GENERAL PROVISIONS

ARTICLE 1156. AN OBLIGATION IS A JURIDICAL NECESSITY TO GIVE TO DO, OR

NOT TO DO.

- The duty under the law of the debtor or obligor when it speaks of obligation as a juridical
necessity.

JURIDICAL NECESSITY - It is called as juridical necessity because in case of noncompliance,

the courts may be called upon by the aggrieved party to enforce its fulfilment or, in default thereof
the economic value that it represents.

DAMAGES - Sum of money given as a compensation for the injury or harm suffered by the
creditor or oblige for the violation of his right.

NATURE OF OBLIGATIONS UNDER THE CIVIL CODE

CIVIL OBLICATION

➢ Obligation which gives to the creditor or oblige a right under the law to enforce their
performance in courts of justice.
➢ Defined in Article 1156
➢ If not fulfilled when it becomes or due and demandable, may be enforced in court through
action
➢ Based on law

NATURAL OBLIGATION

➢ Which, not being based on positive law built on equity and natural law.
➢ Do not grant a right of action to enforce their performance although in case of voluntary
fulfilment by the debtor, the latter may not recover what has been delivered or rendered by
reason thereof.

ESSENTIAL REQUISITES OF AN OBLIGATION

PASSIVE SUBJECT (debtor or obligor)

➢ The person who is bound to the fulfilment of the obligation

➢ He who has the duty

ACTIVE SUBJECT (creditor or oblige)

➢ The person entitled to demand the fulfilment of the obligation

➢ He who has the right.

OBJECT or PRESTATION (subject matter of the obligation)

➢ The conduct required to be observed by the debtor.

➢ It may consist of giving, doing, or not doing.
➢ Without prestation, there is nothing to perform

JURIDICAL or LEGAL TIE (efficient cause)

➢ Binds or connects the parties to the obligation.

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FORMS OF OBLIGATIONS
➢ Refers to the manner in which an obligation is manifested or incurred. It may be oral, or in
writing, or partly oral and partly writing.
❖ General Rule: the law does not require any form for obligations arising from contracts
for their validity or binding enforce.

OBLIGATIONS, RIGHT, AND WRONG DISTINGUISHED

➢ OBLIGATION is the act or performance which the law will enforce.
➢ RIGHT is the power which a person has under the law, to demand from another any
prestation.
➢ WRONG, act or omission of one party in violation of the legal right or rights (recognized by
law) of another. Injury is also used to refer to the wrongful violation of the legal right of
another.
o ESSENTIAL ELEMENTS of a LEGAL WRONG or INJURY
▪ Legal right in favor creditor/oblige/plaintiff
▪ Correlative legal obligation on the part of debtor/obligor/defendant, to respect
or not to violate said right.
▪ Act or omission by the latter in violation of said right with resulting injury or
damage to the former.
❖ An obligation on the part of a person cannot exist without a corresponding right in favor of
another, and vice versa.
❖ A wrong or cause of action only arises at the moment a right has been transgressed or
violated.

KINDS OF OBLIGATION ACCORDING TO THE SUBJECT MATTER

REAL OBLIGATION (obligation to give)

➢ Subject matter is a thing which the obligor must deliver to the oblige.

PERSONAL OBLIGATION (obligation to do or not to do)

➢ Subject matter is an act to be done or not to be done.

o TWO KINDS OF PERSONAL OBLIGATION

▪ Positive Personal Obligation – to do or to render a service
▪ Negative Personal Obligation – not to do or not to give

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ARTICLE 1157. Obligations arise from

1) Law
2) Contracts
3) Quasi-Contracts
4) Acts or omissions punished by law
5) Quasi-Delicts

SOURCES OF OBLIGATIONS
(1) LAW
➢ When they are imposed by law itself
➢ Obligation is not presumed unless it has been expressly determined in the civil code or nay
other special law.
→ Ex. National Internal Revenue Code – payment of taxes.
→ Ex. Anti-Mendicancy Law – prohibits giving of alms to beggars.

(2) CONTRACT
➢ When they arise from the stipulation of the parties
➢ Obligations have forced of law between the contracting parties and should be complied with
in good faith.
o CONTRACT – meeting of minds between two parties or more persons whereby one
binds himself, with respect to the other, to give something or to render some service.
a. BINDING FORCE – obligations arising from contract have the force of law
between them.
b. REQUIREMENT of a VALID CONTRACT – it is valid if it not contrary to
the law, morals, good customs, public order, and public policy. In the eyes
of the law, a void contract does not exist. Consequently, no obligation will
arise.
c. BREACH OF CONTRACT - may be breached or violated by a party in
whole or in part. A breach of contract takes place when a party fails or
refuses to comply, without legal reason or justification, with his obligation
under the contract as promise.
o COMPLIANCE IN GOOD FAITH – means compliance or performance in accordance
with the stipulations or terms of the contract or agreement. Sincerity and honestly
must be observed to prevent one party from taking unfair advantage over the other.
→ Ex. Contract of leases, contract of sale

(3) QUASI-CONTRACT
➢ When they arise from lawful, voluntary, and unilateral acts which are enforceable to the end
that no one shall be unjustly enriched or benefited at the expense of another.
a. KINDS OF QUASI-CONTRACT
i. NEGOTIORUM GESTIO – voluntary management of the property or affairs of
another without the knowledge or consent of the latter.
ii. SOLUTIO INDEBITI- juridical relation which is created when something is
received when there is no right to demand it and it was unduly delivered thru
mistake. Based on the principle that no one shall enrich himself unjustly at the
expense of another.
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 » Requisites of Solutio Indebiti
a. (a) There is no right to receive the thing delivered
b. (b) The thing was delivered through mistake.
iii. OTHER EXAMPLE OF QUASI CONTRACTS – infinite variety, and when for
some reason recovery cannot be had on a true contract, recovery may be
allowed on the basis of a quasi-contract
.
(4) CRIMES OF ACTS OR OMISSION PUNISHED BY LAW (DELICTS)
➢ When they arise from civil liability which is the consequence of a criminal offense.
➢ Criminal liability in addition to criminal liability
o TWO ASPECTS – Oftentimes, commission of a crime causes not only moral evil but
also material damage. Every person criminally liable for an act or omission is also
civilly liable for damages suffered by the aggrieved party.
▪ Criminal Liability
▪ Civil Liability
➢ Criminal liability without civil liability
o In crimes, however, which cause no material damage (like contempt, insults to
persons in authority, gambling, violations of traffic, regulations) there is no civil
liability.
➢ Civil Liability without criminal liability
o A person criminally responsible may still be liable civilly, such as failure to pay a
contractual debt; causing damage to another’s property without malicious or criminal
intent or negligence.
➢ SCOPE OF CIVIL LIABILITY
o Restitution – restoration of the property previously taken away.
o Reparation for the damage caused – court determines the amount of damage,
price of a thing, sentimental value
o Indemnification for consequential damages – includes damages suffered by the
family of the injured party or by a third person by reason of the crime.

(5) QUASI-DELICTS OR TORTS

➢ When they arise from damage caused to another through an act or omission, there being
fault or negligence, not no contractual relation exists between the parties.
➢ A quasi-delict is an act or omission by a person which causes damage to another in his
person, property, or rights giving rise to an obligation to pay for the damage done, there
being fault or negligence but there is no pre-existing contractual relation between the
parties.
o REQUISITES of QUASI-DELICTS OR TORTS
▪ There must be an omission
▪ There must be a fault or negligence
▪ There must be a damage caused
▪ There must be a direct relation or connection of cause and effect between
the act or omission and the damage; and
▪ There is no pre-existing contractual relation between the parties.

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FAULT or NEGLIGENCE

➢ Consists in the omission of that diligence which is required by the nature of the obligation
and corresponds with the circumstances of the person, time, and of the place.

CRIMES DISTINGUISED FROM QUASI-DELICTS (GLIPIC)

BASIS DELICTS QUASI-DELICTS

1. INTENT Criminal/malicious Negligence
2. INTEREST Affects public interest Affects private interest
3. LIABILITY Criminal and civil liabilities Civil liability
4. PURPOSE Punishment Indemnification of the
offended party
5. COMPROMISE Cannot be compromised Can be compromised
6. GUILT Proved beyond reasonable Preponderance of evidence
doubt

CHAPTER 2: NATURE AND EFFECT OF OBLIGATION

ARTICLE 1163. Every person obliged to give something is also obliged to take care of it
with the proper diligence of a good father of a family, unless the lar or the stipulation of the
parties requires another standard of care.

➢ Speaks of an obligation to care of a DETERMINATE thing

❖ Reason: the obligor cannot take care of the whole class/genus

SPECIFIC or DETERMINATE THING

➢ Specific or determinate particularly designated or physically segregated from others of the

same class.
➢ Obligation is extinguished if the thing is lost due to fortuitous events.
→ Ex. The watch I am wearing
→ The Toyota car with Plat No. AAV 316 (2008)

GENERIC or INDETERMINATE THING

➢ Refers only to a class or genus to which it pertains and cannot be pointed out with
particularity.
➢ Obligation to deliver is not so extinguished by fortuitous events.
→ Ex. A 2016 Toyota Car, pólice dog.

DUTIES OF DEBTOR IN OBLIGATION TO GIVE A DETERMINATE THING

➢ PRESERVE OR TAKE CARE OF THE THING – in obligations to give (real obligation), the
obligor has the incidental duty to take care of the thing due/
o DILIGENCE OF A GOOD FATHER – a good father does not abandon his family; he
is always ready to provide and protect his family; ordinary care which an average
and reasonably prudent man would do.
o ANOTHER STANDARD CARE – extraordinary diligence provided in the stipulation
of parties
o FACTORS TO BE CONSIDERED – diligence depends on the nature of obligation
and corresponds with the circumstances of the person, time, and place.

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 ➢ DELIVER THE FRUITS OF THE THING -
➢ DELIVER THE ACCESSIONS AND ACCESSORIES
➢ DELIVER THE THING ITSELF
➢ ANSWER FOR DAMANGES IN CASE OF NON-FULFILLMENT OR BREACH

DUTIES OF DEBTOR IN OBLIGATION TO DELIVER A GENERIC THING

1) To deliver a thing which is the quality intended by the parties taking into consideration the
purpose of the obligation and other circumstances.
2) To be liable for damages in case of fraud, negligence, or delay, in the performance of his
obligation, or contraventions of the tenor thereof.

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

DIFFERENT KINDS OF FRUITS

(1) NATURAL FRUITS
➢ Spontaneous products of the soil, the young and other products of animals.
→ Grass, all trees and plants on lands produced without the intervention of human labor.
(2) INDUSTRIAL FRUITS
➢ Produced by lands of any kind through cultivation or labor.
→ Sugar cane, vegetables, rice, and all products of lands brought about by reason of
human labor.
(3) CIVIL FRUITS
➢ Derived by virtue of a juridical relation
→ Rents of buildings price of leases of lands, and other property and the amount of
perpetual or life annuities or other similar income.

RIGHT OF CREDITOR TO THE FRUITS

➢ CREDITOR is entitled to the fruits of the thing to be delivered from the time the obligation to
make delivery arises.

WHEN OBLIGATION TO DELIVER FRUITS ARISES

➢ the obligation to deliver the thing due and the fruits arises from the time of the perfection or
birth of contract.
➢ If the obligation is subject to a suspensive condition or period, however, the parties may
make a stipulation to the contrary as regards the right of the creditor to the fruits of the
thing.
➢ In contract of sale, the obligation arises from the perfection of the contract even if the
obligation is subject to a suspensive condition or period where the price has been paid.
➢ In obligations to give arising from law, quasi-contracts, delicts, and quasi-delicts, the time of
performance is determined by the specific provisions of the law applicable.

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 ➢ Meaning, the thing due shall be paid first before the fruits emerged, in that case, the fruit
belongs to the creditor. But if the fruit emerged, before the stipulation of suspensive
condition (condition made by the creditor) or suspensive period (e.g. next month), he shall
have no right to the fruits and there shall be no interest on the price of the fruit.

MEANING OF REAL RIGHT AND PERSONAL RIGHT

REAL RIGHT

➢ Right or interest of a person over a specific thing, without a definite passive subject against
whom the right ay be personally enforced.
➢ A right enforceable against the whole world.

PERSONAL RIGHT

➢ Right or power of a person (creditor) to demand from another (debtor), as a definite

passive subject, the fulfillment of the latter’s obligation to give, to do, or not to do.
➢ A right enforceable only against a definite person or group of people.
o Before the delivery, the creditor, in obligations to give, has merely a personal right
against the debtor
o A right to ask for delivery of the thing and the fruits thereof.
o One the thing and the fruits are delivered; he acquires a real right over them.
o Ownership is transferred by delivery which could be either actual or constructure.
o The remedy of the buyer when there is no delivery despite demand is to file a
complaint for “SPECIFIC PERFORMANCE and DELIVERY” because he is not yet
the owner of the property before the delivery.

1165. When what is to be delivered is a determinate thing, the creditor … may compel the
debtor to make delivery. If the thing is indeterminate or generic, he may ask that the
obligation be complied with at the expense of the debtor. If the obligor delays or has
promised to deliver the same thing to two or more persons who do not have the same
interest, he shall be responsible for any fortuitous event until he has affected the delivery.

REMEDIES OF CREDITOR IN REAL OBLIGATION

(1) SPECIFIC REAL OBLIGATION (obligation to deliver a determinate thing)
➢ The creditor may exercise the following remedies or rights in case of the debtor fails to
comply with his obligations
o Demand specific performance or fulfillment of the obligation with a right to
indemnity for damages,
o Demand rescission or cancellation of the obligation also with a right to recover
damages.
o Demand payment of damages only, where it is the only feasible remedy.
❖ In obligation to deliver a determinate thing, the very thing itself must be delivered.
❖ Only the debtor can comply with the obligation.

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 (2) GENERIC REAL OBLIGATION (obligation to deliver a generic thing)
➢ can be performed by a third person since the object is expressed only according to its
family or genus. It is, thus, not necessary for the creditor to compel the debtor to make the
delivery, although he may ask for performance of the obligation.

WHERE DEBTOR DELAYS OR HAS PROMISED DELIVERY TO

SEPARATE CREDITORS
- As a general rule, “no person shall be responsible for those events which could not be
foreseen, or which, though foreseen, are inevitable, except:
(1) in cases expressly specified by the law
(2) when it is stipulated by the parties
(3) when the nature of the obligation requires assumption of risk
❖ An indeterminate thing cannot be object of destruction by a fortuitous event because genus
never perishes.

1166. The obligation to give a determinate thing includes that of delivering all its
accessions and accessories, even though they may not have been mentioned.

MEANING OF ACCESSIONS AND ACCESSORIES

ACCESSIONS

❖ fruits of the thing or additions to or improvements upon the principal

❖ those which are naturally or artificially attached to the thing.

ACCESSORIES

❖ things included with the principal for the latter’s embellishment, better use, or completion.

➢ Accessions are not necessary to the principal thing; the accessory and the principal thing
must go together.
➢ Both can exist only in relation to the principal.

RIGHT OF CREDITOR TO ACCESSIONS AND ACCESSORIES

General Rule: All accessions and accessories are considered included in the obligation to deliver
a determinate thing although they may not have been mentioned. In order to be excluded, there
must be a stipulation to that effect.

When does right to fruits arise? – from the time the obligation to deliver arises?

o Conditional – from the moment the condition happens.

o With a term/period – upon the expiration of the term/period.
o Simple – from the perfection of the contract.

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1167. If a person obliged to do something fails to do it, the same shall be executed at his
cost. This same rule shall be observed if he does it in contravention of the tenor of the
obligation … it may be decreed that what has been poorly done be undone.

- refers to an obligation to do

SITUATIONS CONTEMPLATED IN ARTICLE 1167

1) Debtor fails to perform an obligation.
o REMEDIES
▪ To have the obligation performed by himself, or by another, unless personal
considerations are involved, at the debtor’s expense.
▪ To recover damages
2) Performance was contrary to the terms agreed upon
o REMEDIES
▪ order of the court to undo the same at the expense of the debtor
3) Performance in a poor manner
o REMEDIES
▪ order of the court to undo the same at the expense of the debtor

PERFORMANCE BY A THIRD PERSON

1. Compelling performance by debtor prohibited.
o A personal obligation to do, can be performed by a third person.
o While the debtor can be compelled to make the delivery of a specific thing, a specific
performance cannot be ordered in a personal obligation to do because this may
amount to involuntary servitude which, as a rule, prohibited under our constitution.
2. Indemnification of creditor for damages
o Personal qualifications of the debtor are the determining motive for the obligation
contracted (sing to a night club)
o The performance of the same by another would be impossible or would result to be
so different that the obligation could not be considered performed.
o The feasible remedy of the creditor is indemnification for damages. But where the
obligation can still be performed at the expense of the debtor notwithstanding his
failure or refusal to do so, the court is not authorized to merely grant damages to the
creditor.

1168. When the obligation consists in NOT DOING and the obligor does what has been
forbidden him, it shall also be undone at his expense.

REMEDIES OF CREDITOR IN NEGATIVE PERSONAL OBLIGATION

• As a rule, the remedy of the oblige is the undoing of the forbidden thing, which doing what
should not be done, plus damages.
• If it is not possible to undo what was done, either physically or legally, or because of the
rights acquired by third persons who acted in good faith, or for some other reason, his
remedy is an action for damages caused by debtor’s violation of his obligation.

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1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation. However,
the demand by the creditor shall not be necessary in order that delay may exists:

- When the law or obligation so expressly declares.

- When from the nature of the contract, time us the essence and motivating factor for
its establishment.
- When demand would be useless (prestation is impossible);
- In reciprocal obligations, from the moment one of the parties fulfills his obligation.
- When the debtor admits he is in default

MEANING OF DELAY
• It is used in law, not being understood according to its meaning in common parlance. A
distinction, therefore, should be made between ordinary delay and legal delay (default or
mora)

❖ ORDINARY DELAY
• It is merely the failure to perform an obligation on time.

❖ LEGAL DELAY or DEFAULT or MORA

• It is the failure to perform on obligation on time which failure constitutes a breach
of the obligation.
• Tantamount to non-fulfillment of the obligation and arises after an extrajudicial or
judicial demand was made upon the debtor.

KINDS OF DELAY OR DEFAULT

a) MORA SOLVENDI delay on the part of the debtor to fulfill his obligations.
• REQUISITES of MORA SOLVENDI
▪ Failure of the debtor to perform his (positive) obligation on the date
agreed upon
▪ Demand (not mere reminder or notice) made by the creditor upon the
debtor to comply with his obligation which demand may be either
judicial or extrajudicial.
▪ Failure of the debtor to comply with such demand.
• EFFECTS OF DELAY
▪ The debtor is guilty of breach or violation of the obligation.
▪ He is liable to the creditor for interest.
▪ He is liable even for a fortuitous event when the obligation is to deliver
a determinate thing. In obligation to a generic thing, the debtor is not
relieved from liability for loss, he can still be compelled to deliver a
thing of the same kind or held liable.
❖ KINDS
• MORA SOLVENDI EX RE – default in real obligations (to give)
• MORA SOLVENDI EX PERSONA – default in personal obligations (to do)

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 b) MORA ACCIPIENDI or the delay on the part of the creditor to accept the performance of
the obligation.
• EFFECTS
▪ Creditor – liable for damages
▪ Creditor – bears the risk of loss of the thing.
▪ Debtor – not liable for interest from the time of creditor’s delay
▪ Debtor – release himself from the obligation.

c) COMPENSATIO MORAE or the delay of the obligors in reciprocal obligations (like sale).
The delay of the obligor cancels the delay of obligee, and vice-versa. The net result is that
there is no actionable default on the part of both parties.
• EFFECTS
▪ There is no default or delay on the part of both parties. The default of one
compensates the default of the other; their respective liabilities shall be offset
equitable.

❖ DEFAULT or DELAY in NEGATIVE OBLIGATION is not possible, delay is impossible for

the debtor fulfills by not doing what has been forbidden him. (In negative obligation, only
fulfillment and violation are possible)

WHEN DEMAND IS NOT NECESSARY TO PUT DEBTOR IN DELAY

GENERAL RULE: delay by the debtor begins only from the moment a demand, judicial or
extrajudicial, for the fulfillment of the former’s obligations is made by the creditor. Without such
amount, the effect of default will not arise. The exceptions are mentioned below.

1) When the obligation so provides

→ D promised to pay C the sum of 20,000 on or before November 30 without the need
of any demand. Therefore, if D fails to pay on November 30, he is automatically in
default.
2) When the law so provides
→ Taxes should be paid on or before a specific date.
→ The partner is liable for the fruits of the thing he may have promised to contribute to
the partnership.
3) When time is of the essence
→ The delivery of balloons on a particular date when a children’s party will be held.
→ The making of a wedding dress where the wedding is schedule at a certain time.
4) When demand would be useless
→ S is obliged to deliver a horse on September 5, but it died on September 2. Any
demand for the delivery of the horse would be useless.
5) When there is performance by a party in reciprocal obligations.
→ The performance of one is conditioned upon the simultaneous fulfillment on the part
of the other. So, neither party incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is incumbent upon him.

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1170. Those who in the performance of their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable for damages.

GROUNDS FOR LIABILITY

❖ These 4 grounds for liability which may entitled the injured party to damages fro all kinds of
obligations mentioned in Article 1157.

(1) FRAUD (Deceit or Dolo)

❖ deliberate or intentional evasion of the normal fulfillment of an obligation. It implies some
kind of malice or dishonestly and it cannot cover cases of mere mistake and errors of
judgement made in good faith. It is synonymous to bad faith in that, involves a design to
mislead or deceive other.
a. INDICIDENTAL FRAUD (dolo incidente) – committed in the performance of an
obligation already existing because of contract.
b. CAUSAL FRAUD (dolo causante) – employed in the execution of contract in order to
secure consent; remedy is annulment because of vitiation of consent.

(2) NEGLIGENCE (Fault or Culpa)

❖ Voluntary act or omission, there being no bad faith or malice, which prevents the normal
fulfillment of an obligation. It is the failure to exercise that degree of care required by the
circumstances.

(3) DELAY (Mora)

❖ Default or tardiness in the performance of an obligation after it has been due or
demandable.

(4) CONTRAVENTION of the TERMS of the OBLIGATION (violation)

❖ This is the violation of the terms and conditions stipulated in the obligation without justifiable
excuse or reason. The contravention must not be due to a fortuitous event or force majeure.

FRAUD AND NEGLIGENCE DISTINGUISED

BASIS FRAUD NEGLIGENCE

Intention Damage/injury No such intention

Waiver of the liability Void Allowed
Guilt Must be clearly proved Presumed from the violation of
contractual obligation
Liability Cannot be mitigated or May be reduced according to
reduced by the court the circumstances

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1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an
action for future fraud is void.

WAIVER – dispensing your right.

RESPONSIBILIITY ARISING FROM FRAUD DEMANDABLE

❖ Provisions refers to incidental fraud which is employed in the fulfillment of an obligation.
❖ Responsibility arising from fraud can be demanded with respect to all kinds of obligation
and unlike in the case of responsibility arising from negligence.
❖ The court is not given the power to mitigate or reduce the damages to be awarded.
❖ This is because fraud is deemed serious and evil.
❖ To allow such waiver will necessarily render the obligatory force of contracts illusory.
❖ The law does not prohibit waiver of an action for damages based on fraud already
committed.
❖ Any deliberate deviation from the normal way of fulfilling the obligation may be a proper
basis for claim for damages against the guilty party.

FUTURE FRAUD PAST FRAUD

The waiver for an action for future fraud is Can be subject of a valid waiver because the
void. Because the obligor knows that even if waiver can be considered as an act of
he should commit fraud, he would not be liable generosity and magnanimity on the part of the
for it, thus making the obligation illusory. aggrieved party who is the victim of the fraud.

1172. Responsibility arising from negligence in the performance of every kind of obligation
is also demandable, but such liability may be regulated by the courts, according to
circumstances

RESPONSIBILITY ARISING FROM NEGLIGENCE DEMANDABLE

(1) Discretion of court to fix amount of damages
a. Negligence is a question which must necessarily depend upon the circumstances of
each particular case.
b. Negligence is not as serious as fraud because there is no deliberate intention to
cause injury or damages.
(2) Damages where both parties mutually negligent
a. The fault of one may cancel or neutralize the negligence of the other.
b. The rights and obligations of the parties may be determined under the equitable
principle that no one shall enrich himself at the expense of another.

VALIDITY OF WAIVER OF ACTION ARISING FROM NEGLIGENCE

(1) An action for future negligence may be renounced except where the nature of the obligation
requires the exercise of extraordinary diligence as in the case of common carriers.

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 (2) Where negligence is gross or shows bad faith (deliberately committed), it is considered
equivalent to fraud. Any waiver of an action for future negligence of this kind, is therefore,
void.

KINDS OF NEGLIGENCE ACCORDING TO SOURCE OF OBLIGATION

(1) CONTRACTUAL NEGLIGENCE (culpa contractual)
• Negligence in contracts resulting gin their breach.
• It is not a source of obligation. It merely makes the debtor liable for damages
in view of his negligence in the fulfillment of a pre-existing obligation.

(2) CIVIL NEGLIGENCE (culpa aquiliana)

• The source of obligation between the parties not so related before by any
pre-existing contract. It is also called tort or quasi-delict.

(3) CRIMINAL NEGLIGENCE (culpa criminal)

• Negligence resulting in the commission of a crime.

EFFECT OF NEGLIGENCE ON THE PART OF THE INJURED PARTY

❖ To be entitled to damages, it is not required that the negligence of the defendant should be
the shole cause of the damage.
❖ When the plaintiff’s own negligence was the immediate and proximate cause of his injury,
he cannot recover damages. But if his negligence was only contributory, the immediate and
proximate cause of the injury being the defendant’s lack of dure care the plaintiff may
recover damages, but the courts shall mitigate the damages to be awarded.

❖ NEGLIGENCE – lack of foresight or knowledge

❖ IMPRUDENCE – lack of skill or precaution

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1173. The fault or negligence of the obligor consists in the omission of that diligence which
is required by the nature of the obligation and corresponds with the circumstances of the
persons, of the time and of the place. If the law or contract does not state the diligence which
is to be observed in the performance, that which is expected if a good father of a family shall
be required.

FRAUD NEGLIGENCE
There is deliberate intention to cause damage There is no deliberate intention to cause
damage
Liability cannot be mitigated Liability may be mitigated
Waiver for fraud is void Waiver for future negligence may be allowed in
certain cases:
1. Gross – can never be excused in
advance; against public policy
2. Simple – may be excused in certain
cases.
❖ NEGLIGENCE - is the failure to observe the protection of the interests of another person,
that degree of care, precaution and vigilance which the circumstances justly demand,
whereby such other person suffers injury.
❖ DILIGENCE – the attention and care required of a person in a given situation and is opposite
of negligence.

FACTORS TO BE CONSIDERED
❖ Degree of care is graduated according to the danger or risk a person, or property may be
subjected to.
(1) Nature of the obligation. Smoking while carrying materials known to be inflammable
constitutes negligence
(2) Circumstances of the person. A guard, a man in the prime of his life, robust and healthy,
sleeping while ion duty is guilty of negligence.
(3) Circumstances of time. Driving a car without headlights at night is gross negligence but it
does not by itself constitute negligence when driving during the day.
(4) Circumstances of place. Driving at 100 kilometers per hour on the superhighway is
permissible but driving at the same rate of speed in Ayala Avenue, Makati is gross
recklessness.

MEASURE OF LIABILITY FOR DAMAGES

❖ DAMAGES signify the money compensation awarded to a party for loss or injury resulting
from breach of contract or obligation by the other.
o Obligor who acted in good faith is liable shall be those that are the natural and
probable consequences of the breach of the obligation, and which the parties have
foreseen or could have reasonably foreseen at the time the obligation was
constituted.
o In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible
for all damages which may be reasonably attributed to the non-performance of the
obligation.

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KINDS OF DILIGENCE
❖ DILIGENCE attention and care required of a person in a given situation.
1. Diligence agreed upon by the parties
2. Diligence required by the law governing the particular obligation
3. Diligence of a good father – a good father does not abandon his family; he is
always ready to provide and protect his family; ordinary care which an
average and reasonably prudent man would do.

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

❖ FORTUITOUS EVENT – any event which cannot be foreseen, or which, though foreseen, is
inevitable. Stated otherwise, it is an event which is either impossible to foresee or
impossible to avoid.
• Happing independent of the will of the debtor and which happening,
makes the normal fulfillment of the obligation impossible.
❖ FORCE MAJEURE – an event caused by the legitimate of illegitimate acts of persons other
than the obligor; there is human intervention.

FORTUITOUS EVENT DISTINGUISED FROM FORCE MAJEURE

❖ A fortuitous event may either be an act of man or an act of God

(1) ACTS OF MAN – event independent of the will of the obligor but not of other human wills.
→ war, fire, robbery, murder, insurrection.
(2) ACTS OF GOD – majeure of those events which are totally independent of the will of every
human being
→ Earthquakes, flood, rain, shipwreck, lightning, eruption of volcano.

❖ In our law, both are identical as they exempt an obligor from liability
❖ Both are independent of the will of the obligor

KINDS OF FORTUITOUS EVENTS

(1) ORDINARY FORTUITOUS EVENT – events which are common and which the contracting
parties could reasonably foresee (e.g. rain)
(2) EXTRA- ORDINARY FORTUITOUS EVENT - events which are uncommon and which the
contracting parties could not have reasonable foreseen (e.g. earthquakes, fire, war,
pestilence, unusual flood)

REQUISITES OF A FORTUITOUS EVENTS

(1) Independent of the human will or at least of the debtor’s will
(2) Could not be foreseen, or if foreseen, is inevitable

16
 (3) Must be of such a character as to render it impossible for the debtor to comply with his
obligation in a normal manner
(4) The debtor must be free from any participation in, or the aggravation of, the injury to the
creditor, that is, there is no concurrent negligence on his part.

❖ Inability or poverty is not an excuse

❖ Mere difficulty to foresee the event is different from the impossibility to foresee the same.
❖ The event must be unforeseeable, or even if it could be foreseen, must be impossible to
avoid.

EXCEPTION OF FORTUITIOUS EVENT EXTINGUISH OBLIGATION

(1) When expressly specified by law
a. The debtor is guilty of fraud, negligence, or delay, or contravention of the tenor of the
obligation.
b. The debtor has promised to deliver the same (specific) thing to two (2) or more
persons who do not have the same interest.
c. The obligation to deliver a specific thing arises from a crime
d. The thing to be delivered is generic
(2) When declared by stipulation
(3) When the nature of the obligation requires the assumption of risk

1175. Usurious transactions shall be governed by special laws.

❖ SIMPLE LOAN or MUTUUM – is a contract whereby on of the parties delivers to another,

money or other consumable thing, upon the condition that the same amount of the same
kind and quality shall be paid. It may be gratuitous or with a stipulation to pay interest.
❖ USURY – contracting for or receiving interest in excess of the amount allowed by law for
the loan or use of money, goods, chattels or credits.
❖ USURY LAW – makes the usurers criminally liable if the interest charged on loans are
more that the limit prescribed by law

REQUISITES FOR RECOVERY OF INTEREST

In order that interest may be recovered, the following requisites must be present

(1) The payment of interest must be expressly stipulated

(2) The agreement must be in writing
(3) The interest must be lawful

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1176. The receipt of the principal by the creditor without reservation with respect to the
interest, shall give rise to the presumption that said interest has been paid. The receipt of a
later installment of a debt without reservation as to prior installments, shall likewise raise
the presumption that such installments have been paid.

❖ PRESUMPTION – inference of a fact not actually known arising from its usual connection
with another which is known or proved.

KINDS OF PRESUMPTION
(1) CONCLUSIVE PRESUMPTION – one which cannot be contradicted, like the presumption
that everyone is conclusively presumed to know the law
(2) DISPUTABLE (or REPUTTABLE) PRESUMPTION – one which can be contradicted or
rebutted by presenting proof of the contrary

WHEN PRESUMPTIONS IN ARTICLE 1176 DO NOT APPLY

(1) With reservation as the interest
(2) Receipts without indication of particular installment paid
(3) Receipt for a part of the principal
(4) Payment of taxes
(5) Non-payment proven

1177. The creditors, after having pursued the property in possession of the debtor to
satisfy their claims, may exercise all the rights and bring all the actions of the latter for the
same purpose, save those which are inherent in his person; they may also impugn the acts
which the debtor may have done to defraud them.

REMEDIES AVAILABLE TO CREDITORS FOR THE SATISFACTION OF

THEIR CLAIMS
(1) Exact fulfillment (specific performance) with the right to damages
(2) Pursue the leviable (not exempt from attachment under the law) property of the debtor
(3) ACCION SUBROGATORIA - “After having pursued the property in possession of the
debtor” exercise all the tights (like the right to redeem) and bring all the actions of the
debtor (like the right to collect from the debtor of his debtor) except those inherent in or
personal to the person of the latter (such as the right to vote, to hold office, to receive legal
support, to revoke a donation on the ground of ingratitude, etc.); and
(4) ACCION PAULIANA- Ask the court to rescind or impugn acts or contracts which the debtor
may have done to defraud him when he cannot in any other manner recover his claim
❖ The debtor is liable with all his property, present, and future, for the fulfillment of his
obligations, subject to the exemptions provided by law.

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1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if
there has been no stipulation to the contrary.

TRANSMISSIBILITY OF RIGHTS
→ All rights acquired in virtue of an obligation are generally transmissible or assignable. The
exception to this rule is the following.
EXCEPTIONS
(1) Prohibited by law
a. Contract of partnership
b. Contract of agency
c. Contract of commodatum
(2) Prohibited by stipulation of the parties

CHAPTER 3: DIFFERENT KINDS OF OBLIGATION

PRIMARY CLASSIFICATION OF OBLIGATION UNDER CIVIL CODE

a) Pure and Conditional Obligations
b) Obligations with a period
c) Alternative and Facultative Obligations
d) Joint and Solidary Obligations
e) Divisible and Indivisible obligations
f) Obligations with penal clause

SECONDARY CLASSIFICATION OB OBLIGATIONS UNDER CIVIL CODE

a) Unilateral and Bilateral Obligations
b) Real and Personal Obligations
c) Determinate and generic Obligations
d) Civil and Natural Obligation
e) Legal, conventional, and penal obligations

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SECTION 1. PURE AND CONDITIONAL OBLIGATIONS

1179. Every obligation whose performance does not depend upon a future or uncertain
event, or upon a past event unknown to the parties, is demandable at once. Every
obligation which contains a resolutory condition shall also be demandable, without
prejudice to the effects of the happening of the event.

❖ PURE OBLIGATIONS – one which is not subject to any condition and no specific date is
mentioned for its fulfillment and is, therefore, immediately demandable.
❖ CONDITION – is a future and uncertain event, upon the happening of which, the acquisition
or extinguishment of an obligation (or right) subject to it depends.
o CHARACTERISTICS OF A CONDITION
▪ Future and Uncertain – not ‘or’ but ‘and’. The future should be uncertain
▪ Past but unknown – past event unknown to the parties

❖ CONDITIONAL OBLIGATIONS – one whose consequences are subject in one way or

another to the fulfillment of a condition.

KINDS OF CONDITION

(1) SUSPENSIVE CONDITION (Condition precedent or condition antecedent) –

fulfillment of which will give rise to an obligation or right; the demandability
of the obligation is suspended until the happening of the uncertain event
which constitutes the condition.

(2) RESOLUTORY CONDITION (condition subsequent) – fulfillment of which

will extinguishes an obligation or right already existing.

BASIS SUSPENSIVE CONDITION RESOLUTORY CONDITION

When condition is fulfilled Obligation arises Obligation extinguished
If condition does not take The tie of the law does not The tie of the law is consolidated
place appear
Until the condition takes The existence of obligation is a Its effect flow, but over it hovers
place mere hope the possibility of termination

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WHEN OBLIGATION IS DEMANDABLE AT ONCE
(1) When it is pure
(2) When it is subject a resolutory condition
(3) When it is subject to a resolutory period

PAST EVENT UNKOWN TO THE PARTIES

→ Past event cannot be said to be a condition since the demandability of an obligation
subject to a condition depends upon whether the event will happen or will not happen
→ What is really contemplated by the law is the knowledge to be acquired in the future of a
past event which at the moment is unknown to the parties interested.

1180. When the debtor binds himself to pay when his means permit him to do so, the
obligation shall be deemed to be one with a period, subject to the provisions of Article
1197.

❖ PERIOD is a future and certain event upon the arrival of which the obligation subject to it
either arises or is extinguished.
o INDICATIONS OF TERM OR PERIOD
(1) The debtor promises to pay when his means permit him to do so – not
whether he can pay or not but what left to his will is the duration of the
period.
(2) Other cases – as when the debtor binds himself to pay
a. Little by little
b. As soon as possible
c. From time to time
d. At any time, I have the money
e. In partial payments
f. When I am in a position to pay

1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or

loss of those already acquired, shall depend upon the happening of the event which
constitutes the condition.

EFFECT OF HAPPENING OF CONDITIONS

❖ SUSPENSIVE CONDITION – the acquisition of rights by the creditor depends upon the
happening of the event which constitutes the condition; if such condition does not take
place, it would be as of the conditional obligation had never existed. (e.g. promise to give a
car after graduating from law school as cum laude)
❖ RESOLUTORY CONDITION – the rights and obligations already existing are under threat
of extinction upon the happening or fulfillment of such condition. (e.g. donation by reason of
marriage – the celebration of marriage is a resolutory condition; if the marriage did not push
through, the donation may be revoked)

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1182. When the fulfillment of the condition depends upon the sole will of the debtor, the
conditional obligation shall be void. If it depends upon chance or upon the will of a third
person, the obligation shall take effect in conformity with the provisions of this Code.

CLASSIFICATION OF CONDITIONS
(1) AS TO EFFECT
a. Suspensive – the happening of which gives rise to the obligation
b. Resolutory – the happening of which extinguishes the obligation

(2) AS TO FORM
a. Express – the condition is clearly stated
b. Implied – the condition is merely inferred

(3) AS TO POSSIBILITY
a. Possible – the condition is not capable of fulfillment, legally, or physically
b. Impossible – the condition is not capable of fulfillment, legally, or physically

(4) AS TO CAUSE OR ORIGIN

a. Potestative – the condition depends upon the will of one of the contracting parties =
if at the sole will of the debtor, it is void, if at the creditor’s, still valid. this is to prevent
the establishment of illusory obligations
b. Casual – the condition depends upon chance or upon the will of a third person ;(i.e.
cellphone warranty)
c. Mixed - the condition depends partly upon the will of the parties and partly upon
chance or the will of a third person; (passing the bar)

(5) AS TO MODE
a. Positive – the condition consists in the performance of an act
b. Negative – the condition consists in the omission of an act.

(6) AS TO NUMBERS
a. Conjunctive – there are several conditions, and all must be fulfilled
b. Disjunctive – there are several conditions and only one or some of them must be
fulfilled.

(7) AS TO DIVISIBILITY
a. Divisible – the condition is susceptible of partial performance
b. Indivisible – the condition is not susceptible of partial performance.

❖ A. POTESTATIVE CONDITION – a condition suspensive in nature and which depends

upon the sole will of one of the contracting parties.
o Where suspensive condition depends upon will of debtor
(1) Conditional obligation void – where the potestative condition depends
solely upon the will of the debtor, the conditional obligation shall be void
because its validity and compliance is left to the will of the debtor it cannot
therefore, be easily demanded.

22
 1. I will pay you if I want
2. I will pay you after I received a loan from the bank
3. I will pay you after I recover what X owes
(2) Only the condition void – if the obligation is preexisting one, and therefore,
does not depend for its existence upon the fulfillment by the debtor of the
potestative condition, only the condition is void leaving unaffected the
obligation itself. The condition is imposed not on the birth of the obligation
but on its fulfillment.
1. D borrowed 10,000 from C. Subsequently, D promised to pay C after D
sells his car. In this case only the condition is void but not the
preexisting obligation.
o Where resolutory condition depends upon will of debtor
o The fulfillment of the condition merely causes the extinguishment or loss of
rights already acquired. The debtor is naturally interested in its fulfillment.
❖ B. CASUAL CONDITION – if the suspensive condition depends upon chance or upon the
will of a third person, the obligation subject to it is valid
▪ Where X, building contractor, obliges himself in favor of Y, owner, to repair at
X’s expense any damage that may be caused to the building by any
earthquake occurring within 10 years from the date of the completion of its
construction.
▪ Where S binds himself to sell his land to B if he wins a case which is pending
before the Supreme Court.

❖ C. MIXED CONDITION – suspensive condition depends partly upon chance and partly
upon the will of a third person.
▪ Where X, building contractor, obliges himself in favor of Y, owner, to repair at
X’s expense, any damage to the building taking place after an earthquake if
found by a panel of arbitrators that construction defects contributed in any way
to the damage.
▪ Both conditions must take place in order that X’s obligation will arise. The
decision of the panel (third party) must be accepted by X and Y as final unless
it can be shown that it was incompetent to act in that capacity or was
obviously biased favoring X or Y.
o Where suspensive condition depends upon will of debtor
▪ Conditional obligations whose fulfillment depends partly upon the will of the
debtor and partly upon the will of a third person, or upon chance are perfectly
valid.
▪ If the compliance with the obligation still depends upon that part of the
condition whose fulfillment depends upon the will of the debtor, the obligation
is void as it is within his power to comply or not to comply with the same.

1183. Impossible conditions, those contrary to good customs or public policy and those
prohibited by law shall annul the obligation which depends upon them. If the obligation is
divisible, that part thereof which is not affected by the impossible or unlawful condition
shall be valid. The condition not to do an impossible thing shall be considered as not
having been agreed upon

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 - refers to suspensive condition. It applies only to cases where the impossibility already
existed at the time the obligation was constituted.

- if the impossibility arises after the creation of the obligation, Article 1266 governs.

❖ POSSIBLE CONDITION – if it is capable of realization or actualization according to nature,

law, public policy or good customs

TWO KINDS OF IMPOSSIBLE CONDITIONS

(1) PHYSICALLY IMPOSSIBLE CONDITIONS – when they, in nature of things, cannot exist or
cannot be done
(2) LEGALLY IMPOSSIBLE CONDITIONS – when they are contrary to law, morals, good
customs, public order, or public policy.

EFFECT OF IMPOSSIBLE CONDITIONS

(1) Conditional obligation void – Both obligation and the condition are void. The reason
behind the law is that the obligor knows his obligation cannot be fulfilled. He has no
intention to comply with his obligation
(2) Conditional obligation valid – If the condition is negative, that is, not do an impossible
thing, it is disregarded, and the obligation is rendered pure and valid. Negative condition
may not be to give an impossible thing.
→ I will sell you my land if you do not carry 20 cavans of palay on your
shoulder.

(3) Only the affected obligation void – if the obligation is divisible, the part thereof not
affected by the impossible condition shall be valid.
→ I will give you 10,000 if you sell my land, and a car, if you kill Pedro.
→ The obligation to give 10,000 is valid but the obligation to give a car is void
because it is dependent upon an impossible condition.

(4) Only the condition void – if the obligation is a preexisting obligation, and therefore, does
not depend upon the fulfillment of the condition which is impossible, for its existence,
only the condition is void.
→ D borrowed 10,000 from C. If C later agreed to kill X before D pays him,
the condition “to kill X” is void but not the preexisting obligation of D “to pay
C”

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1184. The condition that some events happen at a determinate time shall extinguish the
obligation as soon as the time expires or if it has become indubitable that the event will not
take place.

❖ POSITIVE SUSPENSIVE CONDITION – the happening of an event at a determinate time;

refers to the fulfillment of an event or performance of an act

In positive condition, the obligation is extinguished:

(1) As soon as the time expires without the event taking place
(2) As soon as it has become indubitable that the event will not take place although the
time specified has not expired

→ X obliges himself to give B 10,000 if B will marry C before B reaches the age of
23
→ X is liable if B marries C before he reaches the age of 23
→ X is not liable if B marries C at the age of 23 or after
→ Obligation is extinguished if B died at the age of 22, because obligation is
indubitable that the condition will not take place

1185. The condition that some event will not happen at a determinate time shall render the
obligation effective from the moment the time indicated has elapsed, or if it has become
evident that the event cannot occur. If no time has been fixed, the condition shall be
deemed fulfilled at such time as may have probably been contemplated, bearing in mind
the nature of the obligation.

❖ NEGATIVE SUSPENSIVE CONDITION – that event will not happen at a determinate time;
refers to the non-fulfillment or nonperformance of an act. This is a condition of non-
happening of a future event.

In negative condition, the obligation shall become effective and binding:

(1) From the moment the time indicated has elapsed without the event taking place; or
(2) From the moment it has become evident that the event cannot occur, although the time
indicated has not yet elapsed.

❖ If no time is fixed the circumstances shall be considered to arrive at the intention of

the parties. This rule may also be applied to a positive condition.

→ X binds himself to give 10,000 if B is not yet married to C on December 30.

→ X is not liable if B marries C on December 30 or prior thereto.
→ X is liable to B if on December 30, B is not married to C and if B marries C
after December 30. The condition of not marrying is fulfilled upon the
expiration of the time indicated.
→ Obligation is rendered effective if C dies on November 30 without having been
married to B. Because it is certain that the condition not to marry C will be

25
 fulfilled. The obligation is fulfilled from the moment C’s death on November 20
although the time indicated is December 30.

1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment

- This provision speaks of the DOCTRINE OF CONSTRUCTIVE FULFILLMENT

REQUISITES OF CONSTRUCTIVE FULFILLMENT OF SUSPENSIVE

OBLIGATION
(1) The condition is SUSPENSIVE
(2) The obligor ACTUALLY PREVENTS the fulfillment of the condition
(3) He acts VOLUNTARILY

❖ Malice or fraud is not required, if his purpose is to prevent the fulfillment of the
condition.
❖ No person shall profit by his own wrong

CONSTRUCTIVE FULFILLMENT OF RESOLUTORY OBLIGATION

→ Article 1186 applies also to an obligation subject to a resolutory condition with respect to
the debtor who is bound to return what he has received upon the fulfillment of the condition.

1187. The effects of a conditional obligation to give, once the condition has been fulfilled,
shall retroact to the day of the constitution of the obligation. Nevertheless, when the
obligation imposes reciprocal prestation upon the parties, the fruits and interests during
the pendency of the condition shall be deemed to have been mutually compensated. If the
obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless
from the nature and circumstances of the obligation it should be inferred that the intention
of the person constituting the same was different. In obligations to do and not to do, the
courts shall determine, in each case, the retroactive effect of the condition that has been
complied with.

➢ Applies only to fulfilled suspensive conditions.

➢ Retroactive statute
➢ The effect of the obligation is deemed to commence not from the fulfillment of the obligation
but from the day of its constitution (similar to the legitimation of a natural child).

RETROACTIVE EFFECT OF FULFILLMENT OF SUSPENSIVE

CONDITION
(1) In obligations to give – once the condition is fulfilled, its effect shall retroact to the day when
the obligation was constituted. It is because the condition is only an accidental element of a

26
 contract. Obligation should be considered from the time it is constituted and not from the
time the condition is fulfilled.
(2) In obligation to do or not to do – no fixed rule is provided. The retroactive effect shall be
determined by the court using its sound discretion without disregarding the intentions of the
parties.

RETROACTIVE EFFECTS AS TO FRUITS AND INTERESTS IN

OBLIGATIONS TO GIVE
(1) In reciprocal obligations – there is no retroactivity because the fruits and interest received
during the pendency of the condition are deemed to have been mutually compensated.
(2) In unilateral obligations – the debtor receives nothing from the creditor because they are
gratuitous. Fruits and interest belong to the debtor unless from the nature and other
circumstances of the obligation it should be inferred that the intention of the person
constituting the same was different.

1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions
for the preservation of his right. The debtor may recover what during the same time he has
paid by mistake in case of a suspensive condition.

RIGHTS PENDING FULFILLMENT OF SUSPENSIVE CONDITION

(1) Rights of CREDITOR – the debtor may render nugatory (not serious, ignore) the obligation
upon the happening of the obligation.
→ Action for prohibition restraining the alienation of the thing pending the happening of
the suspensive condition.
→ Action to demand security if the debtor has become insolvent.
→ Action to set aside alienations made by the debtor in fraud of creditors.
→ Actions against adverse possessors to interrupt the running prescriptive period.
→ To have his rights annotated in the registry.

(2) Rights of the DEBTOR – entitled to recover what has been paid by mistake prior to the
happening of the suspensive condition

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1189. When the conditions have been imposed with the intention of suspending the
efficacy of an obligation to give, the following rules shall be observed in case of the
improvement, loss or deterioration of the thing during the pendency of the condition

LOSS

(1) Debtor without fault – obligation is extinguished

(2) Debtor with fault – obligation to pay damages

o KINDS OF LOSS
▪ PHYSICAL LOSS – when a thing perishes
▪ LEGAL LOSS – when thing goes out of commerce (ex. Expropriated) or when
a thing heretofore legal becomes illegal
▪ CIVIL LOSS – when a thing disappears in such a way that its existence is
unknown (particular dog has been missing for sometimes) or even if known it
cannot be recovered (dropped in sea, lost through prescription)

DETERIORATION

(1) Debtor without fault – impairment is to be borne by the creditor

(2) Debtor with fault – creditor chooses rescission of obligation, fulfillment, indemnity

IMPROVEMENT

(1) By nature, or time – improvement: inure to the benefit of the creditor

(2) At the expense of the debtor – granted to the usufructuary

REQUISITES FOR APPLICATION OF ARTICLE 1189

(1) The obligation is a real obligation

(2) The object is specific or determinate thing
(3) The obligation is subject to suspensive condition
(4) The condition is fulfilled
(5) There is loss, deterioration, or improvement of the thing during the pendency of the
condition.

❖ USUFRUCT right to enjoy the use and fruits of a thing belonging to another.

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1190. When the conditions have for their purpose the extinguishment of an obligation to
give, the parties, upon the fulfillment of said conditions, shall return to each other what
they have received. In case of the loss, deterioration or improvement of the thing, the
provisions which, with respect to the debtor, are laid down in the preceding article shall be
applied to the party who is bound to return. As for the obligations to do and not to do, the
provisions of the second paragraph of Article 1187 shall be observed as regards the effect
of the extinguishment of the obligation.

- refers to the fulfillment of resolutory condition

EFFECTS OF FULFILLMENT OF RESOLUTORY CONDITION

(1) In obligations to give – when the resolutory condition in an obligation to give is fulfilled,
the obligation is extinguished, and the parties are obliged to return to each other what
they have received under the obligation.
a. Return of statues quo. The effect of fulfillment of the condition is retroactive
b. In the case the thing to be returned is legally in the possession of a third
person who did not act in bad faith, the remedy of the party entitled to
restitution is against the other.
c. The obligation of mutual restitution is absolute. It applies not only to the thing
received but also to the fruits and interests.
d. In obligations to give subject to suspensive condition, the retroactivity admits
exceptions according as the obligation is bilateral or unilateral.

(2) In obligations to do or not to do – the court shall determine the retroactive effect of the
fulfillment of the resolutory condition, as in the case where the condition is suspensive.
The courts in the exercise of discretion may even disallow retroactivity, taking into
account the circumstances of each case.

APPLICABILITY OF ARTICLE 1189 TO PARTY WITH OBLIGATION TO

RETURN
❖ The happening of a resolutory condition has the same effect on the creditor as the
happening of a suspensive condition has on the debtor – an obligation arises.
❖ The fulfillment of the resolutory condition converts the creditor into debtor, and the debtor
into creditor.

1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him. The injured party may
choose between the fulfillment and the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even after he has chosen fulfillment,
if the latter should become impossible. The court shall decree the rescission claimed,
unless there be just cause authorizing the fixing of a period. This is understood to be
without prejudice to the rights of third persons who have acquired the thing, in accordance
with Articles 1385 and 1388 and the Mortgage Law.

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KINDS OF OBLIGATION ACCORDING TO THE PERSON OBLIGED
(1) UNILATERAL – when only one party is obliged to comply with a prestation
→ Donation and in a contract of loan, the lender has the obligation to give. After the
lender has complied with his obligation, the debtor has the obligation to pay.

(2) BILATERAL – when both parties are mutually bound to each other. In other words, both
parties are debtors and creditors of each other.
a. RECIPROCAL OBLIGATION – arise from the same cause and in which each party
is a debtor and creditor of the other, such that the performance of one is designed to
be the equivalent and the condition for the performance of the other of his own
obligation.
→ In contract of sale, absence of any stipulation, the delivery of thing sold by the
seller is conditioned upon the simultaneous payment of the purchase price by
the buyer. Ex. Shopee order.
→ The seller is the creditor as to the price and the debtor as to the thing while
buyer is the creditor as to the thing and debtor as to the price.
b. NON-RECIPROCAL OBLIGATION – those which do not impose simultaneous and
correlative performance on both parties. The performance of one party is not
dependent upon the simultaneous performance by the other of his own obligation.
→ Angelyn borrowed 10,000 from Ma. Bhell, on the other hand, Ma. Bhell
borrowed Angelyn’s tablet. The performance by Angelyn of her obligation to
Ma. Bhell is not conditioned upon the performance of Ma. Bhell of her
obligation and vice versa.
→ Although Angelyn and Ma. Bhell are debtors and creditors of each other,
their obligations are not reciprocal. The obligation of Angelyn arises from the
contract of loan, while Ma. Bhell, from the contract of commodatum.
→ The obligations are not dependent upon each other and are not
simultaneous.

REMEDIES IN RECIPROCAL OBLIGATIONS

(1) Specific performance or fulfillment of obligation with damages.
(2) Rescission of contract with damages.

❖ RESCISSION – remedy available to an oblige when the obligor fails to comply with his
obligations, to abrogate their contract as if it was never entered, with the right to
recover damages.
o When a party demands recission in reciprocal obligations he, in effect, treats
the non-fulfillment by the other party of his obligation as a resolutory condition.
o Court may grant guilty party term for performance unless there should be just
caused for granting the party in default a term or period for the performance of
his obligation.
o Remedies are alternative and not cumulative, and not both. After choosing
rescission of the obligation, he cannot thereafter demand its compliance.
• LIMITIATIONS on RIGHT TO DEMAND RESCISSION
» Resort to the court - The aggrieved party has to resort to the court
to assert his rights judicially. No person can take justice or the law
on his own hands and decide by himself.
30
 » Power of court to fix period- The court has discretionary power to
allow a period within which a person in default may be permitted
to perform his obligation if there is just cause for giving time to the
debtor.
» Right of third person - If the thing subject matter of the obligation I
sin the hands of a third person who acted in good faith, rescission
in not available as a remedy.
» Substantial violation – the general rule is that rescission will not be
granted for slight breaches of contract; the violation should be
substantial as to defeat the object of the parties in making the
agreement.
» Waiver of right – the right to rescind may be waived, expressly or
impliedly.

• RESCISSION WITHOUT PREVIOUS JUDICIAL DECREE

» Where automatic rescission expressly stipulated – there must be
at least written notice sent to the other party informing him of the
rescission. The right to rescind is not implied but expressly
recognized by the parties.
» Where contract still executory – where there is no performance yet
by both parties, but one is ready and willing to comply with what is
incumbent upon him and the other is not, the willing party may by
his own declaration, rescind the contract without a previous
judicial decree of rescission.

Effect of rescission: the parties must surrender whatever they have received from the other, and
the obligation to pay is extinguished.

If there is an express stipulation of automatic rescission between parties – such resolution

shall take place only after the creditor has notified the debtor of his choice of rescission subject to
judicial scrutiny.

1192. In case both parties have committed a breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts. If it cannot be determined which of the
parties first violated the contract, the same shall be deemed extinguished, and each shall
bear his own damages.

WHERE BOTH PARTIES ARE GUILTY OF BREACH

FIRST INFRACTOR KNOWN - The liability of the first infractor should be equitably reduced. –
equitably offset each other’s damages.

FIRST INFRACTOR CANNOT BE DETERMINED - The court shall declare the extinguishment of
the obligation, and each shall bear his own damages.

31
SECTION 2. OBLIGATIONS WITH A PERIOD
1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable
only when that day comes. Obligations with a resolutory period take effect at once but
terminate upon arrival of the day certain. A day certain is understood to be that which must
necessarily come, although it may not be known when. If the uncertainty consists in
whether the day will come or not, the obligation is conditional, and it shall be regulated by
the rules of the preceding Section.

❖ OBLIGATION WITH PERIOD – is one whose effect or consequences are subjected in one
way or another to the expiration or arrival of said period or term.
❖ PERIOD – is a future and certain event upon the arrival of which the obligation (or right)
subject to it either arises or is terminated.
- It is a day certain which must necessarily come (like year 2010, Christmas) although it may
not be known as death of a person
- it may be definite (exact date or time is known) or indefinite (arrival of date is unknown but
sure to come)
- - Future + Certain event

PERIOD AND CONDITION DISTINGUISED

BASIS PERIOD CONDITION

As to fulfillment Certain event which must Uncertain event
happen sooner or later at a
date known beforehand, or at
a time which cannot be
determined
As to time Refers only to the future May refer also to a past event
unknown to the parties
As to influence on the Merely fixes the time for the Causes an obligation either to
obligation efficaciousness of the arise or to cease
obligation. If suspensive, it
cannot prevent the birth of the
obligation in due time; if
resolutory it does not
invalidate the fact that the
obligation existed
As to effect, when left to Depends upon the will of the Depends upon the sole will of
debtor’s will debtor empowers the court to the debtor invalidates the
fix the duration thereof obligation
As to retroactivity of effects Arrival of a period does not Happening of a condition has
have any retroactive effect retroactive effect
❖ Like a condition, a period must be possible. If the period is impossible, the
obligation is void (e.g. February 30, construction of a building within 24hrs)

32
KINDS OF PERIOD OR TERM
(1) ACCORDING TO EFFECT
a. Suspensive period (ex-die) – the obligation begins only from a day certain upon the
arrival of period.
→ I will pay you 30 days from today
b. Resolutory period (in diem) – the obligation is valid up to a day certain and
terminates upon arrival of the period.
→ I will give you 500 a month until the end of the year.

(2) ACCORDING TO SOURCE

a. Legal Period – When it is provided for by laws
b. Conventional Period or voluntary period – When it is agreed to by the parties
c. Judicial Period – When it is fixed by the court

(3) ACCORDING TO DEFINITENESS

a. Definite period – When it is fixed, or it is known when it will come.
b. Indefinite period – When it is not fixed, or it is not known when it will come. Where
the period is not fixed but a period is intended, the courts are usually empowered by
law to fix the same.

REQUISITES:

» Future
» Certain, sure to come
» Physically or legally possible

1194. In case of loss, deterioration or improvement of the thing before the arrival of the day
certain, the rules in Article 1189 shall be observed.

1195. Anything paid or delivered before the arrival of the period, the obligor being unaware
of the period or believing that the obligation has become due and demandable, may be
recovered, with the fruits and interests

▪ Applies to obligation to give

▪ The payment or delivery is done before the arrival of the period.
▪ Allows recovery of what has been paid by mistake before the fulfillment of a suspensive
condition.
▪ Creditor cannot unjustly enrich himself by retaining the thing or money received before
the arrival of the period.

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CONSEQUENCES:

1. If the debtor was not aware of the period or he believes that the obligation has become
due and demandable – he can recover what he paid or delivered including fruits and interests.

2. If debtor was aware and he paid voluntarily – he cannot recover the delivery made; it is
deemed a waiver of the benefit of the term and the obligation is considered already matured.

• The presumption is that the debtor knew that the debt was not yet due. He has the
burden of proving that he was unaware of the period.
• No recovery in personal obligations to do or not to do because it is physically impossible
to recover service rendered.

1196. Whenever in an obligation a period is designated, it is presumed to have been

established for the benefit of both the creditor and the debtor, unless from the tenor of the
same or other circumstances it should appear that the period has been established in favor
of one or of the other.

PRESUMPTION: In an obligation subject a period fixed by the parties, the period is presumed to
have been established for the benefit of both the creditor and debtor. Before the expiration of
period, the debtor may not fulfill the obligation and neither the creditor may demand its fulfillment.

EXCEPTION: When it appears that the period is for the benefit of one or the other.

❖ This cannot apply when the court was authorized by the parties to fix a reasonable term

The benefit of the term may be the subject of stipulation of the parties.

(1) Term is for the benefit of the debtor alone – he cannot be compelled to pay
prematurely, but he can if he desires to do so.
→ A obliges himself to pay B within 5 years. A cannot be compelled to pay
prematurely, but he can pay anytime within 5 years (A will benefit because he
can pay anytime, he wants as long as it is within 5 years; B will not benefit from
the interests if A decides to pay early).

(2) Term is for the benefit of the creditor – He may demand fulfillment even before the
arrival of the term, but the debtor cannot require him to accept payment before the
expiration of the stipulated period.
→ A borrows money from B and is obliged to make the payment on December 5. B
may compel A to make the payment before December 5, but A may not compel
B to receive the payment before December 5 (B will benefit from the interests
that will accrue before December 5).

• The creditor may have reasons other than the maturity of interest, that’s why, unless
the creditor consents, the debtor has no right to accelerate the time of payment even if
the premature tender includes an offer to pay the principal and interest in full.

❖ No recovery in personal obligations – The articles have no application to obligations to

do or not to do because as to the former, it is physically impossible to recover the service
34
 rendered, and as to the latter, as the obligor performs by not doing, he cannot, of course,
recover what he has not done.

LEGAL PERIODS – year shall be understood to be 12 calendar months; months is 30 days,

unless it refers to a specific calendar month in which case it shall be computed according to the
number of days the specific month contains.

CALENDAR MONTH – month designated in the calendar without regard to the number of days it
may contain.

1197. If the obligation does not fix a period, but from its nature and the circumstances it
can be inferred that a period was intended, the courts may fix the duration thereof. The
courts shall also fix the duration of the period when it depends upon the will of the debtor.
In every case, the courts shall determine such period as may under the circumstances have
been probably contemplated by the parties. Once fixed by the courts, the period cannot be
changed by them.

JUDICIAL PERIOD – period designated by the court

CONTRACTUAL PERIOD – period fixed by the parties in their contract.

Court will fix a period:

1. When no period is mentioned, but it is inferable from the nature and circumstances of the
obligation that a period was intended by the parties.

2. When the period is dependent upon the will of the debtor.

• If the obligation does not state and intend a period, the court is not authorized to fix a period.

• The court must fix the duration of the period to prevent the possibility that the obligation may
never be fulfilled or to cure a defect in a contract whereby it is made to depend solely upon the will
of one of the parties.

Court cannot fix the period:

1. If there is a period agreed upon by the parties and it has already lapsed or expired.

2. From the very moment the parties give their acceptance and consent to the period fixed by the
court, it becomes a law governing their contract.

1198. The debtor shall lose every right to make use of the period: (1) When after the
obligation has been contracted, he becomes insolvent, unless he gives a guaranty or
security for the debt; (2) When he does not furnish to the creditor the guaranties or
securities which he has promised; (3) When by his own acts he has impaired said
guaranties or securities after their establishment, and when through a fortuitous event they
disappear, unless he immediately gives new ones equally satisfactory; (4) When the debtor
violates any undertaking, in consideration of which the creditor agreed to the period; (5)
When the debtor attempts to abscond
35
GENERAL RULE: the obligation is not demandable before the lapse of the period. However, in
any of the cases mentioned above, the debtor shall every right to make use of the period, that is,
the period disregarded, and the obligation becomes pure and, therefore, immediately demandable.

• When debtor becomes insolvent.

» The insolvency need not be judicially declared. It is sufficient that debtor could
not pay his debts due to lack of money or funds.

• When the debtor does not furnish guaranties or securities.

• When guaranties or securities given have been impaired or have disappeared.

» If security was lost through debtor’s fault - impairment

» If security was lost through fortuitous event - disappearance

• When debtor violates an undertaking, if such undertaking is the reason for the creditor to
agree with such period.

• When debtor attempts to abscond (escape). Mere attempt to abscond is sufficient. It is

an indication of bad faith

SECTION 3. ALTERNATIVE OBLIGATION

ARTICLE 1199. A person alternatively bound by different prestations shall completely
perform one of them. The creditor cannot be compelled to receive part of one and part of
the other undertaking.

KINDS OF OBLIGATION ACCORDING TO OBJECT

(1) SIMPLE OBLIGATIONS – one where there is only one prestation
(2) COMPOUND OBLIGATION – one where there are two or more prestations.
a. CONJUNCTIVE OBLIGATION – several prestations and all of them are due
b. DISTRIBUTIVE OBLIGATION – two are more prestations is due.
i. ALTERNATIVE OBLIGATION – one where several prestations are due but
the performance of one is sufficient
ii. FACULTATIVE OBLIGATION – one where only one prestation is due but the
debtor may substitute another.

MEANING OF ALTERNATIVE OBLIGATION

ALTERNATIVE OBLIGATION – wherein various prestations are due but the performance of one
of them is sufficient as determined by the choice.

❖ General Rule: The choice belongs to the debtor.

36
ARTICLE 1200. The right of choice belongs to the debtor, unless it has been expressly
granted to the creditor. The debtor shall have no right to choose those prestations which
are impossible, unlawful or which could not have been the object of the obligation.

❖ Implied grant to the creditor is not allowed. If it does not appear on the agreement as to
whom among them has the right to choose, it is the debtor who can choose.

RIGHT OF CHOICE BELONGS TO THE DEBTOR

- The debtor cannot choose those prestations which are impossible, unlawful, and which
could not have been the object of the prestations. These prestations are void.

ARTICLE 1201. The choice shall produce no effect except from the time it has been
communicated.

(1) The choice shall not produce any legal effect until it has been duly communicated to the
other party.
(2) It can be done in writing, verbally, impliedly, or any unequivocal means.
(3) Once the choice has been communicated to the other party:
» The obligation is now LIMITED only to the PRESTATION CHOSEN, with all the
natural consequences flowing therefrom.
» The choice is IRREVOCABLE.
o The performance of prestation without announcing the choice to the
creditor is NOT BINDING.
o The consent of the other party is NOT REQUIRED in making the choice –
that will in effect frustrate the clear intention of the law and the nature of
the alternative obligation.
o If there is delay in the making of choice – punish the one who is supposed
to exercise the right of choice for the delay he caused – court may order
the debtor to make a choice, or creditor to make the choice within certain
period, or court makes the choice.

❖ Until the choice is made and communicated, the obligation remains alternative.

ARTICLE 1202. The debtor shall lose the right of choice when among the prestations
whereby he is alternatively bound, only one is practicable.

EFFECT when only one prestation is practicable

» The obligation is converted into a simple one.

37
ARTICLE 1203. If through the creditor's acts the debtor cannot make a choice according to
the terms of the obligation, the latter may rescind the contract with damages.

(1) If the debtor could not make a choice due to the creditor’s act of making the prestations
impossible, debtor may RESCIND the contract with damages - rescission takes place at the
initiative of the debtor.

(2) If the debtor is being prevented to choose only a particular prestation, and there are others
available, he is free to choose from them, after notifying the creditor of his decision

ARTICLE 1204. The creditor shall have a right to indemnity for damages when, through the
fault of the debtor, all the things which are alternatively the object of the obligation have
been lost, or the compliance of the obligation has become impossible. The indemnity shall
be fixed taking as a basis the value of the last thing which disappeared, or that of the
service which last became impossible. Damages other than the value of the last thing or
service may also be awarded.

» If the impossibility of all the objects of the alternative obligation is caused by the debtor, the
creditor is entitled to damages.
» If such impossibility is caused by a fortuitous event, the obligation is extinguished and the
debtor is released from responsibility, unless the contrary is stipulated by the parties.
» The creditor cannot claim for damages if the debtor can still perform the remaining
prestations.
» The damages that may be recovered is based on the last thing which disappeared or the
service which became impossible. This last one is converted into a simple obligation.

ARTICLE 1205. When the choice has been expressly given to the creditor, the obligation
shall cease to be alternative from the day when the selection has been communicated to
the debtor. Until then the responsibility of the debtor shall be governed by the following
rules:

(1) only one thing lost – fortuitous event – creditor chooses from the remainder – debtor
delivers the choice to creditor.
(2) only one remains – debtor delivers the same to the creditor.
(3) only one thing lost – fault of the debtor
a) creditor may choose any one of the remainders.
b) creditor may choose the price or value of the one which was lost.
c) may choose 1 or 2 plus damages
(4) all things lost – fault of the debtor – creditor may choose the price of ANYONE of the
things, with damages if warranted

❖ The same rules shall be applied to obligations to do or not to do in case one, some or all of
the prestations should become impossible.
❖ This article applies only when the right of choice has been expressly granted to the creditor

38
ARTICLE 1206. When only one prestation has been agreed upon, but the obligor may
render another in substitution, the obligation is called facultative. The loss or deterioration
of the thing intended as a substitute, through the negligence of the obligor, does not render
him liable. But once the substitution has been made, the obligor is liable for the loss of the
substitute on account of his delay, negligence or fraud

FACULTATIVE OBLIGATION – only one prestation has been agreed upon but the obligor may
render another in substitution.

EFFECT of LOSS

(1) Before substitution

a. Principal thing is lost through fortuitous event = obligation is extinguished
b. Principal thing is lost through debtor’s fault = debtor is liable for damages
c. Substitute is lost with or without debtor’s fault = not render him liable
❖ Reason: thing intended as a substitute is not due. The effect of the loss
merely extinguished the facultative character of the obligation.
(2) After substitution
a. Principal thing is lost = debtor is not liable
b. Substitute is lost through debtor’s fault = debtor is liable
c. Substitute is lost through fortuitous event = debtor is not liable
❖ Reason: the obligation is converted into a simple one to deliver or perform the
substituted thing or prestation. The substitution becomes effective from the
time it has been communicated.

ALTERNATIVE AND FACULTATIVE OBLIGATIONS DISTINGUISED

BASIS ALTERNATIVE FACULTATIVE

Number of prestations Several prestations are due Only one prestation is due
but compliance of with one is although the debtor may
sufficient render another in substitution
Right of choice Right of choice may be given Right to make substitution is
to the creditor or third person given only to the debtor
Loss through fortuitous event Lost of one or more The loss of the thing due
alternatives does not extinguishes the obligation
extinguish the obligation
Loss though fault of debtor Loss of one of the alternatives Loss of the thing due makes
does not render him liable him liable

Where the choice belongs to The loss of the substitute

the creditor, the loss of one before the substitution through
alternative through the fault of the fault of the debtor does not
the debtor gives rise to liability render him liable.

39
SECTION 4. JOINT AND SOLIDARY OBLIGATIONS
ARTICLE 1207. The concurrence of two or more creditors or of two or more debtors in one
and the same obligation does not imply that each one of the formers has a right to demand,
or that each one of the latter is bound to render, entire compliance with the prestation.
There is a solidary liability only when the obligation expressly so states, or when the law or
the nature of the obligation requires solidarity.

KINDS OF OBLIGATIONS ACCORDING TO THE NUMBER OF PARTIES

INDIVIDUAL OBLIGATION – one where there is only one obligor, or one oblige

COLLECTIVE OBLIGATION – one where there are two or more debtors or two or more creditors.
It may be joint or solidary.

MEANING OF JOINT AND SOLIDARY OBLIGATIONS

JOINT OBLIGATION – whole obligation is to be paid or fulfilled proportionately by the different
debtors and or is to be demanded proportionately by the different creditors.

SOLIDARY OBLIGATION – each one of the debtors is bound to render, and / or each one of the
creditors has the right to demand from any of the debtors, entire compliance with the prestation.

- Passive Solidarity – solidarity on the part of the DEBTORS

- Active Solidarity – solidarity on the part of the CREDITORS

❖ SOLIDARITY SHOULD BE EXPRESSED – law, stipulation, nature of obligation.

❖ When the obligation is ambiguous, it must be considered as joint obligation.

KINDS OF SOLIDARITY
ACCORDING TO THE PARTIES BOUND

o Passive Solidarity – full payment made by anyone of the solidary debtors extinguishes the
obligation. The one who paid can claim reimbursement from his codebtors as regards their
corresponding shares in the obligation. Any one of them can be made liable for the
fulfillment of the entire obligation. It is in the nature of mutual guaranty.
o Active Solidarity – full payment to any of the creditors extinguishes the obligation. The
creditor who received the entire amount will be liable to pay the corresponding shares of his
co-creditors in accordance with their internal agreement
o Mixed Solidarity – solidarity on the part of the debtors and creditors, where each one of
the debtors is liable to render, and each one of the creditors has a right to demand, entire
compliance with the obligation.

ACCORDING TO SOURCE

1. Conventional Solidarity – where solidarity is agreed upon by the parties. If nothing is

mentioned in the contract relating to solidarity, the obligation is only joint.
2. Legal Solidarity – where solidarity is imposed by law.
3. Real Solidarity – where solidarity is imposed by the nature of the obligation.

40
ARTICLE 1208. If from the law, or the nature or the wording of the obligations to which the
preceding article refers the contrary does not appear, the credit or debit shall be presumed
to be divided into as many shares as there are creditors or debtors, the credits or debts
being considered distinct from one another, subject to the Rules of Court governing the
multiplicity of suits.

- This provision speaks of JOINT DIVISIBLE OBLIGATION.

- When there is a concurrence of several creditors or of several debtors in one and in the
same obligation, there is a presumption that the obligation is joint.
- Solidarity is not presumed because it is very burdensome for they create unusual rights and
liabilities. Solidarity between debtors increases their responsibilities while solidarity between
creditors increases the right of each creditor.

CONSEQUENCES OF JOINT OBLIGATION

1. Each debtor – liable for a proportionate part of the entire debt

2. Each creditor – entitled to a proportionate part of the credit
3. Demand made by one creditor upon one debtor produces the effect of default only as
between them, but not with respect to the others
4. The interruption of prescription caused by the demand made by one creditor upon one
debtor will not benefit the co-creditors.
5. The insolvency of one debtor will not increase the liability of his co-debtors, nor will it allow
a creditor to demand anything from the co-creditors

ARTICLE 1209. If the division is impossible, the right of the creditors may be prejudiced
only by their collective acts, and the debt can be enforced only by proceeding against all
the debtors. If one of the latter should be insolvent, the others shall not be liable for his
share.

JOINT INDIVISIBLE OBLIGATION – an obligation where solidarity is not provided and the
prestation or object is not susceptible of division; its fulfillment requires the concurrence of all
debtors, while doing each one’s parts.

- Joint because the parties are proportionately liable

- Indivisible because the object or subject matter is not physically divisible.
- Joint as to the liabilities or rights of the creditors, indivisible as to compliance.

41
ARTICLE 1210. The indivisibility of an obligation does not necessarily give rise to
solidarity. Nor does solidarity of itself imply indivisibility.

INDIVISIBILITY AND SOLIDARITY DISTINGUISHED

- Solidarity is expressed in the stipulations of the party, law governing the obligation, or the
nature of the obligation.

INDIVISIBLE OBLIGATION – an obligation where the prestation or object to be delivered

cannot be performed by parts without altering its essence or substance.

BASIS INDIVISIBILITY SOLIDARITY

Nature Refers to the prestation Refers to the juridical or legal
tie that binds
Liability Only the debtor guilty of All the debtors are liable for
breach of obligation is liable the breach of the obligation
for damages committed by a debtor.
Number of subject/parties Can exist although there is There must be at least two
only one debtor and one debtors or two creditors
creditor
Others are not liable in case Debtors are proportionately
of insolvency of one debtor liable

ARTICLE 1211. Solidarity may exist although the creditors and the debtors may not be
bound in the same manner and by the same periods and conditions.

KINDS OF SOLIDARY OBLIGATION ACCORDING TO THE LEGAL TIE

(1) UNIFORM – when the parties are bound by the same stipulations
(2) NON-UNIFORM or VARIED – when the parties are not subject to the same stipulations

❖ The solidarity of the debtors is not affected even if different terms and conditions are
made applicable to them.
❖ Enforcement of the terms and conditions may be made at different times. The
obligations which have matured can be enforced while those still undue will have to be
awaited. Enforcement can be made against any one of the solidary debtors although it
can happen that a particular obligation chargeable to a particular debtor is not yet due.
He will be answerable for all the prestations which fall due although chargeable to the
other co-debtors
❖ The parties may stipulate that any solidary debtor already bound may be liable for the
entire obligation.

42
ARTICLE 1212. Each one of the solidary creditors may do whatever may be useful to the
others, but not anything which may be prejudicial to the latter.

- Every solidary creditor is benefited by the useful acts of any one of them.
- If a solidary creditor performs an act which is not fair to his co-creditors, the act may have
valid legal effects or the obligation of the debtor due to them may be extinguished, but the
performing creditor shall be liable to his co-creditors.

❖ Based on the rule of MUTUAL AGENCY (right of one to act for and in the name of the
others) among solidary creditors

ARTICLE 1213. A solidary creditor cannot assign his rights without the consent of the
others

ASSIGN – transfer of right

❖ The assignee does not become a solidary creditor, and any payment made upon him by the
debtor does not extinguish the obligation. He is considered a STRANGER, and his acts are
not binding to the solidarity.

DOCTRINE OF MUTUAL AGENCY - In solidary obligations, the act of one is act of the others.

EXCEPTIONS TO THE DOCTRINE:

1. Art. 1212 – a creditor may not perform an act prejudicial to other creditors

2. Art. 1213 – a creditor cannot transfer his right without consent

ARTICLE 1214. The debtor may pay any one of the solidary creditors; but if any demand,
judicial or extrajudicial, has been made by one of them, payment should be made to him.

- The debtor can pay any one of the solidary creditors. Such payment when accepted by any
of the solidary creditors will extinguish the obligation.

❖ To avoid confusion on the payment of the obligation, the debtor is required to pay only to
the demanding creditor and that payment is sufficient to affect the extinguishment of the
obligation.
❖ In case two or more demands made by the other creditors, the first demand must be given
priority.

43
ARTICLE 1215. Novation, compensation, confusion or remission of the debt, made by any
of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation,
without prejudice to the provisions of Article 1219. The creditor who may have executed
any of these acts, as well as he who collects the debt, shall be liable to the others for the
share in the obligation corresponding to them.

NOVATION – obligations are modified by

1. Changing their object or principal conditions.

2. Substituting the person of the debtor; and
3. Subrogating (placing) a third person in the rights of the creditor. [Art. 1291, CC]

COMPENSATION – takes place when two persons, in their own right, become creditors and
debtors of each other; the amount of one is covered by the amount of the other

→ Erap borrowed P100 from Fernando. Fernando borrowed P75 from Erap. Erap’s
obligation to Fernando is now P25 only, because the original obligation was offset by
Fernando’s supposed-to-be obligation to Erap.

CONFUSION – takes place when the characters of creditor and debtor are merged in the same
person.

→ Tito pays his debt to Vic with a check payable to “cash”. Vic paid his debt to Joey with
the same check. Joey paid his debt to Tito, with the same check Tito issued to Vic. Tito
becomes paid by his own check. He becomes the debtor and the creditor of himself at
the same time

REMISSION – the gratuitous abandonment by the creditor of his right; acceptance of the obligor is
necessary.

❖ These 4 modes of extinguishing obligations are acts prejudicial to the other solidary co-
creditors because these have the effect of extinguishing the debt or obligation which is due to
all of them.
❖ The only recourse of the co-creditors is to let the one who executed any of those acts be
liable for the shares corresponding to all his co-creditors (in their internal agreement).

ARTICLE 1216. The creditor may proceed against any one of the solidary debtors or some
or all of them simultaneously. The demand made against one of them shall not be an
obstacle to those which may subsequently be directed against the others, so long as the
debt has not been fully collected.

When there is passive solidarity, the creditor can proceed against:

(1) Any of the solidary debtors.

(2) Some of the solidary debtors.
(3) All of the solidary debtors, simultaneously.

44
Extrajudicial demands - first demand shall not prevent subsequent demands on the other co-
debtors, if co-debtor first to have been required to fulfill obligation did not act on it.

ARTICLE 1217. Payment made by one of the solidary debtors extinguishes the obligation. If
two or more solidary debtors offer to pay, the creditor may choose which offer to accept.
He who made the payment may claim from his codebtors only the share which corresponds
to each, with the interest for the payment already made. If the payment is made before the
debt is due, no interest for the intervening period may be demanded. When one of the
solidary debtors cannot, because of his insolvency, reimburse his share to the debtor
paying the obligation, such share shall be borne by all his co-debtors, in proportion to the
debt of each.

PAYMENT – consists in the delivery of the thing or the rendition (rendering) of the service which is
the object of the obligation.

INTEREST – compensation for the use of borrowed money

PARTIAL PAYMENT – the solidary debtor who made the partial payment is entitles to be
reimbursed only for such amount of money which he had paid, and which exceeds his own share
in the obligation.

If one of the debtors is insolvent and could not pay his share in the obligation, all solidary debtors
including the paying debtor shall share proportionately in the settlement of the corresponding
share of the insolvent debtor. [In short, his codebtors will save his ass.]

ARTICLE 1218. Payment by a solidary debtor shall not entitle him to reimbursement from
his co-debtors if such payment is made after the obligation has prescribed or become
illegal.

No reimbursement if:

o Obligation PRESCRIBES
» The creditor did not make any demand for more than 10 years.
o Obligation becomes ILLEGAL
» Law has been passed, making such prestation illegal.

ARTICLE 1219. The remission made by the creditor of the share which affects one of the
solidary debtors does not release the latter from his responsibility towards the co-debtors,
in case the debt had been totally paid by anyone of them before the remission was affected.

EFFECT OF REMISSION

- If payment is made first, the remission or waiver is no effect.

- Kung bayad na, bakit pa magreremission.
- Pero kung nagremission tapos nagpay yung debtors by mistake, solutio indebti arises.

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1220. The remission of the whole obligation, obtained by one of the solidary debtors, does
not entitle him to reimbursement from his co-debtors.

There is nothing to be reimbursed because he did not spend any money, the remission being a
gratuitous act.

1221. If the thing has been lost or if the prestation has become impossible without the fault
of the solidary debtors, the obligation shall be extinguished. If there was fault on the part of
any one of them, all shall be responsible to the creditor, for the price and the payment of
damages and interest, without prejudice to their action against the guilty or negligent
debtor. If through a fortuitous event, the thing is lost or the performance has become
impossible after one of the solidary debtors has incurred in delay through the judicial or
extrajudicial demand upon him by the creditor, the provisions of the preceding paragraph
shall apply

Loss of the thing or impossibility of prestation –

1. NO FAULT or before delay – solidary debtors – obligation is extinguished

2. FAULT of any one of them – all are liable because of their mutual agency

3. FORTUITOUS EVENT – delay on the part of the debtors – all will be liable

• If the thing due was not lost, but there is merely a delay, fraud or negligence on the part of
one of the solidary debtors, all (including the innocent) debtors will share in the payment of
the PRINCIPAL prestation. The damages and interest imposed will be borne by the guilty
debtor.
• Obligation to deliver is converted into an obligation to pay indemnity when there us loss or
impossibility of performance.

1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defenses
which are derived from the nature of the obligation and of those which are personal to him,
or pertain to his own share. With respect to those which personally belong to the others, he
may avail himself thereof only as regards that part of the debt for which the latter are
responsible

DEFENSES OF A SOLIDARY DEBTOR:

1. Defense arising from the nature of the obligation – such as payment, prescription,
remission, statute of frauds, presence of vices of consent, etc.

2. Defenses which are personal to him, or which pertains to his own share alone – such as
minority, insanity and others purely personal to him.

3. Defenses personal to the other solidary creditors but only as regards that part of the
debt for which the other creditors are liable

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SECTION 5. – DIVISIBLE AND INDIVISIBLE OBLIGATIONS
1223. The divisibility or indivisibility of the things that are the object of obligations in which
there is only one debtor and only one creditor does not alter or modify the provisions of
Chapter 2 of this Title.

DIVISIBLE OBLIGATION – one of the objects of which, it its delivery or performance, is capable
of partial fulfillment.

INDIVISIBLE OBLIGATION – one of the objects of which, in its delivery or performance, is not
capable of partial fulfillment.

❖ Even though the object or service may be physically divisible, an obligation is indivisible if
so, provided by law or intended by the parties.
❖ If the object is not physically divisible or the service is not susceptible of partial
performance. The obligation is always indivisible, the intention of the parties to the contrary
notwithstanding.
❖ An obligation is presumed indivisible when there is only one creditor and one debtor.

KINDS OF DIVISIONS
1) QUALITATIVE DIVISION – based on quality not on number of quantities of the things
which are the object of the prestation
2) QUANTITATIVE DIVISION – based on the quantity
3) IDEAL OR INTELLECTUAL DIVISION – one which exists only in the minds of the parties.

KINDS OF INDIVISIBILITY
1) LEGAL INDIVISIBILITY – specific provision of law declares as indivisible, obligations
which, by their nature, are divisible
2) CONVENTIONAL INDIVISIBILITY – where the will of the parties makes as indivisible,
obligations which, by their nature are divisible.
3) NATURAL INDIVISIBILITY – where the nature of the object or prestation does not admit of
division.

1224. A joint indivisible obligation gives rise to indemnity for damages 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
corresponding portion of the price of the thing or of the value of the service in which the
obligation consists of.

JOINT INDIVISIBLE OBLIGATION – the object is indivisible, but the liability of the parties is joint.

EFFECT OF NON-COMPLIANCE by a DEBTOR

- The obligation is converted into one for damages

- The creditor cannot ask for specific performance or rescission because there is no cause of
action against the other debtors who are willing to fulfill their promises.

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1225. For the purposes of the preceding articles, obligations to give definite things and those
which are not susceptible of partial performance shall be deemed to be indivisible. When the
obligation has for its object the execution of a certain number of days of work, the
accomplishment of work by metrical units, or analogous things which by their nature are
susceptible of partial performance, it shall be divisible. However, even though the object or
service may be physically divisible, an obligation is indivisible if so, provided by law or
intended by the parties. In obligations not to do, divisibility or indivisibility shall be
determined by the character of the prestation in each particular case.

OBLIGATIONS DEEMED INDIVISIBLE

1) Obligations to give definite things
2) Obligations which are not susceptible of partial performance
3) Obligations provided by law to be indivisible even if thing or service is physically divisible
4) Obligations intended by the parties to be indivisible even if thing or service is physically
divisible.

OBLIGATIONS DEEMED INDIVISIBLE

1) Obligations which have for their object the execution of a certain number of days of work
2) Obligations which have for their object the accomplishment of work by metrical units
3) Obligations which by their nature are susceptible of partial performance

DIVISIBILITY OF INDIVISIBILITY IN OBLIGATIONS NOT TO DO

- Indivisible – A obliged himself to B not to sell cigarettes for one year
- Divisible – A obliged himself not to sell cigarettes every Saturday

SECTION 6. OBLIGATIONS WITH PENAL CLAUSE

1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages
and the payment of interests in case of noncompliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in
the fulfillment of the obligation. The penalty may be enforced only when it is demandable in
accordance with the provisions of this

PRINCIPAL OBLIGATION – one which can stand by itself and does not depend for its validity and
existence upon another obligation.

ACCESSORY OBLIGATION – one which attached to a principal obligation, and therefore, cannot
stand alone

OBLIGATION WITH PENAL CLAUSE – one which contains an accessory undertaking to pay a
previously stipulated indemnity in case of breach of the principal prestation, intended primarily to
induce its fulfillment.

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PENAL CLAUSE – accessory undertaking attached to an obligation to assume greater liability in
case of breach, the obligation is not fulfilled or is partly or irregularly complied with. This is an
accessory obligation attached to the principal obligation, which imposes an additional liability
in case of breach of the principal obligation. It pushes the debtor to perform his obligation
faithfully and without delay – within the period agreed upon, or else, he suffers a fixed civil
penalty without need of proving the damages of the other party.

PURPOSE OF PENAL CLAUSE

(1) To ensure the performance of the obligations

(2) To substitute a penalty for the indemnity for damages and payment of interests in case of
non-compliance or to punish the debtor for the non-fulfillment of violation of his obligation.

❖ The first case is the reparation and the second is the punishment

PENAL CLAUSE CONDITION

Accessory to an obligation Not an accessory
Demandable in default of the unperformed Never demandable
obligation

KINDS OF PENAL CLAUSE

(1) As to its origin

a. Legal Penal Clause – provided by law
b. Conventional Penal Clause – stipulated by parties
(2) As to its purpose
a. Compensatory penal clause – when the penalty takes the place of damages
b. Punitive penal clause – when the penalty is imposed merely as punishment for
breach
(3) As to its demandability or effect
a. Subsidiary or alternative penal clause – when only the penalty can be enforced
b. Joint or cumulative penal clause0 when both the principal obligation and penal
clause can be enforced.

EXCEPTIONS – additional damages may be recovered from the following acts:

» Stipulated by the parties

» Obligor refuses to pay the penalty
» Obligor is guilty of fraud in the fulfillment of the obligation

❖ Penalty may be enforced only when it is demandable in accordance with the provision of
the Civil Code

1227. The debtor cannot exempt himself from the performance of the obligation by paying
the penalty, save in the case where this right has been expressly reserved for him. Neither
can the creditor demand the fulfillment of the obligation and the satisfaction of the penalty
at the same time, unless this right has been clearly granted him. However, if after the
creditor has decided to require the fulfillment of the obligation, the performance thereof
should become impossible without his fault, the penalty may be enforced.
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 ❖ Penalty is not substitute for performance. The purpose of penalty is to secure compliance
with this obligation.
❖ Penal clause presumed subsidiary.
o GENERAL RULE – creditor cannot demand the fulfillment of the obligation and
satisfaction of the penalty at the same time.
▪ Once the obligation is fulfilled, there is no need for penalty
❖ Penal Clause joint.
o The debtor has the right to pay penalty in lieu of performance only when this right
has been expressly reserved to him.
o The borrower cannot claim that he is no longer liable after paying the penalty,
creditor can demand both the principal obligation and the penalty.

1228. Proof of actual damages suffered by the creditor is not necessary in order that the
penalty may be demanded.

❖ If there is a violation, penalty can be enforced

❖ Evidence is not necessary to prove losses and damages. The purpose of the penalty clause
is precisely to avoid proving damages.
❖ Penalty may be enforced whether he suffered damages or not. But he cannot recover more
than the stipulated penalty.
❖ However, if there are more recoverable damages addition to the penalty, the creditor must
prove the amount of such damages resulting from the breach of contract.

1229. The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no performance,
the penalty may also be reduced by the courts if it is iniquitous or unconscionable.

PENALTY MAY REDUCED BY COURT

(1) When there is partial or irregular performance – since obligation shall be completely
performed, however if there is irregular or partial performance, it can reduce the penalty.
(2) When the penalty agreed upon is iniquitous or unconscionable – If the penalty is
unfair. It shall be reasonable depending on the circumstances.

PENALTY NOT ENFORCEABLE:

1. Impossible performance of principal obligation due to fortuitous events

2. Creditor prevented the debtor from fulfilling the obligation
3. Penalty is contrary to good morals or good customs
4. Both parties are guilty of breach of contract
5. Breach of contract by the creditor
6. None of the parties committed any willful or culpable violation of the agreement

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1230. The nullity of the penal clause does not carry with it that of the principal obligation.
The nullity of the principal obligation carries with it that of the penal clause.

❖ Because the penal clause is only an accessory to the principal obligation, it cannot exist
alone. If the penal clause is void, the principal obligation remains enforceable.
❖ The nullity of penal clause does not mean the nullity of the principal.
→ For example: In case of non-payment of P10,000, P1,000 per day as penalty shall
be imposed. It is a void contract, but it is not an excuse that you don't have to pay
the principal, which is P10,000

CHAPTER 4: EXTINGUISHMENT OF OBLIGATIONS

PaLo CoNCoN CoNo – PARe-Fu

1231. Obligations are extinguished:

(1) Payment or performance

(2) Loss of the thing due
(3) Condonation or remission
(4) Confusion or merger of the rights of creditor and debtor
(5) Compensation
(6) Novation

Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment

of a resolutory condition, and prescription, are governed elsewhere in this Code

Other causes

a) Death of a party
b) Mutual desistance or withdrawal
c) Arrival of resolutory period
d) Compromise
e) Impossibility of fulfillment
f) Happening of fortuitous event

1232. Payment means not only the delivery of money but also the performance, in any other
manner of an obligation.

Payment means not only delivery of money but also the performance.
It is the fulfillment of the prestation due that extinguishes the obligation by the realization of the
purposes for which it was constituted
(Wala to sa libro)

• It is a juridical act which is voluntary, licit and made with the intent to extinguish an obligation
REQUISITES:
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1. person who pays
2. the person to whom payment is made
3. the thing to be paid
4. the manner, time and place of payment etc.

• The paying as well as the one receiving should have the requisite capacity
KINDS:
1. normal –when the debtor voluntarily performs the prestation stipulated
2. abnormal – when he is forced by means of a judicial proceeding either to comply with prestation
or to pay indemnity

1233. A debt shall not be understood to have been paid unless the thing or service in which
the obligation consists of has been completely delivered or rendered, as the case may be.
A debt is considered paid
(1) Completely delivered or rendered.
a. GENERAL RULE: Partial or irregular performance will not produce the
extinguishment of an obligation.
(2) The very prestation due must be delivered

1234. If the obligation has been substantially performed in good faith, the obligor may
recover as though there had been a strict and complete fulfillment, less damages suffered
by the obligee.

- In case of substantial performance, the obligee is benefited. So the obligor should be allowed to
recover as if there had been strict and complete fulfillment less damages suffered by the obligee.

REQUISITES

(1) There must be substantial performance

(2) The obligor must be in good faith

❖ There is substantial performance when the important part of the contract has been
performed and only minor part are not carried out
❖ Good faith is always presumed in the absence of proof to the contrary

1235 – When the oblige accepts the performance, knowing its incompleteness or
irregularity, and without expressing any protest or objection, the obligation is deemed fully
complied with.

RECOVERY ALLOWED WHEN INCOMPLETE OR IRREGULAR PERFORMANCE IS WAIVED

(1) If the payment is incomplete or irregular, the creditor may properly reject it.

52
 (2) In case of acceptance, the law considered that he waives his right. The whole obligation is
extinguished.

REQUISITES

(1) The obligee knows that the performance is incomplete or irregular.

(2) He accepts the performance without expressing any protest or objection.

1236. The creditor is not bound to accept payment or performance by a third person who
has no interest in the fulfillment of the obligation, unless there is a stipulation to the
contrary. Whoever pays for another may demand from the debtor what he has paid, except
that if he paid without the knowledge or against the will of the debtor, he can recover only
insofar as the payment has been beneficial to the debtor.

CREDITOR MUST ACCEPT PAYMENT FROM

(1) The debtor
(2) Any person who has an interest in the obligation (e.g. guarantor_
(3) A third person who has no interest in the obligation when there is stipulation can make
payment
❖ The creditor may refuse to accept payment, for personal reasons, from third person
whom he may dislike or distrust.

EFFECT OF PAYMENT BY A THIRD PERSON

(1) If made without the knowledge or against the will of the debtor – the payer can recover
only insofar as the payment has been beneficial to the debtor. Recover only up to the extent
or amount of the debt at the time of payment.
(2) If made without the knowledge of the debtor – the payer has rights of reimbursement
and subrogation, to recover what he has paid and acquire all the rights of a creditor.

1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the
latter, cannot compel the creditor to subrogate him in his rights, such as those arising from
a mortgage, guaranty or penalty.

❖ Whoever pays on behalf of debtor is entitled to subrogation = If payment is with the

consent
❖ Whoever pays on behalf of debtor cannot compel the creditor to subrogate him = If
payment is without consent

SUBROGATION AND REIMBURSEMENT DISTINGUISED

Subrogation Reimbursement
The person who pays for the debtor is put into Third person is entitled by reason of payment
the shoes of the creditor. The payor acquires has merely the bare right to be refunded
not only the right to be reimbursed but also the without the rights to the guarantees and
rights which the creditor could have exercise. securities of the original obligation. No real

53
 extinction of the obligation, only change in
creditor

1238. Payment made by a third person who does not intend to be reimbursed by the debtor
is deemed to be a donation, which requires the debtor’s consent/ but the payment is in any
case valid as to the creditor who has accepted it.

❖ Embodies the idea that no one should be compelled to accept the generosity of another.
❖ Donation sya kapag hindi pinapareimbursed nung third party pero dapat may consent from
the debtor. Pero kung walnag consent ang debtor pero meron sa creditor, valid yung
payment para ma extinguish yung obligation,

ART 1239. In obligations to give, payment made by one who does not have the free
disposal of the thing due and capacity to alienate it shall not be valid, without prejudice to
the provisions of article 1427 under the Title on “Natural Obligations”

FREE DISPOSAL OF THE THING – means that the thing to be delivered must not be subject to
any claim or lien or encumbrance

CAPACITY TO ALIENATE – means that the person is not incapacitated to enter into contracts
and for that matter, to make a disposition of the thing due.

GENERAL RULE: In obligations to give, payment by one who does not have the free disposition of
the thing due and capacity to alienate it is not valid. This means that the thing paid can be
recovered

1240. Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive it

PAYMENT TO WHOM PAYMENT SHALL BE MADE

(1) Creditor or obligee
(2) His successor in interest (like heir or assignee)
(3) Any person authorized to receive it – not only authorized by creditor but also a person
authorized by law to received payment, such as guardian, executor or administrator.

a.) legal – conferred by law (e.g., guardian of the incapacitated, administrator of the estate of the
deceased)

b.) conventional – when the authority has been given by the creditor himself (e.g., agent who is
appointed to collect from the debtor
54
1241. Payment to a person who is incapacitated to administer his property shall be valid if
he has kept the thing delivered, or insofar as the payment has been beneficial to him.
Payment made to a third person shall also be valid insofar as it has redounded to the
benefit of the creditor. Such benefit to the creditor need not be proved in the following
cases: (1) If after the payment, the third person acquires the creditor's rights; (2) If the
creditor ratifies the payment to the third person; (3) If by the creditor's conduct, the debtor
has been led to believe that the third person had authority to receive the payment. (1163a)

EFFECT

(1) Payment to an incapacitated person – is not valid unless such incapacitated person kept
the thing paid or delivered or was benefited by payment. In absence of this benefit, the
debtor may be made to pay again by the creditor’s guardian or by the incapacitated person
himself when he acquires or recovers his capacity.
(2) Payment to a third person – made to a third person or wrong party is not valid except
insofar as it has redounded to the benefit of the creditor. Benefit from the payment is not
presumed and must be proved.
→ When benefit to creditor need not be proved by debtor
1. Subrogation of the payer in the creditor’s rights
2. Ratification by the creditor (agreement = ratification)
3. Estoppel on the part of the creditor
→ In such cases, the benefit to the creditor is to be presumed.

1242. Payment made in good faith to any person in possession of the credit shall release
the debtor. (1164)

❖ the person in possession of the credit is neither the creditor nor one authorized by him to
receive payment, but appears under the circumstances of the case, to be the creditor. He
appears to be the owner of the credit, although in reality, he may not be the owner (e.g., an
heir who enters upon the hereditary estate and collects the credits thereof, but who is later
deprived of the inheritance because of incapacity to succeed)
❖ it is necessary not only that the possession of the credit be legal, but also that the payment
be in good faith

1243. Payment made to the creditor by the debtor after the latter has been judicially ordered
to retain the debt shall not be valid. (1165)

❖ the payment to the creditor after the credit has been attached or garnished is void as to the
party who obtained the attachment or garnishment, to the extent of the amount of the
judgment in his favor.
❖ The debtor upon whom garnishment order is served can always deposit the money in court
by way of consignation and thus relieve himself from further liability

1244. The debtor of a thing cannot compel the creditor to receive a different one, although
the latter may be of the same value as, or more valuable than that which is due. In
55
obligations to do or not to do, an act or forbearance cannot be substituted by another act
or forbearance against the obligee's will. (1166a)

❖ Upon agreement of consent of the creditor, the debtor may deliver a different thing or
perform a different prestation in lieu of that stipulated. In this case there may be dation in
payment or novation
❖ The defects of the thing delivered may be waived by the creditor, if he expressly so
declares or if, with knowledge thereof, he accepts the thing without protest or disposes of it
or consumes it

1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a

debt in money, shall be governed by the law of sales. (n)

SPECIAL FORMS OF PAYMENT

(1) Dation in payment
(2) Application of payments
(3) Payment by cession
(4) Tender of payment and consignation

• Application of payments is not a special form of payment

DATION IN PAYMENT – conveyance of ownership of a thing as an accepted equivalent of

performance. An existing debt in money is satisfied, not by payment of money but by the alienation
of property.

❖ This is the delivery and transmission of ownership of a thing by the debtor to the creditor as
an accepted equivalent of the performance of the obligation
❖ The property given may consist not only of a thing but also of a real right (such as a
usufruct)
❖ Considered as a novation by change of the object

GOVERNING LAW

- Law of sales because dation in payment may be considered a specie of sale in which the
amount of the money debt becomes the price of the thing alienated.

1246. When the obligation consists in the delivery of an indeterminate or generic thing,
whose quality and circumstances have not been stated, the creditor cannot demand a thing
of superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of
the obligation and other circumstances shall be taken into consideration. (1167a)

❖ Specific thing must be delivered but when the obligation is to deliver a generic thing, it is
hard to find thing that is exactly similar to another. If there is disagreement between the
parties, the law steps in and determines whether the contract has been complied with or not
according to the circumstances.

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1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment
shall be for the account of the debtor. With regard to judicial costs, the Rules of Court shall
govern. (1168a)

❖ Debtor pays for extrajudicial expense. Debtor is the one benefited in the extinguishment of
the obligation that is why he must shoulder the payment.
❖ However, if there is a stipulation whether who will shoulder the payment, then the
stipulation will be followed.
❖ Losing party generally pays the judicial cost.
❖ JUDICIAL COST- statutory amounts allowed to a party to an action for his expenses
incurred in the action.

1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled
partially to receive the prestations in which the obligation consists of. Neither may the
debtor be required to make partial payments. However, when the debt is in part liquidated
and in part unliquidated, the creditor may demand, and the debtor may affect the payment
of the former without waiting for the liquidation of the latter. (1169a)

❖ Creditor can refuse to accept partial fulfillment. EXCEPT when:

o There is an express stipulation to that effect
o The debt is in part liquidated
o The different prestations in which the obligation consists of are subject to different
terms of condition which affect some of them.

1249. The payment of debts in money shall be made in the currency stipulated, and if it is
not possible to deliver such currency, then in the currency which is legal tender in the
Philippines. The delivery of promissory notes payable to order, or bills of exchange or
other mercantile documents shall produce the effect of payment only when they have been
cashed, or when through the fault of the creditor they have been impaired. In the meantime,
the action derived from the original obligation shall be held in the abeyance. (1170).

LEGAL TENDER – currency which if offered by the debtor in the right amount, the creditor must
accept in payment of a debt in money; currency which in a given jurisdiction can be used for the
payment of debts, public and private, and which cannot be refused by the creditor.

❖ All coins and notes issued by the Bangko Sentral ng Pilipinas constitute legal tenders for all
debts, both public and private. Not exceeding 50.00 for denominations of 0.25 and above,
and in those of amounts not exceeding 20.00 for denominations of 0.10 or less. All coins
and bills above 1.00 are, therefore, valid legal tenders for any amount.

PAYMENT BY MEANS OF INSTRUMENTS OF CREDITS

(1) Rights of creditor to refuse or accept – promissory notes, checks, bills of exchange and
other commercial documents are not legal tenders, therefore, creditors cannot be
compelled to accept them.

57
 a. However, if the creditor accepts them, the demandability of the original obligation is
suspended
b. The creditor must cash the instrument, and it is only when it is dishonored that he
can bring an action for non-payment of the debt.
(2) Effect on obligation – payment by means of mercantile documents does not extinguish the
obligation.
a. Until they have been encased
b. Unless they have been impaired through the fault of the creditor.

1250. In case an extraordinary inflation or deflation of the currency stipulated should

supervene, the value of the currency at the time of the establishment of the obligation shall
be the basis of payment, unless there is an agreement to the contrary. (n)

INFLATION – sharp sudden increase of money or creditor or both without a corresponding

increase in business transactions. Inflation causes a drop in the value of money, resulting in the
rise of the general price level.

DEFLATION – reduction in the volume and circulation of the available money or creditor, resulting
in a decline of the general price level; opposite of inflation.

❖ Purchasing value of the currency at the time of the establishment of the obligation shall be
the basis of payment, in case of any extraordinary increase or decrease in the purchasing
power of the currency which the parties could not have reasonably foreseen.

1251. Payment shall be made in the place designated in the obligation. There being no
express stipulation and if the undertaking is to deliver a determinate thing, the payment
shall be made wherever the thing might be at the moment the obligation was constituted. In
any other case the place of payment shall be the domicile of the debtor.

PLACES WHERE OBLIGAITON SHALL BE PAID

(1) Place designated
(2) The thing to be delivered is specific, the payment shall be made at the place where the
thing was, at the perfection of the contract.
(3) If there is no stipulation, and the thing is generic, the place of payment shall be the domicile
of the debtor. The creditor bears the expenses in going to the debtor’s place to accept
payment.
❖ VENUE – where the court is or action must be filed or instituted
❖ DOMICILE – person’s habitual residence; fixed permanente residence
❖ RESIDENCE- only an element of domicile

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SUBSECTION 1: APPLICATION OF PAYMENTS
1252. He who has various debts of the same kind in favor of one and the same creditor,
may declare at the time of making the payment, to which of them the same must be applied.
Unless the parties so stipulate, or when the application of payment is made by the party for
whose benefit the term has been constituted, application shall not be made as to debts
which are not yet due. If the debtor accepts from the creditor a receipt in which an
application of the payment is made, the former cannot complain of the same, unless there
is a cause for invalidating the contract. (1172a)

APPLICATION OF PAYMENTS – designation of the debt to which should be applied the payment
made by a debtor who has various debts of the same kind in favor of one and the same creditor.

REQUISITES

(1) There must be one debtor and one creditor

(2) There must be two or more debts
(3) The debts must be of the same kind
(4) All debts must be due
(5) The payment made must not be sufficient to cover all the debts.

APPLICATION AS TO DEBTS NOT YET DUE

(1) There is stipulation that the debtor may so apply

(2) It is made by the debtor or creditor, as the case may be, for whose benefit the period has
been constituted.

RULES ON APPLICATION OF PAYMENT

(1) Debtor has the first choice; he must indicate at the time of making payment, and not
afterwards, which particular debt is being paid
(2) The right to make the application once exercised is irrevocable unless the creditor consents
to the change.
(3) If the debtor does not apply payment, the creditor may make the designation by specifying
in the receipt which debt is being paid.
(4) If the creditor has not also made the application, or if the application is not valid, the debt,
which is most onerous to the debtor among those due, shall be deemed to have been
satisfied.
(5) If the debts due are of the same nature and burden, the payment shall be applied to all of
them proportionately.

1253. If the debt produces interest, payment of the principal shall not be deemed to have
been made until the interests have been covered. (1173)

❖ Interest paid first before principal

❖ Applies both to compensatory interest (that stipulated as earnings of the amount due under
the obligation) and to interest due because of delay or mora on the part of the debtor
❖ SC held that this provision applies only in the absence of a verbal or written agreement to
the contrary (merely directory, not mandatory)

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1254. When the payment cannot be applied in accordance with the preceding rules, or if
application can not be inferred from other circumstances, the debt which is most onerous
to the debtor, among those due, shall be deemed to have been satisfied. If the debts due
are of the same nature and burden, the payment shall be applied to all of them
proportionately. (1174a)

❖ As to which of 2 debts is more onerous is fundamentally a question of fact, which courts

must determine on the basis of the circumstances of each case
❖ Debts are not of the same burden (1st par.)–

RULES:

(1) Oldest are more onerous than new ones

(2) One bearing interest more onerous than one that does not
(3) secured debt more onerous than unsecured one
(4) principal debt more onerous than guaranty
(5) solidary debtor more onerous than sole debtor
(6) share in a solidary obligation more onerous to a solidary debtor
(7) liquidated debt more onerous than unliquidated

❖ Debts are of the same burden (2nd par.)– the payment shall be applied to all of them pro
rata or proportionately.
→ Example: debtor owes his creditor several debts, all of them due, to wit: (1) unsecured debt,
(2) a debt secured with mortgage of the debtor's property, (3) a debt with interest, (4) a debt
in which the debtor is solidarily liable with another. Partial payment was made by the
debtor, without specification as to which the payment should be applied.
o The most onerous is (4), followed by (2), then (3), then (1). Consequently, payment
shall be made in that order

SUBSECTION 2 PAYMENT BY CESSION

1255. The debtor may cede or assign his property to his creditors in payment of his debts.
This cession, unless there is stipulation to the contrary, shall only release the debtor from
responsibility for the net proceeds of the thing assigned. The agreements which, on the
effect of the cession, are made between the debtor and his creditors shall be governed by
special laws. (1175a)

❖ CESSION – is a special form of payment whereby the debtor abandons or assigns all of his
property for the benefit of his creditors so that the latter may obtain payment of their credits
from the proceeds of the property.

REQUISITES:

1. plurality of debts

2. partial or relative insolvency of the debtor3. acceptance of cession by the creditors

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KINDS OF CESSION:

1. Contractual (Art. 1255)

2. Judicial (Insolvency Law) Must be initiated by debtors Requires two or more creditors,
debtor’s insolvent, cession accepted by creditors Such assignment does not have the effect of
making the creditors the owners of the property of the debtor unless there is an agreement to that
effect.

DATION AND CESSION DISTINGUISED

DATION CESSION
may be 1 creditor many creditors
does not require insolvency requires partial or relative insolvency
delivery of a thing delivery of all the property
transfer of ownership of the property no transfer of ownership (only of possession
and administration)
a novation
payment extinguishes obligation (to the extent the effect is merely to release debtor from the
of the value of the thing delivered) net proceeds of the property; hence, partial
extinguishment of obligation.

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