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CHAPTER 3 – DIFFERENT KINDS OF OBLIGATIONS PRIMARY CLASSIFICATION UNDER OTHER KINDS OF THE CIVIL CODE: OBLIGATIONS: 1. Pure Obligation 1. Unilateral 2. Conditional Obligation...

CHAPTER 3 – DIFFERENT KINDS OF OBLIGATIONS PRIMARY CLASSIFICATION UNDER OTHER KINDS OF THE CIVIL CODE: OBLIGATIONS: 1. Pure Obligation 1. Unilateral 2. Conditional Obligation 2. Bilateral 3. Obligation with a period 3. Reciprocal 4. Alternative Obligation 4. Simple 5. Facultative Obligation 5. Compound 6. Joint Obligation 6. Positive 7. Solidary Obligation 7. Negative 8. Divisible Obligation 8. Civil 9. Indivisible Obligation 9. Natural 10.Obligation with a Penal Clause SECTION 1: PURE AND CONDITIONAL OBLIGATIONS (Art. 1179) Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once. Every obligation which contains a resolutory condition shall also be demandable, without prejudice to the effects of the happening of the event. (1113) Pure Obligation – one without a term or condition; hence, it is demandable at once. Example: “I promise to give you P10,000 / on demand.” Conditional Obligation – one whose demandability or extinguishment is subject to the happening of a condition. Condition – an uncertain event which wields and influence on a legal relationship. TWO (2) PRINCIPAL KINDS OF CONDITIONS: (1) Suspensive Condition (condition precedent or condition antecedent) − suspends the effectivity of the obligation until the condition is fulfilled. − if not fulfilled – obligation not effective or demandable. − obligation – birth takes place or effectivity commences only if and the event that constitutes the condition happens or is fulfilled. − (will give rise) to an obligation once fulfilled. (2) Resolutory Condition (condition subsequent) − extinguishes the obligation upon its fulfillment. − obligation is demandable at once.  − condition is fulfilled – obligation is extinguished and parties shall return to each other what they have received. − (will extinguished) the obligation once fulfilled. NATURE OF OBLIGATION WHEN DEBTOR BINDS HIMSELF TO PAY WHEN HIS MEANS PERMIT HIM TO DO SO AND SIMILAR PHRASES (Art. 1180) When the debtor binds himself to pay when his means permit him to do so, the obligation shall be deemed to be one with a period, subject to the provisions of Article 1197. WHEN DURATION OF PERIOD DEPENDS UPON THE WILL OF DEBTOR: a) Nature of obligation when debtor binds himself to pay when his means permit him to do so. / − Considered as one with a period and not subject to a condition. − Creditor, before he can enforce it, must file a court action for the fixing of the period. Example: “I will pay you my debt of P10,000 when my means permit me to do.” b) Similar Phrases. − As when the debtor binds himself to pay: o “ little by little ” o “ in partial payments ” o “ as soon as possible ” o “ when I am in position to pay ” o “ at any time I have the money ” o “ when I can afford it ” PRINCIPAL CONDITIONS (Art. 1181) In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. a) Acquisition of Rights (Suspensive Condition) − The creditor’s right is dependent on a future, uncertain event. − If the condition is not fulfilled, the obligation is considered as if it never existed. − Until the condition is fulfilled, the creditor only has a mere expectation or hope of acquiring a right. Example: o H inherits a land from T only if T dies within two (2) years. If T dies later, H does not inherit, as the condition was unmet. o In winning a lottery, the winner must present the winning ticket to claim prize. b) Loss of Rights Already Acquired (Resolutory Condition) − Upon the occurrence of the resolutory condition, rights that were already acquired are extinguished. Example: o X agrees to support Y until Y graduates. The right to support ends when Y graduates. KINDS OF CONDITIONS UNDER THE PROVISION (Art. 1182) When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code. (1115) (1) Potestative Condition (facultative condition) − condition that depends upon the exclusive will of one of the parties. a) Potestative on the part of the debtor i. If the condition is also suspensive, the obligation and the condition are void. Examples: “I will give you P10,000 if I like.” “I will give you a pearl if I go to the pearl farm in Davao.” “I will pay you after I receive a loan from a bank” “I will pay you after I recover what X owes” “I will pay you upon the sale of the house in which I live” ii. If the condition is also resolutory, the obligation and the condition are valid. Example: “I will let you use my car until I return from Baguio.” b) Potestative on the part of the creditor − if the condition depends exclusively upon the will of the creditor, the obligation is valid. − the debtor is naturally interested in its fulfillment. − the obligation and the condition are valid, whether the condition is suspensive or resolutory. Examples: “I will give you P20,000 if you go to Baguio.” “I will let you use my car until you return from Baguio.” (2) Casual Condition − condition that depends upon chance or upon the will of a third person. The obligation and the condition are valid. Examples: “I will give you a car if I win the first prize in the lotto on a bet I placed this morning.” (3) Mixed Condition − condition that depends partly upon the will of one of the parties and partly upon chance or the will of will of a third person. The obligation and condition are likewise valid. Examples: “I will give you 10% of my winnings if you place my bet in the lotto.” “I will give you a house and lot if you marry X.” POSSIBLE AND IMPOSSIBLE CONDITIONS (Art. 1183) Impossible conditions, those contrary to good customs or public policy and those prohibited by law shall annul the obligation which depends upon them. If the obligation is divisible, that part thereof which is not affected by the impossible or unlawful condition shall be valid. The condition not to do an impossible thing shall be considered as not having been agreed upon. (1116a) Possible Conditions – a condition that is capable of fulfillment. Impossible Conditions – a condition that is incapable of performance or cannot be physically done (physical impossibility), or which is contrary to law, morals, good customs, public order and public policy (legal impossibility). Examples: o D obliged himself to give P50,000 to C if C can swim across the Pacific Ocean. (physically impossible) o D obliged himself to give C P50,000 if C will not vote in the coming senatorial election. (against public policy/legally impossible) EFFECT OF IMPOSSIBLE OR UNLAWFUL CONDITION ON OBLIGATION: a) Annul the obligation that depends upon them. Here, both the obligation and the condition are void. EFFECT WHEN OBLIGATION CONTAINS BOTH IMPOSSIBLE AND POSSIBLE CONDITIONS: a) If the obligation is divisible(mahati/bahin), only that part that is not affected by the unlawful or impossible condition shall valid. b) If the obligation is indivisible(dle ma hati/bahin), the entire obligation is void. Negative Impossible Condition – the condition not to do an impossible thing shall be considered as not having been agreed upon; hence the obligation is demandable at once. Example: o D obliged himself to give P5,000 to C if C does not swim across the Pacific Ocean. POSITIVE CONDITIONS (Art. 1184) The condition that some events happen at a determinate time shall extinguish the obligation as soon as the time expires or if it has become indubitable that the event will not take place. (1117) Positive Condition – a condition that some event will happen at a determinate time. EFFECT ON OBLIGATION: a) The obligation shall be extinguished as soon as the time expires without the event taking place or if there is no more doubt that the event will not take place even before the expiration of such determinate time. Example: o O is obliged to give C a house and lot if C marries X within one year.  If the year expires without the marriage, the obligation is extinguished because the condition was unmet.  If X dies before the year ends, the obligation is also extinguished, as C can no longer marry X.  However, if C marries X within the year, the obligation becomes effective, and O must give the house and lot to C since the condition was fulfilled. NEGATIVE CONDITIONS (Art. 1185) The condition that some event will not happen at a determinate time shall render the obligation effective from the moment the time indicated has elapsed, or if it has become evident that the event cannot occur. If no time has been fixed, the condition shall be deemed fulfilled at such time as may have probably been contemplated, bearing in mind the nature of the obligation. (1118) Negative Condition – a condition that some event will not happen at a determinate time. EFFECT ON OBLIGATION: a) The obligation becomes effective as soon as the time expires, or it has become evident that the event will not take place. Example: o O is obliged to give C a house and lot if C does not marry X within one year.   If the year expires without marriage, the obligation becomes effective, and O must fulfill it since the condition was met.  If X dies before the year ends, the obligation becomes effective immediately, as C can no longer marry X.  If C marries X within the year, the obligation is extinguished because the condition was not fulfilled. CONSTRUCTIVE FULFILLMENTS OF SUSPENSIVE & RESOLUTORY CON. (Art. 1186) The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. (1119) − If the debtor voluntarily prevents the fulfillment of the condition, such conditions is deemed fulfilled and the obligation becomes demandable. REQUISITES: a) There must be an intent on the part of the debtor to prevent compliance with the condition. b) He actually prevents its fulfillment. Example: o D, a recruiter, promised C a job abroad if C passes a physical exam.  If D secretly puts a drug in C’s drink, causing C to fail the exam, the condition is deemed fulfilled, and D must provide the job because he intentionally prevented C from passing.  However, if C was genuinely disqualified due to tuberculosis, the obligation is extinguished because C’s failure to qualify is legitimate and not caused by D’s actions. WHEN CONSTRUCTIVE FULFILLMENT NOT APPLICABLE: a) The condition is not deemed fulfilled if the debtor prevents its fulfillment in the exercise of a lawful right or for justifiable reasons. Example: o Donato promises to give Carmelo a house and lot if Carmelo marries Teresa.  However, if Donato convinces Carmelo not to marry Teresa because she is his half-sister, the obligation is not demandable. Donato’s actions are justified, as they are based on a lawful concern to prevent an incestuous marriage. RETROACTIVE EFFECTS (Art. 1187) The effects of a conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the condition shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different. In obligations to do and not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with. (1120) EFFECTS OF FULFILLMENT OF SUSPENSIVE CONDITION IN CONDITIONAL OBLIGATION TO GIVE: a) Obligation becomes effective and demandable. b) Effect: retroact to the day the obligation was constituted. c) The creditor shall be entitled to the thing from the time the obligation was perfected. Example: o On Aug. 1, 2022, D promised to give his agricultural lot to C if C passes the CPA Licensure Examination in Oct. 2022. C passed the exam on Oct. 20, 2022.  C was entitled to the lot retroactively from Aug. 1, 2022, the date the obligation was established. WHEN THERE IS NO RETROACTIVE EFFECT: − Not apply to the fruits and interests during the pendency of the condition. a) In reciprocal obligations, the fruits and interests received during the pendency of the condition shall be deemed to have been mutually compensated, i.e., they are not required to be delivered for convenience. (Both parties have corresponding obligations toward each other) Example: o On May 1, 2022, S agreed to sell his coconut plantation to B for P500,000 if B passed the CPA exam on Oct. 2022. B passed on Oct. 20, 2022.  S’s obligation: Transfer the coconut plantation to B.  B’s obligation: Pay P500,000 to S.  Fruits and interests during the pending condition are mutually compensated and need not be returned. b) In unilateral obligations, the debtor shall keep the fruits and interests unless there was a contrary intent. (Only one party has an obligation) Example: o On Aug. 1, 2022, D promised to give C his agricultural lot if C passes the CPA Exam on Oct. 2022. C passed the exam on Oct. 20, 2022  D’s obligation: Must give the agricultural lot to C.   Fruits and interests during the pending condition remain with D, unless D specifically agreed to give them to C. EFFECTS OF FULFILLMENT OF SUSPENSIVE CONDITION IN CONDITIONAL OBLIGATION TO DO AND NOT TO DO: a) The courts shall determine in each case the retroactive effect of the condition that has been complied with. RIGHTS PENDING FULFILLMENT OF SUSPENSIVE CONDITION (Art. 1188) The creditor may, before the fulfillment of the condition, bring the appropriate actions for the preservations of his right. The debtor may recover what during the same time he has paid by mistake in case of a suspensive condition. (1121a) RIGHTS OF CREDITOR/DEBTOR BEFORE THE FULFILLMENT OF SUSPENSIVE CONDITION: (1) Creditor’s right before the fulfillment of suspensive condition a) Filing a court action to prevent debtor from deliberately alienating, destroying, or concealing the property. b) Recording the expected right with the Register of Deeds to give notice to third persons. c) Asking for security from the debtor if he is about to become insolvent, such as requiring the debtor to provide a surety for the debt. (2) Debtor’s right to recover payment made before fulfillment of condition a) If the debtor made the payment believing that the condition has been fulfilled, i.e., by mistake, then he can recover such payment as this is a case of solutio indebiti. He shall also be entitled to the fruits or legal interest is the creditor accepted the payment in bad faith. (Art. 2159) b) If he made the payment with knowledge that the condition has not yet been fulfilled: i. If the condition is eventually fulfilled, then he can no longer recover the payment, as fulfillment of the condition entitles the creditor anyway to demand performance of the obligation. ii. If the condition is not fulfilled, then he shall be entitled to recover, except if his making the payment is equivalent to a waiver of the condition. RULES IN CASE OF LOSS, DETERIORATION, OR IMPROVEMENT OF THING DURING PENDENCY OF SUSPENSIVE CONDITION (Art. 1189) When the conditions have been imposed with the intention of suspending the efficacy of an obligation to give, the following rules shall be observed in case of the improvement, loss, or deterioration of the thing during the pendency of the condition: (1) If the thing is lost without the fault of the debtor, the obligation shall be extinguished; (2) If the thing is lost through the default of the debtor, he shall be obliged to pay damages; it is understood that the thing is lost when it perishes, or goes out of commerce, or disappears in such a way that its existence is unknown or it cannot be recovered; (3) When the thing deteriorates without the fault of the debtor, the impairment is to be borne by the creditor; (4) If it deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with indemnity for damages in either case; (5) If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor; (6) If it is improved at the expense of the debtor, he shall have no right than that granted to the usufructuary. (1122) (1) Application of the provision a) The object of the obligation is determinate; b) The loss, deterioration, or improvement takes place before the fulfillment of the condition; c) The obligation is subject to a suspensive condition which is eventually fulfilled. (2) Loss of the thing a) When thing is considered lost: i. A thing is considered lost when it perishes. (Physical loss) Example: When a particular house is completely razed in a fire. ii. When it goes out of commerce. (Legal loss) Example: When a food item is banned because of its harmful side effects iii. When it disappears in such a way that its existence is unknown, or it cannot be recovered. (Civil Loss) Example: When a specific ring is misplaced and it cannot be located, or it is dropped at the bottom of the ocean. b) Rules in case of loss: i. If the thing is lost without the fault of the debtor, the obligation shall be extinguished. − No person shall be responsible for fortuitous event and the object being determinate.  Example: D promised to give a specific car to C if C obtains a favorable judgment in D’s civil case. If the car is struck by lightning and completely burned before the condition is fulfilled, D’s obligation is extinguished. ii. If the thing is lost through the fault of the debtor, he shall be obliged to pay damages. Example: In the same scenario, if the car is burned completely because D placed highly flammable materials in the trunk, D is liable to pay damages to C. The obligation is not extinguished; D must compensate for the loss. (3) Deterioration of the thing a) When there is deterioration of the thing: − Becomes impaired in quality, functioning or condition. b) Rules in case of deterioration: i. If the thing deteriorates without the fault of the debtor, the impairment shall be borne by the creditor. Example: D promised to give his only car to C if C passes the CPA Licensure Examination. If the car deteriorates due to normal wear and tear before C passes the exam, C must bear the loss. The obligation remains, but the quality decrease is the responsibility of C. ii. If the thing deteriorates through the fault of the debtor, the creditor may choose between the rescission of the obligation and its fulfillment, with a right to damages in either case. Example: If D’s car deteriorates because D used it for drag racing and high-speed driving, causing serious mechanical issues, C has the following remedies: o Rescind the Obligation: C can cancel the obligation and seek damages for the deteriorated condition of the car. o Fulfillment with damages: C can demand that D still provide the car and also seek damages for the deterioration caused by D’s fault. (4) Improvement of the thing a) When there is improvement of the thing: − There is enhancement in its value or quality, such as when something is added or attached to it. b) Rules in case of improvement: i. If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor. Example: D promised to give a specific barrel of wine to C if C completes a course in Law. If C completes the course 15 years later, and the wine improves in taste due to aging, C benefits from the improved wine. The benefit of the enhancement in quality inures to C.  ii. If the thing is improved at the expense of the debtor, he shall have no other right than that granted to the usufructuary. Example: D agreed to give C a car if C passes the Bar Examination. Before C passed, D repaired the car and installed a removable stereo. D cannot remove the stereo or the car’s paint, as these improvements must remain with the car when it is delivered to C. EFFECTS OF FULFILLMENT OF A RESOLUTORY CONDITION (Art. 1190) When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received. In case of loss, deterioration, or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return. As for obligations to do and not to do, the provisions of the second paragraph of Article 1187 shall be observed as regards the effect of the extinguishment of the obligation. (1123) (1) Effect of fulfillment of a resolutory condition in conditional obligation to give a) The obligation will be extinguished. b) The parties shall return to each other what they have received unless a contrary intent appears. c) In case of loss, deterioration or improvement of the thing, the provisions of Art. 1189 shall be applied to the party who is bound to return. Examples: o O allows C to use his car until C finishes a Business Administration course. O must let C use the car until the course is complete, after which C must return the car. C is responsible for any normal wear and tear, but if the car is lost due to C’s fault, C must compensate. o O promises to give C a P1,000 monthly allowance until C finishes an Accountancy course. O’s obligation ends once the course is completed, and C doesn’t need to return the received allowance, as it was for support during the course. (2) Effect of fulfillment of resolutory condition in conditional obligation to do and not to do − The courts shall determine, in each case, whether or not to give the extinguishment of the obligation any retroactive effect. REMEDIES OF THE INJURED PARTY IN RECIPROCAL OBLIGATIONS (Art. 1191) The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree that rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. (1124) (1) Application of the provision − Arises from the same cause and in which each party is a debtor and a creditor of the other. − Performed simultaneously so that the performance of one is conditioned upon the simultaneous fulfillment of the other. − If one party performs his obligation but the other does not, the party performing his obligation suffers injury by reason of the delay. (2) Remedies of the injured party a) Rescission with damages − Rescission (more appropriately referred to as “resolution”) in reciprocal obligations is implied; hence, it is not required to be stipulated. − Limitations: i. The obligation is not automatically rescinded by reason of one party’s non- fulfillment of his obligation. In the absence of stipulation, a party cannot unilaterally and extra-judicially rescind a contract. A judicial or notarial act is necessary before a valid rescission or resolution can take place. ii. Rescission is not available if there is a just cause for the fixing of the period within which the debtor can comply with his obligation. iii. Rescission is not available if the thing subject matter of the obligation is already in the possession of a third person who acquired it in good faith. iv. Rescission will not be granted if there is a slight or casual breach of the contract. It will be allowed only for such breaches which are so fundamental or substantial as to defeat the purpose of the parties in making the agreement.  b) Fulfillment of the obligation with damages Example: S sold his Toyota car to B for P200,000. B paid the price, but S failed to deliver the car. o Remedies of B: B can demand the fulfillment of the contract (delivery of the car) and seek damages for the delay or non-performance. (3) Nature of Remedies − Alternative Remedies – not both − Also seek rescission, even after he has chosen fulfillment, if the latter becomes impossible. Example: B can choose between demanding fulfillment of the contract or seeking rescission. If B initially chooses fulfillment and it becomes impossible (e.g., the car is lost through S’s fault), B can still seek rescission and claim damages. (4) Agreement for automatic cancellation valid − There is nothing in Art. 1191 that prohibits the parties from entering into an agreement that a violation of the terms of the contract would cause its cancellation even without court intervention. LIABILITY OF BOTH PARTIES WHO HAVE COMMITTED A BREACH OF THE OBLIGATION (Art. 1192) In case both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered by the courts. If it cannot be determined which of the parties first violated the contract, the same shall be deem extinguished, and each shall bear his own damages. (1) When it can be determined who first violated the contract − If both parties have committed a breach of the obligation, the liability of the first infractor shall be equitably tempered or reduced. This rule is fair because the second infractor also derived or thought he would derive some advantage by his own act or neglect. Example: B sold a computer to C for P150,000, with delivery due on August 15 and payment due on August 17. B delivered late on August 17, and C paid late on August 19. Both B and C are liable for breaching their obligations, though B’s liability may be reduced since C also delayed payment. (2) When it cannot be determined who first violated the contract − The contract shall be extinguished. SECTION 2: OBLIGATIONS WITH A PERIOD (Art. 1193) Obligations for whose fulfillment a day certain has been fixed, shall be demandable only when that day comes. Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain. A day certain is understood to be that which must necessarily come, although it may not be known when. If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it shall be regulated by the rules of the preceding section. (1125a) Obligation with a Period − one whose demandability or extinguishment is subject to the expiration of the term which must necessarily come. − there is a day certain when the obligation will arise or cease. Example: The period from Aug. 1 to Dec. 1, 2022, determines when the obligation will end or begin. Period – a space of time which determines the effectivity or extinguishment of an obligation. Day Certain − that which must necessarily come although it may not be known when. − an example is the death of person which much necessarily come although it may not be known when. PERIOD DISTINGUISHED FROM CONDITION: PERIOD CONDITION As to fulfillment an event which is certain to uncertain event happen at a date known beforehand, or at a time which cannot be determined. As to influence merely fixes the time for the causes an obligation to on obligation efficaciousness of an arise or cease obligation. As to time always refers to the future. may refer to a past event unknown to the parties. As to the will of depends upon the will of the depends upon the will of the debtor debtor authorizes the court to the debtor which is fix its duration. (Art. 1197, par. suspensive shall annul the 2) obligation. (Art. 1182) KINDS OF PERIOD: (1) According to effect a) Suspensive Period (Ex die) − the expiration of which causes the obligation to arise. − cannot de demanded until the expiration of the term. (Ex die, Latin for “from a certain day”) − the obligation begins only from a day certain upon the arrival of period. Examples: o “I will give your allowance next month.” o “I will pay you P5,000 six months from now.” b) Resolutory Period (In diem) − the expiration of which causes the extinguishment of the obligation. − demandable at once but is terminated upon the expiration of the term. (In diem, Latin for “until a certain day”) − the obligation is valid up to a day certain and terminates upon arrival of the period. Examples: o “I will give you this book until the end of the semester.” o “I will give your monthly allowance until December 31, 2022.” (2) According to source a) Legal Period – period fixed by law. b) Voluntary Period – period fixed by stipulation of the parties. c) Judicial Period – period fixed by the court. (3) According to definiteness a) Definite Period – when it is fixed or it is known when it will come. b) Indefinite Period – when it is not fixed or it is not known when it will come. RULES IN CASE OF LOSS, DETERIORATION, OR IMPROVEMENT IN OBLIGATIONS WITH A PERIOD (Art. 1194) In case of loss, deterioration, or improvement of the thing before the arrival of the say certain, the rules in Article 1189 shall be observed. PAYMENT BEFORE EXPIRATION OF TERM OR PERIOD (Art. 1195) Anything paid or delivered before the arrival of the period, the obligor being unaware of the period or believing that the obligation has become due and demandable, may be recovered, with the fruits and interests. (1126a)  (1) Application of the provision − Only to an obligation to give a thing. − Does not apply to obligations to do and not to do. (2) Effect of payment before expiration of term or period − If the debtor made the payment believing that the period has arrived, he may recover what he has paid with fruits and interests. Example: If an obligation due on December 31, 2023 is paid by mistake on December 31, 2022 the debtor can recover the amount paid together with the interest from the date of payment. − If the debtor made the payment with knowledge of the period or with the knowledge that the period has not arrived, he cannot recover what he has paid or delivered. By making the payment or delivery, he is deemed to have impliedly waived the benefit of the period. BENEFIT OF THE PERIOD (Art. 1196) Whenever in an obligation a period is designated, it is presumed to have been established for the benefit of both the creditor and the debtor, unless from the tenor of the same or other circumstances it should appear that the period has been established in favor of one or of the other. (1127) (1) Party Benefited by the Period The period (time frame) is generally for the benefit of both the debtor (borrower) and the creditor (lender), unless it clearly says otherwise. (2) Effect if the Period Benefits Both Parties The creditor cannot ask for payment before the period ends. The debtor cannot force the creditor to accept early payment before the period ends. Example: On January 1, 2022, D took a loan of P100,000 from C, due on December 31, 2022, with 12% interest. Since the period benefits both parties, D cannot pay early, and C cannot demand payment before the due date. (3) When the Period is for the Benefit of One of the Parties a) Benefit of the Debtor The period benefits the debtor if the parties agree or it can be inferred from the obligation. Example: On January 1, 2022, D obtained a loan of P100,000 from C, payable on or before December 31, 2022. D can make the payment at any time before or on December 31, 2022, but C cannot require D to pay before that date.  b) Benefit of the Creditor The period benefits the creditor if it is stipulated or can be inferred from the obligation. The creditor has the right to demand payment anytime before the deadline or on the last day. However, the debtor cannot compel the creditor to accept payment before the expiration of the term. Example: On January 1, 2022, D obtained a loan of P100,000 from C, "collectible on or before December 31, 2022." C may demand payment at any time before or on December 31, 2022, but D cannot require C to accept payment before that date. FIXING OF THE PERIOD (Art. 1197) If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof. The courts shall also fix the duration of the period when it depends upon the will of the debtor. In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. (1) When the Court May Fix the Period a) If the Obligation Does Not Fix a Period If the obligation does not specify a period but it can be inferred from its nature and circumstances that a period was intended, the court may determine the time frame. Example: D is obliged to construct a house for C, but no period is indicated for completion. In this case, it can be inferred that the parties intended a reasonable time for the construction. Therefore, C may request the court to establish a reasonable deadline for D to complete the house. b) When the Duration of the Period Depends on the Will of the Debtor If the duration of the period is left to the discretion of the debtor, the court may also intervene. Examples: "When my means permit me to do so" "Little by little" "As soon as I have the money" "As soon as possible" "In partial payments" In these cases, the court may fix a specific period based on reasonable expectations. (2) Effect of period fixed by the court the period becomes part of the agreement of the parties; hence, the court cannot change it without the consent of the parties. (3) When the court may not fix the period no term was specified in the obligation and the parties did not intend a period WHEN THE DEBTOR LOSES THE BENEFIT OF THE PERIOD (Article 1198) The debtor shall lose every right to make use of the period: (1) When after the obligation has been contracted, he becomes insolvent, unless he gives a guaranty or security for the debt, (2) When he does not furnish to the creditor the guaranties or securities which he has promised; (3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory, (4) When the debtor violates any undertaking, in consideration of which the creditor agreed to the period; (5) When the debtor attempts to abscond (1) Effect when debtor loses the benefit of the period the obligation becomes a pure obligation and is immediately demandable (2) Cases when the debtor loses the benefit of the period a) When he becomes insolvent, unless he gives a guaranty or security for the debt. Insolvency - no need of judicial declaration, only hard time paying debts. Third persons can provide security. Example: On January 1, 2022, D borrowed P100,000 from C, payable on December 31, 2022. On May 1, 2022, D became insolvent. In this case, C can demand payment from D immediately due to D's insolvency. b) When he does not furnish the guaranties or securities that he has promised. Example: On January 1, 2022, D obtained a loan of P100,000 from C, payable on December 31, 2022. D promised to constitute a chattel mortgage on his car within one month to secure the loan, but the one-month period expired without D executing the chattel mortgage. As a result, C can demand payment from D immediately due to the failure to provide the promised security.  c) When by his own acts he has impaired such guaranties or securities after their establishment and when through a fortuitous event they disappear, unless he immediately gives new ones equally satisfactory. Examples: On January 1, 2022, D borrowed P100,000 from C, payable on December 31, 2022. D secured the loan with a chattel mortgage on his fishing boat. On May 1, 2022, the boat was partly burned due to flammable materials stored by D. In this case, C can demand payment immediately because D’s actions impaired the security provided. In the same scenario, if the fishing boat was totally wrecked during a storm on May 1, 2022, C can also demand payment immediately. The total loss of the security eliminates C’s guarantee for the loan, allowing for immediate demand for payment. d) When he violates any undertaking in consideration of which the creditor agreed to the period. Example: On January 1, 2022, D borrowed P100,000 from C, with a payment deadline of December 31, 2022, on the condition that D would not enter any casino until the debt was paid. However, on June 1, 2022, D was found playing the slot machine at a casino. In this case, C can demand payment immediately because D violated the condition tied to the agreement. e) When the debtor attempts to abscond. Abscond – depart secretly and hide oneself. Actual demand is not essential, only intent or attempt to abscond Example: On January 1, 2022, D borrowed P100,000 from C, payable on December 31, 2022. On July 1, 2022, D secretly moved to another town with the intention of evading payment. In this situation, C can demand payment immediately because D's actions indicate an attempt to abscond. SECTION 3 ALTERNATIVE OBLIGATIONS (Art 1199) A person alternatively bound by different prestations shall completely perform one of them. The creditor cannot be compelled to receive part of one and part of the other undertaking. KINDS OF OBLIGATIONS ACCORDING TO NUMBER OF PRESTATIONS: (1) Simple obligation – only one prestation. Example: the obligation to give a specific car. (2) Compound obligation – there are two or more prestations. It may either be: a) Conjunctive – several prestations which are all due and need to be performed. Example: the obligation to give a specific ring and a specific bracelet. b) Distributive – only one of two or more prestations needs to be performed. Alternative obligation – one where several prestations are alternatively due but the complete performance of one of them by the debtor is sufficient to extinguish the debt. It may either be alternative facultative. Example: D agreed to give C either P10,000 or twenty (20) sacks of rice. D can comply with his obligation by choosing to pay either the cash amount of P10,000 or delivering the twenty sacks of rice. Right of the creditor to complete compliance of a prestation – the creditor cannot be compelled to receive part of one and part of another prestation. Example: In the previous scenario, if D attempts to give C P5,000 and ten sacks of rice, C cannot be compelled to accept this combination unless he agrees to it. RIGHT TO CHOOSE PRESTATION (Art. 1200) The right of choice belongs to the debtor, unless it has been expressly granted to the creditor. The debtor shall have no right to choose those prestations which are impossible, unlawful or which could not have been the object of the obligation. a) Right of Choice Generally, the right to choose which prestation to perform belongs to the debtor, unless the parties expressly agree to grant this right to the creditor. b) Limitations on the Debtor's Right to Choose (1) The debtor must completely perform the chosen prestation. He cannot mix parts of different prestations to fulfill his obligation. (2) The debtor cannot choose prestations that are impossible, unlawful, or that could not be the object of the obligation. Example: D is obligated to give C either five bales of tobacco leaves, five bales of marijuana leaves, five sacks of corn for milling, five sacks of rice, or to plow C’s forty- hectare farm in one day using only one carabao. Since marijuana is unlawful, D cannot choose to deliver it. D can choose from the lawful options like the sacks of corn or rice,  or to plow the farm. If the corn has already sprouted, it can no longer be delivered for milling, so D cannot choose the five sacks of corn. FORM OF NOTICE AND EFFECT OF COMMUNICATING THE CHOICE (Art. 1201) The choice shall produce no effect except from the time it has been communicated. a) Form of Notice The debtor can communicate their choice in two ways: (1) Expressly – This can be done either orally or in writing. (2) Impliedly – The choice is implied when the debtor starts performing one of the prestations. b) Effect of Communicating the Choice Once the debtor communicates their choice, the obligation becomes a simple obligation to perform the chosen prestation. The party who made the choice cannot change their mind and select a different option after communicating their decision. WHEN ALTERNATIVE OBLIGATION IS CONVERTED INTO A SIMPLE OBLIGATION (Art. 1202) The debtor shall lose the right of choice when among the prestations whereby he is alternatively bound, only one is practicable. a) When the debtor communicates their choice to the creditor Once the debtor makes a choice and informs the creditor, the obligation becomes a simple obligation to perform the chosen prestation. The debtor loses the right to choose any other prestation. Example: On August 1, 2022, D obliged himself to give a specific ring, bracelet, or necklace to C on September 1, 2022. On August 10, 2022, D informed C that he would deliver the ring. After communicating his choice, D no longer has the right to deliver the bracelet or the necklace. The obligation is now a simple obligation to deliver the ring. b) When the creditor has the right of choice and communicates it to the debtor If the right of choice was given to the creditor and the creditor communicates their choice, the obligation becomes a simple obligation based on the creditor's choice. Example: If C was given the right of choice and on August 10, 2022, C informed D that he wanted the bracelet, the obligation is no longer alternative. C cannot demand the ring or the necklace anymore, as the obligation is now to deliver the bracelet. c) When only one prestation remains practicable If all but one of the prestations becomes impossible to perform, the obligation becomes a simple obligation to perform the remaining practicable prestation. Example: On May 1, 2022, D obliged himself to give C a specific carabao, horse, or cow by June 1, 2022. On May 15, 2022, the carabao and horse were struck and killed by lightning. Since only the cow remains practicable, the obligation is now a simple obligation to deliver the cow. WHEN DEBTOR CANNOT MAKE A CHOICE DUE TO CREDITOR'S ACT (Art. 1203) If through the creditor's acts the debtor cannot make a choice according to the terms of the obligation, the latter may rescind the contract with damages. a) Effect when the debtor cannot make a choice due to the creditor's act If the debtor is unable to choose a prestation because of the creditor's actions, the debtor may rescind (cancel) the contract and ask for damages. Example: D agreed to paint either C's Ford van or Toyota car for P15,000. However, C sells the Toyota car, leaving D with only one option. D can choose to rescind the contract and claim damages for being deprived of the choice. b) Rescission is not automatic The debtor may choose not to rescind the contract and instead perform any remaining prestation, like painting the Ford van in this case. WHEN RIGHT OF CHOICE IS WITH THE DEBTOR (Art. 1204) The creditor shall have a right to indemnity for damages when, through the fault of the debtor, all the things which are alternatively the object of the obligation have been lost, or the compliance of the obligation has become impossible.  The indemnity shall be fixed taking as a basis the value of the last thing which disappeared, or that of the service which last became impossible.  Damages other than the value of the last thing or service may also be awarded. a) Application The debtor holds the right to choose, and the loss or impossibility of performance occurs before notifying the creditor. b) Rules for Loss or Impossibility Before Choice (1) Some prestations remain If some items are lost (whether by fortuitous event or debtor’s fault), the debtor can deliver any of the remaining ones.  (2) All lost due to a fortuitous event If all items are lost due to a fortuitous event, the obligation is extinguished. (3) All lost due to debtor's fault If all items are lost due to the debtor’s fault, the debtor must pay for the last lost item and damages. (4) One item left after the debtor's fault, then lost by fortuitous event If one item remains and is lost due to a fortuitous event, the obligation is extinguished. (5) One item left after a fortuitous event, then lost by debtor's fault If the last remaining item is lost due to the debtor's fault, the debtor must pay damages. WHEN RIGHT OF CHOICE IS WITH THE CREDITOR (Art. 1205) When the choice has been expressly given to the creditor, the obligation shall cease to be alternative from the day when the selection has been communicated to the debtor. Until then the responsibility of the debtor shall be governed by the following rules: (1) If one of the things is lost through a fortuitous event, he shall perform the obligation by delivering that which the creditor should choose from among the remainder, or that which remains if only one subsists, (2) If the loss of one of the things occurs through the fault of the debtor, the creditor may claim any of those subsisting, or the price of that which, through the fault of the former, has disappeared, with a right to damages, (3) If all the things are lost through the fault of the debtor, the choice by the creditor shall fall upon the price of any one of them, also with indemnity for damages. The same rules shall be applied to obligations to do or not to do in case one, some or all of the prestations should become impossible. a) Application The creditor holds the right of choice, and the loss or impossibility occurs before notifying the debtor. b) Rules for Loss or Impossibility Before the Creditor Communicates Choice (1) Some prestations remain (fortuitous event) If some items are lost due to a fortuitous event, the creditor can choose from the remaining ones, or the only one left. (2) All lost (fortuitous event) If all items are lost due to a fortuitous event, the obligation is extinguished.  (3) Some prestations remain (debtor’s fault) If some items are lost due to the debtor's fault, the creditor can claim any remaining item or the value of the lost ones plus damages. (4) All lost (debtor’s fault) If all items are lost due to the debtor’s fault, the creditor can claim the value of any of them plus damages. FACULTATIVE OBLIGATION (Art. 1206) When only one prestation has been agreed upon, but the obligor may render another in substitution, the obligation is called facultative. The loss or deterioration of the thing intended as a substitute, through the negligence of the obligor, does not render him liable. But once the substitution has been made, the obligor is liable for the loss of the substitute on account of his delay, negligence or fraud. Facultative obligation – an obligation where only one prestation has been agreed upon but the debtor may render another in substitution. Examples: D is obliged to give C a specific ring, but if D chooses, he may deliver a specific wristwatch as a substitute. D owes C P100,000.00, with an agreement that if D lacks the necessary funds on the due date, he may give his lot of equal value as a substitute through dacion en pago. Right to Determine the Substitute: The right to decide whether to deliver the substitute belongs to the debtor. EFFECT OF LOSS IN FACULATIVE OBLIGATIONS: a) Before substitution (before the debtor informs the creditor of delivering the substitute): (1) Loss of the principal thing: Fortuitous event: The obligation is extinguished. Debtor’s fault: The debtor is liable for damages. In both cases, the debtor is not obligated to deliver the substitute, as it is not the thing originally due. (2) Loss of the substitute: Whether due to a fortuitous event or the debtor's fault, the debtor faces no additional obligation because the substitute is not yet due. The debtor must still deliver the principal thing. b) After substitution (after informing the creditor): (1) Loss of the principal thing: The principal thing's loss has no effect since it is no longer due after substitution. (2) Loss of the substitute: Fortuitous event: The obligation is extinguished. Debtor’s fault: The debtor is liable for damages. DISTINCTIONS BETWEEN ALTERNATIVE AND FACULTATIVE OBLNS: ALTERNATIVE FACULTATIVE Number of Several prestations are due, but Only one prestation (the principal Prestations the complete performance of one obligation) is due, but the debtor may is sufficient to extinguish the deliver a substitute. debt. Effect of Void If one prestation is void, the If the principal obligation is void, the Prestations others may still be valid, so the debtor is not required to give the obligation remains. substitute. Right of The debtor has the right of choice The right of choice always belongs to Choice unless expressly granted to the the debtor. creditor. Prestations If all prestations are impossible, If the principal obligation is Are the debtor must still deliver what impossible, the debtor is not required Impossible is possible. to provide the substitute. SECTION 4 JOINT AND SOLIDARY OBLIGATIONS (Art. 1207) The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation. There is a solidary liability only when the obligation expressly so states, or when the law or the nature of the obligation requires solidarity. Joint obligation – one where each debtor is liable only for a proportionate part of the debt, and each creditor is entitled only to a proportionate part of the credit. Terms "pro "proportionately," "mancomunada," "mancomunada simple" Examples: Joint Debtors Joint Creditors Joint Debtors and Joint Creditors Solidary obligation – one where any one of the debtors can be held liable for the whole obligation, and any one of the creditors can collect the whole obligation. Terms "jointly and severally," "in solidum," "moncumunada solidaria," "juntos separadamente," and "individually and collectively" RULES IN CASE OF DUAL NATURE OF OBLIGATION: (1) Joint Obligation of Debtors and Solidary Right of Creditors (active solidarity): − Each debtor is only liable for their proportionate share of the debt. − Each creditor can collect the entire amount from any one of the debtors, allowing for greater flexibility in collection. (2) Solidary Obligation of Debtors and Joint Right of Creditors (passive solidarity): − Each debtor is fully liable for the entire debt, meaning any creditor can demand full payment from any debtor. − Each creditor, however, is entitled only to their proportionate share, limiting their claim against the debtors. Presumption: Joint Liability and Joint Right CASES OF SOLIDARITY: (1) When the Obligation Expressly States So Example: A, B, and C borrowed P12,000 from X, promising to pay "individually and collectively." Nature of Obligation: Solidary obligation (2) When the Law Provides for Solidarity EXAMPLES OF LEGAL PROVISIONS: Partnership Liability: Partners are solidarily liable for wrongful acts in the ordinary course of business (Art. 1822). Agent's Exceeding Authority: The principal is solidarily liable with the agent if the agent exceeds their authority (Art. 1191). Common Agent Liability: Parties appointing a common agent are solidarily liable (Art. 1915). Payment Not Due: If payment is made when not due, responsibility is solidary (Art. 2157). Quasi-Delict Responsibility: Persons liable for quasi-delicts are solidarily responsible (Art. 2194). (3) When the Nature of the Obligation Requires Solidarity Example: S, a security guard, died on duty. His heirs demanded full compensation from Partner A. A claimed liability was joint. Partner's Liability: Partner A is solidarily liable for the full amount. Default Scenarios Example: A, B, and C are joint debtors of X for P9,000. If A and B are ready to pay but C is not, C is in default. Defenses of One Debtor Not Available to Others Example: In the earlier example, if A has a valid defense against the claim, it may not apply to B or C. PROBLEMS WITH UNEQUAL SHARING OF DEBT AND CREDIT: Example: A and B owe X and Y P20,000, with A's share as 1/4 and B's share as 3/4. X's share is 2/5, and Y's is 3/5. Total Liability of A: P5,000 (1/4 of P20,000). Total Liability of B: P15,000 (3/4 of P20,000). Total X Can Collect: P8,000 (2/5 of P20,000). Total Y Can Collect: P12,000 (3/5 of P20,000). (1) Joint Debtors and Joint Creditors Collection from A: X can collect P2,000; Y can collect P3,000. Collection from B: X can collect P6,000; Y can collect P9,000. (2) Joint Debtors and Solidary Creditors (Active Solidarity) Collection by X from A: P8,000 (any part). Collection by X from B: P12,000 (any part). Collection by Y from A: P6,000 (any part). Collection by Y from B: P9,000 (any part). (3) Solidary Debtors and Joint Creditors (Passive Solidarity) Liability of A: Full amount (can be demanded by either creditor). Liability of B: Full amount (can be demanded by either creditor). (4) Solidary Debtors and Solidary Creditors (Mixed Solidarity) Liability of A or B: Each can be held liable for the full debt. Reimbursement between A and B: Each can demand reimbursement for their respective shares. Distribution of Shares: X gives Y their proportionate share based on their respective contributions. PRESUMPTION OF JOINT OBLIGATION WHEN THERE IS CONCURRENCE OF TWO OR MORE DEBTORS AND/OR DEBTORS AND/OR TWO OR MORE CREDITORS (Art. 1208) If from the law, or the nature or the wording of the obligations to which the preceding article refers the contrary does not appear, the credit or debt shall be presumed to be divided into as many shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits. (1) Division of Debt: When there are two or more debtors and/or creditors, the obligation is presumed to be joint unless stated otherwise. The debt is divided into as many equal shares as there are creditors or debtors, meaning the credits or debts are distinct from one another. Example: A, B, and C owe X and Y P24,000. How many debts are there? Each debtor (A, B, and C) owes a share to each creditor (X and Y). Since there are 3 debtors and 2 creditors, each debtor owes two separate debts (one to X and one to Y). 3 debtors × 2 creditors = 6 debts. Each debtor's share of the total debt: P24,000 ÷ 3 debtors = P8,000 per debtor. Each creditor's share of the total credit: P24,000 ÷ 2 creditors = P12,000 per creditor. Now, for each individual transaction: A, B, and C will each owe X P4,000 and Y P4,000, since their individual debts are split equally between the two creditors. A owes X P4,000 and Y P4,000. B owes X P4,000 and Y P4,000. C owes X P4,000 and Y P4,000. (2) Single Court Action: In the case of non-payment, only one court action should be filed by all the creditors against all the debtors to resolve the entire claim. This ensures a complete determination or settlement of the obligation. JOINT INDIVISIBLE OBLIGATION (Art. 1209) If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, and the debt can be enforced only by preceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share. (1139) Joint indivisible obligation – an obligation where the debtors or creditors are jointly bound but the prestation or object is indivisible. CHARACTERISTICS: a) Creditors must act together, unless one is authorized to represent the others. b) All debtors must comply together, as performance requires collective action. c) Creditors’ rights can only be affected by their collective decision. d) If one debtor fails, the obligation becomes a monetary obligation to pay damages. e) If one debtor is insolvent, the others are not responsible for his share. Example: A, B, and C are jointly obliged to deliver a horse valued at P9,000 to X, Y, and Z (joint creditors). o All creditors (X, Y, and Z) must make the demand, unless one is authorized. o If A fails to comply, the obligation is converted into a monetary one, and A must pay damages. o If A is insolvent, B and C won’t cover A's share. o If X renounces his right without Y and Z's consent, the obligation is not extinguished; Y and Z retain their rights. INDIVISIBILITY AND SOLIDARITY, CONCEPT AND DISTINCTIONS (Art. 1210) The indivisibility of an obligation does not necessarily give rise to solidarity. Nor does solidarity of itself imply indivisibility. (n) (1) Indivisibility Does Not Give Rise to Solidarity Indivisibility – refers to the object or performance of the obligation that cannot be divided into parts. Even if the object is indivisible, this does not mean the debtors are solidarily liable. The debtors can still be jointly liable, meaning each is responsible only for their share, but the object must be delivered as a whole. Example: A, B, and C are jointly obliged to give a specific horse to X. The obligation is joint (not solidary), but the prestation is indivisible because the horse must be delivered in one go. (2) Solidarity Does Not Imply Indivisibility Solidarity – is a legal tie between parties where each debtor can be held responsible for the entire obligation. Even if debtors are solidarily bound, it does not mean the obligation itself is indivisible. The performance can be divided into parts. Example: A, B, and C, as solidary debtors, agree to deliver 10 sacks of rice to X in 5 equal weekly installments. The obligation is solidary, but the prestation is divisible since the delivery happens in parts. (3) Joint Divisible Obligation In a joint divisible obligation, the debtors are each responsible for their own share, and the performance of the obligation can be divided into parts. Example: A, B, and C are jointly obliged to give ₱19,000.00 to X in five equal monthly installments. Each debtor is only liable for their proportionate share of each installment. (4) Solidary Indivisible Obligation In a solidary indivisible obligation, each debtor can be held responsible for the entire obligation, but the performance or object cannot be divided. Example: A, B, and C are solidarily bound (in solidum) to deliver a specific horse to X. The obligation is indivisible because the horse must be delivered as a whole, but each debtor can be held liable for the entire obligation. EXISTENCE OF SOLIDARITY NOTWITHSTANDING DIVERSITY OF TERMS AND CONDITIONS (Art. 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 can exist even if debtors and creditors are bound under different terms or conditions, as long as solidarity was agreed upon, required by law, or the nature of the obligation calls for it (Art. 1207, Art. 1211). Examples: (1) Solidary Debtors with Different Terms: A, B, and C are solidarily obliged to give X ₱30,000.00. Their terms are different: A's share: Collectible on demand B's share: Collectible on Christmas day next year  C's share: Collectible if the stock market price of San Miguel shares reaches ₱160.00 per share Questions: When may X collect ₱10,000.00 from A, B, or C (A's share)? X can collect A's share on demand, from A, B, or C. When may X collect ₱10,000.00 from A, B, or C (B's share)? X can collect B's share on Christmas day next year from A, B, or C. When may X collect ₱10,000.00 from A, B, or C (C's share)? X can collect C's share when the stock price of San Miguel reaches ₱160.00 per share, from A, B, or C. Can a creditor go after the same debtor as soon as one share becomes due? Yes, the creditor can pursue any of the solidary debtors once any part of the obligation becomes due. Solidarity allows the creditor to demand full payment from any of the debtors. (2) Solidary Creditors with Different Terms: A is obliged to give ₱9,000.00 to X, Y, and Z, who are solidary creditors. Their shares are due at different times: X's share: Collectible on demand Y's share: Due at the end of the year Z's share: Due when Z completes his course in Agriculture Questions: When may X, Y, or Z collect ₱3,000.00 (X's share) from A? X's share is collectible on demand by X, Y, or Z from A. When may X, Y, or Z collect ₱3,000.00 (Y's share)? Y's share is collectible at the end of the year by X, Y, or Z from A. When may X, Y, or Z collect ₱3,000.00 (Z's share)? Z's share is collectible when Z completes his course in Agriculture, by X, Y, or Z from A. Can the same creditor go after A as soon as any share becomes due? Yes, under solidary liability, any creditor can demand the entire obligation from the debtor once any part becomes due. ACTS USEFUL/PREJUDICIAL TO OTHER CREDITORS (Art. 1212) Each one of the solidary creditors may do whatever may be useful to the others, but not anything which may be prejudicial to the latter. (1) Acts Useful to Other Creditors Solidary creditors may take actions that benefit others, such as making an extrajudicial demand or filing a lawsuit to recover the entire obligation. (2) Acts Prejudicial to Other Creditors Solidary creditors must not act in ways that harm other creditors. For instance, delaying a demand when the debt is close to expiration can lead to liability. If a creditor causes the obligation to be extinguished through novation, compensation, confusion, or remission, they are liable for the corresponding share of the obligation to others (Art. 1215). MUTUAL AGENCY AMONG THE SOLIDARY CREDITORS AND EXAMPLE (Art. 1213) A solidary creditor cannot assign his rights without the consent of the others. (1) Mutual Agency General Rule: A solidary creditor cannot assign their right without the consent of the other creditors. Exception: Assignment to a co-creditor is valid even without the consent of the others. Example: A owes X, Y, and Z a total of P30,000. o If X assigns his right to T (a third party) without Y and Z's consent, the assignment is not valid. o If T collects the debt from A and Y and Z do not receive their shares, Y and Z can demand their respective shares from T. o If X assigns his rights to Y without Z's consent, the assignment is valid. PAYMENT TO SOLIDARY CREDITORS (Art. 1214) The debtor may 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) (1) No Demand Made: If no creditor has made a demand, the debtor may pay any one of the solidary creditors. Example: A owes X, Y, and Z P19,000.00. A may pay the full amount to either X, Y, or Z. (2) Demand Made: Once a demand is made by one creditor, payment must be made to that creditor.  Example: A owes X, Y, and Z P9,000. If X demands payment but A pays Y instead, that payment to Y is not valid. If X and Z later receive their respective shares from Y, they cannot proceed against A for the debt, as they have already received their payment. EFECT OF THE MODES OF EXTINGUISHING OBLIGATIONS (Art. 1215) Novation, compensation, confusion or remission of the debt, made by any of the solidary creditors or with any of the solidary debtors, shall extinguish the obligation, without prejudice to the provisions of article 1219. 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. (1) General Effect of Novation, Compensation, Confusion, and Remission: When a solidary creditor executes any of these acts, the obligation is extinguished. The solidary creditor who performed the act will be liable to the other creditors for their corresponding shares of the obligation. (2) Novation: Novation – refers to the modification of an obligation by changing its object, principal conditions, or substituting the debtor, or subrogating a third person in the right of the creditor (Art. 1291). Example: A owes X, Y, and Z P12,000. Without Y and Z's consent, X and A agree that A will give a diamond ring worth P12,000 instead of cash. Effect: The original obligation is extinguished, and a new obligation arises (A's obligation to give the diamond ring). (3) Compensation: Compensation – extinguishes obligations when two parties are both debtors and creditors of each other for equal amounts (Art. 1278). Example: A owes X, Y, and Z P9,000, and X owes A P9,000 from another transaction. Both debts are due. Effect: The obligations cancel each other out, resulting in the extinguishment of both debts. (4) Confusion: Confusion – occurs when the creditor and debtor become the same person (Art. 1275). Example: A issues a promissory note for P18,000 payable to solidary creditors X, Y, and Z. X negotiates the note to A due to a separate transaction. Effect: The obligation is extinguished because A, as both creditor and debtor, cannot owe a debt to himself. (5) Remission: Remission, or condonation – is when a creditor voluntarily waives their right to collect a debt. Example: A owes X, Y, and Z P3,000. Without Y and Z's consent, X condones the debt. Effect: The obligation is extinguished, and A no longer owes the debt. PASSIVE AND MIXED SOLIDARITY (Art. 1216) The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The demand made against one of them shall not be an obstacle to those which may subsequently be directed against the others, so long as the debt has not been fully collected. (1) Application of the Provision: The rules regarding passive solidarity apply to both passive solidarity and mixed solidarity. (2) Against Whom the Creditor May Proceed: A creditor can demand payment from any one of the solidary debtors or from some or all of them at the same time. Example: A, B, and C are solidary debtors to X for P30,000. Question: With whom can X demand payment of the whole amount? Answer: X may demand payment from any one of A, B, or C. If X goes against A and A pays only P5,000, he can still pursue B and C for the remaining P25,000. (3) Passive Solidarity and Suretyship: SIMILARITIES: o Both solidary debtors and sureties guarantee the obligation of another person. o Both can demand reimbursement after paying the debt. SOLIDARY DEBTOR AND SURETY DISTINGUISHED: SOLIDARY DEBTOR SURETY Indebtedness Responsible not only for his own share Responsible only for the share but also for the shares of co-debtors. of the principal debtor. Reimbursement Can demand reimbursement for what Can demand reimbursement he paid minus his own share. for the entire amount paid. Extension of Other solidary debtors remain liable If an extension is granted to the Time to Pay for the whole obligation minus the principal debtor without the share of the debtor given an extension; surety's consent, the surety is this share can be demanded upon the released from liability. arrival of the extended term. PAYMENT BY DEBTOR IN SOLIDARY OBLIGATION (Art. 1217) Payment made by one of the solidary debtors extinguishes the obligation. If two or more solidary debtors offer to pay, the creditor may choose which offer to accept … (1) Effects of Payment by Debtor in Solidary Obligation: Extinguishment of Obligation: The obligation is extinguished when any one of the solidary debtors pays. Reimbursement Rights: The paying debtor is entitled to demand reimbursement from co-debtors for their respective shares. Creditor's Duty: The collecting creditor must give the share of his co-debtors to the paying debtor. Example: A, B, and C are solidary debtors to X, Y, and Z (solidary creditors) for P30,000. The debt is due on December 31, 2022. If A and B offer to pay X, whose payment will X accept? X may accept the payment from either A or B. If X accepts the payment made by A, what is the effect on the obligation? The obligation is extinguished to the extent of A's payment. If A made the payment on December 15, 2022, can he demand reimbursement? If yes, when can he demand payment? Can he demand interest? Yes, A can demand reimbursement after the payment. He can demand payment immediately. He may also demand interest from the date of payment, December 15, 2022. If A made the payment on December 31, 2022, can he demand reimbursement from B and C? If yes, can he demand interest? If yes, from which date can he demand interest? Yes, A can demand reimbursement from B and C. He can demand interest from December 31, 2022, the date of payment. WHEN DEBTOR NOT ENTITLED TO REIMBURSEMENT (Art. 1218) Payment by a solidary debtor shall not entitle him to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or become illegal. (n) (1) Payment After Obligation Has Prescribed: A debtor cannot demand reimbursement if the payment was made after the obligation has prescribed. If the debtor pays unknowingly after the prescription, he may recover the payment from the creditor based on solutio indebiti.  Example: A, B, and C executed a promissory note for P30,000 to X. After ten years with no action from X, the debt prescribed. A paid X P30,000 despite knowing the debt was prescribed. Can A demand reimbursement from B and C? Answer: No, A cannot demand reimbursement since he paid after the obligation had prescribed. (2) Payment After Obligation Has Become Illegal: A debtor cannot demand reimbursement if the payment was made after the obligation has become illegal. Example: A, B, and C agreed to deliver thirty cases of a drink to X. Before delivery, the FDA banned the drink due to harmful substances, but A delivered it anyway. Can A demand reimbursement from B and C? Answer: No, A cannot demand reimbursement since the obligation became illegal before delivery. REMISSION OF THE SHARE OF ONE SOLIDARY DEBTOR AFTER OR BEFORE TOTAL PAYMENT OF THE DEBT (Art. 1219) The remission made by the creditor of the share which affects one of the solidary debtors does not release the latter from his responsibility towards the co- debtors, in case the debt had been totally paid by anyone of them before the remission was effected. (1) Effect of Remission After Total Payment: If one solidary debtor’s share is remitted after the total debt is paid, the obligation is extinguished, and the paying debtor can demand reimbursement from the debtor whose share was remitted. Example: A and B are solidarily liable to X for P30,000. A pays the full amount to X, and later X condones B's share. Can A demand reimbursement? From whom? Yes, A can demand reimbursement from B. (2) Effect of Remission Before Payment: If one solidary debtor’s share is condoned before the debt is paid, the paying debtor cannot demand reimbursement from that debtor. However, if another solidary debtor is insolvent, the debtor whose share was remitted can be held liable for the insolvent debtor's share pro- rata.  Example: A, B, and C are solidarily liable to X for P30,000. X condones B’s share, reducing the debt to P20,000. A pays X P20,000. How much can A recover and from whom? A can recover only P10,000 from C, not from B, whose share was remitted. If C was insolvent, can A recover? If yes, from whom and how much? Yes, A can recover from B the pro-rata share corresponding to C's insolvency. EFFECT OF REMISSION OF THE WHOLE OBLIGATION (Art. 1220) The remission of the whole obligation obtained by one of the solidary debtors, does not entitle him to reimbursement from his co-debtors. (n) The remission of the entire obligation by the creditor extinguishes the debt. The debtor who obtained the remission cannot demand reimbursement from others because he did not pay anything. Example: A, B, and C are solidary debtors to X for P30,000. X forgives the entire debt due to A's financial difficulties. Can A seek reimbursement from B and C? No, A cannot demand reimbursement from B and C. EFFECT OF LOSS IMPOSSIBILITY OF PRESTATION (Art. 1221) If the thing has been lost or if the prestation has become impossible without the fault of the solidary debtors, the obligation shall be extinguished. If there was fault on the part of any one of them, all shall be responsible to the creditor, for the price and the payment of damages and interest, without prejudice to their action against the guilty or negligent debtor. 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. (1) Loss Without Fault: If the loss of the prestation occurs without the fault of any of the solidary debtors, the obligation is extinguished. (2) Loss Due to Fault or Delay: If the loss is due to the fault of one debtor or occurs after one has incurred a delay (even if due to a fortuitous event), all solidary debtors are liable for the price, damages, and interest. Debtors not at fault can recover from the debtor at fault for the amount they paid.  Examples: Initial Situation: A, B, and C are solidarily bound to deliver a specific horse valued at P15,000 to X by August 31, 2022. The horse dies on August 10, 2022, due to a landslide caused by heavy rains. Effect on Obligation: The obligation is extinguished since the loss was not due to the fault of any debtor. Second Scenario: Assume X demands the horse from A on August 31, 2022, but A fails to deliver. On September 3, 2022, the horse, still in A's possession, dies after being buried in a landslide. Effect on Obligation: All debtors (A, B, and C) are liable for the price, damages, and interest since A was at fault for the delay before the horse's death. Collection and Recovery: With whom shall X collect?: X can collect from A, as he was in possession and failed to deliver the horse on time. If B pays the amount, can he recover what he paid?: Yes, B can recover the amount he paid from A since A was at fault. If A makes the payment, can he recover?: No, A cannot recover since he was the one at fault for the loss. DEFENSES AVAILABLE TO SOLIDARY DEBTOR IN ACTIONS FILED BY THW CREDITOR (Art. 1222) A solidary debtor may, in actions filed by the creditor, avail himself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible. (1) Defenses Derived from the Nature of the Obligation: These defenses make the debtor not liable due to the invalidity, unenforceability, extinguishment, or non-existence of the obligation. They are complete defenses, meaning the creditor is barred from recovering from the debtor. Examples: Illegality of Object or Causa: If the obligation involves illegal activities, it is unenforceable. Absolute Simulation: If the obligation is merely fictitious. Unenforceability under the Statute of Frauds: Certain agreements must be in writing to be enforceable. Payment of the Obligation: If the obligation has been fulfilled. Remission: If the creditor has forgiven the debt. Prescription: If the time limit to enforce the obligation has expired. Example: A, B, and C solidarily bound themselves to deliver five (5) bales of marijuana leaves to X. Can the debtors be compelled to perform the obligation? No, the obligation is illegal. (2) Defenses Personal to the Debtor Being Sued: These defenses may be complete (e.g., vitiated consent or incapacity to consent) or partial (e.g., non-fulfillment of a condition or the non-arrival of a term regarding his share). Examples: Minority: If A, a minor at the time the obligation was constituted, is sued. Defense: A can claim he was a minor and thus lacks capacity to contract. Different Due Dates: If A and B owe X P120,000, with A's share due on demand and B's due on Christmas next year, and X sues B now. Defense: B can argue that A's share is not yet due, which affects B's liability. (3) Defenses Personal to Others or Pertaining to Others' Shares: These defenses can only be used partially and depend on the specific circumstances of the other debtors. Examples: Minority of Co-debtor: If C is sued by X, can C avail himself of A's minority as a partial defense? C can use this as a defense regarding A's share but remains liable for his own. Non-Arrival of Term: If A is sued by X, can A argue that B's share is not yet due? A can raise this defense regarding B's share and will only be liable for the amount that is due. SECTION 5 DIVISIBLE AND INDIVISIBLE OBLIGATIONS (Art. 1223) The divisibility or indivisibility of the things that are the object of obligations in which there is only one debtor and only one creditor does not alter or modify the provisions of Chapter 2 of this Title. Divisible obligation – one that is susceptible of partial performance. Examples of Divisible Obligations: Execution of Work: Obligations involving a specific number of days of work (e.g., plowing a rice field in three days). Metrical Units: Obligations to deliver goods measured in units (e.g., delivering ten cubic meters of garden soil). Analogous Things: Other obligations that can be partially fulfilled (as stated in Art. 1225). Indivisible obligation – one that is not susceptible of partial performance Examples of Indivisible Obligations: Definite Things: Obligations to deliver specific items (e.g., giving a specific car). Non-Partial Performance: Obligations that must be performed in full (e.g., singing the Philippine National Anthem before a boxing match). Legal Indivisibility: Obligations that are physically divisible but deemed indivisible by law (e.g., paying the entire amount of certain taxes). Intentional Indivisibility: Obligations that are physically divisible but agreed to be performed in full by the parties (e.g., delivering five sacks of rice in one delivery as agreed). JOINT INDIVISIBLE OBLIGATION (Art. 1224) A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking … Joint indivisible obligation – one where the debtors and creditors are jointly bound, but the prestation or object is indivisible. Example: A, B, and C are jointly obliged to deliver a piano valued at P190,000.00 to X. A cannot pay his share of P130,000.00, resulting in default when X demands delivery. EFFECTS: (1) Default: The obligation remains unfulfilled since the piano is indivisible. X can demand the full amount (P190,000.00) from any debtor. (2) Liability: Each debtor (A, B, and C) is liable for the entire obligation, meaning any one of them can be required to pay the full amount. (3) Insolvency of A: If A is insolvent, B and C must cover A's share of the obligation, as they are jointly responsible. They can later seek reimbursement from A's assets if available. DIVISIBLE AND INDIVISIBLE OBLIGATIONS (Art. 1225) For the purposes of the preceding articles, obligations to give definite things and those which are not susceptible of partial performance shall be deemed to be indivisible When the obligation has for its object the execution of a certain number of days of work, the accomplishment of work by metrical units, or analogous things which by their nature are susceptible of partial performance, it shall be divisible. However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or intended by the parties. In obligations not to do, divisibility or indivisibility shall be determined by the character of the prestation in each particular case. SECTION 6 OBLIGATIONS WITH A PENAL CLAUSE (Art. 1226) In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code. Obligation with a penal clause − one which provides for a greater liability in case of non-compliance. − accessory undertaking on the part of the debtor − is generally undertaken to insure performance and works as either, or both, punishment and reparation. It is an exception to the general rules on recovery of losses and damages. Example: D leases a building for P50,000.00 monthly rent, with a stipulation that failure to pay within the first five days incurs a penalty of P1,000.00. FUNCTIONS OF PENAL CLAUSE: Liquidated Damages: Provides predetermined compensation for breach. Coercive Force: Strengthens compliance through the threat of greater responsibility if the obligation is breached. KINDS OF PENAL CLAUSE: a) By Source: (1) Legal Penal Clause: Imposed by law (e.g., penalties for late tax payments). (2) Conventional Penal Clause: Agreed upon by the parties involved. b) By Demandability: (1) Joint Penal Clause: Both the principal obligation and penalty can be demanded. (2) Subsidiary Penal Clause: Only the penalty can be demanded. RULES REGARDING PENAL CLAUSE: General Rule: The penalty replaces damages and interest for non-compliance, meaning only the penalty may be demanded. Exceptions: Stipulation for Additional Recovery: If the parties agree that damages and interest may also be claimed, and it does not violate law, morals, or public policy. Debtor Refusal: When the debtor refuses to pay the stipulated penalty. Fraud: If the debtor commits fraud in fulfilling the obligation. Examples: Example 1: D delivers 20 sacks of "Milagrosa" rice late (30 days late) and owes a penalty of P100 per day. Total penalty = P100 x 30 = P3,000. Example 2: D delivers rice late, but the rice is mixed with a lower variety. Here, D may be liable for the penalty plus additional damages for delivering a defective product, depending on the stipulation. Example 3: If D refuses to pay the penalty of P100 per day for 30 days, he is still liable for P3,000 unless a valid defense is raised. RULES AS TO SUBSTITUTION OF PRINCIPAL WITH PENALTY AND DEMAND OF BOTH FULFILLMENR AND PENALTY (Art. 1227) The debtor cannot exempt himself from the performance of the obligation by paying the penalty, save in the case where this right has been expressly reserved for him. Neither can the creditor demand the fulfillment of the obligation and the satisfaction of the penalty at the same time, unless this right has been clearly granted him. However, if after the creditor has decided to require the fulfillment of the obligation, the performance thereof should become impossible without his fault, the penalty may be enforced. DEBTOR CANNOT SUBSTITUTE PENALTY FOR PRINCIPAL OB.: General Rule: The debtor cannot exempt himself from fulfilling the principal obligation by simply paying the penalty. Exception: If there is an express stipulation allowing this substitution. CREDITOR CANNOT DEMAND BOTH FULFILLMENT AND PENALTY SIMULTANEOUSLY: General Rule: The creditor cannot demand both performance and payment of the penalty at the same time. Exceptions: If there is an express stipulation granting such a right. If the creditor has chosen fulfillment and performance becomes impossible through no fault of their own, the penalty may also be enforced. Examples: Example 1: D is obligated to deliver a tractor to C by October 1, 2022, with a penalty of P2,000 for late delivery. Can D pay P2,000 instead of delivering the tractor? No, unless explicitly allowed. Can C require D to deliver the tractor and also pay the penalty? No, unless there's an express agreement or conditions are met. Example 2: If D fails to deliver the tractor on time, but it was lost without C's fault, can C demand the penalty? Yes, C can demand the P2,000 penalty. PROOF OF ACTUAL DAMAGES (Art. 1228) Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded. No proof of damages is required for the penalty to be recovered. The obligor is bound to pay the stipulated penalty without needing to demonstrate the existence or extent of damages. REDUCTION OF PENALTY BY COURT (Art. 1229) The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor… A court may reduce the penalty in cases where:  The principal obligation has been partly complied with.  The obligation has been irregularly fulfilled.  The penalty is deemed iniquitous or unconscionable, even without performance. Examples: If D painted C's car but missed a small area, can C demand the full penalty of P5,000? Possibly not, depending on the court's view of partial compliance. If D painted the entire car but the color was slightly off, can C demand the full P15,000 penalty? Potentially not, as the slight deviation might warrant a reduced penalty. If the car is valued at P120,000 and the penalty is P100,000, can C demand the full penalty? Likely not, due to the disproportionate nature of the penalty to the car's value. EFFECT OF NULLITY (Art. 1230) The nullity of the penal clause does not carry with it that of the principal obligation. The nullity of the principal obligation carries with it that of the penal clause. Nullity of Principal Obligation: If the principal obligation is null, the penal clause is also void. Example: D’s obligation to deliver illegal items (e.g., marijuana) is null; therefore, the penalty is also unenforceable. Nullity of Penal Clause: The penal clause may be null without affecting the validity of the principal obligation. Example: D agrees to repair C's car with a penalty of delivering illegal items; the principal obligation remains valid despite the penalty being void. C can seek performance or appropriate legal remedies for delay. CHAPTER 4 – EXTINGUISHMENT OF OBLIGATIONS GENERAL PROVISIONS (Art. 1231) Obligations are extinguished. (1) By payment or performance, (2) By the loss of the thing due; (3) By the condonation or remission of the debt, (4) By the confusion or merger of the rights of creditor and debtor; (5) By compensation; (6) By novation. Other causes of extinguishment of obligations, such as annulment, rescission, fulfillment of a resolutary condition, and prescription, are governed elsewhere in this Code. General Provisions: Modes of extinguishing an obligation (1) Primary classification under Art. 1231 a) Payment or performance b) Loss of the thing due c) Condonation or remission of the debt d) Confusion or merger of the rights of creditors and debtor e) Compensation f) Novation\ Other causes: a) Annulment f) Expiration of resolutory period b) Rescission g) Impossibility of performance c) Fulfillment of a resolutory h) Death of a party condition i) Compromises d) Prescription j) Insolvency and bankruptcy e) Occurrence of fortuitous event SECTION 1 PAYMENT OR PERFORMANCE (Art. 1232) Payment means not only the delivery of money but also the performance, in any other manner, of an obligation. Payment – a mode of extinguishing an obligation which consists of: (1) The delivery of money, or (2) The performance in any other manner of obligation. Example: Obligation: Give a specific car - Payment delivering the thing Obligation: Repair a computer - Payment Performing the service HOW PAYMENT IS MADE (Art. 1233) A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be. Delivery of the Thing or Service: The specific thing or service must be delivered or rendered as agreed upon. a) Obligations to Give: The debtor cannot compel the creditor to accept a different item, even if it is of equal or greater value than what is owed (Art. 1244). b) Obligations to Do or Not to Do: An act or forbearance cannot be substituted for another against the obligee's will (Art. 1244). c) Generic Things: If the obligation is to give a generic item without specified quality, the debtor cannot deliver an inferior quality (Art. 1246). d) Monetary Obligations: Payment must be made in legal tender, unless the parties agree to use another currency (R.A. 8183). FULFILLMENT OF THE OBLIGATION: General Rule: Payment must be complete. Exceptions: a) If the obligation has been substantially performed in good faith (Art. 1234). b) If the obligee accepts the performance despite knowing it is incomplete or irregular, without any protest or objection (Art. 1235). SUBSTANTIAL PERFORMANCE IN GOOD FAITH (Art. 1234) If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee. Substantial performance in good faith – considered as though there had been strict and complete fulfillment When a debtor substantially performs in good faith, it is treated as if the obligation was fully fulfilled. The obligation is extinguished, and the debtor can recover from the creditor, minus any damages suffered by the creditor. This recovery is based on the benefits the creditor received, while damages compensate for any minor breaches. Example: D was to deliver 30 imported two-way radios to C for his security agency. D delivered 28 units, but the manufacturer ceased production, preventing further delivery. The obligation is not extinguished; D is liable for the 2 undelivered units but may recover for the delivered units based on the benefit C received. ACCEPTANCE OF INCOMPLETE OR IRREGULAR PAYMENT (Art. 1235) When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. If a creditor accepts an incomplete or irregular payment without objection, the obligation is considered fulfilled. The creditor effectively waives their right to contest the performance. Examples: D was supposed to paint C's car red but instead painted it maroon. C accepted the car without any protest. In this case, D is considered to have fulfilled the obligation since C accepted the irregular performance. D borrowed P120,000 from C. On the due date, D paid P19,800, which was short by P200. However, C accepted the payment and issued a receipt acknowledging the full amount. In this instance, D's obligation is extinguished because C accepted the partial payment knowingly and did not object. PAYMENT MADE AND RIGHTS OF A THIRD PERSON MAKING THE PAYMENT (Art. 1236) The creditor is not bound to accept payment or performance by 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. (1158a) (Art. 1237) Whoever pays on behalf of the debtor without the knowledge or against the will of the latter, cannot compel the creditor to subrogate him in his rights, such as those arising from a mortgage, guaranty, or penalty. PAYMENT BY A THIRD PERSON: General Rule: A creditor cannot be compelled to accept payment from a third party. Exceptions: a) If there is an agreement allowing third-party payments. Example: D borrowed P150,000 from C. If D and C agreed that T (a third person) can pay D's debt, then C must accept T's payment. b) If the third person has an interest in the obligation, such as a guarantor or co-debtor. Example: D took a loan of P50,000 from C, guaranteed by G. G can compel C to accept payment for D’s debt. RIGHTS OF A THIRD PERSON MAKING THE PAYMENT: (1) Payment Without the Debtor's Knowledge or Against Their Will: The third person can recover from the debtor but only to the extent the payment benefited the debtor. They are not entitled to be subrogated in the rights of the creditor (Art. 1303). Example: D borrowed P120,000 from C, guaranteed by G. D paid C P15,000. Later, T, without D's knowledge, paid C the full P120,000. T can recover P105,000 from D, as tha