ATENEO DE DAVAO UNIVERSITY

School of Business and Governance

CPA Revie Cen!er
BUSINESS "A#
REVIE# ON "A# ON OB"IGATIONS
$Ar!icles %%&'(%)*+ of !he Civil Code,
I- O.li/a!ions 0 General Provisions
1. Meaning of "a on O.li/a!ions and Con!rac!s?
The law on obligations and contracts is the body of rules which deals with the nature
and resources of obligations and rights and duties arising from agreements and
contracts.
2. Source of the Law on Obligations and ontracts is the i!il ode of the "hili##ines
$%e#ublic &ct 'o. ())*
which too+ e,ect &ugust (-. 1/0-. The i!il ode is deri!ed from the i!il ode of
S#ain of 1))/.
(. Meaning of obligation1
ode basis &rticle 110) 2 o.li/a!ion is 1uridical necessi!2 !o /ive !o do or no!
!o do-
3. riticism as to the de4nition of the i!il ode by 5ustice 5.6.L. %eyes.
7t !iews obligation from the debit side. There is no debt with credit and the credit is an
asset in the #atrimony of the creditor 8ust as the debt is the liability of the obligor.
6etter de4nition1 the one gi!en by &rias %amos. one of the commentators of the i!il
ode1
An o.li/a!ion is a 1uridical rela!ion here.2 a 3erson $called credi!or,
4a2 de4and fro4 ano!her $called de.!or, !he o.servance of a de!er4ina!ive
conduc! $!he /ivin/5 doin/ or no! doin/, and in case of .reach5 4a2 de4and
sa!isfac!ion fro4 asse!s of !he la!!er-
0. 9inds of obligations based on its de4nition1
%eal obligation 2 obligation to gi!e
"ersonal obligation 2 obligation to do or not to do
Two +inds of #ersonal obligation
a* "ositi!e #ersonal obligation 2 to do
b* 'egati!e #ersonal obligation 2 not to do
:. ;ssential %e<uisites of obligation
1. Ac!ive Su.1ec! 2 the obligee or creditor 2 one who has the right and #ower to
demand
the #erformance of the obligation.
2- Passive Su.1ec! 2 the obligor or debtor 2 one who is obliged to #erform the
obligation.
(. O.1ec! or Pres!a!ion 2 sub8ect matter of the obligation that consists of the
#restation to gi!e. to or not to do. The ob8ects of contract are things. right or
ser!ices.
3. 6uridical or "e/al Tie 2 7t is also +nown as e=cient cause. which binds the
#arties to the obligation. &nother name is VINCU"U7 6URIS.
>. Meaning of 6uridical Necessi!21
1
Obligation is a 8uridical necessity because in case of non?com#liance. the courts of
8ustice may be called u#on to enforce its ful4llment or in default thereof. the economic
!alue that it re#resents. 7n a #ro#er case. the debtor may be made liable for damages
for the in8ury or harm su,ered by the creditor for the !iolation of the latter@s right.
). Other Signi4cant terms1
a* O.li/a!ion 2 the act or #erformance that the law will enforce.
b* Ri/h! 2 The #ower which a #erson has under the law to demand from another
any #restation.
c* #ron/ 2 $cause of action* an act or omission of one #arty in !iolation of the legal
right
$a right recogniAed by law* of another. 7t is also +nown as IN6URY
O3era!ive Illus!ra!ions of an o.li/a!ion1
7. 6y !irtue of a contract. B obliged himself to shi# the goods of from Manila to ebu
for "1-. ---. B is the #assi!e sub8ect while is the acti!e sub8ect. The shi##ing of
goods to ebu is the #restationC the contract between B and is the e=cient cause
or !inculum 8uris.
77. $Obligation to gi!e*
7saac %imando and Moises %eyes signed a contract whereby 7saac %imando obliged
himself to deli!er to Moises %eyes a Toyota orolla 2--) model on 'o!ember 12.
2--).
777. $Obligation to do*
%obert DonAales and &ngel Eilamor entered into a contract whereby. %obert DonAales
obliged himself to #aint the car of &ngel Eilamor.
7F. $Obligation not to do*
'icanor astro insured himself with the Manila surety and 7nsurance o. The #arties
agreed that 'icanor would not commit suicide during the eGistence of the insurance.
/. 8inds of O.li/a!ions1
1. Fiew#oint of sanctions1
a. Civil o.li/a!ions 2 gi!e a right of action to com#el their #erformance.
b. Na!ural o.li/a!ions 2 not based on #ositi!e law but on e<uity and natural law.
7t does not grant a right of action to enforce their
#erformance but after !oluntary ful4llment by the obligor they authoriAe the
retention of what has been deli!ered or rendered by reason thereof.
c. Moral o.li/a!ions 2 those that cannot be enforced by action but which is
binding on The #arty who ma+es it in conscience and natural law. Hnder our
law. moral obligations are not merged with natural obligations.
2. Fiew#oint of #erformance
a. "ositi!e 2 to gi!e or to do
b. 'egati!e 2 not to do
(. Fiew#oint of sub8ect matter
a. %eal obligation 2 to gi!e
b. "ersonal obligation 2 to do or not to do
1- - Sources of o.li/a!ions1 $ &rticle 110> of the i!il ode*
& ? 1. Law
2. ontracts
(. Iuasi?contracts
3. &ct or omission #unishable by law
0. Iuasi?delicts
2
6. "a as source of obligations
O.li/a!ions derived fro4 la are 3resu4ed. Only those eG#ressly determined
in this code or by s#ecial laws are demandable and shall be regulated by the
#rece#ts of the law which established themC and as to that has not been foreseen.
by the #ro!isions of this boo+. $&rt.110)*

a* Obligation eG?lege $arising from law* not #resumed.
b* Obligations arising from law are not #resumed. To be demandable and enforceable.
the obligation must be stayed by the law. which created the obligation. Such being
the case the agreement of the #arties under this obligation is no longer necessary
because it is the law. which go!erns their obligation.
c* Law go!erning obligations deri!ed from law. Obligations deri!ed from law shall be
go!erned by the law. which establishes them. 7n case of insu=ciency. the
#ro!isions of the i!il ode shall su##lement the same.
;Gam#les1
a. The obligation of husband and wife to su##ort each other. $&rt.1/0. i!il ode*
b. The obligation of a taG#ayer to 4le his income taG return. $Title F7. Section 33. 'L%*
c. The obligation of the legitimate ascendants and descendants to su##ort each other.
$&rt 1/0. i!il ode*
7LLHST%&T7F; &S;.
SD. while em#loyed as a guard of a mo!ie house by O. shot and +illed a
gatecrasher. J who attac+ed SD with a +nife after ha!ing been refused entrance
without 4rst #ro!iding himself with a tic+et. SD was criminally charged with
homicide but the trial court dismissed the case. Eor the eG#ense incurred in his
defense. SD demanded reimbursement from the owner. Khen the owner refused.
he 4led his action for the reco!ery of the amount #aid to his lawyer #lus moral
damages.
Leld1 The owner O is not liable because the gi!ing legal assistance to the
em#loyee is not a legal obligation.
Khile is may be true it may be considered as a moral obligation. 7t does not at
#resent. count with the legal sanction of any man?made law. 7f the owner with is not
legally obliged to gi!e legal assistance to the em#loyee. then the latter cannot
reco!er the amount #aid cannot be #resumed. it must be stated before it become
obligatory.
. Con!rac! as a source of obligation1
Obligations arising from contracts ha!e full force of law between the contracting
#arties and should be com#lied with in good faith. $&rt.110/*
a* Falidity of ontract.
7n contract as to their general formation this is what we call freedom to contract or
autonomy of will, the contract entered into between the #arties shall ha!e the
force of law between the #arties. &ny !iolation by either #arty shall #roduce a cause
of action against the !iolator. Lowe!er. in order for a contract to be !alid and
enforceable it must not be contrary to law. morals. good customs. #ublic order or
#ublic #olicy. otherwise the contract is !oid. $&rt.1(-:. 13-/. i!il ode*
b* ;,ect if #art of the contact is !oid.
7f #art of the contract is !oid but the contract is susce#tible of di!ision. the #art.
which is not a,ected. may be enforced disregarding the #art. which is !oid. Such
that if the contract is falsi4ed by the unauthoriAed insertion of additional sti#ulation.
this falsi4ed insertion shall be considered ineGistent and #art una,ected shall be
enforced.
B. 9uasi(Con!rac!s as source of con!rac!.
3
7t is 8udicial relation. which arises from certain lawful. !oluntary. and unilateral acts.
to the end that no one may be un8ustly enriched or bene4ted at the eG#ense of
another. $&rt. 2132 of the i!il ode*
Two #rinci#al +inds of Iuasi?contracts.
1. Negotiorum Gestio (unauthorized management) 2 !oluntary administration of the
#ro#erty. business or a,airs of a third #erson without the consent or authority of its
owner.
2. Solutio Indebiti (undue payment) 2 #ayment by mista+e of an obligation that was
not due when #aid.
Bistinction between contract and <uasi?contract1
The distinction of a <uasi?contract from contract is that in contract. there is
consent of the #arties while in <uasi?contract. the obligation arises without a contract.
Khat law go!erns Iuasi?ontracts?
ha#ter 1. Title JF77 of the i!il ode $ &rts. 2132?21>0* as #ro!ided under &rticle
11:-. .
Some eGam#les of Iuasi?ontract.
1* &rt 2133. whoe!er !oluntarily ta+es charge of the agency or management of the
business or #ro#erty of another. without any #ower from the latter is obliged to
continue the same until the termination of the a,air and its incidents or to re<uire the
#erson concerned to substitute him. 7f the owner is in a #osition to do so.
;Gam#les of Iuasi?ontracts1
1. & merchant?farmer and owner of a ten?hectare agricultural land left for HS& on a
#leasure tri#. Khile enroute to HS& ty#hoon dading de!astated the entire
"hili##ines including the land owned by B. 6efore the ty#hoon reached our area of
res#onsibility . a neighbor of B em#loyed siG $:* farmers to har!est the #alay #lanted
on the obligation of B u#on arri!al is to reimburse ":-- because he must not be
enriched at the eG#ense of another.
2* &rt.2103. 7f something is recei!ed when there is no right to demand it and it was
unduly deli!ered through mista+e he obligation to return it arises.
(* &rt. 21:3. Khen. without the +nowledge of the #erson obliged to gi!e su##ort. it is
gi!en by a stranger. the latter shall ha!e a right to claim the same from the former.
unless it a##ears that he ga!e it out of #iety and without intention of being re#aid.
3* &rt. 21:>. Khen. through an accident or other cause. a #erson is in8ured or become
seriously ill. and he is treated or hel#ed while he is not in a condition to gi!e consent to
a contract he shall be liable to #ay for the ser!ices of the #hysician or other #erson
aiding him. unless the ser!ice has been rendered out of #ure generosity.
0* &rt. 21:). Khen. during a 4re. Mood. storm. or other calamity. #ro#erty is sa!ed
from destruction by another #erson without +nowledge of the owner. the latter is
bound to #ay the former 8ust com#ensation.
:* &rt. 21>3. Khen. in a small community a ma8ority of the inhabitants of age decided
u#on a measure for #rotection against lawlessness. 4re. Mood. storm or other calamity.
anyone who ob8ects to the #lan and refuses to contribute to the eG#enses shall be
liable to #ay his share of said eG#enses.
Bi,erence between Iuasi?contract and 'atural Obligation1
Iuasi?contracts are certain lawful. !oluntary and unilateral acts which gi!e rise to
the 8uridical relations of the #arty to the end that no #erson shall be un8ustly enriched
or bene4ted at the eG#ense of another while natural obligations are those not based
on #ositi!e law but on e<uity and natural law. They are not demandable in the courts
4
of 8ustice howe!er when they are !oluntarily #erformed or ful4lled. they can already be
retained and the debtor cannot reco!er what has been #aid or #erformed.
;Gam#le1 7f the debtor #ays by mista+e or not +nowing that the condition or #eriod
has not yet arri!ed. he can reco!er based on undue #ayment $<uasi?contract*. &
debtor #aid his creditor +nowing that his obligation to #ay has already eG#ired cannot
anymore reco!er what he #aid by reason of natural obligation.
;. Delic! as a source of obligation
This is an act or omission #unishable by law. The #rinci#le is that if a #erson
committed an act or omitted to do an act and the act or omission is #unishable by
law he is ci!illy?liable. $&rt. 11:1*
a* Eelony or crime1 7t is an act or omission #unishable by law. & !iolation of the
%e!ised "enal ode is called a felony while !iolation of any #enal statutes including
the %e!ised "enal ode is called a crime.

b* %ules go!erning Delic!s1
1* "hili##ine re!ised "enal code and other #enal laws sub8ect to the #ro!isions of
&rticle 21>> of the i!il ode.
2* ha#ter 77. "reliminary Title. on Luman %elations of the i!il ode.
(* i!il ode on damages. Title 1) of 6oo+ 7F
c, Civil "ia.ili!2 Arisin/ fro4 Delic!s or Ac!s or O4issions Punisha.le .2 "a:
a. %estitution 2 The thing itself shall be restored.
b. %e#aration of the damage caused? The court determines the amount of
damage ta+ing into consideration the !alue of the thing. im#ro!ements and
fruits and re#aration shall be made accordingly.
c. 7ndemni4cation for onse<uential Bamages? 7t shall include not only those
su,ered by the in8ured #arty but also those su,ered by his family and third
#erson by reason of the crime.
d, Co44ission of a cri4e as a source of an o.li/a!ion-
;!ery #erson who is criminally liable is also ci!illy liable under &rt. 1-- of the
%e!ised "enal ode. 7f a #erson therefore is guilty of the crime charged he must not
only be im#risoned but he shall also answer for damages as a ci!il obligation. Such
ci!il obligation is a necessary conse<uence of a criminal res#onsibility and it to be
declared and enforced in the same criminal #roceeding eGce#t when the in8ured
#arty reser!ed his right to 4le the ci!il action inde#endently from the criminal
action. $Sec. 7. %ule 777. %e!ised %ules of ourt*
e, Enforce4en! of Civil lia.ili!2 arisin/ fro4 cri4es or delic!s:
Ordinarily. when the o,ended #arty 4les the criminal action. he is deemed to ha!e
4led simultaneously the ci!il action for the ci!il liability of the o,ender unless he
reser!es his right to institute a se#arate ci!il action of the ci!il liability of the
o,ender. Meaning the ci!il liability shall be heard se#arately from the criminal
action.
E. 9uasi(delic! or cul3a a;uiliana or !or! as a source of obligation

One which causes damage to another. there being fault or negligence. but there is no
#re?eGisting contractual relation between the #arties. $&rt. 11:2*
&* Meaning of Cul3a 2 'egligence $ul#a &<ulliana. torts* 2 omission of that
diligence re<uired by the circumstances of #erson. #lace and time. 'egligence is a
<uestion of E&T.
The failure of a #erson to eGercise or obser!e for the #rotection of the interests of
another #erson the degree of care. #recaution N !igilance which circumstances
8ustify demand whereby such #erson su,ers in8ury.
5
6.* %e<uisites of 9uasi(Delic!s
a* There must be act or omissionC
b* There must be fault or negligenceC
c* There must be damage caused
d* There must be direct relation of cause and e,ect1 between act or omission and
the damage.
e* There is no #re?eGisting contractual relation between the #arties.
.* Meaning of Pro<i4a!e Cause1 &de<uate and e=cient cause which in the natural
order of e!ents necessarily #roduces the damage or in8ury com#lained of
B.* Khat are the di,erent +inds of ul#a $'egligence*?
a* ul#a contractual $ontractual negligence*? negligence in the #erformance of
the contract.
;Gam#le1 & #assenger in a taGi who was not able to bring the #assenger to his
destination due to the malicious act of the dri!er which caused the delay or
damage to the !ehicle. This is cul#a contractual because of the eGistence of
contract of carriage between the owner of the taGi and the #assenger.
b* ul#a &<uiliana $i!il 'egligence* 2 wrong or negligence committed
inde#endent of a contract and without criminal intent.
;Gam#le1 & #edestrian was hit by an o!er s#eeding taGi and su,ered #hysical
in8uries. This is an eGam#le of cul#a a<uiliana because of the absence of any
contractual relation between the #edestrian and owner of the taGi.
c* ul#a riminal $riminal negligence* 2 Those resulting to the commission of the
crime #unishable under &rticle (:0 of the %e!ised "enal ode*
II- NATURE AND E==ECT OB"IGATIONS $ARTS- %%')(%%>?,
1. Buty to #reser!e the thing.
lassi4cation of the thing $ sub8ect matter* in a real obligation.
a* S#eci4c or determinate thing 2 when the thing is #articularly
designated or segregated from all others of the same class.
b* Deneric or indeterminate thing 2when it is not #articularly
designated or segregated. Lence. it still belongs to the class or
genus.
&* Du!2 !o e<ercise dili/ence in o.li/a!ion !o deliver s3eci@c or
de!er4ina!e !hin/-
Ar!icle %%') 3rovides5 Aever2 3erson o.li/ed !o /ive so4e!hin/ is o.li/ed
!o !aBe care of i! i!h !he 3ro3er dili/ence of a /ood fa!her of a fa4il25 unless
!he la or !he s!i3ula!ion of !he 3ar!ies re;uires ano!her s!andard of care-C
D
nd
3ara/ra3h of Ar!icle %%>) also 3rovides5 Aif !he la or con!rac! does
no! s!a!e !he dili/ence hich is !o .e o.served in !he 3erfor4ance5 !ha! hich
is e<3ec!ed of a /ood fa!her of fa4il2 shall .e re;uired-C
In o!her ords Dili/ence re<uired is1
a. The one sti#ulated by the #arties or re<uired by law and in the absence thereof.
b. Biligence of a good father of the family.
Meaning of Biligence of a Dood father of the Eamily
a. That which is re<uired by the nature of the obligation and corres#onds
with the circumstances of #erson. time and #lace $&rt. 11>(. i!il ode*.
This is also called as Ordinary Biligence or Biligence of a Dood Eather of
the family or Biligence of a "rudent Man.
b. Lowe!er. if the law or contract #ro!ides for a di,erent standard of
care. said law or
6
sti#ulation must #re!ail $&rt. 11:(*
Other names for Biligence of a Dood Eather of the Eamily ?
a* Ordinary Biligence
b* Biligence of a "rudent Man
c* Biligence that de#ends on the nature of the obligation and corres#onds with
the circumstances of #erson. of time and of the #lace.
Khen ;JT%&O%B7'&%O B7L7D;'; 7S %;IH7%;B? 7f it is sti#ulated or re<uired by
law
;Gam#le of a case where the law re<uires eGtraordinary care $not merely that of a
#rudent man*1
& common carrier is bound to carry the #assengers safely as far as human care
and foresight can #ro!ide. using the utmost diligence of a !ery cautious #ersons.
with due regard for all the circumstances. &rt. 1>00 of the i!il ode.
6* Buty of a #erson obliged to gi!e generic thing1
a* To deli!er a thing which is of the <uality intended by the #arties ta+ing into
consideration the
#ur#ose of the obligation and other circumstances $&rt. 123:* %ule on
Medium Iuality
Liability1
To be liable for damages in case of fraud. negligence or delay. in the
#erformance of his obligation or contra!ention of the tenor thereof $&rt. 11>-*
2. Du!2 !o deliver !he !hin/ and !he frui!s of !he said !hin/ !o .e delivered.
$&rticle 11:3*
a. Khen creditor is entitled to the fruits?
The rule is the creditor has a right to the fruits from the time the obligation to
deli!er arises. Meaning the creditor is entitled to the fruits of the thing to be
deli!ered from the time the obligation to ma+e deli!ery arises. The intention of
the law is to #rotect the interest of the creditor should the debtor commits
delay #ur#osely or otherwise. in the ful4llment of the obligation.
7n &rticle 10(> s#eci4cally in a contract of law. the right to the fruits begins
from the day on which the contract was #erfected. 7t clearly de4ned the
meaning of obligation to deli!er arises as far as the contract of sale is in!ol!ed.
The vendor is .ound !o deliver !he !hin/ sold and i!s accessions and
accessories in !he condi!ion in hich !he2 ere u3on !he 3erfec!ion
of !he con!rac!-
All !he frui!s shall 3er!ain !o !he vendee fro4 !he da2 on hich !he
con!rac! as 3erfec!ed.
b. Khen does the obligation to deli!er arises?
- if there is no term or condition. from the #erfection of the contract.
- 7f there is a term or condition. from the moment the term arri!es or the
condition ha##ens.
c. "ersonal right $8us in #ersonam* 2 #ower demandable by one P#erson to another
2 to gi!e. to do or not to do.
d. %eal right $8us in re* 2 #ower o!er a s#eci4c thing.
9inds of fruits1
a. 'atural fruits 2 s#ontaneous #roduct of nature without human inter!ention.
b. i!il fruits $li+e rents* a result of ci!iliAation arising from 8uridical
transactions.
c. 7ndustrial fruit 2 #roducts of nature bolstered with human inter!ention.
7

(. Du!2 !o deliver !he accessories and accessions $Ar!- %%'', 0 The o.li/a!ion
!o /ive a de!er4ine !hin/ includes:
a* &ccessories? Those 8oined to or included with the #rinci#al for the latter@s
better use. #erfection. or en8oyment.
b* &ccessions 2 additions to or im#ro!ements u#on a thing.

&s a rule. accessories and accessions are included in the deli!ery of the thing e!en
if they are not mentioned.
;,ect of sti#ulation1 7f there is a sti#ulation and accessories are not included. such
sti#ulations are !alid and binding u#on the #arties.
3. Deliver of !he !hin/ i!self $Ar!icle %%'&,1

9inds of Beli!ery1
Beli!ery may be either actual or constructi!e.
7. &ctual deli!ery $tradition* 2 where #hysically the #ro#erty changes hands.
;Gam#le1 7f & sells to 6 a fountain #en. the gi!ing of the fountain #en by & to 6 is
actual tradition.
77. onstructi!e Beli!ery 2 That where the #hysical transfer is im#lied. This may be
done by1
a. Traditio symbolica $symbolic tradition* 2 as when the +eys of a bodega are
gi!en.
b. Traditio longa manu $deli!ery by mere consent or the #ointing of the ob8ect.
c. Traditio bre!i manu 2 $deli!ery by short handC that +ind of deli!ery whereby
a #ossessor of a thing not as an owner becomes the #ossessor as an owner.
;Gam#le1 when a tenant already in #ossession of the house buys the house
from the owner.
d. Traditio onstitutom "ossessorium 2 the o##osite of bre!i manuC thus the
deli!ery whereby a #ossessor of a thing as an owner retains #ossession no
longer as an owner. but in some other ca#acity $li+e a house owner who
sells a house but remains in #ossession as tenant of the same house*
e. Tradition by the eGecution of legal forms and solemnities.
0. Anser for da4a/es in case of non(ful@ll4en! of !he o.li/a!ion1
Hnder the i!il ode. what are the di,erent acts or omissions of the obligor or
debtor that will result in the breach of the obligation for he can be held liable for
damages?
a. Befault $Mora* 2 delay on the #art of the debtor $ See discussions of
mora below*
b. Eraud $Bolo* in the #erformance of the obligation.
9ind of Bolo1
a* 7ncidental Eraud $dolo incidente* 2 referred to under &rticle
11>-.
b* ausal Eraud $ dolo causante* 2fraud em#loyed in the
eGecution of the contract under &rticle 1(() which !itiate
consent.
'ote1 The law refers to incidental fraud only as reiterated in
&rticle 1(33. 2
nd
#aragra#h. incidental fraud obliges the #erson
em#loying it to #ay damages.
c. 'egligence $ul#a*
d. ontra!ention of the tenor of the obligation $&rt. 11>-*
8
8INDS O= DA7AGES
7 2 Moral damages referring to mental and #hysical anguishC
E ? ;Gem#lary 2 correcti!e or to set eGam#le
N ? 'ominal ?to !indicate a right ?when no other +ind of damages may be
reco!ered.
T 2 Tem#erate 2 when the eGact amount of damage cannot be determined
A 2 &ctual losses as well as unrealiAed #ro4t
" 2 Li<uidated $#redetermined beforehand 2 by agreement*
7easure of lia.ili!2 for da4a/es.
&rticle 22-1 of the i!il ode states1
7n contracts and <uasi?contracts. the damages 4r which the obligor who acted in
good faith is liable shall be those that are the natural and #robable conse<uences of the
breach of obligation and which the #arties ha!e foreseen or could ha!e reasonably
foreseen at the time obligation was constituted.
7n case of fraud. bad faith. malice or wanton attitude. the obligor shall be
res#onsible for all damages which may be reasonably attributed to the non?#erformance
of the obligation.
RE7EDIES O= TEE CREDITOR AGAINST DEBTOR:
7n obligations to gi!e what are the di,erent rights. which are a!ailable to the
creditor?
7f the obligation is an obligation that is determinate. the creditor may1
1. om#el s#eci4c #erformance $&rt. 11:0*
2. To reco!er damages in case of breach of the obligation $&rt
11>-*
7f the obligation is indeterminate or generic. the creditor may1
a. &s+ for the #erformance of the obligation $&rt. 123:*
b. To as+ that the obligation be com#lied with at the eG#ense of the debtor $&rt.
11:0. #ar. 2 *
c. To reco!er damages in case of breach of obligations. $&rt. 11>-*
7f obligation is to do and debtor fails to #erform it. the creditor may
a. &s+ another #erson to #erform the obligation at the eG#ense of the debtor $ &rt.
11:>* unless act is #ersonal in character andQor
b. Le may also demand damages from the debtor. Bamages only when obligation
is #ersonal in character.
7f debtor #erforms it but in contra!ention of the tenor of the obligation or done in a
#oor manner. creditor may1
a. La!e the same be undone at the debtor@s eG#ense $&rt. 11:>* and
b. Bemand damages from the debtor $&rt. 11>-*
7f debtor does what has been forbidden. creditor may
a. Bemand what has been done be undone.
b. Bemand damages from the debtor
#ha! is !he re;uire4en! .efore a de.!or is lia.le of dela2F
Hnder &rticle 11:/ of the i!il ode. de4and $8udicial or eGtra?8udicial* is re<uired
before a debtor is considered in legal delay or mora.
5udicial demand 2 is when a com#laint is 4led in court.
9
;Gtra8udicial demand 2 when oral or written demand was con!eyed or sent to the
debtor.
Khat is the meaning of Mora?
Defaul! or 4ora signi4es the idea of delay in the ful4llment of an obligation. 7n
other words. it is the non?ful4llment of an obligation with res#ect to time.
The di,erent +inds of default or mora1
&. 7ora solvendi 2 or delay of the obligator or debtor to #erform his obligation. This
delay is called mora sol!endi eG re when the obligation is an obligation to gi!e or
mora sol!endi eG #ersons when the obligation is an obligation to do.
6. 7ora Acci3iendi 2 or delay of the obligee or creditor to acce#t the deli!ery of the
thing. which is the ob8ect of the obligation.
. Co43ensa!io 7orae. or delay of the #arties or obligors or debtor incur in delay.
In o.li/a!ions !o /ive or !o do5 hen does !he o.li/or or de.!or incur in
dela2F
The debtor incurs in delay from the time the creditor 8udicially or eGtra 8udicially
demands from him the ful4llment of the obligation. &nd in s#ite of demand. he is
unable to obser!e the obligation. $&rt. 11)/ #ar. 1. *
#hen is de4and .2 !he credi!or no! necessar2 in order !ha! dela2 4a2
e<is!F
a. Khen the obligation or the law eG#ressly so declaresC
b. Khen from the nature and the circumstances of the obligation it a##ears that
the designation of the time when the thing to be deli!ered or the ser!ice is to
be rendered was a controlling moti!e for the establishment of the contract.
c. Khen demand was be useless. as when the obligor has rendered it beyond his
#ower to #erform $&rt 11:/ #ar. 2*
In reci3rocal o.li/a!ions hen does one of !he 3ar!ies incur in dela2F
7n reci#rocal obligations. neither #arty incurs in delay if the other does not
com#ly or is not ready to com#ly in a #ro#er manner with what is incumbent u#on
him. Erom the time one of the #arties ful4lls his obligation. delay by the other
begins. $&rt 11:/. #ar (*

;,ect of wai!er of fraud or negligence in an obligation1
a* 7f fraud is #resent in the obligation. the same is immediately demandable.
#AIVER O= =UTURE =RAUD IS VOID. Kai!er of #ast fraud is allowed.
$&rt. 11>1* %eason1 Eraud is absolutely not encouraged by the law because
of its e!il e,ects. "ast fraud because the act was already done. Such
wai!er is an act of liberality on the #art of the creditor.
b* 7f negligence is #resent in the obligation. it is li+ewise demandable. Kai!er
of future negligence may be allowed eGce#t where the nature of the
obligation re<uires eGercise of eGtraordinary diligence as in the case of
common carriers and also where negligence shows bad faith. $&rt. 11>2*
#ha! is for!ui!ous even!?
& fortuitous e!ent is an e!ent. which cannot be foreseen. or which though
foreseen. is ine!itable $&rt 11>3 *. Ordinarily. the terms fortuitous e!ent and
force ma8eure are used interchangeably.
There is howe!er a technical di,erence. Eorce ma8eure is a term that is
a##licable only to those fortuitous e!ents which are de#endent u#on human
inter!ention. such as wars. stri+es. riots. etc.. while fortuitous e!ent is the general
10
term that is a##licable regardless of whether the e!ent is inde#endent of or
de#endent u#on human inter!ention.
D;';%&L %HL;1 'o liability for EO%TH7TOHS ;F;'T $&SO EO%TH7TO. &T
OE DOB. EO%; M&5;H%; N H'&F7OB&6L; &7B;'T* if obligation refers to gi!e a
determinate thing and debtor acted without fault.
;Gce#tions1
- Khen eG#ressly declared by sti#ulation or contractC
- Khen the nature of the obligation re<uires the assum#tion of ris+ $the
doctrine of reated %is+*
- Khen the law eG#ressly #ro!ides1
a. Khen the ob8ect of the obligation is lost and the loss occurs after the
debtor has incurred in delay. $&rt. 11:0*
b. Khen the debtor #romises to deli!er the same thing to two or more
#ersons at the same time who do not ha!e common interestC $&rt. 11:0*
c. Khen debtor is guilty of fraud. negligence. delay and contra!ention of
the tenor of the obligation $ &rticle 11>-*
d. Khen the obligation to deli!er arises from a criminal o,ense $ &rticle
12:)*C and
e. Khen the obligation is generic $&rt. 12:(*
;ssential haracteristics of a Eortuitous ;!ent1
a* The cause must be inde#endent of the will of the debtorC
b* 7m#ossibility of foreseeing or im#ossibility of a!oiding it.
e!en if foreseenC
c* The occurrence must be such as to render it im#ossible for
the debtor to ful4ll
his obligation in a normal manner.
Usur2 "a /overned .2 s3ecial la-
The law go!erning usurious transactions is &ct 'o. 2:00 otherwise +nown as
the Hsury Law as amended by &ct 'os. (2/1. (//). 3->-. ommonwealth &ct 'o.
((/. Lowe!er. the Monetary 6oard of the entral 6an+ is em#owered to change
the rates of interest from time to time whene!er economic and social conditions
warrant or may eliminate. eGem#t or sus#end the same. The ceiling of interest
may not be uniform.
entral 6an+ circular /-0?& dated Becember 1-. 1/)2. sus#ended
a##lication of the Hsury law when it #ro!ided that rate of interest and other charges
in loan or forbearance of money. goods or credits. regardless of maturity and whether
secured or unsecured. that may be charged or collected shall not be sub8ect to any
ceiling #rescribed under the Hsury law.
'ote1 Hsury law has not been re#ealed but merely sus#ended. Only ongress can
re#eal laws.
Rules on in!eres! 3a24en!s1
The rule is no interest shall be due unless it has been eG#ressly sti#ulated in
writing.
There being a sti#ulation as to interest but the rate is not 4Ged. then the creditor
may only reco!er the legal rate.
Meaning of legal %ate1 Legal rate of interest is that rate which will #re!ail in the
absence of any s#ecial agreement as to the rate of interest between the #arties to
a contract.
entral 6an+ ircular on 7nterest %ates.
11
"re!iously the Monetary 6oard of the entral 6an+ issued Becember (. 1/)2.
ircular 'o. /-0. 4Ging the rates of interest on loans or forbearance of money
goods or credit. Section 1 of the circular #ro!ides as follows1
The rate of interest. including commissions. #remiums. fees and other charges on
a loan or forbearance of any money. goods or credits. regardless of maturity and whether
secured or unsecured that may be charged or collected by any #erson. whether natural
or 8uridical shall not be sub8ect to any ceiling #rescribed under or #ursuant to the Hsury
Law as amended.
Ne Rule on "e/al In!eres!:
The 6ang+o Sentral 7ssued ircular 'o. >//
Series of 2-1( dated 5uly 1. 2-1(. 7t #ro!ides1
The Monetary 6oard in its %esolution 'o. >/: dated
May 1:. 2-1( a##ro!ed the following re!isions
go!erning the rate of interest in the absence of
sti#ulation in loan contracts. thereby amending
Section 2of ircular 'o. /-0. Series of 1/)21
Section 1. The %ate of interest for the loan or
forebearance of any money. goods or credit and the
rate allowed in 8udgments. in the absence of an
eG#ress contract as to such rate of interest. shall be
si< 3ercen! $'G, 3er annu4
Section 2. 7n !iew of the abo!e. Subsection J(-0.1
of the Manual of %egulations for 6an+s and Sections
3(-0I.1. 3(-0S.(. and 3(-(".1 of the Manual of
%egulations for 'on?6an+ Einancial 7nstitutions are
hereby amended accordingly.
This Circular shall !aBe eHec! on 6ul2 %5 D*%)
A33lica.le Presu43!ions1
Meaning of Presu43!ion 2 6y #resum#tion is meant the inference as to the
eGistence of certain facts which if not contradicted is considered true.
To Binds of Presu43!ion
a* Conclusive 2 one which cannot be contradicted
b* Dis3u!a.le $%ebuttable* 2 one which may be contradicted by #resenting
satisfactory #roof to
the contrary.
Presu43!ions1
&. %ecei#t of the "rinci#al without %eser!ation would gi!e rise to a
#resum#tion that interest has been #aid. $&rt. 11>:*
6. %ecei#t of the later installment without reser!ation as to #rior
installment shall li+ewise raise the #resum#tion that the #rior
installments ha!e been #aid. $11>:*
Remedies which are available to the creditors in order to protect his rights
against the debtor act defrauding the former1 $&rt. 11>>*
a* ;Gact #ayment $s#eci4c #erformance* with right of damages
b* ;Ghaust or #ursue debtor@s #ro#erties generally by attachment $eGce#t #ro#erties
eGem#ted by law*
c* after ha!ing #ursued the #ro#erty in #ossession. eGercise all rights and be
subrogated by all the rights and actions of the debtor sa!e those that are inherent his
#erson $accion su.ro/a!oria*
12
d* To as+ the court to rescind or im#ugn all acts which the debtor may ha!e done to
defraud the creditor $accion 3auliana*
Princi3le of Trans4issi.ili!2 of Ri/h!s $Ar!icle %%>?,
Deneral %ule1
Sub8ect to the laws. all rights ac<uired in !irtue of an obligation are transmissible if
there has been no sti#ulation to the contrary.
Princi3le of Trans4issi.ili!2 of Ri/h!s to be read together with &rticle 1(11 on
the Princi3le of Rela!ivi!2 of Con!rac!s. $ontracts bind only the contracting #arties.
their heirs and assigns*
7'T&';S KL;%; "%7'7"L; OE T%&'SM7SS767L7TO K7LL 'OT &""LO $;Gce#tions*1
a* 7f the law #ro!ides otherwise
7n contract of #artnershi#. agency N commodatum. there is no transmissibility
of rights.
b* 7f the contract #ro!ides otherwise
c* 7f the obligation is #urely #ersonal
III- DI==ERENT 8INDS O= OB"IGATIONS $Ar!s- %%>I(%D)*,
1. &. "rimary lasses of Obligations1
a* "ure
b* ondition
c* Kith a term or a #eriod
d* &lternati!e
e* Eacultati!e
f* 5oint
g* Solidary
h* Bi!isible
i* 7ndi!isible
8* Kith a "enal lause
PURE OB"IGATION

Pure O.li/a!ion is de4ned as one whose #erformance does not de#end on a future
or
uncertain e!ent. or u#on a #ast e!ent un+nown to the #arties. hence demandable
at once. $&rt.11>/* 7n other words. this is one. which contains neither #eriod nor a
conditionC hence the obligation is e,ecti!e immediately.
;Gam#les1
7@ll #ay you "2-.--- on demand.
7@ll #ay you "2-.---.
CONDITIONA" OB"IGATION
Condi!ional o.li/a!ion is one where there is a condition im#osed.
Meaning of condi!ion 2 7t is an uncertain e!ent. which wields an inMuence on a
legal relationshi#.
haracteristics of condition1
&. 7t refers to future and uncertain e!ent.
6. 7t may also refer to #ast e!ent but un+nown to the #arties.
& condition is either1
a** Sus3ensive 2 the ha##ening of the condition gi!e rise to an obligation.
13
;Gam#le 1 7@ll buy you a land for " 1M if you #ass the "& 6oard ;Gam in
October 2--/.
$This is sus#ensi!e for the result has to be awaited* See &rticle 11)1
b* Resolu!or2 2 the ha##ening of the condition eGtinguishes the
obligation.
;Gam#le 1 7@ll gi!e you my land now. but should you fall in the "&
6oard this coming October
2--/. your ownershi# will cease and it shall re!ert bac+ to
me. $&rticle 11)1*
Therefore. there are three $(* instances when an obligation and demandable at
once thus1
a* Khen it is a #ure obligation and
b* Khen the obligation has a resolutory condition.
c* Khen the obligation is sub8ect to a resolutory #eriod.
C"ASSI=ICATION O= CONDITIONS
&s to e,ect1
1. Sus3ensive 2 the ha##ening of the condition gi!e rise to the obligation.
2. Resolu!or2 2 the ha##ening of the condition eGtinguishes the obligation.
&s to cause or origin1
1. Po!es!a!ive 2 de#ends u#on the will of the one of the contracting
#arties.
a* 7f it is sus#ensi!e and de#endent on the will of the debtor
$;Gam#le1 7@ll sell you my car if 7 li+e*. both the condition and obligation
are FO7B. $&rticle
11)2*
b* Khere the condition de#ends u#on will of creditor. obligation is !alid.
;Gam#le1 7 will #ay you u#on your demand.
c* Khere resolutory condition de#ends u#on the will of the debtor. the
obligation is !alid.
;Gam#le is #acto de retro sale. The #osition of the debtor when
the condition is
resolutory is eGactly the same as of the creditor when the
condition is sus#ensi!e.
2. Casual 2 de#ends on chance or haAard or the will of third #erson 2 F&L7B
;Gam#leC 7@ll gi!e you " 1-.--- if 7 win 1
st
#riAe in the lotto.
(. 7i<ed 2 de#ends #arty on the will of one of the #arties and #arty on
chance or will
of the (
rd
#erson $7f 7 #ass the bar* F&L7B
;Gam#le1 7 will gi!e you " 1-.--- if you marry Miss 6lac+ or if 7 win
the lotto.
&s to di!isibility1
1. Divisi.le 2 ca#able of #artial #erformance
2. Indivisi.le 2 not ca#able of #artial #erformance because of the nature of the
thing or
because of the intention of #arties.
&s to mode1
1. Posi!ive 2 an act is to be #erformed.
The condition that some e!ent ha##en at a determinate time shall eGtinguish
the obligation as soon
as the time eG#ires or it has become indubitable that he e!ent will not ta+e
#lace. $&rt. 11)3*
14
2. Ne/a!ive 2 something will be omitted.
7f condition is negati!e which means the e!ent will not ha##en at a determinate
time. The obligation shall become e,ecti!e and binding from the moment the
time indicated has la#sed without the e!ent ta+ing #laceC or from the moment it
has become e!ident that the e!ent cannot occur. although the time indicated has
not yet ela#sed. $art. 11)0*
&s to form1
1. E<3ress 2 the condition is stated.
2. I43lied ? the condition is merely inferred.
&s to #ossibility1
1. Possi.le 2 ca#able of ful4llment in nature and in law
2. I43ossi.le 2 not ca#able of ful4llment due to nature or due to the o#eration of
the
law or morals or #ublic #olicyC or due to a contradiction in its terms.
'ote is condition is im#ossible. legally or #hysically obligation is also !oid.
7f condition is negati!e. that is not to do an im#ossible thing. the condition is
disregarded and the
obligation is rendered #ure and !alid.
&s to numbers1
1. Con1unc!ive 2 if all the conditions must be #erformed
2. Al!erna!ive 2 if only a few of the conditions ha!e to be #erformed.
Constructive Fulfllment of a Condition
7f the debtor #re!ents !oluntarily the ful4llment of the condition the said act
would result to
CONSTRUCTIVE =U"=I""7ENT SAID CONDITION UNDER Ar!- %%?'-
'ote1 7t is not e!en re<uired that debtor is in bad faith. 7t is su=cient that he
#re!ented the
ha##ening of the condition.
Efect if suspensive condition takes place:
%ule is retroacti!e e,ects of ful4llment of sus#ensi!e condition. 7n an obligation to
gi!e sub8ect to a sus#ensi!e condition becomes demandable only u#on the ful4llment
of the condition. Lowe!er. once the condition is ful4lled. its e,ects shall retroact to
the day when the obligation is constituted. %eason1 condition is mere accidental
element of the contract.
7f obligation is reci#rocal. there is no retroacti!ity because the fruits and interests
recei!ed during the #endency of the condition are deemed to ha!e been mutually
com#ensated.
7n unilateral obligation. there is usually no retroacti!e e,ect because they are
gratuitous. The debtor recei!es nothing from the creditor unless from the nature and
other circumstances it can be inferred that the intention is to a##ly retroacti!ity.
7n obligation to do or not to do. the courts shall determine. in each case. the
retroacti!e e,ect of the condition that has been com#lied with. $&rticle 11)>*
%ights of creditor Qdebtor #ending ful4llment of sus#ensi!e condition1
15
reditor may bring a##ro#riate actions of #reser!ation of his right.
Bebtor may reco!er what has been #aid by mista+e in case of a sus#ensi!e
condition. $&rticle 11))*
7f sub8ect to a #eriod and there is #ayment by mista+e &rticle 11/0 #ro!ides that
aside from reco!ery of what was #aid by mista+e. debtor can also reco!er fruits
and interests. if any.
!"" #E$ER%!R&$%!' &'# %()R!*E(E'$ #+R%', $-E )E'#E'C. !F
C!'#%$%!'.
$The same rule a##lies for both obligations with sus#ensi!e and resolutory condition and
obligation with a #eriod* &rticle 11)/
a. Eor conditional obligation. if sus#ensi!e. it is re<uired that condition is
ful4lled and the ob8ect is s#eci4c. Eor resolutory condition. the
ha##ening of the condition eGtinguishes the obligation. hence mutual
restitution follows.
b. The abo!e rules also a##ly to sus#ensi!e and resolutory #eriod eGce#t
that in a #eriod. it will necessarily come.
a* The ob8ect may be lost1
1. without the fault of the debtor ? eGtinguishes obligation
2. with the fault of the debtor 2 re<uire debtor #ayment of
damages.
b* The ob8ect deteriorates without the fault of the debtor. the im#airment is borne
by the
creditor. 7f it deteriorates thru the fault of the debtor. creditor may choose
either
rescission of the contract or of the ful@ll4en!. i!h clai4 for da4a/es
either of the
selected remedy.
c* 7f the ob8ect im#ro!es by nature. the im#ro!ement inures to the bene4t of the
creditor and
if the debtor at his eG#ense im#ro!e it. the debtor@s right is merely of a
usufruc!uar2.
RECIPROCA" OB"IGATIONS:
The #ower to rescind obligations im#lied in reci#rocal ones. in case one of the
obligors should
not com#ly what is incumbent u#on him. $&rt. 11)1. #ar. 1*
%emedies of the in8ured #arty in reci#rocal obligations1
f. &ction for s#eci4c #erformance of the obligation with damagesC or
g. &ction for rescission of the obligation also with damages.
The abo!e remedies are alternati!e. Le may howe!er choose rescission if after
he has chosen ful4llment. the latter become im#ossible.
%;S7SS7O' contem#lated by the law is 5HB77&L %;S7SS7O'.
Eurther. the court in some instance may instead grant the #arty a term for
#erformance instead of ordering rescission such as in case when the breach is
slight or when right of third #erson is a,ected. Lence court may deny rescission.
Khen it is the court rescinds the obligation. this is +nown as 5HB77&L
%;S7SS7O'. which is initiated u#on the 4ling of com#laint in court by the in8ured
#arty.
Rule hen .o!h 3ar!ies are /uil!2 of .reach
16
&rt. 11/2. 7n case both #arties ha!e committed a breach of the obligation. the liability
of the 4rst infractor shall be e<uitably tem#ered by the courts. 7f it cannot be
determined which of the #arties 4rst !iolated the contract. the same shall be deemed
eGtinguished. and each shall bear his own damages. &##lication of the #ari delicto
rule
O.li/a!ion i!h a Ter4 or Period
& s#ace of time which has an inMuence on obligations as a conse<uence of a
8uridical act and either sus#ends their demandability or #roduces their
eGtinguishment.
7t is one that arises u#on the arri!al of the term or #eriod agreed u#on. hence
demandable only on that instance.
Term or "eriod is that time or e!ent which necessarily must come. whether the
#arties +now when it would ha##enQcome or not
Da2 cer!ain 2 means one. which must necessarily come although it may not be
+nown when.
;Gam#les1
1* 7@ll #ay you "2-.--- on the 20
th
of Becember neGt year.
2* 7@ll #ay you "2-.--- if 7melda Marcos dies. Beath is certain e!en if we
cannot
really ascertain when it will come.
6ut this one is conditional1
7@ll #ay you "2-.--- if 7melda Marcos dies of malaria %eason1 She might
die of bangungot.
'OT;1 #hen !he de.!or .inds hi4self !o 3a2 hen his 4eans 3er4i!
hi4 !o do so5 !he o.li/a!ion is dee4ed !o .e one i!h a Ter4 or Period
$&rticle 11)-*.
;Gam#le 1 7@ll #ay you "1-.--- when my means #ermit me to do so.
7@ll #ay you "1-.--- little by little
7@ll #ay you "1-.--- as soon as #ossible.
7@ll #ay you as soon as 7 ha!e the money.
9inds of "eriod?
1* "e/al 2 #eriod 4Ged by law
2* Volun!ar2 2 EiGed by the #arties
(* 6udicial 2 #eriod im#osed or 4Ged by the court
Other classi4cations
1* E< die $sus#ensi!e* 2 a #eriod which must la#se before the obligation
can be
demanded
2* In die4 $resolutory*? a #eriod when it arri!es eGtinguishes the obligation.
Bistinction between "eriod and ondition1
Period Condi!ion
&s to ful4llment
7t is sure to ha##en or the e!ent would
necessarily ha##en
7t is uncertain e!ent
&s to inMuence on the obligation1
17
EiGes the time of e=caciousness of an
obligation.
auses the obligation to arise or to
cease.
&s to time1
%efers to the future. %efers future or a #ast e!ent un+nown
tot he #arties.
Period is /enerall2 for !he .ene@! of .o!h 3ar!ies5 unless o!herise s!i3ula!ed
$&rt.11/:*
Meaning1 The debtor cannot #ay #rematurely and the creditor cannot demand
#rematurely.
7f term is for the bene4t of the debtor alone. Le may only be re<uired to #ay only
at the end of the term. but he may #ay e!en before the #eriod.
7f term is for the bene4t of the creditor. reditor can demand anytime e!en before
the eG#iration of the #eriod and he cannot be com#elled by the debtor to acce#t
#ayment before the term.
Ins!ances herein !he de.!or losses his ri/h! !o 4aBe use of !he 3eriod.
&rt 11/)
Meaning the term is eGtinguished and obligation is demandable at once.
a* 7nsol!ency. unless a guaranty or security is gi!en
b* Eailure to furnish the #romised guaranty or security
c* 7m#airment of the guaranty or security by debtor@s act or its loss due to
fortuitous
e!ent. unless a satisfactory guaranty or security is gi!en.
d* Fiolation of any underta+ing in consideration of which the creditor agreed
to the
#eriod
e* &ttem#t to abscond.
A"TERNATIVE J =ACU"TATIVE OB"IGATIONS
A"TERNATIVE OB"IGATION 2 O6L7D&T7O' KL;%;7' F&%7OHS TL7'DS &%; BH;. 6HT
TL; "&OM;'T OE O'; OE TL;M 7S SHEE77;'T.
B;T;%M7';B 6O TL; LO7;. KL7L &S & D;';%&L
%HL; 6;LO'DS TO TL; B;6TO% $&rt.11//*.
Ri/h! of Choice1

Denerally belongs to the B;6TO%. $&rt. 12--* H'L;SS eG#ressly agreement
granted to the creditor $&rt.12--*
Bebtor cannot choose those #restations which are im#ossible. unlawful or which
cannot be an ob8ect of obligation.
Khen choice of the debtor becomes e,ecti!e1
? 7t becomes e,ecti!e from the time selection was communicated to the creditor
the said
time is the rec+oning date of determining when legal e,ects are #roduced.
? 7f debtor has no choice as there is only one choice left. the obligation is
con!erted to sim#le
obligation. $&rt. 12-2*
? 7f the debtor cannot choose through the acts of the creditor. he may rescind the
contract
with damages. $&rt.12-(*
18
7f the choice is gi!en to the debtor. the loss of the thing is go!erned as follows1
a* Loss of all 2 obligation is eGtinguished #ro!ided debtor is without fault
b* Loss of some 2 the debtor may deli!er any of the remainder or that which
remains if
only one subsists. without obligation to #ay damages. $7f
debtor is
without fault*
7f loss was due to debtor@s fault1
Loss of all 2 debtor shall #ay the !alue of the last thing lost. #lus damages.
Lowe!er if all of them were lost at the same time. the debtor
may choose
the !alue of any of them. #lus damages.
Loss of some 2 debtor may. without incurring any liability to #ay damages.
deli!er
any of the remainder. or that which remains if only one
sub8ects.

Loss of some due to debtor@s fault and the last thing due to fortuitous
e!ent.

Erom and after the lost eGce#t one of the !arious things. whether due to
fortuitous
e!ent or the debtor@s fault. the debtor shall loss the right of choice.
$&rt.12-2* and
the obligation is con!erted to a sim#le obligation. Lence. the loss of the
last
subsisting #restation due to fortuitous e!ent eGtinguishes the obligation.
7f %ight of hoice is gi!en to the %;B7TO%1
Loss of things
Bue to fortuitous e!ent
a* Loss of all 2 obligation is eGtinguished 7E B;6TO% 7S 'OT &T E&HLT.
b* Loss of some 2 the debtor shall deli!er that which the creditor should
choose any
of those subsisting 7E B;6TO% 7S 'OT &T E&HLT. Otherwise.
he shall any of those
subsisting or the #rice of any of those that ha!e been lost
through the fault of the debtor #lus #ayment of damages.

=ACU"TATIVE OB"IGATION 2 obligation where only one #restation has been
agreed u#on but the debtor may ender another substitution.
;Gam#le 1 B obliged himself to gi!e a s#eci4c %oleG watch with the
understanding that B
could gi!e a diamond ring as a substitute
Loss of the #rinci#al things1
a* Bue to fortuitous e!ent 2 the obligation is eGtinguished and the debtor is
not
obliged to gi!e the substitute.
b* Bue to debtor@s fault 2 the debtor shall answer for the loss of the thing
due to his
fault.
Loss of the substitute1
a* 6efore substitution
19
The loss of the substitute before the substitution is made does not
a,ect the
obligation as the #rinci#al can still deli!ered
b* &fter substitution
Bue to fortuitous e!ent 2 obligation is eGtinguished
Bue to debtor@s fault 2 debtor is liable for damages

6OINT AND SO"IDARY OB"IGATIONS
9inds of Obligation according to number of #arties1
1. 7ndi!idual obligation 2 one where there is only one obligor
an one obligeC and
2. ollecti!e obligation 2 one where there are two or more
debtors andQor two or more creditors.
5oint obligation
Solidary obligation
6oin! o.li/a!ion 2 each of the debtors is liable only for a #ro#ortionate #art of the
debt and
each creditor is entitled to a #ro#ortionate #art of the credit.
'OT;1
7n the absence of sti#ulation. when there are multi#licity of #arties or collecti!e
obligation. said obligation is #resumed 5O7'T. Meaning. the share in the obligation is
s#eci4ed. the correlati!e rights and obligation of the #arties are +nown.
7m#lications1
a* There are as many debts as there are debtorsC
b* There are as many credits as there are creditorsC
c* The debtsQcredits are considered distinct and se#arate from one another.
d* ;ach creditor is entitled only for a #ro#ortionate #art of the credit.
e* ;ach debtor is liable only for his #ro#ortionate #art of the debt.
"resum#tion established under &rticle 12-) is only dis#utable.
Other terms for 8oint obligation1
a* mancomunada
b* mancomunada sim#le
c* #ro#ortionately
d* #ro?rata
;Gam#les1
5oint obligation
&. 6 and 8ointly eGecuted a #romissory note worded as
follows1
Ke #romise to #ay to the order of J "/.---.--

Sgd. &. 6 and
Solidar2 o.li/a!ion 2 each debtor is liable for the entire obligation and each
creditor is
entitled to demand the whole obligation.
Khen solidarity eGists1
20
&s a general rule. the mere concurrence of two or more creditors or two or
more debtors in one and the same obligation does not im#ly solidarity. 6y
#resum#tion of the law. the obligation is 8oint. unless1
a* Solidarity is eG#ressly agreed u#on $on!entional Solidarity*
b* Solidarity is declared by law $Legal Solidarity*
c* Solidarity is re<uired by the nature of the obligation $%eal
Solidarity*
9inds of Solidarity
a* &cti!e ? solidarity among creditors
b* "assi!e 2 solidarity among debtors
c* MiGed 2 solidarity on the #art of the creditors and debtors
;Gam#le1
1.
&. 6. N 8ointly eGecuted a #romissory note worded as
follows1
7 #romise to #ay to the order of J "/.---.---

Sgd. &. 6 N
J can collect the entire " /.--- from any of &. 6 or .
2. &. 6 and 8oint debtors are obliged to gi!e G. O and R. solidary creditors of "
1).---. Low much can J collect and from whom? J being a solidary creditor can
entirely collect " 1).---. 6ut since &. 6 and c are 8oint debtors. J may collect only "
:.--- from each of them. &fter collecting the sum of " 1).---. J must gi!e O and R@s
share of " :.---.

(. &. 6 and solidary debtor are obliged to gi!e J.O and R 8oint creditors of " 1).---.
Low much may & be made liable? & being a solidary debtor may be held liable for "
1).---. 6ut since the creditors are merely 8oint ones. each one of them can collect
from & u# to " :.---.
Other terms for solidary obligation1
a* 7n solidum
b* 5ointly and se!erally
c* 5untos o se#aradamente
d* Solidarias
e* Mancomumanda o in solidum
f* Mancomunada soldarias
g* 7ndi!idually and collecti!ely
EHec!s if o.li/a!ion is 6OINT and INDIVISIB"E. &rt 12-/ and &rt.1223
& 5O7'T 7'B7F7S76L; O6L7D&T7O' 7S &' O6L7D&T7O' KL;%; TL;%; &%; S;F;%&L
B;6TO%S O% %;B7TO%S KLO &%; 5O7'TLO 6OH'B 6HT TL; "%;ST&T7O' 7S
7'B7F7S76L;.
The debt can be enforced by the collecti!e acts of the debtors or creditors in
!iew of the indi!isibility of the ob8ect. Li+e in the case of the 8oint debtors the
creditor has to #roceed against all of them. otherwise. failure of the other debtors
to com#ly the obligation would call for the con!ersion of the obligation to its
monetary !alue or indemnity for damages #lus #ayment of damages as to
defaulting debtors. The same rule a##lies to 8oint creditors they ha!e to #roceed
to the debtor 8ointly to ensure the ful4llment of the obligation.
21
Rules Governin/ Solidar2 O.li/a!ions:
Solidarity does not im#ly indi!isibility. &n obligation may be di!isible e!en if it is
solidary.
7ndi!isibility does not im#ly solidarity. 7t is the intention of the #arties that
#ro!ides for the
nature of obligation $&rt. 121-*
Solidarity may eGist although the creditor and debtor may not be bound in the same
manner
same #eriod and conditions. $ &rt. 1211*
;ach one of the solidary creditors may do whate!er may be useful to others but not
anything that is #re8udicial to the others $ &rt. 1212*. & solidary creditor cannot
assign his rights without the consent of the others $&rt. 121(* 2 ;ssential feature is
Mutual &gency.
The debtor may #ay any one of the solidary creditorsC but if any demand. 8udicial or
eGtra8udicial. has been made by one of them. #ayment should be made to him. $&rticle
1213*
'o!ation. com#ensation. confusion or remission of the debt. made by any of the solidary
creditors or with any of the solidary debtors. shall eGtinguish the obligation. without
#re8udice to the #ro!isions of &rticle 121/. The creditor who may ha!e eGecuted any of
these acts. as well as he who collects the debt. shall be liable to the others for the share
in the obligation corres#onding to them. $ &rticle 1210*
Solidary creditors can collect from some or all of the debtors at one gi!en time. 7f the
creditor fails to collect from one debtor. he can go against the other or others. until the
whole obligation is #aid. 7t was held that the creditor may sue any of the solidary debtors
or all of them simultaneously. &n action instituted against one shall not a bar to those.
which may be subse<uently brought against others. as long as the debt has not been
entirely satis4ed $&rticle 121:*
"ayment made by one of the solidary debtors eGtinguishes the obligation. 7f two or more
solidary debtors o,er to #ay. the creditor may choose which o,er to acce#t.
Le who made the #ayment may claim from his co?debtors only the share which
corres#onds to each. with the interest for the #ayment already made. 7f the #ayment is
made before the debt is due. no interest for the inter!ening #eriod may be demanded.
Khen one of the solidary debtors cannot. because of his insol!ency. reimburse his share
to the debtor #aying the obligation. such share shall be borne by all his co?debtors. in
#ro#ortion to the debt of each. $ &rticle 121>*
'ote1
7n action 4led by the creditors. a solidary debtor may a!ail of the following
defenses1
Defenses derived fro4 !he na!ure of !he o.li/a!ion hich cons!i!u!e
!o!al defenses5 such as
- a.solu!e si4ula!ed con!rac!
- illegal cause or consideration
- illegal ob8ect or sub8ect matter
- non?ful4llment of the sus#ensi!e conditions
- other defenses which will nullify the contract which is the basis of
creditor@s action.
Defenses 3ersonal in na!ure 0 hich 4a2 cons!i!u!e a !o!al or
3ar!ial defense
- factor which !itiate consent such as minority. insanity. fraud. !iolence.
intimidation. etc.
22
Defenses 3ersonal !o !he o!her co(de.!ors 0 which will constitute a
#artial defense for the solidary debtor being sued. thus eGem#ting him from
#aying the #ro#ortionate share of the co?debtor whose #ersonal defense he
is in!o+ing. Le is eGem#ted to #ay the #ro#ortionate share of the in!o+ing
co?debtor but is still liable of his share and of those co?debtors whose shares
are not in <uestion.
DIVISIB"E AND INDIVISIB"E OB"IGATION1
Bi!isible obligation 2 one which ca#able of #artial #erformance
7ndi!isible obligation 2 one which is not ca#able of #artial #erformance
Test for the distinction1
7n determining whether an obligation is di!isible or indi!isible. the controlling
circumstance is not the #ossibility or im#ossibility of #artial #restation but the
#ur#ose of the obligation or the intention of the #arties.
Khat determined di!isibility or indi!isibility1
a* 7ntention
b* Law
c* haracter of the #restation
Khen obligation is #resumed indi!isible.
a* Obligation to gi!e de4nite things. such as an obligation to gi!e a s#eci4c car
b* Those which are not susce#tible of #artial #erformance.
Khen obligation is #resumed di!isible
a* ;Gecution of a certain number of days of wor+. such as an obligation to wor+ for
(-
days
b* &ccom#lishment of wor+ by metrical unit. such as when 4!e debtors are obliged
to
deli!er 4!e tons of sand and gra!el. The debtors are obliged to deli!er one ton
each.
c* &nalogous thing which by their nature are susce#tible of di!ision.
O.li/a!ion i!h Penal Clause
Penal clause 2
&n accessory underta+ing to assume greater liability in case of breach.
"ur#ose1
a. To ensure #erformance of the obligation by creating an e,ecti!e deterrent against
breach. ma+ing the conse<uences of such breach as onerous as it may be
#ossible.
b. To substitute a #enalty for indemnity for damages and the #ayment of interests in
case of non?com#liance $art. 122:*C or to #unish the debtor for non?ful4llment or
!iolation of his obligation. 7n the 4rst case. the #ur#ose is re#arationC in the
second. #unishment.
%ules1
a. "enalty is not a substitute for #erformance eGce#t only when this right has been
eG#ressly reser!ed for him.
b. "enalty clause is #resumed subsidiary. "enal clause is 8oint or the debtor has the
right to #ay #enalty in lieu of #erformance only when this right has been eG#ressly
reser!ed for him.
9inds of #enal clause1
23
&ccording to source1
a* "e/al? #enalty im#osed by law
b* Conven!ional 2 #enalty agreed u#on by #arties
&ccording to eGtent of liability
a* Su.sidiar2 2 when only the #enalty can be reco!ered in case of non?#erformance
of the
obligation
b* 6oin! 2 when in case of non?#erformance of the obligation both the #rinci#al
obligation and
the #enalty can be reco!ered.
"roof of actual damages su,ered by the creditor is not necessary in order that the
#enalty may be demanded $&rt. 122)*
%ight to reco!er damages and interest in addition to the #enalty
The #enalty shall substitute the indemnity for damages. and interest in case the
obligation is not ful4lled. Lence as a general rule. the creditor cannot demand
damages and interests in addition to the #enalty eGce#t1
a* Khen the #arties so agreedC
b* Khen the debtor refuses to #ay the #enaltyC
c* Khen the debtor is guilty of fraud in the ful4llment of the obligation.
? 'ullity of the #rinci#al carries with it the nullity of the accessory.
( Penal!2 4a2 .e reduced .2 !he cour! hen !here is 3ar!ial or irre/ular
3erfor4ance of !he o.li/a!ion or Even hen !here has .een no 3erfor4ance
hen !he 3enal!2 a/reed u3on is ini;ui!ous or unconsciona.le- $Ar!icle
%DDI,
7ODES O= EKTINGUISE7ENT O= OB"IGATIONS
1. Obligations are eGtinguished by1 $;numeration under &rticle 12(1 of the i!il ode*
a* Pa24en! or 3erfor4ance
., "oss of !he !hin/ due
c, Condona!ion or re4ission
d, Confusion or 4er/er of ri/h!s of !he credi!or and de.!or
e, Co43ensa!ion
f, Nova!ion
Other causes of eGtinguishment of obligations are $h* annul4en!. $7* rescission. $8*
ful@ll4en! of a resolutory condition and $+* 3rescri3!ion. The following are found in
other cha#ters of the i!il ode.
Other forms of ;Gtinguishment of the obligation
a* Beath of a #arty in case the obligation is #ersonal
b* Mutual desistance or withdrawal from contract or agreement
c* om#romise
PAY7ENT OR PER=OR7ANCE
Pa24en! $&%T.12(2?12:1* 2 means not only the deli!ery of money but also the
#erformance. in any other manner. of an obligation. $&rt.12(2*
Deneral %ule1 om#leteness of "ayment. "ayment should be com#lete. $&rt. 12((*
;Gce#tions1
24
a. %eco!ery allowed in case of substantial #erformance in good faith. $&rt. 12(3*
b. %eco!ery allowed when incom#lete or irregular #erformance is wai!ed.
$&rt.12(0*
c. 7nstances when #artial #erformances are allowed. $art. 123)*
- when there is an eG#ress sti#ulation to that e,ect.
- Khen the debt is #art li<uidated $de4nitely and determined or
com#uted* and in #art li<uidated.
- Khen the #restations in which the obligation consists are sub8ect to
di,erent terms or conditions which a,ect some of them.
(. Third #erson cannot com#el the creditor to acce#t #ayment or #erformance of an
obligation eGce#t1
a* Khen it is made by a third #erson who has interest in the ful4llment of the
obligationC
b* Khen there is a sti#ulation to the contrary $&rt.12(:. *. 7n this case. the
creditor
wai!es his right to refuse to deal with strangers to the obligations
3. 7f a third #erson #ays an obligation with the +nowledge and consent of the debtor he
can reco!er from the debtor the entire amount. which he has #aid $reimbursement*
and he is subrogated of all the rights of the creditor. Subrogation of the rights. such
as those arising from a mortgage. guaranty or #enalty $&rt. 12(>*. 7f #ayment was
made without the consent of the debtor. he can reco!er only insofar as the #ayment
has been bene4cial to the debtor.
0. "ayment made by a third #erson who does not intend to be reimbursed by the debtor
is deemed to be a donation. which re<uires the debtorSs consent. 6ut the #ayment is in
any case !alid as to the creditor who has acce#ted it. $&rt. 12()*
:. &rt. 12(/. 7n obligations to gi!e. #ayment made by one who does not ha!e the free
dis#osal of the thing due and ca#acity to alienate it shall not be !alid. without #re8udice
to the #ro!isions of &rticle 132> under the Title on TNatural Obligations.T
a. Eree dis#osal of the thing due means that the thing to be deli!ered must not be
sub8ect to any claim or lien or encumbrance of a third #erson.
b. a#acity to alienate means that the #erson is not inca#acitated to enter into a
contract and for that reason. to ma+e a dis#osition of the thing due.
>. &rt. 123-. "ayment shall be made to the #erson in whose fa!or the obligation has been
constituted. or his successor in interest. or any #erson authoriAed to recei!e it.
a. reditor
b. Lis successor in interest
c. "erson authoriAed to recei!e it. 7t refers to both authoriAed by the creditor or
authoriAed by the court such as the guardian. eGecutor or administrator of
the estate*
0. "ayment to an inca#acitated #erson is !alid only if the latter +e#t the thing deli!ered
or insofar as the #ayment has been bene4cial to him. "ayment made to third #erson
shall be !alid insofar as it redounded to the bene4t of the creditor. 7t is #resumed in
the following1
a* 7f after the #ayment. the third #erson ac<uires the creditor@s rights
$Subrogation of the #ayer in the creditor@s right*.
b* 7f the creditor rati4es the #ayment to the third #erson $%ati4cation by the
creditor*.
c* 7f by the creditor@s conduct. the debtor has been led to belie!e that the
third #erson had authority to recei!e #ayment. $;sto##el on the #art of
the creditor* $&rt.1231 #ar.2*
:. &rt. 1232. "ayment made in good faith to any #erson in #ossession of the credit
shall release the debtor.
25
>. &rt. 123(. "ayment made to the creditor by the debtor after the latter has been
8udicially ordered to retain the debt shall not be !alid.
). &rt. 1233. The debtor of a thing cannot com#el the creditor to recei!e a di,erent
one. although the latter may be of the same !alue as. or more !aluable than that
which is due. 7n obligations to do or not to do. an act or forbearance cannot be
substituted by another act or forbearance against the obligeeSs will.
/. "ayment of debts in money shall be made only in the "hili##ine currency which the
legal tender #ursuant to &rt. 123/ of the i!il ode in relation to %e#ublic &ct 'o.
)1)(. Obligation shall now be #ayable in the legal tender in the "hili##ines. Legal
tender means the currency which the debtor may com#el his creditor to acce#t
#ayment of his debt. Lowe!er. the #arties may sti#ulate that the #ayment may be
made in currency under than the legal tender of "hili##ines at the time of #ayment.
$ %.&. 'o. )1)(*
"re!iously coins are legal tender under the 'ew entral 6an+ &ct1
a. enta!o $-.20* and abo!e is legal tender u# to " 0-.--
b. enta!o $-.1-* and below is legal tender u# to " 2-.--
c. &ll coins " 1.-- and abo!e including bills are legal tender u# to any amount
6ut #ursuant to Section 02 of %e#ublic &ct 'o.. >:0( $The 'ew entral 6an+ &ct*.
TLegal Tender "ower ? &ll notes and coins issued by the 6an+ shall be fully
guaranteed by the Do!ernment of the %e#ublic of the "hili##ines and shall be legal
tender in the "hili##ines for all debts. both #ublic and #ri!ate. T This might mean.
all notes and coins being ser!ed or issued by the entral 6an+ of the "hili##ines
Khen O,ered in #ayment eGtinguishes the debt is legal tender.
One "eso coin is no longer !alid tender of #ayment to any amount.
&ccording to 6S" ircular 'o.. 0(> issued by the entral 6an+ of the "hili##ines on
5uly 1). 2--:. #ursuant to Section 02 of %& >:0( $'ew entral 6an+ &ct* and the
Monetary 6oard %esolution 'o.. ):2 dated : 5uly 2--:. Tthe maGimum amount of
coins to be considered as legal tender is ad8usted as Eollows1
1. One thousand #esos $"1. ---.--* for denominations of 1. "iso. "iso 0. and 1-
#esos coinsC and
2. One hundred #esos $"1--.--* for denominations of 1?cent. 0?cent. 1-?cent. 20?
cent coins.
1-. 7n case of e<!raordinar2 inMation and deMation of the "hili##ine currency should
su#er!ene the basis of the !alue of the currency for #ayment shall be the !alue of the
currency at the time of the establishment of the obligation. Hnless there is a
sti#ulation to the contrary $&rt. 120-*
Two inter#retations1
1. 6asis of #ayment shall be the !alue of the currency at the time
of the establishment of the obligation. Lence if the !alue at the
time of establishment is " 0.--- and later on eGtraordinary
inMation or deMation su#ersedes. the amount remains the same
unless there is a contrary agreement.
2. Falue of the currency at the time of the establishment of the
obligation is com#uted by using the following formula.
&mount to be #aid at maturity U &mount of the obligation
G &mount of Obligation
Falue at the date of Maturity
;Gam#le1
B borrowed " 1 Million from c #ayable at the end of 1- years. Su##ose that before
maturity of the loan. an eGtraordinary inMation su#er!ened causing the !alue of the
debt to fall to " 0--.--- on the date of maturity. Eollowing the abo!e formula1
26
& U $ 1 millionQ0--.---.--* G " 1Million
U 2 G " 1 M
U " 2 Million is the e<ui!alent !alue of " 1 M in the date of maturity
Su##ose that before maturity of the loan. an eGtra?ordinary deMation su#er!ened
causing the !alue of the debt to rise to " 3 Million on the date of the maturity of the
loan. how much must B #ay on maturity?
& U $ 1MQ3 M* G 1 M
U " 20-.--- e<ui!alent !alue of " 1 M on the date of maturity
11. Khat are the di,erent s3ecial for4s of 3a24en!?
a* Bation in "ayment or dacion en #ago $&rt. 1230*
b* &##lication of "ayment $ &rts. 1202?1203*
c* "ayment by ession $&rt.1200*
d* Tender of "ayment and onsignation &rts. 120:?12:1*
12. Bation in "ayment of Bacion en #ago. ad8udicacion en #ago or datio in solutum is a
s#ecial form of #ayment where the debtor con!eys to the creditor ownershi# a thing
belonging to him as acce#ted e<ui!alent to #ayment or #erformance of the obligation.
Bation in #ayment is go!erned by the law on sales.
1(. Khat is A33lica!ion of Pa24en!?
&##lication of #ayment may be de4ned as the designation of debt to which #ayment
must be a##lied when the debtor has se!eral obligations of the same +ind in fa!or of
the same creditor.
%e<uisites1
a* There must be only one debtor and only one creditorC
b* There must be two or more debts of the same +indC
c* &ll debts must be dueC
d* The amount #aid by the debtor must not be su=cient to co!er the total amount
of all the
debts.
The right to ma+e an a##lication of #ayment belongs to the debtor. Lowe!er if he
does not a!ail himself of this right. the creditor may wrest the initiati!e from him by
gi!ing to him a recei#t designating the debt to which the #ayment shall a##lied. 6ut
e!en this does not really constitute an eGce#tion because the debtor may either
acce#t or re8ect the a##lication. $See &rt. 1202*
V Strictly s#ea+ing. it is not a form of #ayment but more of a mode of #ayment.
Khat is meant by le/al a33lica!ion of 3a24en!?
Legal a##lication of #ayment refers to the following the rules. both of which are
enunciated in &rt. 1203 of the i!il odeC
a* Khen neither the debtor nor the creditor ma+es any a##lication of #ayment or if
it cannot
be inferred from other circumstances. the debt which is most onerous to the
debtor among
those which are due shall be deemed to ha!e been satis4ed. The following
may be gi!en
;Gam#les.
- Khere there are !arious debts. which are due and they were incurred at
di,erent dates the oldest are more onerous.
- Khere there are !arious debts. which are due and they were incurred at
di,erent dates the oldest are more onerous.
- Khere one bears interest and the other does not. the former is more
onerous
- Khere one s secured the other is not. the former is more onerous
- Khere the debtor is bound as #rinci#al in one and as guarantor or surety
in another. the former is more onerous
27
- Khere the debtor is bound as solidary debtor in one and as a sole debtor
in another. the former is more onerous.
b* 7f the debts due are of the same nature and burden. the #ayment shall be
a##lied to all of them #ro#ortionately
13- Pa24en! .2 ession or Assi/n4en! 2 it is a s#ecial form of #ayment whereby
the debtor
abandons all of his #ro#erty for the bene4t of
his
creditor in order that from the #roceeds
thereof the latter may obtain #ayment of
their
credits. &lso +nown as !oluntary cession or
insol!ency.
There is no transfer of ownershi# but merely grants the creditors of a debtor to sell
#ro#erties of said insol!ent debtor and a##ly the #roceeds to their res#ecti!e credit.
Bebtor is released only u# to the net #roceeds of the sale. Le remains liable to the
creditor as to the remaining balance unless otherwise agreed to release him to his
entire obligation.
om#are ession from 7nsol!ency under &ct 'o. 1/0:. ession has no court
inter!ention while 7nsol!ency either Foluntary or 7n!oluntary re<uires court
#roceeding. "etition is 4led in court and insol!ent can be #ermanently discharged
from liability.
B7ST7'T7O'S1
Da!ion in Pa24en! Pa24en! .2 Cession
1. There is usually only one creditor 1. There are se!eral creditors
2. 7t does not #resu##ose the insol!ency
of the debtor
2. Bebtor is insol!ent at the time of
assignment
(. 7t does not in!ol!e all the #ro#erties
of the debtor
(. 7n!ol!es all the #ro#erties of the
debtor
3. The creditor becomes owner of the
thing gi!en by the debtor
3. The creditors only ac<uire the right to
sell the thing and a##ly to their credits
#ro#ortionately
0. Bation is really an act of no!ation 0. ession is not no!ation
10. Meaning of Tender of 3a24en! 2 consists in the manifestation made by the debtor
to the creditor of his decision to com#ly immediately with the obligation.
Meaning of Consi/na!ion1 refers to the de#osit of the ob8ect of the obligation in a
com#etent court in accordance with the rules #rescribed by law after refusal or
inability of the creditor to acce#t tender of #ayment.

&s a rule. there must be tender of #ayment 4rst before consignation can be e,ected.
Bistinguish Tender of "ayment from onsignation1
Tender of #ayment is antecedent of consignationC in order words. while the 4rst is
#re#aratory act. the second is the #rinci#al act. which will #roduce the e,ects of
#ayment.
Tender of #ayment is by its !ery nature eGtra 8udicial in character. wile consignation is
8udicial.
%e<uisites for onsignation1
a* That there is a debt that is due1
28
b* That the consignation has been made either because the creditor to whom tender
of #ayment was made refused to acce#t the #ayment without 8ust cause or because
any of the stated by law for e,ecti!e consignation without #re!ious tender of
#ayment eGists. $&rt.120:*
c* That #re!ious notice of the consignation has been gi!en to the #ersons interested
in the ful4llment of the obligation. $&rt.120:*
d* That the thing or amount due had been #laced at the dis#osal or 8udicial authority
$&rt.120) #ar. 1*
e* That after the consignation has been made the #erson interested in the ful4llment
of the obligation had been noti4ed thereof. $&rt. 120) #ar. 2*
f* 5udicial declaration that the consignation is #ro#er with #rayer on the #art of the
debtor to be discharged from the obligation.
h* "ayment by the creditor of the eG#enses for consignation if #ro#erly made by the
debtor.
;!en without Tender of "ayment. onsignation may be !alidly #ursued in the
following1
a* Khen the creditor is absent or un+nown or does not a##ear at the #lace of
#aymentC
b* Khen he is inca#acitated to recei!e the #ayment at the time it is dueC
c* Khen without 8ust cause he refuses to gi!e a recei#tC
d* Khen two or more #ersons claim the right to collect andC
e* Khen the title of the obligation has been lost. $&rt.120:*
Bebtor can withdraw the thing de#osited as a matter of right before the creditor
acce#ts or before a 8udicial declaration is made by the court. 7n e,ect. obligation
remains $&rt. 12:-*. 7f the consignation has been made #ro#erly. creditor should
authoriAe the debtor to withdraw the same and he shall lose e!ery #reference which
he may ha!e o!er the thing. The co?debtor. guarantors and sureties shall be
released. $ &rt. 12:1*
1:- "OSS O= TEE TEING DUE $&rts. 12:2?12:/* 2 means that the thing which
constitutes the ob8ect of the obligation #erishes. or goes out of the commerce of man
or disa##ears in such a way that its eGistence is un+nown or it cannot be reco!ered.
$&rt. 11)/. 'O. 2* 7n its broad sense. it means im#ossibility of com#liance or
#erformance with the obligation through any cause.
9inds of Loss
a. "hysical loss 2 when a thing #erishes as when the house is burned and reduced to
ashes.
b. Legal loss 2 when the thing goes out of commerce.
c. i!il loss 2when the thing disa##ears in such a way that its eGistence is un+nown
or e!en if +nown. it cannot be reco!ered. whether as a matter of fact or of law.
d. "hysical or legal im#ossibility
&rt. 12::. The debtor in obligations to do shall also be released when the
#restation becomes legally or #hysically im#ossible without the fault of the obligor.
e. Bi=culty of #erformance
&rt. 12:>. Khen the ser!ice has become so di=cult as to be manifestly beyond the
contem#lation of the #arties. the obligor may also be released therefrom. in whole
or in #art
7n order that an obligation shall be eGtinguished by the loss or destruction of the
thing if is essential that the following re<uisites must concur1
a* The thing. which is lost. is s#eci4c or determinate
b* The thing is loss without any fault of the debtor if that thing is lost through the fault
of the debtor the
obligation is transformed into an obligation to indemnify the obligee or creditor
for damages.
c* The debtor is not guilty of delay
;Gce#tions to the abo!e rule are as follows1
a* Khen by law the obligor is liable for fortuitous e!ents $&rts. 11>3 and 12:2 #ar 2*
29
b* Khen by sti#ulation the obligor is liable e!en for fortuitous e!ents. $&rts 11>3 and
12:2
#ar 2*
c* Khen the nature of the obligation re<uires the assum#tion of ris+. $&rts. 11>3 and
12:2
#ar 2*
d* Khen the loss of the thing is due #arty to the fault of the debtor $&rt 12:2 #ar 1
*
e* Khen the loss of the thing occurs after the debtor has incurred in delay. $&rt 12:2
#ar.1
and &rt 11(0 #ar. (*
f* Khen debtor #romised to deli!er the same thing to two or more #ersons who do not
ha!e the same interest $&rt. 11:0 #ar (*
g* Khen the obligation is generic $&rt.12:(*
h* Khen the debt of a certain and determinate thing #roceeds from a criminal o,ense
$&rt
12:)*
&rt. 12:0 #ro!ides that whene!er the thing is lost in the #ossession of the debtor. it
shall be #resumed that the loss was due to his fault. unless there is #roof to the
contrary. and without #re8udice to the #ro!isions of article 11:0. This #resum#tion
does not a##ly in case of earth<ua+e. Mood. storm. or other natural calamity.
&rt. 12:/ #ro!ides that the obligation ha!ing been eGtinguished by the loss of the thing.
the creditor shall ha!e all the rights of action which the debtor may ha!e against third
#ersons by reason of the loss.
this right is transferred by o#eration of law.
1>. CONDONATION AND RE7ISSION $&rts. 12>- 2 12>3* 2 7s an act of liberality by
!irtue of which the obligee. without recei!ing any #rice or e<ui!alent. renounces the
enforcement of the obligation as a result of which it is eGtinguished in its entirely or in
that #art or as#ect of the same to which the remission refers. 7t is gratuitous
abandonment by the creditor of his right.
%e<uisites1
a* 7t must be gratuitous
b* 7t must be acce#ted by the obligor
c* The #arties must ha!e ca#acity.
d* 7t must not be 7no=ciousC and
e* 7f made eG#ressly. it must com#ly with the forms of donations. Otherwise.
remission or condonation
is not !alid.

;Gam#le1
a* ;G#ress ondonation in!ol!ing real #ro#erty must be in #ublic
instrument together with the acce#tance of donee.
b* ;G#ress ondonation of #ersonal #ro#erty amounting to " 0.---
abo!e must be in writing together with the acce#tance of donee
7m#ortant #rinci#les on %emission1
1. Khile a #erson may ma+e donations. no one can gi!e more than
which he can gi!e by willC otherwise. the eGcess shall be
7no=cious and shall be reduced by the ourt as it may im#air the
legitime of the com#ulsory heirs of the donor.
2. The deli!ery of a #ri!ate document e!idencing credit made
!oluntarily by the creditor gi!es a dis#utable #resum#tion that
there is a renunciation of the action which the creditor has
against the debtor. $&rt. 12>1* ;Gam#le of im#lied remission
(. Khene!er the #ri!ate document is found in #ossession of the
debtor. it is #resumed that the creditor deli!ered the document
!oluntarily. $&rt. 12>2*.
3. 7f the thing #ledged is found in the #ossession of the debtor.
there is a dis#utable #resum#tion that the contract of #ledge has
30
been renounced. This howe!er does not eGtend to the #rinci#al
contract. ;Gam#le of 7m#lied remission
1). CON=USION O% 7ERGER $&rts. 12>0?12>>* ? Merger of the characters of creditor
and debtor in the same #erson by !irtue of which the obligation is eGtinguished.
Meeting in the same #erson of the <ualities of the creditor and the debtor with res#ect
to one and the same obligation.
%e<uisites1
a* That the merger of the characters of the creditor and debtor must be in the same
#erson. $&rt.12>0*
b* That it must ta+e #lace in the #erson of either the #rinci#al creditor or #rinci#al
debtor
$&rt.12>:*
c* That it must be com#lete and de4nite.
'otes1
Merger in the #erson of the guarantor does not eGtinguish the obligation. Only the
contract of guaranty is eGtinguished. There is in fact a no!ation where the guarantor
now becomes the new creditor of the debtor.
Merger in the #erson of one of the solidary debtor shall eGtinguish the entire
obligation because it is also merger in the other solidary debtors. Merger in 8oint
obligation #ertains only to the share of the debtor to which merger ta+es #lace. Only
the share corres#onding to the creditor or debtor in whom the characters concur. The
creditor or debtor whose share was sub8ect to confusion actually becomes the new
creditor of the other 8oint debtors #ertaining to their share in the original obligation.
1/. CO7PENSATION 2 om#ensation may be de4ned as a mode of eGtinguishing in
their concurrent amount those obligations #ersons who in their own right are creditors
and debtors of each other.
%e<uisites for legal com#ensation under &rticle 12>/1
a* There must be two #arties. who in their own right. are #rinci#al creditors and
#rinci#al
debtors of each other. $&rts. 12>). 12>/. 'o. 1*
b* 6oth debts must consist in money. or if the things due are fungibles $consumables*.
they
must be of the same +ind and <uality $&rt. 12>/. 'O.2*
c* 6oth debts must be due $&rt. 12>/. 'O. (*
d* 6oth debts must be li<uidated and demandable $ &rt 12>/ 'O. 3*
e* There must be no retention or contro!ersy commenced by third #ersons o!er either
of
the debts and communicated in due time to the debtor $&rt.12>/ 'O. 0 *
f* The com#ensation must not be #rohibited by law $&rts 12>). 12))*
Hnder &rticle 12/- Khen all the re<uisites mentioned in &rticle 12>/ are #resent.
com#ensation ta+es e,ect by o#eration of law. and eGtinguishes both debts to the
concurrent amount. e!en though the creditors and debtors are not aware of the
com#ensation.
7nstances when legal com#ensation is not allowed by law1
a. Khen one of the debts arises from de#ositum or from the obligation of a
de#ositary or of a bailee in commodatum.
b. Khere one of the debts arises from a claim for su##ort due by gratuitous title.
c. Khere on of the debts consists in ci!il liability from a #enal o,ense.
Bi,erent classi4cation of om#ensation1
a* Legal 2 when it ta+es #lace by o#eration of law from the moment all of the
re<uisites
#rescribed by law are #resent $&rts 12>) N 12>/*
b* Foluntary 2 when the #arties who are mutuality creditors and debtors agree to
31
com#ensate their res#ecti!e obligations e!en if the re<uisites of
com#ensation
may not be #resent.
c* 5udicial 2 when it ta+es e,ect by 8udicial decree.
d* Eacultati!e 2 when it can only be set u# by one of the #arties.

7n contract of de#osit. the de#ositary cannot set u# com#ensation against the
de#ositor if he fails to return the ob8ect of de#osit as against any amount which the
de#ositor owes the de#ositary.
7n contract of commodatum. the bailee cannot set u# com#ensation but the bailor
can.
%eason1 This is because it would !iolate the 4duciary character of the contract of
de#osit or commodatum. 6ut the de#ositor or bailor can set u# by way of
com#ensation against the de#ositary@s or bailee@s credit. Lere. only one #arty can set
u# com#ensation. $&rt. 12)>*
"erson obliged to gi!e su##ort cannot also set u# com#ensation unless su##ort has
de!elo#ed into arrears. 7n such case. com#ensation is #ossible.$&rt. 12)>*
'either shall there be com#ensation if one of the debts consists in ci!il liability arising
of a crime. The one whose obligation arose from said liability cannot set u#
com#ensation against the other but the latter can. $&rt. 12))*
&rt. 12):. om#ensation ta+es #lace by o#eration of law. e!en though the debts may be
#ayable at di,erent #laces. but there shall be an indemnity for eG#enses of eGchange
or trans#ortation to the #lace of #ayment.
&S TO ;EE;T1
Total 2 when the debts to be com#ensated are e<ual in amount1
"artial 2 when the debts to be com#ensated are not e<ual in amount.
'ote1 The rule on a##lication of #ayment is also a##licable in com#ensation.
7n case there are se!eral debts. when the debtor cannot set u# com#ensation
against the assignee if he +nows that assignment was made by the creditorQassignor and
he did not notify the assignor that he reser!es his right to set u# com#ensation. Le can
howe!er collect from the creditor what he could ha!e set o, against the creditor had
there been no assignment made by the latter. 7f the debtor +nows about the assignment
but did not consent. he can set u# com#ensation against the assignee to obligations
#re!ious to the assignment. 6ut he has no +nowledge of the assignment. he can set u#
com#ensation of all credits #rior. subse<uent to the assignment until he obtains
+nowledge of the assignment. $&rt. 12)0*
&rt. 12)/. 7f a #erson should ha!e against him se!eral debts which are susce#tible of
com#ensation. the rules on the a##lication of #ayments shall a##ly to the order of the
com#ensation.
2-. NOVATION $&rts. 12/1 2 1(-3*
'o!ation is the substitution or change of an obligation by another. resulting in its
eGtinguishment or modi4cation. either by changing its ob8ect or #rinci#al conditions or by
substituting another in #lace of the debtor. or by subrogating a third #erson in the rights
of the creditor
lassi4cation of 'o!ation1
a* Ob8ecti!e or real 2 refers to the change either in the cause ob8ect or #rinci#al
conditions
of the obligation
b* Sub8ecti!e or #ersonal 2 refers to the substitution of another #erson of the debtor
$#assi!e* or subrogating a third #erson of the rights of the creditor $acti!e*. $&rts.
12/1. 'os. 2 and (*
c* MiGed 2 refers to the combination of ob8ecti!e and sub8ecti!e no!ation.
32
%e<uisites of 'o!ation1
a* & #re!ious !alid obligationC
b* &greement of the #arties to the new obligationC
c* ;Gtinguishment of the old obligation and
d* Falidity of a new obligation
Test of incom#atibility 2 in order an obligation may be im#liedly eGtinguished by another.
which substitutes the same. it is im#erati!e that the old and new obligation must be
incom#atible with each other on e!ery #oint. 7t is then im#erati!e to determine whether
or not both can stand together. each ha!ing its own inde#endent eGistence. 7f they can
stand together. there is no incom#atibility conse<uently there could be no no!ation.
NOVATION is no! 3resu4ed. 7f must be clearly and unmista+ably established
either by the eG#ress agreement of the #arties or acts of e<ui!alent im#ort.
9inds of 'o!ation1
&ccording to origin1
1. Legal 2 that which ta+es #lace by o#eration of law.
2. on!entional 2 that which ta+es #lace by agreement of the #arties.
&ccording to how it is constituted1
1. ;G#ress? when it is so declared in une<ui!ocal terms.
2. 7m#lied ? when the old and the new obligations are essentially incom#atible
with each
other.
&ccording to eGtent or e,ect1
1. Total or eGtincti!e ? when the old obligation is com#letely eGtinguished.
2. "artial or modi4catory?when the old obligation is merely modi4ed.
&ccording to the sub8ect1
1. %eal or ob8ecti!e? when the ob8ect $or cause* or the #rinci#al conditions of the
obligation are changed.
2. "ersonal or sub8ecti!e? when the #erson of the debtor is substituted andQor
when a third #erson is subrogated in the rights of the creditor.
(. MiGed 2when the ob8ect andQor #rinci#al conditions of the obligation and the
debtor or the creditor. or both the #arties. are changed. 7t is a combination of
real and #ersonal no!ations.
9inds of substitution1
&. E<3ro4ission 2 or that which ta+es #lace when a third #erson of his
own initiati!e and without the +nowledge or against the will of the
original debtor assumes the latter@s obligation with the consent of the
creditor.
;,ect 2 the new debtor@s insol!ency or non?ful4llment of the
obligation will not re!i!e the action of the creditor against the old
debtor whose obligation is eGtinguished by the assum#tion of the debt
by the new debtor. 7f the new debtor #ays the creditor. he is not
subrogated with the rights of the creditorC he is only entitled to be
bene4cial reimbursement.
6. Dele/a!ion 2 one which ta+es #lace when the creditor acce#ts a third
#erson to
ta+e #lace of the debtor at the instance of the latter. The creditor may
withhold a##ro!al. $art. 12/0* 7n delegacion. all the #arties the old debtor.
the new debtor and the creditor must agree. 7f the #ayment was made
with the consent of the original debtor or on his own initiati!e
33
$delegacion*. the new debtor is entitled to reimbursement and subrogation
under &rt.12(>
;,ect of new debtor@s insol!ency or non?ful4llment of the obligation in
delegacion1
Deneral %ule1 Original debtor is not liable to the creditor in case of
insol!ency of the new debtor. The eGce#tions are1
a* The said insol!ency was already eGisting and of #ublic +nowledge $although it
was not
+nown to the old debtor* at the time of the delegacionC or
b* The insol!ency was already eGisting and +nown to the debtor $although it was
not of
#ublic +nowledge* at the time of the delegacion.
The eGce#tions are intended to #re!ent fraud on the #art of the old debtor.
Other #ertinent #ro!isions1
&rt. 12/:. Khen the #rinci#al obligation is eGtinguished in conse<uence of a no!ation.
accessory obligations may subsist only insofar as they may bene4t third #ersons who
did not gi!e their consent. %eferring to Sti#ulation "our &utrui.
&rt. 12/>. 7f the new obligation is !oid. the original one shall subsist. unless the
#arties intended that the former relation should be eGtinguished in any e!ent.
&rt. 12/). The no!ation is !oid if the original obligation was !oid. eGce#t when
annulment may be claimed only by the debtor or when rati4cation !alidates acts
which are !oidable.
&rt. 12//. 7f the original obligation was sub8ect to a sus#ensi!e or resolutory
condition. the new obligation
shall be under the same condition. unless it is otherwise sti#ulated. $n*
97'BS OE SUBROGATION $&rt. 1(--*
Conven!ional Su.ro/a!ion 2 when it ta+es #lace by eG#ress agreement of
the original #arties. $The debtor. the original creditor and the third #erson*
onsent of all #arties re<uired.

on!entional Subrogation re<uires consent of all of the #arties. to wit. the
debtor. the old creditor and the new creditor.
Dis!inc!ion .e!een conven!ional su.ro/a!ion and assi/n4en! of credi!-
Assi/n4en! of Credi! Conven!ional Su.ro/a!ion
There is mere transfer of the same right
or credit. The transfer did not
eGtinguish credit.
;Gtinguishes the obligation and creates a
new one
7t does not re<uire the debtor@s consent.
Mere noti4cation to him is su=cient.
%e<uires debtor@s consent
The defect in the credit or right is not
cured sim#ly by assigning the same.
Lere. the debtor generally has still the
right to #resent against new creditor
any defense a!ailable as against old
debtor.
The defect of the old obligation may be
cured in such a way that the new obligation
becomes entirely !alid. Thus here. there is
no right to #resent against new creditor any
defense which he. the debtor or could ha!e
set u# against the old creditor.
Lere creditor is the one ceding or
transferring his rights.
Lere. somebody ma+es #ayment in behalf
of the debtor with the latter@s consent.
Legal Subrogation2 when it ta+es #lace without agreement but by o#eration by
law
34
ases of Legal Subrogation1
a* Khen a creditor #ays another creditor who is #referred $see arts. 22(:. 2201*
b* Khen a third #erson without interest in the obligation #ays with the a##ro!al
of the
debtorC
c* Khen a third #erson with interest in the obligation #ays with the a##ro!al of
the debtor.
Khat com#rises subrogation?
&rt. 1(-(. Subrogation transfers to the #ersons subrogated the credit with all the
rights thereto a##ertaining. either against the debtor or against third #erson. be they
guarantors or #ossessors of mortgages. sub8ect to sti#ulation in a con!entional
subrogation. Hnder article 12(0 subrogation includes rights arising from
a. Mortgage or #ledge or other forms of security
b. Duaranty
c. "enalty or #enal clause
;,ect of Total Subrogation1
7t transfer to the new creditor the credit and all of the rights and actions that
could ha!e been eGercised by the former creditor either against the debtor or against
third #ersons. be they guarantors or mortgagors. $&rt. 1(-(*
;,ect of "artial Subrogation1
The creditor to whom #artial the new creditor has made #ayment remains a
creditor to the eGtent of the balance of the debt. 7n case of insol!ency of the debtor.
old creditor is gi!en #referential right to reco!er the remainder as against the new
creditor. $&rt. 1(-3*
/gbdfabrero01234
35