OBLIGATIONS

OBLIGATION•Civil

JURIDICALNECESSITY•Character of Enforceability

TO GIVE •Real obligation

•Positive / Negative

TO DO orNOT TO DO

•Personal obligation• Positive / Negative

Elements

Efficient Cause or Juridical

Tie

Active Subject

Object or

Prestation

Passive Subject

Distinguish from

NaturalObligation

•Good conscience•Feeling of satisfaction•Not enforceable

andMoral

Obligation

•Goodness•Not enforceable

Examples of Natural Obligations• Art. 1424 – obligor voluntarily

performs contract that prescribed;

• Art. 1425 – third person pays prescribed debt without consent or against the will of debtor & the latter voluntarily reimburses him;

• Art. 1428 – prevailing party in an action performs civil obligation subject matter of the case;

• Art. 1429 – heirs voluntarily pay debt of decedent exceeding value of inheritance;

• Art. 1430 – heirs voluntarily pay legacy although will was declared void;

SOURCES OF OBLIGATION

OBLIGATION

LAW

CONTRACTS

QUASI-CONTRACTS QUASI-

DELICTS

DELICTS

Quasi-Contracts• Juridical relation resulting from a

lawful, voluntary, & unilateral act, which has for its purpose payment of indemnity to the end that no one shall be unjustly enriched or benefited at the expense of another (2142)

• Kinds:a. Negotiorum gestiob. Solutio indebiti

Negotiorum Gestio(Arts. 2144-2153)

• Person (officious manager or “gestor”) voluntarily takes charge of the agency or management of the business or property of another which was neglected or abandoned without power or authority of the latter;

• Gestor shall exercise diligence of a good father of a family; liable for fault or negligence;

• Owner shall pay necessary & useful expenses of gestor & damages he suffered;

Solutio Indebiti• Something is received (a) when

there is no right to demand it, & (b) it was unduly delivered through mistake, the obligation to return it arises;

• Even mistake in the construction or application of a doubtful or difficult question of law;

• Recovery may be had even though payer doubted whether the debt was due;

• Art. 2163 – it is presumed that there was a mistake in the payment if something which had never been due or had already been paid was delivered; but, he from whom the return is claimed may prove that the delivery was made out of liberality or for any other just cause.

• Art. 2160 – he who in good faith accepts an undue payment of a thing certain & determinate shall only be responsible for the impairment or loss of the same or its accessories & accessions insofar as he has thereby been benefited. If he has alienated it, he shall return the price or assign the action to collect the sum.

Other Instances of Quasi-Contract

• Art. 2164 – without knowledge of person obliged, support is given by stranger not out of pity & without intention of being repaid;

• Art. 2165 –without knowledge of relatives of deceased, third person pays funeral expenses ;

• Art. 2166 – third person supports orphan, insane or indigent person when the one obliged unjustly refuses to give;

• Art. 2167 – injured or seriously ill person is treated while in a condition not able to give consent to a contract; he is liable for services rendered by physician or person who aided him, unless rendered out of generosity;

• Art. 2168 – owner bound to compensate person who, without his knowledge, saved his property during fire, flood, storm or other calamities;

• Art. 2169 – person responsible of nuisance is liable for expenses of government in its abatement;

• Art. 2175 – taxpayer to reimburse person constrained to pay tax;

• Art. 1236 – third person who pays debt is entitled to beneficial reimbursement from debtor;

• Art. 720 – finder of lost thing is entitled to a reward (1/10 of value) from owner;

DELICTS• Governed by penal laws, i.e. RPC;

• Every person criminally liable for a felony is also civilly liable (Art. 100, RPC);

• Civil liability includes:a. Restitutionb. Reparation of damage causedc. Indemnification of consequential damages (Art. 104, RPC)

Effects of Acquittal1. If acquittal is because accused could

not have committed the act, no civil liability;

2. If acquittal is due to an exempting circumstance, accused may still be liable;

3. If acquittal is on reasonable doubt, accused may still be liable;

4. If an independent civil action is resorted to, civil liability may be proven by preponderance of evidence.

Effects of Death of Accused (Rule 111, Sec. 4)

1. Death before arraignment – case dismissed without prejudice to any civil action against estate;

2. Death after arraignment & before final judgment - civil liability from delict extinguished, but independent civil action or other action to enforce civil liability from other sources may continue against estate or heirs;

3. Death after final judgment - civil liability enforceable against estate.

NATURE & EFFECT OF OBLIGATION

In Real Obligation: Duty of obligor to exercise

diligence> every person obliged to give something (determinate) is obliged to care for it with the diligence of a good father of a family

> other degree of diligence may be fixed by law or stipulation

Right of creditor to demand delivery* determinate thing - to compel debtor to make delivery

* indeterminate thing – to ask compliance of obligation at the expense of debtor; the thing to be delivered must be neither of superior or inferior quality

Things to be delivered includes:a. Accessions & accessoriesb. Fruits (natural, civil, industrial)

1. Before due & demandable

> creditor has no right2. Due & demandable

> creditor has personal right & entitled to its delivery3. Delivered

> creditor has real right

Kinds of Delivery:1. Actual2. Constructive

a. Traditio simbolicab. Traditio longa manuc. Traditio brevi manud. Tradition constitutom

possessoriume. Tradition by execution of legal

forms or solemnities

When delivery should be made:a. If no term or condition, from

perfection of contract;b. If with term or condition, from the

moment term arrives or condition is fulfilled

Remedies when no delivery is made:

a. Specific performance with damagesb. Rescission or cancellation with

damagesc. Damages

In Personal Obligation Debtor fails to do

- creditor may have obligation performed at debtor’s expense, plus damages

- specific performance cannot be availed of

Debtor performs in contravention of tenor of obligation

- same remedy as above

Debtor performs poorly- it shall be undone

*** Negative Personal Obligation

> if debtor performs what is forbidden, it shall be undone at his own expense, plus damages

LIABILITY FOR DAMAGES IN THE PERFORMANCE OF

OBLIGATIONS• Fraud or Dolo• Negligence or Culpa• Delay, Default or Mora• Contravention of tenor of

obligation

Fraud or Dolo• Conscious, deliberate or

intentional evasion of fulfillment of obligation

• Different from fraud in the perfection of a contract

• Future fraud cannot be waived; any waiver is void

• Liability cannot be mitigated or reduced by the court

Negligence or Culpa• Omission of that diligence

required by the nature of the obligation & corresponds with the attending circumstances

• Voluntary but not deliberate • Liability may be regulated by the

court depending on the circumstances

• Future culpa, provided not gross, may be waived

Garcia vs. Salvador G.R. No. 168512, 20 March 2007• Negligence is the failure to observe

for the protection of the interest of another person that degree of care, precaution & vigilance which the circumstances justly demand, whereby such other person suffers injury.

• Violation of a statutory duty is negligence. Where the law imposes upon a person the duty to do something, his omission or non-performance will render him liable to whoever may be injured thereby.

• For health care providers, the test of the existence of negligence is: Did the health care provider either fail to so something which a reasonably prudent health care provider would have done, or that he or she did something that a reasonably prudent health care provider would not have done; and that the failure or action caused injury to the patient? If yes, then he or she is guilty of negligence.

Kinds of CulpaCulpa Contractual

Culpa Aquiliana(Quasi-delict)

Culpa Criminal

(Delict)

Incidental in performing contract

Direct, substantive & independent

Direct, substantive & independent

There’s pre-existing obligation

No pre-existing obligation

No pre-existing obligation

Diligence of good father not a defense

Complete defense of employers, guardians

Not defense in subsidiary liability of employers

Preponderance of evidence

Preponderance of evidence

Proof beyond reasonable doubt

Negligence is presumed

Negligence must be proven

Negligence must be proven

Delay, Default or Mora• In unilateral obligation, from the

time of judicial or extrajudicial demand

• In reciprocal obligation:> neither party incurs in delay if the other does not comply or is not ready to comply> delay by one begins the moment the other fulfills his obligation

*** unless a different period is stipulated upon by the parties

• ASJ Corp. vs Evangelista, 545 S 300> reciprocal obligations are those which arise from the same cause, wherein each party is a debtor & a creditor of the other, such that the performance of one is conditioned upon the simultaneous fulfillment of the other. From the moment one of the parties fulfills his obligation, delay by the other party begins.

Kinds: Mora Solvendi – debtor’s default

*** Demand upon debtor not necessary:

a. Law so providesb. Obligation so providesc. Time is of the essence or the

controlling factor of the obligationd. Demand is useless as obligor

rendered it beyond his powere. Debtor express

acknowledges his delay

*** Effects of Debtor’s Default:a. He is liable for interest or damages;b. He bears the risk of loss;c. He is liable even for fortuitous event

Mora Accipiendi - creditor’s default

Compensatio Morae – both parties in default in reciprocal obligation

Effects of Fortuitous Events

on Liability General Rule:

- no liability, provideda. event is either

unforeseeable or unavoidable;b. event is such as to render it

impossible for debtor to fulfill his obligation in a normal manner;

c. the debtor is free from any participation in or aggravation of the injury to the creditor

Exceptions:1. Law expressly provides

Art. 1165 – obligor delays, or promises to deliver same thing to two or more persons who do not have same interest.

Art. 1268 – obligation to deliver a certain & determinate thing proceeds from a criminal offense; regardless of cause of loss.

Art. 552 – possessor in bad faith liable for deterioration or loss in every case;

Art. 1942 – liability of bailee in commodatum in case of loss:

(1) devotes thing to a different purpose;

(2) delays return(3) thing delivered with appraisal

of value, unless otherwise stipulated(4) lends or leases thing to third

person not member of his household(5) chooses to save his own

property instead of thing borrowed

Art. 1979 – liability of depositary for loss:(1) so stipulated(2) uses thing without

permission(3) delays return(4) allows others to use it

Arts. 2147 & 2148 – liability of officious manager:(1) undertakes risky operations

which the owner was not accustomed to embark

(2) prefers own interest(3) fails to return property after

demand(4) assumes management in

bad faith(5) manifestly unfit(6) prevents a more competent

person from taking the management

2. When expressly declared by stipulation or contract

3. When nature of obligation requires assumption of risk (Doctrine of Created Risk)

4. When obligation is generic

KINDS OF OBLIGATIONS1. Pure & Conditional2. Obligations with a period3. Alternative4. Joint & Solidary5. Divisible & Indivisible6. Obligations with a penal

clause

Pure & Conditional Obligations• Pure – without condition or term,

thus demandable at once

• Conditional – effectivity of obligation determined by a condition

*** futurity & uncertaintySuspensive Resolutory Potestative Casual MixedPositive Negative

SUSPENSIVE CONDITION the happening of which will give

rise to the acquisition of a right if the condition does not happen,

the parties would stand as if the obligation had never existed

• Debtor prevents fulfillment of condition condition deemed fulfilled, unless

done is the exercise of lawful right

• Right of creditor pending happening of conditionmay bring appropriate action for the

preservation of his rightsi.e. demand security if debtor is about to be insolvent;

prevent debtor from alienating or concealing of property

• Right of debtor to recover what he paid by mistake pending suspensive condition payment may be recovered;

solutio indebiti payment done NOT by mistake• If condition is fulfilled, no recovery because of retroactivity• If condition not fulfilled, there should be recovery

Loss, Deterioration & Improvement of Thing to be Delivered Pending Suspensive

Condition• Rules apply if thing is determinate

LOSS – when thing perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or cannot be recovered.

a. without debtor’s fault, obligation is extinguished;

b. with debtor’s fault, he is liable for damages.

DETERIORATION a. without debtor’s fault,

impairment is borne by creditor;

b. with debtor’s fault, creditor may choose between:- rescission plus damages, or- fulfillment plus damages

IMPROVEMENTa. by nature or by time, inure to

the benefit of creditor;b. at the expense of the debtor

- he has no right to be reimbursed or indemnified;

- not to alter form & substance

- limited right of removal- may exercise right of

usufructuary to use & the fruits.

RESOLUTORY CONDITION obligation is demandable at once, but

rights already acquired are lost when condition is fulfilled;

• Mutual restitution– Including fruits & interests after

deducting expenses made for their production, gathering & preservation

• Same rule as in suspensive condition in case of loss, deterioration or improvement, the debtor being the party obliged to return

Potestative Condition- fulfillment of condition depends

on sole will of one of the parties potestative on the part of the debtora. suspensive – condition & obligation voidb. resolutory – condition & obligation valid

potestative on the part of the creditor

NOTE: if debtor binds himself to pay when his means permit him to do so

- deemed obligation with a period

• Casual condition– fulfillment of condition depends upon chance or

upon the will of a third person

• Mixed condition– Fulfillment of condition depends upon will of

debtor & upon chance or will of a third person

Positive Condition

Negative Condition

Condition that some event will happen at a determinate time

Condition that some event will not happen at a determinate time

Obligation extinguished if:

a. Time expires & condition did not happen

b. It becomes indubitable that the event will not take place

Obligation effective if:a. It becomes

evident that the even cannot occur

b. Time expires & event did not take place

Impossible & Illegal Conditions• if condition is to do an impossible or

illegal thing or act, both condition & obligation are void;

• if condition is not to do an impossible, disregard condition & obligation remains;

• if condition is not to do an illegal thing, both condition & obligation are valid;

• if obligation is divisible, part not affected is valid.

Note: in simple & remunerative donation, such condition considered as not imposed (727).

Remedies of Injured Party in Case of Breach

1. Demand fulfillment plus damages

2. Rescission plus damages

Remedies are alternative; not conjunctive

However, if fulfillment is chosen & becomes impossible, rescission may be availed of

Right to Rescind 1. implied/presumed in reciprocal obligations &

need not therefore be expressly provided Reciprocal obligation – parties are

reciprocally obliged to do or give something; cause must be identical & obligation must arise simultaneously; the obligation or promise of each party is the cause or consideration for the obligation or promise of the other.

2. waivable, expressly or impliedly

3. can be demanded only by the party ready, willing & able to comply with his obligation, & the other is not

4. needs judicial approval in certain casesif there was delivery & not returned

voluntarily, judicial action is necessary;

no need if stipulated upon in case of non-fulfillment by the other

5. not absolutea. trivial or slight causes not

sufficient to cause rescission;b. court won’t decree rescission if it

can fix period to comply;c. no rescission if property is already

in the possession of innocent third person.

Rule if Both Parties Commit Breach liability of the first infractor shall be

equitably tempered by the court

if it cannot be determined who first violated contract, the same shall be deemed extinguished & each shall bear his own damages.

Obligations with a Period• Period – an event which necessarily or

certainly will happen at a date known beforehand or at a time which cannot be determined, & the happening of which determines the effectivity or extinguishment of obligations

presumed fixed for the benefit of both parties, unless from the tenor or other circumstances, it appears that it was established in favor of one

• Definite or Indefinite

• Suspensive (ex die) or Resolutory (ex diem)

• Legal or Conventional or Judicial

Instances When Court Fixes Perioda) Period depends upon the will of

the debtor; i.e., my means permit; if I have money; pay you little by little or by installment; as soon as possible

b) Obligation does not fix a period, but it can be inferred that a period was intended

c) Court denies rescission as it finds it proper to fix a period

NOTE: once period is fixed by court, it cannot be changed.

When Debtor Losses Right to Make Use of Period

a. He becomes insolvent after obligation is contracted, unless he gives guaranty or security

b. He does not furnish guaranties or securities he promised

c. When guaranties or securities are impaired due to his own acts or they disappear due to fortuitous event, unless he immediately gives new ones equally satisfactory

d. He violates any undertaking in consideration of which the creditor agreed to the period

e. He attempts to abscond

Effects of Payment/Delivery Before Period Arrives

Payment by mistake> recovery may be done,

plus fruits & interests

No mistake> no recovery because

period will definitely come & obligation will have to be fulfilled

NOTE: In case of loss, deterioration or improvement before arrival of period, same rules as provided in Art. 1189.

Alternative Obligations• An obligation where out of two or

more prestations, only one is due

• Creditor cannot be compelled to receive part of one & part of another undertaking

• Right of choice, as a rule, belongs to the debtor, but he cannot choose those which are impossible, or illegal, or not object of the obligation

• Choice has no effect except from time of notice to the creditor

> obligation becomes simple once choice is made & communicated

> notice is not to secure creditor’s consent but to inform him of choice

Effects of Loss of Objects or Impossibility of Alternative Obligations

Without fault of debtor & creditor: Debtor to choose from remaining

alternatives If only one remains, debtor loses

right of choice & obligation becomes simple

If all are lost, obligation is extinguished

Due to fault of debtor Debtor to choose from remaining

alternatives If only one remains, debtor loses

right of choice & obligation becomes simple

If all are lost, creditor has right to indemnity for damages, the amount of which is to be fixed based on the value of the last thing which disappeared or of the service which last became impossible

Due to fault of creditor> debtor my either:

Rescind obligation with damages, or

Choose from remaining alternatives or fulfill that which remains

*** If all are lost, obligation is extinguished

When Right of Choice Belongs to Creditor> must be expressly

stipulated> once creditor makes &

communicates his choice, obligation ceases to be alternative & becomes simple

Effect of Loss Before Creditor Makes Choice: Loss due to fortuitous event

> debtor to deliver that chosen by creditor from among those remaining, or that which remains if only one

Loss due to debtor’s fault

> creditor may claim any of those subsisting, or the price of that lost plus damages> if all are lost, creditor’s choice shall be on the prices plus damages

• Facultative Obligation> only one prestation is

involved, but obligor may render another in substitution;

> in case of loss or deterioration of substitute due to debtor’s negligence or fault, he is

»Not liable if no substitution made»Liable once substitution is made & communicated

JOINT & SOLIDARY OBLIGATIONS• Two or more creditors or/and

debtors concur in one & the same obligation

• General Rule: obligation is joint> each debtor answers only

for a part of the whole obligation and to each creditor belongs only a part thereof

Obligation is solidary when:a. Stipulated uponb. Nature of obligation requires itc. Law provides

Art. 927. when two or more heirs take possession of the estate and there is loss or destruction of a thing devised or bequeathed, even though only one of them should have been negligent.

Art. 1824. Liability of all partners with the partnership for everything chargeable to the partnership under Articles 1822 & 1823.

*** loss or injury due to wrongful act or omission of any partner in the ordinary course of business or with authority of co-partners;

*** misapplication by partner of money or property received by him while acting within scope of apparent authority;

*** misapplication by any partner of money or property received by partnership in the course of its business

Art. 1911. When agent exceeds his authority and principal allows him to act as though he had full powers.

Art. 1915. For all consequences of the

agency when two or more principals appoint an agent for a common transaction or undertaking.

Art. 1945. Liability of two or more bailees to whom a thing is loaned in the same contract.

Art. 2146. Liability of two or more officious managers, unless management was assumed to save thing or business from imminent damage

Art. 2157. Liability of two or more payees in solutio indebiti.

Art. 2194. Liability of two or more persons in quasi-delict.

Art. 110 (RPC). Liability of principals, accomplices, & accessories, each within their respective class for their quotas

Consequences of Joint Obligationa. Credit or debt presumed equally

divided among creditors or debtors

b. Shares are separate & distinct from each other

c. Vitiation of consent of one debtor does not affect others

d. Insolvency of one debtor does not make others liable for his share

e. Demand upon a debtor is not demand upon the others

f. Judicial action against a debtor is not action against all

g. Defenses of one debtor are not necessarily available to the others

Solidarity on the Part of the Creditors1. Each may do whatever is useful to the

others, but not anything prejudicial to them;

2. No one can assign his rights without the consent of the others;

3. Payment may be delivered to any of them, but if demand is made by one, payment should be made to him;

4. Novation, compensation, confusion or remission made by any of them shall extinguish obligation, without prejudice to his liability for the shares of the others.

Solidarity on the Part of the Debtors1. Any of them may be made to pay the

whole obligation;

2. The one who pays has the right to claim shares of other debtors, plus interest.

> if one cannot reimburse, others shall proportionately bear his share> if paid after obligation has prescribed or become illegal, no right of reimbursement

3. Remission of obligation

> other creditors to proceed against creditor who made the remission> no effect if made after obligation was paid> debtor who obtains the remission not entitled to reimbursement from others.

Effects of Loss or Impossibility(a)Without debtors’ fault,

obligation extinguished;

(b)Due to debtors’ fault, or any one of them, all are responsible

(c)Even is due to fortuitous event, if there was delay on the part of any one of them, all are responsible

DIVISIBLE & INDIVISIBLE OBLIGATIONS

• Divisibility or indivisibility refers to the object of the contract if it is capable or incapable of partial performance;

• Indivisible if not susceptible of partial performance by nature, or even if physically divisible, by law or stipulation;

• Divisible if capable of partial performance, or performed for a certain number of days, or performed by metrical units;

Joint Indivisible Obligations A creditor cannot act in representation of other creditors,

and a debtor cannot be compelled to answer for the acts or liability of other debtors;

All creditors must concur and demand, although each for his own share, for enforcement of the obligation;

All debtors must concur, although each for his own share, for compliance of the obligation; demand must be made upon all debtors;

If one debtor is unable, obligation converted into actual damages & he shall be liable for additional damages;

> if inability is due to insolvency, other debtors not liable for his share;

OBLIGATIONS WITH PENAL CLAUSE

• Penalty partakes of an accessory obligation and thus, (a) if penal clause is invalid, principal obligation remains; and (b) if principal obligation is invalid, penal clause is also void.

• To insure performance of principal obligation

• Substitute indemnity for damages & interest in case of non-compliance (compensatory)

• To punish the obligor in case of breach (punitive)

• But damages may still be awarded:(a) by stipulation(b) obligor refuses to pay penalty(c) obligor guilty of fraud

• Court may reduce penalty:(a) partial fulfillment(b) irregular fulfillment(c) iniquitous or unconscionable

• Debtor cannot choose to pay penalty instead of performing principal obligation, unless such right is expressly reserved to him;

• Creditor cannot demand fulfillment of obligation and satisfaction of penalty at the same time, unless

> such right is clearly granted to him;

> obligation is monetary with penalty;

• If creditor chooses fulfillment but becomes impossible without his fault, penalty may be enforced

EXTINGUISHMENT OF OBLIGATIONS

I. PAYMENT OR PERFORMANCE

• means not only delivery of money, but also the performance of an obligations in any manner;

• the thing or service in which the obligation consists must be completely delivered or rendered;

• substantial performance in good faith is considered as strict & complete fulfillment, without prejudice to the damages that the creditor may have suffered;

• obligation deemed fully complied with if creditor accepts performance without protest or objection despite knowing its incompleteness or irregularity

Monetary Obligation delivery of amount in full currency stipulated upon, and if not

possible, in Philippine legal tender (1249)

** R.A. 8183 (11 June 1996) – all monetary obligations shall be settled in the Philippine currency which is the legal tender in the Philippines. However, the parties may agree that the obligation or transaction shall be settled in any other currency at the time of payment.

in case of extraordinary inflation or deflation

- basis of payment shall be the value of the currency at the time the obligation was established, unless there is contrary agreement (1250)

- inflation is the sharp increase of money or credit or both without a corresponding increase in business transaction resulting in substantial & continuing rise in the general price level;

- effects of extraordinary inflation are applicable only when there is an official declaration by competent authorities.

• Equitable PCI Bank v Ng Sheung Ngor, 541 S 223

Extraordinary inflation exists when there is an unusual decrease in the purchasing power of currency (that is, beyond the common fluctuation in the value of currency) & such decrease could not be reasonably foreseen or was manifestly beyond contemplation of the parties at the time of the obligation. Extraordinary deflation, on the other hand, involves an inverse situation.

Requisites for an extraordinary inflation or deflation to affect an obligation:

1. official declaration from the BSP2. obligation was contractual in

nature3. parties expressly agreed to

consider the effects of the extraordinary inflation or deflation

*** Respondents made to pay their dollar-denominated loans at the exchange rate fixed by the BSP on the date of maturity (time of payment)

• Dation in payment, datio in solutum, or adjudicacion en pago

> payment of monetary debt through property

> governed by law on sales

• Payment by cession> debtor transfers all his property

not subject of execution to creditors> property to be sold and proceeds

use to pay obligation> Requisites:

a. more than one creditorb. complete or partial

insolvencyc. acceptance / consent of all

creditors

Real Obligation delivery of thing/s contemplated debtor cannot compel creditor to

receive different one, even if of same value or more valuable

if object is generic> the purpose & other

circumstances of the obligation shall be taken into consideration;

> creditor cannot demand thing of superior quality

> debtor cannot deliver thing of inferior quality

Personal Obligation doing or performing service or

undertaking contemplated; another act or service cannot be

performed as substitute against the will of the creditor

Negative Obligation by refraining from doing the action

contemplated

When partial payment may be allowed:a. by stipulationb. different prestations are

subject to different conditions or terms

c. debt is in part liquidated and in part unliquidated

d. payment by joint debtore. partial compensationf. work is to be done in parts

Payment by Third Person Creditor not bound to accept

payment from third person who has no interest in the fulfillment of the obligation, unless otherwise stipulated;

Without knowledge & consent or against the will of the debtor:

a. beneficial reimbursementb. no subrogation to creditor’s

rights

With knowledge/consent of debtora. full reimbursementb. subrogation to all rights of creditor

Third person does not intend to be reimbursed> deemed donation & thus, requires debtor’s consent> payment in any case is valid as to the creditor who accepts

Payment to an incapacitated person valid if incapacitated person kept the

thing delivered & insofar as payment benefited him;

Payment to an unauthorized person valid insofar as it benefited the

creditor proof that creditor benefited not

needed:a. if after payment, third person acquires

creditor’s rights (subrogation)b. creditor ratifies paymentb. creditor is guilty of estoppel

• Debtor is released if payment done in good faith to person in possession of credit

• Payment after debtor was judicially ordered to retain debt is not valid

• Application of Payment> designation of the debt to which should be applied a payment made by the debtor who owes several debts of the same kind in favor of the same creditor

a. two or more debts of same kind

b. same creditorc. all debts dued. payment not enough to

extinguish all debts

• Limitation of righta. contrary stipulationb. cannot choose principal ahead

of interest

• If debtor does not specify & creditor issues receipt in which application of payment is made, the former cannot complain unless there is cause for invalidating the contract.

• If no application of payment– apply to most onerous– same nature & burden, apply

proportionately

Tender of Payment & Consignation Tender of payment

monetary – legal tender real obligation – subject matter complete

Tender not necessary:a. creditor is absent/unknown or failed to appear at place

of paymentb. creditor is incapacitated to receivec. creditor refuses to issue receipt without just caused. two or more persons claim same right to collecte. title of the obligation is lost

Consignation (judicial deposit)a. valid tender of paymentb. refusal of creditor to accept without valid causec. notice to consignd. consignation e. notice of consignation to creditor

May debtor withdraw thing consigned?> before creditor accepts

> before court approves> if creditor gives authority, he loses

preference over the thing> obligation not extinguished

II. LOSS OF THE THING DUE

Determinate thing Generic thing Partial loss Creditor has right of action against whoever

causes the loss

III. CONDONATION OR REMISSION> act of liberality by virtue of which the creditor, without receiving any price or equivalent, renounces the enforcement of the obligation.

Obligation due & demandable Gratuitous Acceptance by debtor Not inofficious

• Express – must comply with forms of donation

• Implied - voluntary delivery by creditor of document evidencing credit

If heirs of creditor claim that it should be nullified for being inofficious, debtor may prove that delivery was made in virtue of payment;

When debtor is in possession of private document of debt, it is presumed to have been delivered voluntarily by creditor;

When debtor is in possession of thing pledged, the accessory obligation of pledge is presumed condoned.

IV. CONFUSION OR MERGER> characters of creditor and debtor are merged in the same person> meeting in one person of the qualities of creditor & debtor with respect to the same obligation

Should take place between the principal creditor & debtor

Clear & definite Obligation involved is one & same

obligation

V. COMPENSATION> two persons are mutually & reciprocally creditors & debtors to each other.

Total or partial Voluntary – even when debts are

not due Judicial – must be pleaded;

effective only by court order Legal

• Requisites for legal compensation1. Parties are bound principally as

creditors & debtors of each other;2. Both debts are monetary, or if things,

they are fungible & of same kind & quality

3. Debts are due4. Debts are liquidated & demandable5. None of the debts is subject of

retention or controversy commenced by third person & communicated in due time to the debtor.

NOTE: when all requisites are present, legal compensation shall take place even though parties are not aware of it.

• Legal compensation not proper when one debt arises from:

a. depositumb. obligations of a bailee in

commodatumc. claims for supportd. civil liability in crimese. obligations in favor of the

government, i.e. taxes, fees, duties

• Effects when debts are assigned:a. If debtor consents, he cannot set up

compensation against the assignee, unless there was reservation communicated to the creditor;

b. If without debtor’s consent or against his will (although informed), he can set up compensation prior to assignment;

c. If without debtor’s knowledge, he can set up compensation available before knowledge of assignment.

VI. NOVATION> substitution or change of an obligation by another, either by changing its object or principal conditions (real or objective), or by substituting another in place of the debtor, or by subrogating another in the rights of the creditor (personal or subjective)> cannot be presumed; must be clearly so declared or that the old and new obligations are incompatible on every point (they cannot stand together)

• Requisites:a. previous valid obligation

b. agreement of parties to the new obligationc. extinguishment of the old obligationd. validity of the new obligation

Old obligation void, cannot be novated Old obligation voidable, can be novated Old obligation extinguished, nothing to novate Old obligation subject to suspensive or

resolutory condition, new obligation also subject unless otherwise stipulated

New obligation void, old obligation subsists unless parties intended it to be extinguished in any event.

• Substitution of Debtor

Expromision- initiative of third person as new debtor- creditor’s consent necessary- debtor’s consent not necessary

Substitution is with debtor’s consent- new debtor pays, full reimbursement with subrogation in all of creditor’s rights; - new debtor fails to pay, old debtor’s obligation revived

Substitution without debtor’s consent- new debtor pays, entitled to beneficial reimbursement- new debtor fails to pay, old debtor’s obligation not revived

Delegacion- initiative of old debtor- with new debtor’s consent- with creditor’s consent & acceptance

New debtor pays, full reimbursement with subrogation in all of creditor’s rights;

New debtor fails to pay, old debtor’s obligation not revived, unless

- new debtor’s insolvency was already existing & of public knowledge or is known to the old debtor at the time of delegacion

• Subrogation in Rights of CreditorConventional

- upon agreement of all parties

Legala. creditor pays another creditor who is preferred even without debtor’s consentb. third person, not interested in the obligation, pays with debtor’s approvalc. payment, even without debtor’s knowledge, by a person interested in the fulfillment of the obligation