Obligations and Contracts

Comlaw 1
AY 2021-2022

Rudyard S. Arbolado
House rules
Tech check: sound, video
Be present physically and mentally
Open camera when speaking
Mute during lecture
Take down notes (yes, on paper)
Ask questions (chat box, raise hands)
Kinds of obligations
1. Pure v. conditional (1179-1192)
2. Obligations with a period (1193-1198)
3. Alternative v. Facultative (1199-1206)
4. Joint v. solidary (1207-1222)
5. Divisible v. indivisible (1223-1225)
6. Obligations with a penal clause (1226-1230)
Questions answered in this topic

When is an obligation demandable?

When is an obligation extinguished?

(see 1181)
Pure obligation (1179)
Obligation whose performance does not depend on a condition or term
Effect if pure: immediately demandable

Examples:
1. Juan agrees to fix the car of Pedro.
2. Juan agrees to sell his 300 square meter lot in Villa Angela to Pedro.
3. Juan promises to donate P10,000 to the Leni Rodrigo Foundation for Good
Governance.
Conditional obligation (1179)
Obligation whose performance depends on a condition
Condition:
1. future or uncertain event*; or (should be “and”)
2. past event unknown to parties
Effect if conditional:
Let condition happen first before demanding compliance (1181)
Quick comparison - condition (1179) vs term (1193)
Condition Term

Art. 1193. Obligations for whose fulfillment a day certain

Art. 1179. Every obligation whose performance does not
has been fixed, shall be demandable only when that day
depend upon a future or uncertain event, or upon a past
comes.
event unknown to the parties, is demandable at once.
XXX
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.

* Not sure if condition will happen * The term will surely come
* Refers to the future or the past * Refers to the future only
Types of conditions
1. Suspensive – If condition happens, it gives rise to an obligation
If condition does not happen, obligation extinguished (1184)

If creditor prevents happening of condition, condition considered fulfilled and

obligation is born and becomes demandable (1186) * example
Once condition happens, its effects retroact to date obligation was created (e.g.,
fruits from time obligation created) (1187) *example
Types of conditions
2. Resolutory – Demandable at once [1179(2)]
If condition happens, it extinguishes the obligation
If condition happens, return thing (1190)
EXERCISE: Suspensive or resolutory?
1. Juan will sell his Rubio painting to Pedro if he passes the CPA board exam.
2. Pedro can keep the Rubio painting of Juan until Juan passes the CPA board exam.
3. Juan will clean the garage if it is true that the Egyptians built the pyramids in 1200.
4. Pedro will give Juan a monthly allowance of P500 until Juan graduates from college.
5. Juan will give his Montblanc pen to Pedro if Pedro shaves his hair.
6. LJ will cook breakfast for Paolo if Paolo does not go to Baguio City.
7. Paolo can use the car of LJ for as long as he does not go to Baguio City.
What happens to the obligation?
Type of condition Suspensive Resolutory
Condition happens Gives rise to obligation Extinguishes obligation
Condition does not happen Extinguishes obligation Obligation continues to exist
since it was demandable from
the start

Condition retroacts to date Yes No (because obligation was

obligation was created? demandable from the start)
Quick recap
Obligation
PURE demandable at
once

OBLIGATION
Condition happens- obligation exists
Condition doesn't happen - obligation
SUSPENSIVE extinguished

CONDITIONAL Obligation demandable from start

RESOLUTORY Condition happens - obligation
extinguished
Other types of conditions
1. Potestative (1182) – happening of condition depends on sole will of party
Effect: if it depends on sole will of debtor – obligation void (how about Creditor?)

2. Casual (1182) – happening of condition depends on chance

3. Impossible (1183) – condition and obligation are considered void

4. Illegal (1183) – condition and obligation are considered void

5. Reciprocal obligations (1191) – Creditors and debtors of each other

No delay unless one party ready to comply with his obligation
Examples of other types of conditions
1. I will pay you if I want.
2. I will pay you if you want.
3. I will pay you if I win the lotto.
4. I will pay you if you can touch the Sun.
5. I will pay you if you kill Jack.
6. I will pay you if you spit on the President’s face.
7. I will pay you if you deliver the rice tomorrow.
8. I will pay you if the President uses a cuss word on his next TV appearance.
9. I will pay you if you kill Adolf Hitler.
10. I will pay you “pag puti na ang uwak.”
Rights before condition happens (1188)
Before condition is fulfilled:

Right of creditor: preserve rights

Right of debtor: recover payment by mistake

Retroactive effect of conditional obligations (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.
Rules while waiting for condition to happen (1189, 1190)
Obligation Obligation
constituted Waiting for condition to happen exists

1. Thing lost without Debtor’s fault – obligation extinguished Obligation

extinguished
Return
thing
2. Thing lost with Debtor’s fault – Debtor liable for damages
“Lost” = out of commerce, perish
3. Thing deteriorates without Debtor’s fault - Creditor bears deterioration
4. Thing deteriorates with Debtor’s fault - Liable for damages or Creditor can cancel
obligation + Damages
5. Thing improved by nature - Creditor gets benefit
Reciprocal obligations (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.
Note: 1169 (last par) on delay
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.
Liability in breach of reciprocal obligations (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.
Obligations with a term or period (1193)
Compliance with obligation depends on the arrival of a day certain
Day certain = date which necessarily comes, but it may not be known when

Examples:
1. Date of payment of taxes
2. On May 9, 2022
3. On the fourth Monday of July
4. When the sun rises
5. When you graduate from college
6. When you top the CPA board exam
7. Death
Types of obligations with a term/period
1. Suspensive – obligation born upon arrival of day certain
2. Resolutory – obligation dies upon arrival of day certain
Examples:
1. Juan will sell his Rubio painting to Pedro on October 1, 2021.
2. Pedro can keep the Rubio painting of Juan until Juan dies.
3. Juan will clean the garage everyday until the end of sem break.
4. Juan will give his Montblanc pen to Pedro on Pedro’s 21st birthday.
5. LJ will like all the posts of Paolo until the end of time.
6. I will pay you when my net worth reaches P200 million.
7. I will pay you as soon as I have enough money.
Rules while waiting for day certain (same as condition)
See Slide 9
Benefit of period
For whose benefit is the term presumed to have been established? (1196)
For the benefit of both creditor and debtor
Debtor’s compliance with obligation is subject to a period. When does Debtor lose right to
period? (1198)
1. Debtor becomes insolvent
2. Debtor fails to give collateral
3. Debtor impairs or loses collateral
4. Debtor attempts to abscond
Pay when able
Pay when able = obligation with a term (1180)
When is an obligation demandable if it says pay when able? (1197)
Go to court and ask court to fix period
1199-1206
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)
Alternative obligations
Debtor to do A or B or C
(A, B, C are prestations or subject matter.
There is only one obligation, to be known once prestation is chosen)
Duty of debtor: completely do A or B or C (1199)

Alternative?
1. Juan will deliver the car or clean the garage or build the fence.
2. Debby can either cook spaghetti or order Jolly hotdog.
3. Paolo agrees to cook for either Yen or LJ.
4. Joey agrees with Sonny that Joey will kill Bong or repair the ceiling of Sara’s
house or spit at the President’s face.
5. Isko will give Willy the car or as a substitute for the car, the laptop.
Who chooses? When is effectivity of choice?
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)

Article 1201. The choice shall produce no effect except from the time it has been
communicated. (1133)
Alternative obligations
Who has choice?
General rule: Debtor
Exception: Unless given to Creditor (1200)
BUT Debtor cannot choose prestation which is impossible or illegal
Right of choice of Debtor lost if only one prestation is possible (1202)

Choice must be communicated by Debtor to Creditor

No communication, no valid choice (1201)
Once communicated, obligation ceases to be alternative
Can creditor be given the right to choose the prestation?
YES

Article 1200. The right of choice belongs to the debtor, unless it has been
expressly granted to the creditor.

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. X X X
Alternative obligations
Can Creditor be given the right to choose?
Yes (1205, also 1200)

Creditor to communicate choice to Debtor.

Upon communication, obligation ceases to be alternative.
Alternative obligations: TL;DR
Duties:
Choose one prestation!
(1200, w/exception)
Communicate choice! (1201)
Completely perform it! (1199)
Right:
Can choose prestation
sometimes, if expressly
granted (1200)
Responsibility of Debtor before Creditor communicates choice of prestation

Article 1205. X X X 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)
Loss of choice because of fault of Debtor or Creditor
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)

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)
Alternative obligations
All prestations except one are lost (1203-1204)
● Creditor’s fault - Debtor can cancel/rescind contract and ask for damages
● Debtor’s fault – Creditor can ask for damages

What if one prestation lost without fault of Debtor? (1205)

Creditor to choose from other prestations

What if all prestations lost? (1204-1205)

Creditor to choose any prestation and ask for value of lost prestation
+ damages in either case
Facultative obligation
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)
Facultative obligations (1206)
Debtor will do A (primary)
If A is not available, Debtor will do B as substitute
If Debtor loses A (primary), he can do B (substitute) and will not be liable to Creditor for
damages

After making substitution, Debtor loses B (substitute)

Debtor liable for damages if loss of B was due to his delay, negligence or fraud
Quick recap
Alternative: Big Mac or Whopper or Champ or Bob’s

Facultative: Twister Fries or if none available, Shake Shake Fries

1207-1222
What is a joint obligation? When is there solidarity?

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)
Presumption of joint obligation

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)
Joint and solidary obligations
ASK FIRST:
Are there 2 or more Debtors? Are there 2 or more Creditors?

If ANSWER to EITHER question is YES:

Obligation can be Joint or Solidary

Obligation is joint or solidary if there are 2 or more Debtors or 2 or more

Creditors (1207)
Which is joint or solidary?

1 2

3 4
Presumption that obligation is joint

General rule: Obligation presumed joint (1207, 1208)

Exceptions (Obligation is solidary):

1. When law says it is solidary
2. When the contract says it is solidary
3. When nature of obligation requires solidarity
Joint obligations
What is JOINT?
Each credit or debt divided into as many shares as there are D or C
Each credit or debt considered separate from each other

Joint ≠ divisible (see 1224)

Effects of joint obligation

Creditor can only ask for payment of own share from a JD
Debtor will only pay own share to a JC
What questions are answered in joint or solidary obligations?

Who are liable to pay?

How much are they liable to pay? Debtor Side

Who can demand payment?

How much can they demand as payment? Creditor side
Sample: Joint Obligation
Each credit or debt divided into as
many shares as there are D or C

Each credit or debt considered

separate from each other

● What is the DEBT or

CREDIT? P30,000

● How many Debtors? 3

● How many Creditors? 1

● How many debts/credits?

3 @ P10,000 each
Sample: Joint Obligation
Each credit or debt divided into as
many shares as there are D or C

Each credit or debt considered

separate from each other

● What is the DEBT or

CREDIT? P30,000
●
● How many Debtors? 1
● How many Creditors? 3
●
● How many debts/credits?
3 @ P10,000 each
Sample: Joint Obligation
Each credit or debt divided into as
many shares as there are D or C

Each credit or debt considered

separate from each other

● What is the DEBT or

CREDIT? P30,000
●
● How many Debtors? 3
● How many Creditors? 3
●
● How many debts/credits?
9 @ P3,333.33 each

FORMULA for computing DEBT or CREDIT: Total DEBT/CREDIT / (# of Debtors x # Creditors)

When does solidarity exist?

Article 1207. X X X 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)

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)
Solidary obligations
Solidary - one for all, all for one

Solidarity ≠ indivisibility
A solidary obligation may be divisible or indivisible (1209-1210)
Solidarity may exist although D and C are not bound in same
manner/terms/conditions (1211)
Sample: Solidary Obligation (Passive Solidarity)
There is only one debt/credit

● What is the DEBT or CREDIT?

P30,000
●
● How many Debtors? 3
● How many Creditors? 1
●
● How many debts/credits?
1 for P30,000
●
● C can collect P30,000 from any
of D1, D2 or D3.
●
● Paying Debtor can seek
reimbursement from other
Debtors for their pro rata shares.
Sample: Solidary Obligation (Active Solidarity)
There is only one debt/credit

● What is the DEBT or CREDIT?

P30,000
●
● How many Debtors? 1
● How many Creditors? 3
●
● How many debts/credits?
1 for P30,000
●
● Any of C1 or C2 or C3 can
collect P30,000 from D.
●
● Paid Creditor will turn over
pro rata shares to other
Creditors.
Sample: Solidary Obligation (Mixed Solidarity)
There is only one debt/credit

● What is the DEBT or CREDIT?

P30,000
●
● How many Debtors? 3
● How many Creditors? 3
●
● How many debts/credits?
● 1 for P30,000
●
● Any of C1 or C2 or C3 can collect
P30,000 from any of D1 or D2 or D3.
●
● Paying Debtor can seek
reimbursement from other Debtors
for their pro rata shares.
●
● Paid Creditor will turn over pro rata
shares to other Creditors.
Other names for joint or solidary

Joint - pro rata; proportionately; mancomunada; “we promise to pay”

signed by two or more persons

Solidary - jointly and/or severally; individually and/or collectively; together

and/or separately; in solidum; solidaria; “I promise to pay” signed by two
or more persons
When does solidarity exist by law?
Article 1824. All partners are liable solidarily with the partnership for everything
chargeable to the partnership under articles 1822 and 1823. (n)

Article 1911. Even when the agent has exceeded his authority, the principal is
solidarily liable with the agent if the former allowed the latter to act as though he
had full powers. (n)

Article 1915. If two or more persons have appointed an agent for a common
transaction or undertaking, they shall be solidarily liable to the agent for all the
consequences of the agency. (1731)
When does solidarity exist by law?

Article 2146. X X X The responsibility of two or more officious managers shall be

solidary, unless the management was assumed to save the thing or business from
imminent danger. (1890a)

Article 2157. The responsibility of two or more payees, when there has been
payment of what is not due, is solidary. (n)

Article 2194. The responsibility of two or more persons who are liable for
quasi-delict is solidary. (n)
When does solidarity exist by law?
FAMILY CODE, Art. 94. The absolute community of property shall be liable for: X X X
If the community property is insufficient to cover the foregoing liabilities, except those
falling under paragraph (9), the spouses shall be solidarily liable for the unpaid balance
with their separate properties. (161a, 162a, 163a, 202a-205a)

FAMILY CODE, Art. 121. The conjugal partnership shall be liable for: X X X
If the conjugal partnership is insufficient to cover the foregoing liabilities, the spouses
shall be solidarily liable for the unpaid balance with their separate properties. (161a)
Solidarity and different terms
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)

COMLAW1 student
Sample: Solidary Obligation (Different Conditions/Terms)
● What is the DEBT or CREDIT?
P30,000
●

Pay on Dec 25, 2021 ● How many Debtors? 3

● How many Creditors? 1
●

● How many debts/credits?

1 for P30,000
●
Pay on D2’s 20th ● On Dec 25, 2021: C can collect
birthday on Feb 14, 2022 P10,000 from any of D1 or D2 or
D3. (P20,000 not yet due!)
●
● On Feb 14, 2022: C can collect
Pay if D3 passes the P20,000 from any of D1 or D2 or
CPA board exam on May D3. (P10,000 not yet due!)
15, 2022 ●
● If D3 passes the May 2022 board
exam: C can collect P30,000
from any of D1 or D2 or D3.
What solidary creditors may or may not do
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 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)
Solidary obligations
What Solidary C can do/can’t do:

Solidary Cs can do beneficial/useful things for other solidary Cs

(e.g., make a demand)
Solidary Cs cannot do harmful or prejudicial things (1212)
(e.g., forgive the debt, waive interest)
Solidary C cannot transfer or assign right to a third person without
consent of other solidary Cs (1213)
(basis of bond between solidary Cs: mutual trust and confidence)
Payment by solidary debtor
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)
Effects of payment by solidary debtor
RULE:
If one SD pays obligation, obligation considered extinguished
SD to proceed against other SDs for reimbursement (1215, 1217)
Paying SD can charge interest (1217)

SPECIAL CASE: If any SD is insolvent and cannot reimburse other SDs, all
other SDs to be responsible for insolvent SD share (1217)

SPECIAL CASE: Paying SD paid obligation after obligation became illegal or

prescribed - Paying SD cannot ask for reimbursement (1218)
Sample: Solidary Obligation (What happens at Payment)
● D1 pays P30K to C:
obligation considered
extinguished
●
● D1 to proceed against
other D2 and D3 for
reimbursement of P20K
●
● D1 can charge interest
against D2 and D3 from
time D1 paid C
●
Sample: What if one SD is insolvent?
● D1 pays P30K to C:
obligation considered
extinguished
●

● D1 to proceed against other

D2 and D3 for
reimbursement of P20K
●
● D1 can charge interest
against D2 and D3 from
time D1 paid C
●
● D2 is insolvent and cannot
pay P10K. D1 and D3 will
bear P10K pro rata.
Extinguishment
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 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)
Extinguishment
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)
Effects of extinguishment of solidary obligations
SPECIAL CASE: SC who initiated novation, compensation, confusion or remission
extinguishes the obligation - SC shall pay fellow SCs their shares (1215)

SPECIAL CASE: SC remits share of one SD.

Payment happened after remission: SD no longer liable to reimburse Paying SD
Payment happened before remission: SD still liable to reimburse Paying SD (1219)

SPECIAL CASE: SC remits whole obligation because of one SD.

That SD is not entitled to be reimbursed by fellow SDs. (1220)
Rules on loss of thing due in solidary obligations

Situation Effect

Thing is lost without fault of any SD Obligation is extinguished

Prestation becomes impossible Obligation is extinguished

Thing is lost due to fault of any of SDs All SD liable to C + damages + interest
SDs can go after Negligent SD

Thing is lost due to fortuitous event Obligation is extinguished

Thing is lost due to fortuitous event All SD liable to C + damages + interest

after one SD has incurred delay SDs can go after Delaying SD
Defenses by solidary debtor
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)
Defenses that can be raised by solidary debtor
Situation: SC sues SD in court; SD has to defend himself

What can SD use as defenses?

1. Those from nature of obligation: payment, prescription, illegality, fraud
2. Those personal to SD: insanity, minority, incapacity, mistake, violence
3. Those personal to other SDs with respect to shares of those SDs only:
insanity, minority, incapacity, mistake, violence with respect to co-SD
Sample: Defenses of SD
1. NATURE OF
OBLIGATION:
P30K was already paid

2. PERSONAL TO SD:
D1 can say he is a minor
D1 cannot be made to pay

D2 can claim he is insane

D2 cannot be made to pay

3. PERSONAL TO
OTHER SD:
D3 can say D1 is a minor
and D2 is insane
D3 only pays 10K
 1223-1225
Divisible and Indivisible Obligations
Indivisibility and solidarity
Article 1210. The indivisibility of an obligation does not necessarily give
rise to solidarity. Nor does solidarity of itself imply indivisibility. (n)
Joint indivisible obligations
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 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)
Sample of Joint indivisible obligation
● D1, D2, and D3 to give C a Ducati
Ducati Desmosedici bike valued at P6M
●
2022 ● On due date, D1 and D2 are
Ready (value: P6M) ready to comply but D3 is not.
●
● Ducati bike is indivisible. But
Debtors are jointly liable only.
Ready ●
● Obligation converted to liability
for damages. D1 and D2 to pay
P2M each. D3 liable to C for
damages.
NOT ●
Ready ● If D3 is insolvent, D1 and D2
cannot be responsible for D3’s
share.
Definition of divisible obligation
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)
When divisible or indivisible
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)
Divisible and indivisible obligations
Divisible – obligation is capable of partial performance
Indivisible – obligation is NOT capable of partial performance
Test of indivisibility: What was the purpose or intention of the parties?

Examples: (1225)
Divisible: certain number of days work; expressed by metrical units, nature of
obligation
- Pay loan in monthly two installments; Repair the ceiling of the house in 5 days
Indivisible: obligation to give definite things; nature of obligation; agreed in a
contract; law says so
- Deliver a car; Deliver the office building in 1098 Chino Roces Avenue, Makati
City; Pay income tax on or before April 15; Perform Ode to Joy in Kia Theater
 1226-1230
Obligations with a Penal Clause
Obligations with 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)
Evidence required
Article 1228. Proof of actual damages suffered by the creditor is not
necessary in order that the penalty may be demanded. (n)
Reduction of penalty
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)
Nullity of principal or accessory
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)
Obligation with a penal clause For convenience of parties:
no need to prove damages in
case of non-compliance
Penal clause – for penalty in case of non-compliance (1226)
Penalty substitute for damages & interest in case of non-compliance (1226)
What if debtor refuses to pay penalty too? Pay damages! (1226)

Will payment of penalty excuse debtor from complying with obligation? No (1227)
Can creditor ask debtor to pay penalty in addition to compliance with obligation? No
(1227)

Will penalty be reduced if there is partial compliance of obligation? Yes (1229)

What if penalty is unconscionable or iniquitous? Reduce! (1229)

What if penalty is void? Obligation stays (1230)

What if obligation is void? Penal clause is also void (1230) Accessory follows principal
Extinguishment of
Obligations
1231-1304
How are obligations extinguished?
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)
How are obligations extinguished?
1. Payment or performance
2. Loss of the thing due
3. Condonation or remission
4. Confusion
5. Compensation
6. Novation
7. Annulment
8. Rescission
9. Fulfillment of a resolutory condition
10. Prescription
11. Death
12. Compromise
13. Impossibility of fulfillment
14. Fortuitous event
Payment
1231-1255
Definition of Payment
Article 1232. Payment means not only the delivery of money but also the
performance, in any other manner, of an obligation. (n)

Payment: Delivery of money

Performance:Giving of a thing
Doing of an act
Not doing of an act
Payment = performance
Who makes payment?
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 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)
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 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)
Who should pay?
RULE: Debtor

Also acceptable:
1. Any person with interest in the obligation (e.g., guarantor)

Must be stipulated:
1. A third person who has no interest in the obligation
a. With knowledge of the Debtor
b. Without knowledge of the Debtor
c. Against the will of the Debtor

With knowledge of Debtor - Paying third person can seek reimbursement and subrogation
Without knowledge of Debtor - Paying third person can seek reimbursement to extent of benefit to Debtor
Against will of Debtor - Paying third person can seek reimbursement to extent of benefit to Debtor (cannot
demand subrogation)
Who should pay?
When is payment considered a donation?
If paying third person does not intend to be reimbursed (1238)

Donation requires consent of Debtor.

What if Debtor does not consent?
Payment by 3P remains valid as to Creditor.
3P can go after Debtor. WHY?

Can a minor pay? No. Payment by a minor is not valid or “voidable”. (1239)

Can an insane person pay? No. Payment by an insane person is not valid or “voidable”. (1239)
To whom is payment made?
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 1242. Payment made in good faith to any person in possession of the credit shall release the
debtor. (1164)
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)
To whom should payment be made?
RULE: Creditor

Also acceptable:
1. Creditor’s successor-in-interest (heir, assignee)
2. Any person authorized to receive the payment (guardian, executor, administrator)

Can Debtor pay a person with incapacity (minor, insane)? YES but payment valid only to
extent of benefit of Creditor (1241)
To whom should payment be made?
SPECIAL CASE: Can Debtor pay a person without interest in the obligation? YES but payment
valid only to extent of benefit of Creditor (1241)

PRESUMPTION OF BENEFIT: When is benefit to Creditor not needed to be proven? (1241)

1. Paying third person acquires rights of Creditor after payment (“subrogation”)
2. Creditor ratifies payment to third person (“ratification”)
3. Creditor’s conduct led Debtor to believe third person was authorized to receive payment
(“estoppel”)

SPECIAL CASE: Is payment to third person in possession of credit valid? YES, if made in
good faith. (1242)

SPECIAL CASE: Is payment by Debtor to Creditor valid if it is made after court judicially
ordered Debtor to retain the debt? NO. Follow the court order! (1243)
How is payment made?
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)

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 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)
How is payment made?
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 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 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)
How is payment made?
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 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)
How is payment made?
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)
How is payment made?
1. INTEGRITY of prestation

RULE: Complete delivery or performance (1233)

Also acceptable: Substantial performance in good faith, less damages suffered by creditor
(1234)
Also acceptable: Waiver by creditor of incompleteness or irregularity (1235); Creditor knew of
incompleteness or irregularity and did not protest or object

Partial payments allowed? NO unless (a) parties agree or (b) debt is partially unliquidated.
(1248)

Payment must be made in stipulated currency or in legal tender. (1250)

How is payment made?
2. IDENTITY of prestation

RULE: The very prestation due must be delivered or performed (1244)

Also acceptable: Payment in kind or dacion en pago or dation in payment (1245)

What if Debtor delivers same value or more valuable? NOT acceptable (1244)

If quality not stated, can Debtor deliver a generic thing of inferior quality? NO (1246)
If quality not stated, can Creditor demand a generic thing of superior quality? NO (1246)1.
How is payment made?
Legal tender - currency that Debtor can compel Creditor to accept as payment for debt
(determined by BSP)

Debts <=P20.00 - 10 centavos is legal tender

Debts <=P50.00 - 25 centavos
Debts >P50.00 - P1.00

Are promissory notes payable to order, or bills of exchange or other mercantile documents
legal tender? NO (1249)
How about personal check, manager’s check, traveler’s check? NO (1249)
Effect of payment = only upon encashment

Q: Can a Filipino pay an obligation in US Dollars?

Q: Is Gcash legal tender? How about bitcoin?
How is payment made?
Extraordinary inflation or deflation of currency

Meaning: extraordinary increase or decrease in purchasing power of Peso

Who has authority to declare it? Only the BSP
Has the BSP declared it? Never.

What if BSP declares it? What happens to the obligation?

Use currency at the time of establishment of the obligation
P56.56: US$1.00
Full story here
Questions
1. John promised to deliver his customized red Mazda MX5 to Bong on Sunday for P1M. On Sunday, John instead
delivered his dark blue Bugatti Veyron worth $1.7 million. Bong refused and insisted on the delivery of the Mazda
MX5. Is Bong correct?

2. John promised to deliver his customized red Mazda MX5 to Bong on Sunday for P1M. On Sunday, John instead
delivered his black Mazda MX5, also customized with the same specifications as the red one. Bong refused and
insisted on the delivery of the red Mazda MX5. Is Bong correct?

3. Belle promised to deliver a 2019 Samsung Note to Izzy on Sunday for P30,000. On Sunday, Belle told Izzy that she
cannot deliver the 2019 Samsung Note and instead offered to deliver a vintage Nokia 3210. Izzy got mad and said
that if the Samsung Note is not available, then Belle should deliver an iPhone 13 Pro. Is Belle correct? Is Izzy correct?
Where is payment made?
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.
residence

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)

Why is place of payment even important?

Presumption of payment
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)
Cost of making payment
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. (1168a)
Application of payment
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)
Procedure for application of payment
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)
Requirement: application of payments
1. One Debtor and one Creditor
2. Two or more debts
3. Debts must be of same kind
4. Debts must be due
5. Payment not enough to pay off all debts (hence the need to “apply” or
“choose”)

What if debts are not yet due? Can be included if Debtor and Creditor agree (1252)
Sample: application of payments
How is application made?

1. Debtor applies payment, i.e., Debtor chooses which debts to pay first
2. If Debtor does NOT apply payment, Creditor can apply the payment or choose
which debts to be paid first
3. If Debtor and Creditor do NOT apply payment, payment applied to MOST
ONEROUS debt first
4. If Debtor and Creditor do NOT apply payment and all debts are of same
burden, payment applied to ALL DEBTS PROPORTIONATELY
Sample: application of payments
What is the meaning of MOST ONEROUS?

1. Interest-bearing loan vs no-interest loan

2. If both loans bear interest, the one with higher rate
3. Secured loan (mortgage, pledge) vs unsecured loan (aka “collateral”)
4. Obligation with a penalty clause vs one without

MOST ONEROUS - from point of view of Debtor

Sample: application of payments
SITUATION: Debtor and Creditor did not apply payment to debts

These are the debts:

1. Interest-free loan for P100,000
2. 5.75% unsecured loan for P500,000
3. 6.0% unsecured loan for P1M
4. 6.0% secured loan for P1M, with P3M house as mortgage or “collateral”

Rank from most onerous to least onerous

Cession / Dation in Payment
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)

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)
Requirement: payment by cession
1. One Debtor
2. Two or more Creditors
3. Debtor agrees to assign all of his properties to Creditors
4. Properties are sold but value not enough to pay off all debts (Debtor is
partially insolvent)
Distinguish Dation in Payment vs Payment by Cession

Dation in Payment Payment by Cession

Governing provision 1245 1255

Number of creditors One More than one

Is debtor insolvent? Not necessarily Yes

Involves all of Debtor’s No Yes

properties?

What happens to Debtor’s Will be owned by Creditor Will be sold and proceeds
properties? applied to debts owed to
Creditors
RA 10142: Financial Rehabilitation and Insolvency Act (FRIA) of 2010

INSOLVENCY OF INDIVIDUAL DEBTORS

(B) Voluntary Liquidation.

SEC. 103. Application. — An individual debtor whose properties are not sufficient to cover his
liabilities, and owing debts exceeding Five hundred thousand pesos (Php500,000.00), may apply to
be discharged from his debts and liabilities by filing a verified petition with the court of the province
or city in which he has resided for six (6) months prior to the filing of such petition. He shall attach
to his petition a schedule of debts and liabilities and an inventory of assets. The filing of such
petition shall be an act of insolvency.

SEC. 104. Liquidation Order. — If the court finds the petition sufficient in form and substance, it
shall, within five (5) working days, issue the Liquidation Order mentioned in Section 112 hereof.
 Payment/
Tender and Consignation

1231-1255
Definition of terms
Tender of payment:
Act of Debtor of offering the thing or amount due to Creditor

Consignation:
Act of Debtor of depositing the thing or amount due with the court
When is a consignation made?
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)
How is a consignation made?
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)
Consignation
Requisites of a valid consignation:
1. There is a debt that is due
2. Debtor made a tender of payment
3. Creditor refused without justifiable reason to accept the tender of payment
4. Debtor sends prior notice of consignation to persons interested in the fulfillment of the
obligation*
5. Debtor consigns the thing or amount due with the court
6. Debtor sends subsequent notice of consignation to persons interested in the fulfillment
of the obligation*

*Who are the persons interested in the fulfillment of the obligation?

Guarantors, mortgage creditors, solidary debtors, solidary creditors
When is a tender of payment not required?
1. When 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.

Why is tender of payment not required?

Tender of payment can’t be made or can’t be properly made

What should Debtor do? Proceed to Consignation (1256, par. 2)

Who pays for the expenses of consignation?
Article 1259. The expenses of consignation, when properly made, shall be
charged against the creditor. (1179)
Withdrawal of consignation
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)
Effect of tender of payment and consignation

EFFECT: Extinguishment of the obligation (1260)

May Debtor withdraw the thing deposited before Creditor accepts or before court approves
consignation? YES. But obligation will remain in force. (1260 par. 2)

After consignation is made, may the Creditor authorize the Debtor to withdraw the thing
deposited? YES. Creditor loses preference over the thing. The guarantors, co-debtors and
sureties are also released from liability. (1261)