LAW ON OBLIGATIONS

Articles 1156-1304 of the Civil Code of the Philippines

2S-1BLM | Atty. Karlo Antonio | Sources: Lecture Notes; Rabuya; De Leon MEDOLLAR, L. J. - 1BLM

agencies for their resigning employees to not divulge

Chapter 1: GENERAL PROVISIONS confidential information

ARTICLE 1156 4. Juridical tie or vinculum juris

● Efficient cause established by the various sources of
An obligation is a juridical necessity to give, to do or not to do. obligations
● Refers to the source of obligation; what binds the
Juridical: Legal parties to fulfill the obligation
Necessity: Cannot be avoided and needs to be done, as ● The obligation must be rooted in something valid
non-compliance has sanctions and penalties
Juridical Necessity – A civil obligation, which can be EXAMPLE: Between the State and the taxpayers, the juridical
compelled* tie is the law. Between a buyer and a creditor, the juridical tie
*Not all civil obligations can be compelled, is a contract. Between an assailant and a victim, the juridical
particularly if it requires a party to perform a tie is the delict.
particular service, as it violates constitutional rights
against involuntary servitude ● The distinction between the active and passive
subjects is viewed from the perspective of who has
EXAMPLE 1: If the seller fails to deliver and the buyer forces the the right to demand the performance of the
seller to fulfill his obligation, is it legal? obligation
● No. The only remedy for it is to enforce it in court that
they may render a judgment to compel the other ARTICLE 1157
person to fulfill their obligation
Obligations arise from:
EXAMPLE 2: Sarah Geronimo was contracted to perform in San (1) Law;
Beda University, but she changed her mind. You cannot force (2) Contracts;
her to perform, but you can sue her for damages. (3) Quasi-contracts;
(4) Acts or omissions punished by law; and
EXAMPLE 3: If you commit murder will there be an obligation (5) Quasi-delicts.
on the part of the accused or the murderer?
● Yes, there will be an obligation. There is always Sources of Obligations
damage if there is murder as you take a human life a. Law
● Murder = civil liability because it is an act punishable ● When they are imposed by the law itself
by law i.e., RPC ● Eg., Obligation to pay taxes; Obligation to support
one’s family
Essential Elements of an Obligation
1. Active subject (called obligee or creditor) b. Contracts
● Person who is entitled to demand the fulfillment of ● When they arise from the stipulation of the parties
the obligation (Art. 1306, NCC)
● He who has a right ● E.g., Obligation to repay a loan by virtue of an
agreement
2. Passive subject (called obligor or debtor)
● Person who is bound to the fulfillment of the c. Quasi-contracts
obligation ● When they arise from lawful, voluntary, and unilateral
● He who has a duty acts and which are enforceable to the end that no
one shall be unjustly enriched or benefitted at the
3. Object (or Prestation) expense of another (Art. 2142)
● Subject matter of the obligation ● E.g., Obligation to return money paid by mistake or
● The particular conduct required to be observed by which is not due
the debtor (to give, to do, or not to do)
● EXAMPLE: Prestation not to do: NDAs of d. Crimes (acts or omissions punished by law)
entertainment agencies and of government
 ● When they arise from civil liability which is the ● Consent – essence of a contract; this is what
consequence of a criminal offense (Art. 1161) distinguishes contracts from the other sources of
● E.g. Obligation of a thief to return the car stolen by obligations
him; the duty of a killer to indemnify the heirs of his
victim ARTICLE 1160

e. Quasi-delicts Obligations derived from quasi-contracts shall be subject to

● When they arise from damage caused to another the provisions of Chapter 1, Title XVII, of this Book.
through an act or omission, there being fault or
negligence, but no contractual relation exists Quasi-contract
between the parties (Art. 2176) ● Certain lawful, voluntary and unilateral acts give rise
● E.g., Obligation of the possessor of an animal to pay to the juridical relation of quasi-contract to the end
for the damage which it may have caused that no one shall be unjustly enriched or benfitted at
the expense of another (Art. 2142)
Enumerated Source of Obligation, Exclusive – The enumeration ● Partly a contract, but is not, due to the absence of
of the sources of obligations are exclusive. No obligation exists the meeting of the minds or consent
if its source is not one of those enumerated in Art. 1157
● Generally emanating from law and private acts. Characteristics of quasi-contracts
● Private acts include licit acts (i.e., contracts, 1. Arises from a lawful act, which distinguishes it from a
quasi-contracts) and illicit acts (i.e., delicts, delict and quasi-delict
quasi-delicts). 2. Arises from a voluntary act, which distinguishes it from
● Contracts are results of bilateral actions as it requires a culpa criminal and a culpa aquiliana which are
consent. Other sources are results of unilateral actions both committed through negligence
3. Arises from a unilateral act, which distinguishes it from
ARTICLE 1158 a contract that requires consent from both parties

Obligations derived from law are not presumed. Only those Kinds of Quasi-contracts
expressly determined in this Code or in special laws are 1. Negotiorum gestio
demandable, and shall be regulated by the precepts of the ● Arises when a person (officious manager or gestor)
law which establishes them; and as to what has not been voluntarily takes charge of the agency or
foreseen, by the provisions of this Book. management of the business or property of another
which has been neglected or abandoned, without
● Refers to legal obligations any power or consent from the latter
● Not presumed because they are considered a ● EXAMPLE: If through the efforts of X, a neighbor, the
burden upon the obligor house of Y was saved from being burned, Y has the
● To be demandable, they must be clearly set forth in obligation to reimburse X for the expenses X incurred
the law, i.e., the Civil Code or special laws although Y did not actually give his consent to the
act of X in saving his house on the principle of
ARTICLE 1159 quasi-contract.

Obligations arising from contracts have the force of law Requisites of Negotiorum Gestio
between the contracting parties and should be complied with (1) A person, called the officious manager or gestor,
in good faith. voluntarily assumes the agency or management of
the business or property of another ;
● Refers to contractual obligations (2) Property or business is neglected or abandoned;
(3) No authorization from the owner, either expressly or
Contract impliedly;
● A meeting of minds between two persons whereby (4) Assumption of agency or management is done in
one binds himself, with respect to the other, to give good faith.
something or to render some service. (Art. 1305)
● Formal expression by the parties of their rights and Obligations created in Negotiorum Gestio
obligations they have agreed upon with respect to – On the part of the Officious Manager
each other ● He cannot just quit and abandon the property or the
business

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 ● The law requires him to continue with the agency or Elements of Solutio Indebiti
management until the termination of the affair and ● There must be a payment or delivery made by one
its incidents, or until the owner appears and person to another
substitutes him in such management ● The person who made the payment or delivery was
● In the performance of his duties, he is obliged to under no obligation to do so
observe the diligence of a good father of a family ● The payment or delivery was made by reason of
● If the owner suffers damage by reason of his fault or mistake
negligence, he is liable to pay damages to the
owner Obligations of the Debtor in Solutio Indebiti
● He may delegate to another person all or some of his ● Obligation to return arises
duties but he shall remain liable to the owner for the ● Recipient of the payment is exempt from obligation
facts of the delegate to restore if:
a) He believed in good faith that the payment
– On the part of the Owner was of a legitimate claim
● Obligations incurred in his interest; b) Destroyed the document, allowed the
● Necessary and useful expenses; and action to prescribe, gave up the pledges, or
● Damages suffered by the gestor in the performance canceled the guarantees of his right
of his duties, although the officious management ● Obligation to pay legal interest if a sum of money is
may not have been expressly ratified, in any of the ff. involved, if he acted in bad faith
situations:
○ If the owner enjoys the advantages of the Other examples of quasi-contracts:
officious management; EXAMPLE: A physician is obliged to tend to and give
○ If the management had for its purpose the appropriate treatment even with unconscious patients
prevention of an imminent and manifest brought to the hospital. Consequently, the latter is liable for the
loss, although no benefit may have been services of the physician even if he has not given consent to
derived; the treatment, as a principle that “no man shall be unjustly
○ Even if the owner did not derive any benefit enriched at the expense of another”
and there has been no imminent and
manifest danger to the property or business, ARTICLE 1161
provided that the gestor had acted in good
faith and the property or business is intact, Civil obligations arising from criminal offenses shall be
ready to be returned. governed by the penal laws, and subject to the provisions of
Article 2177, and of the pertinent provision of Chapter 2,
Extiguishment of Negotiorum Gestio Preliminary Title, on Human Relations, and of Title XIII of this
(1) Repudiation* of the officious management by the Book, regulating damages.
owner;
(2) Putting an end to such officious management by the Civil liability arising from crimes or delicts
owner; ● Commission of an offense has a two-pronged effects:
(3) Death, civil interdiction, insanity or insolvency of the (1) On the public as it breaches the social
owner or of the gestor; or order; and
(4) Withdrawal from the management by the gestor, but (2) Upon the private victim as it causes
without prejudice to his liability for damages should personal sufferings or injury, each of which is
the owner suffers damage. addressed, respectively by the imposition of
heavier punishment on the accused and by
2. Solutio Indebiti an award of additional damages to the
● Juridical relation which is created when something is victim.
received when there is no right to demand it and it ● Oftentimes, the commission of a crime causes not
was unduly delivered through mistake, the obligation only moral evil but also material damage. From this
to return it arises (Art. 2514). principle, the rule has been established that every
● The quasi-contract of solutio indebiti is based on the person criminally liable for a felony is also civilly
ancient principle that no one shall enrich himself liable (Art. 100, RPC)
unjustly at the expense of another
● Civil liability can only be extinguished if the person
accused and acquitted is not the perpetrator

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 ● Death of the accused during the pendency of his Rule of the Implied Institution
appeal and before the finality of his judgment ● The civil action for the recovery of civil liability arising
extinguishes criminal liability from the offense charged is deemed instituted with
the criminal action, unless the offended party waives
Effect of Acquittal of the Accused the civil action, reserves the right to institute it
– Two kinds of acquittal: separately or institutes the civil action prior to the
● An acquittal on the ground that the accused is not criminal action.
the author of the act or omission complained of
○ This closes the door to civil liability, for a Scope of Civil Liability
person who has been found to be not the (1) Restitution;
perpetrator of any act or omission cannot (2) Reparation for the damage caused; and
and can never be held liable for such act or (3) Indemnification for consequential damages.
omission
○ No delict, civil liability is out of the question EXAMPLE: X stole the car of Y. If X is convicted, the court will
order X:
● An acquittal based on reasonable doubt on the guilt (1) To return the car (or to pay its value if it was lost or
of the accused. In this case, even if the guilt of the destroyed);
accused has not been satisfactorily established, he is (2) To pay for any damage caused to the car; and
not exempt from civil liability (based on the crime) (3) To pay such other damages suffered by Y as a
which may be proved by preponderance of consequence of the crime.
evidence only
○ This is the contemplated in Art. 29 of the ARTICLE 1162
Civil Code, where the civil action for
damages is “for the same act or omission.” Obligations derived from quasi-delicts shall be governed by
the provisions of Chapter 2, Title XVII of this Book, and by
ARTICLE 29. When the accused in a criminal special laws.
prosecution is acquitted on the ground that his guilt
has not been proved beyond reasonable doubt, a Quasi-delicts
civil action for damages for the same act or omission ● An act or omission by a person (tort feasor) which
may be instituted. Such action requires only a causes damage to another in his person, property, or
preponderance of evidence. Upon motion of the rights giving rise to an obligation to pay for the
defendant, the court may require the plaintiff to file a damage done, there being fault or negligence but
bond to answer for damages in case the complaint there is no pre-existing contractual relation between
should be found to be malicious. xxx the parties (Art. 2176)

● A person acquitted of a criminal charge is not Requisites of Quasi-delict

necessarily free from civil liability because the (1) An act or omission by the defendant;
quantum of proof required in criminal prosecution (2) Fault or negligence of the defendant;
(proof beyond reasonable doubt) is greater than that (3) Damage caused to the plaintiff;
required for civil liability (mere preponderance of (4) A direct relation or connection of cause and effect
evidence) between the act or omission and the damage;
● To be completely free from civil liability, a person’s (5) No pre-existing contractual relation between the
acquittal must be based on the fact that he did not parties.
commit the act complained of

Delict Quasi-delict
Acquittal will not bar a civil action in the ff. cases:
(1) Where the acquittal is based on reasonable doubt as
There is criminal or malicious Only negligence
only preponderance of evidence is required in civil intent or criminal
cases; negligence
(2) Where the court declared the accused’s liability is
not criminal but only in civil nature; and Affects public interest Concerns private interest

(3) Where the civil liability does not arise from or is not
Criminal and civil liability Only civil liability
based upon the criminal act of which the accused
was acquitted. Purpose is punishment Purpose is indemnification
of the offended party

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 Duties of Debtor in Obligation to Give a Determinate Thing
Liability cannot be Liability can be
(1) To preserve or take care of the thing due;
compromised or settled by compromised as any other
the parties themselves civil liability (2) To deliver the fruits of the thing (Art. 164); and
(3) To deliver its accessions and accessories (Art. 1166).
Guilt of the accused must Fault or negligence of the
be proved beyond defendant need only be Duty to Preserve Specific Thing Due
reasonable doubt proved by preponderance
● Debtor may only be able to comply with his
of evidence
obligation to give a determinate thing through

Liability of the person Liability is direct and primary delivering the exact thing which is due. There is no
responsible for the author of other way.
the negligent act or ● Art. 1244, NCC provides that: “the debtor of a thing
omission is subsidiary cannot compel the creditor to receive a different
one, although the latter may be of the same value
Recovery of Damages twice for the Same Act or Omission as, or more valuable than that which is due.”
Prohibited
● Civil liability co-exists with criminal responsibility in (1) Proper Diligence of a Good Father of a Family
negligence cases ● Obligor has the incidental duty to take care of the
● The offended party has the option between an thing due with the diligence of a good father of a
action for enforcement of civil liability based on family pending delivery
culpa criminal under Art. 100 of the RPC, and an ● This is the bonus pater familias* rule in the Roman
action for recovery of damages based on culpa Law, which is the most common standard of conduct
aquiliana under Article 2177 or ordinary care; which pertains to the diligence
● These two causes of action may be availed of required of a reasonably prudent person
subject to the caveat that the offended party ● This rule does not apply when the law or the
cannot recover damages twice for the same act or stipulation of the parties requires another standard of
omission or under both cases care

Bonus Pater Familias

Chapter 2: NATURE AND EFFECTS OF OBLIGATIONS
● Pater Familias – head of the family which could
legally exercise autocratic authority over his family
ARTICLE 1163
(2) Another Standard of Care
Every person obliged to give something is also obliged to take ● Referring to slight or extraordinary diligence
care of it with the proper diligence of a good father of a a) Under the law – A common carrier (person or
family, unless the law or the stipulation of the parties requires company engaged in the transportation of persons
another standard of care. and/or cargoes) is “bound to carry the passengers
safely as far as human care andforesight can
● Above provision refers to an obligation to give a provide, using utmost (extraordinary) diligence of
specific or determinate thing very cautious persons, with a due regard for all the
circumstances.”(Art. 1755.) In case of accident,
Specific and Generic Thing Distinguished therefore, the common carrier will be liable if it
● Specific/Determinate Thing – When a thing is exercised only ordinary diligence or the diligence of
particularly designated or physically segregated from a good father of a family.
all others of the same class (Art. 1460) b) When the debtor is guilty of delay or if he has
○ Identified by its individuality promised to deliver the same thing to two or more
○ Debtor cannot substitute it with another persons who do not have the same interest (Art.
although the latter is of the same kind and 1165). In here, observance of the ordinary care is no
quality (Art. 1244) longer sufficient because the debtor shall already be
● Generic/Indeterminate Thing – Refers only to a class responsible for fortuitous event until he has effected
or genus to which it pertains and cannot be pointed the delivery.
out with particularity c) Following the rule that the agreement of the parties is
○ Identified only by its specie the law between them, it appears that the parties
○ Debtor can give anything of the same class can validly agree even on a standard of care lower
as long as it is of the same kind than that of the proper diligence of a good father of

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 a family, i.e., an agreement providing only for slight happening of a future and uncertain event
care. which constitutes the condition
● NOTE: Parties may not validly agree to make
the debtor absolutely exempt from any Different Kinds of Fruits (Art. 442)
liability even those arising from his own ● Natural Fruits are the spontaneous products of the
negligence, as such is against public policy. soil, and the young and other products of animals.
d) It shall be lawful for the parties to require a degree of ● Industrial Fruits are those produced by lands of any
diligence higher than that of the good father of a kind through cultivation or labor.
family, such as extraordinary care and even for ● Civil fruits are the rents of the buildings, the price of
liability by reason of fortuitous event the leases of lands and other property and the
amount of perpetual life annuities or other similar
Reasons for Debtor’s Obligation income.
● Debtor must exercise diligence to insure that the ○ Civil fruits are those derived by virtue of
thing to be delivered would subsist in the same juridical relation.
condition as it was when the obligation was
contracted. Real and Personal Right
● Without the accessory duty to take care of the thing,
the debtor would be able to afford being negligent
Personal Right Real Right
and he would not be liable even if the property is lost
or destroyed, thus rendering illusory the obligation to Power of a person (creditor) Power belonging to a
give. to demand of another person over a specific thing,
(debtor), as a definite without a passive subject
passive subject, the individually determined,
Classifications of Obligations as to Object or Prestation fulfillment of a prestation. against whom such right
may be personally
Real Obligations Personal Obligations enforced.

Obligation consists in giving Obligation consists in either e.g., Ownership

doing or not doing

Obligation “to give” involves Obligation “to do” includes Right of Creditor to the Fruits
the delivery of a movable or all kinds of work or service, ● Article 712, paragraph 2: “Ownership and other real
immovable thing in order to rights are acquired and transmitted by law, by
create a real right. Obligation “not to do”
donation, by testate and intestate succession, and in
consists in abstaining from
consequence of certain contracts, by tradition.”
such acts.
● The ownership of things is transferred NOT by mere
agreement, but by tradition or delivery
ARTICLE 1164 ● In a contract of sale, sale by itself does not transfer or
affect ownership; it only creates the obligation to
The creditor has a right to the fruits of the thing from the time transfer ownership
the obligation to deliver it arises. However he shall acquire no ● It is tradition or deliver (as a consequence of sale)
real right over it until the same has been delivered to him. that actually transfers ownership

Duty to Deliver Fruits ARTICLE 1165

● Applies only to delivering of a specific thing (in
accordance with Art. 1166) When what is to be delivered is a determinate thing, the
● From the time the obligation to deliver the principal creditor, in addition to the right granted him by Article 1170,
thing arises may compel the debtor to make the delivery.
● When is the obligation to deliver the determinate
thing arises? Immediately (considering that the If the thing is indeterminate or generic, he may ask that the
obligation has not been subjected to a suspensive obligation be complied with at the expense of the debtor.
condition*)

If the obligor delays, or has promised the same thing to two or

* Conditional Obligations (see Art. 1179) more persons who do not have the same interest, he shall be
● Suspensive Condition — Demandability of responsible for any fortuitous event until he has effected the
the obligation is suspended until the delivery.

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Remedies of creditor in (Specific) Real Obligation
- In case the debtor fails to comply with his obligation
(1) Demand specific performance or fulfillment (if Duty to Deliver the Accessions and Accessories
possible) of the obligation with a right to indemnify* ● General rule that all accessions and accessories are
for damages; or considered included in the obligation to deliver a
(2) Demand rescission or cancellation of the obligation determinate thing although they may not have been
also with a right to recover damages (Art. 1170); or mentioned
(3) Demand the payment of damages only where it is ● Based on the principle of law that the accessory
only the feasible remedy. follows the principal
● In order that they be excluded, there must be
* Indemnify – compensation for loss, damage, or stipulation to that effect
harm; reimbursement
Accession as a right
First paragraph speaks of the right of creditor to demand a ● The ownership of property gives the right by
specific performance accession to everything which is produced thereby,
● In an obligation to deliver a determinate thing, the or which is incorporated or attached thereto, either
very thing itself must be delivered (Art. 1244); and naturally or artificially. (Art. 440)
only the debtor himself can comply with the
obligation. The vendor is bound to deliver the thing sold
● The right to compel the debtor to make the delivery is and its accession and accessories in the condition in
granted to the creditor but NOT to be used with force which they were upon the perfection of the contract.
or violence upon the debtor (involuntary servitude) All the fruits shall pertain to the vendee from the
● The creditor must bring the matter to court and the day on which the contract was perfected. (Art. 1537)
court will be the one to order the delivery.
ARTICLE 1167
Second is about substituted performance
● In failing to comply with the obligation to deliver a If a person obliged to do something fails to do It, the same
generic thing, the same can be performed by a third shall be executed at his cost.
person since the object is expressed only according
to its family or genus. The same rule shall be observed if he does it in contravention
● The creditor has a right to recover damages under of the tenor of the obligation. Furthermore, it may be decreed
Art. 1170 in case of breach of obligation. that what has been poorly done be undone.

When debtor delays or promised delivery to separate creditors Breach of Positive Personal Obligation
● A fortuitous event does not exempt the debtor from ● Positive Personal Obligation – Obligation “to do”
responsibility (determinate thing). ● An obligation “to do” is considered breached not
● An indeterminate thing cannot be the object of only when it is not performed, but also when the
destruction by a fortuitous event because genus performance is either poor or in contravention of the
never perishes. tenor of the obligation
● The debtor cannot be compelled against his will to
ARTICLE 1166 execute the act which he bound himself as this will
amount to involuntary servitude; prohibited by the
The obligation to give a determinate thing includes that of Constitution in Sec. 18, Art. III, paragraph 2:
delivering all its accessions and accessories, even though they ○ “No involuntary servitude in any form shall
may not have been mentioned. exist except as punishment for a crime
whereof the party shall have been duly
Definition of Accessions and Accessories convicted.”
● Accessions – fruits of, or additions to, or
improvements upon a principal thing, e.g., house or Remedies of Creditor in Positive Personal Obligation
trees on a land; rents of a building; air conditioner in ● Debtor fails to comply with his obligation to do, the
a car; etc. creditor has a right to:
● Accessories – things joined to, or included with, the (a) Have obligation performed by himself, or by
principal thing for the latter’s embellishment, better another at the expense of the debtor
use, or completion, e.g., key of a house; bracelet of a (unless personal considerations are
watch; machinery in a factory; bow of a violin; etc. involved); and

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 (b) Recover damages (Art. 1170). (2) When from the nature and consequences of the
● Obligation done in contravention of the terms of the obligation it appears that the designation of the time
same or is poorly done, it may be ordered (by the when the thing is to be delivered or the service is to
court) that it be undone if it is still possible. be rendered is a controlling motive for the
establishment of the contract; or
(3) When demand would be useless, as when the debtor
When personal qualifications of the debtor are determining has rendered it beyond his power to perform.
motive for the obligation
● Example: to sing in a concert In reciprocal obligation, neither party incurs in delay if
● The performance of the same by a third person the other does not comply or is not ready to comply in proper
would be impossible or would result to be so different manner with what is incumbent upon him. From the moment
that the obligation could not be considered one of the parties fulfills his obligation, delay by the other
performed. begins.
● The only feasible remedy of the creditor is
indemnification for damages. Definition of Delay
● The word delay is synonymous to default or mora
ARTICLE 1168 which means delay in the fulfillment of obligations
● Delay or default is the non-fulfillment of obligation
If the obligation consists in not doing, and the debtor does with respect to time
what has been forbidden him, it shall also be undone at his
expense. When does the Debtor Incur in Delay
● From the time the obligee judicially or extrajudicially
Breach of Negative Personal Obligation demands the fulfillment of the obligation
● Negative Personal Obligation – Obligation “not to ● General Rule → No demand, no delay
do”
● In obligation “not to do,” so long as that the Distinction between Ordinary and Legal Delay
prohibited act is not done, the obligation is complied ● Ordinary delay – merely the failure to perform an
with; hence it is considered breach when the debtor obligation on time
does what has been forbidden to him. ● Legal delay (default/mora) – failure to perform an
obligation on time which failure constitutes a breach
Remedies of Creditor in Negative Personal Obligation of obligation
● Undoing of the forbidden thing plus to pay for
damages (Art. 1170) Kinds of Delay (Mora)
● If it is not possible to undo what was done, physically 1. Mora Solvendi
or legally, or because of the rights acquired by third ● Debtor’s default to fulfill his obligation by reason of a
persons who acted in good faith, or for some other cause imputable to the debtor
reason, the remedy is an action for damages caused a. Mora solvendi ex re: delay in obligations to
by the debtor’s violation of his obligation. give
b. Mora solvendi ex persona: default in
EXAMPLE: S sold a land to B. It was stipulated that S would not obligations to do
construct a fence on a certain portion of his land adjoining
that sold to B. Should S construct a fence in violation of the 2. Mora Accipiendi
agreement, B can have the fence removed at the expense of ● Default on the part of the creditor to receive
S. ● Creditor incurs in delay when the debtor tenders
payment or performance but the creditor refuses to
ARTICLE 1169 receive without justification

The obligation to deliver or to do something incur in delay from 3. Compensatio Morae

the time the obligee judicially or extrajudicially demands from ● Default of both parties in reciprocal obligations

them the fulfillment of their obligation. because neither has completed their part in their
reciprocal obligations

However, the demand by the creditor shall not be necessary in ● Delay of the obligor cancels the delay of the obligee,

order that delay may exist: and vice versa

(1) When the obligation or the law expressly so declares;

or

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Requisites of Mora Solvendi ● The debtor may release himself from the obligation
(1) Failure of the debtor to perform his (positive) by the consignation of the thing or sum due
obligation on the date agreed upon;
(2) Demand (not mere reminder or notice) made by the Effects of Delay: Compensatio Morae
creditor upon the debtor to fulfill his obligation which ● There is no actionable default on the part of both
demand may either be judicial or extrajudicial*; and parties, such that as if neither one is guilty of delay
(3) Failure of the debtor to comply with such demand
When Demand is Not Necessary To Put Debtor in Delay
* Judicial - When a complaint is filed in court (1) When the obligation so provides
Extrajudicial - When made outside of court, orally or
in writing Example: D promised to pay C the sum of P20,000.00 on or
before November 30 without the need of any demand.
● The above presupposes that the obligation is already Therefore, if D fails to pay on November 30, he is automatically
due or demandable and liquidated. There is no in default. In this case, the parties stipulate to dispense with the
delay if the obligation is not yet due or demandable. demand.
● The creditor has the burden of proving that demand ● The mere fixing of the period is not enough. The
has been made. It is incumbent upon the debtor, to arrival of the period merely makes the obligation
relieve himself from liability, to prove that the delay “demandable.”
was not caused by his fault, i.e, there was no fraud or ● Before the arrival of period, the creditor cannot
negligence on his part. demand performance
● Obligation must expressly so declare that demand is
Effects of Delay: Mora Solvendi not necessary or must use words to that effect, e.g.,
● Debtor is guilty of breach of the obligation “the debt will be in default,” or “I will be liable for
● Debtor is liable for interest in case of obligations to damages”
pay money (Art. 2209) or damages in other
obligations Example: The contract of loan between D and C provides that
○ In the absence of extrajudicial demand, the failure of D to pay any installment therein stipulated would
interest shall commence from the filing of mature the entire obligation. It does not state that in such an
the complaint event, D shall thereafter be in default.
● Debtor is liable even for a fortuitous event when the ● Demand is still necessary to hold D in default upon
obligation is to deliver a determinate thing (Arts. failure to pay any such installments
1165, 1170) ● He is not liable for interest for default for the whole
○ However, if the debtor can prove that the debt except from the time that judicial or
loss would have resulted just the same even extrajudicial demand for payment is made upon him.
if he had not been in default, the court may
equitably mitigate the damages. (2) When the law so provides

NOTE: In an obligation to deliver a generic thing, the debtor is Examples:

not relieved from liability for loss due to a fortuitous event. He a. Under the law, taxes should be paid on or before a
can still be compelled to deliver a thing of the same kind (see specific date; otherwise, penalties and surcharges
Art. 1263.) or held liable for damages. (Art. 1170). are imposed without the need of demand for
payment by the government.
In an obligation to deliver a generic thing, the loss or b. The partner is liable for the fruits of the thing he may
destruction of anything of the same kind does not have promised to contribute to the partnership from
extinguish the obligation (Art. 1263). the time they should have been delivered without
the need of any demand (see Art 1786, 1788).
Effects of Delay: Mora Accipiendi
● Creditor is guilty of breach of obligation (3) When time is of the essence
● Creditor is liable for damages suffered, if any, by the
debtor Examples:
● Creditor bears the risk of loss of the thing due a. The delivery of balloons on a particular date when a
● Where the obligation is to pay money, the debtor is children's party will be held;
not liable for interest from the time of the creditor’s b. The making of a wedding dress where the wedding is
delay; and scheduled at a certain time;

MEDOLLAR, L. J. - 1BLM
 c. Payment of money at a particular time so that the ○ Fraud is employed for the purpose of
creditor could pay off certain debts due on the same evading the normal fulfillment of an
date; obligation and its existence merely results in
d. Delivery of a car to be used in a trip at a particular breach of thereof giving rise to a right by
time. the innocent party to recover damages

● In the cases above, the debtor is fully aware that the 2. Negligence (Fault or Culpa)
performance of the obligation after the designated ● Any voluntary act or omission, there being no malice,
time would no longer benefit the creditor which prevents the normal fulfillment of an obligation
● When the time of delivery is not fixed or is stated in
general and indefinite terms, time is not of the 3. Delay (Mora)
essence of the contract. Hence, the delivery must be ● The delay in the performance of the obligation must
made within a reasonable time, in the absence of either be malicious or negligent
anything to show that an immediate delivery was
intended. 4. Contravention of the terms of the obligation
● Violation of the terms and conditions stipulated in the
(4) When demand would be useless obligation
● Contraventions must not be due to a fortuitous event
Example: S obliged himself to deliver a specific horse to B on or force majeure (Art. 1174)
December 5. Through S’s negligence or deliberate act, or by ● Unilateral act of terminating a contract without legal
reason of a fortuitous event for which S has expressly bound justification by a party makes him liable for damages
himself responsible. suffered by the other
● Any demand for the delivery of the horse on
December 5 would be useless as S has made it Fraud and Negligence Distinguished
impossible for him to perform his obligation
● Demand is also unnecessary where it is apparent that
Fraud Negligence
it would be unavailing, as where there has been a
prior absolute refusal by S, or S has manifested an There is deliberate intention No such intention
intention not to comply with this obligation to cause damage or injury

(5) When there is performance by a party in reciprocal Waiver of the liability for Waiver of liability may, in a
obligations future fraud is void (Art. certain sense, be allowed in
● In case of reciprocal obligations (see Art. 1191), the 1171) negligence
performance of one is conditioned upon the
simultaneous fulfillment on the part of the other Must be clearly proved, Presumed from the breach
mere preponderance of of a contractual obligation
ARTICLE 1170 evidence no being
sufficient

Those who in the performance of their obligation are guilty of

Liability for fraud cannot be Liability for negligence may
fraud, negligence, or delay, and those who in any manner
mitigated by the courts be reduced according to
contravene the tenor thereof, are liable for damages.
circumstances

Grounds for liability

1. Fraud (Dolo) ● They are similar in that both fraud and negligence
● Deliberate or intentional evasion of the normal are voluntary, that is, they are committed with
fulfillment of an obligation volition but in fraud, a party, by his voluntary
● As a ground for damages, it implies some kind of execution of a wrongful act, or a willful omission,
malice or dishonesty and it cannot cover cases of knows and intends the effects which naturally and
mistake and errors of judgment made in good faith necessarily arise from such act or omission, which
● Synonymous to bad faith in that it involves a design deliberate intent is lacking in negligence.
to mislead or deceive another
● Art. 1170 refers to incidental fraud (dolo incidente) When Negligence is Equivalent to Fraud
committed in the performance of an obligation ● When negligence shows bad faith or is so gross that it
already existing because of contract (as amounts to malice or wanton* attitude on the part of
differentiated from causal fraud or dolo causante)

MEDOLLAR, L. J. - 1BLM
 the defendant, the rules on fraud shall apply (see Art. ● What is renounced is the effects of the fraud, that is,
1173) the right to indemnify of the part entitled thereto
● No more distinction exists between the two at least as
to effects ARTICLE 1172
● Gross Negligence — negligence characterized by
want or absence or failure to exercise even slight Responsibility arising from negligence in the performance of
care or diligence, or the entire absence of care, every kind of obligation is also demandable, but such liability
acting or omitting to act on a situation where there is may be regulated by the courts, according to the
duty to act, not inadvertently but willfully and circumstances.
intentionally
○ Evinces a thoughtless disregard of or Concept of Negligence in this article
conscious indifferences to consequences ● Culpa contractual (governed by Arts. 1170-1174)
insofar as other persons may be affected, ● Refers to the fault or negligence incident in the
without exerting any effort to avoid them performance of an obligation which already existed,
and which increases the liability from such already
* Wanton – deliberate and unprovoked existing obligation

ARTICLE 1171 Responsibility arising from Negligence Demandable

1. Debtor is liable for damages resulting from his
Responsibility arising from fraud is demandable in all negligence or culpa
obligations. Any waiver of an action for future fraud is void. ● Courts are given wide discretion in fixing the measure
of damages because negligence here is a question
Concept of Fraud in this article which must necessarily depend upon the
● Refers to incidental fraud circumstances of each particular case
● One of the parties may resort to dolo or fraud only ● Not as serious as fraud, as there is no bad faith or
during the fulfillment of the obligation rather than the deliberate intention to cause injury or damages
fraud which is the origin of the obligation; hence,
obligation already exists and fraud is committed only 2. When both parties to a transaction are mutually
during its performance. negligent in the performance of their obligations
● This gives rise to an action for damages ● The fault of one cancels the negligence of the other
● Their rights and obligations may be determined
Responsibility arising from Fraud Demandable equitably under the law prescribing unjust
● Can be demanded with respect to all kinds of enrichment [No one shall enrich himself at the
obligations expense of another]
● The court is not given the power to mitigate or
reduce the damages to be awarded because fraud Validity of Waiver of Action arising from Negligence
is deemed serious and evil that its employment to ● An action for future negligence (not fraud) may be
avoid fulfillment of one’s obligation should be renounced except where the nature of the
discouraged. obligation requires the exercise of extraordinary
diligence as in the case of common carriers. (see
No Waiver of Action for Future Fraud Art.1733);
● Law prohibits any waiver of action for future fraud as
being against the law and public policy. (Art. 1409 Art. 1733. Common carriers, from the nature of their
[1]) business and for reasons of public policy, are bound
● A contrary rule would encourage the perpetration of to observe extraordinary diligence in the vigilance
fraud because the obligor knows that even if he over the goods and for the safety of the passengers
should commit fraud he would not be liable for it, transported by them, according to all the
thus making the obligation illusory circumstances of each case.

Waiver of Action for Past Fraud Valid Kinds of Negligence accdg. to Source of Obligation
● Past fraud can be the subject of a valid waiver (1) Contractual negligence (Culpa Contractual)
because it can be considered as act of generosity ● Not a source of obligation; merely makes the debtor
and magnanimity on the part of the party who is the liable for damages in view of his negligence in the
victim of the fraud fulfillment of a pre-existing obligation resulting in its
breach or non-fulfillment

MEDOLLAR, L. J. - 1BLM
 ● Accdg. to the Supreme Court, “negligence is
Example: If S entered into a contract of sale with B to deliver a conduct that creates undue risk or harm to another.
specific horse on a certain day and the horse died through the It is the failure to observe for the protection of the
negligence of S before delivery, S is liable for damages to B for interests of another person, that degree of care,
having failed to fulfill a pre-existing obligation (contract may precaution, and vigilance which the circumstances
be either express or implied) because of his negligence. justly demand, whereby such other person suffers
injury.”
(2) Civil Negligence (Culpa Aquiliana)
● Negligence which by itself is the source of obligation Test Determining Whether a Person is Negligent
between the parties not formally bound before by 1. Reasonable care and caution expected of an
any pre-existing contract ordinary prudent person.
● Also called “tort” or “quasi-delict” (Art. 2176) ● Reasonable foresight of harm followed by
the ignoring of the admonition born of this
EXAMPLE: Assume now, that the horse belongs to and is in the provision, is the constitutive act of
possession of B. The negligence of S which results in the death negligence.
of the horse is culpa aquiliana. In this case, there is no
pre-existing contractual relation between S and B. The 2. No hard and fast rule for measuring degree of care.
negligence itself is the source of liability. ● Degree of care and vigilance is dependent
upon the circumstances in which a person
(3) Criminal Negligence (Culpa Criminal) finds himself situated.
● Negligence resulting in the commission of a crime
(Arts. 3, 365, RPC) Factors to be Considered
● Same act causing damages may produce civil (1) Nature of the obligation
liability arising from a crime under Art. 100 of the RPC, - e.g., smoking while carrying materials
or create an action for quasi-delict under Art. 2176, known to be inflammable constitutes
NCC. negligence

Example: A crime can be committed by negligence. If B (2) Circumstances of the person

wants, he can bring an action for culpa criminal (damage to - e.g., a guard, a man in the prime of life,
property through simple or reckless imprudence). Here, the robust and healthy, sleeping while on duty is
crime is the source of the obligation to pay damages. (Arts. guilty of negligence
1157[4], 1161)
(3) Circumstances of time
Effect of Negligence on the part of the Injured Party - e.g., driving a car without headlights at
a. When the plaintiff’s own negligence was the night is gross negligence but it does not by
immediate and proximate cause of injury, he cannot itself constitute negligence when driving
recover damages during the day
b. If his negligence was only contributory, the
immediate and proximate cause of the injury being (4) Circumstances of the place
the defendant’s lack of due care, the plaintiff may - e.g., driving at 60 km/h on the highway is
recover damages, but the courts shall mitigate the permissible but driving at the same rate of
damages to be awarded speed in Quezon Boulevard, Manila, when
traffic is always heavy is gross recklessness
ARTICLE 1173
NOTE: When the source of an obligation is derived from a
The fault or negligence of the obligor consists in the omission of contract, the mere breach or non-fulfillment of the prestation
that diligence which is required by the nature of the obligation gives rise to the presumption of fault on the part of the obligor.
and corresponds with the circumstances of the person, of the
time and of the place. When negligence shows bad faith, ARTICLE 1174
provisions of Article 1171 and 2201, paragraph 2, shall apply.
Except in cases expressly specified by the law, or when it is
If the law or contract does not state the diligence which is to otherwise declared by stipulation, or when the nature of the
be observed in the performance, that which is expected of a obligation requires the assumption of risk, no person shall be
good father of a family shall be required. responsible for those events which could not be foreseen, or
which, though foreseen, were inevitable.

MEDOLLAR, L. J. - 1BLM
Impossibility of Performance creditors even without any fortuitous event
● Provide the debtor with a legal excuse for his taking place (Art. 1165, par. 3)
non-performance, if the same occurs without his fault c. The debt of a thing certain and
and prior to him incurring delay determinate proceeds from a criminal
● Must be by reason of fortuitous event offense, unless the thing having been
offered by the debtor to the person who
Fortuitous Event should receive it, the latter refused without
● Any extraordinary event which cannot be foreseen, justification to accept it (Art. 1268).
or which, though foreseen, is inevitable d. The thing to be delivered is generic (Art.
● An event which is either impossible to foresee or 1263) for the debtor can still comply with his
impossible to avoid obligation by delivering another thing of the
● A happening independent of the will of the obligor same kind in accordance with the principle
and which happening, makes the normal fulfillment that “genus never perishes”
of the obligation impossible
(2) When the stipulation of the parties expressly provides
Caso Fortuito and Force Majeure for liability for fortuitous event; and
1. Acts of Man (Force Majeure) – an event independent ● The basis for this exception rests upon the
of the will of the obligor but not of other human wills, freedom of contract (see Art. 1306).
e.g., war, fire, robbery, murder, insurrection, etc. ● Such a stipulation is usually intended to
2. Acts of God – those events which are totally better protect the interest of the creditor
independent of the will of every human being, e.g., and procure greater diligence on the part
earthquake, flood, rain, shipwreck, lightning, eruption of the debtor in the fulfillment of his
of a volcano, etc. obligation
● The intention to make the debtor liable
Effects and Requisites of Fortuitous Event even in case of a fortuitous event should be
– As a rule, the occurrence of a fortuitous event excuses the clearly expressed.
debtor from liability for non-performance of the obligation
– To exempt the obligor from liability for a breach an obligation (3) When the nature of the obligation requires the
due to a fortuitous event, the following requisites must concur: assumption of risk
a. The cause of breach of the obligation must be ● Pursuant to Arts. 1174 and Art 1262, NCC,
independent of the will of the debtor; liability attaches even if the loss was due to
b. The event must either be unforeseeable or a fortuitous event if the nature of the
unavoidable; obligation requires the assumption of risk
c. The event must be such as to render it impossible for
the debtor to fulfill his obligation in a normal manner; Example: In Co vs. Court of Appeals, where the petitioner’s car
and was carnapped while it was in the possession of the private
d. The debtor must be free from any participation in or respondent for repair, the Court held the private respondent
aggravation of the injury to the debtor. liable for the loss of the car due to carnapping. The Court
explained that the carnapping is a normal business risk for
– In order for a fortuitous event to exempt one from liability, it is those engaged in the repair of motor vehicles and the failure
necessary that one has committed no negligence or of the repair shop to provide the customer with some form of
misconduct that may have occasioned the loss. security for his property over which he loses immediate control
constitutes negligence.
Exceptions to Rule of Non-liability for Fortuitous Event
(1) When the law expressly provides for liability even for ARTICLE 1175
fortuitous event;
a. The debtor is guilty of fraud, negligence, or Usurious transactions shall be governed by special laws.
delay, and contravention of the tenor of the
obligation (Arts. 1170, 1165, par. 3) Simple Loan (Mutuum)
b. The debtor has promised to deliver the ● Contract whereby one of the parties delivers to
same (specific) thing to two or more persons another money or other consumable thing, upon the
who do not have the same interest for it condition that the same amount of the same kind
would be impossible for the debtor to and quality shall be paid. It may be gratuitous or with
comply with his obligation to two or more a stipulation to pay interest (Art. 1933).

MEDOLLAR, L. J. - 1BLM
Usury use is not justified where there is a stipulated rate of
● Contracting for or receiving interest in excess of the interest thereof.
amount allowed by law for the loan or use of money, (4) Lawful Interest – when the rate of interest is within the
goods, chattels, or credits maximum allowed by (usury) law
(5) Unlawful Interest – when the rate of interest is beyond
Usury Law in the Philippines the maximum fixed by law.
● The present law on usury is Republic Act No. 2655; set
a ceiling on interest rates charged by lending ● Monetary Interest: interest fixed by the parties to a
institutions for loans or any forbearance* of money, contract for the ease or forbearance of money
goods or credit and to prescribe penalties for ● Compensatory Interest: imposed by law or by courts
violation thereof. as penalty or indemnity for damages
● Central Bank Circular No. 905 – lifting the interest
ceiling which merely upheld the parties’ freedom of Interest Rules
contract to agree freely on the rate of interest (cited Legal rate – 12% per annum
Art. 1306) ● 12% per annum if the transaction is a loan or
forbearance of money, goods, or credits or the
ART. 1306. The contracting parties may establish such judgment involves a loan or forbearance of money,
stipulations, clauses, terms and conditions as they goods, or credits
may deem convenient, provided they are not ● Otherwise, e.g., indemnity for damages occasioned
contrary to law, morals, good customs, public order, by an injury to person or loss of property, it is only 6%
or public policy. as provided in Art. 2209

* Forbearance of goods includes the sale of goods on Requisites for Recovery of Monetary Interest
installment, requiring periodic payment of money to the (1) Payment of interest must be expressly stipulated (Art.
creditor. Forbearance of credits includes the sale of anything 1956)
on credit, where the full amount due can be paid at a date (2) Agreement must be in writing; and
after the sale. (3) The interest must be lawful (Art. 1957)

● While parties to a loan agreement have wide latitude NOTE: A stipulation for the payment of usurious interest is VOID,
to stipulate on any interest rate, it is also worth that is as if there is no stipulation as to interest.
stressing that interest rates whenever unconscionable
may still be declared illegal. Liability for Legal Interest
● There is nothing in said circular which grants lenders 1. For loan or forbearance of money
carte blanche* authority to raise interest rates to ● Rate of interest due is that stipulated; otherwise; 12%
levels which will either enslave their borrowers or lead per annum computed from judicial or extrajudicial
to a hemorrhaging of their assets. demand until fully paid
● The law instructs that the imposition of an ● Interest due shall earn legal interest (compound
unconscionable rate of interest on a money debt, interest) from the time it is judicially demanded
even if knowingly and voluntarily assumed, is immoral
and unjust. 2. For other than loan or forbearance of money
● Interest shall be 6% as indemnity at the discretion of
* Carte blanche – complete freedom to act as one wishes or the court
thinks best ● When the amount of the obligation is reasonably
established, the interest shall run from judicial or
Kinds of Interest extrajudicial demand; otherwise, from the time the
(1) Simple Interest – when the rate of interest is stipulated amount is finally adjudged*
by the parties (Art. 2209)
(2) Compound Interest – when the interest earned is 3. Final and executory judgment awarding a sum of
upon interest due (Arts. 2212, 1959) money
(3) Legal Interest – when the rate of interest intended by ● Where a judgment awarding a sum of money under
the parties is presumed by law, as when the loan (1) or (2) above, has become final and executory,
mentions interest but does not specify the rate the legal rate of interest shall be 12% from such
thereof (Art. 2209). The same rate is allowed in finality, based on the adjudged principal and unpaid
judgments where there is no express contract interest, until full satisfaction
between the parties in anticipation of the same. Its

MEDOLLAR, L. J. - 1BLM
 ARTICLE 1176 particular installment due as when the receipt is only
dated
The receipt of the principal by the creditor, without reservation
with respect to the interest, shall give rise to the presumption (4) Payment of Taxes
that said interest has been paid. ● Taxes payable by the year are not installments of the
same obligation
The receipt of a later installment of a debt without reservation
as to prior installments, shall likewise raise the presumption that (5) Non-payment proven
such installments have been paid. ● Art. 1176 is not applicable where the non-payment of
the prior obligation has been proven
Presumption ● Between a proven fact and a presumption pro
● Interference of a fact not actually known arising from tanto*, the former stands, and the latter falls
its usual connection with another which is known or
proved * Pro tanto – to such an extent

EXAMPLE: D borrowed P1,000.00 from C. Later, D shows a ARTICLE 1177

receipt signed by C. The fact not actually known is the
payment by D. The fact known is the possession by D of a The creditors, after having pursued the property in possession
receipt signed by C. of the debtor to satisfy their claims, may exercise all the rights
● The presumption is that the obligation has been paid and bring all the actions of the latter for the same purpose,
unless proved otherwise by C as, for example, that D save those which are inherent in his person; they may also
forced C to sign the receipt. impugn the acts which the debtor may have done to defraud
them.
Two Kinds of Presumption
1. Conclusive presumption – one which cannot be General Remedies of Creditor to Protect and Satisfy their
contradicted like the presumption that everyone is Claims
conclusively presumed to know the law (see Art. 3) - The following successive measures must be taken by a
2. Disputable (or rebuttable) presumption – one which creditor before he may bring an action for rescission of an
can be contradicted or rebutted by presenting proof allegedly fraudulent sale:
to the contrary like the presumption established by (1) Exact fulfillment (specific performance) with the right
Art. 1176. to damages;
(2) Exhaust the properties of the debtor through levying
When Presumptions in Art. 1176 Do Not Apply by attachment and execution upon all the property
(1) With reservation as to interest of the debtor, except such as are exempt by law
● Presumptions do not arise where there is a reservation from execution;
as to interest to prior installments, as the case may be (3) Exercise all the rights and actions of the debtor, save
● Reservation may be made in writing or verbally those personal to him (accion subrogatoria); and
● Rights – like the right to redeem
(2) Receipt for a part of principal ● Actions – like the right to collect from the
● First paragraph of Art. 1176 only applies to the receipt debtor of his debtor
of the last installment of the entire capital, not a mere ● Personal to the Debtor – like the right to
fraction thereof vote, to hold office, to receive legal
● A receipt for a part of the principal, without support, to revoke a donation on the
mentioning the interest, merely implies that the ground of ingratitude, etc.
creditor waives his right to apply payment first to the (4) Seek rescission of the contracts executed by the
interest and then to the principal, as permitted by Art. debtor in fraud of their rights (accion pauliana) when
1253 he cannot in any other manner recover his claim
● Only when the principal is fully receipted for, may
failure to reserve the claim for interest give rise to the NOTE: The debtor is liable with all his property, present and
presumption that said interest has been paid future, for the fulfillment of his obligations, subject to the
exemptions provided by law (Art. 2236)
(3) Receipt without indication of particular installment
paid Accion Subrogatoria
● Paragraph 2 of Art. 1176 is not applicable if the ● This is for the situation where the creditor cannot in
receipt does not recite that it was issued for a any way recover the credit because the debtor has

MEDOLLAR, L. J. - 1BLM
 no property or has property insufficient to satisfy his ARTICLE 1178
debt but he has credits or rights which he fails to
collect Subject to the laws, all rights acquired in virtue of an obligation
● This action of the creditor is indirect because the are transmissible, if there has been no stipulation to the
creditor cannot in his own name file the action but in contrary,
the name of the debtor
● In order that creditor may exercise the subrogatory Transmissibility of rights
action: ● Pursuant to Art. 1311: “Contracts take effect only
(a) Creditor has a right of credit against the between the parties, their assigns and heirs, except in
debtor although at the moment it is not case where the rights and obligations arising from the
liquidated; contract are not transmissible by their nature, or by
(b) Credit must be due and demandable; stipulation or by provision of law. The heir is not liable
(c) Failure of the debtor to collect, that is, beyond the value of the property he received from
inaction of the debtor, whether the same the decedent.”
be willful or negligent;
(d) Insufficiency of the assets in the hands of Exceptions to the Rule
the debtor although the creditor need not (1) Prohibited by law (Purely personal in character)
bring a separate action to show his a. By the contract of partnership – two or more
exhaustion or insolvency of the debtor but persons bind themselves to contribute
he can prove the same in the very action to money, property, or industry to a common
exercise the subrogatory action; and fund, with the intention of dividing the profits
(e) That the right and actions are not purely among themselves (Art. 1767)
personal or inherent in the person of the b. By the contract of agency – a person binds
debtor himself to render some service or to do
something in representation or on behalf of
Accion Pauliana another, with the consent or authority of the
● Rescissory action to set aside contracts in fraud of latter;
creditors c. By the contract of commodatum – one of
● A subsidiary remedy accorded under Art. 1383 of the the parties delivers to another something
same Code, which the party suffering damage can not consumable so that the latter may use
avail only of when he has no other legal means to the same for a certain time and return it.
obtain reparation for the same Commodatum is essentially gratuitous (Art.
● This action to rescind contract in fraud must be of last 1933).
resort, availed of only after all other legal remedies
have been exhausted and have been proven futile (2) Prohibited by stipulation of parties – like the stipulation
● For this to accrue, the following requisites must that upon the death of the creditor, the obligation
concur: shall be extinguished or that the creditor cannot
a. That the plaintiff asking for rescission has a assign his credit to another. The stipulation against
credit prior to the alienation, although transmission must not be contrary to public policy
demandable later; (see Art 1306).
b. That the debtor has made a subsequent ● Such stipulation, being contrary to the
contract conveying a patrimonial benefit to general rule, should not be easily implied,
a third person; but must be clearly proved, or at the very
c. That the creditor has no other legal remedy least, clearly inferable from the provisions of
to satisfy claim, but would benefit by the contract itself
rescission of the conveyance to the third
person;
Chapter 3: DIFFERENT KINDS OF OBLIGATIONS
d. That the act being impugned is fraudulent;
e. That the third person who received the
property conveyed, if by onerous title, has 1. According to Demandability
been an accomplice in the fraud. a. Pure
b. Conditional
c. With a Term or Period
2. According to Plurality of Object (Prestation)
a. Alternative

MEDOLLAR, L. J. - 1BLM
 b. Facultative (b) D promises to pay C P26,900.00 upon receipt by D of
3. According to Plurality of Subject his share from the estate of X or “upon demand of
a. Single C.” The obligation of D is immediately due and
b. Joint demandable, for C may rely on the wording “upon
c. Solidary demand.”
4. Classification according to Performance
a. Divisible Conditional Obligation
b. Indivisible ● One whose consequences are subject in one way or
5. Classification according to Sanction for Breach another to the fulfillment of a condition
a. No penal cause
b. With penal cause Condition
● A future and uncertain event, upon the happening
of which, the effectivity or extinguishment of an
Section 1: Pure and Conditional Obligations
obligation (or rights) subject to it depends.

Characteristics of a Condition
ARTICLE 1179
(1) Future and uncertain
● To constitute an event a condition, it is not enough
Every obligation whose performance does not depend upon a
that it be future; it must also be uncertain
future or uncertain event, or upon a past event unknown to
the parties, is demandable at once.
(2) Past but unknown
● A past event cannot really be said to be a condition
Every obligation which contains a resolutory condition shall
since the demandability of an obligation subject to a
also be demandable, without prejudice to the effects of the
condition depends upon whether the event will
happening of the event.
happen or will not happen.
● What is contemplated by the law is the knowledge to
be acquired in the future of a past event which at
Pure Obligation
the moment is unknown to the parties interested, for it
● One where the performance does not depend upon
is only in that sense that the event can be deemed
a condition
uncertain
● Not subject to any condition and no specific date
● This knowledge determines whether the obligation
(term/period) is mentioned for its fulfillment and is,
will arise or not
therefore, immediately demandable (essential
feature)
Example: S is the owner of a parcel of land which is being
claimed by X. Last week, the Supreme Court rendered a final
Essential Feature
decision upholding the right of S. However, S has not yet
● A pure obligation is immediately demandable but it
received the notice that he had won the case. Now, S obliged
must be emphasized that immediate demandability
himself to sell the land to B for a definite price, should he win
of an obligation does not imply a need for its
the case against X. Under the facts, S would be bound to sell
immediate or instantaneous compliance
the land to B upon receipt of the notice that he had won the
● The court may still give the debtor a reasonable time
case against X.
within which to comply the obligation
● The concept of immediate demandability simply
NOTE: A condition must not be impossible (Art. 1183).
addresses the right of creditor to exact compliance
at any time but such right must be construed in such
Two Principal Kinds of Condition
a way as to give the debtor ample time within which
(1) Suspensive Condition
to act accordingly
● Condition precedent or condition antecedent
● One the fulfillment of which will give rise to an
EXAMPLES:
obligation (or right)
(a) D obliges to pay C P10,000.00. The obligation is
● Demandability of the obligation is suspended until
immediately demandable if there is no condition and
the happening of a future and uncertain event
no date is mentioned for its fulfillment. If the loan has
which constitutes the condition
just been contracted by D, a period must have been
a. The birth, perfection, or effectivity of the
intended by the parties for performance (but the
contract subject to a condition can take
duration thereof will depend upon the nature of the
obligation and the circumstances.

MEDOLLAR, L. J. - 1BLM
 place only if and when the condition ● What depends upon the debtor’s will is not whether
happens or fulfilled. he should pay or not, for indeed he binds himself to
b. It must appear that the performance of an pay
act or the happening of an event was ● What is left only to his will is the duration of the period
intended by the parties as a suspensive ● If the debtor and creditor cannot agree as to the
condition, otherwise, its non-fulfillment will specific time for payment, the court shall fix the same
not prevent the perfection of a contract. on the application of either party (Art. 1197, par. 2)
c. No rescission (see Art. 1191) of an obligation
that is still non-existent, the suspensive (2) Other cases – as when the debtor binds himself to
condition not having been fulfilled. pay:
a. “Little by little”
(2) Resolutory Condition b. “As soon as possible”
● Condition Subsequent c. “From time to time”
● One the fulfillment of which will extinguish an d. “As soon as I have the money”
obligation (or right) already existing e. “At any time I have the money”
f. “When I am in a position to pay”
Distinctions between Suspensive and Resolutory Conditions
When is the Obligation Demandable (When is debtor’s means
permit him to do so)
Suspensive Condition Resolutive Condition
● Ask the Court to fix the date
When fulfilled, the When fulfilled, the ● The obligation becomes demandable on the date
obligation arises obligation is extinguished fixed

If this does not take place, If this does not take place,
ARTICLE 1181
the tie of law (juridical or the tie of law is
legal tie) does not appear consolidated
In conditional obligations, the acquisition of rights, as well as
the extinguishment or loss of those already acquired, shall
Until this takes place, the Its effects flow, but over it,
depend upon the happening of the event which constitutes
existence of the obligation is hovers the possibility of
the condition.
a mere hope termination

Effect of happening of condition

When Obligation is Demandable at Once (1) Acquisition of rights
(1) When it is pure; ● In obligations subject to a suspensive condition, the
(2) When it is subject to a resolutory condition; or acquisition of rights by the creditor depends upon
(3) When it is subject to a resolutory period. the happening of the event which constitutes the
condition
ARTICLE 1180 ● Its efficacy or obligatory force (as distinguished from
its demandability) is subordinated to the happening
When the debtor binds himself to pay when his means permit of a future and uncertain event; so that if the
him to do so, the obligation shall be deemed to be one with a suspensive condition does not take place, the parties
period, subject to the provisions of Article 1197. would stand as if the conditional obligation had
never existed, or before the suspensive condition has
Term or Period taken place, what is acquired by the creditor is a
● Also refer to a future event, however, the event is mere hope or expectancy of acquiring a right.
something that is certain to happen
● Upon the arrival of which, the obligation subject to it EXAMPLE: Where the loans of X from Y were supposed to
either arises or is extinguished become due only at the time Y receives from Z the proceeds
● E.g., “death of a person” is not a condition but only a of the approved financing scheme, and Z refused to make
term; for while such event may be in the future, its releases, the condition for the loan did not happen and X is
happening is something that is certain not, therefore, liable to Y.

Where Duration of Period depends upon the Will of Debtor (2) Loss of rights already
(1) Debtor promises to pay when his means permit him to ● In obligations subject to a resolutory condition, the
do so happening of the event which constitutes the
● Obligation shall be deemed to be one with a period

MEDOLLAR, L. J. - 1BLM
 condition produces the extinguishment or loss of ARTICLE 1182
rights already acquired
When the fulfillment of a condition depends upon the sole will
Example: R (donor) donates land to E (donee) on the of the debtor, the conditional obligation shall be void. If it
condition that the latter would build upon the land a school. depends upon chance or upon the will of a third person, the
The condition imposed is a resolutory one. If there is no obligation shall take effect in conformity with the provisions of
compliance with the condition, R may revoke the donation, this Code.
and all rights which E may have acquired under it shall be
deemed lost or extinguished. Potestative Condition
● Also referred to as facultative
Effects of Non-compliance with Resolutory Condition ● A condition suspensive in nature and which depends
● Non-compliance with or non-fulfillment of the upon the sole will of one of the contracting parties
condition resolves the contract by force of law
without need of juridical intervention When Suspensive Condition depends upon the Will of Debtor
(1) Conditional obligation void
Classifications of Conditions ● Where the potestative condition depends solely
1. As to effect: upon the will of the debtor, the conditional obligation
a. Suspensive – happening of which gives rise shall be void because its validity and compliance is
to the obligation left to the will of the debtor (Art. 1308); hence it
b. Resolutory – happening of which cannot be legally demanded
extinguishes the obligation ● There is no burden on the debtor and consequently,
2. As to form: no juridical tie is created (Art. 1156)
a. Express – condition is clearly stated
b. Implied – condition is merely inferred (2) Only the condition void
3. As to possibility: ● If the obligation is a pre-existing one, and therefore,
a. Possible – condition is capable of fulfillment, does not depend for its existence upon the fulfillment
legally and physically by the debtor of the potestative condition, only the
b. Impossible – condition is not capable of condition is void leaving unaffected the obligation
fulfillment, legally or physically itself
4. As to cause or origin: ● The condition is imposed not on the birth of the
a. Potestative – condition depends upon the obligation but on its fulfillment
will of one of the contracting parties
b. Casual – condition depends upon chance Example: D borrowed P10,000.00 from C payable within two
or upon the will of a third person (2) months. Subsequently, D promised to pay C “after D sells his
c. Mixed – condition depends partly upon car” to which C agreed. In this case, only the condition is void
chance and partly upon the will of a third but not the pre-existing obligation of D to pay C.
person
5. As to mode: Where Suspensive Condition depends upon the Exclusive Will
a. Positive – condition consists in the of Creditor
performance of an act ● The obligation is valid
b. Negative – condition consists in the omission
of an act Example: “I will pay you my indebtedness upon your demand.”
6. As to number ● The obligation does not become illusory. Normally,
a. Conjunctive – there are several conditions the creditor is interested in the fulfillment of the
and all must be fulfilled obligation because it is for his benefit. It is up to him
b. Disjunctive – there are several conditions whether to enforce his right or not
and only one or some of them must be
fulfilled Where Resolutory Condition depends upon the Will of Debtor
7. As to divisibility ● If the potestative condition is at the same time
a. Divisible – the condition is susceptible of resolutory, although dependent upon the debtor’s
partial performance will, the obligation is not illusory because the debtor is
b. Indivisible – the condition is not susceptible naturally interested in the fulfillment of the resolutory
of partial performance condition in order to reacquire rights which have
already been vested in the creditor

MEDOLLAR, L. J. - 1BLM
 ● The position of the debtor when the condition is obligation which depends upon them. If the obligation is
resolutory is exactly the same as that of the creditor divisible, that part thereof which is not affected by the
when the condition is suspensive impossible or unlawful condition shall be valid.

Casual Condition The condition not to do an impossible thing shall be

(1) If the suspensive condition depends upon chance or considered as not having been agreed upon.
upon the will of a third person, the obligation subject
to it is valid ● Refers to suspensive conditions; yet impossible and
illegal
EXAMPLES: ● Applies only to cases where the impossibility already
(1) Where X, building contractor, obliges himself in favor existed at the time the obligation was constituted
of Y, owner, to repair at X’s expense any damage ● If the impossibility arises after the creation of the
that may be caused to the building by any obligation, Art. 1266 governs
earthquake occurring within ten (10) years from the
date of the completion of its construction. Two Kinds of Impossible Conditions
● Where S binds himself to sell his land to B if he wins a (1) Physically impossible
case that is pending before the Supreme Court. ● When they, in the nature of things, cannot exist or
cannot be done
(2) When the fulfillment of the condition does not
depend upon the will of the obligor, but that on a (2) Legally (juridically) impossible
third person who can in no way be compelled to ● When they are contrary to law, morals, good
carry it out, and it is found by the court that the customs, public order, or public policy
obligor has done all in his power to comply with and
he has a right to demand performance of the Effects of Impossible Conditions
contract by the other party (a) On Obligation
● Conditional obligation void
Mixed Condition ○ Impossible conditions annul the obligation
● Obligation is valid if the suspensive condition which depends upon them. Both the
depends partly upon chance and partly upon the obligation and condition are void.
will of a third person ○ Reason behind the law is that the obligor
● The law appears to sanction the validity of an knows his obligation cannot be fulfilled. He
obligation subject to a mixed condition although the has no intention to comply with his
fulfillment of which depends partly upon the will of obligation.
the debtor
● Conditional obligation valid
Example: Where X, building contractor, obliges himself in favor ○ If the condition is negative, that is not to do
of Y, owner, to repair at X’s expense, any damage to the an impossible thing, it is disregarded and
building taking place after an earthquake if found by a panel the obligation is rendered pure and valid
of arbitrators that construction defects contributed in any way ○ The condition is always fulfilled when it is not
to the damage. to do an impossible thing so that it is the
● Both conditions must take place in order that X’s same as if there were no condition
obligation will arise ○ Negative condition may be not to give an
impossible thing
Where Suspensive Condition depends partly upon the Will of
Debtor ● Only the affected obligation void
● If the compliance with the obligation still depends ○ If the obligation is divisible, the part thereof
upon that part of the condition whose fulfillment not affected by the impossible condition
depends upon the will of the debtor, the obligation is shall be valid
void as it is within his power to comply or not to
comply with the same Example: “I will give you P10,000.00 if you sell my land, and a
car if you kill Pedro.” The obligation to give P10,000.00 is valid
ARTICLE 1183 but the obligation to give a car is void because it is
dependent upon an impossible condition.
Impossible conditions, those contrary to good customs or
public policy and those prohibited by law shall annul the

MEDOLLAR, L. J. - 1BLM
 ● Only the condition void b) As soon as it has become indubitable that
○ If the obligation is a pre-existing obligation, the event will not take place although the
and, therefore, does not depend upon the time specified has not yet expired
fulfillment of the condition which is
impossible, for its existence, only the Effects of Positive Condition
condition is void 1. Condition is both positive and suspensive
● Non-happening of the event constitutes as the
Example: D incurred an obligation in the amount of P10,000.00 condition shall prevent the obligation from coming
in favor of C. If C later agreed to kill X before D pays him, the into existence
condition “to kill X” is void but not the pre-existing obligation of ● If the suspensive condition is required to happen at a
D “to pay C.” determinate time, the obligation is sure not to exist
“as soon as the time expires or if thas become
(b) On Simple and Remuneratory Donations indubitable that the event will not take place”
● Pure or Simple Donation ● EXAMPLE: If A says: “I will give B a car if he becomes a
○ One where the underlying cause is plain lawyer before he turns 25”
gratuity ○ Obligation is sure not to exist from the
○ This remains valid even if it depends upon moment B reaches the age of 25 and has
an impossible condition not graduated from law school, although
he may eventually pass the bar
● Remuneratory (or Compensatory) Donation examinations and become a lawyer
○ One made for the purpose of rewarding the afterwards
donee for past services, which services do ○ Obligation is also sure not to exist if B is still in
not amount to a demandable debt his 2nd year in College of Law when he
○ Also remains valid even if it depends upon turns 24, for in the latter situation, it is definite
an impossible condition that the event will not take place

● Onerous Donations 2. Condition is both positive and resolutory

○ Those which imposes upon the donee a ● Non-happening of the event which constitutes as the
reciprocal obligation or those made for condition shall result in the consolidation of rights that
valuable consideration, the cost of which is have already been acquired by the creditor
equal to or more than the thing donated ● The right becomes absolute “as soon as the time
○ This is void if it depends upon an impossible expres or if thas become indubitable that the event
condition will not take place”
● EXAMPLE: If A says: “I am giving B my collection of
(c) On Testamentary Dispositions law books but if my son, C, becomes a lawyer when
● Testamentary disposition in last will and testament he turn 25, those law books will have to be given
remains valid even if the same depends upon an back to C”
impossible condition ○ The right of B over said law books will
● Those impossible conditions imposed on wills are become absolute from the moment C
simply disregarded and do not, as a consequence, reaches age of 25 and has not graduated
affect the validity of testamentary dispositions from law school, although he may
eventually pass the bar examinations and
ARTICLE 1184 become a lawyer afterwards
○ B’s right also becomes absolute if C is still in
The condition that some event happen at a determinate time his 2nd year in College of Law when he
shall extinguish the obligation as soon as the time expires or if it turns 24, for in the latter situation, it is definite
has become indubitable that the event will not take place. that the event will not take place

Positive Condition ARTICLE 1185

● Art. 1184 refers to a positive (suspensive) condition;
that requires the happening of an event at a The condition that some event will not happen at a
determinate time which extinguishes the obligation determinate time shall render the obligation effective from the
● The obligation is extinguished: moment the time indicated has elapsed, or if it has become
a) As soon as the time expires without the evident that the event cannot occur.
event taking place

MEDOLLAR, L. J. - 1BLM
If no time has been fixed, the condition shall be deemed EXAMPLE 1: X agreed to give Y a 5% commission if the latter
fulfilled at such time as may have probably been could sell the former’s land at a certain price. Y found a buyer
contemplated, bearing in mind the nature of the obligation. who definitely decided to buy the property upon the terms
prescribed by X. To evade the payment of the commission
Negative Condition agreed upon, X himself sold to the buyer the property at a
– Obligation shall become effective and binding: lower price without the aid of Y.
(1) From the moment the time indicated has elapsed ● In this case, it can be said that the due performance
without the event taking place; or by Y of his undertaking,the condition for the payment
(2) From the moment it has become evident that the of the commission, was purposely prevented by X,
event can not occur, although the time indicated and is deemed fulfilled.
has not yet elapsed
EXAMPLE 2: A entered a contract with B, where A promised to
– If no time is fixed, the circumstances shall be considered to give B 10% commission if B sells A’s red car, to which B
determine the intention of the parties. This rule may also be complied and found a willing buyer. However, Ahimself sold
applied to a positive condition. the red car to the buyer for the purpose of evading the
commission he prmised to give to B. Following this case, the
EXAMPLE: If A says: “I promise to give B a Rolex watch if she condition is fulfilled through A’s undertaking, so B is entitled to
does not marry C before she turns 25” the 5% commission promised to him by A.
● Obligation shall become effective from the moment
B reaches the age of 25 and remains a bachelorette, Constructive Fulfillment of Resolutory Condition
although she may marry C afterwards ● Art. 1186 applies also to an obligation subject to a
● Obligation shall also become effective if B marries resolutory condition with respect to the debtor who is
another when she turns 24, for in the latter situation, it bound to return what he has received upon the
is evident that the event which serves as the fulfillment of the condition.
condition can no longer occur
EXAMPLE: X obliges himself to allow Y to occupy the former’s
ARTICLE 1186 house in Manila as long as X is assigned by their company in
the province. When Y learned that X would be transferred to
The condition shall be deemed fulfilled when the obligor Manila, he was able to induce the president of the company
voluntarily prevents its fulfillment. to assign another person in place of X.
● The obligation of X is extinguished because the
Doctrine of Constructive Fulfillment of Suspensive Condition fulfillment of the resolutory condition was voluntarily
– Presumed Fulfillment prevented by Y. Hence, Y must vacate the house.
– This applies when the following 3 requisites concur:
(1) Condition is suspensive; ARTICLE 1187
(2) Obligor actually prevents the fulfillment of the
condition; and The effects of a conditional obligation to give, once the
(3) He acts voluntarily. condition has been fulfilled, shall retroact to the day of the
constitution of the obligation. Nevertheless, when the
● The law does not require that the obligor acts with obligation imposes reciprocal prestations upon the parties, the
malice or fraud as long as his purpose is to prevent fruits and interests during the pendency of the condition shall
the fulfillment of the condition. He should not be be deemed to have been mutually compensated. If the
allowed to profit from his own fault or bad faith to the obligation is unilateral, the debtor shall appropriate the fruits
prejudice of the obligee. and interests received, unless from the nature and
● There must be intent on the part of the obligor to circumstances of the obligation it should be inferred that the
prevent the fulfillment of the condition and there intention of the person constituting the same was different.
must be actual prevention.
● Mere intention of the debtor to prevent the In obligations to do and not to do, the courts shall determine,
happening, or to place ineffective obstacles to its in each case, the retroactive effect of the condition that has
compliance, without actually preventing the been complied with.
fulfillment, is insufficient.
● In a reciprocal obligation like a contract of sale, both Retroactive Effects of Fulfillment of Suspensive Condition
parties are mutually obligors and also obligees. (see (1) In obligations to give
Art. 1167)

MEDOLLAR, L. J. - 1BLM
 ● An obligation to give subject to a suspensive ● There is usually no retroactive effect because they
condition becomes demandable only upon the are gratuitous
fulfillment of the condition ● The debtor receives nothing from the creditor; thus,
● Once the condition is fulfilled, its effects shall retroact fruits and interests belong to the debtor unless from
to the day when the obligation was constituted; this is the nature and other circumstances, it should be
so because the condition is only an accidental inferred that the intention of the person constituting
element of a contract. Obligation can exist without the same was different
being subject to a condition.
● Had the parties known beforehand that the EXAMPLE: Suppose, in the same example, the promise of S was
condition would be fulfilled, they would have bound to donate the parcel of land to B. Upon the fulfi llment of the
themselves under a pure obligation; hence, the condition, S has to deliver the land but he has the right to keep
obligation should be considered from the time it is to himself all the fruits and interests he may have received
constituted and not from the time the condition is during the pendency of the condition, that is, from January 20
fulfilled. to December 4, unless a contrary intention by S may be
inferred, as when it is stipulated that once the condition is
NOTE: The rule on retroactivity seems not to apply to real fulfilled, S shall render an accounting of fruits received during
contracts as they are perfected only by delivery of the object its pendency.
of the obligation (see Art. 1316).
ARTICLE 1188
(2) In obligations to do or not to do
● With respect to the retroactive effect of the fulfillment The creditor may, before the fulfillment of the condition, bring
of a suspensive condition in obligations to do or not the appropriate actions for the preservation of his right.
to do, no fixed rule is provided
● The courts are empowered by the use of sound The debtor may recover what during the same time he has
discretion and bearing in mind the intent of the paid by mistake in case of a suspensive condition.
parties, to determine, in each case, the retroactive
effect of the suspensive condition, that has been Rights Pending Fulfillment of Suspensive Condition
complied with. It includes the power to decide that (1) Rights of creditor
the fulfillment of the condition shall have no ● He may take or bring appropriate actions for the
retroactive effect or from what date such retroactive preservation of his right, as the debtor may render
effect shall be reckoned. nugatory the obligation upon the happening of the
condition
Retroactive Effects as to Fruits and Interests in Obligations to ● He may go to court to prevent the alienation or
Give concealment of the property of the debtor or to
(1) In reciprocal obligations have his right annotated in the registry of property
● No retroactivity because the fruits and interests ● The rule in paragraph one applies by analogy to
received during the pendency of the condition are obligations subject to a resolutory condition
deemed to have been mutually compensated
● This rule is necessary for purposes of convenience (2) Rights of debtor
since the parties would not have to render mutual ● He is entitled to recover what he has paid by mistake
accounting of what they have received prior to the happening of the suspensive condition
● Fruits here may be natural, industrial, or civil fruits ● This right is granted to the debtor because the
creditor may or may not be able to fulfill the
EXAMPLE: On January 20, S agreed to sell his parcel of land to condition imposes and hence, it is not certain that
B for P100,000.00 should B lose a case involving the recovery of the obligation will arise
another parcel of land. On April 10, S sold his land to C. B lost ● This is a case of solutio indebiti which is based on the
the case on December 4. principle that no one shall enrich in himself at the
● S must deliver the land and B must pay P100,000.00. S expense of another
does not have to give the fruits received from the
land before December 4 and B is not obliged to pay NOTE: The payment before the fulfillment of the condition
legal interests on the price since the fruits and must be “by mistake;” otherwise, the debtor is deemed to
interests received are deemed to have been have impliedly waive the condition. In any case, he cannot
mutually compensated. recover what he has prematurely paid once the suspensive
condition is fulfilled. But if the condition was not fulfilled, the
(2) In unilateral obligations

MEDOLLAR, L. J. - 1BLM
debtor should be allowed to recover any payment made (e.g., a particular ring is dropped from a ship at sea)
even if the debtor has paid not by mistake. or of law (e.g., property is lost through prescription).

ARTICLE 1189 Rules in case of Loss, etc., of the thing during Pendency of
Suspensive Condition
When the conditions have been imposed with the intention of (1) Loss of thing without debtor’s fault
suspending the efficacy of an obligation to give, the following ● Example: D obliged himself to give C his car worth
rules shall be observed in case of the improvement, loss or P100,000.00 if C sells D’s property. The car was lost
deterioration of the thing during the pendency of the without the fault of D.
condition: ○ The obligation is extinguished and D is not
(1) If the thing is lost without the fault of the debtor, the liable to C even if C sells the property. A
obligation shall be extinguished; person, as a general rule, is not liable for a
(2) If the thing is lost through the fault of the debtor, he fortuitous event. (Art. 1174.)
shall be obliged to pay damages; it is understood
that the thing is lost when it perishes, or goes out of (2) Loss of thing through debtor’s fault
commence, or disappears in such a way that its ● Example: In the same example, if the loss occurred
existence is unknown or it cannot be recovered; because of the negligence of D, C will be entitled to
(3) When the thing deteriorates, without the fault of the demand damages (Art. 1170.), i.e., P100,000.00 plus
debtor, the impairment is to be borne by the creditor; incidental damages, if any.
(4) If it deteriorates through the fault of the debtor, the
creditor may choose between rescission of the (3) Deterioration of thing without debtor’s fault
obligation and its fulfillment, with indemnity for ● A thing deteriorates when its value is reduced or
damages in either case; impaired with or without the fault of the debtor
(5) If the thing is improved by its nature, or by time, the ● Example: If the car figured in an accident, as a result
improvement shall inure to the benefit of the creditor; of which its windshield was broken and some of its
(6) If it is improved at the expense of the debtor, he shall paints were scratched away without the fault of D,
have no other right than that granted to the thereby reducing its value to P80,000.00, C will have
usufructuary*. to suffer the deterioration of impairment in the
amount of P20,000.00. (Art. 1174.)
* Usufructuary – the right to use and benefit from a property,
while the ownership of which belongs to another person (4) Deterioration of thing through debtor’s fault
● Example: In this case, C may choose between:
Requisites for Application for Art. 1189 a. Rescission (or cancellation) of the obligation
1. Obligation is a real one; with damages; in the case D is liable to pay
2. Object is a specific or determinate thing; P100,000.00, value of the car before its
3. Obligation is subject to a suspensive condition; deterioration plus incidental damages, if
4. Condition is fulfilled; and any; or
5. There is loss, deterioration, or improvement of the b. Fulfillment of the obligation also with
thing during the pendency of the happening on one damages (see Art. 1191.); in this case, D is
condition. bound to C to give the car and pay
P20,000.00 plus incidental damages, if any
Kinds of Loss
(1) Physical Loss – when a thing perishes, e.g., when a (5) Improvement of thing by nature or by time
house is burned and reduced to ashes; or ● A thing is improved when its value is increased or
(2) Legal Loss – when a thing goes out of commerce enhanced by nature or by time or at the expense of
(e.g., when it is expropriated) or when a thing the debtor or creditor
heretofore legal becomes illegal (e.g., during the ● Example: Suppose the market value of the car
Japanese occupation, American dollars had increased, who gets the benefit? The improvement
become impossible since their use was forbidden by shall inure to the benefit of C. Inasmuch as C would
the belligerent occupant); or suffer in case of deterioration of the car through a
(3) Civil Loss – when a thing disappears in such a way fortuitous event, it is but fair that he should be
that its existence is unknown (e.g., a particular dog compensated in case of improvement of the car
has been missing for some time); or even if known, it instead.
cannot be recovered, whether as a matter of fact

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 (6) Improvement of thing at expense of debtor constituted at all. In this case, the parties intend the
● Example: During the pendency of the condition, D return of the car.
had the car painted and its seat cover changed at
his expense. In this case, D will have the right granted (2) In obligations to do or not to do
to a usufructuary with respect to improvements ● In some obligations, the courts shall
made on the thing held in usufruct. determine the retroactive effect of the
fulfillment of the resolutory condition as in
ARTICLE 1190 the case where the condition is suspensive.
● The courts in the exercise of discretion may
When the conditions have for their purpose the extinguishment even disallow retroactivity taking into
of an obligation to give, the parties upon the fulfillment of said account the circumstances of each case.
conditions, shall return to each other what they have received.
Applicability of Art. 1189 to Party with Obligation to Return
In case of the loss, deterioration or improvement of the thing, ● The happening of a resolutory condition has the
the provisions which, with respect to the debtor, are laid down same effect on the creditor as the suspensive
in the preceding article shall be applied to the party who is condition has, on the debtor — an obligation arises.
bound to return. ● The fulfillment of the resolutory condition converts the
creditor into a debtor and the debtor into a creditor.
As for obligations to do and not to do, the provisions of the ● The applicability of the provision of Art. 1189 in case
second paragraph of Article 1187 shall be observed as regards of loss, deterioration, or improvement of the thing;
the effect of the extinguishment of the obligation. and pending the fulfillment of the condition, the
parties are entitled to the rights granted by Art. 1188.
Effects of Fulfillment of Resolutory Condition
(1) In obligations to give – When the resolutory condition ARTICLE 1191
in an obligation to give is fulfilled, the obligation is
extinguished (Art. 1181) and the parties are obliged The power to rescind obligations is implied in reciprocal ones,
to return to each other what they received under the in case one of the obligors should not comply with what is
obligation incumbent upon him.
a. There is a return to the status quo. In other
words, the effect of the fulfillment of the The injured party may choose between the fulfillment and
condition is retroactive. rescission of the obligation, with the payment for damages in
b. The obligation of mutual restitution is either case. He may also seek rescission, even after he has
absolute. It applies not only to the things chosen fulfillment, if the latter should become impossible.
received but also to the fruits and interests.
c. In case the thing to be returned “is legally in The court shall decree the rescission claimed, unless there be
the possession of a third person who did not just cause authorizing the fixing of a period.
act in bad faith” (see Art. 1384, par. 2), the
remedy of the party entitled to restitution is This is understood to be without prejudice to the rights
against the other. acquired of third persons who have acquired the thing, in
d. In obligations to give subject to a suspensive accordance with Articles 1385 and 1388 and the Mortgage
condition, the retroactivity admits of Law.
exceptions according to whether the
obligation is bilateral or unilateral (see Art. Kinds of Obligation Accdg. to the Person Obliged
1187). Here, there are no exceptions, (1) Unilateral
whether the obligation is bilateral or ● When only one party is obliged to comply
unilateral. with a prestation
e. If the condition is not fulfilled, the rights
acquired by a party become vested. (2) Bilateral
a. Reciprocal Obligations
EXAMPLE: D obliges himself to allow C to use the former’s car ● Those which arise from the same cause and
until D returns from the province. Upon the return of D from the in which each party is a debtor and creditor
province, C must give back the car. of the other, such that the performance of
● The effect of the happening of the condition is to one is designed to be the equivalent and
annul the obligation as if it had never been the condition for the performance of the
other

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 ● The general rule is that they are to be to perform, in whole or in part the obligation or
performed simultaneously or at the same undertaking which is incumbent upon him
time such that each party may treat the ● Under the rule of exceptio non adimpleti contractus,
fulfillment of what is incumbent upon the the party who has not performed his part of the
other as a suspensive condition to his agreement is not entitled to sue
obligation ● Where the plaintiff is the party who did not perform
● Its non-fulfillment, as a tacit or implied the undertaking which he was bound to perform by
resolutory condition, giving him the right to the terms of the contract, he is not entitled to insist
demand the rescission of the contract, i.e., upon its performance by the defendant, or recover
it may be exercised even if it is not provided damages by reason of his own breach
in the agreement of the parties ● Only the injured party can rescind a contract without
violating the principle of mutuality of contracts
Example: In a contract of sale in the absence of any
stipulation, the delivery of the thing sold by the seller is Effect of Rescission
conditioned upon the simultaneous payment of the purchase ● Generally, to rescind a contract is not merely to
price by the buyer, and vice versa. (see Art. 1169, last par.) The terminate it, but to abrogate and undo it from the
seller is the creditor as to the price and debtor as to the thing, beginning, that is, not merely to release the parties
while the buyer is the creditor as to the thing and debtor as to from further obligations to each other in respect to
the price. the subject of the contract, but to annul the contract
and restore the parties to the relative positions which
b. Non-reciprocal Obligations they would have occupied as if no such contract
● Those which do not impose simultaneous had ever been made
and correlative performance on both ● Mutual restitution is required to bring back the parties,
parties. In other words, the performance of as far as practicable, to their original situation prior to
one party is not dependent upon the the inception of the contract; as well as the benefits
simultaneous performance by the other. each party may have received as a result of the
contract
Tacit Resolutory Condition in Reciprocal Obligations
● Implied right to rescind (or resolution) Court may grant guilty party term for performance
● The condition is implied by law and applies even if ● The court shall decreee the rescission claimed unless
there is no corresponding agreement thereon there should be just cause for granting the party in
between the parties default a term for the performance of his obligation
● In reciprocal obligations, a party incurs in delay once ● This exception applies only where the guilty party is
the other party has performed his part of the willing to comply with his obligation but needs time to
contract; hence, the party who has performed or is do so and not where he refuses to perform
ready and willing to perform may rescind the
obligation if the other does not perform or is not Remedies are alternative
ready and willing to perform ● Remedies of the injured party are alternative and not
● The remedy granted is predicated on a breach of cumulative, that is, he is privileged to choose only
obligation by the other party that violates the one of the remedies, and not both
reciprocity between them ● Subject only to the exception in par. 2, where he may
● The right to rescind is implied such that absent any also seek rescission even after he has chosen
provision providing for a right to rescind, the parties fulfillment if the latter should become impossible
may nevertheless rescind the contract should the ● After choosing rescission of the obligation, he cannot
other obligor fail to comply with its obligations thereafter demand its compliance, nor seek partial
fulfillment under the guise of recovering damages
Choice of Remedy by Injured Party
(1) Action for specific performance (fulfillment) of the Right to Rescind Must be Invoked Judicially
obligation with damages; or ● As a general rule, the right to resolve (rescind)
(2) Action for rescission of the obligation, also with reciprocal obligation must be invoked judicially;
damages. hence cannot be invoked unilaterally and
extrajudicially
Breach of Obligation on part of Plaintiff ● However, judicial action for the rescission of a
● Breach of an obligation occurs when there is a failure contract is not necessary where the contract
or refusal, by a party without legal reason or excuse

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 provides that it may be revoked and cancelled for If the uncertainty consists in whether the day will come or not,
violation of any of its terms and conditions the obligation is conditional, and it shall be regulated by the
● The law on obligations and contracts does not rules of the preceding Section.
prohibit parties from entering into agreement
providing that a violation of the terms of the contract Obligation with a Period
would cause its cancellation, even without judicial ● One whose consequences or effects are subjected in
intervention one way or another to the expiration of said term or
period
ARTICLE 1192 ● Term (Period) – a future and certain event upon the
arrival of which the obligation (or right) subject to it
In case both parties have committed a breach of the either arises or is terminated. It is a day certain which
obligation, the liability of the first infractor shall be equitably must necessarily come, although it may not be
tempered by the courts. If it cannot be determined which of known when
the parties first violated the contract, the same shall be
deemed extinguished, and each shall bear his own damages. Period and Condition distinguished
(1) As to fulfillment
Where Both Parties Guilty of Breach ● Period is a certain event which must happen sooner
(1) First infractor known or later at a date known beforehand, or at a time of
● One party violated his obligation; subsequently, the which cannot be determined
other also violated his part of the obligation. ● Condition is an uncertain event
● The liability of the first infractor should be equitably
reduced (2) As to time
● Period refers only to the future
(2) First infractor cannot be determined ● Condition may also refer to a past event unknown to
● One party violated his obligation followed by the the parties
other, but it cannot be determined which of them
was the first who violated (3) As to influence on the obligation
● The contract shall be deemed extinguished and ● Period merely fixes the time for the efficaciousness of
each shall bear his own damages; hence, the the obligation. If suspensive, it cannot prevent the
contract shall not be enforced birth of the obligation in due time; if resolutory, it does
● The court shall not provide remedy to either of the not annul, even in fiction, the fact of its existence.
parties, who must suffer the damages allegedly ● Condition causes an obligation to arise or to cease
sustained by them ● The difference is, a period does not carry with it,
except when there is a stipulation expressly made by
● Above rules are deemed just, as the first one is fair to the parties, the same retroactive consequences that
both parties because the second infractor also follow a condition.
derived, or thought he would derive, some
advantage by his own act or neglect. (4) As to effect, when left to debtor’s will
● The second rule is likewise just because it presumed ● A period which depends upon the will of the debtor
that both at about the same time tried to reap some empowers the court to fix the duration thereof (Art.
benefit. 1197, par. 2)
● A condition which depends upon the sole of the
debtor invalidates the obligation (Art. 1182)
Section 2: Obligations with a Term or Period

(5) As to retroactivity of effects

ARTICLE 1193 ● Unless there is an agreement to the contrary, the
arrival of a period does not have any retroactive
Obligations for whose fulfillment a day certain has been fixed, effect, while the happening of a condition has
shall be demandable only when that day comes. retroactive effect

Obligations with a resolutory period take effect at once, but NOTE: Like a condition, a period must be possible. If the period
terminate upon the arrival of the day certain. is impossible, the obligation is void.

A day certain is understood to be that which must necessarily Kinds of Period or Term
come, although it may not be known when. (1) According to effect

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 a. Suspensive Period (ex die) ● This rule was deemed unjust and “contrary to the
● Obligation begins only from a day certain manifest intention of the parties”
upon the arrival of the period
Debtor Presumed Aware of Period
b. Resolutory Period (in diem) ● He has the burden of proving that he was unaware
● Obligation is valid up to a day certain and of the period
terminated upon the arrival of the period ● Where the duration of the period depends upon the
will of the debtor, payment by him amounts, in effect,
(2) According to source to his determination of the arrival of the period
a. Legal Period ● Obligor may no longer recover the thing or money
● Provided for by law once the period has arrived but he can recover the
fruits or interests thereof from the date of premature
b. Conventional (Voluntary) Period performance to the date of maturity of the obligation
● Agreed to by the parties
EXAMPLE: D owes C P2,000.00 which was supposed to be paid
c. Judicial Period on December 31 this year. By mistake, D paid his obligation on
● Fixed by the court December 31 last year.
● Assuming that today is June 30, D can recover the
(3) According to definiteness P2,000.00 plusP120.00, which is the interest for one
a. Definite Period half year at the legal rate of 12% or a total of
● When it is fixed or it is known when it will P2,120.00. But D cannot recover, except the interest,
come if the debt had already matured.
● Neither can there be a right to recovery if D had
b. Indefinite Period knowledge of the period. The theory under solutio
● When it is not fixed or it is not known when it indebiti obviously will not apply. D is deemed to have
will come impliedly renounced the period.
● Where the period is not fixed but a period is
intended, the courts are usually No Recovery in Personal Obligation
empowered by law to fix the same (see Art. ● It is physically impossible to recover the service
1197) rendered
● As the obligor performs by not doing, he cannot, of
ARTICLE 1194 course, recover what he has not done

In case of loss, deterioration or improvement of the thing ARTICLE 1196

before the arrival of the day certain, the rules of Article 1189
shall be observed. When in an obligation a period is designated, it is presumed to
have been established for the benefit of both the creditor and
ARTICLE 1195 the debtor, unless from the tenor of the same or other
circumstances it should appear that the period was
Anything paid or delivered before the arrival of the period, the established in favor of one or of the other.
obligor being unaware of the period or believing that the
obligation has become due and demandable, may be Presumption as to Benefit of Period
recovered, with the fruits and interests. ● In an obligation subject to a period fixed by the
parties, the period is presumed to have been
Payment Before Arrival of Period established for the benefit of both the creditor and
● Art. 1195 applies only to obligations to give the debtor
● Similar to Art. 1188 (2), which allows the recovery of ● Before the expiration of the period, the debtor may
what has been paid by mistake before the fulfillment not fulfill the obligation and neither may the creditor
of a suspensive condition demand its fulfillment without the consent of the
● The creditor cannot unjustly enrich himself by other especially if the latter would be prejudiced or
retaining the thing or money received before the inconvenienced thereby
arrival of the period ● In a reciprocal contract like a lease, the period must
● Under the former provision, the debtor could recover be deemed to have been agreed upon for the
only the fruits or interests but not the thing or sum benefit of both parties, absent language showing
given or paid in advance

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 that the term was deliberately set for the benefit of consent of C. Ordinarily, there must be a stipulation
the lessee or the lessor alone granting the benefit of the term to only the creditor.
● Presumption is rebuttable
Acceleration by Debtor of Time of Payment
EXAMPLE: On January 1, D borrowed from C P10,000.00 ● Payment of interest may not be the only reason why
payable on December 31 at 18% interest. D cannot pay a creditor may not be bound to receive payment
before December 31 without the consent of C. Neither can C before maturity
compel D to pay before the expiration of the term. It is ● Other reasons may be:
presumed that the period designated, which is December 31, ○ “that the creditor may want to keep his
has been established for the benefit of both. money invested safely instead of having it in
● D is benefited because he can use the money for his hands,” and
one year. C is also benefited because of the interest ○ “that the creditor by fixing a period,
the money would earn for one year. protects himself against sudden decline in
● D can pay C before December 31 provided the the purchasing power of the currency
payment includes the interest for one (1) year. loaned especially at a time when there are
● Where, however, the obligation of D is to deliver, say, many factors that may influence the
100 cavans of rice, C cannot be compelled to fluctuation of the currency.”
accept performance before the expiration of the ● All available authorities on the matter are agreed
period especially if he would be prejudiced or that unless the creditor consents, the debtor has no
inconvenienced thereby. right to accelerate the time of payment even if the
premature tender included an offer to pay principal
Exceptions to the General Rule and interest in full
– Tenor of the obligation or circumstances may show that it
was the intention of the parties to constitute the period for the Effect of Acceptance by Creditor of Partial Payment
benefit of either the debtor or the creditor ● Acceptance of a partial payment by a creditor
– Benefit of the period may be the subject of express amounts to a waiver of the period agreed upon
stipulation of the parties during which payment should not be made
● If no explanation is given why the creditor received
1. Term is for the benefit of the debtor alone such partial payment before the maturity of the
● He cannot be compelled to pay prematurely, but he obligation, it may be presumed that his
can, if he desires to do so relinquishment was intentional, and his choice to
dispense with the term, voluntary. It is not a mere
EXAMPLE: D borrowed from C P10,000.00 to be paid within one forbearance.
year without interest.
● In this case, the period of one year should be ARTICLE 1197
deemed intended for the benefit of D only.
Therefore, he can pay any time but he cannot be If the obligation does not fix a period, but from its nature and
compelled to pay before one year. Although the the circumstances it can be inferred that a period was
loan is gratuitous, the terms and conditions of the intended, the court may fix the duration thereof.
contract or other circumstances may indicate that
the period has been established for the benefit of The courts shall also fix the duration of the period when it
both parties. depends upon the will of the debtor,

2. Term is for the benefit of the creditor In every case, the courts shall determine such period as may
● He may demand fulfillment even before the arrival of under the circumstances have been probably contemplated
the term but the debtor cannot require him to by the parties. Once fixed by the courts, the period cannot be
accept payment before the expiration of the changed by them.
stipulated period
Court Generally Without Power to Fix a Period
EXAMPLE: D borrowed from C P10,000.00 payable on ● Period mentioned refers to a judicial period as
December 31 with the stipulation that D cannot make distinguished from the period fixed by the parties in
payment before the lapse of the period but C may demand their contract which is known as contractual period
fulfillment even before said date. ● If the obligation does not state a period and no
● Here, C can demand payment at any time but D period is intended, the court is not authorized to fix a
cannot shorten the one-year period without the

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 period. The courts have no right to make contracts the fulfillment of the obligation that depends upon
for the parties. the will of the debtor

Exceptions to the General Rule: When Court is Authorized to Fix Separate Action to Fix a Duration of Period
a Period ● Only action that can be maintained is to ask the
– Art. 1197 is part and parcel of all obligations contemplated court first to determine the term within the obligor
therein must comply with his obligation for the reason that
– Whenever the court fixes the term of an obligation, it does fulfillment of the obligation itself cannot be
not thereby amend or modify the same. It merely enforces or demanded until after the court has fixed the period
carries out the intention of the parties. for its compliance and suchperiod has arrived
● Duration of the period should be fixed in an action
(1) When the obligation does not fix a period but from its brought for that express purpose separate from the
nature and the circumstances it can be inferred that action to enforce payment but such technicality
a period was intended; need not be adhered to when a prior and separate
(2) When the duration of the period depends upon the action would be a mere formality and would serve
will of the debtor; no other purpose than to delay
(3) In case of breach of reciprocal obligation, the court
may refuse to order rescission if there is a just cause Ultimate Facts to be Alleged in Complaint
for the fixing of a period; (1) Facts showing that a contract was entered into,
(4) In lease of urban lands, the courts may fix a longer imposing on one of the parties an obligation/s in
period in case daily, weekly, or monthly rent is paid favor of another; and
and the lessee has occupied the premises for more (2) Facts showing or from which an inference may
than one month, or month than six months, or more reasonably be drawn, that a period for performance
than one year, respectively (Art. 1687). was intended by the parties.

No Period is Fixed but a Period was Intended ● If the complaint does not ask that a period for the
● If the obligation does not fix a period but it can be performance of an obligation be fixed, the court
inferred from its nature and the circumstances that a cannot fix a period unless the complaint is first
period was intended by the parties, the court may fix amended.
the period. ● The court may fix the duration of the period, although
● If the period fixed is extended byagreement, to be the complaint does not expressly ask for such relief,
valid the same must be for a definite time, although if where the ultimate facts above are sufficiently
no precise date is fixed, it is sufficient that the time alleged therein.
can readily be determined.
● In case the period of extension is not precise, Art. Period Fixed by Court is Final
1197 applies. (1) If there is a period agreed upon by the parties and it
has already lapsed or expired, the court cannot fix
Duration of Period Depends upon the Will of the Debtor another period.
● The court must fix the duration of the period to (2) From the moment the parties give their acceptance
forestall the possibility that the obligation may never and consent to the period fixed by court, said period
be fulfilled or to cure a defect in a contract whereby acquires the nature of a covenant, because the
it is made to depend solely upon the will of one of effect of such acceptance and consent by the
the parties. parties is exactly the same as if they had expressly
● In fixing the term, the court is merely enforcing the agreed upon it, and it having been agreed upon by
implied stipulation of the parties. them, it becomes a law governing their contract. The
period fixed in a final judgment is res judicata and as
Legal Effect where Suspensive Period/Condition depends upon such forms an integral part of the imperfect contract
Will of Debtor which gives rise to its designation by the court, and
(1) Existence of the obligation is not affected although thence, forward part of a perfect and binding
the period depends upon the sole of debtor. It is only contract. Consequently, the court cannot change it.
the performance with respect to time that is left to However, parties may modify them by a new
the wll of the debtor. agreement.
(2) If the obligation is subject to a condition which
depends upon the will of the debtor, the conditional
obligation is void because in such case, it it actually

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 ARTICLE 1198 When debtor does not furnish guaranties or securities promised
EXAMPLE: Suppose in the same example, D promised to
The debtor shall lose every right to make use of the period: mortgage his house to secure the debt. If he fails to furnish said
(1) When after the obligation has been contracted, he security as promised, he shall lose his right to the period.
becomes insolvent, unless he gives a guaranty or
security for the debt; When guaranties or securities given have been impaired or
(2) When he does not furnish to the creditor the have disappeared
guaranties or securities which he has promised; ● It makes a distinction between the effects of the
(3) When by his own acts he has impaired said debtor’s own act and fortuitous event
guaranties or securities after their establishment, and ● If the reason is the debtor’s own acts, mere
when through a fortuitous event they disappear, impairment of the guaranties or securities is sufficient
unless he immediately gives new ones equally in order for the debtor to lose every right to make use
satisfactory; of the period
(4) When the debtor violates any undertaking, in ● If the reason is fortuitous event, the law requires total
consideration of which the creditor agreed to the disappearance of the guaranties or securities before
period; the debtor can lose such right
(5) When the debtor attempts to abscond. ● Debtor may preserve the benefit of the period if he
immediately gives new but equally satisfactory
When Debtor Loses Benefit of Period guaranties or securities
● General rule: The obligation is not demandable
before the lapse of the period. However, in any of EXAMPLE: If the debt is secured by a mortgage on the house
the five (5) cases mentioned in Art. 1198, the debtor of D, but the house was burned through his fault, the
shall lose every right to make use of the period. obligation also becomes demandable unless D gives a new
● If those 5 cases take place, the obligation is security equally satisfactory.
converted into a pure obligation; hence, it becomes ● The house need not be totally destroyed as it is
immediately due and demandable, even if the sufficient that the security be impaired by the act of
period has not expired. D. But in case of a fortuitous event, it is required that
the security must disappear. But if the security given
The exceptions are based on the fact that the debtor might deteriorates in such a manner as to become illusory,
not be able to comply with his obligation: it must be deemed to have disappeared or lost as
contemplated in paragraph 3.
When debtor becomes insolvent
● Insolvency – a supervening insolvency; occurs only When debtor violates an undertaking
after the debt has been contracted, and the same ● Undertaking – a promise to do something
need not be judicially declared
● It is sufficient that the debtor is in a state of financial EXAMPLE: Now, suppose that C in the example agreed to the
difficulty or that he is unable to pay his debts in the period in consideration of the promise of D to repair the piano
ordinary course of business. However, provided that of C free of charge. The violation of this undertaking by D gives
debtor gives guarantee or security for the debt, he C the right to demand immediate payment of the loan.
may still retain the right to such period after he
becomes insolvent When debtor attempts to abscond
● Abscond – flee/escape; depart secretly and hide
EXAMPLE: D owes C P10,000.00 due and payable on oneself
December 20. If D becomes insolvent, say on September 10, EXAMPLE: Before the due date of the obligation, D (debtor)
C, can demand immediate payment from D even before changed his address without informing C (creditor) and with
maturity unless D gives sufficient guaranty or security. the intention of escaping from his obligation.
● The insolvency in this case need not be judicially ● This act of D is a sign of bad faith which results in the
declared. It is sufficient that the assets of D are less loss of his right to the benefit of the period stipulated.
than his liabilities or D is unable to pay his debts as ● A mere attempt or intent to abscond is sufficient.
they mature.
● Note: insolvency of D must occur after the obligation
Chapter 3: DIFFERENT KINDS OF OBLIGATIONS (cont’d.)
has been contracted.

Section 3: Alternative Obligations

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 The right of choice belongs to the debtor, unless it has been
ARTICLE 1199 expressly granted to the creditor.

A person bound by different prestations shall completely The debtor shall have no right to choose those prestations
perform one of them. which are unlawful, impossible, or which could not have been
the object of the obligation.
The creditor cannot be compelled to receive part of one and
part of the other undertaking. Right of Choice
● General rule: Right to choose the prestation belongs
Classification of Obligations According to Number of to the debtor
Prestations (Objects) ● By way of exception, right of choice may only be
1. Simple Obligation exercised by the creditor if he is expressly granted
● Involves single prestation such right in their agreement
● Does not pose any problem; all that the debtor has ● Right of choice may also be granted to a third
to do is to perform the prestation and the obligation person by express (or common) agreement of the
is already extinguished parties because such agreement is not prohibited by
● EXAMPLE: S obliged himself to deliver to B a piano; S law nor contrary to morals, good customs, public
promised to repair the car of B. order, or public policy (Art. 1306)

2. Compound Obligation – There are two or more EXAMPLE 1: D insured his house with R, an insurance company.
prestations; where it may be: It is agreed that, if the house is destroyed or damaged, R may
(a) Conjunctive Obligation either pay the damage or loss or “reinstate or rebuild the
● There are several prestations and all are house.”
due and demandable; or ● Nothing is said in the contract as to who has the right
(b) Distributive Obligation of choice; hence it belongs to R, as debtor
● One of two or more of the prestations is due
● When the obligation involves several EXAMPLE 2: S binds himself to deliver item one or two to B on
prestations but the debtor is required to November 10 and to communicate his choice on or before
perform only one prestation for the November 5.
obligation to be extinguished ● If S delays in making his selection, B cannot exercise
● May either be alternative (Art. 1199) or the right because it is not expressly granted to him.
facultative (Art. 1206) But the judgment in the alternative cannot be
defeated by S by refusing to make a choice. In such
Alternative Obligation case, the court can give the right of choice to B.
● One wherein various prestations are due but the
performance (or fulfillment) of one of them is Right of Choice of Debtor Not Absolute
sufficiently determined by choice of which, as a (1) Debtor cannot choose those prestations which are
general rule, belongs to the debtor impossible, unlawful, or which could not have been
the object of the obligation
EXAMPLE: D borrowed from C P10,000. It was agreed that D ● These prestations are void
could comply with his obligation by giving C: (1) P10,000, (2) a ● Their presence does not invalidate the obligation if it
color television set, or (3) by painting the house of C. includes other undertakings otherwise free from such
● Delivery of any of the 3 choices is sufficient to comply defects
with the obligation, and performance must be ● Under Art. 1200, debtor’s right of choice is not
complete. extinguished altogether but limited to the remaining
valid prestations
● C cannot be compelled to accept, for instance,
P5,000 and half of the television, thereby establishing (2) Debtor has no more right of choice, when among the
a co-ownership between them, or P5000 and the prestations whereby he is alternatively bound, only
painting of a part of his house UNLESS such manner of one is practicable (Art. 1202)
payment is consented by the creditor (Arco Pulp and ● There is not only a limitation but a loss of the right of
Paper Co., Inc vs. Lim) choice belonging to the debtor; making the
obligation a simple one.
ARTICLE 1200 ● The right does not pass to the creditor, nor may it be
exercised by any one

MEDOLLAR, L. J. - 1BLM
 ● The law does not require any particular form
(3) Debtor cannot choose part of one prestation and part regarding the giving of notice; hence it may either
of another prestation (Art 1199, par. 2) be made orally or in writing, expressly or impliedly

ARTICLE 1201 ARTICLE 1202

The choice shall produce no effect except from the time it has The debtor shall lose the right of choice when among the
been communicated. prestations whereby he is alternatively bound, only one is
practicable.
● This is with regard to the effectivity of notices
between absent persons or when the parties involved Effect When Only One is Practicable
are not dealing face-to-face ● Art. 1200 shall apply if more than one is practicable,
● The Civil Code of the PH adopted the theory under and obligation remains alternative because debtor
the Spanish Civil Code, known as cognition theory still retains the right of choice
which holds that election or notice has no effect until ● Art. 1202 applies if only one is practicable (e.g., other
it comes to the “knowledge” of the other party have become impossible), the obligation is
● Cognition theory in relation to Art. 1201 applies that converted into a simple one
the choice is deemed to have been communicated
from the time that the other party gains knowledge ARTICLE 1203
of the election made by the other party
● What is required by the above provision is a mere If through the creditor’s acts the debtor cannot make a
notice to the other party and not his consent choice according to the terms of the obligation, the latter may
○ Law does not require the creditor’s rescind the contract with damages.
concurrence to the choice; if it did, it would
have destroyed the very nature of When Debtor May Rescind Contract
alternative obligations, which empowers the ● Rescission creates the obligation to return the things
debtor to perform completely one of them which were the object of the contract, together with
● If the right of choice has been expressly granted to a their fruits, and the price with its interest (Art. 1385,
third person, both creditor and debtor must be duly par. 1)
notified of the choice made by such third person ● It is the very nature of an alternative obligation that
the debtor can make his choice without the consent
Communication of Notice that Choice has been Made of the creditor; hence, the right given the debtor to
(1) Effect of Notice rescind the contract and recover damages if,
● Obligation remains alternative until the choice is through the creditor’s fault, he cannot make a
made and communicated choice according to the terms of the obligation. The
● Once the notice of the election has been given to debtor, however, is not bound to rescind.
the creditor, the obligation ceases to be alternative
and becomes simple EXAMPLE: D borrowed from C P20,000.00. It was agreed that
● Such choice once properly made and instead of P20,000.00, D could deliver item one, or item two, or
communicated is irrevocable and cannot be item three.
renounced. Such rule is inherent in the nature of the ● If through the fault of C, item one is destroyed, D can
choice, its purpose being to clarify and render rescind the contract if he wants. In case of rescission,
definite the rights of the one exercising the choice, so the amount of P20,000.00 must be returned by D with
that the other party may act in consequence. The interest. C, in turn, must pay D the value of item one
concurrence of the creditor to the choice is not plus damages.
required (see Art. 1200). ● D, instead of rescinding the contract, may choose
● Where the choice has been expressly given to the item two or three with a right to recover the value of
creditor, such choice shall likewise produce legal item one with damages. If D chooses item one, his
effects upon being communicated to the debtor obligation is extinguished. C is not liable for damages.
(Art. 1205, par. 1)
ARTICLE 1204
(2) Proof and Form of Notice
● Burden of proving that such communication has The creditor shall have a right to indemnity for damages when,
been made is upon him who made the choice through the fault of the debtor, all the things which are

MEDOLLAR, L. J. - 1BLM
alternatively the object of the obligation have been lost, or the the value of item three since S would have been bound to
compliance of the obligation has become impossible. deliver it had it not also been lost. The liability of S is not
affected although the loss of items one and two was through
The indemnity shall be fixed taking as a basis the value of the a fortuitous event.
last thing which disappeared, or that of the service which last ● If item three is lost without the fault of S, his obligation
became impossible. is extinguished and he shall not be liable for
damages although the loss of items one and two was
Damages other than the value of the last thing or service may due to his fault. The reason is that after the loss of
also be awarded. items one and two, the obligation is converted into a
simple one to deliver item three (Art. 1202).
Effects of Loss or Becoming Impossible of Objects of Obligation ● S cannot be held responsible for the loss of items one
(1) Some of the objects and two through his fault because having the right of
● If some of the objects of the obligation have been choice, he was not bound to deliver either. The rule is
lost or have become impossible even through the just since he could have been liable for damages if
fault of the debtor, he is not liable since he has the item three instead was lost through his fault and items
right of choice and the obligation can still be one and two, through a fortuitous event.
performed
● An exception to the general rule established in Art. ARTICLE 1205
1170 regarding liability for damages arising from
negligence When the choice has been expressly given to the creditor, the
obligation shall cease to be alternative from the day when the
(2) All of the objects selection has been communicated to the debtor.
● If all of them have been lost or become impossible
through the debtor’s fault, the creditor shall have a Until then the responsibility of the debtor shall be governed by
right to indemnity for damages since the obligation the following rules:
can no longer be complied with (1) If one of the things is lost through a fortuitous event,
● If the cause of the loss is a fortuitous event, the he shall perform the obligation by delivering that
obligation is extinguished which the creditor should choose from among the
● The phrase “or the compliance of the obligation has remainder, or that which remains if only one subsists;
become impossible” refers to obligations to do (2) If the loss of one of the things occurs through the fault
of the debtor, the creditor may claim any of those
EXAMPLE: S agreed to deliver item one, or item two, or item subsisting, or the price of that which, through the fault
three. of the former, has disappeared, with a right to
● If item one is lost through the fault of S, he can still damages;
select either item two or item three. The loss of item (3) If all the things are lost through the fault of the
one and two with or without the fault of S will reduce debtor, the choice by the creditor shall fall upon the
the obligation to a simple one. price of any one of them, also with indemnity for
● If all the items are lost through his fault, liability will damages.
attach; if through a fortuitous event, the obligation
will be extinguished. The same rules shall be applied to obligations to do or not do
in case one, some or all of the prestations should become
Basis of Indemnity impossible.
● Indemnity shall be fixed taking as a basis the value of
the last thing which disappeared (refers to Where Right of Choice Belongs to Creditor
obligations to give), or that of the service which last ● The provisions with respect to the debtor which are
became impossible (refers to obligations to do) laid down in the preceding articles shall be
● In case of disagreement, it is incumbent upon the applicable to the creditor when the right of choice is
creditor to prove such value, or which thing last given to him.
disappeared or which service last become ● Before the creditor makes the selection, the debtor
impossible cannot incur in delay.
● Other damages may also be awarded

Rules In Case of Loss Before Creditor has made Choice

EXAMPLE: In the above example, if items one and two are lost, (1) When a thing is lost through a fortuitous event
S will be bound to deliver item three. If subsequently, item ● EXAMPLE: S obliged himself to deliver to B item one,
three is also lost through the fault of S, the basis for indemnity is or item two or item three, or item four. If item one is

MEDOLLAR, L. J. - 1BLM
 lost through a fortuitous event, B can choose from ARTICLE 1206
among the remainder or that which remains if three
of the items are lost. When only one prestation has been agreed upon, but the
obligor may render another in substitution, the obligation is
(2) When a thing is lost though debtor’s fault called facultative.
● EXAMPLE: If the loss of item one occurs through the
fault of S, B may claim item two or item three or item The loss or deterioration of the thing intended as a substitute,
four with a right to damages, or the price of item one through the negligence of the obligor, does not render him
also with a right to damages. liable. But once the substitution has been made, the obligor is
liable for the loss of the substitute on account of his delay,
(3) When all the things are lost through debtor’s fault negligence or fraud.
● EXAMPLE: If all the items are lost through the fault of S,
then B can demand the payment of the price of any Facultative Obligation
one of them with a right to indemnity for damages. ● One where only one prestation has been agreed
upon but the obligor may render another in
(4) When all the things are lost through fortuitous event substitution
● EXAMPLE: The obligation of S shall be extinguished if
all the items which are alternatively the object of the EXAMPLE 1: “I will give you my piano but I may give my
obligation are lost through a fortuitous event. In this television set as a substitute.”
case, Article 1174 shall apply. ● In this obligation, only the piano is due. Hence, its loss
through debtor’s fault will make him liable.
Loss After Election
● Foregoing rules discussed above shall only apply to EXAMPLE 2: “I will mortgage my land to secure my debt which
situations where the loss of one, or some or all of the shall be payable within 90 days upon my failure to pay my
prestations occur prior to the effectivity of the choice debt within 30 days.”
or election made by the party who is entitled to ● Here, debtor may mortgage his land in substitution of
exercise the right of choice the obligation to make payment within 30 days.
● Said rules do not apply when the loss occurs after the
choice has been duly communicated because the Difference between Alternative and Facultative Obligation
obligation had already lost its alternative character
and became a simple obligation of performing that
Alternative Obligation Facultative Obligation
which has been chosen
● The following are the rules which shall apply if the loss
Only the prestation
occurs after the choice has been duly All the prestations are
agreed upon is due
due and subject to
communicated: Number of and subject to the
the obligation up to
prestations obligation but not the
the time the election
1. What was lost was the chosen prestation, for all substitute which the
is made
debtor has reserved
intents and purposes, is the only prestation due and
demandable under the circumstances
Right of choice
● Obligation is considered extinguished if lost without generally belongs to
the fault of the debtor and before he has incurred in Right of the debtor but may
–
delay Choice be granted to the
● Obligation is converted to indemnification for creditor, or a third
damages if the same was lost by reason of the person

debtor’s fault
If the original prestation
One of the prestation
is impossible or unlawful,
2. What was lost was not the chosen prestation is impossible or
Nullity of the obligation is
unlawful does not
● The same does not affect the obligation because it is Prestation rendered invalid even if
affect the validity of
not what is due the substitute prestation
the obligation
is valid
Rules Applicable to Personal Obligations
Loss of one of the Loss of the substitute
● Responsibility of the debtor for damages depends
Loss through prestations prior to prestation prior to
upon whether the cause which has rendered the Fault of election may render election does not make
obligation impossible was due to his fault or not. Debtor the debtor liable for the debtor liable even if
damages (if right of the same is lost by

MEDOLLAR, L. J. - 1BLM
 c) If item two is lost with or without the fault of S, S is still
choice belongs to the reason of his fault
liable to deliver item one; he is not liable for damage
creditor)
for the loss of item two as it is not due
Loss of one of the
Loss through Loss of the thing due
alternatives does not * ART. 1262. An obligation which consists in the
Fortuitous extinguishes the
extinguish the delivery of a determinate thing shall be extinguished
Event obligation
obligation
if it should be lost or destroyed without the fault of the
debtor, and before he has incurred in delay.
Right of Choice and Effectivity of Election
● There is only one prestation which is due – that which (2) After Substitution
has been agreed upon, and may be referred to as ● Principal thing is lost → Debtor is not liable whatever
the “original prestation” the cause may be, because is no longer due
● Debtor is granted the right to perform another ● Substitute prestation is lost → Liability depends upon
prestation in substitution of the original prestation, but whether or not the loss is due through his fault
such right must be expressly agreed upon in the ○ Once the substitution is made, the
contract; otherwise, the obligation of the debtor is a obligation is converted into a simple one to
simple one of performing that which is due deliver or perform the substituted thing or
● The right to choose as to which prestation is to be prestation
performed (whether original or substitute) always ○ The substitution becomes effective from the
belongs to the debtor, for that is the very nature of time it has been communicated
this kind of obligation
● If debtor intends to perform the original prestation, he EXAMPLE: A will give B item one or if A wants, item two.
does not have to communicate such fact to the a) If item one is lost with or without the fault of A, A is not
creditor because the latter is already expecting its liable for its loss since his obligation now is to deliver
performance considering that it is what is due item two
● If debtor intends to perform the substitute prestation, b) If item two is lost through a fortuitous event, the
his decision to perform the substitution does not bind obligation of A is extinguished
the creditor except from the time it has been c) If item two is lost through the fault of A, A is liable for
communicated to creditor damages
● Once the debtor has communicated to the creditor
his decision to perform the other prestation, the
choice becomes irrevocable and will bind both Section 4: Joint and Solidary Obligations
parties (Art. 1201 applies by analogy); thus, the
obligation ceases to be a facultative in character
and becomes a simple obligation of performing the ARTICLE 1207
chosen prestation
The concurrence of two or more creditors or of two or more
Effect of Loss debtors in one and the same obligation does not imply that
(1) Before Substitution each one of the former has a right to demand, or that each
● Principal thing lost through a fortuitous event → one of the latter is bound to render, entire compliance with
Obligation is extinguished the prestations. There is a solidary liability only when the
● Principal thing lost through debtor’s fault → He is obligation expressly so states, or when the law or the nature of
liable for damages the obligation requires solidarity.
● Loss of thing intended as a substitute with or without
debtor’s fault → Does not render him liable ARTICLE 1208
○ Reason for this: The thing intended as a
substitute is not due. The effect of the loss is If from the law, or the nature or the wording of the obligations
merely to extinguish the facultative to which the preceding article refers the contrary does not
character of the obligation. appear, the credit or debt shall be presumed to be divided
into as many equal shares as there are creditors or debtors, the
EXAMPLE: S will give B item one or if S wants, item two. credits or debts being considered distinct from one another,
a) If item one is lost through a fortuitous event, the subject to the Rules of Court governing the multiplicity of suits.
obligation of S is extinguished (Arts. 1174, 1262*)
b) If item one is lost through the fault of S, S is liable for Kinds of Obligation accdg. to the Number of Parties
damages (Art. 1170)

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 1. Individual Obligation – one where there is only one such case, the presumption is that the obligation is
obligor and one obligee joint, and as a consequence:
2. Collective Obligation – one where there are two or (a) There are as many debts as there are
more debtors and/or two or more creditors. It may debtors;
either be joint or solidary. (b) There are as many credits as there are
creditors;
Classification of Obligations Based on Plurality of Subjects (c) Debts and/or credits are considered distinct
1. Joint Obligation and separated from one another;
● One where the whole obligation is to be paid or (d) Each debtor is liable only for a
fulfilled proportionately by the different debtors proportionate part of the debt; and
and/or is to be demanded proportionately by the (e) Each creditor is entitled only to a
different creditors (Art. 1208) proportionate part of the credit.
● Each creditor can recover only his share of the
obligation, and each debtor can be made to pay NOTE: The presumption established in Art. 1208 is rebuttable
only his part
EXAMPLE 1: A, B, and C borrowed P9,000.00 from D. The
2. Solidary Obligation presumption is that A, B, and C are jointly liable.
● One where each one of the debtors is bound to ● There are three debts and one credit
render, and/or each one of the creditors has a right ● D can demand only P3,000.00 each from A, B, and C,
to demand entire compliance with the prestation or a total of P9,000.00
(Art. 1207) ● Since the debts are distinct and separate from each
● Each creditor may enforce the entire obligation, and other, the insolvency of one of the debtors sh all not
each debtor may be obliged to pay it in full make the others liable

Presumption of Collective Obligation to be Joint EXAMPLE 2: A borrowed from B, C, and D P9,000.00. Unless the
● Concurrence of two or more creditors or of two or contrary appears, the obligation is prima facie a joint one.
more debtors in one and the same obligation, and in ● There is one debt and three credits
the absence of express and indubitable terms ● Each creditor can demand only P3,000.00 from A
characterizing as solidary, the presumption is that the
obligation is only joint EXAMPLE 3: A and B are liable to C and D for P9,000,00. The
same presumption applies.
(1) If A is liable to B for P9,000.00, there can be no ● There are two debts and two credits
problem regarding the determination of the ff.: ● Each creditor can demand only P4,500.00 from either
(a) Person liable to pay; debtor
(b) Person entitled to demand payment; ● The total liability of A or B, and the total collection of
(c) Extent of the liability of the debtor; and C or D, cannot exceed P4,500.00
(d) Extent of the right of the creditor
Division of Joint Credits and Debts (Rules on Multiplicity of Suits)
(2) Where there is a plurality of parties (two or more ● Art. 1208 involves a presumption “subject to the Rules
debtors and/or two or more creditors) and the share of Court governing the multiplicity of suits, and
of each in the obligation is specified, the correlative mandates the equal sharing of creditors and debtors
rights and obligations of the parties are known in the credit or debt in the absence of any law or
● E.g., if A, B, and C are liable to D in the stipulation to the contrary
amount of P9,000, and it is stated that the ● If the law or the obligation itself is silent as to how the
corresponding share of each debtor is debt and the credit shall be divided among the joint
P3,000 (it may be in unequal amounts), it is debtors or joint creditors, the same shall be divided
known that A, B, and C are liable only for into as many equal shares as there are creditors or
P3,000 each and that D is not entitled to debtors (see Rules of Court, Rule 3, Sec. 6)
collect from each debtor more than his ● Division of joint credits and debts may, however, be
corresponding share in the obligation established in the obligation itself, in which case there
can be no question as to such division.
(3) Suppose that in the same obligation above, the ○ EXAMPLE: A, B, and C bound themselves to
share of each debtor (or the share of each creditor, if pay P900,000 to X. In their obligation, it was
there are two or more creditors) is not specified. specified that A is to pay X P500,000, B
What is the extent of the liability of A, B, and C? In P300,000, and C P100,000.

MEDOLLAR, L. J. - 1BLM
 corresponds to him depending upon the
Characteristics of Solidary Obligation agreement between them (Art. 1217).
● Unity of object and plurality of ties
● The prestation due, or to which a right exists, is one (b) Active Solidarity
and the same thing ● Solidarity on the part of the creditors, where anyone
of them can demand the fulfillment of the entire
Essence of Solidary Obligation obligation
● Each and every one of the solidary creditors can ● Its essential feature is that of mutual representation
demand and each of the debtors must satisfy the among the solidary creditors with powers to exercise
same prestation the rights of others in the same manner as their rights
● The resulting duty on the part of the creditor who ● EXAMPLE: A is liable for P10,000.00 in favor of B and C
received payment to pay each of his co-creditors who are solidary creditors.
what belongs to him ○ A may pay either B or C. (Art. 1214.) So long
● The resulting right on the part of the debtor who as the entire debt is not paid, B and C can
made payment to claim from his co-debtors the demand payment from A. (Art. 1207.) If B (or
share which corresponds to each (Art. 1217) C) received payment, he is liable to C (or B)
for the latter’s share in the credit according
Basis of Solidary Obligation to their agreement.
● Basis of solidarity, in either case, has something of a ○ The liability of A cannot exceed P10,000.00
legal fiction, i.e., that it is a mutual agency among which is the extent of his liability.
those interested in the same obligation
(c) Mixed Solidarity
When Obligation is Solidary ● Solidarity on the part of the debtors and creditors,
(1) Obligation expressly so states; where each one of the debtors is liable to render,
(2) Law required solidarity; or and each one of the creditors has a right to demand,
(3) Nature of the obligation requires solidarity entire compliance with the obligation
● EXAMPLE: A and B are solidarily liable to C and D,
NOTE: Solidary liability also exists when it is imposed in a final solidary creditors, in the amount of P10,000.00
judgment against several defendants. ○ A (or B) can pay either C or D. C (or D) can
demand from either A or B. The payment by
A (or B) of P10,000 to C (or D) shall extinguish
Kinds of Solidarity the obligation.
– According to the parties bound ○ A (or B) can ask for reimbursement from B
(a) Passive Solidarity (or A) in the amount of P5,000.00 or such
● Solidarity on the part of the debtors, where anyone of amount agreed upon between them. C (or
them can be made liable for the fulfillment of the D) is liable to give to D (or C) the latter’s
entire obligation share of P5,000 or the amount stipulated
● Its characteristics are plurality of debtors and unity of ○ The agreement between A and B, as to the
prestation extent of the share of each in the debt, or C
● It is in the nature of a mutual guaranty and D, as to the extent of the share of each
● EXAMPLE: A and B are solidary debtors of C in the in the credit, has nothing to do with the
amount of P10,000.00. agreement between A and B, on one hand,
○ There is only one (1) debt, the debt of A and and C and D, on the other.
B in the amount of P10,000.00; and one (1)
credit, the credit of C in the amount of – According to source
P10,000.00 against B and C. (A distinction (a) Conventional Solidarity
must be made between the debt itself and ● Where solidarity is agreed upon by the parties (Art.
the persons against whom the debt can be 1306)
collected.) ● If nothing is mentioned in the contract relating to
○ C may demand payment from either A or B, solidarity, the obligation is only joint
or both of them simultaneously, the whole
obligation (Art. 1216). Payment by A (or B) (b) Legal Solidarity
extinguishes the obligation but A (or B) may ● Where solidarity is imposed by the law
claim from B (or A) the share which ● EXAMPLE: All partners are solidarily liable with the
partnership for any crime or quasi-delict committed

MEDOLLAR, L. J. - 1BLM
 by any partner acting in the ordinary course of ● Obligation is then converted into payment of
business of the partnership or with the authority of his damages and the reason for indivisibility ceases to
co-partners (Arts. 1822-1824) exist; and each debtor becomes liable for his part of
the indemnity
(c) Real Solidarity ● Those debtors who are not guilty of such breach and
● Where solidarity is imposed by the nature of the were ready to perform their part of the obligation are
obligation not liable to pay damages and their liability is limited
● The law does not expressly indicate the cases where to their corresponding portion of the price of the
the liability is solidary because of the nature of the thing or of the value of the service constituting the
obligation obligation
● The opinion is offered that the cases contemplated ● Only the debtor who failed to comply with his
are those in which the intent or purpose of the law is undertaking shall be liable to pay damages, in
to have the obligation satisfied in full but the law itself addition to his corresponding share in price of the
does not expressly require solidarity thing or of the value of the service constituting the
obligation
Solidarity NOT Presumed ● In the event that one of the debtors become
● Presumption where there are two or more persons in insolvent, the others shall not be liable for his share
the same obligation, is that it is joint.
● Reason is that solidary obligations are very ART. 1224. A joint indivisible obligation gives rise to
burdensome for they create unusual rights and indemnity for damages from the time anyone of the
liabilities debtors does not comply with his undertaking. The
● Solidarity between debtors increases their debtors who may have been ready to fulfill their
responsibility while solidarity between creditors promise shall not contribute to the indemnity beyond
increases the right of each creditor. The law tends to the corresponding portion of the price of the thing or
favor the debtors in presuming that they are bound of the value of the service in which the obligation
jointly and not solidarily. consists.

ARTICLE 1209 EXAMPLE 1: A, B, and C are jointly liable to give D a car valued
at P240,000.00. On the date of delivery, A and B are willing to
If the division is impossible, the right of the creditors may be deliver but C is not.
prejudiced only by their collective acts, and the debt can be ● D has no cause of action against C for the delivery of
enforced only by proceeding against all the debtors. If one of the car because, as a joint-debtor, C is liable only for
the latter should be insolvent, the others shall not be liable for a proportionate part of the obligation which is
his share. P80,000.00. Since the object (car) is indivisible, the
debt can only be enforced by proceeding against all
Joint Indivisible Obligation the debtors for compliance is not possible unless they
● Obligation is joint because the parties are merely act together.
proportionately liable, and at the same time, it is ● Liability is converted into one for damages (pursuant
indivisible because the object or subject matter is not to Art. 1224). So, A, B, and C will be liable for
physically divisible into different parts (see Art. 1225, P80,000.00 each or a total of P240,000.00 which is the
par. 1) value of the car without an increase of responsibility
● Incapable of partial performance for A and B. C, the unwilling debtor, shall be liable for
● It is joint as to liabilities of the debtors or rights of the damages to D for having violated the obligation.
creditors but indivisible as to compliance (Art. 1224) ● If A and B suffered damages by reason of the
● In determining the existence of a joint indivisible non-fulfillment by C, they may recover them from C.
obligation reference is made on the: (1) vinculum ● Should anyone of the debtors be insolvent, the others
existing among the subjects and the (2) nature of the shall not be liable for their share. D must wait until the
prestation involved insolvent debtor can pay.

Effect of Breach of Joint Indivisible Obligation EXAMPLE 2: If there are two creditors, say D and E, and one
● Pursuant to Article 1224 (provided below) debtor, A, the obligation can be performed only by delivering
● Since the collective action of all debtors is necessary the car to them jointly. A can insist that both D and E together
to enforce a joint indivisible obligation, the obligation accept the car; and if either of them refuses to join the other,
is considered breached from the time anyone of the A may legally refuse to deliver the car. He may deposit the car
debtors does not comply with his undertaking in court by way of consignation.

MEDOLLAR, L. J. - 1BLM
 ● If A becomes liable to pay damages for ● The subject matter is indivisible
non-performance, D and E can recover only their ● In case of breach, even the innocent debtors are
respective shares in the indemnity. liable for the entire indemnity without prejudice to
● Neither D nor E may do anything which may be their right of action against the guilty one.
prejudicial to the other, like renouncing or assigning
the entire obligation without the consent of the other. Example of a joint divisible obligation
This is so because the obligation is joint, i.e., the credit ● If A and B are jointly liable to pay C P10,000.00
of D is separate from that of E, and therefore, neither ● Money is divisible
D nor E can act in representation of the other. Their
rights may be prejudiced only by their collective acts. Example of a solidary divisible obligation
● A and B promised in solidum to pay C P10,000.00.
ARTICLE 1210
ARTICLE 1211
The indivisibility of an obligation does not necessarily give rise
to solidarity. Nor does solidarity of itself imply indivisibility. Solidarity may exist although the creditors and the debtors
may not be bound in the same manner and by the same
● Presumption that the obligation is merely joint still periods and conditions.
applies in case of plurality of creditors or debtors
even when the obligation is indivisible in nature. Kinds of Solidary Obligation accdg. to Legal Tie
● First sentence of this provision means that the liability (1) Uniform
in an indivisible obligation may be either joint or ● When parties are bound by the same stipulations or
solidary clauses
● Second sentence means that in a solidarity
obligation, the subject matter may be divisible or (2) Non-uniform or Varied
indivisible ● When parties are not subject to the same stipulations
or clauses
Difference between Indivisibility and Solidarity
Solidarity NOT Affected by Varied Terms and Conditions
● Essense of solidarity consists in the right of each
Indivisibility Solidarity
creditor to enforce the rights of all and the liability of
Refers to the prestation or Refers to the juridical or each debtor to answer for the liabilities of all
object of the obligation legal tie (vinculum) that ● Legal bond of solidarity is not destroyed by the mere
binds the parties fact that the parties are not bound by the same
periods and conditions
Only the debtor guilty of All of the debtors are liable
● The rule is that the creditor may bring his action in
breach of obligation is liable for the breach of the
toto (as a whole) against any of the solidary debtors,
for damages (Arts 1209, obligation committed by a
1224), thereby terminating co-debtor (Art. 1221), for less the shares of the other debtors with unexpired
the agency solidarity among them terms or unfulfilled conditions who are entitled to
remains defenses under Art. 1222
● Upon the expiration of the term or the fulfillment of
Can exist although there is There must be at least two the condition, the creditor will have the right to
only one debtor and one debtors or two creditors
demand the payment of the remainder
creditor
● The parties may stipulate that any solidary debtor
Others are not liable in case Others are proportionately already bound may be made liable for the entire
of insolvency of one debtor liable obligation

EXAMPLE: A, B, C, and D obliged themselves solidarily to pay E

Example of a joint indivisible obligation
P20,000.00, as follows: A, to pay by installment at the rate of
● A and B are jointly liable to deliver to C a particular
P1,000.00 a month, to start in July; B, to pay in September; C, to
car. Here, the prestation is indivisible but the liability
pay in December; and D, if E passes the Bar examinations.
of A and B is joint (Arts. 1209, 1224).
(a) In July, E can demand only P1,000.00 from A. E can
also demand from B, C, and/or D the P1,000.00 share
Example of a solidary indivisible obligation
corresponding to A. But E cannot recover yet the
● If A and B obliged themselves solidarily to give the
shares of B, C, and D, which are not yet due and
car to C; the obligation is indivisible and the liability of
demandable.
A and B is solidary.

MEDOLLAR, L. J. - 1BLM
 (b) In September, E is entitled to collect from any of the
solidary debtors the share corresponding to B which is EXAMPLE 2: Now here, A and B are solidary debtors, and C
P5,000.00 and A, P1,000.00 or P3,000.00, if A had not and D, the joint creditors.
yet paid any installment. The shares of C and D are ● There is 1 debt (P1,000.00) of A and B, and 2 separate
not yet recoverable. credits (P500.00 each) of C and D. C and D can
(c) In December, E can recover from any of the solidary demand P500.00 each, their respective share in the
debtors, the share corresponding to C in the amount credit, from A or B; and A or B may be compelled to
of P5,000.00 plus such amounts from the shares of A pay P1,000.00 (entire obligation), P500.00 to C and
and B which have not yet been paid. The share of D P500.00 to D.
will mature only after E passes the Bar examinations.
(d) If E passes the Bar examinations, the obligation of D ARTICLE 1212
to pay P5,000.00 arises. This amount can be
demanded from any of the solidary debtors. Again, E Each one of the solidary creditors may do whatever may be
is also entitled to recover all amounts which are useful to the others, but not anything which may be prejudicial
already due and demandable and unpaid to the latter.
pertaining to the shares of A, B, and C.
(e) If the agreement is that E may demand the entire Effects of Active Solidarity
obligation from B in September, from C in December, ● Active solidarity may be defined as a tie among
or from D if E passes the Bar exam, then B is liable for several creditors of the same obligation, by virtue of
P20,000.00 in September less the amount, if any, which, each of them, as regards his co-creditors, is
already paid by A and D; C is liable for P20,000.00 in creditor only as to his share in the obligation and, in
December less the amount, if any, already paid by A, regard to the common debtor, he represents all of
B, and D; D is liable for P20,000 if E passes the Bar them
exam less the amount, if any, already paid by A, B, ● Effects will depend on whether the relationship under
and C. consideration is between the solidary creditors and
debtors or between the solidary creditors themselves.
Joint Obligation on One Side, Solidary on the Other
● This is when obligation may be joint on the side of the Mutual Agency
creditors and solidary on the side of the debtors, or ● This is the essence of active solidarity
vice versa ● Every creditor is considered an agent of the others
● The rules applicable to each subject of the obligation and he has the power to claim and exercise the
should be applied, the character of the creditors or rights of all of them.
the debtors determining their respective rights and ● In relation to their debtors, each creditor is
liabilities considered an agent of the others whether the act
● Obligation joint on the side of the creditors and executed by him is beneficial to his co-creditors or
solidary on the side of the debtors → Each creditor prejudicial to them
can demand only his share in the obligation but ● In so far as the relationship existing among the
each debtor may be compelled to pay the entire solidary creditors themselves, their mutual agency
obligation to the creditors. extends only to acts which are beneficial to the
● Obligation solidary on the side of the creditors and others, but not to anything which may be prejudicial
joint only on the side of the debtors → Each creditor to them
can demand the performance of the entire
obligation but each debtor may only be compelled Act of Solidary Creditor Useful/Prejudicial to Others
to pay his share in the obligation ● A solidary creditor may do any act beneficial or
● In such cases, the co-creditors or co-debtors may, useful to the others but he cannot perform any act
however, regulate their internal relation to each prejudicial to them
other ● If he performs such prejudicial act and as a result, the
obligation is extinguished, he shall be responsible to
EXAMPLE 1: A and B, joint debtors, are liable to C and D, the others for damages; as far as the debtor or
solidary creditors, for P1,000.00. debtors are concerned, the act shall be valid and
● There are 2 separate debts of A and B (P500.00 binding
each), and 1 credit (P1,000.00) of C and D. C or D ● The rule is based on the theory of mutual agency
can demand from A and B P500.00 each only, their among the solidarity creditors (as discussed above)
respective share in the debt; and A and B may be ● A joint creditor cannot act in representation of the
required to pay P500.00 each, either to C or to D. others

MEDOLLAR, L. J. - 1BLM
 ● The rule is that the debtor may pay any one of the
EXAMPLE: A owes B and C, solidary creditors, the sum of solidary creditors
P2,000.00. B may make a demand for the payment of the ● But when a demand, judicial or extrajudicial, has
obligation for this will benefit C. Under the law, the prescription been made by one of them, to avoid confusion, as
of action* is interrupted when they are filed before the court well as prejudice to the more diligent creditor,
(Art. 1155). So also, if B collects from A, C will be benefited. payment should be made to him; otherwise, the
● In case of remission or condonation effected by B, obligation will not be extinguished except insofar as
the obligation will be extinguished but since C the creditor-payee’s share is concerned in case the
cannot be prejudiced by the remission, B has to latter does not give to the other creditors their shares
reimburse C for the latter’s share (Art. 1215) in the payment. The demand has the effect of
terminating the mutual agency among the solidary
* Prescription of Action – the time within which an action must creditors.
be brought after the right of action has accrued. ● Applicable not only in cases of active solidarity but
also where the solidarity is mixed although the
ARTICLE 1213 singular “debtor” is employed
● In case of mixed solidarity, the debtor upon whom no
A solidary creditor cannot assign his rights without the consent demand has been made, may pay any one of the
of the others. solidary creditors

Assignment by Solidary Creditor of His Rights ARTICLE 1215

● Absence of consent given by the others, a solidary
creditor cannot assign his rights to a third person Novation, compensation, confusion or remission of the debt,
● The reason behind this prohibition is that each made by any of the solidary creditors or with any of the
creditor represents the others and the assignee may solidary debtors, shall extinguish the obligation, without
not have the confidence of the original solidary prejudice to the provisions of Article 1219.
creditors considering that the assignee after
receiving payment may not give the shares of the The creditor who may have executed any of these acts, as
others (see Art. 1178) well as he who collects the debt, shall be liable to the others
● The prohibition applies only when the assignment is for the share in the obligation corresponding to them.
made to a third person with whom confidence has
not been reposed by the other co-creditors, but not if ● This provision seeks to govern the relationship existing
the assignment is made to a co-creditor because the between the solidary creditors and their debtors; as
reason for the prohibition does not exist such, the act of extinguishment of obligation, which is
obviously prejudicial to the creditors, is valid insofar as
Effect of Unauthorized Assignment the debtors are concerned and extinguishes the
● Art. 1213 prohibits such assignment to a third person latter’s obligation
without the consent of the others
● This rule is premised on the existence of mutual Liability of Solidary Creditor in case of Novation,
agency among the creditors which implies mutual Compensation, Confusion, or Remission
confidence in them ● These are modes or causes of extinguishment of
● The representation (by each creditor) of the solidary obligations
creditors is created by law and not by consent or ● It is but logical that the creditor executed any of
agreement of the parties. If danger is seen in the these acts should be liable to the others for their
possible misfeasance of the assignee, the remedy is corresponding shares considering that such acts are
not the paralyzation of the proprietary rights of the prejudicial to them (Art. 1212)
solidary creditor, but to impose upon him a subsidiary
responsibility for the acts of the sub-agent (1) Novation (Art. 1291)
● Refers to modification of an obligation by:
ARTICLE 1214 (a) Changing its object or principal obligation;
(b) Substituting the person of the debtor; or
The debtor may pay any one of the solidary creditors; but if (c) Subrogating a third person in the rights of
any demand, judicial or extrajudicial, has been made by one the creditor.
of them, payment should be made to him. ● Whether the novation consists in the substitution of
the person of the debtor or in the subrogation of a
Payment to Any of the Solidarity Creditors third person in the rights of the other creditors, the

MEDOLLAR, L. J. - 1BLM
 solidary creditor who effects the novation shall be ○ When remission is effected by only one of
liable to his co-creditors for their shares in the the solidary creditors, he becomes liable to
obligation the others for the share in the obligation
● The subrogation referred to must involve the rights of corresponding to them
the other solidary creditors and not simply the right of ○ When several, but not all, of the creditors
the solidary creditor who effected the novation make the remission, there can be no action
● If the third person is subrogated merely to the right of as between those who made it; but all of
the solidary creditor effecting the novation and not them will be liable for the shares of the
to the rights of the other creditors, pursuant to Art. creditors who did not remit, and if one is
1213, the transfer of such right is prohibited and insolvent, his share shall be made up by the
therefore, invalid others who concurred in the remission
● Remission may pertain to the obligation itself or only
(2) Compensation and Merger to the character of solidarity
● Compensation is a mode of extinguishing to the ● In case of remission referring only to the character of
concurrent amount the debts of persons who in their solidarity, remission may release the debtors only from
own right are creditors and debtors of each other the burden of responsibility implied by the solidarity
● It presupposes two persons who, in their own right character of such obligation, thereby converting it
and as principals, are mutually indebted to each into a joint one but leaving the obligation subsisting
other respecting equally demandable and ○ Only the solidary character of the obligation
liquidated obligations over any of which no retention of the debtors is converted into a joint one,
or controversy commenced and communicated in without affecting the solidary existing
due time to the debtor exists among the creditors because the
● Total compensation – when two debts are of the obligation may be joint on the side of the
same amount. In this case, the obligation is debtors and remain solidary on the side of
extinguished and the relation between the creditors the creditors
as a group and debtors as another group ceases, ○ Creditor who converted the solidary
and there is left only the resulting liability for character of the obligation of the debtors
reimbursement within each group. into a joint one does not immediately
● Partial Compensation – when there is doubt as to become liable to the other solidary creditors
what part of the debt it should be applied, the rules because the obligation of the debtors is not
on application of payment should govern. extinguished yet
○ If one of the joint debtors will eventually
(3) Confusion or Merger become insolvent, in which case the other
● Obligation is extinguished when the characters of the joint creditors do not become liable for the
creditor and debtor are merged in the same person. part of the insolvent debtor, the creditor
● The extinguishment is limited to the portion or share who effected such conversion shall be
corresponding to the creditor or debtor in whom the liable to the others for their corresponding
two characters concur share in the debt of the insolvent debtor
● Solidary creditor in whom confusion has taken place
remains liable to the other solidary creditors for their Effect of Extension of Time Given by Creditor to a Solidary
share in the obligation Debtor
● In the case of a solidary debtor who acquires the ● Extension of time granted by the creditor to a solidary
whole credit, he can still demand from the other debtor does not amount to a novation that will
debtors their respective shares therein discharge the other solidary debtors. The latter shall
be liable for the whole debt less the share of the
(4) Remission or Condonation debtor granted the extension. (see Art. 1211).
● An act of liberality on the part of the creditor, who ● Upon the expiration of the term, the creditor can
receives no price or equivalent thereof, renounces demand payment of the unpaid share from any of
the enforcement of the obligation, which is the solidary debtors.
extinguished in its entirety or in that part or aspect of ● In suretyship, the effect of the extension given to the
the same to which the remission refers principal debtor without the consent of the surety is
● To be valid, it requires the acceptance by the debtor to extinguish the contract of suretyship
● Total Remission – entire obligation of the debtor or ● NOTE: In a suretyship, a person (surety) binds himself
debtors is extinguished solidarily with the principal debtor. (see Art. 2047, par.
2.) In a solidary obligation, a solidary debtor is himself

MEDOLLAR, L. J. - 1BLM
 a principal debtor. Hence, a solidary debtor cannot ARTICLE 1217
be considered a guarantor of his co-debtor.
Payment made by one of the solidary debtors extinguishes the
Effect of Novation, etc. Where Obligation is Joint obligation. If two or more solidary debtors offer to pay, the
● In a joint obligation, novation, compensation, creditor may choose which offer to accept.
confusion, remission, prescription, and any other
cause of modification or extinction does not He who made the payment may claim from his co-debtors
extinguish or modify the obligation except with only the share which corresponds to each, with the interest for
respect to the creditor or debtor affected, without the payment already made. If the payment is made before
extending its operation to any other part of the debt the debt is due, no interest for the intervening period may be
or of the credit demanded.

ARTICLE 1216 When one of the solidary debtors cannot, because of his
insolvency, reimburse his share to the debtor paying the
The creditor may proceed against any one of the solidary obligation, such share shall be borne by all his co-debtors, in
debtors or some or all of them simultaneously. The demand proportion to the debt of each.
made against one of them shall not be an obstacle to those
which may subsequently be directed against the others, so Effects of Payment by Solidary Debtor
long as the debt has not been fully collected. → Upon payment made by one of the solidary debtors of the
entire obligation, said obligation is extinguished, and the
Right of Creditor to Proceed against Any Solidary Debtor juridical tie between the creditor or creditors and the solidary
● Passive solidarity is a time or vinculum among debtors is dissolved thereby
solidarity debtors, by virtue of which each of them, in
relation to his co-debtors, possesses the character of (1) Between the solidary debtors and creditor/s
debtor only with respect to his share in the obligation, ● Extinguishes the obligation (payment in full)
but in relation to the common creditor or creditors, ● Creditor for his protection is given the right to choose
he is bound to the payment of the whole credit which offer to accept if two or more solidary debtors
● Each debtor can be made to answer for the shares offer to pay
of the others
● Any one or some or all of the solidary debtors (2) Among the solidary debtors
simultaneously, may be made to pay the debt so ● Payment by one of the solidary debtors does not
long as it has not been fully collected create a real case of subrogation; merely entitles him
to claim reimbursement from his co-debtors only the
(1) Since the liability is solidary, the other, solidary debtors share which corresponds to each, i.e., only for the
are not indispensable parties in a suit filed by the proportionate shares with (legal) interest only from
creditor. the time of payment
(2) Bringing of an action against a solidary debtor to ○ Other debtors do not become by virtue of
enforce the payment of the obligation is not such payment solidary debtors of the
inconsistent with and does not preclude the bringing debtor-payer. Their liability is not based on
of another to compel the others to fulfill their the original obligation which has been
obligations; a solidarity debtor is also a surety. extinguished, but upon the payment made
(3) In case of death of one of the solidary debtors, the by the co-debtor which creates a joint
creditor may proceed against the estate of the obligation of reimbursement on the part of
deceased solidary debtor alone or against any or all the other. However, in case of insolvency of
of the surviving solidary debtors whose liability is any of them, the others assume the share of
independent of and separate from the deceased the insolvent debtor pro rata.
debtor, instead of instituting a proceeding for the ○ Payment by a solidary debtor does not
settlement of the estate of the deceased debtor automatically result in a corresponding
wherein his claim could be filed. obligation of the other debtors to reimburse
(4) The choice is left to the solidary creditor to determine the paying debtor. If a solidary debtor pays
against whom he will enforce collection. the obligation in part, he can recover
reimbursement from the co-debtors only in
NOTE: Rule in Art. 1216 may be modified by the agreement of so far as his payment exceeded his share in
the parties. the obligation.

MEDOLLAR, L. J. - 1BLM
 ○ If the amount is equal to his proportionate under the conditions laid down by law. In the same
share in the obligation he, in effect, pays way, rights and actions are lost by prescription (Art.
only what is due from him; if the amount is 1106).
less than his share, he cannot demand ● The ff. actions must be brought within 10 years from
reimbursement because his payment is less the time the right of action accrues:
than his actual debt. 1) Upon a written contract;
2) Upon an obligation created by law;
(3) Among the solidary creditors 3) Upon a judgment (Art. 1144);
● Receiving creditor is jointly liable to the others for their ● The ff. actions must be commenced within 6 years:
corresponding shares 1) Upon an injury to the rights of the plaintiff;
2) Upon a quasi-delict (Art. 1146)
EXAMPLE 1: A, B, and C are jointly and severally liable to D and ● Statute of limitations, however, may be superseded
E in the amount of P3,000.00 due on January 5. or modified by a contract between the parties
● If both A and B offer to pay D, on January 5, the latter
may choose which offer to accept. If A pays the ARTICLE 1219
entire amount of P3,000.00 on January 5, the
obligation is extinguished. The remission made by the creditor of the share which affects
one of the solidary debtors does not release the latter from his
EXAMPLE 2: The payment by A gives him the right to demand responsibility towards the co-debtors, in case the debts had
reimbursement from B and C P1,000.00 each with interest from been totally paid by anyone of them before the remission was
the date of payment. But A is not entitled to reimbursement effected.
nor to interest for any payment made before January 5.
● The obligation of B and C to reimburse him with Effect of Remission of Share in Passive Solidarity After Payment
interest will arise only from January 5. ● Remission of the debt may either be for the whole
● If C is insolvent, both A and B shall bear his insolvency obligation, or for the full share of the affected debtor,
in proportion to their shares. Hence, A can still ask B to or only for a part of the share of the affected debtor
pay an additional sum of P500.00. Of course, A and B ● If payment is made first, the remission (see Art. 1270)
can, later on, recover from C should the latter’s or waiver is of no effect. There is no more obligation
finances improve. to remit. If remission is made previous to the payment
● If, in the same example, A paid only P2,400.00 and B, and payment is made, solutio indebiti arises.
P600.00, A can recover reimbursement only to the ● It is incumbent upon the debtor whose debt is
extent that his payment exceeds his share, so that C remitted, to prove the priority of the remission to the
is liable to him for P1,000.00 and B, for P400.00. If C is payment to release him from responsibility towards his
insolvent, B is liable to pay A P900.00. A is not entitled co-debtors.
to reimbursement if his payment is P1,000 or less. ● Purpose of the article is to forestall fraud whereby
debt having been paid, the creditor, who does not
EXAMPLE 3: D, in the above example, has the obligation to stand to suffer any loss or damage, remits the share
give to E his corresponding share in the credit. of a particular debtor
● Art. 1219 also secures equality and justice to the
ARTICLE 1218 paying debtor inasmuch as the payment benefits his
co-debtors
Payment by a solidary debtor shall not entitle him to
reimbursement from his co-debtors if such payment is made ARTICLE 1220
after the obligation has prescribed or become illegal.
The remission of the whole obligation, obtained by one of the
Effect of Payment where Obligation has Already Prescribed or solidary debtors, does not entitle him to reimbursement from his
Become Illegal co-debtors.
● When the obligation has prescribed (Art. 12431, par.
2; Art 1424) or become illegal (Art. 1266), the Remission of Whole Obligation
obligation is extinguished; hence, there is no more ● Total remission has the effect of extinguishing the
obligation to be complied with. obligation but the remission of the whole obligation,
obtained by one of the solidary debtors, does not
Prescriptive Periods of Actions entitle him to reimbursement from his co-debtors,
● By prescription, one acquires ownership and other because the remission is a gratuitous act
rights through the lapse of time in the manner and

MEDOLLAR, L. J. - 1BLM
 ● If there is also a solidary on the side of the creditors, EXAMPLE 1: A and B are liable in solidum to C in the amount of
and the remission is made by only one of them, the P1,000.00. C remitted A’s share. Subsequent payment by B of
obligation is extinguished in the amount and to the P1,000.00 to C will not entitle him to reimbursement from A
extent in which it is made; but the creditor who made since the remission extinguished the obligation with respect to
the remission becomes liable to his co–creditors for A’s share. However, B can demand the return of P500.00 from
their shares C under the principle of solutio indebiti.
● If remission is made by several (but not all) of the ● If payment by B was made before the remission, A is
creditors, there can be no action as between those still liable to B because the remission is without effect,
who made it; but all of them will be liable for the the obligation having been extinguished already by
shares of the creditors who did not remit, and if one is the payment
insolvent, his share will have to be borne by those
who concurred in the remission EXAMPLE 2: A, B, and C are liable in solidum to D in the amount
of P3,000.00. D remitted the share of A. After paying D
Remission of Solidary Debtor’s Share P2,000.00, the balance of the credit, B demands
● Art. 1219 authorizes the remission only of the share reimbursement from C who become insolvent after the
which affects one of the solidary debtors remission. Is A obliged to contribute to the share of C?
● If the remission is for the solidary debtor’s full share, he ● YES. Article 1217 (par. 3) says that the share of the
ceases to have any relation with the creditors, from insolvent co-debtor “shall be borne by all his
whom he is thereby released, unless the continuation co-debtors, in proportion to the debt of each”
of his solidary relation has been expressly reserved, in ● Furthermore, the remission can only refer to the share
which case he will be a surety for the debtors of A in the obligation and cannot, therefore, affect
○ Balance of the debt may not be collected his responsibility to contribute to the share of C, the
from him by any one of the solidary insolvent debtor.
creditors ● A creditor has no right to alter or modify the rights
○ The act of the creditor in condoning the full and obligation of the solidary debtors as among
share of one of the solidary debtors may themselves
only affect the relation existing between the
creditors and the affected solidary debtor ARTICLE 1221
but not the altogether different relation
existing among the solidary debtors If the thing has been lost or if the prestation has become
themselves impossible without the fault of the solidary debtors, the
○ Notwithstanding the release of that debtor obligation shall be extinguished.
with respect to the creditors, he is still bound
with repsect to his co-debtors in the event If there was fault on the part of any one of them, all shall be
of insolvency of one of the remaining responsible to the creditor, for the price and the payment of
co-debtors damages and interest, without prejudice to their action
○ Share of the insolvent debtor shal lbe borne against the guilty or negligent debtor.
by all of the co-debtors, including the
debtor whose full share has been If through a fortuitous event, the thing is lost or the
condoned by the creditor (pursuant to Art. performance has become impossible after one of the solidary
1217) debtors has incurred in delay through the judicial or
● When remission in favor of a solidary debtor is only extrajudicial demand upon him by the creditor, the provisions
partial, not covering his full share, his character as of the preceding paragraph shall apply.
solidary debtor continues with respect to the
creditors and his co-debtors Rules in case Thing has been Lost or Prestation has become
○ Balance of the debt can still be collected Impossible
from him by any one of the solidary – If the thing is lost or the prestation becomes impossible, the
creditors liability of the solidary debtors depends upon whether or not
● Whether the remission shall involve the full or only a there is fault or delay.
portion of the share of the affected solidary debtor, – The provision contemplates of an obligation to deliver a
the latter shall not be released from his responsibility determinate thing and an obligation to do.
towards the co-debtors, in case the debt has been
totally paid by anyone of them before the remission (1) Loss is without fault and before delay
wsa effected ● Obligation shall be extinguished

MEDOLLAR, L. J. - 1BLM
 ● EXAMPLE: A, B, and C obliged themselves solidarily to the price of his truck. Note that C may also be made
deliver to D a particular truck valued at P300,000.00. liable to pay interest for the payment made.
○ Obligation shall be extinguished if the truck
is lost or destroyed through a fortuitous ARTICLE 1222
event without the fault of A, B, and C and
before they have incurred in delay. A solidary debtor may, in actions filed by the creditor, avail
himself of all defenses which are derived from the nature of
(2) Loss is through a fortuitous event BUT after delay the obligation and of those which are personal to him, or
● Obligation is not extinguished if loss or impossibility of pertain to his own share. With respect to those which
performance occurred after one of the solidary personally belong to the others, he may avail himself thereof
debtors has incured in delay through judicial or only as regards that part of the debt for which the latter are
extrajudicial demand upon him by the creditor responsible.
● All solidary debtors shall be responsible to the
creditor, for the price and the payment of damages Defenses Available to Solidary Debtor(s)
and interest, but without prejudice to their action (1) Defenses are derived from the nature of the
against the guilty or negligent debtor obligation
● EXAMPLE: If the truck was lost through a fortuitous ● All those connected with the obligation and which
event but after a demand was made upon C, D can may contribute to weaken or destroy the vinculum
still recover damages from A or B or both of them juris existing between the creditor and the principal
without prejudice to the right of action of the latter debtor
against C. ● Examples of these defenses:
○ The default by C makes all of the solidary (a) Non-existence of the obligation because of
debtors responsible even for a fortuitous lack of an essential requisite or because of
event. illicit cause or object;
(b) Nullity due to incapacity to give valid
(3) Loss is due to fault on the part of a solidary debtor consent on the part of all debtors or due to
● Same rule as mentioned in the preceding number vitiation of the consent of all debtors by
applies: “All solidary debtors shall be responsible to reason of mistake, violence, intimidation,
the creditor, for the price and the payment of undue influence, or fraud;
damages and interest, but without prejudice to their (c) Unenforceability because of failure to
action against the guilty or negligent debtor” comply with the Statute of Frauds;
(d) Extinguishment of the obligation, such as by
EXAMPLE 1: If, in the preceding example, the truck was lost payment or remission;
through the fault of C, A, and B shall also be responsible to D (e) Non-performance of suspensive conditions
for the price of the truck as well as damages although A and B affecting the entire obligation; and
were not at fault at all. (f) Those which may invalidate the original
● A solidary obligation is, in essence, a mutual agency. contract from which the right or the action
As far as the creditor is concerned, the fault or delay of the creditor against the debtors arises,
of one solidary debtor, shall be the fault or delay of such as res judicata, prescription, and
all the solidary debtors. others of the same class.
● Any of the foregoing defenses has the effect of
EXAMPLE 2: Suppose now that the truck in question belonged completely absolving the defendant solidary
to C and A and B would contribute P100,000.00 each as their co-owner from liability to the creditor, and the
share in the obligation. If B paid D P300,000.00 plus P10,000.00 judgment shall inure to the benefit of his co-debtors
as damages, B can recover the shares of A and C (P100,000.00 because such kind of defense is availble to all of
each) in the price of the truck. Only C shall bear the damages them
of P10,000.00. In this case, the loss of C would be P410,000.00:
P100,000.00 for his share, P10,000.00 for the damages, and EXAMPLE: A and B are solidarily liable to C in the amount of
P300,000.00, the value of his truck. P10,000.00. The entire debt of A and B was paid by D. In an
● If A and have already given their shares in the price action by C against A, the latter can raise the defense of
of the truck, assuming that P310,000.00 also was paid payment by virtue of which the obligation was extinguished.
by B to D, the loss of C would also be P410,000.00: ● A defense derived from the nature of the obligation is
P310,000.00, the amount paid which he is under a “complete defense” because it nullifies the
obligation to reimburse, and P100,000.00, his share in obligation or renders it ineffective

MEDOLLAR, L. J. - 1BLM
 (2) Defenses personal to the debtor being sued or
pertaining to his share;
Section 5: Divisible and Indivisible Obligations
● There are two kinds of defenses which are personal to
the debtor being sued:
a) Those affecting the capacity or consent of
ARTICLE 1223
the debtor being sued, such as minority,
insanity, mistake, violence, intimidation, or
The divisibility or indivisibility of the things that are the object of
fraud; and
obligations in which there is only one debtor and only one
b) Those referring particularly to his portion of
creditor does not alter or modify the provisions of Chapter 2 of
the obligation, such as special terms or
this Title.
conditions pertaining to his share alone.
● The first kind of defense (a) will completely absolve
Divisibile Obligation
the defendant solidary debtor from any liability to the
● A thing or an act which, in its delivery of
creditor.
performance, is capable of partial fulfillment
● The second kind of defense (b) constitutes only a
partial exemption from liability since they may be
Indivisible Obligation
utilized only with respect to the part of the obligation
● A thing or an act which, in its delivery or
corresponding to the debtor sued, but he can still be
performance, is not capable of partial performance
sued for the portions belonging to others not subject
● Does not admit of division, or even though it does,
to terms or conditions, because he is solidarily liable.
neither the nature of the contract nor the intention of
● A solidary debtor, by his own act or inaction, such as
the parties permits it to be fulfilled by parts
by failing to appeal, may lose the benefit of the
provisions of Art. 1222.
Kinds of Division

EXAMPLE 1: If the action by C is against B, and B was insane at

the time the obligation was contracted, B can put up the Qualitative Quantitative Ideal
defense of insanity with respect to the entire obligation. This
When things When a When the thing is
defense is personal to B alone. It is a complete defense.
separated do not homogenous not materially
form a whole is divisible divided but ideal
EXAMPLE 2: Assume now that the portion of the obligation homogenous either by or fractional
affecting B is subject to a suspensive condition which has not whole (e.g., separating into portion is given to
yet happened. inheritance) parts (like in the each person (as
● The non-fulfillment of the condition is a “partial case of in the case of
movables) or by co-ownership)
defense” as it can be set up by B only with respect to
fixing their limits
his share. C can demand from B the portion of the
(in the case of
obligation pertaining to A because B is solidarily liable immovables)

(3) Defenses personal to other solidary debtors Based on quality, Based on quantity Exists only in the
● Defenses mentioned above which are personal to not on number or minds of the
one of the solidary debtors may also be invoked by quantity of things parties
that are the
another solidary debtor in the event the latter is sued,
object of the
but he may avail himself thereof only as regards that
obligation
part of the obligation for which the debtor to whom
the defense belongs is responsible Examples
● Debtor sued may still be held liable for the other
shares as to which there is no defenses Qualitative — A and B are heirs of C. They agreed to divide
the inheritance as follows:

EXAMPLE: In the two preceding examples, the defense of ● to A – a house and lot and home appliances and

insanity or non-fulfillment of the suspensive condition is not ● to B – a rice field, a car and P100,000.00 cash.

available to A as to release him from his liability for his share in

the obligation. Quantitative — If the inheritance consists only of a rice field,

● A may avail himself thereof only as regards that part its partition by metes and bounds into two equal parts is a

of the debt for which B is liable. Hence, having only a quantitative division.

partial defense, A is still liable for P2,000.00, his share ● Another example, is when A and B divide 300
cavans of palay harvested from the rice field or
in the obligation.

MEDOLLAR, L. J. - 1BLM
 ● In accordance with Art. 1232, an obligation is not
the P100,000.00 cash.
deemed paid unles the thing or service in which the
obligation consists has been completely delivered or
Ideal — Suppose the car and the rice field in the 1st
example, were inherited by both A and B. rendered, as the case may be.”
● As co-owners, their one-half shares in the car are
not separable in a material way but only mentally. ARTICLE 1224
Similarly, before the land is actually divided
between A and B, they are merely co-owners, and
A joint indivisible obligation gives rise to indemnity for damages
neither one of them can say that he is the
absolute owner of a specific portion thereof. from the time anyone of the debtors does not comply with his
undertaking. The debtors who may have been ready to fulfill
their promises shall not contribute to the indemnity beyond the
Kinds of Indivisibility
corresponding portion of the price of the thing or of the value
(1) Legal Indivisibility
of the service in which the obligation consists.
● Where a specific provision of law declares as
indivisible, obligations which, by their nature, are
NOTE: See Definition and Effects of Joint Indivisible Obligations
divisible (Art. 1225, par. 3);
under Art. 1209 provided in this reviewer.

(2) Conventional Indivisibility

Effect of Non-Compliance by a Debtor in a Joint Indivisible
● Where the will of the parties makes as indivisible,
Obligation
obligations which, by their nature, are divisible; and
● If any one of the debtors does not comply with his
undertaking, the obligation is transformed into one
(3) Natural Indivisibility
for damages, i.e., to pay money
● Where the nature of the object or prestation does not
● Creditor cannot ask for specific performance or
admit of divisions, e.g., to give a particular car, to
rescission because there is no cause of action
sing a song, etc. (Art. 1225, par. 1)
against the other debtors who are willing to fulfill their
promises
Test for Distinction for Divisible or Indivisible Obligations
● In a solidary obligation, breach by a co-debtor
● The controlling circumstance is not the possibility or
makes all debtors liable fot damages
impossibility of partial prestation but the purpose of
○ Obligation remains solidary without
the obligation or the intention of the parties
prejudice to their right against the guilty or
● Even though the object or service may be physically
negligent debtor (Art. 1221, par. 2)
divisible, an obligation is indivisible if so provided by
● In a joint indivisible obligation, the effect of
law or intended by the parties (Art. 1225, par. 3)
non-compliance by a debtor is to make all the
● If the object is not physically divisible or the service is
debtors liable for damages but the innocent debtors
not susceptible of partial performance (Art. 1125, par.
shall not contribute beyond their respective shares of
1), the obligation is always indivisible, the intention of
the obligation; making the obligation a divisible one.
the parties to the contrary. This rule is absolute.
● An obligation is presumed indivisible where there is
ARTICLE 1225
only one creditor and only one debtor

For the purposes of the preceding articles, obligations to give

When There is Only One Creditor and One Debtor
definite things and those which are not susceptible of partial
● Provisions of Chapter 2, Title 1, regarding the “Nature
performance shall be deemed to be indivisible.
and Effect of Obligations” in general (Arts. 1163 to
1178) are also applicableto divisible or indivisible
When the obligation has for its object the execution of a
obligations. They contemplate obligations involving
certain number of days of work, the accomplishment of work
only one creditor and only one debtor.
by metrical units, or analogous things which by their nature are
● Since divisibility or indivisibility refers to the object or
susceptible of partial perfromance, it shall be divisible.
prestation (see Art. 1210), it does not alter or modify
said provisions. (Art. 1223)
However, even though the object or service may be physically
● Debtor has to perform the obligation in its totality,
divisible, an obligation is indivisible if so provided by law or
whether or not the prestation is divisible
intended by the parties.
● Art. 1248 of the Civil Code states that “unless there is
an express stipulation to that effect, the creditor
In obligations not to do, divisibility or indivisibilty shall be
cannot be compelled partially to receive the
determined by the character of the prestation in each
prestations in which the obligation consists.”
particular case.

MEDOLLAR, L. J. - 1BLM
 ● Obligations “to do” and “not to do” are generally
● Lays down the general rule for determining the indivisible. Obligations “to do” stated in paragraph 2
divisibility or indivisibility of an obligation; however, of Article 1225 are divisible.
the purpose of the obligation is the controlling
circumstance. EXAMPLES:
● Applies not only obligations to give but also to those ● Indivisible Obligation — X obliged himself to Y not to
of doing or not doing. sell cigarettes in his store for one year. Here, the
obligation should be fulfilled continuously during a
Determining Divisibility or Indivisibilty of Obligation certain period.
– Following factors are to be considered: ● Divisible Obligation — If the obligation of X is not to
(1) Nature of the object; sell cigarettes in his stores only during Sundays and
(2) Provisions of law affecting the prestation; holidays, the obligation is divisible because the
(3) Will or the intention of the parties, either express or forbearance is not continuous.
tacit; and
(4) End or purpose of the obligation. Obligations deemed Indivisible
(1) Obligations to give definite things (par. 1)
Nature of Object ● EXAMPLES: To give a particular electric fan; to deliver
● Indivsibility of object carries with it the indivsibility of a specific car.
the obligation ○ Here, obligation is indivisible because of the
● First paragraph of Art. 1225, “obligations to give nature of the subject matter.
definite things and those which are not susceptible of
partial performance shall be deemed to be (2) Obligations which are not susceptible of partial
indivisible”, is a kind of indivisibility referred as natural performance (par. 1)
indivisibility, and maybe of two kinds: ● EXAMPLES: To sing a song; to dance the “tinikling.”
a) Absolute – When the nature of the object ○ Here, the obligation is indivisble by reason of
does not admit is division. In obligations to its purpose which requires the performance
give for the delivery of certain objects, e.g., of all parts.
animal or a chair, are indivisble. ○ Is the obligation still indivisible, if there are
b) Relative – Although the prestation is more than one participant? The obligation
susceptible of division, it is considered an becomes divisible as far as the participants
integral, indivisible amount. Indivisibility is are concerned because it is capable of
presumed in obligations to do. partial performance.

Provision of Law or Will of Parties (3) Obligations provided by law to be indivisible even if
● Divisibility of the object does not always mean that thing or service is physically divisible (par. 3)
the obligation is also divisible. ● EXAMPLE: Under the law, taxes should be paid within
● Obligation may still be indivisible even when the a definite period. Although money is physically
object is divisible, by reason of the provisions of law, divisible, the amount of tax payable must be
of the express will of the parties, or of their presumed delivered in toto (as a whole), not partially.
will, shown by the relation of the distinct parts of the
object, each of which may be a necessary (4) Obligations intended by the parties to be indivisible
complement of the others, or by the purpose of the even if thing or service is physically divisible (par. 3)
obligation which requires the realization of all the ● EXAMPLES: The obligation of D to give P1,000.00 to C
parts. on a certain date. Money is physically divisible but
● Third paragraph of Art 1225, “even though the object the clear intention here is for D to deliver at one time
or service may be physically divisible, an obligation is and as a whole.
indivisible if so provided by law or intended by the ● Suppose there are two debtors, D and E, is the
parties”, is a kind of indivisibility referred as legal and obligation still indivisible?
contractual (conventional) indivisibility ○ The obligation becomes divisible as far as D
and E are concerned because the delivery
Divisibility or Indivisibilty in Obligations Not To Do of P1,000.00 can be done in parts, e.g.,
● In obligations not to do, divisibility or indivisibility shall P500.00 by D and P500.00 by E.
be determined by the character of the prestation in ○ However, as far as C is concerned, the
each particular case. The purpose of the parties is obligation remains indivisible because its
controlling. performance cannot be done in parts.

MEDOLLAR, L. J. - 1BLM
 ● An accessory undertaking attached to an obligation
Obligation deemed Divisible to assume greater liability on the part of the obligor in
(1) Obligations which have for their object the execution case of breach of the obligation, i.e., the obligation is
of a certain number of days of work (par. 2) not fulfilled, or is partly or irregularity complied with
● EXAMPLE: The obligation of X to paint a house of Y, ● Functions to strengthen the coercive force of the
the painting to be finished in 10 days. Here, the obligation by the threat of greater liability in the
obligation need not be fulfilled at one time. event of breach and to provide, in effect, for what
would be the liquidated damages resulting from such
(2) Obligations which have for their object the a breach.
accomplishment of work by metrical units (par. 2) ● Obligor would then be bound to pay the stipulated
● EXAMPLE: The obligation of X to make a table, 3 feet indemnity without the necessity of proof on the
wide and 5 feet long; the obligation of X and Y to existence and on the measure of damages caused
deliver 20 cubic meters of sand. But the obligation of by the breach
X alone to deliver 20 cubic meters of sand is
indivisible. Purposes of Penal Clause
(1) To insure their performance by creating an effective
(3) Obligations which by their nature are susceptible to deterrent against breach, making the consequences
partial performance (par. 2) of such breach as onerous as it may be possible;
● EXAMPLE: The obligation of X to teach “Obligations (2) To substitute a penalty for the indemnity for damages
and Contracts” for one year in a university; the and the payment of interests in case of
obligation of Y to render 3 song numbers in a noncompliance (Art. 1226); or
program; the obligation of Z to pay a debt of (3) To punish the debtor for the non-fulfillment or
P12,000.00 in 12 monthly installments of P1,000.00.) violation of his obligation.
Each prestation to pay P1,000.00 is indivisible as it is to
be delivered at one time and in its totality. Penalty and Damages
● May be imposed essentially as penalty in case of
breach or in the nature of indemnity for damages
Obligations with a Penal Clause
● General Rule: Penalty clause takes the place of
indemnity for damages and the payment of interests

ARTICLE 1226 in case of non-compliance with the obligation

● However, in the ff. situations, damages and interests
may still be recovered on top of the penalty:
In obligations with a penal clause, the penalty shall substitute
(1) When there is a stipulation to that effect;
the indemnity for damages and the payment of interests in
(2) When the obligor having failed to comply
case of noncompliance, if there is no stipulation to the
with the principal obligation also refuses to
contrary. Nevertheless, damages shall be paid if the obligor
pay the penalty, in accordance with Art.
refuses to pay the penalty or is guilty of fraud in the fulfillment
2209; or
of the obligation.
(3) When the obligor 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.
Penalty Generally Resolves Question of Damages
1. Penalty as reparation or compensation — matter of
Principal and Accessory Obligations
damages is generally resolved and the creditor is not
(1) Principal – One which can stand by itself and does
obliged to prove them, the penalty is considered an
not depend for its validity and existence upon
anticipated valuation of the damages which may be
another obligation
suffered by the creditor if the obligation is not
(2) Accessory – One which is attached to a principal
complied with
obligation, and therefore, cannot stand alone.
2. Penalty as punishment — the penalty does not
resolve the question of damages, which it leaves
Obligations with a Penal Clause
intact; damages may be recovered in addition to
● One which contains an accessory undertaking to
the penalty
pay a previously stipulated indemnity in case of
breach of the principal prestation intended primarily
● Presumption / General Rule → penalty serves as
to induce its fulfillment
means of repairing the damages which it
presupposes.
Penal Clause

MEDOLLAR, L. J. - 1BLM
 ○ A breach of contract entitles the other non-performance of the obligation takes
party to damages even if no penalty in such place
breach is prescribed in the contract. ○ Existence of the principal obligation is
certain, and the right of the creditor to
● Obligations imposing penalties and forfeitures are demand its performance is further
strictly construed. guaranteed by the penal clause
○ Forfeiture means losing a right, privilege, or ○ When the condition on which the penal
property without compensation as a clause depends takes place, then two
consequence of violating the law, obligations are demandable alternatively
breaching a legal obligation, failing to and, when there is express stipulation, jointly
perform a contractual obligation or with the principal obligation.
condition, or neglecting a legal duty
(2) In the conditional obligation
When Penal Clause Demandable ● Existence of the obligation is uncertain
(1) Total non-fulfillment of the obligation or the defective ● If the condition does not take place, the obligation is
fulfillment is chargeable to the fault of the debtor; deemed in law never to have existed
(2) That the penalty may be enforced in accordance
with the provisions of law.
(3) In the alternative obligation
● Penalty cannot be demanded when the ● While there is only one obligation, two things are due
non-fulfillment of the obligation is not imputable to alternatively, and the obligation may be satisfied by
the fault or negligence of the debtor but to fortuitous the performance of one of them
event or due to the fault of the creditor ● Election belongs to the debtor, as a general rule,
● The burden of proof lies with the debtor, In order to except when there is an agreement granting the
avoid the payment of penalty, he must be able to right of choice to the creditor.
prove that the non-performance of the obligation is ○ Obligation is not extinguished by the
not due to his fault. fortuitous destruction or loss of one of the
things, but merely changes the obligation to
Penalty Distinguished From Condition a simple one.
○ Not so in the case of the obligation with a
penal clause, if the principal thing
Penal Clause Condition
(obligation) is destroyed by fortuitous event,
Constitutes an obligation Does not constitute an the obligation is also extinguished
although accessory obligation
(4) In the facultative obligation
May become demandable Can never be demanded ● Only one thing due notwithstanding the right
in default of the to be fulfilled conferred upon the debtor to satisfy the obligation
unperformed obligation by substituting another in its place.
and sometimes jointly with it But whether it happens or
● In obligation with a penal clause, the debtor cannot
not, only the obligation
substitute the principal obligation, unless the
which it affects may be
demanded obligation expressly reserves the right to him.

EXAMPLE: Suppose S makes the following promises to B:

Distinguished From Conditional, Alternative, & Facultative
● To convey to B house X, and if he fails, to pay
Obligations
P500,000.00 → Obligation with a penal clause
(1) In the obligation with a penal clause
● To pay P500,000, if he fails to convey to B house X →
● A principal obligation to which the accessory
Conditional Obligation
obligation of penal clause is joined
● To convey house X to B or pay him P500,000.00 →
● Only one thing due, which the creditor may demand
Alternative Obligation
unaffected by the existence of the penal clause
● To convey house X to B with the right to substitute the
● The debtor cannot choose to pay the penalty in lieu
same with the payment of P500,000.00 → Facultative
of the penal clause (Art. 1227)
Obligation
○ The penal clause is a conditional obligation
○ An analogy exists in all these obligations, in
being demandable only when the
the sense that, in the proper cases
condition on which it depends, that is, the
contemplated, B may become the owner

MEDOLLAR, L. J. - 1BLM
 of house X or receive payment of ● When both penalty and the damages or interests
P500,000.00. may be recovered, it is evident that the purpose of
the penal clause is the punishment of the debtor for
Kinds of penal clause his breach of the principal obligation
1. Origin
a. Legal - provided by law EXAMPLE: S promised to deliver a specific car to B. The
b. Conventional - provided for by stipulation of contract carried a penal clause that in case of
the parties non-compliance, S would have to pay a penalty of P20,000.00.
2. Purpose S did not deliver the car and, as a consequence, B suffered
a. Compensatory - penalty takes the place of damage in the amount of P15,000.00.
damages ● In this case, the penalty of P20,000.00 shall be paid. B
b. Punitive - penalty is imposed merely as cannot recover more than P20,000.00 (penalty
punishment for breach stipulated), even if he proves that the damages
3. Dependability of effect suffered by him is P25,000.00
a. Subsidiary or alternative - only the penalty ● The penalty of P20,000.00 substitutes the indemnity for
can be enforced damage of P15,000.00, unless there is a stipulation to
b. Joint or cumulative - both the principal the contrary in which case, B may also recover the
obligation and the penal clause can be damages proved by him
enforced ● If S refuses to pay the penalty, B may recover legal
interest thereon, the interest representing new
Penalty substitutes for damages and interests damages brought about by the non-payment of the
● As a general rule, the penalty takes the place of the penalty
indemnity for damages and the payment of interests ● If S is guilty of fraud (not mere fault) in the fulfillment
in case of non-compliance (Art. 1226) of his obligation, he is also liable for the damages
● Proof of actual damages suffered by the creditor is caused thereby in conformity with Art. 1171. Proof of
not necessary in order that the penalty may be the fraud and the existence and amount of
enforced (Art. 1228) damages is incumbent upon B. But B need not prove
fraud to recover the penalty.
Penalty and interests enforceable
● Law permits an agreement upon a penalty apart Requirement to make penalty enforceable
from the interest ● May be enforced only when it is demandable in
● Should there be an agreement, the penalty does not accordance with the provisions of the Civil Code
include the interest and as such, the two are different ● Meaning, the penalty, as a stipulation in a contract, is
and distinct things which may be demanded demandable only if there is a breach of the
separately obligation and it is not contrary to law, morals, good
● Stipulation about payment of additional rate of customs, public order, or public policy (Art. 1306)
interest partakes of the nature of a penalty clause ● If the obligation cannot be fulfilled due to a fortuitous
which is sanctioned by law event, the penalty is not demandable
○ EXAMPLE: A penalty to answer not only for ● Penalty may be reduced if it is iniquitous or
attorney’s fees but for collection fees as unconscionable, or in case there is partial or irregular
well, is in the nature of liquidated damages. fulfillment (Art. 1229)
Where the attorney’s fees so provided are
awarded in favor of the litigant not his Penalty and Liquidated Damages
counsel, it is the litigant, not his counsel, who ● Liquidated damages defined:
is the judgment creditor entitled to enforce ○ ART. 2226. Liquidated damages are those
the judgment by execution. agreed upon by the parties to be paid in
case of breach thereof.
Penalty, damages and interests enforceable ○ ART. 2227. Liquidated damages, whether
● The creditor, in addition to the penalty, may recover intended as an indemnity or a penalty, shall
damages and interests: be equitably reduced if they are iniquitous
(a) When so stipulated by the parties; or unconscionable.
(b) When the obligor refuses to pay the ● The settled rule is that there is no difference between
penalty; or penalty and liquidated damages insofar as legal
(c) When the obligor is guilty of fraud on the results are concerned.
fulfillment of the obligation

MEDOLLAR, L. J. - 1BLM
 ● Either may be recovered without the necessity of Penal Clause Presumed Subsidiary
proving actual damages, and both may be reduced (1) Where there is performance
when proper. ● Once the obligation is fulfilled, this purpose is
● In the new Civil Code, liquidated damages and attained and, therefore, there is no need for
penal clauses are dealt with separately. Accdg. to demanding the penalty
the Code of Commission, they are different as to the ● Exception arises when this right has been clearly
fact that liquidated damages are agreed damages granted to the creditor; therefore, the general rule is
and that penalty is a punishment that a penal clause is subsidiary and not joint

ARTICLE 1227 (2) Where there is no performance

● In case of non-compliance, the creditor may ask for
The debtor cannot exempt himself from the performance of the penalty or require specific performance
the obligation by paying the penalty, save in the case where ● Remedies are alternative and not cumulative nor
this right has been expressly reserved for him. Neither can the successive subject to the exception that the penalty
creditor demand the fulfillment of the obligation and the may be enforced, if after the creditor has decided to
satisfaction of the penalty at the same time, unless this right require fulfillment, the same should become
has been clearly granted him. However, if after the creditor impossible without his fault (see Art. 1191, par. 2).
has decided to require the fulfillment of the obligation, the ● If there was fraud on the part of the debtor, the
performance thereof should become impossible without his creditor may recover the penalty as well as damages
fault, the penalty may be enforced. for non-fulfillment (Art. 1226).

Penalty NOT Substitute for Performance When Penal Clause Joint

● Generally, the debtor cannot just pay the penalty ● Debtor has the right to pay the penalty in lieu of
instead of performing the obligation performance only when this right has been expressly
● The object of the penalty is to secure compliance reserved for him
with the obligation ● With respect to the creditor, he has the right to
● If the debtor is allowed to just pay the penalty, this demand performance and payment of penalty
would in effect make the obligation an alternative jointly when this right has been clearly granted him
one ● It is, therefore, not required that this right be expressly
reserved for him; an implied grant clearly deducible
Right of Parties in case of Total Non-fulfillment from the evidence or the nature of the obligation is
(1) Right of Debtor sufficient.
● Debtor may excuse himself from the performance of ● When a penalty is stipulated for default in an
the principal obligation by paying the penalty if obligation to pay a sum of money, it is clear that the
“such right has been expressly reserved for him” in creditor can demand both the principal obligation
the agreement of the parties and the penalty with legal interest on the amount of
the penalty from the date of demand where the
(2) Right of Creditor debtor refuses to pay the penalty.
● As a general rule, the creditor cannot demand the
fulfillment of the obligation and the satisfaction of the ARTICLE 1228
penalty at the same time.
● By way of exception, the creditor acquires the right Proof of actual damages suffered by the creditor is not
demand the fulfillment of the obligation and the necessary in order that the penalty may be demanded.
satisfaction of the penalty at the same time if it has
been “clearly granted to him” Proof of Actual Damages Not Needed
○ It need not be expressly agreed upon ● In an obligation with a penal clause, all that the
○ It is sufficient that such right has been clearly creditor has to prove, to enforce penalty, is the
granted to him violation of the obligation by the debtor
● Even when the creditor has not been clearly granted ● It is not necessary to adduce evidence to prove
such right to demand both, the penalty may still be losses and damages suffered by the creditor or the
enforced notwithstanding the fact that the creditor extent of the same
has decided to require the fulfillment of the principal ● This is one of the reasons of fixing the penalty; to
obligation, if the performance of the latter should avoid such necessity and other difficulties involved in
become impossible without his fault. litigations

MEDOLLAR, L. J. - 1BLM
 ● Creditor may enforce the penalty whether he court and on several factors, including but not limited
suffered damages or not, but cannot recover more to ting but not limited to the folowing:
than the stipulated penalty even if he proves that the ○ Type, extent, and purpose of the penalty
amount of his damages exceeds the penalty ○ Nature of the obligation
● This provision applies only where the penalty is fixed ○ Mode of breach and its consequences
by the parties to substitute the indemnity for ○ Supervening realities
damages ○ Standing and relationship of the parties
○ Extent of prejudice to the plaintiff
Damages Recoverable in Addition to Penalty Must Be Proved
● Provided by Art. 1277 EXAMPLE 1: In a case (Rizal Commercial Banking Corp. v.
● Creditor must prove the amount of such damages COA), the Court tempered the penalty charges taking into
which he actually suffered redulting from the breach account the debtors' pitiful situation and its offer to settle the
of the principal obligation entire obligation with the creditor bank.
● The stipulated penalty might even be deleted such
ARTICLE 1229 as:
1. When there has been substantial
The judge shall equitably reduce the penalty when the performance in good faith by the debtor
principal obligation has been partly or irregularly complied (relating to Art. 1234)
with by the debtor. Even if there has been no performance, 2. When the penalty clause itself suffers from
the penalty may also be reduced by the courts if it is iniquitous fatal infirmity
or unconscionable. 3. When exceptional circumstances so exist as
to warrant it
Mitigation of Penalty
● Mitigation means reducing the severity EXAMPLE 2: In Insular Bank of Asia and America v. Salazar, the
● General Rule → Courts are not at liberty to ignore the Court reduced the penalty charge of 2% a month to 1% a
freedom of the parties to agree on such terms and month, considering that on a loan of P42,050, the debtor
conditions as they see fit so long as they are not spouses paid a total of P68,676, which was applied by the
contrary to law, morals, good customs, public order creditor to satisfy the penalty and interest charges
or public policy
● However, courts may do so in a stipulated penalty in ARTICLE 1230
two instances:
The nullity of the penal clause does not carry with it that of the
(1) When there is partial or irregular performance principal obligation.
● Refers to the extent (partial) and manner (irregular)
of fulfillment The nullity of the principal obligation carries with it that of the
● Presumption → Parties contemplate only a total penal clause.
breach of contract Effect of Nullity of the Penal Clause
● General Rule → an oobligation s not deemed ● General principle → the accessory follows the
performed unless the thing or service in which it principal, and NOT vice versa
consissts has been completely delivered or rendered, ● If penal clause is void, the principal obligation
as the case may be (see Arts. 1233, 1234, 1235, 1248) remains valid and demandable; and penal clause is
● Penalty should be more or less proportionate with the just disregarded.
extent of the breach of the contract or damage ● Injured party may recover indemnity for damages in
suffered case of non-performance of the obligation as if no
penalty had been stipulated.
(2) When the penalty agreed upon is iniquitous or
unconscionable Effect of Nullity of the Prinicipal Obligation
● Here, penalty may be reduced ● If principal obligation is void, the penal clause is
● Even if iniquitous or unconscionable, liquidated likewise void. The reason is that the clause cannot
damages, whether intended as an indemnity or as a stand alone without the principal obligation.
penalty, are not void, but subject merely to equitable ● BUT if the nullity of the principal obligation is due to
reduction the fault of the debtor who acted in bad faith, by
● Question of whether a penalty is reasonable or reason of which the creditor suffered damages on
iniquitous is addressed to the sound discretion of the equitable grounds, penalty may be enforced.

MEDOLLAR, L. J. - 1BLM
 ii. Agreement simultaneous to the
Chapter 4: EXTINGUISHMENT OF OBLIGATIONS
constitution of the obligation
1. Resolutory condition;
ARTICLE 1231 2. Resolutory period

Obligations are extinguished: 2. Involuntary Causes

(1) By payment or performance; a. By reason of the subject
(2) By the loss of the thing due; i. Confusion or merger;
(3) By the condonation or remission of the debt; ii. Death of a party in strictly personal
(4) By the confusion or merger of the rights of creditor obligations;
and debtor; iii. Change of civil status (e.g.,
(5) By compensation; obligations arising from family
(6) By novation. relations
b. By reason of the object
Other causes of extinguishment of obligations, such as i. Loss of the thing due; or
annulment, rescission, fulfillment of a resolutory condition, and ii. Impossibility of Performance
prescription, are governed elsewhere in this Code. c. By failure to exercise (right of action)
i. Extinctive prescription (prescription
Other Causes of Extinguishment of Obligations of right of action; statute of
1. Death of a party in case the obligation is a personal limitations)
one
2. Mutual desistance or withdrawal Extinguishment by Death and Transmissibility
3. Arrival of resolutory period ● General Rule → Death of either party does not
4. Compromise extinguish the obligation; only those obligations that
5. Impossibility of fulfillment are personal or identified with the persons themselves
6. Happening of a fortuitous event are extinguished by death.
● In a case (Stronghold Insurance Company v.
Modes of Extinguishment under Roman Law Republic-Asahi Glass Corp.), monetary liabilities or
(1) Ipso Jure – those where the vinculum created by the obligations are not intransmissible by nature,
obligation is completely broken by operation of law stipulation, or provision of law; the death of a debtor
(e.g., payment) did not result in the extinguishment of his obligations
or liabilities, but were passed on to his estate.
(2) Ope Exceptionis – those where the vinculum remains,
but granting the debtor the right to oppose the same Payment
by exception (e.g., prescription) ● Delivery of money, the performance of, or in any
other manner, of the obligation (Art. 1232)

Classification of Modes of Extinguishment (accdg. to Castan) Consignation

1. Voluntary Causes ● Act of depositing the thing due with the court or
a. Performance juridical authorities whenever the creditor cannot
i. Payment; and accept or refuses to accept payment (PNB V. Chan)
ii. Consignation
b. Substitution of Performance Mutual Desistance
i. Compensation; ● Derives from the principle that, since mutual
ii. Dacion en pago (Conveyance for agreement can create a contract, mutual
Payment); disagreement can cause its extinguishment
iii. Novation; and (Manresa)
iv. Assignment in favor of Creditors
c. By Release Agreement Dacion en pago (Conveyance for payment)
i. Agreement subsequent to ● Delivery and transmission of ownership of a thing by
constitution of obligation the debtor to the creditor as an accepted
1. Mutual desistance; equivalent of the performance of an existing
2. Unilateral waiver; and obligation, such as mortgage (Rockville v. Culla and
3. Remission Miranda)

MEDOLLAR, L. J. - 1BLM
Waiver ● Arts. 1233-1235 discusses one of the essential
● Both parties are releasing each other from any ingredients of payment as a mode of extinguishing
liability or obligations concerned to or arising from a obligations, which is its integrity;
specific incident ● Arts. 1236-1239 determines who may make payment;
● Arts. 1240-1243 declares to whom payment must be
made;
Section 1: Payment or Performance
● Arts. 1244-1246, 1249-1250 refer to the identity of the
prestation or the objective element of payment;
● Art. 1251 establishes the determination of the proper
ARTICLE 1232
place of payment;
● Art. 1247 regulates the application of expenses
Payment means not only the delivery of money but also the
performance, in any other manner, of an obligation.
Burden of Proving Payment (simply Burden of Proof)
● The duty of a party to present evidence of the facts
Concept of Payment
in issue necessary to prove the truth of his claim or
● In its ordinary parlance, payment refers to the
defense by the amount of evidence required by law.
delivery of a sum of money
● The one who pleads payment has the burden of
● In its legal and juridical acceptation, payment means
proving it
the effective performance of the agreed prestation
● When the existence of a debt is fully established by
● Under the code, payment may consist not only in the
the evidence, the settled rule is that the burden of
delivery of money but also the giving of a thing (other
proving extinguishment by payment devolves upon
than money), the doing of an act, or not doing an
the debtor who pleads payment or offers such a
act
defense to the claim of the creditor rather than on
● When a debtor pays damages or penalty in lieu of
the latter to prove non-payment.
the fulfillment of an obligation (see Art. 1226), there is
● Only when the debtor introduces evidence that the
also payment in the sense used in Article 1232.
obligation has been extinguished does the burden
● In law, payment and performance are synonymous
shift to the creditor.
● There is a disputable presumption that money paid
Elements of Payment
by one to another was due to the latter.
– Matters relative to ordinary or common payment, without
regard to form, are distinguished from those referring to certain
Rule #1: INTEGRITY OF PAYMENT [Arts. 1233-1235]
exceptional manifestations of the same, as tender and
consignation of payment, assignment, and cession of
properties. ARTICLE 1233
– This distinction is accepted by the Civil Code, which treats
first of the common doctrine of payment and then of the A debt shall not be understood to have been paid unless the
special forms under separate titles. thing or service in which the obligation consists has been
– Under the common law doctrine and the same traditional completely delivered or rendered, as the case may be.
influence, the elements of payment are analyzed into:
(1) Persons, who may pay and to whom payment may When is debt considered paid?
be made; → General Rule: Payment must be COMPLETE
(2) Thing or object in which payment must consist; ● Integrity – one of the essential ingredients of payment
(3) Cause thereof; as a mode of extinguishing obligations; it is the state
(4) Mode or form thereof; of being whole and undivided
(5) Place and time in which it must be made; ● The word “completely” means that the debtor must
(6) Imputation of expenses occasioned by it; and comply in its entirety with the prestation and that the
(7) Special parts which may modify the same and the creditor is satisfied with the same.
effects they generally produce — elements which are ● For the obligation to be considered extinguished by
designated in Latin quis, quinam, quid, causa, quo payment, it is necessary that the creditor
modo, ubi, quando, expensae, and pacta adjunta. acknowledges such full payment or proof of full
payment is shown to the satisfaction of the court.
Rules for Valid Payment
– Succeeding Articles (1233-1251) enumerate the rules in order (1) Integrity of the prestation
to make a valid payment: ● Integrity of the prestation is the first requisite, which
means that the prestation be fulfilled completely.

MEDOLLAR, L. J. - 1BLM
 ● Partial or irregular performance will not produce the ○ In case of substantial performance, the
extinguishment of an obligation as a general rule. obligee is benefited, so the obligor should
Neither a late partial payment forestall a be allowed to recover.
long-expired maturity date. ○ This last condition affords a just
compensation for the relative breach
EXAMPLE 1: D bound himself to pay C P10,000.00. D is giving committed by the obligor.
only P9,000.00. C can refuse to accept P9,000.00 because the
fulfillment is not complete. Requisites for the Application of Art. 1234
(1) There must be substantial performance. Its existence
EXAMPLE 2: X agreed to paint the house of Y for P50,000.00. X depends upon the circumstance of each particular
did not paint the kitchen anymore and instead asked Y to pay case; and
him P50,000.00 less the cost of painting the kitchen. (2) The obligor must be in good faith. Good faith is
● Y can refuse to pay X because the debt of Y (to presumed in the absence of proof to the contrary.
deliver money) will arise only after the debt of X (to
paint the house) is completely rendered. (see Art. What Constitutes Substantial Performance?
1191.) ● Art. 1234 applies only when an obligor admits
breaching the contract after honestly and faithfully
(2) Identity of the prestation performing all the material elements thereof except
● This second requisite means that the very prestation for some technical aspects that cause no serious
due must be delivered or performed. harm to the obligee
● The provision refers to an omission or deviation that is
Rule on Partial Payment → see Art. 1248 slight, or technical and unimportant, and does not
affect the real purpose of the contract
ARTICLE 1234 ○ NOTE: Conversely, the principle of
substantial performance is inappropriate
If the obligation has been substantially performed in good when the incomplete performance
faith, the obligor may recover as though there had been a constitutes a material breach of the
strict and complete fulfillment, less damages suffered by the contract, wherein it adversely affects the
obligee. nature of the obligation that the obligor
promised to deliver, the benefits that the
obligee expects to receive after full
Exceptions to General Rule compliance, and the extent that the
– While an obligation is extinguished by way of payment only non-performance defeated the purpose of
when the thing or service in which the obligation consists has the contract.
been completely delivered or rendered, the rule admits of the ● For the obligation to be considered substantially
following exceptions: performed in good faith, there must have been an
(1) When the obligation has been substantially honest attempt to perform, without any willful or
performed in good faith, the debtor may recover as intentional departure therefrom.
though there had been a strict and complete ● The good faith must be proven so that complete
fulfillment, less damages suffered by the creditor; performance is the result merely of an oversight, a
(2) When the creditor accepts the performance, misunderstanding, or an excusable neglect, and the
knowing its incompleteness or irregularity, and obligee can be adequately compensated by the
without expressing any protest or objection, the damages.
obligation is deemed fully complied with (Art. 1235). ● If the performance of the obligation is already
substantial but the obligation is not fully complied
First Exception: Principle of Substantial Performance with due to the debtor’s fault, he may NOT invoke the
→ Recovery allowed in case of substantial performance in principle of substantial performance.
good faith
● First exception to the rule laid down in Art. 1233 Effect of Substantial Performance
● Obligation is deemed extinguished ● Debtor is completely released from the obligation
● Reason for the exception by the Code Commission is despite his failure to completely perform, and may
as follows: recover as though there had been a strict and
○ Its fairness is evident. complete fulfillment.
● Creditor cannot require the performance of the
remainder as condition sine qua non* to his liability.

MEDOLLAR, L. J. - 1BLM
 ○ *condition sine qua non — a necessary ● The mere receipt of partial payment is not equivalent
condition without which something is not to acceptance of performance within the purview of
possible. Article 1235 as would extinguish the whole obligation.
● This is not at all unfair to the creditor because the ● When a creditor receives partial payment, he is not
provision also provides that he may recover ipso facto (by that very fact/act) deemed to have
damages from the debtor corresponding to the abandoned his prior demand for full payment.
value of the portion which the latter failed to ● To imply that a creditor accepts partial payment as a
perform. complete performance, his acceptance must be
made under circumstances that indicate his intention
EXAMPLE: S obliged himself to sell 1,000 bags of cement to B for to consider the performance complete and to
a certain price. However, despite diligent efforts on his part, S renounce his claim arising from the defect.
was able to deliver only 950 bags because of cement
shortage. Take note that S wants to comply with his obligation Form of Protest of Creditor
to deliver the entire 1,000 bags but he could not do so for ● The provision does not require the protest or
reasons beyond his control. objection of he creditor to be made in a particular
● Under Art. 1234, S can recover as though there had manner or at a particular time.
been complete delivery less the price of the 50 bags. ● So long as the acts of the creditor, at the time of the
In other words, B cannot require S to deliver first the incomplete or irregular payment by the debtor, or
remaining 50 bags as a condition to his liability for the within a reasonable time thereafter, evince that he is
price. He must pay for the 950 bags and enforce his not satisfied with or agreeable to said payment or
right to damages for the failure of S to deliver the performance, the obligation shall not be deemed
difference. fully extinguished.
● It is incumbent upon S, however, to explain
satisfactorily his failure to make complete delivery. Rule #2: WHO MAY MAKE PAYMENT [Arts. 1236-1239]

ARTICLE 1235 ARTICLE 1236

When the obligee accepts the performance, knowing its The creditor is not bound to accept payment or performance
incompleteness or irregularity, and without expressing any by a third person who has no interest in the fulfillment of the
protest or objection, the obligation is deemed fully complied obligation, unless there is a stipulation to the contrary.
with.
Whoever pays for another may demand from the debtor what
Second Exception: Waiver of Defect he has paid, except that if he paid without the knowledge or
→ Recovery allowed when incomplete or irregular against the will of the debtor, he can recover only insofar as
performance waived the payment has been beneficial to the debtor.
● The other exception to Art. 1233
● Based on the principle of waiver and estoppel Persons from whom the Creditors Must Accept Payment
● In case of acceptance, the law considers that the (1) The debtor, his heirs, assignees, or duly authorized
creditor waives his right; and the whole obligation is representative;
extinguished. (2) The person authorized by stipulation to make
● If the payment is incomplete or irregular, the creditor payment; and
may properly reject it. (3) A third person interested in the fulfillment of the
obligation.
Requisites for the Application of Art. 1235 (4) A third person even without interest but has been
(1) Obligee knows that the performance is incomplete or stipulated in the agreement of the parties.
irregular; and
(2) He accepts the performance without expressing any ● In obligations to do, where the qualification and
protest or objection. circumstances of the person of the debtor have
been taken into account in establishing the
Meaning of ”Accept,” as used in Art. 1235 obligation (referred to as intuitu personae*), the
● The word “accept” means to take as “satisfactory or creditor is not bound to accept payment or
sufficient or to give assent to,” or to “agree” or performance by a third person even when the latter
“accede” to an incomplete or irregular performance has an interest in the fulfillment of the obligation.

MEDOLLAR, L. J. - 1BLM
 *Intuitu personae – by virtue of the personality of the (b) With the knowledge of D — If the payment of
other party; it is personal, non-assignable, and P1,000.00 was made with the knowledge or consent
non-transferable. of D, S can recover from D P1,000.00 with all the rights
of subrogation to the accessory obligations such as
Creditor Cannot Refuse Payment – Art. 1236 provides for the mortgage, guaranty, or penalty.
persons who are given the right and obligation to make
payment; hence, the creditor cannot refuse to accept the Payment With/Without the Knowledge or Against the Will of the
payment by anyone of them. Debtor
(1) The provision that the payor (or payer) “can recover
NOTE: If creditor refuses payment, the case will be mora only insofar as the payment has been beneficial to
accipiendi or default on the part of the creditor, where he is the debtor,” when made without his knowledge or
guilty of breach of obligation, and is liable for damages against his will, is a defense that may be availed of
suffered by the debtor. only by the debtor, not by the creditor, for it affects
solely the rights of the former. Once the creditor has
Effect of Payment by a Third Person accepted payment, his status and rights as such,
(1) Extinguishment of Obligation become automatically extinguished.
● Creditor is not bound to accept payment by a third (2) If the third person pays with the knowledge of the
person who has no interest in the fulfillment of the debtor, the latter must oppose the payment before or
obligation in the absence of a stipulation to the at the time the same was made, not subsequently, in
contrary; however, he may choose to accept the order that the rights of the payor may be subject to
payment, and thus, considered valid, at least to the the above provision. It is only fair that the effect of
extent in which the payment may have been said payment be determined at the time it was
beneficial to the debtor. made, and that the rights then acquired by the
payor be not dependent upon, or subject to
(2) Right to Reimbursement of Third Person modification by subsequent unilateral acts of the
● If made without the knowledge or against the will of debtor. The question of whether the payment was
debtor – The payer can recover from the debtor only beneficial or not to the debtor, depends upon the
insofar as the payment has been beneficial to the law, NOT upon his will.
latter.
○ The recovery is only up to the extent or ARTICLE 1237
amount of the debt at the time of payment
○ Third person is not subrogated to the rights Whoever pays on behalf of the debtor without the knowledge
of the creditor, such as those arising from a or against the will of the latter, cannot compel the creditor to
mortgage, guarantee, or penalty (Art. 1237) subrogate him in his rights, such as those arising from a
● If made with the knowledge of the debtor – The payer mortgage, guaranty, penalty.
shall have the rights of reimbursement and
subrogation, that is, to recover what he has paid (not Definition of Terms
necessarily the amount of the debt) and to acquire
all the rights of the creditor.
Subrogation Transfer of all the rights of

EXAMPLE: D owes C the sum of P1,000.00. If S, a stranger to the the creditor to a third

obligation, offers to pay C, the latter may or may not accept person, who thereby

the offer of payment. Suppose C accepts, the right of S to acquires all his rights against

recover from D depends upon whether the payment is with or the debtor or against third

without the knowledge or consent of D. persons.

(a) Without the knowledge (or against the will) of D — If

Mortgage Agreement between
the actual indebtedness is P1,000.00 and S paid
debtor and creditor that
P1,000.00, he can ask reimbursement for P1,000.00 gives the latter the right to
but if P400.00 had already been paid by D, then S is take the former’s property if
entitled to be reimbursed only for the amount of he fails to fulfill his obligation
P600.00 because it is only to that amount that D has plus interest.
been benefited. S can recover P400.00 from C who
Guaranty An undertaking in which
should not have accepted it. If C acted in bad faith,
another person or
he is liable also for interest in lieu of damages.
organization promises to
pay back a loan if the

MEDOLLAR, L. J. - 1BLM
 ● Where subrogation arises, it is not a real
debtor that originally
extinguishment of the obligation, but a change in the
borrowed the money
cannot. active subject.

Penalty Accessory undertaking EXAMPLE 1: D borrowed from C P1,000.00. G is the guarantor.

attached to an obligation Without the knowledge or consent of D, X paid C P1,000.00.
to assume greater liability ● X can claim reimbursement from D for the whole
on the part of the obligor in amount of P1,000.00 inasmuch as D was benefited up
case of breach of the to that amount (Art. 1236).
obligation. ● If D cannot pay X, the latter cannot proceed against
G, the guarantor (even if C is willing) because,
having paid without the consent of D, X is not entitled
Right of Third Person to Subrogation
to subrogation.
● Whoever pays on behalf of the debtor is entitled to
● But if the payment was with the express or tacit
subrogation if payment is with the consent of the
approval of D, X would be entitled not merely to full
debtor (Art. 1237, 1302[2]).
reimbursement but also to subrogation.
● If the payment is without the knowledge or against
the will of the debtor, the third person cannot
EXAMPLE 2: Suppose the obligation of D is secured by a
compel the creditor to subrogate him in the latter’s
mortgage of a land owned by D. Payment by X without the
accessory rights of mortgage, guaranty, or penalty
knowledge or against the will of D, cannot give X the right to
● May there be subrogation, if the creditor willingly
foreclose the mortgage because he has no right to
permits the payor to be subrogated in his rights?
subrogation. X can recover only insofar as the payment has
Since the provision of Art.1237 is for the benefit of the
been beneficial to D.
debtor, the subrogation can only take place with
debtor’s consent. The third person who without
necessity paid under such condition is amply ARTICLE 1238
protected by his right to reimbursement.
● Legal subrogation by operation of law is presumed in Payment made by a third person who does not intend to be

certain cases (see Art. 1302). reimbursed by the debtor is deemed to be a donation, which
requires the debtor’s consent. But the payment is in any case

Right to Subrogation Distinguished from Reimbursement valid as to the creditor who has accepted it.

When Third Person Has No Intention to be Reimbursed

Subrogation Reimbursement ● Art. 1238 embodies the idea that “no one should be
compelled to accept the generosity of another.”
Person who pays for the Covers only the refund of
● The law requires the debtor’s consent because such
debtor is put into the shoes the amount paid without the
of the creditor. right to the guarantees and payment is deemed to be a donation; hence, it
securities attached to the would be considered valid.
The paying third person original obligation. ● If such consent is given by the debtor, a perfected
acquires not only the right donation exists between the debtor and the third
to be reimbursed for what
person. Thus, the latter cannot thereafter change his
he has paid but also all
mind and demand reimbursement from the former.
other rights which the
creditor could have ● However, if the creditor accepts the payment, it shall
exercised pertaining to the be valid as to him and the payor although the debtor
credit either against the did not give his consent to the donation.
debtor or against third ● Consent of the debtor is necessary only for the
persons, whether they are purpose of creating a valid donation between third
guarantors or mortgagees.
person (as donor) and debtor (as donee); but his
consent is not necessary to produce the effect of a
The paying third person
acquires not only the right valid payment between the creditor and the third
to be reimbursed for what person.
he has paid but also the ○ Since there is no perfected donation, the
other rights attached to the third person may still change his mind and
obligation originally
choose to recover from the debtor.
contracted by the debtor.
● If the debtor opposed both the donation and the
payment made by the third person, the latter can

MEDOLLAR, L. J. - 1BLM
 recover from the former only insofar as the payment ● The payor must be the owner of the thing which he
has been beneficial to the debtor. delivers in payment; otherwise, he cannot transfer the
● If the debtor opposed only the donation but legitimate ownership to the receiving creditor.
consented to the payment made by the third person, ○ The creditor can therefore refuse to accept
the third person becomes entitled to be subrogated the payment made by a person who is not
to the rights of the creditor. the owner of the thing.
● Should the paying debtor be incapacitated to
EXAMPLE: D owes C P1,000.00. Without the intention of being alienate, the obligation would be voidable, but only
reimbursed, X paid D’s obligation. D had previously accepted at the instance of the debtor who is incapacitated
X’s generosity. and in the same way not be interposed by the
● In this case, D is not liable to X and his obligation to C creditor.
is extinguished.
● But if D did not consent to the donation, X may Rule #3: TO WHOM PAYMENT MUST BE MADE [Arts. 1240-1243]
recover from D since there has been no donation,
although originally X did not intend to be reimbursed. ARTICLE 1240
Nevertheless, the obligation of D to C is extinguished
because the payment is valid as to C who has Payment shall be made to the person in whose favor the
accepted it. obligation has been constituted, or his successor in interest, or
● Can D legally refuse to pay X and instead insist on any person authorized to receive it.
paying C? No. (see Arts. 1236, par. 2; 1237).
Proper Person To Receive Payment
ARTICLE 1239 ● General Rule → Payment, in order to be effective to
discharge an obligation, must be made to the proper
In obligations to give, payment made by one who does not person.
have the free disposal of the thing due and capacity to ● Payment shall be made to:
alienate it shall not be valid, without prejudice to the provisions 1. The creditor or obligee (person in whose
of Article 1427 under the Title on “Natural Obligations.” favor the obligation has been constituted);
2. His successor in interest (heir or assignee); or
Free Disposal of the Thing Due 3. Any person authorized to receive it.
● Thing to be delivered must not be subject to any ● Creditor – original creditor or the creditor at the time
claim or lien or encumbrance of a third person the obligation was created.
● Successor in interest – person to whom the original
Capacity to Alienate credit has been transferred (e.g., heir, assignee,
● Person is not incapacitated to enter into contracts, subrogated creditor)
and for that matter, to make a disposition of the thing ● The creditor referred to must be the creditor at the
due time the payment is to be made, and NOT at the
constitution of the obligation. Hence, if a person is
Free Disposal of Thing Due and Capacity to Alienate Required subrogated to the right of the creditor, payment
● General Rule, in obligations to give → Payment by should be made to the new creditor.
one who does not have the free disposition of the ● When payment is made to the wrong party, the
thing due or capacity to alienate it is not valid. This obligation is not extinguished as to the creditor who is
means that the thing paid can be recovered. without fault or negligence even if the debtor acted
○ Exception is provided in Art. 1427, where it in utmost good faith and by mistake as to the person
reads: “When a minor between eighteen of the creditor or through error induced by fraud of a
and twenty-one years of age, who has third person.
entered into a contract without the consent
of the parent or guardian, voluntarily pays a EXAMPLE: An insurance company paid to the widow of the
sum of money or delivers a fungible thing in victim of a civil liability arising from a bus incident, instead of
fulfillment of the obligation, there shall be no the victim’s parents. The payment is valid because the widow
right to recover the same from the obligee is the successor in interest referred to in law as persons
who has spent or consumed it in good authorized to receive payment.
faith.”
● The creditor cannot be compelled to accept Meaning of “Any person authorized to receive it”
payment where the person paying has no capacity
to make it.

MEDOLLAR, L. J. - 1BLM
 ● Means not only a person authorized by the same EXAMPLE 2: X Corp. issued a charge invoice stating that the
(original) creditor but also a person authorized by law buyer shall make all checks payable to X Corp. only. The buyer
to do so, such as: issued a check payable to cash which was received by X’s
○ a guardian sales representative who did not remit the money to X Corp.
○ executor or administrator of the estate of a The buyer’s obligation to pay is not extinguished.
deceased
○ assignee or liquidator of a partnership or EXAMPLE 3: A contract of sale does not state that the
corporation purchase price should be paid by the buyer to a third party,
● If payment was made to an agent, the special power which the buyer failed to comply with. The buyer’s obligation
of attorney and evidence regarding the nature and to pay is not extinguished, and his breach gives the seller a
extent of the alleged powers and authority granted right to ask for specific performance or for annulment of the
to the agent must be presented obligation to sell the property.

Effect of Payment to Wrong Person EXAMPLE 4: B bought a specific thing from S. B paid C,
(1) General Rule claiming that he was authorized to collect payment from B. B’s
● Payment of the debt for the obligation to be payment to C is not valid as there is no evidence that C had
extinguished must be made to the persons authority to receive such. Where a person in making payment
enumerated above. Thus, payment made by the solely relied upon the representation of an agent as to his
debtor to a wrong party does not extinguish the authority, such payment is made at his own risk, and where the
obligation as to the creditor who is without fault or agent was not so authorized, such payment is not a valid
negligence, defense against the principal.
● Even when the debtor acted in utmost good faith
and by mistake as to the person of his creditor, or EXAMPLE 5: D is liable for P10,000 to C. The first wife of C died,
through error induced by fraud of a third person, the and C married again. After C’s death, his children by the first
payment to one who is not in fact his creditor, or marriage demanded payment from D. D paid the widow of
authorized to receive such payment, is void. the second marriage.
● Such payment does not prejudice the creditor nor ● Payment to the widow of the second marriage is
deprive him of his right to demand payment. invalid as it is undue. The widow had no right to
● If it becomes impossible to recover what was unduly receive payment as there was already demand
paid, any loss resulting therefrom shall be borne by made by C’s children.
the deceived debtor, who is the only one responsible
for his own acts unless there is a stipulation to the ARTICLE 1241
contrary or unless the creditor himself is responsible
for the wrongful payment. Payment to a person who is incapacitated to administer his
property shall be valid if he has kept the thing delivered, or
(2) Exception to the Rule insofar as the payment has been beneficial to him.
● The aforementioned rule is NOT absolute
● Payment made to a wrong party is considered valid Payment made to a third person shall also be valid insofar as it
and releases the debtor from liability: has redounded to the benefit of the creditor. Such benefit to
a) When the payment made redounds to the the creditor need not be proved in the following cases:
benefit of the creditor (Art. 1241) (1) If after the payment, the third person acquires the
b) When the payment is made in good faith to creditor’s rights;
a person in possession of the credit (Art. (2) If the creditor ratifies the payment to the third person;
1242) (3) If by the creditor’s conduct, the debtor has been led
c) When the debtor, without knowledge of the to believe that the third person had authority to
assignment of the credit, pays his creditor receive the payment.

Examples of Payments Made in Bad Faith Effect of Payment to an Incapacitated Person

EXAMPLE 1: Petitioner made payments to a “supervisor” of a ● Not valid unless such incapacitated person kept the
respondent company. The said supervisor was dressed in the thing paid/delivered, or was benefited by the
company’s uniform, hence petitioner no longer asked for his payment.
identity nor authority. The payment did not discharge the ● Absence of this benefit, the debtor may be made to
petitioner's obligation to the respondent. pay again by the creditor’s guardian or by the
incapacitated person himself when he acquires or
recovers his capacity.

MEDOLLAR, L. J. - 1BLM
 ● Proof of such benefit is incumbent upon the debtor Second Exception: Payment to Possessor of Credit in Good
who paid. Faith
● Under Art. 1240, payment should be made to the ● Second exception to the general rule when payment
incapacitated person’s legal representative; if it is not is made to a wrong party
possible, the debtor can consign the thing or the sum ● Contemplates a situation where a debtor pays a
due (Art. 1256, par. 1) “possessor of credit” i.e., someone who is not the real
creditor but appears to be the real creditor under the
Effect of Payment to a Third Person circumstances
● Not valid except insofar as it has redounded to the ● The “possession” referred to is the possession of the
benefit of the creditor credit itself and not merely of the document or
● It is immaterial that the debtor acted in good faith instrument evidencing the credit.
and by mistake as to the person of the creditor, or ● Mere possession of the instrument (unless transferable
through error induced by fraud of a third person if the by delivery) does not entitle the holder to payment
creditor is without fault or negligence. nor does payment release the debtor.
● The obligation (to the creditor) is not extinguished ● Payer must act in good faith, that is, in the honest
and the cause of action is against the third person to belief that he is making a valid payment and that the
whom payment was made. payee is the owner of the credit

First Exception: When Payment Redounds to Creditors Benefit EXAMPLE 1: D is indebted for P1000 to C. They signed a
● First exception to the general rule when payment is promissory note signed by D in favor of C. C lost the promissory
made to a wrong party note and was found by X, who demanded payment from D.
● This cannot be invoked without conclusive proof of ● Payment to X is not valid because X is the possessor
the benefit to the creditor, and especially when there merely of the document evidencing the credit
is not the slightest evidence that the third person, to ● If D makes a payment in good faith as the promissory
whom payment was made, had any claim to the note holds that the debt is payable to the bearer or
creditor’s right. holder, the obligation is extinguished
● Burden of proof lies on the debtor because (1) he
was the one who committed the mistake, and (2) he EXAMPLE 2: If the promissory note executed by the debtor is
has the burden of proving that the obligation has payable to X, and the latter assigned his credit to Y, the
already been extinguished. payment made by the debtor to Y is valid under Art. 1240
● If the creditor benefited from the payment to the because Y is the successor in the interest of X.
third person, it must be satisfactorily established by
the person interested in proving this fact. EXAMPLE 3: If the promissory note executed by the debtor in
favor of his creditor is “payable to bearer,” the possession of
When Benefit to Creditor Need Not Be Proved by Debtor the instrument is possession of the credit itself.
– The law itself presumes the existence of such benefit (Art.
1241): Assignment of credit
1. Subrogation of the payer in the creditor’s rights; ● Agreement by virtue of which the owner of a credit
2. Ratification by the creditor; or (assignor) by a legal cause (e.g., sale, dation in
3. Estoppel* on the part of the creditor. payment) transfers that credit and its accessory rights
to another (assignee), who acquires the power to
– *Estoppel: a legal principle that prevents one person from enforce it
contradicting an action or statement from the past. Through
this, an admission or representation is rendered conclusive Payment in Good faith to the Assignor of Credit
upon the person making it and cannot be denied or disproved ● Debtor’s consent is not essential because enabling
as against the person relying thereon (Art. 1431). the debtor to do so would prevent the creditor from
– Debtor who, before having knowledge of the assignment of assigning their credit because of the possibility of the
a credit to a third person, pays the original creditor, shall be debtor’s refusal to give consent
released from the obligation (Art. 1626). ● A mere notice to the debtor is sufficient to inform him
that from the date of the assignment, payment must
ARTICLE 1242 be made to the assignee, and not to the original
creditor
Payment made in good faith to any person in possession of the ● If payment was made to the original creditor, the
credit shall release the debtor. assignee can take all civil and criminal actions

MEDOLLAR, L. J. - 1BLM
 against the assignor, but not the debtor who had no In obligations to do or not to do, an act or forbearance
knowledge of the assignment cannot be substituted by another act or forbearance against
● Burden of proof lies on the party who claims that the obligee’s will.
there was an assignment of rights; the debtor is not
bound to prove his ignorance. ● First paragraph refers to a real obligation to deliver a
specific thing. A thing different from that due cannot
ARTICLE 1243 be offered or demanded against the will of the
creditor or debtor.
Payment made to the creditor by the debtor after the latter ● Second paragraph refers to personal (positive &
has been judicially ordered to retain the debt shall not be negative) obligations. The act to be performed or the
valid. act prohibited cannot be substituted against the
obligee’s will (see Art. 1167).
When Payment to Creditor Not Valid
● Illustrates a situation where it involves three persons: When Prestation May Be Substituted
creditor, debtor, and the debtor of the debtor ● Substitution can be made if the obligee consents. In
● During the pendency of the case, the debtor of the facultative obligations, the debtor is given the right to
debtor can be ordered by the court to retain the render another prestation in substitution (Art. 1206).
debt until the right of the creditor in the main ● Art. 1244 is also not applicable in case of waiver by
litigation is resolved the creditor or substitution is allowed by stipulation
● Payment made subsequently shall not be valid if the with the consent of the creditor (see Art. 1245, 1291
creditor wins the case and cannot collect from the [1]).
debtor to whom the payment is made; such
payment is made in bad faith. ARTICLE 1245
● Benefit granted by Art. 1243 can only be invoked by
the creditor if he secures the order of retention. Dation in payment, whereby property is alienated to the
creditor in satisfaction of a debt in money, shall be governed
Garnishment of Debtor’s Credit by the law of sales.
● Garnishment – an act of proceeding for the purpose
of subjecting a debtor’s credit to the payment of his Dation in Payment (Dacion en Pago)
debt to another. ● One of the four special forms of payment under the
● An attachment by means of which the plaintiff seeks Civil Code
to subject his claim the property of the defendant in ● Conveyance of ownership of a thing by the debtor
the hands of a third person or money owed by such to creditor as an accepted equivalent of
third person, or ganishee to the defendant performance of a monetary obligation.
● A debt in money is satisfied, NOT by payment of
Effect of Court to Retain Debt money (Art. 1244), but by the transmission of
● The phrase “after the latter (debtor) has been ownership of a thing by the debtor to the creditor.
judicially ordered” must be interpreted as referring to ● Undertaking partakes in one sense of the nature of
the date of receipt of the notice of such judicial order sale, that is creditor is really buying the thing or
and not on the date of its issuance. property of the debtor, payment for which is to be
● Thus, the payment made by the debtor to his creditor charged against the debtor’s debt.
after the issuance of the judicial order but prior to ● Mode of payment presupposes an existing debt
notice of its issuance is valid because the debtor, at which is extinguished to the extent of the value of the
the time of payment, is not yet bound by the order thing delivered or totally, if such is the intention of the
issued by the court. parties.

Rule #4: IDENTITY OF PRESTATION [Arts. 1244-1246; 1246-1250] EXAMPLE: D owes C P15,000.00. To fulfill the obligation, D, with
the consent of C, delivers a piano.
ARTICLE 1244 ● If the piano, however, is worth less than P15,000.00,
the conveyance must be deemed to extinguish the
The debtor of a thing cannot compel the creditor to receive a obligation to the extent only of the value of the piano
different one, although the latter may be of the same value as agreed or as may be proved, unless the parties
as, or more valuable than that which is due. have considered the piano by their agreement,
express, or implied, as full payment in which the
obligation of D is totally extinguished.

MEDOLLAR, L. J. - 1BLM
 ● Here, the conveyance is, in effect, a novation of the Difference between Sale and Dation in Payment
contract.

Sale Dation in Payment

Requisites of Dation in Payment
1. There must be performance of the prestation in lieu of No pre-existing credit There is pre-existing credit
payment (animo solvendi) which may consist in the
delivery of a corporeal thing or a real right or a credit Obligations are created Obligations are extinguished
against a third person
The cause is the price paid The cause is extinguishment
2. There must be some difference between the
from the viewpoint of the of the debt from the
prestation due and that which is given in substitution
seller, or the acquisition of viewpoint of the debtor, or
(aliud pro alio) the thing sold, from the the acquisition of the object
3. There must be an agreement between the creditor viewpoint of the buyer in lieu of the credit from the
and debtor that the obligation is immediately viewpoint of the creditor
extinguished by reason of the performance of a
prestation different from tat due. More freedom in fixing the Less freedom
price

Governing Law Buyer stil has to pay the Payment is received before
● Law of sales governs because dation in payment price the contract is perfected
may be considered a specie of sale in which the which is to be charged
amount of the money debt becomes the price of the against the debtor’s debt
thing alienated
Parties deliver and receive … as debtor and creditor
● As such, the elements of a contract must be present,
the thing as seller and buyer
i.e., consent, object certain, cause or consideration.
● In its modern concept, what actually takes place in
dacion en pago is an objective novation of the Transfer of Ownership to Creditor
obligation, where the thing offered as an accepted ● Dation in payment requires the delivery and
equivalent of the performance of an obligation is transmission of ownership of a thing to the creditor
considered as the object of the contract of sale, who accepts it as equivalent of payment of an
while the debt is considered as the purchase price. outstanding debt
● In any case, common consent is an essential ● Where the repossession of the thing was merely to
prerequisite, be it sale or novation to have the effect secure the payment of the debtor’s loan obligation
of totally extinguishing the debt or obligation. and not for the purpose of transferring ownership
thereof to the creditor in satisfaction said loan, no
dacion en pago is accomplished
Dation in Payment Distinguished from Objective Novation Extent of Extinguishment of Debt
● Dation in payment does not necessarily mean total
extinguishment of the obligation;
Dacion en Pago Objective Novation
● Only extinguishes the obligation up to the extent of
the value of the thing delivered
Original obligation of the Debt is not in money and
debtor must be to pay a the creditor accepts the ● The obligation is totally extinguished only when the
sum in money delivery of a property as an parties, by agreement, express or implied, or by their
equivalent of the silence, consider the thing as equivalent to the
Obligation is extinguished performance of the obligation
by way of payment upon obligation
acceptance by the creditor
of the property as an
ARTICLE 1246
equivalent of the
payment/performance of When the obligation consists in the delivery of an
an outstanding debt 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
Equivalent of the payment Equivalent of the
deliver a thing of inferior quality. The purpose of the obligation
must be the alienation of a performance of the
property obligation is some other and other circumstances shall be taken into consideration.
prestation (e.g., rendition of
a service) Rule of the Medium Quality

MEDOLLAR, L. J. - 1BLM
 ● In obligation to deliver a generic thing, the purpose ● Reason is that the obligation is extinguished
of the obligation and other circumstances shall be when payment is made and it is, therefore,
taken into consideration to determine the quality or the debtor who is primarily benefited.
kind of thing to be delivered
● Art. 1246 is a principle of equity in that it supplies Judicial Expenses/Costs
justice in cases where there is a lack of precise ● Refers to the statutory amounts allowed to a party to
declaration in the obligation of the quality or kind of an action for his expenses incurred in the action
thing to be delivered ● A consequence of the judicial proceeding
● If there is a disagreement between the parties, the ● Under the Rules of Court (Sec. 1, Rule 142), the costs
law steps in and determines whether the contract of an action shall be paid by the losing party
has been complied with or not accdg. to the ● However, the court may for special reason adjudge
circumstances. that either party shall pay the costs, or that same be
● Benefit of this article may be waived by the creditor divided, as may be equitable
by accepting a thing of inferior quality and by the ● No costs are allowed against the Government, unless
debtor by delivering a thing of superior quality. otherwise provided by law

EXAMPLES: S promised to deliver a horse to B. B cannot compel ARTICLE 1248

S to deliver a price-winning race horse, neither can S require B
to accept an old sickly horse. Unless there is an express stipulation to that effect, the creditor
● If B owns a stable of racehorses and horse racing is his cannot be compelled partially to receive the prestations in
main diversion in life, which fact is known to S, and which the obligation consists. Neither may the debtor be
the price agreed upon is the reasonable price of a required to make partial payments.
racehorse, then S must deliver a racehorse.
● If B happens to be a calesa driver and B agreed to However, when the debt is in part liquidated and in part
pay S for the horse an amount which is the unliquidated, the creditor may demand and the debtor may
reasonable price of a horse for calesa, then that kind effect the payment of the former without waiting for the
of horse may be delivered. liquidation of the latter.
● If B is a veterinary doctor and his only purpose in
buying a horse is to examine its organs, an old sickly ● Contemplates obligations where there is only one
horse may have been intended by the parties. creditor and only one debtor
● General rule → Prestation must be performed in one
ARTICLE 1247 act, not in parts
○ In order that payment may extinguish an
Unless it is otherwise stipulated, the extrajudicial expenses obligation, it is necessary that there be
required by the payment shall be for the account of the complete performance of the prestation
debtor. With regard to judicial costs, the Rules of Court shall ● Creditor may accept but cannot be compelled to
govern. accept partial payment or performance
● Debtor has the duty to comply with the whole
● Regulates application of expenses obligation but he cannot be required to make partial
payment if he does not wish to do so
Extrajudicial Expenses
● Refers to the expenses which arise out of, or in Rule on Partial Payment
connection with, the normal fulfillment of the – When partial performance of obligation is allowed:
obligation 1. There is an express stipulation to that effect
● Art. 1247 does NOT apply to expenses incurred by the 2. The debt is in part liquidated (definitely determined or
creditor in going to the debtor’s domicile to collect determinable) and in part unliquidated
(Art. 1251) 3. The different prestations in which the obligation
consists are subject to different terms or conditions
Who shall bear extrajudicial expenses? ● In obligations that comprehend several
1. Parties may freely stipulate as to who shall bear said distinct prestations (e.g., installments), it is
expenses evident that the prestations need not be
2. In the absence of stipulation, said expenses shall be executed simultaneously, but each
for the account of the debtor successive execution thereof must be
complete

MEDOLLAR, L. J. - 1BLM
 4. The parties know that the obligation cannot be ● Requires the payment of domestic obligations in
expected to be performed completely at one time money in Philippine currency
5. There is an abuse of right or if good faith requires ● Agreements to pay an obligation in other currencies
acceptance are declared “against public policy, null and void,
and of no effect,” though the obligation itself is not
EXAMPLE 1: D is indebted for P5,000 to C. D cannot compel C declared void.
to receive P4,000 in partial payment, and neither can C ● The most that can be demanded is to pay the said
require D to pay only P4,000, unless there is an agreement to obligation in Philippine currency to be measured in
the contrary. the prevailing rate of exchange at the time the
obligation was incurred.
EXAMPLE 2: If D owes P5,000 to C plus the share of C from the ● The void provision does not defeat a creditor’s claim
profit of a business, which, however, has not yet been for payment in Philippine currency
liquidated or determined, C may demand and D may effect, ● A contrary rule would allow a person to profit or
the payment of P5,000, which is already known. enrich himself inequitably at another’s expense

EXAMPLE 3: If D’s debt comprises P4,000 due today and P1,000 (2) R.A. No. 259 was repealed by R.A. No.8183
due tomorrow, the obligation can be complied with partially. ● There is no longer any legal impediment to having
● Similarly, partial performance may be effected in obligation or transactions paid in a foreign currency
case the payment of the P1,000.00 is subject to the so long as parties agree to it
fulfillment of a condition. ● Section 1 of RA 8183. All monetary obligations shall
be settled in the Philippine currency which is legal
EXAMPLE 4: S obliged himself to deliver 50,000 bags of cement tender in the Philippines. However, the parties may
to B at the construction site of a building. S makes a first agree that the obligation or transaction shall be
delivery of 5,000 bags, informing that B continuous deliveries settled in any other currency at the time of payment.
will follow. B cannot, in good faith, refuse to accept the partial ● Since both R.A. 529 and 8183 did not stipulate the
deliveries as long as they are sufficient for his construction applicable rate of exchange for the conversion of
needs. foreign currency-incurred obligations to their peso
equivalent, the jurisprudence established under R.A.
ARTICLE 1249 529 remains applicable as to the rate of conversion

The payment of debts in money shall be made in the currency What currency can be legally compelled by the debtor to
stipulated, and if it is not possible to deliver such currency, then creditor?
in the currency which is legal tender in the Philippines. Legal Tender → currency which a debtor can legally compel a
creditor to accept in payment of a debt in money when
The delivery of promissory notes payable to order, or bills of tendered by the debtor in the right amount
exchange or other mercantile documents shall produce the
effect of payment only when they have been cashed, or Legal Tender in the Philippines
when through the fault of the creditor they have been ● Definition provided by the New Central Bank Act (RA
impaired. 7653)
● All coins and notes issued by the Bangko Sentral ng
In the meantime, the action derived from the original Pilipinas constitute legal tender for all debts, both
obligation shall be held in abeyance. public or private
● Unless otherwise fixed by Monetary Board, coins have
Payment of Debts in Money limited legal tender power, in amounts not
● The rule is applied when the obligation consists in the exceeding P50.00 for denominations of P0.25 and
payment of a sum of money above, and in amounts not exceeding P20.00, for
● First paragraph is not applicable where the contract dominations of P0.10 or less.
between the parties is to pay in Philippine currency ● According to BSP Circular No. 537, the maximum
● Currency stipulated refers to money different from amount of coins to be considered as legal tender
that which is the legal tender or legally current in the shall be as follows:
Philippines

P1000 Denominations of 1-Piso,

Stipulation for Payment in Foreign Currency 5-Piso, and 10-Piso coins
(1) Modifications by Republic Act No. 529
P100 Denominations of 1-sentimo,

MEDOLLAR, L. J. - 1BLM
 ● If the non-payment is caused by the creditor’s
5-sentimo, 25-sentimo
negligence, payment will be deemed effected and
the obligation for which the check was given as
● All coins and bills above P1.00 are, therefore, valid conditional payment will be discharged
legal tenders for any amount
NOTE: The rule that a check is not a legal tender and that a
Payment By Means of Instruments of Credits creditor may validly refuse payment by check is applicable
(1) Right of Creditor to Refuse or Accept only to a payment of an obligation, and not to an exercise of a
● Promissory notes, checks, bills of exchange, and other right (e.g., right of redemption)
commercial documents are not legal tender, hence
the creditor cannot be compelled to accept them,
Payment of an obligation Right to redemption
even when the check is certified or is a manager’s
check.
A check is not a valid legal A check is sufficient to
○ The creditor may still choose to accept tender compel redemption
them without the acceptance producing
the effect of payment. In the meantime, the If the payment of the price If there is no legal obligation
demandability of the original obligation is can be demanded as a to pay the price because
legal obligation, the tender the payor may choose not
suspended until the payment by the
of a check is precisely for to pay it if he decides not to
commercial document is actually realized.
the purpose of extinguishing exercise his right, the
○ If the creditor accepts a fully funded check an obligation delivery of the check is only
after the debtor’s manifestation that it had an incident of the exercise
been given to settle an obligation, he is of the right, and therefore
estopped from later on denouncing the does not involve any
efficacy of such tender of payment. extinguishment of an
existing obligation
● Checks do not operate as payment because it is only
a substitute for money. The delivery of such
instrument simply suspends the action arising from the (2) Payment for Purpose of Redemption
original obligation in satisfaction of which it was ● Art. 2149 deals with a mode of extinction of debts,
delivered. The creditor must cash the instrument, and while the right to redeem is not an obligation but the
it is only when it is dishonored, that he can bring an exercise of a right, nor is it intended to discharge a
action for non-payment of the debt. pre-existing debt.
○ “A redemption of property sold under
EXAMPLE 1: Debtors paid through a check which the creditor execution is not rendered invalid by reason
accepted. The creditor did not encash the check and filed for of the fact that the payment to the sheriff
an action three years later. for the purpose of redemption is effected
● RTC found that debtors failed to discharge the by means of a check for the amount due.”
burden of proof as they did not introduce evidence ● It is the policy of the law to be liberal in redemption
of payment. cases, to aid rather than to defeat the right of
● CA, contrastingly, concluded that the debtors redemption.
introduced sufficient evidence of payment, as
opposed to the creditor who failed to produce (3) Effect on Obligation
evidence that the checks were in fact dishonored ● Payment by means of mercantile* documents is
● The Court said that the obligation of the debtor was sufficient to compel redemption
not to prove whether or not the checks were (a) Until they have been cashed (executed by
dishonored; but to prove that the checks were the debtor or a third person)
encashed (b) Unless they have been impaired through
● The Court noted that had the checks been actually the fault of the creditor (executed by a third
encashed, the debtors could have easily produced person)
the canceled checks as evidence to prove the same ● The delivery of the paper or document shall produce
the effect of a valid payment only when either
EXAMPLE 2: Debtors paid through check, which the creditor situation has taken place
accepted. The creditor did not encash the check and filed for
an action 10 years later. * Mercantile – relating to trade or commerce; commercial
● Creditor impaired the check through unreasonable
and unexplained delay Applicability of Impairment Clause of Art. 1249

MEDOLLAR, L. J. - 1BLM
 ● Applicable not only to those instruments executed by (e.g, taking of private property by the government in
third persons, which the debtor delivers to the the exercise of its power of eminent domain does not
ceditor, but also to a note executed by the debtor give rise to a contractual obligation)
himself and delivered to the creditor
EXAMPLE: The Court held that Art. 1250 is inapplicable despite
ARTICLE 1250 the fact that the obligation was contractual (i.e., loan)
because neither the loan agreement nor the promissory notes
In case an extraordinary inflation or deflation of the currency contained a provision stating that the parties agreed to
stipulated should supervene, the value of the currency at the recognize the effects of extraordinary inflation or deflation
time of the establishment of the obligation shall be the basis of
payment, unless there is an agreement to the contrary. Basis of Payment
● Purchasing value of the currency at the time of the
● The only provision which provides for payment of an establishment of the obligation shall be the basis of
obligation in an amount different from what has payment, in case of any extraordinary increase or
been agreed upon by the parties because of the decrease in the purchasing power of the currency
supervention of extraordinary inflation or deflation which the parties could not have reasonably
● For lack of an express provision on the question in the foreseen.
old Civil Code, there was a great deal of uncertainty ● Burden of proving that there had been extraordinary
and confusion as a result of contracts entered into inflation or deflation of the currency lies upon the
during the last world war which saw an extraordinary party that alleges it.
inflation of currency. ● In the absence of any agreement to the contrary,
● Purpose of this provision is a just solution for future even assuming that there has been an extraordinary
cases. inflation, the value of the peso at the time of the
establishment of the obligation shall still be the basis
Inflation – a sharp sudden increase of money or credito or of the payment.
both without a corresponding increase in business
transactions. EXAMPLE: D borrowed P5,000 from C, payable after five years.
● Causes a drop in the value of money, resulting in rise On the maturity of the obligation, the value of P5,000 dropped
of the genral price level. to P2,500 because of inflation. As the basis of payment shall be
● There is an increase in the volume of money and the equivalent value of the currency today to that five years
credit relative to available goods resulting in a ago, D is liable to pay P10,000 to D, unless there is an
substantial and continuing rise in the general price agreement to the contrary (that D pays C P5,000 regardless of
level extraordinary inflation or deflation)

Deflation – reduction in volume and circulation of the When Inflation/Deflation Extraordinary

available money or credit, resulting in a decline of the general ● Extraordinary inflation → there is a decrease or
price level increase in the purchasing power of the Philippine
currency which is unusual or beyond the common
Requisites for Application of Art. 1250 fluctuation in the value of said currency, and such
1. An official declaration of extraordinary inflation or increase or decrease could not have been
deflation from the BSP; reasonably foreseen or was manifestly beyond the
2. Obligation is contractual in nature; and contemplation of the parties at the time of the
3. Parties expressly agreed to consider the effects of establishment of the obligation.
the extraordinary inflation or deflation. ● Extraordinary deflation – inverse situation of
extraordinary inflation
● A contractual agreement is needed for the effects of
extraordinary inflation to be taken into account to Test of Extraordinary Inflation/Deflation
alter the value of the currency. ● One that neither party had reason to foresee when
● “Extraordinary inflation or deflation of the currency the obligation was established, or manifestly beyond
stipulated” implies contractual obligations, where a the contemplation of the parties at the time of the
currency is selected by the parties as the medium of establishment of the obligation
payment. ● Said to exist where there is an unimaginable increase
● The provision is not applicable in the obligation to or decrease in the purchasing power of the Philippine
pay arising from other sources independent of currency
contract, such as law, quasi-contract, tort, or crime

MEDOLLAR, L. J. - 1BLM
EXAMPLE: Plaintiff sought an adjustment of the money 1. If there is a stipulation, payment shall be made in the
judgment rendered in its favor due to alleged supervening place designated
extraordinary inflation of the Philippine peso, which has 2. In the absence of stipulation and obligation is to
reduced the value of the bonds paid by the defendant to the deliver a determinate thing, payment shall be made
plaintiff. at the place where the thing was at the perfection of
● The Supreme Court denied the adjustment because the contract
while there has been a decline in the purchasing 3. In any other case (absence of stipulation and
power of the Philippine peso, this downward fall of obligation is other than a determinate thing), the
the currency cannot be considered extraordinary. It place of payment shall be the domicile of the debtor
was only a universal trend that has not spared the - Creditor bears the expenses of going to the
country debtor’s place to accept payment, subject
to the rule in par. 4.
Difference between Devaluation and Depreciation
● The order as above enumerated is successive and
exclusive as may be gleaned from the provision
Devaluation Depreciation
● Venue – the place where a court suit or action must
Involves an official Downward change in the be filed or instituted
reduction in the value of value of one currency in ● Third rule is not altered by the fact that the debtor
one currency from an terms of the currencies of changes his domicile, regardless of being done in
officially fixed level imposed other nations which occurs good faith or bad faith.
by monetary authorities as a result of market forces
○ However, if the debtor changes his domicile
in the foreign exchange
in bad faith (or after he has incurred in
market
delay), the additional expenses that the
creditor may incur in going to the debtor’s
EXAMPLE: The lowering of the value of the peso as a result of new domicile, shall be borne by the debtor.
foreign exchange market forces is an example of ● Domicile – actual or physical habitation of a person
depreciation, and not devaluation. as distinguished from “legal” residence

Rule #5: PROPER PLACE OF PAYMENT [Art. 1251] Domicile distinguished from Residence

ARTICLE 1251
Domicile Residence

Payment shall be made in the place designated in the

Place of a person’s habitual Only an element of
obligation. residence domicile

There being no express stipulation and if the undertaking is to Requires bodily presence in Requires bodily presence as
deliver a determinate thing, the payment shall be made that place and also an an inhabitant in a given
intention to make it one’s place
wherever the thing might be at the moment the obligation
domicile
was constituted.

Synonymous as far as election law is concerned

In any other case the place of payment shall be the domicile
of the debtor.
Subsection 1. — Application of Payments

If the debtor changes his domicile in bad faith or after he has

incurred in delay, the additional expenses shall be borne by
ARTICLE 1252
him.
He who has various debts of the same kind in favor of one and

These provisions are without prejudice to venue under the the same creditor, may declare at the time of making the

Rules of Court. payment, to which of them the same must be applied. Unless
the parties so stipulate, or when the application of payment is

● Creditor cannot be compelled to accept the made by the party for whose benefit the term has been

payment if the same is made in a place other than constituted, application shall not be made as to debts which

the proper place of payment are not yet due.

Proper Place of Payment If the debtor accepts from the credito a receipt in which an
application of the payment is made, the former cannot

MEDOLLAR, L. J. - 1BLM
complain of the same, unless there is a cause invalidating the ● In order for the creditor’s proposal to be
contract. valid, it depends a) upon expressing such
application in the corresponding receipt
Four Special Forms of Payment under the Civil Code and b) upon the debtor’s assent, shown by
(1) Dation in payment (Art. 1245); his acceptance of the receipt without
(2) Application of payments (Art. 1252-1254); protest
(3) Payment by cession (Art. 1255); and
(4) Tender of payment and consignation (Arts. 4. If the creditor has not also made the application, or if
1256-1261). the application is not valid, the debt which is most
onerous to the debtor among those due shall be
Application of Payments deemed to have been satisfied.
● Designation of the debt to which should be applied
by the payment by a debtor who owes several debts 5. If the debts due are of the same nature and burden,
to the same creditor. the payment shall be applied to all of them
● Applicable only to debts which are already due proportionately.
(although there are two exceptional situations)
● This cannot be made applicable to a person whose 6. If neither party has exercised its option and there is
obligation as a mere duty is both contingent and disagreement as to debts to which payment must be
singular; his liability is confined to such obligation, and applied, the court will apply the payment according
he is entitled to have all payments made applied to the justice and equity of the case, taking into
exclusively to said application and to no other consideration all its circumstances.

Requisites EXAMPLE: D owes C as follows:

1. There be several debts (a) P1,500 payable on September 5
2. Debts are owed by one debtor to one creditor (b) P1,200 payable on September 20
3. All debts must be of the same kind (c) A specific table worth P2,000 to be delivered on
4. All debts must be due September 20
5. Payment made is not sufficient to cover all debts (d) P1,000 payable on October 15

Application as to Debts Not Yet Due ● On September 20, D paid P1,500 to C. D may apply
– Exceptional situations where the application can be made the P1,500 to debt (a), or to debt (b) and to a portion
to debts which are not yet due: of debt (a) if C does not object.
(1) There is a stipulation allowing such application; and ● If D paid only P1,000 on September 20, he cannot
(2) When the application is made by the party whose choose to apply his payment to the P1,500 debt
benefit the term has been constituted because C cannot be compelled to receive partial
payment, and he cannot apply it to debt (c)
Rules on Application of Payments because it is not of the same kind. He cannot pay
1. Debtor has the first choice. He must indicate at the debt (d) yet because it is not yet due, unless there is
time of making payment, and not afterwards, which a stipulation to the contrary or he has the benefit of
particular debt is being paid. If, in making use of his the period.
right, the debtor applied the payment to a debt, he ● If D does not make a choice, C can make the
cannot later claim that it should be applied to designation in the receipt with the consent of D (to
another debt. which he can also reject). D may change the
application made by C. The acceptance by D now
2. Right to make the application once exercised is regards a contract independent from the principal
irrevocable unless the creditor consents to change. obligation, which is no longer revocable or
changeable unless there is a cause for invalidating
3. From the use of the word “may” instead of “shall, the the contract (e.g., vitiated consent).
debtor’s right to apply payment is not mandatory but ● If C does not make the application in the receipt or
merely directory. If the debtor does not apply no receipt was issued to him, the legal rules of Art.
payment, the creditor has the subsidiary right to 1254 will govern.
make the designation by specifying in the receipt
which debt is being paid. Limitation upon RIght to Apply Payment
● Needs the debtor’s consent ● Debtor cannot make an application of payment that
will violate the agreement. Thus, when there is an

MEDOLLAR, L. J. - 1BLM
 agreement as to the debts which are to be paid first, 2. A party to a contract who unqualifiedly and
the same must be followed unconditionally accepts the settlement of his claim
● Debtor cannot make an application of payment that for damages without reservation as to interest or any
will violate the rule in Art. 1248. other further claim from the other party, is estopped
○ For example, the debtor owes the creditor from claiming interest thereafter (Magdalena v.
two debts (one for P,1000 and another for Rodriguez).
P2,000), and both are due, should the
debtor make a payment of P1,000, he Relation of Art. 1176 to Art. 1253
cannot apply the same to the obligation in ● The provisions appear to be contradictory but they in
the amount of P2,000 because he cannot fact support, and in conformity with, each other.
compel his debtor to accept partial ● Both are presumptions and, as such, lose their legal
payment efficacy in the face of proof or evidence to the
● Debtor cannot make an application of payment that contrary.
will violate the rule in Art. 1253. If there is only one
debt with stipulated interest, he cannot apply the
Article 1176 Article 1253
payment to the principal because the law requires
that the interest should be paid first. General presumption More specific presumption

ARTICLE 1253 Relevant on questions Pertinent on questions

pertaining to the effects involving application of
and nature of obligations in payments and
If the debt produces interest, payment of the principal shall
general extinguishment of
not be deemed to have been made until the interests have obligations
been covered.
Does not resolve the Resolves doubts involving
● Payment shall first be applied to the interest and not question whether the payment of interest-bearing
to the principal. amount received by the debts.
creditor is a payment for the
● This rule is mandatory; having an obligatory
principal or interest A doubt arises on whether
character and not merely suppletory. It cannot be
the amount received by the
dispensed with except by mutual agreement. creditor is payment for the
● Creditor may oppose an application of payment principal or interest.
made by the debtor contrary to this rule.
Presumes that creditor Provides a hierarchy:
waives the payment of payment shall be first
Requisites
interest as he accepts applied to interest, then to
1. Debt produces interest (e.g., payment of interest is
payment without the principal once the
expressly stipulated). reservation interest has been fully paid
2. Principal remains unpaid.

● When doubt pertains to the application of payments,

Kinds of Interest Covered → Both stipulated monetary interest
Art. 1253 shall apply
and interest for default (compensatory).
● Only when there is a waiver of interest shall Art. 1176
become relevant
Examples: The Rule being Subject to Agreement of Parties or to
Waiver by the Creditor
1. In a contract involving installment payments with
ARTICLE 1254
interest chargeable against the remaining balance
(Rapanut v. COA) When the payment cannot be applied in accordance with

● It is the duty of the creditor to inform the the preceding rules, or if application cannot be inferred from

debtor of the amount of interest that falls other circumstances, the debt which is most onerous to the

due and that he is applying the installment debtor, among those due, shall be deemed to have been

payments to cover said interest. satisfied.

● Otherwise, the creditor cannot apply the

payments to the interest and hold the If the debts are of the same nature and burden, the payment

debtor in default for non-payment of shall be applied to all of them proportionately.

installments on the principal.

When No Application was Made by the Parties
– The payment should be applied to:

MEDOLLAR, L. J. - 1BLM
 1. The debt which is more onerous to the debtor.
2. If the debts are of the same nature and burden, to all Requisites
of them proportionately. 1. There must be two or more creditors
2. Debtor must be (partially) insolvent
Concept of “More Onerous” Debt 3. Assignment must involve all the properties of the
● When it is more burdensome to the debtor debtor
● No fixed rule can be laid down in determining which 4. Cession must be accepted by the creditors
debt is more onerous to the debtor since the
condition of being more burdensome is a question of Effect of Payment by Cession
relative appreciation ● Unless there is a stipulation to the contrary, the
assignment does not make the creditors the owners
Guide to Determine a “More Onerous” Debt than Another of the property of the debtor
1. Interest-bearing debt is more onerous than a ● Debtor is released from his obligation only up to the
non-interest bearing debt, even if the latter is an net proceeds of the sale of the property assigned
older one. ○ Net proceeds – amount of money a seller
2. A debt as a sole debtor is more onerous than as a will receive after deducting all of the costs
solidary debtor. of a sale.
3. When there are various debts, all being equal, older ● Debtor is still liable if there is a balance
debts are more onerous.
4. Debts secured by a mortgage or by pledge are more Payment by Cession as a Contractual Assignment
onerous than unsecured debts. ● Requires the consent of all the creditors
5. Where both debts bear interest, the one with higher ● Distinguished from legal or judicial assignment which
interest rate is more onerous. is governed by the Insolvency Law
6. Debts with a penal clause are more onerous than ● Merely involves a change of the object of the
those without one. obligation by agreement of the parties and at the
same time fulfilling the same voluntarily
Debts Subject to Different Burdens
● Suppose one debt is secured by mortgage, and Difference between Cession and Dation in Payment
another by a penalty clause, payment should be
applied to all of them proportionately
Dation in Payment Payment by Cession

Subsection 2. — Payment by Cession Usually only one creditor Several creditors

ARTICLE 1255 Does not presuppose the Debtor is insolvent at the

insolvency of the debtor or time of assignment
a situation of financial
The debtor may cede or assign his property to his creditors in
difficulties
payment of his debts. This cession, unless there is stipulation to
the contrary, shall only release the debtor from responsibility for Does not involve all the Extends to all the property
the net proceeds of the thing assigned. The agreements property of the debtor of the debtor subject to
which, on the effect of the cession, are made between the execution
debtor and his creditors shall be governed by special laws.
Creditor becomes the Creditor only acquire the
owner of the thing given by right to sell the thing and
● Contemplates a situation where the debtor is
the debtor apply the proceeds to their
indebted to several creditors but he is under a state credits proportionately
of insolvency, or that the debtor is generally unable
to pay his liabilities as they fall due in the ordinary An act of novation Not an act of novation
course of business or has liabilities that are greater
They are similar in a sense that both are substitute forms of
than his assets
payment or performance. They aregoverned by the law on
sales
Payment by Cession
● Another special form of payment
● Refers to the assignment or abandonment of all the Subsection 3. — Tender of Payment and Consignation

properties or assets of the debtor to his creditor so

that the latter may sell the same and apply the ARTICLE 1256
proceeds to the satisfaction of their credits

MEDOLLAR, L. J. - 1BLM
If the creditor to whom tender of payment has been made that it has been properly made, in either of
refuses without just cause to accept it, the debtor shall be which events the obligation is extinguished
released from responsibility by the consignation of the thing or ● Law allows the debtor to withdraw the thing
sum due. or the sum deposited before acceptance
by the creditor or cancellation by the court.
Consignation alone shall produce the same effect in the ● Debtor has also the right to refuse to make
following cases: the deposit. The court cannot compel him
(1) When the creditor is absent or unknown, or does not to do is because it would be a greave
appear at the place of payment; abuse of discretion amounting to excess of
(2) When he is incapacitated to receive the payment at jurisdiction
the time it is due;
(3) When, without just cause, he refuses to give a (2) Avoidance of greater liability
receipt; ● Tender of payment and consignation
(4) When two or more persons claim the same right to produces the effect of payment and
collect; extinguished an obligation
(5) When the title of the obligation has been lost. ● This is to avoid the performance of an
obligation more onerous to the debtor by
Tender of Payment reason of causes not imputable to him
● Act, on the part of the debtor, of offering to the ● For failure to consign the thing or amount
creditor the thing or amount due due, the debtor may become liable for
● Debtor must show that he has in possession of the damages and/or interest. But such failure is
thing or money to be delivered at the time of the not tantamount to a breach of contract
offer where by the fact of tendering payment he
● An act preparatory to consignation, which is the was was willing and able to comply with his
principal, and from which are derived from the obligation.
immediate consequence which the debtor desires to
obtain Requisites of Consignation
– Absence of any of these is enough to render consignation
Consignation ineffective
● Act of depositing the thing or amount due with the (1) Existence of a valid debt which is due
proper court when the creditor does not desire, or (2) Tender of payment by the debtor and refusal without
refuses to accept payment, or cannot receive it, justifiable reason by the creditor to accept it
after complying with the formalities required by law (3) Previous notice of consignation to persons interested
● Always judicial and generally requires a prior tender in the fulfillment of the obligation
of payment by its very nature extrajudicial (4) Consignation of the thing or sum due
(5) Subsequent notice of consignation made to the
Effect of Non-Acceptance of Money interested parties
● Creditor’s unjust refusal to accept payment does not
produce the effect of payment that will extinguish How to consign an item in court?
the debtor’s obligation 1. Make a letter of tender of payment and consignation
● A refusal without just cause is not equivalent to (either separately or jointly)
payment 2. Surrender item in court
● To have the effect of payment and the consequent 3. Item is deposited by the Clerk of Court in a bank and
extinguishment of the obligation, the law requires the earn interest to which the creditor would be entitled
companion acts of tender of payment and
consignation Necessity of Making Tender of Payment & Consignation
● Tender of payment even if valid, does not by itself ● Substantial compliance is not enough for that would
produce legal payment, unless it is completed by render only a directory construction of the law
consignation ● Use of the words “shall” and “must” (in Arts. 1257,
1258, and 1249), which are imperative, positively
Nature and Rationale for Consignation indicate that all the essential requisites must be
(1) Facultative remedy complied with in order that consignation shall be
● If made by the debtor, the creditor merely valid and effectual
accepts it if he wishes; or the court declares

MEDOLLAR, L. J. - 1BLM
 ● Consignation and tender of payment must not be ● Tender of payment of only a portion of an
encumbered by conditions if they are to produce the obligation when the contract gives to the
intended result of fulfilling the obligation creditor the right to require payment of the
whole amount due and still unpaid upon
EXAMPLE 1: D owes C a sum of money. On the due date of the default of an installment, may be validly
obligation, D offers to pay the obligation but C refuses to refused by the creditor.
accept the payment without any justifiable reason.
● D’s obligation will not be extinguished until he has (4) Must be actually made.
made a valid consignation. ● Manifestation of a desire or intention to pay
is not enough.
EXAMPLE 2: D entered into a contract with C. D is given the
right to cancel the contract upon payment of P1,000.00 to C. Effects of a Valid Tender of Payment
● D has no existing debt to C. The amount of P1,000.00 ● Debtor is only exempt from compensatory interest,
is not owed by D, being merely the consideration for but not monetary interest. Debtor is not guilty of
the exercie of his right to cancel the contract. delay and therefore not liable for compensatory
● Hence, consignation of the P1,000.00 is not interest.
necessary. Tender of payment in good faith is ● To allow the debtor to be exempt from monetary
sufficient to entitle D to cancellation. interest constitutes unjust enrichment
● Interests accrue even with a valid tender of payment
EXAMPLE 3: For failing to pay rents for 3 months, R (lessor) as long as it is not consigned in court
demanded that E (lessee) pay back rentals and vacate the
premises. SUbsequently, R filed a complaint for unlawful EXAMPLE: Debtors wanted to be excused from the payment of
detainer. E contend that R refused to accept the rents. the regular or monetary interest because they allegedly
● Failure of R to collect or his refusal to accept the expressed their willingness and readiness to pay the obligation
rentals is not a valid defense. in their letter to the creditors.
● To be released from responsibility, the debtor should - Court said that debtors are liable for interest on the
consign the thing or sum due. installments due from the date of default until fully
● The belated payment of the back rentals by E does paid because the debtor did not take any
not automatically restore the contract of lease immediate step to make a consignation
without R’s consent. - Interest is therefore not suspended
- Additionally, the letter only stated the debtors’
Requirements for Valid Tender of Payment willingness, but was not accompanied by the
(1) There must be fusion of intent, ability and capability payment
to make good such offer, which must be absolute
and must cover the amount due. Proof of Tender of Payment
● Mere manifestations by the debtor of his ● A tender of payment must precede consignation, it
desire to comply with the obligation is not must be proved by the debtor in the proper case.
sufficient in the absence of an offer of ● In other cases where tender is not required, only prior
immediate performance. notice to interested persons of the consignation need
● EXAMPLE: Mere sending of a letter by the be proved.
vendee expresing the intention to pay ● EXAMPLE: A letter by the tenant to the landlord to get
without the accompanying payment was the rental for a particular month is no proof of tender
not considered a valid tender of payment. of payment of other or subsequent rentals.
(2) Must comply with the rules on payment.
When Tender of Payment NOT Required
(3) Must be unconditional and for the whole amount. ● A creditor who, without legal justification, informs his
● Tender of payment cannot be presumed by debtor that payment of a debt will not be accepted,
mere inference from surrounding thereby waives payment on the date when the
circumstances; a debtor who has sufficient payment will be due.
funds on or before the grace period for the ○ As a consequence, the debtor excused
payment does not constitute proof of from making a formal tender of the money
tender of payment. It is only affirmative of in such date
his capacity or ability to fulfill his part of the ○ Debtor does not incur in default by failing to
bargain make a fruitless tender after notification

MEDOLLAR, L. J. - 1BLM
 from the creditor that the money will not be ● No prior notice = consignation is void
received ● Purpose of the notice is to give the creditor a chance
to reflect on his previous refusal to accept payment
ARTICLE 1257 considering that the expenses of consignation shall
be charged against him, and that in case of loss of
In order that the consignation of the thing due may release the thing consigned, he shall bear the risk thereof
the obligor, it must first be announced to the persons
interested in the fulfillment of the obligation.. (4) Amount due was placed at the disposal of the court
● Precludes consignation in venues other than courts
The consignation shall be ineffectual if it is not made strictly in ● Elsewhere, what may be made is a valid tender of
consonance with the provisions which regulate payment. payment, but not consignation

Prior Notice to Persons Interest Required (5) Person interested was notified of the consignation
● In the absence of prior notice to the persons made (Art. 1258)
interested in the fulfillment of the obligation (e.g., ● Reason why there is a prior and post notice is to
guarantors, mortgagees, solidary debtors/creditors) enable the creditor to withdraw the goods or money
the consignation as payment, shall be void. deposited
● Purpose of the notice is to give the creditor a chance ● It would be unjust to make him suffer the risk for any
to reflect on his previous refusal to accept payment deterioration, depreciation, or loss of such goods or
considering that the expenses of consignation shall money by reason of lack of knowledge of the
be charged against him and that in case of loss of consignation
the thing consigned, he shall bear the risk thereof.
● Such notice should not contain a mere warning that Consignation Must Comply with Provisions on Payment
the deposit of the thing tendered would be made in → Art. 1257 par. 2; Arts. 1233, 1239, 1244, 1246, 1248, 1249, 1253
court but should fix the date and hour of the 1. Payment should be made in legal tender
consignation, and the name of the court where the ● (General rule) An offer of a bank check for
same would be made. the amount due is not a good tender and
● Tender of payment and notice of consignation may this is true even though the check is certified
be done in the same act, e.g., sending a letter that or is a manager’s check, except where no
should the creditor fail to accept the payment objection is made on that ground.
tendered, the debtor would consign the amount in
court 2. While the approval of the court or the obligee’s
acceptance of the deposit is necessary where the
Requisites of a Valid Consignation obligor has performed all acts necessary to a valid
(1) There was a debt due consignation such that court approval thereof
● Creditor-debtor relationship must exist between the cannot be doubted, this is true only where there is
parties; otherwise, the legal effects thereof cannot unmistakable evidence on record that the
be availed of. prerequisites of a valid consignation are present,
especially the conformity of the proffered payment
(2) Consignation of the obligation had been made to the terms of the obligation which is to be paid.
● Instances where prior tender of payment is excused
(Art. 1256): Tender of Payment of Judgment
(a) Creditor was absent or unknown, or does ● Tender of payment of the amount due on a
not appear at the place of payment; judgment into court is not the same as tender of
(b) Creditor is incapacitated to receive the payment of a contractual debt and consignation of
payment at the time it is due; the money due from a debtor to a creditor
(c) Creditor refuses to give a receipt without ● Requirements of Arts. 1256 and 1257 are not
just cause; applicable
(d) Two or more persons claim the same right to ● In case of a refusal of tender of payment of a
collect; and judgment, the court may direct the money to be
(e) When the title of the obligation is lost. paid into court, and after this payment is done, order
satisfaction of the judgment to be entered
(3) Previous notice of the consignation had been given
to the person interested in the performance of the ARTICLE 1258
obligation

MEDOLLAR, L. J. - 1BLM
Consignation shall be made by depositing the things due at ARTICLE 1259
the disposal of judicial authority, before whom the tender of
payment shall be proved, in a proper case, and the The expenses of consignation, when properly made, shall be
announcement of the consignation in other cases. charged against the creditor.

The consignation having been made, the interested parties Liability of Creditor for Expenses of Consignation
shall also be notified thereof. ● Consignation is made necessary because of the fault
or unjust refusal of the creditor to accept payment;
Consignation must be with Proper Judicial Authority thus, it is but just that the expenses should be
● To effect payment, consignation of the thing must be charged against him.
deposited the thing or sum fue with the proper ● Expenses are chargeable to the debtor if the
judicial authority, i.e., court. It cannot be elsewhere consignation is not properly made.
(e.g., bank) unless otherwise prescribed by special
law. When Consignation Deemed Properly Made
● A written tender of payment alone, without 1. When the creditor accepts the thing or sum
consignation in court of the sum due, does not deposited, without objection as payment of the
suspend the accruing of regular or monetary interest. obligation.
Tender of payment must be accompanied or 2. When the creditor questions the validity of the
followed by consignation in order that the effects pf consignation, and the court, after hearing it, declares
payment may be produced. it that it has been properly made.
● Where an obligot fails to make consignation after a 3. When the creditor neither accepts nor questions the
valid tender of payment, the court may allw him to validity of the consignation, and the court after
pay the obligation without rescinding the contract. hearing, orders the cancellation of the obligation.
● Consignation has a retroactive effect. The payment is
deemed to have been made at the time of the NOTE: Creditor may accept the consignation with reservation
deposit of the thing incourt or when it was placed at or qualification; therefore, he is not barred from raising the
the disposal of the judicial authority. The rationale for claims he reserved against the debtor.
consignation is to avoid making the performanceof
an obligation more onerous to the debtor by reason ARTICLE 1260
of causes not imputable him.

Once the consignation has been duly made, the debtor may
Consignation Applicabke ONLY to Payment of Debt ask the judge to order the cancellation of the obligation.
● Judicial consignation is an incident to an action to
compel acceptance by the creditor of payment of a Before the creditor has accepted the consignation, or before
debt. It is not applicable where there is no obligation a judicial declaration that the consignation has been properly
to pay. made, the debtor may withdraw the thing or the sum
● Consignation is not necessary in a case where a deposited, allowing the obligation to remain in force.
privilege or a right exists (and not an obligation), as in
the case of a mortgage-debtor (or his Withdrawal by Debtor of Thing or Sum Deposited
successor-in-interest) who desires to redeem the ● Observance of all the requisites of consignation
mortgaged property. operates as a valid payment; hence the debtor can
● A contract involves the performance of an move for the cancellation of matter of right the thing
obligation, not merely the exercise of a right or due or sum deposited:
privilege. (1) Before the creditor has accepted the
Property Deposited with Court Exempt from Attachment consignation; or
● Situation: A well-established doctrine in practically (2) Before a judicial declaration that the
every jurisdiction that money deposited with a clerk consignation has been properly made, as
of court os exempt from attachment and not subject he is stil the owner of the same.
to execution. It is said to be in custodia legis and
cannot be withdrawn without an express order of the ● Withdrawal of the thing by the debtor means that the
court. obligation shall continue in force; and all expenses
● The fact that no subsequent notice of conisgnation is are paid by the debtor.
made is of no moment. It does not mean, however, ● If the withdrawal is with the consent of the debtor ,
that the debtor shall be released from his liability. Art. 1261 applies.

MEDOLLAR, L. J. - 1BLM
 ● While it is incumbent upon the court to allow EXAMPLE 2: If, in the example given above, D and G are
withdrawal before acceptance by the creditor or solidarily liable to C, G is released only from his solidary liability
judicial approval of the consignation, the depositor but he is still liable to C fot P5,000.00, his share in the obligation.
cannot recover the thing or sum without an express
order of restitution.
Section 2: Loss of the Thing Due
● A formal complaint must be commenced with the
proper court to provise the venue for the
determination of whether there was cakid tender of
ARTICLE 1262
payment or consignation.

An obligation which consists in the delivery of a determinate

Risk of Loss of Thing or Sum Consigned
thing shall be extinguished if it should be lost or destroyed
● Where all the requisites for a valid consignation have
without the fault of the debtor, and before he has incurred in
been complied with, the loss of the thing or amount
delay.
consigned occurring without the fault of the debtor
before the acceptance of the consignation by the
When by law or stipulation, the obligor is liable even for
creditor or its approval by the court for the amount of
fortuitous events, the lost of the thing does not extinguish the
the creditor.
obligation, and he shall be responsible for damages. The same
● Risk of loss before acceptance by the creditor or
rule applies when the nature of the obligation requires the
approval by the court s mutual, because if it be
assumption of risk.
determined that there was no valid consignation, the
loss must be suffered by the debtor.
Applicability
● This mode of extinguishment is not limited to
ARTICLE 1261 obligation to give; but also covers obligations to do
or not to do
If the consignation having been made, the creditor should ● Applicable only to obligations to deliver a
authorize the debtor to withdraw the same, he shall lose every determinate thing and does not apply to obligations
preference which he may have over the thing. The to deliver a generic thing, based on the principle
co-debtors, guarantors and sureties shall be released. “genus nunquan perit” or that the genus of a thing
can never perish.
Effect of Withdrawal With Authority of Creditor ● The thing is considered lost when it perishes, or goes
● Since consignation is for the benefit of the creditor, out of commerce or disappears in such a way that its
he may authorize the debtor to withdraw the deposit existence is unknownor it cannot be recovered (Art.
after he has accepted the same or after the court 1189, par. 2)
has issued an order cancelling the obligation ● Loss of a determinate thing (in Art. 1262) is the
● As far as the debtor and creditor are concerned, equivalent of impossibility of performance in
their relations will remain as they were before obligations to do (in Art. 1266)
acceptance ot cancellation
● Creditor shall lose every preference which he may When Loss of Thing Will Extinguish an Obligation to Give
have over the thing, and the co-debtors (solidary 1. Obligation is to deliver a determinate thing
debtors), guarantees, and sureties shall be released 2. Loss of the thing occurs without the fault of the
● Solidary debtors are released only from their solidary debtor
liability, but not from their shares of the obligation, 3. Debtor is not guilty of delay
since unlike the guarantors and sureties, they are also
principal debtors. ● If the foregoing requisites are not present, the
EXAMPLE 1: D is indebted to C in the sum of p10,000.00 with G debtor’s obligation is not considered extinguish.
as the guarantor. On the due date of the obligation, D offered Instead, the obligation is converted into payment of
payment but C refused to accept the same. So, D made a damages.
consignation. Subsequently, D withdrew the deposit after
securing the consent of C. When Loss of Thing Will NOT Extinguish Liability
● C shall lose whatever preference he may have over – Cases where even in the absence of fault and delay will not
the amount and G, the guarantor, shall be released exempt debtor from liability
(Art. 1261). 1. Law so provides
2. Stipulation so provides
3. Nature of the obligation requires the assumption of
risk

MEDOLLAR, L. J. - 1BLM
 4. Obligation to deliver a specific thing arises from a Effect of Partial Loss of a Specific Thing
crime (Art. 1268) ● There is partial loss when only a portion of the thing is
lost or destroyed or when it sufferes depreciation or
Example of when the law so provides for liability even for deterioration
fortuitous event ● Partial loss is the eqivalen of difficulty of performance
● When the debtor delays or has promised to deliver in obligations to do (Art. 1267)
the same thing to two or more persons who do not ● In case of partial loss, the court is given the discretion,
have the same interest (Art. 1165) in case of disagreement between the parties, to
determine whether under the circumstances it is so
ARTICLE 1263 important in relation to the whole as to extinguish the
obligation
In an obligation to deliver a generic thing, the loss or ● Court will decide whether the partial loss is such as to
destruction of anything of the same kind does not extinguish be equivalent to a complete or total loss
the obligation.
EXAMPLE: S obliged himself to deliver to B a specific race
Effect of Loss of a Generic Thing horse. The horse met an accident as a result of which it
● Loss or destruction of anything of the same kind even suffered a broken leg. The injury is permanent. Here, the partial
without the debtor’s fault and before he has incurred loss is so important as to extinguish the obligation.
in delay will not have the effect of extinguishing the ● If the loss is due to the fault of S, he shall be obliged
obligation to pay the value of the horse with indemnity for
● Based on the principle that “a generic thing never damages.
perishes” (genus nunquan perit) ● If the horse to be delivered is to be slaughtered by B,
● Debtor can still be compelled to deliver a thing of the the injury is clearly not important. Even if there was
same kind fault on the part of S, he can still deliver the horse
● However, the creditor cannot demand a thing of with liability for damages, if any, suffered by B.
superior quality and neither can the debtor deliver a
thing of inferior quality (Art. 1246) ARTICLE 1265

EXAMPLE 1: S promised to deliver 100 cavans of rice to B. The Whenever the thing is lost in the possession of the debtor, it
100 cavans of rice which S intended to deliver were lost in a shall be presumed that the loss was due to his fault, unless
flood. there is proof to the contrary, and without prejudice to the
● S is still liable to B because his obligation is to deliver a provisions of Article 1165. This presumption deos not apply in
generich thing, and it can still be paid from other case of earthquake, flood, storm or other natural calamity.
sources.
● This provision established a disputable presumption of
EXAMPLE 2: If the obligation of S is to deliver 100 cavans of rice fault whenever the determinate thing to be delivered
from the harvest made by him and such harvest is completely is lost in the possession of the debtor
lost or destroyed, the obligation is extinguished. ● Reasonable because the debtor who has the
● This is because the rice stipulated to be delivered is custody and care of the thing can easily explain the
confined to a particular class and may thus be circumstances of the loss
considered a determinate thing. ● Creditor has no duty to show that the debtor was at
fault; all that he needs to prove, as claimant, is the
EXAMPLE 3: Obligation which consists in the payment of simple fact that the debtor was in possesion of the
money is generic. Failure of debtor to make payment even by thing at the time it was lost
reason of a fortuitous event shall not relieve him of his liability. ● Possessor (debtor) who needs to present
ARTICLE 1264 controverting evidence sufficient enough to
overcome that presumption
The courts shall determine whether, under the circumstances,
the partial loss of the object of the obligation is so simportant When Presumption NOT Applicable
as to extinguish the obligation. (1) When there is proof to the contrary; or
(2) When the loss occurs during an earthquake, flood,
● While Art. 1262 contemplates a total loss or storm, or other natural calamity
destruction of the determinate thing, the rule under
Art. 1264 admits of an exception ● Lack of fault on the part of the debtor is more likely;
so, it is unjust to presume negligence on his part

MEDOLLAR, L. J. - 1BLM
 to be applied by B to the cost of installing a new engine in the
EXAMPLE 1: B borrowed the car of L. On the due date of the vessel. The vessel was wrecked by a storm, a fortuitous event.
obligation, B told L that the car was stolen and that he was not ● B is not released from the obligation to pay the
at fault. That is not enough to extinguish B’s obligation. It is balance because there was an obligation on B’s part
presumed that the loss was due to his fault. Hence, he is liable to pay the balance independently of the purpose for
unless he proves the contrary. which it was intended to be used.
● This obligation to pay continued to subsist
EXAMPLE 2: Suppose the house of B was destroyed because of notwithstanding the fact that it has become
fire. It is admitted that there was a fire and it was accidental impossible to use the money in the particular way
and that the car was in the house at the time it occurred. that was intended
Here, B is not liable unless L proves fault on the part of B.
EXAMPLE 2: S sold a parcel of land to B for P 10 000. B paid S P
ARTICLE 1266 2000 on the signing of the contract, but failed to pay the first
installment on the balance. B alleged lack of funds for his
The debtor in obligations to do shall also be released when the failure and pleaded impossibility of performance.
prestation becomes legally or physically impossible without the ● Mere pecuniary inability to fulfill an engagement
fault of the obligor. does not discharge the obligation of the contract,
nor does it constitute a defense to a decree of
Effect of Impossibility of Performance specific performance
● The provision lays down an exception to the
obligatory force of contract; as a resu (Art. 1159). EXAMPLE 3: Under the terms of a bond, the surety will answer
● Refers to a case when, without the obligor’s fault, an for the judgment which may be rendered against D should he
oblgation to do becomes legally or physically fail to return to the Philippines. The DFA banned D from
impossible. returning to the Philippines
● Supervening impossibility of performance will result in ● Surety is not liable under the bond for failure of D to
the extinction of the debtor’s obligation after return to the Philippines. The principal obligation (of
restitution of what he may have received, if any, in returning to the Philippines) has been extinguished by
advance from the other contracting party. the action of the government. Consequently, the
● Debtor incurs no liability for his inability to perform. accessory obligation of the surety is likewise
● Impossibility must take place after the constitution of extinguished
the obligation. If the obligation is impossible from the
very beginning, the obligation is void. In such case, Difference between Natural Impossibility & Impossibility in Fact
there is no obligation to be extinguished.

Natural Impossibility Impossibility in Fact

Kinds of Impossibility
1. Physical Impossibility – in the nature of things, cannot Must consist in the nature of In the absence of inherent
exist or cannot be done the thing to be done and impossibility in the nature of
● In purely personal obligations, examples are not in the inability of the thing stipulated to be
party to do so performed, which is only
when the obligor dies or become physically
improbable or out of the
incapacitated to perform
Must appear that the thing power of the obligor
● Law does not make any distinction as to to be done cannot by any
whether or not the obligation can still be means be accomplished
performed by others. However, if the
impossibility is due to the fault or negligence Goes to the consideration Does not go to the
of the obligor, he shall be liable for and renders the contract consideration and renders
void the contract void
damages.

2. Legal Impossibility – occurs when the obligation EXAMPLE 1: S obligates himself to deliver certain goods to B.
cannot be performed because it is rendered The goods perish through a war or in a shipwreck.
impossible by provision of law, although physical it Performance is excused, the destruction operating to
may be possible of performance extinguish the obligation. The doing of the thing which S finds
● e.g., Child labor impossible is the foundation of the undertaking.

EXAMPLE 1: S is indebted for P 36 000 to B. The sum of P 10 000 EXAMPLE 2: If S is unable to deliver the goods promised and his
was paid, and it was agreed that the balance of P 26 000 was inability arises not from their destruction but from his inability to

MEDOLLAR, L. J. - 1BLM
raise money to buy them due to sickness, typhoon, his liability is 1. Event or change in circumstances could not have
not discharged. been foreseen at the time of the execution of the
● The impossibility partakes of the nature of the risk contract
which S took within the limits of his undertaking of 2. Makes the performance of the contract extremely
being able to perform difficult but not impossible
● It is a contingency which he could have taken due 3. Must not be due to the act of any of the parties
precaution to guard against in the contract 4. Contract is for a future prestation

ARTICLE 1267 EXAMPLE: X agreed to construct a road near a mountain. A

very strong typhoon caused an avalanche making the
When the service has become so difficult as to be manifestly construction of the road dangerous to human lives
beyond the contemplation of the parties, the obligor may also ● NOTE: Obligation is not impossible of performance
be released therefrom, in whole or in part. ● X may be released, in whole or in part, from his
obligation to continue with the construction
Doctrine of Unforeseen Events
● This rule is based on the discredited theory of rebus Modification of Contract NOT Covered
sic stantibus, where parties stipulate in the light of ● What Art. 1267 authorizes is a total or partial release
certain prevailing conditions, and once these from an obligation, not a modification or revision of
conditions cease to exist, the contract also ceases to the terms and conditions of the contract between the
exist. parties
● Art. 1267 enunciated the “doctrine of unforeseen ● Court shall either release or not release a party from
events,” which must be applied only to risks that are a contract, but it cannot modify the terms thereof
manifestly beyond the contemplation of the parties, and order the parties to comply with the contract as
or to those absolutely exceptional changes of modified by it
circumstances, where equitably demands assistance ● Even if the situation is contemplated by the provision
for the debtor. exists, a complaint that seeks not release from the
○ Does not apply to risks that are already contract but modfiication of the terms thereof should
known, or should have been known, to the be dismissed for failure to state a sufficient cause of
parties when they entered into their action
contractual relations
EXAMPLE 1: D filed a complaint against L for a modification of
Effect of Difficulty of Performance a subdivision contract between them, providing a sharing ratio
● General rule → impossibility of performance releases of 60% for D and 40% for L. D cites the worldwide increase in
the obligor (Art. 1266). prices.
● Art. 1267 is another exception to the obligatory force ● The complaint does not allege a sufficient cause of
of a valid and enforceable contract. action for modification of the contract. The court is
● When the performance of service has become so also not authorized to modify the terms thereof.
difficult as to be manifestly beyond the ● The Court ruled that Art. 1267 is inapplicable because
contemplation of both parties, the court is authorized the developer was not driven by any extremely
to release the obligor in whole or in part difficult situation situation that would place it at any
● It would be doing violence to the intention of the disadvantage but by its desire to benefit from cost
parties to hold the obligor still responsible. savings.
● There is an element of the unforeseen or fortuitous ● If D’s complaint were to be released from having to
event in the situation covered by Art. 1267. Mere comply with the subdivision contract, assuming it
inconvenience or unexpected impediments or could show at the trial that the service undertaken
increased expenses do not suffice to relieve the had become so difficult as to be manifestly beyond
debtor from a bad bargain. the contemplation of the parties, the complaint
● Remedy of the obligor is not annulment but to be would be justifiable under Art. 1207.
released from hs obligation, in whole or in part.
● Despite the use of the term “service,” it also applies EXAMPLE 2: PNCC entered into a lease with respondents on
to a real obligation to give or deliver a thing; it should 1985 despite knowing that the assassination of Senator Aquino
be understood as referring to the performance of the on 1983 had already ensued national political and economic
obligation crises
● The Court held that political upheavals, turmoil,
Requisites for Applicability of Art. 1267 almost daily mass demonstrations, unprecedented

MEDOLLAR, L. J. - 1BLM
 inflation, and peace and order deterioration that
Section 3: Condonation or Remission of the Debt
followed after Senator Aquino’s death were a matter
of judicial notice, yet PNCC entered a contract
despite this business climate. Therefore, the plaintiff’s
ARTICLE 1270
request for discharge from obligation is denied

Condonation or remission is essentially gratuitous, and requires

ARTICLE 1268 the acceptance by the obligor. It may be made expressly or
impliedly.
When the debt of a thing certain and determinate proceeds
from a criminal offense, the debtor shall not be exempted One and the other kinds shall be subject to the rules which
from the payment of its price, whatever may be the cause for govern inofficious donations. Express condonation shall,
the loss, unless the thing having been offered by him to the furthermore, comply with the forms of donation.
person who should receive it, the latter refused without
justification to accept it. Condonation/Remission
● Gratutious renunciation by the creditor of his right
Obligation to Deliver Determinate Thing arising from Crime against the debtor resulting in the extinguishment of
● Another instance where a fortuitous event does not the latter’s obligation in its entirely or in that part of
exempt the debtor from liability (Arts. 1174, 1262). the same to which the renunciation refers
● Obligation of the debtor is converted into payment ● An act of liberality by which the creditor, who
of the value of the thing lost, even when the loss is receives no price or equivalent thereof, releases the
caused by a fortuitous event debtor from the obligation, either in whole or in part,
● Obligation subsists except when the creditor refused upon the latter’s consent
to accept the thing (e.g., stolen property), without ● Essentially gratuitous; a form of donation
justification, after it had been offered to him. In such
case, the creditor is in mora accipiendi. Requisites of Condonation/Remission
● Debtor has two alternative remedies if the creditor 1. Must be gratuitous
refuses without justification to accept its delivery: 2. Must be accepted by the obligor
1. To consign the thing 3. Parties must have the requisite capacity
2. To just keep the thing in his possession, with 4. Must not be inofficious
the obligation to exercise due diligence 5. If made expressly, it must comply with the forms of
subject to the general rules of the donation
obligation, but no longer to the special
liability imposed by the above article NOTE: Properly speaking, remission presupposes that the
obligation is and continues to be demandable at the time of
ARTICLE 1269 the remission.

The obligation having been extinguished by the loss of the Evidence Required to Prove Remission
thing, the creditor shall have all the rights of action which the ● Since it is an act of liberality, it should be proved by
debtor may have against third person by reason of the loss. clearer and more convincing evidence than what is
required to establish payment.
Right of Creditor to Exercise All Rights of Debtor
● Creditor is granted the right of action to go after the Remission must be Gratuitous
third person for indemnification for the loss. No need ● An essential characteristic of remission, i.e., there is no
for an assignment by the debtor. equivalent received for the benefit given because
● Rights of action of the debtor are transferred to the from the moment it exists, the nature of the act is
creditor from the moment the obligation is changed, and becomes:
extinguished, by operation of law to protect the 1. Dation in payment – if a thing is received by
interest of the latter by reason of the loss. the creditor instead of the amount due.
● Debtor is not given the right to proceed against the 2. Cession – if the assignment of property is for
third person; otherwise, the debtor would be unjustly the benefit of creditors
enriched by such loss if the obligation is extinguished, 3. Novation – if the object or circumstances of
and at the same time, can still recover indemnity. the obligation are changed
● Frequent application in insurance. 4. Compromise – if what is renounced is a
doubtful or litigous right in exchange of
other concessions obtained by the creditor

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 ● If the obligation be to remitted involves the delivery
Remission must be Accepted by Debtor of a personal property, the value of which exceeds P
● Condonation/remission is a bilateral act; it required its 5000, both the remission and its acceptance must be
acceptance by the debtor. in writing
● Necessity of this requisite is explained by the reason ● If the value of the personal property does not exceed
that, if the creditor is authorized to impose upon the such amount, the remission and its acceptance may
debtor favors, the remission may be coveted into an be made orally or in writing
act of humiliation ● If the obligation to be remitted involves the delivery
● Underlying reason is that one cannot simply impose of a real property, both the remission and its
his own generosity upon another person acceptance must be embodied in a public
● Reasons requiring acceptance are fundamental and instrument
not limited to any special form. ● No required formalities if remission is made impliedly
● In tacit remission, acceptance must also be shown
impliedly. 2. Mortis causa
● Remission intended
Renunciation by Creditor of His Credit ● Governed by the law on wills and succession
● Creditor can renounce his credit even against the will
of the debtor. Unilateral renunciation is allowed. Effect of Inofficious Remission
● If the debtor does not wish to accept the remission ● While a person may make donations, no one can
and tenders his payment, and the creditor refuses to give more than that which he can give by will,
accept the same, the debtor can resort to otherwise, the excess shall be inofficious and shall be
consignation. reduced by the court accordingly
● If the creditor unilaterally renounces his credit and
fails to demand the performance of the obligation ARTICLE 1271
within the allowable prescriptive period, the
obligation is extinguished by reason of extinctive The delivery of a private document evidencing a credit, made
prescription or statute of limitations, and not by voluntarily by the creditor to the debtor, implies the
reason of the creditor’s unilateral action. renunciation of the action which the former had against the
● Art. 6 provides: “Rights may be waived, unless the latter.
waiver is contrary to law, public order, public policy,
morals, or good customs, or prejudicial to a third If in order to nullify this waiver it should be claimed to be
person with a right recognized by law.” inofficious, the debtor and his heirs may uphold it by proving
that the delivery of the document was made in virtue of
Kinds of Remission payment of the debt.
(1) As to its extent
(a) Complete – covers the entire obligation Presumption in case Document of Indebtedness Voluntarily
(b) Partial – does not cover the entire obligation Delivered by Creditor
– A presumption of remission along with Arts. 1272 and 1274
(2) As to its form
(a) Express – made either verbally or in writing (1) Presumption of Implied Remission
(b) Implied – can only be inferred from conduct ● Gives an example of implied or tacit remission
● For the presumption established by this article be
(3) As to its date of effectivity applied, it is necessary that the delivery of the private
(a) Inter vivos – will take effect during the document be a voluntary act of the creditor
lifetime of the donor ● If the debt is not paid yet, the creditor would need
(b) Mortis causa – will become effective upon the document to enforce payment. In case he
the death of the donor; must comply with delivers it to the debtor, the only logical inference is
the formalities of a will that he is renouncing his right.

Formalities Required (2) Contrary Evidence

1. Inter vivos ● Evidence is admissible to show otherwise as when it
● Remission intended to be effective during the lifetime was delivered only for examination.
of the creditor; essentially a donation
● Governed by the law on ordinary donation (3) Extent of Remission

MEDOLLAR, L. J. - 1BLM
 ● If the obligation is joint, the presumption of remission,
when applicable, pertains only to the share of the EXAMPLE: D owes C P 1000 evidenced by a promissory note.
debtor who is in possession of the document The note, signed by D, is given to C.
● If solidary, to the total obligation ● If the promissory note is voluntarily delivered to D, the
presumption is that the debt must have been paid by
(4) Presumption Applicable Only to Private Document D.
● Legal presumption of remission does not apply in the ● If it is known that D has not yet paid C, it must be
case of a public document because it is easy to presumed that the obligation has been remitted by C
obtain a copy of the same, being a public record (Art. 1271).
● Suppose it is not known how D came into possession
EXAMPLE: Court ruled that there was sufficient evidence when of the promissory note, the presumption is that it was
the plaintiff (creditor) sent the receipt signed by him to the voluntarily delivered by C, unless C proves the
defendant (debtor) for the purpose of collecting his attorney’s contrary (Art. 1272).
fees, it was not his intention that the document should remain
in the possession of the defendant if the latter did not forthwith ARTICLE 1273
pay the amount specified therein.
The renunciation of the principal debt shall extinguish the
Payment, NOT Remission of Debt accessory obligations; but the waiver of the latter shall leave
● Renunciation of the action which the creditor had the former in force.
against the debtor may be nullified by showing that
the waiver is inofficious Effect of Remission (or Renunciation) of Principal/Accessory
● Remission, which the law assumes under first Obligation
paragraph, becomes null and void upon proof that it ● Above provision follows the principle that accessory
is inofficious follows the principal, that is, the accessory obligations
○ Since remission is essentially a donation, Art. cannot exist without the principal obligation, while
752 provides: “”no person may give or the latter may exist without the former (Art. 1230).
receive, by way of donation, more than he ● Remission of the principal debt → extinguishment of
may give or receive by will.” the accessory obligations
● Debtor or his heirs may prove that the delivery of the ● Remission of the accessory obligation → does not
document was really made in virtue of payment of affect the principal debt
the debt and not of remission.
ARTICLE 1274
ARTICLE 1272
It is presumed that the accessory obligation of pledge has
Whenever the private document in which the debt appears is been remitted when the thing pledged, after its delivery to the
found in the possession of the debtor, it shall be presumed that creditor, is found in the possession of the debtor, or of a third
the creditor delivered it voluntarily, unless the contrary is person who owns the thing.
proved.
Pledge – classified as a (real) contract by virtue of which the
● Ordinarily, document evidencing the debt is in the debtor delivers to the creditor or to a third person a movable or
possession of the creditor. a document involving incorporeal rights for the purpose of
● Creditor has in his favor the legal presumption that his securing the fulfillment of a principal obligation, with the
credit is as yet uncollected, unless the debtor proves understanding that when the obligation is fulfilled, the thing
satisfactorily, by one of the rules recognized in law, delivered shall be returned with all its fruits and accessions.
that he has already paid the claim.
Presumption in case thing pledged found in possession of
Presumption of Voluntarily Delivery (Document found in debtor
Debtor’s Possession) ● In a contract of pledge, it is necessary that the thing
● Document is later found in the hands of the debtor pledged be place in the possession of the creditor, or
and it is not known how he came into possession of of a third person by common agreement
the same → the presumption is that it was voluntarily ○ A third person who is not a party to the
delivered by the creditor. principal obligation may secure the latter
● This should give rise to the presumption of payment, by pledging his own property.
and only when it is known that indeed there is no ● If the thing pledged is later found in the hands of the
payment should there be a presumption of remission. debtor or third person, only the accessory obligation

MEDOLLAR, L. J. - 1BLM
 of pledge is presumed remitted, NOT the obligation EXAMPLE 2: W (wif) has a claim against H (husband) for the
itself. support of their children C, etc. Subsequently. W died. H also
● Debtor shall continue to be indebted but he does not died later.
have to return the thing pledged. ● Since C, etc. as heirs of W (creditor) are also heirs of H
● Presumption yield to contrary evidence. (debtor), the obligation sued upon is extinguished.
● It does not arise if the third person in possession of the
thing pledged does not own the same. EXAMPLE 3: D borrowed money from C. As security, D
mortgaged his land. Subsequently, D sold the land to C.
● Mortgage is extinguished, but the obligation subsists.
Section 3: Confusion or Merger of Rights
● Extinguishment of the accessory obligation does not
carry with it that of the principal obligation.

ARTICLE 1275
Extinction of Real Rights by Confusion
● Real rights (e.g., usufruct, mortgage, pledge, right of
The obligation is extinguished from the time the characters of
repurchase, lease record, servitude) may be
creditor and debtor are merged in the same person.
extinguished by merger when any of such rights is
merged with ownership which is the most
Confusion/Merger of Rights
comprehensive real right.
● Meeting in one person of the qualities of creditor and
● Merger results in what is denominated as
debtor with respect to the same obligation.
consolidation of ownership, which may take place by
● Takes place when the debtor finds himself to be the
any of the causes which are sufficient to transmit title
creditor of the same obligation, and obligation is
to an obligation, either by assignment, subrogation,
extinguished.
and sale of inheritance.
● The most important and frequent cause is hereditary
EXAMPLE: A executes a promissory note payable to the order
succession where the debtor inherits from the
of B. Then, B uses the same promissory note to pay C and he
creditor, subject to the rights of other creditors.
endorses and delivers the note to the latter. C, in turn,
However, It is NOT strictly a merger in the sens used in
negotiated the instrument back to A.
Art. 1275.
● A will then find himself to be the creditor of his own
debt; hence, his obligation is extinguished by reason
of merger or confusion. ARTICLE 1276

Basis for Confusion Merger which takes place in the person of the principal debtor

1. Law treats confusion or merger as a mode of or creditor benefits the guarantors. Confusion which takes

extinguishing obligations because if a debtor is his place in the person of any of the latter does not extinguish the

own creditor, enforcement of the obligation obligation.

becomes absurd since a person cannot claim

payment from himself. Effect of Merger in the Person of Principal Debtor or Creditor

2. The purposes for which the obligation may have ● Merger in the person of the principal debtor or

been created are deemed realized. creditor extinguishes the obligation; hence, the
accessory obligation of guaranty is also extinguished

Requisites of Confusion in accordance with the principle that the accessory

(1) Must take place between the principal debtor and follows the principal.

creditor; and
(2) Must be complete and definite EXAMPLE: D is indebted to C with G as guarantor. The merger
of the characters of debtor and creditor in D shall free G from

EXAMPLE 1: D owes C P1,000.00 for which D executed a liability as guarantor.

negotiable promissory note in favor of C. C indorsed the note ● Merger which takes place in the person of C benefits

to X, who. In turn, indorsed it to Y. Y bought goods from the G because the extinction of the principal obligation

store of D. Instead of paying cash, Y just indorsed the carries with it that of the accessory obligation of

promissory note to D. guaranty.

● Here, D owes hinmself. Consequently, his obligation is

extinguished by merger. Effect of Merger in the Person of Guarantor
● Extinguishment of the accessory obligation does not
carry with it that of the principal obligation.

MEDOLLAR, L. J. - 1BLM
 ● Obligation of the guarantor is merely an accessory ● It is as if A paid the entire debt. He can, therefore,
obligation collect the proportionate shares belonging to B and
● Any merger involving the persons of the guarantor C on an implied contract of reimbursement.
and the principal creditor will only result in the
extinguishment of the accessory obligation, but still
Section 5: Compensation
leaves the principal obligation in force.

EXAMPLE: Suppose in the example above, C assigns his credit

ARTICLE 1278
to X, who, in turn, assigns the credit to G, the guarantor.
● Here, the contract of guarantee is extinguished.
Compensation shall take place when two persons, in their own
However, D’s obligation to pay the principal
right, are creditors and debtors of each other.
obligation subsists. G now, as the new creditor, can
demand payment from D.
Compensation
● Extinguishment to the concurrent amount of the
ARTICLE 1277 debts of two persons who, in their own right, are
reciprocally principal debtors and creditors of each
Confusion does not extinguish a joint obligation except as other.
regards the share corresponding to the creditor or debtor in ● Involves the simultaneous balancing of two
whom the two characters concur. obligations in order to totally extinguish them if they
are of the same amount or to the extent in which the
Confusion in a Joint Obligation amount of one is covered by that of the other, if of
● Various credits or debts in a joint obligation are different amounts.
considered distinct and separate from one another
(Art. 1208). EXAMPLE: A owes B the amount of P1,000.00. B owes A the
● Each debtor has his own creditor to whom he is liable amount of P700.00. Both debts are due and payable today.
and confusion taking place in the person of any ● Compensation takes place partially, that is, to the
debtor or creditor does not affect the others concurrent amount of P700.00. So, A shall be liable to
● Confusion will extinguish only the share corresponding B for only P300.00.
to the creditor or debtor in whom the two characters ● If the two debts are of the same amount, there is
concur. As to the others, the obligation shall remain. total compensation. Two debts are extinguished
without actual transfer of money between the
EXAMPLE: A, B, and C are jointly liable to D in the amount of parties.
P9,000.00 evidenced by a negotiable promissory note. D
endorsed the note to E, who, in turn, endorsed it to A. Object and Importance of Compensation
● A’s share in the obligation is extinguished because of ● Object of compensation is the prevention of
confusion in his person. unnecessary suits and payments through the mutual
● The indebtedness of B and C in the amount of extinction by operation of law of concurring debts.
P3,000.00 each remains because as to them there is
no confusion. Consequently, B and C would be liable 1. Compensation is a specie of abbreviated payment,
to A, the new creditor, P3,000.00 each. which gives to each of the parties a double
advantage:
Confusion in a Solidary Obligation ● Facility of payment – avoiding the
● Merger in the person of one of the solidary debtors employment of enumeration
shall extinguish the entire obligation because it is alo ● Guaranty for the effectiveness of credit,
a merger in the other solidary debtors (Art. 1215). because if one of the parties pay without
● He who makes payment may claim reimbursement waiting to be paid by the other, he could
from his co-debtors for the shares which correspond be made a victim of fraud or of insolvency
to them (Art 1217, par. 2).

2. Compensation supposes a more convenient and less

EXAMPLE: If the obligation of A, B, and C is solidary, the expensive realization of two payments, therefore,
endorsement to A extinguishes the entire obligation of meriting the name of simplified payment by which it
P9,000.00. A can demand reimbursement from B and C. is often called.
● Basis of the right of A is not the original obligation 3. Compensation simplifies accountin. Its application
which has been extinguished by the confusion which has increased and the rapid circulation of credit
takes place in his person but the confusion itself. documents makes normal and frequent the situation

MEDOLLAR, L. J. - 1BLM
 where two persons become reciprocally creditors
law parties
and debtors. In this sense, special establishments
have been created, such as clearing house or Not required that the parties Parties must have the free
chambre de compensation, as called by the French. have the capacity to give disposal of the thing due
or to receive and capacity to alienate it,
4. Compensation serves as a guaranty against fraud, and to receive payment
assuring the enforcement of some credits which
Law permits partial Necessary that it be
otherwise may not be enforced; inasmuch as it exists
extinguishment of the complete and indivisible
as values in the hands of the creditor conserved, obligation
instead of delivered by him.

Difference between Compensation and Counterclaim

Kinds of Compensation
– By its effect or extent
(1) Total – when both obligations are of the same Compensation Counterclaim
amount and are entirely extinguished
(2) Partial – when the two obligations are of different Takes place by mere Must be pleaded to be
operation of law and effectual
amounts and a balance remains. The extinctive
extinguishes reciprocally the
effect of compensation will be partial only as regards
two debts as soon as they
the larger debt. exist simultaneously, to the
amount of their respective
– By its cause or origin sums
(1) Legal – when it takes place by operation of law when
all the requisites are present even without the Requires that both debts Such requirement is not
consist in money provided
knowledge of the parties;
(2) Conventional or Voluntary – when it takes place by
Or if the things due are
agreement of the parties; consumable, they be of the
(3) Judicial – when it takes place by order from a court same kind and quality
in a litigation. It is merely a form of legal or voluntary
compensation when declared by the courts by virtue Requires that two debts No such requirement
must be liquidated
of an action by one of the parties, who refuses to
admit it, and by the defense of the other who invokes
it. ARTICLE 1279
(4) Facultative – when it can be set up only by one of
the parties. In order that compensation may be proper, it is necessary:
(1) That each one of the obligors be bound principally,
Compensation Distinguished from Other Modes of and that he be at the same time a principal creditor
Extinguishment of Obligations 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
Confusion Compensation
kind, and also of the same quality if the latter has
Only one person who is a Two persons involved, each been stated;
creditor and debtor of of whom is a debtor and a (3) That the two debts be due;
himself creditor of the other (4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
One obligation Two obligations
controversy, commenced by third persons and

There is impossibility of There is indirect payment communicated in due time to the debtor.
payment
Requisites of Legal Compensation
(1) The parties are principal creditors and principal
NOTE: There may be compensation in joint and solidary
debtors of each other
obligations.

EXAMPLE 1: A owes P10,000 to B, and B owes P10,000 to A.

Compensation Payment Compensation will take place because A and B are principal
debtors and creditors of each other.
Takes effect by operation of Takes effect by act of the

MEDOLLAR, L. J. - 1BLM
EXAMPLE 2: A owes P10,000 to B, with C as guarantor. B owes ● Both debts must also be due or demandable at the
P10,000 to C. There will be no compensation between B and C same time, e.g., their performance can be enforced
because while B is principally liable to C, C is only merely in court, although incurred at different dates.
subsidiarily liable to B. Hence, C can demand payment from B. ● When the obligation is payable on demand, the
obligation is not yet due wher no deman has not
EXAMPLE 3: A owes P10,000 to B. B owes P10,000 to A, the latter been made.
as guardian. There will be no compensation because though ● A debt that has prescribed is no longer demandable
A is personally liable to B, B is not principally liable to A. The real and consequently, cannot be compensated unless
creditor of B is the ward under guardianship. A is the creditor of the compensation has taken place before the lapse
B, only in a representative capacity. of the period of prescription
● Natural obligations are not legally demandable
EXAMPLE 4: A and B, etc. are partners in partnership P. A owes
B, etc. P10,000. P owes P10,000 to A. A cannot set-up EXAMPLE 1: A owes P10,000 to B, due today. B owes P 10 000 to
compensation because B, etc. are not principally liable to A. A, payable upon receipt from A of notice to pay. A owes a
judgment debt of P10,000 to C.
(2) Both debts consist in a sum of money, or of ● B’s obligation is only payable on demand, hence
consumable things of the same kind and quality absence the demand of A, the obligation is not yet
due. Without compensation taking place, B remains
EXAMPLE 1: A owes P10,000 to B. B owes an electric range indebted for P10,000 to A.
worth P10,000 to A. No compensation will take place because ● The obligation of B may be garnished in favor of C to
both debts are of different kinds. satisfy A’s judgment debt.

EXAMPLE 2: A obliged himself to deliver 10 sacks of rice to B, EXAMPLE 2: A owes P10,000 to B, due today. B owes P10,000 to
while B obliged himself to deliver 10 sacks of corn to A. A, next month. Compensation cannot take place as the debts
Compensation will not take place because the things due are are not due on the same date.
not of the same kind. ● If A has not yet paid B on the date that the obligation
of B becomes due, there will be compensation on
EXAMPLE 3: A obliged himself to deliver 10 sacks of wagwag that date.
rice to B, while B obliged himself to deliver 10 sacks of macan ● If the debt of B is subject to a suspensive condition
rice to A. There will be no compensation because they are of which has not yet happened, there can also be no
different kinds. compensation.

EXAMPLE 4: A owes 10 sacks of wagwag rice to B, and B owes (4) The two debts are liquidated
10 sacks of any rice to A. There will be no compensation ● A debt is liquated if the amount is known or can be
because of the lack of identity of the kind and quality of the determined by a simple computation
rice due. ● If a claim of compensation is disputed, a proof of the
liquidation is necessary.
EXAMPLE 5: A owes a specific horse to B. B owes another ● Compensation cannot extend to unliquidated,
specific horse to A. Compensation cannot be set up by A or B, disputed claims existing from a breach of contract.
unless both agree. ● If the claim is undisputed, the statement is sufficient
and no other proof may be required.
EXAMPLE 6: A owes B any horse, and B owes A any horse. ● Party may set up unliquidated debts or damages as
Compensation will take place, although the things due are not counterclaim in his answer to the other party’s claim
consumable since the things due are of the same kind. As to
their quality, Art. 1246 governs. Difference between Debt and Claim

EXAMPLE 7: A owes P10,000 to B. B owes P10,000 or a cow to A.

Debt Claim
There can be no compensation because B may prefer to
deliver a cow. But if the right of choice belongs to A, Amount actually Debt in embryo; it is a mere
compensation will take place. ascertained; it is a claim evidence of a debt and
which has been formally must pass through the
passed upon by the courts process prescribed by law,
to which it can in law, be before it develops into what
(3) Two debts are due and demandable
submitted and has been is properly called a debt
declared to be a debt

MEDOLLAR, L. J. - 1BLM
 ● If C loses the case, compensation shall be deemed
Compensation may take No compensation may take
to have taken place as of the date the requisites for
place place
legal compensation concurred.
Debtor’s admission of his obligation (of a debt) must be
clear and categorical, and not one which merely arises by Compensation against the Government
inference or implication (1) Taxes
● As a general rule, taxes, being obligations of public
EXAMPLE 1: A owes P10,000 to B. B owes A an unliquidated interest, and governed by special laws, are not
share of the latter in a business. Compensation will not take subject to set-off or compensation.
place as the debt of B is not liquidated. If only a part is ● Not in the nature of contracts but grow out of a duty
liquidated, then compensation will only take place for that to Government, to the making and enforcing of
part, as pursuant to Art. 1248. which the personal consent of the individual
taxpayers is not required.
EXAMPLE 2: D has a savings account with B Bank. B extended ● Exception is where both the claims of the
a loan to D. D’s promissory notes had matured and become government and the taxpayer against each other
demandable, and at the same time, his savings account is have already become due and demandable as well
also demandable any time. as fully liquidated.
● B is the creditor of D for his outstanding loan, and at
the same time, D is the creditor of B as far as his (2) Contractual Obligations
deposit account is concerned because bank ● Contractual obligations of the government may be
deposits are considered as simple loan or mutuum by compensated. However, in view of rules or
the depositor to the bank. regulations relating to public finance, both claims
● B has the right to compensate or off-set D’s must involve the same office, agency, or subdivision
outstanding loan with his deposit account. of the government.

(5) No retention or controversy has been commenced ARTICLE 1280

by a third person
● Negative requisite for legal compensation Notwithstanding the provisions of the preceding article, the
● Compensation will not take place where there is guarantor may set up compensation as regards what the
waiver creditor may owe the principal debtor.
● There is said to be a retention when the credit of one
of the parties is subject to the satisfaction of the claim Compensation Benefits Guarantor
of a third person ● Article above is an exception to the general rule that
● A controversy exists when a third person claims he is only the principal debtor can set up against his
the creditor of one of the parties. creditor what the latter owes him.
○ Controversy must be communicated in due ● Although the guarantor is only subsidiarily, not
time to prevent compensation from taking principally bound, he is given the right to set up
place compensation.
○ “In due time” – period before legal ● Reason is that the extinguishment of the principal
compensation is supposed to take place obligation as a consequence of compensation
● Retention or controversy commenced by a third carries with it the accessory obligation such as
person must be communicated in due time to the guaranty.
debtor; in due time means the period before legal
compensation is supposed to take place. ARTICLE 1281

EXAMPLE: A owes B P10,000. B owes A P10,000. B also owes C Compensation may be total or partial. When the two debts
P10,000. C causes the garnishment of the credit of B against A are of the same amount, there is a total compensation.
and notifies A not to pay B P10,000 as C has better right to the
said amount. B may not owe C but the latter claims that he Total and Partial Compensations
and not B is the creditor of A. ● Applies to all the different kinds of compensation
● Compensation cannot take place between A and in ● Total – results when two debts are of the same
view of a controversy commenced by C, a third amount
person. In the meantime, the compensation is ● Partial – if they are of different amounts,
suspended. compensation is total as regards the smaller debt,
and partial only with respect to the larger debt

MEDOLLAR, L. J. - 1BLM
 When one or both debts are rescissible or voidable, they may
ARTICLE 1282 be compensated against each other before they are judicially
rescinded or avoided.
The parties may agree upon the compensation of debts which
are not yet due. Compensation of Rescissible or Voidable Debts
● Both are valid until they are judicially rescinded or
Conventional/Voluntary Compensation avoided.
● Refers to that which occurs when the parties agree ● Prior to rescission or annulment, the debts may be
to the mutual extinguishment of their credits or to compensated against each other
compensate their mutual obligations even in the
absence of some of the legal requisites. EXAMPLE: A owes B P10,000.00. Subsequently, A, through fraud
● An exception to the general rule that only debts was able to make B sign a promissory note that B is indebted
which are due and demandable can be to A for the same amount, The debt of A is valid but that of B is
compensated. voidable.
● No special requisites; it is sufficient that the contract ● Before the debt of B is nullified, both debts may be
of the parties, which declares the compensation, is compensated against each other if all the requisites
valid. are present.
● Its minimum requirement is that the parties must be ● Suppose B’s dent is later on annulled by the court, A
mutually creditors and debtors of each other. The is still liable considering that compensation had
absence of such relation cannot negate the already taken place because the effect of
conventional compensation, because the legal tie annulment is retroactive. It is the same as if there had
that binds contracting parties to their obligations been no compensation.
would be absent.
ARTICLE 1285
Requisites of Conventional Compensation
1. Each of the parties has the right to dispose of the The debtor who has consented to the assignment of rights
credit he seeks to compensate made by a creditor in favor of a third person, cannot set up
2. They agree to the mutual extinguishment of their against the assignee the compensation which would pertain
credits to him against the assignor, unless the assignor was notified by
the debtor at the time he gave his consent, that he reserved
ARTICLE 1283 his right to the compensation.

If one of the parties to a suit over an obligation has a claim for If the creditor communicated the cession to him but the
damages against the other the former may set it off by proving debtor did not consent thereto, the latter may set up the
his right to said damages and the amount thereof. compensation of debts previous to the cession, but not of
subsequent ones.
Judicial Compensation
● Take place when so declared by a final judgment of If the assignment is made without the knowledge of the
a court in a suit. debtor, he may set up the compensation of all credits prior to
● A party may set off his claim for damages against his the same and also later ones until he had knowledge of the
obligation to the other party by proving his right to assignment.
said damages and the amount thereof.
● Both parties must prove their respective claims. In the ● Consent of the debtor is not necessary in order that
absence from both parties on their claims, offsetting the assignment may fully produce the legal effects.
is improper. ● What the law requires is merely notice to him as the
● Right to offset may exist but the question of how assignment takes effect only from the time he has
much is to be offset is factual in nature. knowledge thereof.

Where Compensation Has Taken Place BEFORE Assignment

Counterclaim or Set-off Compensation
● When compensation takes effect by operation of law
or automatically, the debts are extinguished to the
Must be pleaded to be Takes place by mere
effectual operation of law concurrent amount.
● If subsequently, the extinguished debt is assigned by
ARTICLE 1284
the creditor to a third person, the debtor can raise

MEDOLLAR, L. J. - 1BLM
 the defense of compensation with respect to the ○ Come Nov. 15, A will be liable for his debt of
debt. P1,000.00 to B.
● The rights of the assignee are not greater than the
rights of the assignor since the assignee is merely 3. Assignment is without the knowledge of the debtor
substituted in the place of the assignor. ● EXAMPLE: Suppose the assignment was made without
● Remedy of the assignee is against the assignor (for the knowledge of B who learned of the assignment
eviction or damages in view of the fraud committed only on November 16.
by the latter). ○ B can set up the compensation of credits
● Right to the compensation may be waived by the before and after the assignment. The
debtor before or after the assignment. crucial time is when B acquired knowledge
of the assignment and not the date of the
EXAMPLE: A owes P3,000.00 to B, due yesterday. B owes assignment.
P1,000.00 to A, due also yesterday. Both debts are ○ If B learned of the assignment after the
extinguished up to the amount of P1,000.00. Hence, A still owes debts had already matured, he can raise
B P2,000.00 today. the defense of compensation; otherwise, he
● If B assigns his right to C, the latter can collect only cannot.
P2,000.00 from A.
● However, if A gave his consent to the assignment ARTICLE 1286
before it was made or subsequently, A loses the right
to set up the defense of compensation. So, A will be Compensation takes place by operation of law, even though
liable to C for P3,000.00 but he can still collect the the debts may be payable at different places, but there shall
P1,000.00 owed by B. be an indemnity for expenses of exchange or transportation to
● In other words, compensation shall be deemed not the place of payment.
to have taken place.
Debts Payable at Different Places
Where Compensation Has Taken Place AFTER Assignment ● Applies to legal compensation
→ Art. 1285 speaks of 3 cases of compensation which take ● Indemnity contemplated above does not refer to the
place after an assignment of rights made by the creditor: difference in the value of the thing in their respective
places but to the expenses of monetary exchange
1. Assignment is made with the consent of the debtor (in case of money debts) and expenses of
● EXAMPLE: A owes B P3,000.000 due November 15. B transportation (in case of things to be delivered).
owes A P1,000.00 due November 15. B assigned his ● Once these expenses are liquidated, the debts also
right to C on November 1 with the consent of A. become compensable. The indemnity shall be paid
○ On Nov. 15, A cannot set up against C, the by the person who raised the defense of
assignee, the compensation which would compensation.
pertain to him against B, the assignor.
○ A is liable to C for P3,000.000 but he can still Foreign Exchange – conversion of an amount of money or
collect the P1,000.00 debt of B. currency of one country into an equivalent amount of money
or currency of another.
2. Assignment is made without consent BUT with the
knowledge of the debtor Exchange Rate – the price of one currency expressed or
● EXAMPLE: A owes B P1,000.00 due November 1. B quoted in relation to another currency
owes A P2,000.00 due November 10. A owes B ● In the Philippines, the exchange rate is traditionally
P1,000.00 due November 15. A assigned his right to C expressed as the value of one U.S. dollar in terms of
on November 12. A notified B but the latter did not the Philippine Peso.
give his consent to the assignment.
○ B can set up the compensation of debts on EXAMPLE 1: A owes B $1,000.00 payable in New York, B owes A
Nov. 10 which was before the cession on P28,000.00 (equivalent amount) payable in Manila. If A claims
Nov. 12. There being partial compensation, compensation, he must pay for the expenses of exchange.
the assignment is valid only up to the
amount of P1,000.00. EXAMPLE 2: A obliged himself to deliver to B 100 sacks of rice in
○ But B cannot raise the defense of Davao. B is also bound to deliver to A 100 sacks of rice of the
compensation with respect to the debt of A same kind in Bulacan. The expenses for transportation of the
due on Nov. 15 which has not yet matured. rice to Davao amount to P4,000.00 and to Bulacan, P1,000.00.
So on, Nov. 12, B is liable to C for P1,000.00. If A claims compensation, he must indemnify B the amount of

MEDOLLAR, L. J. - 1BLM
P3,000.00 for the expenses of transportation of the rice to ● This is an example of facultative compensation. The
Davao. benefit granted by law is available only to A, as
depositor, and can be waived by him.
ARTICLE 1287
(2) Debst arising from a commodatum
Compensation shall not be proper when one of the debts ● Commodatum is a gratuitous contract whereby one
arises from a depositum or from the obligations of a depositary of the parties delivers to another something not
or of a bailee in commodatum. consumable so that the latter may use the same for a
certain time and return it.
Neither can compensation be set up against a creditor who
has a claim for support due by gratuitous title, without EXAMPLE: If B borrowed the ring of A, B cannot refuse to return
prejudice to the provisions of paragraph 2 of Article 301. the ring on the ground of compensation because no
compensation can take place when one of the debts arises
ARTICLE 1288 from a commodatum.
● Purpose of the law is to prevent a breach of trust and

Neither shall there be compensation if one of the debts confidence on the part of the borrower (or

consists in civil liability arising from a penal offense. depositary in a depositum)

● However, A can assert compensation of the value of

Instances when Legal Compensation NOT Allowed by Law the ring against the credit of B.

→ Creditor in any of the obligations (below) can demand the

performance of the obligation even if he is also indebted to (3) Debts arising from a claim for support due by

the debtor and all requisites of legal compensation are gratuitous title

present. ● Support comprises everything that is indispensable for

→ It is only the debtor who is not allowed to set up sustenance, dwelling, clothing, medical attendance,

compensation. On the other hand, the creditor may set up education and transportation, in keeping with the

compensation with respect to the debts he owed to the financial capacity of the family.

debtor.
→ Arts. 1287 and 1288 provide for cases of facultative EXAMPLE 1: B is the father of A, a minor, who under the law is

compensation, where compensation can be set up by one of entitled to be supported by B. Now A owes B P1,000.00.

the parties but the other is prohibited from interposing the ● B cannot compensate his obligation to support A by

same defense. what A owes him because the right to receive

support cannot be compensated with what the

(1) Debts arising from a depositum recipient (A) owes the obligor (B).

● Deposit is constituted from the moment a person ● Right to receive support cannot be compensated

receives a thing belonging to another with the because it is essential to the life of the recipient.

obligation of safely keeping it and of returning the ● However, if B failed to support A say, for 3 months, the

same. support in arrears may be compensated with the

● In this case, it is not a deposit such as what is used in debt of A. The reason is that A no longer needs the

banks, which creates the relationship between a support in arrears as he was able to exist even

creditor and debtor of a loan. without the support of B.

EXAMPLE: A owes B P1,000.00. B, in turn, owes A the amount of EXAMPLE 2: A donates to B an allowance of P1,000.00 a month

P1,000.00 representing the value of a ring deposited by A with for 5 years for the latter’s support. However, previous to the

B, which B failed to return. donation, B already owed A P10,000.00 which was due and

● B, who is the depositary, cannot claim legal unpaid. A cannot say to B “Inasmuch as you owe me

compensation even if A fails to pay his obligation. P10,000.00, I will not pay your allowance for 10 months.”

● Remedy of B is to file an action against A for the

recovery of the amount of P1,000.00. (4) Debts consisting in civil liability arising from a penal

● Relation of the depositary to the depositor is fiduciary clause

in character since it is based on trust and ● Compensation would be improper and inadvisable

confidence. B’s claim for compensation against A because the satisfaction of such obligation is

would involve a breach of that confidence. imperative.

● But A can set up his deposit by way of compensation

against B’s credit.

MEDOLLAR, L. J. - 1BLM
EXAMPLE: A owes B P1,000.00. bB stole the ring of A worth Full legal capacity of parties not required
P1,000.00. Here compensation by B is not proper. But A, the ● It is not required that parties have the full legal
offended party, can claim the right of compensation. capacity to give or to receive
● The prohibition in Art. 1288 pertains only to the ● On the other hand, In order that there may be a valid
accused but not to the victim of the crime. payment, the parties must have the free disposal of
the thing due and capacity to alienate it and to
ARTICLE 1289 receive payment.

If a person should have against him several debts which are Compensation: A Matter of Defense
susceptible of compensation, the rules on the application of ● Although compensation is produced by operation of
payments shall apply to the order of the compensation. law, it is usually necessary to set it up as a defense in
an action demanding performance
Rules on Application of Payments Applicable to Order of ● Once proved, its effects retroact or relate back to
Compensation the very day on which all the requisites mentioned by
● Compensation is similar to payment law concurred or fulfilled.
● If a debtor has various debts which are susceptible of
compensation, he must inform the creditor which of
Section 6: Novation
them shall be the object of the compensation
● If he fails to do so, the compensation shall be applied
to the most onerous obligation ARTICLE 1291

EXAMPLE: A is indebted to B in the amount of (a) P1,000.00 Obligations may be modified by:
without interest due today; (b) P1,000.00 with interest of 12% (1) Changing their object or principal conditions;
due also today; and (c) P1,0000.00 with interest of 10% due (2) Substituting the person of the debtor;
yesterday. B owes A P1,000.00 due today. (3) Subrogating a third person in the rights of the creditor
● For purposes of the application of payment, A is the
debtor. He must specify to B which of the three debts Novation – total or partial extinguishment of an obligation
should be compensated. through the creation of a new one which substitutes it
● If he fails to inform B, then the latter should apply the ● Substitution or change of an obligation by another,
compensation to the second obligation of A which extinguishes or modifies the first, either by
(obligation bearing 12% interest) because it is the changing its object or principal conditions, or by
most onerous one. substituting another in place of the debtor, or by
subrogating a third person in the rights of the creditor
ARTICLE 1290
Dual Function or Purpose of Novation
When all the requisites mentioned in Article 1279 are present, ● Unlike other modes of extinction of obligation,
compensation takes effect by operation of law, and novation is a juridical act with dual function.
extinguished both debts to the concurrent amount, even Novation is a contract containing two stipulations:
though the creditors and debtors are not aware of the (1) To extinguish or modify an existing
compensation. obligation; and
(2) To substitute a new one in lieu of the old.
Compensation occurs automatically by mere operation of law ● Does not operate as an absolute extinction in the
● From the moment all the requisites mentioned in Art. sense that it ends with the etinguishment of an
1279 concur, legal compensation takes place obligation but only as a relative extinction because it
automatically even in the absence of agreement creates a new one in place of the old; thus, only
between the parties, and even against their will, and “modfied”.
extinguishes reciprocally both debts as soon as they
exist simultaneously, to the amount of their respective Novation is Extinctive (Total)
sums. ● When an old obligation is terminated by the creation
● It is without need of any conscious intent on the part of a new obligation that takes the place of the
of the parties and even without their knowledge, at former because of the total incompatability between
the time of the co-existence of such debts. the two obligations.
● Operates even against the will of the interested ● Have twin effects of: (1) extinguishing an existing
parties. obligation; and (2) creating a new one on its stead.

MEDOLLAR, L. J. - 1BLM
 ● Does not necessarily imply that the new agreement and thus novated and relieved of the obligation
should be complete in itself. Certain terms and contracted by him in the original contract, which
conditions may be carried, expressly, or by became extinguished as a consequence of
implication, over to the new obligation. novation; even if he made some partial payments,
not having been informed of said increase.
Novations is NOT Extinctive (Partial)
● Merely modificatory, i.e, incidental to the main ARTICLE 1292
obligation (e.g., change in interest rates or an
extension of time to pay) In order that an obligation may be extinguished by another
● New agreement will not have the effect of which substitutes the same, it is imperative that it be so
extinguishing the first but would merely supplement it declared in unequivocal terms, or that the old and new
or replace some but not all of its provisions obligations be on every point incompatible with each other.
● Old obligation subsists to the extent it remains
compatible with the amendatory agreement Requisites of Novation
● Whether the effect is extinctive or merely 1. Existence of a previous valid obligation
modficatory, is dependent on the nature of the 2. Intention or agreement and capacity of the parties
change and intention of the parties. to extinguish or modify the obligation
3. Extinguishment or modification of the obligation
Kind of Novation 4. Creation or birth of a valid new obligation
– As to origin
1. Legal – takes place by operation of law ● Requisites herein discussed that there be total
2. Conventional – takes place by agreement of the incompatibility between the new and old obligation
parties are only applicable to extinctive novations, because
in modificatory, the obligation is simply modified and
– As to its form or constitution not extinguished
1. Express – when so declared in unequivocal terms ● No novation unless two distinct and successive
2. Implied – when the old and the new obligations are binding contracts take place, between the same
essentially incompatible with each other parties with the second designed to replace the
preceding convention.
– As to extent or effect ● Modifications introduced before a bargain becomes
1. Total or Extinctive – old obligation is completely obligatory can in no sense constitute novation in law.
extinguished
2. Partial or Modificatory – old obligation is merely Novation of Judgment
modified, i.e., the change is merely incidental to the ● Final judgment of a court that had been executed
main obligation but not yet fully satisfied, may be novated by
compromise.
– A to the subject (or essence) ● In such case. The judgment cannot subsequently be
1. Real or Objective – when the object (or cause) or executed because the agreement supersedes the
principal conditions of the obligation are changed judgment.
2. Personal or Subjective – when the person of the
debtor is substituted and/or when a third person is Novation with respect to Criminal Liability
subrogated in the right of the creditor ● Novation is NOT a mode of extinguishing criminal
3. Mixed – when the object or principal condition of the liability but may only prevent the rise of criminal
obligation and the debtor or creditor or both parties, liability as long as it occurs prior to the filing of the
are changed. It is a combination of real and personal criminal information in court.
novations.
Novation NOT Presumed
EXAMPLE: S subscribed 100 shares of stock, at par value, in a ● Rooted in the Roman Law jurisprudence, the principle
company whose authorized capital stock was P250,000. At the – novatio non praesumitur – that novation is never
time of the subscription, and without his knowledge and presumed.
consent, the company increased the capital stock to ● Animus novandi*, whether totally or partially, must
P500,000. appear by express agreement of the parties or by
● S cannot be compelled to pay for his shares their acts that are too clear and unmistakable.
● Increase constitutes a novation by changing the ● As a general rule, no form of words or writing is
principal conditions, he is not bound by the contract necessary to give effect to a novation, and can be

MEDOLLAR, L. J. - 1BLM
 implied; however, it must be clearly and ● Novation is never presumed. In the absence of
unmistakably established by express agreement or satisfactory evidence to the contrary, the
by the acts of the parties. presumption is that the original obligations have not
● Even if novation were sufficiently shown, the been extinguished by D taking the promissory note
presumptive rule is that conditions attached to the
old obligation also attach to the new obligation. Burden of Showing Novation
● It is on the party who asserts its existence
* Animus Novandi – intention of the original parties to an ● Necessity to prove the same by clear and convincing
obligation to replace an existing obligation or party to an evidence is accentuated where the obligation of the
obligation with a new one. debtor has already matured.

Ways to Effect Conventional Novation Incompatability between Two Obligations or Contracts

(1) Express agreement of the parties or acts of equal or → Incompatability in any of the essential elements of an
equivalent import. obligation
(2) Irreconcilable incompatibility of the two obligations ● When not expressed, incompatibility is required so as
with each in every material respect (can take place to ensure that the parties have indeed intended such
even in the absence of express agreement). novation despite their failure to express it in
categorical terms.
● To effect an objective novation, it is imperative that ● Incompatability should take place in any of the
the new obligation expressly declares that the old essential elements of the obligation:
obligation is thereby extinguished, or that the new (a) Juridical relation or tie such as from mere
obligation be on every point incompatible with the commodatum to lease of things, or from
new one. negotiorum gestio to agency, or from a sale
● To effect a subjective novation (by a change in the to one of loan; or
peson of the debtor), it is necessary that the old (b) Object or principal conditions such as a
debtor be released expressly from the obligation and change of the nature of the prestation; or
the third person or new debtor assumes his place in (c) Subjects, such as the substitution of a
the relation. debtor or the subrogation of the creditor.
○ No novation without such release as the ● In other words, there must be an essential change;
third persson who assumed the debtor’s otherwise, the change is merely modificatory in
obligation becomes merely a co-debtor or nature and insufficient to extinguish the original
surety. obligation.
● Since novation is effected only when a new contract ● The fact that two agreement are co-terminous with
has extinguished an earlier contract between the each other does not imply that a new obligation has
same parties, it necessarily follows that there could arisen.
be no novation if the parties in the new contract are
not the same parties in the old contract. Test of Incompatability
● This is whether the two obligations can stand together
EXAMPLE: By agreement of A and D, the separate debts of the without conflict, each one having its own
brothers A, B, and C, were consolidated in a new promissory independent existence.
note executed and signed by A and D, A binding himself to ● If they cannot, they are incompatible, and the
obtain the signatures of B and C to the note, but this was never subsequent obligation novates the first.
done. ● Upon such novation, the former obligation loses all its
force and effect, and only the new obligation can
In an action instituted by D against A, B, and C, B and C be the basis of an action.
alleged as a defense that as neither A nor D exercised proper ● Changes that breed incompatibility must be essential
diligence in securing their signatures to the new note, there in nature and not merely incidental (accidental).
was tacit consent to permit the obligation to stand as a debt ● Incompatibility must take place in any of the essential
of A alone. elements of the obligation, such as its object, cause,
● The agreement between A and D did not novate the or principal conditions; otherwise, the change is
original obligations of A, B, and C. The silence of the merely modificatory and insufficient to extinguish the
part of A and D, with respect to the securing of the original obligation.
signatures was of no significance, and did not have
the effect of extinguishing the old obligations by EXAMPLE 1: A compromise agreement which merely clarified
novation the total sum owed by the would-be buyer to the would-be

MEDOLLAR, L. J. - 1BLM
seller with the view that the former would find it easier to Kinds of Personal Novation
comply with his obligation under the contract to sell does not 1. Substitution – when the person of the debtor is
novate said contract to sell substituted.
- In fine, the compromise agreement can stand 2. Subrogation – when a third person is subrogated in
together with the contract to sell the rights of the creditor.

EXAMPLE 2: If the change consists only in the time or place of Kinds of Substitution
payment, or in the mode or manner of payment, or rates of 1. Expromision – that which takes place when a thrid
interest, without really effecting a substitution of debtor, or person of his own initiative and even without the
adds other obligations not compatible with the old one, or knowledge or against the will of the original debtor,
where the new contract merely supplements the old one, the assumes the latter’s obligation with the consent of
change is merely modification in nature and insufficient to the creditor.
extinguish the original obligation 2. Delegacion – that which takes place when the
debtor offers, and the creditor accepts a third person
EXAMPLE 3: In dacion en pago, what takes place is an to take the place of the debtor. Creditor may
objective novation where the thing offered as an accepted withhold approval. Here, all the parties – the old or
equivalent of the performance of an obligation is considered original debtor (delegante), the new debtor
as the object of the contract of sale, while the debt is (delegado), and the creditor (delegatorio) – must
considered as the purchase price agree.

Effects of Modifications of Original Obligation NOTE: In both cases, the consent of the creditor is an
(1) Slight modifications and variations indispensable requirement in the novation by substitution of
● When made with the consent of the parties, they do debtor.
not abrogate the entire contract and the rights and
obligations of the parties thereto, but the original Right of New Debtor Who Pays
contract continues in force except as the altered ● In expromision, payment by the new debtor gives him
terms and conditions of the obligation are the right to beneficial reimbursement, under par. 2 od
considered to be the essence of the obligation itself. Art. 1236.
● Especially true where the original contract expressly ● If payment was made with the consent of the original
provides that such modifications and alterations may debtor or on his own initiative (delegacion), the new
be made. debtor is entitled to reimbursement and subrogation,
● Increasing the interest of a debt, guaranty, and a under Art. 1237.
mere extension of the term for payment is not a
novation; these do not change nor alter the essence Acceptance by Creditor of Payment from a Third Person
of the contract. ● While this may have the effect of adding to the
● Other instances not considered as novation are: number of persons liable, it does not necessarily imply
- When the surety binds himself as a principal the extinguishment of the liability of the first debtor
- Reduction of the amount due ● In case of subjective novation through a change in
- Acceptance of a partial payment the person of debtor, it is not enough that the
juridical relation between the original parties is
(2) Material deviations or changes extended to include a third person, as this constitutes
● Where the original contract is deviated from in only an increase in the number of persons liable to
material respects so that the object or principal the obligee. It is essential the old debtor be released
condition cannot reasonably be recognized as that from the obligation, and the third person takes his
originally contracted for, the original contract should place in the relation. If the older debtor is not
be treated as abandoned. released, there is no novation; the third person
becomes merely a co-debtor surety
ARTICLE 1293
EXAMPLE 1: D (debtor) tells C (creditor) that X will pay D’s debt.
Novation which consists in substituting a new debtor in the C agrees. It does not necessarily mean that there is
place of the original one, may be made even without the delegacion here. But if D tells C that X will pay his debt and he
knowledge or against the will of the latter, but not without the asks C to relase him from his obligation, to which C agrees,
consent of the creditor. Payment by the new debtor gives him delegacion results.
the rights mentioned in Articles 1236 and 1237.

MEDOLLAR, L. J. - 1BLM
EXAMPLE 2: Suppose it is X who approaches C and tells him ● By means of garnishment, which is a species of
that X will pay the debt of D. C agrees. There is no expromision attachment or execution for reaching any property
in this case, unless there is an agreement that D shall be pertaining to a judgment debtor which may be
released from his obligation to C. found owing to such a debtor by a third person, the
latter, through service of the writ of garnishment,
Consent of Creditor Necessary to Substitution becomes a virtual party to, or a “forced intervenor”
(1) Substitution implies waiver by creditor of his credit in the case.
● Since novation of a contract by substitution of a new ● The court, having acquired jurisdiction over the
debtor extinguishes the personality of the first debtor, person of the garnishee, requires him to pay his debt,
it implies on the part of the creditor a waiver of the not to his former creditor, but to the new creditor,
right he had before the novation; hence, creditor’s who is the creditor in the main litigation.
consent is necessary. ● Remedy is merely a case of involuntary novation by
● Principle of renuntio non praesumitor – a waiver of the substitution of one creditor for another.
right may not be perfomed unless the will to waive is
indisputably shown by him who holds the right. Substitute Must be Placed in the Same Position of Original
● The creditor’s consent may also be inferred from the Debtor
creditor’s acts, but such acts still need to be a clear ● Not enough to extend the juridical relation to that
and unmistakable expression of the creditor’s other person, but it is necessary to place the latter in
consent. the same position occupied by the original debtor
who is released from the obligations.
(2) Substitution may be prejudicial to creditor ● Obligation contracted by a third person to answer for
● Requirement is based on simple consideration of the debtor, as in the case of suretyship, in the last
justice since the consequence of the substitution may analysis, does not work as true novation, because the
be prejudicial to the creditor and such prejudice may third person is not put in the same position as the
take the form of delay in the fulfillment of the debtor — the latter continues in his same place, and
obligation, or contravention of its tenor, or with the same obligation which is guaranteed by the
non-performance thereof by the new debtor, by former.
reason of his financial inability or insolvency.
● Substitution of one debtor for another may delay or Effect where Third Person Binds Himself as Principal with Debtor
prevent the fulfillment of the obligation by reason of ● Since it is necessary that the third person should
the financial inability or insolvency of the new debtor; become a debtor in the same position as the debtor
hence, the creditor should agree to accept the whom he substitutes, this change and the resulting
substitution in order that it may be binding on him. novation may be:
(1) Releasing the debtor from his obligation
(3) Creditor has right to refuse payment by third person with respect to the whole debt; or
without interest in obligation (2) Debtor continue with the character of such,
● Consistent with the rule that a creditor cannot be and also allow the third person to
compelled to accept payment/performance by a participate in the obligation
third person who had no interest in the fulfillment of
the obligation. However, the creditor may accept if ● Releasing the debtor from obligation - there is
he wishes payment from a third party. complete and perfect novation
● Mere acceptance of payments for the benefit of a ● Debtor allows participation of third person - there is a
debtor, whose obligation the third party has change that does not free the debtor nor authorize
assumed, in the absence of facts unmistakably the extinguishment of the accessory obligations of
showing an intention to make the third party alone the latter
liable, does not constitute a novation consisting in the
substitution of a new debtor in lieu of the old one. ● If the old debtor is not released, no novation occurs
● Art. 1239 does not state that such consent to change and the third person who has assumed the obligation
of debtor be express, or given at the time of the of the debtor becomes merely a co-debtor, or a
substitution. Its evident purpose being to preserve the surety or co-surety, who binds himself as principal with
creditor’s full right, it is sufficient that his consent be the debtor.
given at any time and in any form, while the ○ If there is no agreement to solidarity, the first
agreement of the debtors subsists. and the new debtor are considered jointly.

(4) Involuntary Novation by Substitution of Debtor

MEDOLLAR, L. J. - 1BLM
 ARTICLE 1294 ● It is believed that D is also not liable if C had
knowledge that X was insolvent at the time the debt
If the substitution is without the knowledge or against the will of was delegated to him.
the debtor, the new debtor’s insolvency or non-fulfillment of
the obligation shall not give rise to any liability on the part of ARTICLE 1296
the original debtor.
When the principal obligation is extinguished in consequence
ARTICLE 1295 of a novation, accessory obligations may subsist only insofar as
they may benefit third persons who did not give their consent.
The insolvency of the new debtor, who has been proposed by
the original debtor and accepted by the creditor, shall not Effect of Novation on Accessory Obligations
revive the action of the latter against the original obligor, ● Follows the general rule that the extinguishment of
except when said insolvency was already existing and of the principal obligation carries with it that of the
public knowledge, or known to the debtor, when he accessory obligations (e.g., pledges, mortgages, and
delegated his debt. sureties).
● However, this rule admits exceptions:
Effect of Non-fulfillment or Insolvency of New Debtor 1. When the accessory obligation is created in
1. In expromision favor of a third person and the latter did not
● Under Art. 1294, since the replacement of the old give his consent to the novation, because in
debtor is not made at his own initiative, it will not reality, it is a distinct obligation.
revive the action of the creditor against the old - This is so because a person should
debtor whose obligation is extinguished by the not be prejudiced by the act of
assumption of the debt by the new debtor. another without his consent.
● Even if the substitution is with the original debtor’s 2. When the guarantors and sureties agree to
knowledge or consent, he is no longer liable. be bound in the new obligation.
● Art. 1295 applies if the new debtor “has been
proposed by the original debtor and accepted by EXAMPLE: A owes B P2,000.00 with interest at 14%. B owes C
the creditor.” P280.00. It was agreed among the parties that A would pay
the interest of P280.00 to C.
2. In delegacion ● In this case, besides the principal obligation of A,
● Art. 1295 refers to delegacion, which speaks only of there is a stipulation in favor of C, a third person.
insolvency. ● Later on, A and B executed another contract
● If the non-fulfillment of the obligation is due to other whereby they agreed that A would deliver to B a
causes, the old debtor is not liable. television set in payment of the loan.
● General rule is that the old debtor is not liable to the ● In spite of the novation, the accessory obligation to
creditor in case of the insolvency of the new debtor. pay the interest of P280,00.00 to C still subsists unless C
However, there are exceptions: gives his consent to the novation.
(a) Said insolvency was already existing and of
public knowledge (although it was not ARTICLE 1297
known to the old debtor) at the time of the
delegacion; or If the new obligation is void, the original one shall subsist, unless
(b) Insolvency was already existing and known the parties intended that the former relation should be
to the debtor (although it was not of public extinguished in any event.
knowledge) at the time of the delegacon.
● Exceptions are intended to prevent fraud on the part Effect where New Obligation is VOID
of the old debtor. ● The above provision stresses one of the essential
requirements of a novation — “new obligation must
EXAMPLE: D owes C P1,000.00. D proposed to C that X would be valid.”
substitute him as debtor, to which C agreed. If, at the time of ● General rule → No novation if the new obligation is
the delegacion, X was already insolvent but his insolvency was void; therefore, original one shall subsist for the
neither of public knowledge nor known to D, then D is not reason that the second obligation being inexistent, so
liable. Neither is D liable if the insolvency of X took palace after it cannot extinguish or modify the first.
he delegated his debt. ● Exception to the rule → Where the parties intended
that the old obligation should be extinguished in any
event.

MEDOLLAR, L. J. - 1BLM
Effects where New Obligation is VOIDABLE
● Novation can take place Effect of Novation: Original Obligation is Conditional
● But the moment it is annulled, the novation must be 1. If the condition to which the old obligation is
considered as not having taken place, and the subjected to is a suspensive one, the obligation does
original can be enforced, unless the intention of the not arise except from the fulfillment of the condition.
parties is otherwise. Hence, existence of a previous valid obligation (one
of the requisites of novation) is lacking.
ARTICLE 1298 2. If the condition is resolutory, the happening of the
condition would result in the extinguishment of the
The novation is void if the original obligation was void, except old obligation. Hence, there would also be no
when annulment may be claimed only by the debtor, or when novation because of the absence of a previous valid
ratification validates acts which are voidable. obligation.

Effect where Old Obligation is Void or Voidable ARTICLE 1300

● Also has its basis on the requisites of a valid donation
● Void obligation cannot be novated because there is Subrogation of a third person in the rights of the creditor is
nothing to novate. either legal or conventional. The former is not presumed,
● Considering that a voidable obligation is valid until it except in cases expressly mentioned in this Code; the latter
is annulled in court, if the original obligation is must be clearly established in order that it may take effect.
voidable, or if the voidable obligation is validated by
ratification, the novation is valid. Subrogation
● Another form of extinctive subjective novation which
EXAMPLE 1: S agreed to deliver prohibited drugs to B. Later on, takes place when there is a change in the person of
it was agreed that S would pay B P100,000.00 instead of the creditor
delivering the drugs. The novation is void because the original ● Contemplates full substitution; transferring of all the
obligation is void. rights of the creditor to a third person. He may use all
means which the creditor could employ to enforce
EXAMPLE 2: Suppose S was induced through fraud committed payment.
by B to sign a contract whereby S obliged himself to deliver a ● Subrogee cannot succeed to a right not possessed
specific car to B. Subsequently, it was agreed between S and by the subrogor.
B that S would give B P100,000.00 instead of the car.
● Original obligation of S is voidable. As it has not yet Kinds of Subrogation
been annulled at the instance of S, the second
contract is valid.
Conventional Subrogation Legal Subrogation

EXAMPLE 3: If S subsequently confirmed his obligation to deliver Takes place by express Takes place without
the car and the right of B thereto, his ratification cleanses the agreement of the original agreement but by
contract from all its defects and makes it valid and, therefore, parties (debtor & original operation of law because
the novation is also valid. creditor) and the third of certain acts.
person.

ARTICLE 1299 Must be clearly established Not presumed except in the

in order that it may take cases expressly provided by
If the original obligation was subject to a suspensive or place. law.
resolutory condition, the new obligation shall be under the
same condition, unless it is otherwise stipulated.
ARTICLE 1301

Presumption where Original Obligation Subject to a Condition

Conventional subrogation of a third person requires the
● If the first obligation is subject to a suspensive or
consent of the original parties and of the third person.
resolutory condition, the second obligation is
deemed subject to the same condition unless the
Consent of All Parties Required
contrary is stipulated by the parties in their contract.
1. Debtor – because he becomes liable under the new
● Reason for the rule contained in Art. 1299 is that the
obligation to a new debtor.
efficacy of the new obligation depends upon
2. Old or Original Creditor – because his right against
whether the condition which affects the old
debtor is extinguished.
obligation is complied with or not.

MEDOLLAR, L. J. - 1BLM
 3. New Creditor – because he may dislike or distrust the Cases of Legal Subrogation
debtor. 1. When a creditor pays another creditor who is
preferred
Distinguishment from Assignment of Credit
● Arts. 1300 and 1301 does not exclude the power of EXAMPLE: A owes B P1,000.00 secured by a first mortgage on
the creditor (assignor) to transmit his rights without the the land of A. A also owes C P2,000.00 – this debt is unsecured
consent of the debtor to another (assignee) who (or secured by a second mortgage).
would then have the right to proceed against the ● Under the law, B who is a preferred creditor, has
debtor. In this case, there is assignment of credit, but preference with respect to the land against C who is
no subrogation. merely an ordinary creditor.
● Assignment of Credit – the process of transferring the ● If C pays the debt of A to B, C will be subrogated in
right of the assignor to the assignee who would then B’s right so that he can have the mortgage
have the right to proceed against the debtor. It may foreclosed in case A fails to pay the P1,000.00 debt.
be done gratuitously or onerously, in which case, it
has an effect similar to that of sale. 2. When a third person without interest in the obligation
pays with the approval of the debtor

Conventional Subrogation Assignment of Credit

EXAMPLE: A owes B P1,000.00. C pays B with the express or
A credit is extinguished and A transfer of same credit implied consent of A. Here, C will be subrogated in the rights of
another appears, which the which belonged to another B.
new creditor claims as his and which, upon being ● Where the money used to discharge a person’s debt
own. transferred, is not rightfully belonged to the debtor, the party paying
extinguished.
cannot be considered a third-party payor under Art.
1302, par. 2.
Consent of the debtor is Consent of debtor is not
required so that it may fully required but his knowledge
produce legal effects thereof affecting only the 3. When a third person with interest in the obligation
validity of the payment he pays even without the knowledge of the debtor
make.
EXAMPLE 1: Suppose C is the guarantor of A, being a person
Assignment takes effect
interested in the fulfillment of the obligation of A, as he would
only from the time he has
be benefited by its extinguishment.
knowledge thereof.
● If C pays, B, even without knowledge of A, C is
Effects begin from the time Effects with respect to the subrogated in the right of B. Confusion takes place in
of novation itself, that is, debtor begin from the date the person of C; hence, the guarantee is
from the moment all parties of notification. extinguished but the principal obligation still subsists.
have given their consent

EXAMPLE 2: A and B are joint debtors of C for the amount of

Nullity or defects of the Nullity or defects of the
previous obligation may be obligation are not remedied P1,000.00. Without the knowledge of A, B pays the debt of
cured by the novation because only the P1,000.00.
correlative right of the ● Here, B becomes a creditor of A for P500.00, the
obligation is transmitted. latter’s share of the debt but not fot the remaining
P500.00, the portion of the debt which corresponds to

ARTICLE 1302 B, which is extinguished by confusion or merger of

rights.

It is presumed that there is legal subrogation:

(1) When a creditor pays another creditor who is ARTICLE 1303
preferred, even without the debtor’s knowledge;
(2) When a third person, not interested in the obligation, Subrogation transfers to the person subrogated the credit with
pays with the express or tacit approval of the debtor; all the rights thereto appertaining, either against the debtor or
(3) When, even without the knowledge of the debtor, a against third persons, be they guarantors or possessors of
person interested in the fulfillment of the obligation mortgages, subject to the stipulation in a conventional
pays, without prejudice to the effects of confusion as subrogation.
to the latter’s share.

MEDOLLAR, L. J. - 1BLM
Effect of Legal Subrogation
● To transfer to the new creditor the credit and all the
rights and actions that could have been exercised by
the former creditor either against the debtor or
against third persons (either guarantors or
mortgagors).
● Except only for the change in the person of the
creditor, the obligation subsists in all respect as
before the novation.
● This effect may NOT be modified by agreement.
● Effects of conventional subrogation are subject to
the stipulation of the parties.
● There are distinctions between the right to be
subrogated and the right to reimbursement.

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 palace in virtue
of the partial payment of the same credit.

Effect of Partial Subrogation

● Creditor to whom partial payment has been made
by the new creditor remains a creditor to the extent
of the balance of the debt,
● In case of insolvency, when the assets of the debtow
will no loner be sufficient to pay both creditors, he is
given a preferential right under Art. 1304 to recover
the remainder as against the new creditor.

EXAMPLE: D is indebted to C for P10,000.00. X pays C P6,000.00

with the consent of D. Here, there is partial subrogation as to
the amount of P6,000.00.
● D remains the creditor with respect to the balance of
P4,000.00. Thus, tow credits subsists.
● In case of insolvency of D, C is preferred to X, that is,
he shall be paid from the assets of A ahead of X.

Nature of Original Creditor’s Right of Preference

● Preference creates simply a right of one creditor to
be paid first the proceeds of the sale of the property
against another creditor.
● Creates no lien on property and, therefore, gives no
interest in property, specific or general, to the
preferred creditor, but a preference in application of
the proceeds after the sale.
● Right of preference is one which can be made
effective only by being asserted and maintained;
otherwise, it is lost.

MEDOLLAR, L. J. - 1BLM