City College of Angeles

Institute of Business Management

A MODULAR APPROACH TO
THE LAW ON OBLIGATIONS
AND CONTRACTS

KARL ALEN G. YU, JD

 Foreword

This course covers the study of the provisions of Republic Act No. 386, otherwise
known as the Civil Code of the Philippines. In particular, it will deliberate on Book IV of
the Civil Code which concentrates on the Law on Obligations and Contracts. The law on
obligations is the most important part, most abstract, and most difficult of all of civil
law. It is the entirety of private law. It is essential to understand obligations and
contracts in order to understand other laws, most especially, commercial law. Thus,
sufficient focus and motivation is necessary to fully acquire the rewards of this course.

- The Author
August 2020
Angeles City, Philippines

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Table of Contents

Foreword ...................................................................................................................................................... 2
Module 3: The Different Kinds of Obligations ........................................................................................ 4
POST TEST................................................................................................................................................. 40
REFERENCES ............................................................................................................................................. 42
APPENDIX: COURSE MATERIAL EVALUATION ..................................................................................... 43

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Module 3: The Different Kinds of Obligations

LEARNING OBJECTIVES

After completing this chapter, one will be able to do the following:

 Determine and demonstrate pure and conditional obligations;

 Classify the kinds of conditions found in the civil code;
 Demonstrate the rules on obligations with a term or period;
 Illustrate alternative and facultative obligations;
 Distinguish the application of joint and solidary obligations;
 Differentiate divisible and indivisible obligations;
 Elucidate obligations with a penal clause.

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SALIENT POINTS FOR DISCUSSION
This module will cover pure and conditional obligations. It will focus more on the
different kinds of conditions that may be attached to obligations, describing their
different characteristics and legal effects.

 Pure and Conditional Obligations

Art. 1179. Every obligation whose performance does not depend upon a
future or uncertain event, or upon a past event unknown to the parties, is
demandable at once.

Every obligation which contains a resolutory condition shall also be

demandable, without prejudice to the effects of the happening of the
event.

Art. 1180. When the debtor binds himself to pay when his means permit
him to do so, the obligation shall be deemed to be one with a period,
subject to the provisions of Article 1197.

A pure obligation is one which has neither a condition nor a term attached to it. It is
one which is subject to no contingency. A pure obligation is demandable at once
(Article 1179).

Take note: Although the obligee or creditor can demand the performance of the
obligation immediately, the quality of immediate demandability is not infringed or
violated when a reasonable ―grace period‖ is granted for performance.

 Conditional Obligations

A condition may be defined as a future and uncertain fact or event upon which an
obligation is subordinated or made to depend.

A conditional obligation is defined as one whose effectivity is subordinated to the

fulfillment or nonfulfillment of a future and uncertain event or fact.

Take note that the event must not only be in the future but it must also be
uncertain. However, from the literal text of Art. 1179, it seems that a past but
uncertain event is also considered a condition. That is inaccurate since the event

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 itself can never constitute a condition because in order that it can be classified as
such, the requisites of futurity and uncertainty must be present.

For example, If Momo promises to pay Mina a certain sum of money if the latter can
prove that the Korean War started on June 25, 1950, it is clear that this constitutes
as an obligation with a term or period and not a conditional one, since the proof or
ascertainment of the fact or event will surely come to pass, although it may not be
known when. The requisites of futurity and certainty are present, thus, it is an
obligation with a term or period. But if the past event is unknown to the parties as
well as to the whole world, so that the proof or ascertainment thereof may or may
not happen, it is one with a condition. For example, Momo promises to treat Sana to
a fancy dinner if Sana can prove that kimbap/gimbap convincingly originated from
Japan. That is considered a condition since that is unknown to the parties and the
whole world and the proof of the said fact or event may or may not actually happen.
However, if the debtor binds himself to pay when his means permit him to do so,
the obligation is one with a term.

 Classification of Conditions

Art. 1181. In conditional obligations, the acquisition of rights, as well as

the extinguishment or loss of those already acquired, shall depend upon
the happening of the event which constitutes the condition.

 Suspensive and Resolutory Conditions

Suspensive – when the fulfillment of the condition results in the acquisition of

rights arising out of the obligation. Here, the acquisition of rights shall depend
upon the happening or fulfillment of the fact or event constituting the condition.

For example, Mina promises to give Sana a perfume if Sana can make 5 different
hearts during their next stage performance. The condition must be fulfilled first
before Mina must give Sana a perfume.

Resolutory – when the fulfillment of the condition results in the extinguishment

of rights arising out of the obligation. Here, the obligation is immediately
demandable after its establishment or constitution.

For example, in connection to the previous example, Sana will receive the
perfume immediately but Mina may take it back if Sana fails to comply with the
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 condition on their next stage performance. In that case, failure to comply with
the condition will result in the extinguishment of the obligation.

 Pacto de Retro Sale (Sale with a Right of Repurchase)

A Pacto de Retro Sale is a sales contract where the thing sold is subject to a
right of repurchase by the vendor. Here, the vendee a retro becomes the
owner of the property that is sold once it is delivered to him. However, this
right of ownership is subject to a resolutory condition since if the vendor a
retro exercises his right of repurchase/redemption within the allowable
period, the right of the vendee a retro over the property is extinguished.

For example, Momo sold to Sana a real property located in Kyoto, Japan with
a right of repurchase (pacto de retro sale) within 2 years in exchange for 2
million yen and the redemption price is 3 million yen. This means that the
property is now owned by Sana upon the delivery of the title but the sale is
subject to a right of repurchase which means that Momo may repurchase it
from Sana within the 2 year period. Such right of repurchase is considered a
resolutory condition since it will extinguish the right of ownership that Sana
acquired over the property if the right of repurchase/redemption is exercised.
If the redemption period expires, Sana now has absolute ownership of the
property as the conditional obligation is now extinguished.

Art. 1182. When the fulfillment of the condition depends upon the sole
will of the debtor, the conditional obligation shall be void. If it depends
upon chance or upon the will of a third person, the obligation shall take
effect in conformity with the provisions of this Code.

 Potestative, Casual, and Mixed Conditions

Potestative – when the fulfillment of the condition depends upon the will of a
party to the obligation.

On one hand, if the condition depends upon the will of the creditor/obligee, the
obligation is valid since there is a vinculum juris wherein the creditor can compel
the debtor/obligor to perform the obligation. For example, Momo will give Mina
gift certificates if she visits her house next weekend. That is a condition
dependent upon the will of the creditor since it can be demandable only if the
creditor visits the debtor‘s house. Thus, it is valid. On the other hand, Art. 1182
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 prohibits a suspensive potestative condition dependent on the will of the debtor
since there is no juridical tie. For example, Mina will give Momo her laptop if she
feels like it. That is a condition entirely dependent upon the will of the debtor.
The creditor can never compel the debtor to comply with the conditions. Thus,
the law deems that obligations with suspensive potestative conditions dependent
upon the will of the debtor are void.

Casual – when the fulfillment of the condition depends upon chance and/or the
will of a third person.

For example, Sana promises to give Momo a new jacket if it rains tomorrow.
That is a condition dependent upon chance and is a valid obligation. Another
example is if Sana promises to give Momo a new jacket if the LG Twins wins the
baseball league championship. That is a condition dependent upon the will of
third persons and is a valid casual condition.

Mixed – when the fulfillment of the condition depends partly upon the will of a
party to the obligation and partly upon chance and/or the will of a third person.

For example, Mina promises to give Momo a necklace if Momo makes a dance
tutorial video and the video reaches 1 million reactions. Here, the conditions are
based upon the will of the creditor and the will of third persons and is therefore
a valid and enforceable obligation. Another example is, Mina promises to pay
Momo her debt when Mina claims her delayed salary from the company. Here,
the condition is both dependent upon the will of the debtor and third persons
since the company must first issue Mina‘s salary and that Mina should claim it
before Momo can demand the payment of the debt. Thus, it is a valid mixed
condition.

Art. 1183. Impossible conditions, those contrary to good customs or

public policy and those prohibited by law shall annul the obligation
which depends upon them. If the obligation is divisible, that part
thereof which is not affected by the impossible or unlawful condition
shall be valid.

The condition not to do an impossible thing shall be considered as not

having been agreed upon.

 Possible and Impossible Conditions

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 Possible – when the condition is capable of realization according to nature, law,
public policy or good customs.

Impossible – when the condition is not capable of realization according to nature,

law, public policy, or good customs.

The rule on impossible obligations is logical considering that the obligation

depends for its perfection upon the fulfillment of a condition which is impossible,
illegal, inappropriate, or illicit in character. For example, I will give you P1 million
if you can stare at the sun for an hour. The obligation is a nullity because the
condition is impossible. Another example would be, you will give me your
property in Clark View if I secure a divorce a year after my marriage. That is void
since the condition is contrary to law, public policy, and good customs in the
Philippines.

If the obligation is divisible, the part which is not affected by the impossible
condition shall be valid. For example, Momo owes Sana P30,000 payable in two
installments. The first installment shall be payable after their second concert in
the Philippines and the second installment shall be payable if Momo steals Mina‘s
laptop. The second condition is impossible making it a nullity. Thus, it being
divisible, only the first condition remains valid since it is unaffected by the
second condition.

Lastly, if the condition is not to do an impossible thing, it shall be considered as

not having been agreed upon and the obligation becomes one that is pure and
immediately demandable.

Art. 1184. The condition that some event happen at a determinate time shall
extinguish the obligation as soon as the time expires or if it has become
indubitable that the event will not take place.

Art. 1185. The condition that some event will not happen at a determinate
time shall render the obligation effective from the moment the time
indicated has elapsed, or if it has become evident that the event cannot
occur.

If no time has been fixed, the condition shall be deemed fulfilled at such time
as may have probably been contemplated, bearing in mind the nature of the
obligation.
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 Positive and Negative Conditions

Positive – a condition is positive when the condition involves the performance of

an act or fulfillment of an event.

An example of a positive obligation is, I will give you P500 if you are able to sing
my favorite song on our next meeting. If our next meeting passes without you
singing my favorite song, then the obligation is already extinguished since the
indicated time has elapsed or it has become evident that the event will no longer
occur.

Negative – a condition is negative when it involves the non-performance of an

act or nonfulfillment of an event.

For example, I will give you P500 pesos if you will not be absent until the
midterm examinations week. If you are present until the midterm exams are
over, the obligation to give you P500 is already effective.

Note: The second paragraph of Art. 1185 applies to both positive and negative
conditions.

For example, I will give you a car when you get your first job. Here, no specific
time has been fixed by the parties since the condition would depend upon when
you get accepted to your first job. So the obligation becomes effective only upon
your acceptance to your first job.

 Other classifications of conditions

Divisible – when the condition is susceptible of partial realization.

Indivisible – when the condition is not susceptible of partial realization.

Conjunctive – when there are several conditions, all of which must be realized.

Alternative – when there are several conditions, but only one must be realized.

Express – when the condition is expressly stated.

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 Implied – when the condition is tacit.

Art. 1186. The condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfillment.

Here, the law contemplates the application of the doctrine of constructive fulfillment. It
is necessary that the obligor must have actually prevented the obligee from complying
with the condition, and that such prevention must have been voluntary and willful in
character. For example, in the case of Philippine Long Distance Co. vs. Jeturian (G.R.
No. L-7756, July 30, 1955), the company was the primary cause of the failure of its
employees from being entitled to the retirement benefits it promised them since the
company did not renew their contracts when they resumed operations after the war
ended. Thus, the employees who would have been qualified to the conditions of the
retirement benefits are deemed to have constructively fulfilled the conditions after they
were terminated without cause.

Art. 1187. The effects of a conditional obligation to give, once the condition
has been fulfilled, shall retroact to the day of the constitution of the
obligation. Nevertheless, when the obligation imposes reciprocal prestations
upon the parties, the fruits and interests during the pendency of the
condition shall be deemed to have been mutually compensated. If the
obligation is unilateral, the debtor shall appropriate the fruits and interests
received, unless from the nature and circumstances of the obligation it
should be inferred that the intention of the person constituting the same was
different.

In obligations to do and not to do, the courts shall determine, in each case,
the retroactive effect of the condition that has been complied with.

Art. 1188. The creditor may, before the fulfillment of the condition, bring the
appropriate actions for the preservation of his right.

The debtor may recover what during the same time he has paid by mistake in
case of a suspensive condition.

Art. 1187 explains that if the obligation depends upon a suspensive condition, the
demandability of rights is considered suspended pending the fulfillment of the condition.
During that time, the obligee/creditor only has a mere hope or expectancy over the
obligation but such hope or expectancy is protected by law. This protection allows the
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obligee/creditor to avail of all remedies for the protection or preservation of such right
as provided in Art. 1188. In the case of the obligor/debtor, during the pendency of the
fulfillment of the obligation, his obligation to comply is merely held in suspense until the
condition is satisfied. Consequently, the debtor also has a right to recover if he has paid
anything by mistake during the pendency of the condition.

For example, If Momo has promised in writing to sell a parcel of land to Sana upon the
happening of a suspensive condition. But before the condition is fulfilled, Momo
changes her mind and sells the property to Mina, Sana may file the appropriate action
to protect her rights over the obligation. In that similar obligation, then Momo shall only
comply with her obligation to sell once Sana has complied with the suspensive
condition. Lastly, should Momo make a mistake by delivering the said property before
Sana could comply with the conditions, Momo may recover the property during that
time.

Once the suspensive condition is fulfilled, the obligation now becomes effective and
demandable. Following the fulfillment of the condition, the principle of retroactivity finds
its application. This principle entails that once the event which constitutes the condition
is fulfilled, its effects must logically retroact to the moment when the essential elements
which gave birth to the obligation have taken place and not to the moment when the
accidental element is fulfilled. However, the principle of retroactivity does not apply to
the delivery or payment of the fruits or interests accruing before the happening of the
suspensive condition in reciprocal obligations as the fruits and interests are deemed
mutually compensated with the expenses of the debtor. But if it is a unilateral
obligation, the debtor appropriates the fruits.

In obligations to do and not to do, the court shall use sound discretion to determine the
retroactive effect of the fulfillment of the condition.

Art. 1189. When the conditions have been imposed with the intention of
suspending the efficacy of an obligation to give, the following rules shall be
observed in case of the improvement, loss or deterioration of the thing
during the pendency of the condition:

1. If the thing is lost without the fault of the debtor, the obligation shall
be extinguished;

2. If the thing is lost through the fault of the debtor, he shall be obliged to
pay damages; it is understood that the thing is lost when it perishes, or
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 goes out of commerce, or disappears in such a way that its existence is
unknown or it cannot be recovered;
3. When the thing deteriorates without the fault of the debtor, the
impairment is to be borne by the creditor;

4. If it deteriorates through the fault of the debtor, the creditor may

choose between the rescission of the obligation and its fulfillment, with
indemnity for damages in either case;

5. If the thing is improved by its nature, or by time, the improvement shall

inure to the benefit of the creditor;

6. If it is improved at the expense of the debtor, he shall have no other

right than that granted to the usufructuary.

Art. 1190. When the conditions have for their purpose the extinguishment of
an obligation to give, the parties, upon the fulfillment of said conditions,
shall return to each other what they have received.

In case of the loss, deterioration or improvement of the thing, the provisions

which, with respect to the debtor, are laid down in the preceding article shall
be applied to the party who is bound to return.

As for the obligations to do and not to do, the provisions of the second
paragraph of article 1187 shall be observed as regards the effect of the
extinguishment of the obligation.

The fulfillment of the resolutory conditions results in the extinguishment of rights

arising out of the obligation. If the resolutory condition is fulfilled, the obligation is
treated as if it did not exist. Thus, each party is bound to return to the other whatever
he has received, so that they may be returned to their original condition before the
creation of the obligation. If the resolutory condition is not fulfilled, such rights are now
consolidated.

For example, Momo sold to Sana a parcel of land in the Philippines with the resolutory
condition that Sana must not establish a residence on that property within 2 years. If
within 2 years, Sana establishes a residence in the Philippines, this will result in the
extinguishment of rights obligating Sana to return the property to Momo and Momo to

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return whatever may have been paid by Sana. If Sana does not establish a residence on
the property within 2 years, the rights are now consolidated.

The rules on retroactivity for obligations with resolutory conditions are absolute, limited
only by reimbursement for expenses incurred. The rules on loss, deterioration, or
improvement shall be applied to those who are bound to return what was given.

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in

case one of the obligors should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of
the obligation, with the payment of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the latter should become
impossible.

The court shall decree the rescission claimed, unless there be just cause
authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who

have acquired the thing, in accordance with articles 1385 and 1388 and the
Mortgage Law.

Reciprocal Obligations – are those which are created or established at the same time,
out of the same cause, and which result in mutual relationships of creditor and debtor
between the parties.

A reciprocal obligation has 2 elements:

1. There are two prestations arising from the same source;
2. Each prestation is designed to be the counterpart of the other.

 The Right of Resolution applies to reciprocal obligations.

Resolution is found on the conditional obligations because if there is a breach, the

breach is a resolutory condition which extinguishes the obligation. Art. 1191 uses the
term rescission but the better term is resolution. The term rescission is also found in
Art. 1381 on rescissible contracts. Resolution is different from rescission. Resolution is
based on the non-fulfillment of the obligation. Rescission is based on economic
prejudice. Furthermore, the character of resolution is principal and retaliatory while the
character of rescission is subsidiary. This means that in resolution there is no need to
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show that there is no other remedy. In rescission, the plaintiff must show that there is
no other recourse.

 Summary of Rules on Resolution/Rescission

1. The right to resolve is in inherent in reciprocal obligations;

2. The breach of the obligation must be substantial. Proof of substantial breach is a

prerequisite for resolution;

3. The right of resolution can be exercised extrajudicially and will take effect upon
communication to the defaulting party. The notice of resolution is necessary;

4. The exercise of this right can be the subject of judicial review;

5. Upon resolution, there must be mutual restitution of the object and its fruits;

6. If the aggrieved party has not performed the prestation and resolves
extrajudicially, then all the aggrieved party has to do is to refuse to perform his
prestation;

7. If the aggrieved party has performed the prestation, the aggrieved party can
demand recovery. If the defaulting party refuses to return it, the aggrieved party
must go to court in order to recover.

Art. 1192. In case both parties have committed a breach of the obligation,
the liability of the first infractor shall be equitably tempered by the courts.
If it cannot be determined which of the parties first violated the contract,
the same shall be deemed extinguished, and each shall bear his own
damages.

 Obligations with a Period or Term

Art. 1193. Obligations for whose fulfillment a day certain has been fixed,
shall be demandable only when that day comes.

Obligations with a resolutory period take effect at once, but terminate

upon arrival of the day certain.
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A day certain is understood to be that which must necessarily come,
although it may not be known when.

If the uncertainty consists in whether the day will come or not, the
obligation is conditional, and it shall be regulated by the rules of the
preceding section.

According to Manresa, a term or period is an interval of time, which, exerting an

influence on an obligation as a consequence of a juridical act, either suspends its
demandability or produces its extinguishment.

Therefore, obligations with a period may be defined as those whose demandability

or extinguishment is subject to the expiration of a term or period.

 A term or period differentiated with a condition

1. As to requisites: While a term or period refers to an interval of time which is

future and certain, a condition refers to a fact or event which is future and
uncertain.

2. As to fulfillment: While a term or period is an interval of time which must

necessarily come, although it may not be known when, a condition is a future and
uncertain fact or event which may or may not happen.

3. As to influence on obligation: While a term or period merely exerts an influence

upon the time of the demandability or extinguishment of an obligation, a condition
exerts an influence upon the very existence of the obligation itself.

4. As to retroactivity of effects: While a term or period does not have any retroactive
effect unless there is an agreement to the contrary, a condition has retroactive
effects.

5. As to effect of will of debtor: When a term or period is left exclusively to the will
of the debtor, the existence of the obligation is not affected, but when a condition is
left exclusively to the will of the debtor, the very existence of the obligation is
affected.

 Classifications of Term or Period

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Suspensive – it is suspensive when the obligation becomes demandable only
upon the arrival of a day certain. For example, your parents promise to give you
a new iPhone on your birthday this year. Your birthday is a day certain because
it will necessarily come. Another example, I will pay you my debt when Manny
Pacquiao retires from boxing. The retirement of Manny Pacquiao from boxing is a
day certain since it will surely happen, although it may not be known when.

Resolutory – it is resolutory when the obligation is demandable at once, although

it is terminated upon the arrival of a day certain. For example, I will lend you my
power tools for your personal use for 1 month. Here, the obligation is a
commodatum (a gratuitous contract for the use of a movable property) that will
take effect immediately since the term is resolutory and after the expiration of 1
month, they shall be returned to the owner.

Take note: a day certain, as defined in the 3rd paragraph of Art. 1193, is
understood to be that which must necessarily come, although it may not be
known when.

Legal – when it is granted by law. For example, under Art. 1606, the right of
redemption if it is stipulated by the parties but no period was indicated, shall be
valid for 4 years from the date of the contract. Under Art. 1623, the right of legal
redemption shall not be exercised except within thirty days from notice by the
prospective vendor. Under Art. 1682, the period of lease of rural lands if not
stipulated shall last for all the time necessary for gathering the fruits which the
whole estate may produce for one year or when it yields once although two or
more years may have to elapse. Lastly, Art. 1687 provides for the periods
involving the lease of any other property if the lease period is not stipulated in
the agreement.

Conventional – when it is agreed upon or stipulated by the parties.

Judicial – when the period or term is fixed by the courts. It is judicial when the
duration thereof is fixed by a competent court in accordance with the causes
expressly recognized by law. Once fixed by a competent court, the period can no
longer be judicially changed.

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Art. 1197. If the obligation does not fix a period, but from its nature
and the circumstances it can be inferred that a period was intended,
the courts may fix the duration thereof.

The courts shall also fix the duration of the period when it depends
upon the will of the debtor.

In every case, the courts shall determine such period as may under the
circumstances have been probably contemplated by the parties. Once
fixed by the courts, the period cannot be changed by them.

 The court may fix the term or period under these circumstances:

First, if the obligation does not fix a period, but from its nature and the
circumstances it can be inferred that a period was intended by the parties. For
example, the donor promises to donate a real property to the government for
the development of an airport but the deed is silent as to the period of the
development. From such condition, it is apparent that the parties intended a
period for the fulfillment of the condition, so the parties can ask the proper court
to fix a period for its fulfillment.

Second, if the duration of the period depends upon the will of the debtor. This
rule is just and logical since there would always be a possibility that the
obligation will never be performed or fulfilled. For example, the debtor through a
promissory note promises to pay his indebtedness to the creditor ―in partial
payments,‖ or ―little by little,‖ or ―as soon as possible,‖ or ―as soon as he has
money,‖ or similar pronouncements. It is clear that the duration of the term or
period of the fulfillment of the obligation depends exclusively upon the will of the
debtor; thus the remedy of the creditor is to ask the court to fix the duration on
the basis of Art. 1197.

The third is when the debtor binds himself to pay ―when his means permit him to
do so‖ but this circumstance already falls under the second as it solely depends
upon the will of the debtor. Under these three instances, the parties may ask the
court to fix the period by filing the appropriate action under Art. 1197 of the Civil
Code.

Take Note: The only action that can be maintained under this article is an action
to ask the court to fix the duration of the term or period. It is only after the
18
duration has been fixed by the proper court that any other action involving the
fulfillment or performance of the obligation can be maintained. Thus, so long as
such period has not yet been fixed, legally, there can be no possibility of any
breach of the contract or failure to perform the obligation, and if it so happens
that this point was never raised before the trial court, the creditor cannot be
allowed to raise it for the first time on appeal.

In the case of Pacific Banking Corp. vs. Court of Appeals (G.R. No. L45656, May
5, 1989), the Supreme Court reiterated the rule that if the obligation has no fixed
period, a party is precluded from enforcing it. Thus, it held that even the pledge
which modified the fixed period in the original promissory note, did not provide
for date of payment of installments, nor indicate any fixed date of maturity of the
whole amount of indebtedness. Accordingly, the date of maturity of the
indebtedness should be determined by the proper court under Art. 1197 of the
Civil Code. Hence, the disputed foreclosure and subsequent sale were premature.

Lastly, the effect of a judicial period is that once it is fixed by the courts, the
period can no longer be judicially changed since the parties themselves gave
their consent to the courts to fix the period. It being legally binding, it becomes a
law governing their contract and consequently, the courts can have no power to
change or modify the same.

Definite – when the date or time is known beforehand.

Indefinite – when it can only be determined by an event which must necessarily

come to pass, although it may not be known when.

 The effect of a fortuitous event on obligations with a term

Any stipulation in the contract to the effect that in case of a fortuitous event
the contract shall be deemed suspended during the term or period does not
mean that the happening of the fortuitous event shall stop the running of the
term or period agreed upon. Its only effect is to relieve the contracting
parties from the fulfillment of their respective obligations during the term or
period. In the case of Victorias Planters vs. Victorias Milling Co., (G.R. No. L-
6648, July 25, 1955), the Court ruled that the respective obligations of the
parties need not be complied with during the period of the Japanese
Occupation and when the mills were still being rebuilt since at that time, it
was impossible for the parties to fulfill their obligations but the period
19
 stipulated by the parties did not stop running during such time which
consequently does not result in the extension of the period.

Art. 1194. In case of loss, deterioration or improvement of the thing before

the arrival of the day certain, the rules in article 1189 shall be observed.

Art. 1195. Anything paid or delivered before the arrival of the period, the
obligor being unaware of the period or believing that the obligation has
become due and demandable, may be recovered, with the fruits and
interests.

The rules under Art. 1194 is similar to the rules under Art. 1189 and Art. 1190 except
that what is attached to the obligation is now a term or period and not a condition.

The rule under Art. 1195 is similar to the rule under Art. 1188 on the recovery of the
thing, along with its fruits, paid or delivered by mistake pending the fulfillment of the
condition except that what is pending now is the arrival or expiration of the term or
period.

Art. 1196. Whenever in an obligation a period is designated, it is presumed to

have been established for the benefit of both the creditor and the debtor,
unless from the tenor of the same or other circumstances it should appear
that the period has been established in favor of one or of the other.

As a general rule, the creditor cannot demand the performance of the obligation before
the expiration of the designated period; neither can the debtor perform the obligation
before the expiration of such period. This is because the period is presumed to be for
the benefit of both the creditor and the debtor.

As an exception, if it should appear that such period has been established for the
benefit of the creditor, he may demand the fulfillment or performance of the obligation
at any time, but the obligor or debtor, on the other hand, cannot compel him to accept
payment before the expiration of the period. If it should appear that the period has
been established in favor of the obligor or debtor, he may oppose any premature
demand on the part of the obligee or creditor for performance of the obligation, or if he
so desires, he may renounce the benefit of the period by performing his obligation in
advance.

Art. 1198. The debtor shall lose every right to make use of the period:
20
(1) When after the obligation has been contracted, he becomes insolvent,
unless he gives a guaranty or security for the debt;

(2) When he does not furnish to the creditor the guaranties or securities
which he has promised;

(3) When by his own acts he has impaired said guaranties or securities after
their establishment, and when through a fortuitous event they disappear,
unless he immediately gives new ones equally satisfactory;

(4) When the debtor violates any undertaking, in consideration of which the
creditor agreed to the period;

(5) When the debtor attempts to abscond.

As to the first, insolvency should be understood in the ordinary sense and does not
require a judicial declaration of insolvency. It includes any case in which it would not be
possible financially for the debtor to comply with his obligation.

As to the second, when the debtor does not furnish the stipulated guaranty or security,
it is but logical that he shall lose his right to the term or period.

As to the third, there are two rules: First, if the guaranty or security is impaired through
the fault of the debtor, he shall lose his right to the benefit of the period; however, if it
is impaired without his fault, he shall retain his right. Second, if the guaranty or security
disappears through any cause, even without fault of the debtor, he shall lose his right
to the benefit of the period, unless, he gives a new guaranty or security which is
equally satisfactory.

As to the fourth and fifth, as long as the debtor violates the undertaking in
consideration of which the creditor agreed to the period or the debtor attempts to
abscond, he loses the right to the benefits of the period.

 Alternative and Facultative Obligations

When an obligation comprehends several objects or prestations it may either be

conjunctive or distributive.

21
Conjunctive – when all of the objects or prestations are demandable at the same time.

For example, Mark purchased from Jackson a vintage car with the obligation that
Jackson must have the car fully restored, repaired, repainted, and delivered the day
before his next birthday. Such objects or prestations are multiple and demandable at
the same time.

Distributive – when only one is demandable. In distributive obligations, it may either be

alternative or facultative.

Alternative – when it comprehends several objects or prestations which are due, but it
may be complied with by the delivery or performance of one of them.

Art. 1199. A person alternatively bound by different prestations shall

completely perform one of them.

The creditor cannot be compelled to receive part of one and part of the other
undertaking.

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

The debtor shall have no right to choose those prestations which are
impossible, unlawful or which could not have been the object of the
obligation.

In alternative obligations, the general rule is that the right to choose belongs to the
debtor. For example, JB borrowed P70,000 from BamBam. It is stipulated that as
payment, JB has the choice to pay in cash or to deliver a wrist watch with the same
value. Upon maturity of the obligation, JB has the option to pay the loan in cash or to
give BamBam a wrist watch with the value of P70,000. As a general rule under Art.
1200, JB has the right to choose but once the choice is made and communicated to the
creditor, the obligation is now considered simple.

The exceptions to the rule are: first, when the right to choose is expressly granted to
the creditor; and second, when it is granted to third persons. The second exception is
not expressly mentioned in the Civil Code but there is no reason why it should not be
allowed since it is not contrary to law, morals, good customs, public order or public
policy.
22
Another limitation to the right of choice in alternative obligations is that the debtor
cannot choose prestations which are impossible, unlawful, or which could not have
been the object of the obligation.

Art. 1201. The choice shall produce no effect except from the time it has
been communicated.

No special form is required for the communication or notification of the choice. Any
form may be employed provided that the other party is properly notified of the
selection. However, it is always much better that the notification is made either in a
notarized document or other authenticated writings. As previously mentioned, once the
choice is made and communicated, the obligation is no longer alternative and the party
is bound by the option.

Art. 1202. The debtor shall lose the right of choice when among the
prestations whereby he is alternatively bound, only one is practicable.

Art. 1203. If through the creditor's acts the debtor cannot make a choice
according to the terms of the obligation, the latter may rescind the contract
with damages.

Art. 1204. The creditor shall have a right to indemnity for damages when,
through the fault of the debtor, all the things which are alternatively the
object of the obligation have been lost, or the compliance of the obligation
has become impossible.

The indemnity shall be fixed taking as a basis the value of the last thing
which disappeared, or that of the service which last became impossible.

Damages other than the value of the last thing or service may also be
awarded.

Rules when the choice belongs to the debtor

i. When through fortuitous event or through the debtor‗s acts, there is only 1 prestation
left, the obligation ceases to be alternative; (Article 1202)

23
ii. When the choice of the debtor is limited through the creditor‗s own acts, then the
debtor has the remedy of resolution/rescission plus damages; (Article 1203)

iii. When all the things are lost due to the debtor‗s fault, the creditor can sue for
damages; (Article 1204)

iv. When some things are lost due to the debtor‗s fault but there are still some things
remaining, then the debtor can choose from what is left;

v. When all the things are lost due to a fortuitous event, the obligation is extinguished;

vi. When all but 1 of the things are lost due to a fortuitous event and the last object is
lost through the debtor‗s fault, then the creditor can sue for damages;

vii. When all but 1 of the things are lost through the debtor‗s own acts and the last
object is lost through a fortuitous event, the obligation is extinguished.

Art. 1205. When the choice has been expressly given to the creditor, the
obligation shall cease to be alternative from the day when the selection has
been communicated to the debtor.

Until then the responsibility of the debtor shall be governed by the following
rules:

(1) If one of the things is lost through a fortuitous event, he shall perform
the obligation by delivering that which the creditor should choose from
among the remainder, or that which remains if only one subsists;

(2) If the loss of one of the things occurs through the fault of the debtor, the
creditor may claim any of those subsisting, or the price of that which,
through the fault of the former, has disappeared, with a right to damages;

(3) If all the things are lost through the fault of the debtor, the choice by the
creditor shall fall upon the price of any one of them, also with indemnity for
damages.

The same rules shall be applied to obligations to do or not to do in case one,

some or all of the prestations should become impossible.

Art. 1205 applies when the right of choice belongs to the creditor. The following are the
rules when the choice belongs to the creditor:

24
i. When 1 or some of the objects are lost through fortuitous events, then the creditor
chooses from the remainder;

ii. When 1 or some of the objects are lost due to the debtor‗s fault, the creditor may
choose from the remainder or get the value of any of the objects lost plus damages in
either case;

iii. When all of the things are lost due to the debtor‗s fault, the creditor can get the
value of any of the objects lost plus damages;

iv. When some are lost through the debtor‗s fault, the creditor chooses from the
remainder;

v. When all the objects are lost due to a fortuitous event, then the obligation is
extinguished;

vi. When all the objects are lost due to the creditor‗s fault, the obligation is
extinguished.

Facultative – when it comprehends only one object or prestation which is due, but it
may be complied with by the delivery of another object or performance of another
prestation in substitution.

Art. 1206. When only one prestation has been agreed upon, but the obligor
may render another in substitution, the obligation is called facultative.

The loss or deterioration of the thing intended as a substitute, through the

negligence of the obligor, does not render him liable. But once the
substitution has been made, the obligor is liable for the loss of the substitute
on account of his delay, negligence or fraud.

In a facultative obligation, the right of choice is always with the debtor. To exemplify
facultative obligations, Mark executed a promissory note in favor of JB promising to pay
his loan at a specific date and in case he fails to do so, he shall execute a deed of real
estate mortgage over a specific property he owned in favor or JB. In that situation, the
obligation is facultative since initially there is only one object or prestation that is due
but if the obligor fails to deliver or perform it, he can still comply by delivering another
object or performing another prestation in substitution of the first.
25
Before substitution, should the object be lost or it deteriorates through the negligence
of the obligor, the obligor is not liable. But once substitution is made, the debtor is
liable for the loss or deterioration of the substitute on account of his delay, negligence,
or fraud.

 Joint and Solidary Obligations

Single – an obligation is single when there is only 1 debtor and 1 creditor.

Joint – an obligation is joint when each of the debtors is liable only for a proportionate
share or part of the debt, and each creditor is entitled only to a partial part of the
credit. It is also called obligacion mancomunada, pro rata, mancomunada simple.

i. Active Joint – there are multiple creditors

ii. Passive Joint – there are multiple debtors
iii. Mixed Joint – there are multiple creditors and debtors

Art. 1207. The concurrence of two or more creditors or of two or more

debtors in one and the same obligation does not imply that each one of the
former has a right to demand, or that each one of the latter is bound to
render, entire compliance with the prestation. There is a solidary liability
only when the obligation expressly so states, or when the law or the nature
of the obligation requires solidarity.

As a general rule, when there is a concurrence of several creditors or of several debtors

or of several creditors and debtors in one and the same obligation, it is presumed that
the obligation is joint and not solidary. When the obligation is silent, this means that
each of the creditors is entitled to demand only for the payment of his proportionate
share of the credit, while each of the debtors can only be compelled to pay only his
proportionate share of the debt.

For example, Jin, Suga and J-Hope executed a promissory note binding themselves to
pay an indebtedness of P9,000 to RM, Jimin and V. Since the note is silent with regards
to the right of the creditors and liability of the debtors, the obligation is presumed to be
joint. This means that upon maturity of the note, the right of each creditor to collect
shall only be to the extent of his proportionate share, which is P3,000 and each debtor
shall only pay for his proportionate share which is also P3,000. Therefore, assuming V
collects payment from Jin, Jin shall only be required to pay V P1,000 which is his
26
proportionate to the debt. Should V want to collect his entire P3,000, he must also
collect from Suga and J-hope.

The exceptions to the general rule that obligations are presumed joint are: 1) by
agreement of the parties; 2) when the law requires solidarity; and 3) when the nature
of the obligation requires solidarity. However, most commentators believe that number
2 and 3 are similar since solidary obligations arise only by reason of law.

For example, if Jin, Suga, and J-Hope are solidarily bound to pay for the debt, either of
RM, Jimin, and V, may collect from anyone of them the entire amount of P9,000 subject
to the rules of solidary obligations.

Examples of the 2nd and 3rd exception are scattered in the civil code. Art. 927 on
legacies, 1824 on partnerships, 1911 on agents, 1915 as to common agents, 2146
involving managers, 2157 on payees, 2194 on joint tortfeasors. Art. 110 of the Revised
Penal Code is also a source of solidary obligation involving the liabilities of principals,
accomplices, and accessories of a felony. These are examples when solidary obligations
exist.

Art. 1208. If from the law, or the nature or the wording of the obligations to
which the preceding article refers the contrary does not appear, the credit or
debt shall be presumed to be divided into as many shares as there are
creditors or debtors, the credits or debts being considered distinct from one
another, subject to the Rules of Court governing the multiplicity of suits.

Art. 1208 pertains to Joint Divisible Obligations - Since joint obligations are demandable
only to their proportionate share, the credit or debt shall be presumed, in the absence
of any law or stipulation to the contrary, to be divided into as many equal shares as
there are creditors and debtors, each credit being distinct from one another. Thus, it
necessarily follows that a joint creditor cannot act in representation of the others;
neither can a joint debtor be compelled to answer for the liability of others. In case
there is a breach of the obligation by reason of the act of one of the debtors, the
damages due to its breach must be borne by him alone. Also, if there is any defense
which is purely personal to one of the debtors, he alone can avail of such defense.

For example, in continuation of our previous examples, on one hand, should J-Hope fail
to pay for his obligation, his co-debtors will not be liable for his respective share in the
obligation. On the other hand, assuming that the obligation was about to prescribe, but
Jimin sent a notice to J-Hope demanding payment of the obligation, the demand shall
27
only prejudice J-Hope and not the other debtors who were not notified. Thus, if the due
date to collect payment has prescribed for Suga and Jin, the obligation is already
extinguished as that is a personal defense. (Agoncillo vs. Javier, G.R. No. L-12611,
August 7, 1918)

Art. 1209. If the division is impossible, the right of the creditors may be
prejudiced only by their collective acts, and the debt can be enforced only by
proceeding against all the debtors. If one of the latter should be insolvent,
the others shall not be liable for his share.

A joint indivisible obligation is in a sense a midway between a joint and a solidary

obligation. To explain, if there are two or more debtors, the fulfillment of or compliance
with the obligation requires the concurrence of all of the debtors, although each for
their own share. For example, if J-Hope, Suga and Jin obligated themselves to jointly
deliver a certain horse to RM, since the obligation is both joint and indivisible, RM can
compel its fulfilment only by proceeding against all of J-Hope, Suga and Jin together.

If instead there are two or more creditors, the concurrence of the collective act of all
the creditors, although each for his own share, is also necessary for the enforcement of
the obligation.

In case of breach by one of the joint debtors, the entire obligation being indivisible can
no longer be performed. Thus, it is converted into one of indemnity for damages.
However, the debtors who may have been ready to perform the obligation shall not
contribute to the indemnity more than their corresponding share to the obligation.

Solidary – an obligation is solidary when any of the debtors can be held liable for the
entire obligation, and any of the creditors is entitled to demand the entire obligation. It
is also called joint and several, joint and individual, individually and collectively, and in
solidum. If a promissory note says, ―I promise to pay‖ and it is signed by three different
persons, then the obligation is solidary. (Inciong, Jr. vs. Court of Appeals, G.R. No.
96405, June 26, 1996)

Article 1210. The indivisibility of an obligation does not necessarily give rise
to solidarity. Nor does solidarity of itself imply indivisibility.

Article 1211. Solidarity may exist although the creditors and the debtors may
not be bound in the same manner and by the same periods and conditions.

28
 i. Active solidary – in active solidary, there are multiple creditors. A credit once
paid is shared equally among the creditors unless a different intention appears.
ii. Passive solidary – there are multiple debtors. Each debtor may be required to
pay the entire obligation but after payment, he can recover from his co-debtors
their respective share.
iii. Mixed solidary – there are multiple debtors and creditors. A credit once paid is
shared equally among the creditors unless a different intention appears.

Art. 1212. Each one of the solidary creditors may do whatever may be useful
to the others, but not anything which may be prejudicial to the latter.

If one of the solidary creditors does something useful for all the other creditors such as
filing a collection suit against the debtors, that shall be for the benefit of all the other
creditors. On the contrary, if it is prejudicial, then such shall only apply to the one
creditor. For example, one solidary creditor excused the debtors from their obligation,
meaning there was a remission of a debt. Such remission shall only apply to his own
share and not to the share of his co-creditors.

Art. 1213. A solidary creditor cannot assign his rights without the consent of
the others.

This is because there is a danger of non-remittance of the other co-creditor‘s share in

the obligation. Third persons do not have the trust and confidence of the co-creditors.
Thus, consent is necessary for the assignment of rights.

Art. 1214. The debtor may pay any one of the solidary creditors; but if any
demand, judicial or extrajudicial, has been made by one of them, payment
should be made to him.

The debtor may pay any of the creditors, but if any demand, judicial or extrajudicial, is
made on him, he must pay only to the one demanding payment. However, certain
commentators believe that the demand referred to here should only be judicial and not
extrajudicial since it is possible that there may be a failure on the part of the co-creditor
to follow up on the fulfillment of the obligation.

Art. 1215. Novation, compensation, confusion or remission of the debt, made

by any of the solidary creditors or with any of the solidary debtors, shall
extinguish the obligation, without prejudice to the provisions of article 1219.

29
The creditor who may have executed any of these acts, as well as he who
collects the debt, shall be liable to the others for the share in the obligation
corresponding to them.

Art. 1216. The creditor may proceed against any one of the solidary debtors
or some or all of them simultaneously. The demand made against one of
them shall not be an obstacle to those which may subsequently be directed
against the others, so long as the debt has not been fully collected.

Art. 1217. Payment made by one of the solidary debtors extinguishes the
obligation. If two or more solidary debtors offer to pay, the creditor may
choose which offer to accept.

He who made the payment may claim from his co-debtors only the share
which corresponds to each, with the interest for the payment already made.
If the payment is made before the debt is due, no interest for the intervening
period may be demanded.

When one of the solidary debtors cannot, because of his insolvency,

reimburse his share to the debtor paying the obligation, such share shall be
borne by all his co-debtors, in proportion to the debt of each.

Art. 1218. Payment by a solidary debtor shall not entitle him to

reimbursement from his co-debtors if such payment is made after the
obligation has prescribed or become illegal.

Art. 1219. The remission made by the creditor of the share which affects one
of the solidary debtors does not release the latter from his responsibility
towards the co-debtors, in case the debt had been totally paid by anyone of
them before the remission was effected.

Art. 1220. The remission of the whole obligation, obtained by one of the
solidary debtors, does not entitle him to reimbursement from his co-debtors.

Novation generally refers to the change or substitution of an obligation by another,

resulting in its extinguishment or modification, either by changing its object or principal
condition, or by substituting another in place of the debtor, or by subrogating a third
person in the rights of the creditor. It extinguishes the obligation but it creates a new
one in lieu of the old. The effect of the novation will depend whether it is prejudicial or
30
beneficial to the co-creditors. If it is prejudicial, the creditor who caused the novation
shall reimburse his co-creditors to the extent of the damages they incurred. If it is
beneficial, then the co-creditors shall receive their respective shares in the new
obligation plus a share in the benefits they may be entitled to.

Compensation generally means the weighing of two obligations simultaneously in order

to extinguish them to the extent that the amount of one is covered by the amount of
the other.

Confusion refers to the merger of the qualities of creditor and debtor in one and the
same person with respect to one and the same obligation.

Compensation and Confusion are other modes of extinguishing obligations. If the

extinguishment is total, then the obligation is extinguished without prejudice to the
right of other creditors who have not caused the confusion or compensation to be
reimbursed to the extent of their rights.

Remission is an act of pure liberality by virtue of which the creditor, without having
received any compensation, renounces his right to enforce the obligation, thereby
extinguishing the same either in its entirety or in part to which the remission refers.
Here, the creditor who causes the remission shall reimburse his co-creditors to the
extent of their share in the obligation. On the part of the debtors, the co-debtor who
secured the remission shall not be entitled to any reimbursement or benefit beyond his
own share. If the remission is only for the benefit of one debtor, he is still bound to pay
his co-debtors less his own share to the obligation. The same rule applies to the partial
remission of the share of one of the debtors. The obligation to reimburse his fellow
debtors remains subject only to partial remission with respect to his own share.

Payment if one of the solidary creditors is able to collect the entire amount of the debt,
the obligation is now extinguished and a new obligation is now created in favor of his
co-creditors which is to render an account to them.

Art. 1221. If the thing has been lost or if the prestation has become
impossible without the fault of the solidary debtors, the obligation shall be
extinguished.

If there was fault on the part of any one of them, all shall be responsible to
the creditor, for the price and the payment of damages and interest, without
prejudice to their action against the guilty or negligent debtor.
31
If through a fortuitous event, the thing is lost or the performance has
become impossible after one of the solidary debtors has incurred in delay
through the judicial or extrajudicial demand upon him by the creditor, the
provisions of the preceding paragraph shall apply.

Art. 1222. A solidary debtor may, in actions filed by the creditor, avail himself
of all defenses which are derived from the nature of the obligation and of
those which are personal to him, or pertain to his own share. With respect to
those which personally belong to the others, he may avail himself thereof
only as regards that part of the debt for which the latter are responsible.

3 Kinds of Defenses

i. Real defenses - These are defenses derived from the nature of the obligation. A real
defense is a total defense. It benefits all the debtors. For example, force majeure.

ii. Personal defenses - Personal defenses may either be total or partial defenses. An
example of a total personal defense is if the consent of the debtors were all vitiated. An
example of a partial defense is that a certain amount is not yet due. It is partial since
there may be amounts which are already due. Thus, the debtor has to pay for those
amounts which are due.

iii. Defenses which are personal to the other co-debtors - The debtor can only avail
himself of these defenses only with regard to the part of the debt which his co-debtors
are responsible for. These defenses are partial.

Take Note: The debtor sued can invoke all three kinds of defenses. The difference is
whether such defense would result in total or partial exculpation.

 Divisible and Indivisible

Divisible – are those which have as their object a prestation which is susceptible of
partial performance without the essence of the obligation being changed. An obligation
is divisible when it is susceptible of partial performance. Payment of a loan by
installment is an example of a divisible obligation.

Indivisible – are those which have as their object a prestation which is not susceptible
of partial performance, otherwise, the essence of the obligation will change. An
32
obligation is indivisible when it cannot be validly performed in parts. For example,
Jennie borrowed P9,000 from Lisa payable at the last day of February, 2021. As a rule,
payment shall be made at one time on the due date. The payment of a monetary loan
is essentially divisible since it involves money which can be divided into parts, but it is
an indivisible obligation if the loan is payable only at one time.

Take Note: the divisibility of an obligation must not be confused with the divisibility of
the thing or prestation which constitutes the object of the obligation. The first one
refers to the performance of the prestation which constitutes the object of the
obligation while the latter refers to the divisibility of the prestation itself.

Art. 1223. The divisibility or indivisibility of the things that are the object of
obligations in which there is only one debtor and only one creditor does not
alter or modify the provisions of Chapter 2 of this Title.

Art. 1224. A joint indivisible obligation gives rise to indemnity for damages
from the time anyone of the debtors does not comply with his undertaking.
The debtors who may have been ready to fulfill their promises shall not
contribute to the indemnity beyond the corresponding portion of the price of
the thing or of the value of the service in which the obligation consists.

Art. 1225. For the purposes of the preceding articles, obligations to give
definite things and those which are not susceptible of partial performance
shall be deemed to be indivisible.

When the obligation has for its object the execution of a certain number of
days of work, the accomplishment of work by metrical units, or analogous
things which by their nature are susceptible of partial performance, it shall
be divisible.

However, even though the object or service may be physically divisible, an

obligation is indivisible if so provided by law or intended by the parties.

In obligations not to do, divisibility or indivisibility shall be determined by

the character of the prestation in each particular case.

Where there is only one debtor and creditor, the divisibility of the obligation is of little
obligation as implied by Art. 1223. As a general rule, obligations are indivisible. The
creditor cannot be compelled to partially receive the prestation, neither may the debtor
33
be required to make partial payments. The exceptions (Art. 1225) however are: 1)
when the parties provide otherwise; 2) when the nature of the obligation necessarily
entails the performance of the obligation in parts; 3) when the law provides otherwise.
The exceptions to the exceptions when even if the object or prestation is physically
divisible, it is still indivisible are: 1) when it is provided by law; and 2) when it is
intended by the parties.

When there are plurality of debtors and creditors, the effect of divisible and indivisible
character shall depend on whether the obligation is joint or solidary. In this case, apply
the rules on joint and solidary obligations as to the fulfillment of the obligation.

Take Note: Divisibility of the object does not mean that the obligation is also divisible.
But indivisibility of the object necessarily means an indivisible obligation. The real test
of divisibility of an obligation is whether or not it is susceptible of partial performance.
To emphasize, if for example, Lisa is obligated to deliver 9 baskets of mango to Jennie,
this does not mean that Lisa can deliver the mangoes on installment basis. As a rule,
they should be delivered at one time, unless it falls under any of the exceptions, like if
the parties so stipulate.

 Obligations with a Penal Clause

Penal Clause – is an accessory obligation which the parties attach to a principal

obligation for the purpose of insuring the performance thereof by imposing on the
debtor a special prestation (generally consisting in the payment of a sum of money) in
case the obligation is not fulfilled or is irregularly or inadequately fulfilled. (Castan, as
cited in the case of SSS vs. Moonwalk, G.R. No. 73345, April 7, 1993) A penal clause is
an accessory undertaking to assume greater liability in case of breach.

A penalty has a three-fold purpose. They are:

i. Funcion coercitiva o de garantia – to insure the performance of the obligation. It

is the general purpose of a penal clause.

ii. Funcion liquidatoria – to liquidate the amount of damages to be awarded to the

injured party in case of breach of the principal obligation. This refers to being
compensatory.

iii. Funcion estricamente penal – in certain exceptional cases, to punish the obligor
in case of breach of the principal obligation. This is punitive in character.
34
Kinds of Penalties

i. As to origin — Legal or conventional. It is legal when it is constituted by law; it is

conventional when it is constituted by agreement of the parties.

ii. As to purpose — Compensatory or punitive. It is compensatory when it is

established for the purpose of indemnifying the damages suffered by the obligee
or creditor in case of breach of the obligation; it is punitive when it is established
for the purpose of punishing the obligor or debtor in case of breach of the
obligation.

iii. As to effect — Subsidiary or joint. It is subsidiary when only the penalty may be
demanded in case of breach of the obligation; it is joint when the injured party
may demand the enforcement of both the penalty and the principal obligation.

Art. 1226. In obligations with a penal clause, the penalty shall substitute the
indemnity for damages and the payment of interests in case of
noncompliance, if there is no stipulation to the contrary. Nevertheless,
damages shall be paid if the obligor refuses to pay the penalty or is guilty of
fraud in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with

the provisions of this Code.

As a general rule, the penalty is fixed by the contracting parties as a compensation or

substitute for damages in case of breach of the obligation. Proof of actual damages is
not necessary in order that the stipulated penalty may be demanded. On the contrary,
the concept that the penalty is strictly penal is the exception. If the injured party
desires to recover the damages actually suffered by him in addition to the penalty, he
must prove such damages.

Exceptions when the penalty shall be a substitute to the indemnity for damages: first,
when there is a stipulation to the contrary; second, when the obligor is sued for refusal
to pay the agreed penalty; third, when the obligor is guilty of fraud. Here, it is evident
that the purpose of the penalty is to punish the obligor. This means that in addition to
the penalty, the obligee can also recover from him the damages or interests arising
from the breach of the obligation.

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Art. 1227. The debtor cannot exempt himself from the performance of the
obligation by paying the penalty, save in the case where this right has been
expressly reserved for him. Neither can the creditor demand the fulfillment
of the obligation and the satisfaction of the penalty at the same time, unless
this right has been clearly granted him. However, if after the creditor has
decided to require the fulfillment of the obligation, the performance thereof
should become impossible without his fault, the penalty may be enforced.

The limitation imposed upon the debtor is self-explanatory. The debtor on his own
cannot excuse himself from complying with the principal obligation by fulfilling the
penalty, unless such right is expressly granted to him.

On the part of the creditor, if the principal obligation is not complied with, the creditor
can choose between demanding the fulfillment of the obligation and demanding the
satisfaction of the penalty. He cannot demand both at the same time. If he chooses to
demand the fulfillment of the obligation, and the performance thereof should become
impossible without his fault, he may still demand the satisfaction of the penalty. If there
was fault on the part of the debtor, he may demand not only the satisfaction of the
penalty, but also the payment of damages. If he chooses to demand the satisfaction of
the penalty, he cannot afterwards demand the fulfillment of the obligation.

Art. 1228. Proof of actual damages suffered by the creditor is not necessary
in order that the penalty may be demanded.

Ordinarily, proof of actual damages is required. Art. 1228 only applies to the general
rule under Art. 1226 and not to the exceptions. In such case, in order to be able to
recover such damages in addition to the penalty imposed, the creditor or obligee must
prove the amount of damages which he had actually suffered. (Lambert vs. Fox, G.R.
No. L-7991, January 29, 1914)

Art. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if
there has been no performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable.

The courts are empowered to equitably reduce the stipulated penalty under the
following circumstances: first, if the obligation has been partly complied with; second, if
the principal obligation has been irregularly complied with; and third, if the penalty is

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iniquitous or unconscionable even if there has been no performance. (Umali vs. Miclat,
G.R. No. L-9262, July 10, 1959)

Art. 1230. The nullity of the penal clause does not carry with it that of the
principal obligation.

The nullity of the principal obligation carries with it that of the penal clause.

The principle under Art. 1230 is that when the principal obligation is void, the penal
clause, being an accessory obligation, is also void. However, the invalidity of the penal
clause does not make the principal obligation void as the principal obligation‘s efficacy is
not dependent on the penalty.

QUESTIONS TO PONDER

1. What are conditional obligations?

2. What are the rules concerning the effects of the different classification of
conditions?
3. How does a conditional obligation differ from an obligation with a term?
4. What are the different classifications of terms or periods?
5. How do alternative and facultative obligations differ?
6. What distinguishes a joint obligation from a solidary obligation?
7. What determines the divisibility of an obligation?
8. What are the effects of a penal clause?

REQUIRED READING/S AND OTHER LEARNING RESOURCES

1. Chapter 3, pp. 107 – 229:

Jurado, D. (2010) Comments and Jurisprudence on Obligations and Contracts, 12th
revised ed. Rex Printing Company, Inc. Quezon City, Philippines

LEARNING ACTIVITIES

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 To better understand the legal effects of the different kinds of obligations, read and
digest all the cases mentioned in this module.
a. Philippine Long Distance Co. vs. Jeturian (G.R. No. L-7756, July 30, 1955)
b. Pacific Banking Corp. vs. Court of Appeals (G.R. No. L45656, May 5, 1989)
c. Victorias Planters vs. Victorias Milling Co. (G.R. No. L-6648, July 25, 1955)
d. Agoncillo vs. Javier (G.R. No. L-12611, August 7, 1918)
e. Inciong, Jr. vs. Court of Appeals (G.R. No. 96405, June 26, 1996)
f. SSS vs. Moonwalk (G.R. No. 73345, April 7, 1993)
g. Lambert vs. Fox (G.R. No. L-7991, January 29, 1914)
h. Umali vs. Miclat (G.R. No. L-9262, July 10, 1959)

SELF-TEST

1. What are the key points in the module?

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2. Based on your readings, how can you apply the content from this module to your
daily life?
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3. What insights did the module provide in your course?

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4. How has class discussion influenced your thinking on this module?

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5. How can the learnings in this module improve your role in your school, family, and
community?
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_______________________________________________________________________
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POST TEST
Part I. Mark the circle of the correct answer. (2 points each)
1. The condition which depends upon chance and/or the will of a third person.
o Pure
o Casual
o Mixed
o Potestative

2. It refers to obligations which are created or established at the same time, out of
the same cause, and which result in mutual relationships of creditor and debtor
between the parties.
o Facultative Obligations
o Alternative Obligations
o Conditional Obligations
o Reciprocal Obligations

3. The term or period when the obligation is demandable at once, although it is

terminated upon the arrival of a day certain.
o Conventional Term
o Judicial Term
o Legal Term
o Resolutory Term

4. As a rule obligations are joint when the agreement is silent. The following are all
exceptions to the general rule except:
o When the law requires solidarity
o When the parties so stipulate
o When there are no words of solidarity
o When the nature of the obligation requires solidarity

5. It is an accessory obligation which requires the debtor to assume greater liability

in case of breach.

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 o The obligation to take care of it with the proper diligence of a good father
of the family
o The obligation to account and deliver the fruits
o The obligation to deliver the accessions and accessories
o The obligation arising from a penal clause

6. Payment of a loan by installment is an example of a divisible obligation. The

payment of a monetary loan is essentially divisible since it involves money which
can be divided into parts, but it is an indivisible obligation if the loan is payable
only at one time.
o Both statements are correct
o Both statements are wrong
o The first statement is correct while the second statement is wrong
o The first statement is wrong while the second statement is correct

Part II. Answer the questions briefly and responsively. (28 points; 4 points per item)

1. What is the effect of a suspensive condition as compared to a resolutory

condition?

2. Give an example of a mixed condition.

3. What are the rules on the rescission/resolution of reciprocal obligations?

4. When may the court fix the period or term? Can there be a breach pending the
fixing of the term or period by the courts?

5. Enumerate the instances when the debtor loses his right to the benefits of the
period.

6. Generally, who has the right of choice in alternative obligations? When may the
other contracting party have the right of choice?

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 7. When does an obligation where there are several creditors and debtors become
solidary?

REFERENCES
1. Jurado, D. (2010) Comments and Jurisprudence on Obligations and Contracts,
12th revised ed. Rex Printing Company, Inc. Quezon City, Philippines
2. Balane, R. (2002) Lecture Notes on Civil Law. n.p.
3. Rabuya, E. (2017) Civil Law Reviewer Vol. II. Rex Printing Company, Inc. Quezon
City, Philippines
4. https://www.lawphil.net
5. http://elibrary.judiciary.gov.ph

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APPENDIX: COURSE MATERIAL EVALUATION

Name: Course Title:

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