OBLIGATIONS AND CONTRACTS

CHAPTER 1
Jurisprudence on the Civil Code of the
Philippines (2002) [hereinafter TOLENTINO])
GENERAL PROVISIONS Kinds of Prestation
• To give
ART. 1156. An obligation is a juridical necessity - A prestation which consists in the delivery of a
to give, to do, or not to do. movable or an immovable thing in order to
create a real right, or for the use of the recipient,
Obligation or for its simple possession, or in order to return
An obligation is a juridical relation whereby a person (called to its owner, e.g. sale, deposit, pledge, donation
the creditor) may demand from another (called the debtor) (Iloilo Jar Corporation v. Comglasco
the observance of a determinative conduct (the giving, doing, Corporation/Aguila Glass, G.R. No. 219509,
or not doing), and in case of breach, may demand satisfaction January 18, 2017)
from the assets of the latter. (Makati Stock Exchange, Inc. v. • To do
Campos, G.R. No. 138814, April 16, 2009) - Includes all kinds of work or service (Asian
 This is also the definition given by Arias Ramos. Construction and Development Corporation v.
Authorities in civil law agree that the definition in Philippine Commercial International Bank, G.R.
1156 is a restrictive definition. It is “incomplete”, and No. 153827, April 26, 2006)
they all agree that the broader one, the one that • Not to do
encompasses what obligation really means is given - Consists in abstaining from doing some act.
by Arias Ramos. This obligation includes the obligation “not to
give”. (Tolentino)
An obligation is a legal bond whereby constraint is laid upon
a person or group of persons to act or forbear on behalf of Kinds of Obligations
another person or group of persons. (STA. MARIA, (a) From the viewpoint of “sanction”
CROMBONDS 2011-2012 [hereinafter SM-CROMBONDS]) 1. Civil obligation – that defined in Article 1156.
The sanction is judicial process.
Juridical Necessity 2. Natural obligation – the duty not to recover
Obligation is a juridical necessity because in case of non- what has voluntarily been paid although
compliance, the courts of justice may be called upon to payment was no longer required.
enforce its fulfillment or, in default thereof, the economic value
that it represents. (DE LEON, Comments and Cases on Example: A owes B P1,000,000. But the debt
Obligations and Contracts (2014) [hereinafter DE LEON]) has already prescribed. If A, knowing that it has
prescribed, nevertheless still pays B, he (A)
Elements of an Obligation cannot later on get back what he voluntarily
• Juridical Tie or Relation (vinculum juris) paid. The sanction is the law of course, but only
- The efficient cause established by the various because conscience had originally motivated
sources of obligations the payment.
- The legal relation between the debtor and the
creditor 3. Moral obligation – the duty of a Catholic to
- The vinculum juris or juridical tie is that which hear mass on Sundays and holy days of
essentially binds the parties to the obligation. obligation. The sanction here is conscience or
This linkage between the parties is a binding morality, or the law of the church.
relation that is the result of their bilateral
actions, which gave rise to the existence of the Civil Obligations Natural Obligations
contract. (The Wellex Group, Inc. v. U-Land Arise from law,
Airlines, Co., Ltd., G.R. No. 167519, January Based on equity and
contracts, quasi-contracts,
14, 2015) natural law, not on
delicts
positive law
and quasi-delicts
• Active Subject (obligee/creditor) Gives a right of
- Person who has the right/power to demand the Do not grant such
action in courts of
performance or payment or fulfillment of the right of action to
justice to compel
enforce their
obligation their fulfillment or
performance
performance
• Passive subject (obligor/debtor)
- The one against whom the obligation is (b) From the viewpoint of subject matter
juridically demandable 1. Real obligation – the obligation to give
2. Personal obligation – the obligation to do or
• Object or Prestation not to do
- The conduct required by the parties to do or not
to do, or to give. (Ang Yu Asuncion v. CA, G.R. (c) From the affirmativeness and negativeness of the
No. 109125, December 2, 1994) obligation
- Not the thing or object, but the particular 1. Positive or affirmative obligation – the
conduct of the debtor which may consist in obligation to give or to do
giving, doing, or not giving, or not doing 2. Negative obligation – the obligation not to do
something. (4 TOLENTINO, Commentaries & (which naturally includes “not to give”)

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 OBLIGATIONS AND CONTRACTS
(d) From the viewpoint of persons obliged al., L-11622 and L-11668, Jan. 28, 1961) (PARAS, Civil Code
1. Unilateral – where only one of the parties is of the Philippines Annotated [hereinafter PARAS])
bound
2. Bilateral – where both parties are bound Legal Obligation
The law is the most important source of obligation.
Example: In a contract of sale, the buyer is
obliged to pay, while the seller is obliged to It does not depend upon the will of the parties. It is imposed
deliver. by the State and is generally imbued with some public policy
considerations.
 Bilateral obligations may be:
a) Reciprocal The basis of the obligation must be clear. It cannot be
b) Non-reciprocal (where performance by one presumed.
is non-dependent upon the performance by
the other) Existing law enters into and forms part of a valid contract
without need for the parties expressly making reference
Forms of Obligation thereto. The provisions of a contract are not only limited to
It is settled that once perfected, a contract (obligations arising what we see, but is understood to include what is prescribed
from contracts) is generally binding in whatever form, whether by law. (SM-CROMBONDS)
written or oral, it may have been entered into, provided the
essential requisites for its validity are present. (Kabisig Real Conflict between Civil Code and Special Laws
Wealth Dev., Inc. v. Young Builders Corporation, G.R. No. “Special laws” – refers to all other laws not contained in the
212375, January 25, 2017) Civil Code, like the Corporation Code, Negotiable Instruments
Law, Insurance Code, National Internal Revenue Code,
ART. 1157. Obligations arise from: Revised Penal Code, Labor Code, etc.

(1) Law; If regarding an obligation ex lege, there is a conflict between

the New Civil Code and a special law, the latter prevails
(2) Contracts;
unless the contrary has been expressly stipulated in the New
(3) Quasi-contracts; Civil Code. (Art. 18)
(4) Acts or omissions punished by law; and
(5) Quasi-delicts. ART. 1159. Obligations arising from contracts
have the force of law between the contracting
Sources of Obligations
parties and should be complied with in good
1. Law
2. Contracts faith.
3. Quasi-contracts
4. Acts or omissions punished by law Obligations Arising from Contracts (Ex-Contractu)
5. Quasi-delicts - From the stipulation of the parties
- Example: Obligation to repay a loan or
The list of sources is exclusive. indebtedness by virtue of an agreement

ART. 1158. Obligations derived from law are not Meaning of Contract
A contract is a meeting of the minds between two persons
presumed. Only those expressly determined in whereby one binds himself, with respect to the other, to give
the Civil Code or in special laws are demandable, something or to render some service. (Art. 1305, NCC)
and shall be regulated by the precepts of the law
which establishes them; and as to what has not While obligations arising from a contract have the force of law
been foreseen, by the provisions of Book IV of between the parties, this does not mean that the law is inferior
the Civil Code. to contracts. This is because before a contract can be
enforced, it must first be valid, and it cannot be valid if it is
Obligations Arising from Law (Ex-Lege) against the law. Moreover, the right of the parties to stipulate
- Imposed by the law itself is limited. Hence, Article 1306 states, “The contracting parties
- Examples: obligation to pay taxes (National may establish such stipulations, clauses, terms and
Internal Revenue Code), obligation to support conditions as they may deem convenient, provided they are
(Art. 291, Family Code) not contrary to law, morals, good customs, public order or
public policy.” (Paras)
Meaning of the Article
The law says “obligations derived from law are not As long as Art. 1306 is complied with, the contract should be
presumed.” This merely means that the obligation must be given effect, even if at the time it was entered into, no legal
clearly (expressly or impliedly) set forth in the law (the Civil provision existed governing it. (Quizana v. Redugerio, 50
Code or Special Laws). Thus, an employer is ordinarily not O.G. 2444, June 1954)
required to furnish his employees with legal assistance, for no
law requires this. (De la Cruz v. Northern Theatrical Binding Force of a Contract
Enterprises, 50 O.G. 4225, September 1954) In case of Contracts are perfected by mere consent, and from that
overpayment of taxes, the National Government cannot be moment, the parties are bound to:
required to pay interest on the amount refundable in the
absence of a statutory provision expressly directing or 1. The fulfillment of what has been expressly stipulated
authorizing such payment. (Collector of Int. Rev. v. Fisher, et
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 OBLIGATIONS AND CONTRACTS
2. To all of the consequences which, according to the Some Cases (from Paras [2016])
nature of the obligations, may be in keeping with
good faith, usage, and law. (Art. 1315, NCC) De los Reyes v. Alejado
FACTS: A borrower agreed to pay his debt, and in case of
Where the law requires that a contract be made in some form, non-payment, to render free service as a servant.
it shall only bind the parties upon compliance with the ISSUE: Is the obligation valid?
prescribed formalities. (Art. 1356, NCC) HELD: The obligation to pay is, of course, valid and cannot
Article 1159 means that neither party may unilaterally and be questioned but the undertaking to render domestic
upon his own exclusive volition, escape his obligations under services for free is contrary to law and morals, for here,
the contract, unless the other party assented thereto, or slavery would result.
unless for causes sufficient in law and pronounced adequate NOTE: If, however, the “free” services will be rendered in
by a competent tribunal. (Katipunan Labor Union v. Caltex satisfaction of the debt, the stipulation can be given effect, for
[Phil.], Inc., L-10337, May 27, 1957) here the services will not really be gratuitous. Even in this
case, however, specific performance of the service will not be
Good Faith a proper remedy for non-compliance. Instead, an action for
Good faith is an intangible and abstract quality with no damages of payment of the debt should be brought.
technical meaning or statutory definition, and it in
encompasses, among other things, an honest belief, the Molina v. De la Riva
absence of malice and the absence of design to defraud or to FACTS: The parties in a case agreed to go to court in Albay,
seek an unconscionable advantage. (Ochoa v. Apeta, G.R. although another Court has jurisdiction.
No. 146259, September 13, 2007) HELD: The agreement is null and void, for jurisdiction is
conferred by law, and not by the will of the parties.
“Compliance in good faith” means that we must interpret “not
by the letter that killeth but by the spirit that giveth life.” Bachrach v. Golingco
(William Golangco Construction Corp. v. PCIB, 485 SCRA ISSUE: If there is an express written contract for fees
203 [2006]) between an attorney and his client, may the court still
disregard the contract?
Differences between an Obligation and a Contract HELD: Yes, because a contract for attorney’s fees is different
An obligation is the result of a contract (or some other from other contracts. It may be disregarded if the amount
source). Hence, while a contract, if valid, always results in fixed is unconscionable or unreasonable, considering the
obligations, not all obligations come from contracts. A value of the work accomplished.
contract always presupposes a meeting of the minds; this is
not necessarily true for all kinds of obligations. Conrado v. Judge Tan
FACTS: In a validly made contract, some provisions were
Be it noted, however, from another viewpoint that a contract later on inserted by a falsifier.
may itself be the result of an obligation. Thus, if P engages A ISSUE: Is the whole contract void?
as the former's agent, we have the contract of agency. As an HELD: Only the additional provision should be disregarded,
agent, A has the obligation, say to look around for clients or and the original terms should be considered valid and
buyers, as in the real estate business. As a result of such subsisting.
obligation, A may enter into a contract of sale with C, a
customer. The contract of sale itself results in the obligations Ollendorf v. Abrahamson
to pay and to deliver. The obligation to deliver may result in a FACTS: Ollendorf, needlework manufacturer, hired
contract of carriage, and so on, ad infinitum. (Paras) Abrahamson for two years, on the condition that for five years,
the latter should not engage in competitive needlework
manufacture. After one year, the latter left for reasons of
Breach of Contract (culpa contractual) health. Shortly afterwards, after regaining his health, he
In culpa contractual, the mere proof of the existence of the competed with his former employer, who now seeks to
contract and the failure of its compliance justify, prima facie, restrain him from such competition. The defendant argues
a corresponding right of relief. The law, recognizing the that the restriction is void, because it is an unreasonable
obligatory force of contracts, will not permit a party to be set restraint of trade.
free from liability for any kind of misperformance of the HELD: The agreement was valid, and is a reasonable
contractual undertaking or a contravention of the tenor restraint, considering that it was only for five years. Inasmuch
thereof. (Gilat Satellite Networks, Ltd. v. United Coconut as it is enforceable and has the rule of law between the
Planters Bank General Insurance Co., Inc., G.R. No. 189563, parties, the defendant can be properly restricted.
April 7, 2014)
The trial court cannot disregard and substitute their own Molave Motor Sales, Inc. v. Laron and Geminiano
interpretation of the stipulations in an insurance contract When an employee in a car repair shop has his own car
which states the insurer’s liabilities, whenever the intentions repaired therein and purchases certain spare parts, his
of the parties are clear and the essential requirements for the liability therefor is governed by the Civil Code, not the Labor
validity of such contract exist. (Perla Compania de Seguros, Code. Therefore, it is the civil courts, not the Ministry
Inc. v. CA) (Department) of Labor, that has jurisdiction over the case.

The So-Called Innominate Contracts

For want of an express name, the following are termed
“contratos innominados”.
(a) Do ut des – I give that you may give.
(b) Do ut facias – I give that you may do.

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 OBLIGATIONS AND CONTRACTS
(c) Facio ut des – I do that you may give. Implied Contract
(d) Facio ut facias – I do that you may do. A contract which is implied in fact is one in which the
circumstances imply that parties have reached an agreement
Example: A worked for B as an interpreter. Even without an even though they have not done so expressly.
express agreement as to compensation, A is entitled to
compensation because of facio ut des – I do the interpreting An implied contract, in the proper sense, is a contract which
that you may give the money. (Perez v. Pomar) arise where the intention of the parties is not expressed, but
an agreement in fact, creating an obligation, is implied or
Vicente Aldaba v. Court of Appeals, et al. presumed from their acts, or where there are circumstances
FACTS: Dr. Vicente Aldaba and his daughter, Dr. Jane which, according to the ordinary course of dealing and the
Aldaba, rendered services to Belen Aldaba, a rich woman of common understanding of men, show a mutual intent to
Malolos, Bulacan for ten years without receiving any contract. (Swedish East Asia Co. v. Manila Port Services, 25
compensation. It was admitted that for such services, the two SCRA 639)
doctors did not expect to be paid.
Example: By going to a doctor, a patient agrees that he will
ISSUES: Was there a contract, whether express or implied? pay a fair price for the service. If he refuses to pay after being
Was Belen obliged to compensate the two doctors? examined, he has breached a contract implied in fact. (SM-
CROMBONDS)
HELD: There was no contract, whether express or implied,
and therefore Belen was not obliged to compensate the two Distinctions between Implied Contract and Quasi-
doctors; no express contract, for nothing on this point was Contract
agreed upon; no implied contract, for the doctors did not 1.) An implied contract requires consent of the parties
expect to be paid for their services. When a person does not while quasi-contract is not predicated on consent,
expect to be paid for his services, there cannot be a contract being a unilateral act.
implied in fact to give compensation for such services. To give 2.) The basis of an implied contract is the will of the
rise to an implied contract to pay the services, said services parties while the basis of a quasi-contract is law, to
must have been rendered by one party in expectation that the the end that there be no unjust enrichment.
other party would pay for them and must have been accepted
by the other party with knowledge of that expectation. Two Main Kinds of Quasi-contracts
1.) Negotiorum Gestio (Officious Management)

ART. 1160. Obligations derived from quasi- ART. 2144. Whoever voluntarily takes charge of
contracts shall be subject to the provisions of the agency/management of the
Chapter 1, Title XVII, of this Book. business/property of another, without any
power from the latter, is obliged to continue the
ART. 2142. Judicial relations arising from lawful, same until the termination of the affair and its
voluntary, and unilateral acts by virtue of which incidents, or to require the person concerned
the parties become bound to each other, based to substitute him, if the owner is in a position to
on the principle that no one shall be unjustly do so. This juridical relation does not arise in
enriched or benefited at the expense of another. either of these instances:
(1) When property or business is not
Obligations Arising from Quasi-contracts (Quasi Ex- neglected/abandoned;
Contractual) (2) If in fact the manager has been tacitly
Quasi-contracts are based on the principles that: authorized by the owner.
1. No one must unjustly enrich himself at another’s
expense;
Requisites of Negotiorum Gestio
2. If one benefits, he must reimburse; &
1. No meeting of the minds
3. Justice and equity
2. Taking charge of another’s business or property
3. Property or business must have been abandoned or
A quasi-contract is that juridical relation resulting from a
neglected
lawful, voluntary, and unilateral act and, which has for its
4. The officious manager must not have been
purpose the payment of indemnity to the end that no one shall
expressly or implicitly authorized
be unjustly enriched or benefited at the expense of another.
5. The officious manager (gestor) must have
(Art. 2142, NCC) (Paras)
voluntarily taken charge – there must eb no vitiated
consent, such as error in thinking that he owned the
In other words, the law considers the parties as having
property or the business (Paras)
entered into a contract, irrespective of their intention, to
prevent injustice. (De Leon)
Example: If you went away on vacation and your neighbor
noticed your plants in the garden were dying. Your neighbor
Query: Is a Quasi-Contract an Implied Contract?
would take care of your plants and spend necessary
Answer: No, because in quasi-contract (unlike in an implied
expenses on it. You will be obligated to reimburse/pay your
contract), there is no meeting of the minds. (Paras)
neighbor back.
Contract an Implied Contract?
Answer: No, because in quasi-contract (unlike in an implied
contract), there is no meeting of the minds. (Paras)

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 OBLIGATIONS AND CONTRACTS
Obligations Created in Negotiorum Gestio (RABUYA, b. Exception: Their obligation is merely joint
Civil Law Reviewer [hereinafter RABUYA]) when the management was assumed to
a) On the part of the officious manager or gestor save the thing or business from imminent
1) He is obliged to continue with the agency or danger. (Art. 2146(2), NCC)
management until the termination of the affair
and its incidents. He can only required the b) On the part of the owner
owner to substitute him if the latter is in a The owner is liable to the officious manager for the
position to do so. (Art. 2144, NCC) following:
(a) Obligations incurred in his interest;
2) In the performance of his duties as such, he is (b) Necessary and useful expenses; and
obliged to observe the diligence of a good father (c) Dameges suffered by the officious manager in
of a family. If the owner suffers damage by the performance of his duties, in the following
reason of the fault or negligence of the officious situations –
manager, the latter is liable to pay damages to
the former. (Art. 2145, NCC) The courts may, 1) If the owner enjoys the advantages of the
however, increase or moderate the indemnity officious management (Art. 2150(1), NCC);
according to the circumstances of each case. or
2) If the management had for its purpose the
3) Ordinarily, he is not liable for any loss or prevention of an imminent and manifest
damage to the property or business by reason loss, although no benefit may have been
of fortuitous event. But in the following derived (Art. 2150(2), NCC); or
situations, he is liable for any fortuitous event if 3) Even if he did not derive any benefit and
he – there has been no imminent and manifest
danger to the property and business
i. Undertakes risky operations which the provided that –
owner was not accustomed to embark
upon; (a) The officious manager has acted in
ii. Prefers his own interest to that of the good faith; and
owner; (b) The property or business is intact,
iii. Fails to return the property or business ready to be returned to the owner. (Art.
after demand by the owner; 2151, NCC)
iv. Assumes the management in bad faith
(Art. 2147, NCC); Modes of Extinguishing the Officious Manegement
v. Is manifestly unfit to carry on the (Rabuya)
management, except when the same 1) Repudiation of management by the owner, either
was assumed to save the property or expressly or tacitly;
business from imminent danger; and 2) Putting an end to management by the owner;
vi. Prevents, by his intervention, a more 3) Death, civil interdiction, insamity or insolvency of
competent person from taking up the either the owner of the officious manager; and
management, except when the same 4) Withdrawal from the management by the officious
was assumed to save the property or manager (Art. 2153, NCC), but he can only so do if
business from imminent danger. (Art. the owner is in a position to substitute for him. (Art.
2148) 2144, NCC)

4) He is personally liable for contracts which he

has entered into with third persons, insofar as 2.) Solutio Indebiti (Payment Not Due/Payment by
the latter shall be concerned, even though he Mistake)
acted in the name of the owner. (Art. 2152,
NCC) Hence, as a rule, there shall be no right ART. 2154. If something is received when there
of action between the owner and such third is no right to demand it, and it was unduly
persons, except – delivered through mistake, the obligation to
return it arises.
a. If the owner has ratified the management,
either expressly or tacitly; or
Elements of Solutio Indebiti
b. When the contract refers to things
1. A payment is made when there exists no binding
pertaining to the owner of the business.
relation between the payor, who has no duty to pay,
(Art. 2152, NCC)
and the person who received the payment; and
2. The payment is made through mistake, and not
5) If the officious manager delegates to another
through liberality or some other cause (Spouses
person all or some of his duties, he is liable for
Abella v. Spouses Abella, G.R. No. 195166, July 8,
the acts of the delegate, without prejudice to the
2015)
direct obligation of the delegate to the owner.
(Art. 2146(1), NCC)
Example: If you bought food from the store then the change
given to you exceeded the right amount. You are duty bound
6) Liability of two or more officious managers:
to give back the excess change.
a. General rule: Their obligation is solidary.

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 OBLIGATIONS AND CONTRACTS
Presumption of Mistake ART. 1161. Civil obligations arising from criminal
Mistake in payment is presumed if something which had offense shall be governed by the penal laws,
never been due or had already been paid was delivered. But subject to the provisions of Article 2177, and of
the recipient may prove that the delivery was made out of
the pertinent provisions of Chapter 2,
liberality or for any other just cause. (Art. 2163, NCC)
(Rabuya) Preliminary Title, on Human Relations, and of
Title XVIII of this Book, regulating damages.
Obligations Created (Rabuya)
1) The recipient has the obligation to return what has Obligations Arising from Delict (Ex Delicto or Ex
been unduly delivered. (Art. 2154, NCC) Maleficio)

2) If he acted in bad faith in accepting the undue Governing Rules (BAR QUESTION) (Paras)
payment, he is also liable – (a) Pertinent provisions of the RPC, and other penal
a) To pay legal interest, if a sum of money is laws, subject to the provisions of Art. 2177, NCC.
involved; (b) Chapter 2, Preliminary Title, on Human Relations (of
b) To return the fruits he received or those which the Civil Code).
should have been received, if the things (c) Title 18 of Book IV of the Civil Code – on damages.
produces fruits (Art. 2159(1), NCC);
c) To answer for any loss or impairment of the Every person criminally liable for a felony is also civilly liable.
things from any cause, until it is recovered; and (Art. 100, RPC)
d) To pay damages to the person who delivered
the thing, until it is recovered. (Art. 2159(2), Every crime gives rise to:
NCC) 1. A criminal action for the punishment of the guilty
party; and
3) If he acted in good faith in accepting the undue 2. A civil action for the restitution of the thing, repair
payment, he is responsible for the impairment or of the damage, and indemnification for the losses.
loss of the things or its accessories and accessions (Romero v. People of the Philippines, G.R. No.
insofar as he has thereby been benefited. If he has 167546, July 17, 2009)
alienated it, he is obliged to return the price or assign
the action to collect the sum. (Art. 2160, NCC) According to Article 104 of the Revised Penal Code, civil
liability includes:
4) The responsibility of two or more payees, when 1. Restitution
there has been payment of what is not due, is • Restitution. How Made. – Restitution of the
solidary. (Art. 2157, NCC) thing itself must be made whenever possible
with allowance of deterioration/diminution of
Concept of In Rem Verso value as determined by the court. (Art. 105,
A person who acquires or comes into possession of RPC)
something at the expense of another without just or legal
grounds has the obligation to return the same (Art. 22, NCC), 2. Reparation of damage caused
and the action for such recovery is called an accion in rem • Reparation. How Made. – Court will determine
verso. (Rabuya) amount of damage (considering price of thing
when possible and its sentimental value to
Solutio Indebiti Distinguished from In Rem Verso injured party) and reparation shall be made
1.) Mistake is an essential element in solution indebiti accordingly. (Art. 106, RPC)
which is not necessary in accion in rem verso.
2.) An accion in rem verso is considered merely an 3. Indemnification for consequential damages
auxiliary action, available only when there is no other • Indemnification. What is Included. –
remedy on contract, quasi-contract, crime or quasi- Indemnification for consequential damages
delict. If there is an obtainable action under any shall include those caused the injured party and
other institution of positive law, that action must be those suffered by his family/third person by
resorted to, and the principle of accion in rem verso reason of the crime. (Art. 107, RPC)
will not lie. (U.P. v. Philab Industries, Inc.) Hence, if
the delivery is by reason of mistake, the action must No Civil Liability for “Victimless Crimes”
be based on the quasi-contract of solution indebiti No civil liability arises on the part of the offender in some
and not under in rem verso. crimes such as treason, gambling, or illegal possession of
firearms, because there are no damages to be compensated
Other Form of Quasi-Contracts or there is no private person injured by the crime. (Jurado)
a) Support and funeral expenses
b) Accident and calamities Effect of Exempting Circumstances to Civil Liability Ex
c) Other situations Delicto
Under Article 12 of the Revised Penal Code, persons
exempted from criminal liability are not necessarily exempted
from civil liability except under Art. 12, par. 4.

Effect of Acquittal in Criminal Case (Paras)

Query: Suppose a defendant in a criminal case is acquitted,
can he still be held liable civilly?

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 OBLIGATIONS AND CONTRACTS
Answer: It depends. action may be enforced either against the
(a) If the reason why there was an acquittal was executor/administrator or the estate of the accused,
because they accused could not have committed the depending on the source of obligation upon which
act (as when he was in another country at the time the same is based. Finally, the private-offended
he was supposed to have murdered somebody in party need not fear a forfeiture of his right to file the
the Philippines), no civil action can later on be separate civil action by prescription, in cases where
brought. during the prosecution of the criminal action and
(b) If the reason for the acquittal was because of an prior to its extinction, the private-offended party
exempting circumstance (as in the case of an insane instituted together therewith the civil action. In such
defendant), he would still be civilly liable (if he has case, the statute of limitations on civil liability is
no guardian, or if the guardian who may under the deemed interrupted during the pendency of the
circumstance we ordinarily liable, is insolvent). criminal case, conformably with the provisions of
(c) If there is an independent civil action allowed by the Article 1155 of the Civil Code that should thereby
law, civil liability may still arise if this action is avoid any apprehension on a possible privation of
instituted and the defendant's liability is proved by right by prescription. (People v. Ayochok, citing
mere preponderance of evidence because while People v. Bayotas)
guilt beyond reasonable doubt might not have been
proved, it would be a simpler matter to prove guilt by Some Cases (from Paras)
mere preponderance of evidence.
Badiong v. Judge Apalisok
Instances Where Acquittal Does Not Extinguish Civil Although the defendant in a criminal case has already
Liability (Rabuya) pleaded guilty, and has filed an application for probation, the
1.) The acquittal is based on reasonable doubt as only court should still set the case for hearing to receive the
preponderance of evidence is required. offended party’s evidence on the civil liability of the accused.
2.) The court declares that the liability of the accused is If this would not be done, the offended party will be denied
only civil. due process.
3.) The civil liability of the accused does not arise from
or is not based upon the crime of which the accused In a criminal case, civil liability may be claimed even if there
is acquitted. (Dayap v. Sendiong, 577 SCRA 134) is no specific allegation of damages in the information or
complaint that has been filed.
Rule of Implied Institution of Civil Action Based on Delict
General Rule: When a criminal action is instituted, the civil People v. Rodriguez
action for the recovery of civil liability ex delicto is deemed If a criminal is convicted without the court declaring his civil
instituted with the criminal action. liability and he immediately commences serving sentence,
Exception: The civil action is not deemed instituted with the the court may still grant indemnity, upon motion of the victim,
criminal action if the offended party – three days after the criminal began to serve sentence,
1. Waives the civil action; because the judgment has not yet become final, for the period
2. Reserves his right to institute it separately; or to appeal has not yet prescribed.
3. Institutes the civil action prior to the criminal action.
(Rule 111, Rules of Criminal Procedure) People v. Mostasesa
If a person commits a crime by taking something, he cannot
Effects of Death of Accused Pending Appeal of His discharge his civil liability by offering to give a similar thing.
Conviction (Rabuya) He must pay the price, for the civil liability arising from a crime
1) With respect to his criminal liability, the same is is not governed by the Civil Code but by Arts. 100-111 of the
extinguished. (Art. 89(1), RPC) RPC.

2) With respect to his civil liability arising from the crime Garcia, et al. v. Judge Florido
or delict (or civil liability ex delicto), the same is also While it is true that a reservation [of the civil case] should have
extinguished. The death of the accused during the been made under Rule 111 of the New Rules on Criminal
pendency of his appeal extinguished the civil liability Procedure, still the Rule does not state when the reservation
that was based exclusively on the crime for which is supposed to be made. Here, the victims had no chance to
the accused was convicted, because no final make the reservation (for they were still at the hospital);
judgment of conviction was yet rendered by the time moreover, the trial has not even begun. It is, therefore, not yet
of his death. (People v. Bunay, citing People v. too late to make the reservation; in fact, the actual filing of the
Bayotas) civil case, though at this stage, is even better than the making
of the reservation.
3) Only civil liability predicated on a source of obligation
other than the delict survived the death of the People v. Entes
accused, which the offended party can recover by Affidavits of desistance (such as an express pardon in private
means of a separate civil action. The claim for civil crimes after the filing of the criminal case) do not justify the
liability survives notwithstanding the death of the dismissal of a criminal complaint.
accused, if the same may also be predicated on a
source of obligation other than a delict. (Id.)

4) Where the civil liability survives, an action for

recovery therefor may be pursued but only by way
of filing a separate civil action. This separate civil

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 OBLIGATIONS AND CONTRACTS
ART. 1162. Obligations derived from quasi- Quasi-Delicts Distinguished from Delicts (Jurado)
delicts shall be governed by the provisions of (1) Crimes affect the public interest, while quasi-delicts
Chapter 2, Title XVII of this Book, and by special are only of private concern;
(2) The Penal Code punishes or corrects the criminal
laws.
act, while the Civil Code, by means of
indemnification, merely repairs the damages
ART. 2176. Whoever by act or omission causes incurred;
damage to another, there being fault or (3) Generally, there are two liabilities in crime: criminal
negligence, is obliged to pay for the damage and civil. In quasi-delict, there is only civil liability;
done. Such fault or negligence, if there is no pre- and
existing contractual relation between the parties, (4) Crimes are not as broad as quasi-delicts, because
is called a quasi-delict and is governed by the the former are punished only if there is a law clearly
provisions of this Chapter. covering them, while the latter include all acts in
which any kind of fault or negligence intervenes.
Obligations Arising from Quasi-Delict (Torts) (Barredo v. Garcia and Almario, 73 Phil. 607)

Quasi-Delict Culpa Contractual and Culpa Extra Contractual (or Culpa

A quasi-delict is a fault or negligence (or omission of care) Aquiliana), Distinguished (Rabuya)
which causes damage to another, there being no existing (1) In culpa contractual, the source of obligation is
contractual relations between the parties. (Paras) contract; while in culpa aquiliana, the source of
obligation is quasi-delict.
Culpa aquiliana can refer to acts which are criminal in (2) In culpa contractual, the negligence is merely
character, whether the same be voluntary or negligent. incidental to the performance of an already existing
(Elcano v. Hill) obligation (arising from contracts) and that the
vinculum juris exists independently of the
Note: Another name for quasi-delict is “tort” or “culpa negligence; while in culpa aquiliana, the negligence
aquiliana”. is substantive and independent in that it is the
negligence itself which creates the vinculum.
Examples: (3) In culpa contractual, proof of contract and of its non-
performance is sufficient prima facie to warrant
• Obligation of the possessor of an animal to pay for
recovery, hence, it is not necessary to prove the
the damage which it may have caused.
negligence. In culpa aquiliana, the burden of proof
• While driving a car recklessly, D injured a
rests upon the plaintiff to prove the negligence and
pedestrian.
failure to do so shall result in the dismissal of the
• While cleaning her window sill, B’s negligence action.
caused a flower pot to fall on the street, breaking the
arms of C. Effect of Pre-existing Contractual Relations
The existence of a contract between the parties does not bar
Requisites of Quasi-delict the Commission of a tort (quasi-delict) by one against the
1. Damage or injury suffered by the plaintiff other and the consequent recovery of damages therefore,
2. Fault or negligence attributable to the defendant when the act that breaks the contract is also a tort. (Air France
3. Direct relation of cause and effect between the fault v. Carrascoso, 18 SCRA 155). In other words, when an act
or negligence on the one hand and the damage or which constitutes a breach of contract would have itself
injury on the other hand (proximate cause) constituted the source of a quasi-delictual liability had no
contract existed between the parties, the contract can be said
Negligence to have been breached by tort, thereby allowing the rules on
Negligence is the omission of that diligence which is required tort to apply. (Light Rail Transit Authority v. Navidad, 397
by the circumstances of person, place, and time. (Art. 1173, SCRA 75, 82-83) (Rabuya)
NCC) Thus, the finding of negligence is a question of fact.
(Philippine National Railways Corporation v. Vizcara, G.R. Persons Liable (Jurado)
No. 190022, February 15, 2012) Obligations arising from quasi-delicts are demandable not
only from the person directly responsible for the damage
Negligence is defined as the failure to observe for the incurred, but also against the following:
protection of the interest of another person that degree of (1) The father and, in case of his death or incapacity,
care, precaution, and vigilance which the circumstances justly the mother, with respect to damages caused by the
demand, whereby such other person suffers injury. (Guillang minor children who live in their company;
v. Bedania, G.R. No. 162987, May 21, 2009)
(2) Guardians, with respect to damages caused by the
Test for Determination of Negligence minors or incapacitated persons who are under their
Would a prudent man (in his position) foresee harm to the authority and who live in their company;
person injured as a reasonable consequence of the course
about to be pursued? If so, the law imposes a duty on the (3) The owners and managers of an establishment or
actor to refrain from that course, or to take precaution against enterprise, with respect to damages caused by their
its mischievous results, and the failure to do so constitutes employees in the service of the branches in which
negligence. Reasonable foresight of harm, followed by the the latter are employed or on the occasion of their
ignoring of the admonition born of this provision, is the functions;
constitute fact of negligence. (Picart v. Smith, 37 Phil. 809)

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 OBLIGATIONS AND CONTRACTS

CHAPTER 2
(4) Employers with respect to damages caused by their
employees and household helpers acting within the
scope of their assigned tasks, even though the
former are not engaged in any business or industry; NATURE AND EFFECT OF OBLIGATIONS
(5) The State, when it acts through a special agent; but ART. 1163. Every person obliged to give
not when the damage has been caused by the something is also obliged to take care of it with
official to whom the task done properly pertains; and the proper diligence of a good father of a family,
unless the law or the stipulation of the parties
(6) Lastly, teachers or heads of establishments of arts requires another standard of care.
and trades, with respect to damages caused by their
pupils and students or apprentices, so long as they Obligation to Give
remain in their custody. (Art. 2180, NCC) An obligation to give a thing may either be
a. Determinate (specific); or
It must be noted, however, that the responsibility of the above
- Particularly designated or physically
persons or entities shall cease if they can prove that they
segregated from all others of the same class.
have observed all the diligence of a good father of a family to
- Concrete, particularized, indicated by its own
prevent damage. (Art. 2180, NCC)
individuality
b. Generic
- Refers only to a glass or genus to which it
pertains and cannot be pointed out with
particularity.

Specific Thing Generic Thing

Identified by its Identified only by its
individuality specie

Debtor cannot substitute it

with another although the The debtor can give
latter is of the same kind anything of the same
and quality without the class as long as it is of the
consent of the creditor. same kind.
(Art. 1244, NCC)

Diligence Needed
(a) That which is required by the nature of the obligation
and corresponds with the circumstances of person,
time, and place. (Art. 1173, NCC) (this is also the
factors to be considered)
- This is really diligence of a good father of a
family.

(b) However, if the law or contract provides for a

different standard of care, said law or stipulation
must prevail. (Art. 1163, NCC)
- Example: 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. (Art. 1755,
NCC)

Nota Bene: While parties may agree upon diligence which is

more or less than that of a good father of a family, it is contrary
to public policy (Art. 1306) to stipulate for absolute exemption
from liability for any fault or negligence (Art. 1173, 1174).

Duties of Debtor in Obligation to Deliver a Generic Thing

1. To deliver a thing which is of the quality intended by
the parties taking into consideration the purpose of
the obligation and other circumstances; and
2. To be liable for damages in case of fraud,
negligence or delay, in the performance of his
obligation, or contravention of the tenor thereof.

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 OBLIGATIONS AND CONTRACTS
Bernabe Africa, et al. v. Caltex, et al. Personal Right v. Real Right
L-12986, March 31, 1966
Personal Right
Real Right
(jus in personam or jus
FACTS: A fire broke out at a Caltex service station. It started (jus in re)
ad rem)
while gasoline was being hosed from a tank trunk into the
underground storage, right at the opening of the receiving
A right enforceable
tank where the nozzle of the hose had been inserted. The fire
only against a
destroyed several houses. Caltex and the station manager
definite person or
were sued. A right enforceable
group of persons,
ISSUE: Without proof as to the cause and origin of the fire, against the whole
such as the right of
would the doctrine of res ipsa loquitur apply such that the world, such as the
a creditor to demand
defendants can be presumed negligent? right of ownership,
from the debtor the
HELD: Yes, for the gasoline station was under the care of the possession, usufruct
delivery of the object
defendant, who gave no explanation at all regarding the fire. or easement
of the obligation after the
It is fair to reasonably infer that the incident happened
perfection
because of their want of care.
of the contract
ART. 1164. The creditor has a right to the fruits The right or power of a
of the thing from the time the obligation to deliver person (creditor) to The right or power of a
it arises. However, he shall acquire no real right demand of another person over a specific
(debtor), as a definite thing without a definite
over it until the same has been delivered to him. passive subject, the passive subject against
fulfillment of a whom such right may be
Right of Creditor to Fruits prestation to give, to do, personally enforced.
The creditor is entitled to the fruits of the thing to be delivered or not to do
from the time the obligation to make delivery of the thing
arises. Can be defeated by a third
person in good faith who
When Obligation to Deliver Arises has innocently acquired
Generally, the obligation to deliver the thing due, and the property prior to the
consequently, the fruits thereof, if any, arises from the time of scheduled delivery
Accrues when the thing or
the perfection of the contract. regardless of whether or
object of the prestation is
not such
delivered to the creditor
If the obligation is subject to a suspensive condition or period, third person acquired the
it arises upon fulfillment of the condition or arrival of the property after the right to
period. the delivery of the thing
has accrued in favor of the
In a contract of sale, the obligation arises from the perfection creditor
of the contract even if the obligation is subject to a suspensive “You don’t have the thing “You have the thing
condition or a suspensive period where the price has been yet!” already!”
paid.

In obligations to give arising from law, quasi-contracts, delicts Kinds of Delivery

and quasi-delicts, the time of performance is determined by 1. Actual delivery (or tradition) – where physically,
the specific provisions of the law applicable. the property changes hands.

Different Kinds of Fruits Example: If Fry sells Paul a fountain pen, the giving
1. Natural – spontaneous products of the soil, and the by Fry to Paul of the fountain pen is actual tradition.
young and other products of animals (grass, all trees
and plants on lands produced without the 2. Constructive delivery – that where the physical
intervention of human labor); tender is implied. This may be done by:
2. Industrial – those produced by lands of any kind
through cultivation or labor (sugar cane, vegetables, (a) Tradition simbolica (symbolical tradition) – as
rice and all products of lands brought about by when the keys of a bodega are given
reason of human labor); and
3. Civil – those derived by virtue of a juridical relation (b) Traditio longa manu (delivery by mere consent
(rents of buildings, price of leases of lands and other or the pointing out of the object) – pointing out
property and the amount of perpetual or life the car which is the object of the sale
annuities or other similar income)
(c) Tradition brevi manu (delivery by the short
Latin Maxim (Re: Delivery and Ownership) hand; that kind of delivery whereby a possessor
“Non nudis pactis, sed traditionis dominia rerym of a thing not as an owner, becomes the
transferantur” possessor as owner) – when a tenant already
in possession buys the house he is renting
As a consequence of certain contracts, it is not agreement but
tradition or delivery that transfers ownership. (Manresa) (d) Tradition constitutum possessorium – the
opposite of brevi manu; thus, the delivery
whereby a possessor of a thing as an owner,
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 OBLIGATIONS AND CONTRACTS
retains possession no longer as an owner, but Rights to Creditor in Generic Obligations
in some other capacity (like a house owner, who 1. To ask for the performance of the obligation –
sells a house, but remains in possession as The only difference is that in determinate obligations
tenant of the same house) to give, the creditor can “compel” specific
performance, while in generic obligations to give, he
(e) Tradition by the execution of legal forms and can only ASK for the delivery of a thing or object
solemnities – like the execution of a public belonging to the class or genus stipulated which
instrument selling land) must be neither of superior nor inferior quality;
2. To ask that the obligation be complied with at the
Garchitorena v. Almeda expense of the debtor – If the debtor refuses or is
CA 48 O.G. 3432 unable to comply with his obligation, the creditor can
even ask that the obligation be complied with at the
In the case of a purchase of land, for example, before the land expense of such debtor; and
is delivered, the proper remedy of the buyer (since he is not 3. To recover damages for breach of obligation
yet the owner) is to compel specific performance and delivery,
and not an accion reinvindicatoria (for the latter remedy Nota Bene: Paras also mentioned in his book that one of the
presupposes ownership). remedies of the creditor when the debtor fails to comply with
his obligation is to demand rescission or cancellation (in
some cases).
ART. 1165. When what is to be delivered is a
determinate thing, the creditor, in addition to the Effect of Fortuitous Events
right granted him by Article 1170, may compel Another important difference between a generic and a
specific obligation is that a specific obligation is, as a rule,
the debtor to make the delivery.
extinguished by a fortuitous event or act of God. Upon the
other hand, generic obligations are never extinguished by
If the thing is indeterminate or generic, he may fortuitous events.
ask that the obligation be complied with at the
expense of the debtor. Two Instances Where a Fortuitous Event Does Not
Exempt
If the obligor delays, or has promised to deliver The third paragraph of Article 1165 gives two instances when
the same thing to two or more persons who do a fortuitous event does not excuse compliance:
not have the same interest, he shall be (a) If the obligor delays (this is really default or “mora”)
(b) If the obligor is guilty of bad faith (for having
responsible for any fortuitous event until he has
promised to deliver the same thing to two or more
effected the delivery. persons who do not have the same interest – as
when one is not the agent merely of the other)
Classification of Obligations from the Viewpoint of
Subject Matter Ordinary Delay Distinguished from Default
From the viewpoint of the subject matter (or object) of the Ordinary delay is different from legal delay (default). The first
obligation, obligations are divided into: is merely non-performance at the stipulated time; default is
(a) Real obligations (to give): that which amounts to a virtual nonfulfillment of the obligation.
1) To give a specific thing As a rule, to put a debtor in default, there must be a demand
2) To give a generic or indeterminate thing for fulfillment, the demand being either judicial or extrajudicial.
(b) Personal obligations (to do or not to do) Examples:
(a) Fry is obliged to give Jhenaire her Jaguar car on
Rights of Creditor in Determinate Obligations Dec. 7, 2021. If on said day, Fry does not deliver,
1. To compel specific performance – This right is she is in ordinary delay (not default). If on Dec. 8,
expressly recognized by the first paragraph of Art. 2021, an earthquake destroys the Jaguar car, Fry is
1165 of the Code which states that the creditor may not liable because the obligation is extinguished
compel the debtor to make the delivery. It is (b) If, however, on Dec. 8, demand was made for
complemented by the first paragraph of Art. delivery, A would be in legal delay (default) and if
1244 which states that the debtor of a thing later, the car is destroyed by a fortuitous event, she
cannot compel the creditor to receive a different would still be liable (in that the obligation to deliver
one, although the latter may be of the same value the lost specific thing is converted into a monetary
as, or more valuable than what is due. claim for damages). (Art. 1165, NCC)
(c) However, if the car would have been destroyed at
Consequently, if the debtor does not comply with his any rate even if no demand had been made, the
obligation at the time when the obligation to deliver arises or amount of damage would be reduced. (Art. 2215(4),
if he insists on delivering a different one, the remedy of the NCC)
creditor is to file an action against the debtor to compel
specific performance.

2. To recover damages for breach of obligation – In

addition to the right to compel specific performance,
the creditor has also the right to recover damages
from the debtor in case of breach of the obligation
through delay, fraud, negligence or contravention of
the tenor thereof.
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 OBLIGATIONS AND CONTRACTS
ART. 1166. The obligation to give a determinate Unlike obligations to give, in obligations to do, the obligee
thing includes that of delivering all its does not possess the power to compel the obligor to comply
accessions and accessories, even though they with his obligation.
may not have been mentioned.
Remedies of Creditor in Positive Personal Obligation
1. If the debtor fails to comply with his obligation to do,
Accessories – those joined to or included with the principal
the creditor has the right:
for the latter’s better use, perfection, or enjoyment.
a. To have the obligation performed by himself, or
Examples: keys of the house, dishes in a restaurant, frame of
by another unless personal considerations are
a picture, bow of a violin).
involved, at the expense of the debtor; and
b. To recover damages (Art. 1170, NCC)
Accessions – additions to or improvements upon a thing.
Damages alone cannot substitute for
These include alluvium (soil gradually deposited by the
performance if owners can do it; if purely
current of a river on a river bank) and whatever is built,
personal or special – as a painting to be done
planted, or sown on a person’s parcel of land.
by a reputed artist – only damages may be
Examples: house or trees on a land, profits or dividends
asked, unless substitution is permitted.
accruing from shares of stocks, windows from a building
[even if temporarily removed])
Nota Bene: Specific performance is not a remedy in personal
obligations; otherwise, this may amount to involuntary
Two Types of Accessions:
servitude, which as a rule is prohibited under our Constitution.
1. Accession discrete
(Paras)
- The right of the owner to the products of his
property or to the fruits of the same 2. In case the obligation is done in contravention of the
- Article 441 of the Civil Code: To the owner terms of the same or is poorly done, it may be
belongs ordered (by the court) that it be undone if it is still
i. Natural Fruits possible to undo what was done.
ii. The industrial fruits
iii. The civil fruits  When a Thing May be Ordered Undone
2. Accession continua (a) If made poorly (Art. 1167) – here,
- The right of the owner to anything which is performance by another and damages may
incorporated or attached to the property, either be demanded
naturally or artificially (b) If the obligation is a negative one (provided
the undoing is possible).
Note that while accessions are not necessary to the principal
thing, the accessory and the principal thing must go together
but both accessions and accessories can exist only in relation Chaves v. Gonzales
to the principal. L-27454, April 30, 1970
Right of Creditors to Accessions and Accessories Owner of the typewriter was entitled to the cost of the
The general rule is that all accessions and accessories are execution of the obligation plus damages when the repairer
considered included in the obligation to deliver a determinate of the typewriter returned it with missing parts and without
thing although they may not have been mentioned. In order having it repaired.
for them to be excluded, there must be a stipulation to that
effect.
ART. 1168. When the obligation consists in not
doing, and the obligor does what has been
ART. 1167. If a person obliged to do something
forbidden him, it shall also be undone at his
fails to do it, the same shall be executed at his
expense.
cost.
Negative Personal Obligation
The same rule shall be observed if he does it in The article deals with or involves the prestation “not to do”.
contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has Example: X bought a land from Y where it was agreed upon
been poorly done be undone. that Y would not construct a fence on certain portions of the
land. Should Y construct a fence, the same may be removed
Positive Personal Obligation at Y’s expense.
The first sentence of the article deals with or involves the
prestation “to do”. Obligation Not to Do; Effect of Breach
In obligations not to do, the object of the obligation is fulfilled
Obligations to Do (To Perform an Act or Render a or realized so long as that which is forbidden is not done by
Service) the obligor.
1. The debtor fails to perform an obligation to do; or
2. The debtor performs an obligation to do but contrary The very obligation is fulfilled in not doing what is forbidden.
to the term thereof; or Hence, in this kind of obligation, the debtor cannot be guilty
3. The debtor performs an obligation to do but in a poor of delay.
manner.

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 OBLIGATIONS AND CONTRACTS
Debtor must himself abstain from the conduct prohibited. He When Demand is Not Needed to Put Debtor in Default
may not substitute another forbearance nor the forbearance 1. When the law so provides
of another unless the creditor consents. Thus, performance 2. When the obligation expressly so provides
cannot be by a delegate or agent. 3. When time is of the essence of the contract (or when
the fixing of the time was the controlling motive for
Remedies in Case Obligor Does What Has Been the establishment of the contract)
Forbidden of Him to Do
1. To have it undone at the expense of the obligor; and  It is not essential for the contract to categorically
2. To ask for damages state that time is of the essence; the intent is
sufficient as long as this is implied. (Hanlon v.
Hausserman)
ART. 1169. Those obliged to deliver or to do
something incur in delay from the time the 4. When demand would be useless, as when the
obligee judicially or extrajudicially demands obligor has rendered it beyond his power to perform.
from them the fulfillment of their obligation.
 Example: When before the maturity, the seller
has disposed of it in favor of another, or has
However, the demand by the creditor shall not be destroyed the subject matter, or is hiding)
necessary in order that delay may exist:
5. When the obligor has expressly acknowledged that
(1) When the obligation or the law expressly he really is in default
so declares; or
(2) When from the nature and the  But it should be noted that his mere asking for
circumstances of the obligation it extension of time is not an express
acknowledgment of the existence of default on
appears that the designation of the time
his part.
when the thing is to be delivered or the
service is to be rendered was a Different Kinds of Delay (Mora)
controlling motive for the establishment (a) Mora solvendi (default on the part of the debtor
of the contract; or
(3) When demand would be useless, as 1) Mora solvendi ex re (debtor’s default in
when the obligor has rendered it beyond personal obligations)
his power to perform. 2) Mora solvendi ex persona (debtor’s default in
personal obligations)
In reciprocal obligations, neither party incurs in
(b) Mora accipiendi (default in the part of the creditor)
delay if the other does not comply or is not ready (c) Compensatio morae (when in a reciprocal
to comply in a proper manner with what is obligation, both parties are in default; here it is as if
incumbent upon him. From the moment one of neither is in default)
the parties fulfills his obligation, delay by the
other begins. Mora Solvendi
(a) There is no mora solvendi in negative obligations
(one cannot be late in not doing or giving).
Default or Mora (b) There is no mora in natural obligations.
Although Article 1169 uses the words “in delay”, these should (c) Requisites for mora solvendi
be translated to mean default (mora).
• Ordinary Delay – merely the failure to perform an 1) The obligationmust be due, enforceable, and
obligation on time already liquidated or determinate in amount.
• Legal Delay (default or mora) – failure to perform an 2) There must be non-performance.
obligation on time which failure, constitutes a breach 3) There must be a demand, unless the demand is
of the obligation. not required. When demand is needed, proof of
it must be shown by the creditor.
Requisites of Delay or Default 4) The demand must be for the obligation that is
1. Failure of the debtor to perform his (positive) due (and not for another obligation, nor one with
obligation on the date agreed upon; a bigger amount, except in certain instances,
2. Demand (not mere reminder or notice) made by the considering all the circumstances)
creditor upon the debtor to fulfill, perform, or comply
with his obligation which demand, may either be (d) Effects of mora solvendi
judicial (when a complaint is filed in court) or extra- 1) If the debtor is in default, he may be liable for
judicial (when made outside the court, orally or in interest or damages.
writing); and 2) He may also have to bear the risk of loss.
3. Failure of the debtor to comply with such demand. 3) He is liable even for a fortuitous event. (Art.
1165, NCC), although damages here may be
Nota Bene: The above requisites presuppose that the mitigated if he can prove that even if he had not
obligation is already due or demandable and liquidated. been in default, loss would have occurred just
There is no delay if the obligation is not yet due or the same. (Art. 2215, NCC)
demandable.

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 OBLIGATIONS AND CONTRACTS
Queblar v. Garduno & Martinez Barzaga v. CA
Default in the payment of one installment does not mean Demand was not necessary where a contract entered into for
default in the whole amount. If there is an acceleration clause, the construction of a niche for the wife of the aggrieved party
all that happens will be that the whole amount becomes due. who expressly wished that she be buried before Christmas
And demand is still needed to put the debtor in default. day.

Mora Accipiendi Binalbagan Tech Inc. v. CA

(a) The creditor is guilty of default when he unjustifiably Through no fault of the seller, the buyer could not take
refuses to accept payment or performance at the possession of the property because such buyer was evicted
time said payment or performance can be done. by a third party through a court order. Hence, the seller cannot
rescind the contract for the buyer’s non-payment of the
Some justifiable reasons for refusal to accept may be that the balance of the property.
payor has no legal capacity or that there is an offer to pay an
obligation other than what has been agreed upon. Agcaoili v. GSIS
Respondent has no right to rescind the contract where
(b) If an obligation arises ex delicto (as the result of a petitioner failed to immediately occupy the house built by
crime), the debtor-criminal is responsible for loss, petitioner because the house was in a state of
even though this be through a fortuitous event, incompleteness. Neither party incurs in delay if the other does
unless the creditor is in mora accipiendi. not comply or is not ready to comply in a proper manner with
what is incumbent upon him.
What should the criminal do if the creditor is in mora
accipiendi? Tanquilia v. CA
The respondent may not be compelled to pay for the balance
ANSWER: He must either: and damages where the petitioner built windmills which
collapsed die to defects in the construction.
1) Consign it in court (expenses chargeable to
creditor); OR
2) Keep it himself (here, he should still exercise ART. 1170. Those who in the performance of their
diligence and care, but this time, he would not obligations are guilty of fraud, negligence, or
be liable for loss due to a fortuitous event). delay, and those who in any manner contravene
the tenor thereof, are liable for damages.
(c) The improper refusal of the lessor (creditor) to
accept the rents tendered by the lessee places said
Grounds for Liability in the Performance of Obligations
lessor in default and he must shoulder the
(a) Fraud (deceit or dolo)
subsequent accidental loss of the premises leased.
- Deliberate or intentional evasion of the normal
Vda. De Villaruel, et al. v. Manila Motor Co & Caloniares fulfillment of an obligation.
The mora accipiendi of said lessor is not cured by the lessee’s - An implied malice or dishonesty and is
failure to make consignation of the rejected payment, but the synonymous to bad faith in that, it involves a
lessee remains obligated to pay the amounts he had tendered design to mislead or deceive another (in relation
but did not deposit in court. to Art. 1173).
- Guilty party is aware that his conduct will
Reciprocal Obligations prejudice the other or intends to cause such
(a) Reciprocal obligations depend upon each other for prejudice.
performance. - Party answers for all damages or
(b) Here, performance may be set on different dates. consequences derived from his acts whether
(c) If the performance is not set on different dates, either foreseeable or not.
by the law, contract, or custom, it is understood that - The liability of the guilty party cannot be waived
performance must be simultaneous. Hence, one in advance.
party cannot demand performance by the other, if - Is NEVER presumed.
the former himself cannot perform.
(d) Compensatio morae – Delay of the parties in Incidental Fraud Causal Fraud
reciprocal obligations Present only during the
Present only at the time of
performance of a pre-
the birth of the obligation
When Damages or Interest May be Lost existing obligation
A creditor entitled to damages or interest because of mora Employed for the purpose
Employed for the purpose
may lose the same – of securing the consent of
of evading the normal
(a) If the principal obligation is allowed to lapse by the other party to enter
fulfillment of an obligation
prescription; into the contract
(b) If the damages or interest are allowed to prescribe; Results in the
Results in the vitiation of
(c) If the damages or interest are condoned (waived or nonfulfillment or breach of
his consent
remitted) the obligation
Gives rise to a right of the Gives rise to a right of the
creditor or obligee to innocent party to ask for
recover damages from the the annulment of the
debtor or obligor contract

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 OBLIGATIONS AND CONTRACTS
(b) Negligence (fault or culpa) ART. 1171. Responsibility arising from fraud is
- It is any voluntary act or omission, there being demandable in all obligations. Any waiver of an
no malice, which prevents the normal fulfillment action for future fraud is void.
of an obligation.
- Standard of care imposed by law or by Liability for Fraud or Dolo
stipulation of the parties. (a) According to time of commission, fraud may be past
- In the absence of such law/stipulation, diligence or future (liability for past fraud may be waived; this
of a good father of a family is required. is not so for future fraud).
- Guilty party does not intend to cause prejudice (b) According to meaning, fraud may be classified as
- Party answers only for damages foreseeable follows:
when the obligation arose.
- It can be waived unless public policy prohibits 1) Fraud in obtaining consent (may be causal or
the waiver. merely incidental)
- Presumed in breach of contract. 2) Fraud in performing a contract (inaccurately
referred to by some as incidental fraud). Fraud
Fraud v. Negligence here may be either:
Fraud Negligence
There is a deliberate There is still no deliberate a) dolo causante (causal fraud)
intention to cause damage intention to cause b) dolo incidente (incidental fraud)
or injury. damage.
Presumed from the Yutivo & Sons Hardware Co. v. Court of Tax Appeals, et
Must be clearly proved, al., L-13203, Jan. 28, 1961
breach of a
mere preponderance of Tax evasion (as distinguished from tax avoidance) connotes
contractual
evidence is not sufficient fraud through the use of pretenses and forbidden devices to
obligation
lessen or defeat taxes. However, a taxpayer has the legal
Liability arising from dolo Liability due to negligence
right to decrease the amount of what otherwise would be his
cannot be mitigated or may be reduced in certain
taxes or altogether avoid them by means which the law
reduced by the courts. cases.
permits. He does not incur fraud thereby even if the tax paid
Waiver of an action to is thereafter found to be insufficient.
Waiver of an action to
enforce liability due to
enforce liability due to
future culpa may be in a ART. 1172. Responsibility arising from
future fraud is void.
certain sense allowed. negligence in the performance of every kind of
They are similar in that both are voluntary. obligation is also demandable, but such liability
may be regulated by the courts, according to the
Can negligence be equivalent to fraud? circumstances.
Where the negligence shows bad faith or is so gross that it
amounts to malice or wanton attitude on the part of the Responsibility Arising from Negligence Demandable
defendant, the rules on fraud shall apply. In the performance of every kind of obligation, the debtor is
(c) Default (mora) also liable for damages resulting from his negligence.
- Failure to perform or deliver on time which However, the courts are given wide discretion in fixing the
constitutes a breach of an obligation. (Art. 1169, measure of damages.
NCC)
(d) Violation of terms of the obligation (violation) Reason being is that negligence is a question which must
- This is contravention of the terms of the necessarily depend upon the circumstances of each
obligation particular case. Moreover, negligence is NOT as serious as
- Exception: unless excused in proper cases by fraud. Consequently, the court may increase or decrease
fortuitous events the liability of the party at fault depending upon the
circumstances of each case.
Nota Bene: The following do NOT excuse fulfillment:
1) Increase in cost of performance Three Kinds of Culpa
2) Poverty Culpa Culpa
Culpa Aquiliana
3) War between the subject of a neutral country and Contractual Criminal
the subject of a country at war, as long as substantial Negligence is Negligence
compliance can still be done. (Int. Harvester Co. v. Negligence is merely incidental here is direct,
Hamburg-American Line) direct, to substantive,
substantive, and the performance and
Liability for Damages independent of the contractual independent of
Those liable under Art. 1170 should pay damages, but obligation a contract.
generally only if aside from the breach of contract, prejudice Defense of good This is not a
or damage was caused. (Berg v. Teus) father of a family proper defense
Defense of good
is a complete in culpa
Damages in Monetary Obligations father of a family
and criminal. Here,
In monetary obligations, indemnity for damages consists of: is not a complete
proper defense the employee’s
(a) That agreed upon; and proper
insofar as guilt is
(b) In the absence of agreement, the legal rate of defense.
parents, automatically
interest. (Art. 2209, NCC) guardians, and the employer’s

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 OBLIGATIONS AND CONTRACTS
employers are civil guilt, if the ART. 1173. The fault or negligence of the obligor
concerned. former is consists in the omission of that diligence which
insolvent. is required by the nature of the obligation and
No pre-existing corresponds with the circumstances of the
There is a pre-
obligation No pre-existing
existing persons, of the time and of the place. When
(except of course obligation
the duty to be
obligation (a
(except the negligence shows bad faith, the provisions of
contract, either Articles 1171 and 2201, paragraph 2, shall apply.
careful in all duty never to
express or
human harm others).
implied). If the law or contract does not state the diligence
actuations).
Proof needed which is to be observed in the performance, that
Proof needed – Proof needed – – proof of guilt which is expected of a good father of a family
preponderance preponderance beyond shall be required.
of evidence of evidence reasonable
doubt Test to Determine Whether a Person is Negligent
Aa long as it is Did the defendant in doing the alleged negligent act use the
proved that there reasonable care and caution which an ordinary prudent
Ordinarily, the
was a contract, Accused is person would have used in the same situation? If not, then he
victim has to
and that it was presumed is guilty of negligence.
prove the
not carried out, it innocent until
negligence of the
is presumed that the contrary is Factors to be Considered
defendant. This
the debtor is at proved, so 1. Nature of the obligation
is because his
fault, and it is his prosecution 2. Circumstances of the person
action is based
duty to prove that has the burden 3. Circumstances of time
on alleged
there was no of proving the 4. Circumstances of the place
negligence on
negligence in negligence of
the part of the
carrying out the the accused. Negligence Shows Bad Faith
defendant.
terms of the Bad faith can be implied from repeated negligence; hence,
contract. the provision on fraud (Art. 1171) shall apply.
Master may
evade Damages may Art. 2201, par. 2 – The obligor shall be responsible for all
responsibility be claimed by damages which may be reasonably attributed to the
upon proof of the the parties, by nonperformance of the obligation.
exercise of due heirs, and
diligence to privies. Samson v. CA
prevent the injury Bad faith is a state of mind of ill will and it does not simply
Moral damages Moral damages connote bad judgment or negligence. It is synonymous with
are recoverable. not recoverable. fraud and involves a design to mislead or deceive another.

Effect of Victim’s Own Negligence and of His Gross Inexcusable Negligence

Contributory Negligence Gross inexcusable negligence is negligence characterized by
(a) When a plaintiff’s own negligence was the the want of even slight care-acting or omitting to act in a
immediate and proximate cause of his injury, he situation where there is a duty to act, not inadvertently but
cannot recover damages (because there is no culpa willfully and intentionally, with a conscious indifference to
aquiliana on the part of the defendant). (Art. 2179, consequences insofar as other persons may be affected.
NCC) (Jaca v. People)

Example: A pedestrian, not looking where he was ART. 1174. Except in cases expressly specified
going, bumped into a carefully driven car. He cannot by the law, or when it is otherwise declared by
recover damages in culpa aquiliana. As a matter of
stipulation, or when the nature of the obligation
fact, if any damage was caused the car, the owner
can recover from the pedestrian.
requires the assumption of risk, no person shall
be responsible for those events which, could not
(b) If the plaintiff’s negligence was only contributory, the be foreseen, or which, though foreseen, were
immediate and proximate cause of the injury being inevitable.
the defendant’s lack of due care, the plaintiff may
recover damages, BUT the courts shall mitigate the Fortuitous Event
damages to be awarded. (Art. 2179, NCC) - Any event which cannot be foreseen, or which
though foreseen, is inevitable; force majeure.
- Accidental happening, or accident that takes
place without design or expectation, or thing
that happens from irresistible cause.

Classification
1. Fortuitous event proper (acts of God)
- refers to an event which is absolutely
independent of human intervention.
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 OBLIGATIONS AND CONTRACTS
- any accident produced by physical causes Combination of Fortuitous Event and Negligence
which are irresistible. QUERY: Suppose there is a combination of a fortuitous event
2. Force majeure (acts of men) and negligence on the part of the debtor, is the obligation to
- refers to an even which arises from legitimate deliver a specific thing extinguished?
or illegitimate acts of persons other than the
obligor. ANSWER: It depends:
- Such an interposition of human agency as is, (a) If the fortuitous event was the proximate cause, the
from its nature and power, absolutely obligation is extinguished/
uncontrollable. (b) If the negligence was the proximate cause, the
obligation is not extinguished. It is converted into a
General Rule: No liability for a fortuitous event (caso fortuito). monetary obligation for damages.
Exceptions: The debtor is responsible for a fortuitous event
in the following cases:
(a) When expressly declared by the law (such as when ART. 1175. Usurious transactions shall be
the possessor is in bad faith or is in default) governed by special laws.
(b) When expressly declared by stipulation or contract
– The intention to make the debtor liable even in
Usury
case of a fortuitous event should be clearly
It is contracting for or receiving something in excess of the
expressed.
amount allowed by law for the loan or forbearance of money,
(c) When the nature of the obligation requires the
goods or chattels. It is the taking of more interest for the use
assumption of risk (or the doctrine od created risk)
of money, goods or chattels or credit than the law allows. In
other words, usury is the exaction of excessive interest.
 Doctrine of Assumption of Risk
One who voluntarily exposes himself to an obvious, known
Kinds of Interest
and appreciated danger assumes the risk of injury that may
(a) Interest given for compensation or use of money
result therefrom.
(moratory interest)
(b) Interest given by way of damages (compensatory
interest, i.e. it compensates the damage caused)
Essential Characteristics (or Requisites) of a Fortuitous
Event
Inconsistency in the Code
1. Freedom from participation or aggravation – The
QUERY: In case of conflict, which should prevail – the Civil
event must be independent of the human will or at
Code or the Usury Law?
least of the obligor’s will
2. The event could not be foreseen, or if it could be
ANSWER: The Civil Code answered this inconsistently.
foreseen, must have been impossible to avoid.
(a) In Art. 1175, it is evident that the Usury Law prevails.
3. The event must be of such character as to render it
(b) Yet in Art. 1196, the law says the Civil Code prevails
impossible for the obligor to comply with his
obligation in a normal manner.
Either of the two conflicting articles must be repealed. (Paras)
Fortuitous Event Will NOT Stop the Running of the Period
Contract shall be deemed suspended during the said period ART. 1176. The receipt of the principal by the
but does not mean that the happening of any of those events creditor, without reservation with respect to the
stops the running of the period agreed upon. interest, shall give rise to the presumption that
said interest has been paid.
Loss in a Shipwreck
General Rule: The loss of the ship due to a fortuitous event The receipt of a later installment of a debt without
should be born by its owner; the loss of the cargo, by their reservation as to prior installments, shall
owners, unless the captain lacked skill, or there was malice
likewise raise the presumption that such
or negligence. (Tan Chiong Sian v. Inchausti & Co)
installments have been paid.
Effect of Obligor’s Negligence Upon His Liability
1. Negligence contributed to the loss or damage – In Two Kinds of Presumption
order to completely exonerate the debtor by reason 1. Conclusive – one which cannot be contradicted (e.g.
of a fortuitous event, such debtor must, in addition to everyone is conclusively presumed to know the law)
the casus itself, be free of any concurrent or 2. Disputable or rebuttable – One which can be
contributory fault or negligence; contradicted or rebutted by presenting proof to the
contrary like the presumption established in this
2. Negligence not contributory to the loss or damage – article.
but where both fortuitous event and lack of due
diligence are present under conditions that the loss Extinguishment of Interests and Prior Installments
would have happened with or without the negligence If the debtor is issued a receipt by the creditor and on the face
of the obligor, hence, the consequences are all a of the receipt it is shown that the principal has been paid
derivation of the fortuitous event, it cannot be said without any reservation with respect to the interest, there
that responsibility arises therefrom. arises a disputable presumption that the interest has also
been paid.
 This is in conformity with the rule that if the debt
produces interest, payment of the principal shall

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 OBLIGATIONS AND CONTRACTS
not be deemed to have been made until the Requisites for accion pauliana to prosper:
interests have been covered. 1. The plaintiff asking for rescission has a credit
prior to the alienation, although demandable
If the debtor is issued a receipt by the creditor later.
acknowledging payment of a latter installment of a 2. The debtor has made a subsequent contract
specified debt without any reservation with respect to conveying a patrimonial benefit to a third
prior installments, there also arises a disputable person.
presumption that such prior installments have already been 3. The creditor has no other legal remedy to satisfy
paid. his claim.
4. The act being impugned is fraudulent.
Example of Paragraph 1 (Receipt of Principal Without 5. The third person who received the property
Reservation as to Interest) conveyed, if it is by onerous title, has been an
A creditor of P1,000,000, with 8% interest, received accomplice in the fraud.
P1,000,000 in payment of the principal. Interest was not
referred to in the payment. It is presumed that the 8% interest Adorable v. CA
had already been previously paid. This is because under Unless a debtor acted in fraud, the creditor cannot order
Article 1253, payment of the interest as a rule precedes rescission of a contract between the debtor and a third party
payment of the principal. (Of course, Article 1176 establishes on the ground that such sale will prejudice the creditor’s right
merely a rebuttable, not a conclusive presumption). to collect from the debtor.

Thus, even if there is a receipt evidencing payment of the Examples of Rights Inherent in the Person of the Debtor
principal, the accumulated interest may in certain cases still and Which Therefore Cannot be Exercised by the
be recovered. Creditors
(a) The right to existence, thereby exempting from the
Example of Paragraph 2 (Receipt of a Later Installment) reach of creditor, whatever he may be receiving as
If a creditor receives the fourth installment of a debt, it is support.
understood that the first three installments have been paid. (b) Rights or relations of a public character (like
positions in the government)
(c) Rights of an honorary character (like a doctor’s
ART. 1177. The creditors, after having pursued degree, honoris causa)
the property in possession of the debtor to (d) Rights pertaining to the affairs of the home and the
satisfy their claims, may exercise all the rights family (such as the personal rights of husband and
wife)
and bring all the actions of the latter for the same
(e) Rights granted by law only to the debtor such as the
purpose, save those which are inherent in his action to revoke a donation on the ground of
person; they may also impugn the acts which the ingratitude (Manresa)
debtor may have done to defraud them. (f) The right to appear in court proceedings, like the
settlement of an estate (In Re Estate of Ceballos)
Rights of Creditors
(a) Exact payment ART. 1178. Subject to the laws, all rights
(b) Exhaust debtor’s properties, generally by acquired in virtue of an obligation are
attachment (except properties exempted by the
transmissible, if there has been no stipulation to
law). (Art. 2236, NCC)
the contrary.
(c) Accion subrogatoria (subrogatory action)
Transmissibility of Rights
The law expressly recognizes the right of a creditor Rights of obligations or those rights which are acquired by
to proceed against third persons invested as it were virtue of an obligation are, as a general rule, transmissible in
with the personality of the debtor. But certain character. Consequently, they may be alienated or assigned
conditions must be present before the creditor can to third persons.
avail of this remedy:
a. The debtor to whom the right or action properly General Rule: Rights are transmissible
pertains must be indebted to the creditor; Exceptions:
b. The creditor must be prejudiced by the inaction 1) If the law provides otherwise
or failure of the debtor to proceed against the 2) If the contract provides otherwise
3rd person; and 3) If the obligation is purely personal
c. The creditor must have first pursued or
exhausted all of the properties of the debtor Nota Bene: Intransmissibility by [contractual] stipulation of
which are not exempted from execution. the parties, being exceptional and contrary to the general rule,
should not be easily implied, but must be clearly established,
If all of these conditions are present, the creditor must be clearly proved, or at the very least, clearly inferable
can then proceed directly against the 3rd from the provisions of the contract itself. (Estate of Hernandez
person in place of the debtor. v. Luzon Surety Co.)

(d) Accion pauliana (impugn or rescind acts or contracts

done by the debtor to defraud the creditors)

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 OBLIGATIONS AND CONTRACTS

CHAPTER 3
b. those whose effects are subjected in one way or
another to the expiration of said term. (Rabuya)
DIFFERENT KINDS OF OBLIGATIONS “Past event unknown to the parties”
What is really meant here is future knowledge of a past event

SECTION 1 will determine whether or not an obligation will arise. Hence,

a condition is really “a future and certain event,” not “a future
PURE AND CONDITIONAL OBLIGATIONS or uncertain event.” (J.B.L. Reyes, Observation on the New
Civil Code, Lawyer’s Journal [1951])
ART. 1179. Every obligation whose performance
Kinds of Condition
does not depend upon a future or uncertain a) Suspensive and Resolutory
event, or upon a past event unknown to the Suspensive – the happening of which gives rise to
parties, is demandable at once. an obligation.
Resolutory – the happening of which extinguishes
Every obligation which contains a resolutory an obligation.
condition shall also be demandable, without
prejudice to the effects of the happening of the b) Potestative, Casual and Mixed
event. Potestative – the fulfillment depends upon the will of
one of the parties to the juridical relation.
When Obligation is Demandable at Once Casual – the fulfillment depends exclusively upon
(a) When it is pure; or chance or other factors (including the will of third
(b) When it has a resolutory condition persons), and not upon the will of the parties to the
juridical relation.
(1) Pure Obligation – one without a condition or a term Mixed – the fulfillment depends partly upon the will
(hence, demandable at once, provided there will be of one of the parties to the juridical relation and partly
no absurdity) upon chance or other factors (including the will of a
third person).
Examples:
c) Positive and Negative
• A promised B to pay P1 million. This is demandable
Positive – the condition refers to an act.
at once, unless a period was really intended, as
Negative – the condition refers to an omission.
when a loan has just been contracted, or when some
time is reasonably necessary for the actual
d) Divisible or Indivisible
fulfillment of the obligation, as when a person binds
Divisible – if by its nature, by agreement or under the
himself to pay immediately for the subscription of
law, it can be performed in parts.
corporate shares of stock.
Indivisible – if by its nature, by agreement or under
• “I will pay you P1 million on demand.” But instant
the law, it cannot be performed in parts.
performance is not a necessity, otherwise absurd
consequences will arise.
e) Conjunctive and Disjunctive
• When the original period or condition has been Conjunctive – requires the fulfillment of all
cancelled by the mutual stipulation of both parties. conditions.
Disjunctive – requires the fulfillment of one
condition.
(2) Conditional Obligation – when there is a condition.
Examples: f) Possible or Impossible
• I will buy your land for P10 million if you pass the last Possible – capable of fulfillment in nature and in law.
bar examinations. Impossible – not capable of fulfillment due to nature
 This is suspensive for the results will be or due to the operation of law or morals or public
awaited. policy; or due to a contradiction in its terms.
• I will give you my land now, but should you fail in the
last bar examinations, your ownership will cease QUERY: What is the existing rule in a “mixed conditional
and it will be mine again. obligation”? (Paras)
 This is resolutory because it ends upon failure.
ANSWER: This is when the condition was not fulfilled but the
Condition obligor did all in his power to comply with the obligation – the
“It is an uncertain event which wields an influence on a legal condition shall be deemed satisfied. (International Hotel Corp.
relationship.” (Manresa) v. Joaquin, Jr.)
The essential thing about condition is uncertainty. This,
although the death of a person may be in the future and there
is uncertainty as to the date of its arrival, the certainty of its
happening makes it a term and not a condition. (Manresa)

(3) Obligation with a Term or Period

a. that which necessarily must come whether the
parties know when it will happen or not (like death,
since this is sure). (Paras)
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 OBLIGATIONS AND CONTRACTS
ART. 1180. When the debtor binds himself to pay ART. 1181. In conditional obligations, the
when his means permit him to do so, the acquisition of rights, as well as the
obligation shall be deemed to be one with a extinguishment or loss of those already
period, subject to the provisions of Article 1197. acquired, shall depend upon the happening of
the event which constitutes the condition.
ART. 1197. If the obligation does not fix a period,
but from its nature and the circumstances it can Suspensive Condition
be inferred that a period was intended, the courts Concept: When the acquisition of rights or the existence of
may fix the duration thereof. obligations is made to depend upon the fulfillment of the
condition, the condition is suspensive (also called conditions
precedent or conditions antecedent). If the suspensive
The courts shall also fix the duration of the condition is fulfilled, the obligation arises. (Manresa) If the
period when it depends upon the will of the suspensive condition does not take place, the parties would
debtor. stand as if the conditional obligation had never existed.
(Gaite v. Fonacier)
In every case, the courts shall determine such
period as may under the circumstances have Hence, when the obligation depends upon a suspensive
been probably contemplated by the parties. condition, the acquisition of rights by the oblige or creditor is
Once fixed by the courts, the period cannot be subordinated to the fulfillment of the event which constitutes
the condition. In other words, the birth or effectivity of the
changed by them.
obligation is suspended until the happening or fulfillment of
the event which constitutes the condition. Thus, if A obligates
Period
himself to give to B P100,000 if the latter gets married to C,
A future and certain event upon the arrival of which the
the condition is suspensive in character. In such case, B
obligation subject to it either arises or is extinguished.
cannot acquire the P100,000 unless he gets married to C. If
X obligates himself to give to Y a certain house and lot if the
Debtor to Pay “When His Means Permit”
latter passes the bar examinations in his first attempt, the
Although it may seem that Art. 1180 speaks of a condition
condition is also suspensive in character. He cannot acquire
dependent exclusively on the will of the debtor (and therefore
the house and lot unless the condition is fulfilled. (Jurado)
apparently void under Art. 1182), the fact remains that
payment does not depend on debtor’s will, for indeed he has
San Miguel v. Elbinias
promised payment. What depends really on him is not
Before the writ of preliminary injunction can be granted, the
payment, but the TIME when payment is to be made. Hence,
posting of a bond (to answer for subsequent damages) is a
the law under Art. 1180 considers this obligation as one with
condition sine qua non (indispensable suspensive condition
a TERM or PERIOD. (Paras)
or condition precedent).
Other Cases – as when the debtor binds himself to pay
Effects of Fulfillment of Suspensive Condition (Rabuya)
a. Little by little;
(a) Birth of rights and obligations: The happening of
b. As soon as possible;
the suspensive condition gives birth to the right (of
c. From time to time;
the creditor) or the obligation (of the debtor).
d. As soon as I have the money;
e. At any time I have the money;
(b) Retroactivity
f. In partial payments; and
1. In obligations to give: Once the suspensive
g. When I am in a position to pay.
condition is fulfilled, the effects of a conditional
obligation to give retroact to the day on which
How Long is the Term?
the obligation was constituted. (Art. 1187(1),
It is obvious that to leave the same to the discretion of either
NCC) In other words, the obligation is then
creditor or debt or would be unjust, therefore, Art. 1197 should
considered as if it were pure and simple from
be applied, where the court is obliged to fix the duration of the
the first day.
period. The general rule is, therefore, for the creditor to ask
the court first for the fixing of the term, and it is only when that
1.1. In obligations which imposes
term set arrives that he can demand fulfillment. Any action to
reciprocal prestations: When the
recover before this is done is considered premature. (Patente
obligation to give imposes reciprocal
v. Omega, 93 Phil. 218)
prestations upon the parties, the fruits
and interests during the pendency of
In said Patente case, the phrase was “as soon as possible or
the condition are deemed to have
as soon as I have money.” The only case when the bringing
been mutually compensated. (Art.
of the action to enforce, before the court fixes the term, would
1187(1), NCC)
be allowed is when the prior action of fixing the term would
serve no purpose but delay. (Tiglao, et al. v. manila Railroad
1.2. In unilateral obligations: When the
Co., 98 Phil. 181)
obligation to give is unilateral, the
debtor owns all the fruits and interests
received up to the day the condition is
fulfilled, unless by the nature and
circumstances of the obligation it
should be inferred that the intention of

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 OBLIGATIONS AND CONTRACTS
the person constituting it was different. in character. If the City fails to transform the land into a public
(Art. 1187(1), NCC) park within the stipulated period, the rights which it acquired
over the land as a result of the donation are resolved or
1.3. In obligations to do and not to do: extinguished altogether. The same is true in case a person
The courts may, in each case, sells a parcel of land with right of repurchase. Once the sale
determine the retroactive effect of the with pacto de retro is perfected, the vendee a retro becomes
condition that has been complied with the owner of the property. However, his right is not absolute
(Art. 1187(2), NCC), including fixing in character because it may be extinguished or lost if the
the date of such retroactive effect. vendor a retro exercises his right of repurchase within the
legal or stipulated period of redemption. (Jurado)
Effects to Loss, Deterioration or Improvement Occurring
During the Pendency of Condition (if the condition is later
on fulfilled) (Rabuya) ART. 1182. When the fulfillment of the condition
depends upon the sole will of the debtor, the
(a) If the this is lost: A thing is considered loss (i) when conditional obligation shall be void. If it depends upon
it perishes, or (ii) when it goes out of commerce, or chance or upon the will of a third person, the
(iii) when it disappears in such a way that its obligation shall take effect in conformity with the
existence is unknown or it cannot be recovered. (Art. provisions of this Code.
1189(2), NCC) If the loss occurs without default of
the debtor, the obligation is extinguished (Art. Potestative, Casual, Mixed Conditions
1189(1), NCC) unless there is a stipulation to the (a) Potestative – depends on the exclusive will of one
contrary. But if the loss occurs through the fault of of the parties; also called facultative condition.
the debtor, he is liable for damages to the creditor (b) Casual – depends on chance OR upon the will of a
(Art. 1189(2), NCC) upon fulfillment of the condition. third person.
(b) If the thing deteriorated: If deterioration occurs Potestative (Facultative) Condition
without the fault of the debtor, the impairment is to (a) Potestative on the part of the DEBTOR:
be borne by the creditor. (Art. 1189(3), NCC) But if 1) If also suspensive – both the condition and the
the deterioration is due to the fault of the debtor, the obligation are VOID, for the obligation is really
creditor may choose between: (1) rescission, with illusory.
indemnity for damages; or (2) fulfillment, with
indemnity for damages. (Art. 1189(4), NCC) Example: I will give you P1,000,000 next month
if I live.
(c) If the thing is improved: If the thing improves by
nature without the intervention of the debtor, such 2) If also resolutory – VALID
improvement inures to the benefit of the creditor.
(Art. 1189(5), NCC) On the other hand, if the thing is (b) Potestative on the part of the CREDITOR – VALID
improved at the expense of the debtor, the latter is
granted only the rights of a usufructuary. (Art. Example: I will give you my fountain pen if you desire
1189(6), NCC) As a consequence: to have it.
1) The debtor is not entitled to demand QUERY: “I will give you P1,000,000 if I can sell my land.”
reimbursement of his expenses (Art. 579, NCC) Suppose I am able to sell my land, am I bound to give you
2) But he can remove the improvements, should it P1,000,000? (Paras)
be possible to do so without damage to the
property (Art. 579, NCC) ANSWER: It is submitted that the answer is YES. While
3) He may also set off the improvements he made apparently, this is a potestative condition (because I may or I
on the property against any damage he caused may not sell), still it is not purely potestative (as distinguished
to the same. (Art. 580, NCC) from the simply potestative) but really a mixed one, because
the selling would depend not only on my desire to sell but also
Resolutory Condition on the availability and willingness of the buyer and the other
Concept: When the extinguishment of rights and obligations circumstances such as price, friendship, or the necessity of
is made to depend upon the fulfillment of the condition, the transferring to a different environment. (Hermoso v. Longara)
condition is resolutory (or conditions subsequent). An
obligation subject to a resolutory condition is immediately Trillana v. Quezon Colleges, Inc.
demandable (Art. 1179, NCC), but it is extinguished upon the 93 Phil. 383
happening of the condition (Art. 1181, NCC). If the condition
does not take place, the legal relation is consolidated. FACTS: D purchased 200 shares of stock of the Quezon
(Rabuya) Colleges, subject to the condition that she would pay for the
same as soon as she would be able to harvest fish from her
Hence, when the obligation is subject to a resolutory fishpond.
condition, the juridical relation which is established as a result
of the obligation is subject to the threat of extinction. Thus, if ISSUE: Is the condition valid?
a person donates a parcel of land to the City of Manila subject
to the condition that the City shall transform it into a public HELD: No, because this suspensive condition is purely
park within a period of one year from the time of the perfection potestative on her part.
of the donation, the condition which is imposed is resolutory

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 OBLIGATIONS AND CONTRACTS
ART. 1183. Impossible conditions, those The obligation is extinguished:
contrary to good customs or public policy and 1. As soon as the time expires without the event taking
those prohibited by law shall annul the place; or
2. As soon as it has become indubitable or
obligation which depends upon them. If the
unquestionable that the event will not take place
obligation is divisible, that part thereof which is although the time specified has not yet expired.
not affected by the impossible or unlawful
condition shall be valid. Effect if Period of Fulfillment is Not Fixed
If the period is not fixed in the contract, the court, considering
The condition not to do an impossible thing shall the parties’ intentions, should determine what period was
be considered as not having been agreed upon. really intended. (Art. 1185, par. 2, NCC)

Two Kinds or Classification of Impossible Conditions ART. 1185. The condition that some event will not
(a) Impossible or Physically Impossible Conditions happen at a determinate time shall render the
[when they, in the nature of things, cannot exist or obligation effective from the moment the time
cannot be done; physically – to make a dead man indicated has elapsed, or if it has become
live; -- logically – to make a circle that is at the same evident that the event cannot occur.
time a square (illogical condition)]
(b) Illegal or Legally Impossible Conditions
[prohibited by good customs, public policy; If no time has been fixed, the condition shall be
prohibited, directly or indirectly, by law, like killing X, deemed fulfilled at such time as may have
a friend] probably been contemplated, bearing in mind the
nature of the obligation.
Effects of Impossible Conditions
(a) If the condition is to do an impossible or illegal thing, Negative Condition
BOTH the condition and the obligation are VOID This article refers to negative conditions.
(because the debtor knows that no fulfillment can be
done and therefore is not serious about being liable). Example: “I’ll give you P1,000,000 if by Oct. 1, 2021 you have
not yet married Maria”. If by said date, you are not yet married,
Example: I’ll sell you my land if you can make a dead or if prior thereto, Maria had died, the obligation is effective –
man live again. in the first case, from Oct. 1, 2021; and in the second case,
from Maria’s death.
(b) If the condition is NEGATIVE, that is, not to do the
impossible, just disregard the condition BUT the QUERY: Suppose before that date, you become a Roman
obligation remains. Catholic priest, is the obligation effective on the date you
entered the priesthood? No, because some priests, despite
Example: I’ll sell you my land if you cannot make a religious vows, still contract legally valid marriages.
circle that is at the same time square. (This becomes
a pure and valid obligation. As a matter of fact, the The obligation shall become effective and binding:
condition here can always be fulfilled.) 1. From the moment the time indicated has elapsed
without the event taking place; or
(c) If the condition is NEGATIVE, i.e. not to do an illegal 2. From the moment it has become evident that the
thing, BOTH the condition and the obligation are event cannot occur, although the time indicated
VALID. has not yet elapsed.

Example: I’ll sell you my land if you do not kill X. ART. 1186. The condition shall be deemed
(This is valid. If X is killed by you, you have no right fulfilled when the obligor voluntarily prevents its
to buy my land.) fulfillment.
Nota Bene: The example given above applies only to Constructive or Presumed Fulfillment
obligations and contracts, not to testamentary disposition or Reason for this article: One must not profit by his own fault.
to donations. In said case, the impossible or illegal condition
is just disregarded, and the disposition or donation remains Requisites
valid. (Arts. 873 and 727, NCC) (a) Voluntarily made – either maliciously or not, the
intent to prevent must be present. If done voluntarily
ART. 1184. The condition that some event for another purpose, this requisite is not present.
happen at a determinate time shall extinguish the (b) Actually prevents – intention without prevention, or
obligation as soon as the time expires or if it has prevention without intention is not sufficient. But
become indubitable that the event will not take intention and prevention in the exercise of a lawful
place. right will not render the article applicable.

Positive Conditions Example: Fry promised to sell to Paul a car if Jhenaire could
This article deals with positive conditions. pass the bar. On the day of the examination, Fry caused
Jhenaire to be poisoned and be hospitalized. Fry is still bound
Example: I’ll give you my candle if you marry Maria this year. to sell the car.
If by the end of the year, Maria is already dead, or you have
not yet married her, the obligation is extinguished.
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 OBLIGATIONS AND CONTRACTS
If, however, it turns out that Jhenaire was really disqualified land, and Jhenaire must pay. The fruits of the land
to take the bar, as when she had not finished college, or had for the one-year period will remain with Paul, i.e.
taken her first-year law in the prohibited special class, Fry is Paul does not have to give the said fruits. Upon the
not bound. other hand, Jhenaire will keep the 6% legal interest
on her money. This is true even if the interests be
Applicability of the Article to Resolutory Conditions greater or lesser than the fruits.
Although in general, Art. 1186 applies only to a suspensive
condition, it may sometimes apply to a resolutory condition as Scope of “Fruits”
in this case: “Fruits” here refer to natural, industrial, and civil fruits (like
rent). (Art. 442, NCC)
A sold land now to B on condition that B marries C within one
year, otherwise B should return the land. If A kills C, B does
not have to return the land. This is because A is at fault. ART. 1188. The creditor may, before the
fulfillment of the condition, bring the appropriate
actions for the preservation of his right.
ART. 1187. The effects of a conditional obligation
to give, once the condition has been fulfilled, The debtor may recover what during the same
shall retroact to the day of the constitution of the time he has paid by mistake in case of a
obligation. Nevertheless, when the obligation suspensive condition.
imposes reciprocal prestations upon the parties,
the fruits and interests during the pendency of Frist Paragraph (Actions to Preserve Creditor’s Right)
the condition shall be deemed to have been (a) Reason: If not allowed to take the appropriate
mutually compensated. If the obligation is actions, there is a danger the creditor will receive
unilateral, the debtor shall appropriate the fruits nothing, as when the object is deliberately
and interests received, unless from the nature destroyed, or hidden, or alienated.
and circumstances of the obligation it should be (b) “Bring appropriate actions” – sue in court.
inferred that the intention of the person
 Other appropriate actions:
constituting the same was different. 1) Ask for security if the debtor is about to be
insolvent.
In obligations to do and not to do, the courts 2) Ask the court to prevent alienation or
shall determine, in each case, the retroactive concealment pendente conditionae.
effect or the condition that has been complied
with. (c) “Preservation”, not “preference” over other creditor.

Effects of Fulfillment of Suspensive Conditions Second Paragraph (Right of Debtor to Recover What Was
The obligation becomes effective. From what day? Paid by Mistake)
(a) RETROACTS (as a general rule) – to the day the (a) Reason: What was paid by mistake may be
obligation was constituted. recovered because the condition may not
(b) NO RETROACTIVITY with reference only to: materialize. In the meantime, the debtor has lost the
1) Fruits or interests (Art. 1187, NCC) use of the object. This is a case of SOLUTIO
2) Period of prescription (Here, the period runs INDEBITI (undue payment).
from the day the condition was fulfilled, because
it can be enforced only from said date.) (b) If payment was not by “mistake” (that is, it was done
deliberately), can there be recovery?
No Retroactive Effects as to Fruits and Interests
(a) In unilateral obligations, debtor gets the fruits and ANSWER: It depends:
interests unless there is a contrary intent. There is 1) If the condition is fulfilled, no recovery because
usually no retroactive effect because they are of retroactivity.
gratuitous. 2) If the condition is not fulfilled, there should be a
recovery (for this would be unjust enrichment)
Example: In 2020, Fry promised to give Paul her unless a pure donation was intended.
land if Paul passes the bar in 2022. If the condition
is fulfilled, does Fry also give the fruits for the period
of two years? NO, by express provision of the law
unless there is a contrary intent.

(b) In reciprocal obligations, the fruits and interests

during the pendency of the condition shall (for the
purpose of convenience and practical effectiveness)
be deemed to compensate each other (even though
they really be unequal).

Example: In 2005, Paul agreed to sell Jhenaire his

land and Jhenaire agreed to pay if Fry passes the
bar of 2006. Fry passed. Paul must now give the

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 OBLIGATIONS AND CONTRACTS
ART. 1189. When the conditions have been “Loss”
imposed with the intention of suspending the It is understood that the thing is lost:
efficacy of an obligation to give, the following a) Physical loss – When it perishes (as when a house
is burnt to ashes)
rules shall be observed in case of the
b) Legal loss – When it goes out of commerce (as when
improvement, loss or deterioration of the thing the object heretofore unprohibited becomes
during the pendency of the condition: prohibited)
c) Civil loss
(1) If the thing is lost without the fault of the - When it disappears in such a way that its
debtor, the obligation shall be existence is unknown (as when a particular car
extinguished; has been missing for some time)
(2) If the thing is lost through the fault of the - When it disappears in such a way that it cannot
debtor, he shall be obliged to pay be recovered (as when a particular diamond
damages; it is understood that the thing ring is dropped in the middle of the Pacific
Ocean)
is lost when it perishes, or goes out of
commerce, or disappears in such a way Effects of Partial Lost
that its existence is unknown or it cannot It may be partial lost:
be recovered; (a) That would amount to a loss important enough to be
(3) When the thing deteriorates without the considered a complete loss (this will be determined
fault of the debtor, the impairment is to by the courts). (Art. 1263, NCC)
be borne by the creditor; (b) That would merely be considered a deterioration of
(4) If it deteriorates through the fault of the the thing, in which case the rules on deterioration
debtor, the creditor may choose between should apply.
the rescission of the obligation and its
fulfillment, with indemnity for damages in
ART. 1190. When the conditions have for their
either case;
purpose the extinguishment of an obligation to
(5) If the thing is improved by its nature, or
give, the parties, upon the fulfillment of said
by time, the improvement shall inure to
conditions, shall return to each other what they
the benefit of the creditor;
have received.
(6) If it is improved at the expense of the
debtor, he shall have no other right than
In case of the loss, deterioration or improvement
that granted to the usufructuary.
of the thing, the provisions which, with respect
Loss, Deterioration, and Improvement During the
to the debtor, are laid down in the preceding
Pendency of Condition article shall be applied to the party who is bound
(a) This article applies only if: to return.
1) The suspensive condition is fulfilled; and
2) The object is specific or determinate (not As for obligations to do and not to do, the
generic). provisions of the second paragraph of Article
(b) What are the three things that may happen to the 1187 shall be observed as regards the effect of
object of an obligation pending the fulfillment of a the extinguishment of the obligation.
suspensive condition?
Effects of Fulfillment of Resolutory Condition
ANSWER: The object: 1. In obligations to give – when the resolutory
condition in an obligation to give is fulfilled, the
1) May be lost obligation is extinguished, and the parties are
 The object may be lost: obliged to return to each other what they have
a) Without the fault of the debtor received under the obligation.
b) With fault of the debtor a. There is a return to the status quo. In other
words, the effect of the fulfillment of the
2) May deteriorate (value is reduced or impaired) condition is retroactive;
 The object may deteriorate: b. The obligation of mutual restitution is
a) Without the fault of the debtor absolute. It applies not only to the things
b) With the fault of the debtor received but also to the fruits and interests;
c) Partly with and partly without the fault of the c. In case the thing to be returned is “legally in
debtor the possession of a 3rd person who did not
act in bad faith”, the remedy of the party entitled
3) May be improved to restitution is against the other;
 The object may Improve: d. In obligations to give subject to suspensive
a) By nature, or by time condition, the retroactivity admits of exceptions
b) Through the expense of the debtor according to whether the obligation is bilateral
c) Partly through nature or time and partly by or unilateral. Here, there are no exceptions,
the debtor whether the obligation is bilateral or unilateral;
and

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 OBLIGATIONS AND CONTRACTS
e. If the condition is not fulfilled, the rights acquired b. Non-reciprocal – those which do not impose
by a party become vested. simultaneous and correlative performance on both
parties. In other words, the performance of one party
2. In obligations to do – in some obligations, the is not dependent upon the simultaneous
courts shall determine the retroactive effect of performance by the other.
the fulfillment of the resolutory condition as in the
case where the condition is suspensive. Right to Rescind
The power to rescind means the right to cancel (or resolve)
Sample Problems the contract or reciprocal obligations in case of non-fulfillment
on the part of one. Thus, the “rescission” referred to here is
(a) Fry gave Jhenaire a parcel of land on the condition not predicated on injury to economic interests on the part of
that Jhenaire will never buy a candle again. A month the party plaintiff (which is the basis for the rescission
later, Jhenaire bought a candle. What happens to mentioned in Arts. 1380 & 1381, NCC), but on the breach of
Fry’s obligation? faith by the defendant, which breach is violative of the
reciprocity between the parties. (Universal Food Corporation
ANSWER: Fry’s obligation is extinguished, and v. Court of Appeals, L-29155, May 13, 1970)
therefore it is as if there never was an obligation at
all. Jhenaire will therefore have to return both the Examples:
land and the fruits she had received therefrom from
the moment Fry had given her the land. (a) In a contract of sale, the buyer can rescind if the
seller does not deliver, or the seller can rescind if the
(b) Suppose in the meantime, the land had been buyer does not pay.
improved through its nature or by time, who benefits
from such improvements? (b) Paul borrowed P1,000,000 from Fry as a loan. Paul,
on the other hand, is the owner of a garage where
ANSWER: Fry gets the benefit because she is now Fry deposits (for safekeeping) her car. Fry owes
the creditor with respect to the recovery of the land. Paul P1,000,000 for deposit fees. Is this a reciprocal
(Art. 1189, par. 5, NCC) obligation?

ANSWER: No. Although they are mutually bound,

ART. 1191. The power to rescind obligations is the cause does not arise from the same contract.
implied in reciprocal ones, in case one of the One is the contract of loan; the other is the contract
obligors should not comply with what is of deposit. The payment of P1,000,000 as a loan
does not depend on the payment of P1,000,000 as
incumbent upon him.
deposit fees.
The injured party may choose between the Note: In the above case of deposit, which
fulfillment and the rescission of the obligation, incidentally is, by itself, a reciprocal obligation, the
with the payment of damages in either case. He duty to pay deposit fees has its reciprocal
may also seek rescission, even after he has counterpart in the duty to safely keep the car.
chosen fulfillment, if the latter should become
impossible. Effect of Rescission
To rescind a contract is not merely to terminate it, but to
abrogate and undo it from the beginning, that is, not merely
The court shall decree the rescission claimed,
to release the parties from further obligations to each other in
unless there be just cause authorizing the fixing respect to the subject of the contract, but to annul the contract
of a period. and restore the parties to the relative positions which they
would have occupied as if no such contract had ever been
This is understood to be without prejudice to the made.
rights of third persons who have acquired the
thing, in accordance with Articles 1385 and 1388 To rescind is to declare a contract void and to abrogate it from
and the Mortgage Law. its inception.

Kinds of Obligation According to the Person Obliged In case of rescission of contract based on Art. 1191, mutual
1. Unilateral – when only one party is obliged to restitution is required to bring back the parties, as far as
comply with a prestation. practicable, to their original situation prior to the inception of
2. Bilateral – when both parties are mutually bound to the contract.
each other. In other words, both parties are debtors
and creditors of each other. Rescission creates the obligation to return the object of
the contract. It can be carried out only when the one who
Two Kinds of Bilateral Obligations demands rescission can return whatever he may be obliged
a. Reciprocal – those which arise from the same to restore.
cause and in which each party is a debtor and
creditor of each other, such that the performance of
one is designed to be the equivalent and the
condition for the performance of the other.

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 OBLIGATIONS AND CONTRACTS
Characteristics of the Right to Rescind or Resolve Under (d) The injured party who has elected fulfillment may, if
This Article fulfillment be impossible, still ask for rescission
(a) It exists only in reciprocal obligations (provided that rescission is otherwise proper). The
rule is vice-versa, provided the court has not yet
Note: However, if the obligation is reciprocal BUT given a final judgment.
with a period, neither party can demand (e) If an action is brought for specific performance, the
performance or be considered in default before the damages sought must be asked in the same action;
expiration of the period. otherwise, the damages are deemed waived.

(b) It can be demanded only if the plaintiff is ready, Limitations on Right to Demand Rescission
willing, and able to comply with his own obligation, The right to rescind by the injured party is not absolute. It is
and the other is not. always provisional, meaning
a. Contestable; and
Under the rule of exception non adimpleti b. Subject to scrutiny and review by the courts.
contractus, the party who has not performed his part
of the agreement is not entitled to sue. 1. Resort to the courts – the rescission contemplated
by Art. 1191 is a juridical rescission. The injured
Only the injured party can rescind a contract party has to resort to the courts to assert his right
without violating the principle of “mutuality of judicially.
contracts,” which prohibits allowing the validity and 2. Power of the court to fix period – the court has
performance of contracts to be left to the will of one discretionary power to allow a period within which a
of the parties. person in default may be permitted to perform his
obligation if there is a just cause for giving time to
(c) The right to rescind is NOT absolute. Thus: the debtor, or the breach is not substantial.
3. Right of third persons – if the thing, subject matter
1) Trivial causes or slight breaches will not cause of the obligation, is in the hands of a 3rd person who
rescission. acted in good faith, rescission is not available as a
2) If there be a just cause for fixing the period remedy. In such a case, the injured party may
within which the debtor can comply, the court recover damages from the person responsible for
will not decree rescission. the transfer.
3) If the property is now in the hands of an 4. Slight or substantial violation – the general rule is
innocent third party who has lawful possession that rescission will not be granted for slight or casual
of the same. breaches of contract. The violation should be
substantial and fundamental as to defeat the object
(d) The right to rescind needs judicial approval in certain of the parties in making the agreement.
cases, and in others, does not need such approval.
The question of whether the breach is substantial
1) Judicial approval is needed when there has depends upon the attendant circumstances and not
already been delivery of the object (unless there merely on the percentage of the amount paid.
is a voluntary returning)
2) Judicial approval is NOT needed when there 5. Waiver of right – the right to rescind may be
has ben no delivery yet OR, in case there has waived, expressly or impliedly. If the right to rescind
been delivery, the contract stipulates that either may be waived, the right to impugn rescission may
party can rescind the same or take possession be lost on the ground of estoppel.
of the property upon non-fulfillment by the other 6. Judicial compromise – Art. 1191 applies only to
party. reciprocal obligations in general and not to
obligations arising from a judicial compromise.
(e) The right to rescind is implied (presumed) to exist Moreover, the rule is that a judgment rendered in
and therefore need not be expressly stipulated accordance with a compromise agreement is
upon. immediately executory as there is no appeal from
(f) The right to rescind may be waived, expressly or such judgment.
impliedly. 7. Arbitration clause in a contract – The act of
treating a contract as rescinded on account of
Choices by the Injured Party infractions by the other contracting party is valid
(a) The injured party may choose between: albeit provisional as it can be judicially assailed.
1. Fulfillment (specific performance) (plus
damages); OR The right cannot be exercised where there is a valid
2. Rescission (plus damages) stipulation on arbitration. Thus, neither of the parties can
unilaterally treat the contract as rescinded where an
(b) The right is alternative and an alternative prayer may arbitration clause in a contract is availing since whatever
be made in a court complaint unless either had been infractions or breaches by a party arising from the contract
waived previously. must be brought first and resolved by arbitration, and not
(c) The right is not conjunctive, that is, the plaintiff through an extrajudicial rescission or judicial action.
cannot ask for BOTH remedies. However, in some
cases, in the interest of justice, partial rescission and
partial fulfillment may be allowed.

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 OBLIGATIONS AND CONTRACTS
Rescission of Contract Without Previous Judicial Decree ART. 1192. In case both parties have committed
1. Where automatic rescission expressly stipulated – a breach of the obligation, the liability of the first
the parties, may validly enter into an agreement that infractor shall be equitably tempered by the
violation of the terms of the contract would cause
courts. If it cannot be determined which of the
cancellation thereof even without judicial
intervention or permission or termination. This parties first violated the contract, the same shall
stipulation is in the nature of a resolutory condition. be deemed extinguished, and each shall bear his
own damages.
Where the contract itself contains such a stipulation,
the right to rescind is NOT implied but expressly Effect of Breach by Both Parties
recognized. Hence, Art. 1191 is not applicable since The above rules are deemed just. The first one is fair to both
judicial action for rescission is not necessary where parties because the second infractor also derived, or thought
the contract provides automatic rescission in case of he would derive, some advantage by his own act or neglect.
breach. (Note: The act of a party treating a contract The second rule is likewise just because it is presumed that
as cancelled should be made known to each other.) both at about the same time tried to reap some benefit.
(Report of the Code Commission, p. 130)
Resort to judicial action by the injured party is still
necessary to recover whatever he may have When Both Parties Are Guilty of Breach
delivered to the other party under the contract if the 1. First infractor known – one party violated his
latter opposes the rescission. obligation; subsequently, the other also violated his
part of the obligation. In this case, the liability of the
The right of “automatic rescission” stipulated in a first infractor should be equitably reduced;
contract is subject to waiver. Thus, in a case, the 2. First infractor cannot be determined – one party
right was held waived by reason of the many violated his obligation followed by the other, but it
extensions granted the vendee by the vendor who cannot be determined which of them was the first
never called attention to the provision on “automatic infractor. The rule is that the contract shall be
extension.” deemed extinguished, and each shall bear his own
damages.
2. Where contract is still executory – in the absence of
stipulation to the contrary, the right to rescind a This means that the contract shall not be enforced and in
contract must be invoked judicially; it cannot be effect, the court shall not provide remedy to either of the
exercised solely on a party’s own judgment that the parties, who must suffer the damages allegedly sustained by
other has committed a breach of obligation. them.

However, although there is no performance yet by

both parties, but one is ready and willing to comply
with what is incumbent upon him, and the other is
not, the willing party may, by his own
declaration, rescind the contract without a
previous judicial decree of rescission. In such a
case, it is not necessary that there be a stipulation
providing for automatic rescission.

Rescission Termination
When an agreement is
rescinded, it is deemed When an agreement is
inexistent, and the parties terminated, it is deemed
are returned to their status valid at its inception.
quo ante.

QUERY: Why is mutual restitutions required in cases

involving rescission under Art. 1191?

ANSWER: Such restitution is necessary to bring back the

parties to their original situation prior to the inception of the
contract.

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 OBLIGATIONS AND CONTRACTS

SECTION 2
Different Kinds of Terms or Periods
According to effect
1. Suspensive period (Ex die) – the obligation begins
OBLIGATIONS WITH A PERIOD only from a day certain upon the arrival of the period
(“I will pay you 30 days from today”);
ART. 1193. Obligations for whose fulfillment a 2. Resolutory period (In diem) – the obligation is valid
day certain has been fixed, shall be demandable up to a day certain and terminates upon the arrival
only when that day comes. of the period. (“I will support you from the time your
father dies”)
Obligations with a resolutory period take effect
at once, but terminate upon arrival of the day According to source
certain. 1. Legal period – when it is provided for by law;
2. Voluntary or Conventional period – when it is
agreed upon or stipulated to by the parties; and
A day certain is understood to be that which 3. Judicial period – when it is fixed by the court.
must necessarily come, although it may not be
known when. According to definiteness
1. Definite period – when it is fixed, or the exact date
If the uncertainty consists in whether the day will or time is known and given; and
come or not, the obligation is conditional, and it 2. Indefinite period – when it is not fixed, or something
shall be regulated by the rules of the preceding that will surely happen, but the date of happening is
section. unknown (as in the case of death)

Period ‘A Day Certain’ Defined

A period is a certain length of time which determines the A day certain is understood to be that which must necessarily
effectivity or the extinguishment of obligations. come, although it may not be known when. (Art. 1193, par. 3)

Manresa’s Definition of a ‘Period’ (a) When we know that something will happen but we
“A term or a period consists in a space of time which has an are uncertain as to the time it will happen, this is a
influence on obligations as a result of a judicial act, and either term.
suspends their demandableness, or produces their (b) When we are not even sure if something will happen
extinguishment. Obligations with a period are, therefore, as a fact or not, this is a condition.
those whose consequences are subjected in one way or
another to the expiration of said term. Requisites for a Valid Period of Term
(a) It must refer to the future.
Period Distinguished from a Condition (b) It must be certain (sure to come) but can be
extended. (If eliminated subsequently by mutual
PERIOD CONDITION
agreement, the obligation becomes pure and
As to their fulfillment
immediately demandable.)
An event which must (c) It must be physical and legally possible, otherwise
happen sooner or later, at the obligation is void.
a date known beforehand, An uncertain event
or a time which cannot be When Period of Prescription Begins
determined. The period of prescription commences from the time the term
As to time in the obligation arrives, for it is only from that date that it is
May also refer to a past due and demandable. (Ullmann v. Hernaez)
Always refers to the future event unknown to the
parties Extension of Period
As to influence on the obligation Evidence of extension of period, if any be given, must be
Merely fixes the time of the shown by the debtor. (Phil. Engineering Co. v. Green)
Causes an obligation to
efficaciousness of an
arise or to cease
obligation QUERY: If an obligation is demandable “on or about Dec. 5,
As to effect, when left to debtor’s will 2021”, when is it really demandable?
A period which depends A condition which depends
upon the will of the debtor upon the sole will of the ANSWER: A few days before or after Dec. 5, 2021, and not a
empowers the court to fix debtor invalidates the date far away nor one fixed by the debtor. (Sy v. De Leon)
the duration thereof. obligation.
As to retroactivity of effects
Unless there is an ART. 1194. In case of loss, deterioration or
agreement to the contrary, The happening of a improvement of the thing before the arrival of the
the arrival of a period does condition has retroactive day certain, the rules of Article 1189 shall be
not have any retroactive effect.
observed.
effect.
See comments under Article 1189.

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 OBLIGATIONS AND CONTRACTS
ART. 1195. Anything paid or delivered before the Jhenaire is supposed to give Paul the P1,000,000.
arrival of the period, the obligor being unaware Here, Jhenaire is allowed to recover what had been
of the period or believing that the obligation has in good faith prematurely paid, plus interest.
become due and demandable, may be recovered,
(b) Suppose in the preceding problem, Jhenaire had
with the fruits and interests. paid prematurely knowing full well of the existence
of the term, how much can Jhenaire recover?
Payment or Delivery Made Before the Arrival of a Period
Applies only to obligations to give. It is similar to Art. 1188 (2), ANSWER: Jhenaire can recover nothing. The
which allows the recovery of what has been paid by mistake reason is the law does not give her such a right. To
before the fulfillment of a suspensive condition. The creditor be able to recover, Jhenaire:
cannot unjustly enrich himself by retaining the thing or money
received before the arrival of the period. 1) Must have been unaware of the period; or
2) Must have believed that the obligation had
Debtor Presumed Aware of Period become due and demandable.
He has the burden of proving that he was unaware of the
period. (c) On March 1, Paul sold Fry a particular automobile. It
was agreed that payment and delivery were to be
The obligor may no longer recover the thing or money once made on March 31. But on March 15, Paul delivered
the period has arrived, but he can recover the fruits or the car and Fry paid for said car. Pending the arrival
interests thereof from the date of premature performance to of March 31, should Fry return the car plus damages
the date of maturity of the obligation. and should Paul return the price plus interest?
No Recovery in Personal Obligations ANSWER: There should be no returning for two
Art. 1195 has no application to obligations to do or not to do, reasons:
because as to the former, it is physically impossible to recover
the serviced rendered, and as to the later, as the obligor 1) It is true that March 31 was the date set for
performs by not doing, he cannot, of course, recover what he payment of the price and delivery of the car, but
has not done. the subsequent actions of the parties
concerned show that both implicitly agreed to
Period Within Which Recovery May Be Made the changing of the date specified.
(a) Within what period must recovery be made if the
debtor did not know that payment was not yet due? 2) Even if there had been no change in the date
agreed upon, still it must be remembered that
ANSWER: Before the debt matures (regarding what the problem here is one where we are dealing
was paid). Even after maturity (regarding interest) not with two unilateral obligations. And we
for after all the creditor was in BAD FAITH. (But the already know that in reciprocal obligations,
right prescribes five years after premature payment. pending the fulfillment of the condition (and
[ART. 1149, NCC]) therefore, also pending the termination of the
period) the interests and fruits are deemed to
(b) Within what period, if any, must recovery be made if compensate each other, where there has been
the debtor knew that payment was not yet due? premature performance on both sides. (Art.
1187, NCC) (Manresa)
ANSWER: No recovery can be had of what has been
paid, much less can there be recovery of interest.
This is true whether the creditor is in good faith or
ART. 1196. Whenever in an obligation a period is
bad faith since the important thing is the knowledge
by the debtor of the PREMATURENESS (implied designated, it is presumed to have been
waiver). established for the benefit of both the creditor
and debtor, unless from the tenor of the same or
Sample Problems: (Paras) other circumstances it should appear that the
(a) Jhenaire was supposed to pay Paul P1,000,000 on period has been established in favor of one or of
Dec. 31, 2021. But believing that the obligation was the other.
due and demandable already on Dec. 31, 2020,
Jhenaire paid Paul the P1,000,000 on said date. General Rule: Term is for the benefit of debtor or creditor.
How much may Jhenaire recover from Paul, say on Meaning, the debtor cannot pay prematurely and the creditor
June 30, 2021? cannot demand prematurely.

ANSWER: Jhenaire may recover from Paul on June Exceptions:

30, 2021 the amount of P1,000,000 which had been The tenor of the obligation or the circumstances may,
prematurely paid plus interest at the legal rate from however, show that it was the intention of the parties to
Jan. 1, 2021 to June 30, 2021, 6% of P1,000,000 = constitute the period for the benefit of either the debtor or the
P60,000 (interest for one year). P60,000/2 = creditor.
P30,000 (interest for the half-year period from Jan.
1, 2021 to June 30, 2021). 1. Term is for the benefit of the debtor alone – he
cannot be compelled to pay prematurely, but he can,
So Jhenaire may recover a total of P1,000,000 from if he desires, do so.
Paul. Of course, when Dec. 31, 2021 finally arrives,
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 OBLIGATIONS AND CONTRACTS
2. Term is for the benefit of the creditor – he may ART. 1197. If the obligation does not fix a period,
demand fulfillment even before the arrival of the but from its nature and the circumstances, it can
term, but the debtor cannot require him to accept be inferred that a period was intended, the courts
payment before the expiration of the stipulated
may fix the duration thereof.
period.

Nota Bene: This Article applies only where the parties to a The courts shall also fix the duration of the
contract themselves have fixed a period, and not to a case period when it depends upon the will of the
where the parties have authorized the court to fix a debtor.
reasonable term. (Orit v. Balrodgan Co., Ltd.)
In every case, the courts will determine such
Circumstances Which Indicate for Whom the Benefit of period as may under the circumstances have
the Term is been probably contemplated by the parties.
Once fixed by the courts, the period cannot be
(a) For the benefit of both
changed by them.
1) When there is interest stipulated. Here, the
creditor is interested in the term because of the General Rule: Court Generally Without Power to Fix a
interests that would be earned; the debtor is Period
interested because he is given enough time to Judicial period is different from a contractual period.
pay.
2) When the creditor is interested in keeping his When the Court May Not Fix the Term
money safely invested (thus making the debtor (a) When no term was specified by the parties because
a sort of depository), or when the creditor wants no term was even intended, in which case the
to protect himself from the dangers of currency obligation is really a pure one, and demandable at
depreciation. once, unless absurd consequences would arise.
(b) When the obligation or note is “payable on demand”
(b) For the benefit of the debtor (c) When specific periods are provided for in the law, as
in an employment contract where if no period was
1) When the loan is without interest. This rule, agreed upon, the time of employment depends upon
however, is not absolute. the time for payment of salary.
2) When payment is to be made “within” a certain
period from date of contract. Exceptions to the General Rule: When the Court May Fix
a Period
(c) For the benefit of the creditor – Usually, this only 1. No period is fixed but a period was intended – the
exists if there is a stipulation to this effect, as when court may fix the period. If the period fixed is
the contract provides that no payment should be extended by agreement, to be valid the same must
made till after a certain given period. Acceptance of be for a definite time, although if no precise date is
partial payment even before the expiration of the fixed, it is sufficient that the time can readily be
period means a waiver on the part of the creditor determined.
of his right to refuse payment before the end of said 2. Duration of period depends upon the will of the
period. debtor – the court may fix the period.

When Prescriptive Period Begins Examples:

An action upon a written contract (of loan, for example) must a) “when my means permit me to do so” (Art.
be brought within ten years from the time the right of action 1180)
accrues. (Art. 1144, NCC) b) “I’ll pay you little by little”
c) “as soon as possible”
In obligations with the benefit of the term given to both debtor d) “as soon as I have the money”
and creditor, the right of action accrues from the end of the e) “in partial payments”
stipulated period, because it is only from that time that the f) When the debtor is “in a position to discharge
obligation really becomes enforceable. (Sarmiento v. his obligation.”
Villaseñor)
Separate Action to Fix Duration of Period
The duration of the period should be fixed in an action brought
for that express purpose separate from the action to enforce
payment, but such technicality need not be adhered to when
a prior and separate action would be a mere formality and
would serve no other purpose than to delay.

Ultimate Facts to Be Alleged in Complaint

1. Facts showing that a contract was entered into,
imposing on one of the parties an obligation or
obligations in favor of another; and
2. Facts showing or from which an inference may
reasonably be drawn, that a period for performance
was intended by the parties.

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 OBLIGATIONS AND CONTRACTS
If the complaint does not ask that a period for the performance his liabilities or the debtor is unable to pay his debts
of an obligation be fixed, the court CANNOT fix a period as they mature.
unless the complaint is first amended.
Examples:
QUERY: Within What Period Must the Action to Fix the
Period Be Brought? (a) Of Paragraph 1: Fry owes Jhenaire P1,000,000
demandable only on July 3, 2021. In December
ANSWER: Within the proper prescriptive period for specific 2017, Fry becomes insolvent. The debt is
performance if a period had been originally fixed, but to be immediately demandable in December 2017 unless
counted from the perfection of the contract. This is because Fry can offer sufficient security.
the right exists by operation of law form the moment of such
agreement. Extrajudicial demand is not therefore essential for (b) Of Paragraph 2: If a debtor instead of making a
the creation of the cause of action to have the period fixed. mortgage in favor of the creditor, makes it in favor of
(Calero v. Carrion) another person, he fails to furnish the promised
guaranties, and he therefore loses the benefit of the
How the Court Fixes the Period term. The same thing is true if instead of mortgaging
The Court determines the period by considering the time to the creditor three parcels of land, he mortgages
probably contemplated by the parties. only two of them.

Once the period is fixed by the courts, the period (c) Of Paragraph 3: If a mortgaged house is allowed to
becomes part of the contract, thus the court cannot decay by a mortgagor, he impairs the value of the
change it. The same is true is the period is fixed in a guaranty, and therefore the debt becomes
compromise agreement approved by the Court. This is demandable immediately. In the same way, if a
because the compromise agreement acquires the same force mortgaged house is completely loss in a typhoon,
and effect as the decision. (Deudor v. J.M. Tuason & Co., the debt is due at once unless another mortgage
Inc.) equally good is constituted. This is true even if the
loss be through a fortuitous event.
However, the parties may modify the term by a new mutual
agreement, or may even disregard the same in which case, (d) Of Paragraph 4: If a condition, such as not to gamble
the obligation becomes a pure one, and demandable at once. anymore, is violated, any term given because of the
condition is lost. If an employee commits a
ART. 1198. The debtor shall lose every right to substantial breach of his employment contract, the
make use of the period: employer may terminate the employment, even if
there was a fixed duration for the job.
(1) When after the obligation has been
(e) Of Paragraph 5: An attempt by the debtor to escape
contracted, he becomes insolvent, is a sign of bad faith, hence, the loss of the term. It
unless he give a guaranty or security for is not essential that there be an actual absconding,
the debt; the intent to do so being sufficient. Upon the other
(2) When he does not furnish to the creditor hand, a mere physical leaving, with no intent to
the guaranties or securities which he has defraud, is not sufficient.
promised;
(3) When by his own acts he has impaired
said guaranties or securities after their
establishment, and when through a
fortuitous event they disappear, unless
he immediately gives new ones equally
satisfactory;
(4) When the debtor violates any
undertaking, in consideration of which
the creditor agreed to the period;
(5) When the debtor attempts to abscond.

When Obligation Can Be Demanded Before Lapse of

Period
General rule is that the obligation is not demandable before
the lapse of the period. However, in any of the 5 cases
mentioned in Art. 1198, the debtor shall lose every right to
make use of the period, that is, the period is disregarded, and
the obligation becomes pure and, therefore, immediately
demandable.

1. When debtor becomes insolvent – the insolvency in

this case need not be judicially declared. It is
sufficient that the assets of the debtor are less than

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 OBLIGATIONS AND CONTRACTS

SECTION 3
only a limitation but a loss of the right of choice
belonging to the debtor;
ALTERNATIVE OBLIGATIONS 3. The debtor cannot choose part of one prestation and
part of another prestation.
ART. 1199. A person alternatively bound by
different prestations shall completely perform QUERY: In what way does an obligation with a term differ
one of them. from an alternative obligation with reference to benefit?

The creditor cannot be compelled to receive part ANSWER: In an obligation with a term, the general rule is that
of one and part of the other undertaking. the term is for the benefit of both the debtor and the creditor.
In an alternative obligation, however, the general rule is that
Kinds of Obligation According to Object the debtor has the right of choice.
1. Simple obligation – one where there is only 1
prestation (I oblige myself to deliver to B a piano);
2. Compound obligation – one where there are 2 or ART. 1201. The choice shall produce no effect
more prestations. It may be: except from the time it has been communicated.
a. Conjunctive obligation – one where there are
several prestations and all of them are due; or Communication of Notice That Choice Has Been Made
b. Distributive obligation – one where one of 2 or 1. Effect of notice – until the choice is made and
more of the prestation is due. It may be communicated, the obligation remains alternative.
alternative or facultative. a. Once the notice of the election has been given
to the creditor, the obligation ceases to be
Alternative Obligation alternative and becomes simple;
An alternative obligation is one where out of the two or more b. Such choice once properly made and
prestations which may be given, only one is due. communicated is irrevocable and cannot,
therefore, be renounced;
Example: “Jhenaire will give Paul this candle or this jacket or c. Where the choice has been expressly given to
this law book.” Jhenaire does not have to give Paul all the the creditor, such choice shall likewise produce
three things enumerated. The giving of one is sufficient to legal effects upon being communicated to the
satisfy the obligation. debtor.

QUERY: In the example given above, may Jhenaire compel 2. Proof and form of notice – the burden of proving
Paul to accept half the candle and half the jacket (hence, that such communication has been made is upon
establishing co-ownership between them)? him who made the choice. The law does not require
any particular form regarding the giving of notice. It
ANSWER: No, Paul cannot be forced to accept. The creditor may therefore be made orally or in writing, expressly
cannot be compelled to receive part of one and part of the or impliedly, such as by performance of one of the
other undertaking. obligations. (Manresa)

ART. 1200. The right of choice belongs to the Requisites for Making of the Choice
debtor, unless it has been expressly granted to (a) Made properly so that the creditor or his agent will
the creditor. actually know
(b) Made with full knowledge that a selection is indeed
being made. Thus, ERROR in appreciating the
The debtor shall have no right to choose those meaning of alternative obligations will give rise to
prestations which are impossible, unlawful or vitiated consent, and the choice can later on be
which could not have been the object of the annulled.
obligation. (c) Made voluntarily and freely (without force,
intimidation, coercion, or undue influence)
General Rule: The right of choice belongs to the debtor. (d) Made in due time, that is, before or upon maturity
Exception: It may be exercised by the creditor when such (otherwise, the creditor can sue him in court with an
right has expressly been granted to him, or by a third person alternative relief as “give this or that, depending
when the right is given to him by common agreement. upon your choice”)
(e) Made to all the proper persons. Hence, if there be
Right of Choice of Debtor Not Absolute joint creditors, all of them must be notified.
1. The debtor cannot choose those prestations which (f) Made without conditions unless agreed to by the
are creditor; otherwise, it can be said that no real choice
a. Impossible; is being made.
b. Unlawful; or (g) May be waived, expressly or impliedly
c. Which could not have been the object of the
obligation.

2. The debtor has no more right of choice, when among

the prestations whereby he is alternatively bound,
only one is practicable. In this case, there is not

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 OBLIGATIONS AND CONTRACTS
ART. 1202. The debtor shall lose the right of ART. 1205. When the choice has been expressly
choice when among the prestations whereby he given to the creditor, the obligation shall cease
is alternatively bound, only one is practicable. to be alternative from the day when the selection
has been communicated to the debtor.
Effect When Only One Prestation is Practicable
When among several prestations whereby the debtor is Until then the responsibility of the debtor shall
alternatively bound, only one prestation can be performed be governed by the following rules:
because all of the others are impracticable, the debtor loses
his right of choice altogether. In other words, the obligation
loses its alternative character; it becomes a simple obligation. (1) If one of the things is lost through a
fortuitous event, he shall perform the
Article 1202 Distinguished From Article 1200 obligation by delivering that which the
The provision of the above article, however, must be creditor should choose from among the
distinguished from the provision of the second paragraph of remainder, or that which remains if one
Art. 1200. Under the first (1202), there is only one prestation only subsists;
which can be performed; under the second (1200), there are (2) If the loss of one of the things occurs
still two or more which can be performed. Under the first through the fault of the debtor, the
(1202), the obligation is converted into a simple one because
creditor may claim any of those
the debtor loses his right of election; under the second (1200),
the obligation is still alternative because the debtor can still subsisting, or the price of that which,
exercise his right of election. through the fault of the former, has
disappeared, with a right to damages;
ART. 1203. If through the creditor’s acts the (3) If all the things are lost through the fault
debtor cannot make a choice according to the of the debtor, the choice by the creditor
terms of the obligation, the latter may rescind the shall fall upon the price of any one of
contract with damages. them, also with indemnity for damages.

When Debtor May Rescind Contract The same rules shall be applied to obligations to
Rescission creates the obligation to return the things which do or not to do in case one, some or all of the
were the object of the contract together with their fruits, and prestations should become impossible.
the price with its interest.
In alternative obligations, the right of choice, as a rule,
The right given the debtor to rescind the contract and recover belongs to the debtor. Nevertheless, the debtor may
damages if, through the creditor’s fault, he cannot make a expressly give the right of choice to the creditor.
choice according to the terms of the obligation. The debtor,
however, is NOT bound to rescind. Rules When Choice Has Been Given to Creditor
1) When a thing is lost through a fortuitous event –
Example: For P200,000, Paul promised to teach Agape If item 1 is lost through a fortuitous event, creditor
mathematics for the year 2021 or to buy for him a state-of- can choose from among the remainder or that which
the-art computer notebook. If in 2021, Agape goes to remains if three of the items are lost.
Germany, Paul obviously cannot teach him, and since Paul is 2) When a thing is lost through debtor’s fault –
deprived of the right to choose because of Agape’s own act creditor may claim item 2 or 3 or 4 with a right to
(of leaving), Paul may either: damages or the price of item 1 also with a right to
damages.
(a) Buy the state-of-the-art computer notebook; OR 3) When all the things are lost through debtor’s
(b) Rescind the contract with the right to recover fault – creditor can demand the payment of the price
whatever damages he has suffered. of any one of them with a right to indemnity for
damages
ART. 1204. The creditor shall have a right to 4) When all the things are lost through fortuitous
indemnity for damages when, through the fault event – the obligation of debtor shall be
of the debtor, all the things which are extinguished if all the time which are alternatively the
alternatively the object of the obligation have object of the obligation are lost through a fortuitous
been lost, or the compliance of the obligation has event.
become impossible.
Effect if Creditor Delays in Making the Choice
If the creditor delays in choosing, he cannot yet hold the
The indemnity shall be fixed taking as a basis the debtor in default, notwithstanding the lapse of maturity, for the
value of the last thing which disappeared, or that debtor does not know what to deliver. Upon the other hand, if
of the service which last became impossible. the debtor wants to relieve himself, he may petition the court
to compel creditor to accept, in the alternative, at the
Damages other than the value of the last thing or creditor’s option, with resultant damages if any.
service may also be awarded.

This article applies when: (a) The right to choose belonged to

the debtor; and (b) The loss or impossibility happened before
selection was made.
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 OBLIGATIONS AND CONTRACTS
ART. 1206. When only one prestation has been ALTERNATIVE FACULTATIVE
agreed upon, but the obligor may render another
in substitution, the obligation is called As to number of prestations
facultative. Only one thing is principally
due, and it is that one
The loss or deterioration of the thing intended as Various things or several which generally is given,
a substitute, through the negligence of the prestations are due, but the but the other (the
obligor, does not render him liable. But once the giving of one is sufficient. substitute) may be given to
substitution has been made, the obligor is liable render payment or
for the loss of the substitute on account of his fulfillment easy.
delay, negligence or fraud. As to right of choice
Facultative Obligation May be given either to
Given only to the debtor
It is one where only one prestation has been agreed upon but debtor or creditor
the obligor may render another in substitution. As to loss through fortuitous event

Example: Fry promised to give Paul her diamond-studded Loss of one or more of the
ring but it was stipulated that Fry could give her BMW car as alternatives through a Loss of the thing due
a substitute. fortuitous event does not extinguishes the obligation.
extinguish the obligation.
Effect of Loss
1. Before substitution – if the principal thing is lost As to loss through fault of the debtor
through a fortuitous event, the obligation is
The loss of one of the
extinguished. Otherwise, the debtor is liable for The loss of the thing due
alternatives through the
damages. The loss of the thing intended as a through his fault makes
fault of the debtor does not
substitute with or without the fault of the debtor does him liable.
render him liable
not render him liable.
Loss if the substitute
Where the choice belongs
The reason is that the thing intended as a substitute before the substitution
to the creditor, the loss of
is not due. The effect of the loss is merely to through the fault of the
one alternative through the
extinguish the facultative character of the obligation. debtor does not render him
fault of the debtor gives
liable.
rise to liability.
2. After substitution – if the principal thing is lost, the
debtor is not liable whatever may be the cause of the As to nullity of prestation
loss, because it is no longer due. If the substitution
is lost, the liability of the debtor depends upon Nullity of the prestation
Nullity of prestation agreed
whether or not the loss is due through his fault. does not invalidate the
upon invalidates the
others.
obligation.
Once the substitution is made, the obligation is
converted into a simple one to deliver or perform the The debtor or creditor shall
Debtor is not bound to
substituted thing or prestation. The substitution choose from among the
choose the substitute.
becomes effective from the time it has been remainder.
communicated.
Others (from Paras)
Distinctions Between the Alternative and the Facultative If the principal obligation is
Obligations void, and there is no
necessity of giving the
(a) First, by example: If one of the prestations is
substitute, “The nullity of
illegal, the others may be
the principal carries with it
1) ALTERNATIVE – Jhenaire will give object no. 1 valid and the obligation
the nullity of the accessory
or object no. 2. If object no. 1 is lost by fortuitous remains.
or substitute” – this
event, Jhenaire will still have to give object no. principle may by analogy
2. be applied.
2) FACULTATIVE – Paul will give object no. 1 but If it is impossible to give
if Paul wants, he may give object no. 2. If object the principal, the substitute
no. 1 is lost by a fortuitous event, the obligation If it is impossible to give all
does not have to be given;
is extinguished (because the principal object except one, the last one
if it is impossible to give the
has been lost), and Paul does not have to give must still be given.
substitute, the principal
object no. 2. must still be given.
(b) Second, in theory. (Refer to the table)

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 OBLIGATIONS AND CONTRACTS

SECTION 4 ART. 1208 – Joint Obligations (Obligacion

Mancomnada)
JOINT AND SOLIDARY OBLIGATIONS
If from the law, or the nature or the wording of
the obligations to which the preceding article
ART. 1207 – Solidary Obligations
refers the contrary does not appear, the credit or
debit shall be presumed to be divided into as
The concurrence of two or more creditors or of
many shares as there are creditors or debtors,
two or more debtors in one and the same
the credits or debts being considered distinct
obligation does not imply that each one of the
from one another, subject to the Rules of Court
former has a right to demand, or that each one of
governing the multiplicity of suits. (1138a)
the latter is bound to render, entire compliance
with the prestation. There is a solidary liability
only when the obligation expressly so states, or Presumption of law: obligation is always a joint one.
when the law or the nature of the obligation
Un Pak Leung v. Negorra
requires solidarity. (1137a) In the absence of facts that the defendants made themselves
individually liable for the whole amount, they are only liable
Solidary Obligations for their share in the debt.
- A situation where there are debts incurred by 2 or
more debtors in favor of 2 or more creditors, and the Solidary liability is determined by the tenor of the contract, not
right is given to anyone, some or all of creditors, to by judicial admission by the party.
demand the satisfaction of the TOTAL obligation
from anyone, some or all of the debtors Joint Obligation
- Anyone of the creditors may demand fulfillment of An obligation where the debtors are only bound to their share
the entire obligation from any one of the debtor, not and the creditors can only claim their share
just for the share of that debtor.
- NOT PRESUMED. Only exists when it is expressly Example: A and B owe C and D 1000.
stated, or when law or nature of obligation so - C can collect 250 each from A and B
requires - D can also collect 250 each from A and B
- But if A owns only 1/3 of the indebtedness, and C
Exceptions: only 1/5 of the credit:
1. The law requires solidarity o Creditors and debtors shall collect and pay
(Tort, quasi-contracts, liability of principals, only in proportion to what they own and
accomplices, and accessories of a felony, owe.
obligations of devisees and legatees, bailees o In this case, A only pays 1/3 of the 1000,
incommondatum) split such that C gets 1/5 and D gets 4/5.
2. The obligation expressly states that there is
solidarity Principal Effects of Joint Liability
3. Nature of the obligation requires solidarity 1. Vices of each obligation arising from the personal
4. When a solidary responsibility is impured by a final defect of a particular debtor or creditor does not
judgment upon several defendants affect the obligation or right of the others
5. When a charge or condition is imposed upon heirs 2. Insolvency of one debtor does not make others
or legatees, and the testament expressly makes the responsible for his share
charge or condition in solidum 3. Demand by the creditor on one joint debtor puts him
in default, but not the others since the debts are
Terms That Indicate a Solidary Obligation distinct
- “lndividually” has the same meaning as 4. When the creditor interrupts the running of the
“collectively”, “separately”, “distinctly”, etc. prescriptive period by demanding judicially from
one, the others are not affected
Example: An agreement (where the parties agree) to be 5. Defenses of one debtor are not necessarily available
“individually liable” creates several obligation. to the others
- Other words/phrases denoting several obligation
a. Juntos o sepadaramente
b. Mancomun o insolidum
(both used in a contract in connection
with the nature of the liabilities of the
parties are sufficient to create an
individual liability)

- When a contract says, “I promise” (singular and is

signed by two or more promisors

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 OBLIGATIONS AND CONTRACTS
ART. 1209 – When Division is Impossible Examples:

If the division is impossible, the right of the (1) A, B, and C are solidarily indebted to D for 15,000.
D can collect the whole amount from anyone but the
creditors may be prejudiced only by their
debtor can only pay the balance of the debts that
collective acts, and the debt can be enforced have already matured.
only by proceeding against all the debtors. If one
of the latter should be insolvent, the others shall (2) A’s due is on Monday, B on Tuesday, and C on
not be liable for his share. (1139) Wednesday. – D can collect from any one of them,
but can only collect 5,000 on Monday (since only A’s
ART. 1210 – Indivisibility and Solidarity debt has matured)

The indivisibility of an obligation does not ART. 1212. Each one of the solidary creditors
necessarily give rise to solidarity. Nor does may do whatever may be useful to the others, but
solidarity of itself imply indivisibility. (n) not anything which may be prejudicial to the
latter.
- If division of the obligation is impossible, and the
obligation is joint, the creditors must act collectively SOLIDARY CREDITORS MAY DO USEFUL, NOT
o One creditor cannot undertake an act PREJUDICIAL ACTS
which will prejudice the others, unless he is
authorized by the others to undertake such Beneficial Act
an act. Each one of the solidary creditors may do whatever may be
- If several debtors are obliged to give an indivisible beneficial to the other solidary creditors. (Art. 1212, NCC)
obligation (like a house) all of them must be sued if Thus, any solidary creditor may make demand, judicial or
they renege on their obligation. extrajudicial, upon the debtor or debtors. (Art. 1214, NCC), or
o So if one of the debtors refuses to deliver proceed against any one or some or all of the solidary
the house, the obligation is turned into a debtors. (Art. 1216, NCC)
claim for damages.
o A joint indivisible obligation becomes a Example of Beneficial Act: To interrupt the running of
claim for damages the moment any one of prescription, the act of one solidary creditor in making a
the debtors does not comply with the judicial demand upon any of the solidary debtors is sufficient.
undertaking. The law provides that: “The prescription of actions is
o How will the damages be divided? interrupted when they are filed before the Courts.” (Art.
• Those debtors who were ready to 1155(1), NCC) (Paras)
fulfill the obligation are only liable
for their corresponding portion. Prejudicial Act
Example: 3 debtors must give a This should not be performed; otherwise, there will be liability
house, and one refuses. In the for damages. (Paras) The existence of mutual agency does
following claim for damages, the 2 not, however, authorize each one of the solidary creditors to
debtors who were going to deliver do anything which may be prejudicial to the other solidary
the house are each only liable for creditors. (Art. 1212, NCC)
1/3 the price of the house.
• The debtor who is responsible for • Effect of prejudicial act to debtors: Novation,
the damages claim may be liable compensation, confusion or remission of the debt,
for the additional damages. made by any of the solidary creditors with any of the
o Debtors shall not be responsible for solidary debtors, shall extinguish the obligation. (Art.
another debtor who becomes insolvent. 1215(1), NCC)
• Effect of prejudicial act among the creditors:
- Solidarity does not mean indivisibility and vice versa Article 1212 of the NCC means that none of the
o Solidary refers to nature of the obligors and solidary creditors can execute any act prejudicial to
obliges the others without at the same time incurring the
o Indivisibility refers to nature of the obligation of indemnifying the latter. (Manresa) The
prestation creditor who may have made any of the prejudicial
acts mentioned above (novation, compensation,
confusion or remission) shall be liable to the others
ART. 1211 – Not bound in the same manner for the share in the obligation corresponding to them.
(Art. 1215(2), NCC) (Rabuya Civil Law Reviewer)
Solidarity may exist although the creditors and
the debtors may not be bound in the same Q: Is there an incompatibility between the rule regarding
manner and by the same periods and conditions. prejudicial acts stated in Art. 1212 and the rule regarding
(1140) novation, compensation, confusion or remission stated
in Article 1215? (Jurado)
Solidarity can still exist even if creditors and debtors are
bound in different manner, or have different A: None. As far as the debtor or debtors are concerned, a
conditions/periods. prejudicial act performed by a solidary creditor shall be valid
and binding because of the principle of mutual
representation which exists among the creditors; however,
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 OBLIGATIONS AND CONTRACTS
as far as the solidary creditors are concerned, the creditor prejudice caused to the latter by the assignee in connection
who performed the act shall incur the obligation of with the credit.” (Lawyer’s Journal, Observations on the new
indemnifying the others for damages. Civil Code, Jan. 31, 1951, p.48)

Article 1212 refers to the effect of prejudicial acts upon the ART. 1214. The debtor may pay one of the
relationship of the creditors among themselves; Article 1215 solidary creditors; but if any demand, judicial or
refers to the effect upon the entirely different relationship of extrajudicial, has been made by one of them,
the creditors with the debtor or debtors. It is clear that the
payment should be made to him.
Code sanctions the efficacy of prejudicial acts such as
novation, compensation, confusion or remission as far as the
debtor or debtors are concerned, but not as far as the other General Rule: Debtor must/may pay to any of the solidary
solidary creditors are concerned. (Manresa) creditors.
Exception: Payment must be made to the solidary creditor
ART. 1213. A solidary creditor cannot assign his who made a demand (judicial or extrajudicial).
rights without the consent of the others.
Effect of (Non)Demand by a Creditor
If the debtor pays to a creditor who did not make the demand,
General Rule: The solidary creditor cannot assign his rights. the same is deemed a payment made to a wrong person, in
Exception: He is allowed if all the others consent. so far as the shares of the others in the credit are concerned.
In other words, the payment made to any other creditor will
Reason for the Law: Essentially, a solidary obligation implies
not extinguish the obligation except insofar as the payee’s
mutual agency and mutual confidence. Should the assignee share is concerned. (Rabuya)
or substitute do acts which would prejudice the others (as
when he absconds after receiving payment), there is no doubt
Application to Mixed Solidarity
that the other creditor’s rights are endangered, hence, the
A judicial or extrajudicial demand would prohibit the debtor
necessity of their consent. (Paras) upon whom the demand is made from making a payment to
any creditor other than to the one who made the demand.
Assignment of Rights of a Solidary Creditor (Rabuya)
This prohibition, however, does not extend to the other
debtors upon whom no demand has been made, and so each
• In favor of stranger: A solidary creditor cannot of such debtors can still validly tender payment to a creditor
assign his rights without the consent of the others other than to the creditor who made the demand. (Manresa
(Art. 1213, NCC), if the same is made in favor of a as cited by Jurado)
stranger. Since such assignment is prohibited, the
same is considered invalid (Art. 5, NCC) and the  Problems (Paras)
assignee cannot be regarded as a solidary creditor. (a) A and B are solidary debtors of C, D, and E, solidary
Hence, any payment made by the debtor to such an creditors. May A pay C the whole obligation?
assignee would be a payment to a wrong person and
may not extinguish the obligation; and a suit filed by ANSWER: Yes, provided no judicial or extrajudicial
such assignee cannot interrupt prescription. demand had been made by either D or E.
(Tolentino)
• In favor of creditor: The consent of the other (b) A and B are solidary debtors of C, D, and E, solidary
solidary creditors is no longer necessary because creditors. E makes judicial demand. There is no
the assignee is one as to whom the confidence of extrajudicial demand upon A. To whom should A
the others already exist. pay?
Criticism by Justice J.B.L. Reyes ANSWER: Only E, who had made the extrajudicial
“The rule (of non-assignment without the other’s consent) is demand. Payment to any other creditor will not
JUSTIFIABLE and places an unnecessary restriction on the extinguish the obligation except insofar as the
rights of the solidary co-creditors upon his share. The reason payee’s share is concerned.
behind it seems to be that each creditor represents the others
and, therefore, must have the confidence of the latter. But in (c) A and B are solidary debtors of C, D, and E, solidary
the first place, confidence between co-creditors cannot creditors. C makes a judicial demand on A. Can D
properly be said to exist except in the case of a solidary credit and E sue A?
by contract (note that the law is the one that imposes
solidarity in some obligations, not the mutual agreement of ANSWER: In the meantime, no, because C is
the parties). In the second place, representation (by each supposed to be representing already D and E. If
creditor) of the solidary creditors is created by law and not by judgment is rendered against A, and A does not
consent or agreement of the parties. If danger is seen in the have enough money, then D, E, or C (individually or
possible misfeasance of the assignee, the remedy is not the collectively) may still sue B for the remainder. But it
paralyzation of the propriety rights to the solidary creditor, but is essential that the first action be first terminated.
to impose upon him a subsidiary responsibility for the acts
of the assignee, similar to that of the agent for the acts of sub- (d) A and B are solidary debtors of C, D, and E. C makes
agent under Article 1892.” an extrajudicial demand upon A, who does not pay.
Can D and E sue (judicial demand) A?
This is Manresa’s view in his comment to Article 1141 of the
Code of 1889. So that Article 1213 should have been made ANSWER: Although strictly speaking, the answer
to read: “A solidary creditor who assigns his rights without the may be in the NEGATIVE since under the law
consent of his co-creditors shall answer subsidiarily for any
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 OBLIGATIONS AND CONTRACTS
payment must be made to C, who made the (3)
extrajudicial demand, still the law should not be a. If the novation is effected by subrogating a
construed to effect an absurdity in that D and E third person in the rights of the solidary
would be compelled to just stand by idly, since C creditor responsible for the novation, the
does not institute any judicial action. Since C’s act obligation of the debtor or creditors is not in
(or inaction) is prejudicial to D and E, the two (D and reality extinguished, because in this type of
E) should be allowed to make the judicial demand. novation the relation between the other
(Art. 1212, NCC) creditors not substituted and the debtor or
debtors is still maintained.
(e) A and B, solidary debtors, are indebted to C, D, and
E, solidary creditors. C extrajudicially demands from b. If the novation is effected by subrogating a
A, but B (upon whom no demand has been made), third person in the rights of all the solidary
pays the whole debt to E. Is B allowed to do that, creditors, the creditor responsible for such
and is the solidary obligation extinguished? novation is liable to the other creditors for the
share which corresponds to them in the
ANSWER: Yes, for after all no demand had been obligation. (Manresa as cited by Jurado)
made by C upon B. It is only A that is bound, not B.
(Manresa)  Examples (Paras)

ART. 1215. Novation, compensation, confusion (a) A and B are solidarily liable to X and Y, solidary
or remission of the debt, made by any of the creditors, for the payment of P800,000. A and X
solidary creditors or with any of the solidary agreed that instead of paying P800,000, A will just
paint X’s house (including costs of the points to be
debtors, shall extinguish the obligation, without
used).
prejudice to the provisions of 1219.
If B did not consent to the novation, B will not be
The creditor who may have executed any of bound to X and Y in any way, and moreover, will not
these acts, as well as he who collects the debt, be obliged to give A anything except insofar as he
shall be liable to the others for the share in the (B) has been benefited. Upon the other hand, only X
obligation corresponding to them. will be allowed to prejudice his co-creditor Y, so X
must reimburse Y for P400,000 (which is really Y’s
EFFECT OF NOVATION share of the credit) (Art. 1215, par. 2)
Novation
- the modification of an obligation by changing its (b) A and B are solidary debtors of X. If A is granted an
object or principal conditions, or by substituting the extension of time within which to pay, is B released
person of the debtor, or by subrogating the person from the obligation?
of the debtor, or by subrogating a third person in the
rights of creditor. (Art. 1291, NCC) ANSWER: No. The only effect is this: if X sues B, B
will pay the whole debt minus the share of A. When
The peculiar feature of this mode of extinguishing obligations the extended period terminates, X can demand the
is that while it extinguishes the obligation, it creates a new remaining balance (A’s share) from either A or B.
one in lieu of the old. Hence, the liability of the solidary And if B pays again, B will now have the right to
creditor who effected the novation to the other solidary collect reimbursement from A, for A’s share.
creditors shall depend upon the character of the new (Inchausti and Co. v. Yulo, 34 Phil. 978)
obligation which is created. (Jurado)
Nota Bene: The rule is different in suretyship, where
although the surety is also, in a way, a solidary
(1) If the novation of the obligation is effected by debtor, an extension of time to the principal debtor
changing its object or principal condition: without the surety’s consent will release the surety
(a) If the new obligation is prejudicial, the solidary from the contract. (Phil. Nat. Bank v. Veraguth, 50
creditor who effected the novation shall Phil. 253)
reimburse the others for damages incurred by
them. EFFECT OF COMPENSATION
(b) If the new obligation is beneficial (and the Compensation
creditor who effected the novation is able to - that which takes place when two persons, in their
secure performance of the new obligation), own right, are creditors and debtors of each other.
such creditor shall be liable to the others for the (Art. 1278, NCC).
share which corresponds to them, not only in - may be total or partial, depending upon the amount
the obligation, but also in the benefits. involved. Total compensation of course
automatically extinguishes the obligation, whether
(2) If the novation is effected by substituting known or unknown to the parties. (Art. 1290, NCC)
another person in place of the debtor:
• The solidary creditor who effected the novation is  Examples (Paras)
liable for the acts of the new debtor in case there is
a deficiency in performance or in case damages are (a) Total Compensation in Connection with Solidary
incurred by the other solidary creditors as a result of Obligation
the substitution.

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 OBLIGATIONS AND CONTRACTS
A and B are solidary debtors of X and Y, solidary creditors to  Examples (Paras)
the amount of P400,000. But X owes A P400,000 on account
of a different obligation. (a) Total Remission
- Here we have a case of automatic extinguishment of
the obligation by virtue of the total compensation. A and B are solidary debtors of X and Y, solidary creditors to
But B should not benefit completely since it was A’s the amount of P4 Million. X tells A that he was waiving the
credit that was used to compensate. So, B owes A whole obligation.
P200,000 (his share of the debt). - Here, the total remission completely extinguishes
- Upon the other hand, Y should not be prejudiced, so the whole obligation, without prejudice to Y
Y can recover P200,000 (his credit) from X. (Art. collecting from X his (Y’s) share of the credit of P2
1215, par. 2) Million, otherwise X’s remission would prejudice Y.
- Upon the other hand, B does not have to reimburse
(b) Partial Compensation in Connection with Solidary A for anything, for after all the remission was a
Obligations gratuitous act, and A did not have to give anything
to the creditors. (Manresa)
A and B are solidary debtors of C to the amount of
P2,000,000, but C is indebted to A for P500,000. Therefore, (b) Partial Remission
the solidary obligation amounting to P1,500,000 still subsists.
A, B, and C are solidary debtors of X in the amount of P3
EFFECT OF CONFUSION (OR MERGER) Million. X then made a demand from A but collected only P2
Confusion or merger Million because he (X) was remitting A’s share of P1 Million.
- that which takes place when the characters of How much can A recover from B and C?
creditor and debtor are merged in the same person
(Art. 1275, NCC), as when my check in the course ANSWER: Only P1 Million from each because the solidary
of negotiation, is eventually endorsed to me. debt of P3 Million had been re3duced by partial remission to
only P2 Million.
Example (Paras): A and B made a negotiable promissory
note in favor of C and D, whereby A and B bound themselves EFFECT OF PAYMENT TO A CREDITOR
solidarily to C and D, solidary creditors. C and D endorsed the If one of the solidary creditors is able to collect the entire
note in favor of E; E in favor of F; F in favor of A. Notice that amount of the debt from one or some or all of the solidary
A, who is a debtor, now becomes a creditor. There is merger debtors, the obligation is totally extinguished, although there
or confusion of rights here; the solidary obligation is arises a consequent obligation on his part to render an
extinguished; but B is indebted to A for his (B’s) share of the account to his co-creditors. Under the law, he can be held
debt. liable to the others for the share in the obligation
corresponding to them. (Art. 1215(2), NCC) (Jurado)
EFFECT OF REMISSION (OR WAIVER)
Remission or waiver
- that act of liberality whereby a creditor condones the ART. 1216. The creditor may proceed against any
obligation of the debtor; that where the creditor tells one of the solidary debtors or some or all of them
the debtor to “forget about the whole thing.” (Art. simultaneously. The demand made against one
1270, NCC)
of them shall not be an obstacle to those which
- may be total or partial.
may subsequently be directed against the
(1) If the remission covers the entire obligation others, so long as the debt has not been fully
- The obligation is extinguished. collected.
- The entire juridical relation among the debtors is
terminated altogether. Nota Bene: This Article applies to passive solidarity
- This rule is based on the character of remission as (solidarity among the debtors) and to mixed solidarity.
an act of pure liberality. In reality, the remission of a
debt is a donation. PASSIVE SOLIDARITY
- Hence, if the whole obligation is condoned through In passive solidarity, what exists among the debtors is a case
the efforts of a solidary debtor or for his benefit, he of mutual guaranty, the result being that each one of the
is not entitled to any reimbursement from his co- debtors answers not only for the portion affecting him, but
debtors. (Manresa as cited by Jurado) also for the portion pertaining to the others. As a
consequence, the creditor may proceed against any one of
(2) If the remission is for the benefit of one of the the solidary debtors or some or all of them simultaneously.
debtors (and it covers his entire share of the (Rabuya)
obligation)
- The said debtor is completely released from the  Cases (Paras):
creditor(s), but he is still bound to his co-debtors.
(1) A creditor may sue any of the solidary debtors.
(3) If the remission is for the benefit of one of the
debtors (and it covers only a part of his share in the Constante Amor de Castro v. CA
obligation) G.R. No. 11838, July 18, 2002
- His character as a solidary debtor is not affected.
When the law expressly provides for solidarity of the
obligation, as in the liability of co-principals in a contract of

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 OBLIGATIONS AND CONTRACTS
agency, each obligor may be compelled to pay the entire Examples (Paras)
obligation. The agent may recover the whole compensation
from any one of the co-principals in a contract of agency. (a) A and B are solidary debtors of C to the amount of
P1,000,000. Either A or B may be made to pay the
Article 1216 provides that a creditor may sue any of the whole P1,000,000 but the payer can collect half
solidary debtors. Solidarity does not make a solidary obligor (P500,000) from the other (since each is a principal
an indispensable party in a suit filed by the creditor. Article debtor).
1216 says that the creditor may proceed against anyone of (b) A borrowed from C P1,000,000. B acted as surety
the solidary debtors or some or all of them simultaneously. (solidary guarantor) for A. C can demand
P1,000,000 from either A or B. But if B is made to
(2) Effect of Not Proceeding Against All pay, B can demand the whole P1,000,000 from A
since B is not really a principal debtor.
Guerrero v. Court of Appeals
G.R. No. L-22366, October 30, 1969 Nota Bene: A guarantor binds himself subsidiarily to answer
for the principal debtor, in case of insolvency; hence, the
If the creditor sues only one, or two, or several of the debtors creditor cannot immediately proceed against the guarantor; a
(but not all), there is no waiver against those not yet sued. surety is a guarantor who binds himself solidarily with the
They may be proceeded against later. principal debtor, hence, creditor can proceed against the
surety immediately (that is, without first exhausting the
(3) Applicability of Article 1216 properties of the principal debtor). (See Art. 2047) (Paras)

Phil. National bank v. Nuevas  Problems (Paras)

G.R. No. L-21255, November 29, 1965
(1) A and B are solidary debtors of X and Y to the
Article 1216 applies even if the suit is for the revival of a amount of P4 Million. X sued A but recovered only
judgment. Hence, if in the judgment, all the debtors were P3.5 Million. May Y still sue B for P500,000?
declared “jointly and severally liable,” the entire judgment may
be enforced against any of them. ANSWER: Yes, because the debt has not yet been
entirely satisfied.

PASSIVE SOLIDARITY AND SURETYSHIP (2) A and B are solidary debtors of X and Y. X sues A
but A wins the case (for example, on the ground that
Passive Solidarity Suretyship the subject matter is illegal). Can Y still sue B?
Similarities Both the solidary debtor and the surety
guarantee for another person. ANSWER: No more because the principle of res
Both can demand reimbursement. judicata clearly applies. Since X was representing Y,
Differences The solidary debtor is The surety is there would be identity of parties.
indebted for his own indebted only for
share only. the share of the
principal debtor. ART. 1217. Payment made by one of the solidary
Hence, the solidary The surety can debtors extinguishes the obligation. If two or
debtor can be be reimbursed for more solidary debtors offer to pay, the creditor
reimbursed what he everything he may choose which offer to accept.
has paid minus his paid.
own share.
He who made the payment may claim from his
If a solidary debtor If a principal
co-debtors only the share which corresponds to
receives an extension debtor receives
of the period for an extension each, with the interest for the payment already
payment, the others without the made. If the payment is made before the debt is
are still liable for the surety’s consent, due, no interest for the intervening period may
whole obligation now, the surety is be demanded.
minus the share of the released.
debtor who has When one of the solidary debtors cannot,
received the because of his insolvency, reimburse his share
extension (but same to the debtor paying the obligation, such share
share can be
shall be borne by all his co-debtors, in proportion
demandable also
from them upon the to the debt of each.
arrival of the extended
term). Payment
- One of the ways by which an obligation is
(Phil. Guaranty v. Jose, O.G., Aug. 16, 1941, p. 1475; and extinguished and consists in the delivery of the thing
Stevenson v. Climaco, 36 O.G. 1571, as cited by Paras) or the rendition of the service which the object of the
obligation. (Paras)

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 OBLIGATIONS AND CONTRACTS
Nature of Liability for Reimbursement (3) Substitution of Parties

QUESTION: A, B, C, and D are solidary debtors of E to the Bank of the Phil. Islands v. McCoy
amount of P1.2. Million. A paid E the whole amount of P1.2 52 Phil. 831
Million. It is clear that A is entitled to reimbursement for now
A has become the creditor for reimbursement. Are B, C, and A, B, and C are solidary debtors of X who sued all of them. If
D considered the solidary debtors of A? during the pendency of the case, A pays X, in the same action
A can be changed from defendant to plaintiff in substitution of
ANSWER: No. With reference to the reimbursement, B, C, X. This is to enable A to collect reimbursement of contribution
and D are not solidary debtors of A but merely joint debtors of from B and C.
A. It is true that B, C, and D, together with A, used to be
solidarity debtors of E, but A’s payment to E of the whole  Problems (Paras)
amount has extinguished that solidary obligation, and what
remains now is merely the joint obligation of (1) BAR QUESTION: A, B, and C executed jointly and
reimbursement. severally a promissory note for P300,000 in favor of
It should be noted, however, that the liability is not the D payable after six months. Upon maturity, A and B
ordinary joint one, for in the instant case, the insolvency of refused to pay. Is D entitled to recover from C the
one must in the meantime be shouldered by the rest. (Art, P300,000? In case of payment by C, what right, if
1217(3), NCC) (Paras) any, has he against A and B?

No Real Case of Subrogation. – It must be observed that, ANSWER: Yes, D can get the whole P300,000 from
under the law, before the payment is actually made, the right C because C bounds himself in solidum. If C pays
of the solidary debtor to demand reimbursement from his co- the whole amount, B and A will each be liable to him
debtors is merely contingent and conditional. Once payment for P100,000.
has already been made, the right becomes real and existing.
The old obligation in favor of the creditor is extinguished, but (2) Q: A and B were sued on a promissory note which
a new obligation is created in favor of the solidary debtor who read as follows: “Manila, May 1, 2004. For value
made the payment. There is, therefore, no real case of received, we, the undersigned, promise solidarily to
subrogation. (Wilson v. Berkenkotter, as cited by Jurado) pay C or his order, on or before May 1, 2005, the
sum of P1,000,000, plus an interest of 6% (sgd.) A
and B.” Should B turns out to be insolvent, may C
 Cases (Paras) recover all his claim from A who is solvent? Why?

(1) A: Yes, because A had bound himself solidarily,

Inchausti & Co. v. Yulo without prejudice, of course, to his recovering later
34 Phil. 978 on from B, the share of B in the debt, plus interest
from the date of payment.
FACTS: A, B, C, D, E, and F were solidary debtors of G to the
amount of P253,445.42. Later in an agreement with B, C, D, (3) Q: A, B, and C are joint and several debtors of D. D
E, and F, the debt was reduced by G to P225,000. G sued A. allows C an extension of two years within which to
Because of the partial remission, A was made to pay only pay his portion of the indebtedness. Upon being
P225,000. sued by D, may A and B interpose the defense of
the extension of the time granted to C? Should A and
ISSUE: How much can A recover from the other solidary B eventually pay the entire obligation, may they
debtors? compel C to reimburse them with his share without
waiting for the two-year extension granted to D?
HELD: A can recover the proportional shares of the other, not
with respect to P253,445.42 but with respect to P225,000. A: Yes, A and B can set up the extension but only
Since there are six solidary debtors, he can recover 1/6 of as partial defense, limited to C’s share. Hence, they
P225,000 from each plus interest from the time of payment. should now pay ALL minus C’s share. (Inchausti v.
Yulo)
(2) Basis of the Right to be Reimbursed
If they paid ALL (without deductions), they must wait
Wilson v. Berkenkotter for the two-year period before they can compel
92 Phil. 918 reimbursement from C. This is because A and B
merely stepped into the shoes of the creditor D, and
The fact of payment (and not the original contract) is the basis therefore C can plead against them the defense of
of the right to be reimbursed, for not until then had he the right extension of payment.
to be reimbursed. Hence, the obligation of the others to
reimburse him arises only from the time payment is made.
(from Paras)

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 OBLIGATIONS AND CONTRACTS
ART. 1218. Payment by a solidary debtor shall ART. 1220. The remission of the whole
not entitle him to reimbursement from his co- obligation, obtained by one of the solidary
debtors if such payment is made after the debtors, does not entitle him to reimbursement
obligation has prescribed or become illegal. from his co-debtors.

Effect of Payment of Prescribed Debt NO RIGHT TO REIMBURSEMENT IN CASE OF

Q: A and B are solidary debtors to C to the amount of REMISSION
P1,000,000. The debt prescribed. But A voluntarily paid C, The reason for this article is that the debtor who obtains
nevertheless, because A felt morally obliged to so pay. remission pays nothing to the creditor. Remission is
essentially gratuitous. It is really a donation. Note that his
article applies only when the whole obligation is remitted.
(a) May A recover from C what he has paid?

ANSWER: No because it was voluntarily given after ART. 1221. If the thing has been lost or if the
A knew of the prescription of the debt. The law says, prestation has become impossible without the
“When a right to sue upon a civil obligation has
fault of the solidary debtors, the obligation shall
lapsed by extinctive prescription, the obligor cannot
recover what he has delivered or the value of the be extinguished.
service he has rendered.” (Art. 1424, NCC)
Nota Bene: If payment had been made by A to C, If there was fault on the part of any one of them,
without A knowing that the debt had prescribed, A all shall be responsible to the creditor, for the
can recover from C on the basis of solution indebiti. price and the payment of damages and interest,
without prejudice to their action against the
(b) May A get any reimbursement from B? guilty or negligent debtor.
ANSWER: No because A paid the debt after it had
If through a fortuitous event, the thing is lost or
prescribed. (Art. 1218 is the basis)
the performance has become impossible after
one of the solidary debtors has incurred in delay
through the judicial or extrajudicial demand
Effect of Payment of an Illegal Obligation upon him by the creditor, the provisions of the
Example: A and B are solidarily bound to give C some drugs preceding paragraph shall apply.
worth P1,000,000. Later, the law prohibits the transaction of
said drugs, and declares the drugs to be outside the
RULES IN CASE THING HAS BEEN LOST OR
commerce of man. Knowing this, A nevertheless delivers the
PRESTATION HAS BECOME IMPOSSIBLE
drugs to C. A cannot get any reimbursement from B because
If the thing is lost or the prestation becomes impossible, the
A made the payment after the obligation had become illegal.
liability of the solidary debtors depends upon whether or not
there is fault or delay.
ART. 1219. The remission made by the creditor
of the share which affects one of the solidary 1. Loss is without fault and before delay – the
debtors does not release the latter from his obligation shall be extinguished if the thing is lost or
responsibility towards the co-debtors, in case destroyed through a fortuitous event without the fault
the debt had been totally paid by anyone of them of the debtors and before they have incurred delay.
before the remission was effected.
2. Loss due to fault on the part of a solidary debtor – if
EFFECT OF REMISSION OF SHARE AFTER PAYMENT the thing was lost through the fault of one of the
If payment is made first, the remission or waiver is of no effect. solidary debtors, all of the solidary debtors shall also
There is no more obligation to remit. If remission is made be responsible to the creditor for the price of the
previous to the payment and payment is made, solutio indebiti thing as well as damages although some of them
arises. were not at fault at all. A solidary obligation is, in
essence, a mutual agency. As far as the creditor is
It is incumbent upon the debtor whose debt is remitted, to concerned, the fault or delay of one solidary debtor,
prove the priority of the remission to the payment to release shall be the fault or delay of all the solidary debtors.
him from responsibility towards his co-debtors.
3. Loss is without fault but after delay – if the thing was
The purpose of this article is to forestall fraud whereby the lost through a fortuitous event but after a demand
debt having been paid, the creditor, who does not stand to was made upon a solidary debtor, the creditor can
suffer any loss or damage, remits the share of a particular still recover damages from the other solidary debtors
debtor. The article secures equality and justice to the paying without prejudice to the right of action of the latter
debtor inasmuch as the payment benefits his co-debtors. against the erring solidary debtor.

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 OBLIGATIONS AND CONTRACTS
ART. 1222. A solidary debtor may, in actions filed
by the creditor, avail himself of all defenses SECTION 5
which are derived from the nature of the DIVISIBLE AND INDIVISIBLE
obligation and of those which are personal to OBLIGATIONS
him, or pertain to his own share. With respect to
those which personally belong to the others, he
may avail himself thereof only as regards that ART. 1223. The divisibility or indivisibility of the
part of the debt for which the latter are things that are the object of obligations in which
responsible. there is only one debtor and only one creditor
does not alter or modify the provisions of
DEFENSES AVAILABLE TO A SOLIDARY DEBTOR
Chapter 2 of this Title.
In actions filed by the creditor, a solidary debtor may avail
himself of the following defenses: MEANING OF DIVISIBLE AND INDIVISIBLE
1. Defenses derived from the nature of the obligation – OBLIGATIONS
such defense is a “complete defense” because it
nullifies the obligation or renders it ineffective. Other Divisible Obligation
examples are fraud, prescription, remission, One the object of which, in its delivery or performance, is
illegality or absence of consideration, res capable of partial fulfillment.
judicata, non-performance of a suspensive
condition, etc. Indivisible Obligation
One the object of which, in its delivery or performance, is NOT
2. Defenses personal to, or which pertain to share of, capable of partial fulfillment.
debtor sued – if the action by the creditor is against
a solidary debtor, and the latter was insane at the Test for Distinction
time the obligation was contracted, the solidary To determine whether an obligation is divisible or not, the
debtor can put up the defense of insanity with controlling circumstance is not the possibility or impossibility
respect to the entire obligation. This defense is of partial prestation but the purpose of the obligation or the
personal to the solidary debtor alone. It is a complete intention of the parties. Hence, even though the object or
defense. Other examples are incapacity, mistake, service may be physically divisible, an obligation is indivisible
violence, minority, etc. if so provided by law or intended by the parties.

3. Defenses personal to other solidary debtors – In the However, if the object is not physically divisible or the service
example given in no. 2, the defense of insanity is not is not susceptible of partial performance, the obligation is
available to another solidary debtor as to release always indivisible, the intention of the parties to the contrary
him from his liability or for his share in the obligation. notwithstanding. This rule is absolute.
In other words, said solidary debtor may avail
himself thereof only as regards that part of the debt An obligation is presumed indivisible where there is only 1
for which the other solidary debtor (the one suffering creditor and only 1 debtor.
from insanity) is liable.
INDIVISIBILITY FROM SOLIDARITY
Solidarity Indivisibility
Refers to tie between the Refers to nature of
parties obligation
Needs at least two debtors May exist even if there is
or creditors only one debtor and only
one creditor
The fault of one is the fault The fault of one is not the
of the others fault of the others
(Paras)

Applicability of Art. 1223

While this article appears to be limited to real obligations
because it speaks of “things,” the word is used in its broad
sense as referring to the object or prestation of the obligation,
which may be to deliver a thing or to render some service.

Kinds of Division
1. Qualitative division – one based on quality, not on
number or quantity of the things that are the object
of the obligation.
2. Qualitative division – one based on quantity rather
than on quality.
3. Ideal or Intellectual division – one which exists only
in the minds of the parties.

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 OBLIGATIONS AND CONTRACTS
Kinds of Indivisibility ART. 1225. For the purposes of the preceding
1. Legal indivisibility – where a specific provision of law articles, obligations to give definite things and
declares as indivisible, obligations which, by their those which are not susceptible of partial
nature, are divisible.
performance shall be deemed to be indivisible.
2. Conventional indivisibility – where the will of the
parties makes as indivisible, obligations which, by
their nature, are divisible. When the obligation has for its object the
3. Natural indivisibility – where the nature of the object execution of a certain number of days of work,
or prestation does not admit of division (e.g., to give the accomplishment of work by metrical units, or
a particular car, to sing a song, etc.) analogous things which by their nature are
susceptible of partial performance, it shall be
Where there is only 1 creditor and 1 debtor divisible.
The latter has to perform the obligation in its totality, whether
or not the prestation is divisible.
However, even though the object or service may
Unless there is an express stipulation to that effect, the
creditor cannot be compelled partially to receive the be physically divisible, an obligation is
prestations in which the obligation consists. (Art. 1248) indivisible if so provided by law or intended by
the parties.
And in accordance with Art. 1232, an obligation is not deemed
paid unless the thing or service in which the obligation In obligations not to do, divisibility or
consists has been completely delivered or rendered, as the indivisibility shall be determined by the
case may be. character of the prestation in each particular
case.
ART. 1224. A joint indivisible obligation gives OBLIGATIONS DEEMED INDIVISIBLE
rise to indemnity for damages from the time 1. Obligations to give definite things – To give a
anyone of the debtors does not comply with his particular electric fan; to deliver a specific car. Here,
undertaking. The debtors who may have been the obligation is indivisible because of the nature of
ready to fulfill their promises shall not contribute the subject matter.
to the indemnity beyond the corresponding 2. Obligations which are not susceptible of partial
portion of the price of the thing or of the value of performance – To sing a song; to dance the
“dougie.” Here, the obligation is indivisible by reason
the service in which the obligation consists.
of its purpose which requires the performance of all
the parts.
EFFECT OF NON-COMPLIANCE BY A DEBTOR IN A
JOINT INDIVISIBLE OBLIGATION Q: Is the obligation still indivisible if there are more
If any of the debtors do not comply with his undertaking in a than 1 participant?
joint indivisible obligation, the obligation is transformed into A: The obligation becomes divisible as far as the
one for damages (i.e., to pay money). The creditor cannot ask participants are concerned because it is capable of
for specific performance or rescission because there is no partial performance.
cause of action against the other debtors who are willing to
fulfill their promises. 3. Obligations provided by law to be indivisible even if
thing or service is physically divisible – Under the
Joint indivisible law, taxes should be paid within a definite period.
Solidary obligation Although money is physically divisible, the amount
obligation
of tax payable must be delivered in toto, not partially.
Breach by a co-debtor The effect of non- 4. Obligations intended by the parties to be indivisible
makes all debtors liable for compliance by a debtor is even if thing or service is physically divisible – The
damages. to make all the debtors obligation of D to give P1,000 to C on a certain date.
liable for damages but the Money is physically divisible but the clear intention
The obligation remains innocent debtors shall not here is for D to deliver P1,000 at one time and as a
solidary without prejudice contribute beyond their whole.
to their right against the respective shares of the
guilty or negligent debtor. obligation. OBLIGATIONS DEEMED DIVISIBLE
1. Obligations which have for their object the execution
of a certain number of days of work – The obligation
of X to paint the house of Y, the painting to be
finished in 10 days. Hence, the obligation need not
be fulfilled at one time.
2. Obligations which have for their object the
accomplishment of work by metric units – The
obligation of X to make a table, 3 feet wide and 5
feet long; the obligation of X and Y to deliver 20
cubic meters of sand.
3. Obligations which by their nature are susceptible of
partial performance – The obligation of X to teach
“Criminal Procedure” for 1 year in a university; the
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 OBLIGATIONS AND CONTRACTS

SECTION 6
obligation of Fry to render 3 song numbers in a
program; the obligation of Jhen to pay a debt of
P12,000 in 12 monthly installments of P1,000 (note
that each prestation to pay P,1000 is indivisible as it
OBLIGATIONS WITH A PENAL CLAUSE
is to be delivered at one time and in its totality).
ART. 1226. In the obligations with a penal clause,
Divisibility or Indivisibility in Obligations Not to Do the penalty shall substitute the indemnity for
In negative obligations not to do, the character of the
damages and the payment of interests in case of
prestation in each particular case shall determine their
divisibility or indivisibility. noncompliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if
1. Indivisible obligation – Fry obliged herself to Jhen the obligor refuses to pay the penalty or is guilty
not to sell dildos in her store for 1 year. Here, the of fraud in the fulfillment of the obligation.
obligation should be fulfilled continuously during a
certain period. The penalty may be enforced only when it is
2. Divisible obligation – If the obligation of Fry is not to demandable in accordance with the provisions
sell dildos in her stores only during Sundays and of this Code.
holidays, the obligation is divisible because the
forbearance is not continuous.
Meaning of Principal and Accessory Obligations
1. Principal obligation – one which can stand by itself
and does not depend for its validity and existence
upon another obligation;
2. Accessory obligation – one which is attached to a
principal obligation and, therefore, cannot stand
alone.

Obligation with a Penal Clause

One which contains an accessory undertaking to pay a
previously stipulated indemnity in case of breach of the
principal prestation intended primarily to induce its fulfillment.

Penal Clause
An accessory undertaking attached to an obligation to
assume greater liability on the part of the obligor in case of
breach of the obligation, i.e., the obligation is not fulfilled, or
is partly or irregularly complied with.

Purpose of a Penal Clause

1. To insure their performance by creating an effective
deterrent against breach, making the consequences
of such breach as onerous as it may be possible;
2. To substitute a penalty for the indemnity for
damages and the payment of interests in case of
non-compliance; or
3. To punish the debtor for the non-fulfillment or
violation of his obligation.

A penal clause functions to strengthen the coercive force of

the obligation by the threat of greater liability in the event of
breach and to provide, in effect, for what would be the
liquidated damages resulting from such a breach.

Penal Clause Condition

Constitutes an obligation, Not an obligation.
although accessory.
May become demandable Never demandable.
in default of the
unperformed obligation and
sometimes jointly with it.

Penalty Generally Resolves Question of Damages

Under Article 1226, it is presumed, as a general rule, that the
penalty serves as a means of repairing the damages which it
presupposes. A breach of contract entitles the other party to
damages even if no penalty in such breach is prescribed in
the contract.

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 OBLIGATIONS AND CONTRACTS
Obligations with a Penal Clause Strictly Construed 2. Penalty and interests enforceable – the law permits
It is well-settled that sureties are only chargeable according an agreement upon a penalty apart from the interest.
to the strict terms of the bond. The terms of their contract are Should there be such an agreement, the penalty
those which measure the extent of their liability. does not include the interest and as such, the 2 are
different and distinct things which may be demanded
Distinguished from Conditional, Alternative and separately.
Facultative Obligations 3. Penalty, damages and interests enforceable – the
In the obligation with a penal clause, there is a principal creditor, in addition to the penalty, may recover
obligation to which the accessory obligation of penal clause damages and interests:
is joined. There is only 1 thing due, which the creditor may a) When so stipulated by the parties;
demand unaffected by the existence of the penal clause. The b) When the obligor refuses to pay the
debtor cannot choose to pay the penalty in lieu of penalty; or
performance, except when expressly granted to him. c) When the obligor is guilty of fraud in the
fulfillment of the obligation.
The penal clause is a conditional obligation being 4. Requirement to make penalty enforceable – the
demandable only when the condition on which it depends, penalty may be enforced only when it is demandable
that is, the non-performance of the obligation takes place. The in accordance with the provisions of the Civil Code.
existence of the principal obligation is certain, and the right of This means that the penalty, as a stipulation in a
the creditor to demand its performance is further guaranteed contract, is demandable only if there is a breach of
by the penal clause. When the condition on which the penal the obligation and it is not contrary to law, morals,
clause depends takes place, then 2 obligations are good customs, public order or public policy.
demandable alternatively and, when there is express
stipulation, jointly with the principal obligation.
ART. 1227. The debtor cannot exempt himself
In the conditional obligation, the existence of the obligation is from the performance of the obligation by paying
uncertain. B cannot demand its performance until the the penalty, save in the case where this right has
(suspensive) condition takes place. And, if the condition does
been expressly reserved for him. Neither can the
not take place, the obligation is deemed in law never to have
existed. creditor demand the fulfillment of the obligation
and the satisfaction of the penalty at the same
In the alternative obligation, while there is only 1 obligation, 2 time, unless this right has been clearly granted
things are due alternatively, and the obligation may be him. However, if after the creditor has decided to
satisfied by the performance of 1 of them. The election require the fulfillment of the obligation, the
belongs to the debtor, as a general rule, except when there is performance thereof should become impossible
an agreement granting the right of choice to the creditor. without his fault, the penalty may be enforced.
In the facultative obligation, there is only 1 thing due
notwithstanding the right conferred upon the debtor to satisfy Penalty Not a Substitute for Performance
the obligation by substituting another in its place. Generally, the debtor cannot just pay the penalty instead of
performing the obligation. Precisely, the object of the penalty
Kinds of Penal Clause is to secure compliance with the obligation.
1. As to its origin:
a) Legal penal clause – when it is provided for The debtor can exempt himself from the non-fulfillment of the
by law; and obligation only when this right has been expressly reserved
b) Conventional penal clause – when it is for him.
provided for by stipulation of the parties.
2. As to its purpose: Penal Clause Presumed Subsidiary
a) Compensatory penal clause – when the As a general rule, the creditor cannot demand the fulfillment
penalty takes the place of damages; and of the obligation and the satisfaction of the penalty at the
b) Punitive penal clause – when the penalty is same time. The primary purpose of the penalty is to urge the
imposed merely as punishment for breach. debtor to the performance of the main obligation.
3. As to its dependability or effect:
a) Subsidiary or alternative penal clause – Where there is performance
when only the penalty can be enforced; Once the obligation is fulfilled, this purpose is attained and,
and therefore, there is no need for demanding the penalty.
b) Joint or cumulative penal clause – when
both the principal obligation and the penal Where there is no performance
clause can be enforced. In case of non-compliance, the creditor may ask for the
penalty or require specific performance. The remedies are
Liability for Penalty, Damages and/or Interests alternative and NOT cumulative nor successive subject to the
1. Penalty substitutes for damages and interests – as exception that the penalty may be enforced, if after the
a general rule, in an obligation with a penal clause, creditor has decided to require fulfillment, the same should
the penalty takes the place of the indemnity for become impossible without his fault.
damages and the payment of interests in case of
non-compliance. Proof of actual damages suffered If there was fraud on the part of the debtor, the creditor may
by the creditor is not necessary in order that the recover the penalty as well as damages for non-fulfillment.
penalty may be enforced.

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 OBLIGATIONS AND CONTRACTS
When Penal Clause Joint damages which might be anticipated as a result of
The debtor has the right to pay the penalty in lieu of the breach of the terms of the contract.
performance only when this right has been expressly
reserved for him. 2. Where penalty is compensatory – but the courts will
be slow in exercising the authority conferred upon
With respect to the creditor, he has the right to demand them in Art. 1229 where it appears that in fixing the
performance and payment of penalty jointly only when this indemnity the parties had in mind a fair and
right has been clearly granted to him. It is, therefore, not reasonable compensation for actual damages
required that this right be expressly reserved for him; an anticipated as a result of the breach of the contract.
implied grant clearly deducible from the evidence or the
nature of the obligation is sufficient. ART. 1230. The nullity of the penal clause does
not carry with it that of the principal obligation.
ART. 1228. Proof of actual damages suffered by
the creditor is not necessary in order that the The nullity of the principal obligation carries with
penalty may be demanded. it that of the penal clause.

Penalty Demandable Without Proof of Actual Damages Effect of Nullity of the Penal Clause
In an obligation with a penal clause, all that the creditor has If only the penal clause is void, the principal obligation
to prove, to enforce the penalty, is the violation of the remains valid and demandable. The penal clause is just
obligation by the debtor. It is NOT necessary to adduce disregarded. The injured party may recover indemnity for
evidence to prove losses and damages suffered by the damages in case of non-performance of the obligation as if
creditor or the extent of the same. no penalty had been stipulated.

The creditor may enforce the penalty whether he suffered Effect of Nullity of the Principal Obligation
damages or not. BUT he cannot recover more than the If the principal obligation is void, the penal clause is likewise
stipulated penalty even if he proves that the amount of his void. The reason is that the clause cannot stand alone without
damages exceeds the penalty. the principal obligation to which it is subordinated.

ART. 1229. The judge shall equitably reduce the

penalty when the principal obligation has been
partly or irregularly complied with by the debtor.
Even if there has been no performance, the
penalty may also be reduced by the courts if it is
iniquitous or unconscionable.

When Penalty May Be Reduced by the Courts

1. When there is partial or irregular performance – The
penalty should be more or less proportionate with
the extent of the breach of the contract or of the
damages suffered. It is to be presumed that the
parties contemplate only a total breach of contract.
2. When the penalty agreed upon is iniquitous or
unconscionable – here, the penalty may be reduced
even if there is no performance at all. The question
of whether a penalty is reasonable or iniquitous is
addressed to the sound discretion of the court and
on several factors, including, but not limited to, the
following:
a) Type, extent and nature of the penalty;
b) The nature of the obligation;
c) Mode of breach and its consequences;
d) Supervening realities;
e) Standing and relationship of the parties;
f) Extent of the prejudice to the plaintiff; and
g) The like.

Construction of Penal Clause Where Performance is

Partial or Irregular
1. Where penalty is punitive – in any case wherein
there has been a partial or irregular compliance with
the provisions of a contract with a penal clause, the
courts will rigidly apply the doctrine of strict
construction against the enforcement in its entirety
of the penalty, where it is clear from the terms of the
contract that the amount or character of the
indemnity is fixed without regard to the probable
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 OBLIGATIONS AND CONTRACTS

CHAPTER 4 SECTION 1
EXTINGUISHMENT OF OBLIGATION PAYMENT OR PERFORMANCE

ART. 1231. Obligations are extinguished: ART. 1232. Payment means not only the delivery
1) By payment or performance; of money but also the performance, in any other
2) By the loss of the thing due; manner, of an obligation.
3) By the condonation or remission of the
debt; Meaning of Payment
4) By the confusion or merger of the rights Payment may consist of not only in the delivery of money but
of creditor and debtor; also the giving of a thing (other than money), the doing of an
5) By compensation; act or not doing of an act. In law, payment and performance
are synonymous.
6) By novation.
Elements of Payment
Other causes of extinguishment of obligations, 1. Persons, who may pay and to whom payment may
such as annulment, rescission, fulfillment of a be made;
resolutory condition, and prescription, are 2. Thing or object in which payment must consist of;
governed elsewhere in this Code. 3. The cause thereof;
4. The mode or form thereof;
Modes of Extinguishing Obligations: 5. The place and the time in which it must be made;
1. Voluntary: 6. The imputation of expenses occasioned by it; and
a) Performance: 7. The special parts which may modify the same and
o Payment; and the effects they generally produce.
o Consignation.
b) Substitution: Burden of Proving Payment
o Dacion en pago (conveyance for When the existence of a debt is fully established by the
payment); and evidence, the settled rule is that the burden of proving
o Novation. extinguishment by payment devolves upon the debtor who
c) By release agreement: pleads payment or offers such a defense to the claim of the
o Agreement subsequent to the creditor rather than on the latter to prove non-payment.
constitution of the obligation:
• Mutual waiver; Only when the debtor introduces evidence that the obligation
• Unilateral waiver; and has been extinguished does the burden “shift” to the creditor.
• Remission.
o Agreement simultaneous to the ART. 1233. A debt shall not be understood to
constitution of the obligation: have been paid unless the thing or service in
• Resolutory condition; which the obligation consists has been
and completely delivered or rendered, as the case
• Extinctive period. may be.
2. Involuntary:
a) By reason of the subject: When Debt Considered Paid
o Confusion; and 1. Integrity of prestation – this requisite means that the
o Death of the contracting parties in prestation be fulfilled completely. A debt to deliver a
the cases where the obligations thing (including money) or to render service is not
are personal. understood to have been paid unless the thing or
b) By reason of the object: service has been completely delivered or rendered,
o Loss of the thing due or as the case may be. Partial or irregular performance
impossibility of performance; and will not produce the extinguishment of an obligation
c) By failure to exercise (right of action): as a general rule.
o Extinctive prescription. 2. Identity of the prestation – this second requisite
means that the very prestation due must be
delivered or performed.

ART. 1234. 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.

Requisites the Provision’s Application

1. There must be substantial performance; and
2. The obligor must be in good faith.

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 OBLIGATIONS AND CONTRACTS
In case of substantial performance, the obligee is benefited. ART. 1236. The creditor is not bound to accept
So, the obligor should be allowed to recover as if there had payment or performance by a third person who
been a strict and complete fulfillment less damages suffered has no interest in the fulfillment of the obligation,
by the obligee.
unless there is a stipulation to the contrary.
Whoever pays for another may demand from the
ART. 1235. When the obligee accepts the debtor what he has paid, except that if he paid
performance, knowing its incompleteness or without the knowledge or against the will of the
irregularity, and without expressing any protest debtor, he can recover only insofar as the
or objection, the obligation is deemed fully payment has been beneficial to the debtor.
complied with.
Persons from Whom the Creditor Must Accept Payment
1. The debtor;
Recovery Allowed When Incomplete or Irregular 2. Any person who has an interest in the obligation; or
Performance is Waived 3. A 3rd person who has no interest in the obligation
In case of acceptance, the law considers that the creditor when there is stipulation that he can make payment.
waives his right. The whole obligation is extinguished.
If the payment is incomplete or irregular, the creditor may May a credit refuse payment by a 3rd person?
properly reject it. According to the Report of the Code of Commission, “under
the old CC, the creditor cannot refuse payment by a 3rd
Requisites person, but the Commission believes that the creditor should
1. The obligee knows that the performance is have a right to insist on the liability of the debtor. Moreover,
incomplete or irregular; and the creditor should not be compelled to accept payment from
2. He “accepts” the performance without expressing a 3rd person whom he may dislike or distrust. The creditor may
any protest or objection. not, for personal reasons, desire to have any business
dealings with a 3rd person.”
Meaning of “Accept”
To take as “satisfactory or sufficient,” or to “give assent to,” or Effect of Payment by a 3rd Person
to “agree” or “accede” to an incomplete or irregular 1. If made without the knowledge or against the will of
performance. the debtor – the payer can recover from the debtor
only in so far as the payment has been beneficial to
The mere receipt of partial payment is NOT equivalent to the latter. In other words, the recovery is only up to
acceptance of performance within the purview of this the extent or amount of debt at the time of payment.
provision as would extinguish the whole obligation. 2. If made with the knowledge of the debtor – the payer
shall have the rights of reimbursement and
When a creditor “receives” partial payment, he is not ipso subrogation, that is, to recover what he has paid (not
facto deemed to have abandoned his prior demand for full necessarily the amount of the debt) and to acquire
payment. To imply that a creditor accepts partial payment as all the rights of the creditor.
complete performance, his acceptance must be made under
circumstances that indicate his intention to consider the
performance complete and to renounce his claim arising from
the defect.
ART. 1237. Whoever pays on behalf of the debtor
without the knowledge or against the will of the
In Solid Homes vs. CA, it was held that the failure of the latter, cannot compel the creditor to subrogate
respondent to object or protest the non-payment of interest him in his rights, such as those arising from a
by the petitioner who incurred delay in the settlement of its mortgage, guaranty or penalty.
obligations, when the former accepted the certificate of title to
a subdivision lot sold by way of settlement of a criminal case, Right of 3rd Person to Subrogation
cannot be considered as full payment of the principal Whoever pays on behalf of the debtor is entitled to
obligation in the civil case, thus precluding recovery of interest subrogation if the payment is with the consent of the latter.
under Article 1235. Only the principal obligation was
considered to have been paid or performed. If the payment is without the knowledge or against the will of
the debtor, the 3rd person cannot compel the creditor to
Form of Protest subrogate him in the latter’s accessory rights of mortgage,
This provision does not require the protest or objection of the guaranty or penalty.
creditor to be made in a particular manner or at a particular
time. May there be subrogation if the creditor willingly permits
the payor to be subrogated in his rights?
So long as the acts of the creditor, at the time of the No. Since the provision of Article 1237 is for the benefit of the
incomplete or irregular payment by the debtor, or within a debtor, the subrogation can only take place with his consent.
reasonable time, thereafter, evince that the former is NOT
satisfied or agreeable to said payment or performance, the
obligation shall not be deemed extinguished.

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 OBLIGATIONS AND CONTRACTS
Subrogation Reimbursement “Creditor” referred to must be the creditor at the time the
The person who pays for The 3rd person entitled by payment is to be made and not at the constitution of the
the debtor is put into the reason of payment has obligation. Hence, if a person is subrogated to the right of the
shoes of the creditor. merely the bare right to be creditor, payment should be made to the new creditor.
refunded to the extend
The payer not only provided in the 2nd par. of What happens if payment is made to the wrong party?
acquires the right to be Article 1236 without the The obligation is NOT extinguished as to the creditor who is
reimbursed for what he has right to the guarantees and without fault or negligence even if the debtor acted in outmost
paid but also all other securities of the original good faith and by mistake as to the person of the creditor or
rights which the creditor obligation. through error induced by fraud of a 3rd person.
could have exercised
pertaining to the credit Meaning of “Any Person Authorized to Receive It”
either against the debtor or A person authorized by law to receive the payment, such as
against 3rd persons, be a
they guarantors or 1. Guardian;
possessors of mortgages. 2. Executor or administrator of the estate of a
deceased;
3. Assignee or liquidator of a partnership or
corporation;
ART. 1238. Payment made by a 3rd person who 4. As well as any other person who may be authorized
does not intend to be reimbursed by the debtor by law.
is deemed to be a donation, which requires the
debtor’s consent. But the payment is in any case Under this provision, payment in good faith to any person in
valid as to the creditor who has accepted it. possession of the credit, is valid although such person may
not be authorized to receive the payment.
“No one should be compelled to accept the generosity of
another.” ART. 1241. Payment to a person who is
incapacitated to administer his property shall be
If the paying 3rd person does not intend to be reimbursed, the valid if he has kept the thing delivered, or insofar
payment is deemed a donation which requires the debtor’s as the payment has been beneficial to him.
consent to be valid. However, if the creditor accepts the
payment, it shall be valid as to him and the payor although
the debtor did not give his consent to the donation. Payment made to a third person shall also be
valid insofar as it has redounded to the benefit of
ART. 1239. In obligations to give, payment made the creditor. Such benefit to the creditor need not
by one who does not have the free disposal of be proved in the following cases:
the thing due and capacity to alienate it shall not
be valid, without prejudice to the provisions of 1. If after the payment, the third person
Article 1427 under the Title on “Natural acquires the creditor’s rights;
Obligations.” 2. If the creditor ratifies the payment to the
third person;
Meaning of Free Disposal of the Thing Due and Capacity 3. If by the creditor’s conduct, the debtor
to Alienate has been led to believe that the third
Free disposal of the thing due means that the thing to be person had authority to receive the
delivered must not be subject to any claim or lien or payment.
encumbrance of a 3rd person.

Capacity to alienate means that the person is not Effect of Payment to an Incapacitated Person
incapacitated to enter into contracts and for that matter, to Payment to a person incapacitated to administer or manage
make a disposition of the thing due. his property is NOT valid unless such incapacitated person
kept the thing paid or delivered or was benefited by the
As a general rule, in obligations to give, payment by one who payment.
does not have the free disposition of the thing due or the
capacity to alienate it is NOT valid. This means that the thing In the absence of this benefit, the debtor may be made to pay
paid can be recovered. again by the creditor’s guardian or by the incapacitated
person himself when he acquires or recovers his capacity.
Proof of such benefit is incumbent upon the debtor who paid.
ART. 1240. Payment shall be made to the person
in whose favor the obligation has been Effect of Payment to a 3rd Person
constituted, or his successor in interest, or any Payment to a 3rd person or wrong party is NOT valid except
person authorized to receive it. insofar as it has redounded to the benefit of the creditor. It is
immaterial that the debtor acted in utmost good faith and by
Person to Whom Payment Shall Be Made mistake as to the person of the creditor, or through error
1. Creditor or obligee; induced by fraud of a 3rd person if the creditor is without fault
2. His successor in interest (like an heir or assignee); or negligence.
or
3. Any person authorized to receive it.
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 OBLIGATIONS AND CONTRACTS
That the creditor was benefited by the payment made by the Very Prestation Due Must be Complied With
debtor to a 3rd person is NOT presumed and must, therefore, The 1st par. refers to a real obligation to deliver a specific
be satisfactorily established by the person interested in thing. A thing different from that due cannot be offered or
proving this fact. In the absence of such proof, the payment demanded against the will of the creditor or debtor, as the
thereof in error and in good faith will not deprive the creditor case may be.
of his right to demand payment.
The 2nd par. refers to personal (positive and negative)
When Benefit to Creditor Need Not Be Proved by Debtor obligations. The act to be performed or the act prohibited
1. Subrogation of the payer in the creditor’s rights; cannot be substituted against the obligee’s will.
2. Ratification by the creditor; or
3. Estoppel on the part of the creditor. When Prestation May be Substituted
Substitution can be made if the obligee consents. In
ART. 1242. Payment made in good faith to any facultative obligations, the debtor is given the right to render
person in possession of the credit shall release another prestation in substitution.
the debtor.
Instances When Art. 1244 Does Not Apply (Paras)
Payment to 3 Person in Possession of Credit
rd (a) In case of facultative obligations;
It must be observed that the “possession” referred to under (b) In case there is another agreement resulting in
the above provision is possession of the credit itself and not either:
merely of the document or instrument evincing the credit. • Dation in payment (Art. 1245, NCC)
Hence, mere possession of the instrument (unless • Or novation (Art. 1291, NCC)
transferable by delivery) does not entitle the holder to (c) In case of waiver by the creditor (expressly or
payment nor does payment release the debtor. Furthermore, impliedly)
the payer must act in good faith, that is, in the honest belief
that he is making a valid payment and that the payee is the
owner of the credit. ART. 1245. Dation in payment, whereby property
is alienated to the creditor in satisfaction of a
ART. 1243. Payment made to the creditor by the debt in money, shall be governed by the law of
debtor after the latter has been judicially ordered sales.
to retain the debt shall not be valid.
Special Forms of Payment
When Payment to Creditor NOT valid 1. Dation in payment;
In an action against the debtor who is the creditor of another, 2. Application of payments;
the latter (the debtor-stranger), during the pendency of the 3. Payment by cession; and
case, may be ordered by the court (or by any competent 4. Tender of payment and consignation.
authority though it be administrative) to retain the debt until
the right of the plaintiff, the creditor in the main litigation, is Dation in Payment
resolved. (Adjudication or dacion en pago)
The conveyance of ownership of a thing by the debtor to
Payment made subsequently by the debtor-stranger shall creditor as an accepted equivalent of performance of a
NOT be valid if the plaintiff wins the case and cannot collect monetary obligation.
from the debtor to whom the payment is made. Such payment
is considered as made in bad faith. It is a special form of payment because it is not the ordinary
way of extinguishing an obligation. A debt in money is
The benefit under this provision can only be invoked by the satisfied, not by payment of money, but by the transmission
creditor who secures the order of retention. of ownership of a thing by the debtor to the creditor.

Garnishment of Debtor’s Credit Requisites of Dation in Payment

Garnishment is the proceeding for the purpose of subjecting 1. There must be performance of the prestation in lieu
a debtor’s credit to the payment of his debt to another. It is in of payment which may consist in the delivery of a
the nature of an involuntary novation by the substitution of corporeal thing or a real right or a credit against a 3rd
one creditor for another. person;
2. There must be some difference between the
It is an attachment by means of which the plaintiff seeks to prestation due and that which is given in substitution;
subject to his claim the property of the defendant in the hands and
of a 3rd person or money owed by such 3rd person or 3. There must be an agreement between the creditor
garnishee to the defendant. and debtor that the obligation is immediately
extinguished by reason of the performance of a
ART. 1244. The debtor of a thing cannot compel prestation different from that due.
the creditor to receive a different one, although
The undertaking really partakes in one sense of the nature of
the latter may be of the same value as, or more sale, that is, the creditor is really buying the thing or property
valuable than that which is due. of the debtor, payment for which is to be charged against the
debtor’s debt.
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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 OBLIGATIONS AND CONTRACTS
This mode of payment presupposes an existing debt which is Example:
extinguished to the extent of the value of the thing delivered Fry promised to deliver to Jhenaire a sex toy. Jhenaire cannot
or totally, if such is the intention of the parties. compel Fry to deliver a price-winning sex toy. Neither can Fry
require Jhenaire to accept an old good for nothing sex toy.
Sale Dacion in Payment
There is a pre-existing ART. 1247. Unless it is otherwise stipulated, the
No pre-existing credit.
credit. extrajudicial expenses required by the payment
Obligations are shall be for the account of the debtor. With
Obligations are created.
extinguished. regard to judicial costs, the Rules of Court shall
The extinguishment of the govern.
The cause is the price paid
debt, from the viewpoint of
from the viewpoint of the Debtor Pays for Extrajudicial Expenses
the debtor or the
seller or the acquisition of
acquisition of the object in The reason is that the obligation is extinguished when
the thing sold, from the
lieu of the credit, from the payment is made and it is, therefore, the debtor who is
viewpoint of the buyer. primarily benefited.
viewpoint of the creditor.
There is more freedom in Less freedom in fixing the
fixing the price. price. If the parties have made a stipulation as to who will bear the
expenses, then their stipulation shall be followed.
The payment is received
before the contract is Losing Party Generally Pay Judicial Costs
The buyer has still to pay
perfected which is to be Judicial costs are the statutory amounts allowed to a party to
the price.
charged against the an action for his expenses incurred in the action. Under the
debtor’s debt. ROC, the costs of an action shall, as a rule, be paid by the
The parties deliver and The parties deliver and losing party.
receive the thing as seller receive the thing as debtor
and buyer. and creditor. The court may, however, for special reasons, adjudge that
Transmission of Ownership to Creditor either party shall pay the costs, or that the same be divided,
Dation in payment requires the delivery and transmission of as may be equitable.
ownership of a thing to the creditor who accepts it as No costs are allowed against the Government, unless
equivalent of payment of an outstanding debt. otherwise provided.

Where the repossession of the thing was merely to secure the ART. 1248. Unless there is an express stipulation
payment of the debtor’s loan obligation and not for the to that effect, the creditor cannot be compelled
purpose of transferring ownership thereof to the creditor in partially to receive the prestations in which the
satisfaction of said loan, no dacion en pago is accomplished. obligation consists. Neither may the debtor be
required to make partial payments.
ART. 1246. When the obligation consists in the
delivery of an indeterminate or generic thing, However, when the debt is in part liquidated and
whose quality and circumstances have not been in part unliquidated, the creditor may demand,
stated, the creditor cannot demand a thing of and the debtor may effect the payment of the
superior quality. The purpose of the obligation former without waiting for the liquidation of the
and other circumstances shall be taken into latter.
consideration.
Complete Performance of Obligation Necessary
Rule of the Medium Quality The above provision contemplates obligations where there is
If the obligation consists in the delivery of a specific thing, the only 1 creditor and only 1 debtor.
very thing due must be delivered.
The prestation, i.e., the object of the obligation, must be
However, if the obligation is to deliver a generic thing, the performed in 1 act, not in parts. In order that payment may
purpose of the obligation and other circumstances shall be extinguish an obligation, it is necessary that there be
taken into consideration to determine the quality or kind of complete performance of the prestation. The creditor must
thing to be delivered. accept but he cannot be compelled to accept partial payment
or performance.
This provision is a principle of equity in that it supplies justice
in cases where there is lack of precise declaration in the The debtor has the duty to comply with the whole of the
obligation of the quality or kind of thing to be delivered. If there obligation, but he cannot be required to make partial
is disagreement between the parties, the law steps in and payments if he does not wish to do so.
determines whether the contract has been complied with or
not according to the circumstances. When Partial Performance of Obligation is Allowed
1. When there is an express stipulation to that effect;
The benefit of this article may be waived by the creditor by 2. When the debt is in part liquidated (definitely
accepting a thing of inferior quality and by the debtor by determined or determinable) and in part
delivering a thing of superior quality. unliquidated;
3. When the different prestations in which the
obligation consists are subject to different terms

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 OBLIGATIONS AND CONTRACTS
or conditions which affect some of them (In 2. Payment for purpose of redemption – a redemption
obligations which comprehend several distinct of property sold under execution is not rendered
prestations, it is evident that the prestations need not invalid by reason of the fact that the payment to the
be executed simultaneously but each successive sheriff for the purpose of redemption is effected by
execution thereof must be complete); means of a check for the amount due.
4. When the parties know that the obligation
reasonably cannot be expected to be performed This provision deals with a mode of extinction of debts, while
completely at one time; and the right to redeem is not an obligation but the exercise of a
5. When there is abuse of right or if good faith right; nor is it intended to discharge a pre-existing debt. It is
requires acceptance. the policy of the law to be liberal in redemption cases, to aid
rather than to defeat the right of redemption.

ART. 1249. The payment of debts in money shall 3. Effect of an obligation – payment by means of
be made in the currency stipulated, and if it is not mercantile documents does not extinguish the
possible to deliver such currency, then in the obligation –
a. Until they have been cashed; or
currency which is legal tender in the Philippines.
b. Unless they have been impaired through the
fault of the creditor.
The delivery of promissory notes payable to
order, or bills of exchange or other mercantile Applicability of Impairment Clause of Art. 1249
documents shall produce the effect of payment This provision is applicable not only to those instruments
only when they have been cashed, or when executed by 3rd persons, which the debtor delivers to the
through the fault of the creditor they have been creditor, but also to a note executed by the debtor himself and
impaired. delivered to the creditor.

Note: Acceptance of a check implies an undertaking of due

In the meantime, the action derived from the
diligence on the part of the payee in presenting it for payment.
original obligation shall be held in abeyance. If no such presentment was made, the drawer cannot be held
liable irrespective of loss or injury sustained by the payee.
Payment of Debts in Money Payable in PH Currency
The 1st par. of the above article was modified by RA No. 529 ART. 1250. In case an extraordinary inflation or
which requires the payment of domestic obligations in money deflation of the currency stipulated should
in PH currency and declares as “against public policy, and supervene, the value of the currency at the time
null and void, and of no effect” any provision in a contract or of the establishment of the obligation shall be the
agreement requiring the payment of such obligations in a basis of payment, unless there is an agreement
currency other than PH currency.
to the contrary.
The obligation itself is not declared void. The void provision
does not defeat a creditor’s claim for payment in PH currency, Inflation
as it is provided in Section 1 of the Act that such obligation A sharp sudden increase of money or credit or both without a
“shall be discharged upon payment in any coin or currency corresponding increase in business transactions. Inflation
which at the time of payment is legal tender for public and causes a drop in the value of money, resulting in the rise of
private debts.” the general price level.

Note: RA No. 529 was repealed by RA no. 8183 and there is Deflation
no longer any legal impediment to having obligations or Reduction in volume and circulation of the available money or
transactions paid in a foreign currency as long as the parties credit, resulting in a decline of the general price level; it is the
agree to such agreement. opposite of inflation.

Payment by Means of Instruments of Credits Requisites for the Application of This Provision
1. Right of creditor to refuse or accept – promissory 1. There is an official declaration of extraordinary
notes, checks, bills of exchange and other inflation or deflation from the BSP;
commercial documents are NOT legal tender and, 2. The obligation is contractual in nature; and
therefore, the creditor cannot be compelled to 3. The parties expressly agreed to consider the effects
accept them. This is true even though the check is of the extraordinary inflation or deflation.
certified or is a manager’s check.
A contractual agreement is needed for the effects of
The creditor, if he chooses, may accept them, without the extraordinary inflation to be taken into account to alter the
acceptance producing the effect of payment. In the meantime, value of the currency. More importantly, the parties must
the demandability of the original obligation is suspended until agree to recognize the effects of extraordinary inflation or
the payment by the commercial document is actually realized. deflation, as the case may be.

The creditor must cash the instrument, and it is only when it This Article does not apply where the obligation to pay arises
is dishonored, that he can bring an action for non-payment of from other sources independent of contract, such as law,
the debt. quasi-contract, tort or crime.

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Basis of Payment in case of Extraordinary Inflation or
Deflation SUBSECTION 1
The purchasing value of the currency at the time of the APPLICATION OF PAYMENTS
establishment of the obligation shall be the basis of payment,
in case of any extraordinary increase or decrease in the
purchasing power of the currency which the parties could not ART. 1252. He who has various debts of the same
have reasonably foreseen. This is, however, subject to the kind in favor of one and the same creditor, may
agreement of the parties to the contrary. declare at the time of making the payment, to
which of them the same must be applied. Unless
When Inflation or Deflation is Extraordinary the parties so stipulate, or when the application
It has been suggested that a test as to when inflation or of payment is made by the party for whose
deflation is extraordinary is “one that neither party had reason benefit the term has been constituted,
to foresee when the obligation was established” or “manifestly
application shall not be made as to debts which
beyond the contemplation of the parties” at the time of the
establishment of the obligation as stated in Article 1267 or a
are not yet due.
similar case.
If the debtor accepts from the creditor a receipt
Extraordinary inflation or deflation is said to exist where there in which an application of the payment is made,
is an unimaginable increase or decrease in the purchasing the former cannot complain of the same, unless
power of the PH currency, or fluctuation in the value of pesos there is a cause for invalidating the contract.
which could not have been reasonably foreseen or was
manifestly beyond the contemplation of the parties at the time Meaning of Application of Payments
of the establishment of the obligation. The designation of the debt to which should be applied the
payment made by a debtor who has various debts of the
ART. 1251. Payment shall be made in the place same kind in favor of one and the same creditor.
designated in the obligation.
Requisites
There being no express stipulation and if the 1. There must be 1 debtor and 1 creditor;
undertaking is to deliver a determinate thing, the 2. There must be 2 or more debts;
3. The debts must be of the same kind;
payment shall be made wherever the thing might
4. The debts to which payment made by the debtor has
be at the moment the obligation was constituted. been applied must be due; and
5. The payment made must not be sufficient to cover
In any other case the place of payment shall be all the debts.
the domicile of the debtor.
Application as to Debts Not Yet Due
If the debtor changes his domicile in bad faith or Such cannot be made unless:
after he has incurred delay, the additional 1. There is a stipulation that the debtor may so apply;
expenses shall be borne by him. or
2. It is made by the debtor or creditor, as the case may
be, for whose benefit the period has been
These provisions are without prejudice to venue constituted.
under the Rules of Court.
Rules on Application of Payments
Place Where Obligation Shall be Paid 1. The debtor has the 1st choice; he must indicate at
1. If there is a stipulation, the payment shall be made the time of making payment, and not afterwards,
in the place designated; which particular debt is being paid. If, in making the
2. If there is no stipulation and the thing to be delivered use of his right, the debtor applied the payment to a
is specific, the payment shall be made at the place debt, he cannot later claim that it should be applied
where the thing was, at the perfection of the to another debt;
contract; 2. The right to make the application once exercised is
3. If there is no stipulation and the thing to be delivered irrevocable unless the creditor consents to the
is generic, the place of payment shall be the domicile change;
of the debtor. In this case, the creditor bears the 3. It is clear from the use of the word “may” and not
expenses in going to the debtor’s place to accept “shall” that the debtor’s right to apply payment is
payment subject to the rule in par. 4. NOT mandatory but merely directory. If the debtor
does not apply payment, the creditor has the
The order as above enumerated is successive and exclusive subsidiary right to make the designation by
as may be gleaned from the provision itself. specifying in the receipt which debt is being paid;
4. If the creditor has not also made the application, or
if the application is not valid, the debt, which is most
onerous to the debtor among those due, shall be
deemed to have been satisfied;
5. If the debts due are of the same nature and burden,
the payment shall be applied to all of them
proportionally; and

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 OBLIGATIONS AND CONTRACTS
6. If neither party has exercised its option and there is
disagreement as to debts to which payment must be SUBSECTION 2
applied, the court will apply the payment according PAYMENT BY CESSION
to the justice and equity of the case, taking into
consideration all its circumstances. ART. 1255. The debtor may cede or assign his
property to his creditors of this debts. This
ART. 1253. If the debt produces interest, payment cession, unless there is stipulation to the
of the principal shall not be deemed to have been contrary, shall only release the debtor from
made until the interests have been covered. responsibility for the net proceeds of the thing
assigned. The agreement which, on the effect of
Interest Earned Paid Ahead of Principal the cession, are made between the debtor and
This rule is mandatory.
his creditors shall be governed by special laws.
Hence, the debtor cannot choose to credit his payment to the
principal before the interest is paid. The payment must be Payment by Cession
applied first to the interest and whatever balance is left, must Another special form of payment. It is the assignment or
be credited to the principal. abandonment of all the properties of the debtor for the benefit
of his creditors in order that the latter may sell the same and
The rule is subject, however, to any agreement between the apply the proceeds thereof to the satisfaction of their credits.
parties, or to waiver by the creditor. In this sense, this
provision is merely directory. Requisites
1. There must be 2 or more creditors;
2. The debtor must be (partially) insolvent;
ART. 1254. When the payment cannot be applied
3. The assignment must involve all the properties of the
in accordance with the preceding rules, or if the debtor; and
application cannot be inferred from other 4. The cession must be accepted by the creditors.
circumstances, the debt which is most onerous
to the debtor, among those due, shall be deemed Effect of Payment by Cession
to have been satisfied. Unless there is a stipulation to the contrary, the assignment
does not make the creditors the owners of the property of the
If the debts due are of the same nature and debtor and the debtor is released from his obligation only up
burden, the payment shall be applied to all of to the net proceeds of the sale of the property assigned.
them proportionately.
In other words, the debtor is still liable if there is a balance.
Application of Payment to More Onerous Debts
Article 1255 Refers to Contractual Assignment
A debt is more onerous than another when it is more
Being a contractual assignment, such requires the consent of
burdensome to the debtor. No fixed rule can be laid down in
all the creditors as distinguished from legal or judicial
determining which debt is more onerous to the debtor since
assignment which is governed by the Insolvency Law.
the condition of being more burdensome is a question of
relative appreciation.
Dation in Payment Cession
The SC, however, has given some rules to be followed or There is usually only 1 There are several
used as a guide to determine whether one debt is more creditor. creditors.
burdensome than another. Does not presuppose the
1. An interest-bearing debt is more onerous than a insolvency of the debtor or The debtor is insolvent at
non-interest bearing debt even if the latter is an older a situation of financial the time of assignment.
one; difficulties.
2. A debt as a sole debtor is more onerous than as a
Extends to all the property
solidary debtor; Does not involve the
of the debtor subject to
3. All things being equal, older debts are more property of the debtor.
execution.
onerous;
4. Debts secured by a mortgage or by pledge are more The creditors only acquire
The creditor becomes the
onerous than unsecured debts; the right to sell the thing
owner of the thing given by
5. Of 2 interest-bearing debts, the one with a higher and apply the proceeds to
the debtor.
rate is more onerous; and their credits pro rata.
6. An obligation with a penalty clause is more An act of novation. Not an act of novation.
burdensome than one without a penalty clause.

Where Debts Subject to Different Burdens

The payment should be applied to all of the proportionately.

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 OBLIGATIONS AND CONTRACTS

SUBSECTION 3 remedy is to avoid the performance of an obligation

more onerous to the debtor by reason of causes not
TENDER OF PAYMENT AND imputable to him.
CONSIGNATION
For failure to consign the thing or amount due, the debtor may
become liable for damages and/or interest. But such failure is
ART. 1256. If the creditor to whom tender of not tantamount to a breach of contract whereby the fact of
payment has been made refuses without just tendering payment he was willing and able to comply with his
cause to accept it, the debtor shall be released obligation.
from responsibility by the consignation of the
thing or sum due. Requisites of a Valid Consignation
In order that the debtor may be released from his obligation
Consignation alone shall produce the same by the consignation of the thing or sum due, the following
effect in the following cases: requisites must be observed:
1. Existence of a valid debt which is due;
1. When the creditor is absent or unknown,
2. Tender of payment by the debtor and refusal without
or does not appear at the place of justifiable reason by the creditor to accept it;
payment; 3. Previous notice of consignation to persons
2. When he is incapacitated to receive the interested in the fulfillment of the obligation;
payment at the time it is due; 4. Consignation of the thing or sum due; and
3. When, without just cause, he refuses to 5. Subsequent notice of consignation made to the
give a receipt; interested parties.
4. When two or more persons claim the
same right to collect; The absence of any of the requisites is enough ground to
render consignation ineffective. Compliance with the
5. When the title of the obligation has been
requirements is mandatory.
lost.
The law speaks of “thing.” It makes no distinction between
Tender of Payment real and personal property.
The act, on the part of the debtor, of offering to the creditor
the thing or amount due. Existence of Valid Debt
Consignation is proper only where there is a valid debt which
The debtor must show that he has in his possession the thing is due. A creditor-debtor relationship must exist between the
or money to be delivered at the time of the offer. parties otherwise the legal effects thereof cannot be availed
of.
It is an act preparatory to consignation, which is the principal,
and from which are derived the immediate consequences Necessity of Making Tender of Payment and
which the debtor desires or seeks to obtain. Consignation
Both tender of payment and consignation must be validly
Consignation done in order to effect the extinguishment of an obligation.
The act of disposing the thing or amount due with the proper Substantial compliance is not enough for that would render
court when the creditor does not desire, or refuses to accept only directory construction of the law.
payment, or cannot receive it, after complying with the
formalities required by law. It is always judicial, and it The use of the word “shall” and “must”, which are imperative,
generally requires a prior tender of payment which is by its positively indicate that all the essential requisites must be
very nature extra-judicial. complied with in order that consignation shall be valid and
effectual.
Nature and Rationale for Consignation
1. A facultative remedy – consignation is a facultative Requirements for valid tender of payment
remedy which the debtor may or may not avail of. Tender of payment is the definite act of the debtor of offering
the creditor what is due the latter. There must be a fusion of
If made by the debtor, the creditor merely accepts it if he a. Intent;
wishes; or the court declares that it has been properly made, b. Ability; and
in either of which events the obligation is extinguished. c. Capability to make good such offer, which must be
Indeed, the law allows the debtor to withdraw the thing, or the absolute and must cover the amount due.
sum deposited before acceptance by the creditor or
cancellation by the court. Tender of payment must comply with the rules on
payment. Thus, a check, whether a manager’s check or
If the debtor has such right of withdrawal, he surely has the ordinary check, is not legal tender, and an offer of a check in
right to refuse to make the deposit in the first place. For the payment of a debt is not a valid tender and may be refused
court to compel him to do so is a grave abuse of discretion by the creditor.
amounting to excess of jurisdiction.
It must be unconditional and for the whole amount. It
2.Avoidance of greater liability – tender of payment cannot be presumed by a mere inference from surrounding
and consignation, where validly made, or circumstances. The tender of payment of only a portion of an
consignation alone in any of the cases enumerated obligation when the contract gives to the creditor the right to
under this provision, produces the effect of payment require payment of the whole amount due and still unpaid
and extinguishes an obligation. The rationale for this
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 OBLIGATIONS AND CONTRACTS
upon default of an installment, may be validly refused by the ART. 1258. Consignation shall be made by
creditor. depositing the things due at the disposal of
judicial authority, before whom the tender of
It must be actually made. The manifestation of a desire or
payment shall be proved, in a proper case, and
intention to pay it is not enough.
the announcement of the consignation in other
Proof of Tender of Payment cases.
As tender of payment must precede consignation, the tender
must be proved by the debtor in the proper case. In other The consignation having been made, the
cases, when tender is not required, only prior notice to interested parties shall also be notified thereof.
interested persons of the consignation need be proved.
Consignation Must be With Proper Judicial Authority
When Tender of Payment Not Required
Consignation, by depositing the thing or sum due with the
In the 5 cases mentioned in the 2nd par. of Article 1256, tender
proper judicial authority, is necessary to effect payment. It
of payment is NOT necessary before the debtor can consign
cannot be elsewhere (i.e., court), unless otherwise prescribed
the thing due with the court.
by special law.
It has been held that a creditor who, without legal justification,
A written tender of payment alone, without consignation in
informs his debtor that payment of a debt will not be accepted,
court of the sum due, does not suspend the accruing of
thereby waives payment on the date when the payment will
regular or monetary interest. Tender of payment must be
be due; and as a consequence, the debtor is, in such a case,
accompanied or followed by consignation in order that the
excused from making a formal tender of the money on such
effects of payment may be produced.
date.
Where an obligor, however, fails to make a consignation after
ART. 1257. In order that the consignation of the a valid tender of payment, the court may allow him time to pay
thing due may release the obligor, it must first be the obligation without rescinding the contract.
announced to the persons interested in the
fulfillment of the obligation. The consignation has a retroactive effect. The payment is
deemed to have been made at the time of the deposit of the
The consignation shall be ineffectual if it is not thing in court or when it was placed at the disposal of the
made strictly in consonance with the provisions judicial authority. The rationale for consignation is to avoid
making the performance of an obligation more onerous to the
which regulate payment.
debtor by reason of causes not imputable to him.

Prior Notice to Persons Interested Required Notice to be Given to Interested Parties of Consignation
In the absence of prior notice to the persons interested in the Made
fulfillment of the obligation, the consignation, as payment, After the consignation has been made, the interested parties
shall be void. must also be notified thereof. In a case, this requirement was
held fulfilled by the service of summons upon the defendant
The purpose of the notice is to give the creditor a chance to together with a copy of the complaint.
reflect on his previous refusal to accept payment considering
that the expenses of consignation shall be charged against The purpose of the second notice is to enable the creditor to
him and that in case of loss of the thing consigned, he shall withdraw the thing or sum deposited or take possession in
bear the risk thereof. case he accepts the consignation.

Consignation Must Comply with Provisions on Payment Consignation Applicable Only to Payment of Debt
One of the rules is that payment should be made in legal Judicial consignation is an incident to an action to compel
tender. The general rule is that an offer of a bank check for acceptance by the creditor of payment of a debt. It is NOT
the amount due is not a good tender and this is true even applicable where there is NO obligation to pay.
though the check is certified or is a manager’s check, except
where no objection is made on that ground. Property deposited With Court Exempt from Attachment
Money deposited with a clerk of court is exempt from
Tender of Payment Judgment attachment and not subject to execution. It is said to be in
Tender of payment of the amount due on a judgment into custodia legis and cannot be withdrawn without an express
court is NOT the same as tender of payment of a contractual order of the court.
debt and consignation of the money due from a debtor to a
creditor. ART. 1259. The expenses of consignation, when
properly made, shall be charged against the
In case of a refusal of tender of payment of a judgment, the
creditor.
court may direct the money to be paid into court, and after this
payment is done, order satisfaction of the judgment to be
Liability of Creditor for Expenses of Consignation
entered.
The consignation is made necessary because of the fault or
unjust refusal of the creditor to accept payment. Of course,
the expenses are chargeable to the debtor if the consignation
is NOT properly made.

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 OBLIGATIONS AND CONTRACTS

SECTION 2
When Consignation Deemed Properly Made
In any of the following cases:
1. When the creditor accepts the thing or sum
deposited, without objection, as payment of the
LOSS OF THE THING DUE
obligation;
2. When the creditor questions the validity of the ART. 1262. An obligation which consists in the
consignation, and the court, after hearing, declares delivery of a determinate thing shall be
that it has been properly made; and
extinguished if it should be lost or destroyed
3. When the creditor neither accepts nor questions the
validity of the consignation, and the court after without the fault of the debtor, and before he has
hearing, orders the cancellation of the obligation. incurred in delay.

ART. 1260. Once the consignation has been duly When by law or stipulation, the obligor is liable
made, the debtor may ask the judge to order the even for fortuitous events, the loss of the thing
cancellation of the obligation. does not extinguish the obligation, and he shall
be responsible for damages. The same rule
Before the creditor has accepted consignation, applies when the nature of the obligation
or before a judicial declaration that the requires the assumption of risk.
consignation has been properly made, the debtor
may withdraw the thing or the sum deposited, When a Thing Considered Lost
allowing the obligation to remain in force. When it perishes or goes out of commerce or disappears in
such a way that its existence is unknown, or it cannot be
recovered.
Withdrawal by Debtor of Thing or Sum Deposited
The observance of all the requisites of consignation operates Loss of a determinate thing under this provision is the
as a valid payment; hence, the debtor can move for the equivalent of impossibility of performance in obligations to do
cancellation of the obligation by the court. referred to in Article 1266. But “loss of the thing due,” as used
in Article 1231 (1) and the above section, extends to both
The debtor, however, may withdraw as a matter of right the obligations to give and obligations to do.
thing or sum deposited
1. Before the creditor has accepted the consignation; When Loss of Thing Will Extinguish an Obligation to Give
or The following requisites must be present:
2. Before a judicial declaration that the consignation 1. The obligation is to deliver a specific or determinate
has been properly made, as he is still the owner of thing;
the same. 2. The loss of the thing occurs without the fault of the
In such a case, obviously, the obligation shall continue to debtor; and
remain in force. 3. The debtor is not guilty of delay.
While it is incumbent upon the court to allow withdrawal When Loss of Thing Will Not Extinguish Liability
before acceptance by the creditor or judicial approval of the There are cases, however, when the loss of the specific thing
consignation, the depositor cannot recover the thing or sum even in the absence of fault and delay will NOT exempt the
without an express order of restitution. Strictly speaking, a debtor from liability. They are:
formal complaint must be commenced with the proper court 1. When the law so provides;
to provide the venue for the determination whether there was 2. When the stipulation so provides;
a valid tender of payment or consignation. 3. When the nature of the obligation requires the
assumption of risk; and
Risk of Loss of Thing or Sum Consigned 4. When the obligation to deliver a specific thing arises
Where all the requisites for a valid consignation have been from a crime.
complied with, the loss of the thing or amount consigned
occurring without the fault of the debtor before the acceptance
of the consignation by the creditor or its approval by the court ART. 1263. In an obligation to deliver a generic
is for the account of the creditor.
thing, the loss or destruction of anything of the
same kind does not extinguish the obligation.
ART. 1261. If, the consignation having been
made, the creditor should authorize the debtor to
withdraw the same, he shall lose every Effect of Loss of a Generic Thing
preference which he may have over the thing. The above article is an example of a case where the debtor
is liable even for a fortuitous event because the law says so.
The co-debtors, guarantors and sureties shall be
It is based on the principle that a generic thing never perishes
released. (genus nunquam perit).
Effect of Withdrawal with Authority of Creditor The debtor can still be compelled to deliver a thing of the
Since consignation is for the benefit of the creditor, he may same kind. The creditor, however, cannot demand a thing of
authorize the debtor to withdraw the deposit after he has superior quality and neither can the debtor deliver a thing of
accepted the same or after the court has issued an order inferior quality.
cancelling the obligation.

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 OBLIGATIONS AND CONTRACTS
ART. 1264. The courts shall determine whether, Kinds of Impossibility
under the circumstances, the partial loss of the 1. In purely personal obligations, when the personal
object of the obligation is so important as to qualifications of the obligor are involved, physical
impossibility takes place when, for example, the
extinguish the obligation.
obligor dies or becomes physically incapacitated to
perform the obligation.
Effect of Partial Loss of a Specific Thing 2. Legal impossibility occurs when the obligation
There is partial loss when only a portion of the thing is lost or cannot be performed because it is rendered
destroyed or when it suffers depreciation or deterioration. impossible by provision of law, although physically it
Partial loss is the equivalent of difficulty of performance in may be possible of performance.
obligations to do.
Natural Impossibility Impossibility in Fact
In case of partial loss, the court is given the discretion, in case
of disagreement between the parties, to determine whether In the absence of inherent
under the circumstances it is so important in relation to the Must consist in the nature of impossibility in the nature of
whole as to extinguish the obligation. the thing to be done and not the thing stipulated to be
in the inability of the party to performed, which is only
In other words, the court will decide whether the partial loss do so. improbable or out of the
is such as to be equivalent to a complete or total loss. power of the obligor.
Must appear that the thing
ART. 1265. Whenever the thing is lost in the to be done cannot by any
possession of the debtor, it shall be presumed means be accomplished.
that the loss was due to his fault, unless there is
proof to the contrary, and without prejudice to
the provisions of Article 1165. This presumption ART. 1267. When the service has become so
does not apply in case of earthquake, flood, difficult as to be manifestly beyond the
storm or other natural calamity. contemplation of the parties, the obligor may
also be released therefrom, in whole or in part.
Presumption of Fault in Case of Loss of Thing in
Possession of the Debtor Effect of Difficulty of Performance
This presumption is reasonable because the debtor who has The general rule is that impossibility of performance releases
the custody and care of the thing can easily explain the the obligor.
circumstances of the loss. It is the debtor who must prove that
he was not at fault. This provision is another exception to the obligatory force of
a valid and enforceable contract.
Under the 3rd par. of Article 1165, the obligor who is not at
fault is still liable in case he is guilty of delay or has promised When the performance of the service has become so difficult
to deliver the same thing to 2 or more persons who do not as to be manifestly beyond the contemplation of both parties,
have the same interest. the court is authorized to release the obligor in whole or in
part. There is an element of the unforeseen or fortuitous event
When Presumption is Not Applicable in the situation covered by Article 1267.
In case of natural calamities, the presumption of fault does
not apply. Lack of fault on the part of the debtor is more likely. Note that under this provision, the remedy of the obligor is not
annulment but to be released from his obligation, in whole or
ART. 1266. The debtor in obligations to do shall in part.
also be released when the prestation becomes
legally or physically impossible without the fault The term “service” should be understood as referring to the
performance of the obligation.
of the obligor.
Modification of Contract Not Covered
Effect of Impossibility of Performance What this provision authorizes is a total or partial release from
This article lays down an exception to the obligatory force of an obligation, not a modification or revision of the terms and
a contract. It refers to a case when, without the obligor’s fault, conditions of the contract between the parties. In other words,
an obligation to do becomes legally or physically impossible. the court shall either release or not release a party from a
contract, but it cannot modify the terms thereof and order the
The supervening impossibility of performance will result in the parties to comply with the contract as modified by it.
extinction of the debtor’s obligation after restitution of what he
may have received, if any, in advance from the other Hence, even if the situation contemplated by the provision
contracting party. The debtor incurs no liability for his inability exists, a complaint that seeks not release from the contract,
to perform. but modification of the terms thereof should be dismissed for
failure to state a sufficient cause of action.
This impossibility must take place after the constitution of the
obligation. If the obligation is impossible from the very
beginning, the obligation is void.

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 OBLIGATIONS AND CONTRACTS
ART. 1268. When the debt of a thing certain and
determinate proceeds from a criminal offense, SECTION 3
the debtor shall not be exempted from the CONDONATION OR REMISSION OF THE
payment of its price, whatever may be the cause DEBT
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. ART. 1270. Condonation or remission is
essentially gratuitous and requires the
Effect of Fortuitous Event Where Obligation Proceeds
acceptance by the obligor. It may be made
from a Criminal Offense expressly or impliedly.
This is another instance where a fortuitous event does not
exempt the debtor from liability. One and the other kind shall be subject to the
rules which govern inofficious donations.
The obligation subsists except when the creditor refused to Express condonation shall, furthermore, comply
accept the thing (e.g., stolen property), without justification, with the forms of donation.
after it had been offered to him.
Condonation or Remission
Consignation is NOT necessary. The debtor, however, must
The gratuitous renunciation by the creditor of his right against
still exercise due diligence. He is liable for damages if the loss
the debtor resulting in the extinguishment of the latter’s
is due to his fault.
obligation in its entirety or in that part of the same to which
the renunciation refers.
ART. 1269. The obligation having been
extinguished by the loss of the thing, the creditor It is thus, a form of donation.
shall have all the rights of action which the
debtor may have against third person by reason Requisites:
of the loss. 1. It must be gratuitous;
2. It must be accepted by the obligor;
3. The parties must have the capacity;
Right of Creditor to Proceed Against Third Persons
4. It must not be inofficious; and
The creditor is given the right to proceed against the third
5. If made expressly, it must comply with the forms of
person responsible for the loss. There is no need for an
donation.
assignment by the debtor. The rights of action of the debtor
are transferred to the creditor from the moment the obligation
Evidence Required to Prove Remission
is extinguished, by operation of law to protect the interest of
Remission, being an act of liberality, should be proved by
the latter by reason of the loss.
clearer and more convincing evidence than what is required
to establish payment.

Remission Must be Accepted by Debtor

Condonation or remission is a bilateral act. This provision
expressly requires its acceptance by the debtor. The reasons
requiring acceptance are fundamental and not limited to any
special form. In tacit remission, acceptance must also be
shown impliedly.

Can the creditor renounce his credit even against the will
of the debtor?
Yes. Such unilateral renunciation is allowed pursuant to
Article 6 of the CC.

Kinds of Remission
1. As to its extent:
a. Complete – when it covers the entire
obligation;
b. Partial – when it does not cover the entire
obligation.
2. As to its form:
a. Express – when it is made either verbally
or in writing;
b. Implied – when it can only be inferred from
conduct.
3. As to its date of effectivity:
a. Inter vivos – when it will take effect during
the lifetime of the donor; or
b. Morits causa – when it will become
effective upon the death of the donor. It
must comply with the formalities of a will.
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 OBLIGATIONS AND CONTRACTS
Effect of Inofficious Remission ART. 1272. – Presumption when credit is in the
While a person may make donations, no one can give more possession of the debtor
than that which he can give by will, otherwise, the excess
shall be inofficious and shall be reduced by the court
Whenever the private document in which the
accordingly.
debt appears is found in the possession of the
ART. 1271. The delivery of a private document debtor, it shall be presumed that the creditor
evidencing a credit, made voluntarily by the delivered it voluntarily, unless the contrary is
creditor to the debtor, implies the renunciation of proved. (1189)
the action which the former had against the
latter. If the debtor has the document and it is not known where he
got it, the presumption is that it was voluntarily given by the
creditor
If in order to nullify this waiver it should be
“It is believed” that presumption of voluntary delivery ->
claimed to be inofficious, the debtor and his presumption of payment, not remission. Only when it is known
heirs may uphold it by proving that the delivery that there is no payment should there be a presumption of
of the document was made in virtue of payment remission.
of the debt.
EXAMPLE:
Presumption in case Document of Indebtedness Paul owes Jhen P1,000.00 evidenced by a promissory note.
Voluntarily Delivered by Creditor The note, signed by Paul, is given to Jhen.
1. Presumption of implied remission – Article 1271
gives an example of implied or tacit remission. In If the promissory note is voluntarily delivered to Paul, the
order that the presumption established by this article presumption is that the debt must have been paid by Paul.
may be applicable, it is necessary that the delivery If it is known that Paul has not yet paid Jhen, it must be
of the private document be a voluntary act of the presumed that the obligation has been remitted by Jhen. (Art.
creditor. 1271)
If the debt is not yet paid, the creditor would need the
document to enforce payment. In case he voluntarily delivers Suppose it is not known how D came into possession of the
it to the debtor, the only logical inference is that he is promissory note. The presumption is that it was voluntarily
renouncing his right. delivered by C, unless C proves the contrary. (Art. 1272)

2. Contrary evidence – however, evidence is ART. 1273. – Extinguishment of accessory

admissible to show otherwise, as when it was obligations
delivered only for examination.
3. Extension of remission – if the obligation is joint, the The renunciation of the principal debt shall
presumption of remission, when applicable, pertains
extinguish the accessory obligations; but the
only to the share of the debtor who is in possession
of the document; if solidary, to the total obligation. waiver of the latter shall leave the former in force.
4. Presumption applicable only to private document – (1190)
the legal presumption of remission does not apply in
the case of a public document because it is easy to Accessory follows the principal − existence of the
obtain a copy of the same, being a public record. accessory obligation depends on the existence of the
principal obligation.
These presumptions are only prima facie.
When principal is waived, the accessory is waived as well.
Payment, Not Remission of Debt But when accessory is waived, principal remains in force.
The renunciation of the action, under the 2nd par. of this
provision, which the creditor had against the debtor may be ART. 1274. – Accessory obligation of pledge
nullified by a showing that the waiver is inofficious. In other
words, the remission which the law assumes under the 1st It is presumed that the accessory obligation of
par. becomes null and void upon proof that it is inofficious. 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. (1191a)

Pledge − a contract where the debtor gives to the creditor or

a third person a movable or instrument evidencing incorporeal
rights in order to secure the fulfillment of a principal obligation,
such that when the obligation is fulfilled, the thing delivered
shall be returned with all its fruits and accessories.

If the thing pledged is found in the possession of the debtor,

then there is a presumption that the obligation has been
remitted.

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 OBLIGATIONS AND CONTRACTS

SECTION 4
case. The father died. SC held that since the children are also
heirs of their grandfather, the obligation had been
extinguished.
CONFUSION OR MERGER OF RIGHTS
ART. 1276. – Effect on Guarantors
ART. 1275. – When obligation is extinguished
Merger which takes place in the person of the
The obligation is extinguished from the time the principal debtor or creditor benefits the
characters of creditor and debtor are merged in guarantors. Confusion which takes place in the
the same person. (1192a) person of any of the latter does not extinguish
the obligation. (1193)
Confusion or Merger
The meeting in one person of the qualities of creditor and Indebtedness guaranteed by a third person is also
debtor with respect to the same obligation. extinguished if there is confusion/merger.
- Thus, guarantor is benefitted because the accessory
Reason or Basis for Confusion obligation of the guarantee is extinguished.
1. The law treats confusion or merger as a mode of o Merger of persons of guarantor and
extinguishing obligations because if a debtor is his creditor only extinguishes accessory
own creditor, enforcement of the obligation becomes obligation, not the whole thing.
absurd since a person cannot claim payment from o Merger of debtor and guarantor only
himself. extinguishes the accessory.
2. Furthermore, when there is a confusion of rights, the
purposes for which the obligation may have been ART. 1277. – Confusion in Joint Obligations
created are deemed realized.
Confusion does not extinguish a joint obligation
Requisites of Confusion except as regards the share corresponding to the
1. It must take place between the principal debtor and
creditor or debtor in whom the two characters
creditor; and
2. It must be complete and definite. concur. (1194)

EXAMPLES: Joint debtors owe only their share, and creditors can only
Jhen owes Paul P1,000.00 for which Jhen executed a collect from each debtor his respective share.
negotiable promissory note in favor of Paul. Paul indorsed the
note to Fry who, in turn, indorsed it to Blobfish. Now, Blobfish Example: A, B, and C owe X 3,000.
bought goods from the store of Jhen. Instead of paying cash, There is merger in persons of X and C.
Blobfish just indorsed the promissory note to Jhen. Here, D Obligation is extinguished as to the 1,000 shares of C, but not
owes himself. Consequently, his obligation is extinguished by to the rest. A and B still owe 1,000 each.
merger. • If solidary − merger in C and X extinguishes the
obligation.
W (wife) has a claim against H (husband) for the support of • If A pays the a3,000 to X before the merger, A can
their children C, etc. Subsequently, W died. H also died later. collect from X and B their respective shares in the
Since C, etc. as heirs of W (creditor) are also heirs of H indebtedness (1,000 each)
(debtor), the obligation sued upon is extinguished.

C, mortgage-creditor, is the purchaser of the mortgaged

property belonging to D, mortgage-debtor, which was sold at
public auction after extra-judicial foreclosure. Under ordinary
circumstances, if a person has a mortgage credit over a
property which was sold in an auction sale, the only right left
to him is to collect his mortgage credit from the purchaser,
who becomes a debtor to the mortgage-creditor.
In the example, there is a merger between the creditor and
debtor in the person of C

A son owes his father a10,000, and his father dies, leaving,
among others, a10,000 owed by the son to his dad. In this
case, there is a merger

D borrowed money from C. As security, D mortgaged his land.

Subsequently, D sold the land to C.
In this case, the mortgage is extinguished, but the obligation
subsists. The extinguishment of the accessory obligation
does not carry with it that of the principal obligation.

Chittick v. CA − wife filed a complaint against her father for

support in arrears. She died, and her children continued the

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 OBLIGATIONS AND CONTRACTS

SECTION 5 reciprocally the two debts

as soon as they exist
simultaneously, to the
COMPENSATION amount of their respective
sum
ART. 1278. Compensation shall take place when
two persons, in their own right, are creditors and A set-off or counterclaim works as a sort of judicial
debtors of each other. compensation, provided that the requirements of the Rules of
Court, particularly on Counterclaims and/or Cross-claims are
Compensation observed. (Sec. 2, Rule 9, Revised Rules of Court)
(a) It is sort of balancing (cum ponder – ‘to weigh
together) between two obligations; it involves a Kinds or Classes of Compensation
figurative operation of weighing two obligations
a) Total – If both obligations are
simultaneously in order to extinguish them to the
completely extinguished
extent in which the amount of one is covered by the
because they are of the same or
other. (Manresa)
According to equal amounts.
(b) It is the extinguishment in the concurrent amount of
its effect or
the obligations of those persons who are reciprocally
extent b) Partial – When a balance
debtors and creditors of each other. (Castan)
remains (hence, there is a
partial compensation in the
Usefulness of Compensation
larger of the two debts)
In effect, it is a specie of abbreviated payment which gives to
each of the parties a double advantage:
a) Legal – takes place by operation
(a) Facility of payment
of law from the moment all of the
(b) Guaranty for the effectiveness of the credit because
requisites are present, and need
if one of the parties pays even without waiting to be
not be pleaded; fixed type which
paid by the other, he could easily be made a victim
is regulated by Arts. 1278 and
of fraud or insolvency. (Castan)
1279, NCC.
Indeed, it is simplified or abbreviated payment, because the
b) Voluntary or conventional – due
two debts are extinguished without requiring the transfer of
to the agreement of the parties;
money or property from one party to the other.
when the parties who are
mutually creditors and debtors
Compensation Distinguished from Payment
agree to compensate their
Compensation Payment
respective obligations, even
Partial extinguishment is Payment must be complete
though all of the requisites for
always permitted. and indivisible as a rule. compensation may not then be
Takes effect by operation of Takes effect by act of the present
law parties; involves action or
delivery c) Judicial (also termed “set-off”) –
Capacity to give and to Capacity to give and to must be pleaded; it can be made
acquire is not necessary acquire is essential According to effective only by an order from
its origin or the court/judicial decree. An
Compensation Distinguished from Merger/Confusion cause example of this is Article 1283,
Compensation Confusion NCC.
As to There must be two There is only one
number of persons, who, in their person in whom is d) Facultative – one of the parties
persons own right, are merged the has the choice of claiming the
creditors and debtors qualities of creditor compensation or of opposing it.
of each other. and debtor.
As to There must be at There can only be Example of Facultative Compensation:
number of least two. one. A owes B P1 million demandable and
obligations due on Jan. 12, 2004. B owes A P1
million demandable and due on or
Compensation Distinguished from Counterclaim/Set-off before Jan. 30, 2004. On Jan. 12, 2004,
Compensation Counterclaim/Set-off B, who was given the benefit of the
Requires that the two debts Such is not necessary term, may claim compensation
must consist in money, or if because he could then choose to pay
the things due are his debt on said date, which is “on or
fungibles, they must be of before Jan. 31, 2004.” If, upon the other
the same kind and quality hand, A claims compensation, B can
As a general rule, requires Does not require that the properly oppose it because B could not
that the debts must be debts must be liquidated be made to pay until Jan. 31, 2004.
liquidated.
Need not be pleaded; takes Must be pleaded to be
Nota Bene: In some books like Jurado, they only have three
place by mere operation of effectual
kinds of compensation under ‘according to origin or cause’
law, and extinguishes
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 OBLIGATIONS AND CONTRACTS
because they noted that other legal luminaries (Giorgi and (5) There must be no retention or controversy
Castan) consider facultative compensation under voluntary commenced by third persons over either of the debts
compensation. and communicated in due time to the debtor; and
(6) The compensation must not be prohibited by law.
However, Paras noted that: It should be observed that while
facultative compensation is unilateral and does not require Nota Bene: The requisites enumerated herein are those for
mutual agreement, voluntary or conventional compensation legal compensation; voluntary compensation in general
requires mutual consent. requires no requisite except that the agreement be voluntarily
and validly entered into.
Debts Which May be Subject of Compensation
1) When one of the debts is in the form of ordinary bank Items (1), (2), (3), and (4) are affirmative requisites while
deposit (Serrano v. Central Bank of the Philippines) Item (5) is a negative requisite.
2) When one of both debts are rescissible or voidable,
they may be compensated against each other THE FIRST AFFIRMATIVE REQUISITE: “That each one of
before they are judicially rescinded or avoided the obligors be bound principally, and that he be at the same
because at that time (Art. 1285, NCC), the time a principal creditor of the other.”
obligations are valid and binding.
(a) There must be a relationship between the debtor
When Compensation Cannot Exist and the creditor
1) A debtor of a corporation cannot compensate his (b) There must be two debts and two credits
debt with his share of stock in the corporation since (c) They must generally be bound as principals (and not
the corporation is not considered his debtor. (Garcia in their representative capacity).
v. Lim Chu Sing)
Examples:
Exception: When the corporation really had been his  Fry, as guardian of Galaxy, is a creditor of Paul. Paul
debtor as when he paid it a sum greater than the in turn is a creditor of Fry who owes him a personal
value of his shares. (Brimo v. Goldenberg and Co., debt. There can be no compensation because it is
Inc.) Galaxy who is the real creditor, not Fry.
 Eymard, debtor of two partners (Gilda and Jouren),
2) Internal revenue taxes cannot be the subject of cannot compensate the debt with what the
compensation. partnership itself owes Eymard.

Reason: Government and taxpayer “are not THE SECOND AFFIRMATIVE REQUISITE: “That both debts
mutually creditors of each other” and a “claim for consist in a sum of money, or if the things due are
taxes is not such a debt, demand, contract or consumable, they be of the same kind, and also of the same
judgment as is allowed to be set-off.” quality if the latter has been stated.”

(a) The word “consumable” must be taken to mean

ART. 1279. In order that compensation may be “fungible” (susceptible of substitution, if such be the
proper, it is necessary: intention).
(1) That each one of the obligors be bound
Examples:
principally, and that he be at the same
 Paul owes Fry a dildo (generic). Fry owes Paul also
time a principal creditor of the other; a dildo (generic). There can be compensation here
(2) That both debts consist in a sum of because the objects are fungible (although not
money, or if the things due are consumable). Had specific dildo been agreed upon,
consumable, they be of the same kind, there can be no compensation (legal
and also of the same quality if the latter compensation).
has been stated;
(3) That the two debts be due; Note: Ten sacks of corn cannot be compensation
(4) That they be liquidated and demandable; (legal compensation) for ten sacks of rice.
(5) That over neither of them there be any
THE THIRD AFFIRMATIVE REQUISITE: “That the two debts
retention or controversy, commenced by be due.”
third persons and communicated in due
time to the debtor. (a) “Due” means that the period has arrived, or the
condition has been fulfilled.
Requisites of Compensation (b) On the other hand, “demandable” may refer to the
(1) There must be two parties, who, in their own right, fact that neither of the debts has prescribed, or that
are principal creditors and principal debtors of each the obligation is not invalid or illegal.
other;
(2) Both debts must consist in money, or if the things Problem: Fry owes Paul P1 million payable April 15, 2021.
due are fungibles (consumables), they must be of Paul owes Fry P1 million payable June 15, 2021.
the same kind and quality; Can there be legal compensation on April 15, 2021?
(3) Both debts must be due; Answer: No, for one of the debts is not yet due. However,
(4) Both debts must be liquidated and demandable; there can be voluntary compensation upon
agreement. (Art. 1282, NCC)

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 OBLIGATIONS AND CONTRACTS
THE FOURTH AFFIRMATIVE REQUISITE: “That they be ART. 1280. Notwithstanding the provisions of the
liquidated and demandable.” preceding article, the guarantor may set up
compensation as regards what the creditor may
(a) “Demandable” may refer to the fact that neither of
owe the principal debtor.
the debts has prescribed, or that the obligation is not
invalid or illegal.
(b) If one of the debts has already prescribed, there can Right of Guarantor to Set Up Compensation
be no compensation (Manresa) for the simple This is an exception to Art. 1279, par. 1, in relation to Art.
reason that the debt is no longer demandable. 1278, because a guarantor is subsidiarily, not principally,
(c) “Liquidated” debts are those where the exact bound.
amount has already been determined, though not
necessarily in figures since capacity of being arrived Reason for the Law
at by simple arithmetical processes would be Under Arts. 1278 and 1279, No. 1, the principal debtor can
enough. only set up compensation against the creditor for what the
latter owes him. He cannot set up what such creditor owes
If damages are asked for, and the amount is the guarantor because then that would violate the rule that
disputed, the debt cannot be said to be already a the parties must be principally bound.
“liquidated” one. (Compania General de tabacos v.
French and Unson) The guarantor, on the other hand, in case the payment of the
debt is demanded from him, may set up compensation, not
Once liquidated by a judgment (not anymore a only for what such creditor owes him, but also for what such
subject of court litigation), however, a set-off asked creditor owes the principal debtor. This rule is based on the
for in counterclaim would be proper. (Manresa) fact that the bond of the guarantor cannot be resorted to so
long as the debtor can pay although it may be in the
THE FIRST NEGATIVE REQUISITE: “That over neither of abbreviated form of compensation and also on the fact that if
them there be any retention or controversy, commenced by the principal obligation is extinguished, the accessory
third persons and communicated in due time to the debtor.” obligation of the guarantor is also extinguished since it is
subordinated thereto. (Manresa as cited by Jurado)
(a) There can be no legal compensation when one’s
claim against another is still the subject of court In simpler terms, extinguishment (partial or total) of principal
litigation. obligation extinguishes (partially or totally) the guaranty
(b) There must have been no waiver of the (which is merely an accessory obligation). (Paras)
compensation (such waiver could have been validly
agreed on since this would not be contrary to public Examples:
policy). (Manresa)  Fry owes Jhenaire P500,000. Hazel Lei is the
(c) The compensation of the debts must not have been guarantor of Fry. Jhenaire owes Fry P100,000.
prohibited by law. The compensation of the following When Jhenaire sues Fry and Fry cannot pay, for
are prohibited: how much will Hazel Lei be liable?

1) Debts arising from a depositum (except bank Answer: Hazel Lei will be liable for only P400,000,
deposits, which are by law considered as loans because he can set up the P100,000 credit
to the bank) (Art. 1287; Art. 1980, NCC) of Fry as the basis for partial
2) Debts arising from the obligations of a compensation.
depository (Art. 1287, NCC)
3) Debts arising from the obligations of a bailee in  Jhenaire owes Paul P500,000. Fry is the guarantor
commodatum (like the borrower of a bicycle) of Jhenaire. Paul owes Fry P500,000. When Paul
(Art. 1287, NCC) sues Jhenaire for the P500,000, may Jhenaire
4) Debts arising from a claim for future support due successfully put up the defense of compensation in
by gratuitous title (Art. 1287, NCC) that, after all, her creditor (Paul) owes Fry the same
5) Debts consisting in civil liability arising from a amount?
penal offense. (Art. 1288, NCC)
6) Damages suffered by a partnership through the Answer: There can be no compensation because in
fault of a partner cannot be compensated with the obligation which Fry guaranteed for
profits and benefits which he may have earned Jhenaire, Fry is not bound in her own right.
for the partnership by his industry. (Art. 1794, Neither is Jhenaire the creditor of Paul.
NCC)
Note: If Jhenaire cannot pay and Paul sues the
Example: Fry owes Paul P100,000, and Paul owes Fry guaranty, Fry will not be liable anymore
P100,000, but Fry’s credit of P100,000 has been garnished because the obligation of guaranty has
by Jhenaire who claims to be an unpaid creditor of Fry. Paul been extinguished by compensation.
was duly notified of the controversy. There can be no
compensation here. (Rule 57, Sec. 8, Revised Rules of Court
on Garnishment) Any possible compensation is in the
meantime suspended. If Jhenaire wins her claim, there can
be no compensation; if Jhenaire loses, the controversy is
resolved, and compensation can take place. (Manresa)

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 OBLIGATIONS AND CONTRACTS
ART. 1281. Compensation may be total or partial. Jurisdiction of the Court Regarding the Value of the
When the two debts are of the same amount, Demand
there is a total compensation. General Rule: The jurisdiction of the court depends upon the
totality of the demand in all the causes of action, irrespective
of whether the plural cases arose out of the same or different
This article is true for all the different kinds of compensation,
transactions. (Soriano v. Omilia)
whether voluntary, legal, etc.
Exceptions:
ART. 1282. The parties may agree upon the (a) Where the claim joined under the same complaint
compensation of debts which are not yet due. are separately owned by, or due to, different parties,
in which case each separate claim furnishes the
Conventional or Voluntary Compensation jurisdictional test. (Argonza, et al. v. International
(a) The requisites mentioned in Art. 1279 do not apply. Colleges)
(b) It is sufficient in conventional compensation that the (b) Where not all the causes of action joined are
agreement or contract which declares the demands or claims for money. (Felix Vda. De
compensation should itself be valid; thus, among Rosario v. Justice of the Peace of Camiling, et al.)
other things, the parties must have legal capacity
and must freely give their consent. Nota Bene: Consequential damages and attorney’s fees,
when properly claimed and recoverable as an item of
Legal Compensation Distinguished from Conventional damage, are not excluded from the jurisdictional amount.
Compensation (Suanes v. Almeda-Lopez)

Mondragon Personal Sales, Inc. v. Sola, Jr. ART. 1284. When one or both debts are
689 SCRA 18
rescissible or voidable, they may be
Legal compensation takes place by operation of law when all
compensated against each other before they are
the requisites are present as opposed to conventional judicially rescinded or avoided.
compensation which takes place when the parties agree to
compensate their mutual obligations even in the absence of Rules in Case of Rescissible or Voidable Debts
some requisites. It is evident that the above rule is an exception to the general
rule of demandability in order that compensation shall take
Example: If the obligation of A is pure, while the obligation of place. This exception is justified by the fact that rescissible or
B is with a term or period which has not yet expired, the voidable obligations are considered demandable while the
general rule is that there can be no compensation because vices with which they are tainted are not yet judicially
B’s obligation is not yet due. However, the parties may declared. Consequently, if the action for rescission or
nevertheless agree upon the compensation of the two annulment is not exercised, or is renounced, or if the debt or
obligations. debts are ratified the obligation or obligations are susceptible
of compensation. (Jurado)
ART. 1283. If one of the parties to a suit over an
obligation has a claim for damages against the In simpler terms, rescissible or voidable dets are valid until
other, the former may set it off by proving his rescinded or voided; hence, compensation is allowed. (Paras)
right to said damages and the amount thereof.
Prevention of Unfairness
To avoid unfairness if rescission or annulment is later on
Judicial Compensation or Set-off
decreed by the court, it is as if NO compensation ever took
(a) Pleading and proof of the counterclaim must be
place. The decree thus acts retroactively.
made.
(b) All the requisites mentioned in Art. 1279 must be
Example: Fry owes Paul P1 million. Later, Fry forced Paul to
present, except that at the time of pleading, the claim
sign a promissory note for P1 million in Fry’s favor. The first
need not yet be liquidated. The liquidation (or fixing
debt is valid; the second is voidable. But if all requisites for
of the proper sum) must be made in the
legal compensation are present, both debts are extinguished
proceedings.
since Paul’s debt is not yet annulled. This is obviously unfair
(c) Unless pleading and proof are made, the court
if, later on, Paul’s debt is annulled by the court. Thus here,
cannot of its own accord declare the compensation.
the compensation that has taken place will be cancelled.
This is because of “the supplicatory character of our
civil procedure.” (Castan) The compensation takes
place by the judgment, as to the date the
compensation was pleased. (Reyes & Puno, Outline
of Civil Law, Vol. IV, as cited by Paras)

Example:
A files a collection case against B for ₱1,000. B can file a
counterclaim for ₱1,000, claiming damages arising from the
same transaction.
• B requests the court to off-set the damages.
• If court agrees, there can be compensation.

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 OBLIGATIONS AND CONTRACTS
ART. 1285. The debtor who has consented to the Effect: Compensation can be set up regarding debts previous
assignment of rights made by a creditor in favor to the cession or assignment. This refers to debts maturing
of a third person, cannot set up against the before the assignment (before the NOTICE); hence, here,
legal compensation has already taken place.
assignee the compensation which would pertain
to him against the assignor, unless the assignor Example:
was notified by the debtor at the time he gave his • Jhenaire has two debts to Paul. Debt 1 is due on
consent, that he reserved his right to the Jan. 1; Debt 2 is due on Feb. 1.
compensation. • Paul owes Jhenaire in the same amounts. Debt 1
was due on Mar. 1; Debt 2 was due on Mar. 3.
If the creditor communicated the cession to him • On Mar. 2, Paul gives all his credits to Fry, with the
but the debtor did not consent thereto, the latter knowledge, but without the consent of Jhenaire
may set up the compensation of debts previous ‘cause she just wanted to make arte that time.
to the cession, but not of subsequent ones. • Jhenaire can say that Debt 1 is extinguished due to
compensation, because they became due before
the cession.
If the assignment is made without the knowledge
• Jhenaire cannot say that Debt 2 has been
of the debtor, he may set up the compensation of
extinguished, because it became due after the
all credits prior to the same and also later ones cession.
until he had knowledge of the assignment.
THE THIRD CASE: Assignment made without the knowledge
Reason for the Article of the debtor
Article 1285 has for its purpose the prevention of fraudulent
deprivation of the benefits of total and partial compensation. Effect: Debtor can set up compensation as a defense for all
(Manresa) debts maturing PRIOR to his knowledge of the assignment
(whether the debts matured before or after the assignment).
Three Cases Covered by this Article The crucial time here is the time of knowledge of the
(a) The assignment may be made with the consent of assignment, not the time of assignment itself.
the debtor.
(b) The assignment may be made with the knowledge Example:
but without the consent (or against the will) of the • Paul owes Fry P1,000,000. Fry owes Paul
debtor. P200,000. Both debts are already due.
(c) The assignment may be made without the • On Feb. 14, Fry assigns the P1,000,000 credit to
knowledge of the debtor. Gilda, without the knowledge of Paul.
• On Feb. 27, a P250,000 debt of Fry in favor of Paul
THE FIRST CASE: The assignment may be made WITH THE matured. Paul learned of the assignment on Mar. 14.
CONSENT of the debtor. • On April 1, a P150,000 debt of Fry in favor of Paul
matured. Later, Gilda asks Paul to pay his debt.
Effect: Compensation cannot be set up (because there has • Gilda can collect P550,000 because Paul can set up
been consent and, therefore, a waiver). the defense of partial compensation regarding the
Exception: If the right to the compensation (that has already P200,000 and the P250,000 debts, debts which had
taken place) is reserved. matured and were therefore already compensable
prior to his knowledge of the assignment.
Nota Bene: Article 1285, paragraph 1 applies whether the • But Paul cannot set up the last debt of P150,000 for
consent to the cession was BEFORE or AFTER the debts partial compensation because this matured only
became compensable. (Manresa) after he knew of the assignment.
Sample Problem: Fry owes Paul P1,000,000. Paul, in turn, ART. 1286. Compensation takes place by
owes Fry P200,000. Because both debts are already
due, and because all other requisites for legal
operation of law, even though the debts may be
compensation are present, both debts are payable at different places, but there shall be an
extinguished automatically up to the amount of indemnity for expenses of exchange or
P200,000. Later, however, Paul, with the sent of Fry, transportation to the place of payment.
assigned his P1,000,000 credit to Jhenaire. How
much can Jhenaire collect successfully from Fry? Compensation by Operation of Law
(a) This applies to compensation by operation of law.
Answer: Jhenaire can collect from Fry the whole P1,000,000. (b) “Indemnity for expenses of transportation” – applies
Fry cannot set up the defense of compensation as to transportation of the goods or of the object.
of the whole P200,000 in view of her consent to the (c) “Indemnity for expenses of exchange” – monetary
assignment. Has she reserved her right to the exchange, in case the debts are money debts
compensation, Fry would be forced to give only
P800,000. Example: Paul owes Fry P1,000,000 payable in Manila and
Fry owes Paul P1,000,000 payable in England. Whoever
THE SECOND CASE: Assignment made with the knowledge claims compensation must pay for the exchange rate of
but without the consent or against the will of the debtor. currency.

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 OBLIGATIONS AND CONTRACTS
ART. 1287. Compensation shall not be proper (c) When one debt arises from the obligations of a
when one of the debts arises from a depositum bailee in commodatum (the borrower of property
or from the obligations of a depositary or of a who pays nothing for the loan)
bailee in commodatum. • Purpose: to prevent a breach of trust.
• The lender may claim compensation; the borrower
is NOT allowed to do so.
Neither can compensation be set up against a • A bailee in commodatum acquires the use of the
creditor who has a claim for support due by thing loaned, but not its fruits.
gratuitous title, without prejudice to the • Bailee cannot retain the thing loaned just because
provisions of paragraph 2 of Article 301. the bailor (true owner of the thing) owes him
something.
ART. 1288. Neither shall there be compensation • Example: If Paul borrows the candles of Jhenaire,
if one of the debts consists in civil liability arising he cannot refuse to return it on the ground
from a penal offense. that Jhenaire owes him something.

When Legal Compensation Cannot Take Place (d) When one debt arises because of a claim for
(a) When one debt arises from a depositum (not support due to gratuitous title
bank deposit, for this is really a loan)
• “Without prejudice to the provisions” – refers to the
• Purpose: to prevent breach of trust and confidence. fact that support in arrears may be compensated
(Art. 301(2), NCC) but not future support, for this is
• Deposit – constituted from the momenta person
“vital to the life of the recipient.” (Report of the Code
receives a thing belonging to another with the
Commission)
obligation of safely keeping it and returning it.
• Example: A father cannot refuse to support his son
• It is the depositary who cannot claim compensation.
on the ground that the son owes him money.
The depositor is allowed to so claim.
• Example: Fry owes Paul p1,000. Previously, Fry
(e) Civil liability arising from a penal offense
deposited with Paul for safekeeping
P1,000. There is no compensation,
• Purpose: “If one of the debts consist in civil liability
because Paul’s obligation to give Fry the
arising from a penal offense, compensation would
P1,000 arises from the obligation of a
be improper and inadvisable because the
depository.
satisfaction of such obligation is imperative. (Report
of the Code Commission)
(b) When one debt arises from the obligations of a
depositary • This is again another instance of facultative
compensation.
Obligations of a Depositary • Prohibition only applies to the accused.
• Example: Fry owes Paul P1,000. Paul stole the
1. Obliged to keep the thing safely and to return it, candle of Jhenaire worth P1,000. Paul cannot claim
when required, to the depositor, or to his heris compensation. But Jhenaire, the offended party, can
and successors, or to the person who may have claim compensation.
been designated in the contract. (Art. 1972,
NCC)
2. Unless there is a stipulation to the contrary, the ART. 1289. If a person should have against him
depositary cannot deposit the thing with a third several debts which are susceptible of
person. (Art. 1973, NCC) compensation, the rules on the application of
3. If deposit with a third person is allowed, the payments shall apply to the order of the
depositary is liable for the loss if he deposited compensation.
the thing with a person who is manifestly
careless or unfit.
ART. 1290. When all the requisites mentioned in
4. The depositary is responsible for the negligence
of his employees. Article 1279 are present, compensation takes
5. The depositary cannot make use of the thing effect by operation of law, and extinguishes both
deposited without the express permission of the debts to the concurrent amount, even though the
depositor. Otherwise, he shall be liable for creditors and debtors are not aware of the
damages. However, when the preservation of compensation.
the thing requires its use, it must be used but
only for that purpose. (Art. 1977, NCC)
Automatic Compensation if All Requisites are Present
• Compensation takes place by mere operation of law
Nota Bene: While compensation cannot be made
o From the moment all requisites concur,
use of by one party (the depositary), compensation
compensation takes place automatically.
may be claimed by the other party (depository). This
o Even without the agreement of parties.
kind of compensation, whereby only one side can
o Unless there has been valid waiver thereof.
claim it but not the other, is referred to as facultative
o Since this compensation takes place ipso
compensation.
jure, its effects arise on the very day on
which all its requisites concur. When used

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 OBLIGATIONS AND CONTRACTS

SECTION 6
as a defense, it retroacts to the duty when
its requisites are fulfilled.

• This rule, however, is applicable only to legal

NOVATION
compensation. Nevertheless, it is equally clear that
voluntary compensation will take effect from the ART. 1291. Obligations may be modified by:
moment agreed upon by the parties, while judicial
(1) Changing their object or principal
compensation will take effect from the moment that
the judgment becomes final and executory. conditions;
• Compensation which extinguishes principal (2) Substituting the person of the debtor;
obligations also extinguishes accessory obligations. (3) Subrogating a third person in the rights
(Manresa) of the creditor.
• “To the current amount” means that if one debt is
larger than the other, the balance subsists as debt. Novation
Novation is the substitution or change of an obligation by
another, resulting in its extinguishment or modification, either
by changing its object or principal conditions, or by
substituting another in place of the debtor, or by subrogating
a third person in the rights of the creditor. (Manresa)

“Principal conditions” (in Art. 1291) – should be construed to

include a change in the period to comply with the obligation,
which change in the period would only be partial novation,
since the period merely affects the performance, not the
creation of the obligation. (Ong v. Bogñalbal, 501 SCRA 490)

Dual Purpose or Function of Novation

The distinctive feature or characteristic of novation is that
although it extinguishes the obligation, it also gives birth to
another obligation. It has, therefore, a two-fold purpose —
(1) that of extinguishing the old obligation, and
(2) that of giving birth to a new obligation to take the
place of the old.

However, unlike the others, as a mode of extinguishment, it

is relative in character, not absolute.

Nota Bene: While a true or proper novation extinguishes an

obligation, a partial, modificatory or imperfect novation merely
modifies the old obligation. Thus, Art. 1291 says, “Obligations
may be MODIFIED by. . .”

Requisites for Novation (in General)

(a) The existence of a valid old obligation

1) If the old obligation is void or non-existence,
there is nothing to novate.
2) If the old obligation is voidable, novation is still
possible provided the obligation has not yet
been annulled.

(b) The intent to extinguish or to modify the old

obligation by a substantial difference
- The extinguishment or modification itself is a
result of novation.

(c) The capacity and consent of all the parties

- Except in the case of expromision, where the
old debtor does not participate.

(d) The validity of the new obligation

- If the new obligation is subject to a suspensive
condition, such as the obtaining of some
signatures, and the condition does not
materialize, such new obligation never became
valid or effective, so no novation has resulted.
(Martinez v. Cavives, 25 Phil. 581)

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 OBLIGATIONS AND CONTRACTS
- If the contemplated new obligation is embodied independent existence. If they cannot, they are
in a mere draft, which is unsigned and therefore incompatible and the latter novates the first one.
not consented to, no new obligation is created
because of the absence of novation. (Vaca v. Nota Bene: The rule is settled that novation by presumption
Kosca, 26 Phil. 388) has never been favored. Novation is never presumed; clear
proof of novation must be given. The animus novandi,
Kinds of Novation whether totally or partially, must appear by express
(1) Real or Objective – may be agreement of the parties, or by their acts that are too clear
effected by: and unequivocal to be mistaken.
(a) changing the cause of the
obligation; or How Implied Novation May Be Made
(b) changing the object of the Implied novation is done by making substantial changes –
obligation; or (a) In the object or subject matter of the contract (ex.
(c) changing the principal or delivery of a car instead of a diamond ring)
essential conditions of the (b) In the cause or consideration of the contract (ex. an
obligation upward change in the price)
Nota Bene: Reduction in price implies a remission.
(2) Personal or Subjective – (c) In the principal terms or conditions of the contract
According to
change of persons (ex. reduction of the term or period originally
its Object or
stipulated)
Purpose
a) Substituting the person of
the debtor (Expromision Instances When the Court Held That There was No
or Delegacion) Extinctive Novation
b) Subrogating a third person
in the rights of the creditor Here, the original contract or obligation remains, subject only
 Change of creditor may be by to the slight modifications introduced. In other words, only a
agreement (conventional modificatory novation has been effected.
subrogation), or by operation of
law (legal subrogation). (a) When there are only slight alterations or
modifications in the construction plans of a building
(3) Mixed (b) When the new contract merely contains
supplementary agreement
(1) Express
According to (c) When additional interest is agreed upon
(2) Implied (when the two
the Form of Its (d) When additional security is given
obligations are essentially
Constitution (e) When, after a final judgment, a contract was entered
incompatible with each other)
into precisely to provide a method of payment other
(1) Total or Extinctive – when the than that stated in the judgment
old obligation is completely
extinguished. Nota Bene: But the Supreme Court has held that if
(2) Partial or Modificatory – also the object of the new contract is to settle the
termed Imperfect or improper judgment, by reducing the amount stated in the
According to judgment, and by stipulating an attorney’s fees in
novation. Here, the old
Its Extent or case of non-payment, and by inserting a penalty
obligation is merely modified.
Effect clause, the judgment may be considered to have
Nota Bene: Should there be any doubt been novated.
as to whether the novation is total or
partial, it shall be presumed to be merely (f) When a guarantor enters into an agreement with the
modificatory. creditor that he (the guarantor) will also be a
principal debtor (the original principal debtor not
being released from his obligation)
(g) When the creditor in the meantime refrains from (or
ART. 1292. In order that an obligation may be forbears from) suing the debtor, or even when the
extinguished by another which substitutes the creditor merely extends the term of payment, for
same, it is imperative that it be so declared in here the period merely affects the performance, not
unequivocal terms, or that the old and the new the creation of the obligation
obligations be on every point incompatible with (h) When the place of payment is changed or when
each other. there is a variation in the amount of partial payments
(i) When a public instrument is executed to confirm a
Express and Implied Novation valid contract, whether oral or in a private instrument
According to the manner or form in which the novation has (j) When payment of the purchase price for certain
been constituted or made, novation is classified into: trucks is made by the execution of a promissory note
(a) Express novation – explicitly stated and declared in for said price (here, there is no novation of the
unequivocal terms. (Art. 1292, NCC) contract of sale)
(b) Implied novation – complete or substantial
incompatibility
• Test – whether or not the two obligations can
stand together, each one having its
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 OBLIGATIONS AND CONTRACTS
ART. 1293. Novation which consists in (b) All the parties concerned must consent or
substituting a new debtor in the place of the agree.
original one, may be made even without the  The consent of the creditor:
knowledge or against the will of the latter, but not • May be given in any form
• May be express, or may be implied from his acts,
without the consent of the creditor. Payment of
but not from his mere acceptance of payment by
the new debtor gives him the rights mentioned in a third party, for there is no true transfer of the
Articles 1236 and 1237. debt here
• May be before or after the new debtor has given
Kinds of Personal or Subjective Novation his consent
(a) Change of the debtor (passive) • May be conditional, but the condition has to be
(b) Change of the creditor (active) fulfilled; otherwise, there is no valid delegacion.
A substitution of debtor without the consent of the creditor is Rights of the New Debtor
binding upon the parties to the substitution but not on the Payment by the new debtor gives him the rights mentioned in
creditor. (De Cortes v. Venturanza, 79 SCRA 709) Articles 1236 and 1237, namely:
• Beneficial reimbursement, if payment was made
Substitution of Debtor without the knowledge or against the will of the old
Article 1293 speaks of passive subjective novation, which debtor
may be in the form of:
• Reimbursement and subrogation, if it was made
(a) Expromision
with the old debtor’s consent
- where the initiative comes from a third person
(Art. 1294, NCC)
- It is essential that the old debtor be released
from his obligation, otherwise there will be no ART. 1294. If the substitution is without the
expromision, no novation. knowledge or against the will of the debtor, the
new debtor’s insolvency or nonfulfillment of the
Requisites for Expromision obligation shall not give rise to any liability on
(a) The initiative must come from a third the part of the original debtor.
person (who will be the new debtor)
(b) The new debtor and the creditor must This provision refers to expromision.
consent.
- The old debtor’s consent or knowledge is Reason why the old debtor will no be responsible for the new
not required. debtor’s insolvency or non-fulfillment: The expromision was
(c) The old debtor must be excused or brought about without his initiative. (Manresa)
released from his obligation.
Query: The Article says, “If the substitution is without the
Example: knowledge or against the will of the debtor.” Now,
• Fry owes Paul P1,000,000. then, suppose it was with the knowledge or consent
• Jhenaire approaches Paul and tells him: “I of the old debtor, will Article 1294 still apply?
will pay you what Fry owes you. From now
on, consider me as your debtor, not Fry. Answer:
Fry is to be excused. Do you agree?” (a) Literally construed, it would seem that the Article will
• Here, there is expromision and even if not apply; in other words, the old debtor would be
Jhenaire does not pay, Fry cannot be held liable.
liable anymore because her obligation has (b) But considering the intent of the law (and to
already been extinguished. distinguish expromision from delegacion), it is
believed that the Article would still apply, that is, the
(b) Delegacion old debtor would still not be liable for the new
- A method of novation caused by the debtor’s insolvency or non-fulfillment.
replacement of the old debtor by a new debtor,
who (the old debtor) has proposed him to the Reason:
creditor, and which replacement has been 1) After all, the initiative did not come from him.
agreed to by said creditor and by said new 2) A contrary conclusion would put him in a worse
debtor. position than in delegacion, where liability is
- The delegacion or initiative must come from the only for insolvency and not for other kinds of
old debtor himself. non-fulfillment. (Paras)
- The old debtor must be released from the
obligation; otherwise, no valid delegacion. But Jurado has a different view: From Article 1294, it can be
inferred that if the substitution was effected with the
Parties in Delegacion knowledge and consent of the original debtor, the new
(1) The delegante – the original debtor debtor’s insolvency or nonfulfillment of the obligation shall
(2) The delegatario – the creditor revive the original debtor’s liability to the creditor. (Jurado)
(3) The delegado – the new debtor

Requisites for Delegacion

(a) The initiative comes from the old debtor.

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 OBLIGATIONS AND CONTRACTS
ART. 1295. The insolvency of the new debtor, Effect on Stipulation Pour Autrui
who has been proposed by the original debtor Exception to Art. 1296: Accessory obligations or stipulations
and accepted by the creditor, shall not revive the made in favor of third persons (stipulations pour autrui)
remain unless said third persons have their consent to the
action of the latter against the original obligor,
novation.
except when said insolvency was already
existing and of public knowledge, or known to Reason: Their rights to the accessory obligations (which for
the debtor, when he delegated his debt. them is really a distinct one) should not be prejudiced without
their consent. (Art. 1311, NCC)
This provision refers to delegacion, and it deals only with
insolvency, and not with other causes of non-fulfillment. In ART. 1297. If the new obligation is void, the
said other causes, the old debtor is not liable. original one shall subsist, unless the parties
intended that the former relation should be
Requisites to Hold Old Debtor Liable
(a) The insolvency was already existing and of public extinguished in any event.
knowledge at the time of delegation; OR
(b) The insolvency was already existing and known to Effect If the New Obligation Is Void
the debtor at the time of delegation. This Article highlights one of the essential requisites of a valid
novation, namely, the new obligation must be VALID and
Purpose of these exceptions: to prevent the commission of EFFECTIVE. Thus, if the new obligation is void, there is no
fraud. novation, and the old obligation generally will subsist.

When Article Does Not Apply Other Factors

Art. 1295 does not apply if there really was NO EXTINCTIVE (a) If the new obligation is subject to a condition and
NOVATION, such as: said condition does not materialize, the old
(a) When the third person was only an agent, obligation subsists.
messenger, or employee of the debtor. (b) If a new obligation was intended, but the new
(b) When the third person acted only as guarantor or contract was never perfected for lack of the
surety. necessary consent, the old obligation continues.
(c) When the new debtor merely agreed to make
himself solidarily liable for the obligation. Rule if New Obligation Is Merely Voidable
(d) When the new debtor merely agreed to make (a) The old obligation is novated because a voidable
himself jointly or partly responsible for the obligation. obligation is valid until it is annulled.
- Here, the delegacion is merely with reference to (b) If the new obligation is annulled, the old obligation
the joint or proportionate share. subsists, and whatever novation has taken place will
naturally have to be set aside.
ART. 1296. When the principal obligation is
extinguished in consequence of a novation, Exception to the Rule That There Is No Novation if The
New Obligation Is Void
accessory obligations may subsist only insofar - When “the parties intended that the former
as they may benefit third persons who did not relation should be extinguished in any event.”
give their consent. (Art. 1297, NCC)

Effect Upon Accessory Obligations Sample Problem: Jhenaire and Paul entered into a contract
The rule stated in the above article is a necessary whereby Jhenaire was to give Paul P900,000 in cash. Later,
consequence of the principle that an accessory obligation is they novated the contract by stipulating that instead of cash,
dependent upon the principal obligation to which it is Jhenaire would give a particular candle. Subsequently, the
subordinated. candle was destroyed by a fortuitous event. Is Jhenaire
obliged to give P900,000?
According to Manresa, the precept applies to objective
novations as well as to those novations effected by Answer: No, because the original obligation has already been
substituting the person of the debtor. It cannot, however, extinguished by the valid novation. Moreover, the obligation
apply to novations effected by subrogating a third person to deliver the particular candle is also extinguished because
in the rights of the creditor because the effects of such of the fortuitous event.
novations are regulated by Arts. 1303 and 1304 of the New
Civil Code. ART. 1298. The novation is void if the original
obligation was void, except when annulment may
Modificatory Novation
Art. 1296 applies in particular to extinctive novation. If the
be claimed only by the debtor, or when
novation is merely modificatory, are guarantors and sureties ratification validates acts which are voidable.
released, if the novation is made WITHOUT their consent?
Effect If the Old Obligation Was Void
ANSWERS: (a) If the old obligation is VOID, there is no valid
(a) If the modified obligation is now MORE ONEROUS, novation.
they are liable only for the original obligation. (Art. (b) If the old obligation was VOIDABLE and has already
2054, NCC) been annulled, there is no more obligation.
(b) If the modified obligation is now LESS ONEROUS, Therefore, the novation is also void.
the guarantors and sureties are still responsible.
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 OBLIGATIONS AND CONTRACTS
Rule If the Old Obligation Was Voidable ART. 1299. If the original obligation was subject
There may be a valid novation, provided that: to a suspensive or resolutory condition, the new
(a) Annulment may be claimed only by the debtor; obligation shall be under the same condition,
Example: Fry was forced to sign a promissory note
unless it is otherwise stipulated.
to give Paul P500,000. Later, the parties agreed
voluntarily to let the subject matter be a dildo.
Although the first contract was voidable, the second Effect If the Original Obligation Was Conditional
one is all right because in the first contract, General Rule: The conditions attached to the old obligation
annulment could be claimed only by the debtor. are also attached to the new obligation.
Exception: If there is a CONTRARY STIPULATION.
(b) Or when ratification validates acts which are
voidable. Reason for the General Rule
Example: An agent, acting without authority from his If, for example, the suspensive condition attached to the
principal, bought merchandise from a company. obligation is NOT fulfilled, the old obligation never arose.
Shortly after he had learned of his agent’s act, the Therefore, there would be nothing to novate, since novation
principal told the seller to deliver another kind of requires the existence of a previous VALID and EFFECTIVE
merchandise, completely different from the first. The obligation.
seller agreed. Although the first contract here was
unauthorized, ratification by the principal has cured Sample Problems (Paras)
its defects, and therefore the second contract is
valid. (a) Jhenaire promised to give Fry a candle if Fry should
pass the bar exams. Later, both agreed that what
Nota Bene: Although Art. 1298 speaks of a “void” original should be given would be a coffee machine. Nothing
obligation, it evidently refers to a “VOIDABLE” one, where was mentioned in the second contract regarding the
annulment or ratification may exist. A void contract does not condition. Is the new obligation also subject to a
have to be annulled nor can it be ratified. (Art. 1409, NCC) suspensive condition?
(Paras)
Answer: Yes, unless it was otherwise stipulated in
Rule If the Old Obligation Was Extinguished by Loss the new contract. The delivery of the coffee machine
Query: May an old obligation that has been extinguished by would, therefore, be due only after Fry has passed
LOSS by the subject matter be novated? the bar exams.

Answer: It depends: (b) Paul promised to give Jhenaire football shoes or

(a) If the loss was purely because of a fortuitous event cleats unless Gerard married Ruby. Later, Paul and
without liability on the part of the debtor, the novation Jhenaire agreed to change the object to a candle.
is VOID for there would be NO obligation to novate. No mention was made regarding any condition. Is
(b) If the loss made the debtor liable, there is still an the second obligation subject to a resolutory
existing monetary obligation that may be the subject condition?
of novation. (Manresa)
Answer: Yes, unless the contrary has been provided
May a Prescribed Obligation be the Subject of Novation? for in the contract.
Yes, because unless the defense of prescription is set up by
the debtor, the obligation continues, since this failure amounts (c) In question (b), supposing under the same facts,
to a WAIVER. (Estrada v. Villareal) Gerard had already married Ruby before Paul and
Jhenaire novated their contract, what happens to the
Effect on a Voidable Obligation of Novation by new obligation?
Expromision
(a) Here the debtor is no doubt released from his Answer: It is as if the new obligation never arose, for
obligation to the creditor, for the substitution was not a contract that has already been extinguished
done through his initiative. cannot be novated.
(b) BUT when the new debtor, after payment, sues the
old debtor for BENEFICIAL REIMBURSEMENT, the ART. 1300. Subrogation of a third person in the
old debtor can set up whatever defenses he could rights of the creditor is either legal or
have set against the creditor. conventional. The former is not presumed,
except in cases expressly mentioned in this
Example: the defense of minority or fraud Code; the latter must be clearly established in
order that it may take effect.

Subrogation
Subrogation (extinctive subject novation by change of the
creditor) is the transfer to a third person of all the rights
appertaining to the creditor, including the right to proceed
against guarantors, or possessors or mortgages, subject to
any legal provision or any modification that may be agreed
upon. (Manresa)

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 OBLIGATIONS AND CONTRACTS
Kinds of Subrogation As to effect upon obligation
(1) Conventional or Has the effect of Has the effect of
voluntary subrogation transmitting or transferring extinguishing the obligation
- This requires an the same rights or credit of and giving rise to a new one
agreement and the the creditor to another
consent of the original person without modifying or
parties and of the creditor. extinguishing the obligation
(Art. 1301) As to effect upon vices
- It must be clearly The defect in the credit or The defects or vices in the
established, otherwise, it right is not cured simply by original obligation may be
From the assigning the same. (Here, cured in such a way that the
is as if no subrogation has
viewpoint of the debtor generally still has new obligation becomes
taken place.
cause or origin the right to present against entirely valid. (Thus here,
(2) Legal Subrogation the new creditor any there is no right to present
- Takes place by operation defense available as against the new creditor
of law. against old creditor.) any defense which he, the
- It is not presumed, except debtor, could have set up
in the case expressly against the old creditor.)
mentioned in the law. (Art.
1302, NCC; Panganiban ART. 1302. It is presumed that there is legal
v. Cuevas) subrogation:
(1) Total Subrogation
From the
(1) When a creditor pays another creditor
viewpoint of (2) Partial Subrogation who is preferred, even without the
extent - There would now be two debtor’s knowledge;
or more creditors. (2) When a third person, not interested in the
obligation, pays with the express or tacit
approval of the debtor;
ART. 1301. Conventional subrogation of a third
(3) When, even without the knowledge of the
person requires the consent of the original
debtor, a person interested in the
parties and of the third person.
fulfillment of the obligation pays, without
prejudice to the effects of confusion as to
Conventional or Voluntary Subrogation the latter’s share.
For conventional or legal subrogation, the consent of ALL the
parties is required: Legal Subrogation
General Rule: Legal subrogation is not presumed.
(a) The debtor – because he becomes liable under the Exceptions: Those enumerated in Article 1302.
new obligation; and because his old obligation ends
(b) The old creditor – because his credit is affected Legal subrogation is that which takes place without
(c) The new creditor – because he becomes a party to agreement of the parties but by operation of law because of
the obligation certain acts. (Ricarze v. CA)
There is, however, a case in which the creditor may transmit Under the old Code, the word “legal” was not present. It was
his rights to a third person even without the consent of the inserted here for the sake of clarity.
debtor, but in this case, there would be no novation of the
obligation by conventional subrogation, but an assignment FIRST EXCEPTION: When a creditor pays another creditor
of rights. (Jurado) who is preferred, even without the debtor’s knowledge.
As between conventional subrogation and assignment of the “Preferred” – should be understood in its broad sense and in
credit, the latter, insofar as the creditor is concerned, should connection with the rules on preference of credits. (Jurado)
be preferred, for it has advantages, without corresponding
disadvantages of conventional subrogation. Upon the other Example: (Jurado)
hand, conventional subrogation cannot present any If Fry has a credit of P20,000 against Paul which is secured
advantage over assignment of credit. (Paras) by a real estate mortgage, while Jhenaire has also a credit of
P10,000 against Paul which is not secured, and
Distinctions Between Conventional Subrogation and subsequently, Jhenaire pays Fry the entire indebtedness of
Assignment of Credit Paul without the knowledge and consent of the latter, it is
ASSIGNMENT OF CONVENTIONAL clear that Jhenaire shall then be subrogated in all of the rights
RIGHTS/CREDIT SUBROGATION of Fry, not only against the debtor, but even against third
As to rules which govern persons. Paul, however, can still avail himself as against
Art. 1624 to Art. 1627, NCC Art. 1300 to Art. 1304, NCC Jhenaire of all defenses available to him against Fry, such as
As to necessity of debtor’s consent compensation, payments already made, or even any vice or
This does not require the The debtor’s consent is defect of the former obligation.
debtor’s consent (mere required.
notification to him is
sufficient).
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 OBLIGATIONS AND CONTRACTS
SECOND EXCEPTION: When a third person, not interested ART. 1303. Subrogation transfers to the person
in the obligation, pays with the express or tacit approval of the subrogated the credit with all the rights thereto
debtor. appertaining, either against the debtor or against
third persons, be they guarantors or possessors
Here, Articles 1236 and 1237 are applicable. Consequently,
when a person, not interested in the obligation, pays such of mortgages, subject to stipulation in a
obligation with the express or tacit approval of the debtor, he conventional subrogation.
is entitled not only to demand reimbursement for what he has
paid, but also to be subrogated in all of the rights of the Effects of Subrogation
creditor. However, if he pays without the knowledge or Note that the credit and all the appurtenant rights, either
against the will of the debtor, although he is entitled to against the debtor, or against third persons, are transferred
demand reimbursement to the extent that the latter has been (thus, in a sense the obligation subsists, that is, it has not yet
benefited by the payment, he is not subrogated in the rights been extinguished or paid).
of the creditor.
Example: Fry owes Jhenaire P1,000,000. Hazel Lei is the
Sample Problems: (Paras) guarantor. A stranger, Gerardo, paid Jhenaire the P1,000,000
(a) Jhenaire owes Fry P1,000,000 secured by a with the consent of Fry and Jhenaire. Gerardo is now
mortgage. Paul, a classmate of Jhenaire, and subrogated in the place of Jhenaire. If Fry cannot pay
having no connection with the contract at all, paid P1,000,000, Gerardo can proceed against the guarantor,
Fry the P1,000,000 with Jhenaire’s approval. Is Paul Hazel Lei.
subrogated in Fry’s place?
Effect of Presence of a Suspensive Condition
Answer: Yes, because although not interested in the It is understood that if the transferred credit is subject to a
obligation, he nevertheless paid off Fry with the suspensive condition, the new creditor cannot collect until
approval of the debtor. after said condition is fulfilled. (Gonzales Diez v. Delgado)

(b) If in the above example, Paul, who is Fry’s friend, ART. 1304. A creditor, to whom partial payment
paid her only P700,000 for the extinguishment of has been made, may exercise his right for the
Jhenaire’s debt, but the payment was made without remainder, and he shall be preferred to the
the express or tacit approval of Jhenaire, what would
person who has been subrogated in his place in
be Paul’s rights, if any?
virtue of the partial payment of the same credit.
Answer: There is no legal subrogation here because
there was no express or implied approval of Partial Subrogation
Jhenaire. Therefore, all that Paul can recover is (a) The old creditor, who still remains a creditor as to
P700,000 for this is the amount with which he is balance (because only a partial payment has been
supposed to be REIMBURSED (a giving back to him made to him);
of what he had DISBURSED). If Jhenaire does NOT (b) The new creditor who is a creditor to the extent of
pay, Paul cannot have the mortgage foreclosed. For, what he had paid the credtor.
as has been said, there has been no subrogation
here. Sample Problem:
Fry owes Paul P500,000. With the consent of both, Jhenaire
THIRD EXCEPTION: When, even without the knowledge of pays Paul P250,000. Now Paul and Jhenaire are the creditors
the debtor, a person interested in the fulfillment of the of Fry to the amount of P250,000. Suppose Fry has only
obligation pays, without prejudice to the effects of confusion P250,000, who should be preferred?
as to the latter’s share.
Answer:
“Person interested in the fulfillment of the obligation” – can Paul, the original creditor, should be preferred inasmuch as
only refer to a co-debtor, a guarantor, the owner of the thing he is granted by the law (Art. 1304, NCC) preferential right to
which is given as security, or one who has a real right over recover the remainder, over the person subrogated in his
the thing which is the object of the obligation. As in the case place by virtue of the partial payment of the same credit.
of the first exception, the debtor retains all of the defenses
available to him against the former. (Jurado) Preference in the Assets
The preference is only in the assets remaining with the debtor
Example: (Paras) (not those already transferred to others). Therefore, the old
Paul owes Fry P1,000,000 secured by a mortgage and by a creditor must assert his claim or preference over the assets
guaranty of Jhenaire. If Jhenaire, even without Paul’s only while they are still in the hands of the sheriff who has
knowledge, pays Fry the P1,000,000, Jhenaire will be levied on the properties. If done later, the preference given by
subrogated in Fry’s place. But of course, the guaranty is this article CEASES. (Molina v. Somes)
extinguished. This is what the law means when it says that
there is legal subrogation “without prejudice to the effects of
confusion as to the latter’s (payor’s) share in the obligation.”

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