OBLICON De Leon 1156-1304 outline Harnett Arsenal Caraan

General Provisions
I. Concept
• Definition: Art. 1156
• Elements:
o Active subject : creditor
o Passive subject : debtor
o Prestation or Object : subject matter
o Efficient cause or juridical tie (vinculum juris) : binds the parties
• Natural vs. Civil Obligations
o
Natural Civil
As to enforceability Cannot be legally Can be legally enforced
enforced
As to basis Equity and natural law Positive law
• Obligation, Right, Wrong
o Obligation : act or performance which the law will enforce
o Right : power a person has under the law to demand from another
o Wrong (cause of action)
§ Legal right in favor of a person (creditor)
§ Correlative legal obligation (debtor)
§ Act or omission in breach of the legal right

II. Sources of Obligations

• Law
o Legal obligations are not presumed
• Contracts
o Voluntary agreements; meeting of minds between two persons
o Valid (not contrary to law, morals, good customs, public order, public
policy) contracts have the force of law
• Quasi-contracts
o Lawful, voluntary, unilateral acts which are enforceable so no one is
unjustly enriched
o Kinds
§ Negotiorum Gestio
ú Voluntary management of the property or affairs of another
without the knowledge / consent of the latter
 § Solutio Indebiti
ú Juridical relation
ú No right to receive
ú Delivered through mistake
• Acts or omissions punished by law
o Damages in addition to criminal liability
o Civil Liability arising from crime
§ Restitution
§ Reparation for the damage caused
§ Indemnification for consequential damages
• Quasi-delicts
o Requisites
§ Act or omission by defendant
§ Fault or negligence of defendant
§ Damage cause to the plaintiff
§ Direct relation of cause and effect between the act or omission and
the damage
o
Quasi-delicts Crimes
Negligence Criminal / malicious intent
Affects private interest Affects public interest
Civil liability Criminal and civil liability
Indemnify the offended party Purpose is punishment
Can be compromised by the parties Cannot be compromised
Preponderance of evidence Proof beyond reasonable doubt

III. Classification of Obligations

• Primary Classification under the Civil Code (DIFFERENT KINDS OF OBLIGATIONS)
o Pure and Conditional
o With a Period
o Alternative and Facultative
o Joint and Solidary
o Divisible and Indivisible
o With and penal clause
• Secondary Classification
o Legal (by law); Conventional (by contract); Penal (arising from crime)
o Real (to give) and Personal (to do or not to do)
o Determinate (particularly designated, specific) and Generic (class / genus)
 o Positive (to do or render service); Negative (not to do or not to give)
o Unilateral (only one party obliged to comply) and Bilateral (both parties
bound to each other)
o Individual (one obligor and one obligee) and Collective (2 or more)
o Accessory (attached to principal, cannot stand alone) and Principal (can
stand alone)
o As to object/prestation:
§ Simple (one prestation)
§ Multiple (more than one prestation)
§ Conjunctive (several prestations, demandable at the same time)
§ Distributive (either alternative or facultative)
§ Alternative (various prestations, one can be delivered)
§ Facultative (one prestation, but there is substitution)
o Possible and Impossible (cannot exist or cannot be done)

Nature and Effect of Obligations

I. Kinds of Prestation
• Obligation to give: Art. 1163
o Specific thing
§ Duties of the obligor
ú Preserve or take care of the thing due
ú Deliver fruits
• Natural: no human intervention
• Industrial: by reason of human labor
• Civil: juridical relation
ú Deliver the accessions and accessories: Art. 1166
• Accession: fruits of, or additions to, or improvements
upon, a thing
• Accessory: joined to, or included with, the principal
thing for embellishment, better use, or completion
ú Deliver the thing itself
ú Answer for damages in case of nonfulfillment
§ Remedies of creditor
ú Specific performance / fulfillment or
ú Rescission / Cancellation or
ú Damages only
 o Generic thing
§ Duties of the obligor
ú Deliver a thing which is of the quality intended
ú Liable for damages in case of fraud, negligence, or delay, or
contravention of the tenor
o Delimited generic
§ From a specific set of class only ex. KKC’s dogs

o When obligation to deliver arises

§ From the time of perfection
ú Birth of the contract or the meeting of the minds

• Obligation to do or not to do
o Positive personal obligation
§ Remedies of creditor in case of failure to comply:
ú Specific performance by another at debtor’s expense and
ú Damages
§ Remedy of creditor in case of contravention of the terms:
ú To be undone if it is still possible
o Negative personal obligation
§ Remedy: undoing plus damages; damages only if it cannot be
undone

II. Breach of Obligation

• Failure without justifiable excuse or reason to comply with the terms of a contract
• Modes of Breach
o Fraud (dolo)
§ Deliberate or intentional evasion of the moral fulfillment of an
obligation
ú Dolo incidente (incidental fraud): committed in the
performance of an obligation already existing because of
contract
ú Dolo causante (causal fraud): fraud employed in the
execution of the contract (vitiates consent)
§ Non-waiver: Art. 1171
ú Waiver of an action for future fraud is void
o Negligence (culpa or fault): Art. 1173
§ Voluntary act or omission, no bad faith or malice, which prevents
the normal fulfillment of an obligation
§ Omission of diligence required
ú
Dolo Culpa
Deliberate intent to cause No intention
damage
Waiver for future fraud is Waiver, in certain cases,
void allowed
Must be clearly proved Presumed from breach of
obligation
ú Culpa contractual (contractual negligence): negligence in
contracts resulting in breach
ú Culpa aquiliana (civil negligence): quasi-delict
ú Culpa criminal (criminal negligence)
§ Standard of Care Required
ú Default: Diligence of a good father of a family
§ When equivalent to FRAUD
ú Gross Negligence: failure to exercise even slight care or
diligence
o Delay (mora)
§ Failure to perform an obligation on time which constitutes a breach
of the obligation (legal delay)
ú Not ordinary delay: mere failure to perform an obligation on
time
§ Kinds of delay
ú Mora solvendi
• Delay on the part of the debtor
• Requisites
o Failure of debtor to perform
o Demand made by the creditor upon the
debtor (judicial or extra-judicial)
o Failure of debtor to comply with such demand
• General rule: Creditor should make demand before
debtor incurs delay
• Exceptions: Art. 1169
o Obligation so provides
 o Law so provides
o Time is of the essence
o Demand would be useless
o Performance by a party in reciprocal
obligations
ú Mora accipiendi
• Delay on the part of the creditor
• Requisites
o Debtor willing to pay / perform
o Creditor without just cause refuses to accept
ú Compensatio morae
• Delay of the obligors (reciprocal obligations)
§ Effects
ú Mora solvendi
• Debtor is guilty of breach of the obligation
• Liable for interest (obligation to pay money) or
damages
• Liable even for fortuitous event
ú Mora accipiendi
• Creditor is guilty of breach of the obligation
• Liable for damages suffered by debtor
• Bears the risk of loss of the thing due
• Debtor not liable to pay interest (obligation to pay
money)
• Debtor may release himself from obligation by
consignation: Art. 1256
ú Compensatio morae
• Delay of the obligor cancels out the effects of the
delay of the obligee and vice versa
• If delay of one party is followed by the other, liability
of the first infractor shall be equitably balanced by
the courts
• If it cannot be determined who is guilty of delay,
contract is deemed extinguished
 o Contravention of the Tenor
§ Remedy: to be undone at the expense of debtor with damages;
damages only if it cannot be undone anymore
§ Exception
ú Action for damages: Art. 1170
ú Action for rescission: Arts. 1191-1192

III. Subsidiary Remedies of Creditor: Art. 1177

• Exact fulfillment (specific performance)
• Pursue the leviable property of the debtor
• Accion subrogatoria
o After having pursued the property in possession of the debtor, creditor
may exercise all the rights and bring all the actions of the debtor
o Exception
§ Those inherent in or personal to the debtor
• Accion Pauliana
o Impugn the acts which the debtor may have done to defraud them
o Requisites
§ Contract (original creditor already exists)
§ Entered into another contract subsequent to obligation to creditor
§ Benefit to debtor
§ Defraud original creditor
ú Third person must be accomplice: instrument of fraud

IV. Extinguishment of liability in case of breach due to fortuitous event

• Fortuitous Event: extraordinary event which cannot be foreseen, or though
foreseen, is inevitable
o Acts of God: totally independent of the will of every human being
o Acts of Man: independent of the will of the obligor
• General rule: no person shall be responsible for fortuitous events, obligation is
extinguished: Art. 1174
o Exceptions:
§ Law expressly specifies
§ Declared by stipulation
§ Nature of obligation requires the assumption of risk
 • Requisites
o Independent of the human will or at least the obligor’s will
o Could not be foreseen, or if it could be foreseen, unavoidable
o Renders impossible for obligor to comply with obligation
o Obligor is free from any participation
• Concurrent or previous negligence of obligor
o If there is concurrent or previous negligence by obligor, still liable even if
fortuitous event happened

V. Usurious transactions
• Usury: interest in excess of the amount allowed by law
• Parties can agree on the interest amount (stipulation)
o Limit: the Court can reduce if interest found to be ridiculous
• If there is no stipulation as to interest = 6% / annum
o Will run from demand if obligation to deliver money
o Discretion of court from time of demand; judicial demand if obligation to
deliver thing
• Requisites to recover monetary interest
o Agreement must be in writing
o Interest must be lawful

Different Kinds of Obligations

I. Pure and Conditional Obligations
• Pure obligations: Art. 1179
o Not subject to any condition and no specific date mentioned for fulfillment
o Immediately demandable
• Conditional obligations: Art. 1181
o Acquisition of rights and extinguishment or loss of those already acquired
depends upon the happening of the event which constitutes the condition
o Condition
§ Future and uncertain event, or past event unknown to the parties
o Kinds of conditions
§ As to effect on obligation
ú Suspensive (condition precedent)
• Fulfillment of which gives rise to an obligation or
right
 • Retroactive effect when condition is fulfilled
• Rights before the fulfillment of condition
o Creditor
§ May take or bring appropriate actions
to preserve his right
o Debtor
§ May recover what he has paid by
mistake
ú Resolutory (condition subsequent)
• Fulfillment of which extinguishes an obligation or
right already existing
§ As to cause or origin
ú Potestative
• Condition depends on the will of one of the
contracting parties
• If fulfillment depends solely on the will of the debtor:
conditional obligation is VOID
• Debtor promises to pay when his means permit him
to do so = OBLIGATION WITH A PERIOD
ú Casual
• Condition depends upon chance or the will of a third
person
ú Mixed
• Condition depends partly upon chance and partly
upon the will of a third person
§ As to possibility
ú Positive condition: Art. 1184
• An event will happen at a determinate time
• Obligation extinguished:
o Time expires without the event taking place
o Becomes indubitable that event will not take
place
ú Negative condition
• An event will not happen at a determinate time
o Rules in case of loss, deterioration or improvement pending the happening
of the condition: Art. 1189
 § “Loss”
ú Perishes (physical)
ú Goes out of commerce (legal)
ú Disappears in a way that its existence is unknown or it
cannot be recovered (civil)
§ “Deterioration”: value is reduced or impaired
§ “Improvement”: value is increased
§ Requisites
ú Obligation to give
ú Specific thing
ú Suspensive condition
ú Condition is fulfilled
ú Loss, deterioration, or improvement before condition
§
Without debtor’s fault With debtor’s fault
Loss Obligation extinguished Damages
Deterioration Impairment borne by Rescission or Fulfillment,
creditor plus damages
§
By nature / time At debtor’s expense
Improvement Benefit of creditor Usufructuary
o Effect of prevention of the fulfillment of the condition by the obligor
§ Constructive fulfillment: Art. 1186
ú Suspensive condition
ú Obligor prevents the fulfillment of condition
ú Obligor acts voluntarily

II. Obligation with a Period: Art. 1193

• Period or Term
o Future and certain event
o Day certain which must necessarily come
• Kinds of Period/Term
o As to effect
§ Suspensive (ex die)
ú Obligation begins upon the arrival of day certain
§ Resolutory (in diem)
ú Obligation terminates upon the arrival of day certain
 o As to definiteness
§ Definite: fixed or known to come
§ Indefinite: not fixed or not known to come
o As to source
§ Conventional: agreed by parties
§ Legal: provided by law
§ Judicial: fixed by the court
• Rules in case of LDI before arrival of period: Art. 1189
• Effect of payment in advance
o Presumption: debtor unaware that debt is not yet due
o Recovery of payment allowed before fulfillment of condition
• Benefit of a period: Art. 1196
o For whose benefit
§ Presumption: for the benefit of both
§ Exception: benefit of one party only (by stipulation)
o Effect of acceptance by creditor of partial payment
§ Presumption: Period is waived
o When debtor loses right to make use of period: Art. 1198 (INIVA)
• When court may fix period (judicial period)
o Period is implied (intended by the parties, but was not stated)
o Period depends solely on will of debtor

III. Alternative and Facultative Obligations

• Alternative Obligations: Art. 1199
o Various prestations are due but the performance of one is enough
o Right of choice: Art. 1200
§ General rule: belongs to the debtor
ú Cannot choose impossible, unlawful, or not the object of the
obligation
§ Exception: belongs to creditor if expressly granted
ú Debtor still has responsibility until the creditor chooses
o Effect of notice of choice
§ Until the choice is made and communicated, the obligation remains
alternative
o Effect of loss or impossibility of one or all prestations
§ When only one is practicable: obligations converts to simple one
 § Debtor cannot make choice (creditor’s acts): option to rescind
§ No prestations left (debtor’s fault): damages
§ If right of choice belongs to creditor (and no choice made yet)
ú 1 thing lost (fortuitous): choose from remainder
ú 1 thing lost (debtor’s fault): claim any remaining item or
recover price of thing lost (with damages for either)
ú All things lost (fortuitous): obligation extinguished
ú All things lost (debtor’s fault): demand price of any item
with damages
• Facultative Obligations
o Only one prestation has been agreed upon, but debtor may render
another in substitution
o Effect of substitution
§ Once made, obligor will be liable for the substitute, and no longer
the principal thing

IV. Joint and Solidary Obligations: Arts. 1207-1208

• Joint Obligations
o Whole obligation is to be paid or demanded proportionately
o Presumption: Collective obligation is joint
• Solidary Obligations
o Each one is bound to render or has a right to demand entire compliance
§ Requisites:
ú Obligation expressly so states
ú Law requires solidarity
ú Nature of obligation requires solidarity
o Effects
§ Solidary creditor in relation to:
ú Common debtor
• Right to demand entire compliance
• Art. 1214: Payment may be made to any solidary
creditor but must heed to any demand made by one
of them
• In case of novation, compensation, confusion,
remission by a creditor
o Obligation extinguished
 ú Solidary co-creditor/s
• In case of novation, compensation, confusion,
remission
o He who executed any of these acts = liable to
others
• Prejudicial acts prohibited: Art. 1212
• Assignment of rights not allowed without consent of
others
§ Solidary debtor in relation to:
ú Common creditor
• Obligation to perform entire compliance
• In case of novation, compensation, confusion,
remission by creditor
o Obligation extinguished
ú Solidary co-debtor
• In case of payment by a co-debtor
o Obligation extinguished
o Right to reimbursement of whoever paid
§ No reimbursement if payment made
after prescription or has become
illegal: Art. 1218
• In case of fortuitous event
o Obligation extinguished
• In case of fault of one
o All responsible, but action can be made
against guilty debtor
o Defenses available to a solidary debtor against the creditor
§ Types
ú Those derived from the nature of the obligation: complete
defense (nullifies the obligation)
ú Personal defenses: can be set up against entire obligation
ú Defenses pertaining to his share: partial defense (still liable
for the other portion)
ú Those personally belonging to the other co-debtors: still
liable (partial defense)
 • Joint Indivisible Obligations
o Joint in a way that parties are merely proportionately liable
o Indivisible in a way that object / subject matter is not physically divisible
(as to compliance)
§ Indivisibility: refers to prestation
§ Solidarity: refers to juridical tie
o Liability for damages in case of breach
§ Arises from the time any of the debtors do not comply
§ Remaining debtors will not be liable for indemnity, only their
portion of the obligation
§ Guilty debtor will be liable for portion of obligation with damages

V. Divisible and Indivisible Obligations

• Indivisible Obligations
o Incapable of partial fulfillment
• Divisible Obligations
o Capable of partial fulfillment
o Presumptions
§ Of indivisibility
ú Definite thing
ú No susceptible to partial performance
ú Provided by law even if thing is physically divisible
ú Intention of the parties to be indivisible
§ Of divisibility
ú Number of days of work
ú Metrical units
ú Susceptible to partial performance
o Divisibility and Indivisibility in obligations not to do
§ Character of the obligation
§ Indivisible if continuous
§ Divisible if not continuous
o Effects
§ Like Joint Indivisible Obligations, obligation converts to damages
once anyone commits breach
§ Cessation of Indivisibility
 ú Becomes divisible since all the debtors are liable for
damages but shall not contribute to more than their
respective shares in the obligation

VI. Obligations with a Penal Clause: Art. 1226

• General rule: Principal and penalty (in lieu of interest / damages)
• Kinds of Penal Clause
o As to effect
§ Subsidiary: only penalty can be enforced
§ Complementary: both penalty and principal can be enforced
o As to source
§ Conventional: stipulated by the parties
§ Legal: provided by law
o As to purpose
§ Punitive: penalty imposed is for punishment
§ Reparatory / Compensatory: penalty takes the place for damages
• Enforceability of Penalty
o Only when it is demandable
o Proof of actual damages suffered is not necessary: Art. 1228
• Effects of Penal Clause
o Substitute for indemnity for damages and payment of interest
§ Exceptions:
ú Stipulation that penalty + damages shall be paid
ú Obligor refuses to pay penalty
ú Obligor is guilty of fraud
o Not exempt debtor from performance: Art. 1227
§ Exception: When the right has been expressly reserved
o Creditor cannot demand both performance and penalty at the same time
§ Exception: When the right has been clearly granted
• When penalty shall be equitably reduced: Art. 1229
o Partial or irregular compliance
o Even when no performance: reduced if iniquitous or unconscionable
• Nullity of Principal Obligation or Penal Clause: Art. 1230
o Rationale: Accessory follows the principal
Extinguishment of Obligations
Modes of Extinguishment: Art. 1231

I. Payment or Performance: Art. 1232

• Delivery of money, but also performance of obligation
• Requisites
o Who can pay
§ In general: Debtor
ú Exceptions:
• Any person with interest in the obligation
• Third person with no interest but there is stipulation
§ Third person who is an interested party (like guarantor)
ú Even without knowledge of debtor
§ Third person who is not an interested party: Arts. 1236-1237
ú Without knowledge or against the will of debtor:
reimbursement only to extent of benefit
ú With knowledge, with consent: subrogation and full
reimbursement
§ Third person who does not intend to be reimbursed
ú Considered as donation, debtor’s consent required
§ In obligation to give
ú Free disposal of the thing due: not subject to any claim or
lien or encumbrance of third person
ú Capacity to alienate: person is not incapacitated to enter
into contracts and to make a disposition of thing due
o To whom payment may be made
§ In general
ú Creditor
ú Successor in interest
ú Any person authorized
§ Incapacitated person / Third person: Art. 1241
o What is to be paid (“identity”)
§ In obligations to:
ú Give specific thing: Art. 1244
ú Give generic thing: Art. 1246
• Medium quality
 ú Payment of money
• Made in currency stipulated
• In case of extraordinary inflation/deflation
o Value at the time of establishment = basis of
payment
§ Payment of interest: No interest due unless expressly stipulated in
writing
o How payment is to be made (“integrity”)
§ In general: Complete delivery or rendering of service
ú General Rule: Partial payment is not allowed
ú Exceptions:
• Express stipulation
• Debt is in part liquidated (definitely determined /
determinable) and in part unliquidated
• Different prestations subject to different terms or
conditions
• Parties know obligation reasonably cannot be
expected to be performed completely at one time
• Abuse of right or if good faith requires acceptance
§ Substantial performance in good faith
ú As if there had been strict and complete fulfillment
§ Estoppel: Art. 1235
o When payment is to be made
§ In general: upon demand
o Place of payment: Art. 1251
o Expenses of making payment
§ Debtor shoulders extrajudicial expenses = payment is to his benefit

• Application of Payments: Art. 1252-1253

o Requisites
§ One debtor and one creditor
§ 2 or more debts
§ Debts must be of the same kind
§ Debts are due
ú Exceptions:
• Stipulation
 • Made by the party for whose benefit the term has
been constituted
§ Payment made is not sufficient to cover all the debts
o Rules in application of payments
§ Debtor has first choice
§ Right to make application once exercised is irrevocable unless
creditor consents to change
§ If debtor does not choose, creditor can choose by specifying in the
receipt which debt payment was applied
§ If creditor also does not make application, the debt most onerous
shall be deemed satisfied
§ If debts due are the same nature and burden, payment shall be
applied proportionately
§ If neither party has exercised its option and there is disagreement
as to which debts payment must be applied = courts
ú If rules are inapplicable and application cannot be inferred:
most onerous debt
• “Most onerous to debtor”: in reference to the effect
produced, not the amount
• Payment by Cession: Art. 1255
o Requisites
§ 2 or more creditors
§ Debtor is partially insolvent
§ Assignment must involve all the properties of the debtor
§ Cession must be accepted by the creditors
o Effects
§ Properties are assigned to the creditors in order to sell the same
and apply the proceeds to the satisfaction of debt (released only
insofar as to net proceeds)
§ Creditors do not become owners of the properties unless there is
stipulation
• Dation in Payment: Art. 1245
o There is transfer of ownership
o Requisites
§ Performance of prestation in lieu of payment (animo solvendi)
§ Difference between prestation due and that which is substituted
 § Agreement between creditor and debtor that obligation is
extinguished
• Tender of payment and Consignation
o Tender of payment: Art. 1256
§ Offering to creditor the thing or sum due
§ Requisites
ú Legal tender
ú Unconditional and for the whole amount
ú Actually made
o Consignation
§ Depositing the thing or amount due with the proper court
§ Requisites
ú Valid debt which is due
ú Tender of payment by debtor and refusal without justifiable
reason by creditor to accept it
ú Previous notice of consignation
ú Consignation of thing or sum due
ú Subsequent notice of consignation made to the interested
parties
§ Effects
ú Once consignation is duly made, debtor may ask judge to
order than cancellation of the obligation
§ Withdrawal by debtor before acceptance by creditor or approval by
court
ú Debtor may withdraw the thing or sum due
§ Withdrawal by debtor after proper consignation
ú With creditor’s approval
• Creditor shall lose every preference which he may
have over the thing
ú Without creditor’s approval
• Formal complaint commenced with proper court to
determine if there was valid tender of payment or
consignation
§ Expenses of consignation
ú When properly made, charged against the creditor
II. Loss or Impossibility
• Loss of the thing due
o Goes out of commerce, perishes, disappears in such a way that its
existence is unknown or it cannot be recovered
o When loss will extinguish obligation: Art. 1262
§ Obligation to deliver determinate thing
§ Loss of the thing is without fault of debtor
§ Debtor is not guilty of delay
o Presumption
§ Debtor is at fault when loss happens while he is in possession
§ Exceptions:
ú Earthquake, flood, storm, natural calamity
o Effects
§ In obligation to give a specific thing
ú Fortuitous event does not exempt debtor:
• Law
• Stipulation
• Assumption of risk
• Crime (proceeds from)
• Loss of the thing (via law or stipulation even if
without fault)
§ In obligation to give generic thing: Art. 1263
§ In case of partial loss
ú Court has discretion to determine whether partial loss is so
important as to extinguish the whole obligation
§ Action against third persons who are responsible for the loss
ú Creditor has the right to proceed
ú No need for assignment by the debtor
• Impossibility of performance
o Debtor released:
§ Prestation becomes legally or physically impossible without his fault
§ Service has become so difficult as to be manifestly beyond the
contemplation of parties
ú Doctrine of unforessen events
 o Natural impossibility: by nature of the thing to be done, cannot by any
means be accomplished (void contract)
o Impossibility in fact: only out of the power of the obligor

• Modification of contract
o General rule: Courts cannot modify contracts, strict doctrine (Occena
case)
o Exception: Equity jurisdiction, peculiar circumstance, exceptional: public
would have been affected (Naga case)

III. Condonation or Remission: Art. 1270

• Gratuitous renunciation by creditor of his right against debtor
• Requisites
o Gratuitous
o Accepted by obligor
o Parties must have capacity
o Not be inofficious (cannot give more than what he can give by will)
o Expressly made, must comply with forms of donation
• Presumptions
o Delivery of private document evidencing a credit, made voluntarily by
creditor, implies the renunciation of action
§ If argued by heirs later on that it was inofficious = presumption of
payment
• Renunciation of principal debt shall extinguish accessory obligations, but waiver
of accessory shall leave principal in force

IV. Confusion or Merger of Rights: Art. 1275

• Meeting in one person the qualities of debtor and creditor in same obligation
• Requisites
o Principal debtor and creditor
o Complete and definite
• Effects
o In general: extinguished obligation
o In case of joint obligations
§ Does not extinguish obligation, only insofar as the corresponding
share
 o In case of solidary obligations
§ Entire obligation extinguished
• Confusion in accessory obligation: Principal obligation remains in force

V. Compensation: Art. 1278

• Two persons become principal debtors and creditors in their own right
• By operation of law: Art. 1286
o Occurs automatically, full legal capacity of parties not required
• Requisites: Art. 1279
o General rule: debtor sets it up
§ Exception: guarantor may also set it up
o General rule: Compensation when debts against each other are due and
demandable
§ Exception: Voluntary compensation
ú Right to dispose
ú Agreement to mutual extinguishment
§ “due” distinguished from “demandable”
• When compensation is not allowed
o Depositum: thing is deposited to keep safe (and return)
o Commodatum: gratuitous. Let thing be used (and return), not consumable
o Support: indispensable
o Civil liability from penal offense: pertains to accused (may apply to victim)
• Effects of Assignment of Credit: Art. 1285

VI. Novation: Art. 1291

• Total or partial extinction of obligation by creating a new one which substitutes it
• Requisites
o Existence of previous valid obligation
o Intention or agreement and capacity of parties to extinguish or modify
obligation
o Extinguishment or modification of obligation
o Creation or birth of valid new obligation
• Effects
o In general: Extinguishment of principal obligation carries with it accessory
o When accessory obligation may subsist
 § If in favor of third person (unless third person gives consent to
novation)
• Effect of the Status of the Original or New obligation
o Nullity or voidability of original obligation
§ Nothing to novate if void
§ Voidable or validated by ratification = valid novation
o Nullity or voidability of new obligation
§ No novation, original obligation will subsist
ú Unless parties stipulate that old obligation shall be
extinguished in any event
o Suspensive or resolutory condition of original obligation
§ New obligation deemed to have the same condition unless there is
stipulation to the contrary

• Objective novation
o Changing the object (cause) or principal conditions of the obligation
• Subjective novation
o By change of debtor (Substitution)
§ Expromision
ú Third person by his own initiative
ú Without knowledge and against the will of original debtor
ú Consent of the creditor and consent of third person
• Old debtor not liable for new debtor’s insolvency /
nonfulfillment
§ Delegacion
ú Third person “recommended” by original debtor
ú Consent of original debtor, creditor, third person
• Old debtor not liable for new debtor’s insolvency
o Exceptions:
§ Insolvency already existing and public
knowledge
§ Insolvency already existing and known
to old debtor
o By change of creditor (Subrogation): substitution of one person in the
place of another with reference to lawful claim/right (new creditor claims
as his own)
 § Conventional subrogation: Express agreement of parties
ú Consent of all parties is an essential requirement
ú Credit is extinguished and another appears
ú Distinguished from Assignment of Credit
• Process of transferring the right of the assignor to
the assignee who would then have the right to
proceed against the debtor
• Obligation still subsists, not extinguished
§ Legal subrogation: by operation of law
ú When presumed
• Creditor pays another creditor who is preferred
• Third person without interest in the obligation pays
with the approval of the debtor
• Third person with interest in the obligation pays even
without the knowledge of the debtor
ú Obligation subsists in all respects except only in the person
of the creditor

Fulfillment of Obligations
• Presumptions in payments of interests and installments
o Receipt without reservation to interest: interest paid
o Receipt of later installment without reservation to prior installments: prior
installments paid

Transmissibility of Rights
• General rule: all rights acquired in virtue of an obligation are transmissible
o Exceptions:
§ Prohibited by law
ú Contract of Partnership
ú Contract of Agency
ú Contract of Commodatum
§ Prohibited by stipulation of parties