Obligations and Contracts

OBLIGATION - Article 1156. An obligation is a juridical necessity to give, to do or not to do.

Discussion of the Law

An obligation is a legal duty, however created, the violation of which may become the basis of
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an action of law.

When does delay or default arise?

 

Those obliged to deliver or to do something incur in delay from the time the obligee judicially
or extra-judicially demands from them the fulfilment of their obligation. In reciprocal
obligations, neither party incurs in delay if the other does not comply in a proper manner with
what is incumbent upon him. From the moment one of the parties fulfills his obligations,
delay by the other begins. (Art. 1169, NCC)

What are the requisites of delay?

 

1. Obligation must be due, demandable and liquidated;

2. Debtor fails to perform his positive obligation on the date agreed upon;

3. A judicial or extra-‐judicial demand made by the creditor upon the debtor to fulfill, perform
or comply with his obligation; and

4. Failure of the debtor to comply with such demand. Note: In reciprocal obligations, the
moment one party is ready to comply with his obligation, delay by the other begins. There is
no need for demand from either party.
• Nature and Effect of Obligation
• Solidary and Joint Obligation
JOINT AND SOLIDARY OBLIGATION

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.

JOINT OBLIGATION vs. SOLIDARY OBLIGATION

In a JOINT OBLIGATION, each obligor answers only for a part of the whole liability and to each obligee (creditor)
belongs only a part of the correlative rights. “TO EACH HIS OWN.”

In a SOLIDARY OBLIGATION (or JOINT AND SEVERAL OBLIGATION), the relationship between the active
and passive subjects is so close that each of the former or of the latter may demand the fulfilment of or must comply
with the whole obligation. “ALL FOR ONE, ONE FOR ALL.”

GENERAL RULE: When there are two or more debtors OR two or more creditors, the obligations is JOINT.

EXCEPTION: The obligation is SOLIDARY:

1. When there is a STIPULATION in the contract that the obligation is solidary;

2. When the NATURE of the OBLIGATION requires liability to be solidary; or
3. When the LAW DECLARES the obligation to be solidary.

Some Instance Where the Law Imposes Solidary Liability:

1. Obligation arising from quasi-delict;

2. Obligation arising from quasi-contracts;
3. Legal provisions regarding the obligations of devisees and legatees;
4. Liability of the principals, accomplices, and accessories of a felony;
5. Bailees in commodatum.

QUERY: May the obligation be joint on the side of the creditors and solidary on the side of the debtors or vice-
versa?

ANSWER: Yes. In such cases, the rules applicable to each subject of obligation should be applied, the characters of
the creditors or debtors determining their respective rights and liabilities.

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.

GENERAL RULE: PRESUMPTION THAT THE OBLIGATION IS JOINT

As a consequence:
 1. The debt shall be divided into as many as shares as there creditors or debtors;
2. The credits or debts will be distinct from one another, BUT regarding the bringing of the

action in court, Rules of Court governing the multiplicity of suits will be followed.

Some Consequences of Joint Liability:

1. Vitiated consent on the part of one debtor does not affect the others;
2. Insolvency of one debtor does not make others responsible for his share;
3. Demand by the creditor on one joint debtor puts him in default, but not the others since the

debts are distinct;

4. When the creditor interrupts the running of the prescriptive period by demanding judicially

from one of them, the others are not affected;

5. Defences of one debtor are not necessarily available to the others.

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.

INDIVISIBLE JOINT OBLIGATION – “Indivisible” referring to the object; “joint” referring to the tie between the
parties who are merely proportionately liable, UNLESS solidarity has been stipulated by the parties or the law, in
which case, it is called a SOLIDARY INDIVISBLE OBLIGATION

Example:
A and B are jointly liable to give C this particular car.

The peculiarity of this obligation, however, is that the fulfilment requires the consent of all debtors, although each
for his part. On the side of the creditors, collective action is also required for acts which may be prejudicial.

Thus:

1. No creditor can do an act prejudicial to others; AND

2. No debtor can be made to answer for the others.

CHARACTERISTICS OF INDIVISIBLE JOINT OBLIGATION:

1. The obligation is joint but since the object is indivisible, the creditor must proceed against ALL the joint
debtors for compliance is possible only if all the joint debtors would act TOGETHER;
2. Demand must, therefore, be made on ALL the joint debtors;
3. If any one of the joint debtors does not comply with his monetary obligation for damages.

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

4. If any of the joint debtors be insolvent, the others shall not be liable for his share.
 5. If there be joint creditors, delivery must be made to all, and not merely to one, UNLESS that one be
specifically authorized by the others.
6. Each joint creditor is allowed to renounce his proportionate credit.

NOTE: In a joint indivisible obligation, if one of the joint creditors makes a demand upon one of the joint debtors,
there is no doubt that the debtor is in default with reference to the demanding creditor. Is he also in default with
reference to the others? No, the credits are still considered independent of one another.

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

INDIVISIBLITY vs. SOLIDARITY

Indivisibility – refers to the OBJECT

Solidarity – refers to the TIE between the parties.

Different Kinds of Solidarity:

1. Active Solidarity – on the part of the creditors or obliges; Passive Solidarity – on the part of the debtors or
obligors; Mixed Solidarity – on the part of the creditors and the debtors.
2. Conventional Solidarity – agreed upon by the parties; Legal Solidarity – that imposed by the law.

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.

SOLIDARITY DESPITE DIFFERENT TERMS or CONDITIONS

Example: A and B solidarily bound themselves to pay a total of P1,000,000 to C,D, and E subject to the following
conditions and terms:

1. C’s share will be due at the end of the year;

2. D will get his share only if he passes the Bar; and
3. E will get his share only after he has painted the house of X.

Effect: The obligation is still solidary.

Question: When will this solidary obligation be due and demandable?

Answer: The obligation is still solidary but C’s share will only be due and demandable at the end of the year, and E
and D’s share will be due and demandable only upon fulfilment of the condition.

Solution: The creditor may recover that part which pure and unconditional, and should leave in suspense or pending,
the right to demand the payment of the remainder until the expiration of the term or the fulfilment of the condition.
Solidarity is still preserved by recognizing in the creditor the power, upon fulfilment of the
condition or the expiration of the term, of claiming from any or all of the debtors, that part of the
obligation effected by these conditions.

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.

Article 1213. A solidary creditor cannot assign his rights without the consent of the others. (NON-
ASSIGNMENT OF RIGHTS BY SOLIDARY CREDITORS)
General Rule: The solidary creditor cannot assign his rights. Exception: He is allowed if ALL the creditors
consent.

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.

TO WHOM DEBTO MUST PAY:

GENERAL RULE: To any of the solidary creditors.

EXCEPTION: Payment must be made to solidary creditor who made a demand (judicial or extra- judicial).

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.

NOVATION – is the modification of an obligation by changing its object or principal conditions, or by substituting
the person of the debtor, or by subrogating the person of the debtor, or by subrogating a third person in the rights of
creditor.

COMPENSATION – is that which takes place when two persons, in their own right, are creditors and debtors of
each other. This may be TOTAL or PARTIAL compensation.

1. TOTAL compensation – there will be automatic extinguishment of the obligation by virtue of total
compensation.

Example: A and B are solidary debtors of X and Y, solidary creditors to the amount of P400,000. But X
owes A P400,000 on account of different obligation.

Effect: The solidary obligation is extinguish. But B should not benefit completely since it was A’s credit
that was used to compensate. So B owes A P200,000 (his share of the debt). Upon the other hand, Y should
not be prejudiced, so Y can recover his P200,000 (his credit) from X.

2. PARTIAL compensation

Example: A and B are solidary debtors of C to the amount of P2,000,000 but C is indebted to A for
P500,000.

Effect: This is a case of partial compensation, and therefore the solidary obligation amounting to
P1,500,000 still subsists.

CONFUSION OR MERGER – is that which takes place when the characters of creditor and debtor are merged in
the same person.

REMISSION or WAIVER – is the act of liberality whereby a creditor condones the obligation of the debtor to
“forget about the whole thing”. It may PARTIAL or TOTAL Remission.

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.
AGAINST WHOM THE SOLIDARY CREDITOR MAY PROCEED:

The creditor may proceed against ANY, SOME, or ALL of the solidary debtors – simultaneously.

NOTE: A creditor may sue any of the solidary debtors. Solidarity does not make a solidary obligor an indispensable
party in a suit filed by the creditor.

Effect of Not Proceeding Against All:

If the creditor sues only one, or two, or several of the debtors (but not all), there is NO waiver against those not yet
sued. The may be proceeded against later.

NOTE:
Article 1216 applies only to SOLIDARY obligations, not a joint one, for in the latter, the failure to collect from one
joint debtor his share does not authorize the creditor to proceed against the others, regarding the insolvent debtor’s
share.

PASSIVE SOLIDARITY vs. SURETYSHIP

Similarities:

1. Both the solidary debtor (SD) and the surety guarantee for another person;
2. Both can demand reimbursement.

Differences:

1. The SD is indebted for his share only; the surety is indebted only for the share of the

principal debtor;

2. Hence, the SD can be reimbursed what he has paid MINUS his own share; the surety can be

reimbursed for everything he paid;

3. If a SD receives an extension of the period for payment , the others are still liable for the

whole obligation now, MINUS that share of the debtor who has received the extension; if a principal debtor
receives an extension, without the surety’s consent, the surety is released.

Article 1217. Payment made by one of the solidary debtors extinguishes the obligation. (EFFECT OF PAYMENT)
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. (REIMBURSEMENT)

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. (IN CASE OF
SOLIDARY DEBTOR”S INSOLVENCY)

PAYMENT – is one of the ways by which an obligation is extinguished and consists in the delivery of the thing or
the rendition of service which is the object of the obligation.
EFFECT of FULL PAYMENT by One of the Solidary Debtor:

1. The obligation is extinguished.

NOTE: If two or more solidary debtors offer to pay, the creditor may choose which to accept.
2. He who made the payment may claim from his co-debtors only the share which corresponds to each, with
the interest for payment already made.

NOTE: If the payment is made before the debt is due, no interest for the intervening period may be
demanded.

Basis of the Right to be Reimbursed:

The fact of payment (and not the original contract) is the basis of the right to be reimbursed, for not until
then had he the right to be reimbursed. Hence, the obligation of the others to reimburse him arises only
from the time payment is made.

3. The solidary obligation which has been extinguished has now been converted into a joint obligation for
reimbursement; otherwise, the law would not have provided that what the paying debtors can recover is
only the proportionate share, with interest.

NOTE: The insolvency of one of the solidary debtors must be shouldered by the rest.

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.

EFFECT OF PAYMENT OF PRESCRIBED DEBT:

The paying solidary debtor cannot recover from his other co-debtors what he has paid.

EFFECT OF PAYMENT OF AN ILEGAL OBLIGATION:B

The paying solidary debtor cannot get any reimbursement from his co-debtors.

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.

EFFECT OF REMISSION MADE AFTER TOTAL PAYMENT OF THE OBLIGATION:

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. This is to prevent fraud and to give justice to the paying debtor.

REASON for the Provision:

Since payment extinguishes the obligation, there is nothing more to remit.

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.

REASON for the Provision:

To allow the contrary would be to induce fraud and to countenance partiality. And it must be borne in mind that
remission is essentially gratuitous.
NOTE: This Article applies only when the whole obligation is remitted.

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.

EFFECT OF LOSS OR IMPOSSIBLITY:

Rule 1: If without fault, no liability.

Rule 2: If with fault, there is liability (also for damages and interest).

Rule 3: Loss because of a fortuitous event AFTER default, here, there will be liability because of the default.

Article 1222. A solidary debtor may, in actions filed by the creditor, avail himself of all defences 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.

Note: This article applies in ACTIONS filed by the creditor.

SOLIDARY DEBTOR’S DEFENSES:

1. Those derived from the NATURE OF THE OBLIGATION. This is actually a COMPLETE DEFENSE.

Example: lack of consideration or cause; illegal consideration; extinguishment of the obligation; non-
fulfilment of the suspensive condition; statute of frauds, when there are vices of consent on the part of ALL
debtors, etc.

2. Those PERSONAL TO THE DEBTOR sued. This is a COMPLETE DEFENSE generally, but if the
defense is non-fulfilment yet of a condition or the non-arrival yet of the term, this is only a PARTIAL
DEFENSE.

Example: vitiated consent, incapacity to give consent, non-fulfilment of condition imposed regarding his share, non-
arrival of term regarding his share.

c. Those personal to others which may be a PARTIAL DEFENSE regarding the shares of others involved.

• When is an Obligation Demandable

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

Obligations with a resolutory period take effect at once, but terminate upon arrival of
the day certain. 

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

• Who are Liable for Damages

Article 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those
who in any manner contravene the tenor thereof, are liable for damages.
GROUNDS FOR LIABILITY in the PERFORMANCE OF OBLIGATIONS:

1. Fraud (deceit or dolo) (intentional evasion of fulfilment)

2. Negilgence (fault or culpa)
3. Default (or Mora) (if imputable to debtor)
4. Violation of the terms of the obligation (unless excused in proper cases by fortuitous events)

NOTE: The following do not excuse fulfilment:

1. Increase in cost of performance;

2. Poverty;
3. War between the subject of neutral country and the subject of a country at war, as long as

substantial compliance can still be done.

• What are the Sources of Obligation

Answer:
Article 1157. Obligations arise from:
 (1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(2) (5) Quasi-delicts.

FIVE SOURCES OF OBLIGATION:

1. Law – like the duty to pay taxes and to support one’s family.
2. Contracts – like the duty to repay loan by virtue of an agreement.
3. Quasi-Contracts – like the duty to refund an over change of money because of the

quasi-contract of solutio indebiti or undue payment.

4. Crimes or acts or omissions punished by law – like the duty to return a stolen carabao.
5. Quasi-Delicts or TORTS - like the duty to repair damage due to negligence.

• In the Extinguishment of Obligation: concentrate

on Payment
CHAPTER 4
EXTINHGUISHMENT OF OBLIGATIONS

GENERAL PROVISIONS
1231. Obligations are exringuished:

5. by payment or performance

6. by loss of the thing due

7. by condonation or remission

8. by confusion or merger of the rights of

creditor and debtor

9. by compensation

10. by novation

Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a

resolutory condition, and prescription, are governed elsewhere in this Code.

• In What Form Should Contracts Be

General RULE:
 Article 1356 of the Civil Code then provides that ‘contracts shall be obligatory, in
whatever form they may have been entered into, provided all the essential requisites for
their validity are present.’ As a general rule, therefore, a contract under Philippine law will be
valid in whatever form it may be found, whether oral, paper-based or electronic or digital.
Exception:

1. When the law requires that a contract be in some form in order that it may be valid [par.
2, Art. 1356, CC]
2. When the law requires that a contract be proved in a certain way to be enforceable
(Statute of Frauds) [par. 2, Art. 1356, CC]
3. When the law requires a contract to be in some form for convenience, or to be effective
against third parties [Arts. 1357 and 1358, CC]

Art. 1358, CC. The following must appear in a public document:

1. Acts and contracts which have for their object the creation, transmission, modification or
extinguishment of real rights over immovable property; sales of real property or of an interest
therein as governed by Articles 1403, No. 2, and 1405;

2.The cession, repudiation or renunciation of hereditary rights or of those of the conjugal

partnership of gains;

3.The power to administer property, or any other power which has for its object an act appearing
or which should appear in a public document, or should prejudice a third person;

4.The cession of actions or rights proceeding from an act appearing in a public document.

All other contracts where the amount involved exceeds five hundred pesos must appear in
writing, even a private one. But sales of goods, chattels or things in action are governed by
Articles, 1403, No. 2 and 1405.

• Essential Elements of Contract

Art 1318, CC. There is no contract unless the following requisites concur:

1. Consent of the contracting parties;

2. Object certain which is the subject matter of the contract
3. Cause of the obligation which is established

• Defective Contracts
 1. Rescissible - A contract that has caused a particular damage to one of the parties or to
a third person and which for EQUIT ABLE REASONS may be set aside even if valid.

2. Annulable or Voidable (contrato nulo) - A contract in which CONSENT of one of the

parties is defective, either because of WANT OF CAPACITY or because it is VITIA TED,
but which contract is VALID until JUDICIALLY set aside.

3. Unenforceable -. A contract that for some reason CANNOT BE ENFORCED, UNLESS

RATIFIED in the manner PROVIDED BY LAW.

4. Void or Inexistent - A contract which is an ABSOLUTE NULLITY and produces NO

EFFECT, as if it had never been executed or entered into.

• Remedies of an Unpaid Creditor

• Remedies in Failure to Comply with Personal
Obligation to Do
Article 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost. (Positive
Personal Obligation – to do)

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may be
decreed that what has been poorly done be undone.

REMEDIES OF THE CREDITOR IF DEBTOR FAILS TO DO

1. To have the obligation performed (by himself or another) at the debtor’s expense (only if another can do
the performance;
2. Also to obtain damages. Damages alone cannot substitute for performance if owners can do it; if purely
personal or special, only damages may be asked, unless substitution is permitted.
• Remedies if there is Noncompliance with Personal
Obligation to Give

Article 1168. When the obligation consists in not doing, and the obligor does what has been forbidden him, it shall
also be undone at his expense. (Negative Personal Obligation)

Remedies of the Creditor when the Debtor Violates Negative Personal Obliagtion:

1. The creditor can demand that the act be undone at the expense of the debtor.
2. Plus Damages.