OBLIGATIONS

Definition.

A juridical necessity to give, to do, or not to do (Article 1156). One impressed with the character of enforceability.

Elements of an Obligation:

1. Active subject (called the obligee or creditor)—the possessor of a right; he in whose favor the obligation is
constituted.
2. Passive subject (called the obligor or debtor)—he who has the duty of giving, doing, or not doing;
3. Object or Prestation –the subject matter of the obligation.
4. Efficient Cause (vinculum or juridical tie)—the reason why the obligation exists.

Sources of Obligation:
1. Law (Obligations ex lege)—like the duty to pay taxes or to support one’s family.
2. Contracts (Obligations ex contractu)—like the duty to repay the loan by virtue of an agreement.
3. Quasi-Contracts (Obligations ex quasi-contractu)—like the duty to refund an over-change of money
because of the quasi-contract of solution indebiti or “undue payment.”
4. Crimes or Acts or Omissions Punished by Law (Obligations ex maleficio or ex delicto)—like the duty to
return a stolen carabao.
5. Quasi-Delicts or Torts (Obligations ex quasi-delicto or ex quasi-maleficio)—like the duty to indemnify a
person who suffered damages because your acts or negligence, without criminal intent or pre-existing
obligation.

Law as source of obligation.

Obligation derived from law are not presumed. Only those expressly determined in this code or by special laws are
demandable, and shall be regulated by precepts of law which established them; and as to what has not been foreseen, by the
provisions of this book.

Contract as source of obligation.

Obligations arising from contracts have the full force of law between the contracting parties and should be complied
with in good faith.

Quasi-contract as source of obligation.

It is the is that juridical relation resulting from a lawful, voluntary, and unilateral act, and which has for its purpose
the payment of indemnity to the end that no one shall be unjustly enriched or benefited at the expense of another

2 kinds:
1. Negotiorum Gestio (unauthorized management)

This takes place when a person voluntarily takes charge of another’s abandoned business or property without
the owner’s authority (Article 2144). Reimbursement must be made to the gestor for necessary and useful expenses, as
a rule.

2. Solutio Indebiti
 This takes place when 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.

Delict as a source of obligation.

Every person criminally liable for a felony is also civilly liable. (Article 100, Revised Penal Code)

Quasi-delict or culpa aquiliana or tort as a source of obligation.

One which causes damage to another, there being fault or negligence, but there is no pre-existing contractual
relation between the parties.

Classification of Obligations in General

A. From the view point of “sanction”

1. Civil Obligation—that defined in Article 1156. The sanction is judicial process.

2. Natural Obligation—the duty not to recover what has voluntarily been paid although payment was
no longer required. The sanction is law but only because conscience had originally motivated the
payment.
3. Moral Obligation—the duty of the Catholic to hear mass on Sundays and holy days of obligations.
The sanction here is conscience or morality, or the law of the church.

B. From the viewpoint of subject matter

1. Real Obligation—the obligation to give.
2. Personal Obligation—the obligation to do or not to do.

C. From the affirmativeness and negativeness of the obligation

1. Positive or Affirmative Obligation—the obligation to give or to do.
2. Negative Obligation—the obligation not to do.

D. From the viewpoint of persons obliged.

a. Unilateral—where only one of the parties is bound.
b. Bilateral—where both parties are bound.

The prestation in an obligation.

1. To give (real obligation)

2. To do (positive personal obligation)
3. Not to do (negative personal obligation)

Obligations of a person obliged to give something.

Referred to as real obligation (“res” or thing), if what is to be given is specific or particularly designated from all
others or the same class, it is real determinate obligation; if object is designated merely by its class or genus, it is real
generic obligation.
 Determinate Generic

a. Deliver the thing which he has 1. Deliver the thing which is neither of
obligated himself to give (Art. 1165); superior nor inferior quality;

b. Take care of the thing with proper 2. Pay damages in case of breach of the
diligence of a good father of a family obligation by reason of delay, fraud,
(Art. 1163); negligence or contravention of the
tenor thereof (Art. 1170);
c. Deliver all accessions and accessories
of the thing even though they may not
have been mentioned (Art. 1166);

d. Pay damages in case of breach of the

obligation by reason of delay, fraud,
negligence or contravention of the
tenor thereof (Art. 1170);

Creditor’s right to the fruits of the thing.

The creditor has a right to the fruits of the thing from the time the obligation to deliver it arises.

Before delivery of fruits After delivery of fruits

The creditor’s right is personal or jus in
personam, a right which is enforceable only
against a definite passive subject, the debtor.
The creditor has now a real right over the
fruits from the time of delivery and becomes
enforceable against the whole world. In short,
it gives a person direct and immediate
juridical power over a thing which can be
exercised not only against a definite passive
subject but against the whole world. The
rights of ownership and possession are real
rights.

Kinds of fruits.

1. Natural fruits—spontaneous products of the soil without the intervention of human labor, and the young and
other product of animals with or without the intervention of human labor, such as forest products.
2. Industrial fruits—products of the soil through cultivation or human labor, such as palay and vegetables, planted
by farmers.
3. Civil fruits—fruits as a result of civilization or fruits arising out of juridical relation, such as rent of lands,
apartments and buildings.

Accessions and accessories defined and exemplified.

Accessories
Those which are used for the embellishment,
use, or preservation of another thing of more
importance.
Example: tools and spare parts with respect
to a machine
Accessions
Include everything which is produced by a
thing, incorporated or attached thereto, either
naturally or scientifically. It includes natural
accession, such as alluvion, and industrial
accession, such as building, planting and
sowing.
Rights of the creditor in an obligation to do something.

Determinate
a. Compel specific Performance
(Art. 1165)
b. Recover damages in case of
breach of the obligation,
exclusive or in addition to
specific performance (Art.
1165)
c. Entitlement to the fruits,
interests from the time the
obligation to deliver arises.
Generic
Ask for the performance of the obligation (Art.
1165)
Ask that the obligation be complied with at the
expense of the debtor (Art. 1165)
Recover damages in case of breach of the
obligation (Art. 1170)

Breach of obligations.

1. Voluntary—Debtor, in the performance of the obligation, is guilty of:

a. default (mora)

b. fraud (dolo)

c. negligence (culpa)

d. contravention of the tenor of the obligation

Debtor is liable for damages.

2. Involuntary—Debtor is unable to comply with his obligation because of fortuitous event. Debtor is
not liable for damages.

Effects of Breach.

Positive Personal Obligation Negative Personal Obligation

The Creditor can: If the obligor does what has been forbidden
him, the creditor can:
a. Have the obligation performed
at the expense of the obligor (Art. a. Have it undone at the expense of
1167); the obligor (Art. 1168); and

b. Ask that what has been poorly b. Ask for damages (art. 1170)
done be undone (Art. 1167);

c. Recover damages because of the

breach of the obligation (art.
1170).

Default or Delay (Mora)

Non-fulfilment of the obligation with respect to time, generally after demand to perform it has been made.

Requisites:

1. Obligation is demandable and already liquidated;

 2. The debtor delays performance;

3. The creditor requires performance judicially or extra-judicially

3 Kinds:
1. Mora Solvendi—delay of the debtor to perform his obligation. It may be:
a. Ex re—obligation to give;

b. Ex persona—obligation is to do;

2. Mora Accipendi—delay of the creditor to accept the delivery of the thing which is the
object of the obligation

3. Compensatio Morae—delay of the parties or obligors in reciprocal obligations.

When delay is incurred.

There must be a demand (judicial or extra-judicial) before delay may be incurred.

Exceptions:

1. When stipulated by the parties.

2. By provision of law.

3. When time is of the essence of the contract.

4. Demand will be useless.

Fraud (Dolo).

Fraud or dolo consists in the conscious and intentional proposition to evade normal fulfilment of an obligation.

2 kinds:

1. Fraud in obtaining consent (causal fraud/dolo causante)

2. Fraud in performing a contract (incidental fraud/dolo incidente)

Dolo incidente Dolo causante

a. Present during the performance of a pre- Present during the time of birth or perfection of the
existing obligation. obligation.

b. Purpose is to evade the normal fulfilment Purpose is to secure the consent of the other to
of the obligation. enter into a contract.

c. Result in the non-fulfilment or breach of Results in the vitiation of consent.

the obligation.

d. Gives rise to a right of the creditor to Gives rise to a right of an innocent party to annul
recover damages from the debtor. the contract.

Negligence (Culpa).

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.

Diligence required:
 1. That agreed upon by the parties

2. In the absence of stipulation, that required by law in the particular case

3. If both the contract and law are silent, diligence of a good father of a family

Concept of a Good Father of a Family.

That reasonable diligence which an ordinary prudent person would have done under the same circumstances. The
test of negligence can be determined by this standard: If defendant, in committing or causing the negligent act, had used
reasonable care and vigilance which a man of ordinary prudence would have employed under the same situation, he is not
guilty of negligence. Otherwise, he is guilty.

Fortuitous Event.

An event which could not be foreseen or which though foreseen was inevitable.

Requisites:

1. Cause is independent of the will of the debtor.

2. The event must be unforeseeable or unavoidable.

3. Occurrence must be such as to render it impossible for the debtor to fulfil his obligation in a
normal manner.

4. Debtor must be free from any participation in.

5. The aggravation of the injury resulting to the creditor.

General Rule: No liability in case of fortuitous events.

Exceptions:

1. When expressly declared by law [e.g. Article 552 (2), 1165 (3), 1268, 1942, 2147, 2148 and
2159 of the Civil Code]

2. When expressly declared by stipulation or contract

3. When the obligor is in default or has promised to deliver the same thing to 2 or more persons
who do not have the same interest [Article 1165 (3)].

Effect of Fortuitous Event:

Determinate Obligation Generic Obligation

Obligation is extinguished Obligation is not extinguished based on the rule
that genus never perishes (genus nunquam peruit)

Remedies of the Creditor to Protect Credit.

1. Exhaustion of debtor’s property

 2. Accion subrogatoria to be subrogated to all the rights and actions of the debtor save those which are
inherent in his person.

3. Accion pauliana—impugn all the acts which the debtor may have done to defraud them.

General rule: Rights acquired by virtue of an obligation are transmissible in character.

Exceptions:

1. When they are not transmissible by their very nature, e.g. personal right;

2. When there is a stipulation of the parties that they are not transmissible.

3. Not transmissible by operation of law.

Classification of Obligations.

Primary Secondary
a. Pure and conditional a. Unilateral and bilateral
b. With a period or with a term b. Real and personal
c. Alternative and facultative c. Determinate and indeterminate
d. Joint and solidary d. Positive and negative
e. Divisible and indivisible e. Legal and conventional
f. With a penal clause f. Civil and natural

Pure Obligation.

One whose effectivity or extinguishment does not depend upon the fulfilment or non-fulfilment of a condition or
upon the expiration of a term or period and is demandable at once.

Conditional Obligation.

One whose effectivity is subordinated to the fulfilment or non-fulfilment of a future and uncertain fact or event.

Kinds of Conditions:

1. Suspensive—fulfillment of the condition results in the acquisition of rights arising out of the
obligation.

2. Resolutory—fulfillment of the condition results in the extinguishments of rights arising out of

the obligation.

3. Casual—fulfillment of the condition depends upon chance and/or upon the will of a third
person.

4. Possible—condition is capable of realization according to the nature, law, public policy and
good customs.

5. Negative—condition involves the omission of an act.

6. Divisible—condition is susceptible to partial realization.

7. Indivisible—condition is not susceptible of partial realization.

8. Conjunctive—where there are several conditions, all of which must be realized.

 9. Alternative—where there are several conditions but only one must be realized.

Rule in Potestative Conditions.

If the fulfilment of the potestative condition depends upon the sole will of the debtor, the condition as well as the
obligation itself is void. It renders the obligation illusory (applicable only to a suspensive condition and to an obligation
which depends for its perfection upon the fulfilment of the potestative condition and not to pre-existing obligation).

If the fulfilment depends exclusively upon the will of the creditor, both the condition and obligation is valid.

Rule in Impossible Conditions.

General rule: They shall annul the obligation which depends upon them.

Exceptions:

1. Pre-existing obligation

2. If obligation is divisible

3. In simple or renumeratory donations

4. In testamentary disposition

5. In case of conditions not to do an impossible thing.

Effects of Suspensive Condition.

1. Before fulfilment of the condition, the demandability as well as the acquisition or effectivity of the rights
arising from the obligation is suspended;
2. After the fulfilment of the condition, the obligation arises or becomes effective;
3. 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;

4. When the obligation imposes reciprocal prestations upon the parties, the fruits and interests shall be deemed to
have been mutually compensated;

5. If the obligation is unilateral, the debtor shall appropriate the fruits & interests received, unless from the nature
and circumstances it should be inferred that the intention of the persons constituting the same was different;

6. In obligations to do or not to do, the court shall determine the retroactive effect or conditions that have been
complied with.

Effects of Resolutory Condition.

Before the fulfilment of the condition, the right which the creditor has already acquired by virtue of the obligation is
subject to a threat of extinction;

If condition is not fulfilled, rights are consolidated; they become absolute, the parties shall return to each other what
they received including the fruits.
 Suspensive Condition Resolutory Condition
a. If fulfilled, obligation arises or becomes If fulfilled, obligation is extinguished;
effective;

b. If not fulfilled, no judicial relation is

created; If not fulfilled, judicial relation is consolidated;

c. Rights are not yet acquired, but there is Rights are already acquired, but subject to the
hope or expectancy that they will soon be threat or danger of extinction.
acquired.

Effects of Loss, Deterioration and Improvement in Real Obligations (During the Pendency of the
Condition)

A. Loss

Without debtor’s fault—obligation is extinguished

With debtor’s fault—debtor pays damages.

Applies only to determinate thing. A thing is loss when it:

1. Perishes

2. Goes out of commerce

3. Disappears in such a way that its existence is unknown or it cannot be recovered.

B. Deterioration

Without debtor’s fault, impairment is to be borne by the creditor.

With debtor’s fault, creditor may choose between the rescission of the obligation and its fulfilment with indemnity for
damages in either case.

C. Improvement

If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor.

If it is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary.

Obligations with a Period.

Those whose demandability or extinguishment is subject to the expiration of a term or period.

Requisites:

1. Future
2. Certain
3. Possible, legally and physically.

Classification of Term or Period:

1. Suspensive (Ex die)—obligation becomes demandable only upon arrival of a day certain.
2. Resolutory (In Diem)—arrival of day certain terminates the obligation;
3. Legal—granted by law.
4. Conventional—stipulated by parties.
 5. Judicial—fixed by courts.
6. Definite—date/time is known beforehand.
7. Indefinite—the date/time of day certain is unknown.

Term Condition
1. Interval of time which is future and certain Fact or event which is future and certain

2. Interval of time which must necessarily Future and uncertain fact or event which may or
come, although it may not be known when. may not happen

3. Exerts an influence upon time or Exerts influence upon the very essence of the
demandability or extinguishment of an obligation itself.
obligation.

4. Does not have any retroactive effect unless Has retroactive effect.
there is an agreement to the contrary.

5. When it is left exclusively to the will of When it is left exclusively to the will of the debtor,
the debtor, the existence of the obligation is the very existence of the obligation is affected.
not affected.

General rule: When a period is designated for the performance or fulfilment of an obligation, it is presumed to
have been established for the benefit of both creditor and debtor.

Exception: When it appears from the tenor of the obligation or other circumstances that the period has been
established in favor of one or of the other.

When Court May Fix Period.

1. If the obligation does not fix a period, but from its nature and circumstances it can be inferred that
a period was intended by the parties;

2. If the duration of the period depends upon the will of the debtor;

3. If the debtor binds himself when his means permit him to do so (Art. 1180).

Reason for Fixing Period (Art. 1197)

There can be no possibility of any breach of contract or failure to perform the obligation unless the period is fixed
by the courts.

When debtor loses right to make use of period:

1. When after the obligation has been contracted, he becomes insolvent, unless he gives guaranties or
securities for the debt (the insolvency need not be judicially declared);

2. When he does not furnish to the creditor the guaranties or securities he promised;

3. When by his own act he has impaired said guaranties or securities after their establishment, and
when through fortuitous event they disappear, unless he gives new ones equally satisfactory when
debtor violates any undertaking, in consideration of which the creditor agreed to the period; or

4. When debtor attempts to abscond.

Definition of Alternative Obligation:

Alternative obligation is one where out of two or more prestations which may be given, only one is due. In short,
there are several things due but the delivery of one is sufficient to extinguish the obligation.

General Rule: Right to choose belongs to the debtor

Exception : Unless given to the creditor

Limitations : The debtor shall have no right to choose those prestations which are:

1. Impossible
2. Unlawful
3. Those which could not have been the object of the obligation.

Effect of loss of the object of the obligation.

a. If right of choice belongs to debtor:

1. If through fortuitous event, debtor cannot be held liable for damages;

2. If one or more but not all of the things are lost or one or some but not all of the prestations
cannot be performed due to the fault of the debtor, creditor cannot hold the debtor liable for
damages because the debtor can still comply with his obligation;

b. If the right of choice belongs to the creditor:

1. If one of the things is lost through a fortuitous event, the debtor shall perform the obligation
by delivering that which the creditor should choose from among the remainder, or that
which remains if only one subsists;

2. If the loss of one of the things occurs through the fault of the debtor, the creditor may claim
any of those subsisting, or the price of that which, through the fault of the former, has
disappeared with a right to damages;

3. If all the things are lost through the fault of the debtor, the choice by the creditor shall fall
upon the price of any one of them, also with indemnity for damages.

Facultative obligation.

It is one where only one prestation has been agreed upon but the debtor may give another object as substitute.

The effect of the loss of the thing in facultative obligation.

1. Before susbstitution—If the principal thing is lost due to fortuitous event, obligation is extinguished; if due to
debtor’s fault, he is liable for damages.
 If the thing intended as a substitute is the one which was lost, with or without debtor’s fault, the obligation
to deliver the substitute is extinguished because what is to be delivered is the principal object and not the substitute.
The loss of this substitute is immaterial.

2. After substitution—If the principal thing is lost, the debtor is no longer liable whatever be the cause of the loss,
because it is no longer due. If the substitute is lost due to fortuitous event, obligation is extinguished; if due to
debtors fault, he is liable for damages.

Facultative
a. Comprehends only one object
prestation which is due, but it may
complied with by the delivery
another object or performance
another prestation in substitution.
Alternative
or Comprehends several objects or prestations which
be are due but may be complied with by the delivery
of or performance of only one of them;
of

b. Fortuitous loss extinguishes the Fortuitous loss of all prestations will extinguish the
obligation obligation

c. Culpable loss obliges the debtor to Culpable loss of any object due will give rise to
deliver substitute prestation without liability to debtor
liability to debtor

d. Choice pertains only to debtor Choice may pertain to creditor or even third person

Joint Obligation.

It is one where the whole liability is to be paid or fulfilled proportionately by the different debtors and/or is to be
demanded also proportionately by the different creditors.

Features:

1. Insolvency of one debtor does not make the others liable.

2. Vitiated consent on the part of one debtor does not affect the others.
3. Demand made to one of the debtors is not demand to all because the debt of one is distinct from the
others.
4. When the creditor interrupts the running of the prescriptive period by demanding judicially from one,
the others are not affected.
5. Defences of one debtor are not necessarily available to the others.

Solidary Obligation.

It is one where each one of the debtors is bound to render compliance of the entire obligation and/or each one of the
creditors has a right to demand entire compliance of the prestation.

Instances when the law requires solidarity:

1. All the partners are liable solidarily with the partnership if the act complained of arises from a crime or
quasi-delict.
2. In agency, if two or more persons have appointed an agent for a common transaction, they shall be
solidarily liable to the agent for all the consequences of the agency.
3. The responsibility of two or more persons who are liable for a quasi-delict is solidary.
4. The responsibility of two or more payees, when there has been payment of what is not due, is solidary.
5. Legal provisions regarding the obligations of devises and legatees.
 6. Liability of principals, accomplices, and accessories of a felony.
7. Bailees in commodatum.

Joint vs. Solitary Obligations

General rule: Obligation is presumed joint if there is concurrence of two or more debtors and/or creditors.

Exceptions:

1. When expressly stated that there is solidarity;

2. When the law requires solidarity;

3. When the nature of the obligation requires solidarity.

Joint Indivisible Obligations

The object or prestation is indivisible, not susceptible of division; while the tie between the parties is joint, that is,
liable only to a proportionate share.

Characteristics:

1. Demand must be made to all the joint debtors.

2. The creditor must proceed against all the joint debtors, because the compliance of the obligation is possible
only if all of the joint debtors would act together.
3. If one of the debtors is insolvent, the other shall not be liable for his share.
4. If one of the debtors cannot comply, the obligation is converted into monetary consideration. One who is
ready and willing to comply will pay his proportionate share, and the other not willing shall pay his share
plus damages when his financial condition will improve.
5. If there are more than one creditor, delivery must be made to all, unless one is authorized to receive from
the others.

Obligations with a Penal Clause.

One to which an accessory undertaking is attached for the purpose of insuring its performance by virtue of which
the obligor is bound to pay a stipulated indemnity or perform a stipulated prestation in case of breach.

General Rule: The penalty fixed by the parties is a compensation for substitute for damages in case of breach.

Exceptions:

1. Where there is a stipulation to the contrary;

2. When the debtor is sued for refusal to pay the agreed penalty; and

3. When debtor is guilty of fraud.

The debtor cannot exempt himself from the performance of the principal obligation by paying the stipulated penalty
unless when the right has been expressly reserved for him.

The creditor cannot demand the fulfilment of the principal obligation and the satisfaction of the stipulated penalty at
the same time unless the right has been clearly granted him.

When penalty may be reduced.

 1. If the principal obligation has been partly complied with;

2. If the principal obligation has been irregularly complied with; and

3. If the penalty is iniquitous or unconscionable even if there has been no performance;

Modes of Extinguishment of Obligations

1. By payment or performance.
2. Loss of the thing due
3. Condonation or remission of the debt
4. Confusion or merger
5. Compensation
6. Novation

In addition:

7. Annulment
8. Rescission
9. Fulfilment of a resolutory condition
10. Prescription
11. Death of a party in case the obligation is personal
12. Mutual desistance
13. Compromise
14. Impossibility of fulfilment
15. Happening of fortuitous event

Payment or Performance

General rule: A debt shall not be understood to have been paid unless the thing or service in which the obligation
in which the obligation consists has been completely delivered or rendered, as the case may be.

Exceptions:

1. When the obligation has been substantially performed in good faith;

2. When the obligee accepts performance, knowing its incompleteness or irregularity & without
expressing any protest or objection;

3. When there is an express stipulation; and

4. When the debt is in part liquidated and in part liquidated.

Persons who may pay the obligation.

1. The debtor himself;

2. Any third person.

General rule: Creditor is not bound to accept payment or performance by a third person.

Exceptions:

1. When made by a third person who has an interest in the fulfilment of the obligation;

2. When there is a stipulation to the contrary.

Rights of a 3rd person who paid the obligation.

If payment was made with knowledge and consent of the debtor:

1. Can recover the entire amount paid;

2. Can be subrogated to all the rights of the creditor.

If payment was made without knowledge or against the will of the debtor, he can recover only insofar as the
payment has been beneficial to the debtor.

To whom payment must be made.

1. The person in whose favour the obligation has been constituted;

2. His successor in interest; or

3. Any person authorized to receive it.

General rule: If payment is made to a person other than those enumerated, it shall not be valid.

Exceptions:

1. Payment made to a 3rd person, provided that it has redounded to the benefit of the creditor;

2. Payment made to the possessor of the credit, provided that it was made in good faith.

Obligation to deliver generic object.

If the 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.

Rules in monetary obligation

1. Payment in cash—must be made in the currency stipulated; if it is not possible to deliver such
currency, then in the currency which is legal tender in the Philippines;

2. Payment in check or other negotiable instrument—not considered payment; not considered

legal tender and may be refused by the creditor. It shall only produce the effect of payment:

a. When it has been encashed; or

b. When it has been impaired throught the fault of the creditor.

Legal tender.

Such currency which may be used for the payment of all debts, whether in private or public. The kind of currency
which a debtor can legally compel a creditor to accept in payment of a debt in money when tendered by the debtor in the
right amount.

Philippine currency notes have no limit to their legal tender power. However, in the case of coins in denomination
of 1-, 5- and 10-piso they shall be legal tender in amounts not exceeding Php1,000.00 while coins in denomination of 1-, 5-
and 10- and 25-sentimo shall be legal tender in amounts not exceeding Php100.00, pursuant to BSP Circular No. 537, Series
of 2006.
Place of payment.

1. Place stipulated by the parties;

2. No stipulation and the obligation is to deliver a determinate thing, payment shall be made at the
place where the thing might be at the time;

3. In any other case, the payment shall be made at the domicile of the debtor.

Special forms of payment.

1. Application of payment;

2. Dation in payment;

3. Payment by cession;

4. Tender of payment and consignation.

Application of payment.

Designation of the debt to which the payment must be applied when the debtor has several obligations of the same
kind in favour of the same creditor.

Requisites:

1. There must be only 1 debtor and only 1 creditor;

2. There must be 2 or more debts of the same kind;

3. All of the debts must be duel except: if there is stipulation to the contrary; or application of
payment is made by the party for whose benefit the term has been constituted; and

4. Amount paid by the debtor must not be sufficient to cover the total amount of all debts.

General rule: The right to designate the debt to which the payment shall be applied primarily belongs to the debtor.

Exception: If the debtor does not avail of such right and he accepts from the creditor a receipt in which the
application is made.

Legal application of payment.

1. If neither the debtor nor the creditor makes any application of payment, or if it cannot be
inferred from other circumstances, the debt which is most onerous to the debtor, among those
which are due, shall be deemed to have been satisfied;

2. If the debts due are of the same nature and burden, payment shall be applied to all of them
proportionately.
Dation in payment (dacion en pago.)

Delivery and transmission of ownership of a thing by the debtor to the creditor as an accepted equivalent of the
performance of the obligation.

Requisites:

1. Existence of a money obligation;

2. Alienation to the creditor of a property by the debtor with the consent of the former;

3. Satisfaction of the money obligation of the debtor

Payment by cession.

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

Requisites:

1. Plurality of debts;

2. Partial or relative insolvency of the debtor;

3. Acceptance of the cession by the creditors

Dation in payment Payment by cession

1. One creditor Plurality of creditors

2. Not necessarily in state of financial Debtor must be partially or relatively insolvent

difficulty

3. Thing delivered is considered as equivalent Universality of property of debtor is what is ceded

of the performance

4. Payment extinguishes obligation to the Merely releases debtor for the net proceeds of
extent of the value of the thing delivered as things ceded or assigned, unless there is contrary
agreed upon, proved or implied from the intention.
conduct of the creditor.

Tender of payment.

Manifestation of the debtor to the creditor of his decision to comply immediately with his obligation.

It is preparatory act and extrajudicial in character.

Consignation.

Deposit of the object of the obligation in a competent court in accordance with the rules prescribed by law, after the
tender of payment has been refused or because of circumstances which render direct payment to the creditor impossible or
inadvisable.

It is the principal act and judicial in character.

Requisites:
 1. The debt sought to be paid must be due;

2. There must be a valid and unconditional tender of payment or any of the causes stated by law for
effective consignation without previous tender of payment exists;

3. The consignation of the thing due must first be announced to the persons interested in the fulfilment of
the obligation;

4. Consignation shall be made by depositing the things due at the disposal of judicial authority;

5. The consignation having been made, the interested parties shall also be notified thereof.

Effects of consignation.
1. If the creditor accepts the thing or amount deposited without contesting the validity or efficacy of the
consignation, the obligation is extinguished;

2. If the creditor contests the validity or efficacy of the consignation or if the creditor is not interested or
unknown or is absent, the result is litigation. If the debtor complied with all the requisites, the
obligation is extinguished.

General rule: Consignation shall produce the effects of payment only if there is a valid tender of payment.

Exceptions:

1. Creditor is absent or unknown or does not appear at the place of the payment;

2. Creditor incapacitated to receive payment at the time it is due;

3. When two or more persons claim the right to collect;

4. When the title of the obligation has been lost;

5. When without just cause creditor refuses to give receipt.

Loss of the Thing Due.

General rule: (In Determinate Obligations to give) Obligation is extinguished.

Requisites:

1. The thing which is lost is determinate;

2. The thing lost without the fault of the debtor;

3. The thing lost before the debtor has incurred in delay.

Exceptions:

1. When by law, obligor is liable for fortuitous event;

2. When by stipulation, obligor is liable even for fortuitous event;

3. When the nature of the obligation requires the assumption of risk;

4. When the loss of the thing occurs after the debtor incurred in delay;
 5. When the debtor promised to deliver the same thing to two or more persons who do not have the same
interest;

6. When the debt of a certain and determinate thing proceeds from a criminal offense.

General Rule: (in generic obligations to give) Obligation is not extinguished because the genus of a thing cannot
perish.

Exception: In case of generic obligations whose object is a particular class or group with specific or determinate
qualities.

General rule (in obligations to do): Obligation is extinguished when prestation becomes legally or physically
impossible.

Effect of relative impossibility or doctrine of unforeseen events.

When the service has become difficult as to be manifestly beyond the contemplation of the parties, the obligor may
also be released therefrom, in whole or in part.

Requisites:

1. The event or change in circumstances could not have been foreseen at the time of the execution of the
contract;

2. It makes the performance of the contract extremely difficult but not impossible;

3. The event must not be due to the act of any parties; and

4. The contract is for future prestation.

Condonation or Remission of Debt.

An act of pure liberality by virtue of which the oblige, without receiving any price or equivalent, renounces the
enforcement of the obligation, as a result of which it is extinguished in its entirety or in part or aspect of the same to which
remission refers.

It is the gratuitous abandonment by the creditor of his right.

Requisites:

1. It must be gratuitous.

2. It must be accepted by the debtor;

3. The obligation must be demandable.

Confusion or Merger of Rights.

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

Requisites:
 1. That the characters of creditor & debtor must be in the same person;

2. That it must take place in the person of either the principal creditor or the principal debtor;

3. It must be complete and definite.

Compensation.

Extinguishment in the concurrent amount of the obligation of those persons who are reciprocally debtors and
creditors to each other.

Requisites:

1. There must be 2 persons who in their own right are principal creditors and principal debtors of each
other;

2. Both debts must consist in money, or if the things due are fungibles, they must be of the same kind or
quality

3. Both debts must be due;

4. Both debts must be liquidated or demandable;

5. There must be no retention or controversy commenced by 3 rd persons over either of the debts
communicated in due time to the debtor; and

6. Compensation must not be prohibited by law.

Kinds:

1. Legal—takes effect by operation of law.

2. Voluntary—agreed upon by the parties;

3. Facultative—when it can be claimed by one of the parties who, however, has the right to object to it;

4. Judicial—takes effect by judicial decree;

5. Facultative—when it can be claimed by one of the parties who, however, has the right to object to it.

Debts not subject to compensation.

1. Debts arising from contracts of deposit;

2. Debts arising from contracts of commodatum;

3. Claims for support due by gratuitous title;

4. Obligations arising from criminal offenses;

5. Certain obligations in favour of government.

Taxes are not subject to set-off or legal compensation because the government and taxpayers are not mutually
creditors and debtors of each other.
Novation.

Substitution or change of an obligation by another, resulting in its extinguishment or modification, either by

changing its object or substituting another in place of the debtor, or by subrogating a third person in the rights of the
creditor.

Requisites:

1. Precious valid obligation;

2. Agreement of the parties to the new obligation;

3. Extinguishment of the old obligation; and

4. Validity of the new obligation.

Kinds:

a. As to its essence

1. Objective/Real—refers to the change either in the cause, object or principal conditions

of the obligations;

2. Subjective/Personal—refers to the substitution of the person of the debtor or to the

subrogation of a 3rd person in the rights of the creditor;

3. Mixed

b. As to its form/constitution

1. Express—when it is declared in unequivocal terms that the old obligation is

extinguished by new one which substitutes the same.

2. Implied—when the old and new obligation are incompatible with each other on every
point.

Forms of substitution of debtors.

1. Expromision—effected with the consent of the creditor at the instance of the new debtor even
without the consent or even against the will of the old debtor;

2. Delegacion—effected with the consent of the creditor at the instance of the old debtor, with the
concurrence of the new debtor.

Effect of insolvency of new debtor.

1. Expromision—the new debtor’s insolvency or nonfulfillment of the obligation shall not revive
the original debtor’s liability to the creditor whether the substitution is effected with or without
the knowledge or against the will of the original debtor;

2. Delegacion—the credtor can sue the old debtor only when the insolvency was prior to the
delegation and publicly known or when the old debtor knew of such insolvency at the time he
delegated the obligation.
Kinds of subrogation.

1. Conventional—takes place by agreement of the parties; this kind of subrogation requires the
intervention and consent of 3 persons: the original creditor, the new creditor and the debtor;

2. Legal—takes place without the agreement but by operation of law because of certain acts.

General rule: Legal subrogation cannot be presumed.

Exceptions:

1. Creditor pays another creditor who is preferred, without debtor’s knowledge;

2. A third person is not interested in the obligation pays with the express or tacit approval of the
debtor; or

3. Even without the debtor’s knowledge, a person interested in the fulfilment of the obligation
pays without prejudice to the effects of confusion as to the latter’s share.