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Article 1196

• Presumption as to benefit of period

• Parties talk for their benefit (benefit of debtor and creditor)

Article 1189

• Loss (Obligation with a suspensive period)

• A thing is considered lost when it perishes, or goes out of commerce, or disappears in such a
way that its existence is unknown or cannot be recovered



• If object is lost without the debtor’s fault – Obligation will be Extinguished

Ex: If lightning stroke the car X is going to give to Y, obligation will be extinguished

• If object is lost with the debtor’s fault – Debtor shall pay for the damages

Ex: Pag tinulak ni X sa bangin yung car na ibibigay kay Y, X shall pay for damages

DETERIORATION – reduces the value of the thing

• If object deteriorates without the debtor’s fault – creditor will suffer

Ex. If a basket of fruits deteriorated on it’s own, the creditor will suffer

• If object deteriorates with the debtor’s fault – creditor will choose between fulfillment of
obligation + damages OR rescission (cancelation) + damages

Ex. If the seller placed the basket of fruits behind the refrigerator and the fruits became brownish/
deteriorated, the buyer will have two options: still purchase the fruits and ask for damages or cancel
the obligation and ask for damages


• If it is an improvement by nature – inures to the benefit of the creditor

• If it is an improvement is introduced by debtor – debtor has a usury right (right to use and
enjoy the property of another


A. Mora solvendi - delay on the part of the debtor

1) Ex re - to give
2) Ex persona - to do

B. Mora accipiendi -delay on the part of the CREDITOR

- when creditor refuses to ACCEPT the thing due without justifiable reason.

C. Compensation morae - delay on the part of both parties

- delay in reciprocal obligation.


1. Ex die

2. In diem

Other kinds:

1. Legal - set by the law

2. Judicial - set by the court

3. Voluntary/Coventional - set by parties.

Alternative and Facultative Obligation

1. Simple

 there is only one prestation (subject of the obligation)

 due and demandable

2. Compound - there are several prestation.

A. Conjunctive - several prestation are due but all must be performed.

- used the word "and"

- all prestation are due and demandable.

B. Distributive - one where 2 or more of the prestation. are due.

 Alternative
 have several prestations, all are due and demandable but the performance of one
extinguishes the obligation.
 used the word "OR".
 Facultative
 have several prestation but what is due and demandable is the first prestation but the
debtor may replace it with another prestation.
 with option to replace the prestation
Divisible and Indivisible Obligation

A. Divisible - one is capable of partial performance.

B. Indivisible - one is not capable of partial performance.

- if not fulfill is converted to monetary fund

Obligation with Penal Clause

Penalty - embraces all kinds of damages if there is no reservation.

- accessory of principal obligation

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

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

- if principal obligation is null and void, the penalty is also null and void but:

- if the penalty is null and void, the principal obligation is NOT null and void.

When obligation can be demanded before lapse of period?

The general rule is that obligation is not demandable before the lapse of period. However, in any cases
mentioned in Article 1198, the debtor shall lose every right to make use of period, thus, may be
demanded immediately.

When debtor loses his right to make use of period if it is for his benefit; (Article 1198)

1. When he becomes insolvent, unless he gives a guaranty or security for the debt;

*Insolvent- Debtor is unable to pay the debt: insufficient property to pay liabilities

2. When he fails to furnish the guaranties or securities that he has promised;

Ex. Failing to pledge an object (jewelry) within the period agreed upon between parties.

3. When he impairs the said guaranties and securities by his own acts, or when through a fortuitous
event they disappear, unless he gives new ones equally satisfactory.

4. When he violates any undertaking in consideration of which the creditor agreed to the period.

5. When he attempts to abscond. *(to depart secretly or to hide)


Causes or Modes of extinguishment of obligations:

ARTICLE 1231. Obligations are extinguished:

1. By payment or performance;

2. By loss of the thing due;

3. By condonation or remission of debt;

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

5. By compensation

6. By novation

7. Annulment

8. Rescission

9. Fulfillment of resolutory condition

10. Prescription

11. Other causes


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

ARTICLE 1249. The payment of debts in money shall be made in currency stipulated, and if it is not
possible to deliver such currency, then in 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 went through the fault of
creditor they have been impaired

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

Legal Tender- the money or currency which the debtor may compel his creditor to accept in payment of
his debt.


A. Currency of a country

B. Used as a payment to an obligation

- payment by means of mercantile documents(check) does not extinguish the obligation:

(a) until they have been cashed;

(b) unless they have been impaired through the fault of the creditor.

Bangko Sentral ng Pilipinas (BSP) issues all coins and notes that constitute legal tender in all debts, both
in public and private.

However, in the case of coins denomination of ₱ 1.00, 5.00 and 10.00; they shall be legal tender in
amounts NOT exceeding ₱ 1000.00. While coins in denomination of 1-, 5-, 10-, and 25- Sentimo shall be
legal tender in amounts NOT exceeding ₱ 100.00

Principles of Payment

1. Identity- the very prestation due must be delivered or performed as agreed. Even if debtor tries to
deliver a prestation of the same value or an even higher value.

2. Integrity- Payment must be complete. A debt to deliver a thing or to render a service is not
understood to have been paid unless the thing or service has been completely delivered or rendered.
Partial, and irregular performance of the obligation will NOT produce extinguishment of obligation as a
general rule.

3. Indivisibility- The payment if not agreed upon to be an installment shall not be paid in installment.

Person to whom payment shall be made.

(1) the creditor or obligee

(2) Assignee - his/her successor in interest.

(3) any authorized person

Payment to an incapable person.

ART. 1327. The following cannot give consent to a contract:

(1) Unemancipated minors;

(2) Insane or demented person, and deaf-mutes who do not know how to write.

Lucid Interval

 a temporary period of time where an insane person is sane.

 an incapable person during lucid interval enter a contract, that is a valid contract.

1. Dation in payment (adjudication or dation en pago)

ART. 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. *debtor owes in KIND, but pays in
CASH, therefore there is a NOVATION & simple payment. NOTE: Novation is NOT a special
kind of payment.

-debtor will have the names of his creditors in his petition & how much he owes to each
-if the debtor will become solvent again, he will not be liable for his debt anymore.
-main purpose is to “give a new life to live to the debtor”
-court will call for the creditors
-sheriff will sell the properties of the debtor.

2. Payment by cession (Article 1255)

-opposite of insolvency
-cession means to stop, to cease fire
-debtor will call for his creditors to confront them about his situation & he plans to stop his
payment for his obligation for a while.
-creditor will sell the properties of the debtor
-if the debtor will become solvent again, creditors can still go after him to demand payment.
-several creditors exists.

3. Tender of payment & consignation (Article 1256-1261)

*tender of payment – debtor shows his creditor his payment. “here’s my payment”
*consignation –occurs when the creditor did not accept the payment of the debtor,
therefore debtor may go to court to show that he is about to pay his obligation.

Consignation alone shall produce the same effect in the following cases: (Article 1256)
a. When the creditor is absent/unknown, or does not appear at the place of payment.
b. When the creditor is incapacitated to receive the payment at the time it is due.
c. When, without just cause, he refuses to issue to give a receipt.
d. When 2 or more persons claim the right to collect having different interests
e. When the title of obligation has been lost.

4. Application of payments (Article 1253)

-debtor owes a lot of obligations to one creditor
-debtor has the right to choose what obligation will be paid first.
-if the debtor did not choose: Creditor must apply the payment in MOST ONEROUS &
BURDENSOME to the debtor.
Debtor owes P100k creditor due January 19, 2018. Identify whether the choice of payment is
allowed or not:
1. P100k payable 1-19-18 Check!
2. P100k w/ penalty 1-19-18 Check!
3. P100k payable 1-29-18 the obligation is not yet due
4. P150k payable 1-19-18 will violate integrity of payment
5. TV worth P100k payable 1-19-18 will violate identity of payment
6. P100k payable 1-19-1991 the obligation is no longer demandable


- A thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence
is unknown or cannot be recovered.


- The gratuitous abandonment by the creditor of his rights against the debtor. Thus, it’s a form of

- Condone- to regard something forgivable, thus not expecting in return.

Ex. D owes C 3,000. The debt is evidenced by a promissory note. C informs D that he will no longer
collect the debt and delivers the promissory note to D. D accepts C’s generosity. D’s obligation is
EXTINGUISHED by condonation or remission.


1. It must be gratuitous;

2. It must be accepted by the obligor

3. The parties must have capacity;

4. It must not be inofficious; and

5. If made expressly, it must comply with the forms of donations.

Kinds of remission:

(1) As to its extent:

a. Complete - when it covers the entire obligation

b. Partial - when it does not cover the entire obligation

(2) As to its form:

A. Express - when it is made either verbally or in writing

B. Implied - when it can only be inferred from conduct

(3) As to its date of effectivity:

A. Inter vivos - when it will take effect during the lifetime of the donor

B. Mortis causa - when it will become effective upon the death of the donor, must comply with the
formalities of a will


- Meeting in one person of the qualities or character s of debtor and creditor.

Ex. M makes a promissory note payable to P or order. P indorses the note to A, A to B, B to C. On due
date C indorsed the note back to M. The obligation is EXTINGUISHED because M is now the creditor of

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


1. It must take place between the principal debt and creditor

2. It must be complete

> merger in the person of the principal debtor or creditor extinguishes the obligation


- Compensation shall take place when two persons, in their own right, are creditors and debtors to each

Ex. D owes C 5000. C owes D 5000. Both debts are due and demandable. The parties do not need to pay

each other as their obligations are EXTINGUISHED.


(1) By its effect or extent:

A. Total - when both obligations are of the same amount and are entirely extinguished

B. Partial - when the two obligations are of different amounts and a balance remains

(2) By its cause or origin

A. Legal - when it takes place by operation of law even without the knowledge of the parties

B. Voluntary - when it takes place by agreement of the parties

C. Judicial - when it takes place by order from a court in a litigation ; final judgment of a court in a suit

D. Facultative - when it can be set up only by one of the parties


1. The parties are principal creditors and principal debtors of each other

2. Both debts consist in a sum of money, or of consumable things of the same kind and quality

3. The two debts are due and demandable

4. The two debts are liquidated

5. No retention or controversy commenced by a third person

 Rescissible and voidable obligations are valid until they are judicially rescinded or avoided, prior to
rescission/annulment, the debts may be compensated against each other


- The modification or extinguishment of an obligation by another, either by changing the object or

principal condition, substituting the person of the debtor, or subrogating a third person in the rights of
the creditor.

- Novation extinguishes an existing obligation and substitutes a new one.

Kinds of Novation:

- Expromision- a third person initiates substitution and assumes obligation without the knowledge or
against the will of the debtor.

-consent exists between the creditor and third person without the debtors will.

-If the substitution was without the knowledge or against the will of the debtor, the new debtor can
only recover insofar as the payment has been beneficial to the debtor.

-Delegacion- the debtor who initiates substitution, which requires consent from all parties (creditor,
debtor, and the new debtor). They MUST all agree.


1. A previous valid obligation

2. Capacity and intention of the parties to modify or extinguish the obligation

3. The modification or extinguishment of the obligation

4. The creation of a new valid obligation

 Novation is never presumed, it must be clearly and unmistakably established either by the express
agreement of the parties or acts of equivalent import or by incompatibility of the two obligations
with each other in every material aspect


1. Substitution - when the person of the debtor is substituted

2. Subrogation - when a third person is subrogated in the rights of the creditor

ANNULMENT- To cancel an event or judicial proceeding so that in the eyes of law; it never occurred.

RESCISSION- To unwind and bring the parties back to the position in which they were before they
entered a contract.

PRESCRIPTION- the effect of lapse of time in creating and destroying rights.

FULFILLMENT OF A RESOLUTORY CONDITION- in which the happening of condition extinguishes the