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REGULATORY FRAMEWORK F'OR BU SINE S S TRAT\SACTIONS ATTY. D. LTNTAYAO

OBLIGATION

A juridical necessity to give, to do, or not to do. It is

impressed with the character of enforceability.

Requisites:

1 Vinculum juris or juridical tie the efficient cause

established by various sources of obligations (Iarn,
contracts, quasi- contracts, delicts and quasi-delict); may
arise either from bilateral or unilateral acts of persons;
Z Active subject - one who can demand the fulfillment of the
oblJ"gation; aka obligee/creditor
3 Passive subject from whom the obligation is juridieally
demandable; aka obligor/debtorNote: Subjects pertain to
both natural and juridical persons
4 Object - the prestation or conduct required to be observed
by the debtor (to give, to do, or not to do); it is not a
thi-ng

SOURCES (Art. 1157):

1 Law
2 Contracts
Quasi-contracts
4 Delicts
5 Quasi-delicts
I,Aw

Obligations derived from law are not presumed. OnIy those

expressly determined in Civil Code or in special laws are
demandable and sha1l be regulated by the precepts of law which
establishes them (Art. 1158)
CONTlLAgTS

Obligations arising from contracts have the force of law between

the contracting parties and should be complied with in gcod faith
(Art. 11s9 ) .
Compliance in good faith is perforrnance in accordance with the
stipulation, clauses, terms and conditions of the contract.

guAsr-coHf,RAcEs
Those juridi-cal relations arising from lawfuI, voluntary and
unilateral acts, by virtue of which the parties become bound to
each other, based on the principle that no one shall be unjustly
enciehed os benefited at the expense of another. {Art. 21,42}

Kinds of quasi-contracts

1. Negotiorum Gestio voluntary management of the property or

affairs of another without the knowledge or consent of the latter
(Art. 2144-21s3).
2. Solutio Indebiti juridical relation which is created rarhen
somethj-ag is received when there is no right to demand it and it
was unduly delivered by mistake (Art. 2L54- 2L63)
DELICES

Civil obligations arj-sing from criminal offenses shall be

governed by the penal 1aws, subject to the provisions of article
2L71 , and of the pertinent provisions of Chapter 2, Preliminary
Titler oo Human relations, and of Title XVIII of this Book,
regulatiag damages.

QUASr-rErrC*S

Obligations derived frorn quasi-delicts shall be governed by the

provisions of Chapter 2t Tit.Ie XVII of this Book, and by special
1aws.

It is an act or omission by a persoa which causes damage to

another in his person, property, or rights giving rise to an
obligation to pay for the damage done, there being fault or
negligence but there is no pre-existing contractual relation
between the parties. (Art. 2176)

IIATURE A![D ETFECTS Or OBLTGATIOH (Arts. ],163-1178]

OBLIGA:ETONS OF trIIE DEBtrOR:

1 Determlnate

Specific Performance
b Take care of the thing with the proper diligence of a good
father of a family UI{LESS another standard of care is
required by law or stipulated by the parties (Art.
1163 )
Deliver all accessions and accessories of the thing
although not mentioned (Art. 1166)
n To be liab1e for damages in case of breach due to delay,
fraud, negligence or contravention of tenor thereof
(Art 1165 )
2 Generic

To deJ.iver the thing of the qreality intended by ttre

parties, taking iato account the purFose of the
obligation, intent of the parties and other
eireumstaflces
h To be liable for damages in case of breach due to de1ay,
 fraud, negligence or contravention of the tenor
thereof (Art" 1170 )
RIGHtr OF CREDItrOR trO :[HE FF,UTES (Art. 1.J.64):

1 Before delivery - personal right

2 After delivery - real right
REMEDTES OF A CREDIIOR rl{ REAL OBLIGAETONS TO cM (Art. 1L55):

1. Determinate

a To compel specifj-c performance with right to be

indemnified for damages
b To demand rescission of the obligation with right to
recover damages
To demand payment of damages when j-t is the only feasible
remedy
d If the obligor delays, or has promised to deliver the same
thing to two or more persons who do not have the same
interest, he shal1 be responsible for any fortuitous
event until he has effected delivery
2 Generic

a To ask for performance of the obligation

b To ask that the obligat,ion be complied with at the expense
of the debtor
c fo recover damages in case of breach of obligation
REMEDfES Of A CREDIIOR IN PERSONAL OBLIGAEIONS: "EO DO OR l{Og IO
Do" (Art. 1167-1168):

1. Positive personal obligation (obligation to do)

If the debtor fails to comply with his obligation to do, the

credj-tor has the right:
a. to have the obligation performed by himself or by another,
unless personal considerations are involved, dt the debtor's
expense;
b. to recover damages.
In CaSe the obligation is done in contravention of the terms of
the same or is poorly done, it may be ordered that it be undone
if it i-s still possible to undo what was done.

2. Negative personal obligation (obligation not to do)

As a ru1e, the remedy of the obligee i-s the undoing of the

forbidden thing plus damages. However, if it is not possible to
undo what was done, either physically or legally, or because of
the rights acquired by third persons who acted in good faith, or
for some other reasons, his remedy is an action for damages.
NINDS OT BREACH OT OBLIGATIONS:

1. Involuntary debtor is unable to eomply with his obligation

because of fortuitous event.

Note: Debtor is NOT 1iab1e for damages

2. Voluntary debtor, in the performance of the obligation, is

guii-ty of :
a. Default (mora)
L
E'raud (dolo)
Negligence (culpa)
d. Breach through contravention of tenor of the oblj-gation
Note: Debtor is 1iab1e for damages

A. Default {l,lora) :
Delay in the fulfillment of the obligation with respect to time.
Kinds of Default:

1. Mora solvendi - delay of the debtor to perform his obligation.

It may be:
Ex re - obligation is to give
gx persona - obligatj-on is to do

2. More accipiendi - delay of the ereditor in accepting delivery

of the thing which is the object of the obligation
3. Compensatio mcrae delay of the parties or obligors in
reciprocal obligation
RULES Or{ DEFAUTI (ARr. 1169]:
1. Unilateral Obligatj-on
General Rule: Demand is necessary. No demand - no delay.

Exceptions:
a. When obligation or law expressly so declares
b. When the time for fulfillment of the oblj.gation of the
essence of the contract
c. When demand would be useless
2. Reciprocal Obligations - Created or established at the same
time, out of the same cause and which result in mutual
relationship between the parties.
General Rule: Fulfillment by both parties should be simullaneous;
one party incurs in delay from the moment the other party
fu1fi1ls his obligation, while he himself does not comply or is
not ready to comply in a proper manner with what is ineumbent
upon him. (Art. 1L69)

Exception: When different dates for the performance of obligation

is fixed by the parties. Demand is necessary cnly in such case.
Note: If neither party complies with his prestation the default
of one compensates for the default of the other.
B. Fraud (Dolo):

Conscious and intentional proposition to evade the normal

fulfi-11ment of an obligation. Implies some kind of malice or
dishonesty and cannot cover cases of mistake and errors in
judgment made in good faith. In such case obligor can be held
liabIe for damages.
?[aiver of Fraud
1. Future fraud cannot be waived hecause it is contrary to law
and public policy.
2. Waiver of past fraud is valj.d; it can be deemed an act of
generosity. What is renounced is the effect of fraud or the
right to indemnity.
C. Negligenee (Culpai:
Any voluntary act or omissj.on, there being no malice, which
prevents the normal fulfillment of an obligation.
Kinds of Negligence!

1. Civil Negligence
a Culpa contractual fault or negligence of obligor by
virtue of which he is unable to perform his obligation
arising from a pre- existing contract;
Culpa aquilianalquasi-delict fault or negli.gence of a
person, whose failure to observe the required
diligence to the obligation eaus€s damage to another
2 Culpa Criminal fault or negligence which results in the
commission of a cri-me

DrLrGEr{CE REQUTRED (ARr. J.163}:

1 That agreed upon by the partj-es
Z In the absence of stipulation, that required by law in the
particular case
3 If both the contract and law are silent, diligence of a
good father of a family

Diligeace of good father of a family: That reasonable diligence

which an ordinary prudent person would have done under the same
ci,rcumstances.

roRrurrous EvENr (ARr. 1J.74):

An event which coul-d not be foreseen, or which, though foreseen,
was inevitable.

Reguisites:

1 Event must be independent of the will of the obligor;

2 It must be either unforeseeable or inevitable;
3 Must be of such a character as to render it impossible for
 the obligor to fulfill his obligation in a nor:na1 manner;
and
Lt Obligor must be free from any participation in the
aggravation of the injury resulting to the obligee.
Note: It must not only be the proximate cause but it must be t,he
ONLY and SOLE CAUSE.

Contributory negligence of the debtor renders him liable despite

the fortuitous eventl courts may eguitably mitigate damages.
If the negligence was the proximate cause, the obligation is not
extinguished. ft is converted into a monetary obligation for
damages.

tiability in case of fortuitous event:

General- Rule: No liability in case of fortuitous event.
Excepti.ons:
1.. When expressly declared by law e.g. Article 55212r, L165(3)r
L268, L942, 2L47 t 2L48 and 2159 of the Civi-I Code. )
2. When expressly declared by stipulation or contract
3. When the nature of the obligati-on requires the assumption
of risk
EXEINGUISH!{ENI Or INTEREST .&ND SRIOR INSI.AI"LUENTS (Art. LL7 6')

Receipt of the priaci-paI (or later i-nstallment) without

reservation as to the interest (or prior installment) shall give
rise to a disputable presumption that the interest (or prior
installment) has been paid.
REIIEDTES OE' CREDTTOR EO PROEECT CREDTI (Art. 11,77|

1. To exhaust the property i.n possession of the debtor generatly

by attachment, subject to exemptions provided by law
2. Accion subrogatoria To be subrogated to all the rights and
actions of the debtor Eave those which are inherent in his person.
EXCEPTION: Those purely personal rights in the sense that they
are inherent in the person of the debtor.
3. Accion pauliana - To irnpugn all the acts which the debtor may
have done to defraud them by means of reseissory actj-on at the
instance of the creditor who is prejudiced.
IB-AASUISSIBILITT Or X.rGHtrS ACQUTRED BY VTRtrUE Or ArI OBLTGA:rIOII
(s,RT. 1178)

General Rule: Rights acquired by virtue of an obligatioa are

transmissible in character
Exceptions:
1. 9{hen prohibj-ted by LAW which are pureJ-y personal in
character
2. When prohibited by PERSONAL QUALIFICATION or cireumstances
 of the transferor which is material ingredient attendant in
the obligation
3 When prohibited by STIPULATTON of the parties

DIFFEREI{T KINDS OF OBIIGA:TIONS

Pure Obligation

The effectivity or extinguishment does not depend on the

fulfillment or non-fulfillment of a condition or on the
expiration of a term or period, and is immediately demandable.
Note: The quality of immediate demandabii-ity is not violated when
a reasonable period is granted for performance.
Conditional Ob1 igatj-on
ConditionaL ObLigation

Effectivi-ty is subordj-aated to the fulfillnent or non-fu1fil1ment

of a future AND uncertain fact or event
CHAB.ACTERISTICS OF A CONDITION:

L Fulure and uncertain

2 Past event but unknown to parties {the knowledge to be
acquired in the future of a past event which at that moment
is unknown to parties interested - it is only in that sense
that the event is be deemed uncertain)
3 Not impossible
Note: when the debtor binds himself to pay when his means permit
him to do so, the obligation shall be deemed to be one with a
period (Article 1l-80 ) .
CtLSSIFIC.STIOH Or CO$DIIXOI{S r
1. Suspensive fulfillment of condition results Ln
acquisition of rights arising out of the obligation.
Resolutory fulfillment of the condition results in
extinguishment of righte arising out of the obligation.

2 Potestatj-ve fulfillment of the condition depends on the

will of a party to the obligation.
Casual fulfillment of the condition depends on chance
and/or the will of a third person.
Mixed - fulfillment of condition depends partly on the will
of a party to the obligation and partly on chance andlor
will of a third person.
3 Possible - condition is capable of realization according to
nature, law, public policy or good customs
rmpossible condition is aot capable of, realization
according to nature, law, public policy or good eustoms

4, Positive - involves performance of an act

 Negative - involves the omission of an act

5 Divisible susceptible of 5rartial performance or

realization
fndivisible not susceptible of partial performance or
realization
6 Conjunctive there are several conditions. which must all
be realized
Alternative there are several conditions, but only one
must be realized.

7. Express - condi.tion is stated expressly

I:nplied - condition is tacit

ETFECIIS OF IIAPPENING OF COITDIEION("*Rg. L1.8Llr

1. Suspensive condition

Obligation sha11 only be effective upon the fulfillment of

the conditj.on; upon constj-tution of obligation, before
fu1fi1lment, obligee acquires a mere hope or expectancy,
protected by 1aw.
2. Resolutory conditi.on
obligation becomes demandable immediately after its
constituticn and rights are immediately vested in the
obligee, but such rights are always subject to the threat
or danger of extinct j-on.
poEEsEArrvE coNDrEro$ (ARE. 1182) :

When .i-t depends exclusively upon the will of creditor - condition

and obliEation is va1id.

When it depends exclusively upon the wiLl of debtor in case of a

suspensive condj-tion condition and obligation are void; to
allow such condition would be to sanction illusory ohligation, in
direct contravention of the principle announced in Art. 1308.
When it depends exelusively upon the will of, debtor in case of a
resolutory condition condition and obligation is valid; the
positioa of the debtor is exactly the same as the creditor in a
suspensive condition and does not render the obligation
i-1lusory.
Casual condition -
When it depends upon chance or upon will of a third person, the
obJ-igatiorr and sonditi.on are val.id.

Mixed condition-
When it depends partly upon chance and partly upon will of a
third person, the obtigation and condition are valid.
EFEECTS Or THPOSSIBLE COlrDr:lIOlrS (ARg. 1L83):

1 Conditional obligation is void fmpossible conditions

annul the obligation which depends upon them. Both
obligation and condition are void.
Z Conditional obligation is valid - If condition is negative,
it is disregarded and obligation is rendered pure and
:ra1id.
3 Only the affected obligation is void - If the obligation is
divisible, the part not affected by the impossible
condilion shal1 be valid.
4 Only the condition is void - If obligati-on is pre-existing,
not depending on fulfillment of the condition which is
impossible for its existence, only the condition is void
EFFECTS OF POSIEIVE Et{D NECATIVE CONDITION (ARr. 1J.84-1L85} I

In positive condition. obligation is extj-nguished as soon as the

time expires or if it becomes indubitable that the event will not
take p1ace"
I* negative condition, the obligation is effective from the
moment the time indicated has lapsed, er if it has beeome evident
that the event cannot occur, although the time indj-eated has not
yet lapsed.
ghe intention af the parties, taking j.nto consideration the
nature of the obliEation, shal1 l1overn if no time has been fixed
for the fulfi-llment of the condition.

DOCTRII{E OF colrsERucrrrvE FULFITLMENT OF SUSPEHSTVE CONDTTTON (AR:r.

1185):

Condition is deemed fulfilled when the obligor actually prevented

the obligee from conplying with the condition; preventi-on must
have been voluntary or wi1Ifu1 in character.

pRrNcrpLE o8 REEROACfTVTTC rN SUSPENSTVE CONDTETO!{ (ARir. I"187)

The effects of a conditional obligat,ion to give, once the

condition has been fu1fi11ed shall retroact to the day of the
constitution of the obliqiation.
As to the fruits and interests in abligations to give -
a. In Reciprocal Obligations: No retroactivity- Mutually
compensated {frui-ts may be natural, industrial or ci-vi-l},
b. In Unilateral Obligations: No retroactivity because it is
usually gratuitous unless iatention tras otherwise, as inferred
from nature and circumstances "
In ohligations to dc or not to do -
No fixed ru1e. Courts are empokrered to determj-ne the retroactive
effect of the suspensive condition.
RIGHTS PENDING FULPTLLMENE OF SUSPENSM CONDTIIOIIS (ART" L1.88):

1 Creditor
May take or bring appropriate actions for the
preservation of his rights
Does not grant any preference of eredit but only
allows the bringing of the proper action for the
preservation of the creditor's rights.
a
L Debtor
To recover what he has paid by mj-stake before the
happening of the suspensive conditions.

But if payment is not by mistake. debtor is deemed to

have j.mpliedly waived the condition; he cannot recover
what he has prematurely paid once the suspensive
condition is fulfil1ed.
EFFECTS OF LOSS, DErrERrORArrOl{ At{D THFROVEMENE rN RE.Br.
oBtrGAtrroNs DURTIIG THE pENDET{CS OF :rIrE eODrDrtrr0}{ (Art. 1L89]:

1 Loss (when it perishes; goes out of comrnerce; disappears in

sueh a way that 1ts existenee is unknown or it cannot
he recovered)
a. Without debtor's fault - obligation is extj.nguished
b. ?{ith debtor's fault obligation is converted into one of
indemnity for damages
2 Deterioration
t Without debtor's fault impairment to be borne by the
creditor
L
U with debtor's fault - ereditor may choose betr,treen bringing
an action for rescission of the obligation OR bringing
an aetion for specific performance with damages in
either case
fmprovement
a. By the thing's nature or by time shaIl inure to the
benefit of the creditor
L
U At the debtor's expense - debtor shall have no other right
than that granted to a usufructuary

RESCISSION of RECIPRoCAJ, oBLIGA*IoNS Il{ GENER&L (ert. 1L9l.}

Rescission
Right to cancel (or resolve) the contract or reciprocal
obligations in case of non- fulfillment on the part of one.
Implied in reciprocal obligations.
Alternative renedies of injured party {Art. L19L par- 2)
a. Fulfillment of the obligation with damages
b. Rescissj-on of the oblj.gation with damages
OBLIGAIIONS WIAH A PER.IOD
Those whose demandability or extinguishment is subject to the
expiration of a term or period.
Requisites r
1. Future;
2. Certain; and
3. Possj-b1e, legally and physically.

Period for whose benefit (Art. LL96)

General Rule: For the benefit of both parties.

Exception: If it can be shown that the period has been

established in favor of the creditor or of the debtor.
Hhen Court May Fix Periorsl (Art. 1197)
General Rule: Courts are without power to fix period

Exeeptions:
i.. If the obligation does not fix a period, but from its nature
and circumstances it can be inferced that a period was intended;
2. If the duratior of the period depends upon the will of the
debtor; and
3. If the debtor binds himself when his means permit him to do so
(Art. 1180).
Hhen Debtor toses Right to Make Use of Period (Art. 1198)
1. He becomes insolvent, unless he gives a guaranty or security
for the debt (the insolvency need not be judicially declared)
2. EIe does not furnish to the creditor the guaranties or
securities whieh he has promised
3. By his own act he has impaired said guaranties or securities
after their establishment, and when through fortuitous event they
disappear, unless he immediately gives ne\^r ones equally
satisfactory
4. He violates any undertaking, in consideration of which the
creditor agreed to the period
5. He attempts to abscond
ALIERI{&TIVE OBTIGAEION
It is one where out of two or fiore prestations which may be given,
only one is due.
Right of Choice in Alternative Obligation (Art. 12OO)
General Rule: Right of choice belongs to the debtor

Exeeptions:
1. Expressly granted to creditor
2. Expressly granted to third person
Limitations upon the right of choice:
The debtor cannot choose prestationsl undertakings which are -
1. lmpossible
2. Unlawful
3. Could not have been the object of the obligation
Note: In alternative obligations, ehoice shall produce effect
only upon communication of the choice to the other party. No
special form is required for the communication or notification;
may be orally or in writing, express or implied. (Art.1201)
When choice is rendered imsrossible through the creditor,s fau1t,
the debtor may bring an action to rescind the contract with
damages (Art. 1203)"

When converted to simple obligation:

l-. When the person who has a right of choice has communicated his
choice.
2. When only one prestation is practicable (Art,. 3,2A2).

Effects of Loss of Objects of Jll-ternative obligation (Art. l2A4-

r.2os )
A. When choice belongs to debtor:

Dueto Fortui-tous Event

1. Al1 are lost - debtor is released from the obligation
Some but not all are lost deliver that which he sha1l
choose from among the remainder
2. Only one remains - deliver that which remains
Debtor's fault
1. All are lost * creditor sha11 have a right to inde*::ity
for damages based on the value of the last thing vEhich
disappaared or service which becorqe impossible
2 .Some but not all are lost - deliver that which he shall
choose from among the remainder without damages
3. Only one - deliver that which remains
B. When shoi-ce belongs to creditor:

Dueto Fortuitous Event

1. AI1 are lost - debtor is released from the obligation
2. Some but not all are lost - deliver that which he shall
choose from among the remainder
3. only one remains * deliver that which remains
Debtor's fault
1. All are lost creditor may elaim the pricelvalue of
any of them with indemnity for damages
2. Some but not all are lost - creditor may claim any of
those subsisting without a right to damages OR
price/value of the thing lost with right to damages
FACIIT:IA:IM O8LIGAIIOI{ (3,rt. 1206)

An obligation wherein only one object or prestation has been

agreed upon by the parties tc the obligation, but whi-ch may be
complied wi.th by the delivery of another or the perforrnance of
another prestation in substitution.
TOINE OBLIGAEION

The whole obligationis to be paid or fulfilled proportionately

by different debtors or demanded propCIrtionately by different
creditors.
SOTIDARY OBIIGATION

Each one of the debtors is bound to render, and/or each one of

the creditors has a right to demand entire compliance with lha
prestation.
llature of a Collective Ob].igation (ttrt. 1207 ]

General Rul-e: Obligation is presumed joint if there

concurrence of several creditors OR of several debtors OR of
several creditors and debtors j-n one and the same obligation
Exceptions:
1 The obligation expressly stated that there is solj-darity
,z The law requires solidarity
3 Nature of the obligation requires solidarity
,troint Divisible Obligation {srt. 1.208}

Each creditor can demand only for the payment of his

proportionate share of the credit; each debtor can be held liable
only for the payment of his proportionate share of the debt.
.Ioint Indivisible Obligation (}rt. 1209)
No creditor can act in repr€sentation of the other;

If there are two or more debtors, the fulf illnrent of or

compliance with the obligation requires the concurrence of. all
the debtors, although each for his own share
IndivisibiJ.ity and Solidarity Distinguished (Srt. 1210)

rndivisibility - Refers to the prestation that is not capable of

partial performarrce.
Solidarity - Refers to the 1ega1 tie or vinculum juris, and
consequently to the subjects or parties of the ohligation.

SOI,ID&RrEI (Art. 1211)

Solidarity may exist although creditors and debtors may not be

bound in the same manner and by the same periods and conditions.

Effects of Assignment of Rights in Solidary Obligations (Art.

t 21.3 )

General Rule: A sclidary creditor assign his right as it

CANNOT
is predicated upon mutual eonfidenee, i.e., personal
qualification of each creditor had been taken into consj-deration
Exceptions:
1. Assignment to co-creditor
2. Assignment is wlth consent of co-credi-tor
Eo ?Ihon Payarent I'tade in SoLidary Obligation (Art. 1214,
General Rule: Payment may be made to any of the solidary
creditors
Exeepticn: If demand., judicial or extra- judicial, has been made
by one of them, payment should be made to him.
Effect of Demand upon a SoLidary Debtor {Art. 1216}

The demand made against one of them shall not be an obstaele to

those which may subseguently be directed against the others so
long as the debt has not been ful1y collected.
Effect of Palment by a Debtor (Art. l2l7 and Art. 1218)

Fayment made by one of the soli-dary debtors extinguishes the

obligation.
If two or more solidary debtors offer to payr the credj-tor may
choose which offer to accept.

Divisible Obligations
Those which have as their object a prestation which !e

susceptible of partial performance without the eSsence of

obligation changed.
Indivisible Obligations
Those which have as their objeet a prestation which is not
susceptible of partial performance, otherwise, the essence of the
obligation will be changed
OBTIGAETON WITH & PENAL CTAUSE

An accessory undertaki.ng (penal clause I penalty) is attached for

the purpoee of insuring its performance by virtue of r,rhich the
obligor is bound to pay a stipulated indemnity or perform a
stipulated prestation in case of breach.
MODES OT EXIT[iIGUISETIiIG OBLICATIONS
1. Payment/performance
2. Loss of lhe thing due
3. Condonation or remission of debt
4. Confusion or merger
5. Compensation
6. Novation

Palmrent or Performauee (Art. 1232,

Means delivery of, money and the performance, in any other manner,
of an obligation.
Principle of iutegrity (Art" 1233)

General Rule: A debt shall not be understood to have been paid

unless the thing or service in v'rhich the obligation consists has
been completely delivered or rendered, as the case may be

Exeeptions:
1. Hhen the obligati-on has been substantially performed in
good faith (Art. L234).
2. When the obligee aceepts performanee, knowing its
incompleteness or j-rregularity and without expressing any
protest or objecti-on; based on the principle of estoppel
{Art. 1235}.
Persons from whom the creditor rnust accept paXrment (Art. L236)
1 Debtor himself or his legal representative
2 Any person who has an interest in the obligation (Iike a
guarantor )
? A third person who has no interest in the obligation when
there is sti-pulation that he can make payment
Person who pays the obligation should have the necessary 1ega1
capacity to effect such palrment (Art. L2391
Note: Creditor may refuse payment by third person.
Effect of payment by third persoa
a. Without knowledge or against the will- of debtor - recovery
only up to the extent or the amount of the debt at the time
the payment; defense that may be availed only by the debtor
b. With knowledge of debtor rights of reimbursement and
subrogation

fo Whom Papnent Must Be tdade (Art. 1240)

1 The person in whose favor the obligation has been

const ituted
a
z His successor in i"nterest
3 Any person authorized to reeeive ir by 1aw or by the
creditor at the time when payment is due and not when the
obligation was constituted
Effect of palment to unauthorized persons in obligation to give-
General Rule: It sha1l NoT be valid, even though made in good
faith.

Excepti-ons:

1. Payment made to a third person, provided that it has

redounded to the benefit of the creditor.

Benefit to the creditor is presumed in the following eases

(Art, 12411z
a. If after the payment, the third person acquires the
creditor's rights (Subrogation) ;
b. If the creditor ratifies the payment to the third
person (Ratification) ;
e. If by the ereditor's eonduet, the debtor has been 1ed
 to believe that the third person had authority to
receive the payment (Estoppel).
d. Palrment to the possessor of the credit, made in good
faith (Art. 1242' -
Note: fn obligations to give, palrment to incapacitated person is
valid when:
1. The incapacitated has kept the amount or thi.ng paid or
delivered
2. Payment has been beneficial to the incapacitated person
Art. L24L
Paymeat made to the creditor by the debtor after the latter has
been judicially ordered to retain the debt sha11 NOT be valid
(Art. L243); UNLESS otherwise stipulated, extrajudicial expeoses
required by the payment sha11 be for the account of the debtor
{Art. L24'7 \ .
RuJ.e in moaetary obligations (!trt. L2119)

1. Must be rnade in the currency sti-pulated; if it is not

possible to deliver such currency. then in the currency
which is legal tender i-n the Phi-lippines.
2. Delivery of promissory notes payable to order or bil1s of
exchange or other mercantile documents shall n*:t pr+drece
the effect of payrnent except:
a. when they have been cashed or credited; ar
b. When through the fault of the creditar ttaey has* h*ee
lmpaired

Place of Palment (Art. 1251)

1 Place stipulated by the parties.
2 If there is no stipulation and the obligation is to deliver
a determinate thing, payment shal1 be made at the place
where the thing rni-ght be at the time the obligation was
constituted.
3 fn any other case, the payment shall be made at the
domicile of the debtor.
l{ote: If the debtor changes his domicile in bad faith or after he
has incurred in deIay, the additional expenses sha1l be horne by
him.

Art. 1,251 governa unilateral obligations, Reciprocal obli-gations

are governed by special ru1es.
Special Forrns of PaS.ment:

it. Applieation of PaXmeot - Designatj-on of the debt to which the

payment must be applied when the debtor has several obligations
of the same kind in favor of the sane creditor.
Reguisites:
1 There must be only one debtor and only one creditor;
2 There must be two or more debls of the same kind;
A1l the debts must be due except if there is stipulation to
 the contrary OR application of payment is made by the party
for whose benefit the term has been constituted (Art. 1196
and Art . 1,792); and
4. Amount paid by the debtor is insufficient to cover the
total amount of all the debts.
Rules on Application of Payment
1 Debtor has a choice; indicated at the time of making the
payment
2 If the debtor does not apply, the creditor may designate
which debt is paid by specifying in the receipt
3 ff the creditor did not apply or if application is void,
debt which is the most onerous, is lhe one satisfied
4 Debts due of the same nature, payment shall be applied
proportionately
Must conform to the general rul-es on palrment (Articles 1232-L251)

Note: If the debt produces interests, payment of the principal

sha1l not be deemed to have been made until the interests have
been covered (Art. 1253); applies only in the absence of an
agreement to the contrary and is merely directory and not
mandatory

B. Dation in Paynent (Dacion en pago) - Delivery and transmission

of ownership of a thing by the debtor to the creditor as an
accepted equivalent of the performance of the obligation.

Requisites;
1. Existence of a money obligation;
2. Alienation to the creditor of a property by the debtor with
the consent of the former; and
3. Satisfaction of the money obligation of the debtor.
c. Palrment by Cession (ert, 1255) Special form of payment
whereby the debtor assigns/abandons ALL of his property for the
benefit of his creditors in order that from the proeeeds thereof,
the latter may obtain paynent of their credits.
Requisites:
1. Plurality of debts;
2. Partial or relative insolvency of the debtor; and
3. Acceptance of the cession by the creditors.
D. fender of Payment and Consignation (Art. 1256t

Tender of Payment: Manifestation of the debtor to the creditor of

his decision to comply immediately with his obligation;
preparatory act and extrajudicial in character.
Consignation: Deposit of the object of the obligation in a
competent court in accordance with the rules prescribed by law,
after refusal or inability of the creditor to aecept the tender
of payment; principal act and judicial in character.
Requisites of Consignation:
 1. Existence of a valid debt which is due
2. Tender of payment by the debtor; creditor's refusal without
just cause to accept it
3. Frevious n<>tice of consignatior: to person intereEted in the
fulfillment of the obligation, in order t.o give the
creditor the opportunity to reconsider his unjustified
refusal and to accept palment to avoid consignation and the
subsequent litigation
4. Consignation aarcu&t due placed at the di-sposal af the
court
5. Subsequent notice of consignation to enable the creditor to
withdraw the goods or money deposited;
It would be unjust to make the creditor suffer the risk of
deterioration, depreciation or loss of such goods or money hy
reason of lack of knowledge of the consignation

Instances where consignation shall produce the effects of payment

r*ithout prior tender cf payment (*rt. L259 par. 2):
1. Creditor is absent or unkncwn, or does not appear at the
place of payment
2. Creditor is incapacitated to receive the payment at the
time it is due
3. When without just cause, the creditor refuses to give a
receipt
4. When two or more persons claim the right to collect
5. ?[hen the title of the obligation has been lost

LOSS OF EIIE EHING DT'E

Effects of Loss in Determinate Obligation to Give (Art. 1262\z

obligatio* is extinguished if the thing is lost or destroyed
without the fault of the debtor and before he has incurred in
delay.

General Rule: Loss of a determinate thing through fortuitr:us

event shal1 extinguish the obligation.
Exceptions:
1 when the law so provides;
2 When the stipulation so provides;
3 When the nature of the obligati-on requires an assumption of
risk;
Effeet of Partial Loss {Art. L25lt}
General Rule: Partial loss does not extinguish the obligation.
Exception: When the partial loss or destruetion of the thing is
of such importance that would be tantamount to a complete loss or
destrqction.
RuIe if, the tbing is in debtor's possessios {art. 1255}

General Rule: If it i-s lost while in the possession of the debtor.

it is presumed that the loss was due to his fau1t, unless there
is proof to the contrary.
Exception: No such presumption in case of earthquake, flood,
stoxm or other natural calamity
Effect of impossibility of performance in obligation to do (Art.
L266) t

When the obligation becomes 1ega11y or physically impossible

without the fault of the debtor, obligor is released from the
obligation.
Doctrine of Uuforeseen Events (Art. L2671 - When the service has
become so diffj-cult as to be manifestly beyond the contemplation
af the parties, the court should be authorized to release the
obligor in whole or in part.
Rule if obligation arises from criminal. offense (Art. 1268)

Geaeral Rule: Debtor shall not be exempted from the payment ot

the price rrrhatever may be the cause for the loss. Exception: When
the thing having been offered by the debtor to the person v,rho
should receive it, the latter refused without justification.

CONDONATTO}I OR, REMISSIOTiT OF THE DEBE

An act of 15-berality by virtue cf which the obligee, without

receiving any price or equivalent, renounces the enforcement of
the obligation, as a result of which it is extinguished in its
entirety or in that part or aspect of the same to which the
remission refers.
It is the gratuitous abandonment by the creditor of his right; a
form of donation

CONFUSTO}I

It is the merger of the characters of the creditor and the debtor

in one and the s.une person hy virtue of which the obligation is
extinguished.

Requisites of Merger
L. Merger of the characters of the creditor and debtor must be
in the same personi
2. Must take place in the person of either the principal
creditor or the princi-pal debtor; and
3. Whether the merger refers to the entire obligation or only
part thereof, there must be eomplete and definite rneeting
of all qualities of creditor and debtor in the obligati-on
o,r in the part thereof affected by the $erger
COt'{PENSATION

Mode of extinguishingin the concurrent amount of the =&l-igetii+e

of those persons who are reciprocally debtors and cc+*l*e:.r= "*i
each other.

Requisites of compensation (Art. L279,

 1. there must be trnro parties, who, in their own right, are
principal creditors and principal debtors of each other
except in case of a guarantor (Article 1280);
2. Both debts must consist in suil of rnoney, or if the things
due are fungibles consumables), they must be of the same
kj.nd and quality;
3. Both debts must be due;EXCEPTION: voluntary compensation
Article L2g2
4. Both debts must be liquidated and demandable;
5. There iaust be no retention or controversy commenced by
third persons over either of the dehts and communicated in
due time to the debtor;
6. The compensation :sust not be prohj-bited by law
I{OI'ATION

It is the substitution or change of an obligation by another,

resulting in its extingui-shment or modification, either by
changj-ng its object or prineipal conditions, or by substj-tuting
aaother in place of the debtor, or by subrogating a third person
in the rights of the creditor.
Requisites of Novation:
1 Previous valid obligation;
2 Capacity of the contracting parties (to the new contract);
3 Animus novandi or intent to novate {espeeiall-y for implied
novation and substj-tution of debtors);
4 Substantial difference between the old obligation and the
new obligation (especially for implied
navation)rconseguentlyr extinguj-shment of the obligation;
and
5 validity of the new obligation.