TITLE I OBLIGATIONS into entering into an obligation.
But once you enter,
Chapter 1: General Provisions
OBLIGATIONS
Art. 1156. An obligation is a juridical necessity to give, to do
or not to do.
Elements of an Obligation: (obligare- to bind)
a.) Active subject- called the obligee (if the obligation is
to do) or creditor (if the obligation is to give). The
possessor of a right; he in whose favor the obligation
is constituted.
b.) Passive subject- called the obligor (if the obligation
is to do) or debtor (if the obligation is to give). He
who has the duty of giving, doing, or not doing. The
passive subject must be determinate or
determinable.
a. How can both subjects be determinate or
determinable?
Obligations where the subjects are completely
and absolutely determined at the birth of an
obligation.
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.
Obligations in which subjects are determined in
accordance with its relation to a real thing. Real
rights.
c.) Object or prestation- the subject matter of the
obligation. It may consist of giving a thing, doing or
not doing a certain act. The law speaks of an
obligation as a juridical necessity to comply with a
prestation. There is a juridical necessity, for non-
compliance can result in juridical or legal sanction.
Obligation -> prestation (object of the obligation) ->
object of the prestation
Requisites of the Object of the Obligation:
o Licit (Legal)
o Possible both in fact and in law
o Determinate or determinable- cant say
youre going to sell something.
o Must have pecuniary value
d.) Efficient cause- the vinculum or juridical tie. The
reason why the obligation exists.
e.) Vinculum juris- the legal tie. 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
it becomes involuntary.
f.) Form- means manifestation of intent. There is no
specific form for a valid obligation.
Characteristics of Obligations: BALANE
1. It represents an exclusively private interest.
2. Creates ties which are by nature transitory.
a. Because obligations are extinguished. But
the period is relative.
3. It involves the power to make the juridical tie
defective in case of non-fulfillment through
satisfaction of the debtors property.
Kinds of Obligations
(a) Sanction
1) Civil obligation or perfect obligation- Art. 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. There is no real obligation on the
part of the debtor, but due to conscience or guilt, he
still fulfills the obligation. (for example, a debt had
already prescribed, but the debtor pays the debt
because of conscience or guilt)
3) Moral obligation (or imperfect obligation)- the
sanction here is conscience or morality. (for
example, going to mass)
(b) Subject Matter
1) Real obligation- the obligation to give.
2) Personal obligation- the obligation to do or not to
do. (for example, refraining from committing a
crime)
(c) Affirmativeness or Negativeness of the Obligation
1) Positive or affirmative obligation- the obligation to
give or to do.
2) Negative obligation- the obligation not to do (which
naturally includes not to give).
(d) Viewpoint of Persons Obliged
1) Unilateral- where only one of the parties is bound.
Every obligation has 2 parties; if only one of them is
bound, we have a unilateral obligation.
2) Bilateral- where both parties are bound.
a. Reciprocal
b. Non-reciprocal- where performance by one
is non-dependent upon performance by the
other.
CRITICISM: the obligation stresses merely the duty of the
debtor (the passive element) without emphasizing a
corresponding right on the part of the creditor (the active
element). The definition is incomplete, in that, it views
obligations only from the debit side. There is no debt without
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a credit, and the credit is an asset in the patrimony of the
creditor just as the debt is the liability of the obligor.
Ramos: an obligation is a juridical relation whereby a person
(called the creditor) may demand from another (called the
debtor) the observance of a determinative conduct (the
giving, doing, or not doing), and in case of breach, may
demand satisfaction from the assets of the latter.
SOURCES OF OBLIGATIONS
Art. 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.
Sources of Obligation: no obligation exists if the source is not
one of those enumerated under Art. 1157 (exclusiveness of
the enumeration).
1. Law- obligations ex lege. BALANE: there is really only
one source of obligations, law. Without the law saying
the 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 solidary sense. In the
immediate sense, there are 5. Law is both an immediate
and ultimate source.
2. Contracts- obligations ex contractu.
3. Quasi-contracts- obligations ex quasi-contractu. (for
example, 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.
5. Quasi-delicts or Torts- obligations ex delicto or ex quasi-
maleficio. (for example, the duty to repair damage due
to negligence)
CRITICISM : In reality, there are only 2 sources: the law and
contracts, because obligations arising from quasi-contracts,
crimes and quasi-delicts are really imposed by law.
LAW/OBLIGATION EX-LEGE
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.
Meaning of the Article: the obligation must be clearly
(expressly or impliedly) set forth in the law.
Conflicts between Civil Code and Special Laws: if regarding
an obligation ex lege or law, there is a conflict between the
New Civil Code and a special law, the latter prevails unless
the contrary has been expressly stipulated in the New Civil
Code.
CONTRACTS/OBLIGATION EX-CONTRACTU
Art. 1159. Obligations arising from contracts have the force
of law between the contracting parties and should be
complied with in good faith.
Obligations ex-contractu: while obligations arising from a
contract have the force of law between the parties, this does
not mean that the law is inferior to contracts. Before a
contract can be enforced, it must first be valid, and it cannot
be valid if it is against the law. Moreover, the right of the
parties to stipulate is limited. BALANE: combines equity or
good faith and strict compliance by the parties.
Meaning of the Article: Neither party may unilaterally and
upon his own exclusive volition, escape his obligations under
the contract, unless the other party asserted thereto, or
unless for causes sufficient in law and pronounced adequate
by a competent tribunal.
OBLIGATIONS CONTRACTS
The result of a A contract, if valid, always results in
contract or obligations.
some other
source.
Contracts A contract is a meeting of the minds
obligations between 2 persons whereby one binds
himself, with respect to the other, to give
something or to render some service.
(Art. 1305)
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.
(Art. 1306)
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.
(Art. 1315).
From another viewpoint. A contract may
itself be a result of an obligation. (for
example, if someone engages someone as
an agent, you have the contract of agency)
Innominate Contracts (Contratas Innominado)
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 a.) Do ut des- I give that you may give.
b.) Do ut facias- I give that you may do.
c.) Facio ut des- I do that you may give.
d.) Facio ut facias- I do that you may do.
QUASI-CONTRACTS/OBLIGATION EX QUASI-CONTRACTU
Art. 1160. Obligations derived from quasi-contracts shall be
subject to the provisions of Chapter 1, Title XVII, of this
Book.
Quasi-contractu: that juridical relation resulting from a
lawful, voluntary, and unilateral act, and which has for its
purpose that payment of indemnity to the end that no one
shall be unjustly enriched or benefited at the expense of
another. A quasi-contract is not an implied contract because
there is no meeting of the minds.
2 Principal Kinds:
a) Negotiorum gestior (unauthorized management)- when
a person voluntarily takes charge of anothers
abandoned business or property without the owners
authority (Art. 2144). Reimbursement must be made to
the gestor for necessary and useful expenses, as a rule
(Art. 2150).
b) Solutio indebiti (undue payment)- this takes place when
something is received when there is no right to demand
it, and it was unduly delivered through mistake. The
requisites for the claim of refund:
a. He who paid was not under any obligation to do so.
b. The payment was made by reason of an essential
mistake of fact.
OBLIGATION EX DELICTO OR EX MALEFICIO
Art. 1161. Civil obligation arising from criminal offenses shall
be governed by the penal laws, subject to the provisions of
Art. 2177, and of the pertinent provisions of Chap. 2,
Preliminary Title, on Human Relations, and of Title XVIII of
this Book, regulating damages.
Art. 100 of the RPC: Every person criminally liable for a felony
is also civilly liable. Oftentimes the commission of a crime
causes not only moral evil but also material damage. If no
material damage is done, civil liability cannot be enforced.
Civil Liability arising from a Crime includes:
a) Restitution
b) Reparation of the damage caused
c) Indemnification for inconsequential damage
Damages in case of death: At least P50,000 must be given to
the heirs of the victim. (Loss of earning capacity and moral
damages, among other things, should be given)
Civil Action implicitly instituted in criminal case: as a general
rule, whenever a criminal action is instituted, the civil action
for the civil liability is also impliedly instituted together with
the criminal action.
Kind of Proof:
a) If a civil action merely is instituted, mere preponderance
of evidence is sufficient.
b) If a criminal case is brought (and with it, the civil case),
the guilt must be established by proof beyond
reasonable doubt.
OBLIGATIONS EX QUASI-DELICTS OR EX QUASI-MALEFICIO
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: (tort or culpa aquiliana) a fault or act of
negligence (or omission of care) which causes damages to
another, there being no preexisting contractual relations
between the parties.
Negligence: Negligence is the failure to observe, for the
protection of the interests of another person, that degree of
care, precaution and vigilance which the circumstances justly
demand, whereby such other person suffers injury.
Negligence is the omission of that diligence which is required
by the circumstances of person, place, and time. Thus,
negligence is a question of fact (Civil Code).
Test: would a prudent man foresee harm to the person
injured as a reasonable consequence of the course about to
be pursued? If so, the law imposes a duty on the actor to
refrain from the course, or to take precaution against its
mischievous results, and the failure to do so constitutes
negligence. Reasonable foresight of harm, followed by the
ignoring of the admonition born of this provision, is the
constitute fact of negligence.
Requirements before a person can be held liable for a Quasi-
delict:
a) There must be fault or negligence attributable to the
person charged
b) There must be damage and injury
c) There must be a direct relation of cause and effect
between the fault or negligence on the one hand and the
damage or injury on the other hand (proximate cause
which is the adequate and efficient cause, which in the
natural order of events, necessarily produces the
damages or injury complained of)
Contractual Liability Quasi-Delict
There is already an obligation The obligation arises only
which exists prior to or even when there is a violation.
without a breach. The breach Without a violation, there is
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of the contract is immaterial no obligation. It is the breach
to the legal obligation. itself which gives rise to the
obligation.
Contract and breach may be Quasi-delict and breach are
separable. inseparable.
Chapter 2: Nature and Effect of Obligations
TO GIVE (Art.1163-1166): DUE DILIGENCE
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 stipulation of the
parties requires another standard of care.
Duty to exercise diligence: the first effect of an obligation to
deliver a determinate thing (as distinguished from a generic
thing or one of a class) is the duty to exercise proper
diligence. Unless it is exercised, there is a danger that the
property would be lost or destroyed, thus rendering illusory
the obligation.
Diligence needed:
a) That which is required by the nature of the obligation
and corresponds with the circumstances of person, time
and place.
b) Or, if the law or contract provides for a different
standard of care, said law or stipulation prevails.
TO GIVE: FRUITS
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.
Personal right: jus in personam or jus ad rem. Power
demandable by one person of another to give, to do or not
to do.
Real right: jus in re. A power over a specific thing (like the
right of ownership or possession) and is binding on the whole
world.
Non nudis pactis, sed traditionis dominia rerym transferatur.
As a consequence of certain contracts, it is not agreement but
tradition or delivery that transfers ownership.
Kinds of Delivery:
a) Actual delivery (or tradition)- where physically, the
property changes hands.
b) Constructive delivery- that where the physical transfer is
implied.
a. Traditio simbolica (symbolical tradition)
b. Traditio longa manu (delivery by mere consent or
the pointing out of an object)
c. Traditio brevi manu (delivery by the short hand; that
kind of delivery whereby a possessor of a thing not
as an owner, becomes the possessor as an owner)
d. Traditio constitutum possessorium (the opposite of
brevi manu; thus, the delivery whereby a possessor
of a thing as an owner, retains possession no longer
as an owner, but in some other capacity)
e. Traditio by the execution of legal forms and
solemnities)
*A sale which is simulated, or even a genuine one, where
there is no delivery of the object, does not transfer
ownership.
Obligation to deliver arises from:
a) If there is no term or condition, then from the perfection
of the contract.
b) If there is a term or a condition, then from the moment
the term arrives or the condition happens.
TO GIVE: DELIVERY
Art. 1165. When what is to be delivered is a determinate
thing, the creditor, in addition to the right granted him by
Art. 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 fortuitous event until he
has effected the delivery.
Classification of Obligation from the Viewpoint of Subject
Matter (or Object of the Obligation):
a) Real obligations (to give):
a. To give a specific thing (set apart from a class)
b. To give a generic or indeterminate thing (one of
a class)
b) Personal obligations (to do or not to do)
Specific or Determinate Things: when it is capable of
particular designation.
Generic or Indeterminate Things: when it refers only to a
class, genus, and cannot be pointed out with particularity.
Remedies of the Creditor when the Debtor fails to comply
with his Obligation:
a) Demand specific performance (or compliance) of the
obligation.
b) Demand rescission or cancellation (in some cases).
c) Demand damages either with or without either of the
first, (a) or (b).
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Effect of Fortuitous Events: a specific obligation is an
obligation to deliver a specific thing is, as a rule, extinguished
by a fortuitous event or act of God. Generic obligations are
never extinguished by fortuitous events. The two instances
where a fortuitous event does not exempt is if the obligor
delays (this is default or mora) or if the obligor is guilty of bad
faith.
Ordinary Delay Legal Delay (Default)
Merely non- Delay which amounts to a virtual
performance at the non-fulfillment of the obligation.
stipulated time.
As a rule, to put a debtor in default,
there must be a demand for
fulfillment, the demand is being
either judicial or extrajudicial.
TO GIVE: ACCESSIONS AND ACCESSORIES
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.
Accessions: those joined to or included with the principal for
the latters better use, enjoyment or perfection.
Accessories: additions to or improvements upon a thing.
These include alluvium (soil gradually deposited by the
current of a river on a river bank) and whatever is built,
planted or sown on a persons parcel of land.
Effect of stipulation: if there is a stipulation to said effect,
accessions and accessories do not have to be included.
BALANE:
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. (Art. 1163).
2. To account and deliver to the creditor the fruits if the
thing bears fruits upon the time the obligation to deliver
it arises. (Art. 1164).
However, ownership is transferred only by delivery.
Hence, creditors rights over the fruits is merely
personal.
3. To deliver the accessions and accessories. (Art. 1166).
Remedies available to the creditor:
1. Specific performance- the debtor must perform it
personally.
2. Equivalent performance- damages. May be obtained
exclusively or in addition to the 1st action.
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
(performed at the expense of the debtor).
3. Equivalent performance- damages. May be obtained
exclusively or in addition to the 1st 2 actions.
TO DO
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.
Remedies of Creditor if Debtor fails to do:
a) To have the obligation performed (by himself or another)
at debtors expense (only if another can do the
performance).
b) Also- to obtain damages. (Damages alone cannot
substitute for performance if owners can do it; if purely
personal or special only damages may be asked, unless
substitution is permitted. Specific performance is not a
remedy in personal obligations; otherwise, this may
amount to involuntary servitude, which as a rule is
prohibited under our Constitution).
A thing may be ordered undone:
a) If made poorly. Here performance by another and
damages may be demanded.
b) If the obligation is a negative one, provided the undoing
is possible.
Only the obligor can do (personalisimo)
1. Equivalent performance- damages.
Anyone else can do it (not personalisimo)
1. Substitute performance- done by someone else
(performed at the expense of the debtor).
2. Equivalent performance- damages. Can be obtained
exclusively or in addition to other actions.
NOT TO DO
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.
Remedies available to the creditor:
1. Substitute performance- done by someone else
(perform at the expense of the debtor).
2. Equivalent performance- damages. May be obtained
exclusively or in addition to the 1st 2 actions.
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 TABLE OF REMEDIES In reciprocal obligations, neither party incurs in delay if the
Obligation Specific Equivalent Substitute other does not comply or is not ready to comply in a proper
Performance Performance Performance manner with what is incumbent upon him. From the
The The payment When moment one of the parties fulfills his obligation, delay by
performance of damages. someone the other begins.
of the else
prestation performs or Necessity of Demand: to put a debtor in default, demand is
itself. something needed. The demand may be:
else is a) Judicial, as when a complaint for specific performance is
performed filed;
at the b) Extrajudicial, without court proceedings.
expense of
the debtor. When Demand is not needed to put Debtor in Default:
TO GIVE a) When the law so provides.
Determinate X b) When the obligation expressly so provides. The mere
thing fixing of the period is not enough; there must be a
Determinable provision that if payment is not made when due, default
thing or liability for damages or interests automatically arises.
TO DO c) When time is of the essence of the contract (or when the
Very Not X fixing of the time was the controlling motive for the
personal applicable establishment of the contract). It is not essential for the
because of contract to categorically state that time is of the essence;
the the intent is sufficient as long as this is implied.
prohibition d) When demand would be useless, as when the obligor has
against rendered it beyond his power to perform.
involuntary e) When the obligor has expressly acknowledged that he
servitude. really is in default (but it should be noted that his mere
Not very Not asking for extension of time is not an express
personal applicable acknowledgement of the existence of default on his
because of part).
the
prohibition Different Kinds of Mora:
against a) Mora Solvendi (default on the part of the debtor)- there
involuntary is no mora solvendi in negative obligations (one cannot
servitude. be late in not doing or not giving).
NOT TO DO X - There is no mora in natural obligations.
- Requisites for mora solvendi:
1. The obligation must be due, enforceable, and
DELAY
Art. 1169. Those obliged to deliver or to do something incur already liquidated or determinate in amount.
2. There must be non-performance.
in delay from the time the obligee judicially or
3. There must be a demand, unless the demand is
extrajudicially demands from them the fulfillment of their
obligation. not required. (When demand is needed, proof
of it must be shown by the creditor).
4. The demand must be for the obligation that is
However, the demand by the creditor shall not be necessary
due (and not for another obligation, nor one
in order that delay may exist:
(1) When the obligation or the law expressly so declares; or with a bigger amount, except in certain
instances, considering all the circumstances).
(2) When from the nature and the circumstances of the
- Effects of Mora Solvendi:
obligation it appears that the designation of the time
when the thing is to be delivered or the service is to be 1. If the debtor is in default, he may be liable for
rendered was a controlling motive for the interests or damages.
2. He may also bear the risk of loss.
establishment of the contract; or
(in both cases, it is, however, essential that his
(3) When demand would be useless, as when the obligor
has rendered it beyond his power to perform. being in default is attributable to his own fault).

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 3. He is liable even for a fortuitous event, although
damages here may be mitigated if he can prove
that even if he had not been in default, loss
would have occurred just the same.
- In a purchase by installments, the contract may
provide for an acceleration clause (a clause which
would make all installments due, upon default in one
installment). Default in the payment of one
installment does not mean default in the whole
amount. If there is an acceleration clause, all that
happens will be that the whole amount becomes
due. And demand is still needed to put the debtor in
default.
a. Mora Solvendi ex re (debtors default in real
obligations)
b. Mora Solvendi ex persona (debtors default in
personal obligations)
b) Mora Accipiendi (default on the part of the creditor)-
the creditor is guilty of default when he unjustifiably
refuses to accept payment or performance at the time
said payment or performance can be done. Some
justifiable reasons for refusal to accept may be that the
payor has no legal capacity or that there is an offer to
pay an obligation other than what has been agreed upon.
- If an obligation arises ex delicto (as the result of a
crime), the debtor-criminal is responsible for loss,
even though this be through a fortuitous event,
unless the creditor is in mora accipiendi. 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. (Civil Code)
c) Compensatio Morae (when in a reciprocal obligation,
both parties are in default; here it is as if neither is in
default)- depend upon each other for performance.
Performance may be set on different dates.
- If the performance is not set on different dates,
either by the law, contract, or custom, it is
understood that performance must be simultaneous.
When neither has performed, there is compensatio
morae (default on the part of both; so it is as is no
one is in default). If one party performs, and the
other does not, the latter would be in default.
When Damages or Interest may be lost:
a) If the principal obligation is allowed to lapse by
prescription;
b) If the damages or interest are allowed to prescribe;
c) If the damages or interest are condoned (waived or
remitted).
IRREGULARITY IN PERFORMANCE: FRAUD, NEGLIGENCE OR
DELAY
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.
Grounds for Liability in the Performance of their Obligations:
a) Fraud (deceit or dolo)- intentional evasion of
fulfillment.
b) Negligence (fault or culpa)
c) Default or mora- if imputable to the debtor.
d) Violation of the terms of the obligation (violation)-
unless excused in proper cases by fortuitous events.
Liability for damages: those liable under Art. 1170 should pay
damages, but generally only if aside from the breach of
contract, prejudice or damage was caused.
Kinds of Damage: damages should be paid by those
responsible for them.
1. Moral- for mental and physical anguish. It cannot be
recovered unless proved.
2. Exemplary- corrective or to set an example.
3. Nominal- to vindicate a right- when no other kind of
damages may be recovered.
4. Temperate- when the exact amount of damages
cannot be determined.
5. Actual- actual losses as well as unrealized profit.
6. Liquidated- predetermined beforehand by
agreement.
Damages in Monetary Obligations: indemnity for damages
consists of:
a.) That agreed upon
b.) In the absence of agreement, the legal rate of
interest. If a contract of simple loan stipulates the
time when interest will be counted, said stipulated
time controls.
IRREGULARITY IN PERFORMANCE: FRAUD
Art. 1171. Responsibility arising from fraud is demandable in
all obligations. Any waiver of an action for future fraud is
void.
Liability for Fraud or Dolo:
a) According to time of commission, fraud may be past or
future (liability for past fraud may be waived; this is not
so for future fraud).
b) According to meaning, fraud may be classified as follows:
a. Fraud in obtaining consent (may be causal or
merely incidental)
b. Fraud in performing a contract. (Fraud here may
be either:
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 i. Dolo causante (causal fraud) preponderance of preponderance of crime- proof of
ii. Dolo incidente (incidental fraud) evidence. evidence. guilt beyond
*while dolo causante is so important reasonable
a fraud that vitiates consent doubts.
(allowing therefore annulment), dolo Defense of good Defense of good This is not a
incidente is not important father of a family father, etc. is a proper defense in
in the selection proper and culpa criminal.
IRREGULARITY IN PERFORMANCE: NEGLIGENCE and supervision of incomplete Here the
Art. 1172. Responsibility arising from negligence in the employees is not a defense (insofar as employees guilt is
performance of every kind of obligation is also demandable, proper complete employers or automatically the
but such liability may be regulated by the courts, according defense in culpa guardians are employers civil
to the circumstances. contractual concerned) in guilt, if the former
(though this may culpa aquiliana. is insolvent.
Dolo Culpa mitigate
There is deliberate Although voluntary (that is, not damages).
intention to cause done through force) still there is As long as it is Ordinarily, the Accused is
damage or prejudice. no deliberate intention to cause proved that there victim has to presumed
damage. was a contract, prove the innocent until the
Liability arising from dolo Liability due to negligence may and that it was not negligence of the contrary is proved,
cannot be mitigated or be reduced in certain carried out, it is defendant. This is so prosecution has
reduced by the courts. circumstances. presumed that the because his action the burden of
Waiver of an action to Waiver of an action to enforce debtor is at fault, is based on proving the
enforce liability due to liability due to future culpa may and it is his duty alleged negligence negligence of the
future fraud is void. in a certain sense be allowed. to prove that on the part of the accused.
there was no defendant.
Stipulations regarding Negligence (future Negligence): negligence in
a) Gross negligence can never be excused in advance carrying out the
for this would be contrary to public policy terms of the
b) Simple negligence may in certain cases be excused contract.
or mitigated
Art. 1173. The fault or negligence of the obligor consists in
Kinds of Culpa Classified According to the Source of the omission of that diligence which is required by the
Obligation nature of the obligation and corresponds with the
a) Culpa contractual (contractual negligence)- that which circumstances of the person, of the time and of the place.
results in a breach of contract. When negligence shows bad faith, the provisions of Arts.
b) Culpa Aquiliana (civil negligence or tort or quasi-delict) 1171 and 2201, 2, shall apply.
c) Culpa Criminal (criminal negligence)- that which results
in the commission of a crime or a delict. If the law or contract does not state the diligence which is to
be observed in the performance, that which is expected of a
Culpa Contractual Culpa Aquiliana Culpa Criminal good father of a family shall be required.
Negligence is Negligence here is Negligence here is
merely incidental, direct, direct, Kinds of Diligence Under the Civil Code:
incident to the substantive, and substantive, and a) That agreed upon by the parties.
performance of an independent. independent of a b) In the absence of a) that required by law.
obligation already contract. c) In the absence of b) that expected of a good father
existing because of a family.
of a contract.
There is a pre- No pre-existing No pre-existing Art. 1174. Except in cases expressly specified by the law, or
existing obligation obligation (except obligation (except when it is otherwise declared by stipulation or when the
(a contract, either of course the duty the duty never to nature of the obligation requires the assumption of risk, no
express or to be careful in all harm others). person shall be responsible for those events which could not
implied). human be foreseen, or which though foreseen, were inevitable.
actuations).
Proof needed- Proof needed- Proof needed in a
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General rule for fortuitous events (caso fortuito, act of God, NEGLIGENCE:
force majeure or unavoidable accident): no liability. The absence of due diligence (Art. 1173).
Exceptions: Like fraud, negligence results in improper performance,
a) When expressly declared by the law or is in default. but it is characterized by lack of care (lack of due
b) When expressly declared by stipulation or contract. diligence in the care of a good father of the family),
c) When the nature of the obligation requires the unlike fraud which is characterized by malice.
assumption of risk. 2 Types of Negligence:
1. Simple
Essential characteristics of a Fortuitous Event: 2. Gross
a) The cause must be independent of the will of the The determination of due diligence is always relative. It
debtor (free from participation or aggravation). will depend on:
b) Impossibility of foreseeing or impossibility of 1. The nature of the obligation
avoiding it, even if foreseen. 2. Nature and circumstances of
c) The occurrence must be such as to render it a. Person
impossible for the debtor to fulfill his obligation in a b. Time
normal manner. c. Place
Effects: (Art. 1170, 1172)
BALANE: 1. Creditor may insist on proper substitute or specific
IRREGULARITY IN PERFORMANCE: performance (Art. 1233)
ATTRIBUTABLE TO DEBTOR (CULPABLE) 2. Rescission/Resolution (Art. 1191)
Art. 1170- those who in the performance of their 3. Damages in either case (Art. 1170)
obligations are guilty of fraud, negligence, or delay and
those who in any manner contravene the tenor thereof, DELAY/MORA:
are liable for damages. Definition: the non-fulfillment of the obligation with
respect to time. In fraud, negligence, the question is the
FRAUD: (Art. 1170-1171) quality even if performed on time. In delay, even if the
Definition: the voluntary execution of a wrongful act, or quality is excellent but the performance is not in due
willful omission, knowing and intending the effects which time, the debtor is liable.
naturally and necessarily arise from such act or omission. Requisites:
The deliberate and intentional evasion of the normal 1. Obligation is demandable and liquidated.
fulfillment of the obligation. 2. Delay is through fault or negligence.
Distinguished from negligence by the presence of 3. Creditor requires performance either judicially
deliberate intent, which is lacking in the latter. (through court action) or extrajudicially (any
Fraud under Art. 1170- more properly called malice, Art. communication by the creditor to debtor).
1171- In reciprocal obligations (obligations with a counterpart
Fraud under Art. 1338 Fraud under Art. 1171 prestation) which require simultaneous performance,
Deceit is antecedent fraud. Malice is subsequent demand is still needed. What is the form of such a
fraud. demand? Any communication of a party that he is ready
Fraud preexists the There was already an and willing to comply with his obligation. If after receipt
obligation, thus the obligation before the of demand and the other party does not comply with his
obligation is voidable. fraud exists. obligation, he is in delay.
Deceit vitiates consent in 3 kinds of delay:
contracts. The deceit occurs 1. Mora Solvendi:
by using insidious words Delay in performance incurred by the debtor.
machinations. Without this Requisites:
deceit, the other party o The obligation is demandable and
would not have entered liquidated.
into the contract. o Debtor delays performance either
Effects: because of dolo or culpa.
1. Creditor may insist on proper substitute or specific o The creditor demands the performance
performance. (Art. 1233). either judicially or extrajudicially.
2. Rescission/Resolution. (Art. 1191). General rule: demand is necessary. (Mora
3. Damages in either case. (Art. 1170). solvendi expersona). Thus, no demand, no
delay.

Luz 9
 Exceptions: (Mora solvendi ex re, Art. 1169).
o 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 that
stipulates that non-performance on the
due date is delay without need of
demand.
o When it appears from the nature and
controlling motive the obligation that
time was a controlling motive for the
establishment of the contract.
o When demand would be useless, when
obligor has rendered it beyond his
power to perform.
Effects:
o When the obligation is to deliver a
determinate thing, the risk is placed on
the aprt of the debtor. (Art. 1165)
o Damages.
o Rescission/Resolution. (Art. 1191)
2. Mora Accipiendi
Related to payment (consignation). The creditor
incurs in delay when debtor tenders payment or
performance, but the creditor refuses to accept
it without just cause.
Requisites:
1. An offer of performance by the debtor who
has the required capacity.
2. The offer must be to comply with the
prestation as it should be performed.
3. The creditor refuses the performance
without just cause.
Effects:
1. Responsibility of debtor for the thing is
limited to fraud and gross negligence.
2. Debtor is exempted from risk of loss of
thing which automatically pass to creditor.
3. Expenses incurred by the debtor for
preservation of thing after the delay shall
be chargeable to the creditor.
4. If the obligation has interest, debtor shall
not have obligation to pay the same from
the time of the delay.
5. Creditor becomes liable for damages.
6. Debtor may relieve himself by consignation
of the thing.
3. Compensatio Morae
Delay on both sides on reciprocal obligations,
cancel each other out.
NOT ATTRIBUTABLE TO THE DEBTOR (NON-CULPABLE)
Fortuitous event (Art. 1174), caso fortuioto, force majeure,
Act of God
Also governed by Art. 1221 but is called loss there, a
cause for extinguishment of obligation.
Requisites:
1. The cause of the unforeseen and unexpected
occurrence, or the failure to comply with his
obligations, must be independent of the human will.
2. It must be impossible to foresee the event which
constitutes 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.
Exception:
1. When the law so provides (Art. 1163)
2. When there is express stipulation. Fortuitous event
yields to contrary stipulations.
3. When the nature of the obligation requires the
assumption of risk
Art. 1175. Usurious transaction shall be governed by special
laws.
Usury: contracting for or receiving something in excess of the
amount allowed by law for the loan or use of money, goods,
chattels or credits. The exaction of excessive interest.
Kinds of interest:
a.) Interest given for compensation or use of the
money. Moratory interest.
b.) Interest given by way of damages. Compensatory
interest, it compensates the damage caused.
Simple Loan (Mutuum): by the contract of simple loan, one
of the parties delivers to another money or other consumable
things upon the condition tat the same amount of the same
kind and quality shall be paid.
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 installment, shall likewise raise the
presumption that such installments have been paid.
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2 Presumptions:
1. Interest bearing debt- presumption that interest has
been paid if the principal has been received without
reservation regarding interest.
2. Debt payable in installments- presumption that
earlier installments have been paid if the later
installment has been received without reservation
regarding the previous installments.
Art. 1177. The creditors, after having pursued the property
in possession of the debtor to satisfy their claims, may
exercise in 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.
Rights of Creditors: Enforcement of Creditors Remedies
a) Exact payment
b) Exhaust debtors properties, generally by attachment
(except properties exempted by the law)
c) Accion subragatoria (subragatory action)- exercise all
rights and actions except those inherent in the person.
Premised on the theory that the debtor of my debtor is
my debtor.
Requisites:
1. Creditor has a right of credit against the debtor.
2. Credit is due and demandable.
3. Falure of debtor to collect his own credit from a
third person either through malice or negligence.
4. Insufficiency of assets of the debtor to satisfy the
creditors credit.
5. Right (of account) is not intuitu personae.
d) Accion pauliana (impugn or rescind acts or contracts
done by the debtor to defraud the creditors, Arts. 1380-
1389)- right of creditors to rescind alienations by debtor
which are prejudicial to them to the extent of the
prejudice.
Requisites:
1. There is a credit in favor of the plaintiff.
2. The debtor has performed an act subsequent to
the contract, giving advantage to other persons.
3. The creditor is prejudiced by the debtors acts
which are in favor of third parties and rescission
will benefit the creditor.
4. The creditor has no legal remedy.
5. The debtors acts are fraudulent.
e) Accion directa- a direct (not subragatory) action by the
creditor against his debtors debtor, a remedy which
gives the creditor the prerogative to act in his own name.
This is an exception to the relativity of contracts.
Extent of Debtors Liability: the debtor is liable with all his
property, present and future, for the fulfillment of his
obligations subject to the exemptions provided by law.
Art. 1178. Subject to the laws, all rights acquired in virtue of
an obligation are transmissible, if there have been no
stipulation to the contrary.
Transmissibility of Rules:
General Rule: rights are transmissible.
Exceptions:
1) If the law provides otherwise
2) If the contract provides otherwise
3) If the obligation is purely personal
*intransmissibility by contractual stipulation, being the
exception to the rule, must be clearly proved.
Chapter 3: Different Kinds of Obligations
Section 1: Pure and Conditional Obligations
DIFFERENT KINDS OF OBLIGATIONS
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.
Pure obligation: one without a condition or a term (hence,
demandable at once, provided there will be no absurdity). It
Is one which is subject to no contingency.
Conditional obligation: when there is a condition. A condition
is a future and uncertain event. In conditional obligations, the
happening of the condition determines its birth or death. In
term, the happening of the term determines its
demandability.
When an obligation is demandable at once:
a) When it is pure
b) Or when it has a resolutory condition
Classification of Conditions:
a) Suspensive The happening of the condition gives
rise to the obligation.
The fulfillment of a suspensive
condition results in the acquisition of
rights arising out of the obligation.
The condition that some event
happens 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. 1184)
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 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. (Art.
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
fuirts of the thing is not within the
principle of retroactivity of conditional
obligations. (Art. 1187)
If the obligation imposes reciprocal
prestations, fruits and interest are
deemed mutually compensated.
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. (Art. 1187)
The creditor may, before the
fulfillment of the condition, bring the
appropriate actions for the
preservation of his right (Art. 1188).
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. (Art.
1188)
Resolutory The happening of the condition
extinguishes the obligation.
The fulfillment of the resolutory
condition results in the extinguishment
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. (Art. 1190)
Resolution (Art. 1191) is found on the
conditional obligations because if there
is a breach, the breach is a resolutory
condition which extinguishes the
obligations.
Art. 1191 uses the term rescission
but the better term is resolution.
Resolution is different from rescission.
Resolution is based on the non-
fulfillment of 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.
Summary of rulings on resolution:
1. The right to resolve is in inherent
in reciprocal obligations.
2. The breach of 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.
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 it.
b) Potestative Depends upon the will of the debtor.
The fulfillment of the condition
Luz 12
 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.
Art. 1182 prohibits a suspensive
potestative condition dpendent on the
will of the debtor. The entire obligation
is void because there is no juridical tie.
An obligation is one which has to be
performed regardless of the will of the
debtor. There is no element of
compulsion.
In reciprocal obligations, the law only
talks about the first prestation, the
reciprocal prestation is not taken into
consideration.
Casual Depends on chance or hazard or the
will of a third person.
The fulfillment of a condition depends
upon chance and/or upon the will of a
3rd person and not on the will of a
party.
Mixed Depends partly on the will of one of
the parties and partly on chance or the
will of a third person.
The fulfillment of a condition depends
partly upon the till of a party to the
obligation and partly upon chance
and/or the will of a third 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 void.
Doctrine of Constructive Compliance:
the condition shall be deemed fulfilled
when the obligor voluntarily prevents
its fulfillment (Art. 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 applies also to
potestative and mixed conditions.
c) Divisible Capable of partial performance. When
the condition is susceptible of partial
realization.
Indivisible Not capable of partial performance
because of the nature of the thing, or
because of the intention of the parties.
When the condition is not susceptible
of partial realization.
d) Positive An act is to be performed. When the
condition involves the performance of
an act.
Negative Something will be omitted. When the
condition involves the non-
performance of an act.
f) Express The condition is stated. When the
condition is stated expressly.
Implied The condition merely inferred When
the condition is tacit.
f) Possible Capable of fulfillment in nature and in
law.
Impossible Not capable of fulfillment due to
nature or due to the operation of the
law or morals or public policy; or due
to a contradiction in its terms.
However, if the obligation is divisible
and that part of the obligation is not
unaffected by the impossible
condition, then the obligation is valid
(Art. 1183).
1. Positive condition to do something
impossible
- Void condition and obligation.
2. Negative condition to do
something impossible
- Disregard the condition, the
obligation is valid.
3. Negative condition not to do
anything illegal
- Valid condition and obligation.
The effect of an impossible condition is
to annul the obligation (Art. 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 Art. 1183
refers to onerous obligation whereas
donations and succession are
gratuitous.
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g) Conjunctive If all the conditions must be
performed.
Conjunctive when there are several
conditions, all of which must be
realized.
Alternative If only a few of the conditions have to
be performed.
Alternative when there are several
conditions, only one of which must be
realized.
Rights are transmissible unless the rights are personal.
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 Art.
1197.
Debtor to pay when his means permit: payment does not
depend on debtors will. What depends really on him is not
payment, but the time when payment is to be made. Hence,
the law consider this obligation as one with a term or a
period.
How long is the term: The general rule is for the creditor to
ask the court first for the fixing of the term, and it is only
when that term set arrives that he can demand fulfillment.
Any action to recover before this is done is considered
premature.
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.
Suspensive conditions: the happening of which will give rise
to the acquisition of a right (also called conditions precedent
or conditions antecedent). What characterizes an obligation
with a suspensive condition is the fact that its efficacy or
obligatory force is subordinated to the happening of a future
or uncertain event; if the suspensive condition does not take
place, the parties would stand as if the conditional obligation
had never existed.
Resolutory conditions: also called conditions subsequent.
Rights already acquired are lost once the condition is fulfilled.
Conditional Perfection of a Contract: if the perfection of a
contract depends upon the fulfillment of a condition, non-
fulfillment thereof means the non-perfection of the contract
since the suspensive condition should have been first fulfilled.
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.
Potestative, Casual, Mixed Conditions
a) Potestative- also called facultative condition.
Depends on the exclusive will of one of the parties.
b) Casual- depends on chance or upon the will of the
third person.
Potestative (Facultative) Condition
a) Potestative on the part of the Debtor
a. If also suspensive- both the condition and
the obligations are void, for the obligation is
really illusory
b. If also resolutory- valid.
b) Potestative on the part of the Creditor
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.
Impossible conditions: illogical condition.
Illegal conditions: prohibited by good customs, public policy;
prohibited, directly, or indirectly, by law.
Effects:
a) If the condition is to do an impossible or illegal thing,
both the condition and the obligation are void
(because the debtor knows that no fulfillment can be
done and therefore is not serious about being
liable).
b) If the condition is negative, that is, not to do the
impossible, just disregard the condition but the
obligation remains.
c) If the condition is negative, i.e. not to do an illegal
thing, both the condition and obligation are valid.
POSITIVE CONDITIONS
Art. 1184. The condition that some even happens 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.
Effect if period of fulfillment is not fixed: if the period is not
fixed in the contract, the court, considering the parties
intentions, should determine what period was really
intended.
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NEGATIVE CONDITIONS
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 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.
Requisites:
1) Voluntarily made- either maliciously or not, the
intent to prevent must be present.
2) Actually prevents- intention without prevention, or
prevention without intention is not sufficient. But
intention and prevention in the exercise of a lawful
right will not render the Article applicable.
Applicable of the Article to Resolutory Conditions: although
in general, Art. 1186 applies only to a suspensive condition, it
may sometimes apply to a resolutory condition.
Art. 1187. The effects of a conditional obligation to give,
once the condition has been fulfilled, shall retroact to the
day of the constitution to 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.
Retroacts: as a general rule, to the day the obligation was
constituted. (for example, if Jose, in 2004, promises to sell to
Maria his land provided she passes the bar in 2006 and she
does, it is as is she was entitled to the land since 2004 and
any donation or mortgage made by her in 2004 will be
considered valid. Future property cannot, as a rule, be
donated, but inasmuch as she is entitled to the land since
2004, the property cannot be considered a future one. Same
as with mortgages because the mortgagor must be the
owner. Any alienation on the land made by Jose will be
considered invalid.)
No retroactivity with reference to:
a) Fruits or interests- in unilateral obligations, debtor
gets the fruits and interests unless there is a
contrary intent. In reciprocal obligations, the fruits
and interests during the pendency of the condition
shall be deemed to compensate each other (even
though they really be unequal).
b) Period of prescription. Here the period runs from the
day the condition was fulfilled, because it can be
enforced only from said date.
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.
Actions to preserve Creditors rights: if not allowed to take
appropriate action, there is a danger the creditor will receive
nothing, as when the object is deliberately destroyed, hidden
or alienated. Appropriate actions means to sue in court, as
well as other remedies such as asking for security if the
debtor is about to be insolvent or asking the court to prevent
alienation or concealment of pendent conditionae.
Right of Debtor to recover what was paid by mistake: what
was paid by mistake may be recovered because, after all, the
condition may not materialize. In the meantime, the debtor
has lost the use of the object. It is unfair for the creditor to
unjustly enrich himself (solution indebiti, undue payment).
The debtor is also entitled to fruits or legal interest if the
creditor be in bad faith, that is, if the creditor knew that
payment was being made prior to the fulfillment of the
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 without
the creditor;
Luz 15
 (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.
Loss, Deterioration, and Improvement During the Pendency
of the Condition:
Applies only if:
1) The suspensive condition is fulfilled; and
2) The object is specific (not generic)
3 things that may happen to the object of an obligation
pending the fulfillment of a suspensive condition:
1. May be lost
a. Without the fault of the debtor
b. With fault of the debtor
c. Partly with and partly without the fault of
the debtor
2. May deteriorate (value is reduced or impaired)
a. Without the fault of the debtor
b. With the fault of the debtor
c. Partly with and partly without the fault of
the debtor
3. May be improved
a. By nature or by time
b. Through the expense of the debtor
c. Partly through nature or time and partly by
the debtor
Loss: it is understood that a thing is lost if
a) When it perishes
b) When it goes out of commerce
c) When it disappears in such a way that its existence is
unknown
d) When it disappears in such a way that it cannot be
recovered
Effects of Partial Loss:
a) That would amount to a loss important enough to be
considered a complete loss (this will be determined
by the courts).
b) That would merely be considered a deterioration of
the thing, in which case the rules on deterioration
should apply.
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.
As for obligations to do and not to do, the provisions of the
2nd paragraph of Art. 1187 shall be observed as regards the
effect of the extinguishment of the obligation.
Effects when Resolutory Condition is Fulfilled
1. The obligation is extinguished.
2. Because the obligation had been extinguished and
considered to have had no effect, the parties should
restore to each other what they have received.
3. Aside from the actual things received, the fruits or
the interests thereon should also be returned after
deducting of course the expenses made for their
production, gathering and preservation.
4. The rules given in Art. 1189 will apply to whoever
has the duty to return in case of the loss,
deterioration, or improvement of the thing.
5. The courts are given power to determine the
retroactivity of the fulfillment of resolutory
conditions.
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 Arts. 1385 and 1388 and the Mortgage Law.
Right to Rescind: means the right to cancel or resolve the
contract or reciprocal obligations in case of non-fulfillment on
the part of one. This the rescission referred to here is not
predicated on injury to economic interests on the part of the
party plaintiff (which is the basis for the rescission mentioned
in Arts. 1380 and 1381), but on the breach of faith by the
defendant, which breach is violative of the reciprocity
between the parties.
Reciprocal Obligations: refers to obligations where two
parties are reciprocally obliged to do or give something. It is
Luz 16
not enough that both parties are indebted to each other. The
cause must be indentical and the obligations should arise
simultaneously. Parenthetically, in reciprocal contracts or
transactions, the obligation or promise of each party is the
cause or consideration for the obligation or promise of the
other.
Characteristics of the Right to Rescind or Resolve:
1. It exists only in reciprocal obligations. Be it noted,
however, that if the obligation is reciprocal but with
a period, neither party can demand performance or
be considered in default before the expiration of the
period.
2. It can be demanded only if the plaintiff is ready,
willing and able to comply with his own obligation,
and the other is not. Otherwise, if neither is ready,
neither can resolve. Moreover, the guilty party
cannot rescind. He who comes to equity must come
with clean hands.
3. The right to rescind is not absolute. Thus:
a. Trivial causes or slight breaches will not
cause rescission.
b. If there be just cause for fixing the period
within which the debtor can comply, the
court will not decree rescission.
c. If the property is now in the hands of an
innocent third party who has lawful
possession of the same.
4. The right to rescind needs judicial approval in certain
cases, and in others, does not need such approval.
a. Judicial approval is needed when there has
already been delivery of the object (unless
of course there is a voluntary returning).
b. Judicial approval is not needed when there
has been no delivery yet. Or in case there
has been delivery, the contract stipulate
that either party can rescind the same or
take possession of the property upon non-
fulfillment of the party.
5. The right to rescind is implied (presumed) to exist
and, therefore, need not be expressly stipulated
upon.
6. The right to rescind may be waived, expressly or
implied.
Choice by the Injured Party:
1) The injured party may choose between:
a. Fulfillment (specific performance) (plus
damages)
b. Or rescission (plus damages)
2) The right is alternative and an alternative prayer may
be made in a court complaint unless either had been
waived previously.
3) The right is not conjunctive, that is, the plaintiff
cannot ask for both remedies. Thus, if the plaintiff
elects fulfillment of a reciprocal obligation, rescission
thereof may not be declared at the same time.
However, in some cases, in the interest of justice
partial rescission and partial fulfillment may be
allowed.
However, the rule is still that the rescission or
resolution of a contract has the effect of abrogating
it in all its parts, the creditor cannot demand
rescission, and still insist on the performance of
subordinate stipulations. Hence, a clause allowing
for attorneys fees for the foreclosure of a mortgage
cannot be availed of if the mortgage itself is
rescinded.
4) The injured party who has elected fulfillment may, if
fulfillment be impossible, still ask for rescission
(provided that rescission is otherwise proper). The
rule is vice-versa, provided the court has not yet
given final judgment.
5) If an action is brought for specific performance, the
damages sought must be asked in the same action;
otherwise the damages are deemed waived.
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.
If both parties have committed a breach:
The above rules are deemed just. The first one is fair to both
parties because the second infractor also derived or thought
he would derive some advantage by his own act or neglect.
The second rule is likewise just, because it is presumed that
both at about the same time tried to reap some benefit.
Section 2: Obligations with a Period
TERM
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.
Luz 17
If the uncertainty consists in whether the day will come or Conventional Period agreed upon or stipulated by the
not, the obligation is conditional and it shall be regulated by or Voluntary parties.
the rules of the preceding Section. Judicial The period or term fixed by the courts
for the performance of an obligation or
Term: a length of time, which, exerting an influence on an for its termination.
obligation as a consequence of juridical acts, suspends its c) Ex die A period with a suspensive effect. Here,
demandability or determines its extinguishment. A future and the obligation begins only from a day
certain event. certain, in other words, upon the arrival
of the period.
Period: a certain length of time which determines the In diem a period or term with a resolutory
effectivity or the extinguishment of the obligation. Manresa: effect. Up to a time certain, the
a term or a period consists in a space of time which has an obligation remains valid, but upon the
influence on obligations as a result of judicial act, and either arrival of said period, the obligation
suspends their demandableness, or produces their terminates.
extinguishment Obligations with a period are, therefore,
those whose consequences are subjected in one way or Requisites for a Valid Period or Term:
another to the expiration of said term. 1. It must refer to the future.
2. It must be certain (sure to come) but can be extended. (if
Period Condition eliminated subsequently by mutual agreement, the
In their fulfillment An event which An uncertain obligation becomes pure and immediately demandable).
must happen event.
sooner or later, at When Period of Prescription Begins: it commences from the
a date known time the term in the obligation arrives, for it is only from that
beforehand, or a date that it is due and demandable.
time which cannot
be determined. Extension of Period: evidence of extension of period, if any
With reference to Always refers to May, under the be given, must be shown by debtor.
time the future. law, refer even to
the past. Art. 1194. In case of loss, deterioration or improvement of
As to influence on Merely fixes the Causes an the thing before the arrival of the day certain, the rules in
the obligation time or the obligation to arise Art. 1189 shall be observed.
efficaciousness of or to cease.
an obligation. Rules in case of Loss, Deterioration or Improvement:
May have a 1. Art. 1189 of the Civil Code.
suspensive or
resolutory effect. BALANE:
In the former, it Requirements:
cannot prevent 1. Obligation has a suspensive condition, a resolutory
the birth of the condition or term.
obligation in due 2. The obligor is obligated to deliver a determinate thing.
time, and in the 3. There is improvement, loss or deterioration before the
latter, it does not fulfillment of the condition or the period.
militate against its 4. The condition is fulfilled or the period arrives.
existence.
Rules:
1. If the thing is lost without the fault of the debtor, the
The Different Kinds of Terms and Periods obligation is extinguished.
a) Definite The exact date or time is known and 2. If the thing is lost through the fault of the debtor, he
given. must pay damages.
Indefinite something that will surely happen, but The thing is lost when it perishes, goes out of
the date of happening is unknown (as in commerce or disappears in such a way that its
the case of death). existence is unknown or cannot be recovered.
b) Legal A period granted under the provisions of
the law.
Luz 18
3. If the thing deteriorates without the fault of the debtor, demand prematurely. This Art. applies only where the parties
the creditor must accept the thing in its impaired to a contract themselves have fixed a period, and not to a
condition. case where the parties have authorized the Court to fix a
4. If the thing deteriorates through the fault of the debtor, reasonable term.
the creditor may choose between Exceptions:
Resolution (Art. 1189) plus damages 1. Term is for the benefit of debtor alone. The debtor is
Fulfillment of the obligation plus damages required to pay only at the end, but he may pay even
5. If the thing is improved by nature or by time, the before.
improvement shall inure to the benefit of the creditor. 2. Term is for the benefit of the creditor alone. Creditor
6. If the thing is improved at the expense of the debtor, the can demand at any time even before the term
debtor shall have the same rights as a usufructuary. expires, and he cannot be compelled to accept
payment from the debtor prior to the stipulated
Art. 1195. Anything paid or delivered before the arrival of period.
the period, the obligor being unaware of the period or
believing that the obligation has become due and Circumstances which indicate for whom the benefit of the
demandable, may be recovered, with the fruits and term is
interests. 1. For the benefit of both
a. When there is interest stipulated. Here, the
To be able to recover: creditor is interested in the term because of the
1. The obligor must be unaware of the period; or interests that would be earned; the debtor is
2. Must have believed that the obligation has become interested because he is given enough time to
due and demandable. pay.
b. When the creditor is interested in keeping his
Period within which recovery may be made: money safely invested (thus making the debtor
If the debtor did not know Before the debt matures. a sort of depository), or when the creditor
that payment was not yet Even after maturity wants to protect himself from the dangers of
due (regarding interest) for after currency depreciation.
all the creditor was in bad 2. For the benefit of the debtor
faith. (But the right a. When the loan is without interest, this is
prescribes 5 yrs. after generally only for the benefit of the debtor. This
premature payment). rule, however, is not absolute, for even if the
If the debtor knew that No recovery can be had of creditor receives no interest, still he may have
payment was not yet due what has been paid, much entered into the contract to protect himself
less can there be recovery of against the sudden decline in the purchasing
interest. This is true whether power of the currency.
the creditor is in good or bad b. When payment is to be made within a certain
faith, since the important period from date of contract.
thing is the knowledge by the 3. For the benefit of the creditor- usually, this only exists if
debtor of the prematureness there is a stipulation to this effect, as when the contract
(Implied waiver). provides that no payment should be made till after a
certain given period. Acceptance of partial payment even
Presumption that Debtor knew of Prematureness: the law before the expiration of the period means a waiver on
presumes that the debtor knew of the prematureness. This the part of the creditor of his right to refuse payment
may, however, be rebutted by him. before the end of said period.

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 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 the other.
For whose benefit the term has been established:
General rule: term is for the benefit of debtor or creditor. The
debtor cannot pay prematurely and the creditor cannot
When Prescriptive Period Begins: an action upon a written
contract must be brought within 10 yrs. from the time the
right of action accrues. In obligations with the benefit of the
term given to both debtor and creditor, the right of action
accrues from the end of the stipulated period, because it is
only from that time that the obligation really becomes
enforceable.

Luz 19
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 ever 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.
When the Court may fix a Period:
1. When the duration depends upon the will of the
debtor.
2. When although the obligation does not fix a period,
it can be inferred that a period was intended.
When the Court may not fix the Term:
1. When no term was specified by the parties because
no term was even intended, in which case the
obligation is really a pure one, and demandable at
once, unless of course absurd consequences would
arise.
2. When the obligation or note is payable on demand.
3. When a repairer of a machine has been given
something to repair but without a period within
which to do the work, returns the machine without
performing any work on it, he has lost whatever
right he originally had to have the period fixed under
Art. 1197. The Court has ruled that the original
repairman can be required to pay the person who
actually made the needed repairs.
4. When specific periods are provided for in the law, as
in an employment contract where if no period was
agreed upon, the time of employment depends upon
the time for payment of salary.
5. When what appears to be a term is really a condition
(such as when a debt is payable only after the
debtors estates other debts have been paid, for this
does not depend upon the exclusive will of the
debtor).
6. When the period within which to ask the Court to
have the period fixed has itself already prescribed.
Applicability of the Article to the Obligations Contemplated
therein: Art. 1197 should be considered as part and parcel (or
automatically incorporated) in all obligations which are
contemplated therein. If the Court actually fixes the term, the
Court does not amend or modify the obligation. The Court
merely enforces or carries out an implied stipulation in the
contract.
The Action to bring out this Article: the only action which the
creditor can bring upon an obligation that does not fix a term,
but where a term was indeed intended, is to ask the court to
fix the period within which the debtor must pay for the
simple reason that the fulfillment of the obligation itself
cannot be demanded until after the court has fixed the period
for its compliance. The Court may fix a period, even if this has
not been specifically asked, so long as the prayer, for
example, asks for such other and further relief as to the
court may appear just and equitable. And ordinarily specific
performance cannot be demanded at the same time that the
court is asked to fix the period, such action for specific
performance being premature.
Within what period must the action to fix the period be
brought: within the proper prescriptive period for specific
performance if a period had been originally fixed, but to be
counted from the perfection of the contract. This is because
the right exists by operation of law from the moment of such
an agreement. Extrajudicial demand is not therefore
essential for the creation of the cause of action to have the
period fixed.
How the Courts Fix a Period: The Court determines the
period by considering the time probably contemplated by the
parties. Once the period is fixed by the courts, the period
becomes part of the contract, thus the courts cannot change
it. The parties may of course change the period by mutual
agreement, or may even disregard the same in which case,
the obligation becomes a pure one, and demandable at once.
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 had 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.
When the debtor loses the benefit of the period: meaning
the debtor shall lose every right to make use of the period
the term is extinguished, and the obligation is demandable at
once.
BALANE NOTES:
Luz 20
 When the debtor binds himself to pay when his means
permit him to do so, the obligation is one with a term
(Art. 1180). Although Art. 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 fruit can be recovered (Art. 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. There are 2 views about who is entitled to the
fruits which have been produced in the meantime:
1. The debtor is entitled to the fruits produced in the
meantime.
2. The creditor is entitled to the fruits since the
obligation is demandable only when the period
arrives.
Instances when the Fruits cannot be recovered:
1. When the obligation is reciprocal and there has been
prepayment on both sides.
2. When the obligation is a loan and the debtor is
bound to pay interest.
3. When the period is exclusively for the creditors
benefit.
4. 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 (Art. 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.
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 may oppose a premature demand for payment,
but may validly pay at any time before the period
expires.
o When the obligation is worded such that
payment is to be made within 6 mos., the period
is for the benefit of the debtor.
o 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:
1. When after the obligation has been contracted, the
debtor becomes insolvent unless he gives a guaranty
or security for the debt (Art. 1198). The insolvency
here need not be judicial. It can be actual insolvency.
2. When he does not furnish to the creditor the
guarantees or securities which he has promised (Art.
1198).
3. When by his own acts he has impaired the said
guaranties or securities alter their establishment,
and when through a fortuitous event they disappear,
unless no immediately gives new ones equally
satisfactory (Art. 1198).
4. When the debtor violates any undertaking, in
consideration of which the creditor agreed (Art.
1198).
5. When the debtor attempts to abscond (Art. 1198).
6. 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 (Art.
2109).
Types of periods:
1. Suspensive (ex die)- 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.
3. Legal- when it is granted by law.
4. Voluntary- when it is stipulated by the parties.
5. Judicial- when it is fixed by the courts.
o If the obligation does not fix a period, but from
its nature and circumstances it can be inferred
that a period was intended, the courts may fix
the duration thereof (Art. 1197).
o 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 was intended due to the circumstances
or the period is dependent on debtors will.
2. Court shall decide what period was probably
contemplated by the parties. They should fix a
period which was probably contemplated by the
parties.
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. Art. 1197. When the obligation does not fix for a
period.
Exceptions:
1. Art. 1682 and 1687.
2. Pacto de retro sales (Art. 1606).
3. Contract of services for an indefinite period-
court cannot fix a period or else it would
amount to involuntary servitude.
2. Art. 1197.
3. Art. 1191.
Luz 21
 4. Art. 1687.
5. Art. 1180.
6. Express- when period is specifically stated.
7. Tacit- when a person undertakes to do some work which
can be done only during a particular season.
8. Original
9. Grace- an extension fixed by the parties or by the court.
10. Definite- refers to a fixed known date or time.
11. Indefinite- refers to an event which will necessarily
happen but the date of its happening is unknown.
Section 3: Alternative Obligations
ACCORDING TO PLURALITY OF OBJECT
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
art of the other undertaking.
Alternative Obligation: (facultative) where out of the two or
more prestations which may be given, only one is due.
Art. 1200. The right of choice belongs to the debtor, unless it
has been expressly granted by the creditor.
The debtor shall have no right to choose those prestations
which are impossible, unlawful or which would not have
been the object of the obligation.
Who has the right of choice: as a general rule, the right
belongs to the debtor. By way of exception, it may belong to
the creditor when such right has expressly been granted to
him.
Obligation with a term Alternative obligation with
reference to benefit
The general rule is that the The general rule is that the
term is for the benefit of debtor has the right of
both the debtor and creditor. choice.
Limitation on the Debtors Choice:
1. Impossible prestations
2. Unlawful prestations
3. 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.
Effect of Notice that Choice has been made: Once notice has
been made that a choice has been done, the obligation
becomes a simple obligation to do or deliver the object
selected. An election once made is binding on the person who
makes it, and he will not, therefore, be permitted to
renounce his choice and take an alternative which was first
open to him.
Reason for Communicating the Choice to the Creditor: To
inform the creditor that the obligation is now a simple one,
no longer alternative, and if already due, for the creditor to
receive the object being delivered, if tender of the same has
been made.
Requisites for the Making of the Choice:
1. Made properly so that the creditor or his agent will
actually know;
2. Made with full knowledge tat a selection is indeed
being made. Thus error in appreciating the meaning
of alternative obligations will give rise to vitiated
consent, and the choice can later on be annulled.
3. Made voluntarily and freely (without force,
intimidation, coercion or undue influence).
4. Made in due time, that is, before or upon maturity
(otherwise, the creditor can sue him in court with an
alternative relief as give this or that, depending upon
your choice.
5. Made to all the proper persons. Hence, if there be
joint creditors, all of them must be notified.
6. Made without conditions unless agreed to by the
creditor (otherwise, it can be said that no real choice
is being made).
7. May be waived, expressly or impliedly (since all
rights in general may be waived.)
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 creditors acts the debtor cannot
make a choice according to the terms of the obligation, the
latter may rescind the contract with damages.
*the contract is not automatically rescinded; the law says
that the debtor may rescind, implying that he may allow it to
remain in force insofar as the possible choice or choices are
involved.
Art. 1204. The creditor shall have a right to indemnity for
damages when, through the default 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 become impossible.
Luz 22

Damages other than the value of the last thing or service
may also be awarded.
Alternative rights of creditor when Loss or Impossibility
occurs before Debtors Choice: applies when
1. The right to choose belonged to the debtor
2. The loss or impossibility happened before selection
was made
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.
Rules when the choice has been given to creditor:
1. For the choice to be given the creditor, the right
must be expressly given to him.
2. As in the case of the debtor, it should be understood
that the creditor loses the right to choose if only one
of the prestations is practicable. The debtors
obligation had ceased to be alternative and had
become a simple one.
3. This Art. does not apply when the contract does not
state to whose the right to choose Is given, for in
such case it is the debtor who can choose.
Effect of Creditor Delays in making a choice: he cannot yet
hold the debtor in default, notwithstanding the lapse of
maturity, for the debtor does not know what to deliver. Upon
the other hand, if the debtor wants to relieve himself, he may
petition the court to compel creditor to accept it, in the
alternative, at the creditors option, with resultant damages if
any.
BALANE:
ALTERNATIVE: when several objects or prestations are due,
but the payment or performance of 1 of them would be
sufficient.
General Rule: the right of choice belongs to the debtor.
1. When through fortuitous event or through the
debtors acts, there is only 1 prestation left, the
obligation ceases to be alternative (Art. 1202).
2. When the choice of the debtor is limited through the
creditors own acts, then the debtor has the remedy
of resolution (art. 1191) plus damages (Art. 1203).
3. When all the things are lost due to a debtors fault,
the creditor can sue for damages (Art. 1204).
4. When some things are lost due to the debtors fault
but there are still some things remaining, then the
debtor can choose from whats left.
5. When all the things are lost due to a fortuitous
event, the obligation is extinguished.
6. When all but 1 of the things are lost due to a
fortuitous event, and the last object is lost through
the debtors fault, then the creditor can sue for
damages.
7. When all but one of the things are lost through the
debtors own acts and the last object is lost through
the fortuitous event, the obligation is extinguished.
Exception:
1. When it is expressly granted by the creditor.
a. When 1 or some of the objects are lost through
fortuitous events, then the creditor chooses from
the remainder.
b. When 1 or some of the objects are lost due to the
debtors faults, the creditor may choose from the
remainder or get the value of any of the objects
lost plus damages in either case.
c. When all the things are lost due to the debtors
fault, the creditor can get the value of any of the
object s lost plus damages.
d. When some are lost through the debtors fault,
the creditor chooses from the remainder.
e. When all the objects are lost due to a fortuitous
event, then the obligation is extinguished.
f. When all the objects are lost due to the creditors
fault, the obligation is extinguished.
2. When it is agreed upon by the parties that a 3rd
person shall make the choice.
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. Bear a
resemblance to alternative obligations particularly when the
choice in an alternative obligation is with a debtor. The right
Luz 23
of choice is always with the debtor. If the principal obligation Art. 1207. The concurrence of 2 or more creditors or of 2 or
is impossible, then everything is annulled. more debtors in one and the same obligation does not imply
that each one of the former has a right to demand, or that
The act of making the choice is called concentration. each one of the latter is bound to render, entire compliance
Once the choice has been made, then the obligation is with the prestation. There is a solidary liability only when
concentrated in one object. the obligation expressly so states, or when the law or the
Whoever has the right of choice must communicate it to nature of the obligation requires solidarity.
the other party (Art. 1201). The creditor has to
communicate his choice to the debtor so that the debtor Joint Obligations Solidary Obligations
will know. To each his own. One for all, all for one.
Each obligor answers only for The relationship between the
Art. 1206. When only one prestation has been agreed upon, a part of the whole liability active and the passive
but the obligor may render another in substitution, the and to each obligee belongs subjects is so close that each
obligation is called facultative. only a part of the correlative of the former or of the latter
rights. may demand the fulfillment
The loss or deterioration of the thing intended as a of or must comply with the
substitute, through the negligence of the obligor, does not whole obligation.
render him liable. But once the substitution has been made, When there are two or more When there is a stipulation in
the obligor is liable for the loss of the substitute on account debtors or two or more the contract that the
of his delay, negligence or fraud. creditors. obligation is solidary.
When the nature of the
Facultative Obligation: it is one where only one prestation obligation requires liability to
has been agreed upon but the obligor may render another in be solidary.
substitution. When the law declares the
obligation to be solidary.
Alternative Facultative Some instances:
Various things are due, but Only one thing is principally 1. Arising from
the giving of one is sufficient. due, and it is that one which tort/damages
generally is given, but the 2. Arising from quasi-
other (the substitute) may be contracts
given to render payment or 3. Legal provisions
fulfillment easy. regarding the
If one of the prestations is If the principal obligation is obligations of
illegal, the other may be valid void, and there is no devisees and
and the obligation remains. necessity of giving the legatees
substitute. (The nullity of the 4. Liability of
principal carries with it the principals,
nullity of the accessory or accomplices and
substitute) accessories of a
If it is impossible to give all If it is impossible to give the felony
except one, that last one principal, the substitute does 5. Bailees in
must still be given. not have to be given; if it is commodation
impossible to give the Mancomunada Joint and several
substitute, the principal must Mancomunada simple In solidum
still be given. Proportionate Mancomunada solidaria
The right to choose may be The right of choice is given Pro rata Juntos o separadamanete
given either to debtor or only to the debtor. Individually and collectively
creditor. Each will pay the whole
value
We promise to pay (when I promise to pay (when there
Section 4: Joint and Solidary Obligations there are two or more are two or more signatures)
signatures)
ACCORDING TO PLURALITY OF SUBJECT Some consequences:
1. Vitiated consent on the
Luz 24
 part of one debtor does Presumption that Obligation is Joint: when there are two or
not affect the others. more debtors or creditors, the obligation is presumed joint
(for example, if A and B and as a consequence:
were joint debtors of C 1. The debt shall be divided into as many shares as
for P1000 and As there are creditors or debtors.
consent was obtained by 2. The creditors or the debts will be distinct from one
C through fraud, B would another, BUT regarding the bringing of the action in
still be liable for P500 court, the Rules of Court governing the multiplicity
while A will not be liable of suits will be followed.
because the 2 debts are
considered distinct from Distinct Shares: In joint obligations, the different shares of
each other.) the debt or the credit are considered distinct from one
2. Insolvency of one debtor another. But they are subject to the Rules of Court governing
does not make others the multiplicity of suits. This means that ordinarily one
responsible for his share. creditor may sue one of the debtors for the latters share of
(if one is insolvent, it obligation but to obtain a just, speedy and inexpensive
doesnt make the other determination of every action or proceeding, it would be
debtors share bigger to better to sue all the necessary parties at the same time.
compensate for his
share. They must pay Art. 1209. If the division is impossible, the right of the
only for theirs.) creditors may be prejudiced only by their collective acts, and
3. Demand by the creditor the debt can be enforced only by proceeding against all the
on one joint debtor puts debtors. If one of the latter should be insolvent, the others
him in default, but not shall not be liable for his share.
the others since the
debts are distinct. Indivisible Joint obligation: indivisible refers to the object,
4. When the creditor joint refers to the tie between the parties, who are merely
interrupts the running of proportionately liable, unless solidarity has been stipulated
the prescriptive period by the parties or by the law, in which case it becomes a
by demanding judicially solidary indivisible obligation. Manresa: the obligation is in a
from one, the others are sense midway between the joint and the solidary, although it
not affected. It is preserves the two characteristics of the joint obligation in
possible that the share that: (a) no creditor can do an act prejudicial to the others,
of one debtor has and (b) no debtor can be made to answer for the others. The
prescribed, while the peculiarity of this obligation, however, is that fulfillment
others have not. requires the consent of all the debtors, although each for his
5. Defenses of one debtor part. On the side of the creditors, collective action is also
are not necessarily required for acts which may be prejudicial.
available to all the
others. Characteristics:
1. The obligation is joint but since the object is
*The obligation may be joint on the side of the creditors and indivisible, the creditor must proceed against ALL the
solidary on the side of the debtors, or vice-versa. joint debtors, for compliance is possible only if all
joint debtors act together.
Art. 1208. If from the law, or the nature of the wording of 2. Demand must, therefore, be made on ALL the joint
the obligations to which the preceding article refers the debtors.
contrary does not appear, the creditor debt shall be 3. If any one of the debtors does not comply with his
presumed to be divided into as many equal shares as there monetary obligations for damages.
are creditors or debtors, the credits or debts being 4. If any one of the joint debtors be insolvent, the
considered distinct from one another, subject to the Rules others shall not be liable for his share. The obligation
of Court governing the multiplicity of suits. to pay monetary damages is no longer indivisible
then, and therefore, the creditor may go against
each debtor individually.

Luz 25
 5. If there be joint creditors, delivery must be made to
all, and not merely to one, unless that one be Art. 1213. A solidary creditor cannot assign his rights
specifically authorized by the others. without the consent of the others.
6. Each joint creditor is allowed to renounce his
proportionate credit. Non-assignment of rights by Solidary Creditor:
General rule: solidary creditor cannot assign his rights.
Art. 1210. The indivisibility of an obligation does not Exception: if all the others consent.
necessarily give rise to solidarity. Nor does solidarity itself Reason: essentially, a solidary obligation implies mutual
imply indivisibility. agency and mutual confidence. Should the assignee or
substitute do acts which would prejudice the others, there is
Indivisibility Solidarity no doubt that the other creditors rights are endangered,
Refers to the Subject Matter Refers to the tie between the hence, the necessity of their consent.
parties.
Art. 1214.The debtor may pay any one of solidary creditors;
Different Kinds of but if any demand, judicial or extrajudicial, has been made
Solidarity by one of them, payment should be made to him.
First Active solidarity On the part of the
creditors or To Whom Debtor Must Pay:
obligees 1. To any of the solidary creditors
Passive solidarity On the part of the 2. Exception: payment must be made to solidary
debtors or creditor who made a demand (judicial or
obligors extrajudicial).
Mixed solidarity On the part of the
obligors and Art.1215. Novation, compensation, confusion or remission
obligees, or on the of debt, made by any of the solidary creditors or with any of
part of the the solidary debtors, shall extinguish the obligation, without
debtors and the prejudice to the provision of Art. 1219.
creditors
Second Conventional Agreed upon by The creditor who may have executed any of these acts, as
Solidarity the parties well as he who collects the debt, shall be liable to the others
Legal solidarity That imposed by for the share in the obligation corresponding to them.
law
Novation The modification of an obligation by
Art. 1211. Solidarity may exist although the creditors and changing its object or principal conditions,
the debtors may not be bound in the same manner and by or by substituting the person of the debtor,
the same periods and conditions. or by subrogating the person of the debtor,
or by subrogating a third person in the
Solidarity despite different terms or conditions: rights of creditor.
1. Uniform- when the debtors are bound by the same Effect of That which takes place when two persons,
stipulations and clauses Compensation in their own right, are creditors and debtors
2. Otherwise- where the obligors though liable for the of each other. It may be total or partial,
same prestation, are nevertheless not subject to the depending upon the amount involved. Total
same secondary stipulations and clauses. compensation automatically extinguishes
the obligation, whether known or unknown
Art. 1212. Each one of the solidary creditors may do to the parties.
whatever may be useful to the others, but not anything Effect of That which takes place when the characters
which may be prejudicial to the latter. Confusion (or of creditor and debtor are merged in the
Merger) same person.
Prejudicial Acts: should not be performed, otherwise, there Effect of That act of liberality whereby a creditor
will be liability for damages. However, in the case of Remission or condones the obligation of the debtor; that
rescission or condonation (which is really prejudicial, the Waiver where the creditor tells the debtor to forget
solidary creditor is allowed to so remit, and the obligation is about the whole thing. Remission may be
extinguished, without prejudice to his liability to other total or partial.
creditors.
Luz 26
Art. 1216. The creditor may proceed against any one o 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.
Against whom Creditor may proceed: against any, some, or
all of the solidary debtors simultaneously.
Effect of not proceeding against all: if the creditor sues only
one, or two, or several of the debtors (but not all) there is no
waiver against those not yet sued. They may be proceeded
against later.
Applicability: applies only to solidary obligations, not to joint
ones, for in the latter, failure to collect from one joint debtor
his share does not authorize the creditor to proceed against
the others, regarding the insolvent debtors share. It applies
to what is called passive solidarity (solidarity among the
debtors). It can also apply to mixed solidarity.
Similarities Differences
Solidarity Both the The solidary debtor is
solidary debtor indebted for his own share
and the surety only.
guarantee for The solidary debtor can be
another person. reimbursed what he has
Both can paid minus his own share.
demand If a solidary debtor receives
reimbursement. an extension of the period
for payment, the others are
still liable for the whole
obligation now, minus the
share of the debtor who has
received the extension (but
same share can be
demandable also from them
upon the arrival of the
extended term).
Suretyship The surety is indebted only
for the share of the
principal debtor.
The surety can be
reimbursed for everything
he had paid.
If a principal debtor receives
an extension, without the
suretys consent, the surety
is released.
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 interests
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.
Payment: one of the ways by which an obligation is
extinguished and consists in the delivery of the thing or the
rendition of the service which is the object of the obligation.
Basis of the right to be reimbursed: The fact of payment (and
not the original contract) is the basis of the right to be
reimbursed, for not until then had he the right to be
reimbursed. Hence, the obligation of the others to reimburse
him arises only from the time payment is made.
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.
Reason for the Provision: since payment extinguishes the
obligation, there is nothing more to remit.
3 Kinds of Defenses
1. Real defenses- these are defenses derived from the
nature of the obligation. A real defense is a total defense.
It benefits all the debtors.
2. 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.
3. 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.
Luz 27
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.
Remission of the whole obligation: Remission is essentially
gratuitous. This Art. applies only when the whole obligation is
remitted.
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 a 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.
Effect of Loss or Improbability:
1. If without fault- no liability.
2. If with fault- there is liability (also for damages and
interest).
3. Loss because of a fortuitous event after default-
here, there will be liability because of default.
Art. 1222. A solidary debtor may, in actions fled 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 belongs to the others, he may avail himself
thereof only as regards that part of the debt for which the
latter are responsible.
Kinds of Defenses:
1. Those derived from the nature of the obligation (this
is a complete defense).
2. Those personal to the debtor sued. (This is a
complete defense generally, but if the defense is
non-fulfillment yet of the term, this Is only a partial
defense, that s, he will still be liable except for his
own share in the meantime).
3. Those personal to the others (partial defense
regarding share of others involved).
BALANE:
SINGLE: only 1 debtor and 1 creditor.
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.
General: joint obligations are less onerous.
Exceptions:
1. Agreement of the parties.
2. Law (i.e. tort feasors are solidarily liable)
3. Nature of the obligation.
Essential nature: there are as many obligations as there are
creditors multiplied by as many debtors.
Types of Joint Obligations:
1. Active Joint- there are multiple creditors. 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.
2. Passive Joint- there are multiple debtors. 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 other debts. The insolvency of 1
of the debtors will not affect the burden of the other
debtors.
3. Mixed joint- there are multiple creditors and
debtors.
SOLIDARY: when any of the debtors can be held liable for the
entire obligation, and any if the creditors is entitled to
demand the entire obligation. Also called joint and several,
joint and individual, and in solidum. When:
1. The parties so agree.
2. When the law so provides.
3. When nature of the obligation requires the
obligation to be solidary.
Types of Solidary Obligations:
1. Active solidary- there are multiple creditors. 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 (Art. 1214).
2. Passive solidary- there are multiple debtors. Each debtor
may be required to pay the entire obligation but after
payment, he can recover from his co-debtors their
respective shares.
3. Mixed solidary- there are multiple debtors and creditors.
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 (Art. 1214). Problematic: the
debtor cannot pay the other non-demanding solidary
creditors only if one of the solidary creditor makes a
judicial demand. If the debtor pays a creditor who did
not make a demand, the payment is considered a
payment to a third person. The debtor can still be made
Luz 28
 to pay by the one who made a demand on him. 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). Each
debtor may be required to pay the entire obligation but
after payment, he can recover from his co-debtors their
respective shares.
Art. 1224. A joint indivisible obligation gives rise to
indemnity for damages from the time anyone of the debtors
does not comply with this 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.

Section 5: Divisible and Indivisible Obligations Effect of Non-Compliance:

1. The obligation is converted into a monetary one for
ACCORDING TO PERFORMANCE indemnity.
Art. 1223. The divisibility or indivisibility of the things that
are the object of obligations in which there is only one Art. 1225. For the purposes of the preceding articles,
debtor and only one creditor does not alter or modify the obligations to give definite things and those which are not
provisions of Chap. 2 of this Title. susceptible of partial performance shall be deemed to be
indivisible.
Divisible Indivisible
One capable One not capable of partial performance. It When the obligation has for its object the execution of a
of partial cannot be validly performed in parts. certain number of days of work, the accomplishment of
performance. work by metrical units, or analogous things which by their
Gen. Rule: Exceptions: nature are susceptible of partial performance, it shall be
Obligations Kinds of indivisibility: divisible.
are 1. Conventional- by common agreement.
indivisible: 2. Natural or absolute- because of the However, even though the object or service may be
nature of the object of undertaking (Art. physically divisible, an obligation is indivisible if so provided
1225). However, even thought the by law or intended by the parties.
object or service may be physically
divisible, an obligation is indivisible if: In obligations not to do, divisibility or indivisibility shall be
- So provided by law. determined by the character of the prestation in each
- Intended by the parties. particular case.
3. Legal- if so provided for by law.
Obligations that are deemed indivisible:
Divisibility of the object does not mean that the 1. Obligations to give definite things.
obligation is also divisible. But indivisibility of the object 2. Those which are not susceptible of partial
necessarily means an indivisible obligation. performance.
3. Even if the thing is physically divisible, it may be
The test of divisibility of an obligation is whether or not it
indivisible if so provided by law.
is susceptible of partial performance.
4. Even if the thing is physically divisible, it may be
Solidarity Indivisibility indivisible if such was the intention of the parties
Refers to tie between the Refers to nature of concerned.
parties. obligation.
Needs at least two debtors or May exist even if there is Obligations that are deemed divisible:
creditors. only one debtor and only one 1. When the object of the obligation is the execution of
creditor. a certain number of days of work.
The fault of one is the fault of The fault of one is not the 2. When the object of obligation is the accomplishment
the others. fault of the others. of work by metrical units.
3. When the purpose of the obligation is to pay a
Kinds of Division: certain amount in installments.
1. Quantitative- depends on quantity. 4. When the object of the obligation is the
2. Qualitative- depends on quality, irrespective of accomplishment of work susceptible of partial
quantity. performance.
3. Intellectual or moral division- one that exists merely
in the mind and not in physical reality.

Luz 29
Effect of illegality on a Divisible contract: in case of a
divisible contract, if the illegal terms can be separated from
the legal ones, the latter may be enforced.
Section 6: Obligations with a Penal Clause
ACCORDING TO SANCTION FOR BREACH
Art. 1226. In obligations with a penal clause, the penalty
shall substitute the indemnity for damages and the payment
of interests in case of non-compliance, 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 obligation.
The penalty may be enforced only when it is demandable in
accordance with the provisions of this Code.
Penal Cause: it is a coercive means to obtain from the debtor
compliance from the debtor. A penal clause is an accessory
undertaking to assume greater liability in case of breach. It is
attached to obligations in order to insure their performance.
Governed by Arts.2226-2228, the provisions on liquidated
damages since a penal clause is the same as liquidated
damages. It may be reduced by the courts if unconscionable.
Its principal purpose is to insure the performance of an
obligation and also to substitute for damages and the
payment of interest in case of non-compliance.
Functions of a Penal Clause:
1. To provide liquidated damages
The creditor can demand liquidated damages
without having to prove actual damages.
The only limitation that the courts will reduce the
liquidated damages if the same is scandalously
unconscionable.
2. 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.
Kinds of
Penal Clauses
First Legal Penal One that is imposed by the law.
Clause
Conventional That which has been agreed upon
Penal Clause by the parties.
Second Subsidiary When only the penalty may be
asked.
Joint When both the principal contract
and the penal clause can be
enforced.
Penal Clause Condition
The former The latter constitutes an obligation although
does not. accessory.
May become demandable in default of the
unperformed principal obligation, and
sometimes jointly with it, while the former
or the condition is never demandable.
Instances when ADDITIONAL DAMAGES MAY BE
RECOVERED:
1. When there is express stipulation to the effect that
damages or interest may still be recovered, despite
the presence of the penalty clause;
2. When the debtor refuses to pay the penalty imposed
in the obligation;
3. When the debtor is guilty of fraud or dolo in the
fulfillment of the obligation. The reason for the third
exception is clear: there can be no renunciation of
an action to enforce liability for future fraud
because, as we have seen, this is against public
policy and against the express provisions of law.
Breach of obligation without fraud cannot constitute one
of the exceptions.
May any penalty be demandable: No. the penalty may be
enforced only when it is demandable in accordance with the
provisions of the Civil Code, one of which states that the
penalty may be reduced if it is iniquitous or unconscionable.
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.
2 Characteristics of a Penal Clause:
1. Subsidiary or alternative (Art. 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 the creditor has been
clearly granted such right, either expressly or impliedly.
The implied right must be one ascertainable from the
nature of the obligation.
2. Exclusive (Art.1226)
General rule: the penalty clause takes the place of other
damages.
Luz 30
 Exception: both the penalty and actual damages may be
recovered in the following: The nullity of the principal obligation carries with it that of
1.) Express stipulation the penal clause.
2.) Refusal by the debtor to pay the penalty
3.) The debtor is guilty of fraud (malice) in the Effect of Nullity of the Penalty Clause: if the principal
performance of the obligation. obligation is null and void, the penal clause will have no more
use for existence and is therefore also considered null and
Generally, Debtor cannot substitute penalty for the principal void. Upon the other hand, just because the penal clause is
obligation: The general rule is that the debtor is not allowed not valid, it does not mean that its nullity will also make the
to just pay the penalty instead of fulfilling the obligation. He principal obligation null and void. The principal obligation can
can only do so if the right has been expressly reserved. The stand alone, and the void penal clause will just be
reason is that if he can just pay, fulfillment of the obligation disregarded.
will be considered an alternative one. The word expressly
means that any implied reservation is not allowed.
CHAPTER 4: EXTINGUISHMENT OF OBLIGATION
Generally, Creditor cannot demand both fulfillment and the General Provisions
penalty at the same time: as a general rule, the creditor does
not have this right to demand fulfillment of the obligation EXTINGUISHMENT OF OBLIGATION
and the penalty at the same time. The exception arises when Art. 1231. Obligations are extinguished:
such a right has been clearly granted to him. 1. By payment or performance
2. By the loss of the thing due
Art. 1228. Proof of actual damages suffered by the creditor 3. By the condonation or remission of the debt
is not necessary in order that the penalty may be 4. By the confusion or merger of the rights of creditor
demanded. and debtor
5. By compensation
No Necessity in Proving Actual Damages: the penalty may, in 6. By novation
the proper case, be demanded without the necessity of
proving actual damages. Other causes of extinguishment of obligations, such as
Reason: when a penal clause has been agreed upon in a annulment, rescission, fulfillment of a resolutory condition,
contract, more as a punishment for the infraction thereof and prescription, are governed elsewhere in this Code.
than a mere security, it is a lawful means for repairing losses
and damages, and upon evidence of the violation of the Classification of Causes of Extinguishment of Obligations:
conditions stipulated, the injured party is not obliged to CASTAN
prove losses and damages suffered, nor the extent of the Voluntary Involuntary
same in order to demand the enforcement of the penal Performance By failure to bring an action.
clause agreed upon. payment or performance
consignation
Art. 1229. The judge shall equitably reduce the penalty Substitution of performance Resolutory condition or
when the principal obligation has been partly or irregularly Compensation condition subsequent.
complied with by the debtor. Even if there has been no Novation
performance, the penalty may also be reduced by the courts Dacion en pago (datio in
if it is iniquitous or unconscionable. solutum)
Agreement to release By reason of the object.
When Penalty may be reduced by the Court: Subsequent obligation
1. Partial performance- when the obligation has - Unilateral waiver
been partly complied with by the debtor. - Natural waiver
2. Irregular Performance- When the obligation has - Remission
been irregularly complied with by the debtor. - Mutual dissent
3. Unconscionable or Iniquitous- when the penalty (disenso)
is iniquitous or unconscionable, even if there - Compromise
has been no performance at all. Simultaneous with
creation of obligations
Art. 1230. The nullity of the penal clause does not carry with - Resolutory term or
it that of the principal obligations. extinctive period

Luz 31
 - Resolutory condition Acceptance by Creditor: for payment to properly exist, the
or condition creditor has to accept the same, expressly or implicitly.
subsequent Payment, for valid reasons, may properly be rejected.

Classification according to the Civil Code: Effect of Payment made under a Void Judgment: if the
Ordinarily 1. Payment or performance judgment upon which the aggrieved party made payment is
by 2. Loss of the thing due null and void, the payment made thereunder is also null and
3. Condonation or remission of the debt void.
or waiver
4. Confusion or merger of the rights of Art. 1233. A debt shall not be understood to have been paid
creditor and debtor unless the thing or service in which the obligation consists
5. Compensation has been completely delivered or rendered, as the case may
6. Novation be.
Other - Annulment
causes - Rescission Completeness of Payment: Requisites
mentioned - Fulfillment of resolutory condition a) The very thing or service contemplated must be paid
in Art. - prescription b) Fulfillment must be complete
1231 but
goverened How Payment or Performance is Made:
under a) If the debt is a monetary obligation, by delivery of
other the money. The amount paid must be full, unless of
Chapters course otherwise stipulated in the contract.
Still other - death of a party in case the obligation Indebtedness has been defined as an unconditional
causes is a personal one and legally enforceable obligation for the payment
- resolutory term here the obligation of money.
ceases upon the arrival of the term b) If the debt is the delivery of a thing or things, by
- change of civil status delivery of the thing or things.
- compromises c) If the debt is the doing of a personal undertaking, by
- mutual dissent the performance of said personal undertaking.
- impossibility of fulfillment d) If the debt is not doing of something, by refraining
- fortuitous event from doing the action.
e) An alleged creditor has the burden of showing that a
valid debt exists. Once he does this, the debtor has
Section 1: Payment or Performance the burden of proving that he has paid the same.

Art. 1234. If the obligation has been substantially performed

in good faith, the obligor may recover as though there had
PAYMENT OR PERFORMANCE been a strict and complete fulfillment, less damages
Art. 1232. Payment means not only the delivery of money suffered by the obligee.
but also the performance, in any other manner, of an
obligation. Substantial Performance in Good faith:
a) In case of substantial performance, the obligee is
Payment: that mode of extinguishing obligations which benefited. So the obligor should be allowed to
consists of: recover as if there had been a strict and complete
1. delivery of money fulfillment, less damages suffered by the obligee.
2. the performance in any other manner of an This last condition affords a just compensation for
obligation the relative breach committed by the obligor.
b) The liability of the debtor for damages suffered by
Pre-existing Obligation: a person pays a pre-existing the creditor in case of substantial performance does
obligation. If no such obligation exists, strictly speaking, there not arise under the conditions set forth in Art. 1235.
is no payment. c) Inasmuch as substantial performance in good faith
may already be equivalent to fulfillment or
payment, it follows that the right to rescind cannot
be used simply because there have been slight

Luz 32
 breaches of the obligation. Such right to rescind is
not absolute, and therefore the Court may even
grant, at its discretion, a period to a person in
default, within which the obligation can be fulfilled.
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.
Qualified Acceptance: there is a possibility that a protest or
objection can be made. Hence, there is what is called
qualified acceptance of incomplete or irregular payment. A
creditor who gives a receipt for partial payment does not
necessarily acquiesce to such incomplete payment. His
actuations may show his dissatisfaction. A creditor may
conditionally accept performance by the debtor after the
time of maturity, but with the stipulation that the surety or
guarantor of the debtor should give consent to prevent the
surety or guarantor from later on alleging that the creditor
had given an extension of time to the debtor. In this way, the
surety or guarantor cannot claim that he had been released
from the obligation.
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 had 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.
Right of Creditor to Refuse Payment by 3rd Person:
1. If there is a stipulation allowing this.
2. If said third person has an interest in the fulfillment
of obligation (co-debtor, guarantor, even a joint
debtor).
Payment by a 3rd Person:
1. With the knowledge and consent of the debtor.
Here, the payor is entitled to reimbursement and
subrogation to such rights as guaranty, penalty
clause, or mortgage.
2. Without the debtors knowledge or against his will.
Here, the payor is not entitled to subrogation; he is
allowed only beneficial reimbursement.
Other instances when recovery can be had from
the creditor and not from the innocent debtor:
a. When the debt had prescribed
b. When the debt had been completely
remitted
c. When the debt has already been paid.
d. When legal compensation had already
taken place.
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.
Subrogation: the act of putting somebody into the shoes of
the creditor, hence, enabling the former to exercise all the
rights and actions that could have been exercised by the
latter. Subrogation transfers to the person subrogated the
credit with all the rights thereto appertaining, either against
the debtor or against the third persons, be they guarantors or
possessors of mortgages, subject to stipulation in a
conventional subrogation.
Subrogation Reimbursement
Recourse can be had to the No such recourse.
mortgage or guaranty or
pledge.
The debt is extinguished in The new creditor has
one sense, but a new different rights, so it is as if
creditor, with exactly the there has indeed been an
same rights as the old one, extinguishment of obligation.
appears on the scene.
Something more than a Only a personal action to
personal action of recovery. recover the amount.
There can be a recovery to what has been paid.
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 debtors consent. But the
payment is in any case valid as to the creditor who has
accepted it.
Reason for consent: no one should be compelled to accept
the generosity of another.
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 Art. 1247 under the Title on Natural
Obligations.
Payment by an incapacitated person
General rule: if person paying has no capacity to give:
1. Payment is not valid if accepted.
2. Creditor cannot even be compelled to accept it.
3. The remedy of consignation would not be proper.
Exceptions: when a minor between 18 and 21 yrs. of age has
entered into a contract without the consent of parents or
guardian, voluntarily pays a sum of money or delivers a
Luz 33
fungible thing in fulfillment of obligation, there shall be no
right to recover the same from the obligee who has spent or
consumed it in good faith.
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.
To whom payment has been made:
1. To the person in whose favor the obligation has
been constituted (the creditor); This refers to the
creditors at the time of the payment, not the original
creditor at the time the obligation was constituted.
2. To the successor-in-heirs.
3. To any person authorized to receive it. If the
recipient is not authorized, the payment is generally
not valid (w/o prejudice to Art. 1241).
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 been 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
creditors rights.
2. If the creditor ratifies the payment to the third
person.
3. If by the creditors 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.
Requisites:
1. Payment by payor must be made in good faith but
payor may be in bad or good faith.
2. The payee must be in possession of the credit itself
(not merely the document evidencing the credit).
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.
Payment made after Judicial Order to retain: the judicial
order may have been prompted by an order of attachment,
injunction or garnishment (garnishment takes place when the
debtor of a debtor is ordered not to pay the latter so that
preference would be given to the latters creditor).
Garnishment: the proceeding by which a debtors creditor is
subjected to the payment of his own debt to another. It
consists in the citation of some stranger to the litigation, who
is the debtor of one of the parties to the action. By this
means, such debtor-stranger becomes a forced intervenor,
and the court, having acquired jurisdiction over his person by
means of the citation required of him to pay his debt, not to
his former creditor, but to the new creditor, who is the
creditor in the main litigation.
Interpleader: it is the technical name of the action in which a
certain person in possession of certain property wants
claimants to litigate among themselves for the same.
Injunction: a judicial process by virtue of which a person is
generally ordered to refrain from doing something. It is called
preliminary injunction if the prohibition is during the
pendency of certain proceedings.
Art. 1244. The debtor of a thing cannot compel the creditor
to receive a different one, although the latter may be of the
same vale 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 obligees will.
Instances where Art. 1244 does not apply:
1. In case of facultative obligations.
2. In case there is another agreement resulting in
either:
1. Dation in payment (Art. 1245)
2. Novation (Art. 1291)
3. In case of waiver by the creditor (expressly or
impliedly).
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 in sales.
Dation: datio in solutum or adjudicacion en pago. That mode
of extinguishing an obligation whereby the debtor alienates
in favor of the creditor, property for the satisfaction of
monetary debt.
SALE DATION IN PAYMENT
There is no pre-existing There is a pre-existing credit
contract
This gives rise to obligations This extinguishes obligation
The cause or consideration The cause or consideration
here is the price (from the here, from the viewpoint of
viewpoint of the seller); or the debtor in dation in
the obtaining of the object payment is the
(from the viewpoint of the extinguishment of his debt;
Luz 34
buyer) from the viewpoint of the Art. 1248. Unless there is an express stipulation to that
creditor, it is the acquisition effect, the creditor cannot be compelled partially to receive
of the object offered in the prestations in which the obligation consists. Neither
credit. may the debtor be required to make partial payments.
There is greater freedom in There is less freedom in
the determination of the determining the price. However, when the debt is in part liquidated and in part
price. unliquidated, the creditor may demand and the debtor may
The giving of the price may The giving of the object in effect the payment of the former without waiting for the
generally end the obligation lieu of the credit may liquidation of the latter.
of the buyer. extinguish completely or only
partially the credit Performance should generally be complete: Under Art. 1233,
(depending on the a debt shall not be understood to have been paid unless the
agreement). thing or service in which the obligation consists has been
completely delivered or rendered, as the case may be. Hence,
Conditions under which a Dation in Payment would be valid: partial performance is not allowed generally under this
1. If the creditor consents, for a sale presupposes the Article.
consent of both parties.
2. If the dation in payment will not prejudice the other Exceptions:
creditors, for this might lead the debtor to connive 1. When there is stipulation to this effect;
with one creditor in defrauding the other creditors. 2. When the different prestations are subject to
3. If the debtor is not judicially declared insolvent, for different conditions or different terms;
here his property is supposed to be administered by 3. When a debt is in part liquidated and in part
the assignee. unliquidated, in which case performance of the
liquidated part may be insisted upon either by the
Art. 1246. When the obligation consists in the delivery of an debtor or the creditor;
indeterminate or generic thing, whose quality and 4. When a joint debtor pays his share or the creditor
circumstances have not been stated, the creditor cannot demands the same. This is a complete payment of
demand a thing of superior quality. Neither can the debtor his share, but it is still a partial fulfillment of the
deliver a thing of inferior quality. The purpose of the whole obligation;
obligation and other circumstances shall be taken into 5. When a solidary debtor pays only the part
consideration. demandable because the rest are not yet
demandable on account of their being subject to
Waiver: different terms and conditions;
If the contract does not specify quality: 6. In case of compensation, when one debt is larger
1. The creditor cannot demand a thing of superior than the other, it follows that a balance is left;
quality (but if he so desires, he may demand and 7. When work is to be done by parts.
accept one of inferior quality).
2. The debtor cannot deliver a thing of inferior quality, Art. 1249. The payment of debt in money shall be made in
but if he so desires, he may deliver one of superior the currency stipulated, and if it is not possible to deliver
(provided it is not of a different kind, Art. 1244). such currency, then in the currency which is legal tender in
the Philippines.
Art. 1247. Unless it is otherwise stipulated, the extrajudicial
expenses required by the payment shall be for the account The delivery of promissory notes payable to order, or bills of
of the debtor. With regard to judicial costs, the Rules of exchange or other mercantile documents shall produce the
Court shall govern. effect of payment only when they have been cashed, or
when through the fault of the creditor they have been
Debtor pays generally for extrajudicial reasons: it is the impaired.
debtor who benefits primarily since his obligation is thus
extinguished. Exception is when there is a stipulation to the In the meantime, the action derived from the original
contrary. obligation shall be held in abeyance.

Judicial Costs: generally, costs shall be awarded to the Legal tender: that which a debtor may compel a creditor to
winning party but this is subject to the discretion of the court. accept in payment of the debt (whether public or private).

Luz 35

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 the payment, unless there is an
agreement to the contrary.
Inflation: a sharp sudden increase of money or credit or both
without a corresponding increase in business transaction.
Since the value of money here tends to increase, the natural
result is an increase in the price of goods or services.
Applied only during the Japanese occupation.
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 charges 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.
Where Payment must be made:
1. If there is a stipulation in the place designated.
2. If there is none
1. If it is an obligation to deliver a determinate
specific thing, then in the place where the thing
might be at the time the obligation was
constituted (if temporary, then in the domicile
of the debtor).
2. If the obligation is any other thing, delivery is in
domicile of debtor.
BALANE:
Payment refers to obligations to give while performance
refers to obligations to do. When obligations are entered
into, the parties except payment or performance. All
other modes of extinguishing payment are abnormal
modes.
REQUISITES OF PAYMENT:
As to Prestation:
1. IDENTITY- means the very prestation must be
performed.
o If the prestation:
Specific- the debtor must give or deliver
the specific thing which was agreed upon
(Art. 1244).
Generic, the creditor cannot demand a
thing of superior quality. However, the
debtor cannot give a thing of inferior quality
(Art. 1246).
o Payment:
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 (Art. 1249, 1st ). R.A. No. 529
has been repealed by R.A. No. 8183, which
allows payment in a different currency but
in the absence of an agreement, it shall be
made in pesos.
Negotiable papers and other commercial
documents can be refused by the creditor
unless there is a 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 ff (Art. 1249,
2nd ):
When they have been honored and
cashed;
When through the fault of the
creditor, they have been impaired.
A certified check or a managers check may
not be considered as legal tender and thus,
the creditor can refuse to accept.
o Exceptions:
Dacion en pago (Art. 1245)- when property
is alienated to the creditor in satisfaction of
a debt in money.
Novation
2. INTEGRITY- means that the entire prestation must be
performed completeness (Art. 1233)
o Exceptions:
Substantial compliance in good faith (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.
Waiver (Art. 1235)- when the obligee
accepts the performance, knowing its
incompleteness or irregularity, without
protest or objection, the obligation is
deemed fully complied with.
In application of payments if the debts are
equally onerous (Art. 1254, 2nd ) - if the
Luz 36
 debts due are of the same nature and
burden, the payment shall be applied to all
of them proportionately.
3. INDIVISIBILITY- the obligor must perform the prestation
in one act and not in installments (Art. 1248). The
creditor can validly refuse if the performance is not in
one act.
o Exceptions:
1. Express stipulation and if the debts are
liquidated and unliquidated in parts(Art. 1248)
Unless there is an express stipulation to that
effect, the creditor cannot be compelled
partially to receive the prestations in which the
obligations consists. Neither may the debtor be
required to make partial payments. However,
when the debt is in part liquidated and
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 (Art. 1225, 2nd )- when the
obligation has for its object the execution of a
certain no. 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. In joint divisible obligations (Art. 1208)- if from
the law, or the nature or the wording of the
obligations to which the preceding article refers
to the contrary does not appear, the credit or
debt.
4. In solidary obligations when the debtors are
bound under different terms and conditions
(Article 1211).
5. In compensation when there is a balance left
(Art. 1290).
6. If work is to be deliver partially, the price or
compensation for each part having been fixed
(Art. 1720).
7. In case of several guarantors who demand the
right of division (Article 2065)
8. In case of impossibility or extreme difficult of a
single performance
As to the Parties:
PAYOR, OBLIGOR, DEBTOR:
Who may be the Payor
1. Without the consent of the creditor
o The debtor himself
o The debtors heirs or assigns
o The debtors agent
o Anyone interested in the fulfillment of the
obligation (e.g. guarantor)
2. With the consent of the creditor
o Anyone can pay if the creditor consents.
Effect of payment by a third person.
1. Payment was with the Debtors Consent
o 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.
o Exception: No subrogation if intended to be a
donation (Article 1238).
2. Payment was without the Debtors Consent
o The 3rd person may demand repayment to the
extent that the debtor has benefited (Article
1236, 2nd ).
PAYEE, OBLIGEE, CREDITOR
Who may be the Payee
1. The creditor himself (Articles 1240, 1626)
2. The creditors successor or transferee (Article 1240)
3. The creditors agent (Article 1240)
4. Any third person subject to the following conditions:
a. Provided it redounded to the creditors 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)
* 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.
AS TO TIME AND PLACE OF PERFORMANCE
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
Where Payment Should be Made
o Primary Rule: Agreement of the Parties
o Secondary Rule: Place where the thing was at
the time the obligation was constituted if the
obligation is to deliver a determinate thing.
o Tertiary Rule: Debtors domicile (not residence).
4 Special Forms of Payment
a. Dacion en pago (Article 1245)- Dacion en pago is the
act of extinguishing the obligation by the substitution of
Luz 37
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. 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).

Luz 38