Obligations and Contracts

Introduction
Our Civil Code follows the Gaian order which is of three parts: Persons, Things
and Obligations.
The title of Book IV of the Civil Code is inaccurate. While the title is
“Obligations and Contracts”, it should only be “Obligations” since by including
“Contracts” in the title, it is putting the latter on equal footing with the former; but
this is not correct since contracts is only one of the sources of obligations.
Obligations is the most important, most abstract and most difficult of all of civil
law. It is the entirety of private law. If you don’t know obligations and contracts, you
will never understand commercial law.
The term “obligations” was derived from the words “ob” and “ligare” which
means “to bind or tie together”. “Ligare” is the source of several common words such
as “ligament” and “ligation”. (Ligation and Vasectomy have the same purpose: to tie
and to cut off, the fallopian tube, for the former, and the vas deferens, for the latter.)
“Obligatio” was initially a physical act of being chained (with shackles). Before,
under Roman law, if the debtor cannot pay, the creditor can bring him to the
magistrate and the magistrate can authorize the creditor to cuff the debtor and offer
him for sale for 3 days, the proceeds of which go to the creditor. The debtor then
becomes a slave. If he is not bought, the creditor can have him chopped into little
pieces or have him sold to the barbarians.
As time passed, cruelty softened. By the time of Cicero, “ligatio” does not mean
vinculum of chains but vinculum juris (bond of law). Obligation became metaphorical
and not literal.

I. Obligations
A. Definition of Obligation

Art. 1156. An obligation is a juridical necessity to give, to do or not to

do.

• This provision is the soul of brevity. It was borrowed from Sanchez Roman.
However, many commentators say it is incomplete because the “obligation”
is only from the point of view of the debtor. To make it complete, it must
cover the points of view of both the debtor and creditor. Obligations are
bilateral. It should include what can be required, the remedy and the means
by which the creditor can take to pursue the remedy.
• An obligation is a juridical relation whereby a person should engage or refrain
from engaging in a certain activity for the satisfaction of the private interest
of another who, in the case of non-fulfillment of such duty, may obtain from
the patrimony of the former through proper judicial proceedings the very
prestation due or in default thereof, the economic equivalent that it
represents (Diaz Piero).
• An obligation is a juridical relation whereby a person (called a creditor) may
demand from another (called the debtor) the observance of a determinate
conduct, and, in case of breach, may obtain satisfaction from the assets of
the latter (Arias Ramos).
B. Characteristics of Obligations
1. It represents an exclusively private interest

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2. It creates ties which are by nature transitory
• Because obligations are extinguished. But the period is relative – could be
 seconds (e.g., buying coke) and could be years (e.g., partnership,
lease)
3. It involves the power to make the juridical tie defective in case of non
fulfillment through satisfaction of the debtor’s property
C. Trends in the Modern Law of Obligations
1. Progressive spiritualization of the law on obligations
• Before, obligations were very formal and ritualistic. If it was not in the
proper form, no obligations will assume. Now, the emphasis is in the
meeting of the minds, and not on the specific form. There is even no
need that it be in writing, as a General Rule, since consensuality is the
prevailing doctrine. As long as it can be manifest – and any kind of
manifestation will do – it is sufficient.
• Roman Law was formalistic. Vestiges of Roman Law in the Civil Code can
be seen in the law governing donations, which is very formal. Even for
sales, the requirement of form is only for enforceability and not for
validity. This is to make it conducive to business and facilitate
commercial transactions.
• This is still an ongoing trend: e-commerce added another option in form
and proof of contracts (but this is not applicable to all, usually only for
business, not applicable to wills).

2. The principle of autonomy of will of the parties is now subject to

several restrictions
• While the principle still operates, the exceptions (prohibited areas) have
grown larger and larger.
• Article 1306 gives the five restrictions: not contrary to law, morals, good
customs, public order, or public policy. Those which are against these
five restrictions are void, as can be seen in Article 1409*. However, now
we have restrictions such as social justice, environmental preservation,
etc. This is because of the rising tide of social discontent, hence social
legislation came to be for the underprivileged.

3. The mitigation of the principle that the debtor should answer with
all his property
• Before, the debtor had to answer his debts with all his property. Now,
certain properties are exempt and these can be found in substantive law
(i.e., home) and in procedural law (i.e. support, etc.)
• Also, the debtor may not be imprisoned for non-payment of debts. •
The theory is to leave the debtor something to live decently by.
4. The weakening of the principle that liability arises from
responsibility
• This is basically the principle in quasi-delicts. Now, in many cases, a
person may be held liable even if not responsible.

*
Art. 1409. The following contracts are inexistent and void from the beginning: (1) Those
whose cause, object or purpose is contrary to law, morals, good customs, public order or
public policy;

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• For example, under workman’s compensation, the employer is liable to
compensate the employee even if the employer was not negligent.
5. The tendency of unity in modern legislation
 • This can be manifest in the rise of a “global village”. This can be seen
particularly in trade laws.
• The tendency now is to make things uniform especially in commerce.
Different rules would impede commerce.

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D. Essential Requisites of Obligations
1. Active subject
• The active subject is called a creditor if the obligation is to give. The active
 subject is called an obligee if the obligation is to do.
• The active subject is always a person whether juridical or natural.
2. Passive subject
• The passive subject is called a debtor if the obligation is to give. The
passive subject is called an obligor if the obligation is to do.
• The passive subject must be determinate or determinable
• How can both subjects be determinate or determinable?
a. Obligations where the subjects are completely and absolutely determined
at the birth of an obligation.
• If A and B are parties to a contract of sale and B doesn’t comply. A
cannot sue C.
a. Obligations where one subject is determined at the moment of the birth
of the obligation and the other subject is to be determined subsequently
at some fixed criterion, which criterion is fixed at the start of the
obligation.
• B makes a promissory note payable to M or order. In this case, the
creditor is not necessarily M. The creditor is either M or to whomever
the promissory note is endorsed.
• At the time of the birth of the obligation, the payee is not yet known
but the obligation is valid.
b. Obligations in which subjects are determined in accordance with its
relation to a thing.
• The ‘real’ rights
• A mortgaged property to X pursuant to a loan. The mortgage attaches
to the property. If A sells the property to B, the annotation in the
TCT will follow and B becomes the mortgagor. If A doesn’t pay, X
goes against B.
• The obligor in this case is whoever owns the land. X doesn’t care
whether its A or B.
3. Object of the obligation
• The object of the obligation always consists in an activity or conduct to be
observed by the debtor towards the creditor. This conduct to be
observed is also known as the prestation.
• In a contract of sale for example, the object of the obligation is the
conduct of the vendor in delivering the car. The car, on the other hand,
is the object of the prestation.

obligation
(object of the obligation) ➔
deliver the car
prestation
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prestation)
car
(object of the
• Sometimes, the commentators confuse the car as the object of the
 obligation, but this is wrong. The object is not the car but the
prestation.
• According to Professor Balane, the distinction between the object of the
obligation and the object of the prestation has been blurred by Articles
1347-1349.
• Requisites of the Object of the Obligation
a. Licit (Legal)
• Example: Can’t validly enter into a contract for sexual services
b. Possible both in fact and in law
• Determined by the rules of experience
c. Determinate or determinable
• Can’t say that “I promise to sell you something”.
• Example of determinate: I promise to sell you my car.
• Example of determinable: I promise to sell you my riceland in Bicol
in November (will become determinate when time comes).
d. Must have pecuniary value
4. Vinculum juris
• The vinculum juris is the legal tie. It consists of the enforceability of the
obligation. If the debtor does not conform, the creditor has the power to
go to court to make the debtor perform – coercive.
• What makes an obligation is the power of the creditor to haul the debtor
before the court, summoning powers of the state if needed.
• Voluntariness goes into entering into an obligation. But once you enter, it
becomes involuntary.
5. Causa
• Castan adds a 5th essential requisite – causa. Also known as causa debendi
or causa obligationes. Causa means the why of an obligation.
• The object of an obligation answers the question “What is owed?” (Quid).
The causa answers the question “Why is it owed?” (Cur).
• For example, A will deliver a car to B since A expects to get P300,000. The
P300,000 is the causa of the obligation.

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6. Form
• Another commentators say that the 6th essential requisite is form. Form
means some manifestation of intent. In some cases the manifestation is
specific such as in the case of donations.
• According to Professor Balane that the general rule is that there is no
specific form for a valid obligation. However, if form means that there is
some external manifestation, fine, since we are not telepathic after all.
 However, there should still be no specific form.

E. Sources of Obligations (Article 1157)

Art. 1157. Obligations arise from:

(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.

• There is really only one source of obligations – just law. Without the law
saying that a particular contract is enforceable, the contract will not give
rise to an obligation. However, “source” can be understood in both the
ultimate and immediate sense. In the ultimate sense, law is the solitary
source. In the immediate sense, there are 5, those enumerated in Article
1157. Law is therefore both an immediate and ultimate source. Examples of
law being an immediate source are payment of taxes and accession.
• Is this enumeration of the sources of obligation exclusive? The Supreme Court
in the case of Sagrada Orden vs. NACOCO seem to answer it in the
affirmative. However, this is only by implication or indication. The Court did
not make an explicit statement that it is.
• Many commentators including Professor Balane believe that the list is not
exclusive. They criticize the case because it is not a good way of
enumerating. At present, there is one more possible source of obligations –
public offer.
• Example: In commercials, there is an offer to replace 30 sachets of Tide for
one Venetian-cut glass until the end of the year. There is no contract or
quasi-contract. But if before the end of the year, you present your Tide
sachets, you can demand for your glass. Public offer is in fact a source of
obligation under the BGB (the German Civil Code), Article 657 which
provides that a person who by public notice announces a reward in the
performance of the act is liable even if such person did not act in view of
such reward.
• Although public officers are supplemented by DTI regulations, Professor
Balane thinks that public offer should be made part of the law since
regulations easily change.
1. Law (Article 1158)

Art. 1158. Obligations derived from law are not presumed.

Only 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.

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• There is only 1 ultimate source of obligations – law. However, there are 5
proximate sources of obligations (Article 1157).

2. Contract (Article 1159)

Art. 1159. Obligations arising from contracts have the force

of law between the contracting parties and should be complied with
in good faith.
 • Contract is only 1 of the sources of obligations.
• This provision combines two concepts of Roman law – equity or good faith
(ius gentium) and strict compliance by the parties (ius chinile).
• A contract is a meeting of minds between 2 persons whereby one binds
himself, with respect to the other, to give something or to render some
service (Article 1305)
• Contractual obligations have the force of law between the contracting
parties and should be complied with in good faith (Article 1159).
• The contracting parties may establish such stipulations, clauses, terms
and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy
(Article 1306).
• Contracts are perfected by mere consent, and from that moment the
parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their
nature, may be in keeping with good faith, usage and law (Article
1315).
• In case of doubt, the interpretation consistent with good faith is followed
(People’s Car vs. Commando Security).
• Party cannot excuse themselves on the ground that it has become
unprofitable. Law will not protect you from your own bad judgment.

3. Quasi-contract (Article 1160)

Art. 1160. Obligations derived from quasi-contracts shall be

subject to the provisions of Chapter 1, Title XVII, of this Book.

4. Delict (Article 1161)

Art. 1161. Civil obligations arising from criminal offenses

shall be governed by the penal laws, subject to the provisions of
article 2177, and of the pertinent provisions of Chapter 2,
Preliminary Title, on Human Relations, and of Title XVIII of this
Book, regulating damages.

• General Rule: If you commit a crime, you are liable both criminally and
civilly.
• Exception: No private offended party (e.g. contempt, etc.)
• The Civil Code deals with the civil aspect (i.e. indemnification for loss of
earning capacity).

5. Quasi-delict (Article 1162)

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Art. 1162. Obligations derived from quasi-delicts shall be
governed by the provisions of Chapter 2, Title XVII of this Book,
and by special laws.

• Quasi-delict is a civil law term while tort is a common law term. •

Difference between Contractual Liability and Quasi-Delict
• In quasi-delict, the obligation arises only when there is a violation.
Without violation, there is no obligation. It is the breach itself which
gives rise to the obligation.
 • In contracts, there is already an obligation which exists prior to or
even without a breach. The breach of the contract is immaterial to
the legal obligation.
• Example: Contract of sale of watch. If both parties perform their
obligation, the contract is extinguished. There is no breach, but
there is an obligation.
(Compare the above example with the one below)
Example: Driving recklessly, A hits a child. When did the obligation
came to being? When there was injury due to negligence.
(Negligence per se does not give rise to a quasi-delict unless there is
injury.)
Breach and quasi-delict are inseparable. But contract and breach
may be separable.
• Question: Are contracts and quasi-delicts mutually exclusive?
Answer: No.
In Gutierrez vs. Gutierrez, there was a collision between a bus and a car
and a passenger of the bus was injured. It was proven that the driver of
the car was a minor and an incompetent driver. The passenger sued
against them all. The Supreme Court held that the bus driver, bus owner
and the driver of the car (through his father) are jointly and severally
liable to the passenger. The liability of the owner of the bus and the bus
driver rests on that of a contract. On the other hand, the father is
responsible for the acts of his son and is therefore responsible for the
negligence of the minor. Here, it is clear that breach of contract and
quasi-delict are separate.
However, they can overlap as can be seen in the following example: Bus
driver drives recklessly and the bus hits a tree. A passenger is injured.
The passenger and sue the driver for quasi-delict (due to negligence) or
for crime or the bus company for breach of contract of carriage or for
quasi-delict (negligence in the selection and supervision).
The cause of action one chooses determines the:
1. Parties involved
2. Degree of proof
3. Defenses
One can tailor his suit depending on the cause of action he chooses.

F. Nature and Effect of Obligations

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1. Kinds of Prestations
a. To give (Articles 1163-1166)

Art. 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.

Art. 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.
 Art. 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.

Art. 1166. The obligation to give a determinate thing

includes that of delivering all its accessions and accessories,
even though they may not have been mentioned.

i. To give a determinate thing

• Primary Obligation: Giving what is supposed to be given. •
3 Accessory Obligations:
1. After constitution of the obligation and before delivery, to take
care of it with the proper diligence of a good father of the
family (Article 1163)
• General Rule: Diligence of a good father of the family
• Exception: Law or stipulation requires different standard of
care
• If through negligence, something causes the thing damage,
the debtor is liable for damages.
• This is not applicable to a generic thing.
2. To account and deliver to the creditor the fruits if the thing
bears fruits upon the time the obligation to deliver it arises
(Article 1164).
• However, ownership is transferred only by delivery. Hence,
creditor’s right over the fruits is merely personal.
• Example: A sold B a mango plantation to be delivered on
January 1. Come January 1, A did not deliver. A instead
sold the fruits to C, a buyer in good faith. B sues A for
specific performance. Court awards the plantation to B.
Does B have a right to the fruits? Yes, as against A. No,
as against C, because B’s right over the fruits is only

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personal. B’s remedy is to go against A for the value of
the fruits.
3. To deliver the accessions and accessories (Article 1166)
• Don’t take accession in the technical sense (or else, it might
overlap with ii). Understand it to mean things that go
with the thing to be delivered (i.e. radio of the car).
• Remedies Available to the Creditor
1. Specific performance – the debtor must perform it personally
2. Equivalent performance – damages
• Damages may be obtained exclusively or in addition to the
 1st action.
• Rules regarding Improvement, Loss or Deterioration (Articles 1189,
1190, 1194 )

Art. 1189. When the conditions have been imposed

with the intention of suspending the efficacy of an
obligation to give, the following rules shall be observed in
case of the improvement, loss or deterioration of the thing
during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor,
the obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor,
he shall be obliged to pay damages; it is
understood that the thing is lost when it perishes,
or goes out of commerce, or disappears in such a
way that its existence is unknown or it cannot be
recovered;
(3) When the thing deteriorates without the fault of
the debtor, the impairment is to be borne by the
creditor;
(4) If it deteriorates through the fault of the debtor,
the creditor may choose between the rescission of
the obligation and its fulfillment, with indemnity
for damages in either case;
(5) If the thing is improved by its nature, or by time,
the improvement shall inure to the benefit of the
creditor;
(6) If it is improved at the expense of the debtor, he
shall have no other right than that granted to the
usufructuary.

Art. 1190. When the conditions have for their

purpose the extinguishment of an obligation to give, the
parties, upon the fulfillment of said conditions, shall
return to each other what they have received.
In case of the loss, deterioration or improvement of
the thing, the provisions which, with respect to the
debtor, are laid down in the preceding article shall be
applied to the party who is bound to return.

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As for the obligations to do and not to do, the
provisions of the second paragraph of article 1187 shall
be observed as regards the effect of the extinguishment
of the obligation.

Art. 1194. In case of loss, deterioration or

improvement of the thing before the arrival of the day
certain, the rules in article 1189 shall be observed.
1. Requisites
a. Obligation has a suspensive condition, a resolutory
condition or term
b. The obligor is obligated to deliver a determinate thing
c. There is improvement, loss or deterioration before the
 fulfillment of the condition or the period
d. The condition is fulfilled or the period arrives
2. Rules Proper
a. If the thing is lost without the fault of the debtor, the
obligation is extinguished
b. If the thing is lost through the fault of the debtor, he must
pay damages
• The thing is lost when it perishes, goes out of commerce
or disappears in such a way that its existence is
unknown or cannot be recovered.
c. If the thing deteriorates without the fault of the debtor, the
creditor must accept the thing in its impaired condition
d. If the thing deteriorates through the fault of the debtor,
the creditor may choose between
i. Resolution (Article 1189) plus damages
ii. Fulfillment of the obligation plus damages
e. If the thing is improved by nature or by time, the
improvement shall inure to the benefit of the creditor
f. If the thing is improved at the expense of the debtor, the
debtor shall the same rights as a usufructuary

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ii. To give a generic thing
• Remedies Available to the Creditor
1. Specific performance – the debtor must perform it personally
2. Substitute performance – done by someone else (perform at
the expense of the debtor)
3. Equivalent performance – damages
• Damages may be obtained exclusively or in addition to the
1st 2 actions.
c. To do (Article 1167)

Art. 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.

i. Only the obligor can do (personalisimo)

• Remedies Available to the Creditor
1. Equivalent performances – damages
ii. Anyone else can do it (not personalisimo)
• Remedies Available to the Creditor
1. Substitute performance – done by someone else (perform at
the expense of the debtor)
2. Equivalent performance – damages
• Damages may be obtained exclusively or in addition to the
1st 2 actions.
b. Not to do (Article 1168)

Art. 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.

• This includes the obligation not to give.

• Remedies Available to the Creditor
i. Substitute performance - done by someone else (perform at the
expense of the debtor)
ii. Equivalent performance - damages
• Damages may be obtained exclusively or in addition to the 1st 2
actions.

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• Summary of the rules regarding remedies available to the creditor in
obligations to give, to do and not to do.
Obligation Specific Equivalent Substitute
Performance Performance Performance

1. To give

a. Determinate thing √ √ ×

b. Determinable thing √ √ √

2. To do

a. Very personal × √ ×

b. Not very personal × √ √

 3. Not to do × √ √

• Specific performance is the performance of the prestation itself.

• In obligations to do or not to do, specific performance is not available
since it will go against the constitutional prohibition against
involuntary servitude.
• Equivalent performance is the payment of damages
• Substitute performance is when someone else performs or something else
is performed at the expense of the debtor.
2. Irregularity in Performance
a. Attributable to the Debtor (culpable)
• Article 1170 provides that 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.
According to Professor Balane, the phrase “ who in any manner
contravene the tenor thereof” is a catch-all provision. However, such
is unnecessary. Nothing will escape fraud, negligence or delay.
i. Fraud (Articles 1170, 1171)

Art. 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.

Art. 1171. Responsibility arising from fraud is

demandable in all obligations. Any waiver of an action for
future fraud is void.

• The problem with fraud is the term. It is used in different meanings

in the Code.
• Fraud may be defined as the voluntary execution of a wrongful act,
or willful omission, knowing and intending the effects which
naturally and necessarily arise from such act or omission. Fraud
is the deliberate and intentional evasion of the normal fulfillment
of the obligation. It is distinguished from negligence by the
presence of deliberate intent, which is lacking in the latter.
(Legaspi Oil vs. CA)

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• Fraud under Article 1170 is more properly called as malice.
• Fraud under Article 1170 must not be confused with fraud under
Article 1338♣. Fraud under Article 1338 is more properly called
as deceit.
• In Article 1338, fraud preexists the obligation, thus the obligation is
voidable. Deceit vitiates consent in contracts. Deceit is
antecedent fraud. The deceit occurs by using insidious words
machinations. Without this deceit, the other party would not
have entered into the contract.
In Article 1171, there was already an obligation before the fraud
exists. Malice is subsequent fraud.
 Example of fraud as deceit under Article 1338: A and B entered
into a contract of sale of a diamond necklace. However, the
necklace was really made of glass. Fraud here is deceit. There
was vitiation of consent hence the contract is voidable.
Example of fraud as malice under Article 1171. A and B entered
into a contract. B will deliver furniture made of narra but B
delivered one made of plywood. Fraud here is malice. It will not
affect the validity of the contract.
• Effects of Fraud (Articles 1170, 1171)
1. Creditor may insist on proper substitute or specific
performance (Article 1233♦); or
2. Rescission/Resolution (Article 1191♥)
3. Damages in either case (Article 1170)
ii. Negligence
• Negligence is the absence of due diligence (Article 1173)

Art. 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 negligence shows bad faith, the provisions of articles
1171 and 2201, paragraph 2, 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.

♣
Art. 1338. There is fraud when, through insidious words or machinations of one of the
contracting parties, the other is induced to enter into a contract which, without them, he would
not have agreed to.
♦
Art. 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. ♥
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment and the rescission of the
obligation, with the payment of damages in either case. He may also seek rescission, even after
he has chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period.
This is understood to be without prejudice to the rights of third persons who have
acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.

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Art. 1172. Responsibility arising from negligence in the
performance of every kind of obligation is also demandable,
but such liability may be regulated by the courts, according
to the circumstances.

• Like fraud, negligence results in improper performance. But it is

characterized by lack of care, unlike fraud which is characterized
by malice.
• Lack of care means lack of due diligence or the care of a good
father of the family (bonus paterfamilias) under Article 1163.
• In English law, due diligence is called the diligence of a prudent
businessman, since they are more commerce-oriented.
 • 2 Types of Negligence
1. Simple
2. Gross
• The determination of due diligence is always relative. It will depend
on
1. The nature of the obligation
2. Nature of the circumstances of
a. Person
b. Time
c. Place
• Example: The diligence required in shipping hinges is
different from the diligence required in shipping the Pieta
de Michaelangelo. The shipper must observe the diligence
of a good father of the family in both cases but the
standard of care is different. It is much higher for the
Pieta.
• The diligence of a good father of the family is the imaginary
standard.
• Effects of Negligence (Articles 1170, 1172)
1. Creditor may insist on proper substitute or specific
performance (Article 1233); or
2. Rescission/Resolution (Article 1191)
3. Damages in either case (Article 1170)

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iii. Delay (Mora)

Art. 1169. Those obliged to deliver or to do something

incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their
obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare;
or
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time
when the thing is to be delivered or the service is to
be rendered was a controlling motive for the
 establishment of the contract; 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 has nothing to do with quality but only with punctuality.

• Delay is the non-fulfillment of the obligation with respect to time.
In fraud and negligence, the question is the quality even if
performed on time. In delay, even if the quality is excellent but
the performance is not in due time, the debtor is liable.
• Requisites of delay (SSS vs. Moonwalk)
• Obligation is demandable and liquidated
• Delay is through fault or negligence
• Creditor requires performance either judicially (through court
action) or extrajudicially (any communication by the creditor
to debtor).
• In reciprocal obligations (obligations with a counterpart prestation)
which require simultaneous performance, demand is still needed.
• What is the form of such demand? Any communication of a
party that he is ready and willing to comply with his
obligation. If after receipt of demand and the other party
does not comply with his obligation, he is in delay.
• 3 Kinds of Delay
1. Mora solvendi
• Delay in performance incurred by the debtor.
• Requisites:
a. The obligation is demandable and liquidated
b. Debtor delays performance either because of dolo or
culpa

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c. The creditor demands the performance either
judicially or extrajudicially
• General Rule: Demand is necessary. (mora solvendi ex
persona). Thus, no demand, no delay.
• Exceptions: (mora solvendi ex re) – Article 1169
a. When the obligation or the law expressly so declares
• Mere setting of due date is not enough. This does
not constitute automatic delay.
• There must be an express stipulation to the
following effect: “Non-performance on that day is
delay without need of demand.” (Dela Rosa vs.
BPI)
b. When it appears from the nature and circumstances
of the obligation that time was a controlling motive
 for the establishment of the contract.
• Example: The wedding gown has to be ready
before the wedding.
c. When demand would be useless, when obligor has
rendered it beyond his power to perform.
• Example: A sold the fruits of the mango
plantation he already sold to B to C. B need not
make a demand on A to deliver the fruits since
demand would be useless.
• Effects of Mora Solvedi
a. When the obligation is to deliver a determinate thing,
the risk is placed on the part of the debtor (Article
1165♠)
b. Damages
c. Rescission/ Resolution (Article 1191)
2. Mora accipiendi
• The creditor incurs in delay when debtor tenders payment
or performance, but the creditor refuses to accept it
without just cause.
• Mora accipiendi is related to payment (consignation).

♠
Art. 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.

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• Requisites:
a. An offer of performance by the debtor who has the
required capacity
b. The offer must be to comply with the prestation as it
should be performed
c. The creditor refuses the performance without just
cause.
• Effects of Mora Accipiendi:
a. Responsibility of debtor for the thing is limited to
fraud and gross negligence
b. Debtor is exempted from risk of loss of thing w/c
automatically pass to creditor
c. Expenses incurred by debtor for preservation of thing
after the delay shall be chargeable to creditor.
 d. If the obligation has interest, debtor shall not have
obligation to pay the same from the time of the delay
e. Creditor becomes liable for damages
f. Debtor may relieve himself by consignation of the
thing
3. Compensatio morae
• Delay on both sides in reciprocal obligations, cancel each
other out.
b. Not Attributable to the Debtor (non-culpable)
• Fortuitous event

Art. 1174. Except in cases expressly specified by the

law, or when it is otherwise declared by 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.

• Also governed by Article 1221∅ but is called ‘loss’ there, a cause fo

extinguishment of obligation.
• Also called caso fortuioto, force marjeure, act of God.
• Requisites (Nakpil vs. CA)
1. The cause of the unforeseen and unexpected occurrence, or
the failure to comply with his obligations, must be
independent of the human will

∅
Art. 1221. If the thing has been lost or if the prestation has become impossible without the
fault of the solidary debtors, the obligation shall be extinguished.
If there was fault on the part of any one of them, all shall be responsible to the creditor,
for the price and the payment of damages and interest, without prejudice to their action
against the guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the performance has become
impossible after one of the solidary debtors has incurred in delay through the judicial or
extrajudicial demand upon him by the creditor, the provisions of the preceding paragraph shall
apply.

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Professor Ruben F. Balane Page 18 of 124
2. It must be impossible to foresee the event which constitute
the caso fortuito, or if it can be foreseen, it must be
impossible to avoid
3. The occurrence must be such as to render it impossible for the
debtor to fulfill his obligation in a normal manner
4. The obligor must be free from any participation in the
aggravation of the injury resulting to the creditor
• General Rule: When a debtor is unable to fulfill his obligation
because of a fortuitous event or force majeure, he cannot be
held liable for damages or non-performance.
• Exceptions:
1. When the law so provides (i.e. Article 1165, ¶2⊕)
2. When there is express stipulation
• Fortuitous event yields to contrary stipulation.
 3. When the nature of the obligation requires the assumption of
risk (i.e. insurance contracts)
3. Other Provisions

Art. 1175. Usurious transactions shall be governed by special

laws.

• Article 1175 is dead letter law because of the lifting of the ceiling on
interest rates. Thus, usury has been decriminalized, but the
decriminalization cannot be given retroactive effect (with respect to the
civil aspect).
• Some decisions have struck down high interests, not because they were
usurious but because such rates were unconscionable.
• Correlate Article 1175 with Articles 1957, 1413 and 1961⊗.

Art. 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 installments have been paid.

• 2 Presumptions regarding:
a. Interest bearing debt

⊕
Article 1165, ¶2. 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.
⊗
Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to
circumvent the laws against usury shall be void. The borrower may recover in accordance with
the laws on usury.
Art. 1413. Interest paid in excess of the interest allowed by the usury laws may be
recovered by the debtor, with interest thereon from the date of the payment. Art. 1961.
Usurious contracts shall be governed by the Usury Law and other special laws, so far as they
are not inconsistent with this Code.

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Professor Ruben F. Balane Page 19 of 124
• Presumption that interest has been paid if the principal has been
received without reservation regarding interest,
b. Debt payable in installments
• Presumption that earlier installments have been paid if the later
installment has been received without reservation regarding the
previous installments.
• These are only rebuttable presumptions, you can prove through other
evidence. You can prove mistake.

Art. 1177. The creditors, after having pursued the property in

possession of the debtor to satisfy their claims, may exercise all the
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.

• Enforcement of Creditor’s Remedies

 a. Levy and execution of the debtor’s non-exempt properties (Articles
1177, 2236℘)
b. Accion subrogatoria
• Subrogatory action premised on the theory that “the debtor of my
debtor is my debtor.”
• Requisites:
i. Creditor has a right of credit against the debtor.
ii. Credit is due and demandable.
iii. Failure of debtor to collect his own credit from a third person
either through malice or negligence.
iv. Insufficiency of assets of the debtor to satisfy the creditor’s
credit
v. Right (of account) is not intuitu personae
c. Accion pauliana (Articles 1380-1389)
• Right of creditors to rescind alienations by debtor which are
prejudicial to them to the extent of the prejudice.
• Example: A donates land to C but he owes B. A has no other
property. B can rescind the donation to C. The donation is
rescissible to the extent of the debt.
• Requisites:
i. There is a credit in favor of the plaintiff
ii. The debtor has performed an act subsequent to the contract,
giving advantage to other persons.
iii. The creditor is prejudiced by the debtor’s act which are in
favor of third parties and rescission will benefit the creditor.
iv. The creditor has no other legal remedy.
v. The debtor’s acts are fraudulent.

℘
Art. 2236. The debtor is liable with all his property, present and future, for the fulfillment of
his obligations, subject to the exemptions provided by law.

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d. Accion directa
• A direct (not subrogatory) action by the creditor against his
debtor’s debtor, a remedy which gives the creditor the
prerogative to act in his own name, such as the actions of the
lessor against the sublessee (Article 1652ℵ), the laborer of an
independent contractor against the owner (Article 1729*), the
principal against the subagent (Article 1893♣), and the vendor-a
retro against the transferee of the vendee (Article 1608♦).
• This is an exception to the relativity of contracts.
• Example 1:

ABC
lease sub-lease

There are two separate contracts here: The contract of lease

between A and B and the contract of sub-lease between B and C.
C owes B P7000. B owes A P5000.
 Ordinarily, A cannot sue C since there is no relationship between
them, but in Article 1652, A can sue C for P5000.
• Example 2:

contract for a contract of

A
BC
(customer)labor
piece of work (contractor) (worker)

Again, there are two separate contracts here: The contract for a
piece of work between A and B and the contract of labor between
B and C. A owes B P10,000 which is not fully paid yet. B owes C
P5000 for unpaid wages. C can go after A directly for P5000.

ℵ
Art. 1652. The sublessee is subsidiarily liable to the lessor for any rent due from the lessee.
However, the sublessee shall not be responsible beyond the amount of rent due from him, in
accordance with the terms of the sublease, at the time of the extra-judicial demand by the
lessor.
Payments of rent in advance by the sublessee shall be deemed not to have been made,
so far as the lessor's claim is concerned, unless said payments were effected in virtue of the
custom of the place.
*
Art. 1729. Those who put their labor upon or furnish materials for a piece of work undertaken
by the contractor have an action against the owner up to the amount owing from the latter to
the contractor at the time the claim is made. However, the following shall not prejudice the
laborers, employees and furnishers of materials:
(1) Payments made by the owner to the contractor before they are due;
(2) Renunciation by the contractor of any amount due him from the owner.
This article is subject to the provisions of special laws.
♣
Art. 1893. In the cases mentioned in Nos. 1 and 2 of the preceding article, the principal may
furthermore bring an action against the substitute with respect to the obligations which the
latter has contracted under the substitution.
♦
Art. 1608. The vendor may bring his action against every possessor whose right is derived
from the vendee, even if in the second contract no mention should have been made of the right
to repurchase, without prejudice to the provisions of the Mortgage Law and the Land
Registration Law with respect to third persons.

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Professor Ruben F. Balane Page 21 of 124
Art. 1178. Subject to the laws, all rights acquired in virtue of
an obligation are transmissible, if there has been no stipulation to
the contrary.

• Rights are transmissible unless the rights are personal.

G. Different Kinds of Obligations
1. According to Demandability (Articles 1179-1192)

Art. 1179. Every obligation whose performance does not

depend upon a future or uncertain event, or upon a past event
unknown to the parties, is demandable at once.
Every obligation which contains a resolutory condition shall
also be demandable, without prejudice to the effects of the
happening of the event.
 Art. 1180. When the debtor binds himself to pay when his
means permit him to do so, the obligation shall be deemed to be
one with a period, subject to the provisions of article 1197.

Art. 1181. In conditional obligations, the acquisition of rights,

as well as the extinguishment or loss of those already acquired,
shall depend upon the happening of the event which constitutes the
condition.

Art. 1182. When the fulfillment of the condition depends

upon the sole will of the debtor, the conditional obligation shall be
void. If it depends upon chance or upon the will of a third person,
the obligation shall take effect in conformity with the provisions of
this Code.

Art. 1183. Impossible conditions, those contrary to good

customs or public policy and those prohibited by law shall annul the
obligation which depends upon them. If the obligation is divisible,
that part thereof which is not affected by the impossible or unlawful
condition shall be valid.
The condition not to do an impossible thing shall be
considered as not having been agreed upon.

Art. 1184. The condition that some event happen at a

determinate time shall extinguish the obligation as soon as the time
expires or if it has become indubitable that the event will not take
place.

Art. 1185. The condition that some event will not happen at a
determinate time shall render the obligation effective from the
moment the time indicated has elapsed, or if it has become evident
that the event cannot occur.
If no time has been fixed, the condition shall be deemed
fulfilled at such time as may have probably been contemplated,
bearing in mind the nature of the obligation.

Art. 1186. The condition shall be deemed fulfilled when the

obligor voluntarily prevents its fulfillment.

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Art. 1187. The effects of a conditional obligation to give, once
the condition has been fulfilled, shall retroact to the day of the
constitution of the obligation. Nevertheless, when the obligation
imposes reciprocal prestations upon the parties, the fruits and
interests during the pendency of the condition shall be deemed to
have been mutually compensated. If the obligation is unilateral, the
debtor shall appropriate the fruits and interests received, unless
from the nature and circumstances of the obligation it should be
inferred that the intention of the person constituting the same was
different.
In obligations to do and not to do, the courts shall determine,
in each case, the retroactive effect of the condition that has been
complied with.

Art. 1188. The creditor may, before the fulfillment of the

condition, bring the appropriate actions for the preservation of his
 right.
The debtor may recover what during the same time he has
paid by mistake in case of a suspensive condition.

Art. 1189. When the conditions have been imposed with the
intention of suspending the efficacy of an obligation to give, the
following rules shall be observed in case of the improvement, loss
or deterioration of the thing during the pendency of the condition:
(1) If the thing is lost without the fault of the debtor, the
obligation shall be extinguished;
(2) If the thing is lost through the fault of the debtor, he shall be
obliged to pay damages; it is understood that the thing is
lost when it perishes, or goes out of commerce, or
disappears in such a way that its existence is unknown or it
cannot be recovered;
(3) When the thing deteriorates without the fault of the debtor,
the impairment is to be borne by the creditor;
(4) If it deteriorates through the fault of the debtor, the creditor
may choose between the rescission of the obligation and its
fulfillment, with indemnity for damages in either case;
(5) If the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor;
(6) If it is improved at the expense of the debtor, he shall have
no other right than that granted to the usufructuary.

Art. 1190. When the conditions have for their purpose the
extinguishment of an obligation to give, the parties, upon the
fulfillment of said conditions, shall return to each other what they
have received.
In case of the loss, deterioration or improvement of the
thing, the provisions which, with respect to the debtor, are laid
down in the preceding article shall be applied to the party who is
bound to return.

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As for the obligations to do and not to do, the provisions of
the second paragraph of article 1187 shall be observed as regards
the effect of the extinguishment of the obligation.

Art. 1191. The power to rescind obligations is implied in

reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance with
articles 1385 and 1388 and the Mortgage Law.
 Art. 1192. In case both parties have committed a breach of
the obligation, the liability of the first infractor shall be equitably
tempered by the courts. If it cannot be determined which of the
parties first violated the contract, the same shall be deemed
extinguished, and each shall bear his own damages.

a. Pure
• A pure obligation is one which has neither a condition nor a term
attached to it. It is one which is subject to no contingency.
• A pure obligation is demandable at once (Article 1179).
b. Conditional
• A condition is a future and uncertain event.
• All conditions are future.
• Article 1179 mentions the term “past event unknown to the parties”.
This has been criticized by many commentators. This is a
contradiction in terms. The condition in a past even unknown to the
parties is knowledge by the parties of the past event.
• In conditional obligation, the happening of the condition determines its
birth or death. In term, the happening of the term determines its
demandability.
• Types of Conditions
i. 1. Suspensive
• The fulfillment of a suspensive condition results in the
acquisition of rights arising out of the obligation.
• The condition that some event happen at a determinate
time shall extinguish the obligation as soon as the time
expires or if it has become indubitable that the event will
not take place (Article 1184)
• The condition that some event will not happen at a
determinate time shall render the obligation effective
from the moment the time indicated has elapsed, or if it
has become evident that the event cannot occur (Article
1185).

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Professor Ruben F. Balane Page 24 of 124
• The moment the suspensive condition happens, the
obligation becomes effective and enforceable. However,
the effects of the obligation retroact to the moment when
such obligation was constituted or created. By the
principle of retroactivity, therefore, a fiction is created
whereby the binding tie of the conditional obligation is
produced from the time of its perfection, and not from
the happening of the condition (Article 1187)
• The law does not require the delivery or payment of the
fruits or interests accruing before the happening of the
suspensive condition. The right to the fruits of the thing
is not within the principle of retroactivity of conditional
obligations (Article 1187)
• If the obligation imposes reciprocal prestations, fruits and
interest are deemed mutually compensated.
Example: I promise to sell my mango plantation at
 P5000/hectare if you pass the bar examination.
I do not have to give you the fruits from the time of the
agreement to the release of the bar exams.
• If the obligation is unilateral, debtor appropriates the
fruits.
• In obligations to do and not to do, the courts shall use
sound discretion to determine the retroactive effect of the
fulfillment of the condition (Article 1187)
• The creditor may, before the fulfillment of the condition,
bring the appropriate actions for the preservation of his
right (Article 1188, 1st ¶). JBL Reyes criticizes the use of
the word “bring”. The 1st ¶ of Article 1188 does not limit
itself to judicial actions. Thus, the word “take” is better.
• The debtor who paid before the happening of the
condition may recover only when he paid by mistake and
provided the action to recover is brought before the
condition (Article 1188).
2. Resolutory
• The fulfillment of the resolutory condition results in the
extinguishments of rights arising out of the obligation.
• If the resolutory condition is fulfilled, the obligation is
treated as if it did not exist. Thus, each party is bound to
return to the other whatever he has received, so that
they may be returned to their original condition before
the creation of the obligation (Article 1190).
• Resolution (Article 1191) is found on the conditional
obligations because if there is a breach, the breach is a
resolutory condition which extinguishes the obligation.
• Article 1191 uses the term “rescission”. The better term
is “resolution”. The term rescission is also found in
Article 1381♥, rescissible contracts. Resolution is

♥
Art. 1381. The following contracts are rescissible:

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Professor Ruben F. Balane Page 25 of 124
different from rescission. Resolution is based on the non
fulfillment of the obligation. Rescission is based on
economic prejudice. Furthermore, the character of
resolution is principal and retaliatory while the character
of rescission is subsidiary. This means that in resolution
there is no need to show that there is no other remedy.
In rescission, the plaintiff must show that there is no
other recourse.
• The right of resolution applies to reciprocal obligations.
• A reciprocal obligation has 2 elements
1. 2 prestations arising from the same source
2. Each prestation is designed to be the counterpart of
the other
• An example of a reciprocal obligation is a contract of sale.
 • Summary of Rulings on Resolution
1. The right to resolve is in inherent in reciprocal
obligations.
2. The breach of the obligation must be substantial.
Proof of substantial breach is a prerequisite for
resolution.
3. The right of resolution can be exercised extrajudicially
and will take effect upon communication to the
defaulting party. This notice of resolution is
necessary.
4. The exercise of this right can be the subject of judicial
review.
5. Upon resolution, there must be mutual restitution of
the object and its fruits
• The parties are returned to their original situation
– status quo ante.
6. If the aggrieved party has not performed the
prestation and resolves extrajudicially, then all the
aggrieved party has to do is to refuse to perform his
prestation.
7. If the aggrieved party has performed the prestation,
the aggrieved party can demand recovery. If the
defaulting party refuses to return it, the aggrieved
party must go to court in order to recover.

(1) Those which are entered into by guardians whenever the wards whom they represent
suffer lesion by more than one-fourth of the value of the things which are the object
thereof;
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated
in the preceding number;
(3) Those undertaken in fraud of creditors when the latter cannot in any other manner
collect the claims due them;
(4) Those which refer to things under litigation if they have been entered into by the
defendant without the knowledge and approval of the litigants or of competent judicial
authority;
(5) All other contracts specially declared by law to be subject to rescission.

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• In Ilingan vs.CA (September 26, 2001) case, there was an
obiter dictum that the operative act that resolves a
contract is the decree of court and the right should be
exercised judicially. Professor Balane says this is wrong.
However, the ratio of the case said that the
communication must be a notarial notice.
ii. 1. Potestative
• In a potestative condition, the fulfillment of the condition
depends upon the will of a party to the obligation.
• If the condition depends upon the will of the creditor, then
the obligation is valid. In this case, there is a vinculum
juris. The creditor can compel the debtor to perform the
obligation.
Example: I will give you my pomelo plantation if you
 establish permanent residence in Davao.
This is a suspensive condition dependent on the sole will
of the creditor. It becomes pure and demandable at once.
• Article 1182 prohibits a suspensive potestative condition
dependent on the will of the debtor. The entire obligation
is void.
Example: I will sell you my car if I want to.
Why does it annul the entire obligation?
Because there is no juridical tie. Remember, an obligation
is one which has to be performed regardless of the will of
the debtor. There is no element of compulsion. In the
example above, the creditor can never compel, can never
have a cause of action.
• In reciprocal obligations, the law only talks about the first
prestation, the reciprocal prestation is not taken into
consideration.
2. Casual
• In a casual condition, the fulfillment of the condition
depends upon chance and/or upon the will of a 3rd person
and not on the will of a party.
• Example: I will give you my house if the Philippines
renounces its foreign debt in 5 years. (Dependent solely
on the will of a third person or on chance).

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3. Mixed
• In a mixed condition, the fulfillment of the condition
depends partly upon the will of a party to the obligation
and partly upon chance and/or the will of a 3rd person.
• When the condition depends not only upon the will of the
debtor, but also upon chance or will of the others, the
obligation is valid.
• Example: I will give you my house if you marry him within 3
years. (The condition here is a mixed condition. In this
case, the condition of marriage depends partly on the
creditor, a party to the obligation, and partly on a 3rd
person.)
• Doctrine of Constructive Compliance
• The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment (Article 1186).
 • The principle underlying constructive fulfillment of
conditions is that a party to a contract may not be excused
from performing his promise by the non occurrence of an
event which he himself prevented.
• Requisites
1. Intent of the debtor to prevent fulfillment of the
obligation
• Where the act of the debtor, however, although
voluntary, did not have for its purpose the
prevention of the fulfillment of the condition, it will
not fall under the doctrine of constructive
compliance.
2. Actual prevention of compliance
• The doctrine of constructive compliance applies to
potestative and mixed conditions.
iii. 1. Possible
• A condition is possible when it is capable of realization
according to nature, law, public policy or good customs.
2. Impossible
• A condition is impossible when it is not capable of
realization according to nature, law, public policy or good
customs.
• The effect of an impossible condition is to annul the
obligation (Article 1183). The effect of an impossible
condition regarding donations and succession is different.
In donations and succession, an impossible condition is
simply disregarded. The distinction can be explained by
the fact that Article 1183 refers to onerous obligation
whereas donations and succession are gratuitous.
• However, if the obligation is divisible and that part of the
obligation is not unaffected by the impossible condition,
then the obligation is valid (Article 1183).
• Justice Paras distinguishes as follows:

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1. Positive condition to do something impossible
• Void condition and obligation
2. Negative condition not to do something impossible
• Disregard the condition, the obligation is valid
3. Negative condition not to do something illegal
• Valid condition and obligation
iv. 1. Positive
• A condition is positive when the condition involves the
performance of an act.
2. Negative
• A condition is negative when the condition involves the
non-performance of an act.
v. 1. Divisible
 • A condition is divisible when the condition is susceptible of
partial realization.
2. Indivisible
• A condition is indivisible when the condition is not
susceptible of partial realization.
vi. 1. Conjunctive
• A condition is conjunctive when there are several conditions,
all of which must be realized.
2. Alternative
• A condition is alternative when there are several conditions,
only one of which must be realized.
vii. 1. Express
• A condition is express when the condition is stated
expressly.
2. Implied
• A condition is implied when the condition is tacit.
c. Term (Articles 1193-1198)

Art. 1193. Obligations for whose fulfillment a day certain

has been fixed, shall be demandable only when that day comes.
Obligations with a resolutory period take effect at once,
but terminate upon arrival of the day certain.
A day certain is understood to be that which must
necessarily come, although it may not be known when.
If the uncertainty consists in whether the day will come or
not, the obligation is conditional, and it shall be regulated by the
rules of the preceding Section.

Art. 1194. In case of loss, deterioration or improvement of

the thing before the arrival of the day certain, the rules in article
1189 shall be observed.

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Art. 1195. Anything paid or delivered before the arrival of
the period, the obligor being unaware of the period or believing
that the obligation has become due and demandable, may be
recovered, with the fruits and interests.

Art. 1196. Whenever in an obligation a period is

designated, it is presumed to have been established for the
benefit of both the creditor and the debtor, unless from the
tenor of the same or other circumstances it should appear that
the period has been established in favor of one or of the other.

Art. 1197. If the obligation does not fix a period, but from
its nature and the circumstances it can be inferred that a period
was intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it
depends upon the will of the debtor.
In every case, the courts shall determine such period as
 may under the circumstances have been probably contemplated
by the parties. Once fixed by the courts, the period cannot be
changed by them.

Art. 1198. The debtor shall lose every right to make use of
the period:
(1) When after the obligation has been contracted, he
becomes insolvent, unless he gives a guaranty or
security for the debt;
(2) When he does not furnish to the creditor the guaranties
or securities which he has promised;
(3) When by his own acts he has impaired said guaranties or
securities after their establishment, and when through a
fortuitous event they disappear, unless he immediately
gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in
consideration of which the creditor agreed to the period;
(5) When the debtor attempts to abscond.

• A term is a length of time which, exerting an influence on an obligation

as a consequence of juridical acts, suspends its demandability or
determines its extinguishment.
• A term is a future and certain event (i.e. death)
• When the debtor binds himself to pay when his means permit him to
do so, the obligation is one with a term (Article 1180). Although
Article 1180 looks like a condition dependent on the sole will of the
debtor, the law treats it as a term.
• If prepayment is made without the debtor being aware that the period
had not yet arrived, then the thing and the fruits can be recovered
(Article 1195). If prepayment is made and the debtor was aware
that the period had not yet arrived, then the debtor waives the
benefit of the term.
• An obligation was entered on May 1, 2002 between A and B. The
obligation is to be performed on October 1, 2002. A delivers

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on September 1, 2002 by mistake to B. A discovers his mistake
and tells B to return the object and the fruits delivered.
Article 1195 does not answer who is entitled to the fruits which
have been produced in the meantime (May 1, 2002 to October 1,
2002).
According to the Spanish Code, the debtor (A) can only fruits.
There are 2 views:
i. The debtor is entitled to the fruits produced in the meantime
(Tolentino)
• This is because delivery is not required until October 1.
ii. The creditor is entitled to the fruits since the obligation is
demandable only when the period arrives
• This is because the obligation is already existing although it
is not yet demandable.
• Professor Balane believes that the fruits belong to the debtor.
 Why would Article 1195 allow the debtor to recover the fruits
if he should still give them back after the term comes.
• Instances when the Fruits Cannot be Recovered
i. When the obligation is reciprocal and there has been
prepayment of both sides
ii. When the obligation is a loan and the debtor is bound to pay
interest
iii. When the period is exclusively for the creditor’s benefit
iv. When the debtor is aware of the period and pays anyway –
waiver
• The presumption is that the period is for the benefit of both the debtor
and the creditor (Article 1196). The effect of this presumption is that
the creditor cannot demand payment before the period arrives nor
can the debtor demand the creditor to accept payment before the
period arrives.
Example: A issues a promissory note to B demandable on October
15. A cannot insist on prepayment nor can B insist that he be paid
on September.
• If the period is for the benefit of the creditor only, the creditor can
demand performance at any time, but the debtor cannot compel him
to accept payment before the period expires.
• If the period is for the benefit of the debtor only, the debtor can he
may oppose a premature demand for payment, but may validly pay
at any time before the period expires.
• When the obligation is worded such that payment it to be made
“within 6 months”, the period is for the benefit of the debtor.
• When the obligation is worded such that payment is to be made
“on or before”, the period is for the benefit of the debtor.
• The debtor shall lose every right to make use of the period:

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i. When after the obligation has been contracted, the debtor
becomes insolvent unless he gives a guaranty or security for the
debt (Article 1198 (1))
• The insolvency here need not be judicial. It can be actual
insolvency.
ii. When he does not furnish to the creditor the guaranties or
securities which he has promised (Article 1198 (2))
iii. When by his own acts he has impaired the said guaranties or
securities after their establishment, and when through a
fortuitous event hey disappear, unless he immediately gives new
ones equally satisfactory (Article 1198 (3))
iv. When the debtor violates any undertaking, in consideration of
which the creditor agreed (Article 1198 (4))
v. When the debtor attempts to abscond (Article 1198 (5))
vi. When the creditor is deceived on the substance or quality of the
thing pledged, the creditor may either claim another thing in its
stead or demand immediate payment of the principal obligation
(Article 2109)
 • Types of Periods
i. 1. Suspensive (ex die)
• The period is suspensive when the obligation becomes
demandable only upon the arrival of the period.
2. Resolutory (in diem)
• The period is resolutory when the performance must
terminate upon the arrival of the period.
ii. 1. Legal
• A period is legal when it is granted by law.
2. Voluntary
• A period is voluntary when it is stipulated by the parties.
3. Judicial
• A period is judicial when it is fixed by the courts.
• If the obligation does not fix a period, but from its nature
and the circumstances it can be inferred that a period was
intended, the courts may fix the duration thereof (Article
1197, 1st ¶).
• 2 steps involved in an action for fixing a period:
1. The court should determine that the obligation does
not fix a period but it can be inferred that a period is
intended due to the circumstances OR the period is
dependent on debtor’s will.
2. Court shall decide what period was probably
contemplated by the parties.
• Court should make an educated guess.
• Court should not fix a period which it thinks is fair or
reasonable but rather the period which was
probably contemplated by the parties.

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• Generally, you cannot ask for specific performance because
fixing a period contemplates something in the future,
hence to ask for specific performance would be illogical.
• Instances When Court May Fix a Period
1. Article 1197, ¶1

Art. 1197, ¶1. If the obligation does not

fix a period, but from its nature and the
circumstances it can be inferred that a period
was intended, the courts may fix the duration
thereof.

• Exceptions
a. Articles 1682 and 1687, 1st sentence

Art. 1682. The lease of a piece of

rural land, when its duration has not been
fixed, is understood to have been for all
the time necessary for the gathering of
 the fruits which the whole estate leased
may yield in one year, or which it may
yield once, although two or more years
have to elapse for the purpose.

Art. 1687, 1st sentence. If the

period for the lease has not been fixed, it
is understood to be from year to year, if
the rent agreed upon is annual; from
month to month, if it is monthly; from
week to week, if the rent is weekly; and
from day to day, if the rent is to be paid
daily.

b. Pacto de retro sales (Article 1606)

Art. 1606. The right referred to in

article 1601, in the absence of an express
agreement, shall last four years from the
date of the contract.
Should there be an agreement, the
period cannot exceed ten years.
However, the vendor may still
exercise the right to repurchase within
thirty days from the time final judgment
was rendered in a civil action on the basis
that the contract was a true sale with
right to repurchase.

c. Contract of services for an indefinite period

• Court cannot fix a period or else it would
amount to involuntary servitude.
2. Article 1197, ¶2

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Art. 1197, ¶2. The courts shall also fix
the duration of the period when it depends upon
the will of the debtor.

3. Article 1191, ¶3

Art. 1191, ¶3. The court shall decree the

rescission claimed, unless there be just cause
authorizing the fixing of a period.

4. Article 1687, 2nd, 3rd and 4th sentences

Art. 1687, 2nd, 3rd and 4th sentences.

However, even though a monthly rent is paid,
and no period for the lease has been set, the
courts may fix a longer term for the lease after
the lessee has occupied the premises for over
one year. If the rent is weekly, the courts may
likewise determine a longer period after the
lessee has been in possession for over six
months. In case of daily rent, the courts may
 also fix a longer period after the lessee has
stayed in the place for over one month.

5. Article 1180

Art. 1180. When the debtor binds himself

to pay when his means permit him to do so, the
obligation shall be deemed to be one with a
period, subject to the provisions of Article 1197.

iii. 1. Express
• A period is express when the period is specifically stated.
2. Tacit
• A period is tacit when a person undertakes to do some work
which can be done only during a particular season.
iv. 1. Original
2. Grace
• A grace period is an extension fixed by the parties or by the
court.
v. 1. Definite
• A period is definite when it refers to a fixed known date or
time.
2. Indefinite
• A period is indefinite when it refers to an event which will
necessarily happen but the date of its happening is
unknown (i.e. death)

2. According to Plurality of Object (Articles 1199-1206)

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Art. 1199. A person alternatively bound by different
prestations shall completely perform one of them.
The creditor cannot be compelled to receive part of one and
part of the other undertaking.

Art. 1200. The right of choice belongs to the debtor, unless it

has been expressly granted to the creditor.
The debtor shall have no right to choose those prestations
which are impossible, unlawful or which could not have been the
object of the obligation.

Art. 1201. The choice shall produce no effect except from the
time it has been communicated.

Art. 1202. The debtor shall lose the right of choice when
among the prestations whereby he is alternatively bound, only one
is practicable.

Art. 1203. If through the creditor's acts the debtor cannot

make a choice according to the terms of the obligation, the latter
may rescind the contract with damages.
 Art. 1204. The creditor shall have a right to indemnity for
damages when, through the fault of the debtor, all the things which
are alternatively the object of the obligation have been lost, or the
compliance of the obligation has become impossible.
The indemnity shall be fixed taking as a basis the value of the
last thing which disappeared, or that of the service which last
became impossible.
Damages other than the value of the last thing or service
may also be awarded.

Art. 1205. When the choice has been expressly given to the
creditor, the obligation shall cease to be alternative from the day
when the selection has been communicated to the debtor.
Until then the responsibility of the debtor shall be governed
by the following rules:
(1) If one of the things is lost through a fortuitous event, he
shall perform the obligation by delivering that which the
creditor should choose from among the remainder, or that
which remains if only one subsists;
(2) If the loss of one of the things occurs through the fault of
the debtor, the creditor may claim any of those subsisting,
or the price of that which, through the fault of the former,
has disappeared, with a right to damages;
(3) If all the things are lost through the fault of the debtor, the
choice by the creditor shall fall upon the price of any one of
them, also with indemnity for damages.
The same rules shall be applied to obligations to do or not to
do in case one, some or all of the prestations should become
impossible.

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Art. 1206. When only one prestation has been agreed upon,
but the obligor may render another in substitution, the obligation is
called facultative.
The loss or deterioration of the thing intended as a
substitute, through the negligence of the obligor, does not render
him liable. But once the substitution has been made, the obligor is
liable for the loss of the substitute on account of his delay,
negligence or fraud.

a. Alternative
• An obligation is alternative when several objects or prestations are
due, but the payment or performance of 1 of them would be
sufficient.
• A promises to deliver either 500 kgs of rice or 1000 liters of gas. The
obligation is alternative. The debtor cannot perform the obligation by
giving 250 kgs of rice and 500 liters of gas unless the creditor
agrees. In which case there is a novation.
• General Rule: The right of choice the right to belongs to the debtor.
• Exceptions:
i. When it is expressly granted to the creditor
 ii. When it is agreed upon by the parties that a 3rd person shall make
the choice
• The act of making the choice is called concentration. Once the choice
has been made, then the obligation is concentrated in 1 object.
• Whoever has the right of choice must communicate it to the other
party (Article 1201). The creditor has to communicate his choice to
the debtor so that the debtor will know. On the other hand, in Ong
Guan vs. Century Insurance, the Supreme Court said that the
purpose for notice to the creditor is to give the creditor the
opportunity to express his consent or to impugn the election made
by the debtor. Professor Balane does not agree with this statement
since the creditor does not have the right to impugn, otherwise, the
obligation would not be an alternative obligation. A better reason
according to Professor Balane is to give the creditor time to prepare.
Example: The choice is either to give diamond ring or a Mercedes
Benz. The debtor should notify the creditor so the creditor can either
rent a safety deposit box or prepare a garage.
However, according to Professor Balane, the best reason is because
once the choice is communicated, the obligation ceases to be
alternative. The risk of loss belongs to the creditor now.
• Choice Belongs to the Debtor
i. When through fortuitous event or through the debtor’s acts, there
is only 1 prestation left, the obligation ceases to be alternative
(Article 1202).
ii. When the choice of the debtor is limited through the creditor’s
own acts, then the debtor has the remedy of resolution (Article
1191) plus damages (Article 1203)

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iii. When all the things are lost due to the debtor’s fault, the creditor
can sue for damages (Article 1204)
iv. When some things are lost due to the debtor’s fault but there are
still some things remaining, then the debtor can choose from
what’s left
v. When all the things are lost due to a fortuitous event, the
obligation is extinguished
vi. When all but 1 of the things are lost due to a fortuitous event and
the last object is lost through the debtor’s fault, then the creditor
can sue for damages
vii. When all but 1 of the things are lost through the debtor’s own
acts and the last object is lost through a fortuitous event, the
obligation is extinguished
• Choice Belongs to the Creditor (Article 1205)
i. When 1 or some of the objects are lost through fortuitous events,
then the creditor chooses from the remainder
ii. When 1 or some of the objects are lost due to the debtor’s fault,
the creditor may choose from the remainder or get the value of
any of the objects lost plus damages in either case
iii. When all of the things are lost due to the debtor’s fault, the
creditor can get the value of any of the objects lost plus
damages
 iv. When some are lost through the debtor’s fault, the creditor
chooses from the remainder
v. When all the objects are lost due to a fortuitous event, then the
obligation is extinguished
vi. When all the objects are lost due to the creditor’s fault, the
obligation is extinguished

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b. Facultative
• An obligation is facultative when only 1 object or prestation has been
agreed upon by the parties to the obligation, but the debtor may
deliver or render another in substitution.
• Facultative obligations bear a resemblance to alternative obligations
particularly when the choice in an alternative obligation is with the
debtor.
• In a facultative obligation, the right of choice is always with the debtor.
• In an alternative obligation, if 1 of the prestations is impossible, then
there are other choices. In a facultative obligation, if the principal
obligation is impossible, then everything is annulled.
• In theory, it is easy to distinguish a facultative obligation from an
alternative obligation. In practice, it is difficult to do so since most of
the time, the words are ambiguous. For example, I promise to
deliver my Honda Accord, but I reserve my right to substitute this
with my Gold Rolex. In this case, it is not very clear whether the
obligation is alternative or facultative. According to Professor
Balane, the rule is that one must look at the circumstances of the
obligation. If it is impossible to determine which one, then the doubt
should be resolved in the favor of an alternative obligation since its
effects are less radical.

3. According to Plurality of Subject (Articles 1207-1222)

 Art. 1207. The concurrence of two or more creditors or of two
or more debtors in one and the same obligation does not imply that
each one of the former has a right to demand, or that each one of
the latter is bound to render, entire compliance with the prestation.
There is a solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation requires
solidarity.

Art. 1208. If from the law, or the nature or the wording of the
obligations to which the preceding article refers the contrary does
not appear, the credit or debt shall be presumed to be divided into
as many shares as there are creditors or debtors, the credits or
debts being considered distinct from one another, subject to the
Rules of Court governing the multiplicity of suits.

Art. 1209. If the division is impossible, the right of the

creditors may be prejudiced only by their collective acts, and the
debt can be enforced only by proceeding against all the debtors. If
one of the latter should be insolvent, the others shall not be liable
for his share.

Art. 1210. The indivisibility of an obligation does not

necessarily give rise to solidarity. Nor does solidarity of itself imply
indivisibility.

Art. 1211. Solidarity may exist although the creditors and the
debtors may not be bound in the same manner and by the same
periods and conditions.

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Art. 1212. Each one of the solidary creditors may do
whatever may be useful to the others, but not anything which may
be prejudicial to the latter.

Art. 1213. A solidary creditor cannot assign his rights without

the consent of the others.

Art. 1214. The debtor may pay any one of the solidary
creditors; but if any demand, judicial or extrajudicial, has been
made by one of them, payment should be made to him.

Art. 1215. Novation, compensation, confusion or remission of

the debt, made by any of the solidary creditors or with any of the
solidary debtors, shall extinguish the obligation, without prejudice
to the provisions of article 1219.
The creditor who may have executed any of these acts, as
well as he who collects the debt, shall be liable to the others for the
share in the obligation corresponding to them.

Art. 1216. The creditor may proceed against any one of the
solidary debtors or some or all of them simultaneously. The demand
made against one of them shall not be an obstacle to those which
may subsequently be directed against the others, so long as the
debt has not been fully collected.

Art. 1217. Payment made by one of the solidary debtors

extinguishes the obligation. If two or more solidary debtors offer to
 pay, the creditor may choose which offer to accept.
He who made the payment may claim from his co-debtors
only the share which corresponds to each, with the interest for the
payment already made. If the payment is made before the debt is
due, no interest for the intervening period may be demanded.
When one of the solidary debtors cannot, because of his
insolvency, reimburse his share to the debtor paying the obligation,
such share shall be borne by all his co-debtors, in proportion to the
debt of each.

Art. 1218. Payment by a solidary debtor shall not entitle him

to reimbursement from his co-debtors if such payment is made
after the obligation has prescribed or become illegal.

Art. 1219. The remission made by the creditor of the share

which affects one of the solidary debtors does not release the latter
from his responsibility towards the co-debtors, in case the debt had
been totally paid by anyone of them before the remission was
effected.

Art. 1220. The remission of the whole obligation, obtained by

one of the solidary debtors, does not entitle him to reimbursement
from his co-debtors.

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Art. 1221. If the thing has been lost or if the prestation has
become impossible without the fault of the solidary debtors, the
obligation shall be extinguished.
If there was fault on the part of any one of them, all shall be
responsible to the creditor, for the price and the payment of
damages and interest, without prejudice to their action against the
guilty or negligent debtor.
If through a fortuitous event, the thing is lost or the
performance has become impossible after one of the solidary
debtors has incurred in delay through the judicial or extrajudicial
demand upon him by the creditor, the provisions of the preceding
paragraph shall apply.

Art. 1222. A solidary debtor may, in actions filed by the

creditor, avail himself of all defenses which are derived from the
nature of the obligation and of those which are personal to him, or
pertain to his own share. With respect to those which personally
belong to the others, he may avail himself thereof only as regards
that part of the debt for which the latter are responsible.

a. Single
• An obligation is single when there is only 1 debtor and 1 creditor. b.
Joint
• An obligation is joint when each of the debtor is liable only for a
proportional part of the debt, and each creditor is entitled only to a
partial part of the credit.
• A joint obligation is also called mancomunada, pro rata, mancomunada
 simple.
• General Rule: The obligation is joint since joint obligations are less
onerous.
• Exceptions:
i. Agreement of the parties
ii. Law (i.e. tort feasors are solidarily liable)
iii. Nature of the obligation
• According to many commentators, this is superfluous since a
solidary obligation arises because of law.
• ESSENTIAL NATURE: There are as many obligations as there are
creditors multiplied by as many debtors.
• Types of Joint Obligations
i. Active joint
• In active joint, there are multiple creditors.
• A, B, and C are creditors, and X is the debtor. If the obligation
is joint, there are 3 obligations – X’s obligation to A, X’s
obligation to B, and X’s obligation to C.
• The demand of 1 creditor on 1 debtor will not constitute a
demand on the others.
• The prescription of 1 of the debts will not affect the other debts.

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ii. Passive joint
• In passive joint, there are multiple debtors.
• X, Y, and Z are debtor, and A is the creditor. If the obligation is
joint, there are 3 obligations – X’s obligation to A, Y’s
obligation to A, and Z’s obligation to A.
• The demand of 1 creditor on 1 debtor will not constitute a
demand on the others.
• The prescription of 1 of the debts will not affect the other debts.
• The insolvency of 1 of the debtors will not affect the burden of
the other debtors.
iii. Mixed joint
• In mixed joint, there are multiple creditors and debtors.
• X, Y, and Z are debtors, and A, B, and C are the creditors. If the
obligation is joint, there are 9 obligations – X’s obligation to
A, X’s obligation to B, X’s obligation to C, Y’s obligation A, Y’s
obligation to B, Y’s obligation to C, Z’s obligation to A, Z’s
obligation to B, and Z’s obligation to C.
c. Solidary
• An obligation is solidary when any of the debtors can be hled liable for
the entire obligation, and any of the creditors is entitled to demand
the entire obligation.
• A solidary obligation is also called joint and several, joint and
individual, and in solidum.
• If a promissory says, “I promise to pay,” and it is signed by K, B, and
M, then the obligation is solidary.
• An obligation is solidary when
 i. The parties so agree
ii. When the law so provides (i.e. tort feasors are solidarily liable)
iii. When nature of the obligation requires the obligation to be
solidary
• According to many commentators, this is superfluous since a
solidary obligation arises because of law.
• Types of Solidary Obligations
i. Active solidary
• In active solidary, there are multiple creditors.
• Characteristics of Active Solidary
• A credit once paid is shared equally among the creditors
unless a different intention appears.
• The debtor may pay any of the creditors, but if any
demand, judicial or extrajudicial is made on him, he
must pay only to the one demanding payment (Article
1214).
• Article 1214 can be open to abuse. For example,
if A writes Y demanding the performance of the

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obligation and A takes no further action, B and C
cannot demand from Y. This is open to collusion.
• Suppose A, B, and C are creditors of X. A demands
the payment of the loan worth P9,000.
X instead pays to B. The payment to B will be
treated as a payment to a 3rd person. Therefore,
X must still pay A the amount of the loan minus
the share of B. So, X has to pay P6,000 to A.
ii. Passive solidary
• In passive solidary, there are multiple debtors.
• Characteristics of Passive Solidary
• Each debtor may be required to pay the entire obligation but
after payment, he can recover from his co-debtors their
respective shares.
iii. Mixed solidary
• In mixed solidary, there are multiple debtors and creditors. •
Characteristics of Mixed Solidary
• A credit once paid is shared equally among the creditors
unless a different intention appears.
• The debtor may pay any of the creditors, but if any demand,
judicial or extrajudicial, is made on him, he must pay only
to the one demanding payment (Article 1214).
• According to Professor Balane, Article 1214 is
problematic. For example, X owes A, B and C. B
makes an extrajudicial demand on X. X cannot pay A
or C anymore. The problem is when B does not follow
up the demand, it can keep the obligation in
suspension indefinitely.
 The rule in the Spanish Code was that the debtor
cannot pay the other non-demanding solidary
creditors only if one of the solidary creditor makes a
judicial demand.
• Suppose the debtor upon whom the demand is made
pays a creditor who did not make a demand. The
payment is considered a payment to a third person.
Therefore the debtor can still be made to pay by the
one who made the demand on him.
Example: X owes A and B. B demanded from X. X
pays A. X must still pay B P6000.
But the payment to the demanding creditor can be
reduced by the share of the paid creditor.
The debtor can still recover from the paid creditor
(unjust enrichment).
• Suppose A and B are creditors while X and Y are
debtors. A demands from Y. Now, X pays B. The
payment of X to B extinguishes the entire solidary

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Professor Ruben F. Balane Page 42 of 124
obligation. X is not bound by the demand by A on Y.
There is no violation of Article 1214.
• Each debtor may be required to pay the entire obligation
but after payment, he can recover from his co-debtors
their respective shares.
• Is there a conflict between Article 1212 and Article 1215♠? Article 1212
provides that each of the solidary creditors may do whatever may be
useful to the others, but not anything which may be prejudicial to
the latter. But Article 1215 allows novation, compensation, confusion
or remission on the part of the solidary creditor. Why? According to
Professor Balane, this is absurd.
One way of reconciling is that under Article 1215, any creditor can
remit or condone the obligation. But because the obligation is
extinguished, the condoning creditor must be liable for the other
creditor’s share. Here, there is no prejudice.
However, another problem arises if the condoning creditor later on
becomes insolvent.
• Art. 1219. The remission made by the creditor of the share
which affects one of the solidary debtors does not release the
latter from his responsibility towards the co-debtors, in case
the debt had been totally paid by anyone of them before the
remission was effected.
• A is the creditor of W, X, Y, and Z. W, X, Y, and Z owe A P6,000. The
obligation is solidary. A remits Y’s share – P1,500. A can go after X
for only P4,500. The remission benefits X initially since X only has to
pay P4,500 instead of 6,000. However, X can only recover P3,000
from W and Z.
• A is the creditor of W, X, Y, and Z. W, X, Y, and Z owe A P6,000. The
obligation is solidary. A remits Y’s share – P1,500. A can go after Y
for the balance since Y is still a solidary debtor for the balance.
Otherwise, the effect of remission would be extended. However, Y
can recover P4,500 from W, X, and Z.
 • A is the creditor of W, X, Y, and Z. W, X, Y, and Z owe A P6,000. The
obligation is solidary. A remits Y’s share – P1,500. Z becomes
insolvent. A sues W for the balance of P4,500. Art. 1217 must be
applied. Thus, the insolvency of Z is shouldered by W, X, and Y. So,
W can recover P2,000 from X and P500 from Y instead of collecting
P3,000. W has to shoulder P500 as a loss due to Z’s insolvency.

♠
Art. 1212. Each one of the solidary creditors may do whatever may be useful to the others,
but not anything which may be prejudicial to the latter.
Art. 1215. Novation, compensation, confusion or remission of the debt, made by any of
the solidary creditors or with any of the solidary debtors, shall extinguish the obligation,
without prejudice to the provisions of article 1219.
The creditor who may have executed any of these acts, as well as he who collects the debt,
shall be liable to the others for the share in the obligation corresponding to them. Art. 1215.
Novation, compensation, confusion or remission of the debt, made by any of the solidary
creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice
to the provisions of article 1219.
The creditor who may have executed any of these acts, as well as he who collects the
debt, shall be liable to the others for the share in the obligation corresponding to them.

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• 3 Kinds of Defenses
i. Real defenses
• These are defenses derived from the nature of the obligation. •
A real defense is a total defense. It benefits all the debtors. ii.
Personal defenses
• Personal defenses may either be total or partial defenses.
• An example of a total personal defense is if the consent of the
debtors were all vitiated.
• An example of a partial defense is that a certain amount is not
yet due. It is partial since there may be amounts which are
already due. Thus, the debtor has to pay for those amounts
which are due.
iii. Defenses which are personal to the other co-debtors
• The debtor can only avail himself of these defenses only with
regard to the part of the debt which his co-debtors are
responsible for.
• These defenses are partial.
• The debtor sued can invoke all three kinds of defenses. The difference
is whether such defense would result in total or partial exculpation.

4. According to Performance (Articles 1223-1225)

Art. 1223. The divisibility or indivisibility of the things that

are the object of obligations in which there is only one debtor and
only one creditor does not alter or modify the provisions of Chapter
2 of this Title.

Art. 1224. A joint indivisible obligation gives rise to

indemnity for damages from the time anyone of the debtors does
not comply with his undertaking. The debtors who may have been
ready to fulfill their promises shall not contribute to the indemnity
beyond the corresponding portion of the price of the thing or of the
 value of the service in which the obligation consists.

Art. 1225. For the purposes of the preceding articles,

obligations to give definite things and those which are not
susceptible of partial performance shall be deemed to be indivisible.
When the obligation has for its object the execution of a
certain number of days of work, the accomplishment of work by
metrical units, or analogous things which by their nature are
susceptible of partial performance, it shall be divisible.
However, even though the object or service may be
physically divisible, an obligation is indivisible if so provided by law
or intended by the parties.
In obligations not to do, divisibility or indivisibility shall be
determined by the character of the prestation in each particular
case.

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Professor Ruben F. Balane Page 44 of 124
• Divisible and indivisible obligations have nothing to do with the object of
the prestation. A common misconception is if the object of the
prestation is divisible, then the obligation is also divisible.
a. Divisible
• An obligation is divisible when it is susceptible to partial performance.
b. Indivisible
• An obligation is indivisible when it cannot be validly performed in
parts.
• General Rule: Obligations are indivisible.
• Exceptions:
i. When the parties provide otherwise (Articles 1225, 3rd ¶, 1248∅)
ii. When the nature of the obligation necessarily entails the performance
of the obligation in parts
• Example: Hiring a security guard to guard from 8pm to 2am daily
for 6 months. This obligation cannot be performed indivisibly.
You can’t compress time.
• When the obligation has for its object the execution of a certain
number of days of work, the accomplishment of work by metrical
units, or analogous things, which by their nature are susceptible
of partial performance, it shall be divisible (Article 1225, 2nd ¶)
• Exception to the Exception: However, even though the object or
service may be physically divisible, an obligation is indivisible if
1. So provided by law; or
2. Intended by the parties.
iii. When the law provides otherwise
• There are provisions on payment which provide that performance
may be divisible.
• Divisibility of the object does not mean that the obligation is also divisible.
But indivisibility of the object necessarily means an indivisible
obligation.
• The test of divisibility of an obligation is whether or not it is susceptible of
partial performance.
 • For example, if X is supposed to deliver 1000 kilos of sugar, this does
not mean that X can deliver the sugar in installments.

5. According to Sanction for Breach (Articles 1226-1230)

Art. 1226. In obligations with a penal clause, the penalty

shall substitute the indemnity for damages and the payment of

∅
Art. 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.

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Professor Ruben F. Balane Page 45 of 124
interests in case of noncompliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if the obligor refuses
to pay the penalty or is guilty of fraud in the fulfillment of the
obligation.
The penalty may be enforced only when it is demandable in
accordance with the provisions of this Code.

Art. 1227. The debtor cannot exempt himself from the

performance of the obligation by paying the penalty, save in the
case where this right has been expressly reserved for him. Neither
can the creditor demand the fulfillment of the obligation and the
satisfaction of the penalty at the same time, unless this right has
been clearly granted him. However, if after the creditor has decided
to require the fulfillment of the obligation, the performance thereof
should become impossible without his fault, the penalty may be
enforced.

Art. 1228. Proof of actual damages suffered by the creditor is

not necessary in order that the penalty may be demanded.

Art. 1229. The judge shall equitably reduce the penalty when
the principal obligation has been partly or irregularly complied with
by the debtor. Even if there has been no performance, the penalty
may also be reduced by the courts if it is iniquitous or
unconscionable.

Art. 1230. The nullity of the penal clause does not carry with
it that of the principal obligation.
The nullity of the principal obligation carries with it that of
the penal clause.

a. No penal clause

b. With penal clause

• A penal clause is an accessory undertaking to assume greater liability
in case of breach (SSS vs. Moonwalk).
• Penal clauses are governed by Articles 2226-2228⊕, the provisions on
liquidated damages since a penal clause is the same as liquidated
damages (Lambert vs. Fox).
 • Penal clauses may be reduced by the courts if unconscionable. •
2 Functions of a Penal Clause (SSS vs. Moonwalk)
i. To provide liquidated damages
• The creditor can demand liquidated damages without having to
prove actual damages.

⊕
Art. 2226. Liquidated damages are those agreed upon by the parties to a contract, to be paid
in case of breach thereof.
Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be
equitably reduced if they are iniquitous or unconscionable.
Art. 2228. When the breach of the contract committed by the defendant is not the one
contemplated by the parties in agreeing upon the liquidated damages, the law shall determine
the measure of damages, and not the stipulation.

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• The only limitation that the courts will reduce the liquidated
damages if the same is scandalously unconscionable.
ii. To strengthen the coercive force of the obligation by the threat of
greater responsibility in case of breach
• Stipulates a penalty which is greater than one without a penal
clause. Thus, Robes-Francisco states that 4% interest is not
a penal clause.
• 2 Characteristics of a Penal Clause
i. Subsidiary or alternative (Article 1227)
• General Rule: Upon breach of the obligation, the creditor has
to choose whether to demand the principal or the penalty.
• Exception: The principal obligation and the penalty can be
demanded when the penal clause is joint or cumulative. This
occurs when it is the creditor has been clearly granted such
right (Article 1227, 2nd sentence), either expressly or
impliedly. The implied right must be one ascertainable from
the nature of the obligation. An example is in the
construction industry where the contractor must pay the
penalty if the work is completed after the stipulated time
frame but must also finish the agreed construction.
ii. Exclusive (Article 1226)
• General Rule: The penalty clause takes the place of other
damages (that’s why in imposing a penalty clause, make sure
that the penalty is stiff).
• Exception: Both the penalty and actual damages may be
recovered in the following:
1. Express stipulation
2. Refusal by the debtor to pay the penalty
3. The debtor is guilty of fraud (malice) in the performance of
the obligation.
• In Pamintuan vs. CA, the Supreme Court said that the
excess of damages absorbs the penalty. Professor
Balane said that this is a wrong application. You can
demand both the excess and the penalty.
•
LECTURE NOTES ON CIVIL LAW
Professor Ruben F. Balane Page 47 of 124
H. Extinguishment of Obligations

Art. 1231. Obligations are extinguished:

(1) By payment or performance:
(2) By the loss of the thing due:
(3) By the condonation or remission of the debt;
(4) By the confusion or merger of the rights of 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.

1. Payment or Performance (Articles 1232 – 1251)

Art. 1232. Payment means not only the delivery of money but
also the performance, in any other manner, of an obligation.

Art. 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.

Art. 1234. If the obligation has been substantially performed

in good faith, the obligor may recover as though there had been a
strict and complete fulfillment, less damages suffered by the
obligee.

Art. 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.

Art. 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 from the debtor what
he has paid, except that if he paid without the knowledge or against
the will of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor.
 Art. 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.

Art. 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.

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Art. 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."

Art. 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.

Art. 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 made 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.

Art. 1242. Payment made in good faith to any person in

possession of the credit shall release the debtor.

Art. 1243. Payment made to the creditor by the debtor after

the latter has been judicially ordered to retain the debt shall not be
valid.

Art. 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 or forbearance
cannot be substituted by another act or forbearance against the
obligee's will.

Art. 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.

Art. 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.

Art. 1247. Unless it is otherwise stipulated, the extrajudicial

expenses required by the payment shall be for the account of the
debtor. With regard to judicial costs, the Rules of Court shall
govern.

Art. 1248. Unless there is an express stipulation to that

effect, the creditor cannot be compelled partially to receive the

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Professor Ruben F. Balane Page 49 of 124
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.

Art. 1249. 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.
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 derived from the original
obligation shall be held in the abeyance.

Art. 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.

Art. 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 has
incurred in delay, the additional expenses shall be borne by him.
These provisions are without prejudice to venue under the
Rules of Court.

• Like obligee and creditor, payment and performance are twin terms.
Payment refers to obligations to give while performance refers to
obligations to do.
• Payment and performance is the paradigmatic mode. When obligations are
entered into, the parties expect payment or performance. All other
modes of extinguishing obligations are abnormal modes.
• Requisites of Payment
 a. As to prestation
i. Identity
• Identity means that the very prestation must be performed.
• For example, if the obligation is to give a car, one cannot fulfill
the obligation pay giving a house.

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Professor Ruben F. Balane Page 50 of 124
• If the prestation is specific, the debtor must give or deliver the
specific thing which was agreed upon (Article 1244⊗).
• If the prestation is generic, the creditor cannot demand a thing
of superior quality. However, the debtor cannot give a
thing of inferior quality (Article 1246℘).
• The payment of debts in money shall be made in the currency
stipulated, and if it not possible to deliver such
currency, then in the currency which is legal tender in the
Philippines (Article 1249ℵ, 1st ¶).
R.A. No. 529 has been repealed by R.A. No. 8183 which
allows payment in different currency. However, in the
absence of an agreement, payment shall be made in P.
• Negotiable papers and other commercial documents can be
refused by the creditor unless there is stipulation to the
contrary.
• If the negotiable papers and other commercial documents are
accepted by the creditor, it has only a provisional effect.
There is payment only in the following (Article 1249ℵ, 2nd ¶).
1. When they have been honored and cashed; or
2. When through the fault of the creditor, they have been
impaired
In the case of NAMARCO, the check must be the check of
another person, not a party, before there will be impairment.
For example, A gave B a check as payment for a loan. B did
not encash the check as a result of which, the check became
stale. There is no impairment here. B can still ask A for
payment of the loan.
However, if B endorsed a check made by A to C as payment
for a loan and C did not encash the check which became
stale, then C can no longer ask B to pay him again.
• In the case of Pacific Timber, the Supreme Court said that a
certified check or a manager’s check is considered as good as
cash. But newer cases say that such instruments are not
considered legal tender and thus, the creditor can refuse to

⊗
Art. 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 or forbearance cannot be substituted by another act or
forbearance against the obligee's will.
℘
Art. 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.
ℵ
Art. 1249. 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.
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 derived from the original obligation shall be held in the
abeyance.

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Professor Ruben F. Balane Page 51 of 124
accept. For example, A gives B a manager’s check and bank
closes for a bank holiday.
• Article 1250* was applied only during the Japanese occupation.
• Exceptions to the Requirement of Identity
1. Dacion en pago (Article 1245)

Art. 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.

2. Novation
ii. Integrity
• Identity means that the entire prestation must be performed –
completeness (Article 1233♣)
• Exceptions to Integrity
1. Substantial compliance in good faith (Article 1234)

Art. 1234. If the obligation has been

substantially performed in good faith, the obligor
may recover as though there had been a strict and
complete fulfillment, less damages suffered by the
obligee.

2. Waiver (Article 1235)

Art. 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.

3. In application of payments if the debts are equally

onerous (Article 1254, 2nd ¶)

Art. 1254, 2nd ¶. If the debts due are of the

same nature and burden, the payment shall be
applied to all of them proportionately.
*
Art. 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.
♣
Art. 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.

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Professor Ruben F. Balane Page 52 of 124
iii. Indivisibility
• Indivisibility means that the obligor must perform the
prestation in one act and not in installments (Article 1248).
The creditor can validly refuse if the performance is not in
one act.
• Exceptions to Indivisibility (Cases when the law allows
installment performance)
1. In case of express stipulation (Article 1248)

Art. 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.

2. In prestations which necessarily entail partial performance

(Article 1225, 2nd ¶)

Art. 1225, 2nd ¶. When the obligation has for

its object the execution of a certain number of days
of work, the accomplishment of work by metrical
units, or analogous things which by their nature are
susceptible of partial performance, it shall be
divisible.

3. If the debt is liquidated in part and unliquidated in part

(Article 1248)

Art. 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.

4. In joint divisible obligations (Article 1208)

Art. 1208. If from the law, or the nature or

the wording of the obligations to which the
preceding article refers the contrary does not
appear, the credit or debt shall be presumed to be
divided into as many shares as there are creditors
or debtors, the credits or debts being considered
distinct from one another, subject to the Rules of
Court governing the multiplicity of suits.

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Professor Ruben F. Balane Page 53 of 124
5. In solidary obligations when the debtors are bound under
different terms and conditions (Article 1211)

Art. 1211. Solidarity may exist although the

creditors and the debtors may not be bound in the
same manner and by the same periods and
conditions.

6. In compensation where there is a balance left (Article

1290)

Art. 1290. When all the requisites mentioned

in article 1279 are present, compensation takes
effect by operation of law, and extinguishes both
debts to the concurrent amount, even though the
creditors and debtors are not aware of the
compensation.

7. If the work is to be delivered partially, the price or

compensation for each part having been fixed (Article
1720)

Art. 1720. The price or compensation shall

be paid at the time and place of delivery of the
work, unless there is a stipulation to the contrary.
If the work is to be delivered partially, the price or
compensation for each part having been fixed, the
sum shall be paid at the time and place of delivery,
in the absence if stipulation.

8. In case of several guarantors who demand the right of

division (Article 2065)

Art. 2065. Should there be several

guarantors of only one debtor and for the same
debt, the obligation to answer for the same is
divided among all. The creditor cannot claim from
the guarantors except the shares which they are
respectively bound to pay, unless solidarity has
been expressly stipulated.
The benefit of division against the co
guarantors ceases in the same cases and for the
 same reasons as the benefit of excussion against
the principal debtor.

9. In case of impossibility or extreme difficult of a single

performance
• For example, A is obligated to deliver 1 million bags of
cement. Under the circumstances, this may be
extremely difficult.
b. As to the parties
i. Payor, Obligor, Debtor

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Professor Ruben F. Balane Page 54 of 124
• Who may be the Payor
1. Without the consent of the creditor
a. The debtor himself
b. The debtor’s heirs or assigns
c. The debtor’s agent
d. Anyone interested in the fulfillment of the obligation
(e.g. guarantor)
2. With the consent of the creditor
• Anyone can pay if the creditor consents
• Effect of Payment by a 3rd Person
1. Payment was with the Debtor’s Consent
• General Rule: The payor steps into the shoes of the
creditor and becomes entitled not only to recover
what he has paid, but also to exercise all the rights
which the creditor could have exercised – subrogation
(Articles 1236, 1237♦).
• There is no extinguishment of the obligation but a
change in the active subject.
• Exception: No subrogation if intended to be a
donation (Article 1238♥).
2. Payment was without the Debtor’s Consent
• The 3rd person may demand repayment to the extent
that the debtor has benefited (Article 1236, 2nd ¶♦).
ii. Payee, Obligee, Creditor
• Who may be the Payee
1. The creditor himself (Articles 1240, 1626♠)
2. The creditor’s successor or transferee (Article 1240)
3. The creditor’s agent (Article 1240)
4. Any third person subject to the following conditions:

♦
Art. 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 from the debtor what he has paid, except that
if he paid without the knowledge or against the will of the debtor, he can recover only insofar as
the payment has been beneficial to the debtor.
Art. 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.
♥
Art. 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.
♠
Art. 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. Art. 1626. The
debtor who, before having knowledge of the assignment, pays his creditor shall be released
from the obligation.

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a. Provided it redounded to the creditor’s benefit and
only to the extent of such benefit (Article 1241∅, 2nd
par)
b. If it falls under Article 1241 ¶2 (1), (2) and (3), the
benefit is total.
5. Anyone in possession of the credit (Article 1242⊕)
6. In all these 5 instances, it is required that the debt
should not be garnished (Article 1242). If there is
payment despite garnishment, then there is no payment.
c. As to the time and place of performance
i. When Payment Should be Made
• Payment should be made when it is due.
• Even if the payment is due, the General Rule is that demand
is still necessary.
• Article 1169⊗ provides the instances when demand is not
necessary
1. When the obligation or the law expressly so declares
2. Time is the controlling motive for the establishment of
the contract
3. Demand would be useless
ii. Where Payment Should be Made:
• Primary Rule: Agreement of the parties
• Secondary Rule: Place where the thing was at the time the
obligation was constituted if the obligation is to deliver a
determinate thing

∅
Art. 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 made 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.
⊕
Art. 1242. Payment made in good faith to any person in possession of the credit shall release
the debtor.
⊗
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation. However, the
demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be
rendered was a controlling motive for the establishment of the contract; 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.

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• Tertiary Rule: Debtor’s domicile (not residence)
• 4 Special Forms of Payment
a. Dacion en pago (Article 1245)

Art. 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.

• Dacion en pago is the act of extinguishing the obligation by the

substitution of payment. It is the delivery and transmission of
ownership of a thing by the debtor to the creditor as an accepted
performance/payment of an obligation.
• By agreement of the parties, the prestation is changed.
• Dacion en pago is a special form of payment since it does not
comply with the requisite of identity.
• Other terms for dacion en pago include dation in payment, dation
en paiement and datio in solutum.
• Dacion en pago is governed by the law on sales (Article 1245).
• There are 2 ways of looking at dacion en pago. The traditional way
is to view dacion en pago as a sale.
• Example: A owes B P100,000. A has no cash when the loan falls
due but he offers the car if B wants it. B accepts.
• Here, the debt is in money but payment is in something else.
• According to the old traditional concept, it is like a sale because
P100,000 seemed to be the purchase price and the car is the
object.
• However, the modern view is to look at dacion en pago as a
novation.
• Castan has another view of dacion en pago. He believes that it is
neither a sale nor a novation but a special form of payment. It is
a species/variation of payment implying an onerous transaction
similar to but not equal to a sale. It is not novation since there is
no new obligation.
• Dacion en pago will take place only if the parties consent.
• Dacion en pago extinguishes the obligation up to the value of the
thing delivered unless the parties agree that the entire obligation
is extinguished (Lopez vs. CA).
b. Application of payments (Articles 1252-1254)
 Art. 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

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Professor Ruben F. Balane Page 57 of 124
cannot complain of the same, unless there is a cause for
invalidating the contract.

Art. 1253. If the debt produces interest, payment of

the principal shall not be deemed to have been made until the
interests have been covered.

Art. 1254. When the payment cannot be applied in

accordance with the preceding rules, or if application can not
be inferred from other circumstances, the debt which is most
onerous to the debtor, among those due, shall be deemed to
have been satisfied.
If the debts due are of the same nature and burden,
the payment shall be applied to all of them proportionately.

• Application payment is the designation of the debt which is being

paid by a debtor who has several obligations of the same kind in
favor of the creditor to whom payment is made.
• The situation in application of payments is that a debtor owes his
creditor. There are several debts due, but the debtor cannot pay
all of the debts due.
• Example: A owes B P2000, P3000 and P10,000. A gives B P15,000.
There is no application of payment here because it is equal to
the total amount due.
• The creditor can always not accept application of payments since
the creditor cannot be compelled to accept partial performance
of the obligation. However, this may not be wise since the debtor
may have other creditors.
• The rules on application of payment solve the problem of
distributing the payment which is less than the total obligation.
• Rules in Application of Payment
• 1st Rule: Apply in accordance with the agreement
• 2nd Rule: If there is no agreement, the debtor has the right to
apply
• 3rd Rule: If the debtor does not choose, the creditor can
choose.
• 4th Rule: Apply to the most onerous debt (Article 1254, ¶1) •
Rules to Determine Which is the More Onerous Obligation
i. An interest bearing obligation is more onerous than a
non-interest bearing obligation.
 ii. An older debt is more onerous than a recent debt
iii. An obligation where the party is bound as a principal is
more onerous than an obligation is bound as a surety
iv. An obligation which is secured is more onerous than an
obligation which is unsecured
v. An obligation with a penal clause is more onerous than
an obligation without a penal clause

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• 5th Rule: If equally onerous, apply proportionately (Article
1254, ¶2)
c. Payment by cession (Article 1255)

Art. 1255. The debtor may cede or assign his property

to his creditors in payment of his debts. This cession, unless
there is stipulation to the contrary, shall only release the
debtor from responsibility for the net proceeds of the thing
assigned. The agreements which, on the effect of the cession,
are made between the debtor and his creditors shall be
governed by special laws.

• The situation is contemplated here is that the debtor has several

creditors and several debts. He turns over property to his
creditors who are given the authority to sell the property and to
apply the proceeds to his debt.
• In payment by cession, property is turned over by the debtor to
the creditors who acquire the right to sell it and divide the net
proceeds among themselves.
• In payment by cession, the creditors do not own the property to be
sold. The creditors only have the power to sell. The net proceeds
of the sale will be distributed according to the agreement.
• Payment by cession is a special form of payment because there is
no completeness of performance – integrity. In most cases, there
will be a balance due.
• Payment by Cession Distinguished from Dacion en Pago
• In dacion en pago, there is a transfer of ownership from the
debtor to the creditor. In payment by cesion, there is no
transfer of ownership. The creditors simply acquire the right
to sell the properties of the debtor and apply the proceeds of
the sale to the satisfaction of their credit.
• Payment by cession does not generally terminate all debts due
since normally there is still a balance due. The balance will
continue to be due unless the parties agree otherwise.
Usually, the termination is only to the extent of the net
proceeds. The extinguishment of the obligation is pro tanto.
• Payment by cession must be distinguished from insolvency. •
2 Kinds of Insolvency
i. Extrajudicial or Voluntary
• In extrajudicial insolvency, if there is a balance left, the
debtor must still pay.
• However, the debtor may limit which properties will be
 sold by the creditors since the agreement is
contractual.
ii. Judicial
• In judicial insolvency, the obligation is totally
extinguished even if there’s still a balance.

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• In judicial insolvency, every property which is not
exempt from attachment or execution is made
available for sale.
d. Tender of payment and consignation (Article 1256-1261)

Art. 1256. If the creditor to whom tender of payment

has been made refuses without just cause to accept it, the
debtor shall be released from responsibility by the
consignation of the thing or sum due.
Consignation alone shall produce the same effect in
the following cases:
(1) When the creditor is absent or unknown, or does not
appear at the place of payment;
(2) When he is incapacitated to receive the payment at
the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to
collect;
(5) When the title of the obligation has been lost.

Art. 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.

Art. 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.

Art. 1259. The expenses of consignation, when

properly made, shall be charged against the creditor.

Art. 1260. Once the 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 the
sum deposited, allowing the obligation to remain in force.
 Art. 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.

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Professor Ruben F. Balane Page 60 of 124
• Consignation is the act of depositing the thing due w/ the court or
judicial authorities whenever the creditor cannot accept or
refuses to accept payment and it generally requires a prior
tender of payment.
• It is defined in the case of Soco vs. Militante as a deposit of the
object of the prestation in a competent court in accordance with
the rules prescribed by law, after tender of payment was refused
or circumstances which render payment impossible or
inadvisable.
• According to Professor Balane, the title of the subsection is wrong.
It should have been consignation only because that is the special
mode of payment and not the tender of payment.
• Tender of payment is a manifestation made by the debtor of his
willingness, readiness and ability to pay.
• It is a special mode of payment because payment is made not to
the creditor but to the court.
• Consignation is an option on the part of the debtor because
consignation assumes that the creditor was in mora accipiendi
when the creditor without just cause, refuses to accept payment.
Of course, if the creditor without just cause refuses to accept
payment, the debtor may just delay payment. But something
still hangs above his head. He is therefore, given the option to
consign.
• Requisites:
i. That there was a debt due
ii. That the consignation of the obligation had been made
because of some legal cause, either because
1. Tender of payment was unjustly refused by the creditor or
2. There is no need for tender of payment due to
circumstances which make tender of payment impossible
or inadvisable
• Circumstances Which Make Tender of Payment
Unnecessary (Article 1256)
a. The creditor was absent or unknown, or does not
appear at the place of payment
b. The creditor was incapacitated to receive the
payment at the time it was due
• Payment made to an incapacitated person
does not count except to the extent that the
incapacitated person is benefited.
c. The creditor, without just cause refuses to give a
receipt
• According to Professor Balane, this is wrong.
This is not a special case wherein you don’t
 need tender of payment. This presupposes
that there has been a prior tender of payment.

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Professor Ruben F. Balane Page 61 of 124
d. Several persons claimed to be entitled to receive
the amount due
• The debtor should file interpleader with
consignation
e. The title of the obligation has been lost
iii. That previous notice of the consignation had been given to
the person interested in the performance of the obligation
(Article 1257)
iv. That the amount due was placed at the disposal of the court
(consignation proper)
v. That after the consignation had been made the person
interested was notified thereof (second notice.)
• Failure of any of these requirements is enough ground to
render a consignation ineffective.
2. Loss of the Thing Due (Articles 1262-1269)

Art. 1262. 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 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.

Art. 1263. In an obligation to deliver a generic thing, the loss

or destruction of anything of the same kind does not extinguish the
obligation.

Art. 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.

Art. 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.

Art. 1266. The debtor in obligations to do shall also be

released when the prestation becomes legally or physically
impossible without the fault of the obligor.

Art. 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.
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Professor Ruben F. Balane Page 62 of 124
Art. 1269. The obligation having been extinguished by the
loss of the thing, the creditor shall have all the rights of action
which the debtor may have against third persons by reason of the
loss.

• Loss of the thing here is not to be taken in the strict legal meaning of
“loss”. Loss can be applied in an obligation to give a determinate thing
(Article 1262), in an obligation to give a generic thing (Article 1263) and
in an obligation to do (Article 1266).
• The term loss embraces all causes which may render impossible the
performance of the prestations – impossibility of performance .
• A thing is lost when it perishes, or goes out of commerce, or disappears in
such a way that its existence is unknown or it cannot be recovered.
• 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 (Article 1268).
• Kinds of Impossibility According to Time
a. Original Impossibility
• If the impossibility had already existed when the contract was
made, then the result is not extinguishments but inefficacy of
the obligation under Articles 1348 and 1493℘. The contract is
void.
b. Supervening Impossibility
• The impossibility of performance must be subsequent to the
execution of the contract in order to extinguish the obligation.
• Change in the Circumstances
• Rebus sic stantibus literally means “things as they stand.” It is
short for clausula rebus sic stantibus – agreement of
things as they stand. Also called Riesgo imprevisible
(Spanish), Theorie d’imprevision (French) and Verschuvinden
des Grundgeschäftes (German).

Art. 1267. When the service has become so

difficult as to be manifestly beyond the contemplation
of the parties, the obligor may also be released
therefrom, in whole or in part.

• In Roman law, no matter how difficult the obligation is, it has to

be performed or else the obligor may be liable for
damages (pacta sunt servanda). In Medieval times, although
agreements should be complied with, in certain extreme

℘
Art. 1348. Impossible things or services cannot be the object of contracts.
Art. 1493. If at the time the contract of sale is perfected, the thing which is the object
of the contract has been entirely lost, the contract shall be without any effect. But if the thing
should have been lost in part only, the vendee may choose between withdrawing from the
contract and demanding the remaining part, paying its price in proportion to the total sum
agreed upon.

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Professor Ruben F. Balane Page 63 of 124
circumstances, the debtor can be released because of the
difficulty in performance.
• This is a principle of international law which holds that when 2
states enter into a treaty, they enter taking into account the
circumstances at the time it was entered into and should the
circumstances change as to make the fulfillment of the treaty
very difficult, one may ask for a termination of the treaty.
This principle of international law has spilled over into Civil
law.
• The underlying philosophy here is that when parties enter into
an agreement, the parties contemplate existing
circumstances. When things supervene, the parties may be
discharged because they did not contemplate such difficult
circumstances.
• This doctrine is also called the doctrine of extreme difficulty and
frustration of commercial object or enterprise.
• The attitude of the courts on this doctrine is very strict. This
principle has always been strictly applied. To give it a liberal
application is to undermine the binding force of an obligation.
Every obligation is difficult. The performance must be
extremely difficult in order for rebus sic stantibus to apply.
• Requisites
i. The event or change could not have been foreseen at the
time of the execution of the contract
ii. The event or change makes the performance extremely
difficult but not impossible
iii. The event must not be due to an act of either party
iv. The contract is for a future prestation.
• If the contract is of immediate fulfillment, the gross inequality
of the reciprocal prestation may involve lesion or want of
cause.
• Obligation to Give
a. Obligation to give a determinate thing
• The happening of a fortuitous event in itself does not necessarily
extinguish an obligation to deliver a determinate thing. An
obligation consisting in the delivery of a specified thing, shall be
extinguished when the said thing is lost or destroyed without the
fault of the obligor and before he is in default.
• 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 (Article 1265)
b. Obligation to give a generic thing
• The happening of a fortuitous event does not extinguish the
obligation to deliver a generic thing Genus nunquam perit – “genus
never perishes.” This is the general rule. Sometimes, though, the
entire genus perishes because it becomes illegal.
LECTURE NOTES ON CIVIL LAW
Professor Ruben F. Balane Page 64 of 124
• What is not covered by this rule is an obligation to deliver a limited
generic.
Example: I promise to deliver to you one of my Amorsolos (I
have 4). This is not generic because I only have four but not
specific because I did not specify which one. This is governed by
Article 1262. In this case, the obligation may be extinguished by
the loss of all the things through fortuitous event.
• Obligation to do
• The debtor in obligations to do shall also be released when the
prestation becomes legally or physically impossible without the fault
of the obligor (Article 1266).
• The impossibility here must be supervening. If it is original, then the
contract is void.
• Kinds of Impossibility According to Nature
a. Objective Impossibility
• In objective impossibility, the act cannot be done by anyone. The
effect of objective impossibility is to extinguish the obligation.
b. Subjective Impossibility
• In subjective impossibility, the obligation becomes impossible only
w/ respect to the obligor. There are 3 views as to the effect of a
subjective impossibility:
i The obligation is not extinguished. The obligor should ask
another to do the obligation.
ii. The obligation is extinguished.
iii. A third view distinguishes one prestation which is very
personal and one which are not personal such that subjective
impossibility is a cause for extinguishes a very personal
obligation but not an obligation which is not very personal.
• Effect of Loss on Creditor’s Rights
• The obligation having been extinguished by the loss of the thing, the
creditor shall have all the rights of action which the debtor may have
against the third person by reason of the loss.
• A common example of this is insurance.
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Professor Ruben F. Balane Page 65 of 124
3. Condonation or Remission of the Due

Art. 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 forms of donation.

Art. 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 this waiver it should be claimed to be
inofficious, the debtor and his heirs may uphold it by proving that
the delivery of the document was made in virtue of payment of the
debt.

Art. 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 delivered it voluntarily, unless the
contrary is proved.

Art. 1273. The renunciation of the principal debt shall

extinguish the accessory obligations; but the waiver of the latter
shall leave the former in force.

Art. 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.

• Condonation or remission is an act of liberality by virtue of which, without

receiving any equivalent, the creditor renounces enforcement of an
obligation which is extinguished in whole or in part.
• Requisites
a. The debt must be existing
• You can remit a debt even before it is due.
Example: I owe A P1M. I promised to pay on July 31, 2002 with
interest. On May 31, A condones the obligation. The obligation is
 existing but not yet due but it can be condoned.
b. The renunciation must be gratuitous
• If renunciation is for a consideration, the mode of extinguishment
may be something else. It may be novation, compromise or
dacion en pago for example.
c. There must be acceptance by the debtor
d. The parties must have capacity
• The creditor must have capacity to give away.
• The debtor must have capacity to accept.

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• Form
a. If the renunciation is express, then it is a donation.
• The form of donation must be observed. If the condonation
involves movables, apply Article 748ℵ. If it involves immovables,
apply Article 749ℵ.
b. If the renunciation is implied, then it is tantamount to a waiver.
• There is no prescribed form in a waiver (Article 6*). For example,
the creditor can just refuse to collect the debt.
• According to Professor Balane, Articles 1271 and 1272♣ refer to a
kind of implied renunciation when the creditor divests himself of
the proof credit.
• The delivery of a private document, evidencing a credit, made
voluntarily by the creditor to the debtor, implies the renunciation
of the action which the former had against the latter.
• If in order to nullify this waiver it should be claimed to be
inofficious, the debtor and his heirs may uphold it by providing
that the delivery of the document was made in virtue of payment
of the debt (Article 1271).
• Article 1271 has no application to public documents because
there is always a copy in the archives which can be used to
prove the credit. Private document refers to the original in
order for Article 1271 to apply.
• By delivering the private document, the creditor deprives
himself of proof.
• The second paragraph of Article 1271 implies that the voluntary
return of the title of credit is presumed to be by
reason of remission and not by reason of the payment of

ℵ
Art. 748. The donation of a movable may be made orally or in writing. An oral donation
requires the simultaneous delivery of the thing or of the document representing the right
donated.
If the value of the personal property donated exceeds five thousand pesos, the
donation and the acceptance shall be made in writing, otherwise, the donation shall be void.
(632a)
Art. 749. In order that the donation of an immovable may be valid, it must be made in
a public document, specifying therein the property donated and the value of the charges which
the donee must satisfy.
 The acceptance may be made in the same deed of donation or in a separate public
document, but it shall not take effect unless it is done during the lifetime of the donor. If the
acceptance is made in a separate instrument, the donor shall be notified thereof in an authentic
form, and this step shall be noted in both instruments.
*
Art. 6. Rights may be waived, unless the waiver is contrary to law, public order, public policy,
morals, or good customs, or prejudicial to a third person with a right recognized by law. ♣ Art.
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 this waiver it should be claimed to be inofficious, the debtor and his
heirs may uphold it by proving that the delivery of the document was made in virtue of
payment of the debt. (1188)
Art. 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 delivered it voluntarily, unless
the contrary is proved.

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Professor Ruben F. Balane Page 67 of 124
debt. According to Professor Balane, this is anomalous. This
provision is absurd and immoral in that it authorizes the
debtor and his heirs to prove that they paid the debt, when
the provision itself assumes that there has been a remission,
which is gratuitous.
• Whenever the private document in which the debt appears is found
in the possession of the debtor, it shall be presumed that the
creditor delivered it voluntarily, unless the contrary is proved
(Article 1272).
• 2 Presumptions:
i. If a private document is found in the possession of the debtor,
then it is presumed that the creditor voluntarily delivered it
to him
ii. Since the creditor voluntarily delivered the private document,
then there is a presumption of remission
• Ways of Remission
a. By will
b. By agreement
• Effect of Partial Remission
• The renunciation of the principal debt shall extinguish the accessory
obligations; but the waiver of the latter shall leave the former in
force (Article 1273).
Example: Loan secured by a mortgage. If I condone the loan, I
condone the mortgage. But if I condone the mortgage, I do not
condone the loan which merely becomes unsecured.
• The obligation of the guarantor is extinguished at the same time as
that of the debtor, and for the same causes as all other obligations
(Article 2076).
• The guarantors, even though they be solidary, are released from their
obligation whenever by some act of the creditor they cannot be
subrogated to the rights, mortgages, and preferences of the latter
(Article 2080).
• 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 (Article 1274).
• According to Professor Balane, the accessory obligation of pledge is
 extinguished because pledge is a possessory lien. The
presumption in this case is that the pledgee has surrendered the
thing pledged to the pledgor. However, this is not a conclusive
presumption according to Article 2110, ¶2.
• This presumption is not applicable in a mortgage since there is no
possessory lien.
• In addition to the requisites prescribed in article 2085, it is necessary,
in order to constitute the contract of pledge, that the thing pledged
be placed in the possession of the creditor, or of a third person by
common agreement (Article 2093)

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• The debtor cannot ask for the return of the thing pledged against the
will of the creditor, unless and until he has paid the debt and its
interest, with expenses in a proper case (Article 2105).
4. Confusion or Merger of Rights

Art. 1275. The obligation is extinguished from the time the

characters of creditor and debtor are merged in the same person.

Art. 1276. Merger which takes place in the person of the

principal debtor or creditor benefits the guarantors. Confusion
which takes place in the person of any of the latter does not
extinguish the obligation.

Art. 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 is the meeting in one person of the qualities of the creditor and
debtor with respect to the same obligation.
• Confusion or merger of rights extinguishes the obligation because the
creditor becomes his own debtor. Therefore, how can the creditor sue
himself.
• Requisites of Confusion
a. It must take place between the creditor and the principal debtor
(Article 1276)
• A borrowed P 1M from B with C as guarantor. If C acquires the right
to collect the P 1M, there is no confusion since C is neither a
principal debtor or creditor. The effect is that the guaranty is
extinguished. The principal obligation remains.
b. The very same obligation must be involved (Article 1275)
• Usual Causes of Confusion
a. Succession (compulsory, testate, intestate)
b. Donation
c. Negotiation of a negotiable instrument
• Confusion can overlap with remission or payment.
Example of confusion overlapping with remission: X owes O P100,000.
O bequeath to X that credit. And then she died. In this case, there is
extinguishment both by merger. But in this case, merger could overlap
with remission.
 Example of confusion overlapping with payment. A makes a promissory
note and endorses it to B. B endorsed it to C. C to D. D endorsed it back
to A.
5. Compensation

Art. 1278. Compensation shall take place when two persons,

in their own right, are creditors and debtors of each other.

Art. 1279. In order that compensation may be proper, it is

necessary:

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(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 kind, and also of
the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they 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.

Art. 1280. Notwithstanding the provisions of the preceding

article, the guarantor may set up compensation as regards what the
creditor may owe the principal debtor.

Art. 1281. Compensation may be total or partial. When the

two debts are of the same amount, there is a total compensation.

Art. 1282. The parties may agree upon the compensation of

debts which are not yet due.

Art. 1283. If one of the parties to a suit over an obligation

has a claim for damages against the other, the former may set it off
by proving his right to said damages and the amount thereof.

Art. 1284. When one or both debts are rescissible or voidable,

they may be compensated against each other before they are
judicially rescinded or avoided.

Art. 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.
 Art. 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.

Art. 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.

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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.

Art. 1288. Neither shall there be compensation if one of the

debts consists in civil liability arising from a penal offense.

Art. 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.

Art. 1290. When all the requisites mentioned in article 1279

are present, compensation takes effect by operation of law, and
extinguishes both debts to the concurrent amount, even though the
creditors and debtors are not aware of the compensation.

• Compensation is a mode of extinguishing, to the concurrent amount, the

obligations of those persons who in their own right are reciprocally
debtors and creditors of each other.
• Perhaps, next to payment, compensation is the most common mode of
extinguishing an obligation.
• Compensation Distinguished from Confusion
• In compensation, there are 2 parties and 2 debts, whereas in
confusion, there are 2 debts and only 1 party.
• Kinds of Compensation
a. Legal (Article 1279)
• Legal compensation takes place automatically by operation of law
once all the requisites under Article 1279 are present.
• Requisites
i. The parties must be mutually debtors and creditors of each
other in their own right and as principals.
• There can be no compensation if 1 party occupies only a
representative capacity (i.e. agent). Likewise, there can
be no compensation if in one obligation, a party is a
principal obligor and in another obligation, he is a
guarantor.
ii. The things due must be fungible
• Article 1279 uses the word “consumable”. This is wrong. The
proper terminology is “fungible” which refers to things of
the same kind which in payment can be substituted for
another.
 iii. The 2 debts must be due
iv. The 2 debts must be liquidated and demandable
• Demandable means that the debts are enforceable in court,
there being no apparent defenses inherent in them. The
obligations must be civil obligations, excluding those that
are purely natural. Before a judicial decree of rescission
or annulment, a rescissible or voidable debt is valid and
demandable; hence, it can be compensated.

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• A debt is liquidated when its existence and amount are
determined. And a debt is considered liquidated, not only
when it is expressed already in definite figures w/c do not
require verification, but also when the determination of
the exact amount depends only on a simple arithmetical
operation.
v. Neither of the debts must not be garnished
vi. Compensation must not be prohibited by law
• Articles 1287, 1288 and 1794♦ are examples of when
legal compensation is not allowed.
• Legal compensation is not allowed when there is
conventional or facultative compensation.
• Effect of Legal Compensation
• 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
(Article 1289)
• When all the requisites mentioned in article 1279 are present,
compensation takes effect by operation of law, and
extinguishes both debts to the concurrent amount, even
though the creditors and debtors are not aware of the
compensation (Article 1290)
b. Facultative (Articles 1287, 1288)
• Facultative compensation takes place when compensation is
claimable by only one of the parties but not of the other.
• 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 (Article 1287)
• The prohibition of compensation when one of the debts arises
from a depositum or commodatum is based on justice.
A deposit is made or a commodatum is given on the basis of
confidence in the depositary or the borrower. It is therefore,
a matter of morality, that the depositary or the borrower
should in fact perform his obligation; otherwise, the trust or
confidence of the depositor or lender would be violated.
• With respect to future support, to allow its extinguishments by
compensation would defeat its exemption from
 attachment and execution (Article 205, Family Code) and
may expose the recipient to misery and starvation.
However, support in arrears can be compensated.

♦
Art. 1794. Every partner is responsible to the partnership for damages suffered by it through
his fault, and he cannot compensate them with the profits and benefits which he may have
earned for the partnership by his industry. However, the courts may equitably lessen this
responsibility if through the partner's extraordinary efforts in other activities of the partnership,
unusual profits have been realized.

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• The depositary cannot set up compensation w/ respect to the
things deposited to him. But the depositor can set up the
compensation.
Example: A is a warehouseman. B deposits 1000 quedans of
rice with A. B also owes A 1000 kilos of rice. A cannot claim
compensation but B can set up compensation.
• Neither shall there be compensation if one of the debts consists in
civil liability arising from a penal offense (Article 1288)
• If 1 of the debts consists in civil liability arising from a penal
offense, compensation would be improper and inadvisable
because the satisfaction of such obligation is imperative.
• The person who has the civil liability arising from the crime
cannot set up compensation. However, the offended party is
entitled to set up compensation.
c. Conventional or Contractual (Article 1282)
• Contractual or conventional compensation takes place when parties
agree to set-off even if the requisites of legal compensation are
not present.
• The parties may agree upon the compensation of debts which are
not yet due.
• The parties may compensate by agreement any obligations, in w/c
the objective requisites provided for legal compensation are not
present.
d. Judicial (Article 1283)
• Judicial compensation is compensation decreed by the court in a
case where there is a counterclaim.
• 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.
LECTURE NOTES ON CIVIL LAW
Professor Ruben F. Balane Page 73 of 124
• Effect of Assignment (Article 1285)
Situation:
Creditor

A Debtor B
C
I
Debtor Creditor

II

There are two credits – credit I and credit II. In credit I, A is the
creditor and B is the debtor. In credit II, B is the creditor and A is the
debtor. A wants to assign credit I to C. A cannot assign credit II since it
is passive subjective novation. Can B now invoke against C the
compensation of credit II?
It depends:
a. If the assignment is with the debtor’s (B’s) consent
• Debtor cannot set up compensation at all unless the right is
reserved.
b. If the assignment is with the debtor’s (B’s) knowledge but without
consent
• The debtor can set up compensation with a credit already existing
at the time of the assignment.
c. If the assignment is without the debtor’s (B’s) knowledge
• Debtor can set up as compensation any credit existing at the time
he acquired knowledge even if it arose after the actual
assignment.
6. Novation
 Art. 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.

Art. 1292. In order that an obligation may be extinguished by

another which substitute the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.

Art. 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.

Art. 1294. If the substitution is without the knowledge or

against the will of the debtor, the new debtor's insolvency or non

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Professor Ruben F. Balane Page 74 of 124
fulfillment of the obligations shall not give rise to any liability on
the part of the original debtor.

Art. 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 the delegated his debt.

Art. 1296. When the principal obligation is extinguished in

consequence of a novation, accessory obligations may subsist only
insofar as they may benefit third persons who did not give their
consent.

Art. 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.

Art. 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.

Art. 1299. If the original obligation was subject to a

suspensive or resolutory condition, the new obligation shall be
under the same condition, unless it is otherwise stipulated.

Art. 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 this Code; the latter must
be clearly established in order that it may take effect.

Art. 1301. Conventional subrogation of a third person

requires the consent of the original parties and of the third person.

Art. 1302. It is presumed that there is legal subrogation:

 (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.

Art. 1303. Subrogation transfers to the persons subrogated

the credit with all the rights thereto appertaining, either against the
debtor or against third person, be they guarantors or possessors of
mortgages, subject to stipulation in a conventional subrogation.

Art. 1304. A creditor, to whom partial payment has been

made, may exercise his right 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.

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• Novation is the extinguishment of an obligation by the substitution or
change of the obligation by a subsequent one which extinguishes or
modifies the first, either by changing the object of principal conditions,
or by substituting the person of the debtor, or by subrogating a third
person in the rights of the creditor.
• Novation is the most unusual mode of extinguishing an obligation. It is the
only mode whereby an obligation is extinguished and a new obligation is
created to take its place. The other modes of extinguishing an obligation
are absolute in the sense that the extinguishment of the obligation is
total. Novation, on the other hand, is a relative mode of extinguishing
an obligation.
• A compromise is a form of novation. The difference is that a compromise
has some judicial participation. The effect of compromise is the same as
novation.
• Classification of Novation
a. Subjective or Personal Novation – change of one of the subjects
i. Active subjective
• This a change of creditor.
• This is also known as subrogation.
• 2 Kinds of Subrogation
1. Legal (Article 1302)
• It is presumed that there is legal subrogation:
a. When a creditor pays another creditor who is
preferred, even without the debtor's knowledge;
b. When a third person, not interested in the
obligation, pays with the express or tacit approval
of the debtor
c. When, even without the knowledge of the debtor,
a person interested in the fulfillment of the obliga
tion pays, without prejudice to the effects of
confusion as to the latter's share;
 2. Conventional
• Conventional subrogation of a third person requires the
consent of the original parties and of the third
person (Article 1301)
• Effect of Subrogation
1. A creditor, to whom partial payment has been made, may
exercise his right 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
(Article 1304)
2. 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 (Article 1303)
ii. Passive subjective

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• This is a change of debtor.
• Types of Passive Subjective
1. Expromission (Article 1293)
• In expromission the changing of the debtor is not upon
the old debtor's initiative. It could be upon the
initiative of the creditor or of the new debtor.
• This requires the consent of the creditor since the
changing of the debtor may prejudice him. This
requires the consent of the new debtor since he is the
one who will pay.
• The consent of the old debtor is not required.
• The intent of the parties must be to release the old
debtor. The release of the old debtor is absolute even
if it turns out that the new debtor is insolvent.
• Cases of expromission are quite rare.
2. Delegacion (Article 1295)
• In delegacion the change is at the debtor’s initiative.
• The consent of the old debtor (delegante), the new
debtor (delegado), and the creditor (delegatario) are
all required.
• The intent of the parties must be to release the old
debtor. However, release of the old debtor is not
absolute. He may be held liable
a. If the new debtor was already insolvent at the time
of the delegacion; and
b. Such insolvency was either known to the old debtor
or of public knowledge
b. Objective or Real Novation
• In objective novation there is a change in the object or in the
principal conditions.
 • Novation by a change in the principal conditions is the most
problematic kind of novation because one has to determine
whether or not the change in the conditions is principal or merely
incidental.
• If the amount of debt is increased, Castan thinks that there is a
novation while Caguioa thinks there is no novation. Professor
Balane thinks that Castan is correct. The old obligation is merged
with the new.
• If the amount of the debt is decreased, according the SC in Sandico
vs. Piguing, there is no novation. One can look at the decrease of
the amount as a partial remission.
• In Millar vs. CA, there is no novation if the terms of the payment
are changed. In this case, there was a change from lump sum to
installment payments.
• In Fua vs. Yap, not only was the amount reduced, mode of
payment was changed from single payment to installment.
Finally, a mortgage was constituted. The SC said in Fua vs. Yap

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that there was a novation. Therefore, a mere change in the
amount or mode of payment if taken singly is not a novation. But
taken together, there is a novation.
• In Inchausti vs. Yulo, the SC said that the mere extension of time
is not a novation for the period does affects only the
performance and not the creation of an obligation. In another
case, the SC said that the shortening of the period is a novation.
c. Mixed Novation
• Mixed is a combination of both subjective and objective novation.
• Requisites of Novation
a. There must be a previous valid obligation
• 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 (Article 1298)
b. There must be an agreement of the parties to create the new
obligation
• If the original obligation was subject to a suspensive or resolutory
condition, the new obligation shall be under the same condition,
unless it is otherwise stipulated (Article 1299)
c. There must be an extinguishments of the old obligation
• Professor Balane considers this as an effect rather than a requisite
of novation.
• In order that an obligation may be extinguished by another which
substitute the same, it is imperative that it be so declared in
unequivocal terms, or that the old and the new obligations be on
every point incompatible with each other (Article 1292)
d. The new obligation must be valid
• 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 (Article 1297)
• Effect of Novation
 • Accessory obligations may subsist only insofar as they may benefit
third persons who did not give their consent, e.g., stipulation pour
autrui
• General Rule: In a novation, the accessory obligation is extinguished.
• Exception: In an active subjective novation, the guarantors, pledgors,
mortgagors are not released.
• Under Article 1303, accessory obligations are not extinguished. So
there is a conflict? How do you resolve? According to commentators,
Article 1303 is an exception to Article 1296.
• B owes K P1 M. M is a guarantor of B. B is substituted by U. B is
released. M is also released under Article 1296. M is released since
he guarantees B’s performance and not B’s. B might have a good
credit standing but U may not. M might be prejudiced if he has to
guarantee U’s performance.

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• If there is a change in the creditor under Article 1303, the guarantor is
not released since it doesn’t make a difference. What the guarantor
guarantees is the integrity of the debtor.
7. Annulment
8. Rescission
9. Fulfillment of a Resolutory Condition
10. Prescription
11. Death in Certain Instances
12. For example, death extinguishes obligations which are purely personal (i.e.
obligations in marriage, obligation to support, obligations in a partnership,
etc.)
13. Renunciation by the Creditor (Article 6)
• The creditor waives the obligation.
• The renunciation need not be in any specific form.
• Renunciation and remission are 2 different things. A renunciation is a
refusal by the creditor to enforce his claim with the intention of waiving
it. A remission is in the nature of a donation.
14. Compromise
15. Arrival of a Resolutory Term
16. Mutual Dissent or Desistance (Saura vs. DBP)
17. Unilateral Withdrawal
• General Rule: Unilateral withdrawals are not allowed.
• Exception: Partnership
18. Change of Civil Status
• For example, if the marriage is annulled, certain obligations are
extinguished, like the obligations to live together and to support one
another.
19. Rebus Sic Stantibus (Article 1267)
20. Want of Interest
• Example: A owns a peking duck restaurant with a secret recipe for
preparing peking duck. A disclosed the secret recipe to B, his cook. B is
 then prohibited in his employment contract to work in another
restaurant within 5 years from leaving A’s restaurant. Two years after B
left, A closes his restaurant and opens a hardware store. B can now
work in a restaurant.
21. Judicial Insolvency
• The effect of judicial insolvency is that all unpaid debts are written off for
good. Thus, even if the debtor has improved his financial situation
because of judicial insolvency, there is no need for the debtor to pay his
unpaid debts.

II. Contracts
A. General Provisions
1. Definition

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Art. 1305. A contract is a meeting of the minds between 2
persons whereby one binds himself, with respect to the other, to
give something or to render some service.

• Professor Balane thinks that the definition in Article 1305 is inaccurate.

The term “persons” should be submitted by the term “parties”. Also,
contracts may be multilateral; there can be more than 2 parties involved
(i.e. partnership).
2. Characteristics of Contracts
a. Obligatory force

Art. 1315. Contracts are perfected by mere consent, and

from that moment the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all
the consequences which, according to their nature, may be in
keeping with good faith, usage and law.

• General Rule: Contracts are perfected by mere consent – the

principle of consensuality (Article 1315)
• Exception: Real contracts, such as deposit, pledge, and commodatum
are not perfected until the delivery of the object of the obligation
(Article 1316)
• Obligations arising from contracts have the force of law between the
parties and should be complied with in good faith (Article 1159)
Art. 1314. Any third person who induces another to
violate his contract shall be liable for damages to the other
contracting party.

• It is not clear whether Article 1314 is a tortious liability or a

contractual liability. Professor Balane considers it as only a tortious
liability so it is not violative of the rule on relativity of contracts.
• Article 1314 is really a quasi-delict.
• Requisites
i. Existence of a valid contract
ii. Knowledge by the 3rd person of the existence of the contract
iii. Interference by the 3rd person in the contractual relation without
 legal justification
b. Mutuality

Art. 1308. The contract must bind both contracting

parties; its validity or compliance cannot be left to the will of
one of them.

Art. 1309. The determination of the performance may be

left to a third person, whose decision shall not be binding until it
has been made known to both contracting parties.

Art. 1310. The determination shall not be obligatory if it is

evidently inequitable. In such case, the courts shall decide what
is equitable under the circumstances.

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