Section 5: Divisible and Indivisible Obligations

Article 1223. The divisibility or indivisibility of the
things that are the object of obligations in which
there is only one debtor and only one creditor
does not alter or modify the provisions of Chapter
2 of this Title. (1149)
Joint and solidary obligation has nothing to do
with the divisibility or indivisibility of the thing. The
divisibility of the thing is independent from the
number of creditors and debtors.
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)

Article 1224. A joint indivisible obligation gives Indivisible obligations are definite things like car,
rise to indemnity for damages from the time animals, and those which are not susceptible of
anyone of the debtors does not comply with his partial performance.
undertaking. The debtors who may have been
Divisible obligations are definite things done in
ready to fulfill their promises shall not contribute
partial performance. However, a divisible thing
to the indemnity beyond the corresponding
may be indivisible if the parties stipulated or the
portion of the price of the thing or the value of the
law so provides.
service in which the obligation consists. (1150)

In a joint obligation where the subject matter is

indivisible, the joint debtors need to comply, as a
whole, to perform or give the indivisible
obligation. In case of non-compliance of any
debtor, the creditor has the right to indemnify
damages from the debtor who is at fault.
The indivisible thing would be converted into a
monetary obligation, and the liability for damages
and interest would come from the defaulting
party in so far as the solidary debtors are
concerned.

Article 1225. For the purposes of the preceding

articles, obligations to give definite things to
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,
 Section 6: Obligations with a Penal Clause
Article 1226. In obligations with a penal clause,
the penalty shall substitute the indemnity for
damages and the payment of interests in case of
noncompliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if
the obligor refuses to pay the penalty or is guilty
of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is
demandable in accordance with the provisions of
this code. (1152a)
Penal clause is included to compel the debtor in
complying to the obligation. In case of
noncompliance, a penalty would be demandable
to the debtor.
If the problem is silent, the penalty would serve
as a substitute to damages and interest, unless
there is a stipulation to the contrary. If the obligor
is guilty of fraud or obligor refuses to pay, he shall
be liable for the penalty and damages.
Penalty is enforceable in accordance with the
provisions. Illegal or prescription of penalty
makes it unenforceable.
Article 1227. The debtor cannot exempt himself
from the performance of the obligation by paying
the penalty, save the in the case where this right
has been 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 become impossible without
his fault, the penalty may be enforced. (1153a)
The penalty cannot replace the principal.
Noncompliance of an obligation will lead for the
penalty to be enforced but it is not an alternative
for the obligation.
The creditor cannot demand for the fulfillment of
both the obligation and penalty. If the debtor is
not at fault, penalty is not required, unless he
wishes to do so.
If the creditor is entitled for the penalty but
chooses the fulfillment of obligation, however the
principal cannot be granted, the penalty may be
enforced.
Article 1228. Proof of actual damages suffered
by the creditor is not necessary in order that the
penalty may be demanded.
There is no need for such proof because there is
an agreement that a penalty would be enforced if
the obligation cannot be fulfilled.
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)
The judge shall reduce the penalty if the
obligation is unevenly complied with, or if the
penalty is unjust.
Article 1130. 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)
The accessory (penalty) follows the principal
(obligation). If the obligation is illegal, the penalty
cannot be enforced as well.
 Chapter 4: Extinguishment of Obligations
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 the 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)
Modes of Extinguishment of an Obligation
Extinguishment of an obligation is observed
when:
There is a (1) payment or performance which
is a common extinguishment of an obligation.
(2) Loss of a specific thing through fortuitous
event.
(3) Condonation or remission where creditor
relinquish his rights unless the debtor insists so.
also extinguishes the obligation unless the
debtor insists so.
(4) Confusion or merger of rights where a
person is both the debtor, and the creditor.
(5) Compensation or when the debtor and
creditor offsets the obligation.
(6) novation or changing of the subject matter
of the obligation.
Other causes of extinguishment of obligations,
such as annulment where there is a defect in the
consent. Rescission, a remedy in reciprocal
obligation, where the other party can cancel if
the other is not ready to perform the obligation.
Fulfillment of a resolutory condition, where the
ongoing obligation is being performed and
extinguishes when the condition is fulfilled.
Prescription where the time is of essence.
Section 1: Payment or Performance
Article 1232. Payment means not only the
delivery of money but also the performance, in
any other manner, of an obligation.
Payment is not only limited to delivery of money,
but it also includes the delivery non-monetary
consideration. Delivery of the prestation to give,
to do, or not to do is also considered as a form
of payment.
Article 1233. A debt shall bot 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)
Essential questions of how the payment should
be made, who should pay, to whom should you
pay, and where will the payment be made.
When is a question of delay and default.
The general rule is that the debtor is obligated
to pay or perform the obligation and the creditor
should demand for his right. Thus, the former
cannot compel the latter, who has the right to
refuse, to settle for an incomplete payment or
performance. It is a question of how a payment
should be made.
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 oblige. (n)
Considerable performance in good faith is
acknowledged as a complete fulfillment.
However, the debtor is held liable when the
creditor suffered damages.
 Chapter 4: Extinguishment of Obligations
Article 1235. When the oblige accepts the
performance, knowing its incompleteness or
irregularity, and without expressing any protest
or objection, the obligation is deemed full
complied with.
The obligation is deemed fulfilled, even with
incomplete compliance, if the creditor is fully
aware without objection.
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 knowledge or against the will of the
debtor, he can recover only insofar as the
payment has been beneficial to the debtor.
The creditor can receive but he is not bound to
accept payment from a third person. The former
cannot be compelled by the latter, who has no
interest to the obligation, because the debtor is
the one who should fulfill the obligation. Unless
there is a stipulation to the contrary.
The guarantor, surety, solidary co-debtor, and
heirs (in case the creditor dies) are example of
third party who has an interest to the obligation
making them eligible for the satisfaction of
obligation.
It is fair for the third party to ask for
reimbursement of what he has paid. However,
reimbursement is limited to the portion
beneficial to the debtor if he is unaware of the
payment or is aware but refuses for the third
party to pay.
X has an obligation of 50 million to Y. He paid
20 million and is unaware that Z paid 50 million
to Y. Z can only reimburse 30 million from X
since he is unaware of Z’s action and it is only
the amount that X benefited from.
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)
Accessory contract of mortgage and guaranty
serves as a security for an obligation. It is an
accessory that will be extinguished if the
principal (obligation) is extinguished. In
mortgage, the creditor can foreclose the
mortgage to the court if the debtor fails to fulfill
his obligation. In guaranty, the guarantor can be
held liable if the debtor cannot fulfill his
obligation.
D has an obligation of 1 million to C with G as
his guarantor. X, without informing D, paid C. C
cannot be compelled but if he accepts the
payment, X can ask for reimbursement from D.
X has the (limited) rights for reimbursement of 1
million, even without the knowledge and
approval of D, because D benefited to the
amount of 1 million.
However, if D cannot reimburse X, the latter
cannot run after the guarantor for the reason
that the former is not informed. For X to have
reimbursement and subrogation rights, he
should ask for D’s consent.
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.
The payment made by a third person, that does
not intend to be reimbursed, is valid. However,
donation requires the debtor’s consent, if the
debtor refuses, the third person can be
compelled in accepting the reimbursement.
 Chapter 4: Extinguishment of Obligations
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 is shall not be valid, without prejudice to
the provisions of article 1427 under the title on
“Natural Obligations”. (1160a)
Payment made by those who does not have free
disposal of the thing (minor) or capacity to
alienate it (insane) are not valid. If the payment
is not valid, it will not extinguish the obligation.
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)
The creditor is the one who the payment shall
be given to. If the creditor is dead or unavailable,
the heir or successor and/or authorized
representative can also receive the payment. To
whom should the payment be made is answered
in this article.
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)
Payment to incapacitated person is valid if the
thing delivered is kept, or the payment has been
beneficial.
If made to an incapacitated person:
D has an obligation to pay 1 million to C. when
D is to deliver the payment, C is unavailable,
and X (minor) was the one who received the
payment. X then lost 200 thousand, while the
remaining was kept. D is liable to pay 200
thousand since he gave the payment to a minor.
If made to a third person:
D has an obligation of 1 million to C. D paid 1
million to X, a third party, who C owes 1 million
to. C benefited from the payment of D to X
because C has an obligation to X which makes
the payment valid.
If D paid X and the latter then extended the loan
to C, or C gave the receivable to X then the
payment is valid and does not need to proof. X
acquired the creditor’s rights.
If D paid X and C acknowledged it when the
payment was made, it is considered valid. The
creditor ratifying the payment means he
approves the payment.
With the creditor’s action, the debtor was made
to believe that the third person had authority to
receive the payment. (Estoppel) he cannot deny
his actions later on because he is estop from
questioning the authority of X to receive
Article 1242. Payment made in good faith to
any person in possession of the credit shall
release the debtor. (1164)
M made a promissory note that he promises to
pay X or bearer 1 million. X then endorsed the
note to A to whom he is in debt. A then endorsed
the note to B and B gave the note to C. C then
demanded M to pay and M obliged to do so
which makes him discharged from the
obligation.
 Chapter 4: Extinguishment of Obligations
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)
The debtor should not pay the creditor if he has
been ordered by the court. If the former does
pay, the payment would be invalid.
X, the debtor, despite the order coming from the
court to retain the debt, paid Y. the payment is
not valid.
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)
The debtor cannot force the creditor to accept a
thing that is different, whether it be of the same
value or more valuable, than what is to be
delivered.
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.
Dacion en Pago is a special form of payment
where debt in money is satisfied with the
debtor’s property. However, the creditor cannot
be compelled to accept a non-monetary
consideration to satisfy monetary obligation.
C is demanding D his 1 million payment. D
unable to pay in cash offers his property as
payment. The obligation would be extinguished
if C accepts the non-monetary payment from D.
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)
The debtor should take into account the purpose
and circumstances of the obligation. The
creditor cannot demand for a superior quality
neither can the debtor give something inferior.
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)
Although the creditor will benefit in the payment,
the debtor is more interested in the payment of
the obligation because he is the one discharged
and so, the creditor is the one liable for the
expenses that is required by the payment.
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)
The debtor cannot compel the creditor to accept
partial payments unless the debtor can prove
that there is a substantial performance in good
faith.
 Chapter 4: Extinguishment of Obligations
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)
The agreement should be followed and if it is not
possible for such currency to be paid, legal
tender should be required. Legal tender is the
currency which the creditor can be compelled to
accept as satisfaction of an obligation. Though
legal tender coins that are less than 1 peso are
limited to 100 pesos only while 1-peso coins and
above are only up to 1,000 pesos.
In terms of promissory notes, payment cannot
be compelled if it is not a legal tender unless the
creditor accepted the check. Although it will only
be considered as payment when the check was
cashed or if the creditor impaired the check.
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.
D has an obligation to pay C 1 million for the
year 2020. There has been a 1:4 decrease to
the piso purchasing power for the next year.
Therefore, D should pay C 4 million which have
been affected by the extraordinary inflation.
Article 1251. Payment shall be made in the
place designated in the obligation.
There being no express stipulation and if the
undertaking is to deliver a determinate thing, the
payment shall be made wherever the thing
might be at the moment the obligation was
constituted.
In any other case the place of payment shall be
the domicile of the debtor.
If the debtor changes his domicile in bad faith or
after he has incurred in delay, the additional
expenses shall be borne by him.
These provisions are without prejudice to venue
under the Rules of Court. (1171a)
Payments should manifest in the place
designated in the obligation.
If there is no stipulation where a determinate
thing should be delivered, then it would be
delivered at the place where the determinate
thing is at the time the obligation was
constituted.
In any other case, the place of payment shall be
at the place where the debtor is residing.
However, changing of residence in bad faith or
when in delay, the additional expenses that the
creditor incurred shall be accounted to the
debtor.
Subsection 1: Application of Payments
Article 1252. He who has various debts of the
same kind in favor of one and the same creditor,
may declare at the time of making the payment,
to which of them the same must be applied.
Unless the parties so stipulate, or when the
application of payment is made by the party for
whose benefit the term has been constituted,
application shall not be made as to debts which
are not yet due.
 Chapter 4: Extinguishment of Obligations
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)
Application of payment must comply to the rules
of payment where the debtor should pay fully,
not partially. If he cannot fully pay, he has the
right to choose where his money would be
applied.
D has a debt of 10k due on Feb 2, 15k due on
Feb 5, 20k due on Feb 28, and a horse. D’s
\
money can be applied only to obligation 1 and 2
which are due while 3 and 4 are not due and not
of the same kind which exempts it from the rule.
As of Feb 6, D has 8k cash which cannot satisfy
the obligations due. He can choose whether to
apply his payment on obligation 1, or obligation
2, or divide the money and apply it on both. D
has the right to choose where his payment
would be applied.
As of Feb 6, D has 12k. He has the capacity to
fully comply with the first obligation and that is
the settlement of the 10k obligation. If he has the
capacity to satisfy at least one, then he has the
right to choose. The first scenario where he
cannot fully comply on any of the obligation,
gave him the right to choose. The rules of
payment should be observed in scenario 2
where he has the capacity to fulfill the first
obligation.
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)
Payment of interest first before principal.
However, there is a presumption that if there is
a receipt or proof that the debtor has paid the
principal, then the interest is deemed fulfilled.
Article 1254. When the payment cannot be
applied in accordance with the preceding rules,
or if application cannot 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)
Among those due, the most burdensome
obligation would be prioritized. If the debts are
of the same difficulty and nature, the payments
would be applied proportionately. Obligations
with penalty, accessory contract, security, and
interest makes an obligation onerous.
Obligation 1 is 1,000, obligation 2 is 2,000 with
6% interest, obligation 3 is 3,000 with 12%
interest. The most onerous or difficult obligation
should be prioritized, which is obligation 3.
Subsection 2: Payment by Cession
Article 1255. The debtor may cede or assign his
property to his creditors in payment of his debts.
This cession, unless there is stipulation to the
contrary, shall only release the debtor from
responsibility for the net proceeds of the thing
assigned. The agreements which, on the effect
of the cession, are made between the debtor
and his creditors shall be governed by special
laws. (1175a)
The debtor would be released from
responsibility to the extent of his proceeds. If
the debtor is insolvent where his assets are not
enough to pay for his liabilities. His properties
would be sold, and the debtor would be released
to the extent of his net proceeds. Excess would
be given to the debtor, but deficiency would be
a liable to the debtor. Cession consists of one
debtor and more than one creditor.
 Chapter 4: Extinguishment of Obligations
Subsection 3: Tender of Payment and
Consignation
Article 1256. If the creditor to whom tender of
payment has been made refuses without just
cause to accept it, the debtor shall be released
from responsibility by the consignation of the
thing or sum due. Consignation alone shall
produce the same effect in the following cases:
1. When the creditor is absent or unknown,
or does not appear at the place of
payment
2. When he is incapacitated to receive the
payment at the time it is due
3. When without just cause, he refuses to
give a receipt
4. When two or more persons claim the
same right to collect
5. When the title of the obligation has been
lost. (1176a)
Tender of payment is when the debtor offers the
payment to the creditor. If the creditor refuses,
without just cause, the debtor would be released
from responsibility by consignation.
However, consignation can happen even
without tender of payment when:
When the creditor is absent or unknown or does
not appear. No tender of payment would be
made if there is no creditor.
When he is incapacitated to receive the
payment.
When, without just cause, he refuses to give
receipt. Receipt serves as a proof that the
debtor made his payment.
When two or more persons claim the same right
to collect. The person claiming the right should
prove to the courts who is entitled for the
payment.
When the title of the obligation has been lost.
Payment should be dependent on the issued
promissory note.
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)
The creditor, heir, authorized person who
refuses the payment should be notified of the
consignation. Without notice, the consignation
would not take effect.
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)
Tender of payment and notice for consignation
must be proved to the courts. If proven so,
consignation shall be made by depositing the
things due at the courts. After the consignation
have been made, the parties should be notified
again.
Article 1259. The expenses of consignation,
when properly made, shall be charged against
the creditor. (1179)
The creditor, who is the reason of consignation,
will be held liable for the expenses incurred.
Article 1260. Once the consignation has been
duly made, the debtor may ask the judge to
order the cancellation of the obligation.
 Chapter 4: Extinguishment of Obligations

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)

Before the consignation was properly made, the

debtor may withdraw the thing deposited which
continues the obligation and nullifies the
consignation.
However, when the consignation has been
granted, the debtor may ask the judge to
terminate the obligation.

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)

When the creditor authorized the debtor to

withdraw the things deposited. The creditor shall
lose every preference over the thing. The co-
debtor, guarantors, and sureties are released
from the obligation.