LAW ON OBLIGATIONS AND CONTRACTS
RULE: In torts, the liability is created by
- R.A. No. 386 “Civil Code of the Philippines”
- Effective: August 30, 1950
LAW – is a rule of action, just and obligatory,
promulgated by competent authority, of common
observance and benefit.
OBLIGATION – is a juridical necessity to give,
to do or not to do.
KINDS OF OBLIGATION:
1. CIVIL – give a right of action to compel their
performance.
ELEMENTS:
1. Active Subject – Obligee/Creditor
2. Passive Subject – Obligor/Debtor
3. Object or Prestation – Subject matter
4. Efficient Cause – Vinculum juris/Legal tie
2. NATURAL – not being based on positive law
but on equity and natural law, do not grant a
right of action to enforce their performance,
but after voluntary fulfillment by the obligor,
they authorize the retention of what has been
delivered or rendered by reason thereof.
v Articles 1423-1430 of the Civil Code.
SOURCES OF OBLIGATIONS:
1. Law (Ex Lege)
2. Contract – is a meeting of minds between
two persons whereby one binds himself with
respect to the other to give something or to
render some service.
3. Quasi-Contracts – is a juridical relation that
arises from certain lawful, voluntary and
unilateral acts to the end that no one shall be
unjustly enriched or benefited at the expense
of another.
(2) PRINCIPAL KINDS:
A. Negotiorum Gestio – when a person
voluntary takes charge of another’s
abandoned business or property without
the owner’s authority where
reimbursement must be made for
necessary and useful expenses.
B. Solution Indebiti – Something is received
when there is no right to demand it, and it
was unduly delivered thru mistake, the
recipient has the duty to return it.
v Articles 2142-2175 of the Civil Code
4. Delicts/Crimes – Every person criminally
liable shall also be civilly liable. (Art. 100,
Revised Penal Code)
CIVIL LIABILITY ARISING FROM CRIME:
1. Restitution
2. Reparation
3. Indemnification
5. Quasi-Delicts/Torts/Culpa Aquiliana – is
that fault or negligence where a person
causes damage to another in the absence of a
contractual relation between the parties.
ELEMENTS:
1. Fault or negligence of the defendant
2. Damage or injury suffered by the plaintiff
3. Direct relation / proximate causation
4. No pre-existing contractual relation
v Articles 2176-2194 of the Civil Code
GEN.
law; hence, it arises when the parties have no
pre-existing contractual relation.
EXCEPTION: Air France v. Carrascoso, G.R. No.
L-21438, September 28, 1966 – where "the act
that breaks the contract may be also a tort."
DUTIES OF AN OBLIGOR IN REAL
OBLIGATION (TO GIVE):
1. To preserve or take care of the thing, before
delivery
STANDARDS OF CARE:
A. Law
B. Stipulation
C. Diligence of a good father of a family
(Ordinary)
2. To deliver the thing, including its fruits
3. To deliver the accessions and accessories, if
determinate thing
DUTIES OF AN OBLIGOR IN POSITIVE
PERSONAL OBLIGATION (TO DO):
v REMEDIES OF AN OBLIGEE: Art. 1167
DUTIES OF AN OBLIGOR IN NEGATIVE
PERSONAL OBLIGATION (NOT TO DO):
v REMEDIES OF AN OBLIGEE: Art. 1168
KINDS OF DELIVERY:
A. Actual – there is physical transfer of the
thing from hand to hand.
B. Constructive
1. Execution of public instrument
2. Traditio symbolica – what is delivered is
not the thing itself but a representation
thereof, like the keys of a house.
3. Traditio longa manu (Long-hand delivery)
– delivery by mere consent or by poiting
out the thing.
4. Traditio brevi manu (Short-hand delivery)
– when a possessor of a thing not as an
owner becomes the possessor of a thing
as an owner.
5. Traditio constitutum possessorium – when
a possessor of a thing as an owner retains
possession no longer as an owner, but in
some other capacity, like that of a tenant.
KINDS OF THING:
1. Determinate/Specific – when the object is
particularly designated or physically
segregated from all others of the same class
2. Indeterminate/Generic – when the object
is designated merely by its class or genus
without any particular designation or physical
segregation
KINDS OF FRUITS:
1. Natural – Spontaneous product of the soil,
and the young and other products of animals
2. Industrial – Those produced by lands of any
kind through cultivation or labor
3. Civil – result of a juridical relation of the
parties, like the rents of a building between a
lessor and lessee, and the interest of a loan
between a debtor and creditor
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KINDS OF RIGHTS OVER THE FRUITS:
1. Personal/Jus in personam – power
demandable by one person over a definite
passive subject (i.e., debtor); this is simply
the right to demand; a creditor’s personal
right over the fruits of a thing accrues from
the time the obligation to deliver it arises.
2. Real/Jus in re – power over a specific thing
which is binding against the whole world; this
is equivalent to ownership; a creditor’s
personal right over the fruits of a thing
accrues from the moment of actual delivery.
ACCESSIONS – those produced by the thing
which is the object of the obligation, as well as
those which are naturally or artificially attached
thereto; like the fruits, and those built, planted,
and sown on a parcel of land.
ACCESSORIES – those things which have for
their object the embellishment, use or
preservation of another thing which is more
important and to which they are not incorporated
or attached; like the stereo of a car and tools of a
machine.
KINDS OF DAMAGES: (MENTAL)
1. MORAL – include physical suffering, mental
anguish, fright, serious anxiety, besmirched
reputation, wounded feelings, moral shock,
social humiliation, and similar injury.
2. EXEMPLARY / CORRECTIVE / PUNITIVE /
VINDICTIVE – intended to serve as a
deterrent to serious wrongdoings and as a
vindication of undue sufferings and wanton
invasion of the rights of an injured or a
punishment for those guilty of outrageous
conduct.
3. NOMINAL – adjudicated in order that a right
of the plaintiff, which has been violated or
invaded by the defendant, may be vindicated
or recognized, and not for the purpose of
indemnifying the plaintiff for any loss suffered
by him.
4. TEMPERATE/MODERATE – more than
nominal but less than compensatory
damages, which may be recovered when the
court finds that some pecuniary loss has been
suffered but its amount can not, from the
nature of the case, be proved with certainty.
5. ACTUAL/COMPENSATORY – are those
recoverable because of pecuniary loss in
business, trade, property, profession, job or
occupation.
6. LIQUIDATED – are those that the parties
agree to be paid in case of a breach. No proof
of loss is necessary in order that such
liquidated damages may be recovered.
GROUNDS FOR THE PAYMENT OF DAMAGES:
1. Default/Delay (mora)
2. Fraud (dolo)
3. Negligence (culpa)
4. Contravention of the tenor of the obligation
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KINDS OF DEFAULT:
1. Mora solvendi – delay on the part of the
debtor/obligor
A. Ex Re – delay in obligations “to give”
B. Ex Persona – delay in obligations “to do”
2. Mora accipiende – delay on the part of the
creditor/obligee
3. Compensatio morae – delay on the part of
both parties in reciprocal obligations
GEN. RULE: No demand, no delay.
EXCEPTIONS:
1. Law
2. Stipulation
3. When the nature of the obligation manifests
that time is of the essence
4. When demand would be useless
KINDS OF FRAUD:
1. Causal Fraud (dolo causante) – this is the
fraud in the constitution of an obligation; this
is employed in order to secure the consent of
party to enter into contract; the proper
remedy is annulment due to vitiated consent.
2. Incidental Fraud (dolo incidente) – this is
the fraud in the performance of an obligation;
this is employed after the perfection of
contract; the proper remedy is to claim
damages.
KINDS OF CULPA/NEGLIGENCE BASED ON
THE SOURCE OF OBLIGATION:
1. Culpa contractual – negligence in the
performance of the contract
2. Culpa criminal – negligence resulting from
criminal act
3. Culpa aquiliana – negligence which is
independent of contract and without criminal
intent
DEGREE OF CULPA UNDER THE ROMAN LAW:
1. Culpa lata – grave/gross negligence
2. Culpa levis – ordinary negligence
3. Culpa levissima – slight negligence
FORTUITOUS EVENTS – those events which
could not be foreseen, or which though foreseen
were inevitable.
KINDS OF FORTUITOUS EVENTS:
1. Acts of God / Fortuitous Events Proper /
Caso Fortuito – those which are absolutely
independent of human intervention, like the
natural calamities such as typhoons and
earthquakes
2. Acts of Man / Force Majeure / Fuerza
Mayor – those that arise from legitimate or
illegitimate acts of persons other than the
obligor, like war, strikes, and robbery
REQUISITES OF FORTUITOUS EVENTS:
1. Independent of human will, or at least of
debtor’s will
2. Could not be foreseen, or if foreseen is
inevitable
3. Of such character as to render it impossible PERIOD CONDITION
for the debtor to comply with his obligation in As to time
a normal manner Refers only to the May also refer to a past
4. Debtor must be free from any participation in, future event unknown to the
or aggravation of, the injury to the creditor; parties
that is, there is no concurrent negligence on As to fulfillment
debtor’s part Necessarily comes May or may not happen
As to influence on obligation
GEN. RULE: When the event is fortuitous, the Exerts an influence Exerts an influence
obligation is extinguished. upon the time when upon the very
EXCEPTIONS: the obligation shall be existence of the
1. Law demandable or obligation; Causes an
2. Stipulation extinguished obligation to arise or to
3. Nature of the obligation requires assumption cease
of risk As to retroactivity of effects
4. When the thing to be delivered is Does not have Has
indeterminate or generic because of the retroactive effects
principle GENUS NUNQUAM PERIT – unless there is
“Generic thing never perishes.” agreement to the
contrary
KINDS OF OBLIGATIONS UNDER THE CIVIL
CODE:
KINDS OF CONDITIONS:
1. Pure – demandable at once because it is no
1. Suspensive – the happening of which gives
subject to any condition and does not have
rise to an obligation
any period.
2. Resolutory – the happening of which
2. Conditional – one where the demandability
extinguishes rights already existing
or extinguishment depends on an uncertain 3. Potestative – one which depends upon the
event or contingency.
will of one of the parties
3. With a Period/Term – one which has a
4. Casual – one which depends upon the will of
certain length of time which determines the a third person or chance
effectivity or extinguishment of obligations.
5. Mixed – one which partly depends upon the
4. Alternative – one where out of the two or
will of one of the parties and partly upon the
more prestations which may be given, only
will of a third person or chance
one is due. In short, there are several things
6. Divisible – when it can be performed in parts
due but the delivery of one is sufficient to
7. Indivisible – when it must be performed as a
extinguish the obligation.
whole
5. Facultative – when only one prestation has
8. Possible – when it can be fulfilled
been agreed upon, but the obligor may render 9. Impossible – when it cannot be fulfilled
another in substitution.
10. Positive – when it consists of an act
6. Joint – one where the whole liability is to be
11. Negative – when it consists of an omission
paid or fulfilled proportionately by the
different debtors and/or is to be demanded
SPECIFIC RULES:
also proportionately by the different creditors.
1. When the condition is potestative on the part
7. Solidary – one where each one of the
of the creditor, it is valid, be it suspensive or
debtors is bound to render compliance of the
resolutory.
entire obligation and/or each one of the
2. When it is resolutory and potestative on the
creditors has a right to demand entire
part of the creditor, it is valid.
compliance of the prestation.
3. When it is suspensive and potestative on the
8. Divisible – one which is capable of division or part of the creditor, it is void.
partial performance.
4. When the condition is to do an
9. Indivisible – once which must be performed
impossible/illegal thing, both the obligation
as a whole or entirely. and condition are void.
10. With a penal clause – one where there is an
5. When the condition is not to do an illegal
accessory undertaking to assume greater
thing, both the obligation and condition are
liability in case of breach.
valid.
6. When the condition is not to do an impossible
WHEN OBLIGATION IS DEMANDABLE AT ONCE:
thing, simple disregard the condition but the
1. When it is a pure obligation
obligation remains and becomes pure.
2. When it has a resolutory condition
3. When it has a resolutory (in diem) period
DOCTRINE OF CONSTRUCTIVE FULFILLMENT
– When the obligor voluntarily prevents the
PERIOD CONDITION
fulfillment of the condition, it is deemed fulfilled.
REQUISITES: CHARACTERISTICS:
1. It must refer to the 1. Future & uncertain
future. 2. Past but unknown
2. It must be certain. 3. Must be possible of
3. It must be possible. performance

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RULES ON LOSS, DETERIORATION, AND DISJUNCTIVE OBLIGATION – when there are
IMPROVEMENT: two or more debtors, or two or more creditors,
1. Loss without the fault of debtor – obligation is but they are named alternatively. This situation is
extinguished not covered by the Civil Code but many authors
2. Loss through the fault of debtor – damages in Civil Law believed that the rule on solidary
3. Deterioration without the fault of debtor – obligation must apply.
impairment borne by creditor
4. Deterioration through the fault of debtor – PRESUMPTION: Joint
creditor to choose between fulfilment and
rescission, with damages in both cases CONSEQUENCES:
5. Improvement by nature or time – inure to the 1. The debt shall be divided into as many
benefit of the creditor shares as there are creditors or debtors.
6. Improvement at the expense of debtor – he 2. The creditors or the debtors will be
shall have no other right than that of a considered distinct from one another, but
usufructuary for purposes of bringing the action, the
Rules of Court governing the multiplicity
KINDS OF PERIOD/TERM: of suits will apply.
1. Suspensive (Ex Die) – obligation becomes 3. When one is insolvent, the others are not
demandable upon arrival of the day certain. liable for his share.
2. Resolutory (In Diem) – obligation is
demandable at once, although it is terminated EXCEPTION: Solidary, if –
upon the arrival of the day certain. 1. Law requires solidarity
3. Legal – granted by law 2. Stipulated by the parties
4. Conventional – stipulated by the parties 3. Nature of the obligation requires solidarity
5. Judicial – fixed by the courts
6. Definite – period or time is known WHEN LAW REQUIRES SOLIDARITY:
beforehand 1. All partners are liable solidarily with the
7. Indefinite – period is certain to come partnership if the act complained of arises
although not known beforehand from crime or quasi-delict.
2. In agency, if two or more persons have
WHEN DEBTOR LOSES THE BENEFIT OF THE appointed an agent for a common
PERIOD/TERM – means that the term of the transaction, they shall be solidarily liable to
obligation is extinguished, hence, the obligation the agent for all the consequences of the
becomes demandable and there is no need to agency.
wait for the period to come. Ø The responsibility of two or more agents,
v Art. 1198 of the Civil Code even though they have been appointed
simultaneously, is not solidary, if solidarity
has not been expressly stipulated.
ALTERNATIVE FACULTATIVE 3. The responsibility of two or more persons who
Various things are due, Only one thing is are liable for quasi-delict is solidary.
but the giving of one is principally due, and 4. The responsibility of two or more payees,
sufficient. that it is that one which when there has been payment of what is not
generally is given, but due, is solidary.
the other (the 5. Devisees and legatees
substitute) may be 6. Bailees in commodatum
given to render
payment or fulfilment MUTUAL AGENCY RULE – Each one of the
easy. solidary creditors may do whatever may be useful
If one of the If the principal to the others, but not anything which may be
prestations is illegal, obligation is illegal or prejudicial to the latter.
the others may be valid void, there is no
and the obligation necessity of giving the WHAT DETERMINES DIVISIBILITY OR
remains. substitute. The nullity INDIVISIBILITY / KINDS:
of the principal carries 1. Law (Legal)
with it the nullity of the 2. Intention of the parties (Conventional)
accessory or substitute. 3. Character of the prestation (Natural/Absolute)
If it is impossible to If it is impossible to
give all except one, give the principal, the INDIVISIBLE:
that last one must still substitute does not 1. To give a definite thing
be given. have to be given; if it is 2. Those which are not susceptible of partial
impossible to give the performance
substitute, the principal
must still be given. DIVISIBLE:
The right to choose The right of choice is 1. When the object of the obligation is the
may be given, either to given only to the execution of a certain number of days of work
debtor or creditor. debtor. 2. Accomplishment of work by metrical units
3. When the purpose of the obligation is to pay a
certain amount in installment

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JOINT INDIVISIBLE OBLIGATION PENALTY FACULTATIVE
- The object or prestation is indivisible, not OBLIGATION
susceptible of division; while the tie between Payment in lieu of the Power to make the
the parties is joint, that is, liable only to a principal obligation is substitution is absolute
proportionate share. only by express
stipulation
EFFECTS OF NON-COMPLIANCE Right to demand the Creditor can never
1. If anyone refuses or cannot comply with his principal obligation and demand the
obligation, the same is converted into the penalty may be performance of both
monetary obligation as the basis of given to creditor obligations
indemnity.
2. The debtors who may have been ready to PRINCIPAL MODES OF EXTINGUISHMENT OF
fulfill their promises shall not contribute to the OBLIGATIONS:
indemnity beyond the corresponding portion 1. Payment or performance – means not only
of the price of the thing or of the value of the delivery of money but also the performance in
service in which the obligation consists. any other manner of an obligation.
3. If the division is impossible, the right of 2. Loss of the thing due – refers to the
creditors may be prejudiced only by their impossibility of performance subsequent to
collective acts, and the debt can be enforced the execution of the contract. There is loss
only by proceeding against all the debtors. If when a thing perishes, goes out of commerce,
one of the latter should be insolvent, the or disappears in such a way that its existence
others shall not be liable for his share. is unknown.
3. Condonation or remission – is that act of
SOLIDARITY INDIVISIBILITY liberality whereby the creditor condones or
Refers to the tie Refers to the object of forgives the obligation of the debtor. It is the
between the parties the obligation gratuitous abandonment by the creditor of his
Needs at least two Exists even if there is right.
debtors or creditors only one debtor and 4. Confusion or merger of rights – takes
only one creditor place when the characters of the debtor and
Fault of one is fault of Fault of one is not the the creditor are merged in the same person.
all fault of the others It is the meeting in one person of the qualities
of creditor and debtor with respect to the
PRINCIPLE OF “QUANTUM MERUIT” – literally same obligation.
means “as much as he deserves”. This allows 5. Compensation – takes place when two
recovery of the reasonable value of the work persons in their own rights are creditors and
done regardless of any agreement as to value. debtors of each other. It is the
This is applicable only in divisible obligation extinguishment to the concurrent amount of
because in indivisible obligation, partial the debts of two persons who, in their own
performance is equivalent to non-performance. rights are debtors and creditors of each other.
Also called abbreviated or simplified payment.
KINDS OF PENAL CLAUSE: 6. Novation – is the extinction of an obligation
1. Subsidiary/Alternative – only the penalty through the creation of a new one which
is demandable in case of non-compliance. substitutes the old one.
2. Joint/Cumulative – both the principal
contract and penal clause can be enforced. OTHER CAUSES OF EXTINGUISHMENT OF
OBLIGATIONS:
PENALTY ALTERNATIVE 1. Annulment – is a remedy provided by law for
OBLIGATION the declaration of inefficacy of a contract
There is only one Two or more based on a defect or vice of consent in one of
prestation due, only obligations are due, the the contracting parties.
when this is not delivery of one is 2. Rescission – is a remedy provided by law to
performed that the sufficient to extinguish the contracting parties or sometimes to third
penal clause is the obligation persons in order to secure reparation for the
demandable damages caused to them by a valid contract.
The impossibility of The impossibility of 3. Prescription – is a mode to extinguish
performing the performing the obligations by the lapse of time.
principal obligation principal obligations, 4. Compromise – is a contract whereby the
extinguishes also the without the debtor’s parties, by making reciprocal concessions,
penalty fault, still leaves the avoid a litigation or put an end to one already
other subsisting commenced.
Debtor cannot choose Debtor can choose 5. Fulfilment of resolutory condition
to pay the penalty to which prestation to 6. Arrival of resolutory period
relieve himself of the fulfill 7. Death of a party in personal obligations
principal obligation, 8. Fortuitous Event
unless such right is 9. Mutual desistance
granted to him

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REQUISITES OF PAYMENT:
1. It must be complete.
EXCEPTIONS:
A. Substantial performance in good faith
B. Acceptance with knowledge of its
incompleteness and without protest
C. When partial payment is allowed
i) When there is an express stipulation
ii) When the debt is in part liquidated
iii) When the obligation is subject to
different terms or periods or conditions
iv) When work is to be done by parts
v) Payment of the share of a debtor in a
joint obligation
2. It must be the prestation as agreed upon.
3. It must due and demandable.
4. If it is money, it must be in legal tender.
LEGAL TENDER – is the currency which the
debtor can compel the creditor to accept in
payment of a debt when tendered for the right
amount.
Sec.52, RA 7653 & BSP Circ.537, s. 2009:
A. For denominations of 1-peso, 5-peso and 10-
peso coins – up to Php1,000.
B. For denominations of 1-cent, 5-cents, 10-
cent, and 25-cent coins. – up to Php100.
COMMERCIAL INSTRUMENTS (CHECKS,
PROMISSORY NOTES, BILLS OF EXCHANGE)
Ø Not legal tender; creditor cannot be
compelled to accept; and even if accepted,
will only produce the effects of payment
when:
1. Encashed
2. Impaired through creditor’s fault
3. Creditor had previously promised that he
would accept a check
WHO SHOULD PAY OR THE PERSONS FROM
WHOM CREDITOR MUST ACCEPT PAYMENT
1. Debtor
2. Person who has an interest in an obligation
3. Person stipulated in the contract to make
payment
EFFECT OF PAYMENT BY THIRD PERSON
1. With the knowledge and consent of the debtor
(Art. 1236, 2nd paragraph)
Ø Full reimbursement with subrogation
2. Without the knowledge or against the will of
the debtor (Art. 1237)
Ø Beneficial reimbursement, no subrogation
3. With no intention of being reimbursed (Art.
1238)
Ø deemed a donation which requires
acceptance; if debtor does not agree,
payment shall nevertheless be valid to the
creditor who accepted it
PAYMENT BY AN INCAPACITATED PERSON
GEN. RULE: not valid
EXCEPTION: When a minor between eighteen
and twenty-one years of age, who has entered
into a contract without the consent of the parent
or guardian, voluntarily pays a sum of money or
delivers a fungible thing in fulfillment of the
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obligation, there shall be no right to recover the
same from the obligee who has spent or
consumed it in good faith. (Art. 1247)
TO WHOM PAYMENT MUST BE MADE
1. Creditor
2. Successor in interest
3. Person authorized to receive payment
GEN. RULE: Payment to third person is not valid.
EXCEPTIONS WHEN PAYMENT TO THIRD
PERSON IS VALID:
1. When third person is authorized to receive it
2. When payment to third person has redounded
to the benefit of the creditor
3. When third person is in possession of the
credit and payment was in good faith
PAYMENT TO AN INCAPACITATED PERSON
GEN. RULE: not valid
EXCEPTIONS:
1. He kept the thing paid, or
2. He is benefited by the payment
WHERE TO PAY OR PLACE OF PAYMENT:
1. At the place agreed upon
2. If none,
a. Indeterminate object – domicile of the
debtor
b. Determinate object – location of the thing
at the time of the constitution of the
obligation.
SPECIAL MODES OF PAYMENT:
1. Dation in payment / Adjudication or
dacion en pago – is payment in kind; this
happens when property is alienated to the
creditor in satisfaction of debt in money
2. Application of payment – is the designation
of the debt to which should be applied a
payment made by a debtor who owes several
debts in favor of the same creditor.
Ø Not really a special form of payment.
3. Payment by cession – is the process by
which a debtor transfers all the properties not
subject to execution in favor of his creditors
so that the latter may sell them and apply the
proceeds to their credits.
4. Tender and consignation – Tender is the
act, on the part of debtor, of offering to the
creditor the thing or amount due; while
Consignation is the act of depositing the thing
or amount due with the proper court when
the creditor does not desire or cannot receive
it, after complying with the formalities
required by law.
DATION SALE
There is a pre-existing debt None
Obligation is extinguished Gives rise to an
obligation
Lesser freedom in Greater freedom
determining the price
Giving of the object in lieu Payment of the
of the obligation in money price will as a rule,
will totally or partially extinguish totally
extinguish the obligation the obligation
 4. When two or more persons claim the
CESSION DATION same right to collect;
Generally affects all Does not 5. When the title of the obligation has been
properties of the debtor lost.
Requires that there be One creditor is
more than one creditor sufficient KINDS OF LOSS:
Requires complete or May take place even 1. Physical – when a thing perishes
partial insolvency of during the solvency of 2. Legal – goes out of commerce
the debtor the debtor 3. Civil – thing disappears in a such way that its
Does not transfer Does, upon delivery existence is unknown.
ownership
Not an act of novation Is SOME INSTANCES WHEN THE LAW RENDERS
LIABILITY DESPITE LOSS DUE TO
REQUISITES FOR APPLICATION OF PAYMENT: FORTUITOUS EVENT:
1. Only one debtor and only one creditor 1. When debtor is in default
2. Two or more debts of the same kind 2. When debtor promised to deliver the same
3. All of the debts must be due thing to two or more persons who do not
4. Payment is not sufficient to extinguish all the have the same interest
debts 3. When obligation arises from crime
4. When payee in solutio indebiti is in bad faith
RULES IN APPLICATION OF PAYMENT:
1. The right belongs to the debtor. REQUISITES OF CONDONATION/REMISSION:
2. The creditor shall designate in the receipt. 1. There must be an agreement
3. The most onerous debt. 2. Parties must be capacitated to give consent
4. If same burden, proportionately. and must actually consent
3. There must be a subject matter
REQUISITES OF CESSION: 4. Cause or consideration must be liberality or
1. More than one debt generosity
2. More than one creditor 5. Obligation must be demandable at the time of
3. Complete or partial insolvency on the part of remission
the debtor 6. Remission must not be inofficious
4. Abandonment of all properties of the debtor
except those exempt from execution KINDS OF CONDONATION/REMISSION:
1. Total – the entire debt is remitted
REQUISITES OF TENDER: 2. Partial – only a portion of the debt is
1. Must be made in legal tender or lawful remitted
currency 3. Inter vivos – takes effect during the lifetime
2. Must include whatever interest is due of the creditor-donor
3. Must be unconditional 4. Mortis causa – takes effect after the death
4. Obligation must already be due of the creditor-donor
5. Express/formal – if inter vivos, the
REQUISITES OF CONSIGNATION: formalities of a donation are required; if
1. Existence of a valid debt which is due mortis causa, those of a will
2. Tender of payment by DR and refusal by CR 6. Implied/tacit – conduct is sufficient; no
to accept without justifiable cause formality is required
3. Previous notice of consignation to persons
interested in the fulfillment of the obligation REQUISITES FOR CONFUSION/MERGER:
4. Actual consignation of the thing or sum due 1. It should take place between the principal
5. Subsequent notice of consignation made to debtor and creditor
the interested parties 2. It must be clear and definite
3. Obligation involved must be the same or
EFFECTS: identical
A. Tender without consignation does not
extinguish the obligation. KINDS OF COMPENSATION:
B. GEN. RULE: Consignation without tender 1. Total – same amount
does not extinguish the obligation. 2. Partial – not equal
EXCEPTIONS WHEN CONSIGNATION 3. Legal – by operation of law
ALONE WILL PRODUCE THE EFFECT OF REQUISITES:
PAYMENT: i) That each one of the obligors be bound
1. When the creditor is absent or unknown, principally, and that he be at the same
or does not appear at the place of time a principal creditor of the other;
payment; ii) That both debts consist in a sum of
2. When he is incapacitated to receive the money, or if the things due are
payment at the time it is due; consumable, they be of the same kind,
3. When, without just cause, he refuses to and also of the same quality if the latter
give a receipt; has been stated;
iii) That the two debts be due;

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 iv) That they be liquidated and demandable; EXPROMISION DELEGACION
v) That over neither of them there be any That which takes place One which takes place
retention or controversy, commenced by when a third person on when the creditor
third persons and communicated in due his own initiative and accepts a third person
time to the debtor. without the knowledge to take the place of the
4. Facultative – one party can claim or against the will of debtor at the instance
compensation, the other cannot the original debtor of the latter.
5. Conventional – by agreement of the parties assumes the obligation.
6. Judicial – decreed by the court, in case REQUISITES: REQUISITES:
where there is counterclaim 1. The initiative of 1. The initiative of
payment comes payment comes
INSTANCES WHEN LEGAL COMPENSATION from the third from the debtor
CANNOT TAKE PLACE: person 2. The original debtor,
1. when one of the debts arises from a 2. The consent of the creditor and third
depositum creditor and new person or the new
2. when one of the debts arises from the debtor is required debtor must
obligations of a depositary or of a bailee in 3. The obligation of consent
commodatum the old debtor is 3. The obligation of
3. when one of the debts arises from a claim of absolutely the old debtor is
support extinguished generally
4. when one of the debts consists in civil liability extinguished
arising from a penal offense If the substitution is The insolvency of the
without the knowledge new debtor, who has
COMPENSATION CONFUSION/MERGER or against the will of been proposed by the
There must be two There is only one the debtor, the new original debtor and
persons who are person in whom is debtor's insolvency or accepted by the
mutually debtor and merged the qualities of non-fulfillment of the creditor, shall not
creditor to each other creditor and debtor obligations shall not revive the action of the
There must be two There can only be one give rise to any liability latter against the
persons involved on the part of the original obligor, except
original debtor. when said insolvency
REQUISITES OF NOVATION: was already existing
1. Previous valid obligation. and of public
2. Capacity and intention of the parties to knowledge, or known
modify or extinguish the obligation. to the debtor, when the
3. The modification or extinguishment of the delegated his debt.
obligation.
4. The creation of a new, valid obligation. SUBROGATION – is the transfer to a third
person of all the rights appertaining to the
EFFECT IF NEW OBLIGATION IS VOID: creditor, including the right to proceed against
Ø the original one shall subsist, unless the the guarantor, possessor of mortgages, subject
parties intended that the former relation to any legal provision or any modification that
should be extinguished in any event. may be agreed upon.

EFFECT IF OLD OBLIGATION IS VOID: KINDS OF SUBROGATION:

Ø The novation is void if the original obligation
was void, except when annulment may be
claimed only by the debtor or when
ratification validates acts which are voidable.
EFFECT IF SUBJECT TO A CONDITION:
Ø If the original obligation was subject to a
suspensive or resolutory condition, the new
obligation shall be under the same condition,
unless it is otherwise stipulated.
KINDS OF NOVATION:
1. Express – declared in an unequivocal term.
2. Implied – both obligations are incompatible
with each other.
3. Personal/subjective – person of the debtor
is substituted or the rights of the creditor is
subrogated.
4. Real/objective – change of the object or
principal condition.
5. Mixed – change of the parties and object or
principal condition.
1. CONVENTIONAL/VOLUNTARY – takes
place by the agreement of the original
creditor, the third person substituting the
original creditor, and the debtor.
2. LEGAL – takes place by operation of law and
is presumed in the following cases:
a. When a creditor pays another creditor who
is preferred, even without the debtor's
knowledge;
b. When a third person, not interested in the
obligation, pays with the express or tacit
approval of the debtor;
c. When, even without the knowledge of the
debtor, a person interested in the
fulfillment of the obligation pays, without
prejudice to the effects of confusion as to
the latter's share.

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