CHAPTER 1. General Provision 1.

Negotiation/Preparation- covers the period from the time the

contracting parties indicate their interest in the contract to the time
Art. 1156. An obligation is a juridical necessity to give, to do, or not to do.
it is concluded(perfected)
*Obligation to do includes all kinds of works or service 2. Perfection- takes place upon the concurrence of essential elements
*Obligation to give is a prestation which consists in the delivery of a movable 3. Consummation- begins when the parties perform their undertakings
and immovable thing under the contract
3. Quasi-contracts- certain, lawful, voluntary and unilateral acts that give rise
Right- a claim or title to an interest in anything that is enforceable by law. It is to the juridical relation of quasi-contracts to the end that no one shall be
a power, privilege, or immunity guaranteed. unjustly enriched or benefited at the expense of another.
Civil action- one by which a party sues another for the enforcement or *Conditions of unjust enrichment
protection of a right, or the prevention or redress of a wrong. 1. a person is unjustly benefited
Cause of action- act or omission by which a party violates a right of another. 2. such benefit is derived at the expense of or to the damage of another.
1. legal right of plaintiff
2. correlative obligation of defendant Kinds of Quasi-contracts
3. act or omission of the defendant in violation of said legal right. 1. Negotiorum Gestio- whoever voluntarily takes charge of the agency or
Complaint- a written statements alleging the plaintiff’s claim or cause of management of the business or property of another without any power from
action the latter us obliged to continue the same until the termination of the affair
and its incidents or to require the person concerned to substitute him, if the
REAL OBLIGATION (to PERSONAL OBLIGATION owner is in the position to do so.
give) (to do and not to do) *there is no negotiorum gestio in either of these instances:
a. Determinate or a. Positive a. when the property or business is not neglected or abandoned
Specific b. if in fact manager is tacitly authorized by the owner
b. Indeterminate or b. Negative 2. Solutio Indebiti- if something is received when there is no right to demand
Generic it, and it was unduly delivered through mistake, the obligation to return it
arises.
*Following requisites must be proven:
Essential Elements of an Obligation
a. absence of a right to collect the excess sums
1. Passive subject or debtor/ obligor
b. payment was made by mistake
2. Active subject or creditor/ obligee
3. Other-quasi contract- those support given by strangers as enumerated
3. Object/ Prestation/ Conduct
under article 2164 to 2175 of NCC.
4. Juridical or legal tie/ Efficient cause/ Vinculum juris
4. Acts or omissions punished by law/ or Delicts- a violation of a law;
Art. 1157. Obligations arises from: especially a wrongful act or omission giving rise to a claim for compensation.
1. Law- a rule of conduct, just, obligatory, promulgated by legitimate *Every person criminally liable for felony is also civilly liable. (Art. 100 of RPC)
authority, and of common observance and benefit. What is included in civilly liability?
2. Contracts- a meeting of minds between two or more persons, whereby 1. Restitution- the thing itself shall be restored, even though it be found in the
one person binds himself, with respect to the other, to give something or possession of a third person who has acquired it by lawful means, saving to
to render some service. the latter his action against the proper person, who may be liable to him.
2. Reparation of the damage caused- court shall determine the amount of
damage, taking into consideration the price of the thing, its sentimental value
to the injured party.
3. Indemnification for consequential damages- shall include not only those
caused the injured party, but also those suffered by his family or third persons
5. Quasi-delict/tort- whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damage done. Such
fault or negligence, if there is non pre-existing contractual relation between
the parties.
Elements of negligence
1. The fault or negligence of the defendant
2. The damage suffered or incurred by the plaintiff
3. The relation of cause and effect between the fault or negligence of the
defendant and the damage incurred
Kinds of Negligence
1. Culpa Aquiliana or Quasi-delict- negligence resulting from failure to
observe the required diligence that causes damage to another.
2. Culpa Contractual or Quasi-contract- negligence in the performance of a
pre-existing contract
3. Culpa Criminal or Criminal Negligence- which results in the commission
of a crime
Employer’s liability is Employer’s liability is
subsidiary primary
Art. 1158. Obligations derived from law are not presumed. Only those
expressly determined under 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.
Art. 1159. Obligations arising from contracts have the force of law between
the contracting parties and should be complied with in good faith.
Art. 1160. Obligations derived from quasi-contracts shall be subject to the
provisions of Chapter 1, Title XVII of this Book.
Art. 1161. Civil obligations arising from criminal offenses shall be governed by
the penal laws, subject to the provisions of Article 2177, and of the pertinent
provisions of Chapter 2, Preliminary Title, on Human Relations, and of Title
XVIII of this Book, regulating damages.
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.
Negligence- is the failure to observe for the protection of the interest of
another person that degree of care, precaution, and the vigilance which the
circumstances justly demand whereby such other person suffers injury. In
layman’s term it is the conduct that creates an undue risk of harm to others.
Proximate Cause- it is that cause, which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury, and without
which the result would not have occurred.

CHAPTER 2- Nature and Effect of Obligations

Obligations of the Debtor or Obligor (REAL OBLIGATION)
WCARE
SPECIFIC OR GENERIC OR
DELICT QUASI-DELICT
DETEMINATE INDETERMINATE
Wrongful committed Wrongful committed
-To deliver the things -to deliver the thing
against the state against a person
which he has obliged which must be neither
Criminal intent is Criminal intent is not
himself to give of superior nor
necessary necessary
inferior quality
Applicable only when Actionable in any act or
-to take care of the -to pay damages in
there is a penal law omission wherein fault
thing with proper case of breach
penalizing it or negligence
diligence of a good
intervenes
father of a family
Requires proof beyond Requires
-to deliver the
reasonable doubt preponderance of
accessions and
evidence
accessories
 -to pay damages in Delivery- formal act of transferring something, such as deed; the giving or
case of breach yielding possession of control of something to another.

Rights of the Creditor (REAL OBLIGATION) Kinds of Delivery

SPECIFIC GENERIC 1. Actual Delivery- the act of giving real and immediate possession to
-to compel specific -to ask for the buyer or the buyer’s agent.
performance performance of the 2. Constructive Delivery- an act that amounts to a transfer of title by
obligation operation of law when actual transfer is impracticable or impossible.
-to demand rescission -to ask that the Personal Right- the power of one to demand another, as a definite passive
or cancellation of the obligation be subject, the fulfillment of a prestation to give, to do or not to do.
obligation(in complied with at the Real Right- the power belonging to a person over a specific thing, without a
reciprocal) expense of the debtor passive subject individually determined, against whom such right may be
-to recover damages -to recover damages personally exercised.
in case of breach in case of breach Kinds of Fruits
1. Natural Fruits- are the spontaneous products of the soil, and the young
Art. 1163. Every person obliged to give something is also obliged to take of it and other products of animals.
with the proper diligence of a good father of a family, unless the law or the 2. Industrial Fruits- are those produced by lands of any kind through
stipulation of the parties requires another standard of care. cultivation or labor.
3. Civil Fruits- are the rents of buildings, the price of leases of lands and
Diligence- care; caution; the attention and care required from a person in a other property and the amount of perpetual or life annuities or other
given situation similar income.
Due diligence- diligence reasonably expected from, and ordinarily exercised Art. 1165. When what is to be delivered is a determinate thing, the creditor,
by, a person who seeks to satisfy a legal requirement or to discharge an in addition to the right granted him by Article 1170, he may compel the
obligation. debtor to make the delivery. If the thing is indeterminate or generic, he may
Extraordinary diligence- extreme care that a person of unusual prudence ask that the obligation be complied with at the expense of the debtor. If the
exercises to secure right or property. obligor delays, or has promised to deliver the same thing to two or more
GR: To take care of the thing with the proper diligence of a good father of a persons who do not have the same interest, he shall be responsible for any
family. fortuitous event until he has effected the delivery.
Exceptions:
1. Law requires another standard of care. *Black’s Law Dictionary defined specific performance as “the remedy of
2. The stipulation of the parties requires another standard of care. requiring exact performance of the contract in the specific form in which it
*The Civil Code characterizes negligence as the omission of that diligence was made, or according to the precise terms agreed upon. *Reciprocal
required by the nature of the obligation and corresponds with the obligation- are those which arise from the same cause, and which each party
circumstances of the persons, of the time, and of the place. is a debtor and a creditor of the other, such that the obligation of one is
dependent upon the obligation of the other.
Art. 1164. The creditor has a right to the fruit of the thing from the time the
obligation to deliver it arises. However, he shall acquire no real right over it -In reciprocal obligation, the creditor or obligee may opt to choose rescission
until the same has been delivered to him. in case he does not want to pursue his right of specific performance.
Art. 1166. The obligation to give a determinate thing includes that delivering (2) When from the nature and the circumstances of the obligation it appears
all its accessions and accessories, even though they may not have been that the designation of the time when the thing is to be delivered or the
mentioned. Accessions- it service is to be rendered was a controlling motive for the establishment of the
signifies all of those things which are produced by the thing which is the contract; or
object of the obligation as well as all of those which are naturally or artificially (3) When demand would be useless, as when the obligor has rendered it
attached thereto. Ex. Earphone of a cellphone Accessories- it signifies all of beyond his power to perform.
those things which have for their object the embellishment, use or In reciprocal obligations, neither party incurs in delay if the other does not
preservation of another thing which is more important and to which they are comply or is not ready to comply in a proper manner with what is incumbent
not incorporated or attached. It includes all of those things which are upon him. From the moment one of the parties fulfills his obligation, delay by
necessary or convenient for the perfection of another thing. Ex. Key of a the other begins.
house.
When is judicial or extrajudicial demand not necessary?
Art. 1167- if a person obliged to do something, fails to do it, the same shall be
1. the law or stipulation expressly so declares
executed at his cost. This same rule shall be observed if he does it in
2. time is an essence in the performance of obligation
contravention of the tenor of the obligation. Furthermore, it may be decreed
3. demand would be useless
that what has been poorly done be undone. Art.
*Mora or Delay- is the failure to perform the obligation in due time because
1168. When the obligation consists in not doing, and the obligor does what
of dolo (malice) or culpa (negligence).
has been forbidden him, it shall also be undone at his expense.
Requisites necessary for a finding of default
Rights of the creditor (PERSONAL OBLIGATION)
1. obligation is demandable and liquidated
Obligation to do Obligation not to do
2. debtor delays performance
1. Have the 1. Have it undone at
3. creditor judicially or extrajudicially requires the debtor’s performance.
obligation the expense of the
*A debt is liquidated when the amount is known or is determinable by
performed or obligor
executed at the inspection of the terms and conditions of the relevant promissory notes and
expense of the related documentation.
obligor
Kinds of Mora or Delay
2. Ask what has 2. To ask for damages
1. Mora Solvendi- debtor’s fault; delay in the fulfillment of an obligation by
been poorly done under Art. 1170
reason of a cause imputable to the debtor.
be undone.
a. Mora Solvendi ex re- obligation to give
3. Recover damages
under Art. 1170. b. Mora Solvendi ex persona- obligation to do
Article 1169. Those obliged to deliver or to do something incur in delay from 2. Mora Accipiendi- delay of the obligee or creditor to accept the delivery of
the time the obligee judicially or extrajudicially demands from them the the object
fulfillment of their obligation. 3. Compensatio Morae- default on both parties because neither has
However, the demand by the creditor shall not be necessary in order that completed their part in reciprocal obligation.
delay may exist:
(1) When the obligation or the law expressly so declare; or
Article 1170. Those who in the performance of their obligations are guilty of 4. Temperate or Moderate
fraud, negligence, or delay, and those who in any manner contravene the 5. Actual or Compensatory
tenor thereof, are liable for damages. 6. Liquidated

Injury- legal invasion of a legal right Art. 1171. Responsibility arising from fraud is demandable in all obligations.
Damage- the hurt, loss or harm which results from the injury Any waiver for future fraud is void.
Damages- the recompense or compensation awarded for the damage
suffered. *Waiver- is the voluntary relinquishment or abandonment, express or
Kinds of Breach of the Obligation implied, of a legal right or advantage. It must be couched in clear and
1. Voluntary Breach- arises from fraud, negligence, delay or contravention of unequivocal terms which will leave no doubt as to the intention of the party
the tenor to give up a right or benefit which legally pertains to him.
2. Involuntary Breach- arises due to fortuitous events
*Rights may be waived and action is a civil or criminal judicial proceeding.
Different Modes of Voluntary Breach
1. Fraud or dolo- refers to all kinds of deception, whether through insidious Art. 1172. Responsibility arising from negligence in the performance of every
machination, manipulation, concealment or misrepresentation. kind of obligation is also demandable, but such liability may be regulated by
A. Dolo cuasuante or Causal fraud- induces a party to enter into a contract the courts, according to the circumstances.
and renders the contact voidable
Article 1173. The fault or negligence of the obligor consists in the omission of
B. Dolo incidente or Incidental fraud- not the reason that induces the party to
that diligence which is required by the nature of the obligation and
enter into a contract and renders a party to be liable for damages.
corresponds with the circumstances of the persons, of the time and of the
2. Negligence or culpa- that conduct that naturally or reasonably creates
place. When negligence shows bad faith, the provisions of articles 1171 and
undue risk or harm to others.
2201, paragraph 2, shall apply.
3. Delay or Default or Mora
If the law or contract does not state the diligence which is to be observed in
4. Contravention of the tenor- violation of a terms and conditions in contract
the performance, that which is expected of a good father of a family shall be
or breach of contract
required.
Fraud (dolo) Negligence (Culpa)
*Bad Faith- imports a dishonest purpose or some moral obliquity or conscious
Willfulness or Mere want of care or
deliberate intent to diligence and not the doing of a wrong that partakes of the nature of fraud.
cause damage voluntariness of act Article 1174. Except in cases expressly specified by the law, or when it is
Liability cannot be Liability may be otherwise declared by stipulation, or when the nature of the obligation
mitigated by courts mitigated by courts
requires the assumption of risk, no person shall be responsible for those
Waiver for future Waiver for future
events which could not be foreseen, or which, though foreseen, were
fraud is void negligence may be
inevitable.
valid
Fortuitous Events- any event which cannot be foreseen, or which, though
Kinds of Damages under the Civil Code foreseen, is inevitable. 2
1. Moral kinds of Fortuitous Events
2. Exemplary or Corrective 1. Acts of God- natural occurrences such as typhoons or floods
3. Nominal 2. Acts of Man (force majeure)- riots, strikes or wars
a. Ordinary Fortuitous Events- events which usually happens or which could
have been foreseen
b. Extraordinary Fortuitous Events- events which does not usually happen
and which could not have been reasonably foreseen.
*Car napping per se is not considered as fortuitous event.
Exceptions to the rule that no person shall be responsible for fortuitous
events:
1. Cases expressly specified by law
2. Cases declared by stipulation
3. When the nature of the obligation requires the assumption of risk
*Doctrine of assumption of risk- it refers to a situation in which the obligor or
debtor, with full knowledge of the risk voluntarily enters into some obligatory
relation with the creditor or obligee. It is based on the principle of volenti non
fit injuria- no wrong is done to one who consents.
Art. 1175. Usurious transactions shall be governed by special laws.
Art. 1176. The receipt of the principal by the creditor without reservation with
respect to the interest, shall give rise to the presumption that said interest has
been paid.
The receipt of a later installment of a debt without reservation as to prior
installments, shall likewise raise the presumption that such installments have
been paid.
2. Conclusive Presumption- when the presumption becomes irrebuttable
upon the presentation of the evidence and any evidence tending to rebut the
presumption is not admissible.
Article 1177. The creditors, after having pursued the property in possession of
the debtor to satisfy their claims, may exercise all the rights and bring all the
actions of the latter for the same purpose, save those which are inherent in
his person; they may also impugn the acts which the debtor may have done to
defraud them.
Remedies of the creditor before he may bring an action for rescission of an
alleged fraudulent sale:
1. exhaust the properties of the debtor through levying by attachment and
execution upon all the property of the debtor, except such as are exempt by
law from execution
2. exercise all the rights and actions of the debtor, save those personal to him
(action subrogatoria)
3. seek rescission of the contracts executed by the debtor in fraud of their
rights (action pauliana)
Article 1178. Subject to the laws, all rights acquired in virtue of an obligation
are transmissible, if there has been no stipulation to the contrary.

GR: all right acquired by virtue of an obligation are transmissible.

Presumption- a legal inference or assumption that a fact exists, based on the
Exceptions:
known or proven existence of some other fact or group of facts. Most
1. When prohibited by law
presumptions are rules of evidence calling for a certain result in a given case
2. When prohibited by stipulations of parties
unless the adversely affected party overcomes it with other evidence.
Kinds of presumption
Chapter 4. Extinguishment of Obligations
1. Disputable Presumption – if it may be contradicted or overcome by other
Article 1231. Obligations are extinguished:
evidence.
(1) By payment or performance;
Sec. 3:
(2) By the loss of the thing due;
a. that a person is innocent of crime or wrong
(3) By the condonation or remission of the debt;
b. that an unlawful act was done with an unlawful intent
(4) By the confusion or merger of the rights of creditor and debtor;
c. that a person intends the ordinary consequences of his voluntary act
(5) By compensation;
d. that a person takes ordinary care of his concerns
(6) By novation.
e. that money paid by one another was due to the latter
f. that official duty has been regularly performed
g. that private transactions have been fair and regular
Other causes of extinguishment of obligations, such as annulment, rescission,
fulfillment of a resolutory condition, and prescription, are governed elsewhere
in this Code
Other causes of extinguishment of obligations
1. Death of a party in case of personal obligations
2. Mutual desistance or withdrawal of the parties
3. Arrival of a resolutory period
4. Compromise agreements
5. Impossibility of fulfillment
6. Happening of fortuitous events
Compromise agreements- are contracts whereby the parties undertake
reciprocal obligations to resolve their differences thus avoiding litigation, or put
an end to one already commenced.
Reciprocal concessions are the very heart and life of every compromise
agreement.
If the compromise agreements have been approved, it cannot and must not be
disturbed except for vices of consent or forgery.
Sec. 1. Payment or Performance
Article 1232. Payment means not only the delivery of money but also the
performance, in any other manner, of an obligation.
As a rule, one who pleads payment has the burden of proving it. (defendant)
The debtor has the burden of showing with legal certainty that the obligation
has been discharged by payment.
Apropos is the rule that states the receipt of payment is the best evidence of
the fact of payment.
Receipt is a written and signed acknowledgment that money has or goods have
been delivered, while a voucher (not necessarily an evidence of payment) is a
documentary record of a business transaction.
Vouchers must be supported by an actual payment of cash duly receipted for
as is customary among businessmen or the issuance of check subsequently
encashed.
The law provides that the delivery of mercantile documents including checks
“shall produce the effect of payment only when they have been cashed.
Requisites of payment:
1. Identity of the prestation- must be delivered or released
2. Integrity- must be fulfilled completely
Article 1233. A debt shall not be understood to have been paid unless the thing
or service in which the obligation consists has been completely delivered or
rendered, as the case may be.
Article 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.
Article 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.
Substantial performance doctrine- the rule that if a good faith attempt to
perform does not precisely meet the terms of an agreement or statutory
requirements, the performance will still be considered complete if the essential
purpose is accomplished, subject to claim for damages.
The word accept means to take satisfactory or sufficient, or agree to an
incomplete or irregular performance.
The mere receipt of a partial payment is not equivalent to the required
acceptance of performance.
An obligee is deemed to have waived strict compliance by an obligor with an
obligation when the following elements are present:
1. an intentional acceptance of the defective or incomplete performance
2. with actual knowledge of the incompleteness or defect
3. under circumstances that would indicate an intention to consider the
performance as complete and renounce any claim arising from the defect.
Article 1236. The creditor is not bound to accept payment or performance by a
third person who has no interest in the fulfillment of the obligation, unless
there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor,
he can recover only insofar as the payment has been beneficial to the debtor.
GR: the third person who paid another’s debt is entitled to recover the full
amount he had paid. However, the law limits the recovery to the amount by
which the debtor has been benefited, if the debtor has no knowledge or has
expressed his opposition to such payment.
Article 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.
Article 1238. Payment made by a third person who does not intend to be
reimbursed by the debtor is deemed to be a donation, which requires the
debtor's consent. But the payment is in any case valid as to the creditor who
has accepted it
Article 1239. In obligations to give, payment made by one who does not have
the free disposal of the thing due and capacity to alienate it shall not be valid,
without prejudice to the provisions of article 1427 under the Title on "Natural
Obligations."
GR: payment by an incapacitated person is not valid
Article 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
Payment made by the debtor to the wrong party does not extinguish the
obligation as to the creditor who is without fault or negligence, even if the
debtor acted in utmost good faith and by mistake as to the person of the
creditor, or through error induced by fraud of a third person.
Article 1241. Payment to a person who is incapacitated to administer his
property shall be valid if he has kept the thing delivered, or insofar as the
payment has been beneficial to him.
Payment made to a third person shall also be valid insofar as it has redounded
to the benefit of the creditor. Such benefit to the creditor need not be proved
in the following cases:
(1) If after the payment, the third person acquires the creditor's rights;
(subrogation)
(2) If the creditor ratifies the payment to the third person; (ratification)
(3) If by the creditor's conduct, the debtor has been led to believe that the third
person had authority to receive the payment. (estoppel)
Article 1327. The following cannot give consent to a contract:
(1) Unemancipated minors;
(2) Insane or demented persons, and deaf-mutes who do not know how to
write.
Article 1328. Contracts entered into during a lucid interval are valid. Contracts
agreed to in a state of drunkenness or during a hypnotic spell are voidable.
Lucid- a brief period during which an insane person regains sanity sufficient to
have the legal capacity to contract and act on his/her own behalf.
Article 1329. The incapacity declared in article 1327 is subject to the
modifications determined by law, and is understood to be without prejudice to
special disqualifications established in the laws.
Article 1242. Payment made in good faith to any person in possession of the
credit shall release the debtor.
GR: payment to an unauthorized person is not valid. The above article is an
exception.
Article 1243. Payment made to the creditor by the debtor after the latter has
been judicially ordered to retain the debt shall not be valid.
Preliminary attachment- is a provisional remedy issued upon order of the court
where an order is pending to levy upon the property of the defendant.
Final attachment- issued to enforce judgment that has already become final
and executory
Preliminary injunction- an order granted at any stage of action or proceeding
prior to the judgment or final order, requiring a party to refrain from particular
acts.
Final injunction- included in the judgment as the relief or part of the relief
granted as a result of the action
Garnishment- a specie of attachment in which plaintiff seeks to subject his
claims properties of the debtor in the hands of a stranger.
Article 1244. The debtor of a thing cannot compel the creditor to receive a
different one, although the latter may be of the same value as, or more valuable
than that which is due.
In obligations to do or not to do, an act or forbearance cannot be substituted
by another act or forbearance against the obligee's will.
Article 1245. Dation in payment, whereby property is alienated to the creditor
in satisfaction of a debt in money, shall be governed by the law of sales.
Dacion en pago- partakes the nature of sale and it is also an objective novation
hence, common consent is required in order to extinguish the obligation; the
debtor offers another thing to the creditor who accepts it as equivalent
payment of an outstanding debt.
In a true dacion en pago, the assignment of the property extinguishes the
monetary debt.
Elements of dacion en pago:
a. existence of money obligation
b. the alienation to the creditor of a property by the debtor with the consent of
the former
c. satisfaction of the money obligation of the debtor.
Article 1246. When the obligation consists in the delivery of an indeterminate
or generic thing, whose quality and circumstances have not been stated, the
creditor cannot demand a thing of superior quality. Neither can the debtor
deliver a thing of inferior quality. The purpose of the obligation and other
circumstances shall be taken into consideration.
This article gives a principle of equity in that it applies justice in case where
there is lack of precise declaration in the obligation. If there is a disagreement
between the parties, then the court steps in and declares whether the contract
has been complied with or not.
Article 1247. Unless it is otherwise stipulated, the extrajudicial expenses
required by the payment shall be for the account of the debtor. With regard to
judicial costs, the Rules of Court shall govern.
Article 1248. Unless there is an express stipulation to that effect, the creditor
cannot be compelled partially to receive the prestations in which the obligation
consists. Neither may the debtor be required to make partial payments.
However, when the debt is in part liquidated and in part unliquidated, the
creditor may demand and the debtor may effect the payment of the former
without waiting for the liquidation of the latter.
Partial payments are allowed in the following cases:
1. there is an express stipulation
2. the debt is in part liquidated and in part unliquidated.
Art. 1248. States that creditors cannot be compelled to accept partial
payments, it does not prohibit them from accepting such payments.
Debt is liquidated when the amount is known or is determinable by inspection
of the terms and conditions of the relevant promissory notes and related
documentation.
Article 1249. The payment of debts in money shall be made in the currency
stipulated, and if it is not possible to deliver such currency, then in the currency
which is legal tender in the Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they
have been cashed, or when through the fault of the creditor they have been
impaired.
In the meantime, the action derived from the original obligation shall be held
in the abeyance.
Legal tender- the money (bills and coins) approved in a country for the payment
of debts, the purchase of goods, and other exchanges for value.
In general, a check does not constitute a legal tender, but a creditor is not
prohibited to accept a check as a payment, it means the creditor has the option
and discretion of refusing or accepting it.
Article 1250. In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at
the time of the establishment of the obligation shall be the basis of payment,
unless there is an agreement to the contrary.
Inflation- sharp increase of money or credit, or both, without a corresponding
increase in business transaction; there is an increase in the volume of money
and credit
Extraordinary inflation- when there is an unusual decrease in the purchasing
power of currency and such decrease could not reasonably foreseen or was
manifestly beyond contemplation of parties
Extraordinary deflation- involves an inverse situation
Requisites of extraordinary inflation (deflation)
a. there was an official declaration from the BSP
b. the obligation was contractual in nature
c. the parties expressly agreed to consider the effects of the extraordinary
inflation (deflation)
Article 1251. Payment shall be made in the place designated in the obligation.
There being no express stipulation and if the undertaking is to deliver a
determinate thing, the payment shall be made wherever the thing might be at
the moment the obligation was constituted.
In any other case the place of payment shall be the domicile of the debtor.
If the debtor changes his domicile in bad faith or after he has incurred in delay,
the additional expenses shall be borne by him.
These provisions are without prejudice to venue under the Rules of Court.
Venue- place where a civil action must be filed or instituted
Civil action- one by which a party sues another for the enforcement or
protection of a right, prevention or redress of a wrong.
Special forms of payment
1. application of payment
2. dation in payment
3. payment by cession
4. tender of payment and consignation
Article 1252. He who has various debts of the same kind in favor of one and the
same creditor, may declare at the time of making the payment, to which of
them the same must be applied. Unless the parties so stipulate, or when the
application of payment is made by the party for whose benefit the term has
been constituted, application shall not be made as to debts which are not yet
due.
If the debtor accepts from the creditor a receipt in which an application of the
payment is made, the former cannot complain of the same, unless there is a
cause for invalidating the contract.
Application of payment- may be defined as the designation of the debt to
which the payment must be applied when the debtor has several obligations of
the same kind in favor of the same creditor.
Requisites:
1. there must be only one debtor and creditor
2. there must be two or more debts of the same kind
3. all of the debts must be due
4. the amount paid by the debtor must not be sufficient to cover the total
amount of all the debts
Rules:
1. the right to designate belongs primarily to the debtor.
2. if the debtor does not apply payment, the creditor may designate by
specifying in the receipt
3. if the creditor did not apply or if application is void, the debt which is most
onerous to the debtor, among those due, shall be deemed to have been
satisfied.
4. if the debts due are of the same nature and burden, the payment shall be
applied to all of them proportionately.
Article 1253. If the debt produces interest, payment of the principal shall not
be deemed to have been made until the interests have been covered.
Article 1254. When the payment cannot be applied in accordance with the
preceding rules, or if application cannot be inferred from other circumstances,
the debt which is most onerous to the debtor, among those due, shall be
deemed to have been satisfied.
If the debts due are of the same nature and burden, the payment shall be
applied to all of them proportionately.
-The above article states that the application is made by operation of law.
Article 1255. The debtor may cede or assign his property to his creditors in
payment of his debts. This cession, unless there is stipulation to the contrary,
shall only release the debtor from responsibility for the net proceeds of the
thing assigned. The agreements which, on the effect of the cession, are made
between the debtor and his creditors shall be governed by special laws.
Cession or assignment- the debtor abandons all of his property for the benefit
of his creditors in order that from the proceeds thereof the latter may obtain
payment of credits.
Requisites: Tender of payment must be accompanied by consignation in order that the
1. there must be two or more creditors effects of payment may be produced, because a mere tender of payment does
2. the debtor must be partially or relatively insolvent not extinguish an obligation.
3. there must be an acceptance of the cession by the creditors. Consignation- act of depositing the thing due with the court of judicial
Dation in payment Payment by cession authorities whenever the creditor cannot accept or refuses to accept payment,
Only one creditor Plurality of creditors is and it generally requires a prior tender of payment.
essential Tender is the antecedent of consignation; an act preparatory to the
Debtor is not Debtor is in a state of consignation. Tender of payment may be extrajudicial, while consignation is
necessarily in state of partial or relative necessarily judicial.
financial difficulty insolvency Requisites of Consignation:
What is delivered is What is ceded by the 1. there was a debt due
merely a thing to be debtor is the 2. the consignation has been made
considered as the universality of all his
3. previous notice of consignation had been given to person interested in the
equivalent of the property
performance of the obligation
performance
The obligation is The effect is merely to 4. the amount due was placed at the disposal of the court
extinguished to the release the debtor for 5. after the consignation has been made, the person interested was notified
extent of the value of the net proceeds of -Failure in any of these is enough ground to render a consignation ineffective.
the thing delivered the things ceded or The rationale for consignation is to avoid the performance of an obligation
either as agreed or as assigned becoming more onerous to the debtor by reason of causes not imputable to
may be proved. him.
The purpose of the notice is in order to give the creditor an opportunity to
Article 1256. If the creditor to whom tender of payment has been made refuses reconsider his unjustified refusal and to accept payment thereby avoiding
without just cause to accept it, the debtor shall be consignation and the subsequent litigation.
released from responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases: Article 1257. In order that the consignation of the thing due may release the
(1) When the creditor is absent or unknown, or does not appear at the place of obligor, it must first be announced to the persons interested in the fulfillment
payment; of the obligation.
(2) When he is incapacitated to receive the payment at the time it is due; The consignation shall be ineffectual if it is not made strictly in consonance with
(3) When, without just cause, he refuses to give a receipt; the provisions which regulate payment.
(4) When two or more persons claim the same right to collect; Article 1258. Consignation shall be made by depositing the things due at the
(5) When the title of the obligation has been lost. disposal of judicial authority, before whom the tender of payment shall be
proved, in a proper case, and the announcement of the consignation in other
Tender of payment- the definitive act of offering the creditor what is due, cases.
together with the demand that the creditor accepts the same. The consignation having been made, the interested parties shall also be notified
When a creditor refuses tender of payment, the law allows consignation of the thereof.
thing or the sum due. Article 1259. The expenses of consignation, when properly made, shall be
There must be a fusion of intent, ability and capability to make good such offer, charged against the creditor.
which must be absolute and must cover the amount due.
GR: creditor will bear the expenses of consignation because he refused to
accept the payment without just cause.
Article 1260. Once the consignation has been duly made, the debtor may ask
the judge to order the cancellation of the obligation.
Before the creditor has accepted the consignation, or before a judicial
declaration that the consignation has been properly made, the debtor may
withdraw the thing or the sum deposited, allowing the obligation to remain in
force.
Article 1261. If, the consignation having been made, the creditor should
authorize the debtor to withdraw the same, he shall lose every preference
which he may have over the thing. The co-debtors, guarantors and sureties shall
be released.
The consignation having made means that the creditor has accepted payment
or the court has approved the consignation.
Effects if proper consignation has been made but the debtor withdraws the
authority of the creditor
1. obligation remains
2. the creditor shall lose every preference which he may have over the thing
3. the co-debtors, guarantors and sureties shall be released.
SEC. 2. Loss of the Thing Due
Article 1262. An obligation which consists in the delivery of a determinate thing
shall be extinguished if it should be lost or destroyed without the fault of the
debtor, and before he has incurred in delay.
When by law or stipulation, the obligor is liable even for fortuitous events, the
loss of the thing does not extinguish the obligation, and he shall be responsible
for damages. The same rule applies when the nature of the obligation requires
the assumption of risk.
GR: the obligation to deliver a determinate thing is extinguished if it should be
lost or destroyed.
Exception:
1. the law so provides
2. the stipulation so provides
3. the nature of the obligation requires the assumption of risk
4. loss of the thing occurs with the fault of the debtor
5. loss of the thing occurs after the debtor has incurred in delay
6. debtor promised to deliver the same thing to two or more persons who do
not have the same interest.
7. the obligation is to deliver a generic thing
8. the obligation to deliver a specific thing arises from a crime.
Article 1263. In an obligation to deliver a generic thing, the loss or destruction
of anything of the same kind does not extinguish the obligation.
Effect of fortuitous loss in a generic obligation
-The loss or destruction of anything of the same kind even without the debtor’s
fault and before he has incurred in delay will not have the effect of
extinguishing the obligation. This rule is based on the principle that the genus
of the thing can never perish (Genus nunquan perit).
Article 1264. The courts shall determine whether, under the circumstances, the
partial loss of the object of the obligation is so important as to extinguish the
obligation.
GR: Partial loss does not extinguish the obligation
Exception: when the courts determine that the partial loss is so important to
extinguish the obligation
Article 1265. Whenever the thing is lost in the possession of the debtor, it shall
be presumed that the loss was due to his fault, unless there is proof to the
contrary, and without prejudice to the provisions of article 1165. This
presumption does not apply in case of earthquake, flood, storm, or other
natural calamity.
Article 1266. The debtor in obligations to do shall also be released when the
prestation becomes legally or physically impossible without the fault of the
obligor.
Article 1267. When the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the obligor may also be released
therefrom, in whole or in part.
-The above article refers to the doctrine of unforeseen events.
Article 1268. When the debt of a thing certain and determinate proceeds from
a criminal offense, the debtor shall not be exempted from the payment of its
price, whatever may be the cause for the loss, unless the thing having been
offered by him to the person who should receive it, the latter refused without
justification to accept it.
Article 1269. The obligation having been extinguished by the loss of the thing,
the creditor shall have all the rights of action which the debtor may have against
third persons by reason of the loss.
Right of action- to bring a specific case to court.
SEC. 3. Condonation or Remission of the Debt
Article 1270. Condonation or remission is essentially gratuitous, and requires
the acceptance by the obligor. It may be made expressly or impliedly.
One and the other kind shall be subject to the rules which govern inofficious
donations. Express condonation shall, furthermore, comply with the forms of
donation.
Condonation or remission is an act of liberality, by virtue of which, w/o
receiving any equivalent, the creditor renounces the enforcement of the
obligation, which is extinguished in its entirety or in that part or aspect of the
same to which remission refers.
Requisites:
1. it must be gratuitous
2. it must be accepted by the debtor
3. the obligation must be demandable
4. the parties must have capacity
5. the condonation must not be inofficious
6. the condonation must comply with the forms of donation, if it is an express
Kinds of Remission or Condonation
1. As to form
a. Express- made in accordance with the formalities prescribed by law for
donations
b. Implied- it is not made in accordance by law but it can be deduced from the
acts of the creditors
2. As to extent
a. Total- entire obligation is extinguished
b. Partial- refers only to the principal or to the accessory obligations
3. As to constitution
a. Inter vivos- constituted by the agreement of the parties and takes effect
during the lifetime of the donor
b. Mortis causa- constituted by last will and testament and will take effect upon
the death of the donor
Article 1271. The delivery of a private document evidencing a credit, made
voluntarily by the creditor to the debtor, implies the renunciation of the action
which the former had against the latter.
If in order to nullify this waiver it should be claimed to be inofficious, the debtor
and his heirs may uphold it by proving that the delivery of the document was
made in virtue of payment of the debt.
Article 1272. Whenever the private document in which the debt appears is
found in the possession of the debtor, it shall be presumed that the creditor
delivered it voluntarily, unless the contrary is proved.
Article 1273. The renunciation of the principal debt shall extinguish the
accessory obligations; but the waiver of the latter shall leave the former in
force.
Article 1274. It is presumed that the accessory obligation of pledge has been
remitted when the thing pledged, after its delivery to the creditor, is found in
the possession of the debtor, or of a third person who owns the thing.
SEC. 4. Confusion or Merger of Rights
Article 1275. The obligation is extinguished from the time the characters of
creditor and debtor are merged in the same person.
Confusion- is the meeting in the same person of the qualities of creditor and
debtor with respect to one and the same obligation
Requisites:
1. the merger of the characters of the creditor and debtor must be in the same
person
2. the merger must take place in the person of either the principal creditor or
the principal debtor
3. the merger must be complete and definite
Article 1276. Merger which takes place in the person of the principal debtor or
creditor benefits the guarantors. Confusion which takes place in the person of
any of the latter does not extinguish the obligation.
Article 1277. Confusion does not extinguish a joint obligation except as regards
the share corresponding to the creditor or debtor in whom the two characters
concur.
In solidary obligation, if the confusion takes place in one of the solidary debtors, Article 1279. In order that compensation may be proper, it is necessary:
the entire obligation is extinguished. (1) That each one of the obligors be bound principally, and that he be at the
same time a principal creditor of the other;
SEC. 5. Compensation (2) That both debts consist in a sum of money, or if the things due are
Compensation Confusion consumable, they be of the same kind, and also of the same quality if the latter
There must be two persons, who, in There is only one person in whom is has been stated;
their own right, are creditors and merged the qualities of debtor and (3) That the two debts be due;
debtors of each other creditor (4) That they be liquidated and demandable;
There must be at least two There is only one obligation (5) That over neither of them there be any retention or controversy,
obligation commenced by third persons and communicated in due time to the debtor.
A claim is liquidated when the amount and the time of payment is fixed. If
acknowledged by the debtor, although not in writing, the claim must be treated
Article 1278. Compensation shall take place when two persons, in their own as liquidated.
right, are creditors and debtors of each other. To liquidate means to “make the amount of indebtedness or an obligation clear
and settled in the form of money.”
In Roman Law, compensation was the reciprocal extinction of claims b/w Compensation cannot take place wherein one claim is still the subject of
mutual debtors. litigation, as the same cannot be deemed liquidated.

Kinds of compensation
1. As to cause
a. Legal- takes effect upon operation of law; takes place ipsu jure when all the
requisites of law are present.
b. Voluntary or Conventional- takes place by agreement of the parties
Requisites:
i. that each parties can dispose of the credit he seeks to compensate
ii. they agree to the mutual extinguishment of their credits
c. Judicial- takes effect by judicial decree
d. Facultative- can be set up only by one of the parties
2. As to effect
a. Total- two debts of the same amount
b. Partial- two debts are not of the same amount
A debt is a claim which has been formally passed upon by the highest authority
to which it can in law be submitted and has been declared to be a debt.
A claim is a debt in embryo; it is a mere evidence of a debt and must pass thru
the process prescribed by law before it develops into what is properly called a
debt.
Article 1280. Notwithstanding the provisions of the preceding article, the
guarantor may set up compensation as regards what the creditor may owe the
principal debtor.
Article 1281. Compensation may be total or partial. When the two debts are of
the same amount, there is a total compensation.
Article 1282. The parties may agree upon the compensation of debts which are
not yet due.
Article 1283. If one of the parties to a suit over an obligation has a claim for
damages against the other, the former may set it off by proving his right to said
damages and the amount thereof. (– Refers to judicial compensation)
Article 1284. When one or both debts are rescissible or voidable, they may be
compensated against each other before they are judicially rescinded or
avoided.
Rescissible or voidable are valid obligations; therefore, they may be
compensated against each other before they are judicially rescinded or
avoided.
Article 1285. The debtor who has consented to the assignment of rights made
by a creditor in favor of a third person, cannot set up against the assignee the
compensation which would pertain to him against the assignor, unless the
assignor was notified by the debtor at the time he gave his consent, that he
reserved his right to the compensation.
If the creditor communicated the cession to him but the debtor did not consent
thereto, the latter may set up the compensation of debts previous to the
cession, but not of subsequent ones.
If the assignment is made without the knowledge of the debtor, he may set up
the compensation of all credits prior to the same and also later ones until he
had knowledge of the assignment.
Assignment of rights is the transfer of rights, especially contractual rights, from
one party to another.
Article 1286. Compensation takes place by operation of law, even though the
debts may be payable at different places, but there shall be an indemnity for
expenses of exchange or transportation to the place of payment.
Article 1287. Compensation shall not be proper when one of the debts arises
from a depositum or from the obligations of a depositary or of a bailee in
commodatum.
Neither can compensation be set up against a creditor who has a claim for
support due by gratuitous title, without prejudice to the provisions of
paragraph 2 of article 301.
Article 1288. Neither shall there be compensation if one of the debts consists
in civil liability arising from a penal offense.
Debts which cannot be compensated
1. debts arising from a contract of depositum
Contract of deposit- a deposit is constituted from the moment a person
receives a thing belonging to another, with the obligation of safely keeping it
and returning the same.
2. debts arising from contract of commodatum
Contract of Commodatum (loan)- one of the parties delivers to another, either
something not consumable so that the latter may use the same for a certain
time and return it or money or other consumable upon the condition that the
same shall be paid
In commadatum, the bailor retains the ownership of the thing loaned, while in
simple loan, ownership passes to the borrower.
3. claims for support due by gratuitous title.
Support is everything that is indispensable for sustenance. The right to support
cannot be:
a. renounced
b. transmitted to third persons
c. compensated with what the recipient owes the obligor.
4. one of the debts consists in civil liability arising from a penal offense.
Article 1289. If a person should have against him several debts which are
susceptible of compensation, the rules on the application of payments shall
apply to the order of the compensation.
Article 1290. When all the requisites mentioned in article 1279 are present,
compensation takes effect by operation of law, and extinguishes both debts to
the concurrent amount, even though the creditors and debtors are not aware
of the compensation.
SEC. 6. Novation
Novatio is literally costrued as to make new.
Novatio non praesumitur- the novation is never presumed.
Debitum pro debito- basically extinguishing the old obligation for the new one
Article 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor.
The burden to prove the defense that an obligation has been extinguished by
novation falls on the debtor.
The consideration in novation need not to be pecuniary or even beneficial to
the person promising.
Novation is the extinguishment of an obligation by substitution or change of
the obligation by a subsequent one which extinguishes or modifies the first.
Requisites:
1. there must be a previous valid obligation
2. there must be an agreement of the parties concerned to a new contract
3. there must be the extinguishment of the old contract
4. there must be the validity of the new contract
GR: no form of words or writing is necessary to give effect to a novation
 Kinds of Novation
1. As to subject
a. Real or objective- by changing the object or the principal conditions
b. Personal or subjective- substituting the person of the debtor or subrogating
a third person to the rights of the creditor
c. Mixed- made either by changing the object or the principal conditions and by
substituting the person of the debtor or subrogating a third person to the rights
of the creditor
2. As to constitution
a. Express (Explicit declaration)- when the new obligation declares in
unequivocal terms that old obligation is extinguished
b. Implied (Material incompatibility)- when the new obligation is incompatible
with the old one on every point
The test of incompatibility is whether the two obligations can stand together,
each one with its own independent existence.
The will to novate, whether totally or partially, must appear by express
agreement of the parties, or by their acts which are too clear or unequivocal to
be mistaken.
3. As to extent or effect
a. Total or extinctive- when an old obligation is terminated by the creation of a
new one that takes place of the former.
Dual function:
i. to extinguish an existing obligation
ii. to substitute a new one in its place
b. Partial or modificatory- when the old obligation subsists to the extent that it
remains compatible with the amendatory agreement.
An extinctive novation is never presumed; there must be an express intention
to novate.
Novation is merely modificatory where the change brought about by any
subsequent agreement is merely incidental to the main obligation.
4. As to origin
a. Legal- takes place by operation of law
b. Conventional- takes place by stipulation of the parties
Article 1292. In order that an obligation may be extinguished by another which
substitute the same, it is imperative that it be so declared in unequivocal terms,
or that the old and the new obligations be on every point incompatible with
each other.
Article 1293. Novation which consists in substituting a new debtor in the place
of the original one, may be made even without the knowledge or against the
will of the latter, but not without the consent of the creditor. Payment by the
new debtor gives him the rights mentioned in articles 1236 and 1237.
Kinds or Personal Novation
1. Substitution- substituting the debtor
2. Subrogation- subrogating a third person the rights of the creditor
Kinds of Substitution
1. Expromision- the initiative for the change does not come from the debtor
and may even be made without his knowledge but the third person’s consent
and creditor is required.
2. Delegacion- the debtor offers, and the creditor accepts a third person who
consents to the substitution and assumes the obligation; thus the debtor is
released from the obligation
Delegado- new debtor
Delegante- original debtor
Delegatario- creditor
Article 1294. If the substitution is without the knowledge or against the will of
the debtor, the new debtor's insolvency or nonfulfillment of the obligations
shall not give rise to any liability on the part of the original debtor. (Because the
initiative came from a third person)
Article 1295. The insolvency of the new debtor, who has been proposed by the
original debtor and accepted by the creditor, shall not revive the action of the
latter against the original obligor, except when said insolvency was already
existing and of public knowledge, or known to the debtor, when he delegated
his debt.
Article 1296. When the principal obligation is extinguished in consequence of a
novation, accessory obligations may subsist only insofar as they may benefit
third persons who did not give their consent.
GR: when the principal obligation is extinguished in consequence of a novation,
the accessory obligations are also extinguished.
Article 1297. If the new obligation is void, the original one shall subsist, unless
the parties intended that the former relation should be extinguished in any
event.
Article 1298. The novation is void if the original obligation was void, except
when annulment may be claimed only by the debtor or when ratification
validates acts which are voidable.
Voidable obligations are binding unless they are annulled by a proper action in
court; they are susceptible of ratification (cleanses the contract from all its
defects from the moment it was constituted)
Article 1299. If the original obligation was subject to a suspensive or resolutory
condition, the new obligation shall be under the same condition, unless it is
otherwise stipulated.
Article 1300. Subrogation of a third person in the rights of the creditor is either
legal or conventional. The former is not presumed, except in cases expressly
mentioned in this Code; the latter must be clearly established in order that it
may take effect.
Animus novandi- intention to novate
Kinds of subrogation
1. Conventional- takes place by agreement of the parties
2. Legal- takes place by operation of law because of certain acts.

Article 1301. Conventional subrogation of a third person requires the consent

of the original parties and of the third person.
Article 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the
debtor's knowledge;
(2) When a third person, not interested in the obligation, pays with the express
or tacit approval of the debtor;
(3) When, even without the knowledge of the debtor, a person interested in
the fulfillment of the obligation pays, without prejudice to the effects of
confusion as to the latter's share.
Article 1303. Subrogation transfers to the persons subrogated the credit with
all the rights thereto appertaining, either against the debtor or against third
person, be they guarantors or possessors of mortgages, subject to stipulation
in a conventional subrogation.
Article 1304. A creditor, to whom partial payment has been made, may exercise
his right for the remainder, and he shall be preferred to the person who has
been subrogated in his place in virtue of the partial payment of the same credit.