PART I – KINDS OF OBLIGATIONS  If all objects lost thru debtor’s fault (debtor’s right of

choice), the basis of indemnity shall be fixed by the

ALTERNATIVE OBLIGATIONS (Arts. 1199-1206): value of the last thing which disappeared or the last
service which has become impossible. (Art. 1204)
Alternative obligation – one where out of the two or more
 Art. 1205 (rules if right of choice is given to creditor)
prestations which may be given, only one is due
DOES NOT APPLY when the contract does not state
 The right of choice belongs to debtor unless expressly who has the right of choice
granted to creditor (Art. 1200)
FACULTATIVE OBLIGATION (Art. 1206)
Limitation on the Debtor’s Choice (Art. 1200 [2])
 One where only one prestation has been agreed upon
a. Impossible but there can be a substitution
b. Unlawful
c. Which could not have been the object of the obligation Alternative vs. Facultative

Communication of choice (Art. 1201) Alternative Facultative

# of Several prestations Only one prestation
Means of notification – orally or in writing, expressly or prestations are due but is due but
impliedly compliance w/ one substitution may
is sufficient take place
Effect of notice – once made, the obligation becomes a Right of The choice may be Belongs only to the
simple obligation choice given to the debtor
creditor/third
Reason for notification – to inform the creditor that oblig. person
Is now a simple one & if already due, for the creditor to Loss thru Loss of one/more Loss of the thing
receive the object being delivered fortuitous doesn’t extinguish due extinguishes
event the obligation the obligation
Requisites for the Making of the Choice Loss thru • Loss of • Loss of the
a. Made properly so that the creditor or his agent will fault of alternative thru thing due to his
debtor fault of debtor fault makes him
actually know
doesn’t render liable
b. Made w/ full knowledge that a selection is indeed being
him liable
made • Where
c. Made voluntarily & freely choice belongs
d. Made in due time, before or upon maturity to creditor, loss
e. Made to all the proper persons of one makes
f. Made w/o conditions unless agreed to by the creditor him liable
g. May be waived, expressly or impliedly Nullity of • Nullity • Nullity
 Debtor loses right when only one prestation is prestation doesn’t invalidates the
practicable (Art. 1202) invalidate the obligation
 If thru creditor’s fault debtor can’t make a choice, latter others • Debtor is
may rescind the contract + damages (Art. 1203) • Debtor/cred not bound to
itor shall choose choose the
Loss and right of choice (Arts. 1204-1205): from remainder substitute.

LOSS
Right JOINT AND SOLIDARY OBLIGATIONS (Arts.
All Due to
of Some of All
choice the objects objects
excep fortuitou 1207-1222):
t one s event
Subj. to Joint vs. Solidary
He has breach of Perfor
right of contract, m Oblig. Is Joint Solidary
Debtor choice & creditor what extinguis Presumed by law Not presumed, must be
oblig is still has right remain hed expressly stipulated by
performed to s the parties or when law or
indemnify nature of oblig. Requires
If 1 of the solidarity (Art. 1207)
May claim thing, Each debtor is liable only Each debtor is obliged to
any of the Can debtor for a proportionate part of pay the entire obligation
remaining demand shall still the entire debt
Credit Each creditor, if there are Each creditor has the
thing w/ ANY of perform
or (Art. several, is entitled only to right to demand from any
damages or the price If all
1205) a proportionate part of the of the debtors the
price of the of thing + things,
thing + damages oblig is entire debt payment or fulfillment of
damages extinguis the entire obligation
hed
General rule: joint – two or more debtors or two or more
Note: applicable BEFORE debtor makes/communicates creditors (Art. 1207)
choice to creditor
Exceptions: (a) there is a stipulation lthat obligation is
solidary (Art. 1207); (b) when nature of oblig. requires
 liability to be solidary (Art. 1208); (c) when law declares
the oblig. To be solidary (Art. 1207)
 Instances where law imposes solidary liability:
o Obligs from torts & quasi-contracts
o Legal provisions regarding the obligations of devisees
and legatees
o Liability of principals, accomplices and accessories of
a felony
o Bailees in commodatum
 When there are two or more debtors or two or more
creditors, the obligation is presumed joint and as a
consequence – debt shall be divided into as many
shares as there are creditors or debtors & credits/debts
will be distinct from one another, BUT regarding the
bringing of action in court, the Rules of Court governing
multiplicity of suits is followed (Art. 1208)
 Vitiated consent on the part of one debtor doesn’t affect
the others
 Insolvency of one doesn’t make others responsible for
his share
Indivisible Joint Obligation (Art. 1209)
Indivisible – referring to the object; joint – referring to the
tie between the parties
Exception: unless solidarity has been stipulated by the
parties or the law, in w/c case it is called a solidary
indivisible obligation
 Anyone of the solidary creditors may collect or demand
payment of whole obligation; there is mutual agency
among solidary debtors (Arts. 1214, 1215)
 Any of the solidary debtor may be required to pay the
whole obligation; there is mutual guaranty among
solidary debtors (Arts. 1216, 1217, 1222)
 Each one of solidary creditors may do whatever maybe
useful to the others, but not anything prejudicial to
them (Art. 1212); however, any novation,
compensation, confusion or remission of debt executed
by any solidary creditor shall extinguish the obligation
without prejudice to his liability for the shares of the
other solidary creditors.
 Payment by one shall not entitle him to reimbursement
from co-debtors if he paid after the obligation
prescribed or became illegal (Art. 1218)
 Remission by the creditor which affects one debtor does
not release said debtor from responsibility towards co-
debtors (Art. 1219); remission of entire obligation does
not entitle him to reimbursement from co-debtors (Art.
1220)
 LOSS (Art. 1221): If without fault of the solidary debtors,
oblig. Is extinguished (no liability). If with fault by any
one of them, through fortuitous event, or one debtor
has incurred delay, all shall be responsible to the
creditor for the price & payment of damages and
interests, without prejudice to their action against the
guilty debtor

Effect of breach – if one of joint debtor fails to comply, Effects if remission

the oblig. Can no longer be fulfilled; innocent joint DR
shall not contribute to the indemnity beyond their Upon the obligation – if total, entire oblig is
corresponding extinguished; if partial, oblig is extinguished in that
part to w/c the remission refers (1215)
Characteristics:
Upon solidary creditor – the creditor responsible for
 Obligation is joint but since the object is indivisible, the remission shall be liable to the other solidary
creditor must process against ALL the joint debtors
creditors for the shares in oblig corresponding to
(Art. 1209), for compliance is possible only if all the
then
joint debtors would act together
 Demand must be made on ALL the joint debtors Upon solidary debtors:
 If any one of the debtors be insolvent, others shall not be
liable for his share 1. If covers entire oblig, oblig is totally
 If there be joint creditors, delivery must be made to all & extinguished & entire juridical
not merely to one unless authorized relation among debtors is terminated
 Each joint creditor is allowed to renounce his altogether; true whether for benefit
proportionate credit of one or all
 Fulfillment requires the consent of all the debtors, 2. If for benefit of one debtor & covers
although each for his part entire share, he is completely
Indivisibility vs. Solidarity (Art. 1210) released from creditor but not to co-
debtors; if one pays and seeks
Indivisibility Solidarity reimbursement but 1 is insolvent, the
Refers to the Refers to the vinculum
debtor who benefits remission shall
prestation/object of the existing between the
contract parties still have to share in the portion w/c
Doesn’t require plurality Requires the plurality of corresponds to insolvent
of subjects/parties parties/subjects
In case of breach, it’s In case of breach, the Kinds of solidarity:
converted to one of liability of the solidary First classification:
indemnity for damages & debtors for damages
the indivisibility of the remains solidary  Active solidarity – on the part of the creditors or obligees
obligation is terminated  passive solidarity – on the part of the debtors or obligors
 mixed solidarity – on the part of the obligors and
Rules in a solidary obligation: obligees

Second classification:
 conventional solidarity – agreed upon by the parties Divisible obligation – one capable of partial performance
 legal solidarity – that imposed by law
Indivisible obligation – one not capable of partial
Rule on solidarity despite different terms or conditions performance
(Art. 1211)
Kinds of indivisibility:
The whole solidary obligation can be recovered from
 Conventional (by common agreement)
ANY of the solidary debtors MINUS the share of those
 Natural or absolute (because of the nature of the object
with unmatured conditions or terms
of undertaking)
Effects of assignment of rights in a solidary obligation:  Legal

GR: Solidary creditor cannot assign his right because it Kinds of Division
is predicated upon mutual confidence, meaning personal
qualification of each creditor had been taken into  Quantitative -vthing can be materially divided into parts
consideration when the obligation was constituted. (Art. and such parts are homogenous to each other
1213, NCC)  Qualitative (irrespective of quantity) – thing xan be
materially divided but parts are not homogenousbto
XPN: allowed if all the others consent each other
 Intellectual or moral (one that exists merely in the mind
To Whom Debtor must pat in a solidary obligation and not in physical reality) – thing can only be
separated into ideal or undivided parts as in the case of
GR: to any of the solidary creditors co-ownership
XPN: If demand, judicial or extra-judicial has been
True test of determining divisibility – whether or not the
made by one of them, payment should be made to him
prestation is susceptible of partial performance in the
(Art.1214, NCC)
sense of the possibility realizing the purpose which the
obligation seeks to obtain;
Passive Solidarity and Suretyship
Passive solidarity Suretyship
Rules on Divisible and Indivisible obligations:
Both solidary debtor and the surety guarantee for
 An obligation to deliver a divisible thing may be
another person
considered indivisible when the law so provides or by
Both can demand reimbursement
stipulation of the parties (Art. 1225)
Indebted for his own Indebted only for the
 Effect of partial performance in an indivisible obligation –
share only share of the principal
tantamount to non-performance
debtor
 When the obligation has for its object the execution of a
Can be reimbursed what Can be reimbursed for
certain number of days of work, accomplishment by
he has paid MINUS his everything he paid
metrical units or analogous things, it shall be divisible
own share
(Art. 1225)
If one receives an If principal debtor
 Obligations not to do – divisibility or indivisibility shall be
extension of the payment receives an extension w/o
determined by the character of the prestation in each
period, the others are still surety’s consent, the
particular case
liable for the whole surety is released
obligation now, minus the  Non-compliance of joint indivisible obligation will result
share of the debtor who into a conversion into a monetary one for indemnity
has received the (Art. 1224)
extension  In case of a divisible contract, if the illegal terms can be
separated from the legal ones, the latter may be
Kinds of Defenses (Art. 1222) enforced

1. Those derived from the nature of the obligation OBLIGATIONS WITH A PENAL CLAUSE (Arts.
(complete defense) 1226-1230)
a. Lack of consideration of cause
b. Absolute simulation (contract was fictitious) Penal clause – a coercive means to obtain from the
c. Illegal consideration debtor compliances from the debtor; an accessory
d. Extinguishment of obligation undertaking to assume greater liability in case of breach
e. Non-fulfillment of suspensive condition
Kinds of penal clauses
f. When ALL debtors were incapacitated to give
consent First classification:
g. When there are vice of consent on the part of ALL  Legal – imposed by law
debtors  Conventional – that w/c has been agreed upon by the
2. Those personal to the debtor sued (complete defense parties
generally but if it is about condition or term, then it is
partial defense) Second classification:
a. Vitiated consent  Subsidiary – when only the penalty may be asked
b. Incapacity of the give consent  Joint – when both the principal contract and the penal
3. Those personal to the others (partial defense regarding clause can be enforced
the share of others involved)
Penal clause vs. condition
DIVISIBLE AND INDIVISIBLE OBLIGATIONS
(Arts. 1223-1225) Penal clause Condition
 Constitutes an obligation <- does not
although accessory
May become demandable Never demandable
in default of the
unperformed principal
obligation & sometimes
jointly with it
 Principal purpose – insure the performance of an
obligation and also to substitute for damages and the
payment of interest in case of non-compliance
 GR: Debtor cannot substitute penalty for the principal
obligation and creditor cannot demand both fulfillment
and penalty at the same time (Art. 1227)
 XPN: Debtor can substitute penalty only if the right has
been EXPRESSLY reserved and the creditor can
demand both when such right has been CLEARLY
granted to him (Art. 1227)
 Proof of actual damages suffered by the creditor is NOT
necessary in order that the penalty may be demanded.
(Art. 1228)
 Penalty may not be demandable, only enforced when it
is demandable in accordance with the provisions of the
NCC, one of w/c states that the penalty may be
reduced if it is iniquitous or unconscionable (Art. 1229)
 Judge shall equitably reduce penalty when the principal
obligation has been partly/irregularly complied with.
(Art. 1229)
Effect of incorporating a penal clause in an obligation:
GR: The penalty shall substitute the indemnity for damages
& payment of interest in case of non-compliance, if there is
no stipulation to the contrary (Art. 1226)
XPN:
 When there is express stipulation to the effect that
damages or interest may still be recovered, despite the
present of the penalty clause
 When the debtor refuses to pay the penalty imposed in
the obligation
 When the debtor is guilty of fraud or dolo in the fulfillment
of the obligation. Reason – there can be no
renunciation of an action to enforce liability for future
fraud because this is against public policy and against
express provisions of the law
Note: 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. (Art.
1230, NCC)
Penalty may be reduced by the courts when (PIU):
 Partial performance of the obligation
 Irregular performance of the obligation
 Penalty is unconscionable even if there has been no
performance
PART II – EXTINGUISHMENT OF
OBLIGATIONS
Modes of extinguishment of obligations (Art. 1231):
 Payment or performance
 Loss of the thing due
 Condonation or remission of the debt
 Confusion or merger of the rights of creditor and debtor
 Compensation
 Novation
Note: other causes of extinguishment (annulment,
rescission, fulfillment of a resolutory condition and
prescription) are governed elsewhere in NCC
PAYMENT OR PERFORMANCE (Arts. 1232-1261)
payment – mode of extinguishing obligations which
consists of: (a) the delivery of money or (b) the
performance in any other manner of an obligation
tender of payment – the definitive act of offering the
creditor what is due him or her, together with the
demand that the creditor accept the same.
Requisites of a valid payment (CCPtpmADfafp):
1. Capacity of the payor
2. Capacity of the payee
3. Propriety of the time, place, manner of payment
4. Acceptance by the creditor
5. Delivery of the full amount of the full performance of the
prestation
 Creditor has burden of showing that a valid debt exists
and debtor has burden of proving he has paid the
same
 Means of proving payment – presentation of receipt
 If obligation has been substantially performed in good
faith, obligor/debtor may recover less damages
suffered by oblige (Art. 1234)
 When obligee/creditor accepts performance, knowing
incompleteness & w/o expressing protest, the
obligation is deemed fully complied with (Art. 1235)
[qualified acceptance]
 3rd person cannot compel creditor to
subrogate him in his rights (Art. 1237)
Payment by third person
GR: the creditor is not bound to accept
payment/performance by a 3rd person (Art. 1236)
XPN: contrary stipulation or when made by a 3 rd person
who has interest in the fulfillment of the obligation
Rights of a 3rd person who paid the debt:
w/ knowledge & consent of the debtor - can
recover entire amount paid (absolute
reimbursement); can be subrogated to all
rights of the creditor
Without knowledge or against the will of
the debtor – can recover only insofar as
payment has been beneficial to the
debtor (right of conditional reimbursement)
NOTE: 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. (Art. 1238, NCC)
Payment by an incapacitated person (Art.
1239)
GR: if the person paying has no capacity to
gve:
 Payment is not valid – if accepted
 Creditor cannot even be compelled to accept
it
 The remedy of consignation would not be
proper
XPN: minor (Art. 1427)
 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. (Art. 1240)
Is payment to an unauthorized person a valid
payment? Art. 1241
GR: Payment to an unauthorized person is
not a valid payment.
XPNs:
Payment to an incapacitated person if: he kept the
thing delivered, or it has been beneficial to him
Payment to a third person insofar as it
redounded to the benefit of the CR
Payment in good faith to the possessor of
credit
Payment made to a 3rd person shall also be
valid insofar as it has redounded to the
benefit of the creditor. Such benefit need not
be proved when:
1. If aftrr the payment, 3rd person acquires
creditor’s rights
2. If creditor ratifies the payment to the 3rd
person
3. If by creditor’s conduct, the debtor has
been led to believe that the 3rd person
had authority to recrive payment
 Effect in general of payment to 3 rd party –
payment is valid BUT only to the extent of
benefit to the creditor
 Payment must be proved & is not presumed
except in 3 instances: Art. 1241
o If after the payment the 3rd person
acquires the creditor’s rights (subrogation)
o If creditor ratifies (assents) the payment to
the 3rd person
o If by creditor’s conduct, the debtor has
been led to make the payment
 Payment made in good faith shall release the
debtor (Art. 1242)
 If oblig to deliver a specific thing, payment is
to be made in the place where the thing
might was constituted. If any other thing,
delivery must be made at debtor’s domicile
(Art. 1251)
Special forms of payment:
Dation in payment (Art. 1245)
 Debtor alienates in favor of the creditor,
property for the satisfaction of monetary
debt
 The object to be given has to be the same
value as the money that was supposed to
be originally given
 The undertaking partakes of the nature of
sale, that is, the creditor is really buying the
thing or property of the debtor, payment for
which is to be charged against the debtor’s
debt
Conditions where Dation in Payment would
be valid:
 If the creditor consents
 If the dation will not prejudice the other
creditors
 If the debtor is not judicially declared
insolvent
Application of payments:
 the designation of the debt to which the
payment must be applied when the debtor
has several obligations of the same kind in
favor of the same creditor
 debtor is given the right to select which of the
debts he is paying (Art. 1252)
 in case debtor fails to ascertain, the choice
may be transferred to the creditor as when
the debtor makes payment and does not
make application and debtor accepts a
receipt in which the application is made
Requisites:
1. one debtor & one creditor
2. two or more debts of the same kind
3. amount paid by the debtor must not be sufficient to cover
all debts
4. debts are all due
5. parties have not agreed previously on the application
Rules if both debtor & creditor fail to apply payments
 legal application of payments govern
 The liquidated debt is more burdensome than the
unliquidated one. An obligation in which the debtor is
in default is more onerous than one in which he is not.
 payment should be applied to the more onerous debts:
 When a person is bound as principal in
one obligation and as surety in another,
the former is more onerous.
 When there are various debts, the oldest
ones are more burdensome.
 Where one bears interest and the other
does not, even if the latter is the older
obligation, the former is considered more
onerous.
 Where there is an encumbrance, the debt
with a guaranty is more onerous than that
without security.
 With respect to indemnity for damages,
the debt which is subject to the general
rules on damages is less burdensome
than that in which there is a penal clause.
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 credits
 Creditors do not become the owners; they
are merely assignees with authority to sell
 Debtor is released up to the amount of the
net proceeds of sale (Art. 1255)
Dation in payment vs. cession

DATION IN PAYMENT PAYMENT IN CESSION
Maybe one creditor
Not necessarily in state
of financial difficulty
Thing delivered is
considered as equivalent
of performance
Payment extinguishes
obligation to the extent
of the value of the thing
delivered as agreed
consignation alone shall produce the same effect in the ff.
cases (Art. 1256): no need tender of payment
 Creditor is absent or unknown, or does not appear at the
Plurality of creditors place of payment
 He is incapacitated to receive the payment at the time it
Debtor must be partially
is due
or relatively insolvent  Without just cause, he refuses to give a receipt
 When two or more persons claim the same right to
Universality or property
collect
of debtor is what is  When the title of the obligation has been lost
ceded
Requisites of consignation (VdPtPnASn):
 Existence of a valid debt
 Valid prior tender, unless tender is excused
Merely releases debtor
 Prior notice of consignation (before deposit)
for net proceeds of  Actual consignation (deposit)
things ceded or  Subsequent notice of consignation

upon, proved or implied assigned, unless there is

from the conduct of the contrary intention  Creditor is justified in refusing to accept the tender of
payment if the tender of payment is not valid
creditor (Requisites:
Ownership is transferred Ownership is not
o Must be made in legal tender (lawful currency)
to CR upon delivery transferred o Must include whatever interest is due
An act of novation Not an act of novation o Generally, it must be unconditional
o The obligation must already be due
Does not presuppose  How consignation is made – things due must be
Presupposes insolvency deposited w/ the proper judicial authorities (Art. 1258)
o There must be proof that: tender had previously been
insolvency
made (gen. rule) or creditor had previously notified
the debtor that consignation will be made (in case
tender is not required)
Tender of payment and consignation  Once the consignation has been duly made, debtor may
Tender of payment – act of offering the creditor what is ask the judge to order the cancellation of the obligation
due to him together with a demand that the creditor (Art. 1260)
accept the same  If consignation is judicially approved or all requisites are
present or creditor has signified acceptance, the
Consignation – act of depositing the thing due with the creditor bears the loss; otherwise, debtor bears the
court or judicial authorities whenever the creditor cannot burden
accept or refuses to accept payment
Effects of Improper Consignation
TENDER OF  If consignation was improperly made, the obligation
PAYMENT CONSIGNATION remains because the consignation is note effective
 If at time of consignation the debt was already due, & the
Nature
requisites are absent, the debtor is in DEFAULT
Antecedent of Principal or
LOSS OF THE THING DUE (Arts. 1262 - 1269)
consignation or consummating act for

preliminary act to the extinguishment of When is there a loss (DOPE):

 When the object perishes (physically destroyed)
consignation the obligation  When it goes out of commerce
Effect  When it disappears in such a way that
o Its existence is unknown
It does not by itself It extinguishes the o It cannot be recovered (Art. 1189)
extinguish the obligation when declared
Effect of loss on an obligation to deliver a specific thing
obligation valid
GR: obligation is distinguished
Character
XPNs: LAS-CD-PCG
Judicial for it requires the  Law provides otherwise
 Nature of the obligation requires the Assumption of risk
filing of a complaint in
 Stipulation to the contrary
court  Debtor Contributed to the loss
Extrajudicial  Loss the of the thing occurs after the debtor
incurred in Delay
 When debtor Promised to deliver the same thing
to two or more persons who do not have the
same interest
 When the debt of a certain and determinate thing
proceeds from a Criminal offense
 When the obligation is Generic
 When debtor is made liable for a fortuitous event
because:
o Of a provision of law
o Of a contractual stipulation
o The nature of the obligation requires the assumption
of risk on the part of the debtor
Note: in the above cases, the oblig to deliver a specific
thing itself is extinguished BUT said oblig is converted
into a monetary obligation for damages
Effect of loss on an obligation to deliver a generic thing:
GR: obligation is not extinguished because genus never
perishes (Art. 1263)
XPN: in case of generic obligations whose object is a
particular class or group with specific or
determinate qualities (limited generic obligation)
1. It should take place between the principal debtor &
creditor
2. Merger must be clear and definite
3. The very obligation involved must be the same or
identical
COMPENSATION (Arts. 1278 – 1290)
compensation – balancing between two obligations;
involves a figurative operation of weighing two
obligations simultaneously in order to extinguish them to
the extent in which the amount of one is covered by the
other; extinguishment in the concurrent amount of the
obligations of those persons who are reciprocally debtor
and creditors of each other
COMPENSATION PAYMENT
A mode of extinguishing
to the concurrent

Instances When Law requires Liability even in fortuitous Payment means not only
event:
 Debtor is in default amount, the obligations
 Debtor promised to deliver the same thing to 2 or more
delivery of money but
persons who do not have the same interest
 Where oblig arises from a crime of those persons who in
 Borrower of an object has lent the thing to another who
is NOT a member of his own household also performance of an
 When the thing loaned has been delivered w/ appraisal
of the value their own right are

obligation
CONDONATION OR REMISSION OF THE DEBT reciprocally debtors and
(Arts. 1270 - 1274)
creditors of each other
 Gratuitous abandonment by the creditor of his right Capacity of parties not Debtor must have
 Requires acceptance by the obligor
 If remission not accepted – then there is no remission, necessary capacity to dispose of
however, if creditor does not really collect, the debt
the thing paid;
may be said to have been extinguished by
PRESCRIPTION Reason: Compensation creditor must have
 Implied remission – private document (instrument of
operates by law, not by capacity to receive
credit) (Art. 1271)
 Presumption of voluntary delivery (Art. 1272) the act of the parties payment
o If given to a joint debtor, presumed that only his/her
There can be partial The performance must
debt has been remitted
o If given to one of the solidary debtors, it is presumed extinguishment of the be complete unless
that the whole obligation is remitted
obligation waived by the creditor
 Renunciation of the principal shall extinguish the
accessory but not vice versa (Art. 1273) Legal compensation

Requisites of Express Condonation (GAdIDcEdd): takes place by operation Involves delivery or

1. Must be gratuitous of law without action
2. Acceptance by the debtor
3. Must not be inofficious simultaneous delivery
4. Formalities provided by law on Donations must be
It is not necessary that
complied with if condonation is express
5. An existing demandable debt
Parties must be mutually

CONFUSION OR MERGER OF RIGHTS (Arts. the parties be mutually

1275 – 1277)
debtors and creditors of
Merger or confusion – meeting in one person of the debtors and creditors of
qualities of creditor and debtor with respect to the same
obligation each other
Basis – if a debtor is his own creditor, enforcement of the
obligation becomes absurd since one cannot claim each other
against himself (Art. 1275)
COMPENSATION CONFUSION
Requisites of a valid merger
 nothing more to assign (defense of compensation could
be set up)
(Arts. 1278‐1279) (Arts. 1275‐1277) XPN: when the assignment (after the compensation) was
made WITH THE CONSENT of the debtor; such consent
Two persons who are One person where
operates as a waiver of the rights to compensation
mutual debtors and qualities of debtor and XPN to XPN: when at the time he gave his consent, he
RESERVED his right to the compensation
creditors of each other creditor are merged

At least two obligations One obligation Cases of assignment + effects:

First case – assignment made w/ consent of debtor
Effect: compensation cannot be set up (because there
Compensation Counterclaim or set-off has been consent, and therefore a waiver)
Takes place by mere Must be pleaded to be XPN: if the right to the compensation (has already taken
operation of law effectual place) is reserved
Extinguishes reciprocally Works as a sort of judicial
the two debts as soon as compensation, provided Second case – assignment made w/ knowledge but
they exist simultaneously, that the requirements are w/o consent/against debtor’s will
to the amount of their observed Effect: compensation can be set up regarding debts
respective sums previous to the cession or assignment (refers to debts
maturing before the assignment; legal compensation has
Requisites of legal compensation (Art. 1279) already taken place
[McdCsmcskqDLdRcc3pNp]: Note: cession refers the assignment of the right to
1. Both parties must be mutually creditors and debtors in correct
their own right and as principals
2. Both debts must consist in sum of money or if Third case – assignment made w/o debtor’s
consumable, of the same kind or quality knowledge
3. Both debts are due Effect: debtor can set up compensation as a defense for
4. Both debts are liquidated and demandable all debts maturing PRIOR to his knowledge of the
5. Neither debt must be retained in a controversy assignment (whether debts matured before or after the
commenced by third person and communicated with assignment)
debtor (neither debt is garnished) Note: crucial time is the time of knowledge of
6. Compensation must not be prohibited by law assignment not the time of assignment itself

Note: When all the requisites mentioned in Art. 1279 of
the Civil Code are present, compensation takes effect by
operation of law, even without the consent or knowledge
of the creditors and debtors.
Note: 1,2,3,4 are affirmative requisites.
Note: Does not apply to voluntary compensation (Art.
1282).
Prohibited compensations:
 Debts arising from a depositum (Art. 1287/1980)
 Debts arising from the obligations of a bailee in
commodatum (Art. 1287)
 Debts arising from a claim for future support due by
gratuitous title (Art. 1287)
 Debts consisting in civil liability arising from a penal
offense (Art. 1288)
 Damages suffered by a partnership through the fault of
the a partner cannot be compensated with profits and
benefits which he may have earned for the partnership
by his industry (Art. 1794)
 The creditor cannot be forced to have a debtor that is
someone else however a debtor can be forced to
change creditors
 Automatic compensation if all requisites are present &
extinguishes both debts to the concurrent amount even
though the creditors and debtors are not aware of the
compensation (Art. 1290)
o To the concurrent amount – if one debt is larger than
the other, the balance subsists as debt
NOVATION (Arts. 1291-1304)
Novation – the substitution of change of an obligation by
another, which extinguishes or modifies the first, either
changing its object or principal condition, or substituting
another in place of the debtor or subrogating a 3 rd person
in the right of the creditor
Obligations may be modified by (Art. 1291):
1. Changing their object or principal conditions
2. Substituting the person of the debtor
3. Subrogating a 3rd person in the right of the creditor

Jursidiction of courts regarding the value of demand (Art.
1283, PH jurisprudence)
GR: Jurisdiction of the court depends upon the totality of
the demand in all the causes of action, irrespective of
whether the plural cases arose out of the same or
different transactions
XPNs: (a) the claim joined under the same complaint are
separately due to different parties, in which case each
separate claim furnishes the jurisdictional test; (b) not all
causes of action joined are demands or claims for
money
Assignment of debts (Art. 1285):
GR: if AFTER the compensation has taken place one of
the extinguished debts is ASSIGNED to a stranger,
ordinarily this would be a useless act since there is
Requisites for novation (in general): VooIemCcp
1. The existence of a valid old obligation
2. The intent to extinguish or to modify the old obligation by
a substantial difference (the
extinguishment/modification itself is a RESULT of
novation)
3. The capacity and consent of all the parties (except in the
case of expromision, where the old debtor does not
participate)
 Novation is never presumed. Must be proven as a fact
either by explicit declaration or material incompatibility
(old and new obligs be incompatible w/ each other)
(Art. 1292)
 Implied novation is done by making substantial changes
(a) in the object; (b) in the cause or consideration of the
contract; (c) in the principal terms or conditions

Expromision (Art. 1293)
 Initiative comes from a 3rd person
 It is essential that the old debtor be released from his
obligation
Requisites: I3NmcOero
1. Initiative must come from 3rd person
2. New debtor and creditor must consent
3. Old debtor must be excused/released from his obligation
Delegacion
 Proposed by old debtor himself with consent from
creditor & new debtor
 Old debtor must be released from the obligation
available as against old
creditor)
Presumption of legal subrogation (Art. 1302)
1. When creditor pays another creditor who is preferred,
even w/o debtor’s knowledge
2. When a 3rd person, not interested in the obligation, pays
with the express or tacit approval of the debtor
3. 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

Requisites: IoApc
1. Initiative comes from old debtor
2. All parties concerned must consent or agree
a. May be given in any form
b. May be express or implied
c. May be before or after new debtor has given his
consent
d. May be conditional but condition has to be fulfilled

Insolvency of new debtor in expromision (Art. 1294)

 If substitution was made w/o old debtor’s knowledge or
against his will, new debtor’s insolvency SHALL NOT
give rise to any liability on the part of the original debtor
o The expromision was brought about without his
initiative

Insolvency of new debtor in delegacion (Art. 1295)

 New debtor’s insolvency shall not revive the action of
creditor against old debtor
o Except when said insolvency was already existing &
of public knowledge or known to the debtor when he
delegated his debt
 If insolvency happened AFTER the delegation, old
debtor is not liable

Requisites to hold old debtor liable (either must be

present):
1. The insolvency was already existing and of public
knowledge at time of delegation
2. Insolvency was already existing and known to the debtor
at time of delegation

Subrogation (Art. 1300)

 Transfer to a 3rd person of all the rights appertaining to
the creditor, including the right to proceed against
guarantors, or possessors of mortgages
 Conventional subrogation of 3rd person requires consent
of original parties & 3rd person (Art. 1301)

Assignment of credit vs. conventional subrogation

ASSIGNMENT OF CONVENTIONAL
CREDIT SUBROGATION
There is mere transfer of Extinguishes the
the SAME right or credit obligation and creates a
(transfer did not new one
extinguish the credit)
Does not require the Requires debtor’s
debtor’s consent (mere consent
notification is sufficient)
Defect in the credit/right
simply by assigning the
same (debtor generally
still has the right to
present against the new
creditor any defense