Module 2 - Subtopic 1

Obligations and Contracts Reviewer1F-r-1-e-n-d-s
(1-E, 2010-2011)
MODULE 2: LEARNING ACTIVITY 1

(Subtopic 1)
Kinds of Obligations
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 nonfulfillment 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-E, 2010-2011)
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.
(1-E, 2010-2011)
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
(1-E, 2010-2011)
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.
(1-E, 2010-2011)
(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-E, 2010-2011)
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.
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.
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.
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;
(1-E, 2010-2011)
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);
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;
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;
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;
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.
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. D’s 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
(1-E, 2010-2011)
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.
(1-E, 2010-2011)
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
Obligations and Contracts Reviewer10F-r-1-e-n-
d-s (1-E, 2010-2011)
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 D’s 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
d-s (1-E, 2010-2011)
1. Several prestaions are due, but the performance of one is sufficient to extinguish the debt.
FACULTATIVE
1. Only one prestation, the principal obligation, is due.
2. If there are void prestations, the others may still be valid, hence, the
obligation remains. 2. If the principal
obligation is void, the debtor is not required to give the
substitute
3. The right of choice is with the debtor,

unless
expressly given to the
creditor 3. The right of choice belongs to the debtor only
4. If all prestations are impossible

except one, that which is possible must still be given 4. If the principal obligation is
impossible, the debtor is not required to give the
substitute
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:
d-s (1-E, 2010-2011)
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. Joint and Severally
2. Individually and Collectively
3. In Solidum
4. Mancomunada Solidaria
5. Juntos o separadamente
other term for joint obligation
1. proportionately
2. pro rata
3. mancomunada
4. 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) A owes X P3,000.00
(1) A owes Y P3,000.00
(1) A owes Z P3,000.00
(1) B owes X P3,000.00
(1) B owes Y P3,000.00
(1) B owes Z P3,000.00
(1) C owes X P3,000.00
(1) C owes Y P3,000.00
(1) C owes 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.
d-s (1-E, 2010-2011)
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
d-s (1-E, 2010-2011)
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.
d-s (1-E, 2010-2011)
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.
d-s (1-E, 2010-2011)
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 obligationexample:
A and B are jointly obliged to C ro construct a pavement 2 meters wide and 10 meters long.
2. Joint indivisible obligationexample:
A and B are jointly obliged to give a specific horse to C.
3. Solidary divisible obligationexample:
A and B are solidary liable to pay C P10,000.00 in two equal installments.
4. Solidary indivisible obligationexample:
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.
d-s (1-E, 2010-2011)
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.
d-s (1-E, 2010-2011)
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
d-s (1-E, 2010-2011)
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 debtor’s 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
d-s (1-E, 2010-2011)
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.
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.
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.
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 payment or performance must be complete.
exceptions:
d-s (1-E, 2010-2011)
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.
d-s (1-E, 2010-2011)
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.
d-s (1-E, 2010-2011)
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 and
Consignation
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-s (1-E, 2010-2011)
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
1. does not affect
ALL the
properties
2.does not require plurality of
creditors CESSION
1. in general, affects ALL the properties of the debtor
2. requires more than one
creditor
3. only the specific or concerned creditor’s consent is required

4. may take place during the solvency of the debtor 3. requires the consent of
all the creditors
4. requires full or partial insolvency
5. transfers ownership upon delivery

6. this is really an act of novation 5. does not transfer ownership
6. not an act of novation
d-s (1-E, 2010-2011)
7. the creditor becomes the owner of the properties given as payment

8. the debtor is released as a rule 7. The creditors are authorized to sell only the
debtor's properties.
8. The debtor is not 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)
d-s (1-E, 2010-2011)
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 and, therefore, without such subsequent notice, the consignation is VOID.
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.
d-s (1-E, 2010-2011)
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 debtor’s fault — (a) a legal impossibility;
(b) or a physical impossibility.
Examples of Impossibility -
(a) Legal impossibility
d-s (1-E, 2010-2011)
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 its date of effectivity:
1) inter vivos (during life)
2) mortis causa (after death)
(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:
d-s (1-E, 2010-2011)
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. A’s 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:
d-s (1-E, 2010-2011)
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, A’s share is extinguished, but B’s
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
d-s (1-E, 2010-2011)
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.
d-s (1-E, 2010-2011)
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-s (1-E, 2010-2011)
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 debtor’s 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 debtor’s knowledge, a person interested in the fulfillment of the obligation pays
without prejudice to the effects of confusion as to the latter’s 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.

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Obligations and Contracts Reviewer1F-r-1-e-n-d-s

MODULE 2: LEARNING ACTIVITY 1

it is understood that the

D borrowed P10,000.00 from C on

1. A contract to construct a house where the period was not stated.

2. One of the following is a void obligation:

When obligation ceases to be alternative and becomes a simple obligation

3. The right of choice is with the debtor,

4. If all prestations are impossible

2. When the debtor refuses to pay the penalty

4. Confusion or merger of rights of creditor and debtor

3. only the specific or concerned creditor’s consent is required

5. transfers ownership upon delivery

7. the creditor becomes the owner of the properties given as payment

1. The furnishing of work on

Renunciation of Principal Extinguishes Accessory, But Not Vice-Versa.

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