Obligation as a Concept 1158 Obligations derived from law are not presumed.

Only
Categories
1423 Obligations are civil or natural. Civil obligations give a
right of action to compel their performance.
Definition
1156 An obligation is a juridical necessity to give, to do, or
not to do.
Meaning of obligation
A tie of law or a juridical bond by virtue of which one is bound
in favor of another to render something. 1156 gives the
definition in its passive aspect. It stresses the duty under the
law of the debtor when it speaks of obligation as a juridical
necessity.
Meaning of juridical necessity
It is a necessity because in case of non-compliance, the courts
may be called upon to enforce its fulfillment or, in default
thereof, the economic value that it represents.
Requisites of an obligation
1. A passive subject – the person who is bound to the
fulfillment of the obligation; he who has a duty.
2. An active subject – the person who is entitled to demand the
fulfillment of the obligation; he who has a duty.
3. Object or prestation – the conduct required to be observed
by the debtor.
4. A juridical or legal tie – that which binds or connects the
parties to the obligation.
Requisites of a prestation
1. Must be possible, both physically and juridically;
2. Must be determinate, or at least determinable;
3. Must have a possible equivalent in money.
Sources of obligations
1157 Obligations arise from:
1. Law;
2. Contracts;
3. Quasi-Contracts;
4. Acts or omissions punished by law; and
5. Quasi-Delicts
Sources classified
1. Those emanating from law; and
2. Those emanating from private acts:
a. Licit acts – case of contracts and quasi-contracts.
b. Illicit acts – case of delicts and quasi-delicts.
** There are actually only 2 sources: law and contracts.
Obligations arising from other sources are really imposed by
law.
those expressly determined in this Code or in special laws are
demandable, and shall be regulated by the precepts of the law
which establishes them; and as to what has not been foreseen,
by the provisions of this Book.
Legal obligations – Not presumed because they are considered
a burden upon the obligor. To be demandable, they must be
clearly set forth in the law. The law cannot exist as a source of
obligations, unless the acts to which its principles may be
applied exist.
Transmissibility
1178 Subject to the laws, all rights acquired in virtue of an
obligation are transmissible, if there has been no stipulation to
the contrary.
Transmissibility of rights – All rights acquired in virtue of an
obligation are generally transmissible. The exceptions are:
1. Prohibited by law – obligations which are personal in
character. (Rights in partnership, agency, etc.)
2. Prohibited by stipulation – Such stipulation, being contrary
to the general rule, should not be easily implied, but must be
clearly proved. Or at least, clearly inferable from the provisions
of the contract.
Nature and effect
Obligation to deliver
1165 When what is to be delivered is a determinate thing,
the creditor, in addition to the right granted him by Article
1170, may compel the debtor to make the delivery.
If the thing is indeterminate or generic, he may ask that the
obligation be complied with at the expense of the debtor.
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
shall be responsible for any fortuitous event until he has
effected the delivery.
Remedies of creditor in real obligation
In a specific real obligation the creditor may exercise the
following remedies in case of non-compliance of the debtor:
1. Demand specific performance or fulfillment (if it’s still
possible) of the obligation with a right to indemnity;
2. Demand rescission of the obligation, also with a right to
recover damages;
3. Demand the payment of damages only where it is the only
feasible remedy.
In a generic real obligation, performance by a third person is
valid. It is not necessary for the creditor to compel the debtor
to fulfill the obligation but this option is readily available to
him.

Law as a source Delay and Fortuitous events

In the delivery of determinate things, fortuitous events may
extinguish liability. Par 3 provides for two instances when a
fortuitous event does not exempt the debtor from
responsibility.
a. When the debtor delays; and
b. When he has promised to deliver the same thing to
two or more persons who do not have the same interests.
1244 par 1 The debtor of a thing cannot compel the
creditor to receive a different one, although the latter may be
of the same value as, or more valuable than that which is due.
Very prestation due must be complied with – A thing different
from that due cannot be offered or demanded against the will
of the creditor or debtor, as the case may be. Substitution may
be made if the creditor consents.
Obligation to take care of thing
1163 Every person obliged to give something is also obliged
to take care of it with the proper diligence of a good father of
a family, unless the law or the stipulation of the parties
requires another standard of care.
Specific and generic thing distinguished
A determinate thing is identified by its individuality. The debtor
cannot substitute it with another without the consent of the
creditor.
A generic thing is identified only by its specie. The debtor can
give anything of the same class as long as it is of the same kind.
Duties of debtor in obligation to give a determinate thing
1. To take care of the thing;
2. To deliver the fruits of the thing;
3. To deliver its accessions and accessories;
4. To deliver the thing itself; and
5. To answer for damages in case of nonfulfillment or breach.
Obligation to take care of the thing due
Diligence of a good father of a family – The debtor has the
incidental duty to take care of the thing due with ordinary care
or that diligence which a reasonably prudent person exercises
over his own property. (DEFAULT STANDARD)
Another standard of care – If the law or the stipulation of the
parties provide for another standard of care, said law or
stipulation must prevail. (CUSTOM CARE)
Factors considered – The diligence required depends upon the
nature of the obligation and corresponds with the
circumstances of the person, of the time, and of the place.
Obligation to deliver of fruits
1164 The creditor has a right to the fruits of the thing from
the time the obligation to deliver it arises. However, he shall
acquire no real right over it until the same has been delivered
to him.
Different kinds of fruits
Natural fruits – spontaneous products of the soil, and the
young and other products of animals.
Industrial fruits – those produced by lands of any kind through
cultivation or labor.
Civil fruits – those derived by virtue of a juridical relation, e.g.,
rents of buildings, price of leases of lands and other properties,
etc.
When obligation to deliver arises
Generally, the obligation to deliver the thing due and,
consequently, the fruits thereof, if any, arises from the time of
the perfection of the contract.
If the obligation is subject to a suspensive condition or a
period, it arises upon fulfillment of the condition or arrival of
the period.
Personal right and real right distinguished
In personal rights, there is a definite active and passive subject.
(the creditor and the debtor)
In real rights, there is only a definite active subject without any
definite passive subject.
A personal right is binding only against a particular person,
whereas a real right is directed against the whole world.
Ownership acquired by delivery – The creditor does not
become the owner until the specific thing is delivered to him.
When there has been no delivery yet, the proper action is not
one for recovery of possession and ownership but one for
specific performance or rescission.
** From the time the obligation to deliver a determinate thing
arises, the creditor has only a personal right to the thing itself
and to the fruits of it. He can only demand for its delivery.
Obligation to deliver accessions and accessories
1166 The obligation to give a determinate thing includes
that of delivering its accessions and accessories, even though
they may not have been mentioned.
Meaning of accessions and accessories
Accessions – the fruits of, additions to, or improvements upon
the principal thing.
Accessories – things joined to, or included with, the principal
thing for the latter’s embellishment, better use, or completion.
** While accessions are not necessary to the principal thing,
the accessory and the principal thing must go together.
Right of creditor to accessions and accessories – Generally, all
accessions and accessories are considered included in the
obligation to deliver a determinate thing. In order that they will
be excluded, there must be a stipulation to that effect. (The
accessory follows the principal)
Conversely, an obligation to deliver the accessions or
accessories of a thing does not include the principal. (The
principal does not follow the accessory)
Obligation to do
1167 If a person obliged to do something fails to do it, the
same shall be executed at his cost.
This same rule shall be observed if he does it in contravention
of the tenor of the obligation. Furthermore, it may be decreed
that what has been poorly doe be undone.
Situations contemplated
1167 refers to obligations to do. It contemplates three
situations:
1. Debtor fails to perform an obligation to do; or
2. Debtor performs an obligation to do, but contrary to the
terms thereof; or
3. Debtor performs an obligation to do but in a poor manner.
Remedies of creditor in positive personal obligation
In case of non-compliance:
a. to have the obligation performed by another, at the
debtor’s expense;
b. to recover damages.
In case that it is done in contravention of the tenor or done
poorly, it may be ordered that it be undone, at the debtor’s
expense.
Performance by a third person – like a real obligation to
deliver a generic thing, a personal obligation to do can be
performed by a third person. However, if the personal
qualifications of the debtor are the determining motive for the
obligation contracted, the performance of the same by
another would be impossible or would result to be so different
that the obligation could not be considered performed.
Personal Compulsion – The debtor cannot be subjected to
force on his person to compel him to perform his obligation.
Specific performance cannot be ordered in a personal
obligation to do because this may amount to involuntary
servitude. The ultimate sanction of civil obligations is
indemnification of damages.
Obligation not to do
1168 When the obligation consists in not doing, and the
obligor does what has been forbidden him, it shall also be
undone at his expense.
Doing the prohibited thing – the duty of the obligor is to
abstain from doing an act. The very obligation is fulfilled in not
doing what is forbidden. When the obligor does what is
forbidden, aside from the obligation to undo what is done, he
can also be held liable for damages.
Remedies of the creditor – There can be no action for specific
performance in obligations not to do. The remedy of the
creditor is the undoing of the forbidden thing plus damages. In
cases where undoing is impossible, the only feasible remedy is
indemnification for the damages caused.
Non-performance of obligations
Kinds of non-performance
1170 Those who in the performance of their obligations are
guilty of fraud, negligence, or delay and those who in any
manner contravene the tenor thereof are liable for damages.
4 grounds of liability – Contemplates that the obligation was
eventually performed but the obligor is guilty of breach
thereof.
1. Fraud – deliberate or intentional evasion of the normal
fulfillment of the obligation. Act, omission or concealment
involving malice or dishonesty.
2. Negligence (fault or culpa) – any voluntary act or omission,
without any bad faith or malice, which prevents the normal
fulfillment of obligations. Failure to exercise degree of care
required by the circumstances.
3. Delay (mora) – under 1170 must be either malicious or
negligent (to be imputable to the person)
4. Contravention – violation of the terms and conditions
stipulated in the obligation.
Breach of contract – Failure to comply with the terms of a
contract without justifiable excuse. May be willfully done or
unintentionally.
Remedy serves to preserve contractual interests of obligee or
promisee – A breach upon the contract confers upon the
injured party a valid cause for recovering that which may have
been lost or suffered.
Expectation interest – having the benefit of his bargain by
being put in as good a position as he would a have been had
the contract been performed.
Reliance interest – being reimbursed for loss caused by
reliance on the contract by being put in as good a position as
he would have been had the contract not been made.
Restitution interest – having restored to him any benefit that
he has conferred on the other party.
Excuse from ensuing liability – The effect of every infraction is
to create a new duty. The mere proof of the existence of a
contract and the failure of its compliance justify a
corresponding right of relief unless the infractor can show
extenuating circumstance.
Duty of obligee to minimize his damages – He cannot recover
damages for any loss which he might have avoided with
ordinary care. If his negligence was contributory to the loss,
the court may equitably mitigate the damages.
** Damages may not be taken advantage of to allow unjust
enrichment.
Damages recoverable where obligation to pay money
be delivered or the service is to be rendered was a controlling
motive for the establishment of the contract; or
3. When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the
other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him, from the moment
one of the parties fulfills his obligation, delay by the other
begins.
Delay – as distinguished from its regular meaning

Penalty interest for delay or non-performance – The damage Ordinary delay – the failure to perform an obligation on time.
dues (or penalty interest) do not include and are not included
in the computation of interest as the two are distinct claims Legal delay – failure to perform an obligation on time which
which may be demanded separately. failure, constitutes a breach of the obligation.
Kinds of delay
Rate of the penalty interest – The rate of the payment interest
shall be that agreed upon. In the absence of stipulation of a Mora solvendi – delay on the part of the debtor to fulfill his
particular rate of penalty interest, then the additional interest obligation to give or to do by reason of a cause imputable to
shall be at a rate equal to the regular monetary interest; and if him.
no regular interest had been agreed upon, then the legal
interest (6%) shall be paid. Mora accipiendi – delay on the part of the creditor without
justifiable reason to accept the performance of the obligation;
Fraud Negligence and
Deliberate intention to No intent
cause damage Compensatio morae – delay of the obligors in reciprocal
Waiver of the liability of Waiver may be allowed obligations (like sale), i.e., the delay of the obligor cancels the
future fraud is void delay of the obligee, and vice-versa.
Must be clearly proved, Presumed from a breach of ** No delay in negative personal obligation – delay is
mere preponderance is contract impossible for the debtor fulfills by not doing what has been
insufficient forbidden him.
Liability for fraud cannot be May be reduced according
mitigated by the courts the circumstances Requisites of delay or default by the debtor – 3 conditions
must be present before mora solvendi can exist
When negligence is equivalent to fraud – Where the 1. Failure of the debtor to perform his obligation on the date
negligence shows such bad faith or is so gross that it amounts agreed upon.
to malice or wanton attitude on the part of the defendant, the 2. Demand (not mere reminder or notice) made by the creditor
riles on fraud shall apply. upon the debtor to fulfill, perform, or comply with his legal
obligation which demand, may be either judicial or extra-
Gross negligence – failure to exercise even slight care or judicial; and
diligence, or the entire absence of care, acting or omitting to 3. Failure of the debtor to comply with such demand.
act on a situation where there is a duty do so. A thoughtless
disregard of or conscious indifference to consequences insofar ** Presupposes that the obligation is already due and
as other persons may be affected. demandable.

Delay The creditor has the burden of proving that a previous demand
1169 Those obliged to deliver or to do something incur in has been made. It is incumbent upon the debtor, to relieve
delay from the time the obligee judicially or extra judicially himself from liability, to prove that the delay was not caused
demands from them the fulfillment of their obligation. by his fault.
However, the demand by the creditor shall not be necessary
in order that delay may exist: Effects of delay
1. When the obligation or law expressly so declares; or
2. When from the nature and circumstances of the obligation 1. Mora solvendi
it appears that the designation of the time when the thing is to
- The debtor is guilty of breach of the obligation 1171 Responsibility arising from fraud is demandable in all
- He is liable for interest in case of obligations to pay money or obligations. Any waiver of an action for future fraud is void.
for damages in other obligations. In the absence of
extrajudicial demand, the interest shall commence from the Responsibility arising from fraud demandable – refers to
filing of the complaint. incidental fraud. The court is not given the power to mitigate
- He is liable even for a fortuitous event when the obligation is or reduce the damages awarded.
to deliver a determinate thing. However, if the debtor can
prove that the result would have been the same regardless of Waiver of action for future fraud void – Against public policy.
any delay, the courts may mitigate the damages. A contrary rule would encourage fraud.
2. Mora accipiendi
- The creditor is guilty of breach of obligation Waiver of action for past fraud valid – can be considered as an
- He is liable for damages suffered by the debtor act of generosity or magnanimity on the part of the party who
- He bears the risk of loss of the thing due is the victim of the fraud. Must be couched in clear and
- Where the obligation is to pay money, the debtor is not liable unequivocal terms.
for interest from the time of the creditor’s delay
- The debtor may release himself from the obligation by the Negligence (culpa)
consignation of the thing or sum due. 1172 Responsibility arising from negligence in the
performance of every kind of obligation is also demandable,
3. Compensatio morae but such liability may be regulated by the courts, according to
- The delay of the obligor cancels out the effects of the delay the circumstances.
of the obligee and vice versa
- If the delay of one party is followed by that of the other, the Responsibility arising from negligence demandable
liability of the first infractor shall be equitably tempered or 1. Discretion of court to fix damages – Negligence is a question
balanced by the courts. If I cannot be determined who the first which must necessarily depend upon the circumstances of
infractor is, the contract shall be deemed extinguished and each particular case.
each shall bear his own damages.
2. Damages where both mutually negligent – The fault of one
When demand is not necessary to put the debtor in delay – cancels out the fault of the other.
The general rule is that delay is incurred from the time of
demand. Where there is no demand, there is no delay. UNLESS Validity of waiver of action for future negligence – Valid
unless the nature of the obligation requires the exercise of
1. When the obligation so provides. The mere fixing of the extraordinary diligence. However, gross negligence shows bad
period is not enough. The arrival of the period merely makes faith and is considered equivalent to fraud. Any waiver of an
the obligation demandable. The obligation must expressly so action for future negligence of this kind is void.
declare that demand is not necessary.
Kinds of negligence according to source of obligation
2. When the law so provides.
1. Contractual negligence (culpa contractual) – This kind of
3. When time is of the essence. It is not necessary to negligence is not a source of obligation. It merely makes the
categorically state that time is of the essence; intent is debtor liable for damages in view of his negligence in the
sufficient. fulfillment of a pre-existing obligation resulting in its breach or
non-fulfillment.
** The debtor is fully aware that the performance of the
obligation after the designated time would no longer benefit 2. Civil negligence (culpa aquiliana) – negligence which by
the creditor. itself is the source of an obligation between the parties not
formally bound before any pre-existing contract. Also called
4. When demand would be useless because of the ‘tort’ or ‘quasi-delict’.
impossibility of fulfillment. Also when it is apparent that it
would be unavailing. ** A pre-existing contractual relationship between the parties
does not preclude the possibility of culpa aquiliana.
5. When there is performance by a party in reciprocal
obligations. 3. Criminal negligence (culpa criminal) – Results in the
commission of a crime. The aggrieved party may choose
Fraud between a criminal action or a civil action for damages. What
is prohibited is to recover twice for the same negligent act.
Importance of distinction between culpa contractual and
culpa aquiliana – Where liability arising from culpa aquiliana,
not involving a breach of a positive obligation, an employer
may excuse himself by proving that he had exercised ‘all the
diligence of a good father of a family to prevent the damage.’
This defense is not available if the liability of the employer
arises from a breach of contractual duty (culpa contractual)
though this may mitigate damages.
Presumption of contractual negligence – in an action for
quasi-delict or tort, the negligence or fault should be clearly
established because it is the basis of the action. In a breach of
contract, the action can be pursued by proving the existence
of a contract and the fact that the obligor failed to comply with
it.
1173 The fault or negligence of the obligor consists in the
omission of that diligence which is required by the nature of
the obligation and corresponds with the circumstances of the
persons, of the time and of the place. When the negligence
shows bad faith, the provisions of 1171 and 2201(par2) shall
apply.
If the law or contract does not state the diligence which is to
be observed in the performance, that which is expected of a
good father of a family shall be required.
Meaning of fault or negligence
1. Fault or negligence is defined by the above provision (par1)
2. Negligence is conduct that creates undue risk or harm to
another.
3. It is the want of care required by the circumstances.
Test for determining whether a person is diligent
1. Reasonable care and caution expected of an ordinary
prudent person – Did the person, in doing the alleged negligent
act, use reasonable care and caution which an ordinary
prudent person would have used in the same situation. If not,
he is guilty of negligence.
2. No hard and fast rule for measuring degree of care – It is
dependent upon the circumstances in which a person finds
himself situated. All the law requires is that it is always
incumbent upon a person to use that care and diligence
expected of prudent and reasonable men under similar
circumstances.
Factors to be considered
1. Negligence, a factual matter – Negligence is a question of
fact, its existence being dependent upon the particular
circumstances of each case.
- Nature of the obligation
- Circumstances of the person
- Circumstances of time
- Circumstances of the place
** Generally, the degree of care required is directly
proportionate to the danger a person or property may be
subjected to. The greater the danger, the greater degree of
care is required.
2. Proof or presumption of negligence – Negligence is never
presumed but must be proven by the party who alleges it. The
exception is when the source of an obligation is derived from
a contract (culpa contractual). The mere breach or non-
fulfillment of the prestation gives rise to the presumption of
fault on the part of the obligor.
Kinds of diligence required
Diligence is the attention and care required of a person in a
given situation and is the opposite if negligence.
- That agreed upon by the parties, orally or in writing;
- That required by law in the particular case; and
- If both the contract and the law is silent, then the diligence
expected of a good father of a family or the ordinary diligence
of a reasonably prudent person.
Contravention of the Tenor
1167 If a person obliged to do something fails to do it, the
same shall be executed at his cost.
This same rule shall be observed if he does it in
contravention of the tenor of the obligation. Furthermore, it
may be decreed that what has been poorly done be undone.
Situations contemplated
- The debtor fails to perform an obligation to do
- The debtor performs an obligation to do, but contrary to the
terms thereof
-The debtor performs an obligation to do but in a poor manner
Remedies of creditor in positive personal obligations
1. If the debtor fails to comply with his obligation to do, the
creditor has the right:
- To have the obligation performed by himself, or
another, at the debtor’s expense; and
- To recover damages
2. In case the obligation is done in contravention of the terms
or if it is poorly done, it may be ordered by the courts that it be
undone if it is still possible to undo what has been done.
Effect of fortuitous events
1174 Except in cases expressly specified by the law, or
when it is otherwise declared by the stipulation, or when the
nature of the obligation requires the assumption of risk, no
person shall be responsible for those events which could not
be foreseen, or which, though foreseen, were inevitable.
Meaning of fortuitous event – it is an event which is
impossible to foresee or which is impossible to avoid, and the
happening of which makes the normal fulfillment of the
obligation impossible.
Fortuitous event distinguished from force majeure
1. Acts of man – independent of the will of the obligor but not
of other men.
2. Acts of God – totally independent of the will of every human
being. A natural accident.
Kinds of fortuitous event
1. Ordinary – those events which are common and which the
contracting parties can reasonably foresee.
2. Extraordinary – those events which are uncommon and
which the contracting parties could not reasonably foresee.
Requisites of a fortuitous event
1. The event must be independent of the obligor’s will
2. The event is either unforeseeable or unavoidable
3. The event rendered it impossible for the obligor to comply
with his obligation in a normal manner
4. The obligor must be free from any participation therein
**There must be no concurrent or previous negligence or
imprudence on the part of the obligor by which the loss or
injury may have been occasioned.
Rules as to liability in case of fortuitous event
Generally, fortuitous events extinguish obligations. Except in
cases where:
1. When expressly provided by law
- The debtor is guilty of fraud, negligence, delay, or
contravention of the tenor of the obligation.
- The debtor has promised to deliver a determinate
thing to two or more persons.
- The debt proceeds from a criminal offense.
- The thing to be delivered is generic.
2. When declared by stipulation – the intention to make the
debtor liable even in case of fortuitous events should be clearly
expressed.
3. When the nature of the obligation requires the assumption
of risk. i.e. insurance
Effect where risk not one impossible to see
1. Risk quite evident – the possibility of danger is not only
foreseeable, but actually foreseen, then it could be said that
the nature of the obligation is such that a party could rightfully
be deemed to have assumed it.
2. Mere difficulty to foresee risk – different from impossibility
to foresee or anticipate the same.
Impossibility of performance must result from occurrence of
fortuitous event – The happening of the event does not
suffice. The event must be the direct cause of the impossibility
to perform the obligation.
Effect of obligor’s negligence upon his liability
1. Negligence contributed to the loss or damage – In order that
fortuitous event may release a debtor from his obligation, it is
necessary that he be free from previous negligence or
misconduct by which the loss or damage may have been
occasioned.
2. Negligence not contributory to the loss or damage – if, due
to the fortuitous event, the loss would have happened with or
without the negligence of the obligor, it cannot be said that
responsibility arises therefrom. However, the courts are not
bound to discharge the obligor from all liability.
** Preponderance of evidence is the quantum of proof
required to establish that a fortuitous event did take place.
1165 par 3 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 shall be responsible for any
fortuitous event until he has effected the delivery.
Where debtor delays or has promised the same thing to
separate creditors
2 instances when a fortuitous event does not exempt the
debtor from responsibility. The thing contemplated herein is a
determinate thing.
Subsidiary remedies of creditor
1177 the creditors, after having pursued the properties in
possession of the debtor to satisfy their claims, may exercise
their rights and bring all the actions of the latter for the same
purpose, save those which are inherent in his person; they may
also impugn the acts which the debtor may have done to
defraud them.
Remedies available to creditors for the satisfaction of their
claims
1. Exact fulfillment (specific performance) with the right to
damages;
2. Pursue the leviable (not exempt from the attachment under
the law) property of the debtor;
3. “After having pursued the property in possession of the
debtor,” exercise all the rights (like the right to redeem) and
bring all the actions of the debtor (like the right to collect from
the debtor of his debtor) except those inherent in or personal
to the person of the latter (such as the right to vote, to hold
office, to receive legal support, to revoke a donation on the
ground of ingratitude)
4. Ask the court to rescind or impugn acts or contracts which
the debtor may have done to defraud him when he cannot in
any other manner recover his claim
**The debtor is liable with all his property, present and future,
for the fulfillment of his obligations, subject to the exemptions
provided by law.
Exercise of debtor’s rights
In allowing the creditor to exercise the rights of the debtor, the
following requisites are in order:
1. The creditor has an interest in the right or action not only
because of his credit but because of the insolvency of the
debtor
2. Malicious or negligent inaction of the debtor in the exercise
of his right or action of such seriousness as to endanger the
creditor
3. The credit of the debtor against a third person is certain,
demandable, and liquidated
4. The debtor’s right against the third person must be
patrimonial, or susceptible of being transformed to
patrimonial value for the benefit of the creditor
Accion Subrogatoria
The action which the creditor may exercise in the place of his
negligent debtor. Preserve or recover for the patrimony of the
debtor the product of such action, and then obtain therefrom
the satisfaction of his own credit.
Accion pauliana
Action to set aside or revoke or rescind the acts which the
debtor may have done to defraud the creditor. All acts of the
debtor which reduce his patrimony in fraud of his creditors,
whether by gratuitous or onerous title, can be revoked by this
action.
**But payment of obligations already due, whether natural or
civil, cannot be impugned by an accion pauliana.
Extinguishment of obligations
Payment or performance
1231
Obligations are extinguished:
1. by payment or performance;
2. by loss of the thing due;
3. by condonation or remission of the debt;
4. by the confusion or merger of the rights of the creditor and
debtor;
5. by compensation;
6. by novation.
Other causes of extinguishment of obligations, such as
annulment, rescission, fulfillment of a resolutory condition,
and prescription, are governed elsewhere in this Code.
1232 payment means not only the delivery of the money
but also the performance, in any manner, of an obligation.
Payment may consist of not only in the delivery of money but
also the giving of a thing, the doing of an act, or not doing of
an act. In law, payment and performance are synonymous.
Elements of payment
1. Persons, who may pay and to whom payment may be made;
2. Thing or object in which payment must consist;
3. The cause thereof;
4. The mode or form thereof;
5. The place and time in which it must be made;
6. The imputation of expenses occasioned by it; and
7. The special parts which may modify the same and the effects
they generally produce.
Burden of proving payment
When the debt has been established, the debtor has the
burden of showing, with legal certainty, that the obligation has
been extinguished with payment.
Requirements
1233 a debt shall not be understood to have been paid
unless the thing or service in which the obligation consists has
been completely delivered or rendered, as the case may be.
When debt is considered paid
1. Integrity of the prestation – a debt is not understood to
have been paid unless the thing or service has been completely
delivered or rendered. As a general rule, partial or irregular
performance will not produce the extinguishment of the
obligation.
2. Identity of the prestation – that the very prestation due
must be delivered or performed.
Substantial performance
1234 if the obligation has been substantially performed in
good faith, the obligor may recover as though there has been
a strict and complete fulfillment, less damages suffered by the
obligee.
Recovery allowed in case of substantial performance in good
faith – generally, partial or irregular performance will not
produce the extinguishment of the obligation. An exception is
that if there has been substantial performance done in good
faith. Recovery is allowed.
Requisites for application
1. There must be substantial performance. Its existence
depends upon the circumstances of each case.
2. The obligor must be in good faith.
** There is substantial performance or compliance when there
is “compliance with the essential requirements, whether of a
contract or statute.”
** If the breach is of inconsequential nature that causes no
serious harm to the obligee, the law deems the performance
as substantial, making it the obligee’s duty to pay.
** The application of this principle is inappropriate when the
incomplete performance constitutes a material breach of the
contract and is not merely slight or technical and unimportant
Incomplete/irregular performance
1235 when the obligee accepts the performance, knowing
its incompleteness or irregularity, and without expressing any
protest or objection, the obligation is deemed fully complied
with.
Recovery allowed when incomplete or irregular performance
waived – generally, partial or irregular performance does not
extinguish an obligation. However, in case of acceptance, the
law considers that the creditor waives his right. Recovery is
allowed.
Requisites for application
1. The obligee knows that the performance is incomplete or
irregular; and
2. He accepts the performance without expressing any protest
or objection.
To “accept” – to take as “satisfactory or sufficient,” or to “give
assent to,” or to “agree” or “accede” to an incomplete or
irregular performance. The mere receipt of incomplete
performance does not amount to acceptance of the same.
Form of protest of creditor – so long as the acts of the creditor,
at the time of the incomplete or irregular payment by the
debtor, or within a reasonable time thereafter, evince that the
creditor is not satisfied or agreeable to said payment or
performance, the obligation shall not be deemed extinguished.
** Protest may be implied or expressly stated.
Partial prestations
1248 Unless there is an express stipulation to that effect,
the creditor cannot be compelled partially to receive the
prestations in which the obligation consists. Neither may the
debtor be required to make partial payments.
However, when the debt is in part liquidated and in part
unliquidated, the creditor may demand and the debtor may
effect the payment of the former without waiting for the
liquidation of the latter.
Complete performance of the obligation necessary – the
object of the obligation must be performed in one act, not in
parts. The creditor may accept, but he cannot be compelled to
accept partial performance. The debtor has the duty to comply
with the whole obligation but he cannot be compelled to make
partial performance if he does not wish to do so.
When partial performance of the obligation is allowed
1. When there is an express stipulation to that effect.
2. When the debt is in part liquidated and in part unliquidated.
3. in obligations which comprehend several distinct
prestations. (The prestations doesn’t need to be executed
simultaneously, but each successive execution thereof must be
complete.)
4. When the parties know that the obligation reasonably
cannot be expected to be performed completely at one time;
and
5. When there is abuse of right or if good faith requires
acceptance.
Limitation of abuse of right – since the creditor cannot be
compelled to accept partial performance, the creditor who
refuses to accept partial prestations does not incur in delay or
mora accipiendi, except when there is abuse of right or if good
faith requires acceptance.
Test of abuse of right – there is an abuse of right when it is
exercised for the only purpose of prejudicing or injuring
another. (Although not unlawful, it is anti-social)
The exercise of a right must be in accordance with the purpose
for which it was established, must not be excessive or unduly
harsh, and there must be no intention to injure another.
Payment by third party
1236 the creditor is not bound to accept payment or
performance by a third person who has no interest in the
fulfillment of the obligation, unless there is a stipulation to the
contrary.
Whoever pays for another may demand form the debtor what
he has paid, except that if he paid without knowledge or
against the will of the debtor, he can recover only insofar as
the payment has been beneficial to the debtor.
Persons from whom the creditor must accept payment
1. The debtor;
2. Any person who has an interest in the obligation (like a
guarantor); or
3. A third person who has no interest in the obligation but
there is a stipulation that he can make payment.
Creditor may refuse to accept payment by a third person –
the Commission believes that the creditor should have the
right to insist on the liability of the debtor
Effect of payment by a third person – such payment would
produce an enforceable right in favor of the third person who
made the payment.
1. If made without the knowledge or against the will of the
debtor – the third person may only recover up to the extent or
amount of the debt at the time of payment.
2. If made with the knowledge of the debtor – the payer shall
have the rights of reimbursement and subrogation. To recover
what he has paid and to acquire all the rights of the creditor.
1237 whoever pays on behalf of the debtor without the
knowledge or against the will of the latter, cannot compel the
creditor to subrogate him in his rights, such as those arising
from a mortgage, guaranty, or penalty.
Right of third person to subrogation – May there be
subrogation, if the creditor willingly permits the payor to be
subrogated in his rights? Since 1237 is for the benefit of the
debtor, the subrogation can only take place with his consent.
Subrogation and reimbursement distinguished
1. In subrogation, the person who pays for the debtor is put in
the shoes of the creditor. The payer acquires all the rights
which the original creditor could have exercised pertaining to
the credit.
2. In reimbursement, the third person entitled by reason of
payment has merely the bare right to be refunded only insofar
as the payment has been beneficial to the debtor.
1238 payment made by a third person who does not intend
to be reimbursed by the debtor is deemed to be a donation,
which requires the debtor’s consent. But the payment is in any
case valid as to the creditor who has accepted it.
Payment by a third person who does not intend to be
reimbursed – no one should be compelled to accept the
generosity of another. The payment of a person who does not
intend to be reimbursed requires the consent of the debtor 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 consent.
Incapacity to pay
1239 in obligations to give, payment made by one who
does not have the free disposal of the thing due and capacity
to alienate it shall not be valid, without prejudice to the
provisions of Article 1427 under the Title on “Natural
Obligations.”
Meaning of free disposal of the thing due and capacity to
alienate
1. Free disposal of the thing due means that the thing to be
delivered must not be subject to any claim or lien or
encumbrance of a third person.
2. Capacity to alienate means that the person is not
incapacitated to enter into contracts and to make a disposition
of the thing due.
Free disposal of the thing due and capacity to alienate
required – as a general rule, payment by one who does not
have the free disposition of the thing due or capacity to
alienate is not valid. This means that the thing paid can be
recovered.
Payment by recipient
1240 payment shall be made to the person in whose favor
the obligation has been constituted, or his successor in
interest, or any person authorized to receive it.
Persons to whom payment shall be made
1. Payment shall be made to:
a. The creditor or obligee;
b. His successor in interest; or
c. Any person authorized to receive it.
2. The creditor referred to is the creditor at the time the
payment is to be made, not the one at the constitution of the
obligation. (In subrogation, payment should be made to the
new creditor.)
Payment to the wrong person – the obligation is not
extinguished as to the creditor who is without fault or
negligence even if the debtor acted in utmost good faith or by
mistake; or through error induced by fraud of a third person.
Meaning of “any person authorized to receive it” – a person
authorized by law to receive payment such as a guardian,
executor or administrator of the estate of a deceased, and
assignee or liquidator of a partnership or corporation as well
as any other person so authorized.
Payment to incapacitated/third person
1241 payment to a person who is incapacitated to
administer his property shall be valid if he has kept the thing
delivered, or insofar as the payment has been beneficial to
him.
Payment to a third person shall also be valid insofar as it has
redounded to the benefit of the creditor. Such benefit to the
creditor need not be proved in the following cases:
1. If after the payment, the third person acquires the
creditor’s rights;
2. If the creditor ratifies the payment to the third
person;
3. If by the creditor’s conduct, the debtor has been led
to believe that the third person had authority to receive the
payment.
Effect of payment to an incapacitated person – not valid
unless such incapacitated person has kept the thing paid or
delivered, or was benefited by the payment. Proof of such
benefit is incumbent upon the debtor who paid.
Effect of payment to a third person – not valid except insofar
as it has redounded to the benefit of the creditor. (Even if the
debtor acted in good faith and by mistake as to who payment
should be made, or through error induced by a fraudulent third
person if the creditor acted without fault or negligence.)
That the creditor benefited by payment made by the debtor to
a third person is not presumed. It must be proved by the
person interested in proving such fact.
When benefit to the creditor need not be proved by the
debtor
1. Subrogation of the payer in the creditor’s rights;
2. Ratification by the creditor; or
3. Estoppel on the part of the creditor.
Payment to possessor of credit
1242 payment made in good faith to any person in
possession of the credit shall release the debtor.
Payment to third person in possession of credit – the
“possession” referred to is the possession of the credit itself
and not merely of the document or instrument evidencing the
credit. Furthermore, the debtor, in making payment, must act
with good faith.
Payment after judicial order to retain
1243 Payment made to the creditor by the debtor after the
latter has been judicially ordered to retain the debt shall not
be valid.
When payment to creditor not valid – in an action against the
debtor who is the creditor of another, the latter (debtor-
stranger), during the pendency of the case, may be ordered to
retain his debt until the right of the plaintiff. The creditor in the
main litigation, is resolved. If payment was still made by the
debtor-stranger, such payment will be considered one made in
bad faith.
Garnishment of debtor’s credit – the proceeding for the
purpose of subjecting a debtor’s credit to the payment of his
debt to another is known as garnishment. Garnishment is in
the nature of an involuntary novation by the substitution of
one creditor for another.
Substitution of prestation
1244 The debtor of a thing cannot compel the creditor to
receive a different one, although the latter may be of the same
value as, or more valuable than that which is due.
In obligations to do or not to do, an act of forbearance cannot
be substituted by another act of forbearance against the
obligee’s will.
Very prestation due must be complied with – the first
paragraph refers to a real obligation to deliver a determinate
thing. A different thing cannot be offered or demanded against
the will of the creditor or the debtor respectively. The second
paragraph refers to personal obligations. The act to be
performed or the act prohibited cannot be substituted against
the obligee’s will.
When prestation may be substituted – substitution can be
made if the obligee consents. In facultative obligations, the
debtor is given the right to render another prestation in
substitution.
Dation in payment
1245 Dation in payment, whereby property is alienated to
the creditor in satisfaction of a debt in money, shall be
governed by the law of sales.
Special forms of payment
Four special forms of payment under the New Civil Code
1. Dation in payment;
2. Application of payments;
3. Payment by cession;
4. Tender of payment and consignation.
Meaning of dation in payment
Adjudication or dacion en pago is the conveyance of ownership
of a thing by the debtor to creditor as an accepted equivalent
of performance of a monetary obligation.
Requisites of dation in payment
1. There must be performance of the prestation in lieu of
payment (animo solvendi). This may consist in the delivery of
a corporeal thing or a real right or credit against a third person;
2. There must be some difference between the prestation due
and that which is given in substitution (aliud pro alio); and
3. There must be an agreement between the creditor and the
debtor that the obligation is immediately extinguished by
reason of the performance of a prestation different from that
due.
Nature of dation in payment
1. A specie of sale – the creditor is, in essence, buying the thing
or property of the debtor, payment of which is to be charged
against the debtor’s debt.
2. Objective novation of obligation – presupposes an existing
debt which is extinguished to the extent of the value of the
thing delivered or totally, if that is the intention of the parties.
(Since the object of the obligation has changed)
Governing law
The law of sales governs because a dation in payment is
considered a specie of sale in which the amount of the debt
becomes the price of the thing alienated.
Sale distinguished from dation in payment
Sale Dation in payment
No pre-existing credit There is pre-existing credit
Obligations are created Obligations are extinguished
An acquisition of a thing sold An acquisition of a thing in
lieu of credit
More freedom in fixing the
price
The buyer still has to pay the The payment is received
price before the contract is
perfected, which is to be
charged against the debtor’s
debt
Buyer-seller relationship Debtor-creditor relationship
Transmission of ownership to creditor
Transmission of ownership is an essential element of dacion en
pago. Where possession of a thing is for the purpose of
securing compliance of a debt, no dacion en pago is
accomplished.
Same Quality
1246 when the obligation consists in the delivery of an
indeterminate or generic thing, whose quality and
circumstances have not been stated, the creditor cannot
demand a thing of superior quality. Neither can the debtor
deliver a thing of inferior quality. The purpose of the obligation
and other circumstances shall be taken into consideration.
Rule of the medium quality – it is a principle of equity in that
it supplies justice in cases where there is lack of precise
declaration in the obligation of the quality or kind of thing to
be delivered.
**The benefit of this article may be waived by the creditor by
accepting a thing of inferior quality and by the debtor by
delivering a thing of superior quality.
Extrajudicial expenses
1247 unless it is otherwise stipulated, the extra-judicial
expenses required by the payment shall be for the account of
the debtor. With regard to judicial costs, the Rules of Court
shall govern.
Debtor pays for extrajudicial expenses – the obligation is
extinguished when payment is made and it is, therefore, the
debtor who is primarily benefited.
**1247 does not apply to expenses incurred by the creditor in
going to the debtor’s domicile to collect.
Losing party generally pays judicial costs – judicial costs are
the statutory amounts allowed to a party to an action for his
expenses incurred in the action. As a general rule, the costs of
an action shall be paid by the losing party.
**No costs are allowed against the Government, unless
otherwise provided by law.
Payment currency and value
1249 par1 the payment of debts in money shall be
made in the currency stipulated, and if it is not possible to
deliver such currency, then in the currency which is legal
tender in the Philippines.
Payment of debts in money payable in Philippine currency –
the phrase “currency stipulated” refers to money different
from that which is legal tender or legally current in the
Philippines.
Meaning of legal tender – that currency which a debtor can
legally compel a creditor to accept in payment of a debt in
money when tendered by the debtor in the right amount.
Legal tender in the Philippines – all coins and notes issued by
the Bangko Sentral ng Pilipinas constitute legal tender for all
debts, both public and private.
**BSP Circular No. 537 – the maximum amount of coins to be
considered legal is as follows:
1. P1,000 for denominations of P1, P5, and P10 coins.
2. P100 for denominations of P.01, P.05, P.10, and P.25 coins.
1250 in case an extraordinary inflation or deflation of the
currency stipulated should supervene, the value of the
currency at the time of the establishment of the obligation
shall be the basis of payment, unless there is an agreement to
the contrary.
Meaning of inflation and deflation
Inflation – a sharp sudden increase of money or credit or both
without a corresponding increase in business transactions. An
increase in the volume of money and credit relative to
available goods resulting in a substantial and continuing rise in
the general price level.
Deflation – the reduction in volume and circulation of the
available money or credit, resulting in a decline of the general
price level; it is the opposite of inflation.
Requisites for application
1. There is an official declaration of extraordinary inflation or
deflation from the Bangko Sentral ng Pilipinas.
2. The obligation is contractual in nature; and
3. The parties expressly agreed to consider the effects of the
extraordinary inflation or deflation.
Need for stipulation to consider effects of extraordinary
inflation or deflation.
Where a contractual obligation is involved – a contractual
agreement is needed for the effects of extraordinary inflation
or deflation to be taken into account to alter the value of the
currency. 1250 is applicable only to cases where a contract or
agreement is involved. The parties must agree to recognize the
effects of extraordinary inflation or deflation.
Where no contractual obligation is involved – the article does
not apply where the obligation to pay arises from other
sources independent of contract.
Basis of payment in case of extraordinary inflation or
deflation – the purchasing value of the currency stipulated at
the time of the establishment of the obligation shall be the
basis of payment.
**The burden of proving that there had been extraordinary
inflation/deflation rests upon the party alleging it.
When inflation or deflation extraordinary
Factual basis of its occurrence requires proof – the
supervening of extraordinary inflation or deflation is never
assumed. The party alleging it must lay down the factual basis
for the application of 1250.
Suggested test – an inflation or deflation “that neither party
had reason to foresee when the obligation was established” or
“manifestly beyond the contemplation of the parties” at the
time of the establishment of the obligation.
** Extraordinary inflation or deflation is said to exist where
there is an unimaginable increase or decrease in the
purchasing power of the Philippine currency, or fluctuation in
the value of pesos which could not have been reasonably
foreseen or was manifestly beyond the contemplation of the
parties at the time of the establishment of the obligation.
Devaluation and depreciation distinguished
Devaluation – an official reduction in the value of one currency
from an officially fixed level imposed by monetary authorities.
Depreciation – the downward change in the value of on
currency in terms of the currencies of other nations which
occurs as a result of market forces in the foreign exchange
market.
Payment in negotiable instruments
1249 Par 2 & 3 the delivery of promissory notes
payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when
they have been cashed, or when through the fault of the
creditor they have been impaired.
In the meantime, the action derives from the original
obligation shall be held in abeyance.
Payment by means of instruments of credits
Right of creditor to refuse or accept – instruments of credits
are not legal tender and therefore, the creditor cannot be
compelled to accept them.
- The creditor may accept them without the acceptance
producing the effect of payment. In the meantime, the
demandability of the original obligation is suspended until the
payment by the commercial document is actually realized. The
creditor must cash the instrument, and if it is dishonored,
that’s when he can bring an action for non-payment of the
debt.
Effects on obligation – payment by means of mercantile
documents does not extinguish the obligation –
a. Until they have been cashed; or
b. Unless they have been impaired through the fault
of the creditor.
** The delivery of the paper or document shall produce the
effect of a valid payment only when either situation has taken
place.
Applicability of impairment clause of 1249
Instruments executed by third persons or by debtor himself –
par 2 is applicable not only to those instruments executed by
third persons, which the debtor delivers to the creditor, but
also to a note executed by the debtor himself and delivered to
the creditor.
Only to instruments executed by third persons – the clause
relative to the impairment of the negotiable character of
commercial paper by fault of the creditor is applicable only to
those executed by third persons and delivered by the debtor
to the creditor.
Duty of payee accepting a check – acceptance of a check
implies an undertaking of due diligence on the part of the
payee in presenting it for payment. If no such presentment was
made, the drawer cannot be held liable irrespective of loss or
injury sustained by the payee.
Interest and installments
1176 the receipt of the principal by the creditor, without
reservation with respect to the interest, shall give rise to the
presumption that said interest has been paid.
The receipt of a later installment of a debt without reservation
as to prior installments, shall likewise raise the presumption
that such installment have been paid.
Meaning of presumption – the inference of a fact not actually
known but arose from its usual connection with another which
is known or proved.
Two kinds of presumption
Conclusive presumption – one which cannot be contradicted.
Ie everyone is presumed to know the law.
Disputable presumption – one which can be contradicted by
presenting proof to the contrary.
When presumptions in 1176 do not apply
With reservation as to interest – where there is a reservation
as to interest or prior installments. The reservation may be
made in writing or verbally.
Receipt for part of principal – refers to receipt of the last
installment of the entire capital. Not to a mere fraction
thereof. A receipt for a part of the principal, without
mentioning the interest, merely implies that the creditor
waives his right to apply the payment first to the interest and
then to the principal. Only when the principal is fully receipted
for may failure to reserve the claim for interest give rise to the
presumption that said interest has been paid.
Receipt without indication of particular installment paid – the
presumption in par 2 id not applicable if the receipt does not
recite that it was issued for a particular installment due as
when the receipt is only dated.
Payment of taxes – 1176 does not apply to the payment of
taxes. Taxes payable by the year are not installments of the
same obligation.
Non-payment proven – 1176 is not applicable where the non-
payment of the prior obligations has been proven. Proven fact
> presumption pro tanto.
Place of payment
1251 payment shall be made in the place designated in the
obligation.
There being no express stipulation, and if the undertaking is to
deliver a determinate thing, the payment shall be made
wherever the thing might be at the moment the obligation was
constituted.
In any other case the place of payment shall be the domicile of
the debtor.
If the debtor changes his domicile in bad faith or after he as
incurred in delay, the additional expenses shall be borne by
him.
These provisions are without prejudice to venue under the
Ruled of Court.
Place where obligation shall be paid
Rules regarding the place for the payment of an obligation:
1. If there is a stipulation, the payment shall be made in the
place designated.
2. If there is no stipulation and the thing to be delivered is
specific, the payment shall be made at the place where the
thing was, at the perfection of the contract.
3. If there is no stipulation and the thing to be delivered is
generic, the place of payment shall be the domicile of the
debtor. ** The creditor bears the expenses in going to the
debtor’s place to accept payment – unless the change in
domicile is in bad faith or after he has incurred in delay.
Application of payments
1252 He who has various debts of the same kind in favor of
one and the same creditor, may declare at the time of making
the payment, to which of them the same must be applied.
Unless the parties so stipulate, or when the application of
payment is made by the party for whose benefit the term has
been constituted, application shall not be made as to debts
which are not yet due.
If the debtor accepts from the creditor a receipt in which an
application of the payment is made, the former cannot
complain of the same, unless there is a cause for invalidating
the contract.
Meaning of application of payments – the designation of the
debt to which should be applied the payment made by a
debtor who has various debts of the same kind in favor of one
and the same creditor.
Requisites of application of payments:
1. One debtor and one creditor;
2. Two or more debts;
3. The debts must be of the same kind;
4. The debts must be already due and demandable; and
5. The payment made is not enough to cover all the debts.
Application as to debts not yet due cannot be made unless:
1. There is a stipulation that the debtor may so apply; or
2. It is made by the debtor or creditor, as the case may be, for
whose benefit the period has been constituted.
Rules on application of payments
1. The debtor has the first choice; indicating at the time of
payment which debt he intends to pay.
2. The right to make the application once exercised is
irrevocable unless the creditor consents to the change.
3. If the debtor doesn’t apply payment, the creditor may make
the designation by 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 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 proportionately.
6. If neither party has exercised its option and there is
disagreement on application, the courts will apply the
payment according to the justice and equity of the case.
** The rules only apply to several debts of the same kind to a
single creditor. Not applicable to a person whose obligation as
a mere surety.
1253 if the debt produces interest, payment of the principal
shall not be deemed to have been made until the interests
have been covered.
Interest earned paid ahead of principal
Rule is mandatory – the debtor cannot choose to credit his
payment to the principal before the interest is paid. The
payment must first be applied to the interest and whatever
balance is left, credited to the principal.
** Rule subject to waiver
** It is the duty of the creditor to inform the debtor of the
amount of interest that falls due and that he is applying the
payments to cover said interest.
** A creditor who accepts payment from a surety of the
amount of a bond does not thereby waive his right to recover
from the debtor the interest due on said amount.
1254 When the payment cannot be applied in accordance
with the preceding rules, or if application cannot be inferred
from other circumstances, the debt which is most onerous to
the debtor, among those due, shall be deemed to have been
satisfied. Dation in payment Payment by cession
If the debts due are of the same nature and burden, the Usually only one creditor There are several
payment shall be applied to all of them proportionately. creditors
Does not presuppose the The debtor is insolvent at
Application where preceding rules cannot be applied or insolvency of the debtor the time of assignment
inferred Does not involve all the Extends to all the property
properties of the debtor of the debtor subject to
When a debt more onerous than another – A debt is more execution
onerous than another when it is more burdensome to the The creditor becomes the The creditors only acquire
debtor. owner of the thing given the right to sell the thing
An act of novation Not an act of novation
- An interest-bearing debt is more onerous than a non-interest
bearing debt.
Both are substitute forms of payment. They are
- A debt as a sole debtor is more onerous than as a solidary
governed by the law on sales.
debtor.
- All things being equal, older debts are more onerous.
Tender of payment and consignation
- Debts secured by a mortgage or by a pledge are more onerous
1256 If the creditor to whom tender of payment has been
than unsecured debts.
made refuses without just cause to accept it, the debtor shall
- Of two interest-bearing debts, the one with the higher rate is
be released from responsibility by the consignation of the
more onerous.
thing or sum due.
- An obligation with a penalty clause is more onerous than one
Consignation alone shall produce the same effect in the
without.
following cases:
1. When the creditor is absent or unknown, or does not appear
Where debts subject to different burdens – suppose the debts
at the place of payment;
cannot definitely be determined which is more onerous to the
2. When he is incapacitated to receive the payment at the time
debtor, payment should be applied to all of them
it is due;
proportionately.
3. When, without just cause, he refuses to give a receipt;
4. When two or more persons claim the same right to collect;
Payment by Cession
5. When the title of the obligation has been lost.
1255 The debtor may cede or assign his property to his
creditors in payment of his debts. This cession, unless there is
Meaning of tender of payment and consignation
stipulation to the contrary, shall only release the debtor from
responsibility for the net proceeds of the thing assigned. The
Tender of payment – the act, on the part of the debtor, of
agreements which, on the effect of the cession, are made
offering to the creditor the thing or amount due. The debtor
between the debtor and his creditors shall be governed by
must show that he has in his possession the thing or money to
special laws.
be delivered at the time of the offer. It is an act preparatory to
consignation and from which are derived the immediate
Meaning of payment by cession – it is the assignment or
consequences which the debtor desires or seeks to obtain.
abandonment of all the properties of the debtor for the benefit
of his creditors in order that the latter may sell the same and
Consignation – the act of depositing the thing or amount due
apply the proceeds thereof to the satisfaction of their credits.
with the proper court when the creditor does not desire, or
refuses to accept payment, or cannot receive it, after
Requisites of payment by cession
complying with the formalities required by law. It is necessarily
1. There must be two or more creditors;
judicial and it generally requires a prior tender of payment
2. The debtor must be (partially) insolvent;
which, by its very nature, extra-judicial.
3. The assignment must involve all the properties of the
debtor; and
Nature of and rationale for consignation
4. The cession must be accepted by the creditors.
1. A facultative remedy – A remedy which the debtor may or
may not avail of.
Effect of payment by cession – unless there is stipulation to
a. The law allows the debtor to withdraw the thing or
the contrary, the assignment does not make the creditors the
sum deposited before acceptance by the creditor or
owners of the property of the debtor and the debtor is
cancellation by the court.
released from his obligation only up to the net proceeds of the
b. No one can compel the debtor to make use of such
sale of the property assigned. (1255) In other words, the
remedy. If the debtor refuses, the creditor must fall back on
debtor is still liable if there is a balance.
the proper coercive processes provided by law to secure his
credit.
2. Avoidance of greater liability – produces the effect of
payment and extinguishes an obligation. (to a certain extent)
The rationale for this remedy is to avoid performance of an
obligation more onerous to the debtor by reason of causes not
imputable to him.
a. Failure to consign the thing or amount due may
render the debtor liable for damages and/or interest. But such
failure is not a breach of contract whereby the fact of
tendering payment, he was willing and able to comply with his
obligation.
b. However, although a defective consignation is
made by the debtor, the running of interest on an obligation is
suspended by the offer and tender of payment.
Requisites of a valid consignation
1. Existence of a valid debt which is due;
2. Tender of payment by the debtor and refusal without
justifiable reason by the creditor to accept it;
3. Precious notice of consignation to persons interested in the
fulfillment of the obligation;
4. Consignation of the thing or sum due with the proper court;
and
5. Subsequent notice of consignation made to the interested
parties.
** The absence of any of the requisites is enough to render the
consignation ineffective.
Existence of a valid debt – Consignation is proper only on
debts which are due. A creditor-debtor relationship must exist
between the parties.
Necessity of making tender of payment and consignation –
Both must be validly done in order for the obligation to be
extinguished. Must not be encumbered by conditions if they
are to produce the intended result of fulfilling the obligation.
Requisites of valid tender of payment -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 intent, ability, and
capability to make good on such offer, which must be absolute
and must cover the amount due.
1. Must comply with the rules on payment.
2. Must be unconditional and for the whole amount
3. Must be actually made. The manifestation of a desire or
intention to pay is not enough. Thus, tender of payment
cannot be presumed by mere inference.
Proof of tender of payment – The tender must be proved by
the debtor in the proper case. In cases where tender is not
required, only prior notice to interested persons need be
proved.
When tender of payment not required – in the 5 cases
mentioned in 1256, tender of payment is not necessary before
the debtor can consign the thing due with the court.
1257 In order that the consignation of the thing due may
release the obligor, it must first be announced to the persons
interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in
consonance with the provisions which regulate payment.
Prior notice to persons interested required – The purpose of
the notice is to give the creditor a chance to reflect on his
previous refusal to accept payment considering that the
expenses of consignation shall be charged to him. In the
absence of prior notice, the consignation, as payment, shall be
void.
Consignation must comply with the provisions on payment
1. Payment should be made in legal tender. The fact that in
previous years, payment in check was accepted does not place
a creditor in estoppel in requiring the debtor to pay his
obligation in cash.
2. Unmistakable evidence on record that the prerequisites of a
valid consignation are present renders court approval or the
obligee’s acceptance of the deposit unnecessary.
Tender of payment of judgement – Tender of payment of the
amount due on a judgement into the court is not the same as
tender of payment of a contractual debt and consignation of
the money due from a debtor to a creditor. The requirements
of 1256-7 are not applicable.
1258 Consignation shall be made by depositing the things
due at the disposal of judicial authority, before whom the
tender of payment shall be proved, in a proper case, and the
announcement of the consignation in other cases.
The consignation having been made, the interested parties
shall also be notified thereof.
Consignation must be with proper judicial authority unless
otherwise prescribed by a special law
1. Tender of payment must be accompanied or followed by
consignation in order that the effects of payment may be
produced.
2. Where an obligor fails to make a consignation after a valid
tender of payment, the court may allow him time to pay the
obligation without rescinding the contract.
3. The consignation has a retroactive effect. The payment is
deemed to have been made at the time of the deposit of the
thing in court or when it was placed at the disposal of the
judicial authority.
Notice to be given to interested parties of consignation made
– After the consignation has been made, the interested parties
must also be notified thereof. This is to enable the creditor to
withdraw the thing or sum deposited or take possession in
case he accepts the consignation.
Consignation applicable only to payment of a debt – Judicial
consignation is an incident to an action to compel acceptance
by the creditor of payment of a debt. It is not applicable where
there is no obligation to pay.
Consignation is not necessary in case where a privilege or right
exists. A contractual debt involves the performance of an
obligation, not merely an exercise of a right or privilege.
Property deposited with court exempt from attachment –
Money deposited with a clerk of court is exempt from
attachment and not subject to execution. It is in custodial egis
and cannot be withdrawn without an express order of the
court.
1259 The expenses of consignation, when properly made,
shall be charged against the creditor.
Liability of creditor for expenses of consignation –
Consignation is made necessary because of the fault or unjust
refusal of the creditor to accept payment. It is but just that the
expenses should be charged against him.
When consignation deemed properly made
1. When the creditor accepts the thing or sum deposited,
without objection, as payment of the obligation.
2. When the creditor questions the validity of the consignation,
and the court, after hearing, declares that it has been properly
made.
3. When the creditor neither accepts nor questions the validity
of the consignation, and the court, after hearing, orders the
cancellation of the obligation.
** The creditor may accept the consignation with reservation
or qualification; he s not barred from raising the claims he
reserved against the debtor.
1260 Once consignation has been duly made, the debtor
may ask the judge to order the cancellation of the obligation.
Before the creditor has accepted the consignation, or before a
judicial declaration that the consignation has been properly
made, the debtor may withdraw the thing or sum deposited,
allowing the obligation to remain in force.
Withdrawal by debtor of thing or sum deposited
1. Withdrawal as a matter of right – only when a) before the
creditor accepts the consignation or b) before a judicial
declaration that the consignation has been properly made. The
obligation shall continue to remain in force and all expenses
are paid by the debtor.
2. Need for a judicial order of restitution – the depositor
cannot recover the thing or sum without an express order of
restitution. A formal complaint must be commenced with the
proper court to provide the venue for the determination of
whether there was valid tender of payment or consignation.
Risk of loss of thing or sum consigned
1. For account of creditor – where all the requisites for a valid
consignation have been complied with, the loss of the thing or
amount consigned occurring without the fault of the debtor is
for the account of the creditor.
2. For account of debtor – if there was no valid consignation,
the loss is suffered by the debtor.
1261 If, the consignation having been made, the creditor
should authorize the debtor to withdraw the same, he shall
lose every preference which he may have over the thing. The
co-debtors, guarantors, and sureties shall be released.
Effect of withdrawal with authority of creditor
1. As far as the debtor and the creditor are concerned, their
relation will remain as they were before acceptance or
cancellation.
2. The solidary debtors are released only from their solidary
liability, but not from their shares of the obligation.
Example:
D is indebted to C in the sum of P10,000 with G as the
guarantor. On the due date of the obligation, D offered
payment but C refused to accept the same. So, D made a
consignation. Subsequently, D withdrew the deposit after
securing the consent of C.
Under 1261, C shall lose whatever preference he may have had
over the amount and G, the guarantor, shall be released.
If D and G are solidarily liable to C, G is released only from his
solidary liability but he is still liable to C for P5,000, his share in
the obligation.
Loss of the thing due
1262 par 1 An obligation which consists in the delivery
of a determinate thing shall be extinguished if it should be lost
or destroyed without the fault of the debtor, and before he has
incurred in delay.
When a thing is considered lost – A thing is lost when it
perishes, goes out of commerce, or disappears. Loss of a
determinate thing is the same as impossibility of performance
in obligations to do.
When loss of a thing will extinguish an obligation to give – the
following requisites must be present:
1. The obligation is to deliver a specific or determinate thing;
2. The loss occurs without the fault of the debtor;
3. The debtor is not guilty of delay.
1266 The debtor in obligation to do shall also be released
when the prestation becomes legally or physically impossible
without the fault of the debtor.
Effect of Impossibility of performance in obligations to do
1. Will result in the extinction of the debtor’s obligation after
restitution of what he may have received, if any, in advance
from the other contracting party. The debtor incurs no liability
for his inability to perform.
2. The impossibility must take place after the constitution of
the obligation because impossible obligations are void.
Kinds of impossibility
1. Physical Impossibility – When the personal qualifications of
the obligor are involved. ie When the obligor dies or becomes
incapacitated to perform. The law does not make any
distinction as to whether or not the obligation can still be
performed by others.
2. Legal Impossibility – The obligation cannot be performed
because it is rendered impossible by provision of law.
Natural impossibility vs impossibility in fact
Natural impossibility – consists in the nature of the thing to be
done and not in the inability of the party to do so; it must
appear that the thing to be done cannot by any means be
accomplished.
Impossibility in fact – the absence of inherent impossibility in
the nature of the thing stipulated to be performed, which is
only improbable or out of the power of the obligor.
** The former goes to the consideration and renders the
contract void. The latter does not.
When loss of a thing will NOT extinguish liability
1262 par 2 When by law or stipulation, the obligor is
liable even for fortuitous events, the loss of the thing does not
extinguish the obligation, and he shall be responsible for
damages. The same rule applies when the nature of the
obligation requires the assumption of risk.
In short:
1. When the law so provides;
2. When the stipulation so provides;
3. When the nature of the obligation requires the assumption
of risk; and
4. Where the obligation to deliver a specific thing arises from a
crime.
1263 In an obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not extinguish
the obligation.
Effect of loss of a generic thing – A generic thing never
perishes, genus nunquam perit. However, even if the thing to
be delivered is generic, if it is confined to a particular class, it
may be considered a determinate thing.
1268 When the debt of a thing certain and determinate
proceeds from a criminal offense, the debtor shall not be
exempted from the payment of its price, whatever may be the
cause for the loss, unless the thing having been offered by him
to the person who should receive it, the latter refused without
justification to accept it.
Effect of fortuitous event where obligation proceeds from a
criminal offense – The obligation subsists except when the
creditor refused o accept the thing, without justification, after
it had been offered to him. The creditor is in mora accipiendi.
The debtor, however, must still exercise due diligence since he
is liable for damages if the loss is due to his fault.
Partial loss
1264 The courts shall determine whether, under the
circumstances, the partial loss of the object of the obligation is
so important as to extinguish the obligation.
Effect of partial loss of a specific thing – partial loss when only
a portion of the thing is lost or destroyed or when it suffers
depreciation or deterioration. The court will decide whether
the partial loss is such as to be equivalent to a complete or total
loss.
Presumption of fault
1265 Whenever the thing is lost in the possession of the
debtor, it shall be presumed 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 does not apply
in case of earthquake, flood, storm or other natural calamity.
Presumption of fault in case of loss of thing in possession of
the debtor
Condonation or Remission of Debt
1270 Condonation or remission is essentially gratuitous,
and requires the acceptance by the obligor. It may be made
expressly or impliedly.
One and the other kind shall be subject to the rules which
govern inofficious donations. Express condonation shall,
furthermore, comply with the rules of donation.
Meaning of condonation or remission – gratuitous
renunciation by the creditor of his right against the debtor
resulting in the extinguishment of the latter’s obligation in its
entirely or in that part of the same to which the renunciation
refers.
Requisites of condonation or remission
1. It must be gratuitous;
2. It must be accepted by the obligor;
3. The parties must have capacity;
4. It must not be inofficious; and
5. If made expressly, it must comply with the forms of
donation.
** Presupposes an obligation which is due and demandable at
the time of remission.
Evidence to prove remission – proved by clearer and more
convincing evidence than what is required to establish
payment.
Remission must be gratuitous – That no equivalent should be
received for the benefit given, otherwise the nature of the act
is changed.
Remission must be accepted by debtor – so that, if the
creditor is authorized to impose upon the debtor favors, the
remission may be converted into an act of humiliation. The
reasons requiring acceptance are fundamental and not limited
to any special form. It is a bilateral act.
Renunciation by creditor of his credit – Allowed even against
the will of the debtor. Such amounts to a waiver of rights.
Kinds of remission
EXTENT FORM DATE OF
EFFECTIVITY
Complete Express Inter vivos
Partial Implied Mortis causa
Effect of inofficious remission – As a rule, no one can give
more than that which he can give by will, otherwise, the excess
shall be inofficious and shall be reduced by the court
accordingly.
i.e. Legitime – that part of the testator’s property which he
cannot dispose of because the law has reserved it for certain
heirs.
1271 The delivery of a private document evidencing a
credit, made voluntarily by the creditor to the debtor, implies
the renunciation of the action which the former had against
the latter.
If in order to nullify his waiver it should be claimed to be
inofficious, the debtor and his heirs may uphold it by proving
that the delivery of the document was made in virtue of
payment of a debt.
Presumption in case document of indebtedness voluntarily
delivered by the creditor
1. Presumption of implied remission – if the debt is not yet
paid, the creditor would need the document to enforce
payment. In case he voluntarily delivers it to the debtor, it is
inferred that he is renouncing his right.
2. Contrary evidence – Evidence is admissible to show
otherwise. Intent of delivery may be shown to overturn the
presumption.
3. Extend of remission – if the obligation is joint, the
presumption of remission pertains only to the share of the
debtor who is in possession of the document; if solidary, the
entire obligation.
** Presumption applicable only to private documents.
Payment, not remission of debt
The remission becomes null and void upon proof that it is
inofficious. The debtor or his heirs may prove that the delivery
of the document was really made in virtue of payment of the
debt and not of remission.
The presumption made by 1271 may not be used to prove the
fact of payment since it presumes a remission, not payment.
1272 Whenever the private document in which the debt
appears is found in the possession of the debtor, it shall be
presumed that the creditor has delivered it voluntarily, unless
the contrary is proved.
Presumption in case document found in possession of debtor
– ordinarily, the document evidencing the debt is in the
possession of the creditor. If the document is found in the
possession of the debtor and it is not known how he came into
possession of the same, the presumption is that it was
voluntarily delivered by the creditor which in turn gives the
presumption of remission.
** Presumption of voluntary delivery should give rise to the
presumption of PAYMENT, only WHEN IT IS KNOWN that there
is no payment, then presumption of remission. ** (dicta)
Renunciation of accessory obligations
1273 The renunciation of the principal debt shall extinguish
the accessory obligations; but the waiver of the latter shall
leave the former in force.
Effect of renunciation of principal debt on accessory
obligation – that the accessory follows the principal.
Renunciation of principal = renunciation of accessory.
Renunciation of accessory does not extinguish the principal.
1274 It is presumed that the accessory obligation of pledge
has been remitted when the thing pledged, after its delivery to
the creditor, is found in the possession of the debtor, or of a
third person who owns the thing.
Presumption in case thing pledged found in possession of
debtor – refers to contracts of pledge. That if the thing pledged
is later found in the hands of the debtor or the third person,
only the accessory obligation of pledge is presumed remitted,
not the principal obligation.

Confusion or merger of rights
1275 The obligation is extinguished from the time the
characters of creditor and debtor are merged in the same
person.
Meaning of confusion or merger – the meeting in one person
of the qualities of creditor and debtor with respect to the same
obligation.
Reason or basis for confusion
1. Mode of extinguishing obligations because if a debtor is his
own creditor, enforcement becomes absurd since a person
cannot claim payment from himself.
2. When there is a confusion of rights, the purposes for which
the obligation may have been created are deemed realized.
Requisites for confusion or merger
1. Must take place between the principal debtor and creditor;
2. Must be complete and definite; and
3. Must refer to the same obligation.
Extinction of real rights by confusion – real rights may be
extinguished by merger when any of such rights is merged with
ownership, ownership being the most comprehensive real
right. This is known as consolidation of ownership.
1276 Merger which takes place in their person of the
principal debtor or creditor benefits the guarantors. Confusion
which takes place in their person of any of the latter does not
extinguish the obligation.
Effect of merger in the person of principal debtor or creditor
– Extinguishes the obligation and therefore, also the accessory
obligations. It frees the guarantor.
Effect of merger in the person of guarantor – merger which
takes place in the person of the guarantor, while it extinguishes
the guaranty, it leaves the principal obligation subsisting.
Extinguishment of accessory obligations does not affect the
principal obligation.
1277 Confusion does not extinguish a joint obligation
except as regards the share corresponding to the creditor or
debtor in whom the two characters concur.
Confusion in a joint obligation – Each debtor has his own
creditor to whom he is liable and confusion taking place in the
person of any debtor or creditor does not affect the others.
The confusion will extinguish only the share corresponding to
the creditor or debtor in whom the two characters concur.
Confusion in a solidary obligation – merger in the person of
one of the solidary debtors shall extinguish the entire
obligation because in a solidary obligation there is only one
obligation to which every debtor is responsible for.
** He who makes payment may claim reimbursement from his
co-debtors for the shares which correspond to them. Merger
may grant right of reimbursement in solidary obligations
because it is as if the entire debt has been paid.
Compensation
1278 Compensation shall take place when two persons, in
their own right, are creditors and debtors of each other.
Meaning of compensation – the extinguishment to the
concurrent amount of the debts or obligations of two persons
who, in their own right, are reciprocally principal debtors and
creditors of each other.
Involves the balancing of two obligations in order to totally
extinguish them if they are of the same amount or the extent
in which the amount of on is covered by that of the other.
Object of compensation - the prevention of unnecessary suits
and payments thru the mutual extinction by operation of law
of concurring debts. In short, convenience.
Compensation distinguished from merger or confusion
Compensation Merger/Confusion
Two persons, each of Only one person who is a
whom is a debtor and a creditor and debtor of
creditor of the other. himself.
Two or more obligations Only one obligation
There is indirect payment Impossibility of payment
** There may be compensation in joint and solidary
obligations.
Compensation distinguished from payment
Compensation Payment
Takes effect by operation Takes effect by act of the
of law parties
Not required that the The parties are required
parties have the capacity to have free disposal of
to give or to receive the thing due and capacity
to alienate it, and to
receive payment
The law permits partial It is necessary that
extinguishment of the payment should be
obligation complete and indivisible
Kinds of compensation
1. Effect or extent
a. Total – both obligations are of same amount.
b. Partial – two obligations are of different amounts
and a balance remains.
2. Cause or origin
a. Legal – takes place by operation of law.
 b. Conventional/voluntary – takes place by
agreement of the parties.
c. Judicial – takes place by order from a court. (form
of legal or voluntary compensation)
d. Facultative – when it can be set up only by one of
the parties.
Nature and effect
1281 Compensation may be total or partial. When the two
debts are of the same amount, there is total compensation.
Total and partial compensations – applies to all the different
kinds of compensation. Total compensation results when the
two debts are of the same amount. If they are different
amounts, compensation is total as regards the smaller debts,
partial as regards to the larger debt.
1286 Compensation takes place by operation of law, even
though the debts may be payable at different places, but there
shall be an indemnity for expenses of exchange or
transportation to the place of payment.
Compensation where debts payable at different places –
Applies to legal compensation. Refers to the expenses of
monetary exchange (money debts) and expenses of
transportation (delivery of things). Once the expenses are
liquidated, the debts also become compensable. The
indemnity shall be paid by the person who invokes
compensation.
Example:
A obliged himself to deliver to B 100 Samsung Galaxy S7’s in
Manila. B is also bound to deliver to A 100 Samsung Galaxy S7’s
in Cebu. The expenses for transportation of the phones to
Cebu is P10k and to Manila, P2K.
If A claims compensation, he must indemnify B the amount of
P4k. B paid P8k more than A in the delivery of the goods. If A
indemnifies B for P4k, quits na sila.
1290 When all the requisites mentioned in Article 1279 are
present, compensation takes effect by operation of law, and
extinguished both debts to the concurrent amount, even
though the creditors and debtors are not aware of the
compensation.
Consent of parties not required in legal compensation
1. Compensation occurs automatically by mere operation of
law – from the moment all the requisites mention in Article
1279 concur, legal compensation takes place ipso jure. Even in
the absence of agreement between the parties, it extinguishes
reciprocally both debts to the amount of their respective sums.
It takes place even against the will of the interested parties.
2. Full legal capacity not required – it takes place by mere
operation of law, without need of any act of the parties. It is
not required that the parties have the legal capacity to give or
to receive.
Compensation, a matter of defense – it is usually necessary to
set up compensation as a defense in an action demanding
performance. Once proved, its effects retroact back to the very
day the requisites in Article 1279 concur.
Requisites
1279 In order that compensation may be proper, it is
necessary:
1. That each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other;
2. That both debts consist in a sum of money, or if the things
due are consumable, they be of the same kinds, and also of the
same quality if the latter has been stated;
3. That the two debts are due;
4. That the be liquidated and demandable;
5. That over neither of them there be any retention or
controversy, commenced by third persons and communicated
in due time to the debtor.
Requisites of legal compensation – Absent any showing that
all of these requisites are present, compensation may not take
place. The rights of such creditors and their obligations as such
debtors, need not spring from one and the same contract or
transaction.
1. It is essential that the parties are, IN THEIR OWN RIGHT,
creditors and debtors of each other.
2. No compensation if the debts due are of different things.
(Money to thing, diff thing to diff thing)
3. Due and demandable at the same time, even if incurred on
different dates.
a. When obligation is due on demand, no demand =
not due.
b. A debt which has prescribed is no longer
demandable, unless compensation took place before
prescription. (retroactivity)
c. Natural obligations are not demandable.
4. A debt is liquidated if the amount is known and definite.
a. No compensation when claims are disputed.
b. If claims are undisputed, no proof of liquidation is
required.
c. A claim acknowledged by the debtor is treated as
liquidated.
5. Retention exists when the credit of one of the parties is
subject to the satisfaction of the claim of a third person.
Controversy exists when a third person claims he is the creditor
of one of the parties.
Compensation against the government
1. Taxes – General rule, taxes are governed by special laws and
are not subject to set-offs or compensation. The government
and the taxpayer are not creditors and debtors of each other.
Exception is where both the claims of the government and the
taxpayer against each other have already become due and
demandable as well as fully liquidated.
2. Contractual obligations – may be compensated. However,
both claims must involve the same office, agency, or
subdivision of the government.
Distinguishing feature of a tax – compulsory rather than a
bargain. Tax does not depend upon the consent of the
taxpayer.
1282 The parties may agree upon the compensation of
debts which are not yet due.
Voluntary or conventional compensation – any compensation
which takes place by agreement of the parties even if not all
the requisites for legal compensation are present.
Requisites for voluntary compensation
1. Each of the parties has the right to dispose of the credit he
seeks to compensate; and
2. They agree to the mutual extinguishment of their credits.
Order of compensation
1289 If a person should have against him several debts
which are susceptible of compensation, the rules on the
application of payments shall apply to the order of the
compensation.
Rules on application of payments applicable to order of
compensation – if a debtor has several debts, he must inform
the creditor to which debt he wants to apply compensation.
Otherwise, compensations shall be applied to the most
onerous obligation.
1280 Notwithstanding the provisions of the preceding
article, the guarantor may set up compensation as regards
what the creditor may owe the principal debtor.
Compensation benefits the creditor – This Article is an
exception to the general rule that only the principal debtor can
set up against his creditor what the latter owes him.
Although the guarantor is only subsidiarily liable, he is given
the right to set up compensation.
1283 If one of the parties to a suit over an obligation has a
claim for damages against the other, the former may set it off
by proving his right to said damages and the amount thereof.
Judicial Compensation – Compensation which takes place by
order of a final judgement. A party may set off his claim for
damages against his obligation by proving his right to the
damages and the amount of said damages.
** Both parties must prove their respective claims. In off-
setting, liquidation is an essential requirement.
** A set-off or counterclaim is different from compensation.
The first must be pleaded to be effectual, whereas the second
takes place by mere operation of law.
1284 When one or both debts are rescissible or voidable,
they may be compensated against each other before they are
judicially rescinded or avoided.
Compensation of rescissible or voidable debts – Rescissible
and voidable obligations are valid until they are judicially
rescinded or avoided. Prior to this, the debts may be
compensated against each other.
Example:
A owes B P10k. Subsequently, A, through fraud, was able to
make B sign a promissory note that B is indebted to A for the
same amount.
The debt of A is valid while the debt of B is voidable. Before the
debt of B is nullified, both debts may be compensated against
each other if all the requisites for legal compensation is
present.
Suppose B’s debt was later on nullified by the court, is A still
liable considering that compensation already took effect? Yes.
The effect of annulment is retroactive. It is the same as if there
had been no compensation.
Assignment before compensation
1285 The debtor who has consented to the assignment of
rights made by a creditor in favor of a third person, cannot set
up against the assignee the compensation which would pertain
to him against the assignor, unless the assignor was notified by
the debtor at the time he gave his consent, that he reserved
his right to the compensation.
If the creditor communicated the cession to him but the debtor
did not consent thereto, the latter may set up the
compensation of debts previous to the cession, but not of
subsequent ones.
If the assignment is made without the knowledge of the
debtor, he may set up the compensation of all credits prior to
the same and also later ones until he had knowledge of the
assignment.
Where compensation has taken place after assignment
Three scenarios
1. Assignment is made with the consent of the debtor.
A owes B P3k due on November 15
B owes A P1k due on November 15
B assigned his right to C on November 1 with the
consent of A.
 On November 15, A cannot set up against C the
compensation which would pertain to him against B. A is still
liable to C for P3k but can still collect P1k from B.
However, if A reserved his right to compensation, he is only
liable to C for P2k.
2. Assignment is made without the consent but with the
knowledge of the debtor.
A owes B P1k due on November 1
B owes A P2k due on November 10
A owes B P1k due on November 15
A assigned his right to C on November 12. A notified
B but B refused to give his consent to the assignment. How
much can C collect from B? P1k
B can set up compensation of debts on Nov 10 which
was before the cession. The assignment is valid only up to the
amount of P1k.
B cannot raise the defense of compensation with
respect to the debt due on Nov 15. Hence, on Nov 12, B is liable
to C for P1k and A will still be liable to B for P1k on Nov 15.
** The determining point of time is not the act of cession but
the receipt of the notice of the cession.
3. Assignment is made without the knowledge of the debtor.
Suppose on Nov 12, A assigned his rights to C without
the knowledge of B. B acquired knowledge of the cession on
Nov 16.
B may set up the defense of compensation to both
debts due on Nov 1 and Nov 15.
Where compensation has taken place before assignment –
Compensation takes place by operation of law. If an
extinguished debt by compensation is assigned by the creditor
to a third person, the debtor can raise the defense of
compensation with respect to the debt.
When not applicable
1287 Compensation shall not be proper when one of the
debts arises from a depositum or from the obligations of a
depositary or of a bailee in commodatum.
Neither can compensation be set up against a creditor who has
a claim for support due by gratuitous title, without prejudice
to the provisions of paragraph 2 of Article 301.
1288 Neither shall there be compensation if one of the
debts consists in civil liability arising from a penal offense
Instances when legal compensation not allowed by law
1. Where one of the debts arises from a depositum – a deposit
is constituted from the moment a person receives a thing
belonging to another with the obligation of safely keeping it
and of returning the same.
2. Where one of the debts arises from a commodatum –
commodatum is a gratuitous contract whereby one of the
parties delivers to another something not consumable so that
the latter may use it for a certain time and return it.
3. Where one of the debts arises from a claim for support due
by gratuitous title – Support comprises everything that is
indispensable for sustenance.
4. Where one of the debts consists in civil liability arising from
a penal offense – The satisfaction of a debt arising out of a
penal offense is imperative. The prohibition her pertains only
to the accused, not extending to the victim of the crime.
Novation
1291 Obligations may be modified by:
1. Changing their object or principal conditions;
2. Substituting the person of the debtor;
3. Subrogating a third person in the rights of the creditor.
Meaning of novation – total or partial extinction of an
obligation through the creation of a new one which substitutes
it. It is the substitution or change of an obligation by another.
It partially or totally extinguishes the first one.
Dual function or purpose of novation
1. Mode involves two stipulations – one to extinguish or
modify an existing obligation, and the other to substitute a
new one in its place. It is a relative mode of extinction because
it creates a new one in place of the old which is thus only
“modified.”
a. Extinctive when an old obligation is terminated by
the creation of a new one. When the old and new obligations
are essentially incompatible with each other.
** Certain terms and conditions may be carried from the old
one to the new one, expressly or impliedly.
b. Modificatory where the change is merely
incidental to the main obligation. The new agreement will not
have the effect of extinguishing the first but would merely
supplement it or supplant some but not all of its provisions.
2. Effect dependent on nature of change and intention of the
parties – if the effect is dependent on the nature of the change
in the obligation and the intention of the parties, a novation is
made.
Kinds of novation
1. Origin
a. Legal – operation of law
b. Conventional – agreement of the parties.
2. How it is constituted
a. Express – declared in unequivocal terms.
b. Implied – old and new obligations are incompatible.
3. Extent or Effect
a. Extinctive – old obligation completely extinguished.
b. Modificatory – old obligation is merely modified.
4. Subject
 a. Real or objective – when the object, or cause, or
principal conditions of the obligation are changed.
b. Personal or subjective – when the person of the
debtor is substituted and/or a third person is subrogated in the
rights of the creditor.
c. Mixed – A.K.A. Subjective + Objective.
Requisites
1292 In order that an obligation may be extinguished by
another which substitutes the same, it is imperative that it be
so declared in unequivocal terms, or that the old and the new
obligation be on every point incompatible with each other.
Requisites of novation
1. Existence of previous valid obligation;
2. Intention or agreement and capacity of the parties to novate
a.k.a consent;
3. Extinguishment or modification of the obligation; and
4. Creation of a valid new obligation.
** In other words, no novation can take place without two
distinct and successive contracts taking place between the
same parties. Modifications introduced in a contract before it
becomes binding is no novation because a pre-existing
obligation is lacking.
Novation of judgement – A final judgement that’s been
executed but not yet fully satisfied may be novated by
compromise. (The agreement supersedes the judgement.)
** This kind of novation may be subject to a suspensive
condition.
Novation with respect to criminal liability – Novation is not a
mode of extinguishing criminal liability. It may, however,
prevent the rise of criminal liability as long as it occurs before
the filing of the criminal information in court. (Areglo nalang)
Novation not presumed – while the general rule is that no
form of words or writing is necessary to give effect to a
novation, the novation must be clearly and unmistakably
established by express agreement or by the acts of the parties
because novation is never presumed. A.K.A. there must be an
intention to novate.
** Even if novation is sufficiently shown, the presumptive rule
is that the conditions attached to an old obligation also attach
to the new obligation. (Unless incompatible)
Ways of effecting conventional novation
Two ways which indicate the presence of novation.
1. Express agreement of the parties or acts which indicate the
intention to novate.
2. Irreconcilable incompatibility of the two obligations in every
material aspect.
To effect a subjective novation, the old debtor/creditor must
be released expressly from the obligation and the new
debtor/creditor assumes his place in the relation.
** No novation if the parties in the new contract are not the
same parties in the old contract.
Burden of showing novation – belongs to the party who
alleges it. The issue of the alleged novation of a contract
involves a question of fact.
Incompatibility between two obligations or contracts
1. Incompatibility in any of the essential elements of obligation
– When novation is not express, incompatibility is required so
as to ensure that the parties have indeed intended such
novation. The incompatibility should take place in:
a. The juridical relation or tie / vinculum juris; or
b. The object or principal conditions; or
c. The subjects.
2. Test of incompatibility – WON the difference between the
two contracts can stand together without conflict. If not, they
are incompatible. The new obligation novates the first.
** The incompatibility must take place in any of the essential
elements of the obligation, otherwise, the change is merely
modificatory.
Effect of modifications of original obligation
1. Slight modifications and variations – they do not abrogate
the entire contract. The original contract continues to be in
force except as the altered terms and conditions of the
obligation are considered to be the essence of the obligation
itself.
2. Material deviations or changes – the original contract is
changed in material aspects so much so that the object or
principal conditions cannot reasonably be recognized as that
originally contracted for.
Expromision and Delegacion
1293 Novation which consists in substituting a new debtor
in the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him
the rights mentioned in Articles 1236 and 1237.
Kinds of personal novation
1. Substitution – when the person of the debtor is substituted;
or
2. Subrogation – when a third person is subrogated in the
rights of the creditor
Kinds of substitution
1. Expromision – that which takes place when a third person,
of his own initiative and without the knowledge or against the
will of the original debtor, assumes the latter’s obligation with
the consent of the creditor. Hence, the old debtor is released
from the obligation.
2. Delegacion – that which takes place when the creditor
accepts a third person to take the place of the debtor at the
instance of the original debtor. In delegacion, all parties must
agree.
** In both kinds, the creditor must give his consent.
Right of new debtor who pays
1. Expromision – payment by the new debtor gives him the
right to beneficial reimbursement under Article 1236 par 2.
2. Delegacion – the new debtor is entitles to reimbursement
and subrogation under Article 1237.
Acceptance by creditor of payment from a third person – It is
not enough that the juridical relation between the original
parties is extended to include a third person. It is essential that
the old debtor is released from his obligation and the new one
takes his place.
Example:
D tells C that X will pay D’s debt. C agrees. This does not
necessarily mean that delegacion took place. But if D tells C
that X will pay D’s debt and that he asks C to release D from
D’s obligation, delegacion results.
If X tells C that he will pay D’s debt and C agrees, there is no
expromision. If X tells C that he will pay D’s debt so that D may
be released from his obligation, expromision takes place.
Consent of creditor necessary in substitution
1. Substitution implies waiver by creditor of his credit – Since a
new debtor substitutes the old one, it implies that the creditor
waives any and all his rights of credit in relation to the old
debtor. This is why consent is necessary.
2. Substitution may be prejudicial to creditor – such prejudice
may take the form of delay in the fulfillment of the obligation,
or contravention of its tenor, or non-performance by the new
debtor. This is why consent is necessary.
3. Creditor has right to refuse payment by third person without
interest in obligation – creditor cannot be compelled to accept
payment or performance by a third person who has no interest
in the fulfillment of the obligation. (Art 1236, par 2)
** Mere acceptance of payment for the benefit of a debtor,
whose obligation the third has assumed, does not constitute
novation. It must be expressly stated that the old debtor be
released from the obligation.
4. Involuntary novation by substitution – this is garnishment. A
third person becomes a “forced intervenor” being required to
pay his debt, not to his former creditor, but to a new one, who
is a creditor in the main litigation. ALWAYS JURIDICAL
Substitute must be placed in the same position of the original
debtor – Since a new debtor takes the place of the old one, it
is necessary that the old one be released from his obligation. It
is not enough if the juridical tie merely extends to another.
Effect where third person binds himself as principal with
debtor
1. Old debtor expressly released from his obligation – THIS IS
ESSENTIAL TO SUBSTITUTION. Novation is never presumed. It
is necessary that the third person should become a debtor in
the same position as the debtor whom he substitutes and that
the old debtor be expressly released from his obligation.
2. Third person binds himself with debtor – The debtor may
allow a third person to participate in the obligation. The mere
circumstance of the creditor receiving payment from a third
party who assumed the obligation of the debtor when there is
clearly no agreement to release the debtor from his
responsibility does not constitute novation.
** If the old debtor is not released, no novation occurs and the
third person who has assumed the obligation of the debtor
becomes merely a co-debtor or a surety or a co-surety who
binds himself as principal with the debtor.
Consequence of Expromision and Delegacion
1294 If the substitution is without the knowledge or against
the will of the debtor, the new debtor’s insolvency or non-
fulfillment of the obligation shall not give rise to any liability on
the part of the original debtor.
1295 The insolvency of the new debtor, who has been
proposed by the original debtor and accepted by the creditor,
shall not revive the action of the latter against the original
obligor, except when said insolvency was already existing and
of public knowledge, or known to the debtor, when he
delegated his debt.
Effect of new debtor’s insolvency or non-fulfillment of the
obligation
1. In expromision – the new debtor’s insolvency or non-
performance will not revive the action of the creditor against
the old debtor. Remember that the old debtor is released from
his obligation by the assumption of another and that in
expromision, the replacement is not made at the initiative of
the original debtor.
2. In delegacion – 1295 only speaks of insolvency. The general
rule is that the old debtor is not liable to the creditor in case of
insolvency of the new debtor.
EXCEPT
a. Said insolvency was already existing and of public
knowledge at the time of the delegacion; or
b. Said insolvency was already existing and known to
the old debtor at the time of the delegacion.
Example
D owes C P1k. D asked C if X could substitute him as debtor. C
agreed. Assume delegacion took place.
If, at the time of the delegacion, X was already insolvent but
his insolvency was neither of public knowledge nor known to
D, then D is not liable.
What if C knew of X’s insolvency at the time of the delegacion
and despite of this, C still agreed? D is not liable.
Effect on Accessory Obligations
1296 When the principal obligation is extinguished in
consequence of a novation, accessory obligations may subsist
insofar as they may benefit third persons who did not give their
consent.
Effect of novation on accessory obligations - 1296 follows the
general rule. That extinguishment of the principal obligation
carries with it the accessory obligations. However, it provides
the exception – that accessory obligations created in favor of
third persons subsists unless such third person gave their
consent to the novation.
Example
D owes C P100k with interest at 10%
C owes T P10k
It was agreed that D would pay the interest of P10k to T. (an
accessory obligation in favor to a 3rd party)
Subsequently, D and C executed another contract. That instead
of payment of P100k, D would deliver a Samsung smart TV to
C by way of dation in payment.
- In spite of the novation, the accessory obligation of D to pay
to T the interest of P10k would still subsist unless T consented
to the novation.
Void Obligations
1297 If the new obligation is void, the original one shall
subsist, unless the parties intended that the former relation
should be extinguished in any event.
Effect where the new obligation is void – one of the essential
requisites to novation is a valid new obligation. If that new
obligation is void, the general rule is that no novation has taken
place and the original obligation still subsists. 1297 provides an
exception – that even if the new obligation is void, if the parties
intended to extinguish the original obligation in any case, the
original obligation won’t subsist.
Effect where the new obligation is voidable – If the new
obligation is merely voidable, novation may take place. But the
moment it gets annulled, the novation must be considered as
not having taken place – unless 1297 triggers.
1298 The novation is void if the original obligation was void,
except when annulment may be claimed only by the debtor, or
when ratification validates acts which are voidable.
Effect where the old obligation is void or voidable – A void
obligation can’t be novated because there is nothing to novate.
However if the old obligation is merely voidable, or if such
voidable obligation is ratified, the novation is valid.
Example
D agreed to deliver to C an ounce of the devil’s lettuce. Later
on, it was agreed that D would pay P100k to C instead of
delivering the drugs.
- The novation is void because the original obligation is void.
D was induced by fraud committed by C to sign a contract
which obligated D to deliver an ROG laptop to C. (here is a
voidable obligation)
Later on, D and C agreed that instead of an ROG laptop, D
would pay C P100k. (a novation)
- The original obligation is voidable. Since D hasn’t annulled it,
the subsequent novation is valid.
- If D, prior to the novation, confirmed his obligation to deliver
an ROG laptop to C, his ratification cleanses the contract of its
defects and makes it a valid obligation. Hence, the subsequent
novation is also valid.
If the novation takes place by expromision – the old debtor,
in case the new debtor brings an action for reimbursement
against him, may avail himself of the defense of the nullity of
the original obligation.
Prescription – A prescribed debt cannot be enforced by the
creditor. However, if a new contract is executed recognizing
and enforcing the payment of the prescribed debt, the
novation which took place is now valid and the prescribed debt
is now enforceable.
Conditional obligations
1299 If the original obligation was subject to a suspensive
or resolutory condition, the new obligation shall be under the
same condition, unless otherwise stipulated.
Where original obligation is subject to a condition – If the
original obligation is subject to a suspensive or resolutory
condition, the general rule is that a valid novation carries the
same conditions to the new obligation, unless stipulated
otherwise.
Suspensive example
D is obligated to bring C to the club if C passes the bar. Later
on, C says to D “wag nalang club, sagot mo nalang inuman.”
The condition of C passing the bar is carried to the new
obligation of D to make libre the inuman.
Resolutory example
D is obligated to help C pass the bar by providing samplexes
from different schools. D’s obligation ceases when C takes the
bar.
Later on, C says to D “marami na akong samplex, libre mo
nalang inuman tuwing iinom tayo”
D’s new obligation to make libre the inuman tuwing iinom sila
also ceases when C takes the bar.
Kinds of Subrogation
1300 Subrogation of a third person in the rights of the
creditor is either legal or conventional. The former is not
presumed, except in cases expressly mentioned in the Code;
the latter must be clearly established in order that it may take
effect.
What is Subrogation?
It is the substitution of one person in place of another with
reference to a lawful claim or right. The subrogee “inherits”
the rights of the subrogor in relation to a debt or a claim,
including its remedies and securities.
Contemplates full substitution. It places the subrogee in the
shoes of the subrogor.
Kinds of Subrogation
1. Conventional – subrogation which takes place by express
agreement of the parties, and of the eventual subrogee.
2. Legal – subrogation which takes effect by operation of law
or by judgement of the court.
** Conventional subrogation must be clearly established. Legal
subrogation may not be presumed except in cases provided by
law.
Conventional Subrogation
1301 Conventional subrogation of a third person requires
the consent of the original parties and of the third person.
Consent of all parties required in conventional subrogation
Why?
1. Debtor – because he becomes liable to a new creditor.
2. Subrogor – because his right against the debtor is
extinguished.
3. Subrogee – because he may dislike or distrust the debtor.
Conventional subrogation distinguished from assignment of
credit
Conventional Subro Assignment of credit
Credit is extinguished and The same credit is
a new one is created. transferred from one
person to another.
Consent of the debtor is Mere notice to the debtor
required for it to take is required for it to take
effect. effect.
Effects begin from the Effects begin from the
time all parties give their date of notification.
consent.
The nullity or defects of The nullity or defects of
the original obligation the obligation is not
may be cured by the remedied by the transfer
novation. of credit.
Both are governed by different rules
Legal Subrogation
1302 It is presumed that there is legal subrogation when:
1. When a creditor pays another creditor who is preferred,
even without the debtor’s knowledge;
2. When a third person, not interested in the obligation, pays
with the express or tacit approval of the debtor;
3. When, even without the knowledge of the debtor, a person
interested in the fulfillment of the obligation pays, without
prejudice to the effects of confusion as to the latter’s share.
** In the three cases enumerated, legal subrogation takes
place by operation of law even without the consent of the
parties. ALWAYS PRODUCED BY PAYMENT
When a creditor pays another creditor who is preferred
D owes C P10k secured by a car as chattel mortgage.
D also owes T P20k. This debt is unsecured.
C is the preferred creditor. C has preference to payment with
respect to the car as against T who is only an ordinary creditor.
If T pays the debt of D to C, T will be subrogated in C’s right so
that he can have the mortgage foreclosed in case D fails to pay
the P10k debt. Gets? (NOTE may utang parin si D kay T na P20k.
Bale D owes P20k and P10k to T.)
When a third person without interest in the obligation pays
with the approval of the debtor
D owes C P10k.
G pays C P10k with the consent of D.
G will be subrogated in the rights of C.
D’s obligation to pay C P10k is extinguished, and a new
obligation is created where D is now obligated to pay G P10k.
When a third person with interest in the obligation pays even
without the knowledge of the debtor
Suppose G is the guarantor of D. – G is now interested in the
fulfillment of D’s obligation to C.
If G pays C, even without the knowledge of D, G is subrogated
in the rights of C. Confusion takes place in the person of G –
the guaranty is extinguished but the principal obligation still
subsists.
D and G are joint debtors of C for the amount of P10k.
If D pays C P10k, even without the knowledge of G, D will now
become the creditor of G in the amount of P5k (G’s share of
the debt.) D’s share is extinguished by confusion.

Effect of Subrogation
1303 Subrogation transfers to the person subrogated the
credit with all the rights thereto appertaining, either against
the debtor or against third persons, be they guarantors or
possessors of mortgages, subject to stipulation in a
conventional subrogation.
Effect of legal subrogation – it transfers to the new creditor all
the rights and actions that could have been exercised by the
old creditor against all persons interested in the obligation.
Bale iniba lang yung creditor.
** The effects of conventional subrogation may be subjected
to stipulation by the parties.
Partial Subrogation
1304 A creditor, to whom partial payment has been made,
may exercise for the remainder, and he shall be preferred to
the person who has been subrogated in his place in virtue of
the partial payment of the same credit.
Effect of partial subrogation – The creditor to whom partial
payment has been made by the new creditor is still a creditor
but only to the extent of the unpaid balance. In case of
insolvency of the debtor, he is given a preferential right to
recover the remainder as against the new creditor.
Example
D owes C P10k. T pays C P6k with the consent of D.
C is still the creditor of D but only for P4k.
D now also owes T P6k because of partial subrogation.
In case D becomes insolvent, C is the preferred creditor. Dapat
unahing mabayaran si C kesa kay T.
Natural Obligations
1423 Obligations are civil or natural. Civil obligations give a
right of action to compel their performance. Natural
obligations, not being based on positive law but on equity and
natural law, do not grant a right of action to enforce their
performance, but after voluntary fulfillment by the obligor,
they authorize the retention of what has been delivered or
rendered by reason thereof. Some natural obligation are set
forth in the following articles.
** Natural obligations cannot be enforced but it still has
juridical consequences.
Civil obligations distinguished from natural
Civil Natural
Arises from law, Based on equity and
contracts, quasi- natural law. In a sense, it
contracts, delicts, and does not “arise”
quasi-delicts.
Performance may be Performance cannot be
compelled. compelled.
Enforceability of natural obligations – The courts may not
compel the performance of a natural obligation but they may
order the retention of what has been delivered or rendered by
reason of performance of a natural obligation.
Elements of a natural obligation
1. That there is a juridical tie between the parties.
2. That this tie is not given effect by law.
Example
A and B orally agreed to an interest of 12%.
Under the law, “no interest shall be due unless it has been
expressly stipulated in writing.” (Art. 1175)
The courts may not compel the payment of such interest
because it has not been expressly stipulated in writing.
But if A has already paid the interest, the courts may order its
retention. Di na pwedeng balikan ni A.
Conversion to civil obligation – Natural obligations can be
converted into civil obligations by novation. A prescribed debt
can be converted into a civil obligation by confirmation or
ratification of that debt by a subsequent valid contract.
Performance after prescription
1424 When a right to sue upon a civil obligation has lapsed
by extinctive prescription, the obligor who voluntarily
performs the contract cannot recover what he has delivered or
the value of the service he has rendered.
Example
D owes C P10k under a written contract. After 10 years, the
debt of D prescribes because of failure of C to file the necessary
actions to enforce the contract.
If D, knowing that his debt has prescribed, still pays C P10k, he
cannot recover that amount anymore.
1425 When without the knowledge or against the will of
the debtor, a third person pays a debt which the obligor is not
legally bound to pay because the action thereon has
prescribed, but the debtor later voluntarily reimburses the
third person, the obligor cannot recover what he has paid.
Reimbursement of third person for debt that has prescribed
– If a third person pays the prescribed debt of the debtor
without his knowledge or against his will, the debtor is not
legally bound to reimburse the third person. But if he does
reimburse the third person, he cannot recover what he has
already reimbursed.
1426 When a minor between 18 and 21 years of age who
has entered into a contract without the consent of the parent
or guardian, after the annulment of the contract voluntarily
returns the whole thing or price received, notwithstanding the
fact that he has not been benefited thereby, there is no right
to demand the thing or price thus returned.
Restitution by minor after annulment of contract – When a
contract is annulled, a minor is not obliged to make any
restitution except insofar as he has been benefited by the thing
or price he has received. If however, he voluntarily returns the
thing or price he received although he has not benefited
thereby, he cannot recover what he has returned.
Example
S, a 19 y/o, sold his car to B for P100k without securing the
consent of his parents.
S lost P20k to a pickpocket but he was able to deposit the
remaining P80k in a bank.
If the contract is annulled, S is obliged to return only P80k
(amount he benefited from)
If he returns the whole P100k, he cannot demand the return of
the P20k.
1427 When a minor between 18 and 21 years of age who has
entered into a contract without the consent of the parent or
guardian, voluntarily pays a sum of money or delivers a
fungible thing in fulfillment of the obligation, there shall be no
right to recover the same from the obligee who has spent or
consumed it in good faith.
Delivery by minor of money or fungible thing in fulfillment of
obligation – Generally, the annulment of a contract obliges the
parties to make mutual restitution. However, the obligee who
has spent or consumed in good faith the money or consumable
thing voluntarily paid or delivered by the minor, is not bound
to make restitution.
** May also apply to things that are non-consumable if the
same has been lost without the fault of the obligee or if he
alienates the same to a third person who did not act in bad
faith.
Performance by winning party
1428 When, after an action to enforce a civil obligation has
failed, the defendant voluntarily performs the obligation, he
cannot demand the return of what he has delivered or the
payment of the value of the service he has rendered.
Scenario contemplated – A debtor, who has failed to pay his
obligation, is sued by his creditor and instead of losing the case,
he has won it. The debtor who failed to pay is the winning
party.
Performance after action to enforce civil obligation has failed
– If the debtor, despite having won his case against his creditor,
still fulfills his obligation to the same, he cannot demand the
return of what he has delivered or the payment of the value of
the service he has rendered.
Payment beyond inheritance
1429 When a testate or intestate heir voluntarily pays a
debt of the decedent exceeding the value of the property
which he received by will or by the law of intestacy from the
estate of the deceased, the payment is valid and cannot be
rescinded by the payer.
Payment made by heir of debt exceeding value of property
inherited – The heir is not liable beyond the value of the
property he received. But if he voluntarily pays the difference,
the payment is valid and cannot be rescinded by him.
Payment of void legacy
1430 When a will is declared void because it has not be
executed in accordance with the formalities required by law,
but one of the intestate heirs, after the settlement of the debts
of the deceased, pays a legacy in compliance with a clause in
the defective will, the payment is effective and irrevocable.
Meaning of legacy
It is the act of disposition by the testator in separating from the
inheritance for definite purposes, things, rights, or a definite
portion of his property. Bale hinati niya yung iiwan niya sa
mundo. A portion of which is the inheritance of the heirs, the
other portion is his legacy (to the world chz)
A void will also voids the legacy clause, hence, the testator is
not bound to pay the same. If however, he still pays the legacy
despite the void will, such payment is valid and cannot be
revoked.
** The will contemplated here is one that is rendered void
because of lack of proper formalities.