Professional Documents
Culture Documents
I. Law On Obligation
I. Law On Obligation
Law on Obligation
1. Definition of Obligation: Article 1156 of the Civil Code defines an obligation as a juridical necessity to
give, to do or not to do.
a. An active subject, who has the power to demand prestation, also known as the obligee or
creditor.
b. A passive subject, who is bound to perform the prestation, also known as the obligor or
debtor.
d. Efficient cause, the tie which binds the parties to the obligation, also known as juridical tie or
vinculum.
i. Examples of juridical tie or vinculum
1. Relation established by law
2. Relation established by contract
3. Relation established by quasi-contract
4. Relation established quasi-delict or culpa aquiliania or tort
5. Relation established by crime or delict
I. Civil obligations derive their binding force from positive law or substantive law, while natural
obligations derive their binding effect from equity and natural justice.
II. Civil obligations can be enforced by court action or the coercive power of public authority,
while the fulfilment of natural obligations cannot be compelled by court action but depends
exclusively upon the good conscience of the debtor. However, voluntarily fulfilment of natural
obligation by the debtor will preclude him from asking for reimbursement from the creditor of
the amount he has voluntarily paid.
a. Law refers to the principles and regulations established in a community by some authority and
applicable to its people, whether in the form of legislation or of custom and policies recognized
and enforced by judicial decision.
i. Only obligations expressly determined in the Civil Code or in special laws are
demandable.
ii. The obligations derived from law are never presumed.
iii. The law cannot exist as a source of obligations, unless the acts to which its principles
may be applied exist.
iv. The obligations and correlative rights arising from law shall be governed by the law by
which they are created.
b. 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.
i. Obligations arising from contracts have the force of law between contracting parties.
ii. Obligations arising from contracts should be complied with in good faith.
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c. Quasi-contract is a juridical relation which arises from certain lawful, voluntary and unilateral
acts, to the end that no one may be unjustly enriched or benefited at the expense of another.
2. Solutio Indebiti refers to the juridical relation which is created when something
is received when there is no right to demand it and it was unduly delivered
through mistake.
i. Nature of Liability of Payees in Solutio Indebiti - The liability is solidary.
i. Persons who are exempted from criminal liability but still civilly liable for their
crime committed
1. An imbecile or insane person.
2. A person under 18 of age.
3. Any person who acts under the compulsion of an irresistible force.
4. Any person who acts under the impulse of an uncontrollable fear of an equal or
greater injury.
ii. Persons who are exempt from criminal liability and civil liability
1. Any person who acts in self-defense.
2. Any person who acts in the performance of his duties or obligations.
3. Any person suffering from battered woman syndrome.
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a. The right violated by a quasi-delict is a private right while the right violated by a crime is a
public right.
b. Every quasi-delict gives rise to liability for damages to the injured party but there are crimes
from which no civil liability arises.
c. Criminal liability can never be compromised except in criminal negligence but liability from
quasi-delict can be compromised.
d. In quasi-delict, criminal intent is not necessary, while in crime, criminal intent is necessary
except in criminal negligence.
e. Claims arising from quasi delict must be proven by preponderance of evidence while crime
must be proven by proof beyond reasonable doubt.
b. Obligation to deliver the fruits of the determinate thing if the fruits occur after the
obligation to deliver the determinate thing arises.
i. Accessories refer to those which destined for the embellishment, use or their
preservation of another thing or more importance, have for their object the completion of
the latter for which they are indispensable or convenient.
ii. Accessions include everything which is produced by a thing, or which is incorporated or
attached thereto, either naturally or artificially.
9. Types of Rights of Creditor over the thing and its fruits (Moment the right is obtained)
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a. A real right is the power belonging to a person over a specific thing, without a passive subject
individually determined, against whom such right may be personally exercised. It refers to a
right that can be exercised against the whole world thereby allowing an action to recover the
ownership or possession of a specific thing regardless of the possessor of such thing. Real right
over a determinate thing is acquired from the moment of its actual or constructive delivery.
b. A personal right is the power belonging to one person to demand of another, as a definite
passive subject, the fulfillment of a prestation to give, to do or not to do. It refers to a right that
can be exercised only against a specific person thereby prohibiting an action to recover the
ownership or possession of a specific thing if already with a third person but only allows action
for damages against a specific person. Personal right over a determinate thing is acquired from
the moment provided by the Civil Code or Special Law.
10. General remedies available to creditor when the debtor fails to comply with his obligation
a. Action for specific performance with damages
b. Action to rescind the obligation with damages
c. Action for damages
11. Remedies of the creditor in the case the debtor fails to comply with his obligation to deliver a
determinate or specific thing
a. Action for specific performance in addition to damages under Article 1170
b. Action for damages if action for specific performance becomes legally impossible
12. Remedies of the creditor in the case the debtor fails to comply with his obligation to deliver an
indeterminate or generic thing
a. Action for specific performance with damages
b. He may ask the obligation to be complied with by a third person at the expense of the debtor
with damages.
13. Remedy of the creditor if the debtor fails to do the prestation in obligation to do
a. The creditor or third person may do it in a proper manner at the expense of the debtor.
14. In an obligation to do whereby only the debtor can do the thing, remedy of the creditor if the
debtor fails to do the prestation
a. Action for indemnification for damages
15. In case a public official or officer of a private corporation refuses to perform his ministerial duty,
remedy of the injured person
a. Special civil action of mandamus
16. In an obligation to do, remedy of the creditor in case the debtor did it in contravention of the
tenor of the obligation or did it poorly
a. The creditor or third person may do it in a proper manner or it may be decreed that what had
been poorly done be undone at the expense of the debtor.
17. In an obligation consisting in not doing, remedy of the creditor in case the debtor does what has
been forbidden him
a. It shall be undone at the expense of debtor with indemnification for damages.
18. Definition of Delay – Default – Mora refers to the non-fulfilment of the obligation with respect to time.
19. Requisites in order that the debtor may be in default or for debtor’s delay or mora to exist
a. The obligation must be demandable and already liquidated.
b. The debtor delays performance of the obligation.
c. The creditor demands the performance either judicially or extrajudicially.
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20. As a general rule, judicial or extrajudicial demand is necessary for delay to exist. However, the
following are the cxceptional instances when demand by the creditor shall not be necessary in
order that delay may exist
a. When the obligation expressly so declares that demand is excused or waived.
b. When the law expressly so declares that demand is excused or waived.
c. When from the nature and the circumstances of the obligation it appears that the designation of
the time when the thing is to be delivered or the service is to be rendered was a controlling
motive for the establishment of the contract.
d. When demand would be useless, as when the obligor has rendered it beyond his power to
perform.
23. Grounds for damages in the performance of obligation under Article 1170 or Grounds for breach
of contract
a. Fraud – Dolo refers to the deliberate and intentional evasion of the normal fulfilment of
obligations.
b. Negligence - Fault – Culpa is the failure to observe for the protection of the interests of
another person, that degree of care, precaution and vigilance which the circumstances justly
demand, whereby such person suffers injury.
c. Delay – Default – Mora refers to the non-fulfilment of the obligation with respect to time.
d. Contravention of the tenor of obligation refers to illicit act which impairs the strict and faithful
fulfilment of the obligation or every kind of defective performance.
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II. Additional damages to any of the mutually exclusive damages
a. Moral damages are damages awarded by reason of physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings, moral shock, social
humiliation, and similar injury
b. Exemplary damages or corrective damages are damages imposed, by way of
example or correction for the public good, in addition to the moral, temperate, liquidated
or compensatory damages.
28. In order to satisfy their claims against the debtor, the unpaid creditor has the following
successive rights in order of priority after prevailing in the civil action for exact fulfillment
a. To levy by attachment and execution upon all the property of the debtor including garnishment
of bank deposits, except such as exempt by law from execution.
b. To exercise all rights and actions of the debtor, except such as are inherently personal to him.
(Accion subrogatoria)
c. To ask for the rescission of the contracts made by the debtor in fraud of his rights. (Accion
pauliana)
d. To file an action for damages against the third person who acquired the property of debtor in
bad faith.
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32. Obligations not demandable at once
a. Obligation ex die or obligation with a suspensive period
b. Obligation when the debtor's means permit him to do so
c. Obligation with a suspensive condition
35. Conditions that annul the obligation which depends upon them for their existence
a. Impossible conditions
b. Suspensive conditions which depend upon sole will of debtor
c. Conditions contrary to good customs or public policy
d. Conditions prohibited by law
36. Effect if the obligor voluntarily prevented the fulfillment of the condition of an obligation subject
to a suspensive condition
a. The suspensive condition shall be deemed fulfilled and the obligation becomes demandable.
37. Retroactive effect of fulfillment of suspensive condition in conditional obligation to give subject
a suspensive condition
a. It shall retroact to the day of the constitution of the obligation once the condition has been
fulfilled.
38. Effects of fulfillment of condition on the determinate thing's fruits occurring during the
pendency of the condition
a. In conditional reciprocal obligation, the fruits and interests during the pendency of the condition
shall be deemed to have been mutually compensated.
b. In conditional unilateral obligation to give or unilateral obligation to give subject to a period, the
fruits shall inure to the sole benefit of the debtor whether the condition is suspensive or
resolutory in the absence of stipulation to the contrary.
c. In conditional obligation to do or not to do, the courts shall determine, in each case, the
retroactive effect to the fruits of the condition that has been complied with taking into account
the agreement of the parties.
d. Before the fulfillment or pendency of the suspensive condition, the creditor may bring
appropriate actions for the preservation of his right regarding the fruits.
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39. Effects of payment or delivery by mistake in a condition subject to a suspensive condition or
suspensive period
a. If during the pendency of the suspensive condition, the debtor has paid by mistake a sum of
money, the debtor can recover the sum of money but with interests only if the creditor acted in
bad faith.
b. If during the pendency of the period in an obligation with a period, the debtor has paid by
mistake a sum of money, the debtor can recover the sum of money and with interests whether
the creditor acted in good faith or bad faith.
c. If during the pendency of the suspensive condition, the debtor has delivered a determinate or
specific thing by mistake, the debtor may file (1) an accion reinvidicatoria if the thing is still with
the creditor or (2) an action for indemnification for damages if the thing is no longer with the
creditor.
40. Rules to be observed in case of the improvement, loss or deterioration of the determinate thing
during the pendency of the suspensive condition in an obligation to give a determinate thing or
pendency of the suspensive period in obligation to give a determinate thing
a. If the thing is lost without the fault of the debtor, the obligation shall be extinguished.
b. If the thing is lost through the fault of the debtor, he shall be obliged to pay damages.
c. When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the
creditor.
d. If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the
creditor.
e. If it is improved at the expense of the debtor, he shall have no other right than that granted to
the usufructuary which means that he shall only have the right to use the improved thing for a
reasonable period.
41. Alternative remedies of creditor when the determinate thing deteriorates through the fault of the
debtor during the pendency of the suspensive condition in an obligation to give a determinate
thing or suspensive period in an obligation to give a determinate thing
a. He may ask for the rescission of the obligation with indemnity for damages.
b. He may ask for the performance of the obligation with indemnity for damages.
44. Reciprocal obligation refers to a type of obligation which arises from the same cause and in which
each party is a debtor and creditor of the other, such than the obligation of one is dependent upon the
obligation of the other.
45. Right to ask for Rescission of Reciprocal Obligation by the Injured Party
a. The injured party can ask for judicial rescission of the obligations in case one of the obligors
should not comply with what is incumbent upon him because the power to rescind obligations is
implied in reciprocal ones.
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47. Principles concerning reciprocal obligations
a. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing
of a period.
b. In case both parties have committed a breach of the obligation, the liability of the first infractor
shall be equitably tempered by the courts.
c. If it cannot be determined which of the parties first violated the contract, the same shall be
deemed extinguished, and each shall bear his own damages.
48. Obligation with a period is an obligation which is subject to a space of time which, exerting an
influence on obligations as a consequence of a juridical act, suspends their demandability or
determines their extinguishment.
52. As a general rule, the court is not allowed to fix a period in an obligation. However, the following
are the exceptional instances wherein the court may fix the period of an obligation with a
period
a. If the obligation does not fix a period, but from its nature and the circumstances it can be
inferred that a period was intended.
b. If the period depends upon the sole will of the debtor.
c. In case of pure obligation, to prevent unreasonable interpretations of its immediate
demandability.
53. Instances wherein the debtor shall lose every right to make use of the period and therefore the
obligation with a period becomes due and demandable which allows the creditor to demand its
performance from the debtor
a. When after the obligation has been contracted, the debtor becomes insolvent and he does not
give a guaranty or security for the debt.
b. When the debtor does not furnish to the creditor the guaranties or securities which he has
promised.
c. When by debtor’s own acts he has impaired or destroyed said guaranties or securities after their
establishment, unless he immediately gives new one equally satisfactory.
d. When through a fortuitous event the guaranties or securities after their establishment
disappeared, unless the debtor immediately gives new one equally satisfactory.
e. When the debtor violates any undertaking, in consideration of which the creditor agreed to the
period.
f. When the debtor attempts to abscond.
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54. Alternative Obligation vs. Facultative Obligation vs. Conjunctive Obligation
a. Alternative Obligation is an obligation where the debtor is alternatively bound by different
prestations and it is extinguished by the complete performance of any of them.
b. Facultative Obligation is an obligation wherein only one prestation has been agreed upon but
the obligor may render another in substitution.
c. Conjunctive Obligation is an obligation where the debtor has to perform several prestations
and it is extinguished only by the performance of all of them.
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60. Acts if made by any of the solidary creditors with any of the solidary debtors extinguish the
solidary obligation but may be subject to possible reimbursement among the solidary creditors
and solidary debtors themselves except in case of remission wherein reimbursement is not
allowed
a. Novation
b. Compensation
c. Confusion
d. Remission
a. Payment made by one of the solidary debtors extinguishes the obligation and if two or more
solidary debtors offer to pay, the creditor may choose which offer to accept.
b. He who made the payment may claim from his co-debtors only the share which corresponds to
each with the interest for the payment already made.
c. If payment is made before the debt is due, no interest for the intervening period may be
demanded.
d. When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the
debtor paying the obligation, such shall be borne by the paying debtor and the other co-debtors
pro-rata.
e. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such
payment is made after the obligation has prescribed or become illegal.
f. The remission made by the creditor of the share which affects one of the solidary debtors does
not release the latter from his responsibility towards the co-debtors, in case the debt had been
totally paid by anyone of them before the remission was effected.
g. The remission of the whole obligation, obtained by one the solidary debtors, does not entitle him
to reimbursement from his co-debtors.
h. If the thing has been lost or if the prestation has become impossible without the fault of the
solidary debtors, the obligation shall be extinguished.
62. Defenses that may be availed of by the solidary debtor in actions filed by the creditor
a. Defenses which are inherent from the nature of the solidary obligation
b. Defenses personal to defendant-debtor for the whole amount of the obligation
c. Defenses personal to other debtors as regards that part of the debt for which the latter are
responsible
a. Divisible Obligation is one which is susceptible of partial performance; that is, the debtor can
legally perform the obligation by parts and the creditor cannot demand a single performance of
the entire obligation.
b. Indivisible Obligation is one which is not susceptible of partial performance or the law provides
that the performance of the obligation is indivisible or the contract provides that the performance
of the obligation is indivisible.
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64. Principles pertaining to divisible obligations and indivisible obligations
a. Divisibility or indivisibility of the obligation refers not to the object or thing but to the performance
of the obligation.
b. A divisible obligation, whatever may be the nature of the thing which is the object thereof, refers
to one which can be validly performed in parts.
c. The thing or object may be divisible, yet the obligation may be indivisible.
d. Obligations to give definite things and those which are not susceptible of partial performance
shall be deemed indivisible.
e. When the obligation has for its object the execution of a certain number of days of work, the
accomplishment of work by metrical units, or analogous things which by their nature are
susceptible of partial performance, it shall be divisible.
f. Even though the object or service may be physically divisible, an obligation is indivisible if so
provided by law or intended by the parties.
g. In obligations to do, divisibility or indivisibility shall be determined by the character of the
prestation in each particular case.
66. Obligation with a penal clause is an obligation which has an accessory undertaking to assume
greater liability in case of breach. The penalty is also known as liquidated damages which are stipulated
or predetermined by the contracting parties.
67. Principles pertaining to obligations with a penal clause
a. The debtor does not have absolute right to just pay the penalty for non-performance of the
obligation instead of fulfilling the obligation.
b. The penalty stipulated must not be contrary to law, morals, or public order to be enforceable.
c. Obligations with a penal clause must be construed strictly against the awarding of penalty.
d. In case of breach of obligations with a penal clause, the debtor cannot have both enforcement
of penalty for non-compliance of obligation and specific performance of obligation because they
are inconsistent remedies.
e. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may
be demanded because they are liquidated or predetermined damages by the contracting
parties.
f. The judge shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor and even if there has been no performance, the penalty
may also be reduced by the courts if it is iniquitous or unconscionable.
g. The nullity of the principal obligation carries with it that of the penal clause.
h. The nullity of the penal clause does not carry with it that of the principal obligation.
68. As a general rule, penalty or liquidated damages for breach of obligation with a penal clause are
awarded in lieu of damages and interest. However, the following are the exceptional instances
when the creditor may demand payment of damages and interest aside from penalty in
obligation with a penal clause
a. If there is stipulation that damages and interests may be demanded in addition to penalty in
case of breach of obligation with a penal clause.
b. When the debtor is guilty of bad faith or fraud in the breach of the obligation with a penal clause.
c. When the debtor fails to pay the penalty in case of breach of the obligation with a penal clause.
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69. Modes of extinguishment of obligations: (No-Co-Me-Re-Pa-Lo-Pre-Re-Ful-An)
a. No – Novation
b. Co – Compensation or Offset
c. Me – Merger or Confusion
d. Re – Remission or Donation or Condonation or Renunciation
e. Pa – Payment or Performance
f. Lo – Loss of the thing due
g. Pre – Prescription of Right to File Action converting the civil obligation to natural obligation
h. Re – Rescission of Rescissible Obligation or Rescissible Contract
i. Full – Fulfillment of Resolutory Condition or Resolutory Period
j. An – Annulment of Voidable Obligation or Voidable Contract
70. Prescription refers to the mode of extinguishment of right to file an action or obligation by the mere
lapse of time fixed by law.
a. 6 years for quasi contract
b. 6 years for oral contract
c. 10 years for written contract
d. 10 years for court judgment
e. 4 years for quasi-delict
72. Payment or Performance is a mode of extinguishing obligation which refers to the fulfillment of the
prestation due.
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75. Payment concepts
a. In obligations to give, payment made by one who does not have the free disposal of the thing
due and capacity to alienate it shall not be valid.
b. Payment to a person who is incapacitated to administer his property shall be valid if he has kept
the thing delivered or insofar as the payment has been beneficial to him.
c. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain
the debt shall not be valid.
d. The debtor of a thing cannot compel the creditor to receive a different one, although the latter
may be of the same value as, or more valuable than that which is due.
e. In obligations to do or not to do, an act or forbearance cannot be substituted by another act or
forbearance against the obligee’s will.
f. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality
and circumstances have not been stated, the creditor cannot demand a thing of superior quality
and the debtor cannot deliver a thing of inferior quality.
78. Right of a third person who pays for the debtor without the knowledge or against the will of the
debtor
a. The third person may recover only insofar as the payment has been beneficial to the debtor but
there is no legal subrogation.
79. As a general rule, payment to a third person is not valid. However, the following are the
exceptional instances wherein payment by a debtor to a third person is valid
a. When in good faith, the debtor pays to one in possession of the credit.
b. When, without notice of the assignment of the credit, the debtor pays to the original creditor.
c. When the payment to a third person redounded to the benefit of the creditor.
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80. Generally, it is the obligation of the debtor to prove that the payment to a third person
redounded to the benefit of the creditor in order for the payment to be valid. The following are
exceptional instances when benefit to creditor need not be proved by a debtor who pays a third
person for such payment to be valid:
a. If after the payment, the third person acquires the creditor’s rights.
b. If the third person is authorized by the creditor.
c. If the creditor ratifies the payment to the third person.
d. If by the creditor’s conduct, the debtor has led to believe that the third person had authority to
receive payment.
82. Dation in payment or Dacion en Pago refers to a special form of payment whereby a property is
alienated to the creditor in satisfaction of a debt in money when the loan in money is already due at the
time of change. This special mode of payment shall be governed by Law on Sales. If the change occurs
before the maturity day of the obligation to pay a sum of money, the mode of extinguishment of
obligation is not dation en pago but it will be novation.
83. Cession refers to a special type of payment which involves the voluntary abandonment of the
universality of the property of the debtor for the benefit of his creditors, in order that such property may
be applied to the payment of the credits.
85. Application of payment refers to the designation of the debt which is being paid by a debtor who has
several obligations of the same kind in favor of the creditor to whom payment is made. The right of
application of payment belongs to the debtor.
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87. Limitations to the preferential right of the debtor to choose the debt to which his payment is to
be made
a. If the debtor owes two debts, one for P50 and another for P200, and he makes a payment of
P50, he cannot choose to apply it to the P200 debt because the creditor cannot be compelled to
accept partial payment.
b. If there is only one obligation bearing stipulated interest, the debtor can apply the payment to
the interest before the capital.
c. The debtor cannot apply the payment to a debt that is not yet liquidated.
d. He cannot choose a debt with a period for the benefit of the creditor, when the period has not
yet arrived.
e. When there is an agreement as to the debts which are to be paid first, the debtor cannot vary
the agreement.
90. As a general rule, consignation shall be preceded by valid tender of payment for consignation
to be valid. However, the following are the exceptional instances of valid consignation releasing
the debtor from liability even without valid tender of payment:
a. When the creditor is absent or unknown, or does not appear at the place of payment
b. When the creditor is incapacitated to receive the payment at the time it is due
c. When, without just cause, the creditor refuses to give a receipt
d. When two or more persons claim the same right to collect
e. When the title of the obligation has been lost
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93. Effects once the consignation has been accepted by the creditor or the court has declared that
it has been validly made
a. The debtor is released in the same manner as if he had performed the obligation at the time of
the consignation, because this produces the same effect as a valid payment.
b. The accrual of interest on the obligation is suspended from the moment of consignation.
c. The deterioration or loss of the thing or amount consigned occurring without fault of the debtor
must be borne by the creditor, because the risks of the thing are transferred to the creditor from
the moment of deposit.
d. Any increment or increase in value of the thing after the consignation inures to the benefit of the
creditor.
94. Effects if, after the consignation has been made, the creditor should authorize the debtor to
withdraw the same
a. The creditor shall lose every preference which he may have over the thing.
b. The co-debtors shall be released of its solidary obligation but not of their respective shares in
the obligation. It means that the obligation of the other co-debtors is converted into joint
obligation. However, it will remain to be solidary obligation of the part of the consigning debtor.
c. The guarantors and sureties shall be released.
97. Exceptional instances when the debtor is liable even there is fortuitous event at the time of loss
a. When the law expressly provides that the debtor shall be liable even if the loss is due to
fortuitous event.
b. When by express stipulation, the obligor is made liable even if loss occurs through fortuitous
events.
c. When the nature of the obligation requires the assumption of risk.
d. When the fault or negligence of the debtor concurs with the fortuitous event in causing the loss.
e. When the loss occurs after the debtor has incurred in delay.
f. When the debtor has promised to deliver the same thing to two or more different parties.
g. When the obligation to deliver a determinate object arises from a criminal act.
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99. Remission or Donation or Condonation or Renunciation is a mode of extinguishing obligation which
is an act of liberality, by virtue of which, without receiving any equivalent, the creditor renounces the
enforcement of the obligation, which is extinguished in its entirety or in that part or aspect of the same.
It is essentially gratuitous and requires acceptance by the debtor.
103. Confusion or merger is a mode of extinguishing obligation that occurs where there is meeting
in one person of the qualities of creditor and debtor with respect to the same obligation.
106. Compensation or Offset is a mode of extinguishing to the concurrent amount, the obligations
of those persons who in their own right are reciprocally debtors and creditors of each other.
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108. Requisites of legal compensation or compensation by operation of law
a. Each one of the obligors be bound principally, and that he be at the same time a principal
creditor of the other.
b. Both debts consist in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated.
c. Both debts must be due.
d. Both debts must be liquidated and demandable.
e. That over neither of them there be any retention or controversy, commenced by third persons
and communicated in due time to the debtor.
111. Instances wherein the debtor may still set up compensation against the assignee of
creditor in case of assignment of credit
a. When the creditor communicated the assignment of his right to the third persons to the debtor
and the latter did not consent thereto.
b. When the debtor has consented to the assignment of rights made by a creditor in favor of a third
person and the assignor reserved his right to the compensation at the time he gave his consent.
c. When the assignment is made without the knowledge of the debtor.
d. When the debtor has consented to the assignment of rights made by a creditor with reservation
as to his right to compensation.
112. Instances when legal compensation is prohibited by law but facultative compensation is
allowed
a. When there is a renunciation of the effect of compensation by a party.
b. When one of the debts arises from obligation of depositary in depositum
c. When one of the debts arises from or of a bailee in commodatum.
d. When the one of the creditor has a claim for future support due by gratuitous title.
e. When one of the debts consists in civil liability arising from a crime.
f. When one of the debts pertains to taxes.
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114. Novation is the extinguishment of an obligation by the substitution or change of the obligation
by a subsequent one which extinguishes or modifies the first.
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120. Effects of Insolvency of New Debtor to liability of Old Debtor
a. In Expromission the insolvency of new debtor or non-fulfillment of the obligation shall not
generally give rise to any liability on the part of the original debtor because the original debtor
did not have the initiative in making the change, which might have been made even without his
knowledge. However, if the original debtor gives consent to the substitution, he may become
liable to the insolvency of the new debtor especially of the original debtor acted in bad faith.
b. In delegacion the insolvency of new debtor does not generally revive the obligation of old
debtor unless (1) when said insolvency of new debtor was already existing and of public
knowledge when he delegated his debt, or (2) when said insolvency of new debtor is known to
the debtor, when he delegated his debt.
121. Subrogation refers to the transfer of all the rights of the creditor to a third person, who
substitute him in all his rights.
b. Legal subrogation is the substitution of new creditor in exceptional cases provided by law.
Legal subrogation is never presumed and available only in cases provided by law.
i. Instances wherein legal subrogation is presumed or instances of legal
subrogation
1. When a creditor pays another creditor who is preferred, even without the debtor’s
knowledge.
2. 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.
3. The obligation having been extinguished by the loss of the thing, the creditor
shall have all the rights of action which the debtor may have against third
persons by reason of the loss.
4. In contract of property insurance, when the insurance company pays the insured.
5. Under Negotiable Instruments Law, when there is a valid payment for honor
supra protest.
a. Subrogation transfers to the person subrogated the credit with all the rights thereto
appertaining, either against the debtor or against third persons, be they guarantors or
possessors of mortgages, subject to stipulation in a conventional subrogation.
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