I.

OBLIGATIONS 2) To demand that obligation be complied with at the expense of the debtor, and
3) Damages

A. GENERAL PRINCIPLES Obligations of the Debtor

A. Determinate Obligations:
Obligation 1) Specific performance
2) Take care of the thing with proper diligence
Juridical necessity to give, to do or not to do. (Art. 1156) 3) Deliver all accessions and accessories
4) Pay for damages in case of breach by reason of delay, fraud, negligence or contravention of
SOURCES OF OBLIGATION the tenor thereof
1. Law
Must be expressly or impliedly set forth and cannot be presumed. B. Generic Obligations:
2. Contract 1) Deliver the thing which is neither of superior nor inferior quality; and
Must be complied with in good faith. 2) Pay damages in case of breach of obligation.
The law between the parties
Parties are allowed to enter into any stipulations, provided they are not contrary to law, morals, good ◘ BREACH OF OBLIGATIONS
customs, public order or public policy. 1. Voluntary – debtor, in the performance of the obligation, is guilty of:
a. default (mora)
3. Quasi-Contract b. fraud (dolo)
Juridical relations resulting from a lawful, voluntary and unilateral act, and which has for its purpose, c. negligence (culpa)
the payment of indemnity to the end that no one shall be unjustly enriched r benefited at the expense d. contravention of the tenor of the obligation
at the expense of another. Note: debtor is liable for damages

Two Kinds of Quasi-Contracts 2. Involuntary – debtor is unable to comply with his obligation because of fortuitous event
a. Negotiorum Gestio Note: debtor is not liable for damages
Unauthorized management; this takes place when a person voluntarily takes charge of another’s
abandoned business or property without the owner’s authority.
b. Solutio Indebiti ◘ DELAY (MORA) – Incurred from the moment the obligee judicially or extra-judicially demands the
Undue payment; this tales place when something is received when there is no right to demand it, and it fulfillment of the obligation.
was unduly delivered thru mistake.
General Rule: There must be a demand before delay may be incurred.
4. Delict Exceptions:
See appropriate provisions of the Revised Penal Code (Art. 100 RPC). 1. Time is of the essence
Civil liability arising from crimes include restitution, reparation of damage caused and indemnity for 2. Obligation or law expressly declares
consequential damages. 3. Demand is useless as when obligor has rendered it beyond his power to perform
Effect Of Acquittal: if acquittal is due to reasonable doubt, there is no civil liability. If the acquittal 4. There is an acknowledgement of default
is due to exempting circumstance or there is preponderance of evidence, there is civil liability.
Classification of Delay (MORA)
5. Quasi-Delict 1. Mora solvendi (delay of the debtor)
It is a fault or act of negligence which causes damage to another, there being no pre-existing  Mora sovendi ex person – demand is necessary.
contractual relations between the parties.  Mora sovendi ex re – demand is not necessary.
2. Mora accepiendi (delay of the creditor)
Requisites of Obligation 3. Compensatio morae (mutual delay of the parties); has the effect of canceling the liabilities of
1. Juridical tie (vinculum juris) the parties.
2. Active subject (obligee or creditor)
3. Passive subject (obligor or debtor) Fraud (DOLO) – Must be present during the performance of the obligation and not fraud at the time of
4. Prestation (object of the obligation) the birth of the obligation (CAUSAL OR INCIDENTAL FRAUD).

Accessory Obligations Negligence (CULPA) – Consists in the omission of that diligence which is required by the nature of the
1. Exercise due diligence/preserve the thing circumstances of the persons of the time and of the place.
2. Delivery of fruits
3. Delivery of accessories and accessions Diligence Required
1. That agreed upon by the parties;
Rights of the Creditor: 2. In the absence of stipulation, that required by law in the particular case; and
A. Determinate Obligations: 3. If both the contract and law are silent, diligence of a good father of a family.
1) Specific performance and
2) Damages exclusive or in addition to the remedy at the option of the creditor Incidental Fraud Causal Fraud
B. Generic Obligations (Dolo Incidente) (Dolo Causante)
1) Specific performance Present during the performance of a pre-existing Present during the time of birth of the
 obligation. obligation
Purpose is to evade the normal fulfillment of the Purpose is to secure the consent of the other to CONDITIONAL OBLIGATION
obligation. enter into a contract.
Results in the non-fulfillment or breach of the Results in the vitiation of consent. Effectivity is subordinate to the fulfillment or non-fulfillment of a future and uncertain fact of event.
obligation.
Gives rise to a right of the creditor to recover Gives rise to a right of an innocent party to Kinds of Conditions:
damages from the debtor. annul the contract. 1) Suspensive – fulfillment of the condition results in the acquisition of rights arising out of the
obligation
◘ FORTUITOUS EVENT – an event which could not be foreseen, or which, though foreseen is inevitable. 2) Resolutory - fulfillment of the condition results in the extinguishments of rights arising out of the
obligation
General Rule: No liability in case of fortuitous event. 3) Potestative - fulfillment of the condition depends upon the will of a party to the obligation
Exceptions: 4) Casual – fulfillment of the condition depends upon chance and/or upon the will of a third person
1. By contrary stipulation in the contract; 5) Mixed – fulfillment of the condition depends partly upon chance and/or the will of a third person
2. Declared by law; 6) Possible – condition is capable of realization according to nature, law, public policy and good
E.g. Art. 552(2), 1165(3), 1268, 1942, 2147, customs
2148 and 2159 of the Civil Code. 7) Impossible – condition is not capable of realization according to nature, law, public policy and
3. Nature of the obligation requires assumption of risk when expressly declared by law good customs
4. When the obligor is in default or has promised to deliver the same thing to 2 or more persons who 8) Positive – condition involves the performance of an act
do not have the same interest (Art. 1165(3)). 9) Negative – condition is susceptible of partial realization
10) Divisible – condition is susceptible of partial realization
Essential Characteristics of a Fortuitous Event 11) Indivisible – condition is not susceptible of partial realization
1. Cause is independent of the will of the debtor; 12) Conjunctive – where there are several conditions, all of which must be realized
2. Impossibility of foreseeing or impossibility of avoiding it to be foreseen even if foreseen; 13) Alternative – where there are several conditions but only one must be realized.
3. Occurrence renders it impossible for debtor to fulfill his obligation in a normal manner; and
4. Debtor is free from any participation in the aggravation of the injury to the creditor. Rule in Potestative Conditions
1. Before the fulfillment of the condition, the right which the creditor has already acquired by virtue
 The lessee failed to employ reasonable foresight, diligence and care that would have exempted it from of the obligation is required by virtue of the obligation is subject to a threat of extinction.
liability resulting from the burning of the truck. Negligence as commonly understood, is that conduct 2. Upon fulfillment of the condition, the parties shall return to each other what they received
that naturally or reasonably creates undue risk or harm to others. It may be a failure to observe that including the fruits.
degree of care, precaution or vigilance that the circumstances justly demand. (Valenzuela vs. CA, 253
SCRA 303; Quibal vs. Sandiganbayan, 244 SCRA 224; Citibank vs. Gatchalian, 240 SCRA 212) or to do Loss, Deterioration and Improvement (During the Pendency of the Condition)
any other act that would be done by a prudent and reasonable person, who is guided by consideration 1. Loss
that ordinarily regulate the conduct of human affairs. (Layuga vs. IAC, 167 SCRA 363; Buillan vs. COA,  Without debtor’s fault – obligation is extinguished.
300 SCRA 445; Minder Resources Development vs. Morillo, GR 138123, March 2002)  With debtor’s fault – debtor pays damages.

 In order that a common carrier may be absolved from liability where the loss, destruction or 2. Deterioration
deterioration or the goods is due to a natural disaster or calamity, it must further be shown that such  Without debtor’s fault – obligation is extinguished.
natural disaster or calamity was the proximate and only cause of the loss (Art. 1739, NCC). There must  With debtor’s fault – creditor may choose between the rescission of the obligation and its
be an entire exclusion of human agency from the cause of the injury or the loss. fulfillment with indemnity for damages in either case.
 Moreover, even in cases where natural disaster is the proximate and only cause of the loss, a common 3. Improvements
carrier is still required to exercise due diligence to prevent or minimize loss before, during and after the  By the thing’s nature or by time – improvement shall inure to the benefit of the creditor
occurrence of the natural disaster, for it to be exempt from liability under the law for the loss of the  At the debtor’s expense – debtor shall have no other right that that granted to a usufructuary
goods (Art. 1739, NCC). If a common carrier fails to exercise due diligence or that ordinary care which
the occasion of a natural disaster, it will be deemed to have been negligent and the loss will not be A Thing is Lost when it:
considered as having been due to a natural disaster under Article 1734 (Philippine American General 1. Perishes;
insurance Co. vs. MGG Marine Services, Inc., GR 135645, Mar. 8, 2002) 2. Goes out of commerce (selling children as slaves, prohibited by law);
3. Disappears in such a way that its existence is unknown or it cannot be recovered (cargo sinks with
B. KINDS OF OBLIGATION ship).
1) Pure and Conditional
2) Obligation with a period Reciprocal Obligations
3) Alternative and Facultative  Those which are created or established at the same time, out of the same cause, and which result in
4) Joint and Solidary mutual relationships of creditor & debtor between the parties
5) Divisible and indivisible
6) Obligation with a penal clause TACIT RESOLUTORY CONDITION
 If one of the parties fails to comply with what is incumbent upon him, there is a right on the part of the
◘ PURE OBLIGATION other to rescind the obligation.

Effectivity or extinguishment does not depend upon the fulfillment or non-fulfillment of a condition or Right to Rescind
upon the expiration of a term or period. General Rule: The right to rescind needs judicial approval.
 Exceptions: b. If one or more but not all of the things are lost or one or some but not all of the prestations
1. If there is an express stipulation of automatic rescission cannot be performed due to the fault of the debtor, creditor cannot hold the debtor liable for
2. When the debtor voluntarily retuned the thing damages because the debtor can still comply with his obligation

2. If right of choice belongs to the creditor

◘ OBLIGATION WITH A PERIOD
 Consequences are subjected in one way or another to the expiration of the period or term.
When May Court Fix Term
1. Obligation does not fix a period, but from its nature it can be inferred that a period was intended
by the parties.
2. Duration of the period depends upon the will of the debtor.
3. Debtor finds himself when his means permit him to do so.
a. If one of the things is lost through a fortuitous event, the debtor shall perform the obligation by
delivering that which the creditor should choose from among the remainder, or that which remains
if only 1 subsists.
b. If the loss of 1 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.
c. If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon
the price of any of them, also with indemnity for damages.

When Debtor Losses the Right to Make Use of the Period ◘ JOINT AND SOLIDARY OBLIGATIONS
1. He becomes insolvent, unless he gives a sufficient guaranty or security;
2. He does not furnish to the creditor the guaranties or securities he promised; Joint Obligation – Each debtor is liable only for the appropriate part of the debt, and each creditor is
3. By his own act he has impaired said guaranties or securities after their establishment, and when entitled only to a proportionate part of the credit.
through fortuitous event they disappear, unless he gives new ones equally satisfactory;
4. Debtor violates any undertaking, in consideration of which the creditor agreed to the period; or General Rule: Obligation is presumed joint if there is concurrence of 2 or more creditors in the same
5. Debtor attempts to abscond. obligation
Exceptions:
TERM CONDITION 1. Expressly stated to be solidary
1. Interval of time which is future & certain 1. Fact or event which is future and uncertain 2. Law requires solidarity
2. Interval of time w/c must necessarily come, 2. Future and uncertain fact or event w/c may or 3. Nature of the obligation requires solidarity
although it may not be known when may not happen
3. Exerts an influence upon the time of 3. Exerts an influence upon the very existence of Solidary Obligation – Each of the debtors are liable for the entire obligations and each of the
demandability or extinguishment of an obligation the obligation itself creditors are entitled to demand the whole obligation from any or all of the debtors.
4. Does not have any retroactive effect unless 4. Has retroactive effect
there is an agreement to the contrary Divisible Obligations – Those which have as their object a prestation which is susceptible of partial
5. When it is left exclusively to the will of the 5. When it is left exclusively to the will of the performance without the essence of obligation changed
debtor, the existence of the obligation is not debtor, the very existence of the obligation is
affected. affected. Indivisible Obligation – An obligation is not susceptible of partial performance.

◘ ALTERNATIVE OBLIGATION – Debtor may give the creditor wither one of several prestations (to
give, to do, or not to do).
Reciprocal Obligation – Created or established at the same time, out of the same cause, and which
result are mutual relationships of creditor and debtor between partners
Joint Divisible Obligations – each creditor can demand for the payment of his proportionate share of
the credit, while each debtor can be held liable only for the payment of his proportionate share of the
debt.

Joint Divisible Obligations

FACULTATIVE
OBLIGATIONS
1. Comprehends only one object or prestations
which is due, but it may be complied with by the
delivery of another object or performance of
another prestation in substitution
2. Choice pertains only to debtor
3. Culpable loss obliges the debtor to deliver
substitute prestation without liability to debtor
4. Fortuitous loss extinguishes the obligation
EFFECT OF LOSS OF OBJECT OF OBLIGATION
1. If right of choice belongs to debtor
a. If through a fortuitous event – debtor cannot be held liable for damages
1. If there are 2 or more debtors, compliance with the obligation requires the concurrence of all of them,
ALTERNATIVE
although each for his own share. Consequently, only proceeding against all of the debtors can enforce
OBLIGATIONS
the obligation.
1.Comprehends several objects or prestations
2. If there are 2 or more creditors, the concurrence of the collective acts of all the creditors, although each
which are due but may be complied with by the
for his own share is also necessary for the enforcement of the obligation. A creditor cannot act in
delivery or performance of only one of them
representation of the others, and it is also indivisible and, therefore, not susceptible of partial fulfillment,
2. Choice may pertain to creditor or even third
person
Effect of Assignment by Solidary Creditor without Consent of Others
3. Culpable loss of any object due will give rise to 1. Assignee is co-creditor – no violation of Art. 1213 because there can be no invasion of the
liability to debtor personal or confidential relationship
4. Fortuitous loss of all prestations will extinguish 2. Assignee is third person – co-creditors and debtors are not bound by the assignment.
the obligation
Effect of Novation upon Solidary Obligation
1. If the Novation is prejudicial, the solidary creditor who effected the Novation shall reimburse the
others for damages incurred by them
2. If it is beneficial and the creditor who effected the Novation is able to secure performance of the General Rule: The penalty fixed by the parties is a compensation or substitute for damages in case of
obligation, such creditor shall be liable to the others for the share which corresponds to them, not breach.
only in the obligation, but also in the benefits. Exceptions:
3. If the Novation is effected by substituting another person in place of the debtor, the solidary 1. Stipulation to the contrary
creditor who effected the Novation is liable for the acts of the new debtor in case there is 2. Debtor is sued for refusal to pay the agreed penalty
deficiency in performance or in case damages are incurred by the other solidary creditors as a
result of the substitution.  The stipulated penalty might even be deleted such as when there has been substantial performance in
4. If the Novation is effected by subrogating a third person in the rights of the solidary creditor good faith by the obligor, (Article 1234, NCC), when the penalty clause itself suffers from fatal infirmity
responsible for the Novation, the relation between the other creditors not substituted and the or when exceptional circumstances so exist as to warrant it. (Garcia vs. CA 167 SCRA 815; Palmares vs.
debtor or debtors is maintained. CA, 288 SCRA 423; Ibarra vs. Aveyro, 37 Phil. 278; Ligutan vs. CA, et al., GR 138677, February 12,
2002)

Effect of Compensation and Confusion upon Solidary Obligation

1. If the confusion or compensation is partial, the rules regarding application of payment shall apply.
2. If the confusion or compensation is total, the obligation is extinguished, what is left is the ensuing
liability for reimbursement within each group:
a. The creditor causing the confusion or compensation is obliged to reimburse the other creditors
b. The debtors benefited by the extinguishments of the obligation is obliged to reimburse the debtor
who made the confusion or compensation possible
Effect of Remission upon Solidary Obligation
1) If the remission covers the entire obligation, the obligation is totally extinguished and the entire
juridical relation among the debtors is extinguished all together
2) If the remission is for the benefit of one of the debtors and it covers his entire share in the
obligation, he is completely released from the creditors but is still bound to his co-debtors
3) If the remission is for the benefit of one of the debtors and it covers only a part of his share in the
obligation, his character as a solidary debtor is not affected.
Extraordinary Inflation
 In case extraordinary inflation or deflation of the currency stipulated supervene, the value of the
currency at the rime of the establishment of the obligation shall be the basis of payment, unless there is
an agreement to the contrary. (Article 1250, NCC; Singson vs. Caltex (Phil.), Inc., GR 137798, October
4, 2000).
 Extraordinary inflation exists when there is a decrease or increase in the purchasing power of the
Philippine currency which is unusual or beyond the common fluctuation in the value of said currency
and contemplation of the parties at the time of the establishment of the obligation (Hubonhoa vs. CA,
GR 95897 and 102604, December 14, 1999; Serra vs. CA, 299 SCRA 60; Hanh vs. CA, 173 SCRA 675;
Filipino Pipe and Foundry Foundation Corporation vs. NAWASA 161 SCRA 32)
 The effects of extraordinary inflation are applicable only when there is an official declaration by
competent authorities (Lantion vs. NLRC, 181 SCRA 513; Commissioner of Public Highways vs. Burgos,
96 SCRA 831)

Effect of Payment by Solidary Debtor

1) Whole or partial extinguishment of debt C. MODES OF EXTINGUISHING AN OBLIGATION
2) Right to recover against co-debtor
3) Right to recover interest from time the obligation becomes due 1. Loss of a thing due
2. Annulment
Defenses available to a Solidary Debtor 3. Rescission
1) Defenses derived from the very nature of the obligation 4. Novation
2) Defenses personal to him or pertaining to his own share 5. Confusion or merger of rights of the creditor and debtor
3) Defenses personal to the others, but only as regards that part of the debt for w/c the latter are 6. Compensation
responsible 7. Condonation or remission of the debt
8. Payment or performance
9. Prescription
◘ OBLIGATION WITH A PENAL CLAUSE 10. Fulfillment of resolutory condition

One to which an accessory undertaking is attached for the purpose of insuring its performance by virtue
of which the obligor is bound to pay a stipulated indemnity or perform a stipulated prestation in case of Note: The enumeration is not exclusive. Other modes not found
breach. in Art. 1231 are:
1. Death
General Rule: The penalty fixed by the parties is a compensation or substitute for damages in case of
breach of obligation. 2. Discharge in cases of insolvency
Exceptions: (Cases where creditor can recover penalty plus damages) 3.Discharge under Negotiable Instruments
1. Stipulation to contrary Law
2. Obligor is sued for the refusal to pay the agreed penalty; and 4. Fortuitous event
3. Obligor is guilty of fraud.
5. Mutual desistance (mutuo disenso)
Purpose Penalty Clause
1. To insure the performance of the obligation
2. To liquidate the amount of damages to be awarded to the injured party in case of breach of the
principal obligation.
3. In certain exceptional cases, to punish the obligor in case of breach of the principal obligation
 ◘ PAYMENT OR PERFORMANCE 1) One debtor and one creditor;
2) Two or more debts of the same kind;
General Rule: Creditor is not bound to accept payment or performance by a third person. 3) All debts must be due; and
Exceptions: 4) Amount paid by the debtor must not be sufficient to cover the debts
1. When made by third person who has an interest in the fulfillment of the obligation; and
2. Contrary stipulation. General Rule: The right to designate the debt to which the payment shall be applied primarily belongs
to the debtor.
Exception: If the debtor does not avail of such right and he accepts from the creditor a receipt in
Rights of a Third Person Who Paid the Obligation of Another which the application is made.

2) Dation in Payment (Dacion En Pago)

With the knowledge and consent of the
debtor
1. Recover entire amount paid.
2. Subrogated to all the rights of the creditor.
Without the knowledge or against the will
of debtor
 Can recover only insofar as payment has been
beneficial to the debtor.
 The property alienated by the debtor to the creditor in satisfaction of the debt in money, as
an accepted equivalent of the performance of the obligation.
Requisites:
a. Existence of a money obligation
b. Alienation to the creditor of a property by the debtor with the consent of the former
c. Satisfaction of the money obligation of the debtor

 In dacion en pago, properties are alienated to the creditor in satisfaction of a debt in money. (Art. 1245,
To Whom payment must be made: NCC). It is “delivery and of a thing by a debtor to the creditor as an accepted equivalent of the
1. The third person whose favor the obligation has been constituted performance of the obligation “It extinguishes the obligation to the extent of the value of the thing
2. His successor in interest delivered, either as agreed upon by the parties or as may be proved, unless the parties by agreement,
3. Any person authorized to receive it. expressed or implied, or by their silence, considered the thing as equivalent to the obligation, in which
case the obligation is totally extinguished. (Caltex [Philippines], Inc. vs. IAC, 215 SCRA 580)
General Rule: If payment is made to a person other than those enumerated, it shall not be valid.
Exceptions:
i. Payment made to a 3rd person, provided that it has redounded to the benefit of the creditor.
ii. Payment made to the possessor of the credit, provided that it was made in good faith.

Obligation to Deliver a Generic Thing

 If the 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.

Rules in Monetary Obligations:

1. Payment in Cash – must be made in the currency stipulated; if not possible, then in the legal
tender in the Philippines
2. Payment in Check or Other Negotiable Instrument – not considered payment; not considered legal
tender and may be refused by the creditor. It shall only produce the effect of payment:
a. when it has been cashed or
b. when it has been impaired through the fault of the creditor

LEGAL TENDER
 Such currency which may be used for the payment of all debts, whether private or public.
 Legal tender of the Philippines would be all notes and coins issued by the Central Bank
 COINS: Section 52, RA No. 7653
1. 25 cents and above, legal tender up to P50
2. 10 cents and below, legal tender up to P20

Special Forms of Payment

1) Application of payment
2) Dation in Payment
3) Payment by Cession
4) Tender of payment and Consignation

1) Application of Payment
 Designation of the debt to which the payment must be applied when the debtor has several obligations
of the same kind in favor of the same creditor

Requisites: