AE 35
Obligation and Contracts
Activity No. 7
I. Definitions
Define or give the meaning of the following:
1. Divisible obligation;
 Divisible obligation is one the object of which, in its delivery or
performance, is capable of partial fulfillment. (Article 1223).
2. Indivisible obligation;
 Indivisible obligation is one the object of which in its delivery or
performance, is not capable of partial fulfillment. (Article 1223).
3. Legal indivisibility.
 Legal indivisibility is where a specific provision of law
declares as indivisible, obligations which, by their nature, are
divisible. (Article 1225).
II. Discussions
1. Explain: The divisibility of an obligation is different from the divisibility of
the thing which is the object thereof.
 According to Article 1223, the divisibility of an obligation refers
to the performance of the obligation which constitutes the object of the
obligation, means if it the obligation itself can be performed partially.
While, the divisibility of the thing talks about the object itself, if it can be
shared proportionally.
2. What obligations are deemed indivisible?
 According to Article 1225, obligations are deemed indivisible when:
a) Obligations to give definite things.
- It is based on the nature of the subject matter.
Example: To give a specific car.
b) Obligations which are not susceptible of partial performance.
- When the performance should be performed one time as a whole.
Example: To sing a song in a concert.
c) Obligations provided by law to be indivisible even if thing or service is
physically divisible.
- Obligations are deemed indivisible if the law states that the obligation is
indivisible even though, by their nature, they are divisible.
Example: Payment of tax.
d) Obligations intended by the parties to be indivisible even if thing or
service is physically divisible.
- When the parties wants the obligation should be indivisible or performed
one whole at a time.
Example: Luffy to give 23,000 to Garp on January 2, 2021.
3. What obligations are deemed divisible?
 According to Article 1225, obligations are deemed divisible when:
a. Obligations which have for their object to execution of a certain number
of days of work.
Example: Renovating a mansion.
b. Obligations which have for their object the accomplishment of work by
metrical
units.
Example: Usopp, Luffy, and Ace oblige themselves to deliver 600 gallons
of water.
c. Obligations which by their nature are susceptible of partial performance.
Example: The obligation of Ed Sheeran to performs a three-night concert.
III. Problems
Explain or state briefly the rule or reason for your answer.
1. A and B bind themselves to pay C their loan of P10,000 on a certain date. Is
the obligation divisible or indivisible?
 Indivisible, because according to Article 1225, obligations become
indivisible when they performed it, one whole at a time. In this case, the
debtors will perform their obligation on the same date.
2. A, B, and C oblige themselves jointly to deliver to D a particulars horse on a
certain date. The agreement among A, B, and C which was made known to D is
that they will contribute the amount in buying the horse. The horse was not
delivered on the due date because of the failure of B to give his share of the
purchase price. State the rights and obligations of the parties.
 According to Article 1224, since the debtors did not comply with the
obligation on time, their obligation, which is to deliver the horse will
converted into one for damages, meaning that they would pay money. A
and C are liable to give their shares to D, but they are not liable for the
shares of B. However, B is liable to D and he should pay damages and
the price of his shares to D.
3. D finds himself to pay his loans of P10,000 in four equal monthly
installments. Is the obligation of D divisible or indivisible?
 Divisible, according to Article 1225, obligations which by their
nature are susceptible of partial performance or installments
are considered as divisible. However, the payment for each
installment of P2,500 is considered indivisible.
Activity No. 8
I. Definitions
1. Obligations with a penal clause
 one which contains an accessory undertaking to pay a previously
stipulated indemnity in case of breach.
2. Penal clause
 an accessory undertaking attached to an obligation to assume greater
liability in case of breach.
3. Joint penal clause
 both the principal obligation and the penal clause can be enforced.
II. Discussions
1. What are the purposes of incorporating a penal clause to an obligation?
 According to Art.1226, penal clauses are incorporated to obligations to
insure their performance (to make the consequence of breach as onerous
as possible) and to substitute penalty for indemnity for damages
and payment of interests in non-compliance. The main purposes are
reparation and punishment.
2. In what cases may the debtor validly object to the enforcement of the
stipulated penalty?
 According to Art.1227, debtor may object the enforcement of
penalty if there is performance on his part or if the creditor already
required fulfillment of obligation.
III. Problems
1. X promises to deliver to Y a specific horse. Their contract contains a penal
clause that in case of non-fulfillment, X shall pay a penalty of ₱ 10,000. X
wants to just pay the penalty instead of delivering the horse. Has Y the right
to refuse to accept the penalty in lieu of the horse? Explain.
 Yes. In Article 1227, the debtor cannot exempt himself from the
performance of the obligation by just paying the penalty. Thus, X is not
allowed to do the accessory obligation without doing the principal
obligation (to deliver the horse) since the penalty is just an accessory
obligation.
2. In the same problem, X was able to show that Y did not suffer any damage
by X's violation of his obligation. Can Y still enforce the penalty?
 Yes. Article 1228 states that proof of actual damages suffered by the
creditor is not necessary in order that the penalty may be demanded. All
the creditors must prove that the debtor violated his obligations.
Therefore, Y has the right to enforce penalty since X violated his
obligation even though he did not suffer any damages.
Activity No. 9
I. Definitions
Define or give the meaning of the following:
1. Payment
 Payment means not only the delivery of money but also the performance,
in any other manner, of an obligation. (Article 1232).
2. Dation in payment
 Dation in payment (adjudication or dacion en pago) is the conveyance of
ownership of a thing as an accepted equivalent of performance. (Article
1245).
3. Application of payment
 Application of payment is the designation of the debt to which should be
applied the payment made by a debtor who has various debts of the
same kind in favor of one and the same creditor. (Article 1252).
4. Payment by cession
 Payment by cession is the assignment of abandonment of all the
properties of the debtor for the benefit of his creditors in order that the
latter may sell the same and apply the proceeds thereof to the
satisfaction of their credits. (Article 1235).
5. Consignation
 Consignation is the act of depositing the thing or amount due with the
proper court when the creditor does not desire or cannot receive it, after
complying with the formalities required by law. Consignation is
applicable when there is a debt or an obligation to pay. It is always
judicial and generally requires a prior tender of payment which is, by its
very nature, extrajudicial. (Article 1256).
II. Discussions
1. May an obligor recover although there has been no strict and complete
fulfillment by him of his obligation?
 Yes, the obligor may recover, because according to Article 1233 and
Article 1234, the obligor may recover even though there has been no
strict and complete fulfillment by him of his obligation, as long as he
substantially performed the obligation and if the obligor has performed in
good faith.
2. What must be delivered when the obligation consists of:
a) the delivery of a specific thing?
 According to Article 1244, when it refers to real obligation to deliver a
specific thing, the obligor cannot demand the creditor to
receive a different one even though it has the same value or more
valuable than the original, the debtor cannot substitute it without the
creditor’s consent. While, when it refers to personal (positive and
negative) obligations, the act to be performed or act prohibited
to be performed cannot be substituted another act against the
obligee’s will.
b) the delivery of a generic thing?
 When the delivery of a generic thing, according to Article
1245, substitution for the payment is allowed, whereby property is
alienated to the creditor in satisfaction of a debt in money.
3. When is partial performance of an obligation allowed?
 According to Article 1248, partial performance is allowed:
a) When there is an express stipulation to that effect
b) When the debt is in part liquidated (definitely and determined or
computed) and in part unliquidated.
c) When the different prestations in which the obligation consists are
subject to different terms or conditions which affect some of them. In
obligations which comprehend several distinct prestations, it is evident that
the prestations need not be executed simultaneously but each
successive execution thereof must be complete.
4. What must a debtor do to be released from his obligation if the creditor
refuses to accept payment without any justifiable reason?
 If the creditor refuses to accept payment without justifiable reason, the
debtor can be released from his obligation by the consignation of the
thing. According to Article 1257 and Article 1258, when the debtor
made the consignation, he should give the payment to the court
since the consignation must be made with proper judicial authority and
next, the interested parties must be informed about the consignation.
5. Give the requisites of payment by cession. What rights are acquired by the
creditor in this form of payment as distinguished from dation on payment?
 According to Article 1255, there are 4 requisites of payment by cession,
(1) there must be two or more creditors, (2) the debtor must
be partially insolvent, (3) the assignment must involve all the
properties of the debtor and (4) the cession must be accepted by the
creditors.
 In dation of payment, the creditor becomes the owner of the thing given
by the debtor, while in payment by cession, the creditor only acquires the
right to sell the thing of the debtor and get the proceeds to their credits
proportionally.
III. Problems
Explain or state briefly the rule or reason for your answer.
1. D (debtor) owes C (creditor) P10,000 with G as guarantor. On the due date of
the obligation, T, a third person, offered to pay the obligation of D. Can C
legally refuse to accept the payment? How about an offer of payment from G?
 Yes, C can legally refuse to accept the payment of T, because according
to 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. Since T,
which is the third person is not involve in the obligation, C can refuse his
payment unless there is an agreement that he can accept payment from
third person.
 Meanwhile, Yes, C can accept the payment from G, since G acts as the
guarantor, he is involved in the obligation. Again, as stated in Article
1236, unlike in T which is the third person who does not have any
interest in the obligation, G has interest in the fulfillment of the
obligation, therefore C can accept payment from him.
2. M (maker) issued a promissory note for P10,000 in favor of P (payee) who
lost the note which was found by T who demands payment from M. M did not
know that the note was lost by P. Is M justified in paying T?
 Yes, according to Article 1242, payment in good faith to any person in
possession of the credit shall release the debtor. Since the promissory
note is in the possession of T, and it is payable to bearer or holder, the
obligation will be extinguished if M pay T, and it will be under the
payment in good faith. After the payment to T, M is not liable anymore to
pay P.
3. D owes C P10,000 which was paid by T who demands reimbursement from
D.
a) when is D liable to T?
 D is liable to T for reimbursement when the payment of T is performed
with the knowledge and consent of D. In here, according to Article 1237,
if the payment has the approval of D, T would be entitled not only to full
reimbursement, but also to subrogation.
b) when is D not liable to T?
 D is not liable to T for reimbursement when the payment made by T is
out for generosity and not for reimbursement. According to Article 1238,
the payment who does not intend to be reimbursed by the debtor is
deemed to be a donation. In this case, D will not be liable to T and his
obligation is extinguished.
c) when is D liable for less than P10,000 to T?
 According to Article 1236, D is liable for less than P10,000 to T if the
payment was made without the knowledge or against the will
of the debtor. In this case, T, which is the payer, T can only recover the
payment that has been beneficial to D. For example, in this case, T paid
P10,000 to T without the knowledge of D, but D already paid 6,000 to C,
then T is only entitled for reimbursement for the amount of P600,
because that is the only amount that benefit D. However, T can still
recover the P4,000 from C, who should not accept it in the first place.
d) May D be liable to T for P12,000 if that was the amount paid by him to C?
 According to Article 1236, if the payment was made without
the knowledge of the creditor, the third person can only reimburse the
amount that has been beneficial to him, in this case, T can only
reimburse the P10,000 from D, while the P2,000 excess payment can be
recovered from C by T. However, if the payment was made with the
consent of the debtor, in Article 1237, it states that the payer
will have the right to reimbursement and subrogation and to
recover what he has paid but not necessarily the amount of the debt.
4. D owes C P10,000. Without the knowledge of C, D in good faith paid to
T his obligation to C. Is D required by law to prove that the payment has been
received by C in order to be released from liability?
 Based on the Article 1241, D is not required any more to prove the
payment from C because he already benefited in the payment. It is
also not necessary when T already acquired the rights of C
against D, or C already ratified or subsequently consented to the
payment of T.
5. D owes C P10,000 in payment for which C accepts a check from D. On the
ground that a check is not legal tender, C later insists that D pay him in cash.
Is D justified in rejecting this demand of C?
 Yes, according to Article 1249, the creditor can choose to
accept the check, without the acceptance producing the effect
of payment. In the meantime, the demand ability of the original
obligation is suspended. It was also mentioned that even though C
accepts the check, there is still no payment considered, therefore, D is
not yet released from his obligation. However, until the check has been
honored by the bank, C cannot demand the payment of the obligation
until the check is dishonored.
Activity No. 10
I. Definitions
Define or give the meaning of the following:
1. Legal impossibility
 Legal impossibility occurs when the obligation cannot be
performed because it is rendered impossible by provision of law,
although physically it may be possible of performance. (Article
1266).
2. Loss of a thing
 Loss of a thing is understood when it perishes, or goes out of commerce
or disappears in such a way that its existence is unknown or it cannot
be recovered. (Article 1262).
3. Difficulty of a performance
 Difficulty of a performance is when the performance of the service has
become so difficult as to be manifestly beyond the contemplation of both
parties, the court is authorized to release the obligor in whole or in part.
(Article 1267).
II. Discussions
1. Give two (2) cases when a person may be released from an obligation validly
entered into.
 First case is in Article 1266, wherein a person may be released from an
obligation to do when the prestation becomes legally or physically
impossible without the fault of the debtor.
 Second case was stated in Article 1267, it states that a person may be
released from an obligation when the service has become so difficult as to
be manifestly beyond the contemplation of the parties, the obligor may be
released in whole or in part.
2. Give the cases when loss of the specific thing to be delivered will not exempt
the obligor from liability even in the absence of fault or delay.
 According to Article 1262, the obligor will not be exempted from the
liability due to the loss of the thing even there is an absence of fault or
delay when it was stated by the law, when it was stated in the
stipulation, when the nature of the obligation requires the assumption of
risk and when the obligor deliver a specific thing that arises from a
crime.
3. Will partial loss of the specific thing to be delivered extinguish the
obligation? Explain.
 As stated in Article 1264, the courts will determine if the partial
loss of the specific object of the obligation is so important as to
extinguish the obligation. There are some cases when the partial loss is
when only the portion of the thing is lost or destroyed or when it suffers
depreciation. In case of partial loss, the court will decide whether the
partial loss is such as to be equivalent to a complete or total loss.
III. Problems
Explain or state briefly the rule or reason for your answer.
1. X obliged himself to deliver to Y a specific carabao to Y on July 31. The
carabao died on July 25. Y has no proof that X was negligent. Is X liable to Y?
 Yes, according to Article 1265, when the thing is lost in the possession of
the debtor, it was presumed that the loss was his fault unless he shows
proof. In this case, even though Y were not able to show proof that X was
negligent, it was presumed that it was X’s fault since it was in his
possession when the specific carabao died, unless he proves the contrary
to the presumption of Y.
2. X obliges himself to deliver a specific thing to Y on a certain date. The thing
was lost by X without his fault and before he was incurred in delay. Does it
mean that X is already exempt from liability?
 Yes, X is already exempt from liability. According to Article
1262, when a determinate thing is lost or destroyed without the fault
of the debtor, and before he incurred delay, the obligation shall be
extinguished. In this case, even though X lost the specific thing, he is not
liable since the specific thing lost without his fault and he has not yet
incurred delay.
3. Suppose in the preceding problem, the thing was lost through the fault of Z,
a third person. State the effect of the loss as far as X, Y, and Z are concerned.
 According to Article 1269, the creditor shall have the all the rights of
action which the debtor may have against third persons by reason of the
loss. In this case, X will be extinguished in the obligation and he will not
be held liable, but he cannot go after Z also. However, Y which is the
creditor, will have the right to bring an action against Z, the third party,
to recover the price of the specific thing together with the damages.
Activity No. 11
I. Definitions
1. Condonation or remission of debt
 the gratuitous abandonment by the creditor of his right against the
debtor. It is thus a form of donation.
2. Inofficios remission
 when the remission given is more than that which the creditor can give
by will.
II Discussion
1. Give the requisites in order that a condonation or remission of debt may be
valid.
 According to Art. 1270, for condonation or remission to be valid, the
following requisites must concur: the existence of a demandable debt,
renunciation of the debt is purely gratuitous, acceptance of the
condonation or remission by the debtor, formalities required by law on
donation must be complied with, what has been condoned or remitted
must not be in officious.
2. When is condonation or remission of debt considered inofficious? What is
the remedy of the party adversely affected thereby?
 According to Art. 1270, if the condonation or remission made by the
creditor is excessive or inofficious, it may be totally revoked or reduced
depending on whether or not it is totally or only partially inofficious.
III Problems
Explain or state briefly the rule or reason for your answer.
1. D (debtor) borrowed money from C (creditor) evidenced by a promissory note
signed by D.
a) What presumption arises if:
The promissory note is voluntarily given by C to D?
 The presumption is that C is renouncing his right from the credit.
It is found in the possession of D?
 The presumption is that it was voluntarily delivered by C.
b) when will the presumption of remission arise?
 The presumption is that it was voluntarily delivered by C
2. Suppose in the same problem, the debt of D, aside from being guaranteed by
G, is secured by a pledge of a certificate of shares of stock delovered by D to C.
What presumption arises f:
a) the debt of D is condoned by C?
 When the debt of D is condoned by C, the accessory obligation together
with the principal will both be extinguished.
b) the certificate is later found in the possession of D?
 It is presumed that only the accessory obligation of pledge, which is the
certificate, is remitted, not the obligation itself. D shall continue to be
indebted but does not have to return the thing pledged.
Activity No. 12
I. Definitions
Define or give the meaning of the following:
1. Confusion
 Confusion takes place in the person of any of the latter does not
extinguish the obligation. (Article 1276). Confusion and merger is the
meeting in one (1) person of the qualities of creditor and debtor with
respect to the same obligation. (Article 1275).
2. Merger
 Merger which takes place in the person of the principal debtor or creditor
benefits the guarantors. (Article 1276). Confusion and merger is the
meeting in one (1) person of the qualities of creditor and debtor with
respect to the same obligation. (Article 1275).
II. Discussion
1. What is the rationale behind confusion or merger as a mode of extinguishing
an obligation?
 According to Article 1275, the reason behind confusion or merger as a
mode of extinguishing an obligation is if a debtor is his own
creditor, enforcement of the obligation becomes absurd since a person
cannot claim payment from himself.
2. Give the effect of merger when it takes place:
a. In the person of the principal debtor or creditor
 According to Article 1276, the effect of merger when it takes place in the
person of the principal debtor or creditor is it extinguishes the obligation.
The accessory obligation is also extinguished in accordance with
the principle that the accessory follows the principal
b. In the person of the guarantor of the principal obligation.
 According to Article 1276, the effect of merger in the person of the
guarantor of the principal obligation is that the extinguishment of the
accessory obligation does not carry with it that of the principal
obligation. Consequently, merger, which takes place in the person of the
guarantor, while it extinguishes the guaranty, leaves the principal
obligation in force.
III. Problems
Explain or state briefly the rule or reason for your answer.
1. A, B, and C are jointly liable to D in the amount of P15,000. Subsequently, D
assigned his credit to C in consideration for goods sold by C to D. Give the
effect of the assignment.
 According to Article 1277, confusion does not extinguish a joint
obligation. C who is originally a joint debtor, becomes the creditor.
Therefore, A and B are now liable to him for their share of P5,000 each.
2. Assuming the obligation of A, B, and C is solidary, distinguish the effect of
the assignment from the first problem.
 According to Article 1277, merger in person of the solidary
debtors shall extinguish the entire obligation because it is also a
merger in the other solidary debtors. And it also states that the one who
makes payment may claim reimbursement from his co-debtors for the
shares which correspond the. Therefore, the solidary obligation of A,
B, and C to D is extinguished. While C can still ask for
reimbursement from A and B of their share in the obligation of Php 5,000
each.
Activity No. 13
I. Definitions
Define or give the meaning of the following:
1. Compensation
 Compensation is the extinguishment to the concurrent amount of debts
of two persons who, in their own right, are debtors and creditors of each
other. (Article 1278).
2. Legal compensation
 Legal compensation is when it takes place by operation of law even
without the knowledge of the parties. (Article 1278)
3. Facultative compensation
 Facultative compensation is when it can be set up only by one of the
parties. (Article 1278).
II. Discussion
1. What are the distinctions between confusion and compensation as modes of
extinguishing an obligation?
 According to Article 1278, confusion involves only one person who is a
creditor and debtor himself. While in compensation, there are two or
more persons involved, each of whom is a debtor and a creditor of the
other.
2. In what way is compensation similar to payment?
 According to Article 1289, compensation is similar to payment in a way
due to the fact that application of payments can be applied to
compensation.
3. May there be compensation although the things due are not consumable?
Explain.
 No, because according to the Article 1279, paragraph 3, compensation
will only take place if both debts consist in a sum of money, or of
consumable things of the same kind and quality.
4. When may compensation take place when only one of the debts is due?
 According to Article 1279, the compensation will not take place when the
debts are not due on the same date, however, in this case for example,
X’s due date is this week, while Z’s due date is next month, if the due
date of Z came and X is not yet paid during that date, there will be
compensation on that date.
III. Problems
1. D borrowed P50,000 as character loan (no security) from a bank. Despite
demands for payment after the loan fell due, D did not pay the bank. Has the
bank the right to apply the deposit of D to the payment of his debt?
 Yes, according to Article 1287, a bank has a right of set-off of the
deposits in its hands for the payment of any indebtedness to it on the
part of a depositor. In this case, the bank may apply the deposit to the
payment of D’s debt.
2. D owes C P10,000 payable on November 20. C owes D P10,000 payable on
October 20. Can compensation also take place although the debts are not
payable on the same date?
 No compensation may take place, according to Article 1279,
compensation cannot take place when the debts are not due on the same
date. However, if C are not yet able to pay D on the due date of D’s
obligation which is on November 20, a compensation will take place on
that date.
Activity No. 14
I. Definitions
Define or give the meaning of the following:
1. Novation
 Novation is the total or partial extinction of an obligation through the
creation of a new one which substitutes it. (Article 1291)
2. Mixed novation
 Mixed novation is when the object and/or principal conditions of the
obligation and the debtor or the creditor, or both parties, are
changed. It is a combination of real and personal novations.
(Article 1291)
3. Expromision
 Expromision or that which takes place when a third person of his own
initiative and without the knowledge or against the will of the original
debtor assumes the latter’s obligation with the consent of the creditor.
It logically requires the consent of the third person and the creditor.
(Article 1293)
4. Delegacion
 Delegacion or that which takes place when the creditor takes place when
the creditor accepts a third person to take place of the debtor at the
instance of the latter. The creditor may withhold approval. (Article 1293)
II. Discussion
1. Give the requisites of novation.
 According to Article 1292, the four requisites of novation are a previous
valid obligation, the capacity and intention of the parties to
modify or extinguish the obligation, the modification or
extinguishment of the obligation and the creation of a new obligation.
2. When there is subrogation, what rights are acquired by the new creditor?
 According to Article 1303, all rights and actions are
transferred to the new creditor that could have been exercised by the
former creditor either against the debtor or against third persons, be they
guarantors or mortgagors.
3. In novation, give the effect where:
a. The new obligation is voidable;
 According to Article 1297, if the new obligation is voidable, the novation
can take place. But the moment it is annulled, the novation
must be considered as not having taken place, and the
original one can been forced, unless the intention of the parties is
otherwise.
b. The old obligation is voidable. Explain.
 According to Article 1298, if the old obligation is voidable, the novation
cannot take place because there is nothing to novate in the first place.
However, if the original obligation is only voidable or if the voidable
obligation is validated by ratification, the novation is valid.
4. In novation, are accessory obligations necessarily extinguished? Explain
 No, as stated on Article 1296, when the principal obligation is
extinguished inconsequence of a novation, accessory obligations may
subsist only insofar as they may benefit third persons who did not give
their consent. But if a third person is affected by the accessory in the
original obligation, it will not be extinguished without his consent.
III. Problems
1. T (third person) tells C (creditor) that T will pay the debt of D (debtor). C
agrees. Is D released from his obligation to C?
 Yes, D will be released from his obligation to C, since according to Article
1293, novation which consists in substituting a new debtor in the place
of the original one, can be made even without the debtor’s consent as
long as with creditor’s consent. Andin this case, C and T agreed that T
will be the one who will pay D’s debt. Therefore, D will be released from
his obligation as debtor.
2. Suppose in the above problem, D proposed to C that T would substitute D as
the new debtor to which C agreed. Is D still liable to C in case of insolvency of
T?
 No, according to Article 1295, the insolvency of the new debtor will not
revive the action of the latter against the original debtor. Except, when
the time he delegated the debt, T is already insolvent and D knows about
it, D will be held liable.