Obligations and Contracts Reviewer:

 Article 1156 defines the meaning of an obligation. According to this, an obligation is a juridical
necessity to give, to do, or not to do
o The term juridical necessity is an important term in this definition. The term “juridical
necessity,” that obligations may be enforced through the filing of an action in the court.
o However, the obligation contemplated in Article 1156 is rather limited. It merely
contemplates civil obligations which are to be distinguished from natural and moral
obligations.
o Obligation originates from the latin word “ligare.” Which means to tie or to bound. In
other words, an obligation is an act where one ties or bounds himself to another in
order to bequeath or perform something that is agreed upon.
o The law provides that a valid obligation must have 3 elements
 Subject
 Active Subject: It pertains to the creditor who has the right to enforce
the obligation via courts
 Passive Subject: It pertains to the debtor who merely performs
 Prestation: Pertains not to the “thing” but on the manner of how the obligation
is to be performed.
 The “thing” is called the object of the prestation.
 An additional qualifier to the element of prestation is that it must be
valid. To be valid, a prestation must be
o Licit;
o possible;
o determinable; and
o a pecuniary value so that in the case of non-performance, the
prestation may be converted to damages
 Juridical Tie/ Vinculum Juris: The cause which compels the debtor to perform
 Balane in his commentary adds the additional elements of causa debendi and
form
 Article 1157 defines the sources of an obligation namely:
o Law:
 According to Balane, the law is the ultimate and proximate source of obligations
 Examples of obligations arising from law is the obligation to pay taxes as per the
National Internal Revenue Code
 Under Article 1158, obligations arising from law must be explicit not presumed
o Contracts:
 By stipulation of the parties
 However, for a contract to be a valid source of obligation, it must be licit.
Otherwise, it is void.
 Under Article 1159, obligations arising from contracts is the force of law
between the parties and must be complied with good faith.
 There are two components under 1159 namely: the force of law (jus
civili) and that compliance is done in good faith (jus gentium)
 o Quasi-contracts
 Based on the legal maxim of “no man shall unjustly enrich himself over the
expense of the other.
 There are two types of Quasi-contracts namely:
 Solution Indebitii: Pertains to payment by mistake
 Negotorium Gestio: Otherwise known as the case of the officious
manager where there was an obligation to preserve a property
unattended
 Finder of property lost
o Acts and omissions punishable by law: Based on Article 100 of the RPC where a person
that is criminally liable is personally liable.
 [QUESTION] Will an obligation still exist upon the death of the person held liable
under criminal law?
 General rule: Obligation disappears upon the death of the person.
o Exception: if there is negligence present, Obligation will arise
from quasi-delict (LG Foods Corp. vs. Hon. Agraviador)
o Quasi-delicts: Arising from negligence
o Under jurisprudence, it must be noted that no other obligation may arise outside the 5
sources enumerated under Article 1157. (OSG vs. Ayala?)

Chapter 2

 Articles 1163, 1164 and 1166 cover the accessory obligations associated with the prestation to
give. These accessory obligations are:
o Due Diligence
 The preservation of the thing that is bound to be given based on a standard to
be stipulated by the parties.
 Default standard to be followed: Diligence of a good father to his family.
o A lesser or more stringent standard of due diligence may be
provided by stipulation of contract or by law.
 The default standard of diligence of a good father to his family is relative
based on the thing bound to be given. It will depend on
o Nature of the Obligation
o Nature of the Circumstance
 Person
 Time
 Place
o Delivery of Fruits
 Only applies to the fruits produces when the delivery of the principal arises.
 According to Balane, the creditor has a personal right over the fruits
produced when the obligation arises but it only becomes a real one (i.e.
enforceable) when the delivery of the principal thing is perfected (i.e.
transfer of ownership).
o Delivery of Accessories and Accessions
 There is a difference between accessions and accessories
  Accessions are those that when removed shall damage the principal
(see DLSU bar lecture; Balane has a different take on it where there is
no much difference))
 Accessories are merely attachments that are decorative that can be
removed without damaging the principal.
 Remedies in the case of non-performance (Articles 1165, 1167 & 1168)
o Under the prestation of the delivery of a determinate thing:
 Specific performance + damages or;
 Rescission + damages
 Equivalent performance may Also be resorted upon agreement by parties
o Under the prestation of delivering a generic thing:
 Specific performance + damages;
 Rescission + damages
 Substitution + damages
o Under the prestation of doing
 Substituted performance + expense to the debtor
 Rescission + damages
 Specific performance (unless it is a personal obligation)
o Under the prestation of not to do
 Undoing of the act performed + damages
 If irreversible payment of damages
 Articles 1169-1174: Irregularities in Obligation
o 2 types
 Attributable to the debtor
 Fraud
 Negligence
 Delay
 Non-Attributable to the debtor
 Caso Fortuito
 Fuerza Mayor
 NOTE: Both are commonly bunched together as fortuitous events
o Article 1169 discusses delay. General rule under delay is that it is not incurred unless the
creditor demands except for the following conditions:
 When provided by law
 When stipulated by contracts
 If the controlling factor of the obligation is the time
 If demand is useless, when the obligor has rendered it beyond his power to
perform.
o In reciprocal obligations, Article 1169 provides that delay begins when one of the parties
fulfill his part of the obligation.
 Rationale: because reciprocal obligations generally require simultaneous
fulfilment
  Unless stipulated by the parties. If there is a lapse agreed upon on the
fulfillment of reciprocal obligations, then demand is required for the
other party to incur delay.
o Unless there is a stipulation providing that a demand is not
necessary.
o Article 1170 states that those who in the performance of their obligation are guilty of
fraud, negligence or delay, and those who in any manner contravene the tenor thereof,
are liable for damages
 General rule is failure on the fulfillment of obligations results to a liability for
damages.
 Term “in any manner which contravenes the tenor thereof “ is a catch-all phrase
that describes any illicit task w/c impairs the strict and faithful fulfillment of the
obligation, or every kind of defective performance that is covered under fraud,
negligence or delay.
o Fraud under the contemplation of Article 1170 is different from Fraud described in
Article 1380. To which fraud in the former refers to a willful voidance of the fulfillment
of obligations while the latter describes vitiated consent between the parties which
render an obligation void.
 Responsibility arising from fraud are demandable in all obligations. Any waiver
on fraud shall be void. (1171)
o Remedies for fraud as contemplated under Article 1170 are
 Specific/Substituted performance (Article 1233)
 Rescission or Resolution
 Damages in either cases
o Negligence in its simplest term is the lack of due diligence (1173)
 Like fraud, responsibility arising from negligence is demandable in every
obligation. However, the extent of liability shall be determined by the courts
(Art 1172).
 The added element of bad faith in negligence would turn the negligence to
fraud under Art. 1171
 There are two types of negligence
 Simple: If a person fails to take the reasonable precautions that any
prudent person would take and their actions cause someone else harm,
their actions could be considered negligent.
 Gross: extreme indifference to or reckless disregard for the safety of
others. Gross negligence is more than simple carelessness or failure to
act.
 Remedy for negligence include
 Specific or substituted performance
 Rescission or resolution
 Damages in both cases
o Delay/Mora: pertains to the non-fulfillment of obligation with regards to time.
 Requisites of Delay:
 Obligation is demandable and liquidated
  Delay is through fault or negligence
 Creditor requires performance either judicially or extrajudicially
 The law provides 3 types of Mora:
 Mora accepiendi: Delay on the creditor
o Mainly related to payment
o Requisites:
 An offer of performance by the debtor
 Offer must comply with the prestation as it should be
performed
 Creditor refuses performance without just cause
o EFFECT of Mora Accepiendi
 Responsibility of debtor for the thing is limited to fraud
and gross negligence
 Debtor is exempted to the risk of loss which is already
passed to the creditor
 Expenses made by the debtor to preserve the thing
after the delay shall be chargeable to the debtor
 If obligation has interest, the debtor is not obliged to
pay such from the start of the delay
 Creditor becomes liable for damages
 Debtor may relieve himself by consignation of the thing.
 Mora Solviendi: Delay on the debtor
o Requisites:
 Obligation is demandable and liquidated
 Delay is by fraud or negligence
 There is a judicial or extrajudicial demand to perform
o GENERAL RULE: No demand, no delay (unless the obligation falls
under the exceptions listed in 1169)
o EFFECT of Mora Solviendi:
 Specific performance
 Resolution/Rescission
 Damages in both cases despite the existence of the
fortuitous event
 Compensatio Morae: Delay on both parties
o Effect: No liability, cancels each other out.
 Article 1174: Fortuitous events
o GENERAL: RULE: When there is a fortuitous event, debtor is exempted from liability
 EXCEPTION:
 When debtor is in delay
 When there is a stipulation to the contrary
 When there is an express provision of law to the contrary
 When there is an assumption of risk
o REQUISITES:
  Cause of the failure to comply with the obligation is independent of the human
will
 It must be impossible to foresee the event which constitute the fortuitous
event, or if it is foreseeable, it is impossible to avoid
 Occurrence of such event renders the obligation impossible to fulfill the
obligation in a normal manner
 Obligor must be free from any participation in the aggravation of injury resulting
to the creditor
 Article 1175:
o Usurious transactions shall be governed by special laws
o Usurious transactions: Transactions with exceedingly high interests
o This law is considered as a dead law. BP circular no. 905 removes ceilings on interests
rendering usury not punishable by law
o However, any interest entered by contracts should not be unconscionable or exorbitant
(Liam Law vs. Olympic Sawmill)
 Article 1176:
o Under this article, there are two presumptions:
 Interest bearing debt: receipt of the principal shall raise the presumption that
the interests has been paid
 Payment by installments: Payment of a latter installment shall give rise to the
presumption that older installments has been paid.
o Being mere presumption, they are rebuttable. The mistake must be proven.
 Article 1177: Remedy of Creditors to satisfy payment of debts
o Under the abovementioned provision there are three regular remedies
 Levy and Execution
 Encumbrance of debtor’s nonexempt properties (examples: implement
for practice of livelihood, family home, Necessary clothing, Benefits
from life insurance, pension, properties exempted by law, etc)
 Accion Subrogatoria (Accion Directa for Art. 1652 and 1729 only)
 The debtor of my debtor is my debtor
 Requisites:
o A debt due is not intuitu personae
o Willful refusal of the suing creditor’s debtor to collect
o Insufficiency of the debtor’s assets to satisfy debt
 In a Suburgatory action, the creditor will sue his debtor’s debtor for
collection on behalf of the creditor’s debtor.
o Recovery will be full but that which is in excess of the debt shall
be returned to the creditor’s debtor.
 Accion Pauliana
 The setting aside of transfers of property by their debtors which
defrauds them by preventing them from obtaining full satisfaction for
their credits.
 Requisites:
o There is a credit in favor of the plaintiff
 o The debtor has performed an act subsequent to the contract,
giving advantage to other persons.
o The creditor has no other legal remedy.
o The debtor’s acts are fraudulent.
o Third person who has received the property if onerous has been
an accomplice in the fraud.
 Explanation of requisites:
o On the first: Credit prior to alienation is necessary unless credit
is subject to the condition to which it must comply with the
provisions under Article 1187
 There is a retroactive effect to the date when the credit
is constituted
o On the second: The conveyance of property decreases the
patrimony of the debtor and increases that of the third party.
o On the third: Accion pauliana is the last recourse for the
creditor (first being levy and execution, second being accion
subrogatoria and last being accion pauliana. Connect with Art.
1383
o On the fourth: Fraud is always presumed both in the instances
of gratuitous and onerous ones.
 If presumption has been overcome, prosecution may
rely on the badges of fraud
 Fictitious transfers
 Transfer while the suit is pending
 Sale upon credit by an insolvent debtor
 Evidence of large indebtedness
 Transfer of nearly all of his property when he is
insolvent
 Transfers between father and son where other
of the above circumstances are present
 Failure of the vendee to take exclusive
possession of property.
o On the fifth: because a third party in good faith in an onerous
transaction should not be condemned.
 If gratuitous transfer, third party shall be compelled to
return property regardless of good or bad faith.
 Accion pauliana’s extent covers what is necessary to cover the damage
(1384)
 Article 1178: All rights acquired in virtue of an obligation are transmissible if there has been no
stipulation to the contrary
o EXCEPTIONS:
 Personal obligations
 Obligations with stipulations to the contrary
Kinds of Obligations:

 Classification:
o Section 1: According to time, certainty, and demandability (1179-1198)
 Pure
 Conditional
 With a term of period
o Section 2: According to the manner of choosing prestations (1199-1206)
 Alternative
 Facultative
o Section 3: According to the plurality of subjects (1207-1222)
 Joint
 Solidary
o Section 4: According to the manner of performance (1223-1225)
 Divisible
 Indivisible
o Section 5: According to sanction for breach (12226-1230)
 With a penal clause
 Without a penal clause
 Section 1: Pure and conditional Obligations
o Article 1179: What is a Conditional Obligation?
 A conditional obligation is that whose performance is dependent on a future
and uncertain event
 Otherwise, it is demandable at once thus being a pure obligation
 If the performance of an obligation is that which is dependent on a
future or certain event, it is on with a period
 An obligation which is not future and uncertain is an impossibility
o However, an obligation whose existence is dependent on a
future learning of an uncertain event that is in the past is valid.
 There are two types of conditional obligations
 Resolutory: Obligation becomes demandable at once upon the
constitution of the obligation. However, upon the happening of the
condition, what is given to the creditor shall be returned or the act
performed be ceased.
 Suspensive: An obligation where the performance of the prestation will
only arise upon the happening of the condition.
o Article 1180: An obligation where the debtor binds himself to pay a debt when his
means permits him to do so shall be deemed one with a period, subject to the
provisions of Article 1197.
 Under 1197, the period shall be fixed by the courts based on what was intended
or what has been contemplated by the parties.
 This article is an exception to the prohibition against potestative obligations
based on the will of the debtor under art 1182.
  Balane also states that his provision should be in the section on obligations with
a period instead of being in this section.
o Article 1181: In conditional obligations, the acquisition and extinguishment of rights
shall depend on the happening of a condition
o Article 1182: Potestative suspensive obligations where the fulfillment of the condition is
dependent of the will of the debtor shall be void.
 REASONING: Because the obligation does not have vinculum juris or a binding
force. It renders the obligation illusory.
 Under this article, there are three classifications of a conditional obligation
based on who is the condition’s fulfillment dependent upon:
 Potestative: Based on the will of one of the parties
o Based on the will of the debtor: VOID
 Exception is if the obligation has a resolutory condition
 Casual: Based on the will of a third person
 Mixed: Based partly on the will of one of the parties and partly the will
of the third person.
o Article 1183: Impossible suspensive conditional obligations
 Impossible conditions are those contrary to
 Good customs
 Public policy
 Law
 EFFECT: Obligation dependent upon the impossible condition shall be annulled
 If the obligation is divisible, that part thereof that is not affected by the
impossible obligation shall remain valid
 Conditions not to do an impossible thing shall be considered as not
having been agreed upon.
o Unless it is a condition not to do an impossible illegal thing
 Provision talks about original impossibility, where the conditions was deemed
impossible to fulfill upon the creation of the obligation
 If impossibility is supervening, Article 1262 and 1266 shall apply
(obligation is extinguished if impossibility happened prior to the
incurrence of a delay)
 A gratuitous donation coupled with an impossible condition will not render the
obligation void. It converts the donation to a pure obligation instead. (Arts. 727
and 873)
o Art. 1184 & 1185: suspensive condition based on the happening or not happening of an
event at a determinate time.
 Effect (1184): obligation is annulled instead of extinguished (because obligation
is not extinguished. Obligation is merely prevented from arising)
 If no time has been fixed, par. 2 of 1185 shall apply where condition
should be fulfilled at the time that may have been contemplated
bearing in mind the nature of the obligation.
 If condition is resolutory, it will simply make the right arising from the
obligation to be absolute.
  Effect (1185): Obligation becomes effective upon the moment that a condition
does not happen in a determinate time or if it has become evident that the
event cannot occur
 If resolutory: the non-happening of the condition shall extinguish the
obligation.
o Article 1186: Constructive fulfillment
 The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment.
 Requisites:
 Condition must either be potestative or mixed (though it may be argued
that casual conditions may apply as well)
 Intent on the part of the obligor is to prevent compliance. Malice is not
necessary so long as it is voluntary
 Actual Prevention of compliance.
 Not applicable on conditions dependent upon chance
o Article 1187: Retroactive effect of suspensive conditions on obligations to give:
 Once the condition has been fulfilled, obligation shall retroact to the day of the
constitution of the obligation.
 When the obligation involves reciprocal prestation, fruits and interests shall be
deemed mutually compensated.
 If obligation is unilateral, the debtor shall appropriate the fruits and interests
received unless the nature of the obligation should infer the contrary.
 On obligations to do, retroactive effect shall be determined by the courts.
 In Philippine laws, retroactivity in conditional obligations is implied. In other
laws however, i.e. Germany, retroactivity must be stipulated.
o Article 1188: Rights of Creditor and Debtor in conditional obligations
 Creditor: may bring the appropriate actions for the preservation of his right
before the fulfillment of the obligation
 Bring the appropriate action is misleading as it implies that the
creditor’s remedy is limited to judicial actions only. However, this is not
the case. Creditor has both judicial and extrajudicial (i.e. annotation)
remedies to preserve his right. “Take the appropriate action” is more
accurate in this sense.
 The right is granted to him in order for the obligation not to be rendered
illusory
 Debtor: May recover what during the same time was made by mistake
 Requisites for recovery
o Payment was made by mistake
o Demand is made before the happening of the condition
 If creditor acted in good faith upon the receipt of the mistaken payment
o His liability is limited to the extent he has benefited
o Still applies even if the debtor is aware that he made the
payment by mistake
 If creditor acted in bad faith upon receipt of the mistaken payment
 o Liable for interests and damages
o This connotes that the debtor is unaware that he gave
payments before the fulfillment of the obligation and the
creditor is aware of the mistake.
 If both parties are aware of the payment being made before the
fulfillment of the condition
o Remedy of the debtor is deemed waived
 If demand was made before the happening of the condition and the
condition happened before the creditor can act upon the debtor’s
demand:
o Fruits in interests that was produced prior to the happening of
the obligation shall be returned in virtue of Art. 1187
o Article 1189: In conditions suspending the efficacy of the obligation to give, the
following rules shall be applied in case of improvement, loss or deterioration:
 If the thing is lost without the fault of the debtor  obligation is extinguished
 If the thing is lost thorough the fault of the debtor  Debtor is obliged to pay
for damages
 What is loss in the realm of obligations: not merely physical loss. Loss
contemplated in obligations include
o The perishing of the thing
o The thing going out of commerce
o Thing disappears in a way where its existence is unknown or the
thing cannot be recovered
 In both the first and second situation, if there is partial loss, Article
1264 shall apply where the courts shall determine if the partial loss is so
important to the obligation as to merit extinguishment.
 Under 1265, loss of the thing lays the presumption of negligence or fault
on the part of the debtor. Unless in the case of fortuitous events (i.e.,
earthquake, flood, storm, or other natural calamities
 When the thing deteriorates without the fault of the debtor  impairment is to
be borne by the creditor
 When the thing deteriorates with the fault of the debtor
 Two options
o Rescission
 For resolution or rescission to be valid, deterioration
must be substantial. A slight deterioration shall not be a
reasonable ground for rescission.
o Fulfillment
o With liability to damages on the part of the debtor in either case
 If the thing is improved
 By nature: improvement is redounded to the benefit of the creditor
o Contemplates improvements that does not constitute as fruits.
If they are fruits, Art. 1187 shall apply
  By the debtor: rule on usufructuary shall apply (removal of the
improvement provided that it does not damage the property)
o If removal of the improvement becomes impossible, value of
improvement may be set off with damages (Art. 580)
o Article 1190: Extinguishment of an obligation under resolutory conditions.
 Effect of the happening of the condition:
 The parties have to return what each has received
 In the case of loss, deterioration, or improvement of the thing, Article 1189 shall
apply.
 As for obligations to do or not to do 2nd paragraph of 1187 shall apply as to the
regards of the extinguishment of the obligation
 Courts shall determine the effect of the happening of the resolutory
condition on the obligation
 On fruits,
 According to Manresa, as the extinguishment is an absolute one, and
upon the happening of the condition is deems the obligation to have
been non-existent, fruits must also be returned as well.
o But that begs the question: what happens if the fruits are
perishable?
o I guess if that is the case, the parties must have intended that
the fruits not be returned. As they cannot expect that such
fruits which are perishable in nature can be given back upon the
happening of the obligation.
o Article 1191: Power to rescind in reciprocal obligations is an 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 rescission and fulfillment with the
payment for damages in either case
 He may also seek rescission, even after he has chosen fulfillment, if the
latter becomes impossible
 The court shall decree rescission claimed unless there be just cause authorizing
the fixing of a period
 This is understood to be without prejudice to third persons who have acquired
the thing.
 Ratio behind the article: A breach in a reciprocal obligation serves as a tacit
resolutory condition.
 This article talks about the right to “resolve” not to “rescind”
 Difference: Resolution is predicated on a breach of contract. Rescission
in Article 1380-`389b is based on economic damage or injury
o Resolution id s principal and retaliatory remedy. While
rescission is subsidiary in character.
 To resolve, breach must be substantial and not a casual one
 The breach must be so substantial and fundamental as to defeat the
object of the parties entering the agreement.
  Resolution nay be done extrajudicially but the party who resorted to
such remedy must proceed at his own risk
o Article 1192: Bilateral Breach
 In case both parties have committed a breach in their obligation
 The liability of the first infractor shall be tempered by the courts/ If it
cannot be determined which of the parties violated the contract, the
same shall be extinguished and each shall bear his own damage.

 Section 2: Obligations with a period

o Article 1193: Obligation for which a day certain has been fixed shall be demandable only
when the day comes.
 Likewise, an obligation with a resolutory period shall take effect immediately
and shall extinguish upon the happening of the day certain.
 A day certain means that which will come but not necessarily known as to when.
 Otherwise, it shall be deemed as a condition which shall be regulated by
the provision of the next preceding section.
o Article 1194: In the case of loss, deterioration or improvement of the thing before the
arrival of the day certain, the rules on Article 1189 shall be observed.
o Article 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. (counterpart of Article
1188)
o Exception:
 When the obligation is reciprocal
 When the obligation is a loan on which the debtor is bound to pay interest
 When the period is exclusively for the benefit of the creditor
o Article 1196: If an obligation is designated with a period, it shall be presumed for the
benefit of the debtor and the creditor
 Basis: Because of the general principle of mutuality or bilaterality in contract
law.
 Benefit of a period
 If for the benefit of both
o The creditor cannot demand payment nor the debtor cannot
compel acceptance before the arrival of the period.
 If for the benefit of the Creditor
o Creditor may demand payment but the debtor cannot compel
acceptance before the arrival of the period
 If for the benefit of the Debtor
o Debtor may compel acceptance but the creditor cannot demand
payment before the arrival of the period.
 The wording of the stipulations can be gleaned into to determine to
which party has the benefit from the period.
 o Article 1197: If the obligation does not fix a period but from its nature anc circumstances
it can be inferred that a period was intended, the courts may fix the duration thereof
 `The courts shall fix the duration of the period if it depends upon the will of the
debtor (1180)
 In every case, the courts shall determine the 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.
 On the first paragraph, if the obligation has already been fixed by law the court
cannot justify the fixing of a period.
 On the 2nd paragraph, this does not include all obligations based on the will of
the debtor, only those contemplated under 1180.
o Article 1198: The debtor shall lose every right to make use of the period:
 When the obligation has been contracted, he becomes insolvent, unless he
gives a guaranty or security for the debt.
 When he does not furnish to the creditor the guaranties or securities which he
has promised
 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
 When the debtor violates any undertaking in consideration of which the creditor
agreed to the period
 When the debtor attempts to abscond.
o Article 1198 notes
 This article is only applicable to obligations with a period that is for the benefit
of the debtor
 The presence of any of the circumstances above shall make the obligation pure.
 Additional ground for Article 1198 can be found in article 2109
 When the creditor is deceived on the substance or quality of the thing
pledged.
 Section 3: Alternative obligation
o Article 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 the part of the
other undertaking.
 Notes on alternative obligations:
 Alternative obligations: The debtor has 2 or more prestations that may
be chosen. But he must only perform one of these prestations to fulfill
the obligation.
 A debtor cannot accomplish an alternative obligation by partially
fulfilling multiple prestation. Unless the debtor is authorized to perform
a combination of prestations
o Article 1200: The right of choice belongs to the debtor unless it has been expressly
granted to the creditor.
  Debtor shall have no right to choose those prestations which are impossible,
unlawful, or which could not have been the object of the obligation.
o Article 1201: The choice shall have no effect except from the time it was communicated
 Communication is an essential requisite for alternative obligation whether the
choice belongs to the creditor, debtor, or to third parties
 Form of communication shall be any form unless stipulated. In default, any
manner of communication shall suffice so long as it can inform the other party
of the fact of selection.
 Purpose of communication is to allow the other party sufficient time to prepare
for the acceptance of the obligation (if the choice belongs to the debtor) or
performance (if the choice belongs to the creditor)
 If the other party refuses to accept a prestation that was chosen, then it
shall constitute to mora accipeiendi
o Especially when the prestation chosen was lawful.
 According to Manresa, after the choice has been communicated, the
alternative obligation is converted to a specific one.
 It means that if the prestation was lost by fortuitous event, the creditor
is not entitled to demand the other prestations. Rather, it extinguishes
the obligation because of caso fortuito.
o Article 1202: The debtor shall lose the right of choice when among the prestations
whereby he is alternatively bound, only one is practicable.
o Article 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
o Article 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 becomes impossible
 How to fix indemnity
 Indemnity shall be fixed takins as a basis the value of the last thing
which disappeared, or that of the service that has become impossible
 Damages other than the thing lost may be rewarded
 Note: if all but one of the prestations is lost through the debtor’s fault and the
last one was lost by fortuitous event, the obligation shall be extinguished
(debatable)
o 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 debtor shall be governed by the following rules
 If one of the things was lost through a fortuitous event, he shall perform
the obligation by delivering that which the creditor has chosen from
among the remainder, or that which remains if only one subsists
 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.
  If all the things are lost through the fault of the debtor, the choice of the
creditor shall fall upon the price of any one of them, also with indemnity
form damages.
 The same shall apply in obligations to do, or not to do in tha case that some or
all of the prestations become impossible.
o Article 1206: When only one prestation has been agreed upon, but the obligor may
render another in substitution, the obligation is called facultative.
 The loss of the thing intended as substitute through the fault of the obligor does
not render him liable. But once the substitution is made, the obligor is liable for
the loss of the substitute by reason of fault, negligence delay.
 When shall the substitution take place? Upon the receipt of the obligor’s notice
for substitution.
 Section 4: Joint and Solidary Obligations
o Article 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. (1137a)
 In short, in the case of obligations involving a plurality of subjects, the default
arrangement is joint and shall only be solidary by stipulation, law (in the case of
tortfeasors under Article 2194), or the when the nature of the obligation
requires it
 Classification of joint and solidary obligations is based on the plurality of
subjects.
o Article 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. (1138a)
 If there is nothing in the obligation which indicates that an obligation is solidary,
then it shall be deemed as a join obligation
 Under joint obligation, each debtor shall only be liable on his share of
the obligation. Likewise, the creditor may only demand a proportionate
part of the credit from each debtor
o Insolvency or refusal to pay of one does not make the other co-
debtors liable
 If there is an indication that the obligation is indeed a solidary one, then
the creditor/s may demand from one of the debtors the entirety of the
obligation.
o The debtor may then demand from his co-debtors their share of
the obligation
o An obligation may be deemed solidary if it includes the wording
“individually and jointly” and the usage of singular pronouns in
a loan document signed by two or more persons
  There are 4 kinds of joint and solidary obligation
 Active Joint or Solidary: Several Creditors, one debtor
 Passive Joint or Solidary: One Creditor, several debtors
 Mixed Joint or Solidary: Multiple creditors and debtors
 A combination of Active and Passive: Debtors solidarily owe joint
creditors.
o Basically, the creditors can demand to one of the debtor the full
satisfaction of the obligation. Likewise, the debtor shall pay the
entire obligation proportionally to each creditor
o Article 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. (1139)
 Indivisibility does not ipso facto import solidarity
 If there is breach in a joint indivisible obligation, the obligation shall be
converted to damages and each co-debtor shall be liable for his own
share.
o Article 1210. The indivisibility of an obligation does not necessarily give rise to solidarity.
Nor does solidarity of itself imply indivisibility. (n)
 Indivisibility has to do with prestation and performance. Solidary has to do with
the parties to an obligation and the extent of their liability. Both concepts do
not necessaril;y go together.
o 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. (1140)
 It means that a solidary or joint obligation can come with a condition or a term.
o Article 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. (1141a)
 Based on the mutual agency of the co-creditors
 But what happens when there is a condonation of debt by one of the
co-creditors. The choice of one becomes detrimental to the others. But
condonation is considered nonetheless as a lawful mode of
extinguishing solidary obligations under Article 1215.
o Balane believes that the creditor who condoned the solidary
obligation shall be liable to his co-creditors instead.
o Article 1213. A solidary creditor cannot assign his rights without the consent of the
others. (n)
 It in effect makes the creditor’s share as intuitu personae
 Because there exists an element of trust and confidence between the creditors.
Making an assignment to a third person is violative of this confidence and trust
 JBL Reyes disagrees on this. As there exists no such relationship in the forging of
a solidary obligation. Mutual co-representation in a solidary obligation is a
relationship created by law. No confidence or trust can exist in such
arrangement
  Effect of an unauthorized assignment – it shall become unenforceable until
ratification.
 Assignment to another co-creditor appears to be valid. As the provision merely
prohibits assignment to a third party.
o Article 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. (1142a)
 General Rule: A solidary debtor can pay the full satisfaction of the debt to one of
the solidary creditors.
 Unless there was already a demand by one of the solidary creditors, the
solidary debtor shall pay to the creditor that demanded.
 Demand should be judicial. Otherwise, if one co-creditor demands
informally and did not push the demand further, the solidary debtor can
just claim that he is incapacitated to pay anyone else but the demanding
co-creditor much to the prejudice to the other creditors (Balane)
 If there are multiple co-debtors in a solidary obligation, and a co-
creditor demanded satisfaction of debt to one of the co-debtors, the co-
debtor who was given the demand shall only be bound by Article 1214.
 Can one of the solidary creditors demand his share of the debt from the
solidary debtor when one of his co-creditors already demanded?
o Balane says yes. Provided that the creditor that asked for his
share does not have a debt that is due and demandable with
the demanding creditor.
o However, an application of the code would render otherwise.
o Article 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.
 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. (1143)
 See commentary on Article 1212
o Article 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. (1144a)
 Essence of Solidary Obligation: the liability of any debtor to pay the full
satisfaction of an obligation.
 The creditor may demand from one or a combination of solidary
debtors for the full satisfaction of the obligation,
o Article 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. (1145a)
 Self-explanatory
 Liability of the co-debtor to the paying debtors is joint.
 Insolvency of one co-debtor shall be shared by the rest.
o Article 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. (n)
 Because the obligation is already extinguished.
 If extinguishment is only partial, then this provision shall only apply on
the part extinguished
 Paying Cod-debtor can demand reimbursement from his codebtors
insofar as what was not covered by the extinguishment.
 Remedy of the paying co-debtor is to recover payment by virtue of solutio
indebitii from bis supposed creditors.
o Article 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. (1146a)
 This provision shall only if apply if condonation was given after payment was
given by another codebtor. Remission will not extinguish the benefiting
codebtors from his fellow debtors.
o Article 1220. The remission of the whole obligation, obtained by one of the solidary
debtors, does not entitle him to reimbursement from his co-debtors. (n)
 Because remission is gratuitous.
 Since no payment was made, no reimbursement shall arise
o Article 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.
 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. (1147a)
o Article 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. (1148a)
 Section 5: Divisible and indivisible obligations
o Article 1223: Divisibility or the indivisibility of the things that are the object of the
obligation does not alter or modify the provisions of chapter 2 of this title
 Divisible obligation: Obligation susceptible to partial performance
 Indivisible obligation: Obligation cannot be validly performed in parts based on
the nature of the thing.
 Divisibility or indivisibility is based on the performance. Not the object.
 General Rule: An obligation is indivisible regardless of whether the object of the
prestation is divisible or otherwise unless
 There is an express stipulation by the parties
 Nature of the obligation entails a performance in parts
 When the law provides otherwise.
o Article 1224: A joint indivisible obligation gives rise to indemnity for damages from the
time any of the debtors does not comply with the undertaking.
 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 service which the obligation consists.
 Basically, in the case of a breach, the obligation converts into one for
damages.
 Contravening debtor – liability of damages + portion of the price and
value of the obligation
 Innocent debtors – portion of the price or value of the obligation.
o Article 1225: Obligations to give a definite thing and those which are not susceptible of
partial performance shall be deemed indivisible (notwithstanding of the intent of the
parties)
 When the obligation has for its object the execution of certain number of days
of work, the accomplishment of work by metric units, or analogous things which
by their nature are susceptible of partial performance, it shall be divisible.
 May still be 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.
 Partial performance in indivisible obligations equate to non-performance unless
 By substantial performance in good faith (Art. 1234)
 By waiver oif the creditor (Art. 1235)
 Partial Non-performance in divisible obligations
 Based on 1191
 Section 6: Obligations with a Penal Clause
o Article 1226: In obligations with a penal clause, the penalty shall substitute the
indemnity got damages and the payment of interest in the case of noncompliance, if
there is no stipulation to the contrary.
 Exception:
 If obligor refuses to pay
  If obligor is guilty of fraud under Article 1170
o Article 1227: Debtor cannot exempt himself from performing an obligation by paying
the penalty, save for cases where this right has been expressly reserved to him.
 Creditor cannot demand for fulfillment and satisfaction of penalty at the same
time unless the right was clearly granted to him
 If after the creditor has demanded the fulfillment of the obligation, the
performance thereof should become impossible without his fault the penalty
may be enforced
 Notes on 1227:
 Liquidated Damages and Penal Clause is the same
 The courts may lower the penal clause if the creditor has benefited from
the irregular fulfillment of the obligation
o The court may also lower the penal clause if it is deemed
iniquitous or unconscionable.
 Elements for determining whether the penal clause is
iniquitous or unconscionable
 Type
 Extent and purpose of the penalty
 The nature of the obligation
 The mode of breach and its consequence
 Supervening realities
 Relationship of the parties
 Purpose of a penal clause: to expedite recovery in the case of breach
 Penalty normally consists a sum of money. However, it could involve
things that are not money provided that it does not contravene law,
morals, good customs, and public policy.
 Classification of a penal clause:
o Subsidiary/Alternative: Upon breach, only the penalty is
demandable
 Exception: Joint/cumulative: Both the principal
undertaking and the penalty are demandable
o Exclusive/Reparative: The penalty takes place of damages
 Exception: Inclusive/Punitive Damages in addition to
penalty may be demanded
 Because the debtor refuses to pay
 Because the debtor is guilty of fraud
 Because it was stipulated
o Article 1228: Proof of actual damages suffered by the creditor is not necessary in order
for the penalty be demanded
 Because it is already superfluous and irrelevant as damages is already
predetermined.
o Article 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 had been no performance, the penalty may also be reduced by
courts if it is iniquitous or unconscionable.
o Article 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
 Rationale: because a penal clause is an accessory undertaking. As such, it cannot
subsist without the existence of the principal obligation to which it attaches.

Extinguishment of Obligations

 Article 1231: Obligations are extinguished by:

o Payment or performance
o By the loss of the thing due
o By the condonation or remission of debt
o By confusion or merger
o By compensation
o By novation
o Other modes of extinguishment such as annulment, rescission, resolutory condition and
prescription are governed elsewhere in this code.
o Other causes:
 Death of a party
 Rebus sic stantibus (when the service becomes so difficult beyond the
contemplation of the parties).
 Mutual dissent (parties agreeing that the contract be cancelled)
 Judicially declared insolvency
 Waiver by creditor
 Compromise
 Arrival of resolutory term
 Etc.
 Section 1: Payment or Performance
o Article 1232: Payment not only means the delivery of money, but also the performance
in any manner of the obligation.
 This is contemplated as the normal mode of extinguishment
 Because it involves the fulfillment of an obligation
 All other modes are abnormal
 For accuracy, the law made distinction between payment and
performance. But legally, they are one in the same.
 Requisites of Payment
 RE: Prestation
o Identity
 If specific: The very thing or service must be delivered
or performed
 If generic: The prestation must neither be inferior or
superior in quality of that stipulated.
  Special Rules for Money Debts: Payment must be in the
currency stipulated. In the absence of such, payment
shall be in Philippine Peso.
 If payment is in a negotiable paper, creditor
may refuse acceptance. Payment is provisional
until it is encashed or impaired by the fault of
the creditor.
 Exception to the requirement of identity
 Dacion en pago
 Novation
 (because there is a voluntary change in the
prestation)
 Integrity  the entire prestation must be performed
 Exceptions
o Substantial performance in good faith
o Waiver by the creditor or oblige
o In application of payments, if the debts
are equally onerous, payment shall be
made pro rata
 Indivisibility  Performance in a single act
 Exceptions
o Express stipulation
o Prestation entail partial performance
o Debt is liquidated in part and
unliquidated in another
o Joint indivisible obligations.
o Etc.
o RE: The Parties
 The Payor
 Without the creditor’s consent
o Debtor/obligor himself
o His heir or assignee
o His agent
o Anyone interested in the fulfillment of
the obligation (e.g., guarantor)
 With creditor’s consent
o Anyone
 Effect of payment by third person
 If with debtor’s consent: subrogation
 If without the debtor’s consent: reimbursement
to the extent of the benefit
 The payee
 Creditor/oblige
  His successor or transferee
 His agent
 A third person
o Provided it redounded to creditor’s
benefit and only to the extent of such
benefit
o If falling under 1241 Par. 2
 Anyone possessing the credit
o RE: Time and Place
 Time – When due
 Place
 Primary rule: by stipulation
 Secondary Rule: Place where thing was at the
time of the constitution of the obligation
 Tertiary rule: Debtor’s domicile
 Special forms of payment
 Dacion en pago (1245)
 Application of Payment (1252-1254)
 Payment by cession (1255)
 Consignation (1256-1261)
o Article 1233: A debt shall not be understood to have been paid unless the thing or
service has been completely delivered or rendered.
 Article is in compliance of the integrity of payments (that the performance must
be complete)
 Exception to the rule of integrity of payments
 Substantial performance in good faith
 Waiver by creditor
 If there are several debts that are equally onerous and demandable, the
payment shall be applied pro rata if the payment is less than the total
sum of debts
o Article 1234: If the obligation has been substantially performed in good faith, the obligor
may recover as though there had been a strict and complete fulfillment, less damages
suffered by the oblige.
 Exception as to the fulfillment of payment.
 According to 1191, if the breach is not substantial, the obligor cannot avail of
rescission
 Substantial performance of good faith renders 1191 inutile.
 In short, if there had been substantial performance in good faith, obligor may
recover what he has given minus the indemnity for damages
o Article 1235: When the oblige accepts the performance, knowing its incompleteness or
irregularity, and without expressing any objection, the obligation is deemed fully
complied with
 This provision considers acceptance of the oblige as a waiver to the integrity of
payment.
o Article 1236: The creditor is not bound to accept payment from a third person who has
no interest in the fulfillment of the obligation unless there is a stipulation to the
contrary
 Whoever pays for another may demand from the debtor what he has paid,
except that if he paid without the knowledge or against the will of the debtor,
he can recover only insofar as the payment has been beneficial to the debtor
o Article 1237: