Module 1

Law on Obligation

1. Definition of Obligation: Article 1156 of the Civil Code defines an obligation as a juridical necessity to give,
to do or not to do. Civil obligation may be defined as the juridical relation, created by virtue of certain facts,
between two or more persons, whereby one of them, known as the creditor or oblige, may demand of the other,
known as the debtor or obligator, a definite prestation. It is also a juridical relation whereby a person called the
creditor may demand from another person called the debtor the observance of a determinate conduct, and in
case of breach, may obtain satisfaction from the assets of the latter.

2. Essential Elements or Requisites of an Obligation (Civil Obligation)

a. Active subject a.k.a. obligee or creditor refers to the party who has the right or power to demand
the performance of prestation from the obligor or debtor.

b. Passive subject a.k.a. obligor or debtor refers to the party who has the juridical necessity of
adjusting his conduct to the demand of the creditor or obligee pursuant to the obligatory tie.

c. Object or prestation refers to the promise or particular conduct to be performed in the fulfilment or
rendition of the obligation. Object or prestation may consist of giving, doing or not doing a thing.

i. Requisites of an Object or Prestation of an Obligation

1. It must be possible, physically and juridically.
2. It must be determinate, or, at least, determinable according to pre-established elements
or criteria.
3. It must have possible equivalent in money.

d. Efficient cause a.k.a. vinculum refers to the juridical tie which binds the parties to the obligation.

i. Examples of juridical tie or vinculum or efficient cause

1. Relation established by law
2. Relation established by contract
3. Relation established by quasi-contract such as (1) negotiorum gestio and (2) solutio
indebiti
4. Relation established quasi-delict or culpa aquiliania or tort
5. Relation established by crime or delict

3. Types of Civil Obligation based on the definition under the Civil Code

a. Positive obligation refers to an obligation which consists of giving or doing something.

i. Types of Positive Obligation

1. Real obligation (Civil Obligation to Give) refers to a positive obligation which consists of
the delivery or giving of personal or real object. The examples of real obligations are the
obligations of the parties in a contract of sale or barter or deposit or loan.

2. Personal obligation (Civil Obligation to Do) refers to a positive obligation which

consists of doing a particular prestation but not delivery of an object An example of
personal obligation is rendition of services.

b. Negative obligation (Civil Obligation Not to Do or Not to Give) refers to an obligation which consists of
abstaining from some act. An example of a negative obligation is the legal obligation not to commit jay
walking.

i. Note: Delay or Default or Mora is not applicable in negative obligation.

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 4. Distinctions between Civil Obligation and Natural Obligation

I. As to binding force, Civil Obligations derive their binding force from positive law or substantive law
(Civil Obligation of Parents to give support to their children under Family Code), while Natural
Obligations derive their binding effect from equity and natural justice (1) Natural Obligation of
successors or heirs to pay the debts of predecessor beyond the property they inherited or (2) Civil
obligations that have already prescribed)

II. As to enforceability, Civil Obligations can be enforced by court action or the coercive power of public
authority while the fulfillment of natural obligations cannot be compelled by court action but depends
exclusively upon the good conscience of the debtor. However, after voluntary fulfilment by the debtor of
a natural obligation, the creditor is authorized to retain what has been delivered or rendered by reason
thereof.

III. As to examples, the examples of Civil Obligations are: (1) Legal obligation of parents to give support to
their children under Family Code and (2) Contractual obligation of review center to provide preweek
lectures to their reviewees despite cancellation of board exam while the examples of Natural
Obligations are: (1) Natural Obligation of successors or heirs to pay the debts of predecessor beyond
the property they inherited and (2) Unpaid civil obligations that have already prescribed.

5. Sources of civil obligation demandable in a court of law

a. Law refers to the principles and regulations established in a community by some authority and applicable
to its people, whether in the form of legislation or of custom and policies recognized and enforced by
judicial decision.

i. Principles applicable to legal obligation

1. The obligations derived from law are never presumed.

2. Only obligations expressly determined in the Civil Code or in special laws are
demandable.
3. The law cannot exist as a source of obligations, unless the acts to which its principles
may be applied exist.
4. The obligations and correlative rights arising from law shall be governed by the law by
which they are created.

b. Contract is a meeting of minds between two persons whereby one binds himself, with respect to the
other, to give something or to render some service.

i. Principles application to contractual obligation

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

c. Quasi-contract is a juridical relation which arises from certain lawful, voluntary and unilateral act, to
the end that no one may be unjustly enriched or benefited at the expense of another. Quasi-contract is
based on fairness and equitable principle of unjust enrichment.

i. Two Types of Quasi-Contracts

1. Negotiorum Gestio refers to the voluntary management of the property or affairs of

another without the knowledge or consent of the latter.
i. Nature of Liability of Officious Managers in Negotiorum Gestio - The
nature of liability of officious managers in negotirum gestio is generally solidary
unless the officious management was done under imminent danger which will
make their obligation joint.

ii. Examples of Negotiorum Gestio

a. A person voluntary takes charge of the agency or management of business or
property of another without authority or consent of the latter.
b. A stranger gives support to a child of another person without the knowledge of
the person obliged to give support.
c. A person saves the property of another person during fire, flood, storm or other
calamity without the knowledge of the owner.

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 2. Solutio Indebiti refers to the juridical relation that is created when something is
received when there is no right to demand it and it was unduly delivered through
mistake.
i. Nature of Liability of Payees in Solutio Indebiti – The nature of liability of
payees in solutio indebiti is solidary.
ii. Example of Solutio Indebiti
a. A person receives something when there is no right to demand it or it was
unduly delivered through mistake.

d. Quasi-delict or culpa aquiliana or torts refers to a source of a civil obligation wherein a person by
act or omission causes damage to another, there being fault or negligence.
i. Nature of Liability of joint tortfeasors or two or more persons liable for quasi-
delict - The nature of liability of joint tortfeasors or two or more persons liable
for quasi-delict is solidary.

Requisites of Civil Action based on Quasi-Delict or Culpa-Aquiliana or Tort

i. There is no pre-existing relation (contract) between the offender (respondent-dependant) and
offended parties (complainant-plaintiff). (However, exceptional cases allow filing of civil action
based on quasi-delict despite the presence of contractual relations if the act that violated the
contract constitutes a tortuous act on itself.)
ii. There exists a wrongful act or omission imputable on the defendant by reason of his fault or
negligence.
iii. There exists a damage or injury which must be proved by the person (plaintiff-complainant)
claiming recovery.
iv. There must be a direct causal connection or a relation of cause and effect between the fault or
negligence of respondent and the damage or injury to the plaintiff, or that the fault or negligence
of the respondent be the cause of the damage or injury to the plaintiff.

e. Crime or delict refers to any act or omission which is punishable by law.

i. Nature of Liability of Criminals – The nature of liability of two or more persons

guilty of a crime is solidary.

i. Persons who are exempted from criminal liability (imprisonment and fines) but still
civilly liable (civil damages) for the crime they have committed

1. An imbecile or an insane person

2. A person under 18 years of age a.k.a. minor
3. Any person who acts under the compulsion of an irresistible force
4. Any person who acts under the impulse of an uncontrollable fear of an equal or greater
injury

ii. Persons who are exempted from both criminal liability (imprisonment and fines) and
civil liability (civil damages)

1. Any person who acts in defense of one-self, in defense of relatives or in defense of

strangers
2. Any person who acts in the performance of his legal duties
3. Any person who acts in the performance of his contractual obligations
4. Any person suffering from battered woman syndrome

iii. Components of Civil Liability arising from Crime or Delicto

1. Restitution refers to the restoration of the thing itself even though it be found in the
possession of a third person who has acquired it by lawful means.
2. Reparation of the damage caused shall be determined by the Court taking into
consideration of the price of the thing and its sentimental value.
3. Indemnification for consequential damages shall include not only those caused the
injured party but also those suffered by his family or by a third person by reason of the
crime.

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 6. Distinctions between quasi-delict (tort or culpa aquiliana) and crime (delict)

a. As to the nature of right violated, the right violated by a quasi-delict is a private right while the right
violated by a crime is a public right.
b. As to the name of the case, in quasi-delict the name of the case is Private-Plaintiff vs. Respondent or
Defendant while in crime the name of the case is People of the Philippines vs. Accused.
c. As to award of civil damages, every quasi-delict gives rise to liability for damages to the injured party
but there are crimes from which no civil liability arises.
d. As to possibility of compromise, quasi-delict can be compromised but criminal liability for
imprisonment and fines can never be compromised except in case of criminal negligence.
e. As to requirement of criminal intent, in quasi-delict, criminal intent is not necessary, while in crime,
criminal intent is necessary except in (1) criminal negligence and (2) mala prohibita or crimes where good
faith is not a defense, thus, criminal intent is not required.
f. As to quantum of evidence, claims arising from quasi delict must be proven by preponderance of
evidence while conviction for crime must be proven by proof beyond reasonable doubt although civil
damages arising from crime may be proven only by preponderance of evidence by the private offended
party plaintiff or victim of the crime.

7. Principles on Sources of Civil Obligations and Awarding of Damages

a. A single act by the defendant-respondent may result to two or more sources of civil obligation. However,
the plaintiff cannot recover twice damages for all cases filed involving the single act because the purpose
of awarding civil damages is to compensate the plaintiff for the injury suffered by him but not to unjustly
enrich the plaintiff at the expense of the defendant.

b. The constitutional prohibition against double jeopardy applies to criminal cases only but neither civil nor
administrative proceedings. That means, for example, that a defendant convicted or acquitted of a crime
is not immune from a civil lawsuit for damages from the victim (private offended party) of the crime.

8. Kinds of Thing or Object in Obligation to Deliver a Thing

a. A generic thing or indeterminate thing is only indicated by its kind, without being designated and
distinguished from others of the same kind. (Note: Generic thing never perishes.)

b. A determinate thing or specific thing or delimited generic thing is one that is individualized and
can be identified or distinguished from others of its kind.
i. Note: Loss of thing due to fortuitous event as a mode of extinguishing an obligation is
applicable only to obligation to deliver a determinate thing or specific thing or delimited generic
thing but not to obligation to deliver a generic thing or indeterminate thing because generic thing
never perishes.

9. Incidental or Accessory obligations in an Obligation to Deliver a Determinate Thing or a Specific

Thing or a Delimited Generic Thing

a. Obligation to Preserve the Determinate Thing or Specific Thing or Delimited Generic Thing
with Due Care

i. Degree of Diligence to be Exercised by the Obligor or Debtor in the Preservation of

Determinate Thing or Specific Thing or Delimited Generic Thing
1. Diligence Required by Law
a. Contract of common carrier - Common carriers, from the nature of their business
and for reasons of public policy, are bound to observe extraordinary diligence in
the vigilance over the goods transported by them, according to all the
circumstances of each case.
b. Necessary deposit (Things brought in hotel or motel) – Hotel business is imbued
with public interest, which demands that hotelkeepers are bound to provide not
only lodging for hotel guests but also security to their persons and belongings
with extraordinary diligence. The law does not allow such duty to the public to
be negated or diluted by any contrary stipulation that ordinarily appear in
prepared forms imposed by hotel keepers on guests for their signature.

2. Diligence Validly Stipulated by the Contracting Parties

a. Based on autonomy of contract, the contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order, or
public policy. The stipulated degree of diligence must be valid. Waiver of future
fraud or future gross negligence is null and void because that is contrary to law
and public policy.

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 3. Ordinary Diligence or Diligence of a Good Father of a Family or Diligence of a
Reasonably Prudent Person
a. Diligence of a good father of a family means an ordinary care. Just like a father
of a family, it is a care that an average person would do in taking care of his
property. Diligence of a good father of a family depends upon the facts and
circumstances of each case.

b. Obligation to Deliver the Fruits of the Determinate Thing if the Fruits occur After the
Obligation to Deliver the Determinate Thing arises

i. Kinds of Fruits under the Civil Code

1. Natural fruits are the spontaneous products of the soil, and the young and other
products of animals.
2. Industrial fruits are those produced by lands of any kind through cultivation or labor.
3. Civil fruits are fruits as a result of civilization or fruit arising out of a juridical relation or
contracts such as are the rents of buildings, the price of leases of lands and other
property and the amount of perpetual or life annuities or other similar income.

c. Obligation to Deliver the Accessions and Accessories of the Determinate Thing

i. Accessories refer to those which are destined for the embellishment, use or for the preservation
of another thing which is of more importance, have for their object the completion of the latter
for which they are indispensable or convenient.
ii. Accessions include everything which is produced by a thing, or which is incorporated or
attached thereto, either naturally or artificially.

10. Types of Rights of Creditor over the Determinate Thing and its Fruits and the Specific Moment the
Right is acquired by Creditor
a. A personal right is the power belonging to one person to demand of another, as a definite passive
subject, the fulfillment of a prestation to give, to do or not to do. It refers to a right that can be exercised
only against a specific person thereby prohibiting an action to recover the ownership or possession of a
specific thing if it is already with a third person but it only allows action for damages against a specific
person. Personal right over a determinate thing is acquired from the moment provided by the Civil
Code or Special Law.
b. A real right is the power belonging to a person over a specific thing, without a passive subject
individually determined, against whom such right may be personally exercised. It refers to a right that
can be exercised against the whole world thereby allowing an action to recover the ownership or
possession of a specific thing regardless of the possessor of such thing. Real right over a determinate
thing or its fruits is acquired from the moment of its or their actual delivery or constructive delivery.

11. General Remedies Available to Creditor when the Debtor Fails to Comply with his Obligation
a. Action for specific performance of obligation (exact fulfillment of obligation) with damages; or
b. Action to rescind the obligation (cancellation of obligation) with damages; or
c. Action for damages (indemnification for damages)

12. Successive Remedies of the Creditor in case the Debtor Fails to Comply with his Obligation to
Deliver a Determinate Thing or a Specific Thing or a Delimited Generic Thing
a. Action for specific performance of obligation (exact fulfillment of obligation) plus damages for breach of
obligation under Article 1170; then
b. Action for damages if action for specific performance becomes legally impossible

13. Alternative Remedies of the Creditor in Case the Debtor Fails to Comply with his Obligation to
Deliver an Indeterminate Thing or a Generic Thing
a. Action for specific performance of obligation (exact fulfillment of obligation) with damages; or
b. He may ask the obligation to be complied with by a third person at the expense of the debtor with
damages.
i. Note: For practicality, the second remedy of asking a third person to comply the obligation at
the expense of the debtor plus damages is more practicable.

14. Remedy of the Creditor if the Debtor Fails to do the Prestation in Obligation to do that can be done
by other persons
a. The creditor or third person may do it in a proper manner at the expense of the debtor.

15. Remedy of the Creditor if the Debtor Fails to do the Prestation in an Obligation to do whereby only
the Debtor can do the Prestation
a. Action for indemnification for damages

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 16. Constitutional Right Against Involuntary Servitude
a. Article III Section 18 paragraph 2 of the 1987 Philippine Constitution provides that “No
involuntary servitude in any form shall exist except as a punishment for a crime whereof the party shall
have been duly convicted.” As a result, in obligation to do, action for specific performance of obligation or
exact fulfilment of obligation is not an available remedy to the creditor in case the debtor refuses to
perform his obligation.

17. Remedy of the Injured Person in case a Public Official or Officer of a Private Corporation Refuses to
Perform his Ministerial Duty
a. Special civil action of mandamus

18. Remedy of the Creditor in Case the Debtor Performed the Obligation to Do in Contravention of the
Tenor of the Obligation or in Case the Debtor Performed the Obligation to Do Poorly
a. The creditor or third person may do it in a proper manner at the expense of debtor; or
b. The court may decree that what had been poorly done be undone at the expense of the debtor.

19. Remedy of the Creditor in Case the Debtor does what has been Forbidden him in an obligation not
to do or in a negative obligation
a. It shall be undone at the expense of debtor with indemnification for damages.

20. Definition of Delay or Default or Mora

a. Delay or Default or Mora refers to the non-fulfilment of the obligation with respect to time.

21. Requisites in order that the debtor may be in default or in order for debtor’s delay or mora solvendi
to exist

a. The obligation must be demandable and already liquidated.

b. The creditor demands the performance either judicially or extrajudicially.
c. The debtor delays performance of the obligation despite the demand from the creditor.

22. As a general rule, demand (juridical or extrajudicial) is necessary for delay to exist. However, the
following are the exceptional instances when demand by the creditor to the debtor shall not be
necessary in order that debtor’s delay (mora solvendi) may exist:
a. When the obligation expressly so declares that demand is excused or waived.
i. Example: Contract of Loan with a financing company whereby demand is categorically waived
by the debtor for his delay to exist.
b. When the law expressly so declares that demand is excused or waived.
i. Example: Under Law on Partnership, A partner who has undertaken to contribute a sum of
money and fails to do so becomes a debtor for the interest and damages from the time he should
have complied with his obligation. The same rule applies to any amount he may have taken from
the partnership coffers, and his liability shall begin from the time he converted the amount to his
own use. Demand is not necessary for the partner to be liable for damages and interests under
the abovementioned cases.
c. When from the nature and the circumstances of the obligation it appears that the designation of the time
when the thing is to be delivered or the service is to be rendered was a controlling motive for the
establishment of the contract.
i. Example: Obligation to be rendered during special occasion such as Marriage or Birthday or
Interment/Burial
d. When demand would be useless, as when the obligor or debtor has rendered it beyond his power to
perform.
i. Example: (1) The debtor destroyed the specific thing or (2) The debtor, in bad faith, sold and
delivered the specific thing to a person other than the creditor.)

23. Moment of Delay in Reciprocal Obligation

a. In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills
his obligation in a reciprocal obligations, delay by the other begins.

24. Types of Delay or Default or Mora

a. Mora solvendi refers to the delay or default on the part of the debtor or obligor.

i. Effects of delay on the part of the debtor or obligor

1. The debtor becomes liable for damages for the delay or default or mora.
2. When the obligation has for its object a determinate thing, the delay or default or mora
places the risk of loss of the determinate thing on the debtor.

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 b. Mora accipiendi refers to the delay or default on the part of creditor or obligee.

i. Effects of the delay on the part of the creditor

1. The creditor becomes liable for damages.

2. The debtor may relieve himself of the obligation by the consignation of the thing after a
valid tender of payment to the creditor.
3. When the obligation has for its object a determinate thing, the creditor bears the risk of
the loss of the determinate thing.
4. The responsibility of the debtor for the loss of the determinate thing is reduced and
limited to fraud and gross negligence.
5. All expenses for the preservation of the determinate thing after the delay or default or
mora shall be chargeable to the creditor.

c. Compensatio morae refers to the delay or default of both debtor and creditor.

i. Effect of compensatio morae

1. The delays of both debtor and creditor are compensated or offsetted. Therefore, no one
will be liable for damages by reason of delay.

25. Grounds for Damages in the Breach of Performance of Obligation under Article 1170

a. Delay – Default – Mora refers to the non-fulfilment of the obligation with respect to time.

b. Fraud – Dolo (Incidental Fraud or Dolo Incidente) refers to the deliberate and intentional evasion
of the normal fulfilment of obligation.

c. Negligence - Fault – Culpa is the failure to observe for the protection of the interests of another
person, that degree of care, precaution and vigilance which the circumstances justly demand, whereby
such person suffers injury. It means the absence of diligence required by law or by contract or by the
circumstances of the case.

d. Contravention of the tenor of obligation refers to illicit act which impairs the strict and faithful
fulfilment of the obligation or every kind of defective performance. It refers to the violation of the terms
and conditions of obligation or defects in the performance of the obligation.

26. Types of Civil Damages that may be Awarded by Court to the Plaintiff (MENTAL)

I. Mutually Exclusive Damages – The court cannot award them together. The court will only choose one
among them.

a. Liquidated damages are damages agreed upon by the parties to a contract, to be paid in case
of breach thereof. It refers to the type of damages that is not assessed by the court but merely
applied based on the contractual stipulation of the parties. It refers to the penalty in an obligation
with a penal clause.

b. Actual damages or compensatory damages are those pecuniary losses suffered and duly
proved by the plaintiff. The compensatory interest is the legal interest of 6% per annum starting
July 1, 2013 and 12% before July 1, 2013.

c. Temperate damages or moderate damages are damages that may be recovered when the
court finds that some pecuniary loss has been suffered but its amount cannot, from the nature of
the case, be provided with certainty. They are more than nominal damages but less than
compensatory damages.

d. Nominal damages are damages adjudicated in order that a right of the plaintiff, which has
been violated or invaded by the defendant, may be vindicated or recognized, and not for the
purpose of indemnifying the plaintiff for any loss suffered by him.

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 II. Additional Damages to any of the Mutually Exclusive Damages

a. Moral damages are damages awarded by reason of physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock, social humiliation, and
similar injury. They are automatically awarded to the private offended party in the crime of
murder or homicide or rape despite the absence of proof. They are also awarded to the plaintiff
in the case of libel or defamation.

b. Exemplary damages or corrective damages are damages imposed, by way of example or

correction for the public good, in addition to the moral, temperate, liquidated or compensatory
damages.

27. Waiver of Fraud

a. Future Fraud - Waiver of a civil action for future fraud is void because it is contrary to law and public
policy. Such waiver will encourage the commission of crime.

b. Past fraud - Waiver of a civil action for past fraud may be considered valid on the part of the plaintiff
and defendant provided public interests are not involved. However, if the past fraud involved a public
crime, the waiver of civil damages made by the private complainant in favor of the defendant will not bar
the state from continuing the prosecution of criminal case.

28. Degree of Diligence to be observed by Contracting Parties in the Performance of Obligation

1. Diligence Required by Law

a. Contract of common carrier - Extraordinary diligence on the part of common

carrier.
i. Common carriers, from the nature of their business and for reasons of
public policy, are bound to observe extraordinary diligence in the
vigilance over the goods and for the safety of the passengers
transported by them, according to all the circumstances of each case.
ii. A common carrier is bound to carry the passengers safely as far as
human care and foresight can provide, using the utmost diligence of very
cautious persons, with a due regard for all the circumstances.

b. Contract of Necessary Deposit or Things brought in hotel or motel –

Extraordinary diligence on the part of hotel or motel or inn keeper
i. The hotel business like the common carrier's business is imbued with
public interest. Catering to the public, hotelkeepers are bound to provide
not only lodging for hotel guests and security to their persons and
belongings. The twin duty constitutes the essence of the business. The
law in turn does not allow such duty to the public to be negated or
diluted by any contrary stipulation in so-called "undertakings" that
ordinarily appear in prepared forms imposed by hotel keepers on guests
for their signature.

c. Contract of Bank Deposits – Extraordinary diligence on the part of the bank.

i. The fiduciary nature of banking requires high standards of integrity and
performance.

2. Diligence Stipulated in the Contract

a. Based on autonomy of contract, the contracting parties may establish such

stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order, or
public policy. The stipulated degree of diligence must be valid. Waiver of future
fraud or future gross negligence is null and void because that is contrary to law
and public policy.

3. Ordinary Diligence or Diligence of a Good Father of a Family or Diligence of a

Reasonably Prudent Person

a. Diligence of a good father of a family means an ordinary care. Just like a father
of a family, it is a care that an average person would do in taking care of his
property. Diligence of a good father of a family depends upon the facts and
circumstances of each case.

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 29. Principles on Issuance of Receipt by Creditor
a. The issuance of receipt for the principal of the loan by the creditor, without reservation with respect to
the interest, shall give rise to rebuttable or disputable presumption that said interest has been paid.
b. The issuance of receipt by the creditor for a later installment of a debt without reservation as to prior
installments, shall raise rebuttable or disputable presumption that such prior installments have been paid.
i. Note: The presumption created by the issuance of such receipt by the creditor is only rebuttable.
This means that the creditor may still collect the interest or earlier installment of the debt if he
can present contrary evidence to prove that such interest or earlier installment is not yet really
paid.

30. Successive Rights of Unpaid Creditor in order to Satisfy his Claim against the Debtor after
prevailing in the civil action for exact fulfillment or specific performance

a. To levy by attachment and execution upon all the property of the debtor including the garnishment of
bank deposits, except those properties exempted by law from execution like foreign currency bank
deposits

b. Accion Subrogatoria - To exercise all rights and actions of the debtor, except those rights which are
inherently personal to him
i. Requisites of Accion Subrogatoria
1. The debtor’s assets must be insufficient to satisfy claims against him;
2. The creditor must have pursued all properties of the debtor subject to execution;
3. The right of action must not be purely personal; and
4. The debtor whose right of action is exercised must be indebted to the creditor.

c. Accion Pauliana - To ask for the rescission or cancellation of the contracts made by the debtor in fraud
of creditor’s rights
i. Requisites of Accion Pauliana
1. That the plaintiff asking for rescission has a credit prior to, the alienation, although
demandable later;
2. That the debtor has made a subsequent contract conveying a patrimonial benefit to a
third person;
3. That the creditor has no other legal remedy to satisfy his claim, but would benefit by
rescission of the conveyance to the third person;
4. That the act being impugned is fraudulent; and
5. That the third person who received the property conveyed, if by onerous title, has been
an accomplice in the fraud.

d. To file an action for damages against the third person who acquired the property of debtor in bad faith.

31. Principle on transmissibility of rights acquired from an obligation

a. Subject to the provisions of laws, rights acquired from an obligation are generally transmissible unless
there is stipulation to the contrary.

i. Exceptional Rights acquired from an obligation which are Intransmissible

1. Those rights which are provided by law to be intransmissible.

a. Example: Right to vote in national or local election
2. Those rights which are stipulated in the contract to be intransmissible.
a. Example: Membership in SNR Exclusive Shopping
3. Those rights which are purely personal in nature
a. Examples: (1) Membership in a nonstock nonprofit corporation or (2) Being a
Partner in a Partnership

32. Types of Obligations as to Demandability

a. Pure obligation refers to an obligation which contains neither term nor condition whatever upon which
depends the fulfillment of the obligation contracted by the debtor.
b. Conditional obligation refers to an obligation subject to a condition either suspensive or resolutory.
c. Obligation with a period refers to an obligation subject to a space of time (term) which is certain to
happen.

33. Obligations Demandable at once or Immediately demandable obligations

a. Pure obligation or Absolute obligation
i. Example: I promise to pay P10,000 to P. Signed M.
b. Obligation in diem or obligation with a resolutory period
i. Example: I allow C to use my calculator until December 31, 2050. Signed M.
c. Obligation with a resolutory condition
i. Example: I allow C to use my condominium until C passes the CPA Board Exam. Signed M.

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 34. Nondemandable obligations or Obligations not immediately demandable at once
a. Obligation ex die or obligation with a suspensive period
i. Example: I promise to pay P10,000 to P on December 31, 2050. Signed M.
b. Obligation when the debtor's means permit him to do so
i. Example: I promise to pay my obligation to of P10,000 to P as soon as possible. Signed M.
c. Obligation with a suspensive condition
i. Example: I oblige myself to give P10,000 to P if he passes the CPA Board Exam. Signed M.

35. Distinctions between Suspensive Condition and Resolutory Condition

a. As to the effect on the rights and obligation of the parties , if the suspensive condition happens, the
obligation arises while if the resolutory condition happens, the rights and obligations already existing
are extinguished.
b. As to the existence of rights and obligation of the parties, in suspensive condition, the rights and
obligations do not yet exist before the happening of the condition while in resolutory condition, the
rights and obligation are already existing even before the happening of the condition.
c. As to the demandability of the obligation, obligation subject to a suspensive condition is not
demandable at once while obligation subject to resolutory condition is demandable at once.
d. As to the nature of the condition, suspensive condition is known as condition precedent while
resolutory condition is condition subsequent.

36. Types of Conditions

a. Potestative Condition is a condition that is dependent upon the will of one of the contracting parties.
i. Note: If the suspensive condition is purely potestative upon debtor, the obligation that
depends upon it is void while if the suspensive condition is purely potestative upon
creditor, the obligation that depends upon it is valid.

b. Casual Condition is a condition that is dependent exclusively upon chance or other factors, and not
upon will of the contracting parties.

c. Mixed Condition is a condition that is dependent upon the will of the contracting parties and other
circumstances, including the will of a third person.

37. Suspensive Conditions that Nullify the Obligation which depends upon them for their existence
a. Impossible conditions
b. Suspensive conditions purely potestive upon the will of the debtor
c. Conditions contrary to morality, good customs, public order or public policy
d. Conditions prohibited by law

38. Effect if the Obligor or Debtor voluntarily prevented the fulfillment of the suspensive condition of an
obligation subject to a suspensive condition
a. The suspensive condition shall be deemed fulfilled and the obligation becomes immediately demandable.

39. Retroactive effect of fulfillment of suspensive condition in a conditional obligation to give a

determinate thing subject to a suspensive condition
a. The fulfillment of suspensive condition shall retroact to the day of the perfection or constitution of the
obligation once the condition has been fulfilled. However, in case of unilateral obligation to give, the
retroactive effect pertains only to the determinate thing but not to the fruits that arise during the
pendency of suspensive condition.

40. Effects of fulfillment of suspensive condition on the determinate thing's fruits occurring during the
pendency of the condition
a. In conditional reciprocal obligation, the fruits and interests during the pendency of the suspensive
condition shall be deemed to have been mutually compensated.
b. In conditional unilateral obligation to give or unilateral obligation to give subject to a period, the fruits
shall inure to the sole benefit of the debtor whether the condition is suspensive or resolutory in the
absence of stipulation to the contrary.
c. In conditional obligation to do or not to do, the courts shall determine, in each case, the retroactive effect
to the fruits of the condition that has been complied with taking into account the agreement of the
parties.

41. Available remedy to the creditor during the pendency of suspensive condition in an obligation to
deliver a determinate thing subject to a suspensive condition
a. Before the fulfillment of suspensive condition or during pendency of the suspensive condition, the creditor
may bring appropriate actions for the preservation of his right over the determinate thing such as filing
a petition before a regional trial court for the issuance of asset preservation order over the
determinate thing which is the subject matter of the obligation to give subject to a suspensive
condition.

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 42. Effects of payment of money by mistake in an obligation subject to a suspensive condition vs.
Effects of payment of money by mistake in an obligation with a suspensive period
a. If during the pendency of the suspensive condition in an obligation to give a sum of money subject to a
suspensive condition, the debtor has paid by mistake a sum of money, the debtor can recover the sum of
money but there will be additional interests only if the creditor acted in bad faith.
i. Note: Whoever in bad faith accepts an undue payment, shall pay legal interest if a sum of
money is involved.
b. If during the pendency of the suspensive period in an obligation to give a sum of money with a
suspensive period, the debtor has paid by mistake a sum of money, the debtor can recover not only the
sum of money but also the additional interests regardless of the good faith or bad faith on the part of
creditor.
i. Note: Anything paid or delivered before the arrival of the suspensive period, the obligor being
unaware of the period or believing that the obligation has become due and demandable, may be
recovered, with the fruits and interests.

43. Effects of specific thing by mistake in an obligation subject to a suspensive condition and in an
obligation with a suspensive period
a. If during the pendency of the suspensive condition or suspensive period, the debtor has delivered a
determinate or specific thing by mistake, the debtor may file (1) an accion reinvidicatoria if the thing
is still with the creditor or (2) an action for indemnification for damages if the thing is no longer
with the creditor.
i. Note: Whoever in bad faith accepts an undue payment shall be liable for fruits received or which
should have been received if the thing produces fruits. He shall furthermore be answerable for
any loss or impairment of the thing from any cause, and for damages to the person who
delivered the thing, until it is recovered.
ii. Note: He who in good faith accepts an undue payment of a thing certain and determinate shall
only be responsible for the impairment or loss of the same or its accessories and accessions
insofar as he has thereby been benefited. If he has alienated it, he shall return the price or
assign the action to collect the sum.
iii. Note: Anything paid or delivered before the arrival of the suspensive period, the obligor being
unaware of the period or believing that the obligation has become due and demandable, may be
recovered, with the fruits and interests.

44. Rules to be observed in case of the improvement, loss or deterioration of the determinate thing
during the pendency of the suspensive condition in an obligation to give a determinate thing
subject to a suspensive condition or during pendency of the suspensive period in obligation to give
a determinate thing with a suspensive period assuming the suspensive condition is fulfilled or the
suspensive period already arrives
a. If the thing is lost without the fault of the debtor, the obligation shall be extinguished.
b. If the thing is lost through the fault of the debtor, he shall be obliged to pay damages.
c. When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the
creditor.
d. If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the
creditor.
e. If the thing is improved at the expense of the debtor, he shall have no other right than that granted to
the usufructuary which refers to right to use the improved thing for a reasonable period.

45. Alternative remedies of creditor when the determinate thing deteriorates through the fault of the
debtor during the pendency of the suspensive condition in an obligation to give a determinate thing
subject to a suspensive condition or during the pendency of suspensive period in an obligation to
give a determinate thing with a suspensive period
a. He may ask for the rescission of the obligation with indemnity for damages; or
b. He may ask for the specific performance or exact fulfillment of the obligation with indemnity for
damages.

46. Instances when the thing is considered lost

a. When it perishes.
b. When it goes out of commerce.
c. When it disappears in such a way that its existence is unknown or it cannot be recovered.
d. When it is a destroyed specific thing or determinate thing or delimited generic thing.

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 47. Effects of fulfillment of resolutory condition or arrival of resolutory period to the obligation of the
parties in obligation to give a determinate thing subject to a resolutory condition or resolutory
period
a. In case of unilateral obligation subject to a resolutory condition or resolutory period, the fruits shall be
returned by the person (creditor) who will make the restitution with deduction for the expenses for the
production, gathering and preservation of the fruits. Therefore, the debtor will be entitled to the fruits
that arise during the pendency of resolutory condition or resolutory period although the creditor may ask
for reimbursement for the expenses for the production, gathering and preservation of those fruits arising
during the pendency of resolutory condition or resolutory period.
i. Note: If the obligation is unilateral, the debtor shall appropriate the fruits and interests received,
unless from the nature and circumstances of the obligation it should be inferred that the
intention of the person constituting the same was different.
b. When the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the
pendency of the condition shall be deemed to have been mutually compensated.

48. Reciprocal obligation refers to a type of obligation which arises from the same cause and in which each party
is a debtor and creditor of the other, such that the obligation of one is dependent upon the obligation of the
other.
a. Examples: Sale, barter, lease, common carrier or service.

49. Right to ask for Judicial Rescission of Reciprocal Obligation by the Injured Party
a. The injured party can ask for judicial rescission of the reciprocal obligations in case one of the debtors
should not comply with what is incumbent upon him because the power to rescind obligations is implied
in reciprocal ones.

50. Alternative Remedies of Injured Party in case of Breach of Reciprocal Obligations

a. Action for Exact Fulfillment of Obligation or Specific Performance of Obligation plus Damages; or
b. Action for Rescission of Obligation or Cancellation of Obligation plus Damages

51. Effects of Selection of any of the Alternative Remedies by the Injured Party in case of Breach of
Reciprocal Obligations
a. As a general rule, if the injured party initially opted to ask for the exact fulfillment of obligation
or specific performance of obligation with damages, he can no longer ask for rescission or
cancellation of obligation. However, if the exact fulfillment or specific performance of obligation becomes
legally impossible after its initial selection, the injured party may exceptionally ask for the rescission or
cancellation of obligation.
b. However, if the injured party initially opted to ask for rescission or cancellation of the
obligation plus damages, he will be absolutely prohibited from asking for exact fulfillment or specific
performance of the obligation because they are considered inconsistent remedies.

52. Principles concerning Reciprocal Obligations

a. The court shall decree the rescission of reciprocal obligations claimed, unless there is just cause
authorizing the fixing of a period of the reciprocal obligations.
b. In case both parties have committed a breach of the reciprocal obligations, the liability of the first
infractor shall be equitably tempered by the courts.
c. If it cannot be determined which of the parties first violated the contract involving reciprocal obligations,
the contract shall be deemed extinguished, and each shall bear his own damages.

53. Obligation with a period is an obligation which is subject to a space of time which, exerting an influence on
obligations as a consequence of a juridical act, suspends their demandability or determines their extinguishment.

54. Distinctions between a condition and a period

a. As to certainty, a condition is a future and uncertain event or a past and unknown event while a period
is a future event that must necessarily come.
b. As to nature of event, a condition may refer to a past event as long as it is unknown to the parties while
a period always refers to the future certain event.
c. As to retroactive effect on the obligation, while a condition gives rise to an obligation or extinguishes
one already existing, a period has no effect upon the existence of obligation, but only its demandability or
performance and thus, a period does not carry with it any retroactive effect.
d. As to effect on the validity of obligation, a suspensive condition purely potestative upon the will of the
debtor nullifies the obligation that depends upon it while a suspensive period which depends
exclusively upon the will of the debtor does not nullify the obligation that depends upon it but it merely
authorizes the court to fix the suspensive period of the obligation.

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 55. Types of Obligation with a period
a. Obligation Ex die or Obligation with a suspensive period is an obligation already existing but not
yet demandable until the arrival of the suspensive period.
i. Example: (1) I promise to deliver a specific car to B on December 31, 2050. Signed M. (2) I will
pay my obligation of P10,000 to you when my means permits me to do so. Signed M.
b. Obligation In diem or Obligation with a resolutory period is an obligation already immediately
demandable but will be extinguished upon the arrival of the resolutory period.
i. Example: I allow B to use my bike until December 31, 2050. Signed M.

56. Benefit of the obligation with a period

a. It is disputably presumed that the period of an obligation is for the benefit of both creditor and debtor in
the absence of contrary agreement.

57. As a general rule, the court is not allowed to fix the period of an obligation because it will be
violative of the contracting parties’ constitutional right to liberty. However, the following are the
exceptional instances wherein the court may fix the period of an obligation with a period on the
basis of police power of the state:
a. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a
period was intended.
b. If the period depends upon the sole will of the debtor.
i. Example: Obligation payable when debtor’s means permits him to do so or Obligation payable
as soon as possible
c. In case of pure obligation, to prevent unreasonable interpretations of its immediate demandability.

58. Instances wherein the debtor shall lose every right to make use of the period and therefore the
obligation with a suspensive period becomes due and demandable which allows the creditor to
demand its performance from the debtor (Instances that will Accelerate the Maturity of a Debt
subjective to a suspensive period)
a. When after the obligation has been contracted, the debtor becomes insolvent and he does not give a
guaranty or security for the debt.
b. When the debtor does not furnish to the creditor the guaranties or securities which he has promised.
c. When by debtor’s own acts he has impaired or destroyed said guaranties or securities after their
establishment, unless he immediately gives new one equally satisfactory.
d. When through a fortuitous event the guaranties or securities after their establishment disappeared,
unless the debtor immediately gives new one equally satisfactory.
e. When the debtor violates any undertaking, in consideration of which the creditor agreed to the period.
f. When the debtor attempts to abscond.

59. Alternative Obligation vs. Facultative Obligation vs. Conjunctive Obligation

a. Alternative Obligation is an obligation where the debtor is alternatively bound by different prestations
and it is extinguished by the complete performance of any of them.
i. Example: I promise to deliver a specific cellphone or specific tablet or specific laptop to C.
b. Facultative Obligation is an obligation wherein only one prestation has been agreed upon but the
obligor may render another in substitution.
i. Example: I oblige myself to deliver a specific car to B but I reserve the right to substitute it wit
a specific bike.
c. Conjunctive Obligation is an obligation where the debtor has to perform several prestations and it is
extinguished only by the performance of all of them.
i. Example: I promise to deliver a specific watch, a specific ring and a specific necklace to C.

60. Distinctions between alternative obligation and facultative obligation

a. As to the number of due objects, in alternative obligation, several objects being due, the fulfillment of
one is sufficient, determined by the choice of the debtor who generally has the right of election while in
facultative obligation, only one thing is due, but the debtor has reserved the right to substitute it with
another.
b. As to the effect of loss of one of the objects due through the fault of debtor, in alternative obligation,
the loss of one of the things due through the fault of debtor may affect the obligation if the right of
choice is given to creditor while in facultative obligation, the loss of that which may be given as
substitute does not affect the obligation if the loss occurs before the substitution.
c. As to the right of choice, in alternative obligation, the right of choice may be granted to the creditor
while in facultative obligation, the right of choice can never be granted to creditor.
d. As to the effect of loss of one of the objects due to fortuitous event, in alternative obligation, the loss
of one of the things due through fortuitous event does not extinguish the obligation while in facultative
obligation, the loss through fortuitous event of that which is due as the object of the obligation
extinguishes the obligation.

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 61. Joint Obligation vs. Solidary Obligation

a. Joint obligation is one in which each of the debtors is liable only for a proportionate part of the debt
and each creditor is entitled only to a proportionate share of the credit.
b. Solidary obligation is one in which each debtor is liable for the entire obligation and each creditor is
entitled to demand the whole obligation.

62. As a general rule, the obligation is presumed by law to be joint if there are two or more debtors
and/or two or more creditors. However, the following are the exceptional instances when the
obligation is considered solidary:

a. When the obligation expressly so states that the obligation is solidary.

i. Example of Terms Equivalent to Solidary Obligation
1. I promise to pay.
2. Jointly and severally
3. Jointly and solidarily
4. Jointly and collectively
5. Jointly and individually
6. Jointly and separately
7. Jointly and exclusively
8. In solidum
9. Mancumada solidaria
ii. Example of Terms Equivalent to Joint Obligation
1. We promise to pay
2. Pro rata
3. Joint
4. Proportionately
5. Jointly and proportionately

b. When the law requires the obligation to be solidary.

i. Examples of Legal Solidary Obligation
1. Civil obligations of two or more persons who are guilty of crime
2. Civil obligations of two or more payees in solutio indebiti
3. Civil obligations of two or more officious managers in negotiorum gestio
4. Civil obligations of joint tortfeasors or two or more persons liable for quasi-delict
5. Civil obligations of parents to give support to their children

c. When the nature of the obligation requires it to be solidary.

i. Example of Solidary Obligation
1. Two or more persons guilty of bad faith or fraud
2. Kabit System in a Certificate of Public Convenience of Common Carrier

63. Principal consequences of the Joint Character of the Obligation

a. The demand by one creditor upon one debtor produces the effects of default only with respect to the
creditor who demanded and the debtor on whom the demand was made, but not with respect to the
others.
b. The interruption of prescription by the judicial demand of one creditor upon a debtor does not benefit the
other creditors nor interrupt the prescription as to other debtors.
c. The vices of each obligation arising from the personal effect of a particular debtor or creditor do not
affect the obligation or rights of the others.
d. The insolvency of a debtor does not increase the responsibility of his co-debtors and it does not authorize
a creditor to demand anything from his co-creditors.

64. Principles concerning solidary obligations

a. The indivisibility of an obligation does not imply solidarity.

b. The solidarity of an obligation does not imply indivisibility.
c. Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by
the same period and conditions.
d. Each one of the solidary creditors may do whatever may be useful to the others, but not anything which
may be prejudicial to the latter.
e. A solidary creditor cannot assign his rights without the consent of the others.
f. The debtor may pay any one of the solidary creditors but if any demand, judicial or extrajudicial, has
been made by any one of the solidary creditors, payment should be made to him by the debtor to whom
demand for payment is made.

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 65. Acts if made by any of the solidary creditors with any of the solidary debtors extinguish the solidary
obligation but may be subject to possible reimbursement among the solidary creditors and solidary
debtors themselves. However, in case of remission of entire solidary obligation, reimbursement
among the debtors will not be allowed to prevent unjust enrichment but the renouncing creditor
shall reimburse the other solidary creditors because each one of the solidary creditors may do
whatever may be useful to the others, but not anything which may be prejudicial to the latter.

a. Novation
b. Compensation
c. Confusion
d. Remission

66. Principles concerning the payment of solidary obligation

a. Payment made by one of the solidary debtors extinguishes the obligation and if two or more solidary
debtors offer to pay, the creditor may choose which offer to accept.
b. He who made the payment may claim from his co-debtors only the share which corresponds to each with
the interest for the payment already made.
c. If payment is made before the debt is due, no interest for the intervening period may be demanded.
d. Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment
is made after the obligation has prescribed or become illegal
e. When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor
paying the obligation, the share of insolvent co-solidary debtor shall be borne by the paying debtor and
the other solvent co-solidary debtors pro-rata.
f. The remission made by the creditor of the share which affects one of the solidary debtors does not
release the latter from his responsibility towards the co-debtors, in case the debt had been totally paid by
anyone of them before the remission was effected.
g. The remission of the whole obligation, obtained by one the solidary debtors, does not entitle him to
reimbursement from his co-debtors.
h. If the thing has been lost or if the prestation has become impossible without the fault of the solidary
debtors, the obligation shall be extinguished.

67. Defenses that may be availed by the solidary debtor in actions filed by the creditor

a. Defenses which are inherent from the nature of the solidary obligation
i. Example: (1) illegality of obligation; (2) prescription of obligation; or (3) other modes of
extinguishment of obligation.
b. Defenses personal to a specific solidary defendant-debtor for the whole amount of the obligation in so far
as that specific solidary defendant-debtor is concern.
i. Example: (1) Minority of the said Debtor or (2) Insanity of the said Debtor
c. Defenses personal to other co-solidary debtors as regards that part of the debt for which the latter are
responsible but not for the whole amount.
i. Example: (1) Minority of the co-solidary debtor or (2) Insanity of co-solidary debtor

68. Defenses that are not available to the solidary debtor in actions filed by the creditor

a. Insolvency of the other co-solidary debtor

b. Defenses personal to other co-solidary debtor as regards the whole amount of the obligation

69. Divisible Obligation vs. Indivisible Obligation

a. Divisible Obligation is an obligation that is susceptible of partial performance; that is, the debtor can
legally perform the obligation by parts and the creditor cannot demand a single performance of the entire
obligation.
i. Example: Obligation to deliver 10 kilos of Dinorado Rice

b. Indivisible Obligation is an obligation that is not susceptible of partial performance or the law provides
that the performance of the obligation is indivisible or the contract provides that the performance of the
obligation is indivisible.

i. Instances when the obligation is considered indivisible

1. When the obligation is not susceptible of partial performance
a. Example: Obligation to deliver a specific cellphone
2. When the law provides that the performance of obligation is indivisible
a. Example: Contract of Subscription of Shares of Stocks as provided by Revised
Corporation Code of the Philippines
3. When the contract provides that the performance of the obligation is indivisible
a. Example: Obligation to construct a house the performance of which is indivisible
based on the long-term construction agreement

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 70. Principles pertaining to divisible obligations and indivisible obligations
a. Divisibility or indivisibility of the obligation refers not to the object or thing but to the performance of the
obligation.
b. A divisible obligation, whatever may be the nature of the thing which is the object thereof, refers to one
which can be validly performed in parts. When the obligation has for its object the execution of a certain
number of days of work, the accomplishment of work by metrical units, or analogous things which by
their nature are susceptible of partial performance, it shall be divisible.
c. Obligations to give definite things and those which are not susceptible of partial performance shall be
deemed indivisible.
d. Even though the object or service may be physically divisible, an obligation is indivisible if so provided by
law or intended by the parties.
e. In obligations to do, divisibility or indivisibility shall be determined by the character of the prestation in
each particular case.

71. Principles of Joint Indivisible Obligation

i. Example: A, B and C wrote a promissory note which provides “We promise to deliver a specific
car worth P300,000 to D.” Signed A, B and C.
b. To enforce a joint indivisible obligation, there is necessity of collective fulfillment and the action must be
against all the debtors. It means that all joint indivisible debtors are indispensable parties in the action to
enforce joint indivisible obligation.
c. In case of non-performance by all debtors in a joint indivisible obligation, the action for exact fulfillment
must be filed against all the joint indivisible debtors because they are all indispensable parties in the suit.
d. A joint indivisible obligation cannot be compelled by specific performance if anyone of the debtors does
not or cannot comply with this undertaking while the other debtors are ready and willing. In case of non-
performance by any of the debtors in a joint indivisible obligation, the obligation is converted into a
liability for losses and damages, which is divisible. The joint indivisible debtors who may have been ready
to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the
price of the thing or of the value of the service in which the obligation consists.

72. Obligation with a penal clause is an obligation which has an accessory undertaking to assume greater liability
in case of breach. The penalty in obligation with a penal clause is also known as liquidated damages which are
stipulated or predetermined by the contracting parties.

73. Principles pertaining to obligations with a penal clause

a. The debtor does not have absolute right to just pay the penalty for non-performance of the obligation
instead of fulfilling the prestation if he can really perform the obligation. Otherwise, he will be liable for
actual damages in addition to the penalty for non-performance for acting in bad faith.
b. The penalty stipulated in obligation with a penal clause must not be contrary to law, morals, or public
order to be enforceable. Otherwise, such penalty will be considered void but the obligation will remain to
be valid.
c. In case of doubt or ambiguity, obligations with a penal clause must be construed strictly against the
awarding of penalty. Courts frown upon the awarding of ambiguous penalty.
d. In case of breach of obligations with a penal clause, the debtor cannot have both action for enforcement
of penalty for non-compliance of obligation and action for specific performance of obligation because they
are inconsistent remedies.
e. Proof of actual damages suffered by the creditor is not necessary in order that the penalty in obligation
with a penal clause may be demanded because they are liquidated or predetermined damages by the
contracting parties.
f. The judge shall equitably reduce the penalty in obligation with a penal clause when the principal
obligation has been partly or irregularly complied with by the debtor and even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable.
g. The nullity of the principal obligation carries with it that of the penal clause.
h. The nullity of the penal clause does not carry with it that of the principal obligation.

74. As a general rule, penalty or liquidated damages for breach of obligation with a penal clause are
awarded in lieu of damages and interest. However, the following are the exceptional instances
when the creditor may demand payment of damages and interest aside from penalty in obligation
with a penal clause:
a. If there is stipulation that damages and interests may be demanded in addition to penalty in case of
breach of obligation with a penal clause.
b. When the debtor is guilty of bad faith or fraud in the breach of the obligation with a penal clause.
c. When the debtor fails to pay the penalty in case of breach of the obligation with a penal clause.

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 75. Modes of extinguishment of obligations: (No-Co-Me-Re-Pa-Lo-Pre-Re-Ful-An)

a. No – Novation
b. Co – Compensation or Offset
c. Me – Merger or Confusion
d. Re – Remission or Donation or Condonation or Renunciation or Forgiveness of Debt
e. Pa – Payment or Performance or Fulfillment of Obligation
f. Lo – Loss of the determinate thing or specific thing or delimited generic thing due to fortuitous event
g. Pre – Prescription of Right to File an Action converting the civil obligation to natural obligation
h. Re – Rescission of Rescissible Obligation or Rescissible Contract
i. Ful – Fulfillment of Resolutory Condition or Arrival of Resolutory Period
j. An – Annulment of Voidable Obligation or Voidable Contract

76. Prescription refers to the mode of extinguishment of right to file an action or obligation by the mere lapse of
time fixed by law. It converts the enforceable civil obligation into an unenforceable natural obligation.

a. 6 years for quasi contract such as solutio indebiti or negotiorum gestio

b. 6 years for oral contract
c. 10 years for written contract
d. 10 years for court judgment
e. 4 years for quasi-delict or tort or culpa acquiliana
f. 4 years for BP 22/Bouncing Check
g. 1 year for libel or unlawful detainer or forcible entry

77. Types of Estoppel

a. Estoppel in pais means a person is considered in estoppel if by his conduct, representations or

admissions or silence when he ought to speak out, whether intentionally or through culpable negligence,
causes another to believe certain facts to exist and such other rightfully relies and acts on such belief, as
a consequence of which he would be prejudiced if the former is permitted to deny the existence of such
facts.
b. Estoppel by deed occurs when a party to a deed or document or instrument and his privies (heirs and
assigns) are precluded from denying any material fact stated in the said deed or document or
instruments as against the other party and his privies (heirs and assigns).
c. Estoppel by laches is considered an equitable estoppel wherein a person who failed or neglected to
assert a right for an unreasonable and unexplained length of time is presumed to have abandoned or
otherwise declined to assert such right and cannot later on seek to enforce the same, to the prejudice of
the other party, who has no notice or knowledge that the former would assert such rights and whose
condition has so changed that the latter cannot, without injury or prejudice, be restored to his former
state.

78. Payment or Performance is a mode of extinguishing obligation which refers to the fulfillment of the prestation
due.

79. Requisites of a valid payment

a. The payment must be in accordance with the obligation.
b. The person paying (debtor) as well as the one receiving payment (creditor) should have the requisite
capacity.
c. The payment should be made by the debtor to the creditor.
d. The payment should be made at the right time and place.

80. Principles applicable to payment or performance

a. Payment means not only delivery of money but also performance, in any other manner, of an obligation.
b. A debt shall not be understood to have been paid unless the thing or service in which the obligation
consists has been completely delivered or rendered, as the case may be.
c. If the obligation has been substantially performed in good faith, the obligor may recover as though there
had been a strict and complete fulfillment, less damages suffered by the obligee.
d. When the obligee accepts the performance, knowing its incompleteness or irregularity, and without
expressing any protest or objection, the obligation is deemed fully complied with.
e. In obligations to give, payment made by one who does not have the free disposal of the thing due and
capacity to alienate it shall not be valid.
f. Payment to a person who is incapacitated to administer his property shall be valid if he has kept the thing
delivered or insofar as the payment has been beneficial to him.
g. Payment made to the creditor by the debtor after the latter has been judicially ordered to retain the debt
shall not be valid.
h. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of
the same value as, or more valuable than that which is due.
i. In obligations to do or not to do, an act or forbearance cannot be substituted by another act or
forbearance against the obligee’s will.

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 j. When the obligation consists in the delivery of an indeterminate or generic thing, whose quality and
circumstances have not been stated, the creditor cannot demand a thing of superior quality and the
debtor cannot deliver a thing of inferior quality.

81. Rules concerning payment of debts in money

a. The payment of debts in money shall be made in the currency stipulated by the contracting parties
whether it is in Philippine currency or foreign currency.
b. In case the delivery of the foreign currency stipulated by the contracting parties is not possible, the
payment of debts in money shall be made in the currency (Philippine Peso) which is legal tender in the
Philippines.
i. Legal Tender in Philippine Jurisdiction – refers to the currency (Philippine Peso) which a
debtor can compel a creditor to accept in an obligation to pay a sum of money. Negotiable
instruments like promissory note, bill of exchange and checks are not legal tenders and not good
as cash.
1. 1 centavo, 5 centavos, 10 centavos, 25 centavos coin – Up to P200 legal tender power
only.
2. P1, P5, P10, P20 coin – Up to P2,000 legal tender power only.
3. P20, P50, P100, P200, P500, P1,000 bills – Unlimited legal tender power.
ii. Note: The legal tender power of Philippine Peso coins is in their combination and not per
denomination.
c. The delivery of promissory notes payable to order or bills of exchange or other mercantile documents
shall produce the effect of payment in any of the following instances:
i. When they have been encashed;
ii. When through the fault of the creditor they have been impaired; or
iii. When the amount has already been credited to the bank account of the creditor.
d. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of
the currency at the time of the establishment of the obligation shall be the basis of payment, unless there
is an agreement to the contrary.

82. Place of payment of obligation

a. Place designated in the obligation.

b. In the absence of agreement of place of payment, delivery shall be made wherever the determinate thing
might be at the moment the obligation was constituted or perfected in case of obligation to deliver a
determinate thing or a specific thing or a delimited generic thing.
c. In the absence of agreement of payment, delivery shall be made at the domicile of debtor in case of
obligation to deliver an indeterminate thing or a generic thing.

83. Right of a third person who pays the obligation of debtor without the knowledge of the debtor or
against the will of the debtor
a. The third person who voluntarily pays the obligation of the debtor without the knowledge of the debtor or
against the will of the debtor may recover from the debtor but only insofar as the payment has been
beneficial to the debtor without legal subrogation.

84. As a general rule, payment to a third person is not valid. However, the following are the exceptional
instances wherein payment by a debtor to a third person is valid
a. When in good faith, the debtor pays to one in possession of the credit.
b. When, without notice of the assignment of the credit, the debtor pays to the original creditor.
c. When the payment to a third person redounded to the benefit of the creditor.

85. Generally, it is the obligation of the debtor to prove that the payment to a third person redounded
to the benefit of the creditor in order for the payment to be valid. The following are exceptional
instances when benefit to creditor need not be proved by a debtor who pays a third person for such
payment to be valid:
a. If after the payment, the third person acquires the creditor’s rights.
b. If the third person is authorized by the creditor.
c. If the creditor ratifies the payment to the third person.
d. If by the creditor’s conduct, the debtor has led to believe that the third person had authority to receive
payment.

86. Special Forms of Payment

a. Dation en Payment or Dacion en Pago or Asset Swap
b. Payment by cession or Corporate Liquidation
c. Tender of payment and consignation
d. Application of payment (Not really a special form of payment)

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 87. Dation in payment or Dacion en Pago (Asset Swap in Financial Accounting) refers to a special form of
payment whereby a property is alienated to the creditor in satisfaction of a debt in money when the loan in
money is already due at the time of change. This special mode of payment shall be governed by Law on Sales. If
the change of prestation occurs before the maturity date of the obligation to pay a sum of money, the proper
mode of extinguishment of obligation is novation instead of dation in payment.

88. Dacion en pago vs. Pactum Commissorium

a. As to voluntariness, dacion en pago requires subsequent and voluntary agreement of the debtor and
creditor while pactum commissiorium involves automatic transfer of pledged or mortgaged property
the moment the debtor defaulted in the payment of the secured loan.
b. As to validity, dacion en pago is valid and legal while pactum commissorium is invalid for being
contrary to law and public policy.

89. Cession (Corporate Liquidation in Financial Accounting) refers to a special type of payment which involves
the voluntary abandonment of the universality of the property of the debtor for the benefit of his creditors, in
order that such property may be applied to the payment of the credits.

90. Distinctions between dation in payment and payment by cession

a. As to transfer of rights, whereas dation in payment transfers the ownership over the thing alienated to
the creditor, while in payment by cession, only the possession and administration (not ownership) are
transferred to the creditors, with an authorization to convert the property into cash with which the debts
shall be paid.
b. As to extent of obligation extinguished, while dation in payment may totally extinguish the obligation
and release the debtor, the payment by cession only extinguishes the credits to the extent of the
amount realized from the properties assigned, unless otherwise agreed upon.
c. As to properties covered by payment, while dation in payment involves only some specific thing,
payment by cession involves all the property of the debtor.
d. As to recipient of payment, while in dation in payment, the transfer is only in favor of one creditor to
satisfy a debt, in payment by cession, there are various creditors.
e. As to governing law, dation in payment is governed by Law on Sales which payment by cession is
governed by Financial Rehabilitation and Insolvency Act (FRIA) of 2010.

91. Application of payment refers to the designation of the debt which is being paid by a debtor who has several
obligations of the same kind in favor of the creditor to whom payment is made. The right of application of
payment generally belongs to the debtor in the absence of contrary agreement.

92. Principles on Application of Payment

a. Unless the parties so stipulate, or when the application of payment is made by the party for whose
benefit the term has been constituted, application shall not be made as to debts which are not yet due.
b. If the debtor accepts from the creditor a receipt in which an application of the payment is made, the
former cannot complain of the same, unless there is a cause for invalidating the contract.

93. Limitations to the preferential right of the debtor to choose the debt to which his payment is to be
made in case he exercise his right to application of payment
a. If the debtor owes two debts, one for P50 and another for P200, and he makes a payment of P50, he
cannot choose to apply it to the P200 debt because the creditor cannot be compelled to accept partial
payment.
b. If there is only one obligation bearing stipulated interest, the debtor must apply the payment to the
interest first before the principal or capital of the debt.
c. The debtor cannot apply the payment to a debt that is not yet liquidated.
d. He cannot choose a debt with a period for the benefit of the creditor, when the period has not yet
arrived.
e. When there is an agreement as to the debts which are to be paid first, the debtor cannot vary the
agreement.

94. Rules for application of payments

a. If the debt produces interest, payment shall be applied to the interests first before the capital or
principal. Payment of the interest does not imply that the capital or principal is also settled.
b. When the payment cannot be applied in accordance with the preceding rules, or if application cannot be
inferred from other circumstances, the debt which is most onerous to the debtor, among those due, shall
be deemed to have been satisfied.
c. If the debts due are of the same nature and burden, the payment shall be applied to all of them
proportionately.
d. If at the time of payment the debtor does not exercise his right to apply it to any of his debts, the
application made by the creditor contrary to rules on application of payment provided by law shall not be
automatically followed if the debtor does not consent to such application.

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 95. Tender of Payment and Consignation
a. Tender of payment is the manifestation made by the debtor to the creditor of his desire to comply with
his obligation with the offer of immediate performance.
b. Consignation is the deposit of the object of the obligation in a competent court in accordance with rules
prescribed by law. It refers to the remedy available to the debtor if the creditor is guilty of delay also
known as mora accipiendi.

96. As a general rule, consignation shall be preceded by a valid tender of payment for consignation to
be valid. However, the following are the exceptional instances of valid consignation releasing the
debtor from liability even without prior valid tender of payment by debtor:
a. When the creditor is absent
b. When the creditor is unknown
c. When the creditor does not appear at the place of payment
d. When the creditor is incapacitated to receive the payment at the time it is due
e. When, without just cause, the creditor refuses to give a receipt
f. When two or more persons claim the same right to collect
i. Special civil action of interpleader refers to a suit pleaded between two parties to determine
a matter of claim or right to property held by a third party.
g. When the title of the obligation has been lost

97. Essential requisites of valid consignation as a special mode of payment:

a. The debt must be due.
b. The consignation was made because of some legal causes provided by law which may either be: (1)
delay on the part of creditor known as mora accipiendi or (2) consignation is made without prior valid
tender of payment by debtor in exceptional cases allowed by law.
c. Previous notice of the consignation has been given to the persons interested (creditor) in the
performance of the obligation. (1st notice to the creditor of the intent to consign to the court)
d. The amount or thing was placed at the disposal of the court.
e. After the consignation, the persons interested (creditors) were notified thereof. (2 nd notice to the creditor
of actual consignation to the court)

98. Alternative Actions by the Consigning Debtor after the Deposit of the Subject Matter of the
Obligation to the Court
a. Once the consignation has been duly made, the debtor may ask the judge to order the cancellation
of the obligation that will result to extinguishment of obligation; or
b. Before the creditor has accepted the consignation, or before a judicial declaration that the consignation
has been properly made, the debtor may withdraw the thing or the sum deposited, allowing the
obligation to remain in force.

99. Effects once the consignation has been accepted by the creditor or the court has declared that it has
been validly made
a. The debtor is released in the same manner as if he had performed the obligation at the time of the
consignation, because this produces the same effect as a valid payment.
b. The accrual of interest on the obligation is suspended from the moment of consignation.
c. The deterioration or loss of the thing or amount consigned occurring without fault of the debtor must be
borne by the creditor, because the risks of the thing are transferred to the creditor from the moment of
deposit or consignation to the court.
d. Any increment or increase in value of the thing after the consignation inures to the benefit of the
creditor.

100. Effects if, after the consignation has been made, the creditor should authorize the debtor to
withdraw the deposited thing
a. The creditor shall lose every preference which he may have over the deposited thing.
b. The other co-solidary debtors shall be released of their solidary obligation but not of their joint or
respective shares in the obligation. It means that the solidary obligation of the other co-solidary debtors
is converted into a joint obligation. However, the obligation of the consigning and withdrawing debtor will
remain to be solidary.
c. The guarantors and sureties of the secured obligation shall be released from their obligation.

101. Loss of specific thing or determinate thing or delimited generic thing due to fortuitous event
vs. Loss of generic thing or indeterminate thing due to fortuitous event
a. An obligation which consists in the delivery of a determinate thing or specific thing or delimited
generic thing shall be extinguished if it should be lost or destroyed due to fortuitous event.
b. In an obligation to deliver a generic thing or indeterminate thing, the loss or destruction of anything
of the same kind due to fortuitous event does not extinguish the obligation because generic thing
never perishes.

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 102. Requisites of fortuitous events to exempt the obligor or debtor from civil liability
a. The cause of the unforeseen and unexpected occurrence or the failure of the debtor to comply with his
obligation must be independent of the debtor’s will.
b. It must be impossible to foresee the event which constitutes the caso fortuito or if it can be foreseen, it
must be impossible to avoid.
c. The occurrence must be such as to render it impossible for the debtor to fulfill his obligation in a normal
manner.
d. The debtor must not participate in the aggravation of the injury resulting to the creditor.

103. As a general rule, no one is liable for the loss due to fortuitous event. However, the following
are the exceptional instances when the debtor is liable even there is fortuitous event at the time of
loss
a. When the law expressly provides that the debtor shall be liable even if the loss is due to fortuitous event.
i. When the debtor has promised to deliver the same thing to two or more different parties.
ii. When the loss occurs after the debtor has incurred delay.
iii. When the obligation to deliver a determinate object arises from a criminal act.
b. When by express stipulation, the debtor is made liable even if loss occurs through fortuitous events.
c. When the nature of the obligation requires the assumption of risk such as insurance contract.
d. When the fault or negligence of the debtor concurs with the fortuitous event in causing the loss.

104. Effects of loss of the prestation to the obligation to give determinate thing or specific thing
or delimited generic thing
a. The courts shall determine whether, under the circumstances, the partial loss of the object of the
obligation is so important as to extinguish the obligation.
b. When the debt of a thing certain and determinate proceeds from a criminal offense, the debtor shall not
be exempted from the payment of its price, whatever may be the cause for the loss, unless the thing
having been offered by him to the person who should receive it, the latter refused without justification to
accept it.
c. The obligation having been extinguished by the loss of the thing, the creditor shall have all the rights of
action which the debtor may have against third persons by reason of the loss meaning there will be legal
subrogation. It means that the creditor of the debtor may directly file an action reindivicatoria or an
action for damages against the third person who caused the loss even without agreement or consent of
the debtor.

105. Effects of fortuitous event to obligation to do or not do

a. The debtor in obligations to do shall also be released when the prestation becomes legally or physically
impossible without the fault of the debtor.
b. When the service has become so difficult as to be manifestly beyond the contemplation of the parties,
the obligation may also be released therefrom, in whole or in part.

106. Remission or Donation or Condonation or Renunciation or Forgiveness of Debt is a mode of

extinguishing obligation which is an act of liberality, by virtue of which, without receiving any equivalent, the
creditor renounces the enforcement of the obligation, which is extinguished in its entirety or in that part or aspect
of the same. It is essentially gratuitous and requires acceptance by the debtor.

107. Essential Requisites for Validity of Donation of Obligation

a. If the donation of debt involves movable with value of P5,000 or less, there must be simultaneous
delivery and acceptance.
b. If the donation of debt involves movable with value exceeding P5,000, both the donation and acceptance
must be in written instrument either private instrument or public instrument
c. If the donation of debt involves immovable property, both the donation and acceptance must be in public
instrument or notarized document. The notarized deed of donation and notarized deed of acceptance
may be put in either same document or separate documents.

108. Requisites of Remission or Condonation or Donation or Renunciation of Obligation

a. The debt must be existing and demandable at the time the remission or renunciation is made.
b. The remission or renunciation of the debt must be gratuitous.
c. The debtor must accept the remission or renunciation of debt.
d. The remission or renunciation of debt may be expressed or implied.

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 109. Principles of Condonation or Remission or Renunciation or Donation of Obligation
a. Whenever the private document in which the debt appears is found in the possession of the debtor, it
shall be disputably presumed that the creditor delivered it voluntarily, unless the contrary is proved.
b. The delivery of a private document evidencing a credit, made voluntarily by the creditor to the debtor,
implies the renunciation of the action which the former had against the latter. If in order to nullify this
waiver it should be claimed to be inofficious, the debtor and his heirs may uphold it by proving that the
delivery of the document was made in virtue of payment of the debt.
c. It is presumed that the accessory obligation of pledge has been remitted when the 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.
d. The renunciation of the principal debt shall extinguish the accessory obligations while the renunciation of
the accessory obligation shall not extinguish the principal debt because accessory obligations follow the
principal obligation but not the other way around.

110. Confusion or Merger is a mode of extinguishing obligation that occurs where there is meeting in one
person of the qualities of creditor and debtor with respect to the same obligation.

111. Requisites of Merger or Confusion

a. It must take place between the principal creditor and the principal debtor.
b. The very same obligation must be involved, for if the debtor acquires rights from the creditor, but not the
particular obligation in question, there will be no merger.
c. The confusion or merger must be total as regards the entire obligation. However, partial merger or
confusion is not prohibited by law.

112. Principles concerning Merger or Confusion

a. The effect of merger is to extinguish the obligation.
b. Merger or confusion which takes place in the person of the principal debtor or creditor benefits the
guarantor or mortgagor or pledgor while the merger or confusion which takes place in the person of the
guarantor or mortgagor or pledgor does not extinguish the principal obligation of the debtor primarily
liable.
c. In case of pure joint obligation, confusion or merger does not extinguish a joint obligation except as
regards the share corresponding to the creditor or debtor in whom the two characters concur.
d. In case of joint-solidary obligation (active or passive), confusion or merger extinguishes the obligation but
only up to the extent of the joint share of confused party.
e. In case of pure solidary obligation, confusion or merger extinguishes the entire obligation.

113. Compensation or Offset is a mode of extinguishing to the concurrent amount, the obligations of those
persons who in their own right are reciprocally debtors and creditors of each other.

114. Principles concerning Compensation or Offset

a. Compensation may be total or partial and when the two debts are of the same amount, there is a total
compensation.
b. The parties can agree upon compensation of debts which are not yet due. Conventional compensation is
allowed in case one or more of the essential requisites of legal compensation are not present.
c. 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. This principle is applicable in
case of judicial compensation.
d. When one or both debts are rescissible or voidable, they may be legally compensated against each other
before they are judicially rescinded or avoided because rescissible obligation is valid and binding until
rescinded while voidable obligation is valid and binding until annulled.
e. The guarantor may set up legal compensation as regards what the creditor may owe the principal debtor.

115. Types of Compensation

a. Legal compensation is a compensation which takes place by operation of law because all the requisites
provided by law are present for compensation by operation of law to occur.
b. Facultative compensation is a compensation which can be claimed by one of the parties who,
however, has the right to object to it, such as when one of the obligations has a period for the benefit of
one party alone and who renounces that period so as to make the obligations due.
c. Conventional compensation is a compensation wherein the parties agree to compensate their mutual
obligations even if one or more of the requisites of legal compensation are lacking.
d. Judicial compensation is a compensation decreed by the court in a case where there is a counterclaim.

116. Requisites of legal compensation or compensation by operation of law

a. Each one of the obligors be bound principally, and that he be at the same time a principal creditor of the
other.
b. Both debts consist in a sum of money, or if the things due are consumable, they be of the same kind,
and also of the same quality if the latter has been stated.
c. Both debts must be due.
d. Both debts must be liquidated and demandable.
e. That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.

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 117. Debts that are allowed to be legally compensated
a. Perfectly valid debts
b. Rescissible debts or valid and binding until cancelled debts
c. Voidable debts or valid and binding until annulled debts

118. Debts that are not allowed to be legally compensated

a. Unenforceable debts or valid but not binding debts unless ratified
b. Void debts or invalid and not binding debts

119. Principles pertaining to legal compensation

a. When all the requisites for legal compensation are present, compensation takes effect by operation of law
even without the consent or awareness of the parties to the obligation.
b. Legal compensation takes place by operation of law even though the debts may be payable at difference
places, but there shall be an indemnity for expenses of exchange or transportation to the place of
payment.
c. If a person should have against him several debts which are susceptible of compensation, the rules on
the application of payments shall apply to the order of the legal compensation.

120. Instances when legal compensation is prohibited by law but facultative compensation is
allowed (party who can claim facultative compensation)
a. When there is a renunciation of the effect of compensation by a party - the nonrenouncing party
b. When one of the debts arises from obligation of depositary in depositum (contract of deposit) - the
depositor
c. When one of the debts arises from or of a bailee in commodatum (contract of commodatum) - the
lender
d. When the one of the creditor has a claim for future support due by gratuitous title - the party entitled
to future support
e. When one of the debts consists in civil liability arising from a crime - the victim of crime
f. When one of the debts pertains to taxes - the state or the government

121. Instances when legal compensation is allowed

a. When the debts arise from contract of loan or mutuum
b. When the civil obligation arises from obligation with a penal clause
c. When the civil obligation arises from past support
d. Any other civil obligations not prohibited by law to be legally compensated

122. Novation is a mode of extinguishment of an obligation by the substitution or change of the obligation by
a subsequent one which extinguishes or modifies the first.

123. Requisites of Novation of Obligation

a. There must be a previous valid obligation.
b. There must be agreement of all parties to the new contract.
c. There must be extinguishment of the old contract.
d. The new obligation must be valid.

124. Types of Novation of Obligation

a. Changing their object or principal conditions
b. Substituting the persons of the debtor (Delegacion or Expromission)
c. Subrogating a third person in the rights of the creditor (Legal Subrogation or Conventional Subrogation)
d. Shortening the term of the obligation

125. Types of novation

a. Subjective or personal novation is the modification of the obligation by the change of the subject; it
is passive if there is substitution of the debtor, and it is active when a third person is subrogated in the
rights of the creditor.
b. Objective or real novation is the change of the obligation by substituting the object with another or
changing the principal conditions.
c. There is partial novation when there is only a modification or change in some principal conditions of
the obligation.
d. There is implied novation when there is such an incompatibility between the old and the new
obligations that they cannot stand together.

126. Concepts of novation

a. In order that an obligation may be extinguished by another which substitutes the same, it is imperative
that it be so declared in unequivocal terms.

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 b. Novation is never presumed.
c. Novation may be expressed or implied.
d. There is implied novation if the old and new obligations are on every point incompatible with each other.
e. When the principal obligation is extinguished in consequence of a novation, accessory obligations may
subsist only insofar as they may benefit third person who did not give their consent.
f. If the new obligation is void, the original obligation was not extinguished, unless the parties intended that
the former should not subsist in any event.
g. The novation is void if the original obligation was void, except when annulment may be claimed only by
the debtor, or when ratification validates acts which are voidable.
h. If the original obligation was subject to a suspensive condition or resolutory condition, the new obligation
shall be under the same condition, unless it is otherwise stipulated.

127. Types of Novation by substitution of person of Debtor

a. In Expromission, the initiative for the change does not emanate from the original debtor and may be
made even without his knowledge, since it consists in a third person assuming the obligation and it
logically requires the consent of the third person (new debtor) and the creditor.
b. In Delegacion, the original debtor (delegante) offers and the creditor (delegatario) accepts a third
person (delegado) (new debtor) who consents to the substitution, so that the consent of the three
parties is necessary.

Note: In novation involving the change of the debtor, the consent of creditor is always required
whether the novation is expromission or delegacion.

128. Effects of Insolvency of New Debtor to liability of Old Debtor

a. In Expromission, the insolvency of new debtor or non-fulfillment of the obligation by the new debtor
shall not generally give rise to any liability on the part of the original debtor because the original debtor
did not have the initiative in making the change, which might have been made even without his
knowledge. However, if the original debtor gives consent to the substitution, he may become liable to the
insolvency of the new debtor especially if the original debtor acted in bad faith.

b. In Delegacion, the insolvency of new debtor or non-fulfillment of the obligation by the new debtor does
not generally revive the obligation of old debtor unless: (1) when said insolvency of new debtor was
already existing and of public knowledge when the original debtor delegated his debt or (2) when said
insolvency of new debtor is known to the debtor when he delegated his debt.

i. Note: If the substitution of the debtor is without the knowledge or against the will of the original
debtor, the new debtor's insolvency or non-fulfillment of the obligations shall not give rise to any
liability on the part of the original debtor.

129. Subrogation refers to the transfer of all the rights of the creditor to a third person, who substitute him
in all his rights. Subrogation transfers to the person subrogated the credit with all the rights thereto
appertaining, either against the debtor or against third persons, be they guarantors or possessors of mortgages,
subject to stipulation in a conventional subrogation

130. Types of Subrogation or Substitution of Creditor

a. Conventional subrogation refers to substitution of creditor by agreement of original parties and the
new creditor.
i. Conventional subrogation must be clearly established in order that it may take effect.
ii. Conventional subrogation of a third person requires the consent of the original parties and of
third person.
iii. Examples of Conventional Subrogation
1. Factoring of Accounts Receivable
2. Discounting of Note Receivable
i. Effect of Partial Subrogation of a third Person
a) A creditor, to whom partial payment has been made, may exercise his right for the
remainder, and he shall be preferred against the person who has been subrogated in his
place in virtue of the partial payment of the same credit. It means that the original creditor
has a better right over the remaining insufficient assets of the debtor as against the partially
subrogated creditor.

b. Legal subrogation is the substitution of new creditor in exceptional cases provided by law. Legal
subrogation is never presumed and available only in cases provided by law.
i. Instances wherein legal subrogation is presumed or instances of legal subrogation
1. When a creditor pays another creditor who is preferred, even without the debtor’s
knowledge.
2. When, even without the knowledge of the debtor, a person interested in the fulfillment of
the obligation pays, without prejudice to the effects of confusion as to the latter’s share.

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 3. The obligation having been extinguished by the loss of the thing, the creditor shall have
all the rights of action which the debtor may have against third persons by reason of the
loss.
4. In contract of property insurance, when the insurance company pays the insured.
5. In case of PDIC, when PDIC pays the insured deposits of depositor, it is legally
subrogated to the rights of the depositor over the assets of the closed bank.

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