OBLIGATION

IS A LEGAL BOND BY WHICH ONE OR MORE PARTIES (OBLIGANTS)

ARE BOUND TO ACT OR REFRAIN FROM ACTING. AN OBLIGATION THUS
IMPOSES ON THE OBLIGOR A DUTY TO PERFORM, AND SIMULTANEOUSLY
CREATES A CORRESPONDING RIGHT TO DEMAND PERFORMANCE BY
THE OBLIGEE TO WHOM PERFORMANCE IS TO BE TENDERED. OBLIGATIONS
MAY BE CIVIL, WHICH ARE ENFORCEABLE BY ACTION IN A COURT OF LAW,
OR NATURAL, WHICH IMPLY MORAL DUTIES BUT ARE UNENFORCEABLE
UNLESS THE OBLIGOR CONSENTS.
EXTINGUISHING OF OBLIGATIONS
OBLIGATIONS ARE EXTINGUISHED BY:
• PAYMENT OR PERFORMANCE
• THE LOSS OF THE THING DUE
• THE CONDONATION OR REMISSION OF THE DEBT
• THE CONFUSION OR MERGER OF RIGHTS OF THE CREDITOR AND DEBTOR
• COMPENSATION
• NOVATION
PAYMENT OR PERFORMANCE
• PAYMENT MEANS NOT ONLY THE DELIVERY OF MONEY BUT ALSO THE PERFORMANCE, IN ANY
OTHER MANNER, OF AN OBLIGATION
• 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.
• 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.
• 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
• 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 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.
• 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.
LOSS OF THE THING DUE
• 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.
• IN AN OBLIGATION TO DELIVER A GENERIC THING, THE LOSS OR DESTRUCTION OF ANYTHING OF
THE SAME KIND DOES NOT EXTINGUISH THE OBLIGATION.
• 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.
CONDONATION OR REMISSION OF THE DEBT
• 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

• 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.
CONFUSION OR MERGER OF RIGHTS
• THE OBLIGATION IS EXTINGUISHED FROM THE TIME THE CHARACTERS OF CREDITOR AND
DEBTOR ARE MERGED IN THE SAME PERSON.
• 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.
• CONFUSION DOES NOT EXTINGUISH A JOINT OBLIGATION EXCEPT AS REGARDS THE SHARE
CORRESPONDING TO THE CREDITOR OR DEBTOR IN WHOM THE TWO CHARACTERS CONCUR
COMPENSATION
• COMPENSATION SHALL TAKE PLACE WHEN TWO PERSONS, IN THEIR OWN RIGHT, ARE
CREDITORS AND DEBTORS OF EACH OTHER
• NOTWITHSTANDING THE PROVISIONS OF THE PRECEDING ARTICLE, THE GUARANTOR MAY SET
UP COMPENSATION AS REGARDS WHAT THE CREDITOR MAY OWE THE PRINCIPAL DEBTOR.
• COMPENSATION MAY BE TOTAL OR PARTIAL. WHEN THE TWO DEBTS ARE OF THE SAME AMOUNT,
THERE IS A TOTAL COMPENSATION.
NOVATION
• IN ORDER THAT AN OBLIGATION MAY BE EXTINGUISHED BY ANOTHER WHICH SUBSTITUTE THE
SAME, IT IS IMPERATIVE THAT IT BE SO DECLARED, OR THAT THE OLD AND THE NEW
OBLIGATIONS BE ON EVERY POINT INCOMPATIBLE WITH EACH OTHER.
• 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.
• IF THE SUBSTITUTION IS WITHOUT THE KNOWLEDGE OR AGAINST THE WILL OF THE DEBTOR,
THE NEW DEBTOR’S INSOLVENCY OR NON-FULFILLMENT OF THE OBLIGATIONS SHALL NOT GIVE
RISE TO ANY LIABILITY ON THE PART OF THE ORIGINAL DEBTOR.
WHAT IS PAYMENT?
• A PAYMENT IS THE TRADE OF VALUE FROM ONE PARTY (SUCH AS A PERSON OR
COMPANY) TO ANOTHER FOR GOODS, OR SERVICES, OR TO FULFILL A LEGAL
OBLIGATION.
• PAYMENT CAN TAKE A VARIETY OF FORMS. BARTER, THE EXCHANGE OF ONE GOOD OR
SERVICE FOR ANOTHER, IS A FORM OF PAYMENT. THE MOST COMMON MEANS OF
PAYMENT INVOLVE USE OF MONEY, CHEQUE, OR DEBIT, CREDIT OR BANK TRANSFERS.
• OR SIMPLY, PAYMENT IS THE ACT OF PAYING
KINDS OF PERFORMANCE OR PAYMENT:

NORMAL OR VOLUNTARY – DEBTOR PAID OBLI ON HIS OWN VOLITION,

NOT BECAUSE HE WAS TOLD TO PAY.
ABNORMAL OR INVOLUNTARY – OBLIGOR IS ORDERED TO PAY.
REQUISITES OF A VALID PAYMENT:

PARTIES (DEBTOR AND CREDITOR)

THE THING TO BE PAID
TIME, PLACE, AND MANNER OF PAYMENT
PARTIES
HERE ARE SOME OF THE CONDITION FOR CONSIDERING A PARTY / PARTIES;

• WHAT IS REQUIRED IS THE PLURALITY OF PARTIES, NOT OF PERSONS, SUCH THAT A PERSON
WHO REPRESENTS AT LEAST TWO PARTIES MAY AFFECT A VALID PAYMENT BY HIMSELF.
• ONLY THOSE WHO HAVE AN INTEREST IN THE FULFILLMENT OF THE OBLI CAN COMPEL THE
CREDITOR TO ACCEPT PAYMENT. THESE ARE THE DEBTOR, HIS HEIRS, SUCCESSORS-IN-
INTEREST,ASSIGNEE, OR ANYONE AUTHORIZED BY HIM TO MAKE PAYMENT.
• GENERALLY, PAYMENT MUST BE MADE TO THE CREDITOR, BUT PAYMENTS MAY ALSO BE
MADE TO HIS HEIRS, SUCCESSORS-IN-INTEREST, OR HIS AGENT.
• THERE MUST BE AT LEAST TWO PARTIES.
KINDS OF SUBROGATION:
• CONVENTIONAL – NEVER PRESUMED; AGREEMENT OF THE PARTIES
• LEGAL –CANNOT BE PRESUMED.:
(A) WHEN A CREDITOR PAYS ANOTHER CREDITOR WHO IS PREFERRED;
(B) 3RD PERSON WHO IS NOT INTERESTED IN THE FULFILLMENT OF THE OBLI PAYS WITH THE CONSENT OF
THE DEBTOR;
(C) 3RD PERSON WHO HAS AN INTEREST IN THE FULFILLMENT PAYS EVEN WITHOUT THE CONSENT OF THE
DEBTOR.
o RIGHTS OF GUARANTOR AGAINST THE DEBTOR:ABSOLUTE REIMBURSEMENT AND SUBROGATION.
o PAYMENT MADE TO A 3RD PERSON IS INVALID, EXCEPT IF SUCH PAYMENT REDOUNDED TO THE BENEFIT
OF THE CREDITOR. DEBTOR MUST PROVE SUCH BENEFIT, EXCEPT IF:
• AFTER PAYMENT, THE 3RD PERSON ACQUIRESTHE CREDITOR’S RIGHTS.
• CREDITOR RATIFIES THE PAYMENT TO THE 3RD PERSON.
• BY THE CREDITOR’S CONDUCT, THE DEBTOR HAS BEEN LED TO BELIEVE THAT THE 3RD
PERSON HAD AUTHORITY TO REVIVE THE PAYMENT.

oIF A 3RD PERSON PAYS WITHOUT INTENTION OF SEEKING REIMBURSEMENT, SUCH

PAYMENT ISCONSIDERED BY LAW AS A DONATION WHICHMUST BE ACCEPTED BY THE
DEBTOR. IF DEBTOR DOES NOT GIVE HIS CONSENT, THERE IS NO DONATION, AND THE
3RD PERSON ACQUIRES THE RIGHT TO REIMBURSEMENT AND SUBROGATION. IF DEBTOR
OPPOSES, THERE WILL BE NO DONATION, AND THE 3RD PERSON ACQUIRES THE RIGHT
TO REIMBURSE TO THE EXTENT WHICH THE DEBTOR WAS BENEFITED.
oTHE DEBTOR CANNOT COMPEL THE 3RD PERSON TO ACCEPT REIMBURSEMENT.
oPAYMENT MADE IN GOOD FAITH TO A PERSON IN POSSESSION OF THE CREDIT SHALL
EXTINGUISH OBLI.
THING TO BE PAID
• THIS REFERS TO THE OBJECT OF THE PRESTATION, NOT THE OBLI. THE OBJECT TO BE PAID CANNOT
BE ANOTHER OBJECT THAT IS MERELY SIMILAR TO THAT CONTEMPLATED BY THE PARTIES.
• IF THE OBJECT IS SPECIFIC, THE VERY SAMETHING PROMISED SHOULD BE PAID. IF THE OBJECT IS
GENERIC, THE THING PAID MUST BELONG TO THE CLASS OF THE THING AGREED UPON IN THE
CONTRACT.
• THE DEBTOR CANNOT COMPEL THE CREDITOR TO ACCEPT SOMETHING OF INFERIOR QUALITY. IN THE
SAME MANNER, THE CREDITOR CANNOT COMPEL THE DEBTOR TO DELIVER SOMETHING OF
SUPERIOR QUALITY.
o DATION IN PAYMENT
TIME OF PAYMENT
• PAYMENT MUST BE MADE ON THE DAY THE OBLI FALLS DUE, EVEN IF IT BE A SUNDAY OR HOLIDAY. WHEN
THE INSTRUMENT PRESENTED FOR PAYMENT IS COVERED BY THE NEGOTIABLE INSTRUMENTS LAW
WHICH PROVIDES THAT WHEN AN OBLI FALLS DUE ON ASUNDAY OR HOLIDAY, THE INSTRUMENT MUST BE
PRESENTED FOR PAYMENT ON THE SUCCEEDING BUSINESS DAY.
• REQUISITES FOR NEGOTIABILITY:
○ MUST BE IN WRITING AND SIGNED BYTHE MAKER OR DRAWER
○ CONTAINS AN UNCONDITIONAL PROMISEOR ORDER TO PAY A SUM CERTAIN INMONEY
○ PAYABLE ON DEMAND OR AT A FIXED,FUTURE TIME
○ PAYABLE TO ORDER OR TO BEARER
○INSTRUMENT IS ADDRESSED TO A DRAWEE WHO MUST BE NAMED OR OTHERWISE INDICATED
THEREIN WITH REASONABLE CERTAINTY.
• AN OBLI FALLS DUE WHEN IT BECOMES DEMANDABLE, SUCH THAT THE CREDIT OR ACQUIRES THE RIGHT
TO ENFORCE THE OBLI.
 PLACE OF PAYMENT

• NO PROVISION OF LAW THAT DICTATES WHERE DEMAND MUST BE MADE, BUT THE
LAWPROVIDES FOR THE PLACE OF PAYMENT. (ART.1251)
• IF CREDITOR DEMANDS PAYMENT IN A PLACE OTHER THAN THE PROPER PLACE, DEBTOR
CANREFUSE TO PAY W/O INCURRING DELAY. LIKEWISE, IF DEBTOR OFFERS TO PAY IN A PLACE
OTHER THAN THE PROPER PLACE, CREDITOR CAN REFUSE W/O INCURRING DELAY.
MANNER OF PAYMENT
• MANNER OF PAYMENT MUST BE INACCORDANCE WITH THE TENOR OF THE OBLI.
• CHECKS DO NOT PRODUCE PAYMENT UNTIL ENCASHED BECAUSE CHECKS ARE NOT
LEGAL TENDER. THEY ARE MERE REPRESENTATIONS OF MONEY. THE VALIDITY OF
PAYMENTS MADE WITH CHECKS DEPENDS ON THE KIND. IF THE CHECK USED IS
CERTIFIED, AS THE SC HELD INTHE CASE OF NEW PACIFIC TIMBER V. SENER, THE
PAYMENT IS VALID. THE SC ALSO RULED IN CO V. PNB THAT PAYMENT BY
MANAGER’SCHECK IS VALID.
• LEGAL TENDER IS THAT CURRENCY WHICH WHEN OFFERED AS PAYMENT FOR A DEBT,
WHETHER PUBLIC OF PRIVATE, THE CREDITOR CANNOT REFUSE TO ACCEPT.
• UNDER RA 8183, WHICH REPEALED THEUNIFORM CURRENCY ACT, PARTIES MAY AGREE
ON THE CURRENCY TO BE USED IN THE PAYMENT OF AN OBLI.
WHAT IS COMPENSATION?
• IT 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 (ART. 1232, NCC). IT INVOLVES THE SIMULTANEOUS BALANCING OF TWO OBLIGATIONS IN
ORDER TO EXTINGUISH THEM TO THE EXTENT IN WHICH THE AMOUNT OF ONE IS COVERED BY
THAT OF THE OTHER.
• IN FINANCIAL TERMS, COMPENSATION REFERS TO THE SALARY AND WAGES YOU PAY TO YOUR
EMPLOYEES FOR THE WORK THEY DO. OTHER, NONFINANCIAL FORMS OF COMPENSATION CAN
ALSO BE OFFERED TO ATTRACT AND RETAIN STAFF. .
• THE COMPENSATION IS A MODE OF EXTINGUISHMENT OF OBLIGATION WHEREIN THERE IS
SIMULTANEOUS BALANCING OR WEIGHTING OF TWO OBLIGATIONS OF TWO PERSONS WHO ARE
RECIPROCALLY DEBTORS AND CREDITORS OF EACH OTHER. IT EXTINGUISHES TO THE EXTENT
IN WHICH THE AMOUNT OF ONE IS COVERED BY THAT OF THE OTHER.
• THE COMPENSATION TAKES EFFECT BY OPERATION OF LAW, AND EXTINGUISHES BOTH DEBTS
TO THE CONCURRENT AMOUNT, EVEN WITHOUT THE CONSENT OF THE PARTIES.
CHARACTERISTICS OF COMPENSATION
A COMPENSATION OF OBLIGATIONS IS CONSIDERED AS A SIMPLIFIED PAYMENT THAT AIMS TO:
• FACILITATE PAYMENT IN A MORE CONVENIENT AND LESS EXPENSIVE WAY.
• GUARANTEE THE EFFECTIVENESS/ENFORCEMENT OF CREDIT AGAINST FRAUD, INSOLVENCY,
ETC.
• PREVENT UNNECESSARY SUITS AND PAYMENTS THRU THE MUTUAL EXTINCTION BY OPERATION
OF LAW OF CONCURRING DEBTS.
A COMPENSATION AS DISTINGUISHED
FROM A PAYMENT:
• A COMPENSATION TAKE EFFECT BY OPERATION OF LAW, WHILE A PAYMENT TAKES EFFECT BY
ACT OF THE PARTIES.
• A COMPENSATION DOES NOT REQUIRE THE PARTIES TO HAVE THE CAPACITY TO GIVE AND TO
RECEIVE, WHILE A PAYMENTREQUIRES SUCH CAPACITY.
• A COMPENSATION CAN BEE PARTIAL EXTINGUISHMENT, WHILE A PAYMENT MUST BE COMPLETE
AND INDIVISIBLE.
A COMPENSATION AS DISTINGUISHED
FROM A CONFUSION:
• A COMPENSATION REQUIRES TWO PERSONS TO BE MUTUALLY DEBTOR AND CREDITOR EACH
OTHER, WHILE A CONFUSIONREQUIRES ONLY ONE PERSON TO BE BOTH THE DEBTOR AND
CREDITOR.
• A COMPENSATION COVERS TWO OBLIGATIONS, WHILE A CONFUSION COVERS ONLY ONE
OBLIGATION.
REQUISITES OF COMPENSATION
A LEGAL COMPENSATION REQUIRES:
• THAT BOTH PARTIES MUST BE MUTUALLY CREDITORS AND DEBTORS TO EACH OTHER AND BE
BOUND PRINCIPALLY.
• THAT BOTH DEBTS MUST CONSIST IN SUM OF MONEY OR IF CONSUMABLE, OF THE SAME
KIND OR QUALITY.
• THAT BOTH DEBTS BE DUE AT THE SAME TIME.
• THAT BOTH DEBTS BE LIQUIDATED AND DEMANDABLE.
• THAT THE DEBTS ARE ALLOWED BY LAW.
A COMPENSATION SHALL TAKE EFFECT BY OPERATION OF LAW WHEN ALL THE
AFOREMENTIONED REQUISITES ARE PRESENT, EVEN THOUGH THE CREDITORS AND DEBTORS
ARE NOT AWARE.
KINDS OF COMPENSATION
ACCORDING TO ITS EFFECT OR EXTENT:
• COMPLETE/TOTAL - COVERS THE TWO OBLIGATIONS OF THE SAME AMOUNT; EXTINGUISHES
BOTH DEBTS ENTIRELY, HENCE NO BALANCE REMAINING.
• PARTIAL - COVERS ONLY A PART OF THE TWO OBLIGATIONS OF DIFFERENT AMOUNTS;
EXTINGUISHES BOTH DEBTS PARTLY.
ACCORDING TO ITS ORIGIN OR CAUSE:
• LEGAL - BY OPERATION OF LAW WITH ALL THE REQUISITES ARE PRESENT.
• VOLUNTARY - BY MUTUAL AGREEMENT AND CONSENT OF THE PARTIES EVEN IF THE DEBTS
ARE NOT YET DUE.
• JUDICIAL - BY AN ORDER FROM A COURT AS PLEADED BY ONE PARTY.
• FACULTATIVE - BY UNILATERAL CHOICE OF ONE PARTY TO CLAIM OR OPPOSE
COMPENSATION; NO MUTUAL AGREEMENT NEEDED.
PROHIBITED COMPENSATIONS
A COMPENSATION IS NOT ALLOWED BY THE LAW:
• IF ONE OF THE DEBTS ARISES FROM A DEPOSITUM OR DEPOSIT, WHEREIN ONE RECEIVES A THING BELONGING TO ANOTHER,
WITH THE OBLIGATION OF SAFELY KEEPING IT AND OF RETURNING THE SAME. (NOT TO BE CONFUSED WITH A 'DEPOSIT IN A
BANK')
• IF ONE OF THE DEBTS ARISES FROM A BAILEE (AGENT) IN COMMODATUM, WHEREIN ONE GRATUITOUSLY DELIVERS
SOMETHING TO THE OTHER TO BE USED FOR A CERTAIN TIME AND THEN RETURN.
• IF ONE OF THE DEBTS ARISES FROM A CLAIM FOR SUPPORT DUE TO GRATUITOUS TITLE, WHICH ARE DEEMED “VITAL TO THE
LIFE OF THE RECIPIENT". THIS ONLY APPLIES TO SUPPORT IN ARREARS (BEHIND SCHEDULE), BUT NOT TO FUTURE SUPPORT.
• IF ONE OF THE DEBTS CONSISTS IN CIVIL LIABILITY ARISING FROM A CRIMINAL/PENAL OFFENSE; THE FULFILLMENT OF SUCH
OBLIGATION IS IMPERATIVE OR NECESSARY.THIS ONLY APPLIES TO THE ACCUSED, BUT NOT TO THE VICTIM OF A CRIME.
SUCH PROHIBITIONS ONLY APPLIES TO THE PARTY THAT HAS SUCH DEBTS. THIS IS IN ORDER TO PREVENT BREACH OF TRUST AND
CONFIDENCE.
ALTHOUGH ONE PARTY CANNOT USE COMPENSATION, THE OTHER PARTY HAS THE OPTION TO CLAIM OR NOT TO CLAIM
COMPENSATION. THIS IS A FACULTATIVE COMPENSATION.