7434 Yakal St. Brgy.

San Antonio, Makati City

OBLIGATIONS AND CONTRACTS

ATTY. ROLANDO B. PAGTOLON-AN, REB, REA

OBLIGATIONS
I. OBLIGATION, defined

What is an obligation?
An obligation is a juridical necessity to give, to do or not to do (Art.
1156, Civil Code).

Elements of an obligation

The elements are the following:

1) Juridical tie- which binds the parties to the obligation, and which
may arise from either bilateral or unilateral acts of persons;
2) Active subject- known as the oblige or creditor, who can demand
the fulfilment of the obligation;

3) Passive subject- known as the obligor or debtor, against whom the

obligation is juridically demandable; and

4) Object- the fact, prestation or service which constitutes the object

of the obligation.
Note: Form is sometimes added as a fifth requisite but as a general
rule however, it cannot be considered as essential.

II. SOURCES OF OBLIGATIONS

What are the sources of obligations?

Obligations arise from:

1. Law;
2. Contracts;
3. Quasi-contracts;

4. Acts or ommissions punished by law/delicts; and

5. Quasi-delicts (Art. 1157).

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ATTY. ROLANDO B. PAGTOLON-AN, REB, REA
iACADEMY School of Business
 What is a quasi-contract?
Quasi-contracts are juridical relations arising from certain lawful,
voluntary and unilateral acts, by virtue of which the parties become
bound to each other, based on the principle that no one shall be
unjustly enriched or benefited at the expense of another (Art. 2142).
What are the kinds of quasi-contracts?
The kinds of quasi contracts are as follows:

1. Solutio Indebiti, which exists when:

a. Something is received;
b. When there is no right to demand it; and

c. It was unduly delivered through mistake.

Note: Consequently, the obligation to return it arises (Art.
2154).
2. Negotiorum Gestio, which exists when one:
a. Voluntarily takes charge of the agency or
management of the business, or property of another;
and

b. Without any power from the latter.

Note: The officious manager is obliged to continue the same
until the termination of the affair and its incidents, or to require
the person concerned to substitute him, if the owner is in a
position to do so.

III. NATURE AND EFFECTS OF OBLIGATIONS

A. Obligation to Give:

1. A DETERMINATE or SPECIFIC Thing

What are the obligations of the person obliged to give a determinate or
specific thing?
a. To perform the obligation specifically;
b. To take care of the thing with the proper diligence of a good father
of a family unless another standard of care is required by law or
stipulated by the parties (Art. 1163);
c. To deliver all accessions and accessories of the thing although not
mentioned (Art. 1166); and
d. To be liable for damages in case of breach due to delay, fraud,
negligence or contravention of tenor thereof (Art. 1170).
What are the rights of the oblige or creditor in an obligation to give a
determinate/specific thing?

a. To compel specific performance with right to be indemnified for

damages (Art. 1165);

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iACADEMY School of Business
 b. To the fruits of the thing from the time the obligation to deliver it arises
(Art. 1164);

c. If the obligor delays, or has promised to deliver the same thing to two
or more persons who do not have the same interest, the creditor has
the right to hold the obligor responsible for any fortuitous event until
the latter has effected the delivery (Art. 1164 Par. 3);
d. To demand rescission of the obligation with right to recover
damages, should the obligation be reciprocal; and
e. To demand payment of damages (Art.1170).

2. An INDETERMINATE or GENERIC THING

What are the duties of a debtor in an obligation to give an indeterminate
or generic thing?
a. To deliver a thing which is neither of superior nor inferior quality (Art.
1246); and

b. To be liable for damages in case of breach due to delay, fraud,

negligence or contravention of the tenor thereof (Art. 1170).

What are the rights of the creditor in an obligation to give an indeterminate

or generic thing?

a. To ask for performance of the obligation;

b. To ask that the obligation be complied with at the expense of the
debtor (Art. 1165 Par. 2); and
c. To recover damages in case of breach of obligation (Art. 1170).

B. OBLIGATION TO DO OR NOT TO DO
1. POSITIVE PERSONAL OBLIGATION
If the person obliged to do something fails to perform the obligation, or does
it in contravention of the tenor of the obligation, what are the rights of the
obligee?

The obligee has the right:

a. To have the same executed at the cost of the obligor (Substitute
Performance);

b. He may ask that it may be decreed, that what has been poorly done
be undone (Art. 1167); and

c. To recover damages because of breach of the obligation (Art. 1170)

Note: Unlike obligations to give, in obligations to do the obligee does
not possess the power to compel the obligor to comply with his
obligation.

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iACADEMY School of Business
 2. NEGATIVE PERSONAL OBLIGATION
When the obligation consists in not doing, and the obligor does what has
been forbidden, what is the remedy of the obligee?
The obligee has the right:

a. To have the same undone at the expense of the obligor (Art. 1168);
and
b. To ask for damages because of breach of obligation (Art. 1170).

C. BREACHES OF OBLIGATIONS
1. Complete Failure to Perform

2. Default, Delay or Mora

Note: There is no default unless the creditors make a demand.

What are the kinds of Default?

a. Mora Solvendi- delay of the debtor to perform his obligation. It
may be:

* Ex re- obligation to give; and

* Ex persona- obligation to do.

b. Mora Accipiendi- delay of the creditor in accepting delivery of

the thing which is object of the obligation.
c. Compensation Morae- delay of the parties or obligors in
reciprocal obligations.
When does a person obliged to deliver or to do something incur in
delay?
Those obliged to deliver or to do something incur in delay from
the time oblige judicially or extrajudicially demands from them
the fulfilment of their obligation. However, the demand by the
creditor shall not be necessary in order that delay may exist:
1. When the obligation or the law expressly so declares;

2. When from the nature and the circumstances of the

obligation it appears that the designation of time when the
thing is to be delivered or the services is to be rendered was a
controlling motive for the establishment of the contract; and
3. When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
Note: In Reciprocal obligations, neither party incurs in delay if
the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the moment
one of the parties fulfils his obligation, delay by the other begins
(Art. 1169).

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iACADEMY School of Business
3. Fraud in the Performance of Obligation
What is Fraud or Dolo?

Fraud consists in the conscious and intentional proposition to

evade the normal fulfilment of an obligation.

FRAUD IN PERFORMANCE FRAUD IN CONSTITUTION

Present only during the Present only at the time of
performance of a pre- the birth of the obligation.
existing obligation.
Employed for the purpose of Employed for the purpose of
evading the normal fulfilment securing the consent of the
of an obligation. other party to enter into the
contract.
Results in the non-fulfillment of Results in the vitiation of
the obligation. consent.
The creditor has the right to The innocent party has the
recover damages. right to ask for the annulment
of the contract if fraud is
casual, to recover damages
if fraud is incidental.

4. Negligence (Culpa) in the Performance of Obligation

What is fault or negligence?

The negligence of the obligor consists in the omission of that
diligence which is required by the nature of the obligation and
corresponds with the circumstances of the persons, of the time,
and of the place. If the law or contract does not state the
diligence which is to be observed in the performance, that
which is expected of a good father of a family shall be required
(Art. 1173).
5. Contravention of the Tenor of Obligation
What kind of acts is included in the phrase “in any manner
contravene the tenor” of the obligation?
It includes not only any illicit act which impairs the strict and
faithful fulfilment of the obligation, but every kind of defective
performance (Arrieta vs. National Rice and Corn Corp.)

Legal Excuse for Breach of Obligation:

FORTUITIOUS EVENT
Is the obligor responsible for those acts which, could not be
foreseen, or which though foreseen, were inevitable?
Generally, no person shall be responsible for those acts
which, could not be foreseen, or which though foreseen
were inevitable. The exceptions are:
1. When expressly specified by law;

2. When otherwise declared by stipulation;

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iACADEMY School of Business
 3. When the nature of the obligation requires the
assumption of risk (Art. 1174); or

4. When the obligation is generic.

What are the requisites of a fortuitous event?

1. Event must be independent of the human will or at
least of the obligor’s will;

2. The event could not be foreseen, or if it could be

foreseen, must have been impossible to avoid;
3. The event must be of such a character as to render it
impossible for the obligor to fulfil his obligation in a
normal manner; and

4. Obligor must be free from any participation in the

aggravation of the injury resulting to the obligee (Lasam
vs. Smith).

Effect: Fortuitous event does not stop the running of the term
or period but merely relieves the contracting parties from the
fulfilment of their respective obligations during the pendency
of the event.

D. REMEDIES AVAILABLE TO CREDITOR IN CASES OF BREACH

What are the remedies of the creditor should the obligor fail to perform his
obligation?
1. Specific Performance in an obligation to deliver a specific thing
(Art. 1165 par. 1);

2. Substitute Performance by a third person in an obligation to deliver

a generic thing (Art. 1165 par. 2) and in an obligation to do except
in the latter case when the obligation to do us a purely personal
act;
3. Rescission

Can the injured party choose rescission after he has chosen

fulfilment of the obligation?
Yes. Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.

The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period.

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iACADEMY School of Business
 This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with
Articles 1385 and 1388 and the Mortgage Law.
Note: Rescission requires judicial permission to rescind. Such
permission is not required where the contract itself contains a
resolutory provision by virtue of which the obligation may be
cancelled in case of breach.

4. Damages
What are the instances when the obligor is liable for damages?
a. Fraud;

b. Negligence;
c. Delay; and

d. Those who in any manner contravene the tenor

thereof (Art. 1170).
How shall damages be paid in case both parties have
committed a breach of the obligation?
In case both parties have committed a breach of the
obligation, the liability of the first infractor shall be
equitably tempered by the courts. If it cannot be
determined which of the parties violated the contract,
the same shall be deemed extinguished, and each shall
bear his own damages (Art. 1192).

IV. KINDS OF CIVIL OBLIGATIONS

A. PURE

What is pure obligation?

A pure obligation is one wherein effectivity or extinguishment does
not depend on the fulfilment or non-fulfillment of a condition or on
expiration of a term or period, and which as a consequence, is
characterized by the quality of immediate demandability.

B. CONDITIONAL
What is a conditional obligation?
A conditional obligation is one whose effectivity is subrogated to the
fulfilment or non-fulfillment of a future and uncertain fact or event.
What is a condition?

A condition may be defined as a future and uncertain fact or event

upon which an obligation is subordinated or made to depend.
POTESTATIVE, CASUAL AND MIXED CONDITIONS

POTESTATIVE CASUAL CONDITION MIXED CONDITION

CONDITION
When the fulfilment of When its fulfilment When its fulfilment of
which depends upon depends on chance condition depends
partly on the will of a
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iACADEMY School of Business
the will of the party to and/or the will of a party to the obligation
the obligation. third person. and partly on chance
and/or will of a third
person.

Is the conditional obligation void if its fulfilment depends upon the will of the
debtor?
It depends.

When the fulfilment of the condition depends upon the sole will of
the debtor, the conditional obligation shall be void (Art. 1182).

When the fulfilment depends upon the will of a party to the obligation
and partly upon chance and/or the will of a third person, the
obligation including such condition shall take effect.

If it depends exclusively on the will of the creditor, the same is valid.

SUSPENSIVE AND RESOLUTORY CONDITIONS

SUSPENSIVE CONDITION RESOLUTORY CONDITION

A condition is suspensive when its A condition is resolutory when its
fulfilment results in ACQUISITION OF fulfilment results in EXTINGUISHMENT
RIGHTS arising out of the obligation. OF RIGHTS arising out of the
obligation.

Effect of improvement, loss or deterioration of specific thing before the

happening of a suspensive condition in an obligation to give
The rules are the following:
a. If the thing is lost without the fault of the debtor, the obligation
shall be extinguished.
b. If the thing is lost through the fault of the debtor, he shall be
obliged to pay damages; It is understood that the thing is lost
when it perishes, or goes out of commerce, or disappears in
such a way that its existence is unknown or it canot be
recovered.
c. When the thing deteriorates without the fault of the debtor,
the impairment is to be done by the creditor.
d. If it deteriorates through the fault of the debtor, the creditor
may choose between the rescission of the obligation and its
fulfilment, with indemnity for damages in either case.
e. If the thing is improved by its nature, or by time, the
improvement shall inure to the benefit of the creditor.

f. If it is improved at the expense of the debtor, he shall have no

other right than that granted to the usufructuary (Art. 1189).
He may, however, remove such improvements, should it be
possible to do so without damage to the property. The
usufructuary may also set-off the improvements he may have
on the property against any damage to the same (Art. 580).

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iACADEMY School of Business
C. OBLIGATION WITH A PERIOD OR A TERM
What is a period or term?

A period is a future and certain event upon the arrival of which the
obligation (or right) subject to it either arises or is terminated.

Whenever a period has been designated in an obligation, for whose

benefit is it presumed?
Whenever in an obligation a period has been designated, it shall be
presumed to have been established for the benefit of BOTH the
creditor and debtor, unless from the tenor of the same or other
circumstances it should appear that the period has been established
in favor of one or of the other (Art. 1196).
Can the debtor perform the obligation before the expiration of such
period?
When a period is designated for the performance or fulfilment of an
obligation, it is presumed to have been established for the benefit of
both creditor and the debtor. Consequently, as a general rule, the
creditor cannot demand the performance of the obligation before
the expiration of the designated period; neither can the debtor
perform the obligation before the expiration of the period.
Effect if Given to Debtor Alone

1. He may oppose any premature demand on the part of the creditor

for performance of the obligation; or

2. If he so desires, he may renounce the benefit of the period by

performing his obligation in advance.
What are the instances when the debtor loses the benefit of the period?

The debtor shall lose every right to make use of the period:
1. When after the obligation has been contracted, he becomes
INSOLVENT, unless he gives a guaranty or security for the debt;

Note: The insolvency need not be judicially declared in an

insolvency proceeding.
2. When he DOES NOT FURNISH to the creditor the GUARANTIES OR
SECURITIES which he has promised;
3. When by his own acts he has IMPAIRED SAID GUARANTIES or
securities after their establishment, and when through a
FORTUITOUS EVENT THEY DISAPPEAR, unless he immediately gives
new ones equally satisfactorily;
4. When the debtor VIOLATES ANY UNDERTAKING, in consideration of
which the creditor agreed to the period; or

5. When the debtor attempts to ABSCOND (Art. 1198).

Resolutory Period
When does the obligation with a resolutory period take effect?

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iACADEMY School of Business
 Obligations with a resolutory period take effect at once, but
terminates upon arrival of the day certain (Art. 1193).

Definite or Indefinite Period

When can the court fix a period?

The court may fix the period:

a. If the obligation does not fix a period, but from its nature and
the circumstances it can be inferred that a period was
intended; or
b. When it depends upon the will of the debtor (i.e., when the
debtor binds himself to pay when his means permit him to do
so) (Art. 1180).
When the obligation fails to fix a period, or when it depends upon the will
of the debtor, what should the creditor do before he can demand
payment?
The creditor must ask the court to set the period, before he can
demand payment. The period to be fixed by the court becomes part
of the contract and until it has expired no action to enforce payment
can be maintained (Art. 1197).

E. ALTERNATIVE OR FACULTATIVE

ALTERNATIVE OBLIGATION FACULTATIVE OBLIGATION

Several objects are due. Only one object is due.
It may be complied with by the It may be complied with by the
delivery of one of the objects or by delivery of another object or by the
performance of one of the performance of another prestation
prestations which are alternatively in substitution of that which is due.
due.
The right of choice may pertain to the The right of choice pertains only to
debtor. the debtor.
If expressly granted, the right of
choice may also pertain to the
creditor or third person.
Loss/impossibility of all Loss/impossibility of the
objects/prestations due to fortuitous object/prestations due to fortuitous
event shall extinguish the obligation. event is sufficient to extinguish the
obligation.
As to culpable loss before choice, it It does not give rise to any liability
may give rise to liability on the part of on the part of the debtor.
the debtor.

F. JOINT AND SOLIDARY OBLIGATIONS

1. JOINT (DIVISIBLE) OBLIGATION

Concurrence of Two or More Creditors and/or Two or More Debtors

What is the liability when there is concurrence of two or more
creditors or of two or more debtors in one and the same obligations?

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 The general rule is that joint obligation is presumed. The
exceptions are:

1. The obligation expressly stated that there is solidarity;

2. The law requires solidarity, i.e. tort, quasi-contracts, liability of
principals, accomplices and accessories of a felony.
3. Nature of the obligation requires solidarity (Art. 1207) i.e.
criminal offenses and torts.

Can the joint debtor be required to pay for the share of another?
No debtor can be compelled to answer for the liability of the
others. Consequently, if there is a breach of the obligation by
reason of the act of one of the debtors, the damages due to
its breach must be borne by him alone. Similarly, if there is any
defense which is purely personal to one of the debtors, he
alone can avail himself of such defense. Thus,it has been held
that payment or acknowledgment by one of the joint debtors
will not stop the running of the period of prescription as to the
others.
In case the of insolvency of one of the joint debtors, can the creditor
proceed against the others for the share of the insolvent debtor?
If one of the joint debtors should be insolvent, the others shall
not be liable for his share (Art. 1209).
Four foreign students rented an apartment of Natasha for a period
of one (1) year. After one semester, three (3) of them, returned to
their home country and the fourth student transferred to a boarding
house. Natasha discovered that they left unpaid internet bills in the
total amount of PHP10,000.00. The lease contract provides that the
lessees shall pay for the internet services in the leased premises.
Natasha demanded that the fourth student pay the entire amount
of the unpaid internet bills, nut the latter is willing to pay only ¼ of it
or PHP2,500.00. Who is correct?

The fourth student is correct. His liability is only joint. Hence, pro rata.
There is solidary liability only when the obligation expressly so stateor
when the law or nature of the obligation requires solidarity. The
contract of lease in the case at bar does not, in any way, stipulate
solidarity.

2. JOINT INDIVISIBLE OBLIGATION

When is there a joint indivisible obligation and what are the effects?

If the division is impossible, the right of the creditors may be

prejudiced only by their collective acts, and the debt can be
enforced only by proceeding against all the debtors. If one of the
latter should be insolvent, the others shall not be liable for his share
(Art. 1209).

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 Should any one of the joint debtors fail to comply with his undertaking, are
the other joint debtors liable for damages?

It depends.
1. In case of joint divisible obligation, the other debtors cannot be
compelled to answer for the liability of others as the debt is divided
into as many equal shares as there are debts (Art. 1208).
2. In case of a joint indivisible obligation, it gives rise to indemnity for
damages from the time any one of the debtors does not comply
with his undertaking. The debtors who may have been ready to
fulfil their promises shall not contribute to the indemnity beyond the
corresponding portion of the price of the thing or of the value of
the service in which the obligation consists (Art. 1224).

3. SOLIDARY OBLIGATION (JOINTLY AND SEVERALLY)

Mutual Agency among Solidary Creditors
What are the effects of mutual agency among solidary creditors?

1. The debtor may pay any one of the solidary creditors; but if any
demand, judicial or extrajudicial, has been made by one of them,
payment should be made to him (Art. 1214).
2. Novation, compensation, confusion or remission of the debt, made
by any of the solidary creditors or with any of the solidary debtors,
shall extinguish the obligation, without prejudice to the provisions of
Article 1219.

The creditor who may have executed any of these acts, as well as
he who collects the debt, shall be liable to the others for the share in
the obligation corresponding to them (Art. 1215).

Mutual Guaranty among Solidary Debtors

What are the effects of mutual guaranty among solidary debtors?

1. The creditor may proceed against any one of the solidary debtors
or some or all of them simultaneously. The demand made against
one of them shall not be an obstacle to those which may
subsequently be directed against the others, so long as the debt
has not been fully collected (Art. 1216).

2. Payment made by one of the solidary debtors extinguishes the

obligation. If two or more solidary debtors offer to pay, the creditor
may choose which offer to accept.
He who made the payment may claim from his co-debtors only
the share which corresponds to each, with the interest for the
payment already made. If the payment is made before the debt
is due, no interest for the intervening period may be demanded.

When one of the solidary debtors cannot, because of his

insolvency, reimburse his share to the debtor paying the obligation,
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iACADEMY School of Business
 such share shall be borne by all his co-debtors, in proportion to the
debt of each (Art. 1217).

3. A solidary debtor may, in actions filed by the creditor, avail himself

of all defenses which are derived from the nature of the obligation
and of those which are personal to him, or pertain to his own share.
With respect to those which personally belong to the others, he
may avail himself thereof only as regards that part of the debt for
which the latter are responsible (Art. 1222).

A, B and C borrowed PHP12,000.00 from X on June 01, 1966. They

executed a promissory note: binding themselves jointly and severally
to pay the obligation on June 01, 1968. X brought action against A
for the payment of the entire obligation plus interest. A interposed the
following defences: 1) That B was only a minor at the time of the
celebration of the contract and that such fact was known to X; and
2) that X had granted an extension of two years to C within which to
pay. Can A avail himself of these defences?
Yes. Under Art. 1222 of the Civil Code, there are three (3) kinds of
defences which are available to a solidary debtor if the creditor
proceeds against him alone for payment of the entire obligation.
They are:
1. Defenses derived from the nature of the obligation;

2. Defenses personal to him or pertaining to his share; and

3. Defenses personal to the others, but only as regards that part of the
debt for which the latter are responsible.

D. DIVISIBLE AND INDIVISIBLE

Divisible obligations are those which have as their object a prestation which
is susceptible of partial performance without the essence of the obligation
being changed. Individual obligations, on the other hand, are those which
have as their object a prestation which is not susceptible of partial
performance, because, otherwise, the essence of the obligation will be
changed.

E. OBLIGATIONS WITH A PENAL CLAUSE

Is the obligor liable for damages despite the fact that the obligation is with
penal clause?
It depends. Generally, the penalty shall substitute the indemnity for
damages and the payment of interests in case of non-compliance. The
exceptions are:
1. If there is stipulation to the contrary;

2. If the obligor refuses to pay the penalty; or

3. The obligor is guilty of fraud in the fulfilment of the obligation.

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EXTINGUISHMENTS OF OBLIGATIONS
What are the modes of extinguishment of obligations?

1. By payment or performance;
2. By lost of the thing due;

3. By the condonation or remission of the debt;

4. By the confusion or merger of the rights of creditor and debtor;
5. By compensation;

6. By novation;
7. Annulment;
8. Rescission;

9. Fulfilment of a resolutory condition;

10. Prescription;

11. Renunciation or waiver by the oblige or creditor;

12. Compromise;
13. Expiration of the resolutory term or period;

14. Death of one of the contracting parties in purely personal

obligations;

15. The will of one of the contracting parties in certain contracts; or

16. The agreement of both contracting parties or what is sometimes
known as mutual assent or dissent.

I. PAYMENT
What is the effect of payment made by a third person in order to
extinguish the obligation?
a. The creditor is not bound to accept payment or performance
by a third person who has no interest in the fulfilment of the
obligation, unless:
1. There is a stipulation to the contrary (Art. 1236 par.1); or
2. When it is made by a third person who has an interest in the
fulfilment of the obligation, such as a joint debtor,
guarantor, or surety.

b. Whoever pays for another may demand from the debtor

what he has paid, except that if he paid:
1. Without the knowledge; or

2. Against the will of the debtor

Note: He can recover only insofar as the payment has been
beneficial to the debtor (Art. 1236 par.2)
c. When a person pays on behalf of the debtor without the
knowledge or against the will of the latter, he cannot compel

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iACADEMY School of Business
 the creditor to subrogate him in his rights, such as those arising
from a mortgage, guaranty, or penalty (Art. 1237).

Dation in Payment

Dation in payment is where property property is alienated to

the creditor in satisfaction of a debt in money, shall be
governed by the law of sales (Art. 1245).

Form of Payment
Can payment be made through a promissory note or bills of
exchange?
Generally, payment must be made in legal tender in the
Philippines. However, the delivery of promissory notes payable
to order, or bills, of exchange or other mercantile documents
shall produce the effect of payment only:

1. When they have been cashed; or

2. When through the fault of the creditor they have been
impaired.
Application of Payment
What is the concept of application of payment?
Designation of the debt to which the payment must be
applied when the debtor has several obligations of the
same kind in favor of the same creditor.
Requisites:
1. There must be only one debtor and only one creditor;

2. There must be two or more debts of the same kind;

3. All of the debts must be due except:
a. If there is stipulation to the contrary; or
b. Application of payment is made by the party
for those whose benefit the term has been
constituted (Art. 1196); and
4. Amount paid by the debtor is insufficient to cover the
total amount of all the debts.

Tender of Payment and Consignation

Tender of payment is the manifestation of the debtor to the

creditor of his decision to comply immediately with his
obligation, preparatory act and extrajudicial in character.

Consignation is to deposit the object if the obligation in a

competent court in accordance with the rules prescribed by
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iACADEMY School of Business
 law, after refusal or inability of the creditor to accept the
tender of payment; principal act and judicial in character.

What are the instances where a consignation produces the

effect of payment even without prior tender of payment:
1. Creditor is absent or unknown, or does not appear at
the place of payment;

2. Creditor is incapacitated to receive the payment at

the time it is due;
3. When without just cause, the creditor refuses to give a
receipt;
4. When two or more persons claim the right to collect;
and
5. When the title of the obligation has been lost (Art.
1256).

May the debtor withdraw the consignation made?

Yes. The debtor may withdraw the thing or sum deposited:

1. Before the creditor has accepted the consignation;

2. Before judicial declaration that the consignation has been
properly made (Art. 1260); or
3. The creditor should authorize the debtor to withdraw the
same.

II. LOSS OF DETERMINATE THING DUE OR IMPOSSIBLITY OR DIFFICULTY OF

PERFORMANCE

What are the instances when a debtor in an obligation to do shall be

released from the non-performance of his obligation?
The instances are the following:

1. When the obligation becomes legally or physically impossible

without the fault of the debtor, obligor is released from the
obligation; and
2. When the service has become so difficult as to be manifestly
beyond the contemplation of the parties, the court should be
authorized to release the obligor in whole or in part.

III. CONDONATION OR REMISSION OF DEBT

Express Condonations and Required Formality thereof
Requisites:

1. It must be gratuitious;
2. It must be accepted by the obligor;

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iACADEMY School of Business
 3. The obligation must be demandable;
4. Parties must have the capacity;

5. Not inofficious; and

6. Must comply with the forms of donation should it be express.

Implied
What are the instances of implied condonation?
1. The delivery of a private document evidencing the credit,
made voluntarily by the creditor to the debtor;
2. Whenever the private document in which the debt appears
is found in the possession of the debtor; and

3. It is presumed that the accessory obligation of pledge has

been remitted when the thing pledged, after its delivery to
the creditor, is found in the possession of the debtor, or of a
third person who owns the thing (Art. 1274).

D. CONFUSION
What are the requisites of confusion or merger of rights?

1. Merger of the characters of the creditor and debtor must be in the

same person;
2. Must take place in the person of either the principal creditor or the
principal debtor; and
3. Whether the merger refers to the entire obligation or only part
thereof, there must be complete and definite meeting of all
qualities of creditor and debtor in the obligation or in part thereof
affected by the merger.

E. COMPENSATION
When does compensation take place?
It shall take place when two (2) persons, in their own right, are
creditors and debtors of each other (Art. 1278).

What are the requisites of legal compensation?

1. There must be two (2) parties, who, in their own right, are
principal creditors and principal debtors of each other
except in case of a guarantor (Art. 1280);
2. Both debts must consists in sum of money;

3. Both debts must be due, except voluntary compensation

(Art. 1282); and
4. Both debts must be liquidated and demandable;
5. There must be no retention or controversy commenced by
third persons over either of the debts and communicated in
due time to the debtor (Art. 1279); and
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iACADEMY School of Business
 6. The compensation must not be prohibited by law.

NOVATION
What are the instances when novation takes place?

The instances are the following:

1. Changing their object or principal conditions;
2. Substituting the person of the debtor; and

3. Subrogating a third person in the rights of the creditor

(Art. 1291).
Note: If a period for payment if an obligation is:

*Shortened --------------------- there is novation

*Extended --------------------- no novation

*Postponed -------------------- no novation

the date of
payment

In order for an obligation to be extinguished by reason of

novation, what form of extinguishment is required?
1. Express- wherein the extinguishment by reason of
novation must be so declared in unequivocal terms;
or
2. Implied- when the old and the new obligations be on
every point incompatible with each other (Art.
1292).

EXPROMISION
What is a substitution of the debtor by expromision?
It is that which is effected with the consent of the creditor
at the instance of the new debtor even without the
consent or even against the will of the old debtor.

What are the effects of a substitution of a new debtor without

the knowledge or against the will of original debtor?

1. He can recover only insofar as the payment has been

beneficial to the debtor (Art. 1236);

Note: However, he cannot compel the creditor to

subrogate him in his rights, such as those arising from a
mortgage, guaranty or penalty (Art. 1237);

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iACADEMY School of Business
 2. The new debtor’s insolvency or non-fulfilment of the
obligation shall not give rise to any liability on the part of
the original debtor (Art. 1294).

DELEGACION
When the substitution of the debtor was proposed by the
original debtor and accepted by the creditor, what is the
effect of insolvency of the new debtor?
The insolvency of the new debtor, who has been
proposed by the original debtor and accepted by the
creditor, shall not revive the action of the latter against
the original obligor, except when:

1. Said insolvency was already existing and of public

knowledge; or
2. Known to the debtor when he delegated his debt
(Art. 1295).
In delegacion, if the new debtor paid the obligation, his rights
are:
1) Demand reimbursement from the original debtor of
the amount paid; and

2. Compel the creditor to subrogate him of his rights.

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ATTY. ROLANDO B. PAGTOLON-AN, REB, REA
iACADEMY School of Business