KINDS OF OBLIGATION

Primary classification under the civil code

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

One whose effectivity or

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

1. I promise to pay you P1 million.

2. I'll pay you P1 million on demand.
 CONDITIONAL OBLIGATION

One whose effectivity is subordinated to the fulfillment

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

It is a future and uncertain event

which wields an influence on legal
relationship.
Kinds of conditions:
 Suspensive and Resolutory
A.Suspensive – fulfillment of the condition
results in the acquisition of rights arising
out of the obligation.

B. Resolutory – fulfillment of the condition

results in the extinguishments of rights
arising out of the obligation
Nature of Suspensive Conditions

the happening of the event

gives rise to an obligation.
Examples of Suspensive Conditions
1. I promise to give you a car provided that you
pass the CPA board exam.

2. I will give you P1 million if President Aquino

will die of lung cancer.
 Nature of resolutory condition
The happening of the event extinguishes
the obligation.
 Examples of resolutory Condition
1. I will give you my car now but should you
marry Daniel Padilla, the donation will not be
effective.

2. My house is yours provided that you shall not

win in the presidential election.
 potestative, casual and mixed
A. Potestative – fulfillment of the condition depends
upon the exclusive will of a party to the obligation.

B. Casual – fulfillment of the condition depends upon

chance and/or upon the will of a third person.

C. Mixed – fulfillment of the condition depends partly

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

example.
Duterte is to allow the use of his car by Binay
until Duterte returns from Baguio.
2. potestative on the part of the creditor. - it is
VALID whether the condition is suspensive or
resolutory.
example:
a. I will give you my sign pen if you
desire to have it.
b. Poe is to give Roxas P50,000.00 if
Roxas goes to Baguio.
c. Poe is to allow the use of her car
by Roxas until Roxas returns from Baguio.
 Casual Condition
example:
1. Duterte is to give Binay P100 million if
Duterte wins in the presidential election
2. Duterte is to give Binay P100 million if
Poe withdraws her presidential bid.
 Mixed Condition
example:
1. David will give Angelo P1 million if
Angelo will marry Yna.
2. I'll give you my car if I can sell my land.
 Possible/Legal and Impossible/Illegal
A. Possible – one that is capable of
realization/fulfillment according to nature,
law, public policy or good customs;

B. Impossible - condition is not capable of

realization/fulfillment according to nature,
law, public policy or good customs.
Effects of Impossible/Illegal Condition
1. if the condition is to do an impossible or
illegal thing - the obligation and the condition
are VOID.
* because the debtor knows that no
fulfillment can be done and therefore is not
serious about being liable.
eample:
1. I will sell you my land if you can make a
dead man alive.
2. I will give you my heart if you can swim
across the Pacific Ocean.
3. I will give you money if you kill X.
2. if the condition is negative, that is not to do the
impossible or illegal thing, just disregard the
condition, but the obligation remains to be
VALID.
example:
a. I will sell you my land if you cannot make a
circle that is at the same time a square.
b. I will give you my car if you do not kill X.
 Positive and Negative

A. Positive – condition involves the performance

of an act.

B. Negative - condition involves the omission of

an act.
example of positive conditions:
1. I will give you my land if you marry Yna this
year.

if by the end of the year, Yna is alsready

dead, or you have not yet married her, the
obligation is extinguished.
Eaxmples of negative obligation:
1. I will give you P1 million if by January 31,
2016 you have not yet married Yna.

if by said date, you are not yet married, or

if prior thereto, Yna had died, the obligation is
effective.
 Loss, Deterioration, and Improvement During
the Pendency of Condition

- this would appy only if the

suspensive condition is fulfilled
and the object is specific
 What are the three things that
may happen to the object of an
obligation pending the fulfillment
of a suspensive condition?
 the object:

1. may be lost
2. may deteriorate
3. may be improved
 the object may be lost...
a. without the fault of the debtor - the
obligation shall be extinguished
b. with fault of the debtor - debtor is obliged to
pay damages
c. partly with and partly without the fault of the
debtor -
 the object may deteriorate...
1. without the fault of the debtor - the
impairment is to be borne by the creditor
2. with the fault of the debtor - the creditor may
choose between the rescission of the
obligation and its fulfillment, with indemnity
for damages in both cases
3. partly with and partly without the fault of the
debtor
 the object may improve...
1. by nature or by time - the improvement shall
inure to the benefit of the creditor
2. through the expense of the debtor - he shall
have no other right than that granted to the
usufructuary.
3. partly through nature or time and partly by
the debtor
 DEFINITION OF LOSS
it is understood that the thing is
lost:

1. when it perishes
e.g. when a house is burnt to
ashes.
2. when it goes out of
commerce
e.g. as when the object
heretofore unprohibited
becomes prohibited
3. when it disappears in such a
way that its existence is
unknown
e.g. when a particular car has been
missing for some time.
4. when it disappears in such a
way that it cannot be
recovered
e.g. when a particular diamond
ring is dropped in the middle
of the pacific ocean
 Illustrative problems
(a) A promised to give B his car if B passes the
CPA board exam. Pending the results of the
said exams, the car was destroyed by a
fortuitous event, without any fault at all on
the part of the debtor.

When B passes the board exam, does A have

to give to B anything?
(b) A promised to give B P1 million if B passes
the CPA board exams. Pending the results of
the said exams, A's money is destroyed by fire,
not imputable to A. When B passes the CPA
board exam, does A still have to give him P1
million?
(c) On the first problem (a). Suppose the loss
occured through the fault of the debtor, is the
debtor liable?
ans...
Yes. If the thing id lost through the fault of the
debtor, he shall be obliged to pay damages.
(d) Suppose pending the fulfillment of the
suspensive condition, the object, say a
particular car, deteriorates without the fault
of the debtor, is the debtor bound to make
the up for the depreciation, or should the
creditor bear the deterioration suffered?
ans...
in such case, the creditor will hve to suffer for
the deterioration or impairment. The law say:
When the thing deteriorates without the fault
of the debtor, the impairment is to be borne
by the creditor.
(e) Suppose a determinate thing deteriorates
through the fault of the debtor?
ans...
The creditor may choose between:
a. rescission (or cancellation of the
obligation), plus damages
b. or fulfillment of the obligation (even if
there has been deterioration) plus damages.
(f) Suppose the thing is improved by nature or
by time, who gets the benefit of the
improvement?
ans...
the creditor gets the benefit. If the thing is
improved by its nature or by time, the
improvement shall inure to the benefit of the
creditor.
(g) Suppose the thing has improved, not through
time or by its nature but through the epense
of the debtor, what will be the rights of said
debtor?
ans...
the debtor will have the rights granted to a
usufructuary for improvements on a thing
held in usufruct.
he is not entitled to reimbursement but he
may emove the improvements provided he
does not, by doing so, damage the property.
he may however set off the improvements he
may have made on the property against any
damage to the same.
(h) Suppose the improvement is due partly to
the expenses made by the debtor and partly
due to its nature or by time, who gets the
benefit?
ans...
the creditor gets the benefit of the
improvements of the thing by its nature or by
time, but the debtor is entitled to the rights of
a usufructuary over the useful improvements
that may have been caused at his expense.
 RECIPROCAL OBLIGATIONS

Those which are created or

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

If one of the parties fails to

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

means the right to

cancel or resolve the contract
or reciprocal obligations in
case of non-fulfillment on the
part of one.
To rescind is to declare a contract void at its
inception and to put an end to it as though it
never was.
GENERAL RULE:

The right to rescind needs judicial approval

 EXCEPTIONS:
–If there is an express stipulation
of automatic rescission

–When the debtor voluntarily

returned the thing
NOTE:
Rescission will be ordered only where the
breach is substantial as to defeat the object
of the parties in entering into the
agreement.

The remedy of rescission and fulfillment

are alternative, not cumulative.
 OBLIGATION WITH A PERIOD

Those whose demandability or

extinguishment is subject to the
expiration of a term or period which
must necessary come.
 Period distinguish from condition
1. as to fulfillment -
A condition is an uncertain event; but a
period is an event which must happen sooner
or later, at a date knoen befrore hand, or a
time which cannot be determined.
2. Where reference to time -
A period always refers to the future; a
condition may, under the law, refer even to
past.
3. As to influence on obligation -
A condition causes an obligation to arise or
to cease; but a period merely fixes the time or
the efficaciousness of an obligation.
 Kinds of Period

1. Ex Die - This is a period with a

suspensive effect. Here, the
obligation becomed demandable
upon the lapse of the period.
2. In Diem - This is a period with a resolutory
effect. Here the obligation is demandable at
once but is extinguished upon the lapse of
period.
 other kinds are:

1. Legal - A period that is fixed by

the law
2. Voluntary - This is fixed by the
parties
3. Judicial - One that is fixed by the
court
 Problem
"I will pay you my debt when my means permit
me to do so."

Is this an obligation with a period or

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

When a period is designated for the

performance or fulfillment of an
obligation, it is presumed to have been
established for the benefit of both
creditor and debtor.
EXCEPTION:

When it appears from the tenor of the

period or other circumstances that it is
established in favor of one or the other. 
 Nota Bene:

The debtor cannot be

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

1. For the benefit of the debtor -

He cannot be compelled to perform his
obligation before the expiration of the term,
but he may choose to perform before such
expiration at his option.
 example
D is obliged to pay C P1 million on or
before December 31, 2016. D cannot
be compelled to pay before
December 31, 2016. However, he
may choose to pay at any time
before December 31, 2016 or on
December 31, 2016 at his option.
2. For the benefit of the creditor -
He cannot be compelled to accept
performance before expiration of the term,
but he may choose to demand performance
before such expiration at his option.
 example
On January 15, 2016, D borrowed from C
P1 million collectible on or before June 30,
2016. C may demand payment on June 30,
2016 or at any time before the said date.
However, D cannot compel him accept the
payment at any time before June 30, 2016.
 When court may fix period:

A. if the obligation does not fix a

period, but from its nature and
circumstances it can be inferred that a
period was intended by the parties;
 example
1. A contract to construct a house where
the period was not stated.
2. A donation where land was given
provided certain construction was to be made
on it. Here the time within which construction
is to be made should be fixed by the courts.
 B. if the duration of the period
depends upon the will of the debtor; and
 example
1. When my means permit me to do so.
2. I'll pay you little by little.
3. As soon as possible
4. As soon as I have money.
When debtor loses right to make use of period

1. when after the obligation has been

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

D owes C P1 million demandable on May

15, 2016. In January 31, 2016, D become
insolvent. The debt is immediately
demandable in January 31, 2016 unless D can
offer security.
 2. when he does not furnish to the
creditor the guaranties or securities he
promised;
 example
D borrowed P1 million from C
promising to pledge his ring to C to
secure the debt within one month. C
gave D one year to pay the loan. D,
however, failed to pledge his ring within
the period agreed upon. In thia case, C
can demand immediate payment even
before the agreed due date thereof.
 3. when by his own act he has
impaired said guaranties or securities
after their establishment, and when
through fortuitous event they disappear,
unless he gives new ones equally
satisfactory;
 example
D obtained a loan from C, the same
being secured by a chattel mortgage on D's
car. The loan is payable within one year. On
the seventh month, the car was razed by fire.
C can demand immediate payment unless D
gives another security that is equally
satisfactory. This is true even if the cause of
the loss or impairment was not due to the
fault of D
 4. when debtor violates any
undertaking, in consideration of which
the creditor agreed to the period;
 example
C granted a loan of P10,000.00 to
D giving D one year to pay provided
D did not engage in any gambling
until he has paid the debt.
If D enters a casino to play poker,
say after one month, C can already
demand immediate payment.
5. when debtor attempts to abscond.
 example
If the debtor has been disposing
all his property with an attempt to
leave his place of business or
residence to escape his creditors,
such creditors can demand
immediate payment of his debts
although their maturity date is not
yet due.
 pre-test
1. D is obliged to give C a specific car if C
passes the CPA Licensure Exam. D’s obligation
is an example of:
　　　 a. A pure obligation
　 　 　 b. An obligation with a suspensive
condition
　 　 　 c. An obligation with a resolutory
condition
　　　 d. An obligation with a period
2. One of the following is a void obligation:
　 　 　 a. D is obliged to give C P5,000.00 if C
does not go to the moon
　 　 　 b. D is obliged to give C P5,000.00 if D
goes to Baguio
　 　 　 c. D is obliged to give C P5,000.00 if C
goes to Baguio
　 　 　 d. D is obliged to give C P5,000.00 if D
wins first prize in the sweepstakes on a ticket
he had already purchased.
3. When the debtor binds himself to pay when his
means permit him to do so, the obligation is:
　 　 　 a. An obligation with a resolutory
condition
　　　 b. A pure obligation
　 　 　 c. An obligation with a suspensive
condition
　　　 d. An obligation with a suspensive period
4. The debtor shall lose the right to make use of
the period in the following cases, except when
he:
　　　 a. Becomes insolvent
　 　 　 b. Violates any undertaking in
consideration of which the creditor agreed to
the period
　　　 c. Attempts to abscond
　 　 　 d. Does not furnish any guaranty or
security to the creditor
 10.) On February 1, 2016 D obligated
himself to give C P50,000.00 if C will marry X
on or before February 29, 2016. The condition
of the obligation is a:
　　　　 a.) Positive condition
　　　　 b.) Negative condition
　　　　 c.) Joint condition
　　　　 d.) Impossible condition
 Alternative Obligations
and Facultative Obligations
Kinds of obligations according to the number of
prestations
1. Simple -

One when there is only one prestation

2. Compound -
One when there are several prestations.
This may may be:

a.) Conjunctive - Here, several prestations

are due but all must be performed.
example:

D is to give C a specific ring, a specific watch

and a specific bracelet to C. D must deliver all
the items to C.
b.) Distibutive or disjunctive - this
may either be alternative or
facultative.
 Alternative Obligation
It is one where several
prestations are due but the complete
performance of one of them is
sufficient to extinguish the
obligation.
 example
D is obliged to give a specific
ring, a specific watch, or a specific
bracelet to C. The delivery of any of
the three articles will extinguish the
obligation
 Right to choose prestation

The right of choice belongs

to the creditor, unless it has
been expressly given to the
creditor.
 Limitations on Debtor's Right to Choose

1. The debtor must completely perform the

prestation chosen. He cannot compel the
creditor to receive part of one and part of
another undertaking.
2. He cannot choose those prestations which are
impossible, unlawful or which could not have
been the object of the obligation.
 When obligation ceases to be
alternative and becomes a simple
obligation
1. When the debtor has communicated his
choice to the creditor.
2. When among the prestaions wherey the
debtor is alternatively bound, only one is
practicable.
3. When the creditor has communicated his
choice to the debtor, if the creditor has been
expressly given the right of choice.
 Rules in case of Loss of
things or impossiblity of
services which are
alternatively the object of
the obligation.
 1. When the right of Choice is with the debtor

a. If only one or some are lost

through a fortuitous event or
through the debtor's fault, the
debtor may deliver any of the
remainder, or that which remains
if only one subsists.
b. If all are lost through a
fortuitous event, the obligation is
extinguished (based on the rule
that no person shall be
responsible for fortuitous event)
c. If all are lost through the
debtor's fault, the debtor shall
pay the value of the last thing
that was lost plus damages.
 Example:
D is to give C a specific ring, a specific
bracelet or a specific wristwatch. The
obligation is silent as to who will choose the
item to be delivered. Therefore, the right of
choice bleongs to D
a. If the ring is lost through a fortuitous event, D
may deliver the bracelet or the wristwatch.
The same rule applies if the ring is lost
through the fault of D. In the case of the
latter, D shall have no liability for damages
because he can still perform his obligation by
choosing to deliver the bracelet or the
wristwatch.
b. If the ring and the bracelet are lost through a
fortuitous event or through D's fault, the
obligation is converted into a simple
obligation to deliver the wristwatch. There is
no liability for damages on the part of D even
if the loss is due to his fault because he can
still perform his obligation. It was as if D chose
to deliver the wristwatch.
c. If all the things are lost due to a
fortuitous event, D's obligation is
extinguished.
d. If the ring and the bracelet are lost
through a fortuitous event, the
obligation becomes a simple obligation
to deliver the wristwatch. If the
wristwatch is thereafter lost due to the
fault of D, D shall pay damages.
e. If the ring, the bracelet and the
wristwatch are lost one after the other
due to D's fault, D shall pay the value of
the wristwatch, the last item that was
lost, plus damages.
f. If the ring and the bracelet are lost
through D's fault, the obligation becomes
a simple obligation to deliver the
wristwatch. If the wristwatch is
thereafter lost through a fortuitous
event, D's obligation is extinguished.
 2. When right of choice is expressly granted to
the creditor
a.) If only one or some sre lost through a
fortuitous event, the debtor shall deliver that
which the creditor should choose among the
remainder, or that which remains if only one
subsists.
b.) If all are lost through a fortuitous event, the
obligation shall be extinguished.
c.) If only one or some are lost through the
debtor's fault, the creditor may claim any of
those subsisting, or the price of those which
were lost through the debtor's fault plus
damages.
d.) If all are lost through the debtor's fault, the
creditor's fault, the creditor may claim the
price of any of them plus damages.
 examples
D is to give C a specific ring, a specific
bracelet or a specific wristwatch. The
parties agreed that C shall have the right
of choice.
a.) If the ring is lost through a fortuitous
event, D shall deliver either the bracelet
or the wrist watch at the choice of C.
b.) If all are lost through a fortuitous event,
D's obligation is extinguished.
c.) If the ring and the bracelet are lost through a
fortuitous event, D shall deliver the
wristwatch which is the remaining item. The
obligation becomes a simple obligation to
deliver the wristwatch. If the wristwatch is
thereafter lost due to D's fault, D shall pay
damages.
d.) If the ring and the bracelet are lost due
to D's fault, the obligation does not
become a simple obligation to deliver the
wristwatch. C can still choose from the
payment of the price of the ring or the
baracelet with damages, or the delivery
of the wristwatch.
e.) If all are lost due to the fault of D, C
may claim the price of any of them plus
damages.
 Pre-test
5. D is obliged to give C a specific watch, a specific ring, or
a specific bracelet. The parties agreed that C will have the
right to choose the ring which will be given to him. Before C
could make his choice, the watch and the ring are lost
through D’s fault, successively. What is the right of C?
　　　 a.) C may choose the delivery to him of the bracelet, or
the price of the watch or the price of the ring plus damages
　　　 b.) C cannot choose the price of the watch od the price
of the ring because the said objects have already been lost
　 　 　 c.) C can only choose to have the bracelet because
anyway, D can still perform his obligation
　　　 d.) C can only choose to have delivery of the bracelet or
the price of the ring which was the last item that was lost plus
damages
 FACULTATIVE OBLIGATION

An obligation where only one

prestation is due but the debtor may
render another in substitution.
 example
D is obliged to give a specific ring
to C with the agreement that D may
deliver a specific watch as a
substitute.
 Rules is case of loss of principal thing and
substitute
1. Before Substittution (i.e., before the debtor
has informed the creditor of the substitution)
(a) Principal thing
(1) If lost due to fortuitous event, the
obligation is exringuished
(2) If lost due to the debtor's fault,
debtor shall pay damages.
2. After substitution
(a) Principal thing
The loss of the principal thing
whether through a fortuitous event or
through the debtor's fault imposes no
additional obligation on the debtor
because the thing due is already the
substitute.
 After the substitution has
been communicated, the thing is
due is the substitute. The
obligation also ceases to be a
facultative obligation and
becomes a simple obligation.
 (b) Substitute thing
1.) If lost through fortuitous event,
the obligation is extinguished.

2.) If lost through the debtor's fault,

the debtor shall pay damages.
Alternative obligation and Facultative obligation,
distinguished
ALTERNATIVE FACULTATIVE
1. Several prestaions 1. Only one
are due, but the prestation, the
performance of principal
one is sufficient to
extinguish the obligation, is due.
debt.
2. If there are void 2. If the principal
prestations, the obligation is void,
others may still be the debtor is not
valid, hence, the required to give
obligation the substitute
remains.
3. The right of 3. The right of
choice is with the choice belongs to
debtor, unless the debtor only
expressly given to
the creditor
4. If all prestations 4. If the principal
are impossible obligation is
except one, that impossible, the
which is possible debtor is not
must still be given required to give
the substitute
 Joint and Solidary Obligation
In a joint or solidary obligation,
there is a concurrence of two or
more debtors and/or two or more
creditors in one and the same
obligation.
 In a joint obligation, each debtor
is liable only for proportionate part of
the debt, and each creditor is entitled
only to a proportionate part of the
credit.
 example
1. A and B are indebted to X for P10,000.00.

A is liable only for P5,000.00; B is liable only

for P5,000.00
2. A owes X and Y P8,000.00.

X can collect only P4,000.00; Y can collect

only P4,000.00.
 In a solidary obligation, each
debtor is liable for the whole
obligation, and each creditor is
entitled to demand payment of the
whole obligation.
 Kinds of Solidary Obligation

1. Passive Solidarity - This is solidarity on

the part of the debtors
example:
A and B, solidary debtors, are
indebted to X for P1 million. X can demand
payment of P1 million from either A or B. If A
pays P1 million, the obligation is extinguished.
A can demand reimbursement of P500,000.00
from B representing the latter's share in the
debt.
2. Active Subject - This is solidarity on the
part of the creditors.
example:
A owes X and Y, solidary creditors,
P8,000.00. Either X or Y may demand payment
of P8,000.00 from A. If A pays X P8,000.00, the
obligation is extinguished. X must give
P4,000.00 to Y representing the latter's share
in the credit.
3. Mixed solidarity or solidarity on the part
of both the creditors and debtors.
example:
A and B, soliary debtors, owe X and Y,
solidary creditors, P12,000.00. X or Y may
collect from A or B the total sum of 12,000.00.
If A pays X P12,000.00, the obligation is
extinguished. B must reimburse A P6,000.00.
On the other hand, X must give P6,000.00 to
Y.
other terms for solidary obligations
1. Joint and Severally
2. Individually and Collectively
3. In Solidum
4. Mancomunada Solidaria
5. Juntos o separadamente
 other term for joint obligation
1. proportionately
2. pro rata
3. mancomunada
4. mancomunada simple
 GENERAL RULE
The obligation is presumed to be
joint when there is a concurrence of
two or more debtors and/or two or
more creditors in one and the same
obligation.
 EXCEPTIONS
1. When the obligatio expressly so states
 EXCEPTIONS
2. When the law requires solidarity
 EXCEPTIONS
When the nature of the obligation requires
solidarity
 problems
1. A, B and C are obliged to give X, Y and Z
P27,000.00. How many distinct debts are
there in the obligation?
answer...
Since the obligation is presumed to be
joint, there are 9 distinct debts as follows.
(1) A owes X P3,000.00
(1) A owes Y P3,000.00
(1) A owes Z P3,000.00
(1) B owes X P3,000.00
(1) B owes Y P3,000.00
(1) B owes Z P3,000.00
(1) C owes X P3,000.00
(1) C owes Y P3,000.00
(1) C owes Z P3,000.00
 problems
2. A, B and C, joint debtors, are obliged to give X,
Y and Z, solidary creditors, P18,000.00. How
much may X collect and from whom?
answer...
X, being a solidary creditor, may collect the
sum of P18,000.00. However, since the
debtors are joint debtors, he may collect only
P6,000.00 from each of them. After collecting
the sum of P18,000.00, X must give Y and Z's
share of P6,000.00 each.
 problem
3. A, B and C, solidary debtors, are obliged to
give X, Y and Z, joint creditors, P18,000.00.
How much may A be held liable?
answer...
A, being a solidary debtor, may be held
liable for P18,000.00. However, since the
creditors are joint creditors, each of them may
collect only P6,000.00 from A. If A pays the
whole amount of P18,000.00 to the creditors,
A can demand reimbursement of P6,000.00
each from B and C.
 problem
4. A, B and C, solidary debtors, are obliged to
give X, Y and Z, solidary creditors, P18,000.00.
How much may Z collect and From whom?
answer...
Z may collect P18,000.00 from any of the
solidary debtors each of whom may be held
liable for the entire obligation. If Z collectgs
P18,000.00 from A, Z must give X and Y
P6,000.00 each. A, on the other hand, can
demand reimbursement from B and C at
P6,000.00 each.
 A and B are solidary debtors of
X and Y, solidary creditors, in the
amount of P20,000.00.
1. If X renounces or remits the whole
obligation without the the consent of
Y, will the obligation be
extinguished?
answer...
Yes, because the remission made by
any solidary creditor extinguishes the
whole obligation.
However, X has to give Y's share of
P10,000.00 since solidary creditors may
not do anything prejudicial to his co-
solidary creditors.
A solidary creditor who has caused
the extinguishment of the obligation
by remission, novation,
compensation or confusion, or who
has collected the debt, shall be liable
to the others for the shares
corresponding to them.
2. Suppose the remission of the whole
obligation was obtained by A, may A
demand reimbursement from B?
answer...
No, because the remission of the
whole obligation obtained by one of the
solidary debtors does not entitle him to
reimbursement from his co-debtors.
Remission being the gratuitous
abandonement by the creditors of their
rights to the obligation.
 3. Suppose that X renounces or remits
A's share amounting to P10,000.00.
However, it turned out that B had
already paid P20,000.00 to Y two days
before. May B still collect P10,000.00
from A representing A's share?
answer...
Yes, B may still collect from A P10,000.00.
The remission made by the creditor of the
share which affects one of the solidary
debtors does not release the latter from
responsibility to his co-debtors, in case the
debt has been totally paid by anyone of them
before the remission was affected. A's remedy
will be to go after X or Y to collect the sum he
paid to B.
 A is indebted to X, Y and Z, solidary
creditors, for P24,000.00.

Suppose X makes a demand against A, to whom

shall A pay?
answer...
A must pay to X. If A pays to another
solidary creditor, say Y, the sum of
P24,000.00, the payment, as a rule, is
valid only with respect to Y's share of
P8,000.00. Thus, if X and Z do not receive
their respective shares from Y, A can still
be held liable for P16,000.00
 A, B and C, solidary debtors,
borrowed P30,000.00 from X. The
obligation is evidenced by a
promissory note signed by the
debtors.
1. X demands payment from A. However, A pays
only P12,000.00. May X still go after B and/or
C?
answer...
Yes, X may still go after B or C or both of
them for the balance of P18,000.00. The
creditor may proceed against anyone of the
soliday debtors or some or all ofthem
simultaneously. The demand made against
one of them shall not be an obstacle to those
which may subsequently de directed against
the others, so long as the debt has not been
fully collected.
2. If A pays X P30,000.00, what are the
rights of A?
answer...
A can demand reimbursement from B and
C at P10,000.00 each together with interest
from the date of payment. However, if
payment is made by A before due date, he
cannot collect interest during the intervening
period, i.e., from date of payment to due date.
3. A pays X P30,000.00. However, C has become
insolvent. How much may A demand from B as
reimbursement?
answer...
A may demand P15,000.00 from B. If an
insolvent debtor cannot reimburse his share
to the debtor who paid the obligation, such
share shall be borne by all his co-debtors, in
proportion to the debt of each. Thus, A and B
shall bear C's share at P5,000.00 each.
4. If A pays X P30,000.00 more than 10 years
after the note had become due, can he syill
demand reimbursement?
answer...
No, he can no longer demand
reimbursement. Payment by a solidary
debtor after the obligation has
prescribed does not entitle him to
reimbursement. The same rule applies if
payment is made after the obligation has
become illegal.
A, B, C and D are solidarily liable to X for the
delivery of a specific ring valued at
P20,000.00. What is the rule if the ring is lost:
1. through a fortuitous event?
2. through the fault of D?
answer...
1. The obligation shall be extinguished.
This is according to the rule that no person
shall be responsible for fortuitous events.
 2. All the solidary debtors shall be liable for
the payment of the price of the ring plus
damages and interest. However, the soliary
debtor making the payment can recover what
he has paid from the guilty debtor. Thus, if X
goes after A and A pays the price of the ring,
and the damages and ineterest, A can demand
reimbursement of P20,000.00 plus damages
and interest from D, the guilty or negligent
debtor.
Existence of solidarity despite different periods
and conditions
 Solidarity exists although the
creditors and the debtors may not be
bound by the same periods and
conditions
 example
A, B and C are solidarily liable to X
for P9,000.00. The parties stipulated
that the share of A is payable on
demand; the share of B on Christmas
next year; and the share of C, if X
passes the CPA board examinations.
X may demand payment of the share of A of
P3,000 anytime from either A, B or C. On
Christmas day next year, X may demand
payment of the share of B of P3,000.00 from
either A, B or C. When X passes the CPA board
examination, he may demand payment of the
share of C of P3,000.00 from either A, B or C.
Effect of Unauthorized assignment of creditor's
right
The solidary creditors are bound by mutual
trust and confidence. Hence, a solidary
creditor cannot assign his right to a third
person without the consent of the other
solidary creditors because the assignee may
not enjoy the trust and confidence of the non-
assigning creditors.
 If the assiginment is without the
consent of the co-creditors, the assignment is
not valid as to them. Accordingly, they can
recover their respective shares from the
assigning creditor in case the assignee who
collected the debt fails to give them their
shares.
Defense Available to solidary debtors

1. Those derived from the nature of

the obligation (such as prescription
of the obligation, illegality of cause)
2. Those personal to the creditor being
sued, or those that pertain to his
own share (such as incapacity of the
debtor or non-fulfillment of a
suspensive condition as ti his share)
3. Those personal to the other debtors
with respect to their own share (such
as incapacity of another debtor or
non-fulfillment of a suspensive
condition with respect to other
debtors' shares)
 Joint indivisible obligation, concept and
characteristics

A joint indivisible obligation is an

obligation where the debtors or
creditors are jointly bound but the
prestation or object is indivisible.
It has the following
characteristics:
1. The creditors must act collectively,
meaning, all of them must make the
demand unless one is specifically
authorized to act for the others. A
demand made by one or some but
not all of the creditors will not be
effective.
2. The demand must be made against all the
debtors since compliance is possible only if
they act together.
 3. The right of the creditors may be
prejudiced by their collective acts. Thus,
a renunciation made by a joint creditor
etinguishes only as to his own share. The
obligation, however, is converted into an
obligation to pay the value of the thing. If
all joint creditors make the renunciation,
the obligation is extinguished.
 4. If one of the debtors does not comply
with his undertaking, the obligation is
converted into a monetary obligation to pay
damages. The debtors who may have been
ready to comply shall not contribute to the
indemnity beyond the corresponding price of
the thing or the value of the service in which
the obligation consists.
5. If one of the debtors is insolvent, the others
shall not be liable for his share.
 illustration

A, B and C are jointly indebted

to deliver a specifi car valued at
P900,000.00 to X, Y and Z.
 1. X, Y and Z must make a demand
against A, B and C for the delivery of
the car.
 2. If A is not ready to comply with his
undertaking, the obligation to deliver tha car
is converted into an obligation to pay its value
plus damages. B and C shall be obliged to pay
P300,000.00 each. A, the defaulting debtor,
shall be liable for P300,000.00 plus damages.
 3. If A is insolvent, B and C shall be
liable only for their respective share
of P300,000.00 each.
 4. If X renounces his right to the obligation
without the consent of Y and Z, then only hs
proportionate share is extinguished. The
obligation, however, is converted into a
monetary obligation to pay P600,000.00
which must be given to Y at P300,000.00 and Z
at P300,000.00 by A, B and C who will give
P200,000.00 each.
 Indivisibility and Solidarity, concept and
distinctions
The indivisibility of an obligation refers to
the subject matter or object not being
susceptible of partial performance. Solidarity,
on the other hand, refers to tie between the
parties. One therefore, does not imply, or give
rise, to the other.
 Thus, there may be the following obligations:

1. Joint divisible obligation

example:
A and B are jointly obliged to C ro
construct a pavement 2 meters wide and 10
meters long.
2. Joint indivisible obligation
example:
A and B are jointly obliged to give a
specific horse to C.
3. Solidary divisible obligation
example:
A and B are solidary liable to pay C
P10,000.00 in two equal installments.
4. Solidary indivisible obligation
example:
A and B are solidarily liable to give a
specific horse to C.
A, B, C and D are obliged to give V, W,
X, Y and Z P20,000.00
　
How many distinct debts are there in
the obligation?
 7. A, B, C and D solidary debtors, are
obliged to give V, W, X, Y and Z joint creditors,
P20,000.00
　　 a.) V may collect from C P20,000.00
　　 b.) V may collect from C P4,000.00
　　 c.) V may collect from C P5,000.00
　　 d.) V may collect from C P1,000.00
8. A, 25 yrs old, B, 35 yrs old and C, 17 yrs old,
are solidary debtors of X in the amount of
P9,000.00
　　 a.) X may collect from A P9,000.00
　　 b.) X may collect from A P6,000.00
　　 c.) X may collect from A P1,000.00
　 　 d.) X may collect nothing because the
obligation is voidable, C being a minor.
 9.) In an obligation with a penal clause, the
creditor as a general rule may recover from
the debtor in case of breach the following:
　 　 　 a.) The penalty as agreed upon, plus
damages and interest
　　　 b.) The penalty and damages
　　　 c.) The penalty and the interest
　　　 d.) Only the penalty
Divisible and Indivisible Obligations
 Divisible Obligation
A divisible obligaion is one
capable of partial performance (such
as the obligation to deliver 10 sacks
of rice).

The following obligations are

deemed divisible:
1. When the obligation has for its
objet the execution of a certain
number of days of work (such as an
obligation to work for 1 week)
2. When the obligation has for its object the
accomplishment of work by metrical units
(such as the obligation to construct a a
pavement which is 10 meters long and 2
meters wide)
3. Analogous things which by their
nature are susceptibleof partial
performance.
 Indivisible Obligation
An indivisible obligation is one not
capable of partial performance (such
as the obligation to deliver a specific).

The obligations are deemed

indivisible:
 1. Obligations to give definite
things (such the obligation to give a
specific horse)
 2. Those not susceptible of partial
performance (such as the obligation
of a singer to sing one song in a
program)
 3. Those where the object or service is
physically divisible but it is indivisible by
provision of law (such as where the
obligation is to pay a sum of money but
the law provides that the sum must be
paid in full as in the case of certain taxes)
 4. Those where the object or
service is physically divisible but it is
indivisible by the intention of the
parties (such as where the obligation
is to pay a sum of money but the
parties agreed that the sum must be
paid in full)
Obligations with a Penal Clause
An obligation with a penal clause is
one which provides for a greater liability
on the part of the debtor in case of non-
compliance. The accessory undertaking
on the part of the debtor is called the
penal clause.
 example
D is obliged to construct a commercial
building for C within a period of three
months. The parties agreed that should
D fail to finish the construction of the
buliding within the said period. D shall
pay C P1,000.00 for every day of delay as
penalty.
 Function of Penal Clause

A penal clause is attached to

an obligation in order to insure
performance and has a double
function:
 1. To provide for liquidated
damages, and

2. To strengthen the coercive

force of the obligation by a threat of
greater responsibility in the event of
breach.
Proof required for actual damages suffered if
there is a penalty clause
Proof of actual damages suffered by the
creditor is not necessary in order that the
penalty may be determined. The obligor is
bound to pay the stipulated indemnity
without the necessity of proof of the existence
and the measure of damages caused by the
breach
 Kind of penal clause
1. Legal and Conventional
a.) Legal - imposed by law
b.) Conventional - imposed by the
agreement of the parties
2. Subsidiary and Joint
a.) Subsidiary - when only the penalty
may be enforced
b.) Joint - when both the obligation
and the penalty may be enfored
Rule in case obligation has a penal clause

General Rule:
The penalty takes the place of the
damages and interest in case of non-
compliance.
 Exception:
1. When there is a stipulation to that
effect.
2. When the debtor refuses to pay the
penalty
3. When the debtor is guilty of fraud in the
performance of the obligation
 problems

D is obliged to deliver 10 sacks

of rice to C on May 10. The
parties agreed that if D fails to
deliver on due date, he will pay a
penalty of P500.00.
 1. Supposing that D failed to
deliver on due date, may he just pay
the penalty of P500.00?
answer...
No, because the debtor cannot
exempt himself from the preformance of
the obligation by just paying the penalty,
exept when this right has been epressly
reserved for him.
 2. May C demand the delivery of
10 sacks of rice and the payment of
the penalty at the same time upon
default of D?
answer...
No. The creditor cannot demand
fulfillment of the obligation and the payment
of the penalty at the same time except when
this has been clearly granted to him, or if after
requiring fulfillment of the obligation, the
performance thereof becomes impossible
without his fault, he may also enforce the
penalty.
 When the court may reduce the penalty

1. When the obligation has been partly complied

with by the debtor.
2. When the obligation has been irregularly
complied with by the debtor
3. When the penalty is iniquitous or
uncoscionable even if there has been no
performance
Effect of nullity of principal obligation, penal
clause

1. The nullity of the principal

obligation carries with it the nullity of the
penal clause. This is so because the penal
clause, being just an accessory
undertaking, cannot stand by itself.
2. The nullity of the penal clause does
not carry with it that of the principal
obligation. This is so because the
principal obligationcan stand by
itself.
 post test
1. One of the following is not immediately
demandable.
　　 a. Pure obligation
　　 b. Obligation with a resolutory condition
　　 c. Obligation with an in diem period
　　 d. Obligation with an ex die period
 2. D is obliged to give P10,000.00 if X dies.
This is an example of:
　　　 a. An obligation with a suspensive
condition
　　　 b. An obligation with a resolutory
condition
　　　 c. An obligation with a period
　　　 d. A pure obligation
 3. Whenever a period is designated in an
obligation, the said period shall be presumed
to have been established for the benefit of:
　　　 a. The debtor
　　　 b. The creditor
　　　 c. Both the debtor and the creditor
　　　 d. Neither of the parties
 4. An obligation ceases to be alternative and becomes
a simple obligation in the following cases, except
when:
　　　　 a. The debtor has communicated his choice
to the creditor
　　　　 b. The right of choice has been expressly
granted to the creditor and his choice has been
communicated to the debtor
　　　　 c. Among the several prestations that are due
only one is practicable.
　　　　 d. Three prestations are due but one of them
is unlawful or impossible
 5. D is obliged to give C a specific ring. The parties agreed
that D may give a specific bracelet as substitute. Which of
the following statements is true?
　 　 　 　 a. If the ring is lost through a fortuitous event
before substitution, the obligation is extinguished.
　　　　 b. If the bracelet is lost through a fortuitous event
before substitution, the obligation is extinguished.
　 　 　 　 c. If the ring is lost through a fortuitous event
after substitution, the obligation is extinguished
　 　 　 　 d. If the ring is lost through the debtor’s fault
after substitution, the debtor shall pay damages.
 6. A, B, C and D, joint debtors, are obliged
to give V, W, X, Y and Z, solidary creditors,
P20,000.00.
　　　　 a. V may collect from B P20,000.00
　　　　 b. V may collect from B P4,000.00
　　　　 c. V may collect from B P5,000.00
　　　　 d. V may collect from B P1,000.00
 7. A, B, C and D, solidary debtors, are
obliged to give V, W, X, Y and Z, solidary
creditors, P20,000.00.
　　　　 a. V may collect from D P20,000.00
　　　　 b. V may collect from D P4,000.00
　　　　 c. V may collect from D P5,000.00
　　　　 d. V may collect from D P1,000.00
 8. The following obligations are divisible,
except an obligation:
　　　　 a. To give definite things
　 　 　 　 b. Which has for its object the
execution of a certain number of days
　 　 　 　 c. Which has for its object the
accomplishment of work by metrical units
　 　 　 　 d. Which by its nature is susceptible
of partial performance
9. Consider the following statements.
　　　　 I. The nullity of the principal obligation carries with it
the nullity of the penal clause
　　　　 II. The nullity of the principal obligation does not carry
with it the nullity of the penal clause
　　　　 III. The nullity of the penal clause carries with it the
nullity of the principal obligation
　　　　 IV. The nullity of the penal clause does not carry with
it the nullity of the principal obligation.
a. Statements I and III are true
b. Statements I and IV are true
c. Statements II and III are true
d. Statements II and IV are true
 10. A, B, C and D are obliged to give
V, W, X, Y and Z P20,000.00
　　　　 a. V may collect from A P20,000.00
　　　　 b. V may collect from A P5,000.00
　　　　 c. V may collect from A P1,000.00
　　　　 d. V may collect from A P4,000.00
EXTINGUISHMENT OF OBLIGATION
 Causes of Extinguishment of Obligations
1. Payment or prformance
2. Loss of the thing due
3. Condonation or remission of debt
4. Confusion or merger of rights of creditor and debtor
5. Compensation
6. Novation
7. Annulment
8. Recission
9. Fulfillment of resolutory condition
10. Prescription
11. Other causes
 Payment or performance
Payment means not only
delivery of money but also the
performance, in any other manner,
of an obligation.
 Thus, if the obligation is to paint a
portrait, payment consists in the
performance of the service. Or if the
obligation is to deliver a certain ring,
payment consists in the delivery of
the thing.
 How must the payment e made?
1. There must be delivery of the thing or
rendition of the services that was
contemplated.
 Limitations:
a. The debtor of a thing cannot compel the
creditor to accept a different one although the
latter may be of the same value as, or more
valuable than that which is due.
 example
D is obliged to give C a Seiko
wristwatch. D cannot compel C to
accept a Rolex wristwatch even of
the latter is more valuable than
Seiko.
b. In obligation to do or not to do, an
act or forbearance cannot be
substituted by another act or
forebearance against the obligee's
will.
 example
1. D is obliged to paint C's car. He cannot
substitute it with an obligation to paint C's
house.
2. D borrowed P10,000.00 from C. C gave
D one year to pay provided D must not enter a
casino before he has paid the debt. D cannot
ask C that the obligation not to enter be
substituted with not to drink and smoke
during the term of the loan.
c. In obligation to give a generic thing whose
quality and circumstances have not been
stated, the creditor cannot demand a thing of
superior quality. Neither can the debtor
deliver the thing of inferior quality. The
purpose of the obligation and other
circumstances shall be taken into
consideration.
 example
D is obliged to give C 50 yards of textile. C
cannot compel D to deliver first class wool
textile. Neither D deliver to C a textile that
shrinks substantially at first. If C happens to be
engaged in the sale of student, then D may
give C the kind of textile fit for that purpose.
d. If the obligation is a monetary obligation, the
payment must be in legal tender.
 Legal tender is the money or currency
which the debtor may compel his creditor t
accept in payment of his debt (whether public
or private)
Medium of Payment -
Payment of debts in money must be made
in the currency which is legal tender in the
Philippines. However, the parties may
stipulate that the payment may be made in
the currency other than Philippine legal
tender at the time of payment.
 2. The payment or performance
must be complete.
 exceptions:
a. If the obligation has been substantially
performed in good faith, the obligor may
recover as though there had been strict and
complete fulfillment, less damages suffered by
the obligee.
 example:
S agreed to deliver 20 fire extinguishers to
B. After S has delivered 18 fire extinguishers to
B, there are no more fire extinguishers
available. He wants to complete the delivery
but there is no more stock available. S can
recover the cost of 20 fire extinguishers less
damages suffered by B.
b. When the obligee accepts the performance
knowing its incompleteness or irregularity,
and without expressing any protest or
objection, the obligation is deemed fully
complied with.
 example
D agreed to repair the car of C and to paint
it red. D repaired the car but painted it
maroon. C accepted the car without any
objection. D's obligation is fully complied with
notwithstanding the irregularity of the
performance.
Who must make the payment?
Payment must be made by the
debtor.
Is payment made by third person allowed?

The creditor is NOT bound to

accept payment or performance by a
third person.
 exceptions:
1. When there is stipulation to that
effect.
2. When the third person has an
interest in the fulfillment of the
obligation suach as a guarantor or a
co-debtor.
example...
D borrowed P20,000.00 from C
with G as guarantor. G as a person
who has an interest in the fulfillment
of the obligation, may compel C to
accept the payment from him.
Rights of a third person who makes the payment

a.) Payment with knowledge and

consent of the debtor.
1. He can recover what he has paid.
2. He is entitles to be subrogated in the
rights of the creditor such as those arising
from mortgage, guaranty or penalty.
example...
D owes C P10,000.00. The obligation is
secured by a mortgage of D's lot. T, a third
person, pays C the amount of P10,000.00 with
the consent of D. T can recover the amount of
P10,000.00 from D. If D cannot pay T, having
subrogated in the rights of C, can foreclose
the mortgage.
b.) Payment without the knowledge
or against the will of the debtor.
He can recover only insofar as the
payment has been beneficial to the debtor. He
is not entitled to subrogation.
example...
D borrowed P20,000.00 from C with G as
guarantor. D pays C P2,000.00. T, a third
person, pays C P20,000.00 believing that D still
owed C P20,000.00. The payment is without
the consent of D.
answer...
T can only recover P18,000.00 from D,
the amount that was beneficial to D. If D
cannot pay, T cannot go after G because
he is not entitled to be subrogated in the
rights of C.
 Payment by a third person who does not want
to be reimbursed.
a. The payment shall be deemed to be a
donation which requires the debtor's consent.

b. If the debtor does not consent, the payment

shall nevertheless be valid to the creditor who
has accepted it. In such case, the third person
can only recover insofar as the payment has
been beneficial to the debtor; he is also not
entitled to subrogation.
To whom shall payment be made?
1. To the creditor
2. To the creditor's successor's in interest, such
as heirs or assigns
3. To any person authorized to received
payment
Payment to an incapacitated creditor

The creditor must be capacitated

to receive the payment. Payment to an
incapacitated creditor is not valid except
in the following cases:
a. If has kept the thing delivered.

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

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

As a general rule, payment to an

unautthorized third person is not valid.
 exceptions:
1. If payment has redound to the benefit of the
creditor, which benefit need not be proved in
the following cases:
a. If after the payment, the third
person acquires the creditor's right (such as
when the third person becomes the assignee
of the instrument evidencing the credit.
 b. If the creditor ratifies the payment
to the third person.
 c. If by the creditor's conduct, the
debtor has been led to believe that the third
person had the authority to receive payment.
(Such as when a water service company
gives a collector's uniform to a third person
who is not its employee and the debtor gives
his paymnet to such third person believing
that he is the authorized collector.)
2. If the payment is made in good faith to a
third person in possession of the credit

In this case, the third person should be

both in possession of the instrument and the
credit.
example:
M makes a note payable to bearer and
delivers it to P. The note, however, is lost by P
and is picked up by A. A goes to M to collect
on the note. M pays A believing in good faith
that A is the intended bearer. M is released
from liability.
 Where payment must be made?
1. If there is a stipulatio then the place
designated.
2. If there is no stipulation -
a. If the obligation is to give a determinate
thing, wherever the thing might be at the time
of the obligation was constituted.

b. If the obligation is to give a generic thing

or an obligation to do, then at the domicile of
the debtor.
 Special Forms of Payment
1. Application of payment;
2. Dation in Payment
3. Payment by Cession
4. Tender of payment and Consignation
 Application of Payment
It is designation of the debt to which
the payment must be applied when the
debtor has several obligations of the
same kind in favor of the same creditor.
 Requisites:
1. there must be only 1 debtor & only 1 creditor
2. there must be 2 or more debts of the same
kind
3. all of the debts must be due
4. amount paid by the debtor must not be
sufficient to cover the total amount of all the
debts
 GENERAL RULE:
The right to designate thedebt to
which the payment shall be applied
primarily belongs to the debtor
 EXCEPTION:
If the debtor does not avail ofsuch
right and he accepts from the creditor a
receipt in which the application is made.
 If the above rule is not applicable
1. The debt most onerous to the debtor shall be
deemed satisfied.

2. If the debts due are of the same nature and

burden, payment shall be applied to all
proportionately.
 Illustrations 1
D owes the following distinct debts:
P1,000.00 due on May 1; P1,000.00 due on
May 5; P1,000.00 due on May 10; P1,000.00
due on May 15; and P1,000.00 due on May 20.
a. If today is May 16, and D has only P1,000.00
but wants to pay C, D may apply the payment
to any of the debts due on May 1, May 5, May
10 or May 15. He cannot apply the payment to
the debt due on May 20 beause it is not yet
due unless he is allowed by stipulation with C
or the benefit of the period was given to him.
b. If D does not apply the payment, the right to
apply it is shifted to C. C may apply the
payment to any of the debts due on May 1,
May 5, May 10 or May 15. He cannot apply
the payment to the debt due on May 20
because it is not yet due unless he is allowed
by stipulation with D or the benefit of the
period was given to him.
c. If neither D nor C applies the payment,
payment shall be applied proportionately to
the debts due on May 1, May 5, May 10 or
May 15 at P250.00 each. In case the debts due
on May 5 is secured by a pledge, then
payment shall be applied to such debts
because it is more onerous to D.
 Illustration 2
D owes C P7,000.00 due on May 1; 5 sacks
of rice worth P5,000.00 on May 5; and
P5,000.00 due on May 8. If none of the debts
have been paid as of May 8 and D has
P5,000.00, D cannot apply the payment to the
debt consisting of 5 sacks of rice becuase it is
not payable in money, it is of different kind.
 D may not apply the payment due of the
debt due on May 1 because the payment
would not be complete unless C consents. D
may, however, apply the payment to the debt
due on May 8.
Dation in Payment (DACION EN PAGO)
It is the transmission of ownership of a
thing by the debtor to the creditor as an
accepted equivalent of the performance of
the obligation.
 Requisites:
1. existence of a money obligation
2. alienation to the creditor of a property
by the debtor with the consent of the
former
3. satisfaction of the money obligation of
the debtor
 Payment by Cession
The debtor abandons all of his
property for the benefit of his creditors
in order that from the proceeds thereof,
the latter may obtain payment of their
credits.
 Requisites:
1. plurality of debts
2. partial or relative insolvency of the
debtor
3. the debtor abandones all his properties
except those which are exempt from
execution
4. acceptance of the cession by the
creditors
 Illustration
D owes X, P50,000.00; Y, P20,000.00;
and Z, P30,000.00. All the obligations are
due but D has assets worth P80,000.00
only. D offers to assign his assets to X, Y
and Z so that they may sell them and
apply the proceeds to their respective
claims. X, Y and Z accepted the offer.
 If the assets are sold for P70,000.00,
then D will be released from his
obligations only up to that amount,
unless the creditors agreed to release
him completely of his debts.
 CESSION Distinguished from DACION EN PAGO

DACION EN PAGO CESSION

1. does not affect ALL 1. in general, affects
the properties ALL the properties of
the debtor
2.does not require 2. requires more than
plurality of creditors one creditor
3. only the specific or 3. requires the consent
concerned creditor’s of all the creditors
consent is required

4. may take place 4. requires full or

during the solvency partial insolvency
of the debtor
5. transfers ownership 5. does not transfer
upon delivery ownership

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

of novation novation
7. the creditor 7. The creditors are
becomes the owner authorized to sell
of the properties only the debtor's
given as payment properties.

8. the debtor is 8. The debtor is not

released as a rule released as a rule
 Tender of Payment and Consignation

Tender of Payment -
The act of offering the creditor what
is due him together with a demand that
the creditor accept the same.
Consignation -
The act of depositing the thing due
with the court or judicial authorities
whenever the creditor cannot accept or
refuses to accept payment. It generally
requires a prior tender of payment.
 Illustration
1. D borrowed P50,000.00 C. On due date,
D tendered payment in P20.00 bills totalling
P50,000.00 to C. C refused to accept the
payment demanding that he may be paid in
higher denominatios. Since the payment
tendered by D was legal tender, C was not
justified in refusing to accept it.
D may thus consign the payment in court.
 2. A owes B a sum of money. A gives B
the money but B refuses without just
reason to accept it. What should A now
do?
answer...
A must deposit the money in court,
since his tender of payment was refused
without just reason. His deposit in court
is called consignation.
 Special Requisites:
(a) existence of a valid debt
(b) valid prior tender, unless tender is
excused
(c) prior notice of consignation (before
deposit)
(d) actual consignation (deposit)
(e) subsequent notice of consignation
(a) existence of a valid debt
(b) valid prior tender, unless tender is excused

Thus, the payment being tendered

must be the thing contemplated, in legal
tender, complete, amont other requisites
for a valid payment.
(c) prior notice of consignation (before deposit)

The law says the consignation “must

first be announced to the persons
interested in the fulfi llment of the
obligation.”
 Without such notice, the consignation
as a payment is VOID.
The reason is because, had notice
been made, the creditor would have had
opportunity to withdraw the money
consigned and thus make use of it.
Purpose of the notice:
To enable the creditor and other
parties interested (such as the
mortgagees, pledgees, guarantors,
solidary co-creditors, and solidary co-
debtors) to reconsider the previous
refusal, and thus, avoid litigation by the
simple expedient of accepting payment.
(d) actual consignation (deposit)
It is understood that before a deposit
is made, a complaint against the creditor
to compel him to accept has to be first
filed in court.
The consignation must be made —

1. by depositing the very object that is due (and not

another);
2) with the proper judicial authority which, in certain
case, may include the sheriff
3) accompanied by proof that tender had been duly
made, unless tender is excused; and that first notice
of the consignation had already been sent
(e) subsequent notice of consignation

This is required by the law which

says: “The consignation having been
made, the interested parties shall be
notified thereof.”
 This is mandatory and, therefore,
without such subsequent notice, the
consignation is VOID.
 Effects if Consignation Has Been Duly Made

If the consignation is DULY (properly)

made:
(a) The debtor may ask the judge to order
the cancellation of the obligation.
(b) The running of interest is suspended.
 Nota Bene:
It should be observed that
before the creditor ACCEPTS, or before
the judge declares that consignation has
been PROPERLY MADE, the obligation
REMAINS.
 Risk of Loss
If the consignation is judicially
approved OR if all the essential requisites
are present OR if the creditor has
signified his acceptance, the creditor
bears the loss; otherwise, it is the debtor
who bears the burden.
 When Debtor May Withdraw the Thing or Sum
Consigned
As a matter of right:
1.) before the creditor has accepted the
consignation

2.) or before there is a judicial declaration that

the consignation has been properly made.
As a matter of privilege:
When after consignation had been
properly made (the creditor having
accepted or the court having declared it
proper), the creditor authorizes the debtor
to withdraw the thing.
When Consignation Is Suffi cient Even Without a Prior
Tender

1. When the creditor is ABSENT or

UNKNOWN or DOES NOT APPEAR at the
place of payment. (The creditor need not
be judicially declared absent.)
2. When the creditor is INCAPACITATED to
receive payment at the time it is due.
(The rule does not apply if the creditor
has a legal representative and this fact is
known to the debtor.)
3. When, without just cause, the creditor
REFUSES to give a receipt.
4. When two or more persons claim the
same right to collect. (An action in
INTERPLEADER would be proper here.)
5. When the title (written document) of
the obligation has been LOST.
6. When the debtor had previously been
notified by the creditor that the latter
would not accept any payment.
 LOSS OF THE THING DUE
What “Loss” Includes

“Loss” includes “impossibility of

performance.”
When Is There a Loss -
(a) when the object perishes (physically,
it is destroyed)
(b) when it goes out of commerce
(c) when it disappears in such a way that
1) its existence is unknown
2) or it cannot be recovered.
Two Kinds of Obligations “To Give”
An obligation to give may consist of an
obligation:
(a) to give a generic thing;
(b) or to give a specifi c thing.

NOTE: The fi rst is NOT extinguished by loss or by a

fortuitous event because “genus never perishes.”
 Effect of Loss on an Obligation to Deliver a
Specific Thing -
General rule —

the obligation is extinguished.

Exceptions -
1. when by law, obligor is liable even
for fortuitous event;

2. when by stipulation, obligor is liable

even for fortuitous event;

3. when the nature of the obligation

requires the assumption of risk;
4. when the loss of the thing is due partly
to the fault of the debtor;

5. when the loss of the thing occurs after

the debtor incurred in delay;
6. when the debtor promised to deliver the
same thing to two or more persons who do
not have the same interest; and

7. when the debt of a certain and determinate

thing proceeds from a criminal offense.
Effect of Loss on Obligation to Deliver a Generic
Thing
The obligation continues to exist
because a generic thing does not really
perish (genus nunquam perit — “genus
never perishes”).
Exception -
If the generic thing is delimited (like “50
kilos of sugar from my 1999 harvest” when
such harvest is completely destroyed)
(“delimited generic thing”).
 Effect of Partial Loss
The courts shall determine
whether under the circumstances, the
partial loss of the object of the obligation
is so important as to extinguish the
obligation.
 Loss in Personal Obligations
Refers to a case when compliance of a
personal obligation becomes, without the
debtor’s fault —
(a) a legal impossibility;
(b) or a physical impossibility.
Examples of Impossibility -
(a) Legal impossibility
1. The furnishing of work on Sundays
when the same is prohibited by law
2. refusal of the government to issue
a building permit
(b) Physical impossibility
- To install a motor in a ship that was
lost after the perfection of the contract
but prior to such installation.
 Nota Bene:
a.) When the prestation beomes legally or
physically impossible without the fault of the
debtor, the obligation is extinguished.

b.) When the service has become so difficult as

to be manifestly beyond the contemplation of
the parties, the obligor may also be released
in whole or in part.
CONDONATION OR REMISSION OF THE DEBT

It is “the gratuitous abandonment by

the creditor of his right.”

This refers to the forgiveness of an

indebtedness. To extinguish the
obligation, it requires the debtor's
consent.
Example -
Gloria owes Edgardo P5.00. When the debt
matured Edgardo told Gloria that she need
not pay the debt since he was condoning it.
Gloria, in turn, expressed her gratitude. Here,
the debt has been extinguished by remission.
 Classes of Remission
(a) As regards its effect or extent:
1) total
2) partial (only a portion is remitted or
the remission may refer only to the
accessory obligations)
(b) As regards its date of effectivity:

1) inter vivos (during life)

2) mortis causa (after death)
(c) As regards its form:
1) implied or tacit -
Such as when the creditor voluntarily
delivers the private document evidencing the
credit to the debtor.

2) express or formal (this requires the

formalities of a donation if inter vivos; of a
will or codicil if mortis causa)
Effect of Delivery of Private Document
Evidencing the
Credit
 With the delivery of the private
instrument, a remission or renunciation
is presumed.
 Example -

Steffi made a promissory note in favor

of Agassi in the amount of P100 million.
After some time, Agassi voluntarily
delivered the promissory note to Steffi
without collecting the P100 million. Steffi
is now in possession of said note.
 There is a disputable presumption
that there has been a remission. The
presumption is merely disputable and
not conclusive because it may be that
the instrument was delivered only for
examination by Steffi or for collection.
 Nota Bene:
Renunciation of Principal Extinguishes
Accessory, But Not Vice-Versa.
This follows the rule of “accessory
follows the principal.”
Example -
A remission of the penalty does not remit
the principal obligation, but if the principal
debt is condoned, the penalty is also
condoned.
 Nota Bene:
It is presumed that the accessory
obligation of pledge has been remitted
when the thing pledged, after its delivery
to the creditor, is found in the possession
of the debtor, or of a third person who
owns the thing.
Remission of Pledge -
1. Note here that only the accessory
obligation of pledge is presumed remitted.
The principal obligation (the loan) remains in
force.
 2. The presumption is only disputable,
for the debtor or the third person may
be in possession of the property by theft
or because it had been sent for repairs,
or for similar causes.
CONFUSION OR MERGER OF RIGHTS

It is the meeting in one person of the

qualities of creditor and debtor with
respect to the same obligation.
Example -
1. M makes a promisory note payable to P
or order. P indorses the note to A; A to B; B to
C and back to M. The obligation here is
extinguished because M is now the creditor of
himself.
 2. A makes a check payable to bearer,
and hands the check to C, who hands it
to D who finally hands it to A. Here A
owes himself. This is a clear case of
merger, and hence the obligation of A is
extinguished.
Effect if Mortgagee Becomes the Owner of the Mortgaged
Property
If the mortgagee becomes the owner
of the property that had been mortgaged
to him, the mortgage is naturally
extinguished, but the principal obligation
may remain.
Example:
I borrowed P1,000,000 from my brother,
and as security, I mortgaged my land in his
favor. Later I sold the land to him. The
mortgage is extinguished but I still owe him
P1,000,000.
Effect of Merger on Guarantors
A. Merger which takes place in the
principal debtor or creditor benefits the
guarantors.
Examples:
1. A owes B P700,000, guaranteed by C. B
assigns his credit to X. X assigns the credit to
Y. Y assigns the credit to A. A’s obligation is
extinguished and C is released from his
obligation as guarantor.
 2. M owes P P10,000.00. The debt which is
evidence by a promisory note, is guaranteed
by G. P assigns the note to A; A to B; B to C
and C back to M. M's debt is extinguished. G's
guaranty is likewise extinguished since the
principal obligation it secures has been
extinguished.
B. Merger which takes place in the person
of the guarantor does not extinguish the
obligation. Here, only the guaranty is
extinguished.
Example:
If in the immediately preceding example, C
assigns the note to G instead of M, G's
guaranty is extinguished because the qualities
of debtor and creditor are merged in his
person. However, M's obligation is not
extinguished. G, as the new creditor, may still
go after him.
 Merger in Joint Obligations
Confusion does not extinguish a joint
obligation except as regards the share
corresponding to the creditor or debtor
in whom the two characters concur.
example...
A and B jointly owe C P1,000,000. If C
assigns the entire credit to A, A’s share is
extinguished, but B’s share remains. In
other words, B would still owe A the sum
of P500,000. In a joint obligation, the
debts are distinct and separate from
each other.
Merger in a Solidary Obligation
Merger in one of the solidary debtors or
solidary creditors extinguishes the whole
obligation. The solidary debtor in whom the
characters of debtor and creditor concur can
demand reimbursement from his co-debtors.
In case of the solidary creditor, he shall be
liable to his co-creditors for the share
corresponding to each of them.
example...
A, B and C are solidary debtors of X for
P9,000.00. The promisory note evidencing the
debt is assigned by X to Y, Y to Z and Z to A.
The whole obligation is extinguished by
confusion with all the debtors now being the
creditors. A may demand reimbursement from
B and C at P3,000.00 each.
 COMPENSATION
It is a mode of extinguishing an
obligation when when two persons, in
their own right, are creditors and
debtors of each other.
 example
D owes C P5,000.00. C owes D
P5,000.00. The parties do not need to
pay each other as their obligattions are
extinguished by compensation.
 Kinds or Classes of Compensation
(a) According to its effect or extent:
(1) Total — if both obligations are
completely extinguished because they are
of the same or equal amounts.

(2) Partial — when a balance remains

(hence, there is a partial compensation in the
larger of the two debts).
(b) According to its origin or cause:
1) Legal — this takes place by operation of
law, and need not be pleaded.

2) Voluntary or conventional — this is due

to the agreement of the parties.
Example of voluntary compensation

D owes C P5,000.00 due on

September 20, 2016, while owes D
P5,000.00 due on September 30,
2016. On September 1, 2016, for
instance, D and C may agree that
their debts be compensated.
3) Judicial (also termed “set-off”) — this must be
pleaded; it can be made effective only by an
order from the court.
Example of judicial Compensation
T, a travel agent, sued P for collection of
P10,000.00 representing the balance of P for a
guided tour in Bangkok which T arranged. In
his answer, P claimed that T owed him
damages amounting to P10,000.00 which he
(P) and his family sustained as a result of the
substandard hotel accomodation that T
booked for them. P was able to prove his right
to said damages and the amount thereof. Any
compensation declared by the court in this
case is one of judicial compensation.
 4) Facultative — here, one of the parties
has the choice of claiming the
compensation or of opposing it (perhaps
because not all the requisites of legal
compensation are present).
Example of Facultative Compensation
A owes B P1 million demandable and due
on Jan. 12, 2004. B owes A P1 million
demandable and due on or before Jan. 31,
2004. On Jan. 12, 2004 B, who was given the
benefi t of the term, may claim compensation
because he could then choose to pay his debt
on said date, which is “on or before Jan. 31,
2004.” If, upon the other hand A claims
compensation, B can properly oppose it
because B could not be made to pay until Jan.
31, 2004.
 Requisitesof Compensation
1. there must be two (2) parties, who, in their
own right, are principal creditors & principal
debtors of each other
2. both debts must consist in money, or if the
things due are fungibles, they must be of the
same kind & quality
example...
D is obliged to give C a sign pen and C is
obliged to give D a sign pen.
problem...
D is obliged to give C a specific Pilot
ballpen and C is obliged to give D a specific
Panda ballpen. Can there be a legal
compensation?
3. both debts must be due
4. both debts must be liquidated & demandable
Liquidated -
means the amount of the debts has
already been determined or is easily
determined.

Demandable -
means both debts must be enforceable.
5. there must be no retention or controversy
commenced by 3rd persons over either of the
debts & communicated in due time to the
debtor compensation must not be prohibited
by law
example...
D owes C P10,000.00. C owes D
P10,000.00. C also owes X P10,000.00. X sues
C and asks the court to order D not to pay C so
that in the event the court renders judgment
in favor of X, D will have to pay X. The court
issues the order to D. There can be no legal
compensation between D and C because there
is an order of retention to D with respect to
his debt to C.
Compensation in Solidary Obligation
A is indebted to X, Y, and Z, solidary
creditors, for P30,000.00 due on February 1,
2016. X in turn owes A P30,000.00 due on
February 1, 2016. Both obligations being due,
they are extinguished by compensation.
However, X has to give Y and Z their
respective shares at P10,000.00 each because
compensation made by any of the solidary
creditors shall render him liable to the others
for the share in the obligation corresponding
to them.
 Novation
By novation is substitution or change of an
obligation by another, resulting in its
extinguishment or modification, either by
changing its object or principal conditions, or
by substituting another in place of the debtor,
or by subrogating a third person in the rights
of the creditor.
 examples
D owes C P10,000.00.

(1) If the parties later agree that D should

give instead a ring to C, there is novation by
changing the object or prestation.
 (2) If the parties agree the T shall take
place of D as the new debtor, there is
novation by substituting the person of the
debtor.
 (3) If the parties later agree that X shall
take the place of C as the new creditor, there
is novation by subrogating a third person in
the rights of the creditor.
 Requisites

1. a previous valid obligation

2. agreement of the parties to the new
obligation
3. extinguishment of the old obligation
4. validity of the new obligation
 Kinds of Novation
(a) As to its essence
1. Objective/Real – refers to the change
either in the cause, object or principal
conditions of the obligations
 2. Subjective/Personal – refers to the
substitution of the person of the debtor or to
the subrogation of a 3rd person in the rights
of the creditor
1. Substituting the person of the debtor (always
with creditor's consent)

a. Expromission - Here, a third person

initiates the substitution even without the
knowledge or against the will of the debtor.
Effect if new debtor is insolvent or does not
fulfill obligation -

The new debtor's insolvency or non-

fulfillment of the obligation shall not give rise
to any laibility on the part of the original
debtor. This is true whether the substitution
was without the knowledge of the debtor or
against his will or it was consented by him.
 b. Delegacion - here, it is the debtor
who initiates the substitution, which requires
the consent of all the parties (original debtor,
creditor, new debtor)
Rights of the new debtor if he makes payment -

He can recover what he has paid and is

entitled to subrogation.
Effect if new debtor is insolvent -
The creditor's right to proceed against the
original debtor is not revived, except:

1. When the insolvency of the new debtor

was already existing and of public knowledge
when the original debtor delegated his debt.
 2. When the insolvency of the new debtor
was already existing and known to the original
debtor at the time he delegated his debt.
(2) As to its form/constitution -
a. Express – when it is declared in
unequivocal terms that the old obligation is
extinguished by a new one w/c substitutes the
same
example...
D and C entered into a ontract of whereby
D would construct a 3-storey building for C on
a certain lot. Later, however, D and C entered
into a contract whereby they expressly agreed
that D would not be constructin anymore a 3-
storey building on the lot but a bungalow.
 b. Implied – when the old & new obligation
are incompatible w/ each other on every point
example...
In the same example,if D and C entered
into the second contract whereby D agreeed
to construct a bungalow on the lot but
without the parties expressly stipulating that
D would no longer construct a 3-storey
building, then the parties are deemed to have
impliedly novated the first contract because
construction of the two structures on the
same lot would not be possible.
 Subrogating a third person in the
rights of the creditor
GENERAL RULE:
Subrogation cannot bepresumed.
 EXCEPTIONS:
1. Creditor pays another creditor who is
preferred, without debtor’s knowledge;
example...
D owes C P50,000.00. The debt is seured
by a real estate mortgage. D also owes X
P40,000.00 which is unseured. If X pays D's to
C, X is subrogated in the rights of C. Hence, if
D cannot pay the debt of P50,000, X can
foreclose the mortgage.
2. A third person not interested in the obligation
pays with the express or tacit approval of the
debtor; or
3. Even without debtor’s knowledge, a person
interested in the fulfillment of the obligation
pays without prejudice to the effects of
confusion as to the latter’s share.
example...
D owes C P10,000.00 with G as guarantor.
If G pays C, G is subrogated in the rights of C.
However, G's guaranty is extinguished
because the qualities of debtor and creditor
are merged in his person.