BOOK IV

Obligations and Contracts

TITLE I
Obligations

CHAPTER 1
General Provisions

Article 1156. An obligation is a juridical necessity to give, to do or not to do. (n)

Elements/Requisites of Obligations: (JAPO)

1. Juridical Tie/vinculum juris: - the efficient cause that binds the parties involved to
perform.

NOTE: The vinculum juris is established by: a. Law; b. Bilateral acts; c. Unilateral act.

2. Active Subject (Creditor/Obligee): The individual who has the right to demand the
fulfillment of the obligation.
3. Passive Subject (Debtor/Obligor): The person who is obligated to perform or refrain
from performing the prestation.
4. Object/Prestation: The specific act, service, or thing that constitutes the subject matter
of the obligation.

To be valid object: a. Licit or lawful; b. Possible, physically, & judicially; c. Determinate or

determinable; and d. Pecuniary value or possible equivalent in money.

The absence of any of the first three makes the object void.

Classification of Obligations:

A. From viewpoint of sanction:

(a) Natural Obligation:

 A natural obligation arises from natural law, which refers to the moral or ethical principles that
govern human conduct. These obligations are based on conscience and equity.
 Example: A person who has a debt that has been prescribed (i.e., the time limit for legal action
has expired) still feels morally obligated to pay the debt, even though they cannot be legally
compelled to do so.
(b) Civil Obligation:

 A civil obligation is one that arises from positive law, meaning it is defined and enforceable
according to established rules (such as the Civil Code). These obligations are legally enforceable
Example: If someone borrows money and agrees to repay it by a certain date, the creditor can
take legal action if the debtor does not pay on time.

(c) Moral Obligation:

 there is a moral or ethical component (as in a natural obligation).

 Example: Duty of catholic to hear mass every Sunday, sanctions here are conscience or law of
the church

B. AS TO OBJECT

(a) Determinate and Generic:

 Determinate Obligation:
o The object of the obligation is specific and clearly identified. It refers to a particular
thing, service, or performance that is unique and distinguishable from others.
o Example: A contract for the sale of a specific car, where the car’s make, model, and
condition are clearly specified.
 Generic Obligation:
o The object of the obligation is designated by its class or type, rather than being a
specific, identifiable item. This means the obligation is fulfilled as long as the object
belongs to the specified class.
o Example: A contract for the sale of 100 bags of rice where the exact bags are not
specified, just that they should meet certain generic criteria (e.g., high-quality rice).

C. From viewpoint of affirmativeness:

 Positive Obligation:
o The obligor is required to do or give something. It involves a positive act or provision.
o Example: A contract where a party agrees to deliver goods or perform a service.
 Negative Obligation:
o The obligor is required to refrain from doing or giving something. It involves a duty to
abstain or not perform certain actions.
o Example: A non-compete clause where a person agrees not to engage in a competing
business for a specified period.

D. From viewpoint of subject matter:

 Real Obligation:
o The obligation involves giving something (usually a thing or property). The focus is on
the transfer or provision of a tangible object.
o Example: A sale contract for a house, where the obligor must give the house to the
buyer.
 Personal Obligation:
 o The obligation involves doing or not doing something (usually a personal service or
abstention from action).
o Example: A contract where someone agrees to paint a house or to refrain from entering a
competitor’s business.

E. From viewpoint of person obliged :

 Unilateral Obligation:
o Where only one of the parties is bound
o Example: A owes B 1 Million. A is one only bound
 Bilateral Obligation:
o When both parties are bound
o Example: Contract of sale buyer obliged to pay, seller obliged to deliver

F. As to susceptibility of partial fulfillment:

 Divisible Obligation:
o The obligation can be partially performed. It can be broken down into smaller parts, and
each part can be fulfilled separately.
o Example: A contract to deliver 1,000 units of a product, where partial deliveries can be
made over time.
 Indivisible Obligation:
o The obligation cannot be partially performed. It must be completed in its entirety, and
it is treated as a whole.
o Example: A contract to build a house, where the project must be completed in full rather
than in parts.
 (g) Principal and accessory — principal, when it is the main undertaking; accessory, when it is
merely an undertaking to guarantee the fulfi llment of the principal obligation.

G. As to Perfection and Extinguishment:

1. Pure Obligations:
o These obligations are immediately demandable and not subject to any condition or
term. There are no contingencies, meaning the debtor must perform the obligation right
away.
2. Conditional Obligations:
o These obligations depend on a condition that either:
 Suspensive Condition: The obligation arises only when a specific condition
happens or is fulfilled. For example, a sale contract that becomes effective only if
the buyer secures financing.
 Resolutory Condition: The obligation ends when a certain condition happens.
For instance, a contract that is valid for one year and ends once the year is over.
3. Obligations with a Term (a plazo):
o These obligations are tied to a specific period and can be either:
 Suspensive Term: The obligation is only due when the specified period expires.
For example, a lease that starts on a specific date.
 Resolutory Term: The obligation terminates once the period expires. For
example, an employment contract that ends after a fixed term.
H. As to Creation of Obligations

 Legal (Art. 1158): Obligations can arise by law itself. For example, some obligations are
created automatically by statutory law, such as obligations to pay taxes or damages.
 Conventional (Agreements): These obligations are created by an agreement between
two or more parties. The most common example is a contract between parties that
imposes certain duties or responsibilities.

[Link] of Responsibility or Liability

 Joint Responsibility: In a joint obligation, each debtor is responsible for only a part of
the total debt. Similarly, each creditor only holds a claim to their part of the obligation.
 Solidary Responsibility (Art. 1207): In a solidary obligation, each debtor is fully liable
for the entire obligation. However, if one debtor pays the entire debt, they can seek
reimbursement from the other co-debtors for their share.

[Link] to Choose and Substitution

 Alternative Obligation (Art. 1199): The debtor has the right to choose among several
possible prestations (performances). For example, a debtor might be given the choice
between paying in cash or delivering goods, and they can choose which to do.
 Facultative Obligation (Art. 1206): There is only one prestation (performance), but the
debtor can substitute it with another. For example, if a contract requires delivering a
specific item, the debtor may have the option to provide a different item in its place.

SOURCES OF OBLIGATION

Article 1157. Obligations arise from:

(1) Law;

(2) Contracts;

(3) Quasi-contracts;

(4) Acts or omissions punished by law; and

(5) Quasi-delicts. (1089a)

 Law: or obli ex lege

Tax payment: A citizen is legally obliged to pay income tax under tax laws.
 Contracts: obli ex contractu
Sale of goods: A seller is obliged to deliver goods and the buyer is obliged to pay the agreed price.
 Quasi-contracts: A juridical relation arising from lawful, voluntary, and unilateral acts based on the
principle that no one shall be unjustly enriched or benefited at the expense of another
Example:
Negotiorum gestio: A person pays someone else's bill to avoid harm, and the person is later entitled to
reimbursement.
 Acts or Omissions Punished by Law: quasi ex delicto
Traffic violation: A person who causes an accident by running a red light must compensate the injured
party.
 Quasi-delicts:An act or omission arising from fault or negligence which causes damage to another,
there being no pre-existing contractual relations between the parties
Example
Car accident: A driver negligently causes an accident and must pay for the damages caused to the other
party.

Article 1158. Obligations derived from law are not presumed. Only those expressly determined in
this Code or in special laws are demandable, and shall be regulated by the precepts of the law which
establishes them; and as to what has not been foreseen, by the provisions of this Book. (1090)

To determine whether an obligation arises from law or another source (contract, quasi-contract,
crime, or quasi-delict), we must examine or look for the law that provide for such obligation.

Examples:

 The obligation to support spouses (Civil Code)

 Employers' obligations under the Labor Code
 Owners' obligations in legal easements.

Article 1159. Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith. (1091a)

Obligations Arising from Contracts (Art. 1159):

Obligations that arise from contracts are binding and have the force of law between the parties
involved. Once a contract is perfected (usually through mutual consent), the parties are required
to fulfill their obligations in good faith, meaning they must comply with the terms, conditions,
and stipulations of the contract.

Contract can have:

 Reciprocal obligations: Both parties have obligations to each other.

 Unilateral obligations: Only one party is obligated.

The agreement between the parties is the primary source of these obligations, but they must
comply with laws, morals, good customs, public order, and public policy.

Article 1160. Obligations derived from quasi-contracts shall be subject to the provisions of Chapter
1, Title XVII, of this Book. (n)
Obligations Arising from Quasi-Contracts (Art. 1160):
Quasi-contracts as previously defined are legal relationships formed from voluntary, lawful, and
unilateral acts, where one party benefits at the expense of another, and no one should be unjustly
enriched.

Quasi-contracts do not involve express consent but are based on presumed consent, meaning
obligations arise even without an explicit agreement between the parties.

The Civil Code recognizes two main types of quasi-contracts:

1. Negotiorum Gestio: When someone voluntarily manages another person’s affairs or

property without authorization, they are obligated to continue managing it until the matter
is resolved.
2. Solutio Indebiti: Occurs when a person mistakenly delivers something to another who is
not entitled to it. The recipient must return the property or money.

Article 1161. Civil obligations arising from criminal offenses shall be governed by the penal laws,
subject to the provisions of article 2177, and of the pertinent provisions of Chapter 2, Preliminary
Title, on Human Relations, and of Title XVIII of this Book, regulating damages. (1092a)

Obligations Arising from Criminal Offenses (Art. 1161)

Article 2177. Responsibility for fault or negligence under the preceding article is entirely separate
and distinct from the civil liability arising from negligence under the Penal Code. But the plaintiff
cannot recover damages twice for the same act or omission of the defendant.(n)

A person liable for a criminal offense is typically also civilly liable. This civil liability is based
on the criminal liability, but the two are separate: criminal liability punishes the offender, while
civil liability compensates the victim.

Key Points:

1. Dual Aspect: A crime has both criminal and civil aspects—one focuses on punishment
(criminal), while the other focuses on repairing the damage to the victim (civil).

Article 1162. Obligations derived from quasi-delicts shall be governed by the provisions of Chapter
2, Title XVII of this Book, and by special laws. (2176 to 2194)

-Tort or culpa aquilana

-It is an act of fault or negligence which causes damage to another, there being no exiting
contractual obligations between the parties.

Ex. Reckless driving and injured a pedestrian.

-Culpa or negligence
Is defined as the omission of that diligence which is required by the circumstances of person
place and time

CHAPTER 2

Nature and Effect of Obligations

Article 1163. Every person obliged to give something is also obliged to take care of it with the
proper diligence of a good father of a family, unless the law or the stipulation of the parties requires
another standard of care. (1094a)

Article 1163: Duty to Care for a Thing

Explanation:
This article emphasizes the obligation of a person who is required to deliver something to take
proper care of it, as a "good father of a family." This means that the person must exercise
reasonable care and diligence to protect the thing and ensure that it remains in the same condition
as when the obligation was made.

Article 1164. The creditor has a right to the fruits of the thing from the time the obligation to deliver it
arises. However, he shall acquire no real right over it until the same has been delivered to him.
(1095)

Article 1164: Right of the Creditor to the Fruits

1. Creditor's Right to Fruits: The creditor is entitled to the fruits (e.g., income or benefits)
of the thing once the obligation to deliver it arises, even if the actual delivery has not yet
taken place. This is intended to protect the creditor's interest, especially in cases where
the debtor delays or fails to deliver the object.

Example: A is obliged to give B on February 14, 2025 a sum of money. Before February 14, B
has no right over this money, But after Feb 14, B now has rights to the money.

Note: It is not the agreement but the deliver that transfers the ownership.

KINDS OF DELIVERY

1. Actual Delivery (Real Delivery)

 This is the most straightforward type of delivery, where the goods or property are
physically transferred from the seller or giver to the buyer or recipient.

2. Constructive Delivery
  Constructive delivery is a symbolic form of delivery. It happens when something is
delivered indirectly, but the possession or control over the item is transferred.

KINDS OF CINSTRUCTIVE DELIVERY:

1. Symbolic Delivery
Explanation: This is a type of constructive delivery where the transfer of possession is done through a
symbolic gesture,.
Example: Handing over the keys to a house or giving a title deed to a car.
2. Longa Manu (Long Hand) Delivery
Explanation: This type of delivery occurs when the transfer of possession is done by indicating or
pointing to the property that is being transferred, rather than physically handing it over.
Example: Pointing to a parcel of land and declaring the transfer of ownership.
3. Brevi Manu (Short Hand) Delivery
Explanation: This occurs when the recipient already has physical possession of the item, but ownership
or control is formally transferred to them, typically through a simple declaration of intent. No physical
handover is needed.
Example: A person who already holds a rented apartment's keys but is given formal ownership of the
apartment through an agreement.
4. Contitutum Possessorium (Continued Possession)
Explanation: This refers to a situation where someone retains possession of an item even after the
ownership or legal rights to it have been transferred. The new owner is considered to continue the
possession through the original holder.
Example: A person sells a car but lets the buyer continue using it for a time while the legal transfer of
ownership is pending.
5. Execution of Legal Forms and Solemnities
Explanation: This refers to the formal legal procedures required for certain legal acts to be valid. It
involves executing necessary documents, such as contracts or deeds.
Example: When transferring property, the signing of a deed of sale, its notarization, and the registration
of the transfer in official records are all part of the required legal forms and solemnities that make the
transfer valid.

Article 1165. When what is to be delivered is a determinate thing, the creditor, in addition to the right
granted him by article 1170, may compel the debtor to make the delivery.

If the thing is indeterminate or generic, he may ask that the obligation be complied with at the
expense of the debtor.

If the obligor delays, or has promised to deliver the same thing to two or more persons who do not
have the same interest, he shall be responsible for any fortuitous event until he has effected the
delivery. (1096)
Review of Article 1165:

Article 1165 outlines the obligations of the debtor concerning the delivery of a determinate or
indeterminate thing:

1. Determinate Thing:
o If the thing to be delivered is determinate (specific and clearly identified), the
creditor has the right to compel the debtor to deliver it.
o Example: If a person agrees to deliver a specific car (a determinate thing), the
creditor can require the debtor to hand over that particular car.
2. Indeterminate or Generic Thing:
o If the thing to be delivered is indeterminate (general or not specifically
identified), the creditor may request that the debtor fulfill the obligation by
delivering an item at the debtor’s expense.
o Example: If a contract states the delivery of 100 bags of rice (generic), the debtor
must provide the specified quantity, and the debtor bears any costs involved in
fulfilling the obligation.
3. Delay or Multiple Obligations:
o If the debtor delays delivery or has promised the same item to multiple parties
with conflicting interests, the debtor remains responsible for any fortuitous
event (unforeseen event) until the delivery is completed.
o Example: If the debtor promised to deliver the same item (like a laptop) to two
people and it gets damaged before delivery, the debtor is still liable for the loss.

Article 1166. The obligation to give a determinate thing includes that of delivering all its accessions
and accessories, even though they may not have been mentioned. (1097a)

Example:

 If a person agrees to sell a house (a determinate thing), they are also required to deliver
the furniture (accessories) and landscaping (accessions), even if these were not
explicitly mentioned in the contract.

Article 1167. If a person obliged to do something fails to do it, the same shall be executed at his
cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been poorly done be undone. (1098)

-The First Paragraph of the article talks about positive personal obligations…

If someone is supposed to do something but fails to do it, they will have to pay the cost for it to
be done.

If they do it incorrectly or not according to the agreement, the same rule applies.

Additionally, if the job is done poorly, it can be ordered to be undone and done properly.
Article 1168. When the obligation consists in not doing, and the obligor does what has been
forbidden him, it shall also be undone at his expense. (1099a)

This is Article talks about negative obligation

 Scenario: Suppose a person (A) agrees, through a contract, not to build any structures on a
piece of land owned by another person (B). However, A goes ahead and builds a fence on the
property despite the agreement.

 Result: Since A violated the obligation not to do something, the fence will be removed at
A’s expense. A will be responsible for undoing the action and restoring the property to its
original state.

Article 1169. Those obliged to deliver or to do something incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment 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 declare; or

(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered was
a controlling motive for the establishment of the contract; or

(3) When demand would be useless, as when the obligor has rendered it beyond his power
to perform.

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
fulfills his obligation, delay by the other begins. (1100a)

SIMPLE RECIT: A person who is supposed to deliver something or do something is considered

DELAY as soon as there is DEMAND from the other party, whether formally or informally.
However, demand is not always need to be consider that there is delay:

1. If the law or the agreement says they must do it by a specific time.

2. If it appears that the time was the controlling motive or an important part of the
agreement.
3. If the demand will be useless because they can no longer do it.

In situations where both parties have obligations, neither is considered delay if the other hasn't
done their part or isn't ready to do their part. Once one party fulfills their obligation, the other
becomes delay if they don't do theirs.

Although this mentions DELAY this article pertains to MORA or fault

Different KINDS OF FAULT or MORA:

a. Mora solvendi- Default on part of debtor (2 kind, ex re , and ex persona)

b. Mora accependi- default on part of creditor
c. Compensatio morae- When both parties are in default, as if no one is at fault,

Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene the tenor thereof, are liable for damages. (1101)

Article 1170 holds that individuals who are guilty of fraud, negligence, or delay in fulfilling their
obligations are liable for damages.

Grounds for liability in the performance of obligations:

 Fraud/ deceit/ dolo- refers to intentionally deceiving or misrepresenting facts.

 Negligence/ fault/cula- refers to failing to exercise proper care in fulfilling the
obligation.
 Default/Delay means failing to perform the obligation within the agreed-upon time.
 Violation of terms of obligation

Kinds of Damages:

- Moral damages- for mental and physical anguish

- Exemplary damages-corrective to or set an example
- Nominal damages- to vindicate a right
- Actual- actual loss

Article 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an
action for future fraud is void. (1102a)

Article 1171 establishes that fraud, which occurs in the performance of obligations, is always
actionable. A party who commits fraud can be held responsible for damages.

The article also specifies that a waiver of an action for future fraud is invalid. This means that
someone cannot waive their right to take legal action for fraud that has not yet occurred.

 Waiver of future fraud is void because it goes against public policy. If allowed, it could
lead to a situation where a party could defraud another without consequence.
 Waiver of past fraud is valid because the victim of the fraud may choose to forgive the
wrongdoer and forgo any legal action for damages.

Classification of Fraud:

a. According to time: Past or Future Fraud:

b. According to Meaning:
-Fraud in obtaining consent, Can be casual or incidental
-Fraud in performing a contract, Dolo causante (causal fraud)
 Or Dolo incidante (Incidental fraud)

a. According to Time: Past or Future Fraud

 Past Fraud: Fraud that involves lying about something that has already happened.
 Future Fraud: Fraud that involves lying about something that will happen in the future.

b. According to Meaning:

- Fraud in Obtaining Consent: This type of fraud involves deceiving someone into agreeing to
something they wouldn’t have agreed to otherwise.

- Fraud in Performing a Contract: This occurs when deception happens during the execution
of a contract. - Dolo Causante (Causal Fraud): Fraud that is the main reason for the contract
being formed, directly causing the agreement. - Dolo Incidante (Incidental Fraud): Fraud that
occurs during the performance of the contract, but is not the main reason for the agreement.

Article 1172. Responsibility arising from negligence in the performance of every kind of obligation is
also demandable, but such liability may be regulated by the courts, according to the circumstances.
(1103)

Article 1172 Reviewer:

Article 1172 holds a debtor responsible for damages caused by negligence (culpa) in fulfilling
their obligations. However, the courts have discretion to adjust the damages based on the case’s
circumstances.

Types of Negligence:

1. Culpa Contractual (Contractual Negligence):

o Occurs in the performance of a contract.
o Based on a pre-existing contractual relationship.
o The aggrieved party must prove the contract and its breach.
2. Culpa Aquiliana (Quasi-Delict Negligence):
o Occurs outside a contractual relationship (e.g., accidents).
o Negligence is independent and substantive.
3. Culpa criminal refers to criminal negligence, where a person causes harm or injury due to
their failure to act with the proper care and caution, but without the intent to commit a crime.

Waiver of Action:

 A waiver for future negligence is allowed, except in cases requiring extraordinary

diligence (e.g., common carriers).
 Waivers for gross negligence or bad faith are void.
Negligence (Culpa) vs. Fraud (Dolo):

1. Element of Intention:
o Negligence (Culpa): There is no intention to cause harm; it results from
carelessness or failure to exercise due diligence.
o Fraud (Dolo): Intentional action or misrepresentation meant to deceive or cause
damage.
2. Characteristic:
o Negligence (Culpa): Involves a voluntary act or omission that leads to failure in
fulfilling an obligation.
o Fraud (Dolo): A conscious and deliberate intention to evade or defeat the
obligation.
3. Governing Rule:
o Negligence (Culpa): Covered under Article 1173 (if negligence shows bad faith,
it becomes equivalent to fraud).
o Fraud (Dolo): Governed by Article 1173, Paragraph 1.
4. Waiver of Future Action:
o Negligence (Culpa): Valid, unless against public policy.
o Fraud (Dolo): Void, as it goes against public policy (cannot waive future fraud).

Example:
If a person accidentally damages someone’s property due to carelessness, it’s negligence. But if
the same person intentionally damages the property to harm or deceive, it’s fraud. The person
can waive the right to sue for future negligence, but they cannot waive a right for future fraud.

Test of Negligence:

1. Reasonable Care and Caution:

Negligence is determined by assessing whether the person exercised the same level of
care and caution that an ordinary, prudent person would have used in the same situation.
2. Proximate Cause:
If the negligent act of the obligee (the person to whom the obligation is owed) is the
direct cause (proximate cause) of the damage or injury, they cannot recover damages.
o Proximate Cause refers to a cause that is a natural, logical, and uninterrupted
consequence of the negligent act, without which the damage would not have
occurred.

Article 1173. The fault or 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. When negligence shows bad faith, the provisions of articles 1171 and
2201, paragraph 2, shall apply.

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. (1104a)

Article 1171. Responsibility arising from fraud is demandable in all obligations. Any waiver of an
action for future fraud is void. (1102a)
Article 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good
faith is liable shall be those that are the natural and probable consequences of the breach of the
obligation, and which the parties have foreseen or could have reasonably foreseen at the time the
obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages
which may be reasonably attributed to the non-performance of the obligation. (1107a)

Article 1174. Except in cases expressly specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be
responsible for those events which could not be foreseen, or which, though foreseen, were
inevitable. (1105a)

Article 1174 - Fortuitous Event:

This article defines fortuitous events as extraordinary events that are either impossible to
foresee or unavoidable, making the fulfillment of an obligation impossible. These events may be
either acts of God (e.g., natural disasters) or acts of man (e.g., war). T

he key requirement for an event to be considered "fortuitous" is that it must be independent of

the obligor's will and should render the normal performance of the obligation impossible.

Key Points:

1. Fortuitous Events: These are unforeseeable or unavoidable events that make fulfilling
an obligation impossible (e.g., earthquakes, floods).
2. Requisites:
o The event must be independent of the obligor's will.
o It must be unforeseeable or, if foreseeable, unavoidable.
o The event must prevent normal compliance with the obligation.
o The obligor must not be at fault.
3. Exceptions to Non-liability:
o When expressly declared by law
o When expressly declared by stipulation of contract
o When nature of the obligation requires the assumption of risk

Article 1175. Usurious transactions shall be governed by special laws. (n)

This article establishes that usurious transactions, which involve charging excessive or illegal
interest rates on loans, are subject to regulation under special laws. These laws protect borrowers
from exploitation by limiting the amount of interest that can be charged in a loan agreement.

Key Points:

 Usury refers to charging interest rates higher than what is legally allowed.
 Special laws such as the Usury Law and other regulations govern these transactions,
setting limits on interest rates and protecting consumers.
  The article directs that these transactions are not to be governed by general provisions of
the Civil Code but by specific laws that address usury.

Article 1176. The receipt of the principal by the creditor without reservation with respect to the
interest, shall give rise to the presumption that said interest has been paid.

The receipt of a later installment of a debt without reservation as to prior installments, shall likewise
raise the presumption that such installments have been paid. (1110a)

Article 1176 - Receipt of Payment and Presumption of Payment:

Article 1176 establishes that when a creditor receives payment for the principal amount of a debt
without any reservation about interest or prior installments, it is presumed that the interest and
any earlier installments have been paid.

This presumption protects the debtor and helps avoid disputes regarding unpaid interest or past
due installments.

Similarly, if a later installment is paid without any reservation about prior installments, it is
presumed that the earlier payments are also settled.

1. Exceptions:
o Reservation on Interest: If there is a reservation regarding interest (written or
verbal), the presumption does not apply.
o Partial Principal Payment: The presumption only applies when the entire
principal is paid. A partial payment of the principal does not trigger the
presumption for interest.
o Receipt Lacks Specifics: If the receipt doesn’t specify which installment is being
paid, the presumption doesn’t apply.
o Taxes: The presumption does not apply to tax payments, as they are not
considered installments of the same obligation.
o Proven Non-Payment: If it can be proven that prior payments were not made, the
presumption does not hold.

Example:

Suppose Person A owes a debt to Person B and fully repays the principal amount. If Person B
accepts the payment without mentioning anything about the interest or earlier installments, it is
presumed that all interest and previous installments are paid.

However, if Person B clearly states that the payment is for the principal only, the presumption
does not apply, and interest remains due.
Article 1177. The creditors, after having pursued the property in possession of the debtor to satisfy
their claims, may exercise all the rights and bring all the actions of the latter for the same purpose,
save those which are inherent in his person; they may also impugn the acts which the debtor may
have done to defraud them. (1111)

Article 1177 - Rights of Creditors to Pursue Claims:

Article 1177 provides creditors with the right to take various actions to satisfy their claims when
the debtor defaults. This includes pursuing the debtor's property, exercising the debtor's rights,
and challenging any actions taken by the debtor to defraud the creditors.

Key Points:

1. Remedies Available to Creditors:

o Exact Fulfillment: Creditors may demand the specific performance of the
obligation (e.g., delivery of property) and seek damages if necessary.
o Pursue Leviable Property: Creditors can seize or attach the debtor's non-exempt
property to satisfy the debt.
o Exercise Debtor's Rights (Acción Subrogatoria): Creditors can step into the
debtor's shoes and exercise the debtor's rights or bring actions the debtor could
have brought (e.g., collecting from the debtor’s debtors), except for rights that are
personal to the debtor (e.g., family rights, voting rights).
o Challenge Fraudulent Acts (Acción Pauliana): Creditors may challenge and
seek to annul any fraudulent acts or contracts by the debtor intended to defraud
them, especially when other remedies fail to satisfy the debt.
2. Exceptions:
o Personal Rights: Creditors cannot exercise rights that are personal to the debtor,
such as family-related rights (e.g., the right to revoke a donation due to
ingratitude, legal support rights, etc.).
3. Types of Actions:
o Acción Subrogatoria: The creditor substitutes the debtor in exercising the
debtor’s rights and actions against third parties for recovery.
o Acción Pauliana: The creditor can contest fraudulent acts that the debtor made to
defraud them, often through a rescission action, when the creditor is unable to
recover their debt in other ways.

Example:

Suppose Person A owes money to Person B and is unable to pay. Person B may seek to satisfy
the debt by pursuing Person A's property. If Person A tries to transfer property to avoid payment,
Person B can challenge this fraudulent act (acción pauliana) or, if Person A is owed money by a
third party, Person B can step into Person A’s shoes and collect from the third party (acción
subrogatoria). However, Person B cannot exercise rights that are personal to Person A, like
Person A’s right to vote.
Article 1178. Subject to the laws, all rights acquired in virtue of an obligation are transmissible, if
there has been no stipulation to the contrary. (1112)

GENERAL RULE: Rights are transmissible

Exceptions:

1. If law provides otherwise

2. If contract provides otherwise
3. If obligation is purely personal

CHAPTER 3
Different Kinds of Obligations

(a) Primary Classification According to the Civil Code:

1. Pure vs. Conditional - Pure obligations are unconditional, while conditional obligations
depend on an uncertain event.
2. Pure vs. With a Period or Term - Pure obligations are immediate, while obligations
with a period have a set time for performance.
3. Alternative or Facultative vs. Conjunctive - In alternative or facultative obligations,
the debtor has a choice; in conjunctive obligations, all duties must be performed.
4. Joint vs. Solidary - Joint obligations are shared by the parties, while solidary obligations
hold each party liable for the entire obligation.
5. Divisible vs. Indivisible - Divisible obligations can be broken down into parts, while
indivisible obligations must be performed in full.
6. With a Penal Clause vs. Without - Obligations with a penal clause include a penalty for
non-performance, while those without do not.

(b) Secondary Classification According to the Civil Code:

1. Unilateral vs. Bilateral (Arts. 1168, 1191) - Unilateral obligations involve one party,
while bilateral obligations involve both parties.
2. Real vs. Personal (Arts. 1164-1165) - Real obligations concern things (property), while
personal obligations concern actions or services.
3. Determinate vs. Generic (Arts. 1167, 1168) - Determinate obligations involve specific
things, while generic obligations involve things of a general description.
4. Positive vs. Negative - Positive obligations require action, while negative obligations
require inaction.
5. Legal, Conventional, Penal (Arts. 1156, 1158, 1159, 1161) - Legal obligations arise
from the law, conventional obligations arise from agreements, and penal obligations
include penalties for non-compliance.
6. Civil vs. Natural - Civil obligations are enforceable in court, while natural obligations
are not enforceable but are still recognized.

(c) Classification According to Sanchez Roman:

 1. According to Juridical Quality and Efficaciousness:
o Natural - Based on natural law.
o Civil - Based on civil law.
o Mixed - Involves both natural and civil laws.
2. By the Parties or Subjects:
o Unilateral vs. Bilateral - One party vs. two parties.
o Individual vs. Collective - One person vs. a group of people.
o Joint vs. Solidary - Shared responsibility vs. full responsibility for each party.
3. By the Object of the Obligation:
o Specific vs. Generic - Involves a specific item vs. a general type of item.
o Positive vs. Negative - Requires action vs. requires abstention.
o Real vs. Personal - Involves property vs. involves a service or action.
o Possible vs. Impossible - Involves achievable duties vs. impossible duties.
o Divisible vs. Indivisible - Can be divided vs. must be fulfilled in full.
o Principal vs. Accessory - Main obligation vs. supporting obligation.
o Simple vs. Compound - Single obligation vs. multiple obligations that may be:
 Conjunctive - All parts must be performed.
 Distributive - Choice of performance (alternative or facultative).

(d) Classification According to Defects:

1. No Defect - Valid obligations.

2. Defective Obligations:
o Rescissible - Can be rescinded due to certain circumstances.
o Voidable - Can be annulled due to defects in consent.
o Unenforceable - Cannot be enforced by law.
o Void - No legal effect.

SECTION 1
Pure and Conditional Obligations

Article 1179. Every obligation whose performance does not depend upon a future or uncertain
event, or upon a past event unknown to the parties, is demandable at once.

Every obligation which contains a resolutory condition shall also be demandable, without prejudice to
the effects of the happening of the event. (1113)

Summary of Article 1179: This article outlines when obligations are demandable based on
whether they are pure or conditional.

1. Pure Obligations:
o These obligations do not depend on any uncertain or future event. They are
demandable immediately as they are unconditional and have no specific term or
condition attached.
 o Example: If someone promises to pay you P1 million, it is demandable right away
unless there was an intention to provide a term or condition, like a loan that’s just
been contracted.
2. Conditional Obligations: (Suspensive or resolutory)
o These obligations depend on the occurrence of a condition, which can either be
suspensive (delaying performance until the event occurs) or resolutory (ending
the obligation if the event happens).
o Example of suspensive condition: "I’ll buy your land for P10 million if you pass
the bar exams" — this obligation depends on passing the bar exams.
o Example of resolutory condition: "I’ll give you my land now, but if you fail the
bar exams, your ownership will end" — here, the ownership ends if the condition
(failure to pass the bar) happens.
3. Definition of a Condition:
o A condition is an uncertain event that influences the legal relationship between
parties. It is an event that may or may not occur and determines the effect of the
obligation.
4. Definition of a Term or Period:
o A term or period is something certain to happen in the future, such as a specific
date or event. Unlike a condition, a term is inevitable. For example, "I’ll pay you
P1 million on June 1, 2025" — the date is certain, but the occurrence of the
condition (like death) can be uncertain.
5. When is an Obligation Demandable?
o A pure obligation is always demandable at once.
o An obligation with a resolutory condition is also immediately demandable, but
the effects may change depending on the happening of the event.

Classification of conditional OBLI:

 Potestative Condition: Dependent on the will or action of one party.

 Casual Condition: Dependent on an external event or chance.
 Mixed Condition: Combines both potestative and casual elements.
 Divisible Condition: Can be performed in parts or stages.
 Indivisible Condition: Must be fulfilled as a whole, not in parts.
 Positive Condition: Requires an action or event to occur.
 Negative Condition: Requires an action or event not to occur.
 Express Condition: Clearly stated in the contract.
 Implied Condition: Assumed by law or based on the agreement's nature.
 Possible Condition: A condition that can logically happen.
 Impossible Condition: A condition that cannot possibly happen.
 Conjunctive Condition: Multiple conditions must all be fulfilled.
 Alternative Condition: Only one of several conditions needs to be fulfilled.

Article 1180. When the debtor binds himself to pay when his means permit him to do so, the
obligation shall be deemed to be one with a period, subject to the provisions of article 1197. (n)

Similar Phrase to be deemed one with a period:

a. When I can afford it

b. When I am able to
c. When I have money
Article 1197 summary:
If a contract doesn’t specify a period but it’s clear from the nature and circumstances that
one was intended, the courts can set the period. If the period depends on the debtor's will,
the courts will also decide its duration. The court will set a period that reflects what
the parties likely intended. Once the court sets the period, it cannot be changed.

Article 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or
loss of those already acquired, shall depend upon the happening of the event which constitutes the
condition. (1114)

In conditional obligations, the acquisition, extinguishment, or loss of rights depends on the

occurrence of a specific event. Conditional obligations can be classified into two types:

1. Suspensive Condition: This refers to a future and uncertain event upon which the
obligation becomes effective. Rights are acquired only upon the fulfillment of the
condition. For example, if someone agrees to give money only if a person gets married,
the obligation is suspended until the event happens.
2. Resolutory Condition: This refers to a condition that extinguishes or terminates the
rights already acquired upon its fulfillment.

The obligation remains in effect, but if the condition is met, the rights are lost.

For instance, in a contract involving a right of repurchase, if the seller exercises this right
within the stipulated period, the ownership rights of the buyer are extinguished.

Article 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the
conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the
obligation shall take effect in conformity with the provisions of this Code. (1115)

Potestative, Casual, and Mixed Conditions:

Art. 1182 addresses conditions in obligations and their validity, particularly when the fulfillment
of the condition depends on the will of the debtor or a third party.
It provides that an obligation is void if the fulfillment of the condition depends solely on the
debtor's will. However, if the condition is casual (depends on chance or a third party) or mixed
the obligation remains valid.

Types of Conditions:

1. Potestative Condition: A condition whose fulfillment depends solely on the will of one
of the parties.
o Potestative of the Creditor: Valid and does not affect the obligation. The
creditor has an interest in fulfilling the condition.
o Potestative of the Debtor: Void, because it would render the obligation illusory.
The debtor can simply choose to fulfill or not fulfill the condition, undermining
the validity of the obligation. This violates the principle that a contract should not
depend solely on the will of one party (Art. 1308).
2. Casual Condition: Depends on chance or the will of a third person. The obligation
remains valid as it is not entirely within the control of one party.
3. Mixed Condition: Depends jointly on the will of one party and a third party or chance.
This type of condition is also valid.

Effects of Potestative Conditions:

 If the condition depends on the debtor’s will and is suspensive (i.e., the obligation is not
effective until the condition is fulfilled), the obligation is void because it is considered
illusory.
 If the condition is resolutory (i.e., it extinguishes the rights already acquired), the
condition is valid even if it depends on the debtor’s will. The debtor has a vested interest
in fulfilling the condition to reclaim rights.

The article also clarifies that if an obligation refers to a pre-existing debt, the condition’s
validity does not affect the obligation itself, even if the condition is potestative to the debtor.

Article 1183. Impossible conditions, those contrary to good customs or public policy and those
prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible,
that part thereof which is not affected by the impossible or unlawful condition shall be valid.

The condition not to do an impossible thing shall be considered as not having been agreed upon.
(1116a)

Art. 1183 addresses the effects of impossible, unlawful, or immoral conditions in obligations.
According to this provision, if an obligation is made dependent on a condition that is impossible,
contrary to good customs, public policy, or prohibited by law, the entire obligation becomes
void.

However, if the obligation is divisible, the part of the obligation unaffected by the impossible or
unlawful condition remains valid.
Examples:

1. Impossible Conditions: For example, an obligation to pay a sum of money if one

contracts live on another plane that is light years away from eartht is impossible and
therefore invalid.
2. Conditions Contrary to Good Customs or Public Policy:

An example of this would be a contract that requires someone to secure a divorce before
payment can be made—such a condition is unlawful and renders the obligation invalid.

3. Divisible Obligations: In cases where the obligation is divisible (such as payments in

installments), the part of the obligation not tied to the impossible or unlawful condition
remains valid.

4. Condition Not to Do an Impossible Thing: If the condition involves not doing

something impossible, it is considered as if no condition was agreed upon. But the
obligation remains.

This provision ensures that obligations are not based on conditions that are impractical, illegal, or
immoral, and it provides clarity on how to handle divisible obligations affected by such
conditions.

Article 1184. The condition that some event happen at a determinate time shall extinguish the
obligation as soon as the time expires or if it has become indubitable that the event will not take
place. (1117)

Art. 1184: Conditions Dependent on a Determinate Time (Positive Condition)

 If the condition depends on an event happening at a specific time, the obligation is

extinguished as soon as the time expires or if it becomes clear that the event will not
occur.
 Example: If A promises to give B P2,000 if B passes the bar exam on the first attempt,
and B fails, the obligation is extinguished since the condition (passing the bar) fo the first
attempt is no longer possible.

Article 1185. The condition that some event will not happen at a determinate time shall render the
obligation effective from the moment the time indicated has elapsed, or if it has become evident that
the event cannot occur.

If no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably
been contemplated, bearing in mind the nature of the obligation. (1118)
Art. 1185: Conditions Dependent on an Event Not Happening (Negative
Condition)

 If the condition is based on the non-occurrence of an event at a determinate time, the

obligation becomes effective once the time passes or if it becomes clear that the event
cannot occur.
 Example: If A agrees to pay B P5,000 provided B does not marry before turning 25, and
B remains unmarried by 25, the obligation becomes effective.

Positive vs. Negative Conditions:

 A positive condition requires an event to happen or an action to be performed (e.g.,

passing an exam, getting married).
 A negative condition requires an event to not happen or an action to be avoided (e.g., not
getting married before a certain age).

Key Rule on Undefined Time (Art. 1185, second paragraph):

 If no time is specified for the condition, the obligation is fulfilled when it is likely to be
fulfilled, based on the nature of the obligation and the parties' intentions. This applies to
both positive and negative conditions.

Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment. (1119)

Example of Article 1186 (Condition Fulfilled When Prevented by the Obligor):

Suppose a person agrees to sell their car to someone "if the car passes inspection." The buyer’s
purchase is conditioned on the car passing a mechanical inspection. However, before the
inspection can occur, the seller purposely damages the car, making it impossible for it to pass the
inspection.

Under Article 1186, the condition (the car passing inspection) is deemed fulfilled because the
seller deliberately prevented it from happening. The seller's actions caused the condition to fail,
but since it was done intentionally, the obligation is treated as fulfilled by the seller's
interference.

Article 1187. The effects of a conditional obligation to give, once the condition has been fulfilled,
shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation
imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the
condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the
debtor shall appropriate the fruits and interests received, unless from the nature and circumstances
of the obligation it should be inferred that the intention of the person constituting the same was
different.

In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of
the condition that has been complied with. (1120)

Art. 1187: Retroactive Effect of Conditional Obligations

 Retroactive Effect: When a condition is fulfilled in a conditional obligation to give, its

effects are retroactive to the moment the obligation was initially created. This means that
the obligation becomes effective as if it always existed from the time of its formation.
 Reciprocal Prestations: If the obligation is reciprocal (both parties owe something to
each other), the fruits and interests during the condition’s pendency are mutually
compensated. This ensures fairness by balancing the benefits each party should have
received during the waiting period.
 Unilateral Obligations: In unilateral obligations (where only one party is required to
perform), the debtor is entitled to keep the fruits and interests received during the
condition’s pendency unless the agreement or circumstances suggest otherwise.
 Obligations to Do/Not Do: In cases where the obligation is to do something or refrain
from doing something, courts will determine the retroactive effect based on the specifics
of the case.

Article 1188. The creditor may, before the fulfillment of the condition, bring the appropriate actions
for the preservation of his right.

The debtor may recover what during the same time he has paid by mistake in case of a suspensive
condition. (1121a)

Art. 1188: Protection of Rights Before Fulfillment of the Condition

 Preservation of Rights: Before the condition is fulfilled, the creditor has a mere
expectancy or hope regarding the obligation’s fulfillment. However, this right is
protected by the law, and the creditor can take legal action to preserve this expectancy.
This may include injunctions or other measures to prevent the obligor from making
decisions that would frustrate the fulfillment of the condition.
 Mistaken Payments: If the debtor makes a payment by mistake during the condition’s
pendency (for example, before the condition is fulfilled), they can recover the amount
paid.

Analysis of Suspensive Conditions Before and After Fulfillment

1. Suspensive Condition Before Fulfillment: The creditor has an expectancy, and the
obligation cannot be enforced until the condition is met. However, the creditor's right is
 protected by law, allowing them to take action to safeguard their interests if the debtor
takes steps that may frustrate the condition.
2. Suspensive Condition After Fulfillment: Once the condition is fulfilled, the obligation
becomes effective. The right of the creditor, which was previously uncertain, is now
enforceable. The obligor must then comply with the terms of the obligation.
3. Retroactivity in Reciprocal Obligations: If the obligation is reciprocal, the fruits and
interests during the condition’s pendency are deemed mutually compensated. This means
that neither party is unjustly enriched by retaining the benefits of the obligation during
the period before the condition is fulfilled.
4. Retroactivity in Unilateral Obligations: In unilateral obligations, the debtor keeps the
fruits and interests unless the agreement states otherwise, since they did not receive
anything of value from the creditor during the waiting period.
5. Retroactivity in Obligations to Do/Not Do: In personal obligations, the court will
determine the retroactive effect or whether retroactivity should apply at all. This will
depend on the specific circumstances and the nature of the obligation.

Article 1189. When the conditions have been imposed with the intention of suspending the efficacy
of an obligation to give, the following rules shall be observed in case of the improvement, loss or
deterioration of the thing during the pendency of the condition:

(1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished;

(2) If the thing is lost through the fault of the debtor, he shall be obliged to pay damages; it is
understood that the thing is lost when it perishes, or goes out of commerce, or disappears in
such a way that its existence is unknown or it cannot be recovered;

(3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne
by the creditor;

(4) If it deteriorates through the fault of the debtor, the creditor may choose between the
rescission of the obligation and its fulfillment, with indemnity for damages in either case;

(5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit
of the creditor;

(6) If it is improved at the expense of the debtor, he shall have no other right than that
granted to the usufructuary. (1122)

Summary of Art. 1189 (Civil Code) on Effects of Loss, Deterioration, or Improvement of

the Thing Under Suspensive Conditions

This article governs the effects of the loss, deterioration, or improvement of a thing subject to
a suspensive condition (a condition that suspends the effectiveness of an obligation until
fulfilled). The rules are as follows:
 1. Loss Without Fault of the Debtor: If the thing is lost without the debtor’s fault (e.g.,
due to natural disaster), the obligation is extinguished.
2. Loss Due to Fault of the Debtor: If the debtor causes the loss, they must pay damages.
Loss is defined as the thing perishing, going out of commerce, or disappearing
completely.
3. Deterioration Without Fault of the Debtor: If the thing deteriorates naturally (e.g.,
through age or use), the creditor bears the loss.
4. Deterioration Due to Fault of the Debtor: If the debtor is at fault for the deterioration,
the creditor can choose between rescinding the obligation or demanding performance
with damages.
5. Improvement by Nature or Time: If the thing improves naturally (e.g., land gaining
value over time), the creditor benefits from the improvement.
6. Improvement at the Expense of the Debtor: If the debtor improves the thing (e.g., by
making repairs), they cannot claim reimbursement for the expenses, except for
necessary expenses. However, the debtor can remove improvements if it causes no
damage to the thing.

Application to Resolutory Conditions: The rules also apply to obligations with a resolutory
condition, where the effect of the condition is to terminate the obligation once fulfilled. In this
case, the "debtor" refers to the party who must return the object, and the "creditor" is the party
entitled to receive it.

Article 1190. When the conditions have for their purpose the extinguishment of an obligation to give,
the parties, upon the fulfillment of said conditions, shall return to each other what they have
received.

In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to
the debtor, are laid down in the preceding article shall be applied to the party who is bound to return.

As for the obligations to do and not to do, the provisions of the second paragraph of article 1187
shall be observed as regards the effect of the extinguishment of the obligation. (1123)

Summary of Art. 1190 (Civil Code) on the Effects of Resolutory Conditions

This article governs the effects of resolutory conditions, which extinguish an obligation once
fulfilled. The key points are as follows:

1. Return of Received Items: When a condition with the purpose of extinguishing an

obligation to give is fulfilled, the parties must return to each other what they have
received.
2. Loss, Deterioration, or Improvement: The rules for the loss, deterioration, or
improvement of the thing (as stated in Art. 1189) apply, but here the roles of debtor and
creditor are reversed. The debtor refers to the party who is required to return the object,
while the creditor is the one who must receive it.
 3. Retroactivity of Effects: In obligations with a resolutory condition, the effect of the
condition is retroactive. This means that once the condition is fulfilled, the obligation is
considered as if it never existed, and all exchanges made under that obligation must be
undone, restoring the parties to their previous state (status quo). This retroactive effect is
more pronounced than in suspensive conditions (where the obligation remains valid until
the condition is met).
4. Reimbursement of Expenses: If the party returning the object has incurred expenses in
its maintenance or improvement (like in producing or preserving fruits), they have the
right to demand reimbursement for these expenses.
5. Obligations to Do or Not Do: For obligations to do or not do, the retroactive effects of a
resolutory condition depend on the court's discretion.

In Summary: Once a resolutory condition is fulfilled, the parties must return everything they
have received, and the obligation is considered non-existent. This retroactive effect applies
universally, and the party returning the object can seek reimbursement for any expenses related
to its preservation or improvement during the pendency of the condition

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

The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing,
in accordance with articles 1385 and 1388 and the Mortgage Law. (1124)

Summary of Art. 1191 (Civil Code) on Rescission of Reciprocal Obligations

This article outlines the rescission process for reciprocal obligations, which involve mutual
duties between parties (e.g., contracts of sale or lease). The key points are:

1. Power to Rescind in Reciprocal Obligations: If one party fails to fulfill their obligation,
the other party may choose to either demand fulfillment or rescind the obligation. The
injured party can also seek rescission even if they initially chose fulfillment, but the
performance becomes impossible.
2. Damages: In both cases (fulfillment or rescission), the injured party is entitled to
damages for any harm caused by the non-performance.
3. Court's Role: The court will generally grant rescission unless there is a just cause for
allowing a period for performance to be set (e.g., the party might be given more time to
fulfill their obligation).
 4. Third-Party Rights: Rescission is subject to the rights of third parties who may have
acquired the thing involved in the contract, in accordance with specific legal provisions
(Art. 1385, 1388, and the Mortgage Law).
5. Reciprocal Obligations: These obligations are those where both parties have
corresponding duties, and the performance of one depends on the performance of the
other. The obligation of one party is a correlate to the obligation of the other. For
example, in a sale, the seller must deliver the thing sold, and the buyer must pay the
price.

In Summary: In reciprocal obligations, if one party fails to perform, the other can choose to
either demand fulfillment or rescind the contract, with damages in both cases. The court may set
a period for performance but will usually grant rescission, taking into account the rights of third
parties involved.

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

Effect of Breach by Both Parties. — The above rules are deemed just. The fi rst one is fair to both parties
because the second infractor also derived, or thought he would derive, some advantage by his own act
or neglect. The second rule is likewise just because it is presumed that both at about the same time tried
to reap some benefi t.94

SECTION 2
Obligations with a Period

Article 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable
only when that day comes.

Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.

A day certain is understood to be that which must necessarily come, although it may not be known
when.

If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it
shall be regulated by the rules of the preceding Section. (1125a)

1. Obligations with a Fixed Day (Term or Period):

o If a certain day is set for fulfilling an obligation, it can only be demanded when
that day arrives.
o Obligations with a resolutory period are effective immediately, but they
terminate upon the arrival of the fixed day.
 2. Definition of a "Day Certain":
o A day certain refers to a day that must inevitably come, even though the exact
date may not be known in advance.
o If the event's occurrence is uncertain (i.e., it may or may not happen), the
obligation is conditional, and different rules apply.
3. Difference Between "Term" and "Condition":
o Term/Period: An interval of time that is certain to happen but may not have a
fixed date (e.g., a person’s death is certain, but the date is unknown).
o Condition: Refers to an event that is uncertain and may or may not happen.
4. Classifications of Terms or Periods:
o Suspensive Term: The obligation becomes demandable only after the day
certain arrives.
o Resolutory Term: The obligation is demandable immediately, but it ends when
the day certain arrives.
o Legal, Conventional, or Judicial Periods:
 Legal: Periods prescribed by law.
 Conventional: Periods set by the agreement of the parties.
 Judicial: Periods set by the court.
o Definite or Indefinite:
 Definite: The exact date is known.
 Indefinite: The event that determines the period is certain to happen, but
the exact time is unknown.
5. Effect of the Term or Period on Obligations:
o If the period is suspensive, the obligation is effective as soon as it is created, but
demandability is delayed until the certain day arrives.
o If the period is resolutory, the obligation can be demanded immediately but ends
when the term expires.

Examples:

 Suspensive Term Example: A person donates land to another to be delivered after their
death. The donation obligation is effective immediately, but demandability only arises
after the donor’s death.
 Resolutory Term Example: A person donates the usufruct of property for ten years. The
recipient can use the property immediately, but the obligation terminates after ten years.

Distinction from Conditional Obligations:

 Conditional obligations depend on an uncertain event (e.g., receiving a loan), while

obligations with a term or period depend on a certain event (e.g., death, the end of a
war).

Article 1194. In case of loss, deterioration or improvement of the thing before the arrival of the day
certain, the rules in article 1189 shall be observed. (n)
 Principle: If the thing subject to an obligation is lost, deteriorated, or improved before the
arrival of the day certain (the specific time for the fulfillment of the obligation), the rules set
forth in Article 1189 will apply.
 Implication:

 Loss: If the thing is lost before the day certain, the obligation may be extinguished or
modified depending on the circumstances.
 Deterioration: If the thing deteriorates, the obligor may be liable for the damage or be
excused from performance if it was not due to their fault.
 Improvement: If the thing improves (e.g., increases in value), the improvements may
benefit the obligee, and the parties may need to consider compensation or other
adjustments.

Article 1195. Anything paid or delivered before the arrival of the period, the obligor being unaware of
the period or believing that the obligation has become due and demandable, may be recovered, with
the fruits and interests. (1126a)

 Principle: If the obligor makes an early payment or delivery of the obligation without
knowing the period or believing the obligation was due, they may recover what they have paid
or delivered, along with the fruits and interests.

 This is a more favorable rule for the obligor than in the Spanish Civil Code's Art. 1126,
which only allowed the recovery of fruits and interest but not the principal sum or thing
delivered.

 Explanation:

 The debtor who pays or delivers early, believing the obligation is due or not knowing
the period, can recover the payment (the principal), fruits, and interests that may have
accrued.
 The reason for this rule is to avoid unfairness to the obligor when payment is made
before the due date due to a misunderstanding of the obligation's timing.

 Restrictions:

 This provision only applies to obligations to give (i.e., obligations involving things or
money).
 The right of recovery applies only if the obligor was unaware of the period or
mistakenly believed that the obligation was due.
 No recovery is allowed if the payment or delivery was made voluntarily or with
knowledge that the obligation was not yet due.

Article 1196. Whenever in an obligation a period is designated, it is presumed to have been

established for the benefit of both the creditor and the 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. (1127)

For example, in a monetary obligation, the debtor cannot pay early without the creditor's consent, and
the creditor cannot demand payment before the period ends. This is true even if the debtor offers to
pay the full amount with interest ahead of time.

Article 1197. If the obligation does not fix a period, but from its nature and the circumstances it can
be inferred that a period was intended, the courts may fix the duration thereof.

The courts shall also fix the duration of the period when it depends upon the will of the debtor.

In every case, the courts shall determine such period as may under the circumstances have been
probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by
them. (1128a)

Article 1198. The debtor shall lose every right to make use of the period:

(1) When after the obligation has been contracted, he becomes insolvent, unless he gives a
guaranty or security for the debt;

(2) When he does not furnish to the creditor the guaranties or securities which he 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 satisfactory;

(4) When the debtor violates any undertaking, in consideration of which the creditor agreed
to the period;

(5) When the debtor attempts to abscond. (1129a)

Grounds for Losing the Right to Use the Period:

1. Insolvency of the Debtor:

o If the debtor becomes insolvent after the obligation is contracted (i.e., financially
unable to fulfill the debt), they lose the right to use the period.
o Insolvency here is understood in the ordinary sense, meaning the debtor is
unable to meet their obligations, not necessarily requiring a formal declaration of
insolvency under law.
o However, if the debtor provides a guarantee or security for the debt, even in
the case of insolvency, they retain the right to use the period.
2. Failure to Provide Stipulated Guarantees or Securities:
o If the debtor fails to provide the agreed-upon guaranty or security for the debt,
the period expires, and the creditor can demand immediate payment.
 o Example: If the debtor promised a mortgage over a property as security for a loan
but failed to register the mortgage and used the property as collateral for another
loan, the obligation becomes due immediately.
3. Impairment or Disappearance of the Guarantee/Security:
o Impairment (reduction in value) or disappearance (complete loss) of the
guarantee or security may result in the debtor losing the benefit of the period.
o Impairment through debtor's fault: If the debtor causes the impairment, they
lose the period.
o Impairment without fault: If the impairment occurs without the debtor’s fault,
the debtor retains the period.
o Disappearance of the security: If the security disappears (even without the
debtor's fault), the debtor loses the right to the period unless they provide new,
equally satisfactory security.
4. Violation of Any Undertaking for the Period:
o If the debtor violates any provision or agreement that was made to justify the
establishment of the period, they lose the right to the term.
o Example: If the debtor promised to keep certain conditions (like maintaining a
business or property) to secure the period, failing to fulfill this would make the
debt immediately due.
5. Attempt to Abscond:
o If the debtor attempts to abscond (flee or hide to avoid payment), they lose the
benefit of the period.
o This provision ensures that the debtor cannot evade their obligations by
disappearing.

SECTION 3
Alternative Obligations

ARTICLE 1199. A person alternatively bound by different prestations shall completely perform one of
them.

The creditor cannot be compelled to receive part of one and part of the other undertaking. (1131)

Art. 1199 - Full Performance of One Obligation

 Rule: In an alternative obligation, where the debtor is bound to perform one of several
prestations (things or actions), the debtor must fully perform one of those prestations.
 Creditor's Right: The creditor cannot be compelled to receive part of one prestation
and part of the other. The debtor must make a complete choice between the alternatives.
Article 1200. The right of choice belongs to the debtor, unless it has been expressly granted to the
creditor.

The debtor shall have no right to choose those prestations which are impossible, unlawful or which
could not have been the object of the obligation. (1132)

 General Rule: The right to choose between the alternative prestations belongs to the debtor,
unless the creditor has been expressly granted the right to choose, or a third party is given the
right of choice.

 Exceptions: If the right of choice is granted to the creditor or to a third person by agreement,
the debtor cannot make the selection.

 Limitations:

 The debtor cannot choose prestations that are:

1. Impossible (e.g., the prestation cannot be performed).
2. Unlawful (e.g., the prestation is illegal).
3. Not capable of being the object of the obligation (e.g., the prestation is no
longer available or has changed character since the obligation was formed).

Article 1201. The choice shall produce no effect except from the time it has been communicated.
(1133) Communication of Choice: The choice made by the debtor (or creditor or third party)
only takes effect once it has been communicated to the other party.

 No Special Form Required: While no specific form is required for the notification, it’s
better to make the notification in an authentic or notarized document, especially if there’s a
need to prove the communication.

 Creditor's Response to Notification:

 While it has been suggested that creditor consent is needed for the choice to take effect,
this is not the case. The creditor’s concurrence to the debtor’s choice is not necessary.
The nature of alternative obligations allows the debtor to make the selection
independently.

 Binding Effect:

 Once the choice is communicated, the obligation becomes simple and is no longer
alternative. Both the debtor and creditor are now bound by the selection.

Article 1202. The debtor shall lose the right of choice when among the prestations whereby he is
alternatively bound, only one is practicable. (1134)
 Rule: When there are several prestations (alternatives) in an obligation, and only one is
practicable (can be performed), the debtor loses the right of choice.

 Effect:

 The obligation loses its alternative nature and becomes a simple obligation.
 This differs from Art. 1200, where the debtor still has the right to choose between
multiple prestations, even if one is impracticable.
 In Art. 1202, there is only one option available to the debtor, so the obligation no longer
involves a choice.

Article 1203. If through the creditor's acts the debtor cannot make a choice according to the terms of
the obligation, the latter may rescind the contract with damages. (n)

 Rule: If the creditor's actions prevent the debtor from making the choice according to
the terms of the obligation, the debtor can rescind the contract and claim damages.
 Reasoning:
o This provision does not have a counterpart in the Spanish Civil Code but is
logical and fair.
o If the creditor's fault causes the debtor to lose their ability to exercise the right of
choice, the debtor should be entitled to seek a remedy—specifically, by
rescinding the contract and seeking damages.

Article 1204. The creditor shall have a right to indemnity for damages when, through the fault of the
debtor, all the things which are alternatively the object of the obligation have been lost, or the
compliance of the obligation has become impossible.

The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that
of the service which last became impossible.

Damages other than the value of the last thing or service may also be awarded. (1135a)

Art. 1204 - Right to Indemnity for Damages

 Rule: The creditor has the right to indemnity for damages when all the prestations
(alternatively the objects of the obligation) are lost, or when the obligation becomes
impossible to perform, due to the fault of the debtor.
 How the indemnity is calculated:
o The indemnity is based on the value of the last prestation lost or the last service
that became impossible.
o The creditor may also be entitled to other damages beyond the value of the lost
prestation.
Article 1205. When the choice has been expressly given to the creditor, the obligation shall cease to
be alternative from the day when the selection has been communicated to the debtor.

Until then the responsibility of the debtor shall be governed by the following rules:

(1) If one of the things is lost through a fortuitous event, he shall perform the obligation by
delivering that which the creditor should choose from among the remainder, or that which
remains if only one subsists;

(2) If the loss of one of the things occurs through the fault of the debtor, the creditor may
claim any of those subsisting, or the price of that which, through the fault of the former, has
disappeared, with a right to damages;

(3) If all the things are lost through the fault of the debtor, the choice by the creditor shall fall
upon the price of any one of them, also with indemnity for damages.

The same rules shall be applied to obligations to do or not to do in case one, some or all of the
prestations should become impossible. (1136a)

 When the creditor has the right of choice, the obligation stops being alternative once the
selection is communicated to the debtor.
o Until then, the debtor remains responsible for the prestations under the following
conditions:

(1) Loss due to a fortuitous event:

 If one of the prestations is lost due to a fortuitous event (i.e., an unavoidable or unforeseen
event), the debtor must perform the obligation by delivering the remaining prestation, or the
one that remains if only one prestation is left.

(2) Loss due to debtor's fault:

 If the loss is caused by the debtor's fault, the creditor may claim any of the remaining
prestations, or demand the price of the lost prestation along with damages.

(3) Loss of all prestations due to debtor's fault:

 If all the prestations are lost due to the debtor's fault, the creditor may claim the price of any
prestation and damages.

Key Considerations:
 1. Art. 1204 applies when the debtor has the choice and causes the loss or impossibility of the
prestation. The debtor is responsible for damages, with indemnity based on the last thing or
service lost.
2. Art. 1205 applies when the creditor has the choice:
o If one of the prestations is lost due to a fortuitous event, the debtor must still fulfill the
obligation by delivering the remaining prestation.
o If the debtor causes the loss, the creditor may claim any remaining prestation or its
price, along with indemnity for damages.

Article 1206. When only one prestation has been agreed upon, but the obligor may render another
in substitution, the obligation is called facultative.

The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor,
does not render him liable. But once the substitution has been made, the obligor is liable for the loss
of the substitute on account of his delay, negligence or fraud. (n)

SECTION 4
Joint and Solidary Obligations

Article 1207. The concurrence of two or more creditors or of two or more debtors in one and the
same obligation does not imply that each one of the former has a right to demand, or that each one
of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only
when the obligation expressly so states, or when the law or the nature of the obligation requires
solidarity. (1137a)

Joint vs. Solidary Obligations

Joint Obligation:

 In a joint obligation, each creditor has the right to demand only their proportionate share of
the debt, and each debtor is only bound to pay their proportionate share of the debt.
o Example: If three debtors (A, B, and C) owe P9,000 to three creditors (X, Y, and Z), and
the agreement does not specify solidarity, each debtor would be responsible for P3,000.
o If X seeks to collect from A, A can only be required to pay P3,000 (their share). X would
need to approach B and C for the remaining amounts to fully collect their P9,000.

Solidary Obligation:

 In a solidary obligation, each creditor can demand the full amount of the debt from any of the
debtors, and each debtor is liable for the entire debt, regardless of their share.
 o Example: If A, B, and C are solidarily bound to pay P9,000 to X, Y, and Z, X could demand
the entire P9,000 from A, B, or C. The creditors may choose to sue any one, some, or all
of the debtors for the full amount.

Exceptions to Joint Obligation:

There are three cases where a collective obligation is solidary, not joint:

1. Express Stipulation of Solidarity:

o If the agreement explicitly states that the obligation is solidary (e.g., using terms like
"jointly and severally" or "individually and collectively"), then each debtor can be held
liable for the entire debt.
o Example: If the contract states that the debtors are "jointly and severally liable," each
debtor is fully liable for the entire debt.

2. Legal Requirement for Solidarity:

o Certain legal provisions require solidarity between the debtors or creditors. Examples of
these provisions can be found in various articles of the Civil Code, such as Arts. 927,
1824, 1911, 1915, 2146, and 2194.
o For example, the Revised Penal Code provides for solidary liability of principals,
accomplices, and accessories in a felony.

3. Nature of the Obligation Requires Solidarity:

o Some obligations inherently require solidarity due to their nature, such as in criminal
offenses or torts (wrongful acts leading to damage). When two or more persons commit
a tort or a criminal offense together, their responsibility is solidary, meaning each is
responsible for the whole damage.
o Example: Joint tortfeasors (persons who commit a tort together) are each fully
responsible for the damage. The injured party can sue any one of them for the entire
amount, and the defendant cannot escape liability by claiming that others involved in
the tort were not sued.

Article 1208. If from the law, or the nature or the wording of the obligations to which the preceding
article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as
many shares as there are creditors or debtors, the credits or debts being considered distinct from
one another, subject to the Rules of Court governing the multiplicity of suits. (1138a)

Summary of Article 1208:

Article 1208 establishes that in joint divisible obligations, where there are multiple debtors or
creditors, the credit or debt is presumed to be divided into as many equal shares as there are
creditors or debtors. In such cases, the obligations of the debtors or creditors are distinct from
each other, and each party is responsible only for their proportionate share of the debt. This is
subject to the Rules of Court governing the multiplicity of suits, which means each creditor or
debtor may need to pursue separate actions if necessary.
Key Principles of Joint Divisible Obligations:

1. Proportionate Liability:
Each debtor is only responsible for their proportionate share of the debt, and each creditor
can demand only their proportionate share of the credit. This means that the credit or debt
is divided into equal shares based on the number of creditors or debtors.
2. Distinct Obligations:
The debt or credit is divided into distinct shares, and each creditor or debtor has a
separate obligation related to their share. The law makes this presumption unless there is
a law or agreement stating otherwise.
3. Multiplicity of Suits:
Since each obligation is considered distinct, the creditors and debtors are free to pursue
legal actions separately, following the rules of procedure for multiple claims.
4. Personal Liabilities:
If one debtor fails to fulfill the obligation, the other debtors are not liable for the unpaid
portion of the debt, as each debtor is only responsible for their own share. Similarly, if
one creditor does not collect their share, it does not affect the others.

Examples and Problem Scenarios:

Problem 1: A, B, C owe P9,000 to X, Y, Z

(a) Can the creditors proceed against A alone for the entire obligation?

 No, since the note is silent about the nature of the obligation, it is presumed to be joint.
Therefore, each creditor can demand only their proportionate share (P3,000), and A is liable
only for P3,000. The creditors would need to collect their portions from all three debtors.

(b) Can X alone proceed against A, B, and C for the entire obligation?

 No, X can only demand their proportionate share from each debtor. X would collect P3,000 from
each debtor, not the entire P9,000.

(c) How much can X collect if they proceed against A alone?

 P1,000, since each debtor is responsible for only their proportionate share of P3,000, and X can
only collect their share from A.

Article 1209. 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. (1139)

Article 1210. The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does
solidarity of itself imply indivisibility. (n)

Article 1211. Solidarity may exist although the creditors and the debtors may not be bound in the
same manner and by the same periods and conditions. (1140)
Article 1212. Each one of the solidary creditors may do whatever may be useful to the others, but
not anything which may be prejudicial to the latter. (1141a)

Article 1213. A solidary creditor cannot assign his rights without the consent of the others. (n)

Article 1214. 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. (1142a)

Article 1215. 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. (1143)

Article 1216. 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. (1144a)

Article 1217. Payment made by one of the solidary debtors extinguishes the obligation. If two or
more solidary debtors offer to pay, the creditor may choose which offer to accept.

He who made the payment may claim from his co-debtors only the share which corresponds to
each, with the 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, such share shall be borne by all his co-debtors, in proportion to the
debt of each. (1145a)

Article 1218. Payment by a solidary debtor shall not entitle him to reimbursement from his co-
debtors if such payment is made after the obligation has prescribed or become illegal. (n)

Article 1219. The remission made by the creditor of the share which affects one of the solidary
debtors does not release the latter from his responsibility towards the co-debtors, in case the debt
had been totally paid by anyone of them before the remission was effected. (1146a)

Article 1220. The remission of the whole obligation, obtained by one of the solidary debtors, does
not entitle him to reimbursement from his co-debtors. (n)

Article 1221. If the thing has been lost or if the prestation has become impossible without the fault of
the solidary debtors, the obligation shall be extinguished.

If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price
and the payment of damages and interest, without prejudice to their action against the guilty or
negligent debtor.

If through a fortuitous event, the thing is lost or the performance has become impossible after one of
the solidary debtors has incurred in delay through the judicial or extrajudicial demand upon him by
the creditor, the provisions of the preceding paragraph shall apply. (1147a)
Article 1222. 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. (1148a)

SECTION 5
Divisible and Indivisible Obligations

Article 1223. The divisibility or indivisibility of the things that are the object of obligations in which
there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of
this Title. (1149)

Article 1224. A joint indivisible obligation gives rise to indemnity for damages from the time anyone
of the debtors does not comply with his undertaking. The debtors who may have been ready to fulfill
their promises shall not contribute to the indemnity beyond the corresponding portion of the price of
the thing or of the value of the service in which the obligation consists. (1150)

Article 1225. For the purposes of the preceding articles, obligations to give definite things and those
which are not susceptible of partial performance shall be deemed to be indivisible.

When the obligation has for its object the execution of a certain number of days of work, the
accomplishment of work by metrical units, or analogous things which by their nature are susceptible
of partial performance, it shall be divisible.

However, even though the object or service may be physically divisible, an obligation is indivisible if
so provided by law or intended by the parties.

In obligations not to do, divisibility or indivisibility shall be determined by the character of the
prestation in each particular case. (1151a)

SECTION 6
Obligations with a Penal Clause

Article 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of noncompliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of
fraud in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions of this
Code. (1152a)

Article 1227. The debtor cannot exempt himself from the performance of the obligation by paying
the penalty, save in the case where this right has been expressly reserved for him. Neither can the
creditor demand the fulfillment of the obligation and the satisfaction of the penalty at the same time,
unless this right has been clearly granted him. However, if after the creditor has decided to require
the fulfillment of the obligation, the performance thereof should become impossible without his fault,
the penalty may be enforced. (1153a)

Article 1228. Proof of actual damages suffered by the creditor is not necessary in order that the
penalty may be demanded. (n)

Article 1229. The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty
may also be reduced by the courts if it is iniquitous or unconscionable. (1154a)

Article 1230. The nullity of the penal clause does not carry with it that of the principal obligation.

The nullity of the principal obligation carries with it that of the penal clause. (1155)

CHAPTER 4
Extinguishment of Obligations

General Provisions

Article 1231. Obligations are extinguished:

(1) By payment or performance;

(2) By the loss 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.

Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a

resolutory condition, and prescription, are governed elsewhere in this Code. (1156a)

SECTION 1
Payment or Performance

Article 1232. Payment means not only the delivery of money but also the performance, in any other
manner, of an obligation. (n)

Definition of payment: it is a mode of extinguishing obligation by delivery of money and and

performance in any manner of an obligation.
Article 1233. A debt shall not be understood to have been paid unless the thing or service in which
the obligation consists has been completely delivered or rendered, as the case may be. (1157)

Requisite of complete payment:

a. The very thing or service contemplated must be paid

b. Fullfilment must be complete

Article 1234. If the obligation has been substantially performed in good faith, the obligor may
recover as though there had been a strict and complete fulfillment, less damages suffered by the
obligee. (n)

Article 1234 allows an obligor (the party bound by a contract) to recover as though they fully performed
their duty, provided they substantially performed it in good faith. However, any damages caused by
incomplete performance will be deducted from the amount they can recover.

Article 1235. When the obligee accepts the performance, knowing its incompleteness or irregularity,
and without expressing any protest or objection, the obligation is deemed fully complied with. (n)

Article 1235 explains that when the obligee accepts a performance, even if it is incomplete or
irregular, and does not express any protest or objection, the obligation is considered fully
fulfilled. This aligns with the principle of estoppel, meaning the obligee cannot later claim the
obligation wasn't completed.

In the context of fulfilling obligations, a debtor is considered to have paid when they deliver the
full thing they promised (for a "give" obligation), perform the service they agreed to (for a "do"
obligation), or refrain from the action they committed to not do (for a "not to do" obligation).
However, there are exceptions to this:

1. Substantial performance in good faith: If the debtor has substantially performed the
obligation in good faith, they can recover as if they had fully complied, minus any
damages caused to the obligee.
2. Acceptance without protest: If the obligee accepts the performance knowing of its
incompleteness or irregularity, without protest or objection, the obligation is deemed
fulfilled.

Additionally, if an obligation is converted into an indemnity (compensation for breach or non-

fulfillment), it is considered paid once the indemnity is fully settled.

Article 1236. The creditor is not bound to accept payment or performance by a third person who has
no interest in the fulfillment of the obligation, unless there is a stipulation to the contrary.

Whoever pays for another may demand from the debtor what he has paid, except that if he paid
without the knowledge or against the will of the debtor, he can recover only insofar as the payment
has been beneficial to the debtor. (1158a)
Article 1236 states that the creditor is not required to accept payment or performance from a
third party who has no vested interest in fulfilling the obligation, unless there is an agreement
stating otherwise.

If someone pays on behalf of another (i.e., a third party makes a payment for the debtor), they
can seek reimbursement from the debtor. However, if the third party makes the payment without
the debtor's knowledge or against the debtor's will, they can only recover the amount to the
extent that the payment benefited the debtor.

A. First Par. General Rule: Creditor can refuse payment from third person

Exceptions:

a. There is stipulation allowing this

b. If a third person has interest in the fulfillment of obligation (codebtor, guarantor)

B. 2nd Par (Payment by Third person

a. With knowledge and consent of debtor payor entitled to REIMBURSEMENT AND

SUBROGATION OF RIGHTS (Guaranty,penalty,clause mortgage)

b. Without knowledge and against will. NO SUBROGATION, only BENEFICIAL REIMBURSEMENT

Reason for the rule before: The creditor may do not have confidence to have transaction or dealings
with third person who delivered the payment.

Article 1237. Whoever pays on behalf of the debtor without the knowledge or against the will of the
latter, cannot compel the creditor to subrogate him in his rights, such as those arising from a
mortgage, guaranty, or penalty. (1159a)

Subrogation: the act of putting somebody into the shoes of the creditor to claim their rights or seek
reimbursement.

Scenario:

 Person A owes Person B ₱500,000, and the debt is secured by a mortgage on Person
A's house.
 Person C decides to pay the full ₱500,000 to Person B without consulting or informing
Person A.

Application of Article 1237:

 Person C can ask for reimbursement of 500,000

 However Person C cannot force Person B to transfer the mortgage rights or any other
rights (such as the right to foreclose on the house) to Person C, even though they paid the
₱500,000.
 Since Person C paid the debt without Person A's knowledge or consent, Person C does
not gain the right to take possession of the house or any legal rights tied to the mortgage.
Article 1238. Payment made by a third person who does not intend to be reimbursed by the debtor
is deemed to be a donation, which requires the debtor's consent. But the payment is in any case
valid as to the creditor who has accepted it. (n)

Article 1238 explains that when a third person pays a debt on behalf of the debtor without
intending to seek reimbursement, it is considered a donation rather than a mere payment.
However, for the payment to be considered a valid donation, the debtor's consent is required.

Despite the need for the debtor's consent, the payment remains valid as far as the creditor is
concerned, meaning the creditor is still considered to have received payment, regardless of the
donor's intentions or the debtor's consent.

Example:

 Person A owes Person B ₱100,000.

 Person C, a friend of Person A, decides to pay Person B the ₱100,000 without intending
to be reimbursed by Person A.
 This payment is considered a donation from Person C to Person A, and for it to be
valid, Person A must agree to this donation.
 However, Person B is still bound to accept the ₱100,000 as payment, as it is valid in
terms of Person B's obligation, regardless of whether Person A consents to the donation.

In short, the third party's payment is a donation unless the debtor agrees, but it still discharges the
debtor's obligation to the creditor.

Article 1239. In obligations to give, payment made by one who does not have the free disposal of
the thing due and capacity to alienate it shall not be valid, without prejudice to the provisions of
article 1427 under the Title on "Natural Obligations." (1160a)

PAYMENT BY INCAPCITATED PERSON

Article 1239 explains that in obligations to give (e.g., giving a specific item or property), a
payment made by a person who does not have the right to freely dispose of the item or lacks
the capacity to transfer ownership is not valid. This means the person making the payment must
have the legal right to freely give or transfer the thing they are paying with.

General Rule: If person has no capacity to give:

a. Payment not valid – if accepted

b. Creditor cannot be compelled to accept it
c. Consignation will not be proper

However, the article also refers to Article 1427, which deals with natural obligations. A
natural obligation arises when there is a moral duty to fulfill an obligation, even though it may
not be legally enforceable. In such cases, even if the person doesn't have the right to dispose of
the thing or lacks capacity, the payment might still be considered valid under certain
circumstances.
Article 1427 deals with the situation where a minor between the ages of 18 and 21 enters into a
contract without the consent of their parent or guardian. If this minor voluntarily pays money or
delivers a fungible thing (such as money or goods that are interchangeable) to fulfill an
obligation, the minor cannot recover that payment from the obligee (the party they paid) if the
obligee has spent or consumed it in good faith.

Article 1240. Payment shall be made to the person in whose favor the obligation has been
constituted, or his successor in interest, or any person authorized to receive it. (1162a)

Article 1241. Payment to a person who is incapacitated to administer his property shall be valid if he
has kept the thing delivered, or insofar as the payment has been beneficial to him.

Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the
creditor. Such benefit to the creditor need not be proved in the following cases:

(1) If after the payment, the third person acquires the creditor's rights;

(2) If the creditor ratifies the payment to the third person;

(3) If by the creditor's conduct, the debtor has been led to believe that the third person had
authority to receive the payment. (1163a)

Article 1241 explains the validity of payments made to a person who is incapacitated or to a
third party.

1st par Payment to an Incapacitated Person:

If payment is made to someone who cannot manage their own property (due to legal
incapacity), the payment is still valid under two conditions:

1. If the person keeps the thing delivered (i.e., the property or payment), or
2. If the payment benefits the incapacitated person in some way.

2nd Par Payment to a Third Person Unauthorized:

When payment is made to a third person (someone who is not the creditor), the payment is valid
as long as it benefits the creditor. There is no need to prove the benefit to the creditor if any of
the following occur:

1. If the third person acquires the creditor's rights after receiving the payment (e.g., the
third person becomes the creditor).
2. If the creditor ratifies the payment to the third person (the creditor confirms and
accepts the payment made to the third party).
 3. If the creditor's conduct (actions or behavior) leads the debtor to believe that the third
person had the authority to accept the payment on the creditor’s behalf.

Example 1: Payment to an Incapacitated Person

 Person A, who is incapacitated and cannot manage their own property, owes Person B
₱100,000.
 Person C pays ₱100,000 to Person A on behalf of Person B.
 The payment is valid as long as Person A either keeps the money or benefits from it in
some way (e.g., it’s used for Person A's care).

Example 2: Payment to a Third Person

 Person A owes Person B ₱100,000 but mistakenly pays Person C, who is not the
creditor.
 The payment will be valid if Person C acquires Person B's rights to the debt (e.g.,
Person C becomes the new creditor), or if Person B later agrees to the payment, or if
Person B's actions led Person A to believe Person C had the authority to accept the
payment.

Article 1242. Payment made in good faith to any person in possession of the credit shall release the
debtor. (1164)

Key Points:

 Good faith means the debtor believes they are paying the correct person who is entitled
to receive the payment.
 If the person receiving the payment is in possession of the credit, even if they are not the
actual creditor (but appear to have the right to collect), the payment will still discharge
the debt.

Article 1243. Payment made to the creditor by the debtor after the latter has been judicially ordered
to retain the debt shall not be valid. (1165)

Example:

 Person A owes Person B ₱50,000.

 A court issues an order for Person A to retain the debt, meaning Person A is not
allowed to pay Person B until the matter is resolved in court.
 Person A later pays Person B ₱50,000, but because of the court order, the payment is
invalid, and Person A is still liable for the debt.

It can be Order of attachment, injunction and garnishment

Definition: An Injunction is a court order that either requires a party to do something (mandatory
injunction) or prohibits a party from doing something (prohibitory injunction).

Definition: An Order of Attachment is a court order that allows a creditor to seize a debtor's property
before a final judgment is made. This is usually done to prevent the debtor from hiding, selling, or
transferring their assets in order to avoid paying the debt.

Definition: Garnishment is a legal process in which a court orders a third party (usually an employer or a
bank) to withhold a portion of the debtor’s wages, salary, or bank account funds to pay a debt directly to
the creditor.

Article 1244. The debtor of a thing cannot compel the creditor to receive a different one, although
the latter may be of the same value as, or more valuable than that which is due.

In obligations to do or not to do, an act or forbearance cannot be substituted by another act or

forbearance against the obligee's will. (1166a)

Article 1244 outlines two key principles regarding payment and performance of obligations:

1. In Obligations to Give (Things):

 Debtor Cannot Substitute the Thing Due: The debtor cannot force the creditor to
accept a different item, even if it is of the same value or more valuable than the thing
originally owed.
 Example: Person A owes Person B a specific painting (valued at ₱100,000). If Person
A wants to give Person B a different painting of equal or greater value, Person B cannot
be forced to accept the substitute. Person B is entitled to receive the exact item specified
in the contract.

2. In Obligations to Do or Not to Do (Actions):

 Substitution of Acts or Forbearances: In cases where the obligation is to do something

(perform an act) or to refrain from doing something (forbearance), the debtor cannot
substitute one act or forbearance for another without the obligee's (creditor's) consent.
 Example: If Person A has agreed to clean Person B's house, Person A cannot substitute
the cleaning with another act (like washing Person B's car) without Person B's
agreement. Similarly, if Person A agrees not to interfere with Person B's property,
Person A cannot substitute this with refraining from another unrelated action.

Summary:

 In giving things: The debtor must give exactly what was agreed upon, even if something
else could be of equal or greater value.
 In doing or refraining from acts: The debtor cannot substitute a different act or
forbearance without the creditor’s approval.

Exception:
 a. In case of facultative obligation where the debtor can fulfill their obligation by offering a
different thing or performance from what was originally agreed upon, as long as the substitute
is accepted by the creditor.
b. In case of waiver by the creditor
c. In case there is another agreement resulting dation in payment or novation

Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a
debt in money, shall be governed by the law of sales. (n)

Article 1245 explains that dation in payment (or "dación en pago") is when a debtor transfers
property to the creditor as a form of payment to settle a debt in money. This means the debtor
gives a property (such as a car, house, or other assets) instead of paying the debt with money.

The article also clarifies that dation in payment is governed by the law of sales, meaning it
follows the rules and regulations that apply to sales contracts.

Condition to make Dation in Payment valid:

a. If creditor consent, for a sale presupoose consent of both party

b. If dation in payment will not prejudice other creditors
c. If debtor not judicially declared insolvent

Article 1246. When the obligation consists in the delivery of an indeterminate or generic thing,
whose quality and circumstances have not been stated, the creditor cannot demand a thing of
superior quality. Neither can the debtor deliver a thing of inferior quality. The purpose of the
obligation and other circumstances shall be taken into consideration. (1167a)

Article 1246 addresses situations in which an obligation involves the delivery of an

indeterminate or generic thing—meaning the specific item to be delivered is not specified in
advance, but instead, is defined by its general characteristics.

1. So If the obligation is for the delivery of a generic item , the creditor cannot demand a
product of higher quality than what would typically be expected. Conversely, the debtor
cannot provide an inferior product.
2. Consideration of Purpose and Circumstances: When determining the quality, the
purpose of the obligation and other relevant circumstances must be considered. This
implies that both parties need to keep in mind the practical use or intention behind the
delivery.

Article 1247. Unless it is otherwise stipulated, the extrajudicial expenses required by the payment
shall be for the account of the debtor. With regard to judicial costs, the Rules of Court shall govern.

 Debtor pay for extrajudicial expenses, except when there is a stipulation to the contrary

Article 1248. Unless there is an express stipulation to that effect, the creditor cannot be compelled
partially to receive the prestations in which the obligation consists. Neither may the debtor be
required to make partial payments.
However, when the debt is in part liquidated and in part unliquidated, the creditor may demand and
the debtor may effect the payment of the former without waiting for the liquidation of the latter.
(1169a)

Article 1248 deals with the rules governing partial performance of an obligation.

oGenerally, the creditor cannot be forced to accept partial performance of the

obligation. This means if the debtor is supposed to deliver something in full (for
example, an entire quantity of goods), the creditor cannot insist on receiving part
of it.
o Similarly, the debtor cannot be forced to make partial payments unless the
agreement provides for it.
o EXCEPTION:
a. express stipulation between the parties,
b. When different prestation are subject to different condition
c. When debt is in part liquidated and in part unliquidated
d. When work is to be done by parts
e. When solidary debtor pay only part, because others are not yet
demandable
2. Exception for Partially Liquidated Debts:
o If the debt consists of two parts: one part that is "liquidated" (i.e., the amount or
value is clear and determined) and another that is "unliquidated" (i.e., the amount
or value is uncertain or to be determined later), then the creditor can demand
payment of the liquidated part without waiting for the unliquidated part to be
settled.
o This ensures that the creditor can receive a definite payment for the portion of the
debt that is already determined while the other part is still in the process of being
clarified.

Article 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not
possible to deliver such currency, then in the currency which is legal tender in the Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when through
the fault of the creditor they have been impaired.

In the meantime, the action derived from the original obligation shall be held in the abeyance. (1170)

Article 1249 of the Civil Code of the Philippines governs the payment of debts, specifically in
terms of currency and the use of negotiable instruments like promissory notes or bills of
exchange.

1. Payment in Stipulated Currency:

 o The debtor must pay the debt in the currency that was originally agreed upon in
the contract. For example, if the agreement states that payment is to be made in
US dollars, the debtor must deliver the payment in that currency.
2. Payment in Legal Tender:
o If the agreed-upon currency is unavailable or cannot be delivered, the debtor must
make the payment in Philippine legal tender (i.e., the Philippine peso). This
ensures that the payment can still be made using the national currency when the
original currency is inaccessible or not usable.
3. Use of Promissory Notes, Bills of Exchange, or Other Mercantile Documents:
o The delivery of negotiable instruments like promissory notes or bills of exchange
does not constitute full payment until these instruments are cashed (i.e., converted
into actual money) or, if they are impaired due to the creditor’s fault, their value is
affected.
o This means that if a debtor gives a promissory note or bill of exchange as
payment, it’s not considered complete payment until the creditor has cashed or
received the equivalent value in legal tender. If the creditor fails to cash it due to
their own fault (e.g., neglecting to endorse it), then the payment is effectively
delayed or impaired.
4. Action on the Original Obligation:
o While the promissory note or bill of exchange is pending or impaired, any legal
action derived from the original debt is paused ("held in abeyance"). In other
words, the creditor cannot take legal action to enforce the debt while the
negotiable instrument remains uncashable or impaired through no fault of the
debtor.

Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should
supervene, the value of the currency at the time of the establishment of the obligation shall be the
basis of payment, unless there is an agreement to the contrary. (n)

 Extraordinary Inflation or Deflation:

 The article deals with situations where the currency agreed upon in the contract
experiences extraordinary inflation (a rapid increase in the value of money) or
deflation (a significant decrease in the value of money) after the obligation is
established.

 Value at the Time the Obligation was Created:

 In such cases of inflation or deflation, the value of the currency at the time the
obligation was created (when the contract was made) will still be the basis for
determining the amount owed. This means the debtor must still pay the equivalent value
of the agreed currency at the time the agreement was made, regardless of any changes in
the currency's value due to inflation or deflation.

 Unless Otherwise Agreed:

  However, if the parties involved explicitly agreed to a different arrangement (e.g.,
adjusting for inflation or deflation), the terms of that agreement would prevail. This
allows flexibility for the parties to decide how to address changes in the value of the
currency if they so choose

Article 1251. Payment shall be made in the place designated in the obligation.

There being no express stipulation and if the undertaking is to deliver a determinate thing, the
payment shall be made wherever the thing might be at the moment the obligation was constituted.

In any other case the place of payment shall be the domicile of the debtor.

If the debtor changes his domicile in bad faith or after he has incurred in delay, the additional
expenses shall be borne by him.

These provisions are without prejudice to venue under the Rules of Court. (1171a)

SUBSECTION 1. Application of Payments

Article 1252. He who has various debts of the same kind in favor of one and the same creditor, may
declare at the time of making the payment, to which of them the same must be applied. Unless the
parties so stipulate, or when the application of payment is made by the party for whose benefit the
term has been constituted, application shall not be made as to debts which are not yet due.

If the debtor accepts from the creditor a receipt in which an application of the payment is made, the
former cannot complain of the same, unless there is a cause for invalidating the contract. (1172a)

Article 1253. If the debt produces interest, payment of the principal shall not be deemed to have
been made until the interests have been covered. (1173)

Article 1254. When the payment cannot be applied in accordance with the preceding rules, or if
application can not be inferred from other circumstances, the debt which is most onerous to the
debtor, among those due, shall be deemed to have been satisfied.

If the debts due are of the same nature and burden, the payment shall be applied to all of them
proportionately. (1174a)

SUBSECTION 2. Payment by Cession

Article 1255. The debtor may cede or assign his property to his creditors in payment of his debts.
This cession, unless there is stipulation to the contrary, shall only release the debtor from
responsibility for the net proceeds of the thing assigned. The agreements which, on the effect of the
cession, are made between the debtor and his creditors shall be governed by special laws. (1175a)

SUBSECTION 3. Tender of Payment and Consignation

Article 1256. If the creditor to whom tender of payment has been made refuses without just cause to
accept it, the debtor shall be released from responsibility by the consignation of the thing or sum
due.

Consignation alone shall produce the same effect in the following cases:

(1) When the creditor is absent or unknown, or does not appear at the place of payment;

(2) When he is incapacitated to receive the payment at the time it is due;

(3) When, without just cause, he refuses to give a receipt;

(4) When two or more persons claim the same right to collect;

(5) When the title of the obligation has been lost. (1176a)

Article 1257. In order that the consignation of the thing due may release the obligor, it must first be
announced to the persons interested in the fulfillment of the obligation.

The consignation shall be ineffectual if it is not made strictly in consonance with the provisions which
regulate payment. (1177)

Article 1258. Consignation shall be made by depositing the things due at the disposal of judicial
authority, before whom the tender of payment shall be proved, in a proper case, and the
announcement of the consignation in other cases.

The consignation having been made, the interested parties shall also be notified thereof. (1178)

Article 1259. The expenses of consignation, when properly made, shall be charged against the
creditor. (1179)

Article 1260. Once the consignation has been duly made, the debtor may ask the judge to order the
cancellation of the obligation.

Before the creditor has accepted the consignation, or before a judicial declaration that the
consignation has been properly made, the debtor may withdraw the thing or the sum deposited,
allowing the obligation to remain in force. (1180)

Article 1261. If, the consignation having been made, the creditor should authorize the debtor to
withdraw the same, he shall lose every preference which he may have over the thing. The co-
debtors, guarantors and sureties shall be released. (1181a)

SECTION 2
Loss of the Thing Due
Article 1262. An obligation which consists in the delivery of a determinate thing shall be
extinguished if it should be lost or destroyed without the fault of the debtor, and before he has
incurred in delay.

When by law or stipulation, the obligor is liable even for fortuitous events, the loss of the thing does
not extinguish the obligation, and he shall be responsible for damages. The same rule applies when
the nature of the obligation requires the assumption of risk. (1182a)

Article 1263. In an obligation to deliver a generic thing, the loss or destruction of anything of the
same kind does not extinguish the obligation. (n)

Article 1264. The courts shall determine whether, under the circumstances, the partial loss of the
object of the obligation is so important as to extinguish the obligation. (n)

Article 1265. Whenever the thing is lost in the possession of the debtor, it shall be presumed that
the loss was due to his fault, unless there is proof to the contrary, and without prejudice to the
provisions of article 1165. This presumption does not apply in case of earthquake, flood, storm, or
other natural calamity. (1183a)

Article 1266. The debtor in obligations to do shall also be released when the prestation becomes
legally or physically impossible without the fault of the obligor. (1184a)

Article 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in part. (n)

Article 1268. When the debt of a thing certain and determinate proceeds from a criminal offense,
the debtor shall not be exempted from the payment of its price, whatever may be the cause for the
loss, unless the thing having been offered by him to the person who should receive it, the latter
refused without justification to accept it. (1185)

Article 1269. The obligation having been extinguished by the loss of the thing, the creditor shall
have all the rights of action which the debtor may have against third persons by reason of the loss.
(1186)

SECTION 3
Condonation or Remission of the Debt

Article 1270. Condonation or remission is essentially gratuitous, and requires the acceptance by the
obligor. It may be made expressly or impliedly.

One and the other kind shall be subject to the rules which govern inofficious donations. Express
condonation shall, furthermore, comply with the forms of donation. (1187)

Article 1271. The delivery of a private document evidencing a credit, made voluntarily by the
creditor to the debtor, implies the renunciation of the action which the former had against the latter.
If in order to nullify this waiver it should be claimed to be inofficious, the debtor and his heirs may
uphold it by proving that the delivery of the document was made in virtue of payment of the debt.
(1188)

Article 1272. Whenever the private document in which the debt appears is found in the possession
of the debtor, it shall be presumed that the creditor delivered it voluntarily, unless the contrary is
proved. (1189)

Article 1273. The renunciation of the principal debt shall extinguish the accessory obligations; but
the waiver of the latter shall leave the former in force. (1190)

Article 1274. It is presumed that the accessory obligation of pledge has been remitted when the
thing pledged, after its delivery to the creditor, is found in the possession of the debtor, or of a third
person who owns the thing. (1191a)

SECTION 4
Confusion or Merger of Rights

Article 1275. The obligation is extinguished from the time the characters of creditor and debtor are
merged in the same person. (1192a)

Article 1276. Merger which takes place in the person of the principal debtor or creditor benefits the
guarantors. Confusion which takes place in the person of any of the latter does not extinguish the
obligation. (1193)

Article 1277. Confusion does not extinguish a joint obligation except as regards the share
corresponding to the creditor or debtor in whom the two characters concur. (1194)

SECTION 5
Compensation

Article 1278. Compensation shall take place when two persons, in their own right, are creditors and
debtors of each other. (1195)

Article 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same time a
principal creditor of the other;

(2) That both debts consist in a sum of money, or if the things due are consumable, they be
of the same kind, and also of the same quality if the latter has been stated;

(3) That the two debts be due;

 (4) That they be liquidated and demandable;

(5) That over neither of them there be any retention or controversy, commenced by third
persons and communicated in due time to the debtor. (1196)

Article 1280. Notwithstanding the provisions of the preceding article, the guarantor may set up
compensation as regards what the creditor may owe the principal debtor. (1197)

Article 1281. Compensation may be total or partial. When the two debts are of the same amount,
there is a total compensation. (n)

Article 1282. The parties may agree upon the compensation of debts which are not yet due. (n)

Article 1283. If one of the parties to a suit over an obligation has a claim for damages against the
other, the former may set it off by proving his right to said damages and the amount thereof. (n)

Article 1284. When one or both debts are rescissible or voidable, they may be compensated against
each other before they are judicially rescinded or avoided. (n)

Article 1285. The debtor who has consented to the assignment of rights made by a creditor in favor
of a third person, cannot set up against the assignee the compensation which would pertain to him
against the assignor, unless the assignor was notified by the debtor at the time he gave his consent,
that he reserved his right to the compensation.

If the creditor communicated the cession to him but the debtor did not consent thereto, the latter may
set up the compensation of debts previous to the cession, but not of subsequent ones.

If the assignment is made without the knowledge of the debtor, he may set up the compensation of
all credits prior to the same and also later ones until he had knowledge of the assignment. (1198a)

Article 1286. Compensation takes place by operation of law, even though the debts may be payable
at different places, but there shall be an indemnity for expenses of exchange or transportation to the
place of payment. (1199a)

Article 1287. Compensation shall not be proper when one of the debts arises from a depositum or
from the obligations of a depositary or of a bailee in commodatum.

Neither can compensation be set up against a creditor who has a claim for support due by gratuitous
title, without prejudice to the provisions of paragraph 2 of article 301. (1200a)

Article 1288. Neither shall there be compensation if one of the debts consists in civil liability arising
from a penal offense. (n)

Article 1289. If a person should have against him several debts which are susceptible of
compensation, the rules on the application of payments shall apply to the order of the compensation.
(1201)

Article 1290. When all the requisites mentioned in article 1279 are present, compensation takes
effect by operation of law, and extinguishes both debts to the concurrent amount, even though the
creditors and debtors are not aware of the compensation. (1202a)
 SECTION 6
Novation

Article 1291. Obligations may be modified by:

(1) Changing their object or principal conditions;

(2) Substituting the person of the debtor;

(3) Subrogating a third person in the rights of the creditor. (1203)

Article 1292. In order that an obligation may be extinguished by another which substitute the same,
it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be
on every point incompatible with each other. (1204)

Article 1293. Novation which consists in substituting a new debtor in the place of the original one,
may be made even without the knowledge or against the will of the latter, but not without the consent
of the creditor. Payment by the new debtor gives him the rights mentioned in articles 1236 and 1237.
(1205a)

Article 1294. If the substitution is without the knowledge or against the will of the debtor, the new
debtor's insolvency or non-fulfillment of the obligations shall not give rise to any liability on the part of
the original debtor. (n)

Article 1295. The insolvency of the new debtor, who has been proposed by the original debtor and
accepted by the creditor, shall not revive the action of the latter against the original obligor, except
when said insolvency was already existing and of public knowledge, or known to the debtor, when
the delegated his debt. (1206a)

Article 1296. When the principal obligation is extinguished in consequence of a novation, accessory
obligations may subsist only insofar as they may benefit third persons who did not give their consent.
(1207)

Article 1297. If the new obligation is void, the original one shall subsist, unless the parties intended
that the former relation should be extinguished in any event. (n)

Article 1298. The novation is void if the original obligation was void, except when annulment may be
claimed only by the debtor or when ratification validates acts which are voidable. (1208a)

Article 1299. If the original obligation was subject to a suspensive or resolutory condition, the new
obligation shall be under the same condition, unless it is otherwise stipulated. (n)

Article 1300. Subrogation of a third person in the rights of the creditor is either legal or conventional.
The former is not presumed, except in cases expressly mentioned in this Code; the latter must be
clearly established in order that it may take effect. (1209a)

Article 1301. Conventional subrogation of a third person requires the consent of the original parties
and of the third person. (n)
Article 1302. It is presumed that there is legal subrogation:

(1) When a creditor pays another creditor who is preferred, even without the debtor's
knowledge;

(2) When a third person, not interested in the obligation, pays with the express or tacit
approval of the debtor;

(3) When, even without the knowledge of the debtor, a person interested in the fulfillment of
the obligation pays, without prejudice to the effects of confusion as to the latter's share.
(1210a)

Article 1303. Subrogation transfers to the persons subrogated the credit with all the rights thereto
appertaining, either against the debtor or against third person, be they guarantors or possessors of
mortgages, subject to stipulation in a conventional subrogation. (1212a)

Article 1304. A creditor, to whom partial payment has been made, may exercise his right for the
remainder, and he shall be preferred to the person who has been subrogated in his place in virtue of
the partial payment of the same credit. (1213)