the obligation is due and
demandable a goes to B and gives him a manager's check for 5 million pesos. Your creditor
refuses the manager's check, is there a valid tender here so that the debtor now can cause
the consignation of that manager's check it is not in strict compliance with the rules on
payment because a check is not legal tender. A creditor can validly refuse payment of a
monetary obligation if it is made by way of check even a manager's check; it is not legal
tender. The tender should be valid, it should include the entire amount. Let's say that it is for
payment of a principal amount plus interest so all interest due must also be tendered. It must
be unconditional. So only when the debtor makes payment then there's payment. He says I
will comply with my obligation it is due and demandable I am paying in legal tender I am
paying all plus interest all the interest that are due now and he's paying it to the creditor for
whom the obligation was constituted. So, there is proper tender here; he cannot immediately
make consignation without making tender, there is that first step---the first step is to make the
tender and when we say tender the debtor is ready and capable of complying with his
obligation.

There is no need for tender under the following instances:

1. When the creditor is absent; When the creditor is unknown; or Where the creditor does
not appear at the place of payment.

2. When the creditor is incapacitated to receive payment at the time it falls due unless he
has a legal representative. This payment should be made to the legal representative where
the creditor is incapacitated to receive payment at the time the obligation is due, there is no
need to make any tender because even if he accepts it under the rules of payment---
payment to an incapacitated person is not valid.

3. When there is no need to make any tender is when without just cause the creditor
refuses to give a receipt. The best proof of payment is where the creditor issues a receipt. So,
where the creditor without just cause refuses to give a receipt the debtor need not make any
tender.
4. When two or more persons claim the same right to collect the debtor should file a case
for interpleader.

5. When the written title to the obligation is lost.

6. When the creditor notifies the debtor in advance that he will not accept any payment.
So, it becomes useless to make any tender because earlier the creditor has already said that
I will not accept any payment so there is no need for any for any tender.

Where the debtor has made tender and your creditor unjustly refuses to accept the
performance of the obligation. What is the next step (Second Step)? The next step is to give
the first notice to interested parties (Article 1257(1)). The necessity to give the first notice to the
interested parties in order that consignation may release the obligor, it must first be announced
to the parties interested in the obligation.

That the law says, to the parties interested in the obligation, so it is not just the creditor--all
parties interested in the performance of the obligation must be given notice.

Who are these persons interested in the performance of the obligation?

If there are co-creditors, all the co-creditors must be notified if there are pledgees, mortgagors,
guarantors, mortgagees, co-debtors, co-creditors. They must be given this first notice.

What is the content of this notice?

a. States the fact and the date of tender and that there was undue refusal unless it is
excused.

b. State that the debtor now has the intention to make consignation. Meaning he's telling
the creditor and those interested in the performance of the obligation that because of the
refusal unjustified refusal of the creditor to accept payment I am going to deposit the amount
and the interest with the court. He also informs now that first notice the date and the court
where the notice will be made. This notice must be given by the debtor without the first notice
and a consignation being made immediately there is no proper tender and consignation.
Only upon the giving of the first notice and still there is refusal on the part of the creditor or
persons interested in the performance of the obligation to accept the payment.

(Third Step) The debtor now here files a complaint in court against the creditor and it is here
where he presupposes the filing of an action---for what purpose? To compel the creditor to
accept payment and the complaint has a prayer for the court to cancel the obligation.

So, he files a complaint, there is now the deposit of the thing with the court. After the filing of
the complaint there must be a (Fourth Step) second notice, to again all the persons interested
in the performance of the obligation. By way of a formal notice, a written letter that a
complaint was already filed or in one case the supreme court said that the complaint itself
the summons with the complaint itself served on this person's interested in the performance of
the obligation serve on the creditor can constitute the second notice.
The failure to give the second notice will invalidate the consignation. So, after the second
notice, now the next step (Fifth Step) is the trial of the case. The trial and judgment. Once the
consignation has been duly made the debtor may ask the judge to order the cancellation of
the obligation. The creditor at the trial may show that the consignation was improperly made
until the court decides that consignation was properly made, the obligation is not
extinguished. The mere filing of the case does not extinguish the obligation, the creditor has to
prove that there was tender or if it was excuse and that there was consignation; there was the
first notice; the second notice; and only then can the court issue an order for the cancellation.

During the hearing the creditor here can already accept the payment, accept the
consignation and by accepting the consignation the obligation is extinguished and the
debtor is liberated. But it can happen also that while the case is being heard the debtor may
withdraw the thing or some deposited.

What is the consequence of withdrawing the thing that was consigned with the court?

It leaves the obligation in force; the obligation is not extinguished by mere consignation. But if
the creditor accepts the consignation the obligation is extinguished. If let's say before the
approval of the court the debtor withdraws the deposit consigned, what happens now if the
debtor withdraws the deposit consigned? If it is with the approval of the creditor the
withdrawal by the debtor before judgment is rendered, the obligation subsists but guarantors
and codebtors are liberated, and the preference or priority of the creditor over the thing is
lost. It is his fault he approved now or he consented to the withdrawal now so guarantors and
codebtors are freed from their liability and the creditor loses his preference or priority over the
thing.

If the withdrawal by the debtor is made prior to the approval of the consignation and it is
made without approval of the creditor, the obligation subsists without change in the obligation
of the guarantors, codebtors, or the creditors right of preference.

If the consignation also is disapproved by the court then the consignation is considered as
ineffective as payment, but where the court now where the debtor is able to prove proper
tender and consignation and the steps were followed the court can issue an order cancelling
the obligation. The obligation is deemed fulfilled.

So those are the four kinds of special payment.

LOSS OF THE THING DUE

Good afternoon today's lecture will deal with the extinction of obligations by loss or
impossibility. An obligation is extinguished by laws in three ways:
1. In those cases where the thing is lost because it perishes. It goes out of commerce. It
disappears in such a way that its existence is unknown or in case it cannot be recovered.

2. In cases where in an obligation to do there is the impossibility of the performance of the

obligation which can either be direct or indirect. It is direct when let us say that the service to
be performed is thereafter prohibited by law; and

3. The loss of the extinction of the obligation by reason of what we call impracticability.

okay so let's discuss first the loss of the thing in an obligation to give. In an obligation to give
we are aware that either the obligation is to give a:

1. determinate thing or

2. an indeterminate thing

For determinate thing for instance the debtor obligates to give a specific car with plate
number so and so. Determinate where a obligates to give 10 sacks of rice. So, in case of a
determining thing in an obligation to give a determinate thing here. The law provides now that
the obligation is generally extinguished if the determinate thing is lost if it perishes goes off of
commerce or disappears in such a way that its existence is unknown or it cannot be recovered
then the obligation is extinguished. So, the general rule is the obligation is extinguished in an
obligation to deliver a specific thing. The exception however, exception in an obligation to
give a determinate thing are the following:

1. In cases the law now provides that the obligation is not extinguished. Let us say that
there is an agreement between the parties. So there is a stipulation or agreement between
the parties that despite the loss of the determinate thing. The obligation is not extinguished
also where the nature of the obligation requires the assumption of risk on the part of the
debtor. So the nature of the obligation requires the assumption of risk. The obligation is not
extinguished. This is the obligation to deliver a determinate thing.

What are examples or instances when the law requires liability even in the case of a fortuitous
event?

Where the law provides that the obligation is not extinguished

1. Under 1165 when the debtor is in default or mora. The loss of the thing to fortuitous event
will not extinguish the obligation of the debtor;
2. Under article 1165 you have when the debtor has promised to deliver the same thing to
two or more persons or parties who do not have the same interest the obligation is not
extinguished;

3. The law also provides that under article 1268, it provides when the obligation arises from
a crime when the death of the things certain and determinate proceeds from a criminal
offense, the debtor shall not be exempted from the payment of its price whatever may be the
cause of the loss unless the thing having been offered by him to the person who should receive
it the latter refused without justification to accept it;

4. Under article 1942 paragraph four, when a borrower of an object has lent the thing to
another who is not a member of his own household. The loss of the thing does not extinguish
the obligation; and

5. when the thing loan has been delivered with appraisal of the value unless there's a
stipulation exempting the borrower from responsibility in case of a fortuitous event. You have
the same article 1942 this is paragraph three ; and

6. Under article 21 59 when the payee in solution in deputy is in bad faith. The obligation is
not extinguished.

Note however that when we are talking about loss of the thing. The loss here should occur
after the constitution of the obligation then the obligation is extinguished. If the loss of the thing
takes place before the constitution of the obligation there is no obligation to speak of the
obligation is void. It must take effect after the constitution of the obligation. In obligations to
deliver specific determinate things, the obligation shall be extinguished if it should be
destroyed without fault of the debtor and before has incurred in delay the debtor does not
become liable.

If there is fault on the part of the debtor the obligation to deliver the determinate thing is
extinguished, instead he is now liable or she is now liable for monetary or indemnification for
the value of the thing loss plus damages. In that sense the obligation is not extinguished.

If the debtor is not at fault, is not in mora the loss of the thing will extinguish the obligation of
the debtor.

The presumption however is that the debtors is at fault and caused the loss of the thing if the
thing is in his possession provided for under article 1165 but this is a mere presumption.
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. In an obligation to give a determinate thing the loss of the thing extinguishes
the obligation that's the general rule.

If it is an obligation to give a generic thing the obligation is not extinguished. The obligation
continues to exist because with respect to generic things, they do not perish this is genus never
perishes exception however that despite the loss of the generic thing the obligation is
extinguished instead is if the generic thing is delimited. This is what we call the delimited
generic thing or if the generic thing has already been segregated or set aside. In which case
here, it becomes an obligation to give a specific thing.

In case however of a partial loss what does the law provide. 1264 provides that the court shall
determine whether under the circumstances the partial loss of the object of the obligation is
so important as to extinguish the obligation.

In an obligation to do, the obligation is extinguished through legal impossibility or a physical

impossibility. This is also considered as a loss for purposes of the extinguishment of an obligation
to do. 1266 now here provides the rule, stating that the debtor in obligations to do shall also
be released when the prestation becomes legally or physically impossible without the fault of
the obligor. There must be no fault on the part of the obligor and just like in an obligation to
give the impossibility must be after the constitution of the obligation because if the impossibility
was before then there is really no obligation that was created between the parties. So, you
have physical or legal impossibility.

1267 speaks about another kind of loss or extinguishment of an obligation but this refers to a
personal obligation.

Take note that 1267 applies only to a personal obligation and not to a real obligation.

A real obligation being an obligation to give. 1267 refers to a service so it refers to a service.

1267 states, when the service has become so difficult has to be manifestly beyond the
contemplation of the parties the obligor may also be released there from in whole or in part.

Article 1267 refers to the extinguishment of the obligation to do by reason of impracticability.

Rebus sic stantibus.

-a treaty or agreement remains valid only if the same conditions prevailing at the time of
contracting continue to exist at the time of performance. So where the conditions have
changed, such as it was manifestly beyond the contemplation of the parties the obligor may
be released in whole or in part. This is also known as the frustration of the commercial object
or frustration of enterprise.
The obligation is extinguished it is also known as the theory of imprevisibility. Where it was
manifestly beyond the contemplation of the parties.

In order for 1267 to apply for purposes of extinguishment of the obligation the event or change
could not have been foreseen by the parties at the time of the execution of the contract, at
the time they entered into the contract because:

1. it was manifestly beyond the contemplation of the parties.

2. the performance is extremely made difficult but not impossible because if it is impossible
it is extinguished by impossibility. The event was not due to the act of any of the parties and
the contract is for a future prestation. This is known as the theory of imprevisibility or
unforeseeableness or frustration of enterprise or the frustration of the commercial object. The
difficulty must be such that neither party could anticipate the difficulty.

Normally, the fact that the service is beyond the capacity of the death or but if it remains
possible for others does not extinguish the obligation of the debtor. Where the continuation for
example of the construction of a specified railroad would be very dangerous to the life and
property the debtor is excused. In order to apply 1267 mere inconvenience unexpected
impediments or increase expenses will not constitute as conditions manifestly beyond the
contemplation of the parties. The obligation will not be extinguished by reason of additional
work, unexpected impediments, or increasing expenses, or mere inconvenience the
obligation is not extinguished. The obligation now here is extinguished either because of the
loss of the thing by reason of legal or physical impossibility or by reason of this theory of
imprevisibility or reason of the impracticability as defined under article 1267 the obligation is
extinguished.

Note that the obligation of the debtor is extinguished only provided that the debtor is not in at
fault or is not in default because if he's in default the obligation is not extinguished. 1269
provides 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.

TENDER OF PAYMENT & CONSIGNATION

Mode of extinguishing an Obligation through Tender and Consignation

Article 1256 of the Civil Code refers to tender and consignation. In order to extinguish this
obligation, there must both be tender and consignation.

Q: So how does the law define tender?

Tender is defined as the declaration of intention by the debtor, manifesting his firm decision to
pay coupled with a demand, upon a creditor to accept immediate performance and its
unjustified refusal must be followed by consignation. Tender is the act of offering the creditor
what is due him together with a demand that the creditor accept the same. The objective of
notice prior to consignation is to give the creditor a chance to reconsider his refusal to accept
payment. In this way, consignation and litigation may be avoided. On the other hand, the
purpose of notice after consignation is to enable the creditor to withdraw the money or goods
deposited with the judicial authorities. (Soco vs Judge Militante, GR No. L-58961)

Consignation on the other hand, is defined as the act of depositing the thing due with the
court or judicial authorities, whenever the creditor cannot accept, or refuses to accept
payment. It generally requires a prior tender of payment. For instance, if the lessor refuses to
accept the payment of rentals, what the lessee should do is to resort to judicial deposits of the
corresponding amounts. So consignation is the deposit of the thing due made by the debtor
in lawful form, whenever the creditor refuses or cannot accept payment.

Tender of payment is distinguished from consignation in the following manner:

1) The clear meaning of these words will show the difference, tender is the antecedent of
consignation, it is an act preparatory to the consignation which is the principal;

2) Tender of payment may be extrajudicial while consignation is necessarily judicial, and the
priority of the first is the attempt to make a private settlement before proceeding to the
solemnities of consignation;

Article 1256 also provides the exception where consignation alone shall produce the same
effect and these are the following cases:

1) when the creditor is absent, unknown, or does not appear at the place of payment. Note
that the creditor need not be declared an absentee in this case;

2) when the creditor is incapacitated to receive payment at the time it is due, unless he has a
legal representative;

3) when without just cause, the creditor refuses to give a receipt;

4) when two or more persons claim the same right to collect;

5) when the written title to the obligation is lost, and;

6) when the creditor notifies the debtor in advance that he will not accept payment.

Under this instances, consignation alone shall produce the same effect. There is no need for
any prior tender. Generally, tender of payment without consignation does not extinguish the
debt. Consignation must follow. There must be consignation. The tender of the principal must
also be accompanied with the tender of the interest which has accrued, if the obligation is to
pay a principal which also earns interest.

For a valid tender of payment, the following must be complied with:

1) It must be made in lawful currency meaning legal tender;

For a valid tender payment, the Supreme Court held it is necessary that there be a fusion of
intent, ability and capability to make good each offer which must be absolute and cover the
amount due. In order for there to be a valid tender, it must include whatever interest is due if
interest is agreed upon to be paid and it must be unconditional.

2) The obligation must also already be due if the obligation is not yet due;

If the obligation or if the debtor pays only the principal and not the interest, or if the debtor
pays but it is not legal tender, then the creditor is justified in refusing the tender of payment.

Q: What are the steps now for therefore to be proper consignation?

The following are the steps:

1) Tender of payment and the unjustified rejection, of course except where tender is excused;

It must be made strictly in consonance with the provisions that regulate payment, therefore
consignation is improper, or ineffectual if the obligation is not yet payable. It is improper or
ineffectual if the consignation is in a certified check which is not legal tender. It is improper
unless unconditional.

2) If there has been the unjustified refusal to accept the tender that is made the next step is
the notice to the interested parties. This is what we call the first notice to the interested persons.
In order that consignation may release the obligor, it must first be announced to the parties
interested in the obligation. (Article 1257 paragraph 1)

The absence of notice will invalidate consignation as payment. The the parties here interested
are the creditor, the solidarity of creditors co-debtors, guarantors, pledges, and mortgages.
They notice must be given to them, the first notice must be given to them. Without such notice
the consignation as a payment would be considered as void. The reason is because had not
has been made, the creditor would have had opportunity to withdraw the money consigned
and thus make use of it. The purpose of the notice is to enable the creditor and other parties
interested such as the mortgagees, pledgees, guarantors, solidarity co-creditors and solidarity
co-debtors to reconsider the the previous refusal and thus avoid litigation by the simple
expedient of accepting the payment. (Cabanos at al vs. Calo, GR No. L-19704, October 3,
1958)

The contents of the notice should be the following:

1) the fact and date of tender, and undue refusal unless it is excused;

2) the intention to make consignation or the deposit;

3) the date and when consignation will be made, and;

4) the court where the deposit will be made.

3) The next step is the filing of the complaint against the creditor. Consignation presupposes
an action to compel the creditor to accept payment and a prayer for the court to cancel the
obligation.

Here, there's already the actual deposit with the proper judicial authorities. It is understood
that before a deposit is made, a complaint against the creditor to compel him to accept has
to be first be filed in court. The effect of the deposit now here with the court of judicial
authorities is that, the property now is considered in custodia legis. Consignation must be
made by depositing the very object that is due and with the proper judicial authority, and
accompanied by proof that tender had been duly had been made, unless tender is excused.

4) After the deposit or consignation with the court, and the filing of the complaint against the
creditor, the next step is the second notice to the interested parties. The consignation or the
deposit having been made, the interested parties shall also be notified thereof. The failure to
give the second notice invalidates consignation, but the filing of the complaint and the service
of summons can take the place of the second notice.

Then trial or hearing will proceed. Once the consignation has been duly made, the debtor
may ask the Judge to order the cancellation of the obligation. The creditor at the trial may
show that the consignation was improperly made, and until the court decides that
consignation was properly made, the obligation is not extinguished.

When the case is pending, the debtor may withdraw the thing or some deposited. And the
consequence of this is that, it leaves the obligation in force. He can withdraw it before the
creditor accepts consignation or before a judicial declaration that the consignation was
properly made. By reason of this, the obligation is not extinguished because the debtor
withdrew the thing deposited with the court.

Q: What are the effects of consignation?

A: If the creditor accepts consignation, the obligation is extinguished and the debtor is
liberated. If the court declares that consignation was properly made, it has the same effect
or result, the obligation is extinguished and the debtor is liberated.

Nevertheless, even if before the approval of the court the deposit and records are
accidentally destroyed, but no reason is shown why the consignation should not be deemed
properly made, the debtor is liberated and the loss falls on the creditor. (decided case pero
di sinabi kung saan)

If before approval of the court the debtor withdraws the deposit consigned, like we said
earlier, the obligation is not extinguished. If the withdrawal by the debtor is with the approval
of the creditor, the obligation subsists but the guarantors, and co debtors are liberated or
released. An impressive preference or priority of the creditor over the thing is likewise loss. If the
withdrawal is without approval of the creditor, the obligation subsists without change in the
obligation of the guarantors co debtors, or the creditors right of preparation. If the
consideration is disapproved then consecration is ineffective as payment.

CONDONATION

Another mode by which an obligation is extinguished is by condonation or remission.

Remission or condonation
-is defined as the gratuitous abandonment by the creditor of his right. it is the abandonment
by the creditor of his right to claim. It is considered as a donation and therefore the rules of
donation apply.

In condonation, in order for there to be the extinguishment of the obligation through

condonation the following requisites must take place:

1. there must be an agreement

- meaning that when the creditor condones or remits the obligation of the debtor the
debtor must accept. Since acceptance of the offer is required pursuant to article 1270. 1270
provides condemnation or remission is essentially gratuitous and requires the acceptance by
the obligor. It may be made expressly or impliedly. One and the other kind shall be subject to
the rules which cover inefficient donations express condemnation shall furthermore comply
with the forms of donation. So pursuant to 1270 there must be the acceptance of the
condonation.

2. The parties must be capacitated and must consent that creditor and debtor must be
capacitated and they must consent to the condonation.

3. There must be a subject matter, the object of the remission otherwise there would be
nothing to condone.

4. The cause or the consideration for the remission must be liberality because for remission
it is to take place it is essentially gratuitous.

5. The obligation remitted must have been demandable at the time of remission otherwise
the remission cannot take place.

6. The remission also must not be in officious.

- What do you mean in officious?

- It must not prejudice the legitime’s of the compulsory heirs otherwise it will be reducible.

- Despite the fact that the law mentions inofficious donations under the rules on
condemnation or remission, this also applies for the other grounds for revocation of donation
such as inn gratitude.

7. The formalities of a donation are required in case of an express remission. Therefore, if

the remission is refers to an obligation to give land then the remission must be in a public
instrument in order to be valid pursuant to article 749.

8. The waivers or remissions are not to be presumed. They must be clearly and convincingly
shown.
Two kinds of remission:

1. Total remission or

- A total remission extinguishes the entire obligation;

2. Partial remission

-The entire obligation obviously is not extinguished. Only a portion is remitted or it can be that
the remission may refer only to the accessory obligations

The remission can take place or can be made during the lifetime of the debtor and the
creditor. This is an inter-vivos remission or it can even take place mortis causa but in order to
be valid the formalities of a will It must be present and the will must be probated in order for
the remission to take place.

Under the rules of remission, we have certain presumptions. Presumptions that are
merely rebuttable:

1. Whenever the private document in which the debt appears is found in the possession
of the debtor it shall be presumed that the creditor delivered it voluntarily unless the contrary
is proof;

2. The delivery of a private document evidencing a credit made voluntarily by the creditor
to the debtor implies the renunciation of the action which the former had against the latter.

The rule here in both these cases applies only to private documents and not to public ones of
which each party is furnished a copy.

These are merely presumptions that are rebuttable. Under this provision of the law, it also
provides that if in order to nullify this waiver it should be claimed to be inefficient the debtor
and his heirs may uphold it by proving that the delivery of the document was made by virtue
of payment of a debt.

Let us say that A owes B the amount of one million pesos evidenced by a private instrument.
If B the creditor delivers the private instrument to A. It is deemed to have been voluntarily
delivered by the creditor to the debtor. If the private instrument after the constitution of the
obligation is found in the possession of A. it is deemed that the creditor condoned the
obligation this is only if what is involved is a private instrument.

Let us say also that A who is the debtor and be the creditor to the amount of 1 million pesos.
If B when the obligation is due and demandable tells A that he will no longer collect the debts
and he remits it and A accepts it and thanks B. The obligation is extinguished through
condonation. A must accept the condonation or remission by the creditor in order for the
condonation to be valid to extinguish the obligation. If A does not accept then there is no
extinguishment of the obligation. However, if despite the fact that A did not accept the
condonation by the creditor of that obligation of one million pesos if b does not collect the
obligation or demand fulfillment for a number of years the obligation may be extinguished not
because of condonation but because of prescription.

Let us also say that you have an obligation where A, B and C owe X the amount of 300 000
pesos. It is evidenced by a private instrument. If subsequent to the constitution of this obligation
and the obligation is too and demandable the creditor now here delivers the private
instrument evidencing the obligation of A, B and C, and delivers it to A. Which A accepts.
what is its effect on the obligation? This obligation of A, B and c is merely a joint obligation,
there being no agreement that they will be solidarily bound. Therefore, since X delivered the
private instrument to A who is merely a joint that or in this case. It is only the share of A that is
extinguished. His obligation is extinguished. If on the other hand. the obligation of A, B and C
is a solidary obligation and X voluntarily delivers the private instrument evidencing the
obligation and he delivers it voluntarily to A and A accepts it. Then the entire obligation is
extinguished. This being a solidary obligation,

On another case, if A here is obligated to X and it is secured by a mortgage. X here now remits
or renounces or condones the mortgage. The principal obligation is still continuing to exist but
the mortgage is already cancelled because a partial remission or condemnation can take
place in an obligation. If, however X condones the principal obligation. It will likewise condone
or extinguish the accessory obligation because an accessory obligation merely derives its life
from a principal obligation.

Accessory obligation is a pledge. Under article 1274 provides: ‘’ it is presumed that the
accessory obligation of pledge has been remitted when the thing pledged after its delivery
to the creditor is found in the possession of the debtor or of a third person who owns the thing.
It is essential in pledge that the thing be delivered to the creditor or to a third person by
common agreement in order for there to be a contract of pledge’’

Where after the constitution of the obligation the thing pledged after its delivery to the creditor
is now found in the possession of the debtor it is deemed or presumed that the accessory
obligation of pledge has been remitted but not the principal obligation.

CONFUSION/MERGER

Article 1275 refers to the mode of extinguishing an obligation by way of confusion or merger.

Merger or confusion is defined as the meeting in one person of the qualities of creditor and debtor with respect to
the same obligation. A1275 states that obligation is extinguished from the time the characters of creditor and
debtor are merged in the same person. The reason for the extinguishment of the obligation where there has been
confusion or merger is that if a debtor is his own creditor, enforcement of the obligation becomes absurd since
one cannot claim against himself. This basis is that no one can be his own debtor. It would be absurd for one to
demand from himself or herself the fulfillment of the obligation.

The requisites of a valid merger are the following

1. it should take place between the principal debtor and the creditor. A confusion of the creditor with the
person of the guarantor does not extinguish the principal obligation but the accessory obligation of guarantee
is extinguished.

2. the merger must be clear and definite; and

3. the very obligation involved must be the same or identical.

Because if the debtor acquires certain rights from the creditor with respect to the other things, there is no merger
that takes place.

Illustration: If let's say A here is obligated to B to the amount of 50 000 pesos and subsequently the qualities of
debtor and creditor are merged in the person of A. A now becomes both the debtor and the creditor. Therefore,
because of this confusion, the obligation is extinguished.

Note that the merger must take place between the principal debtor and the creditor.

Illustration: If in this example, A who is obligated to B in the amount of 50 000 pesos and it is guaranteed by X,
a merger that takes place between the creditor and the guarantor does not cause confusion because it is not a
merger between the principal debtor and creditor, X being merely the guarantor here. The obligation of A to B is
not extinguished. However, the contract of guaranty or the accessory obligation of guaranty is extinguished.

Illustration: If let us say, A here together with B are obligated to X in an amount of 100 000 pesos and the character
of debtor and creditor are merged between A and X, will it extinguish the obligation to pay the amount of 100
000 pesos? In this case, what we only have is a joint obligation. This being a joint obligation, only the share of A
to X is extinguished . This is pursuant to the rule that confusion does not extinguish a joint obligation except as
regards the share corresponding to the creditor or debtor in whom the two characters concurred. If the obligation
however is not joint but it is a solidary obligation, then the merger of the qualities of debtor and creditor in one
and the same person, let us say, the merger takes place in solidary debtor A, then the obligation is extinguished.

How do we illustrate the merger or confusion of the characters of debtor and creditor in one another? The example
that is given in most of the books involves, let us say, a cheque. A, the debtor owes B the amount of 100 000
pesos and issues a check. So where A issues the check payable to bearer and delivers the check to the creditor B,
then B subsequently endorses or gives the check to C and C also now gives the check later on to D and
subsequently D gives the check to A. You will notice here now that where A now is subsequently in possession
of the check payable to bearer, in this case now, the qualities of debtor and creditor are now merged in one and
the same person—the person of the debtor. Therefore in this case, confusion has taken place and where confusion
has taken place, the obligation is extinguished. So this is another mode by which an obligation is extinguished.
 OBLICON VLOGS Transcription
Compensation. Article 1278-1290. Extinguishment of Obligations. Obligations and Contracts.

Article 1278 compensation shall take place when two persons in their own right are
creditors and debtors of each other

What is compensation?
Compensation accordingly is the extinguishment to the concurrent amount of the debts of two
persons who in their own right are reciprocally principal debtors andV creditors of each
other

Concurrent amount it means that if one debt is more valuable as compared to the other debt
then the balance shall subsist.
- meaning compensation could be complete or could also be partial
and these two debts are extinguished without actual transfer of money between the parties, it
takes place by operation of law

EXAMPLE:
Pogi owes Ganda, the amount of P1,000 and in another transaction Ganda owes Pogi the
amount of P 700 pesos
assuming that both debts are due and payable today

The compensation takes place immediately by operation of law and it takes place partially that
is to the concurrent amount
of P700. Since, compensation already took place, Pogi shall be liable to Ganda for only P300

Had it been that two debts, by renouncing same amount then there is a total compensation
Smaller amount is totally extinguished, while the larger amount will have a remaining balance of
P 300. This P 300 will subsist and so Pogi would be liable to Ganda for P300.

Confusion Compensation
One person Two persons
One obligation Two obligations

Payment Compensation
Takes effect by act of the parties Takes effect by operation of law
The parties must have the free disposal of the It is not required that the parties have the capacity
thing due and the capacity to alienate to give or to receive , as the case may be
It is necessary that it be complete The law permits partial extinguishment of the
obligation

Kinds of Compensation
1. By its effect or extent:
a. Total
b. Partial
2. By its cause or origin:
a. Legal- it takes place by operation of law
b. Convention or voluntary- when it takes place agreement of the parties
c. Judicial- when it takes place from an order of the court
d. Facultative- when it can be set up only by one of the parties, usually the requisites of legal
compensation are present and so he may compensate or not

EXAMPLE:
Pogi owes Ganda P1 million, demandable and due on December 25,2020.
In another transaction, Ganda owes Pogi which is demandable on or before December 30, 2020
Come December 15, 2020; Ganda (given the benefit of term), she can claim compensation
because can claim on or before December 30. However,Pogii cannot claim compensation

Facultative compensation is unilateral, meaning there’s only one party

Article 1279. In order that compensation may be proper, it is necessary:

1. That each 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 do are consumable, they be of
the same kind and also of the same quality if the latter has been stated;
3. That the two deaths 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.

This provision talks about the requisites of a legal compensation. If there is one provision about
compensation it is article 1279.
Article 12 79 enumerates the requirements or requisites of legal compensation absent any
showing that all of these
requisites are present compensation may not take place well on legal compensation. Absent any
of these requirements there is no compensation that will take place.

Article 1279 provides that each one of the obligors be bound principally and that he be at the
same time a principal creditor of the other

First requirement
EXAMPLE:
Pogi owes Ganda P10,000; Ganda owes Pogi P10,000
Compensation will take place because Pogi and Ganda are principal debtors and creditors of
each other.

In a situation that they are not the debtors and creditors of each other.
EXAMPLE:
Pogi owes Ganda = P10,000, this is guaranteed by Beauty (guarantor of of Pogi)
In another transaction, Ganda owes beauty P10,000
In this example, there will be no compensation, Beauty is only subsidiarily liable to Ganda

Second Requirement
EXAMPLE: Pogi oblige himself to deliver to Ganda = 10 sacks of rice
On the other hand, Ganda has an obligation to Pogi to delivet a 10 sacks of corn
In this example, there will be no compensation because the obligation of the parties are
consummable things. Things due are not of the same kind

Third Requirement:
Due meand that a period has arrive or condition has been fulfilled
Demandable it is the fact that any debts has already prescribed
EXAMPLE:
Pogi owes Ganda 1 million payable on December 25, 2020
Ganda wes owes pogi 1 million payable on December 30, 2020

Fourth Requirement:
Debts can already be determine or ascertained
EXAMPLE:
Pogi owes Ganda P 10,000
Ganda owes Pogi = share in the business -this amount cannot yet to be ascertained, meaning
the amount is not yet liquidated as to his share in the business

Fifth Requirement:
EXAMPLE: Pogi owes Ganda= P 1million
Ganda owes Pogi P1 million
Ganda owes to Beauty P 1 million
Credit has been garnished by beauty (garnishment proceeding)
Compensation cannot take between Pogi and Ganda because there is controversy which is
connected with Beauty. Compensation is suspended

Article 1280.Notwithstanding the provisions of the preceding article, the guarantor may
set up compensation as
Regards what the creditor may owe the principal debtor

Although the guarantor is only subsidiarily liable, he is not principally bound

He is given the right to set up compensation

Extinguishment and principal obligation as the consequence carries with the accessory
obligation as a guarantee
So, the guarantor is given the right to set up compensation if ever.
EXAMPLE:
Pogi owes Ganda =P1 million
Beauty is the guarantor of Pogi
Ganda, in another transaction also owes Pogi = P 300,000
When Ganda demand s the payment from Pogi, he cannot pay

How much will Beauty be liable?

Beauty will be liable for P 700,000 (1 million - 300k) only because Beauty can set up P 300,000

Article 1281. Compensation may be total or partial. When the two deaths are of the same
amount, there is a total compensation

Article 1282 The parties may agree upon the compensation of debts which are not yet due

This is now voluntary compensation it is an exception to the general rule that only debts which
are due and demandable
can be compensated.
This kind of compensation has no special requisites. It is sufficient that agreement which
declares compensation is valid.

Article 1283. If one of the parties to issued over an obligation has a claim for damages
against the other, the former may set it off by proving his right to set damages and
the amount thereof

This is judicial compensation or set off.

So, compensation may also take place when so declared by a final judgment of a court. A party
may set off his claim for
damages against his obligation to the other party by proving his right to the said damages and
the amount thereof

All the requisites under Article 12 79 must also be present except, (Exception: at the time of
pleading the claim is not yet liquidated) because the determination f the amount must be
made in the court proceedings.

Article 1284. When one or both debts are rescissible or voidable, they may be
compensated against each other before they are judicially rescinded or avoided

Note: Rescissable or voidable contracts they are valid until annulled, since they are valid until
voided, compensation is allowed
To avoid unfairness no man if ever the rescission or annulment was later on decreed by the
court after non-compensation that was not declared void, the debts or rescissable; debts
were rescindec then the debts then it is as if no compensation ever took place. Meaning
the decree acts retroactively

EXAMPLE:
Pogi owes Ganda =P 1 million
Pogi throug fraud was able to make Ganda sign a promissory note that signed by Ganda through
fraud
The loan of Pogi to Ganda is valid, although voidable. If the court finds that it was obtained
through fraud, then the effect of the annulment is retroactive. It is as there is no
compensation that took place.
If later on, Ganda will file a case to nullify Before the annulment of the contract, the contract was
valid

Article 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.

This provision talks about the effect of assignment on compensation of debts

 Scenario: Under the law, pag lahat ng requisites for legal compensation are present,
compensation takes effect by
operation of law, and so, both debts, are extinguished to the concurrent amount, kahit pa nga
si debtor and creditors are not aware of the compensation. Hence, compensation actually
takes place automatically by operation of law. Pag the parties in their own right become
the debtor and creditor of each other and if lahat ng requisites under Art. 1279 ay present,
Compensation takes place.

Now, after extinguishing the obligation through compensation one of the extinguished debts,
(extinguish na sana inassigned to a stranger) ordinarily that is already useless act
because there is nothing more to assign

The defense of compensation could actually be set up, however there is an exception to the said
rule:
 when the assignment was made WITH THE CONSENT of the debtor.
 such consent operates as a waiver of the rights to compensation = the defense of compensation
could not be set up

Exception to the exception

 when at the time he gave his consent, at that time the debtor gave his consent, he reserved his
right to the
Compensation (Article 1285 par 1)

Article 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….

Article 1285, This provision actually covers three cases orthree scenarios
1. The assignment may be made with the consent of the debtor (par 1)
Effect: Compensation cannot be set up, dahil meron ngang consent and so, therefore a
waiver of the compensation
Exception to the exception: If the right to the compensation is reserved
EXAMPLE: Pogi owes Ganda = 1 million, due yesterday
Ganda owes P 300,000 due yesterday
Debts are due and demandable yesterday, debts are extinguished up to the amount of
300k. So, Pogi owes Ganda only 700k.
However, later on, Ganda assigns his credit to Beauty, Beauty should only collect 700k (because
there was a set off) if the assignment of Ganda was made in favor Beauty and with
consent of Pogi = HOW MUCH CAN BEAUTY COLLECT FROM POGI? Since, pogi
consented to the assignment, Beauty ca collect the 1 million. Pogi cannot set up the
defense of compensation because he consent to the assignment

However, If consent ni Pogi, he reserved his right to the compensation, then he could have only
be free to give the 700k.
NOTE: If Pogi gave his consent to the assignment before it was made or subsequently, pareho
lang Article 1285 1st par applies, Pogi till loses the right to set up the defense of
compensation.
But he can still collect the 300k owed by Ganda naman. In other words, the compensation shall
be deemed not to have taken place.

2. Assignment was made with the knowledge but without the consent or against the will of the debtor
 Effect: Compensation can be set up regarding debts previous to the assignment
EXAMPLE (Example continued to next number 3): Pogi owes Ganda= 1 million due on
December 1
Ganda owes Pogi 1.5 million due on December 5
In another transaction Pogi owes Ganda 500,000 due on December 15
Pogi assigned his right to Beauty on December 10, Pogi notified Ganda
Ganda did not give her consent.
How much can Beauty collect from Ganda?
Ganda can set up the compensation of debts, regarding debts previous to the
assignment. Hence, Ganda can raise the defense of compensation with respect to loan
due on December 5, which was before the assignment on December 10. Beauty can
collect 500k only because there was compensation already made prior to the assignment.
Ganda cannot raise the defense of compensation on debt due on December 15, because
such debts already matured after the assignment.

When the law says, debts previous to the session refers to the debt that matured before the
assignment

3. The assignment may be made without the knowledge of the debtor

 Debtor can set-up compensation as a defense for all debts maturing PRIOR to his knowledge of
the assignment
 Crucial time = the time of knowledge of the assignment, not the time of assignment itself
EXAMPLE: (From the previous example) Assignment was made on December 10, it was made
without the knowledge of Ganda, she only knew of the assignment on December 25. The debtor
can set up a defense of compensation for all the debts maturing prior to the knowledge of
assignment. Thus, all the obligations already matured, in this case Ganda can set up
compensation in all of those matured debts.

Article 1286. Compensation takes place by operation of law, even though the debts may
be payable at different places
but there shall be an indemnity for expenses of exchange or transportation to the place
of payment.
This article applies to legal compensation, indemnity for expenses of transportation= it applies a
transportation traditional goods or no objects

“indemnity for expenses” = expenses for monetary exchange, like if the debts are money orin an
equivalent amount payable in money

EXAMPLE:
Pogi owes Ganda $1,000 payable in New York
Ganda owes Pogi P 100,000, in an equivalent amount, payable in Manila.
If Pogi claims compensation, he must pay for the expenses of exchange = currency exchange
of money from dollar to peso

Article 1287. Compensation shall not be proper when one of the deaths 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 provisions of paragraph 2 of article 301.

This provision talks about instances or situations when legal compensation cannot take place
 What are the scenarios when legal compensation cannot take place?
1. When one debt arises from depositum = Note: This is not the bank deposit, it is governed by a
contract of loan. Depositum is a contract where a thing is deposited to another for the purpose
of safekeeping and returning the same. The law provides that compensation shall not be proper
in this case.

EXAMPLE: Pogi deposited with Ganda= 100 sacks of rice, valued at 100,000
Pogi owes Ganda P1 million.
When Pogi withdraws his 100 sack of rice from Ganda, Ganda refused to deliver the item, she
claims compensation. Is Ganda allowed to be compensated? No, Ganda cannot refuse to
deliver, claiming compensation. This is an obligation arising from deposit, compensation shall
not be proper.

EXAMPLE:
Pogi deposited P100,000 to ABC Bank
Pogi incurred debt/loan from ABC Bank= P 10,000
Can the bank set up compensation? Yes. Deposits in bank are actually governed by a contract
of loan, this is not a contract of deposit. The depositor in this example is actually the creditor
and, the bank is the debtor. So, the bank therefore can set up compensation.

2. When one of the debts arises from commodatum.

Commodatum is a gratuitous contract whereby one of the parties delivers to another something
not consumable so that the latter may use the same for a certain time and return it.

EXAMPLE:
Ganda borrowed the car of Pogi
Pogi owes Ganda =p 1 million
Ganda cannot refuse to return the car, claiming compensation. No compensation can take place
when one of the debts arises from a commodatum.

3. When one of the debts claim for support due by gratuitous title
EXAMPLE:
Papa is the father of Baby, a minor, who under the law is entitled to be supported by Papa. Now,
Baby owes Papa P 50,000.

Papa cannot compensate his obligation to support Baby by what Baby owes him because the
right to receive support cannot be compensated. (Hind pwedeng sabihin ni Papa kay Baby na
“in as much as you owe me P 50,000, I will not pay your allowance for one year.)

Article 1288. Neither shall there be compensation if one of the debts consists in civil
liability arising from a penal offense.

4. One of the debts consists in civil liability arising from a penal offense= there is no legal
compensation in this kind of scenario

EXAMPLE:
Pogi owes Ganda P 10,000. Later on, nag-away si Ganda at Pogi, at sa away nila, dahil magaling
si Ganda, she has inflicted physical injuries against Pogi. Dahil dyan, Pogi filed a case against
Ganda, and the court rendred judgement in favor of Pogi against Ganda, and ordered Ganda to
pay Pogi 10,000, applying the principle “a person criminally liable is also civilly liable”
Ganda cannot say that she will set up compensation, even if Pogi has debt to her.
NOTE: Although Ganda cannot set up compensation, if the offended opt to set up compensation,
the said provision of the law pertains only to the accused and not to the offended party.

Article 1289. If a person should have against him several deaths which are susceptible of
compensation, the rules and application of payment shall apply to the order of the
compensation

There is a cross reference to application of payment. So, rules on application of payments

applicable to or is also applicable in compensation.

EXAMPLE: If Pogi owes Ganda = P 1,000 due today

Another obligation to Ganda = P1,000 with 6% due today
Ganda owes Pogi = P 1,000 due today
Note: If no agreement was made, apply to the most onerous = P 1,000 with 6%

Article 1290. When all the requisites mentioned in article 1279 are present, compensation
takes effect by operation of law, and extinguishes both debts to the concurrent
amount, even though the creditors and debtors are not aware of the compensation

Compensation occurs automatically by mayor operation of law from the moment that all the
requisites mentioned in article 1279 present, so legal compensation takes place absence
or agreement between the parties and even if it is against their will it extinguishes
reciprocally both that as soon as they exist simultaneously

Concurrent amount it means that one debt is greater value compared to the other debt.

**************************
Hello, everyone welcome back to law on obligations and contracts. So, let's continue our
discussion on extinguishment of obligations. So, we are now in compensation. First, what
is compensation?
Compensation is this extinguishment to the concurrent amount of the debts of two persons who
in their right or in their own right are debtors and creditors of each other.
It involves the simultaneous balancing of two obligations in order to extinguish them to the extent
in which the amount of one is covered by that of the other.
So, we will learn later, how this kind or mode of extinguishing obligation works.
So, let us have an illustration.
Andrew owes Brenda in the amount of 10,000.00 on the other hand, Brenda owes Andrew the
amount of 7000.00 both debts are due and payable today. So, here in this particular
example or illustration, Andrew and Brenda can offset or can compensate their respective
obligations. So, since Andrew is indebted to Brenda for the amount of 10,000.00, and
Brenda is indebted to Andrew for the amount of 7000.00 then they can just offset their
respective obligations. So, in effect, since, Brenda has an obligation of 7000.00 only to
Andrew so, the 7000.00 can be compensated with 10,000.00 So, the remaining liability
or obligation of Andrew is only 3000.00. Here, the example is a partial compensation
because the two amounts are not equivalent to each other, but since they are both creditor
and debtor of each other, the law says that they can compensate their respective
obligation. So, that is how compensation works in extinguishing an obligation.
So, let us distinguish compensation and confusion or merger. Remember in our previous
video, we discussed about confusion or merger. Now, let us learn what are the
differences between the two?
First, in compensation there are two persons involved we have the creditor and we have the
debtor but in confusion or merger take note that there is only one person that is involved,
who is a debtor and creditor of himself kaya nga di ba mayroong confusion or merger,
kaya ng nagmerge ung character ng debtot at creditor in one person . But in
compensations there are two persons involved the debtor and the creditor kaya lng may
kanya kanya silang utang sa isat isa.
Second, there are two obligations in compensation yong debtor may utang kay creditors, yong
creditors may utang kay debtor. So, may daalwang obligation, but in confusion or merger,
isa lang ang obligation ang nagma may-ari ang creditor at debtor sa isang obligation na
iyan ay isang person lang.
Third, in compensation there is an indirect payment although there is no actual payment si
creditor hindi niya binayaran debtor sa kanyang utang. si debtor naman hindi niya
binayaran si creditor kasi my indirect payment na mangyayayri may compensation
kumbaga nag-offset yong kani-kanilang obligation, but kaya may indirect payment
merong extinguishment of obligation by indirect payment.
Now with respect to confusion or merger ang rason kung bakit may extinguish yong obligation
dahil impossible na yong payment. Di ba sabi natin in our previous video that it would be
absurd know that the creditor who is also the debtor of himself, will pay his own obligation
and his own credit, so di ba may absurdity, kaya sabi ng batas extinguished na yong
obligation. So iyan ang mga differences between compensation and confusion or merger.
Now let's go to the kinds of compensation. So by its effect or extent compensation may be total,
when both obligations are of the same amount and are entirely extinguished, meaning to
say kung 10,000.00 yung utang ni debtor sa creditor, si creditor 10,000.00 din yong utang
niya kay debtor, then there is a total compensation kasi same young amount same din
yong obligation.
The compensation is partial, when the two obligations are of different amounts and a balance
remains gaya ng example natin kanina, si Andrew may utang kay Brenda ng 10,000.00
si Brenda my utang din kay ng Andrew 7000.00 Hindi equal yong amount ng obligation.
So,yong mangyayari merong balance na maiiwan balance. so that is partial
compensation.
A. by its cause or origin a compensation may be legal when it takes place by operation of law
even without the knowledge of the parties meaning to say kahit na hindi mag-agree yong
parties as to the compensation there is an automatic compensation by operation of law
kasi that kind of compensation is said to be legal.
B. Second kind is voluntary when it takes place by agreement of the parties agree.Kapag nag-
agree yong both parties na i compensate na lang natin yong obligation na lang natin, di
na ako maniningil sa iyo di ka rin maniningil sa akin. So, there is voluntary compensation,
C. judicial or extrajudicial when it takes place by order from a court in a litigation. So, your
compensation is by order of court.
Lastly facultative when it can be set up only by one of the parties. So yong pag uusapan talaga
natin dito sa ating discussion is about legal compensation so, diyan natin i fofocus yong
discussion natin for the entire session for this video. So, first, let us learn the requisites of
legal compensation.
So, the requisites are provided for under Article 1279 of the civil code, in order to compensation
may be proper, it is necessary,
one that each one of the obligers be bound principally and that he be at the same time a principal
creditor of the other. So explain natin mamaya ano, by way of example. second, that both
debts consist in a sum of money or if the things due are consumable, they'd be of the
same kind and also of the same quality if the latter has been stated. So, you just take
 note of the the terms sum of money and consummable and same kind same quality. So
parang maalala niyo yong second requisite.
third requisite is that two debts be due.Kailangan nag mature na yong dalawang debts otherwise
you cannot make compensation kasi kapag hindi pa nag due yong debt you cannot
compel the other to make indirect payment kaya hintayin mo na nag due yong dalawang
obligation.
fourth requisite, that they be liquidated and demandable. Ibig sabihin dapat ascertained na yong
amount ng obligation hindi yong kailangan pang i determine kaya dapat ready na or
andiyan na yong obligation. that is liquidated
fifth, that over neither of them there be any retention or controversy commence by third persons
and communicated in due time to the debtor. Meaning to say yong utang is walang ibang
taong nag cla claim. Walang third person na gustong mag collect ng utang na iyan so
wala dapat retention or controversy.
so isa-isahin nating yong mga requisites. first, that each one of the obligors be bound principally
and that he be at the same time a principal creditor the other. So for example, Andrew
owes Brenda the amount of 10,000.00 Brenda owes Andrew the amount of 10,000.00
also let us say for example that both debts are due and payable today. We also have
Carlo as the guarantorlet us say na siya yong gurantoor sa utang ni Andrew kay Brenda.
So ang ibig sabihin lang ng first requisite is that yong compensation magta take place
lang siya between Andrew and Brenda kasi sila yong, principal debtor and creditor of
each other, but as between Andrew and Carlo or Brenda or Carlo Hindi pweding mangyari
yong compensation kasi si Carlo accessory lang yong kanyang obligation hindi principal
kasi guarantor lang siya. Hindi siya principally bound to Brenda nor to Andrew and
therefore compensation cannot take place between Andrew and Carlo or between Brenda
and Carlo. Compensation will only take place between Andrew and Brenda because they
are both principally bound to each other.
So, let's go to the secondrequisite, that both debts consists in a sum of money or if the things
due are consumable, they be of the same kind and also have the same quality if the latter
has been stated.
For example, Andrew owes Brenda the amount of 10,000 pesos Brenda owes Andrew a
computer worth 10,000 pesos, both debts are due and payable today. So, in this example,
remember sabi ko sa inyo kailangan yong both debts dapat sum of money or hindi man
sila sum of money hindi pera dapat consumable siya and if that is consumable, it be of
the same kind and have the same quality. So take note here that ang utang ni Andrew
kay Brenda ay pera amounting to 10,000 pesos pero yong utang ni Brenda kay Andrew
ay computer worth 10,000 pesos. So sabi ng batas dapat parehas yong utang niyo sa
isat-isa kung pera yong utang ni Andrew dapat pera din yong utang ni Brenda but here
take note that they have different obligations the other is a thing, a personal thing. So
therefore sabi ng batas compensation is not proper in this case, even if both debts are
due and demandable already.
So let's go to the second example. Andrew obliges himself to deliver the Brenda 10 sacks of
rice. So, consumable siya di ba kasi sacks of rice. Brenda obliges herself to deliver to
Andrew 10,000 sacks of corn, both debts are due and payable today. what if the things
that are consumable, yong rice at corn alam natin consumable iyan pero Hindi sila of the
same kind kasi naman iba yong rice at corn. So verily compensation cannot take place
or is not proper in this particular example. So hindi pwede kasi rice yong isa corn yong
isa dapat parehong rice at parehong corn.
now let's go to the third requisite, the two debts be due. example Andrew owes Brenda the
amount of 10,000.00 due today. Brenda owes Andrew the amount of 10,000.00 due next
month. So dito dahil hindi due yong dalawang debts hindi pwedibg icompensate yong
dalawang debts kailangan hintayin muna ni Andrew yong next month bago niya ma-
compensate yong 10,000 pesos na utang ni Brenda sa kanya, or Brenda are cannot just
 offset the debt of Andrew kasi next month pa magdu due yong utang ni Andrew. So dapat
nag due na yong dalawang utang bago must take place yong compensation.
and that they be liquidated and demandable. example. Andrew owes Brenda the amount of
10,000 pesos Brenda owes Andrew the share of the latter in a business the amount of
which is still to be a certain both detbs are due today kahit na parehas na nag due yong
utang pero hindi pa rin na ascertain ni Andrew at ni Brenda, na magkano pala yong share
ni Andrew sa business so kailangan icompute pa yon so dapat kung hindi pa siya
liquidated hindi pa siya ascertained you cannot compensate both obligation so dapat clear
na kung magkano talaga yong share ni Andrew para macompensate natin yong utang ni
Brenda sa kanya.
Last requisite is that over neither of them there be any retention or controversy commenced by
third persons and communicated in due time to the debtor. so ano ba yong ibig sabihin
ng fifth requisite kailangan walang third person na involve or walang third person na nakiki
alam sa credit or sa utang.
So, what do we mean by retention? retention exists when there is a claim by a third person or
when the credit of one of the parties is subject to the satisfaction of the claims of a third
person.
let us have an example. Andrew owes Brenda the amount of 10,000.00 . Brenda owes Andrew
10,000.00 both debts are due. Si Andrew at si Brenda are principally bound to each other
tama di ba? second yong utang nila parehas na pera both are in sum of money so walang
problema sa second requisite so lahat nag due lahat yong utang nila so walang problema
both debts are due. liquidated din naman yong utang nila kasi na ascertain natin na yong
utang ni Andrew 10,000 yong utang ni Brenda 10,000 pero ito yong problema si Brenda
daw may utang kay Andrew ng 10,000 pesos. Take note that Carlo in this particular
example is a third person, though it's a contract between Andrew and Brenda. Paano na
ba natin masasabi if a person is a third person kung hindi siya contracting party hindi siya
kasali doon sa agreement between Andrew and Brenda iba din yong contract niya with
Brenda. Okay, so with respect to the obligation between Andrew and Brenda, Carlo is a
third person. So sabihin natin si Brenda may utang kay din kay Carlo ngayon si Carlo nag
file ng case nanalo siya ginarnish niya yong credit ni Brenda against Andrew sinabi niya
kay Andrew na Andrew huwag ka na magbayad kay Brenda kasi si Brenda may utang sa
akin so sa akin ka magbayad, kasi meron akong order of garnishment. So, meaning to
say there is a controversy, there is a retention by a third person claiming the credit of
Brenda so therefore, compensation cannot take place between Andrew and Brenda kasi
meron si Carlo na nakiki alam sa utang ni Brenda from Andrew I hope you understand
that.
So, we are done with the requisites. Now, let's proceed to the instances when legal
compensation is not proper meaning to say Hindi mangyayari o take place when the
proper compensation in the following contracts;
number one is depositum, commodatum, support due by gratuitous title and civil liability arising
from a penal offense. So let us first read article 1287 and 1288 compensation shall not
be proper when one of the deaths arises from a depositum or from the obligations of a
depository or a bailee in commodatum neither can compensation be set up against a
creditor who has a claim for support due by gratuitous title either without prejudice to the
provisions of Article two, paragraph two of article 301 neither shall there be compensation
if one of the debts consists in civil liability arising from a penal offense. So, let us discuss
them one by one.
let's start with depositum.
what is the deposit?deposit is constituted from the moment a person retains or a person
receives a thing belonging to another with the obligation of safely keeping it and of
returning the same. So, take note that in a contract of deposit, yong obligation ni
depositary here. So punta muna tayu sa basic ng deposit. Ang tawag natin sa parties in
 a contract of deposit is yong person na nag deposit ng thing is called the depositor, yong
thing to whom the thing is deposited is called the depositary. So, yong obligation ng
depositary in a contract of deposit is to safely keep that thing and to return it okay. So,
ngayon balikan natin yong second requisite, di ba sabi sa second requisite that both debts
consist in a sum of money or if the things due are consumable, they be of the same kind
and also have the same quality if the latter has been stated. Now, kung ang obligation in
depositary is to safely keep that thing deposited and to return the same. How can you
compensate it with the obligation of the depositor? Let's say for example, yong utang ng
depositor ay pera yong utang mo is to return the thing. So, hindi possible na magkarron
ng compensation kasi yong very thing na naideposit ibabalik yon ni depositary so
therefore, yong second requisite in order for the compensation may be proper is absent.
So, hindi siya kompleto yong requisites, therefore, compensation is not proper.
Another thing is that take note that in a contact of deposit there exists this yong tinatawag nila
na fiduciary in character merong trust in confidence. So, if you will compensate meaning
to say ang ibig sabihin niyan kung hindi niya isasauli yong thing na nai deposit sa iyo kasi
may utang sa iyo yong depositor kasi sabi mo gusto mo na mai compensate that is in
violation of the trust in confidence reposed to you by the depositor kaya hindi pwede yong
compensation. Aside from the fact na yong second requisite, ng compensation is absent
in the case.
Now, let us have an example for better understanding. Andrew owes Brenda 10,000 pesos,
Brenda in turn owes Andrew, the amount of 10,000 pesos representing the value of ring
deposited by Andrew with Brenda, which the latter failed to return. In this case, Brenda,
who is the depositary cannot claim legal compensation even if Andrew fails to pay his
obligation. So, kahit hindi makabayad is Andrew ng 10,000 pesos kay Brenda Hindi
pwedeng sabihin ni Brenda na hindi ko na isasauli yong ring, iko-compensate ko na lang
bawal daw sabi ng batas so ano nyayon yong remedy ni Brenda para makuha niya yong
10,000 pesos na utang ni Andrew sa kanya eh di mag file siya ng case para marecover
niya yon. So bawal kasi na mai compensate mo yong thing na naedoposit sa iyo kasi
nga sabi natin kanina it is in violation of the trust and confidence which is inherent or
which is the nature of a contract of deposit.
So, punta tayo sa commodatum. ano naman ang commodatum? it is the gratuitous contract
whereby one of the parties delivers to another something not consumable, so that the
latter may use the same for a certain time and return it.
Take note balik tayo sa second requisite, that both debts consist in a sum of money or kung
hindi naman siya pera if the things due are consumable dapat consumable yong things
to due in compensation, they be of the same kind and also have the same quality if the
latter has been stated.
So ano pala itong commodatum. example, yong nanghiram ka ng bagay that is actually a
contract of commodatum so meron pala yang legal implication. kapag nanghiram ka ng
ballpen commodatum po yan meaning to say yong object na subject ng commodatum
hindi consumable, hindi bigas, hindi pera kasi yong pera while it is true na nahahawakan
natin siya kinoconsume or ginagamit na ginagasta di ba yan yong pera. so nacocomsume
siya yong object or subject matter ng commodatum generally hindi dapat consumable
gaya ng libro, ng bag, ng laptop ng car for example, so meaning to say yong mga
consumable things gaya ng rice, pagkain, gulay, Hindi sila generally subject ng contract
of commodatum kasi na coconsume sila, kasi sa commudatum kung ano yong hiniram
mo yon din yong isa uli mo kaya kapag comsumable siya. Naghiram ka ng bigas isa-sauli
mo yong same na bigas kasi di ba kung nanghiram ka ng bigas yong purpose ng
paghiram mo is gamitin mo siya lutuin yong bigas so hindi pwede sa commodatum kasi
nga yun yong bagay na isa-sauli mo okay.
Sa second requisite pa lang ng compensation bagsak na, absent na siya kasi in compensation
the object or the subject matter of the obligation is a sum of money or a consumable thing.
 So, since in commodatum hindi consumable yong object bawal yong compensation hindi
proper.
so example Andrew owes Brenda 10,000 pesos Brenda borrow the laptop of Andrew worth
1000 pesos. Commodatum ito kasi nanghiram daw si Brenda ng laptop kay Andrew. Yong
isa naman contract of loan pera or utang sabi ng batas since ang isang utang nag utang
ni Brenda is based on commodatum bawal ang compesation.
Claim for support by gratuitous title so ano yong support, It comprises everything that is
indispensable for sustenance, dwelling, clothing, medical attendance, education and
transportation in keeping with the financial capacity of the family was provided for under
Article 194 of the family code.
So for example, Brenda is the mother of Andrew, a minor who under the law is entitled to be
supported by Brenda kasi meron tayong nakalagay about sa batas na yong parents
obligado sila na suportahan yong mga anak, especially that yong mga anak nila minor
were although hindi na sila minor pero incapable of supporting themselves let us say for
example, meron silang sakit or mental or physical incapacity etc.
Now, what if for example, yong anak mo in the given example say Andrew nagka utang siya kay
ng Brenda 10,000 pesos pwede bang sabihin ni Brenda na soportahan in the amount of
10,000 pesos kasi may utang ka sa akin anak pwede ba yon? sabi ng batas Hindi kasi
ang obligation ni Andrew kay Brenda utang di ba pera. Yong obligation ni Brenda kay
Andrew is a claim for support by gratuitous title and therefore, compensation is not proper.
Now let's go to the last instance where in compensation is not proper, which is if the civil liability
arising or arises from a penal offense.
example. Si Dante may utang kay Carlo 10,000 si Carlo ninakaw niya yong laptop ni Dante
worth 10,000 pesos. So here the obligation of Dante from Carlo arises from a contract of
loan. On the other hand, the obligation of Carlo to Dante arises from a penal offense
which is theft kasi di ba ninakaw niya. under kasi sa criminal law kapag nagcommit ka
ng crime meron ka ding civil liability meaning to say magbabayad ka din ng pera so
ngayon dahil yan ang case and ang isa is contract of loan is is arising from a penal
offence, Hindi proper yong compensation.
So, what is the effect of legal compensation? So, under Article 1290 when all the requisites
mentioned in Article 1279, yong nai enumerate natin na limang requisites kapag present
yon lahat compensation takes effect by operation of law meaning to say automatic and
extinguishes both debts that to the concurrent amount, even though the creditors and
debtors are not aware of the compensation. So, this particular article merely explains that
since the legal compensation takes place by operation of law, there is no need for the
consent of the creditor and the debtor, kasi nga sabi natin automatic yong pag extinguish
niya, so no need to have to require the consent. Otherwise, kapag may consent, na iyan
Hindi na yan legal compensation ang tawag diyan is voluntary compensation.
So, that ends our discussion for compensation. I hope you learned a lot and let's see each other
on our next video. Goodbye
*****************************
 Obligations Part 18 (Extinguishment 6): COMPENSATION

What is compensation?
Compensation is the extinguishment to the concurrent amount of the deaths of two or more
persons who are in their own right will show the creditors and debtors of each other. In
other words, the debtor already has a debt in favor of the creditor and for some reason
the creditor has a debt in favor of the debtor.

In that case, in order to prevent unnecessary litigation where they both have to file claims against
each other, the law allows them to set off each other's claims against the other.

Kinds of Compensation
1. Total compensation (Article 1281)
2. Partial compensation (Article 1281)

In case the debts are equal in amount or value, then they will be totally compensated which also
results in total extinguishment of the obligations. But where there is smaller debt and a larger debt
there will be total compensation as to the first smaller debt and there will be partial compensation in
case of the larger debt. There is, therefore, partial compensation in the larger debt and such
obligation is also partially extinguished.

3. Legal compensation (Articles 1279 and 1290) - this takes place by operation of law. In other words,
there is nothing more for the parties to be done. As long as there is compliance with all the requisites
of compensation under the law then the debts will be compensated. This is, of course, subject to
payment of expenses for exchange or transportation.

4. Voluntary compensation - that which is agreed upon by both parties. Unlike in legal compensation
which only contemplates present and past debts, voluntary compensation may contemplate future
debts as long as the parties so agree.

5. Judicial compensation - that which takes place when a claim for damages is set off against an
obligation and it is contained in a judicial order or a final judgement.

Example: A has a claim of money against B. When A sought to claim the debt from B, B did not pay.
So A, in his anger, damaged the property of B. Now when A filed the case to collect the sum of
money from B. B can now set up his claim for damages on his property against A to set-off his debt
against A.

6. Facultative compensation (Article 1287) - that which can only be set-off by one of the parties to the
obligation.

Requisites for Compensation

1. Each party must be principally a debtor and principally a creditor of the other.
 XPN: Article 1280 states that a guarantor or a party who is not primarily liable can set up
compensation against the creditor of his debt or to the extent of the debt which the creditor may
owe the debtor. Reason: Because the extinction of the principal obligation of the debt to the
creditor carries with it the extinction of the accessory obligations. This is in accordance with the
rule that the accessory follows the principle.
 In case the principal obligation is extinguished by virtue of compensation, the guarantor can
invoke that compensation against the creditor so that the creditor can no longer claim against
the guarantor.
 2. Both debts must be in a sum of money (Article 1287)
 It must be a sum of money. Contracts of deposit, commodatum, or support cannot be
compensated. In a contract of deposit and commodatum, trust is an essential requisite of these
contracts. The object itself cannot be compensated against a pre-existing obligation in money.
 For support, it cannot be compensated because it is essential for survival. However, if support
is for past support like support in arrears, this may be subject of compensation because the
person claiming support has already survived in the past. What cannot be compensated is
current legal support.

3. Both debts must be due.

 XPN: In cases of voluntary compensation where parties may voluntarily agree the future debts
may also be subject to compensation.

4. Both debts must be liquidated.

 In other words, they must not be uncertain such as a share in estate or a share in a partner's
partnership. Both debts must be liquidated in a certain amount of money and demandable.

5. There must be no retention or controversy by third parties which is communicated in due time to the
debtor.
 In other words, there is a third party claiming that he is either a creditor of the debtor or that the
creditor owes him money which the third person is now attached through garnishment. In that
case, compensation cannot take place between the creditor and the debtor.

Some rules in Compensation

1. When one or both the debts are avoidable or rescissible, they may also be subject to a
compensation. An avoidable or rescissible contract are contracts that are valid until they are
annulled by a court order. In this case, since they are valid until annulled, then they still can produce
effects and while still valid they may be proper subject of compensation.

2. Compensation may take place during assignment.

Assignment or assignment of credit – it is a contract is a contract by which one person transfers

to another his rights or actions against a third person in consideration of a price certain,
in money or in its equivalent. In other words, we have the creditor and debtor, the creditor
may assign his rights to a third person who now becomes the new creditor of the debtor.

NOTE: There is a difference between assignment and negotiation under negotiable instruments. While in
negotiation under negotiable instruments law, the new holder may gain greater rights or a better title
than the prior parties, in assignment, the assignee or the third person becomes the new creditor
and the latter merely steps into the shoes of his assignor and gains no better right than his assignor
has. Likewise, he does not warrant the solvency of prior parties.

Rules in case of Assignment

1. If compensation takes place BEFORE assignment - Then it may be invoked by the debtor as a
defense because the obligation had already been extinguished. Let’s say the creditor assigns his
rights to the third person who now becomes the new creditor but before this assignment, the debtor
had already compensated his debt against the creditor. Technically, there is nothing for the creditor
to assign. The new creditor now goes to the debtor to claim the debt. The debtor can now invoke
as a defense that the debt has already been compensated.
2. If compensation takes place AFTER assignment - In other words, the debt has not yet been
compensated and then the creditor now assigns his right to this third person who now becomes the
new creditor. What are the rules? First, what if the assignment was with the consent of the debtor?
In this case, the debtor cannot set up the compensation against the assignee because the
assignment was with the debtors permission. He has in effect assented and consented to the
assignment which treats a new juridical relation between this third person and the debtor.

3. If the assignment is with the knowledge but without the consent of the debtor - Then the debtor can
only set a compensation up until the date of the assignment. In other words, on the date that the
creditor assigned it to this new creditor, the debtor can only claim compensation up to the date that
the assignment took place.

4. In case of assignment without the knowledge of the debtor. In this case, the debtor can set up
compensation against all debts until he learned of the compensation. When the debtor already has
knowledge, then he is already charged with well knowledge of the compensation and he is stopped
from claiming otherwise.
 LAST TOPIC Extinguishment of Obligations Part 3 (2020)

1231-1304

EXTINGUISHMENT OF OBLIGATIONS
1. PART 1 - payment or performance (1232-1251)
2. PART 2 – special modes of payment such as:
 application of payment
 dacion
 cession
 tender of payment
 consignation
 loss of thing
 condonation
 confusion

3. PART 3 – Compensation and Novation 1278-1374

COMPENSATION
1. Legal
2. Conventional
3. Facultative
4. Judicial

Legal compensation - compensation that takes effect by operation of law and extinguishes both
deaths to the concurrent amount even though the creditors and debtors are not aware of
the compensation (1290)

 It doesn't require the consent of either the debtor or creditors

GENERAL DEFINITION OF COMPENSATION regardless of type:

1278 - Compensation shall take place when two persons, in their own right, are creditors and
debtors of each other.

vs 1290 – LEGAL COMPENSATION

REQUISITES for Legal Compensation (1279)

Article 1279. In order that compensation* may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor. (1196)

*although it did not specifically mentioned the type of compensation, this refers to LEGAL
COMPENSATION.
EFFECT OF LEGAL COMPENSATION: AUTOMATICALLY, BOTH HAVE NO LIABILITIES

(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;

Example

Q: D is indebted to C for 10k. G is the guarantor. Assuming C is indebted to G for 9k, is there
legal compensation b/n G &C?

A: No there will be no legal compensation, because each parties must be bound principally

C – principally liable – G
G – subsidiary liable – C

GUARANTOR – liable if C cannot collect from D (insolvent)

(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;

D is indebted to C for 10k; C to D for 9k (1281; not necessary same amount, shld be same kind)-
there is legal compensation

D is indebted to C for 10k; D to give C a specific ring-no legal compensation

D is indebted to deliver to C a class A sugar; D is indebted to give C a class B sugar-no legal

compensation; different class

(3) That the two debts be due;

Nag mature both utang to have legal compensation

(4) That they be liquidated and demandable;

X is indebted to Y for 10k by virtue of a debt. On the other hand, Y is also indebted to X by virtue
of a court case. The amount is not yet determined. – no legal compensation, not
liquidated, not 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

A owes B 10k. B owes A 10k. –both are principally liable; both debts of same kind
B also owes C 10k. C causes the garnishment of the credit of B against A and notifies A not
to pay B 10k as C has a better right to the said amount. –no legal compensation bec there
is still controversy

Article 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up
compensation as regards what the creditor may owe the principal debtor.
 D is indebted to C for 10k. G guarantor. Assuming C indebted to D for 9k. If D fails to pay C bec
of insolvency. C will have the right to go against G. however, G may set up compensation
as what C may owe D which is 9K. Therefore, C can only collect 1K from G.

Right of G: may set up compensation. 10k-9k = 1k

*The 5 requisites discussed pertain to legal compensation. If legal compensation is not

allowed, can still go with conventional compensation.

CONVENTINOAL OR VOLUNTARY COMPENSATION

Article 1282. The parties may agree upon the compensation of debts which are not yet due.
-consent of both parties

Vs. Legal compensation-no need consent. Happens automatically

JUDICIAL COMPENSATION
Article 1282. The parties may agree upon the compensation of debts which are not yet
due.

*Court decides for the compensation

e.g. awarding of damages

FACULTATIVE COMPENSATION:
-between 2 parties, isa lang pwedeng magcompel ng compensation
1. Article 1287. one of the debts arises from a depositum or from the obligations of a depositary
or of a bailee in commodatum.

X is obliged to give Y a tshirt. X left a tshirt at Y’s house (Deposit)

If Y acknowledged that X left the shirt, there will be contract of deposit. Obligation of Y not to
use, same condition. Y has to return to X if X claims for it

May Y claim the shirt as compensation bec of X’s obligation to give Y a shirt? NO. X has to give
consent, if consented, pwede.

If X says that Y can get the shirt X left, pwede

X is obliged to give Y a laptop. X lent Y a laptop (Commodatum)

May Y claim for laptop since X has obligation to give? NO. no consent. If consented, pwede.

If X says na kunin na ni Y, pwede. Kase nagconsent na.

2. Up against a creditor who has a claim for support due by gratuitous title (art. 1287 par. 2)

W is the ex wife of H. H was ordered by the court to give monthly support of 50k to W for their
children. W is indebted to H for 50k. Assume both H and W’s debts are due.
Who can compel compensation? W.
W: wag mo nalang ipadala ung support mo.
H: hindi nalang kita papadalhan kase may utang ka pang 50k – hindi pwede ito

3. Article 1288. one of the debts consists in civil liability arising from a penal offense.
X is indebted to Y for 100k. Y attempted to kill X. Because of the shock, X was awarded by the
court of 100k damages. Y was also criminally prosecuted.

Utang ni X na 100k, pwedeng macompensate. Who can compel compensation? Si X. pwede.

Hindi pwedeng ipilit ni Y kay X na hindi na bayaran damages kase may utang si X.

Article 1284. When one or both debts are rescissible or voidable, they may be
compensated against each other before they are judicially rescinded or avoided. (n)

A owes B 10k. A through fraud was able to make B sign a promissory note that B is indebted to
A for the same amount.

Article 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.

*cession = assignment

COMPENSATION IN ASSIGNED DEBTS

Article 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.
KINDS OF NOVATION (1291)

REAL NOVATION
-change of prestation/principal conditions affecting the obligation

PERSONAL NOVATION
-replace the subjects involved in obligation, either debtor (substitution), or creditor (subrogation).

NOVATION change of:

-prestation
-subjects

EFFECT OF NOVATION ON ACCESSORY OBLIGATIONS

Article 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.
STIPULATION POUR AUTRUI 1311 par.2

2k to TV
Does B have obligation to pay C the interest?
YES if C did not consent. Matutuloy ang novation. Pero accessory obligation (based on principal
obligation; to give 280 interest), mag subsist.

If consented, no more liability to pay 280.

SUBSITUTION

Article 1293. Novation which consists in substituting a new debtor in the place of the original
one, may be made even without the knowledge or against the will of the latter, but not
without the consent of the creditor. Payment by the new debtor gives him the rights
mentioned in articles 1236 and 1237.
-change of DEBTOR
-requires consent of creditor ONLY

*1236-1237 payment/performance

Substitution delegacion – mode of substitution where the original debtor takes the initiative to
present to the creditor a new debtor.

*delegacion substitution – type of novation, D’s obligation will be extinguished. Can the obligation
be revived?
 DELEGACION – WHEN OLD DEBTOR’S DEBT CAN BE REVIVED?
Article 1295.
1. New debtor’s insolvency exists before or during the delegacion
2. The old debtor has knowledge of insolvency or if he has none, the new debtor’s insolvency is of
public knowledge.

If walang knowledge na insolvent sya at that moment, can be revived? Generally NO. but can
be revived if new debtor’s insolvency is of public knowledge. Nasa newspaper ung
insolvency. Public knowledge na sya.

***If C can no longer collect from X bec X is insolvent, D’s debt will be revived, thus, C can collect
from D. (1&2-1295)

EXPROMISSION – WHEN OLD DEBTOR’S DEBT CAN BE REVIVED?

1. No revival (1294)
2. There may be a revival if old debtor is an accomplice of the new debtor.

*New debtor takes initiative to present himself to the creditor.

*Needs consent CREDITOR, not DEBTOR.

SUBROGATION – transfers to the person subrogated the credit with all the rights thereto
appertaining, either against the debtor or against third persons, be they guarantors
or possessors of mortgages, subject to stipulation in a conventional subrogation.
-CHANGE OF CREDITOR

Sa discussion payment/performance: may consent ung debtor, ung pagbayad ng 3rd person,
massubrogate.
Hindi ka makasingil sa debtor, pwedeng maforeclose mortgages or securities kase subrogated
sa lahat ng right. Same concept in subrogation.

2 KINDS OF SUBROGATION:
1. LEGAL SUBROGATION
2. CONVENTIONAL SUBROGATION

Article 1302. It is presumed that there is legal subrogation:

(1) When a creditor pays another creditor who is preferred, even without the debtor's
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 in the fulfillment
of the obligation pays, without prejudice to the effects of confusion as to the latter's
share.
A – B 1k, mortgaged land
A – C 2k UNSERCURED
*C – B; C pays debt of A to B
As to 1k debt, change of creditor, B - C. subrogated to all the rights.

Right of previous creditor (B)-pwedeng ma foreclose ung lupa

C-another creditor; automatically subrogated to rights of B

WHAT IF
B paid A’s debt to C. no legal subrogation.
B is the preferred creditor, 1st requisite is not complied.

(2) When a third person, not interested in the obligation, pays with the express or tacit
approval of the debtor;
(same sa payment)

A owes B 1k. C pays B with express or implied consent of A. C will be subrogated in the rights
of B.

(3) When, even without the knowledge of the debtor, a person interested in the fulfillment
of the obligation pays, without prejudice to the effects of confusion as to the latter's
share.

Suppose in the same example, C is the guarantor of A. C is a person interested in the fulfillment
of the obligation of A as he would be benefited by its extinguishment. If C pays B, even
without the knowledge of A, C is subrogated in the rights of B. Confusion takes place in
the person of C. Hence, the guaranty is extinguished but the principal obligation still
subsists.

CONVENTIONAL SUBROGATION
Article 1301. Conventional subrogation of a third person requires the consent of the original
parties and of the third person.
 CONSENT OF:
1. Original parties
2. Third person

Consent ng lahat.

PARTIAL SUBROGATION
Article 1304. 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.
Novations.Article 1291-1304. Extinguishment of Obligations. Obligations and Contracts.
So article 1291, 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
So obviously this provision talks about novation. So unlike the first modes of extinguishing
obligations, in novation, it has 2 functions or dual function:
1) Original obligation is extinguished
2) A new obligation is created
Novation is the most unusual mode of extinguishing an obligation, because it is only where an
obligation is extinguished and a new obligation is created to take its place. Now what are
the kinds of novation.
According to origin:
1. Legal – by operation of law
2. Conventional – by agreement of the parties
According to how it is constituted
1. Express
2. Implied
According to extent or effect
1. Total or extinctive
2. Partial or modificatory
According to the subject
1. Real or objective – where a new object or where the principal condition is changed
2. Personal or subjective – where the person of the debtor is substituted or subrogating a third
person in the rights of the creditor
3. Mixed – object or principal condition and the debtor or creditor is changed.

What are the requisites of novation?

1. the existence of a previous valid obligation
2. the intention and capacity of the parties to extinguish or modify the obligation
3. the extinguishment of the obligation
4. the creation or birth of a valid obligation
Article 1292. In order that an obligation may be extinguished by another which substitute the
same, it is imperative that it be so declared in unequivocal terms, o r that the old and the
new obligations be on every point incompatible with each other.
This is about express or implied novation. When we say express, it must be so declared in
unequivocal terms that the old obligation be extinguished and be subjected to novation.
Now, let us go to implied novation, if the old and new obligation be on every point
incompatible with each other, simply put, in implied novation it is done by making
substantial changes either in the object or subject matter of the contract. A good example
of this is an obligation is, before the obligation is conditional, then later on that condition
was removed, it became an absolute obligation for example to pay Php 1M, so in that
sense, although not expressly, there was novation in an implied manner.

Instances where the court has held that there was no Extinctive novation, meaning there are
really compatible with each other, so there was really no extinction, meaning there was
no extinctive novation.
1. Merely clarified the total sum owed by the would-be buyer to the would-be seller with the view
that the former would find it easier to comply with his obligation under the contract to sell
does not novate said contract to sell.
2. If the change consists only in the time or place of payment, or in the mode or manner of
payment, or rates of interest.
3. When the new contract merely contains supplementary agreement
4. When additional security is given
5. When the public instrument is executed to confirm a valid contract
6. Mere extension of the term (period) for payment or performance.

Article 1293. Novation which consists in substituting a new debtor in the place of the original
one, may be made even without the knowledge or against the will of the latter, but not
without the consent of the creditor. Payment by the new debtor gives him the rights
mentioned in articles 1236 and 1237.
So let’s discuss personal or subjective novation where you change the person of the debtor. So
there are two kinds of personal or subjective novation, if there is change in debtor or
meaning passive, that is substitution. When you say change of creditor meaning active,
that is subrogation.
Article 1293 actually talks about passive personal or subjective novation because there is
substitution in the part of the debtor. It can be either:
1. Expromision – if the initiative of changing the debtor comes from a third person. The old or
original debtor is released from his obligation, if not, then there is no expromision,
therefore no novation.
The following are the requisites of expromision:
a. the initiative must come from a third person
b. the new debtor and creditor must consent
c. the old debtor must be released from his obligation
Note: In 1293, novation may be made even without the knowledge or against the will of the old
or original debtor, but not without the consent of the creditor.
2. Delegacion – the initiative comes from the debtor himself. In return, he will be released from
the obligation to fulfill the obligation, if not, then there is no delegacion, therefore no
novation. Here we have three parties, the old debtor, the new debtor and the creditor. All
of them must agree to the novation for the delegacion to be valid.
Requisite of a valid delegacion
1. The initiative comes from the old debtor
2. All the parties concerned must consent or agree
3. The old debtor must be released from his obligation

The last part of 1293 states that the payment by the new debtor gives him the rights mentioned
in articles 1236 and 1237. If you remember beneficial reimbursement and subrogation,
there can be beneficial reimbursement on the part of the new debtor if the payment is
made without the knowledge or against the will of the old debtor and he has additional
right to subrogation if it was made with the consent of the old debtor. In both cases,
expromision and delegacion, what is consistent is the consent of the creditor. Why is there
a need of the consent of the creditor, because the substitution may be prejudicial on the
part of the creditor (example there is delay) and also it is consistent with the rule that a
creditor may not be compelled to accept payment or performance of a third person who
has no interest in the fulfillment of the obligation.

Article 1294. If the substitution is without the knowledge or against the will of the debtor, the new
debtor’s insolvency or non-fulfillment of the obligations shall not give rise to any liability
on the part of the original debtor.
It talks about the effect of insolvency or non-fulfillment by the new debtor in expromision. This is
expromision because it is without the knowledge or against the will of the debtor. The new
debtor’s insolvency shall not give rise to any liability on the part of the original debtor or
will not revive the action of the creditor to the old debtor because the old debtor is already
released from his obligation. For there to be a valid expromision, the old debtor must be
released from his old obligation, therefore, if the new debtor becomes insolvent, the
 creditor cannot go after the old debtor anymore because the old debtor is already released
form his obligation and that it was without his consent.

Article 1295. The insolvency of the new debtor, who has been proposed by the original debtor
and accepted by the creditor, shall not revive the action of the latter against the original
obligor, except when said insolvency was already existing and of public knowledge, or
known to the debtor, when the delegated his debt.
It talks on the effect of insolvency by the new debtor in delegacion. The first that we will notice
is that it deals only with insolvency. This provision provides for instances where obligation
of the old debtor can be revived. First is that the insolvency was already existing and of
public knowledge at the time of delegation, although it is not known to the old debtor that
the new debtor is insolvent. Second is that when the insolvency is known to the debtor,
when he delegated his debt. Notice that if the insolvency of the new debtor happened
only after the delegation, the old debtor is not liable anymore. Just remember that in this
situation, if the debtor knows or if he does not know but it is public knowledge that the
new debtor is insolvent, and yet he still delegates it to the insolvent new debtor, then the
old debtor will still be liable. This is intended to prevent fraud because if this happens the
old debtor can escape the obligation.
Article 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.
This provision talks about the effect of novation on accessory obligations. So meaning, the
general rule of the extinguishment of the principal obligation carries with it the
extinguishment of the accessory obligation. But in article 1296, it gives us the exception,
but only insofar as they may benefit third persons who did not give their consent.
Article 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.
This provision talks about the effect if the new obligation is void. It stresses the requisite of a
valid novation, which is that the new obligation must be valid. The effect is that the original
obligation shall subsist, because there was no valid novation as it lacks the fourth requisite
of a valid novation.
If the new obligation is only voidable, there is still a novation because a voidable obligation is
valid until it is annulled. But by the time it is annulled or declared void, the novation must
be considered as not having taken place. Article 1297 provides an exception, that is
unless the parties intended that the former relation should be extinguished in any event.
The intention of the parties really is to extinguish the old obligation.

Article 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.
This article has its basis on the requisites on a valid novation. One of the requisites of a valid
novation is that there should be a previous valid obligation. It talks about a situation
wherein the old obligation was void. If the old obligation is void, then there is no valid
novation. There is no existence of a previously valid obligation, so what’s there to novate
in the first place. If the original obligation is only voidable, then there will be novation
because a voidable obligation is valid until it is annulled.

Article 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.
This provision talks about the effect if the original obligation is conditional. The conditions
attached to the old obligation will also be attached to the new obligation. The exception
is when there is a contrary stipulation to that effect.
Article 1300. Subrogation of a third person in the rights of the creditor is either legal or
conventional. The former is not presumed, except in cases expressly mentioned in this
Code; the latter must be clearly established in order that it may take effect.
Well obviously, this discuses subrogation. Just to define in passing, subrogation is transfer to a
third person of all the rights appertaining to the creditor including right to proceed
guarantor, possessors of mortgages. A person is put in the shoes of the creditor. Anyway,
article 1300 talks about the two kinds of subrogation. When we say legal subrogation, it
is not presumed, meaning it is expressly provided, that is there is a law which requires
subrogation. In conventional subrogation, it must be clearly established to take effect.

Article 1301. Conventional subrogation of a third person requires the consent of the original
parties and of the third person.
It discusses on conventional subrogation. Thus, consent of all the parties is required in
conventional subrogation, meaning the old debtor and creditor, as well as the new debtor.

Article 1302. It is presumed that there is legal subrogation:

(1) When a creditor pays another creditor who is preferred, even without the debtor’s 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 in the fulfillment of the
obligation pays, without prejudice to the effects of confusion as to the latter’s share.
It provides the cases or instances where there is legal subrogation. In the first instance, an
example would be when pogi owes beauty and ganda where his debt to beauty is secured
by a mortgage worth Php1M and his debt to ganda is Php500k and ganda is just an
ordinary creditor, that is without security. If ganda, without pogi’s knowledge, ganda pays
beauty Php1M which is the debt of pogi to beauty. Therefore, ganda will be subrogated
to the rights of beauty, meaning ganda became a mortgage creditor, she is not just an
ordinary creditor anymore as to the Php1M, but as to the Php500k, she is still ordinary
creditor. Now if pogi fails to pay the Php1M debt to ganda, ganda can have the mortgage
foreclosed. The answer would still be the same if ganda paid beauty with the knowledge
of pogi.
The second instance, is the third person, not interested in the obligation pays with express or
tacit approval of the debtor. If pogi owes ganda Php10k which is due on December 25,
then beauty paid ganda Php10k with the consent of pogi, then beauty is subrogated to
the right of ganda, so that if the debt is secured by a mortgaged property, beauty can
foreclose the mortgage if pogi cannot reimburse beauty. However, if the payment of
beauty to ganda was without the consent of pogi, beaty cannot foreclose the mortgage
the property, because there was no legal subrogation. This is very clear in the second
instance, because it must be with the express or tacit approval of the debtor.
In the third scenario, when even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays. The persons interested may be the guarantors, the
owner of the property mortgaged, etc. For example, if pogi owes ganda Php10k secured
by a mortgage and guaranteed by beauty. Now, if beauty pays Php10k ganda even
without the knowledge of pogi, by that alone, she is subrogated to the rights of ganda
because as a guarantor, she is interested in the payment of the obligation. When she paid
ganda, there is automatic legal subrogation even without the knowledge of the debtor.
The phrase in the third instance “without prejudice to the effects of confusion as to the
latter’s share”, meaning, because beauty is a guarantor, the legal subrogation is when
beauty pays ganda, thus the guaranty is extinguished.
Article 1303. 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.
So what are the effects of subrogation, article 1303 answers this question. An example would
be when pogi owes ganda Php10k and beauty is a guarantor, and a third person makisig
paid ganda Php10k with the consent of pogi and ganda. Makisig now is subrogated in the
place of ganda, so that if pogi cannot pay makisig Php10k as reimbursement, makisig
can proceed against the guarantor, beauty, because there was subrogation.

Article 1304. 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.
This provision talks about a partial subrogation. There are two creditors, an old creditor who still
remains as a creditor as to the balance because there was partial payment and the total
obligation has not been paid. For example, if Pogi owes ganda Php1M , and with the
consent of pogi and ganda, beauty paid ganda Php500k, there is still Php500k remaining
balance. Now ganda and beauty became the creditors of pogi, that is Php500k each.
Suppose, pogi has only Php500k, the question is where should it be applied. Article 1304
states that it should be paid to ganda, because the old creditor is preferred in as much as
he is granted by law preferential right to recover the remainder.
 Obligations Part 19 Extinguishment 7 Novation

PART 7 ON NOVATION
NOVATION
-Mode of extinguishment of obligation through the substitution or change in the object or the
principal condition or the parties (creditors or debtors) which results in the creation of a
new obligation which must be valid and effective-not be a mere plan or draft.
REQUISITES:
1. Previous valid obligation.

Thus, novation is void if the old obligation is void.

If the old obligation is subject to suspensive condition or resolutory condition, then the new
obligation is likewise subject to such condition unless the parties have agreed otherwise. The
reason for this is the existence or efficacy of the old obligation is subject to the happening of the
condition, so if it the condition did not happen the rights or liabilities may not arise.

2. Capacity and intent of the parties to modify or extinguish the obligation.

3. Actual modification or extinguishment of the old obligation.

Accessory follows the principal. If the principal obligation is extinguished by novation then all its
accessory contracts shall likewise be extinguished.

EXCEPTION: If the accessory obligation is beneficial to 3rd party who does not give his consent
to novation then that accessory contract will subsist and continue to exist.
Example: A owes a debt to B. Under that contract of loan, the debt earns interest which shall be
paid to 3rd person C. In that case, the earning of interest is beneficial to C. A and B novate the
contract and turns it into a new obligation, then the accessory contract which is the earning of
benefit will still subsist if C did not give his consent to the novation.

4. Creation and validity of the new obligation.

GR: If new obligation is void then the new obligation continues to subsists.
EXCEPTION: If the new obligation is void, the old obligation may also be void if the parties had
agreed no matter what happens. But if the parties did not say anything then the GR will apply.
Novation is never presumed. It must be clearly established by allegations and evidence.
2 KINDS OF NOVATION
1. EXPRESS
Novation is declared unequivocally.

2. IMPLIED
We use a test. Is the existing obligation is cancelled and a new one created? Or Is the new and
old obligation is incompatible on all points that they cannot exist or stand together?

EXAMPLE:
In the contract of loan, the amount has been increased—from 1K to 100K. Is there a novation?
Yes, because it is a new obligation. Cannot stand together. Whereas, a reduction in the amount
 is not a novation because there is merely partial remission or condonation. In this case, the old
and new obligation can co-exist.

If the term for payment is extended, no novation. Whereas, if the term is reduced, there is
novation because they are incompatible.

What if a new payment method is introduced, such that from lump sum to installment, no
novation. They can stand together.
SUBSTITUTION OR CHANGE OF PARTIES
1. Substitution of creditor or also called subrogation.
It is the substitution of the creditor by a 3rd person who gains all the rights of the creditor.

2 KINDS OF SUBROGATION

a. CONVENTIONAL SUBROGATION-simply requires the consent the debtor, old creditor and new
creditor. If Their consent is clearly established, then there is conventional subrogation.

b. LEGAL SUBROGATION-happens by operation of law. Never presumed.

Example: Creditor pays the debt of another creditor. That creditor who paid the debtor is
subrogated to the rights of the creditor in favor of this debtor.

2. Substitution of the debtor.

2 KINDS
a. Expromission or at the instance of the new debtor.
2 scenarios:
First: With the consent and knowledge of the old debtor.
Effects:
 If the new debtor pays with the knowledge and consent of the old debtor, then the new
debtor has the right to seek reimbursement from the debtor and to compel the creditor
to subrogate him in his rights.
 What if the new debtor suddenly becomes insolvent or does not fulfill the obligation?
The old debtor’s liability shall be revived, he will be liable again.

Second: Without the knowledge and against the will of the old debtor.
Effects:
 The new debtor may demand reimbursement but only to the extent upon which the
old debtor is benefited. However, if the old debtor gives his consent before payment,
then the old debtor will be liable.
 In case of insolvency or non-fulfillment of the new debtor of the obligation, the old
debtor will no longer be liable.

b. Delegacion or at the instance of the old debtor. Consent of all parties are required—the old
debtor, new debtor, and creditor.
Effects:
 In case the new debtor pays, then he gains the right to seek total reimbursement to the
old debtor and he can compel the creditor to subrogate him in his rights.
In case of insolvency (no non-fulfillment)
 GR: In case the new debtor is insolvent, then the old debtor is not liable.
 EXCEPTIONS: (a) If the insolvency of the new debtor was of public knowledge and
existing at the time of the delegacion then the old debtor will be held liable; (b) the
insolvency of the new debtor was known to the debtor. So, the debtor is in bad faith—to
prevent commission of fraud.
 NOVATION EXTINGUISHES OBLIGATION

Take note novation will take place if any of these will change:
1. Object or the principal condition;
2. If there is a change in debtor;
3. Change in the creditor.

(Note: Any of the 3, hindi kinakailangang cummulative)

When we were talking about Dacion En Pago, the special mode of payment.
Most of the commentators state that it should be place under novation. Bakit?
Because there is a change in the object. Instead of paying in money, the payment now
will be in the form of property.
Kung susuri-in ninyo, and novation does not totally distinguish an obligation. Bakit?
Because the moment that there is a change, one obligation is terminated but a new
obligation is created.
Illustration 1:
Pag nag change yung object kagaya ng Dacion in Pago, nawalan ka ng obligation
to pay a sum of money but what is created? Obligation to deliver your property as payment
for your principal obligation.
Illustration 2:
Ganun din sa Substitution of Debtor, nawalan ng obligation yung first debtor pero
nagcreate ng panibagong obligation pero this time affecting the new debtor who
substituted the original debtor.
Illustration 3:
Ganun din when it comes to subrogation by a third person, Nawala yung obligation
nung original debtor doon sa original creditor pero yung bagong creditor ngayon doon ka
na ngayon magkakaroon ng obligation.

One obligation is extinguished but another one is created, that is in novation.

Kindly memorize the requisite for a novation to have a valid novation.
There is a difference between the substantial old and the new obligation. Balik tayo
sa dacion en pago. Di ba? Una, Pera and pambayad mo. Pangalawa, ang pagbabayad
mo ay property. So, substantially different.
And then ofcourse, capacity of the parties.
And finally, which is very very important, intention to extinguish.
Class, novation is not resumed. Novation should be in an equivocal terms.
If ever in the bar exam you encounter a question, is there a novation? Find out if
there is an explicit stipulation that the first obligation is extinguished and a new obligation
is substituted or the replacement of a person in lieu of the debtor or creditor will extinguish
the obligation of the old debtor as well as the old creditor because it has to be in its
equivocal terms. Any requisite here that is missing, you answer would be there is no
novation.
Extinction of the old obligation should be extinguished in an equivocal term and
old and new obligation should be in any point in compatible. So that we can really say
that novation extinguished the obligation.
The novation can be a real or personal novation:
1. Real Novation
-There is a change in the object.
Ex. Dacion en Pago
- From money, it is substituted with a property
 -
2. Personal Novation
- There is a change in party.

In Substitution of Debtor/Change in Debtor:

1. Expromission
- Change of the debtor without the knowledge and consent of the debtor.
2. Delegacion
- From the root word ‘’delegate’
- Delegation with the knowledge of the debtor
Reason behind that you need to know the change in debtor is with the knowledge and consent
of the debtor:
Problem here: If the new debtor is insolvent.
Question: Pwede bang balikan ng creditor yung old debtor?

Answer: To be able to answer that, you need to know:

1. if the change in debtor is with or without the consent; And
2. if the insolvency of the new debtor happened prior to the changing of the new debtor.

In case of insolvency of the new debtor, it will give rise to revival to the obligation
of the old debtor. Kase parang may bad faith kung tutuusin di ba? Alam na ng old debtor
na insolvent ang ipapalit nyang debtor tapus pumayag sya para lang makawala sya. Para
lang may change. Anong obligation and mawawala? Yung obligation nya.
Pero sabi ng batas, teka muna. Kung insolvent yung bagon debtor. At alam muna
na insolvent sya bago magkaroon ng novation, pwedeng maghabol pa rin ang creditor
sayo kase bad faith ka. Alam mo na ngang insolvent tapus sya pa ang pinalit mo.
It is different if it is expromission. Pag sinabi nating expromission. Nagchange ng
debtor yung creditor na hindi alam ng original debtor. So pag insolvent yung new debtor,
at least advantageous to the old debtor. In this case, the obligation will not be revived.
The creditor assumes the risk. He cannot run after the old debtor.
So do not forget the difference the expromission (without the knowledge and
consent in the part of the debtor) and delegacion. I think the word delegacion can easily
remember. I-connect moa gad ang word na delegate. Sinong nag delegate? Edi yung old
debtor. Denelegate ni old debtor si new debtor.
Class, When we go to contract whether you like it or not. What we have discussed
in obligation will be applied to contract. We are laying the basis.