OBLIGATIONS.

CHAPTER 1: GENERAL PROVISIONS (Art. 1156-1162)

Obligation, concept:

● An obligation is a judicial necessity to give, to do or not to do (Art. 1156, Civil Code of the Philippines). Juridical necessity
means that the court may be asked to order the performance of an obligation if he debtor does not fulfill it. If an obligation
cannot be enforced through the courts, it may be disregarded with impunity.

ELEMENTS OF AN OBLIGATION:
1. Active subject (obligee/ creditor): one in whose favor the obligation is constituted
2. Passive subject (obligor/debtor): one who has the duty of giving, doing or not doing
3. Object: prestation; the conduct which has to be observed by the debtor/obligor

REQUISITES:
1. It must be licit (otherwise it is void)
2. It must be possible, physically and juridically (otherwise it is void)
3. It must be determine or determinable (otherwise it is void)
4. It must have pecuniary value
a) Vinculum Juris : juridical/legal tie; binds the parties to the obligation
b) Causa (causa debendi/ causa obligations): why obligation exists

Example 1:
● D is obliged to give C P50,000.00 with interest at 12% per annum on December 31, 2020 pursuant to a contract of
loan.

•D is the passive subject; C is the active subject; the giving of P50,000.00 with 12% interest is the prestation; and the
contract of loan is the efficient cause. The obligation here is unilateral, i.e, only one party is required to perform a
particular conduct.

Example 2:
● D is obliged to transport the goods of C from Manila to Cebu, and C is obliged to pay P1,000.00 as transport
costs, under a contract of carriage.

•As regards, the transport of the goods is the prestation, C is the active subject and D is the passive subject. As
regards the payment of transport costs which is the prestation, C is the passive subject and D is the active subject.
The contract of carriage is the efficient cause for the obligations of both D and C. The obligations here are bilateral,
i.e, each party is required to perform a particular conduct.

CIVIL OBLIGATION AND NATURAL OBLIGATION DISTINGUISHED

● A civil obligation (as defined in Art.1156) is based on positive law, hence, it is enforceable by court action.

● A natural obligation, on the other hand, is based on natural law; hence, it is not enforceable by court action. The
obligation, however, exists in equity and moral justice, such that if the debtor voluntarily performs it, he can no longer
recover what he has given.

SOURCES OF OBLIGATION
➜ Art.1157. Obligations arise from:
1. Law
2. Contracts
3. Quasi-contracts
4. Acts or omissions punished by law; and
5. Quasi-delicts
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LAW (OBLIGATION EX LEGE)
➜ Must be expressly or impliedly set forth and cannot be presume

Example: The National Internal Revenue Code which provides for the payment of taxes; the Anti-
Mendicancy Law which prohibits the giving of alms to beggars.

CONTRACT ( OBLIGATION EX CONTRACTU)

● Must be complied with in good faith
● It is the “law” between parties;
● Neither party may be unilaterally evade his obligation in the contract, unless:
a. Contract authorizes it
b. Other party assents
● Parties may freely enter into any stipulations provided they are not contrary to law, morals, good customs, public order or
public policy

Example: A contract of lease which provides for the payment of rental by the lessee; a contract of sale which requires
the seller to deliver the thing sold and the buyer to pay the price.

QUASI-CONTRACT (OBLIGATION EX QUASI-CONTRACTU)

● Juridical relation resulting from lawful, voluntary and unilateral acts, which has for its purpose, the payment of indemnity
to the end that no one shall be unjustly enriched or benefited at the expense of another.
● Distinguished from other sources
1. Act giving rise to a quasi-contract must be LAWFUL distinguishing it from delict.
2. Act must be VOLUNTARY distinguishing it from quasi-delict which is based on fault or negligence;
3. Act must be UNILATERAL distinguishing it from contract which is based on agreement.

1. NEGOTIORUM GESTIO: unauthorized management; arises whenever a person voluntarily takes charge of the agency
or management of another’s abandoned business of property without the latter’s authority (Art.2150)

Example: D and C are the owners of adjacent vegetable farms. One day, D was not around to tend to his farm. When
C noticed that D had not been around for almost a week, he himself cultivated the soil and placed fertilizer on, watered
the plants, removed the weeds and wilted leaves. C incurred necessary and useful expenses in the process. D must
reimburse C for such expenses. Otherwise, he will be unjustly enriching himself at C’s expense.

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)

Example: D, payee of check for P5,000.00 cashes it with the drawee bank, but the teller gives him P6,000 by mistake.
D is duty bound to return the excess of P1,000.00 to the bank. Otherwise, he will be unjustly enriching himself at the
expense of another.

DELICTS (OBLIGATION EX MALEFICIO OR EX DELICTO)

● RPC: Art.100 Every person criminally liable for felony is also civilly liable.
● GOVERNING RULES:
1. Articles 100-113 of the RPC and other penal laws subject to Art.2177 Civil Code (quasi-delict);
2. Chapter 2, Preliminary title, on Human Relations (Civil Code)
3. Title 18 of Book IV of the Civil Code on damages

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● SCOPE OF CIVIL LIABILITY
1. Restitution
2. Reparation for damage caused
3. Indemnity for consequential damages

EXAMPLE:
If D steals the carabao of C, D’s civil liability consists of returning the carabao, paying for its value if he cannot return
it, and indemnifying the consequential damages suffered not only by C but also those of his family or by a third person
by reason of the crime. This will be in addition to any prison term or other penalty that may be imposed by the court.

QUASI-DELICTS/TORTS (OBLIGATION EX QUASI-DELICTO or EX QUASI MALEFICIO)

● It is an act or omission arising from fault or negligence which causes damage to another, there being no pre-existing
contractual relations between the parties.

● ELEMENTS
1. There must be an act or omission
2. There must be fault or negligence attributable to the person charged
3. There must be damage or injury
4. There must be a 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 pre-existing contractual relation between the parties.

EXAMPLE:
If a person, while cleaning his window, causes a flower pot to fall through his negligence thereby injuring someone
passing by, the former is liable for damages to the latter.

NEGLIGENCE
● Failure to observe for the protection of the interests of another person, that degree of care, precaution and vigilance
which the circumstances justly demand, whereby such other person suffers injury.

CHAPTER 2. NATURE & EFFECTS OF OBLIGATION

NATURE OF OBLIGATIONS
1. PERSONAL OBLIGATIONS: obligations to do or not to do; where the subject matter is an act to be done or not to be
done.
a) POSITIVE- obligation to do
b) NEGATIVE- obligation not to do

2. REAL OBLIGATION: obligations to give; where the subject matter is a thing which the obligor must deliver to the oblige
a) DETERMINATE OR SPECIFIC- object is particularly designated or physically segregated from all other things of
the same class
b) GENERIC- object is designated by its class or genus
c) LIMITED GENERIC- generic objects confined to a particular class

DETERMINATE THING
•EXAMPLE:
-A 2009 Toyota Corolla with engine no. 123456, Body No. 546611, and plate no. FRS 840
-My only wristwatch
-The house located at 234 Moret Street, Sampaloc, Manila
-My horse named “Blacky”
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INDETERMINATE THING
•EXAMPLE:
-A horse
-A car
-P10,000,000.00

OBLIGATIONS OF ONE OBLIGED TO GIVE A DETERMINATE THING

1. To take good care of the thing with the diligence of a good father of a family unless the law or agreement of the parties
requires another standard of care (Art.1163)
- Diligence of a good father of a family means the ordinary care that an average person exercises in taking care of his
property.

2. To deliver the thing (Art.1163)

- This involves placing the thing in the possession or control of the creditor either actually or constructively.

3. To deliver the fruits of the thing ( Art.1164)

a) Kinds of fruits
1. Natural fruits – They are the spontaneous products of the soil and the young and other products of animals.
(Art.442) Thus, the trees that grow naturally on the soil without the intervention of man and the colt delivered by a
mare are natural fruits. For the young and other products of animals, they are natural fruits even with the intervention
of human labor.
2. Industrial fruits- They refer to those produced by land of any kind through cultivation or labor. (Art. 442) Examples
are rice, corn and other crops produced through the intervention of human labor.
3. Civil fruits – They refer to fruits which are the result of a juridical relation such as the rent of a building, price of
lease of land and other property and the amount of perpetual or life annuities. (Art.442)

b) When creditor has a right to the fruits of a determinate thing

-The creditor has the right to the fruits of a thing from the time the obligation to deliver it arises.
However, he shall acquire no real right over it until the thing has been delivered to him (Art.1164)

c) When obligation to deliver the thing arises

1. If the obligation is a pure obligation or one whose performance is not subject to a suspensive period or suspensive
condition, the obligation to deliver arises from perfection.
2. If the obligation is subject to a suspensive period or suspensive condition, the obligation to deliver arises upon the
arrival of the term or the fuilfillment of the condition.

Thus, if D is obliged to give C a specific car on Christmas day next year, the obligation to deliver arises only on
the arrival of such date. Or if the obligation of D is to give C such car if C passes the CPA Examination then the
obligation to deliver arises only upon the fulfilment of such condition.

d) Rights of the creditor

1. Personal right- This is a right that may be enforced by one person on another, such as the right of the creditor to
demand the delivery of the thing and its fruits from the debtor. This is also called jus in personam or jus as rem.
2. Real right- This refers to the right or power over a specific thing, such as possession or ownership, which is a right
enforceable against the whole world. This is the right acquired by the creditor over the thing and its fruits when they
have been delivered to him. This is also called jus in re.

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4. To deliver its accessions and accessories even if they have not mentioned (Art.1166).
a) Accessions – They include everything that is produced by a thing or is incorporated or attached thereto, either
naturally or artificially, (Art.440), such as alluvium, the soil gradually deposited by the current of a river on a river bank, or
whatever is built, planted or sown on a parcel of land.

b) Accessories- Those joined to or included with the principal thing for the latter’s better use, perfection or
enjoyment( such as the keys to a car or house, or the bracelet or wristwatch).

REMEDIES OF THE CREDITOR

1. If the debtor fails to perform his obligation to deliver determinate thing.
a. To compel the debtor to make the delivery (Art.1165)
b. To demand damages from the debtor. (Art.1170)

Example:
D obliged to give C a specific car. On due date, C demands delivery but D does not deliver. In this case, C can compel
D to deliver the car because there is no other person in possession or control of it. C can also demand payment of
damages from him.

2. If the debtor fails to perform his obligation to deliver a generic thing.

a. To ask that the obligation be complied with at the expense of the debtor (Art.1165)
b. To demand damages from the debtor (Art.1170).

Example:
D obliged to deliver 10 sacks of rice to C. if D does not perform his obligation as stipulated, C can obtain 10 sacks of
rice from other sources at the expense of D. C can do so because the thing is generic and thus can be replaced with
the same kind. C can also ask for damages from D.

3. If the debtor fails to perform his obligation in obligation to do

a. If the debtor fails to perform the obligation or performs it but contravenes the tenor thereof-
1) Creditor may have the obligation executed at the expense of the debtor (Art.1167)
2) He may also demand damages from the debtor (Art.1170).

Example:
D is obliged to construct a hollow block fence for C. By agreement, the fence will be 2 meters high and 10 meters
long, fine-finished and painted. If D does not perform his obligation, C can ask another person to, or he himself may,
construct the fence at the expense of D. C can also ask form damages from D. C cannot compel D to perform the
obligation because compulsion will violate D’s right against involuntary servitude.

If D constructs the fence but did not follow the measurements agreed upon ( i,e., there was contravention of the tenor
of the obligation), C will have the same rights.

b. If the debtor performs the obligation but does it poorly

1) Creditor may have the same be undone at debtor’s expense (Art.1167)
2) Creditor may also demand damages from the debtor. (Art.1170)

Example:
If in the same illustration above, D constructs the fence following the measurements but it was not properly aligned,
the finishing was rough, and materials used were substandard, C can have the fence be demolished by another
person or even by himself at D’s expense. C can also demand damages from D.

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4. If the debtor does what has been forbidden him
a. The creditor may demand that what has been done be undone.
b. He may also demand damages from the debtor. (Art.1168)

Example:
B bought a farm lot from S. However, the only access from the road to B’s lot is the lot D. So B entered into a contract
with D for a right of way over a period of 10 years and paid a sum therefore. It was agreed that for the duration of the
contract D would not construct any fence between B’s lot and his. Sometime thereafter, however, D constructed a
fence in violation of the agreement. B may demand that D remove the fence at D’s expense and pay damages

GROUNDS FOR LIABILITY TO PAY DAMAGES

1. FRAUD
2. NEGLIGENCE
3. DELAY
4. CONTRAVENTION OF THE TENOR OF THE OBLIGATION (Art.1170)

DAMAGES
Concept, distinguished from injury

• Damages refer to the harm done and the sum of money that may be recovered.Injury refers to the wrongful, unlawful or
tortuous act. It is the legal wrong to be redressed.

2. Kinds of damages
a. Actual or compensatory damages- These refer to the pecuniary loss, (such as loss in business or profession) that
may be recovered. It includes the value of the loss suffered and profits not realized. (Art.2199)

b. Moral Damages- They include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation, and similar injury (Art.2217)

c. Nominal damages – They refer to damages to vindicate a right ( Art.2221).

d. Temperate or moderate damages- They are more than nominal but less than compensatory damages, but may be
recovered if the court finds that some pecuniary loss has been suffered but its amount cannot determined from the
nature of the case, should be proved with certainty, (Art.2224)

e. Liquidated damages- Those agreed upon by the parties to a contract, to be paid in case of breach (Art.2226)

f. Exemplary or corrective damages – These are imposed by way of example of correction for public good, in
addition to the moral, temperate, liquidated or compensatory damages ( Art. 2229)

4. Proof of pecuniary loss

a. Actual damages- Proof is required unless provided by law or stipulation ( Art.2199)
b. Other damages – Proof is not required in order that moral, nominal, temperate, liquidated or exemplary damages
may be adjudicated. The assessment of such damages, except liquidated ones, is left to the discretion of the court,
according to the circumstances of each case. (Art.2216)

●FRAUD
CONCEPT:
• It is the deliberate or intentional evasion by the debtor of the normal compliance of his obligation. Under Art.1170, this
actually refers to the fraud committed by the debtor at the time of the performance of his obligation.

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KINDS OF FRAUD IN GENERAL
A. According to meaning
I. Fraud in obtaining consent
a) Causal Fraud or dolo causante – This refers to fraud without which consent would not have been given. It renders
the contract voidable.
b) Incidental fraud or dolo incidente – This refers to fraud without which consent would have still been given but the
person giving it would have agreed on different terms. The contract is valid but the party employing it shall be liable for
damages.
II. Fraud in the performance of the obligation
- This is the deliberate act of evading fulfilment of an obligation in a normal manner. This presupposes an existing
obligation; hence, the fraud has no effect on the validity of the contract since it was employed after perfection.
However, the party employing it shall be liablie for damages, ( Art.1170)

B. According to time of commission

I. Future fraud- A waiver of an action for future fraud cannot be made, if there is an agreement for its waiver, the same
is void. (Art.1171). Thus, the debtor will still be liable for damages if he commits fraud in the performance of his obligation
despite the waiver.
II. Past fraud- A waiver of an action for past fraud maybe made, since the commission of fraud can no longer be
encouraged. Such waiver is an act of liberality on the part of the creditor.

●NEGLIGENCE
CONCEPT:
- It is the omission of that diligence which is required by the nature of the obligation and corresponds with the
circumstances of the person, of the time, and of the place. (Art.1173). It is the failure to observe, for the protection of the
interest of another perso n, that degree of care, precaution and vigilance which the circumstances justly demand, whereby
such other person suffers injury.

KINDS
a. CULPA CONTRACTUAL ( contractual negligence) – This is negligence in the performance of a contract ( such as the
negligence committed by the driver of a bus when a passenger is hurt during a trip because there is here a breach of
contract of carriage) (master-servant rule)
b. CULPA AQUILIANA (civil negligence or tort or quasi-delict or culpa extra-contractual) – These are acts or
omissions that cause damage to another, there being no contractual relation between the parties ( Art.2176)
c. CULPA CRIMINAL (criminal negligence) – This is negligence that results in the commission of a crime.

●DELAY OR DEFAULT OR MORA

CONCEPT
- Delay or default or mora is the non-fulfillment of an obligation with respect to time.

KINDS
a. MORA SOLVENDI- Delay on the part of the debtor
1. Ex re – Delay in real obligation (obligations to give)
2. Ex persona- Delay in personal obligations (obligations to do)
b. MORA ACCIPIENDI – Delay on the part of the creditor
This exists when the creditor refuses to accept the thing due without justifiable reason.
c. COMPENSATIO MORAE- Delay in reciprocal obligations, i,e., both porties are in default. Here, it is as if there is no
delay.

GENERAL RULE: The debtor incurs in delay from the time the creditor demands fulfillment of the obligation but the debtor
fails to comply with such demand (no demand, no delay, as a rule). The following are the requisites of delay:

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 a. The debtor does not perform his obligation on the date it is due
b. The creditor demands the performance of the obligation.

c. The debtor does not comply with the creditor’s demand.

Example:
D owes C P5,000.00. the obligation is due on May 15. if D does not pay on May 15. He is not yet in delay. But if C
makes a demand on him to pay on that date or thereafter and D does not comply, then D will be in delay.

• EXCEPTIONS, i,e., delay will exist even without demand in the following cases ( Art.1169).
1. When the law so provides – Ex. Taxes
2. When the obligation expressly so declares – Ex. advance payment on leases/ rental
3. When time is of the essence of the contract - Ex. Bridal car
4. When demand would be useless – Ex. The thing he is obliged to deliver has been destroyed through his fault or he has
delivered it to another person.
5. In reciprocal obligations, where the obligations arise out of the same cause and must be fulfilled at the same time, from
the moment one of the parties fulfills his obligation, delay by the other begins notwithstanding the absence of demand.
NOTE: There is no delay in an obligation not to do as one cannot be in delay for not doing something.

EFFECTS OF DELAY
a. The debtor shall be liable for the payment of damages (Art.1170)
b. If the obligation consists in the delivery of a determinate thing, he shall be responsible for any fortuitous event until he
has effected the delivery. (Art.1165)

FORTUITOUS EVENTS
CONCEPT
-Fortuitous events are those event that could not be foreseen, are inevitable (Art.1174). It is not enough that the event
should not been foreseen or anticipated, but it must be one impossible to foresee or avoid.
ELEMENTS
-The cause must be independent of the debtor’s will.
-There must be impossibility of foreseeing the event or of avoiding it even if it can be foreseen
-The occurrence of the event must be of such character as to render it impossible for the debtor to perform his obligation in
a normal manner.

LIABILITY FOR FORTUITOUS EVENTS

-General Rule : No person shall be liable for fortuitous events (His obligation will be extinguished).

Exceptions to the rule (Art.1174):

a. When the law expressly provides for liability even in case of fortuitous events (such as that provided in Art.1165 where
the obligor is liable for fortuitous events if he delays or has promised to deliver the same thing to two or more persons who
do not have the same interest)
b. When the parties have declared liability even in case of fortuitous event.
c. When the nature of the obligation requires the assumption of risk (such as the obligation of an insurer who must pay the
policy holder even if the loss is caused by a fortuitous event if the cause thereof is the risk insured against)

BURDEN OF PROVING LOSS DUE TO FORTUITOUS EVENT

- The burden of proving that the loss was due to fortuitous event rests on him who invokes it. And, in order for a fortuitous
event to exempt one from liability, it is necessary that may have occasioned the loss.

PRESUMPTIONS ON RECEIPT OF PRINCIPAL OR OF LATER INSTALLMENT

( these are disputable presumptions and evidence may be introduced to the contrary by the creditor ( Art.1176).
1. The receipt of the principal without reservation as to interest, shall give rise to the presumption that the interest has been
paid.
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2. The receipt of a later instalment without reservation as to prior instalments, shall give rise to the presumption that such
prior instalment have been paid

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 CHAPTER 3. DIFFERENT KINDS OF OBLIGATIONS

KINDS OF OBLIGATION
1. Pure obligation
2. Conditional obligation
3. Obligation with a period
4. Alternative obligation
5. Facultative obligation
6. Joint obligation
7. Solidary obligation
8. Divisible obligation
9. Indivisible obligation
10. Obligation with a penal clause

1. PURE OBLIGATION
•Is one without a term or condition and is demandable at once.

RULE: An obligation is demandable at once-

a. When it is pure
b. When it is subject to a resolutory condition
c. When it is subject to a resolutory period

Example : I promise to give you P5,000.00. This is immediately demandable since there is no term that must expire or a
condition that must happen for the obligation to be demandable.

2. CONDITIONAL OBLIGATION
•A conditional obligation is one whose demandability or extinguishment depends upon the happening of a condition.

CHARACTERISTICS OF A CONDITION
•Future & uncertain
•Past but unknown
•Must not be impossible

Examples:
1. “I will give you my car if you pass the CPA Examination.”
•The condition here is suspensive. You may not demand the delivery of my car until you pass the CPA Examination.
2. “I will let you use my car until you pass the CPA Examination.”
•The condition here is resolutory. You may demand the delivery of my car now but you must return it to me when you pass
the CPA Examination.

CLASSIFICATION OF CONDITION

PRINCIPAL KINDS
1. Suspensive- The happening of which gives rise to the obligation. Also called condition antecedent or condition
precedent. The demandability of the obligation is suspended until the happening of the condition.
2. Resolutory – The happening of which extinguishes the obligation. Also called condition subsequent. The obligation is
demandable at once but it shall be extinguished upon the happening of the condition.

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OTHER KINDS OF CONDITION
1. Possible – capable of fulfilment, legally or physically
2. Impossible – if the condition is not capable of fulfilment, legally or physically
3. Positive- an act is supposed to be performed
4. Negative – an act is supposed to be omitted
5. Potestative – the condition depends upon the will of one of the contracting parties
6. Casual – the condition depends upon chance or upon the will of a third person
7. Mixed- the condition depends partly upon chance and partly the will of a third person.

RIGHTS OF THE PARTIES BEFORE THE FULFILLMENT OF THE CONDITION (ART.1188)

1. Creditor- He may bring the appropriate the appropriate actions for the preservation of his right, such as registering his
claim with the Register of Deeds, if appropriate, to notify all third persons, or asking the debtor to provide a security if the
debtor is about to become insolvent.
2. Debtor- He may recover what he has paid by mistake

EFFECT WHEN THE DEBTOR VOLUNTARILY PREVENTS FULFILLMENT OF THE CONDITION

•The condition is deemed fulfilled if the debtor voluntarily prevents its fulfilment (Art.1186); hence, the obligation becomes
immediately demandable. Hence, there must be an intent on part of the debtor to prevent compliance with the condition
and actually prevents its fulfilment.

Example:
D promised to give P10,000.00 to C, a marathon athlete, if C finishes the race during the athletic meet. However, on
the eve of the scheduled race, D put a substance on the drink of C who experienced weakening after taking the drink,
and hence, was not able to join the race. Here, D must give P10,000.00 to C since the condition is deemed fulfilled.

RULES IN CASE OF LOSS, DETERIORATION OR IMPROVEMENT OF DETERMINATE THING BEFORE THE

FULFILLMENT OF THE SUSPENSIVE CONDITION

LOSS OF THE THING

•Without debtor’s fault – Obligation is extinguished
•With debtor’s fault – Debtor is obliged to pay damages

There is loss when the thing:

a. Perishes
b. Goes out of commerce
c. Disappears in such a way that its existence is unknown or it cannot be recovered

Example: D is obliged to give C a specific house if C passes the CPA Examination. If the house is destroyed in a fire
without the fault of D before C passes the CPA Examination, D’s obligation is extinguished even if C, thereafter,
passes the CPA Examination. But if the house is destroyed through the fault of D such as when he placed inside the
house highly flammable chemicals which caused the fire, then D shall be obliged to pay damages should C pass the
CPA Examination.

DETERIORATION OF THE THING

•Without debtor’s fault- The impairment shall be borne by the creditor, i.e, no liability on the part of the debtor to pay
damages.
•With debtor’s fault- The creditor may choose between Rescission, plus damages, and Fulfilment plus damages

Example: D is obliged to give a specific car to C if C finishes his economics degree. The deterioration of the car due
to wear and tear before C finishes his economics degree will be borne by C when C later finishes the same degree.
However, if the car is damaged in an accident due to D’s fault, C, when he finishes his economics degree may rescind
the contract and ask for damages, or ask D to deliver the car in its deteriorated condition plus damages.
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3. IMPROVEMENT OF THE THING
By nature or by time- The improvement shall insure to the benefit of the creditor

Example: D is obliged to give his violin to C, if C finishes his course in music. If the quality of the tone produced by the
violin had improved between the time that D’s obligation was constituted and the completion by C of his course in
music, then such improvement shall inure to the benefit of C.

At the expense of the debtor- the debtor will have the rights granted to a usufructuary, i.e., he can have enjoyment of the
use of the improvement if no damage is caused to the principal thing. If the improvement cannot be removed without
causing damage to the principal thing, the thing and the improvement shall be delivered to the creditor without any right on
the part of the debtor to indemnify. He may, however, set off the improvements against any damage to the thing.

Example: D is obliged to give his only car to C if C finishes his economics degree, D had the car repainted. In this
case, D can continue using the car in its improved condition. Upon the completion by C of his economic degree, D
cannot remove the paint because it will cause damage to the car. However, if he had caused a dent on the car due to
his fault he may set off the cost of repainting against the cost of damage brought by such dent.

RECIPROCAL OBLIGATION, CONCEPT

A reciprocal obligation is one that arises from the same cause and in which each party is a debtor and a creditor of the
other, such that the obligation of one is dependent upon the obligation of the other. Reciprocal obligations are to be
performed simultaneously so that the performance of one is conditioned upon the simultaneous fulfilment of the other.

EXAMPLE: S sold his Toyota car to B for P200,000. The delivery of the car by S is dependent upon the payment of
the price by B.

OBLIGATION WITH A PERIOD

•An obligation with a period is one whose consequence are subjected in one way or another to the expiration of said period
or term.
•A period is a future and certain event upon the arrival of which the obligation subject to it either arises or is terminated

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WHEN THE DEBTOR LOSES THE RIGHT TO MAKE USE OF THE PERIOD
1. Debtor becomes INSOLVENT unless he gives a guaranty or a surety for the debt.
2. Debtor fails to furnish creditor the GUARANTIES promised.
3. Debtor’s own acts has IMPAIRED said guaranties, or when through a fortuitous event
4. Debtor’s VIOLATES any undertaking, in consideration of which the creditor agreed to the period
5. Debtor attempts to ABSCOND

4. ALTERNATIVE OBLIGATION
•Where several prestations are due but the performance of one is sufficient.

GENERAL RULE: The right to choose the prestation belongs to the debtor

EXCEPTIONS:
1. It may be exercised by the creditor but only when it was expressly granted to him
2. By a third person when the right is given to him by common agreement of the parties.

LIMITATIONS:
1. The debtor cannot choose those prestations which are : impossible, unlawful, which could not have been the object of
the obligation
2. The debtor has no more right to choose when, among the prestations whereby alternatively bound, only one is
practicable
3. The debtor cannot choose part of one prestation and part of another prestation

WHEN OBLIGATION CEASES TO BE ALTERNATIVE AND BECOMES A SIMPLE OBLIGATION

1. When the debtor has communicated his choice to the creditor
2. When among the prestations whereby the debtor is alternatively bound, only one is practicable.
3. When the creditor has communicated his choice to the debtor, if the creditor has been expressly given the right of
choice.

5.FACULTATIVE OBLIGATION
•an obligation where only one prestation has been upon but the obligor may render
another in substitution.

EFFECT OF LOSS IN FACULTATIVE OBLIGATIONS:

1. Before substitution – if the principal thing is lost through a fortuitous event, the obligation is extinguished; otherwise,
the debtor is liable for damages. The loss of the thing intended as a substitute with or without the fault of the debtor does
not render him liable.
2. After substitution- if the principal thing is lost, the debtor is not liable whatever may be the cause of the loss, because it
is no longer due. If the substitute is lost, the liability of the debtor depends upon whether or not the loss is due to his fault.

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6. JOINT OBLIGATION
•an obligation where the whole obligation is to be paid or fulfilled proportionately by the different debtors and/ or is to be
demanded proportionately by the different creditors.
Words used to indicate joint liability:
Mancomunada; mancomunadamente; pro rata; proportionately; separately, “we promise to pay” signed by two or more
persons
RULES:
1. Insolvency of one debtor does not make the others liable for his share
2. Vitiated consent on the part of one debtor does not affect consent of the others

7. SOLIDARY OBLIGATION
•An obligation where each one of the debtors is bound to render, and/ or each one of the creditors has a right to demand
from any of the debtors, entire compliance with the prestation.

Words used to indicate solidary liability:

Solidaria; in solidum, mancimunada solidaria; together and/or seperate;ly; individually and/or collectively, jointly and
severally, “ I promise to pay”, signed by two or more persons.

GENERAL RULE: Obligation is presumed to be jpint if there is concurrence of two or more debtors and/or two or more
creditors in the same obligation.

Exceptions: There is solidarity only when:

1. The stipulation of the parties expressly so states;
2. The law requires solidarity
3. The nature of the obligation requires solidarity

KINDS OF SOLIDARITY:
1. Active – creditors
2. Passive- debtors
3. Mixed- creditors and debtors

AUTOMATIC SOLIDARY OBLIGATION

1. Gestors in Negotiorum Gestio
2. Payees in Solutio Indebiti
3. Those guilty of Quasi Delicts
4. Those guilty of delicts
5. Those guilty of negligence
6. Bailees in commodatum

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 EXAMPLES:
1. Passive solidarity
A and B, solidary debtors, are indebted to X for P10,000.00. X can demand payment of P10,000 from either A or B. If
A pays X P10,000, the obligations extinguished. A can demand reimbursement of P5,000 from B representing the
latter’s share in the debt.
2. Active solidarity
A owes X and Y, solidary creditors, P8,000. Either X or Y may demand payment of P8,000 from A. if A pays X P8,000,
the obligation is extinguished. X must give P4,000,000 to Y representing the latter’s share in the credit.
3. Mixed
A and B, solidary debtors owe X and Y, solidary creditors, P12,000. X or Y may collect From A or B the total sum of
P12,000. if A pays X P12,000, the obligation is extinguished. B must reimburse A P6,000. on the other hand, X must
give P6,000 to Y.

RELATED RULES:
1. The insolvency of one of the debtors will obligate the others to shoulder his share in proportion to their respective
obligations.
2. A solidary debtor paying the entire obligation shall be entitled to reimbursement plus interest computed as follows:
a) If paid at or after maturity interest shall run from the date of payment until reimbursement is made
b) If paid before maturity, interest shall run from the date of maturity until reimbursement is made.
3. Remission or condonation of the share of one of the creditors will not affect his liability as a solidary debtor
4. Remission of the entire obligation in favour of one of the creditors shall NOT give rise to the right to demand
reimbursement from the other debtors.
5. Remission that will take place after payment was made by one of the debtors will not bar the debtor who made the
payment from demanding reimbursement
6. Payment made by one of the debtors after the prescription of the obligation shall NOT give rise to the right to demand
reimbursement.

8. DIVISIBLE OBLIGATION
•An obligation where the object in its delivery or performance is capable of partial fulfilment

9. INDIVISIBLE OBLIGATION
•an obligation where the object in its delivery or performance, is not capable of partial fulfilment.

TEST: The purpose of the obligation or the intention of the parties.

JOINT INDIVISIBLE OBLIGATION- where the parties are merely proportionately liable but the object or subject matter
thereof is not physically divisible in different parts

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10.OBLIGATION WITH A PENAL CLAUSE
•An obligation which contains an accessory undertaking to pay a previously stipulated indemnity in case of breach.

GENERAL RULE: The penalty fixed by the parties is a compensation or substitute for damages in case of breach of
obligation.

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EXCEPTIONS: (obligee can recover penalty plus damages)
1. Stipulation to the contrary
2. Obligor is sued for refusal to pay the agreed penalty
3. Obligor is guilty of fraud

When penalty may be reduced:

a. If the principal obligation has been partly complied with:
b. If the principal obligation has been irregularly complied with;
c. If the penalty is iniquitous or unconscionable even if there has been no performance

CHAPTER 4. MODES OF EXTINGUISHING AN OBLIGATION

PAYMENT OR PERFORMANCE

1. Payment or performance
2. Loss of the thing due
3. Condonation or remission of the debt
4. Confusion or merger of rights of the debtor and the creditor
5. Compensation
6. Novation
7. Annulment
8. Rescission
9. Fulfillment of a resolutory condition
10. Prescription
11. Death- in personal obligations
12. Mutual desistance/ withdrawal
13. Arrival of resolutory period
14. Compromise
15. Impossibility of fulfillment
16. Happening of fortuitous event

1. PAYMENT OR PERFORMANCE
❖ The delivery of the sum or thing due or the performance of the obligation in any other manner.
❖GENERAL RULE: Creditor is not bound to accept payment or performance by a third person.

Exceptions:
1. When made by a third person who has an interest in the fulfilment of the obligation
2. Contrary stipulation

RIGHTS OF THE THIRD PARTY WHO PAID THE OBLIGATION OF ANOTHER

1. Payment with the knowledge and consent of the debtor
a. Can recover entire amount paid
b. Can be subrogated to all of the rights of the creditor
2. Payment without the knowledge or against the will of the debtor- can recover only insofar as payment has been
beneficial to the debtor.

RULES IN MONETARY OBLIGATIONS:

1. Payment in cash – must be made in the currency stipulated, if not possible, then in the legal tender in the Philippines
2. Payment in check or other negotiable instrument – not considered payment, they are not considered legal tender
and may be refused by the creditor.

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EXCEPTIONS:
a. when the document has been cashed;
b. When it had been impaired through the fault of the creditor

LEGAL TENDER IN THE PHILIPPINES

1. For denominations of twenty-five centavos and above, coins shall be legal tender in amounts not exceeding fifty pesos
(P50).
2. For denominations of Ten centavos or less, in amounts not exceeding Twenty Pesos (P20)
3. All bills are valid legal tender for any amount.
REPUBLIC ACT NO. 8183
- An act to assure uniform value of Philippine coin and currency.

Sec.1- All monetary obligations shall be settled in the Philippine Currency which is legal tender in the Philippines.
However, the parties may agree that the obligation or transaction shall be settled in any other currency at the time of
payment.

PLACE WHERE THE OBLIGATION SHALL BE PAID

1. If there is a stipulation- at the place designated
2. If there is no stipulation:
a. Delivery of a specific or determinate thing- payment shall be made at the place where the thing was at the time of
perfection
b. Delivery of indeterminate thing- delivery or payment must be made at the domicile of the debtor

APPLICATION OF PAYMENT
❖Designation of the debt to which the payment must be applied when the debtor has several obligations of the same kind in favor of
the same creditor.
REQUISITES:
1. One debtor and one creditor;
2. Two or more debts of the same kind;
3. All debts must be due;
4. Amount paid by the debtor must not be sufficient to cover all debts.

PAYMENT MUST BE APPLIED TO THE INTEREST BEFORE THE PRINCIPAL

In the payment of an obligation producing interest, when the amount being paid is not sufficient to cover the principal
and interest due, the amount paid must apply first to the interest, the excess if owing, shall be applied to the principal
obligation.

TO WHOM DOES THE RIGHT TO MAKE AN APPLICATION OF PAYMENT BELONG?

As a general rule, the right to make an application of payment belongs to the debtor. However, if he does not avail
himself of this right, the creditor may be given the initiative by giving to him a receipt designating the debt to which the
payment shall be applied (Art.1252)

RULES IF NO APPLICATION OF PAYMENT IS MADE

1. Apply it to the most onerous, in case the debts are of different nature.
2. If both are of the same nature and burden, apply them proportionately

SUMMARY OF THE RULES IN APPLICATION OF PAYMENT

1. Debtor has to choose which obligation he wishes to extinguish.
2. If debtor does not apply payment, the creditor may makes the designation by stating in the receipt of payment.
3. If No.1 & No.2 will not apply, the most onerous to the debtor among those due must be paid.
4. If the debts due are of the same nature and burden, apply to all of them proportionately(Art,.1252,1254)
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22
DATION IN PAYMENT (dacion en pago)
•Properly alienated by the debtor to the creditor in satisfaction of the debt in money; the transmission of the ownership of
a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation.

PAYMENT BY CESSION ( cession en pago)

•Debtor abandons all of his properties for the benefit of his creditors in order that from the proceeds thereof, the latter
may obtain payment of their credits.

CONSIGNATION
- Deposit of the object of the obligation in a competent court in accordance with the rules
prescribed by law after refusal or inability of the creditor to accept the tender of payment.

RULE: Consignation shall produce effects of payment only if there is a valid tender of payment

REQUISITES OF VALID CONSIGNATION

1. Existence of a valid debt which is due
2. Tender of payment by the debtor and refusal without justifiable reason by the creditor to
accept it
3. Previous notice of consignation to persons interested in the fulfilment of the obligation
4. Consignation of the thing or sum due
5. Subsequent notice of consignation made to the interested parties

DISTINGUISH TENDER OF PAYMENT FROM CONSIGNATION

1. Tender of payment is the antecedent act, the preparatory act to extinguish the obligation, while consignation is the
principal act which will produce the effect of payment.
2. Tender of payment is extrajudicial, while consignation is judicial

EFFECT OF TENDER WITHOUT CONSIGNATION

Tender of payment without consignation shall not extinguish the obligation. In short, there must be an offer to pay. If
refused without reason, consign or deposit the object in court before the obligation is extinguished. It is also requires that
notice of consignation must be sent to all persons interest in the fulfilment of the obligation, such as the creditor, co-
debtors, sureties or guarantors.

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 IN THE FOLLOWING CASES, CONSIGNATION ALONE WITHOUT TENDER OF PAYMENT WILL EXTINGUISH THE
OBLIGATION
1. Creditor is absent or unknown, or does not appear at the place of payment
2. Creditor is incapacitated to receive payment at the time it is due
3. When two or more persons claim the right to collect
4. When the title of the obligation has been lost
5. When without just cause the creditor refuses to give a receipt

2. LOSS OF THE THING DUE

A thing is considered loss when:
1. It perishes
2. Goes out of commerce
3. Disappears in such a way that its existence is unknown or it cannot be recovered

KINDS OF IMPOSSIBILITY OF PERFORMANCE

1. Physical impossibility
2. Legal impossibility
3. Moral impossibility

EFFECT OF LOSS
1. In obligations to Give Determinate/ Specific things: will extinguish the obligation if the thing is lost

EXCEPT:
a. When by law, obligor is liable even for fortuitous event;
b. When by stipulation, obligor is liable even for fortuitous event;
c. When the nature of the obligation requires the assumption of risk;
d. When the loss of the thing is due partly to the fault of the debtor;
e. When the loss of the thing occurs after the debtor incurred in delay;
f. When the debtor promised to deliver to deliver the same thing to two or more person who do not have the same
interests;
g. When the debt of a certain and determinate thing proceeds from a criminal offense.

2. In Obligations to Give Generic Things : obligation is not extinguished; the genus of a thing cannot perish.
Exception: In case of a generic obligation whose object is a particular class or group with specific or determinate qualities
(limited generic obligations)
3. In obligations to Do: obligation is extinguished when the prestation becomes legally or physically impossible.

EXAMPLES OF INSTANCES WHEN OBLIGATION IS NOT EXTINGUISHED DESPITE FORTUITOUS EVENT

1. Article 1165, debtor is in default
2. Article 1265, obligation arising from a crime
3. When payee in solution indebiti is in bad faith
4. When the debtor promised to deliver the same things to two or more persons
who don not have the same interest
5. When the nature of the obligation requires the assumption of risk
6. Obligation is to give a generic thing
7. When it is stipulated

EFFECTS OF LOSS IN CRIMINAL OFFENSE

▪If the thing proceeds from a criminal offense, the loss of such thing shall not extinguish the obligation unless the creditor
is in default.Example: D commits the crime of theft, and was asked to return the car stolen to the owner under the
principle of restoration or restitution of the property stolen. The night before delivery, the car got lost due to fire.

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 Question 1: Is D’s obligation extinguished?
Answer: No, because the thing to be returned proceeded from a criminal offense, the loss of it shall not extinguished the
obligation.
Question 2: Supposing on the date of delivery, D tendered delivery but C refused to accept, subsequently the car got
lost due to fire. Is the obligation to deliver extinguished?
Answer: Yes, because the creditor is in default, mora accipiendi.
Question 3: If the creditor refused to accept, what must he (D) do?
Answer: D may either deposit the thing in court, that is consignation, or he may keep the thing in his possession.

3. REMISSION OR CONDONATION
▪ The gratuitous abandonment by the creditor of his right ( Art.1270). It is thus a form of donation

REQUISITES:
1. There must be an agreement
2. The parties must be capacitated
3. There must be a subject matter
4. The cause or consideration is generosity/gratuitous
5. Obligation is demandable at the time of remission
6. Remission must not be inofficious
7. Must be accepted by the obligor
8. If made expressly, it must comply with the forms of donation.

EFFECT OF THE RENUNCIATION OF THE PRINCIPAL AND/OR ACCESSORY OBLIGATION

▪If the principal obligation is remitted or renounced, the accessory will follow, but if it is the accessory which is remitted or
renounced, the principal shall subsist. (Art.1271).

EFFECT OF DELIVERY OF THE THING PLEDGED TO THE DEBTOR

▪ Contract of pledge is extinguished but not the principal obligation. Debtor is still indebted but there is no more security
(Art.1274)

4. CONFUSION OR MERGER OF RIGHTS

merger of the characteristics of the creditor and the debtor in one and the same
person by virtue of which the obligation is extinguished.

REQUISITES FOR A VALID MERGER

1. It must take place between the principal debtor and creditor
2. The merger must be clear and definite
3. Obligations are the same or identical

EFFECT OF MERGER AND CONFUSION

1. Obligation is extinguished
2. If there is a guarantor and the merger is in the principal debtor, the obligation is extinguished, the guarantor is
released. “Accessory follows the principal”.
3. If there is a guarantor, and the merger is not on the principal debtor but only on the guarantor, the principal obligation
is not extinguished but the accessory is extinguished.

CONFUSION IN JOINT AND SOLIDARY OBLIGATIONS

1. If the obligation is joint, only the share corresponding to the creditor or debtor in whom the two characters concur.

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 Example: D1 and D2 are jointly indebted to C for P10,000. C endorsed the instrument to X, X to Y, Y endorsed back to
D1 only. In here, the obligation of D1 is extinguished and not D2. instead, the right of D1 is to proceed against D2 and
collect P5,000.
2. If the obligation is solidary, the obligation is totally extinguished.
Example: D1 and D2 are solidary liable to C for P10,000. C endorsed to X, X to Y, Y endorsed back to D1. the obligation
here is totally extinguished but D1’s right is to proceed against D2 and collect P5,000.

5. COMPENSATION
• It is the extinguished to the concurrent amount of the debts of two persons who, in their own rights are debtors and
creditors of each other.Sort of balancing two obligations simultaneously in or to extinguish them to the
extent in which the amount of one is covered by the other.
• This compensation is sometimes called abbreviated or simplified payment, because the two debts are extinguished
without the transfer of money or property from one party to the other.

COMPENSATION DISTINGUISHED FROM PAYMENT

1. In compensation, partial payment is always permitted; while in payment, it must be complete and indivisible as a rule.
2. In compensation, the mode may take place by operation of law; while in payment, it involves action or delivery of the
amount paid.

REQUISITES OF COMPENSATION
1. That each one of the obligors be bound principally, and that he be at the same time a principal creditor of the other;
2. That both debts consist in a sum of money, or if the things due are consumable, they be of the same kind, and also of
the same quality if the latter has been sated.
3. That the 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.

DEBTS NOT SUSCEPTIBLE OF COMPENSATION

1. Debts arising from contract of deposit
2. Debts arising from contracts of commodatum
3. Claims for support due by gratuitous title
4. Obligations arising from criminal offense
5. Certain obligations in favour of government

6. NOVATION
•substitution or change of an obligation by another, resulting in the extinguishment or modification either by:
a. Changing the object or principal conditions (objective)
b. Substituting another in place of debtor (passive subjective)
c. By subrogating a third person in the rights of the creditor (active subjective)

REQUISITES:
a. A previous valid obligation;
b. Capacity and intention of the parties to modify or extinguish the obligation
c. The modification or extinguishment of the obligation
d. The creation of a new and valid obligation

KINDS OF NOVATION
a. Legal or conventional
b. Real, personal or mixed

TWO FORMS OF SUBROGATING A THIRD PERSON IN THE RIGHTS OF THE CREDITOR

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1. Expromission- substitution of the old debtor by a third person without the knowledge or against the will of the old
debtor but the third person acts on his own initiative to assume the debtor’s obligation with the consent of the creditor. It
is essential that the old debtor be released from his obligation.
2. Delegacion- substitution of the old debtor, when the creditor accepts a third person to take the place of the debtor at
the instance of the latter. The creditor may withhold approval. All parties, the old debtor, the new debtor and the creditor
must agree.

GENERAL RULE: Subrogation cannot be presumed

Except:
1. Creditor pays another creditor who is preferred, without debtor's knowledge;
2. A third person not interested in the obligation, pays with the express or tacit approval of the debtor
3. When even without the debtor’s knowledge, a person interested in the fulfilment of the obligation pays, without
prejudice to the effect of conclusion as the latter’s share.

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