OBLIGATIONS

OBLIGATIONS
Obligation, concept
An obligation is a juridical necessity to give, to do or not do. (Art.
1156, Civil Code of the Philippines) Juridical necessity means that the
court may'be asked to order the performance of an obligation if the
debtor does not fulfill it. lf an obligation cannot be enforced through the
courts, it may be disregarded with impunity.
' lNote: Unless othenruise indicated, articles of law refer to
provisions of the Civil Code of the Fhilippines.)

Requisites of obligation
1. Active subjedt (creditor or obligee) - The party who has the right
to demand performance of the obligation.

2. Passive subject (debtor or obligor) - The party who is obliged to

perform the obligation.

3. Prestation - The object or subject matter of the obligation. lt

may consist of giving, doing or not doing something.

4. Efficient cause - The vinculum or the legal or juridical tie which

binds the parties to an obligation. The efficient cause of an
obligation may be any of the five sources of obligation.
Examples:
1. D is obliged to give C P50,000.00 with interest at 12o/o per
annum on December 31, 2010 pursuant to a contract of loan. D
is the passive subject; C is the active subject; the giving of
P50,000.00 with 12% interest is the prestation; and the contract
of loan is the efficient cause. The obligation here is unilateral,
i.e., only one party is required to perform a particular conduct.

2. D is obliged to transport the goods of C from Manila to Cebu,

and C is obliged to pay D P1,000.00 as transport costs, under a
contract of carriage. As regards the transport of the goods which
is the prestation, C is the active subject and D is the passive
subject. As regards the payment of transport costs which is the
prestation, C is the passive subject and D is the active subjecl
The contract of carriage is the efficient cause for the obligations
 OBLIGATIONS

of both D and C. The obligations here are bilateral, i.e., each

party is required to perform a particular conduct.

Civii obligation and natural obligation distinguished

A civil obligation (as defined in Art. 1 156) is based on positive
law; hence, it is enforceable by court action.
A natural obligation, on the other hand, is baged on natural law;
hence, it is not enforceable by court action. The obligation, however,
exists in equity and moral justice, such that if the debtor voluntarily
performs it, he can no longer recover what he has given.

Example:
M is the maker of a promissory note with P'as payee for
P20,000.00. lf M does not pay on due date, P can.enforce payment by
filing a court action. lf P does not file a court action against M within 10
years from due date which is the prescriptive period for actions upon a
written contract, P loses the right to enforce payment by court action.
However, if M voluntarily makes the payment to P although the obligation
has prescribed, M will no longer be allowed to recover the payment
because in equity and moral justice, he still owed P the amount of
P20,000.00.

Sources of obligation ( Art. 1 157)

1. Law,- A rule of conduct, just and obligatory, laid down by
legitimate authority for common observance and benefit.
(Sanchez Roman). Obligations derived from law are not
presumed. Only those expressly determined in the Civil Code
or in special laws are demandable, and shall be regulated by the
precepts of the law which establishes them; and as to what has
not been foreseen, by the provisions on Obligations. (Art 1158)
Examples: The National lnternal Revenue Code which
provides for the payment of taxes; the Anti-Mendicancy Law
which prohibits the giving of alms to beggars.

2. Contracts - A 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 (Art. 1305).
Obligations arising from contracts have the force of law
between the contracting parties and should be complied with in
good faith. (Art. 1159)
 OBLIGATIONS

Examples: A contract of lease which provides for the

payment of rental by the lessee; a contract of sale which requires
the seller to deliver the thing sold and the buyer to pay the price.

3. Quasi-contracts - They refer to certain lawful, volunlry and

unilateral acts giving rise to a juridical relation to the end that no
one shall be unjustly enriched at the expense of another. (Art.
2142\.
Examples:
a. Negotiorum gesfib -This refers to the voluntary
administration. of the property, business or affairs of
another without his consent or authority. lt creates the
obligation to reimburse the gestor for necessary and
useful expenses. (Art. 2150)
Example: D and C are the owners of adjacent
vegetable farms. One day, D was not around to tend to
his farm. When C noticed that D had not been around
for almost a week, he himself cultivated the soil and
placeQ fertilizer on it, watered the plants, removed the
weeds and wilted leaves. C incurred necessary and
useful expenses in the process. D must reimburse C for
such expenses. Otherwise, he will be unjustly enriching
himself at C's expense.
b. Solutio indebiti- This refers to payment by mistake of an
obligation which was not due when paid. lt creates the
obligation to return the payment. (Art. 2154)
Example: D, the payee of check for P5,000.00
cashes it with the drawee bank, but the teller gives him
P6,000.00.by mistake. D is duty bound to return the
excess of P'1,000.00 to the bank. Otherwise, he will be
unjustly enriching himself at the expense of another.
Some cases on tax refund:
(1)
UST Cooperative vs. City of Manila .
L-17 133, December 31,1 965
Facts: ABC Cooperative paid municipal taxes
and license fees to the city government unaware that
under a new law it was exempt |from all taxes and
government fees." Later, it learned of its exemption and
 OBLIGATIONS

sought to recover from the city governmerit tne taxes it

had paid to the latter. The city government refused to
refund said taxes.
Held: ABC Cooperative can recover such taxes
from the-city government which has a duty to return what
has been paid by mistake under the principle of solutio
indebiti.
(2)
Gommissioner of tnternal Revenue vs.
Fortune Tobacco Gorporation
G.R. No.167274-75, Juty 21,2OOg
Held: The Government is not exempt from the
application ol solutio indebiti. lndeed, the taxpayer
expects fair dealing from the Government, and the latter
has the duty to refund without any unreasonable delay
what it has erroneously collected. lf the State, expects itS
taxpayerg to observe fairness arid honesty in paying
taxes, it must hold itself against the same standard in
refunding excess (or erroneous) payments of such
taxes, lt should not unjustly enrich itself at the expense
of the taxpayers. x x x Under.the Tax Gode itseilf,
apparently in recognition of the pervasive quasi-contract
principle, a claim for tax refund may be based on the
following: (a) erroneously or illegally assessed or
collected internal revenue taxes; (b) penalties imposed
without. authority; and (c) any sum alleged to have been
excessive or in any manner wrongfully collected.
c. Other quasi-contracts
1) When, without the knowledge of the person
obliged to give support, it is given by a stranger,
the latter shall have the right to claim the same
from the former, unless it appears that he gave it
out of piety and without intention of being pbid.
(Art. 2164)
2) When funeral expenses are borne by a third
person, without knowledge of those relatives
who were obliged to Eve support to the
deceased, said relatives shall reimburse the
third person, should the latter. claim
reimbursement. (Art. 2165)
 5
OBLIGATIONS

3) When the person obliged to support an orphan'

or an insane or otHer indigent person unjustly
refuses to give support to the latter, any third
Derson t"v furnish support to the needy
individual, with right of reimbursernent from the
person obliged to give support' .This provision
'applies wh6n the lather or mother of a child
unber eighteen years of age unjustly refuses to
support him. (Art. 2166)

4) When through an accident or other cause a

Derson is infured or becomes seriously ill, and
i"re is treated or helped while he is not in a
condition to give consent to a contract, he shall
be liable for- the services of the physician or
btner p.erson aiding him, unless the service has
'rendered
been out of pure generosity' (Art'
2167)

5) When during a fire, flood, storm or other

calamity proierty is saved from destruction by
anothei pertson without the knowledge of the
just
owner, the latter is bound to pay the former
comPensation. (Art' 2168)

6) When the government, upon failure of any

-comply with health .or safety
person to
regulations concerning property, undertakes to
dinecessary work, even over his objection,,he
shall be liable to pay the expenses' (Art' 2169)

7) When by accident or other fortuitous .event,

movables separately pertaining to two or more
Dersons are commingled or confused, the rules
on co-ownership are applicable. (Art. 2170)

8) When in a small community, a majority of the

inhabitants of age decide upon a measure of
orotection aqainst lawlessness, fire, flood, storm
or other calamity, any one who objects to the
pian
'but
ano refuses to contribute to the expenses
is benefited by the project as executed shall
be liable to pay his shar:e of said expenses (Art'
2174)
 . OBLIGATIONS

9) A11l person who is constrained to pay the taxes

of another shall be entifled to reimbursement
from the tatter. (Art. 2175)

4. Acts or omissions punishabre by raw These are crimes oi

-
felonies. The commission of a ciime makes the offender civiily
liable. (Art. 100, Revised penat code.) such civit tiaoiiity
includes restitution, reparation of the damage causeo,- ano
indemnification of consequential damages. (Art.-104, n.p.C.l -

. Example: lf D steals the carabao of C, D's civit liability

consists of returning the carabao, paying for its varue if he
cannot return it, and^indemnifying the consequential damages
suffered not only by c but also thbsil of his family or bv a tf,iro
person by reason of the crime. This will be in'addition
to any
prison term or other penalty that may be imposed by the
court.

Quasi-delicts (also known as ,,tort', or,'culpa aquitiana") _ These

are acts or omissions that cause damage'io another, trere being
no contractual relation between the parties. (Art. 2176).
Example: lj a person, while cleaning his window,
causes a flower pot to fail through his negligence t[ereby injuring
someone passing by, the former is liable for damages tb tne
latter.
Itlustrative Case
National Power Gorporation vs. Heirs of Nobre casionan
G.R. No.165969, Novembei 27,2OOg
Facts: Casionan was traversing the trail underneath
the transmission lines of the National po'ier corporation
when he was electrocuted. The high tension wires were 0.rFtl
sagging
around 8 to 10 feetin vioration orihe required distance
20 feet. His heirs brought a craim for damager
-inat "ii6'i;
r.rpCt*
his death. rn its defense, Npc craimed "g;inii
basion"n *",
negligent because he was carrying a bamboo pole when
he was
electrocuted, and that he was not supposed to be around
the
l!!!-_ workilg as. pocket miner since the Department oi
Envrronment and . Naturar Resources had not issued permit to
operate at such place; hence, any award for damages
dnoutO Oe
mitigated by reason of the victim'i contributory negiigence.
Held: NpC is liable for damages arising from
negligence. The sagging high tensions wires were an accident
OBLIGATIONS

waiting to happen. lf they were properly maintained by NPC' the

bamboo pole which Casionan was carrying would not have
touched the wires. That the pocket miners in the area were
unlicensed was lot a justification for NPC to leave the
transmission lines dangling. The pocket miners in the area,
although they have no permit to do so, are also human beings
who hive to eke out a living in the only way they know how' The
victim should not therefore be faulted for simply doing what was
ordinary routine to other workers in the area. The trail was also
only the viable way that was regularly used by the residents in
the community. ln sum, the victim was not guilty of contributory
negligence; hence, NPC is not entitled to a mitigation of its
liability for damages

NATURE AND EFFECT OF OBLIGATIONS

Determinate thing and generic thing

1. Concept
' A thing is determinate when it is particularly designated
or physically segregated from all others of the same class. (Art.
1460). Examples: A 2009 Toyota Corolla with engine no.
123456, body no. 546611, and plate no. FRS 840; my only
wristwatch; the house located a|234 Moret Street, Sampaloc,
Manila; my horse named "Black Stallion.".
A thing is indeterminate or generic when it is not
particularly designated or physically segregated from all others of
the same class, i.e, one of a class. Examples: A horse, a car,
P10,000.00.
2. lmportance of knowing whether a thing is determinate or generic
As a rule, the loss of a determinate thing through a
fortuitous event extinguishes the obligation. (Art. 1262)

Obligations of one obliged to give a determinate thing

1. To take good care of the thing with the diligence of a good father
of a family unless the law or agreement of the parties requires
another standard of care. (Art. 1163)
Diligence of a good father of a family means the ordinary
care that an average person exercises in taking care of his
property.
 OBLIGATIONS

2. To deliver the thing. (Art. 1163)

This involves placing the thing in the possession or
conirol of the creditor either actually or c6nstructively.

3. To deliver the fruits of the thing. (Art. 1164)

a- Kinds of fruits
1) Natural fruits - They are the spontaneous
products of the soil and the young and other
products of animals. (Art. 442i Thus, the trees
that grow naturally on the soil without the
intervention of man and the colt delivered by a
mare are natural fruits. For the young and ot'her
products of animals, they are naturaffruits even
with the intervention of human labor.
2) lndustrial fruits - They refer to those produced
by land of any kind thr:ough cultivation or labor.
(Art. 442) Examples are rice, corn and other
crops produced through the intervention of
human labor.
3) Civil fruits - They refer to fruits which are the
' result of a juridical relation such as the rent of a
building, price of lease of land and other
property and the amount of perpetual or life
annuities. ( rt.442)
b. When creditor has a right to the fruitq of a determinate
thing
The creditor has the right to the fruits of a thing
from the time the obligation to deliver it arises. Howeverl
he shall.acquire no real right over it until the thing has
been delivered to him. (Art.-l164)
c. When obligation to deliver the thing arises
1). lf the obligation is a pure obligation or one
whose perfonnance is not subject to a
suepensive period or suspensive condition, the
obligation to, deliver arises from perfection.
2) ff the obligation is subject to a suspensive period
. Or suspensive condition, the obligation to deliver
OBLIGATIONS 9

arises upon the arrival of the term or the

fulfillment of the condition.
Thus, if D is obliged to give C a specific car on
Christmas day next year, the obligation to deliver arises
only on the arrival of such date. Or if the obligation of D
is to give C such car if C passes the CPA Examination,
then the obligation to deliver arises only upon the
fulfillment of such condition.
d. Rights of the creditor
1) Personal right - This is a right that may be

ruLi'ff fl. :'" :J.1S:[:"J: lxil ?;111;ilii, Xi ll :

. thing and its fruits from the debtor. This is also
called 7us in personam or ius ad rem.
, 2) Real right This refers to the right or power over
-
a specific thing, such as possession or
ownership, which is a right enforceable against

:F!'id:H il,i,::# [ i:;il'"J':l

they have been :,i:
ii! delivered to him. This is also
called 1us tn re.

4. To deliver its accessions and accessories even if they have not

been mentioned. (Art. 1166)
a. Accessions - They include everything that is produced
'. by a thing or is incorporated or attached thereto, either
naturally or artificiilly, (Art. 440) such as alluvium, the
soil gradually deposited by the current of a river on a
'planted or sown on a
river bank, ot'whatever is built,
parcel of tand.
b. Accessories - Thoqe joined to or included with the
prirlcipal thing for the latter's better use, perfection or
enjoyment (such as the keys to a car or a house, or the
bracelet of, a wristwatch).

Remedies of the creditor

1. lf the debtor fails to perform his obligation to deliver a
determinate thing
a. To compel the debtorto make thil delivery. (Art' 1165)
b. To demand damages from the debtor. (Art. 1170)
10 OBLIGATIONS

Example:
is obliged to give C a specific car. On due date, C
demands delivery but D does not deliver. ln this case, G can
compel D to deliver the car because there is no other person in
possession or control of it.
C can also demand payment of
damages from him.

2. lf the debtor fails.to perform his obligation to deliver a generic

thing
a. To ask that the obligation be complied with at ilre
expense of the debtor. (Art. 1165)
b. To demand damages from the debtor. (Art 1170)
Example:
D is obliged to deliver 10 sacks of rice to C. lf D does not
perform his obligation as stipulated, C can obtain 10 sacks of
rice from other sources at the expense of D. C can do so
because the thing is generic and thus can be replaced with the
same kind. C can also ask for damages from D.

3. lf the debtor fails to perform his obligation in obligations to do

a. lf the debtor fails to perform the obligation or performs it
but contravenes the tenor thereof *
. 1) Creditor may have the obligation executed at
the expense of the debtor.. 1nrt. t tOZ;
2) He may also demand damages from the
debtor. (Art. 1170)
Example:
D is obliged to construct a hollow block fence for
C. By agreement, the fence will be 2 meters high and 10
meters long, fine-finished and painted. lf D does not
perform his obligation, C can ask another person to, or
he himself may, construct the fence at the expense of
D. C can also ask for damages from D. i cannot
co-mpe! D to perform the obligation because compulsion
will violate D's right against involuntary servitude. '
lf D constructs the fence but did not follow the
measurements agreed upon (i.e., there was
contravention of the tenor of the obligation), C will have
the same rights.
OBLIGATIONS 11

b. lf the debtor performs the obligation but does it poorly

1) Creditor may have the same be undone at
debto/s expense. (Art. 1167)
2) Creditor may also demand damages from the
debtor. (Art. 1170)
examp'le:
lf in the same illustration above, D constructs the
fence following the measurements but it was not
properly aligned, the finishing was rough, and materials
used were- substandard, C can have the fence be
demolished by another person or even by himself at D's
expense. C can also demand damages from D'

4. lf the debtor does what has been forbidden him

a. The creditor may demand that what has been done be
undone.
b. He may also demand damages from the debtor' (Art'
1 168)
Example:
B bought a farm lot from S. However, the only access
from the road to B's lot is the lot of D. So B entered into a
contract with D for a right of way over a period of 10 years and
paid a sum therefor. lt was agreed that for the duration of the
contract D would not construct any fence between B's lot and
his. Sometime thereafter, however, D constructed a fence in
violation of the agreement. B may demand that D remove the
fence at D's expense and pay damages.

Grounds for tiability to pay damages

1. Fraud

2. Negligence

3. Delay

4. Contraventionofthetenoroftheobligation' (Art' 1170.')

Damages
1. Concept, distinguished from injury
ry
12 OBLIGATIONS

Damages refer to the harm done and the sum of money

that may be recovered.
lnjury refers to the wrongful, unlawful or tortuous act. lt
is the legal wrong to be redressed.

2. Kinds'of dqmages
I,
d. A{tual or compensatory damages - These refer to the
I I pecqniary loss, (such as loss in business or profession)
that may be recovered. lt includes the value of the loss
spffered and orofits not reatized. (Art. 2199)
b. Moral damages
, - Theyserious
include physical suffering,
rndnlal. anguish, fright, anxiety, besmirche-d
-shock,
leputation,,, wounded feelings, moral social
humiliationi/and simildr injury. @rt. 2217)
c. Nominal damages - They refer to damages.to vindicate
a right. (Art.2221)
d. Temperate or moderate damages _ They are more than
nominal but le.ss. than compensatory damages, but may
be recovered if the court finds tn"i ior" p6.uniiiv iori
has been suffered but its amount cannot, fiom the natuie
of the case, be proved with certaintv,. tirt. iiz;i- -'- -
e. Liquidated damages - Those agreed upon by the parties
to a contract, to be paid in case of breach. ZiZAy
6rt.
t. Exemplary-or corrective damages These are imposed
-
by way of example or. correction for public gobO, in
. addition to the rnsral, temperate, liquidjted or
compensatory damages . (Att. 22Zg)
3. Proof of pecuniary loss
a. Actual damages - proo-f is required unless provided by
law or stipulation. (Art. 2199)
Other damages - proof is not required in order that
moral, nominal, temperate or liquidated or exemplary
damages'may be adjudicated. The assessment of such
damages, except liquidated ones, is left to the discretion
of the court, according to the circumstances of each
case. (Art. 2216)
Fraud
1. Concept
OBLIGATIONS 13

Fraud is the deliberate or intentional evasion by the

debtor of the normal compliance of his obligatiort. Under Art.
1170, this actually refers to the fraud committed by the debtor at
the time of the performance of his obligation.

2. Kinds of fraud in general

a. According to meaning
1) Fraud in obtaining consent
' ' a) Causal fraud or dolo causanfe - This
refers to fraud without which consent
would not have been given. lt renders
the contract voidable.
ttl"",'nll"'.1',ff t;"f
s who ??ftlil
embellished with diamond. However, S
knew all along that the enrbellishment
was not diamoM but ordinary glass. B
- here gave his consent because of the
fraud employed bY S; hence, the
contract is voidable.
b) lncidental fraud or dolo incidenfe - This
refers to fraud without which consent
would have still been given but the
person giving it would have agreed on
different terms. The contract is valid
but the party employing it shall be liable
for damages.
Example: C hired D to teach in
the school of C. D Placed in his
application that he had eqrned units in
MBA. HoWever, D had actually dropped
the subjects for the said units. lf C
would have hired D even if D did not
complete the said units but that he
would have given a lower salary to D,
. the fraud committed by D was onlY
incidental but it would entitle C to
' recover damages.
2) Fraud in the performance of the obligation
 14 OBLIGATIONS

This is the deliberate act of evading

fulfillment of an obligation in a normal manner.
This presupposes an existing obligation; hence,
the fraud has no effect on the validity of the
contract since it was employed after perfection.
However, the party employing it shall be liable
for damages. (Art. 1170)
Example: .B ordered 10
bags of
powder soap from S who agreed to deliver the

;:ff ff:'3,:i"Jffi ':f"l:

"1i"i,"'r::1';"ff
This is fraud in the performance
^1ffi of an obligation
which entitles B to recover damages; The fraud,
however, does not have any effect on the
validity of the contract.
b. According to time of commission
1) Future fraud
A waiver of an actiorf for future fraud
cannot be made. lf there is an agreement for its
waiver, the same is void. (Art. 1171) Thus, the
debtor witt stiil be liable for damages if he
commits fraud in the performance of his
obligation despite the waiver.
2) Past fraud
A waiver of an action for past fraud may
be made, since the commission of fraud can no
longer be encouraged. Such waiver is an act of
liberality on the part of the creditor.

Negligence
1. Concept
It is the omission of that diligence which is required by
the nature of the obligation and corresponds with the
circumstances of the person, of the time, and of the place. (Art.
1173). lt is the faiture to observe, for the protection of the
interest of another person, that degree of care, precaution and
vigilance which the circumstances jusfly demand, whereby such
other person suffers injury., (National power Corporation vs.
Heirs of Noble Casionan, supra; Guillang vs. Bedania, G.R. No.
, 162987,May21,2009)
OBLIGATIONS 15

The test of negligence is whether the defendant in doing

' the alleged negligent act used that reasonable care and caution
which.an ordinary person would have used in the same situation.
(Guillang vs. Bedania,, supra) "

lf the law or contract does not state the diligence which

is to be observed in the performance of the obligation, the debtor
must observe the diligence of a good father of a family.
Examples:
a. lf the obligation is to deliver a specific window glass, the
debtor must ensure that the glass, considering its
fragility, is well-protected when he transports it as
required by the nature of the obligation. Otherwise, he
will be negligent.
b. A.baby-sitter, 21 years old, strong and healthy, will be
negligent if she sleeps while on duty considering that the
circumstances of her person were considered when she
was hired for the job.
. c. lf the driver of a car drives at night without any headlight,
he will be considered negligent considering that the
circumstances of nighttime require such light.
d. lf the same car driver drives at 50 kilometers per hour
along a busy street where many people are crossing, he
will be negligent because the circumstances of the place
require that he should drive slowly.
2. Kinds
a. Cutpa contracfual (contractual negligence) - This is
negligence in the'performance of a contract (such as
the negligence committed by the driver of a bus when a
passenger is hurt during a trip because there is here a
breach of contract of carriage).
Here, the master-servant rule applies, i.e., the
negligence of the servant is the negligence of the
master. Accordingly, the defense of a good father of a
family in the selection and supervision of employees is
not a defense on the part of the employer although it
may mitigate the'liability. Thus, in the example, the
negligence of the bus driver is also the negligence of the
bus owner.
r6 OBLIGATIONS

ItfustrativeCase:

Saludaga vs. Far Eastern University

G.R. No. 179337, April30,2008
Facts: S, a student of X University, was shot
and wounded by G, a security guard of the school, while
inside the campus. S sued X University for damages on
the ground that it breached its obligation under the
enrollment contract to provide students with a safe and
secure environment and an atmosphere conducive to
learning. ln defense, X University pleaded fortuitous
eyent on the ground that it could not have reasonably
foreseen nor avoided the accident,since G was not its
employee, and that it complied with its obligation to
ensure a safe environment for its students by having
exercised due diligence in selecting the security services
of the SA Security Agency.
Held: Respondent school is liable for damages
for breach of contract due to negligence in providing a
safe learning environment. lt is settled thal in culpa
contractual, the mere proof of the existence of the
contract and the failure of its compliance justify, prima
facie, a corresponding right of relief. The school failed to
prove that it undertook steps to ascertain that the
security guards assigned to it actually possessed the
required qualifications. A learning institution should not
be allowed to completely relinquish security matters in its
premises to the security agency it hired. To do so would
result in contracting away its inherent obligation to
ensure a safe learning environment for its students. The
defense of fortuitous event or force majeure must also
fail. An act of God cannot be invoked to protect a
person who has failed to take steps to forestall the
possible adverse consequences of the loss sustained.
b. Culpa aquiliana (civil negligence or tort or quasi-delict or
culpa extra-contractual) - These are acts or omissions
that cause damage to another, there being no
contractual relation between the parties. (Aft.2176)
The master-servant rule does not apply. Hence,
the defense of a good father of a family in the selection
and supervision of employees is a defense on the part of
the employer to escape liability. Thus, if a pedestrian is
OBLIGATIONS 17

hit by a bus through the reckless driving of the driver, the

latter's negligence is not the negligence of the owner'
c. Cutpa criminal (criminal negligence) - This is negligence
' that results in the commission of a crime.
Defense of a good father of a family is not
proper because the employee's guilt is automatically the
o'*.:,'.'u'lr::':1^t:" is insorvent
The passenger of:"rmer
-culpa the bus may bring a court
action not only for contractual against the bus
owner, but algo one for culpa criminal against the bus
driver for physical injuries through reckless imprudence'
ln the s6me way, the pedestrian may bring-' ngt only a
suilfor cutpa aquiliana against the driver and the owner,
but also one for culpa criminal againqt the bus driver for
physical injuries through reckless imprudence'

Delay or default ot mora

1. Concept
Delay or default or m'ora ts the non-fulfillment of an
obligation with resPect to time.

2. Kinds
:

a. Mora solve:ndi - Delay on the part of the debtor'

1) Ex re - Delay in real obligations (obligations to
give)
2) Ex persona - Delay in personal obligations
(obligations to do):
b. Mora accipiendi - Delay on the part of the creditor.
This exists when the creditor refuses to accept
the thing due without jttstifiable reason.
c. Compensatio morae - Delay in reciprocal obligations'
i.e.; both parties are in default. Herg, it is as if there is
no delay.

When debtor incurs in delay in obligations to give oi to do,

requisites
Gerieral rule: The debtor incurs in delay from the time
the creditor demands fulfillment of the obligation but the debtor
18 OBLIGATIONS

fails to comply with such demand (no demand, no delay, as'a

rule). The following are the requisites of .delay:
a. The debtor does not perform his obligation on the date it
is due:
b. The creditor demands the perform"nce of tneobligation,
c. The debtor does not comply witti the creditor's demand.
Exar.nple: ' '

D owes C P5,000.00. The obligation is due on May 15.

lf D does not pay on Maiy 18, he is not yet in.delay. eui.if C
makes a,demahd on him to pay on that date or thereafter and D
does not comoly, then D willlbe in delay.
Exceptigns, i.e,, delay will exist even without demand in
1169): - ";.
the following c.,aseS (Art
,' ''
a Wtren,the Fyy so provides. , ', :

penalty.if the obligation is lrot pefforrrred on <iug date

(such as. in the case of taxes), then dernand shall not be
necessary.
b. When the obligation expressly so declares.
Hence, no demand is necessary if a lease
contract proVides that "(T)he rentat shall be paid by the
lessee within the first five days of the month in advance
without need of demand."
When time is of the essence of the contract.
Thus, where a rent-a-car company is obliged to
provide for the bridal car during a wedding at a particular
date, time and place, the said company is liable if it fails
to perform the said obligation notwithstanding the
absence of demand since time was a controlling motive
for the establishment of the contract.
When demand would be useless.

" Thus, the debtor will be in delay even without

demand from the creditor if the thing he is obliged to
deliver has been destroyed through his fault or he has
delivered it to another person.
e. ln reciprocal obligations, where the obligations arise out
of the same cause and rnust be fulfilled at the same
 OBLIGATIONS 19

time, from the moment one of the parties fulfills his

obligation, delay by the other begins notwithstanding the
absdnce of demand.
. 'Note: There iq no delay. in an obligation not to do as one cannot
be in delay for not doing something.

4. Effects of delay .

a. The debtor shall be liable for the payment of damages.

(Art. 1170)
i b. lf the obligation consists in the delivery of a determinate
'" thing, he shall be r.esponsibte for. any fortuitous eveht
until he has effected the delivery. (Art. 1165)
.

Fortuitous events

.
-.'.1 Concept . . ,1 ,. '. .

,, Fortuitous events are those events that could hot be'

' foreseen, or which, though foreseen,,aie indvitable. (Art. 1174').
It is not enough that the event snould not been foreseen or
anticipated, but it must be one impossible to foresee or'avoid,
(Sicam vs. Jorge, G.R. No. 159617, August B, 2007)
Examples: Natural calamities or acts of God such as
earthquake, typhoon and lightning; and acts of man ("force
majeure") such as war and armed robbery.

2. Elements
a. The cause must be independent of the debtor's will.
b. There must be impossibility of foreseeing the event or of
avoiding it even if it can be foreseen.
c. The occurrence of the event must be of such character
as to render it impossible for the debtor to perform his
obligation in a normal manner. (See Sicam vs. Jorge,
. G.R. No. 159617, August 8, 2007 , for similar elements or
characteristics. )

3. Liability for fortuitous events

General rule: No person shall be liable for fortuitous
events, i.e., his obligation will be extinguished.
Exceptions to the rule (Art. 1174):
20 OBLIGATIONS

a. When the law expressly provides for liability even in

case of fortuitous events (such as that provided in Art.
1165 where the obligor is liable for fortuitous events if he
delays or has promised to deliver the same thing to two
or more persons who do not have the same interest).
.b. When the parties have declared liability even in case oJ
fortuitous event.
c. When the nature of the obligation requires the
assumption of risk (such as the obligation of an insurer
who must pay the policy holder even if the loss is caused
by a fortuitous event if the cause thereqf rs the risk
insured against).

4. Burden of proving loss due to fortuitous event

The burden of proving that the loss was due to fortuitous
event rests on him who invokes it. And, in cirder for a fortuitous
event to exempt one from tiability, it is necessary that he must
have committed no negligence or misconduct that may have
occasioned the loss. (Sicam vs. Jorge, supra'S

Presunrptions on receipt of principal or of tater installment (these

are disputable presumptions and evidence may be introduced to
the contrary by the creditor) (Art. 1176)
1. The receipt of the principal without reservation as to interest,
shall give rise to the presumption that the interest has been paid.

2. The reeeipt of a later installment without reservation as to prior

installments, shall give rise to the presr@ion that such prior
installments have been paid.
The above presumptions are disputs,le, hence, they may be
rebutted by contrary evidence. lfthe presumptlor is conclusive, then no
evidence to the contrary may be admitted.

Remedies of creditor to'enforce payment of his claims againsa

debtor (Ir1.11771
1. Pursue the property in the possession of the debtor, except
those exempt by law.
This is usually by attachment where the creditor files a
court action to exact fulfillment with a pfayer that the court set
aside a property belonging to the debtor. lf the court decides in
favor of the creditor and the debtor does not pay, the property
 21
OBLIGATIONS

applied to
attached witl be ordered sold and the proceeds thereof
the PaYment of the obligation'

2.Exercisealltherightsandbringalltheactionsofthedebtor
-xcept
those personal to him (accion subrogatoria)'
Example:AowesD'DowesC'lfCfilesaco.urtaction
not to pay D
against o to cbttect, he may ask th.e court to order A
sotha(intheeventthatthecourtrulesinfavorofC,Awillbe
requtred to pay C' ln effect, C is exercjsing the right
collect to
belongs to D'
. from A which is a right that
defraud his
3. Impugn the aets which the debtor may have done to
creditors (aecion Pauliana)'
DowesCP50,0O0'00'To@fraudC'Dsellshislot'his
onlypropdrty,to_e*noknowsofthefraudulentintentionofD.C
made by
D.
may ask tne fourt to order the rescission of the sale
On6e the ,sale is rescinded and the lot is returned
to D, C may
askthecourttoorderitsattachmentanditssaleatpttblic
payment of his
auction, anoi tne ptoceeds of the sale applied in
claim.

Rule on transqissibility of rights and exceptions th;reto,(Art'

1178)
are
General rule: All rights acquired in virtue. of an obllgaf,on
asdign his credit to a third person dr
transmissible (ThuS, a credit6r may
iu"n oght is transmittedto the heirs upon his,death')

ExcePtions:
1. lf the law prohibits the transmission of the right'
Thus,the*ghtsofagbnera|partnerinapartnershipare
not transmitted hc his h,eirs upon his death'

2. lf the parties agreed against transmission'

Thus,therightisnottransmittedtoanassigneeortothe
parties'
heirs if there was a ltipulation to that effect between the

3. lf the right is by naturenot transmissible'

' Example: S was granted a scholarsl(p grant by a
school after a series of examination and interviews' S" however'
dies with b|o years still remaining before he finishes his
studies'
right of S'to enjoy the scholdrship grant is not transmitted to
The
his heirs because it is gtrictty personal'
 22
OBLIGATIONS

,DIFFERENT KINDS OF OBLIGATIONS

Primary classification under the Givil Code

1; Pure obligation
2. Conditionalobtigation
3. ' bbtigation with a period
4. Alternative obligation
5. Facuttative obligation
6. Joint obtigation
7. Sotidary obtigation
8. Divisibte obtigation
9. . lndivisible obtigation
.10.obligationwith:apbnalclause'.]'...:,]

pure lnO conciiiionat

obtigations
Pure obligation, concept
is one withoit a term or condition and is
auranolor3:i;:::",'on
Exampre: r promise to give you p5,000.00. This
is immediatery
demandabre since there is no ierm in"t rurt
rpust happen forthe obligation to be demandable.
oi tnat
""pir" "'Ionoition
Gonditional obligation, concept
A conditionar obrigation is one whose demandabirity or
extinguishment depends upon tne frappening
of a condition.
. Examptes: (1)
,.,! wilt give you
Examination " The condition
my car if you pass the CpA
heie is 'suiperisive. t;-ily ;;t demand
the delivery of my car untir you pass tne
6eA Examination'. di "r witt ret
you use my car untir you pass fhe cpA
Examinatioi.,; The-'condition
is resorutory. you may demand the derivery
!gre. of my car now but you
must return it to me when you pass the CpA.examination.

Condition
Concept
OBLIGATIONS 23

Condition - It is an uncertain event which wields an influence on a

legal relationship. (Manresa) :

2. Classification
a. Suspensive and resolutory
1) Suspensive - This is a condition the happening
of which gives rise to the obligation. This is also
called condition antecedent or
condition
' precedent. The demandability of the obligation i9
suspended until the happpning of the conditign'
'': ' i) Resdlutory - This is a cohdition the happening
'1.

of which extinguishes the obligation. This is also

called condition subsequenf The obligation is
demandable at once but it shall be extinguished
upon the happening of ihe condition.'
:- '' '. r'.' .1'
b. . "
Potestative, casualand mixed
1) Potestative - A condition that depends upon the
. '

a) Potestative on the'part.of the debtor

(1) i: x::5:U'I:,ili?.ri'ii'fi3
condition is fulfilled, the
o?IT'l3''"e
llHilT,'' J"1.
ir D soes to
833;133*
' (2) lf resolutory - The obligation is
valid. (ExamPle: D is to allow
the use of his car bY C until D
returns from Baguio.)
b) Potestative on the part of the creditor -
The obligation is valid whether the
is suspensive or resolutory.
condition
[(Examples: (1) D is to give .C
P50,000.00 if C goes to Baguio. (2) D is
to allow the use of his car by C until C
returns from Baguio.l
2) Casual - A condition that depends upon chance
or upon the will of a third person. [(Examples:
24 OBLIGATIONS

(1) D is to give C pS0,000.00 if D wins first prize

in the lotto on the bet he placed'this morning. (2)
D is to give C p50,000.OCi if X goes to Baguio.l
3) lilr"f,, $ffJ,i1".iJ^;:,fl:3"iff
3:;liil Xffil
chance or upon the will of a trird person.
D to sive c P50'000'00 ir' c will
$i.ilif
c. Possible and impossible
1) Possible - One that is capable of futfiilment in
its nature and by law.
2) ' lmpossible One that is. not capable of
fulfillment in its nature or due to operation of
law, such as"if you can swim across fhe pacific
Ocean" or "if you kill.X'. ln this case. the
obligaiion and the condition are void. (Art.
1 1S3).

Note: lf the condition is not to do an

impossible thing, it shall be deemed as not
having been agreed upon. (Art. 1183) Thus,
.the obligation is immediately demandable.
(Example: D is to give C pS0,000.00 if C does
nof swim across the Pacific Ocean.)
d. Positive and negative
1) Positive - This is a condition that some event
happen at a determinate time. Here, the
obligation is extinguished as soon as the time
expires or it has become indubitaole that the
event will not take ptace. (Art. 1 184)
Eiample: D is to give C p50,000.00 if C
will'marry X on or before June 30, 2010. The
obligation will be extinguished on July 1, 2O1O tf
C has not yet married X as of June 30, 2010: lf
X dies on June 1, 2010 before C has married
her, then the obligation is extinguished on such
date because there is no more doubt that the
marriage will not take place.
2) -
Negative This is a condition that some event
will not happen at a determinate time. Here, the

J
 25
OBLIGATIONS

obligation becomes effective as soon as the time

indiiated has elapsed or it has become evident
that the event will not occur. (Art' 1185)
Example: D is.to give C P50,000'00 if C
willnof marry k on or before June 30, 2010' The
obligation becomes effective on July 1, 2010 if C
has-not yet married X as of June 30, 2010' lf X
dies on iune 1, 2010 before C has married her'
inen tfre obligation becomes effective on such
date because there is no rnore doubt that the
marriage will not take Place.
e. Divisible and indivisible
1) Divisible One that is caPable of Partial
performance.
Under Art' 1183, if the obligation is
divisible, that part thereof which is not affected
' by the impossible or unlawful condition shall be
valid.
ExamPles (a): D is to give C a car if C
finishes his law course, and P1,000,000'00 if C
tops. the Bar Examination' lf D finishes his law
course, he may demand the delivery of the car'
However, he may not demand the payment of
P1,000,000.00 if ire does not top the Bar' (2) D
is tb give C a car il C finishes his law course and
Pl,0d0,000.00 if C can get a copy of the test
questions in the Bar Examination in advance'
Even if both conditions are fulfilled, C can only
agk for the delivery of a car from D because the
second condition is unlawful'
2) lndivisible - One that is not capable'of partial
or by law or
performance by its nature
agreement of the Parties
ExamPle: D is to give C a car if C
finishes his law course and tops the Bar' C
must comply with both conditions before he can
ask for the deliverY of a car from D'
 26
OBLIGATIONS

Effect of fulfillment of suspensive condition (Art. 11g7)

Generar rure: The effect of the furfiilhrent of the suspensive
condition retroacts to the day of the constitution of tne ooritalion

Exceptions: There shail be no retroactive effect with respect to

the fruits and interests as follows:'
1. ln reciprocal obligations, the fruits and interests shall be deemed
' t9 hgve been mutually compensateO, i.e., pu.ty Ja, keep
the fruits and interest received by him prior "*n
to inu irtritr,.n"ni Jr
the condition.
Example: On May 1,2006, S agreed to sellhis land to B
and B agreed to pay the price of ps0,000.00 if x finishes his
Accounting degree on March 1s,2010. x tiniineo his
Accounting degree as stipurated. rt was as if s was entifled
to
the price and B to the land beginning on May 1,2006. ffo*euer,
s shalr keep the fruits on the rlnd ano g the interest on the price
during the pendency of the condition.

2. ln unilateral obligations, the debtor keeps the fruits and interests

received before the fulfillment of the condition.
Exampte:. On Jvlay 1 , 2007, S promised to give B his
land if B passed the Bar:Examination'in Februaryii.Orc. B
passed the Bar Examination as stipurated.
rt was is if B wai
entiiled to the rand beginning on May 1,2007. However,
keep the fruits on the rand duling the pendency of the
s wiil
condition.
Rights of the parties before the furfiilment of the
condition (Art.
1 188)
1. Creditor
..- He
preservation
may bring the appropriate actions for the
of his right, such as registering his craim *itn in"
Register of'Deeds, if app.ropriate, to-notify iil tninO p"rronr,'oi
asking the debtor to provide a security if ine oeotor'is
aooui to
become insolvent..
2 Debtor - He may recover what he has paid by mistake.
Effect when the debtor voruntariry prevents furfiilment
condition of the

The condition is deemed furfiiled if the debtor voruntariry

prevents
its fulfillment (Art. 1186); hence, the obtigation becomes
in{mediately
demandable' Here, there must be an intent on part
of the oebtor to
OBLIGATIONS 27

prevent compliance with the and actually prevents its

fulfillment. "ono,,,on
Example:
D promised to give P10,000.00 to C, a marathon athlete, if C
finishes the race during the athletic meet. However, on the eve of the
scheduled race, D put-a substance on the drink of C who experienced
weakening after taking the drink, and hence, was not able to join the
race. Heie, D must give P10,000.00 to C since the condition is deemed
fulfilled.

Rules in case of loss; deterioration or improvement of determinate

thing before the fulfillment of the suspensive condition (Art. 1189)
1. Loss of the thing
a. Without debtor's fault - Obligation is extinguished'

b. With debtor's fault - Debtor is obliged to pay damages'

Concept of /oss
A thing is considered lost when it perishes, or goes out of
commerce or disappears in such a way that its existence is
unknown or it cannot be recovered.

Example: D is obliged to give C a specific house if C

pas.ses the CPA Examination. lf the house is destroyed in a fire
without the fault of D before C passes the CPA Examination, D's
obligation is.extinguished even if C, thereafter, passes the CPA
Examination. But if the house is destroyed through the fault of D
such as when he placed inside the house highly flammable
chemicals which caused the fire, then D shall be obliged to pay
damages should C pass the CPA Examination.

2. Deterioration of the thing

a. Without debtor's fault - The impairment shall be borne
by the creditor, i.e., no liability on the part of the debtor
to pay damages.
b. With debtor's fault - The creditor may choose between :

1) Rescission, plus damages, and.

2) Fulfillment, plus damages.
Example:
28 OBLIGATIONS

D is obliged to give a specific car to C if C finishes his

economics degree. The deterioration of the car due to wear and
tear before C finishes his economics degree will be borne by C
when C later finishes the said degree. However, if the car is
damaged in an accident due to D's fault; C, when he finishes his
economics degree may rescirnd the contract and ask for
damages, or ask D to deliver the car in its deteriorated condition
plus damages.

3. lmprovement of the thing

a. -
By nature or by time The irnprovement shall inUre to
the benefit of the creditor.
Example: D is obliged to give his violin to C if C
finishes his course in music. lf the quality of the tone
produced by the violin had improved between the time
that D's obligation was constituted and the completion by
C of his course in music, then such improvement shall
inure to the benefit of C.
b. At the expense of the debtor - The debtor will have the
rights granted to a usuffuctuary, i.e., he can have
enjoyment of the use of the improved thing and its fruits.
He may remove the improvement if no damage is
caused to the principal thing. lf the improvement cannot
be removed without causing darnage to the principal
thing, the thing and the improvement shall be delivered
to the creditor without any right on the part of the debtor
: to indemnity. . He may' however, set off the
improvements against any damage to the thing. (Arts.
579 and 580)
Example: D is obliged to give his only car to C
if C finishes his economics degree. Before C finished
the said degree, D had the car repainted. ln this case, D
can continue using the car in its improved condition.
Upon the coinpletion by C of his economics degree, D
cannot remove the paint because it will cause damage to
the car. However, if he had caused a dent on the car
due to his fault, he may set off the cost of repainting
against the cost of damage brought by such dent.
OBLIGATIONS 29

Rule in case of fulfillment of resolutory condition (Art. 1190)

1. Upon the fulfillment of the resolutory condition, the obligation is
extinguished

2. The parties shall return to each other what they have received.

3. ln caSe of [oss, deterioration or improVement of the thing, the

provisions in the above rule (Art. 1189), which pertain to the
debtor shall be applied to the party who is bound to return.

Obligations with a Period'

Obligation with a period, concept

An obligation with a period is one whose demandability or
extinguishment is subjected to the expiration of the term which must
necessarily come. ln other words, there is a day certain when the
obligation will arise or cease.
Examples: (1) D is obliged to give his car to C on May 1tr2010.
On May 1,2010, the obligation becomes demandable by reason of the
expiration of the term or period. The period here is one with'a suspensive
effect or ex die. (2) On January 1,201A, D allowed C to use his car
until May 1,2010. Thc obligation is demandable on January 1, 2010 but
on May 1,2010, D's obligation to let C use his car is extinguished by
reason of the expiration of the term. The period here is one with a
resolutory effect or in diem. C must therefore return the car.

Concept of period and day certain

Period is a space of time which determines the effectivity or
extinguishment of an obligation. Thus, the space of tirne between
January 1,2010 and January 1,2011 is a period the lapse of which will
€use an obligation to arise or cease.
A day certain is that which must necessarily come although it
may not be knewn when. (Art. 1193) An example is the death of a
person which will necessarily come.' Thus, if the obligation of D is to
give C P10,000.00 when X dies, the obligation is one with a period.

Period distinguished from condition

1. As to fulfillment -
30 OBLIGATIONS

A condition is an event that may or may not happen; a

period is an event that must necessarily come, at a date known
beforehand, or at a time'that cannot be determined.

2. As to time -
A condition may refer to the future or to a past event
unknown to the parties; a period always refers to the future.

3. As to influence on the obligation -

A condition causes an obligation to arise or to cease; a
period merely fixes the time for the efficaciousness of an
obligation. (8 Manresa 153, 154)

4. As to the will of the debtor

A period that depends upon the will of the debtor
authorizes the court to fix its duration. (Art. 1197, par. 2), while a
condition that depends upon the will of the debtor which is
suspensive shall annulthe obligation. (Art. 1182).

Kinds of period
1. Ex die - This is a period with a suspensive effect. Here, the
obligation becomes demandable upon the lapse of the period.
(Art. 1193)
ln diem This s a period with a resolutory effect. Here, the
-
obligation is demandable at once but is extinguished upon the
lapse of the period. (Art. 1 193)

Other kinds are:

1. Legal - A period that is fixed by taw.
2- Voluntary - Thisis fixed by the parties.
3. Judicial- One that is fixed by the court.

Problem
"l will pay you my debt when my means permit me to do so." ls
this an obligation with a period or with a condition?
Answer: Ihrs rs an obligation with a period. Here, the remedy
of the creditor is fo as/< the court to fix the period. (Art. 1180, 11gl ance
the court has fixed the period, it may no longer change it as it becomes a
paft of the agreement by the parties.
OBLIGATIONS 31

Presumption as to who has the beneflt of the period

Whenever a period is designated in an obligation, it shall be
presumed to have been established for the benefit of both the creditor
and the debtor, unless from the tenor of the obligation or other
circumstances, it should appear that it has been established for the
benefit of only one of the parties. (Art. 1 196).

Therefore, the debtor cannot be compelled to perform, and the

creditor cannot be compelled to accept performance, before the term
expires.
Example: D borrowed Pl0,000.00 from C on January 1,2010-
The loan bears interest at 10% per annum with both principal and
interest being due on December 31, 2010. Before December 31,2010,
C cannot compel D to pay and deprive him of the use of the money until
the said date. Neither may D compel C to accept payment before
December 31,2010 and deprive C of the interest for remaining term.

Period is for the benefit of one of the parties

1. For the benefit of the debtor - He cannot be compelled to
perform his obligation before the expiration of the term, but he
may choose to perform before such expiration at his option.

Example: D is obliged to pay C P10,000.00 on or before

December 31, 2010. D cannot be compelled to pay before
December 31, 2010. However, he.may choose to pay at any
time before December 31, 2010 or on December 3't, 2010 at his
option.

2. For the benefit of the creditor - He cannot be compelled to

accept performance before expiration of the term, but he may
choose to demand performance before such expiration at his
cption.

Example: On November 1, 2009, D borrowed from C

P10,000.00 "collectible" on or before June 30, 2010. C may
demand payment on June 30,2010 or at any tlme before the
said date. However, D cannot compel him to accept the
payment at any time before June 30, 2010.
n. OtsLIGATIONS

llYhen debtor loses his right to make use of the period if it is for his
benefit; (Art. 1198), i.el ttre creditor may demand immediate
payment
1. When he becomes insolvent, unless he gives a guaranty or
security for the debt.

2. when he fails to furnish the guaranties or securities that he has

promised.
Example: D borrowed p20,000.00 from C promising to
" pledge his ring to C to secure the debt within one month. C
gfve D one year to pay the loan. D, however, failed to pledge
his ring within the period agreed upon. ln this case, C cin
demand immediate payment even before the agreed due date
thereof.

3. When he impairs the said guaranties or securities by his own

acts, or when through a f6rtuitous event they, disappear, unless
he gives new ones equally satisfactory.
Example: D obtained a loan from C, the same being
se..cured by a chattel mortgage on D's car. The loan is payable
within one year. On the seventh month, the car was razed by
fire. C can demand immediate payment unless D gives anothei
security that is equally satisfactory. This is true even if the cause
of the loss or impairment was not due to the fault of D.

4. when he violates any undertaking in consideration of which the

creditor agreed to the period.
Example: C granted a loan of pS0,000.00 to D giving D
year to pay provided D did not engage in any gamOling u-ntit
9ne.
he has paid the debt. lf D enters a casino to play in the slot
machine, say after one month, C can alreaOy.Oemand immediate
payment.

5. When he attempts to abscond.

Thus, if the debtor has been disposing all his property
with an attempt to reave his prace of businesi or residence to
escape his creditors, such creditors can demand immediate
payment of his debts although their: maturity date is not yet due.

j
I
OBLIGATIONS 33

Alternative Obligations
and Facultative Obligations

Kinds of obligations according to the number of prestations

1. Simple - One where there is only one prestation.

2. Compound - One when'there'are several prestations. This may

be:
a.. Conjunctive - Here, several pr:estations are due but all
must be performed.
Example: D is to give C a specific ring, a
specific watch and a specific bracelet to C. D must
deliver allthe items to C.
b. Distributive or disjunctive This may either be
alternative or facu ltative.

Alternative obligation, concept

An alternative obligation is one where several prestations are
due but the complete performance of one of them is sufficient to
extinguish the obligation. (Art. 1199)
Example: D is obliged to give a specific ring, a specific watch or
C. The delivery of any of the three articles will
a specific b'racelet to
extinguish the obligation.

Right to choose prestation

The right of choice belongs to the debtor, unless it has been
expressly given to the creditor. (Art. 1 199)

Limitations on debtor's right to choose

1. The debtor must completely perform the prestation chosen. He
cannot compel the creditor to receive part of one and part of
another undertaking. (Art. 1 199)

2. He cannot choose those prestations which are impossible,

unlawful or which cbuld not have been the object of the
. obligation. (Art. 1199)
34 OBLIGATIONS

When obligation ceases to be alternative and becomes a simple

obligation.
1. When the debtor has communicated his choice to the creditor.
(Art. 1201)
2. When among the prestations whereby the debtor is alternatively
bound, only one is practicable. (Art. 1202)

3. When the creditor has communicated his choice to the debtor, if

the creditor has been expressly given the right of choice. (Art.
1205)

Rutes in case of loss of things or impossibility of services which

are alternatively the object of thil obligation.
1. When right of choice is with the debtor (Art. 1204)
a. lf only one or'some are lost through a fortuitous event or
through the debtqr's fault, the debtor may deliver any of
the remainder, or that which remains if only one
subsists.
b. lf all are lost through a fortuitous event, the obligation is
extinguished (based on the iule that no person shall be
responsible for fortuitous event).
c. lf all are lost through the debtor's fault, the debtor shall
pay the value of the last thing that was lost plus
damages.
Examples:
D is to give C a specific ring, a specific braceiet or a
specific wristwatch. The obligation is silent as to who will choose
the item to be delivered. Therefore, the right of choice belongs to
D.

lf the ring is lost through a fortuitous event, D'may

deliver the bracelet or the wristwatch. The same rule
applies if the ring is lost through the fault of D. ln the
case of the latter, D shall have no liability for damages
because he can still perform his obligation by choosing
to deliver the bracelet or the wristwatch.
b. lf the ring and the bracelet are lost through a fortuitous
event or through D's fault, the obligation is converted
into a simple obligation to deliver the wristwatch. There
is no liability for damages on the part of D even if the
OBLIGATIONS 35

loss is due to his fault because he can still perform his

obligation. lt was as if D chose to deliver the wristwatch.
c. lf all things are lost due to a fortuitous event, D's
obligation is extinEuished.
d. lf the ring and the bracelet are lost through a fortuitous
event, the obligation becomes a simple obligation to
deliver the wristwatch. lf the wristwatch is thereafter
lost due to the fault of D, D shall pay damages.
e. lf the ring, the bracelet and the wristwatch are lost one
after thebther due to D's fault, D shall pay the value of
the wristwatch, the last item that was lost, plus damages.
f. lf the ring and the bracelet are lost through D's fault, the
obligation becomes a simple obligation to deliver the
wristwatch. lf the wristwatch is thereafter lost through a
fortuitous event, D's obligation is extinguished.

2. When right of choice is expressly granted to the creditor (Art.

1205)
a. lf only one or some are lost through a fortuitous event,
the debtor shall deliver that which the creditor should
choose among the remainder, or that which remains 'if
only one subsists.
b. lf all are lost through a fortuitous event, the obligation
shall be extinguished;
c. lf only one or some are lost through the debtor's fault,
the creditor may claim any of those subsisting, or the
price of those which were lost through the debtor's fault
' plus damages.
d. lf all are lost through the debtorls fault, the creditor may
claim the price of any of them plus damages.
Examples:
D is to give C a specific ring, a specific bracelet or a
specific wristwatch. The parties agreed that C shall have the
right of ihoice.
a. lf the ring is lost through a fortuitous event, D shall
deliver either the bracelet or the wristwatch at the choice
of C.
b. lf all are lost through a fortuitous event, D's obligation is
extinguished
 36 OBLIGATIONS

lf the ring and the bracelet ard lost through a fortuitor.rs

event, D shall deliver the wristwatch which is the
remaining item. The obligation becomes a simple
obligation to deliver the wristwatch. lf the wristwatch is
thereafter lost due to D's fault, D shall pay damages.
d. lf the ring and the bracelet are lost due to D's fault, the
obligation does not become a simple obligation to deliver
the wristwatch. C can still choose from the payment of
the price of the ring or the bracelet with damages, or the
delivery of the wristwatch.
e. if all are lost due to the fault of D, C may claim the price
of any of them plus damages.

Facultative obligation, concept

An obligation where only one prestation is due but the debtor
may render another in substitution.
Example: D is. obliged to give a spqcific ring to
C with the
agreement that D may'deliver a specific watch as a substitute.

Rules in case of loss of principal thing and substitute.

1. ' Before substitutiOn (i.e., before the debtor has informed the
creditor of the substitution)
a. Principalthing
1) lf lost due to fortuitous event, the obligation is
extinguished.
2) lf lost due to the debtor's fault, debtor shall pay
damages.
b. Substitute
The loss of the substitute whether through d
fortuitous event or through the debtor's fault imposes no
additional obligation on the debtor becanse it is not yet
due. The debtor has still to deliver the principal thing.

2. After substitution
. a. Principalthing
The loss of the principal thing whether: through a
fortuitous event or through the debtor's fault imposes no
i additional obligation on the debtor because the thing due
$
OBLIGATIONS 37

is already the substitute. After the substitution.has been

comm,unicated, the thing due is the substitute. The
obligation also ceases to be a facultative obligation and
becomes a simPle obligation.
b. Substitute
, 1) lf lost throug.h a fortuitous event, the obligation is
extinguished.
2) the debto/s fault, the debtor sharl
[j;T",lj;;:l
Alternative obligation and facuttative obligation, distinguished
Atternative obligation Facultatir,.e obligation

1. Several prestations are 1. Only one prestation, thq

due, but the performance principal obligation, is due.
of one is sufficient to
extinguish the debt.
2. lf there are void 2. lf the principal obligation is
prestations, the others . void, the debtor is not
may still be valid, hence, required to give the
the obligation rernains. . substitute.
3. The right of choice is with 3. The right of choice
the debtor, unless belongs to the debtor onlY.
expressly given tothe
creditor.
4. lf all prestations are 4. lf the principal obligation is
impossible except one, impossible, the debtor is
that which is possible must not required to give the
still be given. substitute.

Joint,and Solidary Obligations

Joint and sotidary obligationsn concept

ln a joint or solidary obligation, there is a concurrence of two or
more debtors and/or two or more creditors in one and the same
obligation.
ln a joint obligation, each debtor is liable only for a proportionate
part of the debt, and each creditor is entitled only to a proportionate part
of the credit.
38 OBLIGATIONS

: Examples: (1) A and B are indebted to X for p10,000.00. A is

-- _
!iab_!e
only for P5,000; B is tiabte onty for p5,000.00. (2) A owes X and
Y P8,000.00. X can collect only p4,000.0O; yl can collect only
P4,000.00.
ln a solidary obrigation, each debtor is riabre for the whore
obligation, and each creditor is entiiled to demand payment of the whole
obligation. (Please see succeeding topics for examples.)

Kinds of solidary obtigation

1. Passive solidarity -
This is solidarity on the part of the debtors.
Example: A and B, solidary debtors, are indebted to X
for P10,000.00. X can demand payment of p10,000.00 from
either A or B. lf A pays X p10,000.00, the obligation is
extinguished. A can demand reimbursement from B of his share
of P5,000.00.

2. Active solidarity
- This is solidarity on the part of the creditors.
Example: A owes X and y, solidary creditors,
y
fa.,OOg.O.q Either X or may demand payrnent ot
pg,OOO.OO
from A. lf A pays X p8,000.00, the obligation is extinguished. X
must give to Y his share arnounting to p4,000.00.

3. Mixed solidarity or solidarity on the part of both debtors and

creditors.
Example: A and B, solidary debtors, owe X and y,
solidary credifors, p12,000.00. X or V may coilect from A or B
the total sum of p12,000.00. tf A pays.X p12,000.00, the
obligation is extinguished. B must reimburse A p6,000.00. On
the other hand, X must give to y his share of p6,000.00.

Other terms for sotidary obligation

1. Jointly and severally
2. lndividualty and collectively
3. ln solidum
4. Mancomunada sotidaria
5. Juntos o separadamente

Other terms for joint obligation

1. Proportionately
 39
OBLIGATIONS

2. Pro rata
!

3. Mancomunada
4. Mancotmunada simPte

General rule if there is a concurrence of two or more debtors

and/or two or more creditors in one and the same obligation.
The obligation is presumed to be ioint when there is a
in one
concurrence of two or more debtors and/or two or more creditors
and the same obligation. There is solidary liability only in the following
cases:
1. When the obligation expressly so states'

2. When the law requires solidarity'

ExamPles:
a'Whenhiloormorepersonshaveappointedanagentfor
a comrnon transaction or undertaking, they shall be
solidarily liable for the consequences of the agency' (Art
1915)

b.Wheretheinstrumentcontainingthewords,'lpromiseto
pay" is signed by two or more persons, they are deemed
to be ioiirtty and severally liable thereon' (Sec' 17'
Negotiable lnstruments Law')

3. When the nature of the obligation requires solidirity'

Example:
SG, a security guard of AB Partnership, was killed by
criminal elements in iinL of duty. The heirs of S demanded
compensation under the Workmen's Compensation Law (WCL)
for the whole amount from A, partner. A claimed that he should
be liable only for one-half thereof, the other half to be shouldered
by B, his partner, since their liability is only joint a9.fhe law was
silent on the'nature of liability. The court ruled that the partners'
liability is solidary since the nature of their obligation requires
solidarity. The evident intention of the wcl is to give full
protection tg workers. This purpose would be defeated if the
employers' liability were only joint' (See Liwanag, et al vs' WCC'
L-12164, May 22,1959.)
40 OBLIGATIONS

A, B and C are obliged to give X, y and Z\Z7,OOO.OO. How many

distinct debts are there in the obligation?
Answer: Since the obtigation is presumed to be joint, there are g
distinct debfs as follows:
1. AowesXP3,O1O.OO.
2. AowesYP3,0O0.00
3. AowesZP3,0O0.00
4. BowesXP3,O0O.00
5. 8owesYP3,000.00.
6. BowesZP3,00O.0O.
7. CowesXP3,000.00
8. CowesYP3,OO0.O0
9. CowesZP3,000.0A

A, B and G, joint debtors, are obliged to give X, y and Z, solidary

creditors, P18,000.00. How much may X collect and from whom?
Answer: X, being a solidary creditor, may cottect the sum of
P18,000.00. However, since the debtors are joint debtors, he may
collect only P6,000 from each of them. After cottecting the sum of
Pl8,000.00, X must give Y and Z's share of p6,000.00 each.

A, B_and C, soiidary debtors, are obliged to give X, y and Z, loint

creditors, P18,000.00. How much may A be hetd liable?
Answer: A, being a solidary debtor, may be hetd tiable for
Pl8,000.00. However, since the creditors are joint creditors, each of
tlem may cottect onty Pa,000.00 frotm A. tf A pays the whote amount af
Pl8,000.00 to the creditors, A can demand pimbursement of p6,000.00
each from B and C.

A,.B_ and C, solidary debtors, are obliged to give X, y and Z,

solldary creditors, P"18,000.00. How much may Z-collect and from
whom?
Answer; Z may coilect plg,ooo from any of the sotidary debtors
e_ach of whom may be hetd tiabte fctr the entire obtigation. tf 2 cottects
P1.8,000.00"from A, Z must give X and y p6,000.b0 each. A, on the
ather hand, can demand'reimbursernent from B and c at p6,000.00
each.
OBLIGATIONS 41

Some problems when there is unequal sharing in the debt and/or

credit
A and B owe X and Y P10,000.00. The share of A in the debt
is 40%, while that of B is 60%. The share of X in the credit is 70oh,
while that of Y is 30%.
1. Joint debtors and joint creditors
A can be held liable for not more than P4,000.00 (40% of
P10,000.00, while B, not more than P6,000.00 (60% of
P10,000.00). X can collect not more than P7,000.00 (70% of
P10,000.00), while Y, not more than P3'000'00 (30% of
P10,000.00.)
a. How much may X collect from A? from B?
From A, X may collect P2,800.00 (40% ol
P7,000.00.), From B, X may collect P4,200.00 (60% of
P7,000.00.)
(Alternative computation: A, (P4,000.00 x 70oh =
P2,S00.00); B, (P6,000.00x70% = P4,200.00)
b. How much may Y collect from A? from B?
From A, Y may collect P1,200.00 (40% of
P3,000.00). From B, Y may collect P1,800.00 (60% of
P3,000.00.)
(Alternative computation: A, (P4,000.00 x 30% =
P1,200.00);,8, (P6,000.00 x 30% = P1,800.00)

2- Joint debtors and solidary creditors (active solidarity)

a. How much may X collect from A? from B?
X, being a Solidary creditor, may collect the
whole amount of P10,000.00. However, since the
debtors are joint debtors, he cannot collect more than
: P4,000.00 from A, and not more than P6,000.00 from B.
After collecting the amount of P10,000.00, he must give
P3,000.00 to Y representing the latter's share in the
credit.
b. How much may Y collect from A? from B?
lf Y is the one collecting, may collect the whole
amount of P10,000.00. However, since the debtors are
joint debtors, he cannot collect more than P4,000.00
42' OBLIGATIONS

. from A, and not more than P6,000.00 from B. After

collecting the amouht of P10,000.00, he must give
P7,000.00 to X representing the latter's share in the
credit.

3. Solidary debtors and joint creditors (passive solidarity)

. a. How much may A be held liable and by whom?
A may be held liable for the whole amount of
P10,000.00. However, since the creditors are jointly
bound, X can collect from him not more than P7,000.00,
and Y, not more than P3,000.00. After A has paid the
debt, he can demand reimbursement from B in the
amount of P6,000.00.
b. How much may B be held li"able and by whom?
B may be held liable for the whole amount of
P10,000.00. However, since the creditors are joinfly
bound, X can collect from him not more than P7,000.00,.
and Y, not more than P3,000.00. After B has paid the
debt, ,he can demand reimbursement from A.in the
amount of P4,000.00.

4. Mixed solidarity
Here, either X or Y may collect from either A cr B the
whole amount of P'10,000.00. lf A is the one paying, he can
demand reimbursement from B in the amount of p6,000.00. lf
the B is the one paying, he can demand reimbursement from A
in the amount of P4,000.00. lf X is the one collecting, he must
give P3,000.00 to Y. lf Y is the one collecting, he must g.ive
P7,000.00 to X.

A and B are solidary debtors of X and Y, sotidary creditors, in the

amount of P20,000.00.
1. lf X renounces or remits the whole obligation without the consent
of Y, will the obligation be extinguished?
Answer; Yes, because fhe 'remission made by any
sotidary creditor extinguishes the whole obtigation. (Art.-1215)
However, X has to give Y's share of pl0,000.00 since a solidary
creditor may not do anything prejudiciat fo hrs co-sotidary
creditors. (Att. 1212) A solidary creditor who has caused the
extinguishment of the otbligation by remission, novaticn,
compensation or confusion, or who has coilected the debt, shall
OBLIGATIONS 43

be tiabte to the others for the shares corresponding to them.

(Att. 1215).

2. Suppose the remission of the whole oblig-ation was obtained by

A, may A demand reimbursement from B?
Answer: No, because the remission of the whole
obligation obtained by one of the solidary debtors .does not
entitte him to reimbirsement from his co-debtors (Art 122q,
remission being the gratuitous abandonment by the creditors of
their rights to the obligation.

3. suppose that X ren'ounces or remits A's share amounting to

ptb,OOO.OO.' However, it turned out that B had already paid
P20,000.00 to Y two days before. May'B stillcollect P10,000.00
from A rePresenting A's share?
Answer: Yes, B may stitl coltect frqm A P10,000'00'
The remission made by the creditor of the share which affects
one of the solidary debtors does not release the lafter from
responsibility to hii co-debtors, in case the debt has-been totally
paia oy anyone of them before the remission was effected. (Art.
1219)A,sremedywitlbetogoafterXorYtocollectthesumhe
paid to B.

A is indebted to X, Y and Z, solidary creditors, for P24,000.00.

Suppose X makes a demand against A, to whom shallA pay?
Answer; A must pay to X. lf A pays to another solidary
creditor, say Y, the sum of P24,000.00, the payment, as a rul9, is valid
only with respect fo Y's share of P8,000.00. Thus, if X and Z do not
receive their respecfiye shares from Y, A can still be held liable for
Pl6,000.00. (See Aft. 1214.)

A, B and C, solidary debtors, borrowed P30,000.00 from X' The

o6ligation is evidenced by a promissory note signed by the debtors
1. X demdnds payment from A. However' A pays only P12,000'00'
May X stillgo after B and/or C?
Answer; Yes, X may still go after B or C or both of
them fcr the batance of P18,000.00. The creditor may proceed
against any one of the sotidary debtors or some or all of them
simultaneousty. The ciemand made against one of them shall
not be an obstacle fo those which may subsequently be directed
44 OBLIGATIONS

against the others, so long as the debt has not beqn futty
collected. (Art. 1 21 6).

2. lf A pays X P30,000.00, what are the rights of A?

Answer: A can demand reimbursement from B and C at
Pl0,000'.00 each together with interest from the date of payment.
However, if payment'is made by A before due date, he cannot
ccillect interest during the interuening period, i.e., from date of
payment to due date. (Art. 1217)

3. A pays X P30,000.00. However, C has become insolvent. How

. much may A demand from B as reimbursement?
Answer: A may demand p15,000.00 from B. lf an
insolvent debtor cannot reimburse his share to the debtor who
paid the obligation, such share shatt be borne by att his co
debtors, in proportion to the debt of each. (Att. 12i7). Thus, A
and B shall bear C's share at p5,000.00 each.

4. lf A pays X P30,000.00 more than 10 years after the note had

become due, can he still demand reimbursement from B and C?
Answer: No, he can no longer demand reimbursement.
Payment by a soridary debtor after the obrigation has prescribed
does not entiile him to reimbursement. The sarne rule applies if
payment is made after the obrigation has become iltegai (Att.
1 21 B).

A, B, c and D are solidarily riabre to X for the delivery of a specific

ring valued at P20,Q00.00. What is the rute if the ring iS iost:
1. through a fortuitous event?

2. through the fault of D?

Answers:
1. The obligation shatt be extinguished. (Art. 1221) rhrs rs
according to the rule that no person shail be resp'onsibte for
fotiuitous events.
2. Att the solidary debtors shail be tiabte for the payment of the
price of the ring prus damages and interest.' irowever, the
i
solidary debtor making the payment can recover what he has
paid from the guitty debtor. Thus, if X goes after A and A pays l

l
the price of the ring, and the ddmages and interest, , A can I

I
OBLIGATIONS 45

demand reimbursement of P20,0A0.00 plus damages and

interest from D, the guilty or negligent debtor. (See Art. 1221)

Existence of solidarity despite different periods and conditions

Solidarity exists although the creditors and the debtors may not
be bound by the same periods and conditions (Art. 1211)
Example: A, B and C are solidarily liable to X for P9,000.00.
The parties stipulated that the share of A is payable on demand; the
share of B on Christmas day next year; and the share of C, if X passes
the Bar Examination.
X may demand payment of the share of A of P3,000.00 anytime
from either A, B or C. On Christmas day next year, X may demand
payment of the share of B of P3,000"00 from either A, B or C. When X
passes the Bar Examination, he may demand payment of the share of C
of P3,000.00 from either A, B or C.

Effect of unauthorized assignment of creditor's right

The solidary creditors are bound by mutual trust and confidence.
Hence, a solidary creditor cannot assign his right to a third person
without the consent of the other solidary creditors (Art. 1213) because
the assignee may not enjoy the trust and confidence of the non-
assigning creditors.
lf the assignment is without the consent of the co-creditors, the
assignment is not valid as to them. Accordingly, they can recover their
respective shares from the assigning creditor in case the assignee who
collected the debt fails to give them their shares

Defenses available to solidary debtbrs

1. Those derived from the nature of the obligation (such as
prescription of the obligation, illegality of cause)

2. Those personal to the debtor being sued, or those that pertain to

his own share (such as incapacity of the debtor or non-fulfillment
of a suspensive condition as to his share).

3. Those personal to the other debtors with respect to their own

share (such as incapacity qf another debtor or non-fulfillment of a
suspensive condition with respect to the other debtors' shares).
46 OBLIGATIONS

Joint indivisible obligation, concept and characteristics

A joint indivisible obligation is an obligation where the debtors or
creditors are jointly bound but the prestation or object is indivisibte. lt
has the following characteristics:
1. The creditors must act cgllectively, meaning, all of them must
make the demand unless one is spegificaliy authorized to act for
the others. (Art. 1209) A demand made by one or some but not
all of the creditors will not be effective.

2. The demand rnust be made against all the debtors since

compliance is possible onty if they act together. (Art. 1209)
3. The right of the creditors may be prejudiced only by their
collective acts. Thus, a renunciation made by a joint creditor
extinguishes only his own share. The obligaiion, however, is
converted into an obligation to pay the value of the thing. lf all
joint creditors make the renunciation, the obligation is
extinguished. (Art. 1209)
4. lf one of the debtors does not comply with his undertaking, the
obligation is converted into a monetary obligation to pay
damages. The debtors who may have been ready to comply
shall not contribute to the indemnity beyond the coiresponOin!
price of the thing or the value of thb service in which the
obligation consrsts. (Att. 1224)
5. lf one of the debtors is insolvent, the others shall not be liable for
his share. (Art. 1209)

lllustration
A, B and C are jointly indebted to deliver a specific car valued at
P900,000.00 to X, Y andZ.
1. X, Y andZ must make a demand againstA, B and C forthe
delivery of the car.
2. lf A is not ready to comply with his undertaking, the obligation to
deliver the car is converied into an obligatioi to pay its value
plus damages. B and C shall be obliged to pay P3O0,OO0.O0
each. A, the defaulting debtgr, shall be liable for p30O,OOO.0O
plus damages.

3. lf A is insolvent, B and c shall be liable only for their respective

share of P300,000.00 each.
OBLIGATIONS 47

4. lf X renounces his right to the obligation without the consent of Y

and Z, then only his proportionate share is extinguished. The
obligation, however, is converted into a monetary obligation to
pay P600,000.00 which rnust be given to Y at P300,000'00 and
Z at P300,000.00 by A, B and C who will give P200.000.00 each-

lndivisibility and solidarity, concept and distinctions

The indivisibility of an obligation refers to the subject matter or
object not being susceptible of partial performance. Solidarity, on the
other hand, refers to tie between the parties. One therefore, does not
imply, or give rise, to the other. (Art. 1210) Thus, there may be the
following obligations:

1. Joint divisible obligation

Example: A and B are jointly obliged to C to construct a

pavement 2 meters wide and 10 meters long.

2. Joint indivisible obligation

Example: A and B are jointly obliged to give a specific
horse to C.

3. Solidary divisible obligation

Example: A and B are solidarily liable to pay C
P10,000.00 in two equal installments.

4. Solidaryindivisibleobligation.
Example; A and B are solidarily liable to give a specific
horse to C.

Divisible and lndivisible Obligations

Divisible and indivisible obligations, concept

A divisible obligation is one capable of partial performance (such
as the obligation to deliver 10 sacks of rice). The following obligations
are deemed divisible (Art. 1225):
1. When the obligation has for its object the execution of a certain
number of days of work (such as an obligation to work for 1
week).
48 OBLIGATIONS

2. When the obligation has for its object the accomplishment of

work by metrical units (such as the obligation to construct a
pavement which'is 10 meters long and 2 meters wide).
.)
Analogous things which by their natur.e are susceptible of partial
performance

. An indivisible obligation is one not capable of partial performance

(such as the obligation to deliver a specific car). The following
obligations are deemed indivisible (Art. 1225):,
1. Obligations to give definite things (such the obligation to give a
specific horse).
2. Those not susceptible of partial performance (such as the
obligation of a singer to sing orie song in a program).
3. Those where the object or service is physically divisible but it is
indivisible by provision of law (such as where the obligation is to
pay a sum of money but the law provides that the sum must be
paid in full as in the base of certain taxes).
Those where the object or service is physically divisible but it is
indivisible by the intention of the parties. (such as where the
obligation is to pay a sum of.money but the parties agreed that
the sum must be paid in full).

Obligations with a Penal Clause

Obligation with a penal clause, concept

An obligation with a penal clause is one which provides for a
greater liability on the part of the debtor in case of non-compliance. The
accessory undertaking on the part of the debtor is called 'the penal
clause.
Example: D is obliged to construct a commercial building for C
within a period of three months. The parties agreed that should D fail to
finish the construction of the building within the said period, D shall pay C
P1,000,00 for every day of delay as penalty.
i

Function of penal clause

A penal clause is attached to an obligation in order to insure
performance and has a double function:
1. To provide for liquidated damages, and
OBLIGATIONS 49

2. To strengthen the coercive force of the obligation by a threat of

greater responsibility in the event of breach. (Florentino vs.
Supervalue, lnc., G. R. No. 172384, September 12,2007)

Proof not required for actuat damages suffered if thbre is a penalty

Proof of actual damages suffered by the creditor is not
necessary in order that the penalty may be demanded. (Art. 1228) The
obligor is bound to pay the stipulated indemnity without the necessity of
proof of the existence and the measure of damages caused by the
breach. (Florentino vs. Supervalue, lnc., supra)

Kinds of penal clause

1. Legal and conventional
a. Legal- lmposed by law.
b. Conventional * lmposed by the agreement of the parties.
2. Subsidiary and joint
a. Subsidiary - When only the penalty may be enforced.
b. ' Joint - When both the obligation and the penalty may be
enforced.

Rute in case obligation has a penal clause

General rule: The penalty takes the place of the damages and
interest in case of non-compliance.
Exceptions, i.e., aside from the penalty, damages and interest
may also be demanded:
1. When there is a stipulation to that effect.
A stipulation for the payrnent of interest and penalty
apart from interest in case ol delay is not.contrary to law, morals,
good customs or public policy. (Nicolas vs. DefNacia
'CIorporation,,,G. R. No. 158026, April 23, 2008) For as long as
the amounts stipulated are not exorbitant, not unconscionable or
cpntra,ry to morals and public policy, the court will sustain the
amounts agreed upon because obligations arising from contracts
have the force of law between the parties and should be
complied with in good faith. [Pryce Corporation vs. Philippine
Amusement and Gaming Cor,p., 458 SCRA 164 (2005)l
2. When the debtor refuses to pay the penalty.
50 OBI.IGATIONS

3. When the debtor is guilty of fraud in the performanqe of the

obligation. (Art. 1226)
This is so because there is no waiver of an action for
future fraud. (Art. 1 171)

D is obliged to delir,er 10 sacks of rice to G on May 10. The parties

agreed that if D fails to deliver on due date, he will pay a penalty of
P500.00.
I

1. Supposing that D failed to deliver on due date, may he just pay

the penalty of P500.00?
Answer: No, because the debtor cannot exempt himself
from the pefformance of the obligation by iust paying the
penatty, except when this right has been expressly reserved for
him. (Att. 1227)
2. May C demand the delivery of 10 sacks of rice and the payment
of the penalty at the same time upon.default of D?
Answer: No. The creditor cannot demand fulfillment of
the obligation and the payment of the penalty at the same time
except when this right has been clearly granted to him, or if after
requiring fulfillment of the obligation; the performance thereof
becomes imposgible without his fault, he may also,enforce the
penalty. (Art. 1227) i
When the court may reduce the penalty
1. When the obligation has been partly complied with by the debtor.
2. When the obligation has been irregularly complied with by the
debtor.

3. When the pen4lty is iniquitous or unconscionable even if there

has been no peiformance. (Art. 1229)

Effect of nullity of principal obligation, penal clause -

1. The nullity of the principal obligation carries with it the nullity of

the penal clause. This is so because the penal clause, being just
an accessory undertaking, cannot stand by itself.
2 The nullity of th1e penal clause does not carry with.it that of the
principal obligation. This is so because the principal obligation
can stand by itself.
 OBLIGATIONS 51

EXTINGUISHMENT OF OBLIGATIONS

Gauses of extinguishment of obligations

1. Payment or pierformance

i
2. Loss of the thing due
3. Condonation or remission of the debt
4. Confusion or merger,of rights of creditor and debtor
5. Compensation
6. Novation
7. Annulment
8. Rescission
9. Fulfillment of resolutory condition
10. Prescription
11. Other causes

Payment or Performance

Meaning of payment
Payment means not only the delivery of money but also the
( rl. 1232)
performance, in any other manner, of an obligation.
Thus, if the obligation is to paint a portrait, payment consists in
the performance of the service. Or if the obligation is to deliver a pertain
ring,paymentconsistsinthedeliveryofthething.
.'
How must the payment be made
1. There must be delivery of the thing or rendition of the service
that was contemplated.
: e. The debtor 6t a tning cannot compel the creditcr to
accept a diiferent one although the latter may be of the
same value as, or more valuable than that which is due.
(Art.1244)
Example; D is obliged to give C a Seiko
wristwatch. D cannot compel C to accept a Rolex
52 OBLIGATIONS

wristwatch even if the latter is more valuable than a

Seiko.
b. ln obligations to do or not to do, an act or forbearance
cannot be'substituted by another act or forbearance
against the obligee's will. (Art. 1244)
Examples: (1) D is obliged to paint C's car. He
cannot substitute it with an obligation to paint C's house.
(2) D borrowed P10,000.00 from C. C gave D one year
to pay provided D must not enter a casino before he has
paid the debt. D cannot ask C that the "obligation not to'
enter a casino" be substituted with "not to drink and
smoke" during the term of the loan.
c. ln obligations to give a generic thing whose quality and
circumstances have not been stated, the creditor cannot
demand a thing of superior quatity. Neither can the
debtor deliver a thing of inferior quality. The purpose of
the obligation and other circumstances shall be taken
into consideration. (Art. 1246)
Example: D is obliged to give C 50 yards of
textile. C cannot cornpel D to deliver first class wool
textile. Neither can D deliver to C a textile that shrinks
substantially at first wash. lf C happens to be engaged
in the sale of student uniforms, then D may give C the
kind of textile fit for that purpose.

lf the obligation is a monetary obligation, the payment

must be in legat tender.
Legal tender, concept
Legal tender is the money or currency which the
debtor maj compel his creditor to accefi in payment of
his debt (whether public or pflvate)"' .
Medium of payment
Payment of debts in money must be made in.the
currency which i5 legal tender in .the Philippiries.
However, the parties may stipulate that'the payment
may be made in currency othrir than Philippine legal
tender at the time of payment. (R. A. 8183)
Under Section 52 of Republic Act No. 7653 (The
New Central Bank Act) as adjusted by Monetary Board
 53
oBLTGATIONS

Resolution No. 862 dated July 6, 2006, the following are

legaltender in the PhiliPPines:
1) One thousand pesos lP1 ,000'00) - tor
denominations of 1-Piso, S-Piso and 10-Piso
coins.
2) One hundred Pesos (P-100'00) for
denominations of 1-sentimo, S-sentimo, 10-
sentirno, and 2S-sentimo coins'
3) All bills are legaltender up to any amount'
Inftation and deflation, concept; value to be used when
payment is made
lnflation is the increase in the currency in
circulation or a marked expansion of credit, resulting in
a fall in currency value, and a sharp rise in prices'
(Webste/s Dictionary and Thesaurus). lt is the opposite
of deflation, or the sharp sud{en decrease of money or
credit or both without a corresponding decrease in
business transactions.
ln case an extraordinary inflation or deflation of
the currency should supervene, the value of the
currency at the time of the establishment of the
obligati6n shall be the basis of paym-f, unless there is
an agreement to the contrary. (Art. 1250)
Example: D borrowed P1,000,000.00 from C
payable at the end of 10 Years.
1)
' Suppose that before maturity of .the loan, an
extraordinary inflation Supervened causing the
value of the debt to fall to P500,000.00 on fhe
date of maturity," how much must D pay C 9t
maturity?
2) .$uppos-e Jhat before' maturity,of the fqan*. an
lxtraordiriary Oefa.tiqn superyened causing the
value of ttre debi to ri6e to P3,000,000.00 on the
maturity date of the loan, hsw much must D pay
C at maturitY? .

The answer for each can be determined by

using the following formula:
54
OBLIGATIONS

A = (BiG)xB
Where:
A = Amount to be paid at maturity
B = Amount of the obligation
C = Value on the date of maturity
Thus:
1) Extraordinaryinflation
A = (P1,000,000.00/p500,000.00) x
P1,000,000.00
= 2xp1,000,000.00
. = P2,000,000.00 (equivalent value of
P1,000,000.00 on
tre date of maturity)
2) Extraordinarydeflation
A = (P.1,000,000.00/p4,000,000.00) x
P1,000,000.00
= P250,000.00 (equivalent value of
P1,000,000.00 on the date of maturity)
When extraordinary inflation (or deflation) exrsfs
ln order that the effects of extraordinary inflation
(or deflation) are to be apprieJ, f'"r" rnorrd
an officiar
pfonounssrnent or declaration by competent
authorities
of extraordin"rv inri"t,.on (or deftation)
:1ff
ounng :r:j_"lgl
gtven period. (Almeda vs. Bathaia
.a Marketinj
lndustries, lnc., G.R. No. 150g06, .lanuary 2g,
200g.i "
Delivery of mercantile documents
The delivery- of promissory notes payable to
^-r^_ or bills of
oroer, exchange or other mercantile
produce tne-enect oi paymu.i-;;ii
,l,?^y5l5,shail,
w-nen they have been cashed or when through
- the fault I
of the creditor they have been impaireJ.
1,Art. n+ey
Check not legattender
A check is not. legal tender and, therefore,
cannot constitute a valid tender of payment.
Since a
negotiable instrument is only a suOstiiut6 for
money, and
not money, the derivery of iuch inriiur"nt does not
"n
OBLIGATIONS 55

by itself, operate as payment. The obligation is not

extinguished and remains suspended until the.payment
by c5mmercial document is actually realized.'(Bank of
the Philippine lslands vs. Sps. Royeca, G'R. No.
176664, July 21, 2008)

2. The payment or performance must be complete (Art' 1233)' The

following are the excePtions:
a. lf the obligation has been substantially performed in
good faith,lhe obligor may recover as though there had
b-een strict and complete fulfillment, less damages
suffered byihe obligee. (Art. 1234)
Example: S agreed to deliver 20 fire
extinguishers to B. After S has delivered 1B fire
extinguishers to B, there are no more fire extinguishers
availibte. Ue wants to complete the delivery but there is
no more stock available. S can recover the cost of 20
fire extinguishers less damages cuffered by B.
b. When the obligee accepts the performance knowing its
incompleteness or irregularity, and without expressing
any piotest or objection, the obligation is deemed'fully
complied with. (Art. 1235)
Example: D agreed to repair the car of C and to
paint it red. D repaired the car but painted it maroon. C
accepted the car without any objection. D's obligation is
fully complied with notwithstanding the irregularity of the
performance

When partialpayments may be made

The creditor cannot be compelled to receive, and the
debtor cannot be compelled to make, partial payments, except:
a. When there is an agreement to that effect. (Art. 1248)
However, the payment must still be made in full
at some future time in accordance with the agreernent,
to extinguish the obligation.
b. When the debt is in part liquidated (i.e., the amount is
fixed) and in part unliquidated, the creditor may demand
and the debtor may effect the payment of the former
without waiting for the liquidation of the latter. (Art
1248)
56 OBLIGATIONS

The unliquidated part, once it is finally

determined, must also be paid, to extinguish the
obligation.

Who must make the payment

Payment must be made by the debtor who must possess the
following:
1. The free disposal of the thing due.
Free disposal of the thing due rneans that the property
delivered should not be subject to any claim by, or t
I
encumbrances in favor of, third persons. *

*
Thus, if a property mortgaged is used as payment by the
debtor to a creditor other than the mortgagee, the payment is not
valid. The said property can be made to answer for the debt
' secured in case of foreclosure of the mortgage.
2. The capacity to alienate the thing.
The debtor must not be incapable of giving consent.
Effect on payment in obligations to give if debtor does not have
free disposal and capacity to alienate
The payment shall not be valid except in cases provided
by law (Art. 1239).lf the payment is made, the guardian of the
' incapacitated person (during the incapacity), or the incapacitated
. person himself when he regains or attains his capacity, may
seek the annulment of the payment. (Art. 1397) ln case the
debtor does not have the free disposal of the thing due, the
injured party may seek,to recover the payment.
Payment. made by the debtor after court has ordered him to
retain debt
Payment made to the creditor by the debtor after the:
debtor has been judicialty ordered to retain the debt shallhot be
1243)
valid. (Art. The court oreler is known as
garnishment.
Example: D owes C p00,000.00. , On due date, C
demands payment but D cannot pay. C, however, learns that D
has a receivable from X so he files a court action against D and
asks the court to order X not to make any paynneit to D. The
court issues the order. lf X pays D, the piyrirent will not be
vafid because there is an order of retentioh from the court.
OBLIGATIONS 57

Should the court favor C in its judgment in the case filed by C

against D, X can be required to pay again, this time to C.
Payment by a third person
The creditor is not bound to accept payment or
performance by a third person except in the following cases:
a. When there is a stipulation to that effect.
b. When the third person has an interest in the fulfillment of
the obligation such as a guarantor or a co-debtor. (A(,
1236)
Example: D borrowed P20,000.00 from C with
G as guarantor. G, as a person who has an interest in
the fulfillment of the obligation, may compel C to accept
' the payment from him.
Rrghts of a third person who makes the payment
a. Payment with knowledge and consent of the debtor
1) He can recover what he has paid. (Art' 1236)
2) He is entitled to be subrogated in the rights of
the creditor such as those arising from
mortgage, guaranty or penalty. (Att' 1237)
Example:
D owes C P10,000.00. The obligation is
secured'by a mortgage of D's lot T, a third person' pays
C the amount of P10,000.00 with the consent of D. T
can recover the amount of P10,000.00 from D. lf D
cannot pay, T, having been subrogated in the rights of C,
can foreclose the mortgage.
b. Payment without the knowledge or against the will of the
debtor
He can recover only insofar as the payment has
been beneficial to the debtor. He is not entitled to
subrogation. (Arts. 1236 and 1237)
Example: D borrowed P20,000.00 from C with
G as guarantor. D pays C P2,000.00. T, a third person,
pays C P20,000.00 believing that D still owed C
P20,Q00.00. The payment is without the consent of D-
ln this case, T can only recover P18,000.00 from D, the
amount that was beneficial to D. lf D cannot pay, T
58 oBLtcATtoNls

cannot go after G because he is not entifled to be

subrogated in the rights of C.
Payment by a third person who does not want to be reimbursed
a. The payment shall be deemed to be a donation which
requires the debtor's consent.
b. lf the debtor does not consent, the payment shall
nevertheless be valid to the creditor who has accepted it.
(Art. 1238) ln such a case, the third person can only
recover insofar as the payment has been beneficial to
the debtor; he is also not entifled to subrogation. (Arts.
1236 and 1237)

To whom shall payment be made

1. To the creditor (the person in whose favor the obligation has
been constituted)

2. To the creditor's successors in interest. such as his heirs or

assigns
To any Berson authorized to receive payment
Payment to an incapacitated creditor
The creditor must be capacitated to receive the
payment. Payment to an incapacitated creditor is not valid
except in the following cases:
a. lf has kept the thing delivered.
Example: D borrowed p10,000.00 from C. On
due date, D paid the debt to C who had become insane.
lf C kept only P4,000.00 and threw away p6,000.00,
then payment will be vatid only up to p4,000.00.
b. lnsofar as the payment has been beneficial to him. (Art.
1241)
Example: ln the above example, if C used
P3,000.00 to buy his food, and lost the balance,
payment will be valid only up to p3,000,00, the amount
beneficialto him.
Payment to an unauthorized third person
As a general rule, payment to an unauthorzed thir:d
person is not valid, except in the following cases:
 59
OBLIGATIONS

a. lf the payment hds redounded to the benefit of the

creditoi, which benefit need not be proved in the
following cases ( tt.1241)'.
1) lf after the payment, the third person .acquires
the creditor;s rights (such as when the third
nne e or th e i n stt'u m e n t
ff fi:1"i"?i#:?j: ;)'"*
2) I^lf creditor ratifies the payment to the third
person.
3) . lf by the creditor's conduct, the debtor has been

LT' :l'.i :l"f.Jlli ffi

:1i"' t3ii?l I' Tfi :' :
water iervice company gives a collector's
"

uniform to a third person who is not its employee

and the debtor gives his payment to such third
person believing that he
is the authorized
collector).
b. lf the payment is made in good faith to a third person in
possession of the credit. (Atl' 1242)
[n thig case,.the third person should be both in
possession of the instrument and the credit'
Example: M makes a note payable to bearer
and delivers it to p. The note, however, is lost by P and
is picked up by A' A goes to M to collect on the note' M
pays A Oetieving in good faith that A is the intended
bearer, M is released from liability'

Where payment must be made

1. lf there is a stipulation, then in the place designated'
2. lf there is no stiPulation -
a'lftheobligationistogiveadeterminatething,wherever
the thing might be at the time the obligation was
constituted.
b.lftheobligationistogiveagenericthingoran.obligation
to do, then at the domicile of the debtor' (Art' 1251)
t
!
i Special forms of PaYment
t
II
1. Dation in PaYment
t-

t
60 OBLIGATIONS

2. Application of payment '

3. Payment by cession

4, Tender of payment and consignation

Dation in payment, concept

Dation in payment (dacion en pago, adjudicacion en pago or
datio in solutum), is a special form of payment where the ownership of
property is transferred to his creditor to pay a debt in money. (Ad.. 1245)
It is governed by the law of sales since it partakes in a sense the nature
of a sale with the creditor: in effect buying the property of the debtor.
What actually takes place in dacion en pago is objective
novation of the obligation where the thing offered as an "an
accepted
equivalent of the performance of an obligation is consider_ed as the
object of the contract of sale, while the debt is considered the purchase
price. ln any case, common consent is an essential prerequisite, be it
sale or novation, to have the effect of totally extinguishing ifre debt or
obligation. (Banco De Oro Universal Bank vs. Laigo, G.R. No. 173856,
November 20, 2008.) (A similar ruling was earlier hetd in Bank of the
Philippine lslands vs. Securities and Exchange Commission, G.R. No.
164641, December 20,2007 .)
Example: D owes C P10,000.00. On due date, D proposes to
C to accept a ring.in payment of D's debt of P10,000.00.. C agrees to
D's proposal and accepts the ring. D's monetary obligation is
extinguished by dation in payment.

Application of payment
1. Concept
It is the designation of the debt to which payment shall
be applied when the debtor owes several debts in favor qf the
same creditor. (Art.1252)

Requisites of application of payment

a. There must be two or more debts.
b. The debts must be of the same kind.
c The debts are owed by the same debtor to the same
creditor.
d. All debts are due, except:
OBLIGATIONS 61

1) When the parties have stip.ulated that payment

. may be applied to a debt not yet due, or
2) When the application is made by the party for
whose benefit the term has been constituted.
(Ar1.1252)

3. How apPlication is made

a. The debtor who is given the preferential right to apply
the payment designates the debt tq be paid'
b.lfthedebtordoesnotmakethedesignation,thecreditor
makes it by indicating the debt being paid in his receipt'
.lf the debior accepts the receipt from the creditor, the
: debtor cannot complain unless there is a just cause of
invalidating the contract.
c. lf neither the debtor nor creditor makes the designation,
or application cannot be inferred from the.circumstances'
payment shall be applied by operation of law as follows:
1) Payment shall be applied to the debt, among
those due, which is the most onerous to the
debtor.
2) lf the debts are of the same nature and burden'
due debts
3ilS"J:.:[lJ ffi*ii'ilT,!uo]"
Note: ln all instances, if the debt produces interest, payment of
the principal shall not be deemed to have been made until'the
interests have been covered. (Art. 1253)
lll,tstration 1.

May 1, P1,000.00 due on May 5, P1,000.00 due on,May 10,

pt,OOO.OO Oue on May 15,. and P1,000.00 due on May 20.

a. lf today is May 16, and D has only Pl,000.00 but wants

to pay C, D may apply the payment to any of the debts
due on May 1, May 5, May 10 or May 15. He cannot
apply the payment to the debt due on May 20 because it
is not yet due unless he is allowed by stipulation with C
or the benefit of the period was given to him (D).
b lf D does not apply the payment, the right to apply it is
shifted to C. C may apply the payment to any of the
debts due on May 1, May 5, May 10 or May 15. He
62 OBLIGATIONS

cannot apply the payment to the debt due on May 20

because it ts not yet due uflless he is alloweci Oy
Stiputation with D or the oenefit of the period was given
to hm (C).
c. lf neither D nor C applies the pqyment, payment shall be
applied proportionalely to the debts due on May 1, May
5, May 10 and May 15 at p250.00 each. ln. tase the
debt due on May S is secured by a pledge, then payment
shall be applied to such debt because it is the most
onerous to D.
lllustration 2:
D owes C P7,000.00 due on May 1, 5 sacks of rice worth
P5,000.00 on May 5; and p5,000.00 du-e on May g. lf none of
the debts have been paid as of t*ay g and D has pS,0@.00, D
cannot apply the payment to the debt consisring of 5 sacks of
rice because it is not payable in money, i.e., it is-of different kind.
D may not apply the payment to the debt due on May 1 because
the payment would not be complete unless C consents, D may,
however, apply the payment to the debt due on May g.

Payment by cession
1. Concept
Payment by cession is the abandonment or assignment
by the debtor of arl his property in favor of his creditors so that
the latter rnay sell them and recover their craims out of the
prcjceeos. (Art. 12OS)
The cession or assignment operates only to authorize
the creditors to seil the debtor's property, hence, ownership is
not transferred to them. Unless agreed upon,.the cessron
releases the debtor from his responsibility only to the extent of
the net proceeds of the things assigned. (Art. t2SS)

Kinds of payment by cession

a. - Votuntary or conventional - Agreed upon by the parties.
b. l-egal- Cession by operation of law.

3. Requisites of payment by cession

a. There must be two or more creditors.
b. The debtor is insolvent.
OBLIGATIONS 63

c.Thedebtorabandonsallhispropertiesexceptthose
' which are exempt from executi-on'
d. The creditors accept the abandonment'
lllustration:frqwesX,P50;000.00;Y,P20,000'00;and
Z,P30,000.O0.AlltheobligationsareouebutDhasassets
worthPB0,000.00oq|y.Dofferstoassi$nhisassetstoX,Yand
Zsottrattheymaysellthemandapplytheprgceedstotheir
respective ctaims, i, Y and Z accept the offer. If the assets are
sotd for 70,000.00, then D will b9 released from nis obtigations
only up that amount, unless the creditors agreed tb release him
completelY of his debts

Payment by cession and dation in payment distinguished

Payment bY cessfon Dation in pry4gl!__

1. There must be two or 1. Plurality of creditors is not
more creditors. required.
2. The debtor is insolvent. 2. The debtor ,'nay not be
insotvent.
3. Affects all the debtor's 3. Does not affect all the
proPertie+ excePt those debtor's PIUPenles.
exemPt frorn execution.
4. The creditors are 4; The oeditor becomes the
authorized to sell onlY the owner Of the ProPerties
debtor's ProPerties. giverras Paymen1
5. The debtor is not re,leased 5 The debtor is released as
as a rule. a rule.

Tender of payment and consigftation

1. Concept
Tenddrr of payment is the act of the debtor of offering to
his creditor what is due him.
Consignation, on the other hand, is the act of depositing
the sum or thing due with the judicial authorities whenever the
creditor refuses without just cause to accept the same, or in the
cases when the creditor cannot acc,ept it.
tltustration af taader of payment and consignation'
D borrowed P50,000.00 from C. On due date, D
tendered payment in P20.00 brlls totalling P50'000'00 to C' C
refused to accept the payment dernanding that he be paid in
 et OBLIGATIONS

higher denominations. Since fhe payment tendered by D was

legal tender, C was not justified in refusing to accept ii. O may
thus consign the payment in court.

2. Requisites (steps; for tender of payment and consignation to

extinguish the obligation
a. There must be a valid tender of payment. (Art. 1256)
Thus, the payment being tendered must be the
thing contemplated, in legal tender, complete, among
other requisites for a valid payment.
b' The creditor refuses without just cause to receive the
pay'ment. (Art. 1256)
c The persons interestbd in the furfillment of the obligation
must be notified by the debtor of his intention to OElosit
the sum or thing due with the judicial authorities. (Art.
1256). The notice will enable the creditor, mortgigees,
guarantors, sureties, solidary debtors, arnong otheis, to
reconsider accepting the payment and avoid litigation.
The notice is also requireci to give the credit6r the
opportunity to accept the payment because the
expenses of consignation will be charged to him for his
non-acceptance of the payment.
d. The sum or thing due is deposited with judicial
authorities. (Art. 12SS)
e. The persons interested in the furfiilment of the obrigation
must again be notified by the debtor thal the
' consignation has been made. (Art. 1258)

3. Effect of consignation duly made

lf the consignation has been duly made, the debtor may
a9[ the judge to order the canceilation of the obtigation. ih;
obligation shall be extinguished after the creditor nis accepteo
the consignation or the judge has decrared that flre consigniiion
has been prciperty made. 1Art. tZOO)

4. Debtor's right to withdraw the sum or thing consigned

a' Before acceptance by the creditor of the consignation or
the declaration by the judge that the consign-ation has
been properly made -
OBLIGATIONS 65

The debtor may withdraw the sum or thing

consigned as a matter of right, i.e., the creditor's consent
is nofrequired. Such withdrawal produces the following
effects:
1) The obligation shall remain in force' (Art' 1260)
2) The co-debtors, guarantors' and sureties are not
released. (Art. 1261)
b. After acceptance by the creditor of the consignation or
the declaration by the judge that the consignation has
been ProPerlY made -
' The debtor may withdraw thti sum or thing
consigned only with the consent of the creditor' Such
withdrawal produces the following effects:
1) The obligation shallbe revived. (Art' 1260)
2) The creditor shall lose every preference which
he maY have over the thing.
3) The guarantors, and sureties are released
unless they consented. lf there are several
debtors and their obligation is solidary, such
obligation'will become a joint obligation'
Thus, th-e creditor can no l9q9er
proceed against the guarantor or surety if later
on the debtor cannot pay. As regards the co-
debtors, they are not released from liability they
being principal debtors. Their obligation
becomes joint if it was previously solidary'

E When consignation, without a previous tender of payment, will

produce the same effect
a. When the creditor is absent or unknown or does not
appear at the Place of PaYment.
b. When he is incapacitated to receive the paynnent.at the
time it is due.
c. When, without just cause, he 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' (Art.
1256)
66 OBLIGATIONS

Loss of.the Thing Due

Loss, concept
A thing is considered lost when it perishes, or goes out of
commerce, or disappears in such a way that its existence is--unknown or
it cannot be recovered. (Art. 1 189, par. 2)
Loss includes the physical or legal impossibility of the service in
which the obligation consists.

Loss, effect on the obligation

1. Loss of a determinate thing
As a general rule, the loss of a determinate thing
extinguishes the obligation. (Art.
1262). The following are the
exceptions:
a. When the ioss is due to the fautt of the debtor. (Art
1262)
Loss of the thing while in the possession of the
debtor shall be presumed to be due to his fault, unless
proved otherwise. This presumption does not apply in
case of earthquake, flood, storm or other natural
calamity. (Art. 1265)
b. When the debtor has incurred in detay. (Art. 1262)
c. When so provided by taw, (Art. 1262) as when the
debtor has promised to deliver the same thing to two or
more persons who do not have the same intirest. (Art.
1 165)
d. When it is stiputated by the parties. ( rt. 1262)
e. When the nature of the obligation requires the
assumption of risk. ( tt. 1262)
f. When the debt proceeds from a criminal offense (unless
the person who should receive it refuses to accept it
withoutjustcause. (Art. 126g)

2. Loss of a generic thing

The loss or destruction of anything of the same kind
does not extinguish the o.bligation. inrt. -1263) because a
generic thing does not really perish (,,genus nunquam perit').
OBLIGATIONS 67

Exception: ln the case of a "detimited generic thing"'

,,10b of rice from my harvest this year" when
such as cavans
such harvest is completely destroyed.

3. Loss in personal obligations (obligations to do)

a. When the prestation becomes legally or physically
impossiblewithoutthefaultofthedebtor,theobligation
is extinguished' (Art. 1266)
b. W.hen the service has become so difficult as to be
manifestlybeyondthecontemplationoftheparties'the
obligor may ilso be released in whole or in part (Art'
1267).

Effect of partial loss

The courts shall determine whether under the circumstances, the
:partial losi of the object of the obligation is so important as to extinguish
the obligation. (Art. 1264).

Creditor's right if the loss is caused by a third person

lf the obligation has been extinguished by the loss of the thing'
have
the creditor shall have allthe rights of aetion which the debtor may
against third persons by reason of the loss. (Art 1269)
Example:Disobligedtogiveaspecificcarabao.toC.'Xsteals
the carabao and slaughteri it. Dts obligation is extinguistred. C has a
right to proceed agaiist X. Assignment of the by D to C is not
' required since it is the law that gives C the right. 'ight

Condonation or Remission

Condonation or remission, concePt

condonation or remission is the gratuitous abandonment by the
creditor of his right (4 sanchez Roman 422). ln plain 'To language, this
refers to the forgiveness of an indebtedness. extinguish the
obligation, it requires the debtor's consent. (Art. 1270)

Example: D owes C P3,O0O'00. The debt is evidenced by a

promissory note. c informs D that he will no longer collect the debt and
delivers the promissory note to D. D accepts c's generosity. D's
obligation is extihguished by condonation or remission.
 68
OBLIGATIONS

Kinds of condonation or remission

1. As to amount or extent
a. Total = When the total obligation (both principal and
accessory obligations) is remitted.
b. partiat Wf".n olly a part
-
accessoryobligation isremitted. "' -'
of the obligation, or
- onty the

2. As to form
a. Express - One made orally or in writing. lt must, to be
varid, compry with the formarities of dona"tion as foilows:
1) When the remission involves an immovable
property, the remission and the acceptance

[5'J;i','i J,' :[: Jf il'T " ll; o"nln I fiX?J:

and the value of the charges that ihe debtor
(donee) must satisfy. (Att.749)
2) When the remission involves a
movable/personal property _
a) lf the value of the property exceeds
P5,000.00, the remission and the
acceptance must be in writing (public or
private).
b) X..*il:l:'",?:,n",.:;:[",Hn''??.*rifll
h\ ti .L^.,-r.

acceptance may be in any form, i.e.,

oral or in writing (public or private). The
remission; nowever, if made orally,
requires the
simultaneous delivery of
ll''e !h1ng or the document representing
, the right remitted. (Art. 74S)
b' -
rmpried one inferred from the conduct of the parties,
such as when the creditor voruntariry derivers the private
document evidencing the cr-edit to tne oeoior. (Art
1271)

Presumption when private document evidencing debt

is found in
the possession of the debtor

. The private document is presumed to have been delivered

voluntarily by the creditor to the debtor (so as to remit
the obrigation)
 '69
OBLIGATIONS

unless the contrary is proved, (Art. 1272) Hence, there is no such

presumption if the document is a public document which is easily
available being a public record.

Presrimption when thing pledged after its delivery to the creditor is

found in the possession of the debtor or of a third person who
owns the thing
The accessory obligation of pledge is presumed remitted but not
the principal obligation. (Arl. 1274)

Effect of remission/renunciation of principal obligation on the

accessory obligation and vice-versa
1. The remission of the principal debt extinguishes the accessory
obligation (based on the accessory follows the principal rule).
2. The remission of the accessory obligation does not carry with it
that of the principal debt. (Art. 1273)

Confusion or Merger

Confusion or merger, concept

Confusion or merger is the meeting in one person of the qualities
or the characters of creditor and debtor, (Art. 1275)
Example: M makes a promissory note payable to P or order. P
indorses the note to A, A to B, B to C and back to M. The obligation
here is extinguished because M is now the creditor of himself.

Effect of merger when there is a guarantor

1. Merger which takes place in the principal debtor or creditor
benefits the guarantors. (Art. 1276) Here, both the principal
obligation and the guaranty are extinguished.
Example: M owes P 10,000.00. The debt which is
evidenced by a promissory note, is guaranteed by G. P assigns
the note to A, A to B, B to C, and C back to M. M's debt is
extinguished. G's guaranty is likewise extinguished since the
principal obligation it secures has been extinguished.

2. Merger which takes place in the person of the guarantor does

not extinguish the obligation. (Art. 1276) Here, only the
'guaranty is extinguished.
70 OBLIGATIONS

Example: lf in the immediately preceding example, C

assigns the note to G instead of M, G's guaranty is extinguished
because the qualities of debtor and creditor are merged in his
person. However, M's obligation is not extinguished. G, as the
new creditor, may stillgo after him.

Merger in a joint obligation.

Merger extinguishes only the share of the joint debtor or creditor
in whom the characters of debtor and creditor concur. ( ft. jzTT)
Example: A, B and C are joint debtors of X for p9,000.00. The
promissory note evidencing the debt is assigned by X to y, y to Z, and Z
to A. A's share of P3,000.00 is extinguished by the merger of
the
qualities of debtor and creditor in his person. B and c are still liable on
the note with A now as the creditor for P6,000.00.

Merger in a solidary obligation

Merger in one of the solidary debtors or solidary creditors
extinguishes the whole obligation. (Art. 1215) The sotidary debtor in
whom the characters of debtor and creditor concur can demand
reimbursement from his co-debtors. (Att. 1217) ln the case of the
solidary creditor, he shall be liable tp his co-creditors for the share
corresponding to each of them (1215).
Example: A, B and C are soliQary debtors of X for p9,000.00.
The promissory note evidencing the de6t is assigned by X to y, y to Z,
and Z to A. The whole obligation is extinguished by confusion with all
the debtors now being the creditors.'A may demand reimbursement from
B and C at P3,000.00. each.

Cempensation

Compensation, concept
Compensation is a mode of extinguishing an obligation when two
pgFons, in their own right, are debtors and creditors of each other. (Art.
1278)
Example: D owes C p5,000.00. C owes D p5,000.00. The
parties do not need to pay each other as their obligations are
extinguished by compensation.

Kinds of compensation
1. As to amount or extent
OBLIGATIONS 71

a. Total - When the debts are of the same amount' (Art.

1281)'
b. Partial - When the debts are of different amounts. (Art'
1281)

2. As to cause or origin
a. Legal - This takes place by operation of law and
extinguishes both debts to the concurrent amount (Art.
, 1279) even though the debts are payable at different
places (Art. 1286) and the creditors and debtors are not
aware of the compensation. (Art. 1290) l-egal
compensation operates even against the will of the
interested parties and even without their consent. Such
compensation takes effect, ipso iure (which means "by
the law itself'I, its effects arise on the very day on which
all the requisites concur. (See Nisce vs. Equitable
PClBank, lnc., G.R. No. 167434, February 19, 2007.)
It has the following requisites (Art. 1279):
1) That each one of the obligors be bbund
principally, and that he be at the same time a
PrinciPal creditor of the other.
Examples: (a) D owes C P5,000.00. C
owes D P5,000.00. Legal compensation takes
place because D and C are principal debtors
and'creditors of each other. (b) D owes C
P5,000.00 with G as guarantor. C owes G
P5,000.00. Legal compensation may not take
place between D and C because while D is a
principal debtor of C, C is not even a debtor of
D. Legal compensation may not . take place
between G and C because although C is a
principal debtor of G, G is only a subsidiary
debtor of C.
' Erception to first requisite
A guarantor may set up compensation
as regards what the creditor may owe the
principal debtor. (Art. 1280)
ExamPle: D olves C P5,000.00 with G
as guarantor. C owes D P4,000.00. On due
date; C demands payment from D but D no
72 OBLIGATIONS

longer has any assets so C goes after G. G

may set up compensation up to P4,000.00 so C
can collect from him P1,000.00 only.
2) That 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.
The term "consumable" actually refers to
things that are fungible or capabte of
substitution. Thus, there can be legal
compensation if 'D'ls obliged to give C a
fountain pen and C is obtiged to give D a
fountain pen," since the objects, being generic,
are fungible although not consumable.
However, there can be no legal compensation if
" D is obliged to give C a specific Parker fountain

pen and C is obliged to give D a specific Cross

fountain pen," because the objects are not
capable of substitution.
3) That the two debts be due.
The.maturity date of both debts must
. have arrived for legal compensation to take
place. Here, it is not required that both debts
have the same due date.
4) That both debts be liquidated and demandabte.
"Liquidated" means the amount of the
debts has already been determined or is easily
determinable. On the other hand, "demandabler,
means both debts must be enforceable, so if
one of them has prescribed, legal compensation
cannot take place.
5) That over neither of them there be any retention
or controversy commenced by third persons and
communicated in due time to the debtor.
Example: D owes C p10,000.00. C
owes D P10,000.00 C also owes X'p10,000.00.
X sues C and asks the court to order D not to
pay C so that in the event the court renders
judgment in favor of X, D wilt have to pay X. The
court issues the order to D. There can be no
OBLIGATIONS v3

legal compensation between D and C because

there is an order of retention to D with respect to
his debt to C. (See Art.1243)
b. Voluntary or conventional - This takes place by
agreement of the parties, such as when they agree to
the compensation of debts which are not yet due. (Art.
1282)
Example:
D owes C P5,000.00 due on September 20,
2010, while C owes D P5,000.00 due on September 30,
2010. On September 1, 2010, for instance,.D and C 4
may agree that their debts be compensated. 1:

Judicial (or set-off) - This is compensatron ordered by

the court. ln Art. 1283, if one of the parties to a suit over
an obligation has a claim for damages against the other,
the former may set it off by proving his right to said
damages and the amount thereof.
.t
Example:
T, a travel agent, sued P for collection of
P10,000.00 representing the balance of P for a guided
tour in Bangkok which T arranged. ln his answer, .toP
claimed that T owed him damages amounting
P10,000.00 which he (P) and lis family sustained as a
result of the substandard hotel accommodations that T
booked for them. P was able to prove his'right to said
damages and the amount thereof. Any compensation
declared by the court in this case is one of judicial
compensation.
d. Facultative This is compensation that may be claimed
-
or opposed by one of the parties (such as when not all
the requisites for legai compensation are present).
Example: D owes C P5,000.00 which is due
and payable on September 1, 2010, while C owes D
P5,000.00 which is due and payable on or before
September 30, 2010. On September 1, 2010, C may
claim compensation because he was given the benefit of
the period, i.e., he may choose to pay on or before
September 30, 2010. Should D claim compensation on
September 1,2010, C has the right to oppose it because
74 OBLIGATIONS

he cannot be compelled, although he may opt to pay,

before September 30, 2010.

Following are instances of

facultative
compensation (bLcause legal compensation cannot take
place)

1) When one of the debts arises from a deposit.

( rt. 1287). A deposit is a contract where a
person receives a thing belonging to another for
safely keeping it and of returning the same. (Art.
1962) The depositor may claim compensation,
or oppose one that is being claimed by the
depositary. The deposit referred to here is
different from a bank deposit which is actually a
contract of loan. ln a bank deposit, the bank
and its client have a debtor-creditor relationship.
Either one therefore may claim compensation.

Example: C is the depositary of D's

ring. Previously, D made a promise to give a
ring to C. lf D demands the return of the ring he
deposited with C, C cannot refuse to return it by
claimlng that D owes him a ring. However, if C
demands the delivery of a ring from D as D had
promised, D may, at his option, set off the claim
of C against his own claim for the return of the
rinE he deposited with C.

2) When one of the debts arises from the

obligations of a bailee in commodatum. (Art.
1287) Commodatum is a contract whereby the
bailee acquires the use without compensation
of the thing loaned but not its fruits. (Art. 1935)
Here, the lender may claim compensation, or
oppose one that is being claimed by the
borrower.

Example: C borrowed D's bicycle. D

has bicycle to G. lf
a promise to give a D
demands the return of the bicycle he lent to C, C
cannot refuse to return it by claiming that D
owes him a bicycle. However, if C demands the
delivery of a bicycle from D as D had promised,
D may, at his option, set off the claim of C
OBLIGATIONS 75

against his own claim for the return of the

3) il'J"'j"j::'::'i:::H l,',", from a c,aim for

support by gratuitous title. ( ft. 1287') The
support referred to here is future support, not
support in arrears. (Art. 301) The party entitled
to receive support may claim compensation, or
oppose one that is being claimed by the party
required to give support.
Example: H, husband, was grdered bY
the court in a case of legal separation to give a
monthly support of P20,000.00 to W, his wife. H
has not yet given the amount to W for the
present month. On the other hand, W owes H
P20,000.00 by way of loan. W may claim
compensation but not H.
4) when
if".":,F.f:|?#:11i;:,'"i!f;?iJIg
the offended party may claim compensation but
not the offender.

Gompensation when one or both debts are rescissible or voidable

When one or both debts are rescissible or voidable, they may be
compensated against each oiher before they are judicially rescinded or
avoided. (Art. 1284)

Compensation when the debts are payable at different places

Compensation takes place by operation of law, even though the
debts rnay be payable at different places, but there shall be an indemnity
for expenses of exchange or transportation to the place of payment.
(Art. 1286)

Rule on application of payment to apply when there are several

debts susceptible of compensation
Example: D owes C the following debts on account of various
merchandise purchaQes which he made from the store of C:
P3,000.00, due on March 1,2011; P3,000.00, due on March 15,2011;
P3,000.00 due on March 31, 2011; and P3,000.00 due on April 15, 201 1.
C, on the other hand, owes D P3,000.00 due on April 5, 201 1. On April
5, 2011, D may claim compensaton for qny of the debts due on March 1,
March 15 and March 31. lf D does not designate the debt to which
76 OBLIGATIONS

compensation shall apply, the right to apply is shifted to C, and if C also

fails to avail himself of that right, compensation shall be applied
proportiorrately to the three debts d-ue at pt,bOO.OO each.

Effect of assignment on compensation of debts

1. When the assignment was with the debtor's consent, he cannot
set up against the assignee the compensation that would pertain
to him against the assignor unless he reserved his right to the
compensation.
Example: D owes C P20,000.00 due on March 15. C
owes D P8,000.00 due on March 10. On March 12, C assigned
his credit right to T with the consent of D. On March 15, T can
collect from D P20,000.00, but D can coilect PB,000.OO from C.
lf D reserved his right to the compensation that would pertain to
him against C amounting to P8,000.00 when he consenied to the
assignment, then T can collect only p12,000.00 from hjm (D).

2. lf the debtor was notified of the assignment but he did not give
his consent thereto, the debtor may set up compensation of
debts maturing before the assignment but not of subsequent
ones.
Example: D owes C p20,000.00 due on March 15. C,
on the other hand, owes D the following debts: pg,000.00 due
on March 1; P3,000.00 due on March B; and p5,000.00 on
March 14. On March 12, C assigned his credit right to T with
notice to D but D did not give his consent to the assignment. ln
this case, T may collect from D,p9,0Q0.00 because D can set up
compensation with respect to the debts due on March 1
(P8,000.00) and March B (p3,000 00) which had atready
matured at the time of the assignment.
.
3. lf the assignment was without knowledge of the debtor, he can
set up compensation of all debts maturing before the time he
obtains knowledge of the assignment.
Example: D owes C p20,000.00 due on March 25. C,
on the other hand, owes D the following debts: p9,000.00 due
on March 1; P3,000.00 due on March B; p5,000.00 due on
March 14; and P2,000.00 due on March 31. On March 12, C
assigned his credit right to T without the knowledge of D. On
March 16, D-le_arned of the assignment. ln this Case, T may
collect from D P4000.00 because D may set up compensation
i
with respect to the debts due on March (pa,ObO.O0), Marcn A
OBLIGATIONS 77

(P3,000.00), and March 14 (P5,000.00), which debts have

become due as of March 16 when D learned of the assignment'
t

Compensation in solidary obligation

A is indebted to X, Y and Z, solidary creditors, for P30,000'00
due on June 1 ,2010. X in turn owes A P30,000.00 due on June 1 ,2010'
Both. obligations being due; they are extinguished by cornpensation.
However, X has to give Y and ztheir respective shares at Fl0,000.00
each because compensation made by any of the solidary creditors shall
render him liable to the others for the share in the obligation
corresponding to them. (See Art. 1215')

Novation

Novation, concept
It is the modification or extinguishment of an obligation by
another, either by changing the object or principal condition, substituting
the person of the debtoi oi subrogating a third person ih the rights of the
creditor. (Art. 1291)
Examples:DowesCP10,000.00(1)lfthepartieslateragree
that D should give instead a ring to c, there is novation by changing the
object or prestltion.. (2) lf the parties ag.ree that T shall take the place
of D as the new debtdr, there is novation by substituting the person of
the debtor. (3) lf the parties later agree that X shall take thg Place of c
as the new cieditor, there is novation by subrogating a third person in the
rights of the creditor.

Requisites of novation
1. There must be a previous valid obligation.
2. There must be an agreement between the parties to modify or
extinguish the obligation, except in the following:
a. When the person of the debtor is changed which can be
made even if it is against the will of the debtor, or
b. When another person is subrogated in the place of thd'
creditor:
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
78 OBLIGATIONS

the obligation pays, without prejudice to the

. effects of confusion as to the latter;s share.
3. There must be the extinguishment of the old obligation.
4. There must be varidity of the new obrigation. (see sueno vs.
Land Bank of the phitippines, G.R. No. -174711, September 17,
2008; and rranspacific Battery corp. vs. security Bank and rrust
Co., G.R. No. 173565, May g, 2009, for similar requisites.)

Kinds of novation
1. According to object or purpose
a. Real or objective - Novation by changing the object or
principat condition. (Att. 1291)
b. Personal or subjective - Novation by change of the
parties (debtor or creditor)
1) ;liniill:lg.ili.tff:l,'or
the debtor (arwavs

a) Expromision - Here, a third person

initiates the substitution and assumes
the obligation even without the
knowledge or against the will of the
debtor.

Rrghfs of the new debtor if he makes

payment
lf the substitution was without
the knowledge or against the will of the
origifl'al debtor, the new debtor can only
recover Insofar as the payment has
been beneficial to the debtor. (Arts.
1236, 1237, 1293)
is insotvent or does

The new debtor's insolvency or

"[?f:,{,r:#,i?:"tor
non-fulfiilment of the obtigation shalt not

3ifi isi:xilr, 1il1',{;J} i, ?f,s HJ lL:

debtor is released from tiabitity. Th-is is
true. wh6ther the substituiion was
withorlt the knowledge of the debtor or
OBLIGATIONS 79

against his will or it was consented to by

him.
b) -
Delegacion Here, it is the debtor who
initiates the substitution, which requires
the consent of all parties (original
debtor, creditor, new debtor).
. Rights of the new debtor if he makes
payment
' He can recover what he has
paid and is entitled to subrogation.
(Arts. 1236, 1237 and 1293)
Effect if new debtor is insolvent
The creditor's right to Proceed
against the original debtor is not revived
except:
(1) ' When the insolvencY of the new
' debtor was alreadY existing and
of public knorvledge when the
original debtor delegated his
debt.
(2) When the insolvencY of the new
debtor was alreadY existing and
known to the original debtor at
the time he delegated his debt.

2) Subrogating a third person in the rights of the

creditor. Subrogation transfers to the person
subrogated the credit with all the rights
appertaining thereto, either against the debtor or_
against third persons, be they guarantgrs or
possessors of mortgages, subject to stipulation
in conventional subrogation. (Art. 1303)
Kinds of subrogation
a) Conventional subrogation -
Change of
creditor by the agreement of the parties
(the original parties and the new
creditor)
b) Legal subrogation - Subrogation by
" operation of law. lt is presumed that
:8S OBLIGATIONS

there is legal subrogation in the

following cases:
(1) When a creditor pays another
reditor who is preferred, .even
without the debtor's knowledge.

pso,'oooEffto',"'rn"O :fft :
. secured by a real mortgage.
also owes X P40,000.00 which
D

is unsecured. lf X pay D's debt

to C, X is subrogated in the
rights of C. Hence,.if D cannot
pay the debt of P50,000.00, X
can foreclose the mortgage.
(2)
[u,5J,,"?,.tlll!o"o[n'i".flt, rj,"J
5J'l'."$?'fJtff;,. "f tacit
(Please see example on
payment on page 57.)
(3) When, even without the
knowledge. of the debtor, a
person inter:ested in the
' fulfillment of the obligation pays,
y;'i:xlfJ:f'l"i,f ,T: ;T,Tl:
shqre. (Art. 1302)
Example: D owes C
P10,000.00 *itn C as guarantor.
, lf G pays C, G is subrogated in
: the rights of C. However, G's
3:::il9 tn" i,"riti3X''li:':i:1
and creditor are merged in his
person.
c. Mixed - Change of object and parties to the obligation.
Example: D owes C PS0,OOO.00. Later, the
parties agree that a ring will be used to pay the debt with
X making the payment.
OBLIGATIONS 81

2. According to form
a. Express = This is novation declared in unequivocal
terms. (Ar1. !292) Here, the parties incontrovertibly
disclose that their object in executing the new contract is
to extinguish the old one. (Sueno vs. Land Bank, supra)
Exarnple: D and G entered into a contract
whereby D would construct a 3-storey building for C on a
certain lot.Later however, D and C entered into a
contract whereby the! expressly agreed that D would not
be constructing anymore a 3-storey builciing on the lot
but a bungalow.

b. lmplied When the old and the new obligation are on

-
every point ineompatible with each other. (Art' 1292) No
specific form is required for an implied novation. All that
is prescribed by law would be an incompatibility
between the two contracts. (Sueno vs. Land Bank,
supra)
Example: ln the same example, if D and C
entered into the second contract whereby D agreed to
construct a bungalow on the lot but without the parties
expressly stipulating that D would no longer construct a
3-storey building, then the parties are deemed to have
impliedly novated the first contract because construction
of the two structures on the same lot would not be
possible.

3. According to extent
a. Total or extinctive -
Here the old obligation is totally
extinguished, such as when an obligation to pay a sum
of money is replaced with an obligation to give a
diamond ring.
b. ' Partial or modificatory - Here, the old obligation still
remains in force except as it has been modified, such as
when the place of payment is changed or when there is
a variation in the amount of installment payments.

The change would be merely modificatory and

insufficient to extinguish the original obligation if the
incompatibility does not take place in any of the essential
elements of the obligation, such as its object, cause or
82 OBLIGATIONS

principal conditions. (Transpacific Battery Corp. vs.

Security Bank and Trust Co., supral

Effect of novation on accessory obligation

When the principal obligation is extinguished in consequence of
a novation, accessory obtig.ations shall also be extinguished, except in
the following cases:
1. When the accessory obligation was established for the benefit of
third persons who did not give their consent. (Art. 1296)
. Example: D borrowed P50,000.00 from C. The
obligation is secured by a chattel mortgage on D's car and bears
interest at 10o/o per annum which the parties stipulated would be
paid by D to T, a student whom C is sen.ding to school.
Subsequently, D and C agreed that D would give C a diamond
ring instead of money. The novation here extinguishes the
accessory contract of chattel mortgage. However, the accessory
obligation to pay interest to T Will-subsist unless T gave hii
consent to the novation.

2. When there was a stipulation that the accessory obligation will

subsist notwithstanding the novation
3. When the novation is one where a third person is subrogated in
the rights of the creditor.

Effect if new obligation is void

lf the new obligation is void, the novation is void. ln such a case,
the original one shall subsist, unless the parties intended that the former
relation will be extinguished in any event. (Ati. 1297)

Effect if original obligation is void

The novation is void if the originat obiigation is void. (Art. 1298)
lf the original obligation is void, there is no obligation to extinguish since
it is non-existent.

Effect if the original obligation is voidable

The novation is valid provided that annulment may be claimed
only by the debtor or when ratification extinguishes acts which are
voidable. (Art. 1298) The novation here cures whatever defects present
in the original obligation.
 OBLIGATIONS 83

Examptet D executed a promissory. note for p50,000.00

repres;enting the price of a car that c, by means of violence, sold to D.
Later, when the violence has ceased, D proposed.to c that he would
give ring instead of P50,000.p0. C accepted the proposal. The
.his
novation here is valid. \Matever defect in the consent piesent in the
originalone.is'deemed cuqed by the newobllgatibn to give ihe ring.

Effect if original obligation is Sribject to a suspensive or resolutory

condition
The new obligation shall be subject to the same conditibn unless
-.
12gg)
'othenvise stipulated Oy tne.parties. (Art.
.
Example: D promised to give C a specific ring if C finishes his
degree in Accountancy with henors. Later, the parties agreed that D
woylQ give C a specific .bracelet instead of a specific ring-. Here, the
obligation to give a specific bracelet is subject to the same condition that
c must finish his Accountancy- $egree
'' - with honors, unless they stipulated
othdrwise.
Preference to creditor in case of partial payment . .

A creditor, to whom partial payment has been made, may

exercise his right for the remainder, and he shall be preferred'to th6
person who has been subrogated in his place in virtue of the partial
payment of the same credit. (Art. 1304)
Example: D owes C P100,000.00. With the consent of both,
T, a third person pays c P50,000.00. Thus, c and r are now creditors of
D at P50,000.00 each. lf D has only p50,000.00, c will be preferred over
T.

Novation in solidary obligation

A is indebted to X, Y and Z, solidary creditors, in the amount of
P30,000.00. 'Thereafter, X, without the knowtedge of y and Z, agreed
with A that instead of A paying p30,000.00, Awoutd instead give a
specific ring to the creditors. The obtigation of A to give p30,000.00 is
extinguished by the obligation to give a specific ring. However, X has to
give Y and z their respective shares at p10,0b0.0c each because
novation executed by any of the solidary creditors shall render him liable
to the others for the share in the obligation corresponding to them. (see
Art. 1215)
84 OBLIGATIONS

lnsolvency and BankruPtcy

lnsolvency and bankruptcy of debtor

1. Effect on obligation
A debtor a who is adjudged an insolvent and
subsequently discharged by the court shall be released from the
obligation of all debts. He may thereafter engage in business and
acquire property without being liable for'the satisfaction of his
formerdebts. (See Sec. 6T.,lnsolvency Law; Southern L and T
Co. vs. Benbow tD.C.l96 Fed 5281

2. Debtors entitled to discharge

: Ordinarily any debtor who has been , adjudged an
insolvent and has compligd with the requirements of the law in
the surrender of his property and the rendition of an account of
his assets and liabilities and who has not been guilty of any fraud
will be entitled to discharge. (44 C.J.S SaSl nowever, no
discharge shall be granted to arty corporation. (Sec. 52,
lnsolvency Law.