OBLIGATIONS

Definition.

A juridical necessity to give, to do, or not to do (Article 1156). One impressed with
the character of enforceability.

Elements of an Obligation:

1. Active subject (called the obligee or creditor)—the possessor of a right; he in

whose favor the obligation is constituted.
2. Passive subject (called the obligor or debtor)—he who has the duty of giving, doing,
or not doing;
3. Object or Prestation –the subject matter of the obligation.
4. Efficient Cause (vinculum or juridical tie)—the reason why the obligation exists.

Sources of Obligation:
1. Law (Obligations ex lege)—like the duty to pay taxes or to support one’s family.
2. Contracts (Obligations ex contractu)—like the duty to repay the loan by virtue of an
agreement.
3. Quasi-Contracts (Obligations ex quasi-contractu)—like the duty to refund an over-
change of money because of the quasi-contract of solution indebiti or “undue
payment.”
4. Crimes or Acts or Omissions Punished by Law (Obligations ex maleficio or ex
delicto)—like the duty to return a stolen carabao.
5. Quasi-Delicts or Torts (Obligations ex quasi-delicto or ex quasi-maleficio)—like the
duty to indemnify a person who suffered damages because your acts or negligence,
without criminal intent or pre-existing obligation.

Law as source of obligation.

Obligation derived from law are not presumed. Only those expressly determined in this
code or by special laws are demandable, and shall be regulated by precepts of law which
established them; and as to what has not been foreseen, by the provisions of this book.

Contract as source of obligation.

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

Quasi-contract as source of obligation.

It is the is that juridical relation resulting from a lawful, voluntary, and unilateral act, and
which has for its purpose the payment of indemnity to the end that no one shall be unjustly
enriched or benefited at the expense of another

2 kinds:
1. Negotiorum Gestio (unauthorized management)
 This takes place when a person voluntarily takes charge of another’s abandoned
business or property without the owner’s authority (Article 2144). Reimbursement must be
made to the gestor for necessary and useful expenses, as a rule.

2. Solutio Indebiti

This takes place when something is received when there is no right to demand it, and it
was unduly delivered thru mistake. The recipient has the duty to return it.

Delict as a source of obligation.

Every person criminally liable for a felony is also civilly liable. (Article 100, Revised Penal
Code)

Quasi-delict or culpa aquiliana or tort as a source of obligation.

One which causes damage to another, there being fault or negligence, but there is no pre-
existing contractual relation between the parties.

Classification of Obligations in General

A. From the view point of “sanction”

1. Civil Obligation—that defined in Article 1156. The sanction is judicial process.

2. Natural Obligation—the duty not to recover what has voluntarily been paid
although payment was no longer required. The sanction is law but only because
conscience had originally motivated the payment.
3. Moral Obligation—the duty of the Catholic to hear mass on Sundays and holy
days of obligations. The sanction here is conscience or morality, or the law of
the church.

B. From the viewpoint of subject matter

1. Real Obligation—the obligation to give.
2. Personal Obligation—the obligation to do or not to do.

C. From the affirmativeness and negativeness of the obligation

1. Positive or Affirmative Obligation—the obligation to give or to do.
2. Negative Obligation—the obligation not to do.

D. From the viewpoint of persons obliged.

a. Unilateral—where only one of the parties is bound.
b. Bilateral—where both parties are bound.

The prestation in an obligation.

1. To give (real obligation)

2. To do (positive personal obligation)
3. Not to do (negative personal obligation)
Obligations of a person obliged to give something.

Referred to as real obligation (“res” or thing), if what is to be given is specific or particularly

designated from all others or the same class, it is real determinate obligation; if object is
designated merely by its class or genus, it is real generic obligation.

Determinate Generic

a. Deliver the thing which he has 1. Deliver the thing which is

obligated himself to give (Art. neither of superior nor inferior
1165); quality;

b. Take care of the thing with 2. Pay damages in case of

proper diligence of a good breach of the obligation by
father of a family (Art. 1163); reason of delay, fraud,
negligence or contravention of
c. Deliver all accessions and the tenor thereof (Art. 1170);
accessories of the thing even
though they may not have
been mentioned (Art. 1166);

d. Pay damages in case of breach

of the obligation by reason of
delay, fraud, negligence or
contravention of the tenor
thereof (Art. 1170);

Creditor’s right to the fruits of the thing.

The creditor has a right to the fruits of the thing from the time the obligation to deliver it
arises.

Before delivery of fruits After delivery of fruits

The creditor’s right is personal or jus
in personam, a right which is
enforceable only against a definite
passive subject, the debtor.
The creditor has now a real right
over the fruits from the time of
delivery and becomes enforceable
against the whole world. In short, it
gives a person direct and immediate
juridical power over a thing which
can be exercised not only against a
definite passive subject but against
the whole world. The rights of
ownership and possession are real
rights.

Kinds of fruits.

1. Natural fruits—spontaneous products of the soil without the intervention of human

labor, and the young and other product of animals with or without the intervention of
human labor, such as forest products.
2. Industrial fruits—products of the soil through cultivation or human labor, such as palay
and vegetables, planted by farmers.
 3. Civil fruits—fruits as a result of civilization or fruits arising out of juridical relation, such
as rent of lands, apartments and buildings.

Accessions and accessories defined and exemplified.

Accessories Accessions
Those which are used for the Include everything which is produced
embellishment, use, or preservation by a thing, incorporated or attached
of another thing of more thereto, either naturally or
importance. scientifically. It includes natural
accession, such as alluvion, and
Example: tools and spare parts with industrial accession, such as building,
respect to a machine planting and sowing.

Rights of the creditor in an obligation to do something.

Determinate
a. Compel specific
Performance (Art. 1165)
b. Recover damages in
case of breach of the
obligation, exclusive or
in addition to specific
performance (Art. 1165)
c. Entitlement to the
fruits, interests from the
time the obligation to
deliver arises.
Generic
Ask for the performance of the
obligation (Art. 1165)
Ask that the obligation be complied
with at the expense of the debtor
(Art. 1165)
Recover damages in case of breach
of the obligation (Art. 1170)

Breach of obligations.

1. Voluntary—Debtor, in the performance of the obligation, is guilty of:

a. default (mora)

b. fraud (dolo)

c. negligence (culpa)

d. contravention of the tenor of the obligation

Debtor is liable for damages.

2. Involuntary—Debtor is unable to comply with his obligation because of

fortuitous event. Debtor is not liable for damages.

Effects of Breach.

Positive Personal Negative Personal

Obligation Obligation
The Creditor can: If the obligor does what has been
 a. Have the obligation forbidden him, the creditor can:
performed at the expense
of the obligor (Art. 1167); a. Have it undone at the
expense of the obligor (Art.
b. Ask that what has been 1168); and
poorly done be undone
(Art. 1167); b. Ask for damages (art. 1170)

c. Recover damages because

of the breach of the
obligation (art. 1170).

Default or Delay (Mora)

Non-fulfilment of the obligation with respect to time, generally after demand to perform it
has been made.

Requisites:

1. Obligation is demandable and already liquidated;

2. The debtor delays performance;

3. The creditor requires performance judicially or extra-judicially

3 Kinds:
1. Mora Solvendi—delay of the debtor to perform his obligation. It may
be:
a. Ex re—obligation to give;

b. Ex persona—obligation is to do;

2. Mora Accipendi—delay of the creditor to accept the delivery of the

thing which is the object of the obligation

3. Compensatio Morae—delay of the parties or obligors in reciprocal

obligations.

When delay is incurred.

There must be a demand (judicial or extra-judicial) before delay may be incurred.

Exceptions:

1. When stipulated by the parties.

2. By provision of law.

3. When time is of the essence of the contract.

4. Demand will be useless.

Fraud (Dolo).

Fraud or dolo consists in the conscious and intentional proposition to evade normal
fulfilment of an obligation.
 2 kinds:

1. Fraud in obtaining consent (causal fraud/dolo causante)

2. Fraud in performing a contract (incidental fraud/dolo incidente)

Dolo incidente Dolo causante

a. Present during the performance of Present during the time of birth or
a pre-existing obligation. perfection of the obligation.

b. Purpose is to evade the normal Purpose is to secure the consent of the

fulfilment of the obligation. other to enter into a contract.

c. Result in the non-fulfilment or Results in the vitiation of consent.

breach of the obligation.

d. Gives rise to a right of the Gives rise to a right of an innocent party

creditor to recover damages from to annul the contract.
the debtor.

Negligence (Culpa).

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.

Diligence required:

1. That agreed upon by the parties

2. In the absence of stipulation, that required by law in the particular case

3. If both the contract and law are silent, diligence of a good father of a family

Concept of a Good Father of a Family.

That reasonable diligence which an ordinary prudent person would have done under the
same circumstances. The test of negligence can be determined by this standard: If defendant, in
committing or causing the negligent act, had used reasonable care and vigilance which a man of
ordinary prudence would have employed under the same situation, he is not guilty of negligence.
Otherwise, he is guilty.

Fortuitous Event.

An event which could not be foreseen or which though foreseen was inevitable.

Requisites:

1. Cause is independent of the will of the debtor.

2. The event must be unforeseeable or unavoidable.

3. Occurrence must be such as to render it impossible for the debtor to fulfil

his obligation in a normal manner.
 4. Debtor must be free from any participation in.

5. The aggravation of the injury resulting to the creditor.

General Rule: No liability in case of fortuitous events.

Exceptions:

1. When expressly declared by law [e.g. Article 552 (2), 1165 (3), 1268, 1942,
2147, 2148 and 2159 of the Civil Code]

2. When expressly declared by stipulation or contract

3. When the obligor is in default or has promised to deliver the same thing to
2 or more persons who do not have the same interest [Article 1165 (3)].

Effect of Fortuitous Event:

Determinate Obligation Generic Obligation

Obligation is extinguished Obligation is not extinguished based on
the rule that genus never perishes
(genus nunquam peruit)

Remedies of the Creditor to Protect Credit.

1. Exhaustion of debtor’s property

2. Accion subrogatoria to be subrogated to all the rights and actions of the debtor
save those which are inherent in his person.

3. Accion pauliana—impugn all the acts which the debtor may have done to defraud
them.

General rule: Rights acquired by virtue of an obligation are transmissible in character.

Exceptions:

1. When they are not transmissible by their very nature, e.g. personal right;

2. When there is a stipulation of the parties that they are not transmissible.

3. Not transmissible by operation of law.

Classification of Obligations.

Primary Secondary
a. Pure and conditional a. Unilateral and bilateral
b. With a period or with a term b. Real and personal
c. Alternative and facultative c. Determinate and indeterminate
d. Joint and solidary d. Positive and negative
e. Divisible and indivisible e. Legal and conventional
f. With a penal clause f. Civil and natural
Pure Obligation.

One whose effectivity or extinguishment does not depend upon the fulfilment or non-
fulfilment of a condition or upon the expiration of a term or period and is demandable at once.

Conditional Obligation.

One whose effectivity is subordinated to the fulfilment or non-fulfilment of a future and

uncertain fact or event.

Kinds of Conditions:

1. Suspensive—fulfillment of the condition results in the acquisition of rights

arising out of the obligation.

2. Resolutory—fulfillment of the condition results in the extinguishments of

rights arising out of the obligation.

3. Casual—fulfillment of the condition depends upon chance and/or upon the

will of a third person.

4. Possible—condition is capable of realization according to the nature, law,

public policy and good customs.

5. Negative—condition involves the omission of an act.

6. Divisible—condition is susceptible to partial realization.

7. Indivisible—condition is not susceptible of partial realization.

8. Conjunctive—where there are several conditions, all of which must be

realized.

9. Alternative—where there are several conditions but only one must be

realized.

Rule in Potestative Conditions.

If the fulfilment of the potestative condition depends upon the sole will of the debtor, the
condition as well as the obligation itself is void. It renders the obligation illusory (applicable only
to a suspensive condition and to an obligation which depends for its perfection upon the fulfilment
of the potestative condition and not to pre-existing obligation).

If the fulfilment depends exclusively upon the will of the creditor, both the condition and
obligation is valid.

Rule in Impossible Conditions.

General rule: They shall annul the obligation which depends upon them.

Exceptions:

1. Pre-existing obligation

2. If obligation is divisible
 3. In simple or renumeratory donations

4. In testamentary disposition

5. In case of conditions not to do an impossible thing.

Effects of Suspensive Condition.

1. Before fulfilment of the condition, the demandability as well as the acquisition or

effectivity of the rights arising from the obligation is suspended;
2. After the fulfilment of the condition, the obligation arises or becomes effective;
3. 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;

4. When the obligation imposes reciprocal prestations upon the parties, the fruits and
interests shall be deemed to have been mutually compensated;

5. If the obligation is unilateral, the debtor shall appropriate the fruits & interests received,
unless from the nature and circumstances it should be inferred that the intention of the
persons constituting the same was different;

6. In obligations to do or not to do, the court shall determine the retroactive effect or
conditions that have been complied with.

Effects of Resolutory Condition.

Before the fulfilment of the condition, the right which the creditor has already acquired by
virtue of the obligation is subject to a threat of extinction;

If condition is not fulfilled, rights are consolidated; they become absolute, the parties shall
return to each other what they received including the fruits.

Suspensive Condition Resolutory Condition

a. If fulfilled, obligation arises or If fulfilled, obligation is extinguished;
becomes effective;

b. If not fulfilled, no judicial relation

is created; If not fulfilled, judicial relation is
consolidated;
c. Rights are not yet acquired, but
there is hope or expectancy that Rights are already acquired, but subject
they will soon be acquired. to the threat or danger of extinction.

Effects of Loss, Deterioration and Improvement in Real Obligations (During the

Pendency of the Condition)

A. Loss

Without debtor’s fault—obligation is extinguished

With debtor’s fault—debtor pays damages.

 Applies only to determinate thing. A thing is loss when it:

1. Perishes

2. Goes out of commerce

3. Disappears in such a way that its existence is unknown or it cannot be

recovered.

B. Deterioration

Without debtor’s fault, impairment is to be borne by the creditor.

With debtor’s fault, creditor may choose between the rescission of the obligation and its
fulfilment with indemnity for damages in either case.

C. Improvement

If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of
the creditor.

If it is improved at the expense of the debtor, he shall have no other right than that granted to
the usufructuary.

Obligations with a Period.

Those whose demandability or extinguishment is subject to the expiration of a term or

period.

Requisites:

1. Future
2. Certain
3. Possible, legally and physically.

Classification of Term or Period:

1. Suspensive (Ex die)—obligation becomes demandable only upon arrival of a

day certain.
2. Resolutory (In Diem)—arrival of day certain terminates the obligation;
3. Legal—granted by law.
4. Conventional—stipulated by parties.
5. Judicial—fixed by courts.
6. Definite—date/time is known beforehand.
7. Indefinite—the date/time of day certain is unknown.

Term Condition
1. Interval of time which is future Fact or event which is future and certain
and certain

2. Interval of time which must Future and uncertain fact or event which
necessarily come, although it may may or may not happen
not be known when.

3. Exerts an influence upon time or Exerts influence upon the very essence
demandability or extinguishment of the obligation itself.
of an obligation.
 4. Does not have any retroactive Has retroactive effect.
effect unless there is an
agreement to the contrary.

5. When it is left exclusively to the When it is left exclusively to the will of

will of the debtor, the existence of the debtor, the very existence of the
the obligation is not affected. obligation is affected.

General rule: When a period is designated for the performance or fulfilment of an

obligation, it is presumed to have been established for the benefit of both creditor and debtor.

Exception: When it appears from the tenor of the obligation or other circumstances that the
period has been established in favor of one or of the other.

When Court May Fix Period.

1. If the obligation does not fix a period, but from its nature and circumstances it
can be inferred that a period was intended by the parties;

2. If the duration of the period depends upon the will of the debtor;

3. If the debtor binds himself when his means permit him to do so (Art. 1180).

Reason for Fixing Period (Art. 1197)

There can be no possibility of any breach of contract or failure to perform the obligation
unless the period is fixed by the courts.

When debtor loses right to make use of period:

1. When after the obligation has been contracted, he becomes insolvent, unless
he gives guaranties or securities for the debt (the insolvency need not be
judicially declared);

2. When he does not furnish to the creditor the guaranties or securities he

promised;

3. When by his own act he has impaired said guaranties or securities after their
establishment, and when through fortuitous event they disappear, unless he
gives new ones equally satisfactory when debtor violates any undertaking, in
consideration of which the creditor agreed to the period; or

4. When debtor attempts to abscond.

Definition of Alternative Obligation:

Alternative obligation is one where out of two or more prestations which may be given, only
one is due. In short, there are several things due but the delivery of one is sufficient to extinguish
the obligation.

General Rule: Right to choose belongs to the debtor

Exception : Unless given to the creditor

Limitations : The debtor shall have no right to choose those prestations which are:

1. Impossible
2. Unlawful
3. Those which could not have been the object of the obligation.

Effect of loss of the object of the obligation.

a. If right of choice belongs to debtor:

1. If through fortuitous event, debtor cannot be held liable for damages;

2. If one or more but not all of the things are lost or one or some but not all
of the prestations cannot be performed due to the fault of the debtor,
creditor cannot hold the debtor liable for damages because the debtor
can still comply with his obligation;

b. If the right of choice belongs to the creditor:

1. If one of the things is lost through a fortuitous event, the debtor 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.

Facultative obligation.

It is one where only one prestation has been agreed upon but the debtor may give another
object as substitute.

The effect of the loss of the thing in facultative obligation.

1. Before susbstitution—If the principal thing is lost due to fortuitous event, obligation is
extinguished; if due to debtor’s fault, he is liable for damages.
 If the thing intended as a substitute is the one which was lost, with or without
debtor’s fault, the obligation to deliver the substitute is extinguished because what is to be
delivered is the principal object and not the substitute. The loss of this substitute is
immaterial.

2. After substitution—If the principal thing is lost, the debtor is no longer liable whatever be
the cause of the loss, because it is no longer due. If the substitute is lost due to
fortuitous event, obligation is extinguished; if due to debtors fault, he is liable for
damages.

Facultative Alternative
a. Comprehends only one object Comprehends several objects or
or prestation which is due, but prestations which are due but may be
it may be complied with by the complied with by the delivery or
delivery of another object or performance of only one of them;
performance of another
prestation in substitution.

b. Fortuitous loss extinguishes Fortuitous loss of all prestations will

the obligation extinguish the obligation

c. Culpable loss obliges the Culpable loss of any object due will give
debtor to deliver substitute rise to liability to debtor
prestation without liability to
debtor

d. Choice pertains only to debtor Choice may pertain to creditor or even

third person

Joint Obligation.

It is one where the whole liability is to be paid or fulfilled proportionately by the different
debtors and/or is to be demanded also proportionately by the different creditors.

Features:

1. Insolvency of one debtor does not make the others liable.

2. Vitiated consent on the part of one debtor does not affect the others.
3. Demand made to one of the debtors is not demand to all because the debt of one
is distinct from the others.
4. When the creditor interrupts the running of the prescriptive period by demanding
judicially from one, the others are not affected.
5. Defences of one debtor are not necessarily available to the others.

Solidary Obligation.

It is one where each one of the debtors is bound to render compliance of the entire
obligation and/or each one of the creditors has a right to demand entire compliance of the
prestation.

Instances when the law requires solidarity:

 1. All the partners are liable solidarily with the partnership if the act complained of
arises from a crime or quasi-delict.
2. In agency, if two or more persons have appointed an agent for a common
transaction, they shall be solidarily liable to the agent for all the consequences of
the agency.
3. The responsibility of two or more persons who are liable for a quasi-delict is
solidary.
4. The responsibility of two or more payees, when there has been payment of what is
not due, is solidary.
5. Legal provisions regarding the obligations of devises and legatees.
6. Liability of principals, accomplices, and accessories of a felony.
7. Bailees in commodatum.

Joint vs. Solitary Obligations

General rule: Obligation is presumed joint if there is concurrence of two or more debtors
and/or creditors.

Exceptions:

1. When expressly stated that there is solidarity;

2. When the law requires solidarity;

3. When the nature of the obligation requires solidarity.

Joint Indivisible Obligations

The object or prestation is indivisible, not susceptible of division; while the tie between the
parties is joint, that is, liable only to a proportionate share.

Characteristics:

1. Demand must be made to all the joint debtors.

2. The creditor must proceed against all the joint debtors, because the compliance of
the obligation is possible only if all of the joint debtors would act together.
3. If one of the debtors is insolvent, the other shall not be liable for his share.
4. If one of the debtors cannot comply, the obligation is converted into monetary
consideration. One who is ready and willing to comply will pay his proportionate
share, and the other not willing shall pay his share plus damages when his financial
condition will improve.
5. If there are more than one creditor, delivery must be made to all, unless one is
authorized to receive from the others.

Obligations with a Penal Clause.

One to which an accessory undertaking is attached for the purpose of insuring its
performance by virtue of which the obligor is bound to pay a stipulated indemnity or perform a
stipulated prestation in case of breach.

General Rule: The penalty fixed by the parties is a compensation for substitute for damages
in case of breach.
 Exceptions:

1. Where there is a stipulation to the contrary;

2. When the debtor is sued for refusal to pay the agreed penalty; and

3. When debtor is guilty of fraud.

The debtor cannot exempt himself from the performance of the principal obligation by
paying the stipulated penalty unless when the right has been expressly reserved for him.

The creditor cannot demand the fulfilment of the principal obligation and the satisfaction of
the stipulated penalty at the same time unless the right has been clearly granted him.

When penalty may be reduced.

1. If the principal obligation has been partly complied with;

2. If the principal obligation has been irregularly complied with; and

3. If the penalty is iniquitous or unconscionable even if there has been no

performance;

Modes of Extinguishment of Obligations

1. By payment or performance.
2. Loss of the thing due
3. Condonation or remission of the debt
4. Confusion or merger
5. Compensation
6. Novation

In addition:

7. Annulment
8. Rescission
9. Fulfilment of a resolutory condition
10.Prescription
11.Death of a party in case the obligation is personal
12.Mutual desistance
13.Compromise
14.Impossibility of fulfilment
15.Happening of fortuitous event

Payment or Performance

General rule: A debt shall not be understood to have been paid unless the thing or service
in which the obligation in which the obligation consists has been completely delivered or rendered,
as the case may be.

Exceptions:

1. When the obligation has been substantially performed in good faith;

 2. When the obligee accepts performance, knowing its incompleteness or
irregularity & without expressing any protest or objection;

3. When there is an express stipulation; and

4. When the debt is in part liquidated and in part liquidated.

Persons who may pay the obligation.

1. The debtor himself;

2. Any third person.

General rule: Creditor is not bound to accept payment or performance by a third person.

Exceptions:

1. When made by a third person who has an interest in the fulfilment of the
obligation;

2. When there is a stipulation to the contrary.

Rights of a 3rd person who paid the obligation.

If payment was made with knowledge and consent of the debtor:

1. Can recover the entire amount paid;

2. Can be subrogated to all the rights of the creditor.

If payment was made without knowledge or against the will of the debtor, he can recover
only insofar as the payment has been beneficial to the debtor.

To whom payment must be made.

1. The person in whose favour the obligation has been constituted;

2. His successor in interest; or

3. Any person authorized to receive it.

General rule: If payment is made to a person other than those enumerated, it shall not be
valid.

Exceptions:

1. Payment made to a 3rd person, provided that it has redounded to the benefit
of the creditor;

2. Payment made to the possessor of the credit, provided that it was made in
good faith.

Obligation to deliver generic object.

If the 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.
Rules in monetary obligation

1. Payment in cash—must be made in the currency stipulated; if it is not

possible to deliver such currency, then in the currency which is legal tender
in the Philippines;

2. Payment in check or other negotiable instrument—not considered payment;

not considered legal tender and may be refused by the creditor. It shall
only produce the effect of payment:

a. When it has been encashed; or

b. When it has been impaired throught the fault of the creditor.

Legal tender.

Such currency which may be used for the payment of all debts, whether in private or public.
The kind of currency which a debtor can legally compel a creditor to accept in payment of a debt
in money when tendered by the debtor in the right amount.

Philippine currency notes have no limit to their legal tender power. However, in the case of
coins in denomination of 1-, 5- and 10-piso they shall be legal tender in amounts not exceeding
Php1,000.00 while coins in denomination of 1-, 5- and 10- and 25-sentimo shall be legal tender in
amounts not exceeding Php100.00, pursuant to BSP Circular No. 537, Series of 2006.

Place of payment.

1. Place stipulated by the parties;

2. No stipulation and the obligation is to deliver a determinate thing, payment

shall be made at the place where the thing might be at the time;

3. In any other case, the payment shall be made at the domicile of the debtor.

Special forms of payment.

1. Application of payment;

2. Dation in payment;

3. Payment by cession;

4. Tender of payment and consignation.

Application of payment.

Designation of the debt to which the payment must be applied when the debtor has several
obligations of the same kind in favour of the same creditor.
 Requisites:

1. There must be only 1 debtor and only 1 creditor;

2. There must be 2 or more debts of the same kind;

3. All of the debts must be duel except: if there is stipulation to the contrary;
or application of payment is made by the party for whose benefit the term
has been constituted; and

4. Amount paid by the debtor must not be sufficient to cover the total amount
of all debts.

General rule: The right to designate the debt to which the payment shall be applied
primarily belongs to the debtor.

Exception: If the debtor does not avail of such right and he accepts from the creditor a
receipt in which the application is made.

Legal application of payment.

1. If neither the debtor nor the creditor makes any application of payment, or
if it cannot be inferred from other circumstances, the debt which is most
onerous to the debtor, among those which are due, shall be deemed to
have been satisfied;

2. If the debts due are of the same nature and burden, payment shall be
applied to all of them proportionately.

Dation in payment (dacion en pago.)

Delivery and transmission of ownership of a thing by the debtor to the creditor as an

accepted equivalent of the performance of the obligation.

Requisites:

1. Existence of a money obligation;

2. Alienation to the creditor of a property by the debtor with the consent of the
former;

3. Satisfaction of the money obligation of the debtor

Payment by cession.

Debtor abandons all of his property for the benefit of his creditors in order that from the
proceeds thereof, the latter may obtain payment of their credits.

Requisites:

1. Plurality of debts;

2. Partial or relative insolvency of the debtor;

3. Acceptance of the cession by the creditors

 Dation in payment Payment by cession
1. One creditor Plurality of creditors

2. Not necessarily in state of Debtor must be partially or relatively

financial difficulty insolvent

3. Thing delivered is considered as Universality of property of debtor is what

equivalent of the performance is ceded

4. Payment extinguishes obligation Merely releases debtor for the net

to the extent of the value of the proceeds of things ceded or assigned,
thing delivered as agreed upon, unless there is contrary intention.
proved or implied from the
conduct of the creditor.

Tender of payment.

Manifestation of the debtor to the creditor of his decision to comply immediately with his
obligation.

It is preparatory act and extrajudicial in character.

Consignation.

Deposit of the object of the obligation in a competent court in accordance with the rules
prescribed by law, after the tender of payment has been refused or because of circumstances
which render direct payment to the creditor impossible or inadvisable.

It is the principal act and judicial in character.

Requisites:

1. The debt sought to be paid must be due;

2. There must be a valid and unconditional tender of payment or any of the causes
stated by law for effective consignation without previous tender of payment
exists;

3. The consignation of the thing due must first be announced to the persons
interested in the fulfilment of the obligation;

4. Consignation shall be made by depositing the things due at the disposal of judicial
authority;

5. The consignation having been made, the interested parties shall also be notified
thereof.

Effects of consignation.
1. If the creditor accepts the thing or amount deposited without contesting the
validity or efficacy of the consignation, the obligation is extinguished;
 2. If the creditor contests the validity or efficacy of the consignation or if the creditor
is not interested or unknown or is absent, the result is litigation. If the debtor
complied with all the requisites, the obligation is extinguished.

General rule: Consignation shall produce the effects of payment only if there is a valid tender of
payment.

Exceptions:

1. Creditor is absent or unknown or does not appear at the place of the payment;

2. Creditor incapacitated to receive payment at the time it is due;

3. When two or more persons claim the right to collect;

4. When the title of the obligation has been lost;

5. When without just cause creditor refuses to give receipt.

Loss of the Thing Due.

General rule: (In Determinate Obligations to give) Obligation is extinguished.

Requisites:

1. The thing which is lost is determinate;

2. The thing lost without the fault of the debtor;

3. The thing lost before the debtor has incurred in delay.

Exceptions:

1. When by law, obligor is liable for fortuitous event;

2. When by stipulation, obligor is liable even for fortuitous event;

3. When the nature of the obligation requires the assumption of risk;

4. When the loss of the thing occurs after the debtor incurred in delay;

5. When the debtor promised to deliver the same thing to two or more persons who
do not have the same interest;

6. When the debt of a certain and determinate thing proceeds from a criminal
offense.

General Rule: (in generic obligations to give) Obligation is not extinguished because
the genus of a thing cannot perish.

Exception: In case of generic obligations whose object is a particular class or group with
specific or determinate qualities.
 General rule (in obligations to do): Obligation is extinguished when prestation becomes
legally or physically impossible.

Effect of relative impossibility or doctrine of unforeseen events.

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

Requisites:

1. The event or change in circumstances could not have been foreseen at the time
of the execution of the contract;

2. It makes the performance of the contract extremely difficult but not impossible;

3. The event must not be due to the act of any parties; and

4. The contract is for future prestation.

Condonation or Remission of Debt.

An act of pure liberality by virtue of which the oblige, without receiving any price or
equivalent, renounces the enforcement of the obligation, as a result of which it is extinguished in
its entirety or in part or aspect of the same to which remission refers.

It is the gratuitous abandonment by the creditor of his right.

Requisites:

1. It must be gratuitous.

2. It must be accepted by the debtor;

3. The obligation must be demandable.

Confusion or Merger of Rights.

Merger of the characters of the creditor and debtor in one and the same person by virtue of
which the obligation is extinguished.

Requisites:

1. That the characters of creditor & debtor must be in the same person;

2. That it must take place in the person of either the principal creditor or the
principal debtor;

3. It must be complete and definite.

Compensation.
 Extinguishment in the concurrent amount of the obligation of those persons who are
reciprocally debtors and creditors to each other.

Requisites:

1. There must be 2 persons who in their own right are principal creditors and
principal debtors of each other;

2. Both debts must consist in money, or if the things due are fungibles, they must be
of the same kind or quality

3. Both debts must be due;

4. Both debts must be liquidated or demandable;

5. There must be no retention or controversy commenced by 3 rd persons over either

of the debts communicated in due time to the debtor; and

6. Compensation must not be prohibited by law.

Kinds:

1. Legal—takes effect by operation of law.

2. Voluntary—agreed upon by the parties;

3. Facultative—when it can be claimed by one of the parties who, however, has the
right to object to it;

4. Judicial—takes effect by judicial decree;

5. Facultative—when it can be claimed by one of the parties who, however, has the
right to object to it.

Debts not subject to compensation.

1. Debts arising from contracts of deposit;

2. Debts arising from contracts of commodatum;

3. Claims for support due by gratuitous title;

4. Obligations arising from criminal offenses;

5. Certain obligations in favour of government.

Taxes are not subject to set-off or legal compensation because the government and
taxpayers are not mutually creditors and debtors of each other.

Novation.

Substitution or change of an obligation by another, resulting in its extinguishment or

modification, either by changing its object or substituting another in place of the debtor, or by
subrogating a third person in the rights of the creditor.
 Requisites:

1. Precious valid obligation;

2. Agreement of the parties to the new obligation;

3. Extinguishment of the old obligation; and

4. Validity of the new obligation.

Kinds:

a. As to its essence

1. Objective/Real—refers to the change either in the cause, object or

principal conditions of the obligations;

2. Subjective/Personal—refers to the substitution of the person of the

debtor or to the subrogation of a 3 rd person in the rights of the
creditor;

3. Mixed

b. As to its form/constitution

1. Express—when it is declared in unequivocal terms that the old

obligation is extinguished by new one which substitutes the same.

2. Implied—when the old and new obligation are incompatible with each
other on every point.

Forms of substitution of debtors.

1. Expromision—effected with the consent of the creditor at the instance of

the new debtor even without the consent or even against the will of the old
debtor;

2. Delegacion—effected with the consent of the creditor at the instance of the

old debtor, with the concurrence of the new debtor.

Effect of insolvency of new debtor.

1. Expromision—the new debtor’s insolvency or nonfulfillment of the obligation

shall not revive the original debtor’s liability to the creditor whether the
substitution is effected with or without the knowledge or against the will of
the original debtor;

2. Delegacion—the credtor can sue the old debtor only when the insolvency
was prior to the delegation and publicly known or when the old debtor knew
of such insolvency at the time he delegated the obligation.

Kinds of subrogation.
 1. Conventional—takes place by agreement of the parties; this kind of
subrogation requires the intervention and consent of 3 persons: the original
creditor, the new creditor and the debtor;

2. Legal—takes place without the agreement but by operation of law because

of certain acts.

General rule: Legal subrogation cannot be presumed.

Exceptions:

1. Creditor pays another creditor who is preferred, without debtor’s

knowledge;

2. A third person is not interested in the obligation pays with the express or
tacit approval of the debtor; or

3. Even without the debtor’s knowledge, a person interested in the fulfilment

of the obligation pays without prejudice to the effects of confusion as to the
latter’s share.