KINDS OF

OBLIGATION

Primary classification under the

civil code
1. Pure obligation
2. Conditional obligation
3. Obligation with a period
4. Alternative obligation
5. Facultative obligation
6. Joint obligation
7. Solidary obligation
8. Divisible obligation
9. Indivisible obligation
10.Obligation with a penal clause

Pure and Conditional

Obligations

PURE OBLIGATION

One whose effectivity or

extinguishment
does
not
depend upon the fulfillment or
non- fulfillment of a condition
or upon the expiration of a
term or period.
it is demandable at once.

examples
1. I promise to pay you P1 million.
2. I'll pay you P1 million on demand.

CONDITIONAL OBLIGATION

One whose effectivity is subordinated to the

fulfillment or non-fulfillment of a future and
uncertain fact or event.

Definition of condition

It is a future and uncertain

event
which
wields
an
influence
on
legal
relationship.

Kinds of conditions:

Suspensive and Resolutory

A.Suspensive fulfillment of the
condition results in the acquisition of
rights arising out of the obligation.
B.Resolutory

fulfillment

of

the

condition
results
in
the
extinguishments of rights arising out
of the obligation

Nature of Suspensive
Conditions
the happening of the
event gives rise to an
obligation.

Examples of Suspensive
Conditions
1. I promise to give you a car provided
that you pass the CPA board exam.
2. I will give you P1 million if President
Aquino will die of lung cancer.

Nature of resolutory
condition
The happening of the event
extinguishes the obligation.

Examples of resolutory
Condition
1. I will give you my car now but
should you marry Daniel Padilla, the
donation will not be effective.
2. My house is yours provided that you
shall not win in the presidential
election.

potestative, casual and

mixed
A. Potestative fulfillment of the condition
depends upon the exclusive will of a party to the
obligation.
B. Casual fulfillment of the condition depends
upon chance and/or upon the will of a third
person.
C. Mixed fulfillment of the condition depends
partly upon chance and/or the will of a third
person.

Potestative Conditions
1.) potestative on the part of the debtor:
a) if also suspensive - both the
condition and the obligation are VOID,
for the obligation is really illusory.
Example:
1. I will give you P1 million next month
if I will graduate.
2. Duterte is to give Binay P50,000.00
if Duterte goes to Baguio.

b. if also resolutory - Valid

example.
Duterte is to allow the use of his car
by Binay until Duterte returns from
Baguio.

2. potestative on the part of the

creditor. - it is VALID whether the
condition is suspensive or resolutory.
example:
a. I will give you my sign pen if you
desire to have it.
b. Poe is to give Roxas P50,000.00 if
Roxas goes to Baguio.
c. Poe is to allow the use of her car by
Roxas until Roxas returns from Baguio.

Casual Condition
example:
1. Duterte is to give Binay P100
million if Duterte wins in the
presidential election
2. Duterte is to give Binay P100
million if Poe withdraws her
presidential bid.

Mixed Condition
example:
1. David will give Angelo P1 million
if Angelo will marry Yna.
2. I'll give you my car if I can sell
my land.

Possible/Legal and
Impossible/Illegal
A. Possible one that is capable of
realization/fulfillment
according
to
nature, law, public policy or good
customs;
B. Impossible - condition is not capable
of realization/fulfillment according to
nature, law, public policy or good
customs.

Effects of Impossible/Illegal
Condition
1. if the condition is to do an impossible
or illegal thing - the obligation and the
condition are VOID.
* because the debtor knows that no
fulfillment can be done and therefore
is not serious about being liable.

eample:
1. I will sell you my land if you can
make a dead man alive.
2. I will give you my heart if you
can swim across the Pacific Ocean.
3. I will give you money if you kill
X.

2. if the condition is negative, that is not

to do the impossible or illegal thing, just
disregard the condition, but the
obligation remains to be VALID.
example:
a. I will sell you my land if you cannot
make a circle that is at the same time a
square.
b. I will give you my car if you do not kill
X.

Positive and Negative

A. Positive condition involves the
performance of an act.
B. Negative - condition involves the
omission of an act.

example of positive conditions:

1. I will give you my land if you marry
Yna this year.
if by the end of the year, Yna is
alsready dead, or you have not yet
married her, the obligation is
extinguished.

Eaxmples of negative obligation:

1. I will give you P1 million if by
January 31, 2016 you have not yet
married Yna.
if by said date, you are not yet
married, or if prior thereto, Yna had
died, the obligation is effective.

Loss, Deterioration, and Improvement

During the Pendency of Condition

- this would appy only if the

suspensive condition is
fulfilled and the object is
specific

What are the three

things that may happen to
the object of an obligation
pending the fulfillment of a
suspensive condition?

the object:

1. may be lost
2. may deteriorate
3. may be improved

the object may be lost...

a. without the fault of the debtor - the
obligation shall be extinguished
b. with fault of the debtor - debtor is
obliged to pay damages
c. partly with and partly without the
fault of the debtor -

the object may

deteriorate...
1. without the fault of the debtor - the
impairment is to be borne by the
creditor
2. with the fault of the debtor - the creditor
may choose between the rescission of
the obligation and its fulfillment, with
indemnity for damages in both cases
3. partly with and partly without the fault of
the debtor

the object may improve...

1. by nature or by time - the
improvement shall inure to the
benefit of the creditor
2. through the expense of the debtor he shall have no other right than
that granted to the usufructuary.
3. partly through nature or time and
partly by the debtor

DEFINITION OF LOSS

it is understood that the

thing is lost:
1. when it perishes
e.g. when a house is burnt
to ashes.

2. when it goes out of

commerce
e.g. as when the object
heretofore unprohibited
becomes prohibited

3. when it disappears in
such a way that its
existence is unknown
e.g. when a particular car
has been missing for some
time.

4. when it disappears in
such a way that it
cannot be recovered
e.g. when a particular
diamond ring is dropped in
the middle of the pacific
ocean

Illustrative problems
(a) A promised to give B his car if B
passes the CPA board exam. Pending
the results of the said exams, the car
was destroyed by a fortuitous event,
without any fault at all on the part of
the debtor.
When B passes the board exam, does
A have to give to B anything?

(b) A promised to give B P1 million if B

passes the CPA board exams.
Pending the results of the said
exams, A's money is destroyed by
fire, not imputable to A. When B
passes the CPA board exam, does A
still have to give him P1 million?

(c) On the first problem (a). Suppose

the loss occured through the fault of
the debtor, is the debtor liable?

ans...
Yes. If the thing id lost through the
fault of the debtor, he shall be
obliged to pay damages.

(d) Suppose pending the fulfillment of

the suspensive condition, the object,
say a particular car, deteriorates
without the fault of the debtor, is the
debtor bound to make the up for the
depreciation, or should the creditor
bear the deterioration suffered?

ans...
in such case, the creditor will hve to
suffer for the deterioration or
impairment. The law say: When the
thing deteriorates without the fault of
the debtor, the impairment is to be
borne by the creditor.

(e) Suppose a determinate thing

deteriorates through the fault of the
debtor?

ans...
The creditor may choose between:
a. rescission (or cancellation of the
obligation), plus damages
b. or fulfillment of the obligation
(even if there has been deterioration)
plus damages.

(f) Suppose the thing is improved by

nature or by time, who gets the
benefit of the improvement?

ans...
the creditor gets the benefit. If the
thing is improved by its nature or by
time, the improvement shall inure to
the benefit of the creditor.

(g) Suppose the thing has improved,

not through time or by its nature but
through the epense of the debtor,
what will be the rights of said debtor?

ans...
the debtor will have the rights granted
to a usufructuary for improvements on
a thing held in usufruct.
he is not entitled to reimbursement but
he may emove the improvements
provided he does not, by doing so,
damage the property. he may however
set off the improvements he may have
made on the property against any
damage to the same.

(h) Suppose the improvement is due

partly to the expenses made by the
debtor and partly due to its nature or
by time, who gets the benefit?

ans...
the creditor gets the benefit of the
improvements of the thing by its
nature or by time, but the debtor is
entitled
to
the
rights
of
a
usufructuary
over
the
useful
improvements that may have been
caused at his expense.

RECIPROCAL OBLIGATIONS

Those which are created or

established at the same time,
out of the same cause, and
which
result
in
mutual
relationships of creditor &
debtor between the parties.

TACIT RESOLUTORY CONDITION

If one of the parties fails to

comply
with
what
is
incumbent upon him, there is
a right on the part of the
other
to
rescind
the
obligation.

RIGHT TO RESCIND

means the right to

cancel or resolve the
contract or reciprocal
obligations in case of
non-fulfillment on the
part of one.

To rescind is to declare a contract void

at its inception and to put an end to
it as though it never was.

GENERAL RULE:
The right to rescind needs judicial
approval

EXCEPTIONS:
If there is an express
stipulation of automatic
rescission
When the debtor
voluntarily returned the thing

NOTE:
Rescission will be ordered only where
the breach is substantial as to defeat
the object of the parties in entering into
the agreement.
The remedy of rescission and fulfillment
are alternative, not cumulative.

OBLIGATION WITH A PERIOD

Those whose demandability

or extinguishment is subject
to the expiration of a term or
period which must necessary
come.

Period distinguish from

condition
1. as to fulfillment A condition is an uncertain event;
but a period is an event which must
happen sooner or later, at a date
knoen befrore hand, or a time which
cannot be determined.

2. Where reference to time A period always refers to the

future; a condition may, under the
law, refer even to past.

3. As to influence on obligation A condition causes an obligation

to arise or to cease; but a period
merely fixes the time or the
efficaciousness of an obligation.

Kinds of Period
1. Ex Die - This is a period
with a suspensive effect.
Here,
the
obligation
becomed
demandable
upon the lapse of the
period.

2. In Diem - This is a period with a

resolutory effect. Here the obligation
is demandable at once but is
extinguished upon the lapse of
period.

other kinds are:

1. Legal - A period that is
fixed by the law
2. Voluntary - This is fixed
by the parties
3. Judicial - One that is fixed
by the court

Problem
"I will pay you my debt when my
means permit me to do so."
Is this an obligation with a
period or with a condition?

ans...
This is an obligation with a period.
Here the remedy of the creditor is to
ask the court to fix the period. Once
the court has fixed the period, it may
no longer change it as it becomes a
part of the agreement by the parties.

GENERAL RULE:
When a period is designated for
the performance or fulfillment of
an obligation, it is presumed to
have been established for the
benefit of both creditor and
debtor.

EXCEPTION:
When it appears from the
tenor of the period or other
circumstances
that
it
is
established in favor of one or the
other.

Nota Bene:

The debtor cannot be

compelled to perform, and
the creditor cannot be
compelled
to
accept
performance, before the
term expires.

example
D borrowed P10,000.00 from C on
January 1, 2016. The loan bears interest
at 10% per annum with both principal
and interest being due on December 31,
2016. Before December 31, 2016, C
cannot compel D to pay and deprive him
of the use of the money until the said
date. Neither may D compel C to accept
payment before December 31, 2016 and
deprive C of the interest for remaining
term.

Period is for the benefit of one of the

parties
1. For the benefit of the debtor He cannot be compelled to
perform his obligation before the
expiration of the term, but he may
choose to perform before such
expiration at his option.

example
D is obliged to pay C P1 million
on or before December 31, 2016.
D cannot be compelled to pay
before December 31, 2016.
However, he may choose to pay
at any time before December 31,
2016 or on December 31, 2016
at his option.

2. For the benefit of the creditor He cannot be compelled to accept

performance before expiration of the
term, but he may choose to
demand performance before
such expiration at his option.

example
On January 15, 2016, D borrowed
from C P1 million collectible on or
before June 30, 2016. C may demand
payment on June 30, 2016 or at any
time before the said date. However,
D cannot compel him accept the
payment at any time before June 30,
2016.

When court may fix period:

A. if the obligation does not fix

a period, but from its nature and
circumstances it can be inferred
that a period was intended by
the parties;

example
1. A contract to construct a house
where the period was not stated.
2. A donation where land was
given provided certain construction
was to be made on it. Here the time
within which construction is to be
made should be fixed by the courts.

B. if the duration of the period

depends upon the will of the
debtor; and

example
1. When my means permit me to do
so.
2. I'll pay you little by little.
3. As soon as possible
4. As soon as I have money.

When debtor loses right to make

use of period

1. when after the obligation

has
been
contracted,
he
becomes insolvent, unless he
gives guaranties or securities for
the debt (the insolvency need
not be judicially declared);

example
D owes C P1 million demandable
on May 15, 2016. In January 31,
2016, D become insolvent. The debt
is
immediately
demandable
in
January 31, 2016 unless D can offer
security.

2. when he does not furnish to

the creditor the guaranties or
securities he promised;

example
D borrowed P1 million from C
promising to pledge his ring to C to
secure the debt within one month. C
gave D one year to pay the loan. D,
however, failed to pledge his ring
within the period agreed upon. In thia
case, C can demand immediate
payment even before the agreed due
date thereof.

3. when by his own act he has

impaired said guaranties or
securities
after
their
establishment, and when through
fortuitous event they disappear,
unless he gives new ones equally
satisfactory;

example
D obtained a loan from C, the same
being secured by a chattel mortgage on
D's car. The loan is payable within one
year. On the seventh month, the car was
razed by fire. C can demand immediate
payment unless D gives another
security that is equally satisfactory. This
is true even if the cause of the loss or
impairment was not due to the fault of D

4. when debtor violates any

undertaking, in consideration of
which the creditor agreed to the
period;

example
C granted a loan of P10,000.00 to
D giving D one year to pay
provided D did not engage in any
gambling until he has paid the
debt.
If D enters a casino to play poker,
say after one month, C can already
demand immediate payment.

5. when debtor attempts to

abscond.

example
If
the
debtor
has
been
disposing all his property with
an attempt to leave his place of
business or residence to escape
his creditors, such creditors can
demand immediate payment of
his
debts
although
their
maturity date is not yet due.

pre-test
1. D is obliged to give C a specific car
if C passes the CPA Licensure Exam.
Ds obligation is an example of:
a. A pure obligation
b. An obligation with a
suspensive condition
c. An obligation with a resolutory
condition
d. An obligation with a period

2. One of the following is a void

obligation:
a. D is obliged to give C P5,000.00
if C does not go to the moon
b. D is obliged to give C P5,000.00
if D goes to Baguio
c. D is obliged to give C P5,000.00
if C goes to Baguio
d. D is obliged to give C P5,000.00
if D wins first prize in the sweepstakes
on a ticket he had already purchased.

3. When the debtor binds himself to pay

when his means permit him to do so, the
obligation is:
a. An obligation with a resolutory
condition
b. A pure obligation
c. An obligation with a suspensive
condition
d. An obligation with a suspensive
period

4. The debtor shall lose the right to

make use of the period in the
following cases, except when he:
a. Becomes insolvent
b. Violates any undertaking in
consideration of which the creditor
agreed to the period
c. Attempts to abscond
d. Does not furnish any guaranty
or security to the creditor

10.) On February 1, 2016 D obligated

himself to give C P50,000.00 if C will
marry X on or before February 29, 2016.
The condition of the obligation is a:
a.) Positive condition
b.) Negative condition
c.) Joint condition
d.) Impossible condition

Alternative Obligations
and Facultative
Obligations

Kinds of obligations according to the

number of prestations
1. Simple One when there is only one
prestation

2. Compound One when there are several

prestations. This may may be:
a.) Conjunctive - Here, several
prestations are due but all must be
performed.

example:
D is to give C a specific ring, a
specific watch and a specific bracelet
to C. D must deliver all the items to
C.

b.) Distibutive or
disjunctive - this may either
be alternative or
facultative.

Alternative Obligation
It is one where several
prestations are due but the
complete performance of one
of them is sufficient to
extinguish the obligation.

example
D is obliged to give a
specific ring, a specific watch,
or a specific bracelet to C.
The delivery of any of the
three articles will extinguish
the obligation

Right to choose prestation

The right of choice

belongs to the creditor,
unless
it
has been
expressly given to the
creditor.

Limitations on Debtor's Right to

Choose
1. The debtor must completely perform
the prestation chosen. He cannot
compel the creditor to receive part of
one and part of another undertaking.

2. He cannot choose those prestations

which are impossible, unlawful or
which could not have been the object
of the obligation.

When obligation ceases to be

alternative and becomes a
simple obligation

1. When the debtor has communicated

his choice to the creditor.

2. When among the prestaions wherey

the debtor is alternatively bound,
only one is practicable.

3. When the creditor has

communicated his choice to the
debtor, if the creditor has been
expressly given the right of choice.

Rules in case of Loss of

things or impossiblity
of services which are
alternatively the object
of the obligation.

1. When the right of Choice is with the

debtor

a. If only one or some are lost

through a fortuitous event or
through the debtor's fault, the
debtor may deliver any of the
remainder, or that which
remains if only one subsists.

b. If all are lost through a

fortuitous
event,
the
obligation is extinguished
(based on the rule that no
person shall be responsible
for fortuitous event)

c. If all are lost through the

debtor's fault, the debtor
shall pay the value of the
last thing that was lost
plus damages.

Example:
D is to give C a specific ring, a
specific bracelet or a specific
wristwatch. The obligation is silent as
to who will choose the item to be
delivered. Therefore, the right of
choice bleongs to D

a. If the ring is lost through a fortuitous

event, D may deliver the bracelet or
the wristwatch. The same rule
applies if the ring is lost through the
fault of D. In the case of the latter, D
shall have no liability for damages
because he can still perform his
obligation by choosing to deliver the
bracelet or the wristwatch.

b. If the ring and the bracelet are lost

through a fortuitous event or through
D's fault, the obligation is converted
into a simple obligation to deliver the
wristwatch. There is no liability for
damages on the part of D even if the
loss is due to his fault because he can
still perform his obligation. It was as if
D chose to deliver the wristwatch.

c. If all the things are lost due to a

fortuitous event, D's obligation is
extinguished.

d. If the ring and the bracelet are

lost through a fortuitous event,
the obligation becomes a simple
obligation
to
deliver
the
wristwatch. If the wristwatch is
thereafter lost due to the fault of
D, D shall pay damages.

e. If the ring, the bracelet and the

wristwatch are lost one after the
other due to D's fault, D shall pay
the value of the wristwatch, the
last item that was lost, plus
damages.

f. If the ring and the bracelet are

lost through D's fault, the
obligation becomes a simple
obligation
to
deliver
the
wristwatch. If the wristwatch is
thereafter
lost
through
a
fortuitous event, D's obligation is
extinguished.

2. When right of choice is expressly

granted to the creditor
a.) If only one or some sre lost through
a fortuitous event, the debtor shall
deliver that which the creditor should
choose among the remainder, or that
which remains if only one subsists.

b.) If all are lost through a fortuitous

event, the obligation shall be
extinguished.

c.) If only one or some are lost through

the debtor's fault, the creditor may
claim any of those subsisting, or the
price of those which were lost
through the debtor's fault plus
damages.

d.) If all are lost through the debtor's

fault, the creditor's fault, the creditor
may claim the price of any of them
plus damages.

examples
D is to give C a specific ring, a
specific bracelet or a specific
wristwatch. The parties agreed
that C shall have the right of
choice.

a.) If the ring is lost through a

fortuitous event, D shall deliver
either the bracelet or the wrist
watch at the choice of C.

b.) If all are lost through a

fortuitous event, D's obligation is
extinguished.

c.) If the ring and the bracelet are lost

through a fortuitous event, D shall
deliver the wristwatch which is the
remaining
item.
The
obligation
becomes a simple obligation to
deliver the wristwatch. If the
wristwatch is thereafter lost due to
D's fault, D shall pay damages.

d.) If the ring and the bracelet are

lost due to D's fault, the obligation
does
not
become
a
simple
obligation to deliver the wristwatch.
C can still choose from the payment
of the price of the ring or the
baracelet with damages, or the
delivery of the wristwatch.

e.) If all are lost due to the fault of

D, C may claim the price of any
of them plus damages.

Pre-test
5. D is obliged to give C a specific watch, a specific ring, or
a specific bracelet. The parties agreed that C will have the
right to choose the ring which will be given to him. Before C
could make his choice, the watch and the ring are lost
through Ds fault, successively. What is the right of C?
a.) C may choose the delivery to him of the bracelet, or
the price of the watch or the price of the ring plus damages
b.) C cannot choose the price of the watch od the price
of the ring because the said objects have already been lost
c.) C can only choose to have the bracelet because
anyway, D can still perform his obligation
d.) C can only choose to have delivery of the bracelet
or the price of the ring which was the last item that was
lost plus damages

FACULTATIVE OBLIGATION
An obligation where
only one prestation is due but
the
debtor
may
render
another in substitution.

example
D is obliged to give a
specific ring to C with the
agreement that D may deliver
a
specific
watch
as
a
substitute.

Rules is case of loss of principal thing

and substitute
1. Before Substittution (i.e., before the
debtor has informed the creditor of
the substitution)
(a) Principal thing
(1) If lost due to fortuitous event, the
obligation is exringuished
(2) If lost due to the debtor's fault,
debtor shall pay damages.

2. After substitution
(a) Principal thing
The loss of the principal thing
whether through a fortuitous
event or through the debtor's fault
imposes no additional obligation
on the debtor because the thing
due is already the substitute.

After the substitution has

been
communicated,
the
thing is due is the substitute.
The obligation also ceases to
be a facultative obligation and
becomes a simple obligation.

(b) Substitute thing

1.) If lost through fortuitous
event, the obligation is extinguished.
2.) If lost through the debtor's
fault, the debtor shall pay damages.

Alternative obligation and Facultative

obligation, distinguished

ALTERNATIVE
FACULTATIVE
1.
Several 1. Only one
prestaions are
prestation, the
due, but the
principal
performance of
obligation, is
one is sufficient
due.
to
extinguish
the debt.

2. If there are 2.
If
void
principal
prestations,
obligation
the others may void,
still be valid, debtor is
hence,
the required
obligation
give
remains.
substitute

the
is
the
not
to
the

3. The right of 3. The right of

choice is with choice belongs
the
debtor, to the debtor
unless
only
expressly
given to the
creditor

4.
If
all 4.
If
prestations are principal
impossible
obligation
except
one, impossible,
that which is debtor is
possible must required
still be given
give
substitute

the
is
the
not
to
the

Joint and Solidary Obligation

In a joint or solidary
obligation,
there
is
a
concurrence of two or more
debtors and/or two or more
creditors in one and the same
obligation.

In a joint obligation, each

debtor
is
liable
only
for
proportionate part of the debt,
and each creditor is entitled only
to a proportionate part of the
credit.

example
1. A and B are indebted to X for
P10,000.00.
A is liable only for P5,000.00; B is
liable only for P5,000.00

2. A owes X and Y P8,000.00.

X can collect only P4,000.00; Y
can collect only P4,000.00.

In a solidary obligation,
each debtor is liable for the
whole obligation, and each
creditor is entitled to demand
payment
of
the
whole
obligation.

Kinds of Solidary Obligation

1. Passive Solidarity

- This is
solidarity on the part of the debtors

example:
A and B, solidary debtors, are
indebted to X for P1 million. X can
demand payment of P1 million from
either A or B. If A pays P1 million, the
obligation is extinguished. A can
demand
reimbursement
of
P500,000.00 from B representing the
latter's share in the debt.

2. Active Subject - This is

solidarity on the part of the creditors.

example:
A owes X and Y, solidary creditors,
P8,000.00. Either X or Y may demand
payment of P8,000.00 from A. If A
pays X P8,000.00, the obligation is
extinguished. X must give P4,000.00
to Y representing the latter's share in
the credit.

3. Mixed solidarity

or solidarity
on the part of both the creditors and
debtors.

example:
A and B, soliary debtors, owe X and Y,
solidary creditors, P12,000.00. X or Y
may collect from A or B the total sum
of 12,000.00. If A pays X P12,000.00,
the obligation is extinguished. B must
reimburse A P6,000.00. On the other
hand, X must give P6,000.00 to Y.

other terms for solidary

obligations
1.
2.
3.
4.
5.

Joint and Severally

Individually and Collectively
In Solidum
Mancomunada Solidaria
Juntos o separadamente

other term for joint

obligation
1.
2.
3.
4.

proportionately
pro rata
mancomunada
mancomunada simple

GENERAL RULE
The obligation is presumed
to be joint when there is a
concurrence of two or more
debtors and/or two or more
creditors in one and the same
obligation.

EXCEPTIONS
1. When the obligatio expressly so
states

EXCEPTIONS
2. When the law requires solidarity

EXCEPTIONS
When the nature of the obligation
requires solidarity

problems
1. A, B and C are obliged to give X, Y
and Z P27,000.00. How many distinct
debts are there in the obligation?

answer...
Since the obligation is presumed
to be joint, there are 9 distinct debts
as follows.

(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)
(1)

A
A
A
B
B
B
C
C
C

owes
owes
owes
owes
owes
owes
owes
owes
owes

X P3,000.00
Y P3,000.00
Z P3,000.00
X P3,000.00
Y P3,000.00
Z P3,000.00
X P3,000.00
Y P3,000.00
Z P3,000.00

problems
2. A, B and C, joint debtors, are obliged
to give X, Y and Z, solidary creditors,
P18,000.00. How much may X collect
and from whom?

answer...
X, being a solidary creditor, may
collect the sum of P18,000.00.
However, since the debtors are joint
debtors,
he
may
collect
only
P6,000.00 from each of them. After
collecting the sum of P18,000.00, X
must give Y and Z's share of
P6,000.00 each.

problem
3. A, B and C, solidary debtors, are
obliged to give X, Y and Z, joint
creditors, P18,000.00. How much
may A be held liable?

answer...
A, being a solidary debtor, may be
held liable for P18,000.00. However,
since the creditors are joint creditors,
each of them may collect only
P6,000.00 from A. If A pays the whole
amount of P18,000.00 to the creditors,
A can demand reimbursement of
P6,000.00 each from B and C.

problem
4. A, B and C, solidary debtors, are
obliged to give X, Y and Z, solidary
creditors, P18,000.00. How much
may Z collect and From whom?

answer...
Z may collect P18,000.00 from any of
the solidary debtors each of whom
may be held liable for the entire
obligation. If Z collectgs P18,000.00
from A, Z must give X and Y P6,000.00
each. A, on the other hand, can
demand reimbursement from B and C
at P6,000.00 each.

A and B are solidary

debtors of X and Y,
solidary creditors, in the
amount of P20,000.00.

1. If X renounces or remits the

whole obligation without the
the consent of Y, will the
obligation be extinguished?

answer...
Yes, because the remission made
by
any
solidary
creditor
extinguishes the whole obligation.
However, X has to give Y's share of
P10,000.00 since solidary creditors
may not do anything prejudicial to
his co-solidary creditors.

A solidary creditor who has

caused the extinguishment of the
obligation
by
remission,
novation,
compensation
or
confusion, or who has collected
the debt, shall be liable to the
others
for
the
shares
corresponding to them.

2. Suppose the remission of

the whole obligation was
obtained by A, may A
demand reimbursement from
B?

answer...
No, because the remission of the
whole obligation obtained by one of
the solidary debtors does not entitle
him to reimbursement from his codebtors.
Remission
being
the
gratuitous abandonement by the
creditors of their rights to the
obligation.

3. Suppose that X renounces

or remits A's share amounting to
P10,000.00. However, it turned
out that B had already paid
P20,000.00 to Y two days before.
May B still collect P10,000.00
from A representing A's share?

answer...
Yes, B may still collect from A
P10,000.00. The remission made by
the creditor of the share which affects
one of the solidary debtors does not
release the latter from responsibility
to his co-debtors, in case the debt has
been totally paid by anyone of them
before the remission was affected. A's
remedy will be to go after X or Y to
collect the sum he paid to B.

A is indebted to X, Y and Z,
solidary creditors, for P24,000.00.
Suppose X makes a demand against A,
to whom shall A pay?

answer...
A must pay to X. If A pays to
another solidary creditor, say Y, the
sum of P24,000.00, the payment,
as a rule, is valid only with respect
to Y's share of P8,000.00. Thus, if X
and Z do not receive their
respective shares from Y, A can still
be held liable for P16,000.00

A, B and C, solidary
debtors, borrowed P30,000.00
from X. The obligation is
evidenced by a promissory
note signed by the debtors.

1. X demands payment from A.

However, A pays only P12,000.00.
May X still go after B and/or C?

answer...
Yes, X may still go after B or C or both
of them for the balance of P18,000.00.
The creditor may proceed against
anyone of the soliday debtors or some
or all ofthem simultaneously. The
demand made against one of them
shall not be an obstacle to those
which may subsequently de directed
against the others, so long as the debt
has not been fully collected.

2. If A pays X P30,000.00, what

are the rights of A?

answer...
A can demand reimbursement from B
and C at P10,000.00 each together
with interest from the date of
payment. However, if payment is
made by A before due date, he
cannot collect interest during the
intervening period, i.e., from date of
payment to due date.

3. A pays X P30,000.00. However, C

has become insolvent. How much
may
A
demand
from
B
as
reimbursement?

answer...
A may demand P15,000.00 from B. If
an insolvent debtor cannot reimburse
his share to the debtor who paid the
obligation, such share shall be borne
by all his co-debtors, in proportion to
the debt of each. Thus, A and B shall
bear C's share at P5,000.00 each.

4. If A pays X P30,000.00 more than 10

years after the note had become
due,
can
he
syill
demand
reimbursement?

answer...
No, he can no longer demand
reimbursement. Payment by a
solidary debtor after the obligation
has prescribed does not entitle
him to reimbursement. The same
rule applies if payment is made
after the obligation has become
illegal.

A, B, C and D are solidarily liable to X

for the delivery of a specific ring
valued at P20,000.00. What is the
rule if the ring is lost:
1. through a fortuitous event?
2. through the fault of D?

answer...
1.
The
obligation
shall
be
extinguished. This is according to the
rule that no person shall be
responsible for fortuitous events.

2. All the solidary debtors shall be liable

for the payment of the price of the ring
plus damages and interest. However, the
soliary debtor making the payment can
recover what he has paid from the guilty
debtor. Thus, if X goes after A and A pays
the price of the ring, and the damages
and
ineterest,
A
can
demand
reimbursement
of
P20,000.00
plus
damages and interest from D, the guilty
or negligent debtor.

Existence of solidarity despite different

periods and conditions

Solidarity
exists
although the creditors and
the debtors may not be
bound by the same periods
and conditions

example
A, B and C are solidarily liable
to X for P9,000.00. The parties
stipulated that the share of A is
payable on demand; the share
of B on Christmas next year;
and the share of C, if X passes
the CPA board examinations.

X may demand payment of the share

of A of P3,000 anytime from either A,
B or C. On Christmas day next year,
X may demand payment of the share
of B of P3,000.00 from either A, B or
C. When X passes the CPA board
examination,
he
may
demand
payment of the share of C of
P3,000.00 from either A, B or C.

Effect of Unauthorized assignment of

creditor's right
The solidary creditors are bound by
mutual trust and confidence. Hence,
a solidary creditor cannot assign his
right to a third person without the
consent of the other solidary
creditors because the assignee may
not enjoy the trust and confidence of
the non-assigning creditors.

If the assiginment is without

the consent of the co-creditors, the
assignment is not valid as to them.
Accordingly, they can recover their
respective shares from the assigning
creditor in case the assignee who
collected the debt fails to give them
their shares.

Defense Available to solidary

debtors
1. Those derived from the
nature of the obligation (such
as
prescription
of
the
obligation, illegality of cause)

2. Those personal to the

creditor being sued, or those
that pertain to his own share
(such as incapacity of the
debtor or non-fulfillment of a
suspensive condition as ti his
share)

3. Those personal to the other

debtors with respect to their
own share (such as incapacity
of another debtor or nonfulfillment of a suspensive
condition with respect to
other debtors' shares)

Joint indivisible obligation, concept and

characteristics

A joint indivisible obligation is

an obligation where the
debtors or creditors are jointly
bound but the prestation or
object is indivisible.
It
has
the
following
characteristics:

1.
The
creditors
must
act
collectively, meaning, all of them
must make the demand unless
one is specifically authorized to
act for the others. A demand
made by one or some but not
all of the creditors will not be
effective.

2. The demand must be made against

all the debtors since compliance is
possible only if they act together.

3. The right of the creditors may be

prejudiced by their collective acts.
Thus, a renunciation made by a joint
creditor etinguishes only as to his
own share. The obligation, however,
is converted into an obligation to pay
the value of the thing. If all joint
creditors make the renunciation, the
obligation is extinguished.

4. If one of the debtors does not comply

with his undertaking, the obligation is
converted into a monetary obligation to
pay damages. The debtors who may
have been ready to comply shall not
contribute to the indemnity beyond the
corresponding price of the thing or the
value of the service in which the
obligation consists.

5. If one of the debtors is insolvent, the

others shall not be liable for his
share.

illustration
A, B and C are jointly
indebted to deliver a
specifi
car
valued
at
P900,000.00 to X, Y and Z.

1. X, Y and Z must make a

demand against A, B and C
for the delivery of the car.

2. If A is not ready to comply with his

undertaking, the obligation to deliver
tha car is converted into an obligation
to pay its value plus damages. B and
C shall be obliged to pay P300,000.00
each. A, the defaulting debtor, shall
be liable for P300,000.00 plus
damages.

3. If A is insolvent, B and C
shall be liable only for their
respective
share
of
P300,000.00 each.

4. If X renounces his right to the

obligation without the consent of Y
and Z, then only hs proportionate
share is extinguished. The obligation,
however, is converted into a monetary
obligation to pay P600,000.00 which
must be given to Y at P300,000.00
and Z at P300,000.00 by A, B and C
who will give P200,000.00 each.

Indivisibility and Solidarity, concept

and distinctions
The indivisibility of an obligation
refers to the subject matter or object
not being susceptible of partial
performance. Solidarity, on the other
hand, refers to tie between the
parties. One therefore, does not
imply, or give rise, to the other.

Thus, there may be the following

obligations:
1. Joint divisible obligation
example:
A and B are jointly obliged to
C ro construct a pavement 2 meters
wide and 10 meters long.

2. Joint indivisible obligation

example:
A and B are jointly obliged to
give a specific horse to C.

3. Solidary divisible obligation

example:
A and B are solidary liable to
pay C P10,000.00 in two equal
installments.

4. Solidary indivisible obligation

example:
A and B are solidarily liable to
give a specific horse to C.

A, B, C and D are obliged to

give V, W, X, Y and Z
P20,000.00

How many distinct debts are

there in the obligation?

7. A, B, C and D solidary debtors,

are obliged to give V, W, X, Y and Z
joint creditors, P20,000.00
a.) V may collect from C
P20,000.00
b.) V may collect from C P4,000.00
c.) V may collect from C P5,000.00
d.) V may collect from C P1,000.00

8. A, 25 yrs old, B, 35 yrs old and C, 17

yrs old, are solidary debtors of X in the
amount of P9,000.00
a.) X may collect from A P9,000.00
b.) X may collect from A P6,000.00
c.) X may collect from A P1,000.00
d.) X may collect nothing because the
obligation is voidable, C being a minor.

9.) In an obligation with a penal clause,

the creditor as a general rule may
recover from the debtor in case of
breach the following:
a.) The penalty as agreed upon, plus
damages and interest
b.) The penalty and damages
c.) The penalty and the interest
d.) Only the penalty

Divisible and Indivisible

Obligations

Divisible Obligation
A divisible obligaion is one
capable of partial performance
(such as the obligation to
deliver 10 sacks of rice).
The following obligations are
deemed divisible:

1. When the obligation has for

its objet the execution of a
certain number of days of
work (such as an obligation to
work for 1 week)

2. When the obligation has for its

object the accomplishment of work
by metrical units (such as the
obligation to construct a a pavement
which is 10 meters long and 2 meters
wide)

3. Analogous things which by

their nature are susceptibleof
partial performance.

Indivisible Obligation
An indivisible obligation is one
not
capable
of
partial
performance (such as the
obligation to deliver a specific).
The obligations are deemed
indivisible:

1. Obligations to give
definite things (such the
obligation to give a specific
horse)

2. Those not susceptible of

partial performance (such as
the obligation of a singer to
sing one song in a program)

3. Those where the object or

service is physically divisible but
it is indivisible by provision of law
(such as where the obligation is
to pay a sum of money but the
law provides that the sum must
be paid in full as in the case of
certain taxes)

4. Those where the object or

service is physically divisible but
it is indivisible by the intention of
the parties (such as where the
obligation is to pay a sum of
money but the parties agreed
that the sum must be paid in full)

Obligations with a Penal

Clause
An obligation with a penal
clause is one which provides for
a greater liability on the part of
the debtor in case of noncompliance.
The
accessory
undertaking on the part of
the debtor is called the penal
clause.

example
D is obliged to construct a
commercial building for C within
a period of three months. The
parties agreed that should D fail
to finish the construction of the
buliding within the said period. D
shall pay C P1,000.00 for every
day of delay as penalty.

Function of Penal Clause

A
penal
clause
is
attached to an obligation
in
order
to
insure
performance and has a
double function:

1. To provide for liquidated

damages, and
2. To strengthen the coercive
force of the obligation by a
threat of greater responsibility
in the event of breach.

Proof required for actual damages

suffered if there is a penalty clause
Proof of actual damages suffered
by the creditor is not necessary in
order that the penalty may be
determined. The obligor is bound to
pay the stipulated indemnity without
the necessity of proof of the
existence and the measure of
damages caused by the breach

Kind of penal clause

1. Legal and Conventional
a.) Legal - imposed by law
b.) Conventional - imposed
by the agreement of the
parties

2. Subsidiary and Joint

a.) Subsidiary - when only the
penalty may be enforced
b.) Joint - when both the
obligation and the penalty may
be enfored

Rule in case obligation has a penal

clause

General Rule:
The penalty takes the place
of the damages and interest
in case of non-compliance.

Exception:
1. When there is a stipulation to that
effect.
2. When the debtor refuses to pay
the penalty
3. When the debtor is guilty of fraud
in the performance of the obligation

problems
D is obliged to deliver 10
sacks of rice to C on May
10. The parties agreed that
if D fails to deliver on due
date, he will pay a penalty
of P500.00.

1. Supposing that D failed

to deliver on due date, may
he just pay the penalty of
P500.00?

answer...
No, because the debtor cannot
exempt
himself
from
the
preformance of the obligation by
just paying the penalty, exept
when this right has been
epressly reserved for him.

2. May C demand the

delivery of 10 sacks of rice
and the payment of the
penalty at the same time
upon default of D?

answer...
No. The creditor cannot demand
fulfillment of the obligation and the
payment of the penalty at the same
time except when this has been
clearly granted to him, or if after
requiring fulfillment of the obligation,
the performance thereof becomes
impossible without his fault, he may
also enforce the penalty.

When the court may reduce the

penalty
1. When the obligation has been partly
complied with by the debtor.
2. When the obligation has been
irregularly complied with by the
debtor
3. When the penalty is iniquitous or
uncoscionable even if there has been
no performance

Effect of nullity of principal obligation,

penal clause

1. The nullity of the principal

obligation carries with it the
nullity of the penal clause. This is
so because the penal clause,
being
just
an
accessory
undertaking, cannot stand by
itself.

2. The nullity of the penal

clause does not carry with it
that
of
the
principal
obligation. This is so because
the principal obligationcan
stand by itself.

post test
1. One of the following is not
immediately demandable.
a. Pure obligation
b. Obligation with a resolutory
condition
c. Obligation with an in diem
period
d. Obligation with an ex die period

2. D is obliged to give P10,000.00

if X dies. This is an example of:
a. An obligation with a
suspensive condition
b. An obligation with a
resolutory condition
c. An obligation with a period
d. A pure obligation

3. Whenever a period is designated in

an obligation, the said period shall be
presumed to have been established for
the benefit of:
a. The debtor
b. The creditor
c. Both the debtor and the creditor
d. Neither of the parties

4. An obligation ceases to be alternative and

becomes a simple obligation in the following
cases, except when:
a. The debtor has communicated his
choice to the creditor
b. The right of choice has been
expressly granted to the creditor and his
choice has been communicated to the debtor
c. Among the several prestations that
are due only one is practicable.
d. Three prestations are due but one of
them is unlawful or impossible

5. D is obliged to give C a specific ring. The parties

agreed that D may give a specific bracelet as
substitute. Which of the following statements is true?
a. If the ring is lost through a fortuitous event
before substitution, the obligation is extinguished.
b. If the bracelet is lost through a fortuitous
event before substitution, the obligation is
extinguished.
c. If the ring is lost through a fortuitous event
after substitution, the obligation is extinguished
d. If the ring is lost through the debtors fault
after substitution, the debtor shall pay damages.

6. A, B, C and D, joint debtors, are obliged

to give V, W, X, Y and Z, solidary creditors,
P20,000.00.
a. V may collect from B P20,000.00
b. V may collect from B P4,000.00
c. V may collect from B P5,000.00
d. V may collect from B P1,000.00

7. A, B, C and D, solidary debtors, are

obliged to give V, W, X, Y and Z, solidary
creditors, P20,000.00.
a. V may collect from D P20,000.00
b. V may collect from D P4,000.00
c. V may collect from D P5,000.00
d. V may collect from D P1,000.00

8. The following obligations are divisible,

except an obligation:
a. To give definite things
b. Which has for its object the
execution of a certain number of days
c. Which has for its object the
accomplishment of work by metrical
units
d. Which by its nature is
susceptible of partial performance

9. Consider the following statements.

I. The nullity of the principal obligation
carries with it the nullity of the penal clause
II. The nullity of the principal obligation does
not carry with it the nullity of the penal clause
III. The nullity of the penal clause carries with
it the nullity of the principal obligation
IV. The nullity of the penal clause does not
carry with it the nullity of the principal obligation.
a. Statements I and III are true
b. Statements I and IV are true
c. Statements II and III are true
d. Statements II and IV are true

10. A, B, C and D are obliged to give V,

W, X, Y and Z P20,000.00
a. V may collect from A
P20,000.00
b. V may collect from A P5,000.00
c. V may collect from A P1,000.00
d. V may collect from A P4,000.00

EXTINGUISHMENT OF
OBLIGATION

Causes of Extinguishment of
Obligations
1. Payment or prformance
2. Loss of the thing due
3. Condonation or remission of debt
4. Confusion or merger of rights of creditor and debtor
5. Compensation
6. Novation
7. Annulment
8. Recission
9. Fulfillment of resolutory condition
10. Prescription
11. Other causes

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

Thus, if the obligation is to

paint a portrait, payment
consists in the performance of
the
service.
Or
if
the
obligation is to deliver a
certain ring, payment consists
in the delivery of the thing.

How must the payment e

made?
1. There must be delivery of the
thing or rendition of the services
that was contemplated.

Limitations:
a. The debtor of a thing cannot compel
the creditor to accept a different one
although the latter may be of the
same value as, or more valuable
than that which is due.

example
D is obliged to give C a
Seiko wristwatch. D cannot
compel C to accept a Rolex
wristwatch even of the latter
is more valuable than Seiko.

b. In obligation to do or not to
do, an act or forbearance
cannot be substituted by
another act or forebearance
against the obligee's will.

example
1. D is obliged to paint C's car. He
cannot substitute it with an obligation
to paint C's house.
2. D borrowed P10,000.00 from C. C
gave D one year to pay provided D
must not enter a casino before he has
paid the debt. D cannot ask C that the
obligation not to enter be substituted
with not to drink and smoke during
the term of the loan.

c. In obligation to give a generic thing

whose quality and circumstances
have not been stated, the creditor
cannot demand a thing of superior
quality. Neither can the debtor
deliver the thing of inferior quality.
The purpose of the obligation and
other circumstances shall be taken
into consideration.

example
D is obliged to give C 50 yards of
textile. C cannot compel D to deliver
first class wool textile. Neither D
deliver to C a textile that shrinks
substantially at first. If C happens to
be engaged in the sale of student,
then D may give C the kind of textile
fit for that purpose.

d. If the obligation is a monetary

obligation, the payment must be in
legal tender.

Legal tender is the money or

currency which the debtor may
compel his creditor t accept in
payment of his debt (whether public
or private)

Medium of Payment Payment of debts in money must

be made in the currency which is
legal tender in the Philippines.
However, the parties may stipulate
that the payment may be made in
the currency other than Philippine
legal tender at the time of payment.

2.
The
performance
complete.

payment
must

or
be

exceptions:
a. If the obligation has been
substantially performed in good faith,
the obligor may recover as though
there had been strict and complete
fulfillment, less damages suffered by
the obligee.

example:
S agreed to deliver 20 fire
extinguishers to B. After S has
delivered 18 fire extinguishers to B,
there are no more fire extinguishers
available. He wants to complete the
delivery but there is no more stock
available. S can recover the cost of
20 fire extinguishers less damages
suffered by B.

b. 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.

example
D agreed to repair the car of C and
to paint it red. D repaired the car but
painted it maroon. C accepted the
car without any objection. D's
obligation is fully complied with
notwithstanding the irregularity of
the performance.

Who must make the

payment?
Payment must be made by
the debtor.

Is payment made by third person

allowed?

The creditor is NOT bound

to
accept
payment
or
performance
by
a
third
person.

exceptions:
1. When there is stipulation to
that effect.

2. When the third person has

an interest in the fulfillment
of the obligation suach as a
guarantor or a co-debtor.

example...
D borrowed P20,000.00 from
C with G as guarantor. G as a
person who has an interest in
the
fulfillment
of
the
obligation, may compel C to
accept the payment from him.

Rights of a third person who makes the

payment

a.) Payment with knowledge

and consent of the debtor.
1. He can recover what he has paid.
2. He is entitles to be subrogated in the
rights of the creditor such as those
arising from mortgage, guaranty or
penalty.

example...
D owes C P10,000.00. The obligation
is secured by a mortgage of D's lot. T,
a third person, pays C the amount of
P10,000.00 with the consent of D. T
can recover the amount of P10,000.00
from D. If D cannot pay T, having
subrogated in the rights of C, can
foreclose the mortgage.

b.) Payment without the

knowledge or against the
will of the debtor.
He can recover only insofar as
the payment has been beneficial to
the debtor. He is not entitled to
subrogation.

example...
D borrowed P20,000.00 from C
with G as guarantor. D pays C
P2,000.00. T, a third person, pays C
P20,000.00 believing that D still
owed C P20,000.00. The payment is
without the consent of D.

answer...
T can only recover P18,000.00
from D, the amount that was
beneficial to D. If D cannot pay, T
cannot go after G because he is
not entitled to be subrogated in
the rights of C.

Payment by a third person who does

not want to be reimbursed.
a. The payment shall be deemed to be a
donation which requires the debtor's
consent.
b. If the debtor does not consent, the
payment shall nevertheless be valid to the
creditor who has accepted it. In such case,
the third person can only recover insofar as
the payment has been beneficial to the
debtor; he is also not entitled to
subrogation.

To whom shall payment be

made?
1. To the creditor
2. To the creditor's successor's in
interest, such as heirs or assigns
3. To any person authorized to
received payment

Payment to an incapacitated
creditor
The creditor must be
capacitated
to
receive
the
payment.
Payment
to
an
incapacitated creditor is not valid
except in the following cases:

a. If has kept the thing delivered.

example...
D borrowed P10,000.00 from C. On due
date, D paid the debt to C who had
become insane. If C kept only
P4,000.00 and threw away P6,000.00,
then payment will be valid only up to
P4,000.00

b. Insofar as the payment has been

beneficial to him.
example...
In the above example, if C used
P3,000.00 to buy his foods, and lost the
balance, payment will be valid only up
P3,000.00, the amount beneficial to
him.

Payment to an unauthorized third

person
As a general rule, payment to an
unautthorized third person is not
valid.

exceptions:
1. If payment has redound to the
benefit of the creditor, which
benefit need not be proved in the
following cases:
a. If after the payment, the third
person acquires the creditor's right
(such as when the third person
becomes the assignee of the
instrument evidencing the credit.

b. If the creditor ratifies the

payment to the third person.

c. If by the creditor's conduct, the debtor

has been led to believe that the third
person had the authority to receive
payment.
(Such as when a water service company
gives a collector's uniform to a third
person who is not its employee and the
debtor gives his paymnet to such third
person believing that he is the authorized
collector.)

2. If the payment is made in good

faith to a third person in
possession of the credit
In this case, the third person
should be both in possession of the
instrument and the credit.

example:
M makes a note payable to bearer
and delivers it to P. The note,
however, is lost by P and is picked up
by A. A goes to M to collect on the
note. M pays A believing in good faith
that A is the intended bearer. M is
released from liability.

Where payment must be

made?
1. If there is a stipulatio then the place
designated.

2. If there is no stipulation a. If the obligation is to give a

determinate thing, wherever the thing
might be at the time of the obligation
was constituted.
b. If the obligation is to give a generic
thing or an obligation to do, then at the
domicile of the debtor.

Special Forms of Payment

1. Application of payment;
2. Dation in Payment
3. Payment by Cession
4. Tender of payment
Consignation

and

Application of Payment
It is designation of the debt to
which the payment must be
applied when the debtor has
several obligations of the same
kind in favor of the same
creditor.

Requisites:
1. there must be only 1 debtor & only
1 creditor
2. there must be 2 or more debts of
the same kind
3. all of the debts must be due
4. amount paid by the debtor must not
be sufficient to cover the total
amount of all the debts

GENERAL RULE:
The right to designate thedebt

to which the payment shall be

applied primarily belongs to the
debtor

EXCEPTION:
If the debtor does not avail
ofsuch

right and he accepts from

the creditor a receipt in which
the application is made.

If the above rule is not

applicable
1. The debt most onerous to the debtor
shall be deemed satisfied.
2. If the debts due are of the same
nature and burden, payment shall be
applied to all proportionately.

Illustrations 1
D owes the following distinct
debts: P1,000.00 due on May 1;
P1,000.00 due on May 5; P1,000.00
due on May 10; P1,000.00 due on
May 15; and P1,000.00 due on May
20.

a. If today is May 16, and D has only

P1,000.00 but wants to pay C, D may
apply the payment to any of the
debts due on May 1, May 5, May 10 or
May 15. He cannot apply the payment
to the debt due on May 20 beause it
is not yet due unless he is allowed by
stipulation with C or the benefit of the
period was given to him.

b. If D does not apply the payment, the

right to apply it is shifted to C. C may
apply the payment to any of the
debts due on May 1, May 5, May 10 or
May 15. He cannot apply the payment
to the debt due on May 20 because it
is not yet due unless he is allowed by
stipulation with D or the benefit of the
period was given to him.

c. If neither D nor C applies the

payment, payment shall be applied
proportionately to the debts due on
May 1, May 5, May 10 or May 15 at
P250.00 each. In case the debts due
on May 5 is secured by a pledge,
then payment shall be applied to
such debts because it is more
onerous to D.

Illustration 2
D owes C P7,000.00 due on May 1;
5 sacks of rice worth P5,000.00 on
May 5; and P5,000.00 due on May 8.
If none of the debts have been paid
as of May 8 and D has P5,000.00, D
cannot apply the payment to the
debt consisting of 5 sacks of rice
becuase it is not payable in money, it
is of different kind.

D may not apply the payment due

of the debt due on May 1 because
the payment would not be complete
unless C consents. D may, however,
apply the payment to the debt due
on May 8.

Dation in Payment (DACION EN

PAGO)
It is the transmission of ownership
of a thing by the debtor to the
creditor as an accepted equivalent of
the performance of the obligation.

Requisites:
1. existence of a money obligation
2. alienation to the creditor of a
property by the debtor with the
consent of the former
3. satisfaction of the money
obligation of the debtor

Payment by Cession
The debtor abandons all of his
property for the benefit of his
creditors in order that from the
proceeds thereof, the latter may
obtain payment of their credits.

Requisites:
1. plurality of debts
2. partial or relative insolvency of
the debtor
3. the debtor abandones all his
properties except those which
are exempt from execution
4. acceptance of the cession by
the creditors

Illustration
D owes X, P50,000.00; Y, P20,000.00;
and Z, P30,000.00. All the obligations
are due but D has assets worth
P80,000.00 only. D offers to assign
his assets to X, Y and Z so that they
may sell them and apply the
proceeds to their respective claims.
X, Y and Z accepted the offer.

If the assets are sold for

P70,000.00, then D will be
released from his obligations
only up to that amount, unless
the creditors agreed to release
him completely of his debts.

CESSION Distinguished from DACION

EN PAGO
DACION EN PAGO
CESSION
1. does not affect 1.
in
general,
ALL
the
affects ALL the
properties
properties of the
debtor
2.does not require 2. requires more
plurality
of
than
one
creditors
creditor

3. only the specific 3. requires the

or
concerned
consent of all
creditors consent
the creditors
is required
4. may take place
4. requires full or
during
the
partial
solvency of the
insolvency
debtor

5.
transfers 5.
does
ownership upon
transfer
delivery
ownership

not

6. this is really an 6. not an act of

act of novation
novation

7.
the
creditor 7. The creditors are
becomes
the
authorized to sell
owner
of
the
only the debtor's
properties given
properties.
as payment
8. The debtor is not
8. the debtor is
released as a rule
released as a rule

Tender of Payment and

Consignation
Tender of Payment The act of offering the creditor
what is due him together with a
demand that the creditor accept
the same.

Consignation The act of depositing the thing

due with the court or judicial
authorities whenever the creditor
cannot accept or refuses to
accept payment. It generally
requires a prior tender of
payment.

Illustration
1. D borrowed P50,000.00 C. On due date,
D tendered payment in P20.00 bills
totalling P50,000.00 to C. C refused to
accept the payment demanding that he
may be paid in higher denominatios.
Since the payment tendered by D was
legal tender, C was not justified in
refusing to accept it.
D may thus consign the payment in court.

2. A owes B a sum of money. A

gives B the money but B refuses
without just reason to accept it.
What should A now do?

answer...
A must deposit the money in
court, since his tender of
payment was refused without
just reason. His deposit in court
is called consignation.

Special Requisites:
(a) existence of a valid debt
(b) valid prior tender, unless tender is
excused
(c) prior notice of consignation
(before deposit)
(d) actual consignation (deposit)
(e) subsequent notice of consignation

(a) existence of a valid debt

(b) valid prior tender, unless tender is

excused

Thus, the payment being

tendered must be the thing
contemplated, in legal tender,
complete, amont other requisites
for a valid payment.

(c) prior notice of consignation (before

deposit)

The law says the consignation

must first be announced to the
persons interested in the fulfi
llment of the obligation.

Without such notice, the

consignation as a payment is
VOID.
The reason is because, had
notice been made, the creditor
would have had opportunity to
withdraw the money consigned
and thus make use of it.

Purpose of the notice:

To enable the creditor and other
parties interested (such as the
mortgagees, pledgees, guarantors,
solidary co-creditors, and solidary
co-debtors) to reconsider the
previous refusal, and thus, avoid
litigation by the simple expedient
of accepting payment.

(d) actual consignation

(deposit)
It is understood that before a
deposit is made, a complaint
against the creditor to compel
him to accept has to be first filed
in court.

The consignation must be made

1. by depositing the very object that is due
(and not
another);
2) with the proper judicial authority which, in
certain
case, may include the sheriff
3) accompanied by proof that tender had been
duly made, unless tender is excused; and
that first notice of the consignation had
already been sent

(e) subsequent notice of

consignation
This is required by the law
which says: The consignation
having
been
made,
the
interested
parties
shall
be
notified thereof.

This
is
mandatory
therefore,
without
subsequent
notice,
consignation is VOID.

and,
such
the

Effects if Consignation Has Been Duly

Made

If

the consignation is DULY

(properly) made:
(a) The debtor may ask the judge
to order the cancellation of the
obligation.
(b) The running of interest is
suspended.

Nota Bene:
It should be observed that
before the creditor ACCEPTS, or
before the judge declares that
consignation has been PROPERLY
MADE, the obligation REMAINS.

Risk of Loss
If the consignation is judicially
approved OR if all the essential
requisites are present OR if the
creditor
has
signified
his
acceptance, the creditor bears
the loss; otherwise, it is the
debtor who bears the burden.

When Debtor May Withdraw the Thing

or Sum Consigned
As a matter of right:
1.) before the creditor has accepted
the consignation
2.) or before there is a judicial
declaration that the consignation has
been properly made.

As a matter of privilege:
When after consignation had
been properly made (the creditor
having accepted or the court
having declared it proper), the
creditor authorizes the debtor to
withdraw the thing.

When Consignation Is Suffi cient Even

Without a Prior
Tender

1. When the creditor is ABSENT or

UNKNOWN or DOES NOT
APPEAR
at
the
place
of
payment. (The creditor need not
be judicially declared absent.)

2.
When
the
creditor
is
INCAPACITATED
to
receive
payment at the time it is due.
(The rule does not apply if the
creditor
has
a
legal
representative and this fact is
known to the debtor.)

3. When, without just cause, the

creditor REFUSES to give a
receipt.

4. When two or more persons

claim the same right to collect.
(An action in INTERPLEADER
would be proper here.)

5.
When
the
title
(written
document) of the obligation has
been LOST.

6. When the debtor had previously

been notified by the creditor that
the latter would not accept any
payment.

LOSS OF THE THING DUE

What Loss Includes
Loss includes impossibility of
performance.

When Is There a Loss (a) when the object perishes

(physically, it is destroyed)
(b) when it goes out of commerce
(c) when it disappears in such a
way that
1) its existence is unknown
2) or it cannot be recovered.

Two Kinds of Obligations To

Give
An obligation to give may consist of an
obligation:
(a) to give a generic thing;
(b) or to give a specifi c thing.
NOTE: The fi rst is NOT extinguished by
loss or by a fortuitous event because
genus never perishes.

Effect of Loss on an Obligation to

Deliver a Specific Thing General rule
the obligation is extinguished.

Exceptions 1. when by law, obligor is liable

even for fortuitous event;
2. when by stipulation, obligor is
liable even for fortuitous event;
3. when the nature of the
obligation requires the
assumption of risk;

4. when the loss of the thing is

due partly to the fault of the
debtor;
5. when the loss of the thing
occurs after the debtor incurred
in delay;

6. when the debtor promised to deliver

the same thing to two or more
persons who do not have the same
interest; and
7. when the debt of a certain and
determinate thing proceeds from a
criminal offense.

Effect of Loss on Obligation to Deliver

a Generic Thing

The obligation continues to

exist because a generic thing
does not really perish (genus
nunquam perit genus never
perishes).

Exception If the generic thing is delimited

(like 50 kilos of sugar from my 1999
harvest when such harvest is
completely destroyed) (delimited
generic thing).

Effect of Partial Loss

The courts shall determine
whether
under
the
circumstances, the partial loss of
the object of the obligation is so
important as to extinguish the
obligation.

Loss in Personal Obligations

Refers to a case when compliance
of a personal obligation becomes,
without the debtors fault
(a) a legal impossibility;
(b) or a physical impossibility.

Examples of Impossibility (a) Legal impossibility

1. The furnishing of work on
Sundays
when the same is
prohibited by law
2. refusal of the government
to issue
a building permit

(b) Physical impossibility

- To install a motor in a ship
that was
lost after the perfection
of the contract but prior to such
installation.

Nota Bene:
a.) When the prestation beomes legally or
physically impossible without the fault of
the debtor, the obligation is extinguished.
b.) When the service has become so
difficult as to be manifestly beyond the
contemplation of the parties, the obligor
may also be released in whole or in part.

CONDONATION OR REMISSION OF THE

DEBT

It is the gratuitous abandonment

by the creditor of his right.
This refers to the forgiveness of
an indebtedness. To extinguish
the obligation, it requires the
debtor's consent.

Example Gloria owes Edgardo P5.00. When

the debt matured Edgardo told Gloria
that she need not pay the debt since
he was condoning it. Gloria, in turn,
expressed her gratitude. Here, the
debt has been extinguished by
remission.

Classes of Remission
(a) As regards its effect or extent:
1) total
2) partial (only a portion is
remitted or
the remission may
refer only to the accessory
obligations)

(b) As regards
effectivity:

its

date

1) inter vivos (during life)

2) mortis causa (after death)

of

(c) As regards its form:

1) implied or tacit Such as when the creditor voluntarily
delivers
the
private
document
evidencing the credit to the debtor.
2) express or formal (this requires the
formalities of a donation if inter vivos;
of a
will or codicil if mortis causa)

Effect of Delivery of Private

Document Evidencing the
Credit

With the delivery of the

private instrument, a remission
or renunciation is presumed.

Example Steffi made a promissory note in

favor of Agassi in the amount of
P100 million. After some time,
Agassi voluntarily delivered the
promissory note to Steffi without
collecting the P100 million. Steffi
is now in possession of said note.

There
is
a
disputable
presumption that there has been
a remission. The presumption is
merely
disputable
and
not
conclusive because it may be
that
the
instrument
was
delivered only for examination by
Steffi or for collection.

Nota Bene:
Renunciation
of
Principal
Extinguishes Accessory, But Not
Vice-Versa.
This follows the rule of
accessory follows the principal.

Example A remission of the penalty does

not remit the principal obligation, but
if the principal debt is condoned, the
penalty is also condoned.

Nota Bene:
It is presumed that the
accessory obligation of pledge
has been remitted when the
thing pledged, after its delivery
to the creditor, is found in the
possession of the debtor, or of a
third person who owns the thing.

Remission of Pledge 1. Note here that only the

accessory obligation of pledge is
presumed remitted. The principal
obligation (the loan) remains in force.

2. The presumption is only

disputable, for the debtor or the
third
person
may
be
in
possession of the property by
theft or because it had been sent
for repairs, or for similar causes.

CONFUSION OR MERGER OF
RIGHTS
It is the meeting in one person
of the qualities of creditor and
debtor with respect to the same
obligation.

Example 1. M makes a promisory note

payable to P or order. P indorses the
note to A; A to B; B to C and back to
M.
The
obligation
here
is
extinguished because M is now the
creditor of himself.

2. A makes a check payable to

bearer, and hands the check to
C, who hands it to D who finally
hands it to A. Here A owes
himself. This is a clear case of
merger, and hence the obligation
of A is extinguished.

Effect if Mortgagee Becomes the Owner of the

Mortgaged
Property

If the mortgagee becomes the

owner of the property that had
been mortgaged to him, the
mortgage
is
naturally
extinguished, but the principal
obligation may remain.

Example:
I borrowed P1,000,000 from my
brother, and as security, I mortgaged
my land in his favor. Later I sold the
land to him. The mortgage is
extinguished but I still owe him
P1,000,000.

Effect of Merger on
Guarantors
A. Merger which takes place in
the principal debtor or creditor
benefits the guarantors.

Examples:
1. A owes B P700,000, guaranteed
by C. B assigns his credit to X. X
assigns the credit to Y. Y assigns the
credit to A. As obligation is
extinguished and C is released from
his obligation as guarantor.

2. M owes P P10,000.00. The debt

which is evidence by a promisory
note, is guaranteed by G. P assigns
the note to A; A to B; B to C and C
back to M. M's debt is extinguished.
G's guaranty is likewise extinguished
since the principal obligation it
secures has been extinguished.

B. Merger which takes place in the

person of the guarantor does not
extinguish the obligation. Here,
only
the
guaranty
is
extinguished.

Example:
If in the immediately preceding
example, C assigns the note to G
instead of M, G's guaranty is
extinguished because the qualities of
debtor and creditor are merged in his
person. However, M's obligation is not
extinguished. G, as the new creditor,
may still go after him.

Merger in Joint Obligations

Confusion does not extinguish
a joint obligation except as
regards the share corresponding
to the creditor or debtor in whom
the two characters concur.

example...
A and B jointly owe C P1,000,000.
If C assigns the entire credit to A,
As share is extinguished, but Bs
share remains. In other words, B
would still owe A the sum of
P500,000. In a joint obligation, the
debts are distinct and separate
from each other.

Merger in a Solidary
Obligation
Merger in one of the solidary debtors
or solidary creditors extinguishes the
whole obligation. The solidary debtor
in whom the characters of debtor and
creditor
concur
can
demand
reimbursement from his co-debtors. In
case of the solidary creditor, he shall
be liable to his co-creditors for the
share corresponding to each of them.

example...
A, B and C are solidary debtors of X for
P9,000.00.
The
promisory
note
evidencing the debt is assigned by X to
Y, Y to Z and Z to A. The whole obligation
is extinguished by confusion with all the
debtors now being the creditors. A may
demand reimbursement from B and C at
P3,000.00 each.

COMPENSATION
It is a mode of extinguishing
an obligation when when two
persons, in their own right, are
creditors and debtors of each
other.

example
D owes C P5,000.00. C owes D
P5,000.00. The parties do not
need to pay each other as their
obligattions are extinguished by
compensation.

Kinds or Classes of
Compensation
(a) According to its effect or extent:
(1) Total if both obligations are
completely extinguished because they
are
of the same or equal amounts.
(2) Partial when a balance remains
(hence, there is a partial compensation
in the larger of the two debts).

(b) According to its origin or cause:

1) Legal this takes place by
operation of
law, and need not be
pleaded.
2) Voluntary or conventional
this is due to the agreement of the
parties.

Example of voluntary
compensation
D owes C P5,000.00 due on
September 20, 2016, while owes
D P5,000.00 due on September
30, 2016. On September 1,
2016, for instance, D and C may
agree that their debts be
compensated.

3) Judicial (also termed set-off) this

must be
pleaded; it can be made
effective only by an
order from the
court.

Example of judicial
Compensation
T, a travel agent, sued P for collection of
P10,000.00 representing the balance of P
for a guided tour in Bangkok which T
arranged. In his answer, P claimed that T
owed him damages amounting to
P10,000.00 which he (P) and his family
sustained as a result of the substandard
hotel accomodation that T booked for
them. P was able to prove his right to said
damages and the amount thereof. Any
compensation declared by the court in
this case is one of judicial compensation.

4) Facultative here, one of the

parties
has the choice of
claiming the
compensation or of
opposing it (perhaps
because not
all the requisites of legal
compensation are present).

Example of Facultative
Compensation
A owes B P1 million demandable and
due on Jan. 12, 2004. B owes A P1
million demandable and due on or
before Jan. 31, 2004. On Jan. 12, 2004 B,
who was given the benefi t of the term,
may claim compensation because he
could then choose to pay his debt on
said date, which is on or before Jan. 31,
2004. If, upon the other hand A claims
compensation, B can properly oppose it
because B could not be made to pay
until Jan. 31, 2004.

Requisitesof Compensation
1. there must be two (2) parties, who,
in their own right, are principal
creditors & principal debtors of each
other

2. both debts must consist in money,

or if the things due are fungibles,
they must be of the same kind &
quality

example...
D is obliged to give C a sign pen and
C is obliged to give D a sign pen.

problem...
D is obliged to give C a specific
Pilot ballpen and C is obliged to give
D a specific Panda ballpen. Can there
be a legal compensation?

3. both debts must be due

4. both debts must be liquidated &

demandable

Liquidated means the amount of the debts

has already been determined or is
easily determined.
Demandable means both debts must be
enforceable.

5. there must be no retention or

controversy commenced by 3rd
persons over either of the debts &
communicated in due time to the
debtor compensation must not be
prohibited by law

example...
D owes C P10,000.00. C owes D
P10,000.00. C also owes X P10,000.00.
X sues C and asks the court to order D
not to pay C so that in the event the
court renders judgment in favor of X, D
will have to pay X. The court issues the
order to D. There can be no legal
compensation between D and C
because there is an order of retention
to D with respect to his debt to C.

Compensation in Solidary
Obligation
A is indebted to X, Y, and Z, solidary
creditors, for P30,000.00 due on
February 1, 2016. X in turn owes A
P30,000.00 due on February 1, 2016.
Both obligations being due, they are
extinguished
by
compensation.
However, X has to give Y and Z their
respective shares at P10,000.00 each
because compensation made by any of
the solidary creditors shall render him
liable to the others for the share in the
obligation corresponding to them.

Novation
By novation is substitution or
change of an obligation by another,
resulting in its extinguishment or
modification, either by changing its
object or principal conditions, or by
substituting another in place of the
debtor, or by subrogating a third
person in the rights of the creditor.

examples
D owes C P10,000.00.
(1) If the parties later agree that D
should give instead a ring to C, there
is novation by changing the object or
prestation.

(2) If the parties agree the T shall

take place of D as the new debtor,
there is novation by substituting the
person of the debtor.

(3) If the parties later agree that X

shall take the place of C as the new
creditor, there is novation by
subrogating a third person in the
rights of the creditor.

Requisites
1. a previous valid obligation
2. agreement of the parties to the new
obligation
3. extinguishment of the old obligation
4. validity of the new obligation

Kinds of Novation
(a) As to its essence
1. Objective/Real refers to the
change either in the cause, object or
principal conditions of the obligations

2. Subjective/Personal refers to
the substitution of the person of the
debtor or to the subrogation of a 3rd
person in the rights of the creditor

1. Substituting the person of the

debtor
(always
with
creditor's
consent)
a. Expromission - Here, a third
person initiates the substitution even
without the knowledge or against the
will of the debtor.

Effect if new debtor is insolvent or does

not fulfill obligation The new debtor's insolvency or nonfulfillment of the obligation shall not
give rise to any laibility on the part of
the original debtor. This is true whether
the substitution was without the
knowledge of the debtor or against his
will or it was consented by him.

b. Delegacion - here, it is the

debtor who initiates the substitution,
which requires the consent of all the
parties (original debtor, creditor, new
debtor)

Rights of the new debtor if he makes

payment He can recover what he has paid
and is entitled to subrogation.

Effect if new debtor is insolvent The creditor's right to proceed against

the original debtor is not revived,
except:
1. When the insolvency of the new
debtor was already existing and of
public knowledge when the original
debtor delegated his debt.

2. When the insolvency of the new

debtor was already existing and
known to the original debtor at the
time he delegated his debt.

(2) As to its form/constitution a. Express when it is declared in

unequivocal terms that the old
obligation is extinguished by a new
one w/c substitutes the same

example...
D and C entered into a ontract of
whereby D would construct a 3-storey
building for C on a certain lot. Later,
however, D and C entered into a
contract whereby they expressly
agreed that D would not be
constructin
anymore
a
3-storey
building on the lot but a bungalow.

b. Implied when the old & new

obligation are incompatible w/ each
other on every point

example...
In the same example,if D and C entered
into the second contract whereby D
agreeed to construct a bungalow on the
lot but without the parties expressly
stipulating that D would no longer
construct a 3-storey building, then the
parties are deemed to have impliedly
novated the first contract because
construction of the two structures on the
same lot would not be possible.

Subrogating a third person in

the rights of the creditor
GENERAL RULE:
Subrogation cannot bepresumed.

EXCEPTIONS:
1. Creditor pays another creditor who
is
preferred,
without
debtors
knowledge;

example...
D owes C P50,000.00. The debt is
seured by a real estate mortgage. D
also owes X P40,000.00 which is
unseured. If X pays D's to C, X is
subrogated in the rights of C. Hence,
if D cannot pay the debt of P50,000,
X can foreclose the mortgage.

2. A third person not interested in the

obligation pays with the express or
tacit approval of the debtor; or

3. Even without debtors knowledge, a

person interested in the fulfillment of
the obligation pays without prejudice
to the effects of confusion as to the
latters share.

example...
D owes C P10,000.00 with G as
guarantor. If G pays C, G is
subrogated in the rights of C.
However,
G's
guaranty
is
extinguished because the qualities of
debtor and creditor are merged in his
person.