OBLIGATION AND CONTRACTS

XOBLICONLAW(MIDTERM) | 3rd Year 1st SEMESTER

45JOINT AND SOLIDARY OBLIGATIONS (ARTS. 1207 – parties of the
1222) obligation
JOINT OBLIGATION (who is liable)
Number of Does not require Requires plurality
● presumption when two or more creditors or two or
subjects / plurality of of parties
more debtors concur in one and the same obligation
parties parties
Exceptions to the Presumption
Effect of breach Obligation is The liability, even
● when expressly stated that there is solidarity
of obligation converted if converted
● when the law requires solidarity
into into
● when the nature of the obligation requires solidarity
monetary indemnity for
● when a charge or condition is imposed upon heirs or
obligation for damages,
legatees and the testament expressly makes the
indemnity for remains
charge or condition in solidum (Manresa)
damages – solidary.
● when a solidary responsibility is imputed by a final
each debtor
judgment upon several defendants (Gutierrez v.
is liable only
Gutierrez)
for his part in
Effects of Joint Liability
the
● Demand on one produces delay only with respect to
indemnity.
the debt
● Interruption in payment by one does not benefit or SOLIDARY OBLIGATION
prejudice the other ● must be expressed in stipulation or provided by law or
● Vices of one debtor to creditor has no effect on the by nature of obligation
others Active – on the part of creditor or obligee
● Insolvency of one debtor does not affect other ● EFFECTS
debtors o Death of 1 solidary creditor transmits share to
Joint Divisible Obligations heirs (but collectively)
● Each creditor can demand for the payment of his o Each creditor represents the other in the act of
proportionate share of the credit, while each debtor recovery of payment
can be held liable only for the payment of his o Credit is divided equally between creditors as
proportionate share of the debt among themselves
● A joint creditor cannot act in representation of the o Debtor may pay any of the solidary creditors
other creditors while a joint debtor cannot be Passive – on the part of debtors or obligors
compelled to answer for the acts or liability of the ● EFFECTS
other debtors o Each debtor may be requested to pay whole
Joint Indivisible Obligations obligation with right to recover from co-debtors
● If there are 2 or more debtors, the fulfillment of or o Interruption of prescription to one creditor affects
compliance with the obligation requires the all
concurrence of all the debtors, although each for his o Interest from delay on 1 debtor is borne by all
own share. The obligation can be enforced only by Mixed – on the part of the obligors and obligees, or the
proceeding against all of the debtors part of the debtors and the creditors
● If there are 2 or more creditors, the concurrence or Conventional – agreed upon by the parties
collective act of all the creditors, although each for Legal – imposed by law
his own share, is also necessary for the enforcement ● Instances where law imposes solidary obligation:
of the obligation o Obligations arising from tort
Effects of Breach o Obligations arising from quasi-contracts
● If one of the joint debtors fails to comply with his o Legal provisions regarding obligation of devisees
undertaking, the obligation can no longer be fulfilled and legatees
or performed. Consequently, it is converted into one o Liability of principals, accomplices, and
of indemnity for damages. Innocent joint debtor shall accessories of a felony
not contribute to the indemnity beyond their o Bailees in commodatum
corresponding share of the obligation ● EFFECTS
Basis Indivisibility Solidarity o Payment made before debt is due, no interest
Nature Refers to the Refers to the tie can be charged, otherwise – interest can be
prestation of existing charged
the contract between

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OBLIGATION AND CONTRACTS
XOBLICONLAW(MIDTERM) | 3rd Year 1st SEMESTER
o Insolvency of one – others are liable for share
pro-rata
o If different terms and conditions – collect only
what is due, later on collect from any
o No reimbursement if payment is made after
prescription or became illegal
o Remission made after payment is made –
co-debtor still entitled to reimbursement
o Effect of insolvency or death of co-debtor – still
liable for whole amount
o Fault of any debtor – everyone is responsible –
price, damage and interest
o Complete/ personal defense – total or partial (up
to amount of share only) if not personal to him
Effect of Loss or Impossibility of the Prestation
● If without fault – no liability
● If with fault – there is liability (also for damage and
interest)
● Loss due to fortuitous event after default – there is
liability (because of default)
DIVISIBLE AND INDIVISIBLE OBLIGATIONS (ARTS. 1223 –
1225)
DIVISIBLE OBLIGATION
● obligation that is capable of partial performance
● Execution of certain no of days work
● Expressed by metrical units
● Nature of obligation – susceptible of partial fulfillment
INDIVISIBLE OBLIGATION
● one not capable of partial performance
● To give definite things
● Not susceptible of partial performance
● Provided by law
● Intention of parties
OBLIGATIONS WITH A PENAL CLAUSE (ARTS. 1226 –
1230)
WITH PENAL CLAUSE
● One to which an accessory undertaking is attached
for the purpose of insuring its performance by virtue
of which the obligor is bound to pay a stipulated
indemnity or perform a stipulated prestation in case
of breach
Characteristics
● Subsidiary
o as a general rule, only penalty can be
demanded, principal cannot be demanded,
except: Penalty is joint or cumulative
● Exclusive
o takes place of damage, damage can only be
demanded in the ff. cases:
▪ Stipulation – granting right
▪ Refusal to pay penalty
▪ With dolo (not of creditor)
Causes for Reduction of Penalty
● Partial/irregular performance
● Penalty provided is iniquitous/ unconscionable
EXTINGUISHMENT OF OBLIGATIONS (ARTS. 1231 –
1304)
MODES OF EXTINGUISHMENT OF OBLIGATION
● Payment or performance
● Loss of the thing due
● Condonation or remission of debt
● Confusion or merger of rights
● Compensation
● Novation
● Annulment
● Rescission
● Fulfillment of resolutory condition
PAYMENT OR PERFORMANCE
● delivery of money and performance, in any other
manner of the obligation
Requisites for Valid Payment or Performance
● With respect to prestation itself
o Identity
o Integrity or completeness
o Indivisibility
● With respect to parties - must be made by proper
party to proper party
o Payor
▪ Payor - the one performing, he can be the
debtor himself or his heirs or assigns or his
agent, or anyone interested in the fulfillment
of the obligation; can be anyone as long as
it is with the creditor's consent
▪ 3RD person pays/performs - only the
creditor's consent; If performance is done
also with debtor's consent - he takes the
place of the debtor. There is subrogation
except if the 3rd person intended it to be a
donation
▪ 3rd person pays/performs with consent of
creditor but not with debtor's consent, the
repayment is only to the extent that the
payment has been beneficial to debtor
o Payee
▪ Payee - creditor or obligee or successor in
interest of transferee, or agent
▪ 3rd person - if any of the ff. concur:
🢭 It must have redounded to
the obligee's benefit and
only to the extent of such
benefit
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OBLIGATION AND CONTRACTS
XOBLICONLAW(MIDTERM) | 3rd Year 1st SEMESTER
🢭 It falls under art 1241, par
1,2,3 - the benefit is total so,
performance is total
▪ Anyone in possession of the credit - but will
apply only if debt has not been previously
garnished
PAYMENT MADE TO AN INCAPACITATED PERSON, VALID IF
● Incapacitated person kept the thing delivered
● Insofar as the payment has been beneficial to him
PAYMENT TO 3RD PARTY NOT AUTHORIZED, VALID IF
PROVED AND ONLY TO THE EXTENT OF BENEFIT; PRESUMED
IF
● After payment, 3rd person acquires the creditor’s
rights
● Creditor ratifies payment to 3rd person
● By creditor’s conduct, debtor has been led to make
the payment (estoppel)
PAYMENT MADE IN GOOD FAITH TO A PERSON IN
POSSESSION OF CREDIT SHALL RELEASE DEBTOR;
REQUISITES:
● Payment by debtor must be made in good faith
● Creditor must be in possession of the credit and not
merely the evidence of indebtedness
o NOTE: With respect to time and place of
payment - must be according to the obligation
WHERE PAYMENT SHOULD BE MADE
● In the place designated in the obligation
● If there is no express stipulation and the undertaking is
to deliver a specific thing – at the place where the
thing might be at the moment the obligation was
constituted
● In other case – in the place of the domicile of the
debtor
o Time of payment - time stipulated
o Effect of payment – extinguish obligation
▪ Except: order to retain debt
Substantial Performance
● Art. 1233. A debt shall not be understood to have
been paid unless the thing or service in which the
obligation consists has been completely delivered or
rendered, as the case may be. (1157)
● Art. 1234. If the obligation has been substantially
performed in good faith, the obligor may recover as
though there had been a strict and complete
fulfillment, less damages suffered by the obligee. (n)
● Art. 1235. When the obligee accepts the
performance, knowing its incompleteness or
irregularity, and without expressing any protest or
objection, the obligation is deemed fully complied
with. (n)
o Attempt in Good Faith to perform without willful
or intentional departure
o Deviation is slight
o Omission/Defect is technical or unimportant
o Must not be so material that intention of parties is
not attained
Effect of Substantial Performance in Good Faith
● Obligor may recover as though there has been strict
and complete fulfillment, less damages suffered by
the oblige
● Right to rescind cannot be used for slight breach
Application of Payments
● the designation of the debt which payment shall be
made, out of 2 or more debts owing the same
creditor: stipulation or application of party given
benefit of period – OK; to be valid: must be debtor’s
choice or w/ consent of debtor
Requisites for the Application of Payment
● Various debts of the same kind
● Same debtor
● Same creditor
● All debts must be due
o EXCEPTION: there may be application of
payment even if all debts are not yet due if:
▪ Parties so stipulate
▪ When application of payment is made by
the party for whose benefit the term has
been constituted
▪ Payment is not enough to extinguish all debts
How Application is Made
● Debtor makes the designation
● If not, creditor makes it by so stating in the receipt
that he issues – unless there is cause for invalidating
the contract
● If neither the debtor nor creditor has made the
application or if the application is not valid, then
application, is made by operation of law
Who Makes Application of Debts
● GENERAL RULE: Debtor
● EXCEPTION: Creditor
o Debtor without protest accepts receipt in which
creditor specified expressly and unmistakably the
obligation to which such payment was to be
applied – debtor in this case renounced the right
of choice
o When monthly statements were made by the
bank specifying the application and the debtor
signed said statements approving the status of
her account as thus sent to her monthly by the
bank
o In case no application is made:
▪ Apply payment to the most onerous
▪ If debts are of the same nature and burden,
application shall be made to all
proportionately
DACION EN PAGO
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OBLIGATION AND CONTRACTS
XOBLICONLAW(MIDTERM) | 3rd Year 1st SEMESTER
● mode of extinguishing an obligation whereby the CONSIGNATION
debtor alienates in favor of the creditor property for ● TENDER - the act of offering the creditor what is due
the satisfaction of monetary debt him together with a demand that the creditor
● extinguish up to amount of property unless w/ accept the same (When creditor refuses w/o just
contrary stipulation cause to accept payment, he becomes in mora
● A special form of payment because 1 element of accepiendi and debtor is released from responsibility
payment is missing: IDENTITY if he consigns the thing or sum due)
Conditions for a Valid Dacion ● CONSIGNATION – the act of depositing the thing due
● If creditor consents, for a sale presupposes the with the court or judicial authorities whenever the
consent of both parties creditor cannot accept or refuses to accept
● If dacion will not prejudice the other creditors payment; generally requires prior tender of payment
● If debtor is not judicially declared insolvent Requisites of Valid Consignation
o NOTE: DACION is governed by the law on sales ● Existence of valid debt
CESSION OR ASSIGNMENT ● Consignation was made because of some legal
● the process by which debtor transfer all the cause - previous valid tender was unjustly refused or
properties not subject to execution in favor of circumstances making previous tender exempt
creditors is that the latter may sell them and thus, ● Prior Notice of Consignation had been given to the
apply the proceeds to their credits person interested in performance of obligation (1st
● extinguish up to amount of net proceeds (unless w/ notice)
contrary stipulation) ● Actual deposit/Consignation with proper judicial
Kinds of Assignment authorities
● Legal – governed by the insolvency law ● Subsequent notice of Consignation (2nd notice)
● Voluntary – agreement of creditors Effects of Extinguishment
Requisites of Voluntary Assignment ● Debtor may ask judge to order cancellation of
● More than one debt obligation
● More than one creditor ● Running of interest is suspended
● Complete or partial insolvency of debtor ● Before creditor accepts or before judge declares
● Abandonment of all debtor’s property not exempt consignation has been properly made, obligation
from execution remains (debtor bears risk of loss at the meantime,
● Acceptance or consent on the part of the creditors after acceptance by creditor or after judge declares
Effects of Assignment that consignation has been properly made – risk of
● Creditors do not become the owner; they are merely loss is shifted to creditor)
assignees with authority to sell Consignation without Prior Tender
● Debtor is released up to the amount of the net ● Allowed in
proceeds of the sale, unless there is a stipulation to o Creditor absent or unknown/ does not appear at
the contrary the place of payment
● Creditors will collect credits in the order of preference o Incapacitated to receive payment at the time it
agreed upon, or in default of agreement, in the order is due
ordinarily established by law o Refuses to issue receipt w/o just cause
o 2 or more creditors claiming the same right to
Dacion Cession collect
One creditor Plurality of creditors o Title of obligation has been lost
Not necessarily in state of Debtor must be partially or LOSS OF THE THING DUE
financial difficulty relatively insolvent ● partial or total
Thing delivered is Universality of property of ● includes impossibility of performance
considered as equivalent debtor is what is ceded Loss
of performance ● When the object perishes (physically)
Payment extinguishes Merely releases debtor for ● When it goes out of commerce
obligation to the extent of net proceeds of things ● When it disappears in such a way that: its existence is
the value of the thing ceded of, assigned, unless unknown or it cannot be recovered
delivered as agreed upon, there is a contrary Impossibility of Performance
proved or implied from the intention ● Physical impossibility
conduct of the creditor ● Legal impossibility
o Directly – caused as when prohibited by law

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OBLIGATION AND CONTRACTS
XOBLICONLAW(MIDTERM) | 3rd Year 1st SEMESTER
o Indirectly – caused as when debtor is required to ● There must be a subject matter (object of the
enter a military draft remission, otherwise there would be nothing to
Obligation to Deliver a Specific Thing condone)
● GENERAL RULE: Extinguished ● Cause of consideration must be liberality (Essentially
● EXCEPTIONS: gratuitous, an act of liberality )
o Debtor is at fault ● Parties must be capacitated and must consent;
o Debtor is made liable for fortuitous event requires acceptance by obligor; implied in mortis
because of a provision of law, contractual causa and expressed inter vivos
stipulation or the nature of the obligation requires ● Formalities of a donation are required in the case of
assumption of risk on part of debtor an express remission
Obligation to Deliver a Generic Thing ● Revocable – subject to rule on inofficious donation (
● GENERAL RULE: Not extinguished excessive, legitime is impaired ) and ingratitude and
● EXCEPTIONS: condition not followed
o If the generic thing is delimited ● Obligation remitted must have been demandable at
o If the generic thing has already been segregated the time of remission
o Monetary obligation ● Waivers or remission are not to be presumed
Obligation To Do generally
● GENERAL RULE: Debtor is released when prestation
becomes legally or physically impossible without fault Form Extent Kind
on part of debtor Express Total Principal –
Effect of Partial Loss formalities of accessory
● When loss is significant – may be enough to extinguish donation also
obligation condoned
● When loss insignificant – not enough to extinguish Implied conduct Partial Accessory –
obligation is sufficient principal still
o NOTE: judicial determination of extent is outstanding
necessary Accessory
When Thing is Lost in the Possession of the Debtor obligation of
● Presumption: Loss due to debtor’s fault (disputable) pledge –
● Exception: natural calamity, earthquake, flood, storm condoned;
presumption
REBUS SIC STANTIBUS only,
● agreement is valid only if the same conditions rebuttable
prevailing at time of contracting continue to exist at Requisites of Implied Condonation
the time of performance ● Voluntary delivery – presumption; when evidence of
● obligor may be released in whole or in part based on indebtedness is w/ debtor – presumed voluntarily
this ground delivery by creditor; rebuttable
Requisites ● Effect of delivery of evidence of indebtedness is
● The event or change could not have been foreseen conclusion that debt is condoned – already
at the time of the execution of the contract conclusion; voluntary delivery of private document
● The performance is extremely difficult, but not o If in hands of joint debtor – only his share is
impossible (because if it is impossible, it is extinguished condoned
by impossibility) o If in hands of solidary debtor - whole debt is
● The event was not due to the act of any of the condoned
parties o Tacit – voluntary destruction of instrument by
● The contract is for a future prestation creditor; made to prescribe w/o demanding

CONDONATION / REMISSION OF THE DEBT CONFUSION / MERGER

● gratuitous abandonment of debt; right to claim; ● character of debtor and creditor is merged in same
donation; rules of donation applies; express or person with respect to same obligation
implied Requisites
Requisites ● It must take place between principal debtor and
● There must be an agreement principal creditor only
● Merger must be clear and definite

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OBLIGATION AND CONTRACTS
XOBLICONLAW(MIDTERM) | 3rd Year 1st SEMESTER
● The obligation involved must be same and identical –
one obligation only
● Revocable, if reason for confusion ceases, the
obligation is revived
COMPENSATION
● Set off; it is a mode of extinguishment to the
concurrent amount the obligation of persons who
are in their own right reciprocally debtors or creditors
Requisites
● Both parties must be mutually creditors and debtors -
in their own right and as principals
● Both debts must consist in sum of money or if
consumable, of the same kind or quality
● Both debts are due
● Both debts are liquidated and demandable
(determined)
● Neither debt must be retained in a controversy
commenced by 3rd person and communicated w/
debtor (neither debt is garnished)
Kinds
● Legal – by operation of law; as long as 5 requisites
concur- even if unknown to parties and if payable in
diff places; indemnity for expense of exchanges;
even if not equal debts – only up to concurring
amount
● Conventional – agreement of parties is enough,
forget other requirement as long as both consented
● Facultative – one party has choice of
claiming/opposing one who has benefit of period
may choose to compensate:
o Not all requisites are present
o Depositum; commodatum; criminal offense;
claim for future support; taxes
● Judicial – set off; upon order of the court; needs
pleading and proof; all requirements must concur
except liquidation
● Total – when 2 debts are of the same amount
● Partial – when 2 debts are not of the same amount
Effect of Assignment of Credit to 3rd Person
● Can there still be compensation?
o If made after compensation took place – no
effect; compensation already perfected
o If made before compensation took place –
depends
▪ With consent of debtor – debtor is estopped
unless he reserves his right and gave notice
to assignee
▪ With knowledge but w/o consent of debtor –
compensation may be set up as to debts
maturing prior to assignment
▪ W/o knowledge – compensation may be
set-up on all debts prior to his knowledge
NOVATION
● extinguishment of obligation by creating or
substituting a new one in its place
● Changing object or principal conditions
● Substituting person of debtor
● Subrogating 3rd person in right of creditor
Requisites
● Valid obligation
● Intent to extinguish old obligation – expressed or
implied: completely/substantially incompatible old
and new obligation on every point
● Capacity and consent of parties to the new
obligation
● Valid new obligation
Effects
● Extinguishment of principal carries accessory, except:
o Stipulation to contrary
o Stipulation pour autrui unless beneficiary consents
o Modificatory novation only; obliged to w/c is less
onerous
o Old obligation is void
● Old obligation subsists if new obligation is void or
voidable but annulled already (except: intention of
parties)
● If old obligation has condition
o If Resolutory and it occurred – old obligation
already extinguished; no new obligation since
nothing to novate
o If Suspensive and it never occurred – as if no
obligation; also nothing to novate
● If old obligation has condition, must be compatible
with the new obligation; if new is w/o condition –
deemed attached to new
● If new obligation has condition
o If resolutory: valid
o If suspensive and did not materialize: old
obligation is enforced
Kinds
● REAL/OBJECTIVE – change object,
cause/consideration or principal condition
● PERSONAL/SUBJECTIVE
o Substituting person of debtor (passive)
▪ EXPROMISION; initiative is from 3rd person or
new debtor; new debtor and creditor to
consent; old debtor released from obligation;
subject to full reimbursement and
subrogation if made w/ consent of old
debtor; if w/o consent or against will , only
beneficial reimbursement; if new debtor is
insolvent, not responsible since w/o his
consent
▪ DELEGACION; initiative of old debtor; all
parties to consent; full reimbursement; if
insolvent new debtor – not responsible old
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OBLIGATION AND CONTRACTS
XOBLICONLAW(MIDTERM) | 3rd Year 1st SEMESTER
debtor because obligation extinguished by takes effect upon as far as the debtor is
valid novation unless: insolvency already moment of novation concerned, takes
existing and of public knowledge or know to or subrogation effect upon
him at time of delegacion notification
🢭 Delegante – old debtor
🢭 Delegatario - creditor
🢭 Delegado – new debtor
o Subrogating 3rd person to rights of creditor
(active)
▪ Conventional - agreement and consent of
all parties; clearly established
▪ Legal - takes place by operation of law; no
need for consent; not presumed except as
provided for in law: PRESUMED WHEN
🢭 Creditor pays another
preferred creditor even w/o
debtor’s knowledge
🢭 3rd person not interested in
obligation pays w/ approval
of debtor
🢭 Person interested in
fulfillment of obligation pays
debt even w/o knowledge
of debtor

Difference from payment Change of debtor

by 3rd person
debtor is not necessarily debtor is released
released from debt
can be done w/o consent needs consent of creditor
of creditor – express or implied
one obligation two obligations; one is
extinguished and new
one created
3rd person has no new debtor is obliged
obligation to pay if to pay
insolvent

Conventional Subrogation Assignment of Rights

governed by Arts. governed by Arts. 1624 to
1300-1304 1627
debtor’s consent is debtor’s consent is not
required required
extinguishes the obligation transmission of right of the
and gives rise to a new creditor to third person
one without modifying or
extinguishing the
obligation
defects and vices in the defects and vices in the
old obligation are old obligation and not
cured cured

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