1. Obligations and Contracts Articles 1207-1241 Prepared by: Hyra Mae Gumban

2.  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 requires solidarity. (1137a) 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 equal shares as there are creditors or debtors, the credits or debts being considered distinct from one another, subject to the Rules of Court governing the multiplicity of suits. (1138a)

3.  Joint Obligation – It is an obligation where there is a concurrence of two or more debtors or two or more creditors or of several debtors and creditors, by virtue of which each of the debtors is liable for a proportionate part of the credit.  Example of different instances 1) A, B, and C borrowed P9, 000 for D. The presumption is that A, B and C are jointly liable. D can demand only P3, 000 from each or a total of P9, 000. 2) A borrowed from B, C and D P9, 000. There is one debtor and three creditors. Each creditor can demand only P3, 000 from A. 3) A and B are liable to C and D for P9, 000. There are two debtors and two creditors. Each creditor can demand only P4, 500 from each debtor.

4. SOLIDARY OBLIGATION There are solidary liability when 1) The obligation expressly so states, or 2) The law requires solidarity or 3) The nature of the obligation requires solidarity.

5. Kinds of Solidary Obligation 1. Passive – solidarity on the part of the debtors, where anyone of them can be made liable for the fulfillment of the entire obligation.  Example – A and B are solidary debtors of C in the amount of P 10, 000 2. Active – solidarity on the part of the creditors, where anyone of them can demand the fulfillment of the entire obligation.  Example – A is liable to B and C for the amount of P10, 000. B and C are solidary creditors. 3. Mixed Solidarity – solidarity on the part of the debtors and creditors where each one of the debtors is liable to render and each one of the creditors has a right to demand, entire compliance with the obligation.  Example – A and B are solidarity debtors to C and D, solidary creditors in the amount of P 10, 000.

6.  Solidarity not presumed  The presumption, where there are two or more persons in the same obligation, is that it is joint. The reason is that solidary obligations are very burdensome for they create unusual rights and liabilities. Solidarity between debtors increases their responsibility while solidarity between creditors presuming that they are bound jointly and not solidarily.  ART. 1209.If the division is impossible, the right of the creditors may be prejudiced only by their collective acts, and the debt can be enforced only by proceeding against all the debtors. If one of the latter should be insolvent, the others shall not be liable for his share.  Indivisible Joint Obligation –  The object is indivisible and the T/E between the parties are merely proportionately liable.  Example – A and B are jointly liable to give C a particular car. The obligation is joint but since the object is indivisible, the creditor must proceed against al the joint debtor. If any of the joint debtors be insolvent, the others shall not be liable for others.

7.  ART. 1210. The indivisibility of an obligation does not necessarily give rise t solidarity. Nor does solidarity of itself imply indivisibility. (n)  Indivisibility as Distinguished from Solidarity Indivisibility refers to the subject matter while solidarity refers to the Tie between the parties.  Examples: 1. Joint divisible obligation – A and B are jointly liable to C for P10, 000. 2. Joint indivisible obligation – A and B are jointly liable to give C their car. 3. Solidary divisible obligation – A and B are solidarily liable to give C P10, 000. 4. Solidary indivisible obligation – A and B are solidarily liable to give C their car.

8.  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. The solidary character of the obligation is not destroyed even if the creditors and debtors are bound by different terms and conditions. The solidarity is still preserved by recognizing in the creditor the power of claiming from any or all debtors the payment of the entire obligation.  Example: A and B solidarily bound themselves to pay a total of P10, 000 to C, and D and E to the following conditions. C’s share will be due at the end of the year; D will get his share only after he passes the CPA exams and E will get his share only after he painted the house of C.

9.  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. (1141a)  ART. 1213. A solidary creditor cannot assign his rights without the consent of the others.  Solidary Creditors May Do Useful Act; Not Prejudicial Acts – A solidary creditor may do any act beneficial or useful to the others but he cannot act prejudicial to them.  Example of Beneficial Acts –  To interrupt the running of prescription, the act of one solidary creditor in making a judicial demand upon any of the solidary debtors is sufficient. (Art. 1155, NCC)  Example of Prejudicial Acts –  Should not be performed, otherwise, there will be liability for damages. However, in the case of remission or condonation, the solidary creditor is allowed to so remit, and the obligation is extinguished.

10.  Art. 1214.The debtor may pay any one of the solidary creditors but if any demand, judicial or extrajudicial, has been made by one of them, payment should be made to him.  Payment to Any of the Solidary Creditors The rule is that the debtor may pay any one of the creditors. But when a demand is made by any of the creditors, payment should be made to him who made the demand, judicially or extra-judicially.  Example A is liable to B and C P5, 000. A may pay either B or C But if B made a demand then payment should only be made to him. If A paid C, B is still entitled to his share from A in case C does not turn over to B his share.

11.  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.  Liability of Solidary Creditor in case of Novation, Compensation, Confusion or Remission –  When a creditor who executed any of these acts, it is logical that he is liable to the other solidary creditors for their corresponding shares considering that such acts are prejudicial to them. (Art. 1212, NCC)

12.  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. (1144a)  Creditor May Proceed Against Any Solidary Debtor –  In a solidary obligation, the creditor may proceed against any, some or all of the solitary creditors simultaneously so long as it has not been fully collected.  Example A, B and C solidarily owe D the amount of P9, 000. D can collect from A or B or C alone or from any two of them or all of them simultaneously. If demand is made on A, the latter cannot require D to make a demand also on B and C or to include them as party defendants as D has the right to proceed against any one of them.

13.  ART. 1217.Payment made by one of the soldiery debtors extinguishes the obligation. If two or more solidary debtors offer to pay the creditor may choose which offer to accept. He who made the payment may claim from his co- debtors only the share which corresponds to each, with the interest for the payment already made. If the payment is made before the debt is due, no interest for the intervening period may be demanded. When one of the solidary debtors cannot, because of his insolvency, reimburse his share to the debtor paying the obligation, such share shall be borne by all his co- debtors, in proportion to the debt to each. (1145a)

14.  Effects of Payment by a Solidary Debtor – Payment is one of the ways by which an obligation is extinguished and consist in the delivery of the thing or the rendition of the service which is the object of the obligation.  Example – A, B and C are solidarily liable to D and E in the amount of P9, 000 due on Dec. 31. If both A and B offer to pay D on Dec. 31, the latter may choose which offer to accept. If A pays the entire amount of P9, 000 on Dec. 31, the obligation is extinguished. The payment of A gives him the right of reimbursement from B and C P3, 000 each with interest from the date of payment. However, if C is insolvent, bothA and B shall bear the insolvency in proportion to their shares.

15.  ART. 1218.Payment by a solidary debtor shall not entitle in to reimbursement from his co-debtors if such payment is made after the obligation has prescribed or become illegal. (n)  Effect of Payment After Obligation Has Prescribed or Become Illegal – 1. Prescription – is one where one acquires ownership and other rights through the lapse of time in the manner and under the conditions laid down by law.  Example – A and B are solidarily indebted to C in the amount of P 10, 000. The debt prescribed. If A paid the debt, he cannot collect form B his share of the debt. Neither can A can recover from C. 2. Becomes Illegal – A and B are solidarily bound to deliver medical drugs to C. the transaction of such medical drugs were later prohibited by law. Notwithstanding the prohibition, B performed the obligation by delivering the prohibited drugs. B is not anymore entitled to reimbursement from A.

16.  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. (1146a)  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.  Remission by Creditor – 1) If payment if made first, the remission is of no effect. There is no more to remit. 2) If remission is made prior to the payment and payment is made, then there is payment by mistake. 3) If one of the solidary debtors obtained remission on the whole obligation, he is not entitled to reimbursement from his co-debtors because remission is essentially gratuitous.

17.  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. (1147a)

18. Rules in Case thing has Been Lost or Prestation Has Become Impossible – 1. If the thing is lost or has become impossible to perform through a fortuitous event without the fault of the debtor, the obligation is extinguished.  Example: A, B and C are solidarily bound to deliver a determinate car to D. Without any fault on the part of any one of the debtors, the car was lost through the fortuitous event. The obligation is extinguished.

19. Rules in Case thing has Been Lost or Prestation Has Become Impossible – 2. If in the preceding paragraph, the car was lost through the fault of anyone of the solidary debtors, anyone of them may be held liable by D for the price of the car plus damages. The debtors who did not any fault on the lost of the car have theright to recover from the co-debtor who is at fault. 3. The solidary debtors are likewise liable even if the thing is lost through fortuitous event if the loss occurs after anyone of the solidary debtors has been in delay. The debtors, however who were not in delay have the right to recover from their co-debtors who was responsible due to his delay.

20.  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.

21. Defenses available to a Solidary Debtor – The defenses available to the solidary debtors if the creditor proceeds against him alone for the payment of the entire obligation 1. The defenses derived from the nature of the obligation, such as fraud prescription, remission illegality or absence of consideration, payment or performance.  Example A and B are solidarily liable to C in the among to P6, 000. The entire debt was paid by d. in an action by C against A, the latter can raise the defense of payment by virtue of which the obligation was extinguished.

22. Defenses available to a Solidary Debtor – 2. Defenses personal to him or pertaining to his own share, such as minority, insanity and vitiated consent. 3. Defenses which are personal to others, such as minority, insanity and vitiated consent.

23.  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. (1149)

24. Definition of Terms – 1. A divisible obligation is one the object of which in its delivery or performance is capable of partial fulfillment.  Example: A agreed to pay B P10, 000 in five monthly installment. The obligation of A is divisible because it is payable in partial payments. 2. An indivisible obligation is one the object which in its delivery or performance is not capable of partial fulfillment.  Example: A agreed to deliver a determinate car to B on Dec. 31. This is an indivisible obligation because it is not subject to partial performance.

25.  ART. 1224. A joint indivisible obligation gives rise to indemnity for damages from the time anyone of the debtors does not comply with his undertaking. The debtors who may been ready to fulfill their promises shall not contribute to the indemnity beyond the corresponding portion of the price of the thing or of the value of the service in which the obligationconsist. (1150) ART. 1225.For the purposes of the preceding articles, obligation to give definite things and those which are not susceptible of partial performance shall be deemed to be indivisible.

26. 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 indivisible. However, even though the object or service may be physically divisible, and 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. (1151a)

27. Obligations Deemed Indivisible – The general rule of determining the divisibility or indivisibility of an obligation depend on the purpose of the obligation. 1. Obligation to give definite things  Example: To give a particular house. Here the obligation is indivisible because of the nature of the subject matter. 2. Obligations which are not susceptible of partial performance  Example: A is obliged to sing a song. Here the obligation is indivisible by reason its purpose which requires the performance of all the parts.

28. Obligations Deemed Indivisible 3. Obligation provided by law to be indivisible even if thing or service physically divisible.  Example: Taxes should be paid within a definite period. Although money is physically divisible, the amount of tax payable must be delivered in Toto, not partially. 4. Obligations intended by the parties to be indivisible even if thing or service is physically divisible.  Example: The obligation of A to give P10, 000 to B on a certain date. Money is physically divisible by the clear intention ere for A to deliver the amount at on time and as a whole.

29. Obligations Deemed Divisible 1. Obligations which have for their object the execution of a certain number of days of work.  Example – A obliged himself to paint the house of B to be finished in 10 days. The obligation is divisible because it will not be finished in one time. 2. Obligations which have for their object the accomplishment of work by metrical units.  Example: A obliged himself to deliver 25 cubic meter of sand. 3. Obligations which by their nature are susceptible of partial performance  Example The obligation of A to pay a debt of P10, 000 to B in ten (10) monthly installments.

30.  Section 6 – Obligations with a Penal Code ART. 1226.In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of interests in case of non-compliance, 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. (1152a)  Meaning of Penal Clause –  An obligation with a penal clause is one which contains an accessory undertaking to pay a previously stipulated indemnity incase of breach. It is attached to obligations in order to insure their performance.

31. Purpose of a Penal Clause 1) To insure the performance of the obligation. 2) To substitute for indemnity for damages and the payment of interest in case of non-compliance of the principal obligation. 3) To penalize the obligor in case of breach of the principal obligation.

32.  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. (1153a)  Debtor Cannot Substitute Penalty For the Principal Obligation – The general rule is that the debtor is not allowed to just pay the penalty instead of fulfilling the obligation. He can do so if the right has been expressly reserved. The reason is that if he can just pay, fulfillment of the obligation will be considered an alternative one. The word expressly means that any implied reservation is not allowed.

33.  ART. 1228. Proof of actual damages suffered by the creditor is not necessary in order that the penalty may be demanded.  ART. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. (1154a)

34. When Penalty May be Reduced by the Court – a) When the obligation has been partly complied with by the debtor; b) When the obligation has been irregularly complied with by the debtor c) When the penalty is iniquitous or unconscionable, even if there has been no performance at all.

35.  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 the penal clause. (1155)  Effect of Nullity of Penal Clause – The general principle that the accessory follows the principal. If only the penal clause is void, the principal obligation remains valid and demandable. The penal clause may be disregarded.  Example:  A agreed to sell merchandise to B. it is provided in their agreement that in case of default, A will deliver a prohibited drug as penalty. Here, the obligation to sell merchandise is valid by the penalty to deliver the prohibited drug is void. For failure of A to comply with the obligation, B may recover damages

36. Chapter 4: Extinguishment of Obligations General Provisions ARTICLE 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 resolutory condition, and prescription, are governed elsewhere in this Code.

37. Chapter 4: Extinguishment of Obligations In addition, the following also extinguish obligations: 1.Compromise 2.Happening of a fortuitous event 3. Death of a party in personal obligations 4.Impossibility of fulfillment 5.Mutual desistance

38. SECTION 1: Payment or Performance ARTICLE 1232. Payment means not only the delivery of money but also the performance, in any other manner, of an obligation. Payment means the delivery of money or thing (in obligations to give), the doing of a thing (in obligations to do) or the desistance from doing something (in obligations not to do.) Performance means that the parties to the contract have done that which they agreed to do. The possibility of non-performance should be anticipated when drawing up contract terms and conditions.

39. How payment is made: 1. In a monetary obligation, by the delivery of the money in full. 2. In an obligation to deliver a thing or an object, by the delivery of the thing or object. 3. In an obligation to do something, by the performance of the supposed undertaking. 4. In an obligation not to do something, by desisting or refraining from doing the forbidden undertaking.

40. ARTICLE 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. ARTICLE 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee.

41. ARTICLE 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.

42. ARTICLE 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.

43. ARTICLE 1237. Whoever pays in 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. ARTICLE 1238. Payment made by a third person who does not intend to be reimbursed by the debtor is deemed to be a donation, which requires the debtor’s consent. But the payment is in any case valid as to the creditor who has accepted it.

44. In Articles 1236 to 1238, it is a third person who pays or performs the obligation of the debtor. In Articles 1236, it is stated that the creditor is not bound to accept payment or performance by a third person who has no interest in the fulfillment of the obligation. But if the parties stipulated otherwise, meaning the creditor shall accept payment or performance even if made by a third person who has no interest in the obligation, then that stipulation shall supervene.

45. Effects of Payment 1. When a third person pays the creditor without the knowledge or against the will of the debtor, said third person can recover only up to the extent that the payment benefited the debtor. Illustration: A owes B P100,000 payable on Sep. 20,2002. C a third person, pays B P100,000 without the knowledge of A. C did not know that A had previously paid B P30,000. Although the payment of C and B was for P100,000, C (the third person) can only recover from A (debtor) P70,000, the amount that benefited A. The exception in Article 1236, 2 nd paragraph applies.

46. Effects of Payment 2. When a third person, on behalf of the debtor, pays the creditor without the knowledge or against the will of the debtor, said third person cannot compel the creditor to subrogate him in his rights, such as those arising from mortgage, guaranty or penalty. Illustration: A owes B P100,000 payable on June 13, 2002. C is the guarantor of A. On due date, D paid B P100,000 against the will of A. Later, A cannot reimburse D. Can D ask B to subrogate him in his right so that D can proceed against C, the guarantor? No, because the payment by D (third person) to B (creditor) was made against the will of A (debtor). Therefore, D cannot compel B to subrogate him in his right arising from guaranty.

47. Effects of Payment 3. When a third person who pays the creditor does not intend to be reimbursed by the debtor, the payment shall be deemed to be a donation. Legal Effect of Creditor’s Acceptance Payment made by a third person who does not need to be reimbursed by the debtor is deemed to be a donation. It being so, consent of the debtor is required. But with or without consent of the debtor, the payment shall be valid to the creditor who has accepted the same.

48. Illustration: A owes B P100,000. C offered to pay B the debt as C tells A that he (A) need not reimburse him (C). A consented to C’s offer and B accepted C’s payment. Here, since A consented to the generosity of C, C later cannot anymore ask reimbursement from A. The payment is deemed a donation. On the other hand, if A did not consent to C’s generosity, the latter can ask reimbursement from A because A was benefited by C’s payment. With or without the consent of the debtor to the donation, the payment is nevertheless valid as to the creditor accepts it. As to whether reimbursement is proper or not, Article 1238 shall govern.

49. ARTICLE 1239. In obligations to give, payment made by one who does not have the free disposal of the thing due and capacity to alienate it shall not be valid, without prejudice to the provisions of article 1427 under the Title on Natural Obligations. ARTICLE 1240. Payment shall be made to the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to receive it

50. ARTICLE 1241. Payment to a person who is incapacitated to administer his property shall be valid if he has kept the thing delivered, or insofar as the payment has been beneficial to him. Payment made to a third person shall also be valid insofar as it has redounded to the benefit of the creditor. Such benefit to the creditor need not be proved in the following cases: (1) If after the payment, the third person acquires the creditor’s rights; (2) If the creditor ratifies the payment to the third person; (3) If by the creditor’s conduct, the debtor has been led to believe that the third person had authority to receive the payment.

51. Thank you for listening !!! :)